Anchor Report: Indonesia Equity Strategy - Turning over a new leaf

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Indonesia equity strategy

Turning over a new leaf

The MSCI Indonesia Index has declined by 20% since September 2024, accompanied by a substantial USD10bn in outflows off the peak – split almost evenly between equities and bonds. Usually, such a correction would coincide with major global risk-off sentiment or a domestic macroeconomic shock, yet neither appears to be the case. Indeed, Indonesia’s macro fundamentals remain strong, in our view, supported by subdued inflation, a manageable current account deficit, fiscal discipline, and one of the lowest leverage ratios globally.

Instead, markets seem preoccupied with two major concerns: policy uncertainty and unusually weak household purchasing power, which together have weighed on business confidence. Consequently, valuations have fallen to around three standard deviations below their long-term average, with expected consolidated dividend yields at a record high of 6%, an anomaly considering Indonesia’s record-low sovereign spread versus developed country peers. For this dislocation to evolve into a true opportunity, these concerns need to be addressed. Encouragingly, the recent appointment of a new finance minister could mark the beginning of the process. Meanwhile, we believe total shareholder return (TSR)-driven stock selection offers a pragmatic bottom-up path to identify value. Top picks: KLBF, CMRY, AMRT, AKRA, ARCI, NCKL, AUTO, ASSA, MIDI – (all rated Buy).

Turning over a new leaf

Selecting winners centered on TSR framework

The MSCI Indonesia Index has fallen ~20% since Sep-2024, with USD10bn of outflows off the peak split between equities and bonds. Unlike typical risk-off episodes, this correction occurred without global or domestic macro stress, as Indonesia’s fundamentals remain strong, in our view. Instead, the sentiment has weakened amid policy uncertainty and eroding household purchasing power, which together weigh on business confidence. Valuations are now trading near two standard deviations below the long-term mean, with expected consolidated dividend yield at an historical high of 6%—a potential setup for selective re-rating once the confidence returns, in our view.

New MoF push: fiscal discipline and inducing confidence

Finance Minister Purbaya Yudhi Sadewa has emphasized three priorities: spending within means, maintaining fiscal credibility, and restoring confidence through effective execution. The government has reaffirmed the 3% deficit cap and BI’s independence, while a new spending taskforce is reallocating idle funds to ready-to-execute programs. Confidence-building is also at the forefront. Purbaya’s ongoing meetings with local business leaders have helped improve dialogue and sentiment, signaling a renewed effort to reconnect policy direction with private-sector realities. While these engagements appear to be gaining traction, execution will be key – turning constructive rhetoric into tangible investment commitments remains the next critical step.

Pressing domestic issues: wallet size growth slowest in a decade

Weak purchasing power remains a structural headwind. Of the 17mn jobs created (2020-2025), 82% were low-paying (lower vs minimum wage) – and in 2025 that already-high figure rose to 86%. Those that earn minimum wage cannot keep up with the 5.6% cost-of-living rise (source: BPS) each year – let alone those that earn below. Thus, wallet size growth slowed to just 3.3% y-y in 2025 – the lowest in a decade – showing both quantity and quality deterioration in employment. Labor-intensive sectors such as garments and F&B could help, supported by better training and supply-chain integration.

On conglomerates and on external risks

The MSCI Indonesia Index’s performance lag (-20% vs JCI +20% YTD 2025) now reflects concentrated flows in a few conglomerate names – whose combined market cap expanded by ~USD300bn in 2024-2025 – driving index volatility and valuation dispersion. While speculative narratives about passive fund inflows persist, liquidity concentration has dominated market behavior. Externally, oil price swings remain the key transmission risk, in our view: every USD10/bbl change could shift fiscal and current account balances by ~0.2–0.3% of the GDP, based on our analysis, while US tariff-related inflation could pressure global liquidity.

Selectively positive – focus on total shareholder return (TSR)

We stay selectively positive and look for pockets of growth. Downside appears limited after heavy outflows, but broad upside hinges on rebuilding consumer and business confidence and the JCI is trading at close to 6% dividend yield – its highest in a decade. Our top picks are centered on TSR/dividend-driven names and selective commodities, including AMRT, KLBF, CMRY, AKRA, ARCI, NCKL, AUTO, ASSA, and MIDI – all rated Buy.

Total shareholder return (TSR) 2026F stock screening

Following our previous research on TSR, in this report we analyze stocks under our coverage based on potential 2026 TSR. TSR consists of four components: 1) profit growth, 2) share buyback/issuance, 3) P/E multiple expansion/contraction, and 4) dividends. Our coverage’s market-cap weighted TSR for 2026F is 35%, stemming from: 1) 17% EPS growth; 2) 13% P/E multiple expansion; and 3) 5% dividend yield.

Sector-wise, banks (19%), commodities (5.6%), and FMCG (4.5%) are the top 3 contributors to our TSR. Besides TSR, we provide screening for stocks that are offering dividend yields above Indonesia’s 10-year government bond yield.

Bottom-up assessment

Detaching from market-cap effects, we assess sector and stock-level TSR from a bottom-up perspective. Retail and IT services, transports, and FMCGs screen as the top 2026F TSR sectors, with most of the upside driven by P/E multiple expansion as valuations remain below multi-year averages.

Retail and IT services: ACES, ERAA, and MTDL lead the sector, supported primarily by P/E re-rating from the currently de-rated multiples.
FMCGs: MLBI, ICBP, INDF, and MYOR anchor the sector’s TSR, with expected earnings growth of 18 % and ample valuation upside.
Transports: JSMR, ASSA, and BIRD deliver the highest TSR, underpinned by healthy earnings growth of 12 % and meaningful room for P/E expansion.

On dividends, commodity names (ITMG, ADRO, AADI, PTBA and TAPG) offer the highest yields at an average of 11 %. Other notable names such as BBRI, ACES, BMRI, AKRA, BNGA, and AUTO provide yields in the range of 8-9%.

We view TSR as a practical framework to gauge shareholder return, particularly if the TSR is heavily driven by earnings growth and dividends, two components that investors can evaluate with greater clarity. That said, the TSR framework must be complemented by bottom-up analysis, to avoid valuation traps or cyclical overoptimism. We remain selectively positive, favouring names with strong competitive edge, pricing power, and consistent cash-flow generation.

Sectoral view:

Banking sector TSR is largely driven by capital gains, which in our view, are driven by the potential earnings and multiple re-rating given the weak fundamental performance in 2025. Yields are decent, with state-owned enterprise (SOE) banks offering 8-9% yield, while BBCA remains among the banks with the strongest earnings growth. Among mid-cap banks, BNGA is one of the best choices, in our view, given its high dividend yield which could cushion earnings growth.
Telco and tower sector TSR will likely be positive, in our view,, as TLKM’s earnings growth will be compensated by its dividend. The sector has shown improving momentum, with TBIG and ISAT offering the clearest visibility on double-digit earnings growth, supported by healthy yields. Rising data consumption and network densification continue to underpin the sector’s solid TSR profile.
Auto & Parts sector TSR ranges from 30-50%, with an average yield of 6.4%. AUTO continues to dominate in the parts market with growing export revenue. SMSM has retained its strong dividend profile, while we expect DRMA's operating margin to expand.
Consumer FMCG sector TSR is more balanced: companies such as KLBF, CMRY, and ULTJ offer a combination of double-digit earnings recovery and stable payout ratios. This positions FMCG names as defensive beneficiaries of grassroots fiscal programs, in our view, making them one of the more reliable contributors to broad-based TSR.

Retail & IT Services sector TSR is primarily earnings-led, reflecting a recovery from weak discretionary spending over the past two years. Names such as MAPI, ERAA, and ACES demonstrate improving margin trajectories and double-digit earnings rebound potential, while AMRT and MIDI offer steadier, volume-driven growth. Yield contribution is generally modest, but operational recovery provides sufficient TSR uplift to place several names in the top quartile of the broader universe.
Healthcare sector TSR is anchored by consistent structural growth: MIKA, SILO, and HEAL continue to compound earnings at mid-to-high teens, supported by rising patient volumes and capacity expansion. Yields remain small, but the sector’s stability and resilience make it a reliable TSR contributor in a low-confidence macro environment.
Property and building sector TSR is mixed: while BSDE and SMRA deliver lower yields and modest earnings growth due to still-soft mortgage demand, names such as ARNA show a more compelling combination of margin stability, payout consistency, and mid-teens earnings expansion.
Commodities sector TSR is the most polarised. INDY, HRUM, and NCKL led the sector TSR due to the market's high EPS growth expectation tied to capacity ramp-ups and cyclical tailwinds. Meanwhile, traditional cash generators such as PTBA, ITMG, and ANTM produce strong dividend yields that anchor TSR even as earnings normalize. Although volatile, these names significantly lift the sector's overall TSR profile, making commodities the standout in the 2026F TSR landscape.
Transport, poultry, and CPO sector TSR is led by JSMR, ASSA, and TAPG. JSMR may have potential re-rating as one of the most leveraged company in a declining-rates environment. ASSA is a strong bottom-up play, in our view, given its expansion of principal in the distribution business. TAPG benefits from the higher demand for CPO given the government's push towards B40 and B50 programs, and its dividend yield is also one of the highest.

Fiscal as a catalyst

Indonesia stands out globally, with 83% of GDP driven by the private sector in 2024, the highest in the world. This surpasses peers such as Vietnam, Thailand, Korea, and even advanced economies such as the US (63%).

While this underscores the strength of Indonesia’s private consumption and investment, it also highlights a structural constraint: fiscal policy alone cannot be the primary engine of growth.

Because the private sector dominates economic activity, the role of fiscal policy is less about direct stimulus and more about acting as a catalyst – restoring confidence, improving execution, accelerating deregulation, and reducing policy uncertainty. In an environment where household purchasing power and business sentiment are weak, the effectiveness of fiscal measures hinges on the government’s ability to unlock private-sector momentum, rather than replace it.

