RTRS-S and P ASSIGNS PT BUMI RESOURCES NOTES 'BB' RATING

13:43 29Sep10 RTRS-TEXT-S&P assigns PT Bumi Resources notes 'BB' rating
(The following statement was released by the ratings agency)
Sept 29 - Standard & Poor's Ratings Services today assigned its 'BB' rating to the proposed issue of guaranteed senior secured notes by Bumi Investment Pte. Ltd., a wholly owned subsidiary of PT Bumi Resources Tbk. (Bumi). At the same time, we affirmed the corporate credit rating on Bumi (BB/Stable/--; ASEAN scale rating axBBB-) and the 'BB' issue rating on Bumi's senior secured notes due 2016.
The rating on the proposed notes reflects the irrevocable and unconditional guarantee by Bumi. The notes rank pari passu with the existing senior secured notes. Proceeds from the proposed notes will be used for refinancing Bumi's existing debt. The rating on the notes is subject to finalization of documentation.
The issue rating is the same as the corporate credit rating on Bumi as Standard & Poor's believes that the priority liabilities at Bumi's coal subsidiaries are unlikely to cause any structural subordination at Bumi, because of the limitation on the indebtedness and low level of other liabilities at the coal companies. Also, Standard & Poor's does not apply its subordination notching criteria to corporations that have operations in Indonesia, reflecting the difficulty in enforcing creditor rights under the country's legal system.
Bumi's financial risk profile is significant, with the current debt to EBTIDA slightly above 3.0x. The high debt burden is primarily due to its latest debt-funded investments in non-coal assets. The company plans to use proceeds from a proposed shares issuance and internal cash for its debt reduction. We expect Bumi to bring its debt to EBITDA to a more comfortable level of below 3.0x within the next 12 months.
Bumi is the largest producer and exporter of thermal coal in Indonesia with reserve life of about 40 years. However, Bumi's assets are located on Indonesia's Kalimantan Island, exposing the company to geographical and single mineral risk. The company's 10 largest customers accounted for about 48% of its sales in the fiscal year ended Dec. 31, 2009, leading to a sizeable customer concentration risk. These risks are balanced by Bumi's good-quality thermal coal reserves, favorable mining strip ratios and low cost profile.
In our opinion, Bumi's liquidity is adequate. As at June 30, 2010, the company had US$291 million of cash in hand and an additional US$124 million in restricted cash. Bumi's funds from operations (FFO) amounted to about US$246 million in the first half of fiscal 2010. We expect its FFO to be about US$600 million for fiscal 2010. The expected short-term debt payable in the next 12 months is about US$450 million. Bumi should be able to cover the near-term debt maturities with the internal cash flows and cash at hand. Bumi's relationships with the banks remain sound and its credit market standing is satisfactory. The company is expected to redeem about US$400 million of convertible bonds by the end of 2010. Bumi has stand-by credit facilities of about US$400 million to meet these convertible bond redemptions in case the proposed bond issuance fails.
In addition to the proposed notes, Bumi intends to issue shares to raise about US$350 million. The equity issuance will provide Bumi with additional liquidity. We view Bumi's foreign exchange risk as low, given that the company's revenues and the bulk of its costs and debt are denominated in U.S. dollar or linked to it.
As at June 30, 2010, Bumi was in compliance of required covenants and we expect it to remain in compliance going forward. However, if Bumi is unable to reduce debt or raise EBITDA, the headroom for its covenants will be limited starting December 2011, when the debt to EBITDA covenant steps down to 3.0x from 4.0x.
The stable outlook on the corporate credit rating reflects our view that Bumi's steady cash flow will be supported by growing demand for thermal coal and steady growth in company's production.
RELATED CRITERIA AND RESEARCH
-- Corporate Ratings Criteria 2008, published April 15, 2008.
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, published May 27, 2009.
((Bangalore Ratings Team, +91 80 4135 5415, Hotline: 4135 5898

RTRS-Indonesia's Bumi Resources plans dlr bond - source

11:52 29Sep10 RTRS-Indonesia's Bumi Resources plans dlr bond - source
HONG KONG, Sept 29 (Reuters) - Indonesian coal miner PT Bumi Resources PT plans a benchmark-sized dollar bond issue due in seven years and callable after four years, a source close to the deal said on Wednesday.
Credit Suisse Group AG Deutsche Bank AG and JPMorgan were hired for the planned issue, which could be priced as early as Wednesday or Thursday, the source said.
The company held a road show in Singapore, Hong Kong, New York and London.
Bumi last issued debt in November last year, when it sold $300 million of seven-year bonds with a coupon of 12 percent. (Reporting by Jun Ebias; Editing by Chris Lewis)

CLSA Gozco (GZCO IJ) to delay this year's palm oil plantation acquisitions plan

Gozco plans to delay its acquisition plan from initially expected to be within this year. The company is currently in talk with three palm oil plantation companies in South Sumatra, Central Kalimantan, and West Kalimantan and has allocated Rp500bn of capex for acquisition. Comment: Organic expansion will continue at the current pace with additional 5,500-7,500 ha per year. The company, however, will continuously seek to expand its plantation business through both organic growth and acquisitions. The company completed the acquisition of Palma last year, taking it to be a plantation company with the largest land bank in relative to its planted area.

CLSA Indika Energy (INDY IJ) 1H10 results – weak performance

The company’s net profit increased 28% yoy to Rp467.16bn. It has turned to operating profit of Rp4bn from a loss of Rp36bn a year ago. Kideco's contribution fell 10% yoy though to Rp721.2bn from nearly Rp800bn. Comment: Like its other peers, the result is disappointing, only forming 37% of consensus expectations. Reasons are: 1) weaker operating margins from its contractors business (petrosea and tripatra); 2) lower-than-expected Kideco's profit; 3) higher interest expense.

CLSA re-initiating coverage INCO, SELL, TP Rp4,200

Our new mining analyst Rania is making a non consensus call on Inco Indonesia (INCO IJ) with her SELL recommendation (re-initiating coverage) with TP of Rp4,200 or 11% lower than yesterday’s closing price. Her earnings forecast is 10% below consensus. CLSA foresees nickel price declining 11% to US$8.5/lb in 2011 from US$9.5/lb this year.


Reasons for the SELL call:
Strong earnings growth momentum is set to wither into FY11.
We expect average nickel price to soften by 11% yoy to US$8.5/lb on looming supply influx.
Nickel pig iron growth and significant nickel refinery supply growth (+300k tonnes) in 2011 and 2012 will pressure prices.
Production is set to fall by 6% yoy due to a 3-month repair at one of its furnaces in 1Q11.
INCO’s earnings sensitivity from nickel price movement is also far greater than that from costs and productions. A 10% movement in nickel price would positively move earnings by 22% (vs 13-15% for production and cost movement).
We expect oil price to increase 6.5% yoy on average next year.
Not much fat to burn anymore. Production cash cost could only fall by at most 8% yoy next year. Not enough to offset lower nickel price and production volumes.
Sales comment: the SELL call might be sound fundamentally but we would like to point out that it is difficult to swim against the tsunami of cash coming in to the market. In particular we are not keen to underweight resource sector on the back of massive money printing in the west. At the company specific level, INCO is globally competitive from cost point of view. The completion of Karebbe hydro power plant in August 2011 means INCO is going to be even more globally competitive. We expect cash cost to drop from US$3.5/lb to US$2.6/lb post hydro completion vs. global average of US$5/lb.

Coal Production

Talked to a prominent coal traders. He saw some heavy machineries lying idle, excavator tumbled. Even his 4 wheel drive land cruiser with big wheels was spinning around on the road to the mine. Rain keeps pouring East Kalimantan and some coal mines there are having problems to mine and transport coal. He would not be surprised if there will be a lot of delays in shipments due unfavorable weather. This is especially true to small to mid size miners which may have to completely stop transporting coal and only some big guys such as KPC & Arutmin whose good hauling road could resume transporting coal when the rain stops. He expects around 10% drop of production until end of this year as miners cannot do normal mining activities. Even Adaro has really toned down their production target for this year.

What's going on here? Indication is that we are going to get a major La Nina event. According to NOAA (National Oceanic & Atmospheric Administration). Conditions are currently stronger at this time of year for a powerful La Nina than they have been since 1955.

Citigroup Indonesia Banks - The Rising Loan Tide

 Focus on Deposits As Tightening Starts — Bank Indonesia (BI) has taken the first step to tighten monetary policy by imposing a higher Reserve Requirement. We expect more measures to follow as loan growth momentum remains strong and may even surpass BI’s 2010 target of 22-24%. Citi expects an interest rate hike in Q1 2011. A rising LDR (sector 78% with 10.5% Reserve Requirement from Nov 2010), skewed liquidity (88% of excess liquidity is with 3 banks) and widening lending rate-bond yield spread suggest pressure on NIMs from both ends. BMRI remains our only Buy and BBCA our only Hold as both 1) benefit from higher interest rates 2) have excess liquidity and 3) follow a balanced loan/deposit growth strategy. Valuations for BMRI and BBCA seem at a premium to peers, but we see consensus as being too bullish on earnings for the peers in 2011.

 Loan Growth Rising Rapidly — Net loan disbursements in 8M CY10 were c~Rp200Trn. Assuming historic seasonality, this translates into a 2010 expansion of 24%. Momentum is expected to continue as loan approvals (not disbursed) have risen to 35% of total loans outstanding.

 Need to Raise Deposits— Deposits to GDP have been declining since early 2000s, while LDR has been on a rising trend. Incremental deposits in the last 3 years have matched incremental loans. NIMs have been supported by changes in asset mix. Excess liquidity is Rp238Trn but, excluding BBCA, BMRI and BBNI, is only Rp29Trn or 2.3% of the remaining banks’ deposits. Among the large banks, BBCA and BBRI have been gaining market share in CASA in the past 3 years, while BMRI has maintained share and BBNI has lost out. For BBRI, this has still not been sufficient to meet its strategy to gain loan market share.

 Lending Rates Under Pressure — Lending rates (working capital) have been relatively stable in the last 3 months. They have not followed the decline of bond yields and the spread has widened to a peak level of 500bps. Time deposit rates have also been stable.

 Rights Issues — Rights issues by BMRI and BBNI have been approved and will add c-USD2.4bn to their free float (the large 5 banks have a combined current free float of USD24bn). The rights will be non-dilutive as lower tax rates will compensate for larger equity bases. BBRI, in particular, will face increasing pressure on the lending side, and has an LDR of 87% and a CAR of 14%. In 2010, state-owned banks have been lagging in both loan and deposit growth, but the equation may reverse in 2011.

Mansek TINS: Costly weather Downgrade to Sell TP idr2300

Weighing the impacts of rising tin price vs. La Nina, we view that Timah, on overall, will be adversely affected. In term of volume, La Nina will impede offshore mining so that sales volume target could be unachievable. In term of costs, lower quantity means higher cost/unit due to big portion of fixed cost in offshore mining. At the same time, onshore sourcing al! so become s very costly as suppliers speculate on further rise in tin ore price and ask for a substantial increase in price. We reduced our FY10F-11F net profit by 15.4% and 25.8%, and downgrade the stock to Sell. The stock is trading at PER10-11F of 20.1-15.1x.

La Nina will curb tin ore exploitation. La Nina could negatively impact tin ore exploitation in two ways. For offshore mining, it prevents TINS from exploiting deeper sea areas so that the tin ore quantity mined will be smaller. For onshore mining, the company will find it difficult in sourcing tin ores from small miners as small miners tend not to sell their stocks because they bet on further price increase.

