Let’s Play Commodity Related … Better Growth with High Volatility

Nickel Restocking and supply disruptions have tightened the market considerably?

Nickel traded on the LME advanced 15 percent this year, the best performer among the six main metals traded on the bourse. Nickel prices also jumped this year after demand surged. World stainless steel output rose 55 percent to 7.47 million metric tons in the first quarter, according to the International Stainless Steel Forum. Nickel increases the resistance of stainless steel to corrosion.

Nickel prices have remained relatively strong despite the jitters in broader markets in early May, as demand returns from the stainless steel sector and supply disruptions continue. LME 3-month nickel came within a whisker of a two-year high in mid-April at $27,590/t, up 49% from the start of the year.

Nickel prices have dropped 22 percent from this year’s high of $27,595 a ton on April 16 on speculation European efforts to curb government debt will erode economic growth and China may step up measures to reduce asset bubbles.

Nickel Consumption may be 1.51 million tons next year, Consumption this year may be 1.435 million tons, outpacing supply of 1.4 million tons, Stainless steel production may be 31.5 million tons in 2011, growing from 29 million tons this year, John Barkas, director of Metalytics Ltd. said at a conference in Shanghai (26 May 2010). Demand for the metal, used to help protect steel from corrosion, will probably exceed supply by 36,000 tons in 2010, the first deficit since 2006, Sumitomo Metal Mining Co.

Furthermore, the ten-month strike at Vale’s Sudbury nickel operations in Canada is no nearer to resolution and production rates there remain vastly reduced. This in part explains why US premiums have risen so rapidly in recent months. Scrap supply is also tight.

Nickel prices have dropped 22 percent from this year’s high of $27,595 a ton on April 16 on speculation European efforts to curb government debt will erode economic growth and China may step up measures to reduce asset bubbles.

Nickel Consumption may be 1.51 million tons next year, Consumption this year may be 1.435 million tons, outpacing supply of 1.4 million tons, Stainless steel production may be 31.5 million tons in 2011, growing from 29 million tons this year, John Barkas, director of Metalytics Ltd. said at a conference in Shanghai (26 May 2010). Demand for the metal, used to help protect steel from corrosion, will probably exceed supply by 36,000 tons in 2010, the first deficit since 2006, Sumitomo Metal Mining Co.

Furthermore, the ten-month strike at Vale’s Sudbury nickel operations in Canada is no nearer to resolution and production rates there remain vastly reduced. This in part explains why US premiums have risen so rapidly in recent months. Scrap supply is also tight.

Short term outlook of Nickel
Restocking and supply disruptions have tightened the market considerably and LME stocks are now in decline. The continued supply disruptions have prompted us to estimated nickel market balance down to deficit.

Crude Palm Oil
On the back of increasing concerns on the China bubble and the EU’s debt crisis made CPO demand lower and depress commodity prices. Europe accounted for 26% of Indonesia’s total CPO exports the second highest after India. This will adversely impact sentiment on Indonesian CPO counters and with possible lower average CPO price. Indonesia’s CPO exports in March reached 1.06m tons, down 9% m-m and 10% y-y, mainly due to lower exports to India, the EU and China.







Should Palm Oil Average at $850 at 2H2010?
I believe the current tightness in crude palm oil supply will keep prices firm crude palm oil and other oilseed price strength would extend into second half 2010.

Palm oil may surge as in the second half as drier-than-usual weather curbs output in Malaysia and yields in Indonesia. Higher prices may also contribute to increased food inflation in China and India, the biggest users. Below-normal rainfall in Malaysia usually will start to be felt in May-August. El Nino, characterized by a warming of sea-surface temperatures across the equatorial Pacific, can cut rainfall in Asia, damaging crops including palm oil, rice, corn and sugar.
Export data released Tuesday showed a healthy increase, above market expectations. Palm oil exports for the May 1-25 period rose to around 1.03 million-1.05 million tons due to higher purchases from the Indian subcontinent and the U.S., data from cargo surveyors Intertek Agri Services and SGS (Malaysia) Bhd. showed.
Many had simply ignored the exports' increase as external cues were more pressing. But now that the dust has settled, and prices have either stabilized or in the case of crude oil, risen, market participants are less jittery and able to concentrate on local cues again.

I would be bullish on palm oil spot price for 2H10 and highly recommend accumulating cpo related stock. A recent decline in shares of palm oil producers is an “excellent buying opportunity” given the outlook for prices of the commodity.

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

A Cup of Tea 27 May'10

A drop in the euro set off a late-day slide in stocks Wednesday and sent the Dow Jones industrial average to its first close below 10,000 in nearly four months. The Dow fell 69.30, or 0.7 percent, to 9,974.45. It was the first close below 10,000 since Feb. 8. After trading higher most of the day, stocks turned south after the euro dipped below the $1.22 level in afternoon trading.

News suggesting China was reassessing its euro-zone debt holdings pushed investors into profit-taking mode. The Financial Times said a representative of China's State Administration of Foreign Exchange, which manages the reserves under the country's central bank, has been meeting with foreign bankers in Beijing in recent days to discuss the issue. China Investment Corp., the nation’s sovereign wealth fund, may lower its allocation of assets to Europe.


Like No Other Day --- Very Impressive …
Indonesian stocks surged 7.3 percent on Wednesday, rebounding from three-month lows the day before and leading gains in Southeast Asia. Indonesia's benchmark stock index, Asia's second-best performer this year, posted its biggest one-day surge in 18 months, snapping a five-day losing streak to the lowest since Feb. 12.

Investor just buying the shares after the market lost 16.5% in May. All shares look cheap and everyone just buy the shares combine with speculative and investment, like no other day.

Other Southeast Asian stock markets mostly gained, with Singapore rising 1.7 percent, Thailand climbed 1 percent, Vietnam closed up 1.3 percent and the Philippines added 0.7 percent but Malaysia edged down 0.1 percent.

How about Today? Near Term and Long Term?
Yesterday’s gains are partly a short-term technical rebound. With more bad news coming to equities markets, people will sell again, probably late in the afternoon before the long holiday.

Falling risk appetite in global equities would continue to cut foreign inflows, so gains in the region may be short-lived as investors reappraise euro sovereign risks as well as potential conflict between North and South Korea.

For Near Term; I think, after an extended period of heightened risk appetite, fear is feeding on itself and Asian equities are being sold despite improving macroeconomic data. I just little bit worries; I suspect that global strategist has an underweight recommendation on emerging markets. Nomura International Limited start recommended switching from Brazil or Indonesia into India. Still cautions for near-term and short-term trading maybe wise.

For Long Term; I don’t think our economic on crisis situation, our APBN under control and very healthy. At this level our market only around 11x PE’2011 consensus. We could continue to accumulate strong fundamental stocks. I still put target for JCI at 3050 or 14.88x PE’10 and 12.45x PE’11 (consensus).

Consensus TP & Potensial Upside
Foot Note
ASII
Automotive distributor Astra International, the biggest firm by market capitalization, rose 10 percent after it forecast record 2010 car sales. Astra expects domestic vehicle sales to be above 600,000 units this year, an increase from a previous forecast of 520,000 to 530,000 units, and 23 percent higher than 2009 sales.




BUMI
Coal miner Bumi Resources jumped 20 percent after a court ruled against a tax investigation into one of its units. Indonesia's Supreme Court on Monday rejected an appeal by the country's tax office to continue investigating KPC but Indonesia's tax office will continue its investigation into alleged tax evasion at PT Kaltim Prima Coal, a unit of PT Bumi Resources. Pontas Pane, head of investigation at the tax office said that the ruling from the Supreme Court was only about the administrative process and did not change the basis for the tax investigation.

BUMI average coal selling price fell nearly 16 percent in the January-March period this year. The firm sold coal at an average price of $62.9 per ton in the first quarter, against $74.7 per ton a year ago. Bumi also sold 16 million tons of coal in the January-March period this year, up 41.6 percent from 11.3 million tons in the same period last year.


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

A Cup of Tea 26 May'10

Most Southeast Asian stock markets fell to multi-week lows on Tuesday due to worries over the euro zone debt crisis and tension on the Korean peninsula. The cumulative effect of the euro zone crisis, the North Korea situation and volatility in currencies has discouraged investors from buying. Indonesia fell 3.7 percent and Thailand slid 3.1 percent. Singapore fell 2.7 percent to its lowest in nearly seven months.

Concern the European debt crisis will spread has driven the MSCI World Index down 16 percent after Greece, Spain and Portugal had their credit ratings cut. Four Spanish banks said they will combine as regulators push lenders to merge with stronger partners, boosting speculation that the nation’s ailing lenders signal widening turmoil.

U.S. stocks erased losses, paring a global retreat in equities, while the euro wiped out most of its declines against the dollar and yen on speculation financial reform will hurt bank earnings less than estimated. Dow finished down 22.82 at 10,043.75.

Just Reminder for Our Economic
Indonesia’s GDP grew at a 5.7% YoY rate from last year’s first quarter. Indonesia’s credit growth is one of its most important drivers, contributing at least one-third of economic growth. Loan-growth trend is already encouraging. Indonesian banks' balance sheets are robust with a low average loan-to-deposits ratio. Against the backdrop of high consumer confidence in Indonesia, banks are also increasingly willing to lend and this should drive economic growth.

Indonesia an upgrade in its sovereign credit rating to BB from BB- by S&P in March 2010. The S&P rating also comes with a positive outlook, suggesting a bias toward further upgrade in the next six to 18 months.

Inflation should be well in the coming months on top of a 10% electricity hike in July, and we could see a more “Neutral” policy language from BI. Despite recent volatility, we expect USD-IDR can still at range 8500-9500 in the coming months.

