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Jumat, 01 April 2011

IDX Composite Ends Up, Deflation Report Spurs Sentiment - The Indonesia Today

Composite Index of IDX piercing the next level of 3,700 by heating up 0.78% (28.81 points) to 3,717.49 in line with gains in regional market. March deflation report also spurred buying sentiment in local stocks.

Mining companies ITMG and ADRO made more steam by jumping 4.11% and 3.41%, so did DOID by growing 2.68%. UNTR, meanwhile, lost 1.15%, BUMI declined 0.75%, and PGAS retreated 0.64%.

Banking stocks BBRI and BMRI gained 1.74% and 0.74% respectively, while BJBR stood flat.

Among blue chips, ASII and BBCA lifted 1.58% and 2.16%. PT Telkom conceded further by 0.68%.

While, travel agency PT Bayu Buana rocketed 24.53% without any reports made.

In regional markets, Hang Seng and SSE surged 1.17% and 1.33% respectively, followed by Kospi (0.68%) and KLSE (0.66%). Straits Times and All Ordinaries gained 0.65% and 0.53% respectively. Meanwhile, Nikkei fell 0.48% and BSE Sensex declined 0.28% an hour before closing.

New York Mercantile Exchange recorded light sweet crude oil stood at US$107 per barrel. In the other hand, Bank Indonesia said Indonesian Rupiah strengthened 10 points to Rp8,699 per US Dollar.

PGN earning stagnates at Rp6.2 trillion - Insider Stories

Net income of a gas distributor and transmitter, PT Perusahaan Gas Negara Tbk (PGN) last year, was reported unchanged at the level of Rp6.2 trillion, even though the operating income climbed by 17.71%.

PGN scooped net income by Rp6.24 trillion in 2010 or a strengthening of 0.16%, from Rp6.23 trillion in 2009. The stagnation of net income was mainly stimulated by other net expenses to go up at Rp972.55 billion, although the other net revenues was booked at Rp571.15 billion in 2010.

The main contribution of other net expenses came from loss on change in net fair value of derivatives by Rp561.59 billion, interest expense by Rp371.63 billion, and loss on foreign exchange by Rp368.69 billion.
Nevertheless, the state-run gas distributor reported higher operating income by 17.71% to Rp9.04 trillion from Rp7.68 trillion leading to higher operating margin to 45.73% from 42.62%.

Meanwhile, gross income of PGN rose by 16.11% to Rp12.54 trillion from Rp10.80 trillion. Then, its revenue also advanced by 9.71% to Rp19.77 trillion from Rp18.02 trillion.

February Export Down 1.42%, Surplus $4.44 Billion - The Indonesia Today

Export in February 2011 totaled US$14.4 billion, down 1.42% compared to previous month due to lower export of energy-related and mining commodities. However Indonesia recorded a surplus of US$4.44 billion as import also declined 4.47%.

The surplus however declined 8.3% compared to January's surplus.

For export, oil product dropped 16.35% and gas export also declined 14.1% compared to January’s. Meanwhile, crude oil export rose 25.8% in February with soaring oil price to US$103 per barrel in the month.

Indonesian import value in the month was US$12 billion. The most significant rising import was made by oil product (28.54%), crude oil (26.3%), and gas (14.05%).

The import was mainly came from China (17.47%), Japan (14.61%), Singapore (8.81%), and Thailand (8.03%).

Bumi eyeing US$5.2 bio revenue in 2011 - Insider Stories

Indonesia's largest thermal coal exporter PT Bumi Resources Tbk (BUMI) is eyeing a 13.5% increase in revenue this year to US$5.2 billion, higher than US$4.4 billion last year.

“For this year, we target to produce 66 million tons coal, higher than 60 million tons in 2010,” said Bumi Director Dileep Srivastava, as quoted by today.
With the assumption coal price could reach US$77 per ton-US$80 per ton, management believes they could pocket US$5.2 billion revenue in 2011.
“We predict our revenue to increase 13.5% this year or US$5.2 billion higher than US$4.4 billion in 2010.”
Current condition where politic turmoil occurs in number of oil producer countries makes coal price rise.

In the same occasion, BUMI expressed their intention to settle their US$600 million loan to China Investment Corporation (CIC) in October 2011.
In 2009, BUMI also obtained a loan from CIC’s subsidiary, Country Forest Limited, in the amount of US$1.9 billion.

Kimia Farma 2010 Profit Surges 122% - The Indonesia Today

State-owned pharmaceutical company PT Kimia Farma Tbk (KAEF) posted net profit of Rp138.72 billion in 2010, surged 122% from Rp62.51 billion in previous year, boosted revenue and other income.

It recorded net earning per share (EPS) of Rp24.98 compared to Rp11.25 in 2009.

Revenue increased 12% to Rp3.18 trillion from Rp2.85 trillion a year earlier while cost of good sold also rose to Rp2.28 trillion.

Operating expenses reached Rp758.32 billion and operating profit was Rp146.19 billion, a 31% rise compared to Rp111.93 billion in previous year.

It also booked other income of Rp32.4 billion, compared to other charges of Rp12.2 billion in 2009.

Its assets totaled Rp1.66 trillion while liability amounted Rp543.26 billion.

ADRO : Welcoming E-4000 - Mandiri

Amid much negativity on ADRO, there is an opportunity to be contrarian. We expect ADRO to deliver better supply chain and logistics management this year learning from last year problem. Despite of its high valuation in the industry, ADRO remains a coal proxy in market due to its high liquidity and still attractive PEG of 0.4 - 0.5x for EPS11F-12F growth, relatively to industry’s average. 15%-20% increase of selling price was expected to be used to base the March 2011 coal reference price (HBA), Envirocoal-5000 has reached US$84/ton, 17% increase from December 2010. Ample room for leverage would support future expansion especially inorganically and move to downward integration to power plant business.

Weak FY10 was expected. ADRO reported FY10 net profit of Rp2,207bn (-49.5% yoy, -6.0% qoq), approximately 4.8% below our and 14.0% below consensus estimates. In term of US$, FY10 net profit declined 42.2% yoy to US$243mn. The weak results mainly were due to higher cash cost which increased 17.3%yoy to US$35.3/ton, followed by rising strip ratio to 5.5x and demurrage costs of US$63mn. ADRO failed to benefit from higher global coal prices as heavy rainfall restricted coal production in Tutupan mine. To compensate this, coal production from Wara mine was boosted. But due to lower quality and higher moisture, consequently average selling price (ASP) was slightly lower at US$57.2/ton.

Robust demand on low-rank coal. 2010 was the first year of commencement of the Envirocal-4000 (E-4000). Despite of its lower caloric value and higher moisture, demand for such coal remain robust from the Asian market especially from China, India and South Korea. ADRO has sold 2.05Mt E-4000 coal in FY10 and expected to increase to 5Mt this year. Wara would be the growth driver for ADRO in the future. So far ADRO is grateful with Wara since it could sell it at a good price, without blending it with Tutupan coal. And it has similar margin with Tutupan since it has much lower strip ratio of around 2.1x vs 6.4x in Tutupan. Wara is aimed to contribute up to 20-30Mt coal in 2014 – 2015, around 40% - 50% CAGR.

OPCC contract signed. ADRO has just signed Out Pit Overburden Crushing and Conveyor (OPCC) project with WIKA and FLSmidth valued at US$175mn. The lower capex mainly is due to difference on scope of project field and design, which previously was expected to have double line with capacity of 66mmbcm and now only have single line with capacity of 40mmbcm. This project is aimed at ramping up coal production in Tutupan pit and save some fuel costs.

Maintain Buy. Adaro now is traded fairly at 14.0x PER11F. We did not make any major changes in our assumptions, and we maintain our TP at Rp2,800 per share implying 17.8xPER11F. We maintain our Buy rating on ADRO.

ISAT: Hold the fort - Mandiri

Indosat (ISAT) booked in-line revenue and operating income, however net income plunged below our (44.3%) and consensus (69.6%), due to forex exposures and higher financing charges. Meanwhile, retaining its position as the 2nd largest in term of subscribers cut down ARPU (-8.0% yoy) and RPM (-26% yoy). Our concern on its debts subsided as ISAT has done major repayments on its debt. Going forward, we think ISAT may sell some of its towers to further reduce its debt load rather than refinancing it or raising fund from the market. Given this, we upgrade ISAT to Neutral (TP: Rp5,600)

Net income below, operationally inline. ISAT managed to book single-digit revenue and operating income growth to Rp19.8tn (+5.2% yoy, -4.4% qoq) and Rp3.5tn (+8.1% yoy, -3.9% qoq), both in line with our and consensus estimates. Net income, plunged to Rp647bn (-56.8% yoy, -52.3% qoq) mainly due to a big drop in forex gains recorded in FY10 compared with in FY09, and rising financing charges. Cellular revenue was still the main driver for growth as it posted Rp16.0tn (+12% yoy). Meanwhile, fixed line and data services (MIDI) revenue fell to Rp1.3tn (-28.3% yoy) and Rp2.5tn (-9.0% yoy), due to lower traffic. As competition in the telecom sector will remain, we expect ISAT’s revenue will grow by 10.2% to some Rp22.1tn.

Maintaining 2nd place sliced ARPU and RPM.. As of 2010, ISAT booked 44.3mn (+34.3% yoy) of subscribers, which means ISAT managed to retain its 2nd position from XL Axiata’s pursuit. Consequently, ARPU declined to Rp34.7k (-8.0% yoy). In addition, heightened promotional efforts to grab subscribers and usage has also deteriorated RPM to Rp163 (-25.9% yoy). For FY11, we expect competition will remain tough, though it will not as harsh as last year, thus we may see ARPU and RPM would somewhat hold up or reduce at slower pace.

Sell towers to reduce debts. We appreciate ISAT’s repayments (Rp2.6tn of credit facility and US$234mn of global bonds) last year to reduce its debt load. Still, leverage position is quite distressing as net debt to equity is at 1.2x. We think that in order to reduce its debt, ISAT may sell some of its towers to independent tower companies, rather than refinance it. It is estimated that ISAT have ±11,600 towers. Assuming average EV/tower of two listed tower companies (TBIG and TOWR) of Rp2.1bn/tower, ISAT have potential cash of Rp2.4tn if it decides to sell 10% towers.

Upgrade to Neutral. Previously, we were concerned over ISAT debt burden. Now, ISAT has shown some reduction in its debt and have potential financial source from tower divestment. We upgrade ISAT to Neutral at TP Rp5,600.

GJTL:Tight rubber - Mandiri

GJTL’s FY10 net profit was below our expectation (90.4%) due to higher miscellaneous expenses. Lower ASP and increased COGS squeezed gross margin from 23.0% in FY09 to 19.7% in FY10. We expect further decline in gross margin this year due to higher rubber cost (we estimate a rubber cost of US$6.0/Kg compared with the company’s guidance of US$4.5/Kg – US$5.5/Kg). Despite that, we still like GJTL because the current valuation has already taken into account the decline in gross margin, in our view. At the current price, the stock is traded at PER11F-12F of 8.2x-7.9x.

FY10 net profit was in line with consensus (95.9%) estimates but below our target (90.4%). While GJTL posted strong revenue of Rp9.9tn (+24.2%yoy, +20.3%qoq) due to sharp volume growth, its bottom line only reached Rp831bn (-8.3%yoy, +33.2%qoq) due to lower forex gains of Rp113bn vs. Rp487bn in FY09. Sales volume of radial tires was up by 35.5%yoy to 10.3mn, backed by robust sales to Michelin, which reached 3.0mn (+54.2%yoy) or represented 29.1% of radial sales.

Lower ASP for radial tire. Based on our calculation, ASP/Kg for radial tires declined to Rp34,004/Kg (-5.2%yoy). We suspect this came from the sales to Michelin which is quoted in the euro. (In FY10, the euro depreciated by 11.5%yoy against the rupiah). In total, blended ASP/Kg declined by 2.2%yoy to Rp40,276/Kg. Meanwhile, higher raw material costs pushed COGS/Kg by 0.9%yoy. Consequently, FY10 gross margin declined to 19.7% from 23.0% in FY09.

