Equity Strategy

In Search of ‘Value’

 

  • JCI valuation now reflects 126bps earnings yield spread over the 10-yr bond yield, implying investors’ regained confidence on the market.
  • Amid lack of growth catalysts, we believe stocks at deeply discounted value and low earnings downside risks may offer an attractive exposure.
  • Top ‘value’ stocks based on our screening: BBRI, INTP, CTRA, BBCA, KLBF.

 

JCI regaining confidence, but growth remains an overhang

Improving global risk sentiment has supported JCI’s Apr25 performance of +3.3% MTD (-5% YTD). While foreign investors remain net sellers (MTD: US$1,232mn; YTD: US$3,062mn), the pace of outflows has noticeably slowed (US$69mn during the week of 21st Apr25), with selective inflows into bellwether stocks such as BMRI (US$19mn WTD). JCI valuation now reflects 126bps earnings yield spread over the 10-year bond yield, compared to widest of 176bps in 1Q25, implying that investors have regained confidence on the market. We believe this is driven by better clarity following SOE banks’ and Danantara management announcement and share buybacks. Compared to regional EM peers, JCI’s growth and valuation now looks more attractive with 5.4% EPS growth (Bloomberg consensus) and 10.8x forward PE.

 

Screening for value and low downside risks

Despite the improving sentiment, our key concern for 2Q25 remains on lack of growth catalysts. Under the current condition, we believe stocks at deeply discounted valuation and low earnings downside risks may offer a safe exposure with potential upside.  Our criteria are as follows: 1) Stocks that trade at big discounts to their respective mean valuation.  2) Conservative earnings expectations from consensus analysts. 3) Low institutional ownership.

 

Our top five value stocks

Our screening results in the following ‘value’ stock picks: BBRI (Not Rated), INTP (Buy, TP Rp8,500), CTRA (Buy, TP Rp1,700), BBCA (Buy, TP Rp11,900), KLBF (Buy, TP Rp1,800). The stocks share the same characteristics of trading at deep discounts (-2SD or below) to their respective historical valuations. In terms of earnings downside risk, we view INTP to have the lowest risk given stable cement prices YTD and its track record to deliver cost control, while BBCA’s strong 1Q25 earnings (+10% yoy) should also cushion downside risk to FY25 estimates (+6% yoy). For CTRA, we believe consensus analysts’ +13% FY25 EPS growth expectations are aligned with management’s guidance of 10-15%. Meanwhile, KLBF’s risk lies on its margin (against weaker IDR), but we believe this risk will not materialize in 1Q25 earnings.

 

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