Indeed, from our conversation with investors – from both fixed income and equity – we understand the lingering concerns are fiscal prudence and BI independence.

We take note of newly appointed finance minister Purbaya’s policies statement. Combined with a couple of meetings we attended, we now have a better sense of his policy orientation. He spoke about fiscal prudence and BI independence, amongst others.

Fiscal prudence: He dismissed talk of widening the deficit beyond 3%, calling it “unwise” unless growth exceeds 6.5%, “in which case it won’t be needed anyway.” Our take is that this is more about optics than feasibility, and aligns with President Prabowo’s push for efficiency.

BI independence: He deems burden-sharing “haram” (forbidden), insisting BI must remain independent to avoid politicization. Our take is that this should dispel media reports that the minister questions the BI’s autonomy.

Indonesia’s fiscal stance in 2025-2026 is basically a “spend within means, but start to spend” approach – maintaining fiscal discipline under the 3% deficit rule while reactivating idle budget capacity to stimulate real demand.

Indonesia’s bond yields have remained broadly anchored around 6.8%, even as global yields have risen sharply, resulting in a collapse of Indonesia’s 30-year spread to developed markets to just ~2.6%, near -2 standard deviations and the lowest in more than a decade.

This reflects strong macro credibility, contained inflation, prudent fiscal management, and a resilient external position. However, the stability enjoyed in the bond market stands in stark contrast to equity valuations: the P/E discount to developed markets has widened to ~–36% (-2SD), the deepest discount since 2014.

Such a divergence – record-low sovereign risk premium but record-high equity discount – suggests that equity performance is being driven not by macro fundamentals but by idiosyncratic concerns: policy uncertainty, weak purchasing power, and soft business confidence.

Historically, when bond spreads compress to this extent while equities trade at extreme discounts, the gap tends to normalize through either a recovery in equity valuations or a stabilization in risk sentiment, pointing to potential upside should confidence begin to be repaired.

Wallet size analysis: deteriorating in quality and quantity

We view wallet size growth as the most reliable leading indicator of Indonesia’s purchasing power trajectory, as it captures the combined effect of job creation, wage dynamics, and the quality of employment across the economy. Aggregate wallet size growth, a proxy for household spending power has softened to +3.3% y-y, equivalent to IDR6,350tn per year, marking one of the weakest expansions in nearly a decade.

Indonesia’s labor market recovery continues to lag, with job creation slowing to just +1.3% y-y in 2025, bringing total employment to 146.5mn.

Wage growth has also decelerated to +1.9% y-y, averaging IDR3.3mn/month, barely outpacing inflation and far below pre-pandemic trends.

Sectoral wallet size growth remains uneven and below historical averages, underscoring the fragility of income recovery across Indonesia’s labor market.

Aggregate wallet size grew +3.3% yoy in 2025, equivalent to IDR6,350tn, marking one of the weakest expansions in the past decade.

Gains were concentrated in agriculture (+6.8%), hospitality (+8.3%), and education (+10.5%), reflecting government program linkages and seasonal labor demand.

In contrast, key urban sectors such as manufacturing (+2.4%), wholesale/retail (+0.2%), and construction (-1.1%) remain stagnant, mirroring soft domestic demand and limited private investment. Income growth in financial (-3.0%), mining (-4.7%), and real estate (-6.8%) also contracted, highlighting pressure from tighter liquidity and slower project pipelines.

Overall, the data suggest a narrow-based wage recovery, driven more by public and informal segments than by productive or tradable sectors-limiting the breadth of Indonesia’s consumption rebound heading into 2026.

Micro and micro need confidence booster

Business sentiment continues to weaken as corporates turn more cautious on expansion. Despite nominal GDP growing 7.5% yoy in 3Q25, corporate top-line growth slowed sharply to 1.3% yoy, showing a widening gap between macro recovery and company revenues. Capex has now contracted -0.5% y-y, following an 8.4% y-y decline in July— the first decline since 2021, while GFCF remains modest at +5.4% y-y, suggesting that state-led investment still dominates. The slowdown reflects muted pricing power, margin pressure, and limited visibility in future demand.

Both business and consumer confidence have trended lower over the past year, reinforcing the narrative of a soft underlying economy. Business confidence slipped from around 140 in early 2024 to 124 by mid-2025 before a mild rebound, while consumer confidence declined from ~128 to 115, one of the weakest readings post-reopening.

This deterioration is consistent with the sharp pullback in corporate capex, which contracted 8% yoy in 2Q25, marking the first decline since 2021. The combination of softer business sentiment, erosion of household purchasing power, and reduced investment appetite highlights a broad-based hesitancy to commit – whether to hiring, capacity expansion, or discretionary spending. Until confidence stabilizes and execution of government programs improves, both capex and consumption are likely to remain subdued.

Historical patterns show that even during easing cycles (2005-06, 2013-15, and YTD 2025), loan growth only accelerated when business confidence improved, not simply when rates declined. The relationship between loan growth and BI rate is weak compared to the tighter correlation between loan growth and business confidence, underlining that policy credibility and sentiment restoration matter more than liquidity injections.

Despite lending rates falling to multi-year lows – 8.6% for working capital, 8.8% for auto loans, and 6.8% for mortgages – credit growth across all major segments remains subdued. Working capital loan growth slowed to 6.6% y-y in 3Q25, auto loan growth was hovering at 3.4% yoy, and mortgage demand remained modest at 7.1% y-y, all far below pre-2017 averages. This underscores a clear trend: lower interest rates are no longer sufficient to drive credit expansion.

The inflection point is visible after the 2013-15 INR depreciation, when loan demand structurally downshifted and never regained its prior momentum. Even in the current environment of stable macro conditions and attractive borrowing costs, corporates remain cautious on working capital expansion, and households remain conservative on auto and housing purchases. This aligns with broader macro signals – weak purchasing power, soft real income growth, and low business confidence – suggesting that the constraint is on the demand-side, not cost-of-funding.

M2 growth had recovered to 8% y-y as of Sep-25, supported primarily by the rebound in bank lending. However, the composition of credit growth reveals underlying weaknesses. Total loan growth stood at 6.9% y-y, but the fastest-growing segment was investment loans, which expanded 15% y-y, while working capital loans (WC) slowed sharply to 2.1% y-y, one of the weakest levels in the past decade outside the COVID period. This signals that liquidity is improving, but not necessarily in the parts of the economy that drive broad-based business activity or job creation.

A deeper breakdown shows that 46% of the increase in investment loans was mining-related, raising questions about sustainability and employment impact, given mining’s limited labour absorption. Meanwhile, wholesale & retail working-capital loans, historically a leading indicator for business loan demand, decelerated to just 0.5% y-y as of Sep-25, the slowest in 10 years excluding the pandemic shock. This divergence – strong investment credit but soft operating credit – suggests that the loan recovery was narrow and sector-specific, with limited spillover to broader economic activity. It reinforces the view that confidence, not interest rates, remains the binding constraint on credit expansion and business momentum.

The weak income trajectory has translated into a visible liquidity squeeze. Individual savings growth slowed to just +0.5% y-y, while small deposits (<IDR100mn) were nearly flat (+0.1% y-y), signaling erosion in household buffers. Corporate-level data mirror this softness – aggregate revenue rose only +1.7% y-y as of Sep-25.

Same-store sales growth (SSSG) across major retail chains continues to weaken, reflecting the broader deterioration in household purchasing power. Alfamart’s SSSG has fallen from mid-single-digit territory to low-single digit since 2Q25, while Alfamidi, previously more resilient, has experienced a sharper drop from ~12% to near-3%. Discretionary retailers show an even clearer slowdown: MAPA moved from +3–4% growth to negative SSSG since 2Q25, and Ace Hardware (ACES) remained in contractionary territory.

The consolidated SSSG index mirrors this pattern, sliding from ~7% in 1Q24 to flat/negative by mid-2025, marking the weakest print in recent years.

The sector-wide decline indicates that the issue is not company-specific but macro-driven-consistent with soft wage growth, weak job quality, and slowing wallet size expansion seen in household data.

Nearly 82% of jobs created between 2020 and 2025 were in low-paying sectors, such as retail, accommodation, and agriculture, with salaries below the minimum wage. This number spiked even higher vs previously already-high low paying jobs creation at 72% during 2015-2019.

Even for those earnings at or above minimum wage, wage growth continues to lag behind cost of living. Between 2020 and 2025, average wage growth was 5.2%, while the cost of living rose 5.6%, implying persistent real income erosion. Without targeted wage reforms, higher-quality job creation, and stronger purchasing power at the base, Indonesia’s consumption recovery will likely remain shallow through 2026F.

At the same time, youth unemployment remained high at 16% as of Feb-25, accounting for nearly half of total unemployed workers (7.3mn people). These conditions have flattened nominal income growth, leaving employees’ wallet size stagnant over the past two years, with wallet size growth at only +1.0% yoy, the slowest ex-COVID period in the past decade.

Policies and government programs

Free meal programs

First year of meal program, revival of labour-intensive sectors, stance of the new MoF

Execution in 2025 has faced multiple setbacks, echoing early challenges seen in India’s food schemes (see our previous research and site visit here). Weak SOPs, delayed fund disbursement, uneven regional rollout, and poor vendor coordination have limited the program’s early impact.

The government has since taken corrective action-tightening oversight, rolling out digital tracking, and expanding vendor partnerships to restore credibility and accelerate distribution.

If executed well, the 2026 ramp-up could be transformative. We project total spending to reach IDR259tn (77% of the IDR335tn budget, 1% of the GDP), over fourfold of our 2025F estimate of IDR56tn. This equates to approximately IDR9bn per vendor, potentially creating 1mn jobs across 30K vendors and delivering a strong multiplier to consumption and rural liquidity.

