Ship-to-cap ratio at 95%; does any other commodity have this ratio?
Global pulp inventories down 1 day mom and -18 yoy, to 26 days The Pulp and Paper Products Council (PPPC) released global market pulp statistics for September 2009 this morning (October 22), which we believe was another positive statistic for the sector and will support recently announced eucalyptus pulp price increase for November. Inventories fell
further to 26 days, down 1 day mom (in line with the seasonal pattern) and 18 days yoy. Global pulp producers’ inventories are well below the historical average of 33 days of supply. Global market pulp production may have reached 3.4 mn tons in September, or flat mom, and 11% below the peak level reached in 2008. We estimate global pulp inventories at 3.1 mn tons, which is the lowest level since May 2007 and 0.8 mn tons below the normalized level (assuming 33 days of current pulp shipments).
Higher shipments to Western Europe offset lower China ; world shipments +10.3% yoy
Global pulp shipments were down 1.3% mom and up 10.3% yoy. The highlight was the rebound of pulp shipments to Western Europe , the largest market globally, which increased 11.4% mom and was just 6.5% lower on a yoy basis. September shipments to W. Europe were the highest level since October 2008. Shipments to China remained highly volatile, falling 23% mom but doubling yoy. We expect monthly shipments to China in the short term to be very volatile, but at a much higher level than in recent years.
Pulp prices could be on their way to US$800/ton level in W. Europe
We believe if pulp traded on the LME and had high liquidity, future contracts would likely point to hardwood pulp prices above US$800/ton in 12 months. All the drivers for sharp pulp price increase are aligned: (1) all published inventories around the world are at low levels, (2) ship-to-cap ratio is 95%, (3) paper-to-pulp price spread is still above historical average, (4) China ’s economic performance remains very strong, (5) USD remains weak. An important difference from recent cycles is a lack of pulp mill start-ups until 2013; we estimate additional capacity of 1.9 mn tons vs. forecasted pulp demand growth of 4.1 mn tons (2010-2012). In our view the world will have to rely in the next 3 years on the restarting of old/inefficient pulp mills, which have very high production cash costs and will set the base price for pulp globally. We believe investors should have overweight exposure to pulp stocks vs. other commodities stocks that have worse global supply-demand balance and are trading at a premium to mid-cycle. Top pick is Fibria (VCP).
Jumat, 23 Oktober 2009
Citigroup Indonesia Macro Flash: Indonesia Cabinet - A Missed Opportunity?
Indonesia Macro Flash
Indonesia Cabinet – A Missed Opportunity?
New cabinet looks like a mixed bag — With President Yudhoyono’s strong election mandate, there were great hopes that his 2nd term would significantly transcend his 1st, having capable technocrats dominate key posts and more effectively implement his core policies. Market is particularly keen on seeing material progress in boosting investment climate and infrastructure while safeguarding macro stability. On that scorecard, we think the new cabinet will be seen as slightly disappointing, signaling that consensus-building and political accommodation are still important drivers of cabinet appointments.
Some capable technocrats in key posts... — On one hand, half (17 out of 34) of the cabinet posts are technocrats, and some key posts are market friendly – Finance Minister Sri Mulyani and Trade Minister Mari Pangestu are credible technocrats; Foreign Minister Marty Natalegawa, Bappenas head Armida Alisjahbana and Gita Irawan Wirjawan as Investment Coordinating Board Chairman also seem suitable for their posts. While the re-appointment of incumbent Public Works Minister Djoko Kirmanto may signal continuity, there is also a lingering question whether the slow progress on public works infrastructure in Yudhoyono’s first term will continue in the second term. A new post, Head of Delivery Unit at the Presidential Office, is occupied by
former Energy Minister and Aceh Reconstruction chief Kuntoro Mangkusubroto, tasked to improve ministries coordination and resolve implementation bottlenecks. He seems to have a strong track record, but his effectiveness in his new role remains to be seen.
...but politically-driven appointments in others, including economicallyimportant posts — Perhaps the two most high–profile appointments that have raised “questions” are the appointment of National Awakening Party (PAN) politician Hatta Radjasa as Coordinating Minister for the Economy, and an economist with no particular energy background, Darwin Saleh of Partai Demokrat, to the crucial post of Energy & Mineral Resources Minister. Perhaps Hatta’s appointment could provide political clout in dealing with parliament on economically-important legislation, but it is unclear how well he will work with Finance Minister Sri Mulyani. Despite Golkar’s weaker parliamentary clout in the last elections and smaller number of cabinet posts (4), they still wield influence in key positions, with Golkar members M.S. Hidayat as Minister of Industry and Mustafa Abubakar as State Minister for State Enterprises.
Market implications – Neutral to negative — The fact that President Yudhoyono still resorts to political accommodation by appointing coalition party members into the cabinet despite his overwhelming majority win is not a surprise – a number of these cabinet names have been floating around prior to the announcement. Nonetheless, market may be somewhat disappointed that except for some key technocrats, cabinet posts may signal “business as usual”—and thus, structural reforms catapulting Indonesia to a higher level of growth may be a slower process than expected. We’ll have to wait and see.
Indonesia Cabinet – A Missed Opportunity?
New cabinet looks like a mixed bag — With President Yudhoyono’s strong election mandate, there were great hopes that his 2nd term would significantly transcend his 1st, having capable technocrats dominate key posts and more effectively implement his core policies. Market is particularly keen on seeing material progress in boosting investment climate and infrastructure while safeguarding macro stability. On that scorecard, we think the new cabinet will be seen as slightly disappointing, signaling that consensus-building and political accommodation are still important drivers of cabinet appointments.
Some capable technocrats in key posts... — On one hand, half (17 out of 34) of the cabinet posts are technocrats, and some key posts are market friendly – Finance Minister Sri Mulyani and Trade Minister Mari Pangestu are credible technocrats; Foreign Minister Marty Natalegawa, Bappenas head Armida Alisjahbana and Gita Irawan Wirjawan as Investment Coordinating Board Chairman also seem suitable for their posts. While the re-appointment of incumbent Public Works Minister Djoko Kirmanto may signal continuity, there is also a lingering question whether the slow progress on public works infrastructure in Yudhoyono’s first term will continue in the second term. A new post, Head of Delivery Unit at the Presidential Office, is occupied by
former Energy Minister and Aceh Reconstruction chief Kuntoro Mangkusubroto, tasked to improve ministries coordination and resolve implementation bottlenecks. He seems to have a strong track record, but his effectiveness in his new role remains to be seen.
...but politically-driven appointments in others, including economicallyimportant posts — Perhaps the two most high–profile appointments that have raised “questions” are the appointment of National Awakening Party (PAN) politician Hatta Radjasa as Coordinating Minister for the Economy, and an economist with no particular energy background, Darwin Saleh of Partai Demokrat, to the crucial post of Energy & Mineral Resources Minister. Perhaps Hatta’s appointment could provide political clout in dealing with parliament on economically-important legislation, but it is unclear how well he will work with Finance Minister Sri Mulyani. Despite Golkar’s weaker parliamentary clout in the last elections and smaller number of cabinet posts (4), they still wield influence in key positions, with Golkar members M.S. Hidayat as Minister of Industry and Mustafa Abubakar as State Minister for State Enterprises.
Market implications – Neutral to negative — The fact that President Yudhoyono still resorts to political accommodation by appointing coalition party members into the cabinet despite his overwhelming majority win is not a surprise – a number of these cabinet names have been floating around prior to the announcement. Nonetheless, market may be somewhat disappointed that except for some key technocrats, cabinet posts may signal “business as usual”—and thus, structural reforms catapulting Indonesia to a higher level of growth may be a slower process than expected. We’ll have to wait and see.
CLSA Indosat 9m09 result dissapointing
Indosat 9m09 result is dissapointing with no pick up in operating profit despite the peak season Moslem holiday in September , comment from Wilianto
- Net profit come in at Rp1.45tn which is 75% of our full year forecast. However, operating profit remain weak with no pick up in Ebitda and falling Ebit in 3Q09 despite it is a peak season Moslem holiday.
- Consolidated revenues were up slightly (+1.5%), largely driven by 5% qoq increase in cellular revenues during peak season Moslem holiday in Sep09.
- Ebitda down slightly (-6.3% qoq) and Ebitda margin down from 48.7% in 2Q09 to 44.9% in 3Q09 as operating expenses pick up. There is no breakdown available yet, but we expect the increase in operating expenses to come from network maintenance and operating costs.
- Ebit decline sharply (-22% qoq) due to higher depreciation charges as the additional/incremental capex invested is not generating return.
- The net profit line seems to be boosted by FX gain (again, no details available yet) as Indosat has around US$1bn FX debt and only hedged half of it.
- The poor operating result of Indosat further strengthen our view that mobile operators can no longer afford price war and tariff/revenues per minutes will gradually move up. Telkom, with its strong balance sheet, positive FCF, and strong brand equity will continue to benefit from the weakening competition.
- Net profit come in at Rp1.45tn which is 75% of our full year forecast. However, operating profit remain weak with no pick up in Ebitda and falling Ebit in 3Q09 despite it is a peak season Moslem holiday.
- Consolidated revenues were up slightly (+1.5%), largely driven by 5% qoq increase in cellular revenues during peak season Moslem holiday in Sep09.
- Ebitda down slightly (-6.3% qoq) and Ebitda margin down from 48.7% in 2Q09 to 44.9% in 3Q09 as operating expenses pick up. There is no breakdown available yet, but we expect the increase in operating expenses to come from network maintenance and operating costs.
- Ebit decline sharply (-22% qoq) due to higher depreciation charges as the additional/incremental capex invested is not generating return.
- The net profit line seems to be boosted by FX gain (again, no details available yet) as Indosat has around US$1bn FX debt and only hedged half of it.
- The poor operating result of Indosat further strengthen our view that mobile operators can no longer afford price war and tariff/revenues per minutes will gradually move up. Telkom, with its strong balance sheet, positive FCF, and strong brand equity will continue to benefit from the weakening competition.
Reuters Indonesia power firm seeks to defer coal supplies
JAKARTA, Reuters) - Indonesia's state power firm is negotiating with two coal producers, including a unit of PT Bumi Resources Tbk (BUMI.JK), to defer a contract to supply coal to a power plant in West Java, the state firm said on Wednesday.
PT Perusahan Listrik Negara (PLN) wants to set aside the coal for its strategic reserves as its heating value is too low for use in the Suralaya power plant, Pudji Widodo, PLN's head of coal, said.
PT Arutmin Indonesia, a unit of Bumi, Indonesia's largest coal producer by volume, and PT Kasih Industri have contracts to supply a combined 2.1 million tonnes of low-quality coal annually to the 3,400 MegaWatt power plant, starting in 2009. more...
PT Perusahan Listrik Negara (PLN) wants to set aside the coal for its strategic reserves as its heating value is too low for use in the Suralaya power plant, Pudji Widodo, PLN's head of coal, said.
PT Arutmin Indonesia, a unit of Bumi, Indonesia's largest coal producer by volume, and PT Kasih Industri have contracts to supply a combined 2.1 million tonnes of low-quality coal annually to the 3,400 MegaWatt power plant, starting in 2009. more...
A Cup of Tea 23/10/09
GD2U
Investors encouraged by a good batch of earnings reports and forecasts jumped back into stocks after a two-day slide. The Dow Jones industrial average jumped 132 points and logged the biggest gain of major indexes after Wal-Mart's forecast and as several companies included in the indicator reported earnings that beat expectations.
Stock markets in Thailand and Indonesia fell for a third day on Thursday, with financials and big caps leading the way down.
Indonesia's index ended 1.8 percent lower, weighed down by a 3.5 percent loss in Astra International. Bank Rakyat drifted down 3.9 percent and Bumi Resources dropped 6.2 percent. Trading volume on the Jakarta stock market, Southeast Asia's second-best performer this year after Vietnam, fell.
Crude oil fell from a one-year high on speculation that OPEC members will agree to increase production at a December meeting. Crude oil for December delivery fell 18 cents to settle at $81.19 a barrel at 2:55 p.m. on the New York Mercantile Exchange. On LME Tin was unchanged at $14,450 a ton. Zinc was little changed at $2,230 a ton, lead lost 1 percent to $2,426 a ton and nickel slid 1 percent to $19,550 a ton. Crude palm oil futures higher supported by crude, heavy rain. The benchmark January contract on the Bursa Malaysia Derivatives ended MYR42 higher at MYR2,210 a metric ton, after trading in a MYR2,187-MYR2,224/ton range.
Over all my view is still same, I believed that our economic and global economic continue on positive directions. Economic will getting better time to time and 2010 will be a golden year. This is healthy for market if had corrections but not change the long-term trend. My personal target for our Index was 2650 and DJIA was 11700 for year end 2009.
My Top Pick is Still on Energy, Metal and Telecommunication. Trading ideas for today is BMRI, BDMN, BBRI, UNTR, ASII, ADRO, BSDE, BUMI, ANTM, INCO and BNBR. For Buy and Hold are BUMI, TLKM, ELTY, BNBR, BBNI, ANTM, TINS and INCO.
Cash Management was still my concern. Tightening liquidity and selling pressure from due date fund this week like a mention before will be over. JSX will on consolidation mode with more positive directions.
“The One Who seed – The One Who Yield” by Juntri
=====================================================================
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.
Investors encouraged by a good batch of earnings reports and forecasts jumped back into stocks after a two-day slide. The Dow Jones industrial average jumped 132 points and logged the biggest gain of major indexes after Wal-Mart's forecast and as several companies included in the indicator reported earnings that beat expectations.
Stock markets in Thailand and Indonesia fell for a third day on Thursday, with financials and big caps leading the way down.
Indonesia's index ended 1.8 percent lower, weighed down by a 3.5 percent loss in Astra International. Bank Rakyat drifted down 3.9 percent and Bumi Resources dropped 6.2 percent. Trading volume on the Jakarta stock market, Southeast Asia's second-best performer this year after Vietnam, fell.
Crude oil fell from a one-year high on speculation that OPEC members will agree to increase production at a December meeting. Crude oil for December delivery fell 18 cents to settle at $81.19 a barrel at 2:55 p.m. on the New York Mercantile Exchange. On LME Tin was unchanged at $14,450 a ton. Zinc was little changed at $2,230 a ton, lead lost 1 percent to $2,426 a ton and nickel slid 1 percent to $19,550 a ton. Crude palm oil futures higher supported by crude, heavy rain. The benchmark January contract on the Bursa Malaysia Derivatives ended MYR42 higher at MYR2,210 a metric ton, after trading in a MYR2,187-MYR2,224/ton range.
Over all my view is still same, I believed that our economic and global economic continue on positive directions. Economic will getting better time to time and 2010 will be a golden year. This is healthy for market if had corrections but not change the long-term trend. My personal target for our Index was 2650 and DJIA was 11700 for year end 2009.
My Top Pick is Still on Energy, Metal and Telecommunication. Trading ideas for today is BMRI, BDMN, BBRI, UNTR, ASII, ADRO, BSDE, BUMI, ANTM, INCO and BNBR. For Buy and Hold are BUMI, TLKM, ELTY, BNBR, BBNI, ANTM, TINS and INCO.
Cash Management was still my concern. Tightening liquidity and selling pressure from due date fund this week like a mention before will be over. JSX will on consolidation mode with more positive directions.
“The One Who seed – The One Who Yield” by Juntri
=====================================================================
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.
