Fading double-dip fears and talk on QE2 support fund flows into Asia
The global equity markets tested key resistance levels and closed mixed last Friday as profit-taking activities emerged after the MSCI World edged up for three consecutive weeks. Renewed Eurozone sovereign debt concerns on the widening spreads of Ireland's 5-year credit default swaps (CDS) and a weaker-than-expected US consumer sentiment survey provided a convenient excuse for investors to lock in short-term trading profits. The Thomson Reuters/University of Michigan consumer confidence index unexpectedly declined to 66.6 in September from 68.9 in August, hitting its lowest level since August 2009. This reflects the bumpy road to recovery of the US consumption market. Looking ahead, the equity markets should remain dominated by macro concerns and with the Federal Open Market Committee meeting due to take place tomorrow, investor attention should focus on the Fed's policy statement on quantitative easing.
In our view, the latest set of economic data from the US and China is a positive signal for a successful soft landing of the global economy. These supportive global macro data help defuse double-dip fears and revive global risk appetite, which should support a further extension of the recent equity rally going into Q4 2010. Our
Global Economics Team believes the continued recovery of the US economy should give the Fed time to postpone a decision on additional quantitative easing measures for now. However, the unacceptably high unemployment rate will drive market expectations for more quantitative easing measures in the next 3–6 months and this is likely to keep US yields low and lead to a further significant USD weakness in the coming months. This should bode well for Asian equities, as historically the region has outperformed during previous periods of significant USD weakness.
Driven by easing double-dip fears and a revival in global risk appetite, inflows into non-Japan Asian equity funds accelerated to USD 936 m during the week ended 15 September, 1.8 times higher than the USD 338 m recorded in the previous week, when Asian funds witnessed a turnaround in the outflow trend. We note that Asian funds recorded strong inflows after China released the positive August economic data, which reaffirmed the outlook for a soft landing. Four-week average inflows into Asian funds also edged up last week. The Asian country funds which attracted the most inflows last week were China and India, which experienced inflows of USD 147 m and USD 144 m respectively, thanks to their robust economic performance.
Strengthening inflows into Asian funds contrast with net outflows of USD 120 m from global equity funds and USD 148 m from Japan equity funds, which were hit by the lackluster recovery in the G3 economies.
Against the positive macro backdrop, favorable earnings cycle and renewed USD weakness, we reiterate our strategic overweight position in Asian equities for the next 6–12 months. We recommend investors take advantage of any short-term tactical corrections to rebuild strategic overweight positions in our recommended BUY-rated growth-sensitive Asian equities, including Angang (347 HK, BUY), CNOOC (883 HK, BUY), Orica (ORI AT, BUY), PTT (PTT TB, BUY) and Rio Tinto (RIO AT, BUY). To escape from zero returns in an extremely low-yield environment, we also advise investors to add selected Asian high-yielding stocks to enhance portfolio returns, including Frasers Centrepoint Trust (FCT SP, BUY), ANZ Bank (ANZ AT, BUY), Nintendo (7974 JP, BUY), SATS (SATS SP, BUY), BOC Hong Kong (2388 HK, BUY) and Keppel Corp (KEP SP, BUY).
Senin, 20 September 2010
DBS Telkom: Hold; Rp9,250; TP Rp8,500; TLKM IJ
Consolidate business to further focus on TIME
As a part of its commitment to focus on TIME business, TLKM will divest its 40% stake in Patrakom and 25% in Citra Sari Makmur (CSM) to consolidate corporate resources in satellite business. TLKM plans to develop satellite business specifically in very small aperture terminal (VSAT) through only one subsidiary, Metrasat. Thus, management chose to consolidate its businesses with affiliated companies where TLKM maintains full ownership to enable fast decision-making. CSM management stated that change of ownership as TLKM divest its stake would not affect the company’s business as well as data communication development plan.
As a part of its commitment to focus on TIME business, TLKM will divest its 40% stake in Patrakom and 25% in Citra Sari Makmur (CSM) to consolidate corporate resources in satellite business. TLKM plans to develop satellite business specifically in very small aperture terminal (VSAT) through only one subsidiary, Metrasat. Thus, management chose to consolidate its businesses with affiliated companies where TLKM maintains full ownership to enable fast decision-making. CSM management stated that change of ownership as TLKM divest its stake would not affect the company’s business as well as data communication development plan.
DBS XL Axiata: Buy; Rp5,600; TP Rp5,900; EXCL IJ
Secures new funding of Rp2.5tr
EXCL has signed Rp2.5tr loan facility of 5 years tenure with BMRI at JIBOR + 1.4% interest rate. This new lending completes previous loan facilities of Rp1.5tr of 5 years tenure from BBCA and Rp500bn of 3 years tenure from Bank of Tokyo-Mitsubishi UFJ. EXCL will utilize loans to pay outstanding debt US$265.2m from Sweden-based Export Kredit Namden (EKN). During 1H10, EXCL has serviced debts amounting to US$219bn and Rp900bn from internal cash. The management believes that new loan facilities will not increase EXCL’s interest expense as other outstanding debts have been paid.
EXCL has signed Rp2.5tr loan facility of 5 years tenure with BMRI at JIBOR + 1.4% interest rate. This new lending completes previous loan facilities of Rp1.5tr of 5 years tenure from BBCA and Rp500bn of 3 years tenure from Bank of Tokyo-Mitsubishi UFJ. EXCL will utilize loans to pay outstanding debt US$265.2m from Sweden-based Export Kredit Namden (EKN). During 1H10, EXCL has serviced debts amounting to US$219bn and Rp900bn from internal cash. The management believes that new loan facilities will not increase EXCL’s interest expense as other outstanding debts have been paid.
CIMB Company Update – Indofood Sukses Makmur – Counting listing blessings
We upgrade Indofood to Outperform from Trading Buy. With the pricing for ICBP firmed at the upper bound of its indicative price range, the ICBP listing overhang has been removed, we believe. We maintain that Indofood stands to benefit the most, given: 1) immaterial earnings dilution as sales royalties would offset the bulk of minority interest; and 2) significant de-leveraging. Intangibles include better transparency from ICBP. Adjusting for Rp6.3tr of IPO proceeds (Rp4.1tr for debt payment to Indofood), our forecasts have been trimmed by 1-3% for FY10-12, from dilution. We also adjust our SOP valuation, assigning a 10% holding discount for its IFAR and ICBP stakes, while adding sales royalties and a lower gearing. This lifts our target price to Rp5,600 from Rp4,950, implying 19-17x CY10-11 P/Es. We also upgrade the stock to Outperform, expecting near-term catalysts from ICBP’s imminent listing.
Indopremier Weekly Economic Update - 17 September 2010 -
Global Economy
Trade deficit in the United States dipped to US$ 42.78 billion in July 2010 from a revised US$ 49.76 billion in previous month. Exports rose to the highest in nearly two years.
India’s wholesale price inflation lessened to 8.51% annually in August 2010 from 9.78% in prior month. The central bank nonetheless lifted its policy rates.
Japanese government intervened in the currency market for the first time since 2004 as a part of its effort to shield export competitiveness and halt deflation.
Indonesia Economy
Indonesia's competitiveness was placed at 44th among 139 countries, according to the latest survey by World Economic Forum. That compared to 54th position reported in previous survey.
Central government registered Rp 36.4 trillion of budget surplus as of 7 September 2010. Revenues and expenditures amounted 63.2% and 52.4% of its full year target.
Consumer confidence dropped to 16-month low in August 2010 as power rate hike and high inflation in the fasting month reduced real income.
Bank Indonesia retained its policy interest rate at 6.5% and expressed its concern on demand-driven inflation. The central bank also decided to lift primary reserve requirements from 5% to 8% of banks’ third party rupiah deposits.
Trade deficit in the United States dipped to US$ 42.78 billion in July 2010 from a revised US$ 49.76 billion in previous month. Exports rose to the highest in nearly two years.
India’s wholesale price inflation lessened to 8.51% annually in August 2010 from 9.78% in prior month. The central bank nonetheless lifted its policy rates.
Japanese government intervened in the currency market for the first time since 2004 as a part of its effort to shield export competitiveness and halt deflation.
Indonesia Economy
Indonesia's competitiveness was placed at 44th among 139 countries, according to the latest survey by World Economic Forum. That compared to 54th position reported in previous survey.
Central government registered Rp 36.4 trillion of budget surplus as of 7 September 2010. Revenues and expenditures amounted 63.2% and 52.4% of its full year target.
Consumer confidence dropped to 16-month low in August 2010 as power rate hike and high inflation in the fasting month reduced real income.
Bank Indonesia retained its policy interest rate at 6.5% and expressed its concern on demand-driven inflation. The central bank also decided to lift primary reserve requirements from 5% to 8% of banks’ third party rupiah deposits.
Intiland Development (DILD) Update-1
2010 net profit could jump significantly to around IDR490 billion from only IDR26 billion a year earlier. It is now trading at a p/e ratio of only 11.8 times 2010 prospective earnings, and 9.7 times 2011, far below the industrial average of 16 times.
DBS Intiland Development Coming back with a bang TP Rp 725.73
• Restructuring ends dormant years
• Strong development pipeline and potential
• Initiate coverage with BUY rating and 42.3% upside potential to Rp725.73 TP
Restructuring ends dormant years. DILD had been mostly dormant with no major developments since the 1997 Asian financial crisis. In 2007, there was a major
restructuring and a new CEO took over and implemented a new aggressive expansion plan, and its balance sheet turned around with debt dropping from Rp1.48tr to
Rp0.39tr post-restructuring. In 1H10, DILD tripled its land bank to 2400ha, of which 55ha are earmarked for high rise developments, the largest in Indonesia.
Strong project pipeline and potential. DILD has a strong development pipeline for the next five years. It will develop four townships with a minimum of 220ha of
saleable area, eight mixed-use high-rise developments with a minimum of 60ha of saleable area, and enter the budget hotel business by developing the Whiz Hotel chain
in major cities in Indonesia. DIDL also has minor developments such as the 146ha Ngoro Industrial Estate and 1.8ha Pinang Residences cluster.
BUY, 42.3% upside to Rp725.73 TP. Our TP is based on 30% discount to RNAV of Rp1036.80/share, to account for execution risks of future projects. DILD’s 10.5x FY10F PE multiple is cheaper than its property developer peers average of 23.6 FY10F. The stock is currently trading at undemanding 0.5x P/RNAV, and we initiate coverage with a BUY rating. The materialization of future projects could be a re-rating catalyst.
BNPP Intiland Development (DILD) Asset sales boost earnings TP IDR 750
ƒStrong 1H10 on low-yield asset sale.
ƒMore asset sales on the way; upgrade earnings.
ƒDevelopment of apartment projects and new landbank.
ƒTP raised to IDR750 (from IDR625); maintain BUY.
Strong 1H10 results
Intiland reported IDR223b net profit out of IDR455b sales revenue in 1H10. The net
profit has already achieved 78% of our previous earnings forecast for FY10, mainly because of the sales of low-yield assets, as explained by management during recent meetings with investors.
