A Cup of Tea 16 Apr'10

TIN, among other industrial metals, soldering metal tin MSNKA3 climbed to a late-session peak at $19,000 per tonne, it’s highest since September 2008. It was last quoted at $18,970/$18,975 from $18,845.
LME stocks fell 95 tonnes to 24,135 tonnes while canceled warrants – material set to leave warehouses - rose 2,405 tonnes to 2,835 tonnes. The move may indicate an uptick in demand for tin as conditions in the electrical solder industry improve.

Nickel stood out amid a mixed day for metals, rising to its highest in nearly two years as investors bet on a pick-up in stainless steel output, where nickel is the key ingredient, and potential supply tightness.
Stainless steel making ingredient nickel MNIKA3 peaked at $27,250 per tonne, its loftiest level since May 2008, before closing at $27,225 from Wednesday's $26,400.
Nickel, the strongest performer on the LME this year, continues to benefit from supply tightness and a recovery in the stainless steel industry, which accounts for about two thirds of nickel demand.

Nickel stocks at LME warehouses fell 1,428 tonnes to 151,878 tonnes, their lowest since late December 2009 and down 9 percent since a record high of 166,476 tonnes in early February.

The nickel market may swing into a deficit for the first time in four years as the global economy recovers from its worst postwar recession, fueling demand for stainless steel, said Sumitomo Metal Mining Co., the biggest producer in Japan. World demand will probably exceed supply by 36,000 metric tons in 2010, the first deficit since 2006. Global production of nickel may increase 7 percent to 1.37 million tons this year from 1.28 million in 2009, while consumption may advance 13 percent to 1.41 million tons from 1.25 million tons. Nickel demand in China may increase 12 percent to 480,000 tons from 430,000 tons in 2009, while output may grow 13 percent to 270,000 tons from 240,000 tons, Nickel consumption in Japan may expand 17 percent to 135,000 tons this year from last year’s 115,000 tons.

ANTM (Reminder)
Nickel Price continues to upward trend. Demand from steel industry triggered higher price movement. We expect a higher nickel price to be sustained and the market to return to deficit for 2010. With these circumstances I will adjust metal prices to reflect the new forecasts, Nickel average 2010 upgrade from 17000 usd/ton to 22500 usd/ton on. Gold average 2010 upgrade from 1200 usd/t.oz to 1300 usd t.oz due higher inflation on 2010. Every 10% increase in average nickel and gold price would be impacted about 21% and 6%. Note: Revenue Breakdown Ferro Nickel 22.3%, Nickel Ore 19%, Gold Mining 12.4%, and Others 46.3%.

For that reason, I will upgrade EPS ANTM at 208 (from EPS 131 PE 18.51xPE’10 consensus base). I will set Price Objective ANTM at 3328 in line with PE market at 16x F’10. The high P/E suggests an opportunity to buy into this highly cyclical company --- Buy.

INCO (Reminder)
PT Inco is a nickel pure play whose earnings are highly sensitive to nickel prices. Well positioned to leverage on higher prices. The uplift in nickel price should be more than enough to cover the higher costs. With assuming nickel average at 22500 I put EPS will growth to 0.0387 usd. Price objective for INCO at 5632 in line with PE market at 16x --- Buy.

BUMI (Reminder)--- CIC issue will be a trigger
I believe that the Xstrata settlement price of US$98/t is a positive and will see upside risks to our thermal companies' 2010 earnings forecast. The reference price usually sets the tone for other contract negotiations in the region. I continue to expect the thermal coal market to be tighter in 2010-2011 driven by potential supply/demand tightness due to the potential for increasing demand from the China market and Indian imports as electrification rates increases. Exports to Japan typically account for about 20-25% of Indonesian company's total sales.

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. Bumi’s production volumes rose 19.5% to 63.1Mt, with volume sales of 58.4Mt (vs 2008: 51.5Mt), while its costs 2009 decreased to $28.3/ton from $33.11 in 2008. The Newcastle benchmark prices now at US$98.74/t were above consensus estimate of US$95/t. This is very positive for BUMI because they had 65% volume unpriced in 2010. I assumed that thermal coal average will be at US$100/t. With 65% still open contract I predict that EPS consensus could upgrade to 40-50% at 0.03$.

What Bumi can make in 2010 net income?, that really depends on their plan to below operating line activities such as plan to reduce debt of US$1.1bn through debt to equity swap and the placement of its subsidiary.

Valuation BUMI also looks attractive, trading on 9.16x PER 2010 vs 10.2x PER ASEAN Coal sector and 13x in 2010E PER China Coal Sector. Price Objective BUMI at 3500 with 13x PER 2010 --- Buy.

UNSP
Revenue and operating profit came in at Rp2.3tn and Rp470.3bn , -21% and -38% YoY mainly due to lower CPO price as CPO production relatively flat compare to last year. Net profit for full year 2009 is Rp253bn, increased by 46% YoY boosted by Rp138bn of forex gain. UNSP post one-off Rp83.5bn loss on written-off business development project. Accumulate this share for better growth.

Bang Juntri

Chinese coal ship refloated from Australian reef

CANBERRA (Reuters) - Australian salvage teams have refloated a Chinese coal ship which ran aground on the Great Barrier Reef, with the ship's owner likely to face heavy fines despite the avoidance of an environmental disaster.

Chinese bulk carrier Shen Neng 1 was fully loaded and traveling at full speed on Saturday when it struck the Douglas Shoal, toward the southern end of the protected reef, which covers 346,000 sq km (133,600 sq miles) off the northeast coast.

The ship, which leaked around two tons of heavy fuel oil, was refloated at high tide on Monday night and towed to safe anchorage near Great Keppel Island, a tourist resort, for a damage inspection.

"Until we get divers down you can't be totally certain how damaged this thing is underneath," said Queensland state Transport Minister Rachel Nolan on Tuesday.

The stranded ship belongs to the Shenzhen Energy Group, a subsidiary of China's state-owned China Ocean Shipping (Group) Company, better known by its acronym COSCO. more...

Mandiri Sekuritas DOMESTIC BOND MARKET

􀂄 Liquidity in the inter-bank money market was normal, indicated by the relatively low overnight JIBOR at 6.19. The rupiah grew to 9,013 (+15 points), moved toward its strongest point in 33 months after neighboring Singapore had raised its economic growth forecast, improving the outlook for regional trade. The dollar index (DXY)
weakened to 80.19 (-23bps). The spread between the yields of the domestic and Yankee bonds slightly narrowed to 4.33 (-3bps) means that investors expected the rupiah will appreciate against the US dollar.

􀂄 Overall, the government’s rupiah bond prices were still prolong its pace by 0.29%, with yield decreased to 8.61% (-8bps), with the 2-year fell the most by -15bps. Trading volume decreased to Rp6.5tn vs Rp10tn on the previous day. The most actively traded security was again the long-term 20-year FR52 totaling around Rp1.6tn— more than 25% of total trading. The FR52 was traded at 105.25 yielding 9.89% or down slightly from 9.91% on the previous day. Our fair yields for the bond is 9.80%, thus we think the FR52 is currently traded below its fair value, which then we recommend investors to buy this series.

Outlook: Trading wise we recommend investors take profit on the 17-yrs FR45 and the 10-yrs FR31 that are now trading at 97.95 and 116.2, yielding 10.05% and 8.64% respectively. Our fair prices for those bonds are 96.33 and 114.99, with fair yields
at 10.15% and 8.79%. Meanwhile, we assigned buy recommendation on the 16-yr FR37 and 17-yr FR42 with fair prices of 121.15 and105.68, yielding 9.44% and 9.57%

Mandiri Sekuritas US BOND MARKET

􀂄 Wednesday's bond market has opened in negative territory following the release of stronger than expected consumer spending data. The stock markets are reacting favorably to the same data and financial reports from JPMorgan and Intel. The Dow is currently up 103.7 points (+0.94%) while the Nasdaq has boosted 39 points (+1.58%).
The bond market is currently down 5/32 with the 2-year note is off 0.25/32 to yield 1.05%, the 10-year note is off 10.5/32 to yield 3.86% and the 30-year note is off 25/32 to yield 4.73%.

􀂄 There are three relevant economic data released Wednesday:
1. The Commerce Department reported retail sales raised 1.6%mom, exceeding forecasts. This means that consumers spent more last month than many had thought. This is considered negative news for bonds.
2. March's Consumer Price Index (CPI) reported raised 0.1%mom for overall index or inline with market consensus. Meanwhile, the good news came in the more important core data that reported no change from February's level when vs. +0.1% increase of
market consensus. This indicates that inflationary pressures were softer than expected at the consumer level of the economy. That can be considered quite favorable for bond market.
3. The Federal Reserve also posted its Fed Beige Book report. Fed Chairman Bernanke expressed the Fed’s pledge to keep interest rates low for an extended period of time to assist the recovery of the economy.

􀂄 The only relevant data to be released is Industrial Production for March. It gives us a measurement of output at U.S. factories, mines and utilities, translating into a hint of manufacturing sector strength. Market consensus expected to show an increase in production of 0.7%mom. This data is considered to be only somewhat important, so it will still give an impact to bond trading.

CIMB Sector Update – Cement

Maintain OUTPERFORM. We are raising our domestic sales volume growth forecast for Holcim from 9% to 12% for FY10 as the company sold 1.3m tonnes of cement domestically in 1Q10, making up 23% of our forecast, which is more than the historical 20-21%. This, along with a higher FY12 margin forecast, raises our FY10-12 earnings forecasts by 2-8%. Our DCF-based target price rises from Rp2,200 t Rp2,700 (WACC 12.6%). We maintain our OUTPERFORM call. Potential catalysts for the company include further margin upside and higher volume growth in 2H10.

Credit Suisse: Indonesia Banks Sector - More attractive than meets the eye

■ Concerns unjustified: With some Indonesian banking stocks trading at the higher end of their historical range, investors often want to know whether the valuations and earnings expectations for these stocks are stretched. Our study found no such evidence and we deem the current valuations and earnings expectations for Indonesian banking stocks to be very modest.

■ Modest expectations: We employ consensus estimates into Gordon’s growth model and find that the risk free rate implied by the current share prices is 8.23-9.61%, higher than the current five-year Indonesia government bond yield of 8.13%. In addition, consensus estimates remain 9-16% below our already modest earnings forecasts. Our FY10E loan growth, PPOP growth and credit costs are in line with the historical average; very modest assumptions, in our view, given the rosy outlook for Indonesia’s economy. We find no evidence that the valuations and earnings expectations implied by the current share prices are demanding, as these are built based on reasonable valuations and very modest earnings expectations.

■ Room for more upside: We see room for potential upside in Indonesian banking stocks from: 1) potential consensus earnings upgrades and 2)potential rerating, should Indonesian government bond yield improve from its current level. In the Indonesian banking sector, we like (in our order of preference): BMRI, BBRI, BDMN, BBCA, PNBN and BBNI. We increase our target price for BBCA (from Rp5,300 to Rp6,300), BBRI (from Rp9,600 to Rp11,000), BMRI (from Rp5,900 to Rp6,900), BDMN (from Rp6,100 to
Rp6,700), BBNI (from Rp1,680 to Rp1,925) and PNBN (from Rp900 to Rp1,000).

