Bakrieland Promise Not Issue New Shares within 5 years

Bakrieland Development Tbk (ELTY) promised not to make the issuance of new shares. They just plan to seek other funding if needed.

"In five years into the future, we will not make the rights issue again," said President Director Mr S Thaib Bakrieland. The new rights offering will be made if the company intends to add an empty land. What happened this time, Bakrieland has a lot of vacant land.

Apart from having no intention to add land, Bakrieland also wants its share price back uphill. "We want investors to enjoy a profit when their funds invested in Bakrieland," The President Director.

On the other hand Bakrieland's President Director Hiramsyah S. Thaib said, “We estimate operating profit ELTY could rise 35%-40% in the first half this year, the company is calculated to make Rp86.39 billion-Rp89.59 billion of operating profit, the net profit is predicted to rise 35%-40% in 1H 2010 from a year before”.

Insider Stories - Bukit Asam 1H net cash soars 569%

Despite a lower bottom line, state-owned coal producer PT Tambang Batubara Bukit Asam Tbk (PTBA) is a cash rich company. In the first half 2010 (1H 2010), Bukit Asam booked net cash from operating activities of Rp1.04 trillion, a 569.47% jump compared to the same period last year of Rp154.88 billion. The company also aims to jack up coal production capacity to 50 million tons in 2014. In a press conference today, the company has set a target of coal production of 12.5 million tons this year.

"Coal sales volume is estimated to reach 15 million tons-16 million tons in 2010 with average selling price of Rp600,000 per ton," said Bukit Asam's Corporate Secretary Achmad Sudarto said. Bukit Asam reports a 43% drop in net profit in 1H 2010 on the back of lower weighted average selling price. The company posted Rp908.11 billion of net profit 1H 2010 compared to the same period last year of Rp1.59 trillion. more...

Bisnis.com Laba Bank Mandiri semester I/2010 naik 37,8%

PT Bank Mandiri Tbk pada semester /2010 membukukan laba bersih sebesar Rp4,03 triliun atau naik sebesar 37,8% jika dibandingkan dengan periode yang sama tahun sebelumnya.

Direktur Keuangan Bank Mandiri Pahala Mansyuri menyampaikan kenaikan kredit karena ditopang oleh pendapatan bunga bersih dan fee base income yang lebih besar dibandingkan dengan periode sebelumnya.

"Tingginya ekspansi kredit membuat pendapatan bunga bersih meningkat cukup signifikan, demikian juga dengan fee base income," katanya dalam paparan publik kinerja semester I/2010, sore ini.

Pendapatan bunga bersih Bank Mandiri naik sebesar 8,2% dibandingkan dengan periode yang sama tahun sebelumnya menjadi Rp9,4 triliun.

"Ini karena kredit konsolidasi kami naik sebesar 20%, lebih besar dari industri," kata Pahala. (wiw)

Indopremier Full Speed Low Safety

BBTN registered higher than expected net income growth of 97.11% to Rp 391 bn in 1H10. Negatively, NPL also jumped significantly to 4.12% in June 2010, compared to December 2009 at 3.36%. We observe that the aggressive loan growth with inadequate risk management was the major driver of NPL heating. Positive view came from 1H10 CIR improvements to 59.1% from 70.4% in 1H09 due to cost efficiency, especially in human resources. We maintain our BUY recommendation for BBTN at TP Rp 2,100 per share, implies 12.3% potential upside.

Strong Loans Growth
BBTN reported Rp 46.4 tn loans book in 1H10, grew 29.61% YoY from 1H09 of Rp 35.8 tn. Non-housing loans was leading the robust growth of 34.9% YoY, where housing loans grew 23.6% YoY. An abrupt increase of construction and commercial loans are the catalyst for non housing loans growth going forward given this two sectors contributed remarkable growth in last six months. Additionally, Subsidized mortgage loans are expected to benefit from new pattern of government subsidized program for housing loans.

CIR – Improvement in Cost Efficiency
1H10 cost to income ratio-CIR improved to 59.1% from 70.4% in 1H09. The improvement was driven by new efficiency program that utilize 60% of employees to engage in business while 40% are supporting. We expect BBTN to book CIR of 57.8% and 51.7% in 2010 and 2011 respectively.

Net Income looks Promising, but High NPL is Awaiting
1H10 net income has jumped 97.11% to Rp 391 bn from Rp 198 bn in 1H09 due to robust loans growth and cost efficiency. Negatively, NPL also jumped significantly to 4.12% in 1H10, and signified that the aggressive commercial loan growth was not accompanied by adequate risk management. We forecast BBTN to book Rp 782 bn net profit in 2010 with NPL of 4.1%.

BUY Recommendation
We maintain BUY recommendation to BBTN with TP Rp 2,100 per share based on strong loans growth and cost efficiency. We upgrade our PPOP to Rp 1,389 bn from 1,039 previous to reflect cost efficiency. Higher than anticipated NPL has let us to estimate high provision expense of Rp 353 bn in 2010, or implies 54.3% coverage ratio. Currently BBTN is traded at 2.6x and 2.3x of PBV10F and PBV11F respectively

CLSA Bank Rakyat (BBRI IJ) update from Bret

Sofyan Basir (President Director of BRI) reportedly stated that BRI will pay approximately Rp200bn for an 80% stake in Bank Agro.

If this is the case, the deal would be very attractive to BRI per our computation of metrics below.

ROE and ROA indicate this asset is relatively unprofitable as is.

BRI's lower cost of funds could help the bank, as by our calculations, time deposit rates in 2009 at AGRO IJ were 10.60% vs. BRI's rate of approximately 6.75%. This 400bp funding improvement could drive pre tax earnings at AGRO up by Rp70bn.

CLSA Bank Mandiri (BMRI IJ) update from Bret Ginesky

Bank Mandiri is going to release their 2Q10 earnings this evening after the market closes and will simultaneously hold an analyst meeting at 5:30PM.
We expect the numbers to be good, as loan growth in Indonesia continues to pick up in 2Q. Lending growth will likely be driven by the consumer business lines, particularly mortgages.
Our forecast stands at Rp 9.15tn for FY 2010, and if the bank reports north of Rp4,100 in 1H10 we believe they would be on track to reach our 10CL forecast. Our 10CL EPS estimate of Rp434 stands at 7% above the consensus estimates.
Bank Mandiri is the first large cap bank to report figures in Indonesia, this follows Bank BTN's earnings last week which were strong, but included higher than anticipated credit metrics.
Three things to watch out for:
1) Rights Issue progress

2) Progress on bad credits: Domba Mas, Garuda, etc.

3) Discount opportunity on written off portfolio

Generally speaking, our bank forecasts have been in line anticipating higher loan growth in Indonesia to this point. We may have to revise our price targets higher based on 2011 metrics across most of our coverage universe.

CLSA Kalbe Farma (KLBF IJ), limited upside?

Our consumer analyst Swati, who is now splitting her time between Jakarta and Singapore, downgrades Kalbe Farma (KLBF IJ) to Outperform from previously a BUY. The stock price has gone up by 13% in the past week alone. The stock is trading at 19.3x 2010CL and 16.6x 2011CL P/E.

Swati upgrades her earnings forecasts for Kalbe Farma (KLBF IJ) by 6.6-8% on cost savings due to stronger currency. Swati also raised the TP to Rp2700 (from Rp2000).

The Rp2700 TP is based on 1x PEG. It’s been a while since we have heard this PEG ratio. PEG ratio makes an appearance when more widely used PER looks stretched. PEG ratio is more the area of the growth rather than the value investors. This might highlight that it is becoming harder and harder to find values in Indonesia.

The key concern here is that despite a strong operating performance, KLBF’s top line growth is low double digit (11-12%).

This morning, KLBF’s distribution arm Enseval (EPMT IJ) reported a top line growth of 10.6% for 1H10 reflecting a weak top line growth for KLBF as well. The operating margins are down from 5.2% in 1H09 to 3.2% in 1H10. Swati still gives KLBF the benefit of the doubt, expecting 15-16% sales growth in 2011-12CL as the company takes corrective steps.

DBS Kalbe Farma: Strong outlook priced in (Reinitiate Cover.; Hold; Rp2,450; TP Rp2,585; KLBF IJ)

* Sustainable dominance in the branded prescription and OTC pharmaceutical industry
* Expect strong 1H10 results
* Price catalysts from successful execution of potential acquisitions
* Re-initiate coverage with a HOLD recommendation, TP of Rp2,585 and upside potential of 5%

Market leader with sustainable dominance. In a fragmented industry with more than 200 players, Kalbe Farma dominates with a 14% market share, which we think is sustainable. Kalbe Farma's portfolio of leading brands, high market penetration and extensive distribution network are key attributes. FY09 results were commendable with sales rising 15% y-o-y to Rp9trn.

Strong 1H10 widely expected. 1Q10 sales increased 10% y-o-y to Rp2.19bn with sustained gross margins of 50%. 1Q10 net profit accounted for 20% of our full year forecast, and growth momentum is sustainable in 2Q10 in line with strong domestic economic conditions and industry outlook.

Re-initiate with HOLD recommendation on valuations. We re-initiate Kalbe Farma with a HOLD rating and TP of Rp2,585, with upside potential of only 5%. KLBF is trading at 18x FY11F PE, well above its 3-year average of 13.7x. In our view, catalysts from strong 1H10 results are priced in. There have been impediments in the materialization of acquisition plans; hence, successful and significant acquisitions would be potential catalysts.

Mansek PTBA Below consensus –Export,the determinant for 2H (PTBA,Rp16,500, Neutral TP IDR 18.750

With volume achieved only 44.1%of the total company estimate for FY10, and domestic prices contract short of our expectation of Rp685,000/ton (PLN blended contracts :Rp635,100/ton),hopes for PTBA ’ s earnings improvement should be coming from the export.Export needs a boost. Export in 2Q10 was just 0.9Mt (1Q10:1.3Mt).Assuming most of domestic is aimed for PLN,PTBA has to export 5.0Mt in 2H,more than double the
amount in 1H. PTBA aims high in the export,with 20-25%spot transactions and calorific value of 6,700-7,000 kcal,earnings performance is really dependent on the achievement of its sales department.At Rp16,500,is trading at 14.4x and 11.8x,PER10F and PER11F,respectively.

