BEIJING (Commodity Online): It seems there is no end to China’s appetite for metals. China’s economic health is robust and it is continuing with the metal buying spree. China’s imports of all metals rose in July with imports of refined lead in particular jumping by over 80 per cent compared with June, while refined zinc and nickel imports both surged by over 50 per cent.
Refined copper imports grew to 2,24,700 tonnes supported by tight scrap market and favourable domestic/LME price spread. Among precious metals, palladium imports jumped back up towards levels seen in the first quarter and even if vehicle sales slow, palladium demand should find support from the implementation of tighter emission legislation.
Across energy market, the picture was mixed with coal imports coming in rather strong, while crude inflows fell year-on-year for the first time since March 2009.
Refined copper imports by China, the largest consumer, gained for the first time in four months in July as traders profited from disparities between prices in London and Shanghai. Inbound shipments were 224,723 metric tons last month. That’s 6 percent higher than 211,957 tons in June and 23 percent less than 292,226 tons a year earlier, according to Bloomberg calculations.
The increase reflects demand for imports in May and June, when higher prices in Shanghai prompted arbitrage trade.
Copper stockpiles monitored by the Shanghai Futures Exchange declined to the lowest level in six months as of July 30. End-consumers drained local stocks after inbound shipments fell for three consecutive months since April.
Stockpiles monitored by the Shanghai exchange fell to 104,507 tons in the week ended July 30, the lowest since January, bourse data showed. Stocks stood at 110,371 tons as of Aug. 20, down 3.1 percent from a week earlier. LINK
Jumat, 27 Agustus 2010
Commodity Online Global crude steel output surges by 9.6% in July
MUMBAI (Commodity Online): Global crude steel production under World Steel Association surged by 9.6% in July to 115 million metric tons as compared to last year in the same period. World Steel Association (worldsteel) is comprised with 66 countries across the globe.
China's crude steel production for July 2010 was 51.7 mmt, an increase of 2.2% compared to July 2009.
Elsewhere in Asia, Japan produced 9.2 mmt of crude steel in July 2010, up 20.4% compared to the same month last year. South Korea's crude steel production for July 2010 was 4.8 mmt, 16.2% up compared to the same month last year.
In the EU, Germany's crude steel production for July 2010 was 3.5 mmt, an increase of 29.7% on July 2009. The UK produced 0.8 mmt, -5.8% less than the same month in 2009. Turkey produced 2.4 mmt of crude steel in July 2010, 1.3% higher than July 2009.
China's crude steel production for July 2010 was 51.7 mmt, an increase of 2.2% compared to July 2009.
Elsewhere in Asia, Japan produced 9.2 mmt of crude steel in July 2010, up 20.4% compared to the same month last year. South Korea's crude steel production for July 2010 was 4.8 mmt, 16.2% up compared to the same month last year.
In the EU, Germany's crude steel production for July 2010 was 3.5 mmt, an increase of 29.7% on July 2009. The UK produced 0.8 mmt, -5.8% less than the same month in 2009. Turkey produced 2.4 mmt of crude steel in July 2010, 1.3% higher than July 2009.
The Economic Times Base metals remain up on industrial demand, global cues
NEW DELHI: Copper and other base metal prices rose up to 5 per kg in the non-ferrous metal market today on continued buying by stockists on industrial demand amid firming trend at the London Metal Exchange.
Marketmen said increased buying by stockists driven by pick up in industrial demand and firming trend in global markets mainly pushed up base metal prices.
Meanwhile, copper for three-month delivery rose 1.8 per cent to USD 7,230, lead by 2.8 per cent to USD 2,015 and nickel by 1.8 per cent to USD 20,460 a metric tonne on the London Metal Exchange.
In the national capital, copper wire scrap, copper wire bar and copper mixed scrap remained in demand and added another 2 each to Rs 379, Rs 398 and Rs 359, while nickel (4x4) gained Rs 5 to Rs 903-907 per kg, respectively.
Lead ingot and lead imported were also higher by Rs 5 each to Rs 122 and Rs 125 per kg, respectively.
Following were today's quotations in Rs per kg: Tin ingot 795, zinc ingot 120.50, nickel plate (4x4) 903 -907, gun metal scrap 226 bell metal scrap 228, copper wire scrap 379, copper wire bar 398, copper mixed scrap 359.00, Utensil scrap 224, Chadripital 175.
Lead ingot 123, lead imported 125, aluminium ingots 100, sheet cutting 103, aluminium wire scrap 100 and aluminium utensils scrap 100. LINK
Marketmen said increased buying by stockists driven by pick up in industrial demand and firming trend in global markets mainly pushed up base metal prices.
Meanwhile, copper for three-month delivery rose 1.8 per cent to USD 7,230, lead by 2.8 per cent to USD 2,015 and nickel by 1.8 per cent to USD 20,460 a metric tonne on the London Metal Exchange.
In the national capital, copper wire scrap, copper wire bar and copper mixed scrap remained in demand and added another 2 each to Rs 379, Rs 398 and Rs 359, while nickel (4x4) gained Rs 5 to Rs 903-907 per kg, respectively.
Lead ingot and lead imported were also higher by Rs 5 each to Rs 122 and Rs 125 per kg, respectively.
Following were today's quotations in Rs per kg: Tin ingot 795, zinc ingot 120.50, nickel plate (4x4) 903 -907, gun metal scrap 226 bell metal scrap 228, copper wire scrap 379, copper wire bar 398, copper mixed scrap 359.00, Utensil scrap 224, Chadripital 175.
Lead ingot 123, lead imported 125, aluminium ingots 100, sheet cutting 103, aluminium wire scrap 100 and aluminium utensils scrap 100. LINK
PalmOilHQ Crude Palm Oil Rises 1.8% On Aggressive Short Covering, Soyoil
Crude palm oil futures on Malaysia’s derivatives exchange rose 1.8% Thursday, recovering from recent losses as investors covered shorts aggressively, taking cues from an increase in soyoil and crude oil futures ahead of a speech by a leading vegetable oils analyst.
Traders said expectations that Malaysia's palm oil exports for August may reach only 1.1 million-1.25 million tons, much lower than July's exports of 1.47 million tons, have been factored into prices.
"The slow pace of export shipments remains a dampener, but after three days of selling, investors are taking leads from external markets," a Kuala Lumpur-based executive at a global trading company said.
Demand in the physical market has been rather active today, and the possibility that vegetable oils analyst Dorab Mistry could give a bullish view of palm oil's supply-and-demand fundamentals later in the evening added to the bullish tone from the petroleum and soyoil markets, he said.
Some trade participants said the downside potential for prices is also limited because "the market is oversold and technical charts indicate prices may rebound to MYR2,600/ton in the next trading session," a Singapore-based trading executive said.
Traders said expectations that Malaysia's palm oil exports for August may reach only 1.1 million-1.25 million tons, much lower than July's exports of 1.47 million tons, have been factored into prices.
"The slow pace of export shipments remains a dampener, but after three days of selling, investors are taking leads from external markets," a Kuala Lumpur-based executive at a global trading company said.
Demand in the physical market has been rather active today, and the possibility that vegetable oils analyst Dorab Mistry could give a bullish view of palm oil's supply-and-demand fundamentals later in the evening added to the bullish tone from the petroleum and soyoil markets, he said.
Some trade participants said the downside potential for prices is also limited because "the market is oversold and technical charts indicate prices may rebound to MYR2,600/ton in the next trading session," a Singapore-based trading executive said.
Bloomberg Copper Advances Most in a Month as Economic Concerns Ease, Dollar Weakens, TIN surged 4.9 percent
Copper rose the most in a month as a bigger-than-forecast drop in U.S. jobless claims eased concern that the economic recovery is faltering.
Applications for unemployment benefits dropped last week for the first time in a month. The dollar fell as much as 0.8 percent against a basket of six major currencies, as demand for a haven eased. The Reuters/Jefferies CRB Index of 19 raw materials rebounded from a six-session slump. The U.S. is the world’s second-largest copper consumer, after China.
Today’s trading was “dominated by macro releases out of the U.S. with weekly initial claims figuring most prominently,” Edward Meir, an analyst at MF Global Holdings Ltd. in Darien, Connecticut, said today in a report.
‘More to Go’
“The bounce will have more to go,” especially if tomorrow’s readings on the U.S. economy “don’t blindside investors by coming in worse than expected,” MF Global’s Meir said.
A report from the Commerce Department may show gross domestic product grew at 1.4 percent in the second quarter, rather than the 2.4 percent annual rate calculated last month, according to the median forecast in a Bloomberg News survey of 81 economists.
Copper for delivery in three months jumped $203.50, or 2.9 percent, to $7,304.50 a metric ton ($3.32 a pound) on the LME.
Also in London, tin surged 4.9 percent to $21,350 a ton, the biggest gain since July 23.
Zinc rose 4.4 percent to $2,050 a ton while lead gained 3.3 percent to $2,025.50 a ton. For both metals, the advance was the biggest since Aug. 2. Aluminum and nickel also climbed. LINK
Applications for unemployment benefits dropped last week for the first time in a month. The dollar fell as much as 0.8 percent against a basket of six major currencies, as demand for a haven eased. The Reuters/Jefferies CRB Index of 19 raw materials rebounded from a six-session slump. The U.S. is the world’s second-largest copper consumer, after China.
Today’s trading was “dominated by macro releases out of the U.S. with weekly initial claims figuring most prominently,” Edward Meir, an analyst at MF Global Holdings Ltd. in Darien, Connecticut, said today in a report.
‘More to Go’
“The bounce will have more to go,” especially if tomorrow’s readings on the U.S. economy “don’t blindside investors by coming in worse than expected,” MF Global’s Meir said.
A report from the Commerce Department may show gross domestic product grew at 1.4 percent in the second quarter, rather than the 2.4 percent annual rate calculated last month, according to the median forecast in a Bloomberg News survey of 81 economists.
Copper for delivery in three months jumped $203.50, or 2.9 percent, to $7,304.50 a metric ton ($3.32 a pound) on the LME.
Also in London, tin surged 4.9 percent to $21,350 a ton, the biggest gain since July 23.
Zinc rose 4.4 percent to $2,050 a ton while lead gained 3.3 percent to $2,025.50 a ton. For both metals, the advance was the biggest since Aug. 2. Aluminum and nickel also climbed. LINK
The Wall Street Journal Coal Gets Burned By Low Gas Price
Fall in the Cost of One Resource Used to Fuel Power Plants Is a Drag on the Other
A slump in prices of natural-gas futures is having a knock-on effect in the U.S. coal market.
Gas prices have fallen so far, trading Wednesday at a five-month low of less than $4 a million British thermal units, that gas-powered plants are able to capture a bigger share of the market.
That is sapping demand for coal and driving down prices of Central Appalachian coal futures. The front-month contract settled at $60.05 a ton Wednesday on the New York Mercantile Exchange, down 15% since reaching a 20-month high of $70.87 a ton Aug. 5.
A slump in prices of natural-gas futures is having a knock-on effect in the U.S. coal market.
Gas prices have fallen so far, trading Wednesday at a five-month low of less than $4 a million British thermal units, that gas-powered plants are able to capture a bigger share of the market.
That is sapping demand for coal and driving down prices of Central Appalachian coal futures. The front-month contract settled at $60.05 a ton Wednesday on the New York Mercantile Exchange, down 15% since reaching a 20-month high of $70.87 a ton Aug. 5.
The Wall Street Journal Dow Dips Below 10,000 — Again
By Neil Shah
Third time’s a charm?
The Dow has slipped below the key 10,000 level for the third day this week, falling to 9991, with index heavyweights IBM, Chevron and 3M leading the way down.
The market, which picked up steam earlier Thursday after better-than-expected news on the U.S. labor market, dropped back following fresh hints of a slowdown in manufacturing.
But beware: As followers of Marketbeat know, the Dow has had a hard time lately following through on anything, whether it’s a leap higher, or a plunge downward.
And given that we’re deep in the dog days of August, few stocks are actually changing hands. Most folks are skiing or hiking. To give you a sense, we have only an hour and half of trading left, and just 2.4 billion shares have traded in New York Stock Exchange composite volume. The average volume so far this year is over 5 billion shares.
So don’t trust what the market is telling you.
Third time’s a charm?
The Dow has slipped below the key 10,000 level for the third day this week, falling to 9991, with index heavyweights IBM, Chevron and 3M leading the way down.
The market, which picked up steam earlier Thursday after better-than-expected news on the U.S. labor market, dropped back following fresh hints of a slowdown in manufacturing.
But beware: As followers of Marketbeat know, the Dow has had a hard time lately following through on anything, whether it’s a leap higher, or a plunge downward.
And given that we’re deep in the dog days of August, few stocks are actually changing hands. Most folks are skiing or hiking. To give you a sense, we have only an hour and half of trading left, and just 2.4 billion shares have traded in New York Stock Exchange composite volume. The average volume so far this year is over 5 billion shares.
So don’t trust what the market is telling you.
Credit Suisse: Research Weekly Asia Singapore property sector: Home demand supported by strong fundamentals
The real estate market in Singapore has recovered strongly after the 2008 financial crisis, as the strong economy and low interest rate environment are supportive of home demand. The country's population has risen at a CAGR of 4% over the past four years to 5 million, driven by the government's proimmigration policy. Despite the robust population growth, the unemployment rate remained a low 2.2% in Q2 2010 (source: Ministry of Manpower). Credit Suisse Private Banking forecasts GDP growth to reach 15.5% in FY 2010 and 8% in FY 2011, slightly above the guidance given by the government. In addition to its strategic geographical location and an open economy that has seen a return in demand for office space, efforts to inject momentum into the country with the two new integrated resorts are also paying dividends for the hospitality and retail real estate sectors.
Highlights
Private home demand is expected to be supported by high population growth, low
unemployment rate and interest rates.
The government is unlikely to introduce cooling measures in the near term, given
the moderation in home prices.
The stronger economy is also supportive of commercial office demand, while record
tourist arrivals are positive for the retail and hospitality sector.
S-REITs have the potential to remain market outperformers with their stable income stream and high yields.
Highlights
Private home demand is expected to be supported by high population growth, low
unemployment rate and interest rates.
The government is unlikely to introduce cooling measures in the near term, given
the moderation in home prices.
The stronger economy is also supportive of commercial office demand, while record
tourist arrivals are positive for the retail and hospitality sector.
S-REITs have the potential to remain market outperformers with their stable income stream and high yields.
Mandiri Sekuritas Economy: Aug10 CPI inflation and Jul10 trade preview
The statistical agency scheduled to announce the Aug10 inflation and Jul10 trade figure on next Wednesday (1/9). We expect inflation to reach 1.14% mom or 6.84% yoy in Aug10, higher than consensus estimate of 6.65% yoy. The impact of electricity tariff hike, school-fees increase, and higher food prices during the fasting month would be the main drivers of the inflation.
On trade data, we estimate total exports to have grown 28.2% yoy in Jul10, while imports to remain strong, which are expected to grow 34% yoy in the same period. Accordingly, we expect trade surplus to hover around US$0.8bn, slightly higher compared with Jun10 figure of US$0.6bn
On trade data, we estimate total exports to have grown 28.2% yoy in Jul10, while imports to remain strong, which are expected to grow 34% yoy in the same period. Accordingly, we expect trade surplus to hover around US$0.8bn, slightly higher compared with Jun10 figure of US$0.6bn
Citigroup Indofood Sukses Makmur (INDF.JK) Alert: 2Q10/1H10 Results in a Snapshot
1H10 net profit ahead of CIRA and consensus — Indofood recorded 1H10 net profit of Rp1,410.5bn (+76.4% of CIRA FY10E; 65% consensus) underpinned by lower COGS and lower interest payments which more than offset the flat revenue growth.
Flat revenue growth in 1H10 — Against a backdrop of lower wheat prices, stronger rupiah and lower CPO production, INDF only logged a marginal 0.2% YoY growth in revenues to Rp18,122.6bn (44.4% of CIRA FY10E; 45.1% Consensus). This was largely in line as we expect INDF to deliver a stronger performance in 2H10 driven by better performance from its agribusiness.
1H10 COGS declined 8.4% YoY — We attribute this primarily to stronger rupiah which led to cost savings from imported wheat, fertilizer and milk costs. Wheat costs typically account for 80-90% of Bogasari’s total production costs while fertilizer costs account for 30-40% of INDF’s plantation business.
Across the board margins improvement — The lower cost environment also reflect well on margins. Gross, operating and net profit margins improved from 26.1%, 12.3% and 4.4% in 1H09 to 32.5%, 17.2% and 7.8% in 1H10 respectively.
Lower cost benefits also reflect well on 2Q10’s profits and margins — Revenues: Rp8,814bn (-5.3% QoQ; -4.1% YoY); COGS: Rp5,726.9bn (-12.1% QoQ; -14.6% YoY); Operating profit: Rp1,709bn (+21.1% QoQ; +55.7% YoY); Net profit: Rp778.6bn (+23.2% QoQ; +13%YoY); 2Q10 Gross, operating and net margins: 35%, 19.4%, and 8.8%; 1Q10 gross, operating and net margins: 30%, 15.2%, and 6.8%; 2Q09 gross, operating and net margins: 27%, 11.9%, and 7.5%.
Net debt continues to go down — As at June 2010, INDF’s net debt was Rp5.6trn vs. Rp11trn in 1Q10. The planned listing of ICBP should further deleverage the company.
2H10 outlook — With wheat prices rising in early August, we expect the impact to reflect in 4Q10 financials (given 2-3months lag effect). But this should be more than compensated by the stronger rupiah, lower debts (post ICBP listing) and improved CPO production/price outlook. Overall, we maintain our positive outlook on INDF. Maintain Buy/Low Risk (1L) with TP of Rp4,500.
Flat revenue growth in 1H10 — Against a backdrop of lower wheat prices, stronger rupiah and lower CPO production, INDF only logged a marginal 0.2% YoY growth in revenues to Rp18,122.6bn (44.4% of CIRA FY10E; 45.1% Consensus). This was largely in line as we expect INDF to deliver a stronger performance in 2H10 driven by better performance from its agribusiness.
1H10 COGS declined 8.4% YoY — We attribute this primarily to stronger rupiah which led to cost savings from imported wheat, fertilizer and milk costs. Wheat costs typically account for 80-90% of Bogasari’s total production costs while fertilizer costs account for 30-40% of INDF’s plantation business.
Across the board margins improvement — The lower cost environment also reflect well on margins. Gross, operating and net profit margins improved from 26.1%, 12.3% and 4.4% in 1H09 to 32.5%, 17.2% and 7.8% in 1H10 respectively.
Lower cost benefits also reflect well on 2Q10’s profits and margins — Revenues: Rp8,814bn (-5.3% QoQ; -4.1% YoY); COGS: Rp5,726.9bn (-12.1% QoQ; -14.6% YoY); Operating profit: Rp1,709bn (+21.1% QoQ; +55.7% YoY); Net profit: Rp778.6bn (+23.2% QoQ; +13%YoY); 2Q10 Gross, operating and net margins: 35%, 19.4%, and 8.8%; 1Q10 gross, operating and net margins: 30%, 15.2%, and 6.8%; 2Q09 gross, operating and net margins: 27%, 11.9%, and 7.5%.
Net debt continues to go down — As at June 2010, INDF’s net debt was Rp5.6trn vs. Rp11trn in 1Q10. The planned listing of ICBP should further deleverage the company.
2H10 outlook — With wheat prices rising in early August, we expect the impact to reflect in 4Q10 financials (given 2-3months lag effect). But this should be more than compensated by the stronger rupiah, lower debts (post ICBP listing) and improved CPO production/price outlook. Overall, we maintain our positive outlook on INDF. Maintain Buy/Low Risk (1L) with TP of Rp4,500.
BNP Paribas Indosat: 2Q10 - Additional points from infomemo. (FOONG Choong Chen) ISAT IJ; CP: IDR4,650, TP: IDR6,750; BUY
Indosat has released its infomemo for 2Q10. Key highlights:
· The big q-q decline in 2Q10's net profit was largely due to i) loss on change in fair value of derivatives of IDR165b (1Q10: IDR97.6b), ii) much lower forex gains of IDR10.5b (1Q10: +IDR359b) and iii) additional tax expenses from BV companies, which raised the effective tax rate to 58.9% (1Q10: 30.4%).
· Stripping off the exceptionals, pretax profit for 2Q10 came in at IDR231b, up 45.6% q-q.
· For cellular, prepaid subscribers grew 0.8% q-q to 36.0m in 2Q10, while postpaid subscribers fell 14.3% q-q to 1.8m. YTD (1H10), prepaid ARPU was at IDR31.5k. As this is higher than IDR30.6k in 1Q10, it implies that prepaid ARPU improved +6% q-q in 2Q10 to approx IDR32.5k.
· YTD MOU/sub was at 112.5 minutes/month. As this is higher vs 105.8 minutes/month in 1Q10, it implies MOU/sub has risen +13% q-q to an estimated 120 minutes/month in 2Q10.
