Reuters Exclusive: Waddell is mystery trader in market plunge

(Reuters) - A big mystery seller of futures contracts during the market meltdown last week was not a hedge fund or a high-frequency trader as many have suspected, but money manager Waddell & Reed Financial Inc, according to a document obtained by Reuters.

Waddell on May 6 sold a large order of e-mini contracts during a 20-minute span in which U.S. equities markets plunged, briefly wiping out nearly $1 trillion in market capital, the internal document from Chicago Mercantile Exchange parent CME Group Inc said.

The e-minis are one of the most liquid futures contracts in the world, providing holders exposure to the benchmark Standard & Poor's 500 Index. The contracts can act as a directional indicator for the underlying stock index.

Regulators and exchange officials quickly focused on Waddell's sale of 75,000 e-mini contracts, which the document said "superficially appeared to be anomalous activity."

More than a week after the incident, it was still not clear what impact the unusual trading in the futures contracts had on the broader meltdown in the stock market.

Waddell manages the $22.1 billion Ivy Asset Strategy fund, which is well-known for hedging with equity index futures when manager Mike Avery, who is also chief investment officer at the company, feels uneasy about the market.

The Asset Strategy fund has dropped 2.76 percent this quarter, compared with a 0.80 percent decline in the S&P 500, data from Lipper Inc, a unit of Thomson Reuters Corp show. more...

Insider Stories - No pre-emptive rights in BUMI EGM?

(wisnuwijaya.com) Resignation of Indonesia's Finance Minister Sri Mulyani Indrawati, mandated as World Bank's Managing Director, has boosted a market speculation that tax case of PT Bumi Resources Tbk (BUMI) would be settled soon.

Following possibility settlement of the tax case, China Investment Corporation (CIC) might bravely convert BUMI's debt into new shares by issuing non-preemptive rights of 10% shares.

But, the prolonged market speculation will collapse due BUMI's management doesn't has any agenda to hold non-preemptive rights.
The market rumor said Bumi will use its first quarter earnings as a base to determine the share price for the planned non-preemptive rights amounting as much as 2.5 billion shares. With an assumption of Rp74 trillion in assets and a book value of Rp760, the base price for the non-preemptive rights is at Rp2,950 per share or on a goodwill of a price to book ratio of 3.88 times.

In a formal statement to Indonesia Stock Exchange today, BUMI has eventually revealed two main agendas during extraordinary shareholder general meeting (EGM) scheduled on June 22 2010. Bumi aims to obtain shareholders approval to pledge its assets and mandate board of directors.
So, when does BUMI issue non-preemptive rights for CIC? or debt conversion is just a rumor to jack up BUMI shares price?

Bloomberg Greece Downgrade 80% Probability in Next 3 Months, Moody’s Says

May 14 (Bloomberg) -- The Greek government’s ratings are on review for possible downgrade, and there is a greater than 80 percent probability that the ratings could be downgraded at any point in the next three months, Moody’s said today.
Last Updated: May 14, 2010 05:47 EDT

Global Market Update

Japan's Nikkei average lost 1.5 percent on Friday, hit by a disappointing profit outlook from Sony Corp (6758.T) but the benchmark came off the day's lows as the yen weakened.

U.S. stock futures point to lower Wall Street open. Futures for the Dow Jones industrial average, the S&P 500 and the Nasdaq 100 fell 0.2 to 0.3 percent at 4:54 a.m. ET, pointing to a weaker start on Wall Street on Friday.

Britain's top shares fell in early trade on Friday as concerns over euro-zone debt problems and the fiscal austerity measures needed to tackle them weighed on banks and miners, while commodities prices retreated. REFILE-UK's FTSE 100 drops on euro-zone debt fears. FTSE was down 57.57 points, or 1.1 percent, at 5,376.16, having risen 0.9 percent to 5,433.73 on Thursday to hit its highest closing level since April 30.

Gold rose back above $1,240 an ounce in Europe on Friday, close to this week's record highs, as investors bought the metal to protect against sovereign risk in the euro zone and instability in the foreign exchange markets.

U.S. crude oil prices fell to a three-month low near $73 a barrel on Friday, dragged down by swollen U.S. crude inventories and concerns that the European debt crisis will curb future energy demand growth.

A Cup of Tea 14 May'10

Wednesday, 14 May 2010

GLOBAL EQUITIES

US Stocks slide in late trading after shares of retailers, financials slump
• The Dow Jones industrial average ended down about 114 points after shooting up by nearly 149 on Wednesday. The Dow has fallen six of the past eight days.
• Disappointing corporate and economic news dented sentiment. Kohl's Corp. fell 5.8% and dragged other consumer stocks lower after its increased forecasts fell short of what analysts had been expecting.
• Bank stocks fell on reports that New York's attorney general is examining eight banks to determine whether they misled ratings agencies about mortgage securities.
• The Federal Reserve's promise to hold interest rates ultra low for an extended period depends on economic conditions and could change if the recovery picks up, central bankers said on Thursday.
• Across Europe, Britain's FTSE 100 rose 0.9% and Germany's DAX added 1.1%, but France's CAC 40 fell 0.06%, Spain's IBEX dropped 1.1%, Italy's MIB shed 0.7%and Portugal's PSI 20 lost 0.8%.

GLOBAL BONDS

The following events and economic reports may influence trading in Asia’s local bonds and currencies today. Bond yields and exchange rates are from the previous trading session unless stated otherwise.
• US Treasury prices gained across the curve on weaker US equity market. The auction in USD 16 bn 30Y bonds met with satisfactory demand and the bonds were sold at a yield level of 4.49%. The bid-to-cover ratio for the sale was 2.6, compared with an average of 2.67 for the past four auctions. 2Y US Treasury notes were up 2.5/32 to yield 0.827% (versus 0.867% on Wednesday) while 5Y notes gained 5.5/32 to yield 2.244% (2.281%). 10Y notes rose 13.5/32 to yield 3.531% (3.576%). 30Y bonds rallied 28.5/32, yielding 4.428% (4.481%).
• Japan: Chief Cabinet Secretary Hirofumi Hirano and Finance Minister Naoto Kan will hold media briefings after a Cabinet meeting in the morning. Hirano will have another press briefing at 4 p.m. in Tokyo. The yield on the 1.4% government bond due March 2020 was at 1.31%, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker.
• China: The government will sell a total of 35 billion yuan ($5.1 billion) of 182- and 273-day bills today.
• India: The government will sell 120 billion rupees ($2.7 billion) of bonds today. It will offer 40 billion rupees of bonds maturing in 2015, 50 billion rupees of notes maturing in 2020, and 30 billion rupees of debt maturing in 2032. The yield on the 7.8% due May 2020 was 7.51%, according to the central bank’s trading system. The rupee was at 45.0775 per dollar.
• Malaysia: The central bank raised its overnight rate to 2.5% from 2.25% after the close of local financial markets yesterday. Twenty-one of 22 economists in a Bloomberg News survey predicted the move. The yield on the 4.378% bond due November 2019 was 4.06%. The ringgit was at 3.1875 per dollar.
• Singapore: The department of statistics will release its retail sales report for March today. Sales grew 1% from a year earlier, compared with a gain of 4.8 % in the previous month, according to economists in a Bloomberg survey. The yield on the 2.5% bond due in June 2019 was 2.55%. The Singapore dollar was at S$1.3831 per dollar.
• Thailand: The central bank will release foreign-exchange reserves figures for the week ended May 7 today. The reserves were $147.6 billion in the previous week. The central bank will sell 35 billion baht ($1.1 billion) of 14-day bills today. The yield on the 3.875 % bond maturing in June 2019 was 3.57%. The baht was at 32.36.

COMMODITIES

• June crude oil futures fell USD 1.25 to USD 74.4 a barrel.Crude.
• Spot gold fell USD 6.23 to USD 1,232.7 a troy ounce, while COMEX gold for June delivery gained USD 13.9 to USD 1,229.2 a troy ounce.
• RBS Sempra Metals Indicative 3 Month Prices
Current RBS Sempra Metals prices in USD:
Bid Offer Change ($)
CA 3M 7135 7145
+115

AH 3M 2165 2175
+49

PB 3M 2065 2075
+25

ZS 3M 2155 2165
+60

SN 3M 17775 17900
+112.5

NI 3M 22750 22900
+275

AA 3M 1985 2035
+10

NA 3M 2045 2095
+20




HONG KONG

• HONG KONG - The Hang Seng Index closed at 20,422.46 on Thursday, up 209.97 points or 1.04%.

JAPAN

• Japan's Nikkei average rose over 2 percent to a one-week closing high on Thursday after Spain outlined measures to cut its deficit, easing fears the Greek debt crisis could spread in Europe and boosting exporters such as Advantest.
• The benchmark Nikkei .N225 was up 2.2% or 226.52 points to 10,620.55, its highest close since last Thursday. The broader Topix added 1.6% to 947.90.
• Asian shares on the MSCI ex-Japan index rose 2.1%.

SOUTH EAST ASIA

• Thai stocks fell to their lowest in nearly one week on Thursday after authorities imposed tougher action to end anti-government protests while other Southeast Asian stock markets were mixed amid easing euro zone worries. Singapore lost 0.43%after earlier small gain, Malaysia was up 0.21% and Vietnam the smallest bourse, edged down 0.13%.


CHINA

• China's key stock index closed up 2.1% on Thursday, spurred by banking stocks which gained after a domestic media report said China had approved 287 billion yuan ($42 billion) in additional financing for its four biggest listed lenders.
• The Shanghai Composite Index ended the day at 2,710.5 points, posting its biggest percentage gain in more than six weeks and extending a tentative gain of 0.3% on Wednesday when the market bounced from a one-year low.
• Analysts said the reported fundraising figure, which was smaller than some had been expected, was encouraging for the market and helped to trigger a technical rebound.

INDONESIA

• Indonesia, which recorded fund inflows of $81 million in the previous session, was pushed up by resource shares, with a 3.1% gain in coal miner Bumi Resources and a 1.9% rise in top lender Bank Mandiri. "The market continued to register positive foreign inflows today. There are plenty of value buys in the market like banking stocks and shares in Bakrie group that attracted investors," In Jakarta, cigarette firm Gudang Garam rose 10.6%. It was among shares to be added to the MSCI Global Standard Indices.


Sources: Bloomberg, Dow Jones Newswires, Reuters, Associated Press, RBS.


MARKET OVERVIEW

Indonesia shares may continue to consolidate but the main index likely to stay in moderately green territory for weekly, given steady rupiah and hopes that many companies to give attractive dividend payment. Here in Indonesia, we are lacking fresh leads but further inflows should reflect that interest to invest in Indonesian markets still solid.

From MSCI semi-annual rebalancing: Gudang Garam (GGRM) goes from a zero weighting to a 100% weighting, GGRM is the stock most impacted: This change should be very share price positive. Semen Gresik (SMGR) doubles its weighting due to an increase in free float; this change should be significantly share price positive for SMGR. Adaro (ADRO) has increased its weighting slightly as a result of a free float increase. INCO (INCO) has seen a slight increase in free float, barely positive. Three banks (BDMN, BMRI, BBRI) have seen an increase in the no. of shares calculation, barely positive.

I would like to maintain buy recommendation for BMRI, BBRI, UNTR, TLKM, INCO, ADRO … for small cap BBTN and Property Related

Bloomberg Moody's Reviews Bumi Resources Ba3 Rating for Possible Downgrade

By Tim Farrand 2010-05-14 07:00:07.346 GMT
May 14 (Bloomberg) -- Moody's Investors Service said it placed under review for possible downgrade its Ba3 corporate family rating on PT Bumi Resources Tbk and on the senior secured bond issued by Bumi Capital Pte Ltd.

