A Cup of Tea 13 Aug'10 (Afternoon)

Are U Interesting With This?

I think at this level ISAT is very attractive for medium term investment. We maintain Buy ISAT on expected further earnings upgrades due to management turnaround story, positive consolidated operating free cash flow to equity. I put target price for ISAT at IDR 5586 (14.3x PE’11 consensus).

Fundamental Note
• ISAT will continue to focus on its data division, where there is growth potential.
• Average toll usage (ARPU) subscribers of Indosat rose 7.7 percent, so it boosted its net profit to Rp285, 9 billion in the first quarter of this year. Achievements in the first quarter of this year are part of the strategy of focusing on the value (revenue).
• In the first quarter of 2010, Indosat's net profit surged 139.2 percent to Rp285, 9 billion over the same period last year amounted to Rp119, 5 billion.
• The number of subscribers had increased by 18 percent to 39.1 million subscribers last year from a total of 33.3 million and 3.5G subscribers increased by 118, five per cent to 756 thousand from last year amounted to 346 000 subscribers.
• Currently, Indosat has been holding the device Sony Ericsson to modernize the network Receiver base transmission station (BTS). Indosat estimate the impact of modernization, these networks will begin to be felt in the September 2010.
• Indosat would continue to implement its strategy of acquiring value customers and would focus to improve its ARPU mix by retaining a larger share of medium to high end customers.
• Data would be key growth driver; MIDI revenues were up q/q.
• Indosat expects to achieve growth in the wireless segments of ex. Java regions while growth in Java would be primarily broadband driven.
• The new management team is also actively crunching operating costs and capex.
• Rising EBITDA should facilitate Indosat’s first ever positive cellular operating free cash flow (OPFCF) result in FY10, positive consolidated OPFCF and positive consolidated free cash flow to equity.
• Now ISAT trade at 14.15x PE’10 and 11.84x PE’11 (EPS Consensus).



















Technical Note
• ISAT closed at support since 21 December 2009 at 4500. Stochastic indicated that the share on oversold position. With retracement methodology ISAT possibility pull back at 5150 level.

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.

CLSA Aneka Kimia Raya (AKRA IJ), OPF, TP Rp1600

Research Associate Vera looked at Aneka Kimia Raya (AKRA IJ). The stock has gone up 30% since the placement that we did in Feb 2010.

At this point, we still like the stock and believe that it still deserves an OPF rating. Out TP is Rp1600, implying 15x 2011 PER. Despite disappointing 2Q10 results, a recovery is expected in 2H10 while further positive developments in the form of additional govt contracts next month could further boost her bullish thesis. AKRA has the first mover advantage in non-subsidized petroleum distribution business.

The subsidiary Sorini (SOBI IJ), generating almost half of AKRA gross profit in 2009, has seen some margin squeeze in 1H10 thanks to rising input costs and rupiah appreciation. Gross margin dropped from 32% to 20% in 2009. Vera believes that margin pressures will ease going forward as the company renews the sorbitol contract at higher prices (time lag effect).

Credit Suisse Asia Equity Focus Selective buying in China metals and mining ahead of their interim

H1 preview for China metals and mining sector: A mixed bag of results
Steel and metal prices have rebounded in past months after falling sharply on global
de-risking. For instance, the benchmark hot-rolled coil (HRC) and cold-rolled coil
(CRC) price rose 11% and 7% respectively from the low in May. The copper price
also increased by 12% from the recent low. A similar rebound trend also occurred in
other base metals, fuelling renewed interest in China commodity equities, which underperformed the broader market in H1.

Starting next week, China metals and mining companies will begin to report their H1
interim results. Overall, we see the sector reporting mixed results across different
subsectors, with the actual numbers potentially deviating by a wide margin from the
market consensus. On the China steel sector, we expect companies to report a profit turnaround in H1 but a sequential QoQ earnings decline in Q2, as they were impacted by high raw material prices and falling steel demand volume and prices at the start of Q2. In particular, Angang Steel (347 HK, BUY) is more likely to deliver results that are broadly in line with consensus, as the company should benefit from strong exports in H1. On the other hand, we expect Maanshan Iron & Steel (323 HK, HOLD) to report weak Q2 results, as the company has suffered from slowing demand in construction and high material prices. Reflecting the recent share price performance, investor sentiment towards the sector has turned positive, possibly implying that the expected weak Q2 results and perhaps Q3 guidance may have already been priced in after the significant underperformance of the steel sector.

Furthermore, with industry concerns over production cuts, losses at smaller steel mills, inventory destocking and capacity shutdowns well flagged in the marketplace, we believe the sector is approaching a bottom. Conversely, with few signs of an end-demand recovery yet, H2 earnings are likely to show a HoH decline, with Q3 likely
to mark the bottom with a possible recovery in Q4. Hence, we will err on the side of caution regarding the medium-to-long term sector outlook until end-demand starts to show a recovery. Nevertheless, the recent rebound in steel prices reinforces hopes that the sector will bottom. Hence, investors with a high risk appetite may start to look for re-entry positions ahead of the fundamental turnaround.

On China mining stocks, we expect Jiangxi Copper (358 HK, BUY) to report disappointing H1 results, mainly due to the sharp decline in the copper price (–17%) and a contracting smelting margin in Q2. On the base metals outlook, we note that the
copper price found solid support at close to USD 6700/t. We remain positive on the copper fundamentals, given (1) the increasing industrial activity on the back of the macro recovery and (2) the structurally tight supply globally, especially rolling over into 2011. In China, we expect a gradual improvement on the demand side, boosted by the continuing urbanization of third and fourth tier rural villages and counties. We expect the copper price to reach an average price of USD 7280/t by the end of 2010.

On aluminum, the structural overcapacity remains a key concern, even though the aluminum price has improved in recent weeks, rebounding off the low of USD 2030/t. This compares to our average year-end price forecast of USD 2140/t. Potential ETF
issuance on aluminum may stimulate the near-term price rise, but we remain unconvinced about sustained rallies due to the slower response from the supply side, i.e. overcapacity.

UOB Astra International Things are looking up BUY TP IDR 60.000

What’s New
Ground check: More car sales ahead of Hari Raya.
We visitedAstra International Auto 2000, a Toyota dealership branch outlet in Jl.Yos Sudarso, Jakarta. Here are the takeaways from the visit:
a) Car sales are still very strong, especially for the MPV segment,and customers are asking for earlier delivery ahead of Hari Raya,
b) Toyota is still offering many promotions, from 0% interest for Yarisand 1.5% for Altis, to free services up to a certain distance(normally 50,000 km),
c) Advertising expenses rose about 10% for 2010 for the branch, andd) The branch has reached 140% of its target sales.

Car sales reached historical high in Jul 10. Domestic car sales areexpected to reach 72,446 (+2.9% mom), a historical high according tothe car producer association. The association also forecasts car salesto reach 700,000 (+44% yoy) in 2010.

Motorcycle sales grew 6.7% mom in Jul 10. The unofficial figure fordomestic motorcycle sales in July is expected to reach 699,363 units,with Honda’s sales reaching 334,742 units (+14.3% mom). Thus,domestic 6M10 sales grew 39% yoy and Honda sales grew 42% yoy.In 6M10, Honda dominated with a 47% market share vs Yamaha with45%. The association of motorcycle producers foresees sales couldreach 7.2m units (+23% yoy) for 2010.

Aggressive launch of new products. Astra launched four newmotorcycle models in May-Jul 10: Honda Scoopy, Tiger, PCX andRevo AT. According to the company, as a result of good responsefrom customers, the backlog order for Scoopy has reached one month.

Stock Impact
Expect positive surprise from motorcycle sales. We expect apositive surprise from higher-than-expected domestic sales that maygrow 23% vs our estimate of 17.5%. At the same time, Astra mayexpand market share by 1-2ppt to 47-48%. Astra has been facingtough competition from Yamaha since 2007 when Yamahaaggressively introduced new models and succeeded in the scootersegment. However, from customers’ response to some new models,Astra should be able to gain market share in the scooter segment.

Maintain position in car market. Astra has been able to maintain 57%market share in the car market in 2010. Most of the sales came from low-end MPVs such as Toyota Avanza and Daihatsu Xenia, while the ToyotaInnova MPV remains popular in Indonesia. We think the trend maycontinue due to the popularity of these low MPVs.

Earnings Revision/Risk
None.

Valuation/Recommendation
Reiterate BUY with target price of Rp60,000. Our target price ofRp60,000 is based on sum-of-the-parts valuation, implying 15.4x 2011FPE. The stock is trading at 12.2x 2011F PE.

Share Price Catalyst
a) Low interest rates to continue, b) automobile financing war, c) strongereconomic growth, and d) acceleration of toll road development.

DBS Bakrie Telecom: Not Rated; Rp150; BTEL IJ BTEL obtains US$300m RMB-denominated loan

BTEL has obtained US$300m RMB-denominated loan from Industrial and Commercial Bank of China . This loan will be spent on capex with the focus on network coverage expansion. BTEL aims to improve the quality of its voice and data services yet maintaining the affordability of its services for the customer.

This US$300m loan is the second loan that BTEL has obtained this year from an international creditor. In April 2010, BTEL obtained US$250m by issuing 11.5% guaranteed senior notes due in 2015. BTEL has spent US$175m from the notes to pay its debt, US$14m to fund its interest reserve accounts, and the rest on capex with the focus on wireless broadband network.

The aggressive capex is due to BTEL’s focus on market penetration in a very competitive domestic telecommunication industry. BTEL is targeting 14m subscribers by the end of this year.

Mansek Indocement:To build new plant (INTP,Rp16,150,Neutral,TP:Rp16,600)

Aside from the new 1.5mn tons cement mill which will start operating this month,they will build another cement mill in Citeureup with a total investment cost of around US$300-450mn.This is sooner than their previous plan,given unexpectedly strong demand.They previously mentioned that new plant will have a capacity of 2-3mn tons/year.

As for this year,they budgeted around US$75mn for FY10 capex,which some US$18.7mn has been spent in 1H10.Other than that,the company will also build its own power plant with a capacity of 2X50MW.On valuation basis,the company is currently trading at PER10F of 17.7x (vs average peers of 16.5x).

