CLSA CLSA Indonesia quarterly stock picking contest

It’s October 1, the first day of 4Q. That means its time to go through the CLSA Indonesia quarterly stock picking contest again. After underperforming the index in 2Q, it’s good to see that we bounced back beating the JCI once again, even if by a thin margin of 1%. Of course we would like to think that one percent in one quarter is very significant if we annualise the figure + factor in the exponential power of compounding over a long time. But needless to say that the point on annualising + compounding power was conveniently not brought up when we underperformed the index the previous quarter…

So what did we do right this time? With the crazy weather persisting it almost feels like we no longer have a dry season at all - commodity companies (coal + CPO) are having a hard time with their productions. And perhaps the uncertainty of the global outlook also contributed to nobody on our team picking a resource company (there’s coal contractor DOID but I guess it was picked because the stock was so hammered down). It certainly looks like this trade has reversed itself of late; with local investors starting to pile into coal (ITMG) and metals (TINS, INCO, ANTM) as resource valuation and demand-supply is now looking more favourable.

People were also more bullish, mostly staying with small caps (except Bank Negara, Excelcomindo and Jasa Marga). It is interesting to note that nobody picked the best performing stock under our coverage, chicken feed company CPIN, up 135% over the last three months. In our defense, the sales team has been very bullish on CPIN since late last year (when share price was around 1,000, one of the earliest in the market) but underestimated that stocks do overshoot and thus we missed out on the later leg of performance.

Luckily we did pick the second and third best performing stock under our coverage, toll operator Jasa Marga (JSMR IJ) and Bank Negara (BBNI IJ). There should be plenty of upside left in both names. Falling cost of capital, margin expansion, and potentially new land clearing bill bode well for JSMR’s long-term prospects while Bank Negara (BBNI IJ) has parliamentary approval for a rights issue this quarter will give the bank a 5% tax break and give it more ammunition for loan growth. We like the pro-active BNI management and think this could be the next turnaround story. It helps that management will be rewarded for their hard work as the bank is going to do an MSOP soon. Last, BBNI recently sponsored “Inspiring Lecture Series” with Richard Branson from Virgin Group as a speaker. Great move!

As for top picks for 4Q10, we will write more next Monday.