Bloomberg Taiwan’s March Coal Imports Rise on Power Demand

May 7 (Bloomberg) --Taiwan, which imports all of its coal needs, increased purchases for a fourth consecutive month on higher demand from the island’s power generators.

Shipments rose 8.8 percent in March from a year earlier to 4.61 million metric tons, the Bureau of Energy in Taipei said in an e-mailed statement today. Consumption climbed 1.7 percent to 4.93 million tons.

Coal, which fuels about 45 percent of Taiwan’s power output, is also used in steelmaking. Electricity sales at Taiwan Power Co., the island’s monopoly grid operator, soared 18 percent in March from a year earlier, according to a company newsletter.

--Editors: Jane Lee.

Bloomberg Richards Bay Coal Shipments Fall to an 11-Month Low

May 7 (Bloomberg) -- Coal shipments from Richards Bay Coal Terminal, Africa’s biggest export facility for the fuel, fell to an 11-month low of 3.92 million metric tons in April.

Shipments fell from 4.55 million tons in the same month a year earlier, the terminal said, without giving reasons for the decline. Last month the facility exported 5.66 million tons.

There weren’t any problems at the port that may have accounted for the drop in exports, Raymond Chirwa, the terminal’s chief executive officer, said in an interview from the port on South Africa’s north east coast today. “We are just at the receiving end,” he said.

The terminal is Europe’s biggest source of coal burned for power and is owned by South Africa’s largest exporters of the fuel, including BHP Billiton Ltd., Anglo American Plc and Xstrata Plc. Prices for coal shipped through the port rose to their highest in almost 18 months, advancing 5.5 percent to $95.75 a ton, in the week ended April 30, according to IHS McCloskey

At the shipment rate so far this year, the terminal will export 56.8 million tons of coal for all of 2010, compared with its capacity of 91 million tons. Shipments came to 61.14 million tons in 2009.

During March, 5.61 million tons of coal arrived at the port by rail compared with 5.23 million tons a year earlier. Fifty- two ships docked at the port and 755 trains arrived laden with coal during the month.

Stocks were 4.62 million tons as of April 30.

Shipments from Richard’s Bay may be affected by a strike by employees of Transnet Ltd., the national ports and rail company, that is due to start on May 10. The company is in talks with labor unions in a bid to avert the labor action.

--Editors: Claudia Carpenter, Alastair Reed

Bloomberg China’s Coal at Discount, Signaling Import Drop: Energy Markets

May 7 (Bloomberg) -- Coal prices in China are their cheapest in 20 months against the benchmark Australian grades, signaling shipments to the world’s second-largest energy user are poised to fall.

Power-station coal from Qinhuangdao, China’s largest port for the commodity, sells for $23.30 a metric ton less than coal delivered from Newcastle, Australia, the widest gap since September 2008, according to CLSA Asia-Pacific Markets. Prices of supplies from Newcastle reached a 19-month high of $152.90 a ton on April 30.

The price discount “suggests a slowdown in Chinese coal imports” this quarter, Andrew Driscoll, head of resources research at CLSA Asia-Pacific Markets, said by telephone from Hong Kong. “Last year was an exceptional year. In the first half, competing demand for coal in the seaborne market was low and prices at a premium in China provided an incentive for more imports.”

China, the world’s biggest user and miner of coal, boosted purchases from overseas and stepped up domestic production as economic growth of 11.9 percent in the first quarter led to a surge in power demand. The nation’s output reached a record 289 million tons in November, up from 227 million tons a year ago, the National Bureau of Statistics said.

Production climbed to 280 million tons in March, 12 percent more than the 2009 monthly average, according to the bureau’s most recent data.

Qinhuangdao’s coal cost $129.60 a ton upon delivery to southern China, the nation’s manufacturing hub.

Buying Less

European benchmark coal futures for May delivery at Rotterdam have risen 48 percent in the past year to yesterday’s $91.10 a ton. Prices for the June contract on the New York Mercantile Exchanged reached this year’s high of $64.22 on May 4. Prices have gained about 28 percent this year.

China planned to cut imports as of last month as the cost of overseas supplies climbed and domestic output rose, the government said on April 23.

Imports from Australia fell 67 percent to 767,268 tons in February from a record 2.32 million tons in June 2009, according to data compiled by the Australian Department of Foreign Affairs and Trade. Average monthly imports in 2008 were 190,239 tons.

China increased purchases last year to take advantage of lower prices as the global recession sapped demand for commodities worldwide and cut shipping charges. The average Baltic Dry Index, a global benchmark for dry-bulk freight rates, had fallen 59 percent in 2009 from a year earlier. more...

Bloomberg Soybeans Rise on Speculation China Will Increase Purchases

May 7 (Bloomberg) -- Soybeans rose from a four-week low on speculation that China, the biggest global consumer, will increase purchases to produce more animal feed and cooking oil.

Imports may reach a record 14 million metric tons in the second quarter, the China National Grain & Oils Information Center said on April 28.

“Demand into China will not go away as the mandate of a more protein-rich diet is a cultural change in eating habits and looks to keep China in the import market,” said Tim Hannagan, a market analyst at PFG Best Inc. in Chicago. “Growing-season problems have China increasing purchases whenever prices fall.”

Soybean futures for July delivery rose 6 cents, or 0.6 percent, to $9.60 a bushel on the Chicago Board of Trade, the biggest gain since April 22. Earlier, the price touched $9.485, the lowest level for a most-active contract since April 9.

This week, the commodity fell 3.9 percent, the most since the end of January, as Greek-debt concerns drove most raw materials lower.

Soybeans have dropped 8.4 percent this year amid forecasts for record crops in Brazil and Argentina, the biggest exporters behind the U.S.

Prices also rose today on speculation that wet, cold weather may delay planting in the U.S. Midwest and stunt development of planted crops. more...

Bloomberg Corn, Wheat Rise on Concern U.S. Crops May Be Hurt by Weather

May 7 (Bloomberg) -- Corn and wheat futures rose in Chicago on speculation that freezing weather will harm crops in the U.S., the biggest exporter of both grains.

Freezing or near-freezing temperatures over the weekend may stunt Midwest corn that has begun to emerge and damage wheat that is maturing from northern Kansas to southern Michigan, said Allen Motew, a meteorologist at QT Weather in Chicago. Above- normal rains next week across most of the eastern U.S. will delay final corn planting after a record start, Motew said.

“The cold weekend forecast is encouraging people to cut short positions,” said Tim Hannagan, a market analyst for PFG Best Inc. in Chicago. “People are buying on the price breaks because we have gotten past the peak in the bearish supply news.”

Corn futures for July delivery rose 0.75 cent, or 0.2 percent, to $3.72 a bushel on the Chicago Board of Trade, erasing an earlier loss of 1.1 percent. The most-active contract fell 0.9 percent this week after gaining 3.9 percent last week on speculation the Greek credit crisis slow the global recovery and demand for the grain to produce food, animal feed and fuel.

Wheat futures for July delivery rose 2.25 cents, or 0.4 percent, to $5.105 a bushel, after earlier falling 1.9 percent. The price rose 1.5 percent this week, the fifth gain in six weeks. more...

Bloomberg Stocks Slide as Market Rout Triggers Trading-Systems Concern

May 7 (Bloomberg) -- Stocks slid for a fourth day, erasing 2010 gains for U.S. benchmark gauges, and the bonds of debt- laden nations tumbled after Europe’s debt crisis spurred an equity rout yesterday that undermined confidence in trading systems. Oil sank, capping the biggest weekly drop since 2008.

The Standard & Poor’s 500 Index fell as much as 3 percent before paring losses to 1.5 percent at the 4 p.m. New York close, leaving it down 0.4 percent in 2010. The MSCI World Index sank 2.3 percent. The Stoxx Europe 600 Index fell 3.9 percent to the lowest level since November. Greece led a drop in deficit- stricken European nations’ bonds, with the yield premium demanded to own the 10-year securities instead of benchmark German bunds rising to a record 9.65 percentage points.

Regulators are reviewing a plunge that briefly wiped out more than $1 trillion in U.S. equity value yesterday as the Dow Jones Industrial Average slid almost 1,000 points before paring losses. Concern over the integrity of the trading mechanisms that may have exacerbated the drop overshadowed the biggest growth in U.S. jobs in four years. Credit-default swaps on European banks surged to an all-time high and the benchmark gauge of U.S. stock volatility capped a record weekly gain.

Europe Concern

Stocks have been pummeled the last two weeks amid concern European leaders won’t do enough to keep the most indebted nations from defaulting after a 110 billion-euro ($140 billion) rescue package for Greece failed to halt a rise in government borrowing costs.

The Stoxx 600 has tumbled 13 percent from its high for the year last month, while the S&P 500 has lost 8.7 percent from its 19-month high on April 23. The Dow average fell 139.89 points today to 10,380.43, giving it a 0.5 percent retreat for 2010. more...

Barito Pacific Ekspansi ke Bisnis Migas

Setelah mencatat kinerja keuangan cukup meyakinkan sepanjang 2009 dan kuartal I-2010, PT Barito Pacific Tbk (BRPT) mulai melebarkan bisnisnya ke sektor minyak dan gas bumi serta perkebunan kelapa sawit.

Pada 5 Mei 2010, Barito Pacific bermitra dengan Badan Usaha Milik daerah (BUMD) Jawa Timur dan Madura dalam bidang usaha minyak dan gas bumi pada Madura Offshore PSC.

Dengan investasi tersebut, perseroan memiliki 49 persen saham pada PT Petrogas Pantai Madura (PPM) yang memiliki investasi di Madura Offshore sebesar 10 persen.

"Perseroan akan memberikan fasilitas pembiayaan untuk modal kerja kepada PT PPM sampai dengan US$8,5 juta," ujar Senior VP Investor Relations BRPT Agustino Sudjono dalam siaran persnya Jumat, 7 Mei 2010. more...

Bahana Securities Jasa Marga Sector: Infrastructure (Overweight)

Dissipating roadblocks

Proposed land acquisition law to determine…
In 2010’s toll road development, roadblock removals will come from the establishment of the scheduled land acquisition law, enabling the government to revoke individuals’ rights of land ownerships for public use. The new law, which would be a breakthrough, will provide details on the execution process such as compensation payment, process on the revocation of land rights, and period of land acquisition. During land clearance, land price will be determined by an independent appraiser at market value, which is nonnegotiable. If owners agree with the proposed price, land ownerships will be revoked and transferred to the government. Conversely, land owners who object to the offered price may settle in court with a maximum period of 44 days versus the “No limit” period at present.