· YTD RPM was at IDR164. In 1Q10, it was IDR169. Anyhow you look at it, RPM has dropped considerably from IDR220 in 2009. This was due to the more aggressive promos initiated by Indosat in late-09/early-10.
· The drop in non-cellular revenues (-9.0% q-q) was due to i) decreased tariffs on more intense competition, ii) lower IDD revenues on stronger IDR & lower traffic, and iii) lower Fixed Wireless revenue.
· The big q-q decline in 2Q10's net profit was largely due to i) loss on change in fair value of derivatives of IDR165b (1Q10: IDR97.6b), ii) much lower forex gains of IDR10.5b (1Q10: +IDR359b) and iii) additional tax expenses from BV companies, which raised the effective tax rate to 58.9% (1Q10: 30.4%).
· Stripping off the exceptionals, pretax profit for 2Q10 came in at IDR231b, up 45.6% q-q.
· For cellular, prepaid subscribers grew 0.8% q-q to 36.0m in 2Q10, while postpaid subscribers fell 14.3% q-q to 1.8m. YTD (1H10), prepaid ARPU was at IDR31.5k. As this is higher than IDR30.6k in 1Q10, it implies that prepaid ARPU improved +6% q-q in 2Q10 to approx IDR32.5k.
· YTD MOU/sub was at 112.5 minutes/month. As this is higher vs 105.8 minutes/month in 1Q10, it implies MOU/sub has risen +13% q-q to an estimated 120 minutes/month in 2Q10.
· YTD RPM was at IDR164. In 1Q10, it was IDR169. Anyhow you look at it, RPM has dropped considerably from IDR220 in 2009. This was due to the more aggressive promos initiated by Indosat in late-09/early-10.
· The drop in non-cellular revenues (-9.0% q-q) was due to i) decreased tariffs on more intense competition, ii) lower IDD revenues on stronger IDR & lower traffic, and iii) lower Fixed Wireless revenue.
BNP Paribas Indofood's 1H10 results: in line operationally, but bottom line boosted by lower minority income.
Key highlights:
· Indofood posted a 1H10 results that are operationally in line with ours (48% of FY10 operating profits) but way ahead of consensus (56% of FY10 operating profits) as the market has been slower to take into account the margins expansion as a result of lower input prices and a stronger currency that are beneficial for the Consumer Branded Products (CBP) . This of course came at the cost to their agribusiness operations, who despite realising an average of 3% price increase vs. 1H09 reported flat margins (based on financials of Salim Ivomas Pratama).
· In the bottom line, the discrepancy with our forecasts came in at the minority interest level, boosting the 1H10 net profit to account for as much as 58% of our FY estimate and 63% of consensus. We suspect that this is due to under performance in the agribusiness segment which recorded a decline in earnings of 30% y-y.
· Q-q the improvement in margins we expect came purely from CBP and this has boosted the driver for earnings growth as overall top line was flat at -1% y-y.
· We expect consensus will need to revise their numbers, at least at the operating line to reflect the better margins.
· The listing of the Indofood CBP (ICBP) next month will be the short term catalyst for the stock especially since it it priced on a range of 16-19x 2011 earnings. Based on our calculation using the underwriter's earnings for ICBP's 2011 earnings of around IDR1.6t (albeit this is based on an instant noodle EBIT margins of 15%), this implies that the market is currently only valuing ICBP within Indofood on a P/E of 13x, so definitely there is an arbitrage opportunity here. BUY, TP IDR 4,475.
· Indofood posted a 1H10 results that are operationally in line with ours (48% of FY10 operating profits) but way ahead of consensus (56% of FY10 operating profits) as the market has been slower to take into account the margins expansion as a result of lower input prices and a stronger currency that are beneficial for the Consumer Branded Products (CBP) . This of course came at the cost to their agribusiness operations, who despite realising an average of 3% price increase vs. 1H09 reported flat margins (based on financials of Salim Ivomas Pratama).
· In the bottom line, the discrepancy with our forecasts came in at the minority interest level, boosting the 1H10 net profit to account for as much as 58% of our FY estimate and 63% of consensus. We suspect that this is due to under performance in the agribusiness segment which recorded a decline in earnings of 30% y-y.
· Q-q the improvement in margins we expect came purely from CBP and this has boosted the driver for earnings growth as overall top line was flat at -1% y-y.
· We expect consensus will need to revise their numbers, at least at the operating line to reflect the better margins.
· The listing of the Indofood CBP (ICBP) next month will be the short term catalyst for the stock especially since it it priced on a range of 16-19x 2011 earnings. Based on our calculation using the underwriter's earnings for ICBP's 2011 earnings of around IDR1.6t (albeit this is based on an instant noodle EBIT margins of 15%), this implies that the market is currently only valuing ICBP within Indofood on a P/E of 13x, so definitely there is an arbitrage opportunity here. BUY, TP IDR 4,475.
DBS Indosat: QoQ improvement masked by derivative losses (Hold; Rp4,650; TP Rp5,500; ISAT IJ)
At a Glance
· 2Q10 EBITDA was in line, while net profit was below expectations due to derivative losses
· Cellular business is improving, but non-cellular business needs more attention
· No change to our below-consensus forecasts; Indosat is the cheapest Indonesian telco with negatives priced in
Comment on Result
2Q10 EBITDA of Rp2.4tn (+6.8% q-o-q) was within our expectation but slightly below the market’s Rp2.5tn estimate. On a positive note, EBITDA margin improved to 48.9% in 2Q10 from 47% in 1Q10 as the company cut personnel and G&A expenses.
Net profit of Rp9tn (down 96.7% q-o-q) was far below our and market expectations due to (i) Rp165bn marked-to-market related losses on derivatives versus only Rp98bn loss in 1Q10, and (ii) significantly lower Rp10bn forex gain compared to Rp359bn in 1Q10. For operating metrics, the company added only 0.1m cellular subscribers, but this was expected after is added over 6m in 1Q10.
Recommendation
Cellular business improving, but non-cellular needs more attention. Cellular revenue improved 7.7% q-o-q, reflecting Indosat’s success in growing its cellular business. Meanwhile, non-cellular business (19% of total business) fell 9% q-o-q; management needs to manage its non-cellular business better.
Indosat is cheapest telco with negatives priced in. Trading at 5x FY10F EV/EBITDA, Indosat is the cheapest telco in Indonesia . We are retaining our FY10F earnings because it is already 8-10% below consensus estimates. We do not see a big catalyst emerging in next 2-3 months, but we are pinning our hopes on new chief commercial officer, Mr. Laszlo Barta, to launch more effective plans.
· 2Q10 EBITDA was in line, while net profit was below expectations due to derivative losses
· Cellular business is improving, but non-cellular business needs more attention
· No change to our below-consensus forecasts; Indosat is the cheapest Indonesian telco with negatives priced in
Comment on Result
2Q10 EBITDA of Rp2.4tn (+6.8% q-o-q) was within our expectation but slightly below the market’s Rp2.5tn estimate. On a positive note, EBITDA margin improved to 48.9% in 2Q10 from 47% in 1Q10 as the company cut personnel and G&A expenses.
Net profit of Rp9tn (down 96.7% q-o-q) was far below our and market expectations due to (i) Rp165bn marked-to-market related losses on derivatives versus only Rp98bn loss in 1Q10, and (ii) significantly lower Rp10bn forex gain compared to Rp359bn in 1Q10. For operating metrics, the company added only 0.1m cellular subscribers, but this was expected after is added over 6m in 1Q10.
Recommendation
Cellular business improving, but non-cellular needs more attention. Cellular revenue improved 7.7% q-o-q, reflecting Indosat’s success in growing its cellular business. Meanwhile, non-cellular business (19% of total business) fell 9% q-o-q; management needs to manage its non-cellular business better.
Indosat is cheapest telco with negatives priced in. Trading at 5x FY10F EV/EBITDA, Indosat is the cheapest telco in Indonesia . We are retaining our FY10F earnings because it is already 8-10% below consensus estimates. We do not see a big catalyst emerging in next 2-3 months, but we are pinning our hopes on new chief commercial officer, Mr. Laszlo Barta, to launch more effective plans.
CLSA Summarecon Agung (SMRA IJ) update from Sarina Lesmina
SMRA 7M10 marketing sales: 7M10 sales reached Rp1.33tn, up 98% YoY. However, July marketing sales was recorded at Rp76bn, lower from Rp187bn the previous month.
Nonetheless, this is because the launch of “The Springs” in Serpong on 31July of ~Rp300bn will be recorded in August. Hence, adding this to 7M10 sales means total sales had reached Rp1.6tn, 84% of company’s FY10 target. We believe our estimate of Rp1.9tn in FY10 (+58% YoY), should be easily achievable. The company may do another launch in Bekasi this year.
Maintain BUY on SMRA, trading at 41% discount to NAV, offering 40% upside to our TP to Rp1,250/sh.
Nonetheless, this is because the launch of “The Springs” in Serpong on 31July of ~Rp300bn will be recorded in August. Hence, adding this to 7M10 sales means total sales had reached Rp1.6tn, 84% of company’s FY10 target. We believe our estimate of Rp1.9tn in FY10 (+58% YoY), should be easily achievable. The company may do another launch in Bekasi this year.
Maintain BUY on SMRA, trading at 41% discount to NAV, offering 40% upside to our TP to Rp1,250/sh.
CLSA Buying a property, transaction costs high but not that high
Property analyst Sarina is looking at the process of buying property in Indonesia. Her conclusion is that transaction costs in property may not be as high as perceived (26% roundtrip costs).
This is due to the difference in market price and the taxable price used in deriving the tax, which is set by the Tax Authority. A simple calculation done by Sarina suggests that roundtrip transaction costs in Jakarta’s popular suburb area of Serpong could be 10% lower than the general perception.
Nonetheless, Indonesian buyers still face large transaction costs relative to peers, which explain the relatively illiquid property market in Indonesia.
Another interesting highlight from the report is that approval from banks on mortgage applications are easier to obtain nowadays. Some of CLSA Jakarta staffs managed to get the approval in a week time.
Maintain OWT the property sector. Top pick is Summarecon (SMRA IJ).
Key points from the report:
Buying your dream house. Rising household income, swift urbanization, and young population have made Indonesia a compelling story for property.
Mortgage market. Banks typically can cover up to 80% of the value of the property. 70% of buyers use mortgage financing and the remaining is through cash payment or developers financing. We have also seen higher approval rates on mortgage applications recently.
Low mortgage rate and longer tenor to fuel demand. We believe banks are aggressively ramping up mortgage lending. Mortgage credit of the six lenders (75% of industry) grew 23% YoY. Latest promotional gimmicks offer longer tenor (StanChart 25 years), and mortgage rate is mostly below 10% across the board from mid-teens in 1H09.
Maintain OWT on the sector. The sector is trading at 59% discount to NAV. We think this still represents a good entry point for investors.
Top pick: Summarecon (SMRA IJ), now trading at 40% discount to its NAV.
This is due to the difference in market price and the taxable price used in deriving the tax, which is set by the Tax Authority. A simple calculation done by Sarina suggests that roundtrip transaction costs in Jakarta’s popular suburb area of Serpong could be 10% lower than the general perception.
Nonetheless, Indonesian buyers still face large transaction costs relative to peers, which explain the relatively illiquid property market in Indonesia.
Another interesting highlight from the report is that approval from banks on mortgage applications are easier to obtain nowadays. Some of CLSA Jakarta staffs managed to get the approval in a week time.
Maintain OWT the property sector. Top pick is Summarecon (SMRA IJ).
Key points from the report:
Buying your dream house. Rising household income, swift urbanization, and young population have made Indonesia a compelling story for property.
Mortgage market. Banks typically can cover up to 80% of the value of the property. 70% of buyers use mortgage financing and the remaining is through cash payment or developers financing. We have also seen higher approval rates on mortgage applications recently.
Low mortgage rate and longer tenor to fuel demand. We believe banks are aggressively ramping up mortgage lending. Mortgage credit of the six lenders (75% of industry) grew 23% YoY. Latest promotional gimmicks offer longer tenor (StanChart 25 years), and mortgage rate is mostly below 10% across the board from mid-teens in 1H09.
Maintain OWT on the sector. The sector is trading at 59% discount to NAV. We think this still represents a good entry point for investors.
Top pick: Summarecon (SMRA IJ), now trading at 40% discount to its NAV.
CLSA “Still dying for coal? A Chinese industry half way there”, The stocks to buy on this theme are UNTR and HEXA.
Analysts Simon Powell and Jonathan Galligan have authored a detailed report on Chinese coal mine safety: “Still dying for coal? A Chinese industry half way there”. The report analyses safety statistics, the fatality rate of listed miners, regulation, a comparison of China’s coal industry to the UK, and the next steps for investors.
The report shows the great improvement made in the past decade, with fatalities/mt falling from 6.1 in 2000 to 0.9 last year. And that small scale mines have a death rate potentially >30x higher than key SOEs. This supports the government’s ongoing push for industry consolidation, and suggests safety-related costs will continue to rise.
Our head of resources research Andrew Driscoll thinks that this trend of consolidation and implementation of safety standards will also constrain supply to some degree, while the continuing implementation of better safety standards will cause cost pressure in China and potential steepening in the cost curve. Supply constraints and rising costs in China should be supportive of higher coal prices, which would also benefit the seaborne coal market – Indonesia’s forte.
Indonesia’s thermal-coal market will be leveraged to Chindia’s electricity demand. Even if we make only modest assumptions on Indian imports alone, the country will need to import around 100m tonnes per year by 2012, an incredibly large amount considering that the global seaborne thermal-coal market is currently only 750 m tonnes per annum.
As for safety issues, Indonesian coal are mostly open cut mines which is a lot easier to access and thus generally safer. In addition, safety standards have been already been beefed up because of very strict license requirement. But the key to preserve safety standards in the future is:
1) Good and experienced contractors
2) Bigger equipments (trucks, excavators etc) to respond to higher prod vols.
This will significantly reduce the chances for accident. This also means that bigger is better in the industry. Hexindo (HEXA IJ), Hitachi distributor, has a strong position in excavator market, particularly giant sized equipment with capacity of over 200 tons.
United Tractors (UNTR IJ)’s Pamapersada is the largest contractor and known for quality, including safety issue.
The stocks to buy on this theme are UNTR and HEXA.
The report shows the great improvement made in the past decade, with fatalities/mt falling from 6.1 in 2000 to 0.9 last year. And that small scale mines have a death rate potentially >30x higher than key SOEs. This supports the government’s ongoing push for industry consolidation, and suggests safety-related costs will continue to rise.
Our head of resources research Andrew Driscoll thinks that this trend of consolidation and implementation of safety standards will also constrain supply to some degree, while the continuing implementation of better safety standards will cause cost pressure in China and potential steepening in the cost curve. Supply constraints and rising costs in China should be supportive of higher coal prices, which would also benefit the seaborne coal market – Indonesia’s forte.
Indonesia’s thermal-coal market will be leveraged to Chindia’s electricity demand. Even if we make only modest assumptions on Indian imports alone, the country will need to import around 100m tonnes per year by 2012, an incredibly large amount considering that the global seaborne thermal-coal market is currently only 750 m tonnes per annum.
As for safety issues, Indonesian coal are mostly open cut mines which is a lot easier to access and thus generally safer. In addition, safety standards have been already been beefed up because of very strict license requirement. But the key to preserve safety standards in the future is:
1) Good and experienced contractors
2) Bigger equipments (trucks, excavators etc) to respond to higher prod vols.
This will significantly reduce the chances for accident. This also means that bigger is better in the industry. Hexindo (HEXA IJ), Hitachi distributor, has a strong position in excavator market, particularly giant sized equipment with capacity of over 200 tons.
United Tractors (UNTR IJ)’s Pamapersada is the largest contractor and known for quality, including safety issue.
The stocks to buy on this theme are UNTR and HEXA.
DBS London Sumatra Plantation: Better-than-expected 2Q10 ASP (Hold; Rp9,300; TP Rp8,650; LSIP IJ)
• 2Q10 earnings grew 36.1% y-o-y to Rp249.9b, ahead of our forecast but in line with consensus
• Profits were boosted by strong CPO, PK and rubber prices, as volumes were weaker-than-expected
• FY10F-11F EPS raised by 9.2%-13.9%, but FY10F new planting cut to 3,000 ha
• TP remains at Rp8,650, as the impact of higher prices is offset by lower FFB yields and new planting; maintain Hold call
Strong 2Q10 result. 2Q10 net profit of Rp249.9b (36.1% y-o-y, +48.9% q-o-q) was ahead of our expectations, but inline with consensus. Growth came from stronger-than-expected rubber, CPO and PK prices, as FFB volume was slightly below expectation. For 6M10, the group achieved CPO price of Rp6,603/kg – 93% of spot (Rp7,090), while rubber ASP of Rp28,522 is close to RSS3 spot (Rp28,810). The group’s 6M10 FFB production was 511,768 MT, which represents only 42% of our initial projection (historically c.45%).
Expansion stalled, cut new planting. As indicated in IndoAgri result, Lonsum’s new planting lagged behind at only 75 hectares. We have since factored in a lower target of 3,000 ha to the end of this year, which the group should achieve given the seedling preparations in 1H10.
FY10-11F earnings raised by 9.2%-13.9%, after imputing higher CPO, rubber, and PK prices for this year based on higher ratios to spot reference prices that were unchanged. But we also
cut FFB yield to 17.4 MT/ha from 18.3 MT/ha, resulting in 9.1-5.1% lower FY10F-11F CPO sales volume.
Maintain TP and Hold call. Our target price is unchanged at Rp8,650 (based on DCF: WACC 14.3%, Rf 9.5%, Rm10.5%, B 1.1x, TG 3%), implying 8% downside from current price – excluding 2.2% dividend yield. Hence, we maintain our Hold call. We recommend investors to switch to cheaper counters such as Sampoerna Agro.
• Profits were boosted by strong CPO, PK and rubber prices, as volumes were weaker-than-expected
• FY10F-11F EPS raised by 9.2%-13.9%, but FY10F new planting cut to 3,000 ha
• TP remains at Rp8,650, as the impact of higher prices is offset by lower FFB yields and new planting; maintain Hold call
Strong 2Q10 result. 2Q10 net profit of Rp249.9b (36.1% y-o-y, +48.9% q-o-q) was ahead of our expectations, but inline with consensus. Growth came from stronger-than-expected rubber, CPO and PK prices, as FFB volume was slightly below expectation. For 6M10, the group achieved CPO price of Rp6,603/kg – 93% of spot (Rp7,090), while rubber ASP of Rp28,522 is close to RSS3 spot (Rp28,810). The group’s 6M10 FFB production was 511,768 MT, which represents only 42% of our initial projection (historically c.45%).
Expansion stalled, cut new planting. As indicated in IndoAgri result, Lonsum’s new planting lagged behind at only 75 hectares. We have since factored in a lower target of 3,000 ha to the end of this year, which the group should achieve given the seedling preparations in 1H10.
FY10-11F earnings raised by 9.2%-13.9%, after imputing higher CPO, rubber, and PK prices for this year based on higher ratios to spot reference prices that were unchanged. But we also
cut FFB yield to 17.4 MT/ha from 18.3 MT/ha, resulting in 9.1-5.1% lower FY10F-11F CPO sales volume.
Maintain TP and Hold call. Our target price is unchanged at Rp8,650 (based on DCF: WACC 14.3%, Rf 9.5%, Rm10.5%, B 1.1x, TG 3%), implying 8% downside from current price – excluding 2.2% dividend yield. Hence, we maintain our Hold call. We recommend investors to switch to cheaper counters such as Sampoerna Agro.
NISP Wika sales drops, however net income jumps 50.8% YoY (WIKA, Rp590)
• Wijaya Karya reported a drop in sales of 15.2% YoY to only Rp2.52tn in 1H10. However net income was boosted by 50.8% YoY to Rp 140.8bn from Rp93.3bn. As such although sales only were 30.4% of consensus expectation, bottom line was satisfactory, as it made up half of the Rp268.0bn expected for full year.
• The company managed cover for its slumping sales by reducing interest expense to only Rp4.6bn from Rp30.0bn last year. In addition less foreign exchange losses and other expenses as a whole saved the company as other expenses only totaled Rp7.6bn from Rp68.6bn in 1H09.
• Sales were up 21.0% in the second quarter to Rp1.38tn. However COGS rose higher by 27.2% to Rp1.27tn, making gross profit decline by 10.1% QoQ to Rp128.0. Subsequently, margins declined as gross margin and net margin were only 9.3% and 5.5% compared to 12.5% and 5.6% in 1Q10.
• WIKA is trading at 2011F consensus PER of 10.3x and EV/EBITDA of 3.9x.
• The company managed cover for its slumping sales by reducing interest expense to only Rp4.6bn from Rp30.0bn last year. In addition less foreign exchange losses and other expenses as a whole saved the company as other expenses only totaled Rp7.6bn from Rp68.6bn in 1H09.