CIRA Indonesia Cement - Alert: Record Domestic Volume for March

Huge pent-up housing demand and record low mortgage rate underpinned robust
domestic cement demand in March. At 3.39m tons, it is the highest volume ever
for March and only a tad lower than the record monthly volume set in August
2007 of 3.42m tons. March volume surged 27% y-y growth with Java seeing the
fastest y-y growth in recent memory of 23%.

This brings the national volume growth in 1Q10 to 17.7% – well above our
expectation. To meet our estimate of 10% y-y growth in 2010E, volume needs to
grow just 8% y-y in April to December 2010.

After tepid growth in the past five years, Java staged a robust recovery. Java’s
volume surged 17.2% y-y in 1Q10 – just a tad lower than the outer islands’ growth
of 18.3% and also the smallest difference in the past few years. The industry
utilization rate (including exports) stood at 81.5% in 1Q10 on 50.4m tpa capacity.

Domestic market share:
Indocement – The company logged 21% y-y growth in 1Q10 to 3.0m tons. The
fastest growing marketplace for Indocement was interestingly East Java, which is
Semen Gresik’s stronghold. We think Semen Gresik’s very limited spare capacity
is the main reason for Indocement’s market share gain. Indocement’s national
market share improved to 30.7% in 1Q10 from 29.8% in 1Q09 (4Q09: 31.3%; the
Q-Q decline in 1Q10 stemmed from lower market share in Sumatra).

Semen Gresik Group (SGG) – At 12.4% y-y volume growth in 1Q10, SGG’s is the
lowest amongst its main peers. Hence, the group’s market share declined to
43.6% in 1Q10 from 45.7% in 1Q09 (4Q09: 42.5%; the Q-Q increase was on
improved market share in Sumatra).

Holcim Indonesia (HI) – The company logged the fastest growth at 24.3% in
1Q10. HI’s market share hence expanded to 13.4% in 1Q10 from 12.7% in 1Q09
(4Q09: 15.3%; lower market shares in Central and East Java were the main
reason for the lower sequential market share).

Danareksa Bank Mandiri (BMRI IJ Rp5,250 HOLD) Turning positive, but more work is still needed

The turnaround continues; upgrade to Hold
We raise our FY10-11E EPS estimates by 14-16%, reducing the estimated provisioning charges to align our forecast with the company’s guidance. Progress has been made and Mandiri has done well in restructuring its legacy bad debt problems. Yet more still needs to be done. Looking ahead, additional reversal of provisioning shall come from two large debtors: Garuda and Domba Mas – but because the timing is still unknown we exclude it from our forecast. Despite the increased optimism, history suggests we remain cautious on the potential NPL increases - there have been net loan downgrades over the last four years! A relatively low NIM remains the bank’s weakness despite the slight improvement expected this year. Following our adjustments, our DDM-derived TP is raised to Rp5,250. This implies 2.7-2.4x FY10-11E PBV, a 42% premium to its 3-yr average or at par with its domestic peers ex-BBCA – too pricy, in our view, given the bank’s inferior NIM. Hence, among the SOE banks, we prefer the cheaper BBNI to Mandiri despite the latter’s turnaround story.

Garuda and Domba Mas: near-term catalysts
There are likely to be more provisioning write-backs going forward. So far, a total of Rp33trn has been written off – with Rp6.1trn in the last 3 years alone. Recovery is underway, yet it is doubtful the bank can fully recover all bad debts. Two imminent reversals shall come from Garuda and Domba Mas, together totaling around Rp2.4trn, albeit the timing is still unknown. The reversals are positive: 9% and 7% higher FY11-12E EPS (assuming a split over 2 years) and therefore ROE in excess of 24% - although concerns remain on the potential increase in NPLs with no significant improvement in operational indicators such as NIM. Indeed, last year’s lower NPLs were mainly due to write-offs - a strategy that could lead to further write-backs in later years. The higher amount of loans restructured also suggests that loan channeling needs to be significantly improved.

A focus on high yielding consumer loans
We expect Mandiri’s NIM to expand by a mere 20 bps this year. This improvement shall come from a lower COF rather than higher asset yields - albeit the latter should remain in excess of 9%. Nonetheless, Mandiri’s NIM will still be inferior relative to the industry benchmark. The lower COF will come from the re-pricing of maturing high cost deposits. This is thanks to the stable BI rate, with Mandiri likely to see an improvement in its low-cost CASA as fears of liquidity problems ease. The bank will also work hard to grow its high yielding consumer loans - a successful strategy in the past 4 quarters – and this should help keep the NIM above 5.3% we believe. As a result, the dominance of low yielding corporate loans will decline further. Note that the bank’s consumer and micro loans have grown 23% and 40% respectively over the past 3 years, or far exceeding the 16% growth for corporate loans. Over the next 2 years, we expect the proportion of retail loans to increase to 30% from 25% currently, with the asset yield stable at 9.0-9.2%.

In need of more capital!
With 12.4% tier-1 capital, sustaining 18-20% 3-yr CAGR loan growth will mean additional capital raising – be it either a sub-debt issuance or rights issue. The latter would lead to 2-5% higher CAR, depending on the structure of the rights issue. There are basically three possibilities – 1) government divestment; 2) a rights issue which dilutes the government’s stake or 3) a combination of a rights issue with government divestment. An added incentive for boosting its shareholders’ base is the lure of 5% tax incentives. EPS dilution would be minimized to 2-6% this year, with potential earnings upside of 1-5%. This assumes the rights issue is conducted in 4Q10 and the proceeds are placed in SBI in the first year and channeled into loans the next year. Like the BBNI rights issue, we think Mandiri stands to benefit from conducting a rights issue since it will facilitate brisker loans growth without the bank having to take on new debts. Our scenario analysis favors a combination of government divestment and a rights issue, limiting dilution to around 2-3% in the first year and with 5% expected higher EPS growth the next year, in our estimates.

CLSA Alam Sutera (ASRI IJ) marketing sales update

ASRI marketing sales for 1Q10 were up 287% YoY from Rp118bn to Rp458bn. 1Q10 is also up 23% QoQ versus 4Q09 from Rp373bn. Most of the new marketing sales booked are from the sale of shophouses and SOHO (small office home office).

The targeted marketing sales this year is Rp1.2tn. Annualizing the 1Q10 results, we'll get Rp1.8tn; a good start of the year by the company.

In 1-2 months time, ASRI is planning to launch one cluster of residential area Sutera Renata, following their recent launching of apartment blocks. The new land price would be around Rp4mn/m2 versus the current Rp3.3mn/m2 for residential area.

CLSA Telkom (TLKM IJ) update

Telkom is in negotiations to transfer ownership of the towers from its mobile subsidiary, PT Telekomunikasi Selular (Telkomsel), to its telecom-infrastructure subsidiary, PT Dayamitra Telekomunikasi (Mitratel).

The government’s “negative investment list,” or DNI, doesn’t allow foreign ownership of telecommunications infrastructure. Since Singapore’s SingTel owns 35% of Telkomsel, Telkom has to transfer ownership of the towers to a wholly owned subsidiary.

Telkomsel has a total of about 22,000 towers, of which as many as 9,000 of them will be managed by Mitratel. The remainder are core towers that can’t be shared.

Based on the construction cost, each tower was valued at Rp800m to Rp1.2 bn ($88,690 to $133,000). That would make the total value of the 9,000 towers somewhere between Rp7.2 trillion and Rp10.8 trillion. Operational telecom towers were worth more than their construction costs. For a single tower, it may cost Telkom $200,000 to $500,000. That would mean Telkom may have to spend up to $4.5 billion to acquire all 9,000 towers

Telkom plans to float Mitratel on the Indonesia Stock Exchange (IDX) once the towers are consolidated under its ownership. However there are no details yet on the timing of the listing.

This year, Telkom has allocated $2 billion toward capital expenditure to finance its expansion, which may include acquiring a CDMA business and buying additional telecom towers. It is planning to raise Rp4 trillion on the bond market.

Comment: Acquisition of towers by Telkom will mean higher than forecasted capex in short term. Once Mitratel is listed, it should release cash. On 1Q10 performance, we expect Telkom to disappoint as fixed line is declining rapidly while Telkomsel has been late in sms promotions and thus this would have effected its subscriber acquisition.

CLSA March cement sales, strong start to the year

Our analyst Sarina looked at the latest Indo cement sales numbers. An extremely strong start to the year which makes our numbers look conservative if this rate of growth is sustained. Retain our firm CONVICTION OWT on the sector.

Indocement (INTP IJ) and Holcim (SMCB IJ) are our top picks offering 25% and 30% upside from here respectively. The key here is that both INTP and SMCB still have spare capacity, whereby SMGR is already running at full capacity (about 95% of its 19m tonnes) and the additional capacity will not be ready until the end of 2011.

For 1Q10, Semen Gresik (SMGR IJ) sales rose 12% YoY, compared to INTP’s 21%, and SMCB’s 24%. Clearly, the whole sector is benefitting from strong demand. But the result certainly reflects our view that SMGR with its limited capacity will remain a laggard.

The chart below assumes all three players running at 100% capacity with no exports (as selling to domestic market commands about twice the margin compared to exports – around US$70/tonne vs US$45/tonne)

On that basis, INTP trades at 10.2x earnings and SMCB much cheaper at 7.6x 2011 earnings. We continue to prefer Holcim (SMCB IJ) and Indocement (INTP IJ) for more operational and financial leverage.

SMGR is the most expensive at 11.1x PER. However, one noteworthy comment on SMGR is the improvement of liquidity after the recent large placement. SMGR has now become more accessible to investor.

Key points from the report:

Domestic cement sales in Mar2010 rose by 13% MoM, 27% YoY to 3.38m tonnes.
1Q10 domestic cement sales were 9.7m tonnes, an increase of 17.7% YoY, the highest ever 1Q number and the third highest by quarter.
For 1Q10, Semen Gresik sales rose 12% YoY, Indocement by 21%, and Holcim by 24%.
Based on monthly capacity, INTP has the greatest ability to supply additional demand, followed by SMCB.

Property: Condominium Sales Boost-Up

Jones Lang LaSalle reported Q1 2010 market absorption of lease-apartments and condominium residential which has increased by an average 25% yoy to around 1,500 units. This is a significant improvement in comparison to 2009 figure, especially for condominium where had experienced slow in demand over the year, booked only at reached 2,500 units, compared to Q1 2010 that the sales of 780 units. Jones Lang LaSalle predicts the demand for condominium this year could go up to 4,500 units, or a 60% increase from last year’s figure.

The upward trend is reflected on CTRA sales figure, which as per Mar10, the sales of its strata-title products from the Ciputra World Surabaya project has exceeded by 51.8% of the Q1 2010 target. The company is currently trading at 40% to our NAV10. Other company within our radar is ELTY, which currently trading at 60% to our NAV10.

Telkom eyes transfer of Telkomsel towers to Mitratel

Aside from its planned divestment of shares in Patrakom and Citra Sari Makmur, Telkom’s President Director was quoted as saying that it plans to transfer some 9,000 towers currently owned by its subsidiary Telkomsel to another subsidiary Mitratel. First, it needs to get approval from Singtel, a 35% shareholder of Telkomsel for the transfer. This transaction is approximately worth US$1.2bn. Within three years upon transfer of the towers to Mitratel, Telkom plans spin off Mitratel via an IPO.

