Moody's: Indonesia corporate profits under pressure but likely to stabilize in 2016

Moody's Investors Service says that the profits of its rated Indonesian corporates have experienced downward pressure in 2015 but are likely to stabilize in 2016.

A total 74% of the 31 non-financial corporates rated by Moody's in Indonesia currently have a stable outlook and 26% have negative leaning outlooks.

"We see flat GDP growth of 4.7% in 2016, and this will help contain risks for a weakened corporate sector when combined with recent government economic stimulus efforts ," says Brian Grieser, a Moody's Vice President and Senior Credit Officer.

Moody's conclusions were contained in a just-released report on Indonesian corporates, "Non-Financial Corporates -- Indonesia: 2016 Outlook - Corporate Profits Under Pressure but Likely to Stabilize".

"Indonesian corporate credit quality will enter 2016 under pressure following a lackluster 2015, and while liquidity is weakening, refinancing risk will be manageable for most rated issuers in 2016," says Grieser.

The report notes that the liquidity of Indonesian investment-grade issuers remains robust, benefitting from their existing cash levels, solid cash generation and proven access to the capital markets. 

Bond maturities in 2016 will be minimal, largely due to the significant issuance of 5-year bonds in 2013, and refinancing risks will pick up in 2017 as a wall of bond maturities approaches in 2018.
In terms of individual sectors, the Moody's report says the outlook for oil & gas, telecommunications and property are all stable, with coal and other commodity sectors being negative. 

With oil & gas, the regulatory landscape remains uncertain -- particularly in regard to the potential nationalization of expiring production sharing contracts -- while low oil prices will continue to deter investments.

The telecommunications sector will see steady EBITDA growth despite increased competition, and rising data penetration and smartphone proliferation will drive 5-6% revenue growth over the next 12-18 months.

The property sector expects some cyclical softness, including weaker buyer sentiment and a challenging operating environment for new project launches in early 2016. The total revenue of Moody's five rated developers will likely grow 5-10% in 2015-2016.

Finally, the coal sector -- which has a negative outlook -- will see declining demand from China and other parts of Asia. Thermal coal imports by Asian nations are projected to fall 8-10% in 2015 and grow only modestly in 2016, a development which will not be enough to make up for the fall in Chinese buying.