Technical View
It wills a technical rebound? ... Indonesian stocks are “oversold” and likely to rebound. The market is near-term oversold at 23% retracement and at this level our market only around 10.47x PE’2011 consensus. Yes it is Very risky if market breaks 2480 level, it will trigger selling pressure and next support only at 2410 level.

For today, I don’t think we’ll go and touch a high yesterday intraday chat above 2609.016 level, but I think we can rally here somewhat.

I don’t think our economic on crisis situation, our APBN under control and very healthy. Yes our currencies had under pressure yesterday but BI still control the movement and still at range 8500-9500.
The market has lost 16.5 percent so far in May, adding cheaper valuations were not enough to tempt buyers right now. But for investment strategy, I think we could continue to accumulate strong fundamental stocks. Bulls were inspired to go back into the market.


If You Were a Pessimistic “Leave it” ... If You Were Not, You Can Add Some of Your Portfolios at Very Cheap Prices for Midterm Investment and Enjoy The Gain by The End of The Year (friend said).

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

A Cup of Tea 24 May'10

Time to Investment

If You Were a Pessimistic “Leave it” ... If You Were Not, You Can Add Some of Your Portfolios at Very Cheap Prices for Midterm Investment and Enjoy The Gain by The End of The Year (friend said).

The Jakarta market fell 8.2% this week and 12.45% from 52 weeks higher, pushing it to third from first in the ranking of Southeast Asia's best performing markets. Last week JSX drop to the lowest level at 2584.98 in the morning (15.90% from 52 weeks higher) after that JSX slightly rebound and closed at 2623.22 levels. Thai market is now the top performer, followed by Philippines.

Our Economic
Indonesia’s GDP grew at a 5.7% YoY rate from last year’s first quarter. Indonesia’s credit growth is one of its most important drivers, contributing at least one-third of economic growth. Loan-growth trend is already encouraging. Indonesian banks' balance sheets are robust with a low average loan-to-deposits ratio. Against the backdrop of high consumer confidence in Indonesia, banks are also increasingly willing to lend and this should drive economic growth.

Indonesia an upgrade in its sovereign credit rating to BB from BB- by S&P in March 2010. The S&P rating also comes with a positive outlook, suggesting a bias toward further upgrade in the next six to 18 months.
Inflation should be well in the coming months on top of a 10% electricity hike in July, and we could see a more “Neutral” policy language from BI. Despite recent volatility, we expect USD-IDR can still at range 8500-9500 in the coming months.


It’s Time? … YES

Yes, the JSX lowest level last week was at 2584.98 or 12.61x PE2010 or 10.77x PE2011 (PE Consensus) before closing at 2623.22, very good for entry level.

Overall I believe our fundamental economic still strong and The European problem just give minority impact on our economic. I highly recommended to start accumulate shares with good fundamental.

My JSX target was still at 3050 or 14.88x PE2010 Consensus.






Consensus TP & Potensial Upside



















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

Danareksa Delta Dunia Makmur (DOID IJ, Rp 980 BUY) Learning a hard lesson

Maintain BUY, TP stays at Rp2,350
We maintain our BUY recommendation on DOID. Our optimism centers on the fact that the contribution from its mining contracting business will be fully reflected in the full-year earnings starting this year. On the basis of this, we estimate excellent net profits growth of 28% 5-year CAGR in 2010. For 2010F, we forecast 18% growth in revenues, supported by a higher volume of work and higher average contract prices compared to last year. Although the cost of revenues will rise due to higher depreciation, the gross margin still improves thanks to the increasing revenues. There will, however, be higher interest expenses and higher forex losses arising from the additional USD110mn of debts this year. This trims our 2010F net profits forecast to Rp846bn from our previous forecast of Rp1,083bn. Our blended-valuation based TP remains at Rp2,350 (implying PE and EV/EBITDA 10F/11F of 18.7x/10.3x and 7.1x/5.1x, respectively), however. With the lower-than-expected operating expenses in 2009, we revise our estimates for operating expenses in the following years. This gives a boost to our net profit forecasts. With the net profits growing at a very brisk 3-year CAGR of 63% in 2009-2012 (compared to UNTR’s 12% net profit growth of 3-year CAGR in 2009-2012), we feel the high implied PE 10F is justified.

Regaining credibility may take some time
This week DOID announced that it had agreed with Recapital Investment Group to halt discussions on acquiring a 51% stake in Berau, explaining that commercial terms could not be agreed upon. Consequently, the company’s planned rights issue is off. The announcement raises questions over DOID’s credibility since rumors of a rights issue spread in mid-March 2010 (the official announcement of rights issue was finally made on 30 March), causing DOID’s share price to slump 30% from Rp1,400 on 17 March to Rp980 on 20 May. Yes, DOID does have solid fundamentals, but we still believe it will take time before investors regain confidence in the company. Most of all, investors will want to see DOID “deliver” good results going forward and avoid any other such confidence sapping deals while still focusing on its key organic strengths.

The valuation remains attractive
Our TP of Rp2,350 is unchanged. It is derived from a blended valuation of DCF and relative valuation methods, considering that while the 2010F net profits are 22% lower than our previous forecast, the net profits in the coming years are estimated to be higher due to lower operating expenses. As for the valuation, DOID’s shares now trade at EV/EBITDA 10F/11F of 4.1x/3.0x, or much more attractive than UNTR’s shares which trade at EV/EBITDA 10F/11F of 6.1x/5.0x. BUY maintained.

Bahana Plantation sector update Less positive on CPO

Price trend to remain unexciting for now; Cut sector to NEUTRAL
Lower demand out of Europe is likely to depress commodity prices, and CPO price trend will remain unexciting in the short-term in our view. It is worth noting that in 1Q10, Europe accounted for 26% of Indonesia ’s total CPO exports (exhibit 7), the second highest after India . We believe this will adversely impact sentiment on Indonesian CPO counters and with possible lower average CPO price on the cards, partly also due to higher soybean supply from South America, we cut our sector rating to NEUTRAL from overweight earlier in the year. Additionally, within the CPO space, we now prefer big cap stocks like Astra Agro (AALI) and London Sumatra (LSIP) with proven management track record in dealing with volatilities. On the flip side, we advise investors to avoid the more illiquid small and mid cap stocks. In terms of valuation, we now expect the plantation sector to trade at 2010 PE of 12x, around 25% discount to the current market valuation. With our new target PE, we derive new ratings and target prices (TP) for each of our CPO stocks (exhibit 1) as follows: LSIP (TP:IDR9,400) and AALI (TP:IDR21,700) as our new top BUYs.

Impact on the plantation counters
From the total 6 plantation companies we cover (exhibit 5), Tunas Baru Lampung (TBLA) is the only one with more than 50% exposure to exports. According to TBLA, around 95% of its total exports (70% of total sales) stem from Rotterdam , suggesting its exports would be hurt by the current adverse condition in Europe . However, given that the stock has fallen 28% since its recent peak on 14 April, we rate the counter as a HOLD now with IDR320/share TP. Next in line are AALI, LSIP and Bakrie Sumatera (UNSP) which have around 11%, 20% and 16% of total sales coming from overseas respectively, although they have less than 5% exposure to Europe . In our coverage, the safest would be Sampoerna Agro (SGRO) and BW Plantation (BWPT) as all of their sales are domestic.

Indonesia’s March CPO exports down 9% m-m and 10% y-y
As the biggest CPO producer, contributing around 46% of total CPO world supply in 2009, Indonesia holds an important key role in meeting the global CPO demand. From the total 20.9m tons CPO production in 2009, as much as 15.5m tons (74%) were sold overseas, while the remaining 5.4m tons (26%) were consumed domestically, suggesting that the CPO industry in Indonesia is highly dependent on global market and demand conditions. According to Bloomberg , Indonesia ’s CPO exports in March reached 1.06m tons, down 9% m-m and 10% y-y, mainly due to lower exports to India , the EU and China on the back of increasing concerns on the China bubble and the EU’s debt crisis. Indonesia and Malaysia ’s March CPO exports to the EU only reached 298k tons and 122k tons, down 9% m-m and 37% m-m.

Citigroup Asia Macro and Strategy Outlook - Asia’s Fallout from EU’s Sovereign Crisis

 Growth Fallout: Not yet, but Asia's growth momentum might have peaked. —
Fiscal austerity and potential strains in banking systems will probably be a drag
for Eurozone growth, but we see no impact on Asia yet. Nonetheless, we think
momentum has peaked on both external demand risks and China’s more
aggressive move to slow property investment. We find that growth in Singapore,
Taiwan, Hong Kong, Malaysia, Korea and Thailand are more sensitive to a Euro
area growth downturn, while the domestic-demand driven economies of India,
Indonesia, China and the Philippines are relatively more insulated.

 Policy fallout #1: Delayed Fed and Asia CB policy tightening — We have
delayed most rate hike calls in Asia on the back of delaying a Fed hike to 2Q11
(from 4Q10). Timings of the initial rate hike in Indonesia, Taiwan and Thailand
are pushed back to 1Q11 from 2H10 while the Philippines' is pushed to 4Q
(from 3Q). We also reduce the amount of hikes this year from China and Korea
– BOK to hike only 25bps in 4Q and China to hike two times (+54bps) starting
in 3Q. For most countries in 1H11, we reduce the amount of hikes by 25-
50bps. Malaysia is an outlier, with another 25bps hike expected in July, though
this is a close call.

 Policy fallout #2: Less RMB appreciation — We still expect an imminent RMB
move, but RMB strength on a trade-weighted basis with the sharp EUR sell-off,
as well as growth concerns, will likely mean authorities will opt for a slower
pace of appreciation.

 Market fallout: Asia has so far been a “low beta” risk asset — Contagion via
financial linkages has been evident, but with fundamentals in the region
looking strong and less externally vulnerable than others. Asia FX, credit
spreads, and to a certain extent, equities (in $ terms), have fared better than
others.

