Event
Delta Dunia released its March 2010 operational forecast, which highlights an improvement over the first two months, but coal production is still slightly below our expectation. The company produced 2.6mt of coal and 23m bcm of overburden. The 1Q operational numbers represent about 19% of our FY10 forecast for both coal production and overburden. We expect operation to continue to improve during the dry season in Q2-Q3. Further, we also see an increasing risks to our recommendation on the company as we see the uncertainty on the potential Berau acquisition to be an overhang on the stock. We therefore prefer UNTR as a more transparent way to play coal contracting industry.
Impact
Some operational improvement in March. The company produced about 2.6mt of coal and 23m bcm of overburden in March, which increase by roughly 17% MoM (for coal and overburden combined). This is largely driven by 10% more operating days during March as well as some operational capacity improvements. We expect operation to continue to improve during the dry season in Q2-Q3. Further, whilst we see downside risks to our 2010 production forecast of 40mt towards 38mt, we think that this could be offset by higher strip ratio (as strip ratio has started to increase in March from 7.8x in Feb to 8.9x) and therefore think that our 2010 earnings forecast for Buma of US$90m remain intact. Uncertainties causing overhang. We also highlight that uncertainties over the potential Berau acquisition could be an overhang on the stock, such as We see an increasing risk of Recapital having a substantial ownership in Delta Dunia (20-50%). Should Northstar and minorities give up their portion to the!
rights issue, we see a risk that Recapital owns between 20-50% of Delta Dunia. Should this happen, this could lead into Recapital having to do a general offer to Delta Dunia's minority shareholders? We see the risks of management reshuffle post the transaction at Delta Dunia level. We see the risks of Delta Dunia refinancing or renegotiating its outstanding bank loan and bond facilities totalling to US$600m. This is as the dilution of Northstar's ownership in Delta Dunia to below 40% will trigger "change of ownership clause", which allows the bond and loan holders to call the facility. Whilst we see declining risks of Delta overpaying for the acquisition, there are uncertainties on the final ownership structure of Berau (not listed). Potentially high capex requirement for Berau. Our channel checks suggest that Berau's previous owner has been under-investing in the past. Therefore, we see increasing risks that Delta Dunia might be required to spend significant capex to get !
Berau's production up from currently 14-15mt to its long-term target o
f 30mt. Discounted valuation...but for a reason? We acknowledge that the stock's current valuation appears relatively cheap as it trades on 9.3x and 8.4x PER 2010-11, which is a discount to Pama's implied valuation of 16x and 15x PER (2010-11). However, we highlight the risks of the valuation discount to remain given the potential of Recapital (not listed - Bakrie related investment house) emerging as a controlling shareholder of Delta Dunia.
Action and recommendation
We therefore see increasing risks to our recommendation on the company and prefer UNTR (UNTR IJ, Rp18,800, OP, TP:Rp20,500) as a more transparent way to play coal contracting industry or Banpu (BANPU TB, Bt628, OP, TP:Bt730), SAR (SAR SP, S$2.21, OP, TP:S$3.4), and PTBA (PTBA IJ, Rp17,450, OP, TP:Rp21,300) to play the coal producers.
Sabtu, 10 April 2010
NISP Company Update on Perusahaan Gas Negara
Higher Than Expected Price Hike
PGN has raised gas price for nationwide customers by 15%, which is above our assumption of 5%. To adjust for this increase, we revise up our earning forecast for PGN by 5.8% - 12.8% for 2010F - 2012F despite lowering 2010F distribution volume assumption by 4.2% due to supply disruption from Conoco Phillips. We also lower our effective tax rate for PGN to 25%, as the company benefits from tax reduction. With these changes in our basket, DCF-derived target price is up 15.8% to Rp5,150 which translates into 2010F PER of 18.3x and EV/EBITDA of 11.2x. Maintain Buy.
Strong 2009 profit on lower tax rate
Last year PGN booked Rp8.24tn net profit, surging by 8.8 times from 2008 achievement helped by forex translation turnaround and a much lower tax rate of just 23%. This figure beat our numbers by 13.5% due to our higher tax rate assumption. While on the operational side, the company’s revenue and EBIT reached Rp18.0tn and Rp7.7tn or relatively in-line with our numbers of Rp17.7tn and Rp7.50tn respectively. PGN was granted 5% tax rate reduction during 2009 after the company’s free float shares exceeded 40%.
Higher than expected price hike
Starting from April 1, PGN implement new gas pricing for all industries and commercial customers, which up by 15% or translates into US$6.37/mmbtu. The company also implements the application of surcharge amounting to 300% for the volume exceeding maximum contract and payment guarantee to cover 2 months worth of gas usage for all customers. This new pricing scheme came above our assumption as we expect only 5% hike on the gas price. However, this condition reiterates PGN’s strong pricing power in the industry given the tight supply condition and substantial discount between natural gas price and diesel price.
Downside risk on distribution volume
After PGN declared that it currently faces gas supply disruption from Conoco Phillips, the company has secured 2 additional gas supply from Pertamina’s ONWJ field and Medco’s Kramasan field with total of 40mmscfd. With the additional supply, PGN’s supply disruption has moderated to around 30-40 mmscfd. However, it is still uncertain when the supply disruption proble will be resolved. In the meantime, we revise down our 2010F distribution volume assumptions by 4.2% or another 2 months disruption. Further downgrade is possible if supply disruption continues longer.
Earnings upgraded on price hike
We revised up our earnings forecast for PGN as actual gas price hike has exceeded our previous assumption. We also lower tax rate assumption for 2010F to 25% and raise cash cost assumption by 3.3% - 4.3% adjusting for the lower supply portion from Conoco Phillips. For 2010F-2012F, our revenue and net profit forecast is up by 4.6% - 11.6% and 5.8% - 12.8%, respectively.
Reiterate Buy with new target price of Rp5,150
Despite still facing supply disruption risks, we still acknowledge that PGAS has strong positioning in a blooming industry. Strong bargaining power in terms of pricing and volume allocations places PGN as the best proxy to ride the boom in domestic gas consumption. Our new DCF-derived target price suggests a figure of Rp5,150/share for PGN, up by 15.8% from our previous numbers. Offering a 27.3% potential upside from current price, we reiterate our positive stance on the counter. Buy.
PGN has raised gas price for nationwide customers by 15%, which is above our assumption of 5%. To adjust for this increase, we revise up our earning forecast for PGN by 5.8% - 12.8% for 2010F - 2012F despite lowering 2010F distribution volume assumption by 4.2% due to supply disruption from Conoco Phillips. We also lower our effective tax rate for PGN to 25%, as the company benefits from tax reduction. With these changes in our basket, DCF-derived target price is up 15.8% to Rp5,150 which translates into 2010F PER of 18.3x and EV/EBITDA of 11.2x. Maintain Buy.
Strong 2009 profit on lower tax rate
Last year PGN booked Rp8.24tn net profit, surging by 8.8 times from 2008 achievement helped by forex translation turnaround and a much lower tax rate of just 23%. This figure beat our numbers by 13.5% due to our higher tax rate assumption. While on the operational side, the company’s revenue and EBIT reached Rp18.0tn and Rp7.7tn or relatively in-line with our numbers of Rp17.7tn and Rp7.50tn respectively. PGN was granted 5% tax rate reduction during 2009 after the company’s free float shares exceeded 40%.
Higher than expected price hike
Starting from April 1, PGN implement new gas pricing for all industries and commercial customers, which up by 15% or translates into US$6.37/mmbtu. The company also implements the application of surcharge amounting to 300% for the volume exceeding maximum contract and payment guarantee to cover 2 months worth of gas usage for all customers. This new pricing scheme came above our assumption as we expect only 5% hike on the gas price. However, this condition reiterates PGN’s strong pricing power in the industry given the tight supply condition and substantial discount between natural gas price and diesel price.
Downside risk on distribution volume
After PGN declared that it currently faces gas supply disruption from Conoco Phillips, the company has secured 2 additional gas supply from Pertamina’s ONWJ field and Medco’s Kramasan field with total of 40mmscfd. With the additional supply, PGN’s supply disruption has moderated to around 30-40 mmscfd. However, it is still uncertain when the supply disruption proble will be resolved. In the meantime, we revise down our 2010F distribution volume assumptions by 4.2% or another 2 months disruption. Further downgrade is possible if supply disruption continues longer.
Earnings upgraded on price hike
We revised up our earnings forecast for PGN as actual gas price hike has exceeded our previous assumption. We also lower tax rate assumption for 2010F to 25% and raise cash cost assumption by 3.3% - 4.3% adjusting for the lower supply portion from Conoco Phillips. For 2010F-2012F, our revenue and net profit forecast is up by 4.6% - 11.6% and 5.8% - 12.8%, respectively.
Reiterate Buy with new target price of Rp5,150
Despite still facing supply disruption risks, we still acknowledge that PGAS has strong positioning in a blooming industry. Strong bargaining power in terms of pricing and volume allocations places PGN as the best proxy to ride the boom in domestic gas consumption. Our new DCF-derived target price suggests a figure of Rp5,150/share for PGN, up by 15.8% from our previous numbers. Offering a 27.3% potential upside from current price, we reiterate our positive stance on the counter. Buy.
Danareksa Jasa Marga (JSMR IJ, Rp1,900 BUY) On the right road
Ratification of new land acquisition law in the pipeline
Land acquisition remains a key issue for toll road construction in Indonesia. Currently, land acquisition is based on Law No 20/1961 and two presidential decrees (No 36/2005 and No 65/2006). However, in order to provide an even stronger legal basis for land acquisition, the House of Representatives (parliament) is expected to discuss a new bill on land acquisition before passing it into law. Technically this should make it easier to revoke land owners’ land rights - although implementation is another matter entirely.
New toll road projects bode well for the future
Jasa Marga has five toll road projects in progress: the Bogor Ring Road (BORR) section 2, Semarang-Solo section 1, Gempol Pasuruan, JORR W2 North, and Surabaya Mojokerto. The construction of Semarang-Solo section 1 has already started but the other four are still in the land acquisition stage. In our view, these toll roads have the potential to generate good revenues since they are close to the main cities - meaning sufficient traffic. The concerns center on land acquisition – a time consuming process that makes the completion time of a project unpredictable. A stronger land acquisition law is key to speedier toll road development.
Pretty good 2009 results
Jasa Marga’s 2009 results are fairly good. Revenues increased 10% yoy to Rp3.7tr with EBITDA up 7% yoy to Rp1.8tr. Helping to boost the company’s performance was the 4.3% yoy higher traffic volume of 2.5mn vehicles per day. The company also booked Rp125bn in gains from asset conversion to investments in Jakarta Lingkar Barat Satu. All in all, the balance sheet remains healthy with net gearing of a moderate 48% as of December 2009.
Target Price trimmed to Rp2,300 on project delays
We slightly adjust our earnings forecast to take into account 1) the FY09 results and 2) some delays in the new toll road projects due to the protracted land acquisition process. However, our earnings changes are not significant (expect for net profits as the interest expenses shift to later years because of the project delays). Our DCF valuation gives rise to a lower TP of Rp2,300 as some projects were shifted back without any extension in the concessionary period.
Land acquisition remains a key issue for toll road construction in Indonesia. Currently, land acquisition is based on Law No 20/1961 and two presidential decrees (No 36/2005 and No 65/2006). However, in order to provide an even stronger legal basis for land acquisition, the House of Representatives (parliament) is expected to discuss a new bill on land acquisition before passing it into law. Technically this should make it easier to revoke land owners’ land rights - although implementation is another matter entirely.
New toll road projects bode well for the future
Jasa Marga has five toll road projects in progress: the Bogor Ring Road (BORR) section 2, Semarang-Solo section 1, Gempol Pasuruan, JORR W2 North, and Surabaya Mojokerto. The construction of Semarang-Solo section 1 has already started but the other four are still in the land acquisition stage. In our view, these toll roads have the potential to generate good revenues since they are close to the main cities - meaning sufficient traffic. The concerns center on land acquisition – a time consuming process that makes the completion time of a project unpredictable. A stronger land acquisition law is key to speedier toll road development.
Pretty good 2009 results
Jasa Marga’s 2009 results are fairly good. Revenues increased 10% yoy to Rp3.7tr with EBITDA up 7% yoy to Rp1.8tr. Helping to boost the company’s performance was the 4.3% yoy higher traffic volume of 2.5mn vehicles per day. The company also booked Rp125bn in gains from asset conversion to investments in Jakarta Lingkar Barat Satu. All in all, the balance sheet remains healthy with net gearing of a moderate 48% as of December 2009.
Target Price trimmed to Rp2,300 on project delays
We slightly adjust our earnings forecast to take into account 1) the FY09 results and 2) some delays in the new toll road projects due to the protracted land acquisition process. However, our earnings changes are not significant (expect for net profits as the interest expenses shift to later years because of the project delays). Our DCF valuation gives rise to a lower TP of Rp2,300 as some projects were shifted back without any extension in the concessionary period.
Citigroup Jasa Marga (Persero) - Transfer of Coverage
v Transferring Coverage — We hereby transfer coverage responsibility for Jasa Marga shares to Margarett Go from Ella Nusantoro, who is leaving CIRA.
v Maintain Buy/Low Risk (1L) rating and target of Rp2,003 — We slightly adjust our estimates to factor in recent FY09 results. But overall, we maintain our buy rating
on the stock with target price of Rp2,003.
v Maintain Buy/Low Risk (1L) rating and target of Rp2,003 — We slightly adjust our estimates to factor in recent FY09 results. But overall, we maintain our buy rating
on the stock with target price of Rp2,003.
Macquarie Bank Danamon (BDMN IJ) (Outperform) - Motorcycle financing is going strong
Event
· We met with Adira Finance management yesterday and they are upbeat on the 2010 outlook. Adira is a listed motorcycle financing subsidiary and is 95% owned by Bank Danamon. We expect Adira to contribute more than 50% of Bank Danamon's net profit in 2010. Our conversation with Federal International Finance (Astra International's motorcycle financing arm) also indicated a strong performance in the 1Q10.
Impact
· Financing volume to improve in 2010 given the strong pace in 1Q10. Adira Finance become more confident on the economic outlook after having a cautious view, especially in 1H09. As such it expects financing value to grow by 20% this year vs only 4% last year.
· Net profit is likely to go up by more than 25% given the lower cost of fund and higher financing volume. In 2009, Adira was able to book 19% net profit growth despite having 4% financing growth. We expect Adira's ROE to hover around the 50%+ level with a net interest margin of 15%. Adira's net profit in 2009 reached Rp1.2tr and we expect its net profit to reach more than Rp1.5tr in 2010 vs Bank Danamon net profit of around Rp2.6tr.
· Adira's NPL should remain manageable; the company expects NPL to remain at around 1%.
Action and recommendation
· Strong Adira performance should help support Bank Danamon's performance; Outperform. We expect Adira to account for more than 50% of Danamon's profitability in 2010. We continue to like Danamon because it is a beneficiary of lower interest rates and increasing consumer purchasing power. We maintain an OP rating on Bank Danamon with a price target of Rp6,800/share, translating to 23% upside potential. On our estimates, Danamon is currently trading on 2010E P/BV of 2.7x vs the sector at 3.3x with 71% EPS growth vs the industry at 25%.
· We met with Adira Finance management yesterday and they are upbeat on the 2010 outlook. Adira is a listed motorcycle financing subsidiary and is 95% owned by Bank Danamon. We expect Adira to contribute more than 50% of Bank Danamon's net profit in 2010. Our conversation with Federal International Finance (Astra International's motorcycle financing arm) also indicated a strong performance in the 1Q10.
Impact
· Financing volume to improve in 2010 given the strong pace in 1Q10. Adira Finance become more confident on the economic outlook after having a cautious view, especially in 1H09. As such it expects financing value to grow by 20% this year vs only 4% last year.
· Net profit is likely to go up by more than 25% given the lower cost of fund and higher financing volume. In 2009, Adira was able to book 19% net profit growth despite having 4% financing growth. We expect Adira's ROE to hover around the 50%+ level with a net interest margin of 15%. Adira's net profit in 2009 reached Rp1.2tr and we expect its net profit to reach more than Rp1.5tr in 2010 vs Bank Danamon net profit of around Rp2.6tr.
· Adira's NPL should remain manageable; the company expects NPL to remain at around 1%.
Action and recommendation
· Strong Adira performance should help support Bank Danamon's performance; Outperform. We expect Adira to account for more than 50% of Danamon's profitability in 2010. We continue to like Danamon because it is a beneficiary of lower interest rates and increasing consumer purchasing power. We maintain an OP rating on Bank Danamon with a price target of Rp6,800/share, translating to 23% upside potential. On our estimates, Danamon is currently trading on 2010E P/BV of 2.7x vs the sector at 3.3x with 71% EPS growth vs the industry at 25%.
Citigroup Indocement - Buy: Concrete Growth
v Main beneficiary of demand upturn in Java — Logging tepid growth of just 2.3% CAGR in 2004-09, Java’s cement demand has well lagged that of outer island’s 8.7%. Java accounted for 62.1% of national demand in 2004 but plunged to 54.9% in 2009.However, we believe that the ongoing mortgage boom on the back of record-low mortgage rates and banks’ concerted efforts to boost their mortgage portfolio would underpin a robust upturn in Java’s cement demand in the next few years.
v Raising estimates — Thanks to its spare capacity and strong brand equity in Java and improving market share in fast growing Kalimantan, we expect Indocement to increase its national market share to 31-32% in 2010-12E from 30.4% in 2009. Hence, we have raised our domestic sales volume estimates for Indocement by 3.8% and 5.6% YoY, respectively, for 2010-11E to 13.0m and 14.2m tons. However, we maintain our domestic selling price hikes of 6% pa for 2010-12E. This leads to us raise our 2010-11E net earnings estimates by 11.4% and 10.0%, respectively.
v TP upgraded to Rp18,400; Buy (1M) maintained — We raise our TP to Rp18,400 from Rp13,205 on higher earnings estimates and higher valuation multiple. We now base our TP on EV/EBITDA 2011E of 10.1x (1 std deviation above mean) instead of just assigning the mean multiple previously. We believe the higher valuation is warranted given Indocement’s much lower risk profile (having slashed debts aggressively) and improving profitability. We continue to like Indocement with its strong operational growth on lower costs and opex.
v Transferring Coverage — We hereby transfer coverage responsibility for PT Indocement shares to Kim Kwie Sjamsudin from Ella Nusantoro, who is leaving CIRA.
v Raising estimates — Thanks to its spare capacity and strong brand equity in Java and improving market share in fast growing Kalimantan, we expect Indocement to increase its national market share to 31-32% in 2010-12E from 30.4% in 2009. Hence, we have raised our domestic sales volume estimates for Indocement by 3.8% and 5.6% YoY, respectively, for 2010-11E to 13.0m and 14.2m tons. However, we maintain our domestic selling price hikes of 6% pa for 2010-12E. This leads to us raise our 2010-11E net earnings estimates by 11.4% and 10.0%, respectively.
v TP upgraded to Rp18,400; Buy (1M) maintained — We raise our TP to Rp18,400 from Rp13,205 on higher earnings estimates and higher valuation multiple. We now base our TP on EV/EBITDA 2011E of 10.1x (1 std deviation above mean) instead of just assigning the mean multiple previously. We believe the higher valuation is warranted given Indocement’s much lower risk profile (having slashed debts aggressively) and improving profitability. We continue to like Indocement with its strong operational growth on lower costs and opex.
v Transferring Coverage — We hereby transfer coverage responsibility for PT Indocement shares to Kim Kwie Sjamsudin from Ella Nusantoro, who is leaving CIRA.
Mandiri Sekuritas JSMR: Regulated growth
In January 2010, the government implemented the Presidential Regulation (Pepres) No. 13/2010, which amends the Pepres No. 67/2005, concerning the government-private sector partnership in infrastructure development. Under the new regulation, land procurement will be the government’s responsibility and ownership in the stalled toll road projects can be transferred to new partners. We see potential growth in toll road supported by the government’s int! ervention We upgrade our TP on toll-road operator PT Jasa Marga (JSMR) to Rp2,400. Maintain Buy.