Lower gross margin for FY11F. In 1Q11, average rubber price has reached US$5.2/Kg; hence, we assume rubber cost for FY11F at US$6.0/Kg vs. US$3.8/kg in FY10. We believe we are more conservative than the company’s estimates of US$4.5-5.5/Kg. Consequently, we expect gross margin to decline to 18.2% in FY11F. Meanwhile, we target revenue to reach Rp11.7tn (+18.7%yoy) backed by ASP increase of 10.5%yoy. Note that GJTL has increased ASP by around 5-6% in Jan’11 and is expecting to increase ASP on the same percentage on Apr’11.

Valuation. Based on DCF valuation, WACC of 11.5% and TG of 3.0%, we arrived at TP of Rp3,000/shares, included 25% discount for risk of shrinking margin. We maintain buy on GJTL.

GGRM:Smokin? hot - Mandiri

Gudang Garam posted FY10 net income of Rp4.1tn (+20.0%yoy, -7.5%qoq), which was in line with our and consensus estimates. Interestingly, despite the unfavorable sentiment of operating in a mature industry, the company was able to post a record double-digit growth in the revenue and profit margin since FY02, thanks to its stronger marketing arm. We view an extra spending in FY10 marketing expenses by 73.0%yoy will benefit its brand equity in the long term. We still believe in the company growth potential in FY11 as it is less impacted by rising raw material costs and it has bigger room for ASP increase relative to its competitors. We maintain Buy on GGRM.

FY10 results were inline with our and consensus estimates. GGRM posted FY10 revenue of Rp37.7tn (+14.3%yoy, 6.6%qoq) and net income of Rp4.1tn (+20.0%yoy, -7.5%qoq), which were in line with our and consensus estimates. We estimate the company’s FY10 sales volume grew by 5-6%yoy. Net income declined slightly qoq due to an increase in advertising expenses of 67.8%qoq, which was a cyclical effect.

Record revenue growth and profit margin. While people view cigarette industry has been mature, GGRM was able to post revenue growth of 14.3%yoy, which was the highest in 9 years. In addition to that, with at least 10 time of increases in ASP during 2010 leading to an estimated effective ASP increase of 8-9%yoy, the company’s gross margin expanded to 23.5% in FY10, which was also the highest level since FY02. We see this as a sign of stronger marketing arm and higher efficiency.

Positive outlook in FY11. We are still optimistic with the company’s FY11 outlook due to several reasons. Firstly, the company’s high inventory level will cushion it against raw material cost pressures. Secondly, the company’s ability to grow sales volume by 5-6%yoy while expanding its profit margin in FY10 proved the company’s strong marketing arm and reiterated GGRM’s growth potential. Thirdly, GGRM has more room to increase ASP because currently the margin it gives to distributors is higher than the other cigarette producers give to their distributors.

Maintain Buy. We maintain Buy on GGRM with TP of Rp48,000/share. Our TP is derived from DCF valuation with WACC of 12.7% and TG of 5.0%. At the current market price, the stock is trading at PER11-12F of 16.4-14.4x.

BBRI Strong result even without PSAK 50/55 adjustments - DBS Vickers

At a Glance
• 4Q10 net profit beat our and street estimates only because of Rp2.4tr PSAK 50/55 adjustments
• Likely to reduce dividend payout to below 30% pending AGM in May-11; coupled with accumulated profit (largely from FY10) BBRI may not need to raise sub-debt in 2H11
• Maintain Buy and Rp6,950 TP; BBRI remains our top pick; FY11-12 forecasts are under review with an upside bias.

Comment on Results
4Q10 net profit of Rp4.8trn included Rp2.4trn adjustments with the adoption of PSAK50/55. FY10 net profit of Rp11.5tr was 25% ahead of expectations. Loans grew 8% qoq, taking FY10 loan growth to 20%, within expectations. NIM improved to 11.3% due to lower cost of funds and stable lending rates (driven by fixed rate micro loans).
Deposits grew 28% qoq (CASA grew 35% qoq) as the government placed Rp40-50tr of funds to support BBRI’s role of disbursing the State Budget Fund (via Treasury Single Account) in the 4Q of each year. CASA to total deposits ratio rose to 62% (3Q10: 57%). LDR fell to 75% but is expected to normalize to above 80% by 1Q11 after the state funds are disbursed to finance projects in the region. Fee-based
income grew mainly led by deposit administration and ATM fees, which doubled as the number of ATMs increased to 6,085 units (from 3,778 in 2009). Provisions rose due to the adoption of PSAK 50/55. Positively, NPL ratio improved significantly to 2.8%. The medium segment NPL ratio fell to 6.8% from 13.6%, testimony of BBRI’s restructuring and collection efforts during the year. Total CAR rose to 13.8% after bumper earnings in FY10.

For 2011, BBRI is targeting 22% loan growth and 16-18% deposit growth. NIM is expected to decline as liquidity tightens and inflation mounts, pressuring cost of funds. Our FY11-12F earnings are under review. BBRI has proposed to cut dividend payout ratio to below 30% subject to approval at its AGM in May. A lower dividend payout coupled strong accumulated earnings means BBRI might not need to raise the much anticipated sub-debt in 2H11.

Maintain Buy and Rp6,950 TP based on the Gordon Growth Model with the following assumptions: 29% ROE, 15.5% cost of equity and 11% long-term growth. We remain confident that BBRI’s microlending business model remains resilient. Although NIM could slide due to higher cost of funds, the sustainable growth of high yielding micro loans will ensure >15% earnings growth over the next three years.

BMRI Boosted by ‘other’ operating income - DBS Vickers

At a Glance
• 4Q10 net profit of Rp2.8tr took FY10 earnings to Rp9.2tr; in line with our forecast but 5% above consensus
• Earnings were driven by ‘other operating income’, largely collections of written-off loans
• Full 2011 targets to be disclosed in 1Q11; may cut dividend payout to below 30%
• Downgrade to Hold, TP maintained at Rp7,100.

Comment on Result
4Q10 earnings were stronger due partly to collection of written off loans. ‘Other fee’ income was strong, especially from retail customers. Loans grew 6% qoq and 24% yoy (vs our 23% forecast), but NIM fell along with lending yields, although it
reduced expensive current accounts (usually related to SOE’s). CASA to total deposits ratio was stable at 57% vs. 3Q10. Focus remained on higher yielding loans (micro, small and consumer) that comprise 28% of total loans, with lending yields of 13-24% (micro loans the highest at 24%). Cost-to-income ratio inched up due to
continued investments in infrastructure and branch/outlet expansion. NPL ratio improved to 2.4%. Another Rp120bn provision was set aside for undisbursed loans as required by BI (BBCA had already provided for these in 3Q10). Provision writebacks
in 4Q10 were in lieu of adjustments arising from PSAK 50/55.

The variable bond repricing issue is still pending. We estimate that if BMRI’s variable rate bond portfolio is repriced to the 3-month SPN (from 3-month SBI) rates, FY11F earnings could drop by 8%. Preliminary 2011 targets include 20-25% loan growth, <3.5% gross NPL, and fee-based income growth of 20-25%. Full 2011 targets will be disclosed at 1Q11 result briefing at end Apr-11. BMRI has proposed below 30% dividend payout ratio, subject to approval. It expects Rp1.4tr write-backs from the Garuda IPO in 1Q11, even after accounting for mark-to-market losses of shares underwritten by Mandiri Sekuritas. Recommendation
Downgrade to Hold but maintain TP at Rp7,100. Our TP is based on 23% ROE, 11% growth, and 15.6% cost of equity, and implies 2.7x FY11 BV and 14.2x FY11 PE. BMRI could be re-rated if the government passes regulations to allow state-owned banks the liberty and flexibility to undertake bad debt haircut on state-owned enterprise loans. The proposal is pending Parliamentary approval.

BBTN Strong profit despite write-backs - DBS Vickers

At a Glance
• 4Q10 net profit of Rp319bn takes FY10 earnings to Rp916bn, beating our and consensus estimates
• Earnings were driven by provision write backs; NPL ratio improved to 3.2%
• Maintain Buy and Rp2,500 TP

Comment on Results
4Q10 net profit of Rp319bn was driven by provision write-back (adjustments under PSAK 50/55) as well as improved revenues. Expenses rose due to expansion and infrastructure investments, but cost-to-income ratio remained low at 53%. Loans grew 4.8% qoq, taking full year loan growth to 27%, as expected. 4Q10 loan growth was partly boosted by utilisation of the liquidity facility that was disbursed in Oct-10. NIM improved to 5.9% possibly because of BBTN’s efforts to increase its proportion of non-subsidised mortgages, consumer and commercial loans, which is now 40% of total loans (from 37% a year ago), as well as lower cost of funds with interest expenses down 6.3%. Deposits grew 9.5% qoq to take FY10 deposit growth to 13%, thanks to the cash outlets and post office tie-ups. Loan-to-deposit ratio edged down to 114% (3Q10: 117%). Asset quality improved with NPL ratio falling to
3.2%. Despite strong loan growth of 27% in FY10, BBTN’s total CAR remained strong at 16.7%.

BBTN expects to disburse the remaining liquidity facility which it received in Oct-10 for 120,000 housing units. It believes the current land-transfer tax (BPHTB) issues will not impede mortgage loan growth as most cities where BBTN’s major markets are located are able to handle the new tax administration. BBTN is waiting for BI’s review on asset sale, where BBTN would be able to sell mortgage assets to other banks with repo possibilities on the contract.

Maintain Buy and Rp2,500 target price, pegged to 3.1x FY11F BV and 19.1x PE based on the Gordon Growth model with the following assumptions: 18% ROE, 13% long-term growth, and 14.7% cost of equity. BBTN remains an attractive mid-cap stock given its dominance in subsidized-mortgage, coupled with its low cost advantage over its peers as a result of low cost of funds from the liquidity facility granted by the government.

PGAS Solid growth prospects - DBS Vickers

At a Glance
• FY10 core earnings were within expectations
• Larger capacity and potential gas price hike are key catalysts
• Maintain Buy for attractive valuation with superior yields and ROE.

Comment on Result
Pgas’ FY10 revenue grew 10% yoy to Rp19.8tr following larger volumes of both gas distribution (+4%) and transmission (+9%) due to stronger industrial demand. EBITDA improved by a stronger 15% yoy to Rp2.4tr, helped by 3ppt improvement in operating
margin following average 15% hike in gas prices for industrial and commercial users in Indonesia effective 1 April 2010. Pgas registered Rp369b forex translation loss (on loans) in FY10 due to Rp exchange rate changes against the US$ and Yen. Excluding the non-cash translation loss, FY10 core net profit of Rp6.6tr (+32% yoy) was within our and market estimates.

Pgas’ earnings outlook is promising given new sources of gas from LNG terminals and larger domestic supply. Its distribution volume might increase to 1,050 MMScfd in FY14 (+23% from FY10) upon completion of the West Java terminal. Pgas is also well-poised to receive additional domestic gas supply as new regulations mandate
upstream natural gas producers to sell 25% of their production to the domestic market.

We reiterate our Buy call for Pgas for its promising outlook and attractive valuation. Pgas is trading at a discount to regional gas peers, at 12x FY11F PE against peers’ average of 16x, but offers higher yields of 4% against peers’ average of 2%.

BBRI: Accounting change - Mandiri

BBRI’s FY10 results came in as a surprise as net profit grew as strong as 131.3% qoq in 4Q10. The implementation of the PSAK 50-55 accounting method allowed the bank to recognize much higher interest income from its exposure to micro loans. Meanwhile, its fee-based income was also getting stronger, thus setting up a solid base for future income generation. We reiterate our buy recommendation on BBRI with TP of Rp6,750/share.

Surprising growth in interest income ... BBRI reported strong net profit growth of 57.0% yoy, beating all analyst expectations. The bank claimed this as a result of the PSAK 50- 55 accounting method implementation, which caused interest income to shoot up to Rp44.6tn (+26.3% yoy and 48.1% qoq). Rather than calculating interest income based on a flat rate for its micro loans (30% of total loans), the bank now recognizes interest income based on the effective interest rate. Without such changes in accounting treatment, the interest income would have been actually around Rp39tn for FY10, which was in line with our expectation. Even though this new accounting rule might imply lower interest income generated in the future (as majority of interest income will be booked in the first year), we believe this will be compensated by the projected strong loan growth and relatively stable lending rate.