We assess the impact of MBG through two lenses:

Recipients: On average, we assess that one household could get a bump of 20% of disposable income based on Indonesia’s average monthly wage of USD180 (see table below for calculation). The overall impact could be larger given that informal workers (i.e., those earning below the minimum wage) are 60% of the workforce.

Rural economy: We estimate the meal program will likely add 37% to the 2026F regional transfers. We think this is a significant bump to rural liquidity given that Indonesia’s remote region is highly reliant on central government transfers, which could make up 65%/63% of the regions’ revenue/expenditure, based on our estimates.

Making CEPA a big win for labour-intensive industries

Beyond the meal program, we believe the government’s main priority in 2026F will be to revive the formal job creation, particularly by capitalizing on the IEU-CEPA. Our ground checks indicate optimism among apparel and footwear players while also highlighted the bottlenecks.

While CEPA’s tariff relief (0% export tariff to the EU for 80% of Indonesia’s goods, effective 2027) offers a meaningful boost, cost efficiency remains crucial and the verticalization of the supply chain remains essential to enhance competitiveness and expand formal employment. China’s ability to maintain its market share despite high tariffs underscores the importance of verticalization and scale

We view investment as key to realizing this potential. However, domestic bottlenecks persist, particularly the lengthy permitting process, which we estimate takes 2.5x longer than in Vietnam. This undermines Indonesia’s appeal despite its labour and utility cost advantages. We therefore expect deregulation and policy streamlining to be a central policy focus in 2026F. Encouragingly, our discussions with the National Economic Council (NEC) point to progress, with 27 short-listed labour-intensive projects that could generate up to 120K new jobs (~2% of the sectors’ workforce). Notably, two of these companies reported that permit issuance has been shortened 3-6 months, from the typical 2-3 years.

Fig. 48: Textile and apparel peers’ comparison – Indonesia’s cost is generally competitive; room for improvement via lower rates to improve capital goods

Countries	Mthly Wage (USD)	Power Tariff (Usc/kWh)	Raw Water (USC/m3)	Capital Interest	Building cost (m2)
China	600	12	18	4.5%	224
Vietnam	275	7.5	50	6.5%	325
Indonesia	220	8.0	15	10%	263
India	220	10	37	11%*	200
Bangladesh	140	10	40	8.0%	252
Pakistan	125	15	11	21%*	303

Note: *interest incentive of 5% available to mitigate high cost of technology upgrade.
Source: Gherzi, Verdhana research

MoF Purbaya’s policy remarks and our take

Since his appointment, Minister Purbaya has made numerous public statements. Combined with a couple of meetings we attended, we now have a better sense of his policy orientation. His recent remarks point to three priorities: 1) reviving purchasing power; 2) addressing tax administration; and 3) improving liquidity. We view this as a push to restore policy credibility and align fiscal measures with real-sector recovery, a constructive signal for investor confidence. Minister Purbaya discussed several key points below:

Fiscal prudence: He dismissed talk of widening the deficit beyond 3%, calling it “unwise” unless growth exceeds 6.5%, “in which case it won’t be needed anyway.” Our take: this is more about optics than feasibility and aligns with President Prabowo’s push for efficiency.

BI independence: He deems burden-sharing “haram” (forbidden), insisting BI must remain independent to avoid politicization. Our take: this should dispel media speculation that the minister questions BI’s autonomy.

Fiscal stimulus: As the only minister to publicly acknowledge that the August demonstrations reflected weak purchasing power, his remarks signaled a major policy pivot. We therefore expect a more meaningful stimulus package to revive consumption, which indeed has materialized in terms of higher coverage of direct cash handouts (see here).

Fig. 52: Total stimulus rolled out in 2025

Stimulus	Budget (IDRtn)	per month (IDRtn)
1Q25 (Jan - Feb'25)	39	20
2Q25 (Jun - Jul'25)	24	12
4Q25 (Oct - Dec'25)	46	15
Total	109
% GDP	0.4%
% Expenditure	3.1%

Source: MoF, Verdhana research

Fig. 53: 4Q25 stimulus (IDRtn) – additional cash handouts announced

2H25	Total	46
	Cash Handouts for 35mn families (IDR300K for 3 months)	30
	Food aid, 18.3mn families	7.0
	Cash for work	5.3
	Urban Program: Improvement of housing quality and spaces for gig economy	2.7
	Fresh Graduate Internships	0.20
	Housing assistance by BPJS	0.15
	Deregulation acceleration PP28	0.18
	Salary tax waiver for hospitality sectors	0.12
	Social security for gig workers and ride-hailing drivers	0.04

Source: MoF, Verdhana research

Spending acceleration: The President supports the MoF’s intervention in underperforming ministries to expedite spending. Idle funds, reallocated to ready or people-focused programs since the end of October, will come alongside monthly reviews to enforce accountability.

Fiscal as catalyst: He plans to link MoF fund transfers to line ministries as incentives and penalties to expedite deregulation and spur real-sector growth. Our take: with the private sector accounting for 83% of the economy (according to IMF), this approach is sensible and crucial for investment and job creation, though execution will be key.

Tax reform: Tax officials, once shielded to “protect revenue collection,” are now subject to investigation. He urges a shift from “hunting in the zoo” toward tackling genuine non-compliance and prioritizes fixing the long-troubled “core tax” system to strengthen revenues. Our take: tax clarity remains a top concern for businesses and setting up hotline is a good start.

Voice of reason: In a cabinet where some ministers seek attention through grandiose ideas, Purbaya positions himself as a moderating force, countering “unrealistic and bombastic” proposals.
Media sensation: His candor and readiness to address politically sensitive issues in the wake of national protests have made him a media sensation. His growing popularity could translate into greater influence over overall economic policy direction.

External backdrops: oil price risks and tariff-led inflation

Geopolitical risk transmission through oil price

The elevated geopolitical uncertainty could affect Indonesia through oil prices and thus budget and current account deficit. Currently, the government expects 2.68% deficit and 0.5-1.3% current account deficit in 2026F (estimated oil price at USD70/bbl). For every USD10/bbl changes in oil price, our analysis suggests a sensitivity of 0.3% change in the budget deficit and a +/- 0.4% change in the current account (ceteris paribus scenario).

Thoughts on Indonesia government budget

The government assumes an oil price of USD70/bbl for FY26 (vs USD82/bbl in FY25. With the deficit currently at 2.68% of GDP, maintaining the 3% threshold would require oil prices to remain below USD80/bbl, assuming all else equal. However, we believe if such thing happens the government would likely reallocate spending to manage the deficit to be below 3%.

Indeed, the government has also raised the “other spending” allocation by 55% to IDR502tn for 2026 (2% of GDP; 2025: IDR325tn). Most of this is unallocated and serves as a contingency buffer should revenue fall short or expenditure exceed estimates. We therefore expect the fiscal deficit to remain manageable, supported by this built-in safeguard.

Fig. 58: FY26F budget sensitivity – every USD10/bbl change moves deficit by 26bp

ICP (US$/bbl)	Budget Deficit (IDRtn)	Budget Deficit (% GDP)
50	(553)	-2.15%
60	(621)	-2.42%
70	(689)	-2.68%
80	(757)	-2.94%
90	(825)	-3.21%
100	(893)	-3.47%
110	(961)	-3.74%

Source: Verdhana estimates

Thoughts on current account deficit

Besides its fiscal impact, higher oil prices might also widen the current account deficit (CAD), assuming all else equal. We estimate that every USD10/bbl increase in oil prices could widen the CAD as a percentage of GDP by around 39bp, all else equal. However, in practice, the impact tends to be mitigated as coal prices often move in tandem with oil prices, partially or even fully offsetting the adverse effect on Indonesia’s external balance.

Tariff-led inflation: tightening rates gap and outflow risks

The rate gap between Indonesia and the US has been narrowing over the past years, with nominal/real rates hovering around 220/250 bp. Though majority of consensus is expecting a downward trend for the Fed Fund Rate (FFR), largely due to worsening labour market conditions, BI has acknowledged that the possibility of a stagnant or increasing FFR could not be ruled out, which if materializes, could trigger capital outflow due to a narrowing gap with Indonesia’s sovereign bonds.

Global liquidity has been in a structural tightening phase since 2022, with the combined balance sheets of the top five central banks contracting from a peak of roughly USD33tn to USD26tn today, one of the deepest quantitative tightening (QT) episodes in modern history. This sustained withdrawal of liquidity has weighed on risk assets and credit creation globally.

Conglomerates

The valuation gap across market segments has widened substantially in recent quarters, with a few conglomerate groups emerging as dominant contributors to index performance. Select large groups now trade at P/E multiples exceeding 500x, 180x, and 120x, far above the JCI average of ~19x and banking sector around 10x. Meanwhile, the spread between the JCI and LQ45 indices has expanded to roughly 24%, marking a widening divergence. Market-cap data shows that a single large group has now reached IDR2,900tn, surpassing the combined value of the Big-4 banks (~IDR2,000tn, according to Bloomberg), while the top three conglomerates have added nearly USD300bn in market capitalization-an increase of about 4.7x from earlier levels.

This sharp rerating has been supported by concentrated liquidity and heightened investor attention on scale, integration, and growth narratives. While corporate earnings and EBITDA growth remain positive, the pace of market-cap expansion has far outstripped fundamental performance. Some market participants attribute the re-rating to technical factors such as index inclusion and passive fund rebalancing, combined with limited free float and high liquidity concentration, though these remain observations rather than proven causal links. The phenomenon underscores the increased influence of flow dynamics and market structure in shaping valuations.

The top three conglomerate groups have experienced a sharp and liquidity-driven re-rating, reflecting in a 56% increase in shareholder count (from 571k to 896k) and a market cap surge from USD81bn in 2024 to USD381bn in 2025, a 4.7x jump.

