Strategy – Market outlook

January 2011

Danareksa Equity Research;telp:62-21-350-9888; fax: 350-1709; Jl. Medan Merdeka Selatan No 14; Jakarta 10110-Indonesia
Our economy is at the early stage of 7‐yr expansion

Economic cycle Production utilization
120 111
Indonesia EU Thailand USA
114
LEI (LHS)
108 90
108 CEI (RHS) 104 85
80
102 101
75
96 97
70
90 94
65
84 90 60
78 87 55

72 83
50

Mar‐03

Sep‐03

Mar‐04

Sep‐04

Mar‐05

Sep‐05

Mar‐06

Sep‐06

Mar‐07

Sep‐07

Mar‐08

Sep‐08

Mar‐09

Sep‐09

Mar‐10

Sep‐10
Apr‐92

Apr‐95

Apr‐98

Apr‐01

Apr‐04

Apr‐07
Oct‐90

Oct‐93

Oct‐96

Oct‐99

Oct‐02

Oct‐05

Oct‐08
Jan‐90

Jul‐91

Jan‐93

Jul‐94

Jan‐96

Jul‐97

Jan‐99

Jul‐00

Jan‐02

Jul‐03

Jan‐05

Jul‐06

Jan‐08

Jul‐09
Source: Danareksa Research Institute Source: CEIC 

Our economy is at the early stage of a 7‐year expansionary The Indonesian production utilization index has shown a
cycle, meaning higher sales revenues to come. consistent increase since 2009’s dip.

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Corporate growth and profitability

Earnings growth Profitability

Revenue growth ROAE Capex to sales

35%

30%

25%

20%

15%

10%

5%

0%
2007 2008 2009 2010F 2011F
Source: Danareksa Sekuritas Source: Danareksa Sekuritas

2007 core earnings growth was driven by resources. Since
2008,consumers and banks have taken the lead. The 19.2%
YoY core earnings growth forecast for 2010 bodes well for a
good year. Resources and cyclical stocks shall see faster
growth than other stocks next year. We estimate 25.1% YoY
earnings growth next year.
The ROE will continue to be robust at 25%, while the capex to
sales ratio is estimated to reach 12%. The fact that companies
are investing more suggests corporate optimism toward
future growth. Revenues are estimated to pick up next year
amidst economic recovery.

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Market risks shot up of late, but pose no concerns 

Indonesia government bond spread to treasury    Market risk volatility

% %
12.0 2.8
2.6
10.0
2.4
8.0 2.2
2.0
6.0
1.8
4.0 1.6
1.4
2.0 1.2
0.0 1.0

Mar‐10

May‐10
Dec‐09

Jan‐10

Feb‐10

Apr‐10

Jun‐10

Jul‐10

Aug‐10

Sep‐10

Oct‐10

Nov‐10

Dec‐10

Jan‐11
Mar‐09

Mar‐10
Sep‐08

Dec‐08

Jun‐09

Sep‐09

Dec‐09

Jun‐10

Sep‐10

Dec‐10
Source: Bloomberg, Danareksa Sekuritas Source: Bloomberg, Danareksa Sekuritas

Post the 2008 global crisis, the Indonesian government bond That has changed, steeply rising in Feb and Jun as confidence
yield spread to the Treasury has been on a declining trend, was rattled by fears that Europe’s debt crisis would worsen.
hitting a low in April 2010. Lately, there was pressure but still Recently, fear on inflation has pushed the market into higher
manageable. volatility.

