A Cup of Tea 19 March'10

Major stock indexes ended mixed Thursday on more evidence that the economy is regaining strength at a slow pace. The Standard & Poor’s 500 Index fell 0.1 percent to 1,165.52 at 3:59 p.m. in New York.
Some rumors said that The Federal Reserve may raise the discount rate, charged on direct loans to banks, before the next meeting of the Federal Open Market Committee on April 28.

Consumer prices were unchanged in February, the first time they didn’t increase since March 2009, Labor Department figures showed today in Washington. The U.S. economy will keep expanding without a pickup in inflation that would require the Federal Reserve to raise interest rates, reports today indicated.

Oil fell for the first time in three days as a stronger dollar trimmed demand for commodities as an alternative investment. Crude oil for April delivery lost 73 cents to settle at $82.20 a barrel on the New York Mercantile Exchange. It closed at $82.93 yesterday, the highest level since Jan. 6. Oil has risen 71 percent in the past year.

Nickel traded at $22,760 from $22,250. Nickel has rallied around 20 percent this year, making it the strongest performer of the base metals complex. It hit a late peak at $22,800, its highest since March 8. A strike in Canada, delays in bringing the New Caledonia Goro mine into production and most recently, a problem at BHP Billiton's Nickel West operation in Kwinana, Australia, have helped lift prices. Tin MSN3 was at last quoted at $17,790/17,795 from $17,750.

Crude palm oil futures on Malaysia’s derivatives exchange ended lower 2.31% Thursday as crude oil and soy oil futures weakened. Concerns that recent high prices are turning away Indian buyers also pushed prices into negative territory.

I think Indonesian market will mix for today, healthy inflow still on market. Our market will be opening slightly positive and support still at 2704. We must watch IDR movement.

ITMG was ready to acquire one of coal mining at Kalimantan for support volume production around 5 million ton this year.

PT Perusahaan Gas Negara’s sales volume may drop this year because of a supply shortage from ConocoPhillips’ South Sumatra field, Gas Negara President Director Hendi Prio Santoso said in Jakarta. After meeting last night Government decided PGN will getting more supply about 50 mmscfd from Block Leumentang, South Sumatera. But overall for national demand still deficit 300 mmscfd.

US President Barack Obama will delay visiting on Indonesia until June 2010.

Overall I still have positive view on our market for year end. But for shorter play we must more carefully and wise. I think nothing wrong if we put some cash on our portfolios at this time. I still go 3000 level for our JCI index until year end.

I will focus on coal play.
Iron ore and metallurgical coal is treated as two sister commodities in the steel industry as both are necessities. Well, recently Japan agreed to a 40% jump in iron ore price in a negotiation with BHP Billiton, and it is widely expected that the metallurgical coal price will see a 55% jump in 2010 to $200/ton from $129/ton in 2009. Chinese steel makers are rushing to secure the 2010 metallurgical coal supply according to the latest Chinese news. It is estimated that China alone will demand well over 100 million tons met coal annually.

Over the weekend, China Investment Corp. (CIC) backed by Noble Group Ltd., announced it will put more investment into the coal sector. Bloomberg also reported that the group sees rising demand from Asia and is ready to acquire more mines and build more ports.

My View on:
• INCO, ITMG, BMRI, UNTR, BBTN with HOLD
• BUMI, ADRO, TLKM, BBRI, , ANTM, TINS, DOID with BUY
• BDMN, PTBA, AALI, LSIP, CTRA, CTRS, BTEL, UNSP with Buy On Weakness
• ELTY, KIJA, ENRG with Speculative Buy
• BBCA, ASII, ISAT, PGAS with Neutral or Reduce

"Cash is The King"

Bang Juntri

Overnight Coal

· Arch Coal (ACI) bids $86 million for Montana-owned Otter Creek coal tracts. ACI placed a bid of $86 million plus future royalties for the right to mine a half-billion tons of state-owned coal in southeastern Montana near the Wyoming border. It already controls 731 million tons of coal in Otter Creek. Developing a mine in the region will require extra effort because of lack of required infrastructure, and will also require construction of the proposed Tongue River Railroad — a project fiercely fought by environmentalists and area landowners. (Source: BusinessWeek)
· PCI contract prices this year almost double of last year. Macarthur Coal said it has started agreeing prices for its pulverized, or PCI, coal at levels in line with other contracts being signed. Other miners have signed contracts in range of between US$170 and US$180 a tonne, double the US$90 a tonne seen last year. The company also said that the recent settlements have seen a shift from annual pricing resets to quarterly and half yearly resets. (Source: Dow Jones)
· China’s next coal consolidation target, Inner Mongolia. The Economic Committee of Inner Mongolia Autonomous Region said that it plans to control coal output at 700 million tons in 2010. The region produced 637 million tons of coal last year, up 171.88 million tons or 37% from a year ago. The production constrain is part of the government's effort to optimize the structure of the coal industry and promote the technological upgrade. (Source: Bloomberg)
· China's iron ore negotiations progressing on all fronts. Rio's iron ore negotiators to go on trial next week, as this year's price negotiations advance and just as CEO Albanese visits Beijing to rebuild relationships. (Source: Wall Street Journal; page A12)
· When is a carbon credit not a carbon credit? When its a used carbon credit of course. Carbon prices fell from €12 to €1 in Europe after it was discovered that some carbon trading on the Hungarian market was using credits that had been used before. This is said to highlight the complexity of these markets. (Source: The London Times)

CLSA INDO: Conoco Philips is under delivering to PGAS, lower vols for PGAS

There is news that Conoco Philips is under delivering to PGAS, update from Swati

Conoco Philips in South Sumatra is contracted to deliver 350mmscfd this year. Last year it delivered 260mmscfd and early Jan and Feb it delivered anywhere between 350-400mmscfd. Since last three days however there has been a drop in volumes to 300-330mmscfd. We have forecasted 380mmscfd from Conoco Phillips in 2010CL.

Current status?
It looks like Conoco Philips is delivering extra gas to Chevron via PGas transmission pipelines (PGas makes only transmission toll fee on this about US$0.6/mmbtu). This is possibly since the government has asked Chevron to increase oil production and therefore Conoco Philips is diverting more gas to Chevron since Chevron is paying much more for the gas than PGas. PGas is paying US$1.85/mmbtu for the gas.

PGas is currently discussing with the government that if Conoco under-delivers then PGas will cut volumes for its customers. PGas has meanwhile also intimated customers that there will be 20% cut in volumes. This means government will be under pressure to direct Conoco Phillips to divert the gas back from Chevron to PGas. Discussions are ongoing and we will only know in next few days.

In the worst case there could be potentially 5.4% lower distribution volumes (assuming there is no other contracts signed to compensate for these volumes). This could potentially impact earnings by 9-10%.

At this stage we don’t think that there will be no new contracts signed since its only early part of the year. Also government should support PGas here since industries are getting squeezed due to volume shortage.

Conclusion: We think any weakness should be seen as an opportunity to buy as 5.4% lower volumes doesn’t impair the long term structural story. It will only encourage PGas and the government to find more gas reserves as quickly as possible.

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.

Kim Eng BW Plantation (BWPT IJ): BUY - Valuation gap to narrow

We initiate coverage on BW Plantation with a BUY recommendation and a TP of Rp840. Based on EV/planted nucleus area, we believe BW is the cheapest Indonesia’s plantation play, it is valued at 34% discount compared with the peer sector of Rp119m/ha. With 31% earnings CAGR over FY09-14E, the stock appears attractive at 10.5x FY11E PER. Owing to high productivity and a young estate profile, we expect the valuation gap to narrow vs. the peer average of 15x PER.

Danareksa Astra Agro Lestari (AALI IJ, Rp25,000 BUY) Soft production but not to last

Maintain BUY; TP of Rp28,000
Following the release of the 2009 results, we slightly adjust our FY10-11E EPS estimates to account for the higher oil extraction rate (OER) – although the adjustments are largely offset by higher production costs. Meanwhile, our CPO production estimate remains at 1.1mn tons – despite a decline in the January-February production. We like AALI and maintain our positive stance on the company given: 1) its strong balance sheet, 2) the large size of its plantations, 3) its economies of scale and 4) the savvy management. Our optimism is supported by the positive outlook for CPO prices. The adjustments to our EPS estimates trim our TP to Rp28,000. This TP is based on 1.5x std deviation of the sector multiple of 16.5x FY2010 P/E and implies US$20,933 EV/ha. Our target multiple takes into account the higher momentum of the CPO price - set at US$850/ton CIF this year or 25% higher than 2009’s level.

Softer Jan-Feb production
FFB production reached 541,000 tons in the first two months of the year, down 5% YoY, partly because February is a shorter month. Lower rainfall was another factor, but more importantly were tree stress, we believe. Most of the decline was seen in the Sumatera and Sulawesi estates with the plasma plantations down more than the nucleus ones. However, the OER picked up to 24% in January-February. This explains our upward revision to the OER, restricting the decline in CPO production to a mere 5% YoY in 2mth10. AALI’s guidance is for this year’s CPO production to be flat at about 1.1mn tons (note that production in the first two months of the year is around 12% of our FY10 production estimates). We also think that around 12,700 ha of 2006’s plantings will mature this year, resulting in 17,600 tons of additional CPO.

Maximizing production at its existing estates
Maximizing production at its existing estates is a top priority for the company this year. Hence, more re-plantings are expected. No guidance has been provided by AALI to indicate how many hectares will be re-planted, but the idea is to slash low-yielding and old age trees to ensure long-term production growth remains intact. Any areas intended for re-plantings are said to be less than 20% of the total area in the specific region. That being the case, new plantings are likely to be less than 10,000ha this year – a downward revision from the previous guidance of 12-13,000ha. Although we estimate the new plantings to cost around Rp800bn, the overall capex may reach as high as Rp1.4trn. Two new factories are in the pipeline: the first being a 45ton/hr mill in Central Kalimantan and the second a 30ton/hr mill in East Kalimantan . Cash is sufficient as AALI has a FCF yield of 5%, even to cover AALI’s overall capex.

Reining in costs
While the production cost per ton is expected to increase 12% this year – mostly due to higher labor costs – stable, if not lower, fertilizer costs will help rein in the costs. In 2009, AALI’s ex-factory cost was flat at around Rp2,657/kg. Fertilizer costs were 32% of the total costs, or up from 30% in 2008 – partly due to higher fertilizer prices of Rp8,000-9,000/kg in 1H09. And this year, fertilizer costs should be stable at around Rp5,000-6,000/kg, accounting for around 30% of AALI’s ex-factory costs, in our estimates. All in all, we expect AALI’s EBITDA margin to stay firm at 43%. It will be supported by higher CPO prices as 80% of the company’s production costs are pretty much fixed.

