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Kamis, 26 April 2012

KLBF - Offering the Right Ingredients - YU

The higher core profit of Rp399bn on revenue of Rp3tr was largely due to volume growth, while ASP rose some 3% in March. Our 5% higher FY12 EPS forecast raises our 1.5x PEG target price to Rp4,300 that implies 23.6-21.1x FY12-13 P/E. Maintain Outperform.

Growth steroids from Abbott
The new distribution agreement inked at end-3Q11 added a new revenue stream which we estimate at Rp600bn/year. Hence, distribution revenue jumped 55% yoy to Rp1.1bn, bringing its revenue contribution to 37% from 30% in 1Q11. Apart from Abbott, Kalbe cited greater distribution revenue from other existing 3rd party principals, which include L’OrĂ©al, Mead Johnson and Interbat. Meanwhile, its other divisions jotted down commendable yoy revenue growths: prescription pharma at 16%, nutritionals at 21%, and consumer health at 8%.

Lower margin side-effect is as expected
Gross margin edged up 40bp qoq to 49% on stable commodity prices and overhead cost savings, though lower than its past 3-yr average of 50.5% from higher distribution revenue. Operating margin -30bp qoq to 17.2%, on slightly higher selling expenses.

Good pharma proxy
Being the largest domestic pharmaceutical firm with a strong market position (13% share in a highly fragmented market), Kalbe remains a good proxy for exposure in Indonesia’s growing healthcare industry. Kalbe boasts a healthy balance sheet, with net gearing of –35% and cash of Rp2.4tr (excl. Rp2.8tr worth of treasury stock), strong cash flow generation and dividend upside. Near-term catalysts are higher-than-expected dividend payout (> 50%, >2.2% dividend yield), margin improvement, and M&As (if materializes).


BBTN - A Swing to Non-subsidised Mortgages - YU

Core EPS forms 26% of consensus/our FY12 number, in line as provisioning should normalise soon. Provisioning coverage has been reduced, even though its NPL ratio inched up. Maintain GGM target price, with catalysts expected from its non-subsidised mortgages expansion.

Shifting the focus
Net profit grew 28% yoy, even though PPOP grew only 18% yoy. The main impetus was loan growth of 24% yoy and 5% qoq, led by non-subsidised mortgages (+28% yoy, +12% qoq), which gained weight in the portfolio to 31% from 29% at Dec 11. Subsidised mortgages, which used to be behind the bulk of its earnings, hardly grew, with only Rp189bn of disbursement in 1Q12; in fact, their balance contracted 1% qoq on normal repayments. Non-housing loans grew 5.6% qoq and 63% yoy from a low base. The sudden drop in appetite for subsidised mortgages appears largely linked to less-favourable changes in housing-subsidy terms. Expansion into non-subsidised mortgages could be good alternative, we believe. Competition with BCA is unlikely since BTN deals with average loan sizes of Rp150m, one-third of BCA’s Rp450m.

Provisioning reversal
The second propeller of earnings was a net provisioning reversal of Rp42bn, characterised by a drop in provisioning coverage to 42% from 54% at Dec 11. Despite a seasonal increase in the gross NPL ratio to 3.2% from 2.8% at Dec 11, that could lead to higher provisioning in the coming quarters, on normalisation.

Rights on the way
Parliamentary approval should decide the timeline. Free float after rights is targeted to reach 40% to qualify for tax benefits. The selection of underwriters starts today.


BWPT - Price and Production Offset Cost - YU

1Q12 core earnings came in ahead of our forecast (at 25% of FY12) and in line with consensus (at 21%). Incorporating higher costs and lower ASP discount to benchmark, we adjusted our FY12-14 earnings by 4%, resulting in a slightly lower target price, still based on 20% discount to NAV. Outperform maintained.

Strong 1Q12 CPO sales…
Revenue was ahead at 28% of our full year forecast, paced by in-line production (21% of our forecast) which grew +8% yoy, but stronger than expected sales volume at 31k tonnes (+76% yoy/25% of full year forecast) due to 4k tonnes of inventory drawdown. Average selling price, flat yoy at Rp7,835/tonnes (113% of our full year forecast), was also a surprise as most planters would experience lower figures (much bigger peer AAL, for instance, saw a 7% decline yoy). BW said timing made all the difference. It is noteworthy that, adjusted for export tax, average benchmark CPO price in local currency was flat yoy.