We ’re revising down our forecast to reflect the domestic price.Our preliminary calculations on the new forecasts expect net income at around Rp2.2tn,a 16%downward adjustment.We will review our recommendations and target price.

Deutsche BJBR Raising Earnings Estimates TP IDR 1.500

Target price upgrade to Rp1,500 (from Rp1,250); maintain Buy
We raise our Bank Jabar target price to Rp1,500 (from Rp1,250), implying 2.7x 11F book and 13.6x 11F earnings (at par to the sector's current valuations). Despite thestock's strong performance, Bank Jabar remains our top pick in our small banking universe. This reflects our earnings upgrades of 18% for 2010F to Rp952bn, 10% for 2011F to Rp1,082bn and 8% for 2012F to Rp1,280bn, which are in line with management's IPO guidance. These would imply a higher ROAE of over 20% than industry average, despite Jabar's exceptionally high Tier I, exceeding 20%.

Earnings upgrades by 8-18% for 2010-12F
Based on 1Q10 results, we raise our earnings forecasts by 8-18% for the 2010-12F forecast years. Our revised forecasts are now in line with management IPO guidance, and imply an ROAE of more than 20%. With the IPO proceeds in July2010, we expect a stronger 2H10, providing further upside risk to our forecasts.

High profitability compares to peers
On Tier I adj ROE (using Tier I of 15% as a reference), with Tier I of more than 20%, the adj ROAE would have exceeded 25% - easily making Jabar the mostprofitable bank. In addition, the bank also has one of the lowest NPL ratios, at approximately 2.0%. Its large consumer loan portfolio (75% of total loan book), ofwhich 95% are to civil servants whose payrolls are distributed through the bank’snetwork, has an NPL ratio of just 0.2%. The bank’s strategic decision toincreasingly capture pensioners’ loans would enhance future earnings.

Target price Rp1,500 (from Rp1,250); risks: two-region exposure, competition
Our target price is derived from a Gordon growth model (see page 5). Risks areexposure to WJB/Jakarta economic development, competition and higher NPLs.

UOB Astra International BUY TP IDR 56.000

Automotive sales remain strong

What’s New
•Domestic car sales grew 16% mom in Jun 10. Thus, car salesvolume remained strong in 6M10, growing 75% yoy to 367,127 units.Astra’s sales grew 22% mom so that in 1H10, Astra sold 207,971 units,growing 71% yoy.
•Motorcycle sales grew 2% mom in Jun 10. Motorcycle sales grew41% to 3,599,322 units in 1H10. Meanwhile, Honda’s sales fell 8%mom in Jun 10 so that in 1H10, Honda posted 43% yoy growth to1,665,509 units.

Stock Impact
•No change in competitive landscape. Astra’s market shares wererelatively stable in1H10 as the company was able to maintain itsposition in the market with 57% and 46% shares of the car andmotorcycle markets respectively.In the motorcycle market,competition with Yamaha remained intense although other producerssuch as Suzuki had not recovered, making do with a mere 7% marketshare (vs 13% in 2008).
•Signs of accelerating economic growth. 1H10 car sales volumeshows that economic growth is accelerating. Mitsubishi sales grew92% yoy in 1H10. At the same time, sales of Nissan Diesel, althoughhaving a smaller base, also showed a strong 177% yoy growth in thesame period. Most of Mitsubishi’s sales are related to commercialvehicles such as pick-ups, small trucks and trucks and it has thelargest market share of the commercial vehicle market comprising pick-ups, small trucks and trucks.
•No signs of slowdown. Jun 10 car sales indicate that car salesshould remain strong going forward. Furthermore, car producers areoffering more free features as their margins are expanding due to astrong rupiah and lower steel and other commodity prices. There is ahigh possibility that car sales may reach 700,000 units this year.Meanwhile, motorcycle sales have been flattish since May 10.However, motorcycle sales should improve in August due to the festiveseason.

J.P. Morgan Securities Indonesia Equity Strategy - Should we keep drinking the Indonesia Kool-Aid?

As the JCI Index pushes past 3,000 to an all-time high level this week, we ask whether what we see as unbridled bullishness on Indonesian equities needs to be tempered. At the same time we present what we see as the main counter arguments to our opinions, aiming to foster debate on the issue.

5 reasons to lay off the Kool-Aid
• Earnings revisions have turned negative: EPS forecasts have moved lower in the last month and, for the first time since March 2009, more analysts have revised earnings lower rather than higher.
• Inflation is going up – pipeline inflation is above comfort levels: J.P. Morgan forecasts inflation of 6.3% at year end, higher than BI’s comfort zone. We see pipeline inflation risks, and are concerned that current discount rates could be exposed to risks as inflation rises.
• Liquidity has tightened, interest rates have started moving higher:
The JIBOR has started moving higher and money supply growth is lagging nominal GDP.
• Market breadth narrowed significantly in 2Q: Five stocks (UNVR, ASII, GGRM, BBRI, BMRI) accounted for 100% of the JCI’s move in 2Q. Exclude these and investors would have lost money in Indonesia.
• Where are the reforms? Growth is being driven by cyclical momentum;
we have struggled to list reforms carried out over the last year.

5 arguments in favor of taking another sip
• Equities have de-rated since 4Q09, despite bond yields sliding:
Declining long bond yields have not translated into higher multiples.
• Portfolio inflows could drive the cost of capital even lower: Fixed income flows remain strong, and could drive yields even lower.
• FDI has started to pick up: 1Q FY10 FDI was up 35% y/y, and signs are that investments into manufacturing are picking up.
• Tapping into new pools of capital: We continue to note new investors in the country seeking growth opportunities elusive elsewhere.
• An appreciation of the Rupiah could be a game-changer: A one-time shift higher in the currency could challenge our opinions on inflation/domestic liquidity and may drive asset prices higher.

JPM Indo Mkt Strategy

Aditya Srinath: reasons to be cautious. 5 reasons to lay off the Kool-Aid: (1) Earnings revisions have turned negative, (2) Inflation is going up – pipeline inflation is above comfort levels: J.P. Morgan forecasts inflation of 6.3% at year end, higher than BI’s comfort zone. (3) Liquidity has tightened, interest rates have started moving higher: The JIBOR has started moving higher and money supply growth is lagging nominal GDP. (4) Market breadth narrowed significantly in 2Q: Five stocks (UNVR, ASII, GGRM, BBRI, BMRI) accounted for 100% of the JCI’s move in 2Q. (5) Where are the reforms? Growth is being driven by cyclical momentum; we have struggled to list reforms carried out over the last year.

JPM Buy Ciputra Development

Buy Ciputra Development (by Rizal Prasetijo) “Liliana Bambang believes that the launch of Ciputra Development's 4-6 new projects in 2H10-1H11 will hopefully reverse the company’s unfortunate relative performance against the sector (please click the attached file). One piece of information from her report that makes me excited is the company’s plan to build a Rp100bn 120-room hospital, catering to the low-to-middle income group around the Tangerang area. Below are my two arguments:

First, there is currently a shortage of healthcare service supply in the area. As told by one of my high school friends, an owner of 10-room small private hospital in Tangerang area, the steady increase in shoe and textile manufacturers’ production capacity, thanks to

a sharp increase in wages in China’s coastal provinces, has created jobs for blue-collar workers (the low-to-middle income groups) and demand for healthcare services in the area. By the local regulation, a large manufacturing company, employing more than 100 workers in Tangerang area, must have health facilities. However, in an attempt to keep their cost tight, most of these shoe and textile companies sub contract these obligations to small private hospitals like the one owned by my friend.

Second, as his small hospital has done well, he intends to build the second one and is looking for funding from my other high school colleagues. His IRR calculation is amazingly not too much different with Liliana’s calculation of 33%. Bear in mind, my friend is a doctor-turned into-a businessman, not a sell side equity analyst. I will not be surprised that, having realized how profitable the business is, Ciputra Development may replicate the business in other pocket of industrial areas around the Jakarta and Surabaya going forward. Bottom line: a today’s top-notch property developer could turn into one of tomorrow’s leading Indonesian healthcare providers.”

JPM PTBA disappoints

Bukit Asam (PTBA) – Profit warning. 1H10 results out: sales down 15.7% yoy to Rp3794bn, 41% of Jpm estimate. EBIT down 50% yoy to Rp1046bn, 39% of Jpm estimate. Net income down 43% yoy to Rp908bn, 46% of Jpm estimate (35% of consensus). Stevanus Juanda already slashed his FY10 EBIT forecast by 21% on 21 May 2010, looks like another downward revision is coming up. The stock trades on adjusted 16.3x FY10 P/E (pre-revision, but adjusted for excess net cash), already at hefty premium to peers (on adjusted consensus ADRO trades on 16.8x, ITMG 13.7x, BUMI 10.7x, INDY 10.7x). Fasten your seatbelt. JPM rates O/W. My take -- Indika & Bayan Resources could be good non index bet on coal.

A Cup of Tea 23 July'10

Most Southeast Asian stock markets fell on Thursday, fretting over a downbeat economic view from the U.S. Federal Reserve, and weaknesses in energy prices dampened sentiment in the sector across the region. Malaysia eased 0.4%, retreating from a two-day rally to 10-week highs, Indonesia, which scaled a record high at one point, ended down 0.1%, the Philippines lost 0.1% and Vietnam fell 1%. Thailand ended up 0.25%, however, although it was in negative territory part of the day, while Singapore rose 1% to 2,955.67 amid optimism about the earnings of big firms.

Stocks had their biggest rally in two weeks Thursday as earnings and economic reports reassured investors that the recovery, while uncertain, is continuing. The Dow rose 201.77, or 2 percent, to 10,322.30. That was the Dow's biggest advance since it rose 274 points on July 7.

