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Kamis, 14 Juli 2011

PT Bank BJB Tbk Sitting On The Biggest Province PT BAnk BJB Tbk - AAA

Sitting on the biggest province by size of economy with low loan penetration, Bank BJB future loan growth is still robust. Expansion to micro will drive ROE to over 22% in 2011F and 26% in 2012F. BUY

± 1Q11 Results, 24% yoy Bottom Line Growth
In 1Q11 Bank BJB net profit up 24% yoy to Rp260 billion, driven by lower provisioning expense, -29% yoy. On the upper line, net interest income fell 1% yoy to Rp665 billion as interest expense grew faster 16% yoy than interest income 40% yoy. Higher interest expense growth was more caused by bank’s bond issuance in January 2011 amounted Rp2 trillion. Proceed will be used for loan expansion thus better upper line performance in 1H11 should be seen.

± Gaining More Market Share
Looking at Bank BJB loan market share to WJ & Banten total loan, Bank BJB’s competitiveness is increasing; it gained more market share in 1Q11 to 13.1% as loan grew 29% yoy, higher than other players which loan only up 25% yoy. Going forward we believe Bank BJB with good loan performance in terms of market share coupled with loan penetration to WJ and Banten’s GDP only stands at 2.5%, Bank BJB strong future growth is warranted. For the full year of 2011, we estimate the bank’s loan growth at 29% yoy spurred by higher growth on micro loan.

± Assets Quality Should Improve on Bigger Loan Collection Workforce
Bank BJB NPL was increasing in from 0.7% to 1.9% in end FY10, and again up to 2.4% in 1Q11, highest level in the bank’s own history which was due to lack of collection workforces however to cope with the problem the bank will use DSA which we see is positive to tame down NPL below 2% this year.

± Valuation, TP Rp1,500 - BUY
We initiate coverage on Bank BJB with TP of Rp1,500 per share that derived from Gordon Growth Methodology. Our TP reflects 2.7x/2.3x PBV FY11F/FY12F. Currently the bank’s share is traded at 2.1x PBV FY11F, far below its FY10 valuation when it traded at 2.8x PBV at a time when full year 2010 net profit grew 25% yoy vs FY11F net profit growth of 34% yoy. BUY.

Strategy Alert - Key takeaways from BI July conference call - Deutsche

BI hosted a conference call yesterday and some of the points are as follows.
Inflation Overall, BI remains comfortable with current level of inflation. BI views that Rupiah appreciation is still one of the most effective tools in keeping inflation at bay. Current level of credit growth has not caused concerns for inflationary pressures. BI maintains inflation target of 5% +/‐ 1% in FY11E.

Capital reversal risks BI rate has been unchanged at 6.75% since February and most likely to remain so for the near term. As part of mitigating risks of capital reversal, BI has the alternate option to increase reserves requirement ('RR') in lieu of a rate hike. BI reiterates that despite the option of increasing RR always being open, the extent of how much it should be raised is yet to be determined. We have indicated that a 200‐300bps increase in RR to 10‐11% of deposits is not unrealistic and should not derail loan growth. We estimate earnings risk to average 0.1‐2% in 2011E and 0.2‐4.3% in 2012E of our base‐case earnings projections. Moreover, earnings implication could be lower given that some banks may have allocated higher reserves than required. In addition, BI's participation in the open bonds market should not be a concern as it will not complicate the already high liquidity in the system.

FX reserves reached US$119.6bn in June, equivalent to about seven months of imports and servicing of official external debt.

Credit expansion and interest rates Overall loans grew 23.5% YoY in June. About 30% still represents investment lending. According to BI, about 40.8% of banks' lending committed to infrastructure has been realised, despite the state's capital spending only reaching 16.7% of infra budget. This is a small anecdote yet a telling progress of expansion in infrastructure.

Furthermore, BI sees that declining trend in interest rates may continue in the near term. This has become evident as working capital lending rate has come down 102bps for the past 12 months. BI views that once prime lending rate disclosure becomes more efficient, that in itself will boost competition.

Budget realisation In 1H11; Revenue: 45.5% of FY11 budget, Expense 37% (vs 35% last year). International tax revenue is 200% more than budgeted due to impact from higher CPO price in early 2011. Non‐tax revenue rose mostly on rising comodities' prices such as oil and coal.

Astra Agro Lestari - Production Growth Decelerating Towards Normalcy - Citigroup

Production growth decelerating, but it was expected — For the first five months of the year, we saw AALI delivering strong production performance (+29% YoY). However, based on AALI’s latest June 2011 operating statistics, as shown in Figures 1, 4 and 8, we have started to see the pace of growth slowing, providing a possible indication of growth normalizing. This also suggests that going forward, although we still expect positive growth in 2H (given seasonality where 2H is typically a stronger production period than 1H), we also expect CPO production growth to continue tapering to our growth expectations of 5% YoY (1,168k tons) by year-end, especially if we take into account: a) the low base in 1Q10, b) production recovery in August 2010 and c) October 2010 peak production.

CPO demand should remain firm — Despite our expectations of better production performance in 2H11 vs. 1H11 (on the back of seasonality), we are optimistic that the upcoming festivities (Ramadan/Idul Fitri/Diwali, etc) should help keep CPO demand robust. AALI’s historical performances indicate that in most cases, AALI managed to sell almost 100% of whatever it produced (Fig. 9). We don’t expect the trend to deviate any time soon given a) 80-90% of CPO globally is still for food purposes and b) CPO is still the cheapest edible oil.

CPO price trend — CPO prices slipped by 3% over the last 2.5 weeks to US$1,004/t. The decline in CPO prices is within expectations as we had expected CPO prices to weaken in 2H11 versus 1H11. We maintain our average CPO price assumption of US$1,050/t for 2011, which is still higher than 2010’s average CPO price of US$856/t.

Maintain Buy (TP: Rp29,320) — Higher CPO prices in 2011 (vs. 2010) supported by ongoing improved volume performance (as reflected in its latest production stats), mean we remain optimistic on the outlook for AALI in 2011. Maintain Buy.

PT Indo Tambangraya Megah Tbk Higher Cash Cost Will Not Harm ITMG - AAA

Summary
Weak performance in 1Q11 will be compensated by higher up coming output and ASP. However we are expeting cash cost to increase, therefore reiterate buy wih lower tp from Rp61,800 to Rp57,400

± 1Q11 Result, Weaker Output but Stronger Margin on Higher ASP
Nevertheless ITMG’s net profit in 1Q11 at US$95 mn only represents 19.5% of our FY11F which considered to be low since ITMG 1Q10 net profit represented 30% of its FY10 net profit and also production output from ITMG biggest mine Indominco was 600,000 ton, below company’s target at 3.7 mn ton due to heavy rainfall. ITMG still be able to book higher margin, net margin increased from 16% in 1Q10 to 20% in 1Q11, lifted by: 1) 20% increase in sales to US$486 mn due to 31% higher ASP to US$87.3/ton. 2) ITMG has successfully transformed its derivative from loss position in FY10 to gain position in derivative by US$9 mn due to gain on gas and oil fuel contracts in 1Q11.

± Catalyst for 2011
We expect better performance in 2011 and 2012 due to: 1) higher production output, Bharinto mine is expected to commence its production and will contribute an additional of 0.5 mn ton by the end of this year. 2) Demand for coal is tend to increase as China will increase its coal consumption by 10 – 12%. In addition, newly built Japanese port will boost its demand, since Japan is the largest ITMG buyer. 3) Higher efficiency, as Bontang Power Plant has started its operation. 4) ITMG’s good coal quality, with the range of 6,000-6,700 caloric value which will enable it to maintain its domestic and international demand, hence higher ASP. 5) Plenty of cash for future expansion in order to increase its resource.

± Valuation, BUY – New TP Rp57,400
Although with higher upcoming production volume and higher ASP, we are expecting higher cash cost. Thus we lower our TP from Rp61, 800 to Rp57, 400. Our TP implies PE 15.3.x FY11F. Currently ITMG is traded only at PE 13.8.x/10.4x FY11F/FY12F, which is traded at bargain as peers traded at PE 17.1.x FY11F/PE 13.1 FY12F. BUY

Bank update - limiting ownership? - CLSA

While Indonesian banks clearly stand out (see our Extreme banking report recently) and plenty of opportunities are present, there will be volatility from time to time.

One of these volatilities may have been presented itself yesterday in news headline that Bank Indonesia is planning to limit the stake of a single majority shareholder to below 50%. This proposed regulation would apply to both local as well as foreign shareholders AND may be effective retroactive as early as 4Q2011. The regulation will still need to be approved by House of Representatives and Investment Coordinating Board.

While this proposed regulation has been talked about for a while the surprise here is the retroactive part and that the regulation includes locals as well (there are 29 listed bank stocks out of 127 banks in Indonesia)

This also means that minority shareholders in banks being taken over in the future could be impacted as the tender offer threshold (50%) would be more difficult to reach. As such, minority shareholders may not enjoy mandatory tender offer upside in the future. Current potential M&A plays here include Panin Bank (PNBN), Danamon (BDMN IJ), and Bank Tabungan Pensiunan (BTPN IJ).

Perhaps worth reiterating the point that after the financial crisis in 1998, Indonesia has been one of the most open markets to foreigners. There has essentially not been any foreign ownership limitation in Indonesian banks. This is especially true if compared to our ASEAN peers.

Also not mentioned whether state-owned banks will be affected. Key here is implementation - would be extremely difficult, to say the least. We continue to like Indonesian banks for long term growth profile and “extreme” profitability matrix.

BCA and Bank Rakyat on the move, banking regulation - CLSA

Despite early comments from Bernanke speaking on the hill that the Fed would take action if needed (watch out for QE3, gold price rallied to record high), worries over Congress failing to raise the debt ceiling brought out sellers into the close last night.

And big day for banks in the US today; JP Morgan will report before the open. Market is talking about Dimon's commentary. He will likely rail against the politicians/regulators and talk about just how tough the bank business is in this environment. His outlook will be depressing.

In contrast to this, Indonesian banks clearly stand out. As discussed in our Extreme banking report recently (let me know if you would like to receive a copy), Indonesian banks hold fairly unique positions.

The story in the banking sector here is about expansion. Limited credit penetration, low leverage ratios, and high internally generated capital will support strong expansion.

Indonesia’s GDP-per-capita growth and ROA combined is greater than the rest of the region. With limited overlap of banks’ specialization, extreme ROAs can persist. We remain Overweight on Indonesian banks.

Domestically, it is worth pointing out that it is also interesting to note that Indonesian banks are getting more and more creative. For example:

1. Bank Rakyat (BBRI IJ) sets up a booth in our office complex’s courtyard in promotion of their gold investment (paid in installment up to 180 months with 15% down payment) and pawning products (under their Syariah Islamic unit). Free music is added to the mix and the booth certainly attracted crowd.

We also found out that BBRI recently launched a competitive mortgage product recently, with competitively low interest rates. For customers who are willing to take a mortgage with a relatively short tenure (5-years), the rate will be as low as 7.25% p.a. capped for five years, with a down payment of 20%.

2. BCA (BBCA IJ) has signed a deal that makes it the preferred bank of Nahdlatul Ulama in a move expected to boost its lending business with the country’s largest Islamic organization (70mn members nationwide). Smart move because BBCA does not have meaningful presence in rural areas, stronghold of Nahdlatul Ulama. This will potentially allow BBCA to build rural franchise without having to rely too much on physical presence.

