JPM new price targets for Indonesian telcos

EXCL = Rp8000. Potential upside (TP 8000 / Last 5850) = 36.8%
ISAT = Rp6600. Potential upside (TP 6600 / Last 5700) = 15.8%
TLKM = Rp9800. Potential upside (TP 9800 / Last 8400) = 16.7%

Macquarie Research Regional coal - Heading into perfect thermal storm?

Event
Newcastle coal prices have surged by 15% from its low in mid-August to about US$101.5/t currently. This is in line with our positive outlook on coal driven by a seasonally stronger demand period from the Northern Hemisphere and reduction in hydro capacity in China. Further, there are increasing risk of supply disruption in major producing countries (e.g. Indonesian and Australia), which will also tighten the supply-demand balance in the short term. This predicates our positive view on the regional thermal coal sector, especially Asean coal names given its high leverage to the global coal price.

Impact
Entering into seasonally higher demand period. We believe that shortterm coal demand will be partially driven by the recovery in demand in the Northern Hemisphere as it enters into winter period. Historically, we have also seen Chinese hydro generation (+/-20% of Chinese power generation) decrease by about 40–50% QoQ in Q4.

Chinese imports up 14% MoM in September, which is reinforced by our channel checks with coal traders that China import demand is increasing (especially for off-spec coal -both Indonesian sub-bituminous and Queensland coal). This is also supported by the pickup in the Chinese coal price (driven by power stations stocking up ahead of winter period).

Supply disruption leading to tighter market. We expect Indonesian coal supply will remain tight following nine months’ worth of rain (which has caused producers to cut the 2010 target by 5–10%). This is especially as we enter the wet season in Q4 and pre-stripping work has not hit budgets YTD. We have also seen evidence of disruption coming out from Australia; including Xstrata having recently suspended some deliveries from the Rollestone mine in Queensland (with other producers seemingly having a similar problem). Our channel checks also suggest that some coal traders have a short position in Q4 deliveries and need to find coal to avoid liquidation damages.

Potential for spot price to trade above our US$105/t coal price forecast. Given the potential for a tightening supply and demand balance (we forecast roughly an 11mt deficit in 2011), we believe that any supply disruption could lead to large spike in coal price (ie, the spot price to trade above our US$105/t coal price forecast). As a sensitivity analysis, for every US$1/t change in the benchmark coal price assumption, we could see roughly 2–3% swing in earnings.

Outlook
We therefore reiterate our Overweight view on the regional coal sector with Asean coal names as our preference given the high global price exposure and relatively strong production growth profile. Our preferred picks in the sector are Adaro, ITMG and SAR. We also find the Asean coal sector still relatively attractively valued at 10.6x 2011E PER vs the historical average of 12–13x.

Further, given we think that sentiment towards the sector will remain relatively positive, we believe that the Chinese coal stocks will also benefit. Within China, we believe that Yanzhou Coal has the largest global coal price exposure. However, we also like China Coal given its strong production growth profile and China Shenhua given it has been lagging the other coal names.

JPM ASII

Astra International. Slight flagging in demand and car loan rates cut in November. We did some channel checking to assess conditions in the 4 wheeler market, to gauge the near term outlook for Astra International. ASII has gone sideways over the last 2 months and trailed the index by almost 12% since mid-September. Our conclusion is that vehicle volumes are unlikely to challenge mid year peaks over the next few months. Our thesis of a quiet 4Q, followed by a surge in 1HFY11 vehicle sales remains untouched – we retain OW and June 2011, PE based PT of Rp 63,000.

JPM Telco

James Sullivan upgrading ISAT / TLKM / TEL. We are upgrading ISAT to OW with a TP of Rp6,600 and estimated total return of 18%. Our 2Q10 Deep Dive report highlighted a potential turnaround in core operating statistics; all of these trends showed continued improvement in 3Q10, driving our upgrade. We are also
upgrading TLKM and TEL PM to OW (TP of Rp9,800 and Php2,600 respectively) after recent underperformance.

