BI's announcement of preliminary August loans data, has seen growth accelerating from corporate and commercial segments. Working capital loans grew +21% yoy and +16% ytd, implying a 54% ytd growth contribution.
Investment loans too has grown at a robust +29% yoy, +22% ytd. Both segments outpaced industry growth of +21% yoy and +14% ytd. This latest development has reaffirmed our top picks for the banking sector.
We have seen growing investment confidence, as indicated by rising investment contribution to GDP from 17% in 2003 to 28% in 2009. Some manufacturing relocations to Indonesia should also help future investment activities. Beneficiaries of expanding loan pie will be banks with strong deposit franchise and low cost of deposit. BI's latest announcement places BNI (TP Rp5,000), Mandiri (TP Rp7,100) and BCA (TP Rp7,000) as our top picks in Indonesian banking sector.
Jumat, 08 Oktober 2010
Danareksa Tempo Scan Pacific (TSPC IJ, Rp1,600 BUY) Strong OTC player
Reinitiate coverage with BUY, TP of Rp2,050
Tempo Scan Pacific (TSPC), a well-known over-the-counter (OTC) drugs manufacturer, should see earnings grow by a healthy 18% CAGR in FY09-12F, supported by faster growth in the OTC segment of 12.5% (vs. only 10% for ethical products in FY10F). Its star products include Bodrex, Bodrexin, and Hemaviton, and sales should continue to remain firm given their strong brand equity. Improving purchasing power among middle income earners is another catalyst for growth, we believe, ultimately translating into margins expansion in the consumer products and cosmetics (CPC) division. Note that the gross margin for the CPC division was an excellent 54.1% in 1H10, its highest level since 2002. Other positives are the generous dividend payout and improving cash management. With such a promising outlook we place a BUY on the stock with a DCF based TP of Rp2,050 (WACC: 12.3%, TG: 5.0%), implying 19.4-16.7x PER10-11F. The company’s track record is good and sales have grown 18% CAGR over the past 3 years. This is implying 3.4x of GDP growth during the same period and also exceeds the sales growth of Kalbe Farma (KLBF) of 14%.
Supported by a growing middle class
TSPC’s consumer products and cosmetics (CPC) division stands to benefit from a burgeoning middle class which is enjoying improving purchasing power. Gross margins are already high and reached an excellent 54.1% in 1H10, their highest level since 2002, supported by rupiah strength since 90% of the costs are dollar related. Thanks also to the company’s strong brand equity, this margin should be sustained into 2H10, we feel, if not improving further. Price increase, though relatively moderate, should also help. According to the Nielsen survey, the number of middle income consumers – with average spending of Rp1.5mn to above Rp3mn per month – surged 26% YoY in FY09. A larger middle class - which is estimated to total 30mn people - should mean hearty sales growth and margins sustainability, we believe. Note that this division has managed to deliver average sales growth of near 25% over the past 3 years compared to only 13% for the pharmaceutical division.
Better inventory management
TSPC has continued to make supply chain management efficiencies. Hence, the company’s inventory days fell to below 70 days in 1H10, its lowest ever level. We feel confident that such a figure (70-72 days) can be sustained until at least YE11, an improvement from YE09’s 75 days. By comparison, note that Kalbe Farma, as the largest listed pharmaceutical company, has much longer inventory days of 120-125 days. Coupled with rupiah appreciation, operating margin should edge up to 11.2% this year from 9.9% in FY09. This underpins our expectation of brisk core profits growth in FY10F-11F of 27.8-15.2%. The PEG11F is only 0.9x, or lower than the consumer average of 1.2x.
To make acquisitions or go private?
The company is sitting on a very large amount of cash (Rp1.4tn as of June 2010 or 40% of its total assets). This gives TSPC plenty of options in how it enhances its business portfolio – either through new product development or by making acquisitions. Although the company retains acquisition plans, the management defends its conservative acquisitions stance on the grounds of synergy uncertainties. Rather, Bogamulia Nagadi as the major shareholder has gradually picked up TSPC shares lifting its shareholding to 95.15% in June 2010 from 95.1% in FY08. Thus, the likelihood of a complete takeover in the future is quite high, we believe. Notwithstanding the corporate actions, the company should better utilize its cash, we think, either through higher capex spending or simply by returning the cash to its shareholders. Capex spending has been relatively low at around 2.6% of sales over the past 3 years with the dividend payout ratio reaching a fairly generous 40-60%.
Tempo Scan Pacific (TSPC), a well-known over-the-counter (OTC) drugs manufacturer, should see earnings grow by a healthy 18% CAGR in FY09-12F, supported by faster growth in the OTC segment of 12.5% (vs. only 10% for ethical products in FY10F). Its star products include Bodrex, Bodrexin, and Hemaviton, and sales should continue to remain firm given their strong brand equity. Improving purchasing power among middle income earners is another catalyst for growth, we believe, ultimately translating into margins expansion in the consumer products and cosmetics (CPC) division. Note that the gross margin for the CPC division was an excellent 54.1% in 1H10, its highest level since 2002. Other positives are the generous dividend payout and improving cash management. With such a promising outlook we place a BUY on the stock with a DCF based TP of Rp2,050 (WACC: 12.3%, TG: 5.0%), implying 19.4-16.7x PER10-11F. The company’s track record is good and sales have grown 18% CAGR over the past 3 years. This is implying 3.4x of GDP growth during the same period and also exceeds the sales growth of Kalbe Farma (KLBF) of 14%.
Supported by a growing middle class
TSPC’s consumer products and cosmetics (CPC) division stands to benefit from a burgeoning middle class which is enjoying improving purchasing power. Gross margins are already high and reached an excellent 54.1% in 1H10, their highest level since 2002, supported by rupiah strength since 90% of the costs are dollar related. Thanks also to the company’s strong brand equity, this margin should be sustained into 2H10, we feel, if not improving further. Price increase, though relatively moderate, should also help. According to the Nielsen survey, the number of middle income consumers – with average spending of Rp1.5mn to above Rp3mn per month – surged 26% YoY in FY09. A larger middle class - which is estimated to total 30mn people - should mean hearty sales growth and margins sustainability, we believe. Note that this division has managed to deliver average sales growth of near 25% over the past 3 years compared to only 13% for the pharmaceutical division.
Better inventory management
TSPC has continued to make supply chain management efficiencies. Hence, the company’s inventory days fell to below 70 days in 1H10, its lowest ever level. We feel confident that such a figure (70-72 days) can be sustained until at least YE11, an improvement from YE09’s 75 days. By comparison, note that Kalbe Farma, as the largest listed pharmaceutical company, has much longer inventory days of 120-125 days. Coupled with rupiah appreciation, operating margin should edge up to 11.2% this year from 9.9% in FY09. This underpins our expectation of brisk core profits growth in FY10F-11F of 27.8-15.2%. The PEG11F is only 0.9x, or lower than the consumer average of 1.2x.
To make acquisitions or go private?
The company is sitting on a very large amount of cash (Rp1.4tn as of June 2010 or 40% of its total assets). This gives TSPC plenty of options in how it enhances its business portfolio – either through new product development or by making acquisitions. Although the company retains acquisition plans, the management defends its conservative acquisitions stance on the grounds of synergy uncertainties. Rather, Bogamulia Nagadi as the major shareholder has gradually picked up TSPC shares lifting its shareholding to 95.15% in June 2010 from 95.1% in FY08. Thus, the likelihood of a complete takeover in the future is quite high, we believe. Notwithstanding the corporate actions, the company should better utilize its cash, we think, either through higher capex spending or simply by returning the cash to its shareholders. Capex spending has been relatively low at around 2.6% of sales over the past 3 years with the dividend payout ratio reaching a fairly generous 40-60%.
Credit Suisse BANK NEGARA INDONESIA (BBNI): Further transformation stage/upside- Buy
Our Top-Picks in the Banking sector are BMRI, BBNI, BBRI while maintaining Hold on BBCA due to its premium valuation!
· Teddy Oetomo (Daily attached): We believe BBNI is now entering a new stage of transformation. After completing its book restructuring and upgrading top management quality, BBNI is now entering into a phase of operational transformations.
· BBRI and BMRI have delivered similar transformations. Historical records of BBRI and BMRI’s transformations indicate the potential upside that may be available for BBNI, subject to its execution ability to deliver the ongoing transformations.
· We believe BBNI is well positioned to repeat the success delivered by BBRI and BMRI. However, currently, BBNI needs to further strengthen the alignment of interest between management and shareholders, and appropriately offer incentives to management to minimise execution risk.
· We believe BBNI provides significant upside potential, subject to its ability to complete the transformation. We maintain our OUTPERFORM rating on BBNI and target price of Rp4400, implying 2.42x 11E P/B and 14.5x 11E P/E.
· Teddy Oetomo (Daily attached): We believe BBNI is now entering a new stage of transformation. After completing its book restructuring and upgrading top management quality, BBNI is now entering into a phase of operational transformations.
· BBRI and BMRI have delivered similar transformations. Historical records of BBRI and BMRI’s transformations indicate the potential upside that may be available for BBNI, subject to its execution ability to deliver the ongoing transformations.
· We believe BBNI is well positioned to repeat the success delivered by BBRI and BMRI. However, currently, BBNI needs to further strengthen the alignment of interest between management and shareholders, and appropriately offer incentives to management to minimise execution risk.
· We believe BBNI provides significant upside potential, subject to its ability to complete the transformation. We maintain our OUTPERFORM rating on BBNI and target price of Rp4400, implying 2.42x 11E P/B and 14.5x 11E P/E.
Credit Suisse Indofood CBP listing today, Buy BNI on further transformation
Joint-Book Runners 2011 EPS estimate is Rp288. Its Parents INDF (Restricted) at Rp5,650 is trading on 18.1x IBES consensus 2011 PER. The peers comparison are currently: 1) circa 24x 2011 PER for HK-listed F&B companies, 2) Gudang Garam (GGRM) @Rp52,250- 21.3x 2011F PER, 3) Unilever Indonesia (UNVR) @Rp17,400- 26.8x 2011F PER, 4) Nestle Malaysia @MYR43.90- 24.4x 2011 PER.
If we use JBRs’ 2011 EPS estimate of Rp288 and assign a mid valuation of 22x 2011 PER, we will arrive at Rp6336. If we use 24x instead, the number would be Rp6912.
ICBP IJ STARTS TRADING TODAY (10:30 HK time), IPO priced at Rp 5395/share. Deal size; USD 700.62 million or 1,166,191,000 shares Market Cap; ~USD 3.5 billion.
If we use JBRs’ 2011 EPS estimate of Rp288 and assign a mid valuation of 22x 2011 PER, we will arrive at Rp6336. If we use 24x instead, the number would be Rp6912.
ICBP IJ STARTS TRADING TODAY (10:30 HK time), IPO priced at Rp 5395/share. Deal size; USD 700.62 million or 1,166,191,000 shares Market Cap; ~USD 3.5 billion.
CIMB Initiating Coverage – Indofood CBP – Premium meal
Initiate with TRADING BUY and target price of Rp6,500 for FY11. ICBP benefits from robust market appetite for consumer stocks and strong expected 3Q results, which provide near-term buffers. In the mid term, ICBP may supplement sub par organic growth with acquisitions. Therein lie risks, as the group has proven to be a fearless acquirer, willing to pay significant premiums. Its premium valuations, despite it being effectively just a manufacturing unit of Indofood, are justifiable only if it produces above average growth, in our view. We initiate coverage on ICBP with a TRADING BUY call and an FY11 DCF-based target price of Rp6,500 (WACC 12%, LTG 5%), implying earnings of 22x for FY11 and 21x for FY12 and EV/EBITDA of 11x for FY11 and 12x for FY12.
CLSA Sept car sales update from Sarina Lesmina
Domestic car sales in September slumped to 49,171 units, -24% MoM, 32% YoY. This is expected given the Lebaran festivities season.
Toyota still dominated the market with 37% market share. Hence, 9M10 sales reached 556,230 units, up 65% YoY. Car dealers said demand continues to increase, and are confident that sales will rebound in the next few months and sales should be able to hit the 700,000 FY target (9M10 was 79% of this target). In the SUV market, Toyota just launched a new variant of Rush and expect demand to be strong given current crazy weather condition.
Toyota still dominated the market with 37% market share. Hence, 9M10 sales reached 556,230 units, up 65% YoY. Car dealers said demand continues to increase, and are confident that sales will rebound in the next few months and sales should be able to hit the 700,000 FY target (9M10 was 79% of this target). In the SUV market, Toyota just launched a new variant of Rush and expect demand to be strong given current crazy weather condition.
CLSA Jasa Marga (JSMR IJ) update by Sarina
Reported in a local newspaper that Mahmoudin Yasin, a new member of the State Enterprises Ministry, said that government is considering to float more shares in Jasa Marga through a rights issue. No timing if at all this will be done. Currently government owns 70% of Jasa Marga.
Comment:
We think that this plan will become more probable if the new land bill is passed. With the expectation of acceleration in land clearing, government might plan to tender out more toll road projects and Jasa Marga, as the largest toll road will be the main beneficiary. We have mentioned previously that Jasa Marga, through internal cash and debt, can finance up to an additional 190km , on top of their current expansion plan. However, if there are more opportunities in the future as a result of better land clearing process, Jasa Marga might face the need for extra funding from external source.
So, in conclusion, we think the rights issue will not happen in the immediate future, and it is a good thing if they can expand more. Moreover, if float increases through the decrease of government's portion, there is tax benefit for Jasa Marga.
Comment:
We think that this plan will become more probable if the new land bill is passed. With the expectation of acceleration in land clearing, government might plan to tender out more toll road projects and Jasa Marga, as the largest toll road will be the main beneficiary. We have mentioned previously that Jasa Marga, through internal cash and debt, can finance up to an additional 190km , on top of their current expansion plan. However, if there are more opportunities in the future as a result of better land clearing process, Jasa Marga might face the need for extra funding from external source.
So, in conclusion, we think the rights issue will not happen in the immediate future, and it is a good thing if they can expand more. Moreover, if float increases through the decrease of government's portion, there is tax benefit for Jasa Marga.
CLSA initiating coverage on Indofood CBP, OWT, TP 6000
Swati initiates coverage on ICBP, the largest noodle producer in the country. We in the middle of a frenzy for consumer stocks and parent company Indofood (INDF IJ) has been a good beneficiary as the company has strong brand name, executes well and is one of the most liquid consumer names, trading around US$10m per day.
Today is ICBP’s first day of trading and the continued strong foreign inflows may very well boost its share performance. However, at 20x earnings, EBIT margins dropping off next year, and small EPS growth of 2% and 9% in 2011-12, ICBP looks on the rich side of valuation.
Other issues include sales to related party (70% of sales), management fee of 0.25% sales + royalty of 1.5% sales to parent company Indofood.
Key points from the report:
We initiate coverage of Indofood CBP, Indonesia’s largest listed branded food products company with an Outperform.
Indonesia is at the inflection point of multi-year growth in consumer products driven by surge in middle class, hockey stick growth in modern trade and rising incomes.
ICBP is a key beneficiary of stronger rupiah as 10% stronger currency could impact earnings by as much as 50%. That said, higher inflation and related party transactions remains a key risk.
We assign a target multiple of 22.3x P/E matching regional peers.
The stock is currently at 20.1x 2011CL P/E and will list today.
Today is ICBP’s first day of trading and the continued strong foreign inflows may very well boost its share performance. However, at 20x earnings, EBIT margins dropping off next year, and small EPS growth of 2% and 9% in 2011-12, ICBP looks on the rich side of valuation.
Other issues include sales to related party (70% of sales), management fee of 0.25% sales + royalty of 1.5% sales to parent company Indofood.
Key points from the report:
We initiate coverage of Indofood CBP, Indonesia’s largest listed branded food products company with an Outperform.
Indonesia is at the inflection point of multi-year growth in consumer products driven by surge in middle class, hockey stick growth in modern trade and rising incomes.
ICBP is a key beneficiary of stronger rupiah as 10% stronger currency could impact earnings by as much as 50%. That said, higher inflation and related party transactions remains a key risk.
We assign a target multiple of 22.3x P/E matching regional peers.
The stock is currently at 20.1x 2011CL P/E and will list today.
Mansek Bank Rakyat Indonesia a takeaway from a company visit (BBRI,Rp10,600, Buy,Rp12,000)
We have just visited BRI and below are the highlights:
The increase in primary reserves will lower the bank ’s interest income by around Rp200bn, however there has yet intention from the bank to increase the lending rate.The bank plans to maintain its LDR below 100% and above 78%hence will not be required to have additional RR by Mar11 (at end Jun10,LDR recorded at 88.9%).
There is no firm statement on whether Bukopin will be taken over by BRI.So far BRI has yet appointed advisor for this possible transaction or conducted internal due diligence for such transaction.However,a possibility remains even though in the short term it might affect the bank ’s performance negatively due to Bukopin ’s much lower NIM and ROAE.
Until Aug10 there has yet significant improvement in terms of medium size NPL (recorded at 14.9%at end Jun10).The management still focused on efforts to settle the NPL rather than performing aggressive write off.
At current price,BRI is trading at 2011P/BV of 3.0x and PER of 10.2x.We still like BRI for its ability to generate higher than average NIM and ROAE.
The increase in primary reserves will lower the bank ’s interest income by around Rp200bn, however there has yet intention from the bank to increase the lending rate.The bank plans to maintain its LDR below 100% and above 78%hence will not be required to have additional RR by Mar11 (at end Jun10,LDR recorded at 88.9%).
There is no firm statement on whether Bukopin will be taken over by BRI.So far BRI has yet appointed advisor for this possible transaction or conducted internal due diligence for such transaction.However,a possibility remains even though in the short term it might affect the bank ’s performance negatively due to Bukopin ’s much lower NIM and ROAE.
Until Aug10 there has yet significant improvement in terms of medium size NPL (recorded at 14.9%at end Jun10).The management still focused on efforts to settle the NPL rather than performing aggressive write off.
At current price,BRI is trading at 2011P/BV of 3.0x and PER of 10.2x.We still like BRI for its ability to generate higher than average NIM and ROAE.
Mansek Auto Sector:2 wheelers sales volume in Sep ’10 decreased by 34.5%MoM
2 wheelers sales volume in Sep ’10 decreased by 34.5%MoM.The decrease was due to shorter working days (only 14 working days in Sept ’10)as a result of Muslim Festive Holiday.Up to 9M10,2 wheelers sales volume grew by 33.1%YoY.This 2 wheelers sales figure represents 77.6%of our FY10F of 7.1m units (+21.1%YoY).Currently,We have BUY recommendation on ASII (ASII,Rp58,950,BUY,TP:Rp58,000),ASII is trading at PER10F and PER11F of 18.8x and 17.2x. Buy,Rp12,000)
Rabu, 06 Oktober 2010
NISP Flash Note on Bumi Resources Conveys Progress on Debt Reduction Plan
· Concludes 7.1% non pre-emptive share issuance. Bumi Resources has concluded non pre-emptive issuance for 1.37bn ordinary shares, priced at Rp 2,366/share. Size of the issuance equals to 7.1% of Bumi’s current issued shares of 19.4bn, which is within the company’s target to issue up to 10% of total shares. With this issuance, Bumi obtained US$360mn of fresh cash which will help the company’s equity position. Bumi plans to use the cash to repay some of its debt, and hence reduce the company’s cash financing outflow.. The company’s total shares now reaches 20.8bn with the additional shares, and we expect to see this adjustment in Bumi’s next financial result publication.
· Respectable buyers. Bumi’s counterparties on this issuance are Credit Suisse and Raiffeisen Zentralbank Osterreich AG (RZB-Austria), where Credit Suisse bought 608.6mn or 44% of the issuance while the remaining 56% was bought by RZB. The lock up period is one year starting October 5, 2010.