Link to Statement:{NSN L2EDU63PWT1D }

Link to Company News:{BUMI IJ CN }

Mandiri Sekuritas Daily Fixed Income Research (14-May-2010)

US Bond Market
· US Treasury prices gained across the curve on weaker equity market
· Unemployment figure was announced, showing 444k new claims, close to forecast of 440k
· There will be three economic releases: (i) April retail sales with forecast of 0.2%mom, (ii) April Industrial Production with forecast of 0.8%mom, and (iii) Preliminary of U. of Michigan Index of Consumer Sentiment with forecast at 73.5

Domestic Bond Market
· Liquidity in the inter-bank money market was normal
· The government’s rupiah bond prices were down by 0.66% with average yield up to 9.06% (+14bps)
· The government will hold bond auction on 18-May targeting Rp5tn. The bond series auctioned will be all reopened series i.e. 1-yr SPN20110505, 5-yr FR0027, 15-yr FR0040 and 20yr FR0052

JP Morgan - Bumi Resources - Batu Hijau's strong performance could lead to earnings upgrade - ALERT

• Batu Hijau pretax income rose more than 500% Y/Y: Newmont Batu Hijau reported 1Q10 pretax profit of US$407MM, up 536% Y/Y from US$64.0 MM in 1Q09. We expect this strong performance to be repeated in FY10 as Batu Hijau's operation should hit the high grade ore area in FY10.

• A higher contribution from Batu Hijau could result in up to 13.4% upward adjustment to our FY10 earnings forecasts: Our BUMI odel currently assumes a US$168.1MM equity income contribution from Batu Hijau for FY10. Based on 1Q10 net income, we estimate FY10E earnings could reach US$204.6MM: a difference of US$36.5MM. Analyzing the numbers, we see about 13.4% potential upside to our FY10 net income forecast, i.e. from US$273MM to US$310MM. In summary, we view Batu Hijau’s performance as positive for BUMI's FY10 earnings.

• BUMI’s 1Q10 net income could come between $75-$100MM: 1Q10 net income could come in between US$75-US$100MM, ahead of our forecast of US$68MM. Assuming a quarterly run rate of US$75-100MM, this would equate to yearly net income between US$350-
US$400MM. This would see FY10E earnings roughly in line with consensus earnings forecast of US$382MM.

• Political developments could be positive for the company: We view the recent developments in the Indonesia political arena as being potentially positive for BUMI. The positive environment could persist in the medium term if Bakrie group continues to be successful in its lobbying for projects and assets, which could be beneficial to BUMI's minority shareholders.

• Maintain OW and Dec-10 PT of Rp3,300: We remain OW on BUMI. We will revisit our model and follow up with more details. Meanwhile, we maintain our SOTP Dec-10 PT of Rp3,300. The risks to our view and PT are: decline in coal price, and continued tax investigation into BUMI.

JP Morgan - Perusahaan Gas Negara Downgrade to UW on severe monthly volume decline

We downgrade to UW and cut our Dec-10 PT to Rp3,400 due to severe monthly volume decline: We downgrade PGAS from N to UW due to a severe monthly volume decline from 906MMScfd in Jan-10 to 773MMScfd in Mar-10. We think the decline in volume could surprise investors and send the stock down, resulting in short-term underperformance. The current share price implies 14.4x FY10E P/E compared with our FY10E P/E estimate of 16.1x. If the market’s earnings forecast is lowered to our level, at 14.4x P/E, the price would be Rp3,476. Averaging it with our new PT derived from our DCF (Rp3,412) value, we derive our new Dec-10 PT of Rp3,400.

• Consensus revenue forecast implies volume of 935MMScfd in FY10:
Assuming similar level transmission revenue and distribution rate of US$6.03/MMbtu, we estimate the consensus revenue estimate of Rp20 trillion implies an average FY10 volume forecast of 935MMScfd. With 1Q10 average volume at 840MMScfd and Mar-10 volume of 773MMScfd, we believe consensus’ implied volume of 935MMScfd and FY10 earnings forecast of Rp6.5 trillion are likely to be too high. With these, we believe
that consensus earnings estimates will be lowered to our level.

• 2Q10 and FY10 earnings could disappoint: In 2Q10, we believe that distribution volume could fall below 800MMScfd, assuming flat M/M volume in Apr-10. If Apr-10 volume declines further, the 2Q10 volume could decline even further. From our channel checks, we assume that gas from Lematang will only reach 50MMScfd by Dec-10 and currently the starting flow rate is 15MMScfd. Considering the average volume of 791 MMScfd in 2Q09 vs. the expected 792MMScfd in 2Q10, 2Q10 earnings could disappoint, leading to disappointing FY10E earnings.

• Short-term pressure; long-term investors could consider establishing position on weakness: Despite the potential short-term pressure on the share price, the long-term story of PGAS should be intact; our DCF valuation still indicates a fair value of Rp4,000. With these, long-term investors could consider establishing positions if the share price falls below Rp3,400.

Danareksa Astra Agro Lestari Potential growth ahead

Softer production will not last
We met with the management recently and conclude that there is potential upside to the current low production. Barring any weather shocks, this year’s production profile is likely to replicate 2009’s pattern given the similar-age profile, meaning also a similar FFB yield. The key focus is now shifted towards optimization of its plantations, through slashing and replanting of lower yielding trees. The plan is to have around 3,000ha replanted this year, 20% higher than last year, but a mere 2% of the total nucleus mature area – meaning little impact on the current production. For now, at least, we keep our CPO production target of 1.1mn tons intact, a touch higher than the company’s guidance of 1mn tons. We also maintain our TP and forecasts.

Poor plasma production
AALI’s 1Q10 production is nothing to cheer. It was down 5% YoY. Poor plasma production is the main reason, as application of fertilizers was lacking. AALI will need 9-12 months to revitalize the plasma plantation, meaning AALI’s own plantations will be key to reaching its production target. Note that plasma accounts for 22% of AALI’s total plantations area, with a large proportion of it located in Sumatera. Partly contributing to the low CPO production is a 34% YoY decline in third-party purchases, a strategy needed to keep its profitability intact. Third-party purchases are intended to keep capacity up, yet the gross margin is low at just 10%.

Costs under control
The ex-factory cost jumped to Rp3,630/kg in 1Q10, 14% higher than 1Q09’s. Mainly this is due to lower production volume. On a nominal basis, the production cost grew by only 9% YoY. Labor still accounted for the bulk of the ex-factory cost, up 6% YoY, as minimum regional wages were hiked. Past concerns over rising fertilizer costs have proven to be groundless so far. However, with AALI switching from single fertilizer (urea) to compound fertilizers – largely for higher productivity at premium pricing, we may see fertilizer costs pick up again this year. Meanwhile, the idea of minimizing costs has led AALI to start using mechanization, although the impact will still be minimal at this stage.

Expansion intact
Guidance for new plantings remains at less than 10,000ha, with capital expenditure likely to reach over Rp1.2trn, including two mills to be built this year. Much of the expansion will be in Kalimantan , where land is aplenty. The two mills, with total capacity of 75-ton/hr, will be located in Kalimantan . The 30-ton/hr capacity mill is expected to be ready by YE10. This expansion is necessary since 55% of AALI’s mature area is of old age (>15 years), for which yields tend to be low. Funding shall not be a problem as net cash has always been AALI’s key trait, ensuring the expansion plans are implemented.

Jasa Marga plans to increase ownership to 55% in Aloha-Perak toll road (JSMR, Rp1980, Buy, TP: Rp2400)

JSMR will increase its ownership in PT Margaraya Jalan Tol (MJT) to become 55% from 2.5% of current ownership, the process still in due diligence. MJT is a concession agreement holder of Waru (Aloha) – Wonokoromo-Tanjung Perak toll road, also known as Aloha-Perak toll road (18.6Km), in Surabaya, East Java; which include on stalled toll road projects. Investment needed for this toll may reach Rp6.5tn, which Rp1.3tn will be used for land clearance. The high cost also caused due to construction for the road is elevated. Besides JSMR, PT Duta Graha Indah Tbk (DGIK) also expressed interest to increase its ownership on MJT, as the company has 1.0% of shares. (Investor Daily)

Unilever Holding is going to complete Sara Lee’s Body care division acquisition.

Unilever Holding, parent company of Unilever Indonesia, is going to complete acquisition process of Sara Lee’s body care division globally, including Sara Lee Indonesia. This plan has been announced on Sep 2009. Sara Lee Indonesia is the producer
of several brands such as Switzal, Brylcreem, Purol, Sanex, and She. After the acquisition, Sara Lee Indonesia will be under Unilever Holding, not Unilever Indonesia. (Kontan). In 2009, Sara Lee Indonesia (PROD) posted net income of Rp33bn. PROD has been delisted.

Mandiri Sekuritas Modern Internasional : Indonesia’s 7-11 (MDRN, Rp740, Not rated)

􀂄 Starting out 7-11. MDRN through its subsidiary, MPRI obtained the rights and license to develop and operate “7-Eleven” brand convenience store outlets in Java island,Indonesia for twenty (20) years period and extension period for ten (10) years. MDRN currently has 6 7-11 stores, and plan to have 24 stores by end 2010. In 2011, MDRN planned to open another 36 stores. MDRN investments in infrastructures are to accommodate 300 stores. MDRN which currently managed 1,000 stores of Fuji Image Plaza (FIP) with 100 stores owned, plans to gradually launch 7-11 by converting feasible FIP stores,allowing faster deployments.

􀂄 Progress so far, has been good. MDRN put a target of 1,000 transactions/store/day with average ticket of Rp 25,000- Rp30,000 with gross margin aimed at 28%. Results from t he 6 stores so far has been encouraging, with tickets averaging north of 1,000/day and gross margin of 30-35%. Around 75% of the revenue is coming from food and beverage. MDRN estimates its 7-11 stores to book net margin of 5%, better than current FIP stores of 3%. MDRN paid upfront fees of US$1.5mn and royalty fee from revenue at less than 1%.

􀂄 Question: how to finance capex. MDRN has Rp250bn in debt, with Rp329bn in eguity and Rp10bn of cash by end FY09. Assuming Rp3bn capex/stores, MDRN has to provide Rp54bn capex in 2010, and Rp108bn in 2011. Asset turnover in 2009 was 1.1x and operating margin 1.7%. With other business pulling down the performance, capital rising is need as the operational performance is difficult to service interest payment even if the ratios improved. Assuming asset turnover of 1.5x and operating margin of 5%, the return on invested capital is just 7.5%.

􀂄 Valuation: earnings has to catch up. MDRN made a profit of Rp12bn (EPS: Rp19), a 84.0% yoy increase, with operating income of Rp16bn (-66.1% yoy). At Rp740/share, MDRN is trading at 38.9x FY09 PER and 1.4x FY09 P/BV.

Mandiri Sekuritas Bank Negara Indonesia: results of the AGM (BBNI, Rp2,450, Buy, TP: Rp2,900)

BNI held its AGM on Wednesday, 12 May 2010 and announced some changes in its BOD and BOD composition. Key persons (Gatot M Suwondo as the President Director and Yap Tjay Soen as the CFO) maintained and four new directors were appointed:. Honggo Widjojo Kangmasto, Darmadi Sutanto, Adi Setianto and Sutanto. Honggo was formerly the Managing
Director of Bank Permata and ever worked for Indofood, Mandiri (as commercial director), BCA and BII, while Darmadi Sutanto was formerly Director of RBS Indonesia. The other two directors came from internal.

