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

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

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

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

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

Mansek Sampoerna Agro:1H10 results inline with ours and consensus estimates (SGRO,Rp 2,475,BUY,TP:Rp3,150)

SGRO reported 1H10 net profit of Rp131bn (+37.8%yoy),represented 34.4%of our FY forecast and 32.9%of consensus estimates.Please note that 1H results in 2007 and 2009 accounted for 31-34%of FY results,thus led to this year ’s 1H result was basically in line with our expectation.

The company ’s sales grew by 33.2%yoy,higher than in 1Q10 of 46.8%qoq,while operating margin reached 25.8%,an improvement from 21.2%in 1Q10 (vs our target for FY10 of 24.7%)

At current price,SGRO is trading at 2011F PER of 10.1x.We maintain our buy recommendation on the counter.

Mandiri Sekuritas Inco: 1Q10 net earnings up by 344%yoy, in-line with ours but slightly above consensus (INCO, Rp4,475, Buy, TP:Rp5,900)

􀂄 Yesterday, Inco reported net income of US$76mn, up by more than 3-folds yoy on the back of sharp recovery of nickel prices and higher sales volumes. ASP for 1Q10 grew by 71%yoy to US$14,182/t, while nickel in matte sales volume improved by 23%yoy. The company was also able to pare down costs as well in areas of supplies, contracts and services which further contributed to its much improved margins. We maintain buy on the stock, currently having a 32% upside to our TP and trading at PER10F of 15.1x.

NISP Inco posts 344.0% YoY growth in 1Q10 net income (INCO, Rp4,475, Under Review)

• During 1Q10 Inco managed to post a robust growth in its financial performance where the company’s net income surged by 344.0% YoY to US$76.3mn from US$17.2mn in 1Q09. The result came at 21.3% to our 2010F full year net income expectation of US$358.2mn and 28.8% of the consensus’ net income estimates.

• Such increase was mainly backed by the company’s ability to boost sales volume and also benefited from higher selling price. During 1Q10, Inco sold 18,021 tons of nickel, 23.3% YoY higher from 14,610 tons. Selling price leapt by 70.7% YoY to US$14,182/ton from US$8,309/ton amid robust global nickel price condition.

As such, the company’s profitability jumped as operating margin reached 39.3% in 1Q10 from 4.3% in 1Q09.

• On a quarterly basis, the company also posted significant improvement as net income grew by 27.2% QoQ from US$60.0mn in 4Q09. This growth was driven by the company’s ability to lower its cost on contracts, supply and services. Hence, despite the company using higher diesel and HSFO in 1Q10, Inco managed to increased its profitability where gross margin rose to 41.2% in 1Q10 from 39.4% in the previous quarter.

• During 1Q10, Inco uses 32,000 kl at US$0.59/liter of diesel compared to 24,700 kl at US$0.56/liter in 4Q09. HSFO usage rose to 741,831 barrel at US$76.03/barrel in 1Q10 from 605,706 barrel at US$68.81/barrel in 4Q09.

• Overall, the company managed to post a performance that satisfies our expectation and we currently reviewing our recommendation as the company’s share price has exceeded our target price of Rp4,000. Inco is currently trading at 2010F PER of 13.0x and EV/EBITDA of 7.6x.

Credit Suisse - Semen Gresik (SMGR.JK, Rp3,475, O, TP Rp4,500) - Strong 4Q08 results reaffirm our positive view on the stock

· Semen Gresik’s 2008 results were strong (+42% YoY), 12% above our FY08 forecast (and 13% above consensus) on the back of better top-line growth (in both volume and prices) and higher net interest income.

· The company’s EBITDA margin increased to a high 32% during 4Q08, resulting in EBITDA jumping 39% YoY. Below the operating line, the company’s stronger cash position has resulted in better net interest income, which came in 21% above our forecasts.

· Regarding de-bottlenecking its capacity, the company plans to increase its capacity by 1 mn tonnes to 19 mn tonnes in 2009, while the big capex plans are still in tact. SMGR’s plans of exploring overseas opportunities are in a very early stage.

· We maintain our OUTPERFORM rating due to our positive stance on the stock, especially on pricing power and strong balance sheet. We believe that the key risk for Semen Gresik and the industry is demand, which has started to show some declining trend in the past two months.