Indonesia: Record lows but not abandoned
Steven Holden observes that for Indonesia, the direction of travel has been clear for some time, with average weights at all-time lows of 0.93% and participation at a 15-year low of 80.45%. While MSCI's continued review of the country's EM status keeps a structural question mark hanging over the investment case, the structural case for Indonesia has not disappeared. The banking sector remains well-capitalised, and Bank Central Asia continues to command loyalty among managers, held by 42.2% of funds. Sitting in the bottom-left quadrant of the ownership cycle (see chart), the market combines depressed positioning with negative momentum. Yet eighty percent of funds remain invested, and the majority are still overweight relative to the benchmark. Most selling has been a gradual reduction rather than a wholesale exit, meaning the cost of being wrong on a recovery is now arguably greater than the cost of further patience.
Financials
Victor Galliano reviews 6 large and mid-cap Indonesian commercial banks on the back of recently announced 4Q23 results to identify those that are attractive value, have good earnings growth prospects and have the potential to deliver higher returns. BMRI is his top pick for its quality attributes, its premium and growing pre- and post-provision returns; it also provides a better valuations to returns mix than Bank Central Asia. Bank Negara is his value pick with its low PE multiples, its attractive PEG ratio, whilst also improving pre- and post-provision returns with cost of risk well controlled.
Financials
Indonesia is seeing a strong recovery in lending growth, which adds to the positive trifecta for BNI - improving margins (NIM up from 4.5% to 4.9% in 2Q22 Q/Q. There are few banks in Asia-Pacific that show this type of NIM expansion), with improving loan volume, and better credit metrics (BNI is one of those banks that appears to have taken far too much credit costs during FY20 and FY21). It just so happens, that BNI’s market capitalisation of IDR154tr is a fraction of the IDR970tr for comparable peer bank Bank Central Asia.
