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Jumat, 12 Agustus 2011

Modern Internasional (MDRN.IJ, BUY) – Making good progress - Kim Eng

We reiterate our BUY recommendation and TP of Rp3,250 (2012F and 2013F PER of 34.7x and 17.9x) for Modern as progress has been on track. 7-eleven margin improved in 1H11 by 3ppts to 35.7%, and there is still room for further improvement as the company completed enlarging combined distribution center.

BSDE Upping target price by 23% - Mandiri

BSDE released 1H11 results with net profit booked at Rp388bn (113% YoY; 40% QoQ), which was above ours (50.5%) and street’s estimates (52,9%). While its operating performance was in line with ours and consensus, the surprise in bottom-line came mainly from interest income which more than doubled (+113%yoy). We expect higher revenue booking in 2H11, in realization of 60% FY10 residential sales. We reiterate BUY call on BSDE, with upgraded TP by 23% to Rp1,350/share, using 12F rolling valuation. The stock is currently trading at PE12F of 15.3x and 60% discount to RNAV12F.

Operational booking should be higher in 2H11. BSDE’s above estimate 1H11 results were much determined by accounts below operating level. Interest income grew more than double (+113%yoy) to Rp109bn that improved pre-tax margin to 40.9% vs. 1H10 of 38.1%. In the meantime, operating profit represented 43% of our FY11F estimate, which we consider in line due to seasonality factor. About 60% of the company’s FY10 residential sales achieved in 2H, therefore we expect higher revenue booking in 2H11. Despite of surging 1H11 interest income, the company does not revise its FY11F earnings guidance of Rp700-750bn, which may indicate that the interest income will not recur in 2H11.

Debt as primary bullets for near term expansion. Considering its cash rich position, the company stated that it will pay off its Rp1.1tn maturing debt in 2012 using internal cash which will bring the company into net cash position (-0.28x net gearing ratio). This strong balance sheet will be the company’s bullet for any prospective expansion. We think debt-driven expansion will be a decent choice in the near term, in our view. The most recent issuance by a single-A rated property company like BSDE yielded 9.5%-11.5%, while property project’s IRR today is around 15-25%.

Short-term catalyst: W2 toll-road and continue mild mortgage rate. In the meantime, we see short-term catalyst for BSDE would be the construction of the W2 toll road (exhibit 2). We expect South Jakarta office market to grow at the same time with the completion of the construction (target by 1Q13), hence will induce residential demand around the area, including BSDE. This will also be supported by increasing mortgage availability from banks whose interest rates are expected to remain mild at least for the near term.

Maintain BUY. We reiterate the BUY call on BSDE, with new TP of Rp1,350/share (+23%), using 12F rolling valuation. BSDE is still our top pick in our property space.

Indo Tambangraya Megah: Key takeaways from analyst meeting (ITMG, Rp43,950, Buy, TP: Rp55,800) - Mandiri

􀂄 ITMG only sold 5.2Mt coal in 2Q11, or 5% lower than 1Q11 and 10% lower than its coal production of 5.8Mt mainly due to unexpected jump of production volume in late 2Q11, so there were some delays on shipment. Company reiterated that modest growth in 2Q11 due to wet weather which hampered some of their mining activities in several area.
􀂄 ITMG highlighted that 3Q11 production volume would increase by 15-20% growth on average monthly basis. By mid August 2011, Indominco has produced 2Mt coal vs internal target of 4.3Mt which 26.5% increase vs 2Q11.
􀂄 Other mine’s coal production were relatively inline internal target, except Jorong that has achieved 0.7Mt coal or 70% of its FY11 target. ITMG still confident with its FY11 target of 25Mt.Td. Mayang and Bharinto blocks will commence production in 3Q11 and 4Q11 with each target of 0.5Mt and 0.2Mt respectively.
􀂄 2Q11’s ASP increased by 12%qoq to US$97.4/ton faster than its production cash cost of US$45/ton, which up by 8.4%qoq mainly come from higher fuel price which already reached US$1.1/cent in 2Q11. Strip ratio was maintained around 11.3x and company also expect lower maintenance cost this year. Company guides us with FY11F ASP around US$92-94/ton and production cash cost of US$46-47/ton.
􀂄 Mr. Hartono Widjaja, Marketing Director of ITMG, has highlighted that Newcastle and Indonesia’s coal FOB rate have decreased recently due to slowing down China demand following recovery on their hydropower generation and ramped up Indonesian coal output. While, Richard Bay’s coal FOB rate remain strong supported by strong demand in Atlantic region driven by higher gasoline price and some supplies contraint due to railways problem in South Africa.
􀂄 We found lack of progress on its M&A plan. With net cash almost US$400mn, ITMG’s catalyst driven will remain only on its dividend payout and valuation. Currently we still have buy rating on the stock. ITMG now trades at 12.1x – 8.9x PER11F-12F.

Salim Ivomas: 1H11 net income of Rp885bn, 48.9% of consensus’ FY11F (SIMP, Rp1,210, Not rated) - Mandiri

􀂄 SIMP issues press release on its 1H11 performance with net income of Rp885bn (+113.8%yoy, -32.2%qoq). This figure represented some 49% of consensus’ FY11F and our estimate in IPO report.
􀂄 On QoQ basis, the company’s margin contracted because of lower ASP due to declining CPO price by 7.8%qoq (CIF Rotterdam). However, sales volume of oil & fats products still grew by 12.2%qoq.
􀂄 We do not have recommendation on SIMP. Based on consensus estimate, the stock is trading at PER11-12F of 10.1-10.2x.

Citra Marga: Press interview with the Mr. Shadik Wahono, president director (CMNP, Rp1,430, Buy, TP: Rp2,000) - Mandiri

􀂄 Mr. Wahono told the reporter that his company is currently doing due diligence process on 5 toll-road segments, one of which is the Cinere-Jagorawi route. All the five segments are located in Jakarta and surroundings. The company has also submitted a tender to operate 16-km access road to Tanjung Priok sea port.
􀂄 Our take – we upgraded CMNP to Buy yesterday, believing that the company could be entering into a productive investment phase, post the departure of its un-wanted shareholder. We re-iterate Buy rating and TP of Rp2,000.

Property Sector: General Motors to build plant in Indonesia - Mandiri

􀂄 Based on Wall Street journal today, General Motors plans to produce a seven-seat van in Indonesia. The management said that GM intends to build a plant near Jakarta capable of producing about 50,000 vehicles a year with plans to turn it into a major production base for region.
􀂄 The plan should continue boosting demand of industrial estate, especially in Cikarang/Karawang area. Beneficiaries from this event include companies such as Kawasan Jababeka (KIJA), Surya Semesta (SSIA), Lippo Cikarang (LPCK) and KIIC (owned by Sinar Mas Land). However, SSIA and KIIC have more chance to be the targeted area of the plant location because of existing automobile industries in these areas.

Cement Sector: Domestic cement consumption continues upbeat, grew by 17.1% YoY (Overweight) - Mandiri

􀂄 Domestic cement sales continue showing strong growth. Jul11 sales grew 17.1% YoY and 6.8% MoM, lifted by area outside Java (18.3% YoY) where its growth outperformed Java (16.1% YoY), first time in the year. Notable sales growth includes Nusa Tenggara where picked-up strongly by 26.2% YoY (vs. Jun11 7.7% YoY), combined with other commodity regions, including Sumatera (14.5% YoY), Kalimantan (19.6% YoY) and Sulawesi (21.4% YoY).
􀂄 Thus, domestic cumulative sales accelerated to 26.8mn tons, reaching a new high of +15.1% YoY vs. 6M11 of +14.8% YoY.
􀂄 We may see rather softened growth in August, following fasting period which similar trend occurs at least in the past 5 years.
􀂄 Looking at major support from bulk segments on sales this year, we view that growth can be more sustained towards year end, thus led us to upgrade our 11F domestic cement sales growth to 7.5% YoY, from initially 5.6%.
􀂄 Our favorites are still INTP and SMCB in cement space, given its high exposure in Jakarta and West Java which have been the main bulk cement growth area, in our view.

Oil and gas sector: Gas price contract re-negotiation more than just a noise? (Overweight) - Mandiri

􀂄 Last week, we saw the unexpected comment by BPMigas regarding the need for domestic gas price contract to be reviewed (in the context of plan to re-negotiate gas selling price to foreign buyers including Fujian province, China). This week, president director of PGAS held an analyst conference call saying that if the company’s purchase contract were to be reviewed, the management would demand some form of compensation, one of which could be a permission to pass-on the cost increase to its industrial customers.
􀂄 Today, president director of Pertamina E&P told the press that he expects the business-to-business negotiation on gas selling price to be concluded by year-end 2011. He sees the current gas selling price (from E&P companies) of US$2.5/mmbtu as uneconomical, preferring the selling price to be above US$4.0. (Bisnis Indonesia).
􀂄 Our take – if such re-pricing occur (a big if still, since the move would involve an Indonesian state owned company re-negotiating a contractual agreement with a foreign entity), the biggest beneficiaries would be the E&P companies such as Medco Energi (Neutral) and Energi Mega Persada (Buy). Although PGAS management argues that they could be able to passon the price increase on its gas supply, we doubt if the company can meet volume growth expectations set forward by the market. We suspect the company may see lower demand for its gas, if the selling price is set at US$8.00 versus current price of US$6.50. The stock may continue to rebound along with other big cap names in Indonesia today, but at some stage investors may consider the news as an excuse to switch-out.

BUMI to Buyback Shares - The Indonesia Today

PT Bumi Resources (BUMI) Tbk will ask shareholders' approval for the proposed shares buyback program.

BUMI said in a letter to the Capital Market Supervisory Agency (Bapepam) today that the company invites an extraordinary meeting of shareholders on September 26, 2011.

BUMI also seeks shareholders' approval for its plan to sell its shares in PT Bumi Resources Minerals (BRMS) Tbk.

According to the schedule provided to Bapepam, BUMI will publish the material transaction and shares buyback program on August 18, 2011.

BUMI shares closed flat at Rp2,700 Thursday (Aug 11), while Bumi Resources Minerals ended lower by 2.82%. BUMI is now traded 26% below its peak of Rp3,650 in May 2011.

Lonsum 1H CPO output rises 25.2% - Insider Stories

CPO player PT PP London Sumatra Indonesia Tbk (Lonsum) produced 199,446 tons CPO in the first half of this year, a 25.2% increase from 159,247 tons in the previous year. CPO yield in nucleus plantation rose to 2 tons per hectare from 1.9 tons.

Fresh fruit bunch (FFB) of Lonsum rose 15.3% to 590,026 tons from 511,768 tons. FFB yield from nucleus increased to 8.6 tons per hectare from 8 tons per hectare.

