Summary of macro developments and takeaways from corporate meetings

Macro developments

National Economic Council - Gen. (Ret) Luhut B. Pandjaitan:

- Program execution must be data-driven, with a focus on taking calculated risks.

- The down-streaming industry will be key in pushing for food and energy self-sufficiency.

- Digital biometrics will play a pivotal role in enhancing the quality and targeting of government spending.

Deputy of Ministry of Investment – Prof. Tirta Nugraha Mursitama

- 9M24 investment realization reached IDR1,261tn (+20% y-y), with FDI at IDR654tn.

- Key growth drivers: downstream industries (IDR273tn, 22%), especially smelters (nickel, copper).

- Nine priority sectors for investment: renewables, down-streaming, food security, semiconductors, digital infrastructure, exports, healthcare, the new capital (IKN), and education.

Deputy of Ministry of Finance – Mr. Thomas Djiwandono

- Focus on human capital development, including school renovations and meal programs, with a macroprudential approach.

- Will continue monitoring purchasing power through data-driven decisions.

Nomura’s China & ASEAN Economists – Harrington Zhang and Euben Paracuelles

- China’s annual stimulus expected to be 2-3% of GDP, focusing on fiscal revenue gaps and resolving pre-sold home delivery issues.

- A 60% tariff on Chinese exports (starting mid-2025) could reduce China’s GDP by 0.4pp.

- US elections impact: Impact on Indonesia’s GDP is likely to be minimal (-0.1pp), with Vietnam, Malaysia, and Thailand benefiting from potential supply chain relocations.

National Nutrition Agency (NMP) – Prof. Dadan Hindayana

- NMP aims to address the stunting of childhood growth in vulnerable and poor households, which have 2.5 children on average.

- Key growth periods for children are at the first 1,000 days of life and ages 10-13.

- By January 2025, the program targets 1,000 service units covering 3 million students, scaling to 6 million by April 2025.

- From IDR71tn budget next year, ~10% will be used for capex.

- Program supports local economies, with 95% of funds spent locally and aims to create 50 jobs per service unit.

Banks

Bank Negara Indonesia (BBNI IJ, Buy)

• Net interest margin (NIM) is likely to remain at 4.2% in FY24, according to management. 3Q NIM at 4.4% was driven by higher loan yields and reduced Cost of Funds (CoF).

• Savings Account (SA) balance grew 7% y-y in 3Q24, largely due to branch transformation efforts, including the conversion of front-line staff to a sales force, the upgrading oif personnel to generalist product sales, and enhancing the digital platform. Growth was primarily driven by new-to-bank (NTB) customers, accounting for 70% of total SA growth.

• Cost of Credit (CoC) is projected to conclude at 1% in FY24, according to the bank, with a focus on top-tier corporate clients. In the SME segment, the bank aims to improve underwriting standards and plans to continue to build provisions in this area.

• Loan growth remains centered on corporate and consumer segments, which were the main drivers for the first nine months of 2024. The bank is confident that it can achieve its FY24 loan growth target.

• The bank anticipates SME sector growth in 2025, supported by the government’s upcoming programs.

• BBNI has minimal exposure to loan-forgiveness policies; however, the bank intends to strengthen underwriting practices to mitigate risks associated with low-credit-score borrowers.

• Implementation of a presidential decree typically spans 3-6 months.

• Recovery rates for written-off loans remain below 1%; thus, fully provisioned loans are not prioritized for recovery.

• Key sectors such as healthcare, agriculture (agro-downstream), and the blue economy are expected to benefit from new government initiatives.

• BBNI will leverage the Export and Diaspora (Xpora) program to expand international exposure, facilitating exports for local SMEs in partnership with the Ministry of Foreign Affairs.

• In 2025, the bank has stated that it will focus loan growth on IDR-denominated loans, with expectations for improved performance compared to the current year. CoF is anticipated by management to decrease due to digitalization, with deposit growth targeted at 8-11%, driven by SA growth. The bank seeks double-digit growth through acquisitions, but aims to balance the impact on CoF carefully, expecting a 20bp reduction in CoF. Loan growth is projected at 9-12%.