Losing cost control. In addition to smaller production level, TINS could also lose control over its production costs. For offshore mining whose most of the costs is fixed (fuel and ship spareparts), smaller quantity mined translates into higher ore cost per ton. This condition has been getting worse with sharp increase in ship sparepart costs. For onshore mining, if the company wants to meet 44k tons FY10F sales contract, it has to rely more on tin ore purchasing from sma! ll-scale miners, who would respond by increasing the prices sharper than the LME price increase.

Downgrade forecasts. In 2H10, TINS’s profit may be higher compared with 1H10 as it has enough inventory level to take advantage of rising price. However, we lowered our FY10F volume assumption to 44k tons as 1H10 sales volume only represented 41.2% of our previous FY10F and we doubt that the company can catch up with it in 2H10 considering the bad weather. Net effect is FY10F net profit downgrade by 15.4%, despite higher selling price assumption of US$19k/ton for FY10F. For FY11F, we estimate that the company’s prof! it may st ill be low in 1H11 due to costly inventory. We downgrade FY11F net profit by 25.8%.

Downgrade to Sell. We cut our target price to Rp2,300/share by incorporating worse outlook of sales volume and cost control. Our target price was derived using DCF method with WACC of 14.7%. The stock is currently trading at PER10-11F of 20.1x-15.1x. Main risk are tin selling price and weather condition.

CLSA Summarecon Agung (SMRA IJ) records strong Aug mktg sales – up 6x MoM by Sarina Lesmina

8M10 sales reached Rp1.76tn, up 137% YoY. August’ sales were booked at Rp433bn, up 6x MoM, given the launch of “The Springs” in Serpong of ~Rp300bn. 8M10 sales were already 83% of company’s FY10 target of Rp1.9tn.

· The company plans to do another launch in next few months in Bekasi again of 200 units (~Rp200bn) of housing in the next few months. It is also considering doing another launch in Serpong.

· Hence, FY10 sales should reach more than Rp2tn. We think sales can reach Rp2.1tn at least vs our current forecast of Rp1.9tn (60% increase YoY). Hence, there is upside risk to our earnings forecast for 2011/12 when the sales will be booked as revenue.

· We continue to like the company as a strong property developer and mall operator. We like its ability to replicate its success from one township to another. The company now has three townships with Bekasi as the recent one launched this year. ROE will keep expanding to 14% in 2011 from 11% this year, one of the highest vs peers.

· Reiterating our BUY on SMRA. SMRA is now trading at 34% discount to its NAV, with marketing sales this year at historical high. Historically, SMRA has traded at premium to its NAV.

CLSA AKRA, potential M and A ahead for SOBI?

Our research associate Vera maintains her OPF rating on Aneka Kimia (AKRA IJ). Maintain TP at Rp1,600.

Petroleum business has been growing very rapidly since AKRA entered into this business back in 4Q05. For subsidized fuel, downstream regulator BPH Migas has awarded AKRA the right to distribute 101k KL subsidized fuel in 2011. This equals to only 0.3% of the country’s total subsided fuel market, implying a further potential growth. And still tiny compared to expected 1.6m KL volume AKRA is going to distribute next year, but almost double last year’s volume. I guess it is worth remembering that subsidized fuel makes up about 60% of Indonesia’s petroleum market.

Another interesting way to look at AKRA is the potential M&A for subsidiary Sorini (SOBI IJ). In the short run, SOBI might see their margins under pressure with rising input costs (lagging effect since the input costs have been rising too fast). But SOBI is still a great asset. SOBI is the second biggest sorbitol manufacturer in the world. The company is also the key earnings contributor for AKRA (30% in 2011F CL).

Moreover, the purchase of this company by a key competitor will boost the pricing power. Another possibility is the purchase of SOBI by a vertically integrated operator. For a deal to happen, the price has to be at a decent premium. Assuming 25-30% premium from current share price for controlling stake, this would translate into Rp3,500-3,700/share price for SOBI. AKRA currently controls 69.5% of SOBI and a deal would mean around US$250mn cash to their pocket. Nice…

Key points from the report:
Maintain OPF on AKRA, the largest private petroleum distributor in Indonesia as well as the leader Sorbitol producer worldwide.
· Petroleum business: will continue to display strong growth, forecasted to be 20% CAGR in the next three years.

· A potential M&A on SOBI is also foreseeable and this will unlock value. Divesting SOBI would be viewed positively by the market since it would leave the company as a more focused on fuel distribution, the fastest growing business segment.

Mansek Gajah Tunggal:points from annual public expose (GJTL,Rp2,075,Not-rated)

1H10 revenue was Rp4.8tn (+27.3%yoy)and net profit was Rp415bn (+188.2%yoy)
Sales volume in 1H10: radial tire was 5.1mn unit(+54.5%yoy),bias tire was 2.1mn unit(+31.3%yoy)and motorcycle tire was 10.1mn unit(+23.2%yoy).
Production capacity by 1H10:radial tire was 37,000tire/day (utilization rate:77%),bias tire was 13,600tire/day (utilization: 87%),motorcycle tire was 67,000tire/day (utilization:85%),synthetic rubber was 60,000ton/yr (utilization:55%)and tire cord was 36,000ton/yr (utilization:66%)
GJTL plans to increase production capacity for radial tire gradually to become 40.000tire/day and 45,000tire/day by end 2010 and 2011,respectively;and motorcycle tire will expand gradually to become 75,000tire/day,95,000tire/day and 105,000tire/day by end 2010,2011 and 2012,respectively.
The radial tire capacity expansion is supported by increasing demand from Michelin.In FY09 tire sales to Michelin reached 1.9mn unit.This year tire demand from Michelin totaling 3mn unit and become 4mn unit and 5mn unit in 2011 and 2012,respectively.
Capex allocated in FY10F amounting to US$40mn,around US$20mn is allocated for expansion and the remaining is for maintenance and working capital.
Currently,we do not cover GJTL.Based on Bloomberg estimates,it is trading at PE11F of 7.8x.

Mansek TINS:negative impact from La Nina (TINS,Rp2,800,Neutral,TP:Rp2,800)

Weighing the effect between rising tin price and the impact of La Nina,we view that Timah,on overall,will be adversely impacted:

In term of volume,La Nina will impede offshore mining so that sales volume target could be unachievable.Note that 1H10 sales volume only represented 41.2%of our FY10F.We doubt that the company could catch up the sales volume target in 2H10,considering weather in 2H10 is worse than 1H10.The impact will continue at least until 1H11F.

In term of cost,lower mining quantity means higher cost/unit due to big portion of fixed cost in offshore mining.At the same time,onshore sourcing also becomes very costly as suppliers speculate on further rise in tin ore price and ask for a substantial tin ore price increase to the company.

Considering the above factor,we are currently reviewing our forecasts of TINS.At this point we still have Neutral recommendation on TINS which is trading at PER10-11F of 17.0-11.2x.

Mansek Economy:Sep10 CPI inflation and Aug10 trade preview SECTOR

The Central Statistics Agency is scheduled to announce the Sep10 inflation and Aug10 trade figure on Friday (1/10).We expect Sep10 inflation to come lower than the previous month,at 0.56%mom or 5.92%yoy vs.consensus estimate of 0.70%mom or 5.90%yoy.

Stabilizing food prices and stronger currency likely will keep inflation under control.We also think the second-round impact of the electricity price hike likely will be limited,given that the hike for industrial customers is capped.

Aug10 trade balance may record a meager surplus,based on our estimate, as strong imports growth likely to persist.We estimate trade balance has booked a surplus of around US$224mn in Aug10,compared to deficit in July.Exports may have grown by 28.0%yoy,imports growth may risen faster by 30.6%,particularly driven by capital goods and raw material imports as investment is recovering.

Credit Suisse GEM Strategy - Could 2011 be like 2005?

● 2010 is not over yet, so why are we thinking of 2011? With limited upside left to our year-end targets (5% for the MXASJ or the MSCI Asia ex. Japan), we believe it is time to introduce our 2011 targets. With the MXASJ (the MSCI Asia ex. Japan) in 2010 tracking 2004 performance, the question is whether 2011 could look like 2005. We believe the key similarity between 2004/05 and 2010/11 is that they are both mid-cycle slowdowns. 2004 and 2010 were associated with a peaking of global leading indicators and 2005 and (we believe) 2011 are associated with a trough in leading indicators.

● Introducing our 2011 year-end targets for MXASJ and MXEF. The MXASJ and the MXEF were up 19% and 30%, respectively, in 2005. But our year-end 2011 targets imply a more modest 15% upside to 625 for the MXASJ and to 1325 for the MXEF from our end-2010 targets of 550 and 1150, respectively. The main reason for the more modest targets is the poor state of developed world sovereign balance sheets and the accompanying fiscal contraction.

NISP Pembangunan Perumahan likely candidate for US$200mn project (PTPP, Rp940)

· Pembangunan Perumahan will likely come out as the winner for a gas power plant project in Jambi and South Sumatera, worth US$200.0mn. The company’s CEO shared that the winner will be announced by PLN in October 2010.

· If selected, the project will be carried out in 12 months. Payment will be done by installment over 7 years.

· PP has also won a Rp400.0bn contract to build the Public Works new Ministry building by offering a price of Rp379.0bn. This project will start in the final quarter this year and will be completed at the end of 2011.

· PTPP is trading at 2011F consensus PER of 12.2x and EV/EBITDA of 8.6x.

NISP BNI asks to be prioritized in rights issue (BBNI, Rp3,700)

· BNI management has asked for its right issue plan to be prioritized to go first before Mandiri carries out the same action. The bank’s CEO, Mr. Gatot Suwondo, stated that BNI has more of an urgent need to raise more capital to support expansion to support next year’s loan growth of 15-20%.

· In response to this, Mandiri (BMRI, Rp6,650) CEO stated that he leaves the decision in the hands of the House of Representatives.

· BBNI is trading at 2011F consensus PER of 12.5x and PBV of 2.2x.

NISP Bank Mandiri provides incentives for Bakrie Sumatera Plantation (BMRI, Rp6,650; UNSP, Rp360)

· Bank Mandiri provides several incentives for BSP to support the acquisition of Domba Mas. The bank offers the combination of terminable interest and penalty on Domba Mas’ US$78mn loans.

· With this facility, BSP requires only to pay the principal as the bank is restricted to offer loans haircut in restructuring scheme.

· Currently, this acquisition plan is still in negotiation phase as there are difference on loans acknowledgement between BSP and Bank Mandiri.

· Currently UNSP is trading at 2011F consensus PER of 9.9x and EV/EBITDA of 7.3x, while BMRI at 2011F consensus PER of 13.6x and PBV of 2.9x.

NISP Indo Tambangraya Megah aims for 23mn tons coal production (ITMG, Rp40,350, Hold)

· ITM is currently chasing for 23mn tons coal production for 2010 by optimizing its water management to support production amid heavy rainfall season. The company elaborated that it will optimize water pump facility and avoid catchment area through developing drainage system.

· This 23mn tons is inline with the company’s previous guidance, however, we foresee that the company will face challenge on its way to achieve another 12mn tons in 2H10. During 1H10 the company produced 11mn tons of coal where its 2Q10 was only 5mn tons or a bit lower than 6mn tons in 1Q10 due to rainfall season.

· Its high stripping ratio characteristic would also become a challenge in this unusually wet season, where this was already spotted in the company’s 2Q10 cash cost per ton, which rose by 16.1% QoQ.

· Currently ITMG is trading at 2011F PER of 14.3x and EV/EBITDA of 8.6x, Hold.