Mansek Jasa Marga and Citra Marga eyeing operator role in Cilincing-Rorotan (JSMR,Rp2,650,Buy,TP:Rp3,200)(CMNP,Rp930,Neutral,TP:Rp1,100)

Cilincing-Rorotan toll road (3.4Km),or Tanjung Priok toll section E1,has been completed and currently will take an eligibility test conducted by Toll Road Authority (BPJT).If the toll past the test,BPJT will open a tender offer to be the operator on the toll road,so it can commercially operate by end of this year.Tanjung Priok toll road has total length 12Km with total investment needed amounting Rp4.2tn,and the development divided into 4 sections.Jasa Marga and Citra Marga has expressed they interest to participate in the tender.

We have a Buy recommendation on JSMR,trades at PER10F-11F of 13.5x and 11.9x,respectively.

We have a Neutral recommendation on CMNP,trades at PER10F-11F of 3.7x and 3.9x,respectively of 16.5x).

BNPP Bank Negara Indonesia - Government sold 3.1% stake at IDR2,900

The government sold 473.89m shares (3.1% stake) of BNI yesterday of which 70% was allocated to domestic and 30% to foreign investors. At IDR2,900 the government will collect IDR1.374t (USD152m) which will be used to help finance the state budget deficit.

Comment: This puts the bank valuation at around 2x P/BV 2010E compared to the industry average of 3.2x. Post the divestment the government still owns 73.1% of the bank, which plans to raise at least IDR6t through the rights issue by the year-end. It is expected that the government will not take their rights and to dilute their state further to 60% which will allow BNI to utilise the corporate income tax benefit (lower income tax to 20% from 25%) for companies with free float of >40%.

JPM CPO price upgrade: buy LSIP

Simone Yeoh (analyst) raised her CPO forecast on the back of 3 key drivers, namely soybean oil demand from biodiesel mandates, weather-related risk to Asian CPO output, and a tighter supply demand balance for CPO. We raise our CPO forecasts from M$2,450/t for 2010-11 to M$2,600/t in 2010 and to M$2,800/t (up 14%) in 2011. We earlier felt that CPO prices would range between M$2,200-2,800/t, and now lift this to M$2,400-3,000/t, expecting prices to be at the upper end of the range in coming months.

>> Astra Agro Lestari (AALI) – Price target raised to Rp17000 from Rp14500 but U/W maintained. FY11 EPS upped by 44%. Trades on 15.7x and 11.2x P/E 2010-11.

>> London Sumatera (LSIP) – Price target raised to Rp10700 from Rp9800, O/W maintained. FY11 EPS upped by 76%. Trades on 13.7x and 10.3x P/E 2010-11.

>> Indofood Agri (IFAR SP) – Price target raised to S$3.05 from S$2.80, O/W maintained. FY11 EPS upped by 1%. Trades on 20.3x and 10.7x P/E 2010-11.

JPM Bumi Resources: Tata Power conf call

A very confusing read-through on the financial performance of KPC and Arutmin. Tata Power’s segmental breakdown shows 19% yoy growth in coal revenue to 1,539 (Rs crores) and 13% yoy growth in coal EBIT to 424(Rs crores), for the quarter ending June 2010. In terms of QoQ performance, the coal revenue dropped by 23% while EBIT dropped by 7%. I am told by my research collegues in India that majority of these revenue and EBIT came from KPC and Arutmin mines.

The QoQ trend does not match the official operating release provided by Bumi Resources, which suggests that 2Q10 should be a strong quarter for Bumi, in terms of QoQ comparison. Bumi is suggesting a flattish coal sales volume of 15.1mn tons in 2Q10 (vs 15.9mn in 1Q10), while average selling price spikes to US$71.6/ton in 2Q10 (vs US$62.7/ton in 1Q10). On these numbers, revenue should grow by at least 9% QoQ (rather than the reported 23% decline in TPWR’s read-through). These are official numbers based on IDX disclosure dated 13 July 2010.

Looking at TPWR’s figures on absolute basis rather than on QoQ trend, I suspect that Tata Power and Bumi Resources adopt very different accounting principles in their quarterly reports. Bumi appears to be under reporting its EBIT in 1Q10 (Tata’s read-through showing much bigger number), such that if the accounting normalizes in 2Q10, the QoQ comparison should be favorable (in contrast to the poor QoQ read from Tata Power).

Mansek BBRI:Lesser cobwebs in the closet

Like some other banks, BBRI also reported an increase in NPLs in 2Q10, with NPLs from the medium segment posted its highest rate since 2006. Despite that, we still expect BBRI to perform well with ROAE is expected to reach 29.0% in 2010 and 32.8% in 2011, respectively, thanks to its over 50% exposure to lower-risk NPLs and concerted efforts to deal with outstanding NPL. Maintain buy.

Problems in loans to medium segment… BBRI’s NPL from the medium segment increased to 14.9% at end Jun10, the highest NPLs among the segments and the highest NPLs recorded since 2006. Our talk with management highlighted the possibility of rising NPLs on the possible relapse in restructured loans.

… yet action plan is quite clear. However, the bank has disclosed a clear action plan to deal with this issue. Around 32.3% of the NPLs from medium segment (or equivalent to Rp734b) has been restructured and 59.6% (or around Rp1.4tn) will go for settlement (i.e through auction). The bank expects NPL from this segment to fall below 10% by the end of this year.

What is the positive catalyst? BBRI still recorded strong loan growth of 8.6% qoq in 2Q10, thus bringing total loan growth to 24.0% yoy. Micro loans posted the highest growth of 29.2% yoy, followed by small consumer loans of 26.6% yoy. Please note that the 76.3% of the bank’s consumer loans are in the form of salary-based lending, which is relatively secure as more than 50% of them are loaned to civil servants (and employees of state owned companies). Coupled with exposure to SOE which is also secure, in our view, we arrived at 52.3% of total loans with lower risk of NPL at end Jun10, an improvement from 48.4% at end Jun09.

Maintain a buy. Even though NPL showed an increase in 2Q10, we still like the bank for it still delivered high NIM (=9.4% in 1H10) and high ROAE (=30.5% in 1H10). Coupled with the bank’s serious effort to deal with NPLs, this high profitability should help the bank dealing with possible rising NPLs in the future. Despite that, we slightly adjusted our earning forecast for the bank to take into account the 1H10 results, particularly higher than expected provisioning expenses. ! Yet, we maintain our target price at Rp12,000/share, hence our buy call on the counter.

Mansek MAPI: Promise of a positive free cash flow

MAPI reiterated its promise not to spend its cash from operation for capex. Since 2007 until 2009, MAPI barely had positive cash flow post capex due to heavy expansion in brand acquisition and outlets. MAPI plans to reduce its net gearing from 74.4% in 1H10 to 20% in 5 years. As most of the needed brands have been acquired, combined with strong footprints in mid- to-upscale malls, MAPI plans to focus more on ROE. Harvey Nichols, upscale department stores which operates at loss, will see their fate decided this month. We have upgraded the earning on strong 1H10 performances, and our TP. Our new TP of Rp1,055 is based on PER discount to its peers as MAPI’s ROE is still the lowest.

Better-than-expected 1H10 result. MAPI posted Rp100bn net income, 52.3% of our FY10 net income estimate. Although MAPI revenues were distributed more or less equal between 1H and 2H, margin was not, since 1H saw a significant price discount to attract customers post year-end festivities. In the 2007-2009 period, 1H/FY operating profit ratio was 35.5%, opening possibility for better performance in 2H. Despite flattish performance in revenue on qoq basis! , margin significantly improved in 2Q10. 2Q10 gross margin was 51.4%, with operating margin of 12.1%, higher than 1Q10 gross margin of 48.3% and operating margin of 5.0%.

Specialty retailing, pillar of MAPI’s profit. From Rp133bn operating profit in 2Q10, Rp111bn was contributed from specialty stores. Sports which has 341 stores out of 587 stores (as of May 2010), we believe was the biggest earner. MAPI served low pricing to high pricing segment with different brands, which put it as the market leader in sports shoes and apparels.

Promise of de-leveraging and capex restraint. MAPI net gearing was 74.4% in 1H10 and it gradually plans to lower it to 20% in 5 years. Repayment of Yen 1.5bn debt (Rp158bn as of June 30, 2010) will be the priority. The company estimates to generate EBITDA of around Rp700-725bn, capex will be allocated at Rp200-250bn. With interest payment of Rp120-130bn, tax at Rp70bn and net working capital of Rp100bn, MAPI will have a positive cash flow of Rp175bn.

MAPI deserves a re-rating. MAPI FY11F Bloomberg consensus ROE is 14.2% (RALS : 17.2%, ACES : 19.6%). However MAPI consensus PER11F is 6.1x, far below RALS (11.3x) and ACES 14.4x for the same period. With 1H10 RALS results below consensus, and ACES within expectation, and MAPI outperformed, MAPI deserved a rerating at least to consensus 8.0x FY11F which translates into Rp1,055/share.

Credit Suisse Asia Equity Focus Chinese economy moderates further

China growth continues to moderate as policy normalization continues
China's latest set of economic data suggest that industrial production growth for July is in line with expectations at 13.4% year-on-year (YoY) but is slightly lower than June's reading of 13.7% YoY. Fixed asset investments growth also softened slightly in July to 24.9% YoY compared to 25.5% YoY in June. Retail sales also moderated in July to 17.9% YoY from June's 18.3% YoY. While the figures are softer, they are very much as expected and did not shock the markets any further. Meanwhile,

The CPI figures for July rose to 3.3% YoY from June's 2.9% YoY, and the amount of new yuan loans disbursed by the banking system eased to CNY 533 bn in July from June's CNY 603 bn. On the other hand, China's export and import growth figures slowed in July to 38.1% YoY and 22.7% YoY respectively. June's figures were 43.9% YoY for exports and 34.1% YoY for imports. Relative to the market consensus, the moderation in imports is greater than the moderation in exports and this resulted in an increase in the trade surplus to USD 28.7 bn in July from June's USD 20 bn.