 Macro strategy — 1) Asia FX – We remain positive on Asia FX and expect it to
diverge with the EUR over the medium term; our top picks are KRW, INR and
PHP; 2) Asia rates – We are biased to receive rates selectively on delayed hikes
and relatively manageable inflation pressures – we would look for opportunities
to receive rates in India (5yr INR OIS), Korea (front-end) and Thailand; and 3)
Asian (sovereign) credits – we opt for lower versus higher beta names in this
risk environment – e.g. we like Philippines over Indonesia.

DBS Indonesia Strategy Optimism priced in mostly

• Earnings upgrade cycle has clearly slowed down. Market unlikely to re-rate beyond 14x PER.
• FY11 earnings growth would provide some upside though.
• We like banks for strong loan growth. Profit taking in the coal sector in 2QCY10 should be a buying opportunity.
• Top picks are Bank Mandiri, Bank Rakyat, PT Telkom, PT Adaro, Indofood Sukses, Perusahaan Gas Negara and Sampoerna Agro

Earnings upgrade cycle has slowed down. Consensus earnings have been revised up only by 0.6%, over the last one month compared to 1.9% and 6.5% over the last three and six months respectively. Consumer discretionary (Astra) has led the earnings upgrades, followed by basic material and banking sector. Regional comparisons do not favor Indonesia either.

Market offers 14-15% upside potential in 2010. MSCI Indonesia is up 6% year-to-date with 12-month forward PER of 14x on rolling basis. This translates to +1 standard deviation of historical average of 11x. We do not expect market to re-rate beyond +1
STD in view of absence of major earnings revisions and global risk aversion. We expect MSCI Indonesia to trade at 14x FY11 PER by end 2010, implying 14% potential upside.

Firm Rupiah reflects investors’ confidence though. After initial jitters due to the European debt crisis, Rupiah has regained lost ground. DBS forecasts the USD/Rupiah exchange rate to be range bound between 9000-9300 in 2010 before appreciating
to 8700 in 2011. Our economist does not foresee the contagion impact on Indonesia’s economy as most of the external debt is long-term in nature and debt coverage ratio is stable.

Two key themes to ride on: (i) Strong loan growth in an underleveraged economy; and (ii) Rising demand and production in the coal sector, although some of the coal stocks could pull back in 2QCY10 on profit taking.

Top picks. Bank Mandiri for recovery of written-off assets, Bank Rakyat for its micro credit franchise, Adaro for solid track record of coal production growth, PT Telkom for improved cellular performance from 2Q10 onwards, Indofood Seksus for higher sugar/rubber prices and potential expansion into other segments, PGas for domestic gas demand and over 4% yield, Sampoerna Agro as the least expensive upstream plantation player in our coverage.

UBS ASII S peed bump due to vehicle taxes hike TP 49,300

􀂄 Potential vehicle taxes (BBN and PKB) hikes
Jakarta’s provincial government is proposing to raise registration tax (BBN) from
10% to 20% and to implement progressive vehicle tax (PKB), which is possibly
effective Jun 2010. Things are fluid as it remains a proposal and each of 33
provincial governments has to come up with its own local regulation.

􀂄 Most likely impact
The most likely impact to vehicle (both car and motorcycle) price is a 10%
increase, in our opinion. Encouragingly, a look back to 2009 (last price increase)
reveals demand elasticity of -1.33x (20% volume decline/15% price increase) and
-1.2x (6%/5%) for car and motorcycle, respectively. This is not so bad considering
tight auto financing in 2009.

􀂄 Earnings speed bump, not major earnings downgrade
We revise down mainly 2011/12E earnings by 7% from Rp3,289/3,890 to
Rp3,064/3,600. The earnings downgrade extent is not so great due to: 1) we never
adjusted our car and motorcycle sales assumption to current run rate (Jan-Apr)
which is beyond our expectation; 2) we have not upgraded Astra’s earnings on the
back of better than expected Q110 results (some 8-10% ahead).

􀂄 Valuation: Maintain Buy rating
Our SOTP-derived price target is revised up by 5% to Rp49,300 due to: 1) lower
risk-free rate from 10% to 9.3%; and 2) roll over of DCF cut off date to June 2011.
We consider higher vehicle tax as a speed bump (1-year push back), not the
derailment of the structural growth story.

Credis Suisse Indonesia under-owned, JCI entry at 2,550pts?

ASIAN STRATEGY: Are we seeing signs of capitulation? – Indonesia under-owned
iSay: MXASJ is now 453pts, getting closer to 430 recommended entry level assuming 15% correction due to sound NJA macroeconomics fundamentals. If we apply this to Indonesia, a 15% correction from the JCI all-time high 3,000pts will give us an entry level 2,550pts. I continue to see ST JCI support level at 2,600pts on latest concerns on Global growth, while domestic politics focussing on President SBY to regain control over renewed coalition (new BI Governor and Cabinet Reshuffle are yet to happen).

Today Positive surprise on new MoF is just a relief rally before the market sliding down to 2,680pts, due to concerns on global growth and derisking. On 6 months view, we continue to see Upside from the new law on State banks NPL haircut (Big Positive to BMRI and BBNI, and mild to BBRI). Currently, we are recommending Overweight Indonesia with end-2010F JCI target 3,300pts (implying 16.5x 2010F with) with Top-5 stock picks BMRI, BBRI, SMGR, UNTR & TLKM.

· Sakhti Siva (Report): Heading towards one of the biggest months ever for net foreign selling. Net foreign selling in Emerging Asia (ex. China, ex. Malaysia) has reached US$8.3 bn as of 18 May. This already makes May 2010 the biggest month for net foreign selling since October 2008 (which was associated with US$11.3 bn). Prior to 2008, most tactical corrections were associated with net foreign selling ranging from 0.1% to 0.7% of market capitalisation versus 0.2% so far in May 2010. With Asian sovereign balance sheets in good shape, a fair degree of foreign investor capitulation, we believe a 15% correction to 430 on MXASJ (currently 453) provides an attractive entry level to the Credit Suisse house view of no global double dip.
· While we believe Korea is under-owned on a stock basis, we believe Indonesia is the most under-owned on a flow basis (Figure 4 page 3). We define flow basis as cumulative net foreign buying over the last 12 months as a percentage of market capitalisation. On this measure, Indonesia stands at 0.5% versus the Philippines and Thailand at 0.6%.
· Arief Wana: The appointment of Agus Martowardojo as Indonesia Minister of Finance (MoF) is Big POSITIVE in the political and macro development, despite short-lived relief for the market this morning. Agus Martowardojo has a solid track record in Bank Mandiri's restructuring and known as a brave, hard-working, and market friendly person (investors like him a lot).
· Indonesia domestic structural growth and fundamental story should remain in tact, despite the political set-back. The market is now trading at circa 13.5x 2010F on 20% EPS growth, with RoE stay the highest in the region. Risk on the change in risk appetite may hit rupiah rate, but Indonesia corps are very under-leverage (net gearing below 40%) and our debt-to-gdp is 27% (among the lowest in the region), and 65% of our GDP is private consumption. I would actually turn more positive if the market were to re-treat by around 10% from the current level.

Bahana Ciputra Development - (CTRA-BUY-IDR760-TP:IDR1,000) Residential support

Strong residential revenue to support 2 new mixed developments
For Ciputra Development (CTRA), contribution from joint operation has increased from only 14.8% of total marketing sales in 2007 to 41.4% in 4M10. This coupled with the upward trend in revenue from residential projects (exhibit 8) cushions the impact of volatility in the property market. In fact, strong revenue from its residential side has paved the way for CTRA to build two new mixed used development projects through its internally generated cash flow without the need for bank borrowings. The earliest retail mall will be operated in 2011, at Ciputra World Surabaya, located at Jl. Mayjend Sungkono, the planned main road based on government planning. Backed up by middle-up residential complex in the west area, this mall should be able to contribute IDR37b in its first six months of operation in our view.

1Q10 results: Top line growth of 15.2% y-y
Continued dominance in the sales of houses and land lots amounting to IDR154b and 78b respectively, or 66% of 1Q10 total revenue in aggregate, allowed overall 1Q10 top line to reach IDR353b, up 15.2% y-y. Additional IDR30b revenue was booked from the Surabaya UC apartments, a tower of 500 unit apartments offered to investors for student dormitory of the University of Ciputra . This year, another IDR37b is expected to be booked towards the handover schedule of the UC apartments at the end of 2010. At the operating level, 1Q10 earnings were down 44.7% q-q but up 32.4% y-y on higher G&A expenses due to regular bonus payments. However, bottom line was hurt by FX loss which caused net profit to decline 38% q-q and 37% y-y to IDR34b. In FY10, we forecast revenue to reach IDR1.75t, growing 31% y-y, mainly supported by revenue from sales of residential. On the bottom line, we project FY10 net profit of IDR158b, up 16% y-y.

Proven strong revenue stream; Maintain BUY
The continuity of revenue stream is important for property company. In CTRA’s case this is underlined by the role of consistently strong residential sales. Nevertheless, going forward, we expect the value of its recurring incomes to continue rising, supported by Ciputra World Surabaya (CWS) and Ciputra World Jakarta (CWJ). In terms of valuation, we have updated our model by adding the value of Ciputra World Surabaya retail mall and apartments amounting to IDR281b after taking CTRA’s 53% ownership (WACC 16%, Rf 9%). As a result, value/share increases to IDR1,870 (exhibit 9) from previously IDR1,738. However, this value is offset by higher debt and lower advances from customers. Therefore, we maintain our target price (TP) at IDR1,000, reflecting 45% discount to the company’s NAV/share. From the current price of IDR760, our TP provides 32% upside potential, which is the third highest within our coverage (exhibit 10). The stock currently trades on 2010 P/BV of 1.2x, 33% discount to the sector. Maintain BUY.

