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

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

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

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

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

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

Mandiri Sekuritas Perusahaan Gas : 1H10 Above ours, within consensus (PGAS, Rp4,000, Buy, TP: Rp5,260)

􀂄 PGAS 1H10 result announcement showed a net income which already has been reported in newspaper weeks before. Based on full result reported, differences in our forecast lies in our cost assumptions. Therefore we have make cost adjustments. We also do volume upgrade to our forecasts. In his comment to Bloomberg, PGAS CEO, Hendy P. Santoso, hinted 2011 revenue will be flat as no additional supply indicated. This also has been our view that although still attractive, PGAS lacks catalyst, as no new supply is seen until the completion of its Floating Storage Regasification Terminal in 2012.
􀂄 Our new forecast resulted in an upgrade of target price from currently Rp4,650/share to Rp5,260/share. At Rp4,000/share, PGAS is trading at FY10F PER of 14.2x and FY11F PER of 14.0x, with EV/EBITDA 10F and 11F of 8.6x, and 7.6x, respectively.

Mansek Bank Negara Indonesia:Unappreciated progress (BBNI,Rp3,000,Buy,TP: Rp3,500)

We reiterate our buy call on Bank Negara Indonesia (BNI)for four reasons (1)improved profitability (2)better asset quality (3)stronger management team and (4)cheap valuation.Furthermore,what has been less appreciated from this bank,in our view,is its strong determination to improve asset quality through better organization structure.

BNI ’s ROAE improved from 7.3%in 2008 to 20.3%in 1H10,supported by strong loan growth and improvement in CASA proportion.

Even though NPL from the medium segment will remain a challenge,we noticed management ’s serious efforts to deal with this issue by reducing loan growth and tightening monitoring practices.In addition to that,it is also worth to see the bank ’ s improved loan yield and coverage ratio.This should help cushion the negative impact from further deterioration on its asset quality,in our view.

The new addition to the BOD is expected to strengthen the bank ’s performance going forward.Two of the new BOD members were tapped from outside the bank (Honggo Widjojo Kangmasto and Darmadi Sutanto), while the remaining two are from inside the state-owned lender (Sutanto and Adi Setianto).In addition,the bank also introduced new role in its organization called Chief Business Risk Officer (CBRO)who will deal with business risks (related to loans)and loan remedial and recovery.

At the current price,BNI is trading at 2011F P/BV of 1.8x and PER of 8.6x,far below the averages of banks under our coverage of 2.7x and 11.6x, respectively.We still believe such discount is unwarranted for the bank; hence our buy call on the counter remains.

NISP PGN’s 1H10 distribution volume only down by 1.7% QoQ in 1H10 (PGN, Rp4,000, Buy)

PGN during its public expose cited that its distribution volume in 1H10 reached
827mmscfd or decreased slightly by 1.7% from 841mmscfd in 1Q10. The
company stated that the supply disruption from Conoco Phillips has improved to
320mmscfd from as low as 275mmscfd in March ’10.

In the meantime, the company’s transmission volume is up by 11.9% to reach
848mmscfd from 758mmscfd in 1Q10 as the company booked the converted
supply from Conoco Phillips as transmission revenue.

The company’s distribution average selling price reached US$6.37/mmscfd up
from US$5.5mmscfd in 1Q10 after the company raised its selling price by 15% in
April 2010.

The company’s 1H10 operational figures are relatively in-line within our
expectation as we expect some improvement on Conoco Phillips gas supply.
Overall, we foresee that PGN’s 2Q10 performance could be higher than the 1Q10
considering the selling price hike impact has taken place in 2Q10. The company
will release its 1H10 result by the end of this month. PGN is currently trading at
2010F PER of 14.2x and EV/EBITDA of 9.0x, Buy.