NISP TB Bukit Asam to build Rp1.00tn port in Lampung (PTBA, Rp20,000, Buy)

· TB Bukit Asam is allocating Rp1.00tn of budget for loading port facility in Lampung in order to support the company’s Tanjung Enim – Lampung railway project. The company cited that the plan is currently in preparation phase and expects to build the port next year.

· The commencement schedule is in 2013 and at full capacity the port can handle 25mn tons of coal per annum.

· This project is part of the company’s target to achieve 70mn tons of coal production in 2016. TB Bukit Asam will use its internal cash for this Rp1.00tn project as the company sees it still has an ample cash position.

· We view this as a progress of the company long term projects, including three railway projects that would unlock TB Bukit Asam’s ability to access its abundant reserves. Currently, TB Bukit Asam holds 2.0bn tons of coal reserves or equal to 29.4% of total coal reserves in Indonesia.

· PTBA is trading at 2011F PER of 15.8x and EV/EBITDA of 10.3x, Buy.

DBS Tower Bersama: Non-Listed

To raise US$200m through initial listing

Telecommunication infrastructure firm Tower Bersama Infrastructure aims to raise US$200m through its initial listing. The fund obtained will be utilized for acquisition and addition of more telecommunication towers. 755m shares representing 15.86% of enlarged capital will be issued through IPO with expected share price ranging from Rp1,675-Rp,2100. Tower will also issue 340m shares representing 7.14% stake through private placement targeting hedge funds and wealth management firms. The company has also prepared 113m greenshoe shares representing 2.3% stake to be exercised in anticipation of over-allotment. UBS Securities Indonesia and Indo Premier Securities are acting as underwriters for this initial listing. The offering period is scheduled between 18 – 20 October before the share officially listed on 26 October.

DBS Bank Tabungan Negara: Buy; Rp1,860; TP Rp2,100; BBTN IJ

Looking for funding

BBTN has submitted Rp1.5-2tr bonds issuance plan for next year with tenure of 5-10 year to Government. In addition to that, BBTN will conduct MBS issuance of Rp1tr next year to manage mismatched risk. In addition, BBTN has proposed Government to put 60% funding of total lending disbursement in public housing construction projects. BBTN’s CEO, Mr. Iqbal Latanro, stated that the bank extends credit of Rp1.5-2tr per month, which continually reduce its capital position. Therefore, BBTN hopes that Government will reduce its 73% stake and approve rights issue plan to bring free float to 40% earlier than the original plan projected in 2014.

CIMB Quick Takes – Bank Panin – To be or not to be

Maintain Outperform on Panin. The central bank’s newly pitched idea of capping majority ownership, especially that of foreigners, to 30% individually could sound like music to Bank Panin’s founder's ears, whose intention to sell a majority stake might have been deterred by ANZ’s 38% overhanging block. Given that most regulations in Indonesia are non-retroactive, the lead time from the crafting of regulations could provide a window to ANZ to decide on the fate of its stake. Its options could include topping up the stake to majority level or selling down. Either option would appear to benefit the founder, in our assessment. We maintain Outperform on Panin on a regulatory-driven higher chance of its majority stake being sold in the near term, which could trigger a tender offer from a control change. Our target price has been kept at Rp1,420, a 20% discount to the average 2008-09 M&A valuation of 3.6x trailing P/BV. More progress in the drafting of new regulations could offer catalysts for the stock, in our view.

JPM Indo credit trades (Soo Chong Lim)

Top picks

Bakrie Telecom 11.5% '15
BTEL has carved a niche as value service provider and should continue to benefit from an expanding cellular market in Indonesia. Its leverage is aggressive and would stay at over 4x over the next few years but well within the single-B credit range in our view. 2Q10 results were weaker in revenue as a tradeoff with better margin. The recent USD300 million facility from ICBC should cover capex funding till 2012. News of potential merger with Telkom's Flexi has lifted bond price, but we believe the full impact is not fully reflected. We believe the merger should lead to improved leverage at 2.6x, and Telkom presence would instill some check-and-balance.

BLTA 7.5% '14
BLTA is a recovery play as dwindling new supply should restore balance to the chemical shipping market comes 2011. Its third consecutive rise in EBITDA in 2Q10 underscored that the cycle is bottoming out. Leverage is aggressive at >7x with still heavy capex in 2011-12, but mitigated by decent access to banks and adequate liquidity of USD250m post recent rights issue. In our view, recent negative rating actions are behind the curve. We still see some challenges ahead but believe that investors are well compensated for the risks.


Top pans

Bakrie Sumatera 10.75% '11
The recent restatement of its March 10 financial with close to USD500m reduction in cash balance raised a red flag. We believe the consolidation of Domba Mas' stretched balance sheet would put further financial strain and potentially could raise its leverage to over 7x. This would make refinancing of the bonds falling due next year a challenging task.

JPM M and A and IPOs alive and well in Indonesia

* Ultra Jaya (ULTJ) – This independent milk company’s stocks gained 109% over the past four trading days. Based on last close, market cap is around Rp5.4trn (US$550mn). The company made a profit of Rp68bn in 1H10 (up 151%), after growing sales by 22% yy. Annualizing the 1H10 net profit the stock trades on 40x P/E FY10. (Verdi Budiman).

* Tower Bersama – launching an IPO for 755mn shares or 15.8% of the company, price range Rp1675-2100. Price will be set on 7 Oct, green shoe 113mn shares. (Bisnis Indo).

* Bakrie Plantations (UNSP) – Bisnis Indonesia reporter speculates that UNSP may be able to close the transaction to acquire Domba Mas, after Bank Mandiri agrees to write-off the interest receivable from the bad loan. Bank Mandiri CEO Zulfiki hopes to close the transaction by end Sept. (Bisnis Indo).

* Bank Bukopin (BBKP) – Bank Rakyat Indonesia’s CEO Sofyan Basir told the press that minister of SOE has given him the formal go-ahead to become majority shareholder in Bank Bukopin. Bank Indonesia’s deputy governer Muliaman Hadad told the press that he has not seen any approval request from BBRI, for the Bukopin acquisition. (Kontan). Yesterday, Bloomberg reported that the state pension fund Jamsostek has bought shares in Bukopin below Rp700/share.

Credit Suisse Asia Equity Focus Focus on larger well-capitalized high-yielding Asian banks

Overweight Asian banks after Basel III eases capital raising risks
In our latest study of the impact of the Basel III agreement on Asian banks, we observe that most banks in Asia Pacific have capital levels that are well above the
minimum capital requirements announced by the Basel Committee on Banking
Supervision (BCBS) on 12 September. More importantly, a lengthier implementation
period for the implementation of Basel III provides more relief for Asia's banking
sector which should ease fears of capital raising activities. In our just released
Research Weekly Asia, we conclude that most Asian banks are well capitalized and
we see manageable risks of cash calls and dividend cuts. We recommend investors focus on larger well-capitalized and high-yielding Asian banks.

In our view, Basel III provides improved transparency on capital requirements and
reduces any uncertainties arising from the capital raising needs of Asian banks to
meet the new regulatory requirements. Based on our Credit Suisse Private Banking
Asia Pacific banking coverage, the Tier 1 capital adequacy ratio of Asian banks
ranges from 8.7% to 13.4%, with the Southeast Asia banks being the most
capitalized, while the Japanese banks are the least capitalized. Most Asian banks
have capital levels that are well above the 7% minimum common equity capital ratio
under Basel III as of 1 January 2019. Banks will not be required to meet the
minimum common equity capital requirement of 4.5% of risk-weighted assets until 1 January 2015.

However, we still see some regulatory risks from the local implementation of Basel
III, as selected Asian banking regulators may decide to fulfill the new capital
requirements faster than required, or even impose an additional capital conservation
buffer if the banking sector is particularly important to that country. Taking into
account Asia's more robust economic recovery momentum than that of the G3
economies, we think Asian banks could be the first in the world to be required to
meet the additional counter-cyclical capital buffer of 0%–2.5%, which banking regulators will apply during periods of excessive credit growth. To mitigate the regulatory risks from the local implementation of Basel III, investors should position themselves in banks with superior capital strength.

Driven by Asia's robust economic fundamentals, strong loan growth and the healthy capital positions of banks in the region, the MSCI Asia Pacific ex-Japan Banks has significantly outperformed the MSCI World Banks by 60 percentage points since January
2007. Hit by double-dip fears and concerns over capital raising activities before the Basel III announcement, the valuations of Asian banks have contracted to close to 1 standard deviation below the historical mean at a 12-month forward P/E of 12x.

We maintain our overweight position in Asian banks within our Asia Pacific equity portfolio, due to their undemanding valuations and attractive risk-reward profile after Basel III removed a key overhang over the capital raising risk of the sector. According to IBES estimates, Asian banks are projected to deliver healthy earnings growth of 17% in 2010 and 15% in 2011. We continue to favor larger well-capitalized banks with high dividend yields, which reflect their capital strength and valuation appeal. Our top BUY ideas are ANZ Bank (ANZ AT, BUY), BOC Hong Kong (2388 HK, BUY), China Construction Bank (939 HK, BUY), HSBC (5 HK, BUY), ICBC (1398 HK, BUY), Mitsubishi UFJ (8306 JP, BUY), National Australia Bank (NAB AT, BUY) and United Overseas Bank (UOB SP, BUY).

Bahana Spotlight: Banking Update: Capital raising; Top pick: Bank Negara Indonesia (BBNI-HOLD-IDR3,725-TP:IDR4,250)

Wealthy, healthy

NPL antidote & loan growth support: IDR34t in 2010 capital raising
In an effort to support loan growth and comply with the implementation of the Basel II accord, many Indonesian banks are continuing building up their capital bases by way of share issuances and/or lowering dividend payouts. These capital raisings will also allow banks to better withstand shocks from souring loans. Although BI currently imposes minimum CAR of only 8%, the recent RR rulings encourage higher CARs of up to 14%, particularly for banks with high LDRs. Ironically, big banks like BBCA, BMRI, BBNI and BBRI have, as of end July 2010, fallen behind the industry’s average CAR of 18.3% (exhibit 10). This is because banks with higher CARs have raised approximately IDR11.5t via IPOs, rights issues and subordinated debts. Not to be left behind, big banks with lower CARs are implementing rights issue or issuing subordinated debts going forward. Thus, there will be some IDR34t in fund raising this year, of which only 15% have been completed (exhibit 8).

BBNI: IDR9-11t rights issue = New TPs ranging IDR4,700-5,000
With the parliament’s approval, BBNI will pursue a rights issue in 4Q10, concurrently expanding its free float to 40.0% from the current 26.7%. The bank aims total fund raising in the vicinity of between IDR9-11t, assuming a rights price of between IDR2,700-3,300 and additional 3.4b new shares, representing 22.1% of enlarged capital. We believe that this rights issue should be deployed to augment the bank’s capital base in an effort to support its loan expansion and increase CAR to 18-19% from 12.8% previously estimated. Post rights issue, the management targets a near doubling in loan growth to a minimum of 20%. The 5% tax savings from the enlarged free float coupled with additional earnings support arising from the capital raising should help the bank to continue posting strong earnings growth, minimizing EPS dilution from the rights issue in our view. Our sensitively analysis suggests BBNI’s fair value post rights to increase from IDR4,250 to between IDR4,700-5,000 (exhibit 6), based on 2011 P/BV of 2.6x or 26% discount to the industry’s average P/BV of 3.5x.