Jababeka executing two corporate actions (TP Rp265) - UBS

12-month rating Buy Unchanged
12m price target Rp265/US$0.03 Unchanged
Price Rp156/US$0.02

?? Rights issue to acquire 1,340ha of land and Tanjung Lesung resort Jababeka signed Rp 1.5tn CSPA with two tourism developers (Banten West Java Tourism and Tanjung Lesung Leisure Industry) for 100% ownership over Tanjung Lesung resort and 1,340ha of land located in West Java. Company plans to finance 100% of the purchase using rights issue proceeds.

?? Combined with issuing US$110mn to US$150mn exchangeable notes
Jababeka is also issuing $110mn exchangeable notes, convertible to the equity of Jababeka Infrastruktur, its subsidiary that owns Cikarang Dry Port and 130MW gas power plant. Proceeds will be used to finance expansion of dry port, debt repayment, construction of power plant’s transformers and land acquisition.

?? Positive on exchangeable notes; short term negative on rights issue We are positive on the issuance of exchangeable notes; it prevents dilution on KIJA and allows CIMB debt repayment. We are negative on Tanjung Lesung acquisition as upside from this project is 7-10 years away in our view; Jababeka needs to spend more working capital for infrastructure development. However, we are positive in the long run as the acquisition could allow Jababeka to create another industrial estate like Cikarang.

?? Valuation: Reiterate Buy at Rp 265/share
We base our price target on a sum of the parts. We use DCF to value the power plant and dry port projects, the discounted development method for development property, and single cap rate methodology for investment property. We apply a WACC of 12.1%.

XL Axiata (EXCL IJ; CP: CP: IDR5,350; BUY) Target Price: IDR7,250 - BNP Paribas

Key issues
ƒ There has been a rapid shift in revenue mix from Voice/SMS to Data. However, usage is still very low, standing at 9Mb/month for 2.5G and 40-50Mb/month for 3G handsets. XL sees exponential increase in data usage in the next few years, as users upgrade to 3G and smartphones. XL has set aside a bigger portion of its capex (50% of IDR6t) to build its data network, including fiberising transmission in six major cities in Indonesia (Java & including Medan).
ƒ XL will pursue partnerships with other players for RAN & transmission (backhaul) sharing, to reduce the cost of building its network infrastructure to support its data business. Other cost reduction initiatives include working with other players to bring in international servers (caching) to Indonesia to reduce international connectivity cost.
ƒ XL does not want to be too aggressive on data pricing as they need to manage profitability of the data business. Unlike the voice minute factory strategy, just lowering prices may not result in additional data usage. For Data, there is a need to manage the entire ecosystem, from increasing the adoption of data-capable
handsets in the market to providing attractive content/services.

Questions raised
ƒ How are the data margins compared to Voice/SMS? Data margins are currently lower than Voice & SMS. However, this is expected to rise as Data reaches a more optimal scale in 3-5 years time.
ƒ When will 60Mhz be auctioned? 60 MHz at the 2.3 GHz spectrum will be auctioned by the government next year, which will provide additional spectrum to support the data business and can be used for future LTE services.

Current view
ƒ Our TP of IDR7,250 is DCF-based on WACC: 11.3%, terminal growth: 3.0%. We maintain BUY on the stock.

United Tractors (UNTR IJ; CP: IDR24,300; HOLD) Target Price: IDR24,500 - BNP Paribas

Key issues:
ƒ July volume for heavy machinery is expected at around 720 units, a bit lower than June's 740, but still indicating very strong demand, especially from the mining sector – buoyed by relatively high coal prices.
ƒ Management, having consulted with Komatsu of Japan, is likely to raise their target in heavy machinery volumes from 7,500 to 8,000 given the continued strong demand and the fact that supply disruption from the tsunami is now no longer a factor.
ƒ The weather has started normalising, with less rain in May. This is positive for the mining contracting business which previously had to shoulder the burden of increased costs from additional work due to heavy rains.

Question raised:
ƒ 1H results were good but there are clear signs that margins are under pressure from stronger currency. Can management do anything about this? Management agrees that this is something that is not under their control. The contract mining business suffered the most as around 40 percent of their costs are in IDR while most of their revenues are in USD. The only way they can make up for the difference is if mine owners were to increase production.
ƒ Margins in the heavy machinery business also seemed to be under pressure despite the fact that only 10% of cost is in IDR. Why? This is more to do with the product mix. In 1H11, due to high demand from the mining sector, volumes from equipment, especially the big machinery, made up for a larger proportion. Equipment sales, especially the big ones, command lower margins than after-sales services and small to medium size equipment.

Current view:
ƒ While we are impressed with the company's achievements, we believe the strong currency is going to weigh on their performance. The fact that valuation is also extended makes us cautious on the stock. Maintain HOLD, TP IDR24,500, prefer to get exposure through ASII IJ, TP IDR80,000.

Semen Gresik (SMGR IJ; CP: IDR8,900; BUY) Target Price: IDR11,550 - BNP Paribas

Key issues
ƒ Despite pressure from rising energy costs, Semen Gresik margin in 2Q11 was relatively unchanged. The management attributed this to their cost efficiency programme for which they have been using more medium-low grade coal, alternative energy sources (ie rice husk and sugar cane). In 2010, Gresik still used high grade coal for 30% of its coal requirement, and now they only use medium to low grade coal.
ƒ Management believe margins will remain sustainable in the medium term despite the threat from new players. It will take time for new players to fully set up their operations in Indonesia, especially to build distribution networks and strong brands. Over the longer term, if the new players have established their networks, EBITDA margin could decline to 31-32% from the current 33-34%.
ƒ Management remains focused on profitability rather than market share, and ASP can go up higher in 2H to protect margin from rising energy costs. Management remains positive on the demand outlook and this year and is targeting 19.5m tonnes of cement sales.

Questions raised
ƒ Update on the new mills construction? The completion of the new mills is running on track. As at end June 2011, the plant in Tuban reached 89% completion while the Tonasa V plant was at 88%. The new mills are expected in operation next year and the management expect utilisation rates of up to 70% during the fist year production.
ƒ Why did cement prices only rise 2-3% this year? Some smaller cement companies want to get more market share by maintaining their price. Nonetheless, as margin started to be affected by rising energy cost, cement price would go up in 2H.

Current view
ƒ We remain positive on Semen Gresik, especially with its new capacity next year, which will allow them to regain some of the market share. Cost efficiency has been one of the main strategies from Gresik’s management to deliver profit growth given their limited excess capacity, and it has started to contribute this year. We also share the same view with management that new players will not affect their margin and market share in the near term as it will take sometimes to set up distribution network and strong brand. BUY with TP IDR11,550.

Mitra Adiperkasa (MAPI IJ; CP: IDR4,325; BUY) Target Price: IDR4,800 - BNP Paribas

Key issues
ƒ Recent results show that their strategy of targeting the middle to upper middle class is paying off. With the EBIT margin already achieving 10%, partly due to completed brand consolidation with pruning underperforming brands last year (especially the high-end brands), by year-end management expect margins to further improve by 20bp. In the next couple of years, margins are expected to improve by 50bp due to continued operating leverage gains.
ƒ Management will continue its strategy of growing its sports segment and F&B brands in the 2nd and 3rd tier cities, but will for now focus their fashion specialty stores in Jakarta due to higher purchasing power.
ƒ Best performing brands are Sports Station, Reebok and Converse for sports. Zara, Marks and Spencer, Topman and Topshop for fashion. Starbucks, Burger King and Domino’s Pizza for F&B.

Questions raised
ƒ Given that the in the 1H the company only opened 77 stores covering 14,000 sqm, can it achieve the projected 40,000 sqm this year? No, management believes that this year they can only expand its retail area by 30,000 sqm. This is due to the fact they have just consolidated their contractors to one, and execution takes time. Management believes that they should have no problem in achieving the 18-20 percent sales growth.
ƒ What is your biggest concern at the moment? Execution – how to execute the plan. We believe that the economy is doing well and competition is still under control despite the two new recent entrants: lotte shopping and Parksons. These will still need to partially stock their stores with MAPI's brands.

Current view
ƒ We remain a believer that MAPI is one of the biggest beneficiaries of the so-called “demographic dividend” where Indonesia's growing middle class is starting to be able to buy non-staple goods and demanding quality. BUY, TP IDR4,800.

Lippo Karawaci (LPKR IJ; CP: IDR770; Not rated) - BNP Paribas

Key issues
ƒ The strategy is to have 50% of revenue from the development property and the est
from recurring income from hospitals, hotels and shopping malls.
ƒ Lippo keeps building hospitals and malls and targets to have 20 hospitals and 50 malls by 2015. After reaching positive EBITDA (usually three to four years after construction), they will be sold to the REITs, which are listed in Singapore.
ƒ Competition for new entrants in the property market is high, especially for foreigners, as the government does not give large development rights anymore. These were mostly given in the 1980-90's. Land prices have risen significantly, making it difficult for new entrants to generate similar margin to the old players.
ƒ For healthcare, the company plans to spend USD460m for the next five years with expected revenue of USD500m. The challenge is to attract good specialist doctors, for which Lippo gives partnerships, and importing the latest medical equipment. Quality differentiation is key in this business and one of their hospitals is accredited by JCIA, putting it at the same service quality with Mount E hospital in Singapore.
ƒ For retail malls, they are banking on c.70m middle-income people (with household income of >USD10,000) which is growing at 10-15% pa.
ƒ The company has delivered three towers in Kemang Village with around 700 units. About 30% of the buyers in Kemang Village are Korean and Japanese.
ƒ LPKR is now the largest property counter with market cap of USD2b, 43rd largest counter in the JSX and 13th most active stock in the market.

Questions raised
ƒ Will the company enter into major cities or secondary cities? Both, depending on the size and economics of the area. This is good for all products: housing, malls and hospitals.
ƒ What is the GDP in Jakarta and other cities and what is the average housing selling prices? Jakarta per capita GDP is USD10,000 and Balikpapan is USD17,000. Selling price is around USD700-800/sqm in Karawaci plus around USD500-600/sqm for construction.
ƒ Who are the main competitors? In Serpong area they are Bumi Serpong Damai (BSDE IJ, Not rated), Summarecon (SMRA IJ, Not rated), and Alam Sutera (ASRI IJ, Not rated).
ƒ What is the gross margin? 35% for high-rise buildings and around 40-50% for landed property.

Current view
ƒ Not rated.