The AGM also approved the distribution of cash dividend amounted to Rp47.48/share, or translating into around 2.0% dividend yield. This is equivalent to 35% dividend payout.

Currently, BNI is trading at 2010F P/BV of 1.8x and PER of 10.6x. We maintained our buy recommendation on the bank with TP: Rp2,900 as our TP.

Mandiri Sekuritas Ciputra Development: Key Takeaway from Company Visit (CTRA, Rp800, BUY, TP: 1,100)

We visited CTRA last Wednesday, and found some highlights as follow:

􀂄 CTRA is enjoying the current low mortgage rate trend that carries out good result of their YTD marketing sales, which has tapped 37.2% of this year’s sales target. Mortgage scheme covers up until 99% of its middle-low end segment residential sales, including in-house financing.

􀂄 Pressure from forex loss on their 1Q2010 result has been anticipated by reducing its foreign exchange cash reserves to 30% of its total cash from previously 50%, where expected to eliminate burden of its book throughout the year.

􀂄 However, the company will not be expecting any upside coming from its Ciputra World projects, both Jakarta and Surabaya, as low confidence on the approval of the new foreign ownership government regulation at least until end of this year.

􀂄 The company plans to do revaluation to its landbank assets with Richard Ellis at end of this month, to expect increase of its current discount to NAV to more than 50%. At the moment, the company trades at 44% discount to our NAV10. We still call Buy on the stock.

AmCapital PGN (PGAS, Rp3,875): Supply hiccup sees no short-term resolution

· During the conference call on Wednesday 12 May 2010, PGN highlighted the recent issue of declining gas supply, mainly the sizable contracted gas from the Corridor Block, an onshore Sumatra-based gas field operated by ConocoPhillips (CoPhi), which has been dedicated for PGN’s West Java customers.

· The company disclosed its total gas distribution volume for Jan’10-Mar’10 had been gradually falling from as much as 906.8mmcfd on Jan’10 to as low as 773.3mmcfd on Mar’10. Note that PGN reported 1Q10 average gas distribution volume of 841mmcfd, 70.9% of which came from the company’s Strategic Business Unit or SBU Area 1 that covers the South Sumatra and West Java (including Banten and Jakarta) regions. ConocoPhillips and Pertamina are the largest gas suppliers for the SBU Area 1, accounting for some 89% of total gas sold in the SBU 1 Area in 2009.

· At the meantime, the contracted gas volume from CoPhi’s Corridor Block had continued to drop after peaking at 378.5mmcfd on Jan’10 to 275.0mmcfd on Mar’10 or an average 1Q10 volume of 325mmcfd. This reflected some 7.3% below its contracted FY10 volume.

· No recent update on recent flow rate from the CoPhi’s Corridor has been provided during the call. Still, the company maintains its FY10 distribution volume guidance at 800-900mmcfd as PGN confirmed another South Sumatra-based gas flowing to West Java from Medco Energi’s Lematang Block beginning on April 2010.

· We understand that 1) the allocation of gas from CoPhi’s Corridor has been altered in a bid to support the Enhanced Oil Recovery (EOR) program at Chevron’s Duri, Riau, which is the country’s largest oil field 2) there has also been short fall of gas at another CoPhi’s gas fields at the South Jambi block, which has been dedicated to Singapore-based customer.

· At this juncture, it seems that PGN has no short-term resolution for the declining supply from the CoPhi’s Corridor Block, though it said of the Government’s established task force team may address the gas supply issue while Indonesia’s Vice President Boediono will set up a monitoring team, including upstream regulator BP Migas, to seek solutions.

· Though in short-term the supply hiccup may deter the sentiment on the counter and PGN’s FY10 earnings profile (CoPhi’s gas accounted for 38.6% of 1Q10 gas distribution volume and it costs the least at US$1.85/mmbtu), the longer term positive is the make-up gas from both CoPhi’s Corridor Block and Pertamina South Sumatra may be sold at higher price, assuming both companies are able to fulfill its volume commitment.

· Our sensitivity calculates: 1) on our base assumption of 320mmcfd for the CoPhi’s Corridor gas, any 10% decline in Corridor’s volume will escalate our FY10 blended cost of gas by 1.2% and lower our FY10 core EPS by 5.2%, 2) assuming the CoPhi’s Corridor gas only flows at 270mmcfd this year, our blended FY10 cost of gas will increase by 1.9% and our FY10F EPS will decline by 8.1%.

· PGN has no update on the planned M&A though it admitted fail in one of its two targeted gas block targets, while on the LNG receiving terminal, it seeks operation by mid-2012 for the West Java-based terminal, in which it has joint venture with Pertamina.

· We are in the process of re-initiating our coverage in PGN. At our revised estimates prior to factoring the CoPhi’s Corridor and shortfall at Pertamina South Sumatra, we forecast FY10-11F core EPS of Rp245-Rp278, translating into core PE of 15.2x-13.7x, respectively. Higher or lower gas supply is the main risk in PGN.

CIMB Gudang Garam Company update - Four steps up

(GGRM IJ / GGRM.JK, OUTPERFORM - Maintained, Rp31,400 - Tgt. Rp41,600, Consumer)

Maintain Outperform on GGRM. GGRM has raised its selling prices four times this year, by a total of 6-7%, mainly for its machine-rolled cigarettes (SKM). This is in line with our full-year ASP growth assumptions for SKM. Price increases for hand-rolled cigarettes (SKT), however, have been minimal, at 1% YTD. With the help of these increases, GGRM has partially offset the hike in excise tax on SKM. We raise our earnings forecasts by 2-4% for FY10-12, adjusting for higher margins for the rest of the year. In addition, we raise our target price to Rp41,600, now set at 15.5x CY11 P/E (15% premium to our JCI target), from Rp35,000 (13.4x CY11 P/E, parity with index target), in view of GGRM's faster earnings growth vs. the index. Further margin expansion and consensus upgrades should provide stock catalysts, in our view.

Citigroup Indonesia Macro Flash - How Externally Vulnerable is Indonesia?

 FX reserve coverage ratios modestly improved over the last year — Looking at a few measures of external liquidity/vulnerability, we find that Indonesia’s FX reserve coverage in terms of short-term debt by remaining maturity and versus total external financing requirements have improved modestly – we estimate that FX reserves over ST debt by remaining maturity (Guidotti-Greenspan ratio) is around 1.54x (1.75x if we exclude standstill debt) as of April 2010, up from around 1.4x (1.7x ex standstill debt) in March 2009. These ratios remain comfortably above the 1x threshold. FX reserve coverage ratio looks stronger if we look at “total external financing requirements” given the country’s buoyant current account (CA) surplus – around 2.1x assuming our CA surplus forecast of 1.2% of GDP in 2010F, though this ratio weakened over the last year given our forecast of a narrowing CA surplus. However, ratio looks much better than Sep-08 levels of 1.75x.

 Indonesia is "relatively" more vulnerable than Asian peers… — Asia is a “tough” comparison given the region’s huge external surpluses and net external creditor status for many countries. Among this “strong” peer group, Indonesia looks “relatively” more vulnerable, alongside Korea. Indonesia is one of only a few countries in Asia (Vietnam is another) where the increase in official FX reserves last year (+$14.5bn) was accompanied by even a larger increase in outstanding external debt (ED) ($17.8bn). Thus, the country’s net external debt position slightly weakened (in contrast to most including Korea), but the increase in the country’s FX reserve exceeded the increase in short-term ED.

 ...but looks stronger than most CEEMEA and some LATAM countries — Nonetheless, Indonesia’s FX coverage ratio looks better than most CEEMEA (Russia is a notable exception) and some LATAM countries. If we take into account the “total external financing requirements” (including the CA), Indonesia’s FX reserve ratio looks relatively better.

 Key to Indonesia's vulnerability are portfolio flows — When we look at FX reserve coverage taking into account foreign holdings of bonds and (nonstrategic) equities, the FX reserve coverage ratio looks weaker (hovering below 1x) and has deteriorated from last year due to strong portfolio inflows. As of April, foreign holdings of IDR government bonds and SBIs have reached a record high or US$25.6bn or around a third of gross FX reserves. Thus, a key factor to Indonesia’s vulnerability will be how “mobile” these portfolio flows are. While foreign holdings in SBIs can be volatile, there is anecdotal evidence that most of the inflows into IDR government bonds are from real money accounts.

 Market implications — While Indonesia’s fundamental developments remain relatively sound (especially fiscally) albeit some recent negative political noise, we think Indonesia will be relatively more vulnerable than “the rest of Asia” on global risk aversion/volatility in capital flows.

CIMB XL Axiata Initiating coverage - Par excellence

(EXCL IJ / EXCL.JK, OUTPERFORM, Tgt. Rp4,750, Telecommunications)

We initiate coverage of XL Axiata with an OUTPERFORM rating and DCF-based target price of Rp4,750 (WACC 12.6%). XL is Indonesia's third-largest telecom group with an enviable track record and we suspect it could have overtaken Indosat as the second-largest cellco in 1Q10. With a 3-year EPS CAGR of 70%, we believe XL provides the best exposure to Indonesia's robust mobile industry and is our top regional telco pick. Growth would be driven by rising revenue, improving margins, flattening depreciation and falling interest expense. Likely re-rating catalysts are positive earnings surprises and market-share gains, in our opinion. Our forecasts are 30-37% above consensus.

CIMB Indo Tambangraya Megah Result note - Stronger production

(ITMG IJ / ITMG.JK, OUTPERFORM - Maintained, Rp36,450 - Tgt. Rp43,700, Basic Resources)

Maintain Outperform on ITMG. 1Q10 net profit met consensus and our expectations, forming 22% of our FY10 forecast, in line with historical 1Q contributions. ASP is on an uptrend, and 2H10 should be stronger than 1H10. Production was strong, up 47% yoy, despite seasonal weakness. We believe its FY10 production target of 23m tonnes is easily within reach, with potential upside in fact. Given higher (and still rising) production capacity, we raise our FY10-12 production assumptions by 4-21% to 24m-30m tonnes, now expecting output to grow by 12% CAGR over FY10-12 (instead of peaking and staying stagnant at 25m tonnes in FY11-12). Our FY10-12 EPS estimates accordingly rise by 1.5-13% and our DCF-based target price, to Rp43,700 from Rp37,000 (WACC 11%). We see stock catalysts from further sets of strong results and potential M&As.

AmCapital News Highlights

Astra Agro Lestari (AALI, Rp21,700)
4M10 CPO production declined by 3%
Astra Agro Lestari, the plantation company subsidiary of Astra International, said its crude palm oil production for January-April fell about 3% YoY. The company’s 4M10 CPO production was 295.9k tons. – Bloomberg

Bank Negara Indonesia (BBNI, Rp2,450)
To pay 35% of 2009 net income as dividend; change in the board of directors Bank Negara Indonesia will pay a dividend amounting to 35% of last year’s net income. Meanwhile, the bank will install Adi Setianto, Sutanto, Honggo Widjojo Kangmasto and Darmadi Sutanto as new directors pending approval from Bank Indonesia. The bank also plans to sell new shares amounting 13% of its stake in a rights offer in 4Q10 if it receives approval from the government and parliament. It may issue subordinated debt of about US$200mn- 300mn if government didn’t approve right offer plan. – Bloomberg

Comment: We do not expect there will be major change in the strategy direction of the bank as key positions in the management, including CEO-Gatot Suwandono, Vice President -Felia Salim, and CFO-Yap Tjay Soen are retained.

