Quick Note

In this note, we assess the profitability-adjusted valuation of large cap companies in Indonesia (click here to see our previous analysis). As we become increasingly positive on the market, the large caps remain our primary investment option due to their size and liquidity. Our profitability-adjusted valuation analysis suggests that all large-cap companies are trading below -1SD of their P/E divided by ROE (except for HEAL IJ [Buy] trading at -0.8x SD, which has experienced the strongest growth among the large caps at +23% CAGR in 2024-2026F).

A snapshot of banks – top pick BMRI and BRIS

We believe that the P/E of banks has been de-rated significantly (on an average by 30-40% over the past six months), while the ROE is still relatively resilient (ranging from 19% to 21% for the big 3 banks we cover). Hence, the PE/ROE ratio has also declined sharply, with BBNI being the lowest at -2.1SD, followed by BMRI (-1.8x), BBCA (-1.5x) and BBRI (-1.0x). BRIS stands out with a steadily increasing ROE, which has now reached 17% (vs 14-15% two years ago), thanks to its solid franchise and high moat in the Shariah-compliant space. BRIS is trading at -1.7x PE ROE, while potentially booking one of the fastest earnings CAGR at +18%.

Other large caps – top picks: Kalbe Farma (KLBF IJ), Mayora Indah (MYOR IJ) , Sumber Alfaria Trijaya (AMRT IJ) – all Buy-rated

Among the other large caps, specifically consumers, we like KLBF given that it is now trading at its most depressed valuations over the past one decade (i.e. trading at -3.2xSD) yet has a potential +8% earnings CAGR over 2024-2026F. MYOR is also another name worth considering, as we like its strong dollar-earner profile. We also like AMRT, because despite the weakness in its recent results due to weak purchasing power, we expect its earnings to recover in 2H25F (especially in margins; click here to see our report). Among the small-mid caps, we prefer MIDI IJ (Buy), given its non-Java presence and potential upside from closing down its Lawson (unlisted) stores (see our report here).

Maintain our bullish call on the Indonesia market

We maintain our bullish call on the market. Our preferred picks are BMRI IJ, BRIS IJ, KLBF IJ, MYOR IJ, and AMRT IJ.

Our TP of IDR7,600 for BMRI (Buy) is based on the DuPont analysis, assuming a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 11.0%, a beta 1.05x and a CAR-adjusted ROAE of 19.5%. We have also used the 2025F book as a reference. The implied multiples at our TP are 2.3x 2025F book and 12.4x 2025F earnings (compared to current multiples of 2.5x and 13.7x, respectively).

Our TP of IDR3,800 for BRIS (Buy) is based on the DuPont methodology, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, a beta of 1.2x and a CAR-adjusted ROAE of 18.1%. We have also used the 2025F book value to derive our TP. Our TP implies a FY25F P/B of 2.7x and a FY25F P/E of 17.8x (compared to current multiples of 2.5x 2025F book and 16.2x 2025F earnings).

Our TP of IDR2,200 for KLBF (Buy) is based on the FY25F target P/E of 28x (+0.7SD to its five-year mean). Currently, the stock trades at 14.5x FY25F P/E.

Our TP of IDR4,300 for MYOR (Buy) is based on the FY25F target P/E of 26.5x (+0.2SD to its five-year mean). Currently, the stock trades at 13x FY25F P/E.

Our TP of IDR2,350 for AMRT (Buy) is based on the FY25F target P/E of 27.6x (equivalent to its five-year mean). Currently, the stock trades at 23.3x FY25F P/E.

Our TP of IDR420 for MIDI IJ is based on 20.7x 2025F P/E (at a 25% discount to our P/E target of 27.6x for AMRT). Currently the stock trades at 15x 2025F P/E.

Fig. 1: Z-score stdev PE/ROE over the last decade vs the CAGR profit estimate from consensus

 

Fig. 2: Profitability-adjusted valuation of large caps – banks and telcos (1/3)

 

Fig. 3: Profitability-adjusted valuation of large caps – BRIS, Astra, and consumers (2/3)

 

Fig. 4: Profitability-adjusted valuation of large caps – UNTR, MAPI, TOWR, HEAL, AKRA, MYOR (3/3)

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

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ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

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Jupriadi Tan (jupriadi.tan@verdhana.id)

Gerald Hugo (gerald.hugo@verdhana.id)

David Tjahjadi (david.tjahjadi@verdhana.id)

Felix Justin (felix.justin@verdhana.id)