.. and strong income from recovery. In addition to that, the bank also recorded strong recovery from its bad assets amounting to Rp1.5tn, which was recorded as part of the fee- based income. This certainly boosted the such income by 201.1% qoq to Rp5.5 tn for FY10. Excluding such recovery, the fee- based income grew by 50.7% qoq, thanks to strong growth in fees and commissions as the bank managed to grow its ATM users along with its online system applied at all branches since Nov09.

Around 20-22% yoy loan growth expected this year. BBRI expects loans to grow by 20-22% yoy this year (vs 20.2% yoy last year), which will still mainly be derived from micro loans. The management is optimistic it will be able to record such loan growth despite its relatively lower CAR of 13.8%.

Maintain as a buy. Even though there would likely be no surprises this year, we still like BBRI for its ability to generate strong NIM and ROAE. Furthermore, we also see the bank’s ability to leverage on its over 30 mn customers due to its improved IT capability. While we are reviewing our forecast on the bank, we maintain our buy recommendation at TP of Rp6,750/share.

Tower Bersama: Growth spree ahead (Buy; Rp2,225; TP Rp3,200; TBIG IJ) - DBS Vickers

• FY11F/12F EBITDA revised by +3% each following larger-than-expected tower portfolio in 2010
• TBIG enjoys lowest gearing and offers strongest growth in the sector
• BUY for ~40% potential upside

FY11F/12F EBITDA raised by 3% each. TBIG had 2,035 towers at end 2010 versus our 1,880 projection, thanks to stronger organic growth and acquisitions. Tower tenancy ratio was 1.8x, a notch below our 1.85x estimate. Our checks indicate strong order flows from Telkomsel and XL. We still assume TBIG would add 850 towers and 1,360 tenants in 2011, and 770 towers and 1,425 tenants in 2012. However, we cut FY11F EBITDA margin assumption to 76% (from 78% earlier) as tower tenancy ratio could slip to 1.74x in FY11F due to a significantly larger tower portfolio. EBITDA margin could improve in 2012 led by rising tenancy ratio, although we have conservatively assumed flat margins.

Lower gearing to support stronger growth. Potential sale of towers by mobile operators in 2011 could lead to stronger growth of TBIG’s tower portfolio than we are projecting. 2010 net debt to pro-forma EBITDA of 2.3x is lowest in the sector and offers ample room to raise debt to acquire more towers. Our DCF-based target price is Rp3,200 (WACC 11.5%, terminal growth 4%), implying over 40% potential upside. TBIG is trading at ~13x FY11F EV/EBITDA while offering 24% EBITDA CAGR over FY11F-13F. This implies ~20% discount to its US peers, which are trading at average of 16x FY11F EV/EBITDA despite weaker growth prospects.

Menara Bersama Nusantara: Attractive valuation (Buy; Rp10,000; TP Rp15,000; TOWR IJ) - DBS Vickers

• Revised up FY11F/12F new tower adds and tenancies
• Lowered EBITDA margin assumptions; FY11F/12F EBITDA revised by 0%/+3%
• Maintain BUY for ~50% potential upside.

FY11F/12F EBITDA revised by 0%/+3%. Sarana (TOWR) had 5,072 towers at end 2010 against our 4,950 forecast. But its tenancy ratio was only 1.66x against our 1.7x, which offset the positive impact of higher tower numbers. Our checks indicate strong order flows from Telkomsel and XL. As such, we raised new tower assumptions for 2011 to 1,150 with 2,033 tenants for 2011 against 550 towers and 1,485 tenants, previously. For 2012, we project 1,000 new towers and 1,994 tenants against 480 towers and 1,462 tenants, previously. However, we cut FY11F EBITDA margin to 83% (from over 85% earlier) as tenancy ratio would not rise much due to a significantly larger tower portfolio. EBITDA margin might improve in 2012 due to rising tenancy ratio, although we have conservatively assumed flat margins.

Trading at ~40 discount to US peers. Potential sale of towers by mobile operators in 2011 could lead to stronger growth of its tower portfolio than we project. TOWR’s 2010 net debt to EBITDA of 3.8x is reasonable. Our DCF-based target price is Rp15,000 (WACC 11.5%, terminal growth 4%), implying 50% potential upside. TOWR is trading at ~11x FY11F EV/EBITDA while offering 20% EBITDA CAGR over FY11F-13F. This is at ~40% discount to US peers, which are trading at average of 16x despite weaker growth prospects.

PT Bank Central Asia Tbk - Remain Solid - AAA

BBCA plans to cut savings account rate by 25 bps to offset lower benchmark
rate for its government bond. The net effect would result in 2% higher bottom
line. Despite that we still have our concerns, which are 1) yield declining
faster than COF. 2) loan provisioning would resume to normal in 2012 and
beyond, hence lower ROE. 3) most likely lower dividend payout, means lower

􀂖 Net Profit Surged on Lower Provisioning
BBCA reported their second highest net profit growth since 2008, with bottom
line up 25% yoy to Rp8.5 trillion. Given said that, it is actually no surprise as
the results represent 97% of our estimate and 103% of consensus. Looking
closely at their source of growth, it was derived from provisioning reversal
that made provisioning expense fell to Rp324 bilion (-86% yoy, -54% qoq). Net
interest income down 13% yoy to Rp12.9 trillion which was affected by new
accounting standard. On normalized basis, net interest income grew tepidly
(+5% yoy) to Rp15.6 trillion. NPL stayed low at 0.6%, less 20 bps from 0.8%
during 1Q-3Q, demonstrating prudence in selecting debtors. Even with low
NPL, conservatism remains with NPL coverage at maintained 394%.

􀂖 Overweight Loan to Plantation from Telco
Loan expanded by 24.2% yoy while third fund deposits up 18.6% yoy, which
brought LDR slightly up to 55.2%. CASA in FY10, rose to 75% vs 73% in 2009.
With competitive advantage on low cost funding, we believe the bank could
easily attain more than their conservative loan growth target of 15% this
year. By sector, consumer, commercial and SME booked the highest growth of
32% yoy and 27% yoy while corporate loan up 17.9% yoy. As of end FY10,
BBCA’s biggest loan by sector was in plantation and agriculture, a contrast to
previous year on which the telco sector received the most.

􀂖 More Earnings from Cutting Savings Account’s Rate
The bank plans to cut savings account’s rate by 25 bps but this is to
compensate the potential declining income from government bond which will
use lower benchmark rate to 3-month T-Bills from previously using SBI rate.
Usually, T-Bills rate is around 100 bps lower than SBI. Based on our
calculation, ceteris paribus, 25 bps cut on savings account would result in 3%
higher net profit, while using benchmark on T-Bills will result in 1% lower net
profit. Combining the two, the effect is a 2% increase in net profit.

􀂖 TP Reduce to Rp7,600 – Change to HOLD from BUY
Although we remain our positive on the bank, we reduce our TP from Rp8,300
to Rp7,600 on the following concerns: 1) loan yield declined faster -111 bps
than its cost -60 bps. 2) provisioning expense in 2012 and beyond, would
resume to normal, to 1% (based on avg. 4 year historical) vs 2010-2011, 0,3%,
curbing higher potential bottom line growth. Our new TP implies 4.5x PBV
FY11F vs current valuation, at 4.0x. As our TP only gives potential upside of
less than 10%, we change our recommendation from BUY to HOLD.

Bank Mandiri (BMBRI IJ) earnings & TP upgrade - CLSA

Bank Mandiri (BMRI IJ), Moving on up. Strong FY10 operating results for BMRI sees Bret Ginesky revising his 11CL/12CL EPS estimates upwards by 6% and 16% respectively. This is off the back of PPOP increasing 30% YoY driven by solid fee income growth (+43%) and NIM expansion to 5.39% (+20bps).

Bret argues that there are three positive catalysts driving 2011 results: (1) Asset sensitive balance sheet will benefit from a rising rate environment; (2) "haircut" provision for accepting losses on written off loans is moving forward (3) Bank is scheduled to report a recovery of Rp1.3tn from Garuda in 1Q11.

Bret raises his Target Price to Rp9,000 from 6,883 earlier, indicating a 32% upside. BUY.

Key points from report:
· Strong FY10 results: Net Profit of Rp9.2tn (+29%) is 1% ahead of 10CL and 5% above consensus
· Pre Provision Operating Profit (PPOP) expansion of 30% YoY driven by 43% fee income growth and NIM expansion of 20bps to 5.39%
· Credit quality continues improving with NPL declining to 2.4% from 2.8%, while LDR expanded to 68%, a 6% increase
· Key catalysts for 2011: Asset sensitive B/S to benefit from rising interest rate, "haircut" provision on writing off loans is moving forward, bank scheduled to report a recovery of Rp1.3tn from Garuda in 1Q11
· Raising 11CL/12CL CL EPS estimates by 6% and 16% on premise of continued NIM expansion, rising rates, rising LDR, solid fee income growth and credit quality improvement
· Solid operating results justify premium valuation to Indo peers (x. BCA) TP raised to Rp9,000, upside of 32%. BUY

COMPANY_NOTES BBCA_FY10 Result Update - Indopremier

BBCA posted 24.6% YoY net profit in 2010 on the back of low provision cost and tax benefit. Loans grew by 24.2% YoY (beat the industry by 22.1% YoY), NPL improved to 0.6%, makes BBCA to become the most high asset quality banks in Indonesia. CAR stood at 13.5% and will be no an issue in 2011. Potential loss may come to its government bond due to its floating rates, and in April 2011 BBCA are planning to decrease it rate of demand and saving deposit in order to contra the potential loss from government bonds.

Resilient Performance
BBCA successfully achieved a 24.6% YoY net profit in 2010 due to low provisioning cost and benefit from tax rate. Provisioning cost decrease from Rp 2,258 bn to Rp 324 bn in the end 2010 post adjustment of allowance following the implementation of PSAK 50&55, while at the same time, BBCA also benefit 5% tax reduction due to its floating share of above 40%. However, LDR still stood below BI guidance by 55.2% as significant increase in saving account in last quarter 2010. The saving accounts are more like a temporary account of small business entity, and expected to decrease in first quarter 2011.

Government Bond and Rate of Demand and Saving Account
BI decision of removing three-months BI certificates, have negative impact to banks that hold numerous amount floating rates government bond. Post removing (starting in April 2011), bank will use three-months treasury bills as a alternative benchmark of three-months BI certificates. Where we note, the use three-month treasury bills has 150bps lower than three-month BI certificates.

Currently BBCA posses Rp Rp 16.1 tn floating rates government bond, where Rp 5.052 bn expire at April 2011, and leave Rp 11 tn. Assuming 150bps rate deduction, BBCA will exposed approximately Rp 100 mn loss. In order to counter this loss, BBCA plans to decrease its demand and saving rate by 25bps starting in April 2011, and expecting to save approximately Rp 200 mn interest expenses in 2011. Hence we anticipate the upside impact to BBCA FY11 earnings.

We believe BBCA is one of beneficiary’s banks from liquidity and high CASA performance. BBCA also benefit from interest rate uptrend due to it ability to reduce cost of fund, while at the same time BBCA are tending to hold its lending rates at existing level. BUY recommendation for BBCA with TP of Rp 7,400 per share. Our TP implies 19.3x and 4.6x of PE11 and PBV11.

Energi Mega: FY10 net loss of Rp62bn, in line with ours of -Rp52, below consensus (ENRG, Rp129, Buy, TP: Rp180) - Mandiri

􀂄 Energi Mega Persada (ENRG) in its recent press release reported a decline in revenue to some Rp1.2tn (-13.5% yoy, +77.6% qoq), which is below ours and consensus estimate. The decline, we think, is due to lower-thanexpected production in some major producing blocks (e.g. Malacca Strait and Kangean Sepanjang). Higher qoq was due to higher oil ASP in 4Q10 to US$87.9/bbl (FY10 average: US$81.4/bbl).
􀂄 Meanwhile, net loss of Rp62bn was relatively in line with our estimate of Rp52 net loss, below consensus of Rp94bn profit.
􀂄 Although ENRG face a declining oil and gas production, we think ENRG will have good performance this year as quite significant blocks, namely Bentu PSC and Seng Segat fields, and more to come in 2012 from Kangean TSB field.
􀂄 We still maintain our Buy recommendation on the stock, currently traded at attractive valuation at EV/2P US$1.5/boe and PER11F of 16.3x.

