NEW YORK (Reuters) - The S&P 500 and Nasdaq rose on Friday as positive broker comments on Microsoft boosted technology shares, but the major averages lost ground for the week for the first time in five weeks.
After a sharp three-month rally, indexes eased this week as investors increasingly questioned if stocks are due for a correction. Worries that the economic recovery could be tepid have dented optimism that has driven the S&P 500 up as much as 40 percent from March's 12-year low.
"We've had the survival bounce and the end of the month-after-month declines in economic data," said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama.
The Dow Jones industrial average .DJI fell 15.87 points, or 0.19 percent, to 8,539.73. But the Standard & Poor's 500 Index .SPX added 2.86 points, or 0.31 percent, to 921.23. And the Nasdaq Composite Index .IXIC rose 19.75 points, or 1.09 percent, to 1,827.47.
DOW LOSES 3 PERCENT FOR THE WEEK more...
Sabtu, 20 Juni 2009
Bloomberg Crude Oil, Gasoline Tumble on Increasing Motor-Fuel Supplies
June 19 (Bloomberg) -- Crude oil fell more than $1 a barrel and gasoline tumbled the most in two months on speculation that supplies of the motor fuel will climb as refineries bolster output and imports gain.
Gasoline inventories rose 3.39 million barrels to 205 million last week, the biggest increase since January, the Energy Department said on June 17. Total daily demand for fuels is 6 percent lower than a year ago. Crude prices advanced earlier as violence escalated in Nigeria and on speculation that fuel consumption will increase as the global recession eases.
“The demand numbers are just too weak to ignore,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “The big gasoline build suggests that refiners are chasing a diminishing target.”
Crude oil for July delivery fell $1.82, or 2.6 percent, to $69.55 a barrel at 2:50 p.m. on the New York Mercantile Exchange, the lowest settlement since June 8. It was the biggest decline since June 3. Futures, which are up 56 percent this year, dropped 3.5 percent this week.
Gasoline for July delivery fell 10.51 cents, or 5.2 percent, to end the session at $1.9244 a gallon in New York, the lowest settlement since June 3 and the biggest decline since April 20. Futures fell 5.8 percent this week, the largest drop since February.
U.S. refineries produced 9.13 million barrels of gasoline a day in the week ended June 12, up 2 percent from the week before, according to the Energy Department. Refineries operated at 85.9 percent of capacity last week, up from 80.4 percent in the week ended April 10.
Gasoline imports jumped 25 percent to 1.09 million barrels a day last week, the highest since April, the department said. more...
Gasoline inventories rose 3.39 million barrels to 205 million last week, the biggest increase since January, the Energy Department said on June 17. Total daily demand for fuels is 6 percent lower than a year ago. Crude prices advanced earlier as violence escalated in Nigeria and on speculation that fuel consumption will increase as the global recession eases.
“The demand numbers are just too weak to ignore,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “The big gasoline build suggests that refiners are chasing a diminishing target.”
Crude oil for July delivery fell $1.82, or 2.6 percent, to $69.55 a barrel at 2:50 p.m. on the New York Mercantile Exchange, the lowest settlement since June 8. It was the biggest decline since June 3. Futures, which are up 56 percent this year, dropped 3.5 percent this week.
Gasoline for July delivery fell 10.51 cents, or 5.2 percent, to end the session at $1.9244 a gallon in New York, the lowest settlement since June 3 and the biggest decline since April 20. Futures fell 5.8 percent this week, the largest drop since February.
U.S. refineries produced 9.13 million barrels of gasoline a day in the week ended June 12, up 2 percent from the week before, according to the Energy Department. Refineries operated at 85.9 percent of capacity last week, up from 80.4 percent in the week ended April 10.
Gasoline imports jumped 25 percent to 1.09 million barrels a day last week, the highest since April, the department said. more...
GlobalCoal Newcastle Coal Index
Weekly NEWC Coal Index
22-May-09 64.82
29-May-09 67.09
05-Jun-09 74.31
12-Jun-09 76.75
19-Jun-09 70.81
Monthly NEWC Coal Index
Feb-2009 75.03
Mar-2009 61.37
Apr-2009 62.55
May-2009 64.24
22-May-09 64.82
29-May-09 67.09
05-Jun-09 74.31
12-Jun-09 76.75
19-Jun-09 70.81
Monthly NEWC Coal Index
Feb-2009 75.03
Mar-2009 61.37
Apr-2009 62.55
May-2009 64.24
Business Times Softer trend seen for CPO futures
Crude palm oil (CPO) futures prices on Bursa Malaysia Derivatives are expected to see a softer trend next week on expectation of lower export and rising production, dealers said.
According to them, the market will see continuous cautious trading amid lack of market-moving news.
"Local sentiment doesn't look good and traders are watching closely the export data as there is no major development in the market," one of the dealers said.
He said the latest export data, scheduled to be released by the main surveyors next week, will provide lead for a fresh market direction.
Cargo surveyors Societe Generale de Surveillance and Intertek Testing Services are expected to release their reports for the first 20 days of June on Monday.
Another dealer said the market will also seek direction from the movement of crude oil and soyoil prices to further support the CPO price.
Soyoil and palm oil prices always move in tandem as both are competing for a similar market and export destinations, he said.
On a week-to-week basis, the July 2009 contract fell RM163 to RM2,315 per tonne and August 2009 dropped RM179 to RM2,286 per tonne.
September 2009 declined RM165 to RM2,285 per tonne while October 2009 was flat at RM2,285 per tonne.
Total turnover for the week decreased to 75,914 lots from 83,304 lots last week and open interests declined to 73,554 contracts from 76,078 contracts previously.
For the physical market, June South went down to RM2,330 per tonne from RM2,485 per tonne last week. -- Bernama
According to them, the market will see continuous cautious trading amid lack of market-moving news.
"Local sentiment doesn't look good and traders are watching closely the export data as there is no major development in the market," one of the dealers said.
He said the latest export data, scheduled to be released by the main surveyors next week, will provide lead for a fresh market direction.
Cargo surveyors Societe Generale de Surveillance and Intertek Testing Services are expected to release their reports for the first 20 days of June on Monday.
Another dealer said the market will also seek direction from the movement of crude oil and soyoil prices to further support the CPO price.
Soyoil and palm oil prices always move in tandem as both are competing for a similar market and export destinations, he said.
On a week-to-week basis, the July 2009 contract fell RM163 to RM2,315 per tonne and August 2009 dropped RM179 to RM2,286 per tonne.
September 2009 declined RM165 to RM2,285 per tonne while October 2009 was flat at RM2,285 per tonne.
Total turnover for the week decreased to 75,914 lots from 83,304 lots last week and open interests declined to 73,554 contracts from 76,078 contracts previously.
For the physical market, June South went down to RM2,330 per tonne from RM2,485 per tonne last week. -- Bernama
Palmoil HQ Crude palm oil futures finish softer
Malaysian palm oil futures ended softer yesterday for the third consecutive day, touching a new 10-week intraday low, as worries over slow exports overcame support from gains in oil and soyabean markets, traders said.
The benchmark September contract on the Bursa Malaysia’s Derivatives Exchange settled down RM14, or 0.61 per cent to RM2,285 a tonne after trading as high as RM2,318 and hitting a low of RM2,274, a level unseen since April 10.
Overall volume was 10,668 lots of 25 tonnes each.
“(Palm oil) exports are suspected to be lower than last month. (The) market is also a bit lacklustre as it looks for a new lead,” said a dealer in a foreign brokerage in Kuala Lumpur.
Palm oil futures had tumbled as much as 3.8 per cent on Thursday on worries about the prospect of slower Indian demand.
Traders said players were looking for a fresh lead from export data for the first 20 days and expected the fall in exports would not be steep.
“There’s talk circulating that the exports would only be down about 4 per cent,” another dealer said.
Exports of Malaysian palm oil products for June 1-15 fell 10.2 per cent to 560,416 tonnes from the same period in May, cargo surveyor Intertek Testing Service reported on Monday.
The market was not factoring in concerns over the prospect of a return of the El Nino weather pattern since it was not expectd to have an immediate impact on current production, traders said.
In the physical market, palm oil for June-July delivery was traded at RM2,300-RM2,320 a tonne in the southern region and between RM2,290-RM2,320 a tonne in the central region.
The benchmark September contract on the Bursa Malaysia’s Derivatives Exchange settled down RM14, or 0.61 per cent to RM2,285 a tonne after trading as high as RM2,318 and hitting a low of RM2,274, a level unseen since April 10.
Overall volume was 10,668 lots of 25 tonnes each.
“(Palm oil) exports are suspected to be lower than last month. (The) market is also a bit lacklustre as it looks for a new lead,” said a dealer in a foreign brokerage in Kuala Lumpur.
Palm oil futures had tumbled as much as 3.8 per cent on Thursday on worries about the prospect of slower Indian demand.
Traders said players were looking for a fresh lead from export data for the first 20 days and expected the fall in exports would not be steep.
“There’s talk circulating that the exports would only be down about 4 per cent,” another dealer said.
Exports of Malaysian palm oil products for June 1-15 fell 10.2 per cent to 560,416 tonnes from the same period in May, cargo surveyor Intertek Testing Service reported on Monday.
The market was not factoring in concerns over the prospect of a return of the El Nino weather pattern since it was not expectd to have an immediate impact on current production, traders said.
In the physical market, palm oil for June-July delivery was traded at RM2,300-RM2,320 a tonne in the southern region and between RM2,290-RM2,320 a tonne in the central region.
Goldman Sachs JB Were - Australia, the leader of the park
Defying the initial market expectations for a second consecutive contraction in aggregate activity, GDP printed a meaningful upside surprise in 1Q09 - rising by 0.4%qoq. Even if the 2.2ppt contribution from net exports flags considerably weaker underlying momentum (we note domestic demand fell 1.0%qoq), Australis has the favorable distinction of being the only developed economy to expand into 2009.Following this better-than -expected start of the year, we upgraded our growth forecasts. We now expect the Australian economy to expand by 0.25% in 2009 (was -0.2%) and by 2.75% in 2010 (was +2.2%). These forecasts are at, or near, the top of consensus for the years.
To be clear, we are far from bullish on growth in 2Q09 - indeed, activity will surely remain quite sluggish. However, we believe the prospects for durable recovery in 2H2009 are very encouraging, and particularly as potential drivers broaden beyond housing construction to consumption, public demand and external sector. Increasingly positive domestic dataflow, coupled with stronger data out of US and China, have led us to remove our forecast rate cuts.
We are now forecasting that the cash rate will remain at the current level of 3% through 2009, before rate hikes next year in March (+50bp), May (+50bp), August (+25bp) and November (+25bp) see it settle at 4.5% by the end of 2010.
Indopremier PT Timah Tbk Rp 2,050 – BUY on Weakness
Nonrenewable and no substitution commodity like tin is a great inflation hedge instrument for long term investment with bright prospect. Tins export has bounced up by 60% MoM and 38% YoY. It’s a good signal for Overweight into portfolio allocation. Upgrade to BUY with TP Rp 3,125.
Industry Prospect – Stockpiling Not the answer, but It’s a good start to anticipate Boosted Demand TINS estimates that ASP for LME tin price this year would reach US$
14,000/Mt and estimates that tin price would stabilize in Q309. Tin price is expected to fluctuate and potential correction would occur in the next 2 – 3 months. The main trigger for price jump would come from stockpiling activity. Low supply in LME would drive traders or producers to begin stockpiling before the global tin demand recovers.
Indonesian Consortium still cuts production, Sustaining Tin Price Three out of seven smelters in the consortium – Prima Timah Utama, United Smelting and Duta Putra Bangka have stopped production due to rising cost. These also due to the shortage of tin ore that was attributed to water shortages faced by small scale onshore miners. However, Koba tin does not expect its production to fall below its target of 750 ton per month.
Indonesia Export Start to bounce back in May ITRI reports that provisional data from surveying companies employed by Indonesia's trade ministry released on Friday shows a strong rise in the volume of tin checked for export in May. The May export was 9,873 tonnes, up 38% compared to May 2008 and more than 60% higher MoM. April exports were depressed by the implementation of new rules requiring letters of credit against tin sales of over US$ one million. However, the cumulative tonnage of tin checked for export between January-May stood at 41,914 tonnes, up 2.3% from 40,960 tonnes in the same period last year.
Recommendation Ugraded to BUY on Weakness with TP Rp 3,125 Based on current market situation, we roll over our valuation by using 2010 as base. Based on our new assumptions and WACC 15.2% our DCF valuation model arrive new TP at Rp 3,125 per share offering 52.4% upside potential and implying PER09F at 19.4x and PER10F at 10.4x respectively. Currently TINS share price at Rp 2,050 traded at 12.7x PER09F and 6.8x PER10F. EV/EBITDA in 2010 at 4.8x would considerably low since fair value stand at range 7-8x. We upgrade our recommendation from HOLD previously to BUY on Weakness.
Industry Prospect – Stockpiling Not the answer, but It’s a good start to anticipate Boosted Demand TINS estimates that ASP for LME tin price this year would reach US$
14,000/Mt and estimates that tin price would stabilize in Q309. Tin price is expected to fluctuate and potential correction would occur in the next 2 – 3 months. The main trigger for price jump would come from stockpiling activity. Low supply in LME would drive traders or producers to begin stockpiling before the global tin demand recovers.
Indonesian Consortium still cuts production, Sustaining Tin Price Three out of seven smelters in the consortium – Prima Timah Utama, United Smelting and Duta Putra Bangka have stopped production due to rising cost. These also due to the shortage of tin ore that was attributed to water shortages faced by small scale onshore miners. However, Koba tin does not expect its production to fall below its target of 750 ton per month.
Indonesia Export Start to bounce back in May ITRI reports that provisional data from surveying companies employed by Indonesia's trade ministry released on Friday shows a strong rise in the volume of tin checked for export in May. The May export was 9,873 tonnes, up 38% compared to May 2008 and more than 60% higher MoM. April exports were depressed by the implementation of new rules requiring letters of credit against tin sales of over US$ one million. However, the cumulative tonnage of tin checked for export between January-May stood at 41,914 tonnes, up 2.3% from 40,960 tonnes in the same period last year.
Recommendation Ugraded to BUY on Weakness with TP Rp 3,125 Based on current market situation, we roll over our valuation by using 2010 as base. Based on our new assumptions and WACC 15.2% our DCF valuation model arrive new TP at Rp 3,125 per share offering 52.4% upside potential and implying PER09F at 19.4x and PER10F at 10.4x respectively. Currently TINS share price at Rp 2,050 traded at 12.7x PER09F and 6.8x PER10F. EV/EBITDA in 2010 at 4.8x would considerably low since fair value stand at range 7-8x. We upgrade our recommendation from HOLD previously to BUY on Weakness.
CIMB Kalbe Farma
Quick takes - Value-enhancing move - by Erwan Teguh
(KLBF IJ / KLBF.JK, OUTPERFORM - Maintained, Rp1,050 - Tgt. Rp1,170, Healthcare)
Kalbe has offered to buy 31.81% of Enseval at Rp870/share. The offer is valid for 30 days, amounting to Rp631bn if all are subscribed and bringing Kalbe's stake in Enseval to 90% from 58.19%. This acquisition could boost Kalbe's earnings by 12% or an additional Rp123/share based on Kalbe's present P/E multiple. Enseval shareholders may ask for better valuations, and we believe that Kalbe should pursue further given the strong growth outlook of Enseval. We maintain our forecasts pending the completion of the tender offer but now accord Kalbe a higher target price of Rp1,170 (from Rp1,050), effectively factoring in an ownership of up to 90% of Enseval. Maintain Outperform.
(KLBF IJ / KLBF.JK, OUTPERFORM - Maintained, Rp1,050 - Tgt. Rp1,170, Healthcare)
Kalbe has offered to buy 31.81% of Enseval at Rp870/share. The offer is valid for 30 days, amounting to Rp631bn if all are subscribed and bringing Kalbe's stake in Enseval to 90% from 58.19%. This acquisition could boost Kalbe's earnings by 12% or an additional Rp123/share based on Kalbe's present P/E multiple. Enseval shareholders may ask for better valuations, and we believe that Kalbe should pursue further given the strong growth outlook of Enseval. We maintain our forecasts pending the completion of the tender offer but now accord Kalbe a higher target price of Rp1,170 (from Rp1,050), effectively factoring in an ownership of up to 90% of Enseval. Maintain Outperform.
CIMB Enseval Putera Megatrading
Quick takes - Kalbe's tender offer - by Erwan Teguh
(EPMT IJ / EPMT.JK, OUTPERFORM - Maintained, Rp770 - Tgt. Rp1,050, Healthcare)
Kalbe has just announced an offer to buy 31.81% of Enseval at Rp870/share. The offer is effective today for 30 days. We believe the offer price could be improved given Enseval's improving growth outlook and stellar balance sheet. Enseval's sales have been growing faster than Kalbe's in the past five quarters as it builds up third-party businesses. Consequently, earnings growth outstripped Kalbe's by nearly 2x in the latest quarter, at 27.2% yoy vs. 15.4%. Signs of improvement are aplenty after the 2005 merger, including improved working capital days and better margins. We upgrade our earnings forecasts by 2-8% and raise our target price to Rp1,050 (DCF-based, WACC 16.2%, LTG 5.9%) from Rp715, implying 8.1x and 6.6x CY09-10 earnings. Maintain Outperform.