· Entire proceeds to retire existing debt. Bumi will use the entire proceeds to retire some its existing debt. As of 1H10, the company has US$3.4bn of interest bearing debt, US$300mn of which are callable before maturity. The loans are in the form of guaranteed senior secured notes from Credit Suisse and Deutsche Bank, which is also embedded with partial redemption option. Meanwhile, Bumi also has US$708.2mn of convertible bonds, where US$300mn are embedded with put option. The CB’s holders have the option to require Bumi Resources to redeem all or some of the holders’ bonds on November 25, 2010, May 25, 2012 and November 25, 2014. If the company pays its debt later than 2010, then it will have to redeem at a premium.
· Waiting for update on notes issuance. Meanwhile, Bumi has not shared any information on its notes issuance plan. It is reported that the company aims for US$750mn with maturity to reach up to seven years. This notes issuance will be positive for Bumi as the company will have more ample time to focus on its coal production, and hence, pave its way to achieve an annual coal production target of 110mn tons.
· Up to US$36mn of cash will be freed. In our view, Bumi’s non pre-emptive share issuance could free up some cash on interest expense. In addition, assuming Bumi uses the cash from this issuance to retire its guaranteed senior notes, the company may able to save up to US$36mn per year or US$9mn in 4Q10 as these notes carry 12% of interest rate per year. Another possibility is the cash proceeds will be allocated to repay the US$300mn guaranteed CB, which have an annual interest rate of 5% or US$300 ST loans that carry LIBOR +10% interest rate. The Latter is embedded with option to extend the loans to 36 months.
· More progress in the future. In our view this US$360mn issuance is not even close to Bumi’s US$3.4bn debt and US$708.2mn of CB, but it is still some progress for the company’s US$1.00bn debt reduction program. Going forward, we view Bumi will have a smoother course in completing the program’s targets through the IPO of its subsidiary, Bumi Resource Mineral, and also supported by the company’s coal business as prices become more favorable.
· Buy. Currently, BUMI is trading at 2011F PER of 14.4x and EV/EBITDA of 5.8x, Buy.
· Respectable buyers. Bumi’s counterparties on this issuance are Credit Suisse and Raiffeisen Zentralbank Osterreich AG (RZB-Austria), where Credit Suisse bought 608.6mn or 44% of the issuance while the remaining 56% was bought by RZB. The lock up period is one year starting October 5, 2010.
· Entire proceeds to retire existing debt. Bumi will use the entire proceeds to retire some its existing debt. As of 1H10, the company has US$3.4bn of interest bearing debt, US$300mn of which are callable before maturity. The loans are in the form of guaranteed senior secured notes from Credit Suisse and Deutsche Bank, which is also embedded with partial redemption option. Meanwhile, Bumi also has US$708.2mn of convertible bonds, where US$300mn are embedded with put option. The CB’s holders have the option to require Bumi Resources to redeem all or some of the holders’ bonds on November 25, 2010, May 25, 2012 and November 25, 2014. If the company pays its debt later than 2010, then it will have to redeem at a premium.
· Waiting for update on notes issuance. Meanwhile, Bumi has not shared any information on its notes issuance plan. It is reported that the company aims for US$750mn with maturity to reach up to seven years. This notes issuance will be positive for Bumi as the company will have more ample time to focus on its coal production, and hence, pave its way to achieve an annual coal production target of 110mn tons.
· Up to US$36mn of cash will be freed. In our view, Bumi’s non pre-emptive share issuance could free up some cash on interest expense. In addition, assuming Bumi uses the cash from this issuance to retire its guaranteed senior notes, the company may able to save up to US$36mn per year or US$9mn in 4Q10 as these notes carry 12% of interest rate per year. Another possibility is the cash proceeds will be allocated to repay the US$300mn guaranteed CB, which have an annual interest rate of 5% or US$300 ST loans that carry LIBOR +10% interest rate. The Latter is embedded with option to extend the loans to 36 months.
· More progress in the future. In our view this US$360mn issuance is not even close to Bumi’s US$3.4bn debt and US$708.2mn of CB, but it is still some progress for the company’s US$1.00bn debt reduction program. Going forward, we view Bumi will have a smoother course in completing the program’s targets through the IPO of its subsidiary, Bumi Resource Mineral, and also supported by the company’s coal business as prices become more favorable.
· Buy. Currently, BUMI is trading at 2011F PER of 14.4x and EV/EBITDA of 5.8x, Buy.
NISP Bapepam states that Tri Polyta have met requirement (TPIA, Rp3,425)
· Bapepam stated that Tri Polyta has complied with regulation standards for its merger plan with Chandra Asri. The supervisory board has also said it has completed the screening procedure and will release its effective statement immediately.
· Separately, Tri Polyta will hold an EGM on October 27, 2010 to obtain approval on this plan. The company will merge with Chandra Asri through share swap mechanism, which would bring positive results for Tri Polyta.
· 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.
· Separately, Tri Polyta will hold an EGM on October 27, 2010 to obtain approval on this plan. The company will merge with Chandra Asri through share swap mechanism, which would bring positive results for Tri Polyta.
· 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 BEI allows Bumi Resource Mineral to go public this year (BUMI, Rp2,200, Buy)
· Indonesia Stock Exchange (BEI) has concluded its process on evaluating Bumi Resource Mineral (BRM) IPO plan. The bourse will give the result to BRM this week and the company could continue the process to Bapepam in order to obtain pre-effective statement, which enables BRM to IPO this year.
· We still wait for the progress on this plan as the impact will be positive for Bumi Resources in support of the company’s debt reduction plan. This also will enable BRM to utilize its assets as it will hold Bumi’s non coal assets, including Newmont and Herald.
· Currently, BUMI is trading at 2011F PER of 14.4x and EV/EBITDA of 5.8x, Buy.
· We still wait for the progress on this plan as the impact will be positive for Bumi Resources in support of the company’s debt reduction plan. This also will enable BRM to utilize its assets as it will hold Bumi’s non coal assets, including Newmont and Herald.
· Currently, BUMI is trading at 2011F PER of 14.4x and EV/EBITDA of 5.8x, Buy.
JPM BRAU Initiate with OW, June-11 PT of Rp530
Initiate with OW, June-11 PT of Rp530: Berau is the fifth-largest coal producer in Indonesia (FY09 production: 14MM tons) and controls Indonesia’s sixth-largest reserve (46MM tons). Within the Indonesian coal space, we expect Berau to generate higher-than-industry volume growth during FY10-12, and it stands out for its low-cost advantages and strong cash flow generation. In FY11, we expect revenue and core net income to rise by 29% and 74%, respectively.
• Positive investment themes: 1) Volume to rise by 16% CAGR over the
next five years, outpacing industry growth of c 14%. 2) Low production costs (FY11E US$44.2 cash cost per ton, in the bottom quartile of JPM’s universe) due to the strategic location of the mines near coastal areas, thus reducing hauling and barging costs. 3) Operating leverage. 4) Refinancing at lower interest rates.
• Upcoming catalysts: We believe that Berau's stock performance is held back by uncertainty over resolution of parent level gearing. One key development to monitor is the parent Bukit Mutiara’s (BM’s) deleveraging plans, which we believe could include a stake sale of Berau. Currently BM is holding an auction to sell up to 30% of BRAU; which at the current market value of US$1.8 billion translates to potential US$540MM proceeds. If the process resulted in the entry of a strategic investor, it could underpin valuations, clear the overhang, and potentially unlock upside beyond our PT.
• Valuation, price target, risks: Our PT of Rp530 is based on a blend of 3 standard metrics for coal companies (P/E, EV/EBITDA, and EV/reserves) combined with DCF, less a 15% discount to account for the overhang of the potential stake sale from the parent company. If the overhang were removed, our blended valuation method puts fair for BRAU at Rp620. Our Rp530 PT equates to 16.3x FY11E P/E and 6.3x FY11E EV/EBITDA. Additional risks to our PT and view include: 1) ASPs coming under forecast (as a function of variance in coal quality), 2) Execution risks – e.g. volume shortfalls, project delays, and 3) Any possible change in future accounting treatment of deferred exploration costs.
• Positive investment themes: 1) Volume to rise by 16% CAGR over the
next five years, outpacing industry growth of c 14%. 2) Low production costs (FY11E US$44.2 cash cost per ton, in the bottom quartile of JPM’s universe) due to the strategic location of the mines near coastal areas, thus reducing hauling and barging costs. 3) Operating leverage. 4) Refinancing at lower interest rates.
• Upcoming catalysts: We believe that Berau's stock performance is held back by uncertainty over resolution of parent level gearing. One key development to monitor is the parent Bukit Mutiara’s (BM’s) deleveraging plans, which we believe could include a stake sale of Berau. Currently BM is holding an auction to sell up to 30% of BRAU; which at the current market value of US$1.8 billion translates to potential US$540MM proceeds. If the process resulted in the entry of a strategic investor, it could underpin valuations, clear the overhang, and potentially unlock upside beyond our PT.
• Valuation, price target, risks: Our PT of Rp530 is based on a blend of 3 standard metrics for coal companies (P/E, EV/EBITDA, and EV/reserves) combined with DCF, less a 15% discount to account for the overhang of the potential stake sale from the parent company. If the overhang were removed, our blended valuation method puts fair for BRAU at Rp620. Our Rp530 PT equates to 16.3x FY11E P/E and 6.3x FY11E EV/EBITDA. Additional risks to our PT and view include: 1) ASPs coming under forecast (as a function of variance in coal quality), 2) Execution risks – e.g. volume shortfalls, project delays, and 3) Any possible change in future accounting treatment of deferred exploration costs.
Citigroup Bumi Resources - Alert: First Major Step in De-leveraging Efforts
What’s new? – Bumi announced the counterparties for the non pre-emptive share issuance amounting to US$360m with a total of 1.37bn new shares (7.06% of outstanding shares) issued at Rp2,366/share. Raiffeisen Zentralbank Osterreich takes 55.6% of the new shares with total consideration of US$200m. The balance is taken by Credit Suisse. The listing of the new shares is on October 5 with 1 year lock in period.
CIRA’s comment – The completion of the new share issuance is the first important step in Bumi’s re-rating, in our view, as it substantially reduces liquidity risks. The US$360m proceeds will entirely be used to reduce debt. As per the company’s filing to the exchange, its total debt amounted to US$4.16b at the end of September. Hence, post the planned US$360m debt repayment, its debt would be reduced to US$3.8b (net gearing drops to c. 2.3x from c.2.5x).
Prior to the planned debt repayment, Bumi had two credit facilities from Credit Suisse, amounting to a total of US$565m that provides the lender with an overall IRR of 15% and 18%, respectively. Raiffeisen’s credit facility totaled US$60m and carried interest rate of LIBOR + 8%. We estimate Bumi would save c. US$45m annually (c.2.1% of 2011E EBIT) from the debt repayment, assuming Credit Suisse’s 18% IRR debt is the one being repaid. The next step in Bumi’s deleveraging process is the collection of US$440m of receivables from its asset sales, expected in 4Q10.
We maintain our Buy rating on the stock as we think valuations remain depressed. However, Bumi’s further re-rating in the short-term may be delayed if the company fails to convince the market that its deleveraging plans are in earnest. Bumi Resources (BUMI.JK; Rp2,200; 1H)
CIRA’s comment – The completion of the new share issuance is the first important step in Bumi’s re-rating, in our view, as it substantially reduces liquidity risks. The US$360m proceeds will entirely be used to reduce debt. As per the company’s filing to the exchange, its total debt amounted to US$4.16b at the end of September. Hence, post the planned US$360m debt repayment, its debt would be reduced to US$3.8b (net gearing drops to c. 2.3x from c.2.5x).
Prior to the planned debt repayment, Bumi had two credit facilities from Credit Suisse, amounting to a total of US$565m that provides the lender with an overall IRR of 15% and 18%, respectively. Raiffeisen’s credit facility totaled US$60m and carried interest rate of LIBOR + 8%. We estimate Bumi would save c. US$45m annually (c.2.1% of 2011E EBIT) from the debt repayment, assuming Credit Suisse’s 18% IRR debt is the one being repaid. The next step in Bumi’s deleveraging process is the collection of US$440m of receivables from its asset sales, expected in 4Q10.
We maintain our Buy rating on the stock as we think valuations remain depressed. However, Bumi’s further re-rating in the short-term may be delayed if the company fails to convince the market that its deleveraging plans are in earnest. Bumi Resources (BUMI.JK; Rp2,200; 1H)
Mansek AALI:Key Takeaway from company visit (AALI,Rp20,950,SELL,TP:Rp18,000)
AALI estimate FY11F CPO production equals to FY10 CPO production (no growth in CPO production)due to its old plantation.Currently,we estimate CPO production in FY11F will be grow by 1.8%YoY from 1,060,589 ton in FY10F to 1,079,386 ton in FY11F.
AALI indicated Sep ’10 CPO production will be around 90 thousand ton (increase around 15%from Sep ’09 CPO production of 78 thousand ton).
Currently,AALI is trading at PER FY10F and FY11F of 17.5x and 17.4x.
AALI indicated Sep ’10 CPO production will be around 90 thousand ton (increase around 15%from Sep ’09 CPO production of 78 thousand ton).
Currently,AALI is trading at PER FY10F and FY11F of 17.5x and 17.4x.
Mansek Automotive sector:Gaikindo estimate sales volume will decrease by 40% in 1Q11 due to tax progressive
The association of Indonesia Automotive Industries (Gaikindo)estimate sales volume will decrease by 40%in 1Q11 due to new tax rule,which valid since 2011.
Marketing Director of Astra Daihatsu Motor said that car sales volume will decrease if there is significant increase in Vehicle Transfer Title Fee.
Currently,ASII is trading at PER FY10F and FY11F of 18.8x and 17.2x.
Marketing Director of Astra Daihatsu Motor said that car sales volume will decrease if there is significant increase in Vehicle Transfer Title Fee.
Currently,ASII is trading at PER FY10F and FY11F of 18.8x and 17.2x.
Mansek BI kept benchmark rate unchanged at 6.5%
Bank Indonesia kept the benchmark rate unchanged at 6.5%in yesterday governor board meeting,inline with our and consensus estimate.
The central bank recognizes that inflation risk remain on the table.It highlighted three possible source of price pressure namely;stronger demand improvement compared to supply side expansion;unfavorable weather that could hamper food production and distribution;and administered price increase.
Yet,the central bank believe liquidity management is a more appropriate monetary tools to control inflation compared to rising interest rate,amid strong capital inflow.Rising interest rate may attract stronger stream of capital that may jeopardize Indonesia ’s trade competitiveness.
Today BI policy statement reinforce our view that the interest rate hike likely pushed back well into 2011 and the central bank may opt to introduce another liquidity measure,should inflation pressure continue to persist.Given this fact,we maintain our view that the first rate hike will be pushed back to 2Q11,with a total 50bps increase expected in 2011.
Furthermore,the central bank assesses the economy expansion remains upbeat in 3Q10,reflected in improvement in bank loan take up (21.2%yoy in Sep10),especially on investment project.Thus,the economic growth is expected to accelerate by 6.0%-6.3%and 6.0%-6.5%in 2010 and 2011 respectively.
The central bank recognizes that inflation risk remain on the table.It highlighted three possible source of price pressure namely;stronger demand improvement compared to supply side expansion;unfavorable weather that could hamper food production and distribution;and administered price increase.
Yet,the central bank believe liquidity management is a more appropriate monetary tools to control inflation compared to rising interest rate,amid strong capital inflow.Rising interest rate may attract stronger stream of capital that may jeopardize Indonesia ’s trade competitiveness.
Today BI policy statement reinforce our view that the interest rate hike likely pushed back well into 2011 and the central bank may opt to introduce another liquidity measure,should inflation pressure continue to persist.Given this fact,we maintain our view that the first rate hike will be pushed back to 2Q11,with a total 50bps increase expected in 2011.
Furthermore,the central bank assesses the economy expansion remains upbeat in 3Q10,reflected in improvement in bank loan take up (21.2%yoy in Sep10),especially on investment project.Thus,the economic growth is expected to accelerate by 6.0%-6.3%and 6.0%-6.5%in 2010 and 2011 respectively.
CLSA War Games
Interesting piece from Nick Cashmore. He noted that Bank Indonesia has declared a war against free currency markets with forex reserves rising US$1bn a week. Forex reserves rose to US$86.2bn as of end Sept. This is almost double the average increase for the year.
In essence, we think the central bank is engaged in a one way bet. The US Fed wants to drive down interest rates and this will only further drive a tsunami of cash into higher yielding currencies like the rupiah. Pressure is accentuated with Indonesia verging on investment grade status. Markets may already be betting the central bank will not be able to continue intervention at the current pace indefinitely. At one point, when the central bank does slow the intervention, we think the pace of rupiah appreciation will accelerate.
Another interesting highlight is that Indonesian risk premiums also look excessive relative to peers. The spread of local currency sovereign debt over UST10yr is still 500bps with 10-year bond yield at 7.5%. We think there is no reason for Indo bond yield to drop to 6% level, matching the level of the Philippines’ yield.
The government will be a significant beneficiary of falling long-run bond yields and they will be able to roll over debt costing 13.3% at 8% or better. No less than US$860mn of fixed rate debt maturing this year and US$4.4bn by end-2011. Nice cost saving for the government.
Real economy implication
As long-term rates fall banks will be forced to shift the mix of earning assets into higher yielding asset, i.e. loan. It will also spur banks to lend more to micro, SME, and consumer lending.
Investment recommendations:
OWT long-dated bonds and domestic-biased companies. We like Kalbe Farma (KLBF IJ), Jasa Marga (JSMR IJ), and Astra Int’l (ASII IJ).
OWT companies leveraged to the investment cycle. We like Indocement (INTP IJ) and Holcim (SMCB IJ).
OWT stocks benefiting from asset reflation: Bakrieland (ELTY IJ), Summarecon (SMRA IJ), Bumi Serpong (BSDE IJ), Bank Tabungan (BBTN IJ), Bank Central Asia (BBCA IJ) are some names for investors to consider.
In essence, we think the central bank is engaged in a one way bet. The US Fed wants to drive down interest rates and this will only further drive a tsunami of cash into higher yielding currencies like the rupiah. Pressure is accentuated with Indonesia verging on investment grade status. Markets may already be betting the central bank will not be able to continue intervention at the current pace indefinitely. At one point, when the central bank does slow the intervention, we think the pace of rupiah appreciation will accelerate.
Another interesting highlight is that Indonesian risk premiums also look excessive relative to peers. The spread of local currency sovereign debt over UST10yr is still 500bps with 10-year bond yield at 7.5%. We think there is no reason for Indo bond yield to drop to 6% level, matching the level of the Philippines’ yield.
The government will be a significant beneficiary of falling long-run bond yields and they will be able to roll over debt costing 13.3% at 8% or better. No less than US$860mn of fixed rate debt maturing this year and US$4.4bn by end-2011. Nice cost saving for the government.
Real economy implication
As long-term rates fall banks will be forced to shift the mix of earning assets into higher yielding asset, i.e. loan. It will also spur banks to lend more to micro, SME, and consumer lending.
Investment recommendations:
OWT long-dated bonds and domestic-biased companies. We like Kalbe Farma (KLBF IJ), Jasa Marga (JSMR IJ), and Astra Int’l (ASII IJ).
OWT companies leveraged to the investment cycle. We like Indocement (INTP IJ) and Holcim (SMCB IJ).
OWT stocks benefiting from asset reflation: Bakrieland (ELTY IJ), Summarecon (SMRA IJ), Bumi Serpong (BSDE IJ), Bank Tabungan (BBTN IJ), Bank Central Asia (BBCA IJ) are some names for investors to consider.