On a separate note, as highlighted by Dewi from CLSA Jakarta research team, BBCA is also going to launch special mortgage program just before Hari Raya holiday. Interest rate could be as low as 7.5% for 1-2 years tenor. Definitely very competitive and highlight BBCA's new management aggressiveness

Bank Bukopin: Key takeaways from company visit (BBKP, Rp720, Not Rated) - Mandiri

􀂄 We visited Bank Bukopin yesterday and below are the highlights:
􀂄 Of the total Rp926 bn proceeds from the rights issue, all have been extended as new loans. As of Jun2011, loans estimated to reach Rp31tn (vs Rp26.3 tn as of Mar11). The company targets total loans to grow by 20-25% yoy this year to Rp36.2-37.8tn at end Dec11.
􀂄 At end Mar11, 53% of total loans were extended to SME segment, 39% to commercial and the remaining to consumer. The SME segment is divided into loans to Bulog (34%) with lending rate of JIBOR + 200 bps (or equivalent to 8.6%), loans to Micro segment (8%) with lending rate of 18-23% and the remaining to others. The company expects to maintain its exposure to Bulog at around Rp9-10tn (maximum or representing 24.9% of total loans), thus expecting NIM to improve going forward. In 1Q11, NIM was recorded at 4.3%. Please note however, that NIM (exclude Bulog) was only recorded at 4.7%, the lowest compared to its peers.
􀂄 As of Mar11, NPL remained high at 3.7% compared with 2.6% for BNLI and 1.9% for NISP. The bank claimed to have special division to deal with the bad debt, however the progress seemed to be quite slow.
􀂄 While the prospects should be better for the bank post rights issue (CAR improved to = 16.7% at end Mar11 which will allow it to grow its loans to higher yielding assets or non Bulog assets), we still prefer to wait for the 1H11 results to come out. The management indicated that the NIM in 5M11 only improved by 10 bps, which is considered low given its increasing exposure to non Bulog. We remained concern with the bank's strategy to improve NIM and bring down its NPL level.
􀂄 At current price, stock is traded at PBV 2011F 1.4x and PER of 9.1x based on consensus estimates. We have no rating on this counter.

Key takeaways from analyst meeting (ADRO, Rp2,525, Buy, TP: Rp2,800) - Mandiri

􀂄 Yesterday, Adaro held an analyst meeting with an interactive dialogue with top management includes Mr. Garibaldi Thohir (CEO of Adaro) and Ario Rachmat (VP Director of Adaro). It is followed by site tour today to Tutupan and Wara mine. Some key highlights from the meeting are as follows:
􀂄 2Q11 coal production will remain on track and is expected to be higher than 1Q11 production of 10.6Mt. We expect 3-4%qoq growth up to 10.8-11Mt, which will translate into around 21.6Mt production in 1H11, representing 45-46% our FY11F of 47Mt, considerably in line expectation.
Weather has been normal, and we expect production growth in 2H11F
􀂄 With regard on its 2x1,000MW power plant project in Pemalang, Central Java, worth US$3.5bn, Adaro made an attractive financing scheme through "equity bridging loan". It will only need 2 months EBITDA or around US$240mn(34% out of 20% equity portion from the consortium of JPower and Itochu) for Adaro's equity portion. The remaining 80% will be financed through debt without recourse term from JBIC, at a very low rate debt (learn from ANTM's CGA project, JBIC could finance at LIBOR+2%) and long tenor up to 25 years. Equity injection will start after it commences operation with expected 4 years construction. It will require 7-8Mt Wara coal. With indicated tariff of US$5.7cent/kwh, assuming 7,000hours operation in a year (80%utilization rate), it will translate into US800mn revenue. Financial closure is under finalising process and will be announced in August 2011.
􀂄 "Pit to power" business model will be Adaro's future key strategic plan to enhance its value supply chain and diversify its cashflow stream, benchmarking to Shenhua- fully integrated state owned mining company in China, that has huge market cap and attract a lot of global investor. Beside Pemalang project, Adaro is also eyeing 2 other power plant project in Banten and South Kalimantan. The main reason Adaro get into power plant business is to increase its Wara coal's competitiveness in seaborne coal market.
􀂄 Good progress on Maruwai project with BHP is that exploration permit has been obtained, but logistic-transportation remains the concern. The most efficient and effective cost option to carry out the coal is still under feasibility study.
􀂄 Adaro indicated that there will be 2 coal assets acquisition that will be announced soon sometimes in late 3Q11 or early 4Q1. Currently it's under finalising process.
􀂄 Currently we have Buy rating on the stock, ADRO is traded at PER11F-12F of 16.1x-2.4x.

Tambang Batubara Bukit Asam: Buy; Rp21,150; TP Rp25,750; PTBA IJ Preliminary 1H11 guidance - DBS

It was reported that PT Tambang Batubara Bukit Asam Tbk (PTBA) sales volume grew 44% to 6.5m tons in 1H11 and is targeting sales volume of 16.7m tons for FY11. The sales volume target is in line with our expectations as 2H11 is typically stronger than the 1H11. The company also guided that 1H11 earnings will grow by 65% y-o-y to Rp1.5tr on the back of volume growth as well as higher average selling prices. Given the strong 1H11 performance, PTBA’s President Director, Sukrisno is optimistic of achieving the company’s FY11F target. In the near term, PTBA is expected to improve its capacity via de-bottlenecking of railway capacity with additional locomotives and carriages. Maintain Buy and TP of Rp25,750 based on blended valuation of 15x FY12F PE and 5x P/BV.

PRESS RELEASE DELTA DUNIA COMPLETES RP. 1,222 BILLION (~US$142 MILLION) RIGHTS ISSUE

PT Delta Dunia Makmur Tbk (“DOID”) has successfully completed a Rights Issue, which raised gross proceeds of Rp. 1,222 billion (~US$142 million) through an offering of 1,358,082,372 of its common shares priced at Rp. 900 per share and carrying a par value of Rp. 50 per share (the “Rights Shares”). The Rights Shares equal 16.7% of DOID’s issued and paid up capital after the Rights Issue. The Rights Issue was fully taken up by existing shareholders and when calculating requests for additional shares from existing shareholders (over allotment) the Rights Issue was 1.2x subscribed. Therefore, there were no remaining Rights Shares purchased by Northstar Tambang Persada Ltd as the standby purchaser.

The proceeds from the Rights Issue will be used to fund capital expenditures and working capital at DOID’s primary operating subsidiary, PT Bukit Makmur Mandiri Utama (“BUMA”), inorganic growth by DOID through potential acquisitions and general corporate purposes.

Credit Suisse (Singapore) Limited and Mandiri Sekuritas acted as financial advisors while Milbank, Tweed, Hadley & McCloy LLP and Melli Darsa & Co acted as legal advisors for the Rights Issue.


Jakarta, 13 July 2011

For and on behalf of
PT Delta Dunia Makmur Tbk
Cyber 2 Tower 28th Floor, Jl. H.R. Rasuna Said Block X-5
No 13, Jakarta 12950, Indonesia
Phone: +62-21-2902-1352 Fax: +62-21-2902-1353
Email: ir@deltadunia.com website: www.deltadunia.com



PT Delta Dunia Makmur Tbk
DOID was established in 1990 and through its primary subsidiary, BUMA, is one of the largest coal mining contractors in Indonesia, based on production volumes. As of March 31, 2011, BUMA operated a fleet of 2,046 units of heavy equipment used in coal mining, including excavators, dump trucks, bulldozers, drillers and graders. BUMA has three key customers, namely PT Berau Coal, PT Adaro Indonesia and PT Kideco Jaya Agung, which contribute significantly to DOID’s net revenues. As of and for the year ended 31 March 2011, DOID had net revenues of Rp.1,551 billion, operating income of Rp. 176 billion and assets totalling Rp.7,711 billion. DOID is listed on the Main Board of the Indonesian Stock Exchange (IDX ticker: DOID). DOID is headquartered in Jakarta, Indonesia.


Rani Sofjan/Andre Soelistyo
Investor Relations
PT Delta Dunia Makmur Tbk.

Bukit Asam 1H coal sales up 44% - Insider Stories

The state-controlled PT Tambang Batubara Bukit Asam Tbk (PTBA) is estimated to post 6.5 million tons of coal sales in the first half of this year, a 44.4% increase from 4.5 million tons a year ago.

In line with the sales growth, the company's revenue may surpass Rp5 trillion in 1H 2011, a 31.93% increase from Rp3.79 trillion in 1H 2010.
President Director Sukrisno said the company may book Rp1.5 trillion net profit, a steep jump of 65.18% from Rp908.11 billion.

As a result, he is optimistic that Bukit Asam may reach its net profit target of Rp3 trillion by end of the year from 2.01 trillion last year. "Revenue is targeted to reach Rp11 trillion."

China to be top coking coal importer – consultant - MarketWatch

China, until recently a net exporter of coking coal, is set to become the world's biggest importer of the steelmaking ingredient by 2015, causing "dizzying" upwards pressure on prices, a Brazil-based coal industry consultant told Dow Jones Newswires.

"Five years ago, China was a net exporter of coking coal, and about three years ago started to import small tonnages, such as 4 million to 5 million tons a year," said Luiz Sarcinelli, a Rio de Janeiro-based coal consultant with Sage Consultoria Tecnica Ltda. "But now, China's importing 40 million tons a year and could overtake Japan, which imports around 100 million tons, in 2015, to become the world's biggest importer."

China-led demand may cause coking coal prices to spiral higher over the next five years due to supply limitations, according to Sarcinelli. China-led demand has already prompted a sixfold price increase over the last decade to about $330 a ton, according to another Brazil-based consultant, Otacilio Pecanha of Negotiare Consultoria.

China is the world's biggest producer of coking coal, producing more than 400 million tons a year, but that isn't enough to satisfy the needs of its growing steel industry. Last year, China produced 626 million tons of crude steel, almost half the global output of 1.413 billion tons, according to the Brussels-based World Steel Association.

Analysts at CRU Group and Barclays Capital expect China's crude steel output to leap this year to between 700 million and 750 million tons and to 812 million tons in 2015. Steel demand is seen topping 1 billion tons a year by 2016, as the Asian giant rapidly develops urban areas. Steel output at this level would require coking coal availability of at least 500 million tons a year.

"Imports of coking coal and iron ore into China could double by 2020," said CRU Group's Beijing-based chief executive, John Johnson, at a recent industry event.
"And even if China doesn't produce as much as 1 billion tons a year of steel, its coking coal demand will go up as it replaces older works with bigger, more modern blast furnaces whose productivity depends on use of higher-quality coking coal, which also helps to reduce carbon emissions," Sarcinelli said.

China's Ministry of Industry and Information Technology this week announced plans to shut 27.94 million tons of outdated steelmaking capacity in 2011.
Barclays Capital said that it "remains skeptical on China's ability to shut down steelmaking capacity, as capacity has continued to grow an estimated 11% a year between 2005 and 2011." However, China's smaller furnaces have been replaced with large ones that use more coking coal, Barclays' analysts said in a research note.
"The coking coal market's starting to get unbalanced," Sarcinelli said. "Steelmaking is growing faster than coking coal output, particularly in China, India and Brazil, which are countries deficient in coking coal. Supply's not going to match demand."

Fuller economic recovery in the U.S. and Europe will also put pressure on available coking coal supplies, as steelmakers boost output to meet recovering demand, he said.