(EPMT IJ / EPMT.JK, OUTPERFORM - Maintained, Rp770 - Tgt. Rp1,050, Healthcare)
Kalbe has just announced an offer to buy 31.81% of Enseval at Rp870/share. The offer is effective today for 30 days. We believe the offer price could be improved given Enseval's improving growth outlook and stellar balance sheet. Enseval's sales have been growing faster than Kalbe's in the past five quarters as it builds up third-party businesses. Consequently, earnings growth outstripped Kalbe's by nearly 2x in the latest quarter, at 27.2% yoy vs. 15.4%. Signs of improvement are aplenty after the 2005 merger, including improved working capital days and better margins. We upgrade our earnings forecasts by 2-8% and raise our target price to Rp1,050 (DCF-based, WACC 16.2%, LTG 5.9%) from Rp715, implying 8.1x and 6.6x CY09-10 earnings. Maintain Outperform.
Danareksa Bank Rakyat Indonesia (BBRI IJ, Rp5,800 BUY) Gathering pace
TP raised to Rp8,200
We raise our FY10-11E EPS estimates by 9-19% on a brisker loans growth assumption. This upgrade reflects our increasingly bullish view on the prospects for the economy with interest rates at all-time lows and inflation being benign. Yet despite the robust loans growth, the bank’s CAR shall remain above 13% in FY10E, supported by an expected Rp2-3trn sub-debt issuance. Accordingly, we raise our TP to Rp8,200 from Rp6,300 previously, assuming a cost of equity of 16% compared to 20% previously. Our new TP implies 4.0-3.4x FY09-10E PBV, admittedly at the high end of its historical trading range yet fully justified in our opinion considering the bank’s robust loans growth, strong NIM, high ROE and exposure to consumer recovery.
Brisker loans growth expected
Our 5-6% upward adjustment to the bank’s FY10-11E loans growth takes into account a number of bullish factors. First of all, interest rates are at an all-time low of 7%. Moreover, they may even head lower since the benign inflation has given BI more room to loosen monetary policy further. Another positive is the 4-6% consumption growth expected over the next two years helped by a Rp40trn tax stimulus (note that private consumption is already in good shape, growing a brisk 5.8% in 1Q09). Lastly, BBRI has plans to issue sub-debt in 2H09. This should help keep its capital at a healthy level, we believe. The amount to be raised is likely to be in the range of Rp2-3trn, bearing an indicative cost of 12% p.a. and with a maturity of 10 years. This debt issuance will keep the bank’s CAR above 13% in FY10E (even with loan growth in excess of 20% p.a.). Despite the additional sub-debt, BBRI will still keep its NIM above 9.5% and its COF below 4% in FY10-11E, in our estimates.
Good 2Q09 profits
April’s loans grew Rp5-6trn from Rp165trn in March, or among the highest in the sector. Seasonality is certainly one factor, in our view. It is interesting to see that BBRI’s lending rate has not changed much (at 15-17%) despite the rate cuts of 250bps since early this year. This is because lending rates for micro and small commercial loans (together accounting for more than 50% of the bank’s total loans) tend to be sticky at around 20-25%. In addition, the bank has also maintained high lending rates in order to offset the higher COF of 5% vs. 4% normally. By offering attractive deposit rates, the bank can maintain the amount of deposits. Against this backdrop, we believe the bank’s NIM should be stable at 9.5% in 2009. Note that the bank’s 1H09 results will probably be released in August because of its plans to issue bonds.
NPLs are under control
April’s NPLs are pretty much unchanged from their level in March of 3.24%, according to the management, but a slight increase by the end of 2Q09 is inevitable, we believe. Loans to the micro segment, in particular KUR (loans channeled to non-bankable clients), and medium business, are likely to account for the bulk of new NPLs. We forecast NPLs of around 3.6% by the end of 2Q09. NPLs shall peak in 3Q09, with loans starting to pick up in 2Q09. But with the loan restructuring continuing apace, we stick with our forecast of 3.3% NPLs by YE09. The provisioning booked will increase by at least 20% in 2Q09, assuming an expected 10% QoQ increase in 2Q09 loans growth. This is 27% of our FY09 forecast. But since BBRI will only start to lend aggressively in the second half of the year, we expect provisions for bad debts to peak in 3Q09.
We raise our FY10-11E EPS estimates by 9-19% on a brisker loans growth assumption. This upgrade reflects our increasingly bullish view on the prospects for the economy with interest rates at all-time lows and inflation being benign. Yet despite the robust loans growth, the bank’s CAR shall remain above 13% in FY10E, supported by an expected Rp2-3trn sub-debt issuance. Accordingly, we raise our TP to Rp8,200 from Rp6,300 previously, assuming a cost of equity of 16% compared to 20% previously. Our new TP implies 4.0-3.4x FY09-10E PBV, admittedly at the high end of its historical trading range yet fully justified in our opinion considering the bank’s robust loans growth, strong NIM, high ROE and exposure to consumer recovery.
Brisker loans growth expected
Our 5-6% upward adjustment to the bank’s FY10-11E loans growth takes into account a number of bullish factors. First of all, interest rates are at an all-time low of 7%. Moreover, they may even head lower since the benign inflation has given BI more room to loosen monetary policy further. Another positive is the 4-6% consumption growth expected over the next two years helped by a Rp40trn tax stimulus (note that private consumption is already in good shape, growing a brisk 5.8% in 1Q09). Lastly, BBRI has plans to issue sub-debt in 2H09. This should help keep its capital at a healthy level, we believe. The amount to be raised is likely to be in the range of Rp2-3trn, bearing an indicative cost of 12% p.a. and with a maturity of 10 years. This debt issuance will keep the bank’s CAR above 13% in FY10E (even with loan growth in excess of 20% p.a.). Despite the additional sub-debt, BBRI will still keep its NIM above 9.5% and its COF below 4% in FY10-11E, in our estimates.
Good 2Q09 profits
April’s loans grew Rp5-6trn from Rp165trn in March, or among the highest in the sector. Seasonality is certainly one factor, in our view. It is interesting to see that BBRI’s lending rate has not changed much (at 15-17%) despite the rate cuts of 250bps since early this year. This is because lending rates for micro and small commercial loans (together accounting for more than 50% of the bank’s total loans) tend to be sticky at around 20-25%. In addition, the bank has also maintained high lending rates in order to offset the higher COF of 5% vs. 4% normally. By offering attractive deposit rates, the bank can maintain the amount of deposits. Against this backdrop, we believe the bank’s NIM should be stable at 9.5% in 2009. Note that the bank’s 1H09 results will probably be released in August because of its plans to issue bonds.
NPLs are under control
April’s NPLs are pretty much unchanged from their level in March of 3.24%, according to the management, but a slight increase by the end of 2Q09 is inevitable, we believe. Loans to the micro segment, in particular KUR (loans channeled to non-bankable clients), and medium business, are likely to account for the bulk of new NPLs. We forecast NPLs of around 3.6% by the end of 2Q09. NPLs shall peak in 3Q09, with loans starting to pick up in 2Q09. But with the loan restructuring continuing apace, we stick with our forecast of 3.3% NPLs by YE09. The provisioning booked will increase by at least 20% in 2Q09, assuming an expected 10% QoQ increase in 2Q09 loans growth. This is 27% of our FY09 forecast. But since BBRI will only start to lend aggressively in the second half of the year, we expect provisions for bad debts to peak in 3Q09.
KimEng Market Strategy: Heading to the second half: Back to fundamentals and liquidity
The first half: Local players and election have been the dominating factors
The second half: Shifting to fundamentals, fueled by liquidity
If presidential election were extended to two round, we expect turbulence and profit taking in July-September 2009 amid the uncertainties.
After focusing on the election, investors will shift focus to fundamentals: global economy (i.e., US, China); domestic economy
Catalysts for the second half include commodity prices, further decline in interest rates and strong Rupiah. While the above factors have to a certain extent been priced in on certain stocks, many still have upside potentials.
Excess liquidity will prompt foreign investors to enter the Indonesian market after the election.
Room for upside remains
Valuation: Indonesia is trading at 11.9x 2010F PER, lower than its peers (Malaysia: 14.2x, Singapore: 13.6x).
In terms of PE/EPS growth, Indonesia is trading at 0.91x 2010F PEG, lower than its peers in the region (Philippines: 1.55x Malaysia:1.40x and Singapore: 1.10x).
Indonesian economy is still growing at 4% – 5% rate while other countries in the Southeast Asian region are showing negative growth.
Our target for the index at end of the year is 2300, equivalent to 14.1x 2010F PER, 1.19x 2010F PEG.
Sector picks
Commodity-driven
Mining
Plantation
Interest rate sensitive
Banking
Property
Currency sensitive
Pharmaceutical
Stock picks Big caps
Bank Mandiri
Bank Rakyat Indonesia
Gudang Garam
TB Bukit Asam
Unilever
Small-mid caps
AKR Corporindo
Charoen Pokphand
Ciputra Surya
Summarecon Agung
Tempo Scan
Total Bangun Persada
Wijaya Karya
Danareksa Cigarette Sector: Last man standing
The latest news
On Thursday, BAT acquired an 85% stake in Bentoel Investama (RMBA) for US$494 million. The deal is valued at Rp873/share and translates into 24.1-22.0x PE08-09F and 3.4-3.1x PBV08-09F. These are relatively high multiples compared to RMBA’s peers. This acquisition once again demonstrates the attractiveness of Indonesian clove cigarette producers to foreign investors after Phillip Morris acquired HM Sampoerna in 2005 in a deal worth Rp10,600/share (translating into 23.4-19.5x PE04-05 and 10.2-9.6x PBV04-05).
Good for the minority shareholders
Given the high price paid by BAT, the minority shareholders of RMBA shall benefit from the deal as BAT must hold a tender offer for the remaining 15% RMBA shares. The tender offer price will be the same as the acquisition price since BAT acquired RMBA at a premium to its historical trading price. The company has failed to make a major breakthrough in the cigarette industry and has always stood in the shadow of its larger rivals. Its 1Q09 results also disappointed. Judging by Phillip Morris’s acquisition of Sampoerna, we don’t expect BAT to make significant changes to RMBA’s business model. There will be synergy, but BAT is still paying a high premium for the shares we believe. And a lack of share liquidity after the tender offer will reduce the appeal of the shares. Thus, at Rp873/share we advise investors to take profits in the tender offer scheduled to be completed by the end of August. Upside from the current trading price is 8%.
What’s next?
The acquisition shows that foreign companies recognize the strong growth prospects of the Indonesian cigarette market. As such, other Indonesian cigarette companies might be targeted in the future. Yet after BAT’s acquisition of Bentoel, the only public cigarette producer remaining is the industry heavyweight Gudang Garam. With its high market share the company may hold great appeal to potential suitors. Trading at a relatively low valuation of 9.5-9.0x PE09-10F and 1.3-1.2x PBV09-10F, the shares are attractive and we maintain our BUY recommendation on the company.
On Thursday, BAT acquired an 85% stake in Bentoel Investama (RMBA) for US$494 million. The deal is valued at Rp873/share and translates into 24.1-22.0x PE08-09F and 3.4-3.1x PBV08-09F. These are relatively high multiples compared to RMBA’s peers. This acquisition once again demonstrates the attractiveness of Indonesian clove cigarette producers to foreign investors after Phillip Morris acquired HM Sampoerna in 2005 in a deal worth Rp10,600/share (translating into 23.4-19.5x PE04-05 and 10.2-9.6x PBV04-05).
Good for the minority shareholders
Given the high price paid by BAT, the minority shareholders of RMBA shall benefit from the deal as BAT must hold a tender offer for the remaining 15% RMBA shares. The tender offer price will be the same as the acquisition price since BAT acquired RMBA at a premium to its historical trading price. The company has failed to make a major breakthrough in the cigarette industry and has always stood in the shadow of its larger rivals. Its 1Q09 results also disappointed. Judging by Phillip Morris’s acquisition of Sampoerna, we don’t expect BAT to make significant changes to RMBA’s business model. There will be synergy, but BAT is still paying a high premium for the shares we believe. And a lack of share liquidity after the tender offer will reduce the appeal of the shares. Thus, at Rp873/share we advise investors to take profits in the tender offer scheduled to be completed by the end of August. Upside from the current trading price is 8%.
What’s next?
The acquisition shows that foreign companies recognize the strong growth prospects of the Indonesian cigarette market. As such, other Indonesian cigarette companies might be targeted in the future. Yet after BAT’s acquisition of Bentoel, the only public cigarette producer remaining is the industry heavyweight Gudang Garam. With its high market share the company may hold great appeal to potential suitors. Trading at a relatively low valuation of 9.5-9.0x PE09-10F and 1.3-1.2x PBV09-10F, the shares are attractive and we maintain our BUY recommendation on the company.
Jumat, 19 Juni 2009
[BRIGHT INFO] "Just a Note"
Good day to you.U.S. stocks snapped a three-day losing streak as reports on jobless claims and manufacturing added to evidence the recession may be near a bottom.
Major Southeast Asian stock markets tumbled again on Thursday, with Jakarta sliding more than 3 % and Singapore declining for a sixth day, weighed down by losses in heavyweight banking shares. Asian stocks retreated as investors took profits after solid gains earlier in the second quarter sparked by signs the global economy is starting to recover. The MSCI index of Asia-Pacific stocks outside Japan fell 1.1 %.
In Jakarta, Bank Mandiri, the largest lender, was down 5.5 %, and Bank Rakyat Indonesia, the third largest, fell 6.5 %.
Crude oil was little changed after rising yesterday on reports that signaled the U.S. economy will rebound later this year, prompting an increase in energy demand. Crude oil for July delivery rose 14 cents to $71.51 a barrel. Tin slipped 1 % to $14,950 a ton, and nickel climbed 1.1 % to $15,010 a ton.
We believe economic data is coming in better than expected. There is an increasing chance that this recession will be over by the third rather than fourth quarter. Nothing changes on our fundamental economic but market still on consolidation. Maintain Cash and selective buying on lower for medium term investment.
Watching for some Fund into Market Today after market sharply decline. My Top Pick is still same, TLKM, ANTM, INCO, TINS, BUMI, BNBR, and DEWA. Start Looking for ASII, BDMN and BMRI.
“Opportunity for The Future”
[Personal Opinion ]
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DISCLAIMER: This report is issued by [BRIGHT INFO]. Although the contents of this document may represent the opinion of [BRIGHT INFO]. We cannot guarantee its accuracy and completeness.
Reuters Dow end 3-day drop on data, financials
NEW YORK (Reuters) - The Dow and S&P 500 gained on Thursday, breaking a three-day losing streak, as data on the job market and regional manufacturing revived hopes that the recession-hit economy is stabilizing.
After gaining as much as 40 percent from a 12-year closing low in early March, the S&P 500 has eased as investors reassessed the potential strength of an economic recovery. The day's data revived optimism, but analysts said real improvement is needed to sustain the rally.
Financials supported the stock market after being among the week's biggest drags. Discover Financial Services (DFS.N) gained 4 percent to $9.27 after it reported a smaller-than-expected operating loss as bad loans grew less than anticipated.
Lincoln National (LNC.N) rose 6.9 percent to $15.92 after an upgrade from Credit Suisse, and the KBW insurance index .KIX rose 1.8 percent. The S&P financial index .GSPF gained 2.5 percent.
Data showed the number of people staying on jobless benefits fell for the first time since January, while manufacturing in the U.S. Mid-Atlantic region contracted much less than expected in June.
"The data supports the case of those looking for the bottom of the economy in this quarter," said Jim Awad, managing director at Zephyr Management in New York.
The Dow Jones industrial average .DJI rose 58.42 points, or 0.69 percent, to 8,555.60. The Standard & Poor's 500 Index .SPX gained 7.66 points, or 0.84 percent, to 918.37. The Nasdaq Composite Index .IXIC was off just 0.34 of a point, or 0.02 percent, at 1,807.72. more...
After gaining as much as 40 percent from a 12-year closing low in early March, the S&P 500 has eased as investors reassessed the potential strength of an economic recovery. The day's data revived optimism, but analysts said real improvement is needed to sustain the rally.
Financials supported the stock market after being among the week's biggest drags. Discover Financial Services (DFS.N) gained 4 percent to $9.27 after it reported a smaller-than-expected operating loss as bad loans grew less than anticipated.
Lincoln National (LNC.N) rose 6.9 percent to $15.92 after an upgrade from Credit Suisse, and the KBW insurance index .KIX rose 1.8 percent. The S&P financial index .GSPF gained 2.5 percent.
Data showed the number of people staying on jobless benefits fell for the first time since January, while manufacturing in the U.S. Mid-Atlantic region contracted much less than expected in June.
"The data supports the case of those looking for the bottom of the economy in this quarter," said Jim Awad, managing director at Zephyr Management in New York.
The Dow Jones industrial average .DJI rose 58.42 points, or 0.69 percent, to 8,555.60. The Standard & Poor's 500 Index .SPX gained 7.66 points, or 0.84 percent, to 918.37. The Nasdaq Composite Index .IXIC was off just 0.34 of a point, or 0.02 percent, at 1,807.72. more...
Reuters Green shoots in U.S. jobs, factories and indicators
NEW YORK (Reuters) - The U.S. economy sprouted more green shoots of recovery in data released on Thursday, with weekly jobs figures showing unexpected improvement and the slumping factory sector revealing dramatic signs of a rebound.
