Volatility in global market: market noise to persist

WEEKLY
market update
Oct 29 - Nov 2, 2018

PT OCBC Sekuritas Indonesia Indonesia

S&P 500, VIX, and Earnings Growth
Key updates
1. Spiking US stock markets volatility due to several negative
sentiments
2. Calmer JCI due to stable IDR in the midst of rising global
market volatility
3. JCI’s still expected to move sideways, only in a narrower
range
4. Best timing to build position in JCI? See the seasonality chart!
5. Important economic releases to watch this week: US jobs
data, China PMI, Indonesia CPI
6. Earnings release: BBCA, BBRI, HMSP, BBNI posted better than
expected Q318 result while BMRI and BBTN posted in-line
Q318 result
7. Coverage initiation on ZINC by OCBC Sekuritas reseach team

October 28, 2018 1

 U.S. MARKET VOLATILITY HAS SPIKED IN OCTOBER
S&P declined as volatility spiked VOLATILITY TO STAY FOR A WHILE
2950 50% • Global stock market, especially U.S. have been very volatile
recently, mainly due to rising uncertainties. Market’s being
knocked by several factors: earnings disappointment, fear of
40%
2900 rising rates in U.S., brewing conflict between Italy and
European Union over budget spending, criticism of Saudi
30%
Arabia after the killing of dissident journalist, worsening US-
2850
China trade-war, and finally worries of world growth losing
20% steam.
2800 • Though, S&P 500 earnings are up 24.8% so far, with 82% of
10% the companies that have reported beating estimates
according data from Earnings Scout.
2750 • Investors appeared more focused on recent negative
0%
sentiments despite the fact that major S&P companies
2700
earnings growth are beating estimates
-10% • We see that volatility will persist considering US mid-term
election date is getting closer with Democrats eyeing
2650 -20% environmental rollbacks if they win house
1-Oct 6-Oct 11-Oct 16-Oct 21-Oct

Volatility Chg % S&P

Sources: Bloomberg, Ruslee, Oct-26 18

October 28, 2018 2

 THANKS TO STABLE IDR
JCI seemed calmer due to stable IDR in the midst of spiking global volatility
2.5% 15300

15250
1.5% 1.3%
1.2%
0.9%
0.8% 15200
0.6%
0.5% 0.5%
0.4%
0.5%
0.1% 15150

Oct 10

Oct 11

Oct 12

Oct 15

Oct 16

Oct 17

Oct 18

Oct 19

Oct 22

Oct 23

Oct 24

Oct 25

Oct 26
Oct 2

Oct 9
Oct 1

Oct 3

Oct 4

Oct 5

Oct 8
-0.1% -0.1%
-0.5% -0.4% -0.4% 15100
-0.5% -0.5%
-0.7%

-1.2%
15050
-1.5%
-1.5%

-1.9% 15000
-2.0%
-2.5%
14950

-3.5% 14900
S&P 500 Return JCI Return IDR

Sources: Bloomberg, Ruslee, Oct-26 18

October 28, 2018 3

 JCI Technical View
JCI’s likely to move sideways in a narrower price range

JCI

JCI’s still moving in a narrow consolidation range

• Range: 5,600-5,870
• Watch 5,600 level as a critical support level

Sources: TradingView, Ruslee, Kristian OCBC Sekuritas; Oct 28 2018

October 28, 2018 4
 BEST TIMING TO BUILD POSITION IN JCI?
JCI: buying the dips, preparing for December Buying the dips in
November…
Based on 10 year
historical data,
November has always
been a good entry
point for investors
and traders as data
shows in the last 10
years JCI has always
giving positive return
in December