BMRI: IDR12-14t rights issue = New TPs ranging IDR8,100-8,400
Similarly, BMRI is optimistic that its upcoming rights issue would raise approximately IDR12-14t worth of capital, taking into account the bank’s free float expansion to 40.0% from the current 33.2% through the divestment of the government’s stake in BMRI. Subsequently, this would increase the bank’s CAR from 12.9% to 17-19% post rights issue, eliminating concerns over longer-term growth sustainability for BMRI. Our back-of-the-envelope calculation suggests BMRI’s fair value post rights issue to range between IDR8,100-8,400 from our current target price of IDR7,250

Deutsche Bank - Equity Research - Asia BNI : More opportunities with RI; target price up to

BNI : More opportunities with RI; target price up to Rp5,000

BNI {Ticker: BBNI.JK, Closing Price: 3,725 IDR, Target Price: 5,000 IDR,
Recommendation: Buy}

Bringing it to next level; target price upgraded to Rp5,000 (from Rp3,900)

The Indonesian parliament approved BNI's proposed Rights Issue (RI). We
view the RI as value-enhancing for BNI's long-term growth. Under the
proposal, BNI will issue approx. 3.4bn new shares. At our estimated RI
price of Rp3,000, it will raise Rp10tr in new capital, increasing 2011F
CAR by 432bps to 16.9% - ahead of its peer average and allowing it to
accelerate loan growth. EPS dilution is more than offset by higher BVPS.
As such, we retain BNI as one of our sector top picks with a revised
post-RI target price of Rp5,000, implying a post-RI 2011F PBx of 2.55x.

Capital well-positioned

The Indonesian parliament approved BNI's proposed RI of approx. Rp10tr (by
issuing 3.4bn new shares). This will raise CAR by 432bps to 16.9% in
2011F, which will be ahead of its peer average. This should allow BNI to
have higher loan growth of >20%.

BVPS uplift should offset EPS dilution; ROAE recoveries within two years

Post-RI adjustments, our revised NP for 2011/12/13F are respectively
Rp4.8tr, Rp6.1tr and Rp7.7tr (+15% from our pre-RI forecasts). ROAE
recoveries to the pre-RI level would be within a two-year time frame
(i.e., post-RI 2013F ROAE = pre-RI 2011F ROAE of 17.2%). Post-RI, BVPS
should increase by 16/13/10% in 2011/12/13F, which should more than offset
the 5% EPS dilution.

Target price Rp5,000; risks: lower loan growth/yields, higher NPL/costs

After making our adjustments, we believe RI is value-enhancing for BNI.
Consequently, we have raised our target price to Rp5,000 (vs. the pre-RI
target price of Rp3,900). This is derived from (ROAE-g)/(COE-g)
methodology. Risks are lower loan growth and yields due to competition,
higher NPLs and COF and operating costs.

CLSA United Tractor heavy equipment update by analyst Rania

Komatsu sales 8M10: 3,653 (+81% yoy), about 73% of FY10 consensus expectations of 5,000 units; slightly ahead of historical 8M contribution of 65-67%.

This suggests upside to 5500 units from the allocated 5000 units this year, with most of the incremental units likely to come from small-to-mid-sized units.
But the question now is whether Komatsu can commit to delivering another extra 500 units for Indonesia this year? Competition comes from China which also saw sharp demand growth this year. Indonesia may not get the whole additional 500 units allocation, ~200 units would be good enough, in our view.
That said, we should expect milder Sep sales because of lots of public holidays (ramadhan and lebaran), rebounding in 4Q10.
Komatsu market share stays strong at 46%

CLSA Mitra Adiperkasa (MAPI IJ): still attractive valuation after nice run

MAPI is the country’s leading upscale retailer holding exclusive rights for 92 international brands and presence in 24 cities. Our analyst Swati and research associate Jessica looked at the consensus and believed that the number is too conservative.

Consensus is expecting EBITDA of Rp648bn. In July alone, MAPI registered EBITDA of Rp90bn. Annualizing this figure (and ignoring stronger sales during Hari Raya and Christmas), we arrive at EBITDA of Rp850bn for 2010. This translates into net income of about Rp370bn. This suggests that MAPI is trading at 7.6x 10PER. We believe such a steep discount is unwarranted and the stock should re-rate as it continues to deliver over next two quarters. While annualizing the July figure is probably too aggressive, MAPI should do better in 2H10 (seasonality, historically 60% of profits are booked in 2H10).

Other key points from the report:
· MAPI 2Q10 operating profit increased by 152% qoq in 2Q10 and 69% yoy. 2Q10 makes up about 22% of full year profits in the past.

· Risk: corporate governance concerns.

· We expect MAPI to surprise on the upside over the next few quarters as it is gradually regaining investor confidence after posting lackluster results since IPO in 2004. The last five year net income CAGR was only 7.4%.

· MAPI has also reduced exposure to the Yen loan from 18.28bn Yen to 4.8bn Yen. This will reduce volatility in earnings due to changes in fair value of the derivative instrument taken to hedge Yen loan.

· Deleveraging story. MAPI looks to reduce gearing from 70% to 20% over next five years and will fund capex through internal cash flow.

· There is tremendous scale advantage and operational leverage as it rolls out more stores. This will support margins improvement.

· Inventory days is a concern at 200 days+ but we expect this to improve for next few quarters as the company continues to deliver.

CLSA Jasa Marga (JSMR IJ): in an exciting time, earnings upgrade, TP Rp3,750/share

Our analyst Sarina upgrades Jasa Marga (JSMR IJ) profit forecasts by 11-16% for 2010-12 on the back of higher margin assumptions and lower cost of debt. We also raise our TP to Rp3,750/sh (from Rp2,950/sh) and based on project IRRs of 13-18%. This is on the back of lower WACC as we decrease the cost of debt assumption.

The table below summarizes the value of the company assuming different cost of debts. Our TP of Rp3,750/sh is still at a discount to the values presented; hence we believe there is more upside from investing in this company long term.

Key points from the report:
Declining cost of capital. JSMR had successfully finalized the offering of two bonds on 24Sep: Rp1tn at 9.35% coupon and Rp500bn zero-coupon with yield of 9.1%. The Rp1tn bond is to refinance a Rp650bn maturing bond of 16.15% coupon, and the remaining for a bank loan of 11% interest. As maturing debt got refinanced, average cost of debt had fallen from 13.6% in 2006 to 11.9% in 2009, and is expected to drop to 10.5% in 2011.
To acquire more toll road projects in 4Q10 Financing should not be an issue given its debt covenant can allow a further expansion of max. ~190km , on top of its current seven projects which are 189km in total, a 38% expansion from existing network.
Margin expands with growth and better cost management. Increasing productivity and operational leverage had resulted in margin expansion. Opex as % of revenue had trended down to 35% in 1H10 from 54% in 2005. We believe further automation and cost management in operational activities will be an additional kicker to margin expansion.
A long term investment . Strong demographics, resilient traffic growth, lack of infrastructure, better cost management, and strong positioning are the key success factors for JSMR. The potential revision to land clearing law in the near future will also be very positive.
We increase our profit forecasts by 11-16% for 2010-12. Our TP is also increased to Rp3,750/sh. The stock has re-rated and is now trading at 14.7x PE11 and 12.9x PE12. While this looks more expensive vs regional peers, on a PEG ratio, it is cheaper. The ROE is also higher than the average peers.
Maintain BUY.

CIMB Sector Update – Cement – Diminishing marginal returns

We downgrade the cement sector to Neutral from Overweight. We fine-tune our FY10-12 earnings estimates for cement stocks as we reduce our ASP assumptions while increasing volume assumptions. We also roll over our target prices to end-CY12. The cement sector deserves to trade at premiums to the market, we believe, on account of its superior ROCE, faster earnings growth and high capacity utilisation rates. However, we apply lower earnings multiples for CY12 on the back of a potential easing in margins from an influx of cement capacity. Also, with more options available for exposure to a potential infrastructure boom through Jasa Marga and the soon-to-be listed Krakatau Steel, we expect returns for the cement sector to decline marginally. In the sector, we continue to prefer Indocement given its better positioning to capture future demand at higher prices.

DBS Tri Polyta: Not Rated; Rp3,250; TPIA IJ Barito Pacific Timber: Not Rated; Rp1,240; BRPT IJ

Tri Polyta to merge with Chandra Asri

Tri Polyta and Chandra Asri, two Indonesia ’s petrochemical producers will merge through a c.US$1.2bn share swap deal. Tri Polyta will issue 2.91bn new shares at c.Rp3,579 per share to Chandra Asri’s shareholders in exchange for the company’s $1.2bn assets. Once merged, Chandra Asri Petrochemical, the to-be-merged company, will become the largest publicly listed petrochemical company in Indonesia .

Both companies are controlled by Prajogo Pangestu, one of Indonesia ’s tycoons through his Barito Pacific business group. At present, Barito owns 77.99% of Tri Polyta and 70% of Chandra Asri. Chandra Asri Petrochemical will be 71.6% owned by Barito Pacific, 23% owned by Thai Glazer and Putnam Investment, and 5.4% owned by public. The merged company will have a total of US$1.4bn combined asset. $1.2bn come from Chandra Asri and the remainder from Tri Polyta. It is expected that the merged company will derive Rp17-20tr revenue per year.

As a listed company with current market capitalization of c.Rp2.5tr, Tri Polyta would need to report this merger plan and seek approval from capital market regulator as well as its shareholders. It will hold extraordinary shareholders meeting scheduled on 27 October 2010. The merger is expected to be finalized by 1 January 2011. DBS and Deutsche Bank will be acting as financial advisors for this merger.

DBS United Tractors: Buy; Rp20,200; TP Rp22,100; UNTR IJ

August operational data were inline

August10 Komatsu sales fell slightly to 453 units (-3%m-o-m, +49%yoy) as demand from commodity related unit softened. YTD sales are inline with our estimates with Komatsu sales have hit 3,653 units (+81% y-o-y), accounting for 72% of our FY10F of 5,100 units.

Pama coal production and overburden up by 8% m-o-m to 6.8m tons and 57.8m bcm, resulting in a total of 50.8m tons and 426m bcm YTD, respectively. Annualizing the number will come up at 76m and 639m bcm, which is close to our assumption of 75m tons and 650m bcm respectively. We see less impact on prolonged rainfall to Pama’s production but we believe cost could increase, as more efforts are needed to achieve production target. We maintain our Buy call for UNTR, TP of Rp22,100/share. We like UNTR for its strong position as market leader in heavy equipment and mining contracting business, which will benefit from surging coal mining activities in Indonesia . UNTR is currently priced at 13.8x FY11 PE.

DBS Bank Mandiri: Buy; Rp6,600; TP Rp7,000; BMRI IJ Bank Rakyat Indonesia: Buy; Rp10,000; TP Rp11,100; BBRI IJ

BMRI and BBRI rights issue plans approved by parliament

BMRI finally obtained its rights issue plan approval from Parliament last week. Parliament accepted BMRI rights issue proposal of 2.3mn shares, which will dilute Government stake to 60%. With this, Parliament hopes BMRI could utilize the estimated rights issue proceed of Rp 12tr to expand loans in industrial, manufacturing, utilities sectors and obtain target to be one of top five ASEAN banks. Similarly, Parliament also approved BBNI rights issue plan of 3.3 bn shares which will bring free float to 40%, employee-management stock allocation to 2.5% and Government stake of about 57.5%. BBNI estimates to gather proceed of Rp 10 trilion. Bank Indonesia and Ministry of SOEs will then process the rights issue plans for BMRI and BBNI with estimated timeline before year end. However, both banks will have different execution date with estimated interval of one month to avoid disruption of market liquidity.

