Business

Analysis: Jakarta jitters:
Currency sensitivity study

There are three reasons why we think the Indonesian rupiah (IDR) was the region’s weakest 2012 performing currency, down 6.2 percent against the US dollar (USD).

BI did not really intervene in a big way, and with the shallow Foreign Exchange (FX) market, even the slightest pick-up in demand managed to weaken the IDR.

There are concerns on widening deficit given higher oil prices. We find that the main culprit to Indonesia’s deficit is fuel subsidies (i.e. oil imports), which we expect to reach US$30 billion this year, up from $24 billion in 2012.

Redenomination of the IDR. We find that older Indonesians are nervous about this, fearing that the worth of the IDR will diminish, and opting for property or dollar purchases.

In 2013, we have seen continued IDR volatility with the IDR testing the 9,900 level earlier this month according to Bloomberg’s data. However, with foreigners being net buyers of around $258 million in the stock market year-to-date, the IDR has managed to appreciate around 2.6 percent since its weakest point.

Going forward, in order to assist investors to better handle IDR gyrations, we have conducted sensitivity analysis on all 74 non-financial companies under our coverage (exhibit 1). Assuming the recent trend in stronger IDR will persist, market EPS growth will improve.

On the market as a whole, our study shows that every 1 percent IDR appreciation beyond our average base case assumption of IDR9,450, non-financial stocks will book higher market EPS by 1.6 percent, reflecting 10.7 percent y-y growth from 9.0 percent currently (ceteris paribus).

In an IDR appreciating environment, dollar earners in general have the tendency to suffer. Based on our analysis, metal, plantation and coal-related counters would be hurt most (bottom of exhibit 1) with Aneka Tambang (ANTM-REDUCE-IDR1,420-TP:IDR1,000), Timah (TINS-REDUCE-IDR1,740-TP:IDR1,000), Salim Ivomas (SIMP-BUY-IDR1,290-TP:IDR1,200), Sampoerna Agro (SGRO-HOLD-IDR2,550-TP:IDR2,400), Astra Agro (AALI-BUY-IDR19,950-TP:IDR25,000) and United Tractors (UNTR-REDUCE-IDR21,450-TP:IDR17,000) rounding up the worst five performing stocks within our coverage. Hence, in general, we have a continued negative view on commodity-related stocks.

Our top winners in an appreciating IDR setting (top of exhibit 1) are stocks with high USD unhedged loans: Delta Dunia (DOID-HOLD-IDR250-TP:IDR160), Indosat (ISAT-HOLD-IDR6,900-TP:IDR6,700) and Bakrie Plantations (UNSP-REDUCE-IDR100-TP:IDR85).

In aggregate, these three counters have some $3 billion debt, 14 percent of total debt under our basket of stocks. With high interest expense eroding earnings of these three companies, we point investors to other strong IDR beneficiaries: Consumer companies with more stable earnings such as Indofood Consumer Branded Products (ICBP-BUY-IDR8,000-TP:IDR8,600) and Tempo Scan (TSPC-BUY-IDR3,525-TP:IDR3,950).

Amid FX movements, investors can find comfort in the following 12 counters due to their USD accounting: Adaro Energy (ADRO-REDUCE-IDR1,690-TP:IDR1,120), Borneo (BORN-REDUCE-IDR550-TP:IDR480), Bumi Resources (BUMI-REDUCE-IDR650-TP:IDR500), Bayan Resources (BYAN-REDUCE-IDR9,000-TP:IDR3,800), Garuda Indonesia (GIAA-BUY-IDR650-TP:IDR900), Harum Energy (HRUM-REDUCE-IDR6,150-TP:IDR4,800), Vale Indonesia (INCO-REDUCE-IDR2,850-TP:IDR2,000), Indika Energy (INDY-REDUCE-IDR1,540-TP:IDR1,250), Indo Tambangraya (ITMG-REDUCE-IDR41,900-TP:IDR29,750), Medco Energi (MEDC-HOLD-IDR1,570-TP:IDR1,660), Perusahaan Gas Negara (PGAS-BUY-IDR4,575-TP:IDR5,500) and Wintermar Offshore (WINS-BUY-IDR425-TP:IDR630). Apart from these, we advise investors to seek shelter in selective telco, property, media and infra-related plays like Telekomunikasi Indonesia (TLKM-**-IDR9,100-TP:**); Bumi Serpong Damai (BSDE-BUY-IDR1,272-TP:IDR1,600), Ciputra Property (CTRP-BUY-IDR650-TP:IDR770), Surya Citra Media (SCMA-BUY-IDR2,225-TP:IDR2,475) and Jasa Marga (JSMR-BUY-IDR5,550-TP:IDR7,000).

The writer is head of research/senior vice president of PT Bahana Securities

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