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.

• Central China Securities
• Kawasan Industri Jababeka
• Sunac China Holdings

We view Medco Energi as “High Risk” on the LARA scale, owing to its limited size, somewhat short 1P and 2P reserve life, appetite for acquisitions, and moderate (albeit improving) leverage. The company has a history of negative FCF generation, due to acquisitions and heavy exploratory capex to increase reserve life. In addition, Medco’s earnings are exposed to oil-price volatility, though the risks are mitigated to a degree by its heavy use of fixed-price gas contracts. Positively, production cash costs are low, which reduces the break-even price. The company also appears to have good access to financing from domestic banks, as well as bond and equity markets.

Our fundamental Credit Bias on Medco is “Stable”. This is due to the continued high oil-price environment, which should support earnings and cash flow. Leverage has improved significantly since FY 2021. That said, we are cautious on the possibility of a substantial increase in the company’s capex over the next few years, or another significant debt-funded acquisition that could weaken its financial profile. Over the medium term, the credit profile should remain driven by the development of oil prices.

Controversies are “Immaterial”. While Medco is in the fossil fuel industry, we note that its O&G business segment is more heavily involved in natural gas, which has a lower carbon footprint than crude oil and coal. We expect gas demand to be well-supported over the next decade in the company’s key markets (Indonesia and Southeast Asia), as the region transitions away from coal. The company is also involved in renewable energy, which accounts for c. 30% of installed capacity for its power business. Overall, we view the ESG Impact on Credit as “Neutral”.

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. China SCE
2. Hopson Development
3. Sino-Ocean Group
4. Greentown China
5. China Jinmao Holdings

and more…

• A conversation with Bank Central Asia post results revealed some interesting near term and longer-term trends and initiatives as the economy recovers and it takes the brakes off lending.
• BIFAST for instant transfers 24-7 with lower fees will impact the bank’s fee income, although volume increases offset the impact plus BCA is gaining a share of transactions.
• Bank Central Asia‘s strategy is to follow its customers and enable their financial journey through connecting to an ever broader ecosystem. Valuations look more reasonable rolling into 2023.

• Aneka Gas is an interesting concept in that its product literally comes out of thin air given its position as Indonesia’s leading Industrial gas player with a 45% market share.
• The company provides investors with wide-ranging exposure to the Indonesian economy from industry to infrastructure, consumer goods, healthcare, and SME amongst others, which also reduces risk through diversity.
• Aneka Gas 9M2022 numbers reflected a change in revenue mix and demand for medical gas reduces post-COVID and other areas such as industry, retail, and infrastructure started to recover.

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.

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.

• Indika Energy
• Medco Energi

The Asia HY Trade Book for November 2022 includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds across Asia (ex-Japan) HY and crossover credits.

• Saratoga Investama Sedaya (SRTG IJ) is the leading listed investment company with stakes in a number of leading companies across sectors in Indonesia with some of the highest growth potential.
• Investments include stakes in Adaro Energy, Merdeka Copper Gold, Tower Bersama Infrastructure, Mitra Pinasthika Mustika, and Aneka Gas (AGII IJ), and a number of tech companies providing unique thematic exposure.
• Saratoga Investama Sedaya (SRTG IJ) provides a one-stop shop to get well-rounded exposure to high-growth areas of the Indonesian economy and to early-stage growth companies in the digital space.

• Indocement Tunggal Prakarsa (INTP IJ) has had a tough year with rising energy costs prompting price increases which impacted demand but 3Q2022 saw a strong rebound in sales growth.
• Margins remained under pressure but increasing prices and the use of alternative fuels are helping to offset the impact of energy costs and more recently coal prices have been declining. 
• Indocement continues to impress with its focus on sustainability, significantly beating on emissions and dust. Valuations look attractive versus history and with a potential recovery in earnings in 2023.

• Adaro Energy (ADRO IJ) continues to extract huge gains from increased production of coal and higher prices, hitting record levels of sales in 3Q2022 coupled with record margins. 
• There may be some ASP impact from greater domestic market obligation in 4Q but prices remain firm and production should easily make it if not beat guidance. 
• Adaro‘s efforts to diversify away from coal are bearing fruits with the construction of its aluminium smelter in Kalimantan already underway with Hyundai already signing an offtake MOU.  

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.

• Kawasan Industri Jababeka

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.

• Indika Energy
• Meituan

• Cisarua Mountain Dairy (CMRY IJ) remains one of Indonesia’s most interesting high-quality consumer staples companies, with strong brands in both premium dairy products and premium packaged foods. 
• The company grew total sales by 76% YoY for 9M2022, with dairy products growing 51% YoY and packaged foods by 125% YoY driven by increasing capacity to serve burgeoning demand. 
• Margins have been impacted by rising raw material prices but powdered milk prices have been falling which should mean margins recover but all the same 9M2022 net profit rose 1.5x.

• In Mar 2022, GoTo (GOTO IJ) raised around US$1bn from what was essentially a domestic Indonesian IPO. 
• GoTo has already burnt through the cash it raised from the listing and cash burn still remains high, while its cash balance is amongst the lowest in its peer set.
• At its current cash burn pace, the company will have to come to the markets again soon.