Stream of results over the weekend, mostly in line. Take profit on XL as it will start facing uphill battle vs. high market expectation - Nomura Indonesia

Stream of results over the weekend. Mostly in line with strong growth seen in commodity sector. London Sumatra (LSIP IJ) beats our above market expectation on higher volume, higher price. We keep London Sumatra as one of our top picks in Indonesia. XL missed the high market expectation and we recommend investor to take profit on XL (EXCL IJ) and downgrade it from BUY to Neutral.

Adaro (ADRO IJ – Buy) announced earnings of USD 109 mn (up 11% YoY), in-line with our expectation of USD 456mn (24% of estimate). That was due to higher ASP of US$63.8/ton (+16% YoY) and lower goodwill amortization expense. The higher ASP enhanced company sales figure in1Q11 by 12 % YoY to US$757mn despite lower sales and production volume of 10.9mn tons (-5% YoY) and 10.6mn tons (-7% YoY) respectively. But from an operational point of view, operating profit was down 1% YoY to US$219mn on higher production cost (26% YoY) combined with lower production volume. We expect production to start to normalize in 2Q on better weather conditions and maintain our Buy call on ADRO with a price target of Rp3,000. Please note that this is the first time for the Company to report its financials in US dollars. Further explanation from the management is needed on the change of the reporting currency. In our view, this conversion was to avoid the impact of currency fluctuations on ADRO’s financials.

Indosat (ISAT IJ – Buy) 1Q11 earnings was Rp454bn, excluding Rp460bn FX gains and adjusting for VSS, the underlying net profit was Rp272bn, up 18% QoQ. Operationally, 1Q11 revenue and EBITDA were in-line with our estimates, but 2-6% below consensus. Revenue fell 2% QoQ to Rp4.9tn – as expected due to seasonality. EBITDA fell 11% QoQ to Rp2.2tn and margin fell 480bps to 45.6%, but this included a voluntary staff separation (VSS) scheme charge of Rp116bn. Indosat added 1.4mn subscriber in the quarter – all prepaid, with blended ARPU down 17% QoQ to Rp29k. Indosat’s FY11F guidance is better than our and market expectations, but there is skepticism on its ability to achieve it easily. Although, we see slow-and-steady progress is being made. Maintain Buy with price target of Rp6,500.

We downgraded XL (EXCL IJ – Neutral) from Buy to Neutral following weaker than expected result for 1Q11. Net income for 1Q11 was Rp703bn (19% of our FY11F estimate), down 7% QoQ or up 1% YoY. On QoQ basis, revenue fell 4% (up 9% YoY) to Rp4.5tn and EBITDA fell 5% (up 10% YoY) to Rp2.4tn. XL lost 1.1mn pre-paid and 4k post-paid subscriber in the quarter, while blended ARPUs remained flat at Rp34k. Total minutes were down 17% to 19bn QoQ. At the same time, data growth is a key revenue driver, but comes with a lower margin. Hence, the scope for positive earnings revisions is limited, in our view.

PGN (PGAS IJ – Buy) reported 1QFY11 profits of Rp2,1tn (up 19% YoY); core profit was at Rp1,6tn, 8% below consensus but in-line with our expectation (25% of FY11F estimation). Blended revenues improved 6% YoY to Rp4.7tn driven primarily by a similar increase in PGN’s dominant distribution segment sales (up 5% YoY) where the impact of a 7% YoY contraction in volumes (780mmscfd for 1Q11) was offset by a 18% YoY increase in PGN’s implied USD-denominated average distribution tariff to USD6.90/mmbtu. PGN’s cost of purchased gas fell 1% YoY to Rp1.7tn for stronger IDR and lighter volume. With PGN’s near-term piped gas supply constraints already more than discounted by the stock’s ytd sell-down, we see PGN’s current levels as a very attractive entry point for long-term investors looking to gain exposure to what we believe will be a secular lift in Indonesia’s domestic gas utilization over the medium term, thus we reiterate Buy at price target of Rp4,800.

London Sumatra (LSIP IJ – Buy) results for 1Q11 was better than expectation at Rp394bn (29% of our FY11F estimate), whopping up 135% YoY. This is mainly due to higher CPO production (up 20% YoY) and stronger CPO prices (up 35% YoY). Revenue was up 73% YoY and slightly declined 1% QoQ to Rp1.2tn, which we view as creditable performance given 1Q11 is weaker seasonally. Rubber segment sales was at Rp161bn, grew on impressive 24% YoY and 10% QoQ, primarily on the back of high average price realizations. We continue with our bullish view on the upstream palm oil space this year on both higher prices and production. We reiterate our BUY rating on LSIP on attractive valuations.

Bank Danamon (BDMN IJ – Neutral) earnings for 1Q11 was at Rp763bn up 9% YoY to or up 12% QoQ, largely in-line with our expectation (22% of FY11F estimate). Net interest income was up 9% YoY or 4% QoQ to Rp2,6tn, mainly driven by mass-market loan (58% of loan volume) which was up 45%. Net interest margin was down slightly to 10.2% (vs 10.6% for 4Q10 and 11.7% for 1Q10), due to lower loan yield, higher deposit CoF, and lower LDR combined with higher reserve requirement. Non-interest income was up 22% YoY or 4% QoQ to Rp844bn. NPL was at 3.1% (-0.9% YoY, +0.1% QoQ) and LDR was at 94.9% (vs. 93.8% for 1Q10, 93.8% 4Q10). The bank also announced their dividend payout of 35% for FY10 profit. At the same time, it was also made known that Adira (subsidiary for insurance) plans to issue up to Rp2tn fixed rate bonds in 2Q11.