Meanwhile, European markets rose after a report showed unexpected growth in the 16-nation group that uses the euro. In recent months, investors worldwide have been concerned that rising government debt in Europe would stall a global recovery. A jump in Europe's purchasing managers index Thursday was a relief after forecasts of a possible recession on the continent.

On the London Metal Exchange, copper for three-months delivery CMCU3 closed up $160 at $7,010 a tone. Tin CMSN3 was untraded at the close but last bid at $18,550 a tonne from a last quote of $18,370/$18,375 on Wednesday. It earlier hit a near three-month high at $18,600. Nickel CMNI3 ended at $20,250 a tonne from a last quote of $19,495/$19,500, down from an earlier peak and three-week high at $20,251.

It's a combination of factors; Inventories continue to be drawn down on the LME. If you look at what the fundamentals have been doing – they are shaping up to be quite positive.

Crude palm oil futures on Malaysia’s derivatives exchange rose as much as 2.8% intraday to a two-month high Thursday, fuelled by increased demand in the physical market as countries in the region gear up for major festive periods. Also supporting the rise in prices were expectations for weaker production due to lower yields in the top palm-oil producing state of Sabah, growers and trade participants said.
Preliminary data from an industry body Thursday said output so far this month has only risen 1.5% from the same period last month, which may lead to a drawdown in palm inventory levels as demand is likely to outpace supply. With La Nina weather now underway, recent heavy rain in several oil-palm growing regions is already hurting output growth, although it is likely to boost yields in the future, an executive at a major Malaysian trading house said.

What about our market?
Inflow was healthy, our market will continue to be strengthening again and will trying to get 3030 level index for today. Indonesian rupiah still stable, this is sign that foreign investor still on the market. Like I ever said before, my focus still on commodity sector for better yield in the midterm investment. My assuming that better economic outlook will trigger demand for any commodity. And so far some commodity stocks still undervalue versa JSX. I believed that oil will try to touch $80/barrel before Q3 and S100/barrel at 2011. I really high recommended to accumulation and hold some commodity stocks especially on base metal, coal/energy and CPO.

TLKM, INCO, TINS, LSIP, UNTR, PTBA, ASII, BMRI, BBNI and some property stocks will be a trigger for today’s.

Happy Hunting and don’t forget to take some profit.


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.

Bakrie Building Jajaki Mitra Strategis China

Perseroan berharap, dalam 2 tahun ke depan, penjualan Bakrie Building tembus Rp1 triliun

Manajemen PT Bakrie Building Industries (BBI), salah satu anak usaha PT Bakrie & Brothers Tbk (BNBR) yang bergerak di bidang industri bahan bangunan, menjajaki kerja sama investasi dengan calon-calon mitra strategis di China.

Bakrie Building bermaksud menggandeng mitra strategis untuk mengembangkan produk-produk baru.

Direktur Utama dan Chief Executive Officer (CEO) Bakrie & Brothers, Bobby Gafur Umar, ketika dikonfirmasi membenarkan hal itu. "Ya, benar. Sekarang manajemen Bakrie Building sedang berada di China untuk melihat kemungkinan menggandeng mitra strategis dalam mengembangkan produk-produk bahan bangunan baru," kata Bobby dalam keterangan tertulis yang diterima VIVAnews di Jakarta, Kamis 22 Juli 2010.

Menurut Bobby, Bakrie & Brothers akan terus aktif mengembangkan bisnis di antaranya melalui salah satu anak usahanya, Bakrie Building Industries. Perusahaan investasi ini menargetkan bisa memperoleh tambahan pendapatan lebih besar setelah mengembangkan usaha produksi bahan-bahan bangunan.

Manajemen Bakrie & Brothers berharap, portofolio perseroan akan mampu mencatatkan peningkatan penjualan yang signifikan beberapa tahun mendatang. "Kapasitas produksi terpasang Bakrie Building akan kami tingkatkan. Investasi yang kami butuhkan sebesar Rp84 miliar. Sumbernya kas internal dan pinjaman bank," tuturnya. More...

MacQ Bayan Resources (BYAN IJ) (Neutral) - Kepco bought 20% of Bayan for coal offtake

Event

∙         Korea Electric Power announced that it plans to buy a 20% stake in Bayan Resources for about US$515m (implying roughly Rp7,000/share). This represents roughly a 3% discount to yesterday's closing price but a 12% premium to our price target. We think the deal is relatively fair for KEPCO as the deal price implies roughly 7.3x 2011 PER, which is slightly below the sector at 7.8x 

Impact

∙         Security of supply is the key for KEPCO. The acquisition would enable Korea Electric to secure roughly 2mt of coal per year starting from 2012 and 7mt per year starting from 2015.  Further, we believe this will also help KEPCO to hedge its cost of fuel, especially given it does not have a transparent mechanism to pass on fuel price changes. Our channel checks also highlight that KEPCO is looking to nominate 1 member to Bayan's Board of Directors, which currently consists of 8 members. ∙         What does Bayan have to offer? Bayan Resources is Indonesia's 6th largest coal company with current production rate of 14-15mtpa and growing to about 23mt longer-term. The company currently has roughly 477mt of reserves and 1,008mt of resources. We believe that the company is well positioned to benefit from the higher coal price environment especially given its relatively high coal quality (6,500Kcal GAD, well above the Indonesian average of 5,800Kcal).
∙         High cost structure and declining coal quality is the key risk for Bayan. We believe the main risks for the company lies in its high cash production cost of around US$52-54/t (2010-12E) due to a high strip ratio and long transportation distances. Further, whilst the current coal production quality is high at 6,500Kcal GAD, we see this declining towards 6,100-6,200Kcal longer-term.
∙         Deal done  in line with market valuation but premium to our DCF fair value . We think that the deal represents a fair price as the deal price roughly implies 7.3x 2011 PER (vs. the ASEAN peers at 7.8x).  However, it implies a 12% premium to our price target and should this be done across the sector, it would lead to a 30-35% upside to the sector.
∙         Increasing M&A trend. We believe that the deal reiterates our thesis of increasing M&A activity within the Indonesian resources space (either in the form of foreign companies investing in Indonesian greenfield mine or getting minority stakes in major coal producers for potential off-take). We expect this trend to continue evidenced by our recent trip to the Coaltrans coal conference, which saw an increasing number of Indian and Chinese participants. 

Action and recommendation

∙         We believe that the deal highlights the increasing M&A activity within Indonesian resources space and could benefit the ASEAN coal sector. Further, we see the potential for the ASEAN coal sector valuation to re-rate upward from around 8x 2011 PER currently towards its historical mean of around 11.5-12x on a better coal price outlook.Company mentioned:

KEPCO (

015760 KS, KRW31,900, OP, TP:KRW45,000) 

 

The Associated Press On the Call: Peabody on China's coal demand

Peabody Energy Corp.'s chairman and CEO, Gregory Boyce, told analysts he remains bullish about China's hunger for coal, both for making steel and electricity. On Tuesday, the International Energy Agency said China has overtaken the United States as the world's biggest energy consumer -- a report China swiftly questioned, claiming the calculations were "unreliable."

QUESTION: How does China fit into Peabody's growth, both near- and long-term?

RESPONSE: We regularly expect 8 to 10 percent GDP growth out of China and haven't been disappointed in any of the past 10 years. Amid the global financial crisis, China even managed 9 percent growth, and the first half of 2010 GDP grew 11.1 percent.

Now as China lets its foot off the gas just a bit, 2010 GDP estimates have been revised to 10 percent. The U.S. should even be one-third so lucky.

The simple fact is that (the) announcement that China has become the world's biggest energy consumer is profound. The U.S. held that position for over 100 years, and underneath this some have been concerned that China auto sales are easing. So consider that June sales were up 25 percent from the prior year, which itself was up 40 percent over 2008. GM has announced it's selling more cars in China than in the U.S., and this year China will sell more cars than any nation ever.

The China steel intensity per capita is increasing but remains at just half or less than the U.S., Japan and South Korea. And China will ultimately pass these nations in steel intensity as housing is being built up versus out.

There are hundreds of millions who need air conditioning and appliances that take steel to make and power to run. Also this year, China will pass the U.S. as a leading manufacturer.

China also has just announced a $30 billion investment in the nation's transmission grid system to further expand electricity availability. China's power demand growth in June was double-digit again, and year-to-date generation is up a robust 19 percent.

So all of this translates into China's coal demand growing at a rapid clip and coal imports continuing at a record pace. The June numbers just out show another impressive month with China net imports totaling 11 million tons.

Kim Eng Cement sector Robust as expected

What’s  New  
ƒ Cement consumption in June 2010 reached 3.40m tons, according to the Indonesia Cement Association. Though flat on a yearly basis, the figure marked a 3.8% m/m increase from 3.27m tons in May 2010. 
ƒ In 1H10, domestic cement consumption grew by 11.5% y/y to 19.60m tons. The robust growth is not unexpected, considering the low base  in 2009 and the prevailing  favourable  macro ‐economic  conditions. 
ƒ The  government  and  business  owners  have  agreed  to  cap  electricity tariff  increase  at  18%. This  will  translate  to  a  2 ‐3% rise  in  production cost. We  understand  that  the  cement  producers  can  pass  on  the  cost increase  to  consumers. 

