J.P.Morgan Reiterate JCI target of Rp7,800 for YE22

J.P.Morgan note that “he Indonesia equity market (JCI) was down 6% over 9-10 May 2022 (EM/AxJ down ~4%), post the 10-day extended Lebaran holiday, with several large-cap names limit down (-7%) on Monday amid the global market correction on multiple investor concerns including Fed rate hikes, inflation, and slowing global growth. Nonetheless, we don’t see much in the way of country-specific concerns for Indonesia, as our bull thesis stems from the commodity supercycle (current a/c surplus) and reopening of the economy, which remains intact. The strong Q122 GDP growth print of +5.0% Y/Y (despite Omicron semi-lockdown and record-high cases in Feb ‘22) seems to be overlooked (private consumption getting back on its feet), along with the Newcastle coal price jumping 23% in the past week to US$377/ton. The Q122 results season so far has showed encouraging earnings beats in Indonesia, led by Commodity-related players and Banks, with upward earnings revisions by the street likely in the cards. Balancing inflation management and trade policy (export ban for CPO or Coal) will be a big task for the Government and will be closely monitored by the market, in our view. We remain overweight Financials, Energy, and Conglomerates, and would use the recent correction to buy on dips. For investors looking for portfolio hedges, we prefer Healthcare (better-than-expected non-Covid pickup) and Telco (improving competition outlook post consolidation) over Staples (margin pressure from rising input cost)”

• “What could go wrong for Indonesia? 1) Rupiah weakness. IDR has depreciated ~1.5% vs. the USD in the past 2 weeks. Continued weakness would have a negative impact on both consumer and business confidence, and would likely erode margins for producers for import materials. 2) Bond yields. The 10-Year Indonesia Government bond yield recently spiked to 7.4% (from 6.8% a month ago), which will have a negative impact on equity valuation as the risk-free rate continue to go up. 3) Inflation. April-2022 inflation rose to +3.5% Y/Y (Mar: +2.6%), but overall still decent as energy sources like fuel remain heavily subsidized by the Government (RON88, RON90), which can afford it thanks to strong commodity windfall.”