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Trading value

Domestic vs. Foreign Foreign net buy/sell
Rp bn

6,461
Average Daily transaction (LHS) Foreign transaction (LHS) 7,000

5,917
Domestic Transaction (LHS) JCI Index (RHS)

4,922

4,811
Rp trn

4,497
4,140
5,000

3,839
3,794
9.0 3,900

3,090
8.0

2,694

2,617
3,700

2,602
7.0

2,030
1,990

1,974
3,000

1,815

1,794
3,500

1,524
1,460

1,345
6.0
3,300

925
868
5.0

824

833
747
467

322
1,000
4.0 3,100
3.0 2,900

‐445
2.0

‐562
‐1,000

‐895
2,700

‐1,160
1.0

‐1,652
‐2,008
0.0 2,500

‐2,515
‐2,656
‐3,000
Jan‐10
Feb‐10
Mar‐10
Apr‐10
May‐10
Jun‐10
Jul‐10
Aug‐10
Sep‐10
Oct‐10
Nov‐10
Dec‐10
3‐Jan‐11
4‐Jan‐11
5‐Jan‐11
6‐Jan‐11
7‐Jan‐11
10‐Jan‐11
11‐Jan‐11
12‐Jan‐11

‐3,118

Jan‐11 ‐3,601
‐5,000

Mar‐08

Mar‐09

Mar‐10
May‐08

May‐09

May‐10
Jan‐08

Jul‐08

Sep‐08

Nov‐08

Jan‐09

Jul‐09

Sep‐09

Nov‐09

Jan‐10

Jul‐10

Sep‐10

Nov‐10
Source: IDX Source: IDX

The JCI has risen by 1,000 points from its low in February Foreign players were net sellers of Rp2.5trn or around
2010. Daily trading remains high, averaging around Rp4.5trn US$400mn in January 2011. Yet from Jan‐Dec 10, foreign
per day, or about US$502mn. Trading activities are dominated players were net buyers of around US$2.4bn, with the largest
by locals rather than foreign players. net inflow in September 2010.

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JCI performance

JCI performance in 2010 Performance by sector
Indonesia 46.1 Hongkong 4.7
Thailand 40.6 Rusia 4.2
Philipphina 37.6
Malaysia 3.1
Rusia 23.2
Jepang 2.8
Korea 21.9
England 2.6
Malaysia 19.3
US S&P 2.3
India 17.4
US S&P 12.8 Korea 2.1
US Dow Jones 11.0 Singapore 1.7
Singapore 10.1 US Dow Jones 1.5
Taiwan 9.6 China 0.5
England 9.0 Taiwan ‐0.1
Hongkong 5.3 Thailand ‐1.3
Jepang ‐3.0 % Philipphina ‐3.9
China ‐14.3
Indonesia ‐4.0 %
‐20.0 ‐10.0 0.0 10.0 20.0 30.0 40.0 50.0 India ‐4.8

Source: Bloomberg Source: Bloomberg
‐6.0 ‐4.0 ‐2.0 0.0 2.0 4.0 6.0

YTD, the JCI has been the best performing index in the global, However with concern over inflation, Indonesia had a weak
followed by Philippine, Thailand and Malaysia start in 2011.

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JCI valuation – 12‐mth index target is 4,100, implying 16.3x 2011 PER

JCI valuation PER comparison

Market Current Next Year

Shanghai ‐ CSI200 13.6 11.4
Hong Kong ‐ Hang Seng 13.0 11.4
India ‐ Sensex 18.1 15.0
Jakarta ‐ JCI 14.0 11.8
Malaysia ‐ KLCI 15.5 13.9
Philippines ‐ PSEi 13.4 11.8
Singapore ‐ STI 14.9 13.5
Taiwan ‐TWSE 12.4 10.7
Thailand ‐ SET 13.3 12.1
  AVERAGE 14.2 12.4

Source: Danareksa Sekuritas Source: Bloomberg estimates

The market PE has re‐rated over the past 1 year and is Our market remains to trade within PER market average.
arguably likely to continue re‐rating ‐ albeit more slowly ‐ Despite the steep correction in the past week, JCI is still not
given greater earnings visibility and potential upside from considered cheap.
earnings revisions.

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Our bottom up stock pick

JCI valuation

Source: Danareksa Sekuritas

Our top picks, taking into consideration the momentum of higher commodity prices, include ADRO, UNTR, LSIP and BWPT.
Meanwhile, we also like INDF and GGRM given their exposure to domestic consumption. Other stocks we like are BBRI, INTP,
JSMR and ASRI. Among the smaller stocks, we like MASA.

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