CLSA Bumi Serpong - Bringing in a sibling BUY, TP Rp1,100
Certainly, there is good synergy merging Duta Pertiwi into BSDE. The combined entity will have a massive 4,250ha land bank in Greater Jakarta and Surabaya. More importantly, DUTI’s reputation as a good commercial developer with strong recurring income will compliment BSDE’s strong residential footprint which at this moment lacks recurring income. The big question here is the price and how this deal going to be structured. Given that it is a related party transaction, minorities will have to vote for it giving "some" comfort level of pricing. However, BSD stated that DUTI will stay listed with 15% float means there would not be a tender offer leaving minorities behind.
BSDE announced to the stock exchange its intention to acquire 85.31% stake in its sister company, Duta Pertiwi (DUTI IJ), currently own by Sinar Mas group.
From operational standpoint, we think the consolidation is beneficial given the combined entity will have a sizeable 4,250ha land bank in Greater Jakarta and Surabaya with a much strong recurring income base.
Our estimated NAV for BSDE is Rp17tn, while DUTI’s NAV as estimated by the company is Rp7tn. Translated to NAV/sh, DUTI is now trading at 45% discount to its NAV, while BSDE at 34%.
Assuming BSDE buys 85% stake in DUTI at current price, then it implies BSDE needs US$370m. BSDE has about US$110m cash now. So, this means BSDE needs to finance US$260m (20% of its market cap).
BSDE announced to the stock exchange its intention to acquire 85.31% stake in its sister company, Duta Pertiwi (DUTI IJ), currently own by Sinar Mas group.
From operational standpoint, we think the consolidation is beneficial given the combined entity will have a sizeable 4,250ha land bank in Greater Jakarta and Surabaya with a much strong recurring income base.
Our estimated NAV for BSDE is Rp17tn, while DUTI’s NAV as estimated by the company is Rp7tn. Translated to NAV/sh, DUTI is now trading at 45% discount to its NAV, while BSDE at 34%.
Assuming BSDE buys 85% stake in DUTI at current price, then it implies BSDE needs US$370m. BSDE has about US$110m cash now. So, this means BSDE needs to finance US$260m (20% of its market cap).
Citigroup Asia Macro View - Takeaways from our Macro Trip (SL, IN, TH, PH, ID)
Meetings reinforce very upbeat growth outlooks in all these countries — There was significant emphasis on domestic growth drivers (especially investment) and, surprisingly, officials paid little attention in our meetings to slowdown risks from advanced countries. The main domestic risk to growth centered on implementation/execution of investment plans.
Very divergent CB tone: BI and BSP dovish; RBI and BoT more hawkish — Despite strong growth and inflation hovering close around the top end of its inflation target, BI is the most dovish central bank we met, signaling no intention to raise rates for all of 2010 and 2011F. BSP was also relatively dovish with inflation expected to remain at the low end (3-4%) of its target band in 2011F. RBI remains more focused on inflation and is likely to raise a few more times before pausing, while BoT seems determined to reduce (or abolish) its negative real rates and remains vigilant on inflation.
Managing capital flows is a key concern but capital controls look unlikely — None of the officials we met hinted at the option of imposing capital control restrictions.
Among the five countries we visited, Thailand is probably slightly more at risk of putting some restrictions on portfolio fixed income flows but negative experience from 2006 will mean it will be very cautious and focus on encouraging capital outflows. Meanwhile, India, Sri Lanka and Indonesia still need foreign capital though, in Indonesia’s case, there may be a risk of a lengthening of the holding period restriction on SBIs further (e.g. to 3 month from 1 month). Following recent lifting of FII limits on government and corporate bonds, India seems unlikely to lift more restrictions anytime soon with lingering caution towards debt-related inflows.
Fiscal consolidation remains on track for most; India a bit disappointing — We expect tax reforms in Sri Lanka will be forthcoming in the 2011 Budget due in November, and Philippines’ zero-based budgeting and tight monitoring of spending also bode well for fiscal consolidation in 2011F. While debt sustainability is not an issue given strong growth, India’s outlook on tax reforms is disappointing, with GST likely to be delayed well beyond the Apr 11 deadline.
Indonesia’s budget financing overwhelmingly relies on foreigners to buy LC bonds — Given current yields, we see limited room to boost domestic investor base for bonds –bank funding costs are higher than bond yields, and insurance/pension funds have other non-govt bond options. Government looks increasing reliant on foreigners to absorb most of the Rp209+trn of gross bond issuance in 2011F.
On Asia FX outlook –Still positive on INR, PHP; a bit more positive IDR short-term — We see a strong external inflows supporting Asia FX appreciation across the board. RBI appears to be the only central bank that hasn’t significantly intervened in the FX market – we still like INR, PHP (alongside KRW) as our top picks. We are more “near-term” constructive on IDR as we have underestimated BI’s tolerance to let IDR move if other regional currencies move as well, and have unchanged (constructive) views on THB.
Very divergent CB tone: BI and BSP dovish; RBI and BoT more hawkish — Despite strong growth and inflation hovering close around the top end of its inflation target, BI is the most dovish central bank we met, signaling no intention to raise rates for all of 2010 and 2011F. BSP was also relatively dovish with inflation expected to remain at the low end (3-4%) of its target band in 2011F. RBI remains more focused on inflation and is likely to raise a few more times before pausing, while BoT seems determined to reduce (or abolish) its negative real rates and remains vigilant on inflation.
Managing capital flows is a key concern but capital controls look unlikely — None of the officials we met hinted at the option of imposing capital control restrictions.
Among the five countries we visited, Thailand is probably slightly more at risk of putting some restrictions on portfolio fixed income flows but negative experience from 2006 will mean it will be very cautious and focus on encouraging capital outflows. Meanwhile, India, Sri Lanka and Indonesia still need foreign capital though, in Indonesia’s case, there may be a risk of a lengthening of the holding period restriction on SBIs further (e.g. to 3 month from 1 month). Following recent lifting of FII limits on government and corporate bonds, India seems unlikely to lift more restrictions anytime soon with lingering caution towards debt-related inflows.
Fiscal consolidation remains on track for most; India a bit disappointing — We expect tax reforms in Sri Lanka will be forthcoming in the 2011 Budget due in November, and Philippines’ zero-based budgeting and tight monitoring of spending also bode well for fiscal consolidation in 2011F. While debt sustainability is not an issue given strong growth, India’s outlook on tax reforms is disappointing, with GST likely to be delayed well beyond the Apr 11 deadline.
Indonesia’s budget financing overwhelmingly relies on foreigners to buy LC bonds — Given current yields, we see limited room to boost domestic investor base for bonds –bank funding costs are higher than bond yields, and insurance/pension funds have other non-govt bond options. Government looks increasing reliant on foreigners to absorb most of the Rp209+trn of gross bond issuance in 2011F.
On Asia FX outlook –Still positive on INR, PHP; a bit more positive IDR short-term — We see a strong external inflows supporting Asia FX appreciation across the board. RBI appears to be the only central bank that hasn’t significantly intervened in the FX market – we still like INR, PHP (alongside KRW) as our top picks. We are more “near-term” constructive on IDR as we have underestimated BI’s tolerance to let IDR move if other regional currencies move as well, and have unchanged (constructive) views on THB.
NISP Wijaya Karya hints of 89.4% YoY growth (WIKA, Rp710)
· Wijaya Karya expects net income in 3Q10 will have reached Rp250.0bn or, or 89.4% YoY increase from Rp132.0bn in 3Q09. If realized, this means that the bank’s net income is higher by 77.5% QoQ from Rp140.8bn in 1H10 and it has achieved its full year target of Rp245.0bn.
· Although revenue in 1H10 was off target and actually contracted by 14.8% YoY to Rp2.52tn, the company’s bottom line came in line with market expectations where full year estimate is Rp272.8bn. The company has revised its full year net income target to Rp300.0bn, or 58.0% YoY increased as various operating efficiencies aided it in achieving high growth.
· WIKA is trading at 2011F consensus PER of 13.7x and EV/EBITDA of 5.1x.
· Although revenue in 1H10 was off target and actually contracted by 14.8% YoY to Rp2.52tn, the company’s bottom line came in line with market expectations where full year estimate is Rp272.8bn. The company has revised its full year net income target to Rp300.0bn, or 58.0% YoY increased as various operating efficiencies aided it in achieving high growth.
· WIKA is trading at 2011F consensus PER of 13.7x and EV/EBITDA of 5.1x.
NISP Summarecon hints of 36.4% YoY growth (SMRA, Rp1,110)
· Summarecon Agung shared that it expects to book Rp165.0bn of net income in 3Q10, or 36.4% YoY increase. The company’s full year target is Rp220.0bn and Rp1.12tn of revenue, or 20.0% YoY increase from last year. Its estimate is lower than market expectation for full year achievement of Rp237.8bn of net income and Rp1.58tn in sales.
· The company is optimist of the third quarter’s achievement as the sales of its projects in Serpong and Kelapa Gading have gone well. In 2011, the company targets the second phase for the development of Summarecon Serpong to become the revenue driver.
· SMRA is trading at 2011F PER of 22.8x and EV/EBITDA of 13.1x.
· The company is optimist of the third quarter’s achievement as the sales of its projects in Serpong and Kelapa Gading have gone well. In 2011, the company targets the second phase for the development of Summarecon Serpong to become the revenue driver.
· SMRA is trading at 2011F PER of 22.8x and EV/EBITDA of 13.1x.
NISP Bank Mandiri hints of 36.4% YoY growth (BMRI, Rp7,000)
· Bank Mandiri shared that it expects to book Rp6.30tn of net income in 3Q10, or 36.4% YoY increase from Rp4.62tn in 3Q09. If realized, this means that the bank’s net income is higher by 24.8% QoQ from Rp4.03tn in 1H10. Full year market expectation is Rp8.73tn.
· While the bank’s credit target is expected to have exceeded Rp203.0tn or 21.0% YoY higher from 3Q09. The bank has revised its credit target from 15-18% growth to 18.0-20%, and expected to continue next year.
· Mandiri has agreed to postpone its rights issue to next year for the benefit of BNI (BBNI, Rp3,700) .If BNI’s own process proceeds on schedule this year, Mandiri expects its rights issue process will be completed by the first week of February.
· BMRI is trading at 2011F consensus PER of 14.3x and PBV of 3.0x.
· While the bank’s credit target is expected to have exceeded Rp203.0tn or 21.0% YoY higher from 3Q09. The bank has revised its credit target from 15-18% growth to 18.0-20%, and expected to continue next year.
· Mandiri has agreed to postpone its rights issue to next year for the benefit of BNI (BBNI, Rp3,700) .If BNI’s own process proceeds on schedule this year, Mandiri expects its rights issue process will be completed by the first week of February.
· BMRI is trading at 2011F consensus PER of 14.3x and PBV of 3.0x.
NISP Bumi Resources sold its non pre-emptive to Credit Suisse and RZB (BUMI, Rp2,200, Buy)
· Bumi Resources disclosed its counterparts on non pre-emptive issuance where Credit Suisse and Raiffeisen Zentralbank Osterreich AG (RZB-Austria) stood as counterparties. Credit Suisse bought 608.6mn or 44% of the issuance while the remaining 56% bought by RZB.
· The lock up period is one year starting October 5, 2010 and these new shares will be listing today. Thus, Bumi’s outstanding shares will reach 20.8bn shares.
· Bumi plans to use all the cash to retire some of its debt. Currently BUMI is trading at 2011F PER of 14.0x and EV/EBITDA of 5.9x, Buy.
· The lock up period is one year starting October 5, 2010 and these new shares will be listing today. Thus, Bumi’s outstanding shares will reach 20.8bn shares.
· Bumi plans to use all the cash to retire some of its debt. Currently BUMI is trading at 2011F PER of 14.0x and EV/EBITDA of 5.9x, Buy.
NISP United Tractors postpones coal mine acquisition (UNTR, Rp21,200, Hold)
· UT postponed its plan on acquiring one remaining coal mine as the company failed to meet agreement in negotiation process. UT said that the completion of this acquisition will be delayed from the company’s original schedule. Previously, UT targeted to complete the transaction in 4Q10.
· Separately, UT said that the company’s operational data remain stable in September where UT cited that its heavy equipment sales volume was not disrupted by rainfall season. Despite such statement, we view that long holiday season in September was a major concern in heavy equipment sales instead of rainfall.
· Rain may affect the company’s coal mining contracting and coal mine business where this has affected UT’s profitability in 2Q10.
· Currently UNTR is trading at 2011F PER of 14.5x and EV/EBITDA of 7.7x, Hold.
· Separately, UT said that the company’s operational data remain stable in September where UT cited that its heavy equipment sales volume was not disrupted by rainfall season. Despite such statement, we view that long holiday season in September was a major concern in heavy equipment sales instead of rainfall.
· Rain may affect the company’s coal mining contracting and coal mine business where this has affected UT’s profitability in 2Q10.
· Currently UNTR is trading at 2011F PER of 14.5x and EV/EBITDA of 7.7x, Hold.
Credit Suisse Asia Palm Oil Sector - Palm oil stocks have underperformed
● Palm oil prices in USD have risen 16% YTD. However, palm oil prices in MYR and IDR are up only 6% and 9%, respectively, simply because the MYR and the IDR have appreciated 11% and 5%, respectively, against the USD.
● Soy oil price premium over palm oil is now US$160. This suggests that importers will favour palm oil over soy oil in the short term.
● Malaysian palm oil exports for September 2010 rose 29.9% MoM. This suggests inventories may fall MoM, as harvesting of fresh fruit bunch was probably disrupted by the holiday season.
● All the plantation stocks under our coverage (except GENP) have underperformed the local indices. The worst performers YTD have been Astra Agro (underperformed by 49%), Sampoerna Agro (-40%), London Sumatra (-22%) and Sime (-20%).
● We expect palm oil prices to strengthen seasonally at year end, but remain bearish on palm oil prices for 2011. We maintain our UNDERPERFORM rating on Sime Darby, GENP, IOI and Astra Agro. Wilmar remains our only OUTPERFORM.
● Soy oil price premium over palm oil is now US$160. This suggests that importers will favour palm oil over soy oil in the short term.
● Malaysian palm oil exports for September 2010 rose 29.9% MoM. This suggests inventories may fall MoM, as harvesting of fresh fruit bunch was probably disrupted by the holiday season.
● All the plantation stocks under our coverage (except GENP) have underperformed the local indices. The worst performers YTD have been Astra Agro (underperformed by 49%), Sampoerna Agro (-40%), London Sumatra (-22%) and Sime (-20%).
● We expect palm oil prices to strengthen seasonally at year end, but remain bearish on palm oil prices for 2011. We maintain our UNDERPERFORM rating on Sime Darby, GENP, IOI and Astra Agro. Wilmar remains our only OUTPERFORM.
Mansek Strategy: Ir (Rational) Exuberance
The most common argument in a bubble market is ‘this time it’s different’. For me, what is different is globally low interest rate environment, and currency wars. In the domestic arena, Bank Indonesia’s policy of choice to maintain interest rates and control liquidity by raising reserve requirements also reflect the unwillingness to let the currency raise. BUMI, our call last month, gav! e a stron g return (+28.0%MoM) vs IDX return MoM of 13.6%. Our index target of 3,375, has been surpassed (3,501 by Sept 30), and we turned Neutral. As for sector picks, we are turning to commodities on improved return/risk reward after ytd strong run in domestic demand sectors such as JAKMIND (Astra Intl), JAKTRAD (United Tractor, Mitra Adiperkasa). Our picks in the commodities are: BUMI (TP:Rp3,665), Adaro (TP:Rp2,500). We also like property such as KIJA (TP: Rp265), BSDE (TP! :Rp1,210), and SMRA (TP:Rp1,400).
Moderating inflation. Indonesia inflation slowed down to 0.44% MoM or 5.80% YoY in Sept 10 from 0.76% MoM (6.44% YoY) in the previous month. The figure is lower than consensus estimate of 0.56%. Core inflation also receded to 4.0% YoY in Sept 10 from 4.2% a month earlier. Trade balance was back in the black in August with US$1.5bn surplus as imports declined to US$12.2bn (+25.9% YoY) with exports reaching a new record high of US$13.7bn (+30.0% YoY). Gradual improvement in external demand and pickup in commodity pr! ices were the main drivers for the rise in export value.
Rising reserve requirements. Bank Indonesia (BI) in Sept 9, 2010, told commercial banks to raise their minimum primary reserve requirements from 5% to 8% starting November 1, 2010. BI will also apply a countercyclical measure in reserve requirements by punishing banks with LDR of above 100% and CAR below 14%. BI also imposed additional reserve requirements for banks with LDR of below 78%. LDR-linked additional reserve requirements will take into effect by March 1, 2011.
Domestic demand counters still the favorites in September. Gudang Garam (+31.0% MoM), Astra International (+19.8% MoM), and banks such as Bank Mandiri (+22.0% MoM), BCA (+15.5%MoM) were the drivers behind the IDX leap this month. However, commodity plays like BUMI (+28.0% MoM) and Timah (+32.6%MoM) started to reappear in the top 40 market cap performance list. IDX is now trading at 14.4x 2011 rolling PER, or 0.9x std deviation from 14 years average PE-band of 10.9x. T! he last t ime the IDX had sustainable performance at this level was in the pre 1998 Asian crises. Although one can not solely depend on historical performance for future projection, the current IDX height brings a sense of dizziness.
Depreciating currencies. With countries depreciating their currencies, a logical consequence is rising commodity prices. We expect this to continue as price in gold unit is still low (Exhibit 2). We are also looking with interest in the property sector on the same logical consequence as anecdotal evidences indicated a jump in property prices in the last 12 months.
Moderating inflation. Indonesia inflation slowed down to 0.44% MoM or 5.80% YoY in Sept 10 from 0.76% MoM (6.44% YoY) in the previous month. The figure is lower than consensus estimate of 0.56%. Core inflation also receded to 4.0% YoY in Sept 10 from 4.2% a month earlier. Trade balance was back in the black in August with US$1.5bn surplus as imports declined to US$12.2bn (+25.9% YoY) with exports reaching a new record high of US$13.7bn (+30.0% YoY). Gradual improvement in external demand and pickup in commodity pr! ices were the main drivers for the rise in export value.
Rising reserve requirements. Bank Indonesia (BI) in Sept 9, 2010, told commercial banks to raise their minimum primary reserve requirements from 5% to 8% starting November 1, 2010. BI will also apply a countercyclical measure in reserve requirements by punishing banks with LDR of above 100% and CAR below 14%. BI also imposed additional reserve requirements for banks with LDR of below 78%. LDR-linked additional reserve requirements will take into effect by March 1, 2011.
Domestic demand counters still the favorites in September. Gudang Garam (+31.0% MoM), Astra International (+19.8% MoM), and banks such as Bank Mandiri (+22.0% MoM), BCA (+15.5%MoM) were the drivers behind the IDX leap this month. However, commodity plays like BUMI (+28.0% MoM) and Timah (+32.6%MoM) started to reappear in the top 40 market cap performance list. IDX is now trading at 14.4x 2011 rolling PER, or 0.9x std deviation from 14 years average PE-band of 10.9x. T! he last t ime the IDX had sustainable performance at this level was in the pre 1998 Asian crises. Although one can not solely depend on historical performance for future projection, the current IDX height brings a sense of dizziness.
Depreciating currencies. With countries depreciating their currencies, a logical consequence is rising commodity prices. We expect this to continue as price in gold unit is still low (Exhibit 2). We are also looking with interest in the property sector on the same logical consequence as anecdotal evidences indicated a jump in property prices in the last 12 months.
TPG and GIC to acquire DOID ??
