BBRI and Coal upgrades - JP Morgan

Bank Rakyat Indonesia (BBRI) – FY11 EPS raised by 24%, price target raised from Rp6000 to Rp7300. New addition to JPMorgan’s analyst focus list. Aditya Srinath (analyst) estimated that the accounting shift to using effective interest rates from flat rates could raise overall asset yields by approximately 160bp. While the old and new accounting treatments generate identical overall RoA over the life of one particular loan, being in a growth phase BRI’s level of earnings & RoE in coming years are likely to remain higher than the recent periods. This should be enough to drive a higher PE & PBV rating in the eyes of investors. The revision makes BBRI a stand-out compared to its larger peers based on P/E, PBV, and RoE analysis.
https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-570870-0.pdf

Share px ‘11 P/E ’11 PBV RoE (FY10)
BBCA* 7100 18.4x 4.5x 27.1%
BMRI* 6850 13.8x 2.8x 22.9%
BDMN* 6450 15.1x 2.7x 17.4%
BBRI 5850 11.0x 3.1x 35.9%
BBNI* 3950 13.8x 2.1x 17.0%
* Consensus estimates
Source: Bloomberg, JPM calculation

Thermal coal – Dow Jones is reporting that Xstrata has settled thermal coal prices with Japanese utility, Chugoku Electric Power, at $129.8/t for JFY11 (April-March). Whilst Xstrata has not officially confirmed this, the publication appears well sourced with the Japanese utilities having quite often in the past been the first to settle the benchmark price for the year. This would be the highest thermal coal settlement on record and compares to our forecast of $120/t for this year and current Australian spot prices of $123/t.

We believe this is a positive outcome considering the recent Japanese earthquake and softening of Newcastle prices (fallen $2/t in past couple of weeks) and signals that the coal market is tightening as the Japanese utilities increase thermal coal consumption to offset lower nuclearpower output.

The article also suggests that Chugoku took over the lead in negotiations after Tohuku Electric Power backed away after several of its plants were damaged in the disaster and that there are indications of increased demand after Electric Power Development Co announced that it will increase consumption of thermal coal to over 20mt thermal for this fiscal year.
https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-571181-0.pdf