May 14 (Bloomberg) -- U.S. stocks advanced, snapping a three-day losing streak for the Standard & Poor’s 500 Index, amid a decrease in bank borrowing and better-than-estimated earnings at CA Inc. Treasuries rose and the dollar slumped.
Fifth Third Bancorp, Huntington Bancshares Inc. and State Street Corp. rallied more than 6.5 percent as all but one of the 24 companies in the KBW Bank Index advanced following the biggest drop in three-month Libor in two months. CA Inc., the world’s second-largest maker of software for mainframe computers, climbed 5.5 percent. Intel Corp. and Apple Corp. added more than 2.7 percent.
The S&P 500 has fallen 3.9 percent this week after a rally of as much as 37 percent since March 9, the steepest nine-week gain since the 1930s, pushed the benchmark for American equity to the most expensive price relative to earnings in seven months. The loss wiped out most of the rally last week that was driven by speculation the banking industry is improving following the government’s stress tests.
“The last few weeks, expectations got a little ahead of themselves,” said Dean Gulis, part of a group that manages about $2.5 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan. “We’re just in a period of consolidation at least, given the extraordinary move we’ve had since early March off the bottom.”
The S&P 500 climbed 1 percent to 893.07 at 5:07 p.m. in New York. The Dow Jones Industrial Average added 46.43 points, or 0.6 percent, to 8,331.32. Europe’s Dow Jones Stoxx 600 Index increased 0.5 percent. The dollar fell against most major currencies as the gain in stocks encouraged investors to buy higher-yielding assets, lessening the refuge appeal of the greenback.
Fed Purchases
Treasuries rose for a second day after the Federal Reserve bought U.S. debt maturing between one and two years amid a two- week hiatus in the Treasury’s auction schedule as the government borrows record amounts to revive economic growth.
Ten-year note yields touched the lowest level since April 29 as more Americans than forecast filed for unemployment benefits last week. The central bank bought $2.975 billion of Treasuries maturing from October 2010 to February 2011 as part of an effort to lower consumer borrowing costs.
“The digestion of the supply from last week and renewed concerns about the economy, with the employment data, has helped to resuscitate the bid for Treasuries,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. more...
Jumat, 15 Mei 2009
Bloomberg Soybeans, Corn Rise on Signs U.S. Exports Are Eroding Supplies
May 14 (Bloomberg) -- Soybean prices rose to seven-month highs, and corn resumed its rally on signs that increased global demand is eroding inventories in the U.S., the world’s biggest grower and exporter of both crops.
Soybean-export sales in the four weeks ended May 7 were more than double the year-earlier period, the U.S. Department of Agriculture said today. Sales of soybean meal, an animal feed, jumped 92 percent from a week earlier. The USDA also reported 120,000 metric tons of new soybean sales to China. Corn sales last week jumped 59 percent, the agency said.
“The export sales were better than expected last week, and China added to their purchases overnight,” said Roy Huckabay, an executive vice president at the Linn Group in Chicago. “Overseas traders are much more concerned about declining U.S. supplies than U.S. traders.”
Soybean futures for July delivery gained 19.5 cents, or 1.7 percent, to $11.475 a bushel on the Chicago Board of Trade, the biggest gain since May 1. The price earlier touched $11.48, the highest since Sept. 29.
Corn futures for July delivery rose 1.75 cents, or 0.4 percent, to $4.2825 a bushel in Chicago, the fifth gain in six sessions. Yesterday, the price reached $4.34, the highest for a most-active contract since Oct. 9.
Planting delays
Prices also rose as rain delays planting in the Midwest, Huckabay said.
Some fields from Kansas to Ohio may get more than 4 inches (10 centimeters) of rain in the next five days after getting more than 2.5 inches in the past 24 hours, said Mike Tannura, a meteorologist for T-Storm Weather in Chicago. Some fields will receive a month’s worth of rain in the next five days, he said.
Corn planting in the top 18 growing states, which seeded 92 percent of last year’s crop, rose to around 48 percent complete this week, up from 33 percent a week earlier, USDA said May 11. The average was 71 percent at this time from 2004 to 2008. more...
Soybean-export sales in the four weeks ended May 7 were more than double the year-earlier period, the U.S. Department of Agriculture said today. Sales of soybean meal, an animal feed, jumped 92 percent from a week earlier. The USDA also reported 120,000 metric tons of new soybean sales to China. Corn sales last week jumped 59 percent, the agency said.
“The export sales were better than expected last week, and China added to their purchases overnight,” said Roy Huckabay, an executive vice president at the Linn Group in Chicago. “Overseas traders are much more concerned about declining U.S. supplies than U.S. traders.”
Soybean futures for July delivery gained 19.5 cents, or 1.7 percent, to $11.475 a bushel on the Chicago Board of Trade, the biggest gain since May 1. The price earlier touched $11.48, the highest since Sept. 29.
Corn futures for July delivery rose 1.75 cents, or 0.4 percent, to $4.2825 a bushel in Chicago, the fifth gain in six sessions. Yesterday, the price reached $4.34, the highest for a most-active contract since Oct. 9.
Planting delays
Prices also rose as rain delays planting in the Midwest, Huckabay said.
Some fields from Kansas to Ohio may get more than 4 inches (10 centimeters) of rain in the next five days after getting more than 2.5 inches in the past 24 hours, said Mike Tannura, a meteorologist for T-Storm Weather in Chicago. Some fields will receive a month’s worth of rain in the next five days, he said.
Corn planting in the top 18 growing states, which seeded 92 percent of last year’s crop, rose to around 48 percent complete this week, up from 33 percent a week earlier, USDA said May 11. The average was 71 percent at this time from 2004 to 2008. more...
Bloomberg Crude Oil Rises as U.S. Equities Advance, Dollar Declines
May 14 (Bloomberg) -- Crude oil rose after U.S. equities increased and the dollar dropped against the euro, bolstering the appeal of energy futures as an alternative investment.
Oil advanced after the Standard & Poor’s 500 Index ended a three-day losing streak. The dollar declined as rising stock prices reduced the need for a refuge. Energy prices fell earlier when the International Energy Agency said world oil consumption will retreat this year by the most since 1981.
“The stock market rally is inspiring buying of energy futures,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “The market is more focused on inflation pressures and a possible economic rebound than on weak energy demand and plentiful supply.”
Crude oil for June delivery rose 60 cents, or 1 percent, to settle at $58.62 a barrel at 2:42 p.m. on the New York Mercantile Exchange. Futures declined as much as $1.47, or 2.5 percent, to $56.55. Prices are up 31 percent this year.
U.S. stocks advanced on a decrease in bank borrowing and better-than-estimated earnings at CA Inc. The S&P 500 Index increased 1 percent to 893.07 and the Dow Jones Industrial Average climbed 0.6 percent to 8,331.32.
The dollar declined 0.4 percent to $1.3654 per euro from $1.36 yesterday, after appreciating to $1.3526 early today, the strongest level since May 8.
U.S. Inventories
U.S. crude-oil supplies fell 4.63 million barrels to 370.6 million in the week ended May 8, the first drop since February, the Energy Department said yesterday in a weekly report. The decline left inventories 18 percent higher than the five-year average for the week. They were the highest since 1990 in the week ended May 1.
Gasoline stockpiles dropped 4.15 million barrels last week. Inventories have dropped 9.02 million barrels in the past three weeks.
Gasoline for June delivery rose 3.49 cents, or 2.1 percent, to end the session at $1.7237 a gallon in New York, the highest settlement since Oct. 15.
The crude-oil market often follows gasoline during the second quarter as U.S. refineries prepare for the summer driving season. U.S. gasoline demand peaks between the Memorial Day holiday in late May and Labor Day in early September.
“Gasoline is leading the way going into the critical driving season,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock & Co. in Chicago, a division of MF Global Ltd. more...
Oil advanced after the Standard & Poor’s 500 Index ended a three-day losing streak. The dollar declined as rising stock prices reduced the need for a refuge. Energy prices fell earlier when the International Energy Agency said world oil consumption will retreat this year by the most since 1981.
“The stock market rally is inspiring buying of energy futures,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “The market is more focused on inflation pressures and a possible economic rebound than on weak energy demand and plentiful supply.”
Crude oil for June delivery rose 60 cents, or 1 percent, to settle at $58.62 a barrel at 2:42 p.m. on the New York Mercantile Exchange. Futures declined as much as $1.47, or 2.5 percent, to $56.55. Prices are up 31 percent this year.
U.S. stocks advanced on a decrease in bank borrowing and better-than-estimated earnings at CA Inc. The S&P 500 Index increased 1 percent to 893.07 and the Dow Jones Industrial Average climbed 0.6 percent to 8,331.32.
The dollar declined 0.4 percent to $1.3654 per euro from $1.36 yesterday, after appreciating to $1.3526 early today, the strongest level since May 8.
U.S. Inventories
U.S. crude-oil supplies fell 4.63 million barrels to 370.6 million in the week ended May 8, the first drop since February, the Energy Department said yesterday in a weekly report. The decline left inventories 18 percent higher than the five-year average for the week. They were the highest since 1990 in the week ended May 1.
Gasoline stockpiles dropped 4.15 million barrels last week. Inventories have dropped 9.02 million barrels in the past three weeks.
Gasoline for June delivery rose 3.49 cents, or 2.1 percent, to end the session at $1.7237 a gallon in New York, the highest settlement since Oct. 15.
The crude-oil market often follows gasoline during the second quarter as U.S. refineries prepare for the summer driving season. U.S. gasoline demand peaks between the Memorial Day holiday in late May and Labor Day in early September.
“Gasoline is leading the way going into the critical driving season,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock & Co. in Chicago, a division of MF Global Ltd. more...
Business Times Dry spell may curb palm oil yields: IOI
Prices may hit RM3,000 in the near term if there is a strong uptick in demand, says IOI executive chairmanIOI Corp,(1961) Malaysia's number two planter, said palm oil yields would fall by 5 per cent due to a current warm spell and that may push prices to RM3,000 in the near term if there was an uptick in overseas demand.
Planters struggled to boost output in Malaysia last month and may continue to do so as oil palms also suffered biological stress after last year's strong harvests and low fertiliser use, IOI executive chairman Tan Sri Lee Shin Cheng said.
Malaysia, the world's second largest palm oil supplier, achieved yields at between 4 and 5 tonnes per hectare in 2008, government data showed. IOI, regarded as one of the most efficient plantations in Malaysia, achieved a yield of 6.1 tonnes, company data showed.
Hot weather leads to higher oil extraction rates as there is less water contamination but yields dry up as fresh fruit bunches are smaller and do not fully develop, plantation officials and traders have said.
"Weather will be a crucial factor. Already people are talking about a possible El Nino. The market will be very explosive if poor weather sets in during the second half of 2009," Lee said in an e-mail interview late yesterday.
"Prices may go higher if there is a strong uptick in demand. We will not discount that RM3,000 is achievable in the near term."
The benchmark July contract on Bursa Malaysia's Derivatives Exchange settled up RM64 at RM2,789 per tonne on rising hot weather fears in Malaysia and rival soyaoil producing South America.
Palm oil output in Malaysia and top supplier Indonesia generally registers double-digit growth in the second half of the year, building up stocks for the Asian festival season when top buyers India and China lock in supplies from June or July onwards.
But China appears to have kicked off its buying spree much earlier this year, with a 41.3 per cent rise in May 1-10 palm oil purchases compared to a month ago, cargo surveyor data showed early this week.
"Barring weather, it is likely that crude palm oil prices could be lower in the second half (due to higher production)," Lee said. But we still do not expect prices to decline a lot and they should remain comfortably above RM2,500." - Reuters
BNP Paribas - Jababeka (KIJA IJ) - Major overhang removed; new power plant to boost earnings in 2010 onward
Jababeka (Not Rated) held an analyst meeting earlier today to clarify issues surrounding the financing and licensing issues on its new power plant project. The share price was pummelled in the past year due to the uncertainties over the company's USD financing for a construction of its new 130 MW gas-fired power plant.
The key takeaways from the meeting:
1. The major overhang, namely the securing of operational area license, has been removed after the Ministry of Energy and Mineral issued an approval letter in mid March 2009. The prolonged process (seven months) to obtain the license was caused by the issuance of new ministry regulation in August 2008 which required new power plants to obtain such license. Hence, Jababeka has finally met all conditions for the disbursement of its USD135m syndicated loans. The first drawdown was made in April 2009.
2. Jababeka expects its revenue to surge 150% y-y and EBIT to triple y-y in 2010 to IDR370b (assuming 80% utilization rate of the power plant) post the commercial operation of the full 130MW project in 1Q10. The first gas turbine (40MW) is slated to be operational in September 2009, followed by the second turbine of the same capacity in December 2009.
3. The company has secured 5-year contracts with Perusahaan Gas Negara and Petrogas for the supply of its gas. The average purchase price is USD0.057/mmbtu. Jababeka expects to sell its electricity at USD0.08 to USD0.085/kwh vs. USD0.09/kwh price charged by Cikarang Listrindo (an IPP) and USD0.11/kwh price of PLN (state-owned electricity company). EBITDA margin for the new power plant is expected at 35-40%.
4. The operational area license requires coordination with the existing power providers in the vicinity. Jababeka needs to co-ordinate with Cikarang Listrindo (CL) and PLN to set its distribution area so as not to overlap with the two providers'. As CL already operating at 100% utilization and PLN facing deficit, Jababeka expects no difficulty in getting the agreement from these two providers.
Jababeka is a major laggard amongst property stocks in Indonesia, rising 'only' 72% YTD compared to more than 150% for other stocks as
the market is still fixated by the huge losses that Jababeka incurred in 1Q09. However, if we dig deeper, the IDR60b net losses were caused largely by the interest expense (IDR35b) and forex translation loss (IDR44b) arising from the bridging loan. Starting in 2Q09, these two expense items will be capitalized as per accounting rules, the loans will be transferred to the subsidiary level post the drawdown of the syndicated loans.
Assuming conservatively that the stock could re-rate to 1.0x 2010 P/B (for comparison, 2008 peak P/B was 1.7x), the share price could rise to IDR140 (63% upside potential).
The key takeaways from the meeting:
1. The major overhang, namely the securing of operational area license, has been removed after the Ministry of Energy and Mineral issued an approval letter in mid March 2009. The prolonged process (seven months) to obtain the license was caused by the issuance of new ministry regulation in August 2008 which required new power plants to obtain such license. Hence, Jababeka has finally met all conditions for the disbursement of its USD135m syndicated loans. The first drawdown was made in April 2009.
2. Jababeka expects its revenue to surge 150% y-y and EBIT to triple y-y in 2010 to IDR370b (assuming 80% utilization rate of the power plant) post the commercial operation of the full 130MW project in 1Q10. The first gas turbine (40MW) is slated to be operational in September 2009, followed by the second turbine of the same capacity in December 2009.
3. The company has secured 5-year contracts with Perusahaan Gas Negara and Petrogas for the supply of its gas. The average purchase price is USD0.057/mmbtu. Jababeka expects to sell its electricity at USD0.08 to USD0.085/kwh vs. USD0.09/kwh price charged by Cikarang Listrindo (an IPP) and USD0.11/kwh price of PLN (state-owned electricity company). EBITDA margin for the new power plant is expected at 35-40%.
4. The operational area license requires coordination with the existing power providers in the vicinity. Jababeka needs to co-ordinate with Cikarang Listrindo (CL) and PLN to set its distribution area so as not to overlap with the two providers'. As CL already operating at 100% utilization and PLN facing deficit, Jababeka expects no difficulty in getting the agreement from these two providers.
Jababeka is a major laggard amongst property stocks in Indonesia, rising 'only' 72% YTD compared to more than 150% for other stocks as
the market is still fixated by the huge losses that Jababeka incurred in 1Q09. However, if we dig deeper, the IDR60b net losses were caused largely by the interest expense (IDR35b) and forex translation loss (IDR44b) arising from the bridging loan. Starting in 2Q09, these two expense items will be capitalized as per accounting rules, the loans will be transferred to the subsidiary level post the drawdown of the syndicated loans.
Assuming conservatively that the stock could re-rate to 1.0x 2010 P/B (for comparison, 2008 peak P/B was 1.7x), the share price could rise to IDR140 (63% upside potential).
Goldman Sachs : Asia: Domestic demand to drive differentiation; China, India, Indonesia best positioned
Macro data are increasingly turning positive, but markets have moved strongly to price that in throughout the region. We think now is a good time to focus more on differentiation within the region rather than simple “risk-on” trades across the whole region. We continue to believe that the primary factor to focus on is domestic demand. With that in mind, we have 1) built a new diffusion index to monitor the turn in the macro data; 2) estimated the rolling combined fiscal and monetary stimulus in a consistent way across the countries and across the different types of policies; and 3) compared that combined stimulus to the underlying shock faced by each country.
Conclusion: China, India and Indonesia remain the strongest countries when comparing the combined stimulus with the underlying macro shock. The resulting domestic demand resilience there should help support equity markets in these countries. The delta relative to the recent past is greatest for India and Indonesia. We remain positive on the outlook for the IDR, and also see the INR as also well positioned on a relative basis.
CLSA mining law, regulatory update
Olie noted today that the govt could issue implementing regulation for the new mining law by Sept 09. We feel that the govt is considering inputs from various stakeholders, including from industry players. Hence, the regulation is likely to be more business friendly than the law.
But don’t hold your breadth. The govt change is just around the corner, so we are not sure whether Sept 09 schedule can be met.
Key points from the report:
We recently had a discussion with one of the directors at Department of Energy and Mineral Resources, mostly on the newly issued mining law.
We feel that the government is considering inputs from various stakeholders, including industry players, in formalizing implementing regulation or technical guidance for the new law, hence the regulation is likely to be more business friendly than the law.
However, question remains on (1) timing of the issuance as govt change is just around the corner (2) details of this implementing regulation, especially on issues such as mining contracting, DMO for coal, and licensing procedures.
At this juncture, we still feel that overall implication from new mining law on most of the listed mining companies is generally neutral. Antam (ANTM IJ) and United Tractors (UNTR IJ) are potential beneficiaries.