Mansek Adaro Energy:Quarterly activities report (ADRO,Rp2,000,Buy,TP:Rp2,600)

Coal production in 2Q10 was 10.26Mt and for 1H10 was 21.62Mt (+20.2%yoy,--9.7%QoQ).The company is optimistic to achieve FY10F target totaling 45-46Mt.Low 1H10 production caused by heavy rainfall in early of this year and in June.
Sales in 2Q10 was 10.29Mt and for 1H10 was 21.75Mt (+22.0%yoy,-10.2%QoQ)
Envirocoal-Wara coal production is now at an average daily rate of 6,000 tonnes per day or 2 million tonnes per year.
ADRO trads at PER10F-11F of 16.1x and 11.9x,respectively.Maintain Buy.

Bahana UNTR Never Give Up On Anything TP 22,000

Still tracking forward

Robust 2010 heavy equipment sales to compensate…
Continued recovery in the commodity-related sectors, low financing costs and ample liquidity have caused us to raise United Tractors’s (UNTR) 2010 Komatsu heavy equipment sales to 5,300 units (+70% y-y) from 3,811 units (+22% y-y) previously, translating into a 45% market share in the domestic market. Evidence of faster recovery can be seen from UNTR’s 1Q10 robust heavy equipment sales of 1,218 units (+93.8% y-y), accounting for 23% of our revised-up 2010 forecast. Furthermore, we have raised our revenue growth estimate for parts & services unit by 5ppts to 25% y-y (IDR4.5t), in line with the management’s guidance. Thus, we increase our 2010F top line by 8.5% to IDR37.3t (+28% y-y) and 2011F revenue by 10.4% to IDR43.3t (+15.9% y-y) with revenues from the mining-related divisions unchanged.

… lower earnings on margin compression caused by IDR appreciation
On the flip side, UNTR suffered margin contraction in 1Q10. First, there was higher COGS from the initial production of its new Kalimantan-based coal mine, PT. Tuah Turanggah Agung (TTA), expected to reach 2010 production target of 500k tons, 15% of our full-year estimate of 3.4m tons (the rest to come from the Dasa Eka Jasa Tama coal mine also in Kalimantan). Second was from the adverse impact of the stronger IDR which lowered margins on its mining division. This decreased UNTR’s 1Q10 operating margin to a more normalized level of 15% vis-à-vis 18% in 1Q09, prompting us to cut 2010F operating margin to 15.2% from 17.8% previously, lowering operating profit by 8.2% to IDR5.7t, still up 9.4% y-y. Nevertheless, this only caused slightly lower 2010 net profit IDR4.2t (-4.7%) and to IDR4.9t (-3.4%) in 2011.

Pama: Largest room for expansion among ASII’s subsidiaries
Despite lower operating margin, low 1Q10 rate of rainfall lifted coal extraction and overburden removal to 18.6m tons (+27% y-y) and 153.9m bcm (+27% y-y), in line with our estimates. It is worth pointing out that Pama would remain as the central focus of UNTR’s parent company, Astra International (ASII), in securing long-term growth. This suggests further expansions through acquisitions and higher mining contracts. Point in case would be Pama’s pending acquisition completion of two Kalimantan coal mines, which would alleviate the imminent risk of competition through stronger penetration from integrated players such as Darma Henwa (Bumi Resources), Buma (potential integration with Berau) and Sapta Indra Sejati (Adaro’s subsidiary).

Beneficiary of commodities expansion; retain BUY with IDR22,000 TP
Going forward, we are of the view that further expansions in the development of domestic commodities will continue to bolster UNTR’s business divisions, particularly its mining contracting unit in light of its largest capacity. In terms of valuation, we have raised UNTR’s target price to IDR22,000 on the back of lower risk free rate estimate of 9% (WACC:13.6%). Thus, in spite of UNTR’s 6% share price outperformance ytd, we reiterate a BUY.

Mandiri Sekuritas Mayora Indah: 1Q10 net profit of Rp119bn, above ours and consensus estimates (MYOR, Rp5,000, Buy, TP: Rp5,000)

􀂄 MYOR posted 1Q10 net income of Rp119bn (+67%yoy, +14%qoq), slightly above ours and consensus FY10F estimates.