Bumi Bond Speculation
Here is a formal response issued on 20 Oct '09 to those who enquired on Bumi's prospective funding plans.
This statement stands and can be quoted.
Bumi explores various financing alternatives from time to time and it is Bumi's policy to neither confirm nor deny rumors about financing plans.
We make public announcements about our financing plans when it is deemed appropriate to do so in accordance with its obligations to disclose such matters under the rules and regulations of Bapepam and the Indonesia Stock Exchange and other relevant securities laws.
Dileep Srivastava
This statement stands and can be quoted.
Bumi explores various financing alternatives from time to time and it is Bumi's policy to neither confirm nor deny rumors about financing plans.
We make public announcements about our financing plans when it is deemed appropriate to do so in accordance with its obligations to disclose such matters under the rules and regulations of Bapepam and the Indonesia Stock Exchange and other relevant securities laws.
Dileep Srivastava
Credit Suisse publication "Research Weekly Asia"
CREDIT SUISSE
Private Banking Global Research
==================================================================
Credit Suisse publication "Research Weekly Asia"
Southeast Asia: Focus on stocks with strong upgrade momentum in the earnings recovery phase
Highlights:
===========
*Operational leverage, effective cost-cutting and fiscal stimulus offer the potential for a strong profit recovery in Southeast Asia.
*With markets trading at mid-cycle valuations, a bottom-up stock selection based on valuation and earnings momentum will become a more important performance driver.
*Earnings upgrade momentum may peak soon as it becomes increasingly difficult for corporate earnings to beat expectations.
*We like stocks in the domestic services, transport and infrastructure sectors.
Private Banking Global Research
==================================================================
Credit Suisse publication "Research Weekly Asia"
Southeast Asia: Focus on stocks with strong upgrade momentum in the earnings recovery phase
Highlights:
===========
*Operational leverage, effective cost-cutting and fiscal stimulus offer the potential for a strong profit recovery in Southeast Asia.
*With markets trading at mid-cycle valuations, a bottom-up stock selection based on valuation and earnings momentum will become a more important performance driver.
*Earnings upgrade momentum may peak soon as it becomes increasingly difficult for corporate earnings to beat expectations.
*We like stocks in the domestic services, transport and infrastructure sectors.
Palmoil HQ Crude palm oil futures higher supported by crude, heavy rain
Crude palm oil futures on Malaysia’s derivatives exchange ended up Thursday as investors covered short positions while the overnight jump in crude and soyoil prices were supportive, trade participants said.The benchmark January contract on the Bursa Malaysia Derivatives ended MYR42 higher at MYR2,210 a metric ton, after trading in a MYR2,187-MYR2,224/ton range.
The contract traded higher throughout the day, holding above MYR2,200 levels on weather concerns that might have slowed down oil palm harvesting, said a Kuala Lumpur-based trading executive.
Tropical rains and thunderstorms continue to lash Malaysia’s oil palm growing regions in Sabah and Sarawak.
The Malaysian weather bureau upgraded a heavy rain alert earlier this evening for Pahang and Sarawak areas. It said heavy rains are likely to continue tonight in several areas.
While such weather isn’t likely to affect production for now, it is affecting market sentiment, trade participants said.
“If rains remain heavy and uninterrupted, there may be some logistics problem especially for oil palm estates in hilly and low-lying areas,” said a plantation executive from Malaysia-based plantation firm.
In the near term prices may see some correction as production may have risen to 20% for the first 20 days in October, said a Malaysia-based exporter.
Prices may test support at MYR2,160-MYR2,180 in the near term, a Kuala Lumpur-based trader said.
The contract was also supported by a jump in crude and soyoil prices in after-hours trade Wednesday[...]
For more in depth coverage of Crude Palm Oil Futures, Palm Oil Prices, Palm Oil industry news and live market intelligence…
CLSA Gudang Garam reports strong 8M09 GAPPRI numbers
Based on the The Association of Clove-Blended Cigarette Manufacturers (Gappri) data (excise duty stamp purchase), which is a good indication of actual volumes, Gudang Garam volumes grew by 10.95% yoy (Jan to Aug 09). Gudang Garam market share based on Gappri is 23.5% vs HM Sampoerna (consolidated) is 26%.
The growth seems to be faster in the handmade kretek segment at 20.12% yoy for Gudang Garam vs 10.5% for Djarum and -12.37% for HM Sampoerna. The company confirms that the growth has been strong in handmade kreteks suggesting that as smokers are switching from machine made to handmade, they are increasingly switching to Gudang Garam’s handmade kreteks. Machine made kreteks shows a yoy growth of 12.3%.
So even if the volumes are growing, the impact on revenue is marginalized as there is a change in product mix in favour of handmade kreteks which are higher margin lower price products. But we should see some revenue growth as the company has completed consolidation of the distribution. Handmade kreteks now account for 22-24% of sales vs 14% last year.
We maintain conviction buy on the stock as it is still trading at 10x 2010 P/E and 1.4x P/b. It remains one of the best turnaround stories. It is the only listed liquid cigarette company in Indonesia where 1/3 people smoke regularly, 78% smokers start smoking before 19 years age. While cigarette industry is declining in other countries, in Indonesia, we just had BAT acquire nearly 100% stake of Bentoel a small company with 5% market share. We expect good 3Q09 results as volumes looks robust and they managed to increase prices recently.
The growth seems to be faster in the handmade kretek segment at 20.12% yoy for Gudang Garam vs 10.5% for Djarum and -12.37% for HM Sampoerna. The company confirms that the growth has been strong in handmade kreteks suggesting that as smokers are switching from machine made to handmade, they are increasingly switching to Gudang Garam’s handmade kreteks. Machine made kreteks shows a yoy growth of 12.3%.
So even if the volumes are growing, the impact on revenue is marginalized as there is a change in product mix in favour of handmade kreteks which are higher margin lower price products. But we should see some revenue growth as the company has completed consolidation of the distribution. Handmade kreteks now account for 22-24% of sales vs 14% last year.
We maintain conviction buy on the stock as it is still trading at 10x 2010 P/E and 1.4x P/b. It remains one of the best turnaround stories. It is the only listed liquid cigarette company in Indonesia where 1/3 people smoke regularly, 78% smokers start smoking before 19 years age. While cigarette industry is declining in other countries, in Indonesia, we just had BAT acquire nearly 100% stake of Bentoel a small company with 5% market share. We expect good 3Q09 results as volumes looks robust and they managed to increase prices recently.
CLSA Research Today: Astra maintain OPF new TP Rp38k, UNTR downgrade to OPF new TP Rp18,600
Wilianto maintained our OPF recommendation Astra International (ASII IJ), despite 5 year high valuation of PER 14.5x09CL and 13x 10CL. Astra managed to survive the global crisis unscratched, thanks to 46% earnings growth at United Tractors (UNTR IJ, see below), low NPL in its auto financing division, and moderate down turn in car and motorcycle sales. We upgraded earnings forecast by 18%-22% in 2009/2010 and raised the TP Rp38,000 (from 27,000).
It is worth highlighting that Wili does not assume car sales to go back to the 2008 peak in 2010. Historically, it did not happen after previous sharp downturn and there is no new model offering that can act as a new catalyst. However, Wili is more bullish on motorcycle sales, projecting Astra motorcycle sales to reach all time high in 2010.
The whole point is there is a structural change happening in the financing side of the industry and per capita income is also reaching a take-off point. Thus, history is an interesting guide but not necessarily a determinant of future demand. We think Wili is probably underestimating growth over the next two years and we'll be revisiting our forecasts again in 2010.
One structural change that is about to happen is BCA (BBCA IJ)’s plan to enter motorcycle lending in 2010. We think BBCA’s move is very important and may act as a catalyst for national motorcycle sales, assuming they will undercut the competition.
Interestingly, our on the ground motorcycle dealer survey (by our research assistant Mita) suggests that motorcycle dealers NEVER really direct potential buyers on which financing companies to take. This should be positive for new player such as BBCA. We understand that BBCA are entering into a 65/35 JV with the previous management of leading motorcycle finance company WOM Finance (WOMF IJ). We think this is a smart entry into the market through existing relationship/experience with the dealers that ex WOMF management already has, shortening the learning curve for BBCA.
United Tractors: Paying for performance – upgrade earnings, downgrade rec to OPF, new TP Rp18,600 , from Olie
We like to focus a bit on the new ministerial decree on mining contractor that was passed at the end of SBY’s old cabinet (last month) as we’ve been getting a lot of questions on this. We believe that weakness to UT and the other heavy-equipment plays such as Hexindo (HEXA IJ) is a good opportunity to add position. Why?
1.The ministerial decree will not be implemented for some time as it allows a grace period of three years so further negotiations will take place
2.Confusion occurred because the decree allows for the process of overburden removal (stripping) and transport to be done by the mining contractors (this amounts to 90% of the contract value).
3.But the actual mining has to be done by the coal concession holder. Apparently, after further digging, we found that the decree does not prohibit the coal companies to ‘lease’ equipment from the coal contractors so this restriction too can be overcome.
4.The decree actually benefits independent contractors such as United Tractors as the use of related-party and foreign contractors would be limited.
Key highlights from the report:
We have revised our earnings estimates up by 5% to 15% over 2009-11 to reflect strong volume and margin. IDR appreciation is, however, an offsetting factor as UNTR is a US Dollar earner.
· We continue to like UT for exposure to Indonesian coal production growth, but valuations look a bit stretched as it is trading 2010 PER of 14x and EV/EBITDA of, 7.5x closer to its 1-SD average historical multiples.
· We lower our rating from BUY to Outperform. TP is set at Rp18,600, suggesting 13% upside.
It is worth highlighting that Wili does not assume car sales to go back to the 2008 peak in 2010. Historically, it did not happen after previous sharp downturn and there is no new model offering that can act as a new catalyst. However, Wili is more bullish on motorcycle sales, projecting Astra motorcycle sales to reach all time high in 2010.
The whole point is there is a structural change happening in the financing side of the industry and per capita income is also reaching a take-off point. Thus, history is an interesting guide but not necessarily a determinant of future demand. We think Wili is probably underestimating growth over the next two years and we'll be revisiting our forecasts again in 2010.
One structural change that is about to happen is BCA (BBCA IJ)’s plan to enter motorcycle lending in 2010. We think BBCA’s move is very important and may act as a catalyst for national motorcycle sales, assuming they will undercut the competition.
Interestingly, our on the ground motorcycle dealer survey (by our research assistant Mita) suggests that motorcycle dealers NEVER really direct potential buyers on which financing companies to take. This should be positive for new player such as BBCA. We understand that BBCA are entering into a 65/35 JV with the previous management of leading motorcycle finance company WOM Finance (WOMF IJ). We think this is a smart entry into the market through existing relationship/experience with the dealers that ex WOMF management already has, shortening the learning curve for BBCA.
United Tractors: Paying for performance – upgrade earnings, downgrade rec to OPF, new TP Rp18,600 , from Olie
We like to focus a bit on the new ministerial decree on mining contractor that was passed at the end of SBY’s old cabinet (last month) as we’ve been getting a lot of questions on this. We believe that weakness to UT and the other heavy-equipment plays such as Hexindo (HEXA IJ) is a good opportunity to add position. Why?
1.The ministerial decree will not be implemented for some time as it allows a grace period of three years so further negotiations will take place
2.Confusion occurred because the decree allows for the process of overburden removal (stripping) and transport to be done by the mining contractors (this amounts to 90% of the contract value).
3.But the actual mining has to be done by the coal concession holder. Apparently, after further digging, we found that the decree does not prohibit the coal companies to ‘lease’ equipment from the coal contractors so this restriction too can be overcome.
4.The decree actually benefits independent contractors such as United Tractors as the use of related-party and foreign contractors would be limited.
Key highlights from the report:
We have revised our earnings estimates up by 5% to 15% over 2009-11 to reflect strong volume and margin. IDR appreciation is, however, an offsetting factor as UNTR is a US Dollar earner.
· We continue to like UT for exposure to Indonesian coal production growth, but valuations look a bit stretched as it is trading 2010 PER of 14x and EV/EBITDA of, 7.5x closer to its 1-SD average historical multiples.
· We lower our rating from BUY to Outperform. TP is set at Rp18,600, suggesting 13% upside.
Bloomberg Yudhoyono Retains Investor Favorites in New Indonesian Cabinet
Oct. 22 (Bloomberg) -- Indonesian President Susilo Bambang Yudhoyono retained Finance Minister Sri Mulyani Indrawati and Trade Minister Mari Pangestu when he named his second-term cabinet late yesterday, in a move likely to reassure investors.
Sri Mulyani and Pangestu, along with Vice President Boediono, the former head of the central bank, are “most favored by the markets,” said Winang Budoyo, an economist at PT Bank CIMB Niaga.
Investor optimism that Yudhoyono’s election victory heralds a period of rapid economic growth for the nation of 240 million people helped make Indonesian stocks Asia’s best performers this year. Moody’s Investors Service last month raised its rating on the country’s debt to the highest in more than a decade after the government steered the economy through the global downturn that dragged Thailand, Malaysia and Singapore into recession.
Indonesia’s gross domestic product expanded 4 percent in the three months ended June 30 and 4.4 percent in the preceding quarter. The Jakarta Composite Index has more than doubled this year, the biggest gain in Asia and lagging behind only Peru,
Brazil and Russia globally.
Yudhoyono has pledged to bring growth above 7 percent, from an average 5.1 percent this decade. Indonesia wants to be included among the so-called BRIC nations of Brazil, Russia, India and China, Emil Salim, a presidential adviser, has said.
China’s economy expanded 7.9 percent in quarter ended June 30; India’s by 6.1 percent.
“If they get infrastructure investment rolling, we will see very high growth rates in the second half of this administration,” said James Castle, president of Jakarta-based business advisory services company CastleAsia. We “could get 8-9 percent growth if they break the infrastructure logjam.”
Economics Team
Sri Mulyani and Pangestu, who hold doctorates in economics from U.S. universities, are fluent in English and follow a more liberal economic outlook than most Indonesian politicians.
Mulyani, 47, who was first made finance minister in 2005, shook up bureaucrats with a new set of remuneration packages, restructured the tax office and cleaned government practices that can lead to graft. Euromoney named her as the Finance
Minister of the Year in 2006.
Yudhoyono lured her away as an executive director at the International Monetary Fund to become planning minister in his first cabinet in October 2004. She relinquishes her post as coordinating minister for economic affairs, which she took on after her predecessor Boediono was appointed as central bank governor in 2008.
State Secretary Hatta Rajasa was named to that position.The choice of Rajasa may be “a master stroke,” said Castle, who also heads the American Chamber of Commerce in Indonesia, where he has lived for more than three decades. “He’s very good at getting people to cooperate. If he brings those skills to bear, that should make the economic team’s job easier,” he said.
Minister, Campaigner
Before serving as state secretary, Rajasa was Yudhoyono’s transport minister. Rajasa, who led Yudhoyono’s re-election campaign, comes from the National Mandate Party and was the Muslim-based group’s secretary-general from 2000 until 2005. The
former oilman also was his party’s parliamentary leader from 1999 to 2000.
Rajasa has “limited economic experience but it’s hoped he’ll be able to provide a political shield for economic ministers under him in the parliament,” said Fauzi Ichsan, chief economist at Standard Chartered Bank Plc in Jakarta.
