Jakarta 2Q11 staff stock picks - CLSA

The market started taking a little breather after last week's strong performance with all the strong data points (earnings and macro). For now, it appears we are back to a trading environment with a dearth of news flow.

One of the steady performers remains the currency. Currently trading at a 4 year high, further appreciation is in the cards. Anecdotal and other evidence all points to the Central Bank's change of tack and its currency willingness to use currency strength to battle inflation.

After managing to eak out a respectable performance of +2.6% vs. -0.7% of the JCI for the 1Q stock pick, sales + research have come up with our picks for the 2Q. Looking at the list, appears to have a good balance of resources and domestic consumption plays.

However, what is interesting to note is that out of the 14 names, 11 are either small caps or turnaround plays. Clearly, we feel that most of the big cap blue chips ain't cheap and rising risk appetite will mean outperformance from out of favored names.

Here is the list:

BUMI Resources (BUMI IJ)
Most leveraged coal play financially and operationally. Catalyst from repayment of CIC debt. Stand to save US$100m in annual interest payments (Net profit was US$311m in 2010).

Berlain Laju (BLTA IJ)
Trading at 0.5x book value, rapidly de-leveraging balance sheet with listing of Indo business as near-term catalyst. Both chemical tankering (80% of its revenues) and oil & gas tankering (20% of revenue) has started trending up nicely.

Delta Dunia (DOID IJ)
2nd largest coal mining contractor with 1.5x growth of UNTR. Balance sheet is deleveraging and new blue chip majority shareholders will bring down cost of capital.

Energi Mega (ENRG IJ)
Trading on EV/2P of only $1.36/boe, this is the cheapest oil and gas play in the region by far. Balance sheet is also deleveraging as the current key assets starting to get monetized. 4Q2011 saw a huge turnaround and momentum will gain in 2012.

Intraco Penta (INTA IJ)
plans to double net profit through organic and inorganic growth. Coal mine injection by 3Q of US$200-300mn (2x current market cap) is major catalyst.

Gajah Tunggal (GJTL IJ)
Expect further margin expansion with rising ASP but rubber prices coming off its peak as the rainy season ends

Indofood (ICBP IJ)
raising ASP, stronger rupiah and softer raw materials costs should translate to solid 1Q results. Expected Salim Ivomas IPO catalyst is potential near-term upside

Mayora (MYOR IJ)
Stabilizing inflation, strengthening Rupiah, and lower commodity prices bode well. ASP rise (mid March) will provide added sweetener for profit margins

Malindo Feedmill (MAIN IJ)
Cheapest poultry play with the fastest growth profile.

Bumi Serpong (BSDE IJ)
BSDE is the key proxy to Indo property market with huge land bank, good execution and profitability.

Bank BTN (BBTN IJ)
Play on Indo's mortgage market. Unused liquid facility (Rp2.1tn) with new budge allocation will drive mortgage expansion in 2011.

Clipan Finance (CFIN IJ)
Most liquid Indo multifinance company with lowest valuations (11CL PE 5.6x; PB 0.9x) and highest growth (11CL ROE 17.1%; ROA 8.7%) as balance sheet great up from a low leverage of 1.4x (peers 3-4x)

Indo-Rama Synthetic (INDR IJ)
INDR manufactures synthetic fiber. With cotton prices pushing highs, substitution into synthetic fiber will drive sales volumes.

Jasa Marga (JSMR IJ)
Just bought two more toll road concessions, land bill is on the way and the land agency is also working on the implementing regulations.