The data stopped the week's stock market slide and shored up hopes that the U.S. economy, which has been in recession since December 2007, may have hit bottom, but the labor market and hard-hit factory sector clearly are not out of danger yet.
Indeed, the number of U.S. workers filing new claims for jobless benefits rose in the latest week, but economists were heartened by the first drop in the number of unemployed people remaining on benefit rolls since January and the biggest decline since November 2001.
This dovetailed well into a Federal Reserve report on manufacturing in the U.S. Mid-Atlantic area, where activity contracted in June for the ninth consecutive month but much less severely than anticipated and far less than the previous month.
Though analysts expressed caution over the data, they said it was in line with views that the economy's rate of deterioration is slowing, a necessary step before growth resumes. more...
The data stopped the week's stock market slide and shored up hopes that the U.S. economy, which has been in recession since December 2007, may have hit bottom, but the labor market and hard-hit factory sector clearly are not out of danger yet.
Indeed, the number of U.S. workers filing new claims for jobless benefits rose in the latest week, but economists were heartened by the first drop in the number of unemployed people remaining on benefit rolls since January and the biggest decline since November 2001.
This dovetailed well into a Federal Reserve report on manufacturing in the U.S. Mid-Atlantic area, where activity contracted in June for the ninth consecutive month but much less severely than anticipated and far less than the previous month.
Though analysts expressed caution over the data, they said it was in line with views that the economy's rate of deterioration is slowing, a necessary step before growth resumes. more...
Bloomberg Copper Climbs on Signs Economy May Revive, Spur Metal Demand
June 18 (Bloomberg) -- Copper prices gained after the index of U.S. leading economic indicators rose in May, adding to evidence that the global recession may be near a bottom.
The indicators index for the world’s biggest economy rose 1.2 percent in the six months through May, following a 1.1 percent climb in April, the biggest back-to-back gains since 2001, the New York-based Conference Board reported today. The private research group produces the index. Copper is made into pipes and wires used in telecommunications and construction.
Copper futures for September delivery climbed 1.25 cents, or 0.6 percent, to $2.282 a pound on the New York Mercantile Exchange’s Comex division. Copper for delivery in three months gained $10, or 0.2 percent, to $4,970 a metric ton on the London Metal Exchange.
In other LME markets, aluminum rose $20, or 1.2 percent, to $1,642 a ton, taking its gain this year to 6.6 percent. Aluminum stockpiles in warehouses monitored by the exchange expanded 88 percent this year to a record 4.4 million tons today.
Among other LME metals, lead rose 0.8 percent to $1,675 a ton and zinc gained 0.7 percent to $1,563 a ton. Tin slipped 1 percent to $14,950 a ton, and nickel climbed 1.1 percent to $15,010 a ton. more...
The indicators index for the world’s biggest economy rose 1.2 percent in the six months through May, following a 1.1 percent climb in April, the biggest back-to-back gains since 2001, the New York-based Conference Board reported today. The private research group produces the index. Copper is made into pipes and wires used in telecommunications and construction.
Copper futures for September delivery climbed 1.25 cents, or 0.6 percent, to $2.282 a pound on the New York Mercantile Exchange’s Comex division. Copper for delivery in three months gained $10, or 0.2 percent, to $4,970 a metric ton on the London Metal Exchange.
In other LME markets, aluminum rose $20, or 1.2 percent, to $1,642 a ton, taking its gain this year to 6.6 percent. Aluminum stockpiles in warehouses monitored by the exchange expanded 88 percent this year to a record 4.4 million tons today.
Among other LME metals, lead rose 0.8 percent to $1,675 a ton and zinc gained 0.7 percent to $1,563 a ton. Tin slipped 1 percent to $14,950 a ton, and nickel climbed 1.1 percent to $15,010 a ton. more...
Bloomberg Oil Little Changed Amid Reports That U.S. Recession Is Easing
June 19 (Bloomberg) -- Crude oil was little changed after rising yesterday on reports that signaled the U.S. economy will rebound later this year, prompting an increase in energy demand.
Oil and stocks climbed after manufacturing in the Philadelphia region contracted in June at the slowest pace in nine months. The index of leading economic indicators rose in May and the number of Americans receiving jobless benefits fell for the first time since January, separate reports showed.
Prices “stubbornly” held up “on expectations that the economy is recovering and demand will strengthen,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut.
Crude oil for July delivery rose 14 cents to $71.51 a barrel at 8:13 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 60 percent this year and reached a seven-month high of $73.23 on June 11. Yesterday, they rose 34 cents, or 0.5 percent, to settle at $71.37 a barrel.
Oil is poised to fall for the first week in five.
The Federal Reserve Bank of Philadelphia’s general economic index climbed to minus 2.2 from minus 22.6 in May, the bank said yesterday. Negative numbers signal contraction. The index of leading economic indicators gained 1.2 percent in May, more than forecast, following a 1.1 increase in April, the New York-based Conference Board reported yesterday. more...
Oil and stocks climbed after manufacturing in the Philadelphia region contracted in June at the slowest pace in nine months. The index of leading economic indicators rose in May and the number of Americans receiving jobless benefits fell for the first time since January, separate reports showed.
Prices “stubbornly” held up “on expectations that the economy is recovering and demand will strengthen,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut.
Crude oil for July delivery rose 14 cents to $71.51 a barrel at 8:13 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 60 percent this year and reached a seven-month high of $73.23 on June 11. Yesterday, they rose 34 cents, or 0.5 percent, to settle at $71.37 a barrel.
Oil is poised to fall for the first week in five.
The Federal Reserve Bank of Philadelphia’s general economic index climbed to minus 2.2 from minus 22.6 in May, the bank said yesterday. Negative numbers signal contraction. The index of leading economic indicators gained 1.2 percent in May, more than forecast, following a 1.1 increase in April, the New York-based Conference Board reported yesterday. more...
The Star Dry spell may lift CPO above RM2,500
Petaling JayaPhenomenon will result in lower production and supply shortage
A looming El Nino phenomenon, which brings in dry spells, can result in lower crude palm oil (CPO) production towards year-end and help restore prices to stay above RM2,500 per tonne, say analysts.
A mild El Nino is believed to have taken place over the past one month in South-East Asia and a full-blown effect could be felt by November.
Analysts said CPO prices on average would appreciate by 45% to 62% year-on-year based on the previous El Nino events.
The El Nino, which occurs irregularly once every two to seven years, would normally last 12 to 18 months each time.
Every few years, an unusually warm current flows off the western coast of South America. Its appearance after Christmas lead sailors in Peru to christian it El Nino, the Christ-child in Spanish.
Regions prone to El Nino include South-East Asia, southern Africa and northern Australia with prolonged dry periods while heavy rain falls, sometimes with flooding, in Peru and Ecuador.
A foreign-based brokerage, in its latest plantation report, said: “If El Nino hits as expected in November, this will be a bonus for (oil palm) planters.”
It said two potential CPO price catalysts in the final quarter of 2009 would be El Nino and production shortfall in both palm oil and soyoil.
According to Malaysian Palm Oil Board statistics, local CPO production had been below market expectations for the past two months.
For May, CPO production was up slightly at 1.39 million tonnes from 1.29 million tonnes a month earlier.
Malaysian Palm Oil Estate Owners president Boon Weng Siew said a strengthening El Nino could affect the growth of oil palm fresh fruit bunches (FFB).
“Due to the dry weather, the size of the palm fruits will be smaller and lesser in weightage. Smaller fruits will translate into lesser oil being extracted,” he told StarBiz.
He added that past experiences had shown that FFB production turned 10% to 15% lower in the event of an El Nino.
The La Nina’s (opposite of El Nino) reign last year, which brought heavy rainfall, was favoured for FFB development and higher yields in palm oil.
Boon said the full effect of the El Nino on FFB and CPO yields in local oil palm plantations could be felt within 18 months.
“This would mean CPO prices will likely trade above RM2,500 and even touch RM3,000 per tonne by 2010 on fear of shortage in supply linked to the El Nino impact,” he added.
It is expected that production from Indonesia and Malaysia, which control over 80% of the world’s palm oil production, could be affected by the El Nino phenomenon.
Last month, Malaysia – via Agriculture and Agro-Based Industry Ministry – announced plans to set up a committee to study the impact of El Nino on the agriculture industry.
Palmoil HQ Crude palm oil futures hit 10-week low
Malaysian crude palm oil futures tumbled as much as 3.8 per cent to hit a 10-week low yesterday as the prospect of slower Indian demand fuelled speculative selling.
Traders have pegged Indian stocks of imported palm oil at ports at slightly over 500,000 tonnes, which has led the country to slow imports this month.
“The fundamentals are pricing in weaker demand but this is too much, the market has oversold purely on speculation this week,” a trader with a local commodities brokerage said.
The benchmark September contract on Bursa Malaysia’s Derivatives Exchange dropped as much RM91 to RM2,284, a level unseen since April 10, before settling at RM2,299. Overall volume surged to 18,192 lots of 25 tonnes each from the usual 10,000 lots.
Open interest has fallen to about 75,000 lots this week from about 81,000 lots the week before as investors liquidated long positions on fears the recent global commodity rally was overdone, traders said.
Traders fear that the US dollar, despite hovering near lows struck the previous day, will strengthen against world currencies and sap demand for refined palm oil products which are usually priced in US dollars.
Malaysian exports of refined palm olein, used in cooking oil in China and India, weakened, with cargo surveyor Societe Generale de Surveillance reporting a 9.8 per cent fall to 272,276 tonnes in June 1-15 from the same period a month earlier.
Other traders kept an eye out for the brewing El Nino weather condition, which the Australian Bureau of Meteorology said had more than a 50 per cent chance of developing.
El Nino brings hotter weather and less rain to top producers Malaysia and Indonesia and can aggravate biological tree stress and lead to lower palm oil yields 12 months later.
But investment bank Credit Suisse said the current low yield period could end in June given that it only lasts for six to nine months, although top planters like IOI Corp and Asiatic have not shown an improvement in production.
“We believe this could be attributed to the location (of these companies’) plantations in Sabah and Johor (states) (which) were particularly adversely affected in early 2009 due to excessive rainfall,” Credit Suisse said in a note to clients.
Palm oil output growth in Malaysia will stay weak for the next two years because an aggressive replanting scheme and hot weather will aggravate yield stress in oil palms, an industry regulator said on Tuesday.
In the Malaysian physical market, no trades were done for June delivery in the southern and central regions as sellers were hoping the market would recover, one dealer said.
Traders have pegged Indian stocks of imported palm oil at ports at slightly over 500,000 tonnes, which has led the country to slow imports this month.
“The fundamentals are pricing in weaker demand but this is too much, the market has oversold purely on speculation this week,” a trader with a local commodities brokerage said.
The benchmark September contract on Bursa Malaysia’s Derivatives Exchange dropped as much RM91 to RM2,284, a level unseen since April 10, before settling at RM2,299. Overall volume surged to 18,192 lots of 25 tonnes each from the usual 10,000 lots.
Open interest has fallen to about 75,000 lots this week from about 81,000 lots the week before as investors liquidated long positions on fears the recent global commodity rally was overdone, traders said.
Traders fear that the US dollar, despite hovering near lows struck the previous day, will strengthen against world currencies and sap demand for refined palm oil products which are usually priced in US dollars.
Malaysian exports of refined palm olein, used in cooking oil in China and India, weakened, with cargo surveyor Societe Generale de Surveillance reporting a 9.8 per cent fall to 272,276 tonnes in June 1-15 from the same period a month earlier.
Other traders kept an eye out for the brewing El Nino weather condition, which the Australian Bureau of Meteorology said had more than a 50 per cent chance of developing.
El Nino brings hotter weather and less rain to top producers Malaysia and Indonesia and can aggravate biological tree stress and lead to lower palm oil yields 12 months later.
But investment bank Credit Suisse said the current low yield period could end in June given that it only lasts for six to nine months, although top planters like IOI Corp and Asiatic have not shown an improvement in production.
“We believe this could be attributed to the location (of these companies’) plantations in Sabah and Johor (states) (which) were particularly adversely affected in early 2009 due to excessive rainfall,” Credit Suisse said in a note to clients.
Palm oil output growth in Malaysia will stay weak for the next two years because an aggressive replanting scheme and hot weather will aggravate yield stress in oil palms, an industry regulator said on Tuesday.
In the Malaysian physical market, no trades were done for June delivery in the southern and central regions as sellers were hoping the market would recover, one dealer said.
Indopremier BBCA (BUY TP Rp 4700)
BBCA with its unbeatable franchise value, its conservative management and its growth opportunity triggered us to place the bank as one of our favorite stock. Although in term of Price to Book (PBV) ratio it is one of the most expensive bank, we view that the market should give a premium to the bank which is proven in the turbulence condition. We also see that the management decision to choose consumer credit as a growth driver this year is the best choice given higher risk for corporate credit environment. We also see positive progress from UIB bank acquisition and two defaulters restructuring which will give it a bright future outlook. Finally, we increase BBCA’s target price to 4700, implying 2.8X PBV FY10 and 12.47 X PER FY10.
CIMB Bank Panin Company update - Warming up
(PNBN IJ / PNBN.JK, TRADING BUY - Maintained, Rp640 - Tgt. Rp800, Financial Services)
Recent more intense trading and massive accumulation of Bank Panin's shares led by Panin Sekuritas and some foreign brokers appear to support our view that Panin's shares would be demanded by either its founder or ANZ on a potential competition for a higher stake. With foreign investors' appetite for Indonesian assets and banking valuations recovering, the next scenario of a stake sale to financial investors has become more plausible. Bank Panin's warrants and Panin Life's shares have been similarly surging, as attractive proxies. We maintain our Trading Buy on Panin with an unchanged target price of Rp800, based on a 20% discount to the average 2.6x trailing P/BV in recent banking acquisitions.
Recent more intense trading and massive accumulation of Bank Panin's shares led by Panin Sekuritas and some foreign brokers appear to support our view that Panin's shares would be demanded by either its founder or ANZ on a potential competition for a higher stake. With foreign investors' appetite for Indonesian assets and banking valuations recovering, the next scenario of a stake sale to financial investors has become more plausible. Bank Panin's warrants and Panin Life's shares have been similarly surging, as attractive proxies. We maintain our Trading Buy on Panin with an unchanged target price of Rp800, based on a 20% discount to the average 2.6x trailing P/BV in recent banking acquisitions.
UBS Investment Research - Bumi Resources 1 of 3 acquisitions overvalued
1 of 3 acquisitions overvalued
FBS acquisition overvalued
Government agency, MAPPI, has declared Bumi's acquisition of Indonesian coal mine, Fajar Bumi Sakti (FBS), overvalued by US$39m (15%) relative to the initial price of US$247.5m. It furthermore concluded that the acquisitions of coal miner, Pendopo, and coal contractor, Darma Henwa, were fairly valued. The decision brings an end to a six month investigation into the value of Bumi's recent acquisitions, which minority shareholders' have criticised of being 1) overvalued and 2) owned and/or controlled by the Bakrie family.
Details remain scarce
We highlight that details pertaining to MAPPI's valuation remains scarce, in particular relating to assumptions applied to the valuation, hereunder coal and fuel price as well as production estimates. Needless to say, these assumptions will have a major impact on the value of the acquired companies.
Related party transaction risk remains
We furthermore highlight that MAPPI does not appear to comment on whether the acquisitions are related party transactions and, thus, whether they require shareholder approval. As such, there remains an overhang risk associated with the acquisitions, in our view.
Valuation
Our suspension on Bumi was lifted on 1 June when we cut our rating to Neutral from Buy following a 361% rally since 15 Jan 09. At the same time we raised our 12-month PE target multiple 4% to 7.9x from 7.6x, which is 20% below the sector average, while rolling over our EPS estimate 25% to mid-2010 Rp264. Our price target remains Rp2,100 which is based on a PE multiple.
FBS acquisition overvalued
Government agency, MAPPI, has declared Bumi's acquisition of Indonesian coal mine, Fajar Bumi Sakti (FBS), overvalued by US$39m (15%) relative to the initial price of US$247.5m. It furthermore concluded that the acquisitions of coal miner, Pendopo, and coal contractor, Darma Henwa, were fairly valued. The decision brings an end to a six month investigation into the value of Bumi's recent acquisitions, which minority shareholders' have criticised of being 1) overvalued and 2) owned and/or controlled by the Bakrie family.
Details remain scarce
We highlight that details pertaining to MAPPI's valuation remains scarce, in particular relating to assumptions applied to the valuation, hereunder coal and fuel price as well as production estimates. Needless to say, these assumptions will have a major impact on the value of the acquired companies.
Related party transaction risk remains
We furthermore highlight that MAPPI does not appear to comment on whether the acquisitions are related party transactions and, thus, whether they require shareholder approval. As such, there remains an overhang risk associated with the acquisitions, in our view.
Valuation
Our suspension on Bumi was lifted on 1 June when we cut our rating to Neutral from Buy following a 361% rally since 15 Jan 09. At the same time we raised our 12-month PE target multiple 4% to 7.9x from 7.6x, which is 20% below the sector average, while rolling over our EPS estimate 25% to mid-2010 Rp264. Our price target remains Rp2,100 which is based on a PE multiple.