Going forward, we expect a further moderation in the trade growth figures as the base of the previous year moves gradually higher. Also, the sharper-than-expected decline in imports suggests that production and consequently exports could moderate further in the coming months. Clearly, China is engineering a soft landing for its economy, which has been challenged by asset price inflation after the record credit extension in 2009. Looking ahead, we expect a further moderation in economic activity but not a drastic slowdown akin to a double-dip scenario. Under these circumstances, we continue to expect the authorities to normalize monetary policy but without any aggressive tightening as it soft-lands the Chinese economy to 9.5% growth in 2010.

On the equities front, both the Hong Kong and the China market may consolidate further today, following the weak US market overnight and concerns about China's slowdown. While our base case of a continued policy normalisation remains, investors may start to envisage a broader range of monetary easing by the Beijing government and expect additional liquidity to be injected into the financial system again if the forthcoming economic data points to a further slowdown. As such, barring any major further tightening or sharp economic crash (both seem unlikely), we believe this stock market consolidation will be modest and short-lived.

The increase in the investment ratio in stocks and mutual funds and in overseas markets by the China Insurance Regulatory Commission (CIRC) overnight also indicates the government's relatively accommodative policy stance towards the equity markets,
as theoretically CNY 600 bn capital will be allowed to enter the Hong Kong stock market.

After the HSCEI rebounds 10% within a month, it is not unusual for investors to take some near-term profits. We suggest long-term investors use this consolidation to increase positions in China equities ahead of the H2 rally, underpinned by the
undemanding valuation (HSCEI P/E 2010E of 9.5x, Shanghai Composite Index P/E 2010E of 14.5x) and strong earnings growth (20%-plus for 2010). We expect most interim results to meet or even beat the market's relatively low expectation, which should trigger a wave of market upgrades afterwards. Investors should increase the beta and our current China TOP PICKS include Angang Steel (347 HK, BUY), CNOOC (883 HK, BUY), China Construction Bank (939 HK, BUY) and China Railway Group (390 HK, BUY).

CLSA Indonesia - July cement volume - slowing

* total domestic cement volume growth slowed to 6.5% YoY to 3.7m tonnes, while YTD growth stands at 10.7%

* Holcim is the fastest growing by volume, with output up 14% YoY for July and 18% YoY YTD

* Semen Gresik volume growth remains anemic at < 4% YTD and is likely to remain the case until 2012 when new capacity is operational

* The 3Q is historically the best for cement demand; poor govt fiscal allocation of the budget and unseasonal rain is likely to have affected demand

* Prices have not increased now for 18 consecutive months; recent electricity price hikes might change that situation

* USD-based costs account for 30-50% of COGS and a higher currency will help keep costs down and margins steady.

* INTP and SMCB remain our conviction calls; we have an U/P on SMGR

CLSA Bank Rakyat Indonesia (BBRI IJ), maintaining BUY

Bret Ginesky is looking at Bank Rakyat Indonesia (BBRI IJ), maintaining his BUY call. BBRI offers a ROA and ROE above its Indonesian peer group while trading at a PE discount. Maintain our TP of Rp10,700 representing 11.6x and 3.0x our 11CL PE and PBV forecast, respectively, and a PBV premium justified by superior profitability

Shares have been under pressure recently since earnings announcement two weeks ago. Higher NPLs and a lower CAR raised investor concerns.

Bret’s view:

(1) NPL concern
NPLs remain in line with historical levels and should improve in 2H10. Moreover, the current capital levels can support loan growth through 2010, and we anticipate a subordinated debt raise in 2011.

Historically, BBRI’s gross NPLs have been 4.2% which implies that the continued increase over the past two years represents a reversion to the historical mean. Absolute NPL figures are substantially higher, but the seasoning of the loan book (+71% since 2Q08) reflects the increase.

Management’s initiative in addressing problem loans within the medium and corporate segments should lead to improving metrics.

Provision coverage. We also would like to add that the allowance for loan losses remains north of 6% and have been increasing throughout the year, as BBRI has been increasing its provisioning. Under PSAK 55, BBRI is likely going to have to lower provision building going forward, and we have seen this with other Indonesian banks, as provisions have decreased. As you can see from the chart below, BBRI’s coverage of NPLs has remained relatively flat at historical metrics going back through 2001.

(2) CAR
BBRI’s CAR stands at 14.1% a metric that is in line with its Indonesian peers. By our calculations, over Rp10.0tn in recap bonds will mature in the next 24 months, a 2011 subordinated debt offering, and retained earnings should shore up any equity concerns.

BNPP Indocement (INTP IJ) - Growth story intact - BUY with TP IDR19,600 (20% upside)

We maintain our BUY call on Indocement with TP IDR19,600 as we remain believe that Indocement would be the main beneficiaries of stronger cement demand as shown by its market share expansion this year.

*Domestic cement demand in Indonesia remains strong in July 2010, up 10%m-m (6.5% y-y) to 3.7m, close to the record high volume of 3.82m in Dec 2009. In 7M10, cumulative domestic cement sales up 10.7% y-y and is on track to meet our target 9% growth this year. Cement demand may soften in August/September on the fasting month period and Hari Raya holidays, before picking up in 4Q on more government project realization.

*Demand outside Java continues to be the main growth driver with Kalimantan and Sumatra booked 22% and 11% y-y growth respectively. Demand in Sulawesi has also rebounded in July, up 20% m-m after 3 consecutive months of negative growth.

*Helped by its excess capacity, Indocement’s market share expanded the most this year, adding 1.2% market share vs Holcim’s 0.9%. On the other hand, Semen Gresik market share dropped 2.8% on capacity constraint. Trading at our 2010E P/E of 16.2x, Indocement is still at par with its four-year historical mean, which we believe is unfair given its improved ROE of 30% (2010-11E) vs 19% in the past four years. Out TP of IDR19,600 still offers 20% upside, and e see any correction on the share price as an opportunity to enter.

CIMB Quick Takes – Ramayana Lestari – Good start to festive months

Maintain Outperform and target price of Rp1,070 for Ramayana, still based on 14x CY11 earnings. Ramayana is entering its high sales season when it expects to book sales of Rp2tr, or a third of its full-year revenue over the next two months. This is literally a make-or-break period. Given a good July, management’s suggestion that inventory issues have been taken care of (following a weak 1H) and a buoyant retail market, sales and margins should be strong. We expect stock catalysts from strong sales over the next two months. On the flip side, anything less could trigger a de-rating.

Mansek Bakrieland Development:Societe Strasbrough deal is on profit sharing basis (ELTY,Rp110,Buy,Rp200)

Following up on news reported yesterday with regards to ELTY fund support from Sociate Strasbrough (SS)on their 51% Bukit Jonggol (BJA)acquisition plan,the company spoke with us that the deal with SS is on profit sharing where SS will get 25%of EBIT generated from BJA project.On the Rp900bn loan,it is non-interest bearing payable within 2 years.SS is also afforded a debt to equity conversion on BJA level,if ELTY does not fully repay the said loan.

Based on the confirmation,this mellowed down our cash flow concerns on ELTY ’s ability to pay additional interest expenses.Additionally,ELTY is expected to recognize the toll road expenses (i.e.,interest and depreciation)in 2H10, which would squeeze 2H earnings.Thus,our 2010 net profit Rp36bn remains intact.

We still have a buy on ELTY with TP:Rp200/share,currently trades at 72%discount to NAV10F.

Mansek Timah:tin output in Indonesia may miss target (TINS,Rp2,400,Neutral,TP: Rp2,800)

According to Ministry of Energy and Mineral Resources,tin output from Indonesia may plunge about 20%this year due to prolonged rainy season. However,lower output from Indonesia has supported strong LME tin price. Our tin price assumption for FY10F is US$17.5k/ton,which is the same with ytd average LME price.However,yesterday LME tin price reached US$19.9k/ton.

Should the price is sustainable until year end;tin price could be 7%above our estimates.Our sensitivity analysis shows that 20%output decline and 7%higher selling price will reduce net profit by 22%.Currently,we have Neutral recommendation on TINS which is trading at 14.6-9.6x PER10-11F.

Mansek London Sumatra:6M10 CPO sales volumes reached 40.4%of our FY10F (LSIP,Rp9,200,Buy,TP:Rp10,200)

6M10 CPO sales volumes reached 40.4%of our FY10F.CPO sales volumes decreased by 3.0%yoy from 164,265 ton in 6M09 to 159,257 ton in 6M10. We consider 6M10 CPO sales volumes slightly below our expectations.

6M10 rubber sales volume reached 43.2%of our FY10F.Rubber sales volume decreased by 13.1%yoy from 11,189 ton in 6M09 to 9,725 ton in 6M10,thus in-line with expectations.

We maintain our BUY recommendation.Currently,LSIP trades at FY10F and
FY11F PE of 13.1x and 11.8x,respectively.

NISP Bakrie Sumatera Plantations aims for higher contribution from rubber (UNSP, Rp300)

BSP sets a target of Rp570.0bn of revenue from its rubber business, 10% YoY higher from Rp479.3bn in 2009. This optimism is backed by higher rubber sales volume during 1H10 of 16,600 tons, 14.5% YoY higher from 14,500 tons in 1H09. The company also sees its sales price to be higher on a YoY basis, hence, foresees a possibility of double digit growth of revenue from this business.

As an impact of higher contribution from rubber business, the company expects a lower contribution from CPO of only 60% of total revenue compared to 70% a year earlier.

UNSP is trading at 2010F consensus PER of 12.5x and EV/EBITDA of 9.4x.

NISP BNI green shoe shares to be sold today (BBNI, Rp3,000)

The government will sell its existing BNI green shoe shares today at a minimum price of Rp2,900. It has appointed Bahana Securities, Macquarie, Danareksa and Mandiri Sekuritas as underwriters of this action.

The government owns 473.8mn shares or 3.1% out of total BNI shares as green shoe shares from the bank’s secondary offering in 2007, at the price of Rp2,050. This makes total potential revenue from the sales to reach Rp1.37tn.

However, the Minister of SOE stated that the shares could be sold at a slight discount.

BBNI is trading at 2010F consensus PER of 12.2x and PBV of 2.1x.

NISP Antam to start FeNI IV (ANTM, Rp2,100, Buy)

It is reported that Antam is ready to start its FeNI IV project. The news also cited that the company is currently exploring opportunities to cooperate with overseas companies on this Rp11.16tn project.