DBS Semen Gresik: Buy; Rp7,850; TP under review; SMGR IJ

Sets aside US$765m for investment

Semen Gresik plans to spend as much as US$765m (Rp7.1t) capital to build two new factories (US$630m) and one unit of power plant (US$115m) in the next two years. The company also plans to invest in PT Kertas Kraft Aceh (KKA), a producer of cement packaging, to support its operations. KKA, which is located in Nangroe Aceh Darussalam, is facing liquidity problems.

This year, Semen Gresik will spend up to US$400m capital spending. US$150m will be used for non-strategic development and to increase production capacity while the remaining balance will be used for developing a new factory and power plant which includes cement packaging and distribution factory in Papua.

JPM Bank Central Asia

Valuation update from Aditya Srinath after BCA posted 14% rally in two days. The stock trades on 19.2x and 15.9x P/E for FY10-11, with 4.5x PBV multiple for FY10. He is not expecting major surprises from the company: (1) acquisition plans into 2 wheeler finance business have been well flagged. (2) he thinks BCA will pay out 45-50% of profits, and believe sthat capital conservation needs may preclude a large one off payout. (3) His FY09 EPS estimate is already 7% higher than consensus, expecting 4Q profits of Rp 1.74 trn.

JPM Semen Gresik (SMGR)

As and when the fear of share placement overhang is removed, this is one laggard stock to look at. Top down, cement sector looks attractive as Indonesia’s GDP growth is set to accelerate, bank lending to pick-up, government spending to rise, property marketing sales to ramp-up, and toll-road projects to progress.

Even after we account for stronger EPS growth potential at peer stock Indocement, SMGR trades on lower 2011 P/E of 12.4x vs. INTP on 14.4x. (JPMorgan is forecasting 2010-11 EPS growth of 11% and 3% for SMGR, 16% and 15% for INTP), based on closing share prices of Rp7850 for SMGR and Rp14000 for INTP. With SMGR, there is scope for 2011 EPS to be lifted by 4-5% once the public floatation is increased, so 11.8x could be the more realistic P/E ratio to look at.

Arguably, SMGR and INTP should post similar growth prospects for 2012. SMGR should see construction of Tonasa V and Tuban IV adding 20% to installed capacity in 2012, driving 7-8% volume growth (similar growth with INTP). Liliana Bambang (analyst) is forecasting similar top line growth of 13-15%, and bottom line growth of 16-17% for both SMGR and INTP.

There is scope for SMGR trading liquidity to improve significantly, widening its potential investors base to include global funds. Its current public float is 24%, giving average daily trade of US$5.3mn (last six months). If the trading liquidity doubles, SMGR will rank sixth among the most liquid names in Indonesia after Bumi Resources, BRI, Telkom, Astra, Bank Mandiri, and PGAS.

Indo Premier MPPA (BUY TP Rp 1780)

Transaction of LPPF divestment
MDS institutionalization’s process from MPPA to LPPF in 2009, as a separate entity, has attracted CVC Capital Partners to take over MDS from MPPA. Through a joint venture, Meadow Asia Company Ltd (MAC) will acquire 90.76% of MDS at Rp 2,705.33 per share or equivalent to Rp 7.16 trillion. MAC was established by strategic alliance between MPPA and CVC, in which MPPA owned a 20% an in-directly ownership and 80% by CVC. The company’s management viewed the bid as profitable and decided to let go MDS business unit.

Sale of MDS: short and longer term benefits
It is clear that the sales figure and profitability (mainly for gross, operating and EBITDA margins) will shrink post the divestment. However, we see 3 advantages for MPPA business in the long run. First, divestment will boost MPPA net margin through additional interest income for MPPA lending to MI, income from in-direct 20% ownership of LPPF, and the relatively non-existent interest expense. Second, the stronger balance sheet will give flexibility in the future should there be aggressive expansion from MPPA side. Third, immediate Rp 0.9 trillion cash to accelerate the expansion of Hypermart, its current core business, from average 6-8 stores per year previously to 10-15 stores per year. On top of that, investors will enjoy commitment from MPPA to set aside Rp 1 trillion from the divestment for use of dividends. In our view, the divestment is sensible, as it provides immediate advantages as well as stronger longer term prospects.

Maintain BUY, Fair Value Rp 1,780; lucrative transaction
We have factor 4 issues of LPPF divestment into our financial model and this resulted in a new fair value at Rp 1,780 per share (vs. previously of Rp 980 per share). At yesterday’s closing price of Rp 1,170 per share, MPPA was traded at 34% discount to our DCF-based fair value, which also implied significant discount in terms of PER valuation. Retain our BUY recommendation.

Mandiri Sekuritas 20 Sections of toll road will be evaluated (JSMR,Rp1800,Buy,TP:Rp2100)

Around 20 sections of toll roads will be evaluated by Indonesia toll road authority (BPJT),to determine if the project will be continued or eligible to be discharged (17 of them are located in Jabodetabek).Under the new law,Presidential Regulation No.13/2010,terminating project expected will not be happen as the toll developer may find a new strategic partners.

JSMR is completing the development of toll Kunciran-Serpong and Kunciran-Cengkareng and interested in acquiring 2 tolls road sections in JORR II,namely Cimanggis-Cibitung and Labu-Serpong,to connecting its existing toll roads.

We still have Buy recommendation on JSMR,currently trades at P/E and PBV 2010 of 9.1x and 1.5x.

Mandiri Sekuritas Coal :Existing KP ’s have to be converted into IUP ’s by April 1,2010

Existing KPs (Mining Rights)are to be converted into IUPs (Mining Permits)
not later than the first anniversary of the Implementing Regulations (April 1,
2010).Existing Contracts of Work and PKP2Bs (Coal Contract of Works)will
continue to be valid until they expire and,thereafter,will be extendable.
The regulation was reminded again by Director General of Mineral,Coal,
and Geothermal,Bambang Setiawan yesterday.Indotambang has 2 KP ’s
Embalut and Tandung Mayang.Both of them have been converted into
IUP ’s.

Mandiri Sekuritas Cement sector:Demands remains strong,up 13%yoy (Overweight)

February domestic sales volume was up by 13.4%yoy according to ASI
data,supported by very strong growth in Java (+18.9%yoy).Surprisingly,
demand growth in Sulawesi is now back to positive after posted negative
growth in January (-4.4%yoy).Note that export still drop significantly (-
31.1%yoy)which brings total production growth lower to only 10.2%yoy.

Among the 3 biggest cement producers in the country,Holcim Indonesia
posted the highest growth of 24.2%yoy,followed by Indocement of 19.1%
yoy and Semen Gresik of only 7.4%yoy.A significant jump in Java was the
main reason behind it,as the area contributes more than 50%of total
production.We maintain Overweight on the sector,with INTP and SMCB as
our top call.

Credit Suisse Indonesia Cement Sector - February data continues to show positive momentum trend

● Indonesia’s February domestic cement data continued to maintain its strong YoY growth of 13%, despite a drop in MoM due to the shorter number of days. On a YTD basis, the data jumped 13% YoY.

● Geographically, we continued o see Java areas (led by east and central Java) outperforming other regions. Meanwhile, Sumatra posted the weakest growth.

● After maintenance, SMGR’s plants have started to operate normally, the reason for the recovery in market share. Holcim Indonesia posted the highest growth on YoY, due to the low-base, although the trend has been declining in the past four months.

● Interestingly, despite Indonesia’s cement price (ASP) being high by regional standards, we see its ASP rising in the past three months by 3%, driven by non-Java and Sumatra areas.

● We continue to maintain our OVERWEIGHT stance on the sector.

Our top picks are Indocement, due to its quality and growth profile, and Semen Gresik, on valuations.

BNP Paribas Kalbe Farma (KLBF IJ) - In the sweet spot - BUY with TP IDR1,940

Kalbe Farma
KLBF IJ, BUY, CP 1,700, TP 1,940, Mkt cap: US$1,777m, ADV:US$3.10m

We maintain our BUY call on Kalbe Farma, and it is remains as one of our TOP PICKS in the market. Supported by strong management with proven track record, we believe Kalbe will be able to deliver good growth this year.

With the possibility of an upgrade on Indonesia’s sovereign debt to investment grade within a year, we believe IDR would be one of the positively affected areas and it could appreciate further from current level. With high portion of imported raw material, Kalbe should benefit from stronger IDR as its margin should expand on lower cost. In the past, we see strong correlation between Kalbe’s margin and IDR. Our sensitivity analysis shows that every 1% IDR appreciation will translate to 1.8% higher earnings.

Indication on 2M10 top line showed a good growth of 10-11% y-y, with most of the growth was driven by volume as Kalbe only implemented a 1-2% ASP increase so far this year. Kalbe is likely to have more aggressive price increase in 2Q10, and expect a total ASP increase of 4-5% in 2010. As such, 2Q numbers should even be stronger on stronger IDR and higher ASP increase.

While our earnings is already 8% higher than consensus, we still see an upside risk to our forecast as the management is now guiding for 2010 net profit of IDR1.16t – 1.23t which is 2 – 6% higher than our full year forecast.

Kalbe new products launch have been on track, and this year it has launched Zee (powdered milk for kids and teen), Mixagrip Pegal Linu (analgesic and muscle relaxant) and Entrostop Anak (anti diarrhea for kids). With several new launching in the pipeline we believe that Kalbe should have no difficulty achieving this year’s target of 13-15% top line growth. Potential acquisition should also positive for Kalbe's earnings and share price. With a net cash position, Kalbe’ balance sheet obviously has the capacity and can support the acquisition. Kalbe can also gear up further for bigger acquisition. So far, the management has prepared IDR1t for acquisition plans.

At this level, Kalbe valuation still looks interesting at 2010 PE of 14.3x, substantially lower than recent peak PE of 20x back in 2007. BUY, with TP IDR1,940, based on 0.75x 2010 PEG.

Please find the attached file for the report.

2009E: P/E 18.8, P/B 3.7, ROE 21.6, Yld 0.7
2010E: P/E 14.2, P/B 3.0, ROE 23.5, Yld 0.8

A Cup of Tea 18 March'10

Stocks gained on Wednesday, pushing the Dow to a 17-month high, after a benign February inflation reading supported the Federal Reserve's renewed pledge of low interest rates.

The Organization of Petroleum Exporting Countries, content with prices over $80 a barrel, has no need to change output at a meeting in Vienna later today, even with oil supplies exceeding consumption, ministers said. Oil rose for a second day to $82.30 a barrel on the New York Mercantile Exchange at 8:16 a.m. Vienna time.

