Latest Economics Research, Sector and Company News - UBS Indonesia

Asian Economic Comment: BI policy still loose
ASEAN economist Ed Teather outlines that Bank Indonesia left policy rates unchanged at the 4 March policy meeting as expected, but the press statement (and BI comments at UBS’ Indonesia conference) increased the emphasis on rupiah appreciation.

Indonesia ’s real exchange rate remains in line with that of Australia ’s commodity currency. However, volatility in commodity prices in the context of accelerating money growth could undermine the rupiah even if the ongoing expansion in Indonesia ’s domestically orientated real economy seems well underpinned.

We remain of the view that credit-friendly monetary policy settings imply investment returns from Indonesia will be driven by nominal asset price gains rather than rupiah strength on a medium term time horizon.

Sales comment: Ed feels that policy settings remain too loose and that this will start to show in inflation and the currency later in the year. Let us know if you’d like a copy.

Jasa Marga (JSMR Buy PT 4,400): Consortium for Jakarta airport expansion project
JSMR plans to form a consortium with PT Angkasa Pura II to built new projects in Sukarno-Hatta Airport : 1) hangar for PT Garuda Maintenance Facilities, worth Rp3.0 tn; and 2) cargo village, worth Rp700 bn. The time lines for the formation of the consortium and project completion are not disclosed. Meanwhile, MSOE Deputy for Infrastructure and Logistic, Sumaryanto Widayatin, stated that JSMR might have to launch a rights issue this year, if the company is appointed to be the developer of Trans-Java toll road project.

Sales comment: We like JSMR due to its defensive nature, inflation-linked revenue growth and strong execution ability. We think it is only natural that JSMR would need additional fresh capital if the company is appointed as the developer for the Trans-Java toll road, which is a positive catalyst. The scheduled implementation of Land Acquisition Law in mid-2011 is also another positive catalyst for JSMR.

Bakrie Brothers (BNBR Sell PT 72): Share swap transaction with Vallar is completed
BNBR and Long Haul Holdings – a Bakrie family’s SPV – completed Rp13 tn share swap transaction with Vallar Plc. The share swap was done on March 4, where: 1) Vallar obtained 5.19 bn shares (25%) of Bumi Resources (BUMI Sell PT 2,800) at Rp2,500 per share; and 2) BNBR and Long Haul obtained 90 mn shares (43%) of Vallar at GBP10 per share. In the acquisition agreement, Vallar will also launch follow through transactions to acquire 75% ownership in Berau Energy (BRAU Not Rated) through: 1) cash payment for 35% stake (12.21 bn shares at Rp540 per share); and 2) share swap transaction for the 40% stake (52.3 mn shares (24.9%) of Vallar for 13.96 bn shares of BRAU). Meanwhile, BNBR and Long Haul is also getting US$1.34 bn financing (45/55 for BNBR/Long Haul) from Credit Suisse. Post all the transactions above, Vallar Plc will change its name to Bumi Plc.

Sales comment: Ultimately, BNBR and Long Haul will own 43% of Bumi Plc, whereas Recapital and Vallar will hold 25% and 32%. We are awaiting Bumi Plc to announce its plans – production, leverage, etc. – post all these transactions.

Alam Sutera (ASRI Not Rated): 2010 earnings guidance, 2011 target
ASRI reported unaudited 2010 net profit of Rp300 bn (+219% YoY) vs 2009 figure of Rp94 bn. For 2011, ASRI is targeting to double its earnings. Meanwhile, ASRI is allocating Rp1.4 tn to fund its expansion program: Rp200 bn for 6-7 ha land acquisition in Bali , Rp500 bn for land acquisition in Pasar Kemis, Tangerang and Rp700 bn for 2011 capex.

Sales comment: Very aggressive target. ASRI is juggling a number of projects on its plate, and we hope the company could execute them on schedule.