Easing supply offset by higher oil price;Sell (CL)SAR;Buy Adaro
Thermal coal supply easing as expected...
Thermal coal supply has been easing in key exporting nations (Indonesia and Australia),which is in line with our expectations.Meanwhile,China ’s coal inventory is at a historical high.We continue to expect the thermal coal market to ease on various supply-side improvements which are currently in progress (35%capacity expansion in Indonesia by end 2010E, ramp-up of new NCIG coal terminal in Australia over 2010E-2012E).
...but mitigated by rising oil price view;remain neutral
Historically,coal prices have been more correlated (88%correlation)to oil than its own supply-demand (-27%correlation).As such,we think that despite easing supply,coal prices may still inch higher next year due to our rising oil prices view,but may lag the oil rally.We retain our neutral sector view and remain stock selective.
Updating coal prices for WTI revisions;revising earnings,TPs
Despite recent reduction in our global Oils team ’ s WTI price forecasts for 2010E/11E,we maintain our US$95/100 per ton coal price forecasts.This implies declining 2010E/11E coal-to-oil ratio of 24%/21%(vs.current and YTD average of 26%),which is consistent with our view of rising supply. Meanwhile we are raising our 2012E coal price by 5%on higher oil prices. We lower our 12-m TPs by up to 17%,as we adjust our 2010E-12E NP estimates by -10%to +6%and update our Director ’s Cut valuation plot.
Downgrade SAR to Sell (CL);Buy Adaro;Banpu,ITMG to Neutral
We downgrade SAR to Sell (Conv Sell)from Neutral,given stock outperformance relative to sector peers and our belief that the market is too optimistic on its growth potential.Our new 2010E-11E net profit estimates are 6%-38%below Bloomberg consensus,mainly on higher cost/lower production volume forecasts.Adaro remains our top pick in the sector on strong earnings growth (2009-12E net profit CAGR of 21%),rising CROCI over 2010E-12E (38%to 46%),and attractive valuations.We upgrade Banpu to Neutral (from Sell)and downgrade ITMG to Neutral (from Buy),reflecting limited upside to our new target prices.With this report,Nikhil Bhandari is assuming primary coverage of the ASEAN coal sector from Patrick Tiah.
Key risks
Lower than expected oil prices or lower than expected Chinese demand.
Jumat, 06 Agustus 2010
DBS Regional Industry Focus ASEAN Banks
Easing concerns on capital
Proposed modifications of Basel III capital and liquidity reforms soften the blow on capital impact to banks. Most positive for OCBC.
Leverage and liquidity ratios proposed but will only be fully implemented in 2018.
Top picks are unchanged – OCBC, Bank Mandiri, Kasikornbank and Maybank.
Capital rules appear more watered down. At the very least, the impact is muted compared to the original Dec 09 proposals. With script dividends, lower dividend payouts, reduced risk weighted assets and accumulation of retained earnings, we believe banks will be able to accumulate
sufficient capital to meet the necessary requirements, unless the end game is stricter than expected. However, this would depend on the ultimate definition of the Basel Committee’s Tier-1 capital ratio, which has yet to be determined. The countercyclical capital buffer proposal is due for comments by 10 Sep 10. Finalization of these rules would give a clearer picture of banks’ dividend policies and whether there is a need to raise additional capital buffer. As of now, Tier-1
capital only drops by 0.4%pt compared to 1.4%pt based on the Dec 09 proposals. Indonesia banks are not impacted by these changes.
Changes for treatment in minority interest and unconsolidated investments: Positive for OCBC. While the Basel Committee retained most of the definition of capital proposal set out in Dec 09, the treatment of minority interest and unconsolidated investments in financial institutions to
Tier-1 for other financial investments has been relaxed; this is positive for OCBC. Minority interest comprises 0.1%pts of Tier-1 capital while the unconsolidated investments take up 0.2%pts. So far, the Basel Committee has remained silent on
the grandfathering and transitional arrangements for the innovative and non-innovative Tier-1 capital instruments. From our checks, these are likely to be allowed as Tier-1 capital. If so, the eventual impact to capital for ASEAN banks
will be largely neutral; positive for Maybank and Public Bank.
Leverage ratio to be tested while liquid assets definition expanded but only due in 2018. The Basel Committee is proposing to test a minimum of 3% Tier-1 leverage ratio. Based on our estimates, ASEAN banks easily meet the 3% Tier-1 leverage ratio. The Committee expanded the definition of liquid assets composition with more details will be updated in a Sep 10 meeting. The Committee remains committed to a net stable funding ratio but proposals will be
modified and finalized by year end. Both the leverage and liquidity ratios would only be implemented in 2018.
Our ASEAN bank picks are based on fundamentals. Our picks are based on fundamental reasons and valuations and not based on the impact of capital rule changes. Top picks for the region are OCBC, BMRI, KBANK and Maybank.
Proposed modifications of Basel III capital and liquidity reforms soften the blow on capital impact to banks. Most positive for OCBC.
Leverage and liquidity ratios proposed but will only be fully implemented in 2018.
Top picks are unchanged – OCBC, Bank Mandiri, Kasikornbank and Maybank.
Capital rules appear more watered down. At the very least, the impact is muted compared to the original Dec 09 proposals. With script dividends, lower dividend payouts, reduced risk weighted assets and accumulation of retained earnings, we believe banks will be able to accumulate
sufficient capital to meet the necessary requirements, unless the end game is stricter than expected. However, this would depend on the ultimate definition of the Basel Committee’s Tier-1 capital ratio, which has yet to be determined. The countercyclical capital buffer proposal is due for comments by 10 Sep 10. Finalization of these rules would give a clearer picture of banks’ dividend policies and whether there is a need to raise additional capital buffer. As of now, Tier-1
capital only drops by 0.4%pt compared to 1.4%pt based on the Dec 09 proposals. Indonesia banks are not impacted by these changes.
Changes for treatment in minority interest and unconsolidated investments: Positive for OCBC. While the Basel Committee retained most of the definition of capital proposal set out in Dec 09, the treatment of minority interest and unconsolidated investments in financial institutions to
Tier-1 for other financial investments has been relaxed; this is positive for OCBC. Minority interest comprises 0.1%pts of Tier-1 capital while the unconsolidated investments take up 0.2%pts. So far, the Basel Committee has remained silent on
the grandfathering and transitional arrangements for the innovative and non-innovative Tier-1 capital instruments. From our checks, these are likely to be allowed as Tier-1 capital. If so, the eventual impact to capital for ASEAN banks
will be largely neutral; positive for Maybank and Public Bank.
Leverage ratio to be tested while liquid assets definition expanded but only due in 2018. The Basel Committee is proposing to test a minimum of 3% Tier-1 leverage ratio. Based on our estimates, ASEAN banks easily meet the 3% Tier-1 leverage ratio. The Committee expanded the definition of liquid assets composition with more details will be updated in a Sep 10 meeting. The Committee remains committed to a net stable funding ratio but proposals will be
modified and finalized by year end. Both the leverage and liquidity ratios would only be implemented in 2018.
Our ASEAN bank picks are based on fundamentals. Our picks are based on fundamental reasons and valuations and not based on the impact of capital rule changes. Top picks for the region are OCBC, BMRI, KBANK and Maybank.
DBS Kalbe Farma: Hold; Rp2,325; TP Rp2,585; KLBF IJ
Kalbe Farma International Expansion Plan
After Extra Joss’s successful penetration to Philippine, KLBF is also planning to penetrate Vietnam and Nigeria markets. KLBF will establish a Joint Venture (JV) with local Vietnamese counterparty to market Extra Joss. KLBF hopes to realize this plan by 2011 and prepare US$5m for this expansion. KLBF will also spend US$5m to establish JV with local Nigeria counterparty to market Extra Joss by this year. This Nigeria plan is a further expansion plan after the development of pharmaceuticals factory in Lagos under the Orange Kalbe Limited JV. Although current export sales only contribute approximately 5% of KLBF total revenue, it is expected that Extra Joss international sales could offset the loss of domestic market share to Kuku Bima. The US$10m (Rp90bn) funds required will be internally financed as KLBF cash reserve at 30 June 2010 was at Rp1.47tn.
KLBF has revised this year’s net profit forecast up to Rp1.3tn from Rp1.1tn as it will launch 15 new products this year. Despite this launching plan, KLBF will not increase its 2010 capex budget of Rp450bn. KLBF will spend more than budgeted capex if its acquisition plan materialized. This acquisition plan is still very much on its KLBF agenda.
We maintain our hold call with TP 2585 as we have taken into account this news in the valuation. Strong potential catalyst would come from materialization of KLBF’s acquisition plan.
After Extra Joss’s successful penetration to Philippine, KLBF is also planning to penetrate Vietnam and Nigeria markets. KLBF will establish a Joint Venture (JV) with local Vietnamese counterparty to market Extra Joss. KLBF hopes to realize this plan by 2011 and prepare US$5m for this expansion. KLBF will also spend US$5m to establish JV with local Nigeria counterparty to market Extra Joss by this year. This Nigeria plan is a further expansion plan after the development of pharmaceuticals factory in Lagos under the Orange Kalbe Limited JV. Although current export sales only contribute approximately 5% of KLBF total revenue, it is expected that Extra Joss international sales could offset the loss of domestic market share to Kuku Bima. The US$10m (Rp90bn) funds required will be internally financed as KLBF cash reserve at 30 June 2010 was at Rp1.47tn.
KLBF has revised this year’s net profit forecast up to Rp1.3tn from Rp1.1tn as it will launch 15 new products this year. Despite this launching plan, KLBF will not increase its 2010 capex budget of Rp450bn. KLBF will spend more than budgeted capex if its acquisition plan materialized. This acquisition plan is still very much on its KLBF agenda.
We maintain our hold call with TP 2585 as we have taken into account this news in the valuation. Strong potential catalyst would come from materialization of KLBF’s acquisition plan.
DBS Kalbe Farma: Hold; Rp2,325; TP Rp2,585; KLBF IJ
Kalbe Farma International Expansion Plan
After Extra Joss’s successful penetration to Philippine, KLBF is also planning to penetrate Vietnam and Nigeria markets. KLBF will establish a Joint Venture (JV) with local Vietnamese counterparty to market Extra Joss. KLBF hopes to realize this plan by 2011 and prepare US$5m for this expansion. KLBF will also spend US$5m to establish JV with local Nigeria counterparty to market Extra Joss by this year. This Nigeria plan is a further expansion plan after the development of pharmaceuticals factory in Lagos under the Orange Kalbe Limited JV. Although current export sales only contribute approximately 5% of KLBF total revenue, it is expected that Extra Joss international sales could offset the loss of domestic market share to Kuku Bima. The US$10m (Rp90bn) funds required will be internally financed as KLBF cash reserve at 30 June 2010 was at Rp1.47tn.
KLBF has revised this year’s net profit forecast up to Rp1.3tn from Rp1.1tn as it will launch 15 new products this year. Despite this launching plan, KLBF will not increase its 2010 capex budget of Rp450bn. KLBF will spend more than budgeted capex if its acquisition plan materialized. This acquisition plan is still very much on its KLBF agenda.
We maintain our hold call with TP 2585 as we have taken into account this news in the valuation. Strong potential catalyst would come from materialization of KLBF’s acquisition plan.
After Extra Joss’s successful penetration to Philippine, KLBF is also planning to penetrate Vietnam and Nigeria markets. KLBF will establish a Joint Venture (JV) with local Vietnamese counterparty to market Extra Joss. KLBF hopes to realize this plan by 2011 and prepare US$5m for this expansion. KLBF will also spend US$5m to establish JV with local Nigeria counterparty to market Extra Joss by this year. This Nigeria plan is a further expansion plan after the development of pharmaceuticals factory in Lagos under the Orange Kalbe Limited JV. Although current export sales only contribute approximately 5% of KLBF total revenue, it is expected that Extra Joss international sales could offset the loss of domestic market share to Kuku Bima. The US$10m (Rp90bn) funds required will be internally financed as KLBF cash reserve at 30 June 2010 was at Rp1.47tn.
KLBF has revised this year’s net profit forecast up to Rp1.3tn from Rp1.1tn as it will launch 15 new products this year. Despite this launching plan, KLBF will not increase its 2010 capex budget of Rp450bn. KLBF will spend more than budgeted capex if its acquisition plan materialized. This acquisition plan is still very much on its KLBF agenda.
We maintain our hold call with TP 2585 as we have taken into account this news in the valuation. Strong potential catalyst would come from materialization of KLBF’s acquisition plan.
DBS Economy Revise projections on inflation and GDP growth
Second quarter GDP growth was stronger than expected at 6.2% YoY (consensus: 6.0%), up from 5.7% in 1Q. On sequential basis, we reckon the economy grew 6.5% (QoQ, saar) from the previous quarter, accelerating from 5.3% in 1Q and rising above the 5-year average growth rate of 5.8%.The upside surprise mainly came from private consumption, an essential growth driver in Indonesia which accounts for near 60% of real GDP. Private consumer expenditure in the GDP accounts rose 5.0% YoY in 2Q, significantly up from 3.9%in 1Q; well in line with the uptick seen in high-frequency indicators such as motorcycle sales, motor vehicle sales and consumer loans. The QoQ growth in private consumption was even more impressive, at 5.7% (saar).
By contrast, there is no excitement on the investment front, despite media news and market talk about FDI inflows. Gross fixed capital formation rose 8.0% YoY in 2Q, only slightly higher than 7.8% in the preceding quarter; and its QoQ growth in fact was more modest at 5.0% (saar). Meanwhile, exports of goods and services slowed as expected (similar as the regional trend), from 20.0% YoY in the Jan-Mar period to14.6% in Apr-Jun (2.5% QoQ saar). Government consumption remained weak after falling sharply in the beginning quarter of this year (-9.0% YoY in 2Q), reflecting the continued withdrawal of fiscal stimulus as we have observed in the monthly fiscal data.
On the supply side, the strongest growth (on YoY basis) was seen in transport &communication (12.9%), followed by hotels & restaurants (9.6%), construction (7.2%), and financial services (6.1%). Most of these sectors are services related and should have benefited from the robust growth in domestic consumer demand. Factoring in the stronger-than-expected GDP results in 2Q, we lifted our whole-year GDP forecasts to 6.0% for 2010 (up from 5.5%) and 5.8% for 2011 (up from 5.5%).This implies steady albeit slower growth of 5.5-6.0% QoQ (saar) in 2H10.
Consumption should remain firm thanks to favorable demographics, upbeat consumer confidence (105.7 in July) and bank lending support, but its growth rate is likely to cool somewhat due to the emerging challenges of inflation and growing risks of rate hikes. Export growth is expected to continue easing amid the backdrop of a slower global economic expansion. Investment has the potential to pick up if the government can continue to push forward structural reforms and maintain macro stability to boost foreign investors’ confidence and attract more FDI inflows, but the process may take time. In addition, we lifted inflation forecasts to 5.1% for 2010 and 6.5% for 2011, up from the previous forecasts of 4.7% and 6.3%. Although the faster-than-expected rise in July inflation was largely due to the jump in food prices, we caution against the risks of inflation pass through, given the facts that the economy’s output gap has stayed positive for three consecutive quarters, consumer demand is strong, and consumers’ inflation expectations have crept up obviously.
Strong economic growth and higher inflation should persuade the central bank to tighten monetary policy. Bank Indonesia has indeed shifted to a more hawkish stance at the MPC meeting this week, stating that it is “taking careful note of the recent rise in inflation” and “will pursue the necessary policy actions to ensure that inflation remains within target”. This corroborates our view that BI will hike rates this year. As BI has indicated that they prefer to tighten liquidity via adjusting banks’ reserve requirement ratios before hiking rates, we revised the timing of the first rate hike to 4Q from 3Q. We now expect the overnight reference rate will rise to 7.0% by end-2010 and 8.0% by mid-2011.
Mansek Astra International:plans to increase vehicle production capacity (ASII, Rp48,750,Buy,TP:50,500)
Due to the robust demand for 4-wheelers,ASII plans to spend some Rp1tn to increase Daihatsu ’s production capacity to 400k units p.a.from 211k units currently.In light of a strong demand pull due to affordable financing schemes,domestic wholesale sales for 7M10 is seen to reach close to 442k units (+75%yoy),with an reported highest monthly sales in July of 72k units,so far this year.Thus,with the current trend,car sales by year end could comfortably breach 700k units mark.ASII ’s Daihatsu in particular has been enjoying strong growth with units ’ sales of 54k units (+58%yoy)for
1H10,with about 15%market share.We currently have a buy on the stock currently trading at PER10-11F 16.8x and 14.7x,respectively.
1H10,with about 15%market share.We currently have a buy on the stock currently trading at PER10-11F 16.8x and 14.7x,respectively.
BNPP Telkom Indonesia - Strong 2Q10 sustainable into 2H10. (FOONG Choong Chen) TLKM IJ; CP: IDR8,100, TP: IDR9,100; BUY
· Mgmt said that mkt competition is now more stable compared to a couple of months ago. Due to new billing system (see below), it can also instantly respond to competitors' new offerings in the future.
· Telkomsel recently launched a new plan called simPATI freedom, which leverages on a new billing system (available nationwide) that allows subscribers to easily pick the best package for themselves. Mgmt said that implementation is still just at the beginning stages & more features will be added (full implementation by 1Q11).
· The high 8% q-q growth in O&M expenses at Telkomsel was largely due to higher 2G frequency fees as there was heavy BTS built-out in 2Q (in preparation for the Lebaran festival in 3Q). Mgmt guides for total 4k-5k new BTS for 2010. With 3,013 BTS already rolled-out in 1H10, the q-q increase in O&M expenses into 3Q/4Q10 should slow down.
· Mobile internet revenue form 6% of Telkomsel's revenue in 2Q10; 80% of which comes from smartphones, & 20% from dongles. Mgmt expects this to continue growing quickly.
· Mgmt said that they will stick to their guidance for single-digit revenue growth at Telkomsel for now. But might look to review guidance upwards in 3Q10. Mgmt expects 3Q & 4Q10 to be strong quarters & agreed that 2H10 net adds should be higher compared to 1H10.
· 2010 capex guidance revised downwards to slightly lower vs 2009 (previous: same). Mgmt said improved e-procurement initiatives & better deals from chinese vendors are bringing unit prices lower.
· Telkomsel recently launched a new plan called simPATI freedom, which leverages on a new billing system (available nationwide) that allows subscribers to easily pick the best package for themselves. Mgmt said that implementation is still just at the beginning stages & more features will be added (full implementation by 1Q11).
· The high 8% q-q growth in O&M expenses at Telkomsel was largely due to higher 2G frequency fees as there was heavy BTS built-out in 2Q (in preparation for the Lebaran festival in 3Q). Mgmt guides for total 4k-5k new BTS for 2010. With 3,013 BTS already rolled-out in 1H10, the q-q increase in O&M expenses into 3Q/4Q10 should slow down.