More asset sales on the way, leading to earnings upgrade
Part of management strategy is to dispose low-yield assets and use the proceeds to
concentrate on the next projects with higher returns. Intiland sold its Graha Residen (under PT Grand Interwisata) in Surabaya and recorded IDR137b profit below the operating level in June 2010. Aside from this, the company has been selling leftover land in Taman Semanan Indah in W. Jakarta, and in Graha Famili in W. Surabaya. It is also negotiating the sale of Wisma Manulife in Jakarta. Management expects more asset sales to create cash flow this year and early next year for major development in 1Park Residences, TB Simatupang, Kebon Melati, Cengkareng / Tangerang
new township, Talaga Bestari and Graha Natura. We adjust our earnings forecasts to include the profit from land and asset sales in 1H10, resulting in a net profit upgrade of 22%, to IDR347b for 2010. As Intiland plans to embark on several new projects in 2011, we should see strong earnings in 2012 when some projects are realised in the P&L.
Development of the new projects
1Park Residences, an apartment complex in S. Jakarta, is being constructed and Intiliand is doing the basement development. Of the two towers on offer, 62% or some 143 units have been sold thus far, with the third tower to be launched soon. The government recently reiterated plans to develop an 11,000ha new city in Maja, Banten, where Intiland has recently acquired 1,092 ha of land – a potential positive for Intiland’s land value.
Raise TP to IDR750 and maintain BUY
As land prices in some areas (especially close to newly completed infrastructure) have gone up, we have adjusted our RNAV calculation. Our TP of IDR750 is based on a 25% discount our RNAV estimate (which takes into account the dilution impact from the conversion of warrants) of IDR1,004 per share. While this is at premium to peers (based on our own and Bloomberg consensus estimates), we believe Intiland’s ability to deliver strong earnings is its strength. Downside risk is a significant increase in interest rates.
DBS Intiland Development Coming back with a bang TP Rp 725.73
• Restructuring ends dormant years
• Strong development pipeline and potential
• Initiate coverage with BUY rating and 42.3% upside potential to Rp725.73 TP
Restructuring ends dormant years. DILD had been mostly dormant with no major developments since the 1997 Asian financial crisis. In 2007, there was a major
restructuring and a new CEO took over and implemented a new aggressive expansion plan, and its balance sheet turned around with debt dropping from Rp1.48tr to
Rp0.39tr post-restructuring. In 1H10, DILD tripled its land bank to 2400ha, of which 55ha are earmarked for high rise developments, the largest in Indonesia.
Strong project pipeline and potential. DILD has a strong development pipeline for the next five years. It will develop four townships with a minimum of 220ha of
saleable area, eight mixed-use high-rise developments with a minimum of 60ha of saleable area, and enter the budget hotel business by developing the Whiz Hotel chain
in major cities in Indonesia. DIDL also has minor developments such as the 146ha Ngoro Industrial Estate and 1.8ha Pinang Residences cluster.
BUY, 42.3% upside to Rp725.73 TP. Our TP is based on 30% discount to RNAV of Rp1036.80/share, to account for execution risks of future projects. DILD’s 10.5x FY10F PE multiple is cheaper than its property developer peers average of 23.6 FY10F. The stock is currently trading at undemanding 0.5x P/RNAV, and we initiate coverage with a BUY rating. The materialization of future projects could be a re-rating catalyst.
BNPP Intiland Development (DILD) Asset sales boost earnings TP IDR 750
ƒStrong 1H10 on low-yield asset sale.
ƒMore asset sales on the way; upgrade earnings.
ƒDevelopment of apartment projects and new landbank.
ƒTP raised to IDR750 (from IDR625); maintain BUY.
Strong 1H10 results
Intiland reported IDR223b net profit out of IDR455b sales revenue in 1H10. The net
profit has already achieved 78% of our previous earnings forecast for FY10, mainly because of the sales of low-yield assets, as explained by management during recent meetings with investors.
More asset sales on the way, leading to earnings upgrade
Part of management strategy is to dispose low-yield assets and use the proceeds to
concentrate on the next projects with higher returns. Intiland sold its Graha Residen (under PT Grand Interwisata) in Surabaya and recorded IDR137b profit below the operating level in June 2010. Aside from this, the company has been selling leftover land in Taman Semanan Indah in W. Jakarta, and in Graha Famili in W. Surabaya. It is also negotiating the sale of Wisma Manulife in Jakarta. Management expects more asset sales to create cash flow this year and early next year for major development in 1Park Residences, TB Simatupang, Kebon Melati, Cengkareng / Tangerang
new township, Talaga Bestari and Graha Natura. We adjust our earnings forecasts to include the profit from land and asset sales in 1H10, resulting in a net profit upgrade of 22%, to IDR347b for 2010. As Intiland plans to embark on several new projects in 2011, we should see strong earnings in 2012 when some projects are realised in the P&L.
Development of the new projects
1Park Residences, an apartment complex in S. Jakarta, is being constructed and Intiliand is doing the basement development. Of the two towers on offer, 62% or some 143 units have been sold thus far, with the third tower to be launched soon. The government recently reiterated plans to develop an 11,000ha new city in Maja, Banten, where Intiland has recently acquired 1,092 ha of land – a potential positive for Intiland’s land value.
Raise TP to IDR750 and maintain BUY
As land prices in some areas (especially close to newly completed infrastructure) have gone up, we have adjusted our RNAV calculation. Our TP of IDR750 is based on a 25% discount our RNAV estimate (which takes into account the dilution impact from the conversion of warrants) of IDR1,004 per share. While this is at premium to peers (based on our own and Bloomberg consensus estimates), we believe Intiland’s ability to deliver strong earnings is its strength. Downside risk is a significant increase in interest rates.
Minggu, 19 September 2010
DBS Bank Rakyat Indonesia: Buy; Rp10,700; TP Rp11,100; BBRI IJ
Reiterating interest on acquiring Bank Bukopin (BBKP) and stock split plan
BBRI’s CEO, Sofyan Basir, confirmed the bank’s interest on acquiring Bank Bukopin (BBKP) and estimated that the process will be finalized next year. BBRI stated that it is viewing BBKP acquisition as a long-term strategy to expand business as opposed to Jamsostek, who views BBKP as a short to medium investment target. On another remark, BBRI also confirmed about stock split plan with ratio 1:2 or 1:4 with exercise price assumption of Rp10,200/share. BBRI will seek shareholders’ approval on BBKP acquisition and stock split agenda in EGM in November 2010.
BBRI’s CEO, Sofyan Basir, confirmed the bank’s interest on acquiring Bank Bukopin (BBKP) and estimated that the process will be finalized next year. BBRI stated that it is viewing BBKP acquisition as a long-term strategy to expand business as opposed to Jamsostek, who views BBKP as a short to medium investment target. On another remark, BBRI also confirmed about stock split plan with ratio 1:2 or 1:4 with exercise price assumption of Rp10,200/share. BBRI will seek shareholders’ approval on BBKP acquisition and stock split agenda in EGM in November 2010.
DBS Telkom: Hold; Rp9,200; TP Rp8,500; TLKM IJ
To transfer Flexi operation to Bakrie Telecom (BTEL)
TLKM confirmed yesterday that the company will transfer its Flexi division’s asset to Bakrie Telecom (BTEL). As per current condition, TLKM Flexi own 5,668 BTS with coverage on 330 cities in Indonesia with 15.9m subscribers and 1.3 Internet subscriber bases. Under the new arrangement, Flexi will get BTEL rights issue shares as a compensation of assets as well as human resources transfer to BTEL management. For this corporate action, TLKM has appointed UBS Securities to appraise its asset value.
TLKM confirmed yesterday that the company will transfer its Flexi division’s asset to Bakrie Telecom (BTEL). As per current condition, TLKM Flexi own 5,668 BTS with coverage on 330 cities in Indonesia with 15.9m subscribers and 1.3 Internet subscriber bases. Under the new arrangement, Flexi will get BTEL rights issue shares as a compensation of assets as well as human resources transfer to BTEL management. For this corporate action, TLKM has appointed UBS Securities to appraise its asset value.
DBS Bukit Asam: Buy; Rp18,900; TP Rp21,350; PTBA IJ
Signs contract for additional coal supply to PLN
Bukit Asam (PTBA) signed a 20-year contract to supply 14.5m tons p.a. of coal to Perusahaan Listrik Negara (PLN) in addition to 8.1m tons p.a. it currently supplies. We understand that PLN is trying to secure coal supply for it’s newly build 10GW new power plants. 75% of capacity should be completed in 2010 and the remaining 25% in 2011/12. We estimate PLN needs 30-35m tons of coal supply for the power plants. We view this as positive as we believe that given its strong position in domestic market, PTBA is set to benefit from surging domestic coal demand from domestic power sector.
We maintain our Buy call for PTBA and Rp21,350/share target price based on blended 13x FY11F PE and 4x PBV. We like PTBA for its strong position in the domestic market and offers attractive FY09-14F production growth of 26%p.a. once its logistic bottleneck removed. PTBA is currently priced at 12.7FY11F PE.
Bukit Asam (PTBA) signed a 20-year contract to supply 14.5m tons p.a. of coal to Perusahaan Listrik Negara (PLN) in addition to 8.1m tons p.a. it currently supplies. We understand that PLN is trying to secure coal supply for it’s newly build 10GW new power plants. 75% of capacity should be completed in 2010 and the remaining 25% in 2011/12. We estimate PLN needs 30-35m tons of coal supply for the power plants. We view this as positive as we believe that given its strong position in domestic market, PTBA is set to benefit from surging domestic coal demand from domestic power sector.
We maintain our Buy call for PTBA and Rp21,350/share target price based on blended 13x FY11F PE and 4x PBV. We like PTBA for its strong position in the domestic market and offers attractive FY09-14F production growth of 26%p.a. once its logistic bottleneck removed. PTBA is currently priced at 12.7FY11F PE.
DBS BBTN Indonesia’s mortgage leader TP 2100
• Largest mortgage lender with a leading competitive advantage and solid track record
• NIM and ROE acceleration leads to 33% 2010-12 earnings CAGR.
• Strong demand for housing with improved macro environment and emerging middle income group
• Initiate coverage with Buy and Rp 2,100 TP
Initiate coverage with Buy call and Rp2,100 TP. BBTN commands 98% market share of the subsidized mortgage loan market as the segment needs customized credit origination and collection platforms, which other banks do not possess. BBTN has been originating subsidized mortgage loans since 1976, refining its platforms, putting it at a competitive advantage over potential entrants. Our TP of Rp2,100, equivalent to 2.6x FY11 BV and 16.4x FY11 EPS, is based on the Gordon Growth Model with the following assumptions: 18% targeted ROE, 13% longterm growth and 15% cost of equity.