In London, nickel climbed as much as 1.8 percent to $22,284 a ton and tin advanced 0.7 percent to $17,675 a ton. Crude palm oil futures on Malaysia’s derivatives exchange ended higher Wednesday tracking positive crude oil and soy oil futures in after-hours trade.

Indonesian stocks rose, driving the benchmark index to two-year high, as overseas investors sought riskier assets after the U.S. The Jakarta Composite index rose 3.3 percent to 2,756.26, the highest close since Feb. 28, 2008. The rupiah rose 0.7 percent to 9,115 against the dollar, the highest level since August 2008.

For today I think we still have a positive momentum and our market will be open slightly positive and will at range 2704-2785. Inflow still healthy, foreign fund continue coming both stock market and SBI.

BBCA rose on expectations 2009 earnings will be strong, leading to a dividend payout. What a surprise the share up 12% yesterday. I do not know but on my opinion this share was very expensive vs their sector. Still like BBRI and BMRI for growth.

PGAS rose 4.3 percent after Standard & Poor’s raised the company’s rating by one notch to BB with a positive outlook. And speculation that gas price will up at 7-8 dlr. I do not know but on my opinion at this level PGAS at 17.5xPE’10, this is not cheap.

Overall I still have positive view on our market for year end. But for shorter play we must more carefully and wise. I think nothing wrong if we put some cash on our portfolios at this time. I still go 3000 level for our JCI index until year end. TLKM and BUMI will be a trigger for next.

My View on:
• TLKM, ISAT, PGAS, INCO,ITMG, BMRI, BUMI with HOLD
• ADRO, BBRI, UNTR, ANTM, TINS, DOID with BUY
• BDMN, BBTN, PTBA, AALI, LSIP, CTRA, CTRS, BTEL, UNSP with Buy On Weakness
• ELTY, KIJA, ENRG with Speculative Buy
• BBCA, ASII with Neutral or Reduce

Stay Cash for Healthy You Heart ^_^

Bang Juntri

Bloomberg Australian Coal Exports Hit by Train Derailment, Poor Weather

(Bloomberg) -- Coal exports from Australia have been cut after a train derailment emptied supplies at Newcastle port while shipments were suspended at the Hay Point terminal in Queensland following poor weather.

Ship loading at Newcastle in New South Wales will resume later in the week after rail services return to normal tomorrow, Port Waratah Coal Services Ltd., operator of the two terminals, said in an e-mailed statement today. The port is the world’s biggest export harbor for power-station coal.

Xstrata Plc and Peabody Energy Corp. stopped production and majeure at mines after “exceptional rain” in Queensland during the last week of February and the first week of March. Prices for steelmaking coal jumped threefold to a record $300 a metric ton in 2008 as floods in Australia and bottlenecks in port and rail infrastructure constrained supplies.

“There was a massive jump in contract prices a couple of years ago because of heavy flooding in Queensland,” Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne, said by phone. “The weather issues are certainly likely to have some bearing on price expectations for coking coal.”

Heavy rain in 2008 resulted in producers in Queensland, including BHP Billiton Ltd., declaring force majeure, a contractual clause that allows companies to miss deliveries because of circumstances beyond their control. The disruptions helped drive spot prices for power-station coal and the type used in steelmaking to a record.

About 3 million tons of coal output from the Bowen Basin was lost in the current quarter because of heavy rains, Pervan said in a March 9 note, citing reports that he didn’t identify.

Train Derailment

The train derailment and scheduled track maintenance work will result in export losses of about 570,000 tons of coal, Port Waratah said. Vessel loading stopped from New Castle yesterday, it said. Rio Tinto Group, Xstrata and BHP Billiton are among companies that export from the harbor. About 82 percent of coal exports from the port were used in power stations last year.

“The derailment will have a bearing on the spot market, but certainly won’t have the same sort of bearing on the contract market,” Pervan said, referring to thermal coal negotiations. “The spot market would react back down again as that event is overcome.”

BHP Billiton Mitsubishi Alliance said today the Hay Point port in the state’s north remains closed after shipping was halted on March 11. The terminal has two berths and a capacity to export 44 million tons of steelmaking coal a year, according to the North Queensland Bulk Ports Corp.’s Web site.

The alliance, known as BMA, is a joint venture between BHP and Tokyo-based Mitsubishi Corp. Export capacity at the terminal was halved last month after heavy rainfall damaged one of the berths.

Conditions will be monitored to decide when it’s safe to reopen the terminal, Amanda Buckley, a Melbourne-based spokeswoman for BHP, said by e-mail today. Hay Point was closed at 7:30 a.m. local time on March 11 after strong winds, Inchcape Shipping Services Pty, which arranges ship dockings, said in a statement on its Web site.

--Editors: Raj Rajendran, Ryan Woo.

CLSA INDO: Feb2010 cement data resilient

The Indonesian Cement Association has released cement data for February2010. Sales remain quite resilient. Please see comment by head of research Nick Cashmore.

Total domestic sales came to 3.0m tonnes for the month, down 11% mom but up 13% yoy. Total sales (including exports) were 3.15m tonnes, down 10% mom but up 13% yoy.

Industry exports continue to decline. Total exports accounted for only 5% of total volume for February, down from 6% in December and 9% in September.

Because of extremely tight capacity utilisation rates at Semen Gresik, Holcim and Indocement continue to gain market share.

While domestic volume for Semen Gresik was up 6% yoy in Feb, Indocement saw 20% yoy growth and Holcim Indonesia 27% yoy.

Our assumptions are 5% growth for SMGR and 10% growth for INTP and SMCB in 2010.

First quarter volume is seasonally weak due to the rainy season and this year is no exception with 1Q10 volume down from 4Q09. However, 2010 looks to be a banner year for industry growth, driven by low interest rates and what we believe is the start of a multi-year housing boom.

Mandiri Sekuritas PTBA: Building the future

The Minister of State-Owned Enterprise asked PTBA to drop a plan to build a railway line in Sumatra with local and Chinese partners. We asked PTBA and we got confirmation that the plan, however is still continuing, Currently PTBA team is in China to discuss EPC contract, which will be followed by financing arrangements. The deadline is April 28, with an extension possibility. PTBA plans to continue the US$1.1bn project on its own if the partners can not fulfill their obligation. With Rp4.7tn (US$514mn) (of cash at hand), PTBA has the capacity to carry out the project on its own. The project will boost the company’s coal transportation capacity by 32.2 Mtpa in 2014 from 10.5Mtpa currently if it goes as planned. We are downgrading our target price as the FY09 result highlighted a higher-than- expected expense obliged to us to lower margin and hence to lower DCF. The downgr! aded targe t price did not make a change in our Buy recommendation.

4Q higher expenses trimmed margins. The results were below our expectation with margins below our estimates. FY09A gross margin was 54.1% (our FY09E gross margin : 56%), while FY09A operating margin was 39.7% (vs our FY09E of 46.1%). Coal railway service, which took 13.7% of revenue, was 16.8% above our FY09 estimate, resulting in operating profit achievement of 80% from our FY09 estimate. Gross margin deteriorated significantly in Q409 to 42.0% from previo! us averag e three quarters of 58.4%. While coal sale volume in 4Q was 29.1% higher than the previous average three quarters, mining services cost in 4Q jumped up 84.0%, while G&A and selling expenses were 47.6% and 44.9% higher, respectively.

2010 : Flat earnings growth. We upgraded our benchmark coal price assumption from US$80/ton to US$90/ton. However the impacts on earnings are mitigated by reduced sales volume estimate on possible lower domestic take-up due to a delay in the 10,000-MW power projects. We also tuned down operating margin forecast on cost adjustments in light of the 4Q09 results. Due to the fine-tuning in volume and cost, we have a new DCF-based target price of Rp18,750/shar! e, a 5.6% cut to our previous valuation. We are maintaining our Buy recommendation. The catalysts aside from the global thermal coal price movement is the completion of financing arrangements of the railroad project, closing on the current negotiations for power purchase agreement for it’s the 2x100-MW Banjarsari power plant and the 4x600-MW Banko Tengah power plant.

CLSA PGAS upgrade, conviction BUY update2

A quote from a customer of PGAS:

“We are willing to pay US $8.0-8.5/mmbtu for natural gas as if we don’t somebody else will. The current supply situation is very tight” says a pulp and paper company.

Our analyst Swati upgrades her target price and earnings forecasts for PGAS. The new TP is Rp5,500 (previously Rp5,250) and we upgrade earnings by 6-11%. We assume 11% average gas price increase and adjust corporate tax rates from 25% to 20%. Our earnings forecasts are now 9% and 11% above consensus for 2010 and 2011 respectively. PGAS is a conviction BUY.

Key points from the report:

* Pricing differential will become more pronounced going forward as differential pricing will be based on cost of gas and demand from the market.
* PGAS has pricing power due to large gas deficiency of gas and significant discount of gas prices to its substitutes namely diesel.
* Our capex forecast: US$1bn for 2010-2011 combined. PGAS is looking to acquire minority stakes in upstream assets and build two LNG receiving terminals (first in Indonesia). We expect 4Q 2012 start.
* PGAS is the 13th cheapest power stock but has the highest ROE, ROA in 53 power stocks.
* Risk includes execution delays and cost over runs for LNG receiving terminal project.
* PGAS remains a structural growth story and is our conviction BUY. Our revised DCF target is Rp5,500/share which is also 15x 2011CL P/E.
* We have incorporated LNG in our model and done a scenario analysis for the pricing of LNG and legacy gas contracts.
* Valuation: PGAS trades at 13.8x 2010PER and 11.3x 2011 PER, in line with market valuation. We believe that PGAS should be trading at premium to the market, due to its high ROE and ROA, good stock liquidity, low gearing, strong structural story, and potential positive earning surprise.

CLSA INDO: PGAS upgrade, conviction BU update1

Good Morning,must read our UPGRADE ON PGAS today.

All the stars are aligned for our HIGH CONVICTION pick in the big cap space. It is the fastest growing utility stock but yet one of the cheapest in our universe with a ROE of 50%, ROA of 20%+ and a rapidly deleveraging its balance sheet that has a cash balance of 8% of its market cap as of end of 2009. This cash machine will be generating a whopping US$1.1bn+ of FCF by 2012 or 10%+ FCF yield.

Compelling gas supply / demand dynamics

Indonesia is going through a structural shift from diesel to gas usage. At this point, there is simply not enough gas to go around. The acute gas shortage occurred because the larger portion of the gas supply from PGas had been diverted to local power plants and surging demand from industrial users (gas still gas is still 1/3 of diesel prices and shortages of electricity from PLN). This is not going to change anytime soon as the govt focuses on build up of gas fired power plants.