…offsets higher costs
Cost was a negative surprise, with key increases in fertiliser (+20% yoy, 27% of cost), typically required in larger quantities for younger plants. Somewhat anticipated was the cost impact from the large maturing area this year (approx. 14% as of Dec 2011 planted area), which brought 1Q12 annualised yield down from 23 in 1Q11 to 17 tonnes per ha, translating to a higher cash cost per tonne of Rp4,864 (+78% yoy). Meanwhile, new planting was slow at 576ha (8% of full year forecast). Net debt was Rp2.1tr, +19% yoy while interest expenses dropped 12% on lower debt associated with mature plantations.

Maintain Outperform
1Q12’s production growth suggests BW is on track to achieving our estimate of 29% FY11-14 CAGR. Together with its planting track record, BW stays appealing in a sector lacking organic growth, even with its valuation at 21-14x FY12-13 P/E (43-24% premium to the sector).


ITMG - Solid fundamentals - ZP

Better sales mix offers some protection from weak coal price. Despite the weakness in worldwide coal prices, ITM’s ASP could be relatively insulated from the decline owing to a better sales mix. ITM will sell more high-quality coal this year, as it plans to ramp up production at Tandung Mayang and commence production at Bharinto, both expected to produce high CV coal closely tracking benchmark Newcastle coal specification.

Higher demand from Japan?
Most of Japan’s nuclear power plants have remained idle moving through 2012, pending stress tests and inspections after the unfortunate accident at Fukushima last year. In contrast, only one thermal power plant is offline, the Haramachi coal station (2,000MW). Facing the possibility of rolling blackouts in the summer as industrial production peaks, Japan might restart some of its old thermal stations.

New technique boosts reserves.
ITM upgraded its reserves base by 106m tonnes in 2011, of which 39m MT are in the area of Indominco and 67m MT are in Bharinto. The upgrades were made possible by new mining techniques employing in-pit crushers and conveyors (IPCC), which allows economic overburden and coal excavation at depths of more than 100m. Its reserves count now stands at 417m tonnes, almost double the 237m MT level at end-2007 when the company went public.

Change in taxation remains a threat.
ITM is vulnerable to the change in the general tax law, as it pays the prevailing tax rate despite having a firstgeneration CCoW for Indominco. As such, the stock has been badly hit by the news of a possible 15% export duty to be imposed on all coal exports. We doubt that the GOI will apply such a radical change in the near future, especially since a similar effort in 2006 was blocked by the Supreme Court.

Cheap dividend play.
ITM’s balance sheet is fortress-like, with no debt and US$612m in cash as of the end of 2011. ITM declared a hefty final dividend of US$0.27 on top of a US$0.13 interim, or an 84% payout  ratio. Assuming same DPR and flat net profit for 2012, the stock offers 9% dividend yield. The stock is cheap at a 2012F PER of 9.4x. We maintain our BUY call on the stock with TP of Rp53,200.


MNCN - Winning in Prime Time - KZ

MNCN is sitting in the PRIME position.
The ad cycle couldn’t be better with rising consumption & FDI driving competition. While the rate card expands +15-20%, MNC’s cost base is largely fixed driving huge operating leverage. We forecast 20% top-line & 40% bottom-line growth in 2012. MNCN trades at a discount to consumer companies despite higher operating leverage and being a beneficiary of competition. The stock is one of key conviction calls – our TP implies 28% upside. BUY.

The cycle is PRIME
Given the cyclicality in ad spend investing in Media is all about picking when the cycle is strong. In Indonesia it couldn’t be better with rising consumption and FDI (which brings competition). MNC is key beneficiary (owns 3 of the 10 FTA channels) of all these trends especially competition which is driving up ad expenditure & rate cards. Many of these new competitors are targeting the mass-market, hence using FTA (accounts for 70% of ad spend).

Huge operating leverage
Unlike consumer companies with variable cost bases, MNC enjoys huge operating leverage as its major cost (programming is 75% of COGS) is fixed. This has been the key driver for the material EBITDA margin expansion (33% from 30% in FY11). We forecast margins to expand further in 2012 to 38%. MNC also produces 60% of its total content needs internally minimizing the risk of content-bidding wars (the major downfall for most media companies).

