Market Flash: iSHARES MSCI Indonesia Investable Market Index Fund (EIDO:US) PRICE: 28.530 USD Down -0.360 (-1.246%) >>> BI: Rupiah Melemah Akibat Kondisi Eropa >>> Pertemuan FED pertimbangkan langkah baru dorong ekonomi >>> KIJA akan Terbitkan MEN Valas USD150 Juta >>> PT Indika Energy Perusahaan Teladan Dunia 2011 >>> Govt Promises Revision of Cost Recovery Regulation >>> BPMigas Demands PGN to Pay US$6 per MMBTU >>> Jababeka to Raise US$150 Million from Debt Markets >>> SCG Chemicals buys Chandra Asri >>> Solusi Tunas eyes Rp380 bio IPO >>> SMR Utama scouts Rp300 bio IPO >>> Alam Sutera picks two bond arrangers >>> ASII Tetap Rajai Penjualan Mobil Agustus 2011 >>> Perusahaan Thailand kuasai Saham TPIA senilai Rp 3,76 Triliun >>> Agis Main ke Tambang, Sahamnya Masuk Dalam Pengawasan >>> ACES Mendekati The Northern Agar Mau Kurangi Kepemilikan >>> IHSG masih harus berjuang terus bertahan diatas MA200 >>> Melirik Peluang Akumulasi di Saham Perbankan >>> Analisa Saham BUMI: Kuat Bertahan & Berpeluang Kembali Uptrend >>> Analisa Saham JSMR: Bertahan Di Support, What Next? >>> INDF Tertahan Di Area Support Kuat, Berpeluang Rebound >>> ASII Break Minor Support, Sell on Strength >>> ADRO Membentuk Descending Wedges, Berpeluang Rebound Terbatas >>> Wall Street ends flat as early gains evaporate >>> Fed begins policy meeting, tiptoes toward easing >>> Fed meeting to help decide on long-term Treasuries >>> Greece Makes 'Good Progress' in Reform Talks: EC >>> China worried Europe debt crisis will hit trade >>> China could roll out 4.65tr yuan stimulus package >>> IMF sees Mideast stagnation >>> NYMEX-Crude ends higher at Oct contract expiry >>> Asian Crude Palm Oil Up On Technical Buying, Soyoil >>> Foreign net Sell - 61.785.746

Sabtu, 21 Mei 2011

Coal Probably Close to Peak, SocGen Says: Technical Analysis - Bloomberg

European coal is probably close to a peak, according to technical analysis by Societe Generale SA.

The attached chart shows a resistance level of $128.30 a metric ton for coal derivatives, indicated by the trend lines. Coal for delivery next year to northwestern Europe rose 50 cents, or 0.4 percent, to $126.50 a metric ton by 1:46 p.m. in London.

Prices have climbed 5.2 percent this year on supply disruptions after floods hit Australia’s Queensland state in January, and as fossil-fuel demand increased as an alternative to nuclear generation in Germany and Japan following the Asian country’s March 11 earthquake and tsunami.

Coal will probably peak at $128.30 this week and then decline, Carine Hemery, an analyst with Societe Generale in Paris, said by phone yesterday.

Profit from running coal-fired power plants for next month, the so-called clean-dark spread, is about 7.71 euros ($10.95) a megawatt-hour, compared with 9.70 euros from burning natural gas, Bloomberg data showed. The calculation uses electricity prices in Germany and takes emissions costs into account.
Carbon Dioxide

December carbon dioxide permits under the European Union cap-and-trade system fell 0.7 percent to 16.53 euros in London as regulators prepared to sell phase-three allowances, which runs from 2013 to 2020, for the first time this year.

Gas for delivery in the six months through September 2012 to the U.K., Europe’s biggest consumer of the fuel, gained 0.6 percent to 63.10 pence a therm in London.

The coal-derivative data are drawn from information supplied by ICAP Plc, GFI Group Inc. (GFIG), Spectron Group Ltd., Credit Suisse Group AG, IHS McCloskey, Bloomberg, Tradition.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

To contact the reporter on this story: Alistair Holloway in London

Preference for Indonesian Coal Hurts South African Port - Bloomberg

The price of coal shipped from South Africa’s Richards Bay Coal Terminal, the continent’s largest export facility for the fuel, fell to the lowest in six weeks as buyers opted for Indonesian supplies.

Prices fell 2.4 percent last week to an average $120.90 per metric ton, data from IHS McCloskey show. That is the lowest since the week ended April 1, though prices have risen 36 percent in the past 12 months.

South Africa has boosted exports to Asia as the Chinese and Indian economies expand, firing demand for power. That has weakened recently, according to Amrita Sen, an analyst with Barclays Capital.

“The Indians and Chinese are not buying Richards Bay coal,” Sen said on Tuesday. “They prefer the lower-quality Indonesian supply, and Richards Bay prices will trend lower over the next couple of weeks unless Indian buying emerges.”

India’s imports of South African coal fell 18 percent to 1.21 million tons in April compared with March, trader mjunction Services said on May 11. Shipments from Richards Bay terminal fell to 4.81 million tons last month from 5.36 million tons in the month earlier, according to a statement on the port’s Web site. India accounts for a quarter of the exports.

Indonesia is the world’s biggest exporter of coal burned to generate power. The country’s association of coal companies aims to export 340 million tons this year, AsiaPulse News reported on May 10, citing chairman Bob Kamandanu. The government’s target is 236 million tons, it reported.

Buyers are turning to Indonesian coal because it is cheaper than material sourced from Richards Bay, Sen said. The country cut the reference price for coal sales in May to the lowest since January, tracking a decline in the regional market, the Energy Ministry said on May 9.

“Investors, in our opinion, remain positive on the Indonesian coal sector,” said Isnaputra Iskandar, an analyst with Nomura Holdings. They “agree with our view of the potential tight coal market situation over the next five years on a combination of strong demand in India and China and potential supply disruption in South Africa, Australia and Indonesia.”

Power-station coal prices at Australia’s Newcastle port, an Asian benchmark, declined 3.2 percent to $118.74 per ton in the week to May 13, according to the globalCOAL NEWC Index.

Goldman’s O’Neill Tells Investors to Brave Black Swan Fears (1) - Bloomberg

May 13 (Bloomberg) -- Jim O’Neill, chairman of Goldman Sachs Asset Management, said investors should shed their pessimism and stop hoarding cash amid prospects for a global stock rally that could start in China.

The view that “the West is in trouble” is wrong when nations including Germany, Sweden, Australia and Canada are performing strongly, O’Neill said in an interview with Bloomberg Television in Hong Kong, recorded yesterday and broadcast today. Investors should “stop worrying so much,” said O’Neill, known for coining the BRIC acronym for Brazil, Russia, India and China.

Global investors have tempered their optimism about the U.S. and world economies and plan to put more of their money in cash and less in commodities over the next six months, a quarterly survey of Bloomberg subscribers showed yesterday. The poll, conducted May 9-10, also found that investors’ enthusiasm for stocks is cooling.

O’Neill, 54, said his strongest hunch is that China’s inflation may be close to easing, meaning the Chinese stock market may “go crazy” in the second half of the year. The central bank yesterday raised banks’ reserve requirements by half a percentage point to lock up cash that threatens to fuel gains in consumer prices.

The benchmark Shanghai Composite Index rose 1 percent today, the biggest gain in a month.

‘Every Little Problem’

In the aftermath of the 2008 financial crisis, investors are overly concerned at the possibility of so-called black swan events, said O’Neill, using a term sometimes used to describe unlikely occurrences with severe consequences.

“Every little problem that crops up somewhere in the world is not going to create another black swan,” he said, adding that “there’s far too much conservatism,” in terms of investors holding cash.

O’Neill reaffirmed his view that Russian stocks are cheap, on the same day the nation’s Micex Index slid to a five-month low on falling commodity prices. He also said that a global stock rally “could start in China.”

His positive comments on the outlook for China came as two people with knowledge of the matter said Goldman Sachs plans to set up a yuan-denominated private equity fund in the nation. Chief Executive Officer Lloyd C. Blankfein attended a ceremony for Goldman Sachs in Beijing yesterday, the people said, declining to be identified before an announcement.

Indo property update - CLSA

Indo property: The advantage of huge land bank (pls see attached for the details)

· There is a significant advantage of huge land bank besides the fact that it can last for many years.
· Given its ample land bank of 3,300ha in Serpong, Bumi Serpong (BSDE IJ) was able to offer most attractive price for Unilever to set up its Headquarter in BSD City.
· BSDE sold 3ha of land to Unilever at Rp2.5m psm. While land costs were similar vs peers such as Alam Sutera (ASRI IJ), ASRI couldn't offer such low price given it is running out of land bank, hence the need to monetize it as much as possible.
· For BSDE, the lucrative part was not the land sale, but the potential demand that can come from the ~1,000 employees that will work in the Unilever HQ.
· BSDE said it is now in talk with several big corporates who are also interested to set up operations in BSD.
· Maintain BUY on BSDE, now trading at an attractive 47% disc to NAV, one of the largest listed property companies in Indonesia. The portfolio is more diversified with land bank in Greater Jakarta, Surabaya and Balikpapan. A quarter of revenue is now recurring and should grow with time.
· Separately, Bakrieland (ELTY IJ) has 16,000ha land bank. While land location is currently much less lucrative than BSDE, ELTY will no doubt invest massively on the infrastructure (through its toll road subsidiary), so someday this area might be just as thriving as Serpong, and ELTY will have plenty of land bank to monetize.

Indocement (INTP IJ), capacity for growth - CLSA

Analyst Di Shui slightly lowered Indocement (INTP IJ) recommendation with an OPF call and TP of Rp18,500. INTP is the most profitable Indo cement producer with 36% EBIT and nearly 30% net profit margins.

Interesting to note that in his recent annual note, Warren Buffett shared some of his wisdom on what and how to invest in an inflationary environment. The most superior group he picked is high ROIC low capital businesses. In this regard, INTP with ROIC of 37% this year and 43% next year looks like a wonderful asset to own in the inflationary environment.

Interesting backdrop: Indo cement consumption rose 10.7% YoY in 4M11.
INTP is best poised to capture demand upside.
At 68% capacity utilisation in FY10, INTP has ~6mn tons excess capacity, more than double SMCB and triple SMGR supply in FY11.
Earnings will also benefit from a strengthening Rupiah with 60% COGS are US$-linked and 90% of revenue is rupiah denominated.
Flush with cash: an attractive liquid private sector proxy to Indo cement consumption. INTP had around US$580 cash and generating the same amount of operating cash flow annually.
Higher energy costs have historically been passed through to end users.
Even the 110% surge in coal prices (in Rupiah terms) during the first 7 months of 2008 were passed through, via a 24% rise to ASP in FY08.

AKR Corporindo (AKRA IJ, Rp1,680 BUY) Fuel for growth - Danareksa

We reinitiate coverage on AKRA, Indonesia’s leading bulk logistics and Infrastructure Company and the largest private sector distributor of petroleum and basic chemicals, with a BUY recommendation. We like the company for several reasons. First, the company intends to boost its capacity by 76,900 Kl, supported by better opportunities for its petroleum trading and distribution. The capex for this will be spent within 2 years. Secondly, the rosy outlook for oil prices should lead to higher earnings. And thirdly, AKRA’s new coal business should start contributing revenues this year (IDR 220 bn in our estimate). We value the company at Rp 2,000/ share, implying 2011-12F P/E 16.52 – 11.70 x.

Better opportunities for petroleum trading and distribution
With an extensive network across Indonesia, AKRA has managed to establish itself in the market-based regime for the downstream sector. The company also won the government tender to distribute 103,220 Kl of subsidized fuel in 2011. To seize on the opportunities in the mining sector, AKR added 30,000 Kl of capacity at the Stagen HUB terminal in South Kalimantan. This tank terminal recently started operating in February 2011. Looking ahead, the company hopes to expand its business by building 12 new terminals/tanks, with significant capex reaching IDR 800 bn over the next two years. These terminals/tanks would increase total capacity by 76,900 Kl.