33% earnings CAGR over FY10-12 driven by NIM and ROE acceleration. The new scheme for subsidized mortgages via a liquidity facility by the government, which will be finalized soon, is poised to lower cost of funds for BBTN. BBTN’s tie-up with the post office and expanding kiosks in remote areas gives it a larger network to capture
low cost deposits. We expect NIM to increase from 5.2-5.4% over 2010-12 coupled with 22-27% loan growth and 23-24% deposit growth, leading to 33% earnings CAGR with ROEs accelerating to 14-18% over the same period.
Strong demand and improved economic conditions to boost housing growth. With the low mortgage penetration rate of 2% to GDP, we believe there is ample room for growth. Home ownership is believed to be low at present. However, the penetration rate is likely to increase steadily as GDP per capita rises coupled with improved macroeconomic conditions as well as population growth. In addition, we believe that the emerging middle income class would also add to potential demand for housing. All these fit into key ingredients for BBTN’s growth potential.
• NIM and ROE acceleration leads to 33% 2010-12 earnings CAGR.
• Strong demand for housing with improved macro environment and emerging middle income group
• Initiate coverage with Buy and Rp 2,100 TP
Initiate coverage with Buy call and Rp2,100 TP. BBTN commands 98% market share of the subsidized mortgage loan market as the segment needs customized credit origination and collection platforms, which other banks do not possess. BBTN has been originating subsidized mortgage loans since 1976, refining its platforms, putting it at a competitive advantage over potential entrants. Our TP of Rp2,100, equivalent to 2.6x FY11 BV and 16.4x FY11 EPS, is based on the Gordon Growth Model with the following assumptions: 18% targeted ROE, 13% longterm growth and 15% cost of equity.
33% earnings CAGR over FY10-12 driven by NIM and ROE acceleration. The new scheme for subsidized mortgages via a liquidity facility by the government, which will be finalized soon, is poised to lower cost of funds for BBTN. BBTN’s tie-up with the post office and expanding kiosks in remote areas gives it a larger network to capture
low cost deposits. We expect NIM to increase from 5.2-5.4% over 2010-12 coupled with 22-27% loan growth and 23-24% deposit growth, leading to 33% earnings CAGR with ROEs accelerating to 14-18% over the same period.
Strong demand and improved economic conditions to boost housing growth. With the low mortgage penetration rate of 2% to GDP, we believe there is ample room for growth. Home ownership is believed to be low at present. However, the penetration rate is likely to increase steadily as GDP per capita rises coupled with improved macroeconomic conditions as well as population growth. In addition, we believe that the emerging middle income class would also add to potential demand for housing. All these fit into key ingredients for BBTN’s growth potential.
CIMB Quick Takes - Ciputra Development - No holding back
Maintain Outperform on Ciputra, whose Aug 10 presales were Rp159bn, up 4% yoy and 118% mom. Year to August, it had sold Rp1.2tr worth of properties from 16 projects, matching its FY09 presales. We believe the company is set for record presales this year, with a target of Rp1.7tr, vs. a previous high of Rp1.5tr in 2008. We maintain our earnings estimates, DCF-based target price of Rp450 (WACC 12.5%) and Outperform rating on the back of its increasing ability to supply which should result in multi-year presales growth and profitability. We believe any upside surprises in the booking of presales proceeds can provide stock catalysts.
NISP Telekomunikasi Indonesia to acquire Bakrie Telecom through swap mechanism (TLKM, Rp9,200; BTEL, Rp205)
· Telekomunikasi Indonesia (Telkom) gave more light on its plan to acquire Bakrie Telecom where Telkom will swap its CDMA based business, Telkom Flexi, with Bakrie Telecom’s share. The shares will be obtained by absorbing all of Bakrie Telecom right issue shares. The implementation is scheduled to be conducted in December this year. This step was elaborated by the Minister of SOE yesterday.
· It is still difficult to obtain picture of the merged company as there could a difference in both company’s current strategies and resources as well.
· Currently, TLKM is trading at 2011F consensus PER of 13.2x and EV/EBITDA of 4.9x, while BTEL at 2011F consensus PER of 32.4x and EV/EBITDA of 6.4x.
· It is still difficult to obtain picture of the merged company as there could a difference in both company’s current strategies and resources as well.
· Currently, TLKM is trading at 2011F consensus PER of 13.2x and EV/EBITDA of 4.9x, while BTEL at 2011F consensus PER of 32.4x and EV/EBITDA of 6.4x.
NISP TB Bukit Asam signs long term contract with PLN (PTBA, Rp18,900, Buy)
· TB Bukit Asam signed a 20-year contract to supply an additional 14.5 million tons of coal a year to Perusahaan Listrik Negara (PLN). TB Bukit Asam currently supplies 8.1mn tons coal to PLN, 6.1mn tons of which are conveyed to Suralaya power plant and the balance are for Tarahan and Bukit Asam power plants.
· TB Bukit Asam added that it will start to fulfill the contract after the company completed its railway project in order to boost logistic capacity.
· There is no further explanation when this contract will be started, however, we foresee this is prepared to support PLN’s 10,000 MW project.
· Nevertheless, despite no further details, we see this contract is very positive for TB Bukit Asam. With this secured demand for its coal, the company’s railway projects are becoming bankable where the company could utilize the contract to obtain financing to support the projects.
· Currently, PTBA is trading at 2011F PER of 14.9x and EV/EBITDA of 12.9x, Buy.
· TB Bukit Asam added that it will start to fulfill the contract after the company completed its railway project in order to boost logistic capacity.
· There is no further explanation when this contract will be started, however, we foresee this is prepared to support PLN’s 10,000 MW project.
· Nevertheless, despite no further details, we see this contract is very positive for TB Bukit Asam. With this secured demand for its coal, the company’s railway projects are becoming bankable where the company could utilize the contract to obtain financing to support the projects.
· Currently, PTBA is trading at 2011F PER of 14.9x and EV/EBITDA of 12.9x, Buy.
NISP Inco pays US$0.02/share interim dividend (INCO, Rp4,600, Buy)
· Inco announced its dividend interim payment of US$200mn or equal to US$0.02 per share (Rp180/share @ Rp8,990/US$). The amount equals to 91.4% of the company’s 1H10 net income of US$218.8mn.
· The decision was made in light of Inco’s strong 1H10 performance and its current strong financial condition. The dividend is payable on October 22, 2010 to shareholders recorded as of 8 October 2010.
· The company’s dividend is attractive as it offers 3.9% yield compared to Inco’s last price.
· We still maintain buy on Inco, which is currently trading at 2011F PER of 10.5x and EV/EBITDA of 7.2x. Also, we foresee the company will deliver satisfying 3Q10 results on the back of the rainy season that enables Inco to lower its fuel usage by optimizing its hydroelectric power plant.
· The decision was made in light of Inco’s strong 1H10 performance and its current strong financial condition. The dividend is payable on October 22, 2010 to shareholders recorded as of 8 October 2010.
· The company’s dividend is attractive as it offers 3.9% yield compared to Inco’s last price.
· We still maintain buy on Inco, which is currently trading at 2011F PER of 10.5x and EV/EBITDA of 7.2x. Also, we foresee the company will deliver satisfying 3Q10 results on the back of the rainy season that enables Inco to lower its fuel usage by optimizing its hydroelectric power plant.
CLSA Investors Forum 2010: Bank Mandiri
This was the first time the new CEO presented since he takes the reigns over from Agus Martowadojo.
The focus was more on the next five- year strategy (the so called transformation plan) which was full of superlatives: revenue in banking expected to grow at 17% pa in each of the next 5 yrs. This would be the most impressive in Asia. They aim to be one of Asia's top 5 banks in the process DOUBLING their mkt cap to US$ 25bn. This would mean their mkt share would grow from 12% to 18%. The strategy for this is 3-pronged 1) want to be dominant in wholesale 2) no 1 or 2 in retail financing (mortgage/personal loans and micro) 3) transform from being reliant on wholesale deposit dependant to being reliant on retail deposits. In general it means they aim to be less reliant on wholesale loans (down from 73% to 58% of total loan portfolio) and more reliant on retail (which they aim to grow from 50% to 65%). Consumer financing should triple from 6% to 17% and micro lending to quadruple from 2% to 9% of the mix. All high yield growth.
However straight up we were reminded about the RIGHTS issue which is coming at the latest in early 2011 so that the government will be able sell down to below 60%, triggering a 5% tax break for the bank and providing capital to support strong lending expansion.
Some questions on the NPLS, the new LDR requirement for minimum reserves set by BI last week, and the full implementation of PSAK 55
In general it is still impressive seeing an Indo bank present (as a China focussed sales) simply because the banking system has changed so much. It seems to have such a conservative (highest equity to asset ratio and reserve in Asia and very high credit metrics 200% coverage with NPLs now at 2.5% down from 26% at the peak) and attractive banking market (NIMs at 6% on average WoW). But PSAK 55 – the rule which states that Indonesian banks can NOT hold other banks (ie, hybrid) debt as capital – means the whole house of cards collapsing scenario which we had in the West – has much less of a chance of unfolding in Indonesia.
With Indonesia going the same route as China – ie, Bank Indonesia is tightening without raising rates through targeting RRR the quota – which stood at 7.5% but was raised to 10.5% on Monday 6th of Sept – there will now be more focus on raising fees and charges and possibly higher loan rates to offset the impact of higher funding costs associated with this manoeuvre.
In the recent 2Q10 results – released in July – loan growth was impressive at 8% QoQ and 20% YoY, with growth reported in all segments – but fuelled by higher yielding consumer and MICRO loan growth. Also there was a big jump in NIMs up nearly 10bps to 5.2% QoQ as earning asset yields began to expand a function of the higher LDR and shifting loan portfolio as spread income stands at over 51% of our 10CL forecasts.
Fee income remains strong as non-lending related fees increased 27% YoY led by credit card fees (+36%) and administrative fees (+41%).
Q&A focus on margin and ROE over the next 5 yrs. Because investors worried that 5.2% is not sustainable but co says will have high yield consumer loan growth so should rise.
Also worry that diversifying so quickly they would make the same mistake as bank rakyat and be overly ambitious. Some questions on loan pricing given their ambitious mkt share gain plan- they admit they will be "more competitive" in certain areas they wish to grow. Questions on whether the rights issue had been approved and what next steps would be. Parliamentary approval needs to be obtained by October. If deadline is missed moves to Feb.
NPLs remain at 2.5% and coverage ratio at 200%.
At 2.6x11PB, and an ROE of 22% and rising – the stock still seems attractive.
CLSA rates this a buy with TP of Rp7,000 (based on 3x11PB so still some 11% upside.
The focus was more on the next five- year strategy (the so called transformation plan) which was full of superlatives: revenue in banking expected to grow at 17% pa in each of the next 5 yrs. This would be the most impressive in Asia. They aim to be one of Asia's top 5 banks in the process DOUBLING their mkt cap to US$ 25bn. This would mean their mkt share would grow from 12% to 18%. The strategy for this is 3-pronged 1) want to be dominant in wholesale 2) no 1 or 2 in retail financing (mortgage/personal loans and micro) 3) transform from being reliant on wholesale deposit dependant to being reliant on retail deposits. In general it means they aim to be less reliant on wholesale loans (down from 73% to 58% of total loan portfolio) and more reliant on retail (which they aim to grow from 50% to 65%). Consumer financing should triple from 6% to 17% and micro lending to quadruple from 2% to 9% of the mix. All high yield growth.