But don’t hold your breadth. The govt change is just around the corner, so we are not sure whether Sept 09 schedule can be met.
Key points from the report:
We recently had a discussion with one of the directors at Department of Energy and Mineral Resources, mostly on the newly issued mining law.
We feel that the government is considering inputs from various stakeholders, including industry players, in formalizing implementing regulation or technical guidance for the new law, hence the regulation is likely to be more business friendly than the law.
However, question remains on (1) timing of the issuance as govt change is just around the corner (2) details of this implementing regulation, especially on issues such as mining contracting, DMO for coal, and licensing procedures.
At this juncture, we still feel that overall implication from new mining law on most of the listed mining companies is generally neutral. Antam (ANTM IJ) and United Tractors (UNTR IJ) are potential beneficiaries.
Citigroup - PP London Sumatra Indonesia: Downgrade to SELL
Downgrade to Sell: Remaining Quarters Should Offer Reprieve but Current Valuation No Longer Appears Cheap
Challenging 1Q09 — 1Q09 proved challenging for Lonsum as it not only had to deal with lower CPO and rubber prices YoY, but also a 5.7% YoY drop in CPO volumes following the transport related problems on the back of heavy rainfall in the South Sumatra region. However, we enter 2Q with more optimism and expect future CPO prices, as well as CPO volumes, to fare better than in 1Q.
A host of factors still supportive of CPO prices — Low stock inventory in Malaysia, rising oil prices, soybean production/export issues in Argentina etc. should provide CPO price support. To put it into perspective, the April avg. CPO price stood at US$692/t vs. the March avg. of US$556/t, a YTD avg. of US$592/t, and a 4Q08 avg. of US$450/t. The current CPO price hovers at >US$800/t level.
Easing weather conditions and new mill bode well for volumes — On volumes, we expect LSIP to play catch up in 2Q09 as weather conditions improve. A new mill is slated to complete in July-09. More FFB can then be processed to CPO.
Earnings and target price revision — We had previously factored in higher CPO prices and volumes. Thus we only make minor changes to our estimates, factoring in a dividend payment of Rp208/share (30% of 2008 profits) and lower rubber prices (automotive outlook remains a concern). This leads to 5-6% downward revision of our FY09E-11E estimates and 2% off our target price.
Downgrade to Sell (target price Rp5,200) — Fundamentally we still like LSIP, but think most of its key positives are starting to be reflected in its current stock price. With the recent price rally, the stock is now trading at 8.1x 2009E and 11.3x 2010E PE and no longer appears cheap relative to its peers. Hence, we recommend investors Sell into any strength and will re-evaluate if the stock reaches lower levels.
What's new? — While there is a new management on board, the strategy going forward remains fairly similar. One area of key strategic focus for LSIP is to seek ways to pool its currently scattered plantations closer. This could either be via purchasing landbanks/plantations located close to current plantations or via selling current smaller ones to replace future purchases. At the moment, the latter is less likely to occur as conveyed by management.
Challenging 1Q09 — 1Q09 proved challenging for Lonsum as it not only had to deal with lower CPO and rubber prices YoY, but also a 5.7% YoY drop in CPO volumes following the transport related problems on the back of heavy rainfall in the South Sumatra region. However, we enter 2Q with more optimism and expect future CPO prices, as well as CPO volumes, to fare better than in 1Q.
A host of factors still supportive of CPO prices — Low stock inventory in Malaysia, rising oil prices, soybean production/export issues in Argentina etc. should provide CPO price support. To put it into perspective, the April avg. CPO price stood at US$692/t vs. the March avg. of US$556/t, a YTD avg. of US$592/t, and a 4Q08 avg. of US$450/t. The current CPO price hovers at >US$800/t level.
Easing weather conditions and new mill bode well for volumes — On volumes, we expect LSIP to play catch up in 2Q09 as weather conditions improve. A new mill is slated to complete in July-09. More FFB can then be processed to CPO.
Earnings and target price revision — We had previously factored in higher CPO prices and volumes. Thus we only make minor changes to our estimates, factoring in a dividend payment of Rp208/share (30% of 2008 profits) and lower rubber prices (automotive outlook remains a concern). This leads to 5-6% downward revision of our FY09E-11E estimates and 2% off our target price.
Downgrade to Sell (target price Rp5,200) — Fundamentally we still like LSIP, but think most of its key positives are starting to be reflected in its current stock price. With the recent price rally, the stock is now trading at 8.1x 2009E and 11.3x 2010E PE and no longer appears cheap relative to its peers. Hence, we recommend investors Sell into any strength and will re-evaluate if the stock reaches lower levels.
What's new? — While there is a new management on board, the strategy going forward remains fairly similar. One area of key strategic focus for LSIP is to seek ways to pool its currently scattered plantations closer. This could either be via purchasing landbanks/plantations located close to current plantations or via selling current smaller ones to replace future purchases. At the moment, the latter is less likely to occur as conveyed by management.
J.P.Morgan - Medco Energi; Senoro selling price rejected
Senoro selling price rejected: Bisnis Indonesia published an article today mentioning that the Government of Indonesia (GOI) has rejected the US$2.7/MMbtu gas pricing of Senoro. Upon inquiry, MEDC informed us that it is the Parliament, not the GOI that raised its objection on the gas selling price. The reason cited by the article is that the selling price is too low and GOI would like to have US$3.8/MMbtu.
GOI has yet to approve: The article also quoted that the Director General of Oil & Gas: Ms. Evita Herawati, mentioned that the Indonesia government is still waiting for the Senoro consortium to sort out the six conditions given to the consortium before deciding on the gas price. Currently, the government has yet to approve the contracted gas price.
The 6 conditions: The six conditions given are: (1) Revision of gas selling price in relation to Japan Crude Cocktail. (2) Revision to the development plan. (3) Revision to shareholders agreement. (4) Guaranteed gas supply to the domestic market. (5) Clarification on unhealthy competition. (6) Reasons why choosing the downstream
project.
Further delay likely: With these new developments, we view that further delay to Senoro development is likely: (1) It will take time to fulfill the six requirements given by the government. (2) Time will be needed to sort out the gas selling price so that every parties involved is satisfied.
ST downside likely: Fortunately, we have incorporated potential delay in Senoro in our model in which we pushed back the development by 2 years compared to the company's guidance. For Senoro, we assume that the project will be completed by FY15 rather than FY13 as guided by MEDC. With these, we view short term downside to MEDC share price is likely. However, we believe the long term fundamental of MEDC is
still intact.
Maintain OW and Dec-09 PT of Rp3,200: Due to its LT potentials, we maintain OW and our SOTP based Dec-09 PT of Rp3,200. Our PT is derived from the sum of the DCF of MEDC’s individual projects (riskfree rate of 13.0%, equity risk premium of 5.5% and a terminal growth rate of 7.0%). We also incorporate a 20% discount to the NPV value to account for further delays in MEDC’s projects.
Risks to our PT are: (1)execution risk: future project delays, etc, and (2) a decline in oil price and operating performance.
GOI has yet to approve: The article also quoted that the Director General of Oil & Gas: Ms. Evita Herawati, mentioned that the Indonesia government is still waiting for the Senoro consortium to sort out the six conditions given to the consortium before deciding on the gas price. Currently, the government has yet to approve the contracted gas price.
The 6 conditions: The six conditions given are: (1) Revision of gas selling price in relation to Japan Crude Cocktail. (2) Revision to the development plan. (3) Revision to shareholders agreement. (4) Guaranteed gas supply to the domestic market. (5) Clarification on unhealthy competition. (6) Reasons why choosing the downstream
project.
Further delay likely: With these new developments, we view that further delay to Senoro development is likely: (1) It will take time to fulfill the six requirements given by the government. (2) Time will be needed to sort out the gas selling price so that every parties involved is satisfied.
ST downside likely: Fortunately, we have incorporated potential delay in Senoro in our model in which we pushed back the development by 2 years compared to the company's guidance. For Senoro, we assume that the project will be completed by FY15 rather than FY13 as guided by MEDC. With these, we view short term downside to MEDC share price is likely. However, we believe the long term fundamental of MEDC is
still intact.
Maintain OW and Dec-09 PT of Rp3,200: Due to its LT potentials, we maintain OW and our SOTP based Dec-09 PT of Rp3,200. Our PT is derived from the sum of the DCF of MEDC’s individual projects (riskfree rate of 13.0%, equity risk premium of 5.5% and a terminal growth rate of 7.0%). We also incorporate a 20% discount to the NPV value to account for further delays in MEDC’s projects.
Risks to our PT are: (1)execution risk: future project delays, etc, and (2) a decline in oil price and operating performance.
CIMB Indo Tambangraya Megah Result note - Superior 1Q, but on a decline
(ITMG IJ / ITMG.JK, TRADING SELL - Maintained, Rp18,650 - Tgt. Rp15,000, Basic Resources)
We maintain Trading Sell on IndoTambang with a higher DCF-based target price of Rp15,000 from Rp13,000 (WACC 15%), after raising our earnings forecasts by 30% for FY09 and 8-10% for FY10-11 in light of the higher-than-expected ASPs in 1Q09. 1Q09 core profit was well ahead of consensus and our estimates due to superior ASPs. Given the likelihood of a high base in FY09, ASPs may decline in FY10. So could earnings, as FY10 production may only grow by 10% yoy. We believe dividend is the only catalyst later in 2H09.
We maintain Trading Sell on IndoTambang with a higher DCF-based target price of Rp15,000 from Rp13,000 (WACC 15%), after raising our earnings forecasts by 30% for FY09 and 8-10% for FY10-11 in light of the higher-than-expected ASPs in 1Q09. 1Q09 core profit was well ahead of consensus and our estimates due to superior ASPs. Given the likelihood of a high base in FY09, ASPs may decline in FY10. So could earnings, as FY10 production may only grow by 10% yoy. We believe dividend is the only catalyst later in 2H09.
CIMB Telekomunikasi Indonesia Quick takes - Fixed-line drag
(TLKM IJ / TLKM.JK, NEUTRAL - Maintained, Rp7,250 - Tgt. Rp7,800, Telecommunications)
We came away from Telkom's post-1Q09 results conference call with an unchanged view on its mobile operations, but more concerned about its fixed wireless and wireline businesses. Consistent with our view, Telkom anticipates gradual growth for its mobile revenue in 2009, aided by stable tariffs, higher usage and subscriber growth. However, we are concerned about Telkom's inability to monetise the strong growth in its fixed wireless subscriber base, and do not sense any changes in its strategy to reverse this.
On the back of its disappointing results and weak fixed wireless business, we reduce our FY09-11 core net profit estimates by 6-18% and DCF-based target from Rp8,500 to Rp7,800. We maintain our NEUTRAL rating on Telkom and would advise investors to switch into higher-beta stocks in the current market rally. However, Telkom remains our top telco pick in Indonesia for its strong franchise and dividend yields of 5%.
We came away from Telkom's post-1Q09 results conference call with an unchanged view on its mobile operations, but more concerned about its fixed wireless and wireline businesses. Consistent with our view, Telkom anticipates gradual growth for its mobile revenue in 2009, aided by stable tariffs, higher usage and subscriber growth. However, we are concerned about Telkom's inability to monetise the strong growth in its fixed wireless subscriber base, and do not sense any changes in its strategy to reverse this.
On the back of its disappointing results and weak fixed wireless business, we reduce our FY09-11 core net profit estimates by 6-18% and DCF-based target from Rp8,500 to Rp7,800. We maintain our NEUTRAL rating on Telkom and would advise investors to switch into higher-beta stocks in the current market rally. However, Telkom remains our top telco pick in Indonesia for its strong franchise and dividend yields of 5%.
Indopremier Tin Industry Update
China: the Survivor - Tin has more concrete Prospect
Commodities have an attractive volatility, thus it eventually raise our adrenaline in investing. Metal is one of the most valuable commodities and valuable asset for many investors. Amid current bullish market rally, we are quite often asked which metal would offer a good investment. Shortly speaking we find that tin-related product almost seen by us in everyday life especially for electronic products. One of hot example is that cellular smart phone sales that are still booming especially Blackberry nowadays, whereas its market share per late 2008 reached above 50% of total smart phones sales. So from here we confidently prefer tin. Tin is less exposed to the troubled automotive and construction industries than most other metals, although it has been hit by lower demand and de-stocking in the important consumer electronics sector. And Tinplate demand in our view is still stable and growing compare to other metals.
Tin commodity Industry should recover faster and considerably defensive sector
We prefer tin since it is is less exposed to the troubled automotive and construction industries than most other metals, although it has been hit by lower demand and de-stocking in the important consumer electronics sector.
China: The Survivor
Chinese tin prices are traded at a premium to the LME and are currently quoted at around RMB 97,000/tonne ($14,200/tonne) including 3% duty and 17% VAT. Tin becomes an extremely attracting metal and raw materials for China due to arbitrage pricing. However, we remain concern with the risk. Most of the metals in China are used for direct consumption and refining is coming from Indonesia. Indonesia per 2008 was the largest tin exporter to China contributed 51% of total tin import in China.
Yunnan announces second phase of stockpiling
Business with China is the main supportive feature in the physical tin market, although it is not as strong an effect as is being seen in copper and other metals. Chinese domestic tin prices have been very steady and at a premium to the LME for several months, based on the sharp cut-backs in production made there in the first quarter, plus actual or promised stock financing by provincial governments. Therefore, the second round of stock financing measures has been announced to support local producers of non-ferrous metals.
China’s refined tin production fell by 30.4% to 21,074 tons in the first quarter of 2009 according to CNIA provisional official statistics, with Jiangxi province accounting for 9% of the national total.
Japan Tin Import Still Bleak, but electronics export indicate positive signal
Japan’s imports of refined tin in March were only 795 tons, 62% down on the same month in 2008. First quarter cumulative imports amount to 3,917 tons, 52% lower than in Q1 2008. The very low March import figure may also be due to the fact that traders found it much more profitable to ship tin to China at that time, as the Chinese domestic market price was at a large premium to the LME.
Japan electronic Industrial data from CEIC has shown limited decline and start to recover. China known as the survivor again, as seen in exhibit 9 where Japan’s electronic export to China has increased 18% MoM reached JPY 33 Bn per March 2008. While export to US and EU increased by 40% up to JPY 9 Bn and 8% up to JPY 6.9 Bn respectively
2009 Recap: What Changes?
In line with our expectation that decreased tin price would be limited since it still support with relative strong market segment which consumer oriented such as electronics. Average Ytd for tin price in LME has reached US$ 11,400/Mt. We still maintain our average tin price assumption this year at US$ 12,000/Mt and US$ 14,000/Mt in 2010, since we would expect there is correction in commodity price in second semester followed by consolidation at US$ 12,000 – 13,000/Mt level for this year considering historical trend whereas crude oil price at rang US$ 55 – 60/brl, tin price stood at US$ 11,500 – 12,000/Mt and when crude oil price at US$ 60 – 70/brl, tin price stood at US$ 13,500 – 14,000/Mt.
Recommendation: Market Price already Price In, Maintain HOLD
Based on our new assumptions our DCF model with WACC of 16.1% arrive new TP at Rp 1,850 per share implying PER09F at 21.3x and PER10F at 11.8x. TINS historically traded at range 9.5x – 10x current EPS (see exhibit 19) and traded at 22.9 PER09F. We find that market price has price in our new TP and also already overpriced. However, we still view that would be market correction in short and mid term. Thus we maintain our HOLD recommendation.
Commodities have an attractive volatility, thus it eventually raise our adrenaline in investing. Metal is one of the most valuable commodities and valuable asset for many investors. Amid current bullish market rally, we are quite often asked which metal would offer a good investment. Shortly speaking we find that tin-related product almost seen by us in everyday life especially for electronic products. One of hot example is that cellular smart phone sales that are still booming especially Blackberry nowadays, whereas its market share per late 2008 reached above 50% of total smart phones sales. So from here we confidently prefer tin. Tin is less exposed to the troubled automotive and construction industries than most other metals, although it has been hit by lower demand and de-stocking in the important consumer electronics sector. And Tinplate demand in our view is still stable and growing compare to other metals.
Tin commodity Industry should recover faster and considerably defensive sector
We prefer tin since it is is less exposed to the troubled automotive and construction industries than most other metals, although it has been hit by lower demand and de-stocking in the important consumer electronics sector.
China: The Survivor
Chinese tin prices are traded at a premium to the LME and are currently quoted at around RMB 97,000/tonne ($14,200/tonne) including 3% duty and 17% VAT. Tin becomes an extremely attracting metal and raw materials for China due to arbitrage pricing. However, we remain concern with the risk. Most of the metals in China are used for direct consumption and refining is coming from Indonesia. Indonesia per 2008 was the largest tin exporter to China contributed 51% of total tin import in China.
Yunnan announces second phase of stockpiling
Business with China is the main supportive feature in the physical tin market, although it is not as strong an effect as is being seen in copper and other metals. Chinese domestic tin prices have been very steady and at a premium to the LME for several months, based on the sharp cut-backs in production made there in the first quarter, plus actual or promised stock financing by provincial governments. Therefore, the second round of stock financing measures has been announced to support local producers of non-ferrous metals.
China’s refined tin production fell by 30.4% to 21,074 tons in the first quarter of 2009 according to CNIA provisional official statistics, with Jiangxi province accounting for 9% of the national total.
Japan Tin Import Still Bleak, but electronics export indicate positive signal
Japan’s imports of refined tin in March were only 795 tons, 62% down on the same month in 2008. First quarter cumulative imports amount to 3,917 tons, 52% lower than in Q1 2008. The very low March import figure may also be due to the fact that traders found it much more profitable to ship tin to China at that time, as the Chinese domestic market price was at a large premium to the LME.