* West Java, PGN cannot meet gas demand for 342 industrial companies, 181 companies in East Java and 124 companies in North Sumatra. The worst deficit has occurred in West Java. PGas has received strong protest from industries in the province.
* The shortage of gas supply effecting industries could result in layoffs of at 342,000 workers in West Java because of the declining production. This is only from West Java. Thousands of workers employed by 164 factories in Serpong may lose their jobs
* State power firm PLN still face gas shortages despite increase in gas supply from PGas. PLN estimates that they are still in deficit of about 1000mscfd of gas, more than PGas 2010CL distribution volumes.

Gas shortgages = Pricing Power

We have every reason to believe that PGAS is about to raise their gas selling prices. In fact, we learned from industrial users they have already been informed by PGAS about and impending gas price hike. We understand that it would happen in 2Q and price increase could be up to 20% or to $6.7.

* PGAS have not increased their prices since mid 2007. Average increase in their prices from 2001-2007 was CAGR of 10%. Just to keep up with inflation, there is a strong case for PGAS to raise their prices.
* In fact, some users are already paying close to $6 for gas. It is a take it or leave it situation.

Govt reforms is supportive of gas usage + higher prices

Indonesia is expected to suffer a shortage of 2,540mmscf of gas this year more than double the current gas distribution by PGas of about 900mmscfd. Reforms have been implemented to address the problems we are suffering from. Chairmen of the gas association said that there has to be serious effort to increase gas production. Gas producers have to be incentived to develop gas resources. This means higher gas prices! Progress seen up to date:

* Raising electricity tariffs to end users (so PLN won't need subsidy = more power = more investment in industries)
* Higher tariff means PLN can now pay more for electricity from IPPs(= more IPPs)
* IPPs pay more for gas prices
* President SBY signed a presidential decree for guaranteed power off-take from IPP producers to State-owned PLN.
* Government decision to allow 70% of Donggi Senoro LNG to be exported (30% will be for domestic usage such as PLN and fertilizer companies) is a landmark case showing govts support of the gas industry.

Credit Suisse - GLOBAL: FOMC flat, Asia Strategy- Further EPS upgrades- Buy ASII/UNTR/ITMG

Sakthi’s call to Buy ASII/UNTR/ITMG is in line with our Top-8 stock picks! Both Sakthi and Arief continue to Overweight Indonesia. Recent political noises on Parliament Votes for Bank Century Bailout (Opposition won 60%-40% to President SBY), for now has become sudden quiet, indicating 1) Institutionalising at Parliament is happening, 2) President SBY remains in control, however I do expect confirmation by Cabinet Reshuffle latest in 4Q2010 (President SBY sat for 2nd 5-year Term on 21st October 2009). Arief’s Target Index remains JCI 3,300pts by end-2010F (implying 17.5x 2010F PER, a level seen during 1992-1997 stable strong economics growth), with Top-8 stocks ASII, BBRI, BMRI, INDF, INTP, ITMG, SMGR & UNTR!

· US Economics Team: FOMC last night maintained rates near zero (0%-0.25% rates) for an “extended period.” As we expected, the “extended period” phraseology was left intact. Although there is nothing from today’s Statement that suggests the phrase is on its last legs, media reports point to increasing discomfort with that language among some members of the Committee (and Kansas City President Hoenig repeated his dissent over the wording). As widely expected, the asset purchase program is winding down at the end of this month (on schedule). The Committee said they will “monitor” the economic outlook and financial developments and will employ its policy tools “as necessary” – leaving the door slightly ajar to reactivate the purchase program and other credit facilities if financial conditions warrant (i.e. if mortgage rates surge, the Fed could always come back in the game).

· Sakthi Siva (Daily Attached): If we look at 2010E consensus EPS revisions in the first two weeks of March, what has not changed is upgrades. While the upgrade so far has been just 0.5%, March represents the 11th consecutive month of upgrades. But what appears to be changing though is leadership. The strongest upgrades to 2010E consensus EPS are in Singapore (+2.3%), Australia (+2.3%) and Indonesia (+1.5%). See Figure 1. In Indonesia, the strongest upgrades are in consumer cyclicals (+6.7%) and energy (+3.3%). Top picks from the CS regional portfolio to play these upgrades are SIA (Singapore Airlines), Rio Tinto, BHP Billiton, Astra International, United Tractors and ITMG.

Mandiri Sekuritas Plantation: El-Nino risk lingers

We expect CPO price to remain firm, at least until the first half of this year due to the risk of El-Nino. According to the Meteorology, Climatology and Geophysics Agency (BMKG) and international institutions, weak-to- moderate El-Nino is predicted to take place until 1H10 and would ease afterward. Another support to CPO price also came from low ending inventory level in Malaysia, hitting 1.8mn tons as a! t Feb10, the lowest since Sep09. In turn, CPO price is likely to remain firm until 2Q09 but may come under pressure in the second half on the back of ample South American soybean harvest coupled with narrow discount to soy oil. Therefore, we still keep our CPO price assumption intact at US$770-800/ton for FY10F-11F.

Weak-to-moderate El-Nino still intact. According to BMKG, weak El-Nino is predicted to take place until Apr10, while could prolong to Jul10, based on international institutions estimates (see exhibit 1 for the detail). Additionally, Southern Oscillation Index (SOI) has shown sustained negative values, which is usually accompanied by sustained warming of the central and eastern tropical Pacific Ocean and a reduction in rainfall over eastern and northern Australia (El-Nino). The most recent moderate El-Nino was in 2006-2007, which also indicated by SOI negative value during that period (see exhibit 2). On the field side, Astra Agro Lestari (AALI)’s management also reported a 4.7% yoy decline in CPO production, suggesting weak El-Nino is taking place.

Feb10 ending stock is the lowest in the last 5 months. The Malaysian Palm Oil Board (MPOB) reported that Malaysia’s CPO production in Feb10 was 1.2mn tons, down by 12.5% mom, the lowest level in the last 3 years. CPO exports also fell by 12.0% to 1.3mn tons in Feb, which brought total ending inventory to 1.8mn tons (-10.9% mom), the lowest level since Se p09. Therefore, we believe that CPO price cou! ld see ne ar-term strength on a low crop season, also to take into account El-Nino risk.

AALI - highest upside potential. Should El-Nino phenomenon come to worse, we believe AALI as a pure CPO player would benefit the most in time of rising CPO price. AALI’s plantation area, which are mostly located in North Sumatra would be less affected by El-Nino risk. Combined with its highest efficiency, dividend yield, and ROE, AALI is suitable for investors who want exposure to this upside potential.

Key risks to the CPO price. However, there are several risks on CPO price, such as: 1) higher-than-expected soybean harvest, 2) lower crude oil prices, and 3) government policies on export tax and import duty.

AAA PT PP London Sumatra Indonesia Tbk Excellency of Restructuring

LSIP was one of the largest CPO players that booked remarkable 2009 earnings result in 2009 which 5% above consensus expectation. Operational improvement has been taking place since occupied by new management. Management keeps augementing logistic in South Sumatra and plasma’s output. And the completion of Pahu Makmur mill in East Kalimantan would improve the operating margin. On EV/planted area, LSIP has started to price premiumly which is 4% higher than AALI. We still prefer LSIP due to its better plantation profile and its potential future growth considering its large unplanted landbank.

± Above Expectation
Revenue decreased 16.8% YoY to Rp 3,199 bn and operating profit decreased 23% YoY to Rp 1,018 bn. Net income decreased 23.7% YoY to Rp 707.5 bn. Amid market crisis with lower ASP that dropped 14% YoY to Rp 6.4k/kg, operational improvement made company could maintain the operating margin only slightly decreased to 32%

± Enhancement on Future Expansion & Productivity
Restructuring made by new management have successfully enhance the capital structure of the company where the debt –equity ratio per 2009 dropped to 0.2x from 0.64x in 2008 and gearing ratio dropped to 0.06x compared to 2008 at 0.3x. Total capex needed for the next 3 years would take around Rp 900 bn – 1 tr capex to maintain 5 – 6% annual growth on CPO production, where company would face no difficulties on financing.

± Higher TP - Maintain HOLD
Based on our key assumptions adjustment and rolling over our base year valuation towards 2011 in order to capture future market sentiment and expectation, we come up with higher TP at Rp 10,300 implying 15.6x – 13.7x P/E 2010F – 2011F and 9x – 8x EV/EBITDA 2010F – 2011F. Currently LSIP has been traded at 13.9x – 11.8x P/E 2010F and 2011F which looks not deeply discounted anymore and market starting to price in. Our new TP only offers 12% potential upside. We downgrade our recommendation from BUY to HOLD.

JPM Indonesia Real Estate: Heading into 2010 with a brighter outlook

* Multiple gains at the peak of the cycle: Indonesian property firms are characterized by: 1) huge land bank (10-15 years of development); 2) township developer nature; 3) 12-18 month property turnover; and 4) 10%-50% of revenue is recurring income. Hence, Indonesia’s property companies tend to produce relatively lower ROEs but trade at high P/Es in an upcycle. Also, in previous cycles, their multiples have tended to appreciate from start to peak.

* Property up-cycle continues: We estimate another c.20-60% upside potential for stocks under our coverage; we expect the up-cycle to last through 2010. This view assumes no interest rate hikes in FY10 (BI support on pro-growth policy), firm GDP growth, and 17% bank loan growth for FY10E. Discounts to NAV normally narrow during a stable interest rate environment. In the last six months, we view that underperformance is due to concern over BI hikes and marketing sales sustainability. We view it as an opportunity to collect the stocks as inflation is still in line with expectations and marketing sales continue to show a tepid recovery.

* Our top pick is CTRA with a PT of Rp1,050 as we expect the discount to NAV to narrow from 42% to 13%. We see two potential key drivers: 1) undervaluation on its subsidiaries; and 2) a solid recovery in marketing sales.

* Near-term driver—indicative marketing sales have shown a positive turnaround, with marketing sales up by 74% y/y on an average YTD.

* Longer-term—we remain positive on long-term fundamentals due to: 1) middle income creation; 2) rising affordability; 3) rising employment; and 4) increasing availability of financing. We also remain positive on housing demand in Jakarta and Greater Jakarta areas as GDP per capita in Jakarta is rising faster than average growth coupled with rising employment. Improved affordability and middle- income creation should benefit in particular, which caters to middle-low end housing.

* Key risks to our view: 1) Any emergence of rate hike expectations, 2) A rise in construction costs. 3) Political uncertainty.