Strong FY09 results … On 28 Sep09, JSMR increased the tariffs of 11 of its 13 toll roads by between 11% and 33 %. Consequently, revenue in 4Q09 went up by 17%qoq, driving the FY09 revenue up 10% yoy to Rp3.7tn and net profit by 40% yoy to Rp998bn. The company booked one-off extraordinary gain of Rp124bn; consequently, net margin went up to 27% from 21% in the previous year.
New toll road operation and traffic … BORR section I (3.8Km), has officially begun operation in 23 Nov 09, and since then, the traffic has been increasing. Average daily traffic reached 18.000 of vehicles during Jan-Feb10. Traffic volume in FY09 reached 916.0mn of vehicles (+4%yoy). The highest traffic growth happened in the Padalarang-Cileunyi section which grew by 23%yoy. Meanwhile, the highest traffic volume was recorded in the JIRR (Jakarta Inner Ring Road) of around 180.7mn of vehicles in 2009.
Double-digit revenue growth … the company targets 3%yoy growth in traffic volume in 2010, to achieve 16%yoy increase in revenue to Rp4.3tn. The state-owned company expects to achieve such targets as it plans to open 2 new toll roads: (1) the Semarang – Ungaran (11.3Km) by 3Q10 and (2) the Waru – Sepanjang (2.3Km; part of Surabaya – Mojokerto) by 2Q10. Meanwhile, it will increase the tariffs for two toll roads (Jakarta-Cikampek and Prof.Dr.Ir.Sedya< /st1:PersonName>tmo) with expected incremental tariff of 10%, likely by June 2010.
Maintain buy ... We adjusted our valuation. Based on DCF valuation (WACC of 11.7%), we upgraded our target price to Rp2400 from Rp2100. Our new target price puts the company at PE’10F of 15.4x. Currently, it trades at PE’10-11F of 12.2x and 11.0x, respectively. Maintain buy.
Strong FY09 results … On 28 Sep09, JSMR increased the tariffs of 11 of its 13 toll roads by between 11% and 33 %. Consequently, revenue in 4Q09 went up by 17%qoq, driving the FY09 revenue up 10% yoy to Rp3.7tn and net profit by 40% yoy to Rp998bn. The company booked one-off extraordinary gain of Rp124bn; consequently, net margin went up to 27% from 21% in the previous year.
New toll road operation and traffic … BORR section I (3.8Km), has officially begun operation in 23 Nov 09, and since then, the traffic has been increasing. Average daily traffic reached 18.000 of vehicles during Jan-Feb10. Traffic volume in FY09 reached 916.0mn of vehicles (+4%yoy). The highest traffic growth happened in the Padalarang-Cileunyi section which grew by 23%yoy. Meanwhile, the highest traffic volume was recorded in the JIRR (Jakarta Inner Ring Road) of around 180.7mn of vehicles in 2009.
Double-digit revenue growth … the company targets 3%yoy growth in traffic volume in 2010, to achieve 16%yoy increase in revenue to Rp4.3tn. The state-owned company expects to achieve such targets as it plans to open 2 new toll roads: (1) the Semarang – Ungaran (11.3Km) by 3Q10 and (2) the Waru – Sepanjang (2.3Km; part of Surabaya – Mojokerto) by 2Q10. Meanwhile, it will increase the tariffs for two toll roads (Jakarta-Cikampek and Prof.Dr.Ir.Sedya< /st1:PersonName>tmo) with expected incremental tariff of 10%, likely by June 2010.
Maintain buy ... We adjusted our valuation. Based on DCF valuation (WACC of 11.7%), we upgraded our target price to Rp2400 from Rp2100. Our new target price puts the company at PE’10F of 15.4x. Currently, it trades at PE’10-11F of 12.2x and 11.0x, respectively. Maintain buy.
AAA TINS Go beyond the worst
Timah closed its 2009 results which above our expectation and consensus. Positive signals have been seen both internally and externally. Internally, operating cost efficiency consistently improved from 15% of sales in 2000 cut down to only 6% of sales by end 2009. Externally, growing optimism of world economy helps explain the price surges which underpinned by recovery in LME inventory level and some robust leading anc coincident indicators in regions. We expect demand will outstrip supply in coming years. In an astounding market recovery, metals prices often doing well over the past year. We reiterate our BUY recommendation with higher TP at Rp 3,000 offering 30.4% potential upside.
± Above expectation
Timah posted FY09 revenue of Rp 7.7 trillion (-14.8% yoy). Operating profit posted at Rp 688 bn (-66.7% yoy) And net income reported at Rp 313 bn (-76.6% yoy). Lower earnings were mainly prompted by 26.5% lower ASP and forex loss of Rp 120 bn due to strengthened rupiah. While 6% increase of sales volume indicated that demand remained robust amid global recession.
± Stronger earnings expected in 2010 and 2011
With better positive outlook on tin industry and tin price which underpinned by company’s cost efficiency improvement, we expect stronger FY10F and FY11F earnings results of Rp 921 bn (+ 193% yoy) and Rp 1,172 bn (+27% yoy) respectively. There are mainly coming from better ASP where expected ASP of US$ 17,000/ton or 13% qoq increase is expected in 1Q10.
± Higher TP – Reiterate BUY
Based on our new key assumptions and rolling over our base year valuatin towards 2011 with WACC of 14.3%, we came up higher TP at Rp 3,000 per share implying 13x P/E 2011F and 6.8x EV/EBITDA 2011F. Currently TINS is traded at 12.6x – 9.9x P/E 2010F -11F suggesting the cheapest metal player among peers. Our TP offers 30.4% potential upside, therefore we reiterate our BUY recommendation.
± Above expectation
Timah posted FY09 revenue of Rp 7.7 trillion (-14.8% yoy). Operating profit posted at Rp 688 bn (-66.7% yoy) And net income reported at Rp 313 bn (-76.6% yoy). Lower earnings were mainly prompted by 26.5% lower ASP and forex loss of Rp 120 bn due to strengthened rupiah. While 6% increase of sales volume indicated that demand remained robust amid global recession.
± Stronger earnings expected in 2010 and 2011
With better positive outlook on tin industry and tin price which underpinned by company’s cost efficiency improvement, we expect stronger FY10F and FY11F earnings results of Rp 921 bn (+ 193% yoy) and Rp 1,172 bn (+27% yoy) respectively. There are mainly coming from better ASP where expected ASP of US$ 17,000/ton or 13% qoq increase is expected in 1Q10.
± Higher TP – Reiterate BUY
Based on our new key assumptions and rolling over our base year valuatin towards 2011 with WACC of 14.3%, we came up higher TP at Rp 3,000 per share implying 13x P/E 2011F and 6.8x EV/EBITDA 2011F. Currently TINS is traded at 12.6x – 9.9x P/E 2010F -11F suggesting the cheapest metal player among peers. Our TP offers 30.4% potential upside, therefore we reiterate our BUY recommendation.
DBS Telkom: Buy; Rp8,100; TP Rp10,700; IJ
High O&M costs in 4Q09
• FY09 net profit was 6% below our and consensus estimates
• 4Q09 EBITDA margin fell 6ppt to 50% mainly due to 37% q-o-q jump in O&M expenses
• Our forecasts, Rp10,700 TP and BUY call are under review pending a conference call.
Weak 4Q09 group earnings. TLKM reported 4Q09 NI of Rp2.0tr (-38% q-o-q; +20% y-o-y). Excluding Rp198b forex gain and lumpy Rp1tr expenses relating to early retirement (ERP), 4Q09 core NI was Rp2.6tr (-15% q-o-q; -21% y-o-y). This was on the back of Rp12.2tr revenue (+6% q-o-q; +8% y-o-y). However, EBITDA margin fell 6ppt q-o-q to 50% due to 37% higher operations and maintenance (O&M) expenses (no details), or as a percentage of revenue, it jumped 5.8ppt to 26%. Meanwhile, personnel costs fell 11% q-o-q as the group reaped the benefit of earlier retrenchment exercises.
Telkomsel earnings fell 8% y-o-y. Telkomsel, its 65% cellular subsidiary, grew subscriber base by 2% q-o-q to 81.6m. This led to flat 2% q-o-q revenue growth. But EBITDA margin fell 3ppt to 60% due to a 15% q-o-q jump in O&M expenses, and rising 2.3ppt to 20.7% of revenue. Consequently, Telkomsel’s net profit fell 8% to Rp3.3tr. FY09 blended ARPU fell 18% y-o-y to Rp48k, lower than its 25% subscriber growth.
Forecasts are under review. Our forecasts assume 8% revenue growth for FY10F and FY11F, and 54% EBITDA margin. Each 1ppt cut in margin could lower net profit by 4%. Our price target and recommendation are also under review.
• FY09 net profit was 6% below our and consensus estimates
• 4Q09 EBITDA margin fell 6ppt to 50% mainly due to 37% q-o-q jump in O&M expenses
• Our forecasts, Rp10,700 TP and BUY call are under review pending a conference call.
Weak 4Q09 group earnings. TLKM reported 4Q09 NI of Rp2.0tr (-38% q-o-q; +20% y-o-y). Excluding Rp198b forex gain and lumpy Rp1tr expenses relating to early retirement (ERP), 4Q09 core NI was Rp2.6tr (-15% q-o-q; -21% y-o-y). This was on the back of Rp12.2tr revenue (+6% q-o-q; +8% y-o-y). However, EBITDA margin fell 6ppt q-o-q to 50% due to 37% higher operations and maintenance (O&M) expenses (no details), or as a percentage of revenue, it jumped 5.8ppt to 26%. Meanwhile, personnel costs fell 11% q-o-q as the group reaped the benefit of earlier retrenchment exercises.
Telkomsel earnings fell 8% y-o-y. Telkomsel, its 65% cellular subsidiary, grew subscriber base by 2% q-o-q to 81.6m. This led to flat 2% q-o-q revenue growth. But EBITDA margin fell 3ppt to 60% due to a 15% q-o-q jump in O&M expenses, and rising 2.3ppt to 20.7% of revenue. Consequently, Telkomsel’s net profit fell 8% to Rp3.3tr. FY09 blended ARPU fell 18% y-o-y to Rp48k, lower than its 25% subscriber growth.
Forecasts are under review. Our forecasts assume 8% revenue growth for FY10F and FY11F, and 54% EBITDA margin. Each 1ppt cut in margin could lower net profit by 4%. Our price target and recommendation are also under review.
OSK TELKOM INDONESIA-Sharp Pullback in Margins
THE BUZZ
Telkom released its FY09 results yesterday. Its headline profit came in at IDR11.3bn on the back of revenue of IDR64.6bn, representing a 9.4% and 6.7% y-o-y growth respectively.
OUR TAKE
Numbers marred by higher cost and weak mobile revenue. Core FY09 profit, strippingoff
forex gains of IDR973bn, was 15% below our forecast and 14% under consensus estimate as ballooning costs in 4Q09 led to severe EBITDA margin erosion q-o-q by 12%-pts
to 46%. Operating cost surged 27% q-o-q, driven mainly by the 42% q-o-q rise in staff cost and operating and maintenance expenses (+37% q-o-q). Surprisingly, mobile revenue plunged 18% q-o-q from +7% q-o-q in 3Q09, a sharp divergence from the 12%-13% q-o-q growth posted by its 2 rivals, exerting further pressure on revenue share.
Improved data traction. Telkomsel, Telkom’s 65%-owned mobile subsidiary, posted
revenue growth of 12% y-o-y on the back of a 25% y-o-y growth (+15m) in its subs base.
Consistent with industry trend, Telkomsel’s data revenue grew a strong 20% y-o-y, eclipsing the high single digit growth in voice revenue, contributing 29% of overall mobile revenue. It added 1.9m subs in 4Q09 (+16.3m), driving total subs 2% higher q-o-q to 81.6m at end-2009. Growth was driven in the main by strong take-up for the simPATI prepaid pack, which netted 1.1m new subs in 4Q09 in FY09. We estimate Telkomsel’s subscriber market share at circa 49% in 4Q09, a slight deterioration from 50% in 2008. The guidance is for mobile revenue to grow at high single digit in FY10, a slight decline in EBITDA margin and capex of around USD1.4bn.
Under review.
We are maintaining our NEUTRAL recommendation and target price pending
the conference call with management this morning. Given the disappointing numbers, we are likely to revise our target price downwards.
Telkom released its FY09 results yesterday. Its headline profit came in at IDR11.3bn on the back of revenue of IDR64.6bn, representing a 9.4% and 6.7% y-o-y growth respectively.
OUR TAKE
Numbers marred by higher cost and weak mobile revenue. Core FY09 profit, strippingoff
forex gains of IDR973bn, was 15% below our forecast and 14% under consensus estimate as ballooning costs in 4Q09 led to severe EBITDA margin erosion q-o-q by 12%-pts
to 46%. Operating cost surged 27% q-o-q, driven mainly by the 42% q-o-q rise in staff cost and operating and maintenance expenses (+37% q-o-q). Surprisingly, mobile revenue plunged 18% q-o-q from +7% q-o-q in 3Q09, a sharp divergence from the 12%-13% q-o-q growth posted by its 2 rivals, exerting further pressure on revenue share.
Improved data traction. Telkomsel, Telkom’s 65%-owned mobile subsidiary, posted
revenue growth of 12% y-o-y on the back of a 25% y-o-y growth (+15m) in its subs base.
Consistent with industry trend, Telkomsel’s data revenue grew a strong 20% y-o-y, eclipsing the high single digit growth in voice revenue, contributing 29% of overall mobile revenue. It added 1.9m subs in 4Q09 (+16.3m), driving total subs 2% higher q-o-q to 81.6m at end-2009. Growth was driven in the main by strong take-up for the simPATI prepaid pack, which netted 1.1m new subs in 4Q09 in FY09. We estimate Telkomsel’s subscriber market share at circa 49% in 4Q09, a slight deterioration from 50% in 2008. The guidance is for mobile revenue to grow at high single digit in FY10, a slight decline in EBITDA margin and capex of around USD1.4bn.
Under review.
We are maintaining our NEUTRAL recommendation and target price pending
the conference call with management this morning. Given the disappointing numbers, we are likely to revise our target price downwards.
Ciptadana ITMG - All positives priced in
FY09 result: Performing better
PT Indo Tambangraya Megah (ITMG) performed better than our expectations in 2009—booking a y-o-y increase in sales and net profit of 14.5% and 42.8%, respectively. The achievement is strongly supported by higher coal production and lower expenses. Coal produced was 21.4Mt (+21.1% y-o-y), slightly higher than management’s guidance for the year and our assumption of 18.6Mt. Realized FY09 ASP of USD 73.9/ton was inline with our assumption of USD 72.8/ton. The higher net income was supported by the company’s ability to control costs (operating costs down by 2.3% yoy) and forex gain which amounted to USD 4mn in 2009 compared to a forex loss of USD 18.0mn in 2008. With their performance last year, the company has decided to pay a dividend of USD 234.88mn off of their 2009 net income to their shareholders on May 19, 2010.
Some of 2010 coal production already priced-in
With coal output increased 20.9% yoy to reach 21.4Mt in 2009, ITMG is targeting a higher coal output of 23.0Mt in 2010. The additional tonnage is expected to come from Indominco East Block and Trubaindo. Off the target, so far 53% of the coal output has been priced in at USD 66 – 67/ton, 25% is index-linked, 8% is under negotiation, and only 14% of 2010 production is still un-priced. With a bigger portion of the un-priced part being higher calorific value coals, we expect average selling price in 2010 for the company to be at USD 69.5/ton.
Increasing contribution from Indominco East
Started its production since April 2009, Indominco East Block has produced a total of 1.9Mt of coal in FY09. The company is expecting to produce 5.0Mt from this site in 2010, contributing to the expected production growth of 7.5% yoy. Production from East Block will be boosted to 11Mtpa in 2015. We are projecting coal production of 22.8Mt in 2010, in-line with management’s forecast.
Upgrade TP to Rp 38,000/share; change recommendation to HOLD
With Indominco East Block expected to produce more, the Bontang terminal expansion and the power plant project to be completed this year—thus lowering cost—ITMG is ready for 2010. Using a DCF valuation with 11.4% WACC and 3.0% long-term growth rate, we derive our TP of Rp 38,000/share. Knowing the company has fine fundamentals, investors have been collecting the share, hence, the share price has risen 58.9% since our last report. Now trading at Rp 37,900/share, we believe all the positive developments are already reflected. HOLD.
PT Indo Tambangraya Megah (ITMG) performed better than our expectations in 2009—booking a y-o-y increase in sales and net profit of 14.5% and 42.8%, respectively. The achievement is strongly supported by higher coal production and lower expenses. Coal produced was 21.4Mt (+21.1% y-o-y), slightly higher than management’s guidance for the year and our assumption of 18.6Mt. Realized FY09 ASP of USD 73.9/ton was inline with our assumption of USD 72.8/ton. The higher net income was supported by the company’s ability to control costs (operating costs down by 2.3% yoy) and forex gain which amounted to USD 4mn in 2009 compared to a forex loss of USD 18.0mn in 2008. With their performance last year, the company has decided to pay a dividend of USD 234.88mn off of their 2009 net income to their shareholders on May 19, 2010.
Some of 2010 coal production already priced-in
With coal output increased 20.9% yoy to reach 21.4Mt in 2009, ITMG is targeting a higher coal output of 23.0Mt in 2010. The additional tonnage is expected to come from Indominco East Block and Trubaindo. Off the target, so far 53% of the coal output has been priced in at USD 66 – 67/ton, 25% is index-linked, 8% is under negotiation, and only 14% of 2010 production is still un-priced. With a bigger portion of the un-priced part being higher calorific value coals, we expect average selling price in 2010 for the company to be at USD 69.5/ton.
Increasing contribution from Indominco East
Started its production since April 2009, Indominco East Block has produced a total of 1.9Mt of coal in FY09. The company is expecting to produce 5.0Mt from this site in 2010, contributing to the expected production growth of 7.5% yoy. Production from East Block will be boosted to 11Mtpa in 2015. We are projecting coal production of 22.8Mt in 2010, in-line with management’s forecast.
Upgrade TP to Rp 38,000/share; change recommendation to HOLD
With Indominco East Block expected to produce more, the Bontang terminal expansion and the power plant project to be completed this year—thus lowering cost—ITMG is ready for 2010. Using a DCF valuation with 11.4% WACC and 3.0% long-term growth rate, we derive our TP of Rp 38,000/share. Knowing the company has fine fundamentals, investors have been collecting the share, hence, the share price has risen 58.9% since our last report. Now trading at Rp 37,900/share, we believe all the positive developments are already reflected. HOLD.
Jumat, 09 April 2010
JP Morgan - Asia FX Strategy: CNY Revaluation volume turns higher
Late Asian FX trading is seeing active trading on CNY revaluation speculation. The trigger for the move is a New York Times story, suggesting a CNY revaluation could be forthcoming in days (see link - http://www.nytimes.com/2010/04/09/business/global/09yuan.html?hp).
This is not too dissimilar with 2005 when a July 17 Financial Times story reported that the Bush administration was privately informing Senators that China would revalue in August. In reality, the CNY move followed four days later. Indeed, the exact timing of Beijing’s policy action will remain a guessing game.
Thus far, the market has reacted by buying Asian currencies in local markets that are still open namely INR and SGD. USD/INR has dropped from 44.65 prior to the news and fallen to around 44.40, after being met with suspected RBI action. USD/SGD fell from its intra-day high of 1.3995 to a low of 1.3942 and currently stands 110bps on the strong-side of the NEER band.
History has also demonstrated that the market can be very quick to take profit in the aftermath of a PBOC revaluation, as was also demonstrated on July 21, 2005. Indeed, it is not outside the realm of possibility that China could also widen its existing trading band of +/-0.5% to +/-1.0% to prompt some self-doubt to the speculative assertion of CNY being a one-way bet.
The 2005 case study also showed that KRW, SGD and TWD were the biggest gainers over the 4-week horizon that followed the initial 2.1% CNY revaluation – see table below. However, these gains failed to be sustained during the remainder of 2005 as concerns over rising energy prices and “over-tightening” action by the Fed worked against Asian revaluation trades and portfolio inflows.