Indonesia wireless growing faster then forecast: All three wireless operators beat our 3Q10 net addition numbers by 24-46%. This provides evidence supporting our contention that rising rural wage growth will start to positively impact telecom industry revenue growth in developing Asia, particularly once penetration hits 100% and lower incremental ARPU no longer drags down the average. We now have an OW recommendation on all three larger Indonesian telco operators.

https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-503647-0.pdf

Reuters Bumi Resources

Nov 10 (Reuters) - Bumi Resources (BUMI.JK), Indonesia's largest coal miner, sees revenues in 2010 rising 14 percent to $4.2 billion on higher average coal selling prices. The firm revised down its estimate for 2010 coal output to 60-61 million tonnes, Dileep Srivastava, head of investor relations at Bumi, told Reuters on Wednesday. (Reporting by Janeman Latul; Editing by Neil Chatterjee)

NISP Krakatau Steel IPO price to be announced tomorrow (New IPO)

· Krakatau Steel has delayed to announce the price for its IPO to tomorrow after the public expose. Media has reported of rumor that it will be between Rp1,000-Rp,1200 per share.

· The company will sell 3.15bn shares or 20.0% out of total shares. The company will sell another 10.0% next year as it has obtained approval from the House of Representatives to sell 30.0% of its shares to the public.

· 35.8% from total proceeds will be used to expand capacity of its steel production facility in order to support a production target of 3.5mn tons by 2013. Another 25.0% will be used to prepare land for a joint steel facility owned by KS and POSCO. 24.2% will be used for raw materials purchase and the remaining 15.0% will be used to increase ownership in its subsidiaries which operates in port management and electricity production.

· Underwriters are Bahana, Danareksa and Mandiri Sekuritas. Effective date will be on October 29, 2010. The shares will be offered November 2-4, 2010 and listed in November 10, 2010.

Saratoga eyes for Arpeni (APOL, Rp108)

· It is reported that Saratoga is currently eyeing for a stake in Arpeni. The media reported the investment group will act as a stand by buyer on Arpeni’s right issue and also to buy as much as US$60mn of Arpeni’s convertible bonds.

· Despite no confirmations from both Arpeni and Saratoga, the news popped up after Arpeni’s official announcement for its US$60mn bonds and US$70mn new shares issuance plan.

· The company has met agreement with its investor for this issuance where the agreement also mentions 35% stakes acquisition. Arpeni and its investor is planning for due diligence, which will take of up to eight weeks.

Alam Sutera books Rp600.0bn of net revenue in 9M10 (ASRI, Rp225)

· Alam Sutera shared its revenue figure of Rp1.40tn, or net revenue of Rp600.0bn in 9M10 or 75% of the company’s 2010F target at Rp800.0obn. The company also indicated its net income will come in at Rp180.0bn assuming net margin ratio of 30%. This net income indication is 60% of the company’s 2010F net income target at Rp250.0bn. The company’s net revenue figure is 68.3% of the consensus’ expectation while net income is at 60% to the expectation.

· Meanwhile, for 2011F, Alam Sutera aims to spend up to Rp500.0bn in capex, Rp200.0bn of which is allocated for the company’s shopping mall project, Rp100.0bn for office area project and the remaining will be allocated for residential infrastructure development.

· Meanwhile, for its project in Tangerang, the company aims to complete the master plan next year in order to generate cash from this 600ha land bank.

· ASRI is trading at 2011F consensus PER of 10.2x and EV/EBITDA of 8.0x.

NISP Summarecon optimistic to achieve Rp1.90tn revenue (SMRA, Rp1,120)

· Summarecon management shared that the company can book Rp1.90tn this year, up by 58.3% YoY from last year’s achievement of Rp1.20tn. The company’s had initially expected to make around Rp1.60tn in line with market expectation of Rp1.60tn,

· Previously the company has hinted that that it expects to book Rp165.0bn of net income in 3Q10, or 36.4% YoY increase.

· At the end of this month, the company will start sales for its Bekasi Cluster where it targets Rp200.0bn of sales.