Intiland Dev (DILD IJ; CP: IDR300; BUY) Target Price: IDR600 - BNP Paribas

Key issues
ƒ Development progress on existing projects is doing well with 1Park Residences performing better than expected in terms of presales (75%) and construction. Will launch second phase by end of the year.
ƒ The management is still talking with a prospective foreign sovereign wealth fund to build the TB Simatupang area and a Japanese partner for 1Park Residences phase 2 with the aim to get the branding as well as future cheaper funding. If agreements can not be reached they will still go ahead with the projects with sufficient bank loan facilities from Bukopin, BCA and Bank Mayapada.
ƒ The first ID Homes, a small development area with 20% gross margin located in south Jakarta, is 75% sold and is expected to be sold out this year. They are buying 10ha land ex Villa Delima in South Jakarta to build and sell houses with the price range of IDR1.6-4b each.
ƒ For the budget Whiz hotel, there are eight confirmed locations plus six more likely to be confirmed all over Indonesia. The second hotel will start operation in
November 2011 in Semarang (148 rooms). Occupancy rate in the first hotel in Jogja is better than expected at 80%.
ƒ The industrial land in E Java is doing well with plans to expand the area and to
acquire more land in the same area.
ƒ The permit issue for Graha Natura and the Tangerang development is expected to
be resolved within 1-2 months, upon which they can book the marketing sales into
P&L for Graha Natura.
ƒ The company did not report high revenue growth in 1H as with other property companies, given that their new projects were only started last year and it takes
12-18 months for marketing sales to be recognised in income statements. They expect a continuity of sales recognition in the coming quarters. Talaga Bestari to the west of Jakarta has launched new clusters with new facilities selling at higher prices (double the previous prices). This is expected to support revenue in 2H11 and 2012.

Questions raised
ƒ What is the profile of 1Park Residences buyers and their price appreciation so far? Most of them are from the Kebayoran Baru area with 50% planning to live in the apartments, 50% for investment purposes. About 80% bought using instalments and the rest using bank mortgages. The price has gone up from IDR11.5m/sqm when they first launched in 1Q10 to the current level of IDR16m/sqm.
ƒ Will the company expand the industrial estates outside East Java and what is the expansion plan? No, they will concentrate in East Java given less competition, lower prices and good relationships with the authorities. Intiland is working to acquire 300ha land bank for industrial parks.
ƒ What is the expected capital expenditure? IDR1t in 2011 and IDR1.5t in 2012.
ƒ Why are there no new developments for the Surabaya market? Graha Natura will be launched within 1-2 months while the company has to keep revising plans to develop the 2-km commercial area in Graha Famili as the land prices have increased significantly, making it less attractive if they sell the projects using the current plan.
ƒ Why has management swapped between Hendro Gondokusumo and Lennard Ho? Hendro has been in the industry for 40 years and his expertise and connections is required for government licenses. Decision making should also be faster.

Current view
ƒ Trading at 67% discount to the estimated RNAV, we maintain our BUY call on Intiland with TP of IDR600, based on 40% discount to the estimated RNAV.

CP Indonesia (CPIN IJ; CP: IDR2,625; Not rated) - BNP Paribas

Key issues
ƒ Normally volume for both feed and DOC have grown at a rate of 8-12% per annum since 2004. In the 1H, these have grown by 15% and 12% respectively, indicating that demand is strong supported by the fact that poultry consumption is still low compared to the region and rising disposable income.
ƒ Despite challenges in rising raw material prices, the consign has been able to increase the ASP for it's feed from IDR4,300/kg last year to IDR5,100/kg in 1H11. Margins in the mean time did compress from the 23% level to around 20%.
ƒ The company measures ability to raise ASP for both feed and DOC from farmers' profitability. At the end of the day the farmers have to be profitable for the company to be profitable. Typically, in a year where there are 6.6 cycles, at the most two of them will be loss-making for the farmers. Should the farmers become unprofitable for more than two cycles then there is incentive for them to stop farming.

Questions raised
ƒ Processed chicken accounts for only 9% of total revenue but is growing very fast at 60%. What is driving this growth? Mainly increased penetration in the traditional market by increasing the number of freezers which CP has financed and leased out to store owners.
ƒ Does the company plan to increase the processed chicken business to the same scale as its sister company in Thailand (30% of total revenue)? Yes, plans to achieve 20% in the next five years.
ƒ Does the company plan to enter into farming? In the mid term this is the plan, especially when the processed chicken business becomes sizeable becomes a captive market for the large-scale farming business. Currently it is still not cost effective given the scale and huge requirement for working capital.

Current view
ƒ Not rated.

Ciputra Development (CTRA IJ; CP: IDR520; Not rated) - BNP Paribas

Key issues
ƒ CTRA has launched six housing projects in 1H11, out of the 12 planned for the year. All of them are outside Java Island under a joint operation with the land owners, with low risk for the company. Going outside Java is due to the economic growth within the 40 secondary cities in their roadmap for future projects. The target is to launch five new projects a year in the long term.
ƒ The subsidiary opened a retail area in Ciputra World in Surabaya on 22 July with Metro Department Store as the major tenant. 85% of the retail space is already leased at IDR120,000/sqm/month. The apartment project is 92% sold and will be delivered at the end of the year.
ƒ Another subsidiary has launched Dipo Business Center in Jalan Gatot Subroto in Jakarta, for strata title sales. This is a joint operation with Dipo Group, which will take 60% of the space when it is completed in mid-2013. The same company will
soon launch Ciputra World lot 11 which will consist of five luxury apartment towers in a 3ha land plot, four of them to be sold and one for serviced-apartments. They will build two towers (350 units each) in the first phase with completion slated for 2015.
ƒ CTRA is also building hospitals with the first one in Tangerang to start operation in September. They plan to build more hospitals located in their development areas with technical assistance from consultants to run it. Yield on the hospital business is projected at 15%.
ƒ Undeveloped land bank is 1,137ha (gross area) plus developed land of 513ha as of
June 2011. Net asset value is calculated by an independent valuer at IDR933/share as of December 2010.

Questions raised
ƒ How much has the land price increase been so far and will the upcoming bill on land acquisition for public use benefit land price? In the Jakarta area, land prices increased around 20% pa in the past three years compared to around 10% pa in other cities. The new bill will have direct positive impact on the infrastructure developers but there will be indirect impact on land prices for property developers.
ƒ Is there a property bubble? Not really, as property developers have been managing the supply and demand to control the price increase. Besides, there are no more new license for big developers which makes property prices in major development areas continue to increase as people want to live in better places.
ƒ Is property still affordable? Yes, with rising income and lower mortgage rates, people can afford it. Average down payment is 20% and mortgage rates are single digits.
ƒ Why is Ciputra going into the hospital business and what is the plan for this? This is to compliment the existing property developments, given the lack of good public hospitals and rising demand for healthcare. With the expected return of 15%, the company is looking at several other cities with Jakarta and Surabaya being the likely places for new hospitals.
ƒ What is the expected capex? IDR1.5t-2t for 2011 and IDR1t for 2012. The company plans to add IDR1t new loans in 2011 to complete the projects.
ƒ What is the expected marketing sales and profit for 2011? Ciputra expects IDR3.1t marketing sales in 2011, of which IDR1.5t was already booked in 1H11. Net profit is expected at IDR300b compared to IDR258b in 2010.

Current view
ƒ Not rated.

BW Plantation (BWPT IJ; CP: IDR1,190; BUY) Target Price: IDR1,590 - BNP Paribas

Key issues
ƒ Management raised their production growth target to 15% from 10% given continued strong monthly production data. In 1H11, BW CPO production increased by 54% y-y, but this is coming from a low base, as CPO production in early 2010 was very low. In 2H, management expects production growth to normalise.
ƒ Production costs were down 6% in 1H11, which continues to highlighted BW’s competitive cost efficiency. For the first time, BW’s EBITDA margin went above the 60% level in 1H11.
ƒ Through their R&D, BW has adopted an early harvesting programme from which they can enjoy the first production 30 months after planting – faster than the traditional 48 months. Production during the first year is also expected to be higher at 12 tonnes FFB/ha vs 7-8 tonnes FFB/ha traditionally.
ƒ With the expected strong production growth (20-30% pa), management expects positive cashflow in 2014. BW will continue to expand its planted area, targeting 10,000 ha expansion pa.

Questions raised
ƒ Any plans to go downstream or enter the rubber business? BW will only focus on expanding its palm oil business. Expansion into downstream businesses or rubber is not on management’s agenda.
ƒ What kind of seeds does BW use given its much higher productivity than peers? BW mostly uses palm oil seeds from Marihat, which are also used by most plantation companies in Indonesia. High productivity is mainly driven by BW’s effective mechanisation process, which is maximising production output while reducing the potential of oil loss during the harvesting process.

Current view
ƒ We like BW on its strong growth potential starting next year. With 70% of its planted area still immature, BW should enjoy a stronger growth trajectory ahead of its peers in the sector which only have an average ~28% of their planted area still immature. With its above average medium-term growth, we believe BW has a better cushion for its earnings in the event of lower CPO price. BW is our TOP PICK in the sector with TP IDR1,590.

Borneo Lumbung (BORN IJ; CP: IDR1,320; Not rated) - BNP Paribas

Key issues
ƒ One of Borneo’s biggest challenges is whether the company is able to ramp up production from 3.6m tonnes to 15m tonnes by 2016. The availability of heavy equipment has become a major issue, management said. It needs an average of 18-24 months delivery time for some heavy equipment.
ƒ Borneo’s challenging transportation route through the Barito River, given the occasional low water levels on the upper north part of the river during dry season, is likely to halt coal shipments. Management is considering an alternative transportation route through the Mahakam River as well as storing up coal in the middle part of the river’s ISPs, which enables Borneo to continually ship coal.

Questions raised
ƒ What is Borneo's capex this year? Around USD197.5m, of which USD172.3m is to purchase mining equipment, and the rest for the infrastructure expansion. ƒ What is management’s projection on production volume for this year and next year? This year's production will be around 3.6mt, and expect 4.6mt in 2012.
ƒ Does Borneo have its own heavy equipment unit? Yes. Borneo owns its heavy equipment rental company, PT Borneo Mining Services.

Current view
ƒ Not rated.

Bakrie Sumatera (UNSP IJ; CP: IDR395; HOLD) Target Price: IDR460 - BNP Paribas

Key issues
ƒ The debt restructuring process on ex-Domba Mas oleochemical plant was completed last month. The management expects the Kuala Tanjung Line 1 facilities will start production soon. In the next 3-9 months, the management is targeting to start up commercial production for the remaining Kuala Tanjung facilities.
ƒ While BSP enjoyed strong CPO production growth of 36% y-y in 1H11, its homegrown rubber production was down 8% y-y mainly due to aging tree profile and replanting programmes which resulted in 5% decline on rubber mature hectarage in 1H11. Rubber production is expected to remain flat until 2012 due to replanting.
ƒ The BSP Greenfield Project (11,133 ha) in Central Kalimatan will start its first
production this year, and BSP will build new CPO mill next year.

Questions raised
ƒ What is the performance of the oleochemical business so far? As of 5M11, oleo revenue reached IDR169b, which mainly comes from the Tanjung Morawa Fatty Acid plant.
ƒ When do you expect the oleochemical business to operate at full capacity? With the completion of the debt restructuring process, the Kuala Tanjung facilities are expected to enter the production stage soon, and the remaining facility will be ready in the next 3-9 months. The best year would be 2013, when the whole facility is expected to run at full capacity.