Our  View  
ƒ Holcim  Indonesia  is  the  best  performer  to ‐date  with  19.0% y/y  volume growth, followed  by  Indocement  with  17.4% y/y  growth. Semen  Gresik Group  (SGG), however, only  posted  marginal  growth  of  4.0% y/y. 
ƒ SGG’s  sub ‐par  performance  could  be  attributed  to  the  major  overhaul in  Semen  Tonasa  early  this  year, which  caused  sales  to  drop  4.0% y/y in 1H10. But  Semen  Padang  and  Semen  Gresik  still  managed  to  grow by  1.7% and  9.1% y/y, respectively. 
ƒ We  expect  cement  consumption  to  moderate  in  2H10, as  construction activities  are  likely  to  slide  in  view  of  the  La  Nina  phenomenon, which  
brings  with  it  higher  rainfall. Hence, we  leave  our  volume  growth forecast  unchanged  at  7.5% for  2010. Retail  consumption  will  remain robust, but  surpassing  the  spectacular  performance  in  2H09  would  be a  tall  order, in  our  view. 
ƒ The  electricity  tariff  increase  should  pose  little  challenge  to  the  players in  terms  of  profitability, as  they  have  strong  pricing  power. If  the  cap remains  at  18% as  promised  by  the  government, production  cost  will rise  by  just  2 ‐3%. We  believe  the  cost  increase  can  be  easily  passed on to  consumers  without  any  significant  impact  on  demand. 

Action  & Recommendation  
ƒ We  maintain  our  overweight  recommendation  on  the  cement  sector as  we  expect  the  current  favourable  macro ‐economic  conditions  to last. Our  top  pick  in  the  sector  is  Semen  Gresik  which, at  12.2x  2011F PER, is  trading  at  a  15% and  22% discount  to  its  smaller  peers, Indocement and Holcim, respectively. 

UOB International Nickel Indonesia – BUY TP IDR 5000

Expect flat revenue growth in 2Q10

What’s New
•Higher nickel prices in 2Q10. Despite the downturn in the globaleconomy as a result of the impact from the European debt crisis andannouncement by China to slow down its strong economic growthcaused by lower London Metal Exchange (LME) nickel prices since May10 to a level of US$18,000-20,000/tonne, average LME nickel prices stillincreased 11.3% qoq as LME nickel prices increased 46% toUS$27,227/tonne in Apr 10, driven by strong nickel demand followingrestocking by stainless steel producers in early-10.

•Lower nickel-in-matte production in 2Q10. International NickelIndonesia’s nickel-in-matte production in 2Q10 would be lower due to atwo-week furnace maintenance shutdown in early-Apr 10. However, webelieve 2Q10 nickel-in-matte deliveries may not be affected by theshutdown as part of 2Q10 deliveries could be fulfilled with the additionalinventory of 1,790 tonnes in 1Q10.

•Water level improvement minimised thermal power use. The waterlevel for hydro power plants reached the maximum level in 2Q10,thanks to heavy rainfall. As such, the company is maximising the use ofits hydro power plant while reducing its use of thermal power. This ledto lower cost in the quarter.

•Completion of Karebbe project by 2H11 to reduce energy costs.The completion of the company’s third hydroelectric power-generatingplant, worth US$410m, at Karebbe by 2H11 is expected to reduceenergy cost, which accounted for about 34% of total cost in 2009.When completed, the plant’s hydropower will replace oil and gas infeeding the electric furnace at the Sorowako facility.

Stock Impact
•Flat quarterly top-line growth. We expect flat quarterly growth in thecompany’s top-line in 2Q10 as lower nickel-in-matte production offsetthe impact of the additional inventory of 1,790 tonnes from 1Q10 andhigher LME nickel prices in 2Q10.

•Nickel prices to stabilise in 2H10. We expect lower nickel prices ofUS$17,500-18,500/tonne in 2H10 as demand for nickel productscontinued to grow at a slower rate than in 1H10. This was due to therestocking of (mostly finished) nickel by stainless steel producers, andshort-term demand will only come from final consumer demand, and thepotential impact of the European debt crisis

Insiderstories Jaya Pari posts Rp38.59 bio 1H profit

Surabaya-based steel manufacturer PT Jaya Pari Steel Tbk (JPRS) booked Rp38.59 billion of net profit, a 229.80% jump from the same period last year which posted a net loss of Rp29.73 billion.

In the first half financial report submitted to Indonesia Stock Exchange (IDX), Jaya Pari Steel's profit was mainly underpinned by a strong growth of sales in 1H 2010. The company posted Rp237.03 billion of sales in 1H 2010, a 188.37% growth from a year earlier of Rp94.68 billion.

Operating profit also skyrocketed 314.27% from Rp20.81 billion of net loss to Rp44.59 billion of net profit.

CLSA Don’t see deflation anywhere in Indonesia

Seriously, I just don’t see deflation anywhere in Indonesia. With the exception of maybe LCD TVs, prices of pretty much everything is going up. From electricity, rice, chicken, rental, properties…..even stocks! Maybe we are too sheltered looking at Indonesia but from reading our regional emails and talking to our colleagues, there is nothing that suggests prices of goods and services are going down in the region. Even our colleagues in the US complaining that their bills are going up – from taxes to Medicare. Surely taxes is not included in CPI computation but yet probably makes the biggest dent to ones disposable income. That is surely one form of inflation eating away purchasing power.

Contrary to Bank Indonesia playing down the risk of inflation, we believe this may be the number one short term risk to the economy. Instead of “output gap”, we have what I would call “output deficit” everywhere here. Investors were surprised after a 1% MoM spike in inflation last month but be assured it would be trending up and up. Some economist estimate that July will see another 1%-1.5% MoM inflation. Why is that so?

Electricity rate hike – Although officially up only 13% earlier this month but anecdotal evidence tells us that in reality, the original plan would have made the hike closer to 30-40%. Govt dialed back and opted for the official average hike of 18%. If we want premium service (guaranteed no blackout), 40% more is what you would be paying. I can tell you no industries will opt for the “might blackout” service and the cost will just be passed on to consumers.

Soft commodity prices up: Extreme weather patterns all over the world pushing up prices from wheat, corn, sugar. Indonesia CPO yield first hit by El Nino and now immediately heavy rainfall possibly triggering La Nina. This is at time when we are heading into the festive season and Ramadhan where consumption picks up significantly. With surge of wheat prices, Indofood also looking to raise noodle prices.

Elimination of fuel subsidies for private cars. The government has been socializing the idea not allowing private car owners to fill up on subsidized gasoline. Last 3 times the govt socialized the idea followed by 3 price hikes. March 2005, Oct 2005 and May 2008 followed by 1.9%, 8.7% and 2.4% MoM inflation and subsequent rate hikes.

All these will no doubt hurt discretionary spending of consumers. With such huge performance of the consumer and banking names (interest rate sensitives), I would be looking to take some profit as a tactical call. Risk/reward of commodities especially coal and CPO looking especially interesting at this point.

A recent piece by our China guru, Andy Rothman, lays out a compelling argument as to why he thinks China is about to end their tightening policy. That will be very positive for commodities – see attached.

CLSA Semen Gresik (SMGR IJ) net profit Rp1.74tn

SMGR predicted that its 1H10 net profit can reach Rp1.66tn - Rp1.74tn, up 5% to10% from the same period last year. The increase in net profit is primarily caused by cost efficiency and not forex gain driven. SMGR Chief Director stated that 1H10 revenue an reach Rp5.95tn to Rp6.2tn.

Comment: At the top end this represents 45% of our full-year forecast of Rp3.88tn. Earnings growth is slowing as the company is operating at full capacity with no material increase in output before 2012. Our preference remains Indocement and Holcim.

CLSA Bank Permata (BNLI IJ) targeted 50% growth in mortgage lending

BNLI targeted its mortgage to increase by 50% this year, up from Rp5.5tn last year. BNLI Retail Banking stated that up to March 2010, the bank has already seen a 40% YoY growth in its mortgage lending to Rp6.3tn. He added that the second quarter growth is stronger but no further details are given out.

Comment: There is no doubt that banks, including Permata are ramping up mortgage lending. Our data from six major mortgage lenders revealed that total mortgage credit grew 23% YoY in 1Q10. Declining rates are happening across the board which takes rates to below 10%. BNLI's rate is ranging from 8.5-9.5%, and the company also has special scheme for account holders.

CLSA Land Inflation

A unique and good note on Indo property from analyst Sarina Lesmina today. She tracked back independent 3rd party valuation of seven property companies in Indonesia (this represents 80% of the listed property space).

This is not exactly apple to apple comparison (due to limited data available), but the exercise confirms that Indonesian property companies are vehicles to asset reflation. Greater Jakarta’s land value of the companies that we tracked has appreciated by a blended 20% cagr over the past five years.

And in spite of strong operational performance (close to record high marketing sales + good land price appreciation +15% YoY), the property sector is trading around 58% discount to NAV – on the higher side of historic discount (see chart below)

Buying these property stocks is akin to taking a stake in the future value of their landbank. We maintain OWT call on the sector. Bumi Serpong (BSDE IJ) and Summarecon (SMRA IJ) are the top picks in the sector. BSDE is the most leveraged to changes in land price.

Another interesting point we would like to highlight from Sarina’s report today is that property developers with exposure to very popular Serpong area (BSDE, SMRA, ASRI, and LPKR) seem to register higher CAGR. Location does matters!

Extrapolating the NAV appreciation trend three years forward, discount to future NAV for top picks Bumi Serpong (BSDE IJ) and Summarecon (SMRA IJ) will increase from currently around 50% to 70% area.

Key points from the report:
· Property companies are vehicles to asset reflation. Property companies’ NAV changes over time as land prices are re-appraised, the size of land bank changes and new projects were added.
· We tracked seven property companies which represents 80% of the listed property space in Indonesia and discovered that NAV appreciated by 8-26% cagr after each revaluation by third party appraiser
· Compounding this forward offers tremendous leverage to the companies’ NAV and investors. It also implies when land bank is monetized, margin will rise especially for companies with large land bank. Moreover, because land values are rising, hence so is future NAV.
· We are “OVERWEIGHT” the sector, and our top picks are BSDE and SMRA. The sector is currently trading at an attractive 58% discount to its NAV from the seven companies that we tracked.
· Mortgage rate is now at a comfortable low vs historical, however the sector has not narrowed as before. Mortgage credit of the major six lenders in Indonesia grew 23% YoY.
· We like Bumi Serpong (BSDE IJ) as one of our top buys in the space. BSDE is the most leveraged to a change in land price given more than 90% of their assets are related to residential development.
· SMRA is also a strong developer with 11-13% upside to our profit forecasts for FY11/12.