This time around Asian policy makers are faced by a different dilemma. How to deal with potential asset inflation arising from “lower, for longer” interest rate policies among the G3. At the same time, energy prices are starting to break higher again. The most obvious answer appears to be regional policy normalization. Something that India and Malaysia has already engaged. Indeed, we believe China will engage in normalization this month with a 27bps hike to its 1yr working capital lending rate (currently at 5.31%) and then later follow with CNY appreciation in May, though this action could be brought forward as suggested by the latest media reports.
Given this clear difference between 2005 and 2010, the next question is which Asian currencies will benefit and correlate with this move over the year. There are two standard approaches to assessing this. The first is to look at the trade links as identified in chart 7 as the percentage of total trade with China. This shows Taiwan and Korea roughly neck-and-neck in terms at 20.34% and 19.6% respectively in terms of trade shares with China. Hong Kong, not shown in the chart is the highest at 47.5%. Thereafter, the trade exposures follow as India at 13.7%, Malaysia at 10.9% and Thailand at 10.10%. This would suggest a schematic ordering of Asian currencies that would appreciate in sympathy with CNY appreciation by descending rank of KRW, TWD, INR, MYR and THB.
The difficulty, however, is that differences in FX regimes and policies may obscure the transmission from CNY appreciation to Asian currency appreciation with the HKD currency board being an extreme example. This leads us to the second approach of looking at the empirical behavior with correlation analysis. The chart right shows the correlation of CNY spot and CNY 12M expectations with other Asian currency returns in the post July 21 2005 CNY revaluation period.
Generally, the orderings are the same between using spot and NDF CNY, though the NDF registers higher correlations as it is not constrained by the PBOC FX band of +/-0.5% around a daily reference fixing. The key point is that TWD, MYR and SGD appear to offer the best and most consistent proxy hedges for CNY appreciation. By contrast, KRW has been plagued by too much idiosyncratic risk, most notably in 2008 when its currency depreciated 28% in spot terms against USD.
This is not too dissimilar with 2005 when a July 17 Financial Times story reported that the Bush administration was privately informing Senators that China would revalue in August. In reality, the CNY move followed four days later. Indeed, the exact timing of Beijing’s policy action will remain a guessing game.
Thus far, the market has reacted by buying Asian currencies in local markets that are still open namely INR and SGD. USD/INR has dropped from 44.65 prior to the news and fallen to around 44.40, after being met with suspected RBI action. USD/SGD fell from its intra-day high of 1.3995 to a low of 1.3942 and currently stands 110bps on the strong-side of the NEER band.
History has also demonstrated that the market can be very quick to take profit in the aftermath of a PBOC revaluation, as was also demonstrated on July 21, 2005. Indeed, it is not outside the realm of possibility that China could also widen its existing trading band of +/-0.5% to +/-1.0% to prompt some self-doubt to the speculative assertion of CNY being a one-way bet.
The 2005 case study also showed that KRW, SGD and TWD were the biggest gainers over the 4-week horizon that followed the initial 2.1% CNY revaluation – see table below. However, these gains failed to be sustained during the remainder of 2005 as concerns over rising energy prices and “over-tightening” action by the Fed worked against Asian revaluation trades and portfolio inflows.
This time around Asian policy makers are faced by a different dilemma. How to deal with potential asset inflation arising from “lower, for longer” interest rate policies among the G3. At the same time, energy prices are starting to break higher again. The most obvious answer appears to be regional policy normalization. Something that India and Malaysia has already engaged. Indeed, we believe China will engage in normalization this month with a 27bps hike to its 1yr working capital lending rate (currently at 5.31%) and then later follow with CNY appreciation in May, though this action could be brought forward as suggested by the latest media reports.
Given this clear difference between 2005 and 2010, the next question is which Asian currencies will benefit and correlate with this move over the year. There are two standard approaches to assessing this. The first is to look at the trade links as identified in chart 7 as the percentage of total trade with China. This shows Taiwan and Korea roughly neck-and-neck in terms at 20.34% and 19.6% respectively in terms of trade shares with China. Hong Kong, not shown in the chart is the highest at 47.5%. Thereafter, the trade exposures follow as India at 13.7%, Malaysia at 10.9% and Thailand at 10.10%. This would suggest a schematic ordering of Asian currencies that would appreciate in sympathy with CNY appreciation by descending rank of KRW, TWD, INR, MYR and THB.
The difficulty, however, is that differences in FX regimes and policies may obscure the transmission from CNY appreciation to Asian currency appreciation with the HKD currency board being an extreme example. This leads us to the second approach of looking at the empirical behavior with correlation analysis. The chart right shows the correlation of CNY spot and CNY 12M expectations with other Asian currency returns in the post July 21 2005 CNY revaluation period.
Generally, the orderings are the same between using spot and NDF CNY, though the NDF registers higher correlations as it is not constrained by the PBOC FX band of +/-0.5% around a daily reference fixing. The key point is that TWD, MYR and SGD appear to offer the best and most consistent proxy hedges for CNY appreciation. By contrast, KRW has been plagued by too much idiosyncratic risk, most notably in 2008 when its currency depreciated 28% in spot terms against USD.
Mandiri Sekuritas MEDC: Ramping up reserves
Medco’s 2P reserves were up to 265mmboe in FY09 (from 183mmboe in FY08), as they have converted some 119mmboe in the Senoro gas field from contingent reserves. This lowered MEDC’s EV/2P valuation to US$3.5/boe. Besides that, Libya & Block A reserves of 176mmboe and 22mmboe will soon to be classified as 2P once they get the approval from NOC and the government. Once transferred, these will double their 2P reserves. Furthermore, MEDC have received the green light from GPC to further continue their exploration period. This brought a positive sentiment to MEDC. We upgrade our recommendation to Buy with a target price of Rp3,500/share, from Neutral.
Higher reserves as per FY09... MEDC have converted their Senoro Toili gas field contingent reserves to 2P in 2009. Note that the 2P reserves are around 119mmboe. This increases MEDC’s FY09 2P reserves to 265mmboe (+44.8% yoy). This lowered MEDC’s EV/2P valuation to currently US$3.5/boe.
… and plenty more to come. Aside from that, they are also in a process to convert the remaining contingent reserves such as Libya, Area 47 and Block A, Aceh of 176mmboe and 22mmboe, respectively. For Block A, MEDC are awaiting the PSC extension from the government. Note that there will be no major capex before the final investment decision is made. ! As for th e Libya asset, Great Socialist People Libyan Arab Jamahiriya – General People’s Committee (GPC) has been given a 1-year extension on the exploration period, starting April 2010. This means MEDC could drill 3 more exploration wells, thus will improve their chances to obtain commercialization approval from NOC. Once they get the approval, MEDC could convert their contingent reserves to 2P reserves. This would reflect EV/2P reserves of US$2.0/boe.
Upgrade to Buy. Despite lower-than-expected FY09 results, the above factors would bring positive impact on MEDC, after several project delays have dogged MEDC’s share price for some time. We also rolled over our DCF-calculation basis to 2010. This resulted in higher fair price of Rp3,500/share from Rp2,650/share. We assume average oil price in 2010 of US$70/bbl (vs average YTD of US$79/bbl). Currently MEDC is trading at EV/2P reserves of US$3.5/boe.
Higher reserves as per FY09... MEDC have converted their Senoro Toili gas field contingent reserves to 2P in 2009. Note that the 2P reserves are around 119mmboe. This increases MEDC’s FY09 2P reserves to 265mmboe (+44.8% yoy). This lowered MEDC’s EV/2P valuation to currently US$3.5/boe.
… and plenty more to come. Aside from that, they are also in a process to convert the remaining contingent reserves such as Libya, Area 47 and Block A, Aceh of 176mmboe and 22mmboe, respectively. For Block A, MEDC are awaiting the PSC extension from the government. Note that there will be no major capex before the final investment decision is made. ! As for th e Libya asset, Great Socialist People Libyan Arab Jamahiriya – General People’s Committee (GPC) has been given a 1-year extension on the exploration period, starting April 2010. This means MEDC could drill 3 more exploration wells, thus will improve their chances to obtain commercialization approval from NOC. Once they get the approval, MEDC could convert their contingent reserves to 2P reserves. This would reflect EV/2P reserves of US$2.0/boe.
Upgrade to Buy. Despite lower-than-expected FY09 results, the above factors would bring positive impact on MEDC, after several project delays have dogged MEDC’s share price for some time. We also rolled over our DCF-calculation basis to 2010. This resulted in higher fair price of Rp3,500/share from Rp2,650/share. We assume average oil price in 2010 of US$70/bbl (vs average YTD of US$79/bbl). Currently MEDC is trading at EV/2P reserves of US$3.5/boe.
Credit Suisse: LatAm Pulp - Paper - Bidding up pulp prices
Strong pulp pricing momentum to continue. Our previous price curve, in spite of our bullish stance, carried more moderate increases after a sharp recovery from pulp price trough. However, with roughly 9% of the pulp capacity idled due the unfortunate Chilean earthquake, pulp supply/demand prospects became even tighter. Thus, we are revising our curve for the short term.
Inventories should continue below normalized levels for longer. Taking into account the recent supply/demand developments, we estimate pulp inventories could reach 24/25 days of supply, down 4 days from Feb/2010 and about 8 days below normalized levels. Breaking it down, hardwood inventories could reach 28 days (-4 days), and softwood inventories 21 days (-3 days). We took into account (i) Chile ’s earthquake, (ii) poor weather conditions in the Northern Hemisphere, (iii) 16-day dock strike in Finland , and (iv) recent pulp mills restarts.
Increasing short-term pulp price estimates. We are revisiting our pulp price estimates to account for a tighter-than-expected pulp market in the short term.
In our view, pulp prices should continue on a upward trend over the next 2-3 months. BEKP price could reach $920/t in June/2010 (C&F Europe). Over 2H10, we estimate a pulp price correction of about $60/t as pulp supply starts to improve and a oversupplied paper market should partially curb papermaker’s ability to pass through higher fiber input costs, thus impacting end-user demand.
Upgrading estimates for Fibria and Suzano. We are increasing target price for Suzano to R$29/share (20% upside), from R$25/share previously, and for Fibria to R$34/share (12% downside), from R$32/share previously. Among the main changes to our estimates, we highlight (i) higher pulp prices for 2010 and 2011; (ii) mark-to-market 4Q09 results; and (iii) weaker BRL for 2010/2011, at R$1.8/USD, from R$1.7/USD. We maintain our outperform rating on Suzano and our neutral rating on Fibria. Suzano trades at 6.3x EV/Ebitda ’10, while Fibria trades at 8.2x EV/Ebitda ’10.
Inventories should continue below normalized levels for longer. Taking into account the recent supply/demand developments, we estimate pulp inventories could reach 24/25 days of supply, down 4 days from Feb/2010 and about 8 days below normalized levels. Breaking it down, hardwood inventories could reach 28 days (-4 days), and softwood inventories 21 days (-3 days). We took into account (i) Chile ’s earthquake, (ii) poor weather conditions in the Northern Hemisphere, (iii) 16-day dock strike in Finland , and (iv) recent pulp mills restarts.
Increasing short-term pulp price estimates. We are revisiting our pulp price estimates to account for a tighter-than-expected pulp market in the short term.
In our view, pulp prices should continue on a upward trend over the next 2-3 months. BEKP price could reach $920/t in June/2010 (C&F Europe). Over 2H10, we estimate a pulp price correction of about $60/t as pulp supply starts to improve and a oversupplied paper market should partially curb papermaker’s ability to pass through higher fiber input costs, thus impacting end-user demand.
Upgrading estimates for Fibria and Suzano. We are increasing target price for Suzano to R$29/share (20% upside), from R$25/share previously, and for Fibria to R$34/share (12% downside), from R$32/share previously. Among the main changes to our estimates, we highlight (i) higher pulp prices for 2010 and 2011; (ii) mark-to-market 4Q09 results; and (iii) weaker BRL for 2010/2011, at R$1.8/USD, from R$1.7/USD. We maintain our outperform rating on Suzano and our neutral rating on Fibria. Suzano trades at 6.3x EV/Ebitda ’10, while Fibria trades at 8.2x EV/Ebitda ’10.
Citigroup Indonesia Banks - Monetary Policy and Bank Credit
v Loan growth remains the priority — Bank Indonesia (BI) continues to focus on loan
growth as its Monetary Policy priority. It has kept the key interest rate unchanged
at a record low of 6.5%. The statement issued highlighted that growth in credit
remained slower than targeted. Its full-year inflation forecast is 4.8%, without any
administered price hikes. CIRA economists have reduced the 2010 rate hike call to
50bps this year to 7% (prev. 7.25%). Banks with a higher LDR, like BBRI and
BDMN, should benefit, while BBCA and BMRI will face pressure on asset yields.
v Loan growth trend — The BI statement mentions net increase in loans of
Rp6.25trn in Q1 CY10. As loans had contracted by Rp32trn in January 2010, this
works out to Rp38trn expansion in February and March. YTD loan growth is 0.4%
and 12M growth stands at 11%, against a BI target of 20% growth in 2010. Up to
January 2010, Consumer loan momentum remained strong, with 12M growth of
31%, followed by Investment loans at 11%, but Working Capital was weak at -4%.
Loans approvals had reached Rp202trn in January, or 14% of loans outstanding,
with a pickup in approvals for Working Capital Loans.
v Slower Q1 — One reason why BI may be concerned is that Rp6.25trn expansion in
Q1 CY10 is the third smallest expansion for a Q1 since 2004. In 2006 and 2009,
loans contracted in Q1, with FY loan growth only 14% and 10% respectively.
v Rate debate — No specific mention of lending rate, although BI alluded to the fact
that banks have been cutting deposit rates to bring down lending rates. Jakarta
Globe quoted Bank Mandiri and Busan Finance (2W financing company) that the
room to cut lending rate was limited. As per CIRA calculations, the weighted
average Lending-Deposit spread has been going up (up to January 2010) due to
improving mix (shift to consumer/Rp loans and from Time to Saving Deposits).
growth as its Monetary Policy priority. It has kept the key interest rate unchanged
at a record low of 6.5%. The statement issued highlighted that growth in credit
remained slower than targeted. Its full-year inflation forecast is 4.8%, without any
administered price hikes. CIRA economists have reduced the 2010 rate hike call to
50bps this year to 7% (prev. 7.25%). Banks with a higher LDR, like BBRI and
BDMN, should benefit, while BBCA and BMRI will face pressure on asset yields.
v Loan growth trend — The BI statement mentions net increase in loans of
Rp6.25trn in Q1 CY10. As loans had contracted by Rp32trn in January 2010, this
works out to Rp38trn expansion in February and March. YTD loan growth is 0.4%
and 12M growth stands at 11%, against a BI target of 20% growth in 2010. Up to
January 2010, Consumer loan momentum remained strong, with 12M growth of
31%, followed by Investment loans at 11%, but Working Capital was weak at -4%.
Loans approvals had reached Rp202trn in January, or 14% of loans outstanding,
with a pickup in approvals for Working Capital Loans.
v Slower Q1 — One reason why BI may be concerned is that Rp6.25trn expansion in
Q1 CY10 is the third smallest expansion for a Q1 since 2004. In 2006 and 2009,
loans contracted in Q1, with FY loan growth only 14% and 10% respectively.
v Rate debate — No specific mention of lending rate, although BI alluded to the fact
that banks have been cutting deposit rates to bring down lending rates. Jakarta
Globe quoted Bank Mandiri and Busan Finance (2W financing company) that the
room to cut lending rate was limited. As per CIRA calculations, the weighted
average Lending-Deposit spread has been going up (up to January 2010) due to
improving mix (shift to consumer/Rp loans and from Time to Saving Deposits).
Mandiri Sekuritas GGRM: Sustaining double-digit growth levels
Gudang Garam posted FY09 net profit of Rp3.5tn (+83.8%yoy, -5.9%qoq), in line with our estimates, yet 13% above consensus. This was largely due to improving margin thanks to the integration of its distribution arm, which also resulted in efficiency improvement in term of lower receivable and debt level by Rp1.1tn. The story is far from its end. The company still has growth potential in distribution arm modernization and integration. As an aggressive marketer with significant selling expenses ! in 4Q09 ( +149%qoq) and its plan to be the World Cup sponsor in Indonesian TV channel, double-digit earnings growth will spill through 2010-11. Maintain Buy.
FY09 results were in line with our estimates, but surpassed consensus. Gudang Garam posted FY09 revenue of Rp33.0tn (+9.0%yoy, +11.5%qoq). This, combined with margin improvement, translated into a net profit of Rp3.5tn (+83.8%yoy, -5.9%qoq) which was in line with our estimate, yet 13% above consensus. Profit margin grew from 6.2% in FY08 to 10.5% in FY09 due to additional margin from distributio! n activit ies as a result of distribution arm integration.
Operational efficiency. Distribution arm integration resulted in a series of operational efficiencies. Accounts receivable fell by Rp1.1tn (-50.5% yoy) so that debt could be reduced also by Rp1.1tn (-26.5%yoy). This resulted in FY09 net gearing of 10.7% vs20.6% in FY08. We estimate that the company will be in net cash position by 2012. A 24.6%yoy inventory increase of Rp3.3tn is tolerable as it is intended to expand national sales outlet coverage, and to accumulate excise tape at cheaper price before excise rate hike in 2010.
Sustainable double-digit growth. FY10 sales should entirely come from internal distributors, vs 86% in FY09 as GGRM completed distribution arm integration in the middle of 2009. Therefore, we estimate gross margin to increase from 21.7% in FY09 to 23.1% in FY10F. GGRM has only 60% ownership in distributors outside Java, meaning another room for further integration in the long term. In addition to margin growth potential, we also see that the company aggressively increased! marketin g efforts with 149%qoq selling expense increase in 4Q09, and its plan to be World Cup sponsor. We believe the company will reap the benefits of the aggressive marketing in mid to long term. Internal restructuring and modernization in distribution arms will also improve product availability, customer services, and marketing capabilities to support sales growth.
Maintain Buy. Aggressive marketing and operational improvement will benefit GGRM in the mid term and re-position it in comparable valuation with regional players. Therefore, we use PE-based valuation which results in TP of Rp30,000/share. We maintain our Buy stance on GGRM which currently is trading at PER10-11F of 13.0-11.4x, lower than peers of between 15.5-13.7x, respectively.
FY09 results were in line with our estimates, but surpassed consensus. Gudang Garam posted FY09 revenue of Rp33.0tn (+9.0%yoy, +11.5%qoq). This, combined with margin improvement, translated into a net profit of Rp3.5tn (+83.8%yoy, -5.9%qoq) which was in line with our estimate, yet 13% above consensus. Profit margin grew from 6.2% in FY08 to 10.5% in FY09 due to additional margin from distributio! n activit ies as a result of distribution arm integration.
Operational efficiency. Distribution arm integration resulted in a series of operational efficiencies. Accounts receivable fell by Rp1.1tn (-50.5% yoy) so that debt could be reduced also by Rp1.1tn (-26.5%yoy). This resulted in FY09 net gearing of 10.7% vs20.6% in FY08. We estimate that the company will be in net cash position by 2012. A 24.6%yoy inventory increase of Rp3.3tn is tolerable as it is intended to expand national sales outlet coverage, and to accumulate excise tape at cheaper price before excise rate hike in 2010.
Sustainable double-digit growth. FY10 sales should entirely come from internal distributors, vs 86% in FY09 as GGRM completed distribution arm integration in the middle of 2009. Therefore, we estimate gross margin to increase from 21.7% in FY09 to 23.1% in FY10F. GGRM has only 60% ownership in distributors outside Java, meaning another room for further integration in the long term. In addition to margin growth potential, we also see that the company aggressively increased! marketin g efforts with 149%qoq selling expense increase in 4Q09, and its plan to be World Cup sponsor. We believe the company will reap the benefits of the aggressive marketing in mid to long term. Internal restructuring and modernization in distribution arms will also improve product availability, customer services, and marketing capabilities to support sales growth.