􀂄 Net income growth was mainly due to revenue growth of 27%yoy and 26%qoq. Lower qoq margin was mainly due to rising sugar price (+8.9%qoq) that constitute 25% of the company’s COGS. While higher yoy margin was due to Rupiah sharp appreciation.

􀂄 1Q10 net income even surpassed 3Q09 net income where most consumer goods companies reached its peak quarterly profit due to Moslem festive.

􀂄 We still maintain Buy recommendation on MYOR which currently is trading at PER10-11F of 9.5-8.8x, respectively.

CLSA GGRM upgrade, conviction BUY, TP Rp40,000

Swati raised her TP for Gudang Garam (GGRM IJ) from Rp31,300 to Rp40,000 and reiterates conviction BUY.

Swati met an industry contact and learned that Gudang Garam Surya (regular) which makes up 50% of its sales is doing very well. The other product GGRM International (30% of sales) have seen volumes stabilizing. Mild is picking up gradually.

Swati also highlights that there is significant difference in pricing to the retailers between GGRM and competitor products which are sold at similar pricing to the end customer. Correcting this difference could translate into additional Rp1.25tn of profit or 31% of our 2010 forecasts. In fact GGRM is already increasing prices in steps. They seem to have realized that lower price strategy simply failed as innovativeness, taste, and branding proved to be more important than price.

But the bigger story yet to be played out is industry consolidation. Top five cigarette makers control 77% of the market. We think the government will gradually phase out the middle layers by creating more equal playing field via excise tax mechanism. This will benefit the big players such as GGRM.

DBS Telkom: Fixed line outshines cellular; BUY Rp7,700; Price Target : Rp10,000

* Net profit of Rp2.8 tr (+13% yoy, -5% qoq) was in line with our and consensus expectations
* Fixed line profitability was the key positive; low cellular subscriber addition was the key negative, but is likely to be resolved in 2Q10
* Potential upside to FY10F/11F earnings if fixed line profitability is sustainable
* Re-iterate BUY for over 30% potential return

1Q10 net profit is 24% of our FY10 forecast. Non-cellular earnings surprised at Rp958bn (+19% yoy, +4% qoq) thanks to (i) healthy 12% qoq growth in fixed broadband subscribers from 1,145K in 4Q09. (ii) lower personnel and marketing costs in the traditional fixed line business. The focus on broadband growth and cost cutting should continue under its Fixed Business Improvement Programme (FBIP).

Cellular business turnaround expected in 2Q10. Telkomsel's Rp1839bn earnings contribution (+10% yoy, -14% qoq) was below expectation due to lower subscriber addition in 1Q10 (0.3m vs 6m at Indosat). Telkomsel took time to respond to the SMS promotions (due to regulatory concerns) but it finally came out with SMS promotions in 1Q10, which should be reflected in healthy subscriber addition (of over 3m) in 2Q10F.

BUY for cellular recovery in 2Q10F. Recent warnings from the regulator are discouraging telcos from offering free offnet-SMS promotions, which is good news for the sector. Telkom is a clear laggard in the JCI with appealing valuations. The near term catalyst should be better cellular performance in 2Q10F.

NISP TB Bukit Asam’s revenue decreases by 59.5% YoY (PTBA, Rp19,000, Buy)

• TB Bukit Asam recorded 59.5% YoY decrease on net income to Rp373.0bn in 1Q10 from Rp920.6bn in 1Q09. The figure is 10% compared to our full year expectation and 11.1% of the market’s estimate.

• The company had signaled such condition as Bukit Asam had adjusted its selling price to PLN for this year. During 2009, the company still managed to enjoy strong selling price above Rp800k/ton compared to Rp685k/ton this year.

• This was also added by stronger Rupiah that affected revenue from export market despite that it posted stronger sales volume to this segment of 1.3mn tons in 1Q10 from 631k tons in 1Q09. Despite lower revenue, the company posted higher direct cost where COGS rose to Rp1.1tn in 1Q10 from Rp873.6bn a year earlier.