JPM Bank Tabungan Pensiunan Nasional

Jerry Ng, the CEO of Bank Tabungan Pensionan Nasional (BTPN IJ, not rated, market Cap Rp 8.0 trn, US$886m), hosted an informal breakfast this morning. BTPN is a niche bank, focused on administering civil service pensions and now cross-selling loans to that customer base. Overlaid on this, they are building out a micro lending operation. Total assets - Rp28 trn, total loans Rp19 trn - Loans-to-pensioners 78%, Micro loans 20%. LDR 88%, gross NPLs 0.9%, RoE 35.7%. The bank is making excellent progress:

* Strong loans growth: In 2Q, BTPN grew loans by 25% YTD and 64% y/y. Rolling out of the pension loans and benefits of the network expansion for its micro lending business helped. We have expected strong showing on the growth of BTPN’s micro loans book as they expand reach.

* But unexpectedly, pension loans grew strongly as well: They disbursed Rp6.2 trn in pension loans in 1H, vs. 9.2trn in all of FY09. BTPN says that the rate of retirement from the civil services seems to have increased this year. From an average annual retiree rate of 100,000 people per year, this year there seems to be double the number of new retirees. This is a growth opportunity for them and driving new loans too. They have added 30% to their capacity to service the pension administration business.

The stock trades on 3.4x Jun-10 price-to-book multiple, with 36% RoE. Has been my personal favourite for the last two years.

JPM Indo coal M and A: it is happening

Yesterday, Korea Electric Power Corp (Kepco) announced the plan to purchase a 20% stake in Bayan Resources for US$515mn, or Rp7000/share. The price implies an EV/reserves ratio of US$5.7/ton, looking robust compared to Bumi Resources at US$2.7/ton and Bukit Asam at US$2.1/ton. On the other end of the spectrum, however, we have IndoTambang (ITMG) trading on US$15.6/ton EV/reserves and Adaro (ADRO) on US$10.3/ton.

The market largely missed the money making opportunity in BYAN, which fell to as low as Rp840, four months after the IPO that was priced above Rp5000. The extreme valuation divergence among the six Indo coal names (on EV/reserves) highlights the strong herd mentality by public market investors, by continuing to bid up perceived winners like ITMG and ADRO, ignoring the other four names despite the valuation (PTBA an exception due to debate over ability to monetize the reserves). The situation offers opportunity for the non benchmarked investors, because believe it or not, the M&A appetite in the sector for non-controlling stakes in Indo coal companies has remained fairly strong.

Structurally, the demand-supply outlook for coal looking favorable despite the uncertainty on global economic cycle. It takes two to three years to build a steam power plant, and it would be difficult to stop half way during construction and not use it after completion. From the consumer point of view, once you have electricity, there will be no going back.

My favourite coal M&A plays would be Bumi & Indika, but among the benchmark coal names my pick would be Bukit Asam (PTBA).

Mansek Semen Gresik:1H10 net profit may grow 10-15%yoy (SMGR,Rp9,100, Neutral,TP:Rp9,400)

SMGR 1H10 net profit may grow 10-15%yoy following higher revenue of 7-9%yoy.SMGR ’s president director also reported that production volume increases by 4-5%yoy.The indicated top and bottom line figures reflect 1H10 revenue and net profit of Rp7.2-7.4tn and Rp1.66-1.74tn,respectively.

It also indicates that average selling price is slightly increased,thus reflecting better margins.It is inline with our forecast as it represents around 45-46%from FY10 target.The company is currently trading at PER10-11F of 14.5x-12.5x vs average industry of 17.0-14.4x.

Mansek Property:Demand of industrial estate jumps 140%qoq as per 1H10 -- KIJA

Industrial estate property demand is reported to increase up to 100ha (+140%qoq)as per 1H10.Cushman and Wakefield claimed that the surge in sales was due to impact of riots occurred in Thailand which led foreign investors to relocate their business in Indonesia.During 2Q10,there was a new supply of 257ha which came from Lippo Cikarang and Modern Cimande.

Industrial estate in Bekasi,Kerawang and Purwakarta dominated the 1H10 sales,with take-up rates up to 90%.Auto spare part industry,pharmacy,steel and F&B industry are sectors that dominated the sales.

Under our coverage,KIJA is the company who will be most benefited from the trend.The company currently has landbank for industrial estate of 1,570ha.As per yesterday ’s closing price,KIJA trades at 79%discount to NAV10.

Mansek Bukit Asam :A lot of catching up to do (PTBA,Rp16,550,Neutral,TP:Rp18,650)

Bukit Asam announced its new contract price and amount for PLN power plants,Tarahan and Bukit Asam.Tarahan will received 750k tons at Rp570,000/ton and Bukit Asam will receive 1.1Mt at Rp430,000/tons.With this announcement PTBA has settled all the contracts with PLN including January 21,2010 contract to supply Suralaya power plant 5.5Mt at Rp685,000/tons.With the contracted amount and prices with PLN,we expects PTBA has a lot to catch up on the export front

Catching up the volume.With PLN contracted amount and export in 1Q10 (we assume no domestic sales aside from PLN in 1Q10),PTBA has to find market for its 6,978k tons of coal.This assumed PTBA will fulfill its 15.6Mt of FY10 sales guidance.Can they make it since 1Q10 they only sold 3.2Mt (20.5%of FY10 guidance)and April sales is only 828k tons. Based on April 2010 sales volume it will be tough to maintain guidance.

And also ASP.We also estimated that PTBA need to have an ASP of US$63.6/ton for its remaining volume.Can they achieve it,considering ASP 1Q10 for export is just US$57/ton.That also assumed that all the remaining volume is for export which is usually have higher price.PTBA mentioned that 1Q10 export was mainly on coal with 5,900 kcal,and expect to send higher calorific coals in the future.Based on these recent data,we conclude that there is likelihood of downward adjustments in consensus forecast.

Credit Suisse Bank Mandiri (BMRI.JK, Rp6100, O, TP Rp7200) – Potential catalyst: higher-than-expected asset recovery

• We see potential for a positive earnings surprise for BMRI should the bank be able to complete the asset recovery process from Grup Domba Mas (not listed) and Grup Benua Indah (not listed).

• Asset recoveries from Grup Domba Mas and Grup Benua Indah are equivalent to 18% of our FY10 earning estimates for BMRI. However, we are yet to factor the two potential asset recoveries into our FY10 estimates, as we are still waiting for further indications on the probability of completion of the two transactions.

• Under the condition that BMRI is able to complete all three asset recoveries (Garuda Indonesia (not listed), Grup Domba Mas and Grup Benua Indah) in 2010, we see potential for a positive earnings surprise.

• BMRI’s FY11E P/B remains undemanding relative to its local peers, while its FY11E P/E is still lower than regional peers. Thus, we believe the valuation of BMRI remains relatively reasonable. We maintain our OUTPERFORM rating and target price of Rp7,200

Mansek AALI:6M10 CPO sales volume reach 45%of our FY10F assumption (AALI, Rp20,250,BUY,TP:Rp24,500)

AALI ’s 6M10 CPO sales volume decreased by 3.3%yoy from 494,018 ton in 6M09 to 477,639 ton in 6M10.This 6M10 CPO sales volume represents 45.0%of our FY10F assumption.We will maintain our CPO sales volume assumption.

AALI ’s 6M10 CPO sales price increased by 3.2%yoy from Rp6,386/kg in 6M09 to Rp6,590/kg in 6M10.

Currently,AALI trades at FY10F and FY11F PE of 14.6x and 12.5x, respectively.

Berau Coal downsizes IPO target

PT Berau Coal Energy, parent company of Indonesia's fifth largest coal miner PT Berau Coal, has determined to offload 3 billion shares in the primary market via initial public offering at the price of Rp300-Rp400 per share. By considering the price, Berau Coal Energy will snap up cash of Rp900 billion to Rp1.2 trillion. The current size is 4 billion shares lower than initial plan mentioned in the IPO prospectus of 7 billion shares on the back of raising funds from bond issuance and band loans.

Berau Coal's Commissioner Rosan Perkasa Roeslani said Berau Coal Energy has secured loan facilities worth US$400 million from some foreign banks including Credit Suisse, Deutsche Bank, and a Chinese bank. In parallel, Berau Coal is underway to issue US$350 million bond, offering interest rate of 12.5% for 5 year maturity. "About US$600 million will be used to refinance debt to Credit Suisse," he said. The IPO proceed of around US$100 million will be used to finance capital expenditure in the next three years.

CIMB Quick Takes – Ace Hardware Indonesia – 1H10 preview

Outperform and target price maintained for Ace. No change to our earnings forecasts as well as target price of Rp2,200, DCF based (WACC 13%, LTG 7%), and implying 22x and 17x CY10-11 earnings. We preview Ace’s 1H10 results with sales growth of 18% yoy expected, driven by over 9% SSG. Margins may spring a nice surprise on rupiah strength and stronger-than-expected SSG. While June’s SSG dipped to -3%, management did not sound alarmed, as an absence of its popular ‘’Boom” sales seemed to be the main culprit. Four to five new stores would be opened in 2H10, adding to the two opened in 1H10, which suggests that 2H10 sales could be stronger. Ace’s appeal continues to stem from its above-market growth, providing potential share-price catalysts, in our view.

DBS United Tractors: Buy; Rp19,700; TP Rp20,750; UNTR IJ

Be prepared for acquisition-led growth

United Tractors (UT) set aside US$100m to expand its coal production by acquiring more coal asset. The company will use US$50m from the rights issue proceeds to finance the acquisition while the remaining US$50m from either internal cash or bank loan. Recently, UT completed the acquisition of 60% stake in Agung Bara Prima for US$15.9m. Agung Bara has 10m tons of coal reserve located in Central Kalimantan. We believe that given its healthy balance sheet position and strong cash flow going forward, UT will continue to increase its coal reserve by acquiring more coal assets near its coal concession area. Maintain our Buy call for UT with TP of Rp20,750/share. We expect strong heavy equipment sales and further acquisition announcement to be the next catalyst of the stock.