Mandiri Sekuritas Perusahaan Gas : Pertamina, PGN Form Venture for Terminals, no end to Conoco Phillips shortage (PGAS, Rp4,125, Neutral, TP:Rp4,650)

􀂄 State oil and gas company PT Pertamina and state gas-distribution company Perusahaan Gas Negara have established a joint-venture company to operate a floating terminal in West Java for the receiving and regasification of liquefied natural gas, as well as two future terminals in Medan and East Java. The new company, PT Nusantara Regas, will play a significant role in meeting the rapidly growing domestic demand for gas for electricity generation as well as the manufacturing of fertilizer and related products. Pertamina owns 60% of the company, while PGN owns the remainder. The authorized capital of Nusantara Regas is Rp2tn (US$222mn). The paid-up capital is Rp 500bn. The capacity of the terminal in West Java is around 3 million tons of gas per year and the terminal could begin operating before the end of 2011 (Jakarta Globe)

􀂄 PGN also plan to acquire two gas fields worth US$350mn and has completed the due diligence process. PGN CEO expects to complete the acquisition in 2H2010. No details on specifics of the two gas fields. (www.koran-jakarta.com)

􀂄 Amid a shortage of gas to fuel its power plants, state electricity company Perusahaan Listrik Negara may see its profit fall by 38.6% this year, the utility announced on Wednesday. Setio Anggoro Dewo, PLN’s finance director, told reporters that the company was penciling in potential losses of Rp4tn(US$444mn) on gas shortages.

􀂄 Additionally, local media reported that PLN suffered a shortfall because of a reduced supply from state company Perusahaan Gas Negara. PGN has also suffered shortfalls after two other providers — ConocoPhillips and Pertamina Hulu Energy — cut their supply. ConocoPhillips is only able to deliver 250 MMSCFD of gas from its previous supply volume of 396 MMSCFD. Murtaqi Syamsuddin, PLN’s director of risk management, said the gas shortage could be seen at the Muara Tawar plant in Bekasi, where the supply has fallen from 230 BBTUD (207 MMSCFD) to less than 100 BBTUD (90 MMSCFD). “The gas shortage at the PLN power plant in Muara Tawar itself could cause a loss of Rp 2.4 trillion,” Setio said. (Jakarta Globe)

Mandiri Sekuritas Cement sector: 1Q10 demand grew 17.7% yoy (Overweight)

􀂄 1Q10 domestic sales volume grew 17.7% yoy, very much higher compared with 2M10’s growth of some 13.3%. March domestic sales volume was up 27.0% yoy, which was supported by very strong growth in Java (+23.1% yoy). Meanwhile, export decreased further in March 38.9% mom.

􀂄 The above-mentioned suggests that cement producers reduced its proportion for export and allocated higher chunk to domestic market. This means that margins could go up further, ceteris paribus. SMGR posted the highest switch from export to domestic, as export volumes drop 85.9% yoy.

􀂄 Among the 3 biggest cement producers in the country, Holcim Indonesia posted the highest growth of 31.0% yoy, followed by Indocement of 21.2% yoy and Semen Gresik of only 12.4% yoy. A significant jump in Java was the main reason behind it, as the area contributes more than 50% of total production. We maintain Overweight on the sector, with INTP and SMCB as our top buy call.

JP Morgan - Buy Indo banks ahead of 1Q10 results

>> Despite the suggested adoption of IFRS starting in 1Q10, Indo banks are still reluctant to write-back general provisions to boost their book value per share or net income. They have all chosen the prudent approach. Some banks are not even ready with their accounting systems.

>> But......Indo banks should see better-than-ever correlation between loan growth and net profit growth, sequentially. Because of the IFRS, they will likely make less bad debt provisioning on new loans.

>> JPMorgan is forecasting BBCA to post a loan growth of 2% qoq and 18% yoy. BDMN to post 1.4%/flat. BMRI to post 1.6%/13%. BBRI to post 1.2%/27%.

>> For state banks, CEO changes will happen in May, potentially affecting BMRI, BBRI, and BBNI. The state banks CEO may be incentivized to show as good as possible performance ahead of the change.

>> BBRI may post strongest yoy and qoq loan growth, so 1Q10 may still act as a positive driver for the stock (JPMorgan research rates U/W). For this bank, 1Q10 results will be a balancing act between higher provision need for new NPL creation, against lower provision need for new loan creation. I think the balance will tilt towards the latter for 1Q10 (Sales call: Trading Buy).

>> BMRI will also post strong yoy loan growth, while provision will (almost) certainly decline from the high base last year. Our contrarian view on the bank is that (1) there will be no rights issue in 2010, (2) less than 50% chance of rights issue in 2011, and (3) more than 50% chance that Agus Marto will stay as CEO.

>> Sales call - buy state banks BBRI, BMRI, and BBNI.

A Cup of Tea 15 Apr'10

COALThe Chinese economy grew 10.7 percent in the fourth quarter and is forecast by the United Nations to advance about four times more quickly than the U.S. this year.

China, the world’s biggest consumer and producer of coal, may be a net importer of the resource for a second year as the government shuts unsafe mines while the economy surges. Imports surged after a nationwide crackdown on mine safety closed about 1,000 small pits last year while the economy grew at the fastest pace in the fourth quarter since 2007. Net coal imports may reach 100 million tons this year, the official Xinhua News Agency reported.

China may produce 3.15 billion tons this year, Coal consumption may rise to 3.4 billion tons this year, The National development and Reform Commission said.
Demand for coal in the southern regions rose as hydropower production slowed. The southwestern region including Yunnan, Guangxi and Guizhou provinces has been suffering from a severe drought for almost half a year, with water levels in major rivers at record lows, the Ministry of Water Resources.
ADRO PT 2700, PTBA PT 21000, UNTR TP 20000, ITMG TP 41000 and BUMI TP 3200.

BASE METAL
India’s steel demand is expected to rise by 9-10% in the current fiscal and the prices is likely to remain at the current level through this financial year. The prices are moving upwards on the back of a rise in the cost of raw materials like iron ore and coking coal as well as high demand by the consuming sectors like automobile and infrastructure.

The nickel market may swing into a deficit for the first time in four years as the global economy recovers from its worst postwar recession, fueling demand for stainless steel, said Sumitomo Metal Mining Co., the biggest producer in Japan. World demand will probably exceed supply by 36,000 metric tons in 2010, the first deficit since 2006. Global production of nickel may increase 7 percent to 1.37 million tons this year from 1.28 million in 2009, while consumption may advance 13 percent to 1.41 million tons from 1.25 million tons. Nickel demand in China may increase 12 percent to 480,000 tons from 430,000 tons in 2009, while output may grow 13 percent to 270,000 tons from 240,000 tons, Nickel consumption in Japan may expand 17 percent to 135,000 tons this year from last year’s 115,000 tons.

Nickel advanced to the highest level in more than 22 months, pacing an increase in industrial metal prices, as equities gained and an accelerating global recovery led by Asia boosted confidence demand will increase. An improving economic outlook, as reflected in gains in the global equities markets, bolstered metals. The metal for three-month delivery gained as much as 1.6 percent to $25,900 a metric ton, the highest level since May 21, 2008.

ANTM (Reminder)
Nickel Price continues to upward trend. Demand from steel industry triggered higher price movement. We expect a higher nickel price to be sustained and the market to return to deficit for 2010. With these circumstances I will adjust metal prices to reflect the new forecasts, Nickel average 2010 upgrade from 17000 usd/ton to 22500 usd/ton on. Gold average 2010 upgrade from 1200 usd/t.oz to 1300 usd t.oz due higher inflation on 2010. Every 10% increase in average nickel and gold price would be impacted about 21% and 6%. Note: Revenue Breakdown Ferro Nickel 22.3%, Nickel Ore 19%, Gold Mining 12.4%, and Others 46.3%.

For that reason, I will upgrade EPS ANTM at 208 (from EPS 131 PE 18.51xPE’10 consensus base). I will set Price Objective ANTM at 3328 in line with PE market at 16x F’10. The high P/E suggests an opportunity to buy into this highly cyclical company --- Buy.

INCO (Reminder)
PT Inco is a nickel pure play whose earnings are highly sensitive to nickel prices. Well positioned to leverage on higher prices. The uplift in nickel price should be more than enough to cover the higher costs. With assuming nickel average at 22500 I put EPS will growth to 0.0387 usd. Price objective for INCO at 5632 in line with PE market at 16x --- Buy.

BANK
Indonesian banks continue to outperform in a global context, driven by expectations of a takeoff in credits, firm NIMs and an NPL downcycle.

Positive macro indicators — BI’s push for loans is driven by its assessment of excess capacity in the system. Balanced Consumer/Investment loan growth would help sustain high GDP growth. BI’s priority of 20% loan growth will determine its stance on lending rates. With limited room for deposit rate cuts, lower lending rates would hurt NIMs. We remain concerned about high valuations and risks to NIMs due to high LDRs. An easy monetary policy benefits banks with high LDR (BBRI, BDMN) but hurts NIMs (BBCA, BMRI).

1Q10 loan growth of 0.4% is below BI’s expectations and pressure will remain on banks to deliver. Amid weak loan growth, 1Q earnings are expected to be flat (QoQ), though BBRI and BDMN may surprise positively on better loan growth and roll-over of expensive time deposits. As loan growth picks up, competition for deposits will intensify due to skewed LDR –we prefer BMRI. Buy BMRI and BBRI, Sell BBCA and BDMN.

China May Be Net Importer of Coal for Second Year

(Bloomberg) -- China, the world’s biggest consumer and producer of coal, may be a net importer of the resource for a second year as the government shuts unsafe mines while the economy surges.

Inbound shipments in 2010 may be similar to last year’s levels, Fang Junshi, director general of the coal department at the National Energy Administration, told reporters at a conference in Beijing today. Net imports reached 103.4 million metric tons last year, customs data show.

Imports surged after a nationwide crackdown on mine safety closed about 1,000 small pits last year while the economy grew at the fastest pace in the fourth quarter since 2007. Net coal imports may reach 100 million tons this year, the official Xinhua News Agency reported last month, citing Huang Li, a deputy director at the energy administration.

Output may exceed 3 billion metric tons in 2010, according to Fang, in line with official estimates. China may produce 3.15 billion tons this year, the National development and Reform Commission, the top economic planner, said last month.

Coal consumption may rise to 3.4 billion tons this year, Wei Jianguo, the general manager of State Grid Energy Development Co., a unit of the larger of two grid operators in the country, said at the conference.

In the long term, China must control coal production growth and increase the use of alternative fuels to generate electricity, Fang said. Coal is used as a fuel to produce about 80 percent of the country’s electricity and to make steel.

Pollution Worsens

Pollution surged as the economy more than tripled in the past decade, spurring concerns a deteriorating environment may lead to social unrest. Premier Wen Jiabao in January called China’s pollution situation “grim.”

“China isn’t going to switch to alternative energy overnight, not with 3 billion tons of annual production and consumption,” Paul Manley, managing consultant at Wood Mackenzie Consultants Ltd., said in Beijing.

China closed 1,088 small coal mines last year because they were unsafe and phased out 50 million tons of outdated capacity, Xinhua reported in January. About seven people in China died each day from coal-mine accidents in 2009 compared with 18 fatalities for the entire year in the U.S.

The holder of the world’s worst mine-safety record plans to shut more than 5,000 small pits, or at least 200 million tons of capacity, by 2010, Li Yizhong, head of China’s work safety bureau, said in 2008.

