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Silver Lining of the Geopolitical Tension

As a person who works in the capital market industry, reading the news would be an obligation we can't evade. It is extremely important to know what is happening in the world right now, and more importantly, to prepare for what is coming. Even in the darkest hour, there's always a bright side that we can embrace as long as we are prepared.

Recently, geopolitical turmoil kept on getting worse. As mentioned on the news, on March 24th, Russian missile was detected near the village of Oserdow, Poland. The Polish government demand an explanation from Russia about the incident, as how we believe the rest of the world as well. Because not so long ago last week, Moscow just experienced a dreadful terrorist attack that cost a lot of lives.

These tragedy might cost more than just terror and innocent lives. As we know that commodity prices went through the roof not long after Russia invasion to Ukraine, a commodity price surge may happen again. As we know that Russia has a very major role in contributing the world natural resources such as coal, gas, nickel and many more, it is very likely for history to repeat itself despite the decline of global demand for commodities amidst economy slow down. Hence, we urge to pay attention towards commodity as the momentum might strike again.

Commodity Price Changes in 2022

Source: World Bank

We could not agree more that commodity prices are volatile, yet we believe there are ways to mitigate such risks. There are several names that can be considered to go long, such as ABMM. ABMM has a very high annualized ROE of 42.9%, however, it's only valued at 2.2x PE. What is more interesting about the company is that ABMM is still on acquisition mode even after their recent acquisition on GEMS. Currently, the company has a DER of 1.5x and a ceiling DER of 2x, which enables the company to issue debt up to IDR7.7tn for acquisition. An acquisition value of more than IDR3tn will be significant to the company’s valuation as it is still trading at a Market Cap of IDR10.3tn. As a mining contractor which has less direct impact towards coal price volatility, the fundamentals showed a lucrative outlook.

Source: RTI Business, Stockbit

Aside from ABMM, we also find TPMA to be quite interesting. As announced on March 20th, TPMA is planning to have a Right Issue in which its proceed will be used for organic/non-organic expansion and/or for working capital. Even before its announcement to expand the business, TPMA managed to book a magnificent growth on 1Q24. TPMA achieved its highest profit of USD7mn in 4Q23 (+61% QoQ and+38% YoY), mainly driven by strong contribution from TLP, its 30%-owned JV.

Barge rate remained favourable throughout 2023 with average time charter (TC) of USD80k/month in 4Q23 as barge market remains in tight supply.

Source: Company, Sucor Sekuritas Research

We expect ABMM, TPMA, as well as most commodity related stock to book strong performance in the next quarter amidst the possible reversal in commodity prices due to the geopolitical issues. In our view, recent development of the geopolitics has a good chance to get even worse, making the possibilty of commodity prices surge bigger.

Aside from geopolitic impact, we also see that there's a signal that government might tweek one or two regulations to benefit both the industry and the country such as the ramp up of coal production volume to 922mn ton (from 775mn ton) for 2024, which was announced couple of weeks back. Although global economy recovery may be longer than our initial expectation, we believe these sentiment might offset its impact towards commodity prices which led to a conclusion that being overweight on the sector may not be as bad as it first seem.


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