Plantation: Tightness demand-supply on CPO and Soybean Oil is favorable for the pricex
United States Department of Agriculture (USDA) released its Jan11 forecast on demand supply of CPO and Soybean Oil on 12 January 2011.
Based on USDA’s Jan11 forecast, tightness in demand-supply on CPO and Soybean oil is projected to continue, which is favorable for the price of CPO and Soybean oil.
We maintain overweight recommendation on Plantation. Our Top Picks are London Sumatra (LSIP, Rp12,050, Buy, TP:Rp14,100) and Sampoerna Agro (SGRO, Rp3,125, Buy, TP:Rp3,950). Currently, LSIP is trading at PER FY11F of 12.8x. Meanwhile, SGRO is trading at PER FY11F of 12.4x.
Harum Energy: Key takeaways from meeting with the CEO (HRUM, Rp 9,350, Buy, TP: Rp 10,000)
Harum Energy has confirmed to meet its FY10 coal production target of 7.3Mt combining Mahakam Sumber Jaya (MSJ) and Santan Batubara (SB).
Pricing for 1Q11 is 75% fixed and 25% index linked, while the rest quarters have not been priced yet. 1Q11 volume is expected to contribute 25% of total FY11 sales volume, so it will lead to only 18%-19% fixed price for FY11 sales volume.
This is great pricing strategy in our view amid coal price hike. Therefore we expect much higher selling price for 2Q11
which potentially to reach around US$ 90/ton.
Our previous FY11 forecasts still use conservative average selling price assumption at only US$ 82.5/ton. So we still expect large potential upside for HRUM if thermal coal price benchmark remain stable at range US$ 115 - 120/ton
Currently we have Buy rating on HRUM. HRUM is trading at 13.3x adjusted PER11F.
Bakrieland Development: ELTY to divest 75% ownership in Bakrie Toll, yet to remain its majority stakes (ELTY, Rp144, Under review)
Bakrieland Development (ELTY) plans to divest up to 75% its ownership in Bakrie Toll Road (Bakrie Toll)¸ the company’s toll-road operator subsidiary. Based on news in Investor Daily, the President Director, Hiramsyah Thaib, mentioned that the company plans to IPO a totaling 20-30% of its ownership through IPO, while the remaining will be divested to strategic partner(s). ELTY will assure the majority stakeholder in the company by holding 25% ownership.
Following Avenue Capital Group's non-participation in ELTY’s recent rights issue, we may suspect that the fund may return to the company through the private placement mechanism mentioned above. We note that the fund has been a long-run infrastructure investor in Philippines, while its representative in ELTY’s BoC is also a long-term experienced individual in the industry.
Nevertheless, the time frame of the IPO is still unclear. Based from our recent talk with the company, it is indicated that the soonest will be end of 2011, awaiting performance progress of the only recently opened Kanci-Pejagan toll road. As at end of 2010, Kanci-Pejagan toll road has tapped of an average 15,000/day car traffic, below its initial target of an average 17,000/day. The company expects the traffic to improve up to average 19,000/day at end of 2011. Kanci-Pejagan toll road is expected to contribute up to 10% of total revenue in our forecast 2011.
We are still reviewing our forecast on the stock. ELTY currently trades at 59% discount to our RNAV11F.
Kamis, 13 Januari 2011
Citigroup Indonesia Macro View - Outlook in 2011 – Volatility and Opportunity
We expect Indonesia will grow 6.3%-6.5% in 2011-12; Investment key —
Private consumption and investment should be the main driver, and unlike in 2010, domestic demand growth should exceed overall GDP growth. Investment will likely be supported by accommodative domestic global and liquidity conditions; an encouraging trend is the sizeable pick-up in FDI we saw in 2010.
BI “diluted” its inflation targeting framework; we upgrade inflation forecasts
— We upgrade our inflation forecast to 6.5% from 6.0% in 2011F, with signs of rising core (in fact, our estimate of core on QoQ sa already show annualized rate of 5.1% in Dec). BI risks hurting its credibility by shifting its monetary policy framework to targeting core inflation instead of headline inflation – we maintain our rate hike forecast of 75bps in 2011 starting in March with possible delay to April.
Budget deficit in 2011F likely to remain below target at 1.2% of GDP — We expect to see more concerted efforts to speed up spending in 2011 vs. 2010 (deficit of only 0.6% of GDP) but still likely to fall below target. Higher oil prices and interest rates would have a small negative impact.
Bond supply target could be cut in 2011F; Global bonds to increase —
The original gross bond issuance for 2011F is targeted to increase 30% YoY, but with surplus funds (of about Rp47trillion) in 2010, we expect bond issuance could be cut by at least Rp30 trillion. Government is targeting 16%-25% of gross bond issuance (equivalent to $3.6bn-$5.7bn) in global bonds (including sukuk), much higher than the $2.7bn issuance in 2010.
External liquidity position has improved; provides buffer for intervention
— FX reserves rose 46% in 2010, the fastest pace in Asia – FX reserves can cover over 2x ST debt by remaining maturity (ex-standstill) vs. 1.5-1.6x pre- Lehman. Coverage still looks “decent” at 1.25x after factoring in potential “mobile” portfolio flows. We expect FX reserves will rise gradually to $115bn in 2011F – CA surplus and portfolio flows to shrink but FDI to rise.
Market Outlook: IDR weakness temporary; IDR curves to bear flatten —
While IDR may remain under pressure in the near term, we think this will eventually reverse: 1) BI’s dovish stance should eventually shift in the coming months; 2) BI’s war chest of $96bn of FX reserves will be used to mitigate FX volatility, while IDR’s high carry will be tempting; 3) Fundamentals remain solid – rating upgrade path intact; and, 4) inflows into EM debt and equities should persist and Indonesia should benefit. We expect curve flattening in local bonds
– 5yr IDR bonds should back up to 100bps gap as rate hiking starts while long end would need to re-price with 10yr likely settling at 8.75%-9% by year-end.
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