What are good stock picks in 2017? According to Maybank Kim Eng Securities, those listed companies on the Indonesia Stock Exchange that are set to see a good performance this year are Indofood Sukses Makmur (consumer goods), Telekomunikasi Indonesia (telecommunications), Astra International (automotive), Bank Rakyat Indonesia (banking) and Jasa Marga (toll roads). All are key blue chips with a long history in Indonesia. Lets take a quick look why these shares are advised by Malaysia-based Maybank Kim Eng.
But first, lets take a look at the macroeconomic picture of Indonesia in 2017. Overall economic growth in Indonesia is expected to continue accelerating this year to 5.3 percent year-on-year (y/y), from an estimated 5.0 percent (y/y) in 2016 and a growth realization of 4.8 percent (y/y) in 2015.
Inflation, which was very modest for Indonesian standards at 3.0 percent (y/y) in full-year 2016, is also expected to rise in 2017, primarily due to administered price adjustments of the central government. Indonesia's consumer price index may accelerate to around 4.5 percent (y/y) this year. However, despite some inflationary pressures, people's purchasing power is expected to improve in Indonesia in 2017 (also supported by recovering commodity prices). Strengthening purchasing power implies that household consumption in Indonesia should grow.
Meanwhile, the lower interest rate regime of Indonesia's central bank (Bank Indonesia) implies that individual and corporate credit demand in Indonesia should rise in 2017. This will support business expansion as well as property and car sales.
The Indonesian rupiah exchange rate may experience some pressure in 2017 as US president-elect Donald Trump could implement policies - including tax cuts and protectionist trade measures - that can lead to a stronger US dollar. Overall, the global economic outlook remains plagued by uncertainties. However, Indonesia's economic growth relies more on domestic consumption than on international trade.
Indofood Sukses Makmur, part of the Salim Group, is a huge Indonesian company that has operations in each stage of Indonesia's food manufacturing process. It is known as Indonesia's largest food processing company and, allegedly, the world's biggest producer of instant noodles. Almost all Indonesian households purchase products that are produced by Indofood and thus it can rely on a loyal consumer base. Indonesia's rebounding purchasing power will support improving corporate earnings of Indofood.
Telekomunikasi Indonesia (Telkom), a state-controlled firm, is Indonesia's largest telecommunication and network provider with a market share of around 50 percent in terms of mobile phone subscribers in Indonesia. Although growth in voice and SMS revenue is stagnating in Indonesia, there is still much to be won in the data services (broadband services) and value added service segments considering smartphone and Internet penetration are rising rapidly in Indonesia. The government is also eagerly expanding the broadband network across the country (Palapa Ring project) that - as a side effect - will support corporate earnings of this company.
Astra International is one of Indonesia's largest diversified conglomerates that is present in nearly all sectors of the Indonesian economy. However, the automotive industry is still the one that contributes most to the company's earnings. Over the past three years car sales have been bleak in Indonesia amid weaker purchasing power and falling commodity prices. Considering interest rates have come down, purchasing power improves and commodity prices have found their way up, car sales should improve in 2017 and therefore boost the earnings of Astra.
Bank Rakyat Indonesia is one of Indonesia's leading commercial banks and the country's second-largest lender by assets. Credit growth had fallen in recent years amid the country's economic slowdown (and after the central bank had implemented high interest rates in 2013-2015 in a bid to combat high inflation, support the fragile rupiah exchange rate and tackle the wide current account deficit). However, 2016 was the year of sharp monetary easing in Indonesia with the benchmark interest rate falling from 7.75 percent to 4.75 percent and therefore credit growth should get a boost in 2017.
5. Jasa Marga
Jasa Marga is a state-controlled toll road operator that constructs and operates toll roads in Indonesia. Due to its proximity to the government and the latter's push for toll road development on Java, Sumatra, and Kalimantan, Jasa Marga is in a position to benefit significantly and able to expand its toll road network.