Indonesia’s Defense Industry Chain & Capital Market Opportunities
- Jul 14
- 5 min read
When people hear about the defense industry, they often think of tanks, warships, or fighter jets. In reality, the industry’s supply chain is much broader. It includes electronics, radar, communication systems, drones, avionics, software, maintenance services, components, and industrial explosives that are also used for civilian purposes.
In Indonesia, data from the Ministry of Defense shows that the initial 2026 budget allocation for the Ministry of Defense and the Indonesian National Armed Forces reached IDR 187.1 trillion. This consists of personnel spending of IDR 55.5 trillion, goods spending of IDR 56.1 trillion, and capital expenditure of IDR 75.5 trillion.
This figure should not be read entirely as new project spending, as part of it is still related to personnel, operations, maintenance, and routine expenses. However, from an industrial perspective, it shows that the defense ecosystem requires a large and sustainable supply chain.
This is where the capital market becomes relevant. The question is not only how large the defense budget is, but also which sectors can participate in its industrial chain. Modern defense is no longer only about heavy military equipment. Behind it are sensors, data processing, MRO, system integration, component manufacturing, and dual-use technologies.
Indonesia Emas 2045 and Defense Industry Self-Reliance
The development of the defense industry can also be viewed alongside the Indonesia Emas 2045 vision. To become an advanced and sovereign country, Indonesia cannot rely only on economic strength. Its defense and security system also needs to be supported by a more independent industrial base.
Historically, Indonesia has relied heavily on foreign Original Equipment Manufacturers, or OEMs, for advanced defense platforms. Therefore, defense spending is also an entry point for technology transfer, production cooperation, joint ventures, and domestic procurement.
The more components, systems, maintenance services, and technologies that can be produced domestically, the greater the opportunity for import substitution. In the long run, local production capabilities could also open export opportunities if the products meet quality standards, certification requirements, and the needs of overseas buyers.
Since Indonesia’s main defense contractors are mostly state-owned, the role of local private companies and publicly listed companies is usually not to act directly as the main producers of defense equipment. Their entry point is more likely to be through the supply chain, supporting raw materials, communication technology, infrastructure, logistics, energy, maintenance services, and system integration.
For investors, the opportunity is not necessarily about finding “pure defense stocks”, but about looking at supporting sectors that intersect with defense needs. These include metal raw materials, specialty steel, communication, technology, infrastructure, logistics, supporting energy, marine services, digital systems, and cybersecurity.
Main Players and Signals of Competitiveness
Indonesia already has a domestic defense industry base through DEFEND ID, which consists of PT Len Industri as the holding company, along with PT Pindad, PT Dirgantara Indonesia, PT PAL Indonesia, and PT Dahana. Its business areas cover electronics, communication, aerospace, drone development, shipbuilding, maritime system integration, and industrial explosives.
Outside state-owned enterprises, there are also local private players in avionics, radar data processing, mission systems, and other strategic products. This means the industry does not rely only on the main producers. Behind them are suppliers of components, software, sensors, communication systems, maintenance services, and system upgrades.
Some of these capabilities have already entered overseas markets. PT Dirgantara Indonesia previously exported the CN235-220 Maritime Patrol Aircraft to Senegal in 2021, with a value of around Rp354 billion. PT PAL Indonesia also recorded the export of the Future Landing Dock LD-603 vessel to the Philippines in 2026.
Exports can signal production capability and access to overseas markets. However, this signal still needs to be interpreted carefully. Market participants still need to assess contract value, order sustainability, margins, and contribution to financial statements.
Drones: Where Defense and Civilian Needs Meet
Among the various segments, drones are one of the most interesting because they sit at the intersection of defense and civilian needs. For defense, drones can be used for territorial surveillance, border patrol, reconnaissance, and maritime patrol. For civilian purposes, similar technology can be used for mapping, disaster mitigation, infrastructure monitoring, plantations, mining, and maritime areas.
Indonesia has developed the Elang Hitam drone through PT Dirgantara Indonesia. PTDI describes Elang Hitam as Indonesia’s first Medium Altitude Long Endurance, or MALE, drone, with a weight of more than one ton. It is designed to fly for up to 24 hours at an altitude of 20,000 feet, with a modular architecture for both defense and civilian missions.
PTDI also has experience in developing the Wulung UAV, a reconnaissance drone that obtained a Type Certificate from the Indonesian Military Airworthiness Authority. This shows that Indonesia has started to build domestic drone capabilities, although large-scale utilization will still depend on technology readiness, certification, production capacity, and user demand.
The appeal of drones lies in their flexibility of use. The broader their civilian application, the greater the opportunity to build a business model that does not fully depend on defense contracts.
Supporting Sectors and Capital Market Opportunities
Since the main players in Indonesia’s defense industry are not yet publicly listed, capital market attention is more realistically directed toward supporting sectors. Raw materials such as metals, steel, and specialty materials can play a role in supplying components for vehicles, ships, facilities, and defense infrastructure.
Communication and technology are also important through communication networks, cybersecurity, data encryption, satellite control, information systems, and digital device integration. Meanwhile, infrastructure, energy, logistics, and marine services can participate through the development of bases, docks, fuel distribution, transportation, and maritime support services.
If this industry becomes more open to the capital market, the most realistic segment to go public first may not be a company tied to purely military products. More likely opportunities could come from non-weapon and dual-use businesses such as drones, radar, avionics, communication systems, cybersecurity, system integration, MRO, ship and aircraft components, and industrial explosives.
These segments are attractive because they have two growth engines: government defense demand and civilian use across industries such as logistics, mining, plantations, maritime, disaster management, and infrastructure.
However, ESG factors still need to be considered. Not all funds are able or willing to invest in companies linked to military activities, especially those related to controversial weapons or military contracting.
So, what do you think, Sobat KAF? If this industry eventually enters the capital market, which segment will go public first: drones, MRO, radar-avionics, system integration, or industrial explosives?
Disclaimer: This content is created for educational purposes or service promotion, and does not constitute a recommendation to buy or sell any specific Securities. Any risks arising from investment decisions made based on the information in this publication are the sole responsibility of the respective audience. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (Otoritas Jasa Keuangan / OJK).
Comments