"The U.S hasn't got much chance of raising its coking coal output," Sarcinelli said. "The three new horizons in coking coal production globally are in Australia's Belvedere region, in Mozambique and in Mongolia."
Mining companies Vale SA (VALE, VALE5.BR) and Rio Tinto PLC (RIO, RIO.LN) are expanding coal operations in Belvedere and in Mozambique.

Mongolia's government last week said it is negotiating accords with groups including the U.S.'s Peabody Energy Corp. (NYSE:BTU) , China's Shenhua International Ltd. (SHU.AU) and a Russian-Mongolian consortium to develop the country's massive Tavan Tolgoi coal deposit, which has estimated coal reserves of 6.4 billion tons, of which 1.8 billion tons are known to be coking coal.
"An important part of future coking coal supply will come from Mongolia," Sarcinelli said.

Rabu, 13 Juli 2011

Bernanke: Fed would supply more stimulus if needed - AP

WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke said Wednesday that the central bank is prepared to provide additional stimulus if the current economic lull persists.

Delivering his twice-a-year economic report to Congress, Bernanke laid out three options the central bank would consider.

Bernanke said the Fed could launch another round of Treasury bond buying, the third such effort since 2009. It could cut the interest paid to banks on the reserves they hold as a way to encourage them to lend more.

The Fed could also be more explicit in spelling out just how long it planned to keep rates at record-low levels. That would give investors confidence about the Fed's efforts to continue supporting the economy.

Stocks jumped after Bernanke signaled the Fed's willingness to take more steps to boost the sluggish economy. The Dow Jones industrial average rose 139 points in early-morning trading and broader indexes gained.

Bernanke maintained that temporary factors, such as high food and gas prices, have slowed the economy. He said those factors should ease in the second half of the year and growth should pick up. But if that forecast proves wrong, he said the Fed is prepared to do more.

"The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support," Bernanke told the House Financial Services Committee on the first of two days of Capitol Hill testimony.

Bernanke also said it was possible that inflationary pressures spurred by higher energy and food prices may end up being more persistent than the Fed anticipates. He said that the central bank would be prepared to start raising interest rates faster than currently contemplated, if prices don't moderate.

Bernanke's comments about inflation spoke to concerns expressed by some regional bank presidents at the Fed. The have criticized the Fed's bond-buying program, saying it has increased the risk for higher inflation.

The Fed has kept its key interest rate at a record low near zero since December 2008. Most private economists believe the Fed will not start raising interest rates until next summer. And some say the Fed won't increase rates until 2013, based on the slumping economy.

Bernanke was testifying after the government released a dismal jobs report last week.

The economy added just 18,000 jobs last month, the fewest in nine months. And the May figures were revised downward to show just 25,000 jobs added -- fewer than half of what was initially reported. The unemployment rose to 9.2 percent, the highest rate this year.

Companies pulled back sharply on hiring after adding an average of 215,000 jobs per month from February through April. The economy typically needs to add 125,000 jobs per month just to keep up wiht population growth. And at least twice that many jobs are needed to bring down the unemployment rate.

At the June meeting, the central bank lowered its economic growth forecast for the second half of the year and said unemployment wouldn't fall below 8.6 percent this year.

The Fed also agreed at that meeting to end on schedule its program to boost the economy through the purchase of $600 billion in Treasury bonds.

The bond-buying program was the Fed's second round of "quantitative easing." That's a term economists use for a tool the Fed can use to drive down long-term interest rates by purchasing Treasury bonds.

Kinerja Timah diprediksi melonjak - Bisnis

JAKARTA: PT Timah Tbk memperkirakan kinerja usaha perseroan pada paruh pertama tahun ini meningkat seiring adanya lonjakan harga jual rata-rata selama semester I/2011. Direktur Utama Timah Wachid Usman mengatakan harga jual timah rata-rata pada 6 bulan pertama tahun ini naik 31,58% menjadi US$25.000 dari periode yang sama pada tahun lalu US$19.000.

Selain itu volume penjualan perseroan sampai Juni 2011 diperkirakan mencapai 18.000 ton. Jumlah ini sedikit turun dari volume penjualan tahun lalu sebesar 19.000 ton.
“Volume penjualan pada semester I/2011 sebesar 17.000 ton – 18.000 ton, semester I tahun lalu 19.000 ton. Tapi harga jual rata-rata per Juni 2011 naik jadi US$25.000, tahun lalu hanya US$19.000. Dengan adanya kenaikan harga jual, pendapatan sepertinya naik, dan laba juga akan terangkat,” ujarnya usai BUMN Executive Breakfast Meeting, hari ini.

Dia juga mengatakan pada akhir tahun ini volume produksi dengan volume penjualan diharapkan sekitar 40.000 ton. Sementara pada akhir tahun lalu volume produksi perseroan mencapai 40.413 ton.

Wachid menjelaskan penurunan produksi perseroan diperkirakan terjadi karena tingginya penambang liar di tambang darat. Rencananya, untuk mendongkrak produksi perseroan akan mempercepat produksi di tambang laut.

Copper's Next Target $11,000: Charts

The movement in the copper price is used as a leading indicator of economic development because it reacts more quickly to changes in industrial demand. Several other industrial metals also react quickly to changes in demand, and this includes tin and nickel. Tin is used in many manufacturing processes. Nickel is an additive to more advanced metal production.

In April 2011 the London Metal Exchange copper price activity developed a small head and shoulder pattern. This is usually an up trend reversal pattern. This small pattern suggested a retreat in the copper price, but not a significant change in the trend. The downside target for this pattern was near $8,300 per metric ton. The pattern failed to develop fully and the price fell to a low of $8,550 before rebounding.

The copper [HGCV1 4.429 0.0375 (+0.85%) ]price rebounded and developed a small consolidation with resistance near $9,200. The last two weeks have seen a powerful rally above the $9,200 resistance level. This is also a break above the short-term downtrend line. This signals a continuation of the uptrend. It also signals a resurgence of economic growth.

The failure of the head and shoulder pattern is confirmed with a price move above $9,800. This is the value of the high of the right shoulder of the pattern.

The strength of the long-term up trend is confirmed with the behavior of the long-term group of averages in theGuppy Multiple Moving Average (GMMA) indicator. This indicator tracks the behavior of investors and the behavior of traders. The long term GMMA did not compress significantly when the copper price fell from $10,100 to $8,500. This indicated that investors were buyers in the market. They used the weakness in the copper price as an opportunity to buy more contracts at favorable prices because they believed the long-term price would be higher.

If the long-term GMMA had developed significant compression it would show investors had become sellers, and this would have contributed to a stronger downtrend development.

The initial upside resistance target for copper is near the previous high at $10,100. Currently there is no price or chart pattern development that allows for the calculation of the upside target above $10,100.

The small support resistance level near $9,200 provides a limited guide to the breakout above $10,100. This suggests an upside target near $11,000. The $11,000 target is used as a guide. It is confirmed with the development of new price activity as the market moves towards $10,100.

This same style of trend breakout pressure is also seen with the Nickel price traded on the London Metals Exchange. This is a strong breakout from the downtrend and has a resistance target near $25,000 per ton, up from the current $23,500 level.

The tin price traded on the London Metals Exchange is in the early development stages of a parabolic up trend with initial target around $30,000 a ton, up from the current $27,500 level.
The upward pressure in these associated industrial metals gives an early indication of a stronger global economic recovery but these charts do not provide an indication of the location of the recovery.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com . He is a regular guest on CNBC's Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

United Tractors: Buy; Rp24,600; TP Rp25,700; UNTR IJ To acquire two more coal mining - DBS

United Tractors (UNTR) through its subsidiary Tuah Turangga Agung (TTA) has signed conditional sales and purchase agreement (CSPA) to acquire 60% stake of Duta Sejahtera (DS) for US$11.5m. Based on the agreement, TTA also has option to acquire 60% stake in Duta Nurcahya (DN). DN and DS are estimated to have combined reserves of 25-100m tons with calorific value of 6,000-6,300kcal (adb). This acquisition will be financed by its recent Rp6tr (US$600m) rights issue and UNTR has also set aside up to US$270m (45% of RI proceeds) to acquire coal mines.

UNTR recently announced the plan to acquire 20% stake of Bukit Enim Energi (BEE) worth US$21m for 110m tons of reserves with CV of 4,500-6,000kcal (adb). UNTR also plans to acquire 30% stake of Asmin Bara (AB) with options to increase its stake to 60%. AB has 61m tons of reserves with CV of 5,800 – 6,900kcal. Taking into account the acquisition of DS, DN, and AB, we estimate UNTR will increase its coal reserves to up to160m tons from only 50m tons. We believe this is consistent with its grand strategy to increase the contribution from its coal mining business from less than 10% of revenue to as much as 30%. Maintain Buy, TP of Rp25,700/share.

Economy BI kept policy rate unchanged at 6.75% yesterday. We suspect that monetary tightening will become a more pressing issue by 4Q - DBS

In line with market and our expectations, the central bank (BI) kept its policy rate unchanged at 6.75% yesterday. Indonesia is currently in a sweet spot with declining headline inflation amid robust economic growth. Moreover, the long-delayed hike in fuel prices looks unlikely to materialize this year as the government appears more intent on keeping inflation low through higher allocation to fuel subsidies. Accordingly, this implies that headline inflation is likely to grind lower through the rest of the year, allowing BI more leeway to hold off on monetary tightening. As such, we also see downside risks to our 6.7% inflation forecast as well as our call for 3 more 25bps rate hikes for the year.
Beyond the short term, demand-pull inflation will become an issue, necessitating further increases in the policy rate. The strength of the Indonesian economy is apparent and growth momentum has and will continue to be strong in the coming quarters. By keeping borrowing costs low and fuel prices depressed, the economy may soon be in danger of overheating if monetary tightening is not resumed. To be sure, core inflation has been ticking up steadily, along with the concomitant uptrend in loan growth and money supply growth. While these are signs of growth in the economy, they also herald higher inflation down the line. We suspect that monetary tightening will become a more pressing issue by 4Q11.

Construction - On course - CIMB

Contractors are on course to deliver their growth promises, judging from projects on hand which have doubled by May 11, supported by accelerating GDP and speedier disbursements of government funds. Improving margins and balance sheets are their two other appeals. Delays in Indonesia's land-reform law, however, have tempered sentiment, arguably behind the sector's recent underperformance, except for Total, by some 2%. Our Overweight position remains underpinned by: 1) unchanged growth expectations of 26% CAGR for 3-year earnings; and 2) undemanding valuations, at 30-40% discounts to the market. We have realigned our picks, favouring Total over Adhi for the former's sharper turnaround and Wika for its diversification. PTPP remains the sole Underperform, on balance-sheet risks.

Indonesia Macro Flash BI Remains on Hold; Appears More Dovish - Citigroup

 The BI rate was kept on hold — BI kept the policy rate at 6.75%, after core inflation stabilized in June (4.63%YoY) and the headline dropped to 5.54%YoY, from previously 5.98%. This is consistent with our expectation and consensus. In the monetary policy statement, BI revised up its economic growth expectation to 6.3% – 6.8% in 2011 and 6.4% - 6.9% in 2012. The midpoints for these forecasts are up by 30bps from their April forecasts.