However straight up we were reminded about the RIGHTS issue which is coming at the latest in early 2011 so that the government will be able sell down to below 60%, triggering a 5% tax break for the bank and providing capital to support strong lending expansion.
Some questions on the NPLS, the new LDR requirement for minimum reserves set by BI last week, and the full implementation of PSAK 55
In general it is still impressive seeing an Indo bank present (as a China focussed sales) simply because the banking system has changed so much. It seems to have such a conservative (highest equity to asset ratio and reserve in Asia and very high credit metrics 200% coverage with NPLs now at 2.5% down from 26% at the peak) and attractive banking market (NIMs at 6% on average WoW). But PSAK 55 – the rule which states that Indonesian banks can NOT hold other banks (ie, hybrid) debt as capital – means the whole house of cards collapsing scenario which we had in the West – has much less of a chance of unfolding in Indonesia.
With Indonesia going the same route as China – ie, Bank Indonesia is tightening without raising rates through targeting RRR the quota – which stood at 7.5% but was raised to 10.5% on Monday 6th of Sept – there will now be more focus on raising fees and charges and possibly higher loan rates to offset the impact of higher funding costs associated with this manoeuvre.
In the recent 2Q10 results – released in July – loan growth was impressive at 8% QoQ and 20% YoY, with growth reported in all segments – but fuelled by higher yielding consumer and MICRO loan growth. Also there was a big jump in NIMs up nearly 10bps to 5.2% QoQ as earning asset yields began to expand a function of the higher LDR and shifting loan portfolio as spread income stands at over 51% of our 10CL forecasts.
Fee income remains strong as non-lending related fees increased 27% YoY led by credit card fees (+36%) and administrative fees (+41%).
Q&A focus on margin and ROE over the next 5 yrs. Because investors worried that 5.2% is not sustainable but co says will have high yield consumer loan growth so should rise.
Also worry that diversifying so quickly they would make the same mistake as bank rakyat and be overly ambitious. Some questions on loan pricing given their ambitious mkt share gain plan- they admit they will be "more competitive" in certain areas they wish to grow. Questions on whether the rights issue had been approved and what next steps would be. Parliamentary approval needs to be obtained by October. If deadline is missed moves to Feb.
NPLs remain at 2.5% and coverage ratio at 200%.
At 2.6x11PB, and an ROE of 22% and rising – the stock still seems attractive.
CLSA rates this a buy with TP of Rp7,000 (based on 3x11PB so still some 11% upside.
Credis Suisse Asia Equity Strategy; TIPs Markets Above 2007 Highs ? Take Profit
● TIPs: best performers YTD and more importantly above their 2007 highs. Highlights that with close to 30% gains YTD, TIPs markets (Thailand, Indonesia and the Philippines) are now above their 2007 highs. Figure 2 highlights that they are the only Asian indices above their 2007 highs. The question then for investors is whether it is time to take profit in TIPs markets. We believe yes, but only in the more overvalued sectors.
● We recommend that investors take profit in the most overvalued sectors. In Indonesia, the three most overvalued sectors trading at premiums of around 40% on our P/BV versus ROE model are industrials, consumer cyclicals and consumer staples. In the Philippines, the most overvalued sector is real estate. In Thailand, the most overvalued sector is consumer cyclicals but its premium at 21% is not as high as those seen in Indonesia or the Philippines.
● However, we are still OVERWEIGHT TIPs markets, as still there are sectors that are undervalued.
● We recommend that investors take profit in the most overvalued sectors. In Indonesia, the three most overvalued sectors trading at premiums of around 40% on our P/BV versus ROE model are industrials, consumer cyclicals and consumer staples. In the Philippines, the most overvalued sector is real estate. In Thailand, the most overvalued sector is consumer cyclicals but its premium at 21% is not as high as those seen in Indonesia or the Philippines.
● However, we are still OVERWEIGHT TIPs markets, as still there are sectors that are undervalued.
JP Morgan - Astra International - Astra By Charts: We review rationale and Valuations at the point of PT overshoot
ASII rallied 8% today, breaking beyond our June 2011 Rp55,000 PT. We revisit our thesis and review valuations.
• Why a fundamental Overweight? Our thesis is that Astra’s stock performance tracks the vehicle sales cycle. Underlying demand remains strong, and we believe that the vehicle cycle is likely to peak only in 2011, underpinning our positive underlying stance.
• What are clients saying: More than one client we spoke to today said that Astra traded at 17-18x FY11E EPS, and they thought that Indonesian consumption plays could sustain valuations of 20x.
• Absolute Valuations: Astra trades at 16x FY11E EPS, which seems fair, 12M Forward multiples are in line with 2007 peaks. Relative to Pre-Asian Crisis - Between 1994-mid1997 Astra traded at an average 12x historic PE & peaked at just under 20x.
• Relative Valuations: Astra has rerated to a 22% premium to MSCI Indonesia. This is at the upper end of our comfort zone.
• Core Business Valuations: We estimate that ex-UNTR & AALI, Astra is trading at a PER of 17.8x FY11E.
• Recommendation & Risks: We think valuations are starting to look stretched but outlandish, but could sustain if vehicle sales momentum remains healthy as we expect. We’d prefer not to chase the stock higher, and if the stock retreats we see better buying opportunity. The key risk is that we worry if capacity could constrain EPS growth in FY11, even if demand does not temper as we anticipate. Astra Daihatsu Motor’s expansion (70k units pa) will only be complete by 1QFY11, and we rate Astra’s maximum supply ability in 2011 at about 45k cars per month, which may restrict earnings upside.
• Why a fundamental Overweight? Our thesis is that Astra’s stock performance tracks the vehicle sales cycle. Underlying demand remains strong, and we believe that the vehicle cycle is likely to peak only in 2011, underpinning our positive underlying stance.
• What are clients saying: More than one client we spoke to today said that Astra traded at 17-18x FY11E EPS, and they thought that Indonesian consumption plays could sustain valuations of 20x.
• Absolute Valuations: Astra trades at 16x FY11E EPS, which seems fair, 12M Forward multiples are in line with 2007 peaks. Relative to Pre-Asian Crisis - Between 1994-mid1997 Astra traded at an average 12x historic PE & peaked at just under 20x.
• Relative Valuations: Astra has rerated to a 22% premium to MSCI Indonesia. This is at the upper end of our comfort zone.
• Core Business Valuations: We estimate that ex-UNTR & AALI, Astra is trading at a PER of 17.8x FY11E.
• Recommendation & Risks: We think valuations are starting to look stretched but outlandish, but could sustain if vehicle sales momentum remains healthy as we expect. We’d prefer not to chase the stock higher, and if the stock retreats we see better buying opportunity. The key risk is that we worry if capacity could constrain EPS growth in FY11, even if demand does not temper as we anticipate. Astra Daihatsu Motor’s expansion (70k units pa) will only be complete by 1QFY11, and we rate Astra’s maximum supply ability in 2011 at about 45k cars per month, which may restrict earnings upside.
Danareksa Banking Sector (OVERWEIGHT) A mixed policy
Tightening liquidity
In a bid to curb inflation, BI will raise minimum reserve requirement (MRR) to 8% from previously 5% – an unusual policy to BI, we think, especially when room for further increase in benchmark rate is still aplenty. On the flip side, keeping rate intact would mean that economic growth is likely to be sustained, albeit at the slight expense of the banking industry. While overall impacts are unlikely to be significant – some Rp50trn of liquidity absorbed, or some 17% of existing liquidity, such implementation would negatively impact those banks that has high loan to deposit ratio, specifically BDMN and BBRI. The additional MRR could be met through the sale of its existing SBI or government bond, but the need to maintain greater loan growth will require the banks to seek additional funding. Under such policy, we estimate banks COF to increase by 14.3bps, assuming most of the funding is obtained through additional time deposits – which is most sensitive to interest rate. Note that this policy will be implemented by November this year.
Still keeping pro-growth policy
Meanwhile, banks are likely to bear an additional cost related to LDR, a policy that will be implemented sometime in March next year. The idea is to boost lending by keeping LDR to a minimum of 78% and cap it to a maximum of 100%. Penalty is set – about 0.1% of deposit to be placed as MRR for every 1% below the minimum cap, and about 0.2% of deposit for every 1% above the maximum limit. While such policy is intended to increase banks role in the economic growth, it runs a risk of bad lending practices, hence greater NPL, we believe. Assuming such penalty is being enforced; larger banks would have to bear another 4.0-7.9bps of additional COF. Of the larger banks, BBCA, having the lowest LDR, would have been the most impacted, while BMRI and BBNI, both have the intention to go for right issue, are also unlikely to comply with such requirement in the near term. Alternatively, these banks could reduce their deposit by lowering deposit rates, something that can only be done if liquidity is aplenty, much like we found in BBCA.
What’s worst?
Bottom-line, both policies are viewed negatively on the banking sector as general, although impacts to earnings are unlikely to be significant. NIM is likely to be compressed with greater funding needed to keep its loan growth intact amid the need to comply with MRR. On a net basis, BBCA and BMRI would have been the worst impacted – about 17bps higher COF, that’s if both policies were to be implemented. Still, such policies will not lead to higher lending rates, we believe, which is something that the bank needs to gain greater volume growth. BBRI and BDMN will be the least impacted, since both would only comply with the additional 3% of deposit for the purpose of MRR. Even if these two banks are faced with higher COF, its greater asset yield will pretty much offset such increases, we believe.
In a bid to curb inflation, BI will raise minimum reserve requirement (MRR) to 8% from previously 5% – an unusual policy to BI, we think, especially when room for further increase in benchmark rate is still aplenty. On the flip side, keeping rate intact would mean that economic growth is likely to be sustained, albeit at the slight expense of the banking industry. While overall impacts are unlikely to be significant – some Rp50trn of liquidity absorbed, or some 17% of existing liquidity, such implementation would negatively impact those banks that has high loan to deposit ratio, specifically BDMN and BBRI. The additional MRR could be met through the sale of its existing SBI or government bond, but the need to maintain greater loan growth will require the banks to seek additional funding. Under such policy, we estimate banks COF to increase by 14.3bps, assuming most of the funding is obtained through additional time deposits – which is most sensitive to interest rate. Note that this policy will be implemented by November this year.
Still keeping pro-growth policy
Meanwhile, banks are likely to bear an additional cost related to LDR, a policy that will be implemented sometime in March next year. The idea is to boost lending by keeping LDR to a minimum of 78% and cap it to a maximum of 100%. Penalty is set – about 0.1% of deposit to be placed as MRR for every 1% below the minimum cap, and about 0.2% of deposit for every 1% above the maximum limit. While such policy is intended to increase banks role in the economic growth, it runs a risk of bad lending practices, hence greater NPL, we believe. Assuming such penalty is being enforced; larger banks would have to bear another 4.0-7.9bps of additional COF. Of the larger banks, BBCA, having the lowest LDR, would have been the most impacted, while BMRI and BBNI, both have the intention to go for right issue, are also unlikely to comply with such requirement in the near term. Alternatively, these banks could reduce their deposit by lowering deposit rates, something that can only be done if liquidity is aplenty, much like we found in BBCA.