• Sales were up 21.0% in the second quarter to Rp1.38tn. However COGS rose higher by 27.2% to Rp1.27tn, making gross profit decline by 10.1% QoQ to Rp128.0. Subsequently, margins declined as gross margin and net margin were only 9.3% and 5.5% compared to 12.5% and 5.6% in 1Q10.
• WIKA is trading at 2011F consensus PER of 10.3x and EV/EBITDA of 3.9x.
NISP Bank Permata net profit jumps by 62.1% YoY (BNLI, Rp1,480)
• Bank Permata net profit jumps by 62.1% YoY to Rp526.5bn backed by higher consolidated net interest income by 21.2% YoY to Rp1.58tn. This compensated for higher non interest loss of 10.5% YoY.
• CASA growth was strong as low cost of funds sources now made up 42% compared to 36% last year. The company’s CEO explained that loans growth for the company was 19.0% YoY to Rp43.0tn in 1H10.
• On the quality asset side gross NPL was lower with 3.7% and LDR was higher at 88.0%. CAR was also boosted to 13.9% from 3.2%.
• CASA growth was strong as low cost of funds sources now made up 42% compared to 36% last year. The company’s CEO explained that loans growth for the company was 19.0% YoY to Rp43.0tn in 1H10.
• On the quality asset side gross NPL was lower with 3.7% and LDR was higher at 88.0%. CAR was also boosted to 13.9% from 3.2%.
NISP Higher interest expenses and non cash item drags down Indosat’s profit (ISAT, Rp4,650)
• Indosat explained that higher interest expenses dragged down its profit in 1H10 period, the company paid Rp1.1tn of interest expense in 1H10 compared to Rp882.6bn a year earlier. This was also added by losses from derivatives of Rp262.6bn and lower forex gains during 1H10 period.
• However, the company’s operational performance also posted deterioration in 1H10 where operating income decreased by 16.7% YoY to Rp1.6tn. However, this was largely due to higher non-cash depreciation expenses of Rp3.0tn compared to Rp2.4tn in 1H09.
• As such, the company’s net profit came way below consensus expectation at Rp287.1bn vs market expectation of Rp1.4tn for full year 2010.
• ISAT is trading at 2011F consensus PER of 13.9x and EV/EBITDA of 4.4x.
• However, the company’s operational performance also posted deterioration in 1H10 where operating income decreased by 16.7% YoY to Rp1.6tn. However, this was largely due to higher non-cash depreciation expenses of Rp3.0tn compared to Rp2.4tn in 1H09.
• As such, the company’s net profit came way below consensus expectation at Rp287.1bn vs market expectation of Rp1.4tn for full year 2010.
• ISAT is trading at 2011F consensus PER of 13.9x and EV/EBITDA of 4.4x.
NISP Indofood net income jumps by 76.4% YoY (INDF, Rp4,350)
• Indofood booked net income of Rp1.41tn in 1H10, 76.4% YoY higher from Rp799.7bn last year. Revenue was flat with Rp18.12tn. Sales figure was adequate, making up 45.1% of consensus FY expectation, however the net income surpassed expectation with the company already making 63.3% of expectation.
• Profitability was strong as gross and operating margin rose to 32.5% and 17.2%, on the back of lower cost of goods.
• Sales actually declined in 2Q10 to only Rp8.81tn compared to Rp9.31tn. However again, lower cost of goods sold made gross profit rise by 10.4% to Rp3.09tn making net income increase by 23.2% QoQ to Rp778.6bn.
• INDF is trading at 2011F consensus PER of 14.8x and EV/EBITDA of 7.2x.
• Profitability was strong as gross and operating margin rose to 32.5% and 17.2%, on the back of lower cost of goods.
• Sales actually declined in 2Q10 to only Rp8.81tn compared to Rp9.31tn. However again, lower cost of goods sold made gross profit rise by 10.4% to Rp3.09tn making net income increase by 23.2% QoQ to Rp778.6bn.
• INDF is trading at 2011F consensus PER of 14.8x and EV/EBITDA of 7.2x.
NISP Indocement cancels external financing (INTP, Rp17,800)
• Indocement canceled its plan to raise Rp630.0bn loans to finance its new two cement mills projects. As such, the company erases expectations of additional 1.5mn tons per year capacity from these mills. However, the company had finished its new mill in Cirebon with 1.5mn tons annual capacity. Thus, it foresees sales volume will manage to post growth despite in a moderate manner.
• The company foresees its sales volume to grow by 8% YoY this year to 17.6mn tons on the commencement of Cirebon mill. The company aims to boost its capacity to 20.6mn tons in 2012 or 10.8% higher from its current output level.
• Currently INTP is trading at 2011F PER of 15.6x and EV/EBITDA of 9.2x.
• The company foresees its sales volume to grow by 8% YoY this year to 17.6mn tons on the commencement of Cirebon mill. The company aims to boost its capacity to 20.6mn tons in 2012 or 10.8% higher from its current output level.
• Currently INTP is trading at 2011F PER of 15.6x and EV/EBITDA of 9.2x.
NISP TB Bukit Asam signs new project (PTBA, Rp16,700, Buy)
• TB Bukit Asam has signed an agreement for its new railway project that will connect Tanjung Enim and a new port at Tanjung Api Api, South Sumatera. This 270km railway project involves TB Bukit Asam, Adani Group and South Sumatra Provincial Government. Adani is an India based company specializing in power, infrastructure, global trading, logistics and energy.
• This is a completely new project apart of the company’s railway project with Rajawali and China Railway Engineering. This project will connect Tanjung Enim to Palembang, while project with Rajawali and China Railway Engineering connects Tanjung Enim with Lampung.
• From the brief explanation, we find that Adani will provide the whole US$1.65bn funding, which makes the group own 98% stakes in this project. TB Bukit Asam will supply the 34mn tons coal per year through this new infrastructure.
However, there are no further explanations explaining whether Adani has exclusive right for the coal or will only collect the fees from the railway, uploading and unloading activities and port fee.
• Initial estimates showed this project will be able to bear 34mn tons capacity and will commence in 2014. Hence, this is positive for TB Bukit Asam as it would make the company one of the largest coal producers in Indonesia. In addition current existing projects already bear 60.7mn tons coal capacity per year. With this new project, the company’s maximum logistic capacity will reach 94.7mn tons, which will provide access to TB Bukit Asam’s abundant reserves.
• Currently PTBA is trading at 2011F PER of 13.2x and EV/EBITDA of 11.6x, Buy.
• This is a completely new project apart of the company’s railway project with Rajawali and China Railway Engineering. This project will connect Tanjung Enim to Palembang, while project with Rajawali and China Railway Engineering connects Tanjung Enim with Lampung.
• From the brief explanation, we find that Adani will provide the whole US$1.65bn funding, which makes the group own 98% stakes in this project. TB Bukit Asam will supply the 34mn tons coal per year through this new infrastructure.
However, there are no further explanations explaining whether Adani has exclusive right for the coal or will only collect the fees from the railway, uploading and unloading activities and port fee.
• Initial estimates showed this project will be able to bear 34mn tons capacity and will commence in 2014. Hence, this is positive for TB Bukit Asam as it would make the company one of the largest coal producers in Indonesia. In addition current existing projects already bear 60.7mn tons coal capacity per year. With this new project, the company’s maximum logistic capacity will reach 94.7mn tons, which will provide access to TB Bukit Asam’s abundant reserves.
• Currently PTBA is trading at 2011F PER of 13.2x and EV/EBITDA of 11.6x, Buy.
Credit Suisse: London Sumatra - LSIP's 2Q10A performance is commendable but we see the risk of a softer 2011E CPO price outlook
● LSIP reported Rp250 bn in 2Q10A earnings, up 36 %YoY and 49% QoQ. CPO output dropped marginally by 2% YoY but was up 16.4% QoQ. LSIP achieved Rp418 bn in 1H10A earnings, up 45.7% YoY, and 45% of consensus and 46% of our expectations.
● LSIP’s performance has met our and consensus’ expectations at a better rate than its local peers, supported by robust rubber prices as well as a continuous improvement in cost control.
● We remain positive about the 2H10E CPO price outlook on low inventories, weather concerns, a weak US dollar and seasonally lower production towards the end of 2010E. However, we foresee a reversal of tree stress, potential additional supply from new
planting, limited additional incentives for biodiesel and the risk of higher soy inventory curbing the 2011E CPO price outlook.
● While we commend LSIP on its robust 2Q10A, its share price may face potential headwinds from a weaker CPO price outlook. We maintain our NEUTRAL and TP of Rp9,213/share, based on 15x 11E P/E
● LSIP’s performance has met our and consensus’ expectations at a better rate than its local peers, supported by robust rubber prices as well as a continuous improvement in cost control.
● We remain positive about the 2H10E CPO price outlook on low inventories, weather concerns, a weak US dollar and seasonally lower production towards the end of 2010E. However, we foresee a reversal of tree stress, potential additional supply from new
planting, limited additional incentives for biodiesel and the risk of higher soy inventory curbing the 2011E CPO price outlook.
● While we commend LSIP on its robust 2Q10A, its share price may face potential headwinds from a weaker CPO price outlook. We maintain our NEUTRAL and TP of Rp9,213/share, based on 15x 11E P/E
Adani Enterprises, Sumatra Govt. And PT Bukit Asam To Set Up $1.65 Bln. Rail And Port Project
Adani Enterprises Ltd. said its step-down Indonesian subsidiary, PT Adani Global, had entered into a binding tripartite agreement with Indonesia's Regional Government of Sumatra Selatan, and PT Bukit Asam, to set up a 'Rail and Port Project' at an estimated cost of $1.65 billion. The project is to be constructed within 48 months.
The agreement was signed by Alex Noerdin, Governor of South Sumatra, Sukrisno, President Director of PT Bukit Asam and Harsh Mishra, President of Adani, in the presence of Gita Wiryawan, Minister of Capital Investment Board, M.S. Hidayat, Industry Minister, Freddy Numberi, Transportation Minister and Syahlan Lumbangaol, Dy. Mining Sector, Industry, Strategy, Energy and Telecommunication.
The Ahmedabad-based company said the project would provide 'Coal Purchase Rights' to it and the infrastructure created would be used for transportation of a minimum volume of 35 million metric tonnes per annum (MMTPA) of coal on a 'take or pay' basis from PT Bukit Asam concessions in South Sumatra.
The concession is initially valid for a maximum period of 30 years, expandable on mutual agreement.
The project envisages the ownership, construction and operation by Adani (through its various subsidiaries) of 250 kilometer rail line capable of transporting a minimum of 35 MMTPA of coal (expandable to 60 MMTPA). The rail line will connect Tanjung Enim, a coal mining area to Tanjung Carat, where Adani will build a port with matching capacity for evacuating the coal.
As per terms, PT Bukit will sell 60% of such coal to Adani at government notified price and the balance tonnage would be contract carriage for Bukit Asam. The long-term price for the transportation has been linked to CPI and fuel prices, in order to provide a fair return to both parties.
The Government of South Sumatra, Indonesia, agreed to provide all permits/approvals and arrange for all land for rail and port required for the project. (RTTNews)
The agreement was signed by Alex Noerdin, Governor of South Sumatra, Sukrisno, President Director of PT Bukit Asam and Harsh Mishra, President of Adani, in the presence of Gita Wiryawan, Minister of Capital Investment Board, M.S. Hidayat, Industry Minister, Freddy Numberi, Transportation Minister and Syahlan Lumbangaol, Dy. Mining Sector, Industry, Strategy, Energy and Telecommunication.
The Ahmedabad-based company said the project would provide 'Coal Purchase Rights' to it and the infrastructure created would be used for transportation of a minimum volume of 35 million metric tonnes per annum (MMTPA) of coal on a 'take or pay' basis from PT Bukit Asam concessions in South Sumatra.
The concession is initially valid for a maximum period of 30 years, expandable on mutual agreement.
The project envisages the ownership, construction and operation by Adani (through its various subsidiaries) of 250 kilometer rail line capable of transporting a minimum of 35 MMTPA of coal (expandable to 60 MMTPA). The rail line will connect Tanjung Enim, a coal mining area to Tanjung Carat, where Adani will build a port with matching capacity for evacuating the coal.
As per terms, PT Bukit will sell 60% of such coal to Adani at government notified price and the balance tonnage would be contract carriage for Bukit Asam. The long-term price for the transportation has been linked to CPI and fuel prices, in order to provide a fair return to both parties.
The Government of South Sumatra, Indonesia, agreed to provide all permits/approvals and arrange for all land for rail and port required for the project. (RTTNews)
Mandiri Sekuritas Indofood: 1H10 net income exceeds ours and consensus expectation (INDF, Rp4,350, Buy, TP: Rp4,500)
INDF posted 1H10 net income of Rp1.4tn (+76%yoy, +23%qoq), which is above ours and consensus estimates. The net income yoy growth was mainly due to increase in noodle selling price.
Looking at segmental performance, CBP division performed well with 8.3%yoy growth that compensated revenues contraction from wheat flour segment. Agribusiness segment posted flat growth yoy.
INDF is currently trading at PER10-11F consensus of 17.1-14.8x.
Looking at segmental performance, CBP division performed well with 8.3%yoy growth that compensated revenues contraction from wheat flour segment. Agribusiness segment posted flat growth yoy.
INDF is currently trading at PER10-11F consensus of 17.1-14.8x.
Mandiri Sekuritas Wijaya Karya: 1H10 net profit grew 50.8% yoy, better than expectations (WIKA, Rp590, Buy, TP:Rp570)
Despite lower revenue (-15.2% yoy) of Rp2.5tn as per 1H10, gross profit was up 7.7% yoy, on the back of better quality projects which provide higher margin as well as higher gain from joint operation projects. The figure is above our and consensus estimates. Yet on the operating level, we noticed that the company posted higher general and administration expense (+33.1% yoy), which resulted in lower operating profit (-1.7% yoy).
Going further down, the company booked lower loss from forex (-92.9% yoy) as well as interest expense (-84.7% yoy). Furthermore WIKA booked gain in the extraordinary account as much as Rp33.5bn, which boosted net profit by 50.8% yoy. Excluding such account, core net profit still grew 22.3% yoy. In general, such result is above our and consensus estimates. WIKA is currently trading at PER10F of 12.8x.
Going further down, the company booked lower loss from forex (-92.9% yoy) as well as interest expense (-84.7% yoy). Furthermore WIKA booked gain in the extraordinary account as much as Rp33.5bn, which boosted net profit by 50.8% yoy. Excluding such account, core net profit still grew 22.3% yoy. In general, such result is above our and consensus estimates. WIKA is currently trading at PER10F of 12.8x.
Rabu, 25 Agustus 2010
Deutsche Alert on BUMI - Implication of Newmont Indonesia's IPO plan
As reported in WSJ, Newmont Nusa Tenggara (NNT) plans to seek approval for the IPO of up to 10% of new shrs to raise US$800mn (implies US$8bn equity valuation) in a 19Aug EGM. NNT's current shareholders inc. Newmont&Sumitomo (56%); Pukuafu (20%); the Bumi/regional govt JV (24%). A domestic listing could substitute for the 7% foreign stake selldown initially required this year.
Implications for Bumi - Risk to BRM IPO & consolidation plan:
1. We believe that the NNT IPO could undermine Bumi's plan to IPO its noncoal assets under Bumi Resources Minerals (BRM), as the NNT stake is BRM's single largest & only operating asset. Via a listed NNT, investors can get direct access to the asset, instead of having to face potential governance risk at BRM. Also, the main cashflow from NNT to BRM is thru dividend. Via a listed NNT, minority investors get 'un-cut' version of dividend straight from NNT, rather than thru BRM-Bumi-then to minority, likely subjected to payout ratio & additional tax.
2. We think Bumi took a strategic view on NNT in being able to ultimately obtain a controlling take, eg, via the selldowns. The NNT IPO could thwart BRM's consolidation plan, essentially rendering its 24% stake as nothing more than an associate investment & BRM unable to leverage on NNT.
But riding on the NNT listing could help Bumi deleverage, or would it? The only risk to our thesis above is if Bumi decides to sell its NNT stake via the mkt post the NNT IPO, at double the cost. Bumi's diluted NNT stake may be worth US$1.7bn @the above price & implies a US$840mn gain above its US$885mn purchase cost. We believe that this could be positive.
If Bumi uses the money to deleverage (esp. given the hefty US$450mn debtrepmts due this year). The question is would the company necessarily deleverage, given large capex plans on its non-coal reenfield deposits & acquisition appetite.
Implications for Bumi - Risk to BRM IPO & consolidation plan:
1. We believe that the NNT IPO could undermine Bumi's plan to IPO its noncoal assets under Bumi Resources Minerals (BRM), as the NNT stake is BRM's single largest & only operating asset. Via a listed NNT, investors can get direct access to the asset, instead of having to face potential governance risk at BRM. Also, the main cashflow from NNT to BRM is thru dividend. Via a listed NNT, minority investors get 'un-cut' version of dividend straight from NNT, rather than thru BRM-Bumi-then to minority, likely subjected to payout ratio & additional tax.
2. We think Bumi took a strategic view on NNT in being able to ultimately obtain a controlling take, eg, via the selldowns. The NNT IPO could thwart BRM's consolidation plan, essentially rendering its 24% stake as nothing more than an associate investment & BRM unable to leverage on NNT.
But riding on the NNT listing could help Bumi deleverage, or would it? The only risk to our thesis above is if Bumi decides to sell its NNT stake via the mkt post the NNT IPO, at double the cost. Bumi's diluted NNT stake may be worth US$1.7bn @the above price & implies a US$840mn gain above its US$885mn purchase cost. We believe that this could be positive.
If Bumi uses the money to deleverage (esp. given the hefty US$450mn debtrepmts due this year). The question is would the company necessarily deleverage, given large capex plans on its non-coal reenfield deposits & acquisition appetite.
CLSA Mayora Indah (MYOR IJ), biscuit king, raising the TP
One domestic idea that we like is Mayora (MYOR IJ), the largest biscuit candy maker in Indonesia. Despite lowering net profit forecast by 4-12% for 2010-2012, Jessica/Swati raised the TP from Rp7,100 to Rp11,500. This is based on 15x 11CL PE, a 25% discount to our aggregate Asia-xJ food producer universe PE.
Success (21% profit CAGR in 2004-2009) breeds confidence. The management has raised 2010-11 capex plan by 50% from US$30mn to US$40-50mn for capacity expansion and working capital. MYOR plans to add 25% new capacity each year for the next three years. Funding will come from internal cash and debt. Paired with ASP increases, revenue could double within the same period.
Key points from the report:
MYOR is one of the cheapest consumer stocks in our coverage, trading at 11.1x 11CL earnings.
Rising commodity prices, and higher marketing and interest expenses may squeeze margins short term, but the long term outlook is promising given the strong structural domestic consumption story.
We increase our revenue estimates by 8% this year, but with the respective margin pressure and higher marketing expenses, our net income forecast is decreased by 12%. We cut net profit forecasts by 4.6% and 4.2% for 2011 and 2012 respectively.
The company has become more modernized and professional since the second generation of the founding family took over in 2004, signaled by a 21% profit CAGR in 2004-2009.
We remain a structural buyer on weaknesses, and increased our price target ro Rp11,500 based on 15x 11CL PE, a 25% against our aggregate Asia-xJ food producer universe PE.
At 11.6x 2011 CL PER, it is also one of the cheapest consumer stocks in our coverage.
Success (21% profit CAGR in 2004-2009) breeds confidence. The management has raised 2010-11 capex plan by 50% from US$30mn to US$40-50mn for capacity expansion and working capital. MYOR plans to add 25% new capacity each year for the next three years. Funding will come from internal cash and debt. Paired with ASP increases, revenue could double within the same period.
Key points from the report:
MYOR is one of the cheapest consumer stocks in our coverage, trading at 11.1x 11CL earnings.
Rising commodity prices, and higher marketing and interest expenses may squeeze margins short term, but the long term outlook is promising given the strong structural domestic consumption story.
We increase our revenue estimates by 8% this year, but with the respective margin pressure and higher marketing expenses, our net income forecast is decreased by 12%. We cut net profit forecasts by 4.6% and 4.2% for 2011 and 2012 respectively.
The company has become more modernized and professional since the second generation of the founding family took over in 2004, signaled by a 21% profit CAGR in 2004-2009.
We remain a structural buyer on weaknesses, and increased our price target ro Rp11,500 based on 15x 11CL PE, a 25% against our aggregate Asia-xJ food producer universe PE.
At 11.6x 2011 CL PER, it is also one of the cheapest consumer stocks in our coverage.
BNPP UNTR Limited upside TP of IDR19,500
ƒBad weather should keep margins under pressure.
ƒHit also by the strong currency.
ƒStrong demand for mining equipment unlikely to compensate.