Credit Suisse - Asia Palm Oil sector - On rising El Niño risk and abating tree stress
Trend towards El Niño continues – the Australian Bureau of Meteorology, in its 17 June 2009 report, stated that the signs of a developing El Niño have strengthened. The odds of an El Niño are above 50%, which is more than double the normal risk of an event. However, it is still possible that recent trends may stall. The next update is on 1 July 2009.
There is supporting data from monthly FFB production data that “tree stress” for KLKepong and Astra Agro is over. However, some plantation companies, like IOI Corp and Asiatic, do not show much of an improvement. We believe that this could be attributed to: 1) the location of the plantations, and 2) the age profile.
We have UNDERPERFORM ratings on IOI, Sime Darby and KL Kepong, as valuations are rich. We maintain our OUTPERFORM ratings on Indofood Agri and London Sumatra, and NEUTRAL on Wilmar and Astra Agro.
There is supporting data from monthly FFB production data that “tree stress” for KLKepong and Astra Agro is over. However, some plantation companies, like IOI Corp and Asiatic, do not show much of an improvement. We believe that this could be attributed to: 1) the location of the plantations, and 2) the age profile.
We have UNDERPERFORM ratings on IOI, Sime Darby and KL Kepong, as valuations are rich. We maintain our OUTPERFORM ratings on Indofood Agri and London Sumatra, and NEUTRAL on Wilmar and Astra Agro.
Kamis, 18 Juni 2009
Reuters Nasdaq advances with tech, but banks curb Dow
NEW YORK (Reuters) - Technology shares buoyed the Nasdaq on Wednesday after positive broker comments on Qualcomm, but financial shares' losses held back the Dow and the S&P 500.
Banks were hurt by a broad debt ratings downgrade from Standard & Poor's and uncertainty over the government's extensive proposals for banking-industry reform. The KBW Bank index fell 3.3 percent.
Qualcomm was among the Nasdaq's leaders, up 3.8 percent at $45.09 after Goldman Sachs added the wireless technology supplier's stock to its "conviction buy" list.
Biotech companies also rose after Celgene Corp said its experimental anti-inflammatory drug was effective in a mid-stage study. Celgene rose 4.2 percent to $44.94.
Analysts said there were no surprises in President Barack Obama's plans to reshape financial regulation but uncertainty remained about the regulations' impact on the financial system and the wider economy.
"The reality is the government is going to create more costs for the financial industry and there's uncertainty in terms of what exactly those costs will be," said Rick Campagna, portfolio manager at Provident Investment Council in Pasadena, California.
"Because of the extra regulation, you probably end up having less leverage available to some financial institutions which, although (it) is a good thing systematically, creates lower return on equity across the board."
The Dow Jones industrial average fell 7.49 points, or 0.09 percent, to 8,497.18. The Standard & Poor's 500 Index was off 1.26 points, or 0.14 percent, at 910.71. The Nasdaq Composite Index gained 11.88 points, or 0.66 percent, to 1,808.06. more...
Banks were hurt by a broad debt ratings downgrade from Standard & Poor's and uncertainty over the government's extensive proposals for banking-industry reform. The KBW Bank index fell 3.3 percent.
Qualcomm was among the Nasdaq's leaders, up 3.8 percent at $45.09 after Goldman Sachs added the wireless technology supplier's stock to its "conviction buy" list.
Biotech companies also rose after Celgene Corp said its experimental anti-inflammatory drug was effective in a mid-stage study. Celgene rose 4.2 percent to $44.94.
Analysts said there were no surprises in President Barack Obama's plans to reshape financial regulation but uncertainty remained about the regulations' impact on the financial system and the wider economy.
"The reality is the government is going to create more costs for the financial industry and there's uncertainty in terms of what exactly those costs will be," said Rick Campagna, portfolio manager at Provident Investment Council in Pasadena, California.
"Because of the extra regulation, you probably end up having less leverage available to some financial institutions which, although (it) is a good thing systematically, creates lower return on equity across the board."
The Dow Jones industrial average fell 7.49 points, or 0.09 percent, to 8,497.18. The Standard & Poor's 500 Index was off 1.26 points, or 0.14 percent, at 910.71. The Nasdaq Composite Index gained 11.88 points, or 0.66 percent, to 1,808.06. more...
Associated Press 10 large US banks to repay $68B in TARP funds
WASHINGTON (AP) -- A key government effort to ease the credit crisis reached a milestone Wednesday as 10 large banks said they had repaid a total of $68 billion in bailout funds.
Treasury said last week that the banks could begin repaying money they received under the $700 billion financial system bailout known as the Troubled Asset Relief Program, or TARP. The government created the program in October as its flagship effort to address the global credit crisis and teetering financial markets.
Meanwhile, officials hustled to prepare an announcement about the pricing of stock warrants Treasury holds -- a final barrier to the banks' ending their ties to the bailout program. The warrants allow Treasury to buy the banks' stock at a fixed price at some future date. The banks now want to buy back those warrants.
And a congressional watchdog called for more transparency about the warrants and the repayment process.
The flurry of activity around TARP followed months of criticism from opponents of government intervention in the financial industry. It showed that some of the biggest TARP investments are winding down sooner than many had feared.
More than $70 billion has been returned to the fund. That includes Wednesday's redemptions and about $2 billion in earlier repayments from smaller banks. more...
Treasury said last week that the banks could begin repaying money they received under the $700 billion financial system bailout known as the Troubled Asset Relief Program, or TARP. The government created the program in October as its flagship effort to address the global credit crisis and teetering financial markets.
Meanwhile, officials hustled to prepare an announcement about the pricing of stock warrants Treasury holds -- a final barrier to the banks' ending their ties to the bailout program. The warrants allow Treasury to buy the banks' stock at a fixed price at some future date. The banks now want to buy back those warrants.
And a congressional watchdog called for more transparency about the warrants and the repayment process.
The flurry of activity around TARP followed months of criticism from opponents of government intervention in the financial industry. It showed that some of the biggest TARP investments are winding down sooner than many had feared.
More than $70 billion has been returned to the fund. That includes Wednesday's redemptions and about $2 billion in earlier repayments from smaller banks. more...
Associated Press Consumer prices edge up in May; inflation in check
WASHINGTON (AP) -- Consumer prices rose less than expected in May and posted the steepest annual drop in 59 years, according to government data released Wednesday, fresh evidence that the recession is keeping inflation in check.
Low prices will make it easier for the Federal Reserve at its meeting next week to keep a key short-term interest rate near zero, where it has been since December. Bond yields ticked up earlier this month on concerns that signs of an improving economy would force the Fed to raise rates later this year.
But most economists consider a rate increase unlikely until next year.
Still, as higher government spending pushes this year's deficit toward a record of nearly $1.85 trillion, many economists warn that inflation could be a threat in two to three years.
"Inflation may be coming, but it's not here yet and likely won't be for some time," Richard Moody, chief economist at Forward Capital, wrote in a note to clients.
The Labor Department reported that the consumer price index rose a seasonally adjusted 0.1 percent last month, below analysts' expectations of a 0.3 percent rise.
Excluding volatile food and energy costs, core prices also increased 0.1 percent, matching expectations. more...
Low prices will make it easier for the Federal Reserve at its meeting next week to keep a key short-term interest rate near zero, where it has been since December. Bond yields ticked up earlier this month on concerns that signs of an improving economy would force the Fed to raise rates later this year.
But most economists consider a rate increase unlikely until next year.
Still, as higher government spending pushes this year's deficit toward a record of nearly $1.85 trillion, many economists warn that inflation could be a threat in two to three years.
"Inflation may be coming, but it's not here yet and likely won't be for some time," Richard Moody, chief economist at Forward Capital, wrote in a note to clients.
The Labor Department reported that the consumer price index rose a seasonally adjusted 0.1 percent last month, below analysts' expectations of a 0.3 percent rise.
Excluding volatile food and energy costs, core prices also increased 0.1 percent, matching expectations. more...
DEWA : Two New Coal Stocks Added to Stowe Global Coal Index in Quarterly Rebalancing
(New York, June 9, 2009) The Stowe Global Coal IndexSM (TICKER: COAL) will add two new components, effective 6:00 PM (EST) Friday, June 19, 2009. No stocks will be deleted from the index, changing the number of index components to 34. The changes result from the quarterly rebalancing of the index.
The additions to COAL are Western Canadian Coal (TICKER: WTN CN) and Darma Henwa PT TBK (TICKER: DEWA IJ).
A complete list of constituents and weights will be posted on the Stowe Global Coal IndexSM website, (http://stowe.snetglobalindexes.com/about_the_indexes.php).
The Stowe Global Coal IndexSM is a capitalization-weighted, float-adjusted index of the most prominent coal stocks in the world. To be included in the COAL index, stocks must pass multiple screens, including for capitalization, float, exchange listing, share price and turnover.
Detailed information, including constituent data, rules and price information, on the Stowe Global Coal IndexSM is available at www.stowecoalindex.com. Data is also available through most vendors of financial data.
Index: Stowe Global Coal IndexSM (USD) TICKER: COAL
Index: Stowe Global Coal IndexSM (EUR) TICKER: COALE
The additions to COAL are Western Canadian Coal (TICKER: WTN CN) and Darma Henwa PT TBK (TICKER: DEWA IJ).
A complete list of constituents and weights will be posted on the Stowe Global Coal IndexSM website, (http://stowe.snetglobalindexes.com/about_the_indexes.php).
The Stowe Global Coal IndexSM is a capitalization-weighted, float-adjusted index of the most prominent coal stocks in the world. To be included in the COAL index, stocks must pass multiple screens, including for capitalization, float, exchange listing, share price and turnover.
Detailed information, including constituent data, rules and price information, on the Stowe Global Coal IndexSM is available at www.stowecoalindex.com. Data is also available through most vendors of financial data.
Index: Stowe Global Coal IndexSM (USD) TICKER: COAL
Index: Stowe Global Coal IndexSM (EUR) TICKER: COALE
Bloomberg Oil Little Changed After Rising on Supply Drop, Demand Increase
June 18 (Bloomberg) -- Crude oil was little changed after rising for the first time in four days yesterday, when a government report showed a bigger-than-forecast inventory decline and an increase in fuel demand.
Crude oil stockpiles fell 3.87 million barrels to 357.7 million, the Energy Department said yesterday. The drop was more than twice the size forecast by analysts surveyed by Bloomberg News. Fuel consumption climbed 1.3 percent to 19 million barrels a day last week, the highest since March. Refineries increased operating rates and gasoline output, the report showed.
“There have been several multimillion-barrel inventory declines recently,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “Imports have been in the 8-to-9 million-barrel- a-day area, which is just not enough to maintain stockpiles during this period of high refinery runs.”
Crude oil for July delivery fell 4 cents to $70.99 a barrel at 8:22 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 59 percent this year. Yesterday, futures rose 56 cents, or 0.8 percent, to settle at $71.03 a barrel.
Oil dropped earlier yesterday after the Energy Department report showed that fuel stockpiles increased. Gasoline inventories climbed 3.39 million barrels to 205 million last week, the biggest gain since January. Supplies of distillate fuel, a category that includes heating oil and diesel, rose 308,000 barrels to 150 million. more...
Crude oil stockpiles fell 3.87 million barrels to 357.7 million, the Energy Department said yesterday. The drop was more than twice the size forecast by analysts surveyed by Bloomberg News. Fuel consumption climbed 1.3 percent to 19 million barrels a day last week, the highest since March. Refineries increased operating rates and gasoline output, the report showed.
“There have been several multimillion-barrel inventory declines recently,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “Imports have been in the 8-to-9 million-barrel- a-day area, which is just not enough to maintain stockpiles during this period of high refinery runs.”
Crude oil for July delivery fell 4 cents to $70.99 a barrel at 8:22 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 59 percent this year. Yesterday, futures rose 56 cents, or 0.8 percent, to settle at $71.03 a barrel.
Oil dropped earlier yesterday after the Energy Department report showed that fuel stockpiles increased. Gasoline inventories climbed 3.39 million barrels to 205 million last week, the biggest gain since January. Supplies of distillate fuel, a category that includes heating oil and diesel, rose 308,000 barrels to 150 million. more...
Business Times Palm rises on better demand outlook
CPO FUTURES
Palm oil futures yesterday advanced, reversing earlier losses, as crude oil and soybeans rallied, boosting the demand outlook for the tropical commodity used as cooking oil and alternative fuel.
“If crude oil goes up, it will support the price a bit more,” Ong Chee Ting, an analyst at Maybank Investment Bank Bhd., said from Kuala Lumpur. Palm oil also typically tracks prices of soybean oil, its main substitute.
August-delivery palm oil gained as much as 1.3 per cent to RM2,430 a metric ton on the Malaysia Derivatives Exchange in the afternoon trading session, and was up 0.6 per cent at RM2,414 at 5.40 pm local time.
Crude oil for July delivery gained 1.1 per cent to US$71.36 a barrel at 5.12 pm Singapore time, recovering from Monday’s losses in New York, as the dollar weakened against the euro and before a report on fuel supplies in the US.
Palm oil for September delivery on the Dalian Commodity Exchange in China, the largest palm oil user, closed unchanged at 6,448 yuan a ton.
Soybeans for November delivery traded in Chicago also gained, rising as much as 1.6 per cent to US$10.415 a bushel, lifting soybean oil as much as 2.4 per cent to 37.5 cents a pound.
Soybean oil is the most-consumed edible oil after palm oil. Both are used mainly for cooking oils and increasingly in alternative energy applications.
Soybean oil, which traditionally trades at a premium to palm oil, is 19 per cent more expensive, up from 16 per cent at the end of last week, according to Bloomberg data.
The US,. Brazil and Argentina are the largest soybean producers. Indonesia and Malaysia are the largest palm oil producers, accounting for about 90 per cent of world output.
Palm oil futures yesterday advanced, reversing earlier losses, as crude oil and soybeans rallied, boosting the demand outlook for the tropical commodity used as cooking oil and alternative fuel.
“If crude oil goes up, it will support the price a bit more,” Ong Chee Ting, an analyst at Maybank Investment Bank Bhd., said from Kuala Lumpur. Palm oil also typically tracks prices of soybean oil, its main substitute.
August-delivery palm oil gained as much as 1.3 per cent to RM2,430 a metric ton on the Malaysia Derivatives Exchange in the afternoon trading session, and was up 0.6 per cent at RM2,414 at 5.40 pm local time.
Crude oil for July delivery gained 1.1 per cent to US$71.36 a barrel at 5.12 pm Singapore time, recovering from Monday’s losses in New York, as the dollar weakened against the euro and before a report on fuel supplies in the US.
Palm oil for September delivery on the Dalian Commodity Exchange in China, the largest palm oil user, closed unchanged at 6,448 yuan a ton.
Soybeans for November delivery traded in Chicago also gained, rising as much as 1.6 per cent to US$10.415 a bushel, lifting soybean oil as much as 2.4 per cent to 37.5 cents a pound.
Soybean oil is the most-consumed edible oil after palm oil. Both are used mainly for cooking oils and increasingly in alternative energy applications.
Soybean oil, which traditionally trades at a premium to palm oil, is 19 per cent more expensive, up from 16 per cent at the end of last week, according to Bloomberg data.
The US,. Brazil and Argentina are the largest soybean producers. Indonesia and Malaysia are the largest palm oil producers, accounting for about 90 per cent of world output.
Macquarie Regional coal
Picking the gems out of the ash
Prefer coking coal, Shenhua, Banpu, SAR/SRL
On our recently revised commodity price changes and performance of the coal sector, we made the following changes in recommendations and price targets:
Upgrading Shenhua, BHP and Xstrata from Neutral to Outperform; reinitiating on SAR with an Outperform, and large price target upgrades for Banpu, Fushan and Hidili and Gujarat, where we reiterate Outperforms.
Downgrading Yanzhou, PTBA, Adaro and Bayan from Neutral to Underperform and China Coal from Outperform to Neutral.
Reiterating Underperform on Indika, Bumi, Centennial and Macarthur Coal.
Preference for coking coal over thermal coal
We prefer coking coal to thermal coal, due to the former’s greater supplier discipline, product scarcity and China's larger presence in coking coal markets. We raise our coking coal forecasts by 27% from US$110/t to US$140/t in 2010. Our changes to thermal forecasts are more subdued, increasing from US$65/t to US$70/t in 2010. While we see increasing industrial production being useful for thermal demand, the Chinese import arbitrage does not work at current prices.
China – upgrade Shenhua; downgrade Yanzhou, China Coal
We upgrade Shenhua from Neutral to Outperform and raise our price target from HK$18.5 to HK$32.5, as we have increasing confidence that this company has a distinct competitive advantage leading it to double production to 400mt longer term with a highly efficient cost base and integrated supply chain. We downgrade China Coal and Yanzhou predominantly due to their valuations trading at 16x and 12x PER, respectively, and our view that the Chinese thermal market will stay roughly balanced and not as tight as the coking coal market. We reiterate our Outperform recommendations on Fushan and Hidili but raise our price target by 70%.
Asean and India – only SAR, Gujarat and Banpu stand out In general, the Asean coal sector appears stretched on valuation trading on 20x, hence our downgrades noted above. However, three stocks stand out to us:
SAR: The risk/reward of the boundary approval appears very favourable.
Banpu: We raise our price target 42% on revised views of China coal assets.
Gujarat: Great coking coal asset on its way to be a leading global exporter.
