What to Expect in 2024

FY24 Outlook: The road to JCI 8,000

  • JCI’s 13x PE implies room for a rerating if growth improves, while Indonesia’s resilient economic growth offers downside protection.
  • Despite our 5% FY24 EPS growth forecast, we see support from more social aid, better liquidity and the next govt’s growth policies.
  • We retain our FY24-end JCI target of 7,830 (+12% upside from the FY23 target); our stock picks are ICBP, MYOR, ISAT, HEAL, BBCA and BMRI.
Top down: an attractive risk-reward; rerating hinges on growth recovery
JCI’s PE has de-rated to 13x (-2 s.d. from the 10-year mean) following 3% YTD performance, as the market prices in a moderate growth outlook (5-7%) and a higher risk premium (albeit off Nov23’s peak). Compared to EM peers, JCI’s PE is only fair given its below peers’ EPS growth. While rerating hinges on better growth delivery, Indonesia’s resilient economic growth outlook and improved CA and trade balance should cushion the downside risk.
Moderate FY24 growth forecast, potential re-acceleration in FY25
BRI Danareksa’s Equity Research team forecast 5%/ 7% EPS growth in FY24/ FY25 (14%/13% ex-mining), or similar growth vs. FY23F. We forecast slowing growth for the banking sector, in-line with the historical trend during an election year, but expect growth outperformance from Telcos (+12% yoy). We see upside in our FY25 earnings growth as banks’ loans and earnings growth should reaccelerate post-election.
Potential support from higher social aid, govt spending, better liquidity
Despite weak purchasing power and lingering tight liquidity in 4Q23, we see a cushion for FY24’s domestic consumption from election spending (1H24), higher social aid (+12% yoy) and room for BI to support liquidity through its macroprudential policy. In our view, the domestic growth outlook beyond FY24 shall be supported by higher govt spending, which we expect will be a likely policy for the new govt’s first term, as the presidential candidates aim for >5.5% GDP growth with a strategic priority on social spending and education, and manufacturing sector growth through downstreaming.
Commodities recovery still tentative but downbeat expectations priced in
While the market is now pricing in the expectation of rate cuts (as early as 1Q24), we are of the view that a sustained commodities and EM recovery is still clouded by uncertainties in the US and China and the economic growth scenario. Nonetheless, some Indonesian metals stocks with credible growth projects have priced in pessimistic margin/price assumptions.
Attractive market 12% upside, favoring domestic growth stocks
We retain our FY24-end JCI target of 7,830 (implying 12% upside from our FY23 target), with bear/ bull target cases of 8,240/ 7,520. We favour select domestic-oriented stocks which are positioned to capture downtrading: ICBP (TP Rp13,000), MYOR (TP Rp3,500); and stocks with sustainable structural growth drivers, HEAL (TP Rp1,800), ISAT (TP Rp11,100) and BBCA (Buy, TP Rp12,100). The post election growth outlook should favour big banks (BMRI Buy TP Rp7,300) as we expect brisker loans growth to resume (to 11% yoy in FY25, from an anticipated slowdown to 9% in FY23). While the commodities top-down outlook remains uncertain, we believe MBMA and NCKL have discounted pessimistic margin assumptions.
See Full report at BRI Danareksa Sekuritas
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