A notable feature of the recent conglomerate rerating is the disparity in shareholder depth. While the top three conglomerates saw their shareholder count rise from 571k to 896k, this is already half of the ownership base of Indonesia’s large-cap peers, where shareholder numbers expanded from 968k in 2024 to 1.92mn in 2025.

The year in review

Market performance in 2025 continues to show narrow leadership and widening dispersion. The JCI is up +20% YTD, while the LQ45 lags at +3%, underscoring how a few large and high-beta names are driving the benchmark.

Gains remain concentrated in commodities, led by BUMI (+100%), ANTM (+90%), and MDKA (+41%), as investors position around gold sector names, energy transition themes, M&A activities, and export-linked earnings. In contrast, banks remain under pressure (BMRI -17%, BRIS -15%, BBCA -13%) despite stable macro fundamentals, reflecting growing macro concern (regulation uncertainty & declining confidence).

Consumer staples rebounded (UNVR +49%, JPFA +47%, and HMSP +26%) after a sharp 2024 correction, although demand recovery remains uneven. The growing theme of better cigarettes' environment could also play a role in cigarettes stocks’ performance. Property and retail names continue to lag (SMRA -21%, CTRA -13%, and ACES -44%) amid the declining purchasing power.

Telcos, tower, and tech gains are driven by TLKM (+34%), BUKA (+34%), and EXCL, (+24%) benefited from selective re-rating following M&A narratives, cost efficiencies, and improvement in industry backdrop. Gains by infra and autos are led by ASII (+33%), PGEO (+26%) and AUTO (+17%) due to an improvement in TSR and M&A narrative.

Overall, performance remains highly polarized with flows gravitating toward liquidity and thematic plays, while structurally weak consumption keeps broad-based recovery elusive.

Sector outlook 2026F

Banking sector

Resilient margins, contained risks

Heading into 2026F, our constructive view on Indonesia’s banking sector remains intact. We continue to favor major banks, particularly those with strong deposit and transaction franchises, as we believe they are best positioned to deliver stable loan growth and sustain healthy NIMs.

We expect overall loan growth to remain muted in 2026F vs 2023-2024, although modestly better than 2025. Non-major banks are likely to lag, reflecting their weaker deposit bases and higher funding costs. Liquidity conditions should remain manageable, in our view, supported by government initiatives, particularly from the Ministry of Finance, and improved fiscal spending patterns aimed at stimulating the economy.

As such, incremental funding pressures should ease, and funding cost increases might be more contained than in the past two years. Despite the soft loan growth outlook, we see the major banks maintaining, or even slightly improving, their NIMs, supporting more resilient earnings profiles in 2026F. We also expect credit costs to remain stable (or slightly lower) relative to 2025, leading to steady LLR ratios across the sector. Key risks for the sector (especially for SOE major banks) are ever-changing government policies and/or interventions, which could lead to lower margins, specifically banks that are more exposed to government-related programs.

Indonesia FMCG

Reviving consumer momentum

2025 so far: In-home strength, out-of-home recovery in sight

Indonesia’s FMCG sector has navigated a year of weak consumer purchasing power, with household budgets mostly focused on essentials. In 1H25, we observed stronger in-home consumption, particularly for cooking-related categories such as frozen food, seasoning, and cheese, supporting strong double-digit growth for CMRY (Buy) and KEJU (Buy). As the government expenditure accelerated in 3Q25, we observe a recovery in out-of-home consumption alongside dairy sales, with strong sales growth for CMRY, ICBP (Buy) and ULTJ (Buy), notably benefiting from the free meal program (MBG). With low-ticket items driving consumption and discretionary categories still lagging, 2025 has been a year of gradual normalization for the consumer sector. Momentum, however, is likely to improve further as fiscal support broadens in 4Q25F.

We also note that general trade (GT) channels have proven to be more resilient than modern trade (MT), underpinned by better rural incomes and FMCG players’ strategic expansion into GT networks. Meanwhile, beauty and personal-care categories maintained strong traction; we view that consumers deem cosmetics as affordable lifestyle necessities even during periods of subdued spending.

2026F outlook: From stabilization to acceleration

Looking ahead, we believe 2026F should mark a turning point for household spending. We expect additional fiscal stimulus from the Ministry of Finance and continued government disbursement through MBG and related social programs to lift low-income purchasing power. We believe FMCG names with wide product portfolios and strong mass-market reach are in the best position to capture rising demand from the lower-to-middle consumer base, such as CMRY, KEJU, and MYOR (Buy).

Stocks for action

We maintain our bullish stance on the FMCG sector on the back of an improvement in government expenditure (including free meal program and social assistance packet) and less regulatory risks compared with other sectors. We prefer companies positioned to benefit from recovering demand and margin normalization. Our pecking order reflects both growth potential and earnings visibility: KLBF > CMRY > KEJU > MYOR > ULTJ > INDF > ICBP > CLEO > SIDO > MLBI > ROTI > UNVR (Neutral) – all rated Buy excluding UNVR.

Consumers start shifting back to out-of-home products

Telco and Tower sector outlook 2026F

Market repair underway, but recovery still fragile

2025 has remained a challenging year for Indonesia’s major telecom operators and passive infrastructure providers (tower and fiber companies), albeit slightly better than 2024. The sector continued to grapple with persistently intense competition in the cellular market, which we believe has negatively affected passive infrastructure players through slower co-location growth and weaker lease demand. This was further exacerbated by softer purchasing powers across a sizeable portion of their pre-paid users (we estimate ~25-30% of total subscriber base have ARPUs below IDR30k). Additionally, despite the recent merger of XL Axiata and SmartFren into XLSmart (EXCL IJ, Buy), we continue to see seven distinct brands, each with differentiated market positioning.

Encouragingly, operators have increasingly recognized the need for market repair – namely, a shift away from irrational price competition – to restore profitability and industry health. We are beginning to see tangible progress, particularly in the prepaid segment. Operators have reduced the number of starter pack (SP) sales and implemented higher SP pricing, both of which should help lower churn rates.

Product simplification efforts have also been visible, notably from Telkomsel (TSEL, unlisted), which has discontinued its “TSEL Lite” packages and streamlined its product portfolio from over 4,000 to fewer than 1,000 product IDs. While the number remains high, this marks a meaningful step toward structural market repair, in our view.

Initial signs of improvement were reflected in 3Q25 results, which point to early success in operators’ rationalization efforts. That said, we acknowledge that market repair is still in its infancy and could face intermittent setbacks, given the competitive landscape and still-soft consumer purchasing power. Nevertheless, we expect ARPU momentum to continue improving sequentially into late 2025 and 2026F, driven by:

Reduced starter pack (SP) sales – helping lower churn and improve customer stickiness;
Higher SP prices – though we expect price adjustments for FREN (one of XL Axiata’s [EXCL IJ, Buy] brands) to be slower, given its focus on price-sensitive users;
Efforts to lift ARPUs in the lower-tier user segments – aiming to raise low-end ARPUs (~IDR30,000) closer to the blended level (~IDR40,000). While roughly 25–30% of the total subscriber base still earns ARPUs below IDR30,000, gradual price adjustments (e.g., ~1% ARPU growth per quarter) should be sufficient to sustain earnings recovery. If this trend holds, we view continued market repair and ARPU normalization as key catalysts for Indonesia telco stocks over the coming quarters.

Indonesia Retailers

Hard times tested; is recovery on the horizon?

Challenging year behind

The retail sector faced a double whammy from continuously weakening consumption and cost pressures related to higher minimum wages (Fig. 100). This drove underperformance across retailers under our coverage compared with the benchmark indices (Fig. 102). The government attempted to boost demand with additional incentives after signs of soft spending emerged in early 2H24. That said, these efforts have not fully offset the slow absorption of government budget in 1H25. Combined with subdued consumer confidence across income classes, retailers delivered one of their weakest performances in recent years (Fig. 101).

Inventory levels climbed higher, especially in 3Q25 (Fig. 103). Most companies posted lower-than-budgeted SSSG from the prior planning cycle, while inventory days hover at the usual 5-6 month range. This forced several players to increase clearance activities, putting downward pressure on overall gross margins.

2026F outlook: recovery on the horizon?

The additional stimulus from Finance Minister Purbaya, aimed at addressing weak demand and slow budget spending, might help restore confidence at the grassroots level. It should primarily benefit staples-focused FMCG retailers such as Alfamart (AMRT IJ, Buy) and Alfamidi (MIDI IJ, Buy). We still see limited catalysts for discretionary players, since a broader confidence rebound also depends on consistent and favorable policy execution.

With our expectation of a slower growth trajectory in 2026F, retailers are likely to adopt more conservative expansion and inventory planning. Lower overstock risks should support a solid gross margin recovery relative to 2025. Opex-to-sales ratios might remain sticky, unless there is a more meaningful improvement in consumer sentiment.

Lucrative valuation, but lack of catalysts for discretionary names

Our pecking order for Indonesia retailers in 2026F is MIDI, AMRT, ERAA, MDIY, MAPA, MAPI, and ACES. We continue to favor MIDI and AMRT due to the defensive nature of their business models and their leverage to a potential acceleration in government spending. MIDI also continues to benefit from the Lawson divestment, which should support stronger earnings growth in 2026F. In the discretionary space, ERAA remains our top pick. We expect margin improvement in the active lifestyle segment following the transfer of the lower-margin accessories business to ERAA, while also expecting some upside from improvement in economies of scale. The handset business remains the key driver for net margin expansion, supported by productivity improvement and operational efficiencies that have been a core KPI since 2023. MDIY’s focus on affordable, comprehensive product offerings and convenient locations positions it well to capture market share in Indonesia’s smaller, cost-sensitive cities. With a globally proven operating model, strong procurement scale, and rapid store expansion, we expect sustained growth that supports our Buy call on the recent initiation report. We see limited earnings downside risk for MAPA after the clearance activity in 3Q25F, especially given the relatively attractive valuation (Fig. 99). However, catalysts for meaningful upside remain limited at this stage. A key downside risk for the sector is a higher-than-expected increase in minimum wages, since employee salaries typically make up 40-50% of operating expenses and would pose a significant drag on margins.