DBS Indocement Tunggal: Buy; Rp13,750; TP Rp10,500; INTP IJ

To build additional cement mill by end of 2010

The media reported that Indocement (INTP) plans to build an additional cement mill in Cibinong (West Java) with total capacity of 1.5m p.a., in addition to its two new cement mills, which are expected to commence operations within the next two months. INTP management expects the construction of the new mill to start by end of this year or early next year and operation commencement by 2012. The required capital expenditure reportedly amount to US$60m and will be financed by internal cash. As of end-Sep09, INTP is in net cash position with ending cash balance of Rp1.7tr.

Aside from the cement mill, INTP also plans to build new cement factories with production capacity of 2-3m tons p.a., preferably to be located in Citeureup (West Java), Tarjun (South Kalimantan) and Central Java. The company is also undergoing discussion with regards to its plan to develop a 2x50 MW coal-fired power plant.

CIMB Telecommunications Sector Note - Telkom eyeing Indosat's towers?

Maintain Underweight on the sector. Bisnis Indonesia reported that Telkom Indonesia is undertaking due diligence to possibly acquire Indosat's 12,000 telecom towers, according to unnamed sources. We view this news positively for Indosat as a sale would help to de-gear its balance sheet (Indosat has a net debt/annualised 9M09 EBITDA ratio of 2.6x). However, we are slightly negative on Telkom because of a likely overlap in Indosat and Telkomsel's towers, especially in urban areas and Java. We maintain our earnings forecasts, Rp4,000 DCF-based target price and UNDERPERFORM rating on Indosat pending its FY09 results, although we expect to raise our forecasts on the back of potential FY09 revenue and EBITDA upside surprises. We remain NEUTRAL on Telkom Indonesia with an unchanged DCF-based target price of Rp12,000.

CIMB AALI Quick takes - Price support from weak production

(AALI IJ / ALII.JK, OUTPERFORM - Maintained, Rp24,650 - Tgt. Rp28,700, Plantations)

Reiterate Outperform and target price of Rp28,700 for AALI, based on 18x CY11 P/E. Weak production, down 5-6% year-to-February, is not specific to AALI but applies to most plantation companies we spoke to. Under-fertilising and poor weather appear to be the chief culprits. Malaysian peers also cite production pressure. The weather remains the wildcard, with leading indicators in the SOI suggesting a strong El Nino developing. No change in our earnings estimates for now, though supply risks are increasingly a clear and present threat. CPO price upside is a near-term share-price catalyst, in our view. AALI remains one of the largest and purest CPO planters in Indonesia .

Mandiri Sekuritas Bank Negara Indonesia:targets rights issue of Rp5-6tn (BBNI,Rp1,970, Buy,TP:Rp2,300)

According to the Ministry of State Owned Enterprises,BNI targets to raise Rp5.-6 tn of fresh funds from the rights issue in 2H10.At the same time,the bank will also sell its 4.14%green shoe option.

In addition,BNI is also reported to have intention to issue subdebt amounted to Rp1-2 tn.

Based on previous rights issue,it takes quite sometimes (around 6-12 months)for BNI to get approval on its rights issue plan from the House of Representative.So,we think that the rights issue will likely occur in 4Q10 the soonest.

At the current price,the stock is trading at 2010F P/BV of 1.4x and PER of 8.6x.We maintained our buy recommendation on the counter.

CIMB Banks Sector Note - Asian road-show feedback

Maintain Overweight on banks. Danamon, BTN and Mandiri remain our top picks. We met investors in Singapore, Kuala Lumpur and Hong Kong recently and came away with the impression that there is growing interest in Indonesian banks. Slightly underperforming the market by 1% YTD but with expected stronger earnings, valuations for banking stocks are increasingly attractive to some investors. Excluding the pricey BCA, major banks are trading at 12.5-10.0x CY10-11 P/Es, at discounts to the market's 14.3-11.7x. We highlighted to investors that the yield curve is flattening, where we argued that potential interest-rate hikes should not constitute a worry. There were intense discussions on the cyclical Danamon, on which some investors have started to turn bullish. Still, many expressed doubts over BTN, for which we have the highest conviction, but that is where we believe there could be fundamental upside surprises. Most investors were happy with Mandiri's long-term performance, and intended to keep their holdings. While the majority agreed with our grouse about a lack of upside for BCA (Underperform), those who held the shares seemed comfortable keeping them as a market-risk hedge, rather than upside driver.

JPM Indo: Research call - Adaro Energy (ADRO)

Stevanus Juanda (analyst) publishes in-depth report on Adaro with O/W rating and price target of Rp2400 (28% upside). Page 7 of the report contains comparison with China Shenhua, showing that while ADRO has stronger top growth profile (2010-2012) (top line cagr of 27% for ADRO vs. 14% for Shenhua, net profit cagr of 33% for ADRO vs. 20% for Shenhua), the stock trades on lower P/E multiple of 15.4x FY10 for ADRO vs. 19.1x for Shenhua. In terms of P/E, ADRO is most expensive among Indo coal names (offset by superior trading liquidity and corporate governance perception), but comparison with Shenhua highlights the relative attractiveness of Indo coal complex.

JPM Indo: Indo property sector

Liliana Bambang (analyst) publishes in-depth bullish report on Indo property sector, top pick is CTRA with 46% upside potential to PxT of Rp1050. She thinks the property upcycle could last for another 9 months, driven by (1) the absence of interest rate hike in 2010 (JPMorgan view) and (2) continuing pick-up in marketing sales across-the-board. The last upcycle in Indo property sector lasted 37 months (24 months from bottom to peak), we are now on the 13th

A Cup of Tea 17 March'10

Stocks rose to a fresh 17-month high on Tuesday after the Federal Reserve held benchmark rates near zero and maintained its pledge to keep them low for an extended period. The Dow Jones industrial average gained 43.83 points, or 0.41 percent, to end at 10,685.98.

Investors poured into Thailand on Tuesday, pushing Thai stocks to a two-month high on signs of waning anti-government protests and a bullish report by U.S. investment bank Morgan Stanley. In Singapore, the main index rose 0.77 percent, In Kuala Lumpur, the index fell for a fourth session, losing 0.06 percent, In the Philippines, a 2.9 percent gain in the country's largest power distributor, and Vietnam .VNI lost 3 percent to a one-week low.


Crude oil rose the most in four weeks as the dollar fell against the euro, buoying demand for commodities as an alternative investment, and as OPEC ministers indicated they would refrain from increasing output. Crude oil for April delivery raised $1.90 to settle at $81.70 a barrel on the New York Mercantile Exchange, its biggest increase since Feb. 16. Oil has advanced 73 percent in the past year. LME Nickel 21810.00 + 310.00 or up +1.44% year to date up 17.73%, Tin 17555.00 + 5.00 or up +0.03% year to date up 3.57%.

Crude palm oil futures on Malaysia’s derivatives exchange ended marginally lower in volatile trade Tuesday amid both long liquidation and fresh buying. There were concerns China may tighten its monetary policy to quell inflation, and a “rate hike could potentially be a dampener for CPO futures.


Stock prices still have room to rise further, and recent economic reports show there is less chance of a double-dip recession. The stock market is almost always a discounting mechanism that almost always moves in advance of the economy, but we don't think it has moved too far at this point. There are still many uncertainties one year after the bottom. We don’t yet know what the full impact of those will be.

Indonesian market will be move in positive territory for today. Healthy inflows still continue on to market and IDR will continuous to be strengthen. JSX will move within 2649-2696 level.

My View on:
• TLKM, ISAT, PGAS, INCO, ASII, ITMG, BMRI, BUMI with HOLD
• ADRO, BBRI, UNTR, ANTM, TINS, DOID with BUY
• BDMN, BBTN, PTBA, AALI, LSIP, CTRA, CTRS, BTEL, UNSP with Buy On Weakness
• ELTY, KIJA, ENRG with Speculative Buy
• BBCA, ASII with Neutral or Reduce

So what do we know now that we didn’t know then?

BANG JUNTRI

Reuters Fed renews vow to keep rates low

(Reuters) - The Federal Reserve renewed its pledge on Tuesday to keep interest rates near zero for an "extended period" even as it sounded more upbeat about jobs.

The central bank's nod to a firmer job market after the deepest recession in decades offered a hint it may be moving closer to dropping its promise to hold borrowing costs at rock bottom levels.

However, it reintroduced a note of caution about the housing sector and repeated its view the economy's recovery would likely be moderate for a time. It also said inflation was likely to remain subdued as it held interbank overnight rates in a zero to 0.25 percent range.

The decision left most economists betting on a Fed rate hike by year end.

"The (Fed's policy) committee ... continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period," the central bank said in a statement. more...

CLSA Delta Dunia - Fundamentals intact - BUY Tp2,300 - 63% upside

Delta has underperformed UT by 25% in the last month. Valuation gap in every metrics has widened to 30-35% but yet Delta has set to grow at a much faster pace than UT. The compelling macro backdrop of tight coal demand/supply situation we have in Asia has not changed. However, sentiment in Buma has been driven down by a relatively weak Jan production numbers and rumors of a rights issue. Management reiterated to us that production has picked up in Feb, they are on track to achieve production target of 38m OB tonnes of coal. There are also no plans of doing any rights issue. This is a good opportunity to accumulate Indonesia's second largest coal mining contractor.


Key points from the report:

* Coal production and overburden removal in Jan10 was rather weak, down by 4% YoY and 7% MoM. Management stated rather weak numbers were expected and production in Jan and Feb came within the company’s budget.

* Reasons for weaker numbers during the first couple of months of this year has been addressed and production has picked up since mid Feb.

* The company might spend additional capex and need additional financing, but this is likely to be vender financed and net impact to bottom line should be less than 2%.

* There is no change to management’s production targets. This is achievable because 1) Historically, productions in 2Q and 3Q are around 20% to 25% higher than that in 1Q. 2) New equipment is being delivered over the next four months, around 100 units, with 20 units already arrived year to date.

* More contracts with new customers to come. The company has delivered on getting new contract. BUMA signed a contract extension with Lanna in end of last year and is in process to sign another one in the next months or so, confirming the company's medium-term growth outlook

* Trading at PER 2010 of 9.7x and EV/Ebitda 2011 of 6.1x, risk/reward is a lot more attractive than UT.

DBS Astra Agro Lestari: Fully Valued; Rp24,650; TP Rp20,425; AALI IJ

CPO production down 20.3% m-o-m to 62,611 MT

Astra Agro Lestari (AALI) reported a 20.3% m-o-m (-9.3% y-o-y) drop in Feb10 CPO production to 62,611 MT, from 78,524 MT in Jan. The drop was due to a 20.0% m-o-m (-10.8% y-o-y) drop in harvested FFB to 240,642 MT, leading to a 19.9% m-o-m (-13.7% y-o-y) drop in processed FFB to 263,922 MT. We believe that shorter working days was one of the factors contributing to the drop in Feb volumes, while we also understand that 1Q is seasonally the lowest level in CPO production and that 1H production usually contributes smaller than 2H production. By estates, the worst decline was reported in Sulawesi (-22.5% m-o-m), followed by Sumatra (-21.5% m-o-m) and Kalimantan (-16.3% m-o-m).