What’s worst?
Bottom-line, both policies are viewed negatively on the banking sector as general, although impacts to earnings are unlikely to be significant. NIM is likely to be compressed with greater funding needed to keep its loan growth intact amid the need to comply with MRR. On a net basis, BBCA and BMRI would have been the worst impacted – about 17bps higher COF, that’s if both policies were to be implemented. Still, such policies will not lead to higher lending rates, we believe, which is something that the bank needs to gain greater volume growth. BBRI and BDMN will be the least impacted, since both would only comply with the additional 3% of deposit for the purpose of MRR. Even if these two banks are faced with higher COF, its greater asset yield will pretty much offset such increases, we believe.
AAA PT Aneka Tambang Tbk Excellent performance
± Operating profit surged 528% yoy
ANTM reported 1H10 net profit of Rp 756.3 bn (+238% yoy, 175% qoq) and operating profit of Rp 1,273 bn (+568% yoy, +171% qoq), an excellent performance which account for 60% of full year estimates on average, driven by robust sales volume growth (38% yoy, 386% qoq) and significant surges in ferronickel ASP (+70% yoy, 0% qoq). 1H10 production of 9,252 tons in line with full year target of 18,500 tons. Gross margin from ferronickel have recovered to 43% with 1H10 cash cost of US$ 5.22/lb vs ASP of US$ 9.3/lb. FY10F net profit of Rp 1.24 tr will be easily achieved in our opinion.
± Significantly reduced gold trading activity - better margin
ANTM’s operating margin has recovered to 30% compared to last year of 4% only since its gold sales volume from trading activities were significantly reduced in order to improve margins. Cibaliung gold mine has started commissioning in May 2010 with production of 30 kgs out of 500 kgs of full year target, with full production capacity of 2,000 kgs. 1H10 Pongkor production up 2% yoy to 1,382 kgs. ANTM’s 1H10 gold cash cost was only US$ 507/t.oz vs ASP of US$ 1,157/t.oz, offering attractive margin up to 50%.
± WIKA is appointed as EPC contractor for CGA project
PT ICA, joint venture of ANTM (80%) and Showa Denko (20%), and the incorporated consortium of WIKA, Tsukishima Kikai Co Ltd and Nusantara Energi Abadi have signed the EPC contract relating to the construction of the Tayan CGA project. Tayan project will start commencing in 1Q 2014 and expected to produce 300k tons of CGA per year, where Showa Denko will absorb 200k tons to substitute the input for its Yokohama plant. We are still waiting for the completion of financial disclosure terms, which will be addressed in 4Q10.
± Maintain TP - Reiterate BUY
We maintain our TP of Rp 2,800 per share and maintain our key assumptions. ANTM historically trades at premium compare to INCO due to its solid balance sheet and liquid trading volume. Beside that ANTM’s diversified business model also offers better risk expsosure to nickel price volatility. Currently ANTM trades at 17 – 13.8x P/E FY10F-11F and 7.5x – 5.9x EV/EBITDA FY10F-11F. ANTM still underperforms JCI by 20% and our Tp implies 25.8% potential upside. We reiterate our BUY rating.
ANTM reported 1H10 net profit of Rp 756.3 bn (+238% yoy, 175% qoq) and operating profit of Rp 1,273 bn (+568% yoy, +171% qoq), an excellent performance which account for 60% of full year estimates on average, driven by robust sales volume growth (38% yoy, 386% qoq) and significant surges in ferronickel ASP (+70% yoy, 0% qoq). 1H10 production of 9,252 tons in line with full year target of 18,500 tons. Gross margin from ferronickel have recovered to 43% with 1H10 cash cost of US$ 5.22/lb vs ASP of US$ 9.3/lb. FY10F net profit of Rp 1.24 tr will be easily achieved in our opinion.
± Significantly reduced gold trading activity - better margin
ANTM’s operating margin has recovered to 30% compared to last year of 4% only since its gold sales volume from trading activities were significantly reduced in order to improve margins. Cibaliung gold mine has started commissioning in May 2010 with production of 30 kgs out of 500 kgs of full year target, with full production capacity of 2,000 kgs. 1H10 Pongkor production up 2% yoy to 1,382 kgs. ANTM’s 1H10 gold cash cost was only US$ 507/t.oz vs ASP of US$ 1,157/t.oz, offering attractive margin up to 50%.
± WIKA is appointed as EPC contractor for CGA project
PT ICA, joint venture of ANTM (80%) and Showa Denko (20%), and the incorporated consortium of WIKA, Tsukishima Kikai Co Ltd and Nusantara Energi Abadi have signed the EPC contract relating to the construction of the Tayan CGA project. Tayan project will start commencing in 1Q 2014 and expected to produce 300k tons of CGA per year, where Showa Denko will absorb 200k tons to substitute the input for its Yokohama plant. We are still waiting for the completion of financial disclosure terms, which will be addressed in 4Q10.
± Maintain TP - Reiterate BUY
We maintain our TP of Rp 2,800 per share and maintain our key assumptions. ANTM historically trades at premium compare to INCO due to its solid balance sheet and liquid trading volume. Beside that ANTM’s diversified business model also offers better risk expsosure to nickel price volatility. Currently ANTM trades at 17 – 13.8x P/E FY10F-11F and 7.5x – 5.9x EV/EBITDA FY10F-11F. ANTM still underperforms JCI by 20% and our Tp implies 25.8% potential upside. We reiterate our BUY rating.
DBS Intiland Development Coming back with a bang TP Rp 725.73
• Restructuring ends dormant years
• Strong development pipeline and potential
• Initiate coverage with BUY rating and 42.3% upside potential to Rp725.73 TP
Restructuring ends dormant years. DILD had been mostly dormant with no major developments since the 1997 Asian financial crisis. In 2007, there was a major
restructuring and a new CEO took over and implemented a new aggressive expansion plan, and its balance sheet turned around with debt dropping from Rp1.48tr to
Rp0.39tr post-restructuring. In 1H10, DILD tripled its land bank to 2400ha, of which 55ha are earmarked for high rise developments, the largest in Indonesia.
Strong project pipeline and potential. DILD has a strong development pipeline for the next five years. It will develop four townships with a minimum of 220ha of
saleable area, eight mixed-use high-rise developments with a minimum of 60ha of saleable area, and enter the budget hotel business by developing the Whiz Hotel chain
in major cities in Indonesia. DIDL also has minor developments such as the 146ha Ngoro Industrial Estate and 1.8ha Pinang Residences cluster.
BUY, 42.3% upside to Rp725.73 TP. Our TP is based on 30% discount to RNAV of Rp1036.80/share, to account for execution risks of future projects. DILD’s 10.5x FY10F PE multiple is cheaper than its property developer peers average of 23.6 FY10F. The stock is currently trading at undemanding 0.5x P/RNAV, and we initiate coverage with a BUY rating. The materialization of future projects could be a re-rating catalyst.
• Strong development pipeline and potential
• Initiate coverage with BUY rating and 42.3% upside potential to Rp725.73 TP
Restructuring ends dormant years. DILD had been mostly dormant with no major developments since the 1997 Asian financial crisis. In 2007, there was a major
restructuring and a new CEO took over and implemented a new aggressive expansion plan, and its balance sheet turned around with debt dropping from Rp1.48tr to
Rp0.39tr post-restructuring. In 1H10, DILD tripled its land bank to 2400ha, of which 55ha are earmarked for high rise developments, the largest in Indonesia.
Strong project pipeline and potential. DILD has a strong development pipeline for the next five years. It will develop four townships with a minimum of 220ha of
saleable area, eight mixed-use high-rise developments with a minimum of 60ha of saleable area, and enter the budget hotel business by developing the Whiz Hotel chain
in major cities in Indonesia. DIDL also has minor developments such as the 146ha Ngoro Industrial Estate and 1.8ha Pinang Residences cluster.
BUY, 42.3% upside to Rp725.73 TP. Our TP is based on 30% discount to RNAV of Rp1036.80/share, to account for execution risks of future projects. DILD’s 10.5x FY10F PE multiple is cheaper than its property developer peers average of 23.6 FY10F. The stock is currently trading at undemanding 0.5x P/RNAV, and we initiate coverage with a BUY rating. The materialization of future projects could be a re-rating catalyst.
DBS Regional Industry Focus Plantation Companies Near term weakness
• Malaysia’s Aug10 palm oil production surprised on the upside, as Sabah/Sarawak FFB yields m-o-m recovered stronger than expected
• Exports dropped by 17.6% m-o-m, as Chinese, Pakistani demand slowed – pushing inventory up to 6-month high
• Downgrade Lonsum and Kencana Agri to FULLY VALUED. Top picks remain Sampoerna Agro, TSH Resources and Wilmar
Production boost in Sabah/Sarawak. Aug10 palm oil production data released by MPOB yesterday revealed a 5.7% m-o-m growth to 1.605m MT (slightly ahead of our forecast
of 1.577m MT), despite a typically slower fasting month. Aug10 FFB yields in Sabah/Sarawak had jumped by 9.6% mo-m and 11% y-o-y; while Peninsular yields were flat. We expect a somewhat slower Sep10 production growth (-0.9% m-o-m) to 1.591m MT (due to Eid holidays).
… met by slowdown in shipments. Aug10 shipments however slowed down significantly, led by m-o-m drops in exports to China (-44.4%) and Pakistan (-43.8%), as we
suspect demand for Eid and Mid Autumn festivals had been pre-shipped in July. We believe CPO’s persistent price strength and China’s huge soybean imports so far also played a part in switching some demand to soybean oil. Overall, exports dropped by 17.6% m-o-m to 1.211m MT – weaker than 1.302m MT we forecast last month. We anticipate Sep10 exports to regain some ground to 1.340m MT (+10.6% m-o-m). As a result of higher production volume and lackluster demand, palm oil inventories rose to a 6-month high at end of Aug10, representing stock/usage ratio of 9.5%. Seasonal pick up in production next month is expected to push this number higher to 9.8%.
Some downgrades; shift to laggards Since last month, spot CPO prices have been sustained at RM2,757/MT. This strength should dissipate as we enter into peak harvest
season and higher stock/usage ratio (to 11.5% in Oct10). In this report we downgrade Lonsum and Kencana Agri to FV, as we believe the strength is unjustified. Our upstream top picks remain laggards such as Sampoerna A. and TSH.
In favour of processors. We reiterate our view that processors such as Wilmar (our midstream top pick) will benefit given an anticipated near-term weakness in CPO prices, Already, we are seeing spot refining margin expanding; while spot
crushing margins are also rising on the back of flat soybean prices and rising soy oil and soy meal prices (pg. 3). A bountiful US soybean harvest in Sep-Nov10 would be a catalyst for more margin enhancement in 2H10. Soy oil and palm olein supply, on the other hand, may have to substitute some rapeseed oil demand on biodiesel mandates.