ASEAN Plantations - USDA prospective plantings - soybean loses acreage share to corn, but within expectations - ALERT - JP Morgan

• USDA prospective planting report for 2011 just announced: Corn’s acreage will increase 4.5% to 92.178MM acres (consensus: 91.8MM acres), soybean’s will decline slightly by 1% to 76.609MM acres (consensus: 76.9MM acres), while wheat’s will climb 8.2% to 58.021 acres (expectations: 57.5MM acres).

• Market has already been expecting corn to win acreage share at the expense of soybean, though the corn acreage planting (and also wheat) was slightly ahead of expectations by 0.4% (0.38MM acres), while the soybean acreage planting was slightly below expectations, also by 0.4% (0.29MM acres).

• Overall impact: The data above is positive for soybean prices due to the slightly reduced plantings against falling stock-usage levels (stock usage for soybean forecast to fall over 2010-11E from 4.5% to 3.9% in the US and from 25% to 21% globally). However, this is unlikely to lead to a material re-rating in soybean prices, in our view, as the plantings for soybean do not differ significantly from expectations. Our US team remains positive on the outlook for soybean and soy-oil prices, with the latter to be driven also by bio-diesel mandates (i.e. RFS 2 in the US), which will lend support in prices near these levels (our in-house soybean price forecast at US$14.68/bushel for 2011E versus spot of US$13.78/bushel, YTD: US$13.87/bushel).

• Impact on palm oil: Supportive soybean oil prices will help lend some support to palm oil prices amid expectations of rising global CPO production by 2H11 (Global CPO output expected to rise by 2.5-3MT in 2011E versus an increase of just 0.5MT in 2010). Hence, palm oil’s price discount to soy-oil will widen as production picks-up. To some extent, this is already happening or being priced-in as the discount has widened to US$150/t currently from zero discount earlier in the year (versus historical mean discount of US$160/t and peak discount of US$260/t).
Also, our new higher in-house forecast for crude oil of US$110/bbl for 2011E provides a floor support of M$3,100/t for palm oil.

• Stock calls. While downside in CPO prices, we believe, is increasingly limited near these spot levels of M$3,344/t following the 15% correction in prices from its high of over M$3,900/t in Jan-11, we see limited catalysts for upside for now until inventory levels peak sometime in 2H11. Our CPO forecast is M$3,400/t in 2011E and M$3,200/t in 2012E (YTD: M$3,650/t). We remain selective with Sime Darby (non-CPO
price drivers, positive risk-reward at current levels, growth) and First Resources (value and growth) as our top picks. We are Neutral or Underweight on most of the rest of our ASEAN stock universe.

Bank Rakyat (BBRI IJ) reports very strong earnings after adjustments - CLSA

Bank Rakyat reported FY10 net profit of Rp11.5tn which is 23% above our estimate and 25% above the consensus estimate due to implementation of PSAK 50/55. The primary driver was the transition of accounting for flat rate loans to an effective rate accounting standard.

- Interest income : Rp43.9tn =10% higher than pre PSAK figure (Rp39.0tn) This is all due to an accounting change in Indonesia
- Fee income : Rp 5.4tn also positively impacted due to PSAK and booking origination fees along with recoveries as fee income.

- BRI still reported 12% deposit growth in 4Q alone, with nearly 35% increase in demand deposits and 18% in savings and CASA moving to 63%, second highest to BCA among large cap Indo banks.

- Normalized LDR is 86% after backing out the govt deposits.
- BRI wrote off Rp4.9tn in 2010, Rp3.0tn in 4Q10 alone, lowering the NPL ratio to 2.78% from 4.28% in 3Q10.

The bank provided loan growth guidance of 20-22% for 2011 and 17-18% deposit generation in 2011
deposit trying for 17-18% goal is casa at 60%. While 2010 looks very strong, the adoption of PSAK 50/55 will pressure earnings in future years as less interest income is realized from loans. BRI has less than Rp4.0tn in Variable rate recap bond, implying limited to no impact from the switch in reference rates that will impact BNI, BMRI and BCA.

We are reviewing our estimates and anticipate raising our earnings target when the full financials are released

Additional information :
- Rakyat has ~46% of its loan book tied to flat rate loans
- which under the effective rate method will record greater interest income in the initial years and interest income will trail off in the latter years.
- This is important as it implies that for NIMs to remain elevated, Rakyat will have to maintain a high growth rate in its flat rate loans or suffer NIM compression (expect 9.3% going forward).
- 2010 loan growth was 17% before PSAK adoption and moved to 20% post.

Deposit Generation - Backing out TSA, Still Strong
- In addition the bank received an influx of government funds in the quarter represented by the Treasury Single Account(TSA).
- The ~Rp40.0tn came on the balance sheet in December and was pulled out at the beginning of February. The funds were broken down nearly 50/50 between demand deposits yielding 3% and time deposits yielding 7%+.
- This implies that the bank will likely have an elevated NIM in 1Q11 as they have one month of low cost funds on the books from the TSA that can be invested in ST bonds to cushion yield.

Credit quality improved by massive writeoffs
- Most write-offs were in the medium sector
- M
edium as the NPL ratio fell to 6.8%

Global Equity Strategist Commodity Risk - Citigroup

 Big Oil — Oil prices have rallied by more than 40% over the last 12 months.
Investors are clearly worried. Previous global earnings downturns have been
preceded by big increases in oil.
 Earnings Risk — It is not only crude prices rising. Metals prices are up 30% in the
last year, food prices have increased more than 40%. Compounding investor
worries further is that analysts’ earnings revisions have turned negative.
 Better Predictors — Those worried about a serious earnings downturn should
watch out for unsustainably high RoEs, tight labour markets and high real interest
rates. None of these are apparent now. By themselves, a spike in commodity
prices is unlikely to drive down global corporate profits.
 Regions and Sectors — Further increases in commodity prices should be
positive for Emerging Markets, especially the large oil producers like Russia. Other
cyclical sectors, in addition to the commodity producers, should also perform well.
Consumer-focused companies may struggle.

Adaro Energy - Rain and strip ratio hurt 2010 results - Macquarie Research

§ Adaro Energy on Wednesday evening reported FY10 financial results with
reported net profit down 49% YoY to Rp2.2tr from Rp4.4tr in FY09, reflecting
lower coal price and strong appreciation in Rupiah. This is in line with our
expectation, but 14% below consensus forecast. Adjusting for non recurring
expenses (extraordinary demurrage) and amortisation of goodwill, the clean net
profit of Rp3.1tr, was also in line with our expectations.
§ Further, the company also aims to increase its coal production from 42.2mt in
2010 to 46-48mt in 2011, roughly in line with our 47mt expectation. However, the
company also expects the strip ratio to go up from 5.4-5.5x to 5.9x in 2011 to
make up the shortfall in pre-stripping work in 2010 (due to severe rain).

§ In-line FY10 production, but sales come in ahead... The company produced and
sold about 42.2mt (up 4% YoY) and 43.8mt (up 6% YoY) of coal, vs. our expectation
of 42mt for both production and sales. During 4Q10, the company’s production has
been running at 3.5mt per month (which implies 88-90% of 2011 production).
§ …offsetting lower price and higher cost. The company’s FY10 ASP came in at
US$57.2/t, slightly lower than our expectation of US$57.8/t, mainly due to some
deferred shipment of higher-end priced contracts (given shortfall in production in
2010 due to rain). Production cash cost (ex-royalties and S&GA) also came in
higher than expected at US$30/t vs. our US$29/t forecast due to higher
demurrage and strip ratio (this implies a Q4 production cash cost of US$35.1/t).
§ Increasing 2011 production to 46-48mt from 42.2mt in 2010. This is mainly
driven by the production ramp-up at the lower grade Wara pit, which the company
expects to increase production from 2mt in 2010 to 4-5mt in 2011. We believe
that the company should have sufficient equipment capacity to hit its 2011 target,
given that the 2010 original target was already around 45-46mt (and only to be
downgraded to 42-43mt due to rain condition).
§ See 15-20% potential downside risk to earnings, mainly due to lower coal
pricing and higher cost. Thus, we see possible downside risk to our JFY11 coal
price forecast of US$145/t toward US$120-130/t, due to short-term pressure to
coal price (post disaster in Japan). Further, higher oil price also present downside
risk to Adaro’s earnings as it represents 25-30% of production cost.

Earnings and target price revision
§ No change.

Price catalyst
§ 12-month price target: Rp3,250 based on a PER methodology.
§ Catalyst: Increasing coal price, commencement of Maruwai project.

Action and recommendation
§ We rate Adaro Energy Outperform. However, we acknowledge that we see 15-
20% potential downside to our 2011 earnings forecast, as we see downside risk
to our US$145/t JFY11 settlement toward US$120-130/t. On this scenario, we
think the stock could trade on 12-13x 2011E PER.

RALS:Leveraging Ex-Java expertise - Mandiri

Same-store-growth in the Greater Jakarta beat the rest of Java (7.4% vs 6.7%) in 2010, after being the worst performer in 2009 and 2008 even compared with Ex Java. As the social upheavals in the Middle East and North Africa could negatively affect remittances sent by Indonesian migrant workers to their families outside the Jakarta, the Greater Jakarta is expected to support RALS revenue growth together with commodity-based regions (Ex Java). RALS now has the lowest operating margin vs its peers such as Ace Hardware (ACES), and Mitra Adiperkasa (MAPI). With a lenient operation, better margin can only be achieved through higher price points. This year we expect RALS to have a robust year thanks to the government's decision in delaying fuel price hike. But threat remains. RALS is now trading at consensus PEG of 0.67, while MAPI is 0.39 and ACES is 0.86. We like RALS for its clean balance sheet, however we acknowledge catalyst remain elusive.

Profit is in outside Java. Revenue contribution from the ex -Java area in FY10 was 46.0%, a continuous improvement in comparison with FY09 and FY08 of 43.0% and 42.0%, respectively. Ex Java SSG, with the exception of FY09 when commodity prices took a plunge, was the highest (9.1%) in comparison with the rest of Java (6.7%) and the Greater Jakarta (7.4%). Ex-Java also recorded the highest gross margin for FY10 of 28.4% compared with the Greater Jakarta (24.1%) and the rest of Java (25.9%). The importance of Ex- Java was highlighted by RALS FY10 expansion pattern. From the total new 76,810sqm gross new spaces, 81.9% was allocated to Ex- Java, while from 18,927sqm area closed, 39.3% from the rest of Java, and the remaining from the Greater Jakarta. Closing down less profitable stores, we think, helped improve SSG of the Greater Jakarta area.

Taking advantage of first mover. As RALS cash conversion cycle is -5.0 days (they pay their suppliers 5 days longer than they receive payments from customer), while in 2009 was -6.6 days, we believe there is a limited room to extract more values from operational activities. As RALS operating margin is still below its peers, RALS must be able to raise its selling prices and this is its weakest point as it serves mid to low consumer segments. Other area to improve is having more return from its cash holding. As of Dec 30, 2010, RALS was holding Rp1,086bn of cash, deposits and bonds, 31.1% of total asset. Yield of the short-term assets is only 3.6%. I use average of FYE09 and FYE10 position as denominator, and the sum of interest income, gain on sales, and forex gain (loss) as nominator. Why not use the cash to buy properties especially in promising ex- Java areas where it knows the areas well.

Maintain Buy. We like the company but to have excitement in its share price, an out of the box solution for its current business model or asset management is needed. While conservatism is good, too much can also kill.

Bakrie & Brothers: FY10 net loss Rp7.6t - Kim Eng

§ Bakrie & Brothers posted FY10 net loss of Rp7.64t, further freefall from FY1.73t in FY09 (restated).

§ Revenue grew by 72% y/y to Rp13.10t. Gross and operating profits increased by 22% and 39% to Rp4.50t and Rp0.97t.

§ Its subsidiaries contributed Rp203b income this year, a turnaround compared to Rp602b loss in FY09

§ The company has correctly reported the number in its published financial statement in newspaper this morning. However, Bakrie made typo in its press release to the media, mentioning the loss at Rp7.6b (instead of Rp7.6t ), which mistake later being overblown by an online media.