Credit Suisse Asia-Pacific Financials Sector

New report: Trim Indonesia to mild OVERWEIGHT, add to Korea banks

Since late November, Indonesian banks are up 36%, while Korean banks are down 13%. We now recommend shifting some money into Korean banks on a tactical basis.
Trim Indonesia to mild OVERWEIGHT: The best performing bank stocks in Asia YTD, Indonesian banks appear stretched on valuations both relative to own history and on our GEM strategist Sakthi Siva’s P/B-ROE relative model. We still consider Indonesia
as the most attractive banking market in Asia given its structural growth potential over the next decade, this is a short-term tactical call. We would play this by selling Danamon and BCA.

Recommend putting that money to work in Korea: We upgrade Korea to mild OVERWEIGHT from Neutral on the basis of valuations and three catalysts: 1) our belief that asset quality risks are peaking in 2Q10, 2) improvement in loan spreads and 3) rate
hike of last week. Our preferred plays are Shinhan and Hana, both having less exposure to the troubled project finance segment. We continue to like China and India among NJA financials.

We are lightening up on Indonesian banks simply due to really stretched valuations. Compared to their own history, the banks are trading at 3.8x trailing P/B (MSCI) (+1.4 sd) and 13.1x forward P/E (+0.7 sd). We recognise the structural improvement in ROEs of banks in Indonesia and also acknowledge the tailwinds from falling bond
yields, but Sakthi Siva’s PB relative minus ROE relative model shows that the Indonesian banks are trading at a 43% premium to NJA banks, the largest premium ever. We still consider Indonesia as the best banking market in Asia given its 20% plus potential growth for the next decade. This is just a tactical call given the short term over- valuation. We would play this view by selling Danamon and BCA.

Put that money to work in Korea, tactically
We upgrade Korea to mild OVERWEIGHT from Neutral on the basis of valuations, our belief that the asset quality risks are peaking in 2Q10, some improvement in loan spreads and the rate hike of last week. On valuations, Korean banks are trading at the farthest distance from their five-year average P/B and second-farthest on P/E,
and also turn out to be at second-widest discount to NJA banks on Sakthi Siva’s P/B relative minus ROE relative model. We see second quarter results as a catalyst in which banks will recognise new NPLs as well as precautionary loans following government’s SME credit review on project finance construction, shipbuilding and shipping loans. We believe banks will kitchen-sink loan loss provisions in 2Q,
as evidenced in the case of Hana FG, and earnings will improve from 2H10. The other catalyst, in our view, is the expansion in loan spreads over cost of deposits as well as CDs, which combined with the gains from rising interest rates, should underpin margins in 2H. Our preferred plays are Shinhan and Hana, both having less exposure to the troubled project finance segment.

Financial should outperform broader Asia, again
We believe Asian markets should trend higher in 2H10 and thanks to the soft landing combined with rising rates, Asian financials should outperform the broader markets for the third consecutive year. Chinese banks remain the most attractive given their valuations and the catalysts falling into place for 2H10. Indian is facing macro headwinds, but India is a bottom-up market and the growth and quality of private sector banks trumps all. We are UNDERWEIGHT on Taiwan, Australia, Malaysia,
Thailand and Hong Kong, and NEUTRAL on Singapore.

Companies Mentioned (Price as of 20 Jul 10)
China Construction Bank (0939.HK, HK$6.39, OUTPERFORM, TP HK$7.74)
Industrial & Commercial Bank of China (1398.HK, HK$5.74, OUTPERFORM, TP HK$6.59)
China Life Insurance Co. (2628.HK, HK$33.65, OUTPERFORM, TP HK$42.00)
China Taiping Insurance Holdings Co Ltd (0966.HK, HK$25.90, NEUTRAL [V], TP HK$30.00)
HDFC Bank (HDBK.BO, Rs2037.00, OUTPERFORM, TP Rs2154.00)
Axis Bank Limited (AXBK.BO, Rs1361.00, OUTPERFORM [V], TP Rs1510.00)
Shinhan Financial Group (055550.KS, W47,100, OUTPERFORM, TP W61,000)
Bank Rakyat Indonesia (BBRI.JK, Rp9750.00, OUTPERFORM [V], TP Rp11000.00)
Oversea-Chinese Banking Corporation (OCBC.SI, S$8.96, OUTPERFORM, TP S$10.25)
Bank Danamon (BDMN.JK, Rp5600.00, OUTPERFORM [V], TP Rp6700.00)
Bank Central Asia (BBCA.JK, Rp5950.00, NEUTRAL, TP Rp6000.00)

Goldman: Oil Over $100 in 2011; Gold to $1,335

Goldman remains a long-term commodities bull. Their latest projections follow:

METALS-Copper at 3-wk high on buying, lower inventories

* Chinese arbitrage buying boosts prices

* Corporate and macroeconomic data cap gains

* Coming Up: Fed chairman Ben Bernanke 1800 GMT

(Updates official prices)

By Michael Taylor

LONDON, July 21 (Reuters) - Copper rose to a three-week high on Wednesday due to strong physical and Chinese buying and falling inventories, but gains were capped by uncertainty over economic growth.

Benchmark copper for three-month delivery CMCU3 on the London Metal Exchange traded at $6,790 a tonne from $6,637 at the close on Tuesday and compared with a session high at $6,830.

Shanghai's benchmark third-month copper SCFc3 gained 0.6 percent to close at 53,350 yuan a tonne. The contract peaked at 53,600 yuan, also its highest since July 15.

Copper prices rose 140 percent last year but are down about 8 percent in 2010.

"We're seeing more activity from commercials -- fabricators, manufacturers, consumers," Brebner said. "The physical market is taking advantage and buying, and physical markets remain tight."

Zinc CMZN3 traded at near two week highs at $1,895 a tonne in exchange rings from $1,875 and tin CMSN3 was untraded but last bid at $18,315 from $18,240.

Steel-making ingredient nickel CMNI3 traded at three month highs at $19,320 in LME rings from $19,125, while battery material lead CMPB3 was untraded but last bid near two month highs at $1,865 from $1,837. More...

Pabrik Oleokimia Bakrie Segera Beroperasi

Jakarta (ANTARA News) - Manajemen PT Bakrie Sumatera Plantations Tbk tengah memastikan fasilitas-fasilitas di pabrik oleokimia yang diakuisisinya dari Domba Mas dan mengharapkan pabrik itu sudah bisa beroperasi komersial sebelum akhir tahun ini.

Tim tekhnis Bakrie Sumatera Plantations sudah berada di lokasi pabrik, yakni Kuala Tanjung dan Tanjung Morawa di Sumatera Utara sejak Juni lalu, untuk memastikan pabrik fatty alcohol dan fatty acid di sana dapat berjalan baik sesuai target.

"Maklum, pabrik-pabrik milik Domba Mas di sana sudah lama sekali mangkrak, tidak beroperasi. Sekarang ini tim teknis dan tim produksi kita sedang melakukan technical assasment dan persiapan produksi di sana," kata Direktur Bakrie Sumatera Plantations M Iqbal Zainuddin di Jakarta, Rabu.

Technical assasment dan persiapan itu kemungkinan akan memakan waktu 2 bulan. More...

Fitch Affirms TPN's Ratings After Proposed Acquisition of Parent

Fitch Ratings-Jakarta/Singapore-21 July 2010: Fitch Ratings has today affirmed Indonesia-based PT Titan Petrokimia Nusantara's (TPN) National Long-Term rating at 'A+(idn)' with a Stable Outlook. This follows the announcement by Honam Petrochemical Corporation (Honam) -- the flagship company of Korea's Lotte Group's petrochemical business -- that it plans to acquire Malaysia-based Titan Chemical Corp. Bhd. (Titan Chemicals), TPN's ultimate parent. At the same time, Fitch has also affirmed the National rating of 'A+(idn)' for TPN's IDR73bn rupiah bond and IDR200bn Islamic bond, due June 2015.

TPN's 'A+(idn)' National Long-Term rating already incorporates a two-notch uplift from its stand-alone rating --given the operational links with, and ownership and management control by Titan Chemicals which has a 90.4% beneficial ownership in TPN. Fitch believes that Titan Chemicals' credit profile may be enhanced by the proposed acquisition given the operational and financial strengths of Honam. However, the agency also believes that the proposed transaction will not further enhance the linkage between TPN and Titan Chemicals -- and therefore continues to maintain the two-notch uplift.

The company's 'A+(idn)' National Long-Term rating with Stable Outlook is based on Fitch's expectation that the company can maintain a financial profile appropriate for its rating through an expected upcoming downturn in the petrochemical industry in 2010-2011. Nevertheless, the agency may consider a negative rating action in the event TPN has a sustained and weak operating performance, and/or if there is evidence of reduced integration with Titan Chemicals.

TPN is one of the largest polyethylene producers in Indonesia with a total production capacity of 450 kilotonnes (KT) per annum. In 2009, TPN's production volume reached 293KT with revenue and EBITDAR generation of USD380m and USD51m respectively.

Applicable Criteria available on Fitch's website at www.fitchratings.com: "Corporate Rating Methodology", dated 24 November 2009; and "Parent and Subsidiary Rating Linkage", dated 14 July 2010.

Fitch has made major improvements to its credit research on EMEA and AsiaPac corporates. To view these improvements, visit our 'Clear Thinking' web page at http://clearthinking.fitchratings.co.uk/Index.html

Contacts: Jessie Wahab, Jakarta, +6221 526 7949/ Jessie.wahab@fitchratings.com; Buddhika Piyasena, Singapore, +65 6796 7223/ buddhika.piyasena@fitchratings.com.

