Maybank Kim Eng Research : Indonesia Strategy 2019 Outlook – Bit by Bit

• Our HoR Isnaputra Iskandar and team set idx 2019 target at 7100 on expectation the macro picture will gradually improve and be less volatile than 2018. BI will continue to implement pro-active market policies and our Maybank strategists are long Indonesia in their 2019 outlook. Politics is not an issue in our view.
• We think global economy will remain challenging, and as such we expect Indonesia’s monetary policy to lean towards currency stabilization.
• We forecast a 50bps rate increase in 2019, lower than 2018’s 175bps. Oil price is the wild card in our base case assumptions for the current account deficit (CAD), currency, inflation and interest rate.
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• We forecast the economy in 2019 to remain resilient, despite volatilities, at c. 5% YoY GDP growth, similar to 2018. The growth is likely to be supported by consumption (+5%) and investment (+6.4%). We forecast 2019 market earnings growth (with and without commodity companies) of 11.7-12.3%, driven by almost all sectors.
• With low oil prices and a stable IDR, there could be potential upside to our 11.7% growth forecast and this will benefit the cement and consumer sectors.
• Elections: what’s next? We expect the elections in April to be smooth and peaceful. There is no direct correlation between elections and GDP, but we note a tendency for rising fund flows and IDR appreciation ahead of past elections.
• Our FX team forecasts the IDR could strengthen 10% into the elections. We think whoever wins the election, will focus on the same major issues: infrastructure, logistics, income distribution and quality of human capital.
• Risk factors : global volatility, policy transmission time lag, unfavourable election outcome, disappointing earnings
• IHSG 7100 is based on 17x FY19E P/E (+1SD above mean) and 11.7% EPS growth.
• Our top picks are ASII, BBNI, BSDE, GGRM, ICBP, PTBA, PWON, RALS, SMGR and SMRA.
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