DBS Bukit Asam: Buy; Rp19,900; TP Rp21,350; PTBA IJ

To conduct stock split

Bukit Asam (PTBA) is considering a stock split to improve liquidity of the stock. The stock split plan may serve as a short term catalyst for retailers even though it would not have any impact fundamentally. Details of the plan are yet to be explained. 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 . The company offers attractive FY09-14F production growth of 26%p.a. once its logistic bottleneck is removed. PTBA is currently priced at 13.4 FY11F PE

DBS Economy

August trade and September inflation data are the focus this week

August trade and September inflation data are the focus this week (Friday). CPI inflation is likely to ease to 5.8% YoY from 6.4% in August and 6.2% in July, as the high base effects emerge (the Ramadan fasting month fell in September last year). This may not represent a stabilizing trend in inflation. We forecast that inflation numbers will bounce back to 6-6.5% in 4Q10, in accordance with the macro picture of strong consumption demand, lingering supply constraints and elevated inflation expectations. That said, we also notice that the core inflation numbers for August have been revised down to 4.2% from 4.5%. The demand-side price pressures are building up more gradually than the original data showed, which provides scope for the central bank to maintain interest rate policy unchanged for another few months. In our interest rate forecast, we currently look for only one rate hike of 25bps in the remainder of this year.

On the trade front, August data should also be distorted by festival effects. The YoY growth in exports is likely to fall to the 10-20% range in August from 29.0% in the previous month, while imports may slow even more sharply to 20-30% from 45.3%. Merchandise trade balance could return to surpluses after posting a small deficit of USD 0.1bn in July, helping explain the USD 2.5bn increases in foreign reserves during the month of August. From the fundamental perspective, we believe that growth in domestic import demand is still holding up better than growth in exports, and the risks to the trade balance are tilted towards the downside. One positive note is that commodities demand from China has bounced back recently. China's custom data shows that its imports from Indonesia increased a strong 9.3% MoM in August after falling for four consecutive months in April-July (China is among Indonesia's top five export markets and accounts for 10% of Indonesia's overall exports).

DBS Asean Banking

The next league

• Emerging ASEAN banks continue to rally, but we believe there is still upside. We now rank our preference by Thailand , Indonesia , followed by Malaysia banks.

• Singapore banks remained under-performers likely due to imminent short-term headwinds, but are still poised for longer-term re-rating. Valuations remain cheapest among ASEAN banks.

• Heading towards “normalization” phase in 2011. Stock picks are crucial. Top ASEAN bank picks are BBNI, KBANK, Maybank and OCBC. Our small cap bank picks are BBTN and Alliance .

Mansek UNTR:Slower growth (UNTR,Rp20,200,Buy,TP:Rp21,700)

Komatsu sales volume in Aug ’10 increased by 49.0%YoY from Aug ’10.This slower growth dragged down YoY growth from 87.1%in 7M10 to 81.4%in 8M10.8M10 komatsu sales volume of 3,653 units represented 73.4%of our FY10F of 4,978 units.This is still within our expectation due to we expect slower YoY growth up to end of year.

Overburden removal and coal production in Aug ’10 also recorded slower growth.8M10 Overburden removal represented 79.8%of our FY10F estimate,meanwhile 8M10 coal production represented 71.3%of our FY10F estimate. These are still within our expectation as we expect slower YoY growth in overburden removal and coal production up to end of year due to mining activities usually slower in 4Q.

Currently,UNTR is trading at PER10F and PER11F of 15.5x and 14.6x,respectively.

Mansek Jasa Marga bonds oversubscribed (JSMR,Rp3,100,Buy,TP:Rp3,200)

Jasa Marga will issue a new bond which tranched into a 10 year bond,Rp1tn,with an interest of 9.35%.pa;and 3 years zero coupon bonds,under Jasa Marga I series JM-10,amounting to Rp500bn with an interest rate of 9.1%pa.Following book building period,the bonds experienced oversubscribed up to 4.5 times.The fund proceeds from bonds issuance will be used to:45%for debt repayment,27%for capex,25%for non-toll road business development,and the remaining 5%for working capital.

We estimates JSMR ’s FY10F revenue reached Rp4.3tn (+17.1%yoy)and net profit up to Rp1.3tn (+34.2%yoy);due to increasing tariff in September 2009.Currently,JSMR trades at PER11F of 14.0x.

Mansek BUMI :Preemptive issuance below the company plans (BUMI,Rp2,250,Buy,TP:Rp3,665)

„ Reuters reported BUMI has scaled back the size of non preemptive rights issue to $362mn,priced at Rp2,366 per share. BUMI will disclose the buyers two days before the listing on October 5 of the new shares.

„ The size implied a 7%(from planned 10%)non preemptive rights issue.Initial reaction would be that BUMI can not find enough buyers to subscribe the rights which is priced higher than yesterday market close of Rp2,250 per share.The confirmation, unfortunately, may not be known immediately.If BUMI can find other source of funds especially new debts or asset sale,low preemptive take up might be the step taken to reduce earnings dilution.At Rp2,250 BUMI is trading at 10.9x PER11F of Mandiri estimates and 9.3x PER11F of Blomberg consensus.

Mansek Auto Sector

The official vehicle sales numbers as of 8M10,with 2 and 4 wheelers representing 71.0%and 72.4%of our FY10F of 7.1mn unit (+21.1%YoY)and 700k unit (+44.0%YoY).ASII brands garnered market share of 47%in the 2-wheeler segment (slightly above Yamaha ’s market share) and 56%the 4-wheeler market.Currently,we have a buy recommendation
on Astra International (ASII,Rp56,000,TP:Rp58,000),trading at PER10F and PER11F of 17.8x and 16.3x.

NISP Tower Bersama Infrastructures targets listing next month

· Tower Bersama Infrastructures, a telecommunication infrastructure services provider owned by the Saratoga Group, will sell 755mn shares or 15.86% to the public next month, to be listed by October 26, 2010.. In addition, the company will also execute a private placement for 509.7mn shares owned by its shareholders, Provident Capital Indonesia and Wahana Anugerah Jakarta. The management of the company states that it plans to raise as much as Rp1.80tn from the sales of its shares.

· The company intends to raise funds to finance acquisition of telecommunication towers and to build new telecommunication sites. Until April 2010, the company owns 2,647 telecommunication sites and rents 4,048 in its portfolio.

· According to asset size, the company is roughly half the size of Sarana Menara Nusantara (TOWR, Rp6,400) which has Rp7.19tn in assets. However its gearing ratio stands at 2.1x compared to TOWR’s ratio at 0.82x.

· Underwriter for the IPO is UBS Securities and Indopremier Securities.

NISP Chandra Asri to merge with Tri Polyta Indonesia (TPIA, Rp3,250)

· Chandra Asri is in its way to merge with Tri Polyta Indonesia through share swap mechanism expected to be concluded imminently. This plan will be proposed in Try Polita’s EGM next month. The merged company will be named PT Chandra Asri Petrochemical Tbk.

· The impact will be positive for Try Polita, as of the end of 2009, Chandra Asri’s assets reached US$1.20bn compared to Tri Polyta’s US$280.0mn.

· The impact is also positive for both of the companies’ holding, Barito Pacific (BRPT, Rp1,240) as the merger will unlock Barito’s ownership value in Chandra Asri. Currently, Barito holds 77.9% stake in Tri Polyta and 70.0% stake in Chandra Asri. Barito’s revenue from petrochemical business, which comes from both companies, reached Rp14.30tn or 99.2% of Barito's 2009 consolidated revenue of Rp14.40tn. Considering Try Polita’s 2009 revenue of 4.70tn in 2009, the figure means that Chandra Asri’s revenue reached more than Rp9.00tn during the period.

· Furthermore, based on the prospectus published today, Try Polita’s revenue as of 1H10 reached Rp2.60tn with Rp166.0bn of net profit, while Chandra Asri logged in US$831.0mn of revenue with US$1.0mn of net profit.

· The share swap ratio is 1 (one) Chandra Asri share for 42,660 shares of Tri Polyta shares. Dilution impacts are 76.24% for Tri Polyta and 23.76% for Chandra Asri. The chosen appraisal stated that fair price for Tri Polyta is at Rp3,579 a share.

NISP Timah has pessimistic outlook for production target (TINS, Rp2,800)

· Timah management shared its pessimism that it can achieve 50,000 tons of production this year due to high rainfall that disrupts production. In addition, the company’s sources are depleting as several mining areas have not obtained permit from the Ministry of Forestry.

· The company aims production to at least equal last year’s production of 45,086 tons. Rp800.0bn of capex will still be spent this year as planned.

· The company’s ambition this year to enter the coal business have also been stalled as the two mines in Kalimantan that it has been targeting have not passed qualification. It has since diverted its attention to other mines in Sumatra, with 1.5mn tons production capacity per year. As much as US$30.0mn is budgeted for this purpose.

· TINS is trading at 2011F PER of 11.5x and EV/EBITDA of 6.2x.

NISP Jasa Marga bonds oversubscribes by 3.3x times (JSMR, Rp3,100)

· Jasa Marga has received Rp6.40tn of demand for its upcoming Rp1.50tn bonds during the book building period. However the company states that it will not increase the size of the issue.

· Potential buyers mostly are institutional investors such as bank, insurance companies, and asset management which are the biggest buyer. The bonds have received an AA rating from Pefindo.

· JSMR is trading at 2011F PER of 16.3x and EV/EBITDA of 10.8x.

NISP United Tractors may post soft 3Q10 revenue (UNTR, Rp20,200, Hold)

· During 8M10, UT sold 3,653 units of heavy equipment, 81.4% YoY higher from 2,014 units a year earlier. Such increase was attributable to increase in all segments, including heavy equipment sales for mining that jumped to 2,188 units, or increased by 1,024 units compared to 1,164 units in 8M09.

· This was also followed by heavy equipment sales for agribusiness, construction and forestry. Similar achievement was also posted by UT’s other business, where mining contracting posted 20.1% YoY growth in 8M10, while coal mining performance was relatively stable as it only posted a slight 0.2% YoY decrease during the same period.

· Despite impressive YoY performance, UT posted a decrease in its August heavy equipment sales volume of 453 units compared to 468 units a month earlier. Also, coal mining division posted 20.5% MoM decrease on coal sales volume at 174k tons in August 2010 from 219k tons a month earlier. The only division that managed to record growth in August was mining contracting, Pama Persada, that produced higher coal of 7.6% MoM to 6.8mn tons from 6.3mn tons in the same period.

· This translates into a possibility of soft 3Q10 revenue compared to the previous quarter as long holiday season in September may affect the company’s operational data. Thus, we still maintain our Hold stance on UT, which currently trades at 2011F PER of 13.9x and EV/EBITDA of 7.3x.

Credit Suisse Astra International - August auto sales volumes remained relatively strong, especially for motorcycles on seasonality

● Despite seasonality, August auto sales volumes were still strong, especially for motorcycles, due to the upcoming Moslem festival. The YoY growth is, however, moderating, as the high-base effect has started to kick in.

● YTD, car volumes grew 69% YoY, reaching 72% of our full-year forecasts, while motorcycle volumes grew 35% YoY, reaching 75% of our full-year forecasts. We see some upside risks to our motorcycle volume forecasts.

● Astra’s market share for car fell to a low 54% in August on seasonally lower demand in August. Meanwhile, its motorcycle market share expanded to 48%, suggesting good inventory planning ahead of peak demand. We have no concerns about Astra’s current dominant market shares.