A higher oil price leads to higher earnings
AKRA’s business model is based on a fixed gross margin percentage. However, the oil price and the exchange rate are components in the base calculation. Our sensitivity analysis shows that higher oil prices translate into higher earnings. Our FY11 and FY12 oil price estimates are US$ 86.75/barrel and US$ 87.10/barrel, respectively. The Mean of Singapore Platts (MOPS), as the basis for the calculation of the average selling price, exhibits larger movements in response to oil price changes. Hence, a larger spread between the two means the company can expect higher ASP, thus boosting the revenues earned by the company.

Entering the Indonesian coal market
Having experience in China’s coal business since 2006, the company hopes to achieve success in the Indonesian coal market while still focusing on its core trading and distribution business. The coal mining activities in Indonesia will commence in May 2011. FY11 production is forecast to reach an estimated 300,000 tonnes, contributing IDR 220 bn in revenues. The coal will be exported to China, since the low emission properties of the coal mined make it suitable for use as a green energy source.

Cash aplenty
Following the Sorini divestment, AKRA is sitting on net cash of IDR 1,702 Bn. The Company plans to use the cash to fund its planned capex i.e. the building of 12 new tank terminals across Indonesia, in addition to providing funding for its profitable subsidiaries in China and for entering the coal sector in Indonesia. Yet taking into consideration this capex in addition to the estimated cash from its historical cash cycle turnover, the company may still have IDR 1,175 Bn of cash by year-end. Thus, we believe the company may be able to disburse dividends amounting to IDR 308/share (representing a dividend yield of 19%). Worth noting, however, is that the company has not announced any intention to disburse its remaining cash in the form of dividends.

INTP:Penetrating ready-mix market - Mandiri

INTP is increasing its presence in the ready-mix cement market by recently adding up 100 new trucks for its bulk segment in response to progress of infrastructure works as well as of high rise property development. The company sees the next two years will be the peak season for infrastructure works, which we also agree, that would boost cement demand, notably for the bulk segment. Domestic bulk cement has grown by 24.3% cumulatively at end of Apr11, while INTP is 37.7% during the same period. We upgraded our call to Buy for INTP with TP: Rp19,000/share. The stock at current market price is still trading within +1 standard deviation from its historical PE. Our TP implies to PE11F of 20.4x.

In-line 1Q11; Modest COGS/ton increase due to ADRO late coal delivery. INTP posted in-line with our but below than consensus 1Q11 results, with COGS/ton increasing by 7.5%, the lowest among major cement companies. Modest COGS/ton increase came in benefit of late coal delivery from ADRO last year, hence eased pressure, especially of its coal cost. However, we expect this is to further increase in the remaining quarters, given the effect of this year’s coal normal price and other commodity items, namely oil and gas that continue accelerating. Oil, coal and gas contribute 60%, 11%, and 13% of our FY11F COGS, respectively.

Expanding bulk market share by doubling cement trucks. INTP is catching the momentum of further increase in the bulk cement demand. The company recently purchased 100 cement trucks and plans to add by another 50 this year to round up a total up to 300 trucks to the company. Robust demand bulk cement is evidenced through confident cumulative sales growth which has reached 24.3% during 4M11. Meanwhile for INTP, its bulk sales have grown by 37.7% during the same period. Ready-mix contributed 10.0% to the company’s total 1Q11 revenue, vs. last year of only 5.6%.

Minimal threat from new Chinese player. Domestic cement industry has recently acknowledged a new market player from China (China Triumph International Engineering Co Ltd (CTIEC) who is with small local player PT Semen Grobogan investing in a new cement plant totaling 2mn tons in capacity, to be ready by 2014. However, we think the threat will be minimal, at least in the near term, considering the sector is a brand equity market that may take sometimes for the new player in order to win market share.

Switched to Buy. We upgraded our call to Buy with TP: Rp19,000/share. INTP at current market price is still trading within +1 standard deviation from its historical PE. Our TP implies to PE11F of 20.4x.

SMCB:All-round improvement - Mandiri

We switched our recommendation from Neutral to Buy on SMCB, with TP Rp2,500/share. This is on the back of the company’s improved efficiency in cost following recent conversion of coal used in production that now comprises of up to 85% in low calorie coal (vs. 2010 of 50%). In the meantime, cash-cycle days was also noted to continue improving to 33 days (vs. Des10 of 40 days), suggesting serious efforts taken in widening its source of growth. While the stock is offering the cheapest EV/ton of US$239, we forecast SMCB to grow the highest among peers in 2012 (26.4% yoy), to benefit from the progress in infrastructure works. During 4M11, SMCB’s cumulative bulk sales have grown by 67.1% yoy.

Low rank coal is 85% of coal use. Amid the below-than-consensus 1Q11 results, SMCB claimed that the 17.5% COGS/ton hike experienced during the quarter was more of a result of the move forward schedule in machine maintenance shutdown that normally in Q2. Cost pressure is expected to ease in the remaining quarters due to lower coal cost pickup, as 85% of the 1.5 tons coal required for production is now low-ranked one (vs. 50% as at end 2010). The further coal conversion is positive, especially in anticipating volatility of coal prices going forward. Coal contributes about 14% of total COGS in our FY11F.

Cash cycle days further improved to 33 days. On the other hand, we also spotted further improvement in the company’s cash-cycle days to 33 days vs. 40 days in Dec10. This continued to be ahead of its peers, including INTP and SMGR, whose cycles are 50 and 74 days, respectively. The company said that such effort has been taken seriously in order to improve its working capital management. As mentioned in our earlier notes, just in-time delivery improvement and installation of a new control room covering fleet operations to and from the Narogong plant, West Java were few of the main keys to this. We estimate potential cash extra of up to Rp200bn with the best scenario receivable and inventory improvement of 22 days (SMGR’s historical lowest turnover) and 37 days, respectively.

Strengthening market position. While SMCB has been the benefactor of progress of infrastructure works and major property construction, SMCB is also strengthening its presence in Sumatera area through the construction of 3 cement silos that are planned to be ready by end 2011. SMCB has been steadily increasing its market share in Sumatera from only 7.2% in 2008 to 11.3% at end of Apr11.

Lowest EV/ton, with attractive growth, Buy. While the stock offers the lowest EV/ton of US$239 (INTP: US$384; SMGR: US$293), we forecast SMCB to grow the highest (26.4% yoy) among its peers in 2012 (INTP: 24.7% yoy; SMGR: 19.5% yoy), benefiting from the progress in domestic infrastructure works and stronger position in Sumatera area. Buy at TP Rp2,500/share (+16.3% upside).

BNI - Lower payout to preserve capital - Deutsche

BNI shareholders have approved a 30% dividend payout, which is below our payout assumptions of 35% throughout our forecast years (2011-13F). The payout ratio implies a dividend per share of Rp66, which translates to gross yield of 1.7%. Despite the lower payout, we believe this would be beneficial in preserving BNI's capital. Subsequently, we have adjusted our projection to reflect the lower payout. Post adjustments, BNI CAR should rise by 20bps in 2012F to 16.3% and by 30bps in 2013F to 15.5%.

Post lower dividend payout, BNI should be well on its way for a sustainable loan growth level of 20-25% per annum for the next three years, without much risks to capital. The adjusted ROAE remains muted and the bank should still be able to deliver ROAE of 14-17% in 2011-2013F.

We maintain BNI with a target price of Rp5,000 as one of our top picks in the Indonesian banking. At 1.9x FY11E P/B, BNI is amongst the cheapest banks in our Indonesian banking universe. The bank's transformation also continues to gain momentum. We expect better earnings for BNI in the subsequent quarters as write-offs for medium segment loans should moderate.
It is also in the proces to accelerate asset recoveries of Rp2.2tr in 2011F, of which Rp333bn was already achieved in 1Q11.

Upgrading Telkom Indonesia (TLKM IJ) from SELL to OPF - CLSA

We have been the biggest bear on Telkom Indonesia since our SELL initiation blue-top on the stock– we were the lone SELL on the street when we initiated.

The stock has underperformed the JCI by 4%, 8% and 30% on a 1M, 3M, and 12 timeframe

However today our telco analyst Dee Sena is upgrading the stock to an O-PF on a near-term view but still remain cautious on the long-term as the telecoms market is rapidly maturing and remains SUPER competitive.

WHY? TLKM has surprised considerably on the upside by scaling up its buy-back to IDR5tr (USD$580m) from initial expectations of IDR1.5-2tr.

This is a material positive event increasing total yield to 8% in 2011, boosts key ratios (EPS, ROE) while gearing remains manageable.

More importantly the USD$600m buyback represents 55% of TLKM current cash-balance and these funds going to shareholders de-risks it getting deployed on value destructive investments/acquisitions.

Also history shows us that large-buy backs (above Rp2tn) have been positive events for TLKM’s share price as was the case in 2005 and 2007 A small buy-back of only Rp465bn done during the global financial crisis had limited impact but the size of the buy-back was much smaller and of course those were extraordinary times.

Global Emerging Markets Strategy - Hurry Up and Wait - Citigroup

 Staying the Course — We reiterate our bullish view on EM equities; our end-year target for MSCI GEMs remains 1,500, or 31% above current levels. The pullback som farin May (-6%) is reminiscent, in terms of timing, of the spring corrections in recent bull market years. Each of these corrections was followed by a strong rally to year-end.
 Stuck — The peak-to-trough range for EM equities this year (11%) is the narrowest since 1996 (see below). So, the selling has not been heavy, but the asset class is ‘stuck’. When the break comes, we expect it to be to the upside.
 Corrections — There has been a ‘spring’ correction in MSCI GEMs (averaging 17%) in five out of the past six ‘bull market’ years. After these corrections, the average rally to year-end has been 38%. Asia has tended to outperform during the corrections (as in this Q2), while Latin America and EMEA tend to outperform in the rebounds. On a sector basis, global cyclicals and Industrials tend to lead the rebounds.
 The Dollar and Commodities — The latest pullback (not yet a correction) has been caused, in our view, by a bounce in the dollar and is tied in with weaker commodity prices. While the correlation between EM equities and commodity prices has fallen sharply in 2011, the link with the dollar remains strong. EM equities should resume their bull run when the current dollar rally ends; there is resistance at €1.38-1.39.
 Valuations and Catalysts — EM equities trade at 10.3x forward, a 10% discount to their recent average. Our year-end target implies multiple expansion to 12.6x 2012 earnings, a 10% premium. If GEMs just return to their long-term average multiple, they would rally 20% to year-end. Catalysts: i) a resumption of the dollar’s downtrend; and ii) the approach of the rate peak in key EM countries.
 Top Picks — Countries: China, Korea, Russia, Brazil; Sectors: Materials, Consumer Discretionary, Financials.

Bumi Resources (Outperform) - US$134-135/t settlement for JFY11? - MACQUARIE RESEARCH

§ Platts reports that certain Japanese Power Utilities (JPU) have agreed to a JFY11 settlement at US$134-135/t for Bumi's high-quality KPC coal, which is a premium to the Australian-Japanese settlement of US$129.85/t. This is consistent in that Indonesian premium coal will settle at a premium vs. Australian coal given a freight advantage.

§ Benefiting from the freight differential. We believe that Bumi's US$4-5/t settlement premium over Xstrata represents the cheaper freight rates from Indonesia to Japan vs. Australia to Japan. We understand that freight rates from Indonesia are typically roughly +/-US$5/t cheaper than freight rates from Australia. It is also worth noting that, in 2010, Bumi also managed to secure US$104/t pricing vs. Xstrata at US$98/t.
§ Relatively high Japanese exposure. We believe the company is well positioned given its relatively high exposure to Japan, with 20-25% of sales going to Japan vs. around +/-10% for the listed peers. Therefore, we remain relatively comfortable with our US$92/t ASP for 2011, leading us to be about 7-8% above consensus.
§ On-track to achieve 67mt production target. We understand that the company has produced 14.2mt (down 11% QoQ, especially given the relatively dry season period during 1Q10). We expect production to gradually ramp-up as we enter a dryer operating period.
§ Refinancing and deleveraging are the key catalysts. This is especially true given the upcoming US$600m repayment option of the first tranche of the CIC loan in October this year (followed by the second and third tranches in October 2012-13). We also believe that the company is looking into the possibility of converting the US$1.9bn debt into equity. Further, we believe that the recent rating outlook upgrades by Moody's (from negative to stable and a Ba3 rating) will enable the company to refinance its current 15-16% effective interest cost vs the market to 7-8% p.a.

