Mansek ADRO:net profit below our and consensus estimates (ADRO,Rp1,980,Buy, TP:Rp2,600)

1H10 net profit at Rp1.2tn (-48.7%yoy,-66.1%QoQ)below ours and consensus estimates.
ADRO booked revenue 1H10 at Rp12.0tn (-7.1%yoy,-9.1%QoQ)below our and consensus estimates.
In US dollar basis,revenue was at US$1.3bn (+11.9%yoy),due to increased production and sales volume.Production volume increased 20.2%yoy and sales volume increase 22.0%yoy.
The strong US dollar revenue had been offset by strengthening of rupiah against US dollar;in the first 6 months in 2010,average rupiah/US$ exchange rate strengthened 17%to Rp9,189/US$compare with Rp11,067/US$.
Cost of revenues increased by 7.9%yoy,due to increasing stripping ratio and increasing production volume.ADRO ’s cash cost (excluding royalties)increased 6%yoy,dragging down operating margin and net margin.
ADRO trades at PER10F-11F of 16.0x and 11.8x,respectively,maintain Buy.

Mansek Adaro:targets production 80Mt by 2015 (ADRO,Rp2,050,Buy,TP: idr2,600)

ADRO targets coal production reach 80Mt by 2015,almost double than target production FY10 of 45-46Mt.To support the target,the company plans to build 68 Km length of landed conveyor belt in stages and also to build 2x30MW capacity of power plant located in mouth of the mining site. The conveyer belt is scheduled to be start built in earlier 2011 with initial capacity of 40Mt,and expected to contribute saving cost amounting to US$1.5/ton to production cost.In 1H10,ADRO produced 21.6Mt or 47%to FY10 target.ADRO trades at PER10F-11F of 16.5x and 12.2x,respectively, maintain Buy.

Mansek Indocement:To build new plant (INTP,Rp16,150,Neutral,TP:Rp16,600)

Aside from the new 1.5mn tons cement mill which will start operating this month,they will build another cement mill in Citeureup with a total investment cost of around US$300-450mn.This is sooner than their previous plan,given unexpectedly strong demand.They previously mentioned that new plant will have a capacity of 2-3mn tons/year.

As for this year,they budgeted around US$75mn for FY10 capex,which some US$18.7mn has been spent in 1H10.Other than that,the company will also build its own power plant with a capacity of 2X50MW.On valuation basis,the company is currently trading at PER10F of 17.7x (vs average peers of 16.5x).

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.

Mandiri Sekuritas Indocement TP: 1H10 net profit grew 39.9% yoy, slightly higher than expected (INTP, Rp16,850, Neutral, TP: Rp16,600)

Domestic sales volume grew 17.3% yoy, which was higher than total revenue of only 11.8% yoy. This shows that average selling price was lower. However, margins improved, thus net profit increased by 39.9% yoy. Overall, FY09 result is inline with our and consensus estimates. Currently INTP is trading at EV/ton and PER10 of US$335 and 18.5x, respectively.

Mandiri Sekuritas Hexindo Adiperkasa: 1Q10 net income is in line with ours and consensus (HEXA, Rp5,950, Buy, TP: Rp3,600)

􀂄 On AGM held yesterday, the company decided to disburse dividend amounting to USD12.2mn (35.8% of FY09 net income) or equal to US$0.0145/share or around Rp130.5 (rate Rp9,000/US$); it reflects dividend yield of 2.2%. HEXA booked FY09 net income of US$34.0mn.
􀂄 The company booked 1Q10 revenues (Apr-Jun’10) of US$123.5mn (+132.3%yoy), a major portion of which was derived from the sale of heavy machineries amounting US$82mn (66.4% of total sales). Meanwhile net income was at US$9.2mn.
􀂄 We have a Buy recommendation on HEXA; it trades at PER10F of 14.1x.

NISP Indosat to issue US$500mn global bonds (ISAT, Rp5,600)

• Indosat shared its plan to issue US$500mn of global bonds in order to support the company’s capex this year. The company sets a lower capex of around US$500mn in contrast with US$700mn in 2009. In 2010, Indosat has to repay its maturing loans of Rp4.5tn this year that may affect the company’s budget on capex.