Current view
ƒ While the debt restructuring of the oleo plant has been completed, we think the execution risk is still high which could disappoint the market. The new oleo business has been anticipated by the market as the main growth booster for BSP, but during the process, some delays on the debt restructuring has hampered the re-commissioning of the whole facility. Any more delays on the earnings delivery from this business could further increase the discount factor to BSP valuation. HOLD maintained with TP of IDR460.

Bakrie & Brothers (BNBR IJ; CP: IDR64; Not rated) - BNP Paribas

Key issues
ƒ The global financial crisis in 2008 resulted in the company posting hugely negative retained earnings and very high debt levels. The company plans to engage in quasi restructuring and debt restructuring which is expected to be completed by the end of the year. The results will bring its equity base to around USD1.2b and debt levels to USD650m-700m.
ƒ Bakrie Brothers also has in place a new management team, which is expected to restructure some of the existing businesses. These range from minority holdings of listed Bakrie entities such as Bumi Plc (BUMI IJ), Bakrie Sumatra Plantation (UNSP IJ), Bakrieland (ELTY IJ), Bakrie Telecom (BTEL IJ) to the non-listed businesses which includes Metal, Infrastructure and Energy Trading. The long-term plan is to reduce equity stakes at the listed Bakrie entities to raise funds and invest in significant unlisted businesses where the Bakrie name will help gain deal flows in

strategic sectors.
ƒ The company trades at significant discount to its NAV (using the market value for the listed entity and book value for the non-listed entities). Management estimates that the NAV is around IDR120/share vs current share price of IDR64. The huge discount is probably attributed to corporate governance issues.

Questions raised
ƒ Which businesses will be the focus for the new management? The domestic driven sectors such as energy, pipelines and infrastructure.
ƒ How will the group fund its investments given its plans to deleverage its balance sheet? Through partnering with foreign investors and raising funds from selling equity in the listed companies under its portfolio.
ƒ How much does the Bakrie family currently own in Bakrie Brothers? 45%. Between 17-20% is owned by foreigners and the rest by domestic investors.

Current view
ƒ Not rated.

ASEAN Conference: Post Conference - BNP Paribas

ƒ Strong attendance: 120 fund managers from 52 firms
ƒ Continued infrastructure investment within the region
ƒ Consumption strength rising across-the-board
ƒ Property to gain from rising prices and high demand

Overall positive outlook
Strong attendance: 120 fund managers from 52 firms Our ASEAN Conference in Singapore was extremely successful. This year marked our 17th year and the 30th series of BNP Paribas ASEAN Corporate Days. It was also the second of our new series of BNP Paribas Thematic Corporate Days this year. More than 120 fund managers participated in group presentations and one-on-one meetings at the
event. This is a testament to investors’ interest within ASEAN, which is showing both strong growth and improving profits, in contrast to the negativity sees in OECD markets. During the three days, companies from the key investment themes within ASEAN – Transport, Infrastructure, Commodities, Consumer, Finance and Properties – presented at the conference. We highlighted companies representing sectors that we believe will be direct and indirect beneficiaries of increased consumer spending, commodity/food, power, travel and financials, and property and
infrastructure development.

Continued infrastructure investment within the region
ASEAN countries will see continued investment in infrastructure through development of power plants, toll roads, property, telecommunications and supporting service industries. More investment is needed to step up infrastructure enhancement, providing big opportunities to the listed companies. We present companies involved in power production and energy and those in the telecommunications industry. For this theme, we have a BUY on XL Axiata (EXCL IJ, BUY).

Consumption strength rising
Consumption spending is rising in ASEAN, and coupled with demand from China and India, this sets the backdrop for firm demand for oil palm, rubber, vegetables and coal, for which we have positive views and price outlooks. We believe under-investment in agriculture in Asia, along with the impact of weather disruptions, will result in firm-to-higher commodity prices. We showcase upstream and downstream players who will share their experience in coping with rising demand whilst maintaining costs.

For the Consumer and Commodities theme, we hosted soft commodities’ companies and Indonesian coal/energy players as well as vegetable and poultry companies. We also featured hotel and mall operators in our corporate line-up. We have BUYs on KL Kepong (KLK MK), BW Plantations (BWPT IJ), China Minzhong (MINZ SP), Golden Agri (GGR SP), Mitra Adiperkasa (MAPI IJ) and Semen Gresik (SMGR IJ).

Property to gain from rising prices and high demand
The finance and property sectors are poised to benefit from a resilient ASEAN economy. The property sector in general stands in good stead to gain from both rising property prices and greater demand for quality homes, although residential policy and supply conditions remain key risks in countries such as Singapore. We expect this theme to play out over the next two years. Our corporate line-up, which ranged from REITs to developers, fit this profile well. We have BUYs on Intiland (DILD IJ) and office-focused K-REIT (KREIT SP).

Indonesia Market Outlook Indonesia: A place to hide? (update3) - BNP Paribas

How to position in Indonesia?
The recent correction has resulted in valuations retreating to more reasonable levels. The Indonesian market is trading at 13.5x our 2012 earnings estimates, around 1 standard deviation from the mean. We believe this is justified to reflect the tremendous progress that Indonesia has made.

As we are likely to enter into turbulent times when external factors are likely to be the main drivers of the market, we maintain our stance since the beginning of the year that it is better to focus investments on the domestic sectors such as banks, consumers and cement and to stay away from the commodity sector as it is facing uncertain demand outlook as the large global economies are struggling. So far this year, this has proved to be the right call.

Our top picks are as follows:
Astra International – We believe Astra is the best proxy to play the structural trend where the fast-growing middle class is now able to buy large-ticket discretionary items such as cars as GDP per capita is now already at USD3,000. We expect this trend to accelerate when GDP per capita reaches the threshold level of USD3,700. In the meantime, continued ample liquidity should make financing widely available and interest rate low. Trading at 13.8x 2012E earnings, we find valuations still reasonable. We have a TP of IDR80,000.

ICBP – The company is the largest instant noodle producer, benefiting from potentially lower soft commodities prices and strong currency. Trading at 17.3x 2012E P/E does not look stretched compared to regional peers. Our TP is IDR6,600. MAPI – with 90+ world-class brands which include the likes of Zara, M&S, Starbucks, and Reebok targeted at the middle class, the company has a first-mover advantage in reaping the benefits of its investments. A very strong bargaining power with malls given its brands is another advantage. The 1H results prove that the company is delivering on earnings through operating leverage. Our TP is IDR4,800.

BBRI and Mandiri – we believe the banking sector’s strong growth is not at threat as liquidity remains plenty while NPL is still very much under control. The potential regulation that could limit ownership of one controlling party is not applicable to the state-owned banks, hence we believe the likes of Mandiri and BRI should do well.

Indocement – Despite posting lower-than-expected earnings in 1H11, we believe 2H11 will be better as the company looks ready to increase prices due to cost pressures. Given the current environment, we expect energy prices to decline, easing pressure on costs. We find the stock attractive at 11.1x 2012E P/E. Our TP is IDR 21,500

Indonesia Market Outlook Indonesia: A place to hide? (update2) - BNP Paribas

What are the mitigating factors?
Despite the above-mentioned pressure points, we see mitigating factors that should allay the concerns. These include:
1. Indonesia is a domestic-driven economy, less susceptible to global demand shocks. In his recent report Indonesia – Still a Good Bet, our economist, Chan Kok Peng, pointed out that Indonesia is more insulated compared to the rest of its ASEAN neighbours in case of global demand shocks. Based on the econometric study done by the Asia Competitiveness Institute, an academic research institute in Singapore, which takes into account both intermediate and final demand for exports, it shows that for 1% change in demand from the US, EU, China and Japan, the change in Indonesia economy is smaller than most of its ASEAN counterparts

2. More reasonable oil prices. The current global uncertainties have resulted in oil price retracting its upward surge to USD82.8/barrel. This is positive for the Indonesian government budget, as fuel price for private consumption is still subsidised. The pressure for the government to raise subsidised fuel prices has reduced since the government budget assumes an oil price of USD80/barrel. In the past, large increases in fuel prices have led to higher inflation, putting pressure on the current account which eventually hit the currency. This time the situation is different with the current account stronger and inflation under control, not to mention that the IDR is continuing to strengthen. Even though the government budget (assumes a deficit of 1.7%) would remain sustainable even at an oil price of USD120/bbl, lower oil prices is positive since the funds allocated for fuel subsidy could be put to better use for developing infrastructure for example.

3. Earnings remain solid driven by strong domestic demand and a stronger currency. The 1H11 results for companies under our coverage were strong with overall earnings growth of 27% y-y on the back of top-line growth of 18%. The results showed that earnings were slightly above expectations, with total net profit accounting for 50% of our full-year forecasts. We deem this to be slightly ahead, as some of the large sectors such as banks, consumers and auto are seasonal with 2H usually posting higher earnings than 1H.

We expect earnings growth to remain sustainable looking at the recent experience in the global financial crisis. At the end of 2008, we had cut our overall earnings by around 20%, resulting in flat earnings growth for 2009. We were proven wrong as overall the companies under our coverage delivered earnings growth of 13.2% in 2009 despite commodities posting a 6.6% earnings decline. This is proof that earnings can remain resilient in admittedly the toughest environment since the Asian crisis in 1998.

Indonesia Market Outlook Indonesia: A place to hide? (update1) - BNP Paribas

ƒ Supported by strong fundamentals, Indonesia outperforms YTD
ƒ Indonesia more resilient to external headwinds given domestic focus
ƒ There are pressure points, but look to be manageable at this point
ƒ Good opportunity to BUY banks, consumers and cement

Supported by strong fundamentals, Indonesia has outperformed YTD. After surviving the first half of the year relatively unscathed from the continued escalation of the European debt crisis, the market finally caved in on US growth scare and the US sovereign downgrade. The market has lost about 6.6% in the past two trading sessions.

While the market could remain volatile for a while longer, it is worth pointing out that the economy remained resilient during the recent global financial crisis, having delivered GDP growth of 4.5% in 2009, while earnings growth was relatively robust at 13.2%. This time around too, we expect the economy and the stock market to be able to weather the onslaught of external factors.

The pressure points for the economy and the market, in our view, will come from: 1) a potential reversal in funds inflow, 2) current account potentially turning negative if the slowdown in exports due to weak demand is not matched by a slowdown in imports, especially capital goods, and 3) lower commodities prices could result in earnings downgrades for commodity stocks, which account for 20% of total market cap.

There are mitigating factors at play as well. For example, the relatively insulated economy due to less dependency on exports resulted in the country being more resilient to global demand shocks. In addition, lower commodity prices are not necessarily bad for the economy as lower oil price will also reduce the burden of fuel subsidy in the government budget.

The recent correction has resulted in valuations retreating to more reasonable levels. The Indonesian market is trading at 13.5x our 2012 earnings estimates, around 1 standard deviation from the mean. We believe this is justified to reflect the tremendous progress that Indonesia has made. As we are likely to enter into turbulent times when external factors are likely to be the main driver of the market, we maintain our stance since the beginning of the year that it is better to focus investments on the domestic sectors such as banks, consumers and cement and to stay away from the commodity sector.

