Credit Suisse ASIA STRATEGY: Any cheap Cyclicals left? Buy Indonesian Coal Sector

Indonesia market is enjoying Foreign assets allocation funds inflow post Fed rates to stay near zero “for an extended period” and again Indonesian Politics post 4th March Parliamentary Votes on Bank Century Bailout just in silence (waiting for the follow-up works of AG, Police and Anti Corruption Committee). Yesterday, JCI closed at 2010 High 2,756pts (vs all time high 2,830pts), and CS Indonesia Universe was trading on 14.7x 2010F PER with +17.2% EPS Growth and on 12.1x 2011F PER with +18.6% EPS Growth. Again we continue to Overweight Indonesia with JCI target 3,300pts end-2010F (implying 17.5x 2010F PER, a level seen during 1992-1997 stable strong economics growth), with Top-8 Quality stock picks: ASII, BBRI, BMRI, INDF, INTP, ITMG, SMGR & UNTR!


Within Indonesian Coal Sectors, we are recommending Take Profit for PTBA and SAR SP, while we continue to Prefer both ITMG/ADRO, as BUMI remains Restricted. NEWC Spot FOB steam coal weekly price was USD94.10/t as of 12th March, above CS average assumption of $90/t for 2010F. Please see Sensitivity Analysis if coal price is $100/t for 2010F (We are still Restricted on BUMI, but @Rp2,575 on 13.3x 2010 IBES Consensus PER):

(2010F, Rp) ADRO ITMG PTBA SAR SP

DCF at $90/t 1,700 34,200 9,400 S$1.50

EPS at $90/t 109 US$0.26 923 US$0.07

EPS IF $100/t 148 US$0.32 1,023 US$0.10

Stock Price 1,920 36,450 16,250 S$2.11

PER at $90/t 7.6x 15.2x 17.6x 20.5x

PER IF $100/t 3.0x 12.2x 15.9x 13.8x


· Sakthi Siva (Daily Attached): With more signs of a private autonomous recovery (US retail sales excluding automobiles up in five of the past seven months, US capex up 17%), we look at whether any cheap cyclicals are left. Using our P/BV versus ROE valuation model, we find the steepest discounts in Thai coal (66% discount), then Indonesian coal (59%). We prefer “cheap” cyclicals, as sectors that trade at a discount on our P/BV versus ROE valuation model are generally those anticipating earnings/ROE downgrades. For Indonesian coal, for example, we estimate implied ROE at 23% versus 29% currently.