• Exports dropped by 17.6% m-o-m, as Chinese, Pakistani demand slowed – pushing inventory up to 6-month high
• Downgrade Lonsum and Kencana Agri to FULLY VALUED. Top picks remain Sampoerna Agro, TSH Resources and Wilmar
Production boost in Sabah/Sarawak. Aug10 palm oil production data released by MPOB yesterday revealed a 5.7% m-o-m growth to 1.605m MT (slightly ahead of our forecast
of 1.577m MT), despite a typically slower fasting month. Aug10 FFB yields in Sabah/Sarawak had jumped by 9.6% mo-m and 11% y-o-y; while Peninsular yields were flat. We expect a somewhat slower Sep10 production growth (-0.9% m-o-m) to 1.591m MT (due to Eid holidays).
… met by slowdown in shipments. Aug10 shipments however slowed down significantly, led by m-o-m drops in exports to China (-44.4%) and Pakistan (-43.8%), as we
suspect demand for Eid and Mid Autumn festivals had been pre-shipped in July. We believe CPO’s persistent price strength and China’s huge soybean imports so far also played a part in switching some demand to soybean oil. Overall, exports dropped by 17.6% m-o-m to 1.211m MT – weaker than 1.302m MT we forecast last month. We anticipate Sep10 exports to regain some ground to 1.340m MT (+10.6% m-o-m). As a result of higher production volume and lackluster demand, palm oil inventories rose to a 6-month high at end of Aug10, representing stock/usage ratio of 9.5%. Seasonal pick up in production next month is expected to push this number higher to 9.8%.
Some downgrades; shift to laggards Since last month, spot CPO prices have been sustained at RM2,757/MT. This strength should dissipate as we enter into peak harvest
season and higher stock/usage ratio (to 11.5% in Oct10). In this report we downgrade Lonsum and Kencana Agri to FV, as we believe the strength is unjustified. Our upstream top picks remain laggards such as Sampoerna A. and TSH.
In favour of processors. We reiterate our view that processors such as Wilmar (our midstream top pick) will benefit given an anticipated near-term weakness in CPO prices, Already, we are seeing spot refining margin expanding; while spot
crushing margins are also rising on the back of flat soybean prices and rising soy oil and soy meal prices (pg. 3). A bountiful US soybean harvest in Sep-Nov10 would be a catalyst for more margin enhancement in 2H10. Soy oil and palm olein supply, on the other hand, may have to substitute some rapeseed oil demand on biodiesel mandates.
Mandiri Sekuritas Banking Sector: BBRI provides room for another upside
Banks’ share price posted a significant increase yesterday with BBNI posted the highest gain (+8.8%), making limited room for another upside based on our current valuation.
Based on our TP, only BBRI remains as a buy, with 18.8% potential upside from our TP of Rp12,000/share. Please note that BBRI will not be impacted from the recent RR ruling since its LDR is above 78% and below 100%. We still like BBRI for its ability to maintain high profitability marked by high ROAE of 32.8% in 2011F (note: the difference in net profit between ours and consensus estimates for 2011F is 16% as we have projected lower impairment expenses for 2011F).
As we believe that such increase is mostly due to substantial liquidity entering into the Indonesian capital market rather than a fundamental change of the companies (in fact, most banks will be negatively affected by the recent RR ruling), we maintain our current valuation on the bank.
Based on our TP, only BBRI remains as a buy, with 18.8% potential upside from our TP of Rp12,000/share. Please note that BBRI will not be impacted from the recent RR ruling since its LDR is above 78% and below 100%. We still like BBRI for its ability to maintain high profitability marked by high ROAE of 32.8% in 2011F (note: the difference in net profit between ours and consensus estimates for 2011F is 16% as we have projected lower impairment expenses for 2011F).
As we believe that such increase is mostly due to substantial liquidity entering into the Indonesian capital market rather than a fundamental change of the companies (in fact, most banks will be negatively affected by the recent RR ruling), we maintain our current valuation on the bank.
JP Morgan - Astra International: we review rationale and valuations at the point of PT overshoot (Aditya Srinath)
ASII rallied 8% today, breaking beyond our June 2011 Rp55,000 PT. We revisit our thesis and review valuations.
Why a fundamental Overweight? Our thesis is that Astra’s stock performance tracks the vehicle sales cycle. Underlying demand remains strong, and we believe that the vehicle cycle is likely to peak only in 2011, underpinning our positive underlying stance.
What are clients saying: More than one client we spoke to today said that Astra traded at 17-18x FY11E EPS, and they thought that Indonesian consumption plays could sustain valuations of 20x.
Absolute Valuations: Astra trades at 16x FY11E EPS, which seems fair, 12M Forward multiples are in line with 2007 peaks. Relative to Pre-Asian Crisis - Between 1994-mid1997 Astra traded at an average 12x historic PE & peaked at just under 20x.
Relative Valuations: Astra has rerated to a 22% premium to MSCI Indonesia. This is at the upper end of our comfort zone.
Core Business Valuations: We estimate that ex-UNTR & AALI, Astra is trading at a PER of 17.8x FY11E.
Recommendation & Risks: We think valuations are starting to look stretched but outlandish, but could sustain if vehicle sales momentum remains healthy as we expect. We’d prefer not to chase the stock higher, and if the stock retreats we see better buying opportunity. The key risk is that we worry if capacity could constrain EPS growth in FY11, even if demand does not temper as we anticipate. Astra Daihatsu Motor’s expansion (70k units pa) will only be complete by 1QFY11, and we rate Astra’s maximum supply ability in 2011 at about 45k cars per month, which may restrict earnings upside.
Why a fundamental Overweight? Our thesis is that Astra’s stock performance tracks the vehicle sales cycle. Underlying demand remains strong, and we believe that the vehicle cycle is likely to peak only in 2011, underpinning our positive underlying stance.
What are clients saying: More than one client we spoke to today said that Astra traded at 17-18x FY11E EPS, and they thought that Indonesian consumption plays could sustain valuations of 20x.
Absolute Valuations: Astra trades at 16x FY11E EPS, which seems fair, 12M Forward multiples are in line with 2007 peaks. Relative to Pre-Asian Crisis - Between 1994-mid1997 Astra traded at an average 12x historic PE & peaked at just under 20x.
Relative Valuations: Astra has rerated to a 22% premium to MSCI Indonesia. This is at the upper end of our comfort zone.
Core Business Valuations: We estimate that ex-UNTR & AALI, Astra is trading at a PER of 17.8x FY11E.
Recommendation & Risks: We think valuations are starting to look stretched but outlandish, but could sustain if vehicle sales momentum remains healthy as we expect. We’d prefer not to chase the stock higher, and if the stock retreats we see better buying opportunity. The key risk is that we worry if capacity could constrain EPS growth in FY11, even if demand does not temper as we anticipate. Astra Daihatsu Motor’s expansion (70k units pa) will only be complete by 1QFY11, and we rate Astra’s maximum supply ability in 2011 at about 45k cars per month, which may restrict earnings upside.
NISP Lippo Karawaci to divest Siloam Hospitals (LPKR, Rp520)
· Lippo Karawaci has signed a sale and lease back agreement for Siloam Hospitals Lippo Cikarang and Semanggi with First Real Estate Investment Trust which will be executed in 4Q10.
· This deal is expected to bring Rp195.0bn in profit for the company, where Rp42.0bn will be booked in 2010. The remaining balance will be amortized Rp15 years.
· The company cites that it is plan of their strategy in managing its portfolio and increasing value to shareholders. This news follows the latest update for the company where it sets a new dividend policy at 25%.
· Proceeds will be reinvested by the company to finance new hospitals with cost estimated US$20mn per hospital.
· LPKR is trading at 2011F PER of 14.1x and EV/EBITDA of 11.4x.
· This deal is expected to bring Rp195.0bn in profit for the company, where Rp42.0bn will be booked in 2010. The remaining balance will be amortized Rp15 years.
· The company cites that it is plan of their strategy in managing its portfolio and increasing value to shareholders. This news follows the latest update for the company where it sets a new dividend policy at 25%.
· Proceeds will be reinvested by the company to finance new hospitals with cost estimated US$20mn per hospital.
· LPKR is trading at 2011F PER of 14.1x and EV/EBITDA of 11.4x.
NISP Bank Rakyat Indonesia underlines plan to acquire Bukopin (BBRI, Rp10,100; BBKP, Rp720)
· BRI cited that the bank is underlining its plan to acquire Bank Bukopin as part of its long term strategy and will consolidate it along with Bank Agro (AGRO, Rp185). However, BRI has not given any proposal to Bukopin regarding the price despite that Rp2.00tn in cash has been prepared to acquire this targeted bank.
· BRI added that this acquisition will strengthen the bank’s target to increase its position in MSME loans, which also served by Bukopin.
· BRI aims to conclude the price within two weeks at the most, as it is currently in intensive negotiation with Bukopin.
· BBRI is trading at 2011F consensus PER of 11.5x and PBV of 3.0x, BBKP trading at 2011F consensus PER of 8.4x and PBV of 1.4x.
· BRI added that this acquisition will strengthen the bank’s target to increase its position in MSME loans, which also served by Bukopin.
· BRI aims to conclude the price within two weeks at the most, as it is currently in intensive negotiation with Bukopin.
· BBRI is trading at 2011F consensus PER of 11.5x and PBV of 3.0x, BBKP trading at 2011F consensus PER of 8.4x and PBV of 1.4x.
NISP Bumi Resource Mineral obtains green light from stock exchange (BUMI, Rp1,830, Buy)
· Bumi Resource Mineral, Bumi Resource subsidiary for non coal business, has obtained the green light from the Indonesian Stock Exchange to proceed with its IPO plan as the bourse see that one of BRM’s business unit has started to produce revenue this month. Unfortunately, the bourse refuses to share data enlightening which business contributed revenue to BRM.
· Previously, Indonesia Stock Exchange could not agree BRM’s IPO plan as the company has not generated any revenue in its financial statement. Despite having given approval, there are no further details on the schedule.
· BRM plans to increase its equity through offering 20% of its shares to public and aim to raise up to US$300mn of fresh cash. This company controls Bumi Resources’ non coal assets such as Bumi Mauritania, Lemmington Investments, Komblo Bumi, Citra Palu Mineral and Multi Capital (which owned 24% stakes on Newmont Nusa Tenggara).
· The IPO plan will unlock value on Bumi’s non coal assets and would also be positive for BRM as it could utilize its assets to obtain financing for its projects.
· Currently BUMI is trading at 2011F PER of 11.6x and EV/EBITDA of 5.3x, Buy.
· Previously, Indonesia Stock Exchange could not agree BRM’s IPO plan as the company has not generated any revenue in its financial statement. Despite having given approval, there are no further details on the schedule.