• BBNI’s exposure to Sritex (SRIL IJ, Not rated) is at the subsidiary level, with ~90% provision coverage.

Bank Rakyat Indonesia (BBRI IJ, Buy)

• Recovery income is forecast by the bank to reach approximately IDR20-22tn.

• Restructured loans at NM currently stand at IDR3tn, with BBRI planning to fully write off this amount. As of September, IDR2.9tn had already been written off. It projects CoCto remain at ~6%.

• BBRI anticipates potential recovery income from insurance, with a five-year balance of written-off loans totaling approximately IDR12tn.

• BBRI’s Capital Adequacy Ratio (CAR) is at 26%, the second-highest among Indonesia’s top 10 banks, according to management.

Bank Syariah Indonesia – (BRIS IJ, Buy)

• BRIS plans to expand its gold business through a proactive business model. As of September 2024, BRIS had purchased IDR1.2tn worth of gold. With increasing demand, BRIS may consider sourcing gold from the private sector if Aneka Tambang (ANTM IJ, Buy) cannot meet its supply needs.

• The average gold investment among BRIS customers is approximately 30 grams.

• In Indonesia, only Sharia banks and egadaian are licensed to provide gold pawning services, preventing conventional banks from entering this market.

• Regulatory limits are set at IDR150mn for gold installment purchases and IDR250mn for gold pawning. BRIS charges an 18% rate for gold pawning services.

• BRIS is also focusing on serving Hajj customers. Monthly account openings for Hajj average 20,000-25,000, and last month, new openings surged to 62,000 due to a new marketing model, with an average account balance of IDR2.5mn.

Commodity

Resilient growth

Companies in the mining space shared insights on expanding production, managing reserves, and enhancing downstream integration, while maintaining competitive costs. A prominent theme was the prioritization of metals critical to the energy transition – nickel, copper, and bauxite – as well as strategic partnerships to secure downstream targets.

Mining Industry Indonesia (MIND ID) (unlisted)

As Indonesia's strategic state-owned mining holding company, MIND is focused on managing the upstream by expanding reserves, increasing production, and advancing downstream projects to drive Indonesia’s dominance in strategic minerals. The company aims to secure a mine life of 25 years with a sustainable 1:1 reserves-to-resources ratio. Currently, the main sources of revenue are Copper and Coal through Freeport Indonesia (unlisted) and Bukit Asam (PTBA IJ, Buy). The source of growth is the nickel space, mainly from Vale Indonesia (INCO IJ, Neutral) and Aneka Tambang (ANTM IJ, Buy), namely nickel smelters and battery JV, according to management. Although not yet a price influencer globally, MIND is working towards consolidating production and attracting foreign investments in downstream processes to enhance Indonesia's role in the global mining sector.

Adaro Energy (ADRO IJ, Buy)

The planned IPO (link) will separate ADRO’s thermal coal operations from non-thermal assets, with ADRO as a standby buyer if shares are not fully subscribed. Details of the IPO are expected in the coming weeks. Meanwhile, Adaro Minerals Indonesia (ADMR IJ, Buy) will focus on the domestic sales of metallurgical coal and ensure they meet regulatory compliance, but logistical issues due to river water levels could impact the alignment of production and sales. Operational expansions include a completed jetty and an aluminum smelter under construction. ADRO’s strategy emphasizes mineral and mineral processing development via ADMR.