Maintain Buy. Aggressive marketing and operational improvement will benefit GGRM in the mid term and re-position it in comparable valuation with regional players. Therefore, we use PE-based valuation which results in TP of Rp30,000/share. We maintain our Buy stance on GGRM which currently is trading at PER10-11F of 13.0-11.4x, lower than peers of between 15.5-13.7x, respectively.
CLSA Bank Mandiri (BMRI IJ) update from Bret
At the IDX roundtable today Bank Mandiri's CFO Pahala Mansury was quoted as saying that Mandiri is planning a Rp2.0tn rights issue in the second half of 2010.
Dissecting this for what really was meant to be said and implied:
1) There has been no new progress with parliamentary approval of a rights issue.
2) If there is a rights issue, it would be a minimum of Rp2.0tn and likely much higher, as a rights issue less than Rp8.0tn would not increase the free float over 40% to trigger the 5% tax break that Mandiri is aiming for.
The answer was in response to a question posed to Mandiri's CFO, it was not information that he disclosed of his own volition. This should have no impact on shares today in trading if interpreted as Pahala was implying.
It is evident that Mandiri wants to do a rights issue to dilute RI's ownership stake. That said, the bank believes approval may not occur until 2011. Meaning a sub debt offering of Rp 2.0-3.0tn is more than likely to occur in 2H10.
We maintain a buy rating on bank mandiri shares and tp of Rp5800.
Dissecting this for what really was meant to be said and implied:
1) There has been no new progress with parliamentary approval of a rights issue.
2) If there is a rights issue, it would be a minimum of Rp2.0tn and likely much higher, as a rights issue less than Rp8.0tn would not increase the free float over 40% to trigger the 5% tax break that Mandiri is aiming for.
The answer was in response to a question posed to Mandiri's CFO, it was not information that he disclosed of his own volition. This should have no impact on shares today in trading if interpreted as Pahala was implying.
It is evident that Mandiri wants to do a rights issue to dilute RI's ownership stake. That said, the bank believes approval may not occur until 2011. Meaning a sub debt offering of Rp 2.0-3.0tn is more than likely to occur in 2H10.
We maintain a buy rating on bank mandiri shares and tp of Rp5800.
CLSA downside risk to national rice output?
It seems like our research assistant Mita has developed a genuine interest in farming, honing the craft from our in house soft commodity guru Wilianto. She talked to Indonesian Farmer Association and found out that the association predicts around 3m ha farmlands would be damaged by the early dry season. They are also looking at around 9m tons of production loss in 2010, or 13.8% lower than 2009 level.
On the contrary, Central Statistics Bureau is still forecasting Indonesia to produce up to 64.9m tons of un-husked rice in 2010, or up by 0.9% YoY.
In agreement with the farmer association, the Meteorology, Climatology, and Geophysics Agency (BMKG) forecast early dry season may hit some parts of the main rice-producing areas. Around 1.4m ha of rice field or 11.5% of the total harvested areas could suffer from longer drought. Some 130,356ha would have excessive rain fall. Indonesia may lose around 7.15mn tons of paddy or 11% lower from 2009’s production.
This could obviously have potential implication to inflation. Indonesia needs to fix its irrigation management and distributing high quality rice seeds to deal with the problem. Securing fertilizer is another challenge.
All of the above underpins our bullish soft commodity theme. We like plantation sector and top picks in the sector are London Sumatra (LSIP IJ) and if you don’t mind smaller cap, BW Plantation (BWPT IJ) offers good value.
On the contrary, Central Statistics Bureau is still forecasting Indonesia to produce up to 64.9m tons of un-husked rice in 2010, or up by 0.9% YoY.
In agreement with the farmer association, the Meteorology, Climatology, and Geophysics Agency (BMKG) forecast early dry season may hit some parts of the main rice-producing areas. Around 1.4m ha of rice field or 11.5% of the total harvested areas could suffer from longer drought. Some 130,356ha would have excessive rain fall. Indonesia may lose around 7.15mn tons of paddy or 11% lower from 2009’s production.
This could obviously have potential implication to inflation. Indonesia needs to fix its irrigation management and distributing high quality rice seeds to deal with the problem. Securing fertilizer is another challenge.
All of the above underpins our bullish soft commodity theme. We like plantation sector and top picks in the sector are London Sumatra (LSIP IJ) and if you don’t mind smaller cap, BW Plantation (BWPT IJ) offers good value.
DBS Medco Energi: Buy; Rp2,675; TP Rp3,670; MEDC IJ
To spend US$40mn on oil field exploration in Libya
Medco plans to spend US$40mn on exploration activities on Area 47 oil block in Libya this year. The company said that it would focus on appraisal and exploration activities including drilling three more exploration wells in addition to the 21 wells they have already drilled. The drilling program also includes the completion and testing of three previously drilled wells which were suspended. Area 47 is estimated to have contingent reserves of 307 million barrel of oil.
Meanwhile, Medco’s oil production in Indonesia fell to 35,000 bpd (barrels per day) in 2009 from 45,000 bpd in 2008. Its gas production also fell from 108.1 BBTUD (billion british thermal units per day) in 2009 to 104.3 BBTUD in 2008.
Medco plans to spend US$40mn on exploration activities on Area 47 oil block in Libya this year. The company said that it would focus on appraisal and exploration activities including drilling three more exploration wells in addition to the 21 wells they have already drilled. The drilling program also includes the completion and testing of three previously drilled wells which were suspended. Area 47 is estimated to have contingent reserves of 307 million barrel of oil.
Meanwhile, Medco’s oil production in Indonesia fell to 35,000 bpd (barrels per day) in 2009 from 45,000 bpd in 2008. Its gas production also fell from 108.1 BBTUD (billion british thermal units per day) in 2009 to 104.3 BBTUD in 2008.
JP Morgan - Indika: the most attractively valued Indo coal stock ex-Bumi
Back of the envelope calculation on Indika's earnings potential and a meeting with its management suggest a further 30% share price upside, despite the rally already seen in the past several days. Potentially, INDY is now the most attractively priced stock within the Indo coal universe ex-Bumi (a special situation due to market risk aversion towards Bakries), on P/E methodology. JPMorgan research offers no coverage on the name. I have attached my back-of-the-envelope calculation on INDY in excel format in this e-mail. Key findings:
1. INDY received US$129mn dividend income from coal subsidiary Kideco (46% owned) based on FY09 (ending Dec) performance. Compared to INDY's market cap of US$1.66bn, the dividend income alone implies an FY09 P/E ratio of 12.8x, cheap compared to its peers.
2. Accounting one-offs have masked the true profitability profile for INDY. Reported net income for FY09 was only Rp725bn (US$80mn), much lower than the US$129mn dividend income from Kideco. Combined one-offs would total to Rp551bn (US$61mn), including asset and bad debt write-offs and f/x loss.
3. The US$98/ton thermal coal settlement price for JFY11 and Kideco's volume target of 29mn tons for FY10 (vs. 24.8mn tons for FY09) would mean that dividend income from Kideco may grow 37% to around US$170mn in FY10. Assuming zero earnings and equity value contribution from INDY's other subsidiaries (Tripatra, Petrosea, Cirebon energy, Santan), the implied FY10 P/E is just 10.0x, 15-20% cheaper compared to its peers.
4. INDY has around US$75mn net cash position as of March 2010, while subsidiary Kideco is (almost) debt free. Other subsidiaries Tripatra, Petrosea, and Cirebon energy combined could worth around US$288mn on equity value. We have ignored the value on exploration assets and Santan Coal, to keep things simple.
5. If we assign a fair FY10 P/E multiple of 12x for Kideco, and add the back-of-the-envelope value estimates for other subsidiaries, we would arrive at around Rp4300 per share fair value for INDY.
6. Kideco has 579mn tons in reserves (160mn proved and 419mn probable), and 1.14bn tons in resources.
Why the investment opportunity on INDY?
>> Not a well covered stock. Overly conservative estimates by those who cover the stock.
>> Unproven company structure, with only 46% stake in key asset Kideco. But the FY09 dividend policy serves as another confirmation that flow of cash/profit from Kideco to INDY is not an issue, adding to the track record of >80% dividend payout in the last 5 years.
>> Write-offs and accounting complexity during take-over process of Petrosea. Access to company management has also been difficult due to blackout periods in FY09.
1. INDY received US$129mn dividend income from coal subsidiary Kideco (46% owned) based on FY09 (ending Dec) performance. Compared to INDY's market cap of US$1.66bn, the dividend income alone implies an FY09 P/E ratio of 12.8x, cheap compared to its peers.
2. Accounting one-offs have masked the true profitability profile for INDY. Reported net income for FY09 was only Rp725bn (US$80mn), much lower than the US$129mn dividend income from Kideco. Combined one-offs would total to Rp551bn (US$61mn), including asset and bad debt write-offs and f/x loss.
3. The US$98/ton thermal coal settlement price for JFY11 and Kideco's volume target of 29mn tons for FY10 (vs. 24.8mn tons for FY09) would mean that dividend income from Kideco may grow 37% to around US$170mn in FY10. Assuming zero earnings and equity value contribution from INDY's other subsidiaries (Tripatra, Petrosea, Cirebon energy, Santan), the implied FY10 P/E is just 10.0x, 15-20% cheaper compared to its peers.
4. INDY has around US$75mn net cash position as of March 2010, while subsidiary Kideco is (almost) debt free. Other subsidiaries Tripatra, Petrosea, and Cirebon energy combined could worth around US$288mn on equity value. We have ignored the value on exploration assets and Santan Coal, to keep things simple.
5. If we assign a fair FY10 P/E multiple of 12x for Kideco, and add the back-of-the-envelope value estimates for other subsidiaries, we would arrive at around Rp4300 per share fair value for INDY.
6. Kideco has 579mn tons in reserves (160mn proved and 419mn probable), and 1.14bn tons in resources.
Why the investment opportunity on INDY?
>> Not a well covered stock. Overly conservative estimates by those who cover the stock.
>> Unproven company structure, with only 46% stake in key asset Kideco. But the FY09 dividend policy serves as another confirmation that flow of cash/profit from Kideco to INDY is not an issue, adding to the track record of >80% dividend payout in the last 5 years.
>> Write-offs and accounting complexity during take-over process of Petrosea. Access to company management has also been difficult due to blackout periods in FY09.
Berau plans US$600mn bond issue
PT Berau Coal Energy plans to issue global bonds worth US$600mn, with interest at level around of 7%. Around 50% of the fund will be used for debt repayment and another US$300mn for capex. Berau also plans to do IPO next year. This year the company targets coal production to reach 17.9Mt(+23.4%yoy) and 21.0Mt in 2011
ANTM and PTBA encouraged forming JV in Freeport
ANTM and PTBA has been encouraged forming joint ventures in order to buy 9.36% ownership in PT Indocopper Investama equivalent to US$1bn. Indocopper is a subsidiary of Freeport McMoran Copper & Gold Inc, which owns 81.28% ownership of Freeport Indonesia. This suggestion came from the Minister of State Owned Enterprises.
Mandiri Sekuritas Auto Sector: Honda overtakes Yamaha in March10 2-wheeler unit sales
Based on initial AISI data, March motor-cycle sales saw Astra’s Honda wholesale sales at some 291k units (+20%yoy), thus outmatching its main competitor Yamaha which posted units sales of 269k units. Thus as of 3M10, total domestic unit sales has amounted to some 1.65mn units (+35%yoy), equivalent to about 27% of our FY10F forecast of 6.2mn unit sales. Despite Honda’s performance in March, Yamaha remains the market leader in 1Q10 with 759k unit sold (46.1% market share), followed closely by Honda (750k units sold with market share of 45.6% market share).
Kamis, 08 April 2010
Mandiri Sekuritas PGAS: Gone are the catalysts
What PGAS reported in its FY09 results was history, which was less important for investors than the lingering uncertainties over the prospects of recovery in the gas supply from Conoco Phillips (CoPhi), its ability to continue controlling its distribution networks and securing large new gas supply. On the short term, we do not think the problem with the dwindling gas flow from CoPhi can be remedied. Therefore, we s! ee next c atalysts are still far away with limited visibility. Hence, our Neutral recommendation. At Rp4,225/share, PGAS is trades at 19.2x PER10F and 18.1x PER11F, a premium to market PER10F and PER11F of 16.4x, and 13.6x respectively. As the 2010 earnings will no longer get a boost from huge forex gains while gains from higher tariff will be mitigated by stronger rupiah and lower volume, current valuation already reflect a premium for its defensiveness.
West Java floating terminal (FSRT) provides PGAS with limited upside. The arrangement with Pertamina is to act as a gas merchant for 11.75Mt of gas for 10-11 years (1 Mt = 120-130 MMSCFD) from Total (Mahakam Block). For the additional supply (around 200 MMSCFD), PGAS will act as a toll operator. In North Sumatera, which is 100% PGAS, PGAS will act as a gas merchant. The upside for West Java FSRT where PGAS holds a 40% stake is limited. Those projects are expected to come on stream in 2012.
Another big supply for current network can only materialize in 2-3 years. Fields like Suban III CoPhi whose POD (plan of development) is still being evaluated by BP Migas needs 2-3 years to develop post its approval. In 2010-2012, PGAS can only expect additional 50 MMSCFD from Husky.
Therefore we see limited catalyst on the horizon. PGAS with its huge cash position (Rp6.6tn by end FY09) are looking to have a strategic stakes in two gas fields with the expectation of owning its offtake. It is unclear how much will be obtained from these two and the timeframe of the executions. With limited visibility and negative earnings growth in 2010 due to less forex gains and the rupiah’s appreciation, we are keeping our Neutral recommendation with Rp4,650 target price.
West Java floating terminal (FSRT) provides PGAS with limited upside. The arrangement with Pertamina is to act as a gas merchant for 11.75Mt of gas for 10-11 years (1 Mt = 120-130 MMSCFD) from Total (Mahakam Block). For the additional supply (around 200 MMSCFD), PGAS will act as a toll operator. In North Sumatera, which is 100% PGAS, PGAS will act as a gas merchant. The upside for West Java FSRT where PGAS holds a 40% stake is limited. Those projects are expected to come on stream in 2012.
Another big supply for current network can only materialize in 2-3 years. Fields like Suban III CoPhi whose POD (plan of development) is still being evaluated by BP Migas needs 2-3 years to develop post its approval. In 2010-2012, PGAS can only expect additional 50 MMSCFD from Husky.
Therefore we see limited catalyst on the horizon. PGAS with its huge cash position (Rp6.6tn by end FY09) are looking to have a strategic stakes in two gas fields with the expectation of owning its offtake. It is unclear how much will be obtained from these two and the timeframe of the executions. With limited visibility and negative earnings growth in 2010 due to less forex gains and the rupiah’s appreciation, we are keeping our Neutral recommendation with Rp4,650 target price.
Am Capital MEDC Higher visibility of projects vs timely reward Not rate
During our visit to Medco Energi Internasional (MEDC) yesterday, we focused on the commercialization issue of its seven major projects both domestically and abroad. Road blocks are timely negotiations with the country’s regulator or customer, M&A, change in exploration activity due to new discovery, and price of oil.
Of the seven major projects, only South Sumatra-based Singa gas field (MEDC: 74.1%) should contribute earnings this year thanks to a Gas Sales Agreement (GSA) signed on December 4, 2009, with Perusahaan Gas Negara (PGAS). MEDC will start gas supply, up to 50mmbtu, by mid-2010 at a price of US$4.3/mmcfd. We note Singa field was discovered in May 1997.
The Libya 47 Block (MEDC: 50%) may see oil reserves’ commercialization delay up to 2014 following: (1) Share acquisition of Verenex Energy by Libyan Government-owned entity; and (2) Wider exploration coverage owing to discovery of gas deposits (about one-third of the block’s estimated resources). This may bring potential upside of natural gas sales to the European market once the gas is commercialized.
The Rimau Enhanced Oil Recovery (EOR) project of 46mmboe now seems doable with price of crude oil at US$80 level. Still, MEDC may need pilot project running up to two years prior to starting the EOR project. Hence, this may commence operation from 2012-13 under assumption of: (a) A successful pilot project; and (b) Crude oil prices staying above US$70 per barrel.
On the gas front, development of gas prospective Block A (MEDC: 41.67%) is pending extension of a PSC contract which will expire on 2011 albeit a GSA with Pupuk Iskandar Muda and PLN at favorable prices of US$5.0/mmbtu and US$5.3/mmbtu, respectively. If the contract extension were to be granted this year, MEDC may need 12-24 months for project start up.
Larger gas field, Senoro (MEDC: 50%), is awaiting the Government’s final decision on its downstream project: the Donggi-Senoro LNG (DS LNG) as gas sales market is yet to be determined. According to MEDC, gas pricing for export is offered at US$6.16/mmbtu on the JCC of US$70/barrel. If decision were to be finalized this year, time of 2-3 years may be needed for developing the block and plant construction.
Lastly, the 330MW Sarulla geothermal power plant is fronting a price re-negotiation with PLN given rising project cost from below US$500mn to more than US$800m. The power plant may be constructed in three stages and each stage needs 24 months to complete.
All said, rewards from the seven major projects are timely albeit higher visibility of project. Valuation calls for 2010-11F PE of 10.3-6.5x while the share price upped 4.1% YTD versus JCI’s 13.9% - at a time when crude oil prices bounced back to pass US$80/barrel. Oil and gas prices may surprise FY10 earnings on the upside, with volume and projects’ commercialization delays on the downside.
Of the seven major projects, only South Sumatra-based Singa gas field (MEDC: 74.1%) should contribute earnings this year thanks to a Gas Sales Agreement (GSA) signed on December 4, 2009, with Perusahaan Gas Negara (PGAS). MEDC will start gas supply, up to 50mmbtu, by mid-2010 at a price of US$4.3/mmcfd. We note Singa field was discovered in May 1997.
The Libya 47 Block (MEDC: 50%) may see oil reserves’ commercialization delay up to 2014 following: (1) Share acquisition of Verenex Energy by Libyan Government-owned entity; and (2) Wider exploration coverage owing to discovery of gas deposits (about one-third of the block’s estimated resources). This may bring potential upside of natural gas sales to the European market once the gas is commercialized.
The Rimau Enhanced Oil Recovery (EOR) project of 46mmboe now seems doable with price of crude oil at US$80 level. Still, MEDC may need pilot project running up to two years prior to starting the EOR project. Hence, this may commence operation from 2012-13 under assumption of: (a) A successful pilot project; and (b) Crude oil prices staying above US$70 per barrel.
On the gas front, development of gas prospective Block A (MEDC: 41.67%) is pending extension of a PSC contract which will expire on 2011 albeit a GSA with Pupuk Iskandar Muda and PLN at favorable prices of US$5.0/mmbtu and US$5.3/mmbtu, respectively. If the contract extension were to be granted this year, MEDC may need 12-24 months for project start up.
Larger gas field, Senoro (MEDC: 50%), is awaiting the Government’s final decision on its downstream project: the Donggi-Senoro LNG (DS LNG) as gas sales market is yet to be determined. According to MEDC, gas pricing for export is offered at US$6.16/mmbtu on the JCC of US$70/barrel. If decision were to be finalized this year, time of 2-3 years may be needed for developing the block and plant construction.
Lastly, the 330MW Sarulla geothermal power plant is fronting a price re-negotiation with PLN given rising project cost from below US$500mn to more than US$800m. The power plant may be constructed in three stages and each stage needs 24 months to complete.
All said, rewards from the seven major projects are timely albeit higher visibility of project. Valuation calls for 2010-11F PE of 10.3-6.5x while the share price upped 4.1% YTD versus JCI’s 13.9% - at a time when crude oil prices bounced back to pass US$80/barrel. Oil and gas prices may surprise FY10 earnings on the upside, with volume and projects’ commercialization delays on the downside.
BNP Paribas Jasa Marga: Key Takeaways of Analyst Meeting
Price 1,800, TP 2,300, Mkt cap $1,358m, Avg t/o $1.7m
2010E: Rec EPS 143, P/E 12.6, P/B 1.5, ROE 12.8, Yld 2.7
2011E: Rec EPS 145, P/E 12.4, P/B 1.4, ROE 12.0, Yld 2.8
Macro and Other News
During the analyst luncheon Jasa Marga explained the proposed regulation that will have positive impact on the development of infrastructure projects.