§ Biggest loss in FY10 came from loss from divestment of shares of Rp10.25t. As of 9M10, Bakrie still posted net loss of Rp565b. We suspect the divestment loss is related to swap of 25% of Bumi shares owned by the company with Vallar’s shares, which transaction announced in 4Q10.

§ However, Bakrie did restate Rp173b lower for its FY09 net loss to Rp1.735t (from Rp1.627t).

United Tractors - Rp 6.1 trn Rights issue announced: short term overhang - ALERT - JP Morgan

• Rights issue announced at Rp 15,050, raising Rp 6.1 trn: UNTR has this morning announced plans to raise Rp 6.1 trn issuing about 12% of its current shares via a rights offering. UNTR had a 27% Net gearing ratio, and total debt of Rp 5.7trn at the end of 2010 and hence the announcement is a surprise to us and we think to the market too. The company seeks EGM approval on 2nd May, and the rights issue to be completed by the end of May. This is UNTR’s second rights issue in less than 3 years.

• Use of Proceeds – a chunky acquisition ahead? UNTR has reported that <10% of the funds will be used to augment working capital and over 90% will be targeted to specific uses. The allocation of Rp 2.5-3.3 trn ($280-$360m) for acquisitions when the company has a relatively low gearing, and a track record of smaller size coal concession acquisitions is interesting. We wonder if the issue and timing suggests that UNTR is lining up a larger coal acquisition– requiring cash funding?

• Short term overhang: The unexpected timing in a background of low gearing could mean that investors are negatively surprised by the cash call. We have long been wary of UNTR’s intent to expand into investing into power plants, believing that would be better placed within parent Astra international. The large allocation for acquisitions could be the source of some uncertainty and overhang – up and until UNTR is able to provide clarity on acquisition targets/ valuations. Till that certainty on funding use is available, the risk is that markets may view the rights issue as opportunistic –limiting fresh buying interest in the near term.

Holcim Indonesia : FY10 results: below ours and consensus – Buy - AmCapital Research

Holcim Indonesia (Holcim) delivered below our expectation and consensus’ FY10 results given its cement sales performance. While we have anticipated these as we had earlier estimated its FY10 net profit would fell by 5.5% YoY to Rp846bn (consensus: Rp916bn), Holcim however posted net profit of Rp828bn (-7.5% YoY) on flat revenues and gross profit at Rp5.96tn (+0.3% YoY) and Rp2.25tn (+0.0% YoY), respectively, with operating profit declined by 4.6% YoY to Rp1.33tn. Current share price traded Holcim Indonesia at 2011F-12F PERs of 18.3-12.5x. We still have a BUY with year-end target price of Rp2,350. With more infrastructure projects ahead and housing demand is on the rise, we believe cement players such as Holcim should benefit from these conditions.

Corporate Result Flash Bank Mandiri - Bahana

4Q10 performance
§ Lower provisioning charges of IDR720b in 4Q10 (vis-à-vis IDR1.1t in 3Q10) allowed net profit to grow 20.5% q-q and 11.7% y-y to IDR2.8t, bringing BMRI’s FY2010 net profit to jump 28.8% y-y to IDR9.2t, 6% and 5% higher than our and consensus estimates respectively. Additionally, net interest income grew 2.9% q-q and 24.9% y-y on the back of strong loan growth despite NIM contraction to 5.5% in 4Q10 from 5.7% in 3Q10.
§ 4Q10 loans grew 6.2% q-q, bringing 24.0% y-y loan growth to IDR246t. Gross NPL improved to 2.2% in 4Q10 from 2.4% in 3Q10.
§ Third party funding grew 12.8% q-q with core deposit growth 10.0% q-q. This brought 13.4% y-y growth and LDR to 68.0% from 72.2% in 3Q01 and 62.1% from a year earlier.

Low LDR combined with strong capital base (post rights issue) should enable the bank to foster its loan growth, targeting at 25% in 2011 vis-à-vis 23.2% our assumption. On a more negative note, BMRI has carried government recap bonds worth IDR82t, of which 97.3% are in variable rate, tied to the 3-month T-Bill at only 5.19% vis-à-vis 6.36% 3-month SBI previously. This might dampen growth in net interest income.

Recommendation and valuation
We continue to like BMRI on its improved asset quality and ability to expand its earnings asset portfolio, allowing earnings to grow 30.5% y-y in 2011. Additionally, recovery from Garuda’s NPL through recent share divestment has brought in capital flow of around IDR1.4t. Despite the recent rally in the share price, BMRI’s valuation remains attractive, trading on 2.5x 2011 P/BV. Hence, we retain a BUY on the counter with target price of IDR7,500.

Corporate Result Flash Bank Rakyat Indonesia - Bahana

4Q10 performance
§ On the back of a jump in net interest income to IDR11.9t (+62.2% q-q and +90.2% y-y), BBRI booked 4Q10 net profit surge of 105.9% q-q and 140.0% y-y to IDR4.8t, and surprisingly brought FY10 net profit to IDR11.5t (+57.0% y-y), way above our and consensus estimates. 4Q10 NIM spiked to 14.6% from 9.7% in 3Q10.
§ Loans grew 8.0% q-q in 4Q10, bringing FY10 loan growth to 21.3% y-y to IDR252t while third party funding surged 25.6% q-q to IDR328t. This brought down LDR to 76.8% in 4Q10 from 89.3% in 3Q10.
§ Gross NPL improved significantly to 2.8% at end 2010 from 4.3% at end 3Q10, pushing up NPL coverage ratio to 199% in 4Q10 from 156% in 3Q10.

While 4Q10 earnings results had surprised us and the market, we question the sustainability of this high NIM going forward. Our preliminary assessment suggests that this is unlikely to hold up in the future.

Recommendation and valuation
Judging from this recent 4Q10 results, we are likely to revise our 2011 earnings forecast. Meanwhile, we maintain our HOLD recommendation on the counter with target price of IDR5,800, or at an implied 2011 P/BV of 3.4x.

Full Year 2010 Earnings Result Dashboard (update 2) - UBS

Telekomunikasi Indonesia (TLKM Buy PT 9,500): Results inline
TLKM result is in-line with expectations.
Net profit = Rp11.5 tn (+3% YoY, -8% QoQ); in-line with UBS and Street’s expectations.
Revenue = Rp68.6 tn (+6% YoY, -8% QoQ); in-line with UBS and consensus forecast.
EBIT = Rp22.5 tn (flat YoY, -9% QoQ); in-line with UBS and consensus forecast.
EBIT and net margin stood at 33% (-200bps YoY, -100bps QoQ) and 17% (-100bps YoY, flat QoQ).

Sales comment: No surprises on TLKM 2010 results. Positive sentiment on TLKM share should be supported by the result announcement. We are a buyer of TLKM.

Gudang Garam (GGRM IJ, Buy, PT Rp53,500): Results inline
GGRM 2010 net profit = Rp4.1 tn (+19% YoY, -11% QoQ); in-line with UBS and consensus forecast.

Sales comment: No surprises on GGRM 2010 results. UBS recently upgraded the stock to buy on the back of GGRM’s ability to increase price – and still post modest volume growth – and margin expansion story in the medium-term. We think GGRM will continue to rerate.

Delta Dunia (DOID IJ) 2010 results: Disappointing result
Net loss of Rp159 bn (-1% YoY, -451% QoQ); vs UBS and Street’s expectations for a net profit of Rp580 bn and Rp566 bn respectively.

Revenue = Rp5.8 tn (-9% YoY, +8% QoQ); in-line with UBS and consensus forecast.
EBIT = Rp1.04 tn (-16% YoY, -4% QoQ); 5% and 10% below UBS and consensus forecast.
EBIT and net margin stood at 18% (-200bps YoY, flat QoQ) and -3% (flat YoY, -4200bps QoQ).
Below the operating line, DOID reported: 1) 116% increase in interest expenses to Rp542bn; 2) loss of LT receivables of Rp335 bn; 3) 179% increase in the decrease of value (of assets?) to Rp264bn.

Sales comment: Disappointing results, which should weigh on DOID share price in the market.

Summarecon Agung (SMRA Buy PT 1,700): Results inline
The result was in line with expectations.
Net profit = Rp233 bn (+39% YoY, -16% QoQ); in-line with UBS and Street’s expectations.
Revenue = Rp1.7 tn (+42% YoY, +28% QoQ); 8% and 10% ahead of UBS and consensus forecast – ahead.
EBIT = Rp378 bn (+18% YoY, -5% QoQ); in-line with UBS and consensus forecast.
EBIT and net margin stood at 22% (-400bps YoY, -700bps QoQ) and 14% (flat YoY, -600bps QoQ) respectively.

Sales comment: No surprises on SMRA 2010 results. This should add to the positive sentiment on SMRA stock in the market. SMRA stock, however, is entering the overbought region, raising the possibility of a technical correction.

Ramayana Lestari Sentosa (RALS Buy PT 1,200): Below expectations result
RALS 2010 net profit = Rp412 bn (+23% YoY, -65% QoQ); in-line with UBS forecast, but 10% below consensus. Revenue = Rp6.06 tn (+11% YoY, +21% QoQ), while EBIT = Rp371 bn (-2% YoY, -102% QoQ). EBIT and net margin stood at 6% (-100% YoY, -1000bps QoQ) and 7% (+100bps YoY, -1000 QoQ) respectively.

Sales comment: Weak result largely weighed by higher operating expenses (+17% YoY), which resulted in EBIT margin compression. Bottom line was somewhat supported by lower FX losses, but still is below consensus forecast. The weak result will weigh on buying sentiment on RALS. We are a seller.

Full Year 2010 Earnings Result Dashboard (update 1) - UBS

Adaro Energy (ADRO Neutral 2,800): Below expectations result
Net profit = Rp2.2 tn (-49% YoY, -6% QoQ); 10% and 16% below UBS and consensus expectations. Revenue = Rp24.7 tn (-8% YoY, +9% QoQ); 9% lower than UBS forecast, but in-line with consensus. EBIT = Rp6.8 tn (-28% YoY, +1% QoQ); in-line with UBS and consensus forecast. EBIT and net margin stood at 27% (-800bps YoY, -200 QoQ) and 9% (-700bps YoY, -100bps QoQ).

Sales comment: Weak result largely due to cost pressures (margin contractions). This should weigh on the already weakening sentiment on ADRO share in the market. We are buyers on further weakness from current levels.

Indo Tambangraya (ITMG Neutral PT 57,000): Coal mine acquisitions just speculation?
ITMG is reportedly looking to acquire three coal mines, producing one million ton of high calorie coal per annum. These mines are reported to be located in Kalimantan, and negotiations on the acquisitions are on-going. In 2011, ITMG is looking to produce 25 mn tons of coal (+14% YoY).

Sales comment: Analyst Andreas Bokkenheuser checked the acquisition news with ITMG, which was denied by the management. Andreas is neutral on the coal sector at the moment, due to the short-term weakness on supply/demand conditions.

Bank Mandiri (BMRI IJ): Results ahead of expectations
The result was ahead of expectations.
Net profit = Rp9.22 tn (+29% YoY, +21% QoQ); 9% and 5% ahead of UBS and consensus expectations.
NIM = 5.28%; vs 5.04% last year.
Net NPL = 0.62%; vs 0.42% last year.
Loan growth stood at 24%; vs industry at 23%.
Deposit growth stood at 13%.

Sales comment: Good set of results, which should add to the positive buying sentiment on BMRI stock. Chart is looking toppish however.

Bank Central Asia (BBCA Sell PT 5,822): Results inline
BBCA 2010 net profit = Rp8.48 tn (+25% YoY, +11% QoQ); in-line with UBS and consensus forecast. In 2010, BBCA’s: 1) NIM was stable at 5.3%; 2) LDR was higher at 55%; and 3) NPL was lower at 0.6%. BBCA also posted strong loan growth of 25% in 2010 – vs industry at 22% – which is driven by the consumer sector. Lastly, BBCA’s deposit grew 13% in 2010, led by CASA account – which represents 76% of total deposit.

