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The Rise of Rupiah: Opportunity!

Throughout 2015, the Indonesian stock market has almost always haunted by frightening stories about the economic slowdown, one of which related to our beneamata currency, Rupiah, which continued to slide down from Rp12,500 at the beginning of the year, until almost reached Rp15,000 per US Dollar in September. And the Jakarta Stock Exchange (JCI) itself continued to drop from 5,500’s to as low as 4,120 on Sept., when the market psychology was so bad to the point that almost everyone thinks that Indonesia could fall into a crisis like in 1998 (but I myself had said that there will be no crisis, you can read the article in here).

Fortunately, after the September the economy slowly but surely began to improve, where some macro indicators such as economic growth, inflation, trade balance, all showed improvement. People are no longer are talking about the crisis, and JCI itself gained to the level of 4,800-an. Including the Rupiah, you may pay no attention, but it is now on the rate of Rp13,300 per US Dollar, rose significantly compared to its bottom in September 2015, and it looks like itu will rise further. You can check the picture below, it is clear that the trend of Rupiah appreciation against the USD has occurred since October 2015.

You may notice that Rupiah began its depreciation trend from 2013 ago, precisely in August, where it dropped from Rp9,500 per USD to almost reached Rp15,000 in September 2015, along with the depreciation of almost all currencies in the world against USD. But maybe you don’t aware that the Indonesian central bank, Bank Indonesia (BI), was letting that happen. Based on the statement of one of Bank Indonesia officials, fundamentally the Rupiah exchange rate must be at about Rp13,700 per USD, or far lower than exchange rate in late 2013 (Rp9,500 per USD). The goal? To strengthen the balance of exports and imports (trade balance), that if the rate of Rupiah dropped to certain points, the price of imported goods will rise and so the import value itself will automatically decline. And if on the other hand the value of exports remained stagnant or also decline, but the decline was not as deep as the decline in imports, the trading balance of Indonesia will produce a surplus, and it will have a positive impact on economic growth. Given that the prices of Indonesian main commodities such as coal and CPO kept sliding down since 2011, which eventually led to the drop in the value of Indonesian exports, then there is no other way to keep the surplus of trading balance except by diminishing the amount of imports, by way of lowering the exchange rate of Rupiah.

Okay, then what were the results? Here’s the data. Throughout 2015, Indonesia's export value was US$ 150.3 billion, against the import of US$ 142.7 billion, resulting a surplus of US$ 7.5 billion, and this is for the first time since 2011 where the Indonesian trade balance recorded a surplus. You can see the table below, the figures in billions of USD.

Surplus (Deficit)

Because the trade balance has been in surplus, and until February 2016 it was still a surplus, the Rupiah have no more reason to go down. So unless there are global issues that would cause the value of world currencies, including Rupiah, to fall once again against the US Dollar, the trend of Indonesian currency’s appreciation over the last few months is likely to continue.

The question now is, which company that will be benefited from the appreciation of Rupiah? In general, all of the companies will be benefited, because the appreciation reflects the improvement in the country’s economic fundamentals. And if the economy improves, the companies, in general, will also generate a better financial performance.

But in specifics, the most benefited are: 1. The Companies that has debt denominated in US Dollar, usually in the form of bonds issued in Singapore, and 2. The Companies that its operation based on imports, whether they imported finished goods or raw materials. The good news, currently some of the shares of those companies are valued by the market at very low prices. When Rupiah continued to go down for approximately two years (between August 2013 to September 2015), companies that has a debt of USD and companies of import-based imports posted a very poor performance during the years. As a result the shares of these companies fell sharply, to the extent that of some of them has been traded at PBV of 0.5 times only, or even less than that.

However, with the appreciation of Rupiah, the above companies certainly have a good chance to generate a better financial performance in 2016. While the shares? Of course will automatically go up, probably with a very significant increase up to hundreds of percent (as the shares had been dropped insanely before). Some of these shares that caught my attention are Gajah Tunggal (GJTL), and Erajaya Swasembada (ERAA). In February 2013, GJTL issued bond in Singapore worth US$ 500 million, and the value of these bonds in Rupiah continues to swell from only Rp5.9 trillion at the end of 2013, to become Rp7.3 trillion in September 2015. As of third quarter 2015, this increased debt led to a net loss of up to Rp750 billion for the company. While the shares? Dropped from its peak of Rp3,000’s per share to as low as 400, before rise back to 700, which at that price the PBV was only 0.5 times, an extremely low valuation for Gajah Tunggal, which held the status as one of the most famous tire manufacturers in Indonesia.

While ERAA, an importer of mobile phones, its net income fell dramatically since 2013 along with the higher price from the producers (as a result of Rupiah’ impairment), but its shares has fallen even more. In 2013, ERAA still traded on Rp3,400’s per share. But today? Only 650! Where the price reflects PBV of 0.6 times. While just as GJTL, ERAA is also the leader and the largest company in Indonesia for its industry, in this case the mobile phone industry.

So now, with the rise the rupiah, the value of GJTL’ bond is going down, so the company has a great opportunity to post a net profit in this year. For ERAA, the cost of imported mobile phones will dropped, so the company’s net earnings will likely to rise in the 2016. While their shares? Well, what do you think?

In addition to the two companies, you may find opportunities in other stocks. Another good news: Yesterday, the Indonesian Government launched the 11-th Package of Economic Policy, and one of the policies was the provision of credit for small enterprises with low interest rate (9% per annum), especially for export-based businesses. The goal is clear: To enhance the value of Indonesia’s exports, and in turn it will increase the trading surplus (and encourage the economic growth). And if the goal is reached, then of course the Rupiah will rise further, hopefully!

Disclosure: When this article was published, Avere Investama (Teguh Hidayat & Partners) is in a position of holding ERAA at an average purchase price of Rp665 per share. This position can change at any time without prior notice.

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