 Despite better GDP growth expectations, there doesn’t appear to be added concerns over inflation — BI even sounded more optimistic in the monetary policy statement, stating that inflation could be “lower than expected” in the absence of administered price changes and smooth food supply distribution. BI expects a more balanced composition of economic growth going forward (with a growing role of investment). Indeed from 1Q11 GDP data, we saw that machinery investment has been picking up; and such trend may continue to result in noticeable capacity increases in a number of manufacturing-based industries. We expect this could eventually help to reduce Indonesia’s output gap.

 BI also maintained its relaxed language on currency appreciation — With the appreciation being still “in line” with regional trends, the impact on exports is still expected to be benign. Meanwhile foreign reserves increased further in June to
$119.7bn (6.8 months import and short term external debt cover) indicating a continued balance of payments (BOP) surplus. The BOP surplus appears to have eased though, as June experienced a reduction in SBI holdings by non-residents (as the statutory holding period was lengthened from one to six months).

 Although rate hike prospects seem more distant, we are still not ruling out the possibility of BI hiking by another 25bps this year — Oil prices have come down lately amid continued global growth uncertainties. However our estimate of the gap between the subsidized fuel price and its market price is still close to around 84% as of end June. We think that unexpected inflation stemming from subsidized fuel supply scarcities or uncoordinated rationing (in the event that the fuel sales quota is used up fast), still represents a risk worth looking out for towards the end of the year. As reported in 2011 mid-year budget revision discussions, the quota for subsidized fuel sales will likely be increased by only 5%.

 Market faced turbulence, but is likely due more to external factors — The BI rate decision was widely expected. However in mid-day trading, the rupiah weakened slightly against the dollar and the 10-yr bond yield increased by around 10bps from yesterday’s close to 7.36% amid deepening Eurozone concerns. In spite of this we continue to like the IDR and, with BI cognizant of core inflation pressures, we believe BI will continue to be tolerant of further IDR appreciation. We expect the IDR to trade in the range of 8,400 to 8,500 in the coming months.

United Tractors (UNTR IJ) announces latest coal acquisition by Sarina Lesmina - CLSA

· ‪UNTR acquired 60% of PT Duta Sejahtera (DS) through a subsidiary TTA with US$11.5m. The acquisition also included an option to acquire 60% stake in another mine, Duta Nurcahya (DN).

· UT mentioned a total reserve of 25 to 100m tonnes of 6,000-6,300 kcal.

More details:

1) DS mine has reserve of close to 10m tonnes. Green field, although already obtained the permit to mine forest (ijin pinjam pakai hutan produksi). The US$11.5m is to buy 60% stake in DS, which works out to be US$1.9 per tonne reserve. This we think is still a reasonable pricing. UT gave a rough guidance of a max US$3 to 4 per tonne acquisition cost, based on past transactions.

2) DN is the bigger mine, hence UT gave a range of 25m to 100m tonnes reserve , depends on determination on the strip ratio. This deal opens oppt for UT to buy stake in DN, but of course, price is unknown at this moment.

3) This confirms our view that coal assets are hot items now, which enables seller to sell at piece meals. (Recent acquisition of Bukit Enim 100m tonnes reserve at 20% stake, asmin asset bought at 30% stake but UT is negotiating to buy another 30%). UT is aware of this and we believe the company will try not to overpay the assets. Rough ceiling from UT is US$3-4 per tonne based on past acquisition.

4) DS and DN are located next to each other, north of TTA about 40km. DN's license is under process. UT said there is already some production (small) coming out of DN.

5) Both mines belong to a local owner. Non-related party.

Astra International (ASII IJ), The Road to US$50bn - CLSA

Sarina has just written a big report on Astra International (ASII IJ). The stock has been more than 60 baggers since 2001, massive value creator. Strong management and CG practice. Current market cap is US$31bn and Sarina is looking at US$50bn market cap by 2015 (although she downgrades ST recommendation to OPF due to recent stock outperformance). CIO report is attached, please let me know if you need the full report.

One of the biggest stories in Indonesia is the strong emergence of middle class. Indonesia is largely a domestic economy with 2/3 of GDP from private consumption. Per capita income is reaching a critical threshold of US$3,000, which is the threshold for J-curve hockey stick growth. And companies servicing middle class will reap the rewards in the next few years. And Astra is one of our top picks in this theme.

Astra is still an auto company, deriving 60% of its earnings from auto-related business (including auto financing). Astra’s service standard in the auto industry is still the benchmark. The company commands very respectable market shares in car and motorcycle business, 55% and 52% market shares respectively. Sarina report also discusses the turnaround in Astra Honda motorcycle business. In 5M11, market share of Honda is 9.8% ahead of Yamaha. Both shared 45-46% market share last year.

Car is one of the aspiration items for many Indonesians. Indo’s car penetration of 4% is one of the lowest in the region. Coupled with high GDP per capita growth, Indonesia offers plenty of upside.

Bank proposal on single majority shareholder applied retroactively? - CLSA

Majority shareholder in banks to be limited? Local media Kontan is reporting that Bank Indonesia is planning to limit the stake of a single majority shareholder to below 50%. This would apply to both local as well as foreign shareholders AND this regulation might be effective retroactive as early as 4Q2011.

Comment: This has been talked about for a while but the surprise here is the retroactive part. Not sure how this would be implemented – would be very difficult, to say the least. Also not mentioned whether state-owned banks will be affected. Minority shareholders in the banks being taken over in the future could further be impacted as the tender offer threshold (50%)would be more difficult to reach. As such, minority shareholders may not enjoy mandatory tender offer upside in the future.

Current potential M&A plays here include Panin Bank (PNBN), Danamon (BDMN IJ), and Bank Tabungan Pensiunan (BTPN IJ).

Major Shareholder 1%
Bank Mandiri Govt of Indonesia 60%
BRI Govt of Indonesia 57%
BCA Budi Hartono & Family 47%
BNI Govt of Indonesia 60%
Bank CIMB Niaga CIMB Group 96%
Bank Danamon Asia Financial 67%
Bank Panin Panin Financial 45%
BII Sorak Financial Holding 54%
Bank Permata Standard Chartered 45%
BTN Govt of Indonesia 72%
Bank Jabar West Java Provincial Govt 38%
BTPN TPG Nusantara 60%

BI kept rate unchanged at 6.75% - Mandiri

Bank Indonesia kept its policy rate unchanged at 6.75% in governor board’s meeting today, in line with our and consensus expectation. Tame inflation until Jun11 and continuing foreign capital inflow have boosted the central bank’s confidence to keep interest rate unchanged.

We reiterate our view that on-year inflation is likely to be in a declining trend at least until Jul11, and increase gradually toward end of year. At this juncture, we maintain our inflation forecast at 5.7% yoy by YE11, with another 25bps increase in benchmark rate to 7% in 4Q11. However, as the government is revising its 2011 budget, which takes into account higher spending on fuel subsidy, we believe, there is considerable probability that the government will maintain energy prices policy intact, thus diminishing pressure to rate hike in 2011.

Global economy still seems gloomy; 2011 revised budget overview - Mandiri

Market review
§ Fears of euro-zone debt contagion coupled with deteriorating US labor market still clouded sentiment. The rupiah appreciated 2% while the stock market rallied to 4,004 historical high.

Global economic update
· Another interest rate hike in Euro-zone and China, while UK and Malaysia stayed firm.
· US labor market worsened in Jun11 and participation rate went downhill.
· Moody’s cut Portugal credit rating to below investment grade; S&P would consider Greece to be in a selective default rating.
· Inflation accelerated for China, Brazil and the Philippines.

Domestic economic update
· Consumer confidence is more robust in Jun11.
· Government revised their budget, yet on heavy subsidy spending.
· Agreement on macro assumptions lowers probability of fuel price increase this year.

Bank Indonesia Builds Up Bond Stocks - Mandiri

Review: Continue to rally on foreign fund inflows. Foreign fund inflows were still the dominant factor in sustaining the bond market rally. Foreign holding of the government’s rupiah bonds amounted to more than Rp239tn as of 8-Jul, increasing by Rp4.7tn from a week earlier. Thus foreign holding of the government bond was almost 35% of the total amount -the highest ever. Interestingly, foreigners are more bullish with more than Rp1.7tn (36%) of nett additional coming to bonds with tenors of over 20years (Figure 1).

IDR yield curve shifted downward, Indonesia recorded the highest return among Asian Peers. Yield curve shifted downward on average by 25bps as the rupiah bond prices rose by 1.5% on average according to MSGBI. This makes total return in the government’s local currency bonds reaching 8.7% ytd. HSBC’s Asian local currency bond index reported Indonesia (again) gave the highest return i.e. +1.7% in a week followed by the Philippines (+0.47%), Singapore (0.3%), Malaysia (0.18%), China (0%), Korea (-0.05%) and Thailand (-0.13%).

Bank Indonesia building bond stock: steps to replace SBIs as monetary tools. It is interesting to examine the bonds ownership data. Besides increasing foreign ownership, the different pattern was showed on banks’ ownership in the government bonds: after their holding fell in the last two years significantly by Rp4.4tn and Rp37.1tn, but as of early second semester this year they have increased their portfolio by Rp7.6tn to Rp224.8tn as of 8-July. In the mean time, Bank Indonesia’s ownership also declined significantly by Rp13.9tn. The outstanding reverse repo with BI has increased quite significantly by Rp19.4tn, thus we think banks actually are still net sellers of the government bonds. Bank Indonesia seems building bond stocks to make reverse repo to replace SBI as its monetary policy more aggressively this year (Figure 2). In our calculation, Bank Indonesia might buy government bonds at least Rp5tn in 1H this year. Currently total outstanding SBI reached Rp197tn as of June 2011, while Term Deposit and Bank Indonesia’s government bonds ownership has reached Rp201tn and Rp29.7tn respectively. The build-up of the bond stocks by Bank Indonesia also supports the bond market.

Government has issued more than 57% of their target. The Government planned to increase budget deficit from 1.8% to 2.1% of GDP this year in anticipation of higher fuel subsidies as a result of higher oil price. But, it it won't affect its bond issuance target as it will use the excess financing from the 2010 budget (Rp96tn), optimizing tax revenue and budget efficency. The government has issued Rp124.6tn or 57.9% of its target for FY2011. It plans to issue global sukuk amounting to US$500mn (slightly lower than previous issuance of US$650bn) in 4Q 2011. With the absence of samurai bond issuance this year, the government will issue Rp93.8tn in domestic bonds in the second semester this year. There is also Rp34.3tn in government bonds falling due in that period.

Very strong demand on latest bonds auction. Bonds auctions showed strong demand of Rp32tn much higher than in the previous auction of only Rp11.4tn. The demand was well spread to all series, except for the 10-yr FR0053 and 15-yr FR0056 that only attracted bid of less than Rp2tn, while other series got Rp7.1tn each on average. We think significant increase of bid was supported by two factors: the ebbing worries over Greek debt problem and the Indonesian government's strategy to auction more series. However the government issued 7.5tn, only slightly higher than Rp7tn target, out of Rp10.5tn maximum it can issue. The weighted average yield awarded for the 3-month and 1-year SPN were 4.63% and 5.21% with the highest yield awarded being 4.72% and 5.25% respectively. The average yield awarded for the 10-yr FR0053, 15-yr FR0056, 20-yr FR0054, 30-yr FR0057 were 7.46%, 8.19%, 8.62%, and 9.12% with the highest yield awarded 7.47%, 8.22%, 8.63%, and 9.16% respectively.