… the success of infrastructure projects and re-rate listed companies
The new proposed law would undoubtedly become a powerful tool and sole key factor for the government to expedite the development of toll roads and other infrastructure related projects in Indonesia. It is worth noting that the parliament has positively viewed this regulation plan during public hearing earlier this year, indicating that approval is just around the corner. Thus, completion of the draft before the end of year would be highly critical, as continuity on infrastructure development would hinge on the realization of this law. We think that the establishment of this law will be a strong catalyst for re-rating on infrastructure play like Jasa Marga (JSMR).

1Q10 earnings: Up 18% q-q on cost efficiencies
Despite 1Q10 negative revenue growth of 4.8% q-q to IDR998b on volume seasonality (-3.3% q-q), JSMR managed to register earnings of IDR303b, up 17.8% q-q or 54.2% y-y, helped by 19% average tariff adjustment on twelve routes and lower operating expenses. As operating profit jumped 39% y-y to IDR511b, margin expanded to 50.5% from 44.2% in 4Q09. Note that operating costs would escalate in the subsequent quarters given that road maintenance requirement for the approval of 11% tariff adjustment on two routes (Jakarta – Cikampek & Prof. Sedyatmo) must be completed before the end of June 2010. Nevertheless, with 1Q10 net profit having accounted for
28% and 30% of our and consensus estimates respectively, JSMR is on track to achieve our 2010 net profit forecast of IDR1.1t, up 9.1% y-y.

Real estate project to help secure future growth; BUY on IDR2,500 TP
Going forward, we believe that JSMR will continue its commitment to secure long-term growth through road expansions. Additionally, the management is currently undergoing discussion to develop real estate within the vicinity of two routes: Jakarta–Cikampek and Surabaya–Mojokerto. This would help JSMR to ensure traffic flows and mitigate the risk of slower payback period on its new toll roads. Thus, with long-term outlook remaining promising, we retain our DCF-based (WACC: 14%) target price of IDR2,500. BUY.

CIMB Inco Indonesia Result note - Surpassing consensus

(INCO IJ / INCO.JK, OUTPERFORM - Maintained, Rp4,475 - Tgt. Rp6,000, Basic Resources)

Maintain Outperform on Inco.1Q10 net profit (+344% yoy) was in line with our expectation and historical 1Q contributions at 23% of our FY10 forecast. The results were, however, 6% above consensus and also beat Antam's, its closest peer, as Inco is a pure nickel producer hence greater leverage on nickel price recovery. Production and sales volume were strong while costs were stable despite higher fuel prices and consumption. Sales volume should be stable in 2Q10, helped by inventory sales, while costs could decline on more usage of hydropower capacity. We maintain our DCF-based target price of Rp6,000 (WACC 11%). We also expect ASPs to be stronger in 2Q10 from a jump in nickel prices since March. We see stock catalysts from further sets of strong results.

Credit Suisse: Asia Equity Focus Reduce risk exposure as sovereign debt crisis deteriorates

Strategy comments
De-risking the equity portfolios as European debt crisis widens

The European sovereign debt crisis continued to escalate after the market was disappointed by the failure of the European Central Bank (ECB) to introduce new policy actions to stem global contagion risk from the Greek crisis. The Dow Jones Index once fell almost 1,000 points intraday before recovering partial losses to close at 10,520.32, down by 3.2%. The extraordinary intraday slump of the Dow was blamed on erroneous trades with the Nasdaq cancelling all trades executed between 2:40 pm to 3:00 pm New York time. Putting aside impact of the erroneous trades, investors were greatly disappointed by the statement of ECB President Jean-Claude Trichet that the 22-member Governing Council did not discuss about buying government bonds and added that Spain and Portugal did not face the same challenges as Greece. The inaction of the ECB quickly fuelled investor fears of global contagion risk from the Greek crisis. The VIX volatility index once spiked to above 40 before closing at 32.80.

With the global equity markets breaking key support levels, Credit Suisse Investment
Committee decided in a special meeting on 5 May to move the tactical (1-6 months) equity arrow to negative from neutral. We expect further de-risking of investment portfolios in the coming weeks and this will bring further downside in risky assets. Hit by the risk reduction trade and strengthening of the USD, Asian equity markets are expected to test their early February lows. Sharp resurgence in risk aversion will cause Asian equities to remain dominated by sentiment and headline risk, rather
than macro and corporate fundamentals, in the near term. Investors should closely
monitor key technical support and stop-loss levels.

With rising uncertainties over global contagion risk of the European sovereign debt
crisis, we recommend investors de-risk and lower beta of their equity portfolios to reduce investment risk. After our Global Commodities Team turned more cautious towards industrial metals and energy on a tactical time horizon, we decided to remove Jiangxi Copper (358 HK, BUY), CNOOC (883 HK, BUY) and *POSCO (005490 KS, BUY) from our APAC Long Term Focus List. We have removed Rio Tinto (RIO AU, BUY) from our Long Term Focus List earlier this week due to uncertainty over the Australian mining profit tax. We added Japan Tobacco (2914 JP, BUY) and CSL (CSL AU, BUY) to our Focus List due to their defensive merit. Investors should also take advantage of any short-term tactical rebound in the markets to cut exposure to our SELL-rated stocks, which are over-valued and fundamentally weak. Our top SELL calls are Murata Manufacturing (6981 JP, SELL, Price JPY 5290, TP JPY 3000, -43% downside), NEC (6701 JP, SELL, Price JPY 300, TP JPY 220, -27% downside), Sharp (6753 JP, SELL, Price JPY 1173, TP JPY 870, -26% downside), *State Bank of India ( SBIN IN, SELL, Price INR 2276.2, TP INR 1900, -17% downside), Brambles Limited (BXB AU, SELL, Price
AUD 7.13, TP AUD 6, -16% downside), Hong Kong & China Gas (3 HK, SELL, Price HKD 18.72, TP HKD 16.2, -13% downside), Hong Kong Exchanges & Clearing (388 HK, SELL, Price HKD 124.6, TP HKD 110, -12% downside), Greentown China (3900 HK, SELL, Price HKD 7.5, TP HKD 7, -7% downside), Guangzhou R&F Properties (2777 HK, SELL, Price HKD
9.42, TP HKD 9, -4% downside), ASX Limited (ASX AU, SELL, Price AUD 32.25, TP AUD 31, -3% downside) and Taiwan Cement (1101 TT, SELL, Price TWD 25.55, TP TWD 25, -2% downside)

Citigroup Global Emerging Markets Strategist

Beyond the Turbulence
 Long-Term Bullish — In our first Global Emerging Markets (GEMS) strategy report, we set our long-term bullish case for the asset class. Our forecast is for around 15% returns in 2010, with a continuing pattern of volatility within a rising trend.

 Overweight Asia — We recommend an Overweight in Asia (the growth area of GEMs), a Neutral in Latin America (where earnings momentum is strong) and an Underweight in EMEA (which is the valuation play of the asset class).

 Top Country Picks — Our Overweight calls are Taiwan, Korea, Russia, Brazil,
Turkey, Thailand; we are Neutral in China, India, Chile, Mexico and South Africa.

 Top Sector Picks — Our Overweight calls are IT, Materials, Utilities and Consumer
Discretionary. We are Neutral in Financials, Industrials and Energy.

 The Bull Case — Our long-term positive view is based on: i) the global economy is
in the early stages of a new upswing; and ii) corporate earnings growth should remain strong. There will be headwinds, notably rising interest rates across the EM
world and in the US over the rest of 2010 and a higher long-term cost of capital.

 Growth/Valuations — Progress will likely be slow; the recent average GEMs gain in
Year 2 of a bull market is 9%. We forecast GDP growth of 6.7% for GEMs in 2010, an even bigger gap than usual over developed countries (+2.4%e). EPS growth of 36% is forecast in GEMs for 2010. Sluggish markets, combined with strong EPS growth, are cutting valuations; an 11.7x forward P/E is back to its recent average.

 ‘Tail Risks’ — We look at two areas of concern for this bullish view: i) the fiscal crisis in the EU; and ii) the risk of a fall in Chinese property prices. These may lead to continuing near-term volatility – and some desire from investors for less beta – but, in our view, are unlikely to de-rail the long-term bull trend.

UBS Indonesia Market Strategy A Market Buying Opportunity

􀂄 Negative sentiment surrounding MoF resignation is a buying opportunity.
We believe the market correction following the resignation of Indonesia Minister of Finance Sri Mulyani and the likely near-term market volatility anticipating her replacement - represents an additional buying opportunity for two reasons. With a potentially more cohesive coalition, some market reforms can progress. Secondly, given structural factors, we believe reasonably high and sustainable economic growth is still within reach for Indonesia.

􀂄 Sri Mulyani –Indonesia foremost reformer– resigned
Indonesia foremost reformer has resigned as the Minister of Finance. It may be viewed as a negative surprise for the market, indicating the difficulties in pushing through reform. However, the market correction has been orderly, and it could create a more harmonious ruling coalition thus increasing the chances of the government pushing through certain market reforms.

􀂄 An additional buying opportunity.
After this week correction, the market now trades at 13.4x 12m forward PER. Our top picks are Bank Rakyat Indonesia, Key Cal Perusahaan Gas Negara, Semen Gresik, Adaro Energy, London Sumatra and Summarecon Agung.

􀂄 Upgrade 12 month index target to 3200 from 3025
Unrelated to the above event, we upgrade our 12m index target to 3200 from 3025 to reflect 5% potential EPS upgrades and a market re-rating from 11.9x to 13x 2011E given liquidity inflows. As a check, the bottom-up summation of price targets of stocks under our coverage universe results in a JCI 3175 level.

CLSA Inco – 1Q10 results look good, expect stronger quarters ahead by Olie

The company posted net profit of US$76m in 1Q10, up by four folds for last year. The results accounted for around 26% of our full year 2010 forecast.

Expect more in the coming quarters, if nickel price stays. We think that earning, if nickel price stays at the current spot of US$10/lb, would be around 40% higher in the coming quarters. Note that we are still using a rather conservative nickel price of US$8.0/lb that translates to an average price received of US$6.2/lb for PT Inco.

Costs have gone up but so have productions. Costs of production have been running slightly ahead of forecasts, US$3.8/lb in 1Q10 as compared to US$3.7/lb assumed for the full year average, a reflection of higher fuel consumptions and costs. Nonetheless, production has been better than expected during 1Q10, representing some 27% of forecasts.