ƒLimited upside potential – take profit closer to our TP of IDR19,500.
Weather is still the problem
July’s contract mining data does not alleviate our concern about the impact of the unseasonal heavy rain on both production and production costs (while volume-wise coal volume and overburden removal grew 21.5% and 13.5% y-y, it remained flat m-m). Chairman of the Indonesian Coal Association, Bob Kamandanu, recently announced that the association has reduced its coal production forecast for this year from 320m tonnes to 300m tonnes, while PT Bayan Resources also declared force majeure on shipments from its Kalimantan mines due to heavy rains and flooding.
For United Tractors (UT), we are less concerned about production as it has proven its commitment to customers by delivering production on time, but the higher costs associated with this do concern us. This, plus the pressure on a stronger currency, has resulted in UT’s overall margins contracting by 4.8% in the 1H10, basically offsetting the strong turnaround in the heavy equipment segment.
Demand for heavy equipment remained strong
Despite the fact that total coal production in Indonesia may decline, we expect demand for heavy equipment, especially in the mining sector, to remain strong. On top of the new order for expansion announced by the existing coal companies, we believe demand will be supported by replacements for machineries purchased in 2003-2004. We expect demand growth of 75% in 2010 and 15% in 2011 and 2012. Year to July, heavy machinery posted volume growth of 87% to 3,200 units, accounting for 59% of our FY10 volume estimate.
Valuation
Unusual weather (which has raised operating costs in the contract mining business) and concerns about the impact of the strengthening currency (90% of UT’s earnings are USD-linked) are factors preventing us from being more bullish on the company despite it showing exemplary dedication to customers and good corporate governance. Trading at 13.7x our 2011E earnings, we believe the upside is limited and would
advise investors to take profit closer to our TP of IDR19,500, which is derived based on a DCF using a WACC of 12.6% and terminal growth rate of 4.5%. Investors wanting a commodity play will do better owning coal stocks, in our view. Downside risks to our TP for UT: a strengthening IDR and adverse weather patterns. Upside risks: higher-than-expected coal volumes and prices in the mining operations.
ƒHit also by the strong currency.
ƒStrong demand for mining equipment unlikely to compensate.
ƒLimited upside potential – take profit closer to our TP of IDR19,500.
Weather is still the problem
July’s contract mining data does not alleviate our concern about the impact of the unseasonal heavy rain on both production and production costs (while volume-wise coal volume and overburden removal grew 21.5% and 13.5% y-y, it remained flat m-m). Chairman of the Indonesian Coal Association, Bob Kamandanu, recently announced that the association has reduced its coal production forecast for this year from 320m tonnes to 300m tonnes, while PT Bayan Resources also declared force majeure on shipments from its Kalimantan mines due to heavy rains and flooding.
For United Tractors (UT), we are less concerned about production as it has proven its commitment to customers by delivering production on time, but the higher costs associated with this do concern us. This, plus the pressure on a stronger currency, has resulted in UT’s overall margins contracting by 4.8% in the 1H10, basically offsetting the strong turnaround in the heavy equipment segment.
Demand for heavy equipment remained strong
Despite the fact that total coal production in Indonesia may decline, we expect demand for heavy equipment, especially in the mining sector, to remain strong. On top of the new order for expansion announced by the existing coal companies, we believe demand will be supported by replacements for machineries purchased in 2003-2004. We expect demand growth of 75% in 2010 and 15% in 2011 and 2012. Year to July, heavy machinery posted volume growth of 87% to 3,200 units, accounting for 59% of our FY10 volume estimate.
Valuation
Unusual weather (which has raised operating costs in the contract mining business) and concerns about the impact of the strengthening currency (90% of UT’s earnings are USD-linked) are factors preventing us from being more bullish on the company despite it showing exemplary dedication to customers and good corporate governance. Trading at 13.7x our 2011E earnings, we believe the upside is limited and would
advise investors to take profit closer to our TP of IDR19,500, which is derived based on a DCF using a WACC of 12.6% and terminal growth rate of 4.5%. Investors wanting a commodity play will do better owning coal stocks, in our view. Downside risks to our TP for UT: a strengthening IDR and adverse weather patterns. Upside risks: higher-than-expected coal volumes and prices in the mining operations.
Mansek UNTR:7M10 heavy equipment unit sales up 87%yoy (UNTR,Rp18,700,Buy,TP:Rp21,700)
As of 7M10 heavy equipment unit sales reached 3200(+87%yoy)representing some 64%of our and UNTR ’s Fy10F of 5k units.On mom basis it actually fell a bit by 8%to 468 units .Mining sector continues to be the biggest demand driver with some 59%of total units sold as of 7M10.We continue to maintain our FY10F of 5k considering some seasonality in the months of Sept and Dec.We currently have a buy on the stock PER11F of 13.6x with tp of Rp21,700.
Mansek ISAT:1H10 results hurt by higher financing cost and lower forex gains (ISAT,Rp4,625,Buy,TP:Rp5,400)
As we reported last week,ISAT ’s net profit fell to Rp287bn (-72%yoy)even though operationally the results were in-line on revenue and operating levels.The rise in financing costs (+22%yoy)to Rp1.1tn and lower forex gain due to Rupiah strengthening (-49%yoy)of Rp370bn led to the shortfall in net earnings way below consensus and ours.Additionally, 1H10 subscribers were at 37.8mn (+35%yoy),however this is lower than the subscriber base in 1Q10 of 39.1mn.
Apparently,among the 3 major telco operators,only Indosat registered a qoq decline on subscribers as of 1H10.On the bright-side,despite the drop in subscriber numbers,its cellular revenues grew the highest qoq at 7.7%versus EXCL and Telkomsel ’ s 4.2%and 5.7% growth respectively.Among the big 3 operator ’s revenue market share of ISAT stood at 18% and continues to trail Telkom (66%revenue market share)but is still ahead of EXCL (which accounted for 16%revenue market share among the 3 operators).Currently the stock trades at PER10F 15.4x.
Apparently,among the 3 major telco operators,only Indosat registered a qoq decline on subscribers as of 1H10.On the bright-side,despite the drop in subscriber numbers,its cellular revenues grew the highest qoq at 7.7%versus EXCL and Telkomsel ’ s 4.2%and 5.7% growth respectively.Among the big 3 operator ’s revenue market share of ISAT stood at 18% and continues to trail Telkom (66%revenue market share)but is still ahead of EXCL (which accounted for 16%revenue market share among the 3 operators).Currently the stock trades at PER10F 15.4x.
Mansek London Sumatra:1H10 results were within ours and consensus estimates (LSIP,Rp9,300,Buy,TP:Rp10,200)
LSIP reported 1H10 net income of Rp418bn (+45.7% yoy), represented 44.5% of our FY forecast and and 44.3% of consensus estimates. These results were within our expectation. Historically, 1H net income in 2006, 2007 and 2009 represented between 30% and 41% of FY net income.
Revenue increased by 8.3% yoy. 2Q10 revenue was higher than 1Q10 by 30.3% qoq. Operating margin in 2Q10 reached 38.1%, which improved from 34.3% in 1Q10, it is higher than our target for FY10 of 35.3%.
COGS decreased by 3.3% yoy mainly due to decrease in upkeep and cultivation cost from Rp150bn in 1H09 to RpRp125bn in 1H10, which mainly due to lower fertilizer application in 1H10, therefore we expect the upkeep and cultivation cost will increase in 2H10.
There is a cost-saving initiative by reducing lavish bonus payment to employees, which paid in 1H. It results a decrease in remuneration and employee benefit expenses in G&A from Rp123bn in 1H09 to Rp108bn in 1H10.
At current price, LSIP is trading at 2010F and 2011F PER of 13.3x and 11.9x. We maintain our BUY recommendation on the counter.
Revenue increased by 8.3% yoy. 2Q10 revenue was higher than 1Q10 by 30.3% qoq. Operating margin in 2Q10 reached 38.1%, which improved from 34.3% in 1Q10, it is higher than our target for FY10 of 35.3%.
COGS decreased by 3.3% yoy mainly due to decrease in upkeep and cultivation cost from Rp150bn in 1H09 to RpRp125bn in 1H10, which mainly due to lower fertilizer application in 1H10, therefore we expect the upkeep and cultivation cost will increase in 2H10.
There is a cost-saving initiative by reducing lavish bonus payment to employees, which paid in 1H. It results a decrease in remuneration and employee benefit expenses in G&A from Rp123bn in 1H09 to Rp108bn in 1H10.
At current price, LSIP is trading at 2010F and 2011F PER of 13.3x and 11.9x. We maintain our BUY recommendation on the counter.
Deutsche United Tractors - July update: heavy rain continued Reiterate Buy rating with TP Rp22,250
July heavy equipment sales: +50% YoY; -8% MoM
Komatsu sales in July reached 468 units, as improvements were dominated by commodity-related sectors (mining, agriculture, forestry) with double digit increases, while construction division remained stable. Overall, Komatsu sales are in line with our forecast with sales reaching 3,200 units (+87% YTD), accounting 63% of our 2010 target of 5,050 units.
Mining contracting had flat MoM performance
In July, Pama Persada's coal delivery and overburden posted a slight YoY increase (+3% and +2%) and flat MoM of 6.3 mn tons and 53.7m bcm. To date, Pama's sales reached 44mn tons and 368.2m bcm, accounting 54% and 51% for coal removal and overburden, respectively.
Coal sales continued to show MoM improvements
Despite the continuous heavy rain, United Tractor's coal mining division recorded further sales improvements reaching 219k tons (-6% YoY; +29% MoM; excl. Tuah Turangga Agung (TTA)) due to smoother delivery processes. Coal sales are expected to continue improving, as currently TTA's small contribution has not been accounted yet. Up to July, coal business reached 36% of our full-year target of 4mn tons translating to 1.42mn tons or +2% YTD.
Reiterate Buy rating with TP Rp22,250
United Tractors' good corporate governance and strong earnings prospects are sustained by buoyant commodity prices, esp. palm oil and Indonesian coal mines' expansion. Faster realization of infrastructure projects and coal price of more than US$85/ton provide upside catalysts.
Komatsu sales in July reached 468 units, as improvements were dominated by commodity-related sectors (mining, agriculture, forestry) with double digit increases, while construction division remained stable. Overall, Komatsu sales are in line with our forecast with sales reaching 3,200 units (+87% YTD), accounting 63% of our 2010 target of 5,050 units.
Mining contracting had flat MoM performance
In July, Pama Persada's coal delivery and overburden posted a slight YoY increase (+3% and +2%) and flat MoM of 6.3 mn tons and 53.7m bcm. To date, Pama's sales reached 44mn tons and 368.2m bcm, accounting 54% and 51% for coal removal and overburden, respectively.
Coal sales continued to show MoM improvements
Despite the continuous heavy rain, United Tractor's coal mining division recorded further sales improvements reaching 219k tons (-6% YoY; +29% MoM; excl. Tuah Turangga Agung (TTA)) due to smoother delivery processes. Coal sales are expected to continue improving, as currently TTA's small contribution has not been accounted yet. Up to July, coal business reached 36% of our full-year target of 4mn tons translating to 1.42mn tons or +2% YTD.
Reiterate Buy rating with TP Rp22,250
United Tractors' good corporate governance and strong earnings prospects are sustained by buoyant commodity prices, esp. palm oil and Indonesian coal mines' expansion. Faster realization of infrastructure projects and coal price of more than US$85/ton provide upside catalysts.
BNPP Bank Central Asia (BBCA IJ) - a good bank at a price (TP IDR5,650; HOLD)
We raise our TP for BCA to IDR5,650 equivalent to 3.4x P/BV 2011E, based on 1 STD above the average valuation since 2003. Given its stable operation, conservative management and high ROE of 25%, the stock remain a core holding for investors. However, we do not suggest to chase them at the current level but at around IDR5,000 it provides good entry level.
Loan growth is expected at 20-21% in 2010-2012 with particular exposure into the consumer lending, especially mortgage and car loans. While it is safe, this has also affect the bank's NIM given the low spread for the mortgage, which account for 49% of consumer loans (24% of total loans). Low NIM in 2010 is also due to the accounting change, which now recognises income from SBI booked under the trading account as trading income, part of non-interest income.
BCA's low LDR of 52% is likely to get impacted by the upcoming Bank Indonesia's ruling which will likely penalise banks with LDR of <78%. We however, believe that the impact will not be significant as the bank will need to set aside higher reserve requirement in the form of government paper, which still earn interest.
The bank has outperformed the market by 1% YTD and remains as a core holding. Maintain HOLD.
Loan growth is expected at 20-21% in 2010-2012 with particular exposure into the consumer lending, especially mortgage and car loans. While it is safe, this has also affect the bank's NIM given the low spread for the mortgage, which account for 49% of consumer loans (24% of total loans). Low NIM in 2010 is also due to the accounting change, which now recognises income from SBI booked under the trading account as trading income, part of non-interest income.
BCA's low LDR of 52% is likely to get impacted by the upcoming Bank Indonesia's ruling which will likely penalise banks with LDR of <78%. We however, believe that the impact will not be significant as the bank will need to set aside higher reserve requirement in the form of government paper, which still earn interest.
The bank has outperformed the market by 1% YTD and remains as a core holding. Maintain HOLD.
Citigroup Nippon Indosari Corpindo Tbk - Analyzed Non-Rated Snapshot
Company Overview — The company was established in 1995 as PT Nippon Indosari Corporation (ROTI.JK). Today it is the largest high quality bread manufacturer in Indonesia with a 90% market share in the mass market segment.
Business Strategy — Leveraging on the favourable prospects of the industry, it aims a) to broaden its reach and increase its market penetration by expanding to 5 new areas mainly Semarang, Medan, West Jakarta, Palembang and Balikpapan/Makassar over the next 4 years; and b) continue implementing an effective supply chain management (SCM) to maintain its competitive edge.
Industry Overview — The Indonesian bakery market provides favourable prospects given the low consumption per capita of bread supported by a population of 237m. In the last 5 years alone, sales of bread by volume and revenues have been growing by 7.1% and 13.6% CAGR respectively. ROTI’s commanded no more than 5.2% of the total baked goods market in 2008 (see Figure 2).
Competitive Analysis — 85% of the Indonesian bakery industry is controlled by the home/small category which is comprised of 5,000 producers with a 5-30km distribution coverage and no branding. The remaining 15% is split amongst mass production and boutique bakeries. The mass production is comprised of only a few enterprises (including ROTI who commands 90% market share) with a100-200km distribution coverage and branding. Boutique bakeries are mainly in franchise formats, located in permanent shops and with branding.
Recent Results — 1H10 net profits grew 39% YoY to Rp41bn underpinned by the 21.6% YoY growth in revenues which helped cushion the 22.5% increases in COGS and 14.9% increases in operating expenses.
Strengths — 1) Large untapped market (esp. outside Java) and low consumption per capita of bread in Indonesia. 2) Extensive distribution network (over 19k direct outlets and growing). 3) Established reputation and household brand name. 4) Ability to raise avg. selling prices through product differentiation and innovations. 5) Experienced mgmt team with high industry standing and good track record.
Weaknesses — 1) Short life of bread: Given the short shelf life of bread (only 5 days), ROTI needs to always ensure that bread delivery is efficient and loss return ratio kept to a minimum. Fresh deliveries are made by purpose-built trucks supplied by rental companies. Unsold breads are withdrawn from market 4 days after prod’n to ensure freshness. To date, ROTI manages to keep its loss return ratio at a min. of 7% in its Cikarang factory. 2) Operating at nearly full capacity:
ROTI currently operates with a 75% utilization capacity for white bread and 98% utilization capacity for sweet bread. To address this, expansion plans are ongoing.
Business Strategy — Leveraging on the favourable prospects of the industry, it aims a) to broaden its reach and increase its market penetration by expanding to 5 new areas mainly Semarang, Medan, West Jakarta, Palembang and Balikpapan/Makassar over the next 4 years; and b) continue implementing an effective supply chain management (SCM) to maintain its competitive edge.
Industry Overview — The Indonesian bakery market provides favourable prospects given the low consumption per capita of bread supported by a population of 237m. In the last 5 years alone, sales of bread by volume and revenues have been growing by 7.1% and 13.6% CAGR respectively. ROTI’s commanded no more than 5.2% of the total baked goods market in 2008 (see Figure 2).
Competitive Analysis — 85% of the Indonesian bakery industry is controlled by the home/small category which is comprised of 5,000 producers with a 5-30km distribution coverage and no branding. The remaining 15% is split amongst mass production and boutique bakeries. The mass production is comprised of only a few enterprises (including ROTI who commands 90% market share) with a100-200km distribution coverage and branding. Boutique bakeries are mainly in franchise formats, located in permanent shops and with branding.
Recent Results — 1H10 net profits grew 39% YoY to Rp41bn underpinned by the 21.6% YoY growth in revenues which helped cushion the 22.5% increases in COGS and 14.9% increases in operating expenses.
Strengths — 1) Large untapped market (esp. outside Java) and low consumption per capita of bread in Indonesia. 2) Extensive distribution network (over 19k direct outlets and growing). 3) Established reputation and household brand name. 4) Ability to raise avg. selling prices through product differentiation and innovations. 5) Experienced mgmt team with high industry standing and good track record.
Weaknesses — 1) Short life of bread: Given the short shelf life of bread (only 5 days), ROTI needs to always ensure that bread delivery is efficient and loss return ratio kept to a minimum. Fresh deliveries are made by purpose-built trucks supplied by rental companies. Unsold breads are withdrawn from market 4 days after prod’n to ensure freshness. To date, ROTI manages to keep its loss return ratio at a min. of 7% in its Cikarang factory. 2) Operating at nearly full capacity:
ROTI currently operates with a 75% utilization capacity for white bread and 98% utilization capacity for sweet bread. To address this, expansion plans are ongoing.
NISP Wika obtains Rp4.50tn contracts until mid August (WIKA, Rp580)
Wijaya Karya shared that it has obtained Rp4.50tn in new contracts until mid August from its full year target of Rp10.00tn.
This includes an LPG tube relocation of Pertamina in Tanjung Priok worth Rp268.0bn and the Tayan chemical grade alumina infrastructure project worth US$314.0mn.
WIKA is trading at 2011F consensus PER of 10.1x and EV/EBITDA of 3.8x.
This includes an LPG tube relocation of Pertamina in Tanjung Priok worth Rp268.0bn and the Tayan chemical grade alumina infrastructure project worth US$314.0mn.
WIKA is trading at 2011F consensus PER of 10.1x and EV/EBITDA of 3.8x.
NISP Delta Dunia Makmur negotiates to rollover maturing contracts (DOID, Rp840)
Delta Dunia Makmur, which controls Indonesia’s second largest coal mining contractor, is intensively negotiating with its clients to renew their existing contracts. Delta also aims to obtain new contracts from potential clients this year.
Delta currently holds 12 coal mining contracts from reputable clients, which are the key players in the Indonesian coal business. From those contracts, two will be expire soon, which are from Bukit Baiduri and Arutmin. Delta added that it is optimistic it can renew these contracts.
Delta’s largest client is Berau Coal, (BRAU, Rp445) which contributes 33% of the company’s total contracts.
DOID is trading at 2011F consensus PER of 6.5x and EV/EBITDA of 4.7x.
Delta currently holds 12 coal mining contracts from reputable clients, which are the key players in the Indonesian coal business. From those contracts, two will be expire soon, which are from Bukit Baiduri and Arutmin. Delta added that it is optimistic it can renew these contracts.
Delta’s largest client is Berau Coal, (BRAU, Rp445) which contributes 33% of the company’s total contracts.
DOID is trading at 2011F consensus PER of 6.5x and EV/EBITDA of 4.7x.
NISP Lonsum net income jumps by 48.9% YoY (LSIP, Rp9,300)
In 1H10, London Sumatera managed to book net income of Rp417.8bn, a 45.7% YoY jump from Rp286.7bn in 1H09. Sales was up by 8.3% from Rp1.45tn to Rp1.57tn.
Profitability improved as the company reduced operating expenses making operating margin increase by a significant 8.9% to 36.4% in 1H10. However a reduction in interest expense to only Rp15.1bn was offset by forex losses of Rp13.7bn from an interest expense of Rp25.6bn and forex gain of Rp14.6bn. This made net margin only improve by 6.8% to 26.7%.
On a quarterly basis, revenue growth was strong, increasing by 30.3% to Rp886.2bn, making net income jump by 48.9% to Rp167.9bn.
LSIP is trading at 2011F consensus PER of 12.2x and EV/EBITDA of 7.7x.
Profitability improved as the company reduced operating expenses making operating margin increase by a significant 8.9% to 36.4% in 1H10. However a reduction in interest expense to only Rp15.1bn was offset by forex losses of Rp13.7bn from an interest expense of Rp25.6bn and forex gain of Rp14.6bn. This made net margin only improve by 6.8% to 26.7%.
On a quarterly basis, revenue growth was strong, increasing by 30.3% to Rp886.2bn, making net income jump by 48.9% to Rp167.9bn.
