Investors hoping that Indonesian company profits would turn around in the second half of the year are now bracing for disappointment, boding ill for a stock market that is already the worst performer in Asia.

Jakarta's main stock index slumped 11 percent over the second quarter, the biggest three-month drop since late 2008. The big infrastructure projects promised by President Joko Widodo to jumpstart Southeast Asia's largest economy failed to materialise, delayed by bureaucratic hurdles.

Since the first-quarter earnings season in April, sectors such as cement, heavy equipment and utilities have borne the brunt of downward revisions in earnings projections by analysts. The Jakarta sub-share index for basic industry is the worst performer so far this year, down 21 percent.

Higher production costs - stoked by inflation and a weaker rupiah - combined with softer consumer demand in a sluggish economy dimmed the outlook for Indonesian companies. Profit growth estimates for 2015 have more than halved to average 4.9 percent since the end of last year, according to a Citi report.

"We're not as optimistic as before," said Winston Sual, president director of PT Panin Asset Management in Jakarta, which manages about 13 trillion rupiah ($975 million) of assets. "Hopefully things will improve, but our expectation now is much lower than our expectation at the beginning of the year."

So far, analysts have downgraded their earnings-per-share forecasts by 11 percent, compared with 36 percent in 2009 and 23 percent in 2013, both periods of economic weakness, according to a report in June by Morgan Stanley, which expects further cuts.

Share valuations in the market have fallen to 14 times earnings from a peak of about 15.2 times at the end of 2014. While shares are cheaper, "the market will demand a bigger discount, given the downturn and the uncertainty," said Singapore-based Ashish Goyal, head of emerging market equities at NN Investment Partners, formerly ING Investment Management.

Brokerage Mandiri Sekuritas in June cut its Indonesia rating to underweight from neutral, and its 2015 target for the Jakarta Composite Index to 4,500 from 5,450. The index is now at 4,915. CLSA reduced its 2015 target to 4,800 from 5,400.

CONSUMER SENTIMENT

The first-quarter earnings reports coincided with data showing Indonesia's economy grew at its slowest pace in six years in January-to-March.

Consumer optimism, already weakened, has worsened since. Consumers are less confident about jobs and income for the next six months, a Bank Indonesia consumer survey in June shows.

Domestic demand accounts for half of gross domestic product.

"The impact of slowing domestic demand is very much felt," said Jakarta-based Ade Sudrajat, chairman of Indonesia's textile association. "Our products are piling up in warehouses. Buying power is just not there."

Andrew Gillan, head of Asia ex-Japan equities at Henderson Global in Singapore, also warned about companies with significant dollar debt. The rupiah has fallen 8 percent against the dollar this year.

"In an environment where the local currency is under pressure, there's less money in the local currency to pay dollar interest payments, particularly if U.S. rates are rising as well," he said.

Josh Crabb, Hong Kong-based head of Asian equities at Old Mutual Global Investors, sees the share price declines as buying opportunities.

"Infrastructure spend is still needed, and as they sort things out, that will happen," he said.