China’s thermal coal imports may fall from last year’s levels because of rising international prices, said Manley at Wood Mackenzie. Total imports may be little changed because of higher demand for metallurgical coal, he said.

Supplies After Drought

China will ensure adequate coal supply to the country’s drought-hit south, Fang said. Demand for coal in the southern regions rose as hydropower production slowed, he said.

The southwestern region including Yunnan, Guangxi and Guizhou provinces has been suffering from a severe drought for almost half a year, with water levels in major rivers at record lows, the Ministry of Water Resources said last month.

The Chinese economy grew 10.7 percent in the fourth quarter and is forecast by the United Nations to advance about four times more quickly than the U.S. this year.

--Wang Ying and Chua Baizhen in Beijing. Editors: Ang Bee Lin, John Viljoen.

CommodityOnline India’s steel demand likely to rise in this fiscal

NEW DELHI (Commodity Online): India’s steel demand is expected to rise by 9-10% in the current fiscal and the prices is likely to remain at the current level through this financial year, said Steel Secretary on Tuesday.

If the steel prices move up it would affect the rising demand, he added. The current trend in steel prices is not a cause of worry, he said.

At present, the prices are moving upwards on the back of a rise in the cost of raw materials like iron ore and coking coal as well as high demand by the consuming sectors like automobile and infrastructure.

CommodityOnline Palladium price surges by 200% in 15 months

Gold fell to as low as $1,145/oz in New York, it then recovered to close with a loss of just 0.86% yesterday. It has risen from $1,153/oz to $1,160/oz in Asian and early European trading this morning. Gold is currently trading at $1,160/oz and in euro and GBP terms, gold is trading at €850/oz and £753/oz respectively.

Gold has recovered from some of yesterday's losses despite the dollar rising again today. Oil prices rising above $85 a barrel after their recent falls may be leading to inflation hedging gold buys. Traders are considering whether this could be the beginning of a period of correction. Were gold to give up some 50% of the recent gains, gold could retest support around the $1,127/oz level according to Fibonacci theory (see chart below).

Palladium has surged by more than 8% since yesterday on the weaker dollar, catalytic converter demand, investment demand and depleting Russian stockpiles.

Silver has jumped from $18.20/oz to $18.43/oz this morning in Asia. Silver is currently trading at $18.40/oz, €13.50/oz and £11.94/oz.

Platinum is trading at $1,728/oz and palladium is currently trading at $545/oz. Rhodium is at $2,850/oz.

Palladium has surged 8% since yesterday (low of $506 per ounce to $545 per ounce now in value) on concerns about depleted Russian stockpiles of the metal and strong industrial and investment demand - especially from the recently created palladium ETF.

Palladium is testing long term resistance between $560 and $584 per ounce (daily and weekly highs from March 2008). It is clearly overbought in the short term and a period of profit taking, correction and consolidation would normally be expected. Especially as palladium has risen by a huge 200% in just 15 months (December 2008).

Ore deposits of palladium are rare and are mostly located in Russia and South Africa. Russian resource nationalism, as has been seen with natural gas, could lead to price spikes and to palladium going higher in the coming months. Some analysts believe palladium may be in deficit for most of the next decade as Russia depletes stockpiles and industrial uses and investment demand for the metal increase.

Financial Time Commodities: A market re-emerges

n early 1994, the International Energy Agency released a statistic that attracted little attention but years later would transform oil markets and the global economy. China, the west’s energy watchdog said at the time, had just become “a net importer of oil on an annual basis for the first time since the 1960s”.

The consequences became obvious as China’s voracious energy needs propelled the country towards its current ranking as the world’s second-largest oil importer, behind only the US – in the process pushing crude prices to a record high of nearly $150 a barrel in 2008. Beijing, which in 1993 imported a mere 30,000 barrels a day, about as much as Ireland does now, is these days buying 5m barrels a day – or the combined production of Kuwait and Venezuela.

Commodities analysts and executives say the shift in 1993 was an example of a “China moment” – what happens when the world’s most populous country moves from being an exporter to a net importer of a particular resource (or vice versa in the case of finished goods). more...

China Coal Seeing ‘Strong Demand,’ Puda Coal CFO Says

April 13 (Bloomberg) -- China coal prices will increase this year as the nation’s industry expands and a drought in the southwest region reduces hydropower generation, said Puda Coal Inc. Chief Financial Officer Laby Wu.

“Demand is still strong,” Wu said in a phone interview from Beijing. “Prices will increase from 2009 due to strong demand for electricity generation. The southwest drought will also drive demand for thermal coal.”

China’s thermal coal prices jumped to an average 700 yuan to 800 yuan a metric ton in the fourth quarter from an average 400 yuan to 500 yuan for the year, she said. Benchmark coal prices at Qinhuangdao, China’s largest port handling the fuel, rose for the first time in 10 weeks on March 29 after the drought cut hydropower generation and raised demand from coal- fired plants.

Coal demand won’t be able to meet supply this year given a prediction from China’s top economic planning agency that electricity generation will grow 7 percent in 2010, while raw coal production will only rise 3 percent, Wu said.

China, the world’s biggest user and producer of coal, will remain a net importer of the fuel this year after buying for the first time last year as a nationwide safety crackdown closed about 1,000 small mines, Wu said.

Company Transition

U.S.-traded shares of Puda Coal have rallied 46 percent this year, spurred by the company’s transition into high margin mining production from low margin coal washing.

China’s demand for coal used to make steel is forecast to rise 5.6 percent to 38 million metric tons this year, according to Macquarie Group Ltd. last week.

Puda Coal expects mining of the fuel to comprise $20 million to $40 million in revenue this year and contribute profit of as much as $12 million after a zero input last year, Wu said.

Puda Coal is benefiting from the decision by the provincial government in Shaanxi, where the company is based, to put the company in charge of consolidating the industry including mine closures and mergers, Wu said. She expects the company to complete two mining acquisitions this quarter.

PalmOil-HQ Malaysia March CPO Output 1.39M Tons; Up 20% On Month -MPOB

Malaysia’s palm oil output in March rose 20% from the previous month to 1.39 million metric tons, the Malaysian Palm Oil Board said Monday.

CPO output totaled 1.16 million tons in February.

MPOB said in its monthly report that CPO exports rose 7.7% to 1.39 million tons in March. The country exported 1.29 million tons in February.

Palm oil inventories totaled 1.65 million tons at the end of March, the lowest stock level since September 2009, down 7.5% from 1.79 million tons in February.

March crop data and revised numbers for February, issued by MPOB:

March February Change
On Month
Crude Palm Oil Output 1,387,234 1,156,814 Up 19.9%
Palm Oil Exports 1,393,999 1,294,915 Up 7.7%
Palm Kernel Oil Exports 92,886 97,710 Dn 4.9%
Palm Oil Imports 35,404 50,469 Dn 29.9%
Closing Stocks 1,654,966 1,789,194 Dn 7.5%
Crude Palm Oil 849,226 934,967 Dn 9.2%
Processed Palm Oil 805,740 854,227 Dn 5.7%

(All figures are in metric tons)

PalmOil-HQ Companies seeking RSPO certification may stagnate

The number of oil palm plantation companies seeking the Roundtable on Sustainable Palm Oil (RSPO) certification will likely stagnate this year, said Malaysian Palm Oil Association (MPOA) chief execuive officer Datuk Mamat Salleh.

He claims that some producers from Malaysia and Indonesia were adopting a wait-and-see attitude before succumbing to the costly and stringent RSPO certification following fresh attacks by Western environmental NGOs pressuring major world consumer goods manufacturers to boycott palm oil on grounds of rainforest destruction and endangering its habitat.

“The basic economics may also prevail, such as sluggish demand for sustainable palm oil that will result in stagnating supply especially when the greenhouse gas (GHG) emission criteria were imposed on the RSPO principle and criterias (P&C) and restricted biofuel export to the European Union,” added Mamat.

He told StarBiz that some Malaysian and Indonesian plantation companies which secured the RSPO certified palm oil were dissappointed by the lacklustre take-up rate from Western consumers.

He said: “They (Western consumers) wanted sustainable palm oil and we form the RSPO and defined sustainability exhaustively to comply with 3 Ps (people, planet and profit).

“We have done our part but they are not responding.”

The ongoing attacks by the NGOs on oil palm companies’ irresponsible agriculture practices leading to rainforest destruction managed to raise some reasonable doubt and provide a good excuse for Western consumers not to purchase even the sustainably produced palm oil.

Mamat said environment NGO Greenpeace had been crusading for the moratorium of deforestation and actively producing reports against palm oil over the past few years.

Most recently is “Milieudefensie” or the Friends of the Earth (FOE) in Holland which published a report on the unsustainable practice of IOI group at its oil palm plantation in Indonesia.

“This is not the first for FOE. In the past, FOE makes several allegations on another local plantation company based on selective and limited reporting. So, Malaysian companies should be aware and be prepared as there will be many more to come,” warned Mamat.

Late last month, multinational food conglomerate Nestle decided to cease its palm oil supply from Indonesia’s Sinar Mas Group on reports of rainforest destruction by Greenpeace. This mirrors the move by Unilever three months earlier to cancel its palm oil purchase from the same Indonesian company based on reports by Greenpeace.

Sainsbury’s and Shell have also stated that they will not buy palm oil from Sinar Mas.

Mamat also questioned why the issue involving Nestle, Unilever, Sinar Mas and Duta Palma, which are all RSPO members, were not solved within the RSPO itself. “Why allow outside NGOs to dictate RSPO?

Of the 130 million tonnes of world oils and fats including 45 million tonnes of palm oil annually, only 1.5 million tonnes of palm oil has been certified by the RSPO as produced via sustainable methods.

This implies that about 128.5 million tonnes of world oils and fats were not certified and, also, highly subsidised or genetically modified.

On NGOs and consumer goods manufacturers, Mamat said: “They may boycott on a relatively small amount of palm oil allegedly not produced sustainably. But what about the other ingredients used in their own products, are they certified as being produced sustainably?”

He said that if the robust and exhaustive RSPO‘s P&C were applied to other ingredients of these products, probably most of them may not be sustainable.

“Western NGOs and consumer goods manufacturers should actually be concerned with the sustainability of all ingredients rather then practising the sustainability hypocrisy on palm oil alone,” added Mamat.

He said these parties should in fact set up their own sustainability certification scheme applicable to all vegetable oils – Roundtable on Sustainable Vegetable Oils (RSVO) that comply to all 3Ps.

“Who knows, maybe every stakeholder will rush to join their scheme,” said Mamat.

Mandiri Sekuritas WIKA: Sturdy by design

WIKA plans to spend around Rp400bn for new investments this year. Aside from that, industry outlook in 2010 for construction services is also appealing, as the government will increase its spending for infrastructure by as much as 12.7% yoy, aside from the Rp19bn allocation they made for infrastructure financing. Both additional income from future projects and realization of infrastructure projects l provide upside potential to our forecast. Meanwhile, we maintain our Buy recommendation with higher price target of Rp540/share. This reflects PER10F of 11.8x.

In-line FY09 results. FY09 revenue was relatively flat compared with FY08 (+0.5% yoy), as the company recorded gain from joint operations of Rp22bn, compared with Rp3bn loss in FY08. Despite that, we noticed that gross margin improved to 9.8% from 6.8% in 2008. It shows that it could transfer the increasing tax rate to customers around 2.1% from sales in 2009 vs 1.2% in 2008, and it has better quality projects obtained in 2009. Thus down to bottom line, the figure was in l! ine with consensus estimates, and slightly above ours.