Citigroup Bank Mandiri - Alert: The President Gets Promoted

The appointment of Bank Mandiri (BMRI) President Mr. Agus Martowardojo as Indonesia’s Finance Minister is positive for the market and banking sector, in our view. For BMRI, it creates a vacuum but we are of the opinion that the impact will be minimal and maintain our Buy recommendation.

Market will take comfort from the fact that someone with experience of managing a bank and understanding the business environment has taken over the reigns. The immediate impact on the banking sector could be in the form of three possible regulations being debated: 1) Lowering of lending rates, 2) Imposition of higher Cash Reserve Requirement for banks with low LDR, and 3) Allowing state owned banks to give haircut to settle non performing loans (NPLs).

The first two of these fall under Bank Indonesia domain. However, the Finance Ministry may have some opinion on these issues. There is no legal mechanism to impose a maximum lending rate. BMRI was strongly opposed to penalizing banks with lower LDR. The third issue directly impacts BMRI, along with other state owned banks. Having successfully tackled the NPL position of BMRI, the new Finance Minister is likely to have good insight as to how to tackle the Rp82Trn NPLs of the banking sector.

No update yet as to who will take over the reigns at BMRI. Most of the management was given another 5-year term earlier this week, which gives comfort that the team will remain intact. The new Vice President is the former MD of Corporate Banking. The two main challenges for the new President will be to maintain the strategic thrust (into higher yielding assets and build deposit franchise) and to keep NPLs in check.

Mandiri Sekuritas Timah: potentially benefited by lower Indonesia tin plate supply (TINS, Rp2,200, Neutral, TP: Rp2,800)

Ministry of Forestry is considering revoking location permit of Koba Tin, the second largest tin producer in Indonesia. Koba Tin is a subsidiary of Malaysia Smelting Corporation, the largest tin smelter in Malaysia, 3’rd largest in ASEAN. Koba Tin annually produces around 8k tons of tin, around 15% of Timah’s production. During the last several years, Koba Tin has been accused of various illegal mining activities, its mining permit will end in 2013. We view this will give positive impact to Timah as Indonesia tin supply could decline, therefore, support global tin price. Currently, we have Neutral recommendation on TINS which is trading at PER10-11F of 13.3- .8x.

Credis Suisse CEMENT: In line April domestic volume (+16% YTD, +12% YoY) - Top-Buy SMGR

Given recent negative sentiment and news flow from domestic politics and global markets, on valuation ground we are recommending Buy SMGR and Hold/Take Profit INTP & SMCB.

· Arief Wana (Daily): Indonesia’s April cement sales volumes stayed strong, posting a 12% YoY increase (despite a 6% MoM decline) to 3.2 m tonnes. This resulted in YTD figures rising by 16%, in line with our forecast (31% of our 2010 forecast).
· Holcim Indonesia and Indocement appeared to have taken advantage of Semen Gresik’s capacity constraints (worsened by the plants’ overhaul this year as well). The more aggressive move by Holcim Indonesia and Indocement could also be a reason for the declining trend in ASPs (retail level) (-3% in the past three months) outside their main Java market. When new players penetrate new markets, ASP tends to decline. We maintain our OVERWEIGHT stance on the sector, and our top pick remains Semen Gresik, given its cheaper valuation and 23% potential upside to our target price.
· Ng Hock Leng (HOLT commentary): Semen Gresik compares well to peers (Indocement and Holcim Indonesia), highest return company among the three. Using a GDP-like asset growth and assuming flat level of CFROI over the next 5 years, this HOLT scenario has a 20% upside for Semen Gresik (Warranted Equity value Rp9,800, in line with Arief Wana’s DCF Rp10,000).

Credis Suisse ASTRA INTERNATIONAL (ASII): New auto tax in final discussion - ST Negative

It is short-term negative volume impact from these new auto taxes (likely 12-15% increase in both car and motorcycle retail price), as volume recovery about 6 months lag. From Figure 1 & Figure 2 Sensitivity analysis, on the conservative combined case, 2010F earning is likely cut by 10% (depends on pricing strategy as Astra has buffer margin from IDR strengthening over past 12 months). Arief is calling an entry level is ASII share price declines by 10-15% ie Rp35,000-38,000 (@Rp35,000- implies 11.2x current 2010F PER). Automotive and Financial Divisions are 58% of SOTP and 75% of 1Q10 earnings. I continue to like ASII as Indonesia Core Holding given diversified Consumer/Resources earnings, largest market cap in JCI and strong management/balance sheet, and despite likely 2010F earnings cut the 2011F earnings impact is less as volume should recover in 6 months. I recommend short-term investors to Hold ASII for now.

· Arief Wana (Daily): After being delayed since the beginning of the year, our short-term cautious stance on the new auto tax system for Astra is gaining momentum, with the local government, led by Jakarta and East Java, currently mulling the discussions. Normally, this would be the last process before final approvals.
· The impact of the new auto tax system, if fully implemented, should increase auto prices (both cars and motorcycles) by 12-15%, in our view. There are four types of auto taxes in discussion, the biggest impact would be driven by the higher registration tax (from 10% currently to 15-20%).
· Our sensitivity analysis suggests that every 10% decline in car volumes (from our base case) would impact the bottom line by 2-3%, while every 10% decline in motorcycles result in an impact of 1.3-1.4%. Although Astra’s share price has dropped by 11% in the past two weeks (since our downgrade), we maintain our NEUTRAL rating. We would turn more positive if the stock were to retreat by another 10-15%.

UBS Sector and Company News

Banks: SOE banks management movers
New faces at Mandiri and BNI management appointments suggest they are the respective CEO’s dream team. BRI EGM is coming this tomorrow: Expectations are that the CEO will stay.

Mandiri is looking more interesting now with a solid management team, but we think upside is limited until the rights issue overhang settles. One of BNI new BoD Darmadi Sutanto (ex Standard Chartered private banking head, famous for building StanChart wealth on wealth), positive for BNI deposit franchise. We think BNI (Not Rated) is worth a look, trading at 1.7x 2010e PB vs BRI at 3.0x and Mandiri at 2.8x.

PGAS (Buy PT 5,500): Price positive, volume negative
VP Boediono comment that domestic gas price is still far lower than foreign gas price of US$11/ mmbtu and gradually domestic price should rise. Even if public has to bear the eventual cost increase, a gas based economy will benefit everyone more than an oil based economy.
Separately, Hess (Jambi Merang field) signed a 9yr 35mmscfd gas contracts with South Sumatra and Batam local government starting 2011.

Government is likely to let PGAS increase gas price in the future to maintain absolute margin (higher gas cost). We had mentioned Jambi Merang as one of the 6 fields that PGAS may sign a gas contract with. Although it is only 35mmscfd (versus PGAS total distribution volume 2010E at 955mmscfd), it is still a disappointment.

Delta Dunia (DOID Not Rated): May cancel Berau Energy acquisition
Bisnis Indonesia quotes an unnamed executive as saying that DOID has failed to reach an agreement (on pricing) with Recapital Investment Group for the planned Mandatory Exchangeable Bonds (MEB) transaction, which ultimately will pave the way for DOID to own Berau Coal. Consequently, DOID's US$1.1 bn rights issue plan will also be cancelled. DOID is 40/60 owned by Northstar Tambang Persada and public.

We guess that the Northstar people might be getting cold feet at the prospect of becoming even more entangled with the Bakrie group: If the transaction were to go through, they would lose their controlling position to the group. The latest market development above might improve sentiment towards DOID, which is currently trading at 6.8x 2010 and 5.5x 2011 consensus PE, with projected EPS CAGR of 21% in 2010-12. However, we wonder how secure their Bakrie-owned Berau coal contracts are, should the marriage with the Bakries not be consummated.

Astra Agro Lestari (AALI Buy PT 34,000): 2009 dividend and 2010 capex
AALI is distributing 65% of its 2009 net profit in cash dividend, amounting to Rp685 per share. The final dividend of Rp465 per share (yield = 2.3%) will be distributed on June 25, 2010. AALI is allocating Rp1.2 tn for 2010 capex, fully funded through internal cash, which will be used for new planting (4,000 ha), 2 new palm oil mills in Kalimantan and Sulawesi (totalling Rp200 bn) and 4 CPO storage facilities (totalling Rp128 bn).

AALI's 2010 new planting is 70% lower vs. 2009's figure of 13,000 ha. It appears to us that new land bank acquisitions (along with the licenses), in Kalimantan and Sulawesi, are challenging. Please note that the average age of AALI plantation is at 14 years, which is at the peak of palm oil tree's productivity. Unless AALI is able to do more aggressive planting plan, the production outlook is looking weak. YTD, CPO price averages US$810, which is 28% higher relative to the same period last year. AALI is trading at 10.9x 2010 and 7.7x 2011 PE, with projeted 3 -yr EPS CAGR of 35%. We prefer London Sumatra (LSIP Buy PT 13,500), amid its productivity and profitability upside.

Bakrieland Development (ELTY Neutral PT 305): Rights issue plan and 2009 dividend
ELTY president, Hiramsyah Thaib states that ELTY is considering Rp1 tn rights issue in June 2010 and planning to submit the proposal to Bapepam on May 21, 2010. The rights issue proceeds will be used for JVs with Sentul City (BKSL Not Rated) and Kawasan Bukit Jonggol (owned by Lippo Group) in developing and operating the townships in South Jakarta. Meanwhile, ELTY is distributing 15.1% of its 2009 net profit in cash dividend, amounting to Rp1 per share (yield = 0.5%).

This is the first time in ELTY history in paying out dividend since its public listing in 1995. ELTY is currently trading at 31% discount to 2010 NAV of Rp306.

Cement: National April sale +12% YoY to 3.2mt
This is in line with UBSe of 12% demand growth pa for 2010-12. Johannes is turning more bullish in a big cement report published this week.

