NISP Higher interest expenses and non cash item drags down Indosat’s profit (ISAT, Rp4,650)

• Indosat explained that higher interest expenses dragged down its profit in 1H10 period, the company paid Rp1.1tn of interest expense in 1H10 compared to Rp882.6bn a year earlier. This was also added by losses from derivatives of Rp262.6bn and lower forex gains during 1H10 period.

• However, the company’s operational performance also posted deterioration in 1H10 where operating income decreased by 16.7% YoY to Rp1.6tn. However, this was largely due to higher non-cash depreciation expenses of Rp3.0tn compared to Rp2.4tn in 1H09.

• As such, the company’s net profit came way below consensus expectation at Rp287.1bn vs market expectation of Rp1.4tn for full year 2010.

• ISAT is trading at 2011F consensus PER of 13.9x and EV/EBITDA of 4.4x.

Mansek Bukit Asam :A lot of catching up to do (PTBA,Rp16,550,Neutral,TP:Rp18,650)

Bukit Asam announced its new contract price and amount for PLN power plants,Tarahan and Bukit Asam.Tarahan will received 750k tons at Rp570,000/ton and Bukit Asam will receive 1.1Mt at Rp430,000/tons.With this announcement PTBA has settled all the contracts with PLN including January 21,2010 contract to supply Suralaya power plant 5.5Mt at Rp685,000/tons.With the contracted amount and prices with PLN,we expects PTBA has a lot to catch up on the export front

Catching up the volume.With PLN contracted amount and export in 1Q10 (we assume no domestic sales aside from PLN in 1Q10),PTBA has to find market for its 6,978k tons of coal.This assumed PTBA will fulfill its 15.6Mt of FY10 sales guidance.Can they make it since 1Q10 they only sold 3.2Mt (20.5%of FY10 guidance)and April sales is only 828k tons. Based on April 2010 sales volume it will be tough to maintain guidance.

And also ASP.We also estimated that PTBA need to have an ASP of US$63.6/ton for its remaining volume.Can they achieve it,considering ASP 1Q10 for export is just US$57/ton.That also assumed that all the remaining volume is for export which is usually have higher price.PTBA mentioned that 1Q10 export was mainly on coal with 5,900 kcal,and expect to send higher calorific coals in the future.Based on these recent data,we conclude that there is likelihood of downward adjustments in consensus forecast.

Mandiri Sekuritas Perusahaan Gas : Conoco – Chevron sign gas sales agreement (PGAS, Rp3,825, Buy, TP:Rp4,650)

GSA which will be signed May 18, 2010 agreed on 400 MMSCFD supply with US$0.47/MMBTU toll fee. The agreed supply is higher than previous agreement of 322 MMSCFD. The additional supply is done at the expense, we believe, of PGAS which saw its inflow from Conoco falling to 250-260 MMSCFD, from previously 400 MMSCFD expected. We are still waiting for the comment from PGAS, and whether the 70 MMSCFD balance will be added to PGAS (from reduction of 150 MMSCFD PGAS supply, and additional 80 MMSCFD to
Chevron).

NISP Bank Danamon to distribute Rp766.3bn of dividend (BDMN, Rp5,650)

• Bank Danamon will distribute Rp766.3bn as dividend or equal to Rp90.97/share with a dividend payout ratio of 50%. This plan has been approved by the shareholders in the bank’s AGM yesterday.

• Shareholders also appointed Mr. Henry Ho as a president director, replacing Sebastian Paredes. Mr. Henry Ho, formerly president of Bank International Indonesia (BNII, Rp305), resigned in 2009 after Malayan Banking Bhd acquired controlling stakes on Danamon from Temasek.

• BDMN is trading at 2010F consensus PER of 17.0x and PBV of 2.7x.

NISP BRI net income grows by 25% (BBRI, Rp8,650)

• For the first quarter of 2010, BRI managed to book Rp2.15tn as net income, or 25% YoY higher than Rp1.72tn in 1Q09. The result came in 24.3% of market expectation for full year 2010F of Rp8.83tn.

• The performance was due to a rise in net interest income for the bank, which grew 24% YoY to Rp6.7tn. NII grew at a faster rate than operating expenses, which contracted slightly by 3%YoY to Rp4.5tn.

• The lower interest rate condition unfazed BRI, as NIM was comparatively steady at 9.37% compared to 9.46% enjoyed last year. However on the asset quality side, NPL increased to 4.10% from 3.24% the previous year.

• BBRI is trading at 2010F consensus PER of 12.0x and PBV of 3.2x.