· Mobile internet revenue form 6% of Telkomsel's revenue in 2Q10; 80% of which comes from smartphones, & 20% from dongles. Mgmt expects this to continue growing quickly.
· Mgmt said that they will stick to their guidance for single-digit revenue growth at Telkomsel for now. But might look to review guidance upwards in 3Q10. Mgmt expects 3Q & 4Q10 to be strong quarters & agreed that 2H10 net adds should be higher compared to 1H10.
· 2010 capex guidance revised downwards to slightly lower vs 2009 (previous: same). Mgmt said improved e-procurement initiatives & better deals from chinese vendors are bringing unit prices lower.
Credit Suisse Asia Palm Oil Sector - The rise before the fall
● Short term – weather vagaries will likely dominate. La Nina might have already begun in June 2010. Investors looking to ride on weather-related rallies must be very nimble, as these rallies could quickly disappear, if the weather improves. Poor palm oil production, coupled with a weak USD, has supported palm oil prices. Palm oil prices are expected to seasonally rise at year end. We raise our 2010 palm oil price estimates to RM2,600/t.
● Contrarian call – bearish on palm oil prices in 2011. We are bearish on the palm oil price outlook for 2011, as we expect palm oil output to surprise on the upside with the reversal of tree stress and good rainfall, which will likely boost output and new acreage maturing. We cut our 2011 palm oil price forecast to RM2,300/t.
● We downgrade the plantation sector from Market Weight to UNDERWEIGHT on a 12-month basis, as we downgrade IFAR, SGRO and LSIP from Outperform to NEUTRAL, and GENP from Neutral to UNDERPERFORM. We are now 3-36% below consensus. We maintain our OUTPERFORM rating on Wilmar, as it is a proxy to China’s strong domestic consumption.
● Contrarian call – bearish on palm oil prices in 2011. We are bearish on the palm oil price outlook for 2011, as we expect palm oil output to surprise on the upside with the reversal of tree stress and good rainfall, which will likely boost output and new acreage maturing. We cut our 2011 palm oil price forecast to RM2,300/t.
● We downgrade the plantation sector from Market Weight to UNDERWEIGHT on a 12-month basis, as we downgrade IFAR, SGRO and LSIP from Outperform to NEUTRAL, and GENP from Neutral to UNDERPERFORM. We are now 3-36% below consensus. We maintain our OUTPERFORM rating on Wilmar, as it is a proxy to China’s strong domestic consumption.
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 2, United Tractors (UNTR.JK;Rp19,750;1L)
Takeaways from Jakarta — United Tractors presented at Citi's Indonesia Investor Conference on Aug.4-5.Below are key takeaways.
Orders — New orders for heavy equipment have been stable at approximately 400 units per month in the past few months.Mining sector, especially coal companies,continued to prop up demand for heavy equipment as the coal producers are embarking on aggressive expansion plans in the next few years.
Pamapersada — Heavy rains albeit slightly improving from June levels continued to impact the coal production.In May,Pamapersada had to cease operation for 1 week due to a fatal accident.The company expects to ramp up production in the later part of 3Q10 and 4Q10 so it can meet its production target.
Threat from Chinese equipment — United Tractors sees little threat from the potential of imports of Chinese heavy equipment,especially in the mining sector.Despite its substantially lower price,Chinese heavy equipment tends to have inferior quality and shorter useful life.Currently,Chinese heavy equipment is used only in the construction sector.However,United Tractors plans to import Chinese heavy equipment that Komatsu (6301.T;¥1,862; 1M)doesn't have the models of,so as to broaden its product lineup.
Dividend — The company plans to pay interim dividend in November,the amount of which will be determined based on 9M10 results.United Tractors intends to maintain its 40%dividend payout.
Orders — New orders for heavy equipment have been stable at approximately 400 units per month in the past few months.Mining sector, especially coal companies,continued to prop up demand for heavy equipment as the coal producers are embarking on aggressive expansion plans in the next few years.
Pamapersada — Heavy rains albeit slightly improving from June levels continued to impact the coal production.In May,Pamapersada had to cease operation for 1 week due to a fatal accident.The company expects to ramp up production in the later part of 3Q10 and 4Q10 so it can meet its production target.
Threat from Chinese equipment — United Tractors sees little threat from the potential of imports of Chinese heavy equipment,especially in the mining sector.Despite its substantially lower price,Chinese heavy equipment tends to have inferior quality and shorter useful life.Currently,Chinese heavy equipment is used only in the construction sector.However,United Tractors plans to import Chinese heavy equipment that Komatsu (6301.T;¥1,862; 1M)doesn't have the models of,so as to broaden its product lineup.
Dividend — The company plans to pay interim dividend in November,the amount of which will be determined based on 9M10 results.United Tractors intends to maintain its 40%dividend payout.
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 2, Summarecon Agung (SMRA.JK;Rp930;Analyzed Not Rated)
Takeaways from Jakarta — Summarecon Agung presented at Citi's Indonesia Investor Conference on Aug.4-5.Below are key takeaways.
Pre-sales — Summarecon posted 1H10 pre-sales of Rp1,259bn,66%of revised target of Rp1,900bn for FY10 (up 19%from early target of Rp1,600bn).39%of 1H10 pre-sales was generated from Kelapa Gading, 34%from Serpong,and the remaining 27%from Bekasi Project.SMRA revised its FY10 target pre-sales target due to higher sales expectation for the Bekasi Project.The company is optimistic that eventual 2010 turnover could be even higher and may exceed more than Rp2,000bn.
Serpong — A new cluster would be launched this year and will be called The Springs.The company is targeting to book a total sale value of Rp400bn from selling 445units this year.The Springs covers a total area of 100ha with a development period of 5-6 years up to 2016,and consists of 13 sub- clusters of residential houses.The company said that it has received 1,000 applicants keen to be the buyers,and each of them is given ballot, guaranteeing them to be prioritized in the next launches.
Kelapa Gading — Construction of Menara Satu office will commence this year with total GFA of 29,000sqm,of which half would be sold as a strata title and another half will be rented out.Rental rate is expected to be Rp150,000/sqm (including the service charge),and the targeted selling price (for strata title office)of Rp16,000,000/sqm (~US$1800).The company also disclosed that BCA has confirmed its intention to be a tenant.
Bekasi — Summarecon booked better-than-expected sales of Rp336bn in Bekasi this year.During the launch of the two clusters in April,the company sold 464 units within five hours.It is planning to launch two more identical clusters this October.
Investment Property — Summarecon aims to increase its investment property portfolio from currently 39%to about 50%in the future.It has launched a new hotel,Harris Hotel,in conjunction with Mall Kelapa Gading. Harris Hotel was launched last May and has achieved an average occupancy rate of 70%and average rate of Rp500,000/night year-to-date.
Summarecon Mall Serpong (Phase 2)— The company is spending Rp350bn to expand its Summarecon Mall Serpong,located in Serpong.It is expanding its retail space by adding a GFA of 50,000sqm and an NLA of 45,000sqm and a multi-storey carpark with a total capacity of 2,000 bays.After the expansion,it would have a total GFA of 93,000sqm,an NLA of 79,000sqm.
Capex — The company has allocated Rp430bn for capex this year,of which Rp100bn has been used for Harris Hotel-Kelapa Gading development in the 1Q10.The remainings of Rp80bn would be used for Menara Satu development,Rp100bn for Summarecon Bekasi Infrastructure,and Rp150bn for Summarecon Mall Serpong (Phase2).
Pre-sales — Summarecon posted 1H10 pre-sales of Rp1,259bn,66%of revised target of Rp1,900bn for FY10 (up 19%from early target of Rp1,600bn).39%of 1H10 pre-sales was generated from Kelapa Gading, 34%from Serpong,and the remaining 27%from Bekasi Project.SMRA revised its FY10 target pre-sales target due to higher sales expectation for the Bekasi Project.The company is optimistic that eventual 2010 turnover could be even higher and may exceed more than Rp2,000bn.
Serpong — A new cluster would be launched this year and will be called The Springs.The company is targeting to book a total sale value of Rp400bn from selling 445units this year.The Springs covers a total area of 100ha with a development period of 5-6 years up to 2016,and consists of 13 sub- clusters of residential houses.The company said that it has received 1,000 applicants keen to be the buyers,and each of them is given ballot, guaranteeing them to be prioritized in the next launches.
Kelapa Gading — Construction of Menara Satu office will commence this year with total GFA of 29,000sqm,of which half would be sold as a strata title and another half will be rented out.Rental rate is expected to be Rp150,000/sqm (including the service charge),and the targeted selling price (for strata title office)of Rp16,000,000/sqm (~US$1800).The company also disclosed that BCA has confirmed its intention to be a tenant.
Bekasi — Summarecon booked better-than-expected sales of Rp336bn in Bekasi this year.During the launch of the two clusters in April,the company sold 464 units within five hours.It is planning to launch two more identical clusters this October.
Investment Property — Summarecon aims to increase its investment property portfolio from currently 39%to about 50%in the future.It has launched a new hotel,Harris Hotel,in conjunction with Mall Kelapa Gading. Harris Hotel was launched last May and has achieved an average occupancy rate of 70%and average rate of Rp500,000/night year-to-date.
Summarecon Mall Serpong (Phase 2)— The company is spending Rp350bn to expand its Summarecon Mall Serpong,located in Serpong.It is expanding its retail space by adding a GFA of 50,000sqm and an NLA of 45,000sqm and a multi-storey carpark with a total capacity of 2,000 bays.After the expansion,it would have a total GFA of 93,000sqm,an NLA of 79,000sqm.
Capex — The company has allocated Rp430bn for capex this year,of which Rp100bn has been used for Harris Hotel-Kelapa Gading development in the 1Q10.The remainings of Rp80bn would be used for Menara Satu development,Rp100bn for Summarecon Bekasi Infrastructure,and Rp150bn for Summarecon Mall Serpong (Phase2).
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 2, Medco Energy (MEDC.JK;Rp3,025;Analyzed Not Rated)
Takeaways from Jakarta — Medco Energy presented at Citi's Indonesia Investor Conference on Aug.4-5.Below are key takeaways.
Revenue drivers — Oil and Gas Exploration is the core business contributing 65%of the revenue from direct sales,while another 14%is from contracting in Oman.Company plans to invest US$1.4bn over the next five years in the sector.
Reserves — The total 2P and Contingent Reserves are of 0.5bn barrels of oil equivalent (BOE).Valuations have been impacted by 1)execution delays and 2)fact that 35%of reserves are in Libya of which development is yet to start.
Senori Toili — The production of Senori Toili gas field had been delayed due to regulatory issues.These have been addressed,and company expects gas sales to rise from 145mmcfd (1H 2010)to 190 mmcfd in 2011).
1H metrics — 1H10 revenue was US$397mn (up 28%yoy).Growth was driven by 47%increase in oil prices (US$80.5/b)and 47%increase in gas volume (145mmcfd).Oil volume declined by 17%(30.6bpd)and gas prices increased by 16%(US$3.6/mmbtu).
Outlook and capacity — Plans are to divest 49%of electricity business (generation plus Operation and Maintenance contract).Total generation capacity is 156MW.Total revenue in 1H 2010 was US$30mn.
Revenue drivers — Oil and Gas Exploration is the core business contributing 65%of the revenue from direct sales,while another 14%is from contracting in Oman.Company plans to invest US$1.4bn over the next five years in the sector.
Reserves — The total 2P and Contingent Reserves are of 0.5bn barrels of oil equivalent (BOE).Valuations have been impacted by 1)execution delays and 2)fact that 35%of reserves are in Libya of which development is yet to start.
Senori Toili — The production of Senori Toili gas field had been delayed due to regulatory issues.These have been addressed,and company expects gas sales to rise from 145mmcfd (1H 2010)to 190 mmcfd in 2011).
1H metrics — 1H10 revenue was US$397mn (up 28%yoy).Growth was driven by 47%increase in oil prices (US$80.5/b)and 47%increase in gas volume (145mmcfd).Oil volume declined by 17%(30.6bpd)and gas prices increased by 16%(US$3.6/mmbtu).
Outlook and capacity — Plans are to divest 49%of electricity business (generation plus Operation and Maintenance contract).Total generation capacity is 156MW.Total revenue in 1H 2010 was US$30mn.
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 2, Jasa Marga (Persero)(JSMR.JK;Rp2,625;1L)
Takeaways from Jakarta — Jasa Marga presented at Citi's Indonesia Investor Conference on Aug.4-5.Below are key takeaways.
Upcoming expansion projects — In the next 3-4 years,Jasa Marga aims to add seven toll roads (Bogor ring road section 2 and 3,Gempol-Pasuruan, Semarang-Solo,Cengkareng-Kunciran,Kunciran-Serpong,Surabaya- Mojokerto,JORR W2 North).The addition will boost their current 531km to 718km of toll roads under management.JSMR has a policy of only constructing toll roads if they would have the land capping and land revolving fund facilities.
Land revolving fund — The Government of Indonesia (GoI)will provide a revolving fund to acquire land in advance.Land cost and availability of land is secured because investor will only have to repay land cost only after land is fully acquired.
Land capping — GoI guarantees maximum land price to be compensated by the investor.
Minimal impact of car sales declines,but beneficiary of car sales growth — Based on Jasa Marga's historical performance,fluctuating car sales growth in Indonesia has a minimal impact on its traffic volume growth.The economic crisis in 1998 and fuel price hikes in 2006 resulted in substantial declines in car sales 40-85%).Nevertheless,traffic volumes only declined by 4-7%.On the flip side,higher car sales did and are expected to contribute to higher traffic volumes.
Interconnected toll roads enhance value — Mature toll roads when interconnected to younger toll roads can still grow.An example would be when the Jakarta-Cikampek toll road (began operation since 1988)was connected to JORR with the operation of Cikunir Junction in 2007.The former's traffic volume increased from 110m vehicles in 2007 to 125m vehicles in 2009.
E-toll card — In 2009,two of Jasa Marga's toll roads already made use of e-toll cards.By the end of this year,it will start implementing the usage of e-toll cards on all its remaining toll roads and aims to complete this by 2011. This is in line with their plans to increase current 5%to 40%of its total transactions to be via e-toll cards within the next 4-5 years.The usage of e-toll cards will speed up transaction processing time from 8 seconds to 4-6 seconds.
Ongoing cost efficiency initiatives — 1)To restructure its capital structure to obtain the lowest possible cost by debt re-profiling program (Weighted average cost of debt have declined from 13.62%to 11.97%).2)Zero growth in the number of employees.3)To transform the working and job system from human based to technology-based through outsourcing strategy as a viaduct.
Bond issuance — JSMR plans to issue a Rp1.5trn 10-year bond in Sept 2010.This is to refinance its maturing series O bond.Bond yield is expected to be at 10%or lower.
Diversifying into property business — Jasa Marga is mulling a venture into the property business via a JV with a developer.But this is still within the early stages.
Upcoming expansion projects — In the next 3-4 years,Jasa Marga aims to add seven toll roads (Bogor ring road section 2 and 3,Gempol-Pasuruan, Semarang-Solo,Cengkareng-Kunciran,Kunciran-Serpong,Surabaya- Mojokerto,JORR W2 North).The addition will boost their current 531km to 718km of toll roads under management.JSMR has a policy of only constructing toll roads if they would have the land capping and land revolving fund facilities.
Land revolving fund — The Government of Indonesia (GoI)will provide a revolving fund to acquire land in advance.Land cost and availability of land is secured because investor will only have to repay land cost only after land is fully acquired.
Land capping — GoI guarantees maximum land price to be compensated by the investor.
Minimal impact of car sales declines,but beneficiary of car sales growth — Based on Jasa Marga's historical performance,fluctuating car sales growth in Indonesia has a minimal impact on its traffic volume growth.The economic crisis in 1998 and fuel price hikes in 2006 resulted in substantial declines in car sales 40-85%).Nevertheless,traffic volumes only declined by 4-7%.On the flip side,higher car sales did and are expected to contribute to higher traffic volumes.
Interconnected toll roads enhance value — Mature toll roads when interconnected to younger toll roads can still grow.An example would be when the Jakarta-Cikampek toll road (began operation since 1988)was connected to JORR with the operation of Cikunir Junction in 2007.The former's traffic volume increased from 110m vehicles in 2007 to 125m vehicles in 2009.
E-toll card — In 2009,two of Jasa Marga's toll roads already made use of e-toll cards.By the end of this year,it will start implementing the usage of e-toll cards on all its remaining toll roads and aims to complete this by 2011. This is in line with their plans to increase current 5%to 40%of its total transactions to be via e-toll cards within the next 4-5 years.The usage of e-toll cards will speed up transaction processing time from 8 seconds to 4-6 seconds.
Ongoing cost efficiency initiatives — 1)To restructure its capital structure to obtain the lowest possible cost by debt re-profiling program (Weighted average cost of debt have declined from 13.62%to 11.97%).2)Zero growth in the number of employees.3)To transform the working and job system from human based to technology-based through outsourcing strategy as a viaduct.
Bond issuance — JSMR plans to issue a Rp1.5trn 10-year bond in Sept 2010.This is to refinance its maturing series O bond.Bond yield is expected to be at 10%or lower.
Diversifying into property business — Jasa Marga is mulling a venture into the property business via a JV with a developer.But this is still within the early stages.
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 2, Bumi Resources (BUMI.JK;Rp1,670;1H)
Takeaways from Jakarta — Bumi Resources presented at Citi's Indonesia Investor Conference on Aug.4-5.Below are key takeaways.
Management hopeful of its deleveraging efforts — Management ’s plan to reduce its current huge debts of US$3.7b by US$700m this year appears to be progressing well.The company expects its non pre-emptive share issuance to be completed by the end of August,potentially raising up to US$495m.However,the company intimated that CIC is unlikely to participate in the new share issuance.
Planned listing of Bumi Resources Mineral (BRM)— The planned listing of Bumi Resources'non-coal unit,Bumi Resources Mineral (BRM),is expected to be realised before October.CIC might be interested in taking a significant stake in BRM pre-IPO.Internally,the company values BRM's 25%stake to be listed at c.US$600m.
Fajar Bumi Sakti (FBS)— The company is ramping up its heavy equipment purchases to boost production to 4m tons annually.FBS has decided to switch to open pit technique from underground mining given the latter's complexity.
Production target deferred — It appears that Bumi Resources has deferred the target of reaching 112m tons production to 2013 from 2012 previously. Our channel checks with coal mining contractors and heavy equipment distributors seem to reaffirm our view that the key coal producers' production targets in the next few years are too aggressive.
Management hopeful of its deleveraging efforts — Management ’s plan to reduce its current huge debts of US$3.7b by US$700m this year appears to be progressing well.The company expects its non pre-emptive share issuance to be completed by the end of August,potentially raising up to US$495m.However,the company intimated that CIC is unlikely to participate in the new share issuance.