• It is reported that Indosat has appointed three underwriters to support the issuance and this plan has already been submitted to Bapepam.

• ISAT is trading at 2010F consensus PER of 17.6x and EV/EBITDA of 5.2x.

Mandiri Sekuritas Indocement: To build 2mn tons cement mills (INTP, Rp15,350, Neutral, TP: Rp16,600)

􀂄 Aside from the new 1.5mn tons cement mill which will start operating this May, they will build another cement mill with a capacity of 2mn tons. This is sooner than their previous plan, given unexpectedly strong demand. They budgeted around US$100mn for FY10 capex, from previously US$70mn.

􀂄 Other than that, the company will give out cash dividend of around Rp828bn, or equal to Rp225/share. It reflects a dividend yield of 1.5%. The payout ratio of around 30% is inline with our expectation. Cum dividend date will be on 21 June 2010, and it will be distributed 7 July 2010. On valuation basis, the company is currently trading at PER10F of 16.9x.

NISP Indosat net income more than doubles in the first quarter (ISAT, Rp5,600)

• Indosat CEO, Mr. Harry Sasongko, hinted that Indosat managed to book net income of Rp258.9bn during the 1Q10, which was 139.2% higher than Rp119.5bn achieved during 1Q09. Revenue is up slightly by 5.1% to Rp4.73tn from Rp4.50tn, with 75% of revenue from cellular. Consensus full-year expectation for net income and revenue was Rp1,694.8bn and Rp20.51tn.

• The company budgets 70% of the total US$550-700mn of capex for infrastructure development, among them to modernize network and telecommunication equipment.

• ISAT is trading at 2010F consensus PER of 17.6x and EV/EBITDA of 5.3x.

Indopremier ANTM - (BUY - TP Rp 2,600)

On worries of shaky economic recovery, nickel prices fell back to more sustainable levels which reflect market fundamentals more closely, in our view. Potentially higher margins and strong earnings growth lead us to upgrade ANTM to a BUY on higher TP of Rp2,600, which offers 19.5% potential upside and implies 20.3x/15.4x 2010F/2011F PER.

Under delivery in 1Q10
ANTM’s production of ferronickel and nickel in 1Q10 increased 14% and 30% QoQ respectively and on track to meet 2010 production targets. 1Q10 ferronickel sales fell 63% QoQ to 1,663tons, reaching only 9% of our 2010E due to product in transition, which will carry forward to 2Q10. Revenues fell 30% QoQ to Rp8,573bn but gross profit still rose 20% QoQ as the reduction in gold trading activities raised gross margin to 29%. ANTM’s net profit was up 125% YoY but fell 19% QoQ on higher non-operating expenses.

Ongoing developments
Among the several projects that ANTM is developing, the Cibaliung gold mine is starting operation in 2H10, potentially producing 500kg this year. The mine has total reserves of 12,800kg and annual production capacity of 2,000kg pa, for a mine life of 6 years. This should help raise margins by reducing gold sales associated with low yielding trading activities.

Debt Preferred for External Funding
ANTM is looking for external financing of Rp1.64tn to fund 70% of the Rp2.35tn capex it has allocated for 2010. Higher debt is beneficial to its capital structure and should raise its financial leverage to benefit from higher earnings sensitivity to rising operating income. While debt is preferred, ANTM also considers rights issue as an alternative, which could also serve to reduce the proportion of government’s stake in the company, making it eligible for a 5% tax reduction.

Back to More Sustainable Levels
Recovery in world steel demand, which is estimated to increase 10.7% YoY to 1,241 mmt in 2010, has lifted nickel demand and prices in 1Q10. Despite more polished fundamentals, nickel market is still far from being concretely strong as inventory levels remain high. Nickel prices had overran itself when it peaked at US$27,227/mt and quickly fell to US$21,985/mt as market optimism faded in view of China’s tightening of its monetary policy and concerns over the contagion of European sovereign debt crisis began to undermine global economic recovery. Nevertheless, surging automotive steel demand in China and India provide strong support to nickel prices, which at around US$22,000/mt currently, reflects nickel’s fundamentals more closely and seems more sustainable in our view.