Aneka Tambang (ANTM IJ, Buy)

ANTM projects high gold sales trading with potential future margin expansion following the offtake agreement with Freeport Indonesia for ~30 tonnes of gold, which is expected to be concluded at the end of 2025E. It expects net margin to stay at 5-6% in FY24E, with possible expansion next year. Gold production is expected to decline next year, as the gold mine is near the end of its life. Moving on, management expects more nickel ore production and sales to be back-loaded in 4Q24E. Following the mining permit issuance (locally known as “RKAB”) for North Konawe in September, ANTM expects to reach nickel ore production of 12mn wmt in FY24E (vs 9M24 at 7.3mn wmt). On price, currently ANTM sells ores at a premium of USD7-18/t but expects the premium to stabilize at USD5-10/t. For FY25, ANTM is confident it can sell 15mn wmt worth of nickel ore. Weda Bay Nickel (WBN; unlisted, ANTM owns a 10% stake) could sell ~32mn wmt but is targeting 40mn wmt nickel ore in FY25 depending on the RKAB permit (vs 33mn wmt ore sales in FY23). Lastly, the completion of the SGA Alumina facility with a capacity of 1mtpa is expected in 2025E.

Bumi Resources Minerals (BRMS IJ, Not rated)

The following discussion and timeline for BRMS is as follows: 1) BRMS will announce 3Q indicative numbers in end-Nov to early-December. BRMS reported good q-q and y-y growth in gold production in 3Q24F; 2) more JORC (Joint Ore Reserve Committee) resources data in Palu will be unlocked including an underground project with a much higher gold grade; and 3) feasibility studies and capex for the underground project will be announced in accordance with bank funding needs (estimated in 1Q25E). While still in discussion, management targets the indicative underground project to commence in 2H27, which should contribute to a substantial gold production increase.

Harum Energy (HRUM IJ, Buy)

HRUM expects record-high revenue for FY24E despite a y-y coal production decline (-9% y-y) with nickel production from WMI smelter and PT POS nickel mine supporting growth. On the coal side, production was down 4% y-y in 9M24, in line with its long-term target of 6mt, with a stripping ratio target of ~11x. On the nickel side, production from WMI is ramping up; PT POS ore production has started to contribute in 4Q, according to management. The ongoing HPAL development will likely need USD200mn in new loans, according to the company, while the share buyback program of IDR1tn remains.

Merdeka Copper Gold (MDKA IJ, Buy)

Projects in focus include AIM and Pani Gold for FY25E. The following quarter will reflect steady gold and copper productions with higher margins. The company targets gold production of 100-110 koz (flat y-y) and copper production of 14 kt for FY25 (flat y-y), with substantial capex allocations of USD100mn for FY24E and USD150mn for FY25E. Strong EBITDA contribution is expected from Merdeka Battery Materialls (MBMA IJ, Not rated) (50% of total EBITDA guidance of USD330-350mn), mainly from the commissioning of ESG and Meiming HPAL, following hauling roads optimization to cut costs and to improve nickel ore delivery.

Trimegah Bangun Persada (NCKL IJ, Buy)

Production is expected to reach its full- year target across products with incremental volume upside from limonite ore sales on faster- than-expected commissioning of ONC HPAL (producing 65ktpa MHP), which has reached full utilization since August. Margins for FeNi have sustained at high levels while those of MHP (Mixed Hydroxide Percipitate) are expected to decline following the price decline. Following the recent announcement, management is considering using the remaining IDR1.6tn in IPO proceeds to acquire an additional stake in nickel processing, with ONC (Obi Nickel Cobalt), HPAL (High Pressure Acid Leach) as one of the potential segments being identified.

Vale Indonesia (INCO IJ, Neutral)

INCO expects production to remain at 70.8kt in FY25E (flat y-y), focusing on a recovery in nickel prices despite recent declines. INCO’s cash costs for 9M24 stood at USD9,536/ton, impacted by high coal prices. The company’s EBITDA declined in 3Q24, although profitability remained intact. It expects funding needs in FY25E in the USD100-150mn range, to support future mining expansion with additional investment for smelter projects. INCO management is optimistic about increased demand from Japanese EV manufacturers, which offers opportunities for growth as it continues to leverage existing ore stockpiles.

Oil and Gas: Future-proofing demand and infrastructure

Medco Energy (MEDC) and Perusahaan Gas Negara (PGAS) presented a clear focus on meeting Indonesia’s growing energy demands with a transition to cleaner fuel sources such as natural gas. MEDC highlighted a steady capex strategy to support significant production capacity increases in oil, gas, and power, while PGAS detailed its continued investment in LNG infrastructure and domestic energy security projects.