Planned listing of Bumi Resources Mineral (BRM)— The planned listing of Bumi Resources'non-coal unit,Bumi Resources Mineral (BRM),is expected to be realised before October.CIC might be interested in taking a significant stake in BRM pre-IPO.Internally,the company values BRM's 25%stake to be listed at c.US$600m.
Fajar Bumi Sakti (FBS)— The company is ramping up its heavy equipment purchases to boost production to 4m tons annually.FBS has decided to switch to open pit technique from underground mining given the latter's complexity.
Production target deferred — It appears that Bumi Resources has deferred the target of reaching 112m tons production to 2013 from 2012 previously. Our channel checks with coal mining contractors and heavy equipment distributors seem to reaffirm our view that the key coal producers' production targets in the next few years are too aggressive.
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 2, Bank Danamon Indonesia (BDMN.JK;Rp5,300;3H)
Takeaways from Jakarta — Bank Danamon presented at Citi''s Indonesia Investor Conference on 4-5 Aug.Below are key takeaways.
Loan growth momentum is strong — This was driven by Mass Market (Micro and auto).The 1H loan growth is 10%,on track for 20%growth.Wholesale loans are lagging.Loan growth from outside JAVA is 55%(share of outstanding is 50%).
NIMs in Q2 were 12%,against 12.46 — Yields on wholesale loans are under pressure.Asset quality is improving and Credit Cost is expected to be 3.2%to 3.5%.The Q2 ROA is 2.9%,same is Q1,translating into ROE of 18%.No asset quality concerns as long as inflation remains below 7%.
If loan growth remains strong,plan to raise Time Deposits — Also raising Rp3trn in BDMN and Rp2trn in Adira for funding (not for capital).Adira will be 2 and 3 year bonds and indicative rate is 8.5%to 9.5%.Also plans to add 100 Adira outlets and hire 5000 employees.Expect Cost to Income to remain below 50%.
Loan growth momentum is strong — This was driven by Mass Market (Micro and auto).The 1H loan growth is 10%,on track for 20%growth.Wholesale loans are lagging.Loan growth from outside JAVA is 55%(share of outstanding is 50%).
NIMs in Q2 were 12%,against 12.46 — Yields on wholesale loans are under pressure.Asset quality is improving and Credit Cost is expected to be 3.2%to 3.5%.The Q2 ROA is 2.9%,same is Q1,translating into ROE of 18%.No asset quality concerns as long as inflation remains below 7%.
If loan growth remains strong,plan to raise Time Deposits — Also raising Rp3trn in BDMN and Rp2trn in Adira for funding (not for capital).Adira will be 2 and 3 year bonds and indicative rate is 8.5%to 9.5%.Also plans to add 100 Adira outlets and hire 5000 employees.Expect Cost to Income to remain below 50%.
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 2, AKR (AKRA.JK;Rp1,300;Analyzed Not Rated)
Takeaways from Jakarta — AKR presented at Citi's Indonesia Investor Conference on Aug.4-5.Below are key takeaways.
1H10 Results — Akra posted strong 1H revenue growth of 33%y-y to Rp5.2trn.It was mostly underpinned by the increase in petroleum distribution sales at Rp3.0trn (+57%y-y),followed by basic chemicals at Rp948bn (+8%y-y),manufacturing at Rp1.1trn (+13%y-y),and logistics at Rp174bn (+2.6%y-y).Gross profit was down 4%at Rp443.15bn due to the jump in COGS in manufacturing.However,bottom line was still up 27%y-y at
Rp140bn due to forex gains and lower tax as a result of increase in free float.
Petroleum Division — The company delivered total sales volume of 551.903kl in 1H10 (+27%y-y;54%of FY09 total sales at 1,025MKL).It supplied oil mostly to Kalimantan and Sulawesi (54%),Java-Bali (34%),and Sumatra (12%).Higher contribution to revenue was also pushed by the increase in average selling price by 24%to Rp5.496/litre from Rp4.447/litre in the same period last year.
Subsidized fuel — Akra was granted by BPH Migas to distribute diesel fuel of 56,500kl for the first time this year to Bunker,Fisheries and Subsidized Sectors.This volume is much higher compared to Shell,which was only 5,000kl/year,the company said.The market for subsidized petroleum product is currently at 37mkl and is expected to grow 8-9%y-y for this year; hence company sees upside potential for this business.
Future outlook — Petroleum sales are expected to continue to grow with increasing demand for petroleum products in the coal mining sector, especially in Kalimantan.Currently AKR owns total petroleum storage capacity of 509,185kl across Indonesia.With a near peak utilization rate of 80%,it is planning to build four more terminals in Kalimantan and Sumatera with total additional space of 65,000kl for 2010/2011.This would be a part of the allocated capex of US$40-45m for this year.
Basic Chemical — In this division,managed under AKR ’s subsidiary,Sorini Agro Asia Corporindo (SOBI.JK),1H10 sales rose 16%y-y to Rp857bn with sales volume up 23%y-y at 172MT.However,gross margin was down to 19.3%vs.32.5%in 1H09 due to jump in COGS.The price of tapioca starch as a raw material has gone up to US$550/MT (+38%YTD),whereas the selling price of sorbitol went up only by 20%YTD.
Switching to corn starch — To tackle this issue,the company will switch its raw material usage from tapioca to corn starch,which is currently selling lower at US$458/MT.Instead it will export the tapioca starch overseas to take advantage of a higher price.
1H10 Results — Akra posted strong 1H revenue growth of 33%y-y to Rp5.2trn.It was mostly underpinned by the increase in petroleum distribution sales at Rp3.0trn (+57%y-y),followed by basic chemicals at Rp948bn (+8%y-y),manufacturing at Rp1.1trn (+13%y-y),and logistics at Rp174bn (+2.6%y-y).Gross profit was down 4%at Rp443.15bn due to the jump in COGS in manufacturing.However,bottom line was still up 27%y-y at
Rp140bn due to forex gains and lower tax as a result of increase in free float.
Petroleum Division — The company delivered total sales volume of 551.903kl in 1H10 (+27%y-y;54%of FY09 total sales at 1,025MKL).It supplied oil mostly to Kalimantan and Sulawesi (54%),Java-Bali (34%),and Sumatra (12%).Higher contribution to revenue was also pushed by the increase in average selling price by 24%to Rp5.496/litre from Rp4.447/litre in the same period last year.
Subsidized fuel — Akra was granted by BPH Migas to distribute diesel fuel of 56,500kl for the first time this year to Bunker,Fisheries and Subsidized Sectors.This volume is much higher compared to Shell,which was only 5,000kl/year,the company said.The market for subsidized petroleum product is currently at 37mkl and is expected to grow 8-9%y-y for this year; hence company sees upside potential for this business.
Future outlook — Petroleum sales are expected to continue to grow with increasing demand for petroleum products in the coal mining sector, especially in Kalimantan.Currently AKR owns total petroleum storage capacity of 509,185kl across Indonesia.With a near peak utilization rate of 80%,it is planning to build four more terminals in Kalimantan and Sumatera with total additional space of 65,000kl for 2010/2011.This would be a part of the allocated capex of US$40-45m for this year.
Basic Chemical — In this division,managed under AKR ’s subsidiary,Sorini Agro Asia Corporindo (SOBI.JK),1H10 sales rose 16%y-y to Rp857bn with sales volume up 23%y-y at 172MT.However,gross margin was down to 19.3%vs.32.5%in 1H09 due to jump in COGS.The price of tapioca starch as a raw material has gone up to US$550/MT (+38%YTD),whereas the selling price of sorbitol went up only by 20%YTD.
Switching to corn starch — To tackle this issue,the company will switch its raw material usage from tapioca to corn starch,which is currently selling lower at US$458/MT.Instead it will export the tapioca starch overseas to take advantage of a higher price.
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 2, Adaro Energy (ADRO.JK;Rp2,050;1M)
Takeaways from Jakarta — Adaro Energy presented at Citi's Indonesia Investor Conference on Aug.4-5.Below are key takeaways.
Production on track to meet target — Adaro believes it ’s still on track to meet its 2010 production target of 46m tons despite heavy rain in 2Q10 – with June ’s being the heaviest in the past seven years.The company produced 21.6m tons in 1H10 (47%of its 2010 target),compared with 44%of its full year target in 1H09 and 47%in 1H08.
Wara mine off to a good start — The commercial production of low CV coal started in 1Q10 and the shipment to China commenced in May.Wara coal production is now at an average daily rate of 6,000 tons per day or 2m tons per year.Adaro expects to ramp up the production of Wara mine in 2H10 to meet its 2m tons production target for 2010.
Maruwai project — Adaro doesn't expect meaningful production until a couple of years later.Adaro expects substantial capex will be incurred starting late 2011.
Saptaindra — Adaro's coal mining contracting unit is performing well. Saptaindra now accounts for 30%of Adaro's production.Saptaindra is now Adaro's second largest contractor after Pama,overtaking Buma in second position.
Production on track to meet target — Adaro believes it ’s still on track to meet its 2010 production target of 46m tons despite heavy rain in 2Q10 – with June ’s being the heaviest in the past seven years.The company produced 21.6m tons in 1H10 (47%of its 2010 target),compared with 44%of its full year target in 1H09 and 47%in 1H08.
Wara mine off to a good start — The commercial production of low CV coal started in 1Q10 and the shipment to China commenced in May.Wara coal production is now at an average daily rate of 6,000 tons per day or 2m tons per year.Adaro expects to ramp up the production of Wara mine in 2H10 to meet its 2m tons production target for 2010.
Maruwai project — Adaro doesn't expect meaningful production until a couple of years later.Adaro expects substantial capex will be incurred starting late 2011.
Saptaindra — Adaro's coal mining contracting unit is performing well. Saptaindra now accounts for 30%of Adaro's production.Saptaindra is now Adaro's second largest contractor after Pama,overtaking Buma in second position.
Kamis, 05 Agustus 2010
NISP Delta Dunia Makmur has spent more than 60% of its 2010F capex (DOID, Rp930)
Year to date, Delta Dunia has spent US$110mn or 61% of its 2010F capex of
US$180mn and plan to spend the balance in 2H10. The company has increased
its heavy equipment fleet in order to boost its production capacity this year.
The company aims to increase its coal transportation fleet to 227 trucks from 52
trucks currently where each 150 tons capacity truck costs US$1.8mn.
Furthermore, Delta Dunia is currently exploring feasibility to utilize its property
assets in order to support its capex.
Currently DOID is trading at 2010F consensus PER of 8.5x and EV/EBITDA of
5.0x.
US$180mn and plan to spend the balance in 2H10. The company has increased
its heavy equipment fleet in order to boost its production capacity this year.
The company aims to increase its coal transportation fleet to 227 trucks from 52
trucks currently where each 150 tons capacity truck costs US$1.8mn.
Furthermore, Delta Dunia is currently exploring feasibility to utilize its property
assets in order to support its capex.
Currently DOID is trading at 2010F consensus PER of 8.5x and EV/EBITDA of
5.0x.
NISP London Sumatra reduces new planting to 3,500-4,000ha (LSIP, Rp9,150)
London Sumatra reveals due to environmental factors, it has reduced its new
planting target from 5,000 ha to only 3,500-4,000ha. The company will utilize
Rp150.0bn of capex for that action.
The company’s first half financials is under review and expected to be published
in the third week of August.
LSIP is trading at 2010F PER of 13.3x and EV/EBITDA of 8.3x.
planting target from 5,000 ha to only 3,500-4,000ha. The company will utilize
Rp150.0bn of capex for that action.
The company’s first half financials is under review and expected to be published
in the third week of August.
LSIP is trading at 2010F PER of 13.3x and EV/EBITDA of 8.3x.
NISP ITM is on track to achieve volume target (ITMG, Rp38,500, Hold)
ITM aims for 5.2mn tons of coal production in 2Q10 or 6.1% YoY higher from
4.9mn tons in 2Q09. Compared to 1Q10, the company’s production target is
13.1% lower due to heavy rainfall season.
The company’s target translated into 11.2mn tons of coal production for 1H10,
48.6% of the company’s internal target for 2010F of 23mn tons.
We view this full year target is achievable as in 2H10, contribution from Jorong
and Bharinto of around 1mn tons and 0.2mn tons will start to kick in.
ITM has not shared any details on its financial performance that is scheduled to
be released next week.
Currently ITMG is trading at 2010F PER of 18.6x and EV/EBITDA of 11.3x, Hold.
4.9mn tons in 2Q09. Compared to 1Q10, the company’s production target is
13.1% lower due to heavy rainfall season.
The company’s target translated into 11.2mn tons of coal production for 1H10,
48.6% of the company’s internal target for 2010F of 23mn tons.
We view this full year target is achievable as in 2H10, contribution from Jorong
and Bharinto of around 1mn tons and 0.2mn tons will start to kick in.
ITM has not shared any details on its financial performance that is scheduled to
be released next week.
Currently ITMG is trading at 2010F PER of 18.6x and EV/EBITDA of 11.3x, Hold.
NISP Adaro keeps its subsidiary (ADRO, Rp2,025, Buy)
Adaro cancels its plan to offer its subsidiary, Saptaindra Sejati (SIS), to public.
Adaro sees no advantage to sell SIS as the company currently holds a majority
position (97%) in this mining contracting company.
For its business expansion, Adaro prepared US$430mn to support its project,
including its conveyor system. This facility will also be supported by 2x30 MW
independent power plant to support the activities.
Separately, Adaro proposes to supply coal to Pemalang and Kalsel Power Plants,
which could consume up to 7mn tons of coal per annum.
We view the commencement of conveyor will lower the company’s fuel cost.
Initially, Adaro foresees it may save US$3/ton of cash cost from conveyor system
compared to diesel based transportation.
Currently ADRO is trading at 2010F PER of 17.2x and EV/EBITDA of 7.7x, Buy.
Adaro sees no advantage to sell SIS as the company currently holds a majority
position (97%) in this mining contracting company.
For its business expansion, Adaro prepared US$430mn to support its project,
including its conveyor system. This facility will also be supported by 2x30 MW
independent power plant to support the activities.
Separately, Adaro proposes to supply coal to Pemalang and Kalsel Power Plants,
which could consume up to 7mn tons of coal per annum.
We view the commencement of conveyor will lower the company’s fuel cost.
Initially, Adaro foresees it may save US$3/ton of cash cost from conveyor system
compared to diesel based transportation.
Currently ADRO is trading at 2010F PER of 17.2x and EV/EBITDA of 7.7x, Buy.
NISP PGN’s 1H10 distribution volume only down by 1.7% QoQ in 1H10 (PGN, Rp4,000, Buy)
PGN during its public expose cited that its distribution volume in 1H10 reached
827mmscfd or decreased slightly by 1.7% from 841mmscfd in 1Q10. The
company stated that the supply disruption from Conoco Phillips has improved to
320mmscfd from as low as 275mmscfd in March ’10.
In the meantime, the company’s transmission volume is up by 11.9% to reach
848mmscfd from 758mmscfd in 1Q10 as the company booked the converted
supply from Conoco Phillips as transmission revenue.
The company’s distribution average selling price reached US$6.37/mmscfd up
from US$5.5mmscfd in 1Q10 after the company raised its selling price by 15% in
April 2010.
The company’s 1H10 operational figures are relatively in-line within our
expectation as we expect some improvement on Conoco Phillips gas supply.
Overall, we foresee that PGN’s 2Q10 performance could be higher than the 1Q10
considering the selling price hike impact has taken place in 2Q10. The company
will release its 1H10 result by the end of this month. PGN is currently trading at
2010F PER of 14.2x and EV/EBITDA of 9.0x, Buy.
827mmscfd or decreased slightly by 1.7% from 841mmscfd in 1Q10. The
company stated that the supply disruption from Conoco Phillips has improved to
320mmscfd from as low as 275mmscfd in March ’10.
In the meantime, the company’s transmission volume is up by 11.9% to reach
848mmscfd from 758mmscfd in 1Q10 as the company booked the converted
supply from Conoco Phillips as transmission revenue.
The company’s distribution average selling price reached US$6.37/mmscfd up
from US$5.5mmscfd in 1Q10 after the company raised its selling price by 15% in
April 2010.
The company’s 1H10 operational figures are relatively in-line within our
expectation as we expect some improvement on Conoco Phillips gas supply.
Overall, we foresee that PGN’s 2Q10 performance could be higher than the 1Q10
considering the selling price hike impact has taken place in 2Q10. The company
will release its 1H10 result by the end of this month. PGN is currently trading at
2010F PER of 14.2x and EV/EBITDA of 9.0x, Buy.
NISP Bank Indonesia’s Board of Governors has maintained BI rate 6.5% for the twelfth consecutive month.
The Central Bank stated that non-fundamental factors or prices of volatile goods.
The upcoming festive season is expected to push inflation towards the upper
band of targeted inflation. In the future, Bank Indonesia plans to tighten liquidity,
without disrupting the banking industry’s intermediary function, mostly through
adjustment of the reserve requirement.
Domestic economic growth is also said to be on track. In addition to the support
of household consumption, exports have also improved. Investment is also rising,
indicated by non-building investment and import of raw materials and capital
goods. Several sectors with notable growth include the manufacturing industry,
trade, and transportation and communication.
Foreign reserves increased to US$78.8bn, which is equal to 6,03 monthly
government interest payment and import needs. In the financial sector, credit
has grown 19.6% YoY. Gross NPL is below 5%.
Based on the comments, it seems that there will be no sudden rate hike in the
near future as the central bank will look to temper inflation by other methods.
The upbeat outlook in the economic progress could also give some indication that
growth in the 2Q10 could be on the high side. This morning, BPS will release
2Q10 GDP data, where the street expects growth to be 6.00% YoY and 2.55%
QoQ.
The upcoming festive season is expected to push inflation towards the upper
band of targeted inflation. In the future, Bank Indonesia plans to tighten liquidity,
without disrupting the banking industry’s intermediary function, mostly through
adjustment of the reserve requirement.
Domestic economic growth is also said to be on track. In addition to the support
of household consumption, exports have also improved. Investment is also rising,
indicated by non-building investment and import of raw materials and capital
goods. Several sectors with notable growth include the manufacturing industry,
trade, and transportation and communication.
Foreign reserves increased to US$78.8bn, which is equal to 6,03 monthly
government interest payment and import needs. In the financial sector, credit
has grown 19.6% YoY. Gross NPL is below 5%.
Based on the comments, it seems that there will be no sudden rate hike in the
near future as the central bank will look to temper inflation by other methods.
The upbeat outlook in the economic progress could also give some indication that
growth in the 2Q10 could be on the high side. This morning, BPS will release
2Q10 GDP data, where the street expects growth to be 6.00% YoY and 2.55%
QoQ.