§ The government plans to speed up the development of infrastructure programmes in the future to support the expected higher economic growth, especially in Java island where most of the toll roads and power plants are to be built.
§ Currently the government has provided land capping and revolving funds for land acquisition for toll road projects. Land capping provides investors maximum cost overrun of 10% on top of the agreed land acquisition cost for a project while additional cost will be born by the government. Revolving funds are the funds provided by the government to acquire land (with limitation for each project) and payable to the government (with small interest) when all 100% of the land is acquired.
§ Land acquisition remains the major hurdle for most projects as land price needs to be negotiated with land owner based on the property tax value. Although there is a regulation that revokes the land rights on projects for public interests, the revocation can only take place when there is transaction and hand-over of the land, for which no time limit is set. This thus takes ages for land acquisition alone given the lengthy negotiation process.
§ The government will propose to the parliament to improve the ruling, which will regulate:
a. Land price for the projects to be determined by appointed independent appraiser based on fair market price with no room for negotiation. If the land owners do not agree, they may choose to submit the objection to the court within 14 days.
b. The revocation of land rights for the projects is either upon hand-over/transaction or based on court verdict within a fixed time limit of 30 days after the submission of the case.
c. If the court decides that the land price should be higher than the appraised price, investors will then have to pay higher price (with land capping remains valid).
d. Compensation of the land for public interests can either be in cash (mostly) or relocation into other area.
The proposed revised regulation, expected to be passed by the parliament in 2H10, is positive for the future infrastructure projects with more certainty for the project construction. Once 75% of the land is acquired (this maybe reduced to 51%) the project can start while the funds for the remaining unpaid land are placed under the court’s custody. There is also a plan for the government to acquire the land for infrastructure projects first while investors will only have to concentrate on the construction.
2010E: Rec EPS 143, P/E 12.6, P/B 1.5, ROE 12.8, Yld 2.7
2011E: Rec EPS 145, P/E 12.4, P/B 1.4, ROE 12.0, Yld 2.8
Macro and Other News
During the analyst luncheon Jasa Marga explained the proposed regulation that will have positive impact on the development of infrastructure projects.
§ The government plans to speed up the development of infrastructure programmes in the future to support the expected higher economic growth, especially in Java island where most of the toll roads and power plants are to be built.
§ Currently the government has provided land capping and revolving funds for land acquisition for toll road projects. Land capping provides investors maximum cost overrun of 10% on top of the agreed land acquisition cost for a project while additional cost will be born by the government. Revolving funds are the funds provided by the government to acquire land (with limitation for each project) and payable to the government (with small interest) when all 100% of the land is acquired.
§ Land acquisition remains the major hurdle for most projects as land price needs to be negotiated with land owner based on the property tax value. Although there is a regulation that revokes the land rights on projects for public interests, the revocation can only take place when there is transaction and hand-over of the land, for which no time limit is set. This thus takes ages for land acquisition alone given the lengthy negotiation process.
§ The government will propose to the parliament to improve the ruling, which will regulate:
a. Land price for the projects to be determined by appointed independent appraiser based on fair market price with no room for negotiation. If the land owners do not agree, they may choose to submit the objection to the court within 14 days.
b. The revocation of land rights for the projects is either upon hand-over/transaction or based on court verdict within a fixed time limit of 30 days after the submission of the case.
c. If the court decides that the land price should be higher than the appraised price, investors will then have to pay higher price (with land capping remains valid).
d. Compensation of the land for public interests can either be in cash (mostly) or relocation into other area.
The proposed revised regulation, expected to be passed by the parliament in 2H10, is positive for the future infrastructure projects with more certainty for the project construction. Once 75% of the land is acquired (this maybe reduced to 51%) the project can start while the funds for the remaining unpaid land are placed under the court’s custody. There is also a plan for the government to acquire the land for infrastructure projects first while investors will only have to concentrate on the construction.
CLSA JCI record high, Astra cementing its new crown
The JCI broke its all time record high and closed at 2,887 yesterday. Astra International (ASII IJ) continues to break out, setting new record high and cementing its position as the new king in the market – now the largest publicly traded stock with US$20.9bn market cap. BCA (BBCA IJ) is also following ASII’s lead by repeatedly breaking its own all time high share price at Rp5,750 yesterday. Newsflow continues to be positive – latest inflation numbers are benign; the Rupiah is the 3rd best performing currency in Asia, forex reserve at US$71bn is anther record high, and perhaps most importantly -- political stability with President SBY remaining highly popular.
It is also encouraging to see that the market leaders are companies with strong corporate governance, solid balance sheets, and conservative management. No need too be overly creative. Stick to basics - These companies are just focusing on being the best in their respective markets and creating value for shareholders. Like strategist Chris Wood said “Do not invest in something that cannot be explained in a single sentence”
On a separate note, last week we attended a luncheon where the CEO of state-owned power company PLN, Dahlan Iskan was key speaker. Dahlan has an impressive background. He started as a journalist and founded the Jawa Post which he led to become the third-most circulated newspaper in the nation. Dahlan also controlled independent power producer (IPP) in Sulawesi before agreeing to head the PLN just three months ago.
Dahlan certainly has his work cut out for him. PLN has barely made any profit for a long time. The politics of the organization make it difficult to implement reform. And interestingly, PLN’s own labor union held demonstrations rejecting him for the top post just before he even started the job. So for the first time in the history of the SOE, as CEO, Mr Dahlan was given the authority to select his own Board of Directors (BOD). The first thing he quickly changed: streamlined decision making process (does not need approval of the whole BOD). He rejects the use of a special elevator reserved for CEO, moved to a smaller office and has an open door policy.
With Indonesia having a low electrification ratio of 65% and rolling power blackouts frequently experienced in the region, Mr. Dahlan’s immediate goal is to eliminate the black outs in major cities by June 2010. Indeed, I recently visited Medan in North Sumatera and learned that unscheduled power blackouts have stopped since Dahlan came aboard PLN. He replaced the regional PLN head there and business people in the city have noticed a more responsive team.
One of the things Dahlan emphasized last week was the chronic need for gas. If PLN can get the much needed gas (an additional 1000mmscfd – more than PGAS current distribution volumes), the company would save as much as US$1.5bn per annum! And unlike his predecessors, Dahlan is also willing to pay for it “We have to face the new reality that gas prices will be higher.” - and has assumed new gas price to be at US$9/mmbtu (currently around US$5.5/mmbtu) in PLN’s budget.
Nevertheless, the recent diversion of Conoco gas volume to Chevron (instead to PGAS) has put downward pressure on the stock. This is mostly mitigated by two more positive, also recent developments such as 1) average gas price hike by 18% and 2) more gas volumes from Medco & Pertamina (about 40mmscfd) – Swati estimates that in a worse case scenario (permanent decrease in gas volumes from Conoco + 18% price hike + additional gas volumes from Medco and Pertamina), the impact on earnings this year is around flat to -4%. In light of the very tight gas supply, we believe that the Conoco gas issue will be resolved.
Trading wise, PGAS has been a laggard YTD compared to the other ten largest stock (market cap wise). At 11.8x 2011 earnings PGAS is one of the cheapest big cap stock commanding a stunning 59% ROAE. BUY.
It is also encouraging to see that the market leaders are companies with strong corporate governance, solid balance sheets, and conservative management. No need too be overly creative. Stick to basics - These companies are just focusing on being the best in their respective markets and creating value for shareholders. Like strategist Chris Wood said “Do not invest in something that cannot be explained in a single sentence”
On a separate note, last week we attended a luncheon where the CEO of state-owned power company PLN, Dahlan Iskan was key speaker. Dahlan has an impressive background. He started as a journalist and founded the Jawa Post which he led to become the third-most circulated newspaper in the nation. Dahlan also controlled independent power producer (IPP) in Sulawesi before agreeing to head the PLN just three months ago.
Dahlan certainly has his work cut out for him. PLN has barely made any profit for a long time. The politics of the organization make it difficult to implement reform. And interestingly, PLN’s own labor union held demonstrations rejecting him for the top post just before he even started the job. So for the first time in the history of the SOE, as CEO, Mr Dahlan was given the authority to select his own Board of Directors (BOD). The first thing he quickly changed: streamlined decision making process (does not need approval of the whole BOD). He rejects the use of a special elevator reserved for CEO, moved to a smaller office and has an open door policy.
With Indonesia having a low electrification ratio of 65% and rolling power blackouts frequently experienced in the region, Mr. Dahlan’s immediate goal is to eliminate the black outs in major cities by June 2010. Indeed, I recently visited Medan in North Sumatera and learned that unscheduled power blackouts have stopped since Dahlan came aboard PLN. He replaced the regional PLN head there and business people in the city have noticed a more responsive team.
One of the things Dahlan emphasized last week was the chronic need for gas. If PLN can get the much needed gas (an additional 1000mmscfd – more than PGAS current distribution volumes), the company would save as much as US$1.5bn per annum! And unlike his predecessors, Dahlan is also willing to pay for it “We have to face the new reality that gas prices will be higher.” - and has assumed new gas price to be at US$9/mmbtu (currently around US$5.5/mmbtu) in PLN’s budget.
Nevertheless, the recent diversion of Conoco gas volume to Chevron (instead to PGAS) has put downward pressure on the stock. This is mostly mitigated by two more positive, also recent developments such as 1) average gas price hike by 18% and 2) more gas volumes from Medco & Pertamina (about 40mmscfd) – Swati estimates that in a worse case scenario (permanent decrease in gas volumes from Conoco + 18% price hike + additional gas volumes from Medco and Pertamina), the impact on earnings this year is around flat to -4%. In light of the very tight gas supply, we believe that the Conoco gas issue will be resolved.
Trading wise, PGAS has been a laggard YTD compared to the other ten largest stock (market cap wise). At 11.8x 2011 earnings PGAS is one of the cheapest big cap stock commanding a stunning 59% ROAE. BUY.
CIMB Jasa Marga Quick takes - Unleashing potential
(JSMR IJ / JSMR.JK, OUTPERFORM - Maintained, Rp1,800 - Tgt. Rp2,500, Transport Infrastructure)
Reiterate Outperform on Jasa Marga with a higher target price of Rp2,500 (previously Rp2,250), still based on DCF valuation (WACC 11.7-12.9%). The company held an analysts' meeting after its FY09 results yesterday. We raise our earnings forecasts by 10.7% and 5.3% for FY10-11 on the back of lower assumptions for other expenses while maintaining our operating-margin assumptions. Consequently, we raise our DCF-based target price to Rp2,500, now implying 14.9x CY11 earnings and 7.6x CY11 EBITDA. We see two catalysts for the stock: 1) further land-clearing de-regulations; and 2) lower cost of funds.
Reiterate Outperform on Jasa Marga with a higher target price of Rp2,500 (previously Rp2,250), still based on DCF valuation (WACC 11.7-12.9%). The company held an analysts' meeting after its FY09 results yesterday. We raise our earnings forecasts by 10.7% and 5.3% for FY10-11 on the back of lower assumptions for other expenses while maintaining our operating-margin assumptions. Consequently, we raise our DCF-based target price to Rp2,500, now implying 14.9x CY11 earnings and 7.6x CY11 EBITDA. We see two catalysts for the stock: 1) further land-clearing de-regulations; and 2) lower cost of funds.
CLSA Mortgage Rate Survey
CLSA Jakarta surveyed 8 major banks and learned that most of the over the counter rates have fallen to below 10%. These are low rates by Indonesian standards. We believe that prolonged low rates will help fueling demand for property in Indonesia.
The 10Y bond yield chart below highlights that the rupiah rates are trending down, contrary to the rising US$ rate in the US. There is little pressure on Bank Indonesia to hike interest rates and Bank Indonesia can also be relaxed because rupiah appreciation is helping to curb imported price pressures. As noted by our economist Tony Nafte, our seasonally adjusted series shows inflation also moderating in QoQ terms to 3.8% saar in March from around 5% in the first two months of the year. Moreover, at currently 6.5%, Indonesian benchmark interest rate is still very competitive, the highest in the region.
Clearly, buying a property is not merely a function of interest rate and affordability (houses in Jakarta remain extremely affordable btw, at a 7.1x price-to-income ratio as opposed to 13.2x in Hong Kong), but also about confidence. The fact that the rupiah, stock and bond markets continued to be very firm during the peak of Bank Century saga tells us a powerful message: local confidence remains unshaken.
Another interesting thing to highlight is consumer confidence (Danareksa survey) rising to 86.8 in March fully reversing the February MoM dip. Consumer confidence at these buoyant levels reinforces the stronger confidence.
All above bode well for Indonesian property. Investors can choose to either invest directly in property stocks (top picks SMRA, BSDE, and we also like deep value CTRS from Ciputra Group) or investing indirectly in cement stocks (SMCB IJ and INTP IJ) and mortgage bank BTN (BBTN IJ). We recently initiated coverage on BBTN with a BUY call and TP of Rp2,000.
The 10Y bond yield chart below highlights that the rupiah rates are trending down, contrary to the rising US$ rate in the US. There is little pressure on Bank Indonesia to hike interest rates and Bank Indonesia can also be relaxed because rupiah appreciation is helping to curb imported price pressures. As noted by our economist Tony Nafte, our seasonally adjusted series shows inflation also moderating in QoQ terms to 3.8% saar in March from around 5% in the first two months of the year. Moreover, at currently 6.5%, Indonesian benchmark interest rate is still very competitive, the highest in the region.
Clearly, buying a property is not merely a function of interest rate and affordability (houses in Jakarta remain extremely affordable btw, at a 7.1x price-to-income ratio as opposed to 13.2x in Hong Kong), but also about confidence. The fact that the rupiah, stock and bond markets continued to be very firm during the peak of Bank Century saga tells us a powerful message: local confidence remains unshaken.
Another interesting thing to highlight is consumer confidence (Danareksa survey) rising to 86.8 in March fully reversing the February MoM dip. Consumer confidence at these buoyant levels reinforces the stronger confidence.
All above bode well for Indonesian property. Investors can choose to either invest directly in property stocks (top picks SMRA, BSDE, and we also like deep value CTRS from Ciputra Group) or investing indirectly in cement stocks (SMCB IJ and INTP IJ) and mortgage bank BTN (BBTN IJ). We recently initiated coverage on BBTN with a BUY call and TP of Rp2,000.
CIMB Sampoerna Agro Company update - Entry into sago
(SGRO IJ / SGRO.JK, OUTPERFORM - Maintained, Rp2,575 - Tgt. Rp3,700, Plantations)
Maintain Outperform and target price of Rp3,700 for SGRO, based on 15x CY11 P/E. Our recent visit clarified what appeared to be weak FY09 results - not as bad as suggested by the headlines - and its investment in sago which should be completed by 1Q10. Palm-oil expansion plans are aggressive, at 72k Ha for the next five years. We still like the company's strategy, arguably still the most comprehensive among the listed agribusinesses. We lower our FY10 earnings by 6% to reflect higher opex assumptions, adjust FY11 estimates a little and introduce FY12 forecasts. We see stock catalysts from better-than-expected CPO prices and production and more light shed on the sago investment.
Maintain Outperform and target price of Rp3,700 for SGRO, based on 15x CY11 P/E. Our recent visit clarified what appeared to be weak FY09 results - not as bad as suggested by the headlines - and its investment in sago which should be completed by 1Q10. Palm-oil expansion plans are aggressive, at 72k Ha for the next five years. We still like the company's strategy, arguably still the most comprehensive among the listed agribusinesses. We lower our FY10 earnings by 6% to reflect higher opex assumptions, adjust FY11 estimates a little and introduce FY12 forecasts. We see stock catalysts from better-than-expected CPO prices and production and more light shed on the sago investment.
OKAS: Akan akuisisi tambang batubara
JAKARTA (Bisnis.com): PT Ancora Indonesia Resources Tbk (OKAS) melakukan pembicaraan tahap akhir dengan satu perusahaan tambang batu bara untuk diakuisisi.
Direktur Keuangan Ancora Meliza Musa menuturkan perusahaan tambang batu bara yang dibidik untuk diakuisisi itu memiliki cadangan sebesar 30 juta ton—50 juta ton. Lokasi tambang yang dijajaki berada di wilayah Kalimantan dan Sumatra .
“Dana akan kami penuhi dari kas internal maupun pinjaman. Namun kemungkinan besar akan dipenuhi dari pinjaman,” ujarnya hari ini.
Menurut Meliza, akuisisi tambang itu merupakan salah satu strategi bisnis yang dijalankan perseroan. Potensi bisnis batu bara dinilai masih terbuka lebar.
Namun demikian dia tidak bersedia menyebutkan angka pasti mengenai dana yang akan dialokasikan. “Setelah semuanya selesai, kami akan memberikan keterangan mengenai dana yang akan digunakan untuk pembelian maupun sumber pendanaannya,” lanjutnya.
Ancora Resources selama 2009 membukukan laba bersih sebesar Rp18,7 miliar atau naik sebesar 15% jika dibandingkan dengan periode yang sama tahun sebelumnya.
Sementara itu, pendapatan perseroan tercatat mencapai Rp1,3 triliun atau naik sebesar 28% dari akhir 2008. Pendorong utama peningkatan kinerja perseroan berasal dari dua anak usaha perseroan, yaitu PT Multi Nitrotama Kimia dan PT Bormindo Nusantara.
Selama 2009, Multi Nitrotama mencatat peningkatan penjualan amonium nitrat sebesar 194.262 ton atau naik sebesar 23% dari tahun sebelumnya. Khusus Bormindo Nusantara mencatat kenaikan laba usaha lantaran ditunjang oleh peningkatan utilisasi rig sebesar 84,17% dibandingkan dengan tahun sebelumnya 76,7%.
“Untuk tahun ini kami belum bisa menyebutkan target kinerja, namun untuk Ebitda kami memproyeksikan akan lebih baik dari tahun lalu,” pungkas Meliza.
Direktur Keuangan Ancora Meliza Musa menuturkan perusahaan tambang batu bara yang dibidik untuk diakuisisi itu memiliki cadangan sebesar 30 juta ton—50 juta ton. Lokasi tambang yang dijajaki berada di wilayah Kalimantan dan Sumatra .
“Dana akan kami penuhi dari kas internal maupun pinjaman. Namun kemungkinan besar akan dipenuhi dari pinjaman,” ujarnya hari ini.
Menurut Meliza, akuisisi tambang itu merupakan salah satu strategi bisnis yang dijalankan perseroan. Potensi bisnis batu bara dinilai masih terbuka lebar.
Namun demikian dia tidak bersedia menyebutkan angka pasti mengenai dana yang akan dialokasikan. “Setelah semuanya selesai, kami akan memberikan keterangan mengenai dana yang akan digunakan untuk pembelian maupun sumber pendanaannya,” lanjutnya.
Ancora Resources selama 2009 membukukan laba bersih sebesar Rp18,7 miliar atau naik sebesar 15% jika dibandingkan dengan periode yang sama tahun sebelumnya.
Sementara itu, pendapatan perseroan tercatat mencapai Rp1,3 triliun atau naik sebesar 28% dari akhir 2008. Pendorong utama peningkatan kinerja perseroan berasal dari dua anak usaha perseroan, yaitu PT Multi Nitrotama Kimia dan PT Bormindo Nusantara.
Selama 2009, Multi Nitrotama mencatat peningkatan penjualan amonium nitrat sebesar 194.262 ton atau naik sebesar 23% dari tahun sebelumnya. Khusus Bormindo Nusantara mencatat kenaikan laba usaha lantaran ditunjang oleh peningkatan utilisasi rig sebesar 84,17% dibandingkan dengan tahun sebelumnya 76,7%.
“Untuk tahun ini kami belum bisa menyebutkan target kinerja, namun untuk Ebitda kami memproyeksikan akan lebih baik dari tahun lalu,” pungkas Meliza.