· SMRA is trading at 2011F PER of 22.8x and EV/EBITDA of 12.9x.

NISP XL Axiata aims for second largest position (EXCL, Rp5,400)

· XL Axiata is optimistic it will book 40mn of total subscribers, which will make it hold the second largest position in Indonesia. The company has increased its target from its original expectation of 36mn subs as the company’s 9M10 data showed total subscribers of 38.5mn.

· The company has allocated US$450mn for 2010F capex in order to boost its subscribers where the company is currently supported by 21,650 units of BTS to serve its consumers.

· EXCL is trading at 2011F consensus PER of 13.7x and EV/EBITDA of 5.8x.

Deutsche Strategy Alert - Bank Indonesia Conf Call Summary

Deputy Governor of Bank Indonesia, Pak Budi Mulya, hosted a conf call; mostly focussed on inflation and capital inflows. On the whole, economic activity grew stronger; supported by prudent fiscal and monetary policy.

GDP growth could be at the high end of 6.0-6.3% for 2010 and he expects it to reach 6.3-6.5% in 2011. External trade is sound, BOP increase on current and capital account surplus; FX reserve US$86.6bn in Sept.

Inflation has been creeping up, mainly from volatile food prices, but BI still focuses alot on headline inflation. 2010 inflation may exceed its 5% +/-1% range slightly, hence BI recent quantitative measure (SRR up from 5 to 8%). But this should revert to 5% +/-1 % range in 2011.

Loan growth increased by 21.2% yoy in Sept. BI also share our view that as much of this growth can also be attributed to capex lending (+31% yoy). This shows that supply side expansion is responding to rising demand; hence strong loan growth isn't an immediate concern. Also, whilst loan growth had outstripped deposit (c. 17-18%), liquidity is sufficient.

BI will continue to support the policy of Rupiah appreciation. Indeed as most of exports are primary products as to manufactured products, a stronger Rupiah isn't an immediate threat to export competitiveness.

External inflow is a challenge for monetary policy esp in the context of sterilization. Offshore SBI holdings actually are higher than the level before implementation of the 1-mth holding period; now at Rp64.7tr. Still, BI doesn't think the inflow is too distributive; perhaps judging from the characteristic of the longer-dated holder.

CLSA Timah (TINS IJ), the next rare earth?

Our diligent resource analyst Rania Rahmundita is having a look at Timah (TINS IJ), the world’s largest tin exporter.

Why TIN? Tin prices have shot up through the roof and has hit all time record high. It has been the pest-performing commodity within the metal complex this year, up 55% YTD. Due to its scarce supply and lower production; comparisons against rare earth have come in mind.

The four major producers – Indonesia, Congo, China and Peru (about 85% of total) are seeing lower productions. Indeed, the global reserves of tins has a mine life of only 16 years left! Not many substitutes either as lead is poisonous and gold, well, just too expensive.

Rania points out that TINS operating leverage is weaker than its peers, but this is perhaps priced in, as it is the cheapest, trading at 11.7x consensus earnings against average peer of 16x earnings. And with the high share price correlation with tin prices, TIN is an interesting play.

Key highlights from the report:
PT Timah is the world’s largest tin exporter and the largest producer in Indonesia, supplying 15% of global tin and ~30% of global seaborne tin.
Tin has been the best-performing within the base metal complex this year (+55% YTD). Arguably, against falling supply and depleting reserves, tin could also be considered scarce, with upside mirroring that of the rare earth complex.
While investors should be mindful of the company’s weaker operating leverage than peers, it is now still the cheapest, at slightly below its historical mean valuation of 13x forward P/E. Hence, in addition to tin price upside, there is also upside on valuations to its peak-cycle valuation of 16x P/E.
In the current world of scarcer tin, sky-rocketing tin prices, limited tin plays globally, and high share price correlation with tin prices; Timah is likely to continue to be one of the few key beneficiaries.

Deutsche Banks Industry Alert - Prelim Aug-10 loan data indicates accelerating corp loans

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.

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%.

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.

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.

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.

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.

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.