DBS Bank Central Asia: Hold; Rp5,750; TP Rp6,200; BBCA IJ Tapping two-wheelers financing
BBCA through its subsidiary, PT BCA Finance, will establish a multi finance company specializing in two-wheelers financing namely PT Central Sentosa Finance. Based on BI regulation, a bank is allowed to participate in equity stake in a company that has been founded for more than two years. BBCA then will only acquire 25% stake in the new company through PT BCA Finance and will execute the option to take 50% ownership in the second year at par value. This decision is taken after considering significant potential market of two-wheelers financing in Indonesia where motorcycle sales reached six million units this year. BBCA targets to tap 10% share of the financing market or about Rp5tr revenue with joint financing schemes of 95% from BBCA and the rest 5% by BCA Finance. In the initial year, BBCA will inject Rp100bn capital in CSF and will consider lowering the interest rate from the current 26%-30% prevailing financing rate to boost profitability after second year of operation.
We do not expect this new venture to contribute much in the first two years, as it would involve a fair bit of infrastructure investments. Currently, BBCA has a small scale auto financing business via its subsidiary BCA Finance, which is believed to have the lowest financing rates in the market.
Maintain Hold and TP of Rp6,200 based on the Gordon Growth Model with the following assumptions: 26% sustainable ROE, 10% long-term growth and 14% cost of equity. Our TP of Rp6,200 implies 4x FY11 BV and 16.1x FY11 EPS.
We do not expect this new venture to contribute much in the first two years, as it would involve a fair bit of infrastructure investments. Currently, BBCA has a small scale auto financing business via its subsidiary BCA Finance, which is believed to have the lowest financing rates in the market.
Maintain Hold and TP of Rp6,200 based on the Gordon Growth Model with the following assumptions: 26% sustainable ROE, 10% long-term growth and 14% cost of equity. Our TP of Rp6,200 implies 4x FY11 BV and 16.1x FY11 EPS.
DBS Adaro Energy: Buy; Rp2,025; TP Rp2,500; ADRO IJ To acquire Bhakti Energy Persada
Local media reported that Adaro plans to acquire Bhakti Energy Persada (BEP); a coal mining company which belongs to one of its major shareholders’ Mr Teddy P. Rahmat. BEP has two mining concession in Kalimantan . 1) Located in Bulungan with 110m tons of resources which is expected to produce 700k tons this year before a ramp-up to 2m tons next year. 2) Green field project located in East Kalimantan with 5.6b tons of resources. BEP needs to spend up to US$400m until 2011 to build the mining infrastructure. Persada Capital Investama and Tri Putra Investindo own a combined 60% stake in BEP. Adaro’s management refused to comment on this matter.
In the meantime, Adaro is eyeing two independent power producer (IPP) projects worth US$2.5b. They are: 2x1000MW in Pemalang and 2x100 MW in South Kalimantan . Adaro would cooperate with several Japanese companies such as J-Power and Itochu Corp to bid for the project. Maintain Buy. TP Rp2,500.
In the meantime, Adaro is eyeing two independent power producer (IPP) projects worth US$2.5b. They are: 2x1000MW in Pemalang and 2x100 MW in South Kalimantan . Adaro would cooperate with several Japanese companies such as J-Power and Itochu Corp to bid for the project. Maintain Buy. TP Rp2,500.
DBS Economy BI rate unchanged
Bank Indonesia (BI) left the overnight reference rate unchanged at 6.5% yesterday, as widely anticipated. The post-meeting statement is slightly more hawkish than in the previous month. BI blamed inflation on the jump in food prices, a result of bad weather and supply disruptions. However, BI also recognized the need to “closely monitor the recent rise in inflation” and stated that they“ will pursue the necessary actions to ensure that inflation stays within target”. With regards to possible policy responses in the near term, BI mentioned that they could tighten liquidity management by adjusting banks’ reserve requirement ratios.
As BI prefers to use the RRR instrument first before resorting to interest rates, hence exclude the possibility of a rate hike in September. However, we think rate hikes in4Q10 are still likely. Headline CPI inflation is expected to ease slightly to below 6% YoY in Aug-Sep if food prices stabilize, but will likely return to the 6% level in Oct and rise further to 6.5% in Dec. Consumers’ inflation expectations are rising obviously (170.1 in Jul, up from 163.2 in Jun), on the back of higher prices for a wide range of goods and services and not only food. The risks of inflation pass through and higher core inflation should not be underestimated. Meanwhile, bank lending growth has gathered momentum due to stronger demand and improved interbank liquidity as well as the removal of a significant obstacle to rate hikes (BI has been eager to encourage bank lending). Bank loans rose 19.6% YoY in July (up from 18.6% in June), already approaching the growth trend in nominal GDP of about 20%. Moreover, foreign inflows have remained buoyant to boost liquidity supply. BI said yesterday that foreign reserves stood at USD 78.8bn in July. This means that reserves have increased USD 4.2bn in June-July and fully offset the USD 4.0bn drop in May amid European debt crisis. Despite a smaller trade surplus and the authorities’ tighter regulations on foreign investments in SBI, foreign inflows into the bond markets remained strong with attractive yields and positive sovereign credit rating outlook.
The 2Q GDP is the key data to watch today. Market sentiment is bullish and the Bloomberg consensus expects a strong GDP growth of 6.0% YoY in 2Q, higher than 5.7% in 1Q. Our forecast is relatively conservative, at 5.8%. Export growth has slowed in 2Q and trade surplus has narrowed, while domestic consumption and investment have both picked up to support the overall economy (on YoY basis). Motorcycle sales and motor vehicle sales surged 46.7% YoY and 78.3% YoY respectively in the April-June period (up from 35.4% and 73.6% in 1Q). The realization of domestic and foreign investments rose 55.8% YoY in 2Q, significantly faster than 24.6% in 1Q. However, momentum of the sequential QoQ growth in consumption, investment or headline GDP is still questionable, given the low base a year-ago. Our 2Q GDP forecast of 5.8% assumes a stable QoQ growth of 5.3% (seasonally adjusted, annualized).
As BI prefers to use the RRR instrument first before resorting to interest rates, hence exclude the possibility of a rate hike in September. However, we think rate hikes in4Q10 are still likely. Headline CPI inflation is expected to ease slightly to below 6% YoY in Aug-Sep if food prices stabilize, but will likely return to the 6% level in Oct and rise further to 6.5% in Dec. Consumers’ inflation expectations are rising obviously (170.1 in Jul, up from 163.2 in Jun), on the back of higher prices for a wide range of goods and services and not only food. The risks of inflation pass through and higher core inflation should not be underestimated. Meanwhile, bank lending growth has gathered momentum due to stronger demand and improved interbank liquidity as well as the removal of a significant obstacle to rate hikes (BI has been eager to encourage bank lending). Bank loans rose 19.6% YoY in July (up from 18.6% in June), already approaching the growth trend in nominal GDP of about 20%. Moreover, foreign inflows have remained buoyant to boost liquidity supply. BI said yesterday that foreign reserves stood at USD 78.8bn in July. This means that reserves have increased USD 4.2bn in June-July and fully offset the USD 4.0bn drop in May amid European debt crisis. Despite a smaller trade surplus and the authorities’ tighter regulations on foreign investments in SBI, foreign inflows into the bond markets remained strong with attractive yields and positive sovereign credit rating outlook.
The 2Q GDP is the key data to watch today. Market sentiment is bullish and the Bloomberg consensus expects a strong GDP growth of 6.0% YoY in 2Q, higher than 5.7% in 1Q. Our forecast is relatively conservative, at 5.8%. Export growth has slowed in 2Q and trade surplus has narrowed, while domestic consumption and investment have both picked up to support the overall economy (on YoY basis). Motorcycle sales and motor vehicle sales surged 46.7% YoY and 78.3% YoY respectively in the April-June period (up from 35.4% and 73.6% in 1Q). The realization of domestic and foreign investments rose 55.8% YoY in 2Q, significantly faster than 24.6% in 1Q. However, momentum of the sequential QoQ growth in consumption, investment or headline GDP is still questionable, given the low base a year-ago. Our 2Q GDP forecast of 5.8% assumes a stable QoQ growth of 5.3% (seasonally adjusted, annualized).
Mansek RALS: Executing new strategy
We think customer profiles are the main difficulties for RALS. It’s 1H10 underperformance according to RALS was not due to rising cost but margin slippage as RALS cut prices, which effectively reduce merchandise margin. Despite increasing GDP/capita, RALS’ main customers still see no increase in spending power. On the other hand, the required service has increased with RALS no longer can reduce its stores’ comfort. Change of approach is required and RALS has to go through trials and errors. Hence we are Neutral on the stock.
Restructuring organization into department stores and supermarket. Commenting on the 1H10 high salary and benefit costs (1H10 :Rp190.3bn, + 17.3% yoy) and utility charges (Rp93.0bn, +21.6% yoy) even before planned electricity tariff hike, RALS unveiled its new strategy. Regarding the salary and benefit cost increases, this was due to internal organization restructuring. RALS split their regional management (there are 7) into two from regional head down to merchandising, one for d! epartment store and one for supermarket. RALS plans to improve supermarket performance, to boost gross margin to 16-17% from 14% currently.
No more aircon temperature control and escalator shutdown. Another interesting aspect is the utility cost increase. RALS no longer apply cost cutting measures such as rising air conditioner temperature, or shutting off its escalator after such measures drove away customers from their stores. RALS now are applying standard operational services to lure its customers to visit.
1H10 bad on customer price-sensitiveness. As for 1H10 poor performance, RALS blamed it more on the margin slippage in the revenue due to merchandising which sell cheap products. It seems RALS could not get away from perennial headache of not improving purchasing power in their customers. Despite more people having jobs and wage increase, spending pattern did not change due to inflation. The observation was also confirmed by recent Nielsen studies which showed that fresh food still contributed 50% plus of average monthly spending.
Lowered earnings estimates, maintain Neutral and Rp800 target price. We lowered revenue estimate and fine tune the margins. We still hoped for good Lebaran sales to cover RALS 1H margin underachievement. Long term, RALS has to redefine their business model to adjust with shift in customer profile and requirements. This has been our central question for RALS as they are competing with cheaper mom and pop stores in trade centers selling products at cheaper prices as they are able to dodge tax payment.
Restructuring organization into department stores and supermarket. Commenting on the 1H10 high salary and benefit costs (1H10 :Rp190.3bn, + 17.3% yoy) and utility charges (Rp93.0bn, +21.6% yoy) even before planned electricity tariff hike, RALS unveiled its new strategy. Regarding the salary and benefit cost increases, this was due to internal organization restructuring. RALS split their regional management (there are 7) into two from regional head down to merchandising, one for d! epartment store and one for supermarket. RALS plans to improve supermarket performance, to boost gross margin to 16-17% from 14% currently.
No more aircon temperature control and escalator shutdown. Another interesting aspect is the utility cost increase. RALS no longer apply cost cutting measures such as rising air conditioner temperature, or shutting off its escalator after such measures drove away customers from their stores. RALS now are applying standard operational services to lure its customers to visit.
1H10 bad on customer price-sensitiveness. As for 1H10 poor performance, RALS blamed it more on the margin slippage in the revenue due to merchandising which sell cheap products. It seems RALS could not get away from perennial headache of not improving purchasing power in their customers. Despite more people having jobs and wage increase, spending pattern did not change due to inflation. The observation was also confirmed by recent Nielsen studies which showed that fresh food still contributed 50% plus of average monthly spending.
Lowered earnings estimates, maintain Neutral and Rp800 target price. We lowered revenue estimate and fine tune the margins. We still hoped for good Lebaran sales to cover RALS 1H margin underachievement. Long term, RALS has to redefine their business model to adjust with shift in customer profile and requirements. This has been our central question for RALS as they are competing with cheaper mom and pop stores in trade centers selling products at cheaper prices as they are able to dodge tax payment.
CIMB Company Update – Bank Negara Indonesia – “Rights or haircuts, Sir?
We upgrade BNI to Outperform from Neutral. Going by recent progress, we see an increasing probability of parliamentary approval for BNI’s rights issue in the near term. Of its two proposals − rights issue and haircuts − submitted almost in tandem, we anticipate parliamentary approval for at least one, with chances higher for the former, we believe. If so, BNI could then resume its long-term growth, which has prompted us to upgrade our long-term ROE assumption to 21.2% from our previous growth-capped assumption of 18.6%, and raising our target price to Rp4,000 from Rp2,875 (GGM, unchanged discount rate of 15.8%). As the cheapest of the major banks, we see BNI catching up with the valuations of peers once concerns over its thin capital evaporate. We expect stock catalysts from parliamentary approval.
CLSA Pakuwon (PWON IJ) presented during the Investor Day, hosted by IDX from analyst Sarina
Key takeaways:
· Gandaria City Mall in its South Jakarta superblock will open today with GLA of 97,000 sqm. The company said it is 91% leased, with Lotte Mart as one of the anchor tenants. Yield is targeted at 16-17%; ave. rental rate is US$40 psm pm.
· Gandaria Heights condo (2 towers) was 81% pre-sold (priced at Rp18-22m psm). The Gandaria 8 office (36 floors, GLA: 58,370sqm), was 61% presold and leased.
· The company also has 200ha land bank for Pakuwon City township in Surabaya. Land price is now Rp3.3m psm.
· 38% of revenue in 1H10 came from recurring income (Tunjungan Plaza, Sheraton hotel, etc. in Surabaya). The remaining portion was from its sales of condo and office at Gandaria project
· Total debt as of 1H10 is Rp1.5tn with Rp200bn cash; net gearing of 102% (1H09: 121%)
· PWON obtained Rp370bn senior secured notes from CIMB Niaga of 13.5% int pa (30June2010).
· In Oct 2009, PWON restructured its US$110m bond (issued in Nov2006, 12% pa, due Nov2011) to US$19m senior secured notes and US$37m notes (step-up cash coupon and paid-in-kind interest, mature 2015). Moreover, every previous bond-holders who are willing to participate in the exchange, will get an additional US$5 for every US$1,000 old bond. Plus, issuer will add US$20 to the principal of this Note 2015 for every old bond that was exchanged. In Nov 2009, 76% of old bond holders (or eq. US$83m) agreed to the exchange. Step-up cash coupon is 1% for Nov’09-’11, 3% Nov’11-‘12, 5% for Nov’12-13, and 12% for Nov’13-’15. Interest added to notes principal: 11% for the first period, followed by 9%, 7% and 0% for the subsequent periods. Hence this means, the company restructured the debt to push-back payment further to maturity; aiming to preserve more cash for development.
· Gandaria City Mall in its South Jakarta superblock will open today with GLA of 97,000 sqm. The company said it is 91% leased, with Lotte Mart as one of the anchor tenants. Yield is targeted at 16-17%; ave. rental rate is US$40 psm pm.
· Gandaria Heights condo (2 towers) was 81% pre-sold (priced at Rp18-22m psm). The Gandaria 8 office (36 floors, GLA: 58,370sqm), was 61% presold and leased.
· The company also has 200ha land bank for Pakuwon City township in Surabaya. Land price is now Rp3.3m psm.
· 38% of revenue in 1H10 came from recurring income (Tunjungan Plaza, Sheraton hotel, etc. in Surabaya). The remaining portion was from its sales of condo and office at Gandaria project
· Total debt as of 1H10 is Rp1.5tn with Rp200bn cash; net gearing of 102% (1H09: 121%)
· PWON obtained Rp370bn senior secured notes from CIMB Niaga of 13.5% int pa (30June2010).
· In Oct 2009, PWON restructured its US$110m bond (issued in Nov2006, 12% pa, due Nov2011) to US$19m senior secured notes and US$37m notes (step-up cash coupon and paid-in-kind interest, mature 2015). Moreover, every previous bond-holders who are willing to participate in the exchange, will get an additional US$5 for every US$1,000 old bond. Plus, issuer will add US$20 to the principal of this Note 2015 for every old bond that was exchanged. In Nov 2009, 76% of old bond holders (or eq. US$83m) agreed to the exchange. Step-up cash coupon is 1% for Nov’09-’11, 3% Nov’11-‘12, 5% for Nov’12-13, and 12% for Nov’13-’15. Interest added to notes principal: 11% for the first period, followed by 9%, 7% and 0% for the subsequent periods. Hence this means, the company restructured the debt to push-back payment further to maturity; aiming to preserve more cash for development.
CLSA PGas update from analyst Swati Chopra
PGas distribution volumes for 1H10 are 827mmscfd vs. our forecasts of 805mmscfd for full year. The currency is strengthening which will have a slight negative impact on earnings. We look to upgrade earnings by 5-7%.
That said there is no meaningful volume or price growth in next two years. PGas is also an infrastructure play as gas supply comes in block. The next big supply will come from LNG receiving terminal expected to be operational in late 2012, early 2013.
Thus PGas will have low growth unless they get make up volumes or other big block of supply which at this stage looks unlikely. We will keep on top of any new volumes coming through.
For now the stock offers 18% upside to our target price. We maintain our recommendation as the stock is trading at 10.5x 2011CL earnings offering highest ROE and ROA among CLSA power sector coverage.
Catalyst includes new gas supply for LNG receiving terminal. This we expect to be signed in 3Q10
That said there is no meaningful volume or price growth in next two years. PGas is also an infrastructure play as gas supply comes in block. The next big supply will come from LNG receiving terminal expected to be operational in late 2012, early 2013.
Thus PGas will have low growth unless they get make up volumes or other big block of supply which at this stage looks unlikely. We will keep on top of any new volumes coming through.
For now the stock offers 18% upside to our target price. We maintain our recommendation as the stock is trading at 10.5x 2011CL earnings offering highest ROE and ROA among CLSA power sector coverage.
Catalyst includes new gas supply for LNG receiving terminal. This we expect to be signed in 3Q10
CLSA Inflation and Bank Performance
Bret Ginesky looked at the historical performance of Indonesian banks during the period of rising and declining interest rates.
Historically, liability sensitive banks underperform in a rising inflation environment.
In a higher inflationary environment we believe investors should hold BCA (BBCA IJ), Mandiri (BMRI IJ), and BNI (BBNI IJ) and be cautious of Danamon (BDMN IJ) and BTN (BBTN IJ).
BMRI lagged the JCI when in 2005/6 and 2008/9 when inflation has topped 7%. We would however note that BMRI has a much different credit profile now. As such, we don’t think that the stock will perform similarly this time.
Historically, liability sensitive banks underperform in a rising inflation environment.
In a higher inflationary environment we believe investors should hold BCA (BBCA IJ), Mandiri (BMRI IJ), and BNI (BBNI IJ) and be cautious of Danamon (BDMN IJ) and BTN (BBTN IJ).
BMRI lagged the JCI when in 2005/6 and 2008/9 when inflation has topped 7%. We would however note that BMRI has a much different credit profile now. As such, we don’t think that the stock will perform similarly this time.
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 1, Bank Rakyat Indonesia (Persero)(BBRI.JK; Rp9,200;2H)
Takeaways from Jakarta — Bank Rakyat Indonesia presented at Citi's
Indonesia Investor Conference on Aug.4-5.Below are key takeaways.