The first phase of this project requires an initial investment of Rp5.60tn, thus Antam needs to find a partner on FeNI IV.

We prefer to wait for the official release from Antam, as the company has not found a partner on this project since last year. Initially, FeNI IV development is scheduled to start in 2011 and commence in 2014.

Currently, ANTM is trading at 2010F PER of 16.1x and EV/EBITDA of 8.3x, Buy.

NISP Bumi Resources to increase ownership in Newmont (BUMI, Rp1630, Buy)

Bumi is still waiting for the 7.0% Newmont Nusa Tenggara (NNT) divestment program and expects to increase its ownership through its subsidiary, Multi Daerah Bersaing (MDB).

Previously, Newmont Indonesia and Nusa Tenggara Mining Corp., as the shareholders of NNT, proposed a US$444.08mn for 7.0% divestment on NNT. However, the Government of Indonesia sees the offer is too expensive as it is 79.93% higher compared to a similar amount divested in 2009, which was priced at US$246.8mn.

There is no significant progress from this event and with its current 2010F PER of 11.9x and EV/EBITDA of 5.6x, we still maintain Buy.

A Cup of Tea 12 Aug'10

Southeast Asian stock markets fell on Wednesday, wary of the weaker U.S. economic outlook. The US economic environment kept investors cautious over the pace of recovery in Asia as well as the outlook for exports. In Singapore, the benchmark Straits Times Index ended down 1.2 percent. Thailand, the third best, erased most of its early loss and ended flat. Japan's Nikkei 225 index closed 2.7% lower at 9,293, while Hong Kong's Hang Seng index shed 179 points to close at 21,294.

World stock markets have tumbled as investors worry about the health of the US economy after the Federal Reserve warned that the recovery was likely to be "more modest" in the short term. The Dow Jones finished 265 points lower while European markets closed down 2%. News that China's industrial growth slowed further in July also hitting sentiment. The Fed's assessment of the US economy also put more pressure on the dollar, which hit a 15-year low against the yen. In Europe, leading share indexes in London, Paris and Frankfurt all closed down by more than 2%.

Our Market
On Wednesday Jakarta dropped 0.7 percent, cutting its gain this year to 19.8 percent, still Asia's second best performer. And for today I think our market will continue with under pressure from regional sentiment. JCI will trade lower between ranges 2965-3047 with crucial support at 2948 level.

Indonesia reported 2Q10 GDP growth of 6.2% YoY (2.8% QoQ), above market expectation. Private consumption rose stronger than expected, up 5% YoY, and contributed 2.8 p.p. to headline growth. Gross fixed capital formation was also robust and grew 8% YoY. Growth is expected to remain solid. I believe that our economic was on the right track. Our fundamental economic was so strong.

Healthy inflow will support our market for today. Jakarta recorded net inflows for a fifth straight session, adding just $1.3 million on the day but a total $63.4 million over the past five days.

I think some shares looks interesting. With strong fundamental we can collect on lower some shares for better return in the future. Which Ones?

Cement Sector; Semen Gresik – Surprise in July number - SMGR reported 13.6% m/m growth in sales. SMGR reported July domestic cement sales volume of 1.6mn tonne, up by 2.9% y/y and 13.6% m/m. Despite the Tuban I maintenance in July, the production of Semen Gresik is up by 15% m/m, as the company used up 45% of its clinker inventory. SMGR’s July cement sales number is a surprise. And I also recommended INTP.

Base Metal; 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. With higher average TIN price and lower cost of debt, net profit TINS could surge 10 times on YoY basis.

INCO, Nickel LME inventories have dropped by about 25 percent to five month low at 116,778 tonnes as on 30th July 2010. These factors are supporting nickel and we expect LME nickel will be back to $22,000-23000 in near term.

TLKM, I believe that TLKM will have strong EPS in Q2'10 and will continue into Q3'10m. We are more optimistic in the long term prospects of both cellular and fixed line. Have potential further catalyst from change in frequency fee and new management. TLKM is one of defensive stock in our market.

Coal Sector; UNTR & ADRO, Indonesia steam coal exports prospect have been based on structural demand growth from China, India and Domestic Power Plant, and some of report is addressing India import shortage as soon as 2 years from now. Coal demand in India is expected to grow by 1.2 bn tonnes per annum. Industries continue to growth and demand for energy/electricity will pick up.

Interesting ASII @45000 level watch out !!


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

Bloomberg Tin Production in Indonesia May Plunge 20%

Tin output from Indonesia, the world’s largest exporter, may plunge about 20 percent this year as bad weather disrupts mining, the energy ministry said.

Output may drop to about 85,000 metric tons compared with a full-year target for production of 105,000 tons, Witoro Soelarno, secretary to the director-general of minerals, coal and geothermal, said in an interview. Production last year was also 105,000 tons, according to a Dec. 31 estimate from the ministry.

Lower output from Indonesia may help to sustain a rally that’s made tin the best performer on the London Metal Exchange in 2010, while hurting local producers’ shares. Commerzbank AG analyst Daniel Briesemann warned earlier this month that tin supply was tightening. Indonesia usually exports about 85 percent of production for use in solder and packaging.

“Weather anomalies are expected to affect the achievement of this year’s production,” Soelarno said by phone from Jakarta today. “This year’s exports may highly depend on the price, especially for shipments from small smelters,” Soelarno said, declining to give a forecast for export volumes. more...

Karvy Comtrade Limited METALS INSIGHT A Daily Report on Base Metals

REVIEW AND OUTLOOK
Base metals ended lower on concerns that the demand from China might fall as data indicated cooling of property market. Chinese imports also grew at a slower pace indicating the domestic demand is weak.

US equity markets ended in red and taking cues Asian Equities have also opened lower side. However, losses are being pared by most of the markets as the Asian markets have already fallen yesterday discounting the outcome from FOMC meet. Fed has downgraded its view of the economic outlook as fears of double-dip recession have increased. In the morning session on LME, base metals are trading slightly on the higher side. From China, both the industrial production and retail sales in the month of July grew at a slightly lower pace than in the prior month. This is indicating that growth is slowing down. Also the price rise, as indicated by PPI is slower. Lower level of inflation is boon for the economy as the pressure on the government to tighten significantly will alleviate. Overall, given the fall witnessed yesterday, we at KCTL, expect the base metals to bounce, though the gains might be capped.

ALUMINIUM
LME inventory witnessed draw-downs to the extent of 5,175 tonnes
On the fundamental front, Chinese imports of aluminium for the month of July came in at 67,462 tonnes, a fall of 9.60% from the previous month The basis on LME continues to remain at lower levels indicating that upside in prices might be limited in the near term.

COPPER
Copper inventory on LME witnessed draw-downs of 2,100 tonnes
On the fundamental front, Chinese imports of copper grew by 4.5% to 342,901 tonnes. However on a year-on-year basis, imports were lower by about 16% The cancelled warrant ratio continue to decline indicating that there might be build-up of inventory in the near term.

NICKEL
LME inventory witnessed draw-downs to the extent of 240 tonnes
The cancelled warrant ratio on LME are declining indicating that there might be build-up in the near term
Both the basis on LME and calendar spread on MCX are ticking upwards indicating expectation of higher price in the near term

Mandiri Sekuritas BSDE: The roll-out continues

Bumi Serpong Damai posted in-line 1H10 net earnings of Rp183bn (+46.9%yoy). With July sales number back on track, the year-end target is likely to be met, with premium clusters launchings as the potential upside. We are rolling our forecast to 2011, the stock currently trades at 51% discount to NAV11F, with new TP: Rp1,210 (+44%) for end of year 2011.

Improvement in margins. BSDE continues showing strong quarterly result, with 1H10 earnings surging 45.9% yoy, following improvement on operating and net margin to 56.1% and 30.1%, respectively, from 48.2% and 23.3%, in the same period last year. The higher margin was contributed mainly from land lot sales, as improvement of land l! ot price to Rp5mn/sqm (Rp3.5mn/sqm in 09).

Sales rebound in July. With first-half marketing slightly lagging (43.8% of Rp2tn target), the company’s July sales rebounded to about Rp275bn, 88% higher compared to the average monthly sales for the first six months of 2010.

Tapping high segment to reach higher margins. Despite continuing to sell landed houses to the mid-income segment, in the second half the company also plans to expand its market to the higher-margin high-end segment through the launching of 2 (two) new premium clusters on 70ha and 10ha area of land. The latter will be offered in chunk lots (1000-3000m2 each), though both being offered at the similar land price range of Rp7mn – 10mn/sqm. The two clusters are located on their hill side, with the Cisadane! river as view.

Maintain Buy. With four sub clusters are in queue to be booked (generally each sub-clusters contribute ±Rp150bn), together with expected additional bookings from commercial lots sales which may contribute up to Rp300bn, the sales target balance should not be an issue, as currently the company still enjoys the benefit of strong domestic consumption and gentle interest rate environment. Should, the company be able to smoothen the premium cluster sales this year! , it will provide upside for the company y, especially the lot sales, which directly be realized on the year-end book. We are rolling our forecast to 2011, with new TP of Rp1,210, a 30% discretionary discount to our NAV11F. The stock currently trades at 51.1% discount to our NAV11F. We maintain buy on the counter.

Citigroup Indonesia Cement - Growth Resumed in July

 Robust volume - just 2% below record high — Improved weather propped up cement volume in July to the second highest level ever. At 3.7m tons, July’s volume was the highest ever for July and only 2% below the record high in December 2009.

 Indocement – our top pick — We maintain Indocement (1L, TP: Rp18,400) as the top sector pick due to its expanding market share and superb cost control.

 On track to meet our 10% growth in 2010E — For 7M10, the industry's volume was still robust at 23.3m tons (55.3% of our 2010E forecast). Based on the 15-year average, sales volume in the first seven months account for 54.9% of the fullyear volume. Hence, domestic cement sales are on track to meet our FY forecast.

 Holcim – fastest growth in July and YTD — Holcim Indonesia (HI) logged the fastest growth at 18.2% YoY in 7M10 (3.2m tons), reflecting its large spare capacity and recovery in Java’s demand. HI’s market share hence expanded to 13.7% in 7M10 from 12.8% in 7M09. HI’s domestic volume YoY growth of 14.2% in July was also the fastest amongst the major producers.

