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

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

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

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

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

Mandiri Sekuritas Medco Energi: Government will extend 3 PSCs (MEDC, Rp3,100, Buy, TP Rp3,500)

􀂄 Head of BP Migas mentioned that the government through Ministry of Energy and Natural Resources has approved the PSC (Production Sharing Contract) extension for 3 MEDC’s asset, namely Block A, Block South Sumatera Extension (SSE) and Block Bawean. Note that PSC for both Block A and Bawean blocks will end in 2011 while SSE block in 2013.

􀂄 Aside from that, BP Migas has also allocated the domestic portion on gas from Donggi-Senoro block (28% from total) to PLN (as much as 60bbtud) and Panca Amara (as much as 55bbtud). We view that such news will bring positive sentiment to MEDC as this will give more conviction on the sustainability of company’s future key projects.

Mansek Aneka Tambang:1H10 net profits of Rp756bn up by more than 2-folds yoy;above ours and consensus (ANTM, Rp2,050,Neutral,TP:Rp2,500)

Due to the switch in revenue contribution from low-margin gold trading last year to higher margin nickel this year as well the improvement in selling prices of the latter,Antam ’ s 1H10 net income improved by 238%yoy to Rp756bn,despite a relatively flat top-line of Rp4.3tn(-2.1%yoy),thus running ahead of ours and consensus estimates.Additionally on the production side,the divisional production remains within FY10F target with nickel and gold production rates achieving 50%and 54%of FY10F.Currently,the stock trades at PER10F 16.7x.Additional upside would come from the appreciation of nickel prices (at US$20.6k/t as of 1H10)which runs at par with our FY10F price assumption of about US$21k/ton.

Mandiri Sekuritas Indofood: 1H10 net income exceeds ours and consensus expectation (INDF, Rp4,350, Buy, TP: Rp4,500)

􀂄 INDF posted 1H10 net income of Rp1.4tn (+76%yoy, +23%qoq), which is above ours and consensus estimates. The net income yoy growth was mainly due to increase in noodle selling price.

􀂄 Looking at segmental performance, CBP division performed well with 8.3%yoy growth that compensated revenues contraction from wheat flour segment. Agribusiness segment posted flat growth yoy.

􀂄 INDF is currently trading at PER10-11F consensus of 17.1-14.8x.

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.

Mansek AALI:7M10 CPO production volume reach 53%of our FY10F assumption (AALI,BUY,Rp21,200,TP:Rp24,500)

AALI ’s 7M10 CPO production volume decreased by 6.5%yoy from 607,826 ton in 7M09 to 568,315 ton in 7M10.This 7M10 CPO production volume represents 53%of our FY10F.From 2003 to 2009,7M production represented between 52%up to 59%of FY CPO production.Currently,We maintain our CPO production assumption.

Currently,AALI trades at FY10F and FY11F PE of 15.3x and 13.1x, respectively.

Mansek Astra International:plans to increase vehicle production capacity (ASII, Rp48,750,Buy,TP:50,500)

Due to the robust demand for 4-wheelers,ASII plans to spend some Rp1tn to increase Daihatsu ’s production capacity to 400k units p.a.from 211k units currently.In light of a strong demand pull due to affordable financing schemes,domestic wholesale sales for 7M10 is seen to reach close to 442k units (+75%yoy),with an reported highest monthly sales in July of 72k units,so far this year.Thus,with the current trend,car sales by year end could comfortably breach 700k units mark.ASII ’s Daihatsu in particular has been enjoying strong growth with units ’ sales of 54k units (+58%yoy)for
1H10,with about 15%market share.We currently have a buy on the stock currently trading at PER10-11F 16.8x and 14.7x,respectively.

Mandiri Sekuritas Holcim Indonesia: Net profit grew 38.0% yoy, slightly below expectation (SMCB, Rp2,425, Neutral, TP Rp2,500)

Higher domestic sales volume (+19.0% yoy) boost 1H10 revenue to Rp2.8tn (+8.1% yoy). This shows that average selling price was lower compared with 1H09. Nevertheless, margins improved given lower cost/ton. Thus, 1H10 net profit grew 38.0% yoy to Rp386bn. Overall, the figures are inline with ours, yet slightly below consensus’ estimates. SMCB is currently trading at EV/ton of US$259, vs average peers of US$296.

Mandiri Sekuritas Medco Energi: 1H10 net profit up 26.2% yoy, inline with expectation (MEDC, Rp3,050, Buy, TP: Rp3,500)

MEDC’s 1H10 revenue grew 27.7% yoy to US$397mn, due to the increasing hydrocarbon lifting and sales by 3.6% yoy to 55.49mboepd and strengthening average realized selling price of crude oil by 46.7% yoy (to US$80.5/bbl), as well as gas price by 15.6% yoy (to US$3.6/mmbtu). This also resulted into better margins. 1H10 revenue reflects around 55.7% of our estimates and 40.8% of consensus’, which is inline with our expectation. MEDC is currently trading at EV/2P reserves of US$3.8/boe.

