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.

• Agung Podomoro Land

• Ultrajaya Milk Industry & Trading saw continued growth momentum in 1Q2022 both for its core UHT milk business (No.1) and its carton tea business as mobility restrictions were lifted.
• The company also sources more of its milk requirements locally, which means less exposure to imported milk power but prices there have started to come off. 
• Management remains optimistic that the company can achieve double-digit growth this year plus it has increased ASPs by +3% in April. Valuations at a discount to staple peers. 

• GoTo (GOTO IJ) completes 20 trading days today. Based on the average price over the period and the last close, the stock meets the Fast Entry criteria for IDX30/LQ45/IDX80 inclusion.
• Using a free float of 66%, we estimate passive trackers buying 5.42bn shares (US$74m) of GoTo (GOTO IJ). Announcement could come in a few days with implementation at month-end. 
• With the real float close to 4%, passive trackers will need to buy 11.6% of the real float and the stock could move higher in the short-term.

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.

• AAC Technologies Holdings
• Greenko Energy Holdings
• Yuzhou Group

We view Perusahaan Gas Negara (PGN) as “Low Risk” on the LARA scale, mainly due to its indirect SOE status. PGN is 57% owned by Pertamina, which is in turn fully owned by the Indonesian government through the Ministry of State-Owned Enterprises. PGN is the dominant player in Indonesia’s natural gas transmission and distribution sector, with a near monopoly over the country’s gas pipelines. As a utilities company, PGN plays a key role in ensuring the supply of affordable gas for end-consumers and helping the country transition to cleaner energy (and away from coal).

Our assessment also considers PGN’s robust standalone financial and leverage profile. That said, the company faces declining pricing power and its margins could weaken, due to the government’s price cap on natural gas sales to industrial consumers. The PGASIJ bond has a Change of Control put at 101, in the event the government ceases to own at least a 51% stake in the company.

Our fundamental Credit Bias is “Stable”, considering PGN’s healthy financial profile and strong liquidity. Moreover, the high oil price environment would benefit its upstream operations (under Saka Energi). That said, the company faces a debt maturity wall in May 2024, when the USD 1.35 bn PGASIJ 5.125 24 and USD 405 mn SAKAEI 4.45 24 will come due.

We initiate coverage of PGN with a “Hold” recommendation.

• Leading dairy and premium foods player Cisarua Mountain Dairy continued to demonstrate its resilience during 1Q2022 despite some omicron disruption, and rising pressure from raw materials.
• Growth will be driven this year through capacity expansion and a focus on expanding distribution channels, especially through general trade and Miss Cimory MCM. 
• Management remains confident in the growth outlook and will potentially raise prices in 3Q2022 to offset inflationary pressures although powdered milk prices have already stabilized. Top consumer staples pick.

• Axiata Group (AXIATA MK) has convened an EGM on the 26 May to vote on its proposed acquisition of Indonesian broadband play Link Net (LINK IJ).
• The vote, which for all intent and purposes is a rubber stamp, is one of the SPA conditions to acquire 66.03% of LINK. 
• Trading at a gross/annualised spread of 7.1%/22.3%. Get involved here.

• XL Axiata (EXCL IJ) results were encouraging with +8% revenue growth driven by data (95.5% of service revenues), with stable ARPUs and price competition easing during 1Q2022.
• The march towards being truly converged continues with the completion of the Link Net acquisition giving it a significant leg up and due for completion on 27th May.
• XL Axiata remains our top pick amongst Indonesia’s telcos, with the highest exposure to data and Indonesia’s headlong growth into all things digital and compelling valuations.

• Mitra Keluarga Karyasehat released 1Q2022 results recently which reflected a changing patient mix with less COVID-related patients and a recovery in its core patient business. 
• Hospital occupancy is rising whilst Mitra Keluarga is also increasing bed numbers but margins have been impacted by changing patient mix but this is a positive long-term trend.
• Mitra Keluarga Karyasehat (MIKA IJ) remains a key proxy for rising healthcare penetration in Indonesia, with valuation attractive from a historical basis. 

• The Axiata Group (AXIATA MK) EGM to approve the ordinary resolution relating to the proposed acquisition of Link Net (LINK IJ) shares and the proposed MTO is on 26 May. 
• The proposed acquisition is targeted to be complete by 2Q and the subsequent MTO at IDR4,800 per share will complete by 3Q.
• At the last close, the gross and annualised spread to the MTO price for a 3Q completion is 7.1% and 11.7%, respectively.

• Hiding spots that are coming under pressure –  Indonesia’s JKSE just cracked key support that makes the USD/IDR one of the last holdouts to see a big USD move.
• USD/IDR bull triangle breakout unfolding with risk of a big USD short squeeze.
• USD/MYR break above 4.50 would increase odds of devaluation and a more painful USD move in Asian FX. A huge pivot level to watch.

Jababeka has delivered acceptable FY 2021 results, with slight revenue and earnings increases. The financial risk profile improved slightly, but remained weak with elevated leverage and thin coverage ratios. Liquidity is adequate for the next 12 months. The strong FY 2021 and Q1/22 marketing sales will likely support decent growth in revenue and earnings from the Real Estate pillar.

However, the key concern remains refinancing risk for the USD 300 mn 6.5 2023 notes that will mature in October. The company announced in late July 2021 that it plans to buy back the 2023 notes, with the intention of issuing USD 350 mn in new notes to fund this transaction. No further details were provided, and Jababeka has not released an update in this regard.

• 4Q21 performance lifted by year-end sales festivities: 4Q21 revenue grew 5.9% QoQ to IDR98.1bn, primarily due to a 7.2x QoQ surge in advertising revenue as eCommerce platforms spent big on OOH media during year-end sales promotions.

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. Sunac China Holdings
2. Kawasan Industri Jababeka
3. Kwg Property Holding
4. Tata Steel Ltd
5. China Jinmao Holdings

and more…

• PT Nippon Indosari Corpindo (ROTI IJ) released an impressive set of 1Q2022 results with higher wheat prices being offset by price rises plus greater operational efficiencies.
• Modern trade saw an especially strong recovery in 1Q2022 but general trade also saw good growth and continues to hit record highs.
• PT Nippon Indosari Corpindo (ROTI IJ) management remains optimistic on the outlook for 2022, with guidance for +15% growth in sales together with improving margins. 

This month, we provide an update on the developments in the Oil & Gas sector following Russia’s invasion of Ukraine.

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the “In-Focus” section. 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.

• Gajah Tunggal
• Times China