Daily Focus 4 March 2011 - DBS Vickers

Economy

Expect no change in the BI rate
Bank Indonesia will meet today to review its monetary policy. The Bloomberg consensus has shifted to expect BI to keep rates on hold at 6.75% rather than hiking to 7.0%, following the lower-than-expected inflation data reported earlier this week (6.8% for Feb). We also maintain our expectation of no rate increase at today’s BI meeting. The surge in fresh food prices could stabilize, as Indonesia ’s harvest season normally starts in February-April and domestic rice stocks are rising. Meanwhile, Indonesia has scope on the fiscal front to afford the costs for fuel subsidies. The government intends to delay the reform plan of limiting the use of subsidised fuels, which should help avert an abrupt rise in oil price inflation and give BI some leeway to hike rates at a measured pace.

Automotive

Despite the slight slow down, February 4W sales remain strong
It was reported in the Bisnis Indonesia this morning that according to the interim data, February 4W Sales reached 69,494 units (+25% y-o-y, -6%m-o-m). Several dealerships are suggesting that this 6% m-o-m decline is caused by fewer working days in February. Despite the decrease, the figure is higher than both Gaikindo and our monthly average estimates. Gaikindo 4W sales forecast for this year is 820,000 units (+7% y-o-y), which translates into average monthly sales of 68,333 units. We are estimating 833,534 units annual sales (+9% y-o-y) which is equivalent to 69,461 unit monthly sales. Sustainable strong 4W sales might be a good indication of a strong outlook for 2011. Yet, at the same time we suspect that these higher sales might be a pull forward impact of the increase in registration tax expected later this year.

Bank Rakyat Indonesia: Buy; Rp4,925; TP Rp6,950; BBRI IJ

BBRI signed AGRO acquisition deal
BBRI finally sealed the acquisition deal of Bank Agroniaga (AGRO) with total transaction value of Rp330.3bn. BBRI plans to grow lending in agribusiness by utilising AGRO infrastructure and capabilities and has a growth target of 24%. Current AGRO loans stand at Rp2.5tr. BBRI is targeting to grow agriculture lending as a percentage of total company loans from 8.8% in FY10 to 21% this year. As a majority owner of AGRO, BBRI will focus more on core agriculture lending while AGRO will emphasise on plasma financing.