YTD, CPO production in 2M10 dropped by 4.7% y-o-y to 141,135 MT, accounting for 13% of our full-year forecasts of 1.1m MT. Similarly, the drop was due to a 5.2% y-o-y lower harvested FFB to 593,495 MT. The drop in processed FFB volumes was even more pronounced at 9.5% y-o-y, mostly reflecting lower third party purchases (-38.5% y-o-y) and lower plasma production (-20.4%) as a result of low fertilizer application in 1H09. We currently expect FY10F CPO production growth to slow down to 2.5% y-o-y from 10.3% y-o-y in FY09. Maintain our Fully Valued call and Rp20,425 TP.

DBS Bukit Asam: Buy; Rp16,000; TP Rp18,550; PTBA IJ

SOE Ministry orders PTBA to seek new partners in railway project

The Jakarta Post reported that the State-Owned Enterprises (SOE) Ministry has ordered Bukit Asam (PTBA) to drop its planned joint venture with Transpacific Railway Infrastructure (TRI) and China Railway Engineering Corporation (CREC) to build the Muara Enim-Lampung railway project. The order came following a long delay in execution and potential increase in the budget. The SOE Minister revealed that there were several companies interested to cooperate with PTBA on the project (including one from China), which are expected to minimise the huge budget needed and resume the project.

PTBA management, quoted from another article, revealed that the company currently has no plan to change the joint-venture partners. PTBA and its current partners are expected to sign the Engineering Procurement and Construction (EPC) this month, after which project funding is expected to be obtained within one year thereafter. The new railway is expected to commence in 2014.

Mandiri Sekuritas Put down the barbell, it’s time for short-term bullet strategy

Indonesia bond market has been performing well so far this year, with total return of 4.8%ytd or 7.5% in term of USD. Our barbell portfolio suggestion in early this year gives higher return of 4.9%. Foreign fund inflows were still the main catalyst for the bond rally. We believe that all positives have been already priced in. The 10-year government bond yield is trading at 9.44%- the lowest since Nov-07. As the yield curve has normalized, we change our optimum portfolio strategy to bullet with shortening duration from the barbell strategy.

Citigroup United Tractors - Buy: Firing on All Cylinders

 Reiterate Buy, raise target price to Rp20,300 — We raise our United Tractors (UT) target price to Rp20,300 (from Rp17,800) following upward earnings adjustments for FY10E-FY11E (on production ramp-up and improved outlook) and a lower WACC. While the share price has rallied 14% over the past three months, we think UT’s positive earnings growth (13.5% 3-year CAGR), supplemented by good corporate governance, warrants a return to a ‘growth’ period valuation of 12x-15x. At our new target price, the stock would trade at a 2011E P/E of 13.7x. We reiterate our Buy (1L) rating.

 Coal mining contactor: Beneficiary of coal price upcycle — Firmer coal price outlook and coal producers’ planned production ramp-up lead us to raise our coal production growth estimates for Pamapersada. However, we expect the strip ratio to stabilize at 8-8.5x in the next few years after surging from 6.5x in 2007. As a result, we expect more moderate overburden removal volume growth in the next few years from the 25%+ growth seen in 2008 and 2009.

 Heavy equipment: Peaking margins mitigated by higher volume — Robust demand from mining and agribusiness sectors lead us to raise our Komatsu 2010E-2011E sales estimates by 5%-14%. However, we think the rupiah’s material appreciation means margins could have peaked.

 More defensive play on coal price upcycle — We prefer coal miners (ITMG and Adaro) at this stage in the cycle for their more compelling valuations and more robust earnings growth. However, with stable earnings from its coal contracting unit, and diversified exposure to the broader commodities from its heavy equipment distribution unit, UT also holds appeal for investors, thus we retain our Buy rating.

JP Morgan - Asian FX Strategy: CNY Revaluation: Words, facts and actions

Summary

* The past few days have seen an intensification of CNY comments by Chinese policy officials that have leaned against significant CNY appreciation
* The simple facts suggest that these claims are overstated. FDI “hotmoney” inflows do not appear excessive, exports have regained their peak in February and speculative pressures from interest rate differentials are contained
* An examination of the policy statements leading up to the July 2005 revaluation shows that the comments can be misleading. Ironically, it was the US policy maker statements that proved prescient and reliable, though overt pressure on China to revalue was toned down
* Lessons from 2005 suggests that markets may be quick to take profit in CNY NDFs and that alternative proxies such as KRW proved better. However, we prefer to position through our long 12M MYR, SGD, TWD worst of call option due to better trade exposures and longer-run correlation performance

Introduction
Policy comments regarding CNY appreciation have intensified over the past week. This follows as a natural consequence of the National People’s Congress that took place last week and has resulted in various policy factions lobbying in their own interests. Ultimately, the decision to appreciate the CNY rests with the executive State Council and even as high up as the Politburo Standing Committee, where Premier Wen Jiabao has a seat on the nine member committee.

This note takes two approaches in evaluating the veracity of these policy claims. First, how do they stack up against the facts. Second, how reliable have previous CNY policy announcements been in the past. The short answers are that the facts are not so supportive of these claims and 2005 demonstrated that the statements may not be reliable, but their increased frequency is an indication that internal debate is taking place and actions are being considered.

Standard Chartered: Indonesian banks – Looking for switch opportunities

Rakyat [BBRI IJ; upgrade to OUTPERFORM; last close IDR 7,500, fair value upgraded to IDR 8,800/sh]

BCA [BBCA IJ; UNDERPERFORM; last close IDR 5,150, fair value upgraded to IDR 4,200/sh]

Mandiri [BMRI IJ; OUTPERFORM; last close IDR 4,675, fair value IDR 5,200/sh]

Paninbank [PNBN IJ; UNDERPERFORM; last close IDR 830, fair value upgraded to IDR 680/sh]

Danamon [BDMN IJ; IN-LINE; last close IDR 5,100, fair value upgraded to IDR 5,200/sh]


Expected start of a new credit cycle. We believe a new credit upcycle has just begun in Indonesia, with 2010E credit growth expected to rise to 21% from 2009’s level of 10%, driven by the pick-up in 2010 GDP to 5.5% from 4.4% in 2009.

Looking for switch opportunities. We believe there are currently short-term pricing anomalies between the Indonesian banks that present investors with the opportunity to switch from what we believe are overvalued to undervalued stocks, based on the differences between implied sustainable ROE and FY2010-11E ROE. We recommend buying undervalued names such as Rakyat (top pick) and Mandiri (OUTPERFORM), in our view, and switch out of both BCA (UNDERPERFORM) and Panin (UNDERPERFORM), as we see them as overvalued.

Catalysts and differentiating factors. Coincidentally, the undervalued stocks, Rakyat and Mandiri are also the early movers in the credit cycle, while the two most overvalued ones (BCA and Danamon) are clearly laggards. Rakyat and Mandiri's credit growth currently outstrips the industry’s, while BCA and Danamon are underperformers. Hence, we believe one of the key catalysts that will serve as a differentiating factor between the undervalued and overvalued stocks is monthly credit growth rates. Early movers with stronger credit growth should see a stronger pick-up in near-term earnings, thus serving as a re-rating catalyst vis-a-vis the laggards.

Rakyat: Top pick – highest growth and ROE. We upgrade Rakyat to OUTPERFORM from In-Line as it is, in our view, the best play on the new credit upcycle. It is an early mover, has the highest rate of credit growth at 25% and generates the highest 2010E ROE of 26.6%.

BCA - overvalued and risk of ROE disappointment. We maintain our UNDERPERFORM call on BCA as, in our view, its overvalued at a 2010E PBR of 3.8x with FY2010-11E ROE of 25%. We prefer to switch to our top pick, Rakyat, which trades at lower a 2010E PBR of 2.9x with a higher 2010E ROE of 26.6%.

Mandiri Sekuritas PGAS - Supply cut : prelude to price hike and lobby to obtain new supply

In a continuing momentum, the story on domestic gas shortage moved to the next level with PGAS planning to cut 20% of its supply to industries in West Java as a result of contract termination with Pertamina ONWJ. Our channel check indicates a willingness on the part of the buyers for a price hike provided PGAS can guarantee the supply. As it’s becoming the main headline in business newspapers today, the story is also in our view a campaign to pressure BPMIGAS to! decide t he use of Subhan III, Conoco Phillips, which currently is uncertain due to indecision of its usage (for Singapore or domestic). Both bode well for PGAS to reason with its customers for a price increase. Our 2010 assumptions have incorporated a 5% p.a. increase in price starting from 2010, with input price increase of 9% and 11% for 2011 and 2012, respectively and flat for the following years. We remain a Buyer on PGAS with Rp4,350 target price. At our TP, PGAS will be trading at 18.4x PER 2010F and 19.0x PER 2011F.

Supply cut. PGAS announced to its clients a 20% cut in supply and an increase in surcharge for additional gas from agreed amount from 50% to 100% starting April 2010. The supply cut is needed as PGAS terminated its 30-MMSCFD supply contract with Pertamina ONWJ priced around US$4/MMBTU. Today, BP Migas official hinted that 50 MMSCFD new supplies from Medco (priced around US$4.5/MMBTU) will fill in the gap. Our channel checked indicated buyers willingness to pay higher tariff as the alternative is much higher (PLN mentioned it costs them US$16/MMBTU for diesel fuel). We believe this will! help cre ate a better acceptance for a tariff hike.

A pressure for government. PGAS is currently eyeing 200 MMSCFD supply from Conoco Phillips Suban III. Government through BPMIGAS is still undecided whether to sell the gas to Singapore or to the domestic market. As Singapore price is indexed to crude oil (and currently could achieve US$7/MMBTU), the Government could obtain better revenue than selling it domestically, albeit there are multiplier effects worth consider! ing. We believe the decision could be achieved half way, meaning for PGAS to buy it, it has to raise the selling price. At US$7/MMBTU well-head price, price in Java could reach US$9-10/MMBTU, higher than average US$5.5/MMBTU today. Again another reason to have a tariff hike.

What promise PGAS will bring to the negotiation table. It would be much elegant if PGAS can have a government assurance for additional supply before PGAS could exercise its tariff increase. However, without that, we can still expect an increase. PLN, judging from comments by its CEO, seems to accept a possibility of gas price up to US$9/MMBTU.