Mandiri Sekuritas Perusahaan Gas : Lowering the volume target? (PGAS, Rp4,150, Neutral, TP:Rp4,650)

In a hearing with House of Representatives yesterday, PGAS, CEO Hendi Prio, is mentioning about a target which is the same as last year, 700-800 MMSCFD. The target is below current guidance of 800-900 MMSCFD. PGAS sold 792 MMSCFD in 2009. Our current model is based on 810 MMSCFD of volume distributed. At Rp4,150, PGAS is trading at 19.2x and 18.1x PER10F and PER11F respectively according to our estimates. We are waiting for company confirmation on the new guidance, however we unlikely change
our forecasts as our current forecasts already 17.4% and 24.5% lower than consensus estimates for FY10 and FY11 earnings.

Mandiri Sekuritas Perusahaan Gas : Pertamina, PGN Form Venture for Terminals, no end to Conoco Phillips shortage (PGAS, Rp4,125, Neutral, TP:Rp4,650)

􀂄 State oil and gas company PT Pertamina and state gas-distribution company Perusahaan Gas Negara have established a joint-venture company to operate a floating terminal in West Java for the receiving and regasification of liquefied natural gas, as well as two future terminals in Medan and East Java. The new company, PT Nusantara Regas, will play a significant role in meeting the rapidly growing domestic demand for gas for electricity generation as well as the manufacturing of fertilizer and related products. Pertamina owns 60% of the company, while PGN owns the remainder. The authorized capital of Nusantara Regas is Rp2tn (US$222mn). The paid-up capital is Rp 500bn. The capacity of the terminal in West Java is around 3 million tons of gas per year and the terminal could begin operating before the end of 2011 (Jakarta Globe)

􀂄 PGN also plan to acquire two gas fields worth US$350mn and has completed the due diligence process. PGN CEO expects to complete the acquisition in 2H2010. No details on specifics of the two gas fields. (www.koran-jakarta.com)

􀂄 Amid a shortage of gas to fuel its power plants, state electricity company Perusahaan Listrik Negara may see its profit fall by 38.6% this year, the utility announced on Wednesday. Setio Anggoro Dewo, PLN’s finance director, told reporters that the company was penciling in potential losses of Rp4tn(US$444mn) on gas shortages.

􀂄 Additionally, local media reported that PLN suffered a shortfall because of a reduced supply from state company Perusahaan Gas Negara. PGN has also suffered shortfalls after two other providers — ConocoPhillips and Pertamina Hulu Energy — cut their supply. ConocoPhillips is only able to deliver 250 MMSCFD of gas from its previous supply volume of 396 MMSCFD. Murtaqi Syamsuddin, PLN’s director of risk management, said the gas shortage could be seen at the Muara Tawar plant in Bekasi, where the supply has fallen from 230 BBTUD (207 MMSCFD) to less than 100 BBTUD (90 MMSCFD). “The gas shortage at the PLN power plant in Muara Tawar itself could cause a loss of Rp 2.4 trillion,” Setio said. (Jakarta Globe)

Mandiri Sekuritas Medco Energi: Has been appointed to be the operator in Libya (MEDC, Rp2,550, Neutral, TP: Rp2,650)

Bisnis Indonesia reported that MEDC through Medco International Ventures Limited has been appointed by Great Socialist People Libyan Arab Jamahiriya – General People’s Committee (GPC) to be the operator in area 47, Libya. MEDC replaces Verenex as the previous operator. Other than that, GPC has also given 1 year extension of exploration period, starting April 2010. This means MEDC could perform drilling for another 3 exploration wells, thus will improve their chances to obtain commercialization approval
from NOC. Once approved, MEDC could convert its contingent reserves in Libya of around 176 mmboe to 2P reserves. As per FY09, MEDC has 2P reserves of 277mmboe. This will have a positive impact to MEDC. Note that MEDC expect production to reach 50,000 bpd to 100,000 bpd in 2014 for its Libyan asset. MEDC is currently trading at EV/2P of US$3.4/boe.

Mandiri Sekuritas Perusahaan Gas : Price increase did not suffice potential increase in COGS (PGAS, Rp4,175, Neutral, TP:Rp4,650)

􀂄 PGAS formally announced the increase of an average 15% (our calculation is 15.8%) from US$5.49/MMBTU to US$6.36/MMBTU. However, post coverage of gas shortage (with several assumptions), we conclude that the increase is just enough to cover the average increase in cost of gas.

􀂄 Assumptions that we use: a flow of 900 MMSCFD (maximum flow previously guided by PGAS), a deficit of 150 MMSCFD (as stated by PGAS CEO in various sources, today). We use US$2.6/MMBTU as average cost of gas for 750 MMSCFD (current flow with low cost, a cost PGAS has for 900 MMSCFD if there is no shortage), and US$5.4/MMBTU as gas price to cover the deficit. Our calculation showed an increase in average cost of gas from US$2.6MMBTU to US$3.07/MMBTU. That is an increase of 17.9%.

􀂄 Coupled with strengthening Rupiah we might saw a decline in profits. As PGAS charged in US$, and Rupiah 1Q10 (9264/US$) was 11% stronger than FY09 average of 10,396, we might see a drop in operating profits. Therefore it emphasizes our Neutral recommendation for PGAS. At Rp4,175, PGAS is trading at 19.6x and 18.4x FY10F and FY11F PER, respectively.