● We continue to believe, in the short term, auto volumes will remain strong, but see downside risks over the sustainability of strong volume growth due to the government concerns about traffic and fuel subsidy issues. We maintain our NEUTRAL rating.

Citigroup Econ: raised GDP forecast

* Link to Johanna Chua's Asia macro report https://www.citigroupgeo.com/pdf/SAP40249.pdf. Indonesia is on pg 33. She believes capital flows into Asia will persist, driving asset prices and stronger currencies, but wary on inflation and shrinking CA surpluses.

* For Indo, she raised GDP growth forecast to 6.3% (from 6.2%) in 2011 on signs of a more sustained investment pick-up.

* Inflation risks remain an issue, but with a reserve requirement hike effective in November, we expect BI will defer its first rate hike until Jan 2011. We expect rate to remain unchanged this year at 6.5%, and to rise to 7.5% at end-2011.

* Infrastructure progress still looks slow, and key will be land acquisition bill that is pending submission in parliament. JSMR is a direct beneficiary of a more effective land clearing bill, and indirectly propery and cement also benefit.

Citigroup Indo Rising coal px - buy UNTR - ADRO

* Thermal coal price is on the rise…Alan Heap reckons price will go back up to US$100/t in 2011 with LT pricing at US$90/t. Newcastle spot prices are up U$10/t from a month ago to US$95/t. Annual contracts between Australian shippers and Japanese utilities are set at US$98/t. Australian exports YTD annualized are 20mn ton below our forecast, and Indon production is also set to fall short of expectations due to heavy rains. https://www.citigroupgeo.com/pdf/SGL01846.pdf

* To play thermal coal in Indonesia, we like UNTR (TP Rp22,900 - 13% upside) and ADRO (TP Rp2,750 - 37% upside). This is in-line with our thesis to rotate out of overbought consumer/banks and into coal and CPO.

* UNTR August data - Heavy equipment sales moderated -3% MoM, +49% YoY at 453 units due to lower sales to agribusiness while demand from mining sector continued to be robust. 8M10 heavy equip sales at 3,653 units is already above our expectation at 80% of our FY forecast. Pama's coal production and overburden removal both +8% MoM, the highest YTD, thanks to improved weather condition. Coal production level is above our expectation while overburden removal is in line, as the actual strip ratio of 8.4x in 8M10 is below our 8.8x. Shr px has underperdormed the market by 11% in past 3 months, and now trades at undemanding 13.2x '11 PE.

JPM Bumi Resources: balance sheet repair (Verdi Budiman)

On 23 Sep, the company announced the intention (to Bapepam, IDX, and the public) to issue new shares on 30 Sep, that will be distributed to the buyer(s) on 5 Oct. The new shares are not offered to existing shareholders, based on the EGM approval dated 24 Jun. The company will issue 1,369.4mn shares, or 7% addition to existing shares outstanding, at Rp2,366 that represents 5% premium to last close. BUY.



Impact:

1. Refinancing concerns addressed

The deal will raise around USD360mn for Bumi, addressing market concern that the company may have difficulty meeting its short term debt repayments, if holders of the guaranteed CB II (US$251mn outstanding) exercise their option to redeem (put option) on 25 Nov. The market sees redemption of CB II as a likely scenario, given out-of-the money share conversion option at above Rp3,000/share and unattractive coupon of 5%.



Table 1. Payable and source of cash (US$ mn)

Payable

CB put option (Nov 2010) 250.9

JPM (Oct 2010) 146.3

Leases (current maturity) 97.6

LT loans (current maturity) 1.6

Sub-total 496.4



Source of cash

Cash on hand (Jun-10) 66.8

New share issue 360.0

Receivable from Bukit Mutiara 100.0

Sub-total 526.8



For year 2011, Bumi’s refinancing schedule appears light. It is probably fair to say that the company has passed the point of stress with regards to debt service.



Table 2. Repayment schedule (US$)

2011 2012 2013 2014 2015 2016

Country Forest 0 0 600 600 700 0

CS, DB senior note 0 0 0 0 0 296

CS 2010 facility 0 271 0 0 0 0

DB 2010 0 98 0 0 0 0

Raiffeisen 80 0 0 0 0 0

Financial leases 59 59 59 0 0 0

CB II 0 102 0 0 0 0

Guaranteed CB I 0 0 0 356 0 0

Repayment schedule 139 529 659 956 700 296



2. Debt reduction plan looking more credible now

Bumi’s investor relation unit has previously stated the company’s intention to reduce debt level by around US$800mn (or 18% of gross debt per Jun-10) in 2H10. Level of doubt was high prior to this event, but the plan is looking realistic (and more credible) now. I actually think the amount of debt reduction can be bigger than just US$800mn, but it will depend on receivable collection and acquisition plan (in particular, the remaining 7% stake in PT Newmont Nusa Tenggara offered at around US$440mn). Stock market investors have placed great concern on the continual rise of Bumi’s gross debt position of late; a trend reversal should be seen as a major positive.



Table 3. Source of debt reduction (US$mn)

Issuance of new shares 360

2H10 EBITDA less tax 250

Receivables from asset sale

* Bukit Mutiara (total 300) 100

* Mitratama Perkasa 190

* Gallo oil 290

* Enercorp 45

* Sub-total 625

IPO of subsidiary 240

Total 1,475



3. Scope for lower borrowing costs

Notorious for its lack of balance sheet discipline, the Bakrie group and Bumi Resources are currently paying their debtors very high yield. Bumi originated a big proportion of its debt in late 2009, when risk aversion was still high after sub-prime crisis. Those debts are costing Bumi LIBOR plus 10-12%, with Credit Suisse and JPMorgan as the main lenders outside of CIC. New lenders are appearing around March 2010, namely UBS and Deutsche Bank. DB lent a noteworthy US$100mn in April 2010, pricing the loan 500bps cheaper at LIBOR+5% for two-year tenor.



INVESTMENT THESIS

Bumi offers the second most attractive EV/reserves valuation amongst the listed Indo coal stocks, at US$3.46/ton (reserves) and US$0.94/ton (resources), after adjusting for an estimated US$1bn equity value of its minority stake in PT Newmont Nusa Tenggara. Indo Tambang trades on US$15.48 (reserves) and US$2.30 (resources), Adaro trades on US$8.16 (reserves) and US$1.72 (resources), Indika on US$6.93 (reserves) and US$2.13 (resources), while PT Bukit Asam on US$2.13 (reserves) and US$0.45 (resources). BUY.

CLSA News update, BUMI to raise $362m in non pre-emp share issue

Bumi Resources said on Friday it aims to raise 3.24 trillion rupiah ($362 million) in a share placement in September (see the full news below).

Comment from our mining analyst Rania.

This is lower than the originally planned $492m. Not too surprising, in our view. The share issue price is at premium to current price, add this to the lingering concerns of the Bakrie group.
Will it be enough to cover ST debt? There has been talk recently that it is also refinancing its $300m debt (ie about half of its ST debt) from JP. And they are supposed to get $250m proceeds from its assets sale in 1h10. If all materialized, will be sufficient to cover ST debt. But, gearing reduction would not be as much as previously expected.
Less dilution vs. less gearing reduction. There'd be 7.5pct eps dilution from previously 10pct eps dilution. But gearing reduction would also likely be less. Since its debt is mostly high-cost debt (above 12pct), less gearing reduction won't be positive for earnings.

Reuters Indonesia's Bumi aims to raise $362 mln in share sale

13:42 24Sep10 RTRS-Indonesia's Bumi aims to raise $362 mln in share sale

JAKARTA, Sept 24 (Reuters) - Bumi Resources , Indonesia's biggest coal miner, said on Friday it aims to raise 3.24 trillion rupiah ($362 million) in a share placement in September.
The firm will sell 1.37 billion new shares in a placement closing on September 30 at a price of 2,366 rupiah per share. The amount targeted was lower that the company's previous expectation to raise $495 million by selling up to 10 percent stake.
Dileep Srivastava, a Bumi director, told Reuters that it was the first part of the company's plan to deleverage its debt by up to $800 million by the fourth quarter this year. (Reporting by Janeman Latul; Editing by Neil Chatterjee) (( janeman.latul@ thomsonreuters.com, Reuters messaging:

CLSA Bank Negara (BBNI IJ) and Mandiri (BMRI IJ) gets green light for rights issue.

Parliament approved plans for both banks to hold rights issue this year. This is a departure from parliament’s earlier stance that rights issue will be done by Bank Negara first this year followed by Bank Mandiri next year. BBNI is aiming to raise Rp7tn while BMRI wants to get Rp13tn.

Comment: While this might be seen as potential overhang for both stocks, we view this as a positive development. The rights issue is going to serve two purposes, in addition to the improved stock liquidity, that will positively impact both BNI and BMRI minority shareholders:
1) Capital Levels- Tier 1 capital will be increased at both banks allowing more flexibility in funding sources going forward, but more importantly increasing the capacity to lend at both institutions. Note that we anticipate low interest rates to drive above average loan growth in Indonesia over the next three years, and having the additional capacity to leverage the balance sheet is necessary. Post rights issue we expect continued leveraging at the banks to drive profitability.
2) Tax rate- The free float will increase a 5% tax break at both banks driving EPS higher after the first year. This will allow the banks to compete more effectively with Indo peers and drive greater profitability metrics to the bottom line.

Danareksa Indofood Sukses Makmur (INDF IJ, Rp5,400 BUY) Riding the ICBP listing

BUY, TP raised to Rp6,000
While we believe some of the positives are already in the price, we continue to like INDF for its exposure to domestic consumption and because of potential recovery in commodity prices; hence our BUY recommendation. The stock has done well of late – gaining 11% in just 2 weeks – moving higher on account of the recent IPO price indication of ICBP. Indeed, the premium valuation of ICBP – at around 22.9-20.9x P/E 10-11F would create scope for trading arbitrage. The valuation gap, we think, should be narrowing further. Our TP already takes into consideration the imminent ICBP listing, which in a way also leads to a 2-3% dilution in our FY10-11F EPS estimates. Higher minority interest, although largely offset by greater royalty income received and lower interest expenses, explains our lower EPS. Valuation upside, however, still exists with INDF’s PE/ROE ratio still around 0.5x for FY11F, below the industry’s average of 0.7x.

ICBP: nearing the top-end
ICBP, the company’s branded consumer subsidiary, is priced at Rp5,395/share, near the top range of its fair value. It is about 22.9-20.9x FY10-11F, above INDF’s current valuation and also that of the consumer sector (excluding Unilever), which is currently trading at 18.4-16.2x and 19.7-17.0x P/E10-11F. ICBP’s IPO will basically raise some Rp6.3trn, of which around Rp4.1trn shall be used to repay shareholder loans – due at YE10, with the balance for expansion purposes. Net cash will be maintained, as a consequence. The expansion, which will cost the company around Rp1.8trn, could easily be financed, should there be any additional costs incurred. In fact, with the current net cash, we may see some potential acquisitions take place going forward. The imminent listing of ICBP will lower INDF’s net gearing to 0.5x this year from currently 1.0x (excluding the minority).

Minimal earnings dilution in 2010-11F
Earnings dilution due to the ICBP listing would be around 2-3% for FY10-11F, according to our estimates. The minority interest increase shall largely be offset by royalty fees and a reduction in interest expenses. Note that ICBP should pay royalty fees to Indofood for brands usage (except dairy) – amounting to 1.5% of sales, aside from a management fee of 0.25% from ICBP’s net sales. For FY10F, we estimate royalty and management fees of around Rp175bn, hence additional minority interest of around Rp70bn – or 1.7% earnings dilution. While for FY11F, we estimate a reduction in interest expenses of some Rp300bn, translating into 2.9% dilution. This assumes the full amount of Rp4.1tn obtained by Indofood will be used for de-leveraging purposes.