Japan electronic Industrial data from CEIC has shown limited decline and start to recover. China known as the survivor again, as seen in exhibit 9 where Japan’s electronic export to China has increased 18% MoM reached JPY 33 Bn per March 2008. While export to US and EU increased by 40% up to JPY 9 Bn and 8% up to JPY 6.9 Bn respectively
2009 Recap: What Changes?
In line with our expectation that decreased tin price would be limited since it still support with relative strong market segment which consumer oriented such as electronics. Average Ytd for tin price in LME has reached US$ 11,400/Mt. We still maintain our average tin price assumption this year at US$ 12,000/Mt and US$ 14,000/Mt in 2010, since we would expect there is correction in commodity price in second semester followed by consolidation at US$ 12,000 – 13,000/Mt level for this year considering historical trend whereas crude oil price at rang US$ 55 – 60/brl, tin price stood at US$ 11,500 – 12,000/Mt and when crude oil price at US$ 60 – 70/brl, tin price stood at US$ 13,500 – 14,000/Mt.
Recommendation: Market Price already Price In, Maintain HOLD
Based on our new assumptions our DCF model with WACC of 16.1% arrive new TP at Rp 1,850 per share implying PER09F at 21.3x and PER10F at 11.8x. TINS historically traded at range 9.5x – 10x current EPS (see exhibit 19) and traded at 22.9 PER09F. We find that market price has price in our new TP and also already overpriced. However, we still view that would be market correction in short and mid term. Thus we maintain our HOLD recommendation.
Kamis, 14 Mei 2009
Mandiri Sekuritas RALS: Weak demand at play
Ramayana (RALS)’s 1Q09 net profit tumbled to its lowest level in 14 years, as revenues declined. In Apr09, sales were below management’s expectations again. To add to its woes, RALS is facing an investment problem (after the stock repo in 4Q08) in Rp12.6bn Mobile-8 bonds, whose status is in default. FY09F outlook remains poor and we believe that the market rebound is bound to happen in FY10F. Hence, we maintain Sell reco mmendation with target price of Rp370/share.
Profitability stumbled. Even though 1Q09 revenue was in line with our estimates, the operating profit was barely positive, while high interest income and foreign exchange gain saved the bottom-line. In 1Q09, gross and operating margins reached its lowest in 14 years (considering 1Q only). Gross margin fell from 25.6% to 25.0% due to weaker demand while operating margin slipped from 3.2% to 0.6% as the company was unable to suppress operating expense growth when reve nue declined. This would worsen should future sales fail to show some growth.
Apr09 sales still showing lack of buying appetite. RALS booked Rp332bn for Apr09 sales, below the management’s expectations by 7.9%. For the past eight months, only two months’ sales (Oct08 and Jan09) met or surpassed the management’s target. Cumulatively, RALS recorded Rp1.3tn (-5.6% yoy). For FY09F, we believe RALS will struggle to prop up sales, as outlook remains poor. We view that the possibility of rebound in sales would be in FY10F.
Another hit from doing activity outside its area of expertise. In FY08 RALS incurred Rp1.5bn in loss arising from stock repurchase agreement. Now, the company is facing problem in Rp12.6bn Mobile-8 bonds investment, as the issuer defaulted in redeeming its bond. It is not clear how this would end, but we believe the company should store its cash in investments with capital preservation focus (e.g. time deposit, government bonds) to avoid more losses.
We maintain Sell recommendation on RALS. Outlook for FY09F remains poor and threat of lower profitability margin lingers. We maintain our earnings forecast and reiterate Sell recommendation with target price of Rp370/share (based on DCF, WACC 15.7%, and terminal growth 5.0%). Currently, the stock is trading at PER09F of 12.4x according to our estimates.
Profitability stumbled. Even though 1Q09 revenue was in line with our estimates, the operating profit was barely positive, while high interest income and foreign exchange gain saved the bottom-line. In 1Q09, gross and operating margins reached its lowest in 14 years (considering 1Q only). Gross margin fell from 25.6% to 25.0% due to weaker demand while operating margin slipped from 3.2% to 0.6% as the company was unable to suppress operating expense growth when reve nue declined. This would worsen should future sales fail to show some growth.
Apr09 sales still showing lack of buying appetite. RALS booked Rp332bn for Apr09 sales, below the management’s expectations by 7.9%. For the past eight months, only two months’ sales (Oct08 and Jan09) met or surpassed the management’s target. Cumulatively, RALS recorded Rp1.3tn (-5.6% yoy). For FY09F, we believe RALS will struggle to prop up sales, as outlook remains poor. We view that the possibility of rebound in sales would be in FY10F.
Another hit from doing activity outside its area of expertise. In FY08 RALS incurred Rp1.5bn in loss arising from stock repurchase agreement. Now, the company is facing problem in Rp12.6bn Mobile-8 bonds investment, as the issuer defaulted in redeeming its bond. It is not clear how this would end, but we believe the company should store its cash in investments with capital preservation focus (e.g. time deposit, government bonds) to avoid more losses.
We maintain Sell recommendation on RALS. Outlook for FY09F remains poor and threat of lower profitability margin lingers. We maintain our earnings forecast and reiterate Sell recommendation with target price of Rp370/share (based on DCF, WACC 15.7%, and terminal growth 5.0%). Currently, the stock is trading at PER09F of 12.4x according to our estimates.
Kim Eng INCO: Within expectation, SELL
Net profit in line
Inco booked net profit of US$17m in 1Q09, a 88% YoY decline compared to US$140m in1Q08, in line with our expectation. Sales were down 68% YoY to US$121m mainly due to lower price of nickel. Inco reported average sales price (ASP) of US$3.8/lb (US$8,309/ton) or declined 61% YoY, pretty much in line with LME price.
Production in line, inventory level rose
The company produced 16,200 tons of nickel in matte in 1Q09 or down 19% from the same period last year, in line with management’s guidance to cut production by 20% in 2009. Sales volume was also down 18% YoY to 14,600 tons. However, inventory level rose meaningfully reflected by higher number of inventory days which rose to 104 days compared to 76 days in 1Q08 and the last five year historical average of 68 days. Note that an excessive amount of inventory on hand ties up cash and increases risks of obsolescence.
Lower cash cost as expected
As expected, cash cost fell 26.7% from US$4.0/lb (US$8,857/ton) to US$2.9/lb (US$6,492/ton), thanks to the management decision to shutdown all of its thermal generators. Although slightly higher than our cash cost estimate for FY09 of US$2.8/lb, we believe that our cash cost estimate for 2009 will still be achievable.
Signs of recovery?
INSG (International Nickel Study Group) recently estimates that primary nickel in 2009 will come to an oversupply of 80,000 tons, suggesting that nickel price will remain under pressure this year. Nonetheless, the recent economic data in China, in contrast is suggesting that the economy could have bottomed out. A number of economic figures come in better than expected. The purchasing manufacturing index (PMI), for example, has rebounded to over 50% since March, and further improved to 53.5% in April. Industrial production growth rebounded markedly in March. Fixed asset Investment (FAI) growth accelerated throughout 1Q09. It seems that government economic stimulus measure has gradually taken effect.
Raising nickel price assumption
In response to the better-than expected economic indicators in China, the world biggest nickel consumer, we have raised our nickel price assumption to US$5.2/lb and US$5.9/lb (from US$4.9/lb and US$5.7/lb), respectively.
Maintain SELL with higher TP
We raise our target price to Rp2,800 (from Rp1,700) which represents 50% premium of our DCF-over mine life valuation of Rp1,878 using 11.3% WACC. We believe that Inco deserves a premium valuation given its low cost structure. At current share price, SELL recommendation is maintained.
Inco booked net profit of US$17m in 1Q09, a 88% YoY decline compared to US$140m in1Q08, in line with our expectation. Sales were down 68% YoY to US$121m mainly due to lower price of nickel. Inco reported average sales price (ASP) of US$3.8/lb (US$8,309/ton) or declined 61% YoY, pretty much in line with LME price.
Production in line, inventory level rose
The company produced 16,200 tons of nickel in matte in 1Q09 or down 19% from the same period last year, in line with management’s guidance to cut production by 20% in 2009. Sales volume was also down 18% YoY to 14,600 tons. However, inventory level rose meaningfully reflected by higher number of inventory days which rose to 104 days compared to 76 days in 1Q08 and the last five year historical average of 68 days. Note that an excessive amount of inventory on hand ties up cash and increases risks of obsolescence.
Lower cash cost as expected
As expected, cash cost fell 26.7% from US$4.0/lb (US$8,857/ton) to US$2.9/lb (US$6,492/ton), thanks to the management decision to shutdown all of its thermal generators. Although slightly higher than our cash cost estimate for FY09 of US$2.8/lb, we believe that our cash cost estimate for 2009 will still be achievable.
Signs of recovery?
INSG (International Nickel Study Group) recently estimates that primary nickel in 2009 will come to an oversupply of 80,000 tons, suggesting that nickel price will remain under pressure this year. Nonetheless, the recent economic data in China, in contrast is suggesting that the economy could have bottomed out. A number of economic figures come in better than expected. The purchasing manufacturing index (PMI), for example, has rebounded to over 50% since March, and further improved to 53.5% in April. Industrial production growth rebounded markedly in March. Fixed asset Investment (FAI) growth accelerated throughout 1Q09. It seems that government economic stimulus measure has gradually taken effect.
Raising nickel price assumption
In response to the better-than expected economic indicators in China, the world biggest nickel consumer, we have raised our nickel price assumption to US$5.2/lb and US$5.9/lb (from US$4.9/lb and US$5.7/lb), respectively.
Maintain SELL with higher TP
We raise our target price to Rp2,800 (from Rp1,700) which represents 50% premium of our DCF-over mine life valuation of Rp1,878 using 11.3% WACC. We believe that Inco deserves a premium valuation given its low cost structure. At current share price, SELL recommendation is maintained.
Mandiri Sekuritas ITMG: Strong 1Q09 reaffirms our estimates
Strong 1Q09 reaffirms our estimates
ITMG achieved US$101.8mn net income in 1Q09 or 47.7% of our FY09 estimate boosted by US$28.7mn in gain from derivative transactions. On operating level, the achievement was 34.1% at US$113.9mn. We are not changing our estimates as average selling price (ASP) is expected to decline, while fuel price is rising, and rupiah strengthening. Barring any coal price shock, we are optimistic that our estimates have more upside risk. Improving risk tolerance enabled us to upgrade target price to its full DCF valuation at Rp19,831/share. However, as the current share price is skirting around our target price we downgraded our recommendation to Neutral.
Production : below estimates (22.0% of FY09 guidance). ITMG produced 4.4mn tons in 1Q09, which only accounted for 22.0% of its 20mn tons production target for FY09. Meanwhile, average stripping ratio increased from 10.5 in 1Q08 to 14.0 in 1Q09. ITMG expects to lower FY09 stripping ratio (hence, increasing margin) and meets the production shortfall by ramping up its coal production from its new East Block (Indominco) which ha s lower stripping ratio (8.8) and can produce additional 2.0mn tons for the remainder of the year.
Coal contracted : 76.0% at US$76-78/ton. ITMG expects FY09 ASP will be stable at the FY08 level of US$74/ton, and we deem it will be achievable. With cash cost (including royalty, selling and admin fee) at US$53/ton, we estimate its margin will be 28.4%. With depreciation at 3.4% of revenue, operating margin is expected to be around 25%, vs our FY09 estimates of 27%.
Maintaining estimates, upgrading target price, and downgrading recommendation. With revenue at 28.2% of our fully year estimates, and projected FY09 operating margin (based on 1Q09 result) 2% below, we think our FY09F projections is intact. We upgrade our target price from Rp15,129/share (75% of our DCF) to Rp 19,831/share (100% of our DCF), on improving sen timent towards emerging markets. However, as its share price now is within striking distance to our TP, we downgraded our recommendation to Neutral.
ITMG achieved US$101.8mn net income in 1Q09 or 47.7% of our FY09 estimate boosted by US$28.7mn in gain from derivative transactions. On operating level, the achievement was 34.1% at US$113.9mn. We are not changing our estimates as average selling price (ASP) is expected to decline, while fuel price is rising, and rupiah strengthening. Barring any coal price shock, we are optimistic that our estimates have more upside risk. Improving risk tolerance enabled us to upgrade target price to its full DCF valuation at Rp19,831/share. However, as the current share price is skirting around our target price we downgraded our recommendation to Neutral.
Production : below estimates (22.0% of FY09 guidance). ITMG produced 4.4mn tons in 1Q09, which only accounted for 22.0% of its 20mn tons production target for FY09. Meanwhile, average stripping ratio increased from 10.5 in 1Q08 to 14.0 in 1Q09. ITMG expects to lower FY09 stripping ratio (hence, increasing margin) and meets the production shortfall by ramping up its coal production from its new East Block (Indominco) which ha s lower stripping ratio (8.8) and can produce additional 2.0mn tons for the remainder of the year.
Coal contracted : 76.0% at US$76-78/ton. ITMG expects FY09 ASP will be stable at the FY08 level of US$74/ton, and we deem it will be achievable. With cash cost (including royalty, selling and admin fee) at US$53/ton, we estimate its margin will be 28.4%. With depreciation at 3.4% of revenue, operating margin is expected to be around 25%, vs our FY09 estimates of 27%.
Maintaining estimates, upgrading target price, and downgrading recommendation. With revenue at 28.2% of our fully year estimates, and projected FY09 operating margin (based on 1Q09 result) 2% below, we think our FY09F projections is intact. We upgrade our target price from Rp15,129/share (75% of our DCF) to Rp 19,831/share (100% of our DCF), on improving sen timent towards emerging markets. However, as its share price now is within striking distance to our TP, we downgraded our recommendation to Neutral.
OSK Tambang Batubara Bukit Asam TP IDR12,200
A steady operation
We initiate coverage on Tambang Batubara Bukit Asam (PTBA) with a BUY recommendation and a DCF-derived target of Rp12,200/share based on 14.9% WACC and 5% terminal value growth. Our target price implies 2009-10F (non-cash)PER of 8.1-10.3x which is attractive compared to domestic peers’. Our upbeat outlook on the stock is based on 1) downside protection from long-term contract with PLN, 2) under-appreciation of recovery in railway operation, and 3)potential upside from future projects which can more than quadruple current sales volume.
Downside cushion. PTBA’s long-term contract with Indonesia Power (IP), a subsidiary of PLN (the state electricity company), will both create captive market and provide downside protection for PTBA, in our view. The contract is quite flexible in our view to enable PTBA to feed lucrative export demand. Pricing should not be an issue, we think, as the government never intervenes in the negotiation process and it is already at par with international price. Under-appreciation of recovery. With annual railway volume growth of 29% and 15% in 2008 and 1Q09, respectively – the highest growth levels in the last 12-16 years - we believe that the long-standing railway problem is already behind PTBA. We expect railway utilization rate to steadily increase and reach its full capacity in 2012. Given these positive developments, we believe that the market should have higher confidence to this recovery process and, therefore, give lower risk premium to the stock.
More to come. We believe PTBA is moving in the right direction with four projects in hand. Funding should not be an issue in our view given PTBA’s very strong and unleveraged balance sheet. Project execution we believe is the biggest risk. We have not factored in any of the projects in our analysis, but we believe that the projects are NAV-enhancement should all of them come on stream.
BUY, target price of Rp12,200. Our target price of Rp12,200/share is DCF-driven using 14.9% discount rate and 5% terminal value growth. The target price implies 2009-10F (non-cash) PER of 8.1-10.3x, lower than domestic peers’. Catalysts to the share price may include recovery in coal price and better-than-expected earnings.
We initiate coverage on Tambang Batubara Bukit Asam (PTBA) with a BUY recommendation and a DCF-derived target of Rp12,200/share based on 14.9% WACC and 5% terminal value growth. Our target price implies 2009-10F (non-cash)PER of 8.1-10.3x which is attractive compared to domestic peers’. Our upbeat outlook on the stock is based on 1) downside protection from long-term contract with PLN, 2) under-appreciation of recovery in railway operation, and 3)potential upside from future projects which can more than quadruple current sales volume.
Downside cushion. PTBA’s long-term contract with Indonesia Power (IP), a subsidiary of PLN (the state electricity company), will both create captive market and provide downside protection for PTBA, in our view. The contract is quite flexible in our view to enable PTBA to feed lucrative export demand. Pricing should not be an issue, we think, as the government never intervenes in the negotiation process and it is already at par with international price. Under-appreciation of recovery. With annual railway volume growth of 29% and 15% in 2008 and 1Q09, respectively – the highest growth levels in the last 12-16 years - we believe that the long-standing railway problem is already behind PTBA. We expect railway utilization rate to steadily increase and reach its full capacity in 2012. Given these positive developments, we believe that the market should have higher confidence to this recovery process and, therefore, give lower risk premium to the stock.
More to come. We believe PTBA is moving in the right direction with four projects in hand. Funding should not be an issue in our view given PTBA’s very strong and unleveraged balance sheet. Project execution we believe is the biggest risk. We have not factored in any of the projects in our analysis, but we believe that the projects are NAV-enhancement should all of them come on stream.
BUY, target price of Rp12,200. Our target price of Rp12,200/share is DCF-driven using 14.9% discount rate and 5% terminal value growth. The target price implies 2009-10F (non-cash) PER of 8.1-10.3x, lower than domestic peers’. Catalysts to the share price may include recovery in coal price and better-than-expected earnings.
Crude palm oil futures higher on output concerns
Crude palm oil (CPO) futures prices on Bursa Malaysia Derivatives closed higher yesterday amid concerns on the output of the commodity with the current hot weather, dealers said.
A dealer said the uptrend in price was further aided by the firmer crude oil and vegetable oils prices.
The dealer said the current dry spell could affect production of CPO in the long run and this in turn will further push up prices.
Meanwhile, May 2009 contract appreciated RM34 to settle at RM2,894 per tonne yesterday while June 2009 rose RM65 to RM2,860 per tonne, July 2009 advanced RM64 to RM2,789 per tonne and August 2009 gained RM65 to RM2,735 per tonne.
The day’s volume rose to 20,709 lots from Tuesday’s 13,619 lots while open interests declined to 77,175 contracts from 78,354 contracts previously.
On the physical market, May South increased to RM2,900 per tonne from RM2,870 per tonne Tuesday.
A dealer said the uptrend in price was further aided by the firmer crude oil and vegetable oils prices.
The dealer said the current dry spell could affect production of CPO in the long run and this in turn will further push up prices.
