KimEng Market Strategy: Heading to the second half: Back to fundamentals and liquidity

The first half: Local players and election have been the dominating factors

The second half: Shifting to fundamentals, fueled by liquidity
If presidential election were extended to two round, we expect turbulence and profit taking in July-September 2009 amid the uncertainties.
After focusing on the election, investors will shift focus to fundamentals: global economy (i.e., US, China); domestic economy
Catalysts for the second half include commodity prices, further decline in interest rates and strong Rupiah. While the above factors have to a certain extent been priced in on certain stocks, many still have upside potentials.
Excess liquidity will prompt foreign investors to enter the Indonesian market after the election.

Room for upside remains
Valuation: Indonesia is trading at 11.9x 2010F PER, lower than its peers (Malaysia: 14.2x, Singapore: 13.6x).
In terms of PE/EPS growth, Indonesia is trading at 0.91x 2010F PEG, lower than its peers in the region (Philippines: 1.55x Malaysia:1.40x and Singapore: 1.10x).
Indonesian economy is still growing at 4% – 5% rate while other countries in the Southeast Asian region are showing negative growth.
Our target for the index at end of the year is 2300, equivalent to 14.1x 2010F PER, 1.19x 2010F PEG.


Sector picks
Commodity-driven

Mining
Plantation
Interest rate sensitive

Banking
Property
Currency sensitive

Pharmaceutical


Stock picks Big caps
Bank Mandiri
Bank Rakyat Indonesia
Gudang Garam
TB Bukit Asam
Unilever

Small-mid caps
AKR Corporindo
Charoen Pokphand
Ciputra Surya
Summarecon Agung
Tempo Scan
Total Bangun Persada
Wijaya Karya