Indonesia Autos

Prices and NPL impacting sales

We expect 2026F 4W sales to grow by +5% y-y to 760k units, still below the threshold of 1mn units sales. The key challenges for 4W sales remain asset quality (high NPL) and pricing (e.g., surpassing minimum wage growth). We believe an upside scenario would materialize if both NPL declines and pricing growth moderate. We expect the 2W market to remain flat at 6,449k vs 2025F. The silver lining would be the aftermarket and exports market.

4W volume recovery remains below potential

Over the past 10 years, car sales were unable to clip above 1mn units of sales, as weak purchasing power (combined with persistent price increase historically) and tight credit continue to limit a recovery. We expect 2026F volume at 787k units (+5% y-y). ASP rose from IDR189mn in 2011 to IDR390mn in 2025 (+6% CAGR), outpacing wage growth and keeping prices sticky at +5% y-y in 2025F. NPL of auto increased to 1.9% in 2025 (record high), constraining credit expansion, while LCGC share fell from 21% to 17%, reflecting downtrading pressure.

2W market – stable volume, export weakness persists

We expect the 2W market to remain soft, with 2026F sales at 6.45mn units (flat y-y), reflecting limited domestic momentum and weaker export performance. Domestic demand has normalized at ~560-600k units per month, primarily supported by replacement cycles and rural consumption, while entry-level segments continue to struggle with affordability and tighter financing. Exports, which peaked at 810k units in 2019, have declined to ~570k in 2024 and are likely to stay subdued amid weaker demand from key markets such as the Philippines. Production has been adjusted accordingly, with utilization remaining below pre-pandemic levels.

Exports market and beneficiaries

The export and aftermarket segments should provide a cushion against domestic softness, supported by resilient overseas demand and an aging vehicle population that drives replacement needs. Export momentum remains strong, particularly for components such as filters, wiring harnesses, and brake systems, while the aftermarket continues to expand as consumers delay new purchases amid affordability pressures. These trends, in our view, favor AUTO IJ, SMSM IJ, and DRMA IJ (all rated Buy), which have strong exposure to replacement parts, filters, and OEM export demand, positioning them as key beneficiaries of stable external markets and recurring aftermarket sales.

Indonesia Metals and Mining

Indonesia nickel

Global nickel markets in 2025 remain challenged by oversupply, but have shown emerging signs of stabilization. Prices have hovered around 15,000-16,000 USD/t, supported by robust Chinese demand and ongoing LME inventory drawdowns. Despite Indonesia’s dominance in supply – with production exceeding half of global output – tight ore feed, higher royalties, and increased production costs have constrained margins. We note Indonesian producers continue to maintain a healthy margin, while Class 1 nickel producers outside Indonesia face profitability pressures, with about a quarter of operations globally turning cash-negative. On the demand side, stainless steel and alloy consumption remain as key pillars, while the EV sector’s slowdown due to China’s LFP shift has temporarily softened battery demand.

Looking ahead, we expect nickel fundamentals to gradually improve in 2026-27F. Global demand is projected to grow 5% annually, according to the SMM data, driven by stainless steel and alloy uses, while slower EV demand recovery should be offset by higher cathode output outside China. The expected tightening of Indonesian mining quotas and higher environmental scrutiny might constrain future supply growth, creating support, in our view.

Indonesia nickel: A growing sector with production shows a gradual increase

Although the nickel market remains soft, we believe the sector is poised for further growth as players realize their earnings growth trajectory following higher ore sales and the commissioning of high-pressure acid leach (HPAL). While softer market conditions have largely been priced in, we remain optimistic about the long-term positive trajectory of the industry. Our investment strategy continues to favor a bottom-up approach, with a focus on companies that: 1) specialize in ore sales, 2) are ramping up production capacity, and 3) are vertically integrated, as these companies are better positioned to face fluctuations in nickel ore prices and premiums. We like ANTM and INCO (both rated Buy) for their nickel ore volume growth story starting in FY26F and FY27F once ANTM’s rotary kiln electric furnace (RKEF) and INCO’s HPAL are commissioned, which will, in turn, push for more ore demand. We like NCKL (Buy) for its consecutive outstanding result and cheap valuation. We note NCKL and MBMA (Buy) among the beneficiaries of margin expansion, thanks to high cobalt prices.

Global metallurgical coal markets remain well supplied in 2025, maintaining prices in the range of 170–200 USD/t. Steel output declines in China and Europe have limited demand growth, though India continues to expand as the world’s key incremental buyer. India’s drive to add 100 Mt of steel capacity by 2030 and improved washing capacity have sustained met coal imports despite an increase in domestic production. China’s more efficient blast furnace operations and inventory drawdowns have constrained seaborne trade.

Over 2026-27F, a modest recovery in global steel production and infrastructure investments in India and Southeast Asia should lift met coal consumption. Australian exports are forecast to rise from 147 Mt in 2025 to 169 Mt in 2027 (source: Australian Department of Industry, Science, and Resources) , though earnings will stabilize at ~AUD37bn  as prices stay flat before edging up slightly to 196 USD/t in 2027. Long‑term decarbonization trends, including EAF and DRI adoption, will gradually reduce metallurgical coal intensity beyond this decade, in our view.

Fig. 114: Indonesia iron and steel (I&S) and nickel intermediaries export: ~11% increase y-y in the first half of 2025 was contributed by NPI and MHP

Indonesia export (in Mt)	2021	2022	2023	2024	9M24	9M25	y-y
FeNi/NPI	3.5	5.8	8.5	9.7	6.8	8.7	28%
Flat-rolled	3.2	3.1	2.8	3.4	2.4	2.5	6%
Semi-finished	3.8	3.7	3.4	4.0	3.3	2.6	-22%
Matte	0.1	0.3	0.3	0.3	0.2	0.2	-18%
Others semi finished	2.9	2.3	3.2	4.1	3.1	3.6	15%
MHP	0.1	0.5	0.9	1.6	1.1	1.5	42%
Total I&S	13.5	15.7	19.2	23.0	16.9	19.1	13%

Indonesia export (in Mt)	2Q24	3Q24	4Q24	1Q25	2Q25	3Q25	q-q
FeNi/NPI	2.4	2.3	2.8	2.8	2.9	3.0	4%
Flat-rolled	0.8	0.8	1.1	0.8	0.8	0.9	3%
Semi-finished	1.1	1.1	0.7	0.9	0.9	0.7	-28%
Matte	0.1	0.1	0.1	0.1	0.1	0.1	40%
Others semi finished	1.1	1.1	0.9	0.9	1.3	1.5	17%
MHP	0.4	0.4	0.5	0.5	0.5	0.5	12%
Total I&S	5.8	5.6	6.1	5.9	6.5	6.7	3%

Source: CEIC, Verdhana research

Indonesia gold and copper

In 2025, gold prices  have surged to record highs above USD4,000/oz amid an environment of monetary easing, fiscal deterioration in the US, and heightened geopolitical tensions. Safe-haven demand remains the primary driver, as central banks continue heavy net purchases, complemented by robust bar and coin investment. Central bank purchases will likely hold above 1,000 tonnes annually, in our view, maintaining baseline support even as investment inflows plateau. Industrial and jewelry demand, however, have weakened under the weight of elevated prices and weak Chinese consumer sentiment. Global gold supply has modestly increased as new mines and recycling activity respond to persistently high prices. We forecast export earnings to reach USD60bn in 2025–26F, positioning gold as the world’s second-largest resource export by value after iron ore.

Copper markets, meanwhile, have tightened due to Freeport supply disruptions and steady consumption from renewable energy and electrification sectors. Prices averaged about 10,000 USD/t in 2025 as mine outages and ore-grade declines constrained output. Demand from EV charging infrastructure, grid reinforcement, and solar installations continues to expand, keeping inventories low and prices supported. We project global copper mine output to rise 3-4% annually through 2027, yet supply elasticity remains limited in the short term. Consequently, copper will remain one of the most strategically undersupplied base metals through the decade, in our view, sustaining a bullish long-term investment outlook.

Indonesia gold and copper: poised for rerating amidst domestic production upcycle

We believe Indonesia is poised for a “Golden Era for Growth,” driven by the accelerating expansion of Indonesian gold producers, supported by strong price fundamentals and a robust project pipeline. We highlight companies such as ARCI, INDY, EMAS, BRMS, and UNTR (all rated Buy) as core beneficiaries of the sustained high gold price environment and domestic production upcycle. Indonesia is entering a structural growth phase towards large-scale integrated operations, higher-grade discoveries, with new mines under construction (e.g., Pani Gold by ARCI, Doup by UNTR) with extensions across operational assets such as Martabe (UNTR) and Toka Tindung (ARCI).

