NISP BEI allows Bumi Resource Mineral to go public this year (BUMI, Rp2,200, Buy)

· Indonesia Stock Exchange (BEI) has concluded its process on evaluating Bumi Resource Mineral (BRM) IPO plan. The bourse will give the result to BRM this week and the company could continue the process to Bapepam in order to obtain pre-effective statement, which enables BRM to IPO this year.

· We still wait for the progress on this plan as the impact will be positive for Bumi Resources in support of the company’s debt reduction plan. This also will enable BRM to utilize its assets as it will hold Bumi’s non coal assets, including Newmont and Herald.

· Currently, BUMI is trading at 2011F PER of 14.4x and EV/EBITDA of 5.8x, Buy.

NISP Bumi Resources sold its non pre-emptive to Credit Suisse and RZB (BUMI, Rp2,200, Buy)

· Bumi Resources disclosed its counterparts on non pre-emptive issuance where Credit Suisse and Raiffeisen Zentralbank Osterreich AG (RZB-Austria) stood as counterparties. Credit Suisse bought 608.6mn or 44% of the issuance while the remaining 56% bought by RZB.

· The lock up period is one year starting October 5, 2010 and these new shares will be listing today. Thus, Bumi’s outstanding shares will reach 20.8bn shares.

· Bumi plans to use all the cash to retire some of its debt. Currently BUMI is trading at 2011F PER of 14.0x and EV/EBITDA of 5.9x, Buy.

NISP Bumi Resources appoints three underwriter for bonds issuance (BUMI, Rp2,100, Buy)

· It is reported that Bumi Resources has appointed three underwriters to help the company in issuing US$ bonds. This news is in response to Bumi’s US$430mn bonds that will mature this year.
· The company holds US$300.0mn of convertible bonds II that is puttable starting in 25 November 2010 with put price at 100.77%. The price will be higher if the company exercises its option on its next agreed schedule on 25 May 2012 (102.01%) and 25 November 2014 (104.33%)
· Bumi has not given further details or confirmation on this news; however, we foresee the company will refinance these bonds with other non conventional issuance.
· Furthermore, we are currently waiting for Bumi’s plan on its non pre-emptive right issuance as the company said this action will be done no later than 30 September 2010.
· Currently, BUMI is trading at 2011F PER of 13.4x and EV/EBITDA of 5.7x, Buy.

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.

NISP Kalbe Farma to build new production facility in Pulo Gadung (KLBF, Rp2,650, Buy)

· Kalbe Farma will build a new production facility in pharmaceutical prescription drugs next year. It is estimated that it will take 1.5 years to build. The company will complete the concept and design construction this October.
· Production cost will be around Rp100.0-150.0bn from total capex budget of Rp500.0bn. In addition the company will also plan to buy new equipment with cost between Rp50.0-Rp100.0bn and open several outlets.
· We believe that this plan is positive to the company’s outlook as prescription pharmaceuticals offers the highest gross margin at 65.7% compared to other segments of the company’s business. With cash balance at Rp1.47tn and gearing at 0.1x, the company is more than able to finance such expansion. Currently the company is currently trading at 2011F PER of 15.7x and EV/EBITDA of 8.9x, Buy.

NISP TB Bukit Asam aims 10% YoY production growth next year (PTBA, Rp19,400, Buy)

· TB Bukit Asam sets production growth target of 10% YoY in 2011F or aims to reach 15mn tons of coal production compared to 13.6mn tons in 2010F. The company cited that it has started to increase its infrastructure capacity in order to reach such target.
· For medium term, TB Bukit Asam sets a 70mn tons coal production target in 2016, which will be backed by the commencement of the company’s projects. The company is optimistic it will complete its entire projects in 2014 and obtains optimal utilization rate in 2016.
· TB Bukit Asam shared its internal target for each projects, which are 15mn tons from Tanjung Enim – Lampung new railway, 22.7mn tons from existing railway, 30mn tons from Tanjung Enim – Palembang new railway.
· The company’s guidance is inline with our expectation, thus, with current valuation of 2011F PER of 15.5x and EV/EBITDA of 10.1x, Buy.

NISP Bumi Resources declares objection on stock exchange’s stern warning (BUMI, Rp2,150, Buy)

· Bumi Resources shared its objection on BEI’s stern warning on the company’s 2009 financial report. The Bourse put its warning due to the mismatch on Bumi’s COGS with Darma Henwa’s (DEWA, Rp76) revenue.
· The issue popped out in July 2010 where differences are seen between Bumi’s COGS and Darma Henwa’s of US$455.6mn, which did not match with Darma Henwa’s revenue of US$156.6mn from Bumi.
· Bumi defended its case, stating it had explained in early 2H10 that the mismatch was due to a problem in spread sheet, hence, resulting wrