(Big Birdie)FDI to Indonesia Has Increased Substantially, Reviving Indo’s Domestic Consumption-INDF, CPIN, BBRI, BJBR - AmCapital

U.S’s property continues to be on the weak side as reflected from existing home sales during June (act 4.77M Vs cons 4.93M) while the U.S is still facing the debate of debt ceiling. Thus, Dow (↓0.12%) and S&P (↓0.07%) closed lower last night along with weakening price of metals and soft commodities. Euro’s subdued debt overhang increase investors’ risk appetite, triggering most of Asian Market to open higher this morning, Nikkei 225 (↑0.04%), Kospi (↓0.25%), ASX (↑0.49%) and NZX (↑0.23%). Meanwhile Rupiah opens a bit strong this morning, at 8,538 and CDS remains at 138 bps with yield of 10-Yr Gvt bond points to 7.21%. Thus, capital inflows into equity (US$2.54 billion being the highest in Asia Ex Japan) seem to remain strong, in which we expect JCI to be traded in an upward direction albeit limited. Foreign Direct Investment also picks up, which will revive Indonesia ’s domestic consumption. Our selective domestic consumption remains in banking sector such as BBRI IJ, BMRI IJ, BJBR IJ, consumer goods (INDF IJ, CPIN IJ, MAIN IJ, SMSM IJ, and ASII IJ), cement (SMGR IJ), and property (SMRA IJ and ASRI IJ).

Total FDI continues to rise while Unemployment to go down to 6.8% as of February

According to Bank Indonesia data, FDI rose nearly 17% to US$2.9 billion in Q1-2011 YoY while Investment loans increased 29 percent on a year-on-year basis as of May this year while working capital loan grew at 24.8%. The increase in investment loan and working capital loan is expected to widen economic capacity so it could positively impact economic growth broadly including into manufacturing sector which has been stagnating for the last 6 years. The Investment loan growth was faster than consumer loans' and working capital loans' growth of respective 17.8 percent and 24.8 percent. Accelerating investment loan and working capital loan growth will reduce unemployment rate. This benefits companies that focus on lower income segment such as RALS IJ (PER-2011, 13.2x) and SSIA IJ (PER-2011, 11x with accelerating ROE). Surya Semesta Internusa (SSIA IJ) provides land banks especially in Cikarang and Karawang area for industrial estate. We expect that foreign based manufactures continue to expand their manufacture base into Indonesia due to China ’s rising wage and rising purchasing power in Indonesia .

Meanwhile, during June car sales (70,157 Vs prior 61,055) continue to accelerate despite short spare part supply from Japan while motorcycle sales are rising faster than car sales. With rising direct investment, this only supports increasing purchasing power as unemployment rate to go down. We believe consumption in Indonesia now adequately covers basic needs/food, meaning future increases in
disposable income will go on higher levels of consumption of non-essential goods. This is already reflected from car sales. We remain positive on ASII IJ, AUTO IJ (PER-2011,14x) and SMSM IJ (PER-2011, 11x).