BHP and Xstrata upgrade; SRL and Felix still Outperforms
We upgraded BHP and Xstrata based on our more positive outlook on coking coal, zinc and copper. Out of the Australian predominant coal plays, we prefer SRL and Felix Resources, as we believe Gloucester and Macarthur Coal are overvalued.
Prefer coking coal, Shenhua, Banpu, SAR/SRL
On our recently revised commodity price changes and performance of the coal sector, we made the following changes in recommendations and price targets:
Upgrading Shenhua, BHP and Xstrata from Neutral to Outperform; reinitiating on SAR with an Outperform, and large price target upgrades for Banpu, Fushan and Hidili and Gujarat, where we reiterate Outperforms.
Downgrading Yanzhou, PTBA, Adaro and Bayan from Neutral to Underperform and China Coal from Outperform to Neutral.
Reiterating Underperform on Indika, Bumi, Centennial and Macarthur Coal.
Preference for coking coal over thermal coal
We prefer coking coal to thermal coal, due to the former’s greater supplier discipline, product scarcity and China's larger presence in coking coal markets. We raise our coking coal forecasts by 27% from US$110/t to US$140/t in 2010. Our changes to thermal forecasts are more subdued, increasing from US$65/t to US$70/t in 2010. While we see increasing industrial production being useful for thermal demand, the Chinese import arbitrage does not work at current prices.
China – upgrade Shenhua; downgrade Yanzhou, China Coal
We upgrade Shenhua from Neutral to Outperform and raise our price target from HK$18.5 to HK$32.5, as we have increasing confidence that this company has a distinct competitive advantage leading it to double production to 400mt longer term with a highly efficient cost base and integrated supply chain. We downgrade China Coal and Yanzhou predominantly due to their valuations trading at 16x and 12x PER, respectively, and our view that the Chinese thermal market will stay roughly balanced and not as tight as the coking coal market. We reiterate our Outperform recommendations on Fushan and Hidili but raise our price target by 70%.
Asean and India – only SAR, Gujarat and Banpu stand out In general, the Asean coal sector appears stretched on valuation trading on 20x, hence our downgrades noted above. However, three stocks stand out to us:
SAR: The risk/reward of the boundary approval appears very favourable.
Banpu: We raise our price target 42% on revised views of China coal assets.
Gujarat: Great coking coal asset on its way to be a leading global exporter.
BHP and Xstrata upgrade; SRL and Felix still Outperforms
We upgraded BHP and Xstrata based on our more positive outlook on coking coal, zinc and copper. Out of the Australian predominant coal plays, we prefer SRL and Felix Resources, as we believe Gloucester and Macarthur Coal are overvalued.
Macquarie Indika Energy Like the company, not the price
Event
We reiterate our Underperform recommendation on Indika but increase our target price to Rp1,900 from Rp1,225, representing 33% downside to the current share price. The revised target price reflects our slightly higher coal price assumption and lower cost. However, we think that the current share price is justifying a significantly higher coal price.
Our global commodities team has marginally increased its 2010 thermal coal price forecast to US$70/t from US$65/t.
Impact
Improving thermal coal outlook but reflected in forward coal market. We see medium-term supply demand balance tightening; however, this is more than reflected in the current forward curve with coal trading at US$90−100/t in 2011. Further, we are cautious on the coal price near term as we do not believe the Chinese import arbitrage economics work at current levels.
Lack of 2009 earnings visibility. The company as of now has merely priced in 60% of its 2009 sales volume at roughly US$60/t. Therefore, given we see risk on coal price in the near term plus the company’s low CV coal; we think the company’s 2009 earnings could be at risk.
EPC business highly dependant on Chevron. The majority of its EPC business comes from the Chevron contract (over 50% of EPC revenue) which currently is under negotiations for renewal. Therefore, should the company fail to win the contract renewal, its earnings could be negatively affected. However, the company has been able to renew its contract over the past 15 years.
Recent acquisitions appear sensible. We think that the company’s recent acquisitions (Petrosea [PTRO IJ, Rp9,600, NR] and 13 KP in West Kalimantan) appear strategically sensible and in line with the company’s strategy to become an integrated coal producer and contracting and IPP company.
Valuation is rich as it trades on our 2010 number at 22x PER, 1.2% dividend yield and 4% FCF yield. We think the stock is pricing in US$90/t by backing out 12x PER, which we see has a low probability of happening.
Election upside = market re-rating. We see the potential for a further re-rating in the market should SBY achieve a landslide victory.
Earnings and target price revision
We have raised our earnings for 2009−11 by 17%, 32%, and 48% respectively mainly due to slightly higher coal prices in 2010 and lower production costs.
Price catalyst
12-month price target: Rp1,900 based on a Sum of Parts methodology.
Catalyst: Increasing production and coal price and potential acquisitions
Action and recommendation
We therefore reiterate our Underperform recommendation on the stock with Rp1,900 target price due to expensive valuation.
We reiterate our Underperform recommendation on Indika but increase our target price to Rp1,900 from Rp1,225, representing 33% downside to the current share price. The revised target price reflects our slightly higher coal price assumption and lower cost. However, we think that the current share price is justifying a significantly higher coal price.
Our global commodities team has marginally increased its 2010 thermal coal price forecast to US$70/t from US$65/t.
Impact
Improving thermal coal outlook but reflected in forward coal market. We see medium-term supply demand balance tightening; however, this is more than reflected in the current forward curve with coal trading at US$90−100/t in 2011. Further, we are cautious on the coal price near term as we do not believe the Chinese import arbitrage economics work at current levels.
Lack of 2009 earnings visibility. The company as of now has merely priced in 60% of its 2009 sales volume at roughly US$60/t. Therefore, given we see risk on coal price in the near term plus the company’s low CV coal; we think the company’s 2009 earnings could be at risk.
EPC business highly dependant on Chevron. The majority of its EPC business comes from the Chevron contract (over 50% of EPC revenue) which currently is under negotiations for renewal. Therefore, should the company fail to win the contract renewal, its earnings could be negatively affected. However, the company has been able to renew its contract over the past 15 years.
Recent acquisitions appear sensible. We think that the company’s recent acquisitions (Petrosea [PTRO IJ, Rp9,600, NR] and 13 KP in West Kalimantan) appear strategically sensible and in line with the company’s strategy to become an integrated coal producer and contracting and IPP company.
Valuation is rich as it trades on our 2010 number at 22x PER, 1.2% dividend yield and 4% FCF yield. We think the stock is pricing in US$90/t by backing out 12x PER, which we see has a low probability of happening.
Election upside = market re-rating. We see the potential for a further re-rating in the market should SBY achieve a landslide victory.
Earnings and target price revision
We have raised our earnings for 2009−11 by 17%, 32%, and 48% respectively mainly due to slightly higher coal prices in 2010 and lower production costs.
Price catalyst
12-month price target: Rp1,900 based on a Sum of Parts methodology.
Catalyst: Increasing production and coal price and potential acquisitions
Action and recommendation
We therefore reiterate our Underperform recommendation on the stock with Rp1,900 target price due to expensive valuation.
Macquarie Indo Tambangraya Megah Still our preferred play in Indonesia
Event
We reiterate our Outperform recommendation and increase our target price from Rp21,000 to 24,500, representing 7% potential upside to the current price. The limited upside to our target price reflects our sector view that it appears fully valued. Further, our global commodities team has marginally increased its thermal 2010 forecast from US$65 up to US$70 per tonne.
Impact
Improving thermal coal outlook but reflected in forward coal market. We see our medium-term supply/demand balance tightening, however we think this is more than reflected in the current forward curve with coal trading US$90– 100/t in 2011. Further we are cautious on the coal price near term as we do not believe the Chinese import arbitrage economics work at current levels.
Solid production and capacity growth. The company has a sound production outlook of 10% pa, especially with the commencement of production at Indominco East block by 2H09. Further, in 2H09 it will increase its port load capacity from 12mt up to 18mt.
Solid 2009 earnings visibility. Currently the company has priced 90% of its production at a price of at least US$78/t (including coal swaps for index-linked contracts). The company is also starting to lock in 2010 contracts at high
swap values.
Solid balance sheet …useful in difficult times. At the end of 1Q09, the company was in a net cash position of roughly US$223m. This should position it for either an attractive acquisition or to increase shareholders’ remuneration.
Election upside = market re-rating. We see the potential for a further rerating in the market should SBY achieve a landslide victory.
Cheapest stock in the sector… Whilst on an absolute basis, we see limited upside to our target price, the stock is the cheapest in the sector at a 16x 2010E PER vs 20x the Indo coal sector. Further, should coal prices rise US$10 higher than our US$70/t forecast – we see the stock trading at 10x.
Earnings and target price revision
We upgrade our 2009/10 net profit forecasts by 4% and 22%, respectively, on the back of a higher prices and production and slightly lower costs.
Price catalyst
12-month price target: Rp24,500.00 based on a DCF methodology.
Catalyst: Increasing coal price, production, and shareholder’s remuneration.
Action and recommendation
We reiterate our Outperform recommendation and raise our target price to Rp24,500. The stock remains our preferred pick in Indonesia given its increasing production and solid 2009 earnings visibility, and it is the cheapest stock in the sector.
We reiterate our Outperform recommendation and increase our target price from Rp21,000 to 24,500, representing 7% potential upside to the current price. The limited upside to our target price reflects our sector view that it appears fully valued. Further, our global commodities team has marginally increased its thermal 2010 forecast from US$65 up to US$70 per tonne.
Impact
Improving thermal coal outlook but reflected in forward coal market. We see our medium-term supply/demand balance tightening, however we think this is more than reflected in the current forward curve with coal trading US$90– 100/t in 2011. Further we are cautious on the coal price near term as we do not believe the Chinese import arbitrage economics work at current levels.
Solid production and capacity growth. The company has a sound production outlook of 10% pa, especially with the commencement of production at Indominco East block by 2H09. Further, in 2H09 it will increase its port load capacity from 12mt up to 18mt.
Solid 2009 earnings visibility. Currently the company has priced 90% of its production at a price of at least US$78/t (including coal swaps for index-linked contracts). The company is also starting to lock in 2010 contracts at high
swap values.
Solid balance sheet …useful in difficult times. At the end of 1Q09, the company was in a net cash position of roughly US$223m. This should position it for either an attractive acquisition or to increase shareholders’ remuneration.
Election upside = market re-rating. We see the potential for a further rerating in the market should SBY achieve a landslide victory.
Cheapest stock in the sector… Whilst on an absolute basis, we see limited upside to our target price, the stock is the cheapest in the sector at a 16x 2010E PER vs 20x the Indo coal sector. Further, should coal prices rise US$10 higher than our US$70/t forecast – we see the stock trading at 10x.
Earnings and target price revision
We upgrade our 2009/10 net profit forecasts by 4% and 22%, respectively, on the back of a higher prices and production and slightly lower costs.
Price catalyst
12-month price target: Rp24,500.00 based on a DCF methodology.
Catalyst: Increasing coal price, production, and shareholder’s remuneration.
Action and recommendation
We reiterate our Outperform recommendation and raise our target price to Rp24,500. The stock remains our preferred pick in Indonesia given its increasing production and solid 2009 earnings visibility, and it is the cheapest stock in the sector.
Macquarie United Tractors Expensive given peaking margin
Event
We reiterate our Neutral recommendation on UNTR, but raise our price target to Rp10,300 from Rp9,250. Whilst we like the company, we think the stock appears fully priced on a DCF valuation as well as the benign earnings outlook.
Impact
Volumes robust heading into 2010…given declining interest rates and improving commodities prices. This is reflected in our 20% volume increase in heavy equipment, 15% increase in coal contracting volumes and over 100% increase in coal sales (due to the new mine expansion) in 2010.
...but margins are peaking…We do not see these margins as being sustainable long term given the potential for increasing competition in heavy equipment, the appreciation of the rupiah and coal contracting margins typically peak upon renewal (which occurred late last year).
…leading to a flat earnings profile with the stock appearing fully valued…We forecast a broadly flat earnings profile over the next three years. We think that the stock therefore looks fully valued on 11x in 2010 given its flat earnings profile. Further, it currently trades around our target price.
Election – Upside risk? We note that should SBY have a landslide victory, that this would likely lead to a market re-rating, which could be useful for stock performance.
We like the business model (of being an integrated equipment supplier, coal producer and coal contractor) and management team. Should we see a correction in the share price, this would turn us more positive.
Earnings and target price revision
We slightly downgrade our 2009 earnings forecast by 3% due to lower coal sales volume, but upgrade our 2010 forecast by 8% to reflect higher coal price assumptions and unit sales. We raise our target price to Rp10,300 from Rp9,250.
Price catalyst
12-month price target: Rp10,300 based on a DCF methodology.
Catalyst: Sustainable high margin in heavy equipment and coal contracting business, increasing coal price and coal production.
Action and recommendation
We reiterate our Neutral recommendation on the stock with Rp10,300/sh target price. Whilst we think the company’s volume outlook appears strong, we do not think the current margin levels are sustainable and therefore believe that the risks are in the price.
We reiterate our Neutral recommendation on UNTR, but raise our price target to Rp10,300 from Rp9,250. Whilst we like the company, we think the stock appears fully priced on a DCF valuation as well as the benign earnings outlook.
Impact
Volumes robust heading into 2010…given declining interest rates and improving commodities prices. This is reflected in our 20% volume increase in heavy equipment, 15% increase in coal contracting volumes and over 100% increase in coal sales (due to the new mine expansion) in 2010.
...but margins are peaking…We do not see these margins as being sustainable long term given the potential for increasing competition in heavy equipment, the appreciation of the rupiah and coal contracting margins typically peak upon renewal (which occurred late last year).
…leading to a flat earnings profile with the stock appearing fully valued…We forecast a broadly flat earnings profile over the next three years. We think that the stock therefore looks fully valued on 11x in 2010 given its flat earnings profile. Further, it currently trades around our target price.
Election – Upside risk? We note that should SBY have a landslide victory, that this would likely lead to a market re-rating, which could be useful for stock performance.
We like the business model (of being an integrated equipment supplier, coal producer and coal contractor) and management team. Should we see a correction in the share price, this would turn us more positive.
Earnings and target price revision
We slightly downgrade our 2009 earnings forecast by 3% due to lower coal sales volume, but upgrade our 2010 forecast by 8% to reflect higher coal price assumptions and unit sales. We raise our target price to Rp10,300 from Rp9,250.
Price catalyst
12-month price target: Rp10,300 based on a DCF methodology.
Catalyst: Sustainable high margin in heavy equipment and coal contracting business, increasing coal price and coal production.
Action and recommendation
We reiterate our Neutral recommendation on the stock with Rp10,300/sh target price. Whilst we think the company’s volume outlook appears strong, we do not think the current margin levels are sustainable and therefore believe that the risks are in the price.
Macquarie Bumi Resources Stars starting to move into alignment
Event
We reiterate our Underperform recommendation on BUMI, but raise our price target from Rp500 up to Rp2,000 per share. We see operations improving and an increasing alignment between Bakrie and minority interests.
Our global commodities team has marginally increased its thermal 2010 forecast from US$65 up to US$70 per tonne.
Impact
Improving thermal coal outlook, but already reflected in forward coal market. We see our medium-term supply/demand balance tightening; however, this is more than reflected in the current forward curve with coal trading US$90-100/t in 2011. Further, we are more cautious on the coal price in the near term, as we do not believe the Chinese import arbitrage works.
Operations are improving, as evidenced by the recent month’s production hitting a 60mt annualised run rate, and progress in restructuring the Darmahenwa (DEWA IJ, Rp235, NR) transaction. Bakrie’s debt problems appear to be more behind than in front of them. Whilst the financing structure is exceptionally vague, the company appears to have refinanced it debts. We are encouraged that Adaro has been able to
redeem its US$100m Re-capital (a Bakrie-related broker), which is a sign that the "REPO" issue is behind them. Further, Bakrie could benefit from a strong SBY victory. Should SBY win the first presidential election outright, there is a possibility that Kalla could be pressured out of the Golkar party. Bakrie could step in, to be the head of Golkar, and therefore get a seat on the cabinet.
Raising valuation, but too stretched to chase. We upgrade our valuation from Rp500 to Rp2,000 per share, as we think (and hope) that other related party transactions are behind us. However, with the stock trading on 18x PER in 2010, we think it is the wrong time to be chasing the stock price.
Earnings and target price revision
We upgrade 2009 and 2010 net profit by 10% and 18%, respectively, based
on higher prices, slightly lower cost and lower effective tax rate.
Price catalyst
12-month price target: Rp2,000.00 based on a DCF methodology.
Catalyst: Indonesian elections; coal prices; BNBR financing clarification
Action and recommendation
We reiterate our Underperform recommendation, but highlight that this stock will never be for those fund managers who do not believe that corporate governance is in the price. For those that do, however, we think Bumi will be a key beneficiary of increasing coal prices in the medium term.
We reiterate our Underperform recommendation on BUMI, but raise our price target from Rp500 up to Rp2,000 per share. We see operations improving and an increasing alignment between Bakrie and minority interests.
Our global commodities team has marginally increased its thermal 2010 forecast from US$65 up to US$70 per tonne.
Impact
Improving thermal coal outlook, but already reflected in forward coal market. We see our medium-term supply/demand balance tightening; however, this is more than reflected in the current forward curve with coal trading US$90-100/t in 2011. Further, we are more cautious on the coal price in the near term, as we do not believe the Chinese import arbitrage works.