Loan growth — Loan growth of 20++%remains the long-term target.Demand
is strong,and management is working on constraints of CAR,physical
infrastructure and deposits.
NIM — NIMs expansion in 1H was temporary,due to deposit re pricing.
Trend is declining and will be compensated by Fee Income growth of 20pc.
NPLs — NPLs have peaked in this quarter.These were concentrated in the
Middle Market and relate to exporters impacted by the global environment.
The other source of NPLs tends to be small borrowers who expand
businesses too quickly and cannot manage them.
Capital adequacy — Capital adequacy is comfortable and to maintain it:1)
more lending will be directed towards SOEs with 0-50pc risk weighting,2)
further cut in dividend payout ratio from existing 30pc,and 3)rely on Tier II.
Micro loans — There is a need to increase outlets to push micro loans.
Historic 25%growth is due to physical bottleneck and not lack of demand.
LDR ratio — The high LDR is not a concern due to ample liquidity in the
system.To raise CASA share up to 60%(from 57%),new initiatives have
been taken that include new products,expansion of both e-channels and
outlets/branches and marketing initiatives.
Competition — BDMN is a competition and has an edge in application
processing time.Bank Jabar is the only regional bank that is a competition.
Others are too small.
Valuation
Our target price of Rp9,700 is based on a 2011E P/E of 12.1x,+0.5sd (0.95x)
above its average of 11.2x since 2006.We have not used +1sd,as applied to
peers,due to BBRI's high LDR.We believe P/E is the best valuation measure
for banking stocks in Indonesia due to their growth potential.
Risks
We assign a High Risk rating due to both operational risks and in line with our
quantitative risk-rating system,which tracks 260-day historical share price
volatility.BBRI has historically been a higher beta stock trading at a discount
to more stable BBCA.Downside risks to our target price include:1)lower-than-
projected growth;and 2)reversal of US carry trade.Banks are more vulnerable
to adverse impacts on growth,NIMs and asset quality.Competition and bond
issuance can also squeeze NIMs.BBRI is a state-owned bank.With a new
government in place,there can be a change in management and therefore
strategy.Upside risks to our target price include sustained liquidity inflow,
strong loan demand due to benign inflation (consumer/microfinance)and
sharp export recovery (corporate).
Indonesia Investor Conference on Aug.4-5.Below are key takeaways.
Loan growth — Loan growth of 20++%remains the long-term target.Demand
is strong,and management is working on constraints of CAR,physical
infrastructure and deposits.
NIM — NIMs expansion in 1H was temporary,due to deposit re pricing.
Trend is declining and will be compensated by Fee Income growth of 20pc.
NPLs — NPLs have peaked in this quarter.These were concentrated in the
Middle Market and relate to exporters impacted by the global environment.
The other source of NPLs tends to be small borrowers who expand
businesses too quickly and cannot manage them.
Capital adequacy — Capital adequacy is comfortable and to maintain it:1)
more lending will be directed towards SOEs with 0-50pc risk weighting,2)
further cut in dividend payout ratio from existing 30pc,and 3)rely on Tier II.
Micro loans — There is a need to increase outlets to push micro loans.
Historic 25%growth is due to physical bottleneck and not lack of demand.
LDR ratio — The high LDR is not a concern due to ample liquidity in the
system.To raise CASA share up to 60%(from 57%),new initiatives have
been taken that include new products,expansion of both e-channels and
outlets/branches and marketing initiatives.
Competition — BDMN is a competition and has an edge in application
processing time.Bank Jabar is the only regional bank that is a competition.
Others are too small.
Valuation
Our target price of Rp9,700 is based on a 2011E P/E of 12.1x,+0.5sd (0.95x)
above its average of 11.2x since 2006.We have not used +1sd,as applied to
peers,due to BBRI's high LDR.We believe P/E is the best valuation measure
for banking stocks in Indonesia due to their growth potential.
Risks
We assign a High Risk rating due to both operational risks and in line with our
quantitative risk-rating system,which tracks 260-day historical share price
volatility.BBRI has historically been a higher beta stock trading at a discount
to more stable BBCA.Downside risks to our target price include:1)lower-than-
projected growth;and 2)reversal of US carry trade.Banks are more vulnerable
to adverse impacts on growth,NIMs and asset quality.Competition and bond
issuance can also squeeze NIMs.BBRI is a state-owned bank.With a new
government in place,there can be a change in management and therefore
strategy.Upside risks to our target price include sustained liquidity inflow,
strong loan demand due to benign inflation (consumer/microfinance)and
sharp export recovery (corporate).
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 1, Bank CIMB Niaga (BNGA.JK;Rp1,130;Analyzed Not Rated)
Takeaways from Jakarta — Bank CIMB Niaga presented at Citi's Indonesia
Investor Conference on Aug.4-5.Below are key takeaways.
Strategy — Operating environment is favorable and with merger pains
behind,focus is now on growth.Target loan growth is 20%pa with a focus
on increasing margins and diversifying revenue stream.This includes higher
loan growth in Auto (4W),Micro (high-end and pawn shop)and Syariah
(retail).
Diversifying revenue stream — Transactional banking will be the focus to
diversify revenue stream (L/C)and other trade-related services.
Pressures on yields — Competition in mortgages is strong and bringing down
yields.Rates for BNGA are down to 9.25%(lowest is 8.8%)with the risk of
further decline (first two year rates only).Increase in BI rates impacts with a
2-3 year lag on mortgage and auto loans.Auto loans NPLs are 50bps lower
than mortgages.
CASA — Raising CASA from 48%to 60%in the next two years is a
challenge.Already has 3mn deposit accounts and charges Rp5,000 to
Rp9,000 per month as administration fees.
Investor Conference on Aug.4-5.Below are key takeaways.
Strategy — Operating environment is favorable and with merger pains
behind,focus is now on growth.Target loan growth is 20%pa with a focus
on increasing margins and diversifying revenue stream.This includes higher
loan growth in Auto (4W),Micro (high-end and pawn shop)and Syariah
(retail).
Diversifying revenue stream — Transactional banking will be the focus to
diversify revenue stream (L/C)and other trade-related services.
Pressures on yields — Competition in mortgages is strong and bringing down
yields.Rates for BNGA are down to 9.25%(lowest is 8.8%)with the risk of
further decline (first two year rates only).Increase in BI rates impacts with a
2-3 year lag on mortgage and auto loans.Auto loans NPLs are 50bps lower
than mortgages.
CASA — Raising CASA from 48%to 60%in the next two years is a
challenge.Already has 3mn deposit accounts and charges Rp5,000 to
Rp9,000 per month as administration fees.
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 1, Bank Central Asia (BBCA.JK;Rp5,750;3M)
Takeaways from Jakarta — Bank Central Asia presented at Citi's Indonesia
Investor Conference on Aug.4-5.Below are key takeaways.
Loan growth pickup — Loan growth has picked up strongly since Q2,,and
2010 growth is likely to be at least 20%.Corporate loans have been the
positive surprise,and demand is a balance between investment and working
capital loans.No risk of economy heating up in the near future.
Credit costs — Lower credit cost is more a function of absence of new NPLs.
This is driven by the strong economic environment.The recovery trend has
been as in the past.
Challenges — While management is striving to grow loans,achieving the
75%desired level (of Bank Indonesia)is unlikely.Total loans (Rp131trn)are
51%of deposits,but total loans plus facilities (Rp191trn)are 75%of
deposits.The impact on CAR is also unclear,as achieving the desired level
of LDR will bring it below 12pc (another BIs desired floor).Mortgage risk
charge is only 40pc,so is a desirable growth avenue,particularly with low
cost of funds.
Deposit growth — Deposit growth momentum is healthy,and CASA growth is
meeting the loan growth.Saving deposit growth is slow,in line with the
industry.
Valuation
Our target price of Rp5,600 is based on a 2011E P/E of 15.3x,+1sd (1.8x)
above the stock's average (13.5x)since 2006 because we believe we are in an
upcycle.A P/E approach helps capture the growth potential of the bank.
Risks
We rate BBCA shares Medium Risk,while our quantitative risk-rating system,
which tracks 260-day historical share price volatility,rates Indonesian banks
High Risk.With the Indonesian economy stabilizing quickly,BCA warrants a
Medium Risk rating,in our view.Upside risks to our target price include
sustained liquidity inflow,strong loan demand due to benign inflation
(consumer/microfinance)and a sharp export recovery (corporate).Downside
risks to our target include:1)lower-than-projected growth;and 2)reversal of
the US carry trade.
Investor Conference on Aug.4-5.Below are key takeaways.
Loan growth pickup — Loan growth has picked up strongly since Q2,,and
2010 growth is likely to be at least 20%.Corporate loans have been the
positive surprise,and demand is a balance between investment and working
capital loans.No risk of economy heating up in the near future.
Credit costs — Lower credit cost is more a function of absence of new NPLs.
This is driven by the strong economic environment.The recovery trend has
been as in the past.
Challenges — While management is striving to grow loans,achieving the
75%desired level (of Bank Indonesia)is unlikely.Total loans (Rp131trn)are
51%of deposits,but total loans plus facilities (Rp191trn)are 75%of
deposits.The impact on CAR is also unclear,as achieving the desired level
of LDR will bring it below 12pc (another BIs desired floor).Mortgage risk
charge is only 40pc,so is a desirable growth avenue,particularly with low
cost of funds.
Deposit growth — Deposit growth momentum is healthy,and CASA growth is
meeting the loan growth.Saving deposit growth is slow,in line with the
industry.
Valuation
Our target price of Rp5,600 is based on a 2011E P/E of 15.3x,+1sd (1.8x)
above the stock's average (13.5x)since 2006 because we believe we are in an
upcycle.A P/E approach helps capture the growth potential of the bank.
Risks
We rate BBCA shares Medium Risk,while our quantitative risk-rating system,
which tracks 260-day historical share price volatility,rates Indonesian banks
High Risk.With the Indonesian economy stabilizing quickly,BCA warrants a
Medium Risk rating,in our view.Upside risks to our target price include
sustained liquidity inflow,strong loan demand due to benign inflation
(consumer/microfinance)and a sharp export recovery (corporate).Downside
risks to our target include:1)lower-than-projected growth;and 2)reversal of
the US carry trade.
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 1, Astra Agro Lestari (AALI.JK;Rp19,200;1L)
Takeaways from Jakarta — Astra Agro Lestari presented at Citi's Indonesia
Investor Conference on Aug.4-5.Below are key takeaways.
FFB volume decline — Unfavorable weather during 1H10 and previous
fertilizer usage cuts caused FFB volume to decline primarily among plasma
palm oil producers.AALI had more than 40%plasma exposure in Sumatra.
Meanwhile,in their efforts to conserve cash,some of the plasma palm oil
producers had cut their fertilizer usage during the financial crisis in 2008.
This led to a 14%YoY yield decline in FFBs harvested from AALI ’s plasma (a
total of 404,000 tons)while the yield of nucleus palm oil producers were
only down 6.5%YoY (1.4m tons).
Replanting — Palm oil trees in Sumatra are older in age ((past the optimum
yield age of 7-18 years).Thus,replanting efforts are more focused in this
area.
Higher OER compensated for lower FFB yield — As of June 2010,oil
extraction rate (OER)increased from 22.68%to 23.40%.Hence,1H10 CPO
production was only down 5.7%YoY to 471,000 tons despite an 8.3%YoY
decline in FFB harvest to 1.8 million tons due to falling FFB yields from 10
tons/ha to 8.59 tons/ha.
2H10 production outlook more favorable — Going into 2H10,,AALI expects
production to improve on the back of:a)improved weather conditions,b)
less negative effects of the previous fertilizer usage cuts,c)seasonality
factor (the second half of the year is typically a stronger production period
than the first half),and d)ongoing intensification initiatives,i.e.improved
farming techniques,better fertilizer application,mechanization and other
efforts to boost productivity.
New planting slowdown;exploring PNG — As at 6M10,AALI only planted
1,337 ha and it is targeting 3k ha by year end.Going forward,AALI expects
its new plantings to slow down given more stringent criteria in its land
acquisition/purchase policy post the Norwegian moratorium.Land surveys
that previously only took AALI 3-4 days to complete can now take 3-4 weeks.
This was the primary reason for the increase in professional fees and
training and education costs from Rp17bn and Rp5.2bn to Rp32.3bn and
Rp8.3bn in 1H10 respectively.AALI is also exploring opportunities and
conducting feasibility studies in Papua New Guinea.
Capex spending — 6M10 capex spending rose 11.6%YoY to Rp643.8bn.Of
the Rp643.8bn,62.5%(Rp402.5bn)was spent on plantations,while the
remaining 28%and 9.4%were spent on non-plantations,and mills &ports
respectively.AALI expects FY10 capex to be at similar levels with FY09
capex of Rp1.3trn.
Mechanization of fertilizer application — Through mechanization,fertilizer
application is expected to be more efficient and effective.Under manual
fertilizer,a worker can only cover an area of 15 ha/day.With the new
mechanized fertilizer application method,the coverage can be increased ten
folds.Fertilization of 50,000 ha (primarily over flatter areas),out of AALI ’s
total planted area of 265k ha,has already been mechanized.AALI is working
on mechanizing another 25,000 ha of sloping/rolling land area within the
next couple of months.
Valuation
Our target price for AALI of Rp27,720 is based on an average of 2010E and
2011E EPS (in 55:45 ratio)of Rp1,686 and PE multiple of 16.4x,the average
of 1)the stock's historical P/E mean of 13.5x and 2)1sd above the average,
which equates to 19.4x and factors in its improved growth prospects.As a
cross-check,we employ DCF based on cash flows out to 2019E and a terminal
value of 9.8x EV/EBITDA,a derivation of a constant growth multiple.We use a
discount rate of 12.5%,which imputes an Rf of 9%(to better reflect current
market conditions)and a market risk premium of 6%.Our DCF yields a net
present value of Rp27,030/share.
Risks
We rate AALI Low Risk as per our quantitative risk-rating system,which tracks
260-day historical share price volatility.Risks that could prevent the stock from
reaching our target price include:a)CPO price volatility;b)Fluctuating crude-
oil prices;c)Poor weather conditions that might hamper CPO production;and
d)Fluctuating USD-IDR rates.
Investor Conference on Aug.4-5.Below are key takeaways.
FFB volume decline — Unfavorable weather during 1H10 and previous
fertilizer usage cuts caused FFB volume to decline primarily among plasma
palm oil producers.AALI had more than 40%plasma exposure in Sumatra.
Meanwhile,in their efforts to conserve cash,some of the plasma palm oil
producers had cut their fertilizer usage during the financial crisis in 2008.
This led to a 14%YoY yield decline in FFBs harvested from AALI ’s plasma (a
total of 404,000 tons)while the yield of nucleus palm oil producers were
only down 6.5%YoY (1.4m tons).
Replanting — Palm oil trees in Sumatra are older in age ((past the optimum
yield age of 7-18 years).Thus,replanting efforts are more focused in this
area.
Higher OER compensated for lower FFB yield — As of June 2010,oil
extraction rate (OER)increased from 22.68%to 23.40%.Hence,1H10 CPO
production was only down 5.7%YoY to 471,000 tons despite an 8.3%YoY
decline in FFB harvest to 1.8 million tons due to falling FFB yields from 10
tons/ha to 8.59 tons/ha.
2H10 production outlook more favorable — Going into 2H10,,AALI expects
production to improve on the back of:a)improved weather conditions,b)
less negative effects of the previous fertilizer usage cuts,c)seasonality
factor (the second half of the year is typically a stronger production period
than the first half),and d)ongoing intensification initiatives,i.e.improved
farming techniques,better fertilizer application,mechanization and other
efforts to boost productivity.
New planting slowdown;exploring PNG — As at 6M10,AALI only planted
1,337 ha and it is targeting 3k ha by year end.Going forward,AALI expects
its new plantings to slow down given more stringent criteria in its land
acquisition/purchase policy post the Norwegian moratorium.Land surveys
that previously only took AALI 3-4 days to complete can now take 3-4 weeks.
This was the primary reason for the increase in professional fees and
training and education costs from Rp17bn and Rp5.2bn to Rp32.3bn and
Rp8.3bn in 1H10 respectively.AALI is also exploring opportunities and
conducting feasibility studies in Papua New Guinea.
Capex spending — 6M10 capex spending rose 11.6%YoY to Rp643.8bn.Of
the Rp643.8bn,62.5%(Rp402.5bn)was spent on plantations,while the
remaining 28%and 9.4%were spent on non-plantations,and mills &ports
respectively.AALI expects FY10 capex to be at similar levels with FY09
capex of Rp1.3trn.
Mechanization of fertilizer application — Through mechanization,fertilizer
application is expected to be more efficient and effective.Under manual
fertilizer,a worker can only cover an area of 15 ha/day.With the new
mechanized fertilizer application method,the coverage can be increased ten
folds.Fertilization of 50,000 ha (primarily over flatter areas),out of AALI ’s
total planted area of 265k ha,has already been mechanized.AALI is working
on mechanizing another 25,000 ha of sloping/rolling land area within the
next couple of months.
Valuation
Our target price for AALI of Rp27,720 is based on an average of 2010E and
2011E EPS (in 55:45 ratio)of Rp1,686 and PE multiple of 16.4x,the average
of 1)the stock's historical P/E mean of 13.5x and 2)1sd above the average,
which equates to 19.4x and factors in its improved growth prospects.As a
cross-check,we employ DCF based on cash flows out to 2019E and a terminal
value of 9.8x EV/EBITDA,a derivation of a constant growth multiple.We use a
discount rate of 12.5%,which imputes an Rf of 9%(to better reflect current
market conditions)and a market risk premium of 6%.Our DCF yields a net
present value of Rp27,030/share.
Risks
We rate AALI Low Risk as per our quantitative risk-rating system,which tracks
260-day historical share price volatility.Risks that could prevent the stock from
reaching our target price include:a)CPO price volatility;b)Fluctuating crude-
oil prices;c)Poor weather conditions that might hamper CPO production;and
d)Fluctuating USD-IDR rates.
Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 1, Indonesia Strategy:BKPM Talk
BKPM talk — Gita Wirjawan,Chairman of the Indonesian Investment
Coordinating Board,spoke at a luncheon at Citi's Indonesia Investor
Conference on Aug.4-5.Below are key takeaways.Mr.Wirjawan,a 42-year
old former banker and a private equity principal,joined the cabinet in
October 2002.BKPM (www.bkpm.go.id)seeks to become the main
interlocutor between business and government in Indonesia.BKPM presents
investment opportunities and provide services to potential and existing and
investors.
Investment required — The government estimates that Indonesia needs to
invest up to US$1trn during the current president ’s term of 2009-2014.By
then,the economy is expected to reach US$950bn if Indonesia grows by 6-
7%per annum.Of these total investments,approximately 15%will have to
be raised through new investments in infrastructure which are currently the
main focus of BKPM.