Mandiri Sekuritas Astra International: 1H10 results are inline with ours and consensus estimate (ASII, Rp52,750, Buy, TP: Rp50,500)

􀂄 ASII posted 1H10 net income of Rp6.5tn (+51.8%yoy, +13.7%qoq), which is inline with ours and consensus estimate.
􀂄 Operating profit growth mainly came from automotives (+46%yoy) and financial services division (+43%yoy), while agribusiness contracted 17%yoy.
􀂄 We have a Buy recommendation on ASII which currently trades at PER10-11F of 18.2-15.9x.

Mansek Bank Negara Indonesia:1H10 results in line with our expectation and consensus estimates (BBNI,Rp2,975,Buy,TP: Rp3,500)

BNI reported net profit of Rp1.9 tn for 1H10 (+60.9%yoy),in line with our expectation and consensus estimates.

The bank recorded higher than expected provisioning expenses in 2Q09 despite lower NPL during the quarter.According to the management,the allocation was intended to increase the bank ’s coverage ratio.At end Jun10,coverage ratio recorded at 122.5%in Jun10 from 121.8%in Mar10.

Meanwhile,loans was quite strong at 9.1%qoq in 2Q10 (-4.3%qoq in 1Q10),bringing LDR to increase to 68.2%at end Jun10 from 67.7%at end Mar10.Consumer loans posted the highest growth of 16.9%qoq to Rp20.5tn,representing 16.2%of total loans at end Jun10.

At current price,BNI is trading at 2011F P/BV of 1.8x and PER of 8.2x,respectively..We maintained our buy recommendation.

Mansek Astra Agro Lestari:takeaway from a company visit (AALI,Rp21,250,BUY,TP:Rp24,500)

Although its 1H10 CPO production decreased by 5.7%yoy,AALI still maintains its FY10F CPO production similar to that recorded in FY09.

AALI indicated that its COGS in 1H10 increased by 6%yoy,which we believe was due to newly matured plantation (please note that newly matured plantation was recorded at 12,882 ha in 1Q10 (an increase of 9.2%from FY09).

The cost (fertilizer,maintenance,etc)of newly matured plantation is charged to income statement (while for immature plantation it is capitalized).Meanwhile,the productivity of newly mature plantation is still low around 10 ton FFB/ha compared to its average productivity of 22 ton FFB/ha.

We estimate AALI ’s 1H10 net income will decrease by around 6%-10%yoy.
Currently,AALI trades at PE FY10F and FY11F of 15.3x and 13.1x.

Mansek AALI:6M10 CPO sales volume reach 45%of our FY10F assumption (AALI, Rp20,250,BUY,TP:Rp24,500)

AALI ’s 6M10 CPO sales volume decreased by 3.3%yoy from 494,018 ton in 6M09 to 477,639 ton in 6M10.This 6M10 CPO sales volume represents 45.0%of our FY10F assumption.We will maintain our CPO sales volume assumption.

AALI ’s 6M10 CPO sales price increased by 3.2%yoy from Rp6,386/kg in 6M09 to Rp6,590/kg in 6M10.

Currently,AALI trades at FY10F and FY11F PE of 14.6x and 12.5x, respectively.

Mansek Kalbe Farma:1H10 results indication are inline with our forecast (KLBF, Rp2,450,Buy,TP:Rp2,500)

KLBF management indicated 1H10 revenues reached Rp4.73tn (+12%yoy)
and net income reached Rp518bn (+30%yoy).These indicative results
confirm our previous indicative results in our July 9 report.The Rp518bn
net profit,considering seasonality effect,is inline with our forecast as it
represents 41%of our FY10F forecast.

The management is targeting FY10 revenues of Rp10.45tn (inline with
ours),and net income of Rp1.11tn (13%below ours).

Regarding IGAR,KLBF decided to sell none-core packaging business IGAR.
IGAR was sold at Rp185/share (or a total of Rp113bn)with the transaction
to be completed within this year.According to the company,this is not a
material transaction.

We still have Buy recommendation for KLBF which is trading at PER10-11F
of 19.6-16.1x.

Mansek Medco Energi:Discovers additional oil in Libya ’s Area 47 (MEDC,Rp2,975, Buy,TP Rp3,500)

The company reported an additional oil discovery in Area 47,Libya.The discovery is the twelfth oil &gas discovery out of 17 wells drilled.This discovery will enhance the overall and ultimate potential in such block. Aside from that,PT Pertamina ’s President Director said that they will set up a joint venture with MEDC to develop an oil block in Libya.We view that both issues should have a positive impact to MEDC.Currently,the company is trading at EV/2P reserves of US$2.4/boe and US$3.9/boe,with or without Libya block in their portfolio.

