UBS UBS Investment Research - Indonesia Market Strategy

Second consecutive month of earnings upgrade

Consecutive earnings upgrade in Feb and March by UBS We upgraded our EPS forecast by 2% and 1% for 2009 and 2010 consecutively in February and March mostly in plantation, auto, telecommunication and property companies. Q4 08 results just out seen stronger than expected operating profits for the banks and consumer companies. Our recent gas -supply chain visit also confirmed strong gas volume sales in the first two months of the year promising further earnings momentum.

Rating change: Bank Rakyat and Indotambang
We have a Sell rating on Bank Rakyat (BBRI) now as we think the bank is one with the highest risk of cash call and earnings disappointment in its sector. We have a Buy rating on Indo Tambangraya now despite the near-term bearish view on coal price as we have high visibility of its earnings in 2009 (87% of sales contracted), net cash balance sheet, good governance and high dividend yield.

Key recommendations: Telkom and PGAS remain our top picks
We saw proofs of more rational competition among cellular operator and cuts in capex plans of its competitor, benefiting Telkom. We took ASII and Danamon off our top pick given their recent strong share price performance. We would like to highlight two mid-cap ideas: Indotambang and Aneka Kimia (AKRA). Three reasons why AKR is attractive: multi-year growth opportunities at its fuel distribution and logistics (currently 45% of EBIT in 08E, 36% EPS growth in 2010E, 17.5% RoE trading at 1.1x PBV).