Net cash/share of some Rp180 as per FY09. WIKA’s FY09 cash position and total debt were Rp1.2tn and Rp156bn, respectively. It thus translated to net cash/share of Rp180, which is equal to 45.6% of current share price.

2010 coming from a low base 2009. Since it started off with a low base in 2009, the company has plenty of room to grow, particularly thanks to the government’s plan to increase its spending for infrastructure projects (+12.7% yoy). We projected a 24.5% yoy growth for FY10 revenue and slightly better margins, which resulted in higher increment of 39.4% yoy.

Buy with higher target price of Rp540/share. The above-mentioned paragraph makes WIKA attractive. Aside from that, WIKA is on average trading at 7.7% discount to JCI since it is listing date. At the current price, the company is trading at PER10F of 8.6x, which is 41.5% discount to JCI (of some 14.7x). Very much lower compared with the average discount, add to that a relatively low PBV10F of 1.3x. We maintain our Buy recommend! ation wit h a higher target price of Rp540/share from Rp460/share. Our target price reflects PER10F of 11.8x.

Mandiri Sekuritas ADHI: Illness in remission

Its 2 major projects eluded ADHI’s performance in 2 consecutive years, namely the Jakarta Monorel and Al-Habtoor, Qatar. Yet in 2009, ADHI‘s performance was above analysts’ expectation as well as internal target (as net profit more than doubled), despite the Rp113bn provision made for the Al-Habtoor project. This shows its ability to i! mprove th eir profitability to offset provisioning. For 2010, ADHI targeted new projects to reach Rp9tn (or 28% yoy), which in line with our projection. To be conservative, we apply another Rp150bn provision for the Al-Habtoor projects in 2010 and 2011. Nevertheless, ADHI’s valuation is still attractive, with low-single digit PER10F of 5.9x. Thus, we maintain our Buy recommendation with higher price target of Rp800/share. Our target price reflects PER10F of 8.2x.

Focus on operational efficiency. In 2009, ADHI’s operating margin increased to some 7% from 5.5% in 2008. They are focusing into operating efficiency oriented from previously growth oriented. Yet, net margin of 2.1% is relatively similar with periods prior to 2008. This is due to impairment some of their receivables from Al-Habtoor (Rp113bn). Without the provision, net margin could have been 3.6%.

Conservative projection. We expect revenue to grow 10.7% yoy in 2010, given higher new project bookings (+25% yoy). This is in line with company’s target. After the Rp113bn provisioning in 2009 for project in Qatar, there is still some Rp307bn remaining in ADHI’s book linked to this project, potentially deductible in the future. We thus apply some Rp150bn provision in FY1F0 and FY11F, to reduce a significant chunk of un! certainty and that leaves ADHI with upside risk should the project owner repay its liabilities.

Maintain Buy with target price of Rp800/share. Given better-than-expected FY09 result, we made a few adjustments in our forecast which resulted in higher revenue (+12.0%), as well as net profit (+75.8%). This resulted in higher target price of Rp800/share from previously Rp540/share. Our target price reflects PER10F of 8.2x, still some 45% discount compared with JCI. This is still very much lower compared with ADHI’s average 3-yr discount to JCI of around 13.9%.

CIRA - Asean Banks Strategy; Opportunity in Adversity—Favouring Thailand, Singapore

Top Buys BBL, SCB, DBS; non-consensus Sell BCA: Staying positive on Thailand
despite rising political unrest. Underperforming Singapore banks may be buoyed
by strong 1Q10 GDP data (out April 14). Valuations suggest caution on Indonesia
despite solid fundamentals. Asean policy risk is largely benign, while GDP, loan
growth are likely to surprise on the upside. Event risks: politics, M&A and several
bank top management changes. Asean Banks Issues at a Glance, pages 3-5.

Thailand—Leveraging up: BoT’s upbeat outlook on GDP growth and recovery
suggests broadening loan growth and NIM expansion. Rising political unrest
becomes more critical only if parliamentary dissolution were to be forced before
Sept-Oct 2010, perceived as a critical date for the Army Chief nomination and
government's approval of the 2011, likely pro-private investment budget. Buy
ratings on BBL and consumer bank SCB, along with mid-caps BAY and TISCO.

Singapore—GDP surprise: Poor recent price performance should get a lift from
1Q2010 flash GDP data (out 14 April) likely to show strong double-digit YoY
growth. Upside risk to loan volumes but low interest rates pressuring NIMs. Rising
chance of MAS SGD NEER shifting to appreciation stance. DBS top pick.

Indonesia—Riding the liquidity wave: Indonesian banks near peak cycle valuations
but BI’s dovish stance promoting liquidity inflows. Strong 4Q09 NIMs boosted
earnings, but if BI system loan growth target of 20% not achieved more dramatic
policy measures could ensue. Buy Mandiri; non-consensus Sell on BCA.

Malaysia—Prefer bigger banks: Least upside of the Asean peers despite
broadening of loan growth and NIMs being lifted by the recent OPR hike. Upside
risk to fees/trade finance/investment banking income favours CIMB, Maybank and
mid-cap AMMB. AFG a small-cap idea for earnings turnaround, M&A play.

CLSA Bumi downgrade to OPF, TP Rp2800

Analyst Olie downgrades Bumi Resources (BUMI IJ) to Outperform (from BUY). We have revised down our earnings by 5% to 30% with higher ASP negated by higher tax and slightly lower contribution from NNT. Olie cuts the TP to Rp2800 (from Rp3800).

BUMI share price has underperformed peers by around 30% YTD. Olie thinks that it is important to see the following catalysts to actually materialize before the underperformance is reversed: (1) tax issue being settled, 2) strategic investors stepping in (3) de-leveraging progressing, and 4) permits for zinc and copper-gold projects that the company plans to float being secured.

We would need to see current political struggle involving key shareholders at Bumi and the government to be settled, as most, if not all, of catalysts mentioned are dependent upon blessing from the government.

BUMI might need to raise additional debt, probably around US$430m, to refinance loan and, potentially, acquire soon-to-be-divested stakes at NNT. Note that the company is unlikely to be able to use restricted cash and short-term investment.

We have been sceptical on BUMI ability to continue paying lower than stated, 45% tax rate (see our note dated back in Aug08). Since profit is booked at operating company level, with effective tax rate of 45% while debt is at Bumi resources as holding company with tax bracket of 25%, the effective tax rate at Bumi Resources should be higher than 45%.

We feel that a lot of negatives are factored in the share price and see more upside risk from current share price level. Having said that, there are just too many moving parts for this stock. Timing for positive catalysts to emerge, politically-related, would be hard to predict.

It would be far easier for investors who want to have exposure to coal names in Indonesia to simply focus on simpler names like Adaro (ADRO IJ) and Indo Tambang (ITMG IJ), both names are our top picks in this space.

CIMB Market outlook Strategy - Accelerating earnings momentum

Maintain OVERWEIGHT with higher index target of 3,230 from 2,950 previously. We maintain our OVERWEIGHT call on the JCI with a higher index target of 3,230 from 2,950, still based on a bottom-up approach, implying 17x and 14x CY10-11 earnings. This comes on the back of a 3-5% earnings upgrade chiefly driven by robust 4Q results and, in part, by improving macros. While the index new high and its P/E's parity with its 3-year MA suggest the market may have priced in high expectations, we view an OVERWEIGHT is supported by a still modest growth forecast and narrowing yield spread over bonds. We see a potential near-term catalyst coming from earnings upgrades, likely following the 1Q result season, while declining capital cost remains a mid-term justification for further multiple re-rating.

Indopremier SMGR (BUY TP Rp 10000)

Beating expectation
Similar to its FY09 competitors result, Semen Gresik also recorded remarkable financial performance, which were mostly boosted by higher blended ASP (+17.3% YoY) and better domestic demand in 2H09. All in all, the FY09 figures were above our estimate and Bloomberg consensus, and resulted in superior profitability.

Recorded QoQ higher profitability
On quarterly basis, Semen Gresik also registered superior performance thanks to the retail demand recovery which started in 2Q09 and its diversification sales area. The company’s domestic demand and ASP surged by 8.9% QoQ and 8.2% QoQ in 4Q09, respectively, has resulted a 9.6% QoQ revenue increase and booked higher profitability. The 4Q09 higher profitability were also backed by the success of the management’s effort in cost efficiency through reducing its high calorie-coal index utilization, coal price re-negotiated, as well as alternative fuel development.

4.8% FY09 dividend yield potential
We lowered FY09 dividend pay out ratio (DPR) compared to the previous year because the company will allocate funds from internal cash to funding the construction of 2 new cement plants and 1 power plant. By assuming a 45% DPR, the dividend will be paid to the investors is Rp 252 per share, including Rp 58 per share interim dividend which has been paid in December 2009. Based on FY09 Semen Gresik average closing price, the company’s dividend yield is lower than previous year and only registered at 4.8%.

Rp 3.5 trillion for funding its long term expansion
This year, Semen Gresik will allocate Rp 3.5 trillion which is mostly used to finance the construction of 2 new cement plants located in Java and Sulawesi with installed capacity of 2.5 million tones p.a. for each plant and 2x35 MW power plants in Sulawesi as well as additional capacity of 500k tones. Supported a healthy balance sheet, we believe that the company will not have difficulty on its expansion funding.

Maintain BUY with higher fair value at Rp 10,000
Our several financial assumption have resulted in a new fair value at Rp 10,000 per share from previous fair value at Rp 9,020 per share which is obtained from DCF calculation using 9.3% risk free rate and 4.84% market risk premium assumption. At yesterday closing price, Semen Gresik is traded at 12.64 times - 3.91 times PE-PBV FY10F valuation. Maintain BUY recommendation since our TP offers 23% upside potential.

Mandiri Sekuritas Astra Agro Lestari: 1Q10 production data, inline with our forecast (AALI, Rp24,400, Buy, TP: Rp29,000)

􀂄 AALI’s reported 1Q10 CPO production of 218kton (-3.2%yoy) due to lower FFB production of 5.1%yoy. Production in Sumatera and Sulawesi declined, at the same time, Kalimantan area continued to show production growth due to younger plantation profile. Despite of YoY production decline, CPO and FFB production grew on MoM basis at 25% and 24%, respectively. 1Q10 production data represented 20% of our FY10F production volume.
We consider it inline with our forecast as 2H production has been usually bigger than that in 1H.

􀂄 We still have a Buy recommendation on AALI which currently is trading at
PER10-11F of 15.4-13.9x.

Mandiri Sekuritas BI may loosen its monetary policy if inflation continues to decline

􀂄 Bank Indonesia could lower its policy rate stance that currently stood up at 6.5% should inflation continue to decline according to BI Deputy Governor Hartadi A Sarwono. Currently, BI sees 2010 inflation to come at the lower end of its inflation target of 5% ± 1%.

􀂄 We think the inflationary pressure would likely increase in the second half of the year, as demand recovers and government plan to increase administered prices. Thus, lowering BI rate would fuel inflation to pick up stronger and may reverse rupiah appreciation which, in the first place, has help keeping the inflation low.

􀂄 We maintain our view that the BI rate will increase in 2H10 by around 75bps to 7.25%.