DBS Bank Rakyat Indonesia: Buy; Rp8,750; TP Rp10,400; BBRI IJ
Targets 29.6% y-o-y growth in microcredit loans to Rp70.1tr in FY10
Kontan reported that Bank Rakyat Indonesia (BBRI) expects to channel Rp70.1tr of microcredit loans this year (+29.6% y-o-y), up from Rp54.08tr last year. About Rp1.2tr had been channeled up to Feb10. The growth is inline with BBRI’s plan to enhance its microcredit loans segment, which includes expanding outlets, changing policies and improving service quality.
BBRI plans to open 400 new retail outlets catered for microcredit loans segment, with details as follows: i) 100 units of microcredit outlet, ii) 250 units of “Teras” (microcredit outlet in traditional markets), and iii) 50 units of “Pos Pelayanan Desa” (microcredit outlet outside of traditional markets). The bank is also preparing some 1,250 additional staffs to support these new outlets. In terms of changing policies, BBRI’s plan is to loosen up its loan screening for microcredit loans.
We maintain our BUY rating on BBRI with Rp10,400 TP. The bank has healthy prospects with strong NIM (albeit declining) and strong ROE profiles on account of high yield microcredit loans.
Kontan reported that Bank Rakyat Indonesia (BBRI) expects to channel Rp70.1tr of microcredit loans this year (+29.6% y-o-y), up from Rp54.08tr last year. About Rp1.2tr had been channeled up to Feb10. The growth is inline with BBRI’s plan to enhance its microcredit loans segment, which includes expanding outlets, changing policies and improving service quality.
BBRI plans to open 400 new retail outlets catered for microcredit loans segment, with details as follows: i) 100 units of microcredit outlet, ii) 250 units of “Teras” (microcredit outlet in traditional markets), and iii) 50 units of “Pos Pelayanan Desa” (microcredit outlet outside of traditional markets). The bank is also preparing some 1,250 additional staffs to support these new outlets. In terms of changing policies, BBRI’s plan is to loosen up its loan screening for microcredit loans.
We maintain our BUY rating on BBRI with Rp10,400 TP. The bank has healthy prospects with strong NIM (albeit declining) and strong ROE profiles on account of high yield microcredit loans.
Samuel Sekuritas BUMI One-Time Cost Won’t Impact Future Earnings
Highlights:
• BUMI’s FY09 net profit dropped by 49% YoY to US$190.4 mn, whilst revenue slightly
decreased by 4.73% to US$3.2bn. Operating profit fell by 42.1% YoY to US$638 mn,
followed by lower operating margin to 19.8% (from 32.6%).
• The company has restated its FY08 earnings to US$371.7 mn as compared to US$645.4
mn mainly due to higher tax payment of US$489 mn (from US$90 mn).
Comments:
• Net profit was dragged down by one-time cost of US$275 mn from deferred stripping cost and interest expense of US$180.9mn. After the amortization, deferred stripping cost on the balance sheet stood at US$243m as of Dec’09.
• Excluding deferred stripping cost, BUMI’s net profit would have been US$448mn or 20.5% increased, and above consensus expectation of US$413 mn.
• On the top line, lower revenue was mainly due to lower ASP of US$63.1/ton (-13.9% YoY). BUMI has achieved its production volume target of 63.1mn ton (+19.5% YoY) meanwhile sales volume reached 58.4mn ton (+13.4% YoY).
• BUMI made tax payment of US$223.9 mn in FY09, equivalent to 45.2%% tax ratio, which
is more reasonable in our view for CCoW’s requirement. Going forward, we are going to
use tax rate assumption of 45% (from current 30%).
• Net gearing remains high at 2.25x per Dec’09, increased from 1.0x in Sept’09.
Debt/EBITDA reached 3.20x.
Action & Recommendation:
• We believe market has been anticipated for the deferred stripping cost and reflected on current market price. Furthermore, the deferred stripping cost would not give any impact for future earnings. However, we are well aware that the tax issue has been the major obstacle that caused overhang in BUMI’s share price. We believe the share price will be back to fundamental once tax issue resolved.
• We have revised down our earning after factor in higher tax rate with our new target price of Rp3,250/share. Currently BUMI is trading at 11.1x PER’11 and 4.7x EV/EBITDA’11. MAINTAIN BUY
• BUMI’s FY09 net profit dropped by 49% YoY to US$190.4 mn, whilst revenue slightly
decreased by 4.73% to US$3.2bn. Operating profit fell by 42.1% YoY to US$638 mn,
followed by lower operating margin to 19.8% (from 32.6%).
• The company has restated its FY08 earnings to US$371.7 mn as compared to US$645.4
mn mainly due to higher tax payment of US$489 mn (from US$90 mn).
Comments:
• Net profit was dragged down by one-time cost of US$275 mn from deferred stripping cost and interest expense of US$180.9mn. After the amortization, deferred stripping cost on the balance sheet stood at US$243m as of Dec’09.
• Excluding deferred stripping cost, BUMI’s net profit would have been US$448mn or 20.5% increased, and above consensus expectation of US$413 mn.
• On the top line, lower revenue was mainly due to lower ASP of US$63.1/ton (-13.9% YoY). BUMI has achieved its production volume target of 63.1mn ton (+19.5% YoY) meanwhile sales volume reached 58.4mn ton (+13.4% YoY).
• BUMI made tax payment of US$223.9 mn in FY09, equivalent to 45.2%% tax ratio, which
is more reasonable in our view for CCoW’s requirement. Going forward, we are going to
use tax rate assumption of 45% (from current 30%).
• Net gearing remains high at 2.25x per Dec’09, increased from 1.0x in Sept’09.
Debt/EBITDA reached 3.20x.
Action & Recommendation:
• We believe market has been anticipated for the deferred stripping cost and reflected on current market price. Furthermore, the deferred stripping cost would not give any impact for future earnings. However, we are well aware that the tax issue has been the major obstacle that caused overhang in BUMI’s share price. We believe the share price will be back to fundamental once tax issue resolved.
• We have revised down our earning after factor in higher tax rate with our new target price of Rp3,250/share. Currently BUMI is trading at 11.1x PER’11 and 4.7x EV/EBITDA’11. MAINTAIN BUY
Deutsche Bumi locks thermal coal price to Japan at $104/t (6322kcGAR)
Xstrata also recently settled a Japanese utilities thermal contract at $98/t,
basis 6,322kc GAR for deliveries in Apr'10-Mar'11 period, representing a
39% increase vs. last year's reference price of US$70.5/t.
Exports to Japan typically account for about 20-25% of Indonesian
company's total sales. However, the reference price usually sets the tone
for other contract negotiations in the region, and thus bodes well for ASP
outlook of Indonesian coal companies.
The above ref price exceeded DB's 2010 forecast of US$85/t. If we were
to assume a US$100/t benchmark on all the unpriced /index-linked volumes
this year, this would suggest some earnings upside to our top coal picks
ITMG & PTBA of 19% and 13% respectively. Meanwhile, the implied earnings
upside to Bumi would be 57%, due to the higher financial leverage and
larger portion of unpriced volumes (see table below).
basis 6,322kc GAR for deliveries in Apr'10-Mar'11 period, representing a
39% increase vs. last year's reference price of US$70.5/t.
Exports to Japan typically account for about 20-25% of Indonesian
company's total sales. However, the reference price usually sets the tone
for other contract negotiations in the region, and thus bodes well for ASP
outlook of Indonesian coal companies.
The above ref price exceeded DB's 2010 forecast of US$85/t. If we were
to assume a US$100/t benchmark on all the unpriced /index-linked volumes
this year, this would suggest some earnings upside to our top coal picks
ITMG & PTBA of 19% and 13% respectively. Meanwhile, the implied earnings
upside to Bumi would be 57%, due to the higher financial leverage and
larger portion of unpriced volumes (see table below).
Rabu, 07 April 2010
JPM Indo: Research call - PGAS - downgrade from O/W to Neutral
Dec PxT reduced to Rp4,300 after he incorporates: 1) Higher cost of gas of US$2.60/MMbtu from US$2.54/MMbtu. 2) Incorporate FY09 results into the model. 3) Incorporate Rp strengthening from Rp9,500 to Rp9,000. 4) Incorporate the recent effective price increase, which we calculate to be 10.7% Y/Y. These adjustments resulted in us lowering our FY10 core income estimate by 4.9%.
JPM Indo: IDR going toward 8500
FX call - Flows supportive of IDR going towards 8500. Currency strategists Claudio Piron and Yen Ping Ho are looking at a new year-end USD/IDR target of 8,500 (from 9,300). The IDR strength so far has less to do with normalization as we do not believe Bank Indonesia will hike this year, but rather the phenomena of foreign investor diversification into local EM bonds. In Indonesia's case, foreign investors now register a record 20.9% of total local outstanding bonds as higher yields, relatively lower debt profiles and FX appreciation sustain foreign investor interest. With BI expected to remain on hold, we expect interests in the bond market to remain strong.
Beyond the portfolio flows into IDR, it is also important to recognize that Indonesia's balance of payments cycle appears to have established a more stable and buoyant cycle. We forecast the current account surplus will register 0.8% of GDP this year and note that export growth at 59.3% oya in January, was the fastest pace since August 1987. The issue is whether export growth can continue to outpace imports. Our view is that the narrowing in non-energy balances may occur only in H2 as the domestic demand recovery remains
Beyond the portfolio flows into IDR, it is also important to recognize that Indonesia's balance of payments cycle appears to have established a more stable and buoyant cycle. We forecast the current account surplus will register 0.8% of GDP this year and note that export growth at 59.3% oya in January, was the fastest pace since August 1987. The issue is whether export growth can continue to outpace imports. Our view is that the narrowing in non-energy balances may occur only in H2 as the domestic demand recovery remains
Deutsche Bumi locks thermal coal price to Japan at $104/t (6322kcGAR)
Xstrata also recently settled a Japanese utilities thermal contract at $98/t, basis 6,322kc GAR for deliveries in Apr'10-Mar'11 period,representing a 39%increase vs.last year's reference price of US$70.5/t.
Exports to Japan typically account for about 20-25%of Indonesian company's total sales.However,the reference price usually sets the tone for other contract negotiations in the region,and thus bodes well for ASP outlook of Indonesian coal companies.
The above ref price exceeded DB's 2010 forecast of US$85/t.If we were to assume a US$100/t benchmark on all the unpriced /index-linked volumes this year,this would suggest some earnings upside to our top coal picks ITMG &PTBA of 19% and 13%respectively.Meanwhile,the implied earnings upside to Bumi would be 57%,due to the higher financial leverage and larger portion of unpriced volumes
Exports to Japan typically account for about 20-25%of Indonesian company's total sales.However,the reference price usually sets the tone for other contract negotiations in the region,and thus bodes well for ASP outlook of Indonesian coal companies.
The above ref price exceeded DB's 2010 forecast of US$85/t.If we were to assume a US$100/t benchmark on all the unpriced /index-linked volumes this year,this would suggest some earnings upside to our top coal picks ITMG &PTBA of 19% and 13%respectively.Meanwhile,the implied earnings upside to Bumi would be 57%,due to the higher financial leverage and larger portion of unpriced volumes
Reuters Macarthur rejects Peabody's $3.3 billion offer
MELBOURNE, April 7 (Reuters) - Australia's Macarthur Coal (MCC.AX) rejected on Wednesday a sweetened A$14-a-share bid by top U.S. coal miner Peabody Energy (BTU.N) worth A$3.56 billion ($3.27 billion).
Macarthur also said it would go ahead and seek shareholder approval at a meeting on April 12 for its plan to take over smaller domestic rival Gloucester Coal (GCL.AX).
"Peabody's revised proposal remains highly conditional and does not fully value Macarthur and its significant growth prospects," Macarthur Chairman Keith De Lacy said in a statement. (Reporting by Sonali Paul; Editing by Mark Bendeich)
Macarthur also said it would go ahead and seek shareholder approval at a meeting on April 12 for its plan to take over smaller domestic rival Gloucester Coal (GCL.AX).
"Peabody's revised proposal remains highly conditional and does not fully value Macarthur and its significant growth prospects," Macarthur Chairman Keith De Lacy said in a statement. (Reporting by Sonali Paul; Editing by Mark Bendeich)
Credit Suisse ISAT A geared play on growth New TP idr 7100 from idr 6350
■ New management driving revenue growth: Indosat lost 3.0 p.p. of cellular revenue market share during ownership and management transition in 1H09. However, new CEO Harry Sasongko has identified the key areas of weakness (marketing, core network constraints) and has begun to address them. Indosat grew cellular revenue by 12.2% QoQ in 4Q09 and we expect 13.8% YoY cellular revenue growth in FY10 – faster than market.
■ Profitability to rise on high operational gearing: The new management team is also actively crunching operating costs and capex (Indosat’s chronic problem area). We forecast consolidated YoY EBITDA growth of 16.7% in FY10, together with a 44.0% decline in consolidated capex to Rp6.5 tn.
■ We expect cash flow to break even during FY10: Rising EBITDA should facilitate Indosat’s first ever positive cellular operating free cash flow (OPFCF) result in FY10, positive consolidated OPFCF and positive consolidated free cash flow to equity. We note that a similar turnaround was experienced by the number three player Excelcom during FY09, and Excelcom shares rerated sharply as a result.
■ Cash flow valuation attractive: We have revised up our FY10 cellular revenue and EBITDA forecasts by 1.9% and 1.5%, respectively, and revised down our FY10 cellular capex forecasts by 7.6%. As a result, our DCF-based target price has been revised up by 11.8% from Rp6,350 to Rp7,100. While the FY10 P/E ratio looks high, we expect earnings to grow at 30.2% compound into FY11 and FY12, and for Indosat to deliver an 10.1% free cash flow yield in FY11. We maintain our OUTPERFORM rating.
■ Profitability to rise on high operational gearing: The new management team is also actively crunching operating costs and capex (Indosat’s chronic problem area). We forecast consolidated YoY EBITDA growth of 16.7% in FY10, together with a 44.0% decline in consolidated capex to Rp6.5 tn.
■ We expect cash flow to break even during FY10: Rising EBITDA should facilitate Indosat’s first ever positive cellular operating free cash flow (OPFCF) result in FY10, positive consolidated OPFCF and positive consolidated free cash flow to equity. We note that a similar turnaround was experienced by the number three player Excelcom during FY09, and Excelcom shares rerated sharply as a result.
■ Cash flow valuation attractive: We have revised up our FY10 cellular revenue and EBITDA forecasts by 1.9% and 1.5%, respectively, and revised down our FY10 cellular capex forecasts by 7.6%. As a result, our DCF-based target price has been revised up by 11.8% from Rp6,350 to Rp7,100. While the FY10 P/E ratio looks high, we expect earnings to grow at 30.2% compound into FY11 and FY12, and for Indosat to deliver an 10.1% free cash flow yield in FY11. We maintain our OUTPERFORM rating.
Selasa, 06 April 2010
Citigroup Indonesia Macro Flash - BI Increasingly Dovish – Changing Our Rate Call
BI held policy rate at 6.5% as expected — BI’s concluding policy statement was unchanged from last month. The current policy rate was still deemed “consistent” with BI’s 2010-11 inflation target of 4-6% and “conducive” for strengthening the economic recovery, maintaining monetary stability, and supporting banking intermediation.
BI thinks economic fundamentals continue to improve — This is signaled by the improving external sector (reflected by higher than expected BoP surpluses), stronger IDR, price stability and greater economic growth prospects. BI added that exports improvement is not only from commodities but also from manufacturing exports, with CPO considered a manufactured good. Imports also rose as domestic demand and exports accelerated. Externally, BI sees external developments in 1Q10 as constructive, noting that Greece’s financial crisis only had limited impact on financial markets, and capital inflows continued to surge into emerging markets, Indonesia included.
BI more dovish about inflation than before — BI’s Board of Governors maintained that no significant inflation pressure will emerge in 1H10, and in today’s statement it added a more dovish sentence that year-end inflation could be at the lower end of BI’s inflation target range of 4-6%. This is likely encouraged by lower-than-expected March inflation of 3.43%yoy (consensus: 3.7%), representing a 0.14% mom deflation, as the IDR appreciated more than expected and harvest season saw volatile food prices (mainly rice) fall.
We reduce our rate hike call to 50bps this year (fr. 75bps) backloaded to 4Q10
— As a whole, BI appears very reluctant to hike policy rates. On top of today’s dovish statement, recent news that PLN has come up with cost-saving measures as an alternative to the planned electricity hike in July could see lesser inflation pressures from administered prices. We think BI would favor keeping rates low to reduce lending rates and support growth. BI deems Jan-Mar loans growth of 11%yoy as “not yet the growth (it was) hoping for”, and highlights its goal of continuing to improve the effectiveness of the transmission of its monetary policy.
FX reserves continued to rise to US$71.8bn at end March (Feb: US$69.7bn) —
Capital and financial accounts in the BoP continued to see surpluses from attractive IDR yields and lower investment risk. BI estimates FX reserves will cover about 5.8 months of imports and official debt repayments (Feb: 5.7x).
Market implications — BI’s move is widely expected, especially after the March
monthly deflation data last week. Gains in the JCI, IDR and bonds were already observed ahead of the meeting.
BI thinks economic fundamentals continue to improve — This is signaled by the improving external sector (reflected by higher than expected BoP surpluses), stronger IDR, price stability and greater economic growth prospects. BI added that exports improvement is not only from commodities but also from manufacturing exports, with CPO considered a manufactured good. Imports also rose as domestic demand and exports accelerated. Externally, BI sees external developments in 1Q10 as constructive, noting that Greece’s financial crisis only had limited impact on financial markets, and capital inflows continued to surge into emerging markets, Indonesia included.
BI more dovish about inflation than before — BI’s Board of Governors maintained that no significant inflation pressure will emerge in 1H10, and in today’s statement it added a more dovish sentence that year-end inflation could be at the lower end of BI’s inflation target range of 4-6%. This is likely encouraged by lower-than-expected March inflation of 3.43%yoy (consensus: 3.7%), representing a 0.14% mom deflation, as the IDR appreciated more than expected and harvest season saw volatile food prices (mainly rice) fall.
We reduce our rate hike call to 50bps this year (fr. 75bps) backloaded to 4Q10
— As a whole, BI appears very reluctant to hike policy rates. On top of today’s dovish statement, recent news that PLN has come up with cost-saving measures as an alternative to the planned electricity hike in July could see lesser inflation pressures from administered prices. We think BI would favor keeping rates low to reduce lending rates and support growth. BI deems Jan-Mar loans growth of 11%yoy as “not yet the growth (it was) hoping for”, and highlights its goal of continuing to improve the effectiveness of the transmission of its monetary policy.
FX reserves continued to rise to US$71.8bn at end March (Feb: US$69.7bn) —
Capital and financial accounts in the BoP continued to see surpluses from attractive IDR yields and lower investment risk. BI estimates FX reserves will cover about 5.8 months of imports and official debt repayments (Feb: 5.7x).
Market implications — BI’s move is widely expected, especially after the March
monthly deflation data last week. Gains in the JCI, IDR and bonds were already observed ahead of the meeting.
Mandiri Sekuritas TINS: Passed the trough
Timah posted FY09 net income of Rp314bn (-76.6%yoy, +11.4%qoq), in line with our estimates, but 9.1% higher than consensus. The 6.0% sales volume growth slightly negated the negative effects from the 26.5%yoy ASP contraction. For the first time, Timah was able to achieve more than 30% tin ore contribution from cheaper offshore mining (with 48% contribution). Going forward, we expect Timah to book 267% FY10F EPS growth, supported by higher ASP, stable sales volume, cheaper tin ore sourcing, and additional margin from tin derivative products. We maintain our Buy stance on TINS with TP of Rp3,000/share, providing 29.0% upside potential from the current price.
FY09 results were in line with our estimate, but above consensus. Timah posted FY09 revenue of Rp7.7tn (-14.8%yoy, +9.0%qoq). The on-year decline in revenue was due to the 26.5% lower ASP, but slightly offset by 6.0% sales volume growth, and rupiah’s 7.9% depreciation (exports represented 97.3% of total sales). The revenue contraction resulted in net income of Rp314bn (-76.6%yoy, +11.4%qoq). However, these results were in line with our estimates, yet 9.1% higher than consensus estimate.