Bank Bukopin (BBKP, Rp590)
Jamsostek reiterates buying 30% Bukopin’s stake
State social security agency Jamsostek is reiterating buying up to 30% of Bank Bukopin’s stake, higher than initial plan of 20%. It has prepared funds of around Rp500bn for the acquisition, according to a local newspaper. To realize the plan, Jamsostek will be act as the standby buyer of Bukopin upcoming right issue.- Investor Daily.

Indika Energy (INDY, Rp2,750)
Planning US$140mn loans to subsidiary Petrosea
Conglomerate Indika Energy will seek shareholders’ approvals for the planned intercompany loan transaction, in which it will provide 5-years 9.85% loans amounting US$140mn to Petrosea via its subsidiary, Westlake, according to the prospectus published in local newspaper. Petrosea may use the proceeds for expanding its heavy equipment fleet and development of its Offshore Supply Base, the report said. – Bisnis Indonesia

Barito Pacific (BRPT, Rp1,210)
Increased share holdings in Gozco Plantation
Conglomerate Barito Pacific said it had increased its share holdings in listed oil palm plantation Gozco Plantation to 11.21% after serial of share purchases in Indonesian Stock Exchange from March 8, 2010 to March 15, 2010. The conglomerate now owned 560.5mn shares. – Bisnis Indonesia

Energi Mega Persada (ENRG, Rp147)
Financing for Masela PSC to be decided on June
The financial closing for the gas-rich Masela block is expected to be concluded by June 2010, President Director of Energi Mega Persada Imam P. Agustino said. Following this, there may be cash call for the companies in the project. The Masela block is estimated to have 10 Trillion Cubic Feet or TCF of gas, local newspaper reported. Investment needed to develop the block, including Floating LNG with production capacity of 4.5mn tons p.a. may reach US$14.5b, the report said. Energi Mega has 10% stake in the block, with Japan-based Inpex acting as the block’s operator with 90% stake. – Bisnis Indonesia

Alam Sutera Realty (ASRI, Rp184)
Mulling over investment up to Rp1tn
Tangerang -based property developer Alam Sutera Realty is considering plans to spend Rp1.0tn for investments over the next three years to build shopping malls, offices, and apartments, citing the company’s Corporate Secretary Hendra Kurniawan. Alam Sutera may spend between Rp600bn and Rp700bn for its capital expenditure this year. – Investor Daily

Utility Sector
PLN seeking bids for 5-Year contract of coal supply State-owned utility, PLN, is seeking bids for a 5-years contract to supply the low rank coal or LRC to feed 14 power plants in Java, Sumatra and Sulawesi islands. Bidders have until 3 p.m. Jakarta time June 1 to submit bids, PLN said in a tender notice published in local newspaper. PLN invited bids from companies that own coal mines with annual sales of at least 1 million tons and reserves of at least 20mn tons. PLN is seeking thermal coal with a Calorific Value or CV of 3,900 kcal per kg to 4,250 kcal per kg. – Bloomberg

Bloomberg Russian Coal Mine Outage Unlikely to Hit Global Market, UBS Says

May 12 (Bloomberg) -- Damage to OAO Raspadskaya’s biggest mine, which supplies coal to steelmakers, is unlikely to “significantly” affect the global market because of Russia’s share of seaborne trade, UBS AG said in a report.

The mine has a capacity in excess of 8 million metric tons a year, representing more than half of the company’s capacity and about 10 percent of Russian output, the bank said.

“Russia’s share of the global seaborne market amounts to only 6 percent, hence we believe the accident is unlikely to significantly affect global balances,” UBS said. “The impact could be relatively more significant for Ukraine which gets more than 50 percent of its imports from Russia.”

The death toll from explosions at the mine in Siberia over the weekend reached 60, the Emergency Ministry said on its website today.

Mandiri Sekuritas EXCL: Riding on a high wave

On the back of sustainable earnings growth and the ability to increase revenue per minute on voice, which suggests improving voice tariffs, we raised our TP for XL Axiata to Rp4,300/share. We think voice tariffs have no way but up as the battle is shifting toward data and content offerings. Showing its first mover capabilities, we likewise raised our earnings forecast by 14% and 8% respectively for FY10-11F. We maintain buy for the stock which trades at PER1F of 14.2x.

On track to meet lofty expectations. XL has raised the bar with 1Q10 results above our and market expectations. This year, it’s looking to grow revenue in the high-teens, (the highest rate of growth among the Big 3 telcos) while improving EBITDA margins to the high end of 40%, while internally funding its entire capex allotment of Rp4.5-Rp5tn. So far, it has not disappointed, with 1Q10! top-line of Rp4.17tn (+42%yoy) and interim EBITDA margin of 51% (from 38% in 1Q09).

It’s not just the top-line but costs have been managed well too. The disproportionate growth in costs (+10%yoy) relative to revenue growth (+42%yoy), also helped boost profitability in 1Q10. EXCL was able to cut interconnection and starter pack costs as well as general overhead spending. Furthermore, 1Q10 sales and marketing expense as a percent of revenue fell to 6% from 8% in1Q09.

Some moderation in subsequent quarters as competition catches up. Market dynamics should result in tighter competition coming from major competitors particularly in SMS packages/offerings as MICT, the regulating body has yet to issue a revised ruling on SMS tariffs limitation, thus flexibility remains at play. Bundled products (i.e., SMS plus 1 or 2 MB of free downloads) could create some growth congestions, while competition in voice tariffs has mellowed down (as shown with EXCL’s revenue per minute improving by 17! %qoq to R p88), now shifting towards data and SMS. Thus, our top-line forecast remains relatively unchanged while assuming better cost efficiencies resulting to an upgrade in FY10-11F net earnings by 14% and 8%, respectively.

New TP of Rp4,300/share. With the adjustments in effect, we raised our DCF-derived TP to Rp4,300/share, while maintaining a buy on the stock, which currently trades a PER10F of 14.2x, posing a 16% upside to our TP.

JP Morgan - Bumi Resources....Batu Hijau pre-tax up 535% yoy

Bumi's 1Q10 number, to be released end of May, should trigger consensus upgrade.
See the results from Batu Hijau below. Pretax profit up by a whopping 535%

US$mn 2010 2010 y-o-y
Sales 620 220 181%
COGS 125 112
Amortization 37 28
PBT 407 64 535%

Comment from NEM US 1Q10 notes below
Batu Hijau - Equity gold and copper production during the first quarter at Batu Hijau in Indonesia were 88,000 ounces and 76 million pounds, respectively, at costs applicable to sales of $215 per ounce and $0.67 per pound, respectively. Equity gold and copper production were in line with expectations and costs applicable to sales were slightly better than expected due to lower mining costs and a lower allocation of costs to gold. Copper and gold produced increased 79% and 181% in the first quarter of 2010 from 2009, respectively, due to higher throughput and grade as a result of mining in the bottom of Phase 5. Costs applicable to sales decreased 25% and 47% for copper and gold, respectively, in the first quarter of 2010 from 2009 due to higher production and lower mining costs.

The Company expects 2010 equity gold and copper production at Batu Hijau to decrease to between 365,000 and 400,000 ounces, and to between 270 and 295 million pounds, respectively, due to the 2009 7% share divestiture completed in March 2010. The Company's current economic interest at Batu Hijau is 48.5%. The Company continues to expect 2010 costs applicable to sales of between $265 and $285 per ounce and $0.75 and $0.85 per pound.

CLSA NNT pre-tax profit of US$407m in 1Q10, jumped by six folds

Newmont Nusa Tenggara (NNT) posted pre-tax profit of US$407m in 1Q10, jumped by six folds from a year before. Bumi currently owns 75% in the JV that controls 24% stakes in NNT. Pls see comment from our analyst Olie.

Newmont Nusa Tenggara (NNT) posted pre-tax profit of US$407m in 1Q10, jumped by six folds from a year before.

Annualizing 1Q10 result, NNT could post US$1.6bn in pre-tax profit in FY10 as compared to our current forecast of US$1.15bn in FY10.

We are currently assuming NNT to contribute around US$145m or 39% of total consolidated Bumi earnings in FY10.

Should NNT book US$1.6bn in pre-tax profit, hence around US$1.1bn in net profit, NNT could contribute between US$200m to US$270m to Bumi consolidated net profit, translating to 15% to 33% potential earnings upside.

We still think the main driver for BUMI will be politics. BUMI seems set to make a reappearance on the podium as its risk-reward profile is getting more favorable as the current political wind is blowing in its favor again.

DBS Indosat: Fully Valued; Rp5,600; TP Rp5,400; ISAT IJ

Issuing USD500m-USD800m to fund capex
According to the media, Indosat (ISAT) plans to issue USD500m-USD800m (Rp4.5tr-Rp7.2tr) in debt papers to finance its capex this year. Part of the proceeds would be used to refinance debt that are due this year, which amounts to Rp4.5tr. We are not surprised at the speculated amount because we expect ISAT to spend USD1.1b (Rp10tr) for capex this year. The company is highly geared at 1.3x net debt to equity, which we forecast to increase to 1.4x this year.

Separately, ISAT announced headline figures for its 1Q10 performance, which indicated marginally weaker net profit vs. preliminary numbers that were issued last month. Basically, its 1Q10 result came in below street consensus by >20%, and we expect the market to downgrade ISAT. Also, we noted that ISAT’s 1Q10 FWA (fixed wireless access) suffered 26% y-o-y crash in ARPU (to Rp19k), in addition to 2% y-o-y decline in subscriber base (to 689k users).
Until a full set of 1Q10 result is available, we are maintaining our FULLY VALUED call on ISAT with a DCF-based price target of Rp5,400. We expect the market to remain bearish on ISAT.

Mandiri Sekuritas SGRO: Improvement in cost structure ahead

SGRO booked 1Q10 net income of Rp43bn (+219.4%yoy, -44.9%qoq). Considering seasonality, the results were in line with ours and consensus FY10F estimates. Because cost structure will improve due to higher contribution of nucleus estate to total production, we upgraded our recommendation from NEUTRAL to BUY with a DCF-derived TP of Rp3,150/share, which implies PER10-11F of 15.0x and 12.9x, respectively. The counter is currently trading at PER10-11F of 11.3 x and 9.7x.

In-line 1Q10 results. SGRO booked 1Q10 net income of Rp43bn (+219.4%yoy, -44.9%qoq), which represented 11.3% and 10.6% of our and consensus’ FY10F estimates. The main factor was CPO production represented 14.6% of our FY10F estimates. In the last 3 years, on average 1Q CPO production represented 16.8% of FY CPO production. Considering seasonality, 1Q10 results were in line with our and consensus estimates.

Expect significant CPO sales volume in 2H10. Under normal seasonality, FFB production will increase significantly in 2H10 and it will reach its peak production in 4Q10. This will result in much higher CPO production volume. A combination of better CPO production volume in 2H10 and seasonally high demand in 2H10 will boost CPO sales volume significantly in 2H10.!

Improvement in cost structure because of higher contribution from nucleus. Cost structure improvements can be sustained because nucleus estates, with average age of 8 years, are reaching their peak production. Nucleus’ 1Q FFB production grew by 60.0%yoy and percentage nucleus production to total production increased from 47.6% in 1Q09 to 49.3% in 1Q10.

Newly acquired sago business will give a new stream of income by 2011 onwards. SGRO has signed the agreement to acquire PT National Sago Prima, a sago plantation in Riau with planted and unplanted area of 12,000 ha and 8,000 ha, respectively. Total cost to acquire the 91.8% of PT National Sago Prima amounted US$12mn (US$1,115/ha planted area). Sago processing plant will be built and completed in 2011. We have not factored in the acquisi! tion to o ur projections.