LSIP is trading at 2011F consensus PER of 12.2x and EV/EBITDA of 7.7x.
NISP Indocement production to reach 17.6 mn tons (INTP, Rp17,350)
Indocement will add 1.5mn tons capacity this year as production from its Cirebon plant starts next month. The new plant has a full capacity of 4mn tons per year.
The company has total capacity of 18.6mn tons however only expects production this year to reach 17.6mn tons. Indocement holds 31.5% market share until 7M10, where total demand reaches 41.5mn tons.
Althought cement sales were strong in 1H10 where growth reached 15.2% YoY, management is pessimistic that it can continue this performance, where growth in the second half is only expected to reach 10.7%.
Indocement plans to increase the number of cement grinding plant in this third quarter, with expected cost to reach US$70mn.
INTP is trading at 2011F PER of 15.2x and EV/EBITDA of 7.4x.
The company has total capacity of 18.6mn tons however only expects production this year to reach 17.6mn tons. Indocement holds 31.5% market share until 7M10, where total demand reaches 41.5mn tons.
Althought cement sales were strong in 1H10 where growth reached 15.2% YoY, management is pessimistic that it can continue this performance, where growth in the second half is only expected to reach 10.7%.
Indocement plans to increase the number of cement grinding plant in this third quarter, with expected cost to reach US$70mn.
INTP is trading at 2011F PER of 15.2x and EV/EBITDA of 7.4x.
NISP United Tractors maintains production speed (UNTR, Rp18,700, Hold)
Despite posting a MoM decrease in its heavy equipment sales last month, UT managed to post a stable coal production of 6.3mn tons in its mining contractor business. During July, Pama, UT’s arm in this business, also posted a stable amount of overburden at 53.7mn tons compared to 53.8mn tons a month earlier.
Meanwhile, in its coal mine business, UT sold a higher volume of 219k tons last month that made the company’s 7M10 coal sales volume reached 1.42mn tons, 1.9%YoY higher from 1.39mn tons in 7M09.
Overall, the company’s operational data came in inline with our expectation, however, as the company pushes its mining coal contracting output amid rainfall season, it may affect UT’s profitability in 3Q10.
Currently, UNTR is trading at 2011F PER of 12.8x and EV/EBITDA of 6.7x, Hold .
Meanwhile, in its coal mine business, UT sold a higher volume of 219k tons last month that made the company’s 7M10 coal sales volume reached 1.42mn tons, 1.9%YoY higher from 1.39mn tons in 7M09.
Overall, the company’s operational data came in inline with our expectation, however, as the company pushes its mining coal contracting output amid rainfall season, it may affect UT’s profitability in 3Q10.
Currently, UNTR is trading at 2011F PER of 12.8x and EV/EBITDA of 6.7x, Hold .
CIMB Sector Update – Construction – On strong foundation
We have started liking the Indonesian construction sector for three reasons: 1) improving prospects from higher government spending and a more optimistic view on the implementation of infrastructure projects; 2) contractors appear to be managing a higher industry tax well amid global economic uncertainties, after struggling in the past two years; and 3) repaired balance sheets should help to improve risk perception. While public-sector projects are expected to lead growth, the budding property-sector recovery suggests private-sector projects have the capacity to surprise on the upside. Key catalysts would be a pick-up in the execution of investment and infrastructure projects, while key risks would be another delay in deregulation which may hinder infrastructure project development. Our top picks are PTPP, WIKA and TOTL, given their growth appeal and balance-sheet strength.
The Star Online - Big investors moving away from stocks into gold and bonds
NEW YORK: The smart money has moved away from stocks. So is the era of stock investing over?
It's too early to tell, but one thing is certain: "Money goes where it is treated best, and that hasn't been in stocks," says Wade Slome, who advises high net-worth investors and runs a hedge fund at his firm, Sidoxia Capital Management in Newport Beach, California.
The overall stock market is down over the past decade, while the price of gold has more than quadrupled and corporate bond returns have doubled. Couple that with the slow economy, and hedge fund managers and institutional investors continue to shift money away from stocks to investments they think will be safer.
An estimated $170 billion has been put in bond funds this year, while $35 billion has been pulled from stock funds, according to the Investment Company Institute, a trade group for the mutual fund industry.
So much for buy and hold.
Analysts at Bespoke Investment Group say we're in a "drive-by market." Their take: Stock investors aren't anticipating or analyzing anything. They just react to the news of the day and then move on to the next thing.
Three months ago, the survival of European banks and economies was front and center. Now, it's barely mentioned. Same goes for the "flash crash" in May. News of strong corporate earnings one day can drive the market sharply higher, but a weak earnings report the next can send prices plunging.
"Investors look at what is in front of them at that minute, and that's it," says Paul Hickey, one of the founders of the investment research firm.
The volatility begets more volatility, which further unnerves investors who have been punished by losses over the last decade. The total return, including dividend, for the benchmark Standard & Poor's 500 index is down about 11 percent since August 2000, according to Bespoke.
That means an investor who put in $10,000 in an S&P index fund 10 years ago and held it now has less than $9,000 to show for it.
Billionaire investor George Soros is one of those who bolted out of stocks in the second quarter. His Soros Fund Management reduced its stock holdings by about 40 percent to $5.1 billion from April through June, according to a quarterly report filed Aug. 17 with U.S. securities regulators. The fund sold 93 percent of its stake in Pfizer and 98 percent of its stake in Wal-Mart during the quarter. LINK
It's too early to tell, but one thing is certain: "Money goes where it is treated best, and that hasn't been in stocks," says Wade Slome, who advises high net-worth investors and runs a hedge fund at his firm, Sidoxia Capital Management in Newport Beach, California.
The overall stock market is down over the past decade, while the price of gold has more than quadrupled and corporate bond returns have doubled. Couple that with the slow economy, and hedge fund managers and institutional investors continue to shift money away from stocks to investments they think will be safer.
An estimated $170 billion has been put in bond funds this year, while $35 billion has been pulled from stock funds, according to the Investment Company Institute, a trade group for the mutual fund industry.
So much for buy and hold.
Analysts at Bespoke Investment Group say we're in a "drive-by market." Their take: Stock investors aren't anticipating or analyzing anything. They just react to the news of the day and then move on to the next thing.
Three months ago, the survival of European banks and economies was front and center. Now, it's barely mentioned. Same goes for the "flash crash" in May. News of strong corporate earnings one day can drive the market sharply higher, but a weak earnings report the next can send prices plunging.
"Investors look at what is in front of them at that minute, and that's it," says Paul Hickey, one of the founders of the investment research firm.
The volatility begets more volatility, which further unnerves investors who have been punished by losses over the last decade. The total return, including dividend, for the benchmark Standard & Poor's 500 index is down about 11 percent since August 2000, according to Bespoke.
That means an investor who put in $10,000 in an S&P index fund 10 years ago and held it now has less than $9,000 to show for it.
Billionaire investor George Soros is one of those who bolted out of stocks in the second quarter. His Soros Fund Management reduced its stock holdings by about 40 percent to $5.1 billion from April through June, according to a quarterly report filed Aug. 17 with U.S. securities regulators. The fund sold 93 percent of its stake in Pfizer and 98 percent of its stake in Wal-Mart during the quarter. LINK
Business Times CPO futures easier on technical selling
CPO FUTURES
CRUDE palm oil (CPO) futures prices on Bursa Malaysia Derivatives were lower at close yesterday due to technical selling, dealers said.
They said some market players were a little bit concerned over possible slower demand in the near future as well as stock build-up as production improved.
"Overall, the market was affected by the lack of fresh leads but sentiment remained positive," a dealer said.
At the close, September 2010 fell RM47 to RM2,670 per tonne, October 2010 decreased RM58 to RM2,570 per tonne, November 2010 went down RM50 to RM2,510 per tonne and December 2010 was RM59 lower at RM2,481 per tonne.
RUBBER
THE Malaysian rubber market continued its downtrend yesterday, tracking the weak position of the Tokyo Commodity Exchange, dealers said.
They said the local market also remained quiet in the absence of fresh leads.
At noon, the Malaysian Rubber Board’s official physical price for tyre-grade SMR 20 fell 2 sen to 972.5 sen per kg while latex in bulk slid 0.5 sen to 696.0 sen.
The unofficial sellers’ closing price for tyre-grade SMR 20 was down by 2.5 sen to 971.0 sen while latex in bulk was unchanged at 696.0 sen.
TIN
THE Kuala Lumpur Tin Market (KLTM) improved US$150 (US$1.00 = RM3.15) to close at US$20,770 per tonne yesterday despite a downtrend on the London Metal Exchange (LME), dealers said.
They said market players were reluctant to reduce their holdings despite the overnight losses on the LME, as they believed, the tin price would rebound after falling sharply on Monday.
The tin price on the LME fell US$200 to close at US$20,460 per tonne.
On the local front, bids totalled 45 tonnes and offers were at 32 tonnes.
Turnover fell to 30 tonnes from Monday's 85 tonnes with buyers emerging from Japan, Europe and locally.
The premium between the KLTM and the LME widened to US$690 per tonne from Monday's US$340 per tonne. — Bernama LINK
CRUDE palm oil (CPO) futures prices on Bursa Malaysia Derivatives were lower at close yesterday due to technical selling, dealers said.
They said some market players were a little bit concerned over possible slower demand in the near future as well as stock build-up as production improved.
"Overall, the market was affected by the lack of fresh leads but sentiment remained positive," a dealer said.
At the close, September 2010 fell RM47 to RM2,670 per tonne, October 2010 decreased RM58 to RM2,570 per tonne, November 2010 went down RM50 to RM2,510 per tonne and December 2010 was RM59 lower at RM2,481 per tonne.
RUBBER
THE Malaysian rubber market continued its downtrend yesterday, tracking the weak position of the Tokyo Commodity Exchange, dealers said.
They said the local market also remained quiet in the absence of fresh leads.
At noon, the Malaysian Rubber Board’s official physical price for tyre-grade SMR 20 fell 2 sen to 972.5 sen per kg while latex in bulk slid 0.5 sen to 696.0 sen.
The unofficial sellers’ closing price for tyre-grade SMR 20 was down by 2.5 sen to 971.0 sen while latex in bulk was unchanged at 696.0 sen.
TIN
THE Kuala Lumpur Tin Market (KLTM) improved US$150 (US$1.00 = RM3.15) to close at US$20,770 per tonne yesterday despite a downtrend on the London Metal Exchange (LME), dealers said.
They said market players were reluctant to reduce their holdings despite the overnight losses on the LME, as they believed, the tin price would rebound after falling sharply on Monday.
The tin price on the LME fell US$200 to close at US$20,460 per tonne.
On the local front, bids totalled 45 tonnes and offers were at 32 tonnes.
Turnover fell to 30 tonnes from Monday's 85 tonnes with buyers emerging from Japan, Europe and locally.
The premium between the KLTM and the LME widened to US$690 per tonne from Monday's US$340 per tonne. — Bernama LINK
Financial Time Gloomy data spark Wall Street sell-off
US stocks sunk on Tuesday as investors across the world fled risky assets and Wall Street feared that weak housing figures could pave the way for even more disappointing economic data.
The S&P 500 closed down 1.5 per cent to 1,057.43, the Dow Jones Industrial Average fell 1.3 per cent to close at 10,040.45 and the Nasdaq Composite was lower by 1.7 per cent to close at 2,123.76.
Eight of the 10 main sectors of the S&P 500 fell in a broad-based sell-off, with seven down more than 1 per cent.
Existing home sales in July dropped more than expected. The S&P 500 housebuilders index was only down 0.1 per cent after a Citigroup analyst said they may be a good investment in the longer term. But the wider market was still shaken by the drop in sales.
Ryan Detrick, senior strategist at Schaeffer’s Investment Research, said that the housing data could signal a double-dip but that there was other data, including manufacturing, which were not indicating a return to recession.
However, he added: “The overall sentiment is getting very negative here and rightly so as we see things quickly deteriorating on the economic front. That’s how short-term violent bottoms can form.”
Investors were unimpressed by data from the Richmond Federal Reserve’s manufacturing index, which was better than expected but still showed a fall in industrial activity.
Instead, they turned their attention to a possible revision to the second-quarter GDP figure, due to be released on Friday.
Most economists are predicting that GDP, which was reported to have risen 2.4 per cent, will be revised down to about 1.4 per cent. LINK
The S&P 500 closed down 1.5 per cent to 1,057.43, the Dow Jones Industrial Average fell 1.3 per cent to close at 10,040.45 and the Nasdaq Composite was lower by 1.7 per cent to close at 2,123.76.
Eight of the 10 main sectors of the S&P 500 fell in a broad-based sell-off, with seven down more than 1 per cent.
Existing home sales in July dropped more than expected. The S&P 500 housebuilders index was only down 0.1 per cent after a Citigroup analyst said they may be a good investment in the longer term. But the wider market was still shaken by the drop in sales.
Ryan Detrick, senior strategist at Schaeffer’s Investment Research, said that the housing data could signal a double-dip but that there was other data, including manufacturing, which were not indicating a return to recession.
However, he added: “The overall sentiment is getting very negative here and rightly so as we see things quickly deteriorating on the economic front. That’s how short-term violent bottoms can form.”
Investors were unimpressed by data from the Richmond Federal Reserve’s manufacturing index, which was better than expected but still showed a fall in industrial activity.
Instead, they turned their attention to a possible revision to the second-quarter GDP figure, due to be released on Friday.
Most economists are predicting that GDP, which was reported to have risen 2.4 per cent, will be revised down to about 1.4 per cent. LINK
Reuters METALS-Copper ends near 1-mth low on weak US housing data
* Base metals all fall sharply on dreary US housing data
* July U.S. existing home sales plummet 27 percent
* Coming up: US July new homes sales, durable goods data
(Recasts, updates prices, market activity to New York close, adds second
byline, dateline, previously LONDON)
By Selam Gebrekidan and Maytaal Angel
NEW YORK/LONDON, Aug 24 (Reuters) - Copper futures tumbled on Tuesday to
their lowest level in nearly a month after U.S. July new home sales data fell
more than expected, reinforcing worries about the demand outlook.
Benchmark copper CMCU3 on the London Metal Exchange ended at $7,137 from
a close of $7,255 on Monday. The metal used in power and construction touched a
session low of $7,105 a tonne, its lowest since July 28.
Copper for September delivery HGU0 fell 5.05 cents, or 1.53 percent, to
close at $3.241 per lb on the COMEX metals division of the New York Mercantile
Exchange.
Copper slumped after news that sales of previously owned U.S. homes in July
dropped more steeply than expected, exacerbating worries about the economy.
[ID:nN24196313]
"Very poor homes sales numbers have seen base metals weaken significantly,"
said David Thurtell, analyst at Citi.
PREMIUM
Aluminium CMAL3, used in transport and packaging, was untraded at the
close, but bid at $2,028 a tonne from $2,040 on Monday, having hit its lowest
since July 22 at $2,010.
Traders are watching a premium, or backwardation, of around $6 a tonne on
LME aluminium to be delivered on Wednesday and bought back on Thursday -- known
as the tom/next, and often used to lend metal to entities who are short.
CMALT-0
The backwardation has emerged because of two significant positions holding
between 30 and 40 percent of aluminium stock warrants and cash contracts.
[ID:nLDE67H16C]
These holdings are said to be in lieu of financing deals, which have tied
up about 70 percent of LME aluminium stocks. These deals release cash for
producers and earn banks higher returns then they would in money markets.
Tin CMSN3 ended at $20,400, down from $20,460 on Monday. Earlier it
touched $20,160, its lowest since Aug. 12.
Zinc CMZN3 closed at $1,991, down from $2,044 on Monday, having touched a
session low of $1,985.
Battery material lead CMPB3 ended at $2,013 from $2,048. That compares
with a session low of $2,000.
Stainless steel making ingredient nickel CMNI3 ended at $20,599 from
$21,200. It fell as low as $20,510. LINK
* July U.S. existing home sales plummet 27 percent
* Coming up: US July new homes sales, durable goods data
(Recasts, updates prices, market activity to New York close, adds second
byline, dateline, previously LONDON)
By Selam Gebrekidan and Maytaal Angel
NEW YORK/LONDON, Aug 24 (Reuters) - Copper futures tumbled on Tuesday to
their lowest level in nearly a month after U.S. July new home sales data fell
more than expected, reinforcing worries about the demand outlook.
Benchmark copper CMCU3 on the London Metal Exchange ended at $7,137 from
a close of $7,255 on Monday. The metal used in power and construction touched a
session low of $7,105 a tonne, its lowest since July 28.
Copper for September delivery HGU0 fell 5.05 cents, or 1.53 percent, to
close at $3.241 per lb on the COMEX metals division of the New York Mercantile
Exchange.
Copper slumped after news that sales of previously owned U.S. homes in July
dropped more steeply than expected, exacerbating worries about the economy.
[ID:nN24196313]
"Very poor homes sales numbers have seen base metals weaken significantly,"
said David Thurtell, analyst at Citi.
PREMIUM
Aluminium CMAL3, used in transport and packaging, was untraded at the
close, but bid at $2,028 a tonne from $2,040 on Monday, having hit its lowest
since July 22 at $2,010.
Traders are watching a premium, or backwardation, of around $6 a tonne on
LME aluminium to be delivered on Wednesday and bought back on Thursday -- known
as the tom/next, and often used to lend metal to entities who are short.
The backwardation has emerged because of two significant positions holding
between 30 and 40 percent of aluminium stock warrants and cash contracts.
These holdings are said to be in lieu of financing deals, which have tied
up about 70 percent of LME aluminium stocks. These deals release cash for
producers and earn banks higher returns then they would in money markets.
Tin CMSN3 ended at $20,400, down from $20,460 on Monday. Earlier it
touched $20,160, its lowest since Aug. 12.
Zinc CMZN3 closed at $1,991, down from $2,044 on Monday, having touched a
session low of $1,985.
Battery material lead CMPB3 ended at $2,013 from $2,048. That compares
with a session low of $2,000.
Stainless steel making ingredient nickel CMNI3 ended at $20,599 from
$21,200. It fell as low as $20,510. LINK
Reuters Fed's Evans says double-dip risk has risen
(Reuters) - The risks of a double-dip U.S. recession have risen in the last six months, Chicago Federal Reserve Bank President Charles Evans said on Tuesday.
While a new contraction in the economy is still not the most likely scenario, high unemployment and a fractured housing sector make this recovery a fragile one, he said.
"A double dip is not the most likely outcome but I am concerned about how strong the recovery will be," Evans said at a housing event in Indianapolis.
Against that backdrop, Evans said the Fed's ultra-easy monetary policy is appropriate.
In response to the financial crisis of 2007-2009, the U.S. central bank cut short term interest rates to near zero, and also undertook a host of emergency measures such as U.S. Treasury bond and mortgage debt purchases to keep borrowing costs down.
The Fed announced earlier this month it would add to this stimulus by investing proceeds from maturing mortgages securities in its portfolio into Treasury debt.
Evans said unemployment, currently at 9.5 percent, is likely to remain uncomfortably high for the foreseeable future.
His comments came just before a report on existing home sales showed a record monthly drop in existing home sales to their lowest level in 15 years.
PERVERSE INCENTIVES
In his speech, Evans argued that the securitization process, in which mortgages are repackaged into bonds that are then sold to investors, reduces the incentive of lenders to modify troubled home loans.
In remarks that focused on the country's housing market weakness and various attempts to ease it, Evans said efforts to modify home loans to prevent foreclosure were a "drop in the bucket" compared with the problem at hand.
"The securitization process appears to have created conflicts between the interests of servicers and lenders," Evans said. "These and other impediments have kept the number of modifications lower than we might have hoped."
The U.S. housing market has been in a downturn for about three years now, with home construction running at less than a quarter of its boom-time peaks and prices down sharply across the country.
Many economists worry that, without housing as an engine of growth, the economy could take much longer than usual to recover.
Evans also cast some doubt on the value of financial education in preventing mortgage and other borrower distress, a break from Fed tradition.
"Staff members at the Chicago Fed have recently undertaken a thorough review of studies evaluating the effects of financial education. What they find is that the evidence on the effectiveness of education and counseling is rather mixed," he said. LINK
While a new contraction in the economy is still not the most likely scenario, high unemployment and a fractured housing sector make this recovery a fragile one, he said.
"A double dip is not the most likely outcome but I am concerned about how strong the recovery will be," Evans said at a housing event in Indianapolis.
Against that backdrop, Evans said the Fed's ultra-easy monetary policy is appropriate.
In response to the financial crisis of 2007-2009, the U.S. central bank cut short term interest rates to near zero, and also undertook a host of emergency measures such as U.S. Treasury bond and mortgage debt purchases to keep borrowing costs down.
The Fed announced earlier this month it would add to this stimulus by investing proceeds from maturing mortgages securities in its portfolio into Treasury debt.
