• We maintain our end-2024 JCI target at 7,800pts, driven by positive market sentiment on the 2025 State Budget. State expenditure is set to rise by 5.9% YoY, while revenue should grow by 6.9% YoY. The budget deficit is projected at 2.53% of GDP. The budget also allocates more funding to education, social welfare, and infrastructure. To support these initiatives, the Government plans to implement tax reforms, broaden the tax base, and enhance non-tax revenues – thereby ensuring fiscal discipline and sustainable growth. Our Top Picks (listed on the right) include stocks that are expected to benefit from budget allocations.

• 2025 State Budget focuses on economic transformation and fiscal responsibility, with projected economic growth rising to 5.2% YoY, from 5.1% YoY in 2024. The inflation rate is expected to drop to 2.5%, from 3.0% in 2024F. State expenditure is set to increase by 5.9% YoY to IDR3,613.1trn, reflecting a strong commitment to national economic resilience. Meanwhile, the state revenue target is IDR2,996.9trn (+6.9% YoY). The budget deficit is projected to be 2.53% of GDP, vs 2.7% of GDP in 2024.

• This budget marks a significant fiscal policy shift, influenced by the transition of the country’s leadership from President Joko Widodo to President-elect Prabowo Subianto. It includes increased spending to support new initiatives while continuing infrastructure and social welfare commitments. Key macroeconomic assumptions underpin these changes, with substantial allocations for the development of the new capital city, Nusantara (IKN), free nutritious meals for the needy, and spending on defence.

• 2025 budget also increases allocations across sectors, notably raising the education budget to IDR722.6trn (+9.5% YoY), focusing on renovations and quality improvements. Social protection and healthcare will enjoy similar boosts, with budgets set at IDR504.7trn (+6.0% YoY) and IDR197.8trn (+6.3% YoY),. Infrastructure development remains a priority, with IDR400.3trn (+2.1% YoY) allocated, alongside increased transfers to regional governments which increases to IDR919.9trn (+15.0% YoY). Meanwhile, the food security budget allocation increases to IDR124.4trn (+9.1% YoY).

• To fund this ambitious spending, the Government plans to boost revenue through tax reform, expanding the tax base, and capturing more from the digital economy. Enhancing non-tax revenues, including better state asset management and introducing environmental taxes, are also key strategies. Adjustments to public service fees will further align costs with actual expenses, ensuring fiscal discipline while supporting development goals.

• Focus on infrastructure, social welfare, energy, education, and defence. Budget allocations are largely to the development of IKN benefiting construction and cement and building materials sectors. Social welfare and public health programme will receive much support. The budget also emphasises on energy security, renewable resources and educational advancements.

Source: RHB Securities Research - 19 Aug 2024