Preferred pick Semen Gresik. Note that 80% of cement demand comes from property sector. Gresik has been underperforming the cement sector and benefit from MSCI reweighting, which our quant analyst estimates represents passive flow of US$59mn or volume of 7.2 days trading days. Let us know if you’d like the 35pp report.

Kalbe Farma (KLBF Buy PT 2,350): Potential Rp1 tn bonds issuance
In line with plans to expand operations in Southeast Asia, Kalbe Farma is currently negotiating with at least six pharmacy and food producers. Half of these acquisitions will be funded by internal cash while the remaining amount will come from either bonds issuance or bank loan. The company’s cash stands at about Rp1 tn as of Mar 31, indicating the possibility of a Rp1 tn external funding to carry out expansion plans.

Kalbe seems to be embarking on an aggressive acquisition hunt. A good strategy in increasing the company’s presence in regional markets if it can find strong, fairly valued targets that will create synergies.

CLSA Bakrieland to do rights issue to buy land and/or stake in Bukit Sentul (BKSL IJ)? by Sarina

There has been rumor and news circulating in the market on Bakrieland (ELTY IJ) raising money to increase its land bank in Greater Jakarta. Our talk with the management confirmed that the company is finalizing acquisition plan to buy either stake in BKSL or to buy the land bank (BKSL has ~1,900ha land bank in Sentul and ~10,500ha in Jonggol in South Greater Jakarta). ELTY's management mentioned that the company will issue a short prospectus on Friday, May 21. Market rumor is ELTY will buy 14-20% of BKSL's shares from a rights issue of at least Rp1tn. Management denied to comment on this detail.

Comment: Management's rationale to this deal is to increase its land bank, currently ~700ha, mostly its Bogor Nirwana project (South Greater Jakarta). In the past, the company has stated that it is looking into purchasing additional land bank surrounding their Bogor Nirwana project, which is a logical strategy, given the upcoming completion of Bogor Outer Ring Road (by Jasa Marga, JSMR IJ) and also, with ELTY planning to develop the nearby Ciawi-Sukabumi toll-road. Land price in Bogor Nirwana has appreciated by 15% pa in the past 10 years. While Bakrieland also has city property project such as its mega-block in Jakarta CBD, we believe its township project to be the main growth driver, hence we think this acquisition plan of BKSL or its land bank is a logical move. BKSL, while having huge land bank is relatively in-experienced in township development vs its peers. Nonetheless, given the over-hang due to current uncertainty, we advise investors to remain cautious in buying the stock. We currently have a BUY on ELTY, trading at 60% discount to its RNAV of Rp570/sh. Note that our RNAV does not include this potential deal.

CLSA BBNI, initiating coverage, OPF, TP Rp2800

Our bank analyst Bret Ginesky has initiated coverage on Bank Negara (BBNI IJ) with OPF rating and Rp2,800 TP. At 1.8x 2010 PBV, BBNI is the cheapest SOE bank in Indonesia. We forecast earnings to grow by 28% CAGR from 2009-12, raising ROE to 21% from 14% in 2009.

With only 12% upside from yesterday closing price, Bret is telling us that there is not much incentive for investors to jump in right now. However, CLSA Jakarta sales desk thinks that Bret is too conservative. His Rp2,800 TP implies 2x 2010 PBV and this time of the year, we believe that using 2011 BV is more appropriate. At 2x 2011 PBV, we’ll arrive at Rp3,114 TP.

Bret pointed out that BBNI did not possess the flexibility BMRI was blessed with in its turnaround, as BBNI is one franchise, not an amalgamation of multiple banks.

However, there are notable improvements at BBNI:

· BBNI’s turnaround goes well beyond poor credit metrics. Revenue generation is weak based on BNI’s headcount and branch network, Indonesia’s strong economy should help support the turnaround effort
· Increasing its coverage ratio to 120% from 55%.
· Improving the cost to income ratio to 52% from 61% since 2006.
· Halving the NPL ratio over the last four years has not closed the gap with its peer group.
· BBNI is reducing the headcounts (early retirement). At one point, BBNI had over 4,000 employees at the HQ, a figure that has been nearly halved.

On the weakness side, deposit generation has been disappointing, as core deposit market share has decreased 340bps to 9.7% since 2005. The recent appointment of professionals with strong track records such as Honggo and Darmadi should bring diversity to the management and helps BBNI to address issues with deposit taking franchise.

Lastly, BBNI (just like other Indonesian banks) over-provides for provisions. Hypothetically speaking, if BBNI were allowed to release provisions directly to earnings, profits for 2010 and 2011 would increase by 30% and 25%, respectively. One more point, written off loans at BBNI is around Rp20tn (and at BMRI total Rp33tn). There is a chance that SOE banks might be able to resolve written off loans at a discount. If both BBNI were to recover 20% of the written off loans, this would add Rp4.0tn to retained earnings. This represents 25% of equity at BBNI (and 19% at BMRI).

DBS Indo Coal: BUY for rebound in 2H

* Rapid growth led by domestic consumption
* Strong balance sheet offers M&A opportunity
* BUY on dips in 2Q for seasonal upswing in 2H
* Reinstating coverage of Adaro and PTBA with Buy rating, Hold ITMG

Growing domestic demand and resilient export. We expect a strategic shift in the Indonesian coal sector, from being export centric to one that is more domestic driven. New power plants with 10GW capacity will commence operation by 2012, and more coal fired plants will be built under the government's plan to improve the low 61% electrification ratio. Coal export remains resilient with strong demand from Asia, especially China, Japan and India. We expect domestic coal demand to growth at an average rate of 12.8% p.a. against 5.7% p.a. production growth for 2009-15. Strong demand from both the domestic and export markets will lead to better pricing power for coal miners.

Strong balance sheet for M&A. We expect Indonesian coal companies to register 14% earnings CAGR in FY09-12F, supported by 11% production growth and 3% higher coal prices. The healthy balance sheets (net cash for PTBA and ITMG, and 0.3x net gearing for Adaro) bode well for M&A of new mines and new JVs to increase production. ITMG plans to acquire several coal assets near its concession area, while PTBA is eyeing two coal mines in Kalimantan. ADRO's net gearing remains low at <0.4x despite its recent venture into ICP, and we expect more JVs to drive the group's longer term growth.

BUY on dips in 2Q, for seasonal upswing in 2H. We expect Indonesian coal counters to see some volatility in the near term, as the sector has outperformed the JCI by c.1.3% and Chinese coal stocks by 30% year to date. Assuming a temporary 5% decline in spot coal prices, we expect only 4%-14% downside for stocks under our coverage. Any dips should be a buying opportunity to capture a rebound in 2H led by the seasonal peak in coal prices ahead of the winter season.

ADARO is our top pick. ADARO is our top pick for its solid production growth track growth and more resilient earnings from its integrated operation. We also favour PTBA for its leverage to strong domestic growth and superior ROE. We believe that near term upside for ITMG is capped until M&A materializes. ITMG's current valuations are in line with peers and does not price in its depleting reserve.

JP Morgan - BMRI the most profitable bank in the making

* The re-appointment of Agus Martowardojo as Bank Mandiri’s CEO over the next five year increases the likelihood for the bank to smoothly enlarge its high yielding businesses.

* Its agreement with Pos Indonesia, the state-owned post company with massive distribution network, will instantly allow Bank Mandiri to enlarge its high yielding businesses point of sale by 7.6x to roughly 10,500 (vs. Bank Rakyat Indonesia’s (BRI) of 4,500).

* I also believe that the JV with Pos Indonesia could increase the bank’s micro and retail return on equity from currently 37% to 42-47%.

* The bank’s multiple has been re-rated over the past five years on the back of the capability of Agus Martowardojo’s team in lowering NPLs and enlarging low cost deposits. I think the bank’s multiple will be further re-rated over the next 3-5 years on the back of its smart strategy in entering the Indonesian micro banking space.

* Given its sizeable market cap (of US$12.6B) and decent daily liquidity (of US$18.3M), Bank Mandiri should obviously be one of long-term core holdings in Indonesia.

DOID and Berau shares swap CANCELLED

PT Delta Dunia Makmur Tbk (DOID), a parent company of Indonesia's second largest coal mining contractor PT Bukit Makmur Mandiri Utama (BUMA), has finally determined to put an end a majority shares swap of PT Berau Coal Energy (previously dubbed PT Risco) with Bumi Resources-backed up company Recapital Investment Group.

A reliable source familiar with the shares swap said a single majority shareholder of Delta Dunia, which is officially 40% owned by Northstar Tambang Perkasa Pte Ltd and founded by Patrick Walujo, and Recapital Group are failure to reach agreement on shares swap price."The management of Delta Dunia has eventually decided to scrap the acquisition deal of majority stakes in Berau Coal as well as Rp10 trillion rights issue," the source said to Insider Stories tonight.

A local brokerage-based analyst said the shares swap collapsed will benefit DOID stocks. "It is now clear that DOID should improve operational to enhance value. The shares swap has continually emerged questions among investors. This is why many funds sold DOID's portfolio into the market," the analyst said.The next question is whether Delta Dunia has another plan to inject any assets? If Delta Dunia's management could ensure no assets injected, it would be better for the market players.

On March 30 2010, Delta Dunia announced that it had signed a non-binding term sheet with Recapital Investment, allowing DOID to acquire the stakes in Berau Coal Energy, holding company of Indonesia's fifth largest coal mining producer PT Berau Coal and for Recapital, the 100% shareholder of Berau Energy, to swap a majority of its shares in Berau Energy for a substantial shareholding in Delta.This transaction will be effected by Delta’s subscription to a mandatory exchangeable bond (MEB) issued byan affiliate of Recapital, PT Bukit Mutiara. The MEB will be exchangeable at maturity (expected to be April 2011) into shares of Berau Energy at the value achieved by Berau Energy in a qualified international IPO. Delta intends to finance its subscription to the MEB by issuing approximately Rp10 trillion (or approximately US$1.1 billion) of shares through a rights issue at Rp 1,400 per share.