TPG, GSIC in talks to boost stakes in DOID's parent Monday, 04/10/2010 14:06:19 WIBby: Wisnu WijayaJAKARTA: One of the world's largest private equity Texas Pacific Group (TPG) and Government of Singapore Investment Corporation (GSIC) are in talks with Sinarmas Group to enlarge stakes in Northstar Tambang Persada Pte Ltd (NTP), controlling shareholder of PT Delta Dunia Makmur Tbk (DOID).A source familiar with the matter said NTP controls 40% stakes in Delta Dunia, parent company of Indonesia's second largest coal mining contractor PT Bukit Makmur Mandiri Utama (BUMA), and public shareholder holds the remaining stakes."TPG teams up with GSIC to boost stakes in NTP by acquiring shares from Sinarmas Group. I heard that consortium of TPG and GSIC could buy the stakes above IDR1,200 per share," the source told Bisnis today.According to the source, NTP is controlled by two major shareholders, TPG and Sinarmas Group. "I don't know the exact stakes now owned by TPG and Sinarmas Group."Delta Makmur Director Ariani Vidya Sofjan said Delta Dunia's management hasn't obtained any information about such shares sale."That is domain of share holders. But for sure, Northstar remains voting rights holder in Delta Dunia," she said when contacted by Bisnis today.Delta Dunia today climbed 0.91% to IDR1,110 per share, sending a market capitalization of IDR7.54 trillion. Referring to the current price, Delta Dunia is traded at 172.27 times of price to earning ratio.BUMA spent US$115 million capital expenditure (capex) during the first 6 months of 2010, mostly attributed to the purchase of new heavy equipments to support production growth.BUMA, wholly owned subsidiary of Delta Dunia, expects to spend approximately US$180 million of capex in 2010
Credit Suisse Asia Equity Focus Robust China PMI offers positive catalyst for Asian stocks
China PMI offers positive surprise and eases double-dip fears
China's Purchasing Managers Index (PMI) data for September surprised the market on the upside, with the headline PMI rising 2.1 percentage points to 53.8 from August's 51.7 and a board-based strengthening of other key sub-components. This marks the second consecutive monthly increase of the China PMI, reflecting a reduced growth risk in the Chinese economy. The key sub-components of output and new orders rose strongly to 56.4 and 56.3 respectively from 53.1 in August, representing the strongest rebound in the two indicators since Q1 2009.
The strong rebound in China's PMI new orders sub-index and the 4.5 percentage points' increase in the import sub-index to 52.9 from 48.4 in August suggest a firm industrial production outlook in the coming months. We highlighted earlier that the
China PMI data series typically witnesses a seasonal weakness during the summer months between May and July and its recent recovery does not come as a total surprise to us. With the strong rebound in China's leading economic indicators, we believe the People's Bank of China may well raise interest rates by 27 basis points
in Q4 2010 and allow the CNY to strengthen further to mitigate imported inflation.
In our view, China's latest PMI data, together with recent global leading indicators,
underscore that a double-dip global recession is increasingly unlikely. We expect fading double-dip fears, coupled with aggressively accommodative global monetary
policy, will remain very supportive of the equity markets. Near-zero interest rates,
combined with the sustained global recovery and positive earnings momentum, are
positive drivers for global equities whose relative valuations versus bonds look
particularly compelling, based on historical comparisons after the strong rally in the bond markets, driven by safe-haven flows. We maintain our positive strategic view
on global equities on a 6–12-month investment horizon and are now awaiting either
a clear technical upside break or a marked correction to trigger a tactical upgrade of the equity arrow back to overweight. Investors should take advantage of any short-term tactical pullbacks to rebuild strategic overweight positions in equities.
Cheuk Wan Fan, Phone: +852 2841 4841, cheukwan.fan@credit-suisse.com
China's Purchasing Managers Index (PMI) data for September surprised the market on the upside, with the headline PMI rising 2.1 percentage points to 53.8 from August's 51.7 and a board-based strengthening of other key sub-components. This marks the second consecutive monthly increase of the China PMI, reflecting a reduced growth risk in the Chinese economy. The key sub-components of output and new orders rose strongly to 56.4 and 56.3 respectively from 53.1 in August, representing the strongest rebound in the two indicators since Q1 2009.
The strong rebound in China's PMI new orders sub-index and the 4.5 percentage points' increase in the import sub-index to 52.9 from 48.4 in August suggest a firm industrial production outlook in the coming months. We highlighted earlier that the
China PMI data series typically witnesses a seasonal weakness during the summer months between May and July and its recent recovery does not come as a total surprise to us. With the strong rebound in China's leading economic indicators, we believe the People's Bank of China may well raise interest rates by 27 basis points
in Q4 2010 and allow the CNY to strengthen further to mitigate imported inflation.
In our view, China's latest PMI data, together with recent global leading indicators,
underscore that a double-dip global recession is increasingly unlikely. We expect fading double-dip fears, coupled with aggressively accommodative global monetary
policy, will remain very supportive of the equity markets. Near-zero interest rates,
combined with the sustained global recovery and positive earnings momentum, are
positive drivers for global equities whose relative valuations versus bonds look
particularly compelling, based on historical comparisons after the strong rally in the bond markets, driven by safe-haven flows. We maintain our positive strategic view
on global equities on a 6–12-month investment horizon and are now awaiting either
a clear technical upside break or a marked correction to trigger a tactical upgrade of the equity arrow back to overweight. Investors should take advantage of any short-term tactical pullbacks to rebuild strategic overweight positions in equities.
Cheuk Wan Fan, Phone: +852 2841 4841, cheukwan.fan@credit-suisse.com
CLSA Property developer Bumi Serpong Damai (BSDE IJ) acquiring sister company Duta Pertiwi (DUTI IJ) by Sarina Lesmina
Reported in newspaper that Bumi Serpong (BSDE IJ) is to acquire 85% of sister company Duta Pertiwi (DUTI IJ) (Sinar Mas currently owns 85% of DUTI, and 51% of BSDE)
We talked to the company: BSDE said they have not made an official announcement yet but had disclosed the plan to Bapepam. An official announcement will be made in a few weeks time. Hence, at current stage, there are no further details yet on the deal i.e related to pricing, etc.
We wrote back in 23 Aug 2010 about this potential deal (report: "Bringing in a sibling?" – see attached) and highlighted that:
From operational standpoint, we think the consolidation is beneficial given the combined entity will have a sizeable 4,250ha land bank in Greater Jakarta and Surabaya. Moreover, DUTI’s reputation as a good commercial developer with strong recurring income will compliment BSDE’s non-recurring income at the moment. Both companies also have strong financials, and have enjoyed good margin expansions. Total land bank combined will be 4,250ha.
Our estimated NAV for BSDE is Rp17tn, while DUTI’s NAV as estimated by the company is Rp7tn. Translated to NAV/sh, DUTI is now trading at 58% discount to NAV, while BSDE at 47%. At this juncture, as a separate entity, BSDE has larger land bank, bigger market cap, float and higher liquidity.
BSDE's market cap, cash position, and land bank implies that shareholders can indirectly buy land for the equivalent of US$32psm today, about one-tenth the selling price of land. On current earnings, the company trades at 22x PE2011, but assuming the higher GP margin, this drops down to 17x PE11 and 13x PE12, with 18% ROE. BSDE is now trading at 39% discount to our NAV assumption of Rp1,572/sh.
We talked to the company: BSDE said they have not made an official announcement yet but had disclosed the plan to Bapepam. An official announcement will be made in a few weeks time. Hence, at current stage, there are no further details yet on the deal i.e related to pricing, etc.
We wrote back in 23 Aug 2010 about this potential deal (report: "Bringing in a sibling?" – see attached) and highlighted that:
From operational standpoint, we think the consolidation is beneficial given the combined entity will have a sizeable 4,250ha land bank in Greater Jakarta and Surabaya. Moreover, DUTI’s reputation as a good commercial developer with strong recurring income will compliment BSDE’s non-recurring income at the moment. Both companies also have strong financials, and have enjoyed good margin expansions. Total land bank combined will be 4,250ha.
Our estimated NAV for BSDE is Rp17tn, while DUTI’s NAV as estimated by the company is Rp7tn. Translated to NAV/sh, DUTI is now trading at 58% discount to NAV, while BSDE at 47%. At this juncture, as a separate entity, BSDE has larger land bank, bigger market cap, float and higher liquidity.
BSDE's market cap, cash position, and land bank implies that shareholders can indirectly buy land for the equivalent of US$32psm today, about one-tenth the selling price of land. On current earnings, the company trades at 22x PE2011, but assuming the higher GP margin, this drops down to 17x PE11 and 13x PE12, with 18% ROE. BSDE is now trading at 39% discount to our NAV assumption of Rp1,572/sh.
CLSA big construction sector report WIKA
Our country head, Nick Cashmore once wrote that Bob the Builder will love Indonesia. That is probably true given so much potential for growth in the infra and property space. But execution has been a big issue. As a percentage of GDP, the government infra spending remains at <2%.
Bob the Builder should not give up. In her big note on construction sector today, analyst Sarina highlighted some interesting development in the construction sector. Let’s start with government’s budget: infra spending budget is raised by 28% to Rp121tn (US$13.5bn) in 2011. The government is also working on better regulatory framework such as the anticipated land clearing law. Other good recent developments include the potential tax holiday incentive, BKPM to offer PPP projects, and the plan to re-tender stalled 24 toll road projects.
Sector valuation is still looking attractive at 8.8x 2011 PER and 10.4x 2012PER. Sarina’s top pick in the sector is Wijaya Karya (WIKA IJ). The company is winning new contracts and has been able to expand operational margin in the past few years. WIKA also has stronger balance sheet and the stock is more liquid compared to its peers.
Another way to play the construction theme is through cement sector. We like Holcim Indonesia (SMCB IJ) in particular. Assuming the company selling 100% of the output to domestic market, SMCB is still trading at 9.8x 2011PER and 8.4x 2012PER.
Other key points from the report:
More government budget for infra but still need private sector. Government increased infra spending budget by 28% to Rp121tn (US$13.5bn) in 2011. However, spending remains below 2% to GDP. Private sector led more infra development at cagr of 46% vs gov spending at 24%. Private sector participation is badly needed.
Better regulatory framework such as the anticipated land clearing law is a key to success.
Other good recent developments include the potential tax holiday incentive, BKPM to offer PPP projects, and the plan to re-tender stalled 24 toll road projects
Plenty of opportunities for construction. Construction revenue and profit has grown at a cagr of 24% and 16% respectively. Construction credit also grew at 24% cagr, albeit still a small 4% of total bank loan.
Total new contract this year is expected to increase 44%.
Fierce competition, but diversification is the key. The winners are those that are able to diversify their portfolio of projects, have the ability to manage costs and receivables, and have strong balance sheet to support growth such as investing in assets that can bring construction job and recurring income.
Valuation is attractive, but low liquidity is a concern. The sector is trading at an ave. 8.8x cons. PE11 and 7.5x PE12. We think this is attractive, however ave. daily turnover of US$0.9m is a concern to most investors. Top pick: WIKA.
Bob the Builder should not give up. In her big note on construction sector today, analyst Sarina highlighted some interesting development in the construction sector. Let’s start with government’s budget: infra spending budget is raised by 28% to Rp121tn (US$13.5bn) in 2011. The government is also working on better regulatory framework such as the anticipated land clearing law. Other good recent developments include the potential tax holiday incentive, BKPM to offer PPP projects, and the plan to re-tender stalled 24 toll road projects.
Sector valuation is still looking attractive at 8.8x 2011 PER and 10.4x 2012PER. Sarina’s top pick in the sector is Wijaya Karya (WIKA IJ). The company is winning new contracts and has been able to expand operational margin in the past few years. WIKA also has stronger balance sheet and the stock is more liquid compared to its peers.
Another way to play the construction theme is through cement sector. We like Holcim Indonesia (SMCB IJ) in particular. Assuming the company selling 100% of the output to domestic market, SMCB is still trading at 9.8x 2011PER and 8.4x 2012PER.
Other key points from the report:
More government budget for infra but still need private sector. Government increased infra spending budget by 28% to Rp121tn (US$13.5bn) in 2011. However, spending remains below 2% to GDP. Private sector led more infra development at cagr of 46% vs gov spending at 24%. Private sector participation is badly needed.
Better regulatory framework such as the anticipated land clearing law is a key to success.
Other good recent developments include the potential tax holiday incentive, BKPM to offer PPP projects, and the plan to re-tender stalled 24 toll road projects
Plenty of opportunities for construction. Construction revenue and profit has grown at a cagr of 24% and 16% respectively. Construction credit also grew at 24% cagr, albeit still a small 4% of total bank loan.
Total new contract this year is expected to increase 44%.
Fierce competition, but diversification is the key. The winners are those that are able to diversify their portfolio of projects, have the ability to manage costs and receivables, and have strong balance sheet to support growth such as investing in assets that can bring construction job and recurring income.
Valuation is attractive, but low liquidity is a concern. The sector is trading at an ave. 8.8x cons. PE11 and 7.5x PE12. We think this is attractive, however ave. daily turnover of US$0.9m is a concern to most investors. Top pick: WIKA.
CLSA Stock Picking Contest
To continue on to our internal stock picking contest, below is the list of the stocks sales & research picked for 4Q. Interesting to note almost every company picked except TINS and Holcim is the small/mid cap space. Clearly, most feel that the big cap names are richly valued. Seems that many of the names still trading on only high single digit mutiples and value could be unlocked as Indonesia continues to see good fundflows.
4Q10 pick Price 30/9
Lippo Karawachi 560
Mitra Adiperkasa 2,250
Indah Kiat 2,325
Bakrie Telecom 235
Delta Dunia 1,030
Tjiwi Kimia 4,175
Wijaya Karya 670
Bakrieland 154
Timah (my pick) 3,150
Jasa Marga 3,200
Panin Life 183
Bank Tabugan 11,700
Energi Mega 114
Holcim 2,425
Right or wrong but here are the reasons;
Lippo Karawaci (LPKR IJ):
- One of the largest property developers in the country with almost US$1bn market cap. Strong recurrent income from its malls, contributing around 50% of sales. Trades at a large discount to NAV, about 60-65% discount. Sector average around 55%. Also been a big laggard against the sector and JCI.
- There has been a lot positive newsflow of late. Marketing sales in its two mixed development projects (Kemang Village and St Moritz) doing well and setting its sight to be main developer of Eastern Indonesia.
Mitra Adi Perkasa (MAPI IJ):
- Indonesia leading upscale retailer holding exclusive rights for 92 international brands. It has footprints in everything from department stores such as Sogo, Seibu and Debenhams) to specialty stores such as Zara, Planet sports, Golf House, Reebok, food beverages such as star bucks, burger King, dominos Pizza, etc. It currently has 786 outlets in 24 cities throughout Indonesia up from 40 outlets in 1995 and is still adding.
- In our view, the stock is still trading at steep discount to peers and it should re-rate as it continues to deliver. Consensus numbers are way too conservative at Rp650bn EBITDA (company’s guidance Rp700bn). We think Mapi can register Rp850-900bn Ebitda for 2010. Seasonally, 60% of profits are booked in 2H. So can still be trading on high single digit PE
Indah Kiat (INKP IJ):
- Pulp and paper prices are at all time high. 1H10 results are already showing indication of earnings recovery, meaning more to come in 3Q and 4Q10. A laggard against its sister company, Tjiwi Kimia (TKIM IJ). Expecting Bank Exim case to be resolved soon.
Bakrie Telecom (BTEL IJ)
- Telkom Indonesia (TLKM IJ) CDMA division (Flexi) merger should happen by end of the year. Merger of Flexi-Esia this year (est Aug/Sept) will make the combined entity to control over 90%+ of Indonesia’s CDMA market with total ~28m subs overnight.
- Post deal combined entity will have about the same number of sub as EXCL which has a market cap close to US$4bn (EV of US$6bn=) BTEL now US$700m before enlarging capital for the deal). Still tons a value left on table.
Delta Dunia (DOID IJ):
- Its really really cheap! its trading at a significant valuation discount to HEXA and UNTR. Indo's second biggest mining contractor and while temporary rains hamper the industry, this to shall pass. Debt refinancing should bring funding costs lower.
Tjiwi Kimia (TKIM IJ):
- Margin in 1H improved due improving cost efficiency and rising paper price. Production capacity expansion will allow for better economies of scale and help further push down cost. Despite a strong share price performance in the past month, the company still trades at 4.2x annualized 2010 PER!! Perhaps, limited downside?
Jasa Marga (JSMR IJ):
- Resilient trafic growth, better cost managment and automation would lead to higher margin and lower cost. Moreover, the Finance minister is optimistic that the land acquisition bill will be passed in the short term future. This would be additional booster for Jasa Marga.
Timah (TINS IJ):
- Overlooked by both analysts and investment managers. No big house covers the stock at this point in time. Tins is one of the very few commodities trading close to record high. The record high (and the resistance) is around 25,500. The event in Congo (13,600 tonnes in 2009, 4.7% of world's tin ore production) and weather issues in Indonesia helped to push the tins price up. Inventory has been steadily falling. Worries over illegal miners invading their onshore mining areas.The shallow water dredging was still doable during the rain, but not for the deep sea water. If the weather situation improves, TINS can extend the activities to cover deep sea water as well.
- Valuation: TINS trades at high single digit (back of the envelope). Still looks very cheap compared to other metal names like ANTM (21x PER)and INCO (16x PER).
Panin Life (PNLF)
- because this time it has to work! Eventually somebody is going to bid for Panin Bank (PNBN) and the current owner is going to realize that in the long term he needs to sell to realize value. Hopefully it will be this quarter. Panin Life is a deeply undervalued play on Panin Bank and any buyer of the bank will buy PNLF to get control. Underlying value is north of Rp500/share.
PT Bank Tabungan Pensiunan Nastional Tbk (BTPN)
-Niche high NIM market segment (core business: pensioners/low fixed income earners, expansion into higher NIM micro/small enterprise financing) Compelling growth profile (1H 2010 loan growth 64% to Rp 19.7 trillion).
- High credit quality assets (NPL ratio 0.26%). Room to grow (capital adequacy ratio stands at 16.5% vs 8% limit mandated by Bank Indo). Great management team (led by saavy CEO Jerry Ng). Reputable majority shareholders (TPG)
Energi Mega (ENRG IJ):
- Betting on bakrie, laggard of the bakrie stocks. positive newsflows on its developments. If mgmt executes on Kangean block, stock will be trading on 2-3x EV/EBITA 2011.
Holcim (SMCB IJ):
- Beneficiary of rising cement demand as it has space capacity. Largest operational and financial leverage. At 100% capacity, trading at 8x earnings
4Q10 pick Price 30/9
Lippo Karawachi 560
Mitra Adiperkasa 2,250
Indah Kiat 2,325
Bakrie Telecom 235
Delta Dunia 1,030
Tjiwi Kimia 4,175
Wijaya Karya 670
Bakrieland 154
Timah (my pick) 3,150
Jasa Marga 3,200
Panin Life 183
Bank Tabugan 11,700
Energi Mega 114
Holcim 2,425
Right or wrong but here are the reasons;
Lippo Karawaci (LPKR IJ):
- One of the largest property developers in the country with almost US$1bn market cap. Strong recurrent income from its malls, contributing around 50% of sales. Trades at a large discount to NAV, about 60-65% discount. Sector average around 55%. Also been a big laggard against the sector and JCI.
- There has been a lot positive newsflow of late. Marketing sales in its two mixed development projects (Kemang Village and St Moritz) doing well and setting its sight to be main developer of Eastern Indonesia.
Mitra Adi Perkasa (MAPI IJ):
- Indonesia leading upscale retailer holding exclusive rights for 92 international brands. It has footprints in everything from department stores such as Sogo, Seibu and Debenhams) to specialty stores such as Zara, Planet sports, Golf House, Reebok, food beverages such as star bucks, burger King, dominos Pizza, etc. It currently has 786 outlets in 24 cities throughout Indonesia up from 40 outlets in 1995 and is still adding.
- In our view, the stock is still trading at steep discount to peers and it should re-rate as it continues to deliver. Consensus numbers are way too conservative at Rp650bn EBITDA (company’s guidance Rp700bn). We think Mapi can register Rp850-900bn Ebitda for 2010. Seasonally, 60% of profits are booked in 2H. So can still be trading on high single digit PE
Indah Kiat (INKP IJ):
- Pulp and paper prices are at all time high. 1H10 results are already showing indication of earnings recovery, meaning more to come in 3Q and 4Q10. A laggard against its sister company, Tjiwi Kimia (TKIM IJ). Expecting Bank Exim case to be resolved soon.