Fine-tuning forecasts and upgrading to Buy. We did a fine-tuning on our forecasts. We expect cost structure will improve due to higher contribution from nucleus, thus, we upgraded our recommendation to BUY with DCF-derived TP of Rp3,150/share (WACC of 12.8% and Terminal Growth of 6.0%), which implies PER10-11F of 15.0x and 12.9x, respectively. The counter is currently trading at PER10-11F of 11.3x and 9.7x, respectively.

UBS Sector and Company News

Automotive Sector: Auto tax increase in Jakarta
Jakarta government is raising vehicle tax (to 10% from 5%) and vehicle registration tax (to 20% from 10%) beginning June 1, 2010.

Sales comment: The revised tax rates will effectively cause 15% increase in vehicle prices in the Jakarta area. Jakarta’s 4W and 2W sales account for 25-30% and 20-25% of the industry’s sales volume. This will have negative consequences on Astra International (ASII Under Review) – our quick take is for a 15% downgrade in the auto sales volume assumptions.

Indocement Tunggal (INTP Under Review): 2009 dividend and 2010 expansion
INTP is increasing 2010 capex allocation to US$100 mn, from US$70 mn previously. The aforesaid capex will be partly used to build a cement mills in Cirebon, West Java, with annual capacity of 1.5 tons – targeted to be in full operations by May 2010. INTP also plans to build two more cement mills in Citeureup, West Java with capacity of 2.0 tpa – targeted to be in operations by 2012. Meanwhile, INTP is distributing 30% of its 2009 profits in cash dividend, amounting to Rp225 per share (dividend yield = 1.5%).

Sales comment: Sounds like an aggressive expansion plan to us. INTP’s production capacity will be at 18.6 tpa in 2010, before reaching 20.6 tpa by 2012 – vs. 17.1 tpa currently. But this comes at the expense of lower-than-expected 2009 DPR – we were expecting 50% previously. INTP is trading at 16.5x 2010 and 13.3x 2011 PE, with projected 3-yr EPS CAGR of 23.8%. We would be buying INTP on weakness.

Bank BNI (BBNI Not Rated): AGM today on 2009 dividend and 2010 management line-up

Sales comment: Consensus 2009 dividend projection of Rp236 per share (yield = 9.8%). We believe BBNI CEO Gatot will stay.

Bank Mandiri (BMRI Buy PT 6,150): CEO to stay
Secretary of MSOE Said Didu stated in local papers that Agus Martowardoyo will stay as the nation's largest bank CEO. AGM on May 17, 2010.

Sales comment: SOE banks musical chair will be completed post Bank Rakyat Indonesia (BBRI Buy PT 10,400) AGM on May 2o, 2010.

Indo Tambangraya Megah (ITMG Buy PT 42,800): Q110 result + 2009 dividend
ITMG Q110 net profit stood at US$67 mn (-34% YoY, -4% QoQ), accounting for 20% of UBSe 2010 target of US$344 mn. ITMG 2009 DPR is 46%, amounting to US¢13.8 per share (yield = 3.5%).

Sales comment: ITMG trades at 13.1x 2010 and 9.2x 2011 PE, with 3-yr projected EPS CAGR of 9.2%.

Bakrie Telecom (BTEL Sell PT 110): New companies in Bakrie Group
BTEL has set up Bakrie Network (BNET) with Rp2 bn of equity. BNET will engage in the telecommunication infrastructure business, and is planning to install fiber optic cables along the toll roads owned by the Bakrie Group. BTEL also plans to invest US$100 mn in its subsidiary Bakrie Connectivity (BCON), an Internet and multimedia company.

UBS From the Ground - MSCI Semi Annual Rebalancing

MSCI semi-annual rebalancing was announced last night and below is the quick summary of the changest:

- Gudang Garam (GGRM) goes from a zero weighting to a 100% weighting. This makes GGRM one of the three largest additions to the MSCI Emerging Markets Index. GGRM was the only top 20 Indonesian stock not in the MSCI index. We'll separately send a note with a summary of everything that you need in order to take a view on GGRM. GGRM is the stock most impacted: This change should be very share price positive.

- Semen Gresik (SMGR) doubles its weighting due to an increase in free float (following the recent placement of stock. This change should be significantly share price positive for SMGR.

- Adaro (ADRO) has increased its weighting slightly as a result of a free float increase. Mildly positive.

- INCO (INCO) has seen a slight increase in free float. Barely positive.

- Three banks (BDMN, BMRI, BBRI) have seen an increase in the no. of shares calculation. Barely positive.

- Lippo Karawaci (LPKR) is removed from the MSCI index. If LPKR was widely held, it would be share price negative.

- Contrary to expectations, BUMI has not seen its weight reduced. To the extent that some were expecting its weight to be reduced, this could be considered positive.

AAA PT Indo Tambangraya Megah Tbk Inline Expectation

± Inline result
ITMG reported net profit of US$ 67.17 mn, down 34% yoy (-3.6% qoq). Lower earnings result came from lower margin due to lower ASP of US$ 66.58/ton, down 21.6% yoy, and higher selling cost which increased 78.9% yoy up to US$ 25.5 mn caused by higher demurrage cost following testing system in Bontang port pre commissioning. Overall 1Q10 earnings result came inline our expectation and consensus which account 22% - 23% of 2010 full year estimates with operating margin down to 23%.

± Strong sales volume growth of 48.4% yoy
Revenue was up strong 17.4% yoy (-11.9% qoq) back up by higher sales volume of 6.08 mn tonnes up strong by 48.4% yoy. The main largest demand growth came from China which jumped significantly to 1.8mn tonnes compared to 1Q09 only 77k tonnes. While Japan sales volume was up 27.3% yoy to 1.4 mn tonnes. Company expect this year, export to China would double from 2009. While Japan and Korea would be maintained. Production increased well by 36% yoy to 6 mn tonnes. Indominco and Trubaindo production grew by 52.5% yoy and 33.2% yoy respectively. While Jorong dropped 55.8% yoy to 354k tonnes following the operation shut down in early February 2010. Management expects that Jorong’s mine would start to reoperate by July – August 2010.

± Pricing In – Downgrade to HOLD
ITMG is one of the most attractive coal companies due to its multiples valuation and robust balance sheet. However, based on its EV/ton ITMG is considerably one of the most expensive coal companies in industry due to its depleting resources. Inorganic growth through acquisition is still the major key success for ITMG in our view. We see that market should have priced in its prospect. Valuation wise, we see that ITMG stock is not cheap anymore considering forward P/E multiple has tendency to revert down in near term. But we do still like the company. Our TP maintained at Rp 38,500 per share only offers 5.6% potential upside and we downgrade our rating from BUY to HOLD while waiting for more positive catalyst towards its valuation. Currently ITMG traded at 15.4x – 10.6x P/E 2010F – 11F.

CLSA Indo Tambang (ITMG IJ) results

· The company reported net profit of US$67m in 1Q10, down by 34% YoY and 4% QoQ. The result came in as expected, representing some 21% of our full year estimate.

· ASP, as expected, was weak YoY and flat QoQ, as selling price reflected carry over contracts from last year. We expect stronger prices in the coming quarters as new contracts start kicking in. We are currently assuming US$69.5/t ASP for FY10 and think that price could hover around US$72/t should current spot stay.

· Production looks strong at 6.0m tonnes, up by 36% YoY, reflecting some 27% of our full year forecast. Production growth was largely driven by opening up of Indominco East and Kitadin mine since 2Q09 and strong outputs from Trubaindo. There is some upside to our current forecast of 22m tonnes production, depending on the company’s ability to secure forestry permit extension for Jorong on schedule.

· We are still reviewing our earnings estimates, and see some 5% potential earnings upside. At this juncture, we retain our Buy rating on ITM.

NISP Elnusa to retain 16.8% stake in Margaraya Jawa Tol (ELSA, Rp460)

• Elnusa’s (ELSA) management stated that the company has no plan to divest its stake on PT Margaraya Jawa Tol (MJT), a Waru – Tanjung Perak toll concession holder. Elnusa currently has 16.87% stake on MJT while its previous shareholder, Tridaya Esta, controls 36.92% stake on MJT.

• It is reported previously that Duta Graha (DGIK, Rp100), Jasa Marga (JSMR, Rp1,970, Buy) and PT PP (PTPP, Rp700) plans to increase their stake on MJT. Jasa Marga plans to be the major shareholder with 55% stake, while DGIK and PTPP might controls 25% and 20% stake, respectively.

• ELSA is trading at 2010F consensus PER of 12.5x and EV/EBITDA of 5.5x.

NISP Bakrie Telecom to inject US$100mn to its new subsidiaries (BTEL, Rp140)

• Bakrie Telecom (BTEL) is setting up 2 new subsidiaries, PT Bakrie Connectivity and PT Bakrie Network, to manage the company’s internet and broadband business arm. PT Bakrie Connectivity is a internet and multimedia provider while PT Bakrie Network will focus on telecommunication & network infrastructure procurement. BTEL has prepared US$100mn to be injected to PT Bakrie Connectivity. It still studying the amount allocated for PT Bakrie Network.

• On another topic, the company will soon complete its US$250mn global bond issuance as several investors from US, China and Europe is ready to absorb the issuance. The company will use the proceeds to refinance its US$190mn debt to several creditors with the remaining to be used to finance capex.

• BTEL is trading at 2010F consensus PER of 22.6x and EV/EBITDA of 5.3x.

NISP Energi Mega spends US$81mn for tankers (ENRG, Rp142)

• Energi Mega Persada, the oil&gas producer company, is spending US$81mn to hire a FPSO tanker from Berlian Laju Tanker (BLTA, Rp580) for 4 years. Operational funds will be used to finance the action, where hiring costs will be calculated on a daily baiss.

• Energi Mega will use the tanker for the Pagerungan Utara oil&gas field in the Kangean PSC Block in East Java that is planned to commence production in October 2010. The block is expected to producte an average of 5,000-7,000bpd.

• The company will also begin gas productions in the Terang Sirasun Batur field in 4Q11. Production capacity will reach 300MMscfd. Several companies such as PLN, Pertagas, and Petrokimia Gresik are several future consumers of the gas.

• As proceeds from rights issue of US$519mn on February 2010 is deemed sufficient, the company will not utilize bank loans for the upcoming 3 years. The company still has US$169mn free for capex.

• ENRG is trading at 2010F consensus PER of 15.2x and EV/EBITDA of 8.0x.

NISP Indosat to issue US$500mn global bonds (ISAT, Rp5,600)

• Indosat shared its plan to issue US$500mn of global bonds in order to support the company’s capex this year. The company sets a lower capex of around US$500mn in contrast with US$700mn in 2009. In 2010, Indosat has to repay its maturing loans of Rp4.5tn this year that may affect the company’s budget on capex.

• It is reported that Indosat has appointed three underwriters to support the issuance and this plan has already been submitted to Bapepam.

• ISAT is trading at 2010F consensus PER of 17.6x and EV/EBITDA of 5.2x.

NISP Bumi Resources to slash US$1bn debt this year (BUMI, Rp2,425, Buy)

• Bumi stressed its plan to reduce its existing debt by US$1bn this year. However the company did not share shared the details about the process. Previously it was reported that the e scheme will be conducted through non pre-emptive right issuance. Bumi said it will resume this non pre-emptive right issuance plan as the company sees demand and appetite for coal based stocks is getting higher.