What are the pressure points from US sovereign downgrade?
Indonesia's excellent performance YTD has been driven by the fact that it is partly seen as a "safe haven" for investments. Structurally, stronger economic undamentals which have been proved to be resilient in the recent global financial crisis are seen as a good bet given the uncertainties in the US, Japan and Europe.

The recent US downgrade by S&P will probably not affect Indonesia much from an economic standpoint, as Indonesia is basically a domestic-driven economy. Thus, the country is less dependent on exports than its peers in the region. The downgrade could further weaken the USD, but the pressure points could come from the following factors:
1. A reversal of funds inflow
Year to July, Indonesia recorded an inflow of USD2.7 b vs. only USD2.4b in 2010. If risk aversion increases and if Indonesia is seen as a riskier market despite its solid fundamentals due to the lack of depth and breadth, this might trigger funds outflow. However, investors still remember that this is what happened during the global financial crisis and despite the sharp correction, the market rebounded strongly and subsequently touched new highs

2. Current account turning negative
This could be the case if the domestic economy continues to grow at a fast pace, driving imports (especially for capital goods partly due to strong FDI), while exports would not grow as fast due to global uncertainties undermining demand. If the current account turns negative, it could undermine the balance of payment (BOP), especially in the event that the FDI levels off. This could eventually hit the IDR. However, given the tendency of a stronger IDR as a result of the US sovereign downgrade, this risk could be mitigated.

3. Weaker commodity prices
Around 50% of Indonesia's exports are commodity-related: oil and gas, vegetable oils and crude materials. The weak economies in the US, Europe and Japan are likely to reduce demand for commodities. Add to that the fact that a stronger IDR is generally unfavourable for commodities, this could result in lower earnings for commodity companies, which account for around 20% of Indonesia’s total market cap. We believe this can be partly offset by earnings upgrade from domestic companies whose raw materials are commodity-based (hence USD-linked), so the potential impact may not be as bad.

Asia Macro Matters: Excess Liquidity Indicator – an update - BNP Paribas

The 9 August decision by the US Fed to maintain interest rates to at least mid-2013 augurs well for our proprietary BNPP excess liquidity indicator. As of end July, this indicator shows growth of 9% y-y. While it is near its historic peak, it would need a sharp downturn to cause us to turn bearish. We do not think this is likely to happen anytime soon as the fed fund rate is expected to stay low and the USD is forecast to stay weak.

From an Asian perspective, the continued expansion in our excess liquidity indicator has two major implications. First, it would mean foreign reserves will continue to rise steadily and boost money supply in the region. Indeed, Singapore’s foreign reserves shot up to a new peak of USD249.1b in July, up by USD6.9b in June and in the process pushed interest rates down and money supply growth up 19% y-y in June. This is the same for the rest of the region where their foreign reserves have also been rising steadily: Korea (+USD6.6b to USD401b), Indonesia (+USD3b to USD123b), Thailand (+USD2.7b to USD187b), Philippines (+USD2b to USD71b) and Malaysia (+USD1.1b to USD135b) .

Second, it may not sound correct right now but the robust growth in our excess liquidity indicator is good news for Asian equity markets over the medium term. Note the correlation between our excess liquidity and the MSCI Asia ex-Japan is 0.665. In our view, a correlation any higher would mean that other drivers will be irrelevant. That said, current negative sentiment (arising from the fiscal problems in the EU and concerns over the potential for a double-dip recession in the US economy) can and will drive equity markets down from time to time.

The bottom-line here is that Asia’s liquidity conditions remain at a very robust level, which in our view will put them in a strong position to counter the currently volatile global financial markets. This is especially so as their fiscal positions are also in excellent shape with their public sector debt below 60%.

PGAS Protecting its rights = BNP Paribas

§ PGAS holds conf call to address concerns on gas price review
§ Management stance is clear, to firmly protect its rights in contract
§ Gas supply from Conoco has started to improve
§ Good value at current level, BUY with TP of IDR4,925

PGAS management held a conference call on Tuesday to address concerns
about the recent proposal by BP Migas (Indonesia’s upstream oil & gas regulator)
to raise the gas purchase price.

Key takeaways from conf call
1) PGAS will not consider BP Migas’s proposal to raise the gas purchase price,
as the contract with Conoco (COP US, not rated) has strong legal grounds and
PGAS will protect its rights. Management stressed that it could not give away rights that already belonged to the company without a proper process or without a clear balanced approach to the overall equation. PGAS will continue to hold serious discussions with BP Migas and, to avoid excessive conflict, the matter will be coordinated at a higher level involving various ministers (not only with BP Migas). 2) Management will consider reviewing the gas purchase price only if there’s any potential gain from a price review, ie more gas supply security as well as additional gas volume. Management re-affirms that it will maintain its margin and profitability. Any increase in the gas purchase price will be passed on to customers. 3) BP Migas has offered PGAS potential new supply (from Conoco’s gas field) of 100-110mmscfd for four years at USD17/mmbtu. While PGAS is interested in
this new supply, it wants a proper deal process on pricing as well as some potential liabilities attached to the contract, as the offer deadline was too short (only two days). 4) On a more positive note, gas supply from Conoco has started to improve and in the past two weeks the gas flow has reached 350-370 mmscfd. In 1H11, the average gas flow from Conoco was only around 300mmscfd, due to diversion to Chevron (CVX US, not rated) to support its oil lifting.

Attractive at this level, BUY with TP of IDR4,925
The market reaction to BP Migas’s proposal has been severe, with the stock down 20% in the past week (also affected by the current market meltdown to some extent). With management’s clear stance that it will firmly protect PGAS’s interest and rights in the contract with Conoco, the concern appears to be over-done. We find the stock attractive at current levels and would see any further correction as an attractive opportunity to accumulate. We have a BUY call on PGAS with a TP of IDR4,925.

BBRI Micro lending still the key - BNP Paribas

ƒ BRI continues to increase micro lending activity
ƒ We expect NPL to decline in 4Q11
ƒ BRI's 2011E ROE of 30% is the highest in our bank universe
ƒ We raise TP to IDR8,000, maintain BUY

Increases micro lending further
Bank Rakyat (BRI) has guided to increase micro lending, which accounted for 31.6%
of total loans as at June 2011, up from 27.4% a year ago. Its exposure to
corporate lending has reached 19.9% of total loans, close to its limit of 20%. Total loans increased 19% y-y in June 2011 with micro loans up 37% y-y and
corporate loans up 24%. Loans to small enterprises grew 2% y-y but those to
medium enterprises fell 7% y-y. This loan composition helped improve net interest
margin (NIM) to 9.8% in 2Q11, from 8.8% in 1Q11, with cumulative NIM of 9.2% in 1H11 vs. 9.4% in 1H10.

NPL to decline in 4Q11E
Non-performing loans (NPLs) increased to 3.6% in June, from 3.1% in March, due to rising problem loans in the corporate, medium and small commercial segments. Management indicated that the bank expects NPL to rise further in 3Q11 but should drop in 4Q11. We believe this can be achieved through write-offs and improvement in some of the problem loans. This cycle was similar to the one recorded in 2009 and 2010. BRI wrote-off IDR2.5t in 2009 and IDR5.0t in 2010, representing 1.2% and
2.0% of the year-end outstanding loans. Meanwhile, NPL in micro lending is now at 1.6%, up from 1.5% in March 2011. Given the track record, we do not expect NPL in micro loans to surpass 2%, the level which was last recorded in 2005.

ROE remains the highest in our bank universe
Supported by high NIM and managed operating costs, we expect BRI to maintain its high ROE of 31.9% in 2011 and 30.5% in 2012. Although this level may not be sustainable in the long term, we believe BRI will still record one of the highest ROEs in our sector universe, at 28-30% in the next three years.

TP raised to IDR8,000, maintain BUY
We raise our EPS forecasts by 2% for 2011 and 3% for 2012, on the back of a slight change in loan composition towards micro lending, resulting in higher margins and lower provisioning charges. Rolling over our valuation base to 2012E, we adjust our TP to IDR8,000 (IDR7,300 previously), valuing the stock at a target 3.3x P/B (using GGM model, which assumes ROE of 26.5%, cost of capital 12.5% and growth rate 6.5%). Risk to our TP is a rapid increase in interest rate, which may affect asset quality

BSDE:Upping target price by 23% - Mandiri

BSDE released 1H11 results with net profit booked at Rp388bn (113% YoY; 40% QoQ), which was above ours (50.5%) and street’s estimates (52,9%). While its operating performance was in line with ours and consensus, the surprise in bottom-line came mainly from interest income which more than doubled (+113%yoy). We expect higher revenue booking in 2H11, in realization of 60% FY10 residential sales. We reiterate BUY call on BSDE, with upgraded TP by 23% to Rp1,350/share, using 12F rolling valuation. The stock is currently trading at PE12F of 15.3x and 60% discount to RNAV12F.

Operational booking should be higher in 2H11. BSDE’s above estimate 1H11 results were much determined by accounts below operating level. Interest income grew more than double (+113%yoy) to Rp109bn that improved pre-tax margin to 40.9% vs. 1H10 of 38.1%. In the meantime, operating profit represented 43% of our FY11F estimate, which we consider in line due to seasonality factor. About 60% of the company’s FY10 residential sales achieved in 2H, therefore we expect higher revenue booking in 2H11. Despite of surging 1H11 interest income, the company does not revise its FY11F earnings guidance of Rp700-750bn, which may indicate that the interest income will not recur in 2H11.

Debt as primary bullets for near term expansion. Considering its cash rich position, the company stated that it will pay off its Rp1.1tn maturing debt in 2012 using internal cash which will bring the company into net cash position (-0.28x net gearing ratio). This strong balance sheet will be the company’s bullet for any prospective expansion. We think debt-driven expansion will be a decent choice in the near term, in our view. The most recent issuance by a single-A rated property company like BSDE yielded 9.5%-11.5%, while property project’s IRR today is around 15-25%.

Short-term catalyst: W2 toll-road and continue mild mortgage rate. In the meantime, we see short-term catalyst for BSDE would be the construction of the W2 toll road (exhibit 2). We expect South Jakarta office market to grow at the same time with the completion of the construction (target by 1Q13), hence will induce residential demand around the area, including BSDE. This will also be supported by increasing mortgage availability from banks whose interest rates are expected to remain mild at least for the near term.

Maintain BUY. We reiterate the BUY call on BSDE, with new TP of Rp1,350/share (+23%), using 12F rolling valuation. BSDE is still our top pick in our property space.

Indonesia Equity Strategy - Resilience Being Tested: Consumption Basket Continues to Outperform - JP Morgan

· Indonesia equity markets finally follow the region down, but continue to outperform: After behaving defensively for most of the last couple of months, Indonesia succumbed to pressure and has followed the region, declining 11% from its peak on 1 August. Notably though Indonesia has continued to outperform the EM & AxJ benchmarks on the way down by 4-6%. Indonesia was possibly the largest recipient of
equity inflows among Asian EMs YTD ($2.5bn), and we see outflows as the reason for the recent decline rather than any fundamental changes or linkages to external events.