Semester I, Pendapatan Berau Coal Naik 27%

JAKARTA - PT Berau Coal Energy memastikan pendapatannya mengalami kenaikan sekira 27 persen pada semester I-2010. Di mana perseroan mengindikasikan pendapatannya sebesar USD475 juta, sementara pendapatan pada semester pertama 2009 lalu adalah sebesar USD376 juta.

"Kalau dibandingkan dengan semester pertama 2009, pendapatan kita di semester pertama ini tumbuh sekira 27 persen," jelas Direktur Berau John Joseph Ramos, di Hotel Mulia, Senayan, Jakarta, Rabu (21/7/2010).

Dia menjelaskan jika pihaknya mengalami kenaikan harga jual rata-rata. Di mana pada 2009 lalu harga rata-rata hanya sebesar USD56,7 per ton. Sementara, harga rata-rata batu bara produksinya sebesar USD58 per ton pada semester I-2010. Pada paruh pertama tahun ini, perseroan mencatatkan produksi sebanyak delapan juta ton.

"Hingga akhir tahun, kita akan mempertahankan harga rata-rata di USD58 per ton," imbuhnya.

Berau memproduksi batu bara thermal dari tiga lokasi pernambangannya dan memadukannya untuk menyesuaikan keseluruhan kualitas batu bara yang dimilikinya. Berau memasarkan batu baranya dengan empat label, yakni Mahoni, Mahoni B, Agathis dan Sungkai dengan kualitas kalori berkisar antara 5.000-5.600 kcal/kg, dan dengan kualitas abu dan sulfur yang sesuai untuk pembangkit batubara di Indonesia dan negara-negara Asia lainnya.

Dia juga mengatakan jika perseroan mengangarkan belanja modal (capital expenditure/capex) sebesar USD48 juta. Hingga semester I-2010 ini perseroan telah commit atas sebanyak USD30 juta. "USD30 juta yang hingga akhir Juni sudah commit," ungkap dia.

Dana untuk capex ini, lanjutnya akan dipenuhi dari loan bank dan bonds sebesar USD750 juta. Yang sebagian kecil dari dana tersebut akan dipergunakan untuk capex. Begitu juga dengan IPO yang dana prositnya dipatok mencapai USD100 juta, akan ada sebagian dana itu juga dipersiapkan untuk capex. (Widi Agustian - Okezone)

Credit Suisse METAL SECTOR: Downgrade Nickel price- Downgrade INCO - ANTM EPS

No change in 2011 nickel price of $8.25/lb and LT $7/lb, while 2010 nickel price assumption is now downgraded to $9.19/lb (3-mo future is now $8.66/lb). @Rp3,775 we maintain sell INCO (TP Rp3,100), while @Rp1,970 we maintain hold ANTM (TP Rp1,900).


Fonny Surya : We have downgraded our 2010 forecast for nickel prices from an average of US$10.4/lb to US$9.2/lb, in line with our bearish view on nickels, driven by slower demand and stronger supply growth. We maintain our bearish view on nickels, but are slightly more positive on gold, which drives our views on ANTM (NEUTRAL) and INCO (UNDERPERFORM).

We use historical average EV/EBITDA to value ANTM and INCO. Based on 5.5x EV/EBITDA and 6.3x EV/EBITDA for INCO and ANTM, respectively, we have downgraded our target prices for ANTM to Rp1,900 (from Rp2,000) and for INCO to Rp3,100 (from Rp3,500).

Credit Suisse BANKS SECTOR: Rising Inflation but Top-3 BBCA, BMRI, BBRI more reselient

Any weakness due to inflation concerns on share price are good entry level for both BMRI and BBRI, which are our Top-Picks in Indonesia Market.


Teddy Oetomo : Although we foresee potential for inflation rate uptrend, it is likely to remain manageable. We estimate that FY10 inflation will be 5.5%, though some market participants expect it to be as high as 6.5%. The potential for inflation rate uptrend is due to seasonality effect during Ramadhan and a potential increase in electricity tariff.

Inflation rate uptrend may subdue market’s sentiment on Indonesian banks. However, the upside risk on inflation rate remains manageable and, hence, we believe it is unlikely to deter the medium-term outlook of Indonesian banking stocks. Historically, during an inflation rate uptrend (though at much larger magnitudes), Indonesian banks have delivered negative absolute share price returns. However, on a relative basis (to JCI), BMRI, BBCA and BBRI have historically delivered a more resilient performance during inflation rate uptrend periods. However, given BBCA’s more demanding valuation, we prefer BMRI and BBRI.

Credit Suisse CEMENT SECTOR: June sales showed moderation – reit Top Buy SMGR

June SMGR sales showed a blip (-8% YoY in June while +5% MoM) as a result of expected 1 month plant maintenance. Arief reiterates SMGR as Top-Buy in cement sector and Indonesia market!


Arief Wana : Moderating is a trend in Indonesia’s June cement sales, posting the lowest YoY growth (flat YoY) in the past nine months to 3.4 mn tonnes. This is in line with our expectations (47% of FY10E), as we expect 2H10 to grow 4-5% to reach our 8% industry growth.

Despite a YoY decline, Semen Gresik’s market share improved in June but on a YTD basis, the negative impact from the plants’ repair and maintenance and capacity constraints overall was still apparent.

Cement prices were relatively flat on both MoM but some non- Java areas recorded YoY declines (due to higher sales mix from Indocement and Holcim going into Semen Gresik’s stronghold at lower ASP.

Indonesian cement sector continues to serve as a hedge against inflation. Our top pick is Semen Gresik, and we remain NEUTRAL on the other two stocks due to valuations.

Credit Suisse ASTRA INT’L (ASII): All time high June data – watch 2Q results next week

There is upside earnings risk upon 2Q results next week and ASII June-YTD auto sales are already Ahead 57% of 2010F for cars and Ahead 58% of 2010F for motorcycles, and ASII remains our Top-pick as Core Holding in Indonesia market! Given our Index Target 3,300pts implies 10% upside and current SOTP Rp52,000/share, we maintain Neutral rating on ASII (@Rp49,300).



Arief Wana : June industry auto sales volumes stayed robust (+78% YoY for cars and +35% YoY for motorcycles) on: 1) the seasonally-high demand, ahead of the Lebaran holidays, 2) delivery of April-May orders, and 3) more promotions. The YTD run rate is around 10% above our forecasts.

Astra’s market share in cars stayed solid, but its motorcycle market share declined to 45% (from 50% in the previous month) due to clearing its inventory for the upcoming new models this month.

We see positive impact on Astra’s share price in the short term. While we see earnings upside risk rising for Astra International, we maintain our NEUTRAL rating on the stock due to valuations, and continue to see Astra as a more core holding for the market.

DBS Kalbe Farma: Not Rated; Rp2,450; KLBF IJ

Kalbe finalized divestment of packaging division

Yesterday, Kalbe Farma has signed a conditional sales and purchase
agreement to sell a 58.1% stake in PT Kageo Igar Jaya Tbk(IGAR) to PT
Kingsford Holdings for Rp112.86b. Kalbe sold 610.06m IGAR's shares at
Rp185 a piece.

Kalbe has been planning to divest its packaging division since early
this year due to its low profitability. Kalbe wants to focus on their
heart of business (healthcare and pharmaceuticals) and increase the
profitability in that area as healthcare related business operating
margin is around 17% well above packaging operating profit margin of
around 3%.

Under its packaging division, Kalbe directly and indirectly owns 3
packaging companies namely PT Kageo Igar Jaya Tbk, PT Avesta Continental
Pack, and PT Indogravure. As Avesta and Indogravure are subsidiaries of
IGAR, this divestment also divest the other two companies.
KLBF will maintain 5% ownership in IGAR to ensure the continuing
availability of packaging material supplies.

DBS Bukit Asam: Buy; Rp16,700; TP Rp21,350; PTBA IJ

Negotiates higher than expected coal price

Perusahaan Listrik Negara has agreed to pay Rp570,000/ton (+8.6%yoy) for 750,000 tons of coal delivered to Tarahan power plant and Rp430,000/ton (+5.5%yoy) for 1.1m tons of coal delivered to Bukit Asam power plant this year. The combined coal supplies equal to 12% of our FY10F target sales volume of 15m tons.

The agreed price is 16% and 13% higher than our price assumption of Rp490,000/ton and Rp381,000/ton respectively. Imputing the number into our model, we estimate average selling price (ASP) to increase by 1.7% to Rp633,000/ton (US$70/ton) and will increase net profit by 4% to Rp2.8t. We maintain our number at the moment, waiting for 2Q10 result to be released by the end of the month.

Maintain Buy, TP of Rp21,350/share offering 28% upside potential.

China A shares gain momentum as hopes of a policy loosening surface

The Shanghai Composite Index (SCI) extended its rebound for a second day, posting a 2.2% gain yesterday (or 4.3% in two days) to 2,528 points on hopes of a policy relaxation, as the slowing Q2 GDP growth rate of 10.3% suggests a higher slowdown risk. Policy-sensitive sectors such as property, banks and basic materials outperformed. Trading volume also jumped by 50% day on day, making the rebound appear more convincing. The proposal of a mini qualified foreign institutional investors (QFII) scheme (allowing offshore CNY to invest in domestic A shares via Chinese brokers/fund houses in Hong Kong) and reports that local insurance companies were starting to bottom fish at a level of 2,400 were also interpreted as positive policy signals. The Hong Kong Hang Seng China Enterprise Index followed suit, gaining 1.74%.

In our view, the tightening measures launched in mid-April are starting to take effect and may become more obvious in the next two months. This should give the government more leeway and flexibility in its policy implementation in H2. However, a reversal of its tightening-biased policy stance is highly unlikely, although policy/credit normalization will continue via a multi-pronged approach, given the subsiding inflation pressure and rising growth risk. We think that the authorities will continue to curb credit extension and stick to their full-year target of CNY 7.5 trn.

