Strong 1Q11 earnings but any fresh catalyst ahead? - BNP Indo

In today’s note we discussed the reason for the market’s rapid recovery and on how best to position in the market.
* Market recouped earlier losses to post a 3.9% gain YTD due to easing of inflation, a stronger currency and solid 1Q11 further supporting the strong FY2010 results.

* Earnings growth remains strong at 28% y-y in the 1Q11 with out performance delivered by banking, consumer and industrial sectors. This further solidifies the thesis that domestic story will rule in 2011 supported by a strong economy and a strengthening currency.

* Given the recent rally, probably reflecting all the positives such as a strong IDR, peaking inflation, rising FDI and a strong fiscal position, we believe the market will struggle to find new catalysts. Add to that the fact that at 15.4x 2011 earnings valuation no longer looks compelling, we maintain our NEUTRAL view on the market with a target index of 4,100, implying 8% upside.

* We maintain our investment strategy:
* LONG domestic plays such as Astra int’l and Indofood driven by
stronger currency
* LONG infrastructure play as beneficiaries of the potential passing of
the land acquisition bill. Indocement and BNI fits this bill.
* LONG BRI as it will continue to benefit from potentially higher
interest income recognition due to new accounting rule and trades at a
25% discount to BCA despite producing similar levels of ROE.
* SHORT BCA and Unilever as they are over-valued.