Out of the 45 listed companies under Bahana's coverage (76 percent of the IDX's total market cap), 13 companies have not reported their financial results for the third quarter of 2009.
Four companies (Bank Negara Indonesia, Indofood Sukses Makmur, London Sumatera and AKR Corporindo) are undergoing limited reviews, and in accordance with the capital market regulations have until end-November to report their data.
By sector, there are noticeable absences from the commodity counters (seven out of 13): coal (Bumi Resources, Indo Tambangraya Megah, Indika Energy, Bayan Resources), plantations (Bakrie Sumatra Plantations, London Sumatera) and oil & gas (Medco Energi International).
Thus far, the market as a whole has booked Q3 year-on-year operating profit growth of 14.1 percent, down from 20.3 percent in Q2 and 22.6 percent in Q1.
Once the rest of the companies report their earnings, we believe the Q3 growth rate would further weaken as many of these companies are dollar earners which do not benefit from the strength of the rupiah.
In line with weakening operating earnings, Q3 net profit growth for the market decelerated to 26 percent y - y from 50.6 percent in Q2.
However, the market's bottom line outstripped operating profit growth helped by the strength of the rupiah which further appreciated to Rp 9,665 per US$1 at end-Q3 from Rp 10,208 at end-Q2.
Going forward, we expect mixed results with possible downside coming from the dollar earners and the consumer sector on greater advertising and promotions. On the flip side, we expect bright spots in banks and construction/infrastructure.
The JCI has risen 72 percent year-to-date, making it the second best performing market in the region, just behind Vietnam.
While the market has come off 5 percent in the past seven trading days to 2,344, the market is still trading on a 2010 price to earning (PE) ratio of 14.7x, which is not cheap given decelerating Q3 earnings. Thus, we retain our NEUTRAL market rating with our end-2009 bottom-up index target of 2,450.
The Good
On the back of bottom line distortions as a result of currency movements which resulted in foreign exchange gains/losses, we focus on sectors that have managed to book flat to positive y-y operating performances in the third quarter this year to classify as to what should fall in the "good" category.
In this regard, the telecommunication sector (read: Telkom Indonesia only as Indosat continued to perform poorly) has performed well booking Q3 y-y operating profit growth of 24 percent, up from just 3 percent in Q2, thanks to easing competition.
This is followed by the infrastructure/construction sector on the strength of Wijaya Karya and Jasa Marga.
On the plantations and oil & gas, both sectors benefited from volume growth. In the subsequent quarters, we expect these counters to be joined by banks on loan growth acceleration.
The bad
The bad sectors are those which reported deceleration in terms of y-y operating growth in Q3 compared to Q2 level with the exception of mining which experienced a slowdown in terms of net profit growth.
The cement sector is a new joiner in this sector on lower volumes caused by seasonality as Idul Fitri holiday moved to the third week of September.
Surprisingly, we are not seeing improvement on the consumer sector in spite of the strength of the rupiah.
We believe this weakness is caused by intense competition within the consumer sector.
On the coal sector, we are seeing continued deceleration on the weaker dollar and pricing. We have placed the mining sector here despite improvement at the operating level as their bottom line really suffered on the back of the strength of the rupiah.
In Q4, we expect these four sectors to remain in this category.
The ugly
This final category belongs to the sectors which booked decelerating y-y growth in their Q3 operating and net earnings.
Banks reported deterioration in earnings since Q3 (already in the bad category) due to lower net interest margins on the back of falling interest rates and slower loan growth.
On property, we continue to see weakness on commercial and office sectors. However, we expect both sectors to perform better in the subsequent quarters.
The writer is the senior vice president and head of research at Bahana Securities.