• With this step, the company’s debt will decrease to US$2.8bn from US$3.8bn on December 2009. Hence, net debt to equity ratio decreases to 1.9x from 2.6x. However, if the scheme is conducted through debt to equity mechanism, then, the company’s net debt to equity ratio will become much lower to 1.1x, assuming there is an additional equity of US$1bn.

• This plan would help the company’s financial performance as interest expense will lessen. We view that every 10% reduction of interest expense will increase the company’s bottom line by around 5%.

• Currently BUMI is trading at 2010F PER of 19.1x and EV/EBITDA of 7.5x, buy.

NISP Indocement revises up capex to US$100mn (INTP, Rp15,350, Buy)

• Indocement is boosting its 2010F capex budget from US$75mn to US$100mn. Around 60% of the amount will be used for general expenditures, while the remaining budget will be used to finance its new cement mill construction in Citeureup. As for now, the company will use its internal cash to finance the capex as the company currently has Rp2.7tn cash position.

• In the meantime, Indocement’s shareholder has approved Rp225/share cash dividend for 2009 net profit or translates for only 30% payout ratio, relatively inline with our expectation. We understand that the company needs to conserve its cash as for the next 4 years the company might need around US$750mn to finance its expansion plans.

• Besides its plan to build 2 new cement mills with annual capacity of 2mn tons, the company also plans to build a coal-fired power plant worth US$100-150mn in Citeureup which is slated for 2011F. For longer term, the company is planning to build new cement plant worth US$450mn with 2-3mn tons annual capacity to anticipate domestic cement demand boom in the next 4 years.

• Currently INTP is trading at 2010F PER of 13.4x and EV/EBITDA of 7.8x, buy.

Mandiri Sekuritas Holcim Indonesia: The government to reevaluate its limestone mining agreement (SMCB, Rp2,150, Neutral, TP: Rp2,500)

Minister of Forestry together with Minister of Law and Human Rights plans to reevaluate Holcim’s limestone mining license in Nusakambangan and Jeruklegi, Cilacap. The government has formed a team to evaluate and analyze the contract. On the other hand, Holcim believes that they have abided the regulation for their exploitation activities. Furthermore, they just utilize the land of only 112 ha from 1,000 ha concession license. Should the government revoke the license, it will have a negative impact to Holcim Indonesia. Currently, SMCB is trading at EV/ton of US$234, which still below than average peers of US$271.

Mandiri Sekuritas Indocement: To build 2mn tons cement mills (INTP, Rp15,350, Neutral, TP: Rp16,600)

􀂄 Aside from the new 1.5mn tons cement mill which will start operating this May, they will build another cement mill with a capacity of 2mn tons. This is sooner than their previous plan, given unexpectedly strong demand. They budgeted around US$100mn for FY10 capex, from previously US$70mn.

􀂄 Other than that, the company will give out cash dividend of around Rp828bn, or equal to Rp225/share. It reflects a dividend yield of 1.5%. The payout ratio of around 30% is inline with our expectation. Cum dividend date will be on 21 June 2010, and it will be distributed 7 July 2010. On valuation basis, the company is currently trading at PER10F of 16.9x.

Mandiri Sekuritas Intiland Development: DILD reports net profit jump for 1Q2010 performance (DILD, Rp990, Not rated)

􀂄 DILD reported surged in net profit to reach Rp85 bn for 1Q2010 performance, compared Rp3 bn last year during the same period, as a result from the residential sales and inventory sales of the company’s assets that give only low single digit yield to the company, which provide greater margin. The company will continue to divest its inventory assets this year (about 15 ha), to expect quadruple increase in revenue from 2009 levels (Rp386.8 bn FY09), despite contribution from the sold out 108 units of the 3 towers planned 1Park apartment, worth ±Rp152.5 bn and other recurring income of its investment properties which as per Des09 contributed 30.4% of the total revenue. Currently, the company has total land bank of 1,400 ha.

􀂄 Over the next 3-4 years, the company intends to develop mixed use high-rise properties which include a Simatupang project as well as projects in Tangerang and in Pantai Mutiara. The company expects to generate revenues of about Rp14tn over the
period.

􀂄 The company is currently has an outstanding warrant of Rp1tn (sweetener from the recent rights issue) or equivalent 18% of the outstanding shares, which can be exercised on 22 Oct 2010 at Rp1,050/share. Based on latest colliers’ revaluation on the land bank, NAV of the company stood at Rp1,798/share, which the current price trading at 45% discount. The company is set to have a re-appraisal of the assets within the next couple of weeks. There is no analyst coverage on the stock.

Mandiri Sekuritas Indotambang : 1Q10 within ours and consensus (ITMG, Rp35,450, Neutral, TP:Rp34,920)

Net income was 21.7% below Bloomberg consensus. However it is understandable as average coal price they obtained in 1Q10 of US$66.6/ton was in the low range of its US$65-70/ton. Its sales volume was ahead with 26% of its 23Mt sales target. As coal price is trending up, we expect ITMG to achieve and possibly surpass our FY10 estimate. We are keeping our forecasts. We have a Neutral recommendation. At Rp36,450, ITMG is traded at PER10F and PER11F of 15.4x and 12.8x, respectively with EV/EBITDA FY10F and FY11F of 81.x and 6.5x , respectively.

Mandiri Sekuritas Perusahaan Gas : Conoco – Chevron sign gas sales agreement (PGAS, Rp3,825, Buy, TP:Rp4,650)

GSA which will be signed May 18, 2010 agreed on 400 MMSCFD supply with US$0.47/MMBTU toll fee. The agreed supply is higher than previous agreement of 322 MMSCFD. The additional supply is done at the expense, we believe, of PGAS which saw its inflow from Conoco falling to 250-260 MMSCFD, from previously 400 MMSCFD expected. We are still waiting for the comment from PGAS, and whether the 70 MMSCFD balance will be added to PGAS (from reduction of 150 MMSCFD PGAS supply, and additional 80 MMSCFD to
Chevron).

Mandiri Sekuritas Wijaya Karya: Has secured new contracts worth Rp1.4 tn (WIKA, Rp385, Buy, TP Rp540)

In our yesterday’s meeting with the company, they mentioned that they have secured new contract worth Rp1.4tn up to March 2010. This reflects 13.8% from its FY10F target of Rp10.1tn. This lifted WIKA’s order book to Rp12.1tn. They also believe that they could maintain their gross margin at 12% level throughout the year. Aside from that, the company indicated that they may book bad debt allowances reversal this year, which will act as an upside potential to the company. Currently WIKA is trading at PER10F and PBV of 8.3x and 1.3x, respectively.

Indopremier INCO (BUY - TP Rp5,250)

INCO’s strong 1Q10 results came in-line with our estimates, but we revise our forecasts upward to reflect higher nickel prices, which have reverted to more sustainable levels. Maintaining our BUY stance, we raised our TP to Rp5,250, offering 20% potential upside and implying undemanding valuations of 12.9x/10.4x 2010F/2011F PER.

Strong 1Q10, In-line With Expectations
INCO delivered strong 1Q10 results with net profit jumping 344% YoY and 27% QoQ to USD283mn. Higher nickel in matte sales of 23% YoY (+5% QoQ) to 18,021mt, combined with rising ASP to US$14,182/mt translate into strong revenue growth of 111% YoY (+9% QoQ) to USD256mn. Gross margin improved to 41% in 1Q10 as INCO was able to reduce fixed costs in supplies and contracts and services; even with higher fuel usage in 1Q10, COGS/mt remains relatively unchanged with 4Q09 at USD8,367/mt. INCO’s 1Q10 results came in-line with our previous forecasts, which we have adjusted upwards to reflect higher nickel prices (net profit revised up by 47%/56%/45% for 2010-2012). As INCO starts to maximize the use of hydro power, margins could improve further.

Karebbe Project on Track
INCO is allocating USD257.7mn for capital expenditures in 2010, which consists of USD112.1mn for sustaining capital, USD141.3mn for growth capital, and USD4.3mn for health, safety and environment. The Karebbe hydroelectric power generating plant costing USD410mn is progressing as planned and is expected to commence operations in 2H11. By displacing all oil-based fuel usage to feed the electric furnaces at the Sorowako facility, we project COGS/mt could be reduced from USD8,484/mt in 2010 to USD8,435/mt and USD8,180/mt in 2011F/2012F (assuming oil prices of USD80/bbl). As usage of oil-based fuel is reduced in the future, INCO’s earnings will be less sensitive to oil price fluctuations.

Back to More Sustainable Levels
Recovery in world steel demand, which is estimated to increase 10.7% YoY to 1,241 mmt in 2010, has lifted nickel demand and prices in 1Q10. Despite more polished fundamentals, nickel market is still far from being concretely strong as inventory levels remain high. Nickel prices had overran itself when it peaked at US$27,227/mt and quickly fell to US$21,985/mt as market optimism faded in view of China’s tightening of its monetary policy and concerns over the contagion of European sovereign debt crisis began to undermine global economic recovery. Nevertheless, surging automotive steel demand in China and India provide strong support to nickel prices, which at around US$22,000/mt currently, reflects nickel’s fundamentals more closely and seems more sustainable in our view.

JP Morgan - Bumi in for a positive earnings surprise in 2010, MSCI, banks

Newmont Mining up 5% overnight. JPMorgan analyst John Bridges has O/W rating on NEM with an upgraded price target of US$70 (from US$64) on the back of its 1Q10 results. He expects NEM to post a strong year in 2010 based on its long awaited access to the highest grade portion of the Batu Hijau ore body and the ramp up of production at its Boddington mine.

"We believe Newmont is optimistic about 2010 production from its Batu Hijau
project in Indonesia and the ramp up at its new Boddington mine. Like most open
pit mines, the deposit is mined in slices in order to maintain safe slope angles on the pit wall. This means that there are periods when the mine is unavoidably mining
lower grade ore or even waste rock to access the best ore. At Batu Hijau, 2010 is the
year when the mine will access the high grade heat of the ore body and though
mining is also affected by rainfall, we believe the mine is well positioned to deliver positive surprises."

Buy Bumi Resources. Stevanus Juanda expects around US$168mn net profit contribution from Batu Hijau to Bumi, versus a consolidated net profit forecast of US$388mn (consensus) in FY10. Steve's latest net profit forecast for Bumi is US$273mn, which is looking overly conservative in my view. So Batu Hijau's net profit contribution is somewhere between 40% and 60% to Bumi. Given the fact that Bumi's 2009 earnings is depressed by the "change in long term assumption on stripping ratio", I think the market is in for a big positive earnings surprise from Bumi in 2010.

Trading colour on Indonesian banks
The market is watching closely the potential CEO changes in Bank Negara, Bank Mandiri, and Bank Rakyat Indo, that will hold EGMs on 12 May, 17 May, and 20 May, respectively. Share price action on BMRI was unconvincing yesterday (-5%). If Mr. Gatot Suwono not re-elected as BBNI CEO on 12 May, investors may start speculating his move to BMRI.

MSCI weighting changes
Gudang Garam is added to MSCI, while Lippo Karawaci is taken out. Semen Gresik sees a weighting increase. Our MSCI analyst predicts a US$54mn inflow into GGRM, or 23 days trading value. He predicts a US$40mn inflow into SMGR, or 5 days trading value. For LPKR, the estimated outflow is US$19mn, or 3 days trading value.

CNBC If Greece Is Bear Stearns, Will the UK Be Lehman?