Under the term sheet, Recapital will acquire a substantial interest in Delta through the rights issue and will act as the standby buyer. Berau Energy is the indirect owner of 90% of Berau Coal with coal production of 14.3 million tons in 2009. Berau IPO The source said Berau Energy's IPO remains on schedule. Berau Energy has mandated Credit Suisse Securities (CS), JPMorgan Securities, Danatama Makmur, and Recapital Securities as underwriters.Berau Energy will raise US$300 million-US$400 million from 15%-30% of shares sale.

Bumi won't be a standby buyer for Berau IPO. So, Bumi will proceed US$600 million IPO of its non-coal subsidiary PT Bumi Resources Mineral by mandating JPMorgan Securities and Bank of America-Merrill Lynch to valuate its assets.

DOID operational line

As of April 2010, Delta Makmur produced 10.7 million tons of coal, a slight increase compared to the same period last year of 10.2 million tons. In April 2010, DOID produced 2.6 million tons of coal from the same period last year of 2.3 million tons.

Overburden removal reached 84.1 million bcm in the first four months this year compared to the same period last year of 84.2 millions bcm.

Bukit Makmur in March and April signed financing agreements worth US$110 million in total from PT Komatsu Astra Finance of US$80 million, PT Bank Danamon Tbk of US$10 million, and the remaining of US$20 million from PT Bank Permata. The facilities are designed to finance heavy equipment purchases and have four year amortizing tenors.

UBS Sector and Company News

Bumi Resources (BUMI Buy PT 3,200): Non-coal asset to be listed in September
Bisnis Indonesia quotes an unnamed exec as saying that BUMI is planning to raise US$600 mn in September through 25-30% public offering of Bumi Resources Mineral (BRM), the non-coal subsidiary. BUMI will also launch a pre-emptive rights issue to facilitate the entry of China Investment Corporation (CIC) into BUMI. The executive says that CIC is expected to acquire a stake of US$250 mn in BRM.

There’s a lot that must fall into place at BUMI, and CIC would seem to hold a strong hand in negotiations. Despite this, the valuations are compelling (BUMI is trading at 12.8x 2010 and 7.0x 2011 PE, with 3-yr projected EPS CAGR of 60%) and we have not included BRM in our BUMI valuation. The potential credit rating downgrade by Moody's and increased volatility in the global commodity prices may provide a great buying opportunity for the strong stomached.

Bank Mandiri (BMRI Buy PT6,150): Entering the growth phase
In the AGM yesterday, president director Agus Martowardojo has been given the mandate to continue his leadership in the bank. Over the next five years, BMRI will be pursuing three pronged strategy: wholesale banking transaction, retail payment banking and high yield lending, with a view to achieving its target to be one of the top five largest banks in ASEAN by 2014. Meanwhile, BMRI is distributing Rp119 dividend per share (DPR = 35%, Div. yield = 2.2%) for 2009, with a final dividend of Rp100 (yield = 1.9%).

MrAgus mantains his leadership along with his team - positive for the bank to continue its transformation. BMRI is trading at 2.8x 2010 and 2.3x 2011 PBV with projected 3-yr ROE of 24.1%.

Ciputra Development (CTRA Buy PT 1,160): CTRA plans for a stock split
CTRA is holding its AGM today, and the management will propose 1:2 stock split. Meanwhile, CTRA will allocate Rp1.5 tn for 2010 capex, fully funded through commpany's internal cash. CTRA projects are: 1) Ciputra World Jakarta; 2) Ciputra World Surabaya; 3) Citra Raya Hospital; and 4) Grand Shenyang, China.

CTRA is trading at 30% discount to its 2011 NAV of Rp1,156.

Delta Dunia (DOID Not Rated): YTD operational performance
DOID's YTD coal delivery stands at 10.7 mn tons (+4.9% YoY) with 84.1 bcm (flat YoY). During the period, the stripping ratio averaged 7.9 (vs. 8.3 in the same period last year).

Annualising these numbers suggest that DOID is behind full year targets, but management claims that they will catch up in the second half of the year. The slight decline in the stripping ratio is a slightly negative development. DOID is currently trading at 6.6x 2010 and 5.3x 2011 consensus PE, with EPS CAGR of 21% in 2010-12.

Credis Suisse BANK NEGARA (BBNI) Report: Upgrade Earnings/TP + Write backs upside = LT Buy

· Teddy Oetomo (Report: “Gaining confidence”): Upgrade to NEUTRAL. We upgrade our rating on BBNI from Underperform to NEUTRAL on the back of higher confidence in management’s ability to deliver a turnaround and potential positive catalysts from the progress of haircut regulations for Indonesian state-owned banks.

· Gaining confidence. We believe that, we may have been too conservative on BBNI’s restructuring potential, as previously we believed that much of the low hanging fruit had already materialised. However, the decision of key executives to stay, announced in the 2010 AGM, indicates higher confidence from management to deliver on the planned restructuring. We see the potential for continuing write-backs ahead and a further decline in the NPL ratio, from 4.68% in FY09A to 3.65% in FY10E. In addition, we also estimate an improvement in yield on interest-earning assets from 9.4% in FY10E to 9.7% by FY12E. Thus, we increase our FY10-12E earning estimates for BBNI by 7.6-10.0%.

· Catalysts and risks ahead. On the positive side, we believe that the progress in approving the haircut regulations for state-owned banks will likely serve as positive catalysts for Indonesian state-owned banks. On the negative side, we foresee the risk of a share price overhang due to the potential for a rights issue in 2H10E. In addition, we believe that the return of risk aversion and uncertainty in global financial markets may serve as headwinds for BBNI’s share price, particularly given that during the 2008- 2009 global financial crisis, BBNI’s share price fell the most of the six Indonesian banks under our coverage.

· Increasing target price. We increase our target price from Rp2,200 to Rp2,400 on higher earning estimates. Our target price is derived based on Gordon’s growth model, implying 1.6x FY10E P/B and 9.0x FY10E P/E.

Bahana Perusahaan Gas Negara – (PGAS-BUY-IDR3,700-TP:IDR4,500) Pricing in lower volumes

Government intervention: The set up of a specialized task force
In a recent conference call, Perusahaan Gas Negara (PGAS) announced that the government has formed a special task force comprising of several inter-related ministerial departments to monitor the thorny issue of domestic gas shortage, which has raised concerns on not only the outlook for PGAS’s distribution volumes but also widening budget deficit stemming from greater fuel subsidies. According to PGAS, report on the work progress of the task force is expected by the end of May. It is also worth noting that the recent signed agreement from Conoco to supply 300MMScfd of gas to Chevron was mainly driven by government urgency to meet Indonesia ’s oil lifting target in 2010. Additional incentive to re-allocate gas distribution was the higher price of more than USD5.0/MMBtu paid by Chevron compared to PGAS’s price of USD1.85/MMBtu. Nevertheless, PGAS’s management has no plan to revise its 2010 distribution volume guidance of 800MMScfd – 900MMScfd.

Key solution: Higher domestic gas prices equal to overseas prices
Based on recent developments, the shortfall of domestic gas supply in 2Q10 would be resolved in 2H10 in our view. Hence, to be conservative, we have cut our 2010 distribution volume to 800MMScfd (+1.0% y-y) from 860 (+8.6% y-y). We think that the key to reach a reasonable solution would hinge on the government’s effort to revamp the different pricing structure in the upstream market, as explorations would only occur once pricing has been set. According to industry sources, the export market pays an average price of USD10/MMBtu, double the average domestic price. This means that regulation to equate pricing structure would help accelerate domestic gas explorations and exploitations. Currently, the issue of gas price and shortage are on the top of the parliament’s list, although the imposition of a formulated gas price regulation may take longer than expected. However, we retain our stance that an upward trend in gas tariff remains foreseeable and inevitable.

Minimal 2010 earnings cut; Retain BUY with lower TP of IDR4,500
In line with our lower volume estimates, we have cut our 2010 revenue by 11.8% to IDR18.5t, translating to a flat revenue growth of 3% y-y. According to the management, 1 April’s higher tariff should offset lower volumes, allowing a slight revenue growth improvement in 2Q10. On the bottom line, higher than expected 1Q10 net interest expense caused 4.2% lower 2010 net profit to IDR6.3t, up just 0.4% y-y. We are of the view that in the long run, improved pricing structure coupled with the completion of the LNG receiving terminal in 2012 would support PGAS’ commitment to fulfill domestic gas demand, paving the way for the government to achieve its economic growth target. In terms of valuation, we have lowered our DCF-based target price (TP) by 10% to IDR4,500, helped by our lower risk free rate of 9% (WACC: 9.9%). 10% ytd share price underperformance has mostly priced in volume shortfall while 21% upside potential to our TP have us retaining a BUY.

CLSA CTRA Group - Strong April Sales

CTRA reported marketing sales for 4M10 of Rp652bn, 37% of company’s FY10 target of Rp1.75tn, and 40% of our FY10 target of Rp1.6tn. The sales in April was up 9.5% MoM, and 4M10 was up 71% YoY. Strong April sales came more from higher sales of CTRS’ projects, notably in Surabaya, and Sidoarjo.

CTRA Greater Jakarta sales for 4M10 reached Rp199bn, up 73% YoY, 40% of company’s FY10 target. CTRA’s other regional sales also increased 32% YoY. On a MoM basis, CTRA (Greater Jkt + Regional) sales in April declined 20% solely due to lower sales in regional, notably Samarinda, Balikpapan and Makassar (less launches). (sales in
greater jakarta for April was flat MoM)

CTRS reported a strong sales of Rp202bn in 4M10, with April sales doubling from the previous month. Compared to last year, 4M10 sales increased by 2.5x. Ciputra World Surabaya had good sales in April, up 63% MoM, with 4M10 sales 32.7% of FY10 target.
Sales in Surabaya and Sidoardjo also increased a lot from the previous month.