Sales comment: Good result. Slightly above UBS and consensus of Rp8.1 tn and Rp8.3 tn, not much different to the unaudited result announced in BI website last week. BBCA shares are near the overbought region and we see a turnaround in buying sentiment on the stock. We recommend investors to take profit on BBCA shares.

Bank Rakyat Indonesia (BBRI BUY PT 6,400): Very strong result
The result was well ahead of expectations.
Net profit = Rp11.5 tn (+57% YoY, +106% QoQ); 17% and 25% ahead of UBS and consensus expectations.
NIM = 10.8%; vs 9.1% last year.
Gross NPL = 2.78%; vs 3.5% last year.
Loan and deposit growth stood at 20% and 29% respectively.

Sales comment: Very strong 2010 result. Interest income, fees, expenses and provisioning are ahead of our expectations, and so is the bottom line. Positive sentiment on BBRI should accelerate in the market. We are a buyer.

Bank Tabungan Nasional (BBTN Not Covered): Result above expectations
Net profit = Rp916 tn (+87% YoY, +54% QoQ); 16% and 13% ahead of UBS and consensus expectations. BBTN guided for 2011 net profit of Rp1.15 tn; vs Rp962 bn UBSe.

Sales comment: Great result, good guidance. Looks like a great way to play the property market, given BBTN’s role as a is a leading mortgage lender.

Indonesian Coal – A double whammy the entry point fast approaching? - UBS

A double whammy of bad news for the Indonesian coal stocks this morning:

1. Adaro (ADRO Neutral PT 2,800) announced a poor result last night
Late last night ADRO reported a 49% decline in net income YoY to US$242m in 2010 on account of a slight drop in selling prices and cost pressure from higher fuel prices. The results was 10% below UBS estimates of U$269m reported net income. Production volumes grew 4% to 42mt, average selling price declined 3% to US$57/t and cash costs rose 17% to US$35/t YoY in 2010, in line with our estimates. We attribute the lower results versus our forecast to weak earnings at associated businesses, such as CoalTrade and SIS.

The result was 17% below consensus estimates, according to Reuters, which is likely to result in share price weakness after market open.

2. Newcastle prices are sliding and are poised to fall through $120
Hot off the press from industry journal Platts this morning - as relayed by the UBS Commodities team:

Thermal coal prices are vulnerable: Demand has ebbed in the Australian thermal coal spot market, with an expectation that FOB Newcastle prices may re-test the $120/mt support level in coming weeks as surplus cargoes to accumulate, market participants said.

Market sources said Australian thermal coal was facing looming oversupply, and stressed it could take considerable time for coal demand in Japan to recover after the recent earthquake. "There is still a surplus of coal available ex-Newcastle in the prompt (Q2), and I think this overhang will persist for a while into Q3 given that Japanese demand will be reduced for longer than many expect – we don’t expect it to recover in 2011," one market participant said. "There is a lot more coal around. Prices have to go lower as no one is buying at these levels," said a second market participant. He added that although buyers could stop buying, miners could not stop producing coal, with some excess thermal coal presently being stockpiled at mine sites.

Participants said there was a limit to how much Australian thermal coal could be absorbed by other Asia buyers. "Japan is not buying, South Korea is full and Taiwan is not taking any," a market participant said. (Platts)

Our read on the sales desk:
The poor ADRO result and the prospect of Newcastle falling through $120 short term is bad news for sentiment and we might see share prices fall back somewhat. However we shouldn't forget that our analyst Andreas Bokkenheuser (and others like him) downgraded their sector view on the basis that poor 4th quarter results and seasonal coal p weakness would weigh on stock prices. The poor 4th quarter results are by and large in the market now. It doesn't take too much imagination to guess that analysts will upgrade their sector view as prices fall to lower levels.

We agree with the call from Peter Hickson, Andreas Bokkenheuser and the rest of the global coal team that we will see very strong prices into the second half of the year. We are concerned, however, that there might once again be production shortfalls in 2011 - if the sun shines this dry season, we think that ''lack of heavy equipment deliveries from Japan" will become an oft-used excuse for production shortfalls.

In other words, we think that 2011 will be all about strong prices and moderate production growth. We'd look to buy on any weakness over the next couple of weeks as Newcastle slides below $120.

Kamis, 31 Maret 2011

Timah Production risk clouds strong price outlook - DBS Vickers

At a Glance
FY10 results above our estimates on higher ASP and lower effective tax rate.
Strong tin price will continue to drive earnings, however, production might be at risk due to poor weather condition.
Maintain Fully valued, TP raised to Rp2,350 (from Rp2,300) following earnings revision.

Comment on Results
Timah reported 202% increase in FY10 earnings to Rp948bn, exceeding our FY10 forecast of Rp712bn by 33%. The strong results were attributed to higher ASP to US$19,500/ton (+50%yoy) while sales volume fell by 19% to 40,000 tons as production was disrupted by bad weather. Looking ahead, we believe the strong tin price outlook will continue to drive earnings, while production might be at risk due to weather problem as Timah now relies on offshore mining to meet their production target. We therefore lowered our FY11/12F production by 9%/5% to 40,000/42,000 tons respectively to account for production risks. Note that TINS sales volume has fallen from 59,000 tons in 2007 to only 40,000 tons in 2010. We also raised our FY11/12F ASP by 15%/11% to account for high spot
price. Our FY11F ASP is 20% below spot price. Following the revised assumptions, our FY11/12F earnings are raised by 5%/4%.

Maintain fully valued, TP raised to Rp2,350 (from Rp2,300) to reflect the earnings revision and based on blended valuation of 12.5x FY11F PE and 3.0x P/BV (3-years average) and (DCF (11%WACC, 3% terminal growth).

Adaro Energy Underperformed on higher tax rate - DBS Vickers

At a Glance
FY10 results below estimates due to higher tax rate.
Cut FY11/12F earnings by 14% and 3% for slower output growth
FY11F earnings growth 111%; maintain Buy.

Comment on Results
ADRO’s FY10 net profit fell 49% yoy to Rp2.2tn due to lower ASP (-3%) to US$57.2/ton and higher cash cost (+17%) to US$35.3/ton due to higher stripping ratio (5.5x), longer overburden hauling
distances and additional weather related costs. The weak FY10 earning was in line with the poorer performance of others miners affected by higher 2H production cost. FY10 net earnings
accounted for 92% of our forecast of Rp2.4tn, below our estimates due to higher effective tax rate of 53% versus 48% of our forecast. Results also came in below market consensus by 12%.
Looking ahead, we expect FY11F earnings to grow 111% yoy on the back of 9% volume growth and 20% higher ASP. The company indicates 46-48m tons of FY11F production, including 4-5m tons from Wara. We therefore cut our FY11 output assumption to 47m tons from 48m tons to be more conservative since weather remains the wild card. We also raised our production costs by 3% after imputing higher stripping ratio to 5.9x (from 5.5x) and higher fuel costs. Following the revised assumptions, FY11/12F earnings are reduced by 14%/3%.

Maintain Buy for ADRO on solid production growth backed by its vast reserves. TP lowered to Rp2,850 (from Rp3,100) following the earnings revision based on blended valuation of 17x FY11F PE and 4.5x P/BV.

Corporate Result Flash Delta Dunia Makmur - Bahana

4Q10 performance
§ DOID booked surprising 4Q10 net profit loss of IDR511b, bringing 2010 earnings to negative IDR135.5b compared to positive earnings of IDR456b in our and IDR567b in consensus expectation.
§ Disappointment in 4Q10 earnings mainly stemmed from the impact of loan redemption process and declined in asset value, causing the company to register loss of IDR335b and IDR263b respectively.
§ On the operating front, while 4Q10 revenue grew 8% q-q to IDR1.6t, on the back of higher production, operating profit dropped 4% q-q to IDR282b on higher G&A expenses, slightly higher than our estimate but lower than consensus. This brought 4Q10 operating margin to 17.5% from 19.7% in previous quarter.

DOID’s 2010 disappointing earnings would undoubtedly result in major downward earnings revisions. On a more positive note, however, with unchanged 2011 production estimate, we maintain our operating profit growth of 25% y-y to IDR1.3t. On the bottom line, the redemption of high loan cost would result in lower interest expense, reversing net profit to an estimated IDR671b.

Recommendation and valuation
In the interest of being conservative, we have increased our risk premium assumption to 5.5% (WACC: 11.5%), resulting in lower TP of IDR1,600. We believe that the risk on below the line expenses should not be repeated in 2011. Thus, with brighter production outlook ahead, we reiterate our BUY rating on DOID.

Corporate Result Flash Bank Central Asia - Bahana

4Q10 performance
§ Supported by strong interest income (+10.8% q-q to IDR3.9t), less provisioning charges (IDR189b vis-à-vis IDR410b in 3Q10) and lower corporate tax rate, BBCA reported 4Q10 net profit of IDR2.4t (+11.4% q-q), bringing FY10 net profit to IDR8.5 (+24.6% y-y), accounting for 96% of our forecast and 102% consensus estimate.
§ Loans grew 10.6% q-q with net additions of IDR14.8t, bringing y-y loan growth to IDR153.9t (+24.2%), comprised of corporate loans (+8.2% q-q to IDR4.3t), SME/commercial (16.4% q-q to IDR8.6t) and consumer (+6.2% q-q to IDR2.2t). Gross NPL improved to 0.6% from 0.8% in 3Q10.
§ Third party funding expanded 5.6% to IDR14.8t and brought LDR to 55.5% from 53.0% in 3Q10. CASA accounted for 75.5% of total deposit with the remaining 24.5% coming from time deposits.

Despite having outpaced industry loan growth of 22.1% in 2010, BBCA conservatively targets 2011 loan growth of 15%. However, this could be exceeded should the need arise. The management plans to continue growing its loans across all segments while further enhancing its asset quality.

Recommendation and valuation
BBCA plans to cut 25 bps interest rate on its savings accounts to compensate the negative impact on lower yield of government variable rate bonds, which will be tied to 3-month T-bills (SPN) with 5.19% yield (vis-à-vis 3-month SBI with 6.36% yield previously). As of 2010, BBCA’s government variable rate bonds stood at IDR16t, but should come down to IDR11t given IDR5t maturity in April 2011. Hence, we maintain our earnings forecast and re-iterate our HOLD rating on the stock with TP of IDR7,250.

Corporate Result Flash Timah - Bahana

4Q10 performance
§ TINS booked 4Q10 earnings growth of 208% q-q to IDR473b, bringing full-year earnings to IDR948b (+202% y-y), in line with our forecast but 24% higher than consensus estimate. The strong full-year results stemmed from higher tin prices which averaged USD19,500/ton (+44% y-y), although tin sales volumes fell 18% y-y to 40,302 tons on the back lower production (-10% y-y) impacted by heavy rainfalls.
§ 4Q10 top line grew 46% q-q to IDR2.7t due to higher ASP while COGS were only up 13.5% q-q, translating to 220% q-q growth in gross profit.
§ Operating expenses were up 195% q-q, bringing operating profit to IDR687b (+229% q-q), 19% below ours but 7% above consensus’.

We apply TIN price of USD24,000/ton (+23% y-y) and production of 48,000 tons (inline with managements guidance) resulting in 2011 net profit of IDR1.4t, +48% y-y, the highest in the metal sector. The downside risk to our forecast is that TINS exports the majority of its product to Japan for electronic use, and cancellations of orders would adversely impact TINS sales volumes unless the company can divert its sales to other markets.

Recommendation and valuation
We will review our production forecasts for 2011 after talking with the management as well as our ASP as the current spot tin prices are much higher at USD31,249/ton. At this stage, our DCF-based TP is at IDR3,150/sh. With 21% upside potential, we retain our BUY rating on TINS.

Corporate Result Flash Bayan Resources - Bahana

4Q10 performance
§ BYAN’s 4Q10 earnings fell 23% q-q to IDR252b, bringing full-year net profit to IDR741b (+443% y-y), 10% higher than ours and 25% higher than consensus estimate. Growth in full-year earnings stemmed from 13% y-y higher revenues stemming from higher selling prices and production. COGS grew by just 1.3% y-y, translating to 80% y-y gross profit growth.
§ Despite 13% q-q growth in revenues in 4Q10, 20% q-q growth in COGS resulted in 4.5% q-q drop in gross profit. COGS were driven by higher stripping ratio resulting from heavy rain falls (as the company had to mine deeper) and lower q-q on production.
§ Besides COGS, opex increased 15% q-q on higher selling expenses, which resulted in 12% q-q drop in operating profit.