Monday’s market euphoria across the world at the terms of the European Union/International Monetary Fund rescue package for the European bond market faded Tuesday as investors sold stocks and took profits on the euro. The worry for investors is whether governments in Greece and Portugal can live up to their end of the bargain and manage to significantly cut government spending in the face of bitter opposition from voters.

Despite averting what could have very well turned into a fully-fledged liquidity crisis with Sunday’s news of a 750 billion euros ($951 billion) stabilization fund and European Central Bank assistance for the European bond market some investors remain sceptical that the worst is now behind us.

“The big question I am asking myself is whether Greece is Bear Stearns” Anthony Fry, senior managing director at Evercore Partners, said. “What I really fear is that if Greece is Bear Stearns then the UK is Lehman Brothers.” Fry worked for Lehman before its collapse.

Other analysts have told CNBC the UK is not in major trouble.

Michael Gallagher, director of research at IDEAglobal, said he believes the UK will be alright due to its ability to sell government bonds internally.

Steven Barrow, the head of G10 Research at Standard Bank agreed.

“I am confident about the prospects for the pound,” Barrow said. The difference between the UK and Greece, according to Barrow, is that Britain has more room for maneuver.

“The UK can devalue and print money, the UK will not default, the UK will not need the IMF,” he said.

But with talks over who will form the next UK government dragging on, Fry is adamant that such analysis is nonsense.

“I can’t believe (the UK) can avoid trouble," he said. "The current coalition talks are like arguing over a birthday cake. Once they decide how much of the cake they get they realize no one bothered to bake the cake.”

With a lot of money needing to be raised over the coming months and years, UK borrowing costs are going to move sharply higher, he argued.

“My big fear is that after (Chancellor of the Exchequer) Alistair Darling refused to support the EU/IMF/ECB bailout of the euro zone bond market, the euro zone may stand by and do nothing when the UK gets into trouble,” he said. more...

Bloomberg Nickel Falls for First Time in Four Days as Dollar Strengthens

May 11 (Bloomberg) -- Nickel, this year’s best performer on the London Metal Exchange, dropped for the first time in four days as the dollar strengthened and on concern that China, the biggest consumer, will seek to curb economic growth.

The U.S. Dollar Index, a six-currency gauge, rose for the first time in three days, making dollar-priced metals more expensive to other currency holders. Chinese consumer prices rose the most in 18 months, spurring speculation the government will raise borrowing costs. China uses about 30 percent of the world’s nickel, according to Deutsche Bank AG.

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 more than tripled first-quarter production of cheaper nickel pig iron, according to Shanghai Metals Market.

“In the short term, the physical markets remain tight, but increasing production of nickel pig iron in China has put the brakes on the recent rally,” Randy North, a trader at RBC Capital Markets, said by phone from New York. “Dollar strength and general weakness in the rest of the base metals complex isn’t helping matters either.”

Nickel for delivery in three months dropped as much as 5.2 percent to $21,820 a metric ton. The contract was down 4.4 percent at $21,986 at 11:42 a.m. in London, paring this year’s gain to 19 percent. Copper, aluminum, zinc and tin also fell.

To contact the reporter on the story: Anna Stablum in London at

UBS Sector and Company News

United Tractors (UNTR Sell PT12,100): Management upgrades sales volume target
UNTR is targeting 38-45% YoY growth in Komatsu machinery sales to 4,300-4,500 units in 2010. UNTR is targeting to command 43-45% market share in the Indonesian machinery industry in 2010.

Sales comment: We target UNTR’s Komatsu machinery sales at only 3,800 units for 2010 – vs. Q110 figure at 1,218 units. Assuming 4,400 units in our forecast, we would have to upgrade our EPS by 6%. Risk to our earnings forecast is to the upside. UNTR is trading at 16.4x 2010 and 15x 2011 PE, with 3-yr EPS projection of 9.9%.

Ciputra Development (CTRA Buy PT 1,160): Progress on Ciputra World
CTRA subsidiary Ciputra Property (CTRP, Not Rated) is allocating Rp1.5 tr on capital expenditure for 2010 and 2011. Most of the money will be used to complete the development of the Rp3 tn project, Ciputra World. The company has also appointed contractors to build the upper structure of the superblock. These three contractors are JKON, Tata, and NRC. The mall is expected to be completed in Q112, the apartments and offices in H212, and the hotel in Q412.

Sales comment: Last month, we upgraded CTRA PT by 45% to reflect positive developments at subsidiary companies. In our Apr 13th daily we highlighted, with pictures, that the long delayed Ciputra World development start to take shape.

Indosat (ISAT Neutral Rp6,100): Issuing US$500 mn global bond
ISAT has appointed underwriters to issue a US$500 mn global bond, to be listed in Singapore, for refinancing, working capital and capex.

Sales comment: ISAT’s 2010 net-debt-to-equity is projected at 1.2x. With the bond issue above, ISAT’s 2010 net-debt-to-equity would remain manageable at 1.4x. ISAT is trading at 20.6x 2010 and 19.4x 2011 PE, with unexciting 3-yr EPS CAGR of 7.1%.

UBS Economics

GDP: Q1 growth shows private strength
Indonesian Q1 GDP was a little lower than expected at 5.7% YoY vs consensus of 5.8% and a Q4 rate of growth of 5.4% YoY. The main culprit for the weakness appears to be government consumption.

Sales comment: On the quarter, seasonally adjusted, the economy expanded 1.4% on the quarter by our estimates. This is a lot slower than the sort of growth recorded by Singapore and most likely Malaysia in the recent past. However, Indonesia's grow momentum is trend like and a lot more sustainable in our view.

Bank Indonesia appointment
Halim Alamsyah has been appointed the new Deputy Governor.

Sales comment: As expected and a good outcome. Mr Alamsyah, currently Director of banking supervision, has good reputation in the investor and banking community. Next announcement would be the Governor of Bank Indonesia, a role vacant since Boediono left to become vice President.

UBS From the Ground

Is IDR the New Dollar?
Did the last week simply not happen? Europe appears close to meltdown and Sri resigns, a buying opportunity ensues but frustratingly, after two days, it’s gone and once again we’re back to where we were:

USD/IDR is back to 9,070 (having traded as high as 9,365).
10 Year government bond yields have been bid back to pre-Greece/Sri levels of 8.7% on foreign buying (having peaked at 9.7%).
The JCI has recovered most of the losses it suffered in recent days, and will no doubt continue to trade higher today.
Not for the first time, the Indonesian market has shown itself to be bulletproof. As a reality check, let’s revisit what the market has decided doesn’t need to be ‘priced in’.

Contagion risk: In the past, Indonesian financial crises have resulted from Indonesian corporates no longer having access to global funding markets. While most Indonesian corporate balance sheets are in rude health, there is a minority of (listed) corporates and business groups which are highly geared and are reliant on access to foreign debt markets. Any significant decline in liquidity in global credit markets would be problematic for these companies.
Increased political uncertainty: There are as many different theories as to how the political scene will evolve in coming months. In all this, one thing is clear: Political uncertainty has risen.
Why is the market not more concerned? The answer is that IDR is the New Dollar.

You can learn more when later today UBS hosts a conference call (21.00 Sing/HK, 14.00 London, 09.00 NY – let us know if you’d like the call details) on the following theme:

After Greece: Is EM the New Dollar?
With the Eurozone back in financial turmoil, the independence of the ECB under stress, the long-term sovereign health of the US still a question mark and Japan viewed by some as the remaining "black-swan" risk event, 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.

Mandiri Sekuritas Retail : Rising consumer wealth and confidence

Three retailers under our coverage, Ramayana (RALS), Mitra Adiperkasa (MAPI), and Aces Hardware (ACES) reported strong 1Q performances. All booked double- digit revenue growth (RALS +14.5% yoy, MAPI +12.7% yoy, and ACES +19.1% yoy). Same-store growth was also robust (RALS +13.5% ytd, MAPI +9% ytd, ACES +10.9% ytd). As the result,! operatin g profit also posted solid performances (RALS +297.8% yoy, MAPI +20.7% yoy, ACES +19.4% yoy). We believe top-line to remain strong, however margin might slightly ease due to the government’s plan to hike electricity tariff by an average of 10% starting July 2010. Utilities as percentage of sales were 2.8% for MAPI, 4.3% for RALS, and 1.9% for ACES in 1Q10.

Expanding profit margin. RALS recorded the highest margin expansion with operating margin returning from a depressed 0.7% in 1Q09 to 2.4% in 1Q10. Meanwhile, MAPI also saw its operating margin increasing 30bps to 5% in 1Q10, while ACES was stable at relatively high 12.1%. ACES obtained above-average margin due to its unique product offering (home improvements and life style) unmatched in number of products and product type. ACES source its product from China, enabling it to gain hi! gher marg in.

Rising consumer confidence, rising expenditure level. Compared with March 2009 level of 86.2, Consumer Confidence Index measured by Bank Indonesia, has risen to 96.4 in March 2010. Another interesting data was provided by AC Nielsen showed a 25.6% yoy increase in people with expenditure above Rp1.5mn (US$165)/month to 23.2mn people in 9 major cities, while people with below Rp1.5mn/month expenditure dropped 12.6% yoy to 25.4mn people (Exhi! bit 2). M inimum wages are rising in the range 3.7-13.0%, with regions in Kalimantan, and Sumatra having the highest jump in minimum wage (Exhibit 1)

But all is priced-in hence we maintain our Neutral recommendation on the sector. In the beginning of the year, we had already expected the rebound in retail sales. We are neutral as we think the market has not fully calculated the impact of electricity tariff hike. Company specific issues will drive each stock performance. We have a Buy and we like MAPI for its continuing operational improvements, Neutral on ACES as we’re waiting the replication of its success in Greater Jakarta area to other place and its sustainability. We have a Neutral recommendation for RAL! S as all the optimism has been factored-in.

Citigroup Asia ex Strategy Market to Houston: Headwinds Too Strong

 A strong US$, declining EPS revisions, and contracting liquidity proved too much
— US$ strength has once again proven to be a blow to Asian markets aspirations.
The first round impact is on liquidity, the second on earnings. Earnings revisions
have weakened, with more to come. Excess liquidity once so ample is now
contracting on a YoY basis. These headwinds are too strong near-term for markets
to ignore.

 Valuations are getting more attractive and expectations more realistic — P/BV has
gone from a peak of almost 2.2x down to 1.9x. This is close to the historic mean
and close to the same point in time of prior cycles. Excessive expectations have
been rung out of markets, which set us up for the next recovery. It will require
patience but it will come. Sentiment remains above average and market internals
don’t suggest we are oversold as yet.

 The key for markets remains earnings and delivery — We see no reason to pay up
at this stage or own over-crowded areas. We remain underweight China, materials,
real estate, other financials and consumer defensive. Our longs are Hong Kong,
Korea and Taiwan, along with telecoms, banks, tech and energy. We highlight the
most oversold/overbought, cheap and expensive stocks.

CLSA Coal channel checking

China Reality Research has recently reported that:

· Spot prices of the three main types of coal at Qinhuangdao port rose sharply this week as key producers, including Shenhua, Datong Coal and China Coal, raised their contract prices on the spot market by over Rmb50/t
· On May-6 prices of 5,800kcal/kg, 5,500kcal/kg and 5,000 kcal/kg coal were up 4.1% (up 23% YoY), 3.5% (up 26% YoY) and 3.3% (up 24% YoY) WoW, respectively

To get a better understanding of what is happening in the marketplace for coal, CLSA Jakarta research team did our own channel check. We surveyed local coal traders, and our channel check suggests similar positive momentum.

Looking at recent datapoints and newsflow, we feel more and more convinced on tighter supply/demand outlook of coal.