New hydropower project is progressing as scheduled. Meanwhile, the work to build Karebbe hydroelectric power plant has continued progressing. All fabrication packages are progressing as planned while construction works have been 20% completed. The Karebbe project is expected to come on stream in the second half of 2011.

While there is upside to our current nickel price assumptions relative to spot, nickel price recently has been hammered as concern over tightening in China and weak Euro-zone economy. We are reviewing our numbers and recommendation.

CLSA Wijaya Karya (WIKA IJ) - company visit by Sarina

Diligent analyst Sarina went to visit Wijaya Karya (WIKA IJ, mkt cap: US$238m, Not-Rated), one of the major construction companies in Indonesia. Key takeaways:

Margins expanded due to cost-cutting initiatives and selecting higher margins but lower risk projects. In 1Q10, WIKA booked an increase in net profit of 39% YoY to Rp64bn, although revenue dropped 13% YoY to Rp1.1tn. Gross margin expanded to 12.5% (vs peer ave of 8.5%); this was all-time high from average 8.2% in past 8 quarters.

Centralized procurement and revenue collection, reduction on admin expenses, and being more selective in projects selection resulted in lower bad debt provisioning.
Increasing order-book. WIKA has Rp10.7tn carry-over orders from past years, and this year is targeting to get Rp10tn new contract, hence total order book is targeted to increase 36% YoY. In 1Q10 WIKA has obtained Rp1.45tn new contract, and has bidded for a Rp15tn project of Pertamina’s Refinery Unit IV (winner of tender to be announce soon). By end of 2009, WIKA had participated in a total of Rp20tn tenders. WIKA targeted a revenue of Rp8tn this year.

Busier than ever. WIKA’s management mentioned that the construction industry is getting busier lately with so man new projects coming, and is hoping that acceleration of infrastructure development can boost this even further. Infrastructure investment in Indonesia had increased by cagr 30% in past 5 years.

CLSA Initiating coverage Mayora, BUY, TP Rp7100

Our research assistant Jessica has initiated coverage on Mayora Indah (MYOR IJ) with a BUY call and TP of Rp7100, offering a hefty 45% upside. Stock looks very cheap, trading at 6.2x 11PER.

This is Indonesia’s largest biscuit manufacturer with a solid brand presence throughout its product line. Revenue has grown a compound 24% for the past decade, and we expect similar growth this year and next. MYOR has been able to gain market shares in key product line.

Raw materials account for 55% of the COGS. The concern is that margin is probably peaking but stronger rupiah and MYOR’s brand loyalty (many of MYOR brands are “top of the mind recall”) and should be able to at least maintaining the margins for a while.

Risks: (1) liquidity is not great for this stock in spite of large free float. (2) Related party transaction is considered as one of the risks for MYOR (although the advantage is that related party distribution co bears all the bad debt risk).

MYOR’s market segment is the middle to low income class (growing fast in Indonesia), and its products are priced very competitively with good product quality. As a comparison, we show below the buying power of one Starbuck’s grande caramel macchiato against some of Mayora’s most popular products.

Key points from the report:
Expect MYOR to be a beneficiary of the growth in domestic consumption, and more importantly the rapid growth in processed food consumption.
The company is planning to expand 20% capacity each year for the next four years, and potentially grow its earnings by 28% 4-yr CAGR in our estimate.
MYOR’s costs are subjected to commodity price’s volatility as raw materials make up 55% of COGS.
While raw material prices may rise, a stronger Rupiah will help offset costs, and we expect margins to remain stable.
MYOR offers high growth, high returns, and stable dividend payouts.
At 6.2x 2011 earnings, valuations look attractive against the regional peer average of 17.2x.
Our TP of Rp7,100 is based on 9.0x 2011CL PE, close to the stock’s five-year P/E average.

UBS Flows from Bond - FX markets

Flows

The Indo equities market
Lingering concern over European sovereign debt contagion continued to overshadow markets globally and selling out of the US lead JCI lower again today, -2.3% as of this writing. Small caps lead while selling in big caps across the board with ASII, BBRI, BBCA, BMRI, TLKM.

Across the region, we see nervousness but no panic. We kick off this morning with our order pad ~40% higher than average with a 3:1 net sell skew in the region. At this point in time, Indonesia has not seen significant foreign selling.

The Indo bond market
The Indonesia government 10yr closed yesterday at 9.3% after ending the day before at 8.8% and trading as high as 9.6%. Today, our fixed income colleagues expect yield to trade higher as buyers are standing back. Small bids on bonds are on the low side. The tone today is "go ahead, please sell if you want, but at low price" versus yesterday "yes, it may be a good window of buy opportunity".

The Indo FX market
Our FX colleagues tell us that yesterday saw some unwinding of IDR/JPY carry trade positions. Initially this morning there were more carry trades unwinding kept the IDR well offered, though BI was aggressively buying IDR at 9300 right from open, to keep IDR weakness in check. Forwards massively bid up this morning given BI's attempt to stabilise spot.

From the Ground

Repricing of risk negative, but the Indonesia story remains intact

· Repricing of risk will impact Indonesian equities
In 2009 and the early part of 2010 capital inflows were such that Indonesian bond yields fell dramatically, the currency strengthened and equities markets rallied.

With global markets in turmoil and Sri Mulyani departing, Indo bond yields and the IDR will find new equilibrium levels. In the short term, these factors will be negative for equities: Not least, the cushion to earnings and price targets that we have enjoyed of late has evaporated overnight.

Our short term fear is that we haven’t yet seen significant foreign sell orders. If and when those sell orders hit, the market can take another leg down very quickly.

· The Indonesia story remains intact
In the medium term, the Indonesia story remains very much intact: As Joshua outlines in his report ‘A Market Buying Opportunity’ (see Latest Research), Indonesia is:

· less exposed to a moderation in global economic growth (i.e. low export exposure and large domestic market)
· has loose monetary policy settings
· no need to worry about fiscal consolidation

Balance sheets are in rude health, demographics compelling and there is the potential for a sustained infrastructure cycle.

Tuesday next week, UBS is hosting a conference call (let us know if you want the invitation) with the following theme:

After Greece: Is EM the New Dollar?
Many investors are asking if the emerging currency bloc - and in particular Asia, with visibly better balance sheet and growth fundamentals - could become the new "safe haven" region, or at least the most promising source of medium-term upside against a failing G3 world.

Indonesia will have a front row seat when that scenario begins to pan out.

· Sri’s departure: Foreigners concerned, locals sanguine
Political commentator Kevin O’Rourke hosted a conference call last night on the theme ‘Indonesia Reform post Sri Mulyani’. It was a great call – let us know if you’d like the transcript or instant replay details.

In summary, Kevin was very negative. He described Sri as ‘the cabinet’s foremost reformer’ and commented that her exit is a ‘major blow to the outlook for reform’.

This is a view shared by many foreign investors. However, there is another view taking hold. After Kevin’s call, a long time Indonesia watcher emailed to say:

“Kevin is too negative. He made no comment to the effect that the Ministry of Finance has been an obstacle to progress by creating too much in the way of opposition.”

This is a view shared by many local market participants and is mirrored by the lead headline in the Jakarta Post today: Mulyani exit likely to ease tension in coalition bloc.

Danareksa Astra International Keep driving

BUY, TP of Rp50,000
Buoyed by strong domestic consumption demand, ASII’s shares have tripled over the past one year. Car sales have been robust - and so have motorcycles – thanks in part to record-low interest rates. Recovery in commodity prices is also helping, though they are still far from 2008’s peak. While there are some risks - chiefly the possibility that the government sets higher auto taxes, impacts to margins will be minimum. Our forecast for car and motorcycle sales growth is a healthy 11.2-13.3% this year. This assumes no increases in taxes. If there are, our car sales forecast will be cut by 200-300bps. Our SOTP-derived TP of Rp50,000 implies 16.0-14.6x FY10-11E PER. As this represents potential upside of 19.3% from the current share price, we place a BUY on the stock.

Auto sales growth to slow, but ASII’s market share will remain intact
Auto sales were very strong in 1Q10, supported by record low interest rates which have helped drive auto sales since many auto purchases are made on credit. Going forward, higher expected economic growth shall continue to support auto sales but hikes in auto taxes - if implemented – would potentially curtail growth. Encouragingly, ASII has been able to maintain its market share, demonstrating the competitiveness of its products. For two-wheelers, for instance, ASII’s market share has been maintained at 46% over the past 2 years. Besides the introduction of new and innovative products, ASII’s financing division has played a vital role in supporting motorcycles sales growth (note that around 80% of motorcycle sales are financed by finance firms rather than banks). In 1Q10, financing division contributed significantly to ASII’s revenues and EBIT – around 7.4-19.7% respectively.

What would be the impact of higher taxes?
The government is reportedly mulling over the idea of setting higher auto taxes including higher vehicle registration taxes and a progressive tax. Besides this, higher gasoline taxes may also be in the offing. In a nutshell, higher auto taxes – if implemented - would put a dampener on auto sales growth in the coming quarters. Note that when Vietnam hiked VAT and Registration Fees by 50% earlier this year, that country’s auto market saw sales slump 30%. In our estimates, the taxes pose 200-300bps downside risk to our FY10 car and motorcycle sales assumptions. This translates into 1.5-2.2% lower auto earnings. However, in terms of margins, there is little impact. We expect auto’s gross margins to be maintained at 11.8% in 2010 (vs. 11.6% in 2009), supported by the firm rupiah despite higher steel prices.

The commodity-related businesses: strong, but a declining contribution
Despite soaring prices of CPO and coal, ASII’s commodity-related businesses (Astra Agro Lestari and United Tractors) contributed only 53% of ASII’s EBIT in 1Q10 (the lowest level since 1Q07). This owed mainly to lower yields which translated into weaker CPO production (-3.2% yoy). As for ASII’s heavy equipment and mining businesses, they performed admirably in 1Q10 as industry conditions improved further. However, in FY10, we expect the EBIT contribution from ASII’s commodities division to decline to 54% from 56% in FY09 before the company’s expansion programs start to kick in.

DBS Bakrie Telecom: Not Rated; Rp133; BTEL IJ

To expand into wireless broadband business Bakrie Telecom plans to enter wireless broadband business this year using US$250m proceeds from Bonds sale in April.
The company targets population below 35 which represents 50% of total population as young populations are hungry of information and entertainment. The company sees the
Indonesian broadband wireless internet market as an open playing field right now and is very focused on taking the opportunity. Bakrie Telecom has 10.5m customers in 2009.

