With the Indonesian economy going strong year-to-date (ytd), UOB Kay Hian analyst Adrian Loh and the Singapore research team have identified the sectors and Singapore Exchange S68 (SGX)-listed counters that could benefit from the country’s economic strength.
“After the peak of Covid-19, Indonesia has recovered strongly with the country recording above-consensus 1Q2023 GDP growth of 5.03% as well as a very strong 16% y-o-y growth in total investment for the quarter,” says the team in its June 8 report.
“In addition, consumer confidence continued its revival in the latest April 2023 readings while May 2023’s inflation of 4.0% was lower m-o-m versus 4.3% in April 2023,” it adds.
Furthermore, the rupiah has been outperforming its regional peers and the Jakarta Composite Index has outpaced its peers in Asia Pacific (APAC) in US dollar (USD) terms on a ytd basis as well, notes the team.
Sectors and stocks to watch
The sectors to look out for, according to Loh and the team, are consumer, commodity, healthcare tourism, plantation and marine-related counters.
Within the consumer sector, the team has identified Delfi Limited P34 , Jardine Cycle & Carriage C07 and Singapore Telecommunications Z74 (Singtel) as their picks.
About 70% of Delfi’s revenue is from Indonesia, and with its record-high ebitda of US$25.5 million ($34.1 million) for the 1QFY2023 ended March 31, the team says it remains “bullish” about the company’s growth prospects in the country.
“[Delfi] has a dominant market share in Indonesia, and we forecast its Indonesian revenue to grow 10% over FY2023 – FY2025. Delfi’s share price should continue to outperform given its healthy balance sheet, positive operating cash flow and a consistent dividend payout ratio,” says the team.
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Meanwhile, Jardine Cycle & Carriage is exposed to Indonesia’s automotive sector through its subsidiary Astra and its joint venture (JV), Tunas Ridean. However, the team believes that the higher interest rates could be a key negative factor going forward.
Singtel is a consumer play due to its ownership of Indonesian telco Telkomsel, which has a 73% market share in fixed broadband in Indonesia.
Geo Energy has benefitted from Indonesian demand for coal which has risen by a compound annual growth rate (CAGR) of 5% over the 2011 - 2021 period, versus flat global demand during the same period, says the team.
Meanwhile, RH Petrogas has been able to grow its oil production at a steady pace of around 5% per annum (p.a.) in the past few years in contrast to Indonesia’s oil production which has declined at a CAGR of 3% over the same period, it adds.
In healthcare tourism, Loh and the team like Raffles Medical BSL as a large part of its hospital segment revenue – which makes up 30% of its total revenue – comes from Indonesian healthcare tourists. “With unfettered air and sea travel now the norm, this should underpin our 25% y-o-y revenue growth forecast for the company’s hospital segment,” says the team.
Another play in this sector is LHN 41O as its new serviced residences is close to Mount Elizabeth hospital in Singapore.
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For plantation stocks, the team is recommending investors accumulate on their share price weakness. This is also so that they can position for the recovery in crude palm oil (CPO) prices due to lower-than-expected supply growth.
“Regardless of the severity of El Nino in 2023, we still expect the dry weather that palm oil-producing countries are experiencing to be the straw that breaks the camel’s back. This is due to the continuous disruption caused by: three years of La Nina (high rainfall), flooding in some estates, and a lack of fertiliser application over the last three to four years. These have affected fresh fruit bunch (FFB) yields and will continue to do so until 1H2024,” says the team.
“Thus, we recommend investors to accumulate plantation companies − especially upstream companies with high beta to CPO prices − once their share prices weaken and when the expected weak 1H2023 results are announced,” it adds.
Finally, marine-related stocks are also a sector to watch, says the team. Within the sector, the team is recommending Marco Polo Marine 5LY , which has a shipyard in Batam, which makes up about 30% of the company’s FY2022 shipbuilding revenue. The company also has a shipping business which has seen an increase in both charter rates as well as utilisation rates due to Indonesia’s robust economic performance coming out of the peak of the pandemic, says the team.
Looking ahead, the team sees “still-robust” GDP growth from Indonesia in 2023 although UOB Global Economics & Markets Research (UOBGEMR) expects the country to undergo a slight downwards taper in GDP growth at 5.0% amid the macroeconomic challenges.
“This is still a remarkable feat, given that Indonesia has grown 5.3% in 2022, and ranks second in 2023 GDP growth among large Asian economies, only behind India (5.4%), but still ahead of the global average of 1.9%,” says the team.
Among the stocks mentioned, the team’s top picks are Delfi, Marco Polo Marine and Raffles Medical. UOB Kay Hian has rated “buy” on all three companies with respective target prices of $1.71, 6.0 cents and $1.90 respectively.
As at 3.28pm, shares in Delfi, Marco Polo Marine and Raffles Medical are trading at $1.21, 5.5 cents and $1.31 respectively.