• Overall, the company’s results are below expectation and might require adjustment for the company’s 2010F net income estimate.

• Currently PTBA is trading at 2010F PER of 14.5x and EV/EBITDA of 12.2x, Buy.

Mandiri Sekuritas PTBA: 1Q10 net income at Rp373bn, below ours and consensus estimates (PTBA, Rp19,000, Buy, TP: Rp18,750)

􀂄 PTBA posted 1Q10 net income of Rp337bn (-59.5%yoy, -25.3%qoq), below ours and consensus estimates. YoY decline was due to lower ASP, while volume up by 14%yoy. Lower ASP was due to product mix shift to low quality coal in 1Q10.
􀂄 1Q10 sales volume of 3.2mn tons represented 21% of our FY10F estimates
􀂄 We still have Buy recommendation on PTBA which currently is trading at PER10-11F of 14.91-13.5x.

Mandiri Sekuritas Bank Mandiri: FY09 results 18% above our expectation and 12% above consensus estimates (BMRI, Rp5,000, Not Rated)

􀂄 Bank Mandiri recorded a net profit of Rp7.2tn (+34.7% yoy) in FY09, which was better than our expectation and consensus estimates.

􀂄 The bank recorded lower than expected provision expenses as the bank managed to reduce its NPL substantially to 2.6% at end 2009. Such decline in NPL was possible due to upgrade and some repayments on the troubled loans. Bank Mandiri recorded Rp1.6tn upgrades in its corporate loans, representing 74% of the total upgrades during the year.

􀂄 During the analyst meeting yesterday, the bank highlighted its success in strengthening its deposit franchise value. The bank managed to enhance its transaction capabilities as reflected on a significant increase in the transaction volume through its electronic channels as well as an increase in the number of cash management users. In 2010, the bank aims to have 15- 18% yoy loan growth (vs. 13.6% yoy in 2009) and managed its NPL below 4%. The bank also targets its coverage ratio of above 140% (at end 2009, coverage ratio was recorded at 229%).

􀂄 At present, Bank Mandiri is trading at 2009F P/BV of 2.6x and PER of 14.6x. We have no rating on this bank.

Deutsche Growth-driven valuation; target price raised to Rp7,000

Justified by high quality; Buy retained
Despite the recent stock price rally, we reiterate BCA as one of our top picks in
the Indonesian banking space. Our revised target price of Rp7,000 (up from
Rp5,700) implies FY11F PB of 4.6x and PER of 18.6x. Most of the stock's 27%
potential upside, to our Target Price, is being driven more by earnings (given its
ROAE of 26.5%) than a valuation re-rating. We believe the bank's high earnings
quality, in terms of pace and stability of growth, justifies its premium valuations.

Strong pace of growth and low ROAE volatility
Over the last decade, BCA has delivered among the fastest growth in book value,
with average ROAE of over 23%. The high quality of earnings is also reflected by
its low ROAE volatility, which demonstrates BCA’s ability to weather various
business cycles. We believe BCA’s pace and stability of growth to be primary
reasons justifying its premium valuations. On the back of this, our current target
price implies that over 70% of the stock’s potential upside to our TP will be driven
by earnings growth (plus dividend).

Earnings upgrades: 7.7% in 2010F and 8.8% in 2011F
The upgrades are primarily due to lower provision charges. We believe BCA’s
earnings growth will become more visible under the new accounting standards
pertaining to provision charges (see our January 10 report). BCA’s largely undergeared balance sheet (with LDR at 50%) will allow it to gain loan market share and sustain three-year earnings CAGR of 17.5% with implied ROAE over 26.0%.