Darwin Saleh, a lecturer of economics from Yudhoyono’s Democrat Party, was named energy minister. He has “insufficient experience in that field,” said Umar Juoro, a commissioner at PT Bank Internasional Indonesia Tbk. Saleh told reporters after his job interview with Yudhoyono that he was “ready to take the task,” arguing he handled financing issues in the oil sector when he was a banker in the 1990s.
Party Politics
“Partisan politics apparently still played a significant role in the assignment of other key ministerial posts,” said Helmi Arman, an economist at PT Bank Danamon Indonesia Tbk in Jakarta, in an e-mailed response to questions. The president
must make sure “cabinet ministers don’t go their separate ways” and that they stick to the government’s agenda, he said.
New Foreign Minister Marty Natalegawa, 46, is Indonesia’s most high-profile diplomat. Before he was appointed as representative to the United Nations in 2007, Natalegawa served as the country’s ambassador to the United Kingdom. His career
began to rise when he was foreign affairs spokesman from 2002 until 2005, when Indonesia was under the spotlight after the 2002 Bali terrorist bombings.
Top Diplomat
Natalegawa spent his high school years in England and studied at the London School of Economics and Political Sciences and University of Cambridge before receiving a doctorate degree from the Australian National University in 1993.
The Democrat Party, which held 10 percent of parliament during Yudhoyono’s first term, almost tripled its share to 148 seats in April 9 legislative elections, making it the biggest party in the 560-strong body.
Yudhoyono’s coalition controls 75 percent of parliament after Golkar, the second-largest party in the house, joined the grouping following the election of Aburizal Bakrie on Oct. 8 as party chairman. Bakrie served in the president’s first-term team as chief social welfare minister.
For Related News and Information:
Most-read stories on Indonesia: MNI INDO
Most read Indonesian stories: MNI INDO 1W
Search for Indonesian stories: NSE INDONESIA
Sri Mulyani and Pangestu, along with Vice President Boediono, the former head of the central bank, are “most favored by the markets,” said Winang Budoyo, an economist at PT Bank CIMB Niaga.
Investor optimism that Yudhoyono’s election victory heralds a period of rapid economic growth for the nation of 240 million people helped make Indonesian stocks Asia’s best performers this year. Moody’s Investors Service last month raised its rating on the country’s debt to the highest in more than a decade after the government steered the economy through the global downturn that dragged Thailand, Malaysia and Singapore into recession.
Indonesia’s gross domestic product expanded 4 percent in the three months ended June 30 and 4.4 percent in the preceding quarter. The Jakarta Composite Index has more than doubled this year, the biggest gain in Asia and lagging behind only Peru,
Brazil and Russia globally.
Yudhoyono has pledged to bring growth above 7 percent, from an average 5.1 percent this decade. Indonesia wants to be included among the so-called BRIC nations of Brazil, Russia, India and China, Emil Salim, a presidential adviser, has said.
China’s economy expanded 7.9 percent in quarter ended June 30; India’s by 6.1 percent.
“If they get infrastructure investment rolling, we will see very high growth rates in the second half of this administration,” said James Castle, president of Jakarta-based business advisory services company CastleAsia. We “could get 8-9 percent growth if they break the infrastructure logjam.”
Economics Team
Sri Mulyani and Pangestu, who hold doctorates in economics from U.S. universities, are fluent in English and follow a more liberal economic outlook than most Indonesian politicians.
Mulyani, 47, who was first made finance minister in 2005, shook up bureaucrats with a new set of remuneration packages, restructured the tax office and cleaned government practices that can lead to graft. Euromoney named her as the Finance
Minister of the Year in 2006.
Yudhoyono lured her away as an executive director at the International Monetary Fund to become planning minister in his first cabinet in October 2004. She relinquishes her post as coordinating minister for economic affairs, which she took on after her predecessor Boediono was appointed as central bank governor in 2008.
State Secretary Hatta Rajasa was named to that position.The choice of Rajasa may be “a master stroke,” said Castle, who also heads the American Chamber of Commerce in Indonesia, where he has lived for more than three decades. “He’s very good at getting people to cooperate. If he brings those skills to bear, that should make the economic team’s job easier,” he said.
Minister, Campaigner
Before serving as state secretary, Rajasa was Yudhoyono’s transport minister. Rajasa, who led Yudhoyono’s re-election campaign, comes from the National Mandate Party and was the Muslim-based group’s secretary-general from 2000 until 2005. The
former oilman also was his party’s parliamentary leader from 1999 to 2000.
Rajasa has “limited economic experience but it’s hoped he’ll be able to provide a political shield for economic ministers under him in the parliament,” said Fauzi Ichsan, chief economist at Standard Chartered Bank Plc in Jakarta.
Darwin Saleh, a lecturer of economics from Yudhoyono’s Democrat Party, was named energy minister. He has “insufficient experience in that field,” said Umar Juoro, a commissioner at PT Bank Internasional Indonesia Tbk. Saleh told reporters after his job interview with Yudhoyono that he was “ready to take the task,” arguing he handled financing issues in the oil sector when he was a banker in the 1990s.
Party Politics
“Partisan politics apparently still played a significant role in the assignment of other key ministerial posts,” said Helmi Arman, an economist at PT Bank Danamon Indonesia Tbk in Jakarta, in an e-mailed response to questions. The president
must make sure “cabinet ministers don’t go their separate ways” and that they stick to the government’s agenda, he said.
New Foreign Minister Marty Natalegawa, 46, is Indonesia’s most high-profile diplomat. Before he was appointed as representative to the United Nations in 2007, Natalegawa served as the country’s ambassador to the United Kingdom. His career
began to rise when he was foreign affairs spokesman from 2002 until 2005, when Indonesia was under the spotlight after the 2002 Bali terrorist bombings.
Top Diplomat
Natalegawa spent his high school years in England and studied at the London School of Economics and Political Sciences and University of Cambridge before receiving a doctorate degree from the Australian National University in 1993.
The Democrat Party, which held 10 percent of parliament during Yudhoyono’s first term, almost tripled its share to 148 seats in April 9 legislative elections, making it the biggest party in the 560-strong body.
Yudhoyono’s coalition controls 75 percent of parliament after Golkar, the second-largest party in the house, joined the grouping following the election of Aburizal Bakrie on Oct. 8 as party chairman. Bakrie served in the president’s first-term team as chief social welfare minister.
For Related News and Information:
Most-read stories on Indonesia: MNI INDO
Most read Indonesian stories: MNI INDO 1W
Search for Indonesian stories: NSE INDONESIA
Mandiri Sekuritas Bakrieland: to divest 30% of Bakrie Toll road by next year (ELTY, Rp330, Buy, TP: Rp500)
Bakrieland plans to sell 30% stake of Bakrie Toll road for some Rp500tn as well as certain portion of its property projects to raise a combined Rp2tn. In the next three years, the company hopes to raise Rp15tn to fund toll projects encompassing some 300km of road network. About 70% shall tapped using external funds while the remainder from internal cash. Out of the 300km planned toll road network, we have only incorporated the 35km Kanci Pejagan toll road in our projections which will start commercial operations by year end. Currently we have a buy on ELTY trading at a 34% to our NAV09F.
Mandiri Sekuritas ANTM
Summary from recent company visit:
Antam sees FY10F ferronickel production to grow by 21%yoy as a result of better demand prospects as well as resumption of normal operations of the Feni3 plant to at least 17k tons while gold production to increase by 28% to some 3,400kg in 2010. The rise in gold production would be attributed to the start of commercial operation of the Cibaliung gold mine which has a planned production of 800kg next year. Ultimately, Cibaliung is expected to produce some 2,000kg pa during its remaining 6 year mine life. The production estimates are in-line with ours, what’s up for review are the selling price assumptions. 9M09 ferronickel production was at 10,500 tons or 87% of our targeted production and 75% of Antam’s revised projection of 14k tons by year end. 3Q should post better results from previous quarters due to higher qoq ferronickel production of 58% coupled with improved selling prices of both nickel and gold. Currently, Antam trades at PER09-10F of 48x and 24.3x, respectively.
Antam sees FY10F ferronickel production to grow by 21%yoy as a result of better demand prospects as well as resumption of normal operations of the Feni3 plant to at least 17k tons while gold production to increase by 28% to some 3,400kg in 2010. The rise in gold production would be attributed to the start of commercial operation of the Cibaliung gold mine which has a planned production of 800kg next year. Ultimately, Cibaliung is expected to produce some 2,000kg pa during its remaining 6 year mine life. The production estimates are in-line with ours, what’s up for review are the selling price assumptions. 9M09 ferronickel production was at 10,500 tons or 87% of our targeted production and 75% of Antam’s revised projection of 14k tons by year end. 3Q should post better results from previous quarters due to higher qoq ferronickel production of 58% coupled with improved selling prices of both nickel and gold. Currently, Antam trades at PER09-10F of 48x and 24.3x, respectively.
Mandiri Sekuritas Economy : BI will not follow Brazil currency policy
Brazil, Oct 20, made a surprise move to impose a 2 per cent flat one-way tax on all new capital inflows. We queried Bank Indonesia whether they would consider such a move. Our email to Hartadi Sarwono, Bank Indonesia Deputy Governor came back with a reply that BI is still comfortable with their current policy to manage Rp volatility and saw no need to use more stringent policy. BI is still comfortable with the current
range.
range.
Ciptadana SMGR Macro economic recovery will support robust cement consumption next year
Coverage initiation of PT Semen Gresik Tbk (SMGR) with Buy recommendation at target price of IDR 8,500 representing 21% upside potential from Oct 20th 2009 price IDR 7,000 on the back of better expected macro economic recovery and implementation of government capital expenditure for infrastructure projects. Government priority to push infrastructure project as well as higher residential and commercial project development will sustain demand for domestic cement consumption. As cement domestic consumption is dominated by private sectors; we used property and household spending as the proxy to support robust outlook for cement industry next year. SMGR with installed capacity around 39% of total national but yet control the 49% revenue shares on 1H09 is the market leader running at almost full capacity. Domestic consumption predicted to remain flat or growing slightly in 2009, however as anticipation of demand growth in 2010 the company plans to increase its installed capacity to maximum 19.1 million tons in 2010 and 19.7 million tons in 2011 from existing capacity of 18 million tons. The new company’s plant in Sulawesi is expected to be completed in 2011, which should support company’s expansion plan to East Indonesia.
· Better economic growth will be the driver for cement industry as lower interest rate and manageable inflation will push private consumption which is the major buyer in cement industry
· Government plan on infrastructure spending to support targeted economic growth will create higher cement demand
· Lower interest rate will induce Property Company to continue their development projects.
· SMGR control 39% of total installed capacity yet control 49% revenue shares
· Risks are the unexpected turn around of predicted economic condition and the delay in company’s plan to increase installed capacity.
We are using Discounted Cash Flow valuation with 16% WACC and 4% terminal growth. The Terminal Growth is derived from the average of 10 years Indonesia GDP growth. Domestic sales growth and selling price are the key drivers for revenue growth for our valuation. We used moderate assumption of 7% domestic consumption growth next year, with concern of the company limitation of additional installed capacity until 2010. Our target price implied P/E010 15.0x and EV/EBITDA010 9.3x.
· Better economic growth will be the driver for cement industry as lower interest rate and manageable inflation will push private consumption which is the major buyer in cement industry
· Government plan on infrastructure spending to support targeted economic growth will create higher cement demand
· Lower interest rate will induce Property Company to continue their development projects.
· SMGR control 39% of total installed capacity yet control 49% revenue shares
· Risks are the unexpected turn around of predicted economic condition and the delay in company’s plan to increase installed capacity.
We are using Discounted Cash Flow valuation with 16% WACC and 4% terminal growth. The Terminal Growth is derived from the average of 10 years Indonesia GDP growth. Domestic sales growth and selling price are the key drivers for revenue growth for our valuation. We used moderate assumption of 7% domestic consumption growth next year, with concern of the company limitation of additional installed capacity until 2010. Our target price implied P/E010 15.0x and EV/EBITDA010 9.3x.
Credit Suisse - Sampoerna Agro - Bumper crop in 3Q09, as we had anticipated
● SGRO’s 3Q09A CPO output jumped by 63% QoQ and 104% YoY. Indeed, in 3Q09A alone, SGRO produced 94,744 tons of CPO, 11.3% higher than the total CPO produced in the whole 1H09A.
● We had previously highlighted our expectations for strong 3Q09 production for SGRO. We noted the risk that the market had not adequately accounted for the 3Q09 bumper crop and thus underestimated SGRO’s production numbers and earnings, leading SGRO to trade at a discount to its local peers. As such, our 2009E earnings are 34% above consensus.
● SGRO continues to trade at a discount to its local and regional peers. Indeed, SGRO trades at the second lowest 2010E P/E among all the CPO counters under our coverage. We maintain our OUTPERFORM rating on the counter and target price of Rp2600/share (based on 13x 10E P/E) for now, while awaiting its 3Q09 results (to be announced at the end of October 2009).
● However, at current valuations, we prefer IFAR to SGRO and LSIP.
● We had previously highlighted our expectations for strong 3Q09 production for SGRO. We noted the risk that the market had not adequately accounted for the 3Q09 bumper crop and thus underestimated SGRO’s production numbers and earnings, leading SGRO to trade at a discount to its local peers. As such, our 2009E earnings are 34% above consensus.
● SGRO continues to trade at a discount to its local and regional peers. Indeed, SGRO trades at the second lowest 2010E P/E among all the CPO counters under our coverage. We maintain our OUTPERFORM rating on the counter and target price of Rp2600/share (based on 13x 10E P/E) for now, while awaiting its 3Q09 results (to be announced at the end of October 2009).
● However, at current valuations, we prefer IFAR to SGRO and LSIP.
Rabu, 21 Oktober 2009
Goldman: Buy Adaro, Sell Bumi
Stock GS Rating Current Px 12 Month Target Px
Bumi Resources (BUMI.IJ) Sell Idr 2,850 Idr2,300
Adaro (ADRO.IJ) Buy Idr 1,510 Idr2,800
Key Summary Points:-
Rising oil prices are positive for coal equities
Historically, thermal coal prices have been highly correlated to oil prices (88% over the past 10 years), and so have coal stock prices (87% correlated since 2003). We are positive on the outlook for oil, and last month we raised our 2010E and 2011E oil price forecasts to US$90/bbl and US$110/bbl, respectively, on stronger demand projections (our report from September 24, 2009, “Global: Energy: Oil—Recovery and relapse, v2”).
No major supply destruction, some projects nearing completion
Despite the downturn, there has not been any major reduction in thermal coal capex and in fact several projects are nearing completion. Australia’s new third coal port terminal (NCIG) is expected to ship first coal in early 2010E, with a full ramp-up by 2011 (representing a 30% expansion in export capacity). Meanwhile, we estimate that Indonesian coal producers may increase capacity by 40% by year-end 2010E. Our global thermal coal supply-demand estimates indicate that the supply surplus in 2009E is likely to narrow in 2010E due to stronger demand, but it is still in surplus.
Coal price upcycle may lag oil, initiate with neutral stance
Given our positive view on oil prices, we are forecasting higher thermal coal prices over 2009E-2011E. However, with a stronger supply availability of coal, we believe that the coal price cycle may lag oil. Currently thermal coal prices are 20% of oil on an energy-equivalent basis, which is below the historical average of 26% (the historical range is 14%-51%). On an annual average basis we see coal as a percentage of oil declining from 25% in 2009E to 17% in 2011E. We are initiating coverage on the sector with a neutral stance.
