TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Currency sensitivity analysis: Winners, losers and safe havens
In the past month, the Indonesian rupiah, having depreciated by more than 5 percent, breaking the Rp 12,000 level, has been the worst performing currency in the Asian region (Table 1)
Change Size
In the past month, the Indonesian rupiah, having depreciated by more than 5 percent, breaking the Rp 12,000 level, has been the worst performing currency in the Asian region (Table 1). We think this is due to a combination of expected higher interest rates in the US as well as local concerns caused by political jitters and current-account deficit.
As we approach the July 9 presidential election, the most closely contested race since the Soeharto era, we expect the rupiah volatility to persist. Hence, to help investors better manage their stock portfolios, we have conducted a currency sensitivity analysis on all 80 non-financial companies under our coverage (Table 2 and Table 3).
For the market as a whole, net gearing reaches 20.2 percent with our analysis indicating that, for every 1 percent of the rupiah decline to our average base-case assumption of Rp 11,735 (year-end assumption: Rp 11,300), the overall earnings per share (EPS) of the non-financial stocks we cover would decline by 1.3 percentage points, reflecting 14.4 percent year-on-year growth from 15.7 percent currently, all things being equal.
Dollar earners generally benefit in a rupiah-depreciating environment. Based on our analysis, metal, plantation and coal-related stocks should benefit the most (Table 2). At this stage, apart from positive sentiment on the strong dollar, we continue to like plantations as we expect the El Nino weather pattern to materialize next month, resulting in crude palm oil (CPO) supply disruptions. Our top CPO pick is Astra Agro Lestari (AALI) due to its attractive maturity profile (around 14 years) and additional revenue stemming from CPO refinery expansion. On metals, our top picks are Vale Indonesia (INCO) on a higher average nickel price as well as Timah Persero (TINS), on the one-door tin export policy, through the Indonesia Commodity and Derivative Exchange (ICDX), lowering its cash cost.
Amid foreign exchange movements, we believe investors can find safety in the following 10 stocks due to their US dollar accounting (bottom of Table 2): Adaro Energy (ADRO), Austindo Nusantara Jaya (ANJT), Bumi Resources (BUMI), Garuda Indonesia (GIAA), Harum Energy (HRUM), INCO, Indo Tambangraya Megah (ITMG), Krakatau Steel (KRAS), Medco Energy (MEDC), Perusahaan Gas Negara (PGAS) and Wintermar Offshore Marine (WINS). Apart from these, we advise investors to seek shelter in selective consumer, telco and toll-road plays like Gudang Garam (GGRM), Telkom (TLKM) and Jasa Marga (JSMR), which should emerge relatively unscathed amid rupiah fluctuations.
Our top losers in a weaker rupiah setting (bottom of Table 3) are mostly stocks with high US dollar loans, with the exception of Supra Boga Lestari (RANC), which has been hurt due to its dollar cost and low-margin business. The other losers would be XL Axiata (EXCL), Indosat (ISAT), Japfa Comfeed Indonesia (JPFA) and AKR Corporindo (AKRA).
Happy trading!
The author is senior associate director and head of equities and research at Bahana Securities.
