Indonesia

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Adaro Energy
• China Vanke
• Hopson Development

• Indo Tambangraya Megah (ITMG IJ) dividend yield at an assumed 150 USD/ton price in FY23e ( FY22 px: 192 USD/ton) is over 20% (FY22 yield 25-28%).  
• Investors staying over FY22/FY23e will get 45-48% of the share price returned in dividends assuming a 70% payout ratio, and the company’s cash pile will be >1.5 bn USD.
• Coal prices have been softer recently, but the recent mining incident threatens a slower rebound in coal production from China. The company looks cheap at 3-3.5x PE FY23e.

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

In our view, Japfa Comfeed’s FY 2022 results were decent, considering the difficult operating conditions following two years of COVID-19, the high-cost environment (owing to geopolitical tensions) as well as heightened inflation. Revenue growth was reasonable, while profitability was under pressure. Credit metrics deteriorated, but remained modest. Liquidity continues to be weak, due to material short-term debt.

We expect better FY 2023 results. We believe that operating conditions will improve, with the surge in soft commodity prices gradually being passed through to the end-consumer. We project: [1] steady revenue growth of c. 10%; [2] stable margins (with room for upside, considering FY 2022 was a weak year); [3] that leverage will at least remain stable, or improve slightly; [4] that (EBITDA-Capex)/Interest should deteriorate, due to the expected higher capex in FY 2023 for continued capacity expansion.

We do not foresee any rating pressure. Japfa is rated B+ (stable) and BB- (stable) by S&P and Fitch, respectively.

• Astra International’s results reflected its exposure to commodities, especially coal, through heavy equipment and mining through United Tractors (UNTR IJ) but most divisions booked growth as the economy recovered.
• The company’s core auto and financing business made much more than half of its profits and also contributed to its growth with a slower performance from agri-business and construction.
• Astra International (ASII IJ) announced a generous 85%-dividend payout to reward investors for its coal exposure in 2022, implying a 10% dividend yield. Valuations remain significantly below historical averages.

• Arwana Citramulia released a solid set of numbers for FY2022 but we expect growth to continue for the next two years driven by new capacity in higher margin products.
• The company’s new capacity will be focused on expanding its porcelain tile business but it will also expand its higher-margin DigI UNO ceramic product, which will be positive for margins.
• Arwana Citramulia (ARNA IJ) remains a top-quality and high-growth industrial choice in Indonesia. Valuations are attractive with a single-digit PER and high teens EOS growth for the next two years.

• Kalbe Farma (KLBF IJ) revealed an indicative set of 2022 numbers, which fell slightly short of estimates due to product mix changes and inflationary pressure from higher input costs.
• Management guidance for 2023 looks more positive and implies stable margins in the coming year, with strong momentum across prescription drugs, consumer health, nutritionals, and logistics and less inflationary pressure.
• Kalbe Farma looks interesting with more positive expectations for earnings growth in 2023, coupled with valuations below its 5-year average forward PER.

• Matahari Department Store (LPPF IJ) continued to benefit from positive consumer sentiment at year-end after faltering in October, driving a solid finish to the year and decent annual growth.
• The company has resumed its store rollout for FY2023 with 12-15 new stores planned plus a new premium format, and the company’s omnichannel strategy achieving strong results.
• Matahari has rebranded itself and improved its merchandise mix with a push towards millennials and more affluent consumers. Valuations are attractive, with the added support of a 10% dividend yield.

• Pertamina Geothermal Energy (PGE) raised around US$600m in its Indonesia IPO. PGE is an Indonesian state owned power producer which utilizes geothermal energy to produce electricity.
• PGE currently manages 13 Geothermal Working Areas with a total capacity of 1,877 MW, of which 672 MW is owned by it, while 1,205 MW is via joint operations.
• In our previous notes, we looked at the company’s past performance and valuations. In this note, we talk about the deal dynamics ahead of its listing.

• Pertamina Geothermal Energy (PGEO IJ) priced its IPO at IDR875 per share to raise gross proceeds of IDR9.1 trillion (US$600 million). The shares will start trading tomorrow.
• We previously discussed the IPO in Pertamina Geothermal IPO: The Investment Case and Pertamina Geothermal IPO: Valuation Insights. 
• Peers have modestly re-rated and the IPO price continues to imply a discount to the median peer CY2023 EV/EBITDA multiple. Therefore, the IPO price remains attractive.

• GoTo (GOTO IJ)  announced last week that it is accelerating its profit targets and aims to achieve positive adjusted EBITDA by 4QFY2023, advanced by five quarters.
• The company also expects Group’s contribution margin to become positive within the first quarter of 2023 accelerated by four quarters compared to the company’s previous guidance.
• Having analyzed the company’s revenue and cost base, we think this is too much to ask for as aggressive cost cutting would lead to giving up future growth opportunities.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Alam Sutera Realty
2. China SCE
3. China Jinmao Holdings
4. Lifestyle International Holdings
5. Geely Auto

and more…

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Alam Sutera Realty
• Hopson Development

• Yesterday, Indonesia’s second largest coal mining business Adaro Energy (ADRO IJ) announced a buyback. This follows another buyback which ended in December 2022.
• The Sep21-Dec22 buyback bought back 1bn shares, but did not spend all the money allocated to the buyback. This new one might buy back a similar quantity.
• Looking at Real World Float is the right frame of reference. And the stock was at a recent low vs a Peer Basket.