Evans said unemployment, currently at 9.5 percent, is likely to remain uncomfortably high for the foreseeable future.
His comments came just before a report on existing home sales showed a record monthly drop in existing home sales to their lowest level in 15 years.
PERVERSE INCENTIVES
In his speech, Evans argued that the securitization process, in which mortgages are repackaged into bonds that are then sold to investors, reduces the incentive of lenders to modify troubled home loans.
In remarks that focused on the country's housing market weakness and various attempts to ease it, Evans said efforts to modify home loans to prevent foreclosure were a "drop in the bucket" compared with the problem at hand.
"The securitization process appears to have created conflicts between the interests of servicers and lenders," Evans said. "These and other impediments have kept the number of modifications lower than we might have hoped."
The U.S. housing market has been in a downturn for about three years now, with home construction running at less than a quarter of its boom-time peaks and prices down sharply across the country.
Many economists worry that, without housing as an engine of growth, the economy could take much longer than usual to recover.
Evans also cast some doubt on the value of financial education in preventing mortgage and other borrower distress, a break from Fed tradition.
"Staff members at the Chicago Fed have recently undertaken a thorough review of studies evaluating the effects of financial education. What they find is that the evidence on the effectiveness of education and counseling is rather mixed," he said. LINK
Insider Stories Lonsum 1H net profit jumps 45.72%
Publicly listed palm oil producer PT PP London Sumatra Indonesia Tbk (Lonsum) today reports a 45.72% jump in net profit during the first half of this year on the back of shrinking costs.
In the financial statement submitted to Indonesia Stock Exchange today, Lonsum posted Rp417.78 billion net profit or Rp306 per share in 1H 2010 from Rp286.70 billion or Rp214 per share a year earlier. Operating profit rose 43.36% from Rp398.08 billion in 1H 2009 to Rp570.67 billion in 1H 2010.
Lonsum enabled to reduce both operating expenses and cost of goods sold (COGS) 11.98% and 3.33% respectively in 1H 2010. The company's operating expenses fell 11.98% from Rp204.18 billion in 1H 2009 to Rp179.71 billion in 1H 2010, while COGS abated from Rp844.17 billion in 1H 2009 to Rp816.04 billion in 1H 2010.
Lonsum booked Rp1.57 trillion sales in 1H 2010, a 8.28% increase from Rp1.45 trillion a year earlier. SIMP controls 32.21% stakes in Lonsum, Credit Suisse Singapore Trust SIMP owns 24.18%, Credit Suisse Singapore Trust Account Client Indofood Account Client Indofood Agri Resources Ltd holds 8.03%, and public share holders hold 35.58%. LINK
In the financial statement submitted to Indonesia Stock Exchange today, Lonsum posted Rp417.78 billion net profit or Rp306 per share in 1H 2010 from Rp286.70 billion or Rp214 per share a year earlier. Operating profit rose 43.36% from Rp398.08 billion in 1H 2009 to Rp570.67 billion in 1H 2010.
Lonsum enabled to reduce both operating expenses and cost of goods sold (COGS) 11.98% and 3.33% respectively in 1H 2010. The company's operating expenses fell 11.98% from Rp204.18 billion in 1H 2009 to Rp179.71 billion in 1H 2010, while COGS abated from Rp844.17 billion in 1H 2009 to Rp816.04 billion in 1H 2010.
Lonsum booked Rp1.57 trillion sales in 1H 2010, a 8.28% increase from Rp1.45 trillion a year earlier. SIMP controls 32.21% stakes in Lonsum, Credit Suisse Singapore Trust SIMP owns 24.18%, Credit Suisse Singapore Trust Account Client Indofood Account Client Indofood Agri Resources Ltd holds 8.03%, and public share holders hold 35.58%. LINK
Bisnis.com Delta Dunia negosiasi perpanjangan kontrak
JAKARTA: Perusahaan induk kontraktor pertambangan batu bara terbesar kedua di Indonesia PT Delta Dunia Makmur Tbk (DOID) sedang bernegosiasi untuk memperpanjang beberapa kontrak yang akan jatuh tempo dalam waktu dekat.
Selain itu, Delta Dunia juga bernegosiasi dengan pihak lain terkait dengan kontrak pertambangan batu bara yang baru.
"Ada beberapa kontrak yang ada sedang dinegosiasikan untuk diperpanjang. Kemungkinan sebelum akhir tahun ini. Saya belum bisa menyebutkan secara detail kontraknya," ujar Sekretaris Perusahaan Delta Dunia Andre Soelistyo ketika dihubungi Bisnis siang ini.
Berdasarkan materi Citi conference bulan ini, Delta Dunia, perusahaan induk kontraktor pertambangan batu bara terbesar kedua di Indonesia PT Bukit Makmur Mandiri Utama (BUMA), mempunyai 12 kontrak pertambangan batu bara.
Dari 12 kontrak tersebut, ada dua kontrak yang periodenya segera berakhir yakni dengan PT Bukit Baiduri Energy dan PT Arutmin Indonesia.
Periode kontrak dengan Baidury Energy mulai 2001 hingga 2010, sedangkan dengan Arutmin mulai 2008 hingga 2011.
Selain itu, ada dua kontrak yang jatuh tempo pada 2012 yakni dengan Grup Bayan yaitu Perkasa Inakakerta dan Marunda Graha Mineral.
Pendapatan terbesar BUMA tahun lalu berasal dari kontrak Berau Coal sebanyak 33%, Adaro sebesar 17%, dan Kideco Jaya Agung 14%.
Pada tahun lalu, produksi batu bara Berau Coal mencapai 14,3 juta ton, Arutmin Indonesia sebesar 19,3 juta ton, Adaro sebesar 40,6 juta ton, Kideo Jaya Agung sebesar 24,7 juta ton, dan Bayan Group 12 juta ton. (wiw)
Inilah daftar kontrak Bukit Makmur:
1. Berau Coal-Lati Periode 1998-2018
2. Berau Coal-Binungan Periode 2003-2018
3. Berau Coal-Suaran Port Periode 2003-2018
4. Kideco Periode 2004-2019
5. Adaro Periode 2009-2013
6. Bayan-Gunung Bayan Periode 2007-2013
7. Bayan-Perkasa Inakakerta Periode 2007-2012
8. Maruda Graha Mineral Periode 2003-2012
9. Lanna Harita Indonesia Periode 2001-2013
10. Arutmin Periode 2008-2011
11. Bukit Baiduri Energy Periode 2001-2010
12. Darma Henwa Periode 2010-2013.
LINK
Selain itu, Delta Dunia juga bernegosiasi dengan pihak lain terkait dengan kontrak pertambangan batu bara yang baru.
"Ada beberapa kontrak yang ada sedang dinegosiasikan untuk diperpanjang. Kemungkinan sebelum akhir tahun ini. Saya belum bisa menyebutkan secara detail kontraknya," ujar Sekretaris Perusahaan Delta Dunia Andre Soelistyo ketika dihubungi Bisnis siang ini.
Berdasarkan materi Citi conference bulan ini, Delta Dunia, perusahaan induk kontraktor pertambangan batu bara terbesar kedua di Indonesia PT Bukit Makmur Mandiri Utama (BUMA), mempunyai 12 kontrak pertambangan batu bara.
Dari 12 kontrak tersebut, ada dua kontrak yang periodenya segera berakhir yakni dengan PT Bukit Baiduri Energy dan PT Arutmin Indonesia.
Periode kontrak dengan Baidury Energy mulai 2001 hingga 2010, sedangkan dengan Arutmin mulai 2008 hingga 2011.
Selain itu, ada dua kontrak yang jatuh tempo pada 2012 yakni dengan Grup Bayan yaitu Perkasa Inakakerta dan Marunda Graha Mineral.
Pendapatan terbesar BUMA tahun lalu berasal dari kontrak Berau Coal sebanyak 33%, Adaro sebesar 17%, dan Kideco Jaya Agung 14%.
Pada tahun lalu, produksi batu bara Berau Coal mencapai 14,3 juta ton, Arutmin Indonesia sebesar 19,3 juta ton, Adaro sebesar 40,6 juta ton, Kideo Jaya Agung sebesar 24,7 juta ton, dan Bayan Group 12 juta ton. (wiw)
Inilah daftar kontrak Bukit Makmur:
1. Berau Coal-Lati Periode 1998-2018
2. Berau Coal-Binungan Periode 2003-2018
3. Berau Coal-Suaran Port Periode 2003-2018
4. Kideco Periode 2004-2019
5. Adaro Periode 2009-2013
6. Bayan-Gunung Bayan Periode 2007-2013
7. Bayan-Perkasa Inakakerta Periode 2007-2012
8. Maruda Graha Mineral Periode 2003-2012
9. Lanna Harita Indonesia Periode 2001-2013
10. Arutmin Periode 2008-2011
11. Bukit Baiduri Energy Periode 2001-2010
12. Darma Henwa Periode 2010-2013.
LINK
Citigroup Bank Rakyat Indonesia ( Persero ) (BBRI.JK) The Shopping List (Rate: Sell/Medium Risk)
What's New — BBRI plans a 2-1 or 4-1 stock split and has expressed a desire to acquire Bank Bukopin (BBKP IJ). The proposed stock split is premised on share price remaining above Rp10,000, to attract retail investors. BBKP is a Rp4Trn bank (market cap) with a 41% stake owned by BULOG, a state owned entity for commodity trading. The acquisition will expand BBRI's loan book by 13%, adding farmers that sell to BULOG, but will not address the concerns about increasing dependence on Time Deposits. Based on 51% purchase, the standalone Tier 1 ratio will decline by 50bps to 11.7% and CAR by 100bps to 13.1%.
Returns — The business model of BBKP generates low ROA of 1.1%, but ROE is boosted by high leverage to 17%, according to Bloomberg data as of June 10. It is trading at P/B of 1.4x (June 10) and PER of 8.1x (1H 2010A annualized). Credit Cost in 1H 2010 was only 0.5%.
Other Shareholders — Besides BULOG (40.5%), the shareholders include Government (16.9%) and two Employee Trusts with 11.9% and 6.6% respectively.
Bank Agroniaga (AGRO IJ) — BBRI is finalizing an acquisition of a small agriculture bank with an asset base of Rp3Trn (1% of BBRI). This is unlikely to have any material impact on its performance.
Investment strategy
We rate BBRI Sell/Medium Risk due to its strong stock performance, deteriorating loan quality and vulnerability to rising interest rates. Risks are increasing for banks due to high LDR (close to 90%) and deteriorating asset quality. Rising interest rates are likely to have a bigger impact on cost of funds than asset yields. BBRI's focus on asset growth has altered its balance sheet mix and dependence on time deposits.
Valuation
We use DDM to value Indonesian bank stocks due to declining bond yields. Our target price of Rp9,300 is based on DDM, using a 2011E DPS of Rp242. We assume BBRI will maintain a 30% payout ratio and 13.6% sustainable growth. BBRI has been growing loans at more than 20% but its earnings growth would likely be constrained by high LDR. Our cost of equity assumption is 16.2%, based on a 9.3% risk-free rate (6.0% inflation + 3.3% real rate, in line with the historical average) and a beta of 1.15x (1-year historical). Our target price implies a 2011E P/E of 11.5x (historical average) and P/B of 2.7x.
Risks
We assign a Medium Risk rating to BBRI due to operational risks - high LDR and a rising gross NPL ratio. Our quantitative risk-rating system, which tracks 260-day historical share price volatility, assigns it Low Risk. Upside risks that could prevent the stock from reaching our target price include sustained liquidity inflow, strong loan demand due to benign inflation (consumer/microfinance), and sharp export recovery (corporate).
Returns — The business model of BBKP generates low ROA of 1.1%, but ROE is boosted by high leverage to 17%, according to Bloomberg data as of June 10. It is trading at P/B of 1.4x (June 10) and PER of 8.1x (1H 2010A annualized). Credit Cost in 1H 2010 was only 0.5%.
Other Shareholders — Besides BULOG (40.5%), the shareholders include Government (16.9%) and two Employee Trusts with 11.9% and 6.6% respectively.
Bank Agroniaga (AGRO IJ) — BBRI is finalizing an acquisition of a small agriculture bank with an asset base of Rp3Trn (1% of BBRI). This is unlikely to have any material impact on its performance.
Investment strategy
We rate BBRI Sell/Medium Risk due to its strong stock performance, deteriorating loan quality and vulnerability to rising interest rates. Risks are increasing for banks due to high LDR (close to 90%) and deteriorating asset quality. Rising interest rates are likely to have a bigger impact on cost of funds than asset yields. BBRI's focus on asset growth has altered its balance sheet mix and dependence on time deposits.
Valuation
We use DDM to value Indonesian bank stocks due to declining bond yields. Our target price of Rp9,300 is based on DDM, using a 2011E DPS of Rp242. We assume BBRI will maintain a 30% payout ratio and 13.6% sustainable growth. BBRI has been growing loans at more than 20% but its earnings growth would likely be constrained by high LDR. Our cost of equity assumption is 16.2%, based on a 9.3% risk-free rate (6.0% inflation + 3.3% real rate, in line with the historical average) and a beta of 1.15x (1-year historical). Our target price implies a 2011E P/E of 11.5x (historical average) and P/B of 2.7x.
Risks
We assign a Medium Risk rating to BBRI due to operational risks - high LDR and a rising gross NPL ratio. Our quantitative risk-rating system, which tracks 260-day historical share price volatility, assigns it Low Risk. Upside risks that could prevent the stock from reaching our target price include sustained liquidity inflow, strong loan demand due to benign inflation (consumer/microfinance), and sharp export recovery (corporate).
Deutsche Equity Research - Asia BNI Alert : Higher rights issue increases valuation
BNI {Ticker: BBNI.JK, Closing Price: 3,375 IDR, Target Price: 3,900 IDR, Recommendation: Buy}
BNI will continue to pursue its rights issue plan in 4Q10, with the proposal has been submitted to parliament for approval. Our recent discussion with management suggests that the bank may want to increase the amount of rights issue (RI), while keeping the number of new shares issued at approximately 3,376m shares. The new size of RI issuance range would be Rp6.7-10.1tr, which is an increase from Rp4.0-7.0tr range. The increase comes as no surprise given the stock's recent share price performance. Given this, we gather that the market would be fully supportive of the proposed issuance.
We believe that raising the RI target would enhance the bank's valuations. In the table below we have provided several scenario analysis on the bank's fair valuation based on different pricing (Rp2,050, Rp2,500 abd Rp3,000) for RI and hence several different RI amounts. Based on our asessment, CAR would rise by380/460/550bps to 16.3/17.1/18.0% for FY10F. Our valuation would have risen to Rp4,155/4,360/4,587 respectively, from our current TP of Rp3,900. Maintain BUY.
BNI will continue to pursue its rights issue plan in 4Q10, with the proposal has been submitted to parliament for approval. Our recent discussion with management suggests that the bank may want to increase the amount of rights issue (RI), while keeping the number of new shares issued at approximately 3,376m shares. The new size of RI issuance range would be Rp6.7-10.1tr, which is an increase from Rp4.0-7.0tr range. The increase comes as no surprise given the stock's recent share price performance. Given this, we gather that the market would be fully supportive of the proposed issuance.
We believe that raising the RI target would enhance the bank's valuations. In the table below we have provided several scenario analysis on the bank's fair valuation based on different pricing (Rp2,050, Rp2,500 abd Rp3,000) for RI and hence several different RI amounts. Based on our asessment, CAR would rise by380/460/550bps to 16.3/17.1/18.0% for FY10F. Our valuation would have risen to Rp4,155/4,360/4,587 respectively, from our current TP of Rp3,900. Maintain BUY.
Sinarmas Nippon Indosari Tbk (ROTI) Rapid Expansion On The Way
Rising Bakery Consumption
The industry outlook for the bakery industry is very positive, mainly due to rising consumer income, which means rising consumer affordability resulting in more people upgrading their lifestyle. Change in consumer lifestyle could results in bread consumption to increase in the future, as bread is seen as an efficient and healthy food products to consume, which could also substitute for rice. According to Susenas
data, white bread consumption in 2005 was 460 million packs. This number has risen by 61% for the next three years to 742 million packs. In addition, wheat product consumption in Indonesia also increasing each year— bakery industry contributes to 25% of overall Indonesian wheat consumption, and at ± 18kg per capita according to GAIN report, consumption is still relatively low compared to the world’s consumption.
Rapid Expansion—Building Presence In More Areas
At the moment, the company is only serving Java, Bali, and Lampung area. In order to take advantage of the industry prospect and economic growth, the company has plans to
build new factories in area such as Medan, Palembang, Semarang, Kalimantan, and West Java over the next few years to increase production capacity and widen the products’
penetration area. Upon completion, the company will be able to appeal and reach a broader segment across Indonesia and extend its distribution network, which means higher revenue and profitability in the years to come. The company has aimed to build two new factories in Semarang and Medan to start producing at the beginning of 2011.
Strong Fundamental Background
The company has a solid fundamental, and has been growing strongly in the past. Revenue has grown by 35.8% CAGR since 2005, and net profit has grown by 75.6% CAGR. The company is on track to continue its rise as it has a well known brand—which arises from the constant quality of the products produced by the company, excellent technology in terms of developing products—due to its relationship with Shikishima Baking Japan, wide distribution network—the company can distribute up to a radius of 200 km from its factory, and an experienced senior management team.
Initiating Coverage with TP at Rp 1,800
Based on DCF valuation, with WACC of 11.5%, and terminal growth rate of 7%, we have derived a target price of Rp 1,800 for ROTI. Based on current price, ROTI is trading on P/E 19.6x based on 2010E net profit, and P/B 4.2x based on 2010 estimated. We note that the company has bright prospect, high growth potential, and solid fundamental. At the current price of Rp 1,690, it is trading at a discount.
The industry outlook for the bakery industry is very positive, mainly due to rising consumer income, which means rising consumer affordability resulting in more people upgrading their lifestyle. Change in consumer lifestyle could results in bread consumption to increase in the future, as bread is seen as an efficient and healthy food products to consume, which could also substitute for rice. According to Susenas
data, white bread consumption in 2005 was 460 million packs. This number has risen by 61% for the next three years to 742 million packs. In addition, wheat product consumption in Indonesia also increasing each year— bakery industry contributes to 25% of overall Indonesian wheat consumption, and at ± 18kg per capita according to GAIN report, consumption is still relatively low compared to the world’s consumption.
Rapid Expansion—Building Presence In More Areas
At the moment, the company is only serving Java, Bali, and Lampung area. In order to take advantage of the industry prospect and economic growth, the company has plans to
build new factories in area such as Medan, Palembang, Semarang, Kalimantan, and West Java over the next few years to increase production capacity and widen the products’
penetration area. Upon completion, the company will be able to appeal and reach a broader segment across Indonesia and extend its distribution network, which means higher revenue and profitability in the years to come. The company has aimed to build two new factories in Semarang and Medan to start producing at the beginning of 2011.
Strong Fundamental Background
The company has a solid fundamental, and has been growing strongly in the past. Revenue has grown by 35.8% CAGR since 2005, and net profit has grown by 75.6% CAGR. The company is on track to continue its rise as it has a well known brand—which arises from the constant quality of the products produced by the company, excellent technology in terms of developing products—due to its relationship with Shikishima Baking Japan, wide distribution network—the company can distribute up to a radius of 200 km from its factory, and an experienced senior management team.
Initiating Coverage with TP at Rp 1,800
Based on DCF valuation, with WACC of 11.5%, and terminal growth rate of 7%, we have derived a target price of Rp 1,800 for ROTI. Based on current price, ROTI is trading on P/E 19.6x based on 2010E net profit, and P/B 4.2x based on 2010 estimated. We note that the company has bright prospect, high growth potential, and solid fundamental. At the current price of Rp 1,690, it is trading at a discount.
Sinarmas TINS Re-shaping The Attractiveness Of Tin’s Industry
Tin’s price should rise as demands outweigh supplies.
PT. Timah, as the second biggest producer and the largest exporter of Tin, is able to influence supply tremendously in international market due to the fact that China, as the leading producer of Tin, has becoming a net importer. I.e. supplies will be less than demands as production for this nonsubstitutable raw material for electronic goods is preserved by PT. Timah at 50,000 Mt/annum. Whereas the demand for
electronic goods such as Television, Computer, Heater and Etc have grown rapidly as they become the primary needs of society, and thereby Tin’s price should rise consequently.
The cost/Mt of off-shore mining is cheaper.
Illegal miners account around 80% of total Tin excavated from PT. Timah’s mine concession. These miners then sell the Tin ore back to the company at a price that is set at 70% of last month LME’s price. As a result, cost/Mt of onshore mining is rising from around USD 6,000/Mt to USD 11,000/Mt, which is higher than the cost/Mt of off-shore mining that is leveled at around USD 10,000/Mt. Even under the new mining law, the management team expects that the government of Indonesia can only rectify this matter entirely by year 2013. Until then, the company plans to extend
the proportion of offshore production to 60% by next year.