Operations are improving, as evidenced by the recent month’s production hitting a 60mt annualised run rate, and progress in restructuring the Darmahenwa (DEWA IJ, Rp235, NR) transaction. Bakrie’s debt problems appear to be more behind than in front of them. Whilst the financing structure is exceptionally vague, the company appears to have refinanced it debts. We are encouraged that Adaro has been able to
redeem its US$100m Re-capital (a Bakrie-related broker), which is a sign that the "REPO" issue is behind them. Further, Bakrie could benefit from a strong SBY victory. Should SBY win the first presidential election outright, there is a possibility that Kalla could be pressured out of the Golkar party. Bakrie could step in, to be the head of Golkar, and therefore get a seat on the cabinet.
Raising valuation, but too stretched to chase. We upgrade our valuation from Rp500 to Rp2,000 per share, as we think (and hope) that other related party transactions are behind us. However, with the stock trading on 18x PER in 2010, we think it is the wrong time to be chasing the stock price.
Earnings and target price revision
We upgrade 2009 and 2010 net profit by 10% and 18%, respectively, based
on higher prices, slightly lower cost and lower effective tax rate.
Price catalyst
12-month price target: Rp2,000.00 based on a DCF methodology.
Catalyst: Indonesian elections; coal prices; BNBR financing clarification
Action and recommendation
We reiterate our Underperform recommendation, but highlight that this stock will never be for those fund managers who do not believe that corporate governance is in the price. For those that do, however, we think Bumi will be a key beneficiary of increasing coal prices in the medium term.
Macquarie Bukit Asam Priced for perfection
Event
We downgrade our rating of PTBA to Underperform from Neutral but slightly upgrade our target price to Rp8,100 from Rp7,500, representing 39% downside from the current price. Our global commodities team has marginally increased its thermal 2010 forecast to US$70 per tonne from US$65.
Impact
Improving thermal coal outlook but reflected in forward coal market. We see our medium-term supply/demand balance tightening; however, we think this is more than reflected in the current forward curve, with coal trading at US$90–100/t in 2011. Furthermore, we are cautious about the coal price near term, as we do not believe that the Chinese import arbitrage economics work at current levels.
What goes up . . . must come down. PTBA was very successful in a timely negotiation of its largest contract (Suralaya) in 2009, up 59%, due to the high coal prices at the time (US$125/t) but also the exchange rate of Rp12,000/US$. We forecast a 43% decline in this contract price in 2010, reflecting our US$70/t forecast but also an exchange rate of Rp9,625/US$.
Expensive vs our DCF-driven target price . . . The stock trades at a substantial premium to our DCF-driven target price of Rp8,100, where we assume volume increases from 13mt (2008) to 20mt (2012) via expansion of the existing railway. It also trades at a premium to our fair value (Rp10,800), where we assume the two power plants and new railway are completed, which increases sales volumes to 52mt (2015). To back out the current share price, we need to assume that US$90/t and volumes increase to 52mt in the long term.
. . . and too expensive on a relative basis, trading at 17x PER in 2010E, 4.9% dividend yield and 5.7% FCFE yield in 2010E. We think the stock is pricing in US$80/t (2010) by backing out a 12x PER, which is a reasonable upside scenario, in our view; however, at best we think the stock is fairly valued.
Election upside = market re-rating. We see the potential for a further re-rating in the market should SBY achieve a landslide victory.
Earnings and target price revision
We upgrade our earnings estimates by 3% and 30% for 2009 and 2010, respectively, on the back of our higher price assumptions and lower costs. However, we are 37% below consensus expectations in 2010. We slightly upgrade our target price to Rp8,100 from Rp7,500.
Price catalyst
12-month target price: Rp8,100 based on a DCF methodology.
Catalyst: Repricing of contracts downward in 2010, coal price weakness.
Action and recommendation
We downgrade our rating of Bukit to Underperform from Neutral due to its expensive valuation versus the market, and our price target and fair value.
We downgrade our rating of PTBA to Underperform from Neutral but slightly upgrade our target price to Rp8,100 from Rp7,500, representing 39% downside from the current price. Our global commodities team has marginally increased its thermal 2010 forecast to US$70 per tonne from US$65.
Impact
Improving thermal coal outlook but reflected in forward coal market. We see our medium-term supply/demand balance tightening; however, we think this is more than reflected in the current forward curve, with coal trading at US$90–100/t in 2011. Furthermore, we are cautious about the coal price near term, as we do not believe that the Chinese import arbitrage economics work at current levels.
What goes up . . . must come down. PTBA was very successful in a timely negotiation of its largest contract (Suralaya) in 2009, up 59%, due to the high coal prices at the time (US$125/t) but also the exchange rate of Rp12,000/US$. We forecast a 43% decline in this contract price in 2010, reflecting our US$70/t forecast but also an exchange rate of Rp9,625/US$.
Expensive vs our DCF-driven target price . . . The stock trades at a substantial premium to our DCF-driven target price of Rp8,100, where we assume volume increases from 13mt (2008) to 20mt (2012) via expansion of the existing railway. It also trades at a premium to our fair value (Rp10,800), where we assume the two power plants and new railway are completed, which increases sales volumes to 52mt (2015). To back out the current share price, we need to assume that US$90/t and volumes increase to 52mt in the long term.
. . . and too expensive on a relative basis, trading at 17x PER in 2010E, 4.9% dividend yield and 5.7% FCFE yield in 2010E. We think the stock is pricing in US$80/t (2010) by backing out a 12x PER, which is a reasonable upside scenario, in our view; however, at best we think the stock is fairly valued.
Election upside = market re-rating. We see the potential for a further re-rating in the market should SBY achieve a landslide victory.
Earnings and target price revision
We upgrade our earnings estimates by 3% and 30% for 2009 and 2010, respectively, on the back of our higher price assumptions and lower costs. However, we are 37% below consensus expectations in 2010. We slightly upgrade our target price to Rp8,100 from Rp7,500.
Price catalyst
12-month target price: Rp8,100 based on a DCF methodology.
Catalyst: Repricing of contracts downward in 2010, coal price weakness.
Action and recommendation
We downgrade our rating of Bukit to Underperform from Neutral due to its expensive valuation versus the market, and our price target and fair value.
Macquarie Bayan Resources Improving execution is in the price
Event
We downgraded our recommendation on Bayan to Underperform from Neutral but raise our target price from Rp1,340 to Rp2,250, implying a 58% downside to the current share price.
Our global commodities team has marginally increased its 2010 thermal coal price forecast from US$65/t to US$70/t
Impact
Improving thermal coal outlook: We see our medium-term supply/demand balance tightening. However, we think this is more than reflected in the current forward curve, with coal trading at US$90–100/t in 2011. Further, we are cautious on the coal price near term, as we do not believe the Chinese import arbitrage economics work at the current levels.
Improving execution: We believe the company has improved its operations significantly, evidenced by the 1Q09 production that was ahead of our expectation (2.4mt vs. budget of 1.8mt). The company is on track to achieve our forecast of 12mt coal production in 2009 and 12.5mt coal sales volumes.
High leverage to price: We believe the company is one of the most leveraged coal companies to the coal price, given its 100% export exposure and relatively high CV producer (at an average of 6,500 Kcal vs Indonesian average of 5,800Kcal). Further, the company is also starting to price in its 2010 contract at the current high forward curve price. As of now, the company has locked in roughly 13% of 2010 production volume at over US$80/t price.
…however, this is already in the price: We think the current share price has factored in the current 2010 forward curve of US$80-85/t coal price vs our US$70/t assumptions. While we think this is a reasonable upside scenario, we it is already factored into the share price.
Valuation is not cheap: On a relative basis, the stock appears expensive as it trades on 25x PER, 13.1 EV/EBITDA, and 2.4% dividend yield in 2010. This compares unfavourably with the Indonesian average of 20x PER. Earnings and target price revision We downgrade 2009 net profit by 36% to reflect higher production cash cost,
but upgraded 2010 by 45% to reflect higher price and production. We raise our price target from Rp1,340 to Rp2,250.
Price catalyst
12-month price target: Rp2,250 based on a DCF methodology.
Catalyst: Increasing coal price and production.
Action and recommendation
We downgrade our recommendation from Neutral to Underperform with a new price target of Rp2,250 on the back of expensive valuation (the current share price has already priced in the US$85–90/t coal price).
We downgraded our recommendation on Bayan to Underperform from Neutral but raise our target price from Rp1,340 to Rp2,250, implying a 58% downside to the current share price.
Our global commodities team has marginally increased its 2010 thermal coal price forecast from US$65/t to US$70/t
Impact
Improving thermal coal outlook: We see our medium-term supply/demand balance tightening. However, we think this is more than reflected in the current forward curve, with coal trading at US$90–100/t in 2011. Further, we are cautious on the coal price near term, as we do not believe the Chinese import arbitrage economics work at the current levels.
Improving execution: We believe the company has improved its operations significantly, evidenced by the 1Q09 production that was ahead of our expectation (2.4mt vs. budget of 1.8mt). The company is on track to achieve our forecast of 12mt coal production in 2009 and 12.5mt coal sales volumes.
High leverage to price: We believe the company is one of the most leveraged coal companies to the coal price, given its 100% export exposure and relatively high CV producer (at an average of 6,500 Kcal vs Indonesian average of 5,800Kcal). Further, the company is also starting to price in its 2010 contract at the current high forward curve price. As of now, the company has locked in roughly 13% of 2010 production volume at over US$80/t price.
…however, this is already in the price: We think the current share price has factored in the current 2010 forward curve of US$80-85/t coal price vs our US$70/t assumptions. While we think this is a reasonable upside scenario, we it is already factored into the share price.
Valuation is not cheap: On a relative basis, the stock appears expensive as it trades on 25x PER, 13.1 EV/EBITDA, and 2.4% dividend yield in 2010. This compares unfavourably with the Indonesian average of 20x PER. Earnings and target price revision We downgrade 2009 net profit by 36% to reflect higher production cash cost,
but upgraded 2010 by 45% to reflect higher price and production. We raise our price target from Rp1,340 to Rp2,250.
Price catalyst
12-month price target: Rp2,250 based on a DCF methodology.
Catalyst: Increasing coal price and production.
Action and recommendation
We downgrade our recommendation from Neutral to Underperform with a new price target of Rp2,250 on the back of expensive valuation (the current share price has already priced in the US$85–90/t coal price).
J.P. Morgan China Conference 2009 Key themes and conclusions
J.P. Morgan’s landmark China Conference concluded on Friday, having hosted almost 1000 delegates from 30 countries. The conference included an extensive schedule of events and offered a mixed but generally positive assessment of China’s economic prospects. The sessions concerning China’s domestic consumption and discretionary spending were especially well attended by investors this year. The conference also featured several high-profile panels on the Chinese and global financial markets, with speakers including Jamie Dimon, Bill Winters, Dai Xianglong (President of China’s National Council for Social Security Fund), Dr. Fang Xinghai (Director General of the Shanghai Financial Services Office), and a panel of international financiers including Sir Andrew Crockett, President of J.P. Morgan Chase international.
The broad themes and conclusions from the conference include:
_ China’s financial markets: A number of significant financial reforms and milestone developments can be anticipated in the next several quarters. Investors can look ahead to the introduction of index-tracking ETFs in China, foreign company and red-chip listings in Shanghai, the launch of financial futures, and the introduction of more commodity futures products.
_ Domestic consumption: China’s retail sales have benefited from the stimulus boost, although many brands have to lower their expectations from the 40-50% growth of the last 10 years - the next several years may see lower double-digit same-store sales growth. Consumer spending has been especially robust with regard to “everyday essential” items. In the property sector, strong residential transaction volumes are sustainable at stable prices, while in the auto sector, J.D. Power & Associates projects that China is forecast to surpass the US with 11mm vehicles sold in 2009 vs 10.4mm in the US.
_ Property sector: the "build it and they will come" era has drawn to a close for China’s property developers. The near-term outlook is stronger for segments that rely on domestic demand (mass market residential, retail, SME-oriented commercial property) as compared to those that rely on MNC demand (e.g., grade A office space, luxury residential). The policy- riven increase in bank lending to property developers is somewhat concerning, as it has propped up otherwise distressed developers, potentially exacerbating the problem of overcapacity.
_ China’s demand for commodities: the record level of imports for a range of commodities puzzled many presenters. Record iron ore
imports, the opportunistic buying of copper and arbitrage-driven imports of aluminum cannot be sustained at such lofty levels. Nevertheless, most speakers believed that China’s stabilizing GDP and recovering industrial production is good news for commodity markets.
_ Macro fundamentals: there are strong expectations for inflation to rise in the next several quarters. With slower rates of growth likely to be the norm going forward, Chinese policy will increasingly emphasize industrial restructuring, greater energy efficiency, deployment of China’s capital to support inland development, industrial optimization, securing energy and raw materials. We can also expect an acceleration of policy-driven development of social welfare, pension schemes, healthcare and rural development.
The broad themes and conclusions from the conference include:
_ China’s financial markets: A number of significant financial reforms and milestone developments can be anticipated in the next several quarters. Investors can look ahead to the introduction of index-tracking ETFs in China, foreign company and red-chip listings in Shanghai, the launch of financial futures, and the introduction of more commodity futures products.
_ Domestic consumption: China’s retail sales have benefited from the stimulus boost, although many brands have to lower their expectations from the 40-50% growth of the last 10 years - the next several years may see lower double-digit same-store sales growth. Consumer spending has been especially robust with regard to “everyday essential” items. In the property sector, strong residential transaction volumes are sustainable at stable prices, while in the auto sector, J.D. Power & Associates projects that China is forecast to surpass the US with 11mm vehicles sold in 2009 vs 10.4mm in the US.
_ Property sector: the "build it and they will come" era has drawn to a close for China’s property developers. The near-term outlook is stronger for segments that rely on domestic demand (mass market residential, retail, SME-oriented commercial property) as compared to those that rely on MNC demand (e.g., grade A office space, luxury residential). The policy- riven increase in bank lending to property developers is somewhat concerning, as it has propped up otherwise distressed developers, potentially exacerbating the problem of overcapacity.
_ China’s demand for commodities: the record level of imports for a range of commodities puzzled many presenters. Record iron ore
imports, the opportunistic buying of copper and arbitrage-driven imports of aluminum cannot be sustained at such lofty levels. Nevertheless, most speakers believed that China’s stabilizing GDP and recovering industrial production is good news for commodity markets.
_ Macro fundamentals: there are strong expectations for inflation to rise in the next several quarters. With slower rates of growth likely to be the norm going forward, Chinese policy will increasingly emphasize industrial restructuring, greater energy efficiency, deployment of China’s capital to support inland development, industrial optimization, securing energy and raw materials. We can also expect an acceleration of policy-driven development of social welfare, pension schemes, healthcare and rural development.
Tim Wilson (J.P. Morgan Global Head of Metals Sales - Strategy) presentation at J.P. Morgan China Conference 2009
Premiums for physical material remain high reflecting the tightness of the nearby metals markets, and further stock drawdowns from exchange stocks will spur the markets to higher levels. However the level of finished goods inventories needs to start reflecting the apparent optimism of the production sector, or this rally will fade fast..
The price evolution could be significantly binary – greater confidence , covering of short positions or implied short positions, and this market has the feel of 2006, and could easily trade up 20% even with high apparent stock levels. Lower confidence
and the unwinding of long positions could see this market very quickly retrace to Q1 levels – -20%. In either case volatility will be high and certainty of price direction low.
The conviction of financial players in these markets will remain key. Some have been on the trade, others are late to the game having expected this to be a Q4/Q1 event. In any event the correlation with an equity market recovery and continued positive corporate performance will be high.
Value has returned to the production sector in most metals and with that we will see a longer term commitment to new projects, especially whilst competition is low as availability of capital still limited to a few select players. Price protection of these projects and assets will run at higher levels than has been witnessed over the last 4 years of benign credit conditions.
Consumers, aware of their lack of cover in the last run up, have moved commodity risk to the front and centre of their corporate risk profiles, and will provide liquidity and support to a market within a range of reasonableness. Especially as their revenue lines remain subdued. Exuberance and panic covering have been sidelined for now aware of past poor experiences in other commodity sectors.
A healthy ranging market will evolve , where value is determined by rational business plans, and the degree of participation from producers , consumers and invetsors will increase with every price cycle. Volatility will remain elevated, but liquidity will improve.
The price evolution could be significantly binary – greater confidence , covering of short positions or implied short positions, and this market has the feel of 2006, and could easily trade up 20% even with high apparent stock levels. Lower confidence
and the unwinding of long positions could see this market very quickly retrace to Q1 levels – -20%. In either case volatility will be high and certainty of price direction low.
The conviction of financial players in these markets will remain key. Some have been on the trade, others are late to the game having expected this to be a Q4/Q1 event. In any event the correlation with an equity market recovery and continued positive corporate performance will be high.
Value has returned to the production sector in most metals and with that we will see a longer term commitment to new projects, especially whilst competition is low as availability of capital still limited to a few select players. Price protection of these projects and assets will run at higher levels than has been witnessed over the last 4 years of benign credit conditions.
Consumers, aware of their lack of cover in the last run up, have moved commodity risk to the front and centre of their corporate risk profiles, and will provide liquidity and support to a market within a range of reasonableness. Especially as their revenue lines remain subdued. Exuberance and panic covering have been sidelined for now aware of past poor experiences in other commodity sectors.
