Production growth decelerating, but it was expected — For the first five months of the year, we saw AALI delivering strong production performance (+29% YoY). However, based on AALI’s latest June 2011 operating statistics, as shown in Figures 1, 4 and 8, we have started to see the pace of growth slowing, providing a possible indication of growth normalizing. This also suggests that going forward, although we still expect positive growth in 2H (given seasonality where 2H is typically a stronger production period than 1H), we also expect CPO production growth to continue tapering to our growth expectations of 5% YoY (1,168k tons) by year-end, especially if we take into account: a) the low base in 1Q10, b) production recovery in August 2010 and c) October 2010 peak production.
CPO demand should remain firm — Despite our expectations of better production performance in 2H11 vs. 1H11 (on the back of seasonality), we are optimistic that the upcoming festivities (Ramadan/Idul Fitri/Diwali, etc) should help keep CPO demand robust. AALI’s historical performances indicate that in most cases, AALI managed to sell almost 100% of whatever it produced (Fig. 9). We don’t expect the trend to deviate any time soon given a) 80-90% of CPO globally is still for food purposes and b) CPO is still the cheapest edible oil.
CPO price trend — CPO prices slipped by 3% over the last 2.5 weeks to US$1,004/t. The decline in CPO prices is within expectations as we had expected CPO prices to weaken in 2H11 versus 1H11. We maintain our average CPO price assumption of US$1,050/t for 2011, which is still higher than 2010’s average CPO price of US$856/t.
Maintain Buy (TP: Rp29,320) — Higher CPO prices in 2011 (vs. 2010) supported by ongoing improved volume performance (as reflected in its latest production stats), mean we remain optimistic on the outlook for AALI in 2011. Maintain Buy.
Minggu, 17 Juli 2011
Strategy Alert - Key takeaways from BI July conference call - Deutsche Bank
BI hosted a conference call yesterday and some of the points are as follows.
Inflation Overall, BI remains comfortable with current level of inflation. BI views that Rupiah appreciation is still one of the most effective tools in keeping inflation at bay. Current level of credit growth has not caused concerns for inflationary pressures. BI maintains inflation target of 5% +/‐ 1% in FY11E.
Capital reversal risks BI rate has been unchanged at 6.75% since February and most likely to remain so for the near term. As part of mitigating risks of capital reversal, BI has the alternate option to increase reserves requirement ('RR') in lieu of a rate hike. BI reiterates that despite the option of increasing RR always being open, the extent of how much it should be raised is yet to be determined. We have indicated that a 200‐300bps increase in RR to 10‐11% of deposits is not unrealistic and should not derail loan growth. We estimate earnings risk to average 0.1‐2% in 2011E and 0.2‐4.3% in 2012E of our base‐case earnings projections. Moreover, earnings implication could be lower given that some banks may have allocated higher reserves than required. In addition, BI's participation in the open bonds market should not be a concern as it will not complicate the already high liquidity in the system.
FX reserves reached US$119.6bn in June, equivalent to about seven months of imports and servicing of official external debt.
Credit expansion and interest rates Overall loans grew 23.5% YoY in June. About 30% still represents investment lending. According to BI, about 40.8% of banks' lending committed to infrastructure has been realised, despite the state's capital spending only reaching 16.7% of infra budget. This is a small anecdote yet a telling progress of expansion in infrastructure. Furthermore, BI sees that declining trend in interest rates may continue in the near term. This has become evident as working capital lending rate has come down 102bps for the past 12 months. BI views that once prime lending rate disclosure becomes more efficient, that in itself will boost competition.
Budget realisation In 1H11; Revenue: 45.5% of FY11 budget, Expense 37% (vs 35% last year). International tax revenue is 200% more than budgeted due to impact from higher CPO price in early 2011. Non‐tax revenue rose mostly on rising comodities' prices such as oil and coal.
Inflation Overall, BI remains comfortable with current level of inflation. BI views that Rupiah appreciation is still one of the most effective tools in keeping inflation at bay. Current level of credit growth has not caused concerns for inflationary pressures. BI maintains inflation target of 5% +/‐ 1% in FY11E.
Capital reversal risks BI rate has been unchanged at 6.75% since February and most likely to remain so for the near term. As part of mitigating risks of capital reversal, BI has the alternate option to increase reserves requirement ('RR') in lieu of a rate hike. BI reiterates that despite the option of increasing RR always being open, the extent of how much it should be raised is yet to be determined. We have indicated that a 200‐300bps increase in RR to 10‐11% of deposits is not unrealistic and should not derail loan growth. We estimate earnings risk to average 0.1‐2% in 2011E and 0.2‐4.3% in 2012E of our base‐case earnings projections. Moreover, earnings implication could be lower given that some banks may have allocated higher reserves than required. In addition, BI's participation in the open bonds market should not be a concern as it will not complicate the already high liquidity in the system.
FX reserves reached US$119.6bn in June, equivalent to about seven months of imports and servicing of official external debt.
Credit expansion and interest rates Overall loans grew 23.5% YoY in June. About 30% still represents investment lending. According to BI, about 40.8% of banks' lending committed to infrastructure has been realised, despite the state's capital spending only reaching 16.7% of infra budget. This is a small anecdote yet a telling progress of expansion in infrastructure. Furthermore, BI sees that declining trend in interest rates may continue in the near term. This has become evident as working capital lending rate has come down 102bps for the past 12 months. BI views that once prime lending rate disclosure becomes more efficient, that in itself will boost competition.
Budget realisation In 1H11; Revenue: 45.5% of FY11 budget, Expense 37% (vs 35% last year). International tax revenue is 200% more than budgeted due to impact from higher CPO price in early 2011. Non‐tax revenue rose mostly on rising comodities' prices such as oil and coal.
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