AmCapital STRATEGY A glance at Top 10 Indonesian stocks

Investment Highlights
• We have done simple observation during the last week’s market crash. On Year-to-Date (YTD) basis, the Indonesia’s top 10 market weight stocks (represented some 47% of the JCI) are underperforming the benchmark JCI by a slight 0.4% despite last week’s heavy correction. On Year-on-Year (YOY), they are still outperforming the JCI by a solid 19.3%. Amid last week’s big bombardment, on YOY and YTD basis, the JCI is still upped by 49.8% and 8.1%, respectively.

• Among the top 10 heavy weight stocks, Telkom has been the most underperformed counter, both on YTD and YOY basis, despite lowest EV/EBITDA estimates (below 5.0x) and highest dividend yield estimates. Relative valuation to the company’s regional peers, despite Telkom’s high returns, number of subscribers, and profit margins may be behind the stock’s big underperformance. We note also that Telkom has lost its pole position in the Top 10 list to conglomerate Astra International since this year given the latter’s exposure to consumer, financing, commodity, and infrastructure sectors. Downside risk: consensus may be too bullish; hence, analysts’ forecast may miss the actual results.

• On consensus basis’ earnings multiple, three stocks look attractive at current prices: Bank Rakyat Indonesia (BRI), Bank Mandiri, and Telkom. Coincidentally, these are state-owned companies. Bank Mandiri and BRI named the country’s largest and second largest state-owned bank by asset, respectively, while Telkom is Indonesia’s largest telecom operator by number of subscriber. At closing prices, BRI, Telkom, and Bank Mandiri are trading at 2011 PE of 9.5x, 10.8x, and 10.9x, respectively. Downside risk: Again, consensus may be too bullish; hence, analysts’ forecast may miss the actual results.

• Consensus put Telkom, PGN, and BRI as the most counters with highest dividend yield among the top heavyweight stocks. Telkom is offering FY11 yield of 5.3%, with PGN and BRI offer FY11 4.4% and 4.0% yields, respectively. We note that several listed state-owned companies offer generous 40-50% dividend payout. Unilever Indonesia may be offering high payout up to 90-100% of its net profit. Still, at current price, it offers FY11 2.9% yield. Downside risk: again and again, the consensus may be too bullish; hence, analysts’ forecast may miss the actual results.