Indonesia gold players’ 2025 dynamic and outlook:

Fig. 129: Indonesia gold project comparison

Company		ARCI	MDKA	EMAS	INDY	UNTR	UNTR	UNTR	ANTM	BRMS	BRMS	BRMS	BRMS	CUAN
Project Name		Toka Tindung	Tujuh Bukit Gold	Pani Gold	Awakmas	Martabe	Sumbawa Jutaraya Gold	Doup	Pongkor & Papandayan	Citra Palu Minerals	Gorontalo Minerals	Linge Mineral	Suma Heksa Energi (SHS)	INTAM
Location		North Sulawesi	East Java	Central Sulawesi	South Sulawesi	North Sumatra	Sumbawa	North Sulawesi	West Java	Central Sulawesi	North Sulawesi	Aceh	West Java	Sumbawa
Status		Operation	Operation	Construction (2026)	Construction (2026)	Operation	Operation	Construction (2026)	Operation	Operation	Exploration	Exploration	Exploration	Exploration
Concession Information
Processing type		CIL	HL	HL & CIL	CIL	CIL	N/A	CIL	CIL	CIL/HL	HL	CIL/HL*	CIL/HL*
Concession Size	Ha	39,817	1,115	N/A	14,390	130,252	8,697	4,000	6,047	85,180	24,995	36,420	7,291	18,500
Life of mine	Years	>15	4	>15	16	13	15	14	5	>15	>15	>15	>15
Hauling Distance	Km	2	3	N/A	45	N/A	6	N/A	N/A	2.5	15	N/A	N/A
Gold Economics
Resources	Moz	5.5	1.3	6.9	2.0	6.1		3.1	0.9	4.5	5.4	0.3	2.1	0.0
Grade	g/t	1.2	0.4	0.7	1.4	1.1		1.0	4.7	3.5	0.4	1.6	0.9	11.6
Reserves	Moz	3.9	0.6	1.2	1.4	3.5	0.7	1.6	0.2	3.5	0.8	0.1	0.6	8.7
Grade	g/t	1.2	0.4	0.7	1.4	1.3	1.1	1.3	6.4	3.2	0.3	1.8	1.1	14.8

USD/oz	1537.1	N/A	1472.0	1882.0	N/A	N/A		~1949					N/A	N/A
Costs AISC	USD/oz	1,537	1,792	N/A	1,472	1,882	N/A	N/A		~1949
Average gold production	Koz	93	116	500*	120*	220	40*	140-195*	30	65

Source: Company data, Verdhana research

Indonesia Energy

Coal outlook

Thermal coal markets remain stable but subdued. Prices recovered to about 108 USD/t (NAR 6,000 kcal) in 3Q 2025, rebounding from March lows due to summer power demand in the Northern Hemisphere. However, global imports are steadily declining as China and India expand domestic production and renewable capacity. In China, overproduction and higher hydropower output have depressed import volumes, while India’s record domestic output and renewable build‑out further limit growth. We forecast global seaborne trade to contract 6.6% y-y in 2025F and another 3–4% in 2026F as clean‑energy transitions accelerate.

By 2027F, we expect prices to hover near 110 USD/t, with exports gradually declining. Thermal coal demand should remain structurally in retreat in OECD markets but persist in emerging Asia for baseload reliability. As renewable capacity expands and financing for coal tightens, both demand and supply should decline at a similar pace, keeping the market broadly balanced but smaller in scale.

Upward domestic coal demand; Indonesia as flexible coal supplier maintains cash cost level

Domestic demand set to offset softer China. The IEA has forecast Indonesia’s local coal demand to expand ~7% to ~268 Mt in 2025F, driven by higher power generation and the continued ramp-up of energy-intensive smelting capacity (nickel, copper and alumina). In 2026E, domestic demand is forecast to rise by a further ~16 Mt as new industrial loads come online and PLN’s coal dispatch stays elevated, keeping coal as the reliability backstop amid uneven hydro/renewables output. The captive CFPP fleet is set to add ~11GW of capacity, according to GEM projections, and using a planning rule of ~4 Mt per 1GW per year, this pipeline implies an incremental ~45 Mt of domestic demand by FY28E.

We highlight Indonesia coal to maintain its competitive margin despite soft coal prices. Other than that, coal companies under our coverage are on track with early-year mine plans to increase production, thanks to their stripping ratio flexibility that helps maintain margin. Coal companies continue to offer attractive yield averaging 7% based on FY25F earnings. We like AADI (Buy) as one of the cheapest traded coal companies globally with higher dividend payout trajectory. We like HRUM and UNTR (both rated Buy) for their diversification effort.

Indonesia coal player 2025 dynamic and outlook:

Indonesia Oil and Gas

India and ASEAN taking center stage; oil and gas sector is in a race against output decline

Global oil demand growth is shifting decisively toward Asia, with the IEA expecting a modest 2.5 mb/d rise through 2030 to 105.5 mb/d, front‑loaded in 2025-26 before flattening amid weaker economics and accelerating electrification. Nearly all gains would come from Asia Pacific, led by India (+1.0 mb/d) and key ASEAN economies – especially Indonesia (+470 kb/d, +3.8% CAGR) – as industrialization, petrochemicals, and transport fuel demand expand. India emerges as the single-largest growth driver owing to robust GDP and surging mobility, though high household leverage (43% of GDP) is a potential drag. At the same time, the IEA warns that the global oil and gas industry faces steep declines associated with organic supply/demand dynamics, and would require massive capital just to sustain the current output. Without consistent investment of USD540-570bn annually, production could shrink 8-9% per year, collapsing by 2035 to around 42 mb/d of oil and 1,600 bcm of gas, and by 2050 to only 15 mb/d and below 500 bcm. With 90% of upstream spending since 2019 devoted solely to offset declines and project cycles stretching by two decades, the industry essentially “runs fast just to stand still” as capital intensity rises and resource replacement slows.

Emerging Indonesia oil and gas demand; push for new oil and gas development

Indonesia’s General National Energy Plan (RUEN) projects a sharp rise in oil and gas demand by 2050, with oil consumption expected to grow from 1.66 mboepd to 3.97 mboepd (+139%) and natural gas demand surging from 6,000 MMscfd to 26,000 MMscfd (+298%). However, national production has declined over the years, falling to 578 mboepd in 2024 amid stagnant upstream investments. For 2025, SKK Migas targets 1,610 mboepd of lifting (605 mb/d oil and 1,005 mboepd gas), in line with the APBN target, while pursuing its long‑term goal of raising oil output to 1 million bopd by 2029. To close the widening supply‑demand gap, the government has launched the offering of 75 new oil and gas working areas (WK Migas), starting no later than October 2025, to attract local and international operators, recognizing that most new projects require 5-10 years of development before production.

We view MEDC and ENRG as main beneficiaries of the new oil and gas development target. We highlight MEDC for its recent Sakakemang acquisition and the accretive Corridor acquisition, increasing production and improving EBITDA. ENRG is among the fastest-growing oil and gas producers, driven by yearly acquisitions and aggressive drilling projects targeted over the next three years. As such, given MEDC’s and ENRG’s high gas profile, the companies are well shielded by the fluctuations in oil price.

Indonesia CPO

Sector re-rating to be visible

Structural CPO demand anchored by biodiesel expansion

We expect Indonesia’s biodiesel expansion to remain the key structural driver for the CPO sector. We reckon that this initiative is in line with President Prabowo’s energy security initiatives to lower the dependency on oil imports, and we estimate the incremental demand from Indonesia’s biodiesel expansion to contribute >50% of total additional global demand annually. Therefore, we forecast CPO price to remain at an elevated level of >USD1,300/ton for the remaining year. Not to mention, the government’s adjustment to the biodiesel subsidy scheme has reduced financial burden on producers, which will result in CPO firms’ overall margin expansion, in our view.

2026F outlook: Sustained global CPO demand

The government’s initiative to roll out B45 and B50 in 1H26F/2H26F is set to lift domestic consumption meaningfully, bringing CPO demand to ~17.5mn tons for B50 (an additional ~4mn tons vs B40). Therefore, we expect Indonesia’s CPO stock levels to hover below 3mn tons in FY26F to fulfil domestic demand. We also estimate global demand to increase on the back of stronger biodiesel consumption globally, driven by expanded blending mandates in key markets (Malaysia, Brazil, and the US) and rising industrial use in the oleochemical and food sectors. Hence, we expect a higher average CPO price of ~USD1,430/ton and ~USD1,480/ton in FY26F/27F.

Stocks for action

We believe the CPO sector deserves a valuation re-rating on the back of structural global CPO demand and expanding profitability, as well as better predictability than other commodities. Our top pick is Triputra Agro Persada (TAPG IJ, Buy), underpinned by its higher productivity compared with the industry, the leanest cash cost among CPO firms, strong earnings growth, and generous dividend payments (~9-10% yield for FY25F/26F). Our second pick would be Dharma Satya Nusantara (DSNG IJ, Not rated), supported by its strong earnings growth and prime-age trees, though we note its higher leverage limits its appeal vs TAPG. Our third pick would be London Sumatra (LSIP IJ, Not rated), driven by its superior margins and undemanding valuation, but its lack of dividend payout reduces near-term investor attractiveness.

