News

The good, the bad & the ugly: 3Q14 result preview

Harry Su
Senior Associate Director
Head of Equities and Research


Given current market volatility, we think corporate earnings will become important determinants for stock-price movements going forward. In this regard, the 3Q14 earnings season is already upon us (companies are required to report by the end of October), and we should soon see a slew of corporate results from our 93 listed companies under our coverage, accounting for 75% of total market capitalization of the IDX.

To help investors better prepare for these result releases, we conduct a study on 3Q14 corporate earnings.  Based on our projection (exhibit 1), we expect 3Q14 operating-profit growth for the market as a whole to reach 9.2% y-y, helped by low-base effect in 3Q13, which was hurt by last year’s June fuel price hike.  Similarly, on the bottom line, we forecast 1Q14 net profit growth to rise to 9.1% from negative 0.1% y-y in 3Q13.     
The Good: Metals, Plantations, Consumer, Property
Helped by the ore export ban, our metal plays experienced higher prices which hugely benefited their earnings in 3Q14, making the sector by far the best performing within our coverage (exhibit 2).  This is followed by plantations sector which apart from volume growth also benefitted from stronger CPO prices and USD. On the consumer front, we expect solid results helped by Indonesia’s continued resilient purchasing power while on the cost front, lower commodity prices, in spite of IDR depreciation, have helped to support margins.  For property, we expect strong earnings stemming from strong marketing sales in the past couple of years.  On the cement sector, we expect relatively solid earnings due to improved margins as the companies are able to pass on the higher fuel price hike which occurred in June 2013.     

The Bad: Automotive, Infra-related, Telco-related, Oil-related
In this group, there are four industries with mixed performance in terms of operating and net-profit results (exhibit 3) relative to the market. For the auto sector, relatively solid growth is supported by the commodities-related subsidiaries of Astra International (ASII), despite continued depressed margins in the automotive sector itself due to intense competition, which has led to price war.  On the telco side, we expect flattish growth at both the operating and net profit levels on the back of weak margins in XL Axiata (EXCL) and Indosat (ISAT) caused respectively by the merger of Axis and low net work utilization.

The Ugly: Banks, Poultry, Coal-related
In this last category, we expect sectors to book earnings that are lower than the market’s.  For the banks, we expect deceleration in earnings growth on a y-y caused by slower loan growth, margin contractions, higher provisioning on worsening NPLs. On poultry, we expect margins to remain under pressure due to the adverse impact of IDR depreciation on the sector (80% of total COGS are imported), despite the industry’s cost plus pricing.  Finally, for coal we expect protracted downtrend in coal prices to continue to hamper performance.



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