· BRM plans to increase its equity through offering 20% of its shares to public and aim to raise up to US$300mn of fresh cash. This company controls Bumi Resources’ non coal assets such as Bumi Mauritania, Lemmington Investments, Komblo Bumi, Citra Palu Mineral and Multi Capital (which owned 24% stakes on Newmont Nusa Tenggara).
· The IPO plan will unlock value on Bumi’s non coal assets and would also be positive for BRM as it could utilize its assets to obtain financing for its projects.
· Currently BUMI is trading at 2011F PER of 11.6x and EV/EBITDA of 5.3x, Buy.
NISP United Tractors eyes US$1.2bn power plant projects (UNTR, Rp20,850, Hold)
· UT is currently eyeing 2 power plant projects worth US$1.2bn, which consist of 2x300MW thermal power plant in Palembang and another 2x300MW in Riau. For the project in Palembang, UT holds a consortium with Wijaya Karya (WIKA, Rp630) and municipal government, while for Riau, UT cooperate with municipal government on the project.
· UT is currently preparing fresh cash to finance the project as it has to be started imminently after the winner is announced. The company is currently waiting for the announcement from PLN.
· UT balance sheet position is healthy with net cash position as of 1H10 and this would enable the company to finance this project and also maintain its capex without any difficulty.
· However our concern is on the company’s margin due to mounting cost from its mining contracting business. Currently UNTR is trading at 2011F PER of 14.3x and EV/EBITDA of 7.5x, Hold.
· UT is currently preparing fresh cash to finance the project as it has to be started imminently after the winner is announced. The company is currently waiting for the announcement from PLN.
· UT balance sheet position is healthy with net cash position as of 1H10 and this would enable the company to finance this project and also maintain its capex without any difficulty.
· However our concern is on the company’s margin due to mounting cost from its mining contracting business. Currently UNTR is trading at 2011F PER of 14.3x and EV/EBITDA of 7.5x, Hold.
JP Morgan - Adaro Energy - Management call update - further risks to forecasts. Switch to ITMG
Management call feedback – 3Q10 weather is still wet, risk to FY10E EPS:
Following a dismal performance in 2Q10 due to record rain, the weather indication at the mines has still been wet during 3Q10. With this, the weakerthan-expected performance could continue into 3Q10, leading to a potentially weaker FY10. The reduction in earnings forecast began on 2 Sept 10, when we last highlighted this issue, until now; the gap between our and consensus estimates for FY10E net income has narrowed from 16.9% then to 12.6% currently, while for FY11E, it has narrowed from 32.2% then to 30.1% currently. Using the latest estimates, we view that the FY11E implied consensus operating profit of US$26.8/ton is still too high, as historically this level of profit has never been achieved.
• Replacing overland hauling conveyer: Adaro also disclosed that it is replacing the planned overland hauling conveyer, which faced constraints on material handling, with an OPCC conveyer system that will carry the mine materials to disposal. The expected cost of the new mine-site conveyer system will be about US$250-300 million, compared with the US$240 million cost for overland conveyer. This mine-site conveyer should maintain the expected reduction in annual operating cost of US$1-2/ton.
• Premium attached to our valuation: Currently, Adaro is trading at 16.3x our FY11E earnings, compared with the industry average of 13.1x. Also, our PT of Rp1,700 implies 14.4x FY11E P/E, which is at a premium to the industry. Currently, Adaro’s share price is trading at a 26% premium to the sector P/E vs. the historical 15% premium. Despite our belief that the P/E premium is less based on the Street’s forecast, as Street forecasts decline, we see downside to valuations.
• Maintain UW and PT of Rp1,700; switch to ITMG: We recommend investors switch from Adaro to ITMG on the back of: (1) potential re-rating of ITMG's share price; (2) higher FY11E and 5-year earnings growth of ITMG; (3) attractive valuation of ITMG at 10.9x FY11E P/E vs. Adaro’s 16.3x; and (4) higher dividend yield on ITMG. At this point, we are not changing our earnings forecasts, and view that the recent 4.89% outperformance since 2 Sept-10 should reverse. Maintain UW and PT of Rp1,700.
Following a dismal performance in 2Q10 due to record rain, the weather indication at the mines has still been wet during 3Q10. With this, the weakerthan-expected performance could continue into 3Q10, leading to a potentially weaker FY10. The reduction in earnings forecast began on 2 Sept 10, when we last highlighted this issue, until now; the gap between our and consensus estimates for FY10E net income has narrowed from 16.9% then to 12.6% currently, while for FY11E, it has narrowed from 32.2% then to 30.1% currently. Using the latest estimates, we view that the FY11E implied consensus operating profit of US$26.8/ton is still too high, as historically this level of profit has never been achieved.
• Replacing overland hauling conveyer: Adaro also disclosed that it is replacing the planned overland hauling conveyer, which faced constraints on material handling, with an OPCC conveyer system that will carry the mine materials to disposal. The expected cost of the new mine-site conveyer system will be about US$250-300 million, compared with the US$240 million cost for overland conveyer. This mine-site conveyer should maintain the expected reduction in annual operating cost of US$1-2/ton.
• Premium attached to our valuation: Currently, Adaro is trading at 16.3x our FY11E earnings, compared with the industry average of 13.1x. Also, our PT of Rp1,700 implies 14.4x FY11E P/E, which is at a premium to the industry. Currently, Adaro’s share price is trading at a 26% premium to the sector P/E vs. the historical 15% premium. Despite our belief that the P/E premium is less based on the Street’s forecast, as Street forecasts decline, we see downside to valuations.
• Maintain UW and PT of Rp1,700; switch to ITMG: We recommend investors switch from Adaro to ITMG on the back of: (1) potential re-rating of ITMG's share price; (2) higher FY11E and 5-year earnings growth of ITMG; (3) attractive valuation of ITMG at 10.9x FY11E P/E vs. Adaro’s 16.3x; and (4) higher dividend yield on ITMG. At this point, we are not changing our earnings forecasts, and view that the recent 4.89% outperformance since 2 Sept-10 should reverse. Maintain UW and PT of Rp1,700.
Credis Suisse Indonesia Banks Sector - Less liquid than meets the eye
● We published a new report, Less liquid than meets the eye, on 14 September, examining the rising investment risks on Indonesia banks sector. We believe that the sector is less liquid than meets the eye.
● Excluding the three most liquid banks, the LDR stands at 88%, the second highest in the region, and could reach 95% in the next 12 months. Excluding the three most liquid banks, the average LDR of seven of the ten largest banks could reach 99% in 2011.
● Given Bank Indonesia’s recent move to tighten liquidity by raising primary reserve requirements, coupled with limited excess liquidity, we see the risk of higher competition for funds. We cut our FY11E and FY12E earnings for Indonesia’s banks by 7.5% and 16.8%, respectively.
● Banks with a low LDR and a high low-cost deposit franchise are less vulnerable to higher competition for funds. Our preferences for Indonesia banks sector is in the following order: BMRI, BBNI, BBRI, BBCA, BDMN and PNBN.
● Excluding the three most liquid banks, the LDR stands at 88%, the second highest in the region, and could reach 95% in the next 12 months. Excluding the three most liquid banks, the average LDR of seven of the ten largest banks could reach 99% in 2011.
● Given Bank Indonesia’s recent move to tighten liquidity by raising primary reserve requirements, coupled with limited excess liquidity, we see the risk of higher competition for funds. We cut our FY11E and FY12E earnings for Indonesia’s banks by 7.5% and 16.8%, respectively.
● Banks with a low LDR and a high low-cost deposit franchise are less vulnerable to higher competition for funds. Our preferences for Indonesia banks sector is in the following order: BMRI, BBNI, BBRI, BBCA, BDMN and PNBN.
BNP Paribas OVERWEIGHT with new 12-mth target at 3750
Indo's growth story remains the catalyst for JCI as one of the biggest domestic consumption market in the region. Reasons to OVERWEIGHT:
1) Du Pont analysis indicates Indo's 25% ROE is SUSTAINABLE
2) Indonesia's structural decline in the Equity Risk Premium (likely to achieve investment grade credit by 2011).
3) Accomodative Monetary Policy eg central bank has been adopting pro-growth as benchmark rate remain at all time low of 6.5% for 14 straight months.
4) Indo's competitiveness index rating climbed 10 notches to 44 out of 139 countries, above Vietnam and India in a Global Competitiveness Index (CGI)2010-2011; the improvement was helped by resilient & healthy macroeconomicmenvironment
* Our top pick in Indo: Bank Mandiri (BMRI IJ) as an in-direct infra growth play & Indofood (INDF IJ) as the spin-off of unit ICBP will unlock its value.
* Attached is our strategist, Clive McDonnell's latest report, focusing on why we think investors should continue to buy into the Indonesia growth story, but should be turning more cautious on India.
1) Du Pont analysis indicates Indo's 25% ROE is SUSTAINABLE
2) Indonesia's structural decline in the Equity Risk Premium (likely to achieve investment grade credit by 2011).
3) Accomodative Monetary Policy eg central bank has been adopting pro-growth as benchmark rate remain at all time low of 6.5% for 14 straight months.
4) Indo's competitiveness index rating climbed 10 notches to 44 out of 139 countries, above Vietnam and India in a Global Competitiveness Index (CGI)2010-2011; the improvement was helped by resilient & healthy macroeconomicmenvironment
* Our top pick in Indo: Bank Mandiri (BMRI IJ) as an in-direct infra growth play & Indofood (INDF IJ) as the spin-off of unit ICBP will unlock its value.
* Attached is our strategist, Clive McDonnell's latest report, focusing on why we think investors should continue to buy into the Indonesia growth story, but should be turning more cautious on India.
Mandiri Sekuritas BUMI: Wait, Pray, and Hope
In our opinion, at this juncture, discussion on BUMI’s operational performance is rather insignificant. We believe the concerns on BUMI are more on the cash flow, and uncertainties on the solutions. Non- preemptive rights issue is the first step. Two things to watch: (1) there are actual buyers willing to pay Rp2,368/share, (2) and the buyers are credible investors. Based on several considerations, (1) BUMI’s good and strategic assets, (2) the group strategy using equity-linked debt; we believe the end game is still improving share price.
Operational-wise, a good Q2. Gross margin improved to 39.7% in Q2 (vs 33.9% in Q1) as ASP rose to US$71.6/ton (vs US$62.9/ton in Q1), while COGS/ton only up by US$2.8/ton to US$44.8/ton. Volume sales eased slightly to 15.1Mt (Q1 : 16.0Mt), while production volume was flat at 15.2Mt (Q1: 15.1Mt). EBITDA in Q2 was US$344.4mn vs Q1 of US$250.7mn.
But debt, still rising, and cash falling. BUMI has US$4,189.8mn of debt in 1H10 (vs US$3,779.9mn in Q1). Cash, restricted cash, and short-term investments in 1H10 were US$405.0mn (vs US$528.9mn in Q1). Financial charges in 1H10 were US$257.4mn (of which US$190.9mn was paid, US$66.5mn accrued to CIC). After US$155.3mn tax payment portion for BUMI, BUMI still has US$70.4mn cash excluding US$89.8mn dividend from Newmont Nusa Tenggara. Despite still a positive one, that leaves a narrow room to maneuver.