Government budget increase but net bond issuances won’t change. The government proposed a budget revision that set to increase the deficit by Rp26.4tn to Rp151tn or 2.1% of GDP from 1.8% previously. The increase was mainly to accommodate higher oil prices and increase subsidized fuel consumption. To finance additional deficit, the government will utilize unused budget from last several year (SAL) around Rp39tn, while keeping the government bond issuance unchanged for the year at Rp126tn. The government has issued Rp124.6tn or 57.9% of its target for FY2011. It plans to issue global sukuk amounting to US$500mn (slightly lower than previous issuance of US$650bn) in 4Q 2011. With the absence of samurai bond issuance this year, the government will issue Rp93.8tn in domestic bonds in the second semester this year. There is also Rp34.3tn in government bonds falling due in that period.

Trading volume remained solid. Strong demands on the last auctions while the government only absorbed in line with its target to maintain the bonds’ attractiveness in the secondary market trading. Average trading volume in the secondary market reached Rp13tn per day after auctions or 9.9tn in a week. The long-end series such as the 20-yr FR54 and 15-yr FR56 became the most actively traded security which were traded at 111.7 and 103.75 or up by 3.4ppt and 1.8ppt respectively compared with the previous week.

Outlook: increasing volatility in the near term. Lingering European debt problems and the debt-ceiling problems in the US may raise volatility in the bond market in the near term. We still maintain our yield forecast for the 2- and 10-year bonds at 7% (range 6.3%-7.8%) and 8.8% (range 8%-9.6%, 95% confidence interval) assuming BI rate of 7%, inflation of 5.7% and the rupiah at 8,450 in the end of 2011. We are more biased to lower end range as foreign fund inflows persist. With flush liquidity in banking system, bonds warehousing by Bank Indonesia and stable of supply government bonds might support IDR bond market.

Another sukuk auction. The Government will auction sukuk bonds Tuesday after canceling two auctions in the past waiting for parliament's approval on the underlying assets for the sukuk. Now, the government has additional underlying assets of Rp30.2tn, bringing the total value to Rp90tn the (government targets the value to reach Rp120tn this year). The government will auction reopening of the 5-year IFR5, 13-year IFR7, 19-year IFR6, and 25-year IFR10 on Tuesday, targeting to raise Rp1tn. Our yield curve model suggests that the fair yields are 6.35% (range: 6.31%-6.38%), 8.06% (range: 8.03%-8.09%), 8.60% (range: 8.56%-8.63%) and 8.88% (range: 8.84%-8.91%) for IFR5, IFR7, IFR6 and IFR10. Beside regular IFR issuances, the government also will issue project-based sukuk in the 2H and global sukuk in 4Q.

China’s Economy Grows 9.5%, Exceeding Estimates - Bloomberg

China’s economy and industrial production expanded more than analysts predicted, indicating the nation is maintaining momentum even after interest-rate increases to cool inflation.

Gross domestic product rose 9.5 percent in the second quarter from a year earlier, the statistics bureau said in Beijing today, after a 9.7 percent gain the previous three months. The median estimate was for a 9.3 percent pace in a Bloomberg News survey of 18 economists. Industrial output advanced 15.1 percent in June, the most since May 2010.

Stocks climbed in China on the signs that demand is holding up after the central bank boosted lending rates five times since mid-October and lifted bank reserve requirements to a record. Premier Wen Jiabao said yesterday that stabilizing prices remains the top priority, after food costs soared more than 14 percent in June.

The government “can remain focused on inflation, given that growth was pretty strong,” said Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong. The data “will encourage policy makers to maintain tight policy settings,” he said.

The Shanghai Composite Index of shares advanced 0.8 percent to 2,775.62 as of 11:01 a.m. local time.

The economy expanded 2.2 in the second quarter from the first three months of the year, the statistics bureau said, picking up from 2.1 percent in January to March. Read More

Whatever Happens, Commodities Win: Jim Rogers - CNBC

Following Friday's disappointing jobs data and a big jump in Chinese inflation over the weekend, Jim Rogers, the CEO and Chairman of Rogers Holdings, told CNBC that no matter what happens to the global economy, he will make money with his commodity positions.

"If the world economy gets better, I earn money on commodities. If the global economy gets worse then they will print more money and I will make money in commodities," Rogers said in an interview with CNBC on Monday.
With the commodities market highly correlated with the greenback in recent months, Rogers said he is also long the dollar.

"I am long the dollar (Exchange: EUR=X) as everyone was bearish. So I am long the dollar. In five years I may not be not be long the dollar but I am now. The dollar and commodities do not have to move in correlation despite what you see on CNBC," Rogers said.
Despite all the volatility on global markets Rogers said he was keeping it simple.
"I am long commodities and own a number of currencies. I am short long-dated US Treasurys, I am short US technology, one major US bank and emerging markets," he said.

The short positions would, in Rogers' view, protect him if things get worse for the global economy and he believes the Federal Reserve and other central banks will protect his commodity positions by printing more money .
With euro zone finance ministers meeting in Brussels and the Financial Times reporting EU officials are now discussing a plan to bail out Greece again will involve some kind of default, Rogers said the Chinese will continue to buy euro zone debt.

"Someone is going to take a haircut, Greece is going to default, it has to default. But for China giving money to the EU is very cheap foreign aid. They are getting influence for their money," said Rogers.

Copper Climbs for First Time in Three Sessions as Chinese Imports Rebound - Bloomberg

Copper rose for the first time in three sessions on signs that demand is rebounding in China, the world’s biggest consumer.

Chinese imports rose for the first time in three months in June as buying from overseas became profitable and supply tightened after consumers drained local stockpiles. There are “strong signs” that the country will “come back and buy in a more aggressive way,” according to Codelco, the top producer. Prices slid 3.7 percent in the first six months of the year as demand waned.

“Copper has a strong fundamental story,” said Rich Ilczyszyn, a market strategist at Lind-Waldock, a broker in Chicago.

Copper futures for September delivery rose 2.35 cents, or 0.5 percent, to close at $4.3915 a pound at 1:10 p.m. on the Comex in New York. The price lost 1.7 percent in the previous two days.

The metal has gained 46 percent in the past year, reaching a record $4.6575 on Feb. 15.

On the London Metal Exchange, copper for delivery in three months added $80, or 0.8 percent, to $9,650 a metric ton ($4.38 a pound).

Aluminum, lead, nickel, tin and zinc also rose in London.

To contact the reporter on this story: Yi Tian in New York

U.S. Stocks Decline as Cut of Ireland’s Credit Rating Smothers Late Rally - Bloomberg

A late rally in U.S. stocks faded, dragging the Standard & Poor’s 500 Index to a third straight loss, after Ireland’s downgrade to junk added to concern Europe is losing control of the credit crisis and overshadowed evidence the Federal Reserve hasn’t ruled out more stimulus.

Semiconductor-related shares slumped, with Intel Corp. falling 1.8 percent after Novellus Systems Inc. (NVLS) forecast lower- than-estimated third-quarter earnings. Alcoa Inc. (AA) slipped 1.3 percent after second-quarter profit missed analyst estimates. Cisco Systems Inc. (CSCO) jumped 1.1 percent after two people familiar with the matter said it would announce job cuts.

The S&P 500 dropped 0.4 percent to 1,313.64 at 4 p.m. in New York, after the index fluctuated between gains and losses throughout the day. The Dow Jones Industrial Average lost 58.88 points, or 0.5 percent, to 12,446.88.

“There’s not a whole lot of conviction in the market,” said Jason Brady, a managing director at Thornburg Investment Management in Santa Fe, New Mexico, which oversees about $80 billion in assets. “Most investors are following Europe, and they are waiting to see if the earnings season will be good enough for them to get excited about equity prices. If that doesn’t happen, then you can add corporate performance to the ugly mix.”

The benchmark index for U.S. equities gave up 2.5 percent during the previous two sessions, the most for the S&P 500 since March, as concern grew that Europe’s debt crisis will spread and American lawmakers failed to agree on cutting the deficit. The gauge had climbed 5.9 percent over the previous two weeks, its biggest gain since October 2009. The rebound in July came after the S&P 500 tumbled 3.2 percent in May and June amid disappointing economic data. Read More

Selasa, 12 Juli 2011

Asia Coal Volumes take centre stage - UBS

􀂄 Event: Xstrata signs high
Xstrata has signed a US$127.50/t thermal coal contract with Japanese utilities company, TEPCO, with delivery from October 2011. The settlement is high at 30% above last year’s levels and 6% above the current spot price. It underlines the tightness of the thermal coal market, as the price is only US$2.50 below the April contract, which was characterised by supply pressure from flooding in Australia.
􀂄 Impact: raising coal prices but so what?
We raise our thermal coal estimates for 2012 and 2013 by 13% and 10% to US$125/t and US$110/t, respectively, while our 2011 forecast of US$130/t is unchanged. Indonesian coal earnings will thus be significantly more dependent on production growth next year, contrary to previous years’ dependency on price growth.
􀂄 Action: buy volume growth
As in previous years, we expect several Indonesian coal miners to miss their production targets again this year given insufficient asset investment. We continue to favour miners who have consistently invested in infrastructure and production capacity through the cycle. With relatively high operating leverage, we expect those producers to outperform the sector and the general index.
􀂄 Straits Asia remains top pick
Straits Asia remains our top pick given its 60% volume upside to current nameplate infrastructure capacity. We likewise maintain our Buy ratings on Adaro, Banpu and Indo Tambangraya Megah (ITM), while upgrading Bukit Asam and Bumi Resources to Buy. We have created a UBS Custom Index available on Bloomberg at ticker UBSASCOL Index.

􀁑 Adaro Energy Investment Case
We remain bullish on Adaro as the Wara pit starts ramping up production at low cost (low stripping ratio). We expect volume growth to remain in line with the 5-7% sector-average in 2011, but below management's 10% target. Near-term earnings should benefit from realised price growth to above US$70/t next year, while cost growth should remain in the low end of the sector as the company ramps up the lower cost Wara pit.
􀁑 Bukit Asam (PTBA) Investment Case
Volume growth could exceed that of its peers this year and the next as PTBA takes delivery of additional railway wagons and engines to be incorporated within its existing rail network. Management's target to grow production fourfold from 13mt currently remains a distant target, in our view, unlikely to materialise any sooner than 2017.
􀁑 Bumi Resources Investment Case
We are more confident of the company's ability to refinance and unlock reserves. More specifically, we expect Bumi to pay down its US$1.9bn CIC debt before end-2012 following the sale of Bumi Resource Minerals. Although we disagree with management's 100mt annualised production target from Arutmin and KPC by Q412, we think 80mt is feasible given the completion of additional conveyor belts and port loading capacity. If completed, this would make Bumi one of the fastest growing coal miners in Indonesia over the next 36 months, although production growth risk remains to the downside over the next 12 months. As such, we estimate 62mt of production in 2011 versus management's 67mt.
􀁑 Indo Tambangraya Megah (ITM) Investment Case
We downgrade our production volume from 25mt to 24mt for 2011 as management warns of excess rains in Indonesia, which may put downward pressure on output. We continue to look for management's ability to price its coal above the market given its higher quality at 6,200kcal. With a reserve life of 13 years, we think investors may push back on a valuation above 12x Asia Coal 12 July 2011 UBS 18 earnings multiple, but we highlight that the Bharinto, IndoMinco and Trubaindo mines probably have another 4-6 years left at least.