 Indocement – growth slowdown in July on high base comparison — Indocement logged 15.2% YoY growth in 7M10 to 7.3m tons, expanding its market share to 31.3% in 7M10 from 30.1% in 7M09. Indocement’s 5.2% YoY domestic volume growth in July was the lowest for the Big-3 producers; however, this was mainly due to high base comparison. July 2010 volume was the second highest ever for Indocement – just 4.7% below December 2009’s.

 Semen Gresik – hurt by limited spare capacity — At 3.8% YoY growth in 7M10, Semen Gresik Group’s cement volume was the lowest amongst its main peers as it continued to lose market share due to its limited spare capacity.

Credis Suisse Asia Equity Focus Fed move on quantitative easing supports Asian equities

Buy on dips as the Fed sticks to easy monetary policy and quantitative
easing
US equities recovered from day-lows to close at less than 1% lower yesterday after the Federal Open Market Committee (FOMC) issued a very dovish statement and announced plans to reinvest proceeds from maturing mortgage-backed securities (MBS) into longer-dated US Treasuries. Technically speaking, the Fed decision is not quantitative easing as the central bank intends to keep the existing size of its huge balance sheet of USD 2.054 trillion at the current level. However, the market viewed the latest Fed move as opening the path for renewed quantitative easing later this year if the Fed sees US economic growth stalling in the coming months. But the equity rebound was capped by the Fed's more cautious economic guidance that suggested the pace of economic recovery is likely to be more modest in the near term than had been anticipated. Given its more cautious growth outlook, the Fed reiterated its intention to leave interest rates at close to zero for an extended period in line with market expectations.

According to our Global Economics Team, it is unlikely the Fed will substantially increase the size of its balance sheet because the US economy is expanding albeit gradually and the banking system is on a much better footing than before. Furthermore, bond yields and mortgage rates are already very low and it is unclear whether further expansion would bring about more benefits at the margin. According to Bloomberg reports, the related MBS principal payments and maturing debt will total only about USD 150 bn to USD 190 bn over the next 12 months. While we do not expect the Fed to take more aggressive quantitative easing measures at this point, the latest Fed action may fuel market expectations for renewed quantitative easing later this year.

In our view, accommodative monetary policy and quantitative easing should provide further support for risky assets in H2 2010. Low US yields, re-widening of the US trade deficit and rising expectations for quantitative easing are all bearish for the USD. We see more signs of a long-term top of the USD and expect renewed weakness in the USD will drive global asset reallocation into non-USD assets and risky assets. With the benchmark US 10-year bond yield falling to a 14-month low of less than 2.75%, investors are encouraged to shift assets from government bonds into equities where free cashflow yield is standing at 6.8%. We believe the Cycle Clock, valuations and earnings cycle remain supportive of equities and recommend strategic investors progressively add equity exposure to rebuild their overweight positions on any short-term dips. With receding sovereign debt concerns after the European bank stress tests and fading fears of China tightening on increasing signs of a soft landing, we reiterate our overweight strategic position on Asian equities against the region's positive fundamental outlook.

Credit Suisse COAL SECTOR: Watch for coal crisis in India – Buy UNTR/ADRO/ITMG

Indonesia steam coal exports prospect have been based on structural demand growth from China, India and Domestic Power Plant, and this Report is addressing India import shortage as soon as 2 years from now! CS is assuming average benchmark thermal coal prices of US$95/t 2010F (in line with NEWC weekly spot FOB $93.10/t as of August 6th), $100/t 2011F, $90/t 2012F, $85/t 2013F and $80/t 2014F onwards. Our Top Picks in coal sectors and Indonesia market are UNTR, ADRO and ITMG!

· India Coal Research Team (Report attached): We forecast acute coal shortages in India very soon. Coal demand in India is expected to grow by 1.2 bn tonnes per annum over the next ten years. With Coal India planning to add only ~300 mn tpa in supply, domestic captive mining and imports will need to rise to bridge the gap. We expect both to increase sharply, but not enough, leaving India short of coal as soon as two years from now.

· Constraints in captive mining as well as imports. Captive mining is growing rapidly, but the ~350mn tpa addition we expect by FY20 will be far short of the 800 mn tpa needed. In addition to delays in environmental clearances and land acquisition, and the .go. versus .no go. debate, 90% of the allocated coal blocks being in four Naxalite affected states is likely to hurt. Imports would thus need to be ~500mn tpa: an impossible target given limited port capacity and infrastructure to move coal to power plants, which are mostly located away from the coast

CLSA Cement sector update , from Nick Cashmore, dissecting cement sector 1H10 results

We have been asked why cement companies here make so much money? Indonesia is spread over 17,000 islands of which is 13,000 is inhabited. Imagine trying to distribute goods over this vast area where infrastructure is mostly primitive. Whoever that has established distribution network will have a huge advantage as the barriers to replicate network is very high.

The big three players here control 90%+ market share and each operate in their own region. With cement consumption still one of the lowest in the region, the secular growth story is still very much intact. However, in the short term, cost has been going up (mainly electricity) and new capacity coming online, margins might under a little pressure.

In Nicks piece today, he examined the 1H results on a per tonne basis.

Indocement is generating US$27 net profit on every tonne
Semen Gresik generates US$21 net income per tonne
Holcim Indonesia currently generates only US$13 per

Indocement is the lowest cost and most profitable operator. INTP and especially Holcim offer the most operating leverage until 2012.

DBS Regional Plantation: Beware of demand weakness

July production volume was slightly below forecast but exports beat expectations, growing 1.8% m-o-m
But demand could worsen on tight discount to soybean oil price ahead of Eid and Deepavali festivities
Top picks remain Sampoerna A., KLK, First R., IndoAgri and Wilmar

Higher volume, but still lower than expected. MPOB's July data pointed to a 7% m-o-m increase in production to 1.519m MT - in line with the seasonal trend. This was slightly below our forecast of 1.573m MT, largely due to what we believe is lingering tree stress due to drought earlier in the year. We expect production to continue its seasonal trend next month with softer growth of 3.8% m-o-m because of the Ramadan fasting month.

Strong export growth in July, but expect decline in August. July exports grew more than expected at +1.8% m-o-m vis-à-vis our expectation of -15.7% m-o-m. This was mainly led by exports to the EU, Pakistan, and India, which grew 22.8%, 21.3%, and 53.2%, respectively. Despite the strong data, we caution against over-optimism. We believe demand could shift to soybean oil, as CPO prices are expected to trade at meager discounts. We forecast August exports will decline by 11% m-o-m to 1.301m MT.

Pressure in 4Q10? We note that landed price of degummed soybean oil and palm olein differed by only Rs500/MT as at 6 Aug 2010, while palm oil refining margins have also lagged significantly behind soybean crushing margins, which indicate preference for soybean crushing. Our previous expectation of flat prices was overshadowed by unfavourable weather in Canada and Russia, which pushed prices of most soft commodities higher.

Nevertheless, at current prices, supply of soybean oil should continue to pick up on stronger margins and large soybean inventories. Soybean prices should ease further due to the still favourable outlook for US harvest this year.

Near term strength We believe palm oil prices will remain strong in the near term, as supply constraint arising from flat production volume over the next two months will persist due to the fasting month of Ramadan and Eid festival. However given the recent run, we believe plantation stock prices could have resistance near our TP's, on supply recovery in 4Q10. We also expect FY11F CPO to average RM2,470 on FFB yield recovery. Our top volume plays remain First Resources, IndoAgri, KL Kepong, Sampoerna Agro and Wilmar.

CIMB Quick Takes – Astra International – Sweet July

Outperform and sum-of-the-parts target price of Rp55,200 maintained. July auto wholesales charted new highs, with preliminary data suggesting the sale of 699.3k and 72.4k motorcycles and cars respectively, +18% and +76% yoy, in 7M10. Low interest rates, plentiful credit and buoyant consumer confidence aside, July was boosted by a successful motor show and the high season leading to festivities in August/September. While the momentum remains strong, a more hawkish tone from the central bank following high July inflation may have repercussions on financing over the next few months. This is the main reason we are maintaining our forecasts, though we see upside to car sales (we deem motorcycle sales to be in line). We expect stock catalysts from strong retail sales and under-control inflation over the next two months.

Mansek Indotambang :1H10 net income 46.8%of our FY10F,and 41.7%of consensus (ITMG, Rp38,800,Neutral,TP: Rp34,920)

1H10 achievements was 46.8%of our FY10 net income estimate.Despite stronger operating margin in 2Q10 (25.6%)Vs 1Q10 of 22.9%,derivative losses of US$13.4mn eased the gain,with 2Q net income equally match the achievement of 1Q10.ITMG has contracted 18.4Mt of their coal,with revenue of US$1.34bn and ASP of 72.8/ton.Another 14%is contracted priced to index-linked,and 6%spot.The contracted volume was 81%of our forecast and 82.7%of nominal value.Our FY10 volume assumption is 22.7Mt with ASP of US$71.7/ton.At Rp38,800,ITMG is trading at 16.4x,and 13.6x PER10F and PER11F,respectively,with EV/EBITDA10F and 11F of 8.7x and 7.0x respectively.

Mansek ELTY started disbursing Right Issue fund (ELTY,Rp116,Buy,TP:Rp136)

Following the completed Right Issue transaction process,it is reported by Kontan today that ELTY has started running its corporate action using proceed generated from the transaction.Although the company declined giving detail comment, Nuzirman Nurdin,company ’s corporate secretary,confirms that ELTY has started disbursing the proceeds,which one of them purposed for financing its 51%acquisition of Bukit Jonggol area of land.As reported earlier,ELTY raises Rp1tn fund through Right Issue to take equity part in Bukit Jonggol,which the remaining balance of Rp900bn covered through 1 year loans from investment company,Sociate Strasbrough (SS),with interest 24%.

The switching inclusion structure of SS in the transaction to interest loan from initially profit sharing scheme leaves further burden on ELTY ’s P&L,besides capitalized interest of loans purposed for Kanci Pejagan toll project which come into realization this year.

