Arief Wana’s Top-5 Picks are ASII, UNTR, INDF, PGAS and BBRI, while he also thinks six additional thematic ideas: 1) Defensive with Good Dividend Yield- TLKM/PGAS, 2) President SBY stocks- INTP/SMGR/JSMR/BUMI, 3) High Yield Banks- BBRI/BDMN, 4) High Beta Stocks- ASII/UNTR/ITMG, 5) Undervalued Resources- ITMG/ADRO, and 6) Preferred Small Caps- ELTY/RALS!
· Arief Wana (Daily): Despite the good run, we continue to believe that Indonesia will continue to OUTPERFORM rising markets due to its attractive valuations (both regionally and historically based on P/B) and high beta. Our end-2009E index target is 2,276 based on an average five-year 2.9x P/B, implying P/E of 13.7x FY10E and EV/EBITDA of 7x FY10E.
· Our top picks in the market are higher beta names, with domestic exposure, earnings quality and relatively attractive valuations – Astra International, United Tractors, Indofood, PGAS and BBRI. Our least preferred are expensive resources (ie Metals).
· As reflected in 1Q09 GDP – the third highest in the region – we believe that the domestic consumption is not only showing resiliency but also a sign of bottoming-out. Our income analysis suggests higher disposal income (farmers’ income has stablised and is still better than that in 2006-07), and the improving macro outlook (interest rates, money supply and consumer confidence). Our bottom-up analysis suggests a bottoming-out trend, with low-ticket items (basic food and retail) leading the big-ticket items (autos and cement). We also believe that the stimulus package should help consumption improve further.
· In on our recent trip to Europe, we found that less than 30% of them had Overweight positions on Indonesia mostly due to the strong (and quick) rally of the Indonesian stock market in general. Thus, there is a potential for more capital inflows. Most Investors shared our positive views on the markets as well as our top picks.
· The key risks towards the market are oil prices and the IDR exchange rates. We believe that high oil prices are a risk, given its potential pressure on subsidy, especially if it stays above US$80/bbl. We are more constructive on the IDR exchange rate outlook, given: 1) the ongoing potential portfolio inflows, and 2) easing exchange rate policy.
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