A healthy ranging market will evolve , where value is determined by rational business plans, and the degree of participation from producers , consumers and invetsors will increase with every price cycle. Volatility will remain elevated, but liquidity will improve.
Bloomberg Indonesia's Timah May Sell 50,000 Tons of Tin in 2009
June 17 (Bloomberg) -- PT Timah, the world's second-largest tin producer, may sell more this year than previously estimated if prices and demand continue to recover, executives from the Indonesian company said. "If prices rise to about $18,000 to $20,000, we can enter the spot market to add to contractual sales; that can boost sales to 50,000 tons," Corporate Secretary Abrun Abubakar said today in Jakarta. To be sure, "we still target sales volume of 45,000 tons to 47,000 tons this year," Abrun told reporters.
Tin futures in London, which traded today at $15,325 a metric ton, have gained 43 percent this year on speculation the global economy is recovering, reviving metals demand. Former Federal Reserve Chairman Paul Volcker said June 11 the global economic slump is easing "most clearly" in the U.S. and the U.K.
"Prices of commodities are recovering, which can help demand" for tin, Finance Director Krishna Syarif said. From the second quarter onward, "sales can be at least 4,000 tons a month," after a total of about 11,000 tons in the first three months," Syarif said. Timah sold 46,438 tons of tin in 2008. The average tin price may range from $14,000 to $15,000 a ton in the second half, Syarif said. Tin futures on the London Metal Exchange averaged $10,938 a ton in the first three months.
Pangkalpinang-based Timah may increase sales through spot buyers if prices climb, Syarif said. About 42,000 tons of the 47,000 sold last year were contractual sales, while the rest was through the spot market,Corporate Secretary Abrun said.
For Related News and Information:
Link to Company News: TINS IJ CN Top Stories: TOP Top
Metal Stories: METT Most-read metal stories: MNI MET
--Editors: Jake Lloyd-Smith, Matthew Oakley
Tin futures in London, which traded today at $15,325 a metric ton, have gained 43 percent this year on speculation the global economy is recovering, reviving metals demand. Former Federal Reserve Chairman Paul Volcker said June 11 the global economic slump is easing "most clearly" in the U.S. and the U.K.
"Prices of commodities are recovering, which can help demand" for tin, Finance Director Krishna Syarif said. From the second quarter onward, "sales can be at least 4,000 tons a month," after a total of about 11,000 tons in the first three months," Syarif said. Timah sold 46,438 tons of tin in 2008. The average tin price may range from $14,000 to $15,000 a ton in the second half, Syarif said. Tin futures on the London Metal Exchange averaged $10,938 a ton in the first three months.
Pangkalpinang-based Timah may increase sales through spot buyers if prices climb, Syarif said. About 42,000 tons of the 47,000 sold last year were contractual sales, while the rest was through the spot market,Corporate Secretary Abrun said.
For Related News and Information:
Link to Company News: TINS IJ
Metal Stories: METT
--Editors: Jake Lloyd-Smith, Matthew Oakley
Mandiri Sekuritas Base metals: China-driven recovery
China’s infrastructure-driven US$550bn stimulus package has revived construction and real estate activities recently. Prices of nickel, tin and copper have risen sharply as demand slowly improved. As risk perception falls, we have tapped a risk- free rate assumption of 9.5% and 6.2% equivalent to our 10-year Rupiah and US dollar bonds interest rate forecasts, respectively. Without any other changes, our upgraded TP for our metal counters are as follows: Antam (ANTM, Rp2,200, Neutral TP: Rp2,200), Inco (INCO, Rp4,400, Neutral, TP:Rp4,100) and Timah (TINS, Rp2,175, Sell, TP:Rp1,900), which are still below their current prices. With the limited downside, we upgrade the sector to Neutral from Sell.
De-stocking measures ……Due to the current de-stocking measures brought about by the fiscal stimulus, metal prices have gone up recently entwined with the resumption of higher contruction and manufacturing activities.
…….driving up LME prices. LME price has shot up sharply not necessarily due to demand in intermediate base metals but more so because of the supply de-congestion as a number of plants and mills have stopped or reduced production prior to the allocation of fiscal stimulus funds. Over the last three months LME nickel and tin prices have gone up by 65% and 51% respectively while inventories have not shown any significant decline, even rising by more than 50% over the same period.
Steel market remain directionless. Global data on stainless steel, which takes about 70% nickel content remains unassuring. Based on China’s stainless steel index in the month of May09, industrial stainless steel production rose only by 7%mom. Thus the short-term rebound driven by the US$585mn domestic stimulus which should help boost some fluctuative recovery in construction activities! , remains to be seen.
Higher TPs but still below current prices. With the rupiah strengthening and lower interest rate environment, we have adjusted our WACC assumption that landed a revised TPs for Antam Rp2,200/shr, Inco Rp4,100/shr and TINS Rp1,900/shr, still at watershed levels below their current prices. Valuations remain high at average PER09-10F of 60.6x and 21.7x, r! espective ly while regional peers points to a lower median discount of 60.2% versus domestic metals in 2009. Key share price boosters are (a) price and demand improvement (b) steel demand growth and (c) shutdown of inefficient plants to help constrict supply curve.
De-stocking measures ……Due to the current de-stocking measures brought about by the fiscal stimulus, metal prices have gone up recently entwined with the resumption of higher contruction and manufacturing activities.
…….driving up LME prices. LME price has shot up sharply not necessarily due to demand in intermediate base metals but more so because of the supply de-congestion as a number of plants and mills have stopped or reduced production prior to the allocation of fiscal stimulus funds. Over the last three months LME nickel and tin prices have gone up by 65% and 51% respectively while inventories have not shown any significant decline, even rising by more than 50% over the same period.
Steel market remain directionless. Global data on stainless steel, which takes about 70% nickel content remains unassuring. Based on China’s stainless steel index in the month of May09, industrial stainless steel production rose only by 7%mom. Thus the short-term rebound driven by the US$585mn domestic stimulus which should help boost some fluctuative recovery in construction activities! , remains to be seen.
Higher TPs but still below current prices. With the rupiah strengthening and lower interest rate environment, we have adjusted our WACC assumption that landed a revised TPs for Antam Rp2,200/shr, Inco Rp4,100/shr and TINS Rp1,900/shr, still at watershed levels below their current prices. Valuations remain high at average PER09-10F of 60.6x and 21.7x, r! espective ly while regional peers points to a lower median discount of 60.2% versus domestic metals in 2009. Key share price boosters are (a) price and demand improvement (b) steel demand growth and (c) shutdown of inefficient plants to help constrict supply curve.
Samuel London Sumatra (LSIP) Expects Better Outcome
Fast recovery in CPO price. Harga CPO di Rotterdam mengalami peningkatan signifikan di 2Q09 setelah sempat menyentuh level terendah US$435/ton di bulan Oct’08. Secara YTD’09 harga CPO telah menguat 32.4% dengan penutupan terakhir di level US$715/ton. Kenaikan harga CPO didorong langkanya produk soyabean dan turunnya persediaan CPO Malaysia. Harga CPO diperkirakan masih akan terjaga di level favorable US$650-US$750/ton selama 2H09 karena ketatnya produksi soyabean dan turunnya yield FFB dan produksi CPO.
Upgrade earnings by 47%-58% in FY09-10. Kenaikan harga CPO yang lebih cepat dari ekspektasi merupakan dasar kami untuk merevisi asumsi harga rata-rata CPO menjadi US$680/ton (dari US$450/ton) di FY09 dan US$750/ton (dari US$480/ton) di FY10. Revisi yang kami lakukan atas asumsi harga jual rata-rata CPO berdampak pada kenaikan pendapatan LSIP sebesar 27%-35% dan laba bersih sebesar 47%-58% di FY09-10.
The worst is over, better outcome is expected. Pendapatan dan laba bersih LSIP turun masing-masing 38% dan 59% di 1Q09 dipicu turunnya harga jual dan produksi CPO (-8.8%) dan karet (-19.1%). Namun LSIP berhasil membukukan margin operasional tertinggi sebesar 21.36% vs AALI 19.8% dan UNSP 8.3%. Kami memperkirakan kinerja LSIP akan meningkat di kuartal berikutnya seiring dengan reboundnya harga CPO di 2Q09.
Upgrade price target to Rp8,000/share, BUY. Kami mengupgrade target harga LSIP menjadi Rp8,000/shm, merefleksikan PE’10 sebesar 13.3x. Saat ini LSIP diperdagangkan pada PER’09-10 sebesar 14.2x-10.4x, fair terhadap rata-rata sektor di Indonesia 14.6x-10.5x. Namun valuasi LSIP masih terdiscount dari rata-rata regional sebesar 16.4x-14.1x. Fundamental LSIP mengalami perbaikan yang signifikan sejak selesainya debt restructuring tahun 2004 lalu. LSIP saat ini berada dalam posisi net cash sebesar Rp106/saham Vs net gearing sebesar 0.09x periode sebelumnya. Upgrade to BUY
Upgrade earnings by 47%-58% in FY09-10. Kenaikan harga CPO yang lebih cepat dari ekspektasi merupakan dasar kami untuk merevisi asumsi harga rata-rata CPO menjadi US$680/ton (dari US$450/ton) di FY09 dan US$750/ton (dari US$480/ton) di FY10. Revisi yang kami lakukan atas asumsi harga jual rata-rata CPO berdampak pada kenaikan pendapatan LSIP sebesar 27%-35% dan laba bersih sebesar 47%-58% di FY09-10.
The worst is over, better outcome is expected. Pendapatan dan laba bersih LSIP turun masing-masing 38% dan 59% di 1Q09 dipicu turunnya harga jual dan produksi CPO (-8.8%) dan karet (-19.1%). Namun LSIP berhasil membukukan margin operasional tertinggi sebesar 21.36% vs AALI 19.8% dan UNSP 8.3%. Kami memperkirakan kinerja LSIP akan meningkat di kuartal berikutnya seiring dengan reboundnya harga CPO di 2Q09.
Upgrade price target to Rp8,000/share, BUY. Kami mengupgrade target harga LSIP menjadi Rp8,000/shm, merefleksikan PE’10 sebesar 13.3x. Saat ini LSIP diperdagangkan pada PER’09-10 sebesar 14.2x-10.4x, fair terhadap rata-rata sektor di Indonesia 14.6x-10.5x. Namun valuasi LSIP masih terdiscount dari rata-rata regional sebesar 16.4x-14.1x. Fundamental LSIP mengalami perbaikan yang signifikan sejak selesainya debt restructuring tahun 2004 lalu. LSIP saat ini berada dalam posisi net cash sebesar Rp106/saham Vs net gearing sebesar 0.09x periode sebelumnya. Upgrade to BUY
Credit Suisse - Perusahaan Gas Negara - Gas demandto grow in Indonesia (TP raised to Rp 4,000/sh)]
We increase our target price for Perusahaan Gas Negara (PGAS) to Rp4,000 from Rp3,000 due to higher transmission fees, higher distribution and transmission volumes, and a decline in the weighted average cost of capital to 11.5% (from 13.5%) to reflect a lower risk rate. We maintain our OUTPERFORM rating on the stock, as we are confident about the company’s strong cash flow and increases in distribution volume.
Gas demand in Indonesia is expected to continue to remain strong, as the government is encouraging gas usage to replace oil in order to reduce fuel subsidies and costs. PGAS is well placed in bringing the gas from its source to consumers. The downside risk is the availability of gas supply and higher gas for the future gas supply. However, there is still room for PGAS to increase selling price as it remains 60% discount to the subsidised diesel price.
The stock is trading at a P/E of 9.4x for 2010E and EV/EBITDA of 5.5x for 2010E, below the regional averages of 13.1x and 9.5x, respectively. At our new target price, we value the stock at market price with a 2010E P/E of 12.5x.
Gas demand in Indonesia is expected to continue to remain strong, as the government is encouraging gas usage to replace oil in order to reduce fuel subsidies and costs. PGAS is well placed in bringing the gas from its source to consumers. The downside risk is the availability of gas supply and higher gas for the future gas supply. However, there is still room for PGAS to increase selling price as it remains 60% discount to the subsidised diesel price.
The stock is trading at a P/E of 9.4x for 2010E and EV/EBITDA of 5.5x for 2010E, below the regional averages of 13.1x and 9.5x, respectively. At our new target price, we value the stock at market price with a 2010E P/E of 12.5x.
Macq Indo: top 3 SELLs and BUYs, consumer lending theme on Indo banks
Top three stocks to take profit from:
1. PT Inco (INCO) -- cheaper to buy global diversified miners.
2. Astra Agro Lestari (AALI) -- CPO price momentum weakening.
3. Perusahaan Tambang Bukit Asam (PTBA) – risk of domestic contract renegotiation.
Top three stocks to accumulate into:
1. Bank Mandiri (BMRI) – NPL bottoming-out, loan growth picking-up in 2H09.
2. Perusahaan Gas Negara (PGAS) – Rp strengthening period closer to an end, gas price hike post election.
3. Bumi Resources (BUMI) – most attractively valued coal name in Indo, with potential M&A angle.
Indo bank sector update: consumer lending theme
Indo banks may appear expensive on P/BV but look reasonable on P/E, with an aggregate sector multiple of 14.0x and 11.0x for 2009-10. Our top three picks, BCA, Mandiri and BNI trade on 2010 P/E of 11.9x, 10.5x and 9.4x. Regional average P/E is 14.9x. Growth prospect looks strong, with one driver being the very low mortgage penetration rate. Indonesia has one of the lowest mortgage loan penetration ratios in the world at 2.5% of GDP (vs 20%+ on average in the Asian region) and 9.5% of total system loans. BCA and Mandiri indicate they would like to grow their mortgage segments and lower their rates to below 10%, boosting mortgage lending growth considerably. In 2007, when banks cut rates to below 10%, mortgage loans grew by 30% YoY in the early part of 2008. The expected pullback in share prices today may offer fresh opportunity to accumulate. Report by Ferry Wong (analyst) attached.
1. PT Inco (INCO) -- cheaper to buy global diversified miners.
2. Astra Agro Lestari (AALI) -- CPO price momentum weakening.
3. Perusahaan Tambang Bukit Asam (PTBA) – risk of domestic contract renegotiation.
Top three stocks to accumulate into:
1. Bank Mandiri (BMRI) – NPL bottoming-out, loan growth picking-up in 2H09.
2. Perusahaan Gas Negara (PGAS) – Rp strengthening period closer to an end, gas price hike post election.
3. Bumi Resources (BUMI) – most attractively valued coal name in Indo, with potential M&A angle.
Indo bank sector update: consumer lending theme
Indo banks may appear expensive on P/BV but look reasonable on P/E, with an aggregate sector multiple of 14.0x and 11.0x for 2009-10. Our top three picks, BCA, Mandiri and BNI trade on 2010 P/E of 11.9x, 10.5x and 9.4x. Regional average P/E is 14.9x. Growth prospect looks strong, with one driver being the very low mortgage penetration rate. Indonesia has one of the lowest mortgage loan penetration ratios in the world at 2.5% of GDP (vs 20%+ on average in the Asian region) and 9.5% of total system loans. BCA and Mandiri indicate they would like to grow their mortgage segments and lower their rates to below 10%, boosting mortgage lending growth considerably. In 2007, when banks cut rates to below 10%, mortgage loans grew by 30% YoY in the early part of 2008. The expected pullback in share prices today may offer fresh opportunity to accumulate. Report by Ferry Wong (analyst) attached.
Kim Eng Securities: Valuation still attractive, BUY ELTY (TP Rp350)
Expanding to infrastructure.
Going forward, management plans to expand its business line to infrastructure sector, namely toll road and water businesses. The main reason is to obtain recurring revenue and to mitigate the volatility of property development business. Management is also expecting to gain from price increase on lands that it plans to acquire alongside the toll roads. It seems that the management is reluctant to expand to the-more-related-business yet still-in-property-line, like office rental or shopping center. Relatively unsuccessful experience with service apartment/hotel and office projects in previous period prompts the management to avoid such business.
More financing needed for new business
We estimate Bakrieland is to require around Rp16t to develop total 265km toll roads. As a rule of thumb, Bakrieland requires Rp60b per kilometer road development. It expects 70% of the financing will come from debts, while the remaining 30% or Rp4.5t will come from equity. Understanding the massive scale of capital required for the project, management will develop the toll road in five stages. Kanci-Pejagan toll road with 35km length will be the first project, expected to complete by September 2009. The toll road costs around Rp2.1t, of which Rp1.38t will be financed by a consortium of banks. With net gearing of 0.08x as March 2009, we see the company still has ample room to absorb additional Rp1.38t debt.
No rights issue in 2009
With total cash of Rp925b as of March 2009 and expected cash payment of another US$76.15m for the remaining 70% payment in September 2009 from Limitless World International Services, we expect Bakrieland to have sufficient cash to fund its current development. Previously Bakrieland has sold 30% stake in Bakrie Swasakti Utama (BSU), a unit that owns Rasuna block, for US$110m. However, we see the company may have to strengthen its capital in early 2010, should the management decide to aggressively entering the infrastructure projects, both in water and toll businesses. Management itself reassures that there will be no rights issue in 2009.