Earnings and target price revision

§ No change.

Price catalyst

§ 12-month price target: Rp3,700.00 based on a Sum of Parts methodology.
§ Catalyst: Increasing production and coal price; refinancing of the high-cost CIC debt.

Action and recommendation

§ We see upside to the current share price (in line with our Outperform recommendation) given the company's high leverage to the coal price and attractive valuation (but beware of governance risks). It is currently trading at an 11x PER on our 2012 forecast vs. the historical sector average of 13x.

Bank Negara Indonesia : Buy; Rp3,950; TP Rp5,000 prev Rp4,300; BBNI IJ; Turnaround underway - DBS Vickers

• Poised for turnaround in 2H11 and 2012
• Improvement in asset quality in 2011 means a cleaner platform for growth in 2012
• Acquisition on the cards for further expansion
• Maintain Buy, TP raised to Rp5,000

Turnaround imminent. Despite a sluggish 1Q11, which is the slow season, BBNI is still poised for a turnaround in 2H11 and even stronger result in 2012. Asset quality indicators have proven resilient and special mention loans have fallen. Loan growth will be slower than industry average and peers but it will have more ammunition as it gears up towards 2012.

Acquisition on the cards. BBNI is preparing to submit a proposal to the Minister of State Owned Enterprises (MSOE) for the acquisition of PT Bahana Pembinaan Usaha Indonesia (Bahana). Bahana has a stable of subsidiaries that complement BBNI, including securities/investment banking, asset management, micro business, and property management. This was purportedly motivated by the MSOE, but if successful, could give BBNI another growth platform.

Raised TP to Rp5,000; remain our high conviction stock. BBNI is still among the cheapest banking stocks, trading at 2.0x FY11 BV and 1.7x FY12 BV against industry average of 3.3x and 2.8x, respectively, and with strong growth prospects. Its operating metrics, such as relatively low LDR (74%) and high CASA to total deposits (60%) gives it the ability to growth. Our TP is raised to Rp5,000 (from Rp4,300) based on the Gordon Growth Model with the following assumptions: 18% ROE, 13% growth and 15% cost of equity, and implies 2.2x FY12 BV. We pegged our fair value to FY12 BV because of its imminent turnaround in 2012.

Tower Bersama Infrastructure:Buy; Rp2,300; TP Rp2,700 prev Rp3,200; TBIG IJ; Offers good long-term value - DBS Vickers

• 11F/12F EBITDA cut by 15% after imputing lower leasing rates following re-negotiation of power costs
• TBIG still offers 37% EBITDA CAGR over FY10-12F, strongest among listed tower players
• Maintain BUY at revised DCF-based TP of Rp2,700; may be more upside from potential acquisition of large tower portfolio.

FY11F/12F EBITDA cut by 15% each. We over-estimated the premium leasing rates that TBIG could command by virtue of its superior tower locations. TBIG has renegotiated some contracts to pass on electricity costs to the tenants. As such, lease-revenue could be lower than we expected, but margins might improve slightly. Secondly, as Indonesian telcos are now leasing multiple towers, tower players are obliged to offer bulk discounts. Hence, we reduced our tower-lease rate assumption by 15%.

TBIG still offers strongest EBITDA growth in the sector. We like the management for its ability to grow the business without taking high risks. TBIG still offers 37% EBITDA CAGR over FY10-12F, much higher than other listed tower players. TBIG is trading at ~16x FY11F EV/EBITDA close to US peers’ valuation. However, TGIB could beat our 2011F EBITDA if it can acquire a large tower portfolio using debt. Indosat has often hinted at selling some of its towers. At 12.4x FY12F EBITDA versus 15x for US peers, TBIG offers better long-term value. Maintain BUY at our revised-DCF-based Rp2700 target price (WACC 11.5%, terminal growth 4%).

Telkom Indonesia: Increase buyback value to Rp5.0tn, AGM approved Rp295.8/share dividend (TLKM, Rp7,600, Neutral, TP: Rp7,600) - Mandiri

􀂄 PT Telkom Indonesia (TLKM) decided to increase its buyback plan up to Rp5.0tn from the previous plan of Rp3.0tn, or equivalent to 3.2% of total shares (previously 2.07%). The buyback will still be covered by its retained earnings and will be executed on 18 months period.
􀂄 It is also said in Kontan that TLKM will execute the buyback plan at Rp7,750/shares. We view that the step is reasonable given that TLKM still has abundant of cash as of 1Q11 (Rp10.6tn). However, for us it is better for TLKM to allocate its money in expanding data and internet network infrastructure.
􀂄 In addition, TLKM announced that the AGM has approved final dividend of Rp5.8tn or Rp295.8/share, which is equivalent to 3.9% dividend yield. We also noted that TLKM’s payout ratio of 55% is also higher than previous years of 50% as proposed by Ministry of SOE.
􀂄 We still maintain Neutral recommendation on TLKM, currently traded at PER11F 12.2x and PBV11F 2.7x.

Bank Tabungan Negara: BTN will distribute 30% dividend payout ratio or Rp31.2/share (BBTN, Rp1,680, Neutral, TP: Rp1,600) - Mandiri

􀂄 BTN held its AGM on Wednesday, 19May 2011 and announced that shareholders have appointed Iskandar Saleh (Secretary of Ministry Public Housing) as the new commissioner member in order to bridge BTN interest in the development of construction and public housing program.
􀂄 The AGM also approved the distribution of cash dividend amounted to Rp274.8bn or equivalent to Rp31.2/share and translating into around 1.9% dividend yield. This is equivalent to 30% dividend payout ratio from net income FY10, compared to last year the dividend payout was 35%.
􀂄 Currently, BTN is trading at 2011F P/BV of2.2x and PER of 15.6x. We maintained our neutral recommendation on the bank.
􀂄 Recommendation on the bank.

Gajah Tunggal: Will distribute dividend Rp12 per share (GJTL, Rp3,075, Buy, TP: Rp3,000) - Mandiri

􀂄 GJTL conducted AGM yesterday. The meeting approved to distribute around Rp42bn as dividend translating to Rp12 per share. Such amount representing 5% dividends pay out ratio and equivalent to 0.4% dividend yield.
􀂄 We do not have the time schedule of the distribution.
􀂄 GJTL is targeting FY11F revenue will grow by around 22%-25%yoy to around Rp12.0tn-Rp12.3tn. Around 10% of revenue increase will be distribute from volume and the remaining from increasing ASP. GJTL has increased its ASP by around 10% in 1Q11.
􀂄 We have a buy recommendation on GJTL; it is traded at PER11F of 11.4x.

Harum Energy: 70% of total production volume has been contracted (HRUM, Rp9,250, Buy, TP: Rp11,000) - Mandiri

􀂄 According to Bisnis Indonesia’s interview with Ray Gunara, CEO of HRUM, 70% of total production volume target in FY11F or around 7Mt coal has been contracted.
􀂄 Based on the encouraging pricing strategy (quarterly pricing), company expect better average selling price (ASP) in 2Q11, since 1Q11’s ASP of US$88/ton did not fully reflect its expected ASP due to carried offer from the previous contract in 2010. Therefore we believe our FY11F’s ASP of US$90/ton might be exceeded
􀂄 Tambang Batubara Harum (TBH) currently is still in construction stage and expected to contribute 500k tons production in 4Q11.
􀂄 HRUM is one of our top pick in coal sector. Currently we have Buy rating on HRUM. HRUM is traded at 12.9x adjusted PER11F.

Kamis, 19 Mei 2011

Surya Semesta akan stock split

JAKARTA: Emiten konstruksi PT Surya Semesta Internusa Tbk berencana melakukan pemecahan saham (stock split) dengan rasio 1:4 atau setara dari nominal Rp500 per lembar menjadi Rp125 per lembar
Vice President Surya Semesta Eddy Purwana Wikanta mengatakan perseroan akan meminta persetujuan para pemegang saham terkait dengan stock split tersebut pada rapat umum pemegang saham (RUPS) pada 23 Mei.

"Kami usulkan rencana stock split ini agar jumlah saham yang beredar dapat bertambah sehingga diharapkan dapat meningkatkan likuiditas perdagangan saham perseroan di bursa," ujarnya seusai jumpa pers di Jakarta hari ini.

Selain berencana untuk melakukan stock split, Eddy menambahkan perseroan juga berniat meminta persetujuan pemegang saham untuk meningkatkan kepemilikan di anak usaha perseroan di bidang perhotelan yaitu PT Suryalaya Anindita International.

Dia menjelaskan perseroan berniat menambah sahamnya di Suryalaya menjadi 87% dari sebelumnya 53,25%. Penambahan kepemilikan saham tersebut, tuturnya, dilakukan oleh perseroan untuk mulai memasuki bisnis bujet hotel.

"Kami berniat masuk ke bisnis bujet hotel melalui akuisisi atau joint venture di beberapa lokasi yakni Palembang, Yogyakarta, dan Jakarta," tuturnya.

Lippo Karawaci grabs Rp957 billion - Insider Stories

Indonesia's second largest property company by market capitalization, PT Lippo Karawaci Tbk, fell 8% or Rp60 to Rp690 after it grabbed Rp957 billion from shares sale last night.

The company, which is controlled by Indonesian businessman James Riady, announced the Rp957 billion fund raising from the sale of new shares. The proceed is intended to buy rights in Lippo-Mapletree Indonesia Retail Trust (LMIRT) and asset manager LMIRT Mgt.

The company placed 1.45 billion shares owned by its affiliated Pacific Asia Holdings Limited at the price IDR660 per share. CLSA is the sole bookrunner of the shares placement, a company statement published today said.
Lippo Karawaci said that it will use Rp673.73 billion or represented 70.4% of its proceeds to acquire 27.24% of the ownership in LMRIT and 40% of the rights in asset manager LMRIT Mgt.

The company also paid Rp403 billion or US$47.1 million sourced from its internal cash. As of March 31, 2011, Lippo Karawaci reported Rp3.28 trillion or US$383.2 million of its internal cash.

The company took over more than half of 27.24% of the ownership in LMRIT from its affiliated company, while the rest of the shares is bought from Mapletree LM Pte Ltd and Mapletree Capital Management Pte Ltd. The ownership of Lippo Karawaci in LMRIT soared 13 times after the transaction from 2.26% to 29.5%.

Siapkan Dana Miliaran, BJB Akan Akuisisi 63 Bank Perkreditan Rakyat -TopSaham

PT Bank Jawa Barat-Banten (BJB) akan mengakuisisi 63 Bank Perkreditan Rakyat (BPR). Dana miliaran rupiah sudah disiapkan perseroan.

Hal ini dilakukan sebagai bagian dari rencana perseroan Untuk memperluas jaringan bisnisnya, Direktur BJB Tatang Sumarna di sela acara Investor Day 2011 di Hotel Gran Hyatt, Sudirman, Jakarta, Kamis (19/5) mengatakan, ada 63 BPR di wilayah Jawa Barat dan Banten.

Saat ini BJB tengah masuk ke dalam tahapan pengukuran kesehatan dari setiap BPR tersebut. Dalam RUPS dan Rencana Bisnis Bank (RBB), Tatang menyampaikan pemerintah provinsi Jawa Barat telah mengizinkan BJB untuk menjadi pemegang saham di setiap BPR dengan kepemilikan saham di atas 50% atau mayoritas.