DBS Bank Mandiri: Buy; Rp5,250; TP Rp6,600; BMRI IJ

To raise up to Rp7tn from rights issue
Bank Mandiri plans to sell new shares amounting to 11% of enlarged capital in the second half this year to strengthen its capital structure. The new shares are worth between Rp6tn and Rp7tn. The company also said that if the government does not exercise its rights to buy the shares, its shareholding would decline to 60%. With the rights issue, the bank will have a capital adequacy ratio (CAR) of between 12-15% in 2011-14 despite of average credit growth of 20-21%. Without rights issue CAR could drop to below 12%. If the plan fails to materialize, Mandiri would issue subordinated debt worth Rp3tn in second half of this year or early 2011.

Earlier, several other media reports stated that BMRI has proposed to the State Owned Ministry its plan to increase free float to a minimum of 40% (from 33% currently) to qualify for a 5ppt tax incentive. The bank’s management revealed three options through which it can achieve this: (i) secondary offering, (ii) private placement to strategic investor, or (iii) a combination of both. The government, which currently owns 66.8% stake in the bank, will decide which option to pursue. The management expects the plan to be executed in 2Q10 at the earliest. While positive, again, key risk is timing. The impact is estimated at 5-7% upside to FY10-11 earnings.

The 5ppt tax benefit from increasing BMRI’s free float to 40% (from 33% currently) could get protracted depending on the time taken for the necessary approvals. This could also be a positive catalyst to earnings. BMRI remains our top pick with a Buy recommendation and TP of Rp6,600.

JP Morgan - China PM Wen Jiabao visit to Jakarta on 22 April.

Some colour starts to emerge in terms of the agenda for the visit. The China Post wrote that Beijing will give Jakarta US$1.8bn worth of preferential export buyer’s credit as well as a US$263mn concessional loan. Kontan newspaper wrote about China asking Indonesia for special economic zones to relocate some of their labour intensive industries such as electronics, textile, and CPO processing. Industrial minister MS Hidajat said that they are talking about a 10,000ha special zone equipped with infrastructure and ports, most likely in East Kalimantan. Kontan provides a list of projects that are ready for signing with China: 1) Toll-road Medan Kualanamu, 2) Tayan bridge in West Kalimantan, 3) Toll-road Cileunyi-Sumedang-Dawuan, 4) Smelter in East Kalimantan, 4) Special economic zone in East Kalimantan, 5) Teluk Kendari bridge in Sulawesi, 6) Power plant in Papua. (The China Post, Kontan).

My take – one of the stock potentially affected by the renewed focus in Kalimantan is Ciputra Development (CTRA), given its unique position among the property counters as a national developer (other listed companies are focusing in Jawa & Bali only). CTRA has property JVs in Kalimantan’s biggest cities Balikpapan, Samarinda, and Banjarmasin. In 1Q09, around 23% of its total marketing sales came from Kalimantan. JPMorgan reserch has O/W rating on CTRA with a PxT of Rp1050.

Mandiri Sekuritas BUMI: De-leveraging

Due to the limitation of its financials, we expect Bumi to restrain its expansive mode for the next 12 months. Having been battered by tax investigations, probe into its earlier KPC acquisition of possible corruption by certain regional governments, repairing damaged investors perception should be in their top ‘to-do’ lists. Uncertainty over its P&L profile post huge debt undertaking and less room for tax ‘reduction’ scheme, bring headwinds to ! the effor ts. We’re now relying on the expectations that news of initiatives to reduce leverage through debt to equity swap and divestment of its mineral division will reduce uncertainty while at the same time resolution to the tax issues will clear the bad aura. We’re downgrading our target price from Rp4,136/share to Rp3,900/share on lower earning estimates.

Removal of tax ‘reduction’ scheme. Our number one concern is what Bumi will do to the reduced ability to lower its tax through coal pricing mechanism which previously could be transfer to a lower tax regime (30% corporate tax) from its CCOW tax regime (45%). One alternative is that Bumi could put back loan for KPC, and Arutmin development which currently under holding-company level back to subsidiary level. However, higher royalty payment is in the cards, and it will be interesting to see the impact to its P&L. We doubt there will be an explanation from Bumi regarding this as this is a sensitive issue and therefore, we can only know it by the time they do the reporting.

Settlement of revised tax returns. Arutmin and KPC filed revised Annual Corporate Income Tax Returns for 2005 to 2007 fiscal years and in December 2009, Arutmin and KPC, through several installments, have fully paid the 2008 tax liability based upon the submitted Annual Corporate Income Tax Return. The revised Annual Tax Returns for fiscal years 2005 to 2007 required Arutmin and KPC to pay an additional corporate income tax. The additional payments were made related to preliminary tax examination by the Tax A! uthoritie s.. As a result, total amount of US$600mn has been paid. (2009 financial report point 44b). Bumi has revised the retained earnings account for FY08 from US$1,298mn to US$877mn (see Exhibit 3 behind).

Maintain Buy recommendation. Our DCF which are based on existing debt and cash flow from KPC, Arutmin using 30% tax rate is Rp3,025/share. Investment in Herald, Dewa, Pendopo, FBS, loan to Bukit Mutiara (Berau) and 75% of Multi Daerah Bersaing, holder of 24% Newmont Nusa Tenggara was US$1,768mn (or Rp856/share, Rp/US$=9,400). We have not included the value in other domestic assets such as Citra Palu Mineral, Gorontalo Mineral and foreign assets.

Citigroup Bulks - Structural Change

Commodity Outlook
 Benchmark Pricing Is Dead — The shift in the iron ore and metallurgical coal markets from annual benchmark pricing to quarterly (and ultimately index) pricing
is a structural change – one that we have some concerns about.

 Iron Ore — Prices will likely double in CY2010 Q2, and are expected to rise further in Q3. Increasing domestic Chinese production, increasing scrap consumption
and margin compression in the steel industry should pressure prices in subsequent periods. Oversupply looms from 2012.

 Metallurgical Coal — Prices have also moved from annual to a quarterly basis.
Settlements of CY2010 Q2 prices at USD200/t are as we forecast, but we now believe prices will increase to USD300/t by Q4. However, challenges to the continuation of such high prices should come from increasing domestic Chinese production and slower Indian imports.

 Base Metals – Few Changes — We have made only cosmetic changes to our base metal price forecasts, except for nickel which has been increased more significantly.

 Fund Flows Slowed — Fund flows into commodity markets have slowed following the dramatic rebound post GFC. However, we expect renewed interest if the OECD demand recovery is confirmed.

 OECD Demand Turning — Recovering demand in the OECD economies, and a restocking amplifier are a cornerstone of our expectations of higher base metal prices in 2010H2. Latest data in Japan and the USA shows the beginnings of recovery.

CLSA Bumi Serpong Damai (BSDE IJ) property marketing sales

Reported in newspaper, Bumi Serpong Damai (BSDE IJ)’s president director Harry Budi Hartanto mentioned that BSDE booked marketing of Rp545bn (~US$60m) in 1Q10, a 70% increase YoY.

Comment: Due to new launches, and supported by low mortgage rates, 1Q10 marketing sales was close to the peak in 2Q08 of Rp573bn. The company booked Rp1.32tn sales last year, a 19% decrease from FY08. For this year, the company expects marketing sales to rebound to Rp2tn with net profit of Rp355bn. Maintain BUY, the company is trading 54% discount to NAV.

CLSA Aneka Kimia (AKRA IJ) update

Jakarta Tank Terminal (JTT) of AKR Corporindo (AKRA IJ) was inaugurated yesterday by Hatta Rajasa, the Coordinating Minister for Economic Affairs and Mustafa Abubakar, minister of state-owned companies.

The 250,000kL terminal is the first independent petroleum terminal for oil products and the project is a JV between AKRA (51%) and Royal Vopak (49%). Vopak is the operator; the company is the world's largest independent tank storage service provider, specialized in the storage and handling of liquid chemicals, gasses and oil products.

Vopak operates 80 terminals with a combined storage capacity of more than 28 million cbm in 31 countries. Further expansion includes additonal capacity 200,000kL. JTT is part of AKRA's Logistic business, and is expected to contribute 4-5% to total AKRA's gross profit this year.

CLSA GGRM, warung survey

We surveyed 50 mom and pop stores (warungs) in Jakarta and Bandung. As pointed out by analyst Swati in her 2009 warung report, “Protective Net – micro retailers cushion the economy”, warung is an important part of Indonesian life. A large number of cigarettes sold in Indonesia are on a per stick basis. Warungs that we visited sell at least 30% cigarettes on per stick basis. Obviously, one can’t go to a hypermart and buy just one stick of cigarette.

That’s why we surveyed 50 warungs to have a better understanding of how Gudang Garam (GGRM IJ) is doing.

Key findings from our survey:
· The feedback on GGRM is encouraging as 59% said that there has been improvement in GGRM products in last few months
· All warungs sell at least 30% cigarettes on per stick basis while 50% said that they sell more than 50% of cigarettes on per stick basis.
· 100% said that taste is the most important factor in selection of cigarette. This explains why it is hard to challenge the top brands.
· Most of the smokers are willing to try out new cigarettes and 100% said that advertising and packaging play an important role
· Nearly 54% said that Surya slims (GGRM mild cigarette) is “ok to good” while 84% rate Surya premium “ok to good”
· Maintain BUY on GGRM.

Despite the stellar stock price performance recently, GGRM valuation is still very reasonable at 13.4x 10CL P/E and 11.4x 2011CL P/E, compared to 20.8x 10 P/E and 19.9x 11 P/E for the regional cigarette peer average. GGRM is also the cheapest consumer stock in our Indonesian consumer coverage.

The number of cigarettes consumed in Indonesia increased by 70% over 1992-2008 from 153bn in 1992 to 260bn cigarettes in 2008. This translates into an industry growth of 3.4% per annum, clearly far better than the growth in a more developed market. Cigarette is not (yet) a sun set industry on this part of the world.

Mandiri Sekuritas MYOR: Stunning performance

Beyond our expectations, Mayora Indah (MYOR) delivered robust earnings growth of 89.7% yoy in FY09 to Rp372bn. This is largely backed by its coffee products, of which sales sprang up by 29.6% yoy (vs. confectionary products of 16.1%). New capacity and improving purchasing power were providing ground for strong performance last year, and so will this year in our view. Therefore, we think company’s sales will likely grow to Rp5.6tn (+17.1% yoy) in 2010. However, factoring still-h! igh sugar prices (hovering at US$cents20/lb), we foresee company’s gross margin to be modest at 22.5%, compared to 23.7% previously. At our earnings estimates, the company is currently trading at attractive valuation of 7.7x PER10F. Maintain Buy with TP of Rp5,000/share.

FY09 result: surpassed our and consensus expectation. Mayora delivered high earnings growth of 89.7% yoy and 0.4% qoq to Rp372bn in FY09. Top-line figure is within ours and consensus estimates, whereas bottom-line is significantly above our and consensus estimates. Stronger rupiah exchange rate also helped to boost gross margin in 4Q09 (25.3% vs 3Q09 of 25.2%) which brought FY09 margin to 23.7%, slightly higher than company’s previous indication of 23%. However, operating margin dropped in 4Q09 which mainly due to significantly higher G&A expenses. G&A e! xpenses j umped 3-folds on qoq basis to Rp74bn in 4Q09. We think this is largely due to salaries and bonuses which were booked in 4Q09.