Challenges faced by BKPM — These include::streamlining approval
processes and simplifying land ownership law.BKPM has streamlined
licensing processes and cut the time required to get a license to 5 hours and
at most a week.A draft land law is in the works and parliament deliberation
is expected to commence soon.A 2007 government attempt to put a price
cap on land acquisition prices for infrastructure projects through a
Presidential Decree did not bring the expected result.
Roads and power — Indonesia is projected to require 20,000km of new
roads and 25GW of new power generation capacity over the next five years.
BKPM believes that if these and other infrastructure build-out targets are
accomplished,then industrialization will take place along with the build-out.
Risks — What could derail the government ’s efforts in developing
infrastructure is not political,because Mr.Wirjawan believes that democracy
is well established over the past five years and the current political system is
stable.He is more concerned with potential ‘sectoral ego ’ ((turf battle)among
certain departments within the government.Mr.Wirjawan did not see much
room within the current budget to help push this infrastructure build-out,
hence private sector participation is key.He estimated that the current
budget only has no more than 3-4%‘space ’ to be spent on infrastructure.
Coordinating Board,spoke at a luncheon at Citi's Indonesia Investor
Conference on Aug.4-5.Below are key takeaways.Mr.Wirjawan,a 42-year
old former banker and a private equity principal,joined the cabinet in
October 2002.BKPM (www.bkpm.go.id)seeks to become the main
interlocutor between business and government in Indonesia.BKPM presents
investment opportunities and provide services to potential and existing and
investors.
Investment required — The government estimates that Indonesia needs to
invest up to US$1trn during the current president ’s term of 2009-2014.By
then,the economy is expected to reach US$950bn if Indonesia grows by 6-
7%per annum.Of these total investments,approximately 15%will have to
be raised through new investments in infrastructure which are currently the
main focus of BKPM.
Challenges faced by BKPM — These include::streamlining approval
processes and simplifying land ownership law.BKPM has streamlined
licensing processes and cut the time required to get a license to 5 hours and
at most a week.A draft land law is in the works and parliament deliberation
is expected to commence soon.A 2007 government attempt to put a price
cap on land acquisition prices for infrastructure projects through a
Presidential Decree did not bring the expected result.
Roads and power — Indonesia is projected to require 20,000km of new
roads and 25GW of new power generation capacity over the next five years.
BKPM believes that if these and other infrastructure build-out targets are
accomplished,then industrialization will take place along with the build-out.
Risks — What could derail the government ’s efforts in developing
infrastructure is not political,because Mr.Wirjawan believes that democracy
is well established over the past five years and the current political system is
stable.He is more concerned with potential ‘sectoral ego ’ ((turf battle)among
certain departments within the government.Mr.Wirjawan did not see much
room within the current budget to help push this infrastructure build-out,
hence private sector participation is key.He estimated that the current
budget only has no more than 3-4%‘space ’ to be spent on infrastructure.
Danareksa Jasa Marga (JSMR IJ, Rp2,600 BUY) Earnings upgrade
Outstanding 1H10 results
Jasa Marga has booked an excellent set of 1H10 results, beating our forecasts, on lower-than-expected opex, effective tax and net interest expenses. The lower-than-expected opex is attributable to lower overtime and higher efficiency, retirement, and the delayed human resource program. As such, we still expect mild increases in wages and salaries in 3Q and 4Q. As for the lower net interest expense, this was due to a higher cash balance which generated higher interest income. Net gearing, meanwhile, remains very low at only 13.6% as of June 2010. For tax, our assumption of 28% turned out to be too high as the effective tax was only 20% in 1H10. The low effective tax is a result of the significantly higher income which is subject to final tax.
Looking to issue bonds
Jasa Marga’s Rp650bn bonds series X – which carries an interest rate of 16.15% - will mature on 4 December 2010. At the same time, Jasa Marga also has outstanding bank loans of around Rp1.6tr as of June 2010. Hence, over the next 12 months, Jasa Marga’s cash outflow for maturing debts will be about Rp2.3tr. Thus in order to have sufficient cash to repay the maturing debt, Jasa Marga plans to issue around Rp1.5tr of new bonds with a maturity of 10 years – bearing an interest rate yet to be decided. Our guess is that the coupon rate should be around 10%. It seems that the company may be looking to issue the bonds rather early, taking advantage of its strong balance sheet and the low interest rates environment – a sensible ploy given the likelihood of a higher inflation rate in the coming months
Earnings revised up
We upgrade our earnings estimates by 18.9% for EPS FY10 and by 22.0% for EPS FY11. The main changes are lower effective tax of 20% for the period of FY10-12 and 25% for the following years. We have also adjusted our operating costs and net interest expense estimates to take into account the 1H10 financial result. However, we have not changed our revenues estimate as the 1H10 figure is within expectations.
TP upped to Rp3,100, BUY
Jasa Marga’s management seeks to improve the EBITDA margin through efficiency gains - especially from its human resources. Compared to the other toll road operators, Jasa Marga is overstaffed. Hence, by growing its business while keeping to a policy of zero growth in employee numbers, Jasa Marga’s management hopes to reduce the average number of staff per km of road. All in all, we remain upbeat on the company given its exposure to domestic economic activities – which are picking up their growth pace. With our earnings revision and basing our DCF valuation on FY11, our new Target Price for the shares is Rp3,100. This translates into PER FY11-12 of 14.6-11.2x and EV/EBITDA FY11-12 of 9.7-7.5x. BUY maintained.
Jasa Marga has booked an excellent set of 1H10 results, beating our forecasts, on lower-than-expected opex, effective tax and net interest expenses. The lower-than-expected opex is attributable to lower overtime and higher efficiency, retirement, and the delayed human resource program. As such, we still expect mild increases in wages and salaries in 3Q and 4Q. As for the lower net interest expense, this was due to a higher cash balance which generated higher interest income. Net gearing, meanwhile, remains very low at only 13.6% as of June 2010. For tax, our assumption of 28% turned out to be too high as the effective tax was only 20% in 1H10. The low effective tax is a result of the significantly higher income which is subject to final tax.
Looking to issue bonds
Jasa Marga’s Rp650bn bonds series X – which carries an interest rate of 16.15% - will mature on 4 December 2010. At the same time, Jasa Marga also has outstanding bank loans of around Rp1.6tr as of June 2010. Hence, over the next 12 months, Jasa Marga’s cash outflow for maturing debts will be about Rp2.3tr. Thus in order to have sufficient cash to repay the maturing debt, Jasa Marga plans to issue around Rp1.5tr of new bonds with a maturity of 10 years – bearing an interest rate yet to be decided. Our guess is that the coupon rate should be around 10%. It seems that the company may be looking to issue the bonds rather early, taking advantage of its strong balance sheet and the low interest rates environment – a sensible ploy given the likelihood of a higher inflation rate in the coming months
Earnings revised up
We upgrade our earnings estimates by 18.9% for EPS FY10 and by 22.0% for EPS FY11. The main changes are lower effective tax of 20% for the period of FY10-12 and 25% for the following years. We have also adjusted our operating costs and net interest expense estimates to take into account the 1H10 financial result. However, we have not changed our revenues estimate as the 1H10 figure is within expectations.
TP upped to Rp3,100, BUY
Jasa Marga’s management seeks to improve the EBITDA margin through efficiency gains - especially from its human resources. Compared to the other toll road operators, Jasa Marga is overstaffed. Hence, by growing its business while keeping to a policy of zero growth in employee numbers, Jasa Marga’s management hopes to reduce the average number of staff per km of road. All in all, we remain upbeat on the company given its exposure to domestic economic activities – which are picking up their growth pace. With our earnings revision and basing our DCF valuation on FY11, our new Target Price for the shares is Rp3,100. This translates into PER FY11-12 of 14.6-11.2x and EV/EBITDA FY11-12 of 9.7-7.5x. BUY maintained.
JPM Indonesia: BI on-hold with an interesting inference (Sin Beng Ong)
As expected, Bank Indonesia (BI) kept its policy rate on hold at 6.5% (consensus 6.5%).
In the accompanying policy statement, the central bank noted that underlying growth continues to remain positive despite the uncertainties stemming from the recent moderation in growth in China and the US.
BI also noted the recent up tick in food prices, especially for rice and suggested that seasonal factors together with unusual weather has led to the increase in food prices. Indeed, recent news suggests that BULOG (The State Bureau of Logistics) has been authorized to release rice to areas hardest hit by the rice shortage and these bottlenecks should ease with the second harvest, which falls around the turn of July/August each year. This policy response should thus help alleviate the price impact and thus bring food-related prices lower in 3Q10.
Aside from food prices, core inflation has remained well behaved and thus did not require a policy response. What was interesting and this was conveyed in the after meeting statements was that “core inflation was still benign, helped by the rupiah’s rise.” This idea was also further expanded in the policy statement.
This inference that a stronger FX rate is helpful in managing core inflation is important to note and suggests that the tightening in monetary conditions will be executed through a combination of stronger exchange rates and a modest increase in the policy rate. It is likely that it was not a coincidence that the IDR appreciated through the psychological 9050 level on Friday ahead of the higher than expected inflation print on Monday.
This nuanced approach to monetary policy frames the expectation that the currency will also do some of the lifting in tightening policy unlike in previous years (see “IDR: Marking USD/IDR lower; go short,” Jul 30). Thus, J.P. Morgan expects that the policy rate will be lifted only in 1H11 with a 25bps hike with a good part of the tightening in policy coming from stronger FX rates.
Another aspect of the policy statement was the potential change in the reserve requirements for the banks, which would be tiered to increase the reserves for banks with excess liquidity. This ostensibly would help to lower excess banking system liquidity – and thus lower sterilization costs – but also could spur bank lending as banks seek to increase return on assets.
In the accompanying policy statement, the central bank noted that underlying growth continues to remain positive despite the uncertainties stemming from the recent moderation in growth in China and the US.
BI also noted the recent up tick in food prices, especially for rice and suggested that seasonal factors together with unusual weather has led to the increase in food prices. Indeed, recent news suggests that BULOG (The State Bureau of Logistics) has been authorized to release rice to areas hardest hit by the rice shortage and these bottlenecks should ease with the second harvest, which falls around the turn of July/August each year. This policy response should thus help alleviate the price impact and thus bring food-related prices lower in 3Q10.
Aside from food prices, core inflation has remained well behaved and thus did not require a policy response. What was interesting and this was conveyed in the after meeting statements was that “core inflation was still benign, helped by the rupiah’s rise.” This idea was also further expanded in the policy statement.
This inference that a stronger FX rate is helpful in managing core inflation is important to note and suggests that the tightening in monetary conditions will be executed through a combination of stronger exchange rates and a modest increase in the policy rate. It is likely that it was not a coincidence that the IDR appreciated through the psychological 9050 level on Friday ahead of the higher than expected inflation print on Monday.
This nuanced approach to monetary policy frames the expectation that the currency will also do some of the lifting in tightening policy unlike in previous years (see “IDR: Marking USD/IDR lower; go short,” Jul 30). Thus, J.P. Morgan expects that the policy rate will be lifted only in 1H11 with a 25bps hike with a good part of the tightening in policy coming from stronger FX rates.
Another aspect of the policy statement was the potential change in the reserve requirements for the banks, which would be tiered to increase the reserves for banks with excess liquidity. This ostensibly would help to lower excess banking system liquidity – and thus lower sterilization costs – but also could spur bank lending as banks seek to increase return on assets.
JPM Belated highlight: ASII 2Q10: core business shines (Aditya Srinath)
Strength in the core business: Net profits from Astra’s core Auto businesses (2W, 4W and components) grew 17% q/q, 128% y/y and were in line with JPM forecasts for 2Q. The Auto value chain (core auto’s and financing) accounted for 73% of 2Q profits.
2W Industry structure stabilizes – unit profitability recovers: Unit profitability at AHM stood at Rp1.2m per unit, stable from 1Q (and compared to 0.55m in 2Q09). A successful cost-reduction programme, and stability in industry structure are the two drivers we identify for the recovery. We understand that Yamaha could be operating under a capacity constraint in Indonesia, which bodes well for the industry profitability sustaining. We are raising our FY10E profit per motor cycle estimate for AHM to Rp1.1m from Rp0.93m – as a result, tweaking our FY10E EPS for Astra by about 3% (for FY10, JPM is at Rp3,351 vs. consensus on Rp3,019).
Retain OW, conditions favourable for an overshoot: A visit to the Jakarta Motor Show suggested that vehicle demand remains strong, healthy volumes over the next few months, an appreciating rupiah and the prospect of EPS revisions are conditions that could combine to drive Astra to overshoot our Rp55,000 PT. Trades on 15.7x and 14.9x FY10-11 P/E currently.
2W Industry structure stabilizes – unit profitability recovers: Unit profitability at AHM stood at Rp1.2m per unit, stable from 1Q (and compared to 0.55m in 2Q09). A successful cost-reduction programme, and stability in industry structure are the two drivers we identify for the recovery. We understand that Yamaha could be operating under a capacity constraint in Indonesia, which bodes well for the industry profitability sustaining. We are raising our FY10E profit per motor cycle estimate for AHM to Rp1.1m from Rp0.93m – as a result, tweaking our FY10E EPS for Astra by about 3% (for FY10, JPM is at Rp3,351 vs. consensus on Rp3,019).
Retain OW, conditions favourable for an overshoot: A visit to the Jakarta Motor Show suggested that vehicle demand remains strong, healthy volumes over the next few months, an appreciating rupiah and the prospect of EPS revisions are conditions that could combine to drive Astra to overshoot our Rp55,000 PT. Trades on 15.7x and 14.9x FY10-11 P/E currently.
Mansek BI rate stays at 6.5%, but rate hike is drawing closer
Bank Indonesia (BI) kept the benchmark rate at 6.5% in governor board meeting today, in line with our and consensus expectation. However, BI reiterated theirconcerns over rising inflationary pressures that may boost inflation beyond its 4%-6% target. Despite keeping the rate flat, Bank Indonesia indicated that they will introduce tighter liquidity measure related to banks’ reserve requirement inthe near term. We believe this could be a signal of tighter monetary policy. Thus,at this juncture, we maintain our view that interest rate likely will start to increase in 4Q10 by total 50bps to 7% by the end of 2010 and another 50bps in 2011, given estimated inflation forecast of 5.9% yoy and 6.6% yoy in YE10 andYE11 respectively.
Credit Suisse Indonesia: Inflation outlook has worsened
Strong July CPI may trigger a swift rate hike
• Strong volatile food prices and an electricity tariff hike have driven up July CPI inflation to 6.22% yoy, exceeding the target set by Bank Indonesia (BI) for 2010. More concerning is that the rise in core CPI inflation has also accelerated.
• We think Indonesia’s inflation outlook has worsened. While volatile food prices may ease, the rise in demand-pull inflationary pressure is of concern. We now expect the year-end inflation rate to range between 6.5% to 7%, above our previous forecast and BI’s target range.
• We think BI may raise the policy rate by 25bp soon, possibly at the 4 August meeting. This would be to pre-empt the rise of inflation expectations and the overly rapid build-up of demand-pull inflationary pressure. Risk of a second rate hike this year would increase, in our view, if core inflation keeps surprising on the upside.
• The rise in headline inflation should still be paced over 2H10, as rice production is forecasted to remain sufficient this year, while stable global fuel prices and a strong IDR should help mitigate the price pressure. We do not expect a cut in the government fuel subsidy this year.
• Strong volatile food prices and an electricity tariff hike have driven up July CPI inflation to 6.22% yoy, exceeding the target set by Bank Indonesia (BI) for 2010. More concerning is that the rise in core CPI inflation has also accelerated.
• We think Indonesia’s inflation outlook has worsened. While volatile food prices may ease, the rise in demand-pull inflationary pressure is of concern. We now expect the year-end inflation rate to range between 6.5% to 7%, above our previous forecast and BI’s target range.
• We think BI may raise the policy rate by 25bp soon, possibly at the 4 August meeting. This would be to pre-empt the rise of inflation expectations and the overly rapid build-up of demand-pull inflationary pressure. Risk of a second rate hike this year would increase, in our view, if core inflation keeps surprising on the upside.
• The rise in headline inflation should still be paced over 2H10, as rice production is forecasted to remain sufficient this year, while stable global fuel prices and a strong IDR should help mitigate the price pressure. We do not expect a cut in the government fuel subsidy this year.
Kim Eng BCA Steady growth supports LDR
What’s New
BCA posted Rp3.9t profit for 1H10, which is in line with our estimate. At 6.2% YTD, BCA’s rate of loan expansion is running parallel to that of the industry. But with respect to LDR, BCA is running at two ‐thirds the banking average of 75%. The reason stems from its huge deposit franchise that has continued to grow, in spite of the bank’s low rates.
Aiming to promote lending, Bank Indonesia is planning to link its reserve requirements with a measure related to the LDR. The indicated ideal LDR range is 75 ‐105%. This new policy is likely to be fully implemented in 2011. BCA’s strategy for mitigating LDR constraints is to expand its loans, while keeping its NPL rate in check.
Our View
The low ‐cost deposit remains BCA’s forte. Supported by sufficient CAR (16.5% in 1H10), coupled with solid risk management, the bank has the necessary ingredients to boost its loan book. Therefore, we will not place an undue emphasis on the modest shortfall in its LDR until we receive further details on the upcoming regulation.
We have lifted its FY10 loan growth estimate by 200bp to 14% y/y on a seasonality factor. Early contributions from expanding further into motorcycle financing and life insurance should be minimal. In addition, we have cut our provisioning assumption for 2010 by 28% to Rp1.1t on the back of an improvement in loan quality.
Action & Recommendation
Our revision increases our profit forecast by ~4% to Rp8.4t and Rp9.3t
for 2010F and 2011F, respectively. The bank has a strong growth
prospect that is reflected in its rich valuation relative to its peers.
Rolling our estimate base forward to 2011, we arrive at the TP of
Rp7,000/share (18.3x 2011F PER; 4.6x 2011F PBV). Maintain BUY.
BCA posted Rp3.9t profit for 1H10, which is in line with our estimate. At 6.2% YTD, BCA’s rate of loan expansion is running parallel to that of the industry. But with respect to LDR, BCA is running at two ‐thirds the banking average of 75%. The reason stems from its huge deposit franchise that has continued to grow, in spite of the bank’s low rates.
Aiming to promote lending, Bank Indonesia is planning to link its reserve requirements with a measure related to the LDR. The indicated ideal LDR range is 75 ‐105%. This new policy is likely to be fully implemented in 2011. BCA’s strategy for mitigating LDR constraints is to expand its loans, while keeping its NPL rate in check.
Our View
The low ‐cost deposit remains BCA’s forte. Supported by sufficient CAR (16.5% in 1H10), coupled with solid risk management, the bank has the necessary ingredients to boost its loan book. Therefore, we will not place an undue emphasis on the modest shortfall in its LDR until we receive further details on the upcoming regulation.