Sources: Stockbit, Kristian OCBC Sekuritas; Oct 28 2018

October 28, 2018 5
 IMPORTANT ECONOMIC RELEASES
Date & time Country Event Period Importance Prior Important releases
10/29 19:30 US United States Personal Income Sep M 85 0.30% • This week releases will be
10/29 19:30 US United States Personal Spending Sep M 85 0.30% dominated by US jobs data
10/30 6:30 JN Ja pa n Jobl es s Ra te Sep M 98 2.40% which will affect investors
10/30 21:00 US Uni ted States Conf. Boa rd Cons umer Confi dence Oct M 94 138.4 expectation on Fed Rates
• China’s manufacturing PMI
10/31 6:50 JN Ja pa n Indus tri a l Production MoM Sep P M 99 --
data’s also provide view of
10/31 19:15 US United States ADP Employment Change Oct M 88 230k
activity in the manufacturing
10/31 8:00 CH China Manufacturing PMI Oct M 87 50.8 sector and acts as an leading
10/31 JN Ja pa n BOJ Pol i cy Ba l a nce Ra te 31-Oct D 70 -0.10% indicator for the whole
10/31 8:00 CH Chi na Non-ma nufa cturi ng PMI Oct M 63 54.9 economy. When the PMI is
11/01 19:30 US United States Initial Jobless Claims 27-Oct W 98 -- below 50.0 this indicates that
11/01 21:00 US Uni ted States ISM Ma nufa cturi ng Oct M 95 59.8 the manufacturing economy is
declining and a value above
11/01 8:45 CH China Caixin China PMI Mfg Oct M 92 50
50.0 indicates an expansion of
11/01 20:45 US Uni ted States Ma rki t US Ma nufa cturi ng PMI Oct F M 90 --
the manufacturing economy.
11/01 11:00 ID Indonesia CPI YoY Oct M 90 2.88%
11/01 7:30 ID Indonesia Nikkei Indonesia PMI Mfg Oct M 90 50.7
11/01 7:30 JN Ja pa n Ni kkei Ja pa n PMI Mfg Oct F M 90 --
11/01 11:00 ID Indonesia CPI Core YoY Oct M 60 2.82%
11/01 11:00 ID Indonesia CPI NSA MoM Oct M 55 -0.18%
11/02 19:30 US United States Change in Nonfarm Payrolls Oct M 99 134k
11/02 19:30 US United States Unemployment Rate Oct M 89 3.70%
11/02 19:30 US United States Trade Balance Sep M 84 -$53.2b

