Pounds for pennies - CLSA

Nick Cashmore recommends OWT companies earning rupiah revenue with dollarized cost structures: Bank Mandiri (BMRI IJ), Astra (ASII IJ), Indocement (INTOP IJ), and Kalbe Farma (KLBF IJ).

Bank Mandiri (BMRI IJ)
Banks are at the core of the reflation cycle.
Indonesia’s largest bank is a prime beneficiary of rupiah appreciation
Total banking system assets have doubled in five years
As personal income reflates, so will demand for credit
83% of BMRI loans and 90% of interest income is rupiah-denominated.
A sensitivity analysis shows at least 10% upside to earnings before considering provision and increased leverage impact

Astra International (ASII IJ)
Agribusiness only accounts for 13% of group earnings.
Automotive and financing makes up 67% of group profit.
Every 10% increase in unit automotive sales adds 4% to Astra’s bottom line.
UNTR’s mining contracting has 100% revenue in USD but 50% of costs in IDR

Indocement (INTP IJ)
80% of INTP’s COGS is USD-derived
But 95% of revenue is rupiah-denominated
A 10% rise in the rupiah is equivalent to an 8% increase in prices
Margins are already the highest in 14 years; but can rise further
A quick sensitivity analysis could see a 12% rise in earnings from here

Kalbe Farma (KLBF IJ)
95% of raw materials are USD linked
Domestic market comprises 96% of total sales
The business climate means all cost savings will lead to higher margins
A 10% appreciation in the rupiah adds 3.5% to gross margins
Further rupiah appreciation will push margins to new record high
These blue sky case boost earnings by 12% and 30% in 2011 and 2012