Disebutkan, nilai akuisisinya tidak sampai ratusan miliar. Hanya puluhan miliar saja. BJB optimistis dapat merealisasikan pertumbuhan kredit di atas 30% pada tahun ini. Hingga kuartal I-2011 pertumbuhan kredit BJB mencapai 24,49% atau naik Rp 4,85 triliun dari Rp 19,81 triliun pada periode yang sama di 2010.

Unilever to pay Rp344 final dividend - Insider Stories

PT Unilever Indonesia Tbk (UNVR), one of Indonesia's largest consumer goods maker, has been approved by its shareholders to distribute Rp344 per share final dividend in mid of July. Last year, Unilever paid a Rp100 per share of interim dividend.
In total, the company will distribute 100% of its net profit for dividend. The company posted Rp3.38 trillion net profit last year, higher than Rp3.04 trillion in previous year. It recorded net earning per share (EPS) of Rp444, compared to Rp399 in 2009.

Revenue slightly rose 7.9% to Rp19.69 trillion from Rp18.25 trillion a year earlier and cost of good sold also rose to Rp9.48 trillion. Gross profit recorded Rp10.2 trillion and operating expenses reached Rp5.66 trillion. Unilever posted operating profit of Rp4.54 trillion, higher than Rp4.21 trillion in previous year.

Medco Siap Pasok Gas untuk Proyek Pemerintah di Batam - OkeZone

JAKARTA - PT Medco Energy Infrastructure Tbk (MEDC) menuturkan akan akan membantu pemerintah mengembangkan proyek gas yang merupakan infrastruktur pemerintah di Batam dengan meningkatkan produksi.

"Adapun gas tersebut nantinya berasal dari West Natuna. Saat ini di wilayah Batam sudah ada satu power plant yang berukuran 160 MW dan nantinya kita akan menambah lagi sebesar 120-150 MW," papar Direktur Utama Lukman Mahfoedz di Jakarta, Kamis (19/5/2011).

Lukman pun menuturkan saat ini, perseroan sendiri sudah menyalurkan sebanyak 60 persen kebutuhan listrik di Batam dan perseroan pun sedang melakukan study untuk menaikkan produksi tersebut.

Sekedar informasi, saat ini produksi gas dari West Natuna sendiri adalah sebesar 40 ribu kubik feet.Selain itu, perseroan pun menuturkan kebutuhan capex untuk empat tahun mendatang sejumlah USD300-USD400 juta dimana sumber dana tersebut 30 persen dari kas internal dan 70 persen dari pinjaman bank.

Sementara, akibat situasi politik yang beklum reda dikawasan Libya perseroan pun menghentikan produksinya hingga situasi dianggap sudah aman. Lukman menambahkan bahwa saat ini perseroan akan memperoleh produksi minyak dari kawasan Tunisia sebesar 3.300 barel per hari, lalu dari wilayah Oman sekira 18 ribu-20 ribu barel per hari ekuivalen.

Boy Thohir acquires BFI Finance - Insider Stories

The number one executive of PT Adaro Energy Tbk, Boy Garibaldi Thohir acquired around 45% non-controlling shares of PT BFI Finance Indonesia Tbk through Trinugraha Capital & Co (TC&Co).
Garibaldi Thohir leads a consortium that involve TPG Capital and Northstar Equity Partners, founded by former banker Goldman Sach Patrick Walujo, as an investor in TC&Co.

TPG Capital is one of global investment units of TPG, being established in 1992 with the total asset reaching US$48 billion.
In the meantime, Northstar Equity Partners is a financial investment company focusing in Indonesia while Trinugraha Capital & Co happens to be a financial company being established in Luxemburg.
BFI Finance is Indonesia’s largest independent multi-finance company, focusing on car, motorcycle and heavy equipment financing.

This particular transaction is Thohir’s second investment after founding PT Wahana Ottomitra Multiartha that is widely known as PT WOM Finance Tbk in 1997.
Thohir’s strong interest on BFI Finance is encouraged by the promising macro-economy prospect for Indonesia’s consumer financing industry in Indonesia.
At the moment, BFI Finance is being operated by experienced management team and happens to be the largest independent players in this sector.

Thohir expects his old experiences in this sector may give the best contributions to the company. With regard to such shares acquisition, Thohir shall earn representative chair in BFI’s Board of Directors. The required approval will be earned during the next general meeting of shareholders.

Boy Garibaldi Thohir is the President Director of PT Adaro Energy Tbk, Indonesia’s second largest coal mining. He also serves as the President Director of PT Trinugraha Thohir, President Director of PT Padangbara Sukses Makmur and President Commissioner of PT Wahana Ottomitra Multiartha Tbk (WOM Finance).

Juni, Medco Terbitkan Obligasi USD150 Juta - OkeZone

JAKARTA - PT Medco Energy International Tbk (MDCO) berencana akan menerbitkan obligasi bermata uang dolar Amerika Serikat (AS) sebesar USD150 juta.

"Kita akan menerbitkan obligasi mata uang dolar AS senilai USD150 juta yang rencananya akan diliuncurkan pada akhir Juni 2011 ini," ungkap Direktur Keuangan Cyril Nurhadi di Jakarta, Kamis (19/5/2011).

Adapun alasan perseroan menerbitkan obligasi berkelanjutan dalam mata uang dollar adalah karena laporan keuangan perusahaan juga menggunakan mata uang dolar AS.

"Sehingga perseroan berpikir akan lebih baik jika pengeluaran yang dilakukan oleh perseroan dalam bentuk dolar dan penerimaan pun dalam bentuk dolar juga sehingga mengurangi resiko akan valuta asing," terangnya.

Adapun yang akan menjadi penjamin emisi (underwriter) dari proses tersebut adalah PT Bahana Securities.

Terakhir dijelaskannya, bahwa pada tahun 2011 ini perseroan telah memperoleh tiga perpanjangan kontrak yaitu kontrak Bawean, kontrak Blok A di Nangroe Aceh Darussalam dan di South Sumatera.

Astra Agro 4M CPO sales volume up 21% - Insider Stories

PT Astra Agro Lestari Tbk, Indonesia’s largest listed plantation company, booked a 21% sales volume jump to 365,186 tons at end of April this year, driven by the increase of its crude palm oil output from 301,882 tons a year earlier.

Almost all of the production or 352,080 tons was sold by the local market, an investor bulletin published today said.

Astra Agro’s kernel sales volume rose 53.3% to 46,200 tons from 29,740 tons, while palm kernel oil sales volume increased 61.1% to 14,504 tons from 9,004 tons.
AALI’s CPO was traded at Rp8,116 per kilogram, increasing 23.7% from Rp 6,560 per kilogram in the same period last year.

The crude palm oil production from January-April 2011 reached 377,239 tons, inched-up by 27.5% from 295,932 tons in the same period last year.

PGAS Limited Downside - Indopremier

PGAS’s share price increased by 18% last year vs. the JCI 46%, and YTD, the share price contracted by 7% vs. JCI’s gain of 3%. These reflected investors’ concern on slowing distribution volume, mainly caused by the diversion of Conoco supply to Chevron. Currently, PGAS is trading at 13.5 times this year’s earnings and 11.5 times FY2012, with an earnings growth of 15% this year and 17% next year. Share price underperformance has resulted in the current discount to the market rating, currently at 16.7 FY11 earnings, thus we view downside is limited. To the contrary, the counter has yet to price in not-too-distant future developments. With WACC of 11.4% and LTG of 3%, we arrive at a DCF value of Rp4,700/ share for PGAS, implying an upside of 18% from the yesterday’s closing price. Maintain BUY on the ground of PGAS solid business model and favorable valuation as well as prospects of current projects realization.

1Q11 Results
PGAS reported 1Q11 results slightly below consensus forecasts, with revenue represent some 22% of consensus’ and net profit of Rp2.16tr (+18%, YoY) represent 25% of that of consensus’. 1Q11 sales was Rp4.7tr (+6%, YoY), gross margin in 1Q11 slightly increased to 63% vs 60% in 1Q10 on higher ASP, while operating margin stable at 48%. 1Q11 bottom line is boosted by gain on derivative value of Rp413bn vs. Rp176bn in 1Q10.

Slower ramp up of Jambi Merang field
Jambi Merang field started its commercial production on middle of March being planned to have started at 20 Mmscfd, and planned to increase to 40 MMscfd in early April, and at 144 Mmscfd at its peak. Currently run at 10 Mmscfd, Jambi Merang is behind its original schedule. PGAS’ management is a bit pessimistic that the operation of Pertamina Jambi Merang field could supply back volume lost to Chevron in 2011. However, despite slower ramp up of Jambi Merang field, we view that this would not severely harm long term valuation of PGAS.

Projects underway
To secure additional supplies of gas, PGAS is in process of acquiring minority stake in several producing gas fields, to be completed before end of this year. Meanwhile, its 2(two) LNG receiving terminal plans are on tract to commence construction. We view realization of plans will strengthen the company’s supplies and claim back stronger operational earnings growth for the company.

We maintain BUY recommendation with TP Rp4,700 on favorable valuation, solid business model, and prospects of current projects realization. Currently, PGAS is trading at 13.5 times this year’s earnings and 11.5 times FY2012

4M11 Cement Sales grew 7%, exceeding our 6% expectation, accumulate INTP after share price weakens yesterday - UOBKH

Cement Sector
4M11 domestic sales grew 10.7% YoY reaching 14.3mt, with export declined by almost 50%
More demand from the domestic players, as can be seen from the increased infrastructure activities in Jakarta on construction of double decker roads. Cement Association data noted that in 4M11, there were higher growth from bulk cement sales of 25% vs bag cement sales of 8% meaning more was used for infrastructure construction.
Further price increase of another 5-6% in 2H11 should push up margins. Average increase now is only 2.5%, but this is because Holcim never increased its price, while the other 2 players INTP & SMGR raise price during 1Q11.

First positive QoQ growth after 2 years, INTP 2011 Earnings may exceed estimate
Buy Indocement, INTP IJ, TP: Rp22,300, Share Price: Rp16,450 Upside:+35.5% (Analyst: Marwan Halim,

1Q11 net profit increased 10% YoY and 3% QoQ to Rp868bn, driven by higher sales volume and higher ASP.
To offset higher COGS from steep energy cost, INTP were able to increase ASP by 8% to 920,000/tonne without losing market share.
Margin improvement going forward,as we expect commodities price to soften, and more opportunity to increase prices later this year.
Zero debt position! Cash increased by 90% to Rp5tn, very flexible for further business expansion.
Running at 75% capacity, INTP is best positioned to absorb increasing demand, especially in greater Jakarta area.
Trading at 13.3x 2012F PE

A cheaper alternative, but fundamentals is slightly less attractive
Buy Semen Gresik, SMGR, TP:Rp11,100, Share Price:Rp9,450, Upside:17.4% (Analyst: Marwan Halim,

1Q11 net profit grew 9% yoy. To Rp871bn
Able to increase ASP by +8% YoY, REALLY helped boost net profit considering the company has capacity constraints.
Net cash position, but debts increased 38% to Rp845bn, due to higher capex for construction of new 2 cement plants.
Will benefit from cement demand outside of Java, that are expected to grow by 4-7X by 2030
Trading at 12.7x 2012F PE

Corporate Flash Gozco Plantations - Bahana

Raised earnings on higher FFB purchases; Still upside to our numbers
§ Following GZCO’s Investor Day presentation yesterday, we have increased our CPO production numbers on higher purchased FFB estimate of 108k tons (from 94k tons previously), up 50% y-y, a recovery to 2009’s level.
§ Our higher production translates to 2011 revenue forecast of IDR610b (+34% y-y), 5% higher than our previous projection (exhibit 5). However, since we expect lower ASP in 2H11, our top line figure is still behind the management’s guidance.
§ Additionally, we believe there is still upside to our revised-up earnings as subsidiary Indotruba could continue to book higher than expected earnings in the subsequent quarters (1Q11 net contribution of IDR34b, +147% y-y).