TP Rp7,000 (from Rp5,700); risks: lower loan growth/asset yields, higher NPL
Our TP is derived from the Gordon growth model, using 2011F book as reference
(from 2010F previously. Risks are lower loan growth and asset yields, higher
funding costs and larger NPL formation increase. (see pages 5 & 6 for more on
valuation & risks

Mandiri Sekuritas Indocement TP: FY09 slightly above consensus expectation (INTP, Rp14,000, Buy, TP Rp15,400)

􀂄 In 2009, Indocement posted lower domestic sales volume compare with 2008 (-3.8% yoy). Yet price tag was higher (around 15% yoy). That explains why FY09 transportation and selling expense drop 10.7% yoy. Other than that, cash position of some Rp2.6tn (vs Rp790 in 2008) doubled interest income figure to Rp78bn. It resulted into moderate growth in the top line level of 8.1%, while bottom line growth reaches 57.4% yoy. Overall, FY09 result is slightly above consensus estimates, yet inline with ours.

􀂄 Assessing from February 2010 sales volume data, where domestic consumption shoots up 19.1% yoy, while export continues on declining, we believe that earnings upgrade is possible. This suggests that margins would increase further. Note that consensus estimates only projected 15.3% yoy and 24.5% yoy growth for FY10 top line and bottom line level. Currently INTP is trading at EV/ton and PER10 of US$263 and 18.1x, respectively.

Mandiri Sekuritas Aneka Tambang: increases stake in gold project (ANTM, Rp2,000, Neutral, TP: Rp2,200)

The company has increased its stakes in the Gold Cibaliung project from 5% to 100%after the shareholders of Arc Exploration (ex owners of the gold project) approved its full divestment. Antam acquired the 95% additional stake for US$8mn from internal cash while another US$40mn has been set aside for project development costs. Exploitation is targeted by second half 2010. Estimated reserves is currently at 12.8ton (thus equivalent acquisition cost, excluding development cost is US$0.625/t), while expected production upon commercial operations will be 500kg (2010) and 2,000kg (2011-onwards). We deem this the development as positive as Antam eventually shifts towards gold mining from lower margin gold sales trading despite mine life being relatively short of less than 5 years based on ANTM’s 2008 gold production. In 2008, the company produced 2,833kg of gold while gold sales were at 9,820kg coming mostly from gold trading with third parties. Currently, we have neutral stance on the stock which now trades at PER09-10F of 55.3x and 29.9x, respectively.

Business Times Mistry expects palm futures to top RM3,000

Malayasian palm oil futures could soon surpass a key psychological level of RM3,000 as Asian buyers hunger for more of the vegetable oil at a time of low stocks and weak output, a top industry analyst said today.

Dorab Mistry, head of vegetable oil purchasing at Indian conglomerate Godrej International, said orders from the world’s top two buyers of vegetable oils — China and India — were set to jump as the world economy recovers.

Palm oil supplies are dwindling in top producers Indonesia and Malaysia due to weak output arising from lack of fertiliser use when prices fell dramatically last year, coupled with volatile weather and yield stress after months of good harvests.

In addition, the top two soy exporters, the United States and Brazil are experiencing low stocks after a supply shortfall in third largest soy producer Argentina, which may result in a powerful bull market emerging for vegetable oils, said Mistry, who is based in London.

“The situation in soya is more bullish than in palm and soft oils will soon take price leadership,” he said in a speech to be delivered at a regional palm oil conference in Tokyo.

“However, price-conscious markets like India will chase palm and therefore I expect Bursa Malaysia crude palm oil futures to exceed RM3,000 (per tonne) very quickly,” he said.

Traders consider this figure a key resistance level after prices exceeded it last year before falling back to just over RM1,000, from which they have since struggled to recover.

Benchmark Malaysian prices on Friday were just 12.7 per cent below RM3,000 level. Malaysian refined palm olein FOB traded at US$830 per tonne for June compared to European soyoil at US$886 in Rotterdam last week, Reuters data showed.

China will buy more vegetable oil in the second half than the first as its 4 trillion yuan stimulus package has revived some consumption and current total shipments are 24 per cent behind imports of 8.1 million tonnes last year, Mistry said.

But India will now drive palm and soyoil demand rather than China after the government scrapped import taxes for edible oils, starting with palm oil, last year. Mistry said purchases would hit 8.5 million tonnes for the oil year ending October 2009.