Bakrie Telecom (BTEL IJ)
- Telkom Indonesia (TLKM IJ) CDMA division (Flexi) merger should happen by end of the year. Merger of Flexi-Esia this year (est Aug/Sept) will make the combined entity to control over 90%+ of Indonesia’s CDMA market with total ~28m subs overnight.
- Post deal combined entity will have about the same number of sub as EXCL which has a market cap close to US$4bn (EV of US$6bn=) BTEL now US$700m before enlarging capital for the deal). Still tons a value left on table.
Delta Dunia (DOID IJ):
- Its really really cheap! its trading at a significant valuation discount to HEXA and UNTR. Indo's second biggest mining contractor and while temporary rains hamper the industry, this to shall pass. Debt refinancing should bring funding costs lower.
Tjiwi Kimia (TKIM IJ):
- Margin in 1H improved due improving cost efficiency and rising paper price. Production capacity expansion will allow for better economies of scale and help further push down cost. Despite a strong share price performance in the past month, the company still trades at 4.2x annualized 2010 PER!! Perhaps, limited downside?
Jasa Marga (JSMR IJ):
- Resilient trafic growth, better cost managment and automation would lead to higher margin and lower cost. Moreover, the Finance minister is optimistic that the land acquisition bill will be passed in the short term future. This would be additional booster for Jasa Marga.
Timah (TINS IJ):
- Overlooked by both analysts and investment managers. No big house covers the stock at this point in time. Tins is one of the very few commodities trading close to record high. The record high (and the resistance) is around 25,500. The event in Congo (13,600 tonnes in 2009, 4.7% of world's tin ore production) and weather issues in Indonesia helped to push the tins price up. Inventory has been steadily falling. Worries over illegal miners invading their onshore mining areas.The shallow water dredging was still doable during the rain, but not for the deep sea water. If the weather situation improves, TINS can extend the activities to cover deep sea water as well.
- Valuation: TINS trades at high single digit (back of the envelope). Still looks very cheap compared to other metal names like ANTM (21x PER)and INCO (16x PER).
Panin Life (PNLF)
- because this time it has to work! Eventually somebody is going to bid for Panin Bank (PNBN) and the current owner is going to realize that in the long term he needs to sell to realize value. Hopefully it will be this quarter. Panin Life is a deeply undervalued play on Panin Bank and any buyer of the bank will buy PNLF to get control. Underlying value is north of Rp500/share.
PT Bank Tabungan Pensiunan Nastional Tbk (BTPN)
-Niche high NIM market segment (core business: pensioners/low fixed income earners, expansion into higher NIM micro/small enterprise financing) Compelling growth profile (1H 2010 loan growth 64% to Rp 19.7 trillion).
- High credit quality assets (NPL ratio 0.26%). Room to grow (capital adequacy ratio stands at 16.5% vs 8% limit mandated by Bank Indo). Great management team (led by saavy CEO Jerry Ng). Reputable majority shareholders (TPG)
Energi Mega (ENRG IJ):
- Betting on bakrie, laggard of the bakrie stocks. positive newsflows on its developments. If mgmt executes on Kangean block, stock will be trading on 2-3x EV/EBITA 2011.
Holcim (SMCB IJ):
- Beneficiary of rising cement demand as it has space capacity. Largest operational and financial leverage. At 100% capacity, trading at 8x earnings
CIMB Quick Takes – Bank Tabungan Negara – New scheme on show
Maintain OUTPERFORM. The long-awaited new subsidy scheme was finally launched on 1 Oct 2010 after being postponed from its original launch date of 1 Jul 2010. The government has allocated Rp2.6tr for this programme for the remainder of 2010. This implies a potential additional subsidised-mortgage loan of Rp4.3tr for BTN or circa 11% pts of loan growth in 4Q10 from this subsidised mortgage alone, given that 60% of funding for subsidised loans will be provided by the government. Such a scheme certainly offers BTN great funding support amid the central bank’s recent liquidity tightening initiatives. With funding capacity exceeding our previous expectations, we upgrade our loan growth assumptions for FY11 from 27% to 29% and for FY12 from 25% to 27%, which lifts our FY11-12 EPS estimates by 2-4%. We also roll forward our target price to end-CY11, which raises it from Rp2,250 to Rp2,600 (GGM method, unchanged discount rate of 15.7%). Accelerated loan growth, especially from the subsidised scheme, should provide a near-term catalyst, in our view.
Deutsche Construction Materials Alert - Potential new Chinese cement producer
Hangzhou Cement (HC) relocates its factory to Indonesia
HC, which is partnering with PT Banten Global Development (Regional State Owned), has expressed its plan to invest US$700mn in developing a 2mn tons p.a. cement plant at Banten (Lebak Regency) in Western part of Java. The final decision is still subject to the feasibility study on the raw material reserves and infrastructure availability, which is scheduled for completion in November.
Unlikely to change the competitive landscape outlook
We have been hearing many interested investors in the past years, however, thus far, there is no investment realization in the sector. We attribute this condition to challenges in raw materials reserves, red tapes and local community. For example, even major existing cement company like Semen Gresik has postponed its Greenfield project due to difficulty in procuring necessary landbanks. Based on our channel checks, the main raw materials reserves, limestone and clay, in Banten are not large enough to support a major cement plant (beyond 2.5mn tons p.a.) for a long period of more than 20 years.
Moreover, assuming it manages to complete its cement plant, we still expect this cement company to have a difficult time marketing the cement product. Approximately 80-85% of cement sales is in bag meaning retail market, which is quite brand oriented as the retail customers have a perceived quality attached to certain cement brand such as Indocement and Semen Gresik. Additionally, new players need to develop their own marketing and distribution networks, which are quite expensive.
Reiterate Indocement as our top pick in the sector with TP of Rp21,250
Indocement is a main beneficiary of the buoyant demand, delivering strong earnings growth (+33% p.a. EBITDA growth in 2010-12F) due to ample capacity and a superior business model.
HC, which is partnering with PT Banten Global Development (Regional State Owned), has expressed its plan to invest US$700mn in developing a 2mn tons p.a. cement plant at Banten (Lebak Regency) in Western part of Java. The final decision is still subject to the feasibility study on the raw material reserves and infrastructure availability, which is scheduled for completion in November.
Unlikely to change the competitive landscape outlook
We have been hearing many interested investors in the past years, however, thus far, there is no investment realization in the sector. We attribute this condition to challenges in raw materials reserves, red tapes and local community. For example, even major existing cement company like Semen Gresik has postponed its Greenfield project due to difficulty in procuring necessary landbanks. Based on our channel checks, the main raw materials reserves, limestone and clay, in Banten are not large enough to support a major cement plant (beyond 2.5mn tons p.a.) for a long period of more than 20 years.
Moreover, assuming it manages to complete its cement plant, we still expect this cement company to have a difficult time marketing the cement product. Approximately 80-85% of cement sales is in bag meaning retail market, which is quite brand oriented as the retail customers have a perceived quality attached to certain cement brand such as Indocement and Semen Gresik. Additionally, new players need to develop their own marketing and distribution networks, which are quite expensive.
Reiterate Indocement as our top pick in the sector with TP of Rp21,250
Indocement is a main beneficiary of the buoyant demand, delivering strong earnings growth (+33% p.a. EBITDA growth in 2010-12F) due to ample capacity and a superior business model.
AAA Banking Industry Fold, Check or All In?
Banking stocks have run at speed 48% ytd, outperforming JCI by 1,000 bps. Current regulation imposed by central bank should lead to lower NIM as on funding side, cost of fund increased due to hike in RR while on pricing side, borrowers will seek lower lending rate offered by the banks. To survive, banks must boost their lending volume at cost of potential rise in NPL. Hence banking loan wil grow in higher degree, but valuation seems already to price-in. HOLD.
± Given Potential of Lower NIM, Higher Loan Growth is Set to Be Confirmed
Historically banking share performance inline with banking loan growth. Loan in 1H10 grew at 19% yoy still lower than its historical average 22%. Moreover banking loan growth moved in opposite direction with NIM level. Thus given potential of lower trend in NIM going forward, higher loan growth is set to be confirmed. We estimate loan growth could reach 24% yoy this year. However we are doubting that higher loan growth is worth to be priced in further higher banking stock price. Gap for current share price to banking fair value seems to narrow nevertheless analysts already rolling forward book value to 2011. To roll forward the valuation using 2012 book value is too aggressive in our view as it has too much margin of errors. Thus it should be better for investors to go CHECK and not raising more bets, translates into HOLD in finance industry terms. We remain our buy call on BBRI as it has strong position to capture rapid demand on SME lending, improving CASA, highest ROE and acceptable level of NPL, nevertheless NIM under pressure.
± Cost of Fund Surged in Average by 22 bps.
Under new required reserve from 5% to 8%, we estimate there will be about Rp503 trillion money in terms of M2 (broader medium of exchange) that will be absorbed by the central bank, equal to 23% of total M2. This will squeeze the magnitude of inflation which reached 6.4% in August. On lenders side, higher RR will translate into higher cost of fund, thus should result in lending rate escalation. On average we see an upward cost of fund by 22 bps in our banking stock universe, adjusted with weighted deposits rate and penalty. BDMN and BTPN will be the least beneficiary with cost of fund increase by 25-30 bps nevertheless both LDR level is in the range of the threshold 78%-100% and not given the penalty, due to small portion of CASA ratio and higher deposits rate than peers. BMRI, BBCA and BBNI will get additional penalty at 1.1%, 2.6%, and 1% respectively, however BBCA will be the least affected thanks to its low cost funding structure, cost of fund only increased by 19 bps. As cost of fund increase, lending rate will also be reiterated to higher scale. Realizing the effect on their own policy, central bank will oblige the banks to publish their prime lending rate on newspaper periodically of which borrowers will seek to lower prime lending rate offered by the banks, thus put pressure on profitability margin. To survive and keep growing, bank with high capital relative to their weighted risk on assets and low cost funding structure will deliver strong performance in terms of higher growth which are BMRI, BBCA, BBRI and BBNI.
± BMRI and BBNI Right Issue, Take Advantage from Strong Market Momentum
Current strong market momentum is seen as the best time for the right issue execution, as to why BMRI and BBNI struggle to be the first runner this year. Both stock prices almost and already hit the fair value which gives assurance on the target proceed and discount to the exercise price. Any losing market momentum is risk for both. Under worst scenario, BMRI balance sheet is more sound fundamentally than BBNI as it has stronger capital.
± Given Potential of Lower NIM, Higher Loan Growth is Set to Be Confirmed
Historically banking share performance inline with banking loan growth. Loan in 1H10 grew at 19% yoy still lower than its historical average 22%. Moreover banking loan growth moved in opposite direction with NIM level. Thus given potential of lower trend in NIM going forward, higher loan growth is set to be confirmed. We estimate loan growth could reach 24% yoy this year. However we are doubting that higher loan growth is worth to be priced in further higher banking stock price. Gap for current share price to banking fair value seems to narrow nevertheless analysts already rolling forward book value to 2011. To roll forward the valuation using 2012 book value is too aggressive in our view as it has too much margin of errors. Thus it should be better for investors to go CHECK and not raising more bets, translates into HOLD in finance industry terms. We remain our buy call on BBRI as it has strong position to capture rapid demand on SME lending, improving CASA, highest ROE and acceptable level of NPL, nevertheless NIM under pressure.
± Cost of Fund Surged in Average by 22 bps.
Under new required reserve from 5% to 8%, we estimate there will be about Rp503 trillion money in terms of M2 (broader medium of exchange) that will be absorbed by the central bank, equal to 23% of total M2. This will squeeze the magnitude of inflation which reached 6.4% in August. On lenders side, higher RR will translate into higher cost of fund, thus should result in lending rate escalation. On average we see an upward cost of fund by 22 bps in our banking stock universe, adjusted with weighted deposits rate and penalty. BDMN and BTPN will be the least beneficiary with cost of fund increase by 25-30 bps nevertheless both LDR level is in the range of the threshold 78%-100% and not given the penalty, due to small portion of CASA ratio and higher deposits rate than peers. BMRI, BBCA and BBNI will get additional penalty at 1.1%, 2.6%, and 1% respectively, however BBCA will be the least affected thanks to its low cost funding structure, cost of fund only increased by 19 bps. As cost of fund increase, lending rate will also be reiterated to higher scale. Realizing the effect on their own policy, central bank will oblige the banks to publish their prime lending rate on newspaper periodically of which borrowers will seek to lower prime lending rate offered by the banks, thus put pressure on profitability margin. To survive and keep growing, bank with high capital relative to their weighted risk on assets and low cost funding structure will deliver strong performance in terms of higher growth which are BMRI, BBCA, BBRI and BBNI.
± BMRI and BBNI Right Issue, Take Advantage from Strong Market Momentum
Current strong market momentum is seen as the best time for the right issue execution, as to why BMRI and BBNI struggle to be the first runner this year. Both stock prices almost and already hit the fair value which gives assurance on the target proceed and discount to the exercise price. Any losing market momentum is risk for both. Under worst scenario, BMRI balance sheet is more sound fundamentally than BBNI as it has stronger capital.
Mansek Sep10 inflation: Slowed but remains on upward trend
Consumer price inflation slowed to 0.44% mom or 5.80% yoy in Sep10 from 0.76% mom or 6.44% yoy in Aug10. The figure is below our and consensus estimate of 0.56% mom. Year-to-date inflation has been 5.28%.
Higher prices of clothing (0.07ppt), processed food (0.10ppt), and transportation (0.09ppt) during the festive season were the main drivers of the Sep10 inflation. Raw food inflation softened as the prices of several commodities, such as chili and other spices dropped faster after the fasting month ended.
Although inflation eased in Sep10, we think the bigger trend remains on the upside. Increasing government’s spending later this year and Christmas and year-end celebration will likely stoke inflation again. At this juncture, we maintain our inflation forecast at 6.3% yoy for 2010 and 6.6% for 2011.
We believe tame inflation number in Sep10, particularly was reflected in the stable core inflation that has been steadily hovering around 4.0% yoy since the beginning of the year, would provide credible justification for the central bank to keep the interest rates flat longer. We currently expect the BI rate to start to increase in 2Q11 by 50 bps to 7% by YE11 on stronger growth momentum.
Trade balance was back in the black in Aug10 with US$1.5bn of surplus as imports declined to US$12.2bn from US$12.6bn in Jul10 (but up 25.9% yoy), while exports improved to a new record high of US$13.7bn from $12.5bn (+30% yoy) For comparison, imports was 45.3% on year in Jul10, and exports rose 29.0%. We expect trade surplus will likely remain suppressed, but we don’t expect to see sharp deterioration in the current account balance. Gradual improvement in external demand, led by the Asia region, and pickup in commodity prices likely w! ill balan ce rising demand for imported goods.
Higher prices of clothing (0.07ppt), processed food (0.10ppt), and transportation (0.09ppt) during the festive season were the main drivers of the Sep10 inflation. Raw food inflation softened as the prices of several commodities, such as chili and other spices dropped faster after the fasting month ended.
Although inflation eased in Sep10, we think the bigger trend remains on the upside. Increasing government’s spending later this year and Christmas and year-end celebration will likely stoke inflation again. At this juncture, we maintain our inflation forecast at 6.3% yoy for 2010 and 6.6% for 2011.
We believe tame inflation number in Sep10, particularly was reflected in the stable core inflation that has been steadily hovering around 4.0% yoy since the beginning of the year, would provide credible justification for the central bank to keep the interest rates flat longer. We currently expect the BI rate to start to increase in 2Q11 by 50 bps to 7% by YE11 on stronger growth momentum.
Trade balance was back in the black in Aug10 with US$1.5bn of surplus as imports declined to US$12.2bn from US$12.6bn in Jul10 (but up 25.9% yoy), while exports improved to a new record high of US$13.7bn from $12.5bn (+30% yoy) For comparison, imports was 45.3% on year in Jul10, and exports rose 29.0%. We expect trade surplus will likely remain suppressed, but we don’t expect to see sharp deterioration in the current account balance. Gradual improvement in external demand, led by the Asia region, and pickup in commodity prices likely w! ill balan ce rising demand for imported goods.
Danareksa Valuation Guide: Cheap and oversold
We have identified 5 stocks which have a low PER and upside to VWAP
We have searched for stocks within our coverage which have a low 11F PER and upside to the 1 month Volume Weighted Average Price (VWAP). Our search reveals 5 stocks, namely BWPT, PGAS, SGRO, RALS and DILD . At the end of September, these stocks traded at 11F PER of 11.3x, 12.3x, 12.9x, 13.2x, and 14.9x, respectively. And despite the JCI gains in September, these stocks now trade below their 1 month VWAP, providing upside potential of 0.1%, 1.3%, 1.3%, 4.0% and 3.7% respectively.
The JCI climbed 13.6% in September
The JCI rose by 13.6% in September to 3,501.3, outperforming the MSCI Asia excluding Japan Index which only gained 10.9% in the same period. In US$ terms, the JCI rose 15.4% helped by rupiah strengthening relative to the US dollar. The average 1 month interbank rate declined by 10 bps to 6.44% in September, while the average 10 year government bond yield declined by 63 bps to 7.63%. Liquidity increased in September as the daily average traded value and volume increased by 37.4% and 49.5%, respectively.
5 upgrades and 3 downgrades in September
In September, we raised our target prices for BWPT, INDF, MASA, UNTR, and ASII. The biggest target price increase is 29.6% for BWPT. Our current TP for BWPT is based on a 12-mth 13.5x target multiple – which we believe is justified by the company’s savvy management, robust EPS growth and strong 18.2% 3-yr CAGR production growth. In September, we also made target price downgrades for SGRO, ADRO, and AALI. The biggest target price downgrade is 22.5% for AALI. We cut our FY10-11E EPS estimates for AALI by 39-28% - applying a greater discount to AALI’s average realized selling price amid currency strengthening and downgraded our recommendation to HOLD as the lower production hurts earnings.
We have searched for stocks within our coverage which have a low 11F PER and upside to the 1 month Volume Weighted Average Price (VWAP). Our search reveals 5 stocks, namely BWPT, PGAS, SGRO, RALS and DILD . At the end of September, these stocks traded at 11F PER of 11.3x, 12.3x, 12.9x, 13.2x, and 14.9x, respectively. And despite the JCI gains in September, these stocks now trade below their 1 month VWAP, providing upside potential of 0.1%, 1.3%, 1.3%, 4.0% and 3.7% respectively.
The JCI climbed 13.6% in September
The JCI rose by 13.6% in September to 3,501.3, outperforming the MSCI Asia excluding Japan Index which only gained 10.9% in the same period. In US$ terms, the JCI rose 15.4% helped by rupiah strengthening relative to the US dollar. The average 1 month interbank rate declined by 10 bps to 6.44% in September, while the average 10 year government bond yield declined by 63 bps to 7.63%. Liquidity increased in September as the daily average traded value and volume increased by 37.4% and 49.5%, respectively.
5 upgrades and 3 downgrades in September
In September, we raised our target prices for BWPT, INDF, MASA, UNTR, and ASII. The biggest target price increase is 29.6% for BWPT. Our current TP for BWPT is based on a 12-mth 13.5x target multiple – which we believe is justified by the company’s savvy management, robust EPS growth and strong 18.2% 3-yr CAGR production growth. In September, we also made target price downgrades for SGRO, ADRO, and AALI. The biggest target price downgrade is 22.5% for AALI. We cut our FY10-11E EPS estimates for AALI by 39-28% - applying a greater discount to AALI’s average realized selling price amid currency strengthening and downgraded our recommendation to HOLD as the lower production hurts earnings.