BYAN expects to produce 14.5-15.5m tons in 2011 with ASP of USD85-87/ton and cash cost of USD64-67/ton. We assume production of 15.1m tons, ASP of USD89.7/ton and cash cost of USD67/ton and arrive at net profit of IDR1.8t (+146% y-y).

Recommendation and valuation
While we expect some adjustments to our earnings resulting from 2010’s spill over effect, we will continue to maintain our HOLD call on the counter. We arrive at DCF value of IDR16,300, excluding the acquired new mines. Therefore, we apply a 15% premium to our DCF and arrive at our target price of IDR18,700. HOLD on limited upside.

Corporate Result Flash Adaro Energy - Bahana

4Q10 performance
§ ADRO’s 4Q10 earnings fell 6% q-q to IDR511b, bringing full-year net profit to IDR2.2t (-50% y-y), some 17% lower than our and consensus estimates.
§ In 4Q10, revenues were up 8.6% y-y while COGS jumped 23% q-q translating to gross profit decline of 20% q-q. Costs increased significantly on higher stripping ratio as well as lower production in 4Q10. Additionally, opex grew 22% q-q, translating to operating profit of IDR1.3t (-26% q-q).
§ At the operating profit level, the results were within expectations forming about 96-98% of our and consensus estimates respectively. The company booked demurrage cost of IDR172b in 2010 due to bad weather, which dragged down 2010 net profit below our and consensus expectations.

In 2011, the company should benefit from both higher volumes and selling prices. We use production of 46.5m tons (+9.1% y-y), ASP of USD69.4/ton (+18% y-y) and cash cost of USD45.3/ton (+11.2% y-y). This translates to net profit of IDR4.0t (+84% y-y).

Recommendation and valuation
While we expect some earnings adjustments due to the spill over effect from 2010, we will broadly maintain our earnings for 2011. ADRO has underperformed the index by 11% ytd despite high coal prices. At this stage, we think the lower than expected 2010 results are already reflected in the share price. We maintain our DCF based TP of IDR3,050 and our BUY rating on ADRO, the largest cap stock in the sector with high liquidity, on strong growth in 2011.

Corporate Result Flash Summarecon Agung - Bahana

4Q10 performance
§ SMRA reported 4Q10 top line which were higher than our and consensus estimates, although bottom line came in line with expectations (exhibit 5).
§ 4Q10 operating profit reached IDR104b, 2.7% lower q-q as the result of higher G&A expenses (new marketing office in Bekasi) and higher 4Q10 COGS from infrastructure development in Bekasi.
§ Despite lower 4Q10 net profit of IDR62b (-13% q-q), 2010 net profit reached IDR233b (+39% y-y), translating to 13.8% net margin, just slightly lower than 2009 net margin of 14%.

SMRA has the capability to increase the asset value of its township development and maintain its high selling prices. After having finished developing Kelapa Gading in 2011, SMRA plans to continue its township development in Serpong and Bekasi as well as to open new township development in Bandung to support revenue growth in the coming years.

Recommendation and valuation
We retain our BUY recommendation for SMRA on the back of solid fundamentals with minimal net gearing of just 10% coupled with significant amount of marketing sales amounting to IDR3.4t in the last 2 years. Currently, the share is trading at 39% discount to NAV with 31% upside potential to our TP of IDR1,450. BUY.

Bank Central Asia: HOLD (downgrade from BUY); Rp6,850; Premium valuations Price Target : Rp 7,100 - DBS Vickers

At a Glance
4Q10 net profit of Rp2,370bn brings FY10 earnings to Rp8,479bn; in line
Loan growth exceeded our estimates but was offset by lower-than-expected net interest income due to NIM compression
Higher RRR and additional reserves to be set aside due to low LDR would raise cost of funds by 25-30bps per annum.
Downgrade to Hold following recent share price appreciation. TP unchanged at Rp7,100. At 4.5x FY11 BV, BBCA remains priced as a premium bank within ASEAN.

Comment on Results
4Q10 net profit of Rp2,370bn was driven by non-interest income. Loans grew by 11% q-o-q bringing FY10 loan growth to 24%, which was ahead of our estimates, largely consumer driven, supported by commercial/SME segments.
Mortgage loans remained BBCA's mainstay with a 13% market share. Deposit growth remained strong (13% for FY10), mainly CASA driven, with CASA to total deposit ratio at 76%. NIM was lower at 4.8% after accounting for higher cost of funds from higher reserve requirement ratio (RRR) of 8%. Cost-to-income ratio inched up as expenses were higher during the quarter. NPL ratio continued to improve to 0.6%, which is almost an all-time low level. Total CAR dipped further to 13.5% as a result of strong loan growth and higher risk weighted assets.

Apart from the higher RRR, additional reserves required to be set aside for its low loan-to-deposit ratio is estimated to raise cost of funds by 25-30bps on an annual basis. We expect loan-to-deposit ratio to gradually gear up closer to the 60% mark. BBCA will remain a strong transactional bank. We estimate that the lower yield in relation to the repricing on the variable rate bonds could negatively impact FY11 earnings by 5%, but we understand that BBCA will lower savings rate by 25bps to partially offset the impact.

Downgrade to Hold but maintain TP at Rp7,100 based on the Gordon Growth Model with the following assumptions: 26% sustainable ROE, 11% growth, and 14% cost of equity. Our target price is equivalent to 4.6x FY11 BV and 18.5x FY11 EPS. Downside risks relate to NIM which is already low, further exacerbated by competitive pressures as well as its reluctance to gear up
its balance sheet for growth in order to protect asset quality, and its low loan-to-deposit ratio which could drag down ROEs further.

FY2010 results comments - CLSA

Adaro (ADRO IJ) weaker than expected results by Andrew Driscoll
ADRO reported a soft set of 2010 results with Ebitda and net income 7% and 19% below consensus; Guidance on 2011 Ebitda is 12-26% below consensus forecasts.
The stock is down 14% YTD, and we think soft results had been expected but Ebitda guidance is clearly below expectations. We will need to review our forecasts, and likely rebase volumes and adjust our cost profile. We recognise that near-term earnings momentum is negative, but continue to like seaborne thermal coal exposure.

Mandiri (BMRI IJ) exceeds expectations driven by fee income expansion by Bret Ginesky:
Mandiri announced that its net profit for 2010 was Rp9.2tn or 6% above consensus estimates of Rp8.7tn and 1% above CLSA estimates.
Earnings were fueled by an increase of nearly 50% in fee income, driven by PSAK impact and success in cross selling its product to clients. Maintain BUY

Summarecon Agung (SMRA IJ) in line by Sarina Lesmina:
SMRA reported net profit of Rp233bn for FY10, up 40% YoY, in line with our expectation. GP margin dropped in 4Q10 we believe this is due to change in product mix. But will get more details after the full result is published.

Bumi Serpong (BSDE IJ) in line by Sarina
BSDE reported net profit of Rp394bn for FY10, up 28% YoY, 8% above our expectation due to 1 month consolidation of DUTI and the sister companies.
Stripping out these, the company said our Rp366bn net profit is in line with BSDE-only net profit. Profit however came 5% lower than consensus estimate
GP margin expanded to 62% in FY10 from 57% in FY09, however higher operating expenses caused stable EBIT margin at 35%.

Clipan Finance (CFIN IJ) result in line by Bret
· Clipan’s net profit Rp200bn, up 33% YoY, in line with our forecast. As anticipated strong results were fuelled by expansion in consumer finance lending, up 124% YoY, and supported by stronger than anticipated factoring business.
· We would note factoring is very volatile and likely will revert back to historical levels. Clipan has increased its leverage as anticipated, now standing at 1.8x Assets/Equity vs 1.4x at YE09.

CP Indo (CPIN IJ) result came out better than expected by Jessica.
Revenues are 5% above our expectations. CPIN booked strong 4Q10 with revenue growing 8% QoQ and 9% YoY. The surprise came on the gross profit line, where gross profit margin expanded from 19.7% to 24.9%. Net profit grew by 37% YoY, 6% above our forecasts. 4Q10 net profit grew by 10% YoY but down 18% QoQ diluted by higher opex.

Mayora (MYOR IJ) earnings came better than expected by Jessica
Net profit growing by 30% YoY, 6% stronger than our number and 8% above consensus. Revenue grew by 51% YoY, all driven by volume growth. This is in line with our number but 9% above consensus. Operating expenses jumped 79% YoY, primarily driven by higher advertising expenses to boost Mayora’s coffee sales. Operating profit grew by 26% YoY, 4% above our numbers and 9% above consensus.

Gudang Garam (GGRM IJ) results in line by Swati.
Headline numbers came broadly in line with our and consensus forecasts. Revenues grew by 14% YoY, in line with our and consensus forecasts. Operating profit were 2% above consensus and our forecasts. Bottom line grew by 20% YoY, in line. GGRM trades at 14.9x 11CL PE returning 24% ROE. Maintain BUY.

Ace Hardware (ACES IJ) results in line by Swati.
Revenues grew by 21% YoY, in line with our and consensus forecasts. Gross profit margin expanded from 41% to 43%, contributed by strenghtening Rupiah. Operating profit fell 5% below our numbers due to higher selling expenses last year. Bottom line grew by 15% YoY, 6% above our number but in line with consensus. Maintain Outperform due to rich valuations. ACES trades at 19.4x 11CL PE.

Ramayana (RALS IJ) results below expectation by Swati.
Revenue grew by 10% YoY, 20% below our numbers and consensus. EBIT remains flat YoY, 2% stronger than forecasts but 11% below consensus. Net profit grew by 6% YoY, in line with our number but fell 9% below consensus. Maintain Outperform on the stock given the M&A angle. RALS is trading at 13.2x 11CL earnings with 15% ROE

Bank Rakyat (BBRI IJ): net 11.5tr, +57.5%YoY and 25% ahead of consensus. Analyst to comment.
Bank Tabungan (BBTN IJ): net 916bn, +87%YoY and 13% ahead of consensus. Analyst to comment.
Alam Sutera (ASRI IJ) reported net profit of Rp290bn for FY10, up 209% YoY, 6% above consensus expectation.
Telkom (TLKM IJ): net 11.5tr, +1.2%YoY and 1.6% below consensus. Analyst to comment.
Gudang Garam (GGRM IJ): net 4.15tr, +18%YoY and in line w/ conensus.
Timah (TINS IJ): net 948bn, +202%YoY and 24% ahead of consensus.
Indika (INDY IJ): net 773bn +6.5%YoY and 33% below consensus.
Delta Dunia (DOID IJ): loss 158bn due to debt-buy-backs and receivables write-off.

Indocement (INTP IJ), In the driving seat, from Nick Cashmore - CLSA

Nick Cashmore sees INTP as an excellent proxy for Indonesia’s urbanization, industrialization and an expanding middle class.

The second largest producer of cement with 18.6m tons is well positioned with US$530m of cash on hand. ROE, still superior, is coming down from 28.4% in FY09 to 26.9% in FY10, and 25.6% in FY11. The decline in ROE reflects the build up in cash. But on a ROIC basis, returns continue to improve.

All this will drive future price performance and remains a conviction holding. TP of Rp19k gives 19%, BUY.

Key points from report:
Every 1 % swing in price affects earnings by 1.9%. With USD costs making up 70% of COGS, expected 3% rupiah appreciation = 2.4% price increase
Greatest flexibility with capacity utilization at only 67%, with spare capacity 4.5m mt.
11CL assumes 4% price increase and 7% volume growth, and stable margins overall
Has US$530m cash on hand (31% of assets), with modest immediate capex needs. With US$425m in FCF a year, dividend payout can rise from the current 35%
Domestic demand for cement grew at 6% Cagr over 10 yrs to 40.4m mt, in line with GDP growth. However, per capita consumption is only 167kg vs Thailand’s 440kg
TP Rp19,000 indicates 19% upside. BUY.

Bank Central Asia (BBCA IJ), Earnings Review, from Bret Ginesky - CLSA

BCA’s FY10’s results are largely in line with his forecasts, with net profit growing 25% to Rp8.5tn. 4Q10 results driven by operating efficiency, limited provisioning and a lower tax rate.

