Tuesday, September 22, 2020

Food, drugmakers seen winners in Jokowi's $185 billion budget

Aug 15. 2020
President Joko Widodo
President Joko Widodo
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By Syndication Washington Post, Bloomberg · Harry Suhartono · BUSINESS, WORLD, ASIA-PACIFIC 

Indonesian drugmakers and consumer goods companies are seen as winners from President Joko Widodo's pledge to lift government spending to a record next year to contain the coronavirus outbreak and revive economic growth.

Jokowi, as Widodo is commonly known, unveiled a $185.2 billion (2,747.5 trillion) budget for 2021 on Friday, betting increased state spending will put the economy back on track from a potential contraction this year.

With the world's fourth-most populous nation still struggling to contain a surge in infections, the budget allocation for health- care sector was set at 169.7 trillion rupiah next year. The government also set aside 419.3 trillion rupiah for various social safety net programs and direct cash transfer to the poor, potentially benefiting makers of everything from noodles to detergents and cookies.

Here are some winners and losers from the budget plan:

Drugmakers

Indonesia expects to begin commercial production of a covid-19 vaccine in partnership with China's Sinovac Biotech Ltd. early next year. The cost to vaccinate at least two-thirds of the country's 270 million population will require government subsidy and may benefit state-owned drugmaker PT Biofarma and its listed units PT Kimia Farma and PT Indofarma.

The government proposes to spend 25.4 trillion rupiah for the procurement of antiviral vaccines, health facilities and infrastructure among others, Jokowi said.

Shares of Kimia Farma and Indofarma have more than doubled since the end of June, while PT Kalbe Farma, which has a deal with South Korea's Genexine Inc. to organize clinical trials for vaccine, has risen 11%.

Consumer Goods

A raft of measures to prop up purchasing power are seen bolstering the fortunes of consumer goods companies such as PT Indofood CBP Sukses Makmur and PT Unilever Indonesia.

The government will allot 110.2 trillion rupiah to middle to lower class groups to be disbursed under various social safety programs including staple food cards, pre-employement cards and direct cash transfer, Jokowi said.

"We think the government's focus will shift more toward social spending and consumption as economy probably will not return to pre-Covid level by end of this year," said Richard Suherman, analyst at PT Sinarmas Sekuritas.

Banking Stocks

The pledge to continue with loan waivers and moratoriums with budgetary support may help ease the bad loan pressure on banks, which are already reeling under a collapse in credit demand.

The government will provide 48.8 trillion rupiah support for the micro, small and medium enterprises by providing guarantees and placement of state funds in the banks, the president said.

The country's top state lenders PT Bank Mandiri, PT Bank Rakyat Indonesia and PT Bank Negara Indonesia have all underperformed the broader Jakarta Composite Index this year. With financial stocks accounting for 38% of the weighting of the main gauge -- more than any other industrial measures -- their slump has weighed on the broader market.

Infrastructure Builders

The government cut the budget for infrastructure to 414 trillion rupiah, the lowest since 2019. That bodes ill for construction companies such as PT Waskita Karya, PT Wijaya Karya, PT Adhi Karya and toll road operator PT Jasa Marga, which have thrived on government contracts in recent years.

Jokowi's signature infrastructure building program has seen more funds allocated year after year but the pandemic prompted his administration to divert some of the budget to other priority areas.

Transport, Tourism

Hotel operators and airlines may benefit from the push to lure back holiday-goers to Bali and other tourist attractions. Flag carrier PT Garuda Indonesia, PT AirAsia Indonesia and hotel operator PT Hotel Sahid Jaya International may see their business picking up again with the a revival in tourism.

The government will spend 14.4 trillion rupiah for the revival of tourism industry next year, Jokowi said.

 

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