Fig. 149: ASEAN CPO peer comparison

Company	Bloomberg	M Cap	Rating	Target Price	Last Price	Upside	P/E (x)		P/B (x)		ROE (%)		Dividend Yield (%)
Company	Ticker	US$ mn		LC	10-Oct-25	(%)	FY25F	FY26F	FY25F	FY26F	FY25F	FY26F	FY25F	FY26F
Malaysia
SD Guthrie	SDG MK	8,867	Buy	5.80	5.40	7%	15.0	13.8	1.7	1.6	11.3	11.7	3.8	3.8
IOI Corporation	IOI MK	5,921	Buy	4.50	4.02	12%	17.1	17.1	2.1	2.0	12.2	11.8	3.2	3.4
Kuala Lumpur Kepong	KLK MK	5,526	Buy	23.00	20.90	10%	20.6	14.5	1.5	1.4	7.3	10.0	3.6	4.2
Genting Plantations	GENP MK	1,069	Not Rated	na	5.02	na	12.7	12.6	0.8	0.8	6.8	6.5	4.7	4.6
United Plantations	UPL MK	3,619	Not Rated	na	24.50	na	20.9	20.4	6.3	6.1	30.0	30.4	na	na
Johor Plantations Group	JPG MK	950	Not Rated	na	1.60	na	12.4	12.4	1.3	1.2	10.7	9.8	3.7	4.0
Sarawak Oil Palms	SOP MK	729	Not Rated	na	3.43	na	7.9	8.0	0.8	0.8	11.3	10.4	3.6	3.3
Average							15.2	14.1	2.1	2.0	12.8	12.9	3.8	3.9
Singapore
Wilmar International	WIL SP	14,683	Neutral	3.20	3.05	5%	9.8	9.1	0.7	0.6	7.5	13.1	6.8	7.2
Golden Agri-Resources	GGR SP	2,689	Not Rated	na	0.28	na	na	na	na	na	na	na	na	na
First Resources	FR SP	2,258	Not Rated	na	1.89	na	8.8	8.5	1.6	1.4	21.1	20.0	5.7	5.9
Average							9.3	8.8	1.2	1.0	14.3	16.6	6.2	6.6
Indonesia
Triputra Agro Persada	TAPG IJ	2,055	Buy	2,300	1,720	34%	9.1	8.3	2.8	2.7	31.7	33.5	10.8	11.8
Dharma Satya Nusantara	DSNG IJ	1,053	Not Rated	na	1,650	na	9.5	8.3	1.6	1.4	17.1	17.0	1.4	2.5
London Sumatera	LSIP IJ	560	Not Rated	na	1,365	na	5.7	5.2	0.7	0.6	11.7	11.7	na	na
Astra Agro Lestari	AALI IJ	924	Not Rated	na	7,975	na	9.9	9.5	0.6	0.6	6.5	6.5	3.2	4.4
Average							8.6	7.8	1.4	1.3	16.8	17.2	5.1	6.3

Note: Not rated companies are using Bloomberg consensus estimates; Priced as of 4 December
Source: Bloomberg Finance L.P., Verdhana estimates

We project a gradual CPO stock erosion as demand growth outperform supply growth

Indonesia biodiesel mandate expansion significantly contributes to additional global demand

Indonesia Property and Building Materials

Income stability is paramount for mortgage recovery

We project 2026 marketing sales to grow by 5% y-y to IDR28tn (vs FY25F: IDR26tn), marking a new record high. Growth will likely be supported by: 1) clearer VAT incentives, 2) stable mortgage rates with potential downside amid ample liquidity, and 3) stable property prices. The key challenge, in our view, lies in restoring confidence – particularly in the business environment – to improve income stability. Building materials, in our view, should continue steady growth, with a more appealing dividend angle (6-7% yield in 26F).

Property – importance of income stability for broad-based recovery

Income expectations, based on the Statistics Bureau data, remain near their lowest levels since 2023 indicating subdued confidence, which continues to restrain mortgage growth despite record-low borrowing costs. Mortgage NPLs have risen to 3.1% – the highest level excluding the pandemic – which highlights that income stability, rather than rate cuts, is the key driver of housing demand as end-users increasingly dominate purchases. Our pecking order in property is PWON > CTRA > BSDE > SMRA.

For 2026F, PWON (Buy) will plausibly be the most resilient given the stable nature of rental revenue, though headwinds from property sales might emerge. CTRA (Buy) will introduce the new project’s location, expanding its reach and diversifying demand source. BSDE and SMRA (both rated Buy) might continue to enjoy tailwinds in their mid-high residential products and shophouses growth, given the resiliency of the buyer segment.

Building materials – steady growth and dividend

We expect the building material sector to deliver steady growth and dividends. We prefer AVIA and ARNA (both rated Buy) given their strong moat and comparative advantages in their respective industries. Amid the general scarcity of growth and declining sovereign yield, we expect both companies to offer a decent dividend of 6-7% yield in FY26F, which might provide cushion should growth recovery remain limited.

Total shareholders’ return – room for improvement in dividend

The already de-rated multiples and record-low local institutional ownership of the stocks should limit incremental selling pressure. With similar growth and slightly better profitability figure from peers, we believe Indonesia’s property and building materials might have incremental re-rating from higher yield and a more consistent dividend payment. Indeed, the anticipated capex cycle from property players would amount to 50% of OCF, opening room for higher dividend payment.

Indonesia Healthcare

Negative surprise behind us but BPJS remains the swing factor

BPJS referral tightening continues to weigh on 2025 patient volumes

BPJS’s tightening of patient referrals that began in 3Q24, following a spike in the BPJS claim ratio since late 2023 (Fig. 162), has led to a decline in industrywide BPJS patient volumes. It has also contributed to the healthcare sector underperforming broader indices for two consecutive years (Fig. 165). A combination of stricter BPJS referral policies, a high base of patient volumes in 1H24 due to the dengue outbreak, and reimbursement issues faced by hospitals with several private insurers resulted in a soft 1H25 performance. Although 3Q25 might show a sequential improvement, sectorwide growth remains below normal levels on a y-y basis.

2026F outlook: BPJS remains the swing factor

We believe the key driver behind the elevated BPJS claim ratio is the government’s decision to delay BPJS premium adjustment, while already raising the Indonesia Case Base Groups’ (INA-CBGs) reimbursement tariff by a blended 9.5% in 2023. Ideally, premium adjustments would be introduced concurrently with the new standard inpatient class (KRIS). Given the politically sensitive nature of premium and reimbursement decisions, delays remain possible. The Minister of Finance recently announced a IDR20tn capital injection for BPJS Kesehatan to support operations through 2026, ensuring no premium hikes until June 2026 (link). It provides short-term relief but does not address the structural imbalance behind the high claim ratio. As a result, we expect BPJS patient growth to remain muted next year, once again limiting volume growth for hospitals.

Attractive valuation, yet normalized growth requires BPJS stabilization

Sector valuations have corrected, reflecting reduced downside risks. Even so, strong volume recovery remains unlikely as long as BPJS restrictions are in place, in our view. Hermina (HEAL IJ, Buy) remains our top pick, as we expect solid earnings growth in 2026F, primarily driven by margin normalization from its newly opened hospitals. Mitra Keluarga (MIKA IJ, Buy) also offers compelling value with one of the highest ROEs among regional hospital operators, second only to Bumrungrad (BH TB, Neutral). We also maintain a positive view on Siloam (SILO IJ, Buy) following the CVC acquisition, and we see progress on asset repatriation from First REIT as an important catalyst to monitor. We maintain our Neutral rating on Prodia (PRDA IJ), as in our view the company still faces slower revenue growth due to a price war in the lab testing space.

Indonesia poultry

Capitalizing on government free meal program

One of the few sectors that benefits directly from free meal program

In our recent sector initiation report (Eggs in the right basket), we highlighted two major factors driving our constructive view on the poultry sector. First, supply-side management continues to improve through the government’s initiative to reduce Day-Old Chick (DOC) Grandparent Stock (GPS) quotas starting in 2024, which should translate into lower DOC Final Stock (FS) within 1.5-2 years. Second, structural demand for poultry protein is supported by President Prabowo’s flagship free meal program. Our scenario analysis suggests that this program could lift domestic poultry meat demand by 10-34% (Fig. 167).

We believe these catalysts underpin the sector’s recent outperformance vs the broader market (Fig. 168), along with higher poultry prices (Fig. 169), which have moved in tandem with the acceleration of the free meal program rollout (Fig. 170). Elevated poultry prices will support the commercial farming segment, with both JPFA and CPIN having recorded negative operating margins over the past few years (Fig. 171). Meanwhile, raw material prices have remained manageable, in our view, providing additional margin relief.

2026F outlook: further demand acceleration

We expect the stable and elevated poultry price momentum to continue into next year, in line with the further rollout of the free meal program. The government has allocated IDR100tn for the program in 2025 and will increase it to IDR335tn for 2026F, up almost 3.4x from last year. On the supply side, while official figures have not yet been published, our channel checks indicate that the DOC GPS import quota for 2025 is set at 570-580k, which remains within a manageable range compared with 540k in 2024. However, investors should keep in mind that the government continues to enforce a reference purchase price ceiling for broiler meat at the producer level, currently set at IDR25k/kg. Our checks also show that Japfa (JPFA IJ, Buy) and Charoen Pokphand Indonesia (CPIN IJ, Buy) have been expanding their consumer products businesses, which has led to more stable pricing and higher-margin profiles. Over the longer term, we believe this should help mitigate volatility in profitability and earnings.

Still room for upside

Supported by sticky and elevated poultry prices, along with companies’ continued expansion into higher-margin consumer products, we believe the sector could still see another leg up in 2026F. Japfa remains our top pick, as the company has demonstrated an improving ROE profile despite volatility in underlying commodity prices, while also trading at a more attractive valuation relative to CPIN.

Fig. 167: Estimated addition of annual broiler demand from free nutritious meal program (MBG) full implementation

	Bear	Base	Bull	Remarks
Total productive days	20 days x 12 months: 240 days			104 weekends, 25 national holiday and annual leave
Target mn recipients/day	24.9	41.5	82.9	Bull: Govt target of 82.9 recipient. Base: 50% of target, Bear: 30% of target
# of cut for a single broiler	10 pieces, twice a week			2 breast, 2 thighs, 2 drumsticks, 2 wings, 2 tenderloins, twice a week
Total broiler needed (mn unit)	239	398	796	twice a week x productive days × recipients × # of cut
Avg broiler mass (kg)	1.62			Avg of a 30 days-old broiler
Additional broiler from MBG (mn tons)	387	645	1,289	Broiler needed × avg broiler mass
2024 annual supply (mn tons)	3,840			Latest print
Addition from MBG to existing supply	10.1%	16.8%	33.6%

Source: Badan Gizi Nasional, Verdhana estimates

Indonesia steady compounders

Undervalued hidden gems, TSR-driven stocks

In this section, we highlight several companies that are of high quality and that we believe can provide attractive shareholder returns. These companies are what we call “steady compounders” – companies that compound earnings, driven by bottom-up dynamics. Most of these companies have demonstrated solid track records and are undervalued, in our view. Our top picks: ASSA IJ, AUTO IJ, MIDI IJ.