Resilient demand continues. We remain positive on company’s sales growth this year, on the back of: 1) another 15% increase in their plant capacity mainly biscuit and coffee products, and 2) improving consumer purchasing power, in line with better economic outlook (2010F GDP growth of 5.2% vs 2009 of 4.3%). Hence, we foresee FY10F sales to improve by 17.1% to Rp5.6tn. This is largely backed by volume growth of 15%, in line with the increased capacity.

However, soaring sugar price will likely offset margin enhancement. In spite of FY10F), still-high sugar price will likely offset margin enhancement. According to our optimistic assumption on rupiah exchange rate (Rp9,112/US$ on average as at Bloomberg data, sugar price has been traded at UScents25.5/lb during 1Q10, or up by 87.5% yoy. Thus, as sugar constitutes some 25% of total raw material ! prices, we anticipate lower margin of 22.5% this year, from 23.7% previously. This translates to an 8.1% earnings growth to Rp402bn, according to our estimates.

TP maintained at Rp5,000/share. At current price, Mayora is trading at PER10F of 7.7x, a chunky discount relative to consumer companies’ average PER10F of 19.1x. With such an attractive valuation, we retain our Buy call for the stock with TP of Rp5,000/share (DCF-based valuation, WACC: 12.9%, TG: 5.0%), implying PER10F of 9.5x.

JP Morgan - Indosat: signs of recovery (Tim Storey)

* We have revised our Indosat model, resulting in a +2.3%/+2.2% revision to FY10E/FY11E EBITDA. The increase is largely driven by a +0.9% revision to revenues and +0.6 percentage point revision to EBITDA margin. FY10E/FY11E adjusted profit forecasts have thus been revised by +15.1%/+6.0%. Our wireless subscriber forecast has been kept unchanged while ARPU has been revised by +1.5% for FY10E/FY11E. In line with our higher sales forecast FY10/FY11 capex has been revised by +0.9%/+0.9%. Lower net debt at the end of December 2009 and upward revision to estimates resulted in a +7.9% increase in our December 2010 DCF value for Indosat at Rp6,267. We thus revise our December 2010 DCF based price target for Indosat by +6.9% to Rp6,200.

. Management comments, new initiatives. 1) Indosat would continue to implement its strategy of acquiring value customers and would focus to improve its ARPU mix by retaining a larger share of medium to high end customers. 2) Data would be key growth driver; MIDI revenues were up 16.2% q/q. 3) Indosat expects to achieve growth in the wireless segments of ex. Java regions while growth in Java would be primarily broadband driven.

. Price target, valuation, key risks: We have revised our DCF value estimate for Indosat by +7.9% to Rp6,267 while our price target has been revised by +6.9% to Rp6,200. At our price target Indosat would be trading at 2010E/11E adjusted PER and EV/EBITDA of 25.4x/14.3x and 5.8x/4.9x, providing a dividend yield of 2.0%/3.5%. Earlier than expected recovery in market share is key upside risk to PT. Increase in capex, irrational mobile competition and shortfall of demand for broadband services are the key downside risks to our target price.

Indopremier TSPC (BUY TP Rp 970)

Remarkable FY09 Operating Performance
TSPC reported 23.8% YoY FY09 sales growth to Rp 4,497.9 mn, the highest growth level in the last 10 years. Higher purchasing power has boosted FY09 pharmaceutical sales to Rp 1,598 mn, translating to 16.5% YoY growth. Personal Care and Cosmetic (PCC) division continue it increase by 22.9% YoY to Rp 1,011.2 mn. Inline with pharmaceutical industry recovery, distribution services division leap 34.1% YoY to Rp 1,888.8 mn.

No Price Hike: to Enlarge Market Share
Management stated that volume increase is the main factor of pharmaceutical and PCC sales growth in 2009, approximately 10%-12% YoY. In upcoming years, TSPC intend to maintain minimum sales price hike strategy in order to raise market share. Hence, sales volume and new product launch will become the main driver of TSPC sales growth.

Lower Net Margin Still At Peers Level
Due to TSPC strategy of not increasing product sales price at the time of higher raw material cost, FY09 net margin has decreased to 8% from 8.8% in year earlier. Nevertheless, FY09 net margin still stood at average peers’ margin of about the same level. Supported by Rupiah appreciation, we are optimistic FY10 net margin to hover at our estimated 8.6% level.

Positive Outlook and Recommendation
On the back of higher purchasing power, we forecast TSPC to report 13.9% YoY FY10 sales growth. We recommend to BUY TSPC at TP Rp 970/share. Our TP implies 10x PE10F and 5x EV/EBITDA 10F.

CLSA Indika Energy - Looking better than expected

We have recently had a chat with management of Indika Energy. Overall, we sense that production and pricing could come in better than what we have been assumed. We will put out more detailed notes once we meet the management later this week.
* The management is looking to add 5m tonnes per annum on production, hence total production could reach 29m tonnes in 2010 and 33m tonnes in 2011, higher than currently assumed of 28m tonnes and 30m tonnes, respectively. Production increment would come from lower CV coal, Samaranggau, though.
* There has been no new contract secured by engineering and mining contracting subsidiary, Petrosea, but its Santan coal mine, 50% owned, could start producing 2.5m tonnes in 2010. We have not factored this.
* Of the total targeted volume of 28m tonnes, around 30% is fixed at US$48/t, 10% is index-linked, and the rest, 60%, is still in negotiation. Assuming US$98/t contract price in 2010, the company could get US$56/t ASP in 2010, as compared to US$52/t currently assumed.
Resource update from Resource Head Andrew Driscoll
* Metals up 1-2% Friday on +ve sentiment for Greek bailout, weaker dollar; End week higher, while bulks surge higher.
* WoWchange LME 3M: Aluminium +2.3% (18M-high), copper +0.5%, nickel +0.6%, zinc +0.5%, and gold +3.8%
* Copper exchange stocks +2% WoW, SHFE-LME price spread -1%; Ali stocks flat WoW, price spread -12% (18M-high).
* FOB NEWC thermal coal +3.9% WoW to $98.7/t; CRR Report QHD thermal coal prices flat to higher WoW.
* MB CIF iron ore +13% WoW to $171.5/t (See - CLSA Iron ore data book); Chinese steel & coke prices flat-to-higher WoW.
* Gold at 4M-high (all-time high in Euros); SPDR gold ETF has record holdings

CLSA Semen Gresik (SMGR IJ) downgrade, Underperform, TP Rp9000

Nick Cashmore is downgrading SMGR to an UPF. While cement remains one of our conviction picks, and SMGR has delivered 30% earnings for the last seven years, sustaining this strong performance will be a challenge, in our view. SMGR is already running at full capacity (about 95% of its 19m tonnes) and the additional capacity will not be ready until the end of 2011.

The stock is trading at a reasonable 12.5x earnings but adjusting for space capacity, SMGR looks less attractive relative to peers. The chart below assumes all three players running at 100% capacity with no exports (as selling to domestic market commands about twice the margin compared to exports - around US$70/tonne vs US$45/tonne)


On this basis, INTP trades at 9.9x earning and SMCB much cheaper at 7.0x 2011 earnings. We continue to prefer Holcim (SMCB IJ) and Indocement (INTP IJ) for more operational and financial leverage. One noteworthy comment on SMGR is the improvement of liquidity after the recent large placement. Gresik has now become more accessible to investor.

CLSA Bank Tabungan Negara (BBTN IJ), 1Q10 results

Our analyst Bret Ginesky looked at Bank Tabungan Negara (BBTN IJ) 1Q10 results. BBTN reported solid 1Q10 numbers in a seasonally weak 1Q. We reiterate our BUY rating and TP of Rp2000.

Key points from the report:

* Loan growthof 6%, NIM of 5.6% and CIR falling to 59% fuelled higher revenues. 1Q10 net profit +72% YoY.
* Complete financialswill be released later today.
* Credit weakened slightlyas gross NPL's increased 64bps to 4% partly due to a timing issue. The bank does not charge late fees on some loans, so the borrower can withhold payment until later in the year. From our understanding this applies only to a minor segment of the loans outstanding, they are legacy loans.
* No changes to our numbersat this point and we will update our model when the full financials are released.
* We reiterate our Buy rating and TP of Rp2,000.


Comment:
Net profit up by 72% looked strong but pre provision profitwas even stronger, up 142% YoY based on higher net interest income. NII up 69% YoY. The NIM also contributed to this, as it rose to 5.6%, an increase of 170bps as deposit costs decreased by 243bps from 7.80% to 5.43%, primarily a function of the deposit pricing agreement from Aug. 2009.
One key concern is that the LDR increased to 114%, and remains elevated. That elevated shareholders equity makes this less of a concern, particularly with a CAR north of 20%. The main driver of thehigher LDR is the removal of Rp3.5tn in government deposits from YE09. The new subsidy scheme, if in the form of a direct deposit would bring this ratio down substantially.
That being said, the higher LDR is not a concern until capital is deployed further. The bank plans a bond issue in the coming months, and Tier 1 accounts for 95% of total capital.

Our chart of the day below places the significant growth in mortgages into perspective (average mortgage rates were north of 15% aside from 2007 and 2009). Looking out over the next 6 years with lower rates in Indonesia, growth should be even more substantial. Our research view is that Indonesia's mortgage marketwill be at least US$40bn by 2014 vs. US$13bn for 2009. Growth is not linear, expect a J-curve. BBTN will be one of the main beneficiaries.

Chart of the Day: Mortgage loans outstanding - growth will not be linear, expect a J curve - Rp400tn by 2014 is the minimum

CIMB Telekomunikasi Indonesia Quick takes - Call back later

(TLKM IJ / TLKM.JK, UNDERPERFORM - Downgraded, Rp8,100 - Tgt. Rp8,400, Telecommunications)

We came away from Telkom's analysts briefing feeling less enthusiastic about the stock as the guidance given was unexciting. Risks are also increasing as its rivals are eyeing the ex-Java islands where Telkomsel has a large market share. Telkom believes that a consolidation in the CDMA space could happen this year and we believe the telco is a likely consolidator. We cut our FY10-11 core net profit estimates by 7-10% on assumptions of lower revenue and higher depreciation. We also raise our WACC by 0.4% pts to 12.2%, leading to a lower DCF-based target price of Rp8,400 from Rp12,000 previously. We also cut our recommendation to UNDERPERFORM from Neutral as we feel that Telkom's performance is likely to disappoint on the back of rising competition in the ex-Java islands and soaring depreciation on persistently high capex.

Citigroup Indonesia Banks - Riding the Liquidity Wave

 Buy Mandiri, Sell Danamon, upgrade BRI to Hold, downgrade BCA to Sell —
Defying valuations, Indonesian banks continue to outperform in a global context, driven by expectations of a takeoff in credits, firm NIMs and an NPL downcycle.
Although we remain concerned about high valuations and risks to NIMs due to high LDRs, the immediate risk to earnings has diminished. BI remains dovish. An easy monetary policy benefits banks with high LDR (BBRI, BDMN) but hurts NIMs (BBCA, BMRI). Our calls on BBRI and BBCA are non-consensus. We have raised estimates and assign peak-cycle valuations of +1sd above average P/Es, increasing target prices by 9-28% for our Indonesian banks universe.

 Positive macro indicators — BI’s push for loans is driven by its assessment of excess capacity in the system. Balanced Consumer/Investment loan growth would help sustain high GDP growth. The current-account surplus and capital/portfolio inflows are supporting currency/inflation, facilitating higher capital-goods imports. Abundant liquidity will help fund a relatively small fiscal deficit.