Outlook We expect GZCO to continue experiencing improved productivity and profitability going forward. We forecast GZCO’s 2011 top line to reach IDR610b (+34.3% y-y) with bottom line of IDR193b (+20.2% y-y), helped by strong production growth (+36.2% y-y) coupled with higher ASP of USD876/ton (+6.3% y-y).

Recommendation and valuation GZCO is undemanding on 2011 PE of 10.1x, 28% discount to the sector, particularly given 2011 PEG of 0.6x, compared to the sector’s 2011 PEG of 1.1x. Even through the company’s fast growth period, GZCO will still provide 2011 dividend yield of 2.7%, in line with the market and slightly higher than the sector’s 2.3% yield. In line with our revised up earnings, we also increase our target price (TP) on GZCO to IDR490, representing 2011 PE of 12.7x, 14% below the sector’s target PE of 14.8x. However, at our new TP, GZCO’s PEG remains attractive on 0.8x. BUY!

Corporate Flash Kalbe Farma - Bahana

Investor Day: No price increases in 2Q11 thus far
§ At yesterday’s Investor Day organized by Indonesia Stock Exchange (BEI), we learned that KLBF has not yet implemented earlier plans to raise selling prices in 2Q11 to offset rising raw materials prices. The management cited the stronger rupiah (IDR) as the reason behind this delay in price increases.
§ We note that in 1Q11 petroleum based products increased by around 3-4% on average while the IDR appreciated 1% during the same period. This would allow KLBF to maintain its margin relatively stable for its 2Q11 performance in our view without having the need to raise selling prices.
§ We believe the challenge will be in KLBF’s 3Q performance as petroleum price has spiked up 12.9% in 2Q11 on average thus far, compared to IDR appreciation of just 3.2% over the same period. Without price increases, KLBF will undoubtedly see margin contraction in 3Q11.

Outlook KLBF informed us that the company plans to increase prices by an average of 2-3% in 2011 (i.e. probably 5-6% price hike starting in 3Q11 based on our estimate). The management also cited that KLBF is seeing higher milk prices, which would impact the performance of its nutrition division in 3Q11.

Recommendation and valuation Thus, margin pressure ahead coupled with lofty valuation has us reiterating our HOLD rating on KLBF. At this stage, we believe KLBF is fairly valued, trading on 2011 PE of 23.7x, nearly 43% premium to market valuation. Hence, it does not surprise us to see that KLBF’s share price has underperformed the market by 6.3% in the past month (exhibit 4). HOLD.

Kalbe Farma: Hold; Rp3,550; TP Rp3,800 prev Rp3,275; KLBF IJ Higher dividend to enhance shareholder value - DBS Vickers

• 50% FY10 dividend payout, a historical high
• FY11-12F earnings revised up 7-8% on stronger Rupiah
• Rich valuations; Maintain Hold with TP raised to Rp3,800

High dividend payout could stay. In its upcoming AGM, Kalbe will propose a historical high dividend of 50% of its FY10 earnings. Given the difficulties in M&A and its strong cash position at Rp 2.1tr as of March 31, 2011, the company has raised its payout significantly to give back to its shareholders. Over the time, we believe higher payout would be the alternative to improve Kalbe’s shareholder value should M&A continue to be difficult to achieve.

Positive impact from stronger Rupiah. As Kalbe imports 80% of its raw materials, Rupiah appreciation against the USD has a positive impact. Kalbe’s gross margin improved from 50.2% in 1Q10 to 51.8% in 1Q11 mainly due to the c.6% Rupiah appreciation. Our sensitivity analysis shows that a 1% appreciation of Rupiah against the greenback would raise net profit by 2% and vice versa. We have nudged up our earnings estimates for FY11/12F by 7% and 8% as we raise our margin assumptions to account for stronger Rupiah.

Maintain HOLD, TP raised to Rp3,800. TP raised to Rp3,800 (14% WACC, 3% terminal growth) after upgrading our earnings estimates. Currently, KLBF’s is trading at demanding valuations of 22x FY11F PE, 47% higher than the historical 5 years’ average of 15x PE. As the upside (including FY11F dividend payout) is only 8% and we believe all the positives including the higher dividend payout, has been priced in, we are maintaining our Hold call. Positive news flow on M&A and further Rupiah strengthening against the greenback would be a potential catalyst for the counter.

Asia ex Strategy - Equity Issuance: They Bake it Fresh Every Night - Citigroup

 Equity issuance is set to be US$256bn, or 2.1% of market cap — The historic range for Asia since 1992 has been between 1.4% and a peak of 5.3%. As such, the 2011 calendar does not look onerous for the markets. Dividends received will cover the capital required and, relative to bank deposits, equity issuance is a mere 1.6%. With savers on average receiving 340 bps of negative yield on deposits, shifting the equity should not prove onerous. Relative to money supply (M3), we stand at 2.1%; the danger zone is 2.5%.

 China, India & Korea lead, as do financials, industrials and materials — Asian markets, by virtue of what is getting listed, are becoming more cyclical and top-line driven. Sadly, the free-cash-flow consumer companies see no reason to invite investors on to their share register. Year to date, 34% of the calendar has been issued. We will need chirpier markets in H2 to get the rest away. Thailand, Malaysia and Taiwan will see the least issuance, as will technology and telecoms.

 No direct relationship in Asia ex between issuance and returns — The perception that excessive issuance leads to poor returns is not borne out. Markets lead issuance, not vice versa. Where investors need to pay attention is when lowleveraged companies ask for equity. This dilutes returns and is often rewarded with poor performance.

Cement Industry (OVERWEIGHT) Momentum maintained - Danareksa

Strong momentum maintained with a shift toward Java
In the first four months of the year, domestic demand was strong with volume growth of 10.7% yoy to 14.3mn tonnes. On a monthly basis, cement demand was relatively stable. Yet there has been a change in the demand growth trend with a clear shift back to Java, the country’s most populous island where large upgrades to infrastructure and housing need to be made. Actually, we made the point last year that demand should shift back to Java, and this is exactly what is happening at the present time.

Looking closer at Java’s brisk volume growth of 14.2% yoy, the highest growth was seen in DKI Jakarta, followed by Banten and then West Java. These are, notably, the home markets for Indocement, which, therefore, stands to significantly benefit from this situation, especially in light of Semen Gresik’s limited excess capacity. Similarly, Holcim should be another beneficiary.

Holcim gaining market share
Holcim’s more aggressive marketing efforts have paid off, as reflected in its higher market share of 15.2% in 4M11, up from 13.6% previously. Holcim has enjoyed particularly strong market share gains in Java and Sumatra. Meanwhile, Indocement has pretty much maintained its market share at 30.9%, while Semen Gresik lost market share due to capacity constraints.

Despite the strong demand prices fell a bit
Rather surprisingly, prices dipped by 2% mom to Rp1,076,000 per tonne in Apr11 despite the strong domestic demand. Usually in a business environment where demand is strong, cement producers tend to raise prices (especially if energy costs are on the up too). In our view, however, pricing may have been too high due to logistical reasons. At the current level, we feel that the pricing level is still right. After all, if domestic pricing is too high, it might invite competition in the form of imports.

Indocement still favored
Looking at the ongoing shift in demand toward Java, Indocement and Holcim are the cement producers which stand to benefit. Of these two companies, we like Indocement more since it is still running well below its full utilization rate – that is around 75%. As for Holcim and Semen Gresik, they will be occupied by efforts to expand capacity. Semen Gresik might be more interesting since its new capacity should be completed early next year. BUY on Indocement with a Target Price of Rp18,700.

Tambang Batubara Bukit Asam (PTBA-BUY-IDR20,800-TP:IDR29,600) Minor adjustment - Bahana

Solid 1Q11 results: Higher selling prices & lower COGS
Despite seasonality, PTBA reported 1Q11 earnings which were solid with net income up 104% y-y and 23% q-q, relatively in line with our and consensus’ full-year estimates (around 20%). On the back of lower production due to weather disruptions, we expect 1Q performance to be the weakest, forming just 22% of full-year estimate. Note that 1Q10 accounted for only 18.6% of 2010 full-year net profit. Revenues grew 30% y-y and 15% q-q driven by higher selling prices. Domestic ASP grew 29% y-y and 21% q-q to IDR742/ton while export ASP grew 54% y-y or 31% q-q to USD87.7/ton. However, sales volumes declined 4% y-y to 3.1m tons mainly caused by sales volume from trading activities as production was up 16% y-y to 3.0m tons. Bucking the industry trend, PTBA’s COGS fell 0.3% y-y despite rising oil price, partially due to 2% y-y lower stripping ratio to 3.52x.

Approvals required for railway and power projects
The 307km Rajawali railway project’s second alignment design draft, submitted in mid December 2010 was supposed to obtain approval in 1Q11, but is now delayed till 2Q11. Following the approval, land acquisition will commence, expected to take 1-1.5 years for 100% land acquisition with railway construction starting in mid 2012, assuming a minimum 50% land is acquired. EPC contract for the Rajawali project worth USD1.3b should be completed by mid of 2015. On the 270km Adani project, feasibility study should be completed in August 2011, followed by design creation, tendering out EPC contractor and financing. The license approval for this project should take less time (i.e. about 6 months) than the Rajawali project as the railway passes through only one province, requiring approval of only South Sumatra province. On the flip side, the Rajawali project requires approvals from 2 provinces, South Sumatra and Lampung, as well as approval by the central government. Additionally, the land acquisition for this project would be faster (6-12 months) due to the shorter distance and government support, as the South Sumatra province has a 2% stake in the joint venture. The initial target for capex over a 3-year construction period is USD1.6b. On the 200MW Banjarsari power project, PTBA already receives new electricity tariff approval from the ministry in February 2011 from USD0.0389/Kwh to USD0.056/Kwh (+44%). Construction to start mid 2011 with a 3-year completion period.

TP unchanged on marginal cut in DCF equity value; Retain BUY
We note that PTBA’s extension of existing railway projects has been delayed, as the 6 locomotives expected to come in June 2011, will now only arrive in September 2011. We expect this will result in lower 2011 train transportation capacity, down from 13.25 to 12.5m tons. Hence, we have adjusted our production down by 7% from 15m tons to 14m tons. This, however, is slightly offset by our lower cost assumptions on the back of the company’s 1Q11 results, resulting in 5% cut in 2011 net earnings. Thus, with only a marginal cut in DCF equity value, we retain our TP at IDR29,600/share. BUY.

Rabu, 18 Mei 2011

Market volatility creates buying opportunity - BoAML

No longer see much downside risk in coal price
At the current price level of US$123/t, we no longer see much downside risk in the coal price. China has come back to the market more aggressively in the last two weeks – the price rise in China domestic coal came earlier than expected. We expect coal prices to trend higher, especially in 4Q (with likely some volatility in 3Q) and we see the risk of our 2012 JFY estimate of US$129/t to the upside.

China buying seems to provide support for the market
We understand from our recent channel checks that: 1) China has been aggressively buying coal from Indonesia, with last week’s offer at US$92-96/t for 5000kcal NAR coal (or roughly 5300kcal GAR), or around US$115/t on index basis, but the ash content is likely higher at ~20%, vs. Japanese quality of <12%. This offer was higher by US$7-10/t than the prices in early April. Perhaps it was driven by speculation by traders, who dominate the China import market ahead of a hot summer. In any case, the momentum seems to be just starting; and 2) There is still about a US$10/t gap between Australia coal and Chinese domestic coal pricing, but the gap continues to narrow, with Chinese coal prices continuing to rise. This should provide near-term support for coal prices.

Japan pricing to Indo coal quoted around US$130-136/t
After Australian coal was priced at US$129/t, the pricing quoted for Indo coal for JFY2011 should be about US$130-136/t, factoring in advantage from lower freight rates and ash content. It seems some of the coal mines have been over-committed for delivery ahead of the Japan tsunami, softening the blow of price correction, our contacts say. Since one coal owner can own more than one mine, he/she is able to arrange the coal allocation strategically to one buyer from different coal mines.