AUTO IJ: Jack of all trades

We view AUTO as severely undervalued at only a 5x P/E for 2026F. AUTO has grown into a successful and highly profitable spare parts retailer. AUTO has more than >40 JV companies that are producing multiple spare parts at scale. Hence, AUTO has been able to triple its profit since 2019, while new car sales have plummeted by 20% and 2W sales have been flat. We believe AUTO IJ’s edge in both manufacturing and the trading business could provide a solid earnings CAGR of 10% over 2024-2027F, with an attractive yield of 8% pa. AUTO is currently trading at what we consider to be an inexpensive 2026F P/E of 5.6x and a 14% ROE, and thus we expect TSR (earnings growth + yield) of 17% in 2026F.

ASSA IJ: Logistics-driven business

ASSA operates the only end-to-end logistics ecosystem in Indonesia, from first to last mile. As of 9M25, ASSA’s profit grew 64% y-y, driven by its logistic business. We believe the stable earnings growth is attributable to the sticky nature of the logistics business. An The used car ecosystem could become a growth driver – in auctions and retail used car dealerships. We forecast an earnings CAGR of 34% over 2024-2027F, and the company is currently trading at an 8.2x 2026F P/E and a 14% ROE. ASSA provides a 4.2% dividend yield and thus we expect a TSR (earnings growth + yield) of 19% for 2026F.

MIDI IJ: FCF inflection ahead

MIDI looks set to follow Alfamart’s (AMRT IJ) successful playbook, which delivered a +47% earnings CAGR during 2020-23 after reaching scale and generating strong free cash flow. Having repaid its bank loans in 2023 post-rights issue, MIDI enjoyed margin gains from deleveraging-mirroring AMRT’s 2018–19 turnaround. The company has since raised its dividend payout ratio to 45%, the first hike in 12 years, and we see room for further upside ahead. We project a 25% earnings CAGR for 2024-27F, with MIDI trading at a 15x 2026F P/E, 18% ROE, and offering a 2.1% yield, implying TSR of ~21% in 2026F.

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.

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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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Research Analysts

Jupriadi Tan
(jupriadi.tan@verdhana.id)

Gerald Hugo
(gerald.hugo@verdhana.id)

Sandy Ham
(sandy.ham@verdhana.id)

Jody Wijaya
(jody.wijaya@verdhana.id)

Michael Wildon
(michael.wildon@verdhana.id)

Erwin Wijaya
(erwin.wijaya@verdhana.id)

Samuel Christian
(samuel.christian@verdhana.id)

David Tjahjadi
(david.tjahjadi@verdhana.id)

Felix Justin
(felix.wirianto@verdhana.id)

Nayla Yasmin
(nayla.yasmin@verdhana.id)

Tags: EQUITY STRATEGY, Indonesia Equity Strategy, Jupriadi Tan, Gerald Hugo, Sandy Ham, Jody Wijaya, Michael Wildon, Erwin Wijaya, Samuel Christian, David Tjahjadi, Felix Justin, Nayla Yasmin

Anchor Report: Indonesia Equity Strategy - Turning over a new leaf

Indonesia equity strategy

Turning over a new leaf

Turning over a new leaf

Fig. 1: Stocks for action

Fig. 2: Indonesia – The slowest wallet size growth in a decade

Fig. 3: Indonesia – Considerable government cash on hand

Fig. 4: Conglomerates market cap – USD300bn just from three conglomerates groups

Fig. 5: Indonesia – heavier reliance on private sector vs govt spending

Fig. 6: JCI dividend yield (%)

Fig. 7: Excessive outflow in both bond and equity in Indonesia

Fig. 8: TSR attribution analysis framework

Fig. 9: Sectoral 2026F TSR expectation – retail & IT services, FMCG, and transports are top 3 sectors with highest TSR

Fig. 10: Stocks with dividend yield above ID10 year – commodities dominate the list

Fig. 11: Sectoral TSR expectations (1/2) - Banks, Telco & Tower, Auto & Parts, FMCG

Fig. 12: Sectoral TSR expectations (2/2) – Retail & IT services, healthcare, property & building materials, transport, poultry, CPO, and commodity

Fig. 13: Indonesia’s economy is driven by private sector – hence, fiscal acts as the catalyst for growth, not the main drivers (2024)

Fig. 14: Sluggish growth in government expenditure

Fig. 15: Indonesia’s risk premium Improved – now stands at -2 stdev (the lowest spread in the last decade) …

Fig. 16: … yet Indonesia equity market valuation reaches -2stdev vs DM, the lowest in the past decade

Fig. 17: Government has significant cash on hand – plenty of room to spur spending

Fig. 18: The slowest wallet size growth in a decade

Fig. 19: The slowest job creation and wage growth

Fig. 20: Wallet size growth breakdown by sector

Fig. 21: Macro-micro dichotomy – GDP growth trend differed with corporate top-line, so does corporate capex

Fig. 22: Low consumer and business confidence – also first capex decline since 2021

Fig. 23: Record-low working capital lending rate, yet slow loan growth

Fig. 24: Record-low auto lending rate, yet slow auto loan growth

Fig. 25: Record low mortgage lending rate, yet sluggish mortgage demand

Fig. 26: M2 grew at 8% y-y as of Sept-25…

Fig. 27: …driven by loan growth. But the loan that’s growing the fastest was investment loan and working capital loan was the slowest

Fig. 28: Of the investment loan, 43% of the loan increase came from mining-related – and this might not be sustainable for job creation

Fig. 29: Mining related loan contributions to total investment loan

Fig. 30: Wholesales and retail working capital loan – leading indicator of business loan – the slowest in the decade (excluding covid period)

Fig. 31: Declining individual savings in the past decade

Fig. 32: Weak demand across retailers – same store sales growth % y-y

Fig. 33: Weak job creation – 82% of jobs created in 2020-25 were in the low-income segment (below minimum wage)

Fig. 34: Even for those earnings minimum wages, the growth cannot keep up with the cost of living, let alone the majority of the employees earnings less than minimum wage

Fig. 35: High unemployment level, especially in the youth

Fig. 36: Estimate of free meal program – potential for significant growth in 2026F due to 2025 low base

Fig. 37: Estimated savings per household

Fig. 38: Estimated impact to rural economy

Fig. 39: Meal program’s recipients and vendor trend since acceleration period in Aug

Fig. 40: Monthly run rates of free meal program (1/3) – vendors from average of 5K to 27K

Fig. 41: Monthly run rates of free meal program (2/3) – average recipients from 17 to 76mn

Fig. 42: Monthly run rates of free meal program (3/3) – monthly disbursement from IDR5tn to IDR22tn

Fig. 43: EU apparel and footwear imports

Fig. 44: Indonesia’s OEM manufacturers have the highest production costs among peers

Fig. 45: Indonesia’s permit took 2.5x longer than Vietnam

Fig. 46: Days required to register a new company

Fig. 47: Prioritized labour-intensive factories for faster investments permits and regulations from NEC

Fig. 48: Textile and apparel peers’ comparison – Indonesia’s cost is generally competitive; room for improvement via lower rates to improve capital goods

Fig. 49: Indonesia’s losing market share in textile and apparel exports, slightly gaining grounds in footwears exports. Vietnam + Bangladesh succeeded in verticalization of supply chain

Fig. 50: Indonesia’s losing market share in textile and apparel exports to the US, but gaining grounds on footwear

Fig. 51: Similar landscape with the US, Indonesia’s market share is also the lowest for textile and apparel exports to the EU

Fig. 52: Total stimulus rolled out in 2025

Fig. 53: 4Q25 stimulus (IDRtn) – additional cash handouts announced

Fig. 54: Elevated cash balance in central government

Fig. 55: Indonesia ranks the highest in terms of private contributions to GDP (2024)

Fig. 56: Urgency to increase tax collection to improve tax ratio and debt-service

Fig. 57: Budget & current account deficit, and sensitivity analysis

Fig. 58: FY26F budget sensitivity – every USD10/bbl change moves deficit by 26bp

Fig. 59: ICP vs Brent price trend (USD/bbl)

Fig. 60: “Other spending” account at IDR502tn (2% of GDP) should act as a buffer

Fig. 61: Indonesia’s natural hedge – coal prices tend to offset oil price movement, vice versa

Fig. 62: Mineral down-steaming provides buffer to Indonesia’s CAD

Fig. 63: Indonesia’s sovereign nominal and real spread with the US – nominal spread is close to record low

Fig. 64: US – Declining wallet size and labour growth may strengthen case for lower FFR

Fig. 65: However, higher effective tariff has led to a higher PCE

Fig. 66: 50% of items in PCE (180 out of 360 items) have a monthly price growth >3%

Fig. 67: Adjustment post liberation-day - consensus hiked PCE expectation by +40-50bp, while expecting FFR to decline by 40bp

Fig. 68: IDR sensitivity per USD1bn portfolio outflow

Fig. 69: Top central banks have done quantitative tightening (QT) since 2022

Fig. 70: Market cap - conglomerates added USD300bn since 2019 to JCI market cap

Fig. 71: JCI and LQ45 – widening spread performance between JCI and LQ45

Fig. 72: Three group conglomerates have surpassed top 4 banksmarket cap

Fig. 73: P/E comparison – the average conglomerate groups are all trading above market and banks market P/E

Fig. 74: Top 3 conglos – a large number of shareholders (half of that of big caps combined), high P/E, high market cap, but EBITDA still not growing

Fig. 75: Stocks performance by sector – past three years

Fig. 76: Indonesia Uncertainty Index rose to record high – ranked 9 out of 67 countries