CTRP: disappointing Ciputra World Jakarta Lot 3&5. No sales made in April. 4M10
sales was Rp2.8bn (made in January). The company targeted Rp93bn this year from
sales of CW Jakarta. Seems hard to achieve at this stage. Hence if we strip this out of
their group’s FY target, total sales this year might be Rp1.66tn (slightly higher than our
expectation of Rp1.6tn)

CLSA Indo consumer sector

Great consumer report from our consumer analyst Swati. “Time to Imagine Indonesia”.

The concern: whether expectation of hockey stick growth in consumption will intensify competition thus eroding margins?

In India and China, expectation of hockey stick growth has seen competition intensify in the consumer space eroding margins. Indonesia Telco industry has seen sharp increase in penetration rates in the last five years but this has also resulted in intense price war.

We believe that in Indonesia it will not be easy (and will be gradual) for competition since the distribution system is one of the most complicated in the world due to 6,000+ inhabited islands and appalling infrastructure.

Winners will be companies with proactive management, strong franchise, and distribution network. We like DIY chain ACE Hardware (ACES IJ), biscuit maker Mayora (MYOR IJ), and Gudang Garam (GGRM IJ) at current valuations.

For GGRM and big cigarette companies, competition is actually being eased. Top five kretek producers control 77% of the market. The government will gradually phase out the middle players by increasing excise taxes unproportionately which is good for the big players.

Another point to make: Indonesians spend about 42% of the income on food (vs. 36% in India, 32% in China). Rising income will encourage discretionary spending. Bullish case for Astra Int’l (ASII IJ) and cement companies.

Citigroup Indonesian Market - This Time is Different, targeting End-2010 JCI of 3400

 Targeting End-2010 JCI of 3400 — We are raising our year-end JCI Target to 3400, based on target PER of 14.5x for 2011 earnings. This is in line with historic average of Earnings and Bond Yield differential of 2.6% (based on 10-year bond yield of 9.5%) and supported by Citi coverage universe’s ETR of 15. Our top buys are ITMG, TLKM, ISAT, UNTR, BMRI, AALI, INTP.

 Portfolio flow: “This time is different” — Indonesia has weathered the initial jitters of Greek crisis well, regaining most of the currency and some of stock market
losses. Whilst Indonesia does not have direct linkages to Europe it has benefited immensely from carry trades, resulting in favorable currency and inflation behaviors. Key factor to Indonesia ’s vulnerability will be the “mobility” of these
portfolio flows. Our economist believes that 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.

 Strong Earnings Momentum — Consensus is forecasting EPS growth of 20% and 18.5% for 2010E and 2011E respectively. The Q1 results announced so far are generally in-line with consensus and our estimates. Banking earnings were driven by lower credit costs and re-pricing of time deposits. Coal stocks earnings will see an upward momentum from Q2 CY10 as the impact of higher coal prices kick in. Consensus has seen largest revision of coal stocks as production growth in 1Q10 has been encouraging. Plantation stocks benefited from higher CPO prices and margin expansions in the remainder of the year as volume picks up.

 Robust Domestic Consumption Momentum — Domestic consumption momentum remains strong with 20% growth for autos (2W/4W) and domestic cement sales. These are supported by consumer loans from banks and low inflation. The Central Bank policy priority remains 20% loan growth and does not expect inflation to be significantly over 5%.

JP Morgan - Indika Energy: a change in substantial shareholders

The company has disclosed that one of its founding shareholders, PT Tunas Bhakti Manunggal, has sold its entire stake of 17.1% to the largest shareholder, PT Indika Mitra Energy. The crossing transaction displayed a price of Rp2400, a small discount to last traded price of Rp2,625.

an attractively valued asset, purchase by main shareholders reflect confidence and may serve as positive share price catalyst (Not Rated by JPMorgan research). INDY received US$129mn dividend income from coal subsidiary Kideco (46% owned) based on FY09 (ending Dec) performance. Compared to INDY’s market cap of US$1.51bn, the dividend income alone implies an FY09 P/E ratio of under 12x, cheap compared to its peers.

The US$98/ton thermal coal settlement price for JFY11 and Kideco’s volume target of 29mn tons for FY10 (vs. 24.8mn tons for FY09) would mean that dividend income from Kideco may grow 37% to around US$170mn in FY10. Assuming zero earnings and equity value contribution from INDY’s other subsidiaries (Tripatra, Petrosea, Cirebon energy, Santan), the implied FY10 P/E is under 9x, steep discount compared to its peers.

If we assign a fair FY10 P/E multiple of 12x for Kideco, and add the back-of-the-envelope value estimates for other subsidiaries, we would arrive at around Rp4300 per share fair value for INDY.

JP Morgan - Bumi Resources: an unnamed source outlining strategic plan

Front page Bisnis Indonesia quoted an un-named executive who outlined Bumi’s plans with regards to Bumi Mineral. Key highlights:

>> Bumi has appointed a couple of global banks to value Bumi Mineral. The global banks indicated a US$2bn valuation potential for a 100% stake.
>> Bumi Mineral plans to offer 25-30% shares to the public in September, raising around US$600mn. The September timetable is set according to Bumi Mineral’s hope to obtain its operational licence in the near future.
>> Within Bumi Mineral – Gorontalo (80% owned by Bumi) should get its development licence this month. Herald Resources (98% owned) should get the licence in the next two months.
>> With the listing transaction, Bumi will facilitate the purchase of Bumi Mineral by CIC, who is looking to put in US$250mn.
>> CIC will also buy an equity stake in Bumi Resources when the company conducts its non-preemptive rights offer.
>> Kenneth P. Farrel, currently a director in Bumi Resources, will become the CEO of Bumi Mineral.

Stevanus Juanda got an indication that BUMI's 1Q10 net income could come in between $75-$100MM. Assuming a quarterly run rate of US$75-100MM, this would equate to yearly net income between US$350-US$400MM. This indication makes Steve's FY10 profit forecast of US$273mn (19.5x P/E) looks ridiculously low; consensus estimate stands at US$377mn (14.0x P/E) with the highest estimate at US$490mn (10.8x P/E). Consensus EPS looks conservative to me, suggesting undervaluation by the market. O/W.

Bahana UNTR Never Give Up On Anything TP 22,000

Still tracking forward

Robust 2010 heavy equipment sales to compensate…
Continued recovery in the commodity-related sectors, low financing costs and ample liquidity have caused us to raise United Tractors’s (UNTR) 2010 Komatsu heavy equipment sales to 5,300 units (+70% y-y) from 3,811 units (+22% y-y) previously, translating into a 45% market share in the domestic market. Evidence of faster recovery can be seen from UNTR’s 1Q10 robust heavy equipment sales of 1,218 units (+93.8% y-y), accounting for 23% of our revised-up 2010 forecast. Furthermore, we have raised our revenue growth estimate for parts & services unit by 5ppts to 25% y-y (IDR4.5t), in line with the management’s guidance. Thus, we increase our 2010F top line by 8.5% to IDR37.3t (+28% y-y) and 2011F revenue by 10.4% to IDR43.3t (+15.9% y-y) with revenues from the mining-related divisions unchanged.

… lower earnings on margin compression caused by IDR appreciation
On the flip side, UNTR suffered margin contraction in 1Q10. First, there was higher COGS from the initial production of its new Kalimantan-based coal mine, PT. Tuah Turanggah Agung (TTA), expected to reach 2010 production target of 500k tons, 15% of our full-year estimate of 3.4m tons (the rest to come from the Dasa Eka Jasa Tama coal mine also in Kalimantan). Second was from the adverse impact of the stronger IDR which lowered margins on its mining division. This decreased UNTR’s 1Q10 operating margin to a more normalized level of 15% vis-à-vis 18% in 1Q09, prompting us to cut 2010F operating margin to 15.2% from 17.8% previously, lowering operating profit by 8.2% to IDR5.7t, still up 9.4% y-y. Nevertheless, this only caused slightly lower 2010 net profit IDR4.2t (-4.7%) and to IDR4.9t (-3.4%) in 2011.

Pama: Largest room for expansion among ASII’s subsidiaries
Despite lower operating margin, low 1Q10 rate of rainfall lifted coal extraction and overburden removal to 18.6m tons (+27% y-y) and 153.9m bcm (+27% y-y), in line with our estimates. It is worth pointing out that Pama would remain as the central focus of UNTR’s parent company, Astra International (ASII), in securing long-term growth. This suggests further expansions through acquisitions and higher mining contracts. Point in case would be Pama’s pending acquisition completion of two Kalimantan coal mines, which would alleviate the imminent risk of competition through stronger penetration from integrated players such as Darma Henwa (Bumi Resources), Buma (potential integration with Berau) and Sapta Indra Sejati (Adaro’s subsidiary).

Beneficiary of commodities expansion; retain BUY with IDR22,000 TP
Going forward, we are of the view that further expansions in the development of domestic commodities will continue to bolster UNTR’s business divisions, particularly its mining contracting unit in light of its largest capacity. In terms of valuation, we have raised UNTR’s target price to IDR22,000 on the back of lower risk free rate estimate of 9% (WACC:13.6%). Thus, in spite of UNTR’s 6% share price outperformance ytd, we reiterate a BUY.

