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Selasa, 29 Januari 2013

Indonesian coal Low rank ban proposal scrapped

§ Indonesia's Energy and Minerals Resources Ministry (ESDM) has scrapped its proposed 2014 ban on low rank coal, according to a Bloomberg report (24 January, 2013), quoting ESDM's coal-business director, Edi Prasodjo. The key reasons cited for the scrapping of the proposal were: 1) the lack of
commercially viable technology for upgrading low rank coal; and 2) lack of domestic demand to absorb excess (low rank production.


§ Outcome consistent with expectations. The outcome is consistent with our (and market) expectations; however an actual decision was not flagged prior
to the announcement. The ruling is consistent with our view the government is looking to restore confidence in the sector from a regulatory perspective and
that proposed regulations are typically either watered down or fail to be implemented altogether - the proposed coal export tax a key example.

§ Nationalistic regulatory concerns to remain ahead of 2014 election. We expect regulatory concerns to remain leading up to the 2014 election, given rising resource nationalism reflected by the 2012 foreign divestment regulation. Another area of uncertainty remains the terms for converting CCoW concessions to IUP concessions in relation to royalties, tax rates and other key operational requirements for coal producers.
§ Listed coal sector mostly locally-owned. We note most of the listed coal producers are locally owned, limiting the direct impact of nationalistic policy
changes. ITMG is the only major foreign-owned coal producer (65% owned by BANPU), however its local listing and local investor (PMDN) status further
adds to confusion of whether it is actually deemed a foreign entity for the purposes of the foreign divestment regulation.

§ Decision positive for sentiment, but investor focus still on pricing.
Naturally, we expect the market to react incrementally positively to the news; however, the primary focus we believe will remain on the pricing outlook for
seaborne coal, and more specifically China demand. We maintain a cautious view on the sector given supply remains strong relative to demand growth as reflected in our US$90/t 2013 Newcastle Benchmark price (v US$94/t on the forward curve).

§ Buy low cost producers, PTBA top pick. We continue to prefer low cost producers with strong balance sheets given the potential for prices to remain
rangebound. PTBA is therefore our top pick, trading at 11.3x FY13E PER (ex cash), benefitting from strong 3yr production CAGR of 20%, strong domestic
exposure (~55%), 2bt reserves, strong balance sheet and M&A potential. Importantly, recent visits to Indonesian coal mines earlier this week suggest inventories have declined sharply since 4Q12, helping to restore a tighter
supply/demand balance heading into 2013.

me @ LOTS Trading Club (LTC)

Senin, 28 Januari 2013

Bumi Resources (BUMI IJ) by Jayden V

Bumi Resources (BUMI IJ) by Jayden V

·         Indonesia's most newsworthy coal producer Bumi Resources (BUMI IJ), presented at the CLSA's ASEAN access days in Singapore and Hong Kong.
·         In 2012, the ASP for their 68mt coal sales was US$82/t and in 2013 their budgeted ASP is between US$70/t to US$85/t in a bull case scenario assuming Newcastle rebounds to US$110/t. They expect c. 10% production growth in 2013 (lower than previous 2 years) as the focus is now on cost savings and deferring capex.
·         Operationally, the group is experiencing cash costs of US$45/t but hopes to cut the strip ratio from ~10.8bcm/t in 2012 down to ~10bcm/t saving about US$2.5/t. This means Ebit margins of c. US$20/t after factoring in depreciation. Fuel costs (28-30% of its COGS) remains a concern as they're stubbornly high.
·         The key question though is what they will do to delever (the group has US$4.2b net debt on its balance sheet with US$50m cash) and what is happening with the Rothschild/Bakrie divorce at the plc level. Dileep said asset sales of the mineral (BRMS assets) will occur after all the plc issues are resolved (though he was unsure on timing) as it will impact the price realised on asset sales. Asset sales remain the preferred method of raising cash to delever.
·         In our view, the stock is a leveraged play on the value of the BRMS assets and any upside for investors hinges upon the timing and price of these sales. Given CLSA's coal price downgrade this week to US$90/t for 2014, the cashflow generated from the coal assets KPC and Arutmin will also be lower than previous years in our forecast.

me @ LOTS Trading Club (LTC)

Wismilak Inti Makmur

Wismilak Inti Makmur
Attempting a high jump

§        Excise tax hurdle: Indonesia’s tobacco industry is in the process of converging its excise tax across every type of cigarettes (exhibit 7). The implication of this event is that smaller producers’ excise tax is increasing at a faster rate than larger producers’ excise tax. Wismilak Inti Makmur (WIIM), with 1% market share in 2011, is one of those small producers which are attempting to jump the tier “hurdle” in order to minimize the excise duty hike effect.

The company started its operation in 1963 through its current subsidiary, Gelora Djaja, which handles the production side of the business. In 1983, WIIM incorporated Gawih Jaya to distribute a part of the business before restructuring both Gelora and Gawih under Wismilak Inti Makmur (WIIM) in 1994 (exhibit 6). Run by 3 families: Walla, Widjajadi and Winarko, WIIM derives most of its revenue from machine rolled cigarettes (SKM), which accounted for 80% of 2011 total revenue.

§        10% higher than expected 2012 net profit due to Mild Diplomat: In 2012, WIIM has indicated net profit of IDR74-75b, some 10% higher than its estimate at the IPO of IDR67b.

This is helped by higher than expected price increase and volume growth of Mild Diplomat, newly launched in mid-2012, mainly in Central and East Java.

 In 2013, WIIM, betting on the continued success of Mild Diplomat, plans to jump over the 2b total production mark, partly also supported by distribution network expansion.

The company targets 2013 total production of 2.5b sticks, up from around 2b sticks in 2012, translating to top line level of IDR1.5-1.6t (2012: more than IDR1.1t) helped by blended ASP increase of about 8%.

On 2013 bottom line, WIIM expects to book IDR120b, up more than 60% y-y, propelled by operating leverage from G&A cost and lower net interest expense from its IDR409b (USD43m) IPO proceeds.

§        Further growth from added distribution network & capacity: WIIM currently operates 17 branches, 5 stock points and 29 agents to cover the whole nation. North Sumatra, East Java and Central Java are WIIM’s major markets, although there are plans to further expand its distribution network outside these areas.

On capacity, the company separates the lines into SKM (machine rolled) and SKT (hand rolled) with each divided again into regular and mild products (exhibit 9-10). WIIM operates production capacity of 2.5b sticks in 2011 with 434m sticks for SKT and 2b sticks for SKM. In 2012, the company added its SKM capacity to 2.5b sticks, before adding 1.2b capacity in 2013 (equipment to arrive in mid-2013).

Outlook & valuation:
A growth driven counter – cheap on PEG: Given WIIM’s better than expected 2012 results, we see potential share price upside, particularly if the company can continue to surpass its targets in 2013.

On valuation, WIIM is on 2013 PE of 12.6x (20% discount to the market), reflecting cheap PEG of 0.2x. Thus, we expect WIIM’s out-performance since IPO (exhibit 5) to persist, backed by subdued inflation this year coupled with increased smokers’ purchasing power stemming from higher wages.

Bottom line growth, however, is subject to the strength of WIIM’s brand equity when raising its products prices in tandem with its higher-up excise tax tier.

WIIM’s other challenges will be the government’s tighter limitation on cigarette marketing as well as competition from its peers.

me @ LOTS Trading Club (LTC)