We have lifted its FY10 loan growth estimate by 200bp to 14% y/y on a seasonality factor. Early contributions from expanding further into motorcycle financing and life insurance should be minimal. In addition, we have cut our provisioning assumption for 2010 by 28% to Rp1.1t on the back of an improvement in loan quality.
Action & Recommendation
Our revision increases our profit forecast by ~4% to Rp8.4t and Rp9.3t
for 2010F and 2011F, respectively. The bank has a strong growth
prospect that is reflected in its rich valuation relative to its peers.
Rolling our estimate base forward to 2011, we arrive at the TP of
Rp7,000/share (18.3x 2011F PER; 4.6x 2011F PBV). Maintain BUY.
CLSA Wheat prices: Up 50% since June - impact on mayora
•Wheat consists 14% of Mayora's COGS . Higher wheat prices are essentially bad for its biscuit and cereal segment. A 5% price appreciation of wheat affects gross margins by 60 bps, and consequtively affect net profit by a negative 6.5% .To offset the 5% price changes in wheat, Mayora needs to increase its selling price by 1.4% .
•However, Mayora usually keeps 6 to 9 months inventory for its raw materials to smooth out the volatility . Continuous high wheat prices are bad for Mayora, but the magnitude we estimated is not as big as the sensitivity sheet foretells. Selling prices have been stable for the past 12 months, and this gives enough reasons for Mayora to start increasing.
•Paired with stronger currency, we think that Mayora should be able to pass on the part of the costs increases to the consumers within 6 to 9 months time lag . We can potentially see more pronounced margin contraction in the near term due to the time lag in passing on the costs.
•However, Mayora usually keeps 6 to 9 months inventory for its raw materials to smooth out the volatility . Continuous high wheat prices are bad for Mayora, but the magnitude we estimated is not as big as the sensitivity sheet foretells. Selling prices have been stable for the past 12 months, and this gives enough reasons for Mayora to start increasing.
•Paired with stronger currency, we think that Mayora should be able to pass on the part of the costs increases to the consumers within 6 to 9 months time lag . We can potentially see more pronounced margin contraction in the near term due to the time lag in passing on the costs.
CLSA BW Plantation
Vera has just written a report on BW Plantation (BWPT IJ), a well managed plantation estate with good FFB yields (outstanding 24.7t/ha FFB in 2009, though we expect this to decline going forward). The stock still looks attractive at US$8,800EV/ha and 10.1x 2011 PER, one of the cheapest plantation stocks in the industry.
Key points from the report:
BWPT is a well managed plantation with significant potential growth. Mature hectare will grow by 32% CAGR until 2013, lifting FFB production to 700k tonnes, doubling last year’s production.
The company plans to plant around 10,000 ha of additional palm oil area every year which will require around Rp400-500bn of investments. With the aggressive expansion plan, total planted area should double the current size by 2013.
Edible oil structural outlook supporting CPO price. Demand for CPO remains strong, while unfavourable weather condition in several key edible oil producing countries will disrupt supply. In addition, CPO price looks very attractive from technical analysis point of view. In US$ term, it has just broke its resistance after a long term consolidation.
Our target price is Rp1,100, based on blended valuations of 13,000 EV/ha and 11x 2011 PER.
Key points from the report:
BWPT is a well managed plantation with significant potential growth. Mature hectare will grow by 32% CAGR until 2013, lifting FFB production to 700k tonnes, doubling last year’s production.
The company plans to plant around 10,000 ha of additional palm oil area every year which will require around Rp400-500bn of investments. With the aggressive expansion plan, total planted area should double the current size by 2013.
Edible oil structural outlook supporting CPO price. Demand for CPO remains strong, while unfavourable weather condition in several key edible oil producing countries will disrupt supply. In addition, CPO price looks very attractive from technical analysis point of view. In US$ term, it has just broke its resistance after a long term consolidation.
Our target price is Rp1,100, based on blended valuations of 13,000 EV/ha and 11x 2011 PER.
JPM PT International Nickel Indonesia - Decline and cap to volume; downgrade to UW and reduce PT to Rp3,700
Threat to FY11E volume and cap on maximum volume due to capacity: In the 1H10 results conference call, INCO stated that due to major maintenance on one of its four electric furnaces, FY11E volume is at risk of declining on a Y/Y basis as the furnace will be shut down for 13 weeks of shutdown plus 5-7 weeks of ramping up time. Currently, the maximum capacity at the processing plant is 79,000 tons of annual production. Despite Karebbe coming on-stream in 2H11E, which could increase the production ability to 90,000 tons p.a, the installed capacity at the processing plant could create a cap on maximum volume that can be delivered in the next few years.
• Flat nickel price assumption and rising cost: J.P. Morgan’s global metal analyst, Michael Jansen, is of the view that nickel supply and demand will swing from a deficit in FY10 to a surplus in FY11. As a result, he has a neutral view on nickel prices over the next 12 months, with potential downside risk. In addition, we expect the long-term cost to gradually rise (due to rising oil prices) until FY15, working against profitability.
• Investment drivers: We expect the following factors to cause the stock to underperform over the next 6-12 months: (1) threat to FY11E volume and cap on maximum volume to be delivered until FY15E; (2) flat or declining nickel prices; (3) long-term rise in production costs.
• Downgrade to UW; extend and cut PT from Rp5,300 to Rp3,700: We downgrade INCO from OW to UW, extend our PT to June-11, and cut our PT from Rp5,300 to Rp3,700. Risks: Rise in nickel price and higher grade ore input. We recommend that investors reduce positions in the stock on the back of a volume decline in FY11E and lack of volume growth going forward.
• Flat nickel price assumption and rising cost: J.P. Morgan’s global metal analyst, Michael Jansen, is of the view that nickel supply and demand will swing from a deficit in FY10 to a surplus in FY11. As a result, he has a neutral view on nickel prices over the next 12 months, with potential downside risk. In addition, we expect the long-term cost to gradually rise (due to rising oil prices) until FY15, working against profitability.
• Investment drivers: We expect the following factors to cause the stock to underperform over the next 6-12 months: (1) threat to FY11E volume and cap on maximum volume to be delivered until FY15E; (2) flat or declining nickel prices; (3) long-term rise in production costs.
• Downgrade to UW; extend and cut PT from Rp5,300 to Rp3,700: We downgrade INCO from OW to UW, extend our PT to June-11, and cut our PT from Rp5,300 to Rp3,700. Risks: Rise in nickel price and higher grade ore input. We recommend that investors reduce positions in the stock on the back of a volume decline in FY11E and lack of volume growth going forward.
A Cup of Tea 05 Aug'10
The region is still very much influenced by global economies, with the second-half economic outlook for big countries including the U.S., but as relative GDP growth in Asia is better than the global picture, the region could attract more inflows. Indonesian stocks gained on Wednesday after its central bank kept interest rate unchanged but the rest of the region was mixed as operators held back because of recent signs of weakness in the U.S. economy.
The Dow Jones industrial average gained 44.05 points, or 0.41 percent, to 10,680.43. U.S. stocks rose in thin trade on Wednesday as retailers' earnings and a report showing a slight improvement in private employment boosted optimism ahead of Friday's payrolls report.
TIN
Finally TIN price break $20000 level and closed @$20250. Tin continues to provide one of the most robust fundamental pictures across the base metals complex, in 2010 and in 2011” due to a “clear global market deficit. The shortage is due to falling production in Indonesia and robust consumption in Japan and, to a lesser extent, in Europe as manufacturing and electronic sectors increase output after the crisis.
CPO
Crude palm oil regained upward momentum, rising close to a five-month high on increasing festive demand from the Indian subcontinent and Middle East region. Soyoil prices on the Chicago Board of Trade had risen to their highest level since April, underpinned by strong demand and lingering concerns about erratic weather in soybean growing areas in the U.S. Purchases of palm oil at current levels in the cash market have been very encouraging, especially those from India, Bangladesh and the Middle East. This should counterbalance rising production during the August-September period.
Our Market
I think JSX will trade slightly higher due the positive news from region but consolidation mode still intact. After central bank kept interest rate unchanged, I think baking will get positive sentiment. Negative issue came from BMRI, they plan to put right issue @idr 2500. For today automotive, mining/metal and banking will support our market. Overall I still worry about higher inflation and expect rates to go up in the fourth quarter. Fundamentally, the stock market looks strong. But we will see profit-taking here and there. JSX between 2950-3003 level.
TOP PICK: ASII, TLKM, INCO, TINS, BBRI, AALI, INDF, BBTN and BJBR
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.
Rabu, 04 Agustus 2010
A Cup of Tea 04 Aug'10
Jakarta sees heaviest foreign selling since MayIndonesia's stock market fell nearly 3 percent to a two-week low on Tuesday, retreating from a recent record high as higher-than-expected inflation for July raised fears of an interest rate rise, sparking profit-taking. Foreigners sold a net $66 million of stock, the heaviest selling since May 21.
The change in interest rate views prompted broad selling in big-caps and banks. Economists thought Bank Indonesia would keep its policy rate on hold at its meeting on Wednesday but would raise rates in the fourth quarter.
There was profit-taking as well. But since the economy is in good shape, we don't think there will be a drastic fall. Fundamentally, the stock market looks strong. But we will see profit-taking here and there.
Indonesia’s export growth undershot at 31.7% YoY in June (consensus 34.9%) while import growth overshot at 47.3% YoY in June (consensus 33%). Trade balance stood at US$0.6 bn in June against consensus US$1.8 bn. The ongoing strength of import relative to export growth is a further indicator of strong domestic relative to external demand.
I just worries that rupiahs will weakening in the coming month. The weaker than expected trade balance, higher than expected inflation all point to a softer IDR.
We must be carefully with interest rate sensitive stocks right now and sell on strength recommendation on this sector and switching to Telco, energy and commodity (hard and soft) with better outlook for global economic.
But for today I think jsx will trade at the narrow range 2950-3003 level. Soft technical rebound will trigger the market at the morning session support by big cap shares.
"Cash & Cash"
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.
Selasa, 03 Agustus 2010
UBS Indonesian July CPI and June trade data were worse than expected
Headline July CPI inflation rose to 6.2% against expectations of 5.8% (and that consensus was biased upwards by government guidance). Detail of the CPI less worrying than the headline: food prices accounted for much of the surprise, with core inflation still low for Indonesia at 4.2% (consensus 4.1%, previous 4.0%).
We have long been of the view that Indonesia would see accelerating inflation this year, in response to loose credit conditions. We continue to expect inflation to normalize towards an average of 7% in 2011and for the BI to begin to raise policy rates in 2010. The consensus had been moving towards the initial policy rate increases occurring in 2011. While more hawkish comments may be forthcoming in Wednesday's monetary policy decision statement, we would not expect the BI to raise rates at this juncture - given that the central bank can still point to low core inflation and potentially temporary food price increases.
However, consumer confidence data released overnight suggests that inflation expectations are moving higher amongst households (please refer to Chart of the Day below).
Indonesia’s export growth undershot at 31.7% YoY in June (consensus 34.9%) while import growth overshot at 47.3% YoY in June (consensus 33%). Trade balance stood at US$0.6 bn in June against consensus US$1.8 bn.
The ongoing strength of import relative to export growth is a further indicator of strong domestic relative to external demand. The weaker than expected trade balance, higher than expected inflation and a likely tepid BI response (facilitating lower real interest rates) all point to a softer IDR. Our year end currency forecast remains USDIDR 9400.
We have long been of the view that Indonesia would see accelerating inflation this year, in response to loose credit conditions. We continue to expect inflation to normalize towards an average of 7% in 2011and for the BI to begin to raise policy rates in 2010. The consensus had been moving towards the initial policy rate increases occurring in 2011. While more hawkish comments may be forthcoming in Wednesday's monetary policy decision statement, we would not expect the BI to raise rates at this juncture - given that the central bank can still point to low core inflation and potentially temporary food price increases.
However, consumer confidence data released overnight suggests that inflation expectations are moving higher amongst households (please refer to Chart of the Day below).
Indonesia’s export growth undershot at 31.7% YoY in June (consensus 34.9%) while import growth overshot at 47.3% YoY in June (consensus 33%). Trade balance stood at US$0.6 bn in June against consensus US$1.8 bn.
The ongoing strength of import relative to export growth is a further indicator of strong domestic relative to external demand. The weaker than expected trade balance, higher than expected inflation and a likely tepid BI response (facilitating lower real interest rates) all point to a softer IDR. Our year end currency forecast remains USDIDR 9400.
Credit Suisse KALBE FARMA (KLBF): In line respectable 2Q thanks to strong IDR – Neutral
@Rp2,475- KLBF is trading on Rich 23.2x-19.7x 2010F-11F PER. Our Target Price for KLBF is in line with our JCI target index 3,300pts at end-2010F is at 16.5x 2010F PER. Hold KLBF for now.
· Ella Nusantoro (previous Daily attached): We assume coverage of Kalbe Farma (KLBF.JK) with a NEUTRAL rating and a target price of Rp1,870 (17.1x P/E 2010E). Kalbe reported strong 1H10 results, but an expected one. This was underpinned by the strong IDR, thus margins expanded. Net profit in 1H10 rose 44% YoY to Rp572 bn, accounting for 52% of our FY10E net profit, on the back of a 12% higher revenue to Rp4.7 tn, or 44% of our FY10E.
· Ella Nusantoro (previous Daily attached): We assume coverage of Kalbe Farma (KLBF.JK) with a NEUTRAL rating and a target price of Rp1,870 (17.1x P/E 2010E). Kalbe reported strong 1H10 results, but an expected one. This was underpinned by the strong IDR, thus margins expanded. Net profit in 1H10 rose 44% YoY to Rp572 bn, accounting for 52% of our FY10E net profit, on the back of a 12% higher revenue to Rp4.7 tn, or 44% of our FY10E.
Credit Suisse ASTRA INT’L (ASII): In line Strong 2Q – maintain Neutral on valuation
1H 2010 Net Profit showed domestic-related earnings 75% (car 29%, motorcycle 18%, component 8% and financial services 20%) and resources-related earnings contribution 25% (UNTR 17% and AALI 8%). Sum-of-the Parts also showed domestic-related valuation 69.3% (motorcycle 18.4%, car 33.6%, component 5.2%, BNLI 2.5% and financial services 9.6%) and resources-related valuation 30.7% (UNTR 19.8%, AALI 10.8%, others 0.4%). At Rp50,000- ASII is trading on 16.2x-14.6x 2010F-11F PER and implying 8% upside to SoTP Rp54,000. Given core holding status (diversified domestic/resources earnings, top market cap/trading liquidity, and solid management/balance sheet), I recommend Accumulate for long-term!
· Arief Wana (previous Daily attached & Report available on request): Astra International’s 2Q10 results came in strong (+45% YoY), although at a slower pace compared to 1Q10. The strong auto profit was mitigated by the subdued resource-based sectors. The 1H10 strong results were in line with our forecasts (51% of FY10E).
· We made minor adjustments in earnings to reflect our more upbeat view on autos and less positive views on agribusiness and heavy equipments. Given that 75% of Astra’s value is derived from the auto-related sector, the impact towards our sum-of-the parts valuation is more positive. We have increased our SOTP based target price to Rp54,000 (from Rp52,000 previously).
· We see mixed catalysts ahead. Strong auto volumes and earnings are positive, while the uncertainties over the government’s decision to reduce the fuel subsidy could be negative. Despite our more upbeat view on autos, we maintain our NEUTRAL rating due to valuations, implying only a 2.4% upside, and currently trading at 17.1x FY10E P/E. We believe that Astra is more a long-term core holding for the Indonesia market.
· Arief Wana (previous Daily attached & Report available on request): Astra International’s 2Q10 results came in strong (+45% YoY), although at a slower pace compared to 1Q10. The strong auto profit was mitigated by the subdued resource-based sectors. The 1H10 strong results were in line with our forecasts (51% of FY10E).
· We made minor adjustments in earnings to reflect our more upbeat view on autos and less positive views on agribusiness and heavy equipments. Given that 75% of Astra’s value is derived from the auto-related sector, the impact towards our sum-of-the parts valuation is more positive. We have increased our SOTP based target price to Rp54,000 (from Rp52,000 previously).
· We see mixed catalysts ahead. Strong auto volumes and earnings are positive, while the uncertainties over the government’s decision to reduce the fuel subsidy could be negative. Despite our more upbeat view on autos, we maintain our NEUTRAL rating due to valuations, implying only a 2.4% upside, and currently trading at 17.1x FY10E P/E. We believe that Astra is more a long-term core holding for the Indonesia market.
Credit Suisse GUDANG GARAM (GGRM): In line 2Q despite rising Opex – reit Outperform
Better distribution coverage continues to allow a gradual price increases and hence increasing RoE! Ella Nusantoro’s GGRM Target price Rp42,800 is based on DCF and implying 17.4x 2011F PER, assuming a Target 15x 2011F market PER, a 16% premium to market (below historical 1.3x multiple PER ). At Rp35,100- GGRM is trading on 17.1x-14.3 2010F-11F PER, on the back of EPS Growth 14%-20% respectively, and implying 22% upside to DCF Rp42,800. We recommend Buy GGRM, with a longer-term upside as a takeover target (Bentoel takeover 14.6x EV/EBITDA implies Rp49,000).
· Ella Nusantoro (Daily attached & Report available on request): GG reported 2Q10 net profit 8% lower QoQ, as opex soared 62% QoQ with GG became the principal sponsor of the FIFA World Cup 2010 broadcast in Indonesia. The results are within our expectations. Up to 1H10, net profit was Rp1.78 trn (+24% YoY), or 45% of our FY10E on the back of 20% higher revenue growth to Rp18 trn (49% of FY10E). GG continues to gradually increase its selling prices. YTD, it has increased its SKMs (machine-made cigarettes) by 9% and 3% for its SKTs (hand-rolled cigarettes).
· We maintain our OUTPERFORM rating with target price of Rp42,800. The stock trades at an undemanding valuation, at a 45% discount to Unilever Indonesia (UNVR.JK) and at a 13% premium to JCI, much below its 10-year average (32% premium to JCI), with an improved performance (better net margins, higher ROE and higher earnings growth).
· Ella Nusantoro (Daily attached & Report available on request): GG reported 2Q10 net profit 8% lower QoQ, as opex soared 62% QoQ with GG became the principal sponsor of the FIFA World Cup 2010 broadcast in Indonesia. The results are within our expectations. Up to 1H10, net profit was Rp1.78 trn (+24% YoY), or 45% of our FY10E on the back of 20% higher revenue growth to Rp18 trn (49% of FY10E). GG continues to gradually increase its selling prices. YTD, it has increased its SKMs (machine-made cigarettes) by 9% and 3% for its SKTs (hand-rolled cigarettes).
· We maintain our OUTPERFORM rating with target price of Rp42,800. The stock trades at an undemanding valuation, at a 45% discount to Unilever Indonesia (UNVR.JK) and at a 13% premium to JCI, much below its 10-year average (32% premium to JCI), with an improved performance (better net margins, higher ROE and higher earnings growth).
