Indonesia Election 2019: Reform Theme Under Jokowi Vs Prabowo
(Henry Wibowo, Ghibran Al Imran – RHB Sekuritas)
Race to the throne. Approximately 192m eligible Indonesians – the third-largest democracy in the world – will cast their votes on 17 Apr 2019 to decide the Republic’s next president for 2019-2024. It will be a reprise of the 2014 election between incumbent President Joko Widodo (Jokowi) and retired army general Prabowo Subianto. In this thematic report, we highlight key reform agendas of both candidates, along with a basket of stocks that we believe will outperform market.
Candidates #01: Jokowi and Ma’ruf Amin. Nicknamed the “Father of Indonesia Infrastructure” by supporters, we believe Jokowi will continue to roll out his infrastructure masterplan (eg toll roads, ports, MRT, LRT, power plants, and broadband connectivity) if elected for a second term. Since the law prohibits a third term for an Indonesian president, we expect Jokowi to also implement less populist but much needed reforms – eg on the labour law (high severance pay) to attract more FDI – especially in the manufacturing sector (Industrial Revolution 4.0) to boost value-added exports and reduce dependency on raw materials. If re-elected, Jokowi also promised to spend more resources on enhancing the quality of Indonesia’s human capital by improving education standards.
Stock basket. We believe 10 stocks could outperform the market if Jokowi and Amin are elected. They are from the construction (WSKT, WIKA, ADHI, and PTPP), toll road (JSMR), cement (SMGR), and industrial estate (BEST and SSIA) sectors, as well as selected banks: those with high infrastructure lending exposure (BBNI) and shariah-based (BRIS) (Amin factor). We expect post-election market euphoria, with the JCI rallying to +2SD above its mean.
Candidates #02: Prabowo and Sandiaga Uno. We expect to see a more “Indonesia First” approach and nationalistic measures if Prabowo wins. Reducing dependency on imports, especially food and energy, is among key campaign promises. Prabowo also plans to reduce both corporate and personal tax rates, making it more competitive vs neighbouring countries like Singapore. Existing BPJS healthcare deficit and low national defence budgets are among issues that Prabowo plans to turn round, if elected.
Stock basket. The 10 stocks we believe could outperform the market if Prabowo and Sandiaga are elected will be Saratoga-affiliated companies (SRTG, ADRO, TBIG, and MPMX), defensive USD-earners with high dividends (ITMG and UNTR), defensive domestic-driven banks/consumer names (BBCA, HMSP, and UNVR), and ISAT (to buy back from Qatar’s Ooredoo – based on a campaign promise). We expect the market to adopt a wait-and-see approach, given the 6-month transition period between election (Apr 2019) and inauguration (Oct 2019).
Reference: RHB
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