Valuation still attractive
We made a rough valuation on Bakrieland main assets. We value its 70% stake in city development based on US$110m, the amount that Limitless from Dubai paid for 30% stakes to the company. This translates into US$266m for city development. We value landbank in Bogor based on 2x BV and land available for sale based on 3x BV. We are yet to value its infrastructure projects and its holding in hotel and resort. We come up with valuation of Rp351 per share, translated into 21% upside potential. We reckon further development in infrastructure projects as main catalyst for the stock. BUY.
Going forward, management plans to expand its business line to infrastructure sector, namely toll road and water businesses. The main reason is to obtain recurring revenue and to mitigate the volatility of property development business. Management is also expecting to gain from price increase on lands that it plans to acquire alongside the toll roads. It seems that the management is reluctant to expand to the-more-related-business yet still-in-property-line, like office rental or shopping center. Relatively unsuccessful experience with service apartment/hotel and office projects in previous period prompts the management to avoid such business.
More financing needed for new business
We estimate Bakrieland is to require around Rp16t to develop total 265km toll roads. As a rule of thumb, Bakrieland requires Rp60b per kilometer road development. It expects 70% of the financing will come from debts, while the remaining 30% or Rp4.5t will come from equity. Understanding the massive scale of capital required for the project, management will develop the toll road in five stages. Kanci-Pejagan toll road with 35km length will be the first project, expected to complete by September 2009. The toll road costs around Rp2.1t, of which Rp1.38t will be financed by a consortium of banks. With net gearing of 0.08x as March 2009, we see the company still has ample room to absorb additional Rp1.38t debt.
No rights issue in 2009
With total cash of Rp925b as of March 2009 and expected cash payment of another US$76.15m for the remaining 70% payment in September 2009 from Limitless World International Services, we expect Bakrieland to have sufficient cash to fund its current development. Previously Bakrieland has sold 30% stake in Bakrie Swasakti Utama (BSU), a unit that owns Rasuna block, for US$110m. However, we see the company may have to strengthen its capital in early 2010, should the management decide to aggressively entering the infrastructure projects, both in water and toll businesses. Management itself reassures that there will be no rights issue in 2009.
Valuation still attractive
We made a rough valuation on Bakrieland main assets. We value its 70% stake in city development based on US$110m, the amount that Limitless from Dubai paid for 30% stakes to the company. This translates into US$266m for city development. We value landbank in Bogor based on 2x BV and land available for sale based on 3x BV. We are yet to value its infrastructure projects and its holding in hotel and resort. We come up with valuation of Rp351 per share, translated into 21% upside potential. We reckon further development in infrastructure projects as main catalyst for the stock. BUY.
UBS Asia Equity Strategy - From Whence We Came
Asian Equities now back to the levels Pre the Collapse of Lehman
The most ferocious rally since late 1974 has allowed Asian equities to recapture all the losses they made after Lehman’s failure. This move has happened along with similar moves in corporate bond yields, and Asian CDS (see chart 1). Asian assets appear to be pricing-out the credit shock from last September/October.
China, Indonesia, Materials, Energy higher
China now 10% higher, Indonesia 12% higher than September, Korea,Singapore still more than 10% down. In Sectors, only Materials and Energy are above their September levels, though underlying commodity prices are still below those levels. Most defensive sectors still some way below their pre-Lehman levels.
Indiscriminate Liquidity Firing up Small Caps
Small Caps, 10% higher than pre-Lehman levels, look pumped up relative to larger cap stocks (just back to mid September levels) by indiscriminate liquidity. ETF’s have made up over half of Asian flows in recent months, helping to drive less liquid names higher. Expect that to be tempered as the dash to invest cash lessens.
Still Positive, but more willing buyers now of defensive laggards
We highlight five names that have lagged: DBS, HTC, Singapore Telecom, KT&G and Shinsegae (UBS Key Call) – are at least 10% below their pre-Lehman’s failure levels, have decent earnings momentum, liquidity and are at discounts (or modest premium in the case of DBS) to market valuations. We remain positive on medium term returns from Asian equities, but would increasingly look to laggard names with growth and reasonable valuations, regardless of their apparent defensiveness.
The most ferocious rally since late 1974 has allowed Asian equities to recapture all the losses they made after Lehman’s failure. This move has happened along with similar moves in corporate bond yields, and Asian CDS (see chart 1). Asian assets appear to be pricing-out the credit shock from last September/October.
China, Indonesia, Materials, Energy higher
China now 10% higher, Indonesia 12% higher than September, Korea,Singapore still more than 10% down. In Sectors, only Materials and Energy are above their September levels, though underlying commodity prices are still below those levels. Most defensive sectors still some way below their pre-Lehman levels.
Indiscriminate Liquidity Firing up Small Caps
Small Caps, 10% higher than pre-Lehman levels, look pumped up relative to larger cap stocks (just back to mid September levels) by indiscriminate liquidity. ETF’s have made up over half of Asian flows in recent months, helping to drive less liquid names higher. Expect that to be tempered as the dash to invest cash lessens.
Still Positive, but more willing buyers now of defensive laggards
We highlight five names that have lagged: DBS, HTC, Singapore Telecom, KT&G and Shinsegae (UBS Key Call) – are at least 10% below their pre-Lehman’s failure levels, have decent earnings momentum, liquidity and are at discounts (or modest premium in the case of DBS) to market valuations. We remain positive on medium term returns from Asian equities, but would increasingly look to laggard names with growth and reasonable valuations, regardless of their apparent defensiveness.
Mandiri Sekuritas United Tractors: Good 5M09 operational performance. (UNTR, Rp10,050, Buy, TP: Rp13,000)
Here is a short update on United Tractors 5M09 performance, which was well for construction machinery & mining contracting. However, coal sales were again below than expectation with the company downgrading their FY09F target from 4.0mn tons to 2.5mn tons. Below are the details on each business segment:
Construction Machinery: 5M09 unit sales were within with our expectation, with positive sign of demand recovery in various sectors. 5M09 unit sales were 1,140 units (-42.6% yoy) and in May09 unit sales were 303 units (+45.0% mom or - 27.3%yoy). We believe that May09 unit sales could be an early sign of recovery since its bottom in Dec08 unit sales. Monthly unit sales from each sector reached its year-to-date highest as commodity prices remain at favorable level and leasing rates fell. Sales to Pamapersada were steady at 21% of total sales (ytd Pamapersada contribution was 16% to sales, due to low delivery of 13.8% to Pama in Mar09). We continue to remain comfortable with our FY09F forecast and deem likely for upside to our forecast, should the unit sales continue to accelerate. In addition, spare part sales growth remains similar to 1Q09, which is positive.
Mining Contracting: 5M09 coal production was inline, with stripping ratio at its highest since 2006. 5M09 coal production was on track with our estimates at 24.4mn tons while overburden was higher at 218.2mn bcm, translating to 8.9x stripping ratio. Rainfall in the mining sites has eased down in May09 but problems in the mining site caused delay in coal production. As result, UNTR focused more on extracting overburden so that coal production can be easily upped when needed. UNTR mentioned that there were stockpile problem in Adaro site and new operation in East Block of Indominco site that caused more overburden than production. For FY09F, we still believe that our forecast can be comfortably achieved while stripping ratio could be above our expectation of 7.5x.
Coal Sales: UNTR downgraded its FY09F coal sales target to 2.5mn tons, below our target of 3.0mn tons. 5M09 coal sales showed poor results again as Glencore and Nobel delayed their shipping due to high fixedpurchase- price. As result, ytd coal sales were -40.1% yoy and UNTR downgraded their FY09F target to 2.5mn tons, below ours of 3.0mn tons. Based on current condition, it looks tough to achieve our FY09F target. However, should coal price continue to improve and start to match with average fixed-selling-price of US$82/ton, it is possible for Glencore and Nobel would start sending their shipments on time and improve UNTR’s coal sales. Note that coal sales contributed a small chunk to total EBITDA before elimination in 1Q09, at about 7.7%.
With 5M09 performance going well, we believe that we can achieve our FY09F earnings outlook comfortably. Thus, we remain a buyer for UNTR with target price of Rp13,000/share that implies to PER09F of 13.4x or P/BV09F of 2.5x. We expect EPS growth of 9.8% in FY09F and 34.0% in FY10F.
Construction Machinery: 5M09 unit sales were within with our expectation, with positive sign of demand recovery in various sectors. 5M09 unit sales were 1,140 units (-42.6% yoy) and in May09 unit sales were 303 units (+45.0% mom or - 27.3%yoy). We believe that May09 unit sales could be an early sign of recovery since its bottom in Dec08 unit sales. Monthly unit sales from each sector reached its year-to-date highest as commodity prices remain at favorable level and leasing rates fell. Sales to Pamapersada were steady at 21% of total sales (ytd Pamapersada contribution was 16% to sales, due to low delivery of 13.8% to Pama in Mar09). We continue to remain comfortable with our FY09F forecast and deem likely for upside to our forecast, should the unit sales continue to accelerate. In addition, spare part sales growth remains similar to 1Q09, which is positive.
Mining Contracting: 5M09 coal production was inline, with stripping ratio at its highest since 2006. 5M09 coal production was on track with our estimates at 24.4mn tons while overburden was higher at 218.2mn bcm, translating to 8.9x stripping ratio. Rainfall in the mining sites has eased down in May09 but problems in the mining site caused delay in coal production. As result, UNTR focused more on extracting overburden so that coal production can be easily upped when needed. UNTR mentioned that there were stockpile problem in Adaro site and new operation in East Block of Indominco site that caused more overburden than production. For FY09F, we still believe that our forecast can be comfortably achieved while stripping ratio could be above our expectation of 7.5x.
Coal Sales: UNTR downgraded its FY09F coal sales target to 2.5mn tons, below our target of 3.0mn tons. 5M09 coal sales showed poor results again as Glencore and Nobel delayed their shipping due to high fixedpurchase- price. As result, ytd coal sales were -40.1% yoy and UNTR downgraded their FY09F target to 2.5mn tons, below ours of 3.0mn tons. Based on current condition, it looks tough to achieve our FY09F target. However, should coal price continue to improve and start to match with average fixed-selling-price of US$82/ton, it is possible for Glencore and Nobel would start sending their shipments on time and improve UNTR’s coal sales. Note that coal sales contributed a small chunk to total EBITDA before elimination in 1Q09, at about 7.7%.With 5M09 performance going well, we believe that we can achieve our FY09F earnings outlook comfortably. Thus, we remain a buyer for UNTR with target price of Rp13,000/share that implies to PER09F of 13.4x or P/BV09F of 2.5x. We expect EPS growth of 9.8% in FY09F and 34.0% in FY10F.
Mandiri Sekuritas Construction sector: Bappenas to prepare policy paper for PPP
We went to a workshop on the policy of public private partnership (ppp) in Indonesia yesterday. The program was initiated by National Development Planning Agency (Bappenas) in collaboration with the World Bank and Aus AID. Bappenas requested World Bank to prepare policy paper on PPP in order to inform the incoming government. There were several representatives, which consists of project owner from
government institutions, SOEs, as well as private companies.
These representatives openly discussed about the difficulties which they are facing in dealing with infrastructure related projects. These include (1) lack of government support in project financing, (2) no clear guidance on the steps required to prepare and structure PPPs, and (3) lack of leadership on the PPP agenda. Bappenas acknowledged these difficulties and will indentify binding constraints in PPP framework and program and will also provide possible solutions. The World Bank and Bappenas expect to finalize the policy paper by August 2009.
We believe once the policy paper is completed, it would hopefully pave way for more investments in infrastructure projects, thus benefiting construction companies such as Wijaya Karya (WIKA, Rp345, Buy, TP Rp390) and Adhi Karya (ADHI, Rp445, Buy, TP Rp420). WIKA and ADHI are currently trading at PER09 of 12.5x and 8.5x, respectively.
government institutions, SOEs, as well as private companies.
These representatives openly discussed about the difficulties which they are facing in dealing with infrastructure related projects. These include (1) lack of government support in project financing, (2) no clear guidance on the steps required to prepare and structure PPPs, and (3) lack of leadership on the PPP agenda. Bappenas acknowledged these difficulties and will indentify binding constraints in PPP framework and program and will also provide possible solutions. The World Bank and Bappenas expect to finalize the policy paper by August 2009.
We believe once the policy paper is completed, it would hopefully pave way for more investments in infrastructure projects, thus benefiting construction companies such as Wijaya Karya (WIKA, Rp345, Buy, TP Rp390) and Adhi Karya (ADHI, Rp445, Buy, TP Rp420). WIKA and ADHI are currently trading at PER09 of 12.5x and 8.5x, respectively.
CIMB Astra Internasional Company update - Factoring in a re-rating
(ASII IJ / ASII.JK, NEUTRAL - Upgraded, Rp23,200 - Tgt. Rp21,600, Automobiles and Parts)
Astra's May car and motorcycle wholesale volumes rebounded by 4% and 18% mom (estimated) respectively. On the cautious side, we are maintaining our estimates, believing that a sustained recovery would be over six rather than four quarters, or by 2Q2010. On the other hand, we now share the view that Astra's re-rating could be sustained should Indonesian economic growth stay resilient and support a sustained auto recovery. We raise our earnings estimates by 3-6%, and upgrade Astra to Neutral from Underperform with a higher target price of Rp21,600, now on par with its NAV using sum-of-the-parts valuation (from Rp16,200, 15% discount to NAV previously). This implies 13.5x and 11.7x CY09-10 earnings respectively.
Astra's May car and motorcycle wholesale volumes rebounded by 4% and 18% mom (estimated) respectively. On the cautious side, we are maintaining our estimates, believing that a sustained recovery would be over six rather than four quarters, or by 2Q2010. On the other hand, we now share the view that Astra's re-rating could be sustained should Indonesian economic growth stay resilient and support a sustained auto recovery. We raise our earnings estimates by 3-6%, and upgrade Astra to Neutral from Underperform with a higher target price of Rp21,600, now on par with its NAV using sum-of-the-parts valuation (from Rp16,200, 15% discount to NAV previously). This implies 13.5x and 11.7x CY09-10 earnings respectively.
Rabu, 17 Juni 2009
[BRIGHT INFO] "Just a Note"
Good day to youU.S. stocks fell, sending the Standard & Poor’s 500 Index to its biggest two-day tumble since April. Stocks rose in early trading as a better-than-estimated report on housing starts spurred a rally in homebuilders and commodity shares climbed with metal and oil prices.
Southeast Asian stock markets fell on Tuesday, worried about the pace of recovery in the global economy, with Singapore tumbling to near three-week lows 2.2% while stocks in Jakarta down 1.9% and Bangkok slid close to two-week lows 2.7%.
Many markets in Asia turned up slightly in late trade simply because investors took their lead from Dow Jones futures and oil prices. Markets will remain cautious in coming sessions as investors are less optimistic over the global recovery.
Crude oil was little changed as U.S. equities dropped and the dollar rebounded. Crude oil for July delivery fell 15 cents to settle at $70.47 a barrel. Tin advanced 0.3 percent to $15,100 a ton. Nickel gained 0.8 percent to $14,900 a ton.
I think investors need more clear evidence of growth to restart the market's rally. A pause in the rally is necessary for stocks to move higher. The market is overbought right now and what it needs to do is consolidate and it needs to have a series of days like this.
For today, I think our market still on consolidation with support 1998-2010 point index. We are still on defensive stock recommendation with high yield dividend.
We are still positive on TLKM, TINS, ANTM, INCO, BUMI, DEWA and BNBR. Buy on Weakness on the lower range index. Interesting on RALS?
“UP & DOWN THAT’S LIFE JUST SMILE BECAUSE IT HAPPENED”
[Personal Opinion ]
=====================================================================================
DISCLAIMER: This report is issued by [BRIGHT INFO]. Although the contents of this document may represent the opinion of [BRIGHT INFO]. We cannot guarantee its accuracy and completeness.
Reuters Wall Street hit by economic, consumer jitters
NEW YORK (Reuters) - U.S. stocks slipped on Tuesday as mixed economic data and Best Buy's (BBY.N) disappointing sales spurred worries about an anemic recovery.After a three-month run that lifted the S&P 500 as much as 40 percent from 12-year lows, analysts said the economy needs to start showing real improvement to support optimism about a budding recovery.
A rebound in May housing starts pointed to some stabilization in that sector, but another government report showed industrial production had a steeper-than-expected slide last month.
Industrial production fell 1.1 percent in May, while capacity utilization, a measure of slack in the U.S. economy, slumped to its lowest level on records dating back to 1967.
"It indicates that at a minimum, the market's taking a breather and may be starting a meaningful correction," said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York, concerning the market's losses.
"The worry is we've gone too far too fast and that we've overstated the strength of a recovery in the economy and earnings."
Best Buy Co Inc (BBY.N), the largest U.S. consumer electronics retailer, posted weaker-than-expected sales in its first quarter and suggested earnings for the rest of the year would be worse than forecast. Its shares dropped 7.3 percent to $35.84. The S&P retail index .RLX tumbled 3.1 percent.
Indexes ended at session lows. The Dow Jones industrial average .DJI fell 107.46 points, or 1.25 percent, to 8,504.67. The Standard & Poor's 500 Index .SPX lost 11.75 points, or 1.27 percent, to 911.97. The Nasdaq Composite Index .IXIC was off 20.20 points, or 1.11 percent, to 1,796.18.
The S&P 500 is still up 34.8 percent from March's 12-year closing low. Declines have been shallow and short-lived, but analysts are increasingly looking for a larger pullback. more...
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