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Indonesia Equity Strategy Summary

Citi Research's report dated June 13, 2025, analyzes the Indonesian equity market, highlighting that upside potential is limited due to weak market fundamentals. The analysis focuses on investment opportunities in defensive stocks and sectors benefiting from lower interest rates.

Key drivers include geopolitical tensions, which have pushed up global energy and metal prices, benefiting Indonesian resource exporters like Merdeka Copper Gold (MDKA). Additionally, Bank Indonesia (BI) is expected to cut the benchmark rate to 5.25% on June 18, with further reductions potentially reaching 4.5% by 2026, supporting bank liquidity and interest-sensitive sectors such as property, autos, and consumer finance.

The government's commitment to the USD80bn Giant Seawall project could create long-term opportunities for cement producers and banks via construction financing, while KUR disbursements of Rp110tn (37% of target) are aiding MSMEs and consumer loan growth, involving banks like Bank Rakyat Indonesia (BBRI).

Despite an attractive forward price-to-earnings ratio of 12.0x, fundamentals remain lackluster, translating to limited upside. Citi recommends focusing on defensive stocks and rate-sensitive picks: BBRI, Bank Central Asia (BBCA), Bank Negara Indonesia (BBNI), MDKA, Sumber Alfaria Trijaya (AMRT), Indofood CBP (ICBP), and GoTo Gojek Tokopedia (GOTO).

Overall, valuation is seen as favorable, but weak fundamentals and external risks warrant a cautious approach to stock selection.