March 26, 2025

1Q25: The End of 6 Months Bottomless Pit

Market Commentary

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The Bloodbath

JCI performance wiped the smiles off investors' faces since September 2024. It began with global pressure, as escalating geopolitical tensions from the Ukraine-Russia war and the Middle East led investors to seek safe havens, putting pressure on both the Indonesian equity market and the Rupiah.

USDIDR vs JCI

However, the dreaded downtrend continues until the rebound on March 26th. JCI gained +3.8%, outperforming most of its peers. That said, the phrase “undemanding valuation” remain to be an understatement for JCI right now as the share price has fallen to a bottomless pit, putting JCI's PE multiples just slightly above covid level.

JCI PE Band

When Fundamentals Become Obsolete

For BBRI case, we understand that some may deem that BBRI deserve the sell-off due to its 1Q24 NPL spike which remain unresolved. Yet what is really bothering is that for most cases, companies’ earnings experience a wide divergence with its share price.

BBCA announced its 2M25 result on March 17th with a robust 8.4% and 14% YoY earnings and loan growth, respectively. However, its share price declined -1.7% on that day, and plummed another -3.5% the day after.

BBCA Share Price Performance

It was never about the earnings, nor was it about the valuation—it’s the trust and confidence that fade amidst political instability.

JCI Performance and News Correlation

At The End of The Storm, There's a Golden Sky

As Liverpool FC fans chant, the golden sky awaits. To expect a larger and more sustained foreign inflow after yesterday, we may have to wait for the Fed to lower interest rates—something beyond our control. Indonesia's equity market size and depth are also insignificant compared to the rest of the world, not to mention the lack of catalysts at present. Indonesia would only receive the leftover crumbs of capital spillover.

Indonesia MSCI Weighting

But worry not, Indonesia's market liquidity still have hopes of improvement from the new DHE regulation which can bring back the 5 years trade surplus yet-to-return-capital (grossing c. USD 3bn per month) which allows Bank Indonesia to print money without damaging Rupiah's exchange rate. This is likely to boost Indonesia's banks liquidity from the new scheme as we suspect BI has been printing money as we look into Indonesia's money supply compared to SRBI outstanding.

Yesterday, foreign investors booked a solid capital inflow towards Indonesian banks:
BBCA : IDR +764.54 bn
BMRI : IDR +721.36 bn
BBRI : IDR +459.65 bn
BBNI : IDR +231.65 bn

Conclusion

It might be too early to judge whether the inflow and share price rally will continue for long, as the implementing regulations (0% tax on DHE) have not been released yet.

However, considering the JCI's current valuation relative to recent corporate earnings, the risk-to-reward ratio is heavily skewed toward the reward.

Although this remains a waiting game, we believe the moment might soon arrive and we have to keep our eyes on the rock-solid companies which trades at discount.

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April 08, 2025

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