· Bonds & F/X have been relatively stable – but bonds started to wither: Through the course of the last week – while equities have sold off, the rupiah has remained stable (down 0.6%) and the bond markets were untouched – lending some confidence that country perceptions were undiminished – and hence the equity dip could prove temporary. Ten-year bond yields, however, moved 13bps higher on Tuesday, and
coupled with the 7bps increase in CDS spreads could portend for a continuation of the correction in equities. We point out that while our bond strategists view Indonesia as overbought and possibly stretched after a recent rally, we think fundamentals remain robust – with inflation continuing to trend lower and the Finance Ministry forecasting that debt/GDP could fall below 25% by end FY11.

· What worked in 2008? So far in the decline, consumer staples have outperformed, while Mining and linked names (UNTR & Hexindo) have lagged. Discretionary & financial stocks have paced the index fall. We looked at sector performance in FY08 (Aug-Dec) for cues on the sector in an environment where external stresses and weak commodity markets dominate the outlook. While defensive sectors clearly outperformed
(Staples, Utilities & Telcos) – the surprise to us was the substantial outperformance of Financials compared to the JCI (see table on page 2) as well as the neutral performance of property. At this time, we continue to see Domestic facing defensive sectors as safe havens – Staples standing out, but investors seeking to play a bounce by adding Beta could consider financials (BRI down 12.5%, BMRI 10.5% BCA 8%).

· The JPM Indonesia consumption basket – efficient exposure: The JPMorgan thematic consumption (JPHIJCON Index) has outperformed the JCI both on the way up and on the way down (by 2.9%) since we launched it in late August. We see the basket as an efficient way to gain exposure to Indonesian domestic demand, which we largely anticipate as being insulated to global events. We would continue to expect it to
outperform the broader market on the downside and into a rally.

CTRA:Solid, but better value elsewhere - Mandiri

CTRA booked Rp131bn in net profit during 1H11, which accounted for 46.5% of consensus estimate and 43.7% of ours. This is considerably good for CTRA, given historical revenue tends to be booked higher (55%-60%) in 2H. Quarterly earnings surged 211%, underpinned by significant 56% QoQ increase in landed-residential booking, combined with improving ASP. Our roll-over 12F valuation results in CTRA fair value of Rp944/share, which implies current share price trades at PER 23.5x and 44% discount to RNAV. Nonetheless, this looks expensive, in our view, as peers in our universe currently trades at an average PER of 20.6x and 56% discount to RNAV12F. We maintain Neutral on the stock.

Good 1H11 results. CTRA posted solid Rp131bn net profit during 1H11, grew by significant 45% YoY and 211% QoQ, which was above of our and consensus estimates. Strong 56% landed-residential booking during the quarter came as the main growth driver, supported by ASP acceleration, hence 1H1 gross margin improved to 47.1% vs. 1H10 of 46.0%. The upbeat trend should continue in 2H, although we expect margin to soften, due to more realization of apartment and new residential projects which incur lower margins.

Aggressive sales to boost profit, the highest in 7 years. In the meantime, CTRA’s 6M11 marketing sales were reported solid, reaching 48% of aggressively Rp3.2tn (+60%) FY11F sales target. The 12F profit is seen buoyant, as operating level we forecast will grow by 31% yoy, the highest at least in the past 7 years. Increasing mortgage availability from banks will remain as the main sales backbone that short term outlook is seen to continue favorable, in our view.

Outside Jakarta as main focus for residential going forward. The company assures commitment in taking active project expansion in order to sustain growth going forward. Outside Jakarta area will be its main focus for residential expansion, while Jakarta as the priority for high-rise projects.

Stay Neutral. Nonetheless, we maintain Neutral on CTRA, given the valuation. Our roll-over 12F valuation results in CTRA fair value of Rp944/share, implying current share price trades at PER 23.5x and 44% discount to RNAV. This is relatively expensive vs. peers in our universe that trade at average PE12F of 20.6x and 56% discount to RNAV.

Indocement (INTP IJ) raised prices 1-2% in selected areas in Java starting July by Di Shui and Dee Senaratne - CLSA

Few highlights of the meetings – see attached for details:
· INTP thinks that SMGR and SMCB have started to import clinker.
· This implies competitors are operating at full capacity, thus 1) incremental demand growth in 2H will be met by INTP; 2) both SMGR and SMCB should be happy to follow price increase (since imports offer low margins).
· INTP will start 2m tons debottlenecking project at Citeureup this year. 2 m more tons by 2013.
· Have identified Pati (C Java) as ground for new greenfield factory. In process of acquiring land, quarry, and requisite licenses. AMDAL study on going. Interesting to note Pati is where SMGR made a failed bid for new factory, because they could not get local gov't approval. INTP has central and local gov't support. Hopes to break ground in 2012. Factoring in 2.5m tons additional capacity by YE15,
· This will bring total capacity to 23.1m tons by 2015. Vs 18.6m at ye10. INTP is also considering another ex-Java project which would add 2.5m tons more by 2017. To be funded by large cash balance, and nearly US$500m of operating CF every year.
· Indo demand is picking up as we head into seasonally stronger 2H. More resilient than 2008 given FDI pick up. Margin upside from lower coal/fuel prices in 2H.
· INTP is best poised for upward earnings revision in 2011, given most excess capacity (volume upside) and higher ASP initiative. And growing pipeline of additional capacity strengthens longer term growth profile.
· INTP valuations looking attractive now trading at 11.9x earnings. We would be a BUYERS at these levels.

PGAS conf call highlights by Dee Senaratne - CLSA

Jayden, Amie and Dee participated on a PGAS conference call this afternoon on the company’s attempt to calm down investors post the heavy selling after it was reported upstream regulator BPMigas would potentially look to re-price key gas supply contracts that are currently priced at legacy rates below US$3mmbtu (this covers Conoco and Pertamina which represents currently ~70% of current supply).

The content of the call was somewhat fluid and not a whole lot was revealed or answered on the key concerns. Here are a few key points (see attached for details)

PGAS steered the call away from key cost concerns and towards the fact that it was looking to secure a new contract with Conoco at US$17mmbtu for an additional 100-120mmscfd. This represents ~15% additional volumes from current levels.
This potential new supply was originally allocated to a Singapore buyer who has expressed an interest to get out of the contract and instead PGAS would take the supply.
However reading into this issue a bit deeper it potentially allows everyone to save face. As PGAS would then be paying a blended Gas cost to Conoco ~US$6mmbtu (blending the US$1.8 + the new US$17) allowing the company/BPMigas to not have to break the original contract while PGAS pays market price.
PGAS gets additional supply but regardless the process is still margin destructive as their gas distribution margin will fall.
While we have been modeling lower margins for PGAS in our model in the outer years, this development now ultimately brings forward that margin compression much more quickly.
They also commented that they remain on track with regard to the construction of the LGN terminal which should start 1Q12.
Sounds like there will continue to be negative overhang as long as there is not clarity on the issue of gas cost increases.

Indo Coal Outlook, Earnings Buffer by analyst Jayden Vantarakis - CLSA

Jayden revisits the coal sector post recent market correction and has come out favouring coal miners with less leverage to spot for short term. There has been volatility of the Newcastle benchmark and spot prices. However ASPs for Indo coal producers remained relatively stable in 2009

From this perspective, Jayden favours ITMG (TP 56k) as top pick on good cost management and high dividend yield. No changes in TP nor earnings.

Key Points from the report:

· The 2 largest export destinations of Indonesia’s thermal coal are China and India. They represented 27% and 15% of exports respectively in 2010.
· Bukit Asam (PTBA IJ), Kideco (46% owned by Indika Energy (INDY IJ)) and Adaro Energy (ADRO IJ) are the key suppliers to domestic power plants.
· During the 2009 coal price reduction EBITDA margins remained stable. Only Bumi Resources’ (BUMI IJ) EBITDA margin contracted.
· ADRO and ITMG are the listed coal players least leveraged to spot prices under our coverage.
· Spot Newcastle thermal coal is highly correlated with oil prices. Both are key regional and global energy commodities.
· As 25% to 30% of Indo coal producers’ cost is diesel, this correlation provides a buffer to coal price volatility.
· ITMG offers high dividend yield of 6% to 7% over 2011CL to 2013CL. The company hedges diesel and coal on an annual basis, removing spot exposure.

Roman empire _CLSA

All focus was on the FOMC statement yesterday. To be exact, the economy

“Considerably slower than the Committee had expected” - the economy suck!!
“Indicators suggest deterioration in overall labor market conditions in recent months” - Job creation is key focus of Bernanke
“Downside risks to the economic outlook have increased…” - excuse to print more? you bet
“The Committee also anticipates that inflation will settle, over coming quarters” - No inflation means can print more money, yep.
“Subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013…” - why mid 2013, not even 2012 yet. Must be bad
“Will maintain its existing policy of reinvesting principal payments from its securities holdings…” - extension of QE2?

Although the Fed did not make explicit reference to QE3 (As expected). A commitment to leave rates unchanged ‘till 2013 is a powerful easing message irrespective of what the Fed’s balance sheet is doing.

There is no doubt that QE3 is not a IF, but a WHEN. For those who are unsure, it might be good idea to a copy of the book Tomorrow’s Gold (CLSA publication with Marc Faber). Afterall, view on inflation or deflation should be key to ones investment process.

Faber put many examples of where countries that became rich and powerful inevitably grew arrogant, overconfident and complacent, and they tend to overspend. That all the great empires experienced, overtime, accelerating inflation, rising interest rates and a sharp depreciation of their currency.

“With the rise of Rome’s population and its insatiable appetite for luxury goods, the heart of the empire became the world’s biggest consumer market (comparable, to some extent, to modern day America). It also had a huge trade deficit, which eventually led to hyperinflation, currency depreciation, decay and loss of power.”

Back in day of the Roman Empire, there was no money printing press. But instead the Romans increased the supply of money by debasing the denarius (silver coins) which went from 94% silver content to eventually only 0.02%. As one can imagine led to hyperinflation in the end.

Enough said from history lessons. To deal with what is front of us now, we hosted a conf call with Chris Wood y’day.

30 second summary: Maintain long gold, continue to short EU banks and long German / French CDS. Expecting short-term up-move in risk assets depending upon QE3 format but until then $ could strengthen and commodities could weaken. (let me know if you want the two minute long summary).