Minggu, 03 Oktober 2010
Deutsche Indo Banking : Easing inflation; a case for no rate hike
Indonesia's central bank (BI) expects that overall inflation in Sept-10 to be 0.5-0.6% MoM - down from a high of 1.57% in July-10 and 0.76% in Aug-10 as price increase for non-core components have eased off. This should translate into Sept-10 yoy inflation of 5.9-6.0% - down from a Aug-10 high of 6.44% yoy. On YTD to Sep-10, inflation would be 5.3-5.4%. Please refer to chart below.
This supports with our benign interest rate outlook for Indonesian banking sector. Already the central bank has indicated to keep overall interest rate at 6.5% (and likely to remain unchanged at least until end of 2010). This bodes well with our overweight call on the indonesian banking sector. Indeed, despite the sector overall recent re-rating, we continue to maintain our overweight call. With structurally low inflation and interest rate environment and combined with pro-loan growth regulatorions, these should drive loan competition driving lending rate lower. As we have argued in previous reports, rate differential between loan and SBI are still high, suggesting room for lending rate reduction of approximately 200bps. In our recent report, we have also highlighted that the lending rate (and NIM) gap amongst
major banks have narrowed. On the back of these, we reiterate BNI/Mandiri/BCA as top picks amongst major banks and Jabar in the small cap space.
This supports with our benign interest rate outlook for Indonesian banking sector. Already the central bank has indicated to keep overall interest rate at 6.5% (and likely to remain unchanged at least until end of 2010). This bodes well with our overweight call on the indonesian banking sector. Indeed, despite the sector overall recent re-rating, we continue to maintain our overweight call. With structurally low inflation and interest rate environment and combined with pro-loan growth regulatorions, these should drive loan competition driving lending rate lower. As we have argued in previous reports, rate differential between loan and SBI are still high, suggesting room for lending rate reduction of approximately 200bps. In our recent report, we have also highlighted that the lending rate (and NIM) gap amongst
major banks have narrowed. On the back of these, we reiterate BNI/Mandiri/BCA as top picks amongst major banks and Jabar in the small cap space.
CLSA CLSA Indonesia quarterly stock picking contest
It’s October 1, the first day of 4Q. That means its time to go through the CLSA Indonesia quarterly stock picking contest again. After underperforming the index in 2Q, it’s good to see that we bounced back beating the JCI once again, even if by a thin margin of 1%. Of course we would like to think that one percent in one quarter is very significant if we annualise the figure + factor in the exponential power of compounding over a long time. But needless to say that the point on annualising + compounding power was conveniently not brought up when we underperformed the index the previous quarter…
So what did we do right this time? With the crazy weather persisting it almost feels like we no longer have a dry season at all - commodity companies (coal + CPO) are having a hard time with their productions. And perhaps the uncertainty of the global outlook also contributed to nobody on our team picking a resource company (there’s coal contractor DOID but I guess it was picked because the stock was so hammered down). It certainly looks like this trade has reversed itself of late; with local investors starting to pile into coal (ITMG) and metals (TINS, INCO, ANTM) as resource valuation and demand-supply is now looking more favourable.
People were also more bullish, mostly staying with small caps (except Bank Negara, Excelcomindo and Jasa Marga). It is interesting to note that nobody picked the best performing stock under our coverage, chicken feed company CPIN, up 135% over the last three months. In our defense, the sales team has been very bullish on CPIN since late last year (when share price was around 1,000, one of the earliest in the market) but underestimated that stocks do overshoot and thus we missed out on the later leg of performance.
Luckily we did pick the second and third best performing stock under our coverage, toll operator Jasa Marga (JSMR IJ) and Bank Negara (BBNI IJ). There should be plenty of upside left in both names. Falling cost of capital, margin expansion, and potentially new land clearing bill bode well for JSMR’s long-term prospects while Bank Negara (BBNI IJ) has parliamentary approval for a rights issue this quarter will give the bank a 5% tax break and give it more ammunition for loan growth. We like the pro-active BNI management and think this could be the next turnaround story. It helps that management will be rewarded for their hard work as the bank is going to do an MSOP soon. Last, BBNI recently sponsored “Inspiring Lecture Series” with Richard Branson from Virgin Group as a speaker. Great move!
As for top picks for 4Q10, we will write more next Monday.
So what did we do right this time? With the crazy weather persisting it almost feels like we no longer have a dry season at all - commodity companies (coal + CPO) are having a hard time with their productions. And perhaps the uncertainty of the global outlook also contributed to nobody on our team picking a resource company (there’s coal contractor DOID but I guess it was picked because the stock was so hammered down). It certainly looks like this trade has reversed itself of late; with local investors starting to pile into coal (ITMG) and metals (TINS, INCO, ANTM) as resource valuation and demand-supply is now looking more favourable.
People were also more bullish, mostly staying with small caps (except Bank Negara, Excelcomindo and Jasa Marga). It is interesting to note that nobody picked the best performing stock under our coverage, chicken feed company CPIN, up 135% over the last three months. In our defense, the sales team has been very bullish on CPIN since late last year (when share price was around 1,000, one of the earliest in the market) but underestimated that stocks do overshoot and thus we missed out on the later leg of performance.
Luckily we did pick the second and third best performing stock under our coverage, toll operator Jasa Marga (JSMR IJ) and Bank Negara (BBNI IJ). There should be plenty of upside left in both names. Falling cost of capital, margin expansion, and potentially new land clearing bill bode well for JSMR’s long-term prospects while Bank Negara (BBNI IJ) has parliamentary approval for a rights issue this quarter will give the bank a 5% tax break and give it more ammunition for loan growth. We like the pro-active BNI management and think this could be the next turnaround story. It helps that management will be rewarded for their hard work as the bank is going to do an MSOP soon. Last, BBNI recently sponsored “Inspiring Lecture Series” with Richard Branson from Virgin Group as a speaker. Great move!
As for top picks for 4Q10, we will write more next Monday.
CLSA kicking the tires, talking to coal miners
Our research associate Mita publishes her third Komodo report today. This is a report with information gathered from on the ground sources. It is intended to provide more color and detail to trends in the marketplace.
Mita talked to local coal traders and found out that they expect at least 10% lower coal output since rain has been battering the region for the past few months. The coal producer association has apparently revised down its forecast by 6% from 320mn tones to only 300mn tones (still 6% higher than FY09 figure) due to unfavorable weather.
In addition to lower coal volumes, we are also gearing up for cost inflation due to particularly higher demurrage costs in 3Q10. This could surprise consensus, in our view. Mita noted that coal miners must pay around US$25-30k/day if the mother vessels do not leave the port on schedule. For barges, miners need to pay US$2,800-3,300/day. And the average waiting time for vessels is 7 days in 3Q10 vs. below 5 days in 2Q10. In term demurrage cost/ton, for some miners it could be twice as much as normal costs.
For investors who want to increase their exposure to Indo coal sector, it might be better to wait until 3Q10 results released later this month.
Other key points from her report today:
Weaker demand for Indonesian coal from China.
India and South Korea want more Indo coal. India will need another 25mt of coals in 2011 and 91mt in 2012 to feed new power plants.
Unusually heavy rainfall has been pouring in parts of Indonesia especially in Kalimantan, disturbing coal mining activities and cutting output.
We expect rain to continue falling until 4Q10 and further cutting down coal production.
Mita talked to local coal traders and found out that they expect at least 10% lower coal output since rain has been battering the region for the past few months. The coal producer association has apparently revised down its forecast by 6% from 320mn tones to only 300mn tones (still 6% higher than FY09 figure) due to unfavorable weather.
In addition to lower coal volumes, we are also gearing up for cost inflation due to particularly higher demurrage costs in 3Q10. This could surprise consensus, in our view. Mita noted that coal miners must pay around US$25-30k/day if the mother vessels do not leave the port on schedule. For barges, miners need to pay US$2,800-3,300/day. And the average waiting time for vessels is 7 days in 3Q10 vs. below 5 days in 2Q10. In term demurrage cost/ton, for some miners it could be twice as much as normal costs.
For investors who want to increase their exposure to Indo coal sector, it might be better to wait until 3Q10 results released later this month.
Other key points from her report today:
Weaker demand for Indonesian coal from China.
India and South Korea want more Indo coal. India will need another 25mt of coals in 2011 and 91mt in 2012 to feed new power plants.
Unusually heavy rainfall has been pouring in parts of Indonesia especially in Kalimantan, disturbing coal mining activities and cutting output.
We expect rain to continue falling until 4Q10 and further cutting down coal production.
CIMB Company Update – Total Bangun Persada – Higher margin outlook
Maintain Outperform on TOTL with a higher target price of Rp315 (from Rp300), following our 14-30% earnings upgrade and the application of a lower discount of 20% (from 30%) to our market P/E target of 15x. We are now projecting a 3-year EPS CAGR of 30%, up from 18% on the back of: 1) higher margins as its direct contracting scheme appears to be working well, spurred by a stronger-than-expected property recovery; and 2) the impending launch of its Bali property project in Oct 10 with sales recognition in 2011/12, another margin booster. Having underperformed its peers of late due possibly to its below-average growth outlook, TOTL’s share price now deserves a re-rating, in our view, on margin catalysts.
Credis Suisse PALM OIL SECTOR: Relative Underperformance in the past 3 months - reit Take Profit AALI
CS is forecasting average CPO price of RM2,600/t for 2010F and RM2,300/t for 2011F. Dec-2010 CPO Futures is currently RM2,700/t. We continue to recommend Take Profit AALI (@Rp21,700- 21.7x 2011F PER), while maintaining Hold SGRO (@Rp2,700- 13.6x 2011F PER), LSIP (@Rp9,950- 16.2x 2011F PER) and IFAR SP (@SGD2.26- 15.5x 2011F PER).
· Teddy Oetomo (Daily attached): While Indonesian CPO stocks have delivered positive absolute performance, they have exhibited negative relative performance in the past one-three months. With the exception of SGRO, most Indonesian CPO producers are trading in line or above their Malaysian counterparts.
· We are seeing rapid recovery in CPO production. While 2010 production is unlikely to show strong growth due to low base effect in early 2010, we believe the recovery trend may continue, resulting in strong 2011 CPO output. In turn, we foresee risk of softer CPO price in 2011. We are starting to see CPO prices flatten in the past two months, potentially reflecting anticipation of stronger output in 2011, combined with relatively soft demand due to global economic conditions.
· Teddy Oetomo (Daily attached): While Indonesian CPO stocks have delivered positive absolute performance, they have exhibited negative relative performance in the past one-three months. With the exception of SGRO, most Indonesian CPO producers are trading in line or above their Malaysian counterparts.
· We are seeing rapid recovery in CPO production. While 2010 production is unlikely to show strong growth due to low base effect in early 2010, we believe the recovery trend may continue, resulting in strong 2011 CPO output. In turn, we foresee risk of softer CPO price in 2011. We are starting to see CPO prices flatten in the past two months, potentially reflecting anticipation of stronger output in 2011, combined with relatively soft demand due to global economic conditions.
Credis Suisse PERUSAHAAN GAS (PGAS): Minimal impact leakage in Transmission– Buy
This leakage is minimal impact to its Transmission earnings. At Rp3,875- PGAS is trading on 14.0x-12.7x 2010F-11F PER, 4.3% 2011F Dividend Yield, and implying 37% upside to DCF Rp5,300. We reiterate Buy PGAS as laggard with Catalyst mainly from volume growth as Distribution Tariff increase is expected in 2012F after April-2010 +15% Distribution Tariff increase
· PGAS IR (Press Release attached): The leakage was under control hence the status was lowered from emergency to recovery status. Repair procedure is expected to take a few days. PGN is currently assessing any financial impact but does not expect material impact. Grissik – Duri transmission pipeline has started its operation since 1998 to deliver natural gas from ConocoPhillips’ gas field in Grissik, South Sumatera to Chevron Pacific Indonesia (CPI) station facilities in Duri. The 536 km transmission pipeline is owned and operated by Transgasindo, a joint venture of PT Perusahaan Gas Negara (Persero) Tbk 59.87%, Transasia Pipeline Pvt. Ltd (Transasia) 40% and Yayasan Kesejahteraan Pegawai dan Pensiunan Gas Negara 0.13%. Further, Transasia is a consortium of leading oil and gas enterprises consisting of Conoco Indonesia Holding Ltd., Petronas International Corporation Ltd., Talisman Transgasindo Ltd. dan SPC Indo-Pipeline Co. Ltd.
· Fonny Surya: This pipe is transporting approximately 420 mmscfd of 3rd party's gas and it is currently closed down for further investigation and recovery procedure. In the past, it normally took PGAS only few days to fix the problem. Assuming no more than 2 weeks for the pipe to resume to normal operation, financial impact is minimal (less than 0.5% of earnings). We thus reiterate our outperform rating on PGAS. Share price has underperformed while fundamental remains strong given strong demand and potential additional volume secured through LNG, M&A and various other gas suppliers.
· PGAS IR (Press Release attached): The leakage was under control hence the status was lowered from emergency to recovery status. Repair procedure is expected to take a few days. PGN is currently assessing any financial impact but does not expect material impact. Grissik – Duri transmission pipeline has started its operation since 1998 to deliver natural gas from ConocoPhillips’ gas field in Grissik, South Sumatera to Chevron Pacific Indonesia (CPI) station facilities in Duri. The 536 km transmission pipeline is owned and operated by Transgasindo, a joint venture of PT Perusahaan Gas Negara (Persero) Tbk 59.87%, Transasia Pipeline Pvt. Ltd (Transasia) 40% and Yayasan Kesejahteraan Pegawai dan Pensiunan Gas Negara 0.13%. Further, Transasia is a consortium of leading oil and gas enterprises consisting of Conoco Indonesia Holding Ltd., Petronas International Corporation Ltd., Talisman Transgasindo Ltd. dan SPC Indo-Pipeline Co. Ltd.
· Fonny Surya: This pipe is transporting approximately 420 mmscfd of 3rd party's gas and it is currently closed down for further investigation and recovery procedure. In the past, it normally took PGAS only few days to fix the problem. Assuming no more than 2 weeks for the pipe to resume to normal operation, financial impact is minimal (less than 0.5% of earnings). We thus reiterate our outperform rating on PGAS. Share price has underperformed while fundamental remains strong given strong demand and potential additional volume secured through LNG, M&A and various other gas suppliers.
Credis Suisse ECONOMICS: Raising 2010F-11F GDP, Inflation - Policy rate forecasts
Robert has raised Indonesia Economics forecasts to 6.0%-5.8% GDP Growth, 7.5%-7.0% year-end CPI, and 6.75%-7.50% year-end Overnight SBI rate for 2010F-2011F respectively.
· Robert Prior-Wandesforde ( Indonesia Section of 4Q Emerging Markets Quarterly Report attached): Inflation has picked up. Having hit a multi-year low of 2.4% in November last year, the headline rate of consumer price inflation rose to 6.4% in August. With the exception of India , this was the highest rate in Asia, although it was still below Indonesia ’s 6.9% average inflation rate of the last ten years. The bulk of the pick-up reflected resurgent food price inflation, which rose 10 percentage points in the eight months to end-August, thanks largely to unfavourable weather conditions, while the core rate only crept up to 4.2% in August from a low of 3.6% in March. Although core inflation does not represent a huge concern right now, we expect it to continue moving higher, reaching 6%-7% by early next year. Two factors are important here. First, the prospect of higher food price inflation leaking through into core elements of the CPI. Second, the pick-up in economic growth, which is likely to prompt companies to expand their profit margins.
· Bank Indonesia ’s (BI) reaction. The central bank has so far responded to the rise in price pressures by squeezing liquidity – raising the Statutory Reserve Requirement (SRR) by a sizeable three percentage points from 7.5% to 10.5%, with effect from 1 November. We expect things to be different by the end of this year, however, and we retain our forecast of one 25bps rise in 2010, followed by a total of 75bps in 2011. At its September meeting, Bank Indonesia also indicated that from 1 March 2011 it would link moves in the SRR to the banking sector’s Loan-Deposit Ratio (LDR), stating that the “ideal” LDR was 78%-100%.
· What about growth? At 6.2% in the second quarter, Indonesian GDP growth was the highest it has been since the third quarter of 2008, when the downturn began, and compares with an average GDP growth rate of 5.1% since 2000. Nevertheless, it is perhaps a little disappointing that the economy has not strengthened more than this, not least for a president hoping to achieve average GDP growth of 6.6% over the remaining four years of his term.
· A public sector boost to growth? According to its draft budget for 2011, the government is planning to boost infrastructure spending by 28%, which would have short-term as well as longer-term, more dynamic benefits for economic activity.
· The bottom line. Having underperformed the region over the last 12-18 months, we believe Indonesia is likely to see stronger GDP growth than most in 2011, slowing only slightly from the likely pace of 2010. However, the country is a long way from achieving 6.5%-7% growth on a sustained basis. The domestic private sector is in a good position to invest and the country is attracting more interest from abroad, but the speed of reform is slow and, in any case, it takes many years for structural change to have an impact on an economy’s trend rate of growth. It is crucial that Bank Indonesia does not take risks with inflation as this would badly damage sentiment, in our view, delaying the country’s likely move to investment grade status.
· Robert Prior-Wandesforde ( Indonesia Section of 4Q Emerging Markets Quarterly Report attached): Inflation has picked up. Having hit a multi-year low of 2.4% in November last year, the headline rate of consumer price inflation rose to 6.4% in August. With the exception of India , this was the highest rate in Asia, although it was still below Indonesia ’s 6.9% average inflation rate of the last ten years. The bulk of the pick-up reflected resurgent food price inflation, which rose 10 percentage points in the eight months to end-August, thanks largely to unfavourable weather conditions, while the core rate only crept up to 4.2% in August from a low of 3.6% in March. Although core inflation does not represent a huge concern right now, we expect it to continue moving higher, reaching 6%-7% by early next year. Two factors are important here. First, the prospect of higher food price inflation leaking through into core elements of the CPI. Second, the pick-up in economic growth, which is likely to prompt companies to expand their profit margins.
· Bank Indonesia ’s (BI) reaction. The central bank has so far responded to the rise in price pressures by squeezing liquidity – raising the Statutory Reserve Requirement (SRR) by a sizeable three percentage points from 7.5% to 10.5%, with effect from 1 November. We expect things to be different by the end of this year, however, and we retain our forecast of one 25bps rise in 2010, followed by a total of 75bps in 2011. At its September meeting, Bank Indonesia also indicated that from 1 March 2011 it would link moves in the SRR to the banking sector’s Loan-Deposit Ratio (LDR), stating that the “ideal” LDR was 78%-100%.
· What about growth? At 6.2% in the second quarter, Indonesian GDP growth was the highest it has been since the third quarter of 2008, when the downturn began, and compares with an average GDP growth rate of 5.1% since 2000. Nevertheless, it is perhaps a little disappointing that the economy has not strengthened more than this, not least for a president hoping to achieve average GDP growth of 6.6% over the remaining four years of his term.
· A public sector boost to growth? According to its draft budget for 2011, the government is planning to boost infrastructure spending by 28%, which would have short-term as well as longer-term, more dynamic benefits for economic activity.
· The bottom line. Having underperformed the region over the last 12-18 months, we believe Indonesia is likely to see stronger GDP growth than most in 2011, slowing only slightly from the likely pace of 2010. However, the country is a long way from achieving 6.5%-7% growth on a sustained basis. The domestic private sector is in a good position to invest and the country is attracting more interest from abroad, but the speed of reform is slow and, in any case, it takes many years for structural change to have an impact on an economy’s trend rate of growth. It is crucial that Bank Indonesia does not take risks with inflation as this would badly damage sentiment, in our view, delaying the country’s likely move to investment grade status.
CLSA Ramayana (RALS IJ) downgrade earnings and rec
Swati is downgrading low-end retailer Ramayana’s earnings by 15-20% for 2010-12 and brings down recommendation by a notch from BUY to Outperform.