Mandiri Sekuritas United Tractors: 1Q10 net income up 12%yoy, within ours and consensus (UNTR, Rp19,600, Buy, TP: Rp19,600)

United Tractor’s 1Q10 results were in-line with our expectations and consensus. 1Q10 Revenue mix as follows 44% from heavy equipment sales, 46% from contract mining, while the remainder coming from coal sales (10%). With heavy equipment units’ sales up by 94%yoy to 1,218 units, revenues from construction machinery rose by 38%yoy to Rp3.8tn.
Meanwhile, increased production and better weather condition saw its mining contracting revenues grow by 27%yoy to Rp4tn. However, despite coal sales volume increase of 8%yoy, mining revenues dropped by 9%yoy to Rp840bn primarily as a result of weaker US dollar. Upside risk to our forecast mainly centers on sustained growth in machinery sales. We currently have a buy on the stock, which trades at PER10F of 16.3x.

Mandiri Sekuritas Semen Gresik: FY09 result is inline with consensus (SMGR, Rp7,550, Neutral, TP: Rp8,600)

Higher sales volume as well as price tag lifted FY09 revenue, as well as margins. FY09 revenue was up 17.8% yoy, and net profit grew 31.8% yoy. This is inline with consensus estimates yet slightly higher than ours. As for FY10, SMGR targeted a conservative net profit growth of only 10% yoy, citing SMGR’s president director. The figure is below our and consensus estimates growth of 11.3% and 15.1%, respectively. Currently SMGR is trading at PER10F of 12.4x and EV/ton of US$222.

Mandiri Sekuritas United Tractors: heavy equipment sales continue to surge up 16%mom in Feb10 (UNTR, Rp17,400, Buy, TP:Rp19,600)

United Tractor reported heavy equipment sales in the month of February of 394 units (+16%mom), thus, the highest posted monthly sales since Sep08. Once again, Feb10 demand was dominated by mining sector which accounted for 54% of unit sales. As of 2M10, heavy equipment sales have totaled 733 units (63%yoy) and are running ahead of our FY10 target of 3,500 (equivalent to about 21% of FY10F targets). We maintain buy for the stock which currently trades at PER10F 14.5x. while posing a 13% upside to our price objective.

Indopremier BDMN (HOLD - TP Rp 2,600)

From the 1Q09 BDMN financial result, we may conclude several points:

1. Company’s intention to move conservatively this year has been reflected on the 1Q09 financial performance. The credit slowed 5% QoQ, fuelled by falling loan book for corporate and SME lending which fell by 18% QoQ and 8% QoQ, respectively. The success of almost Rp 4trn rights issue would overcome liquidity and capital adequacy problem. Hence, BDMN might not enforce the funding from third party fund, which on 1Q09 tumbled 1% QoQ. Mild growth on credit and third party fund would stabilize the NIM, in our view.

2. As we expected, soaring NPL has been an embedded risk for BDMN. The NPL ratio in 1Q09 rose to 2.9%, compare with 2.3% in 4Q08. Higher NPL ratio in 1Q09 came from corporate and SME lending. Loan book under special mention category depicted discouraging movement, where the corporate lending has bigger portion under this category in 1Q09. BDMN would need more provisioning than our earlier expectation. We expect bad debt might also come from motorcycle financing and consumer mass market. Moreover, the NPL coverage in 1Q09 has tumbled nearing 100%, from 136% in 4Q08, which means the bank would need more provisioning to cushion the bad debt.

3. Loss on derivative transaction still shadowed BDMN’s performance. In 1Q09, the bank booked Rp 31billion of realized cost of unwound foreign exchange forward contracts and provisioning of the outstanding contracts. As of end of March 2009, there are a US$23 million marked to market value of outstanding contract from 15 customers, while the unwound contracts have total receivable of Rp 2.3trn.

Responding the 1Q09 figures, we revised the NPL ratio assumption to become 4% from the previous assumption of 3%. Meanwhile, for the NPL coverage, we assume 120% coverage would be sufficient. Growth estimation for loan book and third party fund remained the same, referring to BDMN’s guideline and our estimation. Under Gordon Growth Method, the fair value for BDMN is at 1.4x PBV09, translated into Rupiah, at Rp 2,600. We maintain our HOLD recommendation.