Then it came back, to our initial argument, which is de-leveraging. By September 30, BUMI has to complete its non-preemptive rights issue exercise which is expected to bring in US$510.5mn fresh fund. That helps as BUMI’s short-term loans are priced between 12-18% p.a. BUMI is currently trading at 7.1x FY11F Bloomberg consensus, 30% discount to its peers which traded at 10-11x FY11F PER. To match its peers, two things we mentioned in the first paragraph are the precursors.
Operational-wise, a good Q2. Gross margin improved to 39.7% in Q2 (vs 33.9% in Q1) as ASP rose to US$71.6/ton (vs US$62.9/ton in Q1), while COGS/ton only up by US$2.8/ton to US$44.8/ton. Volume sales eased slightly to 15.1Mt (Q1 : 16.0Mt), while production volume was flat at 15.2Mt (Q1: 15.1Mt). EBITDA in Q2 was US$344.4mn vs Q1 of US$250.7mn.
But debt, still rising, and cash falling. BUMI has US$4,189.8mn of debt in 1H10 (vs US$3,779.9mn in Q1). Cash, restricted cash, and short-term investments in 1H10 were US$405.0mn (vs US$528.9mn in Q1). Financial charges in 1H10 were US$257.4mn (of which US$190.9mn was paid, US$66.5mn accrued to CIC). After US$155.3mn tax payment portion for BUMI, BUMI still has US$70.4mn cash excluding US$89.8mn dividend from Newmont Nusa Tenggara. Despite still a positive one, that leaves a narrow room to maneuver.
Then it came back, to our initial argument, which is de-leveraging. By September 30, BUMI has to complete its non-preemptive rights issue exercise which is expected to bring in US$510.5mn fresh fund. That helps as BUMI’s short-term loans are priced between 12-18% p.a. BUMI is currently trading at 7.1x FY11F Bloomberg consensus, 30% discount to its peers which traded at 10-11x FY11F PER. To match its peers, two things we mentioned in the first paragraph are the precursors.
CIMB Strategy – Indonesia: View From The Ground – Hari Raya gift
We maintain our bottom-up index target of 3,430 and Overweight position on the Indonesian market. The JCI had hit a new high on the eve of the long Hari Raya holiday, trading slightly above its 3-year moving average for the first time since Aug 08. External factors aside, August’s lower-than-expected inflation and earnings upgrades after four months of downgrade should support a further re-rating, in our view. Fundamentally, the consumer and infrastructure-related sectors remain key Overweights despite their YTD outperformance. We expect market catalysts from a decline in cost of equity and further earnings upgrades.
DBS Regional Market Focus Indonesia Strategy
Bulls won’t be disappointed
• We expect a firm JCI as suggested by the low 10-year bond yield, a leading indicator in the past.
• 2010 GDP forecast revised up to 6% on solid domestic demand. 2011 budget proposals and IPO pipeline to boost sentiment.
• Based on 14x PER (+1 STD), JCI to reach 3400 by end-2010 and 3840 by end-2011. Recommend banks and utility companies.
10-year bond yields have declined 190 basis points YTD. Mathematically, we found a high correlation of -0.51x between changes in PER and 10-year bond yield since 2005.
A lower bond yield lowers the risk-free rate, reducing the cost of capital, and benefits DCF valuations.
GDP growth revised up, fiscal deficits to narrow further. DBS Group Research revised its GDP growth forecast to 6% (from 5.5%) for 2010 and 5.8% (from 5.5%) for 2011 on the back of strong 2Q10 numbers. Domestic demand accounting for 90% of real GDP, continues to be healthy. Government projects that fiscal deficit will narrow to 1.7% of GDP in 2011 from 2.1% in 2010. The actual deficit could be less than 1% of GDP, as revenue forecast is underestimated. On a positive note, the government intends to raise infrastructure spending while reducing subsidies.
Impressive IPO pipeline. Big companies such as Indonesia’s largest steel producer Krakatau Steel, national flag carrier Garuda Indonesia and Bumi Resources’ non-coal unit, Bumi Resources Mineral, are in the pipeline to float their shares on the stock exchange in 4Q10-1Q11.
Is JCI overstretched? JCI is at a record high of 3200, raising concerns whether the rally still has legs. Investors should take comfort in the fact that JCI trades at 12.7x 2011F PER (consensus) slightly higher than regional average of 11.5x due
to higher growth prospects than regional peers. By the end of 2010, we expect JCI to reach 3400 based on 14x 2011 PER (+1 STD of historical average of 11x). Further re-rating depends upon inflation outlook in 2011. Even without rerating, JCI could reach 3840 by the end of 2011, based on 13% earnings growth in 2012.
Recommend Banks and utility companies. Bank Mandiri, cellular company XL Axiata and utility company Pgas are our top picks. Consumer companies are also big beneficiaries but positives are priced in. Coal sector should benefit from the
seasonally strong 4Q, but valuations are not very attractive.
• We expect a firm JCI as suggested by the low 10-year bond yield, a leading indicator in the past.
• 2010 GDP forecast revised up to 6% on solid domestic demand. 2011 budget proposals and IPO pipeline to boost sentiment.
• Based on 14x PER (+1 STD), JCI to reach 3400 by end-2010 and 3840 by end-2011. Recommend banks and utility companies.
10-year bond yields have declined 190 basis points YTD. Mathematically, we found a high correlation of -0.51x between changes in PER and 10-year bond yield since 2005.
A lower bond yield lowers the risk-free rate, reducing the cost of capital, and benefits DCF valuations.
GDP growth revised up, fiscal deficits to narrow further. DBS Group Research revised its GDP growth forecast to 6% (from 5.5%) for 2010 and 5.8% (from 5.5%) for 2011 on the back of strong 2Q10 numbers. Domestic demand accounting for 90% of real GDP, continues to be healthy. Government projects that fiscal deficit will narrow to 1.7% of GDP in 2011 from 2.1% in 2010. The actual deficit could be less than 1% of GDP, as revenue forecast is underestimated. On a positive note, the government intends to raise infrastructure spending while reducing subsidies.
Impressive IPO pipeline. Big companies such as Indonesia’s largest steel producer Krakatau Steel, national flag carrier Garuda Indonesia and Bumi Resources’ non-coal unit, Bumi Resources Mineral, are in the pipeline to float their shares on the stock exchange in 4Q10-1Q11.
Is JCI overstretched? JCI is at a record high of 3200, raising concerns whether the rally still has legs. Investors should take comfort in the fact that JCI trades at 12.7x 2011F PER (consensus) slightly higher than regional average of 11.5x due
to higher growth prospects than regional peers. By the end of 2010, we expect JCI to reach 3400 based on 14x 2011 PER (+1 STD of historical average of 11x). Further re-rating depends upon inflation outlook in 2011. Even without rerating, JCI could reach 3840 by the end of 2011, based on 13% earnings growth in 2012.
Recommend Banks and utility companies. Bank Mandiri, cellular company XL Axiata and utility company Pgas are our top picks. Consumer companies are also big beneficiaries but positives are priced in. Coal sector should benefit from the
seasonally strong 4Q, but valuations are not very attractive.
Mandiri Sekuritas ADRO:Rupiah attrition
Adaro booked 1H10 net profit of Rp1.2tn (-48.7%yoy) compared with Rp2.2tn a year earlier. The 17%yoy appreciation of the rupiah against the US dollar in 1H10 dragged down the rupiah-denominated revenue to Rp12.0tn (-7.1%yoy). In US dollar base, revenue was booked at US$1.3bn (+11.9%yoy), due to higher sales volume. Meanwhile, increasing stripping ratio in 1H10 to 5.5x compare dwith 5.0 in FY09 boosted cost of revenue and dragged down gross profit margin to 32.9% from 42.2% in 1H09. We adjusted our foreign exchange rate and stripping ratio o! n our est imates, arriving at new target price of Rp2,500. We maintain our Buy recommendation on ADRO.
1H10 results below expectation. ADRO’s 1H10 revenue of Rp12.0tn was only 43.8% of our FY10 target, due to lower average selling price and the US dollar’s depreciation. ASP in 1H10 was only US$55/ton (-10.6%yoy) compared with US$62/ton in 1H09, and the 17.0% drop in the US dollar’s value against the rupiah oppressed revenue when expressed in the local currency. Coal production in 1H10 totaled 21.6Mt (+20.2% yoy) and sales volume 21.8Mt (+22.0%yoy)
Higher stripping ratio. Higher stripping ratio and higher production volume are the main factors that increased cost of revenue by 7.9%yoy. Stripping ratio in 1H10 was 5.5x compared with 5.0 in 1H09, meanwhile overburden removal was up by 11.7%yoy to 106.7Mbcm, due to higher coal production. Higher stripping ratio aligned with the company ordinance to extract more overburden and goes into costly part of the mine due to higher coal market price.
Adjusted our forecast. We maintain our FY10 coal production estimate at 46Mt. We adjusted our stripping ratio to 5.5x from 5.0x previously and lowered our ASP assumption to US$56/Mt, generating FY10 revenue of Rp25.0tn, based on FY10F average US dollar exchange rate of Rp9,100/US$.
Maintain Buy. We used DCF valuation, WACC 11.6% consist cost of debt 7.1% and cost of equity 14.0%. Our new TP is Rp2,500 per share, indicating that ADRO is trading at PER11F of 17.2x. We maintain Buy recommendation on ADRO.
1H10 results below expectation. ADRO’s 1H10 revenue of Rp12.0tn was only 43.8% of our FY10 target, due to lower average selling price and the US dollar’s depreciation. ASP in 1H10 was only US$55/ton (-10.6%yoy) compared with US$62/ton in 1H09, and the 17.0% drop in the US dollar’s value against the rupiah oppressed revenue when expressed in the local currency. Coal production in 1H10 totaled 21.6Mt (+20.2% yoy) and sales volume 21.8Mt (+22.0%yoy)
Higher stripping ratio. Higher stripping ratio and higher production volume are the main factors that increased cost of revenue by 7.9%yoy. Stripping ratio in 1H10 was 5.5x compared with 5.0 in 1H09, meanwhile overburden removal was up by 11.7%yoy to 106.7Mbcm, due to higher coal production. Higher stripping ratio aligned with the company ordinance to extract more overburden and goes into costly part of the mine due to higher coal market price.
Adjusted our forecast. We maintain our FY10 coal production estimate at 46Mt. We adjusted our stripping ratio to 5.5x from 5.0x previously and lowered our ASP assumption to US$56/Mt, generating FY10 revenue of Rp25.0tn, based on FY10F average US dollar exchange rate of Rp9,100/US$.
Maintain Buy. We used DCF valuation, WACC 11.6% consist cost of debt 7.1% and cost of equity 14.0%. Our new TP is Rp2,500 per share, indicating that ADRO is trading at PER11F of 17.2x. We maintain Buy recommendation on ADRO.
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