Mandiri Sekuritas Inco: 1Q10 net earnings up by 344%yoy, in-line with ours but slightly above consensus (INCO, Rp4,475, Buy, TP:Rp5,900)

􀂄 Yesterday, Inco reported net income of US$76mn, up by more than 3-folds yoy on the back of sharp recovery of nickel prices and higher sales volumes. ASP for 1Q10 grew by 71%yoy to US$14,182/t, while nickel in matte sales volume improved by 23%yoy. The company was also able to pare down costs as well in areas of supplies, contracts and services which further contributed to its much improved margins. We maintain buy on the stock, currently having a 32% upside to our TP and trading at PER10F of 15.1x.

Mandiri Sekuritas Panin Bank: PNBN 1Q2010 up by 221%yoy, ahead expectations (PNBN, Rp1,190, Neutral: Rp780)

􀂄 PNBN reported strong 1Q10 results with net profit posted at Rp420bn, an increase 221.4% yoy far ahead our expectations and consensus estimates.

􀂄 Bank’s NIM surged to 5.7%, compared to 4.3% last year, thanks to impressive loan growth by 13%qoq which above from the industrial average. Total deposits booked at Rp57,102bn(+15.0yoy), maintained its LDR at 75.7%. NPL of the bank reduced at 2,3%(vs. 3.2% FY09), while coverage ratio at 125%, showing improvement asset quality of the bank.

􀂄 PNBN is currently trading at P/BV10F 2.5x and PER10F 21.9x. We still maintain Neutral on the stock.

AmCapital News Highlights

United Tractors (UNTR, Rp17,550) Heavy equipment sales targeted up to 5,500 units
United Tractors or UT, the subsidiary of Astra International, targets heavy equipment sales to rise to 5,500 units this year from around 3,400 units last year, Director Hendrik Kusnadi Hadiwinata said. Sales this year may increase to about Rp20tn versus around Rp13tn, he said. On capital expenditures, UT may spend between US$250mn and US$300mn, he added. – Bloomberg

Medco Energi Internasional (MEDC, Rp2,825) New oil discovery of at Libyan Area 47 block, Senoro-Donggi may be decided by next week
Medco Energi said its subsidiary had another oil discovery in the Area 47 block, which is the 13th discovery since its exploration activity starting on September 2006, President Director Darmoyo Doyoatmojo said. The company said the new discovery is from the exploration well L1-47/02 that flows 1,942 barrel of oil per day. Currently Medco and its partner had drilled 21 wells in the block with oil and gas discoveries. Additionally, on the company’s LNG and gas field development of Senoro-Donggi, Indonesia Vice President Boediono was reported to start meeting with Minister of Energy and Mineral Resources and state-owned Pertamina as well as PLN to discuss about the pending projects. Medco has 50% stake in Senoro block and 20% stake in the Donggi Senoro LNG. – Investor Daily

Elnusa (ELSA, Rp510) Seeking US$186mn of new contracts
Oil and gas service provider Elnusa said it is seeking some contracts ranging from geoscience, drilling, and oilfield totaling US$186mn this year, local newspaper reported. If secured, this will add the company’s current year contracts on hand worth some US$140mn, Corporate Secretary Heru Samodra said. The company may spend US$75mn for capital expenditure, of which 30% will be financed by bank loans, the report said. – Investor Daily

Matahari Department Store (LPPF, Rp2,450) Launched tender offer at Rp2,706 per share
Meadow Indonesia announced Tender Offer (TO) for Matahari Department Store (MDS) shares at a price of Rp2,706 per share for at maximum approximately 58.5mn shares, according to the prospectus in the local newspaper. Effective date is May 6, 2010. The shares’ offering period will be starting from May 7, 2010, to May 14, 2010 with payment date scheduled on May 20, 2010. The company appointed CIMB Securities Indonesia in the TO process. – Investor Daily

Bakrie Telecom (BTEL, Rp135) Expansion into wireless broadband, denied merger with other telecom player
Fixed wireless operator Bakrie Telecom or BTel plans to enter the wireless broadband business in 3Q10, using proceeds from an April bond sale, Amit Bose, the company’s head of strategic initiatives, said. BTel, which has mobile-phone customer base of 10.5mn in 2009, sees the Indonesian broadband wireless Internet market as “an open playing field right now” and the company is “very focused” on taking the opportunity, said Bose.
Bose also denied speculation that BTel has plans to merge with Telkom or any other mobile-phone operator in Indonesia. Sarwoto Atmosutarno, president director of Telkom’s mobile-phone unit Telkomsel, said Jan.8 a merger between operators could occur this year as 11 players in the cellular phone services business are too many for Indonesia. It’s hardly likely” parent Bakrie Group “will give up” the telecommunication business, Bose said. – Bloomberg

Bhakti Investama (BHIT, Rp315) Entering the coal business
Bhakti group-controlled investment company Bhakti Investama said its subsidiaries signed an agreement with Titan Mining Resources Investment to acquire eight coal concessions in South Sumatra. The eight concessions have potential resources of between 750mn tons and 1bn tons, the company said. – Bloomberg

NISP Bhakti Investama acquires 8 coal concessions in South Sumatera (BHIT, Rp315)

• On 5 May 2010, Bhakti Investama signed a purchasing agreement to acquire 8 coal concessions in South Sumatera from PT Titan Mining Resources Investment (TMRI). The company did not reveal the investment cost for this acquisition.

• TMRI has 8 coal concessions with one operational mining operated by PT Putra Muba Coal (PMC) and another 7 concessions are still in exploration phase. The management stated that the total coal resources from those coal concessions may reach 750-1,000mn tons, including 50mn tons coal reserves from PMC mining site. For PMC, the company expects its annual coal production may reach 3mn tons in 2011F.

• In the meantime, the company has also signed a preliminary agreement to acquire another coal concession in East Kalimantan with 30mn tons coal reserves. The company expects this coal concession to produce 3mn tons coal in 2011F. While for longer term, the company expects its coal production from coal mine in South Sumatera and East Kalimantan to reach 15mn tons by 2012F.

NISP Tunas Ridean to issue Rp350.0bn MTN (TURI, Rp2,450)

• Tunas Ridean is planning to issue MTN worth a total of Rp350.0bn through its subsidiary Mandiri Tunas Finance. The notes will be issued on July 2010 and will be used to finance the company loans which are targeted to grow to Rp4.5tn this year. In addition to the notes, the company has also secured a commitment from Bank Mandiri for Rp3.0tn in loans.

• Management predicts that car sales will grow by 25% YoY to 26,245 units while motorcycle sales are targeted to increase 23% YoY to 132,402 units. As such, revenue is expected to reach Rp6.5tn this year or 32.7% YoY growth.

NISP Elnusa aims for US$186mn new contract (ELSA, Rp510)

• Elnusa (ELSA) is aiming for a new bioscience, drilling and oilfield contracts worth
US$186mn from one of its oil block under ELSA’s administration. The company stated that with this new contract, ELSA’s total contract this year may reach US$326mn from US$140mn currently. From its existing US$140mn contract, around US$76mn will be executed this year while the remaining balance will be executed next year.

• For this year, the company has prepared US$75mn capex to finance ELSA’s oil field and well services and for new seismic equipment procurement. Around 50% of the capex will be financed from the recent subsidiary divestment while the rest will be financed from a combination of bank loan and equity financing.

• LSIP is trading at 2010F consensus PER of 13.9x and EV/EBITDA of 6.1x.

Matahari Department Store: Meadow announces tender offer at Rp2,706/share (LPPF, Rp2,450)

• In its announcement today, Meadow Indonesia states that it is offering to buy 2% of public share on MDS at Rp2,706/share, 10.4% premium compared to last closing price of Rp2,450 a share. This tender offer is due to Meadow Asia acquisition over MDS with a 98% stake in MDS.

• The effective date of this offer is at 6 May 2010 with tender offer period on 7 –
14 May 2010 and payment on 20 May 2010.

NISP Inco posts 344.0% YoY growth in 1Q10 net income (INCO, Rp4,475, Under Review)

• During 1Q10 Inco managed to post a robust growth in its financial performance where the company’s net income surged by 344.0% YoY to US$76.3mn from US$17.2mn in 1Q09. The result came at 21.3% to our 2010F full year net income expectation of US$358.2mn and 28.8% of the consensus’ net income estimates.

• Such increase was mainly backed by the company’s ability to boost sales volume and also benefited from higher selling price. During 1Q10, Inco sold 18,021 tons of nickel, 23.3% YoY higher from 14,610 tons. Selling price leapt by 70.7% YoY to US$14,182/ton from US$8,309/ton amid robust global nickel price condition.

As such, the company’s profitability jumped as operating margin reached 39.3% in 1Q10 from 4.3% in 1Q09.

• On a quarterly basis, the company also posted significant improvement as net income grew by 27.2% QoQ from US$60.0mn in 4Q09. This growth was driven by the company’s ability to lower its cost on contracts, supply and services. Hence, despite the company using higher diesel and HSFO in 1Q10, Inco managed to increased its profitability where gross margin rose to 41.2% in 1Q10 from 39.4% in the previous quarter.

• During 1Q10, Inco uses 32,000 kl at US$0.59/liter of diesel compared to 24,700 kl at US$0.56/liter in 4Q09. HSFO usage rose to 741,831 barrel at US$76.03/barrel in 1Q10 from 605,706 barrel at US$68.81/barrel in 4Q09.

• Overall, the company managed to post a performance that satisfies our expectation and we currently reviewing our recommendation as the company’s share price has exceeded our target price of Rp4,000. Inco is currently trading at 2010F PER of 13.0x and EV/EBITDA of 7.6x.

A Cup of Tea 7 May'10

The Dow suffered its biggest ever intraday point drop, which may have been caused by an erroneous trade entered by a person at a big Wall Street bank. Citigroup is investigating a rumor that one of its traders entered a trade that helped precipitate a drop of almost 1,000 points in the Dow Jones Industrial Average. US Stocks Market plunged 9 % in the last two hours of trading on Thursday before clawing back some of the losses as the escalating debt crisis in Europe stoked fears a new credit crunch was in the making. Amid the sell-off, Procter & Gamble shares plummeted nearly 37 percent to $39.37 at 2:47 p.m. EDT (1847 GMT), prompting the company to investigate whether any erroneous trades had occurred.