Mandiri Sekuritas Holcim Indonesia: The government to reevaluate its limestone mining agreement (SMCB, Rp2,150, Neutral, TP: Rp2,500)

Minister of Forestry together with Minister of Law and Human Rights plans to reevaluate Holcim’s limestone mining license in Nusakambangan and Jeruklegi, Cilacap. The government has formed a team to evaluate and analyze the contract. On the other hand, Holcim believes that they have abided the regulation for their exploitation activities. Furthermore, they just utilize the land of only 112 ha from 1,000 ha concession license. Should the government revoke the license, it will have a negative impact to Holcim Indonesia. Currently, SMCB is trading at EV/ton of US$234, which still below than average peers of US$271.

Mandiri Sekuritas London Sumatra: 1Q10 net income was below our estimate and consensus (LSIP, Rp9,650, Buy, TP: Rp10,500)

􀂄 LSIP posted 1Q10 revenues of Rp680bn (10.1%yoy, -26.8%qoq). This translates to net income of Rp168bn (+62.8%yoy, - 23.0%qoq)
􀂄 Although CPO and PK sales volume decreased by 13.5% and 16.2% yoy, respectively, revenue increased by 10.1%yoy mainly due to higher ASP of rubber and higher sales volume of oil palm seeds.
􀂄 CPO sales volume decreased because CPO production decreased by 6.1% yoy and logistical issues relating to higher rainfall in South Sumatera.
􀂄 1Q10 gross margin improved due to higher ASP of rubber in 1Q10 and higher sales volume of oil palm seeds.
􀂄 1Q10 CPO sales volume of 69,265 ton represents 16.7% of our FY10E CPO sales volume. In the last 2 years, average 1Q sales volume represented 22.7% of full year sales volume.
􀂄 We will re-visit our forecast. Currently, we retain our buy call with a TP of 10,500. The counter trades at PER10-11F of 14.2- 12.2x.

BNP Paribas Bank Danamon (BDMN IJ) - High margin maintained (BUY; TP 6,100 from 5,500)

We maintain our BUY call on Bank Danamon with the revised TP of IDR6,100
based on 2.8x P/BV 2010E.

* After a slow 2009 the bank is expected to see much higher loan growth of
18% in 2010 with loan demand from the mass market segment, accounting for
54% of total loans, remains healthy.

* Of the mass market loans, we are positive on motorcycle financing with the
expected industry sales growth of 15% on new motorcycle sales. Adira Finance
financed more than 13% of the new motorcycle sales and 3% on new car sales
in 2009.

* Cost of funds is forecast to be lower in 2010 despite high reliance on
time deposits. This is because of the cap in deposit rate agreed among large
banks since mid 2009. Though we expect lower lending rates on mass market
loans, NIM is forecast to remain high at 11.8% in 2010-11.

* NPL should improve, in line with improving economic outlook, while
coverage ratio increase.

* We upgrade 2010 earnings by 7% and 2011 by 4%. With ROE getting closer
towards 20% again, we value the stock at 2.8x P/BV 2010E, compared to the
average valuation of 3x P/BV in the past nine years.

Bahana ITMG HOLD (Changed from Reduce) TP: IDR8,900 (From IDR8,500)

Greater operating efficiencies in the cards
In 2009, Indo Tambang Raya (ITMG) is set to enjoy greater cost savings and operating efficiencies as the company’s new coal-fired power plant will be operational by April 2009. This will be used to replace current generators that are running with diesel oil to supply electricity for conveyor belts in IMM port and crushing plant at East block. Total cost savings should be around USD2m per annum.

Lower than expected 2008 volume could continue into 2009
On a more negative note, ITMG did not reached its 19.5m tons sales target in 2008. However, with the actual number still undisclosed, we maintain our volume estimate at 18.6m tons. The lower sales realization than initial estimate was caused by weakening demand. Because slower demand is
likely to persist into 2009, we expect ITMG’s volume to remain stagnant at 18.6m tons, compared to the company’s 2009 target of 20.5m tons.

HOLD with TP of IDR8,900
We remain negative on the coal sector as we believe coal price will further come off, supported by recent news that South Korean utilities have drawn contracts with Australian coal producers at USD70/ton including freight costs. This coupled with possible disappointment on weaker than expected volumes, we rate ITMG a HOLD. Our DCF-based TP of IDR8,900 is derived using 17.7% WACC, 3% long-term growth rate and 8% risk premium.