Credit Suisse UNILEVER (UNVR): Disappointing 2Q despite strong IDR – reit Take Profit
Ella Nusantoro’s Target Price for UNVR is based on DCF Rp14,650 (implying 22.5x 2011F PER, assuming a Target 15x 2011F market PER, only 50% premium, below historical 1.8x market multiple PER). At Rp17,150- UNVR is trading on Overvalued 32.2x-26.4x 2010F-11F PER, on the back of EPS Growth 33%-22% respectively. We recommend TAKE PROFIT UNVR and Switch into GGRM or ASII.
· Ella Nusantoro (Daily & Report attached): ULI posted weaker 2Q10 net profit (-18% QoQ) of Rp798 bn with revenue declining marginally. 1H10 results were below our estimates with Rp1.8 tn in net profit (+18% YoY), accounting for 44% of our FY10 estimate (1H09: 49% of FY09). 1H10 Revenue was up 11% YoY to Rp9.9 tn, accounting for 47% of our FY10 estimate, driven by an estimated 13% volume growth and 2% fall in ASP. The lower ASP was due to the stronger rupiah, as around 60% of its costs are US$-denominated. Opex was 25% higher YoY with operating profit rising 14% YoY.
· We maintain our UNDERPERFORM rating and target price of Rp14,650. The stock trades at a demanding valuation, double the valuation of JCI, much higher than its five-year average (80% premium to the JCI) and at the high end of its historical forward P/E band (20-25x). We continue to prefer Gudang Garam (GGRM.JK), which trades at a 45% discount to ULI.
· Ella Nusantoro (Daily & Report attached): ULI posted weaker 2Q10 net profit (-18% QoQ) of Rp798 bn with revenue declining marginally. 1H10 results were below our estimates with Rp1.8 tn in net profit (+18% YoY), accounting for 44% of our FY10 estimate (1H09: 49% of FY09). 1H10 Revenue was up 11% YoY to Rp9.9 tn, accounting for 47% of our FY10 estimate, driven by an estimated 13% volume growth and 2% fall in ASP. The lower ASP was due to the stronger rupiah, as around 60% of its costs are US$-denominated. Opex was 25% higher YoY with operating profit rising 14% YoY.
· We maintain our UNDERPERFORM rating and target price of Rp14,650. The stock trades at a demanding valuation, double the valuation of JCI, much higher than its five-year average (80% premium to the JCI) and at the high end of its historical forward P/E band (20-25x). We continue to prefer Gudang Garam (GGRM.JK), which trades at a 45% discount to ULI.
UOB INCO 2Q10: Robust results but expect lower nickel prices in 2H10, TP idr 5200
Results
•Results above expectation. International Nickel Indonesia’s resultswere above our expectation on higher nickel-in-matte deliveries andexpanded margin. Net profit increased 86.9% qoq to US$142.5m in2Q10 from US$76.3m in 1Q10. Higher net profit was mainly attributableto: a) higher revenue (+42.3% qoq) and b) margin improvement. Netprofit yoy increased tremendously to US$218.8m (+533% yoy) in 1H10from only US$34.6m in 1H09.
•Rising nickel-in-matte deliveries and ASP boosted revenue.Quarterly revenue jumped on the back of: a) strong average sellingprice (ASP) up 28% qoq and b) higher nickel-in-matte deliveries up 11%qoq. However, nickel-in-matte production during 2Q10 declined 8.2%qoq mainly due to the planned maintenance shutdown of one furnace inApr 10.
•Margin expanded on lower fuel consumption. Despite COGS rising8% qoq on the back of higher nickel-in-matte sales volume, the grossmargin of INCO expanded from 41.2% in 1Q10 to 55.3% in 2Q10. Thiswas mainly attributable to: a) strong nickel prices in 2Q10 and b) lowerfuel consumption. In 2Q10, INCO’s diesel and HSFO (High Sulphur FuelOil) consumption per tonne declined 24% qoq and 4% qoq respectively
Stock Impact
•Nickel price to stabilise in 2H10. We expect lower nickel prices of aboutUS$17,500-18,500/tonne in 2H10 as demand growth for nickel productscontinues declining compared to 1H10. This will be attributable to thestainless steel producers mostly finished with restocking nickel, and shortterm demand will only come from final consumer demand and thepossible impact from European debt crisis.
•Water level improvement leading to minimising thermal power use.As the water level used for hydro power plants has enhanced to themaximum level thanks to heavy rainfall, the company is maximising theusage of hydro power plants, while lowering usage of thermal power use.As such, we expect lower cost of production in the next few quarters.
•Completion of Karebbe project by 2H11 to reduce energy costs. Thecompletion of a third hydroelectric power generating plant at Karebbeworth US$410m by 2H11 is expected to reduce the company’s energycost, which accounted for about 34% of total costs in 2009. The projectwas about 60% complete at end of 2Q10. When completed, thishydropower plant will replace company’s usage of oil and gas for feedingthe electric furnace at Sorowako facility.
Earnings Revision/Risk
•Revise up earnings forecasts. On the back of robust results in 1H10, weraise our net profit forecast for 2010 by 25% to US$338m and by 18% toUS$370m for 2011 to take into account: a) higher nickel-in-mattedeliveries by about 4-5% and b) raising our margin assumption on lowerunit cash cost of production cost by about 6-7%.
Valuation/Recommendation
•Maintain BUY with higher target price of Rp5,200. To incorporatehigher earnings for 2010 and 2011, we maintain BUY with a higher targetprice of Rp5,200, based on 2011 P/B of 2.9x which is in line with thethree-year average PB of 2.9x. Our target price translates into 16x 2011FP/E.
•Results above expectation. International Nickel Indonesia’s resultswere above our expectation on higher nickel-in-matte deliveries andexpanded margin. Net profit increased 86.9% qoq to US$142.5m in2Q10 from US$76.3m in 1Q10. Higher net profit was mainly attributableto: a) higher revenue (+42.3% qoq) and b) margin improvement. Netprofit yoy increased tremendously to US$218.8m (+533% yoy) in 1H10from only US$34.6m in 1H09.
•Rising nickel-in-matte deliveries and ASP boosted revenue.Quarterly revenue jumped on the back of: a) strong average sellingprice (ASP) up 28% qoq and b) higher nickel-in-matte deliveries up 11%qoq. However, nickel-in-matte production during 2Q10 declined 8.2%qoq mainly due to the planned maintenance shutdown of one furnace inApr 10.
•Margin expanded on lower fuel consumption. Despite COGS rising8% qoq on the back of higher nickel-in-matte sales volume, the grossmargin of INCO expanded from 41.2% in 1Q10 to 55.3% in 2Q10. Thiswas mainly attributable to: a) strong nickel prices in 2Q10 and b) lowerfuel consumption. In 2Q10, INCO’s diesel and HSFO (High Sulphur FuelOil) consumption per tonne declined 24% qoq and 4% qoq respectively
Stock Impact
•Nickel price to stabilise in 2H10. We expect lower nickel prices of aboutUS$17,500-18,500/tonne in 2H10 as demand growth for nickel productscontinues declining compared to 1H10. This will be attributable to thestainless steel producers mostly finished with restocking nickel, and shortterm demand will only come from final consumer demand and thepossible impact from European debt crisis.
•Water level improvement leading to minimising thermal power use.As the water level used for hydro power plants has enhanced to themaximum level thanks to heavy rainfall, the company is maximising theusage of hydro power plants, while lowering usage of thermal power use.As such, we expect lower cost of production in the next few quarters.
•Completion of Karebbe project by 2H11 to reduce energy costs. Thecompletion of a third hydroelectric power generating plant at Karebbeworth US$410m by 2H11 is expected to reduce the company’s energycost, which accounted for about 34% of total costs in 2009. The projectwas about 60% complete at end of 2Q10. When completed, thishydropower plant will replace company’s usage of oil and gas for feedingthe electric furnace at Sorowako facility.
Earnings Revision/Risk
•Revise up earnings forecasts. On the back of robust results in 1H10, weraise our net profit forecast for 2010 by 25% to US$338m and by 18% toUS$370m for 2011 to take into account: a) higher nickel-in-mattedeliveries by about 4-5% and b) raising our margin assumption on lowerunit cash cost of production cost by about 6-7%.
Valuation/Recommendation
•Maintain BUY with higher target price of Rp5,200. To incorporatehigher earnings for 2010 and 2011, we maintain BUY with a higher targetprice of Rp5,200, based on 2011 P/B of 2.9x which is in line with thethree-year average PB of 2.9x. Our target price translates into 16x 2011FP/E.
UOB BSDE 1H10: Higher ASP; solid bottom line growth, TP idr 1100
Results
• Robust 1H10 bottom line growth. Bumi Serpong Damai’s (BSDE)1H10 net profit came in at Rp183b (+46% yoy and 23% qoq), driven by:a) higher average selling price (ASP) on the back of increasing landprices in Serpong area, b) lower financial expenses and c) lower forexloss.
• Improving margins backed by higher ASP. BSDE’s 1H10 grossmargin improved to 56% (+8.2% yoy and +4.1% qoq), which wasmainly supported by higher ASP during the period. BSDE sold Phase Iproject with an ASP of about Rp1.8m/sqm and now Phase II project isselling for about Rp2.3m/sqm. For new projects launching soon, theASP would be increased to Rp2.7m-3m per sqm. Meanwhile, operatingprofit declined slightly qoq by about 4% due to higher marketingexpenses to promote new clusters, e.g. the Ultimo cluster. All in all,bottom line margin would still be doing very well on the back of: a)higher ASP going forward and b) lower interest expenses on the backof a stronger balance sheet position.
• Stronger balance sheet. BSDE recently made an early repayment ofRp250b in working capital loans to Bank Mandiri (the debt was initiallyscheduled to mature in Dec 10). Given that the loan carried 12% annualinterest, this early repayment would reduce interest expenses andenhance bottom line profit. As such, the company has more financialflexibility to acquire more landbank in the future
• Marketing sales hit Rp870b in 1H10. The company said total marketingsales in 1H10 reached Rp870b on the back of strong housing demand inSerpong. Of note, the Tangerang area (where Serpong is located) has sofar accounted for 38% of the total housing supply of 238,715 units inGreater Jakarta.Stock Impact
• 1H10 accounting sales are below expectation but… The reported 1H10accounting sales of Rp183b accounted for about 40% of our 2010 forecastof Rp474b. We expect higher sales contributions from commercial and landplots in 2010. The company, however, prefers to sell more residentialhouses than commercial properties to benefit from greater price incrementson commercial estates in the future.
• …marketing sales are still within our 2010 target. In 1H10, marketingsales were about Rp870b. To date, the company has registered almostRp1.1t of marketing sales – basically still in line with our 2010 target ofRp2t. We believe this target is achievable given that sales in 2H aretypically higher than in 1H, especially in 4Q.
• Four clusters to be launched in 2H. BSDE has so far launched six out ofthe 10 sub-clusters (or 2,000 houses) targeted to be launched this year.The company plans to launch four more clusters in 2H, namely: a) twoclusters under the Icon project (12ha) and b) two brand new clusters(69ha). ASP would range from Rp5m to Rp7m per sqm. Housing demandremains strong as every new launch is selling fast (e.g. the Ultimo clusterlaunched on 30 June was 50% sold in three weeks).Earnings Revision/Risk
• 2010 net profit forecast revised to Rp406b. Incorporating our over-expectation of commercial property sales as mentioned above, we revisedown our 2010 sales forecast to Rp1.6t (from Rp1.7b) and net profitestimation to Rp406b (from 474b). Earnings outlook remains solid as weexpect stronger earnings growth in 2011 given the company will booksales with higher ASP in 2010.
• Robust 1H10 bottom line growth. Bumi Serpong Damai’s (BSDE)1H10 net profit came in at Rp183b (+46% yoy and 23% qoq), driven by:a) higher average selling price (ASP) on the back of increasing landprices in Serpong area, b) lower financial expenses and c) lower forexloss.
• Improving margins backed by higher ASP. BSDE’s 1H10 grossmargin improved to 56% (+8.2% yoy and +4.1% qoq), which wasmainly supported by higher ASP during the period. BSDE sold Phase Iproject with an ASP of about Rp1.8m/sqm and now Phase II project isselling for about Rp2.3m/sqm. For new projects launching soon, theASP would be increased to Rp2.7m-3m per sqm. Meanwhile, operatingprofit declined slightly qoq by about 4% due to higher marketingexpenses to promote new clusters, e.g. the Ultimo cluster. All in all,bottom line margin would still be doing very well on the back of: a)higher ASP going forward and b) lower interest expenses on the backof a stronger balance sheet position.
• Stronger balance sheet. BSDE recently made an early repayment ofRp250b in working capital loans to Bank Mandiri (the debt was initiallyscheduled to mature in Dec 10). Given that the loan carried 12% annualinterest, this early repayment would reduce interest expenses andenhance bottom line profit. As such, the company has more financialflexibility to acquire more landbank in the future
• Marketing sales hit Rp870b in 1H10. The company said total marketingsales in 1H10 reached Rp870b on the back of strong housing demand inSerpong. Of note, the Tangerang area (where Serpong is located) has sofar accounted for 38% of the total housing supply of 238,715 units inGreater Jakarta.Stock Impact
• 1H10 accounting sales are below expectation but… The reported 1H10accounting sales of Rp183b accounted for about 40% of our 2010 forecastof Rp474b. We expect higher sales contributions from commercial and landplots in 2010. The company, however, prefers to sell more residentialhouses than commercial properties to benefit from greater price incrementson commercial estates in the future.
• …marketing sales are still within our 2010 target. In 1H10, marketingsales were about Rp870b. To date, the company has registered almostRp1.1t of marketing sales – basically still in line with our 2010 target ofRp2t. We believe this target is achievable given that sales in 2H aretypically higher than in 1H, especially in 4Q.
• Four clusters to be launched in 2H. BSDE has so far launched six out ofthe 10 sub-clusters (or 2,000 houses) targeted to be launched this year.The company plans to launch four more clusters in 2H, namely: a) twoclusters under the Icon project (12ha) and b) two brand new clusters(69ha). ASP would range from Rp5m to Rp7m per sqm. Housing demandremains strong as every new launch is selling fast (e.g. the Ultimo clusterlaunched on 30 June was 50% sold in three weeks).Earnings Revision/Risk
• 2010 net profit forecast revised to Rp406b. Incorporating our over-expectation of commercial property sales as mentioned above, we revisedown our 2010 sales forecast to Rp1.6t (from Rp1.7b) and net profitestimation to Rp406b (from 474b). Earnings outlook remains solid as weexpect stronger earnings growth in 2011 given the company will booksales with higher ASP in 2010.
OSK Semen Gresik (SMGR IJ – Buy, target price Rp10,100), Bottom in-line
Sales came in at Rp6.7t in 1H10 (+5.2% QoQ or -1.6% YoY), slightly below our expectation because of lower sales volume. However, better-than-expected operating efficiency and lower effective tax rate have caused bottom-line profit to be in line with our expectation, coming in at Rp1.7t in 1H10 (+16.9% QoQ or 15.0% YoY), reaching 48.8% of our full-year estimate. We maintain our forecast and BUY recommendation with target price of Rp10,100 at which the counter will be traded at 16.8-13.5x FY10-11 PE. SMGR is attractively trading at 15.1-12.2x FY10-11 PE, much lower than its peers, Indocement (INTP) and Holcim Indonesia (SMCB) which are trading at 17.3-15.6x FY10-11 PE and 17.6-14.0x FY10-11 PE, respectively. Given SMGR’s strong cash position, strong profitability, and strong position in domestic market, it is unjustified to trading at discount to its peers.
DBS EXCL Excellence in Execution
• XL beat street expectations - strong data-revenue growth and cost control were key highlights
• Management raised revenue and EBITDA margin guidance; FY10F/11F raised 29%/20%.
• Maintain BUY, Rp5900 TP offers > 24% upside potential
2Q10 EBITDA 18% above consensus. 2Q10 EBITDA of Rp2289bn (+ 57% yoy, +7% qoq) was 18% above expectations. EBITDA margin of 54% was also ahead of expectations as XL reduced its interconnection costs and starter pack costs by re-routing and re-designing starter packs. Non-voice revenue (+50% yoy, +8% qoq) comprised
33% of group revenue in 2Q10, compared to 32% in 1Q10 and 29% in 2Q09, demonstrating that XL is benefiting from growing SMS usage and mobile Internet. XL added 2.3m
subscribers in 2Q10 (1.5m in 1Q10).
Management guidance revised up. (i) FY10F revenue growth guidance revised to more than 20% from high teens previously; (ii) EBITDA margin guidance raised to 50% from
high 40’s. With 1H10 revenue up 35% yoy and EBITDA margins of 52%, we model 24% revenue growth and 50.8% EBITDA margin for FY10F. We forecast FY11F/12F revenue
growth of 16%/14% and EBITDA margin of 48.5%/47.6%. FY10F/11F/12F earnings are revised up 29%/20%/18% respectively.
ROIC improvement from prudent capex. As subscribers chose SMS and data over voice minutes, XL does not need to raise capex for voice-minutes. Management targets ROIC
above 15% compared to existing 14% and could start paying dividends from FY11F onwards. Our DCF based (WACC 13%, terminal growth 3%) TP is raised to Rp5900.
• Management raised revenue and EBITDA margin guidance; FY10F/11F raised 29%/20%.
• Maintain BUY, Rp5900 TP offers > 24% upside potential
2Q10 EBITDA 18% above consensus. 2Q10 EBITDA of Rp2289bn (+ 57% yoy, +7% qoq) was 18% above expectations. EBITDA margin of 54% was also ahead of expectations as XL reduced its interconnection costs and starter pack costs by re-routing and re-designing starter packs. Non-voice revenue (+50% yoy, +8% qoq) comprised
33% of group revenue in 2Q10, compared to 32% in 1Q10 and 29% in 2Q09, demonstrating that XL is benefiting from growing SMS usage and mobile Internet. XL added 2.3m
subscribers in 2Q10 (1.5m in 1Q10).
Management guidance revised up. (i) FY10F revenue growth guidance revised to more than 20% from high teens previously; (ii) EBITDA margin guidance raised to 50% from
high 40’s. With 1H10 revenue up 35% yoy and EBITDA margins of 52%, we model 24% revenue growth and 50.8% EBITDA margin for FY10F. We forecast FY11F/12F revenue
growth of 16%/14% and EBITDA margin of 48.5%/47.6%. FY10F/11F/12F earnings are revised up 29%/20%/18% respectively.
ROIC improvement from prudent capex. As subscribers chose SMS and data over voice minutes, XL does not need to raise capex for voice-minutes. Management targets ROIC
above 15% compared to existing 14% and could start paying dividends from FY11F onwards. Our DCF based (WACC 13%, terminal growth 3%) TP is raised to Rp5900.
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