Successful cost-reduction program in FY09. Despite the deteriorating yoy performance, 2009 qoq performance gradually improved with net margin increasing from 0.9%-1.5%-6.4%-6.6% for the period of 1Q09 till 4Q09, respectively. In addition to higher ASP, the improvement was also supported by cheaper cost in tin ore sourcing from offshore mining that contributed some 48% to total tin ores in FY09 (vs 29% in FY08). The company expects to maintain the similar proportion in 2010 by operating at least 4 new cutter suction dredge ships.
Robust growth in 2010. Our expectation on better FY10F performance, EPS growth of 267%yoy, is mainly due to stronger ASP with 1Q10F ASP of $17.1k/ton (+12.8%qoq). From sales volume side, the company is targeting to maintain a maximum of 50k tons in order to support sustainable world tin price. Future earnings catalysts will come from (1) additional margin from derivative products sales, solder and tin chemical and (2) potential cost saving from offshore and onshore mining if subcontracting termination process goes! well.
Reiterate Buy. We maintain our Buy stance as the company showed progress in (1) cost efficiency by building more ships for offshore mining, (2) shifting to higher margin products, solder and tin chemical, and (3) cheapest valuation among our metal counters at PER10-11F of 10.2-6.8x. We maintain our TP at Rp3,000/share.
FY09 results were in line with our estimate, but above consensus. Timah posted FY09 revenue of Rp7.7tn (-14.8%yoy, +9.0%qoq). The on-year decline in revenue was due to the 26.5% lower ASP, but slightly offset by 6.0% sales volume growth, and rupiah’s 7.9% depreciation (exports represented 97.3% of total sales). The revenue contraction resulted in net income of Rp314bn (-76.6%yoy, +11.4%qoq). However, these results were in line with our estimates, yet 9.1% higher than consensus estimate.
Successful cost-reduction program in FY09. Despite the deteriorating yoy performance, 2009 qoq performance gradually improved with net margin increasing from 0.9%-1.5%-6.4%-6.6% for the period of 1Q09 till 4Q09, respectively. In addition to higher ASP, the improvement was also supported by cheaper cost in tin ore sourcing from offshore mining that contributed some 48% to total tin ores in FY09 (vs 29% in FY08). The company expects to maintain the similar proportion in 2010 by operating at least 4 new cutter suction dredge ships.
Robust growth in 2010. Our expectation on better FY10F performance, EPS growth of 267%yoy, is mainly due to stronger ASP with 1Q10F ASP of $17.1k/ton (+12.8%qoq). From sales volume side, the company is targeting to maintain a maximum of 50k tons in order to support sustainable world tin price. Future earnings catalysts will come from (1) additional margin from derivative products sales, solder and tin chemical and (2) potential cost saving from offshore and onshore mining if subcontracting termination process goes! well.
Reiterate Buy. We maintain our Buy stance as the company showed progress in (1) cost efficiency by building more ships for offshore mining, (2) shifting to higher margin products, solder and tin chemical, and (3) cheapest valuation among our metal counters at PER10-11F of 10.2-6.8x. We maintain our TP at Rp3,000/share.
Mandiri Sekuritas RALS: 2010 strong prospects has been priced in
Despite expected strong performance in 2010, we downgrade our recommendation from Neutral to Sell as we deem strong share price performance has already factored in the expectation. What we think has not been priced in is the expected rising electricity cost and wage pressure. Our DCF target of Rp800/share has been surpassed and hence the downgrade.
2009 net income fell 22.% yoy, and 4Q09 dropped 84.8% qoq. Lower yoy net income was mainly due to Rp77bn in differences from forex gain (loss) account. Whereas, the quarterly drop in net profit as Lebaran, the biggest annual contributor for RALS sales was celebrated in the 3Q09. On operating level, same-store growth of -1.8% has reduced per sqm/year productivity from Rp7.4mn in 2008 to Rp7.2mn per sqm/year in 2009. RALS re-arranged its stores in 2009 by adding 21,416sqm in gross ! space and downsized/closed 24,214sqm gross space.
2010: less interest income and higher electricity expenses. On non-operating line, less forex loss is expected this year. RALS has US$28.1mn in USD-denominated assets. The rupiah was Rp9,404 to the U.S. dollar as of the end 2009 appreciating 18.2% from end-08. We are forecasting Rp8,927/US$ at the end of 2010, giving an appreciation of 5.3%. But less income from: (1) smaller interest income. RALS has Rp562.8bn in cash and time deposits. In FY09, IDR time deposit rates were 6.25%-! 13.5%, now are 6.0%-8.5%. ; and (2) rising electricity expenses. Electricity to sales is 3% in FY09. Government raise electricity by 15% on average, it will slash operating margin by 45 bps.
More expansion expected. In 2Q10, RALS plans to open stores in Padang (11,000sqm), Cinere (13,000sqm), Abepura (9,000sqm), Samarinda (14,000sqm). In August, it will open its doors in Pekanbaru (13,000sqm) ! and Padal arang (12,000sqm). Total new 2010 gross space of 72,000sqm is 9.3% of current RALS gross space. Assuming Rp5mn/sqm capex, total capex 2010 will be Rp360bn.
Share price has factored in the expected strong result, downgrade to Sell. We are downgrading our recommendation, despite raising our target price from Rp 640/share to Rp 800/share on improved earning estimates. Our TP was derived from DCF calculation with 12.5% WACC, and TG of 5%. We think the market has not priced in the potential electricity hike in their forecasts.
2009 net income fell 22.% yoy, and 4Q09 dropped 84.8% qoq. Lower yoy net income was mainly due to Rp77bn in differences from forex gain (loss) account. Whereas, the quarterly drop in net profit as Lebaran, the biggest annual contributor for RALS sales was celebrated in the 3Q09. On operating level, same-store growth of -1.8% has reduced per sqm/year productivity from Rp7.4mn in 2008 to Rp7.2mn per sqm/year in 2009. RALS re-arranged its stores in 2009 by adding 21,416sqm in gross ! space and downsized/closed 24,214sqm gross space.
2010: less interest income and higher electricity expenses. On non-operating line, less forex loss is expected this year. RALS has US$28.1mn in USD-denominated assets. The rupiah was Rp9,404 to the U.S. dollar as of the end 2009 appreciating 18.2% from end-08. We are forecasting Rp8,927/US$ at the end of 2010, giving an appreciation of 5.3%. But less income from: (1) smaller interest income. RALS has Rp562.8bn in cash and time deposits. In FY09, IDR time deposit rates were 6.25%-! 13.5%, now are 6.0%-8.5%. ; and (2) rising electricity expenses. Electricity to sales is 3% in FY09. Government raise electricity by 15% on average, it will slash operating margin by 45 bps.
More expansion expected. In 2Q10, RALS plans to open stores in Padang (11,000sqm), Cinere (13,000sqm), Abepura (9,000sqm), Samarinda (14,000sqm). In August, it will open its doors in Pekanbaru (13,000sqm) ! and Padal arang (12,000sqm). Total new 2010 gross space of 72,000sqm is 9.3% of current RALS gross space. Assuming Rp5mn/sqm capex, total capex 2010 will be Rp360bn.
Share price has factored in the expected strong result, downgrade to Sell. We are downgrading our recommendation, despite raising our target price from Rp 640/share to Rp 800/share on improved earning estimates. Our TP was derived from DCF calculation with 12.5% WACC, and TG of 5%. We think the market has not priced in the potential electricity hike in their forecasts.
Citigroup Bumi Resources - Alert: U$104/t Price Agreement with a Japanese Customer
Bumi announced that its subsidiary Kaltim Prima Coal has managed to secure
US$104/t pricing (up 44% YoY) for JPY10 with a large Japanese customer. This
represents a US$6/t premium to the Xstrata settlement of US$98/t. While the
volume wasn’t disclosed, we expect 25% of the company’s volume (roughly 16m
tons), expected to be exported to Japan, will be priced at approximately the
US$104/t price.
Bumi reiterated it is on track to meet its FY10 average selling price (ASP)
guidance of a minimum of US$67/t. Thus far, Bumi has locked in c.30m tons of
the 64m tons it guided for 2010E at US$62-63/t. Assuming 25% of 2010E volume
to be priced at US$104/t, then to meet its ASP guidance of US67/t, the remaining
18m tons left to be priced must be priced at least at US$42/t. We think the latter
has substantial upside risks given the firming coal prices of late; hence, we see
upside risks to Bumi’s ASP guidance.
We believe the company’s guidance on volume is conservative given the
annualized 72m tons production in 4Q09. Production in 1Q10 was affected by
heavy rainfall in January but should come in at annualized rate of 64m tons.
Hence, we continue to maintain our 2010E sales volume forecast of 68m tons.
As the Newcastle benchmark prices came in at US$98/t (lower than our
expectation of US$105/t), we see downside risks to our estimate for Bumi’s 2010E
ASP of US$75/t. However, as the Newcastle benchmark prices were above
consensus estimate of US$95/t, there could be upside risk to the Street’s ASP
assumption for Bumi.
US$104/t pricing (up 44% YoY) for JPY10 with a large Japanese customer. This
represents a US$6/t premium to the Xstrata settlement of US$98/t. While the
volume wasn’t disclosed, we expect 25% of the company’s volume (roughly 16m
tons), expected to be exported to Japan, will be priced at approximately the
US$104/t price.
Bumi reiterated it is on track to meet its FY10 average selling price (ASP)
guidance of a minimum of US$67/t. Thus far, Bumi has locked in c.30m tons of
the 64m tons it guided for 2010E at US$62-63/t. Assuming 25% of 2010E volume
to be priced at US$104/t, then to meet its ASP guidance of US67/t, the remaining
18m tons left to be priced must be priced at least at US$42/t. We think the latter
has substantial upside risks given the firming coal prices of late; hence, we see
upside risks to Bumi’s ASP guidance.
We believe the company’s guidance on volume is conservative given the
annualized 72m tons production in 4Q09. Production in 1Q10 was affected by
heavy rainfall in January but should come in at annualized rate of 64m tons.
Hence, we continue to maintain our 2010E sales volume forecast of 68m tons.
As the Newcastle benchmark prices came in at US$98/t (lower than our
expectation of US$105/t), we see downside risks to our estimate for Bumi’s 2010E
ASP of US$75/t. However, as the Newcastle benchmark prices were above
consensus estimate of US$95/t, there could be upside risk to the Street’s ASP
assumption for Bumi.
Kim Eng SGRO Nowhere to go
What’s New
For FY09, Sampoerna Agro (SA) posted Rp282b net profit that was below‐than‐expected (‐36% y/y), due to a higher than anticipated forex loss and lower‐than‐expected interest income. Sales declined by 21% y/y to Rp1,816b as the ASP of CPO dropped by 9.2% y/y and the sales volume fell by 8.3% y/y.
The company has signed an agreement to acquire 75.5% of PT National Sago Prima, a sago palm plantation in Riau, for US$6.5m. Moreover, it plans to inject further sum of Rp55b (US$5.8m) to raise its stake to 91.85%. It is a risky investment given the company’s lack of experience in the field. At the current price, there is limited upside; thus, we recommend HOLD.
Our View
Our main concern is the production shortfall of 2% of FFB in FY09, which goes against the trend of production growth rates (ranging from 3% to 36% y/y) of the sector. We now expect its FY10 production of FFB from plasma to grow by only 2% y/y and its total CPO to be 275k tonnes (9% lower than our initial assumption).
We are not enthusiastic about the management’s foray into the sago business, which we think is quite risky. We understand that unlike other tropical crops, there have been minimum R&D activities on sago. Hence, the company may have to incur high learning costs in development of the business. With planted area of 8k ha, the sago
estate is valued at par with the valuation of its palm oil at US$10.4k/ha.
Action & Recommendation
SA’s share price has been lagging, with the stock losing by 4% YTD (vs. agri index that shows an increase of 11%). This reflects the production volatility and the lack of volume growth of its CPO. After adjusting for its decreased CPO production and cutting our FY10 net profit estimate by 15% to Rp336b, we lower our TP to Rp2,675 and recommend HOLD.
For FY09, Sampoerna Agro (SA) posted Rp282b net profit that was below‐than‐expected (‐36% y/y), due to a higher than anticipated forex loss and lower‐than‐expected interest income. Sales declined by 21% y/y to Rp1,816b as the ASP of CPO dropped by 9.2% y/y and the sales volume fell by 8.3% y/y.
The company has signed an agreement to acquire 75.5% of PT National Sago Prima, a sago palm plantation in Riau, for US$6.5m. Moreover, it plans to inject further sum of Rp55b (US$5.8m) to raise its stake to 91.85%. It is a risky investment given the company’s lack of experience in the field. At the current price, there is limited upside; thus, we recommend HOLD.
Our View
Our main concern is the production shortfall of 2% of FFB in FY09, which goes against the trend of production growth rates (ranging from 3% to 36% y/y) of the sector. We now expect its FY10 production of FFB from plasma to grow by only 2% y/y and its total CPO to be 275k tonnes (9% lower than our initial assumption).
We are not enthusiastic about the management’s foray into the sago business, which we think is quite risky. We understand that unlike other tropical crops, there have been minimum R&D activities on sago. Hence, the company may have to incur high learning costs in development of the business. With planted area of 8k ha, the sago
estate is valued at par with the valuation of its palm oil at US$10.4k/ha.
Action & Recommendation
SA’s share price has been lagging, with the stock losing by 4% YTD (vs. agri index that shows an increase of 11%). This reflects the production volatility and the lack of volume growth of its CPO. After adjusting for its decreased CPO production and cutting our FY10 net profit estimate by 15% to Rp336b, we lower our TP to Rp2,675 and recommend HOLD.
Credis Suisse Asia Equity Focus Indonesia offers long-term strategic appeal
At a forum in Singapore on 31 March, 2010, Mr Gita Wirjawan, Chairman of the National Investment Coordinating Board in Indonesia, said that foreigners may be allowed to own apartments and even commercial property in Indonesia. No details are provided yet but this development will be under a revised rule expected by Q3 of 2010. The revised regulation aims to relax the rules on foreign ownership of property in Indonesia, making it easier and more attractive for foreigners to invest in Indonesia. This move comes at a time when improving government debt ratio and growing foreign currency reserves has earned Indonesia an upgrade in its sovereign credit rating to BB from BB- by S&P in March 2010. The S&P rating also comes with a positive outlook, suggesting a bias toward further upgrade in the next six to 18 months. This follows Fitch's upgrade in January 2010 and Moody's upgrade in September 2009. After this upgrade, Indonesia remains two notches below S&P's investment grade credit rating and Finance Minster Sri Mulyani was quoted in the media expressing optimism that Indonesia could achieve an investment grade rating within a year.
The equity market and the IDR have both held up well during the investigation of the legitimacy of the Bank Century bailout since the start of the year, suggesting that investors are investing in Indonesia for its long-term strategic appeal. Although further investigation is still ongoing, the Bank Century case was politically motivated and at the end, it bodes down to political negotiation between President Susilo Bambang Yudhoyono's (SBY) Democrat Party and other political parties. Out of the seven-party ruling coalition, three parties supported the Democrat Party in the bailout decision, while others including Golkar, PKS, PPP, PKB were opponents of the bailout. This has thus given rise to the potential for the President to re-evaluate the ruling coalition, which could possibly involve cabinet reshuffling against disloyal political parties. The opposition has called for the removal of Sri Mulyani as the Finance Minster, but with the President openly backing both Sri Mulyani and Boediono, we see the possibility of Sri Mulyani losing her position as low. We maintain our view that President SBY has sufficient support to withstand the political quandary. However, the Bank Century investigation has been a huge distraction to the reform process in the past few months and we believe this could cause delay to the much needed infrastructure reform programs.
Nevertheless, Indonesia remains a compelling long-term structural story. The underleveraged nature of the economy with debt-to-GDP at 25% suggests that there is significant scope for the economy to leverage up. Furthermore, Indonesian banks' balance sheets are robust with a low average loan-to-deposits ratio of 55%. Against the backdrop of high consumer confidence in Indonesia, banks are also increasingly willing to lend and this should drive economic growth. On the earnings front, 2010E consensus EPS revisions in Indonesia remain strong in March printing at 1.5%, led by consumer cyclicals (+6.7%) and energy (+3.3%) sectors. Indonesia is currently trading at P/E 2010E of 14.7x with 15.5% EPS growth and we believe the valuation is fair although not undervalued from a historical perspective. Hence we maintain a Neutral call on the market and our 12M DDM-derived JCI target of 2,900. Our top picks are United Tractors (UNTR IJ, BUY) and Indofood Sukses (INDF IJ, BUY), which we believe give investors exposure to the favorable long-term growth potential of Indonesia.
The equity market and the IDR have both held up well during the investigation of the legitimacy of the Bank Century bailout since the start of the year, suggesting that investors are investing in Indonesia for its long-term strategic appeal. Although further investigation is still ongoing, the Bank Century case was politically motivated and at the end, it bodes down to political negotiation between President Susilo Bambang Yudhoyono's (SBY) Democrat Party and other political parties. Out of the seven-party ruling coalition, three parties supported the Democrat Party in the bailout decision, while others including Golkar, PKS, PPP, PKB were opponents of the bailout. This has thus given rise to the potential for the President to re-evaluate the ruling coalition, which could possibly involve cabinet reshuffling against disloyal political parties. The opposition has called for the removal of Sri Mulyani as the Finance Minster, but with the President openly backing both Sri Mulyani and Boediono, we see the possibility of Sri Mulyani losing her position as low. We maintain our view that President SBY has sufficient support to withstand the political quandary. However, the Bank Century investigation has been a huge distraction to the reform process in the past few months and we believe this could cause delay to the much needed infrastructure reform programs.
Nevertheless, Indonesia remains a compelling long-term structural story. The underleveraged nature of the economy with debt-to-GDP at 25% suggests that there is significant scope for the economy to leverage up. Furthermore, Indonesian banks' balance sheets are robust with a low average loan-to-deposits ratio of 55%. Against the backdrop of high consumer confidence in Indonesia, banks are also increasingly willing to lend and this should drive economic growth. On the earnings front, 2010E consensus EPS revisions in Indonesia remain strong in March printing at 1.5%, led by consumer cyclicals (+6.7%) and energy (+3.3%) sectors. Indonesia is currently trading at P/E 2010E of 14.7x with 15.5% EPS growth and we believe the valuation is fair although not undervalued from a historical perspective. Hence we maintain a Neutral call on the market and our 12M DDM-derived JCI target of 2,900. Our top picks are United Tractors (UNTR IJ, BUY) and Indofood Sukses (INDF IJ, BUY), which we believe give investors exposure to the favorable long-term growth potential of Indonesia.
Mandiri Sekuritas BBRI: No worries on lower NIM
BBRI posted strong results in FY09 despite substantial provisioning expenses allocated during the year. Even though NIM tended to decline, we remained positive with the bank’s outlook as the bank managed to expand its earning assets, which led to higher ROAE. We therefore changed our earning forecast and upgraded our TP to Rp9,400/share from Rp8,700/share previously. Despite that, we downgraded our recommendation from buy to netural as the stock only provides limited upside potential from the current share price.
Strong net profit growth despite high provisioning expenses. Despite high provisioning expenses (+106.4% yoy) allocated in 2009, BBRI’s net profit remained strong at Rp7.3tn (+22.7% yoy), thanks to 16.6% yoy growth in net interest income and 30.7% yoy growth in fee-based income. The bank managed to complete its online system at all branches in Nov09, allowing it to charge additional fees to custome! rs (from Rp5,000/month to Rp8,000/month for any new ATM subscribers).
Still posted the highest loan growth in the sector. Such strong performance was also supported by strong loan growth of 27.6% yoy Rp205.5tn at end 2009, the highest in the sector. Small consumer loans posted the highest growth of 36.3% yoy to Rp41.6tn, representing 20.0% of total loans at end 2009. Majority of small consumers loans were payroll loans, thus basically secure (NPL only recorded at 1.4% at end 2009).
