Indonesia’s Manufacturing Sector Contracts Again: Stocks Most Affected

Indonesia’s manufacturing activity began the second quarter of 2026 on a weaker note. S&P Global reported that the country’s manufacturing Purchasing Managers’ Index (PMI) dropped to 49.1 in April 2026, down from 50.1 in March 2026, signaling a return to contraction territory.

Elandry Pratama, an analyst and Branch Manager at Panin Sekuritas Pondok Indah, stated that this decline in the Indonesia manufacturing PMI serves as an early warning sign of a potential industrial slowdown at the start of Q2 2026. While the contraction remains relatively limited, it nonetheless points to a weakening in both domestic and export demand.

“This sentiment could potentially affect sales growth expectations, production utilization, and the profit margins of manufacturing issuers in the coming quarters,” Elandry told Kontan on Monday, May 11, 2026. He added that external pressures such as the weakening rupiah, rising energy costs, and global economic uncertainties further amplify risks to the manufacturing sector as a whole.

Nafan Aji Gusta, a Senior Market Analyst, concurred that the softening manufacturing PMI is a crucial early warning for manufacturing stocks, particularly for Q2 2026. According to Nafan, this condition is driven by a deceleration in new demand coupled with a significant increase in input costs. He highlighted global geopolitical escalation in recent times as a primary factor, disrupting supply chains and triggering raw material price hikes, consequently raising concerns about a potential slowdown for manufacturing issuers.

Separately, Ratih Mustikoningsih, a Financial Expert at Ajaib Sekuritas, pointed out that the April manufacturing PMI marked the first contraction in nine months. Notably, among Southeast Asian countries, only Indonesia and the Philippines entered the contraction zone. Ratih attributed the weakening of the domestic manufacturing index to a “dual shock”: soaring production input costs driven by escalating energy prices and rupiah depreciation, alongside “demand destruction” reflected in weakening domestic purchasing power and sluggish export orders.

Elandry believes the manufacturing PMI decline will exert varied pressure on different issuers. Generally, the most vulnerable stocks are those in cyclical sectors and companies with a high cost structure reliant on imported raw materials.

The automotive sector, spearheaded by PT Astra International Tbk (ASII), serves as a direct barometer of manufacturing activity. When the PMI enters contraction, it typically reflects a dip in production volumes and new orders. ASII, in particular, may face pressure, with motor vehicle sales at risk of slowing down as consumer purchasing power tends to be suppressed during cooling industrial activity. Although sentimentally challenged, ASII’s fundamentals remain robust, supported by business diversification into heavy equipment and mining through UNTR. However, investors should closely monitor profit margins, which could erode if the rupiah weakens in tandem with rising global logistics costs.

Beyond automotive, issuers in the consumer goods sector like ICBP, INDF, and UNVR are grappling with input cost challenges. Increases in the prices of wheat, palm oil, or packaging chemicals would inflate these consumer issuers’ Cost of Goods Sold (COGS). Fundamentally, however, this sector is inherently defensive. ICBP, for instance, boasts very strong brand equity, allowing it to raise selling prices without significant customer loss. While its fundamentals are relatively more stable compared to other sectors, net profit growth might not be as aggressive as in previous years if operational costs remain unchecked.

Furthermore, the cement and building materials sector, including companies like SMGR and INTP, is highly dependent on the continuity of infrastructure projects and property manufacturing. A weakening PMI signifies a slowdown in fixed asset investment. If factories reduce expansion activities, domestic cement demand will likely plateau. Moreover, rising energy costs, such as for coal or electricity, continue to pose a significant threat to their margins.

Ratih identified primary consumption, non-primary consumption, and automotive sectors as those most likely to be negatively impacted. “The main challenge facing issuers in these sectors is their ability to raise average selling prices (ASP) to offset COGS increases, without sacrificing essential sales volumes,” Ratih explained.

Conversely, the energy sector is anticipated to benefit, bolstered by solid financial performance amid opportunities for higher ASP. For commodity exporters, especially in coal and oil & gas, rupiah depreciation acts as a positive catalyst, mechanically widening profit margins. This is because their revenues are booked in US dollars, while a significant portion of their operational expenses (OPEX) are still in rupiah. Additionally, the energy sector is known for consistently distributing high dividends. Investors might consider energy stocks with relatively attractive valuations, such as AADI with a price-to-earnings (P/E) ratio of around 6 times and PTBA with a P/E of 9.9 times. Specifically for PTBA, the company has yet to hold its Annual General Meeting of Shareholders (AGMS), implying a potential dividend yield of approximately 11% as of May 11, 2026.

Responding to the April PMI contraction to 49.1, Elandry advised investors to remain selective rather than engaging in panic selling. He noted that the market is still weighing global interest rate trends and domestic stimulus for the second half of 2026. “Investors need to prioritize fundamentals and liquidity. Focus on issuers with healthy balance sheets and controlled debt to maintain flexibility in the face of uncertain capital costs,” Elandry suggested.

Elandry recommended a Buy for ICBP with a target price of Rp8,000, citing its robust pricing power that ensures stable product demand despite weaker manufacturing PMI and volatile input costs. Similarly, MYOR is worth considering for a Buy with a target price of Rp2,200, thanks to its extensive export market covering over 40% of sales, which also acts as a natural hedge against a domestic economic slowdown. Meanwhile, TLKM is deemed attractive for a Buy on Weakness strategy with a target price of Rp3,500, given that the telecommunications sector is not directly affected by the decline in the manufacturing index, as data services have become a stable primary need for the public. On the other hand, a Hold or neutral position is recommended for ASII with a target price of Rp5,800, as investors should be more cautious about potential declines in automotive sales volume and wait for signs of PMI recovery and future interest rate stability.

Ratih suggested a Buy for PTBA with a target price at the resistance level of Rp3,100, considering support at Rp2,750. She also recommended a Buy on Weakness for AADI at Rp9,150, with a target price at the resistance level of Rp9,900, while considering support at Rp8,900.