The infrastructure story is ON!

Indonesia’s infrastructure story is on a firmer footing now that the new government has published more details on the draft of the revised 2015 state budget (RAPBN-P) since it provides greater clarity on budget allocations. With the significantly reduced of fuel subsidies, the government has freed up some room to undertake more productive spending, especially on infrastructure and social-welfare. This can be seen in the substantial increases in the 2015 budgets for the Ministry of Public Works and the Transportation Ministry at Rp119tn (+41%) and Rp65tn (+45%), respectively. Furthermore, the government’s intention to inject capital into a number of state-owned companies also underscores its commitment toward accelerating its programs as well. Thus, if the government can deliver on its promises, we believe that the state-contractors stand to enjoy multi-year expansion growth. Maintain OVERWEIGHT on the sector with blanket BUYs on the four state-contractors. PTPP and WSKT are our Top Picks. The Public Works and the Transportation Ministry get the biggest increases The new government’s commitment toward accelerating infrastructure development is clearly reflected in its draft of the revised 2015 state budget (RAPBN-P) which will be deliberated by parliament. With fuel subsidies reduction, the government has freed up some room to reallocate the savings toward more productive spending in the budgets of its ministries. Two ministries that are directly responsible for the nation’s infrastructure program – the Ministry of Public Works and the Transportation Ministry – enjoyed the largest budget increases. From only an average of 6.2% of total expenditures during the MP3EI period, the government’s budget allocation to these two ministries has been increased to 9.2% for FY15F. Compared to the initial 2015 state budget, the budget of the Ministry of Public Works has been increased by 41% to Rp119tn while the budget of the Transportation Ministry is up 45% to Rp65tn. These budget increases are consistent with the new government’s plans to bolster much-needed infrastructure development. More specifically, the government plans to undertake more spending on several priority programs, such as: 1) irrigation, dams, and flood control, 2) roads, 3) new seaports at 77 locations, and 4) railroad infrastructure. WSKT and ADHI to receive capital injections Besides setting larger budgets for infrastructure development, the new government also aims to accelerate growth by injecting capital into a number of state-owned companies. Among the 42 companies slated to receive capital injections are three state-contractors, namely Hutama Karya (Rp3.6tn), Waskita Karya (Rp3.5tn), and Adhi Karya (Rp1.4tn). Both Hutama and Waskita will use the proceed into the toll road projects, while Adhi will use it for its long-halted monorail projects. In our view, these capital injections should act as a positive catalyst for growth given that the additional equity will provide more room for the companies to gear up and get more large-scale projects as infrastructure spending accelerates. Substantial new contracts to be awarded in 2Q15 at the soonest Our view is that a further rerating of the sector can happen once realization of the government budget takes place. This will be in the form of new contract achievements for the state-contractors. In terms of timing, the government plans to commence the tender process for projects once the revised state budget gets parliamentary approval in February 2015. Hence, we will start to see some sizeable new contracts being awarded from the government’s budget in April 2015 at the soonest. This should provide the state-contractors with plenty of projects to keep the multi-year growth story on track. For this year, we estimate that total new contracts will grow a robust 20% to Rp83tn from the four listed state-contractors. Maintain OVERWEIGHT on the sector with blanket BUYs on the four state-contractors. PTPP and WSKT are our Top Picks

http://dmia.danareksaonline.com/BeritaRiset/NewsReader/2015/01/3605/the-infrastructure-story-is-on

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Consumer Confidence January 2015

Consumer Confidence weakened in December. After increasing by 1.5% in the previous month, the Consumer Confidence Index (CCI) slumped 7.5% to 92.3. In particular, consumers are concerned by higher prices after the government hiked fuel prices in November. Overall, our survey shows that 83.5% of consumers cited rising foodstuff prices as a major concern in December or significantly higher than the 73.0% in November. Furthermore, the proportion of consumers who cited expensive fuel as a major concern increased to 53.0% in December from just 14.7% in November. Nonetheless, the sharp decline in the CCI in December should not come as any surprise given that consumer confidence has tended to deteriorate in the past following hefty hikes in fuel prices. In July 2013, for example, the CCI dived 9.3% after the government increased fuel prices in June 2013. Using the historical data as guidance, the CCI will rebound within the next 1-2 months after the fuel price hikes. The two main components of the CCI declined in December 2014. The first one – the component measuring consumer sentiment toward current conditions, the Present Situations Index (PSI), dropped 12.6 percent to 72.1, as sentiment toward the current state of the economy and job market deteriorated. The other component of the CCI - the one measuring consumer sentiment toward the future (the Expectations Index or EI) – declined 4.7 percent to 107.4, reflecting heightened concerns on how the overall economy will perform over the next six months. With consumers less optimistic on the country’s overall economic outlook, buying intentions for durable goods declined in December 2014. In our latest survey, some 34.0 percent of consumers expressed plans to purchase a durable good over the next six months. This is less than in the previous month - when some 35.2 percent of consumers expressed plans to purchase a durable good. Compared to July 2013 – a month after the government upped subsidized fuel prices in June 2013 - buying intentions for durable goods are, however, still relatively strong (the percentage of consumers expressing plans to purchase a durable good stood at only 31.8 percent in July 2013). http://dmia.danareksaonline.com/BeritaRiset/NewsReader/2015/01/3513/consumer-confidence-january-2015

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