Stock selective approach; Buy Adaro, Sell Bumi
Adaro is our top pick, given attractive valuations and a strong earnings growth trend as its low-priced legacy contracts expire. Meanwhile, we rate Bumi Resources as Sell due to rising capital costs, its increasing debt load and declining ROIC. We initiate on Straits Asia and Bukit Asam at Neutral.
Risks
Upside risks to our views and price targets include a disruption in the global coal supply chain (e.g., from bad weather, port congestion) causing coal prices to spike or China coal demand being stronger than we expect; downside risks include China’s small mines restarting operations.
Bumi Resources (BUMI.IJ) Sell Idr 2,850 Idr2,300
Adaro (ADRO.IJ) Buy Idr 1,510 Idr2,800
Key Summary Points:-
Rising oil prices are positive for coal equities
Historically, thermal coal prices have been highly correlated to oil prices (88% over the past 10 years), and so have coal stock prices (87% correlated since 2003). We are positive on the outlook for oil, and last month we raised our 2010E and 2011E oil price forecasts to US$90/bbl and US$110/bbl, respectively, on stronger demand projections (our report from September 24, 2009, “Global: Energy: Oil—Recovery and relapse, v2”).
No major supply destruction, some projects nearing completion
Despite the downturn, there has not been any major reduction in thermal coal capex and in fact several projects are nearing completion. Australia’s new third coal port terminal (NCIG) is expected to ship first coal in early 2010E, with a full ramp-up by 2011 (representing a 30% expansion in export capacity). Meanwhile, we estimate that Indonesian coal producers may increase capacity by 40% by year-end 2010E. Our global thermal coal supply-demand estimates indicate that the supply surplus in 2009E is likely to narrow in 2010E due to stronger demand, but it is still in surplus.
Coal price upcycle may lag oil, initiate with neutral stance
Given our positive view on oil prices, we are forecasting higher thermal coal prices over 2009E-2011E. However, with a stronger supply availability of coal, we believe that the coal price cycle may lag oil. Currently thermal coal prices are 20% of oil on an energy-equivalent basis, which is below the historical average of 26% (the historical range is 14%-51%). On an annual average basis we see coal as a percentage of oil declining from 25% in 2009E to 17% in 2011E. We are initiating coverage on the sector with a neutral stance.
Stock selective approach; Buy Adaro, Sell Bumi
Adaro is our top pick, given attractive valuations and a strong earnings growth trend as its low-priced legacy contracts expire. Meanwhile, we rate Bumi Resources as Sell due to rising capital costs, its increasing debt load and declining ROIC. We initiate on Straits Asia and Bukit Asam at Neutral.
Risks
Upside risks to our views and price targets include a disruption in the global coal supply chain (e.g., from bad weather, port congestion) causing coal prices to spike or China coal demand being stronger than we expect; downside risks include China’s small mines restarting operations.
Deutsche Proposed spectrum fee:Telkom winner, TP 10,150
Telkom's spectrum fee could decrease by 27%,while Indosat's could in- crease by 24%(please refer to table),according to a white paper on frequency fees issued by the Ministry of Communication and Information.
This would translate to a potential uplift of about Rp300bn to Telkom's net profit post tax and minority charges or about 2%of our FY10F.
For Indosat,this would be about a 10 percent impact on earnings.Had the government used Telkomsel's current fee costs as a benchmark,the impact on Indosat's earnings would have been much larger.
Last year,despite having similar spectrum bandwidth with Telkomsel,In-dosat paid about half of Telkomsel's spectrum costs as it had fewer TRXs.
The ministry is planning to change the current per TRX spectrum fee to a frequency-based fee.The government is seeking to implement the regula-tion by 1 January 2010 and will allow a 5 year transition period.The net impact on government revenue would be neutral.
XL's and Bakrie Telecom's frequency fees could decrease by 20%and 18% respectively.
Smaller operators such as,Axis,Hutch and Mobile-8,would see an increase in spectrum fees.We believe,this would put further pressure on smaller operators,making them less competitive,minimizing the potential for dis-ruptive pricing and potentially accelerating consolidation.
This would translate to a potential uplift of about Rp300bn to Telkom's net profit post tax and minority charges or about 2%of our FY10F.
For Indosat,this would be about a 10 percent impact on earnings.Had the government used Telkomsel's current fee costs as a benchmark,the impact on Indosat's earnings would have been much larger.
Last year,despite having similar spectrum bandwidth with Telkomsel,In-dosat paid about half of Telkomsel's spectrum costs as it had fewer TRXs.
The ministry is planning to change the current per TRX spectrum fee to a frequency-based fee.The government is seeking to implement the regula-tion by 1 January 2010 and will allow a 5 year transition period.The net impact on government revenue would be neutral.
XL's and Bakrie Telecom's frequency fees could decrease by 20%and 18% respectively.
Smaller operators such as,Axis,Hutch and Mobile-8,would see an increase in spectrum fees.We believe,this would put further pressure on smaller operators,making them less competitive,minimizing the potential for dis-ruptive pricing and potentially accelerating consolidation.
CIMB Bank Danamon Result note - Moving on to the next cycle
Result note - Moving on to the next cycle - by Mulya Chandra CFA
(BDMN IJ / BDMN.JK, OUTPERFORM - Maintained, Rp4,750 - Tgt. Rp6,700, Financial Services)
We raise our DDM-based target price for Danamon to Rp6,700 (from Rp 5,900) while maintaining our Outperform rating, as we roll forward to CY10. Danamon's 3Q09 results were in line, indicating that its NPL cycle could be ending. Although overall cost of credit rose, cost of credit at its core businesses, DSP and Adira Finance, fell in 3Q09. We believe the next thing could be recoveries of previously written-off loans. 3Q09 NIM shot up to the highest ever, at 13%, on an improving deposit franchise.
(BDMN IJ / BDMN.JK, OUTPERFORM - Maintained, Rp4,750 - Tgt. Rp6,700, Financial Services)
We raise our DDM-based target price for Danamon to Rp6,700 (from Rp 5,900) while maintaining our Outperform rating, as we roll forward to CY10. Danamon's 3Q09 results were in line, indicating that its NPL cycle could be ending. Although overall cost of credit rose, cost of credit at its core businesses, DSP and Adira Finance, fell in 3Q09. We believe the next thing could be recoveries of previously written-off loans. 3Q09 NIM shot up to the highest ever, at 13%, on an improving deposit franchise.
A Cup of Tea
GD2U
The Dow Jones Industrial Average shed 50.71, 0.5%, but still held above 10,000. The S&P 500 and Nasdaq each lost about 0.6%. Putting a damper on the market was this morning's economic news: Readings on both PPI and housing starts missed expectations. Producer prices dropped by 0.6% in September, more than the 0.3-% drop economists had expected. Housing starts rose 0.5 % last month, less than the 2.8-% increase expected.
Thai stocks fell almost one percent on Tuesday, hit by late selling in energy shares, while Indonesia snapped a five-day winning streak with financial stocks and Bumi Resources leading the way. Indonesia's index fell 0.7%, stalling after a more than 2% run in the past five days ahead of a cabinet line-up expected in the week. "The market is waiting for a new catalyst. A key focus for now is on a cabinet line-up which is more likely to be favorable for a broader market sentiment.
BP Group Chief Executive Tony Hayward said on Tuesday the oil price rise was being driven by the fundamentals of supply and demand. Hayward was speaking at an Oil and Money conference in London. But last night Oil in New York dropped below $79 a barrel as the dollar climbed and an industry report showed an increase in crude stockpiles in the U.S., the world’s biggest energy consumer. Meanwhile Nickel was little changed at $19,300 a ton, while tin climbed 0.9% to $14,700 a ton as of 3:05 p.m. in Singapore. Palm Oil down 17 RM or -0.77% at 2180 RM.
As I believe that weakening US dollar will continue and demand for Oil break up we still focus on commodity sector such as ANTM INCO TINS BUMI PTBA ADRO. For CPO related UNSP and TBLA still underperform from JSX. In my view, if Oil continues to strengthening banking will under pressure.
On My opinion was start accumulating when market push lower because I believe our economic and regional getting better. Top Pick was TLKM ANTM INCO TINS BUMI PTBA UNTR and ADRO. And for second liner were UNSP TBLA CTRS CTRP BSDE and BNBR. Sell on Strength on banking for a while.
Cash Management was still my concern. Tightening liquidity and selling pressure from due date fund this week made JSX move limited.
“Deep is an opportunity” by Juntri
=====================================================================
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.
The Dow Jones Industrial Average shed 50.71, 0.5%, but still held above 10,000. The S&P 500 and Nasdaq each lost about 0.6%. Putting a damper on the market was this morning's economic news: Readings on both PPI and housing starts missed expectations. Producer prices dropped by 0.6% in September, more than the 0.3-% drop economists had expected. Housing starts rose 0.5 % last month, less than the 2.8-% increase expected.
Thai stocks fell almost one percent on Tuesday, hit by late selling in energy shares, while Indonesia snapped a five-day winning streak with financial stocks and Bumi Resources leading the way. Indonesia's index fell 0.7%, stalling after a more than 2% run in the past five days ahead of a cabinet line-up expected in the week. "The market is waiting for a new catalyst. A key focus for now is on a cabinet line-up which is more likely to be favorable for a broader market sentiment.
BP Group Chief Executive Tony Hayward said on Tuesday the oil price rise was being driven by the fundamentals of supply and demand. Hayward was speaking at an Oil and Money conference in London. But last night Oil in New York dropped below $79 a barrel as the dollar climbed and an industry report showed an increase in crude stockpiles in the U.S., the world’s biggest energy consumer. Meanwhile Nickel was little changed at $19,300 a ton, while tin climbed 0.9% to $14,700 a ton as of 3:05 p.m. in Singapore. Palm Oil down 17 RM or -0.77% at 2180 RM.
As I believe that weakening US dollar will continue and demand for Oil break up we still focus on commodity sector such as ANTM INCO TINS BUMI PTBA ADRO. For CPO related UNSP and TBLA still underperform from JSX. In my view, if Oil continues to strengthening banking will under pressure.
On My opinion was start accumulating when market push lower because I believe our economic and regional getting better. Top Pick was TLKM ANTM INCO TINS BUMI PTBA UNTR and ADRO. And for second liner were UNSP TBLA CTRS CTRP BSDE and BNBR. Sell on Strength on banking for a while.
Cash Management was still my concern. Tightening liquidity and selling pressure from due date fund this week made JSX move limited.
“Deep is an opportunity” by Juntri
=====================================================================
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.
Selasa, 20 Oktober 2009
Mandiri Sekuritas Ciputra Development: Targets sales of Rp1tn i...
For the next 3 years, the company plans to accumulate some Rp1tn of combined sales coming from 2 new residential projects in Makassar and Pangkal Pinang. So far since its launch in March this year, the Citraland Makassar project has garnered a total of Rp216bn in marketing sales, about 24% of CTRA’s 9M09 of Rp871bn (-28%yoy). Citra Garden Pangkal Pinang, meanwhile will be launched by end of the year with some 50-100 units being rolled out. As of 9M09, CTRA’s marketing sales has lagged behind its FY09 target with an accomplishment rate of 61%, the launching of new projects should help boost sales. For example when the Makassar project was launched in March it instantly generated sales of Rp132bn, 54% of the month’s sales which jumped by close to 4-folds mom. From our standpoint, we are keeping our marketing sales target in FY09 to Rp1.2bn (-16%yoy). Note that revenue realization for these two projects could only occur partially late 2010, thus keeping our targets in 2009 intact. We currently have a buy on the stock, which trades at a 30% discount to our NAV09F.
Citigroup Asia ex Strategy (191009)
If You Can’t Find Absolute, Try Relative Revisions
Absolute earnings revisions have peaked, but that does not preclude some countries and sectors doing better than others — Given that absolute revisions are the highest in 20 years, and that this was not the worst earnings decline in 20 years, we view that investors will increasingly turn to relative revisions. Only Korea and Taiwan are showing earnings revision outperformance, while the others all lag and are underperforming. Singapore looks as if it may be bottoming out.
Technology, Consumer Discretionary and Materials are all outperforming in terms of EPS revisions — Industrials are not outperforming, nor is the Energy sector. Globally the Financials are showing signs of outperformance but not yet in Asia ex. The defensives are all significant earnings momentum underperformers, with the best among them being the Utilities sector. EPS momentum investors should be long Korea, Taiwan, Tech, Consumer Discretionary and Materials.
Once earnings recover, market returns (sadly) slow — Expectations for 2010E market returns remain in the 25%-30% range, which we view as very high. Historically the second year of a market recovery is characterized by multiple compression not expansion. Most returns occur before earnings recover, thereafter expected to be between 9%-15%, and while this is still 2x-3x the compound return p.a. since 1990, it is sadly not as good as year to date.
Absolute earnings revisions have peaked, but that does not preclude some countries and sectors doing better than others — Given that absolute revisions are the highest in 20 years, and that this was not the worst earnings decline in 20 years, we view that investors will increasingly turn to relative revisions. Only Korea and Taiwan are showing earnings revision outperformance, while the others all lag and are underperforming. Singapore looks as if it may be bottoming out.
Technology, Consumer Discretionary and Materials are all outperforming in terms of EPS revisions — Industrials are not outperforming, nor is the Energy sector. Globally the Financials are showing signs of outperformance but not yet in Asia ex. The defensives are all significant earnings momentum underperformers, with the best among them being the Utilities sector. EPS momentum investors should be long Korea, Taiwan, Tech, Consumer Discretionary and Materials.
Once earnings recover, market returns (sadly) slow — Expectations for 2010E market returns remain in the 25%-30% range, which we view as very high. Historically the second year of a market recovery is characterized by multiple compression not expansion. Most returns occur before earnings recover, thereafter expected to be between 9%-15%, and while this is still 2x-3x the compound return p.a. since 1990, it is sadly not as good as year to date.
Goldman Sachs - Asahimas Flat Glass (AMFG) - A stock to watchou...
Extracted from Goldman Sach’s report dated 20 October 2009:
Expect 4% of industry capacity to be affected for 2-3 months
Corning announced after the October 19 close (JST) that its glass plant in Taichung, Taiwan was affected by a power outage. The company previously expected volume to rise by about 5% qoq in Oct-Dec, but it announced that because of this incident 4Q volume could remain flat or fall slightly. Corning is working to assess the specific impact, but our channel checks indicate that 5 of the plant’s 14 furnaces were affected, which we estimate is about 4% of the LCD glass industry’s production capacity, and that these furnaces will need repairs that will prevent them being restarted for 2-3 months.