October 28, 2018 Sources: Bloomberg, Ruslee, Oct-26 18 6

 RELEASED Q318 EARNINGS RESULTS
Released Earnings Result Oct 22-26 Notes
Date Company Ticker Period Actual Estimate Surprise
10/22/2018 Tanah Laut Tbk PT INDX IJ Q3 18 (4.95)
1. HMSP, BBCA, BBRI, BBNI reported better than
10/22/2018 Clipan Finance Indonesia Tbk P CFIN IJ Q3 18 20.18 expected Q3 result
10/22/2018 Asuransi Dayin Mitra Tbk PT ASDM IJ Q3 18 9.78
10/22/2018 Arthavest Tbk PT ARTA IJ Q3 18 5.51 2. BMRI, BBTN reported in-line Q318 results
10/22/2018 Nippon Indosari Corpindo Tbk P ROTI IJ Q3 18 18.48
10/22/2018 Bank Artos Indonesia Tbk PT ARTO IJ Q3 18 (2.85)
10/23/2018 Bank Pan Indonesia Tbk PT PNBN IJ Q3 18 34.49
10/23/2018 Bank Panin Dubai Syariah Tbk P PNBS IJ Q3 18 0.16
10/23/2018 Industri Jamu Dan Farmasi Sido SIDO IJ Q3 18 12.60
10/23/2018 Adi Sarana Armada Tbk PT ASSA IJ Q3 18 9.05
10/23/2018 BFI Finance Indonesia Tbk PT BFIN IJ Q3 18 24.48
10/24/2018 Lippo Cikarang Tbk PT LPCK IJ Q2 18 4,008.56
10/24/2018 Duta Pertiwi Nusantara Tbk PT DPNS IJ Q3 18 12.76
10/24/2018 Adira Dinamika Multi Finance T ADMF IJ Q3 18 478.11
10/24/2018 Kedaung Indah Can Tbk PT KICI IJ Q3 18 2.80
10/24/2018 Vale Indonesia Tbk PT INCO IJ Q3 18 0.00 0.003 (12.80)
10/24/2018 Bank Dinar Indonesia Tbk PT DNAR IJ Q3 18 0.94
10/24/2018 Jasa Marga Persero Tbk PT JSMR IJ Q3 18 99.98 53.84 85.70
10/24/2018 Lippo Karawaci Tbk PT LPKR IJ Q2 18 44.53 6.83 551.90
10/25/2018 Bank Rakyat Indonesia Persero BBRI IJ Q3 18 70.24 67.43 4.20
10/25/2018 Pelat Timah Nusantara Tbk PT NIKL IJ Q3 18 0.00
10/25/2018 Mahaka Radio Integra Tbk PT MARI IJ Q3 18 14.36
10/25/2018 Indonesia Pondasi Raya Tbk PT IDPR IJ Q3 18 7.60
10/25/2018 Danasupra Erapacific Tbk PT DEFI IJ Q3 18 2.38
10/25/2018 Pelayaran Tempuran Emas Tbk PT TMAS IJ Q3 18 (18.07)
10/25/2018 Bank Danamon Indonesia Tbk PT BDMN IJ Q3 18 107.11 114.61 (6.50)
10/25/2018 Bank Harda Internasional Tbk P BBHI IJ Q3 18 (0.10)
10/25/2018 Bank Central Asia Tbk PT BBCA IJ Q3 18 287.45 277.915 3.40
10/25/2018 Unggul Indah Cahaya Tbk PT UNIC IJ Q3 18 0.03
10/26/2018 Sampoerna Agro PT SGRO IJ Q3 18 44.19
10/26/2018 Bank of India Indonesia Tbk PT BSWD IJ Q3 18 9.84
10/26/2018 Bank Permata Tbk PT BNLI IJ Q3 18 7.32
10/26/2018 Bank Pembangunan Daerah Jawa B BJBR IJ Q3 18 45.27
10/26/2018 Bank Rakyat Indonesia Agroniag AGRO IJ Q3 18 0.71
10/26/2018 Bank Yudha Bhakti Tbk PT BBYB IJ Q3 18 0.53
10/26/2018 Bank Tabungan Negara Persero T BBTN IJ Q3 18 76.66 76.47 0.20
10/26/2018 Emdeki Utama PT MDKI IJ Q3 18 6.88
10/26/2018 Hanjaya Mandala Sampoerna Tbk HMSP IJ Q3 18 30.76 28.96 6.20
10/26/2018 Inter Delta Tbk PT INTD IJ Q3 18 4.90
October 28, 2018 Sources: Bloomberg, Ruslee, Oct-26 18 7
 COVERAGE INITIATION: THE ‘ZINC’ STORY
BUY – Oct 24 2018
Current price: 1,505
Target price: IDR 2,100
Upside: 39.5%
VALUATION
ZINC has best in class assets, efficient
management and enjoys low cost of
INVESTMENT THESIS production. ZINC should be generating strong
• A play on Integration & Exploration: The success story behind Kapuas Prima Coal (ZINC) business model lies in its integration EBITDA on a consistent basis, which is
and successful exploration that has led to low costs of operations. ZINC current aggregate zinc-lead ore capacity is at 360k indicative of its efficient operations and low
tones p.a and expected to double in 2019E and tripled by 2020E. The visibility of a mining company lies in addition of Reserves cost of production. Thus, to capture the
and Resources (R&R). Total Reserves has increased to 6.5 mn tones as of 2018, from 4.6 mn tones in 2016. It is the focus on operational excellence, we value ZINC on EV/
exploration that has enabled ZINC to add on to its R&R. The current pace of drilling has increased to 390 ha from only 56 ha EBITDA basis. We value ZINC at 8.1x 2020E
previously. In our view, such activities increase the probability of finding commercial viable deposits. EV/EBITDA, which translates to a target price
• Revenue likely to grow at a 50% CAGR during 2018-21E: Supported by strong volume growth and overall improvement in LME of IDR2,100/share providing an upside of 40%.
price, ZINC has seen a strong revenue growth of 140% in 1H18. With full capacity ramp up during 2019E, we expect its revenue We initiate our coverage on Kapuas Prima Coal
to clock a CAGR of 50% over 2018-21E period. Our price movement assumption of zinc is US$ 2,450/2,650/2,900 per ton for with a BUY recommendation.
2018/19/20E. We however expect price to remain stable at US$ 2,900 for 2021E onwards.
• EBITDA and bottom-line to grow at a faster rate: Since silver is a by-product that produced during refinery process, it has no Analysts
incremental cost of production. The revenue from silver business thus flows down almost completely to the EBITDA level • Ishfan Helmy (Lead) ● +62 21 29709430
excluding the refining costs, which is not very significant. Higher contribution from silver would enable better growth in EBITDA isfhan.helmy@ocbcsekuritas.com
at a CAGR of 70% for the 2018-21E period. ZINC margins likely to be robust due to its low cost operations. We expect EBITDA • Liga Maradona ● +62 21 29709431
margins to reach 42% in 2018E and will be hovering in the range of 50-60% since then, which we believe, is quite enviable as liga.maradona@ocbcsekuritas.com
we feel the company will be able to maintain its margins, going forward. Higher EBITDA growth would add directly to the
bottom-line. This is evident from the fact that the company’s net profit grew by 660% in 1H18. Its net profit is likely to grow by
87% CAGR during 2018-21E
Sources: Company, OCBC Sekuritas Research, Oct-24 2018
October 28, 2018 8