Worries about European sovereign debt turned suddenly into one of the market’s sharpest corrections since the crisis began. A four per cent drop in Chinese stocks started the downbeat mood. Stocks fell to minus nine on the year within seconds that was a pretty shocking move. This is a pretty full-on collapse in risk appetite. Images of Greek protesters taking to the streets in opposition to austerity measures matched an accelerating decline in the euro. Meanwhile, the European Central Bank said it would keep its interest rate at 1%, and would not begin buying sovereign debts.

Nickel dropped 1.3 percent to $21,650 a ton, rebounding from a slide of as much as 6.7 percent to $20,450, the lowest intraday price since Feb. 26. Prices are up 17 percent this year, the most among the six main metals traded on the LME. Nickel fell as much as 16 percent yesterday, the most in intraday terms since October 2008. The metal for three-month delivery had climbed as much as 43 percent this year on signs of revived output of stainless steel, the main demand source.

Indonesia's stock market fell to its lowest level in six weeks on Thursday in continued reaction to the announcement its reformist finance minister was quitting, and Greece's economic woes rattled other regional markets. JSX continued to react negatively to Sri Mulyani Indrawati's decision to quit to join the World Bank in June although some analysts said the impact would be short-lived and the risk to economic policy was manageable. Indonesia's index finished 1.3% lower, earlier falling 3.4% to its lowest since March 24 and adding to the 3.8% loss the previous day.

We see that Indonesian market continues under pressure for today. Green Back will continue to strengthen versus Rupiah. On technical wise I really worry for support 2650 and I prepare Just watch the market. Maintain cash or speculating buy on support on BUMN blue-chip for short-term trading.

Bang Juntri
DISCLAIMER: This report is issued by Bang Juntri. Although the contents of this document may represent the personal opinion of Bang Juntri. We cannot guarantee its accuracy and completeness.

Mandiri Sekuritas BSDE: 1Q10: Landed growth

Bumi Serpong Damai is delivering what as expected with in-line 1Q revenue and net earnings of Rp311bn (+48%yoy) and Rp82bn (+55%yoy). We continue to like its platform of catering to the resilient low to middle up income segment, manifested by a growing takeup rate in its BSD projects. We currently have a buy on the stock which trades at 53% discount to NAV10F.

Revenue shift led to high growth and improved margins. As a testament to its thrust for a more aggressive residential rollout, house and lots made up of 70% of realized revenue in 1Q10 versus only 38% in 1Q09. Thus, being a high margin sub-segment, this redounded to better gross and operating margins of 54% and 38% respectively from 51% and 28% in the same period a year ago.

1Q10 marketing sales on target to reach FY10F, rising land prices. For 1Q10, BSDE registered marketing sales worth some Rp545bn equating to about 27% of FY10F of Rp2tn. Consistent to its thrust; housing contributed about 50% while the remainder came from sale of lots and a few commercial and industrial plots. Thus, the prospects of a better FY11-12F remain should FY10F sales target be reached. With good demand and project deliveries executed as scheduled, cur! rent aver age land selling price in BSD is now about Rp2.6/sqm, up by some 11-13% from last year’s quoted prices.

Aggressive rollout continues. This year, the company plans to build some 2,000 housing units divided into clusters with 150-200 housing units each. So far, it has pre-sold some 400 units of houses and close to 200 land plots. The company is also looking for possible land acquisition of some 1,200ha within the Serpong area to add to its industry leading current land bank of 3,100ha.

Maintain Buy. With better stock liquidity (post placement free float of 26%) and expectations being fulfilled on a financial and current demand standpoint, as evidenced of having the highest ROAE of about 15% in FY10F among property stock under our cover, we maintain a buy on the stock, which presently enjoys the benefits of strong domestic consumption coupled with low interest rate environment. The stock trades at a 53% discount to our NAV10F, thus maintain ! buy at TP of Rp1,100/share.

Danareksa Gajah Tunggal (GJTL IJ, Rp 860 BUY) 1Q10 Results - Good

Highlights:
On a YoY basis, 1Q10 sales grew 33.2%. Margins also improved – the gross margin widened from just 12.5% in 1Q09 to 19.9% in 1Q10. The company also showed better efficiency – the opex to sales ratio declined from 8.2% in 1Q09 to 6.3% in 1Q10. Operating income surged 325% YoY to Rp 316 bn in 1Q10.

On a QoQ basis, 1Q10 sales are up 10.3%. At 19.9% in 1Q10, the gross margin was lower than 4Q09’s 26.7%. As for the opex to sales ratio in 1Q10 of 6.3%, it was lower than 4Q09’s 8.3%. The operating income in 1Q10 of Rp 316 bn was down 18.4% QoQ.

The company returned to profitability and booked a net profit of Rp 177 bn in 1Q10 compared to a net loss of Rp 56 bn in 1Q09. On a QoQ basis, the 1Q10 net profit was 19% lower.

Net gearing declined to 105% at the end of March 2010 from 121% at the end of 2009.

Comments:
This is a good set of results!
Yes, there was a narrowing of gross margins on a QoQ basis, but this was expected due to surging natural rubber prices. Moreover, 1Q10’s gross margin of 19.9% still exceeds our full year estimate of 17.9%. All in all, we maintain our conservative stance on rubber prices since they have continued to head inexorably higher, peaking at US$ 4.13/kg in mid-April.

The operating expenses are inline with our forecast. Since 2005, only around 20%-22% of the total full year’s opex has been spent in the first quarter of the year.

We maintain our BUY recommendation on the stock. We remain positive as: 1) the debt restructuring should give Gajah Tunggal enough time to strengthen its balance sheet 2) the increase in orders from Michelin of 2mn-3mn-5mn tires in 09-10F-11F should support the company’s sales growth 3) the stock is not expensive and trades at 5.1x-4.3x 10F-11F PER and 0.9x-0.8x 10F-11F PBV. Our TP of Rp1,090 implies 6.5x-5.4x 10F-11F PER and 1.2x-1.0x 10F-11F PBV.

Deutsche Gudang Garam – Sustainable turnaround boosted by price increases

Aggressive pricing strategy continues with fourth price hike in 2010
GGRM plans to increase prices by c. 1.5% in mid-May, its fourth price increase in 2010. Year to date it has raised prices by 6.5%. Management has increased prices eight times since taking over in early 2009. Major competitors have tagged along on GGRM’s aggressive pricing strategy, thus minimizing the volume effect. The company needs to raise prices by a mere 2% to reach our full-year target. We reiterate our Buy rating, as every 1% price increase boosts net profit by 4.5%.

Management believes improved profitability is sustainable
Management stated that the positive effect of bringing distribution in-house last year was sustainable and not merely a one-off event, as “underlying improvement in profitability and cash flow is sustainable.” In line with our thesis, management said that the key reasons for profitability were its pricing strategy and the government’s favorable excise policy.

Investing in brand equity for future growth
GGRM was among the top ten TV adspenders in 1Q10, for the first time in the past few
years. In addition, we believe GGRM's profile will continue to rise, especially among the youth segment, as it will be the official broadcast sponsor for the World Cup in Indonesia.

Reiterate Buy, as GGRM trades at a 39% discount to regional tobacco peers
Trading at 12.3x FY10F PER, GGRM is our top pick in the Indonesian consumer space as a result of a sustainable turnaround, favorable excise policy and rising consumer purchasing power. Our target price is derived from DCF valuation, with WACC of 13.4% and a terminal growth rate of 5%. Risks: excise tax policy and the sustainability of internal restructuring.

UBS From the Ground – Sri Mulyani Special

1. It’s the Bear scenario: Sri didn’t jump, she was pushed.
In the past 24 hours, it’s become clear that Sri was pushed rather than jumped: At a breakfast meeting with her top finance officials yesterday, she indicated that she was ordered to accept the World Bank job by the President.

In yesterday’s From the Ground, we laid out a Bull and a Bear scenario, in which the Bull scenario involved Sri leaving in a co-coordinated fashion confident in the knowledge that she was victorious in the Bank Century affair and with a market-friendly successor in the wings.

With this latest colour, it appears that we are instead faced with the Bear scenario, which we described yesterday as follows:

· Aburizal Bakrie has won, after all.
· The President is still under the sphere of influence of the Bakries, after all.
· That the reform process risks becoming derailed.

2. Will the reform process become derailed?
Before we launch the lifeboats, it’s important to note that the reform process has not been all about one person.

While Sri’s replacement might not be equally charismatic or forceful in pursuing the reform agenda, there are plenty of quotes in the newspapers this morning from the various players in the reformist movement that they expect their reformist work to continue, including the anti-corruption KPK and the anti-monopoly agency KPPU.

Key in this process is the President himself: He is presented with a great opportunity to show himself to be a great reformer and thus cement his legacy during the remainder of this second term. Go SBY!

3. Reaction from the Bonds and FX Markets
The bond market’s knee jerk reaction yesterday was to mark down prices aggressively: There was an immediate across the curve 30-40bnps correction in yield, with the 10 year government bond starting the day at 8.5% and ending the day at 8.8%.

The currency traded weaker, with USD/IDR falling from 9,050 to the current level of 9,093. This fall would have been more dramatic, but for the intervention of Bank Indonesia buying IDR. Of late, Bank Indonesia has been buying USD to protect prevent the USD/IDR from trading below 9,000, so they no doubt enjoyed the opportunity to sell some of those USD back to the market for a profit.

It is worth noting that this immediate kneejerk increase in the bond yield represents a mere blip in the more dramatic broader decline in bond yields: Any number below 9% still qualifies as ‘near historic low levels’.

Our colleagues in fixed income tell us that yesterday traders were sellers while the real money was buying.

4. How is local sentiment?
Based on our non-scientific survey of local market participants, local investors are not overly concerned about developments and are looking to buy.

As one local market participant related to us: “This is good because all the bickering in Parliament will end”.

5. How will foreigners investors react?
Foreign investors are slightly overweight the MSCI’s Indonesia weighting (3% of Asia ex Japan), but similarly underweight the broader Indonesia opportunity (e.g. Indonesia’s weighting is less than Malaysia at 4.4%).

This could become a very detailed conversation at this point. However, to keep it simple we’ll refer to the chart below which shows that one should expect foreign investors to be net buyers into a significant correction, just as they have been in previous corrections.
6. Possible successors
It seems that SBY was caught a little unprepared by the timing of the announcement of Sri’s departure, with the announcement coming from the World Bank rather than from within the administration (nice one Sri J).

