Reuters Energy shares, falling bond yields lift Wall Street

NEW YORK (Reuters) - Stocks climbed more than 1 percent on Thursday as higher oil prices drove up energy shares and falling yields in the bond market eased concerns that higher borrowing costs would hinder economic recovery.

Energy company shares, including Exxon Mobil Corp (XOM.N), rose as U.S. crude oil settled above $65 a barrel for its highest close since November, 64boosted by a drop in crude inventories last week.

"We had the OPEC meeting today, plus we had inventory numbers, and both were favorable for oil. That's helping that whole sector," said Owen Fitzpatrick, head of U.S. Equity Group at Deutsche Bank Private Wealth Management in New York. OPEC decided to hold production at current levels.

The Dow Jones industrial average .DJI gained 103.78 points, or 1.25 percent, to finish at 8,403.80. The Standard & Poor's 500 Index .SPX was up 13.77 points, or 1.54 percent, at 906.83. The Nasdaq Composite Index .IXIC was up 20.71 points, or 1.20 percent, at 1,751.79.

Equities recovered Wednesday's losses, extending gains late in the session.

After the market's close, shares of computer maker Dell Inc (DELL.O) rose more than 1 percent to $11.61 after its results narrowly beat analysts' estimates.

The U.S. bond market also rebounded as benchmark 10-year notes bounced 24/32 higher for a yield of 3.64 percent, 10 basis points lower on the day, after an auction of $26 billion in new seven-year Treasury notes. Another Treasury auction on Wednesday helped fuel selling of bonds and stocks as investors worried about expanding U.S. government debt.

Investors have grown concerned that rising bond yields, which move inversely to bond prices, portend a possible rise in borrowing costs, which could choke a much-anticipated economic recovery.

Hopes that the economy may be stabilizing helped stocks recover from 12-year lows of early March, but since early this month the market's rebound has been a bit bumpier. Still, at Thursday's close, the S&P 500 was up 34 percent since the March 9 low. more...

Bloomberg GM bankruptcy looms after bondholders back deal

DETROIT/BERLIN (Reuters) - General Motors Corp persuaded its major bondholders to accept a sweetened ownership plan on Thursday, a deal that could result in a smoother ride for the carmaker through bankruptcy.

But the troubles for Detroit's automakers deepened when former Ford Motor Co unit Visteon Corp and another parts supplier filed for bankruptcy protection -- a move some analysts worried could affect Ford's cash position.

Ford, the only U.S. automaker operating without emergency government support, played down the concerns.

In the biggest news of the day, GM said it had reached a debt-for-equity deal with some major bondholders that would give them a bigger stake in a reorganized automaker and could pave the way for a fast-track bankruptcy backed by the U.S. Treasury.

One senior U.S. government official suggested GM could emerge from a court-supervised restructuring in as few as two or three months. GM is widely expected to file no later than June 1, a U.S. government-imposed deadline for the automaker to prove its viability or seek court protection.

The announcement of a possible deal with bondholders was the clearest indication yet that GM, the No. 1 U.S. automaker, is close to filing for bankruptcy under the direction of the Obama administration. It would be the biggest-ever bankruptcy for a U.S. industrial company and the third-largest in U.S. history after Lehman Brothers and Worldcom.

Under the proposed deal, bondholders representing $27 billion in debt would be offered 10 percent of a reorganized GM -- the same stake they had been offered previously.

But bondholders would now also receive warrants to acquire another 15 percent of the equity in the new company, provided they support a quick Treasury-backed sale process similar to one now being used for rival Chrysler. more...

Reuters U.S. new home sales edge up, jobless claims ease

WASHINGTON (Reuters) - Sales of new U.S. single-family homes rose slightly in April, while fewer workers filed for first-time jobless aid last week, raising hopes the worst of the deep economic recession was likely over.

The Commerce Department said on Thursday that new home sales climbed 0.3 percent in April from March to a 352,000 annual unit pace, while prices rose 3.7 percent, the biggest monthly advance since November.

While the sales pace was not as brisk as financial markets had anticipated, analysts were encouraged by a drop in the stock of homes available for sale, which reached the lowest level in nearly eight years.

A separate report from the Labor Department showed initial claims for state unemployment insurance benefits dropped by 13,000 to 623,000 in the week ended May 23, a second straight weekly drop.

The reports were the latest in a series suggesting the intensity of the 17-month old downturn, characterized by severe job losses and plunging asset prices, was losing momentum and the economy could return to growth later this year.

"The data are consistent with the notion that the worst of the recession is behind us. We haven't hit bottom yet, but seem to be nearing it. ... I see positive growth in the fourth quarter," said Mark Vitner, a senior economist at Wachovia Securities in Charlotte, North Carolina.

U.S. stocks indexes ended up more than 1 percent, buoyed by energy shares as oil prices rose and results of a Treasury note auction calmed fears over demand for government debt.

Longer-dated U.S. Treasury debt prices also rose following the seven-year note sale, with yields retreating from six-month highs scaled on Wednesday. more...

Bloomberg Indonesian Stocks Are Upgraded to ‘Overweight’ at BNP

May 28 (Bloomberg) -- Indonesian stocks were raised to “overweight” from “neutral” at BNP Paribas SA, which cited record-low interest rates, a resilient economy and better-than- expected earnings outlook.

The Jakarta Composite index may rise 16 percent to 2,200 based on a 12-month target, BNP said. PT Bank Danamon Indonesia, PT Astra International, PT Indofood Sukses Makmur and PT Ciputra Property are among its preferred stocks, BNP said. The measure closed at 1,892.84 yesterday, a 40 percent gain this year.

BNP’s rating upgrade follows those by JPMorgan Chase & Co. and Credit Suisse Group after a legislative election in April strengthened President Susilo Bambang Yudhoyono’s hold in parliament and raised expectations he will boost economic growth. Southeast Asia’s biggest economy expanded 4.4 percent in the first quarter, the fastest pace in the region.

“The democratic process has become entrenched, which has resulted in a stronger currency and a re-rating in both the bond and equity markets,” BNP’s Jakarta-based analyst Elvira Tjandrawinata wrote in a note today. “The economy is one of the most resilient in the region.”

The Indonesian rupiah has risen 7.2 percent this year, helping to ease inflation to a 16-month low in April. The central bank has cut its key interest rate six times since December to 7.25 percent, the lowest since the measure was introduced in July 2005. Slowing inflation supports purchasing power while lower borrowing costs may spur lending.

Rating Upgrades
JPMorgan, Credit Suisse and Deutsche Bank AG raised their ratings on Indonesia to “overweight” earlier this month. The stock index fell by a record 51 percent last year after the global credit crisis prompted investors to sell assets in high- yielding markets including Indonesia.

“Increased risk appetite among investors and a lack of better investment alternatives has driven local investors back” to the equity and bond markets, BNP’s Tjandrawinata said. A “correction” in the stock market may be “shallow” as overseas investors are “still waiting on the sidelines for a dip.”

Expansion, Contractions
The International Monetary Fund predicts Indonesia’s $433 billion economy will post the only growth this year among Southeast Asia’s five-biggest economies. The IMF last month forecast a 2.5 percent expansion for the nation, zero growth for the Philippines, and contractions for Malaysia, Singapore and Thailand.

Morgan Stanley, in a note yesterday, almost doubled its economic growth forecast for Indonesia to 3.7 percent from 1.9 percent, citing gains in commodity prices and diminished political risks. The government expects growth to slow to 4.5 percent this year from 6.1 percent in 2008 as the global recession hampers exports and investments.

Bloomberg Oil Rises to 6-Month High on OPEC Announcement, Supply Decline

May 28 (Bloomberg) -- Crude oil rose to a six-month high after OPEC decided to leave production quotas unchanged and a government report showed that U.S. inventories declined.

Saudi Arabian Oil Minister Ali al-Naimi said that the group opted not to alter its output targets because “prices are good, the market is in good shape.” Oil should stay in a $60 to $70 range for the rest of the year, OPEC Secretary General Abdalla el-Badri said. The gain accelerated after the Energy Department said that U.S. oil supplies fell the most since September.

“The outcome, no change in OPEC quotas, was expected, but the surprise was Saudi Arabia being very explicit about a price objective for the first time since the price band mechanism in the early part of this decade,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York.

Crude oil for July delivery rose $1.63, or 2.6 percent, to $65.08 a barrel at 2:45 p.m. on the New York Mercantile Exchange, the highest settlement since Nov. 5. Futures are up 46 percent this year.

The Organization of Petroleum Exporting Countries sought to maintain a benchmark price, comprised of seven oil grades, between $22 and $28 a barrel beginning in 2000. The group abandoned the price band in January 2005.

“They have now set economic parameters within which the market will now function, on the upside at least,” Eagles said.

Saudi Arabia’s al-Naimi forecast that oil may rise to $75 a barrel by this year’s third or fourth quarter. The group’s next meeting will be on Sept. 9, he said. more...

Wijaya Karya Bagi Dividen Rp 8,03

Rapat umum pemegang saham (RUPS) PT Wijaya Karya Tbk (WIKA) memutuskan pembagian dividen Rp 8,03 per unit.

Total dividen mencapai Rp 45,52 miliar atau 30 persen dari laba bersih tahun buku 2008. Perusahaan akan membagikan dividen pada 7 Juli 2009.

Direktur Utama Wijaya Karya Bintang Perbowo pada siaran pers perusahaan mengatakan, sisa laba bersih sebesar Rp 75,61 miliar dialokasikan untuk cadangan lain yang belum ditentukan pemakaiannya.

Sementara itu, sekitar Rp 30,36 miliar (20 persen) digunakan sebagai cadangan wajib, Rp 1,52 miliar (1 persen) program bina lingkungan, dan Rp 3,03 miliar (2 persen) program kemitraan.

Dia mengungkapkan, sepanjang 2009, perusahaan mencadangkan biaya modal sebesar Rp 321 miliar. Dana itu akan dialokasikan untuk akuisisi dan penyertaan Rp 175 miliar, pengembangan usaha Rp 75 miliar, dan investasi aktiva tetap Rp 71 miliar.

"Pada 2009, kami melakukan penyertaan pada proyek MNA Surabaya-Mojokerto Rp 120 miliar," kata dia di Jakarta, Kamis 28 Mei 2009.

Bintang menambahkan, perusahaan juga telah mengakuisisi perusahaan kontraktor tambang senilai Rp 35 miliar, penyertaan perusahaan dan pengembangan ekstrasi aspal buton Rp 45 miliar, dan pendirian perusahaan IPP (pembangkit listrik) Rp 50 miliar.

Laba Bersih PTBA Naik 221%

PT Tambang Batubara Bukit Asam Tbk (PTBA) mencatatkan kenaikan laba bersih sebesar 221% pada kuartal I-2009 atau naik dari Rp286,39 miliar pada periode yang sama 2008 menjadi Rp920,57 miliar di 2009.

Hal ini disampaikan Eko Budhiwijaya, Corporate Secretary PTBA sesuai acara RUPS Tahunan di Jakarta, Kamis (28/5). Itu berarti laba bersih perseroan per lembar saham juga naik menjadi Rp400 dari Rp124 di Q-12008.

Pendapatan perseroan juga mengalami kenaikan sebesae 89% menjadi Rp3,22 triliun dari Rp1,23 triliun pada Q1-2008. Hal ini didudukung kenaikan volume penjualan dan harga jual batubara. Volume penjualan pada Q1-2009 naik 29% menjadi 10,3 juta ton dibanding Q1-2008 sebanyak 8 juta ton.

PTBA juga akan memulai pembangunan PLTU Tanjung Enim 3X10 tahun ini untuk pemakaian sendiri dengan nilai investasi US$42 juta. Dananya akan diambil dari kas internal perusahaan.

Efisiensi yang diperoleh dari pembangunan PLTU ini berasal dari pemanfaatan batubara kalori rendah yang ada di wilayah penambangan Tanjung Enim sekitar 150 ribu ton per tahun, sehingga nantinya dapat menurunkan harga pokok produksi batubara. [cms]

PTBA Akuisisi 2 Tambang di Kalimantan

PT Perusahaan Tambang Bukit Asam Tbk (PTBA) tengah melakukan proses due dilligence dengan 2 tambang di Kalimantan.

"Targetnya tahun ini rampung. Soal investasinya nanti aja kita akan putuskan di RUPSLB mendatang jika material," tegas Direktur Utama PTBA Soekrisno seusai RUPS Tahunan di Jakarta, Kamis (28/5).

Sayang, ia enggan membeberkan letak tambang tersebut dan nilai investasinya. Menyoal perkembangan tambang Perseroan, ia mengakui sudah selesai dieksplorasi dan nilai investasinya US$15 juta hingga US$20 juta dari dana internal.

"Kita fokus aksusisi di Kalimantan karena 50 persen strategi batubara ada di sana," tegasnya.

Sedangkan kelanjutan proyek PLTU 4X600 MW masih menunggu kepastian antara PT PLN dan Pemerintah. Nantinya untuk konsumsi Sumatera Selatan sebesar 800 MW dan sisanya untuk Jawa Bali dengan biaya investasi secara keseluruhan mencapai Rp3,7 triliun. [cms]

GlobalCoal Indonesia Antam says to complete coal mine deal in 2009

JAKARTA, May 27 (Reuters) - Indonesian state-owned miner, PT Aneka Tambang Tbk (ANTM.JK), expects its acquisition of coal mine interests to be completed this year, president director Alwinsyah Loebis said on Wednesday.

"We are now in the due diligence process for five coal mines in Kalimantan, we cannot state the names yet," Loebis told reporters. He did not elaborate on how many of those mines the firm would acquire.

He also said that Antam would increase gold production to about 3.8 tonnes next year, from about 2.8 tonnes in 2009.

Antam, which has a stock market value of $1.77 billion, is involved in the exploration and production of nickel ore, bauxite and iron sands as well as smelting of ferro-nickel, exploration and production and refining gold and silver.

source: Reuters 27 May 2009

Palmoil HQ Malaysian palm oil futures may hit RM 3,000 on higher crude: Fry

Malaysian crude palm oil futures may hit 3,000 ringgit if crude oil markets continue to rise, top industry analyst James Fry said on Thursday, although he declined to give a timeframe.

“I myself would say the price will be 3,000 ringgit but it depends on crude oil, not vegetable oil,” Fry, chairman of London-based commodities consultancy LMC International, told reporters on the sidelines of a conference in the Indonesian capital.

Fry said Malaysian palm oil stocks may drop further in May, echoing the comments of many analysts and plantation owners. Palm oil inventories in April reached 22-month lows, at 1.29 million tonnes.

India was seen buying more palm oil on fears that the newly elected government would reimpose an import tax on the vegetable oil, Fry said, but did not give a figure for expected volumes.

Business Times Palm oil may hit RM3,000 in a month: Mistry

Palm oil futures may rise to RM3,000 (US$853) a metric ton within a month on increased demand and the reduced supply of soybean oil, Dorab Mistry, director of Godrej International Ltd, said today in an interview.

Palm oil for August delivery gained 3.1 per cent to RM2,505 ringgit a ton on the Malaysia Derivatives Exchange. The commodity has advanced about 33 per cent this year amid speculation that drought in Argentina may curb soybean oil supplies, boosting demand for rival palm oil.

Godrej is one of the largest importers of edible oils into India, the biggest consumer of palm oil after China. Mistry has traded the commodity for more than three decades. About 90 per cent of palm oil is produced in Malaysia and Indonesia. - Bloomberg

The Star Godrej sees RM3,000 palm oil; limited supply of soybean

Petaling Jaya

Crude palm oil (CPO) prices are likely to hit RM3,000 per tonne in a month on increased demand and less supply of soybean, according to Godrej International Ltd director Dorab Mistry in an interview on Bloomberg.

CPO prices have gained some 33% this year on concerns that the dry season in Argentina might limit soybean production, raising demand for palm oil as the alternative.

Godrej is one the largest importers of edible oils into India.

Plantation stocks on Bursa Malaysia were hardly changed. At 10.28am, Sime Darby Bhd, IOI Corp Bhd and United Plantations were unchanged at RM6.75, RM4.62 and RM12.20 respectively while Kuala Lumpur Kepong was down 20 sen at RM11.70.

Palm oil futures starts trading on the Malaysian Derivatives Exchange at 11.00 am. Palm oil for August delivery closed at RM2,505 per tonne yesterday.

Indopremier PT Indika Energy Tbk Rp2,675 – BUY

INDY is accumulating assets to synergize and secure long-term growths. We increase INDY target price from Rp2.187 previously to Rp3.208 per share based on equity value of each assets as of 1Q09 (Table 1). We view INDY’s current asset value and strategies will be able to support current share prices and to realize our estimated TP. At 2 (two) times 1Q09 book value, we believe PTRO valuation contribution to INDY is at the low side, and thus provide INDY for both earnings and TP potential upsides. INDY has a strong balance sheet and a portfolio of prospective investments, and at yesterday’s closing price, our TP will provide investors with an 20% of capital gain over 12-months horizons. BUY

Since INDY is a holding company of various of public and non public companies, we use sum of the part method to calculate the equity value of INDY.
1. First, the equity value for KJA, we use DCF method. Post 1Q09, we find higher equity value for KJA due to lower WACC (13.2% vs. previously 14.3%, as well as higher ASP (US$52/ton vs. previously US$50ton).
2. For TPEC, with an estimated FY09 earnings of US$19.86mn, we apply an 11 times earnings multiple which refer to multiple valuation of overseas as well as local E&C companies.
3. We decide to include PTRO in calculating INDY’s equity value since the acquisition process is now waiting for the shareholders’ approval and the Investment Coordinating Board approval. For PTRO, we apply 2 (two) times 1Q09 book value multiple, a discount to similar size of mining contracting company listed in BEI. The assumption is considered underestimated and we reckon the equity value of PTRO
is much higher than our preliminary assumption. We view PTRO earnings contribution, given current amount of ongoing projects (listed below), can be meaningful or significant for INDY revenue base.
4. For others, we apply both earnings multiple valuation as well as investment costs, to total an equity value of US$119.4mn.
5. With these approaches, we arrive at a value of INDY of Rp3,208 per share, and thus provide investors a 20% prospective capital gain from yesterdays closing price of Rp2,675.

CLSA Unilever Indonesia, Household Jewel, maintain OPF, raise TP to Rp8,600 (fm Rp8,000)

Analyst Swati revisits Unilever Indonesia (UNVR IJ). This is definitely a quality name, the dominant market leader in cosmetics and household products. UNVR has been in Indonesia since the 1930’s and has become deeply entrenched in the community. Unilever is practically regarded a local institution. The company is committed to develop human capital and has always been THE coveted workplace for new Indonesian graduates to build a career.

The current CEO, Maurits Lalisang is Indonesian and he, like many other Unilever Indonesia managers, was given a chance to work in Unilever offices outside Indonesia before returning to Indonesia. In fact, the current BOD are all Indonesian nationals except for one expatriate.

Low penetration of cosmetics and household care products, a large young population, increasing urbanisation makes Indonesia an important battle ground for many consumer companies. UNVR is competing neck to neck with Wings in household products. In cosmetics, UNVR has 34% market share vs. P&G at 11%.

Unlike some of its competitors, UNVR remained committed to Indonesia staying put through the bad times. This has paid off handsomely and Unilever has cemented its leadership in distribution channel and marketing prowess, proven the strong consumer loyalty the company commands. We recently heard that P&G is closing their remaining factories in Indonesia and the Phils, opening a much larger $42m expansion of the existing Thai manufacturing plant. All manufacturing will be concentrated there from now on.

Key points from the report:
We reiterate OPF on UNVR. New TP is Rp8,600 (fm 8,000), as risk premiums reduce.
UNVR posted respectable 1Q09 results even though rupiah depreciated by 30%. We forecast modest 7% earnings growth this year as it focuses on retaining or increasing market share.
It is possible that UNVR will pass on some cost reduction from lower commodity prices and strengthening rupiah to consumers in order to gain market share or in response to price cuts by rivals.
UNVR was able to achieve more than 8% volume growth by ensuring greater availability of its products. It has an excellent distribution network in a fast growing market.
Valuation: 19.4x CL10 PE. Not cheap, but the premium is however justified as UNVR has a respectable track record, excellent corporate governance, 80% ROE.

Indopremier Nickel Industry Update Lack of Support from Fundamental Basis

The price of metal commodities jumped on speculative uncertainty, which the first rebound began in early year 2009 and continued recently following China stocks financing support from Government and rally in crude oil price. Bullish momentum in the crude oil has brought nickel price surging up to US$ 13,000/Mt to capture the momentum despite of lower demand and surplus supplies. Ferrous metal industry was severely hit due to delayed and halted project globally. However, some industrial production indices output has been declining at a slower pace indicating that the recession might be halted. We find that heavy industries related to construction and automotive might take more times to back to its origin level which might occur in second semester 2010. The market has overreacted to crude oil market momentum despite of bleak industry in nickel, in our opinion. ANTM and INCO have traded at their highest historical valuation, in our view.

2009: Recap and Changes

In term of Return: INCO still the best performer
Despite of falling nickel price, INCO was the stock pick compare to ANTM since INCO offers cost efficiency. INCO stock price has offered 201% return from its lowest price in 28 October 2008, while ANTM offered 122.4% return. Year-to-date return for INCO was higher at 54.3% relative to ANTM at 53.7%. Nevertheless, both stocks underperformed the mining index that has increased by 75.5%. Meanwhile JCI has surged up by 69.7% from its lowest level in October 2008 and 31.2% Ytd.

Q109 Operational Highlight
Q109 operational result was bleak for ANTM since its ferronickel sales volume only reached 1,161 tons or 9.9% of our FY09 estimates. While its ferronickel production volume reached 3,296 tons or 27.5% of our FY09F estimates. However, it is a common pattern for ANTM that has volatile pattern (see exhibit 15).

Meanwhile, INCO showed its competitive advantage by having stable production and sales volume supported with mature operational efficiency and effectiveness relative to ANTM that has fluctuated production and sales volume levels (see exhibit 14 and 15). In Q109 ANTM’s ferronickel price was hit by 74% drop QoQ compare to INCO that relative stable by only -8%.

ANTM’s Cash Dividen is Rp 57.37 per share equal to 40% Payout of FY’08 Earning, While INCO is nil

ANTM’s General Meeting Shareholders have approved dividend payout ratio of 40% from FY08 earning, which above previous government proposal of 30%, whereas It also above our assumption of 30% payout ratio. Therefore we maintain 40% DPR assumption in 2009 and 2010. Meanwhile, we expect INCO not to pay cash dividend until 2010.

Assumptions Changes
Following the current market circumstances and Q109 performance result, we adjust some of our key basic assumptions toward our DCF valuation model. Here are some of our new risk factors and macroeconomics assumptions:

Risk Free = 11.8% (previous was 12.5%)
Risk Premium = 5.45% (previous was 6.5%)
Beta market = 1.1x (previous was 1.3 – 1.4x)
Tax rate = 28% (in 2009) and 25% (in 2010 towards)

Therefore WACC used into our DCF model for INCO and ANTM are 15.9% and 16.5% respectively. We also make some revision toward ANTM operational variables. We increase gold sales volume regarding to its intensive trading activities from Logam Mulia up to 16,000 (+146.2%) in 2009 and 18,000 (+172.7%) in 2010. We also increase ASP for gold price in 2009 and 2010 up to US$ 950/tr.oz and US$ 1,000/tr.oz respectively.

Both Stock Price Valued at historical highest valuation, It’s not Cheap!!
With WACC of 16.5% our DCF model arrive new TP for ANTM is at Rp 2,098 implying PER09F and PER10F at 27.8x and 17.1x respectively. Currently ANTM share price traded at 25.3x PER09F. While for INCO, our DCF model with WACC 15.9% arrive new TP at US$ 0.34 or equivalent to Rp 3,722 per share (assuming Rp 11,000/US$) implying PER09F and PER10F at 23.9x and 14.9x respectively. ANTM share price at Rp 1,960 offers 7% potential upside return. While INCO price at Rp 3,500 offers 6.3% potential upside return. However, we still find lack of fundamental core strength from the industry to boost. Thus we maintain our HOLD recommendation for ANTM and INCO.

CIMB Tambang Batubara Bukit Asam Company update - Upside for FY09, but FY10 decline

(PTBA IJ / PTBA.JK, NEUTRAL - Maintained, Rp10,850 - Tgt. Rp11,300, Basic Resources)

We remain Neutral on Bukit Asam. Although we have upgraded our EPS estimates by 3.5-5% for FY09-11 and our DCF-based target price by 15% to Rp11,300 (WACC 16%), we believe the market has priced in its earnings superiority for FY09 and its better-than-peers corporate governance. Additionally, there is a lack of strong drivers for the stock, in our view. In a potential coal-price recovery, Bumi would be the bigger beneficiary, while for M&A potential and earnings quality, Adaro is a better proxy. We suggest a switch to Bumi or Adaro. Even for dividends, Indo Tambang would be a better alternative.

CNBC For Investors, Short Term Is Now a Long-Term Strategy

With buy-and-hold almost dead and day-trading still too risky, average investors are being forced to use alternative strategies to make money in this slowly recovering stock market.

The result is something of a hybrid in which investors are becoming more flexible and making more short or medium-term trades to reach their long-term goals.

As sentiment grows that the market hit a lasting bottom in March, there's eagerness not to miss any sharp moves to the upside.

"You can't be a trader because that's too dangerous, and you can't be a buy and hold, because things we thought were absolutely safe are broken," says Michael Kresh, president of M.D. Kresh Financial Advisers in Islandia, N.Y. "You have to be somewhere in between. You have to be a conscientious long-term investor, somebody who is making decisions and designing portfolios not on day-to-day actions but on trends."

Investors, for instance, shouldn't pile back in the market because of one day's economic data or ratings change in a particular stock. That's for day-traders, who buy and sell quickly in large quantities and use sophisticated software and strategies to plot their maneuvers.

Though portfolio managers still recommend sticking with goals that encompass a three- to-five-year time frame, the way to achieve them has taken on a new look. more...

Reuters Wall Street falls as rising bond yields worry investors

NEW YORK (Reuters) - Stocks dropped on Wednesday as rising yields on U.S. government debt fueled concern that businesses and consumers could face higher borrowing costs, which could hamper an economic recovery.

The decline was broad-based, with manufacturer 3M Co (MMM.N) and International Business Machines Corp (IBM.N) among stocks leading a 2 percent fall on the blue-chip Dow.

The S&P and Nasdaq lost more than 1 percent each.

"Yields are rising to levels that are becoming very worrisome for the economic outlook," said William Sullivan, chief economist at JVB Financial Group in Boca Raton, Florida.

Bond prices declined in afternoon trading, causing their yields to rise, as concerns about the heavy supply of debt weighed on the market despite a well-received auction of new five-year notes. The yield on U.S. Treasuries is a key benchmark for many lending rates.

The Dow Jones industrial average .DJI fell 173.47 points, or 2.05 percent, to end at 8,300.02. The Standard & Poor's 500 Index .SPX was down 17.27 points, or 1.90 percent, at 893.06. The Nasdaq Composite Index .IXIC was down 19.35 points, or 1.11 percent, at 1,731.08.

The stock market losses follow gains of more than 2 percent in each of the major indexes on Tuesday, when data on consumer confidence stoked optimism about an economy recovery.

Wednesday's sell-off in stocks and bonds also surprised some investors as the two tend to move in opposite directions. Treasuries prices typically fall when investors' appetite for riskier assets, such as stocks, increases.

The price of benchmark 10-year notes was down over 1-16/32 and yielding 3.74 percent on Wednesday, up nearly 20 basis points in just one day and over 1.25 percentage points in just six weeks. more...

Bloomberg Oil Rises to a 6-Month High After Saudi Forecasts $75 a Barrel

May 27 (Bloomberg) -- Oil rose above $63 a barrel for the first time in six months after Saudi Arabia’s oil minister said crude is likely to touch $75 by the end of the year.

Asian demand has begun to recover and higher prices will be healthy for economic growth, Ali al-Naimi said today in Vienna, where OPEC will meet tomorrow to discuss production targets. A government report tomorrow is forecast to show that U.S. gasoline supplies fell for a fifth week as demand rose.

“The Saudis are saying that they are confident that the economy can withstand oil at $75 so they will be in no rush to break this market,” said Nauman Barakat, senior vice president of energy at Macquarie Futures USA Inc. in New York. “We are seeing increasing signs that the worst of the recession is over.”

Crude oil for July delivery rose $1, or 1.6 percent, to settle at $63.45 a barrel at 2:45 p.m. on the New York Mercantile Exchange, the highest settlement since Nov. 5. Prices are up 42 percent this year.

Oil rose above its 200-day moving average for the first time since September, a signal that prices may rally further. Technical traders watch for patterns on charts for clues to price direction, and may sell or buy based on those signals.

The Organization of Petroleum Exporting Countries is likely to keep output quotas unchanged for a second time this year as recovering oil prices eliminate the need for new cuts, according to a Bloomberg survey published on May 22. Saudi Arabia is the biggest and most influential member of OPEC.

Market Optimism

“The price rise is a function of optimism that better things are coming in the future,” al-Naimi said. “If demand picks up, then why do anything? The fundamentals are strengthening.” more...

Palmoil HQ Palm kernel oil output growth to slow: Oil World

Growth in world production of palm kernel oil is set to slow to 4-5 per cent in the 2008/09 season, from a 13 per cent growth rate in the previous season, Hamburg-based oilseeds analysts Oil World said yesterday.

Oil World said palm kernel oil production in Indonesia may approach 2.2 million tonnes this season, while Malaysia’s production is seen only marginally exceeding last season’s 2.1 million tonnes.

“Palm kernel oil production has been affected by the downturn of the biological palm oil (and kernel) yield cycle in Southeast Asia, which started in late 2008 and is likely to draw to an end in mid-2009,” it said in its weekly report.

Oil World said Malaysian exports of palm kernel oil were expected to increase 9 per cent to 1.1 million tonnes this season, while Indonesian exports were seen up to 1.6 million tonnes from 1.4 million tonnes in the previous season.

Though demand for lauric oils has been hit by the economic crisis, palm kernel oil has benefited from coconut oil’s tight supply and high prices in 2008 and early 2009, Oil World said.

World imports of coconut oil are seen falling 11 per cent to a multi-year low of 1.8 million tonnes in October/September 2008/09, as consumers respond to the supply squeeze and the price premiums between coconut and palm kernel oil.

Coconut oil was quoted at US$830 a tonne for August/September shipment cif Rotterdam on Tuesday, while palm kernel oil was quoted at US$820 a tonne cif Rotterdam.

Palmoil HQ Crude palm oil futures surge 3.1pc as buyers return

Malaysian palm oil futures jumped 3.1 per cent yesterday, with more buyers back into the market a day after a selloff, on concerns stock levels this month could go lower.

The benchmark August contract on Bursa Malaysia’s Derivatives Exchange rose RM75 to RM2,505 per tonne. Overall volume surged to 17,373 lots of 25 tonnes each from the usual 10,000 lots.

“The market was oversold yesterday and buyers have returned to the market with the sellers realising that they should let go of their cargoes at this price because I doubt it will rally up that high again,” said a trader with a local commodities broker.
Palm oil prices have surged as much as 60-65 per cent so far this year but have since pulled back to show gains of about 46 per cent.

Palm oil inventories may edge lower to a new 23-month low of 1.26-1.27 million tonnes in May on strong demand and weak output, an industry official said yesterday.

Palm markets appear to be taking less direction from rival global soya oil prices as stock concerns are a bigger focus.

In the Malaysian physical market, palm oil for May and June shipment traded between RM2,550 and RM2,555 in the southern region.

Danareksa Indofood Sukses Makmur (INDF IJ, Rp1,720 BUY) Undergoing a recovery

BUY with TP of Rp2,250
We make significant changes to our forecast. As a result, our FY09-10F net profit forecast is reduced by 41-27%. Nonetheless, since our new TP of Rp2,250 based on the SOTP valuation still offers 31% upside potential, we maintain our BUY recommendation. Our new TP implies 18.5-13.0x PE09-10F. We believe this valuation is justified given the company’s good growth prospects and also because INDF’s well diversified business activities reduce the downside risks posed by volatile commodity prices.

Increased sales and EBIT estimates for consumer based products
Lower commodity prices have led to higher margins for the company’s consumer based products (CBP). Moreover, the newly acquired dairy business (Indolakto) has added to the range of CBP sold by INDF. Going forward, we expect CBP to remain the backbone of INDF’s business with sales growth of 38.2% in FY09 and EBIT growth of a breakneck 228%. Given the better than expected 1Q09 results, and by incorporating the dairy business, we raise our sales and EBIT estimates for the CBP division by 29-31% and 309-280% in FY09-10F.


Higher valuation for IndoAgri due to the recovery in CPO prices

The share price of IndoAgri (IFAR) has surged 174% YTD on the back of the recent recovery in CPO prices. This has given a significant boost to our SOTP valuation for INDF. Based on the consensus FY09 earnings forecast for IFAR and a 16x PE assumption, Indofood’s agribusiness has an effective Enterprise Value of around Rp9.9 tn.



Bogasari’s margins should improve

Despite lower wheat costs over the last 6 months, Bogasari recorded an EBIT margin of only 4.4% in 1Q09. This stemmed from: 1) the stiffer competition posed by new entrants and imported flour 2) the end to 10% VAT government subsidies starting in early 2009. Nonetheless, we still expect Bogasari’s margins to improve going forward. In FY09 we expect an EBIT margin of 6%, increasing to the 9-10% level in FY10-11F on the back of hikes in selling prices and higher import taxes on imported flour.

CLSA INDO: BUMI upgrade, from SELL to UPF

Research Today: BUMI upgrade, from SELL to UPF

Finally.…,, Olie upgrades his rating on Bumi (BUMI IJ) from SELL to Underperform. His new TP is Rp1,700 (from Rp650). The new TP is based on blended valuation: 1x 2010 NPV, 11.5x P/E, 6x EV/Ebitda.

Olie has been too conservative on his BUMI call. But the call was somewhat understandable given the situation back then and BUMI’s massive debt addition to buy non-core assets. Big-hearted enough, Olie just admitted that he was wrong on the call. The stock rallied 140% in the past 2 months.

When Olie downgraded the stock, it felt that the world was about to be falling off the cliff but now the growth, esp in Asia, seems stabilizing. China is increasing strategic stockpile of commodities, possibly including coal. In fact, it looks more and more likely that China will be net coal importer this year .

Key points from the report:

So, what we have missed?
Limited downside risk: debt problem gradually resolved.
Massive fund inflows particularly from local retail investors.
Some values from recently acquired assets.
Potential to recoup investment in Recapital, market recovery.

What about now? Catalyst?
Unlikely near term earnings surprise. More probably medium term earnings outlook should commodity prices continue recovering.
Monetization of non-coal assets: Dairi Prima lead and zinc project.
Balance sheet de-leveraging story? Unlikely.
New investors step into the company? Not sure about this.

BUMI is one the coal companies most leveraged to thermal coal recovery given its export portion. For every 1% increase in benchmark coal price, BUMI’s earnings will go up by 4-5% in 2010 and 2011.

Valuation: massive valuation discount to peers has disappeared and BUMI is now trading at par with peers. No longer THAT cheap, hence the UPF recommendation.

BASML INDO COAL: beyond earnings; upgrading Indonesian coal players

Today we upgraded our PO for all coal players in Indonesia after all the POs exceeded in the past one month.We still see value to be unlocked from Indonesia coal companies.

Here are our 10 key arguments:
1. We believe we should value Indonesian coal stocks on asset rather than earnings as i) we are the low end the cycle and ii) M&As are heating up.
2. We think current earnings yet reflect any recovery in coal price. True, Indonesia coal now trades at around 13x PE but that is based on a conservative US$65/t coal price forecast (which is where current coal price is). A 10% increase in coal price could easily see earnings recover by ~30%. This time around, we believe street is slower in upgrading their coal price forecasts.
3. We believe coal price will recover from this low level. Macro environment is supportive for higher coal price. The weakening US$ is supportive for commodities irrespective of fundamentals. Our commodity analyst believes an upturn in economic activity, even if modest, could have a very significant impact on oil demand, which could translate into higher prices given oil supply is semi-fixed in the short run. There is a close correlation between oil and coal prices and between the coal price and coal company shares.
4. Sustainability of China’s big import remains a mystery but at least that creates a floor for coal price we think.
5. By now, we think poor 2009 (i.e. weak demand, contract prices being lowered; weak results post 1Q) are already a known one and been priced in.
6. To look beyond this phase of pronounced volatility, we return to NPV as a value base. In past cycles, cyclical commodity stocks traded at premiums to NPV in anticipation of rising commodity prices. At this stage, we still value Indo coal on a par with NPV.
7. With lower domestic rates and external vulnerabilities, we believe Indonesia deserves a lower RFR and ERP, which translates to lower WACC for Indonesian companies.
8. M&As activities gaining momentum. From local media, we learnt there could potentially be three placements on the table at least. If the deals materializes, they wont look at earnings. Past deals are carried out at between US$7-10/t EV to reserve, which is almost 2-5x the EV to reserve of Indonesia coal companies.
9. Play East vs. West, Pacific vs. Atlantic Basin in coal. Ultimately any recovery in global coal demand will come from the East, with Chinese consumption growth outpacing the increase in demand in Europe and the United States.
10. On the above, we raise our PO for PTBA from Rp8000 to Rp14,900, UNTR from Rp10,000 to Rp12,500, ADRO from Rp860 to Rp1,480, and BYAN from Rp1,855 to Rp4,357.

We still keep BUMI as Underperform though
1. We think the recent share price rally was driven by the return of risk appetite and BUMI played catch-up with Indonesian coal peers.
2. Corporate governance risks, which triggered major downgrades and PO cuts by the street end of last year, have not been addressed, we believe.
3. The participation of strategic investors could change our view, however. The market could once again downplay BUMI’s corporate governance risk.
4. Applying the same RFR and ERP as its Indonesian coal peers, BUMI’s valuation could go as high as Rp3,000.

Action point
1. Buy and buy more on any share price weakness.
2. We are inclined towards firms with lower earnings downside risk that have lagged in the rally.
3. Top pick: PTBA, UNTR, ADRO, and BYAN.
4. PTBA has vast reserve, low cost, net cash with zero debt.

CIMB Long-Short View Similar, but different

Despite some similarities, Mandiri and BNI are actually different. Although Mandiri's ROE is more than double that of BNI, both banks are trading at the same valuations, which we believe is unwarranted. We believe BNI has run ahead of its fundamentals, with its valuation gap with Mandiri narrowing to the smallest level. On our view that the gap will widen and revert to mean, we downgrade BNI to Underperform from Neutral, while maintaining our DDM target price of Rp1,300. Catalysts for Mandiri could be ROE upside on normalising write-offs. Long Mandiri, short BNI.

Associated Press Consumer confidence soars, but wallets still shut

NEW YORK (AP) -- Even with unemployment still rising and home prices still slumping, Americans are getting their confidence back in the economy.

A widely watched barometer of confidence unexpectedly rose to the highest level since September, buoyed by an unexpected surge in the stock market, hopes that the job market might turn around and the belief that the worst of the recession is behind us.

But don't expect shoppers to buy expensive jeans and fancy furniture anytime soon.

"Consumers are not likely to spend just because they think things will get better," said Mark Vitner, senior economist at Wachovia. "They will actually have to see them get better."

As a testament to the economy's challenges, a closely monitored housing index also released Tuesday showed home prices fell at the sharpest rate ever in the first quarter, though the drop-off was worse at the beginning of the quarter.

Meanwhile, Americans are grappling with an unemployment rate that's expected to climb to 9.2 percent in May, up from 8.9 percent, as companies lay off more workers.

That has helped push shoppers to keep shopping at discount stores and cutting back on nonessentials. more...

Associated Press UAW trust to get up to 20 percent of GM shares

DETROIT (AP) -- General Motors Corp. will give the United Auto Workers union up to 20 percent of its common stock, $6.5 billion of preferred shares and a $2.5 billion note to fund a trust that will take over retiree health care costs starting next year.

The union's trust will also get a seat on GM's new board of directors, although that seat will have to vote at the direction of the other independent directors.

The funding is part of a tentative agreement that union members will vote on this week as GM tries to pull together the remaining pieces that would allow it to restructure outside of bankruptcy.

Members of the Canadian Auto Workers union approved wage reductions and other concessions Monday, but GM's unsecured bondholders have resisted an offer to take a 10 percent stake in the company to wipe out $27 billion in debt. Analysts say it's unlikely enough bondholders will approve the offer, meaning GM would still be forced into bankruptcy protection by Monday.

Plant-level union officials met in Detroit on Tuesday to hear details of the agreement that GM, the UAW and the government reached last week. Several local presidents said after the briefing that they voted unanimously to recommend that members approve the concessions.

Local union leaders said the 14 factories that GM intends to close were not identified in the agreement or by UAW international officials. Those are part of GM's restructuring plan to be submitted to the government by a Monday deadline, said one of the officials, who spoke on condition of anonymity because the details of the meeting have not been presented to union members.

The company did commit to reopening three closed assembly plants and one stamping factory if demand warrants, according to the summary sheet. The factories were not identified. more...

Bloomberg U.S. Stocks Rise as Confidence Boosts Banks, Consumer Shares

May 26 (Bloomberg) -- U.S. stocks jumped, sending benchmark indexes higher for the first time in five sessions, as the biggest gain in consumer confidence since 2003 spurred optimism the worst of the recession is over. Two-year Treasury notes were little changed after a record-tying $40 billion auction.

JPMorgan Chase & Co., Home Depot Inc. and American Express Co. climbed at least 4 percent after the Conference Board’s index of sentiment surged to the highest since September. Apple Inc. gained 6.8 percent after being upgraded to “overweight” at Morgan Stanley, which said analysts are underestimating demand for iPhones. Exxon Mobil Corp. led an advance in energy shares as crude oil climbed to a six-month high.

“Consumer confidence was materially better,” said David Sowerby, who helps oversee about $100 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan. “That allows the market to fight through an expected pause after a rally from March lows.”

The S&P 500 added 2.6 percent to 910.33 at 4:11 p.m. in New York as all 10 industry groups advanced. The Dow Jones Industrial Average increased 196.17 points, or 2.4 percent, to 8,473.49. Eleven stocks gained for each that fell on the New York Stock Exchange, the broadest rally since May 18. The Russell 2000 Index of small companies rose 4.8 percent for the steepest advance since April 9.

The S&P 500 has surged 35 percent from a 12-year low on March 9 on speculation the global recession is easing and as earnings at companies from Ford Motor Co. to Wells Fargo & Co. beat analyst estimates. The index must rise another 37 percent to reach its last closing price before Sept. 15, when Lehman Brothers Holdings Inc. filed for the biggest bankruptcy in history, freezing financial markets. more...

Reuters SE Asia Stocks-Mostly falter as N.Korea tension weighs

* Mostly lower hit by North Korea's missile test concerns
* S'pore snaps gains; Philippine at 8-day low on budget fear
* Indonesia leads falls, Thai reverses early gains

By Ploy Chitsomboon

BANGKOK, May 26 (Reuters) - Most Southeast Asian stocks fell on Tuesday as tensions over North Korea's nuclear and missile test offset recent optimism about a recovery in the global economy.

Markets in the region dipped following a report that North Korea would launch more short-range missiles, further raising tensions after its nuclear test on Monday.

The MSCI index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS was down 1.05 percent as of 0945 GMT but analysts said they believed the market impact will be
short-lived in a region growing accustomed to Pyongyang's actions. [ID:nSEO205060]

"Essentially, what we heard about North Korea definitely had an impact on the markets in the region otherwise they would have gone up," said Gabriel Yap, senior dealing director, DMG & Partners in Singapore.

"It has actually been a consolidation phase and I think the markets will probably be more concerned about macro factors like a batch of data from the U.S. due out this week."

U.S. housing and consumer confidence figures are due later on Tuesday, followed by other important numbers later in the week.

Singapore's index .FTSTI slid 1.26 percent, with Southeast Asia's top lender DBS Group (DBSM.SI) falling 1.7 percent, casino operator Genting International (GNTG.SI) down 2.3 percent and shipbuilder COSCO Corp (COSC.SI) lost 3.25 percent.

Indonesia .JKSE shed 1.77 percent after a 0.3 percent rise a day earlier. In Jakarta, the biggest coal producer, Bumi Resources (BUMI.JK), dropped 6.5 percent, and PT Aneka Tambang Tbk (ANTM.JK) fell 2.55 percent.

Thai shares .SETI erased early gains to close down 1.4 percent, extending falls for a second day. Losers in Bangkok included top oil and gas firm PTT (PTT.BK), which fell almost 1 percent as crude oil prices CLc1 retreated more than 3 percent to below $60 a barrel. Top lender Bangkok Bank BBL.BK dropped 2.8 percent and top refiner Thai Oil TOP.BK edged 1.25 percent lower.

Vietnam .VNI, however, climbed 0.78 percent after a 4.2 percent rise on Monday. Vietnam is the region's best performer, up 80 percent from its February low.

Malaysian stocks .KLSE eased 0.14 percent ahead of a decision by the country's central bank to leave interest rates unchanged at 2 percent, as expected. [nKLR289100]

Philippine stocks .PSI, meanwhile, ended down 1.07 percent, after touching their lowest since May 18, on worries the government may borrow more after the finance chief said the state may raise this year's budget deficit goal, traders said.
[nMAN59601]

Property firms were hit, led by a 1.85 percent slump of Ayala Land Inc (AC.PS), the largest property developer, while Megaworld Corp (MEG.PS) edged down 3.2 percent and Filinvest Land Inc (FLI.PS) shed 4.1 percent.



(Editing by Lincoln Feast)

Reuters Indonesia's Inco revises down capex plans

JAKARTA, May 26 (Reuters) - PT International Nickel Indonesia (INCO.JK) has revised down its capital expenditure budget for this year by more than a quarter to adjust projects to reflect a slump in global demand, the company said on Tuesday. Inco -- in which Brazil's Vale Inco Ltd (VALE5.SA), one of the world's top nickel producers, has a 61.2 percent stake -- said it has revised down its spending for this year to $166.4 million from $228.8 million initially planned in February.

"This review reflects a change in the priority and scope of existing projects," the firm said in a statement.

Inco's net profit fell 87.7 percent to $17.2 million in the first quarter of this year due to significantly lower prices.

Nickel prices MNI3 have slumped around 76 percent to about $12,575 a tonne since hitting a record high of $51,800 a tonne in May 2007 on falling demand from stainless steel producers as global economic weakness slowed construction and manufacturing activity.

The firm has asked the government for more time to asses plans for a new plant after a study showed that the $1.8 billion project on Sulawesi island may not be feasible. [ID:nJAK442283]

But it is still on track to complete construction of the Karebbe dam near its current mines in Sorowako, South Sulawesi by the first quarter of 2011, the firm has said.

The Karebbe dam is expected to provide an additional 90 megawatts of power per year, from 275 megawatts currently, and will help boost production.

In 2008, Inco produced 72,400 metric tonnes of nickel-in-matte.

Inco produced 16,200 metric tonnes of nickel-in-matte in January-March this year, down from 20,100 metric tonnes a year ago. It had said it might cut output by 20 percent this year from last year if prices remained weak.

Shares in PT Inco fell 2.86 percent on Tuesday against a 1.77 percent loss in the broader market .JKSE.

(Reporting by Fitri Wulandari; Editing by Ed Davies)

Bloomberg London Metal Exchange

On the London Metal Exchange, copper for delivery in three months rose $50, or 1.1 percent, to $4,660 a ton ($2.11 a pound). The price touched a record $8,940 on July 2.

Inventories in LME-monitored warehouses dropped 2 percent to 326,575 tons today, a 13th straight decline. Metal booked for delivery out of warehouses, or canceled warrants, fell 9.9 percent to 47,625 tons, signaling the pace of stockpile drawdowns may be easing.

Also among metals for delivery in three months on the LME, aluminum rose 0.7 percent to $1,452 a ton. Global aluminum inventories shrank to 2.59 million tons in April, from a revised 2.74 million tons a month earlier, the International Aluminium Institute said.

Nickel climbed $610, or 4.8 percent, to $13,400 a ton and tin was unchanged at $13,650 a ton. Lead rose 0.4 percent to $1,445 a ton, while zinc declined 1.1 percent to $1,500. LME- monitored lead stockpiles increased 0.8 percent to 75,100 tons and zinc inventories gained 1.6 percent to 322,775 tons.

To contact the reporters on this story: Millie Munshi in New York at mmunshi@bloomberg.net; Anna Stablum in London at astablum@bloomberg.net;

Bloomberg Soybeans Surge as Global Demand Erodes U.S. Reserve Supplies

May 26 (Bloomberg) -- Soybeans rose the most in more than a week on signs that global demand is eroding supplies in the U.S., the world’s largest grower and exporter.

Inspections of soybeans for export rose 4.6 percent to 16.993 million bushels in the week ended May 21 and were up 21 percent from a year earlier, the U.S. Department of Agriculture said today in a report. Of those shipments, 25 percent were destined for China, the world’s biggest importer. Since Sept. 1, the U.S. has boosted exports by 11 percent from a year earlier to 1.069 billion bushels, the USDA said.

“The bean exports were strong again, with continued shipments to China,” said Roy Huckabay, an executive vice president for the Linn Group in Chicago. “There’s no slowdown” in demand for soybeans, Huckabay said.

Soybean futures for July delivery rose 19.25 cents, or 1.7 percent, to $11.855 a bushel on the Chicago Board of Trade, the biggest gain since May 14. Last week, the most-active futures rose 3.1 percent and on May 20 touched $11.895, the highest since Sept. 29. The price has gained 12 percent this month.

U.S. exporters reported sales of 700,634 metric tons in the week ended May 14, up 74 percent from the previous week, according to the USDA. China bought 27 percent of the total, boosting purchases to 18.52 million tons since Sept. 1, up 41 percent from a year earlier.

Reserve U.S. inventories on Aug. 31, before the harvest, will drop to 130 million bushels (3.5 million metric tons) from 205 million bushels a year earlier, the USDA said May 12. World production will fall 3.7 percent to 212.8 million tons this year, the USDA said.

Soybeans are the second-biggest U.S. crop, valued in 2008 at a record $27.4 billion, government figures show. Corn is the biggest at $47.4 billion.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net

Bloomberg Oil Rises to 6-Month High as U.S. Consumer Confidence Gains

May 26 (Bloomberg) -- Crude oil rose to a six-month high after a report showed that U.S. consumer confidence jumped, signaling demand may rebound.

Oil followed gains in the stock market after the Conference Board’s sentiment index surged to 54.9, more than forecast and the biggest increase since 2003, the New York-based research group said today. Oil futures declined earlier on speculation OPEC will maintain production quotas at a meeting this week.

“History shows that a jump in consumer confidence signals an economic rebound,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “The report signals that if the recession isn’t over already, it will be ending soon, which is bullish for oil.”

Crude oil for July delivery rose 78 cents, or 1.3 percent, to $62.45 a barrel at 2:50 p.m. on the New York Mercantile Exchange, the highest settlement since Nov. 5. Prices are up 40 percent this year. U.S. floor trading was shut yesterday for the Memorial Day holiday.

U.S. Inventories
U.S. crude oil supplies probably rose 50,000 barrels in the week ended May 22 from 368.5 million the previous week, according to the median of 10 estimates by analysts before an Energy Department report this week. Stockpiles climbed to 375.3 million during the week ended May 1, the highest since 1990, according to a May 6 report from the Energy Department.

Total U.S. daily fuel consumption averaged 18.3 million barrels in the four weeks ended May 15, down 7.6 percent from a year earlier, the department said last week.

The Organization of Petroleum Exporting Countries should “stay the course” on output policy, Saudi Oil Minister Ali al- Naimi said today in Vienna, where the group meets on May 28. A Persian Gulf oil official familiar with the matter said yesterday that OPEC won’t change its quotas. more...

Business Times Profit-taking pushes palm down

CPO FUTURES

Crude palm oil futures contracts on Bursa Malaysia Derivatives closed lower yesterday due to profit-taking activities after last week's rally, a dealer said.

He said the market could not sustain the bullish performance as investors took cue from the weaker trend on the Dalian Commodity Exchange.

"The weak soybean performance also weighed down the market sentiment," he added.

Meanwhile, cargo surveyor Societe Generale de Surveillance said export of palm oil products increased 4.7 per cent to 1.017 million tonnes from May 1-25 compared with 971,428 tonne in the same period last month.

At close yesterday, the June 2009 contract fell RM55 to RM2,540 per tonne, July 2009 dropped RM78 to RM2,475 per tonne, August 2009 slipped RM76 to RM2,445 per tonne and September 2009 eased RM3 to RM2,507 per tonne.

Volume decreased to 13,230 lots from the 19,827 lots last Friday while open interests declined to 78,542 contracts from 79,380 contracts previously.

On the physical market, May South dropped to RM2,600 per tonne from RM2,620 last Friday.

Barclays - Sugar, how sweet will it get?

The sugar market has offered one of the most seductively bullish stories in early 2009. The drastic underperformance of the 2008/09 Indian harvest (which ran from October 2008 and ends in September 2009) alongside those in several other Northern Hemisphere locations has laid the way for a global deficit of historic proportion, thus offering a seemingly irrefutable fundamental case for strong price performance. That the frontmonth ICE no. 11 sugar contract traded for most of February and April in a range between 12.2 and 13.7 cent/lb, in spite of worsening estimates for harvests around the globe, was undoubtedly frustrating. This was particularly true given the widely held view that the onset of Brazilian harvest supply from May would help to douse the bullish dynamic sparked by the Indian shortfall. Such concerns were misplaced, though, as prices finally took off in the last few days of April, breaking out of their earlier range, with the July 2009 contract surging as high as 16 cents/lb. This represented a near-30% appreciation from January’s low point and largely confirmed the promise that had been predicted on a fundamental basis from the beginning of the year.

The question that faces investors now is whether that was the sum gain of the market deficit expressing itself, or whether there is more value to be extracted, and in that vein, how the influential variables affecting the 2009/10 market balance are evolving. The publishing of various major Brazilian cane crush estimates in line with the beginning of the Centre-South harvest (UNICA, CONAB and USDA attaché) offer a good platform from which to survey these key issues. We believe that the “bull” run for sugar is by no means complete even if prices consolidate in the short term round 15 cents/lb. India will remain a supportive dynamic, in our view, given the level of imports necessary over the rest of the year, while its next harvest will by no means offer a sizeable enough recovery in production levels to alleviate future import needs beyond that time frame. At the same time, a strong Brazilian harvest this year seems inevitable. This has been supported by the relative strength of sugar versus ethanol prices over the past year as well as the amount of cane leftover from the previous harvest. However, the impact of substitution into sugar production from ethanol is limited by available crystallisation capacity, with close to 40% of planned new mills failing to open in 2009 due to funding issues.

Moreover, given the run down of global stocks in 2009 and a projected mild market deficit in the 2009/10 harvesting year, alongside higher crude oil prices and improving macroeconomic sentiment, we would expect prices to remain well supported at current levels for the rest of the year. The potential exists, however, for considerable upside given the possibility of supportive developments in either India or Brazil – events or dataflow – which could tighten market dynamics.

JP Morgan - Is High Correlation Between Stocks and Exchange Rates Due to Japan's High Dependence on Exports?

We have pointed out that the relationship between Japanese stocks and the yen may change. The close correlation of Japanese shares with the yen over the last several years of higher (lower) share prices equating to a weaker (stronger) yen may change to higher (lower) share prices equating to a stronger (weaker) yen. The relationship between the two is not merely correlative but causal. We think Japan’s high export dependency could be behind this. According to this logic, the cause and effect relationship of a strong (weak) yen and lower (higher) share prices will continue as long as Japan’s export dependency is high (in other words, as long as domestic demand-led economic growth cannot be expected).In this case, a weaker yen is an absolute condition for share prices to rise.

Is that really the case? Figure 1 plots the correlation coefficient every five years for the TOPIX (yearly change) and the yen-dollar rate (yearly change) juxtaposed over the trend in export dependency. It is true that, over the last several years, export dependency has risen to its highest level since 1960 at least. However, when export dependency was high in the first half of the 1980s, the correlation between the stock market and the yen-dollar rate was negative, and when the correlation between the stock market and the yen-dollar rate was strongly positive in the first half of the 1990s, export dependency fell to its lowest point since 1960. We do not see any correlation between the rise/fall in export dependency and the correlation between the stock market and the yendollar rate. Even if export dependency is high, the correlation between the stock market and the yen-dollar rate is negative. In other words, higher (lower) share prices may equate to a stronger (weaker) yen.

The performance of the Japanese stock market is a function of corporate earnings, and if corporate earnings are a function of production volume, share prices should rise when there are signs of a recovery in production. Figure 3 plots the correlation coefficients for TOPIX (yearly change) and industrial production (yearly change), and for the yen-dollar rate (yearly change) and industrial production (yearly change) (five-year estimation period). As we would expect, both of the correlations are basically positive during the period, with the exception of the bubble era, when share prices rose all out of proportion to production (and thus earnings, roughly speaking). However, it is difficult to explain movements in the yen-dollar rate based on production.

In conclusion, we can say that share prices will rise on the back of a recovery in production, but we cannot say what the yen-dollar rate will do. As we have noted in the past, market participants seem to be overly sensitive to exchange rate movements.

Presidential election update: LSN survey results

The national survey agency, LSN (Lembaga Survey Nasional), sampled 1,230 residents between 15 and 21 May 2009 in 33 provinces. With a 95% confidence level and 2.8% error allowance, presidential candidate SBY may get 67.1% votes, followed by Megawati with 11.8%, and by Jusuf Kalla with 6.7%. LSN suggests that the 8 July 2009 presidential election may be completed in just one round.

The presidential election will complete in just one round if:
(1) The winning candidate gets >50% votes in aggregate, AND
(2) The winning candidate gets >20% votes in >17 provinces (out of 33 total).

The increasing confidence that Indonesia’s presidential election can complete in just one round should support the positive market sentiment. Investors should be looking to buy the market on dips.

Bakrie stocks: MAPPI valuation results out this week

Bapepam’s independent valuer, MAPPI, will be releasing its independent valuation assessment on Bumi’s deals within this week. MAPPI is assessing the value of the three companies acquired by Bumi Resources at the beginning of 2009, namely:

1. Darma Henwa – the mining contracting company
2. Fajar Bumi Sakti – the coal company
3. Pendopo Energi – the coal company

This is something to watch for. If the results suggest that Bumi Res is paying excessive valuation for the deals, there could be negative implications on the Bakrie related stocks. If the results supports the deal, the positive retail sentiment on Bakrie stocks (especially on Darma Henwa) may continue.

Macquarie Thermal coal: Qinhuangdo port inventories up

Qinhuangdao port inventories up, limited upside to coal prices from here:
· Qinhuangdao coal inventory rose 12% WoW to 4.5mt this week and prices were flat WoW at Rmb585.
· This coincides with the end of Daqin railway's maintenance works which has partially disrupted transportation volumes.
· The pickup in stocks is in line with previous thesis that low port inventories were a result of specific transportation issues and not a significant rebound in end demand.
· We think the upside for coal spot prices are limited from here, despite the gradual pickup in demand that is expected in 2H09.
· The coal market remains in surplus on a capacity-to-demand basis with estimates ranging from 100-400mt.
· YTD coal supply and demand has remained in balance largely because of stronger-than-expected supply side discipline -- however this alone is not enough to drive prices up further, in our view.
· While the coal stocks remain attractive on fundamental terms, the thermal coal stocks under our coverage all look expensive at current valuations and we think upside is limited.

CLSA INDO US$ debasement starting, or not?

Emerging markets have been a massive outperformer in recent months (JCI up a staggering 80% in USD terms from Oct lows). Not only fundamentals of most markets in east is in better shape that in the west, the renewed weakness in the USD is very bullish for these markets especially for resources economies like Indonesia. The dollar index DXY is now hovering the critical support level of 80. A break below 80 could signal the inflection point of the dollar debasement trade. Chris Wood has been banging on the dollar debasement trade for a while. In his latest Greed and Fear - flash, he is saying yes, it is inevitable BUT NOT JUST YET as deflation remains the predominant danger. One clear signal of imminent inflation would be a climax of appalling US policy.

Commodities and emerging markets have done phenomenally well. Many of the commodity plays have already priced in some extremely bullish assumptions. ANTAM is on 57x earnings now. To justify this valuation nickel price has to go up another 40%. We at CLSA sales desk have been a consistent inflation bull but risk reward does not looking compelling in the short term when stocks moved up 100% in a few weeks. However, any meaningful correction will present a buying opportunity. The end game of Central Banks are clear. To print themselves out of debt punishing savers to redeem the sins of debtors. This is no doubt highly inflationary.

Fundamentally, as highlighted in an article in the latest edition of the Economist “Boom and Bust”, the steep fall in OIL the ultimate commodity over the past year is paving the way for another spike when demand resumes. Many factors behind the record breaking spike last year are still very much in place. Much of the world’s “easy” oil has already been extracted and or is in the hands of nationalist governments that will not allow foreigners to exploit it. That leaves the oil firms with reserves in ever more inhospitable and inaccessible places. Such fields take longer and more expensive to develop. New discoveries tend to be smaller and run dry faster.

CIMB Market outlook Strategy - April fund flows: strongest inflows in 12 months

Based on EPFR data for April, Indonesia received US$138m in fund inflows, about 2.6x more than Emerging Asia. Consequently, Indonesia weightings in both AsiaxJ and GEM funds hit above the average for 2004-2009 (to date), despite aggregate holdings remaining 60% lower yoy. Much of the money has been flowing into commodity stocks (nearly triple in weighting); cyclicals are a distant second. Defensives are clearly falling out of favour. Maintain OVERWEIGHT on the market and bottom-up index target of 1,900 for end-2009.

CIMB Bakrie Sumatra Plantation Company update - Lack of focus?

(UNSP IJ / UNSP.JK, UNDERPERFORM - Maintained, Rp780 - Tgt. Rp430, Plantations)

Despite a difficult environment, Bakrie's Sumatra's capex spending has been surprisingly quite lax. The company has a variety projects, all part of its growth strategy. However, given volatile CPO prices, cash-management prudence is important, in our view. With around 33% of its nucleus oil-palm plantations still immature, we believe money would have been better spent on this area. Maintain UNDERPERFORM and target price of Rp430, due to the poor visibility of the company's strategy.

CIMB Perusahaan Gas Negara Quick takes - Nothing new

(PGAS IJ / PGAS.JK, OUTPERFORM - Maintained, Rp2,800 - Tgt. Rp3,200, Utilities)

In a conference call with analysts, management indicated that gas sales volume from its distribution business has been rising since the beginning of this year. Current gas sales volume is 740 million cubic feet per day (mmcfd), up 28% from FY08's 578mmcfd. Management indicated that its selling gas price of US$5.50/mmbtu will be maintained this year due to national elections and a new government will not come in until Oct 09. Maintain OUTPERFORM and Rp3,200 DCF-based target price for its strong earnings growth on the back of higher sales volume to power customers.

CLSA PGAS TP upgrade

Swati raised her TP for Perusahaan Gas (PGAS IJ) from Rp2,800 to Rp3,300 and maintains her BUY recommendation. Main reason for the upgrade is higher gas volume, which we believe will improve ROA and expand margins. Swati thinks that there is too much emphasis on gas pricing. But then as volumes increases fixed costs per unit decreases. Asset utilization will improve. To be on the conservative side, Swati assumes only US$0.5/mmbtu price increase not this year or next, but only in 2011.

Valuation-wise, PGAS is trading at 11.7x 10 CL PE, which is in line with the market. But PGAS growth profile is looking attractive, 35% CAGR from 2008-2011.

Key points from the report:
· We reiterate a BUY on PGAS raising our TP to Rp3300/share from Rp2800/share
· We expect PGAS to register 45% core eps growth this year and 31% in 2010CL.
· PGAS margins should improve on back of higher volumes as asset utilization improves. Fixed costs per unit should reduce and average costs should go down as proportion of cheap contracted gas increases. We have increased our distribution volumes forecasts FOR 2009CL by 8.5% from 670mmscfd to 727mmscfd.
· PGAS is expected to generate aggressive FCF going forward as volumes expand and capex requirements reduce. Higher dividend payout is possible but we have assumed 50% at this stage.
· We also see risks subsiding. Risks of gas price cuts should subside now that PGAS has been able to maintain its gas prices in the last two quarters. Oil prices are also moving higher again and our gas pricing assumptions are 65-70% lower than our diesel pricing assumptions.
· While state owned power company PLN is increasingly becoming a dominant customer of PGAS taking as much as 30-45% of PGAS distribution volumes going forward, PGAS also accounts for 40% of PLN’s contracted gas supply. Therefore we believe PLN will continue to pay market prices for gas.
· Demand for gas from industries should continue to increase. Minister of Industry expects natural gas requirement for industry should increase from 1863mmscfd currently to 2,585mmscfd by 2015.

MacQ Bank Mandiri (Upgrade to Outperform) - Things have changed

We upgrade our recommendation for Bank Mandiri to Outperform from Underperform and raised our target price to Rp3,700. Below are the reasons behind the change in our view.

Impact
Flash back to our underperform call on Mandiri. On 20 January 2009, we downgraded Bank Mandiri to Underperform, based on four concerns: 1) high forex loan exposure (25% of total loans); 2) 12% of total loans were previously restructured loans and could be converted into NPLs amid the tough economic environment; and 3) exposure to agriculture including CPO; and 4) uncertainty regarding the successor to the current CEO.

Our key concerns have now dissipated as: 1) the rupiah has strengthened to around Rp10,000/US$1 from Rp12,000+ about five months ago; Mandiri has converted some forex loans and reduced its position to 21% as of 1Q09; 2) the domestic economy is proving to be resilient with 1Q09 GDP growth of 4.4% and a more positive economic outlook; Mandiri's aggressive restructuring should also help keep NPLs stable; 3) commodity prices, ie, CPO and rubber, have rebounded significantly; and 4) we believe that concerns over the potential departure of CEO Agus Martowardojo is now in the share price; Martowardojo may be appointed by President SBY to a ministerial post should he win a second term.

What are the catalysts? We believe the next catalyst for the bank will be an improved performance in 2Q09 following a mediocre 1Q09. Mandiri has managed to reprice its loans faster than the deposits rate because more than 65% of its loan book is variable corporate loans and floating rate government bonds, while 43% of its third-party fund is time deposits. The company expects NIM to pick up in 2Q as time deposit repricing takes full effect, and stay at around the 5.4% level in 2009.

Earnings and target price revision
No change in estimates, but we raise our target price to Rp3,700 (from Rp2,500 previously) as we adjust our long-term ROE to 20% from 19%.

Price catalyst
12-month price target: Rp3,700 based on a Gordon growth methodology.

Catalyst: Better-than-expected performance in 2Q09 and higher loan growth.

Action and recommendation
Outperform; TP upgrade. Mandiri's share price performance has lagged the rest of the Indonesian banks (underperforming BRI, Danamon and BNI by -7%, -23% and -89%, respectively). The stock is now trading at one of the most attractive P/BV of 1.8x, a 28% discount to the sector average. We suggest that investors switch out of Bank Rakyat given its more expensive valuation of 3.0x and into Bank Mandiri.

CIMB Berlian Laju Tanker Quick takes - Rights issue dilutive

(BLTA IJ / BLTA.JK, UNDERPERFORM - Downgraded, Rp920 - Tgt. Rp600, ResearchWise Industrial)

BLTA announced today a renounceable 1-for-3 rights issue of up to 1,392.3m new shares at Rp425 each to raise US$60m. We are not surprised, as the market had been speculating on a rights issue for some time. The rights will help reduce its 1-year funding gap to a manageable US$28m by May 2010, against unencumbered assets worth US$300m. Despite this, we downgrade the stock to UNDERPERFORM (from Outperform) because of its substantial share-price outperformance. We also reduce our sum-of-the-parts target price to Rp600 (from Rp630) due to an expanded share base and other reasons. Our core earnings forecasts have been slashed by 53-92% for 2009-11 following a sharp drop in spot chemical rates in 1Q09, which should flow through to BLTA's future earnings.

Mandiri Sekuritas TLKM: Sector King

TLKM reported its highest ever yoy fall in operating profits in history in 1Q09 (-19.2%yoy). Slowing down of operating profits is inline with industry’s current trend, but the decline is common only to TLKM and EXCL. Though growth in cellular revenues still look promising in FY09 as Telkomsel wins the current capacity war, but its other lines of business will continue to put pressure on its earnings as reflected in FY08 and 1Q09 results. We revisit our ! underlyin g revenue assumptions and as well as cut our near term earnings. It still results in DCF TP of Rp8,200/share implying a PER09F of 17.4x. Maintain Buy.

FY08 and 1Q09 results. After reporting 15.7% decline in operating profits in FY08, TLKM reported another 19.2%yoy decline in 1Q09. For 1Q09, other than the fixed-line business (-17.1%yoy), realizations from data and internet (-5.4%yoy) as well as interconnection (-12.1%yoy) slowed down. Changes in dynamics of other lines of business has resulted in cellular revenues contributing even higher to revenue base despite its slowing down as well. ( increased from about 38% in 1Q08 to 42% in 1Q09).! Addition aly, cellular revenues showed more promising results with 6.8mn subscriber adds in 1Q09 alone, as against 1.1mn and 3.5mn drop for EXCL and ISAT. New adds is primarily in the low-end segment as ARPU has fallen from 59k as of end FY08 to 47k in 1Q09. Going forward, we expect better contribution from subscriber adds in the later years and therefore have upgraded our long term forecasts.

FY09 could follow last year’s trend. 1Q09 revenues formed 22.3% of our full year forecasts, inline with last three year average of 1Q-to-FY contribution of 22.9%, though lower than 1Q08 contribution of 24.7% to FY08 revenues. We think FY09 would mirror FY08 trend more closesly than that in earlier years with lower contribution by year end, a reverse of the trend that last 4 months of the year are the highes! t revenue contributors for telco operators. Taking this view, and based on FY08 and 1Q09 results, we have revisited our forecasts. We have revised our underlying assumptions for revenue calculation which resulted in about 19% cut in operating profits for FY09F-10F. Our opex calculation assumptions remains same.

May benefit from 5% lower tax rate. TLKM have a track record of dividend payout of 50%-55% and we expect this to continue in FY09, given that it is a government owned company, as distinguished from other telco companies. Apart from this we would like to highlight that TLKM, in accordance with Indonesian tax law, maybe be entit! led to lo wer tax rate of 5%. This would increase our EPS by 6.9%, indicating PER09F of 16.3x at TP.

Maintain Buy. We note that current market trends call for a shift from defensive stock to high beta stocks and smaller capitalization stocks as they offer most attractive risk/reward return for investors. However, we rely on our DCF valuations and high free float to choose TLKM our sector pick, though note our TP indicates PER09F slightly above regional peers average of 16.8x. Its slow growth remains no more a distinguishing factor as its industry’s current trend.

Danareksa International Nickel Indonesia (INCO IJ, Rp3,450 SELL) Dull times for nickel

Lackluster outlook for the nickel price
After booking a net loss in 4Q08, the company recorded a small net profit of US$17mn in 1Q09. Profit margins improved on the back of lower production costs. Nonetheless, significant profitability improvements will only come from higher nickel prices. For the gross margin to be maintained at last year’s level of 38%, the nickel price will have to reach around $16,000-17,000/ton this year. This is far higher than the current nickel price of $12,790/ton. And with inventories at the LME still well above 100,000 tons (which is much higher than last year’s average inventory of 51,474 tons), the outlook for the nickel price is rather lackluster we believe. At the current share price, INCO trades at a rich valuation of PE 09F/10F of 35.9x/27.0x. SELL recommendation maintained.

Planned projects postponed
INCO has postponed plans to construct a processing facility in Pomalaa, saying the plans were no longer feasible given the currently low nickel price. In addition, the company has also postponed plans to implement a fuel conversion project since it believes the project costs could not be justified at the current time. In our view the decision to postpone the construction of the processing facility makes sense given that INCO is currently running below capacity. However, postponement of the fuel conversion project could have a negative impact if crude oil prices rise significantly in the coming years. We believe that the project will be put back two years from 2010 to 2012. The full benefits of the project - i.e. lower cash production costs and higher net profits - will be felt in 2013.

TP raised only slightly to Rp2,000
To take into account the company’s change in plans, we make adjustments to our financial model. Basically, the postponed projects mean that capex will be shifted toward later years. The adjustments also include revisions to production costs and operating expenses in 2009F and 2010F due to lower expected royalties and lower expected management & technical assistance fees. Using the DCF approach, we arrive at a new target price of Rp2,000, a 4% increase from our previous TP of Rp1,915.

Danareksa Astra International (ASII IJ, Rp19,750 SELL) Still pricey

Gaining higher market share
We expect ASII to gain more share of the domestic car market in FY09 (55% compared to our previous estimate of 52%). As a result, our FY09 car sales estimate for ASII is boosted by 5% to Rp 31.8 tn. This upgrade reflects the strong demand for ASII’s brands given their better value for money and higher resale value. For motorcycles, however, we do not expect ASII to attain higher market share since Yamaha is putting up stiff competition. At the same time, we also maintain our industry sales estimates given that sales are broadly in line with our estimates. Note that 4M09 car sales are 29% of our full year estimate and 4M09 motorcycle sales are 32% of our full year estimate.

Tepid industry auto sales in 4M09
In 4M09, industry car sales are down 28% y-o-y (vs. our forecast of a 23% decline) while industry motorcycle sales fell 19% (vs. our forecast of an 18% fall). ASII’s car sales fared better, however - they dropped a less severe 18% while its motorcycle sales fell 17%. As a result, ASII boosted its share of the domestic car market to 57% in 4M09 from 50% in 4M08. ASII’s share of the motorcycle market was little changed (at 46%).

Maintain SELL with a new TP of Rp 17,345
Our updated sum-of-the-parts (SOTP) calculations yield a new net asset value (NAV) of Rp 70.2 tn or Rp 17,345 per share. Our TP implies PER09-10 of 9.9-8.0x and EV/EBITDA09-10 of 6.0-4.8x. We update our AALI TP to Rp 15,000 and UNTR TP to Rp 8,900 before deriving their equity values. Our share prices for AUTO, BNLI, and ASGR are as of 22 May 2009. The other calculations in the SOTP valuation are unchanged. We maintain our SELL recommendation as the stock is fully valued with 12% potential downside.

CIMB Kalbe Farma Company update - Making up for lost time?

(KLBF IJ / KLBF.JK, OUTPERFORM - Upgraded, Rp870 - Tgt. Rp1,050, Healthcare)

Kalbe's management has guided for higher sales growth of 12-15% vs. 12-13% previously, citing an improving demand outlook. Meanwhile, energy drinks are showing nascent signs of a recovery and could be a significant earnings booster if the strong 1Q performance can be sustained. Our earnings upgrade could be at least 5-10% should management deliver. We are maintaining our forecasts for now, but incorporate a higher mid-term growth outlook, lifting our long-term growth estimate from 4.7% to 7%. This lifts our DCF-based target price (WACC 16.2%) to Rp1,050 from Rp890, implying 13.3x and 9.6x CY09-10 earnings. We upgrade the stock from Neutral to Outperform.

CIMB Indosat Result note - Weak 1Q09 performance

(ISAT IJ / ISAT.JK, NEUTRAL - Maintained, Rp5,100 - Tgt. Rp5,200, Telecommunications)

When annualised, Indosat's core net profit is 34% and 29% below CIMB-GK and market expectations respectively, due to weaker-than-expected revenue. Unlike previous quarters, Indosat did not release its information memo which contains detailed operating indicators and did not hold a conference call as it is in the midst of raising debt. Operating performance was weak due to economic and seasonal weakness. We have lowered our FY09-11 core net profit estimates by 4-13% on lower ARPU, subscriber growth and capex assumptions, and stronger Rp/US$ estimates but raised our DCF-based target price by Rp300 to Rp5,200 because of lower capex and a stronger Rp. We believe Indosat lacks catalysts as growth should remain unexciting and prefer Telkom which has a more solid franchise and more attractive dividend yields of 4-5%.

Kim Eng CPIN Beating expectations, BUY

Stellar first-quarter surpassed expectations
In 1Q09 the company’s net profit surged 103% YoY to Rp144b, beating our forecast. Higher net profit was triggered by higher selling prices in all products, and higher sales volume of DOC and Processed Chicken, which outpaced our estimate. In addition, lower raw material cost and operating cost resulted in higher gross margin and operating margin, which were up significantly to 17.2% and 11.9% respectively (from 11.1% and 4.8% in 1Q08). Overall, the results are above our expectation as we conservatively expected lower selling price and sales volume amid concern on global economy slow down.

Benefits from lower material costs and better cost management
The company’s costs came in lower in 1Q09 (COGS only increased 0.7% YoY, while operating expenses declined by 8% YoY). It was mainly due to lower raw material cost (soybean and corn) which account for around 84% of COGS). Based on CBOT (Chicago Board of Trade), average soybean price declined 29% YoY to US$9.42 per bushel, and average corn price declined 27%YoY to US$4.29 per bushel in 1Q09. In addition, the company better managed operating expenses. As a result, operating expenses to total sales came in lower at 5% in 1Q09 from 6% in 1Q08.

Sales volume was not impacted by global crisis
The company booked 8% YoY sales growth to Rp3.1t in 1Q09 due to higher selling price. Meanwhile, it was also supported by sales volume increase in DOC and Processed Chicken (up 16.2% YoY and 12.4% YoY respectively to 122.8m DOC and 9,803 tons). However, Poultry feed sales volume, the biggest contributor to total sales, declined 6.2% YoY to 546,071 tons. Management said lower poultry feed resulted from limited raw material stocks as farmers reduce production amid lower commodity prices. Overall, sales was surprisingly above our expectation as previously we were worried sales volume would be lower like what happened during Asia Crisis in 1998 (Poultry feed and DOC sales volume declined of 30% YoY each). Management said strong domestic consumption and election wealth supported the company’s sales.

Lower working capital and focus to reduce debt
We see lower working capital in 1Q09. Accounts receivable and inventory declined 18.5% YoY and 8% YoY respectively to Rp727b and Rp1,252b. (Inventory turnover came lower at 177days in 1Q09 vs 194 days in 1Q08, while collection period reached 85days in 1Q09 vs.143days in 1Q08). As a result, the company booked strong operating cash flow of Rp533b vs.(-Rp 13.5b in 1Q08). Meanwhile, the company is focusing to reduce debt, especially short-term debt of Rp1.2t. The company plans to reduce US$ denominated short-term debt, and to covert 50% its short term debt to long-term debt. We see positive strong operating cash flow in the future due to lower working capital, and the company plans to reduce its short-term debt.

Retain BUY, upgrade TP to Rp950
We are retain our BUY recommendation and increase our target price to Rp950 (from Rp810). Our target price pegs the stock’s valuation at 7.5x 2009 P/E. (51% upside potential). This is to reflect that all the performance (sales, net profit, and margins) are above our expectations. Therefore, we raise our earning estimate in FY09-FY10 by 18% and 32% respectively to Rp415b and Rp564b as we raise assumptions on selling price and sales volume of Poultry feed, DOC, and Processed Chicken. We retain our gross margin assumption while waiting for stabilized lower material cost in upcoming quarters.