China became a net coal importer last year for the first time. Beijing bought 104m tonnes of the product last year compared with net exports of 80m tonnes in 2003. This bodes well for Indonesia as the largest thermal coal exporter in the world.

Just to illustrate what 104m tons really means. Coal import in China still accounts for a mere 3.5% of total coal consumption, 3.0bn, in the country. 104m tons is just a teaser. The trend of more and more imports will no doubt continue. The impact on prices might not be immediately clear but be assured the LT implication on prices will be very positive. Just like when China became a net importer of oil in the 90s and now the second largest importer of oil behind the US.

We think India would be the next big thing while Indonesia with completion of its first generation 10GW coal fired power plants would need more coal.

Although ADRO and ITMG are still our top-picks in that sector, BUMI seems set to make a reappearance on he podium as its risk-reward profile is getting more favorable as the current political wind is blowing in its favor again.

Our top pick space is Adaro and ITMG. BUMI (O-PF, TP: Rp2,800) is certainly not for the faint hearted given its volatility, but we feel risk-reward profile favour Bumi especially as political wind blowing in its favour.

Bloomberg Morgan Stanley Says Bumi, SK Energy in Contagion Risk

May 11 (Bloomberg) -- Bondholders of PT Bumi Resources, Korea National Housing Corp. and SK Energy Co. are most at risk should Europe's debt crisis spread into Asia, according to Morgan Stanley.

The companies are "burning reserves" and have low "funding flexibility," Viktor Hjort, Morgan Stanley's Hong Kong-based credit strategist, wrote in a note to clients. "In a contagion environment credit-default risk narrows down to a
single factor -- access to funding," he said.

European policy makers unveiled a loan package worth almost $1 trillion and a program of bond purchases yesterday in a bid to reassure investors after yields on Greek, Portuguese and Spanish debt soared. Bond sales in Asia outside Japan shrank to
$4.42 billion last week from $7.43 billion in the previous five-day period, according to data compiled by Bloomberg, as volatility deterred borrowers.

Bumi Resources, an Indonesian coal producer which has $638 million of debt due by the end of 2012, had its share-price estimate cut to 2,300 rupiah from 2,400 rupiah by Goldman Sachs Group Inc. last month after profit declined in 2009.

The extra yield investors demand to own the Jakarta-based company's $300 million of 12 percent notes callable in 2013 has risen 63 basis points this month to 747 basis points, according to ING Groep NV prices on Bloomberg. A basis point is 0.01
percentage point.

Korean Market

Bumi investor relations head Dileep Srivastava declined to comment in an e-mailed response to queries from Bloomberg News. No-one at Korea National Housing's media department was available for immediate comment.

South Korean dollar-denominated bonds are the worst performers in Asia this year, returning 2.6 percent compared to 4.3 percent in Malaysia and 5.2 percent in India, HSBC Holdings Plc indexes show.

SK Energy meets most of its funding in the domestic market, which remains relatively unscathed amid the European crisis, an SK Energy spokesman who asked not to be identified said in an e-mailed response to questions. SK Energy is borrowing at lower
costs than last year, the e-mail said.

Most investment-grade companies in Asia have borrowed all they need for the next two years and many of the region's speculative-grade firms are in "unusually good" shape after selling bonds in the first quarter of this year, Hjort said in the report e-mailed yesterday.

Speculative-grade bonds, also known as high-yield or junk, are rated lower than Baa3 by Moody's and below BBB- by Standard & Poor's.

India's Essar Steel Holdings Ltd. and Chinese shopping mall developer Renhe Commercial Holdings Co. were among companies that delayed bond sales this month citing poor market conditions. Swire Properties Ltd., landlord to Time Warner Inc. in Hong Kong, shelved plans to raise as much as HK$20.8 billion ($2.7 billion)
in an initial public offering.

Deutsche Strategy Alert : Impact of Bakrie's appointment as coalition chief

Early days yet
Golkar Chairman Aburizal Bakrie's appointment as coalition chief, may pave the way for political stability. However, it remains to be seen if the stability comes at the expense of reform. In any case, it makes the credibility of Sri Mulyani's replacement all that more crucial.

What are the pros and cons?
While it is too early to render judgment, we believe Mr Bakrie's ability to exert his influence is very much a function of his success in his new role, which is akin to a chief whip for the coalition political parties. It is clearly quite a task to manage a six-party coalition. Specifically, this might mean ending the protracted Bank Century case, which has significantly distracted the government. In addition, we also look towards his ability in helping the government push through crucial bills such as the land acquisition bill, etc. Only on successes in such areas might he earn his influence. Also, political dynamics amongst the coalition parties, along with credible individuals in the government, can provide proper checks and balances.

Market implication
Thus far, recent newsflow as been discouraging on the surface. But we believe they are unlikely to derail Indonesia's strong growth trajectory. In fact we believe the country, which more than doubled in the past five years on relatively 'lazy capital', should see stronger growth as credit begins to play a much larger role. In addition the already very visible rise in investment and the consumptive nature of consumers, should ensure sound growth. It is also interesting to observe a change in the market emphasis, which seems to be increasingly shifting focus towards Indonesia growth prospect than the risks, as in the past. Hence any market pull-back is seen more as buying opportunity.

DBS Plantation: Yields falter again

* April palm oil production fell 5.8% m-o-m because of lower Peninsular yields, MPOB data revealed
* Stock/usage fell again to 8.8% from 9.0% despite a drop in exports and surge in imports
* We expect prices to remain stable in the near term, but foresee more downside in 4Q10
* Pick high volume-growth stocks such as First Resources, IndoAgri and Sampoerna Agro; TSH Resources is upgraded to Buy from Hold

Yield falters again. Malaysian Palm Oil Board (MPOB) data released yesterday revealed palm oil production of 1,388.2k MT in April (-5.8% m-o-m) was c.5.9% lower than expected. While FFB yield in Sabah continued its recovery (+13% m-o-m), those in Sarawak stepped back by 2% m-o-m. FFB yields in Peninsular Malaysia also declined by 4% m-o-m. This may be due to the lagged effect of the absence of rainfall in 2M10. We still expect May production to pick up by 14% to 1,490k MT (relatively
unchanged).

Stock/usage ratio will remain low. While April exports also declined by 8% m-o-m to 1,283k MT and imports surged by 19% m-o-m to 105k MT, April stock/usage ratio declined to 8.8% from 9.0% in the previous month. We expect stock/usage ratio to increase marginally next month premised on the assumption that higher exports to India would be offset by lower exports to the EU (given April's 66% m-o-m jump). Exports to China are expected to remain flat in view of increasing soybean-crushing
activities in the coming months.

Prices to drift lower in 2H10. Recent price movements suggest that both palm and soybean oil prices could remain range-bound in the near term. We believe any reserve selling by Argentine soybean farmers will now backload higher soybean supplies towards 4Q10, during the US harvest period. Hence, we would then expect higher soybean oil production to weigh on palm oil prices.

Prefer high-volume growth stocks. We continue to recommend upstream planters with significant volume growth prospects - in view of flattish CPO price forecasts for the next three years. These include First Resources, Indofood Agri and Sampoerna Agro. In this report we also upgrade TSH Resources to Buy (from Hold), as the recent correction has created significant upside to our TP. TSH FFB volume CAGR over the next 3 years is a whopping 17% (fuelled by aggressive expansions in Indonesia); while its FY11F PE still trades at undemanding 10.3x - second lowest in our coverage.

CIMB Quick Takes - Astra International - Strong sales, small headwind

Maintain Outperform on Astra. Preliminary data for April wholesales suggest an unrelenting sales momentum. Motorcycle sales hit a fresh monthly high of 657k units. This is on pace for 7m-7.3m units for the year, or 20-24% yoy growth, in line with our forecasts. Meanwhile, car wholesales were virtually unchanged mom at 65.5k units. At this rate, car sales may hit 650k-700k units for the year, on pace for 34-44% growth. No change to our earnings forecasts or target price, which remains set at our sum-of-the-parts valuation of Rp52,400, and implying 16.6x and 14.1x CY10-11 earnings. We see stock catalysts from further strong wholesales data and robust distribution margins. Talks of cutting fuel subsidies may dent sentiment, but the impact is likely to be short-lived as we believe fuel-price adjustments, likely by next year, would be limited.

NISP Metrodata Electronics to sell non pre-emptive share at discount (MTDL, Rp111)

• Metrodata announced its detail transaction on non pre-emptive right share issuance where the company is offering 102mn share (5% of paid in capital) at Rp96/share. The price is 13.5% lower compared to last price of Rp111. With this issuance, the company’s equity will reach Rp423bn from its original amount of Rp413bn.

• The company will sell all of this issuance to Andalan Artha Advisindo and this plan
will be proposed at Metrodata’s EGM on 26 May 2010.

NISP Intraco Penta plans to offer Rp500bn new shares (INTA, Rp700)

• Intraco Penta (INTA) plans to offer new shares through rights issue with total amount reaching Rp500bn. The company will use the proceed to acquire 2-3 coal concessions in Kalimantan worth Rp300bn by the end of 2010F. The company is currently conducting due diligence process on the targeted coal concessions which have 60-120mn coal resources.

• In the meantime, the company has prepared US$1-2mn for its general spending, and around US$3-4mn to build new office building in Cakung, North Jakarta. The total capex for this year may reach US$5mn.

• For 2010F, the company expects its revenue to grow by 33.9% YoY to reach Rp1.5tn vs Rp1.12tn in 2009, while for the bottom line the company aims for Rp71bn net profit this year or up by 89.5% YoY.

• The company will also disburse 35% of its 2009 net profit as cash dividend or reaching Rp30/share (4.3% yield).

NISP Tigaraksa to pay Rp39/share dividend or 11.8% yield (TGKA, Rp330)

• Tigaraksa Satria’s shareholder has approved Rp39/share cash dividend for the company’s 2009 net profit or translates into 72.1% payout ratio. This figure offers an 11.8% dividend yield as compared to the company’s current share price.

• In the meantime, the company also shared its 2010F revenue target which expected to grow by 17-20% YoY or reaching Rp5.74tn vs Rp4.49tn in 2009. To support this target, the company has prepared Rp41.8bn capex this year to support its subsidiary’s, PT Blue Gas Indonesia, expansion plan.

NISP Ciputra Property allocates Rp800.0bn for capex (CTRP, Rp335)

• Ciputra Property is allocating a capex of Rp800bn for 2010 that will be funded from internal cash. The company states that its cash position of Rp1.50tn is enough without requiring the company to seek external loans this year.

• 95% of the budget will be used for the development of Ciputra World Jakarta where investment cost is Rp3.0tn.The project is currently 20% under progress and estimated to be finished in 1Q12.

• CTRP is trading at 2010F consensus PER of 13.2x and EV/EBITDA of 3.0x.

NISP Indosat net income more than doubles in the first quarter (ISAT, Rp5,600)

• Indosat CEO, Mr. Harry Sasongko, hinted that Indosat managed to book net income of Rp258.9bn during the 1Q10, which was 139.2% higher than Rp119.5bn achieved during 1Q09. Revenue is up slightly by 5.1% to Rp4.73tn from Rp4.50tn, with 75% of revenue from cellular. Consensus full-year expectation for net income and revenue was Rp1,694.8bn and Rp20.51tn.

• The company budgets 70% of the total US$550-700mn of capex for infrastructure development, among them to modernize network and telecommunication equipment.

• ISAT is trading at 2010F consensus PER of 17.6x and EV/EBITDA of 5.3x.