Despite loan growth of 25%, Pre Provision Operating profits (PPOP) grew by only 2% QoQ due to contracting earning asset yields. Bret maintains his TP of Rp7,500 (9% upside), and OPF call.

Key points from report:
FY10 Net profit grew 25% to Rp8,479bn, in line with CLSA numbers
Loans grew by 25% YoY and deposits grew by 13% YoY. Slightly offset by lending yields falling by 164bps YoY to 8.29%
Still one of Asia’s most profitable banks, with 4Q10 ROA and ROE increasing to 3.0% and 30.3% respectively.
Adjusting 11CL/12CL net profit estimates by -3%/+2% respectively to reflect a more challenging operating environment in 2011
Maintains TP at Rp7,500, representing 9% upside. OutPerform

Liquidity has started to come back to this market - CLSA

After a good six months of consolidation, liquidity has started to come back to this market. With the index having breached the 3600 resistance, it will be interesting to see if the market will be able to turn that into a support level instead. Certainly helps that we saw recent the rupiah appreciation neutralizing inflation pressure and full year results were generally strong (with the exception of coal miners hit by rising cost and rain) confirming the strong domestic consumption trend - see result comments below.

Our economist noted that Indonesia’s investment to GDP ratio rose to 32.2% in 2010 from 31.3% in 2009 and only 23.6% in 2005. (This was largely construction investment, 74% of total investment in 2010) We expect accelerating real investment growth from 8.5% in 2010 to 14.2% in 2011 and to 16.4% in 2012. Rising investment growth will drive our real GDP forecast from 6.1% in 2010 to 6.3% in 2011 and to 6.5% in 2012. All in all, robust domestic demand growth will insulate the economy against any weakness in the global economy.

If Russell Napier recent big SELL call on U.S. equities turns out to be accurate, Indonesia will be a market within Asia ex Japan to really stand out. The US is expensive on CAPE valuations having risen from 13x to 23x. He has been talking to the banks and QE2 has failed to create credit growth as banks have shrunk balance sheets, securitization markets have not opened up fully, consumers have de-leveraged and company's have turned to bond markets.

Other than Japan he doesn't think Asia will benefit due to govts unwilling to let their exchange rates float freely (Indonesia probably still too small for him to notice). However, the rupiah is one currency is Asia that is clearly still very undervalued. We have revised our year-end exchange rate forecast to IDR8,025/USD (from 8,190 previously) for a 12% appreciation in 2011. You want to buyer of domestic consumptions names. Our top picks: Holcim, Mapi, Gudang Garam, Clipan finance and Mandiri.

Indonesia Strategy - Assessing higher oil price - Deutsche Bank

Deutsche Bank commodity team has raised its forecasts for oil and coal prices. Oil price forecasts have been revised up by 16% and 15% from previous forecasts to US$117.5 for both FY11 and FY12. Our assessment is that the impact on companies' earnings and at the macro level is likely to be rather muted.

At macro level, technical factor is more prevalent than fundamental impact As a reminder, the fundamental impact of a higher oil price on current account, inflation and budget is manageable. However it makes sense to watch the bond price and the rupiah, as substantial weakness there could trigger a vicious cycle of capital reversal. However, we attached a low probability to this event. FX reserves build-up has been consistently close to 2x capital inflow (portfolio inflow of US$17bn in the past 14 months is dwarfed by a jump in FX reserves of c.US$34bn, thanks to record FDI and current account surplus). At US$103.3bn, FX reserves should be able to withstand a reversal, if any, as seen earlier in the year.

1) Current account: Indonesia ran a net oil deficit of US$12bn last year on US$80/bbl oil price. At US$117.5/bbl, this deficit could touch US$17bn. Importantly, Indonesia runs a much larger surplus of US$65-70bn on its Top 5 commodities, along with a surplus of US$13bn from gas. As long as commodity prices move in the same direction, the risk of a higher oil price is neutralised.

2) Inflation: The bulk of fuel consumption goes towards transport and electricity, so a higher oil price would be absorbed by the budget. Only 20% of fuel consumed in Indonesia is marked to market for industrial use; mainly impacting power plants and coal transport, or through indirect cost pass-through. Our estimates suggest that every 20% price increase would need less than 1% cost pass-through. As long as energy subsidy remains, this ratio holds. Note however the plan to remove fuel subsidy for private cars, which is delayed until mid-year, but as it aims at the 'haves' and only to private cars, the spill-over effect is muted.

3) Budget deficit: Given the lower fuel volume subsidized, and an increase of c.150% in tax revenue since FY05, the budget is much better positioned to absorb higher costs. At US$117.5/bbl, budget deficit should stay below 2.2% against the current target of 1.8%. Energy subsidy amounts to 1.9% of GDP at US$80/bbl and is estimated to increase by 0.1% for every US$10/bbl increase. In any case, since government spending accounts for only 13% of GDP, any scale-back in spending to make room for larger energy subsidy shouldn't have material impact on the broader economy. Note that the leftover fund from FY10 under-spending is around 0.7% of GDP. A caveat here is if fuel smuggling picks up dramatically, volumes could be pushed well above the subsidized level.

Companies impact – Coal, Consumer, Cement and Tire industries

Coal: Coal companies are most exposed to a higher oil price, but as we also increased our thermal coal price forecasts by 10% and 4% for FY11 and FY12 to US$126 and US$140, the net impact would generally be positive; earnings would increase by 9% and 1% for FY11 and FY12. Our top pick in the sector is HRUM due to its stronger production growth profile (35% CAGR FY10-12F vs. 12% peers) and strong leverage to higher coal prices (c. 1:2 ratio).

Consumer: In general, plastic packaging (flexible and rigid) accounts for some 10% of sales; so ceteris paribus, the c.16% increase in oil price forecasts would require less than a 2% price increase to pass-through. Least impacted being GGRM and most is ICBP, both of which should have pricing power to pass on less than 1% and 2.5% price hikes respectively. Both are our top picks for the sector.

Cement: Most exposed would be INTP, about 2% of sales equivalent; so for the c.16% higher oil price forecast, 0.5% price hike would suffice. Impact would be negligible on SMCB and SMGR given their lower dependence on oil as a fuel source. We expect the sector performance to recover as price hikes should be more apparent in the coming months. SMGR is our top pick in the sector.

Tire: Oil-related costs, primarily synthetic rubber and carbon black, account for c.30% of sales equivalent; as such, the 16% higher oil price forecast would require a 5% price hike. The almost 30% volume growth last year would suggest pricing power, but compounded by 40% higher rubber prices, suggests margin contraction is inevitable. However the attractive growth prospect suggests any stock weakness would be a buying opportunity


CLSA is a Joint Financial Advisor in the rights issue by PT United Tractors Tbk (UNTR IJ)

Details of the Rights Issue:
Ratio: 4 rights for every 33 existing shares (4 for 33), in total representing 403,257,853 New Shares to raise up Rp 6,069,030,687,650 (US$696m)

Rights Price: Rp 15,050, representing 30.8% discount to the closing price of Rp21,750 on 30 March 2011. Discount to TERP is 28.4%

Standby Purchaser: Astra

Use of proceeds:
90% business expansion (including mine contracting and coal infrastructure related projects), 10% working capital

Joint Financial Advisors: CLSA and UBS

02 May Shareholder EGM to approve the rights issue
10 May Ex-Rights Date
12 May Record Date
16 May Commence Rights Trading Period (Rights Exercise/Subscription)
30 May End of Rights Trading Period (Final Rights Exercise/Subscription)
01 Jun Last day of Payment for Excess Rights Shares
03 Jun Allotment of Excess Rights Shares
07 Jun Refund for Excess Rights Shares

Management Roadshow schedule:
08 Apr Jakarta
11-12 Apr Singapore
13 Apr Hong Kong
14-15 Apr United Kingdom

10 against 2 for the bull - JP Morgan


Fourth quarter results season well underway. A good number of very impressive growth achievements, with more than doubling of profits that exceed market expectations (e.g: BRMS, ASRI, CMNP, Ciputra Group, TINS). Results that were supposed to be weak were not so weak afterall (INTP, SMGR, and SMCB), with 4Q earnings release marking their share price bottoms, as things are looking up for cement sales in 1Q11. Bank numbers looking good, with the beat by BBRI mind-boggling (more from 9:30am analyst briefing). Looks like the bank has under reported net interest income in the previous three quarters? All in all, the market is looking good from here. Newsflow on the coal space (we should look beyond 4Q results at this stage) also positive on China lowering nuclear target, with regional coal stocks on fire.


Negative share price reactions

* United Tractors (UNTR) – completely unexpected rights issue, to raise around Rp6trn. 4 new shares for 33 existing at Rp15,050, 30% discount to last close. Around Rp3trn will be used for coal mine acquisition, Rp1.2trn for mine mouth power plant project, and the rest for mining contracting. My take – could be good for long term valuation, but medium term EPS dilution likely given the potentially green field nature of the investments.

* Delta Dunia (DOID) – results way below consensus. FY10 net loss of Rp158bn, vs consensus of Rp593bn profit. EBIT at Rp1,037bn vs consensus Rp1,156bn. My take – classic example of new owners (CIC, GIC) doing major clean-ups. Last act of clean-up could be a rights issue, that could mark the share price inflection point.

Positive share price reactions

* Bank Rakyat Indo (BBRI) – Huge Beat. We expected FY10PAT of 8.8trn (consensus Rp9.1trn). Actual numbers were Rp 11.47 trn. Substantial beat at the Net Interest Income level – all in the 4Q, which does suggests that BRI could have had some adjustments to interest income made when they were audited ( I know from micro outlet visits that they were previously had some differences in interest income recognition relative to BI norms). Analyst Briefing at 9.30 AM.

* Bumi Resources Minerals (BRMS) – results way above consensus. FY10 NPAT of Rp764bn vs consensus Rp361bn. See earlier sales notes regarding how Street analysts have been under-estimating Newmont’s earnings contribution. BUY.

* Holcim (SMCB) – convincing pick-up in 4Q10. Revenue up 17% QoQ, EBIT 12% QoQ.Given the Jan-Feb sales volume data, Street analysts may end-up revising UP their 2011 forecasts, versus broader market expectations of a downward revision.

* Borneo Lumbung (BORN) – Tax holiday: government promising final decision on tax holiday by 3Q11, benefiting Pohang Iron and Steel Corporation (POSCO), Kuwait Petroleum Corporation (KPC), and Caterpillar. POSCO looking to invest US$6bn in a JV with Krakatau Steel, KPC looking to build a refinery in Balongan, and and Caterpillar looking to invest US$0.5-1.0bn. (Kontan).

* PT Telkom (TLKM) – Results in-line with consensus, share buyback talks. FY10 NPAT of Rp11.5trn vs consensus Rp11.6trn. CEO talks about Rp2trn buyback plan to be approved in May-June EGM, versus cash on-hand of Rp8trn. My take – Rp2trn over two years could be a drop in a bucket. Earlier share buyback at risk of capital loss. I prefer to see better cost management, better product development and marketing strategy, and cash dividend from the BOD. Prefer tower companies TBIG.

* Bank Mandiri (BMRI): Slightly better than expected: FY10 PAT of 9.37 trn (JPME 9.1 trn), we were 4% higher than consensus a month back which has since drifted up. BI’s website published a BMRI (unaudited) PAT of Rp 8.85 trn a month back – and compared to that indication profits are better than expected. Analyst briefing 9 AM.

* Medco Energi (MEDC) – Anti Qadaffi regime held press conference promising the international community that they will honor every oil and gas contracts should they win the war.

* Alam Sutra (ASRI) – results strong YoY beating consensus. FY10 NPAT grew 208% to Rp290bn vs consensus Rp275bn. EBIT grew 211% to Rp343bn vs consensus Rp327bn.

* Tambang Timah (TINS) – results above consensus. FY10 NPAT grew 202% to Rp947bn vs. consensus Rp763bn, EBIT Rp1,310bn vs. consensus Rp1,431bn.

* Asia Pacific Fiber (POLY) – major turnaround in EBIT. FY10 EBIT came in at positive Rp14bn from negative Rp313bn.