Flour price may surge 10-15% in 4Q10
While ICBP is remarkably profitable, margins may be squeezed slightly in the following quarters as: 1) Bogasari has indicated 10-15% selling price increases after the Idul Fitri celebrations, according to our channel check, 2) cost pressures still persist as wheat production remains low. The production forecast dropped significantly for the EU-27 and Russia, albeit partly offset by increases for Canada, Morocco, and Moldova. The wheat price, according to USDA, is projected at US$4.95-5.65/bushel, up from US$4.70-5.50/bushel last month. As such, the noodle operating margin would be around 13.6% as of YE10, according to our estimates, down from 15.5% in 1H10. The flour division, on the other hand, could deliver an operating margin of 13.5% in YE10, or above its historical range of 8-11%.

Mandiri Sekuritas Bank Negara Indonesia: update from a company visit (BBNI, Rp3,475, Buy, Rp3,500)

􀂄 Our visit to BNI yesterday affirmed the bank’s additional RR of Rp5tn as a result of new RR ruling. The bank expects to grow its loans faster next year to be able to reach the minimum LDR of 78% by Mar11. Assuming 15% yoy loan growth this year, the bank need to book additional loans of Rp6tn for Jan-Feb next year (with total deposit maintained at the Jun10’s level). We believe this will be difficult to achieve as loans tended to decline every 1Q.

􀂄 The management also indicated that they will likely maintain its lending rate at the current level and prefer to enhance efficiency in respond to lower yield obtained from additional placement in RR.

􀂄 There is no comment from the management regarding the rights issue. They still expect it to be finalized by end of this year to bring its Tier I capital to around 14-15% from the Jun10’s level of 11.0%. However, the Commission XI - House of Representatives is reported to have given approval on the rights issue raising around Rp9-10 tn of fresh fund (or around 3.37 bn new shares). Following this decision, a meeting will be held between Commission XI, State Owned Ministry and Finance Ministry and the result of the meeting will be brought to the Parliament Assembly. So far, there is no problem at the Parliament Assembly if the Commission has approved one corporate action, so we expect the process will be smooth.

􀂄 At current price, BNI is trading at 2011F P/BV of 2.1x and PER of 10.0x .We are likely downgrading our recommendation to neutral as the potential upside is now limited.

Mandiri Sekuritas Perusahaan Gas : To expedite its Floating Storage Regasification Terminals (PGAS, Rp3,850, Buy. TP:Rp5,250)

PGAS which has plans to build two FSRT (one in Belawan, North Sumatera, and one in West Java) is eager to complete the two facilities by end 2011. PGAS is in a JV with Pertamina to build West Java terminal and 100% ownership in North Sumatera terminal. Each of the facilities requires an investment of US$250mn. However, PGAS CFO, Riza P admitted that no definite financing arrangements has been done yet. We have not included the projects in our forecasts, as financial feasibility study has not been
completed yet. At Rp3,850, PGAS is trading at FY10F and FY11F PER of 13.5x, and 13.5x, respectively with EV/EBITDA FY10F and FY11F of 8.3x and 7.3x, respectively.

DBS BBNI Getting it right Price Target : 12-Month Rp 4,500

• Transformation evident through improved asset quality, operating efficiencies, strong loan and CASA growth traction since 2006
• Rights issue would strengthen capital for future loan growth and secure tax benefits
• Initiate coverage with Buy rating and Rp4,500 TP, implying 29% upside; no reason to trade below industry average; BBNI is our new top pick

Initiate coverage with Buy call and Rp4,500 TP. BBNI is too large a bank to ignore. Currently ranked 4th by asset size, it is the cheapest bank under our coverage. We see no reason why it should trade at below industry average valuations given its positive prospects. The completion of rights issue would strengthen BBNI’s capital to fund future loan growth. There has been substantial progress in the last
three years, with legacy asset quality issues resolved, cost of funds lowered, and improving operating efficiencies. Our Rp4,500 TP is based on the Gordon Growth Model, and equivalent to 2.7x FY11 BV and 14.2x FY11 EPS with the following assumptions: 20% targeted ROE, 13% long term growth and 15.6% cost of equity.

Rights issue will strengthen capital and fund future loan growth. The c.Rp10trn rights issue will raise BBNI’s CAR to above 18% from 13%. This exercise would be one
of the largest capital raising transactions in Indonesia. The structure of the rights issue has not been finalised and is pending Parliamentary approval. Apart from strengthening capital, the rights issue will dilute government ownership
from 73.3% to 60%, and raise BBNI’s free float to 40%, resulting in a 5ppt tax reduction.

Transformation yielding positive results. BBNI started its transformation program in 2003, but substantial progress was only seen in the last three years. It has yielded
positive results, exhibited stronger loan growth, created a larger base of low cost deposits, and improved asset quality. BBNI is gathering pace and positioning itself as a universal banking franchise.

NISP Jamsostek to acquire Bukopin shares at Rp450-Rp600 per share (BBKP, Rp730)

· Jamsostek CEO, Mr. Hotbonar Sinaga, reiterated the company’s plan to acquire 20%-30% stake in Bukopin. He indicated that the price level will be between Rp450-Rp600 per share. Jamsostek will be the standby buyer in Bukopin’s right issue.
· However when questioned by the media, Bukopin management states no knowledge of this detail.
· BBKP is trading at 2011F consensus PER of 8.5x and PBV of 1.4x.

NISP Pembangunan Perumahan wins Rp400bn project (PTPP, Rp940)

· PP managed to win a Rp400.0bn building project from the Ministry of Public Works. PP has formed a consortium with Brantas Abipraya for this project and managed to become the winner from total 9 short listed candidates.
· This project will be started in 2011 and scheduled to complete in 12 months.
· Ministry of Public Works stated this selection is conducted in a transparent manner and PP managed to offer a competitive price without compromising technical specification.
· PTPP is trading at 2011F consensus PER of 12.2x and EV/EBITDA of 8.6x.

NISP Perusahaan Gas Negara speeds up US$350mn LNG projects (PGAS, Rp3,850)

· PGN has initiated to speed up US$350mn projects for two LNG terminals next year. The projects are the US$250mn Floating Storage Receiving Terminal (FSRT) in Belawan and US$100mn project in West Java.
· The company explained that for the project in West Java, PGN contributed 40% to total project which makes total cost equal with Belawan. PGN expects these two projects could commence in 2012.
· To finance such projects, PGN has received loans commitments from several banks, however, PGN also explores possibility to combine the leverage with bonds issuance.
· PGAS is trading at 2011F consensus PER of 12.6x and EV/EBITDA of 8.2x.

NISP Telkom cooperation with Jasa Marga takes step further (JSMR, Rp3,050; TLKM, Rp 8,800)

· As a follow up to Jasa Marga’s announcement to enter the business in fiber optics, Telkom, which is the company’s partner, has begun to valuate its assets.
· Until last August, Telkom has invested as much as Rp1.70tn in the business. Rp1.10tn will be used to develop new fiber optic lines in Java-Kalimantan, while the remaining Rp600.0bn will be used to install lines in Makassar-Kupang.
· The two companies have not discussed the specifics of their cooperation, which could be in the form of a joint venture or a consortium. Telkom CEO, Mr. Rinaldi Firmansyah, states that this cooperation will not add significant revenue to Telkom, however installment of fiber optics in Jasa Marga toll roads will support the existing Telkom network.
· JSMR is trading at 2011F PER of 16.0x and EV/EBITDA of 10.7x. TLKM is trading at 2011F consensus PER of 12.6x and EV/EBITDA of 4.7x.

NISP Kalbe Farma to build new production facility in Pulo Gadung (KLBF, Rp2,650, Buy)

· Kalbe Farma will build a new production facility in pharmaceutical prescription drugs next year. It is estimated that it will take 1.5 years to build. The company will complete the concept and design construction this October.
· Production cost will be around Rp100.0-150.0bn from total capex budget of Rp500.0bn. In addition the company will also plan to buy new equipment with cost between Rp50.0-Rp100.0bn and open several outlets.
· We believe that this plan is positive to the company’s outlook as prescription pharmaceuticals offers the highest gross margin at 65.7% compared to other segments of the company’s business. With cash balance at Rp1.47tn and gearing at 0.1x, the company is more than able to finance such expansion. Currently the company is currently trading at 2011F PER of 15.7x and EV/EBITDA of 8.9x, Buy.

NISP TB Bukit Asam aims 10% YoY production growth next year (PTBA, Rp19,400, Buy)

· TB Bukit Asam sets production growth target of 10% YoY in 2011F or aims to reach 15mn tons of coal production compared to 13.6mn tons in 2010F. The company cited that it has started to increase its infrastructure capacity in order to reach such target.
· For medium term, TB Bukit Asam sets a 70mn tons coal production target in 2016, which will be backed by the commencement of the company’s projects. The company is optimistic it will complete its entire projects in 2014 and obtains optimal utilization rate in 2016.
· TB Bukit Asam shared its internal target for each projects, which are 15mn tons from Tanjung Enim – Lampung new railway, 22.7mn tons from existing railway, 30mn tons from Tanjung Enim – Palembang new railway.
· The company’s guidance is inline with our expectation, thus, with current valuation of 2011F PER of 15.5x and EV/EBITDA of 10.1x, Buy.

JP Morgan - Bakrie and Brothers – it is all about refinancing, still

In theory, the continuing search for high yield papers (driven by the lower for longer cost of money) should be a blessing for the Bakrie group, if they play their cards right (a big IF, still). If the group can show some balance sheet discipline and de-leverage each of the Bakrie companies to a comfortable gearing level, there is scope for their equity values to normalize. Fear of group-wide default has caused each of the Bakrie stocks to trade at steep valuation discounts to their local peers.

My meeting with BNBR representatives suggests some de-leveraging progress. The company may report a decline in its total debt outstanding, from Rp9.6trn as of Jun-10 to around Rp8.8trn as of Sep-10. Debt maturity schedule has been pushed back, with the biggest repayment (Rp4trn) to come in early 2012. Shorter term repayment needs have been addressed by a share swap deal with Glencore, which raised US$200mn for BNBR (the company has the right to buy back Bumi shares within two years). (see note 44 on subsequent events, page 138 of the attached 1H10 results). So it appears that refinancing pressure point for BNBR has passed, for now. Also, the company has set-up a new cash cow within BNBR, Bakrie Energy International, in Sept-09, that contributed Rp40-50bn quarterly cash flow in 1H10.

The meeting suggests that BNBR may re-launch its US$100mn bond offer soon. They attempted an equity linked note (linked to Bakrie Plantation shares) offer in early 2010, but had to postpone the deal due to Greece concerns. Note that bulk of the Rp8.8trn BNBR debt is Rupiah denominated costing 18-19% (in the form of MSN held by a consortium of local debtors), so there should be plenty of room to lower the debt service cost if the USD equity linked note issue is successful.

What I really want to see as investor in Bakrie stocks is a sustainable structure whereby BNBR can comfortably service its debt using recurring dividend income from its subsidiaries. For that, gearing levels in both BUMI and BNBR must come down. Non pre-emptive share issue by BUMI should be a good starting point. While I like gold and can appreciate Bakrie’s attempt to take-over control of PT Newmont Nusatenggara – I would much prefer to see BUMI divesting its stake in PTNNT, if the hope for control is no longer there. BUMI may show significant capital gain if it chooses to divest NNT stake, lower the gearing ratio to a comfortable level, and ramped-up is recurring dividend.