CLSA Aneka Kimia (AKRA IJ)

AKRA presented during CLSA Singapore Forum last week. Key takeaways:

· Expects petroleum distribution business to be robust this year. Revenue expected to be +30% YoY, from increase in volume (20%) + higher ASP from recovery in oil price this year.
· AKRA continues to clinch new contracts. Recently, mining contractor Thiess signed a contract for 60,000kl per year.
· With extra 250,000kL tank capacity from Jakarta Tank Terminal, and future 65,000kL (to be built using rights issue money), AKRA will have 563,499kL capacity, more than double from end of last year.
· Petroleum margin also remained strong at 4-5%.
· Basic chemical's distribution also experienced strong growth with demand and price recovery this year. 60% of AKR's chemical sales is caustic soda whose prices went up by 24% YoY.
· Manufacturing division experiences margin squeeze due to increase in starch prices (raw materials), Rupiah appreciation, and time lag in passing higher cost to buyers. AKRA expects volume to continue to grow with rising demand from developing countries and margin recovery from moving up the value chain.
· AKRA will enjoy 5% tax benefit post its placement which increased float to 40%.
· Dividend payout would be at least 30% consistently. Dividend for 2009 is Rp25/sh (34.4% payout ratio).

CLSA Energi Mega (ENRG IJ)

The company painted a positive turnaround story. Debt restructuring behind them and recent rights issue completed to fund capex. ENRG was on an acq spree since listing in 2004. Now as a portfolio of world class assets giving then the largest 2P reserves (566mmboe) in Indo and top 50 in the world. Next few years will be focusing on monetizing existing assets in a favourable domestic gas market in Indonesia.
Main growth drivers:
Kangean oil and gas block in North Pagerungan in East Java (50% JV with Mitsubishi and Japex) 680bcf 2P. To boost output from 15mmscfd to 150mmscf by 2011. It has signed US$81m contracts to charter tankers from Berlian Laju Tanker (BLTA IJ).
Masela in Arafuru Sea (JV with Inpex. ENRG’s 10% working interest and option to increase) 18TCF 2P. The block has the world class reserves with one of the best fiscal terms in Indonesia.
Coal Bed Methane (JV with Pertamina and Bumi resources) potential 15TCF. Association to Bumi gives EM access to one of the richest CBM deposit, KPC and Arutmin.

Indopremier BWPT - BUY (TP Rp 800)

Good 1Q10 Results
BW posted robust 1Q result with 32.2 bn net profit, rose 15% YoY. Sales volume was below our expectation due to heavy rainfall and no third party purchase. Gross margin was also lower (60% vs 65% in 1Q09) due to ample fertilizer application. We believe this measure would safeguard yield in the coming years. We maintain our EPS forecast for FY10F, Rp51.4/share, swelling 24% YoY. Coupled with much liquidity on the share, we slashed discount to NAV and raise our TP to Rp 800, implying 15.7x PE and USD7089 EV/planted for FY10F. Our TP offers 23% upside potential. We believe BW deserves to be traded in this multiples given superior yield and margin compared to other listed plantation companies. BUY.

Retain our production target
Even though the company only achieve 16-17% of our production target in 1Q10, we still retain our forecast for FY10F. FFB and CPO output should increase in the coming months as weather becomes much more favorable. Production in March and April has shown sharp improvement compared to January-February figures.

…and also margin for FY10F
We also maintain our forecast of 64% gross and 49% EBIT margin as we raise our CPO assumption from USD750 to USD780/ton. In 1Q10, BW has secured ASP of Rp6498/kg and we assume this price level will hold throughout the year.

Mature area expands subtantially
BW’s mature area fetch 15,270 ha, 12% YoY increase. This growth is profound considering the company only added on average 2.2% mature area in 2004-2009. In 2011-2013, BW will append its mature area by 29%, 41% and 50% respectively, in our view. Assuming yield at 24 tons/ha in FY13F, FFB harvested and CPO produced should fetch nearly 1 mn tons and 232,000 tons respectively, more than double that of FY10F.

Indopremier SMGR (BUY TP Rp 10000)

Inline Result
Despite a typical slow revenue growth, Semen Gresik Group was able to record superb profitability in 1Q10, thanks to strengthening Rupiah and cost efficiency program. All in all, the 1Q10 financial performances were inline with our forecast, in which the company revenue and net profit fulfilled 19% and 21% of our full year estimates, respectively. Semen Gresik Group dominates domestic market share, has a strong balance sheet while still conducting favorable valuations. We maintain our BUY rating for this stock with fair value Rp 10,000 which reflects 15.6x-4.83x PE-PBV FY10F valuation.

Still dominate domestic market
Semen Gresik Group (SGG) registered a 12.4% YoY growth in sales volume to 4.24 million tones during the 1Q10 period, the lowest growth compared to its competitors. Consequently, the company market share has plunged from 45.7% in 1Q09 to 43.6% in 1Q10. Loss of market share was expropriated by competitors Indocement and Holcim because of their spare utilization capacity of 25% and 19%, respectively. Nonetheless, worth to point that SGG dominates domestic market share by significant percentage points over its competitors as a result of its sales area diversification strategy.

Recorded superb profitability
Although the 1Q10 revenue only registered a slightly increase (0.6% YoY), SGG was able to record superb profitability, thanks to strengthening Rupiah and cost efficiency program through the use of a low-calorie coal and an alternative fuel development as well as synergy resulted from raw materials supplied from within the group.

Expansion Update
Besides the optimization of SGG production capacity through the construction of 2 new cement plants with total capacity of 5 million tones p.a. and additional capacity of 500k tones, SGG also plans to build 4 packaging plants this year which is aimed to anticipate strong domestic demand for the next 5 years and cost saving in transportation and distribution.

Maintain BUY - fair value at Rp 10,000
All in all, the 1Q10 figures were in-line with our forecast, in which revenue and net profit represent 19% and 21% of our full year estimates, respectively. We maintain our FY10 forecast for Semen Gresik, and at yesterday closing price, the counter is traded at 12.87x-3.98x PE-PBV FY10, still provide attractive valuation in cement sector universe. Hence, we maintain our BUY recommendation with fair value at Rp 10,000 which offers 21% upside potential.

Mandiri Sekuritas Property: Bakrieland Development (ELTY) to acquire Bukit City (BKSL)

• ELTY hints to acquire 14% - 20% shares of Sentul City (BKSL), with fund sourced from the Right Issue, amounting to Rp1 tn, which planned to be proposed in the upcoming AGM, June 24, 2010. Even though declined to confirm, ELTY’s President Director stated that the company is currently having a plan to expand its business with seeing option of either acquire new land bank or other property company. With regards to the targeted
new land bank, based on Kontan, ELTY is looking at land bank in Bogor, Sukabumi and Rasuna.

• With total current land bank of 1,900 ha, BKSL is currently trading at 81% discount to NAV. In the mean time, ELTY is trading 63% discount to our NAV10. We still have buy recommendation on ELTY with TP Rp500.

Mandiri Sekuritas Jasa Marga eyeing a majority shares on Trans Jawa Corporation (JSMR, Rp1,990, Buy, TP: Rp2,400)

􀂄 JSMR declared that they are ready to become the majority shareholder of a holding company called Trans Jawa Corporation (consisting of companies holding concession agreement of Trans Java Toll Road project) if this holding company is eventually set up the government. At end 2009, the government announced that it will form a holding company to supervise Trans Java toll road projects. Trans Java toll road is scheduled to be completed by 2014, whereas 300Km of total 882Km of length are owned by JSMR.

􀂄 JSMR is currently conducting due diligence to increase its stake in Aloha (Waru)-Tanjung Perak toll road in Surabaya, East Java, from 2.5% to 55%. The toll road development halted, as PT Margaraya Jalan Tol (MJT) as the toll road holder concession, has financial difficulties due to cost overruns.

􀂄 Currently, JSMR trades at PE’10F of11.4x and PB’10F of 1.7x

JP Morgan - an eventful week for Indonesia

This is going to be an eventful week; look for opportunistic buying window in a potentially volatile market. Domestically, Bank Mandiri and BRI will select their CEOs on 17 and 21 of May. Replacement for finance minister Sri Mulyani could be announced either on 20 May, or during the weekend of 23 May. Internationally, there is a chance that China revalues its Yuan sometime this week, before the big strategic meeting with the US officials on 24 May.

Stocks to watch:
(1) Bumi Resources – Moody’s may downgrade Ba3 rating, offset by potential consensus upgrade post Batu Hijau’s strong 1Q10 performance, rising gold price.
(2) Astra International – local city council looking to proceed with the 2008 regulation tax law. May slap 10% new tax on fuel (charged at the fuel pumps). May increase vehicle registration tax from 10% to 20%.
(3) Semen Gresik – beneficiary of EUR collapse. 5mn ton expansion plan costs US$600mnn, 1/3 of that in EUR as biggest supplier is based in Denmark. Consensus EPS too conservative after global NDR with the management.
(4) Medco – continuing noise/political pressure for government to decide on Donggi-Senoro gas allocation. M&A potential with Pertamina rumored to be potential acquiror.
(5) Property stocks – longer term beneficiary of ID strength and buoyant liquidity, potential opening-up to foreign ownership.

The JPMorgan view – on asset allocation, we are focused on a medium-term rebound in risky assets, accepting that the next month will be volatile. On equities, focus on Industrials and IT across sectors. Banks remain hostage to regulatory and legal risks. On FX, near-term bearish EUR, even as we flatline EUR/USD forecasts at 1.25. On commodities, stay long crude.

One can detect three different paths for risky assets over coming months. The first is down, in a repeat of the subprime/Lehman crisis of 2008. A second is volatile range trading as the bullish forces of growth and liquidity battle the bearish forces of uncertainty, back and forth to an eventual draw. The third is a clear victory of the bullish forces and a renewed rally, just as happened after the Jan/Feb correction. Our eyes are on the third –– the rally –– although we recognise that the rise in fundamental uncertainty that we are seeing could easily make us range trade for another 1-2 months in risky assets, as investors stay on the sidelines, waiting for the dust to settle