Potential pricing volatility in 3Q
The good news is there is talk/hope that two of the four JPUs (Joban and Tepco) that were affected by the Japan tsunami could resume operations by July/August. But demand from China may come down on de-stocking or perhaps over-speculation by traders during 2Q. Also, coal supply tends to be the highest in 3Q (except in 2010). Safe to buy now, in our view; share prices still below NPV To look beyond the current phase of pronounced volatility to seek long-term growth that a multi-decade super cycle event offers, we have used DCF up to the end of contract life or reserve life (whichever is faster) to value all Indo coal companies, with the exception of BUMI. Our pecking order: SAR, ITMG and ADRO are trading at 5%, 12% and 8% discounts to NPV, respectively. Share prices tend to overshoot NPV when coal prices rise, so we reiterate our Buy ratings on those names.

Consolidation first or big dividends could be on the cards
Most Indo coal firms, barring BUMI, are now sitting on huge cash piles (see table in page 2). Even for ADRO, we estimate it can raise up to US$2.5bn in loans if it needs cash for expansion. We learnt there is one relatively sizeable mine up for sale now.

Buy BORN (premium HCC producer) for met coal exposure
While we see more downside in the coking price near term than in thermal coal, as the Queensland effect fades and with slowing demand from Japan due to the infrastructure bottleneck, we still recommend clients buy BORN. We believe premium HCC will be prioritized over semi-soft/PCI, as buyers in such tight capacity will allow zero tolerance of operation failure. Indeed premium HCC price still stands firm at US$320/t.

MSCI Semi-Annual Review: Indonesia: Adding EXCL, Float Increase for ADRO, Float Decrease for BUMI - Credit Suisse

Based on the changes, we believe there is a good chance for: 1) buying activities for EXCL; and 2) trade switching from BUMI into ADRO in the coal space.

· The highlights in the latest MSCI Semi-Annual Review, which would be effective on May 31, 2011, are as follows:
o Inclusion of XL Axiata (EXCL. OW, PT Rp7,200)
o Free float decrease for Bumi Resources (BUMI, Not Rated)
o Free float increase for Adaro Energy (ADRO, UW, PT Rp2,050)
o Share decreases for Bank Rakyat Indonesia (BBRI, OW, PT Rp8,350), Bank Mandiri (BMRI, OW, PT Rp8,950), Bank Negara Indonesia (BBNI, OW, Rp5,000) and Bank Danamon (BDMN, OW, TP Rp7,000)

2) Cement Sector (Maintain OW): Positive cement consumption in April
SMGR is our preferred pick in the sector. SMGR’s capacity expansion is progressing well (82% completion per mid-May 2011), which should provide the company with the flexibility to meet Indonesia’s growing cement demand as early as 3Q11. SMGR is currently trading at 14.4x 2011 P/E with 13.9% average EPS growth for 2011-12.

· Indonesian Cement Association (ASI): Indonesia’s April cement consumption reached 3.8 mn tons (-3.1% MoM, +6.8% YoY), driven by the domestic market (92% of total sales, -0.9% MoM, +17% YoY).
· Indonesia’s 4M11 total cement consumption amounted to 14.8 mn tons (+6.9% YoY), also driven by domestic market (97% of total sales, +11% YoY).
· 4M11 domestic cement sales of 14.3 mn tons amounted to 33% of (in-line with) analyst Ella Nusantoro’s forecast. Ella is projecting Indonesia cement sales volume to grow 6.0% with 7.5% ASP increase this year.
· Semen Gresik’s (SMGR, OW, PT Rp11,000) 4M10 market share declined to 40.9% (-2.3 ppt YoY), while Indocement’s (INTP, N, PT Rp17,400) flat at 31% and Holcim Indonesia’s (SMCB, N, PT 2,400) expanded to 15.2% (+1.6% ppt YoY).

CPIN, cautious outlook - CLSA

Despite strong 1Q11 results, Jessica Irene maintains her SELL call on Charoen Pokphand Indonesia (CPIN IJ). CPIN has a strong start this year and we were too conservative on our gross margin assumption this year. 1Q11 operating and net profits are both making up 31% of our FY assumption. CPIN has increased prices by more than 25% YTD to partially offset higher corn and soybean meal prices. Jessica raised her earnings forecast by 17.8% and 22.2% for FY11 and FY12 respectively.

The problem is that chicken meat prices should follow as farmers need to pass on their feed cost inflation. But that does not seem to be the case. Jess’s work suggests that farmer’s earnings are down 29% YoY.

We also met CPIN’s competitors recently and learned that in the 2nd quarter market is flooded with day old chicken (DOC). In fact DOC is now selling below costs. While DOC only makes up about 15% of CPIN’s sales, this is a very important indicator, in our view. Clearly not a good indicator as this will mean market is likely to be flooded with chicken in a few months time.

Key points of the report:
Revising up our earnings by 18% this year based on higher ASP assumptions.
CP Indo has been successful in increasing its feed and DOC prices by more than 25% YTD.
However, despite the strong start of the year, we remain cautious on the company’s ability to continue increasing ASP going forward given relatively weak chicken meat prices.
We upgrade our target price by 9% to Rp1,750 per share following our earnings upgrade for the year but maintain our SELL call on the stock.
Valuation: stock currently trades at 15x11CL PE versus its peers at 13x.

China's critical coal inventory - CLSA

Ongoing dollar bounce (risk off trade) has shaken confidence in the commodities space. However, we feel that fundamentals of thermal coal is looking increasingly compelling. China seaborne thermal coal consumption has been stronger than expected with further upside likely.

Yesterday at the CLSA China Forum 2011, David Fang of the China Coal Transport and Dist Association said power consumption growth of 13% 1Q11 yoy is outstripping domestic coal supply. Key driver of the increase is strong industrial production, which typically represents 60% of power demand.

In some provinces stocks are at extreme levels with Hunan province holding the equivalent of just 4 days of use. Demand is having an impact on prices with benchmark seaborne FOB at a two-year high of 820 Yuan/ton. Mine consolidation has intensified this supply shortage. Meanwhile, railway transport is an additional bottleneck, a situation that is likely to last for the next 2-3 years.

Jayden Vantarakis, our new on the ground resources analyst (another Melbourne Boy who previously covering resources on the corporate credit side. He speaks fluent Bahasa ). He notes Indonesia is best placed to meet the short term demand increases due to lower freight days compared to Australian and South African producers, which is important when power stations in SE China have low coal stocks as low as 4 days. A pick up in expectations for 2H11 Baltic Frieght index to 1,500 from current levels of c. 1300 also supports this. Coal represents 30% of shipments under the index.

Stocks likely to benefit: BUMI has the highest leverage to China consumption of the Indonesian thermal coal plays with China as its biggest customer. PTBA has the least in the sector at 4% due to 68% domestic market sales.

ON THE PLATTER: Timah (TINS IJ; NOT RATED): Site Visit - Dig in a Bit Deeper - OSK Nusadana

On 11-12 May we visited PT.Timah’s (TINS) offshore & inland mining sites and its tin refining process in Bangka Belitung as for the purpose of learning the business process of the company’s tin business starting from mining to its refining stage. With 2010 reserves of 395k tonnes, the company believes more suprises yet to come as TINS would be expecting to obtain additional reserves from its offshore location when its bucket wheel dredge (BWD) modification to start commencing in 2012. TINS is currently in possession of 12 bucket line dredges and 15 cutter line dredges on its offshore mines. The company plans to produce 40k tonnes by FY11 allowing a larger proportion from its offshore mining (60%), while the rest of the production coming from inland (40%) as to ease the cost burden from small-scale miners.

· Day 1: Offshore and Onshore mining. We took a 20 minutes ride using a boat to one of its shore mining in Pangkal Pinang where the bucket line dredge is allocated. The dredge is able to scoop up tin reserves 40-50m below water surface and process it to 25%-30% concentrated tin. The company believes that they could obtain additional potential reserves by using its bucket wheel dredge which is able to dig up to 90m below water surface which will start to operate in 2012. However, the amount of potential reserves is not declared/disclosed. The next stop we visited one of its inland mine in Pemali. The processing there is divided into 3 jigs, where at the end of the washing process would produce 70% sn tin- concentrated which would be ready to be refined.

· Day 2: Smelter plant. The next day we went to TINS’ Metallurgical Centre in Muntok where we saw the smelting and refining process. The refining process is done by transforming the tin ore from the mining area into different types of tin grade which is to be sold mostly to the export market (97%). Timah’s tin grade are separated based on its concentration such as the 99.85% sn concentrate (used in the LME market), 99.99% sn concentrate (usually USD1,000 premium to the LME market) and the upcoming product (99.99% sn concentrate). The company believes its high-end 99.99% sn concentrate project would bring less cost for its customers in the electronic industry as the high grade tin from TINS would be ready for use, hence an added value for the company.

· Valuation. 1Q11 bottom line reached IDR355bn (+150% y-o-y; 25% of FY11 consensus) mainly driven by higher tin price averaging at USD29,965/tonne (+75% y-o-y). The company remains positive with tin demand going forward on the back of strong economic recovery; however, according to the company, TINS only targets around 40k tones of production volume, a flat figure compared to its previous year, as to sustain its mine life reserves for longer years. TINS is also currently developing its down-stream products, which would enable TINS to obtain higher margins. The company is currently trading at 9.4x and 8.4x based on 2011-12 PE consensus. We have not initiated this company yet.

SMCB Volume over margin - Kim Eng

What’s New
􀂃 Holcim’s 1Q11 net profit inched up 2% y/y to Rp209b, the least among listed cement producers, on the back of higher tax rate during the period at 30%, compared to 27% in 1Q11.
􀂃 The company trimmed export sales in 1Q11, with export volume dropped 57% y/y to 170k tonnes while domestic sales volume surged 24% y/y to 1.62m tonnes.

Our View
􀂃 The result is inline with our estimate on the bottom line at 23% of FY forecast. Sales came above our forecast at 26% FY11F due to very strong growth in Holcim’s home market in Java in 1Q11 at 12% y/y.
􀂃 Aside from robust cement sales, Holcim’s revenue growth was also contributed by strong performance in the RMC division where revenue surged 45% y/y to Rp253b. RMC now represents 15% of total revenue, an increase from 13% a year ago.
􀂃 COGS increased 26% y/y, higher than the 23% y/y revenue increase. Holcim’s profitability was inferior compared to its peers, with EBITDA margin of 28.1% vis‐à‐vis 40.7% for Indocement and 33.3% for SGG.
􀂃 Holcim stands the foremost beneficiary of stronger Rupiah. On top of relatively lower cost in Rupiah term from USD‐linked items, it also carries US$122m of USD‐denominated liabilities in its balance sheet.

Action & Recommendation
􀂃 We maintain our BUY recommendation on Holcim with Rp2,425 TP, pegging it at 20.0x 2011F PER. The stock trades at the lowest EV/ton among cement producers at US$272 vis‐à‐vis US$345 for Indocement and US$356 for Semen Gresik.

INTP Expecting higher dividend - Kim Eng

What’s New
􀂃 Indocement’s 1Q11 net profit rose 10% y/y to Rp865b (Rp235/share) on the back of 15% y/y higher revenue (+15%y/y).
􀂃 On a quarterly basis, net profit inched up 3% q/q despite 3% q/q drop in revenue due to slightly lower sales volume.

Our View
􀂃 The bottom line result is slightly better than our estimate at 25% of FY estimate, although revenue is inline at 23% FY11F. Margin was resilient, partly thanks to Rupiah appreciation which helped to mitigate the impact of higher energy cost. Fuel and electricity cost was 15% y/y higher compared to 1Q10 at Rp680b, but this is modest compared to 62% y/y increase in coal price in 2010.
􀂃 Indocement will pay Rp263 final DPS, 30% of FY10 net profit and lower than our estimate of 35% payout. The reason behind the lower payout is beyond us, as its balance sheet is fortress‐like, with cash balance close to Rp5t (US$585m) as of end of March 2011, no debt, and operating cash flow of ~US$70m every quarter.
􀂃 We believe higher dividend payout is just around the corner. Even if Indocement decides to proceed with the construction of new, 3mtpa plant, the company can still finance it internally, as the plant would cost just ~US$600‐700m, spread out over 2‐year period. On top of that, Indocement’s parents might need some assistance to repay its short‐term debts which amount to EUR727m as of end of March 2011.