Made In Indonesia : Investment momentum still favourable - Deutsche Bank - Equity Research - Asia

DB Access Indonesia Conference 29 Nov – 1 Dec 11, Jakarta

PUBLISHED REPORTS (Summaries attached pages 2)

CIMB Niaga – Raising capital to support growth

Snippets & Views

Bank Indonesia to remain on the sideline
It was widely expected that BI left policy rate unchanged at 6.75%, noting that "current BI rate level is still consistent with the efforts to maintain macro-economic and financial system stability and strong economic growth". The central bank also reiterated its view that inflation will remain within its target range of 4-6% in 2011. Note that inflation fell to 4.6%yoy in July from recent peak of 7.0% in January. The authorities expect inflationary pressure to ease as holiday effects drop out of the data in early September. Although BI expects the US credit rating downgrade to have limited impact on the Indonesian financial markets, we expect BI to remain on the sideline for the rest of the year, in response to the ongoing global financial market turmoil, worsening economic data in the US and Europe and correction in international commodity prices. (DB)

Isuzu to invest US$14.8m in Indonesia
The expansion is likely to be completed in 2012 and will involve 1) improving its network distribution by increasing the number of dealers from 86 to 170 [US$11.8m] and; 2) increasing the medium commercial truck GIGA by five models and ten variants [US$3m]. According to Hajime Koso, VP Director of Isuzu Astra Motor Indonesia (IAMI), this is part of their strategy to achieve sales target of 6,700 units by 2015 or 7% market share for the medium truck segment (Bisnis). DB: This shows the attractiveness of Indonesia's automotive industry given strong underlying demand due to expensive public transportation and poor infrastructure.

BCA Finance plans a Rp1tr bonds issuance in 1H12
In June, the finco arm of BCA already issued Rp1.1tr of bonds, whereby proceeds will be used to fund car-financing. This year, BCA Finance aims to grow financing by 27% yoy to Rp19tr. YTD July, total units of car financed reached 73.6k (+26% yoy) implying gross financing of Rp10.6tr (+22.6% yoy). (Bisnis) DB: New cars account for 67% of total financing and BCA Finance holds 13.2% market share for the segment. Through its finco, BCA has been able to boost its auto-financing. In June, the bank recorded auto-financing growth of 23.6% yoy and we should see accelerated growth in the second semester.

DB Bonds’ trader comment:
Bonds tumbled at the opening after some selling pressures from offshore accounts in the early morning. This pushed yields higher by 20-25bp across the curve. BI came into the market to restore some confidence, buying 15-20y papers. Sentiment reversed, and we saw local pension funds along with interbank buying long dates. MoF cancelled on the decision of not issuing any bonds in yesterday's auction. Yields finally closed 10-15bp higher. (Yield 1yr: 4.58, 5yr: 6.37, 10yr: 7.00)

BFI Finance: key takeaways from an analyst meeting (BFIN, Rp6,950, Not Rated) - Mandiri

From analyst meeting yesterday, we highlighted key takeaways from BFI Finance as follows:
􀂄 The Company reported 1H11 net income of Rp201bn (+14%yoy, -1%qoq), supported by the increase of revenue (+29%yoy, +8%qoq). The decline in qoq net income was due to impairment losses of Rp6bn booked in 2Q1`1 vs none in 1Q11, as the company adopted more conservative accounting policy. If we exclude the impairment losses, the growth in net income will be 4%qoq.
􀂄 The company reported Rp2.7tn (+50%yoy, +8%qoq) of new booking in 1H11, represented 49% of the company target of Rp5.5tn for FY11. The main contributor was still derived from used car dealer financing.
􀂄 The asset quality improved, reflected by the decrease of NPL from 1.4% at Jun10 to 1.0% at Jun11.
􀂄 Management is still reviewing its plans to build cooperation in form of joint financing and sharing outlet with BTPN. Given that the company’s net gearing ratio was still low at 1.4x, the company plans to issue bonds in the forthcoming quarters.
􀂄 At current price, the stock is traded at P/BV2012 1.6x and PER of 9.8x based on consensus estimates. We have no rating on this counter.

Agung Podomoro: APLN bonds upsized to Rp1.2tn, downside on 12F earnings are only 2% (APLN, Rp335, Buy, TP: Rp430) - Mandiri

􀂄 Agung Podomoro has raised size of its bonds issuance plan to Rp1.2tn from initially Rp800bn. The bonds will come in two series of 3 and 5 year, with 10% and 11% coupon, respectively. The company will use bonds proceed to acquire companies/land in Jakarta, Bogor, and Bali.
􀂄 As we factored-in the coupon into our model, downside on 12F earnings are seen minimal, slipped by only -2% to Rp644bn. Valuation still looks attractive compared to peers, where based on latest trading price, APLN trades at PE12F of 10.7, vs. CTRP of 19.1x. Maintain BUY, with TP: Rp430/share

Indo Tambangraya Megah: 1H11 net profit 42.6% ours and 43.8% consensus (ITMG, Rp44,850, Buy, TP: Rp55,800) - Mandiri

􀂄 ITMG posted 1H11 net profit of US$205mn (+53.1%yoy, +15.6%qoq) slightly below our expectation and consensus, realizing 42.6% -43.8% FY1F. Slower pace of earnings growth in 2Q11 mainly driven by slower volume growth as seen from its top line which grew modestly of only 7.2%qoq growth.
􀂄 On quarterly basis, ITMG made a strong improvement with 28.5%qoq growth on its operating profit up to US$268mn, showing us a good cost management from the company. But, it still below our expectation which accounted 40.5% our FY11F since we had underestimated the production cash cost increase following higher fuel price.
􀂄 We suspect that ITMG’s 2Q11 coal production volume might be lower than had been indicated by the company of 5.7-5.8Mt in our last meeting. Assuming 2Q11’s ASP of US$91-92, we expect ITMG’s 2Q11 coal production would be at range 5.4-5.5Mt or about 5% lower than company's previous indication or about 10-11% below company's target in 2Q11 of 6.2Mt.
􀂄 Company has not released its operational highlights and It will be provided in the analyst meeting today.
􀂄 In line with company’s guidance, ITMG booked unrealized derivative loss of US$4.7mn in 2Q11 result in lower unrealized derivative gain of US$4.8mn.
􀂄 With net gearing maintain at -0.4x or net cash almost US$400mn, ITMG will remain a dividend play stock. Currently we have buy rating on the counter. ITMG trades at 12.4x-9.1x PER11F-12F

Citra Marga (CMNP) – We have upgraded our rating on CMNP to Buy from Neutral with TP of Rp2,000 -Mandiri

􀂄 The stock offers the right characteristics in this volatile market environment: good value (8.7x P/E FY11 vs Jasa Marga on 18.3x), IDR revenue stream, defensive earnings profile, and a play on government spending or stimulus. 􀂄 We provide analysis on why has the stock been cheap for some time. We think one of its influential shareholder has been selling in the market, for his own reason.
􀂄 We see signs of change in the situation. The shareholder registry shows that suspected Bhakti Group ownership dropped to below 5% in April 2011. Number of stockholders in the registry increased from under 1,300 in June- 10 to above 7,000 in April-11. Since then, the number of stockholders has consolidated to under 5,000.
􀂄 The management has since launched new initiatives. The EGM yesterday approved the issuance of non pre-emptive shares (minimum price Rp1,200) to fund new projects. The management has also kicked-off bond issue process.
􀂄 We think CMNP’s management interests are aligned with that of minority investors once again.
􀂄 A more in-depth report is available.

Rabu, 10 Agustus 2011

S&P Doesn’t Plan More Municipal Rating Cuts Linked to U.S. Downgrade - Bloomberg

Standard & Poor’s won’t consider further downgrades on state and local government credits dependent on federal funding until details of the U.S. budget are complete, Steve Murphy, managing director of U.S. public finance for the ratings company, said in a telephone interview.

To contact the reporter on this story: Sarah Frier in New York at

U.S. Stocks Rally After Fed Says It Has Tools to Bolster Economy - Businessweek

Aug. 9 (Bloomberg) -- U.S. stocks rallied the most in more than two years as the Federal Reserve said it was prepared to use a range of tools to bolster the economy following yesterday’s rout in equities.

The Standard & Poor’s 500 Index gained as much as 2.9 percent in midday trading, then dropped 1.6 percent following the Fed’s statement before resuming its advance. Financial stocks, which paced a slide that erased $1 trillion in market value yesterday, soared more than 8 percent. Bank of America Corp. and Citigroup Inc. jumped at least 13 percent.

The S&P 500 climbed 4.7 percent to 1,172.55 at 4 p.m. in New York, the biggest advance since March 2009. The benchmark gauge for American equities dropped 6.7 percent yesterday and traded at 12.3 times reported earnings, the lowest valuation since March 2009. The Dow Jones Industrial Average rose 429.62 points, or 4 percent, to 11,239.47 today.

“We’ve gone too far, too fast,” Bruce McCain, who helps oversee $22 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a telephone interview. “We may have a bit of a back and forth as the buyers and sellers temporarily gain the upper hand. Still, we’re at a point where the market is trying to put a bottom in place. The Fed is clearly setting a situation that could offer them the potential to do something significant, if necessary.”

The Fed pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 in a bid to revive the flagging recovery after a worldwide stock rout. The Federal Open Market Committee discussed a range of policy tools to bolster the economy and said it is “prepared to employ these tools as appropriate,” it said in a statement today in Washington. Three members of the FOMC dissented, preferring to maintain the pledge to keep rates low for an “extended period.” Read More

Fed to keep interest rate near zero for 2 years - Associated Press

WASHINGTON (AP) -- The Federal Reserve sketched a dim outlook for the economy Tuesday, suggesting it will remain weak for two more years. As a result, the Fed said it expects to keep its key interest rate near zero through mid-2013.

It's the first time the Fed has pegged its "exceptionally low" rates to a specific date. The Fed had previously said only that it would keep its key rate at record lows for "an extended period."

The Fed announced no new efforts to energize the economy in its statement released after its one-day policy meeting. But the statement held out the promise of lower rates on mortgages and other consumer loans longer than many had assumed.

The decision was approved on a 7-3 vote. Three Fed regional bank presidents who have been worried about inflation objecting. It was the first time since November 1992 that as many as three Fed members have dissented from a policy statement.

The Fed's new timetable and its implications for the economy led to a wild afternoon of trading on Wall Street. Stocks plunged after the statement was released, but then shot up shortly after. The Dow Jones industrial average sank more than 176 points, then recovered its losses and closed up 429 points for the day.

Many investors sought the safety of long-term Treasurys. The yield on the 10-year Treasury note briefly touched a record low of 2.03 percent before heading higher.

Investors seemed to look past the more downbeat language the Fed used to describe economic conditions. The economy has grown "considerably slower" than the Fed had expected and consumer spending "has flattened out," it said in a statement released after the one-day meeting. Read More

US Federal Reserve set to boost stimulus - Gulfnews

Washington: Federal Reserve officials may immediately strengthen their commitment to record monetary stimulus after a faltering economic recovery and a US credit-rating cut provoked a rout in global stocks.

Chairman Ben S. Bernanke and his colleagues are weighing the use of more untested policy tools after two rounds of bond buying totalling $2.3 trillion (Dh8.4 trillion) failed to spur sufficient economic growth and reduce unemployment below nine per cent.

