Indonesia

In our inaugural Asian Monthly for 2024, we discuss the regional credit outlook for the year, with a focus on China, India, Indonesia as well as our favoured bonds. We also provide a review of 2023, including new Asian USD corporate bond issuances and defaults last year.

• The review period for the LQ45 Index ended on 29 December. The changes should be announced in the last week of January, becoming effective after the close on 31 January.
• Based on the index methodology, there could be up to 5 changes at the rebalance. Plus there will be capping changes for Bank Rakyat (BBRI) and Bank Central Asia (BBCA).
• The impact of passive trading will be higher on the deletions than the inclusions since lower liquidity stocks are replaced with higher liquidity stocks.

• PT Metrodata Electronics is Indonesia’s leading ICT distributor and one of the largest IT solutions & consulting companies, making it a play on growing digitalisation in the country.
• The company has seen strong demand from several sectors for its solutions & consulting business, most notably from banks for digital transformations, oil & gas, and telecoms 
• PT Metrodata Electronics is also seeing a strong rebound in its ICT distribution business, with its higher-margin solutions outperforming boosted by public sector growth. Valuations compelling on 8.7x FY2024E PER.

• Pyridam Farma (PYFA IJ) is acquiring Probiotec Ltd (PBP AU), a leading contract manufacturer and packer of prescription and OTC pharmaceuticals, complementary medicines, consumer health products, and FMCG.  
• Under the terms of the scheme, Probiotec shareholders will receive cash consideration of A$3.00 per share. This implies an equity value of ~A$251M for Probiotec and enterprise value of ~A$326M.
• The acquisition will add an attractive high-margin revenue stream to Pyridam. Through the acquisition of Probiotec, Pyridam will be capable to reach a wider market, thereby increasing its market share.

• • Criterium has signed a letter of intent to sell its 42.5% interest in Bulu for US$7.75 mm. • The company acquired the interest in Bulu for US$1.6 mm. • Criterium has previously announced a C$18.9 mm capital raise comprising a C$12.2 mm (~US$9 mm) convertible debt and C$6.7 mm (~US$4.5 mm) of new equity.

• • The completion payment by Criterium on the closing of the Mont d’Or acquisition has been reduced by 60% to US$4.5 mm. • Only US$4.1 mm will now be repaid to Mont d’Or debt holders on completing the acquisition (US$9.6 mm previously) with US$0.5 mm being written down (US$4.3 mm previously). • On completion of the acquisition, Criterium is expected to hold US$25 mm of debt and US$8 mm in cash (including US$4.5 mm of new equity) resulting in US$17 mm in net debt (excluding US$3.0 mm of Mont d’Or residual debt to be converted into equity in 2025).

• Prodia (PRDA IJ) remains Indonesia’s relatively undiscovered diagnostics leader, with a strong market position, long-term relationships with the medical community, and an increasingly digital edge through its MyProdia app. 
• The compamy continues to experience a high-base effect from COVID but has seen a dramatic increase in tests per visit as patients become increasingly helath conscious. 
• Prodia (PRDA IJ) is significantly cheaper than its Indian comparables, trading on half the valuation, despite being a high-quality player tapping into a large increasingly health-conscious population.

• Bank Mandiri (BMRI IJ) stands out from its SOE peers in the progress it has made in digitising its business through the Livin’ mobile app and KOPRA for corporate customers.
• The bank continues to outperform in terms of loan growth and risk management, which is reflected in a higher ROE and lower credit costs as LAR continue to decline.  
• Bank Mandiri should see a strong finish to the year well within guidance, with a healthy outlook for 2024 given its healthy capital position and competitive cost base. 

• Kalbe Farma (KLBF IJ) continued to experience a high post-COVID base effect in 3Q2023, with consumer habits shifting to leisure versus health plus there was a softening of consumer demand.
• The company also experienced higher raw material prices and higher operating expenses which depressed margins but expectations are for a recovery in margins in 4Q2023 and FY2024. 
• Kalbe Farma stands out as Indonesia’s largest pharmaceutical company with strong exposure to consumer health and nutritional products with rising health consciousness amongst Indonesians. Valuations do not reflect impending recovery.

• XL Axiata (EXCL IJ) continues to stand as the most direct way to play the data demand in Indonesia as well as being the most convergent of the listed telcos.
• Although it saw some seasonal slowdown in 3Q, the solid growth trajectory remains intact for this year with the completion of the Link Net restructuring driving convergence growth.
• XL Axiata (EXCL IJ) raised data prices again in November and will continue to ride the wave of price reparation over the coming quarters in a more rational pricing environment. 

• Indocement (INTP IJ) is trading close to 2-year lows, which seems unjustified given the ongoing recovery and a more positive outlook for FY2024. 
• The company continues to grow its distribution reach to satisfy demand from IKN in Kalimantan, smelters in Sulawesi, and East Indonesia, with acquired Semen Grobogan feeding Central Java. 
• Indocement (INTP IJ) continues to build on its sustainable credentials through the use of alternative fuels and reducing emissions and dust. Valauations are attractive trading on 6.8x FY2024E EV/EBITDA.

• GoTo senior management hosted an analyst call last week to provide further details on both the reasons behind the Tokopedia sale and the potential synergies and benefits of the move. 
• After the deal completes, GoTo will cede all management control but will receive a revenue stream from core GTV, which excludes digital products and certain big-ticket items.
• Plumbing for this deal effectively de-risks its exposure to e-commerce given it is not required to inject any new capital but it does take away future optionality on Tokpedia’s growth.