Flavour (Indo): Banks and Holcim Indonesia - CLSA

The Asean banking sector team that meet clients in Singapore and HK sense that clients are well weighted in the outperforming Indo and Thai banks, neutral on Malaysian banks and underweight the Singapore banks. As such, there was a receptive ear to our relatively contrarian view that the tactical play for 2Q may be to lighten positions in the hard-running Thai and Indo banks where valuations now appear full; and switch into laggard, more defensive Malay and Sing banks. Anand’s preference among Indonesian banks remain state-owned banks i.e. Bank Mandiri (BMRI IJ -BUY), BRI (BBRI IJ - BUY) and BNI (BBNI IJ - BUY), especially as the two more obvious catalysts (firstly, the long-awaited passing of the land acquisition reform bill in 2H11; and secondly, allowing state-owned banks to give haircuts on NPLs to accelerate work-outs) should primarily be to their benefit.

Demand for industrial estate land was reported to have increased by 150% q-o-q in 1Q11 and up by seven-fold y-o-y. Industrial estate land sales in 1Q11 recorded 320ha compared to 130ha in 4Q10 and 41ha in 1Q10, largely within surrounding the Greater Jakarta areas such as Karawang. Demand came from expansions by auto manufacturer and food industry, which also represents foreign direct investments mainly from Japan and Korea. More of such demand for industrial estate land could be expected as Indonesia’s investment profile rises resulting in pick up in foreign direct investments and expansion of local manufacturing capacity. Listed property companies who may benefit from this trend of rising demand for industrial land include Lippo Cikarang (LPCK IJ – Not rated), Lippo Karawaci (LPKR IJ – Not rated), Jababeka (KIJA IJ – Not rated), and Surya Semesta (SSIA IJ – Not rated).

The Indonesian Toll Road Authority (BPJT) was reported to have submitted budget request to Ministry of Finance for Rp2.8 tn (US$300m) for land acquisition. The budget is part of the mechanism implemented by the Government to help acquire land for infrastructure projects under the land capping program and revolving fund, whereby the Government will use the fund to help initially acquire the land for infrastructure projects. This funding for land acquisition is temporary in nature as it will later be reimbursed by the infrastructure projects developer with the agreed target amount. The fund essentially helps secure certainty on land acquisition costs for project developers as any realized land acquisition cost in excess of the target amount would be absorbed by the Government.

We would also like to highlight the strong volume growth of Holcim Indonesia in 1Q11 (up 15.4% yoy) taking up market share from others. Holcim (SMCB IJ) has strong position and leading market share in bulk cement and thus any acceleration of infrastructure projects and high rise property development will benefit Holcim. Stock is a laggard in recent rally as market concern over rising energy costs. Energy cost accounts for around 40%-50% of Cogs in cement companies.