Bumi Resources (Buy, PT Rp3,500, 16% upside) - UBS

We revise Bumi’s earnings from -48% to 214% for 2011-13E, and upgrade our rating from Sell to Buy following the stock’s 17% correction from its May peak this year. It is a large revision that incorporates a change from Indonesian GAAP accounting to IFRS in line with the parent company’s listing in London as well as a significant upgrade of 2013E production. Our price target is based on a 12-month PE multiple of 12.9x.

􀁑 Average selling price increase. We revise our ASP assumption from -6% to 9% in 2011-13 in line with our higher benchmark price forecast. Bumi has priced 66% of its 2011 volume YTD, while the remainder is based on unpriced index-linked contracts and spot sales.
􀁑 Volume adjustment. We make a small adjustment to Bumi’s production in 2011-12E, which we attribute to insufficient investment in the mines, conveyor belt construction time and general infrastructure bottlenecks. The company produced 14mt in Q11 (23% of our new estimate), while we believe Q2 production will be similar. Our new production estimate is down 2% to 61.8mt in 2011, and up 3% to 67.8mt in 2012. We make a significant 15% increase to our 2013 volume target in anticipation of final completion of new conveyor belt capacity.
􀁑 Sale of BRM. Bumi sold its non-coal assets, Bumi Resource Minerals (BRM), to London-listed Bumi Plc in Q211 for US$2.07bn. We make upward adjustment to cash reserves and earnings accordingly.
􀁑 Deleveraging. Following the sale of BRM, we expect Bumi to pay down tranche 1 of its high-cost 12-19% US$1.9bn debt with CIC. The early US$600m prepayment entails an additional US$30m penalty for early prepayment. We take note that Bumi is once more able to borrow at around 6-8%, which is in line with the sector. We expect the remaining US$1.3bn to be repaid in 2012, ahead of schedule.
􀁑 IFRS accounting. As Indonesian GAAP financial reporting standards move closer towards IFRS, we take note that Bumi no longer amortises goodwill. We have removed goodwill amortisation from our earnings estimates and expect Adaro to make a one-off large non-cash write-down in the future.

We base our price target on a 12-month target PE valuation of 12.9x, which incorporates a 7.6% risk-free rate, 1.3x beta and 14.1% cost of equity. Our previous 12.1x target PE was based on a 7.6% risk free rate, 1.4x beta and 14.8% cost of equity. Bumi Resources is currently trading in the mid-range of its historical PE and EV/EBITDA band.

ITM (Buy, PT Rp55,000, 15% upside) - UBS

We revise ITM’s earnings from -25% to 49% for 2011-13, while maintaining our Buy rating. Our price target is based on a 12-month PE multiple of 13.5x, which is above the current 13-year reserve life. As such, we believe ITM has another 4-6 years of reserve life upgrade potential throughout the Bharinto, IndoMinco and Trubaindo mines.

􀁑 Average selling price increase. We revise our ASP assumption from -7% to 17% in 2011-13 in line with our higher benchmark price forecast. ITM has priced 50% of its 2011 volume YTD, while the remainder is based on unpriced index-linked contracts and spot sales.
􀁑 Volume adjustment. We make a 2% downward adjustment to production volumes in line with management’s recent target revision to 24mt in 2011. The company cites higher-than-usual precipitation.
􀁑 Cost inflation. We make an upward revision to costs following overall inflation in fuel, labour and heavy equipment.

We base our price target on a 12-month target PE valuation of 13.5x, which incorporates a 7.6% risk-free rate, 1.2x beta and 13.7% cost of equity. Our previous target PE of 12x was based on a 7.6% risk-free rate, 1.2x beta and 13.8% cost of equity. ITM is currently trading in the mid-to-high range of its historical PE and EV/EBITDA band.

Bukit Asam (Buy, PT Rp25,000, 16% upside) - UBS

We revise Bukit Asam’s earnings from -17% to 36% for 2011-13E, and upgrade our rating from Sell to Buy following the stock’s 7% correction from its May peak this year. Our price target is based on a 12-month PE multiple of 14.3x.
􀁑 Average selling price increase. We raise our ASP assumption by 27-31% in 2012-13 in line with our higher benchmark price forecast. Bukit Asam has priced 80% of its 2011 volume YTD, while the remainder is based on unpriced index-linked contracts and spot sales.
􀁑 Volume adjustment. We make a downward adjustment to Bukit Asam’s production in 2011-13, which we attribute to insufficient investment in the mines and underlying infrastructure. The company produced 3mt in Q111 (20% of our new estimate), while we believe Q2 production will be similar. Our new production estimate is down 7-13% to 14.9mt, 17mt and 19.5mt in 2011-13, respectively. We expect primary production growth over the next three years to be driven by additional railway wagons and engines that management expects to add to the existing railway line in H211.
􀁑 Cost inflation. We make an upward revision to costs following overall inflation in fuel, labour and heavy equipment.

We base our price target on a 12-month target PE valuation of 14.3x, which incorporates a 7.6% risk-free rate, 1.2x beta and a 13.5% cost of equity. Our previous 12.9x target PE was based on a 7.6% risk-free rate, 1.3x beta and 14.1% cost of equity Bukit Asam is currently trading in the mid-to-upper range of its historical PE and EV/EBITDA band.

Adaro Energy (Buy, PT Rp3,000, 15% upside) - UBS

We revise Adaro’s earnings by -3% to 25% for 2011-13E, and maintain our Buy rating on the stock based on our 12-month PE target multiple of 14.2x.
􀁑 Average selling price increase. We raise our ASP assumption 5% to 11% in 2012-13 in line with our higher benchmark price forecast. Adaro has priced 65% of its 2011 volume YTD, while the remainder is based on un-priced index-linked contracts and spot sales.
􀁑 Volume adjustment. We make a slight downward adjustment to Adaro’s production in 2011-13, which we attribute to challenges pertaining to land acquisition for overburden usage, conveyor belt construction time and general infrastructure bottlenecks. The company produced 10.6mt in Q111 (24% of our new estimate), while we believe Q2 production will be similar. Our new production estimate is down 4-7% to 45mt/50mt/56mt in 2011/12/13.
􀁑 Goodwill. As Indonesian GAAP financial reporting standards move closer towards IFRS, we take note that Adaro no longer amortises goodwill, similar to Bumi Resources. We have removed goodwill amortisation from our earnings estimates and expect Adaro to make a one-off large non-cash writedown in the future.
􀁑 Raising taxes. We raise our corporate tax estimate from the contractual 45% to 50% in 2011 (in line with Q111 results), but continuously assume 45% from 2012 onwards.

We base our price target on a 12-month target PE valuation of 14.2x, which incorporates a 7.6% risk-free rate, 1.0x beta and a 12.8% cost of equity. Our previous 13.9x target PE was based on a 7.6% risk-free rate, 1.1x beta and 12.9% cost of equity. Adaro Energy is currently trading in the mid-to-upper range of its historical PE and EV/EBITDA band.

SEA Coal Sector Raising long-term coal price assumptions - Credit Suisse

● CS global mining team in 3Q11 Commodities Quarterly raised its thermal coal price assumptions by 17% and 49% for 2013 and 2014, respectively. The team kept 2011 and 2012 forecast relatively unchanged at US$124/t and US$130/t, respectively.
● Beyond 2012, our significant upgrade of the price outlook is based on our view that supply expansion would fail to adequately meet China’s needs. As such, Chinese demand tonne will dictate price directions. We believe seaborne thermal coal prices will effectively become a China CPI-linked annuity, at least for the next five years.
● Shorter term, we expect thermal coal price in 3Q to be well supported with more promising outlook into 4Q11. Seasonal demand should improve from India, China, Japan and EU ahead of winter. We forecast a US$10/t rally into the year-end.
● Indonesian producers will benefit from the huge import demand from China. Our sensitivity analyses indicate 11-28% earnings upside in FY13 with 17% increase in CS’s coal price assumptions to US$141/t. We maintain OUTPERFORM on ITMG, INDY and
PTBA. SAR looks attractive on 2013E earnings.

Upgrade coal price from 2013 onwards
We are significantly upgrading our pricing outlook beyond 2012. We believe insatiable Chinese domestic demand (CAGR 8-12% range), evident in seaborne markets since April 2009, has become a game changer for the seaborne industry. We believe planned mine expansions across the US, Canada, Colombia, Russia, Mongolia, Australia, South Africa and Indonesia in particular, and also within Chinese domestic markets, will fail to adequately meet China’s huge energy consumption requirements. As a result, the Chinese demand tonne will dictate price directions, which in turn will be driven by Chinese macro policy directions regarding annual CPI hikes.

Seaborne prices to be determined by China’s CPI hikes We completely rework the way we think about future thermal coal pricing. Rather than fading seaborne prices in 2014-2015 as supplies increase, we believe seaborne thermal coal prices will effectively become a China CPI-linked annuity, at least over the next five years.
We are a little frightened to consider the implications of where thermal prices might ultimately end, should this scenario hold true into 2020- 2025 as well. For now, we have left long-term China CFR prices at US$150/t, a substantial lift from our previous US$110/t. This will have significant implications for coal miner valuations and capital allocation decisions between thermal and met coal projects, in our view.

Short-term price well supported with US$10/t rally to 4Q 3Q prices should remain well supported, given an 8% QoQ EU piped gas price hike and Germany’s need to find permanent alternatives to fill the Merkel nuclear void (equivalent to 24 mtpa coal). Demand recovery with Japanese utilities back on-stream should also support
prices. However, the slackening in Chinese summer air-con demand across August-September and potential increases in Indonesian supplies should remain offsetting the downside risks. Price prospects look far more promising into 4Q, as Indian demand exits its Monsoonhydro dependency and China, Japan and EU begin restocking for winter. A further 9% QoQ increase in Gazprom piped gas prices would give thermal coal even more substitution wiggle room. Meanwhile, the amount of additional coal purchased by Germany remains to be seen.

As a result, we forecast a US$10/t rally into year-end, weighted into 4Q. OUTPERFORM maintained on ITMG, INDY, PTBA Indonesian producers will benefit from huge import demand from China. Our sensitivity analyses indicate 11%-28% earnings upside in FY13 with 17% increase in CS’s coal price assumptions to US$141/t.
We maintain OUTPERFORM on ITMG, INDY and PTBA. SAR looks attractive on 2013E earnings. We maintain our earnings forecast for all coal companies pending more information on 2Q11’s production data, which is due in the next two weeks.

Asia Rates – Indonesia Data Watch - Credit Suisse

It is exciting to see how Indonesia’s bond market has been very well bid. In 1H11 the government sold Rp95.6 tn of bonds, ~15% higher compared to the targeted amount. And every time the government is launching an auction, the bid-to-cover ratio, especially on the long-end, comes strongly at 5-8x. We do not mind short-term correction, as the benchmark 10-yr yield is now technically overbought at 7.28% (vs all time low at 7.02%). On a side note, Bank Indonesia is expected to maintain its policy rate steady at 6.75% in today’s meeting.

· Analyst Ashish Agarwal continues to see strong demand for Indonesian government bonds. While foreign investors remain overweight at the long-end, new buying is directed towards the shorter segments.
· Ashish think valuation is no longer cheap, and firm fund flows into the bond market will trigger flattening in the longer segments
· In the short-run, the bond market sentiment will continue to remain firm, supported by Indonesia’s robust macro backdrop.

