Major cut of stripping ratio, cost efficiency, as well as limitation for high calorific coal production become the main agenda for coal sector this year. Land procurement for power plant is relatively slow. However, cash cost in USD tends to decline given depreciating rupiah, which brings bargaining power for coal miners to make another renegotiation with the contractors.
2016 state budget shows number of listed companies that will receive government capital injection namely WIKA (Rp 4 tn), KRAS (Rp 2.46 tn), PTPP (Rp 2 tn) and JSMR (Rp 1.25 tn). Investors will have to contend with issue next year but as with WSKT earlier this year, this may simply offer confidence to the view that they will be taking on more business on stronger balance sheets, enabling both WIKA and PTPP to leverage its higher equity next year.
We expect small increase in national heavy equipment sales to 8,141 units for 2016 (+6% YoY) driven by higher construction machinery volume (+16% YoY to 2,849 units) on growing demand from infrastructure project. We expect share of heavy equipment sales to construction sector to expand from 32% in 2015F to 35% in 2016F. SOE contractors currently rent most of their heavy equipment from third parties.
Indonesia’s new car and motorcycle sales were reported by the industry association down by 19% YoY to 672k units and 21% YoY to 4.2 mn units, in the first eight months of 2015. This resulted from slower economic growth, depressed commodity markets, weaker Rupiah, and the lack of meaningful new product launches.
We believe that modern retail industry in Indonesia is still underserved. This is also supported by the fact that modern retail sales has only contributed around 16% to total retail sales in Indonesia, much lower than its neighbors (vs. China 60%, Singapore 70%).
We are expecting for more government stimulus next year, targeting to bring down inflation as well as improvement in consumers’ purchasing power such as lower fuel price and electricity subsidies, helping to regain the consumers’ confidence back. Another plan is the disbursement of the direct cash assistance for households whose income is less than average.
We still bullish on cement sector as we like the sector’s recovery stories, both on demand and margin outlook in 2016. Despite we expect new players will create more challenging competition in 2016. Despite we expect new players will create more challenging competition in 2016, we still confident that demand will remain structurally strong given the new government’s infrastructure development initiatives, huge backlog on national housing sector and low cement consumption per capita.
Indonesian government planned a construction of 1,000 km of toll roads. This addition consists of Trans Sumatra, Trans Java, Samarinda – Balikpapan Toll Road and Manado Bitung Toll Road. Currently, the total length of operating toll road in Indonesia has reached 820.2 km.
Consolidation among telco players leads to more rational competition among survivors, with ARPU tends to increase. Telkomsel has raised its data package recently and we expect the pther players to follow. Meanwhile, voice segment will remain as value buffer despite its benign growth.
Banking industry loan growth in Indonesia has been slowing down since 2014 until today. Apparently it was caused by the loan growth which fell down to 11.5% YoY from 21.8% YoY in 2013.
Global economic growth in 2016 projected at 3.8%. One of its main cause is the economy of United States, which roughly increased by 3% and India at 7.5%. China is expected to have a decreasing growth in its economy by 0.5% leaning towards 6.3%.