November 07, 2024
Fed Rate Decisions Shape Market Sentiment

Market Commentary
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Equity market investors are closely watching the ongoing Federal Reserve FOMC meeting, as any changes to interest rates or economic outlook will impact investor sentiment and risk appetite. Markets may have priced in expectations that the Fed may cut rates by 25 bps, but investors remain cautious about any signals for future policy directions, particularly on inflation and growth.

For the U.S. market, a dovish stance could boost equities, while any hints of prolonged high rates might weigh on valuations. In Indonesia, a steady Fed policy is favorable for the JCI, as stable U.S. rates reduce pressure on capital outflows and support the rupiah, which benefits local stocks. However, if the Fed's tone shifts unexpectedly, markets could react sharply.

 



If the Federal Reserve continue to cut rates, Bank Indonesia (BI) may follow suit as lower U.S. rates reduce pressure on the Indonesian rupiah, allowing BI to focus more on supporting economic growth without risking capital outflows. A rate cut from BI would lower borrowing costs, stimulating investment and spending domestically.

 

Therefore, company which is highly leveraged may benefit from the rate cut, such as TOWR.

TOWR recorded a 3Q24 net profit of IDR842bn (+4% qoq, -12% yoy). Strong growth of 28% in the non-tower segment for 9M24 was driven by robust FTTT and FTTH performance, increasing its revenue contribution to 33%, up from 28% in 2023.
 



This growth was supported by mobile network operators’ (MNOs) strategies to improve network quality and expand outside Java. Over the past nine months, TOWR expanded its fiber assets by 21% and increased home passes by 74%.

We forecast a modest net profit growth of 2% for 2024, impacted by higher costs and the IBST consolidation. For 2025, we anticipate net profit growth of 6%, supported by MNO network enhancements, expansion outside Java, and potential rate cuts.

Maintain BUY with TP of Rp1,400, implying 18.6x and 10.6x 2025F PE and EV/EBITDA


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