Currency sensitivity analysis: Winners, losers & safe havens

Harry Su
Senior Associate Director
Head of Equities and Research

In the past month, the IDR, having depreciated by more than 5% and breaking the IDR12k level, has been the worst performing currency in the region (exhibit 1).  We think this is due to a combination of expected higher interest rate in the US as well as local concerns caused by political jitters and current account deficit.

As we approach the 9 July presidential election, the most closely contested race post the Soeharto era, we expect IDR volatility to persist. Hence, to help investors better manage their stock portfolios, we have conducted a currency sensitivity analysis on all 80 non-financial companies under our coverage (exhibits 2-3).

For the market as a whole, net gearing reaches 20.2% with our analysis indicating that, for every 1% IDR decline to our average base-case assumption of IDR11,735 (year-end assumption: IDR11,300), the overall EPS of the non-financial stocks we cover would decline by 1.3ppt, reflecting 14.4% y-y growth from 15.7% currently, all things being equal.  

Dollar earners generally benefit in an IDR-depreciating environment. Based on our analysis, metal, plantation and coal-related stocks should benefit the most (exhibit 2). At this stage, apart from positive sentiment on the strong dollar, we continue to like plantations as we expect the El Nino weather pattern to materialize next month, resulting in CPO supply disruption. Our top CPO pick is Astra Agro (AALI) due to its attractive maturity profile (around 14 years) and additional revenue stemming from CPO refinery expansion. On metals, our top picks are Vale Indonesia (INCO) on a higher average nickel price, and TINS, on the one-door tin export policy (through ICDX) lowering cash cost.   

Amid FX movements, we believe investors can find safety in the following 10 stocks due to their US dollar accounting (bottom of exhibit 3): Adaro Energy (ADRO), Austindo Nusantara Jaya (ANJT), Bumi Resources (BUMI), Garuda Indonesia (GIAA), Harum Energy (HRUM), Vale Indonesia (INCO), Indo Tambangraya Megah (ITMG), Krakatau Steel (KRAS), Medco Energy (MEDC), Perusahaan Gas Negara (PGAS) and Wintermar Offshore (WINS). Apart from these, we advise investors to seek shelter in selective consumer, telco and toll-road plays like Gudang Garam (GGRM), Telkom (TLKM) and Jasa Marga (JSMR), which should emerge relatively unscathed amid IDR fluctuations.  

Our top losers in a weaker IDR setting (bottom of exhibit 3) are mostly stocks with high US dollar loans, with the exception of Supra Boga Lestari (RANC), which is hurt due to its dollar cost and low margin business. The other losers would be: XL Axiata (EXCL), Indosat (ISAT), Japfa Comfeed (JPFA) and AKR Corporindo (AKRA).

Happy trading!