The Federal Open Market Committee held its regular meeting Tuesday in Washington following the worst day for US stocks since December 2008.

"The odds of more dramatic action are higher," said Vincent Reinhart, a former chief monetary policy strategist at the Fed. "However, they might not want to be seen as responding so directly to equity prices," Reinhart said, adding that policy makers may wait to signal a new round of bond purchases until Bernanke gives a speech on August 26 at a Fed conference in Wyoming.

Reinhart is a resident scholar at the American Enterprise Institute in Washington.

Julia Coronado, chief economist for North America for BNP Paribas in New York, said the central bank may say the economic slowdown is persisting longer than expected. Policy makers may also say the Fed's securities portfolio will remain at a record for an "extended period" and replace shorter-term securities with longer maturities to reduce rates on longer-term debt, she said.

The Fed reiterated in June that the overnight interbank lending rate would be "exceptionally low" for an "extended period" and said the policy of reinvesting maturing securities to keep the balance sheet steady would be maintained, without saying how long.

The drop in global stocks, further fuelled by concerns over Europe's debt crisis, adds to pressure on the Fed. The Financial Stability Oversight Council, which is chaired by Treasury Secretary Timothy F. Geithner and also includes Bernanke, convened by teleconference on Monday afternoon, according to a government official who declined to be named because he wasn't authorised to discuss the matter.

The Fed is likely to start a third round of asset purchases, and "they certainly should do something right away," said Kenneth Rogoff, a Harvard University economics professor and former Fed researcher who attended graduate school with Bernanke. It's not clear if Bernanke would have the support of the Federal Open Market Committee, Rogoff said. Read More

Hankook Tire scouts Multistrada Sarana - Insider Stories

South Korea's Hankook Tire confirmed today that that it was seeking to buy Indonesia's tire maker PT Multistrada Arah Sarana Tbk.
However nothing has been finalised, Hankook Tire said in a regulatory filing, following a local media report that Hankook, TPG and Yokyohama Tire were shortlisted for final bids for a controlling stake in the Indonesian tyre maker worth around US$210 million.

Two executives familiar with the matter said Multistrada is now helped by Hongkong amd Shanghai Banking Corporation (HSBC) as financial adviser.
"The floor price for 40% shareholding in Multistrada is set at Rp600 per share," the sources said.

Even Goh, Head of Investor Relations at Multistrada, said there is no such bidding process to sell Multistrada. "Where did you hear about the information? So far, there is no such bidding process," he said.

Selasa, 09 Agustus 2011

United Tractors (UNTR-BUY-IDR23,950-TP:IDR35,000) Bulldozing forward - Bahana

Coal demand to remain supportive of Komatsu volumes
We frame the growth story of United Tractors (UNTR), based on coal demand’s defensive nature, even amid current global market uncertainties. In the next five years, we expect UNTR’s coal-related mining operations to account for two thirds of its operating profit, up from the current 42% (exhibit 14). In 2012, we expect continued strong demand of Indonesia’s thermal coal to be supportive of Komatsu 2012 sales volumes, growing at 15.0% y-y to 9,200 units, conservative compared to its 10-year CAGR of 32%. On the supply front, according to UNTR’s President Director, Komatsu Japan is fully prepared to fulfill any rise in heavy equipment demand next year. Recently, Komatsu contemplates possible relocation of its plant to Indonesia, given growing contribution from Indonesia’s mining sector. The establishment of a Komatsu plant in Indonesia would mean capacity expansions, key for UNTR’s maintenance of its leading heavy equipment distributor status in Indonesia (6M11 market share: 51%).

Aggressive coal-related expansions = stronger integrated model
In the coal-mining related units, we expect Pama’s 2012 overburden removal to grow 20% y-y to 898m bcm, mainly on higher production target of major coal producers. Furthermore, we expect 2012 gross margin improvement to 14.5% from 13.6% currently, on fewer rainfalls. On 2012 production, we expect coal volumes to reach 4.8m tons (+14.3% y-y), of which 2.5m tons from Prima Multi Mineral (PMM) and 2.3m tons from full-production of Tuah Turanggah Agung (TTA). In addition to 2 new green-field coal mines, UNTR recently signed an agreement to acquire 2 additional coal mines. While initial production on these assets will only occur in early 2013, we are of the view that stronger coal-chain units would strengthen UNTR’s integrated business model. Our initial calculation suggests that total reserve would reach more than 100m tons upon the completion of these acquisitions given annual production of around 10m–20m tons and overburden removal of 100m–280m bcm (based on stripping ratio of 6-7x). While we expect majority ownership to result in maximum value for UNTR, minority ownership on several coal assets would also be positive for Pama’s mining contracting activities.

Minor earnings changes; Raise TP to IDR35k based on 2012 valuation
While 1H11 earnings were in line with our previous estimates, we have made several adjustments to account for UNTR’s new guidance. On the top line, we raised our 2011 Komatsu unit sales 13% from 7,087 (+31.1% y-y) to 8,000 (+48% y-y), resulting in 11.8% higher consolidated revenues of IDR50t versus IDR45t previously. On the flip side, we cut our 2011 operating margin estimate from 14.9% to 13.5% on lower contribution from Parts & Services unit (6M11: 18% vs 6M10: 24%) and lower margins on its mining contracting division. Nevertheless, our higher revenues more than compensated our lower margins, causing 2011 higher earnings of just 2.8% to IDR5.3t and 3.5% to IDR6.4t in 2012. This and as we roll over our UNTR’s valuation to 2012, we arrive at higher DCF-based TP of IDR35,000 (44% upside). BUY.

PT Bank BJB (Persero) Tbk Mediocre Results and Trading at Bargain - AAA

Bank BJB 1H11 net profit was not too strong, CIR up on more employee, with NIM down on lower assets yield and lower CASA ratio. NPL stays flat from previous quarter. But the bank offers highest dividend yield and at bargain.
± Flat Growth Due to Accounting Method

Bank BJB reported flat net profit growth in 1H11. According to management, that was due to the full implementation of the new PSAK 50&55 where in during 1Q10-3Q10 Bank BJB was still using the old PSAK, hence comparable growth is not suitable. But looking at quarterly basis, 2Q11 net profit grew only 9%, far lower than 2Q10 where net profit still grew 60%, which may clarified the stock has been underperform, -26% ytd aside from sentiment that 82% of BJB’s assets are concentrated in WJ & Banten.
± Adding More Employees to Support Micro Loan Growth

Higher operating expense by 76% qoq was due to the increase of employee from 1,996 to 2,137. CIR up 40% to 47%. The bank added more employees in accordance with strategy to bigger micro loan portfolio which now stands at 11% of total loan as compared with 8% in 2Q10. Micro loan grew 54% yoy, highest among other i.e. consumer that up 17% yoy and commercial loan that increased 29% yoy. CAR ratio has been draining quite fast from 22% in 4Q10 now stands at 19%, which we foresee by FY14F, rights issue is highly probable since CAR will be at 14%. Third fund party funding rose 6% yoy as demand deposits plunged 8% yoy. The bank’s dependency to Government’s cash has subsided gradually as CASA only stood at 40%. NPL up to 2.4% which was mainly contributed commercial loan. The bank will speed up collection and assets foreclosure, hence we believe NPL could be pushed below 2%.
± Valuation, BUY with lower TP Rp1,300

We decrease our FY11F number as 1H11 results accounted only 46% of FY11F. We decrease net profit by 8%/10% for FY11F/FY12F mostly on continuing lower NIM as the bank offers low rate to compete with big banks while CASA remain low. As such we cut our TP from Rp1,500 to Rp1,300 FY11F, represents 2.3x PBV FY11F. Current valuation is still attractive, only at 2.0x PBV, below its -1std historical PBV at 2.1x, coupled with highest div. yield , it’s a BUY.

SGRO:Strong production growth - Mandiri

SGRO booked strong 1H11 net income, beating our and consensus estimates. The main driver was higher- than-expected CPO production volume. We expect its strong production growth in nucleus FFB to continue in 2012 due to its aggressive new planting in 2007 and 2008. Its margins in 2Q11 decreased from 1Q11 mainly due to cyclical increase in plasma contribution to total processed FFB (exhibit 4). We expect FFB contribution from nucleus to keep increasing on year- on- year basis due to its nucleus and plasma plantation profile. We maintain the BUY recommendation on SGRO due to strong growth in its nucleus FFB production. Our PE derived-TP is Rp4,500/share. We use target PE FY12F of 12.7x, 15% discount from AALI’s PE of 15.0x.

Strong 1H11 performances. 1H11 net income (net of minority interest) of Rp356bn (+171.9%, -9.1%qoq) beat our (62.7% of our FY11F) and consensus (65.5% of consensus FY11F) estimates. The main reason was higher-than-expected production volume, especially FFB production from plasma. Its 2Q11 gross margin of 35.7% narrowed from 1Q11 of 43.7% mainly due to higher FFB contribution from plasma to total processed FFB in 2Q11 of 60% than in 1Q11 of 55%. Gross margin from plasma was only around 15%, meanwhile gross margin from nucleus was around 75%. (exhibit 7)

Booster from plasma in 2Q11. FFB from plasma in 2Q11 grew 26.7%qoq, which faster than the growth of FFB from nucleus of 6.9% qoq (exhibit 1). This matter made higher FFB contribution from plasma to total processed FFB in 2Q11 than in 1Q11. QoQ fluctuation in nucleus contribution is common (exhibit 4). However, contribution from nucleus is increasing on annual basis due to strong growth in nucleus in the future because SGRO did aggressive new planting in the last 4 years.

Strong growth in Nucleus FFB production continues. SGRO is one of few plantation companies, which did aggressive new planting in the last several years (exhibit 5). Oil palm trees start to generate FFB since 4 years old. We expect strong growth in nucleus FFB production to continue with 2010-2012 CAGR of 18.9% as a results of its aggressive new planting in 2007-2008.

Maintain the Buy recommendation with higher TP of Rp4,500. We like SGRO due to its strong growth in its nucleus FFB in the future. Our PE derived-TP is Rp4,500/share. We use target PE FY12F of 12.7x, 15% discount from AALI’s PE of 15.0x.

Bottom fishing opportunities - Kim Eng

We expect a lot of volatility in the short term. However, as the markets have been anticipating the rating downgrade for the past weeks, we expect the impact to be temporary. For those with an investment horizon of over six months, we think there is opportunity for bottom fishing in the Indonesian market. The country continues to show strong fundamentals and is not overly dependent on exports, making it relatively shielded from global economic slowdown.

We would buy defensive domestic plays and avoid commodity, cyclical and export-oriented stocks. We see upside potential in the consumer, banking and property sectors, as well as a toll road operator. But of course, there are also attractive stocks outside the sectors mentioned.

In this report, we also include our chartist’s view on each of the stocks recommended, complete with guidance on their support levels which indicate the best price at which to buy.