Indonesia's Lippo Puts First Media Up for Sale (Asian Wall Street Journal, 17 Jan)

HONG KONG—Indonesian conglomerate Lippo Group is seeking to capitalize on surging valuations for companies in the country by selling its listed cable television and Internet business, said people familiar with the matter.

Bidders have been told to lodge their offers with Lippo's advisor on the sale, Bank of America Merrill Lynch, by the end of Monday.

U.S. and European companies are seeking to boost revenues by investing in fast-growing markets such as Indonesia, where the economy is expected to grow by around 6% this year after a similar expansion in 2010. The benchmark stock index rose 46% last year and is up almost threefold over the past two years, making it one of the best-performing markets globally. This year, however, the market has lost steam amid rising concern about inflation. After hitting a record high on Jan. 5, the benchmark index has retreated about 6%. Shares in First Media soared 32% last year and have slumped 14% in the first two weeks of the year.

Deal-making in Southeast Asia, meanwhile, last year hit its highest level since 2007. Mergers and acquisitions of companies in the region totaled US$82.8 billion, according to data tracker Dealogic. Indonesia is the region's largest economy.

One of the people said Lippo was seeking US$600 million to US$800 million for the company, PT First Media Tbk., and a mixture of more than 10 industrial companies and private-equity firms have expressed an interest in acquiring it. However, another said the company would likely fetch a maximum of US$500 million. That still represents a big premium to its current market capitalization of US$158 million, and it's unclear whether prospectivebuyers are willing to meet those expectations.

Lippo has put a high price tag on the asset after other cable companies in the region have sold at lofty prices. In October, MBK Partners, a private-equity firm, agreed to sell its 60% stake in China Network Systems to a consortium led by Hong Kong-listed Want Want China Holdings Ltd., a Taiwan-owned food manufacturer, for about US$2 billion. In November, the Taiwan broadcast regulator approved Carlyle Group's 36 billion New Taiwan dollar (US$1.23 billion) sale of Kbro Co., Taiwan's top cable-TV operator, to the Tsai family, the controlling shareholders of Fubon Financial Holding Co.

Founded in 1994, First Media went public in 2000. The Jakarta-headquartered company reported earnings before interest, taxes, depreciation and amortization of 170 billion Indonesian rupiah (US$18.8 million) on revenue of 605.84 billion rupiah in the nine months ended Sept. 30, according to data provider Capital IQ.

Last year, the Lippo Group lost a case against Malaysia's Astro All Asia Networks PLC that involved a proposed joint venture that would have included First Media. It was ordered to pay about US$230 million by the Singapore International Arbitration Center, which "will seek to enforce the awards" in Indonesia and elsewhere, according to Astro.

Preparations to sell First Media come just after another company controlled by Lippo Group, PT Matahari Putra Prima canceled the sale of its hypermarket business. That deal was shelved last week in favor of a new share issue. Bank of America Merrill Lynch also was an adviser on that sale.

JPM Indo: downgrading TLKM to Neutral

RESEARCH CALLS
* The JPMorgan view – Global positives for risk assets dominate local threats. On equities, the very strong momentum in prices, flows, positions and earnings keeps us with a bullish stance. On FX, cover EUR short on positive EMU event risk and move to USD funding for longs in CHF, CAD, and SEK. On economics, continued strong activity data allow us to signal further upside risk on global growth. US Q1 raised, even as we lower Q4 of 2010. On asset allocation, being long equities versus government debt remains our favourite position. On fixed Income, stay short in EM and Euro area peripherals. On credit, stay defensive on tax-exempt US Municipal bonds. On commodities, we switch from WTI to Brent as our new benchmark for oil prices. We take profits on our longs in Gold and Palladium and we switch from Grains into Corn. Also reduce risk on the long in Brent.

* Indo telcos – Jim Sullivan is downgrading TLKM to N, revising our Dec-11 PT by -16% to Rp8200/share: 1) TLKMsel does not appear to be addressing both the price x volume elements of each cost line item with as much vigor as competitors; 2) EXCL and ISAT expansion ex-Java puts TLKMsel’s historic pricing premium in those areas at risk, dragging down their ARPM; 3) TLKM will likely take longer to execute any tower sale given the presence of Singtel in the negotiations; 4) recent management changes were not as transformative as some desired. Our total return expectation at 13% does not look attractive now and we would be buyers of the stock at Rp7,100 levels.

NEWS HIGHLIGHTS
* Indofood (INDF) – analyst Stevanus Juanda has confirmed with ICBP/INDF that they will hike instant noodle prices by about 7% or Rp100/pack, allaying concerns of margin pressure from rising wheat price.

* Bank Jabar (BJBR) – targeting Rp1.16trn net profit for year 2011, a 20% growth over year 2010 net profit expectation of Rp970bn, according to CEO Mr.Agus Ruswendi.. Consensus number looks a bit high compared to the statement, at Rp1,070bn for year 2010 and Rp1,321bn for year 2011. On the latest guidance, the stock trades on 10x P/E 2011. Not Rated by JPMorgan.

* Bukit Asam (PTBA) – as a follow-up to the press article last week on coal price negotiation between PLN and PTBA, corporate secretary for PTBA Achmad Sudarto told the press that while there is a local price benchmark for coal price, in practice prices are set based on negotiation. (Investor Daily).

* Matahari (MPPA) & Multipolar (MLPL) – in a press statement and disclosure to the IDX officials, managing director for MLPL Harijono Suwarno said that his company would welcome the global retailers’ interests to be part of Matahari’s hypermart operation. Merrill Lynch, their adviser, has reportedly urged Matahari to keep its stake in hypermart, but at the same time take a strategic partner to help the company to expand more aggressively. (Investor Daily, Bisnis Indonesia, Kontan). My take – the hope for MPPA sealing strategic partneship with a global retailer is still alive. Also see the AWSJ article below on the potential sale of Kabelvision where MLPL owns a 34% stake.