Mandiri Sekuritas Medco Energi: FY09 net profit fell 48.0% yoy, lower than consensus estimates (MEDC, Rp2,600, Neutral, TP: Rp2,650)

􀂄 MEDC’s FY09 revenue drop 48.0% yoy to US$668mn. This is inline with ours yet below consensus estimates, as it only represents 83.6% from consensus’ FY09F estimates. Lower top line is due to significantly lower net oil and gas sales (-
44.1% yoy), chemical and other petroleum products (-77.9% yoy) since there was no more income from drilling operation. The company reported that hydrocarbon lifting falls 16.7% yoy to 52.8 mboepd, as well as average realized selling price of crude oil by 36.6% yoy to US$64/bbl and gas price by 26.1% yoy to US$3.1/mmbtu.

􀂄 Gross margin was slightly down to 34.3% in FY09 compare with FY08 of 38.8%. Down to operating, the company was not able to lower its expenses (+1.6%), thus margin is less half of FY08. The company reported net profit of US$19mn, which is above ours yet below consensus estimates of some US$38mn. It is higher than our estimates as we did not factored in several irregular items in our forecast, namely net gain on disposal of subsidiaries of US$30.6mn, gain on short term investment of US$24.1mn, and gain from derivative transaction of US$6.7mn. MEDC is currently trading at EV/2P of US$3.4/boe, as it transfers some of its contingent reserves to 2P (+45% yoy).

Mandiri Sekuritas Perusahaan Gas : Tariff will increase 15% from April 1, 2010, will input price follow (PGAS, Rp4,225, Neutral, TP:Rp4,650)

􀂄 In a mediation facilitated by Ministry of Industry, PGAS stood on its plan to raise its gas tariff by an average of 15%. PGAS applied a different pricing to different industry e.g. food and beverage industry tariff was US$3.8/MMBTU now US$4.1/MMBTU, while steel industry now is US$6.7/MMBTU. PGAS reasoned that its input cost now is US$5/MMBTU. PGAS will also apply a surcharge of 300% for gas consumed exceeding the quota, and PGAS required two months upfront payment (Investor Daily)

􀂄 As has been written in our note yesterday, we are confidence of PGAS ability to raise its tariff. However, now our concerns have moved on to the supply availability and potential threat of input price increase. Conoco Phillips 400 MMSCFD supply to PGAS was priced at US$1.85/MMBTU signed in 2007. PGAS would be the least priority for Conoco to supply as their price is the cheapest. PGAS can not demand the agreed supply as the agreement is based on the gas availability. We have a Neutral recommendation for PGAS. At Rp4,225/share, PGAS is traded at 19.8x, and 18.7x PER10F and PER11F, respectively

Mandiri Sekuritas Perusahaan Gas: Collated negative news (PGAS, Rp4,325, Neutral, TP: Rp4,650)

􀂄 No possible return of supply. Upstream oil and gas regulator BPMigas says there is no more gas available to cope with the gas shortage being suffered by state power firm PT PLN. “The only available solution is that we must wait for the completion of the planned LNG [liquefied natural gas] receiving terminals,” BPMigas’ head of public relations Sulistya Hastuti Wahyu told reporters on Thursday. PLN’s Muara Tawar power plant in Bekasi, West Java, receives gas supply from state gas distributor PT Perusahaan Gas Negara (PGAS). But, since early March this year, the supply has dropped to 100 billion British thermal units of gas per day (BBTUD) from an average of 250 BBTUD in 2009. PLN said it had already spent as much as Rp 2.4 trillion (US$263 million) to buy oil-based fuels to replace gas for power plants. 1 BBTUD= 1 MMSCFD (Jakarta Post, Fri 26-03-2010)

􀂄 Conoco-Chevron gas transportation agreement to be effective. Conoco will sign a gas transportation agreement (GTA) with Chevron. Volume gas to be supplied will be not far different from currently supplied that is 402 MMSCFD. (Bisnis Indonesia, Sat, 27-03-2010)

􀂄 Minister of Industry asked PGAS to cancel plan ton raise tariff. Minister of Industry, MS Hidayat, is going to asked PGAS to cancel its plan to raise tariff by 15% and additional surcharge of 200% for excess gas usage, Previously PGAS planned to apply the new price formula from April 1, 2010. Theoretically, Minister has no executive power to cancel tariff plan as regulation stated that gas price of industry is set through a business-to business method. (Kontan, Mon, 30-03-2010)

􀂄 These are sorts of bad news that we are expecting when we downgrade PGAS recommendation from Buy to Neutral. Although we still believe PGAS can execute its price formula, we are more concern on the short supply and potential price increase on its supply if PGAS can increase its delivered gas price. At Rp4,325, PGAS is trading at PER10F and PER11F of 20.3x and 19.1x, respectively.