Positive for Asahi Glass/Nippon Electric Glass; neutral for panels
Two industry implications:
(1) Impact for glass makers: We think Samsung Corning Precision, Nippon Electric Glass (5214.T, Neutral; Oct. 19 closing price ¥960), and Asahi Glass (5201.T, Buy, Conviction List; Oct. 19 closing price ¥794) are likely to compensate for shipment shortfalls at Corning’s Taiwan plant, and that near-term volume is likely to be slightly higher at each firm. We think glass supply/demand could be tighter than we previously expected in Oct-Dec and Jan-Mar. If price declines are smaller, we believe consensus estimates for glass maker earnings could rise for FY09 and FY10. We think this is positive news for Nippon Electric Glass and Asahi Glass. We maintain our buy rating for Asahi Glass, and keep the stock on our Conviction List. (2) Impact for panel makers: We think LG Display, Samsung and Innolux are less impacted by this incident. Note that Innolux is sheltered by a guaranteed supply contract with Corning. We expect panel prices will still hold up in the next two months, supported by glass supply constraint, and that risk to our 4Q09 earnings forecast should be on the upside. However, this is not going to change the industry overcapacity downward trend. We believe the effect of a seasonal slowdown in demand will still be greater than the impact of a glass shortage. We retain a Buy on LGD, Neutral on AUO and Innolux and Sell on CMO.
Expect 4% of industry capacity to be affected for 2-3 months
Corning announced after the October 19 close (JST) that its glass plant in Taichung, Taiwan was affected by a power outage. The company previously expected volume to rise by about 5% qoq in Oct-Dec, but it announced that because of this incident 4Q volume could remain flat or fall slightly. Corning is working to assess the specific impact, but our channel checks indicate that 5 of the plant’s 14 furnaces were affected, which we estimate is about 4% of the LCD glass industry’s production capacity, and that these furnaces will need repairs that will prevent them being restarted for 2-3 months.
Positive for Asahi Glass/Nippon Electric Glass; neutral for panels
Two industry implications:
(1) Impact for glass makers: We think Samsung Corning Precision, Nippon Electric Glass (5214.T, Neutral; Oct. 19 closing price ¥960), and Asahi Glass (5201.T, Buy, Conviction List; Oct. 19 closing price ¥794) are likely to compensate for shipment shortfalls at Corning’s Taiwan plant, and that near-term volume is likely to be slightly higher at each firm. We think glass supply/demand could be tighter than we previously expected in Oct-Dec and Jan-Mar. If price declines are smaller, we believe consensus estimates for glass maker earnings could rise for FY09 and FY10. We think this is positive news for Nippon Electric Glass and Asahi Glass. We maintain our buy rating for Asahi Glass, and keep the stock on our Conviction List. (2) Impact for panel makers: We think LG Display, Samsung and Innolux are less impacted by this incident. Note that Innolux is sheltered by a guaranteed supply contract with Corning. We expect panel prices will still hold up in the next two months, supported by glass supply constraint, and that risk to our 4Q09 earnings forecast should be on the upside. However, this is not going to change the industry overcapacity downward trend. We believe the effect of a seasonal slowdown in demand will still be greater than the impact of a glass shortage. We retain a Buy on LGD, Neutral on AUO and Innolux and Sell on CMO.
CLSA INDO: SE Asia property - a period of strong growth
Did you know that Jakarta properties give you yields of 11.27%, the second highest in Asia after Ulan Bator?
A great piece today from Nick Cashmore on SE Asia’s property sector. There is good value in SE Asian residential property. We believe Asean property markets are set for a period of strong growth.
Something is going to give for sure. Its either that rental rates will crash or capital value will explode. My bet is on the latter. I am convinced that we are in the beginning of a big property boom in Indonesia. Reading our new 150 pager Retrovision Report (on HK property) over the weekend, the first striking similarity between Hong Kong in the 1970s and today's Indonesia property market is the strong underlying housing demand, which is underpinned by a low homeownership ratio, low leverage and income growth as the middle class population builds up. Interesting to note that home ownership in HK was less than 20% in the early 70s and that local bank (Hang Seng) offered what was considered a groundbreaking mortgage product. It was a 7 years mortgage rather than the average of 3 years! In comparison mortgage leader BCA now offering 2 - max 5 years mortgage product.
I am not saying Indonesia will reach HK prices. All I saying is prices can easily double from here but still it would be cheaper compare to Thailand, Cambodia, India. Top end luxury apartments here go for US$2,500psm compare to the jaw dropping prices of $100,000psm recently fetched in HK. Its not a typo, it is a staggering 40x more.
A combination of record low interest rates and low leverage, rapid urbanization, and young population will no doubt propel Indonesia property prices. Indonesia property companies will be the big winners. We learned from our Retrov report that the single most important factor to success of the biggest developers in HK today was their vision to acquire vast landbanks in the 1970s (mostly for close to nothing through letter Bs, rights to convert agricultural land) Major players in Indonesia such as Summarecon, Ciputra Dev, Bumi Serpong owns land banks (also bought for close to nothing as they were barren land) that could last them for a decade. Note that NAV calculation of Indo property companies is valued conservatively at replacement cost of landbank Vs DCF of future development used in developed markets. Cash flow leverage on higher prices could have a massive impact to the valuation.
A great piece today from Nick Cashmore on SE Asia’s property sector. There is good value in SE Asian residential property. We believe Asean property markets are set for a period of strong growth.
Something is going to give for sure. Its either that rental rates will crash or capital value will explode. My bet is on the latter. I am convinced that we are in the beginning of a big property boom in Indonesia. Reading our new 150 pager Retrovision Report (on HK property) over the weekend, the first striking similarity between Hong Kong in the 1970s and today's Indonesia property market is the strong underlying housing demand, which is underpinned by a low homeownership ratio, low leverage and income growth as the middle class population builds up. Interesting to note that home ownership in HK was less than 20% in the early 70s and that local bank (Hang Seng) offered what was considered a groundbreaking mortgage product. It was a 7 years mortgage rather than the average of 3 years! In comparison mortgage leader BCA now offering 2 - max 5 years mortgage product.
I am not saying Indonesia will reach HK prices. All I saying is prices can easily double from here but still it would be cheaper compare to Thailand, Cambodia, India. Top end luxury apartments here go for US$2,500psm compare to the jaw dropping prices of $100,000psm recently fetched in HK. Its not a typo, it is a staggering 40x more.
A combination of record low interest rates and low leverage, rapid urbanization, and young population will no doubt propel Indonesia property prices. Indonesia property companies will be the big winners. We learned from our Retrov report that the single most important factor to success of the biggest developers in HK today was their vision to acquire vast landbanks in the 1970s (mostly for close to nothing through letter Bs, rights to convert agricultural land) Major players in Indonesia such as Summarecon, Ciputra Dev, Bumi Serpong owns land banks (also bought for close to nothing as they were barren land) that could last them for a decade. Note that NAV calculation of Indo property companies is valued conservatively at replacement cost of landbank Vs DCF of future development used in developed markets. Cash flow leverage on higher prices could have a massive impact to the valuation.
CIMB Mining contracting - new decree - foreign companies prohib...
Details on the implementing regulations on mining contracting will be outlined in the upcoming ministerial decrees, should be out soon.
But, the umbrella law mining Law no.4/2009 stated the followings for mining-contracting:
~ On restriction using affiliates, I think it's not a big issue as currently there is only very limited excess capacity, if any, in contract-mining sector judging from the companies' production growth outlook over the next 3-4 years and the 6-8 months lag time in ordering machineries. Coal producers are no worried about this, all of them view they can justify using their affiliates.
~ On the foreign contractors, it's more tricky. I spoke to Leighton which claimed they have been trying to lobby the government over this particular point, but apparently failed. So, foreign mining contractors (Leighton and Thiess) are likely to be given some transition period (probably 2-3 years) to partner with local party (or be up for sale to local parties) or to be listed on the JSX. At this stage, listing is more feasible for them.
But, the umbrella law mining Law no.4/2009 stated the followings for mining-contracting:
~ On restriction using affiliates, I think it's not a big issue as currently there is only very limited excess capacity, if any, in contract-mining sector judging from the companies' production growth outlook over the next 3-4 years and the 6-8 months lag time in ordering machineries. Coal producers are no worried about this, all of them view they can justify using their affiliates.
~ On the foreign contractors, it's more tricky. I spoke to Leighton which claimed they have been trying to lobby the government over this particular point, but apparently failed. So, foreign mining contractors (Leighton and Thiess) are likely to be given some transition period (probably 2-3 years) to partner with local party (or be up for sale to local parties) or to be listed on the JSX. At this stage, listing is more feasible for them.
CLSA IndoNickelSector-19Oct09
Polishing nickel
We are revising up our nickel price assumptions as demand is improving, hence our sharp earnings revision for Indonesian nickel companies.
However, valuations are not particularly cheap, while mounting nickel inventory might limit upside risk on nickel price. We therefore view Indonesian nickel companies as more of a trade USD weakness and hence prefer the more defensive names, Inco Indonesia, over Antam.
Another look at nickel
Stainless steel production was up by 24.5% QoQ in 2Q09 with sign of improvement on stainless steel price as well, positive for nickel usage.
Austenitic grades stainless steel averaged 62% in 1H09, as compared 60% as of Dec08, suggesting growing nickel demand.
However, LME nickel inventory have kept rising, breaching 121k, the highest level in the past 15 years, limiting further upside on price.
Our nickel price assumptions were too low and we have raised them by 8% to 46%.
Our earnings revision
We have raised our earnings estimates for Indonesian nickel companies by 70% to 420% over 2009 to 2011, coming from a low base.
Our numbers are generally above consensus for Inco Indonesia and we believe consensus earnings estimates would need to be revised up following 3Q09 results.
For Antam, our estimates are generally below consensus, largely reflecting different volume assumptions for nickel ore and cost structure on ferronickel.
How to play then?
We think it is hard to see rally on nickel price given inventory risk, hence we do not expect a strong run up on Indonesian nickel names. Valuations are not particularly cheap either. Inco Indonesia and Antam are therefore mostly a trade on USD weakness, in our view.
We think it is best to stay in a more defensive play, Inco Indonesia. The company
has low cost structure, strong balance sheet, while supported, financially and technically, by parent, Vale. Inco Indonesia’s USD based cost means its margin would not be affected by weak USD, unlike Antam or Australian nickel producers.
We raise our rating on Inco to BUY with target price set at Rp4,950.
Antam valuations look stretch but downside would be supported by 1) the fact that
Antam is offering the sole gold exposure in Indonesia, and 2) potential M&A as the government could soon announce local parties that would entitle to buy stakes in gold and copper mine, Newmont Nusa Tenggara. We raised Antam rating to Outperform and set target price at Rp2,700.
We are revising up our nickel price assumptions as demand is improving, hence our sharp earnings revision for Indonesian nickel companies.
However, valuations are not particularly cheap, while mounting nickel inventory might limit upside risk on nickel price. We therefore view Indonesian nickel companies as more of a trade USD weakness and hence prefer the more defensive names, Inco Indonesia, over Antam.
Another look at nickel
Stainless steel production was up by 24.5% QoQ in 2Q09 with sign of improvement on stainless steel price as well, positive for nickel usage.
Austenitic grades stainless steel averaged 62% in 1H09, as compared 60% as of Dec08, suggesting growing nickel demand.
However, LME nickel inventory have kept rising, breaching 121k, the highest level in the past 15 years, limiting further upside on price.
Our nickel price assumptions were too low and we have raised them by 8% to 46%.
Our earnings revision
We have raised our earnings estimates for Indonesian nickel companies by 70% to 420% over 2009 to 2011, coming from a low base.
Our numbers are generally above consensus for Inco Indonesia and we believe consensus earnings estimates would need to be revised up following 3Q09 results.
For Antam, our estimates are generally below consensus, largely reflecting different volume assumptions for nickel ore and cost structure on ferronickel.
How to play then?
We think it is hard to see rally on nickel price given inventory risk, hence we do not expect a strong run up on Indonesian nickel names. Valuations are not particularly cheap either. Inco Indonesia and Antam are therefore mostly a trade on USD weakness, in our view.
We think it is best to stay in a more defensive play, Inco Indonesia. The company
has low cost structure, strong balance sheet, while supported, financially and technically, by parent, Vale. Inco Indonesia’s USD based cost means its margin would not be affected by weak USD, unlike Antam or Australian nickel producers.
We raise our rating on Inco to BUY with target price set at Rp4,950.
Antam valuations look stretch but downside would be supported by 1) the fact that
Antam is offering the sole gold exposure in Indonesia, and 2) potential M&A as the government could soon announce local parties that would entitle to buy stakes in gold and copper mine, Newmont Nusa Tenggara. We raised Antam rating to Outperform and set target price at Rp2,700.
UBS Investment Research Plantations sector - Biodiesel revisite...
Crude oil rises sharply on improving economic outlook
Based on an improving global economic outlook, the crude oil price has risen sharply so far this year, and in the last week especially. In this note we revisit the biodiesel investment theme that drove a bullish CPO price run in 2006-08.
Challenges to boost biodiesel demand in Malaysia
Despite the recent jump in the crude oil price, biodiesel demand in Malaysia should remain lacklustre. The key issues are that mineral diesel is subsidised in Malaysia and there is no consistent subsidy for palm biodiesel. We also think the government is more likely to be concerned about the budget deficit than to commit extra funds to subsidise the biodiesel industry.
Non-tariff barriers hinder palm biodiesel expansion in the EU
Although biodiesel in the EU benefits from a lower tax than mineral diesel, the union has not approved it as a biofuel because palm biodiesel does not meet the EU’s minimum threshold greenhouse gas reduction rate of 35%. Palm biodiesel can still be exported to the EU, but only on a case-by-case basis.
We remain negative on plantations
Our conclusions: despite the recent rise in the crude oil price, we remain negative on plantations. Compared to a few years ago, opinion has turned more cautious about the use of vegetable oil-based biodiesel as a solution to energy/greenhouse gases. In addition, many governments around the world now face budget deficits, placing further disincentives on subsidising biodiesel.
Based on an improving global economic outlook, the crude oil price has risen sharply so far this year, and in the last week especially. In this note we revisit the biodiesel investment theme that drove a bullish CPO price run in 2006-08.
Challenges to boost biodiesel demand in Malaysia
Despite the recent jump in the crude oil price, biodiesel demand in Malaysia should remain lacklustre. The key issues are that mineral diesel is subsidised in Malaysia and there is no consistent subsidy for palm biodiesel. We also think the government is more likely to be concerned about the budget deficit than to commit extra funds to subsidise the biodiesel industry.
Non-tariff barriers hinder palm biodiesel expansion in the EU
Although biodiesel in the EU benefits from a lower tax than mineral diesel, the union has not approved it as a biofuel because palm biodiesel does not meet the EU’s minimum threshold greenhouse gas reduction rate of 35%. Palm biodiesel can still be exported to the EU, but only on a case-by-case basis.
We remain negative on plantations
Our conclusions: despite the recent rise in the crude oil price, we remain negative on plantations. Compared to a few years ago, opinion has turned more cautious about the use of vegetable oil-based biodiesel as a solution to energy/greenhouse gases. In addition, many governments around the world now face budget deficits, placing further disincentives on subsidising biodiesel.
BASML - INDO UNTR 3Q preview (19 Oct 09)
United Tractor is set to deliver a strong 3Q09 with 835 units of heavy equipment sold (vs 771 in 2Q) and 15.5mn ton coal output from mining contracting. Daisy sees 3Q EBIT at Rp1.2tn and core net profit at Rp840bn (flat QoQ). This would bring 9M EBIT to Rp 3.8tn and net profit to Rp2.78tn, accounting for 84% and 95% of her FY09 est'. Sept sales to fall ~30% MoM to 220 units due to the Ramadan holiday, but not to worry as back in 2007 during the coal px bull run, heavy equip sales fell by as much as 35% before recovering to +92% in the following month. Risk to Daisy's earnings forecast is to the upside, as she only expect 16% EBIT margin for 2009, while UNTR has booked 19% in 1Q, 18% in 2Q and 17% likely in 3Q. It seems that she may have underestimated the strength of the revenue from sales of high-margin spare parts. Buy PO Rp 17,400.