Action & Recommendation
􀂃 We upgrade our recommendation on Indocement to BUY from HOLD as recent correction makes the counter attractive. Our TP is unchanged at Rp19,150, pegging the stock at 20.4x and 17.0x 2011F and 2012F PER respectively.

SMGR Undemanding valuation - Kim Eng

What’s New
􀂃 Semen Gresik Group (SGG) posted 1Q11 net profit of Rp871b (Rp147/share), 9% y/y higher compared to 1Q10 figure of Rp802b.
􀂃 Margin held relatively well in the quarter. EBITDA margin dipped only slightly to 33.3% in 1Q11 from 34.2% in 1Q10.

Our View
􀂃 Overall a solid set of result, with 1Q11 bottom line figure comprising 24% of our FY estimate of Rp3.56t. The first quarter historically contributed only 20‐22% of FY net profit for the group.
􀂃 1Q11 revenue was 9% y/y higher at Rp3.55t despite tepid sales volume growth of 2% y/y at 4.34m tonnes, including export, implying higher ASP as the main reason. Further increase is possible, but would likely be capped, as SGG is reluctant to lose further market share.
􀂃 Notwithstanding the strong result, we opt to leave our forecast unchanged as further margin compression is imminent. SGG has not contracted 50% its coal needs for FY11 and subsequent purchase would be settled at a higher price compared to current contracted price of ~US$85/tonne. McCloskey index averaged at US$123/tonne in 1Q11, 18% and 34% higher compared to that in 4Q10 and FY10.

Action & Recommendation
􀂃 We maintain our BUY recommendation on Semen Gresik. It remains the cheapest play in the sector at 15.6x 2011F PER vis‐à‐vis 17.7x and 18.2x for Indocement and Holcim respectively. SGG also offers the highest dividend yield. The company indicates 40% payout from FY10 net profit or around Rp306/share, yielding 2.6% at current price, exceeding that of Indocement and Holcim at 1.6% and 1.0%. Our TP of
Rp10,850 reflects 18.1x and 15.5x 2011F and 2012 PER respectively.

Cement Strong sales and resilient margin - Kim Eng

􀂃 First‐quarter results for all cement producers under our coverage were in line with our expectations. Though margins were not as low as feared, the stubbornly high coal prices could see the producers succumbing to cost pressures. Consumers, despite their strong purchasing power, are unlikely to be willing to accept a price hike of more than 7%, which is what the cement producers must do if they wish to maintain margins at 2010 level.
􀂃 Domestic cement sales grew by 17% y/y last month to 3.73m tonnes. Holcim continued to lead the pack with volume growth of 25% y/y. Indocement and Semen Gresik Group (SGG) saw sales volume growth of 19% and 15%, respectively.
􀂃 Domestic sales volume increased by 11% y/y in 4M11 compared to a year ago. We maintain our FY11F growth assumption at 7% y/y in anticipation of a similar pattern to last year, where the strong start in the beginning of the year was negated by a weak second half. In FY10, sales volume surged by 16% y/y in the first four months but ended the year only 6% y/y higher.
􀂃 A new competitor has appeared on the scene. Siam Cement Group (SCG), Thailand’s largest cement maker with a production capacity of 24mtpa, has signed CSPA to acquire a 70.4% stake in Kokoh Inti Arebama (KOIN IJ). The latter is a building material distributor that has a nationwide distribution network covering 22 cities in Indonesia, as well as 19 building material stores in Java.
􀂃 In our view, SCG can leverage on its highly competitive pricing to penetrate the Indonesian market. Its ASP in 1Q11 was Bt1,900/tonne, or about Rp538,000/tonne, which was around 40‐50% cheaper than what Indonesian consumers were paying. Moreover, its production capacity can still support volume expansion, as utilisation rate is still at 75%. This translates to about 5‐6m tonnes of idle capacity.
􀂃 Whether SCG will pose a threat remains to be seen, as there are obstacles it needs to overcome. For one, it lacks silos and packing plants in Indonesia, which are crucial for efficient distribution to retail customers. The psychological barrier, too, is high given that Indonesian customers tend to be loyal to their chosen brand.

Intraco Penta: Plan right issue up to US$500mn (INTA, Rp3,525, Not Rated) - Mandiri

􀂄 According to Investor Daily, INTA is seeking to raise fund via right issue up to US$500mn that will be exercised in Q3 2011. The main proceeds will be used to acquire coal asset with minimum reserves of 100Mt. Details of the coal asset has not disclosed yet
􀂄 We have not got the clarification from the company about the final size. Based on our latest update from the company, the right issue size was about US$250-300mn
􀂄 INTA’s 1Q11 results are still in limited review due to corporate action that might be taken in coming quarters. But we expect sounding results considering as of 31 March 2011, total heavy equipment sales have reached 897units or US$167mn which represent around 70% from FY11 target
􀂄 Currently we do have rating on the stock. Based on company’s estimatimates INTA is traded attractively at around 9.5xPER11F

Plantation sector: Lower limit of CPO export tax scheme is likely up to US$750 per ton (overweight) - Mandiri

􀂄 According to Tempo newspaper, Ministry of Trade said that they will increase the lower limit of CPO export tax scheme from US$700 per ton to US$750 per ton and decrease the highest rate of CPO export tax rate from 25%.

􀂄 At current average CPO price (CIF Rotterdam) of US$1,140 per ton in the last 30 days, this new CPO export tax scheme will not impact to net proceed of Indonesia CPO plantation companies.

􀂄 We maintain overweight recommendation on plantation sector with Sampoerna Agro (SGRO, Rp3,400, Buy, TP:Rp4,150) as our top pick due to its margin expansion. At Rp3,400, SGRO is trading at PER FY11F of 11.2x

Telekomunikasi Indonesia: Hold; Rp7,700; TP Rp7,700; TLKM IJ Preparing Mitratel’s IPO - DBS Vickers

It is reported that Telkom is preparing its subsidiary, PT Dayamitra Telecommunications (Mitratel), to be listed on IDX. Telkom is looking to finalize the process in the coming 6 to 9 months. It is likely that Mitratel will only go public in 2012. Mitratel will be spin-off as a pure tower company. Hence, prior to the listing, Mitratel will need to add more towers into its portfolio. Currently, Mitratel has less than 1,000 towers. Telkom is looking to add another 1,000 towers by the end of this year. Telkom is also planning to inject c.9,000 towers into the company. These 9,000 towers are currently under SingTel management.

Overall Telkomsel has close to 22K towers versus Indosat’s 12K and XL’s 10K, but the company is not keen on divesting all of them due to strategic reasons. Unless the negotiation on the pricing for towers with SingTel is resolved, Telkom may not be able to list Mitratel. At best, this may happen in 2012 or even later. Given large market cap of Telkom, divestment of only 2K towers will not have a big impact.

We believe that Indosat will be the first company to divest its tower business in 2011 (by selling towers) in order to generate much required free cash flow. Our BUY call on Indosat is mainly premised on potential sale of towers in 2011, which should benefit Indosat significantly.

We have a HOLD call on Telkom for its low-growth prospects coupled with only 4% yield.

GEM Equity Strategy - End of QE 2 - potential correction like QE1? - Credit Suisse

■ Valuations today are very different to the end of QE 1. In our report of 1 April, End of QE 2 – potential correction like QE 1?, we highlighted four key differences between the end of QE 1 and the end of QE 2, and hence our conclusion that a big 15% correction as occurred at the end of QE 1 was unlikely. In this report, we update those four differences. One, valuations. Figure 1 highlights that our four-factor GEM valuation indicator is currently 10% undervalued versus 11% overvalued at the end of QE 1. The key reason for this is earnings growth over this period as our four-factor valuation indicator includes historical P/E, P/E adjusted by inflation, dividend yield and the earnings yield adjusted by bond yield.

■ Other three differences are net foreign buying, TED spreads and a more sustainable US recovery. Two, net foreign buying of Emerging Asia (ex. China) over the past 12 months is 1.4% of market capitalisation, 40% lower than the 2.2% at the end of QE 1. Three, TED spreads (our proxy for risk of financial contagion) are 26 bps versus 45 bps at the highs then. Four, a more sustainable US recovery with non-farm payrolls averaging 233,000 currently versus just 39,000 at the end of QE 1. To these four differences, we add a fifth – signs of inflation peaking (see Figure 3 under ‘focus charts’).

■ Our strategy remains buying on dips. With our year-end target for MXEF (MSCI Emerging) being 1,350, we continue to suggest buying on dips as it represents 16% potential upside. Our biggest GEM Overweights are Korea, Russia and MSCI China.

Asia ex Strategy - Equity Issuance: They Bake it Fresh Every Night - Citigroup

 Equity issuance is set to be US$256bn, or 2.1% of market cap — The historic range for Asia since 1992 has been between 1.4% and a peak of 5.3%. As such, the 2011 calendar does not look onerous for the markets. Dividends received will cover the capital required and, relative to bank deposits, equity issuance is a mere 1.6%. With savers on average receiving 340 bps of negative yield on deposits, shifting the equity should not prove onerous. Relative to money supply (M3), we stand at 2.1%; the danger zone is 2.5%.
 China, India & Korea lead, as do financials, industrials and materials — Asian markets, by virtue of what is getting listed, are becoming more cyclical and top-line driven. Sadly, the free-cash-flow consumer companies see no reason to invite investors on to their share register. Year to date, 34% of the calendar has been issued. We will need chirpier markets in H2 to get the rest away. Thailand, Malaysia and Taiwan will see the least issuance, as will technology and telecoms.
 No direct relationship in Asia ex between issuance and returns — The perception that excessive issuance leads to poor returns is not borne out. Markets lead issuance, not vice versa. Where investors need to pay attention is when lowleveraged companies ask for equity. This dilutes returns and is often rewarded with poor performance.

Oil, Gold to Help Commodities Ride Out Economic Headwinds, JPMorgan Says - Bloomberg

Commodities will overcome a setback to extend their rebound from the record plunge in 2008 as an advance in oil and gold helps to compensate for a retreat in base metal prices, according to JPMorgan Chase & Co. (JPM)

“In the short-term, the macro landscape seems to have taken a turn in recent weeks,” Ray Eyles, chief executive officer of the bank’s commodities business in Asia, said in an interview. “Ultimately the long-term fundamental supply and demand of commodities is still pointing to higher prices.”

The Standard & Poor’s GSCI Index of 24 commodities climbed 20 percent through April, extending its advance from a 43 percent slump in 2008. The index fell 11 percent this month as signs of an economic slowdown spurred sales. Commodities beat stocks, bonds and the dollar for five months through April, the longest run in at least 14 years, on expectations of shortages in everything from oil to copper and corn.

JPMorgan, the second-biggest U.S. bank by assets, is among banks that have increased hiring and expanded business in Asia in the past couple of years to profit from growing investment and hedging demand for commodities. The number of clients the bank serves in Asia has grown 50 percent after the acquisition of RBS Sempra Commodities LLP in 2010, it said.

“We see Asia becoming more and more significant in the commodities market in coming years,” Singapore-based Eyles said. “A large amount of demand is driven by Asia, primarily by China, and we see this expanding to India and other parts of Asia.”
‘Fundamental Stories’

Eyles, 41, who joined JPMorgan in 1988, said the bank is looking to expand its physical trading of copper, aluminum and zinc to include gold in China, a country that it considers an important priority in the next few years. It will also expand in “areas of gas, coal, power, financing and physical activities” in Asia, he said.