 2010 themes, data points — BI’s priority of 20% loan growth will determine its stance on lending rates. With limited room for deposit rate cuts, lower lending rates would hurt NIMs. 1Q10 loan growth of 0.4% is below BI’s expectations and pressure will remain on banks to deliver. NIMs have been rising since mid-09 (up to Jan 10) and credit costs are reverting down to historical averages. Amid weak loan growth, 1Q earnings are expected to be flat (QoQ), though BBRI and BDMN may surprise positively on better loan growth and roll-over of expensive time deposits. As loan growth picks up, competition for deposits will intensify due to skewed LDR (87% exc. 3 liquid banks) – a key reason why we prefer BMRI.

 Risks — Global liquidity impacts both commodity prices and capital flows. BI’s assessment of a marginal impact on inflation of the proposed electricity tariffs and a favorable input-output gap is more benign than other views (Advisor to Finance Minister). Regulatory changes like CRR and less frequent SBI auctions will impact BBCA the most, in our view.

CIMB 1QFY10 – Bank Tabungan Negara

Two good quarters in a row
Above expectations; target price raised to Rp1,900. At 30% of our full-year forecast, BBTN’s 1Q10 core net profit was ahead of our expectations, thanks to a recovery in the NIM to 5.8% and strong loan growth that again outdid the sector’s pace, this time by three times. 1Q reported net profit formed 33% of our FY10 estimate and 26% of consensus. Quarterly ROA strengthened to 1.3% from 0.9% in 1Q09 while cost-income plummeted to 58% as the management fulfilled its pledge for better cost controls. We upgrade our CY10-12 EPS by 21-30% as we raise our NIM assumption and lower our cost-income estimates. Our target price rises from Rp1,450 to Rp1,900, based on the DDM method with a 16% discount rate. We maintain our OUTPERFORM call on BBTN, which is one of our top banking picks.

DBS Perusahaan Gas Negara: Laggard, but not for long (Buy; Rp3,950; TP Rp4,800; PGAS IJ)

Perusahaan Gas Negara

• Overlooked counter despite being cheapest in the region, with improving growth, ROE and yield
• Market may not have captured the potential for another gas price hike from upcoming electricity tariff hike.
• Maintain Buy for attractive valuation and promising outlook from new gas supply

Cheapest regional gas stock. Pgas is trading at 12x FY11F PE versus peers’ average of 18x, despite its more promising growth prospects. It also offers higher net dividend yield of 4% versus regional average of 2% for gas stocks. Its valuation discount is unwarranted as Pgas is poised to capture Indonesia ’s rising energy demand due to strong economic and infrastructure growth.

Upcoming electricity tariff hike may lead to another gas price hike. We expect more gas price hikes for Pgas after its recent 15% gas price increase effective 1 Apr 2010. Indonesia ’s government has approved an average 15% electricity tariff increase effective 2H 2010 for PT Perusahaan Listrik Negara (PLN). This bodes well for Pgas as it should mitigate any resistance from PLN towards a gas price hike by Pgas. Power plants account for 40% of Pgas’ sales and there is huge underserved demand due to resilient power demand growth of c.9% p.a.

New gas supply and another gas price hike would drive share price in the medium term. We expect Pgas to secure new gas supply following the recent amendment to regulations that mandates upstream natural gas producers to sell 25% of production to the domestic market. We expect adjustments to gas selling prices to go hand-in-hand with the new supply contracts. Our sensitivity analysis shows that every 10% increase (from our base case) in Pgas’ distribution volume would raise FY11F net profit by 11%.

AAA BBTN In Line With Consensus Estimate

Bank Tabungan Negara held its analyst meeting last Friday to report first quarter 2010 result. The bank’s bottom line increase 71.70% YoY because of lower Cost Of Fund. On the other hand, gain in bonds trading increased their other operating income as well. So, its net interest margin and operational income increased by 68.85% and 75.16% respectively. Better liquidity environment as well as lower interest rate environment and increasing low income mortgages from infrastructure project will give BTN benefit to grow faster in 2010. However, unsolvable NPLs problem and changing government policy will be the main risk for the bank’s future growth.

Higher NPL In 1Q10
Despite having good profitability result, BTN still experienced higher NPLs in 1Q10. Its NPL increased from 3.35% in 4Q09 to 4% in 1Q10, which mainly came from its subsidized mortgages loan, non-subsidized mortgages and consumer loan. The management said that its key performance indicator (KPI) for branch manager which appraised yearly made NPLs in the branch level higher in the first 3rd quarter. So, the management has started to move KPI for solving NPLs from yearly to monthly basis. Except for construction loan and commercial loan, we are not worrying about since BTN has had the expertise at mortgages lending since couple decade ago. We believe that its subsidized mortgages NPLs will recover in 2Q10 because of better economic environment.

Change In Government Subsidy Policy
Before 2010 Government Budget, the government gives a direct interest subsidy for each low income BTN customer. Starting 2010, the government are no longer giving direct subsidy but providing a low cost fund (proximately at 1% interest rate p.a.) around Rp. 3.5 trillion,while the rest of funds (approximately 28%) are provided by BTN. According to the management, the new policy give BTN more benefit than before since it provide BTN additional funds, that BTN really need to. The management also said that they currently are requesting higher low cost funds to the government that will enable them disbursing more subsidized mortgages this year.

Blessing from infrastructure project kick off?
Given relatively stable politic environment and a bunch of liquidity for long term off shore funding, several of infrastructure project which previously has been delayed because of political uncertainty and liquidity tightening are starting to kick off. We believe that infrastructure project will increase economic activity in the town or city and finally attract villagers to come to the town and increase urbanization rate. As the result, demand for lower income housing as well as its financing services. So it will be benefited BTN since the bank has more than 98% market share at low income housing mortgages.

Mandiri Sekuritas BBTN: 1Q10 results in line with our expectation and consensus (BBTN, Rp1,450, Buy, TP: Rp1,200)

􀂄 BTN recorded a net profit of Rp188bn (+71.6% yoy) in 1Q10, which was inline with our expectation and consensus estimates.

􀂄 The bank actually recorded higher than expected net interest income,msupported by lower interest expenses. This led to a high NIM of 5.6% in 1Q09 compared with 4.7% for FY09. Such strong NIM was supported by strong growth in loans (+28.6% yoy to Rp43.1 tn at end Mar10), which is dominated by housing loans (93% of total loans). Meanwhile, fee based income also grew high at 136.8% yoy to Rp266bn in 1Q10. S

􀂄 Such strong performance in NII and fee based income allowed the increase in provisioning expenses to Rp107 bn in 1Q10 from Rp3 bn in 1Q09). Such high provisioning expenses was partly to cover higher NPL recorded in 1Q10 of 4.0% at end Mar10 compared with 3.4% at end Dec09.

􀂄 At present, BTN is trading at 2010F P/BV of 2.1x and PER ofr 14.0x. We are reviewing our forecast on the bank. For the time being, we maintained our buy recommendation on the counter.

Reuters-Indonesia's Bumi eyes $1billion IPO for non-coal assets

JAKARTA, April 11 (Reuters) - PT Bumi Resources (BUMI.JK), Indonesia's biggest coal producer, wants to list its non-coal mining assets which it values at $1.9 billion, in a $1 billion initial public offering later this year, sources told Reuters.

Credit Suisse (CSGN.VX), which has advised Bumi on several deals in the past, and J.P. Morgan (JPM.N), were among the banks approached to advise on the Jakarta listing, two sources said.

Investors have snapped up assets in Southeast Asia's biggest economy over the past year, attracted by strong growth, political stability, and prospects for an investment grade credit rating.

The benchmark stock index (.JKSE) hit an all-time high this month, and the share rally has encouraged a flurry of deals including placements for cement giant PT Semen Gresik (SMGR.JK) and mobile phone operator XL Axiata (EXCL.JK).

Bumi, which has a stock market value of $5.4 billion, is the prize asset of the Bakrie group, a conglomerate controlled by the family of tycoon and politician Aburizal Bakrie.

The Bakrie group has property, telecoms, energy, and plantations interests and has raised more than $4 billion in recent months from loans, bonds, and share issues, with plans to raise a further $550 million from bond sales.

Bumi has already set up a separate unit, PT Bumi Resources Mineral (BRM), to manage its gold, copper, zinc, lead and iron ore interests in Indonesia and Africa.

Now Bumi is considering listing BRM in Jakarta in an IPO to raise more than $1 billion, three people familiar with the plans told Reuters. They declined to be quoted by name.

"We've formed BRM (Bumi Resource Minerals) and announced this to our regulators. Intent is to inject our unvalued (by market) $1.9 billion acquisition cost of our non-coal assets into them and to sharply focus attention on developing them through an independent management," Dileep Srivastava, Bumi's investor relations director, said in a telephone text message to Reuters.

Spinning off the other mining interests "was a logical strategic step to unlock the value of our high-potential non-coal assets," he said, adding that "announcements on their future plans will be made in due course as per established procedure."

Srivastava said that Bumi needs to spin off the non-coal assets because its core coal assets were undervalued.

Bumi's total assets were valued at $7.41 billion at the end of 2009. It has a price-to-book ratio of 3.64, compared with 4.85 for rival PT Adaro Energy (ADRO.JK), and 7.1 for PT Tambang Batubara Bukit Asam (PTBA.JK), Reuters data showed. But in terms of price-earnings ratio, Bumi shares look more expensive at 26.4 times, against 18.2 for Adaro and 14.9 for Bukit Asam.

SOURED RELATIONS

Some investors consider Bumi's strong political connections an advantage given that Aburizal Bakrie heads Golkar, one of the largest parties in the ruling coalition. But relations between Golkar and key reformers in President Susilo Bambang Yudhoyono's government have soured recently, and the tax office has said it is investigating Bumi for alleged tax evasion.

Concerns over whether Bumi will have to pay taxes and fines have hit the stock, up 3 percent this year, while the index is up 12 percent and recently set an all-time high.

Bumi's non-coal assets consist of several recent acquisitions including Herald Resources, which controls a large zinc and lead mine in Dairi, North Sumatra.

Bumi bid A$563 million for an 84.2 percent stake in Herald Resources, which at the time was listed in Australia, and bought the remaining shares in the market. It has allocated about $211 million for the development of the Dairi zinc and lead mines, and initial production is expected to start in 2011.

BRM also owns PT Multicapital, which last year teamed up with three local governments in Indonesia's West Nusa Tenggara to pay $885 million for a 24 percent stake in PT Newmont Nusa Tenggara (NNT), a unit of U.S. miner Newmont Mining Corp (NEM.N).

Newmont was required by Indonesian law to divest its stake in the firm, which controls the lucrative Batu Hijau copper and gold mine in Sumbawa. The Bumi-backed consortium also plans to acquire another 7 percent stake in NNT that has been offered this month and valued at $444 million.

BRM's other assets include gold and copper projects in Gorontalo and Palu in Sulawesi: Bumi earmarked $500 million for investment in the projects, with production due to start by 2013.

Another unit, Lemington Investment, owns an iron ore project in Mauritania, Africa. BRM has allocated $300 million to develop the project, which should be in operation next year.

Most of the funding that Bumi plans to invest in the various non-coal projects will come from a $1.9 billion loan provided by China Investment Corp., the Chinese sovereign wealth fund, late last year.