Capitalizing on more profitable downstream industry.
Besides selling the traditional form of Tin, TINS also enhances value added by promoting sales for its newly production of Tin solder, and developing its Tin chemical plant that is scheduled to begin production within the next year. These
highly demanded Customized Products aim to generate sales from solder, plastic and chemical industries in order to stabilize revenue growth and to dampen price volatility.
Important clarification on resources and reserves.
Tin’s resources in Indonesia alone amount to around 1 million Mt, which is large enough for 20 years of consumption if we simply divide it by production ceiling of 50K Mt/annum. Furthermore, PT.Timah will constantly perform exploration activities by going as deeper as 70 meter below the sea using its modified Bucket Wheel Dredge, and it may also go as far as Australia, Myanmar and Vietnam, just to locate new
untapped resources and reserves.
Assuming WACC of 13%, terminal growth rate of 5%, and FX @ IDR 8,800/USD, our DCF model derives a target price of IDR 2,750, and therefore we recommend a BUY as there still 14.6% upside potential gain.
PT. Timah, as the second biggest producer and the largest exporter of Tin, is able to influence supply tremendously in international market due to the fact that China, as the leading producer of Tin, has becoming a net importer. I.e. supplies will be less than demands as production for this nonsubstitutable raw material for electronic goods is preserved by PT. Timah at 50,000 Mt/annum. Whereas the demand for
electronic goods such as Television, Computer, Heater and Etc have grown rapidly as they become the primary needs of society, and thereby Tin’s price should rise consequently.
The cost/Mt of off-shore mining is cheaper.
Illegal miners account around 80% of total Tin excavated from PT. Timah’s mine concession. These miners then sell the Tin ore back to the company at a price that is set at 70% of last month LME’s price. As a result, cost/Mt of onshore mining is rising from around USD 6,000/Mt to USD 11,000/Mt, which is higher than the cost/Mt of off-shore mining that is leveled at around USD 10,000/Mt. Even under the new mining law, the management team expects that the government of Indonesia can only rectify this matter entirely by year 2013. Until then, the company plans to extend
the proportion of offshore production to 60% by next year.
Capitalizing on more profitable downstream industry.
Besides selling the traditional form of Tin, TINS also enhances value added by promoting sales for its newly production of Tin solder, and developing its Tin chemical plant that is scheduled to begin production within the next year. These
highly demanded Customized Products aim to generate sales from solder, plastic and chemical industries in order to stabilize revenue growth and to dampen price volatility.
Important clarification on resources and reserves.
Tin’s resources in Indonesia alone amount to around 1 million Mt, which is large enough for 20 years of consumption if we simply divide it by production ceiling of 50K Mt/annum. Furthermore, PT.Timah will constantly perform exploration activities by going as deeper as 70 meter below the sea using its modified Bucket Wheel Dredge, and it may also go as far as Australia, Myanmar and Vietnam, just to locate new
untapped resources and reserves.
Assuming WACC of 13%, terminal growth rate of 5%, and FX @ IDR 8,800/USD, our DCF model derives a target price of IDR 2,750, and therefore we recommend a BUY as there still 14.6% upside potential gain.
DBS Bank Rakyat Indonesia: Buy; Rp9,550; TP Rp11,100; BBRI IJ
Stock split plan and expansion in wet market in the pipeline
BBRI’s CEO, Sofyan Basir, stated that the bank plans to do the stock split if the share price reach Rp10,000/share by the end of this year. Basir reaffirmed the plan to increase the liquidity with ratio 1:2 or 1:4. The decision is pending the approval of shareholders at EGM that will be held to obtain the approval on AGRO acquisition plan.
On another remark, Basir stated that BBRI is seriously expanding the business to wet-market by opening additional 400 unit of Teras BRI (BRI terrace) from exisiting 217 units since its first rollout in March 2009. By the end of 1H10, Teras BRI has raised Rp135.41bn of third party funds and disbursed credit of Rp333.61bn. This strategic plan has raised the bar for banks that compete in wet market mainly BDMN.
BBRI’s CEO, Sofyan Basir, stated that the bank plans to do the stock split if the share price reach Rp10,000/share by the end of this year. Basir reaffirmed the plan to increase the liquidity with ratio 1:2 or 1:4. The decision is pending the approval of shareholders at EGM that will be held to obtain the approval on AGRO acquisition plan.
On another remark, Basir stated that BBRI is seriously expanding the business to wet-market by opening additional 400 unit of Teras BRI (BRI terrace) from exisiting 217 units since its first rollout in March 2009. By the end of 1H10, Teras BRI has raised Rp135.41bn of third party funds and disbursed credit of Rp333.61bn. This strategic plan has raised the bar for banks that compete in wet market mainly BDMN.
NISP Astra Agro Lestari expects a flat growth in revenue (AALI, Rp20,000)
• AAL expects its 2010F revenue to come at around its 2009’s at Rp7.42tn. The company explained that higher CPO price will help AAL’s performance despite its sales volume is expected to come slightly lower at 1mn tons (-0.1% YoY).
• AAL added that its current action in replanting its estate will improve its harvest despite the impact is not imminent. The company plans to spend Rp1.40tn this year to replant almost 10% of its total plantation.
• We view that AAL’s solid net cash position will enable the company to flexibly nurture its estates and to easily obtain loans should it aims for an expansion.
• AALI is trading at 2011F PER of 16.0x and EV/EBITDA of 8.6x.
• AAL added that its current action in replanting its estate will improve its harvest despite the impact is not imminent. The company plans to spend Rp1.40tn this year to replant almost 10% of its total plantation.
• We view that AAL’s solid net cash position will enable the company to flexibly nurture its estates and to easily obtain loans should it aims for an expansion.
• AALI is trading at 2011F PER of 16.0x and EV/EBITDA of 8.6x.
NISP BRI studying possibility to acquire Bukopin (BBRI, Rp9,550)
• Bank Rakyat Indonesia is studying the possibility of acquiring 51.0% majority stake in Bukopin (BBKP,Rp640). Such acquisition is believed to synergize BRI’s micro financing business. If realized, Bukopin will be merged with Bank Agro, to comply with Bank Indonesia’s single present policy.
• BRI CEO, Mr. Sofyan Basir, stated that the bank has enough funds for acquisition, as there is still around Rp2.00tn free cash from the company’s sub debt issuance.
• Mr. Basir also adds that the bank is studying the possibility for a stock split this year, with a ratio of 1:2 or 1:4. The stock split plan will be proposed to the upcoming EGM and expected to be conducted in the last quarter of the year.
• BBRI is trading at 2011F consensus PER of 10.8x and PBV of 2.9x.
• BRI CEO, Mr. Sofyan Basir, stated that the bank has enough funds for acquisition, as there is still around Rp2.00tn free cash from the company’s sub debt issuance.
• Mr. Basir also adds that the bank is studying the possibility for a stock split this year, with a ratio of 1:2 or 1:4. The stock split plan will be proposed to the upcoming EGM and expected to be conducted in the last quarter of the year.
• BBRI is trading at 2011F consensus PER of 10.8x and PBV of 2.9x.
NISP Kalbe Farma capex 50.0% utilized (KLBF, Rp2,375, Buy)
• Kalbe Farma has spent up to Rp225.0bn of capex or 50.0% of total budget this year. Spending is divided equally for construction of its new production facility in Cikarang, branches, and other spending including for IT development.
• US$5-10mn is prepared for expansion to Vietnam where Kalbe will target the prescription pharmaceutical business, including generics and antibiotics. The company is currently looking for a local business partner.
• The company shared that next year capex spending could reach Rp500.0bn or 11.1% higher than Rp450.0bn spent today.
• Currently KLBF is trading at 2011F PER of 14.1x and EV/EBITDA of 7.8x, Buy.
• US$5-10mn is prepared for expansion to Vietnam where Kalbe will target the prescription pharmaceutical business, including generics and antibiotics. The company is currently looking for a local business partner.
• The company shared that next year capex spending could reach Rp500.0bn or 11.1% higher than Rp450.0bn spent today.
• Currently KLBF is trading at 2011F PER of 14.1x and EV/EBITDA of 7.8x, Buy.
NISP United Tractors post lower sales volume last month (UNTR, Rp18,800, Hold)
• During July 2010, UT’s sales volume stood at 468 units or 7.7% MoM lower from 507 units a month earlier. However, as the figure is still above the average monthly sales volume during January – June 2010 of 455 units, we view this condition is relatively normal.
• With this July figure, during 7M10 UT has sold 3,200 units of heavy equipment, which is on track with the company’s target of 5,000 units this year. This target translates into 1,800 units still needed to be sold in August – December, or equal to an average monthly sales volume of 360 units.
• The company has not given further details on its July operational data, where we need to see its production volume on mining contracting and coal mining business during heavy rainfall condition as this may affect profitability in 3Q10.
• Currently, UNTR is trading at 2011F PER of 12.9x and EV/EBITDA of 6.8x, Hold.
• With this July figure, during 7M10 UT has sold 3,200 units of heavy equipment, which is on track with the company’s target of 5,000 units this year. This target translates into 1,800 units still needed to be sold in August – December, or equal to an average monthly sales volume of 360 units.
• The company has not given further details on its July operational data, where we need to see its production volume on mining contracting and coal mining business during heavy rainfall condition as this may affect profitability in 3Q10.
• Currently, UNTR is trading at 2011F PER of 12.9x and EV/EBITDA of 6.8x, Hold.
NISP Astra International to conclude acquisition on General Electric Services (ASII, Rp49,750, Buy)
• Astra International to complete acquisition over General Electric Services (GES) from General Electric Capital Corporation (GECC) in September 2010. With this acquisition, Astra will own 100% ownership in GES, hence 47% GES ownership in Astra Sedaya Finance. Astra also plans to acquire GECC’s 47% ownership at Sedaya Pratama, which will make Astra as the sole owner in Sedaya Pratama.
• With this acquisition, Astra ownership on ASF will increase to 100% from current position at 53%. However, as ASF is already consolidated in Astra’s book, this acquisition has no impact to profit and loss.
• Astra will employ its internal cash to finance this acquisition where the company’s cash stood at Rp11.80tn in 1H10.
• Currently, ASII is trading at 2011F PER of 14.5x and EV/EBITDA of 10.5x, Buy.
• With this acquisition, Astra ownership on ASF will increase to 100% from current position at 53%. However, as ASF is already consolidated in Astra’s book, this acquisition has no impact to profit and loss.
• Astra will employ its internal cash to finance this acquisition where the company’s cash stood at Rp11.80tn in 1H10.
• Currently, ASII is trading at 2011F PER of 14.5x and EV/EBITDA of 10.5x, Buy.
CIMB Initiating Coverage - Alam Sutera Realty - Smooth as silk
We initiate coverage on Alam Sutera with an Outperform rating and target price of Rp275, based on DCF (WACC 13%). Alam Sutera is a notable property developer in Serpong, the most vibrant suburbs of Jakarta, being a leader of land prices in the area. In the next three years, we expect earnings growth of 66%, providing catalysts for a re-rating. Our target price of Rp275 takes into account cash flows from the development of the Serpong land bank and its retail mall operation in 2012. Our target price implies a 50% discount to RNAV, relatively aggressive to its own historical average of a 70% discount, arguably justified by its better profitability and better economic conditions.
CLSA BSDE, bringing in a sibling?
Property analyst Sarina has just written a note on property company Bumi Serpong Damai (BSDE IJ). In particular, Sarina is looking at the possibility of consolidation with Duta Pertiwi (DUTI IJ), a sister company.
There is no detail on timeline and means of the consolidation at the moment.
The combined entity will have a sizeable 4,250ha land bank in Greater Jakarta and Surabaya (the second biggest landbank after Bakrieland). BSDE market cap USD1bn daily vol USD 1.6m, DUTI mkt cap USD 326m daily vol only USD 7k.
Moreover, from operational standpoint, Sarina thinks the consolidation makes sense. DUTI’s reputation as a good commercial developer with strong recurring income (half of their revenues) will compliment BSDE. Both companies also have strong financials, and have enjoyed good margin expansions.
DUTI’s ITC (trade center) has become a trade mark for commercial kiosk development. ITC Mangga Dua in Jakarta is one of the top domestic tourist destinations - for shopping. You can find almost everything there, from DVDs to toys to jewellery at prices you will find hard to beat. In some areas, the selling price for a kiosk can reach Rp100mn (US$11k) psm!
Other key points from the report:
BSDE is still a good proxy for the property sector in Indonesia. It has 3,250ha in West Jakarta, strong balance sheet, and highest margin vs. peers.
Potential upside from margin. Our GP margin assumptions of 50% look conservative v.s. company’s latest achievement of 56% in 1H10. Assuming GP margin of 55% implies another 18% upside to our earnings estimate for 2010 and 14% for 2011. If GP margin reaches 60%, this implies earnings upside of 38% in 2010 and 30% of 2011.
Confident. BSDE is confident that GP margin of at least 50% is attainable through increasing selling price, delivering product mix which targets multi segment, and better cost management.
Investment conclusion. DUTI is now trading at 58% discount to NAV, while BSDE at 47%. At this juncture, as a separate entity, BSDE has larger land bank, bigger market cap, float and higher liquidity.
Valuation. Shareholders can indirectly buy land for the equivalent of US$32psm today, about one-tenth the selling price of land. BSDE trades at 19.4x PE2011, but assuming the higher GP margin, this drops down to 15x with 18% ROE.
Maintain BUY. 47% discount to NAV
There is no detail on timeline and means of the consolidation at the moment.
The combined entity will have a sizeable 4,250ha land bank in Greater Jakarta and Surabaya (the second biggest landbank after Bakrieland). BSDE market cap USD1bn daily vol USD 1.6m, DUTI mkt cap USD 326m daily vol only USD 7k.
Moreover, from operational standpoint, Sarina thinks the consolidation makes sense. DUTI’s reputation as a good commercial developer with strong recurring income (half of their revenues) will compliment BSDE. Both companies also have strong financials, and have enjoyed good margin expansions.
DUTI’s ITC (trade center) has become a trade mark for commercial kiosk development. ITC Mangga Dua in Jakarta is one of the top domestic tourist destinations - for shopping. You can find almost everything there, from DVDs to toys to jewellery at prices you will find hard to beat. In some areas, the selling price for a kiosk can reach Rp100mn (US$11k) psm!
Other key points from the report:
BSDE is still a good proxy for the property sector in Indonesia. It has 3,250ha in West Jakarta, strong balance sheet, and highest margin vs. peers.
Potential upside from margin. Our GP margin assumptions of 50% look conservative v.s. company’s latest achievement of 56% in 1H10. Assuming GP margin of 55% implies another 18% upside to our earnings estimate for 2010 and 14% for 2011. If GP margin reaches 60%, this implies earnings upside of 38% in 2010 and 30% of 2011.
Confident. BSDE is confident that GP margin of at least 50% is attainable through increasing selling price, delivering product mix which targets multi segment, and better cost management.
Investment conclusion. DUTI is now trading at 58% discount to NAV, while BSDE at 47%. At this juncture, as a separate entity, BSDE has larger land bank, bigger market cap, float and higher liquidity.
Valuation. Shareholders can indirectly buy land for the equivalent of US$32psm today, about one-tenth the selling price of land. BSDE trades at 19.4x PE2011, but assuming the higher GP margin, this drops down to 15x with 18% ROE.
Maintain BUY. 47% discount to NAV
DBS Indonesia’s rains support bullish CPO price
We estimated Indonesia CPO production to grow 3-5%YoY in 2010-11E
Our proprietary Indonesia crude palm oil (CPO) supply model estimated
production to grow at 3%/5% YoY in 2010/11E. This implies 0.6m and 0.9m
tonnes additional production for 2010 and 2011, respectively. Near-term
productions are lower than 2009’s, which grew at 8% YoY and added 1.5m tonnes.
Productivity challenges ahead
We believe the effects of the rains so far in 2010 may compromise Indonesian CPO
companies’ initial targets for annual production volume this year. Continuing rain
as in the first half of this year may present several productivity challenges
associated with pollination, harvesting, and logistics. We think productivity
challenges ahead may potentially lower volume production and operating margin
near term for Indonesian CPO producers.
Maintain bullish CPO price assumption for 2011
We maintain our benchmark CPO price assumption estimate at US$782/tonne in
2010 and an increase of 14% YoY to US$882/tonne in 2011. Potential
disappointment in Indonesia supply supports our price view. The CPO benchmark
price average year to date is US$780/tonne.
Preferred pick—London Sumatra
We prefer London Sumatra (LSIP) in the Indonesian plantation sector due to
potential upside on efficiency and growth from underperforming estates in South
Sumatra. Our new price targets for Astra Agro (AALI) and LSIP of Rp25,950 and
Rp12,100 are calculated using target EBIT/EV yield of 7 and 8%, respectively.
Our proprietary Indonesia crude palm oil (CPO) supply model estimated
production to grow at 3%/5% YoY in 2010/11E. This implies 0.6m and 0.9m
tonnes additional production for 2010 and 2011, respectively. Near-term
productions are lower than 2009’s, which grew at 8% YoY and added 1.5m tonnes.
Productivity challenges ahead
We believe the effects of the rains so far in 2010 may compromise Indonesian CPO
companies’ initial targets for annual production volume this year. Continuing rain
as in the first half of this year may present several productivity challenges
associated with pollination, harvesting, and logistics. We think productivity
challenges ahead may potentially lower volume production and operating margin
near term for Indonesian CPO producers.
Maintain bullish CPO price assumption for 2011
We maintain our benchmark CPO price assumption estimate at US$782/tonne in
2010 and an increase of 14% YoY to US$882/tonne in 2011. Potential
disappointment in Indonesia supply supports our price view. The CPO benchmark
price average year to date is US$780/tonne.
Preferred pick—London Sumatra
We prefer London Sumatra (LSIP) in the Indonesian plantation sector due to
potential upside on efficiency and growth from underperforming estates in South
Sumatra. Our new price targets for Astra Agro (AALI) and LSIP of Rp25,950 and
Rp12,100 are calculated using target EBIT/EV yield of 7 and 8%, respectively.
Mandiri Sekuritas BNGA: 1H10 results was quite strong
Bank Niaga reported net profit of Rp1.1tn in 1H10 (+62% yoy), supported by a 16% yoy increase in net interest income.
Loans grew by 10% qoq in 2Q10 bringing total loans to Rp91.8tn (+62% yoy) at end jun10. Corporate loans grew higher at 13% qoq to Rp29tn, representing 31.5% of total loans at end Jun10.
At current price, the stock is trading at 2010F PER of 12.6x and P/BV of 2.1x based on Jun10’s results. There is no consensus estimates on the counter and we do not cover the stock either.
Loans grew by 10% qoq in 2Q10 bringing total loans to Rp91.8tn (+62% yoy) at end jun10. Corporate loans grew higher at 13% qoq to Rp29tn, representing 31.5% of total loans at end Jun10.
At current price, the stock is trading at 2010F PER of 12.6x and P/BV of 2.1x based on Jun10’s results. There is no consensus estimates on the counter and we do not cover the stock either.
Mandiri Sekuritas PNBN: Margin Pressure
Our latest visit to the bank confirmed improving performance for 2010, partly supported by high- fee based income. However, we remain concerned with the possibility of lower NIM going forward as SBI rates are projected to start rising in 4Q10. Therefore, we maintain our sell recommendation on the counter.
Strong loan growth to continue... PNBN is projecting a 30% yoy loan growth to Rp56tn at end Dec10, higher than the average growth of banks under our coverage of approximately 20% yoy. Please note that its loans grew by 10% qoq or 38.2% yoy in 2Q10, the highest in the sector. Commercial and consumer sector grew quite strongly by 12.6% qoq and 12.5% qoq in 2Q10 or 33.8% yoy and 48.1% yoy, respectively. The majority of the consumer loans was in the form of mortgage which currently yields around 11.5% p.a. !
.. and NIM is projected to reach 5.6%. With such strong loan growth, we expect NIM to reach 5.6% in FY10F. This will be higher than the NIM recorded in 1H10 of 5.2% due to full year impact of the new loans. However, it is worth noting that despite declining interest rate environment in 2Q10, PNBN’s cost of funding remained high at 8.5% in 2Q10, the highest in the sector. The bank seemed to have offered high TD rates to its customers during the period. This caused a declin! e in the bank’s NIM from 5.6% in 1Q10 to 5.2% in 1H10.
Unrecognized gain from the divestment of ANZ Panin Bank. PNBN is estimated to earn Rp300bn one-time gain from the selling of its 14% ownership in ANZ Panin Bank to ANZ Banking Group Limited. This transaction is currently awaiting for BI’s approval. Meanwhile, the bank’s fee- based income in 1H10 was very strong at Rp913.4bn (+63.4% yoy), thanks to gain from the selling of marketable securities. Such strong fee -based income has allowed the bank to build up its coverage ratio, reaching 136.4% at end Jun10 (vs 62.6%! at end J un09).