CLSA Gudang Garam and possibility of advertising

Whether a total ban on the advertising of tobacco products will happen? What will be the implications on cigarette companies?

We do not think it will happen any time soon. Millions of farmers depend on tobacco farming. Last week, thousands of farmers demonstrated in Central Java on regulation on tobacco. We have spoken to industry contacts who think this is just noise as Indonesia has lot of other problems to take care of before reducing employment opportunities in tobacco sector. Second cigarette contributes a lot to the government revenue. There are powerful lobbyists from the industry (cigarette, media companies etc) who will try to prevent this.

However we agree that regulation on cigarettes will get stricter over time. Then companies will find other ways to advertise products such as sponsoring club events etc. In other countries such as Malaysia when they introduced cigarette advertising ban in early 2000, it did not have much impact on volumes. It was the sharp increase in excise taxes (54%) in late 2004 which led to drop in volumes as cigarette prices increased by 25%.

Why we remove Gudang Garam from conviction buy?

The stock offers 18% upside to our price target now. So while we maintain a buy recommendation, we have removed the stock from a conviction buy.

Gudang Garam will spend a lot more than we forecast on advertising and promotions this year and there will also be a potential increase in expenses as Gudang Garam hires lot of new people, increases distribution network etc. So margins could contract in 1H10. So while the story remains intact the stock could trade range bound post 4Q09 results for sometime. So we maintain a positive recommendation given the stock is still cheap trading at 13x 10CL P/E and continue to like the bottom up story.

Implication on Gudang Garam if the ban is introduced earlier than expected? – Bear case scenario

We think there is low probability of this.

There is clear trend of a shift to the mild category. Gudang Garam currently has no presence in this category. It is investing a lot of resources to create a brand in the mild segment. If the ban is imposed early on, Gudang Garam will not be able to build this brand presence. For other categories, Gudang Garam will continue to face declining growth as it has been in the past as smokers are switching to mild cigarettes.

So while the cigarette ad ban will mean the industry slows down as a whole, for producers such as HM Sampoerna (owned by Phillip Morris) it will not be as bad as it is for Gudang Garam since HM Sampoerna is the leader in the mild category with 50% market share and it has been really hard for any other producer to challenge HM Sampoerna's presence.

CLSA Infrastructure outlook

Our property analyst Sarina went out on the streets to kick some tyre to see the latest development of infrastructure projects in Greater Jakarta. While it is no new news that infrastructure projects in Indonesia are painfully slow, we a re pleased that there are some progress with new toll roads and flood canals (Jakarta is infamous to have floods during rainy seasons).

* In recent months, three toll-roads were inaugurated, totaling 48.5km. Two are part of the Greater Jakarta network and one section as part of the Trans-Java.

* More toll-roads to come in 2010/2011: 2 sections of Semarang Solo, 1 section of Surabaya-Mojokerto, JORR W2 and the two sections of JORR2 which provide alternative routes to the Cengkareng airport from Serpong.

* Bakrieland also aims to acquire and develop 4 other toll-roads projects as part of the Trans Java network, after the roll-out of its Kanci-Pejagan toll-road.

* On East flood canal, the project has shown significant progress since the last time we visited in 2008. We drove along the 23.5km development and saw bridges already constructed, along with flood gates, indicating that some sections are already functioning

* On toll-road investment, Jasa Marga (JSMR IJ) is the main beneficiary given its dominance on toll-road investment in Indonesia. In the overall infrastructure space, other beneficiaries are the cement, heavy equipment and construction companies. Secondary beneficiaries will also include the property companies.

BASML PTBA FY09 results below consensus

FY09 results evoke mixed reactions
PTBA released its FY09 results on Sunday. FY09 net profit came in at Rp2,727bn, up 60% YoY, ahead of our forecast by 10%, largely driven by higherthan- expected interest income and income from sales of fixed assets. Indeed, EBIT at Rp3,548bn was up 42%, surpassing our forecast by only 4%. But against consensus, EBIT and net profit came in below by 9% and 6%, respectively; this was down to consensus not factoring in higher opex (up 51% QoQ).

Earnings revised up; PO maintained
Largely on higher interest income, we raised our net profit estimates by 5% for 2010 and 5% for 2011. We kept our NPV-derived PO unchanged at Rp18,800. This has factored in 80% valuation of the coal business generated from the new railway. We understand the EPC contract is still not signed since China Railway wants to re-negotiate its EPC contracts upwards from the current US$1bn.

No surprises in volume and ASP
4Q sales volume rose 30% QoQ to 3.7mn t, with a bigger proportion being sold to the domestic market (47% in 4Q vs. 30% in the first nine months). That’s primarily because of significant QoQ jump in sales from China. Indeed export ASP was down 11% QoQ to US$67/t as the coal sold to China was lower in calorific value (at 5,900kcal GAD). Domestic price for FY09 ended 13% higher than export at US$72/t as the price was settled before coal price corrected.

QoQ jump in cost apparent, but that’s because of high wage
4Q FOB cost surged 25% QoQ to US$51/t. This was due to a Rp230bn increase (US$6/t) in wages as a result of changes in actuarial methodology to calculate pension money. This number will reflect again in 2010 onwards.

Maintain Neutral
The share price has come down 15% from its peak. Still, the stock is trading close to its historical P/E (when coal prices were at their peak in 2008). The next key catalyst for the stock is the signing of EPC contract with the railway. Given the continuing delay and possibility of coal price being capped in near term, we think the share price will not go anywhere in near term.

KimEng Asahimas Flat Glass (AMFG IJ): BUY - Lowering TP on higher energy costs

Management guided that a recovery in the property (70% of sales) and automotive sectors (20%) will support sales growth of 15% in FY10. Asahimas plans to increase selling price in anticipation of higher energy cost following Perusahaan Gas Negara’s plans to hike gas prices by 45% to US$8 per mmbtu (from US$5.5 per mmbtu) by June. We adjust our gross margin assumption to 27% from 29% and reduce our TP to Rp2,950 (from Rp3,050), which is DCF based (18% WACC and 0% terminal growth). The stock is trading at a low 4.8x 2010F PER; BUY maintained.

Macquarie Indonesian property Strong demand continues

Event
 A property exhibition was held last month, where 95 developers showcased
149 property projects. We distributed our property survey to the visitors of the
exhibition and the highlighted results are: 50% are looking for their first
homes, 75% of the respondents will use mortgages as their payment method,
and 58% claims that current mortgage rates offered are low.

Impact
 First homes are still the main reason. 50% of our respondents are looking
for their first homes. These are young couples that fall in the age group of 35
years old and below. All prefer landed residential because they want more
space for their family. Most will use mortgages to finance the home purchase.
This supported our thesis that young families are the main market of the
housing developers right now as mortgage rates starting to decrease.
 Mortgages are the preferred financing method. 75% of the respondents
prefer to use mortgages rather than paying cash upfront. We believe this is
due to the affordability factor as 75% of our respondents are office workers.
58% of the total respondents claim that the current mortgage rates are
already attractive. We think this is because the current offered rates are
already below 10% as they are subsidized by the developers for the first year.
The lowest rate in the exhibition was a fixed 6% for the first year offered by
Bank Mandiri.
 Strong Jan10 sales across the board. Optimism in the property exhibition
is shown in Jan10 pre-sales numbers, continuing its strong 2H09
performances. Summarecon’s and Ciputra’s Jan10 sales have increased
18% yoy and 236% yoy, respectively. Meanwhile, Bumi Serpong’s sales
increased by 25% yoy. These sales numbers are in line with our expectation.
We believe this is because of better product mix as well as strong demand.

Outlook
 We maintain our Overweight recommendation on the sector. We believe
the sector valuation is attractive. It is currently trading at a 55% discount to
NAV, which is at the lower end of the historical trading range of 18% to 64%
discount to NAV. The sector is currently trading at 20.8x PE 10E and 16.3x
PE 11E, close to the lowest trading range of 20.5x PE. Our top pick is Bumi
Serpong due to its landed residential projects and cheap valuation at 17.0x
PE 10E and 12.7x PE 11E, the second cheapest in the property sector.

Target price and recommendation
Rating Price TP Upside (%)
BSDE OP 620 1,100 77%
SMRA OP 750 1,050 40%
CTRA OP 710 875 23%
LPKR OP 530 780 47%
ELTY OP 255 425 67%
Note prices are as of the close 10 March 2010.

BNP Paribas Bank Danamon (BDMN IJ) - High margin maintained (BUY; TP 6,100 from 5,500)

We maintain our BUY call on Bank Danamon with the revised TP of IDR6,100
based on 2.8x P/BV 2010E.

* After a slow 2009 the bank is expected to see much higher loan growth of
18% in 2010 with loan demand from the mass market segment, accounting for
54% of total loans, remains healthy.

* Of the mass market loans, we are positive on motorcycle financing with the
expected industry sales growth of 15% on new motorcycle sales. Adira Finance
financed more than 13% of the new motorcycle sales and 3% on new car sales
in 2009.

* Cost of funds is forecast to be lower in 2010 despite high reliance on
time deposits. This is because of the cap in deposit rate agreed among large
banks since mid 2009. Though we expect lower lending rates on mass market
loans, NIM is forecast to remain high at 11.8% in 2010-11.

* NPL should improve, in line with improving economic outlook, while
coverage ratio increase.

* We upgrade 2010 earnings by 7% and 2011 by 4%. With ROE getting closer
towards 20% again, we value the stock at 2.8x P/BV 2010E, compared to the
average valuation of 3x P/BV in the past nine years.

BASML Whither, Indonesia coal?

Coal, share prices may be directionless for another month
Since early February, Indo coal stock prices have been flat to down (5%), and
Newcastle spot price is down 4%. Despite downside risks, given very light
physical trading volumes, coal prices may be directionless until Japanese Fiscal
Year settlement (widely expected in early/mid April).

Falling Chinese coal price taking a toll on Indonesia coal
Platts quoted (5 Mar) a coal trader, saying he received at least three offers to sell
Indo coal with heating value of 5800-5900kcal GAR at $63-65/t from producers
who only a month back said they had no stock. We confirmed this with our
contacts, who added that some shipments were recently cancelled by buyers.
This, when domestic price in China has fallen 19%. The significance – China
domestic & Newcastle spot prices have strong correlation (R²=0.8) since 2006.

PLN’s low inventory not a big help, in our view
Our channel checks suggest PLN’s inventory, ironically, is quite low and it is
paying a better rate than the above (around US$59-60/t for 5000kcal GAR coal).
But not everyone is capable of selling to PLN – we believe that’s because of
PLN’s longer payment terms (about a month), against others (3 -14 days only).