Medco Energy (MEDC IJ, Buy)

MEDC is on track to meet the company’s production guidance of 145-150mboepd with a substantial new production capacity ramp-up expected in 4Q24E and 1Q25E, namely from Natuna assets (Forel, West Belut, and Terubuk) that total ~8mboepd, offsetting production decline in Corridor. MEDC plans to maintain the same oil and gas production and a flat capex of USD430mn for FY25F, allocating USD400mn to oil and gas and USD30mn to its power business. A credit rating upgrade, driven by rapid debt repayment, has improved MEDC's financial flexibility. It expects major projects, such as the Bulan Project, which involves an undersea cable, to contribute USD50-60mn in net income annually starting from FY28E.

Perusahaan Gas Negara (PGAS IJ, Not rated)

PGAS strategically allocates capital across upstream and downstream projects, focusing on LNG and piped gas. A 9M24 capex of USD157mn was split as 41% upstream and 59% downstream, with key projects such as the LNG Hub Arun (commissioning expected by the company in 2025) and the city gas network underway. Supply declines in Sumatra and Java present challenges, although the company expects increased LNG sourcing to offset these with slightly higher prices. PGAS expects blended margins of USD1.6-1.8 per MMBTU and a minor dip in volume 4Q due to the holiday effect.

PGAS has strategically allocated capital for growth across both upstream and downstream sectors. Despite challenges from reduced supply in Java and Sumatra, key projects like the LNG Hub and city gas are on track. PGAS anticipates minor dips in 4Q volume due to holidays but expects stable pricing

Capital expenditure and projects:

- 9M24 capex: USD157mn, 41% upstream and 59% downstream.

- Key projects: LNG Hub Arun (commissioning 1Q25), city gas network, and a biomethane project.

- Cisem phase 2 (transmission gas) to be finished in 2H25F to connect the east abundant supply to demand in the west

Supply and demand dynamics:

- 97% of sales from piped gas, 3% from LNG.

- A decline in supply from Sumatra and Java, offset by increased domestic LNG sourcing, with expected slightly higher pricing.

Outlook:

- Blended margin target of USD1.6-1.8/mmbtu, covering piped gas and LNG.

- 4Q volume may be slightly lower due to holiday impact, with stable pricing expected.

PGAS is currently trading at ~7x FY25 Bloomberg consensus EPS, with a ~10.2% FY25 yield (consensus)

Essa Industries Indonesia (ESSA IJ, Buy)

ESSA management maintained its full-year targets and added that it is on track to achieve ammonia production of 750kt and 68-73kt. EBITDA could achieve USD120-130mn in FY24E. Management believes ammonia should trade better in 4Q given current global logistics problems due to geopolitical conditions. Management stated that blue ammonia is advancing, with a targeted feasibility study phase 2 in 2025E following the start of construction and COD in 2027E. Currently, ESSA is actively pursuing several new business initiatives, with announcements expected in the near term. Management believes the current share price outperformance reflects investor optimism about future growth, including the potential impact of new business development.

FMCGs

We hosted several investor meetings at our annual Verdhana-Nomura Conference on 7-8 Nov 2024. Below are the key takeaways for companies in the FMCG space.

Indofood CBP Sukses Makmur (ICBP IJ, Buy)

ICBP’s 3Q24 sales growth of 10% y-y was mainly driven by higher volume, both domestic and overseas. Overseas continues to be the growth driver for noodles; ICBP expects sustainable >10% volume growth for its Pinehill operations going forward. To support growth, the company recently launched the Indomie Ramyeon series, on top of other products across categories. Regarding Prabowo’s Nutritious Meal Program, the company is not involved yet in the program.

