US$130/bbl brent, short covering EM further to go, BMRI & TLKM caution - JP Morgan

RESEARCH CALLS
* Oil price forecast raised to US$130/bbl intraday (brent) – we are lifting our 2Q2011 Brent price target to $118/bbl. Our new forecast implies that the spot price will spend some time over $120/bbl and could even see intraday highs reaching $130/bbl.
https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-567820-0.pdf

* Investors remain UW in EM. Covering of EM UW has further to go. The divergence between the 4-week pace of DM and EM equity fund flows continues to narrow, favouring EM vs DM equities (Chart 8). The most recent position indicators show that investors are still UW in EM, suggesting that the covering of EM underweights, currently underway, has further to go.
https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-568270-0.pdf

SALES CALLS
* Watch out for Bank Mandiri (BMRI) short term weakness – We learn that the Variable Rate bonds held by BMRI have been re-priced lower, previously based on 3-mo SBI (yielding about 6.34%), now based on 3-mo SPN (yielding about 5.17%). BMRI holds about Rp83.7trn worth of these bonds, so we roughly calculate an annualized potential drop of around Rp737bn (after tax) or around 7% of consensus profit. But to me, BMRI is a buy on this potential weakness.

* Cautious on PT Telkom, as the company is sounding its plan to buy Singtel’s 35% stake in Telkomsel. The news came from SOE minister Mustafa Abubakar who spoke with the reporters. He told the is a scheduled meeting between the management of PT Telkom and Singtel in April, to talk press there about the possibility of such purchase by PT Telkom, among other things.. (Kontan). My take – I would see the event as a downside risk to TLKM.

NEWSFLOW
* Newmont-BRMS fight continues: Newmont HQ seems willing to negotiate with the central government, to accommodate buying by Pusat Investasi Pemerintah (PIP). Governor of West Nusatenggara sent protest letter to president SBY, questioning why the central government suddenly wants to buy the last 7% stake, while foregoing the option to buy the first 24%. DPR commission VII (mining) said they have taken a stance to go against the central government buying the 7% stake, questioning whether it is the central government or Mr. Agus Marto himself who has been insisting on the purchase. (Kontan, Investor Daily).

* Dynaplast (DYNA) going private: looking to tender the free float at Rp4500/share, 20% above highest share price level in the last 90days. Tender period 25 May to 27 June, payment date 7 July 2011. Needs an effective letter from Bapepam. (Kontan).

* Multifinance accounting: Indomobil’s finance director told the press that his year 2010 net profit only grew by 17% because of the adoption of PSAK 50/55 (new accounting practice), where the company can only recognize the revenue coming from loans that mature in the current year. The change will benefit future earnings, according to him. (Kontan).

* Garuda Indonesia (GIAA): the three underwriters looking to conduct a block sale transaction on the unsold portion of GIAA IPO shares. (Bisnis Indo).