All-in-all, the situation is not looking as a mission impossible. In fact, the macro backdrop is supportive. It boils down to a choice between empire expansion or equity value accretion for the Bakrie family.

JP Morgan - Raising oil (brent) price forecast to US$83 4Q10 and US$84.50 CY11 (global team)

We have raised our oil price forecast to $83/bbl for Brent in the fourth quarter and have lifted our projections for 2011 from $80.25 to $84.50—with prices seen averaging $90 in 4Q11. Balances suggest that even this price projection could be an understatement, highlighting the risks to prices outside of the recent range.

Broad-based demand strength across the global petroleum product base, together with the recovery from the “Eurozone crisis”, a stabilization of the manufacturing sector and the Fed moving to an easing bias, has forced a significant upward revision to our estimate of world oil demand.

While the supply side continues to respond to attractive prices, short-term output gains do not appear to be sufficient to offset building tightness in the oil market. Stock draws are normal and to be expected over the winter months, but nevertheless will prove supportive to the market.

Since the March OPEC meeting, it has been clear that the producer group is in no hurry to cap prices if they are driven higher by stronger world economic growth. While OPEC holds plenty of spare capacity, those likely to leak output at higher prices are already doing so. The core Gulf Trio of Saudi Arabia, Kuwait and the UAE
want to see inventories lower before they add.

CLSA OKAS sweet spot for explosives, India’s growing importance

Ancora Indonesia (OKAS IJ): a sweet spot for explosives

CLSA Indonesia new and energetic mining analyst Rania looks at Ancora Indonesia (OKAS IJ). OKAS is controlled by local private equity firm Ancora Resources (60% stake).

· Asset injection story. OKAS is considered the listed vehicle for Ancora’s primary resource assets. If the company is injecting more assets into the listed vehicle, another rights issue is going to be needed as gearing is high.
· OKAS did Rp117bn rights issue in 3Q09 when injecting oil drilling company Bormindo and the country’s largest Ammonia Nitrate (AN) distributor MNK.
· OKAS is now the sole local AN producer as well as the largest distributor in the country. Demand for AN is growing fast, driven by feverish growth of the country’s coal and base metal industries.
· Well positioned. We expect OKAS to seize market share from the global producers going forward, particularly with the completion of its new 100ktpa AN plant by May 2011, which will boost production capacity by 270% to 137ktpa from currently 37ktpa.
· Liquidity for the stock is pretty thin, so patience is required.

Indo economy: how important is India? – from economist Tony Nafte

We have seen many discussions on how the rise of China has benefitted Indonesia. But India is another force to be reckoned with for Indonesia, as highlighted in Tony Nafte’s report today. Chindonesia (China-India-Indonesia) theme is well alive and kicking.

Key points from the report:

· India will displace Japan as the largest buyer of Indonesian coal. India’s coal imports at 40m metric tons in 2010 vs. Japan’s 60m, but likely to surpass Japan with 32% CAGR in coal imports over the next two years.
· Investment inflows from India. There will be added investment inflows as Indian power and steel companies look at Indonesia to secure a reliable energy source.
· Investment has already been initiated in East Kalimantan by the Essar Group in Kalimantan, Reliance Power and Adani Global in South Sumatra.
· ASEAN had a 9% share in FY09/10 (ending March 2010) including Indonesia’s share at 3%. To quantify this, the 3% share of India’s total imports valued at US$287bn, translates into revenues at 1.6% of GDP for Indonesia.
· From Indonesia’s perspective, India is one of its smaller markets, but a rapidly expanding one. The India market had a 6% share of Indonesia exports this year compared to Japan at 16%, ASEAN at 21% and China at 9%.

DBS Berau Coal Energy: Not Rated; Rp430; BRAU IJ

Secured US$1bn sales commitment

BRAU has secured sales commitment for 17 million tons of coal. With the average selling price of US$60 per ton, BRAU would be pocketing a total of US$1.02bn. This year, BRAU volume production target is 17 million tons equivalent to 29.77% y-o-y increase. Although the company has secured standby buyer for its products, the unfriendly weather throughout the year has imposed higher degree of difficulties in the mining process. Yet, BRAU management is optimistic that the production target will be met.
By 2014, BRAU targets to produce 30 million tons per year, which could only be done through new mines acquisitions, which the company has been on a lookout. In 2012, BRAU will start new mining operation in Gurimbang with volume production of one million per year. In 2013, another new mining area in Block Kelay will also start its operation. BRAU has allocated US$240m capex for up to 2014, of which US$48m is for this year and US$89.6m for 2011. This capex will be mainly used for the construction of their stockpile.

NISP Energi Mega Persada still focus on Masela (ENRG, Rp121)

· Energi Mega Persada (EMP) cited that it puts extra attention on its plan to acquire 10% stake in Masela field. The company added that it has no attention to acquire other fields before EMP concluded Masela.
· EMP added that this acquisition is due in November 2010 and there are no obstacles in preparing the US$100mn cash for the acquisition. Previously, EMP had raised Rp4.84tn of cash through right issuance. EMP expects to complete the acquisition ahead of the schedule.
· Masela holds 18.5tn cubic feet of gas reserves combined with 333mn barrel of oil reserves. EMP expects to become operator of the field in 2016.
· Currently, ENRG is trading at 2011F consensus PER of xxx and EV/EBITDA of xxx.

NISP Berau Coal Energy obtains US$1.02bn coal sales contract (BRAU, Rp430)

· Up to 19 August 2010, Berau has obtained 17mn tons of coal sales contract worth US$1.02bn as the company settled on a sales price at US$60 a ton. This means that all of Berau’s 2010F production of 17mn tons has been sold in August 2010.
· The company’s current challenge is severe weather that may affect its production rate despite the company believes target will be fulfilled.
· To boost its coal production, Berau has allocated US$240.0mn of capex over the next four years in order to achieve its 30mn tons of coal production per year. The company also aims to acquire new coal mines however did not share further details on the schedule.

NISP Astra Agro Lestari posts stable sales volume in 8M10 (AALI, Rp21,250)

· During 8M10, AAL sold 689,446 tons of CPO or relatively stable as it was only 0.8% YoY lower compared to 8M09 period of around 695,000 tons. Despite posting a lower YoY basis, the company’s sales volume rose by 20.6% MoM in August to 115.8k tons from 96.0k tons a month earlier.
· This was AAL’s monthly highest sales volume this year and also coupled with stronger selling price of Rp6,967/kg compared to Rp6,428/kg in July 2010. Thus total ASP during 8M10 reached Rp6,631/kg.
· This data is positive as despite lower sales volume, the company’s 8M10 ASP of Rp6,631/kg was 4.9% YoY higher than Rp6,324/kg in 8M09.
· AALI is trading at 2011F PER of 17.0x and EV/EBITDA of 9.2x.

NISP House of Representatives asks for Mandiri right issue target to be increased (BMRI, Rp6,250)

· The House of Representatives has asked the target from the BNI and Mandiri rights issue to be increased to Rp25.00tn. Initially BNI (BBNI, Rp3,475) has targeted to raise Rp9.00tn while Mandiri targets to obtain Rp13.00-14.00tn.
· Mandiri is still waiting for the approval from the House, so that the rights issue can be held before December 13, 2010 . 2.36bn new shares will be issued by Mandiri where each old share will have the right to purchase 8.5-9 new shares. Target price has not been set, however the company hopes that market price during the rights issue will be around Rp6,300-Rp6,700.
· The consortium of Mandiri Sekuritas and Danareksa Sekuritas has appointed Merril Lynch and Deutsche Bank as joint global coordinator, while book runners will be Citigroup and CLSA.
· BMRI is trading at 2011F PER consensus of 12.8x and PBV of 2.8x.

NISP Bumi Resources declares objection on stock exchange’s stern warning (BUMI, Rp2,150, Buy)

· Bumi Resources shared its objection on BEI’s stern warning on the company’s 2009 financial report. The Bourse put its warning due to the mismatch on Bumi’s COGS with Darma Henwa’s (DEWA, Rp76) revenue.
· The issue popped out in July 2010 where differences are seen between Bumi’s COGS and Darma Henwa’s of US$455.6mn, which did not match with Darma Henwa’s revenue of US$156.6mn from Bumi.
· Bumi defended its case, stating it had explained in early 2H10 that the mismatch was due to a problem in spread sheet, hence, resulting wrong accounting record. Bumi added that the US$314.35mn of the COGS recorded on Darma Henwa is an allocation for Thiess, Bumi’s other coal contractor. Thus, COGS allocation for Darma Henwa was only US$141.27mn. Bumi had also revised its 2009’s COGS and there were no changes in the company’s total COGS amount.
· In the flip side, BEI received the objection and said it will collaborate with Bapepam on this matter.
· We view this is a non event for the company’s fundamental where Bumi had explained the difference back in July 2010.
· Currently, BUMI is trading at 2011F PER of 13.7x and EV/EBITDA of 5.8x, Buy.

Citigroup Bank Jabar Banten - Analyzed Non-Rated Snapshot

 Company Overview — BJBR is the 17th largest Indonesia bank (Dec 09 Assets) with June 2010 assets of USD4.5bn equivalent. It was listed in July 2010 (USD160mn IPO) and has 24% free float (value is c~USD379mn). The main shareholders are Provincial /Municipal Governments of West Java and Banten.
 Business Strategy — BJBR is evolving from a payroll-based bank (both deposits and lending to employees of its main shareholders to a more diversified bank with a focus on expanding Micro and SME (MSME) segment. It has 1.25mn customers including 0.45mn borrowing customers. Target is to grow loans and deposits by 20% pa and be amongst the 10 largest banks in Indonesia. This will be through aggressive bank branch expansion and a wider range of products and services. Share of MSME loans will be increased from 25% to 35%. Has re-branded itself as Bank BJB and spun off Shariah bank for better management focus.
 Industry Overview — The two key attractions of Indonesia banks are: 1) low penetration with a Deposit-to-GDP ratio of < 35%; and 2) One of the highest ROAs and ROEs in the region, driven by wide margins. Historic loan and deposit growth has averaged 20% pa and 15% pa, respectively. The Regulator, Bank Indonesia (BI) has adopted tightening monetary policy by raising its Reserve Requirement from 7.5% to 10.5%, but is yet to raise rates.
 Competitive Analysis — BTPN is another bank aiming to expand from its niche (pensioners) to micro lending. Incumbents in this segment are BBRI (rural now moving into urban areas) and BDMN (urban and semi urban areas). BJBR will face competition from these players. Micro loans have been growing at 30% pa (since Dec 07). Competition for deposits though will be intense as the sector LDR, is 87%, excluding BBCA, BMRI and BBNI.
 Recent Results — Net Profit is up 37% y-o-y in 1H CY10, supported by 25% Gross Income growth and only 4% operating cost increase. Pre-Provision profit growth of
43% was diluted by higher credit cost. Focus in 1H CY10 was more on deposit growth (+40% over 6/09) than loans (+16% over 6/09).
 Strengths — 1) Rising asset yields due to improving asset mix; 2) support of main shareholders with increasing budget allocation; 3) low admin costs; 4) strong understanding of market; and 5) Low LDR and 6) High Capital Adequacy. Weaknesses — 1) Small branch network with limited retail deposit franchise, 2) geographically concentrated business 3) Need to learn micro business dynamics 4) low lending rates for payroll loans and 5) balance sheet mismatch with 56% of assets of >1 yr maturity and 87% of liabilities of <3M maturity.