Accordingly, there does not appear to be a successor waiting in the wings and at present talk of her successor is little more than speculation. So here’s some speculation:

Hatta Rajasa, currently Coordinating Minister of the Economy, will likely take over the role on an interim basis.
Anggito Abimanyu, currently Head of Fiscal Policy at the Finance Ministry.
Anny Ratnawati, currently DG of Budgeting at the Finance Ministry.
Darmin Nasution, currently acting BI Governor.
Fuad Rahmany, currently BAPEPAM (financial markets supervisory agency) Chairman.
Agus Martowardojo, currently Bank Mandiri CEO.
Armida Alisyahbana, currently Minister of Planning.
Eddy Abdurrachman, currently deputy Coordinating Minister.
Chatib Basri, currently advisor to the Finance Ministry.

CLSA Astra International (ASII IJ - Rp43,450 - BUY), car sales remain strong in Apr10. Up 85% yoy, -2% mom.

Preliminary car sales is reported at 64.2k units in Apr10 which continue to show a strong 85% yoy growth although down slightly (-2% mom) from Mar10. Underlying demand is also strong with retail sales (to end consumer) runs at 57,650 units, 10% below the wholesale sales. This might reflects dealers/showrooms building up some inventory as well as time lag between customer booking and delivery. Note that the growth rate will slow down in 2H10 due to higher base. There is a risk that some local government increase registration tax from 10% to 20% which might temporary hurt volume (3-4 months decline is sales based on past experience).

Indonesia is on the way to sell 1m units car by 2012 (vs. 486k units in 2009) based on sustainable GDP growth above 6% (CLSA forecast 7% GDP growth in 2010). Astra International is well positioned to benefit from this J-curve growth with its 55% market share.

CLSA cement sector, well positioned

Nick Cashmore wrote an interesting report on the cement sector. Indonesian cement producers are in a sweet spot. Earnings, margins and operational performance continue to improve and balancer sheet is strong. Longer term, cement will be a structurally tight market for most of this decade and the strategic case to remain OWT is still extremely compelling.

Tight supply-demand situation.

DEMAND. As the chart below illustrates, cement growth has averaged 1.5x GDP growth for the past decade. Based on the 10-year average, domestic cement demand has thus grown by a CAGR of 7.4%. This would imply 58m tonnes of domestic demand by 2015, 52% more than in 2009.

SUPPLY. By comparison, we estimate that total production capacity will rise from an existing 47m tonnes today to 59m tonnes by 2015, based around current existing expansion plans of firms. Even with current expansion plans all firms will be operating at full capacity by 2015.Indonesia is likely to become a net importer market.

With limited capacity growth until 2012, our preference is for Indocement (INTP IJ) and Holcim Indonesia (CIMB IJ) - pls see the charts below. Both stocks remain strong conviction recommendations. Revenue for Semen Gresik (SMGR IJ) was flat YoY, a function of the company operating at full capacity.

CIMB Sector Update – Banks

Maintain Overweight on the sector with Mandiri, Danamon and BTN remaining our top
picks. 1Q10 results were extremely strong, with more banks surpassing than merely
meeting consensus and our expectations. Provisioning upside drove the bulk of the
outperformance, followed to a lesser extent by operational growth. We now expect
accelerating loan growth to take over the engine, starting 2Q10 and further escalating
in 3Q10. We remain bullish on Mandiri, Danamon and BTN, but still have our doubts
on BNI, unless there is a rights issue coming to its rescue. We maintain Underperform
on BCA after seeing its weak 1Q10 performance, if one-off provisioning reversals are
stripped off.

Mandiri Sekuritas Mayora Indah: 1Q10 net profit of Rp119bn, above ours and consensus estimates (MYOR, Rp5,000, Buy, TP: Rp5,000)

􀂄 MYOR posted 1Q10 net income of Rp119bn (+67%yoy, +14%qoq), slightly above ours and consensus FY10F estimates.

􀂄 Net income growth was mainly due to revenue growth of 27%yoy and 26%qoq. Lower qoq margin was mainly due to rising sugar price (+8.9%qoq) that constitute 25% of the company’s COGS. While higher yoy margin was due to Rupiah sharp appreciation.

􀂄 1Q10 net income even surpassed 3Q09 net income where most consumer goods companies reached its peak quarterly profit due to Moslem festive.

􀂄 We still maintain Buy recommendation on MYOR which currently is trading at PER10-11F of 9.5-8.8x, respectively.

Mandiri Sekuritas Summarecon Agung: SMRA reported sold out of 1st phase Summarecon Bekasi (SMRA, Rp910, Buy, TP: Rp1,130)

􀂄 Summarecon Agung (SMRA) reported sold out of sales of its 2 clusters launched consist of 475 units residential in Bekasi within in only 6 hours. This first phase of the project is calculated to worth around 300 bn, which expected to be incurred to company’s revenue in 2011. The company targets to reach marketing sales of Rp1.6 tn this year, a 32,1% yoy increase from last year. As per Mar10, the company’s marketing sales indicated a 36%yoy jump to Rp321bn or about 20% of FY10F. Although running slightly below FY10F target, the chunk of demand is destined for 2Q10, including the Bekasi project

􀂄 At the same, as told Investor Daily , the company declared dividend from 2009 net income amounting to Rp8 / share this year or equal to 30% dividend pay out ratio, on June, 2 2010. It results in dividend yields 2010 of 0.2%

􀂄 Currenty, SMRA is trading at 44% to our NAV10. We still maintain Buy on the stock

Mandiri Sekuritas Kalbe Farma: a takeaway from a plant visit (KLBF, Rp1,970, Buy, TP: Rp1,900)

We visited Kalbe Farma’s pharma plant at Cikarang and powder milk plant at Cikampek yesterday and found out some interesting highlights.

􀂄 The plant has consistently met the current GMP (Good Manufacturing Practices) requirement as the company put a great concern about the quality of the product.

􀂄 The pharma plant has 10 lines and majority of them is running at full capacity. There is a dedicated and fully utilized line for Promag and Procold OTC products, which has become the company’s blockbuster products).

􀂄 The powder milk plant runs at 50-60% utilization under the Chil Kid/Chil School brand. The company’s new milk powder products, Zee, is produced at third party manufacturers (toll out).he company’s M&A process is still underway, no definite
timeline yet when it will be completed.

􀂄 At the current price, the stock is trading at 2010F PER of 16.6x and EV/EBITDA of 6.6x. We are currently reviewing our recommendation on the company as the share price has already exceeded our TP of Rp1,900/share.

NISP Demand for Lippo Karawaci bonds reaches US$650mn (LPKR, Rp560)

• Lippo Karawaci received good response for its global bonds issue with demand reaching US$650.0mn. However the company has decided to only issue a total value of US$270.6mn with a coupon rate of 9%.

• US$189.0mn will be used in exchange for the previous bonds issued by Lippo Karawaci Finance, the subsidiary of LPKR. US$81.7mn will be issued for new investors.

• LPKR is trading at 2010F consensus PER of 18.7x and EV/EBITDA of 11.6x.

NISP London Sumatera to spend Rp500.0bn of capex this year (LSIP, Rp9,150)

• London Sumatera (LSIP) has prepared Rp500.0bn capex for this year. The company will use the budgeted capex to increase CPO production capacity from 405 tons/hour to 425 tons/hour and for a new planting program this year. 60% of the amount will be financed from internal cash with the remaining to be financed from bank loans.

• The company will also disburse 40% of its 2009 net profit as cash dividend which translates into Rp209/share (2.3% yield). The cum date will be on 26 May 2010, while the payment date will be on 5 June 2010.

• LSIP is trading at 2010F consensus PER of 13.3x and EV/EBITDA of 8.2x.

NISP TB Bukit Asam prepares Rp560.0bn for acquisition (PTBA, Rp17,950, Buy)

• TB Bukit Asam will allocate 40% of its Rp1.40tn capex or equal to Rp560.0bn for acquisition purpose. The company is currently eyeing a coal site in Kalimantan and cites that it has finished the due diligence process. The company added that another site that is still under the feasibility study.

• The company prefers to acquire a greenfield mine and will use its huge internal cash to support the acquisition plan.

• Separately, the company said its sales volume this year will reach 15.5mn tons despite a few setbacks in 1Q10 that dragged the company’s sales volume to 3.2mn tons compared to 3.8mn tons in 4Q09.

• We view the company has ample capability in term of funding and will provide TB Bukit Asam with larger opportunities to expand its business through acquisition and running its existing project at the same time. The company currently has Rp5.5tn of cash which would provide adequate support for the company’s plan.

• Currently PTBA is trading at 2010F PER of 17.8x and EV/EBITDA of 15.4x, Buy.

NISP Bumi may post positive performance in 1Q10 (BUMI, Rp2,250, Buy)

• Bumi Resources has yet to release its 1Q10 financial result however we foresee that the company will post a positive growth in its 1Q10 results amid higher sales volume booked during the quarter.

• During 1Q10, the company sold around 16.0mn tons of coal or 41.6% YoY higher compared to 11.3mn tons in 1Q09. This higher sales volume is likely to help revenue amid a possibility of lower selling price.

• We view the company’s average selling price in 1Q10 is relatively stable compared to 4Q09, hence we expect Bumi’s 1Q10 revenue to come around US$880mn or 16% YoY higher compared to 1Q09’s revenue of US$752.9mn.

• For its bottom line, the company is likely to implement a normal effective tax rate in 1Q10 and may adjust its 1Q09 net income due to higher tax rate implementation. The company’s 2009 effective tax rate was at 45% compared to 1Q09 rate of 13.8%. Thus it is likely Bumi had adjusted its 1Q09 tax expense in 1Q10 reporting period. The quarterly performance is likely to be robust as the company expensed its deferred stripping expense in 4Q09.

• Currently the company is trading at 2010F PER of 17.7x and EV/EBITDA of 7.1x and Bumi’s market cap / coal reserve of US$1.6/ton is one of the lowest as compared to other domestic coal companies, Buy.

NISP Car sales rose by 85.5% YoY in April 2010

• During April 2010, total domestic car sales volume reached 64,200 units, 85.5% YoY higher from 34,604 units in April 2009. However the figure is a slight 2.0% MoM lower from 65,523 units in March 2010. We view the decrease is relatively normal considering car sales volume reached its all time record high in March 2010.