After a disastrous 1H2010, performance in 3Q is not likely to improve much either as sales were already 7% below internal company target. Also, RALS is far behind its own schedule to launch new stores. Out of the planned six new stores before Ramadan, only three were opened. Two non-productive stores were closed so net store addition was only one!
Seems like these days it is very fashionable to blame things that go wrong on heavy rain. Indeed, the crazy weather has affected coal miners, coal contractors and cement producers. Rain has even provided some people with a great excuse to come in late for work (clearly none of us here in this office). But should it also affect Ramayana’s sales and launching of new stores? Hmmmm…..
Ramayana has grown its earnings by a tiny 0.6% Cagr since 2001 (excluding 2008) and EBIT margins continue to trend down. Its supermarket division remains problematic, so operational turnaround has remained elusive.
Swati was perhaps a bit generous. On her new numbers, Ramayana is trading at 16x next years earnings. She is also almost 20% below consensus so perhaps more downgrades from the street. Perhaps it should be a downright SELL?
After all, investors have other consumer names to choose from. We like Gudang Garam (GGRM IJ), Ace Hardware (ACES IJ) and Mitra Adiperkasa (MAPI IJ).
Key points from the report:
· After a disappointing 1H10, Ramayana’s 3Q10 is also likely to be weaker than expected. Heavier rains were cited as one of the reasons for lower than expected sales.
· The 3Q10 sales were 7% below internal target and Ramayana has only added three stores so far vs. guidance of six. So far this year, net store addition is only one as Ramayana closed two stores.
· We cut earnings by 15-20% adjusting for higher costs and lower.
· That said, Indonesia’s country risk premiums are reducing and consumer stocks are getting re-rated.
· Ramayana is still trading at 14% discount to regional peers with 15% ROE, zero debt and a possible M&A angle. Therefore we remain on the positive side. Outperform
After a disastrous 1H2010, performance in 3Q is not likely to improve much either as sales were already 7% below internal company target. Also, RALS is far behind its own schedule to launch new stores. Out of the planned six new stores before Ramadan, only three were opened. Two non-productive stores were closed so net store addition was only one!
Seems like these days it is very fashionable to blame things that go wrong on heavy rain. Indeed, the crazy weather has affected coal miners, coal contractors and cement producers. Rain has even provided some people with a great excuse to come in late for work (clearly none of us here in this office). But should it also affect Ramayana’s sales and launching of new stores? Hmmmm…..
Ramayana has grown its earnings by a tiny 0.6% Cagr since 2001 (excluding 2008) and EBIT margins continue to trend down. Its supermarket division remains problematic, so operational turnaround has remained elusive.
Swati was perhaps a bit generous. On her new numbers, Ramayana is trading at 16x next years earnings. She is also almost 20% below consensus so perhaps more downgrades from the street. Perhaps it should be a downright SELL?
After all, investors have other consumer names to choose from. We like Gudang Garam (GGRM IJ), Ace Hardware (ACES IJ) and Mitra Adiperkasa (MAPI IJ).
Key points from the report:
· After a disappointing 1H10, Ramayana’s 3Q10 is also likely to be weaker than expected. Heavier rains were cited as one of the reasons for lower than expected sales.
· The 3Q10 sales were 7% below internal target and Ramayana has only added three stores so far vs. guidance of six. So far this year, net store addition is only one as Ramayana closed two stores.
· We cut earnings by 15-20% adjusting for higher costs and lower.
· That said, Indonesia’s country risk premiums are reducing and consumer stocks are getting re-rated.
· Ramayana is still trading at 14% discount to regional peers with 15% ROE, zero debt and a possible M&A angle. Therefore we remain on the positive side. Outperform
Danareksa Multistrada Arah Sarana (MASA IJ, Rp370 BUY) Upsizing
BUY with TP of Rp450
We maintain our BUY recommendation on MASA with a higher Target Price of Rp450, implying 15.4x-11.7x 10F-11F PER. Our higher target price reflects: 1) the fact that the dilution from the warrants is less than expected and 2) the roll-over of our DCF base year to 2011. Looking ahead, revenues should grow briskly – by 35% CAGR in the next 2 years in our estimates - supported by the company’s rapid expansion. Currently the stock trades at 13.0x-9.3x 10F-11F PER, or much lower than our estimate of the market 10F-11F PER of 17.4x-15.1x.
Bright sales outlook for 4Q10
On a QoQ basis, we expect sales to be relatively stable in 3Q10 before picking up significantly in 4Q10. Note that sales in 3Q10 were subdued as a result of the long Lebaran holidays. Yet even so, the 3Q10 sales volume should still be around the same level as in 2Q10 when a program was instigated to improve the company’s operations management. The bright sales outlook for 4Q10 is supported by 1) 10% more operational days than in 3Q10, 2) higher production capacity to meet the higher demand and 3) the company’s plan to further increase selling prices in response to rising rubber prices. An indication that higher ASP are to come is reflected in the news that the Goodyear Tire & Rubber Co., a world leading tire manufacturer, has plans to hike its retail tire prices in the US and Canada by as much as 6 percent in October.
Dilution is less than expected
The warrants have expired and only 0.7% have been exercised – good news for the stock in our view. The exercise price was only Rp 250 per share, or a 37.5% discount to our previous NAV/share estimate. Thus, the fact that fewer warrants have been exercised than previously expected helps to increase our NAV/share estimate. The current number of shares has now reached 6.12 billion - or 6.7% less than our previous estimate. Yes, the cash collected from the exercising of the warrants is much less than expected, yet supported by its loan facility, we are confident the company can fulfill the cash requirement for its operations and capital expenditures.
New capacity to come on-stream
By December this year, the production rate should increase to around 19,000 Passenger Car Radial Tires (PCR)/day and 12,000 Motorcycle Tires/day, or up from the current production rate of 16,800 PCR/day and 7,990 motorcycle Tires/day. This increase in the production rate is supported by the capacity expansion and the orders received for the next three months. As a result of the expansion, the company has trained and increased its workforce to around 2,500 employees from only around 1,800 in May this year. Commissioning of the new capacity is expected to take place in October. The production rate is also expected to rise further as the company increases its production capacity to 28,500 PCR/day and to 16,000 motorcycle tires/day by early 2011.
We maintain our BUY recommendation on MASA with a higher Target Price of Rp450, implying 15.4x-11.7x 10F-11F PER. Our higher target price reflects: 1) the fact that the dilution from the warrants is less than expected and 2) the roll-over of our DCF base year to 2011. Looking ahead, revenues should grow briskly – by 35% CAGR in the next 2 years in our estimates - supported by the company’s rapid expansion. Currently the stock trades at 13.0x-9.3x 10F-11F PER, or much lower than our estimate of the market 10F-11F PER of 17.4x-15.1x.
Bright sales outlook for 4Q10
On a QoQ basis, we expect sales to be relatively stable in 3Q10 before picking up significantly in 4Q10. Note that sales in 3Q10 were subdued as a result of the long Lebaran holidays. Yet even so, the 3Q10 sales volume should still be around the same level as in 2Q10 when a program was instigated to improve the company’s operations management. The bright sales outlook for 4Q10 is supported by 1) 10% more operational days than in 3Q10, 2) higher production capacity to meet the higher demand and 3) the company’s plan to further increase selling prices in response to rising rubber prices. An indication that higher ASP are to come is reflected in the news that the Goodyear Tire & Rubber Co., a world leading tire manufacturer, has plans to hike its retail tire prices in the US and Canada by as much as 6 percent in October.
Dilution is less than expected
The warrants have expired and only 0.7% have been exercised – good news for the stock in our view. The exercise price was only Rp 250 per share, or a 37.5% discount to our previous NAV/share estimate. Thus, the fact that fewer warrants have been exercised than previously expected helps to increase our NAV/share estimate. The current number of shares has now reached 6.12 billion - or 6.7% less than our previous estimate. Yes, the cash collected from the exercising of the warrants is much less than expected, yet supported by its loan facility, we are confident the company can fulfill the cash requirement for its operations and capital expenditures.
New capacity to come on-stream
By December this year, the production rate should increase to around 19,000 Passenger Car Radial Tires (PCR)/day and 12,000 Motorcycle Tires/day, or up from the current production rate of 16,800 PCR/day and 7,990 motorcycle Tires/day. This increase in the production rate is supported by the capacity expansion and the orders received for the next three months. As a result of the expansion, the company has trained and increased its workforce to around 2,500 employees from only around 1,800 in May this year. Commissioning of the new capacity is expected to take place in October. The production rate is also expected to rise further as the company increases its production capacity to 28,500 PCR/day and to 16,000 motorcycle tires/day by early 2011.
Mandiri Sekuritas Key take away from dinner gathering with Finance Minister
We attended dinner gathering with Finance Minister Agus Martowardojo as the guest speaker. Here are some of the key take away:
The government commits to provide fiscal stimulus in order to finance economic expansion. Yet, fiscal deficit is likely to be kept at 1.7% of GDP in 2011 to have a healthy and sustainable fiscal policy. The 2011 deficit level is higher than expected budget deficit realization in 2010 of 1.5% of GDP.
The minister acknowledges the main challenge would be slow infrastructure development. To this front, he believes Indonesia, currently, is more ready to accelerate the development through Public Partnership (PPP) framework. Private participation is needed since the government can only finance around 36% of total infrastructure spending (Rp1,400tn) in the next five years.
Besides providing government guarantee and infrastructure financing support on infrastructure projects, he also expects that a new land acquisition for public usage bill will be issued this year. The bill would help accelerating the infrastructure development.
The government considers providing tax holiday to certain downstream industries, particularly palm oil, chocolate and rubber as well as to companies investing in basic industries.
The government commits to provide fiscal stimulus in order to finance economic expansion. Yet, fiscal deficit is likely to be kept at 1.7% of GDP in 2011 to have a healthy and sustainable fiscal policy. The 2011 deficit level is higher than expected budget deficit realization in 2010 of 1.5% of GDP.
The minister acknowledges the main challenge would be slow infrastructure development. To this front, he believes Indonesia, currently, is more ready to accelerate the development through Public Partnership (PPP) framework. Private participation is needed since the government can only finance around 36% of total infrastructure spending (Rp1,400tn) in the next five years.
Besides providing government guarantee and infrastructure financing support on infrastructure projects, he also expects that a new land acquisition for public usage bill will be issued this year. The bill would help accelerating the infrastructure development.
The government considers providing tax holiday to certain downstream industries, particularly palm oil, chocolate and rubber as well as to companies investing in basic industries.
CIMB Strategy – Market Outlook – Beyond the 2010 looking glass
We introduce our end-CY11 index target of 4,249, set at 16x CY12 P/E, which is about a 10% premium to the markets mid-cycle valuations, while maintaining our end-CY10 index target of 3,430, bottom up and implying 15x CY11 earnings. Our Overweight position remains premised on: 1) earnings-growth estimates of 19% and 15% for FY11-12, with upside potential; and 2) room for moderation in the market risk premium, at 8% presently. On the other hand, near-term risks are: 1) inflation (whether it would subside or spike again); and 2) 3Q10 earnings (whether they can live up to expectations). Our sector picks remain consumer and infrastructure-related.
DBS Coal: Heating up
• Continuous rainfall may drive 4Q coal price higher
• Expect positive newsflow on M&A activities and infrastructure upgrade
• Attractive entry point - weak 2Q earnings priced into current valuations
• ADRO is our top pick for its solid production track record; reiterate Buy for PTBA and Hold for ITMG
Attractive entry point. Share prices of Indonesian coal stocks grew 10% on average in 3Q but under-performed the IDX by an average of 11% due to (i) weak 2Q10
earnings, (ii) flat coal prices, and (iii) delay in M&A announcement. At 13xFY11 PE for 15% FY09-12 net profit CAGR, we believe the weak 2Q earnings have been priced
in, while 2H and FY11F earnings growth are intact with output and ASP growth from new mines and infrastructure improvements. We expect M&A activities to be near term
catalysts, with potential upside from higher coal prices led by stronger 4Q demand and heavy rainfall.
Higher coal prices if heavy rainfall continues. The Indonesian Meteorology, Climatology and Geophysics Agency forecasts the wet weather in Sumatera and Kalimantan areas will last till Oct 2010. Production
shortfall due to heavy rainfall will support coal prices as Indonesia contributes 30% of total seaborne trade. We expect coal prices to trade at a higher range of US$95-US$100/ ton in 2H10 (US$94 average over the last 3 months), supported by stronger 4Q winter demand and rising domestic demand from newly built power plants.
Poised for new acquisitions. Healthy balance sheets (net cash for PTBA and ITMG; 0.3x net gearing for ADRO) support longer term production growth. We expect positive newsflow on M&A activities as ADRO is in talks to acquire Bhakti Energy Persada (BEP), which belongs to one of its shareholders, and PTBA is eyeing two coal assets in Kalimantan. Delays in the acquisition plans could lead to higher dividends to shareholders.
Maintain Buy for ADRO and PTBA. Maintain Buy for ADRO for resilient output growth and large asset base. PTBA is a long term Buy for its attractive growth prospects from logistic de-bottlenecking. Maintain Hold for ITMG as slow progress of its acquisition plan could hamper future growth
prospects. Current valuation is also not reflective of the long-term risks of its depleting reserve.
• Expect positive newsflow on M&A activities and infrastructure upgrade
• Attractive entry point - weak 2Q earnings priced into current valuations
• ADRO is our top pick for its solid production track record; reiterate Buy for PTBA and Hold for ITMG
Attractive entry point. Share prices of Indonesian coal stocks grew 10% on average in 3Q but under-performed the IDX by an average of 11% due to (i) weak 2Q10
earnings, (ii) flat coal prices, and (iii) delay in M&A announcement. At 13xFY11 PE for 15% FY09-12 net profit CAGR, we believe the weak 2Q earnings have been priced
in, while 2H and FY11F earnings growth are intact with output and ASP growth from new mines and infrastructure improvements. We expect M&A activities to be near term
catalysts, with potential upside from higher coal prices led by stronger 4Q demand and heavy rainfall.
Higher coal prices if heavy rainfall continues. The Indonesian Meteorology, Climatology and Geophysics Agency forecasts the wet weather in Sumatera and Kalimantan areas will last till Oct 2010. Production
shortfall due to heavy rainfall will support coal prices as Indonesia contributes 30% of total seaborne trade. We expect coal prices to trade at a higher range of US$95-US$100/ ton in 2H10 (US$94 average over the last 3 months), supported by stronger 4Q winter demand and rising domestic demand from newly built power plants.
Poised for new acquisitions. Healthy balance sheets (net cash for PTBA and ITMG; 0.3x net gearing for ADRO) support longer term production growth. We expect positive newsflow on M&A activities as ADRO is in talks to acquire Bhakti Energy Persada (BEP), which belongs to one of its shareholders, and PTBA is eyeing two coal assets in Kalimantan. Delays in the acquisition plans could lead to higher dividends to shareholders.
Maintain Buy for ADRO and PTBA. Maintain Buy for ADRO for resilient output growth and large asset base. PTBA is a long term Buy for its attractive growth prospects from logistic de-bottlenecking. Maintain Hold for ITMG as slow progress of its acquisition plan could hamper future growth
prospects. Current valuation is also not reflective of the long-term risks of its depleting reserve.
DBS Sampoerna Agro: Buy; Rp2,700; TP Rp3,250; SGRO IJ
To Build Sago Processing Factory
Bisnis Indonesia today reported that SGRO will start the construction of its Tebing Tinggi Island (Riau) sago processing factory in October 2010. The factory is expected to be commissioned next year; and will have production capacity of 100 MT per day. The construction cost was said to range between US$7m and US$8m. The group's sago plantation covers 21,620ha, of which 12,000ha have been planted. The plants are ready for harvesting by the end of 2011.
SGRO is currently focusing on rehabilitating the sago estates and is not expanding the planted area. The cost for this rehabilitation is c.US$5m, which is funded by bank loan.
SGRO has also increased their stake in PT National Sago Prima from 75.5% to 91.85% as part of their diversification plan from crude palm oil business.
We have not yet imputed contribution from this venture, as it will not come of stream in the near term and is relatively insignificant relative to the group's consolidated earnings. For now, we are maintaining our forecasts, rating and TP for the stock.
Bisnis Indonesia today reported that SGRO will start the construction of its Tebing Tinggi Island (Riau) sago processing factory in October 2010. The factory is expected to be commissioned next year; and will have production capacity of 100 MT per day. The construction cost was said to range between US$7m and US$8m. The group's sago plantation covers 21,620ha, of which 12,000ha have been planted. The plants are ready for harvesting by the end of 2011.
SGRO is currently focusing on rehabilitating the sago estates and is not expanding the planted area. The cost for this rehabilitation is c.US$5m, which is funded by bank loan.
SGRO has also increased their stake in PT National Sago Prima from 75.5% to 91.85% as part of their diversification plan from crude palm oil business.
We have not yet imputed contribution from this venture, as it will not come of stream in the near term and is relatively insignificant relative to the group's consolidated earnings. For now, we are maintaining our forecasts, rating and TP for the stock.
DBS Bank Central Asia: Hold; Rp6,800; TP Rp6,200; BBCA IJ
Commencing operation of subsidiary in two-wheeler financing
BBCA officially slated operation of PT Central Sentosa Finance (CSF), a subsidiary in two-wheeler financing this month with initial capital of Rp100bn. In the first phase, CSF would extend financing through five branches in Jakarta , Banten, Batam and Sumatra . BBCA funds CSF in the format of 25% equity participation through BCA Finance, as regulated by BI that banks could invest in a company with operation of more than two years. As a differentiation strategy, BBCA targets to charge slightly lower interest than current prevailing market rates of 26%-30% for two-wheeler financing business.
BBCA officially slated operation of PT Central Sentosa Finance (CSF), a subsidiary in two-wheeler financing this month with initial capital of Rp100bn. In the first phase, CSF would extend financing through five branches in Jakarta , Banten, Batam and Sumatra . BBCA funds CSF in the format of 25% equity participation through BCA Finance, as regulated by BI that banks could invest in a company with operation of more than two years. As a differentiation strategy, BBCA targets to charge slightly lower interest than current prevailing market rates of 26%-30% for two-wheeler financing business.
NISP Barito Pacific income plunges by 93.5% YoY (BRPT, Rp1,300)
· Barito Pacific reported a net income of Rp24.9bn, plunging down by 93.5% YoY from Rp386.2bn the previous year despite that sales were up by 27.7% YoY to Rp 8.78tn.
· Higher growth in COGS made the company’s gross profit to decrease by 27.7% to Rp747.3bn. As such this seeped down to the bottom line.
· On a quarterly basis, the decline in performance was even more evident, as revenue decreased by 36.1% QoQ to Rp3.42tn. The company’s main revenue comes from petrochemicals business, which was hurt by a drop in polypropylene prices that have dropped by 17% in the second quarter to US$0.56/lb. As such bottom line was in the red with a net loss of Rp92.1bn in 2Q10.
· Higher growth in COGS made the company’s gross profit to decrease by 27.7% to Rp747.3bn. As such this seeped down to the bottom line.
· On a quarterly basis, the decline in performance was even more evident, as revenue decreased by 36.1% QoQ to Rp3.42tn. The company’s main revenue comes from petrochemicals business, which was hurt by a drop in polypropylene prices that have dropped by 17% in the second quarter to US$0.56/lb. As such bottom line was in the red with a net loss of Rp92.1bn in 2Q10.
NISP Flat growth for Japfa Comfeed (JPFA, Rp4,400)
· Japfa Comfeed revenue declined by only 3.3% YoY to Rp6.69tn in 1H10, and net income only increased by 3.8% YoY to Rp264.9bn in 1H10.
· The company’s gross profit was actually up by 10.2% YoY to Rp1.27tn thanks to a decline in cost of goods, however higher G&A expenses made operating profit decline by 10.0% YoY. The company was saved by lower tax expenses making net profit relatively flat.