CIMB Timah Company update - A bargain
(TINS IJ / TINS.JK, OUTPERFORM - Maintained, Rp2,225 - Tgt. Rp3,100, Basic Resources)
We maintain Outperform on Timah as we believe Timah's strong earnings momentum into FY10 has been overlooked by the market. Our DCF-based target price rises to Rp3,100 from Rp2,410 from our EPS upgrade as well as rollover to CY10. At 9x CY10 P/E and projected 115% yoy net profit growth for FY10, we believe Timah is a bargain relative to the other mining stocks. Plus, its 75% discount to its closest Chinese peer is excessive, we believe. We have raised our FY10-11 EPS forecasts by 19.5-28% on higher average tin-price assumptions. With its strong momentum in earnings, upside in tin prices and potential consensus earnings upgrades, we believe Timah's valuations could return to its peak at two standard deviations above its mean i.e. 13x CY10 P/E (currently at 1-year moving average).
We maintain Outperform on Timah as we believe Timah's strong earnings momentum into FY10 has been overlooked by the market. Our DCF-based target price rises to Rp3,100 from Rp2,410 from our EPS upgrade as well as rollover to CY10. At 9x CY10 P/E and projected 115% yoy net profit growth for FY10, we believe Timah is a bargain relative to the other mining stocks. Plus, its 75% discount to its closest Chinese peer is excessive, we believe. We have raised our FY10-11 EPS forecasts by 19.5-28% on higher average tin-price assumptions. With its strong momentum in earnings, upside in tin prices and potential consensus earnings upgrades, we believe Timah's valuations could return to its peak at two standard deviations above its mean i.e. 13x CY10 P/E (currently at 1-year moving average).
Danareksa Bakrie Telecom (BTEL IJ, Rp135 BUY) Likely to get add...
Reiterate BUY
We retain our confidence in the company’s business model and maintain our BUY recommendation on the stock. Adding to the positive outlook is news that BTEL is very close to getting additional bandwidth in the JBJB area since the Indonesian Telecommunication Regulatory Body (BRTI) has discovered unutilized bandwidth of 1.25 Mhz in the 800Mhz spectrum. BTEL plans to use this extra bandwidth to make a push in the fast growing internet business. In regard to the impending announcement of the 9M09 results, we are upbeat and expect them to be on track.
Additional bandwidth
BRTI has discovered an idle channel in the 800Mhz spectrum. This channel is adjacent to BTEL’s existing channels in the Jakarta, Banten and West Java (JBJB) areas while for Telkom Flexi the channel is adjacent in non-JBJB areas. Technically, this idle spectrum can only be utilized by Bakrie Telecom and Telkom Flexi as there might be interference if it is used by other operators such as Mobile-8 and Indosat’s Star One. As such, the idle channel will not be tendered but, instead, directly allocated to BTEL and Telkom Flexi. Currently, the 800Mhz spectrum has 14 channels with 2 channels safeguarded. BTEL and Telkom Flexi have 3 channels each, while Mobile 8 has 4 channels and Star One only has 2 channels. With the new arrangement, BTEL would have four channels in JBJB while Telkom would have 4 channels in non-JBJB areas. Nonetheless, it should be noted that the formal process of granting the idle channel is still in process.
To use the additional bandwidth for data
With the additional channel, BTEL plans to utilize the additional capacity to develop internet access based on the EVDO standard (which is equivalent to the 3G standard on the GSM system). Currently, BTEL’s spectrum in JBJB is fully utilized for voice and data transmission. Yet with the extra bandwidth, BTEL will be able to target the fast growing internet business. However, the company has yet to disclose detailed plans concerning matters such as capex, the rollout timeline, as well as the positioning and its pricing strategy. What we do know, however, is that capex for internet development should be less than the capex for new subscribers at US$40 per subscriber. This is because the company will basically only need to make investments in equipment and the new system. We believe that BTEL is likely to disclose the business plan early next year.
The 9M09 results should be on track
The announcement of the 9M09 results is imminent – probably by the end of the month. We are confident that the company is on track to achieve its target of 10mn subscribers by the end of this year. In 2009, the RPM has tended to recover, albeit rather slowly. And there is room for margin improvement as the company stands to benefit from economies of scale. Note that most of the newly opened areas are still having to bear start-up costs. The JBJB area sets the standard for other areas, and for this area the company claims that the EBITDA margin is already above the 40% level.
We retain our confidence in the company’s business model and maintain our BUY recommendation on the stock. Adding to the positive outlook is news that BTEL is very close to getting additional bandwidth in the JBJB area since the Indonesian Telecommunication Regulatory Body (BRTI) has discovered unutilized bandwidth of 1.25 Mhz in the 800Mhz spectrum. BTEL plans to use this extra bandwidth to make a push in the fast growing internet business. In regard to the impending announcement of the 9M09 results, we are upbeat and expect them to be on track.
Additional bandwidth
BRTI has discovered an idle channel in the 800Mhz spectrum. This channel is adjacent to BTEL’s existing channels in the Jakarta, Banten and West Java (JBJB) areas while for Telkom Flexi the channel is adjacent in non-JBJB areas. Technically, this idle spectrum can only be utilized by Bakrie Telecom and Telkom Flexi as there might be interference if it is used by other operators such as Mobile-8 and Indosat’s Star One. As such, the idle channel will not be tendered but, instead, directly allocated to BTEL and Telkom Flexi. Currently, the 800Mhz spectrum has 14 channels with 2 channels safeguarded. BTEL and Telkom Flexi have 3 channels each, while Mobile 8 has 4 channels and Star One only has 2 channels. With the new arrangement, BTEL would have four channels in JBJB while Telkom would have 4 channels in non-JBJB areas. Nonetheless, it should be noted that the formal process of granting the idle channel is still in process.
To use the additional bandwidth for data
With the additional channel, BTEL plans to utilize the additional capacity to develop internet access based on the EVDO standard (which is equivalent to the 3G standard on the GSM system). Currently, BTEL’s spectrum in JBJB is fully utilized for voice and data transmission. Yet with the extra bandwidth, BTEL will be able to target the fast growing internet business. However, the company has yet to disclose detailed plans concerning matters such as capex, the rollout timeline, as well as the positioning and its pricing strategy. What we do know, however, is that capex for internet development should be less than the capex for new subscribers at US$40 per subscriber. This is because the company will basically only need to make investments in equipment and the new system. We believe that BTEL is likely to disclose the business plan early next year.
The 9M09 results should be on track
The announcement of the 9M09 results is imminent – probably by the end of the month. We are confident that the company is on track to achieve its target of 10mn subscribers by the end of this year. In 2009, the RPM has tended to recover, albeit rather slowly. And there is room for margin improvement as the company stands to benefit from economies of scale. Note that most of the newly opened areas are still having to bear start-up costs. The JBJB area sets the standard for other areas, and for this area the company claims that the EBITDA margin is already above the 40% level.
Mandiri Sekuritas Sampoerna Agro: 9M09 indicative revenue was in line with our expectation (SGRO, Rp2,475, Buy, TP: Rp2,200)
SGRO’s FFB production until 9M09 fell by 0.8% yoy to 827k tons. But, in term of qoq view, CPO production up by 62.7% yoy to 180k tons, mostly due to substantially higher production in Sumatra area. These figures resulted in unaudited sales of around Rp1.2tn in 9M09, in line with our forecast. We positively view the company’s production as it is above market expectation. At Rp2,475/share, the stock is trading at EV/ha of US$4,528, still lower than average plantation companies of US$12,418 (using exchange rate assumption of Rp9,200/US$). Currently, SGRO is trading at PER10F of 13.1x.
Senin, 19 Oktober 2009
RBS Asia Securities Indonesia Metals & Mining - Coal export quota clarified
Metals & Mining
Coal export quota clarified
We now have clarity on the government's coal export quota plan, which proposes a domestic market obligation of 78m tonnes for 2010. This non-restrictive export quota is neutral to coal prices but still poses a risk to Indonesian coal exporters.
Buy Bukit Asam, a domestic coal play, as it stands to gain the most, in our view.
Coal export quota clarified
Following news of a plan to cap Indonesia coal exports at 150m tonnes pa in 2010, the
government has clarified that instead of specifying an explicit export quota, it will require a domestic market obligation (DMO), proposed at 78m tonnes for 2010 (still subject to approval). This compares with this year's domestic coal consumption of 68m tonnes. We believe the DMO is enough to secure domestic coal availability, given that the three power plants under the 10GW project (see Table 1) slated for completion by this year-end will need coal supply of just 6.7m tonnes pa in 2010.
Non-restrictive export quota
The proposed DMO of 78m tonnes appears reasonable to us, implying a non-restrictive coal export quota for 2010, and is equivalent to 30% of nationwide coal output,based on the Indonesia Coal Mining Association's forecast that output will rise to 260m tonnes in 2010(Chart 2). This scenario is neutral to our coal price outlook.
Imposition of an export quota
(through DMO) coupled with the plan to cut the royalty rate for low-rank coal could encourage leading companies to start producing low-calorie coal that is better suited to the domestic power sector.
Risk to Indonesian coal exporters
How a DMO will be implemented remains unclear, as implementing regulations for the new Mining Law are yet to be issued. A blanket 30% DMO for every coal company in Indonesia would pose a risk to exporters such as Indo Tambangraya, Bumi Resources and to a lesser extent Adaro Energy (25% of its coal was sold locally in 2008), as these companies might be required to produce more lower grade coal for the domestic market, or make third-party coal purchases. They mostly produce high to medium quality coal at present.
Bukit Asam will be unaffected, in our view
Bukit Asam, being a domestic coal play with 65% of its coal sold locally in 2008, should be unaffected by any DMO requirement. The stock remains one of our top picks in the sector alongside United Tractors and Adaro Energy.
Coal export quota clarified
We now have clarity on the government's coal export quota plan, which proposes a domestic market obligation of 78m tonnes for 2010. This non-restrictive export quota is neutral to coal prices but still poses a risk to Indonesian coal exporters.
Buy Bukit Asam, a domestic coal play, as it stands to gain the most, in our view.
Coal export quota clarified
Following news of a plan to cap Indonesia coal exports at 150m tonnes pa in 2010, the
government has clarified that instead of specifying an explicit export quota, it will require a domestic market obligation (DMO), proposed at 78m tonnes for 2010 (still subject to approval). This compares with this year's domestic coal consumption of 68m tonnes. We believe the DMO is enough to secure domestic coal availability, given that the three power plants under the 10GW project (see Table 1) slated for completion by this year-end will need coal supply of just 6.7m tonnes pa in 2010.
Non-restrictive export quota
The proposed DMO of 78m tonnes appears reasonable to us, implying a non-restrictive coal export quota for 2010, and is equivalent to 30% of nationwide coal output,based on the Indonesia Coal Mining Association's forecast that output will rise to 260m tonnes in 2010(Chart 2). This scenario is neutral to our coal price outlook.
Imposition of an export quota
(through DMO) coupled with the plan to cut the royalty rate for low-rank coal could encourage leading companies to start producing low-calorie coal that is better suited to the domestic power sector.
Risk to Indonesian coal exporters
How a DMO will be implemented remains unclear, as implementing regulations for the new Mining Law are yet to be issued. A blanket 30% DMO for every coal company in Indonesia would pose a risk to exporters such as Indo Tambangraya, Bumi Resources and to a lesser extent Adaro Energy (25% of its coal was sold locally in 2008), as these companies might be required to produce more lower grade coal for the domestic market, or make third-party coal purchases. They mostly produce high to medium quality coal at present.
Bukit Asam will be unaffected, in our view
Bukit Asam, being a domestic coal play with 65% of its coal sold locally in 2008, should be unaffected by any DMO requirement. The stock remains one of our top picks in the sector alongside United Tractors and Adaro Energy.
Minggu, 18 Oktober 2009
Palmoil HQ Crude Palm Oil Futures End Down On Profit Taking, Long Liquidation
Crude palm oil futures on Malaysia’s derivatives exchange ended lower Thursday, erasing the previous day’s gains, tracking a decline in soyoil and weighed down by profit taking and long liquidation, said trade participants.The benchmark December contract on Bursa Malaysia Derivatives finished MYR50 lower at MYR2,110 a metric ton after moving in a MYR2,108-MYR2,180/ton range.
Prices broke key support at MYR2,150, MYR2,130 and MYR2,118 in a single day, making the market vulnerable to further losses.
Profit taking that was seen toward the close yesterday continued today, said trade participants.
“There’s a lack of follow-through buying interest today. When prices weren’t able to break out of MYR2,180/ton, investors began liquidating their positions,” said an executive from a Kuala Lumpur-based global trading company.
The market opened higher but couldn’t maintain early gains, spurring investors to take profit. Prices eased into negative territory as export figures failed to exceed market expectations, said traders.
Cargo surveyors Intertek Agri Services and SGS (Malaysia) Bhd. estimated Malaysia’s Oct. 1-15 palm oil exports at 596,515 tons and 591,791 tons, respectively.
Both figures were higher on month but were within or slightly below market expectations of an 11%-12% rise in shipments to around 595,000 tons.
Traders also worry that demand for the commodity may soon ease after India and China, both major buyers of palm oil, announced record imports for vegetable oils in September, and both would have considerably high stockpiles of palm oil as their restocking activities gathered pace.
Separately, Pakistan may also slow down palm oil purchases from November onwards due to a surplus in palm oil stocks, said an industry official.
Buying may fall below 100,000 tons a month in the November-December period due to the arrival of cottonseed crops, leading to a decline in demand for palm oil, said A. Rasheed Janmohammad, vice-chairman of the Pakistan Edible Oil Refiners Association[...]
Palmoil HQ Big buyers sniffing around for palm oil deals
India has started restocking with palm oil as the Asian festival season draws to a close and China made more enquiries than deals this week since vegetable oil stocks at its ports were high.India, the world’s top importer of vegetable oils, bought 15,000 to 20,000 tonnes of crude palm oil at US$660-$672 (RM2,216 –RM2257) a tonne for Oct/Nov delivery.
That signals some restocking activity was underway even before the major Hindu festival of Diwali this weekend.
A week ago, the South Asian country purchased 25,000 tonnes of crude palm oil at US$632-US$640 per tonne after a two-week hiatus from vegetable oil markets, a leading Indian trader said.
Malaysian palm oil futures, which give direction for cash prices, have climbed 4 percent since Friday on a crude oil rally and signs of better exports.
But that has kept Chinese buyers on the sidelines, looking for more concrete details on global palm oil demand, traders say.
“November and December are traditionally the weaker months for palm oil demand, and stockpiles of edible oils at China’s ports are at quite high a level,” said a trader in Guangzhou city in southern China. She did not estimate the stock level.
“Unless there is some positive news flow for palm oil demand, I don’t think buyers will be keen in taking up more palm oil in the next two months,” the trader said.
She said her firm bought some 5,000 tonnes of palm olein for November delivery, at US$660-US$670 a tonne.
Other traders dealing with China say there have been enquiries but very few deals signed, partly because the second largest buyer in the world has just finished an eight-day holiday early this month.
