UBS Sector and Company News

Banks: SOE banks management movers
New faces at Mandiri and BNI management appointments suggest they are the respective CEO’s dream team. BRI EGM is coming this tomorrow: Expectations are that the CEO will stay.

Mandiri is looking more interesting now with a solid management team, but we think upside is limited until the rights issue overhang settles. One of BNI new BoD Darmadi Sutanto (ex Standard Chartered private banking head, famous for building StanChart wealth on wealth), positive for BNI deposit franchise. We think BNI (Not Rated) is worth a look, trading at 1.7x 2010e PB vs BRI at 3.0x and Mandiri at 2.8x.

PGAS (Buy PT 5,500): Price positive, volume negative
VP Boediono comment that domestic gas price is still far lower than foreign gas price of US$11/ mmbtu and gradually domestic price should rise. Even if public has to bear the eventual cost increase, a gas based economy will benefit everyone more than an oil based economy.
Separately, Hess (Jambi Merang field) signed a 9yr 35mmscfd gas contracts with South Sumatra and Batam local government starting 2011.

Government is likely to let PGAS increase gas price in the future to maintain absolute margin (higher gas cost). We had mentioned Jambi Merang as one of the 6 fields that PGAS may sign a gas contract with. Although it is only 35mmscfd (versus PGAS total distribution volume 2010E at 955mmscfd), it is still a disappointment.

Delta Dunia (DOID Not Rated): May cancel Berau Energy acquisition
Bisnis Indonesia quotes an unnamed executive as saying that DOID has failed to reach an agreement (on pricing) with Recapital Investment Group for the planned Mandatory Exchangeable Bonds (MEB) transaction, which ultimately will pave the way for DOID to own Berau Coal. Consequently, DOID's US$1.1 bn rights issue plan will also be cancelled. DOID is 40/60 owned by Northstar Tambang Persada and public.

We guess that the Northstar people might be getting cold feet at the prospect of becoming even more entangled with the Bakrie group: If the transaction were to go through, they would lose their controlling position to the group. The latest market development above might improve sentiment towards DOID, which is currently trading at 6.8x 2010 and 5.5x 2011 consensus PE, with projected EPS CAGR of 21% in 2010-12. However, we wonder how secure their Bakrie-owned Berau coal contracts are, should the marriage with the Bakries not be consummated.

Astra Agro Lestari (AALI Buy PT 34,000): 2009 dividend and 2010 capex
AALI is distributing 65% of its 2009 net profit in cash dividend, amounting to Rp685 per share. The final dividend of Rp465 per share (yield = 2.3%) will be distributed on June 25, 2010. AALI is allocating Rp1.2 tn for 2010 capex, fully funded through internal cash, which will be used for new planting (4,000 ha), 2 new palm oil mills in Kalimantan and Sulawesi (totalling Rp200 bn) and 4 CPO storage facilities (totalling Rp128 bn).

AALI's 2010 new planting is 70% lower vs. 2009's figure of 13,000 ha. It appears to us that new land bank acquisitions (along with the licenses), in Kalimantan and Sulawesi, are challenging. Please note that the average age of AALI plantation is at 14 years, which is at the peak of palm oil tree's productivity. Unless AALI is able to do more aggressive planting plan, the production outlook is looking weak. YTD, CPO price averages US$810, which is 28% higher relative to the same period last year. AALI is trading at 10.9x 2010 and 7.7x 2011 PE, with projeted 3 -yr EPS CAGR of 35%. We prefer London Sumatra (LSIP Buy PT 13,500), amid its productivity and profitability upside.

Bakrieland Development (ELTY Neutral PT 305): Rights issue plan and 2009 dividend
ELTY president, Hiramsyah Thaib states that ELTY is considering Rp1 tn rights issue in June 2010 and planning to submit the proposal to Bapepam on May 21, 2010. The rights issue proceeds will be used for JVs with Sentul City (BKSL Not Rated) and Kawasan Bukit Jonggol (owned by Lippo Group) in developing and operating the townships in South Jakarta. Meanwhile, ELTY is distributing 15.1% of its 2009 net profit in cash dividend, amounting to Rp1 per share (yield = 0.5%).

This is the first time in ELTY history in paying out dividend since its public listing in 1995. ELTY is currently trading at 31% discount to 2010 NAV of Rp306.

Cement: National April sale +12% YoY to 3.2mt
This is in line with UBSe of 12% demand growth pa for 2010-12. Johannes is turning more bullish in a big cement report published this week.

Preferred pick Semen Gresik. Note that 80% of cement demand comes from property sector. Gresik has been underperforming the cement sector and benefit from MSCI reweighting, which our quant analyst estimates represents passive flow of US$59mn or volume of 7.2 days trading days. Let us know if you’d like the 35pp report.

Kalbe Farma (KLBF Buy PT 2,350): Potential Rp1 tn bonds issuance
In line with plans to expand operations in Southeast Asia, Kalbe Farma is currently negotiating with at least six pharmacy and food producers. Half of these acquisitions will be funded by internal cash while the remaining amount will come from either bonds issuance or bank loan. The company’s cash stands at about Rp1 tn as of Mar 31, indicating the possibility of a Rp1 tn external funding to carry out expansion plans.

Kalbe seems to be embarking on an aggressive acquisition hunt. A good strategy in increasing the company’s presence in regional markets if it can find strong, fairly valued targets that will create synergies.