Goldman Sachs Group Inc. in reports on April 11 and April 15 told investors to be “underweight” commodities in the next three to six months. The bank still expects commodities to advance about 10 percent over the next 12 months. Barclays Capital, which told investors in a report May 6 to use the slump to buy, is forecasting shortfalls in production this year for copper, nickel, tin, lead, platinum and palladium. MORE ...

Tin weakness temporary, to hit fresh highs - Commodity Online

By Gautam Koderi
Tin is probably the least popular of the base metals bourse at LME. But that does not cloud the fact that the metal was the best performer among base metals during the year 2010, compounding 54 percent to its worth during the time.

The weakness in the metal witnessed recently is likely to be a temporary phenomenon, especially with the inception of ETF’s of base metals. With Rising investment demand and the conspicuous fundamental backing the metal possess, we cannot imagine but prices to move up further on renewed buying interest.

The fundamental backdrop of the metal is much more pronounced unlike other metals, in which investment interest seems to have a considerable bearing on prices.

Hostile weather conditions are mainly to blame for the deficits in the markets. PT Timah, the largest tin miner, located in Indonesia had reported its 2010 production at 40413 tonnes, down over 11 percent from 45086 during 2009. The miner estimates production to fall further to between 37000-40000 for 2011.

The production disruptions persisted when demand for tin kept rising. Global demand for tin rose 11.8 percent, of which China accounted for 44 percent, recording a rise of 11 percent during 2010. The increasing need for tin to replace lead for soldering has also exacerbated the demand push, taking prices towards $38200 per tonne at LME as opposed to $10000 per tonne during early 2009.

The mining ban in the Republic of Congo in effect from September 2010 also contributed to the pinch in the markets. The ban was lifted recently; however, the US ‘Conflict Minerals Act’, which requires mining companies in the region to disclose Securities and Exchange Commission activities involving mining of certain minerals, is likely to keep the situation tight.

Additionally, the crack on illegal mining and mining regulations has curbed the production as well in Indonesia. Fanatical effort from China to reduce the energy consumption has also helped to cap production of the metal. China has already placed production caps for many metals at 8 percent per year for many base metals including tin.

As for the factors that might ease the current market condition, the biggest one would be the Chinese participation, China being the biggest consumer of the mineral. Chinese monetary tightening is definite to affect tin prices in the coming days. Further tightening is likely to be in the country’s policy pipeline, especially with the latest inflation numbers of the country warranting rate hikes.

Tin prices shied away from the highs it scaled earlier during the year following the selloff in commodities prices, Chinese monetary tightening fears and long liquidation. Better weather conditions in also led to a 37.6 percent rise in exports from Indonesia, which brought more metal into the market. However, the deficit is largely expected to be in place in spite of these developments. Analysts continue to advocate prices of tin to rise further towards fresh highs.

Tin, at LME, fell during last week to close at $28548 per tonne, recording a fall of just over 4 percent during the time.

U.S. factory, services revenue to rise in 2011: ISM - Reuters

The U.S. manufacturing and services sectors will continue to grow this year as revenues rise, but prices for materials are seen climbing further, according to an industry forecast released on Tuesday. The Institute for Supply Management in its semi-annual forecast found purchasing and supply executives expect manufacturing revenue will rise 7.5 percent this year. That is modestly slower than the 7.9 percent rise seen last year.

Revenue in the non-manufacturing sector, which comprises mostly service sector businesses, is expected to be up 2.1 percent, topping 2010's gain of 0.2 percent.
"Much of manufacturing has emerged from the economic downturn and is experiencing significant growth," Norbert Ore, chair of the ISM Manufacturing Business Survey Committee, said in a statement.
Executives said they now expect prices for materials to be much higher than previously thought, rising 7.4 percent in the manufacturing sector and 4.7 percent in non-manufacturing.

In the December survey, prices had been predicted to rise 4 percent for manufacturers and 3.1 percent for non-manufacturers.
Firms said they had already seen a sharp rise in prices in the first four months of the year. Manufacturers reported prices had increased 6.1 percent as of April, while in the service sector prices were up 4.1 percent.
The recent surge in energy and commodity prices has crimped companies wary of passing on higher prices to frugal shoppers, but most economists expect the impact of price increases will be temporary. Oil prices have backed off in recent weeks, falling from almost $115 a barrel in early May to about $96 on Tuesday.

Manufacturing sector capital investment is forecast to rise by 17.9 percent in the year, while non-manufacturing capital investment is expected to rise 1.4 percent.
Employment was predicted to provide support, rising 2.9 percent among manufacturers and 0.9 percent among the service sector.
"The positive forecast for revenue growth and improved employment will drive the continuation of the recovery in the sector," said Ore.

Selasa, 17 Mei 2011

Quantitative strategy for Indonesia - JP Morgan

The goal is to bias stock selection towards cheap, successful, quality companies with
solid earnings, and away from expensive, poor quality, unsuccessful companies with poor earnings. The higher the company scores, the higher the expected return (or Alpha) relative to the considered universe. Profit revision strategies are working well; buy top quartile of EPS revisions and sell lower quartile.

Indonesian stocks with overall Q-score greater than 75%
1. Bank Rakyat Indonesia – 95.9%
2. Indo Tambangraya – 92.2%
3. Gudang Garam – 91.5%
4. Astra International – 79.7%
5. Tambang Batubara – 78.9%

My take – among the mid to small cap, sectors that may feature highly in terms of earnings revision this year could be property and construction sectors. The Bakrie sector may also feature highly by 2H11, driven by debt reductions (that is yet to be factored into consensus revision).

INDO COAL: less downside risk from here on; time to relook at ADRO, ITMG? - BoA Merrill Lynch

Score card for our 7 February 2011 note Indo coal 2011 and beyond:
1. We have advised clients to enter Indo coal after Indonesia's inflation and monetary tighetening measures peak out, effects from bad weather on prices are normalized, & earnings are adjusted downward. We had kept our Buy rating unchanged, but highlighting clients to look for better buying opportunity (or buy on weakness).
2. For Indo inflation, we have seen 2 months of deflation and government has pushed back the fuel subsidy rationing indefinitely (although we may see inflation rise again closer to Ramadhan)...I/R has been kept unchanged since Febr...
3. Coal price has dropped from US$138/t down to US$123/t. We now no longer see much downside in coal price.
4. We have seen quite massive downgrade in Indo coal names by the Street post 2010 FY result in March and April....With a strong 1Q numbers (which supposedly the lowest for the whole year), we see minimal downside on earnings....
5. YTD SAR, BUMI outperforming the JCI by 12%. PTBA, ITMG, ADRO, INDY underperform the JCI by 10%, 12%, 14%, 16% respectively.
6. SAR has outperformed because: 1) they finally got the final forestry permit and 2) 1Q numbers beat expectatio. We upgraded SAR a month ago on these reasons and our rising confidence on SAR mgmt for giving better guidances moving forward.
7. BUMI (Neutral) has outperformed because of market's expectation on turnover after Vallar deal...But To us, risk reward not enough...Our calculation upside no more than 10%...FY10 results still saw high debt despite company's saying of debt reduction ahead of the results. Numbers beat consensus but it's below the operating profit line....

Now, we no longer think much downside in coal price. We think seaborne coal price looks pretty stable, at US$123/t:
1. China has come back to the market...The offering price by them has shot up by up to US$10/t in the last two weeks. Its up to US$96/t for 5000kcal NAR coal, or US$115/t on index basis, but the ash content is likely at ~20% vs. index quality of <12%. It could be over speculation by traders (who dominate China coal import) ahead of hot summer, but the momentum seems to be just starting.
2. The pricing arbitrage with Aussie coal not yet opened. Still another US$10 gap but it continues to narrow, with Chinese coal prices continuing to rise.
3. Japan pricing for Indo coal still quoted at US$130-136/t (factoring in pricing advantage for low freight rate/ash content). It seems some of the coal mines have been over committed for delivery ahead of the Japan tsunami, softening the blow for coal price correction. Since one coal owner can own more than one mine, he/she is able to arrange the coal alllocation strategically to one buyer from different coal mines.
4. There are talks that 2 of the 4 JPUs impacted by the tsunami (Joban and Tepco) will resume operation by July/August.
5. But be warned pricing volatility still seen in 3Q: traders could overspeculate on China demand for the summer; China inventory de-stocking, and recall coal supply tend to be the highest (except in 2010).
6. Topping all of these, our Australian strategist Tim Rocks think there is a possibility for AUD to head $1.5 over three years if US interest rates stay near zero for an extended period and this causes a surge in investment into Australia from central banks, sovereign wealth funds and the private sector.
7. We still see coal price to rise in 4Q driven by seasonality.
8. Our forecast for 2012 JFY price is US$129/t, but we see upside risk to our numbers.

How do you play into Indo coal names:
1. Stick with NPV to look beyond the current phase of pronounced volatility to seek long term growth!
2. We have used DCF up to end of contract life or reserve liefe (whichever is faster) to value all Indo coal companies, with the exception of BUMI.
3. Our pecking orders: SAR, ITMG, and ADRO are still trading at 5-12% discount to NPV. Share prices tend to overhoot NPV when coal prices rise.
ITMG, ADRO the underperformer can surprise on the upside!! We believe for these two to perform, you need to feel assured that coal price is bottoming.....
4. Look out for some consolidation story plus big dividend....Most companies, barring BUMI are now sitting on huge cash piles. Even ADRO, it can still raise US$2.5bn in problem, before they have to raise any equity in the case of any acquisition potential. In any case, market talks there is one relatively sizeable coal asset up for sale now......

What happened with coking coal:
1. We see more downside risk compared to thermal coal. More sensitive to China's FAI and we havent seen much correction post Queensland....
2. In any case, we still like BORN, the premium HCC producer. We believe premium HCC will be prioritized over semi soft/PCI as buyers in such tight capacity will allow zero tolerance of operation failure...
3. Indeed premium HCC price still stands firm at US$320/t....

Equity Research - Asia Indonesia strategy : Criteria for stock picks - Deutsche Bank

A favorable confluence of events The investment surge has already resulted in record-level job creation. The four-fold increase in the upper-middle income population since FY03 has made this consumer group very relevant. The doubling in sales of disposable diapers and of 50g cheese last year, plus the six-fold rise in imported boxed beef in the past five years, are just a glimpse of that impact.
Strongly rising credit (likely to triple in the next five years) should further fuel this robust growth. The recent inflation scare is a distraction that does not affect the structural growth trajectory. Indeed, we think the market has no
again in the next five years. We reaffirm our 4,500 12-m index target.

Key criteria for stock selection As Indonesia evolves and breaks aggressively away from the "lost decade", there are multiple dynamics to consider, and we have refined our thoughts into four themes and pitfalls to avoid with regard to stock selections:
Avoiding pitfalls : Oligopoly structures will, for the first time, be threatened by competition as investment surges and access to capital become cheaper and easier. Some companies could see margin and valuation compression.
Pricing power and earnings leverage: Companies with such attributes are well positioned to capture the fast-growing consumer wallet.
Credit surge: The tripling of credit in Brazil and India in the past six years will likely play out in Indonesia. The synthesization of underleveraged quadruplets - households, corporates, banks and government - means that any businesses that participate in credit and/or its supply chain will do well.
Rupiah needs to track Yuan? The strong rise in FX reserves, due to FDI and current account surplus, means that Rp direction in combating inflation is very much in BI's hand. We expect BI to tag Rp appreciation to its peer exporters, especially China, given the labor-intensive nature of the manufacturing sector.
Stock selections based on our four themes
Mid/small caps: ICBP, GJTL and APLN
Caveat emptor - rising oil price
The impact of a rising oil price looks to be manageable at the fundamental level. Indeed as FX reserves rise has doubled that of portfolio inflow, this helps Rp stability and contains the risk. However, a misperception risk exists; the market may draw parallels to the events in FY05 and FY08.
As such, we would monitor the bond prices as a leading indicator for sentiment change (see pages 22-23).

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