Cargo surveyor Intertek Testing Services reported a 12.6 per cent jump to 596,515 tonnes for Malaysia’s Oct 1-15 palm oil exports from a month ago. Shipments to China were down 24 per cent and India’s exports were 5.8 per cent lower.
India is looking to buy more crude palm oil as its discount to rival soyoil from Argentina has widened to more than US$200 a tonne with landed cost at US$870 a tonne.
A state-run trading firm MMTC Ltd has bought 18,000 tonnes of RBD palm olein at US$692 per tonne to meet Hindu festival demand, two government officials said on Tuesday.
“There was a break in buying but palm oil remains attractive and soyoil imports are not going to happen for the next 4-6 weeks at least as we have our own domestic soy crop coming in,” said a trader from India’s port city of Mumbai.
Indian traders peg local soyoil prices at US$50-US$60 a tonne lower compared to imported soyoil mostly from Argentina and Brazil.
India’s soybean crop in the year to Sept 2010 will be harvested from October onwards and it is expected to hit 9 million tonnes, 5.9 per cent higher than the estimated crop of 8.5 million tonnes this year, traders and crushers said.
Neighbouring Bangladesh, which buys 80,000 tonnes of palm oil products monthly, has slowed its purchases to 14,500 tonnes in the first half of Oct.
It bought the first cargo of 12,000 tonnes at between US$680 and US$690 a tonne and the second 2,500 tonne cargo at US$702.50 a tonne.
“The winter months are up ahead of us and soyoil is better suited for the cold,” said a Singapore-based trader dealing mostly with the South Asian country.
“We are looking at maybe 50,000 to 60,000 tonnes of soyoil monthly for November and December and very little palm oil.” — Reuters
HSBC Is Asia Already In a Bubble.....( Nice Reading )
Reading the papers, you might think so. However, although bubble talk is all the rage, at this point the region isn’t actually in one. Of course, if left unaddressed, the current monetary set-up in Asia might ultimately blow a bubble of mind-boggling size. But, so far, the train hasn’t left the station. This means two things. One, policy-makers still have time to correct the course, tightening monetary policy even without the Fed. Two, it isn’t too late to purchase your ticket if you believe officials will prove slow to respond. We’ll leave detailed investment calls to our respective strategists. For now, we consider from an economic perspective whether Asia has already entered bubble territory. The evidence suggests not. But the journey appears rapidly headed in that direction.
A bubble, your trusted textbook will tell you, occurs when asset values deviate from their fundamentals. This definition, of course, is as ubiquitous as it is useless. In practice, it’s virtually impossible to call a bubble when it occurs: only in hindsight does it reveal itself as such. But, this doesn’t mean that we cannot define circumstances in which bubbles are more likely to evolve than not. And economists have tried. The literature offers a number of guidelines that help in their detection. The starting point is the following: bubbles are extraordinary events and are therefore associated with a significant deviation from trend of various indicators.
Take stock prices. The charts below show the percentage deviation of Asian equity prices from their long-term trend. The critical thing, of course, is to define the exact deviation that constitutes a bubble. Various studies suggest different thresholds. But for highly volatile assets, such as equities, 40% has been suggested as a rule of thumb. We have indicated that level with a black line in the charts below. According to this criterion, Asia ex Japan entered bubble territory in 1993, came close to one during the tech boom in 2000, and again hit the stratosphere in 2007.
A bubble, your trusted textbook will tell you, occurs when asset values deviate from their fundamentals. This definition, of course, is as ubiquitous as it is useless. In practice, it’s virtually impossible to call a bubble when it occurs: only in hindsight does it reveal itself as such. But, this doesn’t mean that we cannot define circumstances in which bubbles are more likely to evolve than not. And economists have tried. The literature offers a number of guidelines that help in their detection. The starting point is the following: bubbles are extraordinary events and are therefore associated with a significant deviation from trend of various indicators.
Take stock prices. The charts below show the percentage deviation of Asian equity prices from their long-term trend. The critical thing, of course, is to define the exact deviation that constitutes a bubble. Various studies suggest different thresholds. But for highly volatile assets, such as equities, 40% has been suggested as a rule of thumb. We have indicated that level with a black line in the charts below. According to this criterion, Asia ex Japan entered bubble territory in 1993, came close to one during the tech boom in 2000, and again hit the stratosphere in 2007.
Danareksa Ciputra Development (CTRA IJ, Rp700 BUY) Adds to its stake in CTRS
CTRA has acquired an additional 7.9% stake in CTRS from Castleridge Enterprise Pte. Ltd for Rp 127.8bn. The transaction was settled using additional cash from warrant conversion. Recall that CTRA had issued 1,224 mn warrants in 2006 with an exercise price of Rp 500 each. The warrants can be exercised until they expire in November 2009. As of September 09, around 27% had been exercised, adding Rp 163bn of cash to the company.
Despite the 60% premium to the current market price, the acquisition is non-dilutive we believe since:
1. CTRS currently trades at 10.2-8.2x FY09-10F PER vis-à-vis CTRA’s higher valuation of 23.1-21.6x FY09-10F PER.
2. The acquisition price is at a 52.6% discount to CTRS’s NAV of Rp 1,740/share.
3. The acquisition will increase CTRA’s NAV by 4% to Rp 1,430/share.
We maintain our forecast numbers with a TP for CTRA of Rp 960. This is a 33% discount to the new NAV. Our TP implies a PBV of 1.54-1.46x FY09-10F. BUY maintained.
Despite the 60% premium to the current market price, the acquisition is non-dilutive we believe since:
1. CTRS currently trades at 10.2-8.2x FY09-10F PER vis-à-vis CTRA’s higher valuation of 23.1-21.6x FY09-10F PER.
2. The acquisition price is at a 52.6% discount to CTRS’s NAV of Rp 1,740/share.
3. The acquisition will increase CTRA’s NAV by 4% to Rp 1,430/share.
We maintain our forecast numbers with a TP for CTRA of Rp 960. This is a 33% discount to the new NAV. Our TP implies a PBV of 1.54-1.46x FY09-10F. BUY maintained.
KimEng Bank Danamon (BUY): Indicate 3Q09 result
Bank Danamon (BUY): Indicate 3Q09 result
Bank Danamon indicated that 3Q09 NIM will be higher than 2Q09 level of 11.5%, with CIR remains below the 50% level.
According to the bank Net profit as of August stood at Rp1.2-1.3t level.
The full 3Q09 financial figure will be released in October 20th 2009
Comment:
The expected NIM is slightly higher than our FY09 forecast, of 11.5%.
But the net profit indication is inline with our estimate.
We recommend BUY for Danamon with TP at Rp5,660/share
Bank Danamon indicated that 3Q09 NIM will be higher than 2Q09 level of 11.5%, with CIR remains below the 50% level.
According to the bank Net profit as of August stood at Rp1.2-1.3t level.
The full 3Q09 financial figure will be released in October 20th 2009
Comment:
The expected NIM is slightly higher than our FY09 forecast, of 11.5%.
But the net profit indication is inline with our estimate.
We recommend BUY for Danamon with TP at Rp5,660/share
JP Morgan - Adaro Energy: Initiating coverage
Abstract: We estimate the fair value for the new Adaro 2019s at around 7.75-8% ytm. With the bonds trading marginally tighter (7.5% offer ytm) than our fair value estimate, we are initiating coverage with a Neutral rating.
We like the bonds as a carry play, but do not expect them to outperform the markets in the near term. At the same time, we do not expect the Adaro bonds to under perform either, given the strong technicals in the markets. A strong local bid should also provide some support as Adaro 2019s are offering around 100bp higher yield than the PLN 2019s and about 225bp higher yield than the Indonesia 2018s. In addition, we believe the Adaro bonds look slightly cheap when compared to similar credits in the US, which could create support from offshore investors as well. The bonds are unsecured and will be issued by the group's mining subsidiary, PT Adaro Indonesia.
They will be guaranteed by the ultimate holding company, PT Adaro Energy, but not
by any of Adaro Energy's non-mining subsidiaries. The bonds are callable before October 2014 at a fixed spread over US Treasury, and after that at scheduled call prices.
Adaro also has the option of redeeming up to 35% of the bonds before October 2014 at the specified price from proceeds of equity offerings. Fundamentally, we are comfortable with the credit and remain constructive on the near to medium term outlook for the Indonesian coal sector. However, we are slightly cautious on the longer term outlook given aggressive growth plans of almost all the players, including Adaro. For Adaro itself though, we believe the operating cash flows should be sufficient to fund the announced capex, keeping free cash flows positive and leading to a gradual decline in leverage. Hence, we do not have a convincing explanation for the use of proceeds from the recent fund raisings, including the USD bonds.
We will not be surprised to see Adaro become more aggressive with its acquisition strategy and that it might also increase its dividend payout within the limits of its covenants. We do not expect this credit to be upgraded to Investment Grade in the near to medium term.
We like the bonds as a carry play, but do not expect them to outperform the markets in the near term. At the same time, we do not expect the Adaro bonds to under perform either, given the strong technicals in the markets. A strong local bid should also provide some support as Adaro 2019s are offering around 100bp higher yield than the PLN 2019s and about 225bp higher yield than the Indonesia 2018s. In addition, we believe the Adaro bonds look slightly cheap when compared to similar credits in the US, which could create support from offshore investors as well. The bonds are unsecured and will be issued by the group's mining subsidiary, PT Adaro Indonesia.
They will be guaranteed by the ultimate holding company, PT Adaro Energy, but not
by any of Adaro Energy's non-mining subsidiaries. The bonds are callable before October 2014 at a fixed spread over US Treasury, and after that at scheduled call prices.
Adaro also has the option of redeeming up to 35% of the bonds before October 2014 at the specified price from proceeds of equity offerings. Fundamentally, we are comfortable with the credit and remain constructive on the near to medium term outlook for the Indonesian coal sector. However, we are slightly cautious on the longer term outlook given aggressive growth plans of almost all the players, including Adaro. For Adaro itself though, we believe the operating cash flows should be sufficient to fund the announced capex, keeping free cash flows positive and leading to a gradual decline in leverage. Hence, we do not have a convincing explanation for the use of proceeds from the recent fund raisings, including the USD bonds.
We will not be surprised to see Adaro become more aggressive with its acquisition strategy and that it might also increase its dividend payout within the limits of its covenants. We do not expect this credit to be upgraded to Investment Grade in the near to medium term.
Mandiri Sekuritas Telkom: Capital expenditure of US$2mn in FY10 (TLKM, Rp8,650, Buy, Rp10,000)
Telkom will have a capex of US$2bn or Rp19tn in FY10. Out of this 60% will be used for Telkomsel (65% of FY09 capex used for Telkomsel), and 30% for Telkom. The funds will be financed from internal cash and debt. Telkom will hold a beauty contest for the banks to select the bank from which they are going to take the loan from. We think the amount of capex Telkom is spending in FY10 is large and it will support TLKM’s growth.
We hold a positive view for TLKM in its plans to acquire companies to diversify its revenues base, given that cellular and fixed-line revenue growth is slowing down. We estimate revenues to grow by 3.4%yoy and Net profit by 8.5%yoy in FY10. We maintain buy a Buy for TLKM currently trading at PER10F of 15.1x.
We hold a positive view for TLKM in its plans to acquire companies to diversify its revenues base, given that cellular and fixed-line revenue growth is slowing down. We estimate revenues to grow by 3.4%yoy and Net profit by 8.5%yoy in FY10. We maintain buy a Buy for TLKM currently trading at PER10F of 15.1x.
Mandiri Sekuritas Adaro Energy: Adaro to Issue US$800mn, 7.625% Guaranteed Senior Notes (ADRO, Rp1450, Neutral, Rp1,300)
ADRO’s wholly owned subsidiary Adaro has set the pricing of its US$800 mn, 7.625% Guaranteed Senior Notes due 2019 to be issued by Adaro and guaranteed by ADRO.
Credit Suisse, DBS Bank Ltd. and UBS AG are the Joint Book runners for the offering of the Notes. The Notes are expected to be issued on 22 Oct09 and to mature on 22 Oct19.
The Notes will bear interest at a fixed rate of 7.625% p.a. payable semiannual and will be issued in denominations of US$100,000 and integral multiples of US$1,000 in excess thereof.
The net proceeds of issuance of the Notes will be used by Adaro for capital expenditure and general corporate purposes.
The new debt of US$800mn will be equivalent to Rp7.6tn in debt. This will increase the total debt to Rp17.8tn and Debt equity ratio would go up from 0.64x to 1.1x.
ADRO currently is trading at PER09F-10F of 10.1x and 18.6x.
Credit Suisse, DBS Bank Ltd. and UBS AG are the Joint Book runners for the offering of the Notes. The Notes are expected to be issued on 22 Oct09 and to mature on 22 Oct19.
The Notes will bear interest at a fixed rate of 7.625% p.a. payable semiannual and will be issued in denominations of US$100,000 and integral multiples of US$1,000 in excess thereof.
The net proceeds of issuance of the Notes will be used by Adaro for capital expenditure and general corporate purposes.
The new debt of US$800mn will be equivalent to Rp7.6tn in debt. This will increase the total debt to Rp17.8tn and Debt equity ratio would go up from 0.64x to 1.1x.
ADRO currently is trading at PER09F-10F of 10.1x and 18.6x.
CLSA Research Today: Gudang Garam (GGRM IJ), More Smoke
Swati wrote a report on turnaround story Gudang Garam (GGRM IJ), reiterating her BUY call. Her TP is Rp22,350 based on 15x 2010 earnings. The stock currently trades at 9.4x 2010 PER. GGRM used to trade at 16x one year forward earnings on average from 1992-1996. There is upside risk to our earnings next year as we forecast only 8.7% yoy growth for 2010.Indo cigarette industry: very attractive
About 1/3 of 230mn Indonesians smoke and 78% smokers start smoking before age of 19. The cigarette industry supports no less than 6mn people in Indonesia and this is something that the government is obviously aware of.
Turnaround story continues, more than just distribution
GGRM continues to be an interesting turnaround story. While we do not expect a quick turnaround, we think GGRM is moving to the right direction. And years of declining operating performance means has set a very low benchmark to start with.
Currently, not only is the distribution network being revamped, GGRM is hiring brand managers, marketing planners, trainers for the first time. Advertising and promotion activity has increased significantly. New products are being launched.
Expect good 3Q09 numbers
We expect good 3Q09 as volumes and price increase. In her note, Swati explains why sales have been flat yoy for 1H09: (i) inventory adjustments due to first time consolidation of the distributor (ii) a change in product mix in favour of hand made cigarettes.
Morgan Stanley Research - Aneka Tambang: Positives Mostly Discounted; Downgrade to Equal Weight
We are downgrading Antam to EW as we believe the stock appears fully valued, reflecting most of the positives that we have highlighted. In our view, Antam’s valuation is no longer attractive at 15x 2011E P/E and 2.4x P/B, above closest peer PT Inco’s (INCO.JK, EW, Rp4,100) 12x P/E and 2.1x P/B on our 2011 forecasts.
Our preferred OW non-ferrous stocks, Korea Zinc (010130.KS, W190,500) and Zhongwang (1333.HK, HK$7.57), have more attractive valuations with P/Es below 10x and P/Bs below 2x.
Higher EPS on higher nickel prices forecast: We are raising our Antam 2009-11e EPS by 14-26% as Morgan Stanley’s commodities team has increased its 2009-11 nickel price forecasts by 12-15% (please refer to Global Metals Playbook – 4Q09: A Strengthening Cycle, October 14, 2009, for details).