Mayora Indah (MYOR IJ, Buy)

MYOR’s 3Q24 top line was driven by strong demand both locally and for exports, while the bottom line was affected by the full impact of coffee and cocoa prices, as well as foreign exchange losses. MYOR has the ability to pass on increased input costs to consumers, as we predicted in our previous report (read: Short-term pain, long-term gain), as indicated by its aggressive ASP adjustment in 4Q for coffee- and chocolate-related products; we believe margins should start to recover in 4Q. The company also maintained its strong leadership position across categories (#1 for biscuits and cereal, #2 for candy, wafers, and chocolate, according to management), with market share increasing on a q-q basis for these categories. Throughout 2024, MYOR launched several new products: Roma Durian and Fruta Gummy in Indonesia, Kopiko variant and Danissa series in China, and Malkist variants in other countries.

Sariguna Primatirta (CLEO IJ, Buy)

CLEO’s 3Q24 sales were driven by volume growth and market share gains. We note that the company’s sales ex-Java and Bali grew by >50% y-y. On top of that, gross profit margin (GPM) continued to expand on the back of increasing productivity (including automation) in facilities, as well as increasing r-PET composition. CLEO's expansion strategy is to appoint distributors in new areas then build new factories there if sales performed well. Capex amounts to around IDR40bn per factory; the company allocates IDR400-500bn capex per year, which includes capacity expansion.

Victoria Care Indonesia (VICI IJ, Not rated)

VICI’s brands are independently owned (no royalties), with R&D and manufacturing done in-house; hence, there is no transfer pricing. The company’s distribution is also internally handled in Java and Bali; excluding this, VICI works together with 35 distributors. The company’s main factory is located in Semarang and has a 60% average utilization rate. VICI will open its second factory in Feb'25 located next to its first factory in Semarang. In terms of products, VICI’s hair dye Miranda is the market leader in GT, while the company faced challenges of price war and ad spend in the online channel, according to management. Skintific (Chinese skincare brand, unlisted) spent 50% of sales on ad spend in TikTok, according to management; VICI does not plan to face price wars head-on that would burn cash.

Retailers

Aspirasi Hidup Indonesia (ACES IJ, Buy)

We believe ACES may potentially raise its 2024F SSSG guidance following the strong 9M24 SSSG of 9.8% y-y. 9M24 new store openings reached 15, and management expects the company to open five more stores later in 4Q. The company has become eligible to receive the 19% corporate tax rate in FY24 (9M24 at 22%), following the cancellation of its treasury shares. ACES’s rebranding strategy includes offering new operating value, options for expanding overseas and spinning off winning monobrands, and the potential to open more stores, especially in ex-Java, as the region offers higher ASPs (5-12% higher than in Jakarta) and margins.

Sumber Alfaria Trijaya (AMRT IJ, Buy)

AMRT recorded slower EBIT growth compared to GP in 3Q24, due to: 1) underutilization of three new DCs, which are still in the ramping-up phase; 2) chiller additions (~90% complete), following the rising demand for beverages; and 3) cash deposit machine additions (~55% complete), to improve its cash collection system. The company recorded 3Q24 SSSG at 5.7% y-y. Java SSSG was in the range of 4-6%, while ex-Java growth was in the low teens.

MAP Group (Mitra Adiperkasa [MAPI IJ, Buy] & MAP Active [MAPA IJ, Buy])

MAPI’s margin was lower in 3Q due to: 1) end-of-season sales from its fashion business; 2) higher contribution from the digital business, following the weaker Starbucks performance. In 9M24, MAPA domestic/overseas new stores opening split was at 74/26 (2023 at 60/40), following the company’s decision to scale back its expansion efforts in Vietnam and SG. Starbucks slowed its stores expansion and is focusing on improving store efficiencies amid pressure on SSSG. The company believes that 4Q will remain the strongest quarterly revenue performance for MAPA/MAPI. The performance of other business segments is expected to offset the weaker performance of Starbucks and the delayed launch of the iPhone 16.

