Coal/Energy vs. Financials
We forecast US$120/tonne thermal coal price for 2011. Latest Barlow Jonker Index per 23 Dec almost hit US$120, closing the week at US$119/tonne, up from US$116 the previous week and US$109 the previous month. On oil, we forecast WTI to average US$93/bbl in year 2011, US$104/bbl in year 2012. I would fund the O/W in coal and energy with an U/W in Indo financials, given the latter’s expensive multiples and risk of tightening measures (for selective exposure, I’d go with BBNI and BBRI).
(1) Indika Energy (INDY) – listing of subsidiary and positive earnings revision to be the positive catalyst. The market continues to under-estimate the growth opportunities in Petrosea and Tripatra, the subsidiaries.
(2) Medco Energy (MEDC) – monetization of several oil blocks to be the positive catalyst. There are press reports (12/29) that GoI will cut income tax on the sale of oil and gas blocks from 20% to 5% on exploration blocks, and to 7% on exploitation blocks. Still an acquisition target, with possibility of joint venture with Pertamina remaining.
Agriculture-consumption vs. Pure consumption
A resumption of Chinese import activity (which commenced for the first time in 15 years during the spring of 2010) appears likely during the first half of 2011. In light of already-low supplies, Chinese purchases—especially if made in the context of food security objectives rather than in response to economic trade signals—could push prices still higher.https://mm.jpmorgan.com/
(3) Indofood (INDF) – on 12x consensus P/E for 2011, the stock has become a cheaper alternative to direct CPO plays such as AALI (15.4x), IFAR (15.0x), and LSIP (13.3x). Further downside risk to listed subsidiary ICBP is more manageable now, given the 20% discount to IPO price now and 15x consensus P/E for 2011.
Telecom vs. Infrastructure
PT Telkom got sold down to 4.6x consensus EV/EBITDA for 2011, and Indosat to 4.6x. Funds flowed into the wireless tower companies Tower Bersama (TBIG), on 13.5x consensus EV/EBITDA for 2011, and to Sarana Menara Nusantara (TOWR), on 12.7x. Inorganic growth by the tower companies may benefit telco operators as potential seller of their towers. Growth adjusted, telcos may be cheaper than the tower companies on EV/EBITDA, with better dividend outlook and lighter balance sheet post tower sale.
(4) Indosat (INDF) – James Sullivan upgraded ISAT to OW with a TP of Rp6,600 on 10 Nov 2010. His 2Q10 Deep Dive report highlighted a potential turnaround in core operating statistics; all of these trends showed continued improvement in 3Q10. While the market has been excited about potential tower deals in 1H11, potential benefits for Indosat as the potential seller of such towers have been ignored completely.
Small Cap thematic basket
(a) Under-researched thermal coal plays: Intraco Penta (INTA), Resource Alam (KKGI) (b) Textile and polyester: Pan Brothers Textile (PBRX), Asia Pacific Fiber (POLY), (c)Corporate restructuring and M&A: Multipolar (MLPL), (d) Consumer finance M&A: Clipan Finance (CFIN) and Wahana Ottomitra Multiartha (WOMF).
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