We are reviewing our forecast on ELTY,the stock currently trades at 71%discount to NAV10 and PE10 69.8x.This added interest expense would worsen earnings pressure as well as pose a tighter cash flow ELTY considering it could face a Rp400bn interest expense payment (inclusive of the SS loan)while cash is only about less than Rp600bn currently.

Mansek Cement sector:7M10 growth slows down to 10.7%yoy (Neutral)

7M10 domestic sales volumes only grew by 10.7%yoy compared with 1H10 of 11.5%yoy.It was due to flat July ’10 sales compared with July ’09.This was mainly due to slower demand growth in Java to only 9.8%yoy cumulatively from 17.2%yoy in 1Q10.Such slowdown also happened in outer Java. Cement producers blamed prolonged rainy season combined with lower realization of government project as the main reason behind it.

Meanwhile,export figure remains low in 7M10 (-37.0%yoy),suggesting that domestic demand is still there and margin could be maintained or even slightly better.

Among the 3 biggest cement producers in the country,Holcim Indonesia posted the highest growth of 18.2%yoy,followed by Indocement of 15.2% yoy and Semen Gresik of only 3.8%yoy.

UOB KLBF More upsides in 2H10, TP IDR 2850

What’s New
Management has turned more bullish. We recently upgraded 2010 EPS by 2.4% to Rp130 following good 1H10 results, putting ourselvesat 3.2% above consensus. Recent management guidance has turnedout to be more bullish than our forecasts, with Kalbe Farma (KLBF)raising its 2010 EPS guidance by 4.0-7.7% to Rp130-140. Aside fromnew product launches and geographical expansion, this could mostly bedriven by more optimism over margins in the light of a strong rupiah and operational improvements, as management has also raised its 2010operating margin expectations from 17.0-17.5% to 17.5-18.5%.

What are potential new sources of growth? Potential new growthdrivers are generic drugs for the prescription pharmaceutical segment, herbal products for the consumer health segment, and medicalequipment for the distribution segment. A new generic drug factory inCikarang will be fully operational by mid-11, which will support growing demand, as new regulations require the use of generic drugs ingovernment healthcare facilities. KLBF has also launched seven newherbal products to capitalise on the growing industry trend.

Expanding to Vietnam and Nigeria. KLBF plans to expand to Vietnam and Nigeria under a JV in 2011 with local companies. KLBF will marketthe “Extra Joss” RTD energy drink product in both countries. Generic drugs will also be marketed in Nigeria.

TheraCim to be commercialised next year. Management expects itsTheraCim cancer therapy product to be commercialised in 2011. Theproduct is undergoing clinical trials in the US for approval by the Foodsand Drugs Administration (FDA).

Stock Impact
Potential positive surprises to our 2010 forecasts. Management’s new 2010 EPS guidance of Rp130-140 denotes positive surprise of 7.3% to our estimate of Rp130, or 11.2% to consensus. Although ourvaluation is based on 2011F EPS, there could also be potential upsidenext year if 2H10’s actual performance beats our estimates.

Strong rupiah performance will enrich margins. The rupiah hasappreciated by 4.6% ytd against the US dollar, which would benefitKLBF as it imports 90% of its raw materials (32% of COGS). For every1% appreciation in the rupiah against the US dollar, 2010-11F EPS would increase 0.8%.

Earnings Revision/Risk
No change.

Valuation/Recommendation
Maintain BUY and our target price of Rp2,850 based on 18.0x 2011F PE.The stock is now trading at 15.0x 2011F PE. On a PEG basis, current valuation is also attractive as the stock is now trading at 0.9x PEG, belowits five-year historical PEG of 1.1x.

Share Price Catalyst
Acquisition plans materialise.

DBS Bank Rakyat Indonesia: Buy; Rp9,550; TP Rp11,100; BBRI IJ

Intensifying banking services in Ramadhan
Bank Rakyat Indonesia recorded an increase in remittance transactions from Indonesian migrant workers during the last two months approaching Ramadhan. Up to end of June, BBRI remittance business has reach record amount of IDR 1.3t with major sources from migrant workers in Saudi Arabia and Malaysia . BBRI hopes to secure IDR 2 - 3t from remittance which represent 67% growth from last year achievement of IDR 1.8t. SME loans are also seeing double-digit growth of 20-22% equivalent with total credit of IDR 2 tr. Many SMEs are intensifying their businesses during fasting month up to end of the year. In anticipation of holiday weeks, BBRI has topped up cash of additional IDR 13.6tr, up 20% from last year sum. BBRI anticipated total cash required for this month is IDR 28.6tr, thus BBRI plans to deploy more ATMs to reach 5,100 units until mid of September 2010.

JPM Europe equity strategy: bullish on EU, Emerging Markets, Metals - Mining (Mislav Matejka)

Europe is smartly reversing its underperformance vs. the US from the early part of the year. Since May it is outperforming the US by 7% in local currency and 13% in common. We think there is more to go as:

1 - The sovereign stress is steadily diminishing.

2 - European activity remains very resilient.

3 - European financials are starting to outperform.

4 - European equities are cheap on 10.7x Fwd P/E.

We reiterate our recent re-entry into EM exposure and expect EM growth/inflation tradeoff to improve in H2. We think the first signs of a turn in Chinese policy stance towards being more market friendly are here. The 7-day repo rate has halved to 1.65% following RMB 915bn liquidity injection since May. We continue to see Metals&Mining as the main beneficiary of a lift in sentiment toward EM.

JPM Global Mining Research Team All about metals and mining

Michael Gambardela (North America Metals & Mining) – Steel (stock) momentum turning positive. Macro headwinds show signs of abating. Concerns surrounding a stronger dollar and a slowing Chinese economy sent investors into a steel stock selling frenzy over the last two months. In addition, investors pointed toward declining Chinese prices of iron ore and steel to support their bearish views on U.S. steel stocks. On July 6th, the Wall Street Journal published a front page story about steel prices declining that

appeared to top-tick the market's bearish concerns. In our view, the market momentum is turning from ultra-bearish to bullish and recently hit an inflection point. Fears about a strengthening U.S.-dollar, a major headwind for steel and material stocks, has faded as the dollar actually declined 8% against the Euro to $1.29 after many had proclaimed that the dollar was headed to parity just six weeks ago. Recently, the market appears to be anticipating that China’s government is actually moving closer to easing and re-stimulating growth instead of continuing its tightening policies. As a result, we think the two biggest macro headwinds for steel (and materials) stocks appear to be fading.

Key steel leading indicators recently turn positive. In the past week, Chinese iron ore prices have risen 8% while Chinese steel prices have increased for the first time in two months. Scrap prices in Turkey, a major global buyer, have also been moving up recently. In our opinion, the macro and industry-specific pressures dragging steel stocks down over the past two months are now turning positive.

Nathan Zibilich (China Metals & Mining) – believes the Chinese steel industry is at a positive inflection point as 40% of the mills have cut production, and both macro and targeted economic policies that have hurt steel demand appear to be on the verge of abating or possibly reversing, which we believe will help demand. After a very painful 1H10, as elevated iron ore prices, macro tightening policies and measures targeted at the property sector in China have left many steel industry executives (and investors) feeling like they have been trapped inside the aforementioned medieval torture device (please see China Metals & Mining March 9, 2010), we believe China’s steel industry, like a trooper, is ready to storm back. Today, he assumes coverage of Maanshan Iron & Steel (O/W), Baoshan Iron & Steel (O/W), and Angang Steel Company Limited (Neutral).

Michael Jansen (Commodity analyst: metals) – In short, what the Global PMI (and associated commodity markets) have been telling us for some months continued in July; strong but softening core demand for commodities in EM has been more than offset by restocking and improving demand in the DM. In July, EM continued to soften, while DM stayed robust (and even strengthened in Europe). But Europe is not the focal point for commodity consumption growth in the medium term, it is EM countries that are driving above-long term average commodity consumption growth rates and it is these countries right now that are showing the most significant softening in implied demand, albeit from very strong levels. As such, the recent 20% plus rally in industrial metals prices looks from a pure macro perspective as moderately vulnerable on the demand side. We could and should expect base metals to gradually “rollover” in the weeks ahead.

Nickel is trading around $21,500-$22,000 currently, having broken through the $18k-$20k range that was in play over most of June and July. Overall we see the end of the Vale Sudbury strike as quite bearish for nickel but refined units are unlikely to come through en masse until Q4. That said, the consistent trend lower in LME nickel stocks over this year has drawn to a close, with total inventories rising from a low of 116kmt to around 118kmt currently. By year end we expect to see nickel stocks on LME higher, but sideways movement in the level of nickel stocks may be seen yet for a few more weeks. Moves in nickel above $22k-$24k are likely clear selling opportunities.

JPM Indo: metals - mining talk, buy ANTM (and INCO)

* LME base metal futures closed mostly higher. Nickel rallied 3.2%. A break-out event for the technicians out there.

* Michael Gambardela (North America Metals & Mining) – Steel (stock) momentum turning positive. The market momentum is turning from ultra-bearish to bullish and recently hit an inflection point.

* Nathan Zibilich (China Metals & Mining) – We believe China’s steel industry, like a trooper, is ready to storm back. The Chinese steel industry is at a positive inflection point as 40% of the mills have cut production.

* JPMorgan Europe strategist Mislav Matejka – We think the first signs of a turn in Chinese policy stance towards being more market friendly are here. The 7-day repo rate has halved to 1.65% following RMB 915bn liquidity injection since May. We continue to see Metals&Mining as the main beneficiary of a lift in sentiment toward EM.

* A strong economic report in Germany kick started a day of solid gains for U.S. equities however the upside was held in check as investors appeared hesitant to take positions before tonight’s FOMC meeting and the potential launch of [the] “QEII.”

A Cup of Tea 11 Aug'10

We think that since 26 July ‘10 we already discussed the potential increase in CPO prices. Our reason for that moment is the potential decrease in production yield due to La Nina, biological yield stress caused by dry weather earlier this year hurt production and demand for Ramadan and Idul Fitri Festival.

Yesterday CPO price hit record high for 15 month at 2730 RM. Demand surge sharply from both local and foreign. Demand on physical market from Pakistan and India inspiring buyer. CPO prices have rise up to 16.5% from the lowest point in June '10.

