CLSA OKAS sweet spot for explosives, India’s growing importance

Ancora Indonesia (OKAS IJ): a sweet spot for explosives

CLSA Indonesia new and energetic mining analyst Rania looks at Ancora Indonesia (OKAS IJ). OKAS is controlled by local private equity firm Ancora Resources (60% stake).

· Asset injection story. OKAS is considered the listed vehicle for Ancora’s primary resource assets. If the company is injecting more assets into the listed vehicle, another rights issue is going to be needed as gearing is high.
· OKAS did Rp117bn rights issue in 3Q09 when injecting oil drilling company Bormindo and the country’s largest Ammonia Nitrate (AN) distributor MNK.
· OKAS is now the sole local AN producer as well as the largest distributor in the country. Demand for AN is growing fast, driven by feverish growth of the country’s coal and base metal industries.
· Well positioned. We expect OKAS to seize market share from the global producers going forward, particularly with the completion of its new 100ktpa AN plant by May 2011, which will boost production capacity by 270% to 137ktpa from currently 37ktpa.
· Liquidity for the stock is pretty thin, so patience is required.

Indo economy: how important is India? – from economist Tony Nafte

We have seen many discussions on how the rise of China has benefitted Indonesia. But India is another force to be reckoned with for Indonesia, as highlighted in Tony Nafte’s report today. Chindonesia (China-India-Indonesia) theme is well alive and kicking.

Key points from the report:

· India will displace Japan as the largest buyer of Indonesian coal. India’s coal imports at 40m metric tons in 2010 vs. Japan’s 60m, but likely to surpass Japan with 32% CAGR in coal imports over the next two years.
· Investment inflows from India. There will be added investment inflows as Indian power and steel companies look at Indonesia to secure a reliable energy source.
· Investment has already been initiated in East Kalimantan by the Essar Group in Kalimantan, Reliance Power and Adani Global in South Sumatra.
· ASEAN had a 9% share in FY09/10 (ending March 2010) including Indonesia’s share at 3%. To quantify this, the 3% share of India’s total imports valued at US$287bn, translates into revenues at 1.6% of GDP for Indonesia.
· From Indonesia’s perspective, India is one of its smaller markets, but a rapidly expanding one. The India market had a 6% share of Indonesia exports this year compared to Japan at 16%, ASEAN at 21% and China at 9%.