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.

• 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.

• Coal stronger for longer is making Indo Tambangraya Megah (ITMG IJ) a significant value investment with 40% of the market cap in cash and 2.5x PE FY22 after going ex-dividend. 
• The company continues to churn out 6-7% of the market cap in cash every month, with coal prices at Newcastle over 300$/ton (current spot at 350$/ton).
• Paying out >70% of its profits, the company trades at a 25% dividend yield at the very least, with a normalized yield of 10% at a 130-150$/ton coal price. 

• GoTo (GOTO IJ) reported 3Q2022 results on Monday. Gross revenue increased 30.4% YoY to IDR5.9trn while adjusted EBITDA (losses) dropped to 81.3% of net revenues vs 289% in 3Q2021.
• There has been notable improvement in the company’s earnings (decline in losses in particular) driven by huge cost cuts on promotions which helped reduce losses.
• However, cutting down promotions/marketing costs could lead to drop in top line growth and market share.

• In Mar 2022, GoTo raised around US$1bn from what was essentially a domestic Indonesian IPO. Its pre-IPO shareholders will be released from their lockup soon.
• GoTo was formed in May 2021 as a result of a merger between two of Indonesia’s largest unicorns Gojek, leading player in ride hailing, and Tokopedia, leading e-commerce player.
• In this note, we will talk about the upcoming lockup expiry.

We view Alam Sutera (ASRI) as “High Risk” on the LARA scale, given the company’s refinancing risk amid the challenging financing environment. ASRI’s pre-sales have been soft, which is a concern for rating agencies. We also note the group’s asset concentration and cash-flow volatility. The company was highly reliant on land sales to key partner CFLD until 2021, when CFLD defaulted on debt. Execution risks are increasing due to ASRI’s shift away from developing townships to high-rise buildings.

The company has very low recurring income compared to peers. That said, it has a large and low-cost land bank that is bigger than most peers’. The land bank has high potential value, and could be a source of liquidity, supporting high margins for the business. Positively, ASRI’s successful cash tender offer in October 2022 has alleviated refinancing risk. It now has no significant maturities until 2025.

We maintain our “Stable” Credit Bias, as we expect the company’s operations to remain satisfactory, with some positive FCF, and no significant maturities until 2025.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”.

• Selamat Sempurna (SMSM IJ) remains one of the best quality Indonesian industrial companies, as the leading auto and heavy equipment filter producers for both OEM and the aftermarket.
• The company booked a strong set of 9M2022 results, with sales up +21% YoY and net profit increasing +30% YoY, driven by both domestic and export markets.
• Selamat Sempurna (SMSM IJ) maintains it FY2022 target for 15% sales and profits growth for FY2022, which looks conservative after the performance at 9M stage despite potential global headwinds.

• Privy has 30M+ verified users and 1,800 enterprise consumers and processes 40M+ digital signatures per year.

• Jakarta-based digital signature and identity company Privy has secured US$48 million in a Series C funding round.
• Privy will use the capital to support the development of its new consumer and enterprise products. The company also intends to expand into overseas markets to accelerate growth further.

• In this 3Q22 Indonesian banks screener, we rate Bank Negara as our key value pick with its very attractive valuations including PEG ratio and its improving cost of risk trends
• We continue to also favour Bank Mandiri, but, in the wake of the share price re-rating, it is our secondary value pick to Negara
• Bank Rakyat has delivered improved returns in 3Q22, and shows signs of “turn around” potential; we look for management to improve credit quality and especially the Special Mention Loans Ratio

• Bloomberg reported on Friday that GoTo (GOTO IJ) is planning to cut more than 1k jobs across all its divisions to cutdown its costs and improve its financials.
• Though GoTo’s top line has continued to expand, the company continues to burn cash and the losses have further widened during the recent quarters.
• GoTo’s shares rose 11.7% during Friday’s trade, however, share price is still down by about 45%  from the company’s IPO price.

• Prodia (PRDA IJ) is a stand out amongst Indonesia’s healthcare players given it is the only company in Indonesia with accreditation from the College of American Pathologists. 
• 3Q2022 reflected a normalisation of the testing business towards routine testing but at higher levels, and with a greater variety of tests with more advanced levels of digitalisation. 
• Prodia (PRDA IJ) stands out in terms of its strong market positioning and track record together with attractive valuations, especially versus Indian peers in the diagnostic space.