This will continue?
I don’t think so, now with recent moderate rain in several oil-palm growing regions likely to boost yields in the future. Demand on physical market both from local and foreign will slide before Idul Fitri Festival.

From latest data showed that CPO export for Malaysia down on MoM basis. Surveyor SGS (Malaysia) Bhd. estimated Aug. 1-10 exports at 395,186 tons, down 14% on month, while Intertek Agri Services put the figure at 392,185 tons, down 17% on month. The government-linked Malaysian Palm Oil Board said end-July palm inventory fell 3% to 1.41 million tons vs market expected fell down 4.2%, output rose 7% on month to 1.52 million tons vs market expected rose 2.1%. July exports rose 1.8% from the previous month to 1.47 million tons vs market expected 5.5%.

Prices may fall further amid rising production in August. Palm oil may tumble by as much as 8 percent this month as the commodity is “extremely overbought”. I think the CPO Futures may decline to a range of 2430-2570 RM level after Idul Fitri Festival.

Are we still bullish on CPO Shares?
Yes, absolutely. On the long run we still believe demand will pick up again. World economic getting better, this can cause an increased purchasing power. Palm oil may climb to 3,000 RM by end of October. China may step up purchases of palm oil ahead of the Mid-Autumn Festival in mid-September. But for the short term view we think we will reduce CPO shares for a while and enter again after the correction.

INCO
INCO results were above consensus expectation on higher nickel-in-matte deliveries and expanded margin. Higher net profit was mainly attributing able to: higher revenue (+42.3% qoq) and margin improvement. Net profit yoy increased tremendously to US$218.8m (+533% yoy) in 1H10from only US$34.6m in 1H09. Quarterly revenue jumped on the back of: strong average selling price (up 28% qoq) and higher nickel-in-matte deliveries up 11%qoq. Margin expanded on lower fuel consumption. The completion of a third hydroelectric power generating plant at Karebbe by 2H11 is expected to reduce the company’s energy cost.

Nickel is a critical ingredient in the production of stainless steel and industrial alloys - the demand for nickel rises directly in step with the growth of emerging economies. The latest International Stainless Steel Forum (ISSF) production data suggests that the nickel market will remain in deficit for 2010 and 2011. The nickel production and sales of China nickel industry keeps growing, with the supply falling short of market demand.

I will continue to Buy on Lower recommendation on INCO for better return.

Our Market
I think JSX will trade slightly lower due the negative sentiment from region but consolidation mode still intact. Fundamentally, the stock market looks strong. But we will see profit-taking here and there. JSX between 3003-3067 level.

TOP PICK: ASII, TLKM, INCO, TINS, BBRI, LSIP and BJBR

MPPA Interesting

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.

Mansek ASII: Challenge to maintain current pace of growth

Rolling over to 2011, our TP is set at Rp58,000/share. 1H10 results were expected, except for a minor hiccup in UNTR. Our revised target price poses a more moderate upside, taking into consideration (a) next year’s rate of vehicle growth may not be as high, considering a record year for 2010, (b) inflation concerns which could dr! ive inter est rates up and (c) lingering potential tax changes which could result in higher car prices in 2011. At our revised TP of Rp58,000/share, the stock trades at PER11F of 16.9x.

1H10, within confines of expectations. Except for UNTR’s slight mistep on the mining contracting side (1-week work stoppage for Pama’s overburden activities in the Kideco mine site, which did not affect the mine’s production) and sloppy weather in 2Q, which was compensated by a 10% qoq rise in car sales in 2Q, 1H10 net income of Rp6.4tn (+52%yoy) was in line with ours and consensus projections, representing about 55% and! 52% of f ull-year earnings forecasts.

Could a 700k domestic demand market for cars be sustained? Judging on the 70k initial domestic sales number for the month of July, this brings cumulative 7M10 to some 442k units (+75%yoy). Thus, car sales could be very well headed to breaching the 700k unit by year end; a historic high. However, with vehicle tax changes in the horizon as well as rising inflation pressures, we think a moderated 10% growth rate in vehicl! e sales t o some 750k would be more reasonable for 2011. On motorcyles, initial numbers showed 7M10 sales of 4.3mn(+39%yoy, 67% of FY10F), with Astra’s Honda locking in a tight competition with Yamaha with market share of 46%, just slightly higher than Yamaha’s 45%.

Rolling over to 2011 valuations with a TP of Rp58,000/share. Our sum-of-the parts valuation shows a TP of Rp58,000/share. Earning uplifts for FY10-11F of 8.1% and 3.3% from previous forecast have been effected due to (a) higher vehicle sales assumptions for FY10-11 as well as better earnings outlook for its non-auto segments. Currenty the stock trades at PER11F of 14.2x. Maintain buy.

JPM INCO and US steel stocks: correlation

On popular request, please find below the share price correlation between INCO and US steel stocks (X and AKS).

The chart display high correlation among those three names, with INCO taking the lead in a number of occassions.

Other than that, the three stocks tend to move together. JPMorgan's steel guru Michael Gambardela is seeing

possible inflection point in US steel stocks. If he is right, then INCO may offer attractive upside potential.

CLSA oodles of noodles

As an analyst (Swati here), it is not easy to justify a big earnings downgrade/upgrade based on big volatile movement in input cost. She is not making any macro calls on global commodity prices. Best she can do is perhaps use current spot price (In Indofoods case, wheat and flour) in her forecast. Still she decided to be a little generous based (Wheat prices now already 30% higher than our forecasts) on the prospects of a strengthening Rupiah and that recent surge in soft commodity prices is only spike.

However, the uptrend here of commodities look more like a structural than cyclical issue. Not only global grain inventory is still very low in a historical context, rising prices is also a side effect of inflation. This is a structural issue. It is also true that I’d rather be a stock broker than a farmer. No one that I know wants to be a farmer. At the same time, Asians’ diets are quickly catching up to those of the developed country (very bullish for soft commodity prices). Not to mention water table is declining rapidly in the agricultural regions.

In the short to medium term, wheat price is the most at risk. Russia is experiencing its worst drought since record began (130 years ago). Farmers harvest yields were 2.22 tons per hectare, down from 2.78 tons last year. In the central federal district, wheat yields are averaging only 1.81 tons per hectare, down from 3.13 tons last year. Russia’s grain exports may fall as low as 11 million tons in the marketing year that began July 1, down from 21.5 million tons last year.

Drought and extremely hot weather have also negatively impacted wheat production in Ukraine, western Europe, and Kazakhstan. Below average rainfall last month in western Australia is also threatening wheat production in the region.

In Canada, world’s second largest wheat exporter, prospects for wheat production have also been diminished, due to excessive which is now expected to harvest 17% less than a year earlier.

Rising wheat price is negative for Indofood. Last time when wheat prices surged, their noodle business EBIT margin got compressed to only 1% (our assumption still at 13%)

I will be a seller of Indofood and buyer of London Sumatra and Gozco

CLSA Indofood (INDF IJ) downgrade to UPF

Swati downgrades Indofood (INDF IJ) to Underperform (from Outperform), keeping her TP at Rp4200. The stock has gained 140% since we initiated with a conviction BUY in June 2009.

Reasons for the downgrade:
· No upside to our target price.
· INDF will spin off its consumer branded business (= 40% of its operating profits). INDF will likely have a holding company discount.
· Sensitivity analysis: profits to reduce by 3-4% for next year as lower interest expense will not compensate for increase in minority interest.
· Wheat prices are already 30% higher than our forecasts. Pass through in higher costs will temporary affect volumes.

We think Swati is still on the generous side. She is still assuming noodle EBIT margins to stay around 13% (despite wheat makes up about 30% of noodle COGS) and noodle volumes still growing 3-4% p.a. for the next two years. Despite this fact, Swati’s numbers are still 5% below consensus this year and 2011. Is consensus still too bullish? Risk is clearly on the downside, in our view.

In term of the SOTP, Swati already assigned 21.5x 10 CL PER for consumer branded product business. NAV/share is Rp4200, suggesting very little upside.

We prefer to go long soft commodity names and reduce consumer names that rely on soft commodity inputs. Switch out of INDF to London Sumatra (LSIP IJ) and Indofood Agri (IFAR IJ).

Deutsche Indonesia Strategy - Ripple amid a rising tidal wave

Too trivial to stand in the way of the market rally
A market that outperformed regionally in almost eight consecutive years is not going to be derailed by a case of higher chili or rice prices. We believe that is too trivial and missing the structural change in a country that is breaking out of a lost decade. We remain very positive on the market and reiterate that our almost year-old 3,333 index target is at risk of upward revision. See Figure 1 for our top-picks.

Not to outsmart weathermen
We believe the recent concern over inflation was exaggerated and misplaced. We are not in the business to beat the weatherman, but a recent increase in food prices is cyclical and weather related, though prices may remain high into the festive season, in our view. Let us not lose sight of the bigger picture because inflation is heading towards a structurally benign inflation environment for two important reasons.

Structurally lower inflation
Sustaining a stable to strong rupiah: for BI to sell more than US$27bn of rupiah in the past one and half years speaks volumes for the direction of the rupiah. Capital inflow would only increase further as the country’s sovereign rating moves into investment grade. Also, the supply-side expansion is responding to rising demand, rather than singularly through a price hike during the lost decade. As it is, inflation is running close to half the level from that period.

Further lending rates decline: Credit infusion growth to be sustained
Regardless of BI’s interest rates policy, lending rates will likely continue to decline. Competition dynamics among banks for lending is far more influential than a marginal increase in policy rates. Indeed, our bank's analyst also noted the lag in lending rates decline such that interest rates differential between lending rates and SBI are near a five-year high of c.7.0% for working capital, c.9.0% for consumer and c.6.3% for investment loans. As such, we believe the sustained easy-credit environment, being the single biggest driver of the economy, remains very conducive to facilitating the economy to double again over the next five years.