“India’s low per capita consumption was artificially suppressed by high import duties and now that the heavy burden has been lifted, it has come into its own,” Mistry said, pegging demand at 1.4 kilos per person. India has 1.1 billion people.

Surging Asian demand will chase low palm stocks in Malaysia, which are expected to stay below 1.4 million tonnes until mid-August as output will recover that month when the low yield cycle draws to an end and more fertiliser is used, Mistry said.

“Replenishment of stocks will be very gradual and will commence only in mid-July. I expect Malaysian palm oil stocks to peak in November at 1.7 to 1.8 million tonnes at best,” he said. - Reuters

Associated Press New jobless claims plunge unexpectedly to 610,000, while retail sales improve in April

WASHINGTON (AP) -- New applications for jobless benefits plunged to the lowest level in 14 weeks, a possible sign that the massive wave of layoffs has peaked. Still, the number of unemployed workers getting benefits climbed to a new record.

Retail results also improved as discounter Wal-Mart Stores Inc. and other stores reported April sales figures that beat expectations. Analysts acknowledged the positive economic signals but cautioned that any recovery will be subdued as long as unemployment stays high.

The Labor Department reported Thursday that the number newly laid off workers applying for benefits dropped to 601,000 last week. That was far better than the rise to 635,000 claims that economists expected.

But the total number of people receiving jobless benefits climbed to 6.35 million, a 14th straight record.

The four-week moving average of initial jobless claims, which smooths out volatility, totaled 623,500 last week, a decrease of more than 30,000 from the high in early April. Goldman Sachs economists have said a decline of 30,000 to 40,000 in the four-week average is needed to signal a peak.

Meanwhile, retailers' business last month was helped by warmer weather, tax refunds, and a shift in the Easter holiday, helping Wal-Mart and many mall clothing chains post better-than-expected results. more...

Associated Press Stocks fall after 4-week rally; Dow below 8,000

NEW YORK (AP) -- Wall Street pulled back for the first time in five days Monday as investors worried about balance sheets at banks and the quarterly results that businesses will start releasing this week.

Investors were also disappointed that talks for IBM Corp.'s $7 billion deal to buy Sun Microsystems Inc. have stalled -- a sign that the market is still not ready to support big mergers.

Financial shares sold off after a prominent analyst predicted more losses at banks and said the government's efforts to prop up the ailing industry might not be as effective as hoped.

Michael Mayo issued "sell" ratings on several banks and said in his report that loan losses could exceed levels seen in the Great Depression.

The market was already on edge about the coming parade of first-quarter results, which kicks off Tuesday with aluminum producer and Dow component Alcoa Inc. Worse-than-expected reports could easily upset the market's recent advance, which brought stocks up more than 20 percent from early March, when they hit their lowest levels in 12 years.

"You have some skittishness in the market," said Len Blum, managing director at Westwood Capital LLC. "We have earnings season up ahead and it's very difficult to predict what that is going to do."

The Dow Jones industrials fell 41.74, or 0.5 percent, to 7,975.85 after being down as much as 155 points.

The Standard & Poor's 500 index fell 7.02, or 0.8 percent, to 835.48, while the Nasdaq composite index fell 15.16, or 0.9 percent, to 1,606.71.

Technology stocks were lower following the IBM-Sun news. Discussions between the technology giants had been in their final stages, but The Associated Press learned that IBM took its offer off the table Sunday after Sun terminated IBM's status as its exclusive negotiating partner. more...

CLSA Telkom Indonesia (TLKM I) from OPF to BUY and raises the TP from Rp8,000 to Rp9,000

Wilianto upgrades Telkom Indonesia (TLKM I) from OPF to BUY and raises the TP from Rp8,000 to Rp9,000.