Russian coal entering Asia; SA coal available after May
With European demand weak, Russian coal is apparently entering Asia. Although
it has high calorific value (6800-7200kcal) and low sulfur (0.2%), it is not popular
because of frozen ice, we believe. It is primarily going into China, as per our
understanding, but Platts reported a possibility that Japan may have bought also.
We see further downside with more available coal coming from South Africa as India heads into a monsoon starting May.

The bullish story: Coking coal and MMTC buying
Not all are bearish, though. Many are watching coking coal prices, expecting to
see more capacity allocated to coking coal rather than thermal coal, given
favorable pricing. Price for 2Q was settled at US$200/t, up 55% (vs. spot US$220-
240/t) and prices are seen to rise the rest of the year. Moreover, we understand
from our channel checks that MMTC of India will issue a coal tender for 13mt
(awarded June) – a high price settlement here would be a boost for the sector.

SAR our only Buy in the Indonesia coal space
We reckon many in the market are playing the wait and see game now – i.e.,
ahead of the JPY settlement – than in 2008 (coal frenzy) and 2009 (lot of
available coal supply). Given the current coal market dynamics we recommend a
Buy only on SAR. Arguably the cheapest (US$70/t implied coal price, at 45%
discount to historical peak), it offers the highest upside potential.

Citigroup Bank Mandiri - Alert: Bisnis Indonesia Reports Above Consensus 2009 Earnings

Bank Mandiri (Persero) (BMRI.JK)

Alert: Bisnis Indonesia Reports Above Consensus 2009 Earnings

Bisnis Indonesia has reported Bank Mandiri (BMRI) 2009 earnings at Rp6.7trn. This is 9% above Citi forecast of Rp6.2trn and 6% above Consensus Rp6.35trn. Management guidance for 2009 profit was “above Rp6trn”. The newspaper has mentioned that these are un-audited numbers. Audited results announcement is scheduled for the end of March 2010.

The positive variation, in our opinion, is likely due to 1) better than expected NIMs in Q4 CY09 and 2) lower than expected credit cost. Declining rates, particularly on SBI holdings (almost 30% of deposits) have negative impact on asset yields.

These are partly offset by lower deposit rate, following the agreement to cap Time Deposits at 7.5% (Aug to Nov) and 7% (Nov onwards). We have assumed flat Net Interest Income in Q4 compared to Q3, with higher volumes offset by lower NIMs.

Provisions have been assumed at Rp0.45trn, slightly below the Rp0.55trn of the previous two quarters.

The CY09 profit of Rp6.7trn implies Q4 CY09 profit was Rp2.1trn (up 24% q-o-q and 54% y-o-y).

KimEng Holcim Indonesia (SMCB IJ): BUY - Best proxy to Indonesia’s infrastructure boom

We initiate coverage on Holcim Indonesia with a BUY and a TP of Rp2,200. We believe Holcim would benefit from the upbeat Indonesian cement market with new capacity ramp as a key growth lever. While the stock trades at a premium of 15.8x 2010F PER versus 12.2x for Semen Gresik and 14.0x for Indocement, we believe it is one of the best proxy to Indonesia’s infrastructure boom.

DBS Palm Oil: Labour woes, bullish views

·Speakers at the 2010 Palm Oil Conference were generally bullish, with few exceptions

·Labour shortage in Malaysia could worsen, might cap FFB harvest despite peak season

·February data from MPOB suggests near-term price strength is intact

·We continue to expect weak prices in 2Q10, and recommend to take profit on near-term strength.

2010 prices at RM2,400-3,300/ton. Speakers at the 2010 Palm Oil Conference mostly indicated that palm oil prices were likely to remain flat in the near term. However with the exception of Dr. James Fry, the speakers expect prices to strengthen in 2HCY10 with upper limit of RM3,300. Reasons for the strong price expectation ranged from El-Nino impact on palm oil supply, increased biodiesel usage, lower soybean crushing due to difficulty in disposing soybean meal, and increased world dependency on palm oil.

But trouble is brewing closer to home. During the conference, we also engaged several Malaysian planters on the issue of Indonesian labour shortage, which seems more serious than initially thought. In addition to competition from Indonesian planters, both governments have tightened labour movements. We do not see a near-term solution to this problem, and if it drags on, could lead to losses from unharvested FFB during the peak-harvesting season.

Near-term price strength intact. MPOB data released yesterday pointed to a sharp 12.4% m-o-m drop in February production, which caused inventory to fall to 1.79m MT despite a 11.6% drop in exports. These numbers were significantly below expectations, and next month’s inventory level could drop further if production fails to pick up and exports rebounds

No change to recommendations. We are maintaining our view that palm oil prices would face downside pressure in 2QCY10, mainly on expectations of lower soybean oil prices. We have already lowered Indonesian FFB yield assumptions due to less fertilizer application in 1H09, but will be reviewing Malaysian yield assumptions to factor in the recent dry weather and labour shortage problems if conditions are unchanged this month.

Citigroup Malaysia Plantations - MPOB Statistics: February Stock Down 10.9%

 CPO production down 12.5% MoM — February 2010 production fell 12.5% MoM to 1.16m tonnes. The MoM decline is not surprising due to seasonal factors and a shorter working month in Feb.

 Exports fell 11.6% MoM — Palm oil exports declined 11.6% MoM to 1.29m tonnes. The decrease came mainly from Pakistan (-43.3% to 127,176 tonnes), China (-20.3% to 315,355 tonnes) and the US (-29% to 59,437 tonnes). However, there was an increase in exports to the Netherlands (78.9% to 150,325 tonnes), Egypt (43.4% to 70,066 tonnes) and India (19.5% to 122,570 tonnes).

 Exports up 5.4% YTD — On a YTD basis, the increase came from China (54.1% to 711,152 tonnes) and the Netherlands (49.6% to 234,376 tonnes). However, there was a drop in exports to India (-31.4% to 225,117 tonnes) and Pakistan (-14.3% to 351,453 tonnes).

 Stock usage ratio at historical average levels — Closing stock in February fell by 10.9% MoM to 1.79m tonnes, the lowest level in 5 months but this is within expectations as we are in a seasonally lower production period. The stock usage ratio rose marginally to 1.38x in February 2010 from 1.37x in January 2010. The historical stock usage ratio is 1.38x (data since 1983).

 No major surprises in Feb numbers — The decline in production and exports is within expectations. We expect production and exports to improve in March and for stock usage ratio to decline.

CIMB London Sumatra Result note - A turnaround year

(LSIP IJ / LSIP.JK, OUTPERFORM - Maintained, Rp9,250 - Tgt. Rp11,200, Plantations)

Maintain Outperform on Lonsum. FY09 core profit was Rp691bn, -24% yoy on Rp3.2tr sales, down 17% yoy. Core profit made up about 100% of our estimate but was 5% ahead of consensus. Higher yoy sales were largely driven by non-palm products and better margins, with the impact offset by higher opex, interest burden and taxes. Higher capex (by some Rp200bn) and the repayment of debt in 4Q09 resulted in an end-2009 cash balance of Rp682bn vs. our estimate of Rp900bn. We are leaving our FY10-11 earnings estimates unchanged, pending further analysis as details become available. We also maintain our target price of Rp11,200, based on 15x CY11 P/E. 2009 was a turnaround year, as reflected in much improved margins and cash flows. We expect further operational improvements to provide share-price catalysts, as well as buoyant CPO prices. Near term, better-than-expected dividends could also be catalysts, with payout currently assumed at 30%.

Mandiri Sekuritas INKP Lost in translation

Indah Kiat, part of Asia Pulp & Paper, is the largest pulp and paper producer in Indonesia. Despite of its considerable size, the company defaulted on the payment of its debts in 2001 and faced a slew of litigations. The company claimed that the remaining litigation is by the US Exim Bank related to debt of around US$55mn. With around US$3.1bn of debt having been restructured, and negative R/E balance, we view dividend payment probability is remote. In addition, the company’s complex supply chain structure could prevent INKP from obtaining optimum profit from its products. Therefore, we initiate coverage on INKP with Sell recommendation with TP of Rp1,600/share, representing 27.3% downside from the current share price.

Industry outlook is bright. Despite flat demand from developed countries, low per-capita paper consumption in developing countries combined with higher-than-average PDB growth will support paper demand at least until the next decade. Latin American, Russian, and Indonesian producers have the advantage of the low costs due to abundant raw materials. World paper price is still in a rising trend after a slump in 2009.

However, still grey area at the company level. Company’s supply chain structure could prevent them from being a real integrated pulp & paper company. They source wood from an affiliated company Arara Abadi (AA) and sell the finished goods via a parent company’s distributor, exposing them to transfer pricing risks, indicated by their considerably lower and more volatile margins compared with their peers in Latin America and Russia. The company also books unproductive assets in t! he form o f US$300mn interest free-loan to AA, and US$37mn unused machinery that is difficult to sell due to incomplete construction. It could be better if, for example, the US$300mn interest free-loan is converted into ownership in AA.

Dividend payment probability is remote. As of 9M09, the company posted US$212mn R/E deficit. It has no plan for quasi reorganization. This condition, combined with heavy debt of around US$3.1bn, maturing during 2015-2024, could prevent dividend payment in the near future. Instead of paying dividend, it probably will retain its earnings to improve net debt-to-equity ratio that currently is at 1.4x and FY10F debt-to- EBITDA ratio that is at 6.3x.&nbs! p; The company also did not pay dividends during positive R/E period on 1997-2000.

Sell stance on INKP. We initiated coverage on INKP with a Sell stance based on a DCF based-TP of Rp1,600/share (10.9% WACC, 5.0% TG), implying a 9.9x PER10F. Currently, INKP is trading at PER10F-11F of 13.6-10.1x, which is expensive, considering complex supply chain structure and remote dividend potential. Key upside potential is improving supply chain structure and rising pulp & paper price.

CLSA INDO: Malaysian palm oil inventory drawdown continues

This is bullish for CPO and plantation stocks.

Comment from our analyst Wilianto:

Our top picks: KL Kepong, Sime Darby, Golden Agri, London Sumatra.


Stock fall more than expected to 1.79m tons (-10.9% mom, +14% yoy), below market expectation of 1.9m tons inventory.

Key factor is the decline in production that declined 12.4% mom to 1.16m tons and is already 41.7% below the peak production in Oct09. The decline is steeper than normal and anecdotal evidences continue to shows that production will remain low in Mar10.

Demand in the mean time remains strong/stable. Although it dipped 11.6% mom post CNY, the trend remains encouraging and no sign of weakness (see chart below).

We reiterate our positive view on the sector.