Meanwhile, May 2009 contract appreciated RM34 to settle at RM2,894 per tonne yesterday while June 2009 rose RM65 to RM2,860 per tonne, July 2009 advanced RM64 to RM2,789 per tonne and August 2009 gained RM65 to RM2,735 per tonne.
The day’s volume rose to 20,709 lots from Tuesday’s 13,619 lots while open interests declined to 77,175 contracts from 78,354 contracts previously.
On the physical market, May South increased to RM2,900 per tonne from RM2,870 per tonne Tuesday.
US Coal Stocks On Fire
When it comes to active trading, the "what" and "where", are infinitely more important than the "why". For instance, coal stocks have been on fire lately (what), rising strongly over the past two months (where). Rather than attempting to analyze why the sector is moving, active traders are often better off identifying that it is in fact moving in a direction, and then building a trading thesis that can attempt to capture part of the move. The "why" is often vague and uncertain, and ultimately not necessary for traders relying on technical analysis to identify trends.
While I could guess at the reason for why coal stocks are seeing accumulation, a quick glance at the Market Vectors Coal (NYSE:KOL) ETF shows that the group as represented by the fund has doubled in price from the March lows to current prices. KOL cleared a consolidation in early April, and really heated up in May with volume surging. Currently, KOL is holding above its 200-day moving average and appears to in a flag type consolidation. more...
While I could guess at the reason for why coal stocks are seeing accumulation, a quick glance at the Market Vectors Coal (NYSE:KOL) ETF shows that the group as represented by the fund has doubled in price from the March lows to current prices. KOL cleared a consolidation in early April, and really heated up in May with volume surging. Currently, KOL is holding above its 200-day moving average and appears to in a flag type consolidation. more...
Reuters World Markets
Nikkei set to fall on firm yen, U.S. economy worry
TOKYO, May 14 (Reuters) - Japan's Nikkei average is likely to fall on Thursday, with exporter shares seen lower on a stronger yen and after gloomy U.S. retail sales data revived worries about the economy and hurt Wall Street. Full Article
FTSE off 2.1 pct; weak US data, banks,miners weigh 12:26pm EDT
LONDON, May 13 (Reuters) - Britain's top share index closed down 2.1 percent on Wednesday, succumbing to disappointing U.S. retail sales figures, banks knocked by profit taking and mining stocks weighed by weak commodity prices. Full Article
Banks, miners push Europe stocks to 3rd day slide 12:56pm EDT
* FTSEurofirst 300 index falls 2.5 percent * Banks biggest losers; ING drops 10.3 pct on weak results Full Article
TOKYO, May 14 (Reuters) - Japan's Nikkei average is likely to fall on Thursday, with exporter shares seen lower on a stronger yen and after gloomy U.S. retail sales data revived worries about the economy and hurt Wall Street. Full Article
FTSE off 2.1 pct; weak US data, banks,miners weigh 12:26pm EDT
LONDON, May 13 (Reuters) - Britain's top share index closed down 2.1 percent on Wednesday, succumbing to disappointing U.S. retail sales figures, banks knocked by profit taking and mining stocks weighed by weak commodity prices. Full Article
Banks, miners push Europe stocks to 3rd day slide 12:56pm EDT
* FTSEurofirst 300 index falls 2.5 percent * Banks biggest losers; ING drops 10.3 pct on weak results Full Article
Associated Press Wall Street pulls back after weaker-than-expected retail sales report, jump in foreclosures
NEW YORK (AP) -- Investors are looking at the economy more skeptically.
Stocks retreated more than 2 percent on Wednesday and bond prices rose after two reports suggested the economy is not bouncing back as quickly as investors hoped.
The Commerce Department said retail sales unexpectedly fell in April for the second straight month, while RealtyTrac Inc. reported a troubling rise in home foreclosures.
Investors are mindful that the Dow Jones industrial average spiked 31 percent from its early March lows -- the biggest jump in such a short span since the 1930s. After Wednesday's decline the index is still up 26.5 percent from March 9, but investors are now wondering if the market will see a sharper pullback.
Analysts say a drop of 10 percent from the market's recent peak would hardly be surprising, especially since recent economic readings have failed to beat forecasts.
"Overall, it's just a market that's due for a pause, due for a pullback, due for consolidation," said Quincy Krosby, chief investment strategist for The Hartford. "You don't want markets to skyrocket. The higher you go, the deeper you fall."
Few analysts, however, anticipate the stock market to sink lower than it did in March.
"What we've done over the past month-and-a-half is remove this idea of Armageddon," said Charlie Smith, chief investment officer at Fort Pitt Capital.
The Dow fell 184.22, or 2.2 percent, to 8,284.89.
Broader stock indicators sank even more sharply. The Standard & Poor's 500 index fell 24.43, or 2.7 percent, to 883.92, while the Nasdaq composite index declined 51.73, or 3 percent, to 1,664.19. more...
Stocks retreated more than 2 percent on Wednesday and bond prices rose after two reports suggested the economy is not bouncing back as quickly as investors hoped.
The Commerce Department said retail sales unexpectedly fell in April for the second straight month, while RealtyTrac Inc. reported a troubling rise in home foreclosures.
Investors are mindful that the Dow Jones industrial average spiked 31 percent from its early March lows -- the biggest jump in such a short span since the 1930s. After Wednesday's decline the index is still up 26.5 percent from March 9, but investors are now wondering if the market will see a sharper pullback.
Analysts say a drop of 10 percent from the market's recent peak would hardly be surprising, especially since recent economic readings have failed to beat forecasts.
"Overall, it's just a market that's due for a pause, due for a pullback, due for consolidation," said Quincy Krosby, chief investment strategist for The Hartford. "You don't want markets to skyrocket. The higher you go, the deeper you fall."
Few analysts, however, anticipate the stock market to sink lower than it did in March.
"What we've done over the past month-and-a-half is remove this idea of Armageddon," said Charlie Smith, chief investment officer at Fort Pitt Capital.
The Dow fell 184.22, or 2.2 percent, to 8,284.89.
Broader stock indicators sank even more sharply. The Standard & Poor's 500 index fell 24.43, or 2.7 percent, to 883.92, while the Nasdaq composite index declined 51.73, or 3 percent, to 1,664.19. more...
Reuters U.S. retail sales slip, hurting recovery hopes
WASHINGTON (Reuters) - Sales at U.S. retailers fell for a second straight month in April as cash-strapped consumers held back on purchases, government data showed on Wednesday, denting hopes the economy would soon emerge from recession.
The Commerce Department said retail sales slipped 0.4 percent after falling 1.3 percent in March.
Sales dropped despite an increase in the disposable income of some households due to tax cuts and cash transfers linked to the government's record $787 billion stimulus package.
Analysts said U.S. householders, whose wealth has been decimated by plunges in house and stock prices, likely decided to save the extra income or pay off debt instead of spending it. Economists had expected sales to be flat.
"The 'green shoots' talk was premature. There are some preliminary signs (of improvement) in certain areas of the financial markets but in terms of the real economy, we are still a long ways off," said Brian Bethune, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.
CONSUMERS NOT SPENDING
Commerce Secretary Gary Locke said the fall in sales, despite some improvement in consumer sentiment, showed "just how difficult the economic environment remains".
Excluding motor vehicles and parts, retail sales dipped 0.5 percent in April, compared to a 1.2 percent decline the prior month, the Commerce Department said. Vehicles and parts sales rose 0.2 percent after a 2.0 percent plunge in March.
"Consumers still haven't decided to start spending money and the economy is still in a funk. Folks are very focused on non-discretionary items, buying staples, and people are trying to deleverage themselves," said Bob Duffy, leader of global advisory firm FTI's Retail Practice.
Gasoline sales dropped 2.3 percent in April after tumbling 3.2 percent in March. Sales of electronic goods fell 2.8 percent, while building materials rose 0.3 percent.
The data suggested that consumer spending, which accounts for about 70 percent of U.S. economic activity, will probably fall in the second quarter, analysts said. Spending had risen at a 2.2 percent annual rate in the first quarter after a 4.3 percent plunge in the final three months of last year. more...
The Commerce Department said retail sales slipped 0.4 percent after falling 1.3 percent in March.
Sales dropped despite an increase in the disposable income of some households due to tax cuts and cash transfers linked to the government's record $787 billion stimulus package.
Analysts said U.S. householders, whose wealth has been decimated by plunges in house and stock prices, likely decided to save the extra income or pay off debt instead of spending it. Economists had expected sales to be flat.
"The 'green shoots' talk was premature. There are some preliminary signs (of improvement) in certain areas of the financial markets but in terms of the real economy, we are still a long ways off," said Brian Bethune, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.
CONSUMERS NOT SPENDING
Commerce Secretary Gary Locke said the fall in sales, despite some improvement in consumer sentiment, showed "just how difficult the economic environment remains".
Excluding motor vehicles and parts, retail sales dipped 0.5 percent in April, compared to a 1.2 percent decline the prior month, the Commerce Department said. Vehicles and parts sales rose 0.2 percent after a 2.0 percent plunge in March.
"Consumers still haven't decided to start spending money and the economy is still in a funk. Folks are very focused on non-discretionary items, buying staples, and people are trying to deleverage themselves," said Bob Duffy, leader of global advisory firm FTI's Retail Practice.
Gasoline sales dropped 2.3 percent in April after tumbling 3.2 percent in March. Sales of electronic goods fell 2.8 percent, while building materials rose 0.3 percent.
The data suggested that consumer spending, which accounts for about 70 percent of U.S. economic activity, will probably fall in the second quarter, analysts said. Spending had risen at a 2.2 percent annual rate in the first quarter after a 4.3 percent plunge in the final three months of last year. more...
Bloomberg Nickel Drops Most in Two Weeks as Stainless-Steel Demand Slumps
May 13 (Bloomberg) -- Nickel fell the most in two weeks in London on reduced demand from stainless-steel makers. Copper and aluminum also declined as the dollar rebounded against the euro.
ThyssenKrupp AG, Germany’s largest steelmaker, said yesterday its stainless-steel orders plunged 46 percent in the six months to March 31. The alloy accounts for 64 percent of nickel demand, according to Citigroup Inc.
“Pretty much every mill in Europe I know is running at 50 percent of capacity and order books are poor,” said Alex Heath, head of industrial metals trading at RBC Capital Markets in London. “I don’t think there’s a fundamental support to justify the nickel price we see today.”
Nickel for delivery in three months dropped $495, or 3.8 percent, to $12,555 a metric ton by 4:12 p.m. on the London Metal Exchange. A close at that price would mark the biggest drop since April 28. Nickel was at a four-month high yesterday.
If the dollar rebounds or oil can’t hold gains, “you’ll find nickel will lose $1,000 quite quickly,” Heath said. The dollar rose 0.3 percent against the euro and crude oil increased 0.4 percent. Nickel inventories fell 0.3 percent to 111,648 tons, the third consecutive decline.
Among other LME metals for three-month delivery, copper fell 2.8 percent to $4,465 a ton, aluminum slid 1.4 percent to $1,525 and zinc lost 4 percent to $1,484 a ton. Lead fell 2.4 percent to $1,439.75 and tin sank 2.6 percent to $13,655 a ton. more...
ThyssenKrupp AG, Germany’s largest steelmaker, said yesterday its stainless-steel orders plunged 46 percent in the six months to March 31. The alloy accounts for 64 percent of nickel demand, according to Citigroup Inc.
“Pretty much every mill in Europe I know is running at 50 percent of capacity and order books are poor,” said Alex Heath, head of industrial metals trading at RBC Capital Markets in London. “I don’t think there’s a fundamental support to justify the nickel price we see today.”
Nickel for delivery in three months dropped $495, or 3.8 percent, to $12,555 a metric ton by 4:12 p.m. on the London Metal Exchange. A close at that price would mark the biggest drop since April 28. Nickel was at a four-month high yesterday.
If the dollar rebounds or oil can’t hold gains, “you’ll find nickel will lose $1,000 quite quickly,” Heath said. The dollar rose 0.3 percent against the euro and crude oil increased 0.4 percent. Nickel inventories fell 0.3 percent to 111,648 tons, the third consecutive decline.
Among other LME metals for three-month delivery, copper fell 2.8 percent to $4,465 a ton, aluminum slid 1.4 percent to $1,525 and zinc lost 4 percent to $1,484 a ton. Lead fell 2.4 percent to $1,439.75 and tin sank 2.6 percent to $13,655 a ton. more...
Bloomberg OPEC Raised Oil Output for the First Time Since July
May 13 (Bloomberg) -- The Organization of Petroleum Exporting Countries boosted oil production last month for the first time since July, exceeding its quota by 967,000 barrels a day and backtracking its implementation of supply cuts intended to stem falling prices.
The 11 OPEC members bound by targets implemented 77 percent of planned output cuts of 4.2 million barrels a day, down from a revised 82 percent for March, the Vienna-based organization said in a monthly report today.
Those 11 nations, which exclude Iraq, pumped 25.812 million barrels a day in April, the report said, citing secondary sources, which include estimates from analysts and news organizations. That compares with 25.587 million a day in March. Those 11 nations have a target of 24.845 million barrels a day that took effect from Jan. 1.
“There is too much revenue on the table to not produce” as crude prices rise, said Paul Tossetti, director of oil market analysis at PFC Energy in Washington. “This is as far as we will see the cuts come.”
Most OPEC nations boosted output during April as oil prices increased to average about $50 a barrel for the month. Crude oil for June delivery traded at $58.67 a barrel on the New York Mercantile Exchange at 2:27 p.m. London time today, having steadily risen from a five-year settlement low of $33.87 on Dec. 19 as the group’s earlier supply cuts took effect.
Supply Overhang
“Prices have remained above $50 a barrel due more to market sentiment than fundamentals,” the monthly OPEC report said. “Considerable risks remain as oil market fundamentals are far from balanced due to the persistent contraction in demand and growing supply overhang.”
Saudi Arabia, the world’s biggest oil exporter and still the only member to be producing under its target allocation, increased daily output by 20,500 barrels to 7.913 million barrels in April. Its individual quota is 8.051 million barrels a day.
Iran, Angola and Venezuela exceeded their quotas the most. Iran pumped 3.75 million barrels a day last month, more than 400,000 barrels a day above its official ceiling of 3.336 million. Venezuela supplied 2.15 million a day, above its OPEC target of 1.986 million a day. more...
The 11 OPEC members bound by targets implemented 77 percent of planned output cuts of 4.2 million barrels a day, down from a revised 82 percent for March, the Vienna-based organization said in a monthly report today.
Those 11 nations, which exclude Iraq, pumped 25.812 million barrels a day in April, the report said, citing secondary sources, which include estimates from analysts and news organizations. That compares with 25.587 million a day in March. Those 11 nations have a target of 24.845 million barrels a day that took effect from Jan. 1.
“There is too much revenue on the table to not produce” as crude prices rise, said Paul Tossetti, director of oil market analysis at PFC Energy in Washington. “This is as far as we will see the cuts come.”
Most OPEC nations boosted output during April as oil prices increased to average about $50 a barrel for the month. Crude oil for June delivery traded at $58.67 a barrel on the New York Mercantile Exchange at 2:27 p.m. London time today, having steadily risen from a five-year settlement low of $33.87 on Dec. 19 as the group’s earlier supply cuts took effect.
Supply Overhang
“Prices have remained above $50 a barrel due more to market sentiment than fundamentals,” the monthly OPEC report said. “Considerable risks remain as oil market fundamentals are far from balanced due to the persistent contraction in demand and growing supply overhang.”
Saudi Arabia, the world’s biggest oil exporter and still the only member to be producing under its target allocation, increased daily output by 20,500 barrels to 7.913 million barrels in April. Its individual quota is 8.051 million barrels a day.
Iran, Angola and Venezuela exceeded their quotas the most. Iran pumped 3.75 million barrels a day last month, more than 400,000 barrels a day above its official ceiling of 3.336 million. Venezuela supplied 2.15 million a day, above its OPEC target of 1.986 million a day. more...
UOB Kay Hian - Morning Mocha
US VIEW: Dow likely down to 8,000 before going up to 9,500 by 3Q09 ........
Dow was +100/-50 to-and-froing around 8,500. Asia market recovery from yesterday's intraday breather likely to be muted today given Dow's passive performance. A slew of capital raising from US Banks & Autos may make it fashionable for Asia corporates to do the same. This is the only negative catalyst I see. However, good news are still outweighing bad news. As a guide, most investors expect by 3Q09 the following:
a. Dow down to 8,000 before resuming its upside by another +20% to 9,500.
b. FSSTI down to 1,900 before going to 2,400
c. HSI down to 16,300 before going up to 19,000
DOW : +50 (8469); S&P -1 (908); Nasdaq -15 (1715)
Good : Oil USD59/bbl, US Trade deficit USD27.6bn (growing less-than-expected), Hedge funds Apr return+3.2% (best in 2 years)
Bad : US Banks likely to have slew of dilutive capital raising to pay back TARP, Autos capital raising saw share price fall, Median home price -14% 1Q09/1Q08 to USD169k
S'PORE VIEW: FSSTI side 2,200
We have a HOLD China Sports Int'l Px/Tgt SGD0.14 post within-expected-results. However, I think this stock is fundamentally more superior than the other S-shares and deserves >0.6x PB that our analyst is valuing it. At the very least it should be trading at its cash/share of SGD0.18.
CHINA/HK VIEW: HSI side 17,300
Good : Apr FAI +30.5%
Bad : Apr Exports -22.6% to USD91.9bn & Imports -23% to USD78.8bn
Nna Sheng has a HOLD on CCB Px/Tgt HKD 4.98/5.20 despite sale overhang lifted and valuation gap vs ICBC set to narrow.BoA sold 13.5b CCB shares at HK$4.20 each with buyers rumoured to include Hopu and Temasek. I prefer to buy HKD4.50.
Mark Po has a BUY on Haitian International Px/Tgt HKD 2.00/2.57 because its gaining market share. HI's operating environment has improved given demand picking up from downstream sectors, including automobile and home appliances. We upgrade HI from HOLD to BUY given better operating environment and valuation
THAI VIEW: SET side 545
Veena says that Thai Property sector offers the maximum upside of 72% on a 10-year P/B. QH and LPN are our top picks in the property sector. Telcos, having lagged behind during this rally, has a 56% upside. Top BUYs are ADVANC and DTAC. We also like PTT, PTTEP, BANPU, TISCO, BBL, KTB and KBANK. For stocks which share prices have breached our target prices, we put them under review.
Dow was +100/-50 to-and-froing around 8,500. Asia market recovery from yesterday's intraday breather likely to be muted today given Dow's passive performance. A slew of capital raising from US Banks & Autos may make it fashionable for Asia corporates to do the same. This is the only negative catalyst I see. However, good news are still outweighing bad news. As a guide, most investors expect by 3Q09 the following:
a. Dow down to 8,000 before resuming its upside by another +20% to 9,500.
b. FSSTI down to 1,900 before going to 2,400
c. HSI down to 16,300 before going up to 19,000
DOW : +50 (8469); S&P -1 (908); Nasdaq -15 (1715)
Good : Oil USD59/bbl, US Trade deficit USD27.6bn (growing less-than-expected), Hedge funds Apr return+3.2% (best in 2 years)
Bad : US Banks likely to have slew of dilutive capital raising to pay back TARP, Autos capital raising saw share price fall, Median home price -14% 1Q09/1Q08 to USD169k
S'PORE VIEW: FSSTI side 2,200
We have a HOLD China Sports Int'l Px/Tgt SGD0.14 post within-expected-results. However, I think this stock is fundamentally more superior than the other S-shares and deserves >0.6x PB that our analyst is valuing it. At the very least it should be trading at its cash/share of SGD0.18.
CHINA/HK VIEW: HSI side 17,300
Good : Apr FAI +30.5%
Bad : Apr Exports -22.6% to USD91.9bn & Imports -23% to USD78.8bn
Nna Sheng has a HOLD on CCB Px/Tgt HKD 4.98/5.20 despite sale overhang lifted and valuation gap vs ICBC set to narrow.BoA sold 13.5b CCB shares at HK$4.20 each with buyers rumoured to include Hopu and Temasek. I prefer to buy HKD4.50.
Mark Po has a BUY on Haitian International Px/Tgt HKD 2.00/2.57 because its gaining market share. HI's operating environment has improved given demand picking up from downstream sectors, including automobile and home appliances. We upgrade HI from HOLD to BUY given better operating environment and valuation
THAI VIEW: SET side 545
Veena says that Thai Property sector offers the maximum upside of 72% on a 10-year P/B. QH and LPN are our top picks in the property sector. Telcos, having lagged behind during this rally, has a 56% upside. Top BUYs are ADVANC and DTAC. We also like PTT, PTTEP, BANPU, TISCO, BBL, KTB and KBANK. For stocks which share prices have breached our target prices, we put them under review.
Citigroup - INCOgnito - Heavy Metal (Copper)
See Alan Heap's (Global Commodities Strategist) note, "Nickel - The Wildcard" www.citigroupgeo.com/pdf/SGL00622.pdf. He argues, for nickel prices to see meaningful upside over the next few years 2 factors are needed: 1) The failure of all leaching projects 2) A recovery in austenitic steel production.
Note, laterites account for 3/4 of the growth in nickel supply. "The potential economic failure of laterite leach technology is a source of risk we have long highlighted. Ravensthorpe closure whilst co-incident with a depressed nickel market reflects design failure, even after several capital cost escalations. This raises significant questions over other large scale acid leach operations."
Price potential - base case assumption for nickel remains unch @ $4.8/lb and $5/lb for '09/'10 respectively. However the wildcard is if leaching is a failure and demand recovers (or austenic regain mktshare) nickel prices could reach $10/lb in the latter year of our fcsts.
Meanwhile, Erindra (Indo Resource Analyst) argues, while he favors INCO vs. ANTM (only revs from gold, nickel ops still in red) amongst metal plays, he thinks the shares have "overshot", and is a sell on fundamentals. He's a INCO buyer on dips @ Rp3,000 OB which places the stk @ mid-cycle valuation. www.citigroupgeo.com/pdf/SAP27376.pdf
We've been witnessing a shift into cyclicals in Indo, but given there will be more vol from the pol (itics), don't think it's necessary to chase at unjustifiable prices. However, patience is the order of the day, as momentum to sustain a bit longer (SEE NASTY - Running Bulls of Pamplona). Having said that, for nickel and much of commodities the "worst is behind us", and recovery in demand is more optimistic.
Finally, scuttlebutt on the ground reveals that the Chinese are back in full force to secure resource concessions, esp gold and copper. The base metal rebound has been underpinned by copper. However, Alan Heap argues the necessary ingredients for a sustainable rally are missing www.citigroupgeo.com/pdf/SGL00623.pdf. Demand in China is improving but continues to plummet elsewhere. A one legged table is always unstable. But copper will lead any recovery. We expect copper prices to fall from current levels, but not to $1.25 as previously. We now expect prices to avg $1.5 in 2H09 ans $1.65 in '10.
Note, laterites account for 3/4 of the growth in nickel supply. "The potential economic failure of laterite leach technology is a source of risk we have long highlighted. Ravensthorpe closure whilst co-incident with a depressed nickel market reflects design failure, even after several capital cost escalations. This raises significant questions over other large scale acid leach operations."
Price potential - base case assumption for nickel remains unch @ $4.8/lb and $5/lb for '09/'10 respectively. However the wildcard is if leaching is a failure and demand recovers (or austenic regain mktshare) nickel prices could reach $10/lb in the latter year of our fcsts.
Meanwhile, Erindra (Indo Resource Analyst) argues, while he favors INCO vs. ANTM (only revs from gold, nickel ops still in red) amongst metal plays, he thinks the shares have "overshot", and is a sell on fundamentals. He's a INCO buyer on dips @ Rp3,000 OB which places the stk @ mid-cycle valuation. www.citigroupgeo.com/pdf/SAP27376.pdf
We've been witnessing a shift into cyclicals in Indo, but given there will be more vol from the pol (itics), don't think it's necessary to chase at unjustifiable prices. However, patience is the order of the day, as momentum to sustain a bit longer (SEE NASTY - Running Bulls of Pamplona). Having said that, for nickel and much of commodities the "worst is behind us", and recovery in demand is more optimistic.
Finally, scuttlebutt on the ground reveals that the Chinese are back in full force to secure resource concessions, esp gold and copper. The base metal rebound has been underpinned by copper. However, Alan Heap argues the necessary ingredients for a sustainable rally are missing www.citigroupgeo.com/pdf/SGL00623.pdf. Demand in China is improving but continues to plummet elsewhere. A one legged table is always unstable. But copper will lead any recovery. We expect copper prices to fall from current levels, but not to $1.25 as previously. We now expect prices to avg $1.5 in 2H09 ans $1.65 in '10.
CITI Industry Focus Nickel The Wildcard
Nickel Needs Help — For nickel prices to see meaningful upside over the next
few years two factors are required: 1) The failure of all leaching projects 2) A
recovery in austenitic stainless steel production.
A Laterite Leaching Letdown? — Laterites account for three quarters of the
growth in nickel supply. The potential economic failure of laterite leach
technology is a source of risk we have long highlighted. Ravensthorpe closure
whilst co-incident with a depressed nickel market reflects design failure, even
after several capital cost escalations. This raises significant questions over
other large scale acid leach operations.
Cost Curve Coerces Cuts — 20% of nickel supply has been cut. There are two
reasons for the large curtailments. Firstly, the steep cost curve means that high
cost producers have come under sever pressure very rapidly. Secondly
curtailments in laterite leach production.
Changing Costs — We expect a significant flattening of the nickel cost curve in
2009 as rising costs at the bottom end of the curve offset cost declines at the
top of the curve. Falling by-product credits will impact low cost operations.
High cost producers will benefit from lower energy costs.
Nickel in Pig Plummets — Nickel-in-pig represents a significant proportion of
production at the top of the cost curve. Its future is important in the supply
demand outlook and in marginal cost pricing. However we believe the current
price environment has seen nearly all blast furnace operations close, resulting
in total nickel in pig production falling by 50%.
Austenitic Upside Essential — High nickel content stainless steel alloys
continue to be substituted by low nickel alloys despite depressed nickel prices.
But if the austenitic ratio were to increase and if leaching projects were to fail
the nickel market would tighten much more rapidly.
Price Potential — Our base case outlook for nickel remains unchanged at
$US4.80/lb and $5.00/lb for 2009 /10 respectively. If leaching is a failure and
demand recovers (or austenitic regain market share) nickel prices could reach
$US10/lb in the outer year of our forecasts.
few years two factors are required: 1) The failure of all leaching projects 2) A
recovery in austenitic stainless steel production.
A Laterite Leaching Letdown? — Laterites account for three quarters of the
growth in nickel supply. The potential economic failure of laterite leach
technology is a source of risk we have long highlighted. Ravensthorpe closure
whilst co-incident with a depressed nickel market reflects design failure, even
after several capital cost escalations. This raises significant questions over
other large scale acid leach operations.
Cost Curve Coerces Cuts — 20% of nickel supply has been cut. There are two
reasons for the large curtailments. Firstly, the steep cost curve means that high
cost producers have come under sever pressure very rapidly. Secondly
curtailments in laterite leach production.
Changing Costs — We expect a significant flattening of the nickel cost curve in
2009 as rising costs at the bottom end of the curve offset cost declines at the
top of the curve. Falling by-product credits will impact low cost operations.
High cost producers will benefit from lower energy costs.
Nickel in Pig Plummets — Nickel-in-pig represents a significant proportion of
production at the top of the cost curve. Its future is important in the supply
demand outlook and in marginal cost pricing. However we believe the current
price environment has seen nearly all blast furnace operations close, resulting
in total nickel in pig production falling by 50%.
Austenitic Upside Essential — High nickel content stainless steel alloys
continue to be substituted by low nickel alloys despite depressed nickel prices.
But if the austenitic ratio were to increase and if leaching projects were to fail
the nickel market would tighten much more rapidly.
Price Potential — Our base case outlook for nickel remains unchanged at
$US4.80/lb and $5.00/lb for 2009 /10 respectively. If leaching is a failure and
demand recovers (or austenitic regain market share) nickel prices could reach
$US10/lb in the outer year of our forecasts.
CITI PT Inco (INCO.JK) Sell: Share Price Ahead of Nickel Price
Nickel price recovery well reflected, reiterate Sell — PT. Inco’s sound cost
structure, as reflected in the 1Q09 earnings, means the company is a preferred
play on a scenario of nickel price recovery. However, we believe that such a
scenario has been more than reflected in the current valuation, following the
recent rally. Thus, we reiterate our Sell rating with a target price of Rp2,250.
PT. Inco: Structurally sound — Post the shut-down of diesel-fired generators,
1Q09 earnings reflected cash cost of ~US$3.1/lb. We expect to see further cost
reductions as the inventory of higher-priced materials depletes. We also view
the company’s decision to cut its capex plan as a sensible step to support cash.
Nickel price: Forecast maintained — CIRA’s commodities team has maintained
the nickel price forecast of US$4.5, $5.0, $6.0/lb for 2009E-2011E. The team
believes that for nickel prices to see meaningful upside over the next few years
two factors are required: 1) The failure of all leaching projects, and 2) A
recovery in austenitic stainless steel production.
Marking our forecasts — Our 2009E-2011E estimates are increased by 19%-
40%, as we slightly revise our cash cost and 2009 nickel price to reflect the
1Q09 actual numbers. Our DCF-based target price is increased slightly to
Rp2,250/share (from Rp1,975).
Spot earnings, mid-cycle valuation — Using the spot nickel price, the valuation
appears stretched at 19x PE. Mid-cycle valuation (using 2009 production and
mid-cycle EBITDA margin and multiple), implying a Rp3,100/share valuation,
would offer the most attractive valuation angle for bulls.
structure, as reflected in the 1Q09 earnings, means the company is a preferred
play on a scenario of nickel price recovery. However, we believe that such a
scenario has been more than reflected in the current valuation, following the
recent rally. Thus, we reiterate our Sell rating with a target price of Rp2,250.
PT. Inco: Structurally sound — Post the shut-down of diesel-fired generators,
1Q09 earnings reflected cash cost of ~US$3.1/lb. We expect to see further cost
reductions as the inventory of higher-priced materials depletes. We also view
the company’s decision to cut its capex plan as a sensible step to support cash.
Nickel price: Forecast maintained — CIRA’s commodities team has maintained
the nickel price forecast of US$4.5, $5.0, $6.0/lb for 2009E-2011E. The team
believes that for nickel prices to see meaningful upside over the next few years
two factors are required: 1) The failure of all leaching projects, and 2) A
recovery in austenitic stainless steel production.
Marking our forecasts — Our 2009E-2011E estimates are increased by 19%-
40%, as we slightly revise our cash cost and 2009 nickel price to reflect the
1Q09 actual numbers. Our DCF-based target price is increased slightly to
Rp2,250/share (from Rp1,975).
Spot earnings, mid-cycle valuation — Using the spot nickel price, the valuation
appears stretched at 19x PE. Mid-cycle valuation (using 2009 production and
mid-cycle EBITDA margin and multiple), implying a Rp3,100/share valuation,
would offer the most attractive valuation angle for bulls.
Macquarie Asia Rocks on Stocks - Valuation differences high in cyclicals
ASIA Rocks on Stocks - Valuation differences high in cyclicals
Event
We examine individual stock P/BV valuations.
Impact
The sharp rally in Asian equities has pushed valuations towards long-term averages. The current ratio is 1.6x, about 15% below the long-term average
of 1.8x.
The increase in valuations has not been uniform. There have been very clear leaders and laggards in this upswing. This is clear when we look at individual stocks trading above long-term average valuations. A second screen looks at cheap stocks by calculating a recessionary average (the average ratio in 1998 and 2002).
The vast majority of the expensive stocks are in sectors linked to fiscal stimulus: construction, steel and cement. Other sectors that are prominent are stock exchanges, autos and consumer.
The cheap stocks are predominantly from two sectors only: banks and tech. The cheap banks are from Korea, Taiwan and Thailand. The cheap tech stocks are in hardware. There are also some cheap transport companies.
Outlook
We see this cyclical bounce as being overwhelming driven by an inventory restocking phase that will be positive for a broad range of cyclical sectors
in Asia.
In our view, the opportunity now is to shift out of the early performers linked to fiscal policy that are now expensive and into the stocks in tech and banks that are still cheap despite the recent rally.
Some of the stocks that stand out here are Shinhah, Sinopac and Krung Thai in the banks, and Hon Hai, AU Optronics and Novatek in tech.
Event
We examine individual stock P/BV valuations.
Impact
The sharp rally in Asian equities has pushed valuations towards long-term averages. The current ratio is 1.6x, about 15% below the long-term average
of 1.8x.
The increase in valuations has not been uniform. There have been very clear leaders and laggards in this upswing. This is clear when we look at individual stocks trading above long-term average valuations. A second screen looks at cheap stocks by calculating a recessionary average (the average ratio in 1998 and 2002).
The vast majority of the expensive stocks are in sectors linked to fiscal stimulus: construction, steel and cement. Other sectors that are prominent are stock exchanges, autos and consumer.
The cheap stocks are predominantly from two sectors only: banks and tech. The cheap banks are from Korea, Taiwan and Thailand. The cheap tech stocks are in hardware. There are also some cheap transport companies.
Outlook
We see this cyclical bounce as being overwhelming driven by an inventory restocking phase that will be positive for a broad range of cyclical sectors
in Asia.
In our view, the opportunity now is to shift out of the early performers linked to fiscal policy that are now expensive and into the stocks in tech and banks that are still cheap despite the recent rally.
Some of the stocks that stand out here are Shinhah, Sinopac and Krung Thai in the banks, and Hon Hai, AU Optronics and Novatek in tech.
CLSA UNTR earnings forecasts up, raising TP to Rp10k, but cut rating to OPF
Our resource analyst Olie has taken over coverage on United Tractors (UNTR IJ) as a natural extension to his resource coverage. Our ex UNTR analyst Wilianto has decided to focus more on regional CPO coverage.
As his first move, Olie has revised up his earnings forecast for United Tractors (UNTR IJ) by 30% in 2009 , 21% in 2010, and 15% in 2011. This follows UNTR’s strong performance in 1Q09. Olie also raised TP to Rp10,000 (fr Rp8,000).
However, Olie also cut the rating from Buy to Outperform. UNTR does not look particularly cheap relative to its historical trading range. The stock is trading close to 12x PE back in the end of 2007 and early 2008, this was when heavy equipment sales this was when heavy equipment sales expectation was more than twice of today’s level and coal prices were hovering above US$100/t.
A cheaper alternative to UNTR is Hexindo (HEXA IJ), which is the sole distributor for Hitachi heavy equip. Main shareholders are Hitachi (53%) and Itochu (22%). The stock is trading on 6.8x 09 Vs 11.4x 09CL for UNTR. But it is not just cheap, though. HEXA is also known for its good CG and strong balance sheet. The kicker here is plenty more upside for the counter from the recently signed big contracts with BUMI, Thiess, and Newmont.
As his first move, Olie has revised up his earnings forecast for United Tractors (UNTR IJ) by 30% in 2009 , 21% in 2010, and 15% in 2011. This follows UNTR’s strong performance in 1Q09. Olie also raised TP to Rp10,000 (fr Rp8,000).
However, Olie also cut the rating from Buy to Outperform. UNTR does not look particularly cheap relative to its historical trading range. The stock is trading close to 12x PE back in the end of 2007 and early 2008, this was when heavy equipment sales this was when heavy equipment sales expectation was more than twice of today’s level and coal prices were hovering above US$100/t.
A cheaper alternative to UNTR is Hexindo (HEXA IJ), which is the sole distributor for Hitachi heavy equip. Main shareholders are Hitachi (53%) and Itochu (22%). The stock is trading on 6.8x 09 Vs 11.4x 09CL for UNTR. But it is not just cheap, though. HEXA is also known for its good CG and strong balance sheet. The kicker here is plenty more upside for the counter from the recently signed big contracts with BUMI, Thiess, and Newmont.
Deutsche Bank - Yen reloaded
The JPY leverage trade, in play since 1995, may not have been completely unwound.
The probability of a bout of risk aversion is high over the coming months, and JPY would benefit most.
We like to buy the JPY vs the USD as the best insurance trade against risk aversion,, and it is out-ofline with yield differentials.
Deutsche Bank - USD/JPY Looking Ahead
Yesterday’s New York View outlined a framework that explained moves in USD/JPY over the past few years. Running out of sample over 2009 the framework also provided an explanation for developments in USD/JPY over 2009. While we offered up two scenarios for USD/JPY – one for bulls and one for bears - we left open where we thought USD/JPY might go from here. And the scenarios we offered were (by design) perfect storms. Today’s New York View offers some thoughts on where we see the risks around the drivers of USD/JPY identified yesterday (namely US 10-year yields, the US / Japan two-year interest rate differential and volatility), and hence also USD/JPY. Our timeframe is 1-2 months.
Taking the ‘easiest’ one first – with policy rates in the US and Japan on hold the two-year interest rate differential is unlikely to move all that much – with this providing some degree of an anchor. A strong run of (more) upside US data surprises would be the biggest risk here, although given the tendency of surprises to mean revert we’d expect the data flow to eventually become a little more two-way. So for now we’ll put the two-year interest rate differential to one side. On volatility there remains scope for a modest further reduction over coming months. We’d expect, however, that around 30 in the VIX and 12 on the CVIX should mark a low over a 1-2 month horizon – with a further decline in vol beyond that likely needing a solid ‘V’ emerging in the real economy. So a little more downside is possible, but if there is a large move in vol over our 1-2 month time horizon we’d expect it to be to the upside, not the downside.
Looking at both nominal and real 10-year yields against the ISM suggests both have already factored further gains in the data over coming months. That leaves us thinking that yields are unlikely to rise too much above levels seen last week. Indeed our bias would be for yields to move lower over the next 1-2 months. For the purposes of this exercise, however, we’ll consider US 10-year yields at 3.50% as being an ‘upper bound’ – i.e. about 10 basis points above where we got to last week. Plugging the average two-year interest rate differential observed over the past month, a US 10-year yield at 3.5% and the CVIX at 12 into the USD/JPY model we outlined yesterday gives a USD/JPY rate of 100.5. Given we think moves above 3.5% in US 10-year yields and a sustained drop in the CVIX below 12 is unlikely over the next few months we would be comfortable selling USD/JPY around 100 in order to take advantage of our bias toward lower US yields; and the risk of a renewed spike higher in volatility.
The probability of a bout of risk aversion is high over the coming months, and JPY would benefit most.
We like to buy the JPY vs the USD as the best insurance trade against risk aversion,, and it is out-ofline with yield differentials.
Deutsche Bank - USD/JPY Looking Ahead
Yesterday’s New York View outlined a framework that explained moves in USD/JPY over the past few years. Running out of sample over 2009 the framework also provided an explanation for developments in USD/JPY over 2009. While we offered up two scenarios for USD/JPY – one for bulls and one for bears - we left open where we thought USD/JPY might go from here. And the scenarios we offered were (by design) perfect storms. Today’s New York View offers some thoughts on where we see the risks around the drivers of USD/JPY identified yesterday (namely US 10-year yields, the US / Japan two-year interest rate differential and volatility), and hence also USD/JPY. Our timeframe is 1-2 months.
Taking the ‘easiest’ one first – with policy rates in the US and Japan on hold the two-year interest rate differential is unlikely to move all that much – with this providing some degree of an anchor. A strong run of (more) upside US data surprises would be the biggest risk here, although given the tendency of surprises to mean revert we’d expect the data flow to eventually become a little more two-way. So for now we’ll put the two-year interest rate differential to one side. On volatility there remains scope for a modest further reduction over coming months. We’d expect, however, that around 30 in the VIX and 12 on the CVIX should mark a low over a 1-2 month horizon – with a further decline in vol beyond that likely needing a solid ‘V’ emerging in the real economy. So a little more downside is possible, but if there is a large move in vol over our 1-2 month time horizon we’d expect it to be to the upside, not the downside.
Looking at both nominal and real 10-year yields against the ISM suggests both have already factored further gains in the data over coming months. That leaves us thinking that yields are unlikely to rise too much above levels seen last week. Indeed our bias would be for yields to move lower over the next 1-2 months. For the purposes of this exercise, however, we’ll consider US 10-year yields at 3.50% as being an ‘upper bound’ – i.e. about 10 basis points above where we got to last week. Plugging the average two-year interest rate differential observed over the past month, a US 10-year yield at 3.5% and the CVIX at 12 into the USD/JPY model we outlined yesterday gives a USD/JPY rate of 100.5. Given we think moves above 3.5% in US 10-year yields and a sustained drop in the CVIX below 12 is unlikely over the next few months we would be comfortable selling USD/JPY around 100 in order to take advantage of our bias toward lower US yields; and the risk of a renewed spike higher in volatility.
Citigroup - Asia Economics
China Macro Flash: Better Retail Sales Despite Temporary Setback in IP
Industrial production, similar to the pattern in yesterday's trade data release, continues to recover but in a wavering pattern. April's print was lower than consensus but closer to our expectations of a decline in the YoY rate vs. the previous month, as hinted by the slowdown in power production data. Year-to-date data suggest that production improvements continued in April (5.5%yoy) from 1Q's 5.1%yoy.
Contrary to our and market expectations of a temporary setback, retail sales continued to recover in April from the plunge seen in February. Taking into account deflation of CPI, real retail sales grew 16.5%yoy in April, a further increase from the previous month's 16.1% yoy (see Figure 3). Recovery in consumer demand would likely continue to benefit from less depressed consumer sentiments and fiscal stimulus (as government current purchases are counted in retail).
Solid sales in furniture and autos. Strong sales of housing related products continued as furniture sales grew 22.8%yoy, but we see future growth in retail related to new homes would start to fall as home purchases have markedly slowed in May. Auto related sales rose 18.5%yoy in April, further improving from 1Q's 11.1%yoy, as car buyers take advantage of the reduced vehicle purchase tax (for cars of engine sizes 1.6L and below, the tax was reduced from 10% to 5%) since late January.
April data releases confirm our view that recovery will continue under the blessings of government stimulus and robust credit growth. Although industrial and trade activities continue to be weighed down by the still uncertain external demand, we believe the authorities would have the resources to launch further stimulative measures should selected sectors run into extended setbacks.
Industrial production, similar to the pattern in yesterday's trade data release, continues to recover but in a wavering pattern. April's print was lower than consensus but closer to our expectations of a decline in the YoY rate vs. the previous month, as hinted by the slowdown in power production data. Year-to-date data suggest that production improvements continued in April (5.5%yoy) from 1Q's 5.1%yoy.
Contrary to our and market expectations of a temporary setback, retail sales continued to recover in April from the plunge seen in February. Taking into account deflation of CPI, real retail sales grew 16.5%yoy in April, a further increase from the previous month's 16.1% yoy (see Figure 3). Recovery in consumer demand would likely continue to benefit from less depressed consumer sentiments and fiscal stimulus (as government current purchases are counted in retail).
Solid sales in furniture and autos. Strong sales of housing related products continued as furniture sales grew 22.8%yoy, but we see future growth in retail related to new homes would start to fall as home purchases have markedly slowed in May. Auto related sales rose 18.5%yoy in April, further improving from 1Q's 11.1%yoy, as car buyers take advantage of the reduced vehicle purchase tax (for cars of engine sizes 1.6L and below, the tax was reduced from 10% to 5%) since late January.
April data releases confirm our view that recovery will continue under the blessings of government stimulus and robust credit growth. Although industrial and trade activities continue to be weighed down by the still uncertain external demand, we believe the authorities would have the resources to launch further stimulative measures should selected sectors run into extended setbacks.
CLSA Asia-Pacific Markets China Macro Strategist
SINOLOGY FLASH: Retail sales & power for April
No surprises from the release this morning of China’s retail sales and power generation data for April. Retail sales continue to hold up well, consistent with improving macro conditions and strong sales of homes and autos. As expected, power generation growth slipped a bit last month, but we think this reflects a temporary pullback in steel production and is not a signal of industrial weakness.
Nominal retail sales rose 14.8% YoY in April, in line with March’s 14.7% and 15.2% in January/February. In real terms, retail sales rose 17% last month, up from 16.4% in March and 15.7% in January/February. This is a key data point, as we expect consumption to account for half of the about 8% GDP growth we forecast for this year. (Investment will be the other half, and the April FAI data released yesterday was also very healthy.)
After improving for three consecutive months, power generation growth slipped a bit in April, down 3.5% YoY compared to minus 1.3% in March.
As we noted Monday in anticipation of this slip in YoY power generation growth, we do not think it represents a slip in overall manufacturing activity. The CLSA PMI sub-index for output (production) rose sharply in April, to 51.3 from 44.3 in March, the biggest MoM jump in the five-year history of our PMI. April’s reading was the first over 50 (signalling expansion) since last July.
The cause of the slip was more likely a slowdown in the growth rate of production of steel. Remember that steel accounts for 15% of total power consumption, so power moves disproportionately along with this sector. That slowdown would have been caused by slower than expected purchasing by infrastructure projects last month.
In our view, a slowdown in steel production last month will prove temporary, as there strong indicators of rising demand:
Infrastructure projects are just getting underway and this will accelerate through the rest of the year. A new study by CLSA’s China Reality Research finds that 93% of 14 steel mills reported an increase in infrastructure-related demand last month.
Strong home sales have led to an uptick in real estate investment, which we expect to accelerate. A CRR study among 80 developers found that 45% of builders on the coast expect a YoY increase in new starts in 2009.
Auto sales are strong. And not just smaller cars. Mercedes-Benz has released sales figures which indicate that Chinese are back buying luxury cars, not just small models that that have benefitted from a reduction in sales tax (to 5% from 10%). Mercedes deliveries to customers in China rose 59% YoY to 5,600 cars in April. That’s in contrast to a drop of 24% YoY in global sales of Benz cars last month. Sales in Germany fell 30% in April, while Japan sales dropped 50%. In the first four months of this year, sales in China rose 32%, while they fell 23% globally. In the first four months of the year, Mercedes sold 17,400 cars in China, compared to 9,200 in Japan and 335,800 world-wide.
No surprises from the release this morning of China’s retail sales and power generation data for April. Retail sales continue to hold up well, consistent with improving macro conditions and strong sales of homes and autos. As expected, power generation growth slipped a bit last month, but we think this reflects a temporary pullback in steel production and is not a signal of industrial weakness.
Nominal retail sales rose 14.8% YoY in April, in line with March’s 14.7% and 15.2% in January/February. In real terms, retail sales rose 17% last month, up from 16.4% in March and 15.7% in January/February. This is a key data point, as we expect consumption to account for half of the about 8% GDP growth we forecast for this year. (Investment will be the other half, and the April FAI data released yesterday was also very healthy.)
After improving for three consecutive months, power generation growth slipped a bit in April, down 3.5% YoY compared to minus 1.3% in March.
As we noted Monday in anticipation of this slip in YoY power generation growth, we do not think it represents a slip in overall manufacturing activity. The CLSA PMI sub-index for output (production) rose sharply in April, to 51.3 from 44.3 in March, the biggest MoM jump in the five-year history of our PMI. April’s reading was the first over 50 (signalling expansion) since last July.
The cause of the slip was more likely a slowdown in the growth rate of production of steel. Remember that steel accounts for 15% of total power consumption, so power moves disproportionately along with this sector. That slowdown would have been caused by slower than expected purchasing by infrastructure projects last month.
In our view, a slowdown in steel production last month will prove temporary, as there strong indicators of rising demand:
Infrastructure projects are just getting underway and this will accelerate through the rest of the year. A new study by CLSA’s China Reality Research finds that 93% of 14 steel mills reported an increase in infrastructure-related demand last month.
Strong home sales have led to an uptick in real estate investment, which we expect to accelerate. A CRR study among 80 developers found that 45% of builders on the coast expect a YoY increase in new starts in 2009.
Auto sales are strong. And not just smaller cars. Mercedes-Benz has released sales figures which indicate that Chinese are back buying luxury cars, not just small models that that have benefitted from a reduction in sales tax (to 5% from 10%). Mercedes deliveries to customers in China rose 59% YoY to 5,600 cars in April. That’s in contrast to a drop of 24% YoY in global sales of Benz cars last month. Sales in Germany fell 30% in April, while Japan sales dropped 50%. In the first four months of this year, sales in China rose 32%, while they fell 23% globally. In the first four months of the year, Mercedes sold 17,400 cars in China, compared to 9,200 in Japan and 335,800 world-wide.
CIMB Telecommunications Sector Note - XL's 1Q09 results disappoint
Excelcomindo's 1Q09 core net profit, when annualised, was just 18% of our forecast and 8% of consensus. This was due to higher-than-expected amortisation and depreciation charges. However, revenue and EBITDA were in line with our forecasts, though substantially missing consensus. XL is now behaving more like an incumbent than a challenger. All in all, we continue to believe that competition will be benign in 2009. Maintain NEUTRAL on the telecom sector as we believe there is better upside for cyclical stocks in the current market rally. Our top pick is Telkom (Neutral, target price Rp8,500) given its stronger franchise vs. Indosat.
CIMB Bumi Resources Company update - Back in vogue
(BUMI IJ / BUMI.JK, TRADING BUY - Maintained, Rp2,175 - Tgt. Rp2,600, Basic Resources)
We maintain Trading Buy on Bumi, with a higher target price of Rp2,600, now based on 10x forward P/E, the sector's average valuation, from Rp1,400 on DCF previously. We raise our FY09-11 EPS estimates by 13-18% on higher ASP and lower cash cost assumptions. Despite its recent strong rally, Bumi remains the steal and the laggard of the sector. We believe downside is limited, since it is still under-owned by foreign investors with support from local investors. High earnings sensitivity to coal prices could make it fundamentally attractive again when spot coal prices recover this summer.
We maintain Trading Buy on Bumi, with a higher target price of Rp2,600, now based on 10x forward P/E, the sector's average valuation, from Rp1,400 on DCF previously. We raise our FY09-11 EPS estimates by 13-18% on higher ASP and lower cash cost assumptions. Despite its recent strong rally, Bumi remains the steal and the laggard of the sector. We believe downside is limited, since it is still under-owned by foreign investors with support from local investors. High earnings sensitivity to coal prices could make it fundamentally attractive again when spot coal prices recover this summer.
Indopremier UNTR (BUY - TP Rp 11.434)
We view UNTR’s move up into higher multiple range of 12 times FY10 earnings is appropriate given current condition of the stock market and the company’s fundamental. UNTR 1Q09 results came in higher compared to consensus and our estimates, with revenue at Rp6.97tr (+20%, YoY), and net profit of Rp0.812tr (+58%, YoY). We set a target price of Rp11.434, implying a trading multiple of 12 times FY10 earnings. We maintain our BUY recommendation
UNTR recorded consolidated 1Q09 net revenue of Rp6.97 trillion (+20%, YoY), with net profit of Rp812bn (+58%, YoY). Mining Contracting contributed 47%, while Construction Machinery contributed 40%, and the rest by Mining division. Higher ASP, weakening Rupiah, and stable cost in each of the three division led to gross profit growth of 61% YoY at Rp1.65 trillion and to operating profit growth of 71% YoY to Rp1.33 trillion. These profits have resulted in profitability margins that are significantly higher compared to the same period last year and to our estimates.
In 1Q09 UNTR, revenues from Construction Machineries came in at Rp2,77 trillion. Higher composition of mining sector machineries in 1Q09 , and weakening Rupiah currency to US$ propelled quarterly gross margin to 29% in 2009 as compared to gross margin in 1Q08(21%) andannual average in 2008 (21%). Machineries in the mining sectors are usually heavier than other machineries and commanded higher selling price: excavator and dump truck is priced at around US$2mn as compared to other equipments priced at 0.4-0.7mn US$. Higher composition in the mining sector will result in higher average gross margins.
Until March 2009, PT Pamapersada Nusantara (Pama) delivered 14,5 mn tons of coal, or 2% higher than last year’s production, with overburden removal of 121.05 million bcm or an increased of 22%. The higher production combined with the weakening Rupiah has resulted in a 47% YoY jumped of revenues from Rp2.2tr in 1Q08 to Rp3.3tr in 1Q09, to yield a higher gross margin of 22% in 1Q09 v.18% in 1Q08.
UNTR recorded consolidated 1Q09 net revenue of Rp6.97 trillion (+20%, YoY), with net profit of Rp812bn (+58%, YoY). Mining Contracting contributed 47%, while Construction Machinery contributed 40%, and the rest by Mining division. Higher ASP, weakening Rupiah, and stable cost in each of the three division led to gross profit growth of 61% YoY at Rp1.65 trillion and to operating profit growth of 71% YoY to Rp1.33 trillion. These profits have resulted in profitability margins that are significantly higher compared to the same period last year and to our estimates.
In 1Q09 UNTR, revenues from Construction Machineries came in at Rp2,77 trillion. Higher composition of mining sector machineries in 1Q09 , and weakening Rupiah currency to US$ propelled quarterly gross margin to 29% in 2009 as compared to gross margin in 1Q08(21%) andannual average in 2008 (21%). Machineries in the mining sectors are usually heavier than other machineries and commanded higher selling price: excavator and dump truck is priced at around US$2mn as compared to other equipments priced at 0.4-0.7mn US$. Higher composition in the mining sector will result in higher average gross margins.
Until March 2009, PT Pamapersada Nusantara (Pama) delivered 14,5 mn tons of coal, or 2% higher than last year’s production, with overburden removal of 121.05 million bcm or an increased of 22%. The higher production combined with the weakening Rupiah has resulted in a 47% YoY jumped of revenues from Rp2.2tr in 1Q08 to Rp3.3tr in 1Q09, to yield a higher gross margin of 22% in 1Q09 v.18% in 1Q08.
Rabu, 13 Mei 2009
Reuters Indonesia Adaro net profit, revenue to rise in 2009
JAKARTA, May 12 (Reuters) - Indonesia's largest coal producer by market value, PT Adaro Energy Tbk (ADRO.JK), expects double-digit growth in revenue and net profit this year, an official at the firm said on Tuesday.
"We still believe in double-digit growth for both," said operating director Ah Hoo Chia, when asked about the outlook for revenue and net profit for 2009.
Adaro, which has a market capitalisation of $3.64 billion, sells to 48 customers in 18 countries worldwide, including power utilities Thai Power and Indonesian state electricity firm Perusahaan Listrik Negara (PLN). Exports account for 70-72 percent of its sales.
The firm expects to produce 42-45 million tonnes of coal this year, up from 38.5 million tonnes in 2008, and aims to increase production to 80 million tonnes per year in the next five years.
San Miguel Corp (SMCB.PS) of the Philippines is in talks to buy a stake worth about $500 million in Adaro, which Goldman Sachs (GS.N), Citigroup (C.N) and hedge fund Farallon plan to sell.
The firm reported a ten-fold increase in net profit last year to 887.2 billion rupiah ($85.63 million) while revenue rose 56 percent to 18.09 trillion rupiah despite a global economic downturn that has led to a sharp drop in commodity prices.
It also turned to a first-quarter net profit of 1.145 trillion rupiah this year from a 12 billion rupiah loss a year earlier, thanks to higher average achieved selling prices of Envirocoal.
Shares in Adaro were down 1.69 percent on 0815 GMT, compared to a 0.41 percent fall in the broader market .JKSE. (Reporting by Tyagita Silka and Andreas Ismar; Writing by Sonya Angraini; Editing by Sara Webb) ($1=10,360 Rupiah)
"We still believe in double-digit growth for both," said operating director Ah Hoo Chia, when asked about the outlook for revenue and net profit for 2009.
Adaro, which has a market capitalisation of $3.64 billion, sells to 48 customers in 18 countries worldwide, including power utilities Thai Power and Indonesian state electricity firm Perusahaan Listrik Negara (PLN). Exports account for 70-72 percent of its sales.
The firm expects to produce 42-45 million tonnes of coal this year, up from 38.5 million tonnes in 2008, and aims to increase production to 80 million tonnes per year in the next five years.
San Miguel Corp (SMCB.PS) of the Philippines is in talks to buy a stake worth about $500 million in Adaro, which Goldman Sachs (GS.N), Citigroup (C.N) and hedge fund Farallon plan to sell.
The firm reported a ten-fold increase in net profit last year to 887.2 billion rupiah ($85.63 million) while revenue rose 56 percent to 18.09 trillion rupiah despite a global economic downturn that has led to a sharp drop in commodity prices.
It also turned to a first-quarter net profit of 1.145 trillion rupiah this year from a 12 billion rupiah loss a year earlier, thanks to higher average achieved selling prices of Envirocoal.
Shares in Adaro were down 1.69 percent on 0815 GMT, compared to a 0.41 percent fall in the broader market .JKSE. (Reporting by Tyagita Silka and Andreas Ismar; Writing by Sonya Angraini; Editing by Sara Webb) ($1=10,360 Rupiah)
Reuters Indo Tambangraya sees 2010 coal output up 25 pct
JAKARTA, May 12 (Reuters) - Indonesian coal miner, PT Indo Tambangraya Megah (ITMG.JK), expects coal output to increase by up to 25 percent next year as production kicks in at some new mine areas, the company's president said on Tuesday.
Commercial production at a mine at its PT Bharinto Ekatama unit is expected to start at the end of 2010, Somyot Ruchirawat told reporters.
"For production in 2010, we will try to increase from Bharinto, the East Block and PT Trubaindo Coal Mining. It will be a 20-25 percent increase from the 2009 production target," Ruchirawat said.
The company plans to produce 20.5 million tonnes this year.
Indo Tambangraya has received a permit to start development of the East block of coal mines operated by PT Indominco Mandiri.
The company said it was also looking at buying coal mines to increase output, but did not elaborate on a timeframe.
"We are still in talks...It could be anything, whether it's a green-field or existing mine," Ruchirawat said.
The company had a warchest of more than $200 million to fund mining acquisitions, but it also may seek loans, he said.
The company, which is a unit of Thailand's Banpu PCL BANP.BK, expects to sell 20.5 million tonnes of coal this year, up from 17.8 million tonnes in 2008.
Indo Tambangraya sold 4.1 million tonnes of coal in the January to March period this year, down from 4.4 million tonnes in the same period in 2008.
Despite lower sales volume, the coal price the company achieved rose 70 percent to an average of $85 a tonne in the January-March period, up from $50 a tonne in the same period of 2008.
Sales revenue was $347 million in the first quarter of 2009, up 59 percent from $219 million in the same period last year.
Indo Tambangraya has forecast revenue would climb to between $1.33-$1.54 billion this year, compared with $1.32 billion in 2008, on higher production.
Indo Tambangraya owns shares in several Indonesian coal miners including PT Trubaindo Coal Mining, PT Indominco Mandiri, PT Kitadin, PT Jorong Barutama Greston and PT Bharinto Ekatama.
The firm's shares fell 3.72 percent to 18,100 rupiah on Tuesday, while the broader market .JKSE eased 0.2 percent.
(Reporting by Andreas Ismar and Fitri Wulandari; Editing by Ed Davies)
Commercial production at a mine at its PT Bharinto Ekatama unit is expected to start at the end of 2010, Somyot Ruchirawat told reporters.
"For production in 2010, we will try to increase from Bharinto, the East Block and PT Trubaindo Coal Mining. It will be a 20-25 percent increase from the 2009 production target," Ruchirawat said.
The company plans to produce 20.5 million tonnes this year.
Indo Tambangraya has received a permit to start development of the East block of coal mines operated by PT Indominco Mandiri.
The company said it was also looking at buying coal mines to increase output, but did not elaborate on a timeframe.
"We are still in talks...It could be anything, whether it's a green-field or existing mine," Ruchirawat said.
The company had a warchest of more than $200 million to fund mining acquisitions, but it also may seek loans, he said.
The company, which is a unit of Thailand's Banpu PCL BANP.BK, expects to sell 20.5 million tonnes of coal this year, up from 17.8 million tonnes in 2008.
Indo Tambangraya sold 4.1 million tonnes of coal in the January to March period this year, down from 4.4 million tonnes in the same period in 2008.
Despite lower sales volume, the coal price the company achieved rose 70 percent to an average of $85 a tonne in the January-March period, up from $50 a tonne in the same period of 2008.
Sales revenue was $347 million in the first quarter of 2009, up 59 percent from $219 million in the same period last year.
Indo Tambangraya has forecast revenue would climb to between $1.33-$1.54 billion this year, compared with $1.32 billion in 2008, on higher production.
Indo Tambangraya owns shares in several Indonesian coal miners including PT Trubaindo Coal Mining, PT Indominco Mandiri, PT Kitadin, PT Jorong Barutama Greston and PT Bharinto Ekatama.
The firm's shares fell 3.72 percent to 18,100 rupiah on Tuesday, while the broader market .JKSE eased 0.2 percent.
(Reporting by Andreas Ismar and Fitri Wulandari; Editing by Ed Davies)
Reuters Pfizer and Coke lift Dow, but Nasdaq off
NEW YORK (Reuters) - The Dow rose on Tuesday as investors scooped up defensive shares, including Pfizer (PFE.N), while energy companies' stocks climbed as oil hit a six-month high.
But the S&P was little changed and the Nasdaq fell as financial and technology shares declined after leading the recent rally from bear market lows.
Shares of Pfizer posted the biggest percentage gain in the Dow, rising 5.5 percent to $14.93, after positive comments from analysts at Credit Suisse First Boston following a meeting with the drug company's management.
Energy shares also supported the market as U.S. crude oil futures briefly touched $60 a barrel before settling up 35 cents at $58.85 on hopes an economic recovery may bolster fuel demand. Exxon Mobil Corp (XOM.N) rose 2.2 percent to $70.82.
But worries over whether an apparent lack of incentives to drive the market higher would put an end to the rally helped put a cap on gains.
"We're right at the precipice and people can't decide if the rally's still got room left or if we're priced about right and due for a sell-off," said Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas.
"The safe-haven mantra is back in force a bit today because obviously, we're not out of the woods yet."
The Dow Jones industrial average .DJI rose 50.34 points, or 0.60 percent, to 8,469.11. The Standard & Poor's 500 Index .SPX was off 0.89 points, or 0.10 percent, to 908.35. The Nasdaq Composite Index .IXIC was down 15.32 points, or 0.88 percent, at 1,715.92. more...
But the S&P was little changed and the Nasdaq fell as financial and technology shares declined after leading the recent rally from bear market lows.
Shares of Pfizer posted the biggest percentage gain in the Dow, rising 5.5 percent to $14.93, after positive comments from analysts at Credit Suisse First Boston following a meeting with the drug company's management.
Energy shares also supported the market as U.S. crude oil futures briefly touched $60 a barrel before settling up 35 cents at $58.85 on hopes an economic recovery may bolster fuel demand. Exxon Mobil Corp (XOM.N) rose 2.2 percent to $70.82.
But worries over whether an apparent lack of incentives to drive the market higher would put an end to the rally helped put a cap on gains.
"We're right at the precipice and people can't decide if the rally's still got room left or if we're priced about right and due for a sell-off," said Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas.
"The safe-haven mantra is back in force a bit today because obviously, we're not out of the woods yet."
The Dow Jones industrial average .DJI rose 50.34 points, or 0.60 percent, to 8,469.11. The Standard & Poor's 500 Index .SPX was off 0.89 points, or 0.10 percent, to 908.35. The Nasdaq Composite Index .IXIC was down 15.32 points, or 0.88 percent, at 1,715.92. more...
Bloomberg Agriculture Corn and Saybean
Corn Surges to Six-Month High as U.S. Inventories May Dwindle
May 12 (Bloomberg) -- Corn prices surged to a six-month high after the U.S. government said domestic demand will exceed production for the third time in four years, slashing reserves by 28 percent.
Inventories on Aug. 31, 2010, will fall to 1.145 billion bushels from an estimated 1.6 billion a year earlier, the U.S. Department of Agriculture said today. Eighteen analysts surveyed by Bloomberg News forecast 1.313 billion, on average. Demand for corn to make food, livestock feed and fuel will rise 3.5 percent in the next marketing year as output declines 0.1 percent.
“Supplies are tightening up very quickly, and that will put corn in a more positive light,” said Greg Grow, a director of agribusiness for Archer Financial Services in Chicago. “The crop could end up smaller than the USDA forecast because of the wet weather delaying planting.”
Corn futures for July delivery rose 6.25 cents, or 1.5 percent, to $4.275 a bushel on the Chicago Board of Trade. Earlier, the price reached $4.3175, the highest for a most- active contract since Oct. 30. The grain is still 30 percent cheaper than a year ago.
Soybeans Rise as Smaller South American Crops Cut U.S. Reserves
Soybean prices rose for the third straight session as declining South American production boosts demand for shrinking U.S. supplies.
Inventories on Aug. 31, before the next harvest, will total 130 million bushels, down from 165 million estimated in April and 205 million bushels on hand a year earlier, the U.S. Department of Agriculture said today. U.S. inventories represent 4.3 percent of projected use, the tightest supply ratio since 1966, USDA data show.
“It’s a very tight inventory,” said Jim Gerlach, the president of A/C Trading Inc. in Fowler, Indiana. “There’s more upside” until prices rise high enough to slow demand, Gerlach said.
Soybean futures for July delivery rose 1.5 cents, or 0.1 percent, to $11.175 a bushel on the Chicago Board of Trade. On May 7, the price reached $11.31, the highest for a most-active contract since Sept. 29.
Estimated global production this year will fall to 212.8 million metric tons, compared with 218.8 million tons forecast a month ago and a record 221.1 million tons harvested last year, because of smaller crops in South America, the USDA said.
Global consumption this year is forecast at 222.5 million tons, compared with 225.4 million tons projected in April. Inventories on Oct. 1, before the Northern Hemisphere harvest, will fall to 42.6 million tons from 45.8 million estimated in April and from 53.1 million tons last year, the USDA said.
May 12 (Bloomberg) -- Corn prices surged to a six-month high after the U.S. government said domestic demand will exceed production for the third time in four years, slashing reserves by 28 percent.
Inventories on Aug. 31, 2010, will fall to 1.145 billion bushels from an estimated 1.6 billion a year earlier, the U.S. Department of Agriculture said today. Eighteen analysts surveyed by Bloomberg News forecast 1.313 billion, on average. Demand for corn to make food, livestock feed and fuel will rise 3.5 percent in the next marketing year as output declines 0.1 percent.
“Supplies are tightening up very quickly, and that will put corn in a more positive light,” said Greg Grow, a director of agribusiness for Archer Financial Services in Chicago. “The crop could end up smaller than the USDA forecast because of the wet weather delaying planting.”
Corn futures for July delivery rose 6.25 cents, or 1.5 percent, to $4.275 a bushel on the Chicago Board of Trade. Earlier, the price reached $4.3175, the highest for a most- active contract since Oct. 30. The grain is still 30 percent cheaper than a year ago.
Soybeans Rise as Smaller South American Crops Cut U.S. Reserves
Soybean prices rose for the third straight session as declining South American production boosts demand for shrinking U.S. supplies.
Inventories on Aug. 31, before the next harvest, will total 130 million bushels, down from 165 million estimated in April and 205 million bushels on hand a year earlier, the U.S. Department of Agriculture said today. U.S. inventories represent 4.3 percent of projected use, the tightest supply ratio since 1966, USDA data show.
“It’s a very tight inventory,” said Jim Gerlach, the president of A/C Trading Inc. in Fowler, Indiana. “There’s more upside” until prices rise high enough to slow demand, Gerlach said.
Soybean futures for July delivery rose 1.5 cents, or 0.1 percent, to $11.175 a bushel on the Chicago Board of Trade. On May 7, the price reached $11.31, the highest for a most-active contract since Sept. 29.
Estimated global production this year will fall to 212.8 million metric tons, compared with 218.8 million tons forecast a month ago and a record 221.1 million tons harvested last year, because of smaller crops in South America, the USDA said.
Global consumption this year is forecast at 222.5 million tons, compared with 225.4 million tons projected in April. Inventories on Oct. 1, before the Northern Hemisphere harvest, will fall to 42.6 million tons from 45.8 million estimated in April and from 53.1 million tons last year, the USDA said.
Bloomberg Crude Oil Rises to a 6-Month High as Chinese Imports Surge
May 12 (Bloomberg) -- Oil rose to a six-month high after China, the world’s second-biggest energy-consuming country, increased crude imports by 14 percent in April. Deliveries reached 16.17 million metric tons last month, or 3.9 million barrels a day, a statement on the Chinese customs department’s Web site showed today. Oil also climbed as the dollar fell to the lowest level against the euro since March, bolstering demand for commodities as an alternative investment.
“The Chinese numbers are pretty stunning,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “The Chinese are looking at prices now as a good value and they are worried about all of the dollar assets they have. They are buying everything, any raw material they can get their hands on.”
Crude oil for June delivery rose 35 cents, or 0.6 percent, to $58.85 a barrel at 2:44 p.m. on the New York Mercantile Exchange, the highest settlement since Nov. 11.
China will increase imports of commodities including oil and boost inventories of strategic raw materials to take advantage of weak prices, the nation’s economic planner said in March. The country is also buying commodities as it attempts to diversify investments away from Treasuries. China boosted purchases of U.S. debt by 46 percent to a record last year. more...
Bloomberg Greenspan Sees ‘Seeds of a Bottoming’ in U.S. Housing
May 12 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said that the decline in the U.S. housing market may be bottoming and it’s “very easy to see” financial markets continuing to improve. “We are finally beginning to see the seeds of a bottoming” in the housing industry, Greenspan said today during a conference of the National Association of Realtors in Washington. The U.S. is “at the edge of a major liquidation” in the stock of unsold properties, which may help to stabilize prices, Greenspan said.
Home-sales figures in recent weeks have shown a slower pace of decline, and the slide in property prices has eased, according to gauges including the S&P/Case-Shiller index.
The former Fed chief, who was among the first prominent economists to warn about the risk of a recession in 2007, said housing prices could fall another 5 percent without putting too much strain on the economy.
“We run into trouble if it’s very significantly more than that,” Greenspan said. Housing prices remain “the critical Achilles’ heel” of the economy.
While the housing bottom may not be obvious in prices, it is becoming clear in “significant regional differences,” where some of the hardest-hit areas are starting to show signs of improvement, he said.
Greenspan said in congressional testimony in October that “a flaw” in his free-market ideology contributed to the “once-in-a-century” credit crisis. more...
The Star Palm oil stockpile hit two-year low
Petaling JayaCPO output drops further amid lower demand and higher prices
Malaysian palm oil stocks fell to the lowest in almost two years in April as crude palm oil (CPO) production dropped further year-on-year amid lower demand and higher prices.
According to the Malaysian Palm Oil Board, stockpiles in April stood at 1.29 million tonnes, down 27.8% from a year ago and 5.4% month-on-month, while CPO production fell 3.1% year-on-year although it gained 0.8% to 1.28 million tonnes month-on-month.
Palm oil exports reversed a 1.2% gain in March to contract 5.7%, or 1.18 million tonnes, in April. On a month-on-month basis, palm oil exports were down 5.8% in April compared with March’s 0.3% gain.
Meanwhile, independent cargo surveyor Intertek reported yesterday that palm oil exports for the first 10 days of May were up 1.1% to 403,934 tonnes compared with 399,703 tonnes in the same period in April.
Societe Generale de Surveillance said in another report that palm oil exports rose 11% to 433,024 tonnes compared with 391,223 tonnes in the same period in April.
It estimated that China was the top export destination, followed by the EU, India, the US and Iran.
CIMB Investment Bank Bhd analyst Ivy Ng told StarBiz that the CPO price should remain positive in the short term due to several factors, including weather conditions, affecting major planting areas as well as the lower palm oil stock levels.
“The year-to-date shortfall in supply will lead to higher price volatility in the near term as the market is sensitive to newsflow on production prospects and exports,” she said in an April 17 sectoral report.
Ng said other factors that might affect prices were the conflict between farmers and the government in Argentina, US soybean plantings and speculative fund flows.
AmResearch Sdn Bhd analyst Gan Huey Ling said April’s decline in inventory was mainly due to low carry-over stocks and weak output.
She said that in the first four months of the year, palm oil exports amounted to 5.06 million tonnes, which was 9.8% higher than the same period last year.
“The month-on-month decline in exports can be attributed to China and the US,” Gan said. China and the US both imported 17% less palm oil month-on-month in April.
Morgan Stanley - PT Telekomunikasi 4Q08 - 1Q09: Solid Results
Quick Comment: We retain our Overweight rating on PT Telkom
after the company released solid 4Q08 and 1Q09 results with consolidated EBITDA and normalized NPAT beating our estimates by 3-4% and 2-3%, respectively. Our FY09 estimates are 2-3% below consensus; hence we believe the results were largely in-line with market expectations.
PT Telkom is one of our top picks in regional telcos given improving competitive dynamics in the Indonesian mobile market as smaller operators struggle with capex. The company’s coverage head-start and strong balance sheet remains a key competitive advantage, in our view. TLKM’s valuation is reasonable at ‘09E P/E of 12x and EV/EBITDA of 5x. The stock offers a dividend yield of 5%, boosted by additional share buyback of 1.5-2%.
4Q08 Results Highlights:
Consolidated revenues of Rp16.97 tn (+2.3% YoY; +10.6% QoQ) were 5.1% above our expectations;
EBITDA of Rp8.2 tn (-8.7% YoY; +9.7% QoQ) was 2.6% above our estimate. EBITDA margins narrowed 40 bps QoQ to 48.4%, compared to our forecast of 49.6%;
EBIT of Rp5.1 tn (-22% YoY; +8.9% QoQ) was largely in-line our estimate;
NPAT of Rp1.7 trillion (-44.1% YoY; -35.2% QoQ) was 24.7% below our forecast mainly due to forex loss of Rp1.6 tn. Normalized NPAT of Rp2.8 tn (-12% YoY; +3.4% QoQ) was 2% above our forecast.
1Q09 Results Highlights:
Consolidated revenues of Rp15.4 tn (-2.3% YoY; -9% QoQ) were 2.8% below our expectations;
EBITDA of Rp8.3 tn (-8.7% YoY, +0.5% QoQ) was 3.5% above our estimate. EBITDA margins improved 510 bps QoQ to 53.4%, compared to our forecast of 50.1%;
EBIT of Rp5.3 tn (-19.2% YoY; +3.1 QoQ) was 5.1% above our estimate;
NPAT of Rp2.5 tn (-23.4% YoY; +44.6% QoQ) was 3.7% below our forecast mainly due to forex loss of Rp212 bn; Normalized NPAT of Rp2.6 tn (-19.4% YoY; -6.3% QoQ) was 2.3% above our forecast.
after the company released solid 4Q08 and 1Q09 results with consolidated EBITDA and normalized NPAT beating our estimates by 3-4% and 2-3%, respectively. Our FY09 estimates are 2-3% below consensus; hence we believe the results were largely in-line with market expectations.
PT Telkom is one of our top picks in regional telcos given improving competitive dynamics in the Indonesian mobile market as smaller operators struggle with capex. The company’s coverage head-start and strong balance sheet remains a key competitive advantage, in our view. TLKM’s valuation is reasonable at ‘09E P/E of 12x and EV/EBITDA of 5x. The stock offers a dividend yield of 5%, boosted by additional share buyback of 1.5-2%.
4Q08 Results Highlights:
Consolidated revenues of Rp16.97 tn (+2.3% YoY; +10.6% QoQ) were 5.1% above our expectations;
EBITDA of Rp8.2 tn (-8.7% YoY; +9.7% QoQ) was 2.6% above our estimate. EBITDA margins narrowed 40 bps QoQ to 48.4%, compared to our forecast of 49.6%;
EBIT of Rp5.1 tn (-22% YoY; +8.9% QoQ) was largely in-line our estimate;
NPAT of Rp1.7 trillion (-44.1% YoY; -35.2% QoQ) was 24.7% below our forecast mainly due to forex loss of Rp1.6 tn. Normalized NPAT of Rp2.8 tn (-12% YoY; +3.4% QoQ) was 2% above our forecast.
1Q09 Results Highlights:
Consolidated revenues of Rp15.4 tn (-2.3% YoY; -9% QoQ) were 2.8% below our expectations;
EBITDA of Rp8.3 tn (-8.7% YoY, +0.5% QoQ) was 3.5% above our estimate. EBITDA margins improved 510 bps QoQ to 53.4%, compared to our forecast of 50.1%;
EBIT of Rp5.3 tn (-19.2% YoY; +3.1 QoQ) was 5.1% above our estimate;
NPAT of Rp2.5 tn (-23.4% YoY; +44.6% QoQ) was 3.7% below our forecast mainly due to forex loss of Rp212 bn; Normalized NPAT of Rp2.6 tn (-19.4% YoY; -6.3% QoQ) was 2.3% above our forecast.
CIMB Telekomunikasi Indonesia Result note - A dull tone
(TLKM IJ / TLKM.JK, NEUTRAL - Maintained, Rp7,400 - Tgt. Rp8,500, Telecommunications)
Telkom's core 1Q09 net profit was below consensus and our forecasts, at only 21% and 17% of the respective FY09 estimates. This was largely due to weaker-than-expected revenue and high depreciation and amortisation charges on the back of aggressive capex. We believe revenue weakness was caused by lower usage after commodity prices plunged. About 55% of Telkomsel's revenue is derived from commodity-driven areas. As commodity prices are now rising, consumer sentiment and usage should be bolstered. We maintain our forecasts and DCF-based target price of Rp8,500 (WACC 12.5%) pending an investors' teleconference. Maintain NEUTRAL. The results reinforce our view that investors should take profit on the stock after its strong run-up and consider higher-beta stocks in the current market rally.
Telkom's core 1Q09 net profit was below consensus and our forecasts, at only 21% and 17% of the respective FY09 estimates. This was largely due to weaker-than-expected revenue and high depreciation and amortisation charges on the back of aggressive capex. We believe revenue weakness was caused by lower usage after commodity prices plunged. About 55% of Telkomsel's revenue is derived from commodity-driven areas. As commodity prices are now rising, consumer sentiment and usage should be bolstered. We maintain our forecasts and DCF-based target price of Rp8,500 (WACC 12.5%) pending an investors' teleconference. Maintain NEUTRAL. The results reinforce our view that investors should take profit on the stock after its strong run-up and consider higher-beta stocks in the current market rally.
Danareksa Indocement Tunggal Prakarsa Focusing on profits
Looking attractive: BUY
Indocement explained at the latest analyst meeting that its business strategy is basically to put profitability ahead of market share. This is positive and suggests the company will not start a costly price war. In regard to the speculation that Heidelberg would divest a 15-20% stake in the company, Indocement’s management has declined to comment. Nonetheless, this speculation has resulted in positive sentiment on the stock on hopes that the share price will be pushed up prior to any possible divestment. BUY recommendation maintained with a target price of Rp6,500.
Indocement explained at the latest analyst meeting that its business strategy is basically to put profitability ahead of market share. This is positive and suggests the company will not start a costly price war. In regard to the speculation that Heidelberg would divest a 15-20% stake in the company, Indocement’s management has declined to comment. Nonetheless, this speculation has resulted in positive sentiment on the stock on hopes that the share price will be pushed up prior to any possible divestment. BUY recommendation maintained with a target price of Rp6,500.
CLSA Indo Strategy - Choose carefully
Nick Cashmore highlighted that Indonesia has been the second best performing market in Asia YTD, +48% in US$ term. Valuations are no longer distressed. In our view, investors should be more cautious about chasing stocks.
Key points from the report:
ASII, UNTR, and BBCA have been the market darling, so not surprisingly valuations look the most stretched.
ISAT, PGAS, and TLKM offer more reasonable value.
Resources: valuations indicate either through cycle earnings or stock prices are rich.
No banks stocks are now trading at distressed valuation multiples.
Cement: valuations look attractive with the exception of SMGR.
Key points from the report:
ASII, UNTR, and BBCA have been the market darling, so not surprisingly valuations look the most stretched.
ISAT, PGAS, and TLKM offer more reasonable value.
Resources: valuations indicate either through cycle earnings or stock prices are rich.
No banks stocks are now trading at distressed valuation multiples.
Cement: valuations look attractive with the exception of SMGR.
CLSA Telkom, sign of stabilization, Indo strategy
Telkom (TLKM IJ), sign of stabilization, from Wilianto, maintain BUY, TP Rp9,000
Wilianto looked at Telkom Indonesia’s 1Q09 results. With the risk of sounding like a broken record, we want to highlight once again that there are signs of earnings stabilization as at TLKM.
Well OK, revenues are not looking great, -2.2% YoY, which reflects weak macro situation. But at least for the first time in many years we see some cost control at TLKM. If we look at operating profit in 1Q09 Rp5.28tn vs. Rp4.7tn in 3Q08 (4Q is strong due to seasonality factor), it looks like things are improving at TLKM. Same thing if you look at it from EBITDA standpoint (Rp8.5tn in 1Q09 vs. Rp7.77tn in 3Q08).
ARPU is still falling 14% QoQ. Don’t expect overnight improvement but competition should be easing and Indo telecom industry is expected to consolidate as smaller operators can no longer sustain their low price high vol business model, due to lack of cheap money.
TLKM has been a big laggard of late and may be seen as a safe heaven for those who seek refuge from market correction.
Key points from the report:
Telkom 1Q09 result shows sign of earnings stabilization as Ebitda and Ebit bounced off the low in 3Q09.
Revenues growth remains absent, reflecting weaker purchasing power and lower tariff.
Costs seem to be under control – finally
Net add is strong
Valuation is not demanding against peers. TLKM is trading at 12.7x 09 CL PE vs. 13.8x for major operators.
Wilianto looked at Telkom Indonesia’s 1Q09 results. With the risk of sounding like a broken record, we want to highlight once again that there are signs of earnings stabilization as at TLKM.
Well OK, revenues are not looking great, -2.2% YoY, which reflects weak macro situation. But at least for the first time in many years we see some cost control at TLKM. If we look at operating profit in 1Q09 Rp5.28tn vs. Rp4.7tn in 3Q08 (4Q is strong due to seasonality factor), it looks like things are improving at TLKM. Same thing if you look at it from EBITDA standpoint (Rp8.5tn in 1Q09 vs. Rp7.77tn in 3Q08).
ARPU is still falling 14% QoQ. Don’t expect overnight improvement but competition should be easing and Indo telecom industry is expected to consolidate as smaller operators can no longer sustain their low price high vol business model, due to lack of cheap money.
TLKM has been a big laggard of late and may be seen as a safe heaven for those who seek refuge from market correction.
Key points from the report:
Telkom 1Q09 result shows sign of earnings stabilization as Ebitda and Ebit bounced off the low in 3Q09.
Revenues growth remains absent, reflecting weaker purchasing power and lower tariff.
Costs seem to be under control – finally
Net add is strong
Valuation is not demanding against peers. TLKM is trading at 12.7x 09 CL PE vs. 13.8x for major operators.
CLSA Alternative to play the interest rate sensitives with higher betas would be the property sector
Chris Wood argues that borrowing cost is coming down and it good for local asset price reflation. Indeed, as inflation appears well contained at 7.3%(a disciplined monetary policy where money supply shrunk Vs the west where money supply is expanding in an unprecedented way) the SBI benchmark interest rate has already come down by more than 200bp YTD to 7.25%. Learning a very expensive lesson from loose monetary policies and high debt levels (asian crisis where the Rupiah devalued 80%), this time round, IDR has been one of the best performing Asian currency (strengthening around 6% YTD), we can expect further cuts in the benchmark rate.
This is why banks have done so well but with the major banks approaching 3x book value (see Nick piece today), hardly a bargain anymore. An alternative to play the interest rate sensitives with higher betas would be the property sector. Indonesian property has historically appreciated around the inflation rate and not gone through the boom period like in Singpapore, Hong Kong etc. As such physical property prices has remained resilient, not coming down in the latest economic weakness.
Mortgage rates come down from 15-16% p.a in Jan 09 to 12% and less (some banks such as Niaga (BNGA IJ) and Permata (BNLI IJ) offering around 6% for the first year). Ciputra Development (CTRA IJ) probably the proxy for the sector already has a strong position in the middle-low landed housing segment, but smart property developers such as Summarecon Agung (SMRA IJ) and Bumi Serpong Damai (BSDE IJ) are also trying to capture the falling mortgage rate theme by offering more affordable products. Both these companies showed good marketing sales in the 1Q09 despite tough macro conditions. Jababeka (KIJA IJ) is also interesting industrial estate play with its 130MW power plants (one turbine has been completed) which should provide the company with more than 50% recurrent income.
Property plays makes sense as most are still trading at steep discount to NAV (some on high single digit PE). Even with the current rally, most are still a long long way from peak valuations.
This is clear with the collpase of demand from the west, Asians economies would start to focus more on their own domestic asset market. In China, our CRR study among 80 developers found that 45% of builders on the coast expect a YoY increase in new starts in 2009. As for Indonesia, historical low mortagage rates and low debt levels should continue to underpin a strong property market
This is why banks have done so well but with the major banks approaching 3x book value (see Nick piece today), hardly a bargain anymore. An alternative to play the interest rate sensitives with higher betas would be the property sector. Indonesian property has historically appreciated around the inflation rate and not gone through the boom period like in Singpapore, Hong Kong etc. As such physical property prices has remained resilient, not coming down in the latest economic weakness.
Mortgage rates come down from 15-16% p.a in Jan 09 to 12% and less (some banks such as Niaga (BNGA IJ) and Permata (BNLI IJ) offering around 6% for the first year). Ciputra Development (CTRA IJ) probably the proxy for the sector already has a strong position in the middle-low landed housing segment, but smart property developers such as Summarecon Agung (SMRA IJ) and Bumi Serpong Damai (BSDE IJ) are also trying to capture the falling mortgage rate theme by offering more affordable products. Both these companies showed good marketing sales in the 1Q09 despite tough macro conditions. Jababeka (KIJA IJ) is also interesting industrial estate play with its 130MW power plants (one turbine has been completed) which should provide the company with more than 50% recurrent income.
Property plays makes sense as most are still trading at steep discount to NAV (some on high single digit PE). Even with the current rally, most are still a long long way from peak valuations.
This is clear with the collpase of demand from the west, Asians economies would start to focus more on their own domestic asset market. In China, our CRR study among 80 developers found that 45% of builders on the coast expect a YoY increase in new starts in 2009. As for Indonesia, historical low mortagage rates and low debt levels should continue to underpin a strong property market
CIMB Hexindo Adiperkasa Initiating coverage - Small is beautiful
(HEXA IJ / HEXA.JK, OUTPERFORM, Tgt. Rp2,100, Industrial Goods and Services)
HEXA's sales of small excavators tend to outpace the industry during an upcycle. This coming upcycle should be no different, led by an expected recovery in the agro and construction sectors in 2010. HEXA should report firm 1Q09 profits, with indicated core earnings of around Rp75bn. As the company has signed around US$144m of mining equipment deals for 2009-10, we expect stronger quarters ahead. Initiate coverage with an OUTPERFORM rating and a target price of Rp2,100 (9x CY10 earnings). Catalysts are expected to include further deals with other mining companies.
HEXA's sales of small excavators tend to outpace the industry during an upcycle. This coming upcycle should be no different, led by an expected recovery in the agro and construction sectors in 2010. HEXA should report firm 1Q09 profits, with indicated core earnings of around Rp75bn. As the company has signed around US$144m of mining equipment deals for 2009-10, we expect stronger quarters ahead. Initiate coverage with an OUTPERFORM rating and a target price of Rp2,100 (9x CY10 earnings). Catalysts are expected to include further deals with other mining companies.
Goldman Sachs - Commodity - Bridging the gap between a weak today and a strong tomorrow
Our view: After the deflation of the asset bubble caused by hot money flow, we believe that the physical fundamental story still stands in the agricultural commodities space. The demand and supply fundamentals remain supportive in the medium term.On Demand: In our view, we could have seen the lowest demand levels this quarter. Even as a big producer of soft commodities, China will continue to need to rely on imports to meet its increasing demand, as evidenced by recent increases in soybean prices driven by stockpiling in China.
On Supply: The high capacity utilization currently for the softs makes supply vulnerable to planting delays due to bad weather, thus giving good support to prices.
Inflationary expectation will sustain the money flow into the commodities market, as economic condition stablize. Hence, we remain positive in commodities. Clients can look to nimble on DBA, and invest into Schroder Alternative Solutions Commodity Fund to gain exposure.
GS - Commodity Watch
Commodities have been trading on improving forward-looking macro data, which has reinforced our view of a more positive outlook for demand growth and prices in 2H2009. For this reason, our expectations of a pullback in prices on still-weak current fundamentals have either proven short-lived or have not been realized at all. In our view, commodities can continue to price the more positive forward outlook despite weak current fundamentals as long as inventories can continue to build. But this will likely not be the case for energy, which is already approaching storage constraints.
We also emphasize that improvement in not only forward, but also coincident, indicators in the Chinese economy will likely hasten improvement in fundamentals for agriculture and metals, which are particularly leveraged to Chinese growth. Given the above, we expect three important characteristics of commodities will be key to performance over the next six months:
1) The degree of leverage to China for the commodity. Today, leading indicators look much better than the coincident indicators. China is the exception, where the coincident indicators are positive. Copper, zinc and soybeans have more leverage to China and therefore a stronger near-term outlook.
2) The anticipatory nature of the commodity Storage bridges the gap between today and tomorrow. Commodities that are easier to store, such as metals and agriculture, are more anticipatory. Energy is more costly to store and therefore less anticipatory. Breaching storage capacity would force energy to price today, leading prices lower.
3) The degree of capacity utilization for the commodity Tomorrow, those commodities with the highest capacity utilization rates, such as energy are best poised once global growth resumes.
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