• Astra International (ASII, Rp43,450, Buy) still holds the largest market share where its Toyota brand booked 24,381 unit sales or 38.0% of the total domestic car sales last month. The figure is 101.0% YoY higher from 12,125 units in April 2009 and 7.3% MoM lower from 26,287 units in March 2010 of 26,287 units, which was Toyota all time record high in sales volume.

• Further details on April car sales is not provided yet, however, it is likely Astra
International still managed to hold its position in domestic car sales.

• Overall, the April figures showed that recovery in domestic automotive market is still continuing and strengthens optimism that total car sales volume will post a new record high this year.

Bank Indonesia maintains reference rate at 6.5%

• Bank Indonesia has decided to maintain the BI rate at 6.5% for the ninth consecutive month. This came as no surprise as market has expected that any rate hikes would start in the 2H10. This was also added by previous remarks made by Acting BI Governor, Mr. Darmin Nasution, who cites that the level could be maintained until the rest of the year.

• Foreign reserves until the end of April 2010 reached US$78.6bn that equals to 6.2x government import needs and debt repayment. Bank credit growth was 14.5% YoY while the banking sector’s CAR is maintained at 9.1%.

AmCapital News Highlights

Bank Central Asia (BBCA, Rp5,200)
To pay 39% of 2009 net income as dividend Bank Central Asia will pay 39% of its 2009 net income as a dividend. The bank will pay Rp70 a share as a final dividend after it paid an interim dividend of Rp40 a share on 2 Dec 2009. – Bloomberg

TB Bukit Asam (PTBA, Rp17,950)
Considering in acquiring 2 coal mines State-owned coal miner Tambang Batubara Bukit Asam (Bukit Asam) is planning to spend some Rp560bn to acquire two coal mines this year. Targeted companies are Kalimantan-based coal mine, local newspaper cited President Director Sukrisno. – Investor Daily

Semen Gresik (SMGR, Rp7,950)
Set to add 4 packing plants for Rp600bn Indonesia’s largest cement producer, Semen Gresik (SMGR) is planning to construct 4 packing plants this year with investment estimated at Rp600bn, local newspaper reported. President Director Dwi Soetjipto said the plant location will be in East Java, West Kalimantan, East Kalimantan, and Papua. Each plant will have annual capacity of 600k ton. The company adds more packing plant to anticipate of higher cement demand and saving cost in transportation and distribution, the report said. – Investor Daily

PP Lonsum (LSIP, Rp9,150)
Sets to spend Rp500bn for FY10 capital expenditure, final dividend of Rp209 per share approved Oil palm and rubber plantation PP Lonsum may spend Rp500bn this year to upgrade its oil palm mill capacity from 405 tons of FFB per hour to 425 tons of FFB per hour, new planting activity, and infrastructure. The company may seek bank loans to finance some 40% of this year targeted capital expenditure. On the shareholder meeting yesterday, PP Lonsum shareholders agreed of final FY09 dividends amounted Rp285.2bn or Rp209 per share or 40% of FY09 net profit. – Investor Daily

Summarecon Agung (SMRA, Rp910)
Plans for landbank acquisition Summarecon Agung plans to acquire landbank in South Jakarta to be developed as small independent city. To finance the acquisition, the company is considering bonds issuance or a right issue. The company gave no further details on size of the landbank to be acquired or funds to be raised. Meanwhile, Summarecon will pay dividend of Rp8 a share or a total of Rp50.1b which represents 30% of 2009 net income. – Investor Daily, Bisnis Indonesia

Alam Sutera Realty (ASRI, Rp186)
Placement of 28% stake About 5bn shares or 28% stake of property company Alam Sutera Realty worth Rp950bn changed hand yesterday. Macquarie Capital Securities Indonesia arranged the share placement at Rp190 per share. No details on the identity of the seller(s) or the buyer(s). – Bisnis Indonesia.

JP Morgan - Peripheral Europe, Sri Mulyani

One man (or woman) cannot change the faith of one country. Indonesian equities and bonds have benefited from reversal of risk perception towards IDR and the Asian currencies. Interest rate differential has invited fund flow into the country. Indo sovereign rating has been upgraded because on relative basis, the country continues to move up the rank (equally important driver is the worsening macro position in other countries - rating is a relative game). One of Indonesia's major achievement in the past three years is the widening of tax base and improved tax collection. Sri Mulyani plays her part obviously, but in my view the biggest credit should go to president SBY's political will. Contrary to market perception, Indonesia has its fair share of quality think thank, but political will (or the lack of it) has often been the biggest stumbling block. Fiscal prudence is one of Sri Mulyani's key success story, but isn't the problem is about government spending that continues to miss target because of KPK (anti-corruption body) fear? The biggest question for me right now is whether we will see a prolonged reversal to short USD/Asia currencies view. If not, then watch for big buying opportunities in domestically oriented stocks in Indonesia (ie: cements, banks, ASII, consumers).

The four big cap picks that may appear on the value screen the soonest:
* Telkom Indonesia (TLKM) - 10.7x and 8.9x P/E for FY10-11, 5-6% div yld
* Bumi Resources (BUMI) - 15.3x and 11.4x P/E for FY10-11
* Bank Rakyat Indo (BBRI) - 12.4x and 10.1x P/E for FY10-11, 3.1x PBV 28% RoE
* Semen Gresik (SMGR) - 12.9x and 12.6x FY10-11.

* Research call - European rates strategy: Peripheral Europe. Although the Euro110bn multi-year bailout by the EU/IMF has effectively taken Greece out of the funding market until end-2012, it has not stopped the contagion from spreading beyond Greece to other peripheral countries. We were wrong in assuming that announcement of the bail-out package would calm markets. We now believe that contagion will get worse before it gets better since there is no central authority taking decisive action to tackle the problem. Peripheral Europe needs to refund over Euro200bn of debt in the next 3 months. Further contagion from Greece will likely impact Portugal and Ireland first, and Spain and Italy later. In view of extreme volatility, keep positions

A Cup of Tea 6 May'10

General
US Stocks sagged on Wednesday as more signs emerged that the fallout from the Greek debt crisis could spread to bigger European economies. The euro hit a 14-month low as investors shunned the debt of weaker euro zone countries and jumped into safe-havens. Treasury prices and the dollar surged on fears Greece's debt problems could hinder global growth. The DJIA dropped 58.65 points, or 0.54 %, to 10,868.12.

Jakarta led the losers among Southeast Asian stock markets, dropping 3.8 %, its biggest daily fall since December 2008, on news that its reformist finance minister is leaving her post to join the World Bank. Other Southeast Asian markets weakened, with Singapore falling 1.41 %, Malaysia lost just over half a %.

News of Sri Mulyani Indrawati's departure came on a day when heightened fears about Greece's debt woes spread to Asia. The market is down due to uncertainties about who will replace Sri Mulyani Indrawati. Among the biggest losers was Bank Mandiri, the country's top bank, whose Chief Executive Agus Martowardojo has been tipped as a candidate to replace Sri Mulyani.

Indonesian foreign exchange reserves ware increasing up to U.S. $ 78.6 billion until the end of April 2010. This amount increased to U.S. $ 1.6 billion when compared to the third week in April 2010 which amounted to U.S. $ 77 billion.

China’s sweeping changes in home loan rules and a ban on third house purchase have added to the woes of base metals market. Banks in the country raised the amount of money they hold in reserves for a third time this year in a new effort to dampen inflation pressures in the world’s third-largest economy. The measure comes as the government tries to cool a credit boom without raising interest rates, which might slow China’s economic rebound. Economic growth surged to 11.9% in the first quarter of the year and the government is trying to cool a surge in housing and other prices fueled by massive bank lending. Beijing might increase bank reserves as often as once a month for the rest of the year while avoiding interest rate hikes until it sees how well the measure is working. If the regulations hit the realty market, construction boom in China will come to a standstill and demand for steel will come down.

Copper fell to a 12-week low and nickel dropped as much as 16 percent, leading declines in industrial metals in London, on concern Greece’s debt crisis will spread and curb Europe’s economic recovery. There are growing expectations that Greece’s 110 billion- euro ($143 billion) rescue package will need to be repeated in Spain and Portugal. Europe consumes 20 percent of the world’s copper output, and 15 percent to 25 percent of aluminum, zinc, nickel and lead, according to Barclays Capital.

My Comment: The Greek debt crisis could spread to bigger European economies. If The China regulations hit the realty market, construction boom in China will come to a standstill and demand for steel will come down. Bigger picture, I think investors continue to be of the opinion that corrections are to be bought. Technical chart Support JSX at 2752 and 2650 but still put yearend target at 3000 level.

ASII (43450)
Astra’s 1Q10 results were simply robust +61% YoY in-line with market expectations, stronger than expected 1Q10 volume performance and better profitability due to stable pricing strategy. Astra’s main catalysts would continue to be the strong earnings momentum, but earnings upside risk is not going to be significant. The company’s margin decreased slightly during 1Q10 as stronger Rupiah affect several Astra’s subsidiaries. A possible new auto tax system is a negative catalyst but the timing and implementation is uncertain. Possible stumbling blocks; There are three tax issues to be settled by government namely (a) revised registration tax, (b) multi-ownership tax and (c) regional fuel tax, all of which have not been fully outlined and implemented.

My Comment: Earning upside risk was limited and valuation could be peaking, Hold.


JSMR (1970)
Jasa Marga (JSMR) has released its 1Q10 results with net profit jumping by 54.2% YoY. This strong bottom line was also fuelled by solid revenue growth of 21.6% YoY. The revenue growth is driven by traffic growth that was magnified by the toll tariff increase in 3Q09. We see Jasa Marga as an attractive defensive play with strong operational leverage, strong defensive qualities and relatively attractive valuations.

My Comment: Attractive valuations and maintain Buy.

BMRI (5300)
Given soft NPL level going forward, lower provisioning, well capitalized, strong momentum loan growth, we believe Bank Mandiri will continue to deliver improving ROE. Bank Mandiri first-quarter 2010 results was up 43% YoY to Rp2.0 trillion due to growth on operating income (+24% YoY) at Rp1.5 trillion and lower provisioning charge by 50%. Seasonally slow loan and deposit growth, but expected to pick up in coming quarters. Asset quality improved mainly due to a decline in corporate NPLs and upgrades to performing loans in all segments. BMRI’s transaction fee income continued to improve led by enhanced infrastructure and innovative payment solutions. BMRI’s robust fundamentals are well illustrated by its ability to deliver the second highest provision coverage, the second lowest NPL ratio and the third highest ROE of the six Indonesian banks.

My Comment: Fundamental was solid soft NPL level with improving on asset quality, maintain Buy

BBRI (8550)
1Q09 net profit of Rp2.2tr was in line. NIM remained exceptionally strong at 9.4% due to significantly lower cost of funds. However, asset quality disappointed with NPL ratio inching up to 4.1% (from 3.5% in 4Q09). The higher than expected NIM could be the key catalyst. In 1Q10, BBRI’s NIM was at 8.9%, up from 8.3% in FY09.

My Comment: BBRI's prospects remain healthy with strong NIM, maintain Buy

 
UNTR (18000)
UNTR net income grew 12% YoY in 1Q10, Operating profit is +10% QoQ, but -2% YoY (below consensus expectation). The company posted a slightly lower gross profit of Rp1.6tn in 1Q10 as compared to Rp1.7tn, amid stronger Rupiah. Continued appreciation of the rupiah however means gross margins would remain under pressure. UNTR will continue logging robust revenue growth for the rest of the year as mining and plantation companies’ ramp up their capex spending after a sharp cut in 2009.

My Comment: The result managed to satisfy. I believe the company will post faster growth in the next quarters amid higher demand on heavy equipment products and also higher production volume form mining contracting business, maintain Hold.

PGAS (3950)
PGN booked Rp1.77tn net profit in 1Q10 or up by 45.2% YoY in line with consensus estimate. The company’s distribution volume is up by 16.6% YoY to reach 841 mmscfd vs 721 mmscfd. The company booked forex gain about Rp199bn in 1Q10 as most loans are US$ denominated.

My Comment: I Expect stronger 2Q after 15% average gas price hike effective Apr10, maintain Buy.


Bang Juntri
DISCLAIMER: This report is issued by Bang Juntri. Although the contents of this document may represent the personal opinion of Bang Juntri. We cannot guarantee its accuracy and completeness.

Bloomberg Copper, Nickel, Lead Slump on Stronger Dollar, Debt Concern

May 5 (Bloomberg) -- Copper fell to a 12-week low and nickel dropped as much as 16 percent, leading declines in industrial metals in London, on concern Greece’s debt crisis will spread and curb Europe’s economic recovery.

Europe consumes 20 percent of the world’s copper output, and 15 percent to 25 percent of aluminum, zinc, nickel and lead, according to Barclays Capital.

There are growing expectations that Greece’s 110 billion- euro ($143 billion) rescue package will need to be repeated in Spain and Portugal. European Central Bank council member Axel Weber said today there is a threat of “grave contagion effects” in the euro area. Demonstrations against austerity measures in Greece turned deadly, with three people killed after protesters set fire to a bank in central Athens.

“Fears are growing that the Greek government cannot control its people and the debt crisis,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said by phone. “As long as the uncertainty persists on the markets and risk aversion is still increasing, there will be pressure on commodity prices.”

Copper for delivery in three months declined 3.8 percent to $6,760 a metric ton as of 3:10 p.m. on the London Metal Exchange, after earlier reaching $6,632.75, the lowest since Feb. 10. The contract is now down 8.5 percent this year, having added as much as 8.3 percent. Futures for July delivery fell 3.6 percent to $3.0635 a pound on the Comex in New York.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, rose for a third day. A stronger dollar increases the cost of commodities denominated in the currency for those holding other monies.

U.S. Dollar

“The U.S. dollar might rise further as investors are exiting Europe,” Commerzbank’s Briesemann said.

Nickel for three-month delivery on the LME slid 12 percent to $21,700 a ton, paring this year’s advance to 17 percent, still the largest among the six main metals traded on the exchange. The metal, mostly used to make stainless steel, dropped as much as 16 percent, the most since October 2008.

“There is technical selling and risk aversion,” Deutsche Bank AG analyst Daniel Brebner said by phone. “Fundamentals for nickel are looking less promising, with more evidence of a big ramp-up in nickel pig iron.”

China, the world’s biggest nickel consumer, more than tripled first-quarter output of cheaper nickel pig iron in the first quarter, according to Shanghai Metals Market.

“The metals were at inflated levels and we analysts are struggling to justify the levels we’ve seen in the first quarter,” said Neil Buxton, managing director of London-based researcher GFMS Metals Consulting Ltd.

Production Costs

Copper’s average production cost is $2,200 ton and that of nickel is at $15,000 a ton, Buxton said.

“Despite the correction in prices, the vast majority of producers are still making money. We don’t expect any supply response” to the slump, he said.

Lead dropped 6.7 percent to $1,922 a ton, after falling as much as 7.5 percent to $1,905, the lowest since August 2009. Zinc declined 5.2 percent to $2,035 a ton, after reaching $2,001, the lowest since Feb. 8. Aluminum fell 4.1 percent to $2,072 a ton and tin slid 3.1 percent to $17,300 a ton.

“Commodities in my view are overreacting to Greece’s sovereign debt issue and fears of contagion,” said Ruy Ribeiro, global commodity strategist at JPMorgan Chase & Co. in London. “The risk of contagion should be monitored closely, but fundamentals are now a lot more positive.”

Bloomberg Nickel Extends Drop to Steepest in 19 Months as Supply Expands

May 5 (Bloomberg) -- Nickel slumped the most in 19 months on the London Metal Exchange to the lowest price in almost 10 weeks on expectations that supplies expanding at the fastest pace in a decade will overwhelm demand.

The metal for delivery in three months dropped as much as $3,949, or 16 percent, to $20,701 a metric ton, the lowest intraday price since Feb. 26. The slide was the biggest since October 2008. The contract was down 9 percent at $22,425 a ton at 5:05 p.m. local time, paring this year’s gain to 18 percent, still the biggest among the main industrial metals traded on the LME.

Global production will jump 6.8 percent, the most since 2000, according to Bank of America Merrill Lynch. Vale SA’s $4.3 billion Goro mine in New Caledonia is scheduled to start this year. China, the world’s biggest consumer, more than tripled first-quarter production of cheaper nickel pig iron, according to Shanghai Metals Market.

“Nickel has been exaggerated on the upside,” said Christoph Eibl, a co-founder of Zug, Switzerland-based Tiberius Group, which manages more than $2 billion. “The current correction has been really overdue. Nickel has been pushed so hard because it had been pushed up by investors.”

The metal, mostly used to make stainless steel, will average $21,250 a ton in the third quarter, according to the median estimate of 17 analysts surveyed by Bloomberg News. The three-month contract advanced as much as 47 percent this year as world stainless-steel output jumped 55 percent in the first quarter.

Fewer Contracts

Nickel’s open interest, or outstanding futures contracts, declined 5.8 percent from this year’s peak to 135,685 lots as of April 30, according to LME data. Each contract represents 6 tons of the corrosion-resistant metal. Together, lower open interest and falling prices signal that investors and traders liquidated bets on higher prices.

“The correction was not unexpected,” said David Wilson, director of metals research at Societe Generale SA. While lower prices may “be seen as a buying opportunity by physical consumers,” he predicted “more downside before that occurs” in an e-mail today.

Prices also declined as Vale, the world’s fourth-largest producer, resumed talks with striking workers in Canada through a third-party mediator. The walkout at Sudbury, Ontario, started in July.

The labor action contributed to an 85,000-ton drop in the company’s nickel output last year, London-based researcher CRU estimated in March. That’s equal to about 6.5 percent of global output of 1.32 million tons in 2009.

Nickel’s 14-day relative strength index, a measure of how rapidly prices have advanced or declined, was at 33.63. Some traders and analysts who study technical charts view readings below 30 as signals of a potential rebound.

Deutsche Bank Strategy - Indonesia's decade

Earnings-driven market
The Indonesian market has impressively outperformed its regional peers over the past 15 months, but this is nothing out of the ordinary; it has outperformed the regional market in seven of the past eight years. Simply, the key driver is growth. In the past five years, the Indonesian economy has more than doubled and outpaced not only the regional economy but also all except one of the BRIC countries. This report, with numerous charts, argues that Indonesia is still in an early stage of its secular growth, with various strong drivers.

Credit-infused growth
􀂄 The doubling of the Indonesia economy was on “lazy” capital; its 25% loans to GDP is similar to India and Brazil five years ago, but those countries are now just under 50%, and credit expansion did propel their economies.
􀂄 Unbeknownst to many, Indonesia’s credit growth is one of its most important drivers, contributing at least one-third of economic growth.
􀂄 Loan-growth trend is already encouraging, with headline growth of a mere 9% yoy masking the actual growth of c. 30% yoy in February (ex-FX effect on a strong rupiah) and, interestingly, loans for investment are up 30% yoy.

Consumptive and confident consumers
􀂄 Consumer wallet size that doubled in the past five years to US$2,350, backed up by healthy 5% employment growth, was a strong demand driver.
􀂄 But its consumptive nature is due to demographics: a young population (50% under 25 years and below), a doubling of middle-income population and rising urbanization (urban wages are almost twice the rural) and a demographic dividend stemming from the rising workforce in proportion to the total population.
􀂄 Consumers are also highly confident, as shown by its all-time high consumer
confidence index. The AC Nielsen survey of 14 regional countries also showed that Indonesia consumers are the most confident. This has to be put in the context of more than a decade of economic and political crisis.
􀂄 The high-consuming, confident consumer and credit leverage potential (household debt only 10% of GDP) suggest strong secular drivers, particularly when private consumption makes up almost two-thirds of Indonesia’s economy.

Valuation – earnings-driven performance
􀂄 The stock market has had an impressive performance, up by an average of 34% pa, beating the regional market by a punchy 15ppt for the past eight years. Such gains raise concerns, but a closer investigation suggests a relatively healthy market performance.
􀂄 Its market performance has been mostly earnings-driven, with earnings accounting for 60% of market gains, while re-rating was a more modest 40%. Still, we believe market valuation remains weighed down by a legacy perception of high risk.
􀂄 We have a target index of 3,333, implying a valuation of 15.3x FY11E earnings. This suggests the entire potential upside of the market is actually driven by earnings growth (EPS growth of 24% pa in FY10 and FY11). We think our index target has room for upward adjustment.
􀂄 We estimate that for every 1ppt decline in the country’s risk-free rate, our target price as a whole would increase further by 14%, bringing the 12-month forward P/E from 15.4x currently to 17.5x.