Lower NIM but ROAE remained high. BBRI’s valuation had been derated for the past few years along with the continuous decline in the bank’s NIM (from 12.0% in 2005 to 9.1% in 2009). While NIM will likely stay around 9% going forward, it is worth to see that the bank’s ROAE has actually showed improvement in the past two years, enabled by strong growth in earning assets (28.7% yoy in 2009 and 58.4% yoy in 2008) boosted by corporate loans. Whi! le negati ve sentiment arose with the bank’s higher exposure to corporate loans, the bank assured that the contribution of corporate loans to total loans will not exceed 20% and majority of the loans will be extended to State Owned Enterprises (note: NPL from corporate was at 4.4% at end 2009 vs NPL total of 3.5%)
Downgraded to neutral. We adjusted our forecast on BBRI to incorporate 2009 results and projected lower provisioning expenses. Consequently, we upgraded our TP to Rp9,400/share from Rp8,700/share previously. Despite that, we downgraded our recommendation from buy to netural as the stock only provides limited upside potential from the current share price.
Strong net profit growth despite high provisioning expenses. Despite high provisioning expenses (+106.4% yoy) allocated in 2009, BBRI’s net profit remained strong at Rp7.3tn (+22.7% yoy), thanks to 16.6% yoy growth in net interest income and 30.7% yoy growth in fee-based income. The bank managed to complete its online system at all branches in Nov09, allowing it to charge additional fees to custome! rs (from Rp5,000/month to Rp8,000/month for any new ATM subscribers).
Still posted the highest loan growth in the sector. Such strong performance was also supported by strong loan growth of 27.6% yoy Rp205.5tn at end 2009, the highest in the sector. Small consumer loans posted the highest growth of 36.3% yoy to Rp41.6tn, representing 20.0% of total loans at end 2009. Majority of small consumers loans were payroll loans, thus basically secure (NPL only recorded at 1.4% at end 2009).
Lower NIM but ROAE remained high. BBRI’s valuation had been derated for the past few years along with the continuous decline in the bank’s NIM (from 12.0% in 2005 to 9.1% in 2009). While NIM will likely stay around 9% going forward, it is worth to see that the bank’s ROAE has actually showed improvement in the past two years, enabled by strong growth in earning assets (28.7% yoy in 2009 and 58.4% yoy in 2008) boosted by corporate loans. Whi! le negati ve sentiment arose with the bank’s higher exposure to corporate loans, the bank assured that the contribution of corporate loans to total loans will not exceed 20% and majority of the loans will be extended to State Owned Enterprises (note: NPL from corporate was at 4.4% at end 2009 vs NPL total of 3.5%)
Downgraded to neutral. We adjusted our forecast on BBRI to incorporate 2009 results and projected lower provisioning expenses. Consequently, we upgraded our TP to Rp9,400/share from Rp8,700/share previously. Despite that, we downgraded our recommendation from buy to netural as the stock only provides limited upside potential from the current share price.
CIMB Bank Panin Quick takes - Two-thirds of the way
(PNBN IJ / PNBN.JK, OUTPERFORM - Maintained, Rp1,110 - Tgt. Rp1,280, Financial Services)
Maintain OUTPERFORM with target price raised to Rp1,280. Late last week, ANZ announced that it will raise its stake in PT ANZ Panin Bank (APB) to the maximum 99% from 85% currently, a move which may cost them US$44m. This development, which precedes ANZ's takeover of RBS Indonesia in Jun 10, underpins our earlier view that ANZ could be in the midst of building a bank bigger than Danamon as part of its intention to become one of the major banking players in Indonesia. If that is indeed the case, besides APB and RBS Indonesia, ANZ needs a third and final piece to complete the structure i.e. Bank Panin. However, its current 39% stake in Bank Panin is insufficient for control which could lead to a bid to increase its holdings by buying off the founder's majority stake, which could trigger a tender offer. With the recent developments, we are even more convinced of our earlier thesis. Hence, we raise our target price to Rp1,280 (from Rp900 previously), based on a 20% discount to the average 2008-09 M&A valuation of 3.6x trailing P/BV, a more aggressive figure from 2007-09's 2.5x used previously. We apply the 20% discount to factor in timing uncertainties.
Maintain OUTPERFORM with target price raised to Rp1,280. Late last week, ANZ announced that it will raise its stake in PT ANZ Panin Bank (APB) to the maximum 99% from 85% currently, a move which may cost them US$44m. This development, which precedes ANZ's takeover of RBS Indonesia in Jun 10, underpins our earlier view that ANZ could be in the midst of building a bank bigger than Danamon as part of its intention to become one of the major banking players in Indonesia. If that is indeed the case, besides APB and RBS Indonesia, ANZ needs a third and final piece to complete the structure i.e. Bank Panin. However, its current 39% stake in Bank Panin is insufficient for control which could lead to a bid to increase its holdings by buying off the founder's majority stake, which could trigger a tender offer. With the recent developments, we are even more convinced of our earlier thesis. Hence, we raise our target price to Rp1,280 (from Rp900 previously), based on a 20% discount to the average 2008-09 M&A valuation of 3.6x trailing P/BV, a more aggressive figure from 2007-09's 2.5x used previously. We apply the 20% discount to factor in timing uncertainties.
Mandiri Sekuritas Bakrie and Brothers: FY09 performance below consensus, net loss Rp1.6tn (BNBR, Rp70/share, Not rated)
Bakrie and Brothers posted FY09 net loss of Rp1.6tn, an improvement from FY08 net loss of Rp16.5tn as the company in FY08 booked Rp17.1tn loss from investment on subsidiaries sale.
From the operational side, the company yoy performance worsened with revenues declining by 9.0%yoy due to 20%yoy revenues decline from UNSP, but offset by 25%yoy revenue growth from BTEL. Operating profit declined by 43.9%yoy due to decline in UNSP operating profit by 38%yoy and BTEL by 24%yoy.
However, the main reasons of the poor 4Q09 net income were (1) loss from ENRG where ENRG posted Rp1.4tn loss in 4Q09 due to debt restructuring and financing charges, (2) interest expense of Rp821bn (+720%qoq), and (3) allowance from asset revaluation of Rp237bn.
We have no coverage on the stock. Based on consensus, the stock is trading at PER10F of 17.2x
From the operational side, the company yoy performance worsened with revenues declining by 9.0%yoy due to 20%yoy revenues decline from UNSP, but offset by 25%yoy revenue growth from BTEL. Operating profit declined by 43.9%yoy due to decline in UNSP operating profit by 38%yoy and BTEL by 24%yoy.
However, the main reasons of the poor 4Q09 net income were (1) loss from ENRG where ENRG posted Rp1.4tn loss in 4Q09 due to debt restructuring and financing charges, (2) interest expense of Rp821bn (+720%qoq), and (3) allowance from asset revaluation of Rp237bn.
We have no coverage on the stock. Based on consensus, the stock is trading at PER10F of 17.2x
Mandiri Sekuritas Kawasan Jababeka: FY09 net income at Rp16bn from a loss in 08, but still below expectations (KIJA, Rp107, Buy, TP: Rp265)
The company reported net income of Rp16bn from in 2009 from a loss in 2008, but still fell way below ours and consensus estimates. Compounding its woes is a 15%yoy drop in revenues, which even included a months worth of power plant contribution. Ex-power plant, revenues would have fallen further by another 5% to 20%yoy. With the uncertainty facing its power plant as well the unresolved action plan with regards to the maturing US$35mn debt this April, we are likely to pull down our TP. The stock currently trades at a 76% discount to NAV10F.
DBS Bank Central Asia: Hold; Rp5,750; TP Rp5,100; BBCA IJ
Expects 35% growth in sharia unit
Bank Central Asia launched sharia unit on Monday, targeting 35% growth a year in assets, financing, and third-party funds. BCA will use its nationwide network to support transactions for its sharia unit so that consumers can access BCA syariah services in BCA branches. BCA syariah currently has 11 branches, nine are in Jakarta and two are in Surabaya . So far, the bank has Rp776bn in total assets and Rp296bn in working capital. It also has another Rp230bn in additional financing and Rp420bn in consumers’ fund. We see this as neutral to BBCA. BBCA's growth will be focused on cumsumer and SME segments. Corporate loans growth, if at all, would be slower although it could move towards some Tier-2 corporates in addtion to top tier corporates without compromising asset quality.
Maintain Hold, with TP unchanged at Rp5,100 based on the Gordon Growth Model with implied 4.0x FY10 P/BV. Trading at 4.5x FY10 BV makes BBCA the most expensive bank in our regional bank universe. We believe BBCA’s premium valuation has priced in its solid transactional banking franchise.
Bank Central Asia launched sharia unit on Monday, targeting 35% growth a year in assets, financing, and third-party funds. BCA will use its nationwide network to support transactions for its sharia unit so that consumers can access BCA syariah services in BCA branches. BCA syariah currently has 11 branches, nine are in Jakarta and two are in Surabaya . So far, the bank has Rp776bn in total assets and Rp296bn in working capital. It also has another Rp230bn in additional financing and Rp420bn in consumers’ fund. We see this as neutral to BBCA. BBCA's growth will be focused on cumsumer and SME segments. Corporate loans growth, if at all, would be slower although it could move towards some Tier-2 corporates in addtion to top tier corporates without compromising asset quality.
Maintain Hold, with TP unchanged at Rp5,100 based on the Gordon Growth Model with implied 4.0x FY10 P/BV. Trading at 4.5x FY10 BV makes BBCA the most expensive bank in our regional bank universe. We believe BBCA’s premium valuation has priced in its solid transactional banking franchise.
Macquarie Bumi Resources (BUMI IJ) (Outperform) - US$104/t settlement for JFY10
Event
Bumi Resources announced that its coal mine subsidiary, KPC (not listed - 70% owned) has concluded thermal coal settlement for JFY10 at an FOB price of US$104/t (up 44% YoY), which is a premium to Xstrata settlement of US$98/t. Further, it also highlights that it is on track to exceed its ASP guidance and our 2010 forecast of US$67/t FOB.
Impact
Benefiting from the freight differential. We believe that Bumi's US$6/t settlement premium over Xstrata represents the cheaper freight rates from Indonesia to Japan vs. Australia to Japan. We understand that typically freight rates from Indonesia are roughly about US$6-8/t cheaper than freight rates from Australia. It is also worth to noting that back in 2008, the company also managed to secure US$132/t Japanese settlement, a premium vs. Xstrata's settlement of US$125/t. Upside risks to our US$67/t forecast for 2010. We believe that the price settlement will represent a benchmark for the company's negotiation with other customers. Exports to Japan represent roughly 25% of the company's sales volumes historically. We therefore see upside risks to our 2010 ASP forecasts of US$67/t towards US$69-70/t and 10-12% potential upside to 2010 earnings. Improving execution. We believe that the company is on track to achieve our 2010 production forecast of 66.5mt, especially given the company achieved a 65–70mt run rate in 4Q09. Further, we forecast production to continue to increase to 75mt in 2011 and 89mt in 2012 and reach 100mt in 2014. Valuation also looks attractive, trading on 10.2x and 6.5x 2010/11 PER given the ASEAN sector trades on 13x in 2010E and 8x in 2011E. Further, the company's share price has also been lagging both the Indonesian market and its coal peers by about 20% and 20-25%, respectively.
Action and recommendation
We reiterate our Outperform recommendation on the stock with a Rp3,075 price target given its high leverage to coal price, robust production growth outlook, and attractive valuation. However, we continue to highlight the company's corporate governance risks and therefore think that Tata Power (TPWR IN, Rs1,382, OP, TP: Rs1,651) to be a better way to play coal price leverage.
Bumi Resources announced that its coal mine subsidiary, KPC (not listed - 70% owned) has concluded thermal coal settlement for JFY10 at an FOB price of US$104/t (up 44% YoY), which is a premium to Xstrata settlement of US$98/t. Further, it also highlights that it is on track to exceed its ASP guidance and our 2010 forecast of US$67/t FOB.
Impact
Benefiting from the freight differential. We believe that Bumi's US$6/t settlement premium over Xstrata represents the cheaper freight rates from Indonesia to Japan vs. Australia to Japan. We understand that typically freight rates from Indonesia are roughly about US$6-8/t cheaper than freight rates from Australia. It is also worth to noting that back in 2008, the company also managed to secure US$132/t Japanese settlement, a premium vs. Xstrata's settlement of US$125/t. Upside risks to our US$67/t forecast for 2010. We believe that the price settlement will represent a benchmark for the company's negotiation with other customers. Exports to Japan represent roughly 25% of the company's sales volumes historically. We therefore see upside risks to our 2010 ASP forecasts of US$67/t towards US$69-70/t and 10-12% potential upside to 2010 earnings. Improving execution. We believe that the company is on track to achieve our 2010 production forecast of 66.5mt, especially given the company achieved a 65–70mt run rate in 4Q09. Further, we forecast production to continue to increase to 75mt in 2011 and 89mt in 2012 and reach 100mt in 2014. Valuation also looks attractive, trading on 10.2x and 6.5x 2010/11 PER given the ASEAN sector trades on 13x in 2010E and 8x in 2011E. Further, the company's share price has also been lagging both the Indonesian market and its coal peers by about 20% and 20-25%, respectively.
Action and recommendation
We reiterate our Outperform recommendation on the stock with a Rp3,075 price target given its high leverage to coal price, robust production growth outlook, and attractive valuation. However, we continue to highlight the company's corporate governance risks and therefore think that Tata Power (TPWR IN, Rs1,382, OP, TP: Rs1,651) to be a better way to play coal price leverage.
JP Morgan - Indonesia Equity Strategy: How blue is the sky? Equity drivers at an all-time index peak
The JCI Composite closed at a new all-time high of 2,887 on 5 April. We use this vantage to review the major drivers of Indonesian equities – looking at their current positioning from the perspective of previous peaks.
· Growth: J. P. Morgan’s Economics team has raised Indonesian FY10 GDP growth forecasts to 6.2% (from 5.5%), which is higher than consensus of 5.7%. This compares to 2007 GDP growth of 6.3%.
· Earnings Revisions: Strong monthly volume data (cars, cement, etc.) and 4QFY09 net profits that were 14% above consensus lends confidence that consensus FY10E EPS growth of 14% carries upside potential.
· Valuations: At 14x 12M forward P/E, Indonesian market multiples are at a 15% discount to their 2007 peak levels of 16.4x.
· Interest Rates: We see the decline in 10-year bond yields (9.1% currently, down 75bps in the last month) as a key driver of equities via lower discount rates. The 10-year bond peaked at an 8.7% yield in FY07.
· Investor positions: Indonesia is a consensus overweight market, which could be a risk if fundamentals turn or investor appetite reverses. The extent of EM OW positioning (0.7% higher than benchmark) is in line with 2007 peak levels. Overall foreign holdings are less than Nov 09 peaks.
Overall, at this time, we do not view Indonesian equities as overextended. We are, however, wary of politics flaring up again. We highlight that evidence of better execution on infrastructure spending and resolving investment bottlenecks are critical if the re-rating is to prove sustainable and more than just cyclical. We rate Indonesia as a neutral weight within an ASEAN, Asian and EM context.
· Forty-five percent of the JCI move since the end of February can be traced to five stocks – Astra, BRI, BCA, PGAS and BMRI. We expect Astra to consolidate, but think medium-term drivers remain in place. Tariff hikes propelled PGAS recently, and it may cool off till gas volumes start to accelerate. The banks have outperformed uniformly despite divergent fundamental trends – asset quality at BMRI & BCA is improving while 4Q new NPL creation at BRI was 13% of disbursals. We recommend selling BRI and buying BMRI. We recommend buying property (mid-caps) or building materials stocks (laggards) to capitalize on property sales volumes, which have picked up recently on domestic demand strength and lower rates. We would look for earnings estimates stabilizing/recovering as an inflection point for telcos, which we think may be an opportunity down the line, given their substantial underperformance over one/three/12 months.
· Growth: J. P. Morgan’s Economics team has raised Indonesian FY10 GDP growth forecasts to 6.2% (from 5.5%), which is higher than consensus of 5.7%. This compares to 2007 GDP growth of 6.3%.
· Earnings Revisions: Strong monthly volume data (cars, cement, etc.) and 4QFY09 net profits that were 14% above consensus lends confidence that consensus FY10E EPS growth of 14% carries upside potential.
· Valuations: At 14x 12M forward P/E, Indonesian market multiples are at a 15% discount to their 2007 peak levels of 16.4x.
· Interest Rates: We see the decline in 10-year bond yields (9.1% currently, down 75bps in the last month) as a key driver of equities via lower discount rates. The 10-year bond peaked at an 8.7% yield in FY07.
· Investor positions: Indonesia is a consensus overweight market, which could be a risk if fundamentals turn or investor appetite reverses. The extent of EM OW positioning (0.7% higher than benchmark) is in line with 2007 peak levels. Overall foreign holdings are less than Nov 09 peaks.
Overall, at this time, we do not view Indonesian equities as overextended. We are, however, wary of politics flaring up again. We highlight that evidence of better execution on infrastructure spending and resolving investment bottlenecks are critical if the re-rating is to prove sustainable and more than just cyclical. We rate Indonesia as a neutral weight within an ASEAN, Asian and EM context.
· Forty-five percent of the JCI move since the end of February can be traced to five stocks – Astra, BRI, BCA, PGAS and BMRI. We expect Astra to consolidate, but think medium-term drivers remain in place. Tariff hikes propelled PGAS recently, and it may cool off till gas volumes start to accelerate. The banks have outperformed uniformly despite divergent fundamental trends – asset quality at BMRI & BCA is improving while 4Q new NPL creation at BRI was 13% of disbursals. We recommend selling BRI and buying BMRI. We recommend buying property (mid-caps) or building materials stocks (laggards) to capitalize on property sales volumes, which have picked up recently on domestic demand strength and lower rates. We would look for earnings estimates stabilizing/recovering as an inflection point for telcos, which we think may be an opportunity down the line, given their substantial underperformance over one/three/12 months.
Deutsche Bumi Alert : First take on FY09 results; FY08 tax restatement
Bumi {Ticker: BUMI.JK, Closing Price: 2,300.00 IDR, Target Price: 2,100.00 IDR, Recommendation: Sell}
Bumi's FY09 NP reached US$190.5mn, -49%yoy vs Restated FY08 NP of US$372mn. One-off charges incl. the US$275mn related to mining stripping expenses under COGS. Adjusting for this item, EBIT was 6-7% lower than DB & consensus. Sales vol (58mT, +13%yoy) and ASP of US$63/t was in-line with expectation.
Other new non-operating charges in FY09 included US$63mn in loss on derivative transactions and US$42mn on late tax payment interest expense. In addition, Bumi's FY09 effective tax rate was also about 45%, higher than company's guidance of 30%, and appears to be moving closer to KPC & Arutmin's official corp tax rate of 45%.
FY08 NP was also restated from US$657mn previously to US$372mn, due to a significant restatement in tax expense from US$90mn to US$489mn (c.US$400mn increase), resulting in a restated effective tax rate of 47% in FY08 - though we've yet to get more clarity on timing of the actual cash outflow on this item.
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Bumi's FY09 NP reached US$190.5mn, -49%yoy vs Restated FY08 NP of US$372mn. One-off charges incl. the US$275mn related to mining stripping expenses under COGS. Adjusting for this item, EBIT was 6-7% lower than DB & consensus. Sales vol (58mT, +13%yoy) and ASP of US$63/t was in-line with expectation.
Other new non-operating charges in FY09 included US$63mn in loss on derivative transactions and US$42mn on late tax payment interest expense. In addition, Bumi's FY09 effective tax rate was also about 45%, higher than company's guidance of 30%, and appears to be moving closer to KPC & Arutmin's official corp tax rate of 45%.
FY08 NP was also restated from US$657mn previously to US$372mn, due to a significant restatement in tax expense from US$90mn to US$489mn (c.US$400mn increase), resulting in a restated effective tax rate of 47% in FY08 - though we've yet to get more clarity on timing of the actual cash outflow on this item.
The following link will be available for 90 days. For more information, please click on the link for the full PDF. If you have any trouble viewing the link, copy and paste the link in a browser. http://pull.db-gmresearch.com/p/83-EFA1/74848991/0900b8c081aa5452.pdf
After 90 days you can access the report on our web site: http://gm.db.com
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