Based on a local media survey, twenty-four major A-share fund houses reduced their equity position by 10%–20% in Q2. With a relatively high cash position currently, they may need to re-enter the markets when the uptrend is confirmed to avoid an underperformance. We believe the recovery momentum of the SCI could be further established if it manages to stay above 2,600. On the other hand, against a backdrop of strong economic growth in H1, we see a limited disappointment risk in the upcoming interim earnings. SASAC's recently released statistics suggest that state-owned enterprises already recorded YoY profit growth of 62% in H1.

We continue to believe that market liquidity remains abundant, with many investors still sitting on the sidelines waiting for a re-entry opportunity, backed by attractive valuations. As a traditional leading indicator, A shares' stabilization may eventually spill over into Hong Kong H shares. However, it is still worth noting that H2 2010 earnings/economic growth will inevitably slow on a YoY basis, due to the higher base in H2 2009 and the tighter credit environment starting from Q2 2010.

This may not be fully factored into the market, in our opinion. Despite our positive fundamental view on China equities, market sentiment could turn cautious again and may continue range-trading in the near term on worries of an economic slowdown and decelerating earnings growth. Investors should continue to closely monitor A-share movements in the next few weeks, as it seems increasingly likely that the bottom-building process may end earlier than we expect. We continue to suggest selectively adding undervalued A/H shares (China Construction Bank-H (939 HK, BUY), ICBC-H (1398 HK, BUY) and CNOOC (883 HK, BUY)) to position ahead of a more sustainable recovery in H2, while more risk-tolerant investors may now consider increasing the proportion of high-beta stocks (Jiangxi Copper-H (358 HK, BUY) and CSCL-H (2866 HK, BUY)).
Timothy Fung, Phone: +852 2841 4812, timothy.fung@credit-suisse.com

CLSA How does China, the world’s biggest creditor, view this debt build up?

“Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets” Peter Lynch

These days, there seems to be only one solution any slowdowns / problems, that is just throw more money at it. A special feature from Central Banks' ability to just print. Just like Bond has a license to kill, Central Banks have the license to rob savers gracefully through inflation. Well, understandably, the only way a ponzi-scheme can survive is to let it grow bigger and faster. Being it debts of individuals, corporate, and countries which now intertwined such that all just got too big to fail If the economy is in recession, let the government go into deficit to bolster spending.

Average total debt (private and public sector combined) in ten developed countries rose from 200% of GDP in 1995 to 300% in 2008. In extreme cases like Iceland and Ireland, their debt to GDP ratios reached staggering 1,200% and 700% respectively. The only logical reason why anyone would lend them money is because they believe it will be paid back not by financial discipline but by with newly printed bills.

It is interesting to note that this week, China’s leading credit agency Dagong Global Credit Rating Company, stripped US, UK, Germany, and France of their AAA ratings, accusing their western competitors of ideological bias. Unlike backward looking credit agencies like Moodys, S&P, Fitch, the Chinese rating agency gave a much greater weight to wealth creating capacity. As such, China was upgraded to AA+ with Germany, Netherlands and Canada,

When most developed market economies went towards taking in more debts and face severe fiscal problems, Indonesia’s public debt to GDP went from 94% of GDP to 28% in one decade. Given that the government has $41bn in listed assets alone (5.8% of GDP), the unlisted assets would probably be worth at least that also. The point is: Indonesia's NET debt is considerably less than the headline. It is possible that the govt's real net debt is less than 10% of GDP. And yet our sovereign debt rating still rated junk status.

Despite the achievement of deleveraging and growth, President SBY calls for more discipline to reduce foreign debt. The estimated budget deficit this year is projected at 2.1% of GDP (About US$14.7bn). Separately, Finance Minister Agus Martowardojo has said that state ministries have only absorbed 35% of the state budget as of June 30. The govt historically speeds up expenditure spending in the second half of the year but has usually still falls short of spending the entire budget. What a stark contrast to developed nations!

CLSA Indo Tambang (ITMG IJ), dividend play?

Our Head of Research Nick Cashmore is putting on his resource hat and examining Indo Tambang (ITMG IJ). Many of you have already known that our resource guru Olie has departed for the other side of the industry; I guess the more enlightened one (buy side).

Back to ITMG, the combination of ITMG’s US$400mn cash and that the cash hungry parent Banpu, which is closing on a US$2bn acquisition in Australia, could imply a big dividend. ITMG has recently been able to secure loans from various banks to finance capex.

We estimate a dividend yield of anywhere between 6-12%. This is assuming 75-100% of its net cash to be distributed as a dividend. ITMG has been paying out 60% of its earnings as dividends and this is likely to increase.

BUY, with TP of Rp38,600

Mansek Kalbe Farma:1H10 results indication are inline with our forecast (KLBF, Rp2,450,Buy,TP:Rp2,500)

KLBF management indicated 1H10 revenues reached Rp4.73tn (+12%yoy)
and net income reached Rp518bn (+30%yoy).These indicative results
confirm our previous indicative results in our July 9 report.The Rp518bn
net profit,considering seasonality effect,is inline with our forecast as it
represents 41%of our FY10F forecast.

The management is targeting FY10 revenues of Rp10.45tn (inline with
ours),and net income of Rp1.11tn (13%below ours).

Regarding IGAR,KLBF decided to sell none-core packaging business IGAR.
IGAR was sold at Rp185/share (or a total of Rp113bn)with the transaction
to be completed within this year.According to the company,this is not a
material transaction.

We still have Buy recommendation for KLBF which is trading at PER10-11F
of 19.6-16.1x.

Mansek Medco Energi:Discovers additional oil in Libya ’s Area 47 (MEDC,Rp2,975, Buy,TP Rp3,500)

The company reported an additional oil discovery in Area 47,Libya.The discovery is the twelfth oil &gas discovery out of 17 wells drilled.This discovery will enhance the overall and ultimate potential in such block. Aside from that,PT Pertamina ’s President Director said that they will set up a joint venture with MEDC to develop an oil block in Libya.We view that both issues should have a positive impact to MEDC.Currently,the company is trading at EV/2P reserves of US$2.4/boe and US$3.9/boe,with or without Libya block in their portfolio.

HYPER-INFLATION: Position for Rare Market Catalyst, Says Trader Vic

Published: Monday, 19 Jul 2010 | 5:38 PM ET

He traded for George Soros and Leon Copperman during his 40 years in business and his Trader Vic books are the stuff of legend.

Victor Sperandeo has seen almost every kind of market, but he’s now preparing for something rarely seen.

He's preparing for hyper-inflation.

Now don't think Sperandeo takes any pleasure in his austere message, he doesn't. The first thing he tells the desk is that he hopes he's wrong.

But history suggests otherwise.

"If you research history there have been 30 occasions of hyper-inflation," he says. "All the numbers that take place 100% of the time in the other 30 occasions are HERE."

We know it's scary stuff and somewhat extreme but Sperandeo makes the case in an easy to understand way without fear mongering.

JPM Indo: Rp70,000 Astra International?

Astra International – No signs of share price over-shooting; a solid Buy still. Aditya Srinath (analyst) was positively surprised by the 70,384 units car sales in June (16% m/m) with continuing momentum to Lebaran. His FY10 EPS forecast is already 8% higher than consensus, the 1H10 results due on the 29th should trigger another round of upward revisions (this is becoming a quarterly ritual now). On the sales desk we understand why sell side analysts like gradual EPS adjustment, rather than one step adjustment. But this is getting boring now for ASII. There is no strong reason on why ASII could not deliver another 25% EPS growth in FY11 (JPM forecasting a mere 5% growth), and a P/E re-rating back to its historical high (Nov-07) of 17x. If these two happens, we would be looking at a share price target of around Rp70,000 for ASII (another 40% upside). Gaikindo automotive fair is on-going now, so July is looking like another strong month for car sales. *** Also worth looking at the automotive peripheral stocks like Multistrada (MASA) that manufacturers tires, on 7x FY10 P/E with 25% plus growth potential in FY11 and FY12 ***

Mansek WIKA Thriving steadily

Although WIKA’s 1H10 financial results will come in late due to their limited review, initial number shows results likely to be above expectation. Revenue and net profit may reach Rp2.7tn and Rp122.2bn, which reflect 33% and 48% of their FY10F target. This also shows that net margin is improving, in fact, it would be the highest ever. Furthermore, they are still in a net cash position, reflecting Rp85/shar! e (17% of their current share price). As such, we maintain our Buy call with higher price target to Rp570/share. It reflects PER10-11F of 12.3-9.5x, or 19% discount to JCI (average discount since listing date).

1H10 net profit grew 30% yoy. Wijaya Karya’s President Director reported that the company was able to book 1H10 net profits of Rp122.2bn (+30% yoy), despite slightly lower revenues of Rp2.7tn (-9.0% yoy). Initial 1H10 top line and bottom line figures reflecting 33% and 48% of their FY10 target of Rp8.1tn and Rp253bn, respectively. This is above expectation, as 4-yrs average net profit is at 44.1%. Note that WIKA’s 1H10 financial results will ! come in l ate due to their limited review process, as requested by their board of commissioner.

Improving margin. Such figure reflects 1H10 net profit margin of 4.5%, which is better from its record high of 4.1% in 1H08. Nonetheless, pattern from the past 2 years suggest that it will slightly decrease in 2H, thus FY net margin will be lower of around 1%. Yet, should it decrease by such number, FY10 may reach 3.5%, which is still the highest ever. It is also better than our forecast of 3.3% in 2010.

In a net cash position, reflecting Rp85/share. Company hinted that cash position as per 1H10 would reach Rp800bn, whilst total debt of some Rp300tn. Cash level will gradually increase in 2H10. They expect cash to reach close to Rp1tn in FY10. Current indicative net cash position reflects cash/share of around Rp85/share, or 16.6% of current share price.

Maintain Buy with a TP of Rp570/share. On average, WIKA is trading at 19.4% discount to JCI since it is listing date. Based on our forecast, the company is currently trading at PER10F of 11.0x or around 28.7% discount to JCI (of some 15.5x), very much lower compared with the average discount. As such, we maintain our Buy recommendation with higher target price of Rp570/share, reflecting PER10-11F of 12.3-9.5x.