Indocement Tunggal (INTP, N, PT Rp18,400): Positive on Demand Growth, TP Raised to Rp18,400 - Credit Suisse

We like INTP on its price leadership position and strong balance sheet. Unfortunately, INTP is more conservative than its competitors in expanding its production capacity. We continue to prefer SMGR amid its market share leadership, on track capacity expansion and non-Java exposure.

· Analyst Ella Nusantoro maintains her Neutral rating on INTP stock, but raises the TP to Rp18,400 – vs Rp17,400 previously. The new target price implies 18.1x/15.8x 2011/12 PE, with 18% 2011-13 EPS CAGR.
· Ella’s new TP above is driven by higher sales volume assumption, projected at 10% CAGR in 2011-13. The higher volume growth is in-line with the expectation of higher investments in Indonesia post the passing of the land reform bill over the next 6-9 months.
· INTP EBIT margins is expected to contract this year, to 35% from 36%, on higher energy cost (45% of total) – although strong rupiah is mitigating some of the cost pressures (50-55% of the cost is denominated in US$) – before normalizing in 2012.
· INTP is targeting to complete 2.0 mn tpa cement mill in Citereup, W Java by 2013 – costing US$110 mn, funded through internal cash. At the end of March 2011, INTP is in Rp5.0 tn net-cash position, which is expected to soar to Rp6.8 tn by the end of the year.

Indonesia Cement Sector: Strong Demand Continues - Credit Suisse

Good cement consumption growth outlook. Price outlook, however, remains weak as industry players are very careful in raising prices to maintain market share. So far this year, we only saw 2-3% price increase – largely driven by higher energy prices. Capacity expansions for the industry will not be on stream until the next 3-4 years, and these new capacity will be well absorbed by the market if the government accelerates its infrastructure development program. Land clearing bill, expected to be passed over the next 9 months is a key catalyst for the sector, in our view.

· Analyst Ella Nusantoro sees strong cement demand in the domestic market. June cement sales reached another record high at 4.1 mn tons (Flat MoM, +21% YoY), with 1H11 domestic cement sales totalling of 22.5 mn tons (+15% YoY, +13% QoQ) – 51% of our revised 2011 target of 44 mn tons.
· Based on total capacity of 51 mn tpa, the utilization rate of the Indonesian cement industry stood at 91% in 1H11. Most of the consumption during the period was coming from the property sector amid undemanding mortgage rate in Indonesia.
· During 1H11, Semen Gresik (SMGR, O, PT Rp11,500) market share contracted 1.9ppt to 40.8%, amid lower demand in its main market East Java. Indocement Tunggal (INTP, N, PT Rp18,400) market share was flat at 13.1%, while Holcim Indonesia’s (SMCB, N, PT Rp2,400) was higher by 1.8ppt to 15.5%.
· Ella maintains her Overweight rating on the sector, and raised 2011 domestic cement consumption growth to 8% to 44 mn tons. Domestic consumption is projected to grow 8% in 2012 before accelerating to 12% in 2013, predicated on the implementation of government’s infrastructure projects.
· Ella’s top pick in the sector remains SMGR amid attractive valuation, capacity expansion and non-Java exposure.

Asia Palm Oil Sector: Inventories Up 41% YoY To 18-Month High - Credit Suisse

CPO price averaged M$3,490/ton in 1H11. For 2011, we are assuming CPO price to average M$2,950/ton – implying 2H11 average of M$2,410/ton. Currently trading at M$3,093/ton, CPO price has fallen 13% and 23% since May and January 2011. While the CPO price is oversold in the market, the moving average is pointing to a potential dead cross, confirming the bearish trend. We now think Investors should take advantage of the Ramadan price momentum to sell the CPO names on strength..

· Analyst Tan Ting Min maintains her cautious view on 2011 CPO price outlook, amid firm global edible oil supply. CPO price has peaked and is expected to falling below M$3,000/ton some time this year.
· In Ting Min’s view, CPO consumption spike during Ramadan (July/August) + CPO price discount to soybean oil (18% discount) will have minimal positive impact to CPO price in the short-term.
· In this condition, Ting Min maintains her Underweight rating for the sector and prefers the downstream players relative to the pure plays.

SEA Coal Sector: Raising LT Coal Price Assumptions - Credit Suisse

Coal names have been a laggard in the market since February 2011. With improved weather conditions and higher demand going into the summer and winter, we believe it is the time again for us to take a look at the coal sector. 2Q11 financials will be reported by the end of this month at the latest, and coal price has been performing well in 1H11 (-7% QoQ, +77% YoY) – with the low 2Q season behind us.

· CS global mining team kept 2011/12 coal price assumptions relatively unchanged at US$124/132 per ton, but raised 2013/14 assumptions by 17%/43% to US$141/149 per ton.
· Higher coal price assumptions in 2013/14 are based on the view that China’s coal demand would exceed global supply expansion in the medium-term. In this scenario, Indonesian coal producers will be the beneficiary.
· In the short-term, thermal coal price is projected to post US$10/ton rally into 4Q11, amid winter stocking, with prices seen well supported in 3Q11, due to higher demand from Germany and Japan.
· Analyst Fonny Surya maintains Outperform rating on Indo Tambangraya (ITMG, PT Rp57,000), Indika Energy (INDY, PT Rp5,000) and Bukit Asam (PTBA, PT Rp26,500). Note that earnings forecast on these companies have yet been revisited, pending 2Q11 production data that will soon be released.

Indonesia Cement - Alert: Record Volume in June - Citigroup

 Very strong demand — Better weather conditions and robust demand lifted domestic cement volume in June to a record high of 4.1m tons, a 21% Y-Y surge and slightly higher than the previous high in May 2011. This brings 1H11 volume to 22.5m tons - a 15% Y-Y increase, much higher than our expectation of a 9% increase for 2011.
 Holcim Indonesia gained most market share — Holcim Indonesia (HI) continued to gain market share as it shifted its exports to the domestic market. HI's domestic volume surged 43% Y-Y in June to 672k tons. HI's market share improved to 15.5% in 1H11 from 13.7% in 1H10.
 Indocement maintained market share — Indocement managed to log an 18% Y-Y volume increase in June to 1.3m tons, bringing its 1H11 volume growth to 14.5%. Its market share was flat Y-Y at 31%.
 Semen Gresik’s growth capped by limited capacity — Semen Gresik Group's volume growth lagged the industry's at 14% in June. For 1H11, the group's volume was up only 10%, resulting in its market share eroding to 40.8% in 1H11 from 42.7% in 1H10.
 Tepid price hike — Despite robust cement demand, domestic cement prices continued to be tepid with the last price increases of c. 2-3% in the first two months of 2011. We expect the producers to increase prices by another 2-3% in 2H11 to pass on higher costs, notably stemming from higher energy costs.
 Preference — While Holcim Indonesia's growth is the most impressive this year, the company's apparent lack of transparency and management access could be a hindrance to share price performance. We maintain Indocement as our top sector pick as the company is the second largest beneficiary of robust cement demand and has good cost control. Gresik remains a Hold for its lack of capacity until 1Q12E.

Asia Palm Oil Sector - Palm oil inventories up 41% YoY to an 18-month high - Credit Suisse

● Malaysian palm oil inventories rose to 2.05 mn tonnes in June, up 41% YoY, breaching the psychological 2 mn tonne level, as exports grew by 10% YoY while output rebounded 23% YoY.
● Based on the last ten ‘tree stress reversals’, the strong production uptick lasted an average of 11 months. We are currently only in our third month of strong production, suggesting that there could potentially be another three quarters of strong palm oil production. Exports should pick up in July and August due to Ramadhan.
● We are bearish on the palm oil price outlook for 2H11, in anticipation of an increased supply of vegetable oils, which will keep edible oil prices suppressed. We believe palm oil prices have peaked for the year and will consolidate further.
● We stay UNDERWEIGHT on the plantation sector, in light of their rich valuations and our bearish outlook on palm oil prices in the short term. Our key UNDERPERFORM calls are on IOI Corp and Sime Darby. We stay OVERWEIGHT on the processors, e.g.,
Wilmar and Mewah.

Plantation Rising inventory to dampen prices - DBS

· Jun11 palm oil output was flat m-o-m at 1.753m MT – in line with expectations
· But jump in exports (+12% m-o-m to 1.581m MT) was not enough to lower end-stock level, which rose 7% m-o-m to 2.053m MT
· CPO prices to resume downtrend, as end-stock is forecast to stay above 2.0m MT until year-end
· Processors and upstream laggards recommended. Top picks: Mewah, Wilmar, First R., Sampoerna A., KLK, Sime.

Flat Jun11 output. MPOB yesterday reported that Malaysia ’s palm oil output reached 1.753m MT in Jun11 (flat m-o-m) – in line with our expectations. FFB yields in Kelantan and Pahang – which jumped by 16-36% m-o-m in May11 – fell back by 3-4% m-o-m; while those in Johore, Terengganu and Sabah increased just marginally. We anticipate Jul11 output to remain flat (forecast to increase 1% m-o-m to 1.771m MT) before peaking to 1.805-1.831m MT in Aug-Sep11.

Jump in Jun11 exports failed to cut end-stock. While Jun11 exports recovered strongly (boosted by 44-124% jump in shipments to India, Egypt, Pakistan, and EU-27), aggregate export volume was not enough to reduce end-Jun11 stock level, which rose 7% m-o-m to 2.053m MT. Palm oil imports also remained steady at 88.3m MT, as we suspect shipments from Indonesia were front-loaded to avoid higher progressive export tax set for Jul11 (to 20% from 17.5%).

CPO price downtrend to continue. We believe CPO prices owe its current resiliency to weak soybean crush margins (see page 3) and expectations of 2% y-o-y drop in US soybean harvest, which may tighten near-term soybean oil supplies. In the coming months, palm oil exports are also expected to rise on stock replenishment, some substitution, and stronger demand during Ramadan. However, output is likewise forecast seasonally ramp up over the same period, boosted by yield recovery and new maturities. In our estimation, this should raise end-stock levels through end Aug11 and keep them above 2m MT until end of the year. Therefore, we expect CPO prices to resume its downtrend in 4QCY11.

We recommend processors and upstream laggards. We believe processors are key beneficiaries of the recent drop in CPO prices and strong rebound in CPO volume since end-Mar11. At current prices, we prefer Mewah over Wilmar (both have BUY ratings), given its less exposure to weak soybean crush margin and q-o-q stronger palm oil imports growth by the MENA region’s vis-à-vis China. We also like upstream laggards such as First R., Sampoerna A. and KLK as we believe they have priced-in weak CPO price expectations.

Bear Market in Tin Ending as Shortages Mean PT Timah’s Profit Advances 55% (Update1) - Bloomberg

Erfandi’s fleet of bamboo rafts are dredging 33 percent less tin ore from the rivers of Indonesia’s Bangka Island than in 2008, as miners fail to keep pace with consumption that jumped 14 percent in two years.

The vessels operating in the world’s largest exporting nation are hauling up no more than 40 kilograms (88 pounds) of ore daily, from 60 kilograms, as reserves get depleted, said the 46-year-old foreman. Miners from China to Peru are also struggling to meet demand for the metal, used to solder components in almost all electronic equipment.