· However on a quarterly basis, net income slumped by 40.8% QoQ as derivative losses of Rp37.7bn took a chunk out of operating income which was relatively flat with Rp248.8bn in 2Q10.
· The company’s gross profit was actually up by 10.2% YoY to Rp1.27tn thanks to a decline in cost of goods, however higher G&A expenses made operating profit decline by 10.0% YoY. The company was saved by lower tax expenses making net profit relatively flat.
· However on a quarterly basis, net income slumped by 40.8% QoQ as derivative losses of Rp37.7bn took a chunk out of operating income which was relatively flat with Rp248.8bn in 2Q10.
NISP Semen Gresik chooses debt to finance project (SMGR, Rp9,800)
· Semen Gresik prefers to optimize loans from banks of up to Rp3.54tn in order to finance its Tonasa V project. This project will bear 2.5mn tons/year of installed production capacity and will be supported by 2x35 MW power plants.
· Semen Gresik aims to complete this US$412mn project somewhere in 4Q11, and hence, to enjoy the contribution in the following years. From total of US$412mn, US$300mn of which is allocated for cement plant and the remaining US$112 for the power plant.
· Beside Tonasa V, Semen Gresik is also aims to complete Tuban IV project in 2012, this project holds same capacity with Tonasa V with total investment cost reaching US$712mn.
· Semen Gresik stands a at net cash position that enables the company to optimize external financing to finance its projects. Currently SMGR is trading at 2011F PER of 14.5x and EV/EBITDA of 8.6x.
· Semen Gresik aims to complete this US$412mn project somewhere in 4Q11, and hence, to enjoy the contribution in the following years. From total of US$412mn, US$300mn of which is allocated for cement plant and the remaining US$112 for the power plant.
· Beside Tonasa V, Semen Gresik is also aims to complete Tuban IV project in 2012, this project holds same capacity with Tonasa V with total investment cost reaching US$712mn.
· Semen Gresik stands a at net cash position that enables the company to optimize external financing to finance its projects. Currently SMGR is trading at 2011F PER of 14.5x and EV/EBITDA of 8.6x.
NISP Bumi Resources appoints three underwriter for bonds issuance (BUMI, Rp2,100, Buy)
· It is reported that Bumi Resources has appointed three underwriters to help the company in issuing US$ bonds. This news is in response to Bumi’s US$430mn bonds that will mature this year.
· The company holds US$300.0mn of convertible bonds II that is puttable starting in 25 November 2010 with put price at 100.77%. The price will be higher if the company exercises its option on its next agreed schedule on 25 May 2012 (102.01%) and 25 November 2014 (104.33%)
· Bumi has not given further details or confirmation on this news; however, we foresee the company will refinance these bonds with other non conventional issuance.
· Furthermore, we are currently waiting for Bumi’s plan on its non pre-emptive right issuance as the company said this action will be done no later than 30 September 2010.
· Currently, BUMI is trading at 2011F PER of 13.4x and EV/EBITDA of 5.7x, Buy.
· The company holds US$300.0mn of convertible bonds II that is puttable starting in 25 November 2010 with put price at 100.77%. The price will be higher if the company exercises its option on its next agreed schedule on 25 May 2012 (102.01%) and 25 November 2014 (104.33%)
· Bumi has not given further details or confirmation on this news; however, we foresee the company will refinance these bonds with other non conventional issuance.
· Furthermore, we are currently waiting for Bumi’s plan on its non pre-emptive right issuance as the company said this action will be done no later than 30 September 2010.
· Currently, BUMI is trading at 2011F PER of 13.4x and EV/EBITDA of 5.7x, Buy.
Macquarie Indonesia Strategy - Consumer and small-caps leading the index
Event
We have reviewed the YTD performance of the stocks that we cover. We also
note that the market is up by 37% in rupiah terms and 45% in US dollar terms
YTD. In terms of quarterly performance, the Indonesian composite index was
up by 10% in 1Q, 3% in 2Q and 21% in 3Q. The best-performing stocks under
our coverage have been XL Axiata, BTPN and BNI. We maintain our
Overweight call on Indonesia and mention the stocks that we like.
Impact
Out of the top 20 investable stocks, only six are outperforming the index
significantly: Astra, XL, Gudang Garam, BNI, Indofood and Unilever. BCA,
Mandiri and Indocement have performed in line with the market. Eleven
stocks have underperformed the index, with DOID, ENRG and ELTY as the
worst performers, down by 42%, 32% and 15%, respectively.
Fifteen out of 37 stocks under our coverage have outperformed the
index; Bakrie names have sharply underperformed. This shows that the
mid-to-smaller-cap stocks have mostly outperformed the large-cap stocks.
Bakrie-related stocks have sharply underperformed, with Bumi, Energy,
Bakrieland and DOID down by 6%, 32%, 15% and 42%, respectively.
Consumer stocks and small-cap banks have outperformed the index
significantly. The former include Astra International, Unilever, Gudang
Garam and Indofood. The small-cap banks that have outperformed the index
include BTPN (163%) and BJBR (162%). Of the large-cap banks, only BRI
and Danamon have underperformed the market slightly, up by 33% and 32%,
respectively.
Mining stocks have underperformed across the board. Except for smallercap
resource stocks Bayan Resources (+84%) and Indika (+44%), all of the
mining stocks have underperformed the index. All of the large-cap mining
stocks have also underperformed, especially in the 2Q10.
Outlook
Maintain our Overweight call on the market; premium valuation appears
warranted. The market is currently trading at a 2011E PER of 14.0x, only a
15% premium to its six-year historical PER and a 17% premium to the
regional valuation. We believe that Indonesia’s valuation premium is
warranted given its strong growth story and high ROE, which we think can
persist for the next 2–3 years.
Banks, property, cement and coal are our preferred picks. The domestic
and investment story will continue, in our view, and risk compressions are
happening, given the stability of the economy and the political situation. We
believe that the coal sector should perform going into the 4Q10 and 2011. Our
top large-cap picks are Astra, Bank Central Asia, BRI, Adaro and Semen
Gresik. Our top five mid-to-small-cap picks are Indika Energi, Bank Jabar,
Bumi Serpong, Summarecon Agung and Alam Sutera.
We have reviewed the YTD performance of the stocks that we cover. We also
note that the market is up by 37% in rupiah terms and 45% in US dollar terms
YTD. In terms of quarterly performance, the Indonesian composite index was
up by 10% in 1Q, 3% in 2Q and 21% in 3Q. The best-performing stocks under
our coverage have been XL Axiata, BTPN and BNI. We maintain our
Overweight call on Indonesia and mention the stocks that we like.
Impact
Out of the top 20 investable stocks, only six are outperforming the index
significantly: Astra, XL, Gudang Garam, BNI, Indofood and Unilever. BCA,
Mandiri and Indocement have performed in line with the market. Eleven
stocks have underperformed the index, with DOID, ENRG and ELTY as the
worst performers, down by 42%, 32% and 15%, respectively.
Fifteen out of 37 stocks under our coverage have outperformed the
index; Bakrie names have sharply underperformed. This shows that the
mid-to-smaller-cap stocks have mostly outperformed the large-cap stocks.
Bakrie-related stocks have sharply underperformed, with Bumi, Energy,
Bakrieland and DOID down by 6%, 32%, 15% and 42%, respectively.
Consumer stocks and small-cap banks have outperformed the index
significantly. The former include Astra International, Unilever, Gudang
Garam and Indofood. The small-cap banks that have outperformed the index
include BTPN (163%) and BJBR (162%). Of the large-cap banks, only BRI
and Danamon have underperformed the market slightly, up by 33% and 32%,
respectively.
Mining stocks have underperformed across the board. Except for smallercap
resource stocks Bayan Resources (+84%) and Indika (+44%), all of the
mining stocks have underperformed the index. All of the large-cap mining
stocks have also underperformed, especially in the 2Q10.
Outlook
Maintain our Overweight call on the market; premium valuation appears
warranted. The market is currently trading at a 2011E PER of 14.0x, only a
15% premium to its six-year historical PER and a 17% premium to the
regional valuation. We believe that Indonesia’s valuation premium is
warranted given its strong growth story and high ROE, which we think can
persist for the next 2–3 years.
Banks, property, cement and coal are our preferred picks. The domestic
and investment story will continue, in our view, and risk compressions are
happening, given the stability of the economy and the political situation. We
believe that the coal sector should perform going into the 4Q10 and 2011. Our
top large-cap picks are Astra, Bank Central Asia, BRI, Adaro and Semen
Gresik. Our top five mid-to-small-cap picks are Indika Energi, Bank Jabar,
Bumi Serpong, Summarecon Agung and Alam Sutera.
Citigroup Asia ex Strategy - Dividends: Here, There and Everywhere
Dividend investing in Asia ex has beaten growth investing over 20 years — Yet, most investors still focus more on growth and capital appreciation than income. Of the two, income is more secure than capital returns. The total return for Asia ex in the last decade has been a mere 6% p.a. in US$ terms, 8% over 20 years and 10% over 30 years. Surely there must be stocks globally that can beat the total return over the last decade in dividends alone.
Investors globally like either bonds or GEMS — There is no interest in developed market equities. It is either the perceived safety of bonds or the lure of growth. We have been able to identify 150 stocks globally (US$ 1bn > market cap) with a dividend yield in excess of 5%. If we assume average earnings growth of 3% p.a., a constant payout and a median exit multiple of 15x in 10 years time, many stocks will beat Asia’s 6% total return seen over the last decade or the 8% seen over the last 2 decades.
Even with a 5% dividend hurdle rate, 22% of stocks are from Asia ex — Throw in Australia and that number rises to 32%. As a single entity, Europe has the most stocks in our list, 33%. Nor are they all boring utilities: 20% are financials, 13% industrials, 12% energy-related and another 9% are tech companies. And many of them are global in reach. In other words, bring dividends and compounding together and you have the eighth wonder of the world.
Investors globally like either bonds or GEMS — There is no interest in developed market equities. It is either the perceived safety of bonds or the lure of growth. We have been able to identify 150 stocks globally (US$ 1bn > market cap) with a dividend yield in excess of 5%. If we assume average earnings growth of 3% p.a., a constant payout and a median exit multiple of 15x in 10 years time, many stocks will beat Asia’s 6% total return seen over the last decade or the 8% seen over the last 2 decades.
Even with a 5% dividend hurdle rate, 22% of stocks are from Asia ex — Throw in Australia and that number rises to 32%. As a single entity, Europe has the most stocks in our list, 33%. Nor are they all boring utilities: 20% are financials, 13% industrials, 12% energy-related and another 9% are tech companies. And many of them are global in reach. In other words, bring dividends and compounding together and you have the eighth wonder of the world.
Credis Suisse Indonesia Palm Oil Sector - Relative underperformance in the past one-three months
● While Indonesian CPO stocks have delivered positive absolute performance, they have exhibited negative relative performance in the past one-three months.
● We are seeing rapid recovery in CPO production. While 2010 production is unlikely to show strong growth due to low base effect in early 2010, we believe the recovery trend may continue, resulting in strong 2011 CPO output. In turn, we foresee risk of
softer CPO price in 2011.
● We are starting to see CPO prices flatten in the past two months, potentially reflecting anticipation of stronger output in 2011, combined with relatively soft demand due to global economic conditions. We continue to foresee risk of soft 2011 CPO price.
● Most Indonesian CPO producers are trading in line or above their Malaysian counterparts, implying limited rerating potential. SGRO is currently trading at a discount to its peers, but this largely reflects its highly volatile production profile and smaller plantation size.
● We are seeing rapid recovery in CPO production. While 2010 production is unlikely to show strong growth due to low base effect in early 2010, we believe the recovery trend may continue, resulting in strong 2011 CPO output. In turn, we foresee risk of
softer CPO price in 2011.
● We are starting to see CPO prices flatten in the past two months, potentially reflecting anticipation of stronger output in 2011, combined with relatively soft demand due to global economic conditions. We continue to foresee risk of soft 2011 CPO price.
● Most Indonesian CPO producers are trading in line or above their Malaysian counterparts, implying limited rerating potential. SGRO is currently trading at a discount to its peers, but this largely reflects its highly volatile production profile and smaller plantation size.
Indonesia on an upward trajectory
By Joe Cochrane
Published: September 29 2010 19:21 | Last updated: September 29 2010 19:21
When will the ride end for the Jakarta Composite Index? It enjoyed another record-breaking day on Wednesday, rising 0.7 per cent, flirting with the 3,500 mark and breaking fresh records for a fourth successive day.
On Monday, the index surged 2.1 per cent, with around 7bn shares totalling $699m changing hands on that day alone. Indonesia’s buoyant economy – gross domestic product for the second quarter clocked in at an annualised 6.2 per cent – and a healthy rise in consumer spending are fuelling investor interest, particularly from overseas.
“It’s a very popular market these days,” says Nick Cashmore, head of brokerage at CLSA Indonesia. “If you look at the sectors that have outperformed, consumer companies have been significant. They are up over 50 per cent for the year. Commodity companies have underperformed. The focus has been firmly on domestic demand.”
In local currency terms, the JCI is up 46.5 per cent for the year, making it the best performer among major markets in Asia. In the third quarter, the index has risen more than 20 per cent, making it south-east Asia’s third-strongest performer behind the Philippines and Thailand.
This current run makes it easy to forget the dark days of October 2008, when the JCI plummeted by more than 50 per cent during the global financial crisis, forcing the Indonesian Stock Exchange to stop trading for three days.
Since then, the JCI has grown threefold, its fortunes mirroring a rosy macroeconomic situation that is drawing increasing capital inflows into Indonesia. In 2009, Indonesia had the second-best performing market in the world, up nearly 86 per cent.
The market is driven by capital inflows that are adding to portfolios in Indonesia, as Asia and [Indonesia] have higher gross domestic product growth and profit growth than the US and European countries,” says Mirza Adityaswara, managing director of Mandiri Sekuritas in Jakarta.
“As long as the US and European economies remain relatively weaker and interest rates there are very low, there’s no incentive to put money in dollar assets.”
Mr Adityaswara notes that the Indonesian market’s valuation is not cheap, and it is trading above historical price-to-earnings multiples, although below peaks reached in July 2007. “But we still have good profit growth,” he says.
Mr Cashmore says the JCI is being driven by underlining earnings rather than capital inflows.
“Money flow is one thing that drives prices, but so do corporate profits,” he says. “Not just corporate profits today but also the expectation of profits tomorrow is going to drive profits. People will pay more for a company if they feel it will grow at a faster rate.”
He adds that the talk of quantitative easing in Japan and the US will lead to significant inflows of new money coming into Indonesia for hard assets.
It’s nothing that Indonesia has done,” he says. “I don’t believe that there’s any sort of policy changes that make this place look so fantastic.”
Regardless, Indonesia is clearly on an upward trajectory. The country was the third-biggest mover in the World Economic Forum’s 2010-2011 Global Competitiveness Index rankings, released earlier this month, rising 10 positions to 44th place.
Edwin Sinaga, president director of brokerage Financorpindo Nusa, says that Indonesia’s fundamentals including growth, low benchmark interest rates and foreign direct investment are all sound. He notes that there were concerns about inflation, but says that it will not pose a problem for the country in the short term.
Instead, Mr Sinaga predicts that the JCI could be heading toward a short-term bubble in the next two to six months because of excessive capital inflows.
In the longer term, however, a bubble in the Indonesian market is unlikely, analysts say.
“Everyone keeps talking about it, but how can it be on a bubble when it’s on 13 times 2011 earnings, and 25 per cent earnings growth and an appreciation in the currency that’s gone up 5 per cent this year?” Mr Cashmore says.
“I don’t think that sounds like a bubble. Just because stock prices have gone up doesn’t mean it’s a bubble,” he says. “The increase in stock prices has been matched by rapid growth in earnings.”
Certainly, a bubble is the last thing the Indonesian government wants.
Speaking at a Jakarta Foreign Correspondents Club dinner on Wednesday, the country’s finance minister Agus Martowardojo sought to assure investors: “We would like to convince the world, the market, that we don’t want a bubble situation in Indonesia,” he said.
Published: September 29 2010 19:21 | Last updated: September 29 2010 19:21
When will the ride end for the Jakarta Composite Index? It enjoyed another record-breaking day on Wednesday, rising 0.7 per cent, flirting with the 3,500 mark and breaking fresh records for a fourth successive day. On Monday, the index surged 2.1 per cent, with around 7bn shares totalling $699m changing hands on that day alone. Indonesia’s buoyant economy – gross domestic product for the second quarter clocked in at an annualised 6.2 per cent – and a healthy rise in consumer spending are fuelling investor interest, particularly from overseas.
“It’s a very popular market these days,” says Nick Cashmore, head of brokerage at CLSA Indonesia. “If you look at the sectors that have outperformed, consumer companies have been significant. They are up over 50 per cent for the year. Commodity companies have underperformed. The focus has been firmly on domestic demand.”
In local currency terms, the JCI is up 46.5 per cent for the year, making it the best performer among major markets in Asia. In the third quarter, the index has risen more than 20 per cent, making it south-east Asia’s third-strongest performer behind the Philippines and Thailand.
This current run makes it easy to forget the dark days of October 2008, when the JCI plummeted by more than 50 per cent during the global financial crisis, forcing the Indonesian Stock Exchange to stop trading for three days.
Since then, the JCI has grown threefold, its fortunes mirroring a rosy macroeconomic situation that is drawing increasing capital inflows into Indonesia. In 2009, Indonesia had the second-best performing market in the world, up nearly 86 per cent.
The market is driven by capital inflows that are adding to portfolios in Indonesia, as Asia and [Indonesia] have higher gross domestic product growth and profit growth than the US and European countries,” says Mirza Adityaswara, managing director of Mandiri Sekuritas in Jakarta.
“As long as the US and European economies remain relatively weaker and interest rates there are very low, there’s no incentive to put money in dollar assets.”
Mr Adityaswara notes that the Indonesian market’s valuation is not cheap, and it is trading above historical price-to-earnings multiples, although below peaks reached in July 2007. “But we still have good profit growth,” he says.
Mr Cashmore says the JCI is being driven by underlining earnings rather than capital inflows.
“Money flow is one thing that drives prices, but so do corporate profits,” he says. “Not just corporate profits today but also the expectation of profits tomorrow is going to drive profits. People will pay more for a company if they feel it will grow at a faster rate.”
He adds that the talk of quantitative easing in Japan and the US will lead to significant inflows of new money coming into Indonesia for hard assets.
It’s nothing that Indonesia has done,” he says. “I don’t believe that there’s any sort of policy changes that make this place look so fantastic.”
Regardless, Indonesia is clearly on an upward trajectory. The country was the third-biggest mover in the World Economic Forum’s 2010-2011 Global Competitiveness Index rankings, released earlier this month, rising 10 positions to 44th place.
Edwin Sinaga, president director of brokerage Financorpindo Nusa, says that Indonesia’s fundamentals including growth, low benchmark interest rates and foreign direct investment are all sound. He notes that there were concerns about inflation, but says that it will not pose a problem for the country in the short term.
Instead, Mr Sinaga predicts that the JCI could be heading toward a short-term bubble in the next two to six months because of excessive capital inflows.
In the longer term, however, a bubble in the Indonesian market is unlikely, analysts say.
“Everyone keeps talking about it, but how can it be on a bubble when it’s on 13 times 2011 earnings, and 25 per cent earnings growth and an appreciation in the currency that’s gone up 5 per cent this year?” Mr Cashmore says.
“I don’t think that sounds like a bubble. Just because stock prices have gone up doesn’t mean it’s a bubble,” he says. “The increase in stock prices has been matched by rapid growth in earnings.”
Certainly, a bubble is the last thing the Indonesian government wants.
Speaking at a Jakarta Foreign Correspondents Club dinner on Wednesday, the country’s finance minister Agus Martowardojo sought to assure investors: “We would like to convince the world, the market, that we don’t want a bubble situation in Indonesia,” he said.