2012 – 20% top-line and 40% bottom line growth
MNC’s 2011 results were impressive with EBITDA growth of 26%. In 2012 we expect the momentum to continue forecasting 20% revenue growth and 40% earnings growth. Moreover this is growth is very visible. Our analysis of major Indonesian consumer companies shows A&P expense is up 20%+ in 2011 with no slowdown in sight for 2012.

One of key ‘Conviction Calls’ to play the return of FDI & competition
MNC has been one of our highest convictions stock calls since our December 2010 initiation & and the best way to play the return of FDI thematic. While the stock has re-rated materially we still find the stock compelling as it trades at a discount to consumer (despite significantly more operating leverage) and unlike consumer companies which are negatively exposed to competition - MNC is a beneficiary. This coupled with the visible and robust earnings growth make the stock compelling. BUY.


HRUM - The Radiant Coal - KI

We re-initiate coverage on PT Harum Energy Tbk (HRUM) with a BUY recommendation and a 12-month target price of Rp 10,750/share based on DCF calculation. Our positive stance on the stock hinges upon several factors such as 1.) Robust production growth; 2.) Sturdy balance sheet; 3.) Strong distribution channels and 4.) Vertical integrated mining companies.

Robust production growth.
HRUM offered the highest production growth of 48% CAGR over the past three years among all Indonesian coal miners listed in Jakarta Composite Index (JCI). Going forward we expect HRUM’s coal production to grow by 22% CAGR over the next three years, underpinned by several key factors such as: excess production capacity, potential reserves upgrade, production ramp-up at MSJ and SB’s mine site, and vertically integrated mining company.

Sturdy balance sheet.
We believe that strong cash balance puts the company in a good position to expand its business (i.e increase its processing capacity) or to take advantage of any lucrative mergers and acquisition (M&A) opportunities. We like HRUM for not only being a dividend-play stock but also offer substantial room for growth.

Strong distribution channels are the key to secure sales volume.
HRUM not only maintains its existing distribution channel, but also broadens its distribution channel into new markets namely India and China, in order to get the exposure of rising seaborne coal demand. We believe that HRUM has developed strong distribution channel to market their product and secure sales volume.

Highly leverage to coal price.
Compare to other coal miners, HRUM is highly exposed to global coal price due to higher-than-average spot/index-linked price sales portion of 95% vs spot/index price range of 25%-75% for the other coal miners.

Investment risks.
Key risks to our view and price target are: (1) uncertainties in regards to economic growth; (2) execution risk; (3) volatility in commodities prices; (4) reserves upgrade.

We re-initiate coverage on HRUM with a BUY recommendation and a target price of Rp 10.750/shares, suggesting 40.5% upside potential from the current price of Rp 7,650/shares. Our target price is based on sum-of-the-parts (SOTP) of company’s subsidiaries using Discounted Cash Flow (DCF) valuation.


JSMR - Earnings upside is capped despite of increasing automation - BK

We attribute JSMR’s recent 5% outperformance to a) technical buying on the premise that JSMR will be added to the MSCI b) earnings upside from efficiency gains assumed through doubling e-toll card usage to 20-25% by the end of the year. We think earnings optimism is unjustified. We think the recent 9% workforce increase and potential salary hike will offset cost savings. Technical impetus may continue until the MSCI rebalancing in May. We recommend trimming into strength on rich (22xFY12E PE) valuations.

Earnings upside capped?
Increasing salary costs may limit earnings upside in our view. JSMR has added 9% to its workforce (permanent and outsourced employees) to improve traffic flow. In addition, JSMR’s employees have requested a 20-30% salary hike since the beginning of the year. JSMR looks to increase total e-toll users from 11% to 20-25% by end of year, but we think any efficiency savings will be more than offset by wage costs as salaries comprise 38% of JSMR's total costs.

JSMR is giving discounts to e-toll users.
In addition to salary increases, JSMR gives a 10% discount for e-toll users from 16 April – 16 July during the weekdays on 70% of total roads. JSMR will bear 5% of the cost and BMRI the other 5%. We see minimum impact, as we estimate that it will only reduce revenue by 1-2%.

Potential addition to MSCI drives performance.
We view JSMR’s recent 5% outperformance is due to potential addition to MSCI in May.

Maintain Neutral, recommend trim into strength.
We see limited earnings upside for JSMR in the next quarters. We continue to like JSMR's long term fundamentals, but we see limited earnings upside in the near term. We would trim into strength, post JSMR addition to MSCI. We would look to add JSMR if share price is at Rp4,400 (based on 17x forward P/E).