Kopi Kenangan (unlisted)

The company has just recorded its best revenue/EBITDA performance, with SSSG in the teens. Kopi Kenangan plans to open ~400 stores in 2025 (latest at 915 stores), after having sufficient FCF generation over the past two years, as it has shifted its focus to profitability. The company aims to reach 3k stores by 2028. Kopi Kenangan saw Fore Coffee (unlisted) as its biggest competitor, backed by its good product offerings and strategic locations. So far, Chinese players haven’t managed to break into the top 5 in terms of market share. Kopi Kenangan’s future growth levers lie on investments in FMCG products, international expansion, and global franchising program, with the Philippines as the initial market.

Healthcare

Medikaloka Hermina (HEAL IJ, Buy)

HEAL experienced tighter BPJS claim audits for hospitals, but this had a limited impact on patient volume, according to management. The company’s revenue in October increased 8% m-m, with y-y growth is still improving. HEAL plans to add 500 new beds in 2025 (2024F at 1k), driven by the opening of two new hospitals and bed expansions in existing hospitals. The company is targeting a minimum 15% revenue growth and a 1% increase in EBITDA margin in 2025.

Mitra Keluarga Karyasehat (MIKA IJ, Neutral)

The company observed lower BPJS volume traffic after BPJS tightened its hospital and clinic claim audits in September. MIKA may potentially record lower revenue from the Coordination of Benefit (COB) managed-care scheme, but plans to adjust drug and doctor selections to maintain margins. The company saw a m-m recovery in patient volume in October after a weak September performance.

Prodia Widyahusada (PRDA IJ, Neutral)

PRDA guided for flat y-y revenue growth in 2024F, implying 1% y-y growth in 4Q24. The company highlighted price wars, primarily in the B2B segments, with price differences ranging around 5-10% lower. PRDA has opened more Point of Care (POC) this year, potentially reaching 70 new POCs by end-of-year. The company may adopt new strategies next year, mainly tackling the price war issue. However, these are still under discussion.

Etana Biotechnologies Indonesia (unlisted)

Etana, established in 2014, focuses on developing innovative pharmaceutical products aligned with government healthcare initiatives. Etana’s business model includes sourcing resources and technology globally, especially from China, and then bringing them to the company’s facilities to be localized for the Indonesian market. Etana collaborates with international partners such as Innocent (unlisted, China-based oncology specialist) and Cansino (unlisted, China-based producer of inhaled tuberculosis vaccine). The company targets 50% market share in vaccine sales within the first year of launch. Etana is planning an IPO, not solely to raise capital, but also to strengthen its strategic position in Indonesia.

GoTo Gojek Tokopedia (GOTO IJ, Buy)

GOTO recorded positive adjusted EBITDA in 3Q24, driven by improvement in GoTo Financials (GTF). GTF’s consumer lending profile consists of 45% Tokopedia users, 40% Gojek users, and 15% directly from the Gopay platform; the company expects GTF to reach positive adjusted EBITDA in 4Q24, one year ahead of initial expectations. On ODS, the company’s strategy is to focus on enhancing wallet share through premium offerings (food express, priority orders) and advertising. The company expects purchasing power to weaken in 4Q24, hence impacting ODS growth. GOTO is partnering with Alibaba Cloud and Tencent Cloud (both unlisted) for a major migration, which is expected to take 9-12 months and will reduce cloud costs by 50%. The company expects to experience the full impact by the end of 2025, albeit it has not given guidance on specifics yet.

Traveloka (unlisted)

Traveloka, founded 12 years ago, is currently the top travel agency across Southeast Asia with 45mn active users, of which more than half are Indonesian users. Traveloka holds a strong market presence of ~70% in Indonesia’s online travel market. In terms of profitability, Traveloka achieved positive EBITDA in 2023, with the potential to become net profit positive by 2025, according to management. Traveloka provides a wide range of services, including flights, accommodations, activities, and financial services such as PayLater, which allows it to compete with other major players, according to management. Traveloka’s strategy is to convert offline users to online, deepen penetration in markets like Malaysia, and expand to new countries such as Australia and Korea. In terms of competitive landscape, the company sees the barrier to entry to be high, as a company would need significant time, resources, and connections to become established in the industry, especially when offering a variety of services. As for new segments, Traveloka launched the Cruises category in 1H24 and mentioned that it has seen good traction.