Danareksa Gajah Tunggal Positive Margins Surprise

Maintain BUY, TP upped to Rp2,080
We maintain our BUY recommendation on GJTL with the TP raised to Rp 2,080, implying 9.2x-7.7x 10F-11F PE. Our 10F-11F earnings estimates are raised 34%-33% respectively on the back of higher-than-expected gross margins in 1H10 and our belief that the company can maintain this higher gross margin going forward. The sales outlook is bright, with increasing orders coming from Michelin. Also, the company’s expansion plans will help it to meet the increasing demand. The stock is currently trading at an attractive valuation of 10F-11F PE of 6.1x-5.1x. BUY maintained.

The 2Q10 gross margin beats our expectations
The 1H10 results are above our expectations. The gross margin expanded to 21.3% in 2Q10 from 19.9% in 1Q10 thanks to a higher portion of ultra high performance tires in the total revenues. As a result, the 1H10 gross profits were 59% of our full year forecast. As for operating expenses, the 1H10 operating expenses were 45% of our full year forecast. However, this is still in line with our forecast (note that the first half operating expenses were around 46% of the full year operating expenses over the last 5 years on average). Net gearing also improved. It fell to 109% at end-June 2010 from 121% at end-2009.

The rubber price continued to decline
The rubber price continued to decline. By the end of July 2010, the Bangkok RSS 3 rubber price had fallen to US$ 3.2/kg, or 21% off its peak in late-April 2010. As natural rubber accounted for around 27% of the production costs, the pressures on gross margins should ease in the second half of the year. Our sensitivity analysis shows that for every 5% decline in the natural rubber price, the gross margin should increase by around 110 bps (ceteris paribus).

We upgrade our gross margin estimates
We upgrade our 2010-11 gross margin estimates to 20.8% - 20.9% respectively from 17.9%-18.1% previously. To arrive at our new 2010 gross margin estimate, we incorporate the 1H10 gross margin into our forecast and assume 2.5% higher ASP in 2H10 (compared to 1H10’s ASP) and that the natural rubber price in 2H10 is 8.3% higher than in 1H10 (this takes into account the 67 days time-lag in inventory). At the same time, we also raise our 2010 sales volume estimate for the radial, bias and motorcycle tires to 10.2 mn, 4.1 mn, and 19.7 mn, respectively, and lower our 2010 ASP estimates for radial, bias and motorcycle tires by 13.5%, 1.6%, and 4.6% respectively. All in all, there is little change in our total 2010 revenues estimate.

Mansek Bank Negara Indonesia:Unappreciated progress (BBNI,Rp3,000,Buy,TP: Rp3,500)

We reiterate our buy call on Bank Negara Indonesia (BNI)for four reasons (1)improved profitability (2)better asset quality (3)stronger management team and (4)cheap valuation.Furthermore,what has been less appreciated from this bank,in our view,is its strong determination to improve asset quality through better organization structure.

BNI ’s ROAE improved from 7.3%in 2008 to 20.3%in 1H10,supported by strong loan growth and improvement in CASA proportion.

Even though NPL from the medium segment will remain a challenge,we noticed management ’s serious efforts to deal with this issue by reducing loan growth and tightening monitoring practices.In addition to that,it is also worth to see the bank ’ s improved loan yield and coverage ratio.This should help cushion the negative impact from further deterioration on its asset quality,in our view.

The new addition to the BOD is expected to strengthen the bank ’s performance going forward.Two of the new BOD members were tapped from outside the bank (Honggo Widjojo Kangmasto and Darmadi Sutanto), while the remaining two are from inside the state-owned lender (Sutanto and Adi Setianto).In addition,the bank also introduced new role in its organization called Chief Business Risk Officer (CBRO)who will deal with business risks (related to loans)and loan remedial and recovery.

At the current price,BNI is trading at 2011F P/BV of 1.8x and PER of 8.6x,far below the averages of banks under our coverage of 2.7x and 11.6x, respectively.We still believe such discount is unwarranted for the bank; hence our buy call on the counter remains.

Citigroup Asia ex-Japan Strategy - Torn in the USA

 Confusion and lack of conviction reign — The most common question during our recent meetings with US investors was "What are all the others doing and thinking?”. The second year of a recovery is always similar. Fears of a return to recession linger, which is why PE multiples contract. It has been no different thus far.

 Main driver in Year 2 is earnings — Out of the lows, the market rewards value. Multiples expand and now the market looks for confirmation of the recovery. This happens through earnings, with upward EPS revisions and rising margin forecasts what the market rewards. Again it is no different this time. Unlike the recovery year and final year, market returns are much more subdued in Year 2.

 The consumer space and ASEAN are well held — The consumer space is now on 2.7x book and also appears rich at 3 st. dev. vs. the market on an EV to sales basis. Better value and less crowded consumer proxies are banks and real estate. In ASEAN, Indonesia is a hot favorite for both equity and fixed income investors.

JPM Europe strategist Mislav: bullish on EU, Emerging Markets, Metals - mining + Agri

Europe is smartly reversing its underperformance vs. the US from the early part of the year. Since May it is outperforming the US by 7% in local currency and 13% in common. We think there is more to go as:
1 - The sovereign stress is steadily diminishing.
2 - European activity remains very resilient.
3 - European financials are starting to outperform.
4 - European equities are cheap on 10.7x Fwd P/E.

We reiterate our recent re-entry into EM exposure and expect EM growth/inflation tradeoff to improve in H2. We think the first signs of a turn in Chinese policy stance towards being more market friendly are here. The 7-day repo rate has halved to 1.65% following RMB 915bn liquidity injection since May. We continue to see Metals&Mining as the main beneficiary of a lift in sentiment toward EM.

My take: if Mislav's scenario plays-out, the key picks for Indonesia outside of banks & consumer space would be
(1) Aneka Tambang
(2) Medco Energi
(3) London Sumatera
(4) Indika Energi

Indopremier Weekly Economic Update

Global Economy

Economy of the United States expanded at quarter-on-quarter seasonally adjusted annualized rate of 2.4% in three months ended June 2010, the lowest in three quarters.

Euro area's retail sales in June 2010 amounted the same as in previous month whereas those of 27-member European Union advanced at slower pace. the European Central Bank and the Bank of England kept its policy rates unchanged.

Australia's central bank maintained its policy rate at 4.5% given calmed financial markets, possible close-to-trend output growth, and on-target inflation.


Indonesia Economy

Consumer confidence index dropped the most in almost five years as perseptions about income, employment, inflation, and saving worsened.

The central bank is mulling redenomination, i.e. a simplification of the written value of goods and services as well as the written value of payment instruments.

Gross domestic product rose 6.2% annually (2.8% quarterly) in the second quarter of 2010, driven by surged consumption and investment.

Exports exceeded imports by US$ 580.3 million margin in June 2010, much lower than US$ 2.68 billion in May. Net exports amounted US$ 9.63 billion in the first half of this year, rising 10.76% from the same period in 2009.

Higher-than-expected inflation in raw food and transport groups led to month-on-month consumer prices gain of 1.57% in July 2010. On annual basis, consumer prices rose 6.22% last month, meaning a year-to-date inflation of 4.02%.

Bank Indonesia maintained the BI rate at 6.5% last week, making the reference rate stable for more than a year.

CLSA SMRA upgrades, TP Rp1250 (from Rp1150), maintain BUY

The new launching of Summarecon Agung (SMRA IJ) property is another confirmation of how strong Summarecon brand equity is.

It certainly helps that mortgage rate is low by Indonesian standard. Looking at the five (out of six) biggest mortgage lenders in this country, we are looking at 31% YoY mortgage growth in 1H10. Historically, around 60-70% of the property buyers at Summarecon Serpong site utilize mortgage.

When you combine strong brand equity and low mortgage rate, you are going to get some interesting result. SMRA’s launching of “The Springs” last weekend saw 97% of the units offered were sold within hours last Saturday (usually only corner plots left). The launching was the talk of the town over the weekend.

What is even more amazing is that each potential buyer apparently had to take their queue number a week before launching, paying Rp5mn for the queue number assigned. Each queue number holder had to specify 3 units that they intend buy (no guarantee not yet taken by those who got lower queue number). The point is: one should feel privileged and lucky to have a chance to buy a unit at SMRA launching. What a brand equity!!

The initial launch was 400 units with price starting from about Rp700mm (US$78k) per unit (implying land only price of Rp3mn or US$335/psm). Preliminary estimate is Rp300bn sales from this launch. The Springs is a 100ha residential development, for 5-6 years.

Our property analyst Sarina revised up marketing sales target (19%) for FY10 to Rp1.9tn from previously Rp1.6tn. We estimate SMRA has reached 78% of this new sales forecast YTD. The risk is clearly on the upside.

We also raised our TP to Rp1,250/sh. Maintain BUY.

Other key points from the report:
· Ramping up investment property. The investment assets continued to have strong performance in 1H10 with stable gross profit margin of 55%.
· Harris Hotel in Kelapa Gading started operation in May, currently at 70% occupancy.
· Serpong mall Phase 2 to start construction, and will open in July 2011. This adds 45,000sqm NLA to the existing 34,000sqm. SMRA had also increased rates for its malls through the increase in US$/Rp peg rate. Occupancy rates on the malls remain high, at 95%. Well-run malls + limited competition at the moment.
· Valuation: still attractive at 37% discount to NAV, it had traded at a premium historically. We raised our profit forecasts by 11-15% for FY11/12 on the back of higher sales expectations.
· We think there is still upside risk to our numbers given its strong momentum in sales.
· We also raised our TP to Rp1,250/sh. Maintain BUY.

Mansek Jasa Marga:site visit to Semarang-Ungaran toll road (JSMR,Rp2,600,Buy, TP:Rp3,200)

We visited Semarang-Ungaran (11.3Km)part of Semarang-Solo (75.7Km),on 5
Aug10,some key points are:

Land clearing has reached 100%and construction reached 90%.The toll is expected can be tested operationally on this Lebaran holiday and can be operating commercially in 4Q2010,in line with JSMR schedule.

Average traffic volume minimum for a toll road must reach 20,000 vehicles per day to meet the eligibility standards.

The company still in due diligence to acquire 2 new toll roads located in greater Jakarta,and has connecting with existing toll roads.JSMR allocated capex FY10 around Rp2.3tn.

We have Buy recommendation on JSMR,currently it trades at PER10F-11F of 13.3x and 11.7x,respectively.