Maybe it is helpful to learn from the past:
HISTORY: in 1996-2002, Telkomsel spent large capex and aggressively built its network while competitors Indosat (ISAT IJ) and Excelcomindo (EXCL IJ) were busy with debt restructuring.
Result: Telkomsel gained market share from 33% in 1996 to 53% in 2002 + take over #1 position from ISAT
NOW: Telkom capex 3x its closest competitors in 2009 (US$1.8-2bn). It will widen its lead against competitors. Meantime, competitors are cutting down on capex, reducing their ability to compete and to expand coverage.

Is history repeating itself?
Early indication suggests this will be the case. Telkomsel added 3.8m subs in 2m09, with net add share of 65%. Even if we assume 80% capex absorption of US$1.5bn, TLKM capex will still be more than twice of ISAT and EXCL.

We also want to add that despite the improving environment, the stock may continue to underperform in the short term as investors are focusing on higher beta names. However, we’d like to point out that the news flow, after 2 years of mobile price war and negative news flow, has already seen marked improvement and is likely to continue. After playing defensive, Telkomsel is now turning the table and playing the aggressor.

Key points from the report:
Upgrade TLKM from OPF to a BUY as competition pressure eases.
Upside potential: to our earnings if tariff and Arpu stabilise as expected (we have not build it in our forecast).
Competitors are cutting down on capex, reducing their competitiveness.
Telkom has strong balance sheet + cash flow to sustain its capex (triple of its closest competitors).
This will allows Telkom to tap into new frontier and to strengthen its position in areas of presence through better network coverage, quality, and capacity.
A 10% incremental revenues/ Arpu in Telkomsel will boost Telkom’s consolidated earnings by 15%.
Our assumption currently called for an 8% decline in Arpu, 13% subscriber growth (8.2m net add in 2009 vs 14.9m net add in 2008), and 2% decline in Ebit margin of Telkomsel.
No change in earnings forecast.
Valuation: remains undemanding at 12.5x PER 09CL and 5x EV/Ebitda 09CL (adjusted for 30% minority), which is slightly below its regional peers.

BAS-ML PT Bukit Asam - Contract repricing seen; cut PO 6% to Rp8,000

Domestic contracts apparently not as secure as thought In a recent meeting, PLN said it intends to discuss lowering coal contract prices with its domestic suppliers. We do not think this move is unreasonable considering: (1) the JFY09 coal price was fixed at US$70/t, 50% below contracts priced in 2H08; (2) during coal rallies, Indonesian coal players like PTBA have had prices raised threefold in a year; and (3) lower contract prices could ease government subsidies (at Rp630, the electricity tariff is way below the cost of Rp1,022 in 2009). We are aware of the President Director of Indonesia Power’s comment that it would not revisit PTBA’s coal price, but find the downside too large to ignore while the upside is capped.

Cut earnings estimates, PO 6% to Rp8,000
While domestic sales account for 70% of total coal sales, our ASP adjustment is relatively small. For starters, we have always assumed a conservative domestic coal price: US$64/t vs the recently settled US$73/t. Assuming repricing negotiations are successful, we think they would take three months, and we would only expect the new price to be valid in July and it is unlikely to be retroactive. We cut our 2009 domestic ASP 11% and net profit 13%. We trim our PO by 6% to Rp8,000.

PTBA still looks best among pack
On concerns over weakening global coal demand, rising competition from Australian coal, exacerbated by an unfavorable new trade policy, ie, the new government requirement to use L/C for all coal exports, we still favor coal players with a dominant presence in the domestic market, such as PTBA. Even after adjusting for contract repricing, we think PTBA’s valuation still looks inexpensive compared with peers, trading at a 32% discount to local peers’ 2009E P/E. PTBA remains our top pick.

Peers with majority export contracts not spared
Platts reported that Indian rival JSW Steel said late in February that it won a price cut from Rio Tinto to US$175/mt FOB Queensland on the remaining contracted coking coal deliveries for the current fiscal year. While we have not heard of any Indonesian contract price being renegotiated, we see this as a sizeable downside. Up to 75% of Indonesia’s coal export volume in 2009 has been priced around 50% higher than the recent JFY price settlement of US$70/t.