Maintain a sell. We adjusted our forecast on the bank to incorporate 1H10 results and latest development of the bank. Even though we upgraded our forecast on the bank for 2010F and 2011F (thus our TP, as we are also rolling our valuation into 2011F) , we remain concerned with the margin pressure in 2011F in line with the projected rising SBI rates. Given the bank’s funding structure which is biased toward high- cost deposits, a decline in NIM is inevitable, in our view. W! e therefo re maintain our sell recommendation on the counter despite an upgade in our TP to Rp1,050/share.
Strong loan growth to continue... PNBN is projecting a 30% yoy loan growth to Rp56tn at end Dec10, higher than the average growth of banks under our coverage of approximately 20% yoy. Please note that its loans grew by 10% qoq or 38.2% yoy in 2Q10, the highest in the sector. Commercial and consumer sector grew quite strongly by 12.6% qoq and 12.5% qoq in 2Q10 or 33.8% yoy and 48.1% yoy, respectively. The majority of the consumer loans was in the form of mortgage which currently yields around 11.5% p.a. !
.. and NIM is projected to reach 5.6%. With such strong loan growth, we expect NIM to reach 5.6% in FY10F. This will be higher than the NIM recorded in 1H10 of 5.2% due to full year impact of the new loans. However, it is worth noting that despite declining interest rate environment in 2Q10, PNBN’s cost of funding remained high at 8.5% in 2Q10, the highest in the sector. The bank seemed to have offered high TD rates to its customers during the period. This caused a declin! e in the bank’s NIM from 5.6% in 1Q10 to 5.2% in 1H10.
Unrecognized gain from the divestment of ANZ Panin Bank. PNBN is estimated to earn Rp300bn one-time gain from the selling of its 14% ownership in ANZ Panin Bank to ANZ Banking Group Limited. This transaction is currently awaiting for BI’s approval. Meanwhile, the bank’s fee- based income in 1H10 was very strong at Rp913.4bn (+63.4% yoy), thanks to gain from the selling of marketable securities. Such strong fee -based income has allowed the bank to build up its coverage ratio, reaching 136.4% at end Jun10 (vs 62.6%! at end J un09).
Maintain a sell. We adjusted our forecast on the bank to incorporate 1H10 results and latest development of the bank. Even though we upgraded our forecast on the bank for 2010F and 2011F (thus our TP, as we are also rolling our valuation into 2011F) , we remain concerned with the margin pressure in 2011F in line with the projected rising SBI rates. Given the bank’s funding structure which is biased toward high- cost deposits, a decline in NIM is inevitable, in our view. W! e therefo re maintain our sell recommendation on the counter despite an upgade in our TP to Rp1,050/share.
Mandiri Sekuritas KIJA: Lights up
The power plant’s supply assurance is knocking at the door. The syndicated loan lenders have indicated to recommit on the company’s power plant project, which would pave the way for the company to obtain the remaining US$40mn disbursement in the near term, for them to be able to complete the power plant project and partly (US$20mn) used to repay the bridging loan from CIMB-Niaga. At the same time, Bekasi Power’s long-term contract with PLN is nearing finalization, as the urge of supply needs comi! ng from t he area. We call buy for the stock, maintaining TP: Rp265/share, based on our rolling valuation 2011.
Recommitment leads to project completion. After such prolonged negotiation, the US$106mn syndicated loan lenders have signified to recommit on the power plant project, where this may lead the CIMB-Niaga as the lender of the matured bridging loan facility (US$35mn equity financing & US$20mn debt) to drum down its earlier call of KIJA’s divestment on the power plant ownership. We view this as the guide to positive end result for KIJA, considering the bank’s role as also the lead manager of the loan syndication.
PLN long-term contract soon to be finalized. In the mean time, the long term contract with PLN for being the sole-buyer of the power plant supply is a one step away, as the only previous impediment concerning on operational area license has already been secured by early June. Thus, there will be no other reason for PLN not to appoint KIJA, considering the absence of other alternative supplier within the area. We think that long term contract with PLN, in addition, will also give more reason for KIJA’s lenders to retain the power plant in favor of KIJA.
Underappreciated with rock-bottom valuations. We believe that the two events will be the crucial trigger to smoothen the completion of the power plant project and eventually secure the full-ownership. KIJA would potentially obtain some US$80mn of annual power revenues (US$48mn of EBITDA), which expected to contribute 75% of total revenue onwards. Our rolling 2011 valuation stands KIJA at Rp455/share. We call Buy with maintain TP Rp265/share, currently trades at 80% discount to our NAV11F and PER11F of 5.4x, on the assumption of full operations of the power plant! .
Recommitment leads to project completion. After such prolonged negotiation, the US$106mn syndicated loan lenders have signified to recommit on the power plant project, where this may lead the CIMB-Niaga as the lender of the matured bridging loan facility (US$35mn equity financing & US$20mn debt) to drum down its earlier call of KIJA’s divestment on the power plant ownership. We view this as the guide to positive end result for KIJA, considering the bank’s role as also the lead manager of the loan syndication.
PLN long-term contract soon to be finalized. In the mean time, the long term contract with PLN for being the sole-buyer of the power plant supply is a one step away, as the only previous impediment concerning on operational area license has already been secured by early June. Thus, there will be no other reason for PLN not to appoint KIJA, considering the absence of other alternative supplier within the area. We think that long term contract with PLN, in addition, will also give more reason for KIJA’s lenders to retain the power plant in favor of KIJA.
Underappreciated with rock-bottom valuations. We believe that the two events will be the crucial trigger to smoothen the completion of the power plant project and eventually secure the full-ownership. KIJA would potentially obtain some US$80mn of annual power revenues (US$48mn of EBITDA), which expected to contribute 75% of total revenue onwards. Our rolling 2011 valuation stands KIJA at Rp455/share. We call Buy with maintain TP Rp265/share, currently trades at 80% discount to our NAV11F and PER11F of 5.4x, on the assumption of full operations of the power plant! .
CLSA Bank Danamon (BDMN I), Quality over Quantity
Bret Ginesky looks at Bank Danamon (BDMN IJ) 2Q10 results. Danamon reported its 2Q10 net profit of Rp732.0bn, up 4% QoQ and 22% YoY. Net profit for 1H10 of Rp1,433.0bn, up 40% YoY is slightly ahead of our and the consensus full year estimates. Pre provision profits were relatively weak, up 13% YoY, as operating expenses increased 23% YoY due to costs associated with the employee retention program. Maintain UPF rating and TP of Rp4,500.
Two things that we would like to highlight:
(1) Declining earning asset yields, despite the fact that high yield mass market loans as a percentage of total loans have been going up steadily. It is like BBNI is taking more risks without getting rewarded.
(2) Our concern is that the BDMN is locked into a deposit pricing agreement with the top 14 banks and has limited room to increase its time deposit rates to fund loan growth while a penalty for a high LDR is anticipated to be employed by BI in 2011. Most recent indications are that the LDR range will be between 75% and 95%, with BDMN currently at 105% (note: Bret thinks that BDMN’s LDR could go up to 120% without severe constraints since they have enough equity to back them up – thanks to rights issue in 2009).
Key points from the report:
· Earning asset yields have declined for three consecutive quarters and the banks increase in CASA funds has not corresponded to lower funding costs.
· BDMN’s loan growth of 10% QoQ and 15% YoY represented the highest growth in our coverage universe from a QoQ perspective.
· BDMN is locked into a deposit pricing agreement with the top 14 banks and has limited room to increase its time deposit rates to fund loan growth while a penalty for a high LDR is anticipated to be employed by BI in 2011.
· Cost of credit decreased to 3.3%, down 10bps QoQ and up 30bps YoY, as a few recoveries were reported from the corporate segment. The increase in special mention loans is a concern, up to 10.6% of total loans.
· Looking forward we foresee additional headwinds and anticipate earnings growth of a modest 10% in 2011.
· Valuation: at 2.3x and 13.8x 2011 PB and PER respectively, BDMN looks pricey relative to peers, which also offer higher growth and better returns.
Two things that we would like to highlight:
(1) Declining earning asset yields, despite the fact that high yield mass market loans as a percentage of total loans have been going up steadily. It is like BBNI is taking more risks without getting rewarded.
(2) Our concern is that the BDMN is locked into a deposit pricing agreement with the top 14 banks and has limited room to increase its time deposit rates to fund loan growth while a penalty for a high LDR is anticipated to be employed by BI in 2011. Most recent indications are that the LDR range will be between 75% and 95%, with BDMN currently at 105% (note: Bret thinks that BDMN’s LDR could go up to 120% without severe constraints since they have enough equity to back them up – thanks to rights issue in 2009).
Key points from the report:
· Earning asset yields have declined for three consecutive quarters and the banks increase in CASA funds has not corresponded to lower funding costs.
· BDMN’s loan growth of 10% QoQ and 15% YoY represented the highest growth in our coverage universe from a QoQ perspective.
· BDMN is locked into a deposit pricing agreement with the top 14 banks and has limited room to increase its time deposit rates to fund loan growth while a penalty for a high LDR is anticipated to be employed by BI in 2011.
· Cost of credit decreased to 3.3%, down 10bps QoQ and up 30bps YoY, as a few recoveries were reported from the corporate segment. The increase in special mention loans is a concern, up to 10.6% of total loans.
· Looking forward we foresee additional headwinds and anticipate earnings growth of a modest 10% in 2011.
· Valuation: at 2.3x and 13.8x 2011 PB and PER respectively, BDMN looks pricey relative to peers, which also offer higher growth and better returns.
Danareksa Bank Danamon (BDMN IJ, Rp5,350 BUY) Strong mass market profitability
Remaining very profitable
We trim our FY11-12E earnings estimates, taking account of the imminent bond issuance and the slightly lower 3-year loans growth to stay aligned with the deposits growth. This year’s forecast, however, is intact. The bank’s 1H results were not a surprise at all. Most of the gains are largely due to strong mass-market loans growth, aside from the absence of derivatives provisioning. The NIM stayed at an impressive 11.6% and is likely to increase in 2H, as efforts to tackle high cost funding shall reduce the COF. Meanwhile, the ROE improved to 19% despite the bank’s high capitalization. BDMN remains our top pick in the banking sector given its strong capital base, robust NIM in excess of 11% (post adjustment of PSAK 50/55), and sustainable loans growth. Its exposure to domestic consumption growth shall also ensure that our 38% 3-yr CAGR EPS growth estimate will be met. We set our 12-mth DDM TP at Rp6,850 or 3.0x FY11 PBV. BUY maintained.
The power of the mass market
Our loans growth estimate is still 21% for 2010, a figure that can easily be achieved. Thus far, BDMN’s loans have grown by about 12%, thanks to the bank’s staggering 28% YoY loans growth in the mass market. This segment has accounted for 56% of the total loans portfolio - and will likely stay at this level for the remainder of the year. Loans expansion is seen in all segments, with the exception of retail loans - which only contribute about 7% of the bank’s total loans portfolio. BDMN’s strategy, however, remains in place; that is to grow its consumer loans, a segment that could generate a very healthy NIM of 18-20% and an asset yield above 18% - allowing BDMN to compensate for its high COF and operating risks. Moreover, we do not exclude the possibility that the bank will also grow its corporate loans, as they are needed to boost the bank’s cross-selling activities.
Reducing its COF
The bank’s COF has continued to decline. It dropped to 5.4% in 2Q10, down from its peak of 8.39% in 1Q09, mainly due to a higher proportion of CASA – some 39%, aside from re-pricing of expensive time deposits. On a year-to-date basis, CASA has grown by as much as 16.5% thanks to the bank’s innovative products and infrastructure improvements. This includes expansion of its ATM network – around 250 ATMs this year – as well as adding new branches and transactional facilities. However, the overall deposits growth has been unexciting so far. This also suggests that the bank’s search for funding may potentially tilt towards high cost time deposits. Funding has become critical, as the LDR reached 99% in 1H10. Meanwhile, the bank’s imminent Rp5trn bond issuance will only secure next year’s loans growth. Hence, the proportion of CASA is likely to decline in 2H10. Our forecast assumes the proportion of CASA stays at 30% this year, before increasing to 35% next year.
Better loan quality
Our gross NPLs estimate remains at 3.1% at year-end. 1H10 NPLs reached 3.4%, down from 1Q10’s 4.0%, consistent with the economic upturn. The mass market still contributes the largest NPLs – some 48% of the total NPLs - or NPLs of 1.6% - yet lower than 1Q10’s 1.7%. This is not so much due to write-offs, the management believes, but more on the recovery of bad debts. Indeed, the proportion in the special mention category increased to 10.6% of total loans, suggesting loan upgrades were more likely than not. The cost of credit has been relatively unchanged on a QoQ basis, but is likely to see a reversal toward the end of the year.
1H10 Key highlights:
1H10 NPAT hit Rp1.4trn, +65% YoY thanks to higher fee based income aside from the absence of extraordinary items related to derivative transactions. On a QoQ basis, earnings actually grew by 4% QoQ, supported by a slight decline in the cost of credit and fees related to credit. Loans growth has picked up, reaching 10% QoQ.
The NIM eased to 11.6% from 4Q09’s 13.4%, largely due to reclassification of acquisition costs from previously “deducting fee income” to now “deducting interest income”. NPLs improved slightly to 3.4% from 1Q10’s 4.0%, with the micro lending business contributing most of the NPLs. Provisioning coverage is almost 100%.
CAR is strong at 19.5% as of 2Q10 prior to implementation of Basel II operational risk. With operational risk, CAR is about 18%. Meanwhile, ROAE improved to 19.3% from 1Q10’s 18.0%.
In short, no surprises. Worth noting, however, is reclassification related to implementation of IFRS. This has led to a decline in interest income, hence its asset yield. Indeed, the asset yield dropped by 150bps from 4Q09’s 18.3%, more than offsetting the 60bps decline in the quarterly COF. NIM therefore eased, although it was still higher than 2Q09’s 10.8%. As for the remainder of the year, the bank’s guidance is for an 11-12% NIM.
Profitability is strong, with the company posting its largest ever quarterly profits. Derivative-related provisioning is no longer an issue, with the company now seeing a huge jump in ROE, despite last year’s rights issue. All in all, the bank is looking for 20% ROE by the end of the year.
Higher profits were also thanks to the slightly lower cost of credit of Rp562bn in 2Q10, or down from 1Q10’s Rp578bn. This is despite a higher cost-to-income ratio of 50.8% compared to 1Q10’s 47.5%. Note that the cost of credit related to the mass-market business declined, even though the bank aggressively grew its mass-market business– an effective and efficient strategy.
Loans growth improved. Growth was seen in all segments, with the exception of retail loans. Mass market loans saw a 12% QoQ increase, backed by strong auto financing and micro lending. This segment now accounts for 56% of the bank’s total loans portfolio. The idea is that the bank sustains its high asset yields with longer duration.
Funding could still be a concern in the near term, we believe. Deposits have not grown as expected, despite their better structure. Yes, CASA now represents around 39% of the total deposits thanks to retirement of costly deposits amid improving liquidity. But this will not last, especially since the LDR has reached 99%. Hence, we expect the proportion of time deposits to increase in the next 1-2 quarters. Note that deposits account for 89% of BDMN’s total funding. The rest comes from bonds, REPO and other LT borrowings.
We trim our FY11-12E earnings estimates, taking account of the imminent bond issuance and the slightly lower 3-year loans growth to stay aligned with the deposits growth. This year’s forecast, however, is intact. The bank’s 1H results were not a surprise at all. Most of the gains are largely due to strong mass-market loans growth, aside from the absence of derivatives provisioning. The NIM stayed at an impressive 11.6% and is likely to increase in 2H, as efforts to tackle high cost funding shall reduce the COF. Meanwhile, the ROE improved to 19% despite the bank’s high capitalization. BDMN remains our top pick in the banking sector given its strong capital base, robust NIM in excess of 11% (post adjustment of PSAK 50/55), and sustainable loans growth. Its exposure to domestic consumption growth shall also ensure that our 38% 3-yr CAGR EPS growth estimate will be met. We set our 12-mth DDM TP at Rp6,850 or 3.0x FY11 PBV. BUY maintained.
The power of the mass market
Our loans growth estimate is still 21% for 2010, a figure that can easily be achieved. Thus far, BDMN’s loans have grown by about 12%, thanks to the bank’s staggering 28% YoY loans growth in the mass market. This segment has accounted for 56% of the total loans portfolio - and will likely stay at this level for the remainder of the year. Loans expansion is seen in all segments, with the exception of retail loans - which only contribute about 7% of the bank’s total loans portfolio. BDMN’s strategy, however, remains in place; that is to grow its consumer loans, a segment that could generate a very healthy NIM of 18-20% and an asset yield above 18% - allowing BDMN to compensate for its high COF and operating risks. Moreover, we do not exclude the possibility that the bank will also grow its corporate loans, as they are needed to boost the bank’s cross-selling activities.
Reducing its COF
The bank’s COF has continued to decline. It dropped to 5.4% in 2Q10, down from its peak of 8.39% in 1Q09, mainly due to a higher proportion of CASA – some 39%, aside from re-pricing of expensive time deposits. On a year-to-date basis, CASA has grown by as much as 16.5% thanks to the bank’s innovative products and infrastructure improvements. This includes expansion of its ATM network – around 250 ATMs this year – as well as adding new branches and transactional facilities. However, the overall deposits growth has been unexciting so far. This also suggests that the bank’s search for funding may potentially tilt towards high cost time deposits. Funding has become critical, as the LDR reached 99% in 1H10. Meanwhile, the bank’s imminent Rp5trn bond issuance will only secure next year’s loans growth. Hence, the proportion of CASA is likely to decline in 2H10. Our forecast assumes the proportion of CASA stays at 30% this year, before increasing to 35% next year.
Better loan quality
Our gross NPLs estimate remains at 3.1% at year-end. 1H10 NPLs reached 3.4%, down from 1Q10’s 4.0%, consistent with the economic upturn. The mass market still contributes the largest NPLs – some 48% of the total NPLs - or NPLs of 1.6% - yet lower than 1Q10’s 1.7%. This is not so much due to write-offs, the management believes, but more on the recovery of bad debts. Indeed, the proportion in the special mention category increased to 10.6% of total loans, suggesting loan upgrades were more likely than not. The cost of credit has been relatively unchanged on a QoQ basis, but is likely to see a reversal toward the end of the year.
1H10 Key highlights:
1H10 NPAT hit Rp1.4trn, +65% YoY thanks to higher fee based income aside from the absence of extraordinary items related to derivative transactions. On a QoQ basis, earnings actually grew by 4% QoQ, supported by a slight decline in the cost of credit and fees related to credit. Loans growth has picked up, reaching 10% QoQ.
The NIM eased to 11.6% from 4Q09’s 13.4%, largely due to reclassification of acquisition costs from previously “deducting fee income” to now “deducting interest income”. NPLs improved slightly to 3.4% from 1Q10’s 4.0%, with the micro lending business contributing most of the NPLs. Provisioning coverage is almost 100%.
CAR is strong at 19.5% as of 2Q10 prior to implementation of Basel II operational risk. With operational risk, CAR is about 18%. Meanwhile, ROAE improved to 19.3% from 1Q10’s 18.0%.
In short, no surprises. Worth noting, however, is reclassification related to implementation of IFRS. This has led to a decline in interest income, hence its asset yield. Indeed, the asset yield dropped by 150bps from 4Q09’s 18.3%, more than offsetting the 60bps decline in the quarterly COF. NIM therefore eased, although it was still higher than 2Q09’s 10.8%. As for the remainder of the year, the bank’s guidance is for an 11-12% NIM.
Profitability is strong, with the company posting its largest ever quarterly profits. Derivative-related provisioning is no longer an issue, with the company now seeing a huge jump in ROE, despite last year’s rights issue. All in all, the bank is looking for 20% ROE by the end of the year.
Higher profits were also thanks to the slightly lower cost of credit of Rp562bn in 2Q10, or down from 1Q10’s Rp578bn. This is despite a higher cost-to-income ratio of 50.8% compared to 1Q10’s 47.5%. Note that the cost of credit related to the mass-market business declined, even though the bank aggressively grew its mass-market business– an effective and efficient strategy.
Loans growth improved. Growth was seen in all segments, with the exception of retail loans. Mass market loans saw a 12% QoQ increase, backed by strong auto financing and micro lending. This segment now accounts for 56% of the bank’s total loans portfolio. The idea is that the bank sustains its high asset yields with longer duration.
Funding could still be a concern in the near term, we believe. Deposits have not grown as expected, despite their better structure. Yes, CASA now represents around 39% of the total deposits thanks to retirement of costly deposits amid improving liquidity. But this will not last, especially since the LDR has reached 99%. Hence, we expect the proportion of time deposits to increase in the next 1-2 quarters. Note that deposits account for 89% of BDMN’s total funding. The rest comes from bonds, REPO and other LT borrowings.
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