Mandiri Sekuritas Strategy Continued GDP downward revision

Continued GDP downward revision hampers JCI advancement

Despite the JCI (IDX)’s good performance year to date (+5%), and strong performance of coal and palm oil stocks, we think the drivers are more specific counter issues, not a general perception of sector picks. In 2Q09, we grew cautious on banks after NPL significantly rose from 3.2% (end Dec-08) to 4.2% (midweek March-09). Despite lingering uncertainty on the world economy, we prefer commodities as liquidity s! tarts to trickle, and recent failure on Gilts auction, and weak Treasury auction sparked doubts on currencies. Our technical analysts still see oil continuing its upward trajectory to US$67/bbl. Continued downward revision on 2009 GDP projection (Bank Indonesia last week for the third time cut its prediction to 3%-4%, with the likelihood the growth will be at the lower end), would impose hurdle on JCI advancement.

Despite strong run from coal and agriculture, real movers year to date are less-covered counters. Among these counters were Adaro Energy (+84%), Bayan Resources (+56%), Indika Energy (+39%), Kalbe Farma (+58%), and Gudang Garam (+38%). We attributed these counters performance, more on specific stock issues rather than general fundamentals movements. Other strong performers were Astra group of companies such as United Tractors (+47%), Astra Agro Lestari (+39%), and Astra International (+35%). As risk aversion remains and banking counters are a must avoid, the choices are limited, and these sectors (commodities and consumers) were favored for their defensive postures.

2Q09 : banks have to wait for NPL deterioration to stabilize. We were a supporter of banking sector as we expected banks (especially the big ones) to maintain their net interest margin on better bargaining position to their depositors, also to their borrowers due to the tight credit situation. However, NPL deteriorated faster than our expectations (we are expecting 200bps by year-end, already 100bps ytd) prompting us to take a wait-and-see mode until we see NPL has peaked out.

We remain in the confinement of commodities, while IDX is seen peaking at 1,500 level. We pick underperforming Bukit Asam (PTBA, Rp6,800, Buy, TP:Rp9,380), Indotambang (ITMG, Rp9,900, Buy, TP:Rp15,129) and outperformer such as Medco Energy (MEDC, Rp! 2,225, but, TP:Rp2,550). We still like Jasa Marga (JSMR, Rp900, Buy, TP:Rp1,250). And as the economy is still sliding, the IDX is expected to trade at 2009 PE range of 6.5x-8.5x (1,105-1,445), a bottom trading range based on 12-year PE band.