However, we are maintaining our PT for Antam as we had already incorporated the prior bull-case nickel prices into our model (see our August 15 report, Aneka Tambang: Higher Nickel Prices & Beyond, for more details). Our new base-case nickel prices forecasts are similar to the previous bull-case numbers. Nickel price recovery remains fragile: We do not expect nickel prices to average more than US$8/lb for 2010-11. We estimate that Antam’s share price is discounting nickel prices of ~US$8.50/lb and we see downside to the current share price if prices pull back.
Potential upside from NNT acquisition discounted:
While we have included 65% of our full NNT acquisition value in our model, we think it is too early to assume the deal can be completed and the full value realized in the near term. We need to see more progress before assigning a higher valuation for the deal.
Our preferred OW non-ferrous stocks, Korea Zinc (010130.KS, W190,500) and Zhongwang (1333.HK, HK$7.57), have more attractive valuations with P/Es below 10x and P/Bs below 2x.
Higher EPS on higher nickel prices forecast: We are raising our Antam 2009-11e EPS by 14-26% as Morgan Stanley’s commodities team has increased its 2009-11 nickel price forecasts by 12-15% (please refer to Global Metals Playbook – 4Q09: A Strengthening Cycle, October 14, 2009, for details).
However, we are maintaining our PT for Antam as we had already incorporated the prior bull-case nickel prices into our model (see our August 15 report, Aneka Tambang: Higher Nickel Prices & Beyond, for more details). Our new base-case nickel prices forecasts are similar to the previous bull-case numbers. Nickel price recovery remains fragile: We do not expect nickel prices to average more than US$8/lb for 2010-11. We estimate that Antam’s share price is discounting nickel prices of ~US$8.50/lb and we see downside to the current share price if prices pull back.
Potential upside from NNT acquisition discounted:
While we have included 65% of our full NNT acquisition value in our model, we think it is too early to assume the deal can be completed and the full value realized in the near term. We need to see more progress before assigning a higher valuation for the deal.
Citigroup Asia Macro View
Takeaways from our Macro Trip (ID, TH, PH, CH)
Meetings reinforced very upbeat growth outlook in the region – no-one mentioned double-dip risk in Asia. China was the most bullish, but outlook still centered on sustained investment growth (shifting more to property from public investment) and export rebound –very little talk on boosting consumption shares in the near term. In all countries, resilient consumption and export rebound remains important, though Indonesia’s near-term growth outlook also has investment recovery, and Thailand’s 2010F outlook banks on fiscal stimulus.
Inflation concern is highest in Indonesia, and was uniformly downplayed in China. Indonesia’s output gap is considered the narrowest given supply bottlenecks, and administrative price adjustments are risks. BOT expects headline inflation will rise substantially to 4%-5% in 1Q 2010 due to base effect, but that core inflation, which the BOT targets, will stay within the middle of its target band in 8 quarters’ time. BSP downplayed the risk of food price shocks from the typhoon while China’s inflation risk was downplayed by everyone we met on the grounds of overcapacity – forecasting 2.5%-3.0% inflation in 2010F.
None of these four central banks are likely to be hike rates anytime soon (not this year) and unwinding liquidity measures will be pursued first before rate hikes – PBOC is the most dovish. BI’s real rate target of 100-200bps is seen as rather low versus BSP’s own neutral real rate of 250bps, but BI raised concerns that raising rates would exacerbate capital inflows. PBOC reiterated monetary policy will remain “moderately loose”, expects new loans in 2010F will reach RMB 8 trillion (which we estimate implies 20% credit growth), ruled out credit quotas and said interest rate hikes would be the “last option”. BOT said 1.25% overnight rate is “super” accommodative.
On Asia FX outlook – still bullish on IDR and, eventually, even on PHP. Broad consensus is that China won’t move on CNY anytime soon; BI and BSP highlighted that accumulating FX reserves is useful, but we sense BI, and eventually BSP, will be less resistant to FX appreciation —BOP outlook for both countries remains favorable and BI will want stronger IDR to ease inflation pressures, while BSP has proven in 2007 its tolerance to sharp PHP strength. THB is likely just to follow/lag rather than lead the region.
Bond supply – Indonesia’s gross bond supply higher than expected, no international bond issuance in Thailand, Philippines likely to pre-fund international bonds but keep foreign-domestic mix borrowing at around 30%-70%. Indonesia 2010F gross bond plan is higher than we thought at Rp177 trillion, but MOF expects c Rp20-30 trn surplus funds from this year, and will issue more Tbills (Rp2trn from Rp1 trn per auction) to facilitate phasing out of SBIs as well as to focus on duration extension on local bonds. Philippines privatization progress will be key to capping fiscal slippage, though the government sees the worst case 2009F fiscal deficit at PHP220-290bn (2.8%- 3.8% of GDP).
Meetings reinforced very upbeat growth outlook in the region – no-one mentioned double-dip risk in Asia. China was the most bullish, but outlook still centered on sustained investment growth (shifting more to property from public investment) and export rebound –very little talk on boosting consumption shares in the near term. In all countries, resilient consumption and export rebound remains important, though Indonesia’s near-term growth outlook also has investment recovery, and Thailand’s 2010F outlook banks on fiscal stimulus.
Inflation concern is highest in Indonesia, and was uniformly downplayed in China. Indonesia’s output gap is considered the narrowest given supply bottlenecks, and administrative price adjustments are risks. BOT expects headline inflation will rise substantially to 4%-5% in 1Q 2010 due to base effect, but that core inflation, which the BOT targets, will stay within the middle of its target band in 8 quarters’ time. BSP downplayed the risk of food price shocks from the typhoon while China’s inflation risk was downplayed by everyone we met on the grounds of overcapacity – forecasting 2.5%-3.0% inflation in 2010F.
None of these four central banks are likely to be hike rates anytime soon (not this year) and unwinding liquidity measures will be pursued first before rate hikes – PBOC is the most dovish. BI’s real rate target of 100-200bps is seen as rather low versus BSP’s own neutral real rate of 250bps, but BI raised concerns that raising rates would exacerbate capital inflows. PBOC reiterated monetary policy will remain “moderately loose”, expects new loans in 2010F will reach RMB 8 trillion (which we estimate implies 20% credit growth), ruled out credit quotas and said interest rate hikes would be the “last option”. BOT said 1.25% overnight rate is “super” accommodative.
On Asia FX outlook – still bullish on IDR and, eventually, even on PHP. Broad consensus is that China won’t move on CNY anytime soon; BI and BSP highlighted that accumulating FX reserves is useful, but we sense BI, and eventually BSP, will be less resistant to FX appreciation —BOP outlook for both countries remains favorable and BI will want stronger IDR to ease inflation pressures, while BSP has proven in 2007 its tolerance to sharp PHP strength. THB is likely just to follow/lag rather than lead the region.
Bond supply – Indonesia’s gross bond supply higher than expected, no international bond issuance in Thailand, Philippines likely to pre-fund international bonds but keep foreign-domestic mix borrowing at around 30%-70%. Indonesia 2010F gross bond plan is higher than we thought at Rp177 trillion, but MOF expects c Rp20-30 trn surplus funds from this year, and will issue more Tbills (Rp2trn from Rp1 trn per auction) to facilitate phasing out of SBIs as well as to focus on duration extension on local bonds. Philippines privatization progress will be key to capping fiscal slippage, though the government sees the worst case 2009F fiscal deficit at PHP220-290bn (2.8%- 3.8% of GDP).
Mandiri Sekuritas BUMI: Taunting the doubters
Taunting the doubters
With 19% IRR on US$1.9bn debt, the impacts on Bumi’s bottom-line is very easy to understand as the loan replaced was just US$1.7bn with an average interest of 8% (1H09 annualized). However the reason behind the deal was not as clear as the detrimental financial impact above. This is where the optimists and pessimists draw the line. We kept our BUMI target of Rp4,000/share even though our DCF resulted in Rp2,900 target price (TP), as this TP assumed no acquisitions and no expansion, something that we expect to be realized in the near future.
Detrimental impact in the initial years. The US$1.9bn deal has IRR 19% plain and simple, accrual, and no prepayment below 2 years. The impacts?: 11% and 52% decline in FY09F and FY10F earnings, respectively from our previous estimates. The other impact is our WACC increase from 9.3% to 10.1%, reducing our DCF valuation to Rp 2,892, other assumptio! ns remain the same.
Why do they do the things they did? (1) To fulfill urgent liquidity requirement from the Bakrie Group; or (2) previous lender gave up. Reason 1 was the most reasonable, while reason 2 although probable but unlikely. But if reason 1 is true, why the amount is humongous, while market rumors on Bakrie liquidity requirement was only around Rp6-8tn (US$0.6-0.8bn).
I am on the optimistic side, but it really is a bet. Why : (1) I am a believer of dollar de-basement, (2) rising commodity price in US$ terms, (3) we do not think the main aim of the deal is to obtain fund to prepay the Bakrie Group’s debt because it is not its custom to make early debt retirement, and (4) there must be some urgent attractive acquisitions ahead. The downside: one or some of the above did not turn out to be correct.
Maintain Rp4,000/share target price. In our DCF calculation, volume sales from Bumi peaked at 79mn tons in 2013 29% less than what Bumi is expecting by 2012, and benchmark price of coal of US$75/ton. We added back US$300mn short term investment in Recapital on improving outlook of its recovery, and excluded all other assets.
With 19% IRR on US$1.9bn debt, the impacts on Bumi’s bottom-line is very easy to understand as the loan replaced was just US$1.7bn with an average interest of 8% (1H09 annualized). However the reason behind the deal was not as clear as the detrimental financial impact above. This is where the optimists and pessimists draw the line. We kept our BUMI target of Rp4,000/share even though our DCF resulted in Rp2,900 target price (TP), as this TP assumed no acquisitions and no expansion, something that we expect to be realized in the near future.
Detrimental impact in the initial years. The US$1.9bn deal has IRR 19% plain and simple, accrual, and no prepayment below 2 years. The impacts?: 11% and 52% decline in FY09F and FY10F earnings, respectively from our previous estimates. The other impact is our WACC increase from 9.3% to 10.1%, reducing our DCF valuation to Rp 2,892, other assumptio! ns remain the same.
Why do they do the things they did? (1) To fulfill urgent liquidity requirement from the Bakrie Group; or (2) previous lender gave up. Reason 1 was the most reasonable, while reason 2 although probable but unlikely. But if reason 1 is true, why the amount is humongous, while market rumors on Bakrie liquidity requirement was only around Rp6-8tn (US$0.6-0.8bn).
I am on the optimistic side, but it really is a bet. Why : (1) I am a believer of dollar de-basement, (2) rising commodity price in US$ terms, (3) we do not think the main aim of the deal is to obtain fund to prepay the Bakrie Group’s debt because it is not its custom to make early debt retirement, and (4) there must be some urgent attractive acquisitions ahead. The downside: one or some of the above did not turn out to be correct.
Maintain Rp4,000/share target price. In our DCF calculation, volume sales from Bumi peaked at 79mn tons in 2013 29% less than what Bumi is expecting by 2012, and benchmark price of coal of US$75/ton. We added back US$300mn short term investment in Recapital on improving outlook of its recovery, and excluded all other assets.
CIMB Coal Mining Lower royalty for low - cal coal
Lower royalty for low-cal coal?
Maintain Overweight on the sector. A local newspaper reported yesterday that the Indonesian government might reduce royalty payments for lower-calorie coal production (less than 5,000 kcal/kg ADB), especially from the big producers(CCoW holders), quoting Mr Bambang Setiawan who is a Director General at the Ministry of Energy and Mineral Resources. These CCoW holders now pay 13.5% of their annual sales as royalties regardless of the quality of coal sold. This is higher than the 3% royalty paid by producers of low-quality coal with licences issued by local governments (KP or IUP), and even higher than the 7% royalty for high-quality coal by these KP or IUP licensees.
This royalty incentive, if implemented, should have little impact on coal producers in the next 1-2 years. However, such a measure would be positive on their long-term outlook, especially when DMO is in effect and the demand for low cal-coal domestically and in Asia grows. We are maintaining our forecasts and target prices for coal producers under our coverage. Adaro remains our top pick in the sector. New royalty. The new royalty would likely be divided into three tranches, according to the newspaper: 1) 9% for 4,600-5,000 kcal/kg ADB; 2) 7.5% for below 4,600 kcal/kg ADB; and 3) 8.5% for underground mining.
The current royalty structure leaves the larger producers with little ability to compete with miners with local (KP or IUP) licences in supplying low-calorie coal to domestic utilities, prompting the producers to focus only on high-quality coal production and exports.
Little impact in the near term. We emphasise that there would only be little impact from this incentive in the near term, if implemented, especially as there is very little production of low-cal coal in Indonesia currently. The positive impact would only be felt in the future, when there are more low-cal coal deliveries. Earnings accretion would be subject to future demand and producers’ output, as currently the big producers as well as consensus remain conservative in their projections for low-cal coal production.
Maintain Overweight on the sector. This royalty incentive, if implemented, should have little impact on coal producers in the next 1-2 years. However, the impact could be positive in the long term, especially when DMO is in effect and the demand for low cal-coal domestically and in Asia grows. We are maintaining our forecasts and target prices for coal producers under our coverage. Adaro remains our top pick in the sector.
Maintain Overweight on the sector. A local newspaper reported yesterday that the Indonesian government might reduce royalty payments for lower-calorie coal production (less than 5,000 kcal/kg ADB), especially from the big producers(CCoW holders), quoting Mr Bambang Setiawan who is a Director General at the Ministry of Energy and Mineral Resources. These CCoW holders now pay 13.5% of their annual sales as royalties regardless of the quality of coal sold. This is higher than the 3% royalty paid by producers of low-quality coal with licences issued by local governments (KP or IUP), and even higher than the 7% royalty for high-quality coal by these KP or IUP licensees.
This royalty incentive, if implemented, should have little impact on coal producers in the next 1-2 years. However, such a measure would be positive on their long-term outlook, especially when DMO is in effect and the demand for low cal-coal domestically and in Asia grows. We are maintaining our forecasts and target prices for coal producers under our coverage. Adaro remains our top pick in the sector. New royalty. The new royalty would likely be divided into three tranches, according to the newspaper: 1) 9% for 4,600-5,000 kcal/kg ADB; 2) 7.5% for below 4,600 kcal/kg ADB; and 3) 8.5% for underground mining.
The current royalty structure leaves the larger producers with little ability to compete with miners with local (KP or IUP) licences in supplying low-calorie coal to domestic utilities, prompting the producers to focus only on high-quality coal production and exports.
Little impact in the near term. We emphasise that there would only be little impact from this incentive in the near term, if implemented, especially as there is very little production of low-cal coal in Indonesia currently. The positive impact would only be felt in the future, when there are more low-cal coal deliveries. Earnings accretion would be subject to future demand and producers’ output, as currently the big producers as well as consensus remain conservative in their projections for low-cal coal production.
Maintain Overweight on the sector. This royalty incentive, if implemented, should have little impact on coal producers in the next 1-2 years. However, the impact could be positive in the long term, especially when DMO is in effect and the demand for low cal-coal domestically and in Asia grows. We are maintaining our forecasts and target prices for coal producers under our coverage. Adaro remains our top pick in the sector.
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