While commodity investors suffered their worst quarter in a year as wheat, cotton and crude retreated, prices will rebound because of shortages, a Bloomberg survey of analysts in June showed. Tin fell 22 percent from a record in April, entering a so-called bear market, and will rally 15 percent to $30,000 a metric ton by Dec. 31, a Bloomberg survey of 15 traders, analysts and smelters showed. The market will be in deficit for the fourth time in five years, Barclays Capital says.

“It’s a market where there’s not enough of the metal coming out of mines around the world,” said Nic Brown, the head of commodities research at Natixis Commodity Markets Ltd. in London who predicted higher prices last July, nine months before they reached a record. “If you remain positive on the basic growth story out of China, and the other developing countries, the fundamentals in the tin market have not changed that much.” Read More

Indonesia's June tin exports rise 35 pct y/y - Reuters

JAKARTA, July 11 (Reuters) - Indonesia's refined tin exports rose 35.4 percent in June from the same month last year, an official at the trade ministry said on Monday.

Indonesia, the world's top tin exporter, shipped 10,875.25 tonnes of refined tin in June, compared to 8,029.92 tonnes in June last year, trade ministry data showed. (Reporting by Yayat Supriyatna; Writing by Rieka Rahadiana; Editing by Neil Chatterjee)

Copper, tin to recover strongly in H2 11 - CommodityOnline

In terms of fundamentals, the supply side is shaping a more diverse picture across the base metals, and Barclays expect this to Lead to increasingly divergent price performances.

“We remain positive on Copper and tin, and we expect these metals to recover strongly in H2 11. In the case of copper, we forecast weak mine supply growth this year with a risk of contraction due to an array of challenges reinforced by recent widespread disruptions at facilities.”

A pick-up in Chinese imports is the catalyst needed to take prices significantly higher and the draws in bonded warehouse stocks suggest to us this is an imminent effect. Aluminium prices remain well supported from strong global demand growth, energy-led cost inflation as well as from expectations of tightening long-term energy availability. In addition, the threat to Chinese production growth from power rationing offers a further upside risk.

Macro concerns continue to dominate price action, although apparent progress in tackling the Greek debt crisis has offered the basis for a short-term relief rally across the complex.

For lead, Barclays expect the indefinite closure again of the world’s largest Lead mine, Magellan, to provide support and for Chinese conditions to firm once battery manufacturing plants are reopened.

“We are neutral on Nickel with the view that recent price weakness is overdone, but that recovering production will ease market tightness and lead to a moderate build in LME stocks. Zinc remains our least favoured metal, with continued deterioration in the fundamentals with big stock builds, a growing market surplus and sustained production growth.”

Rupiah, Won Will Lead Asian Currency Gains This Half, Top Forecaster Says - Bloomberg

Indonesia’s rupiah and South Korea’s won will lead Asian currency gains for the rest of 2011 as central banks use appreciation to counter inflation, says Credit Suisse Group AG (CSGN), the region’s most-accurate forecaster.

The rupiah will climb 4.5 percent and the won 4 percent in the six months through Dec. 31, after the two currencies were also the best performers in the first half, according to Credit Suisse, which Bloomberg data show had the best projections for the six quarters through June 2011. The Thai baht will climb 4 percent following a peaceful election on July 3, the bank predicted. Barclays Plc (BARC), which ranked second, expects the Taiwan dollar to perform best with a 4.7 percent advance.

Asian currencies strengthened in each of the last four quarters as the world’s fastest economic growth and rising interest rates attracted funds. Demand is also being supported by expectations that the Federal Reserve will keep its benchmark rate near zero and Japanese factory output will recover from the March 11 earthquake, said Goh Puay Yeong, a foreign-exchange strategist in Singapore at Credit Suisse, Switzerland’s second- largest bank.

“The upturn in global growth and the U.S. remaining on hold on interest rates should encourage inflows,” said Goh. “Indonesia to a certain extent, and South Korea are looking at currency appreciation as part of their policy mix to curb inflation.”

The won strengthened 5.5 percent and the rupiah 4.7 percent in the first half, while the baht declined 2.5 percent, according to data compiled by Bloomberg. They’ve since advanced 0.9 percent to 1,058, 0.5 percent to 8,536 and 1.4 percent to 30.32, as of yesterday’s closing levels.
Indonesia’s Tolerance

The rupiah reached 8,499 per dollar on June 8, its strongest level since March 2004. Global funds pumped $2.5 billion into Indonesian shares and boosted their holdings of the nation’s bonds by $5.1 billion this year. Southeast Asia’s largest economy expanded 6.5 percent from a year earlier in the first quarter, outpacing U.S. growth of 2.3 percent.

The central bank lifted its benchmark rate in February to 6.75 percent after inflation reached a two-year high of 7.02 percent in January. Consumer-prices gains have since moderated, with June data showing a 5.5 percent rate.

Bank Indonesia said last month the “continuing trend of rupiah appreciation is in line” with efforts to stem living costs, including that of imported goods.

HSBC Holdings Plc (HSBA), which had the most accurate rupiah projections in the last six quarters, predicts the currency will appreciate 3.3 percent to 8,300 in the second half of 2011.
Investment Grade

Credit Suisse expects Indonesia to win an investment grade rating, luring more foreign capital into its bonds, Goh said. Standard & Poor’s, Fitch Ratings and Moody’s Investors Service all rank Indonesia one level below investment grade, a threshold that some funds must stay above in selecting assets.

Endre Pedersen, who helps oversee $28 billion of Asian bonds as the managing director of fixed income at Manulife Asset Management in Hong Kong, says the rupiah is his top pick among regional currencies.

“Asian currencies will continue to perform well relative to the G3,” he said, referring to the dollar, euro and yen. Pedersen manages the Manulife Global Fund-Asian Total Return Fund, which returned 4.2 percent this year, beating 86 percent of its peers, according to data compiled by Bloomberg. Read More

Japanese Stocks Decline for a Second Day on Europe Debt-Contagion Concerns - Bloomberg

Japanese stocks fell for a second day as concern mounted Europe’s debt crisis may widen, weakening earnings prospects for exporters to the region.

Sony Corp., which sells about 20 percent of its PlayStation game consoles and other products in Europe, retreated 2 percent. Toyota Motor Corp., the world’s largest carmaker, lost 1.5 percent. Inpex Corp., Japan’s largest energy exploration company, sank 1.8 percent as oil prices dropped.

The Nikkei 225 Stock Average fell 1.1 percent to 9,960.33 as of 9:06 a.m. in Tokyo. The broader Topix index declined 1.1 percent to 860.61. Both gauges fell the most since June 16.

“It’s looking more and more like the debt crisis in Europe will spread from Greece Ireland and Portugal to bigger countries such as Italy and Spain,” said Yumi Nishimura, an equity-market analyst at Daiwa Securities Capital Markets Co. “People are worried about the negative impact on financial systems.”

To contact the reporters on this story: Akiko Ikeda in Tokyo

Telkom Tawarkan Tukar Saham dengan Singtel - VivaNews

Telkom berniat untuk menukar saham 35 persen Singtel di Telkomsel dengan saham perseroan.

Menteri Negara Badan Usaha Milik Negara (BUMN) Mustafa Abubakar menyatakan rencana share swap atau tukar guling saham PT Telkomsel milik Singtel dengan saham PT Telkom Indonesia Tbk, masih harus dibicarakan secara khusus dengan perusahaan asal Singapura tersebut.

"Itu yang saya maksud perlu pembicaraan secara khusus nanti dengan SingTel apakah ada rencana istilahnya 'tukar guling'," kata Meneg BUMN Mustafa Abubakar, di Gedung DPR RI, Jakarta, Senin, 11 Juli 2011.

Menurut Mustafa, keinginan Telkom melakukan tukar guling saham Telkomsel dengan Singtel akan membuat saham induk perusahaan tersebut semakin meningkat. Namun, upaya untuk mewujudkan hal tersebut masih harus melewati pengkajian yang seksama sebelum proses pembelian jadi dilaksanakan.

"Bagi kami semuanya terbuka. Kalau misalnya nanti SingTel memberi peluang untuk opsi tersebut, nanti akan kami bicarakan," kata Mustafa.

Mustafa menambahkan kesepakatan antara Telkom dan Singtel hingga saat ini adalah pemekaran direksi Telkomsel. Namun, pengisian pos-pos direksi baru masih belum dilaksanakan.

Menteri BUMN mengungkapkan Telkom telah mengalokasikan anggaran sebesar Rp5 triliun untuk membeli kembali (buyback) saham milik publik. "Buyback itu (untuk) saham Telkom, bukan Telkomsel," katanya.

Pembelian saham Telkom milik publik tersebut akan dilaksanakan dengan membayar secara tunai di pasar saham bebas. Aksi ini diharapkan bisa memperbesar kembali porsi kepemilikan saham pemerintah di perusahaan pelat merat tersebut.

Saat ini, porsi kepemilikan saham pemerintah di Telkom tercatat mencapai 65 persen. Sementara sisanya sebesar 35 persen telah dimiliki oleh publik.

Senin, 11 Juli 2011

ENRG:Reviving main asset - Mandiri

Another good achievement from Energi Mega Persada (ENRG) came from its main oil play Malacca Strait PSC, in which ENRG successfully ramp up the production by 1,924 bopd. We highly value such achievement as it will lengthen the maturing cycle of the block thus sustain a longer term production. We upgrade our FY11F and FY12F earnings by 13.5% and 3.4%, respectively. On the other hand, there is also a potential demand upside from Japan’s robust oil imports as nearly all of ENRG oil lifting flows to Japan. We are now more confident over ENRG hence decided to put down the 10% discount, resulting in new TP of Rp260. Moreover, asset-based valuation is still lucrative at EV/2P US$2.4/boe. Maintain buy.

Successfully revived the main oil play. ENRG recently reported a successful enhanced oil recovery (EOR), resulting in production ramp up of its largest oil producing asset, Malacca Strait PSC (60.5% stake), by 1,924 bopd. This proves ENRG ability in reviving assets, which has been done so far as indicated by increasing reserves amid growing production profile. We like the achievement on this project considering Malacca Strait is ENRG’s largest oil play (36% of total) and the maturing nature can be muted. We upgrade net oil lifting forecast for Malacca Strait PSC to 5,500 bopd from 4,300, resulting in upside move for FY11F and FY12F bottom line of 13.5% and 3.4%, assuming stable oil ASP and FY10 production per block as a base.

Japan’s oil-hungry mode may prompt demand. Japan's oil and gas imports gained strongly in May11 as crude imports and LNG rose by 7% after minus signs in last two months, signaling higher demand for oil to fuel its power plants. Consequently, this will likely trigger additional oil demand to Indonesia market and in the end to ENRG, as nearly 100% of its current oil lifting flows to Japan.

Inpex to finalize Ichthys FID, Masela should be next. The Australian government has granted the environmental approval to Inpex’s 8.4Mt LNG project, Ichthys Project in Browse Basin, North Australia (geologically close to Masela). This decision provides the way for Inpex to finalize its final investment decision (FID) this year. Should Inpex commit the FID in Ichthys, Masela will be the next on Inpex’s list, in our view. Nonetheless, we have yet taken Masela into our forecast as it still takes long time (2018) to commence its production activity.

No more discount, upgrade TP to Rp260. We upgrade our TP to Rp260 mainly based on our appreciation on ENRG’s production ramp up in its largest and key oil play. The ability to ramp up production also further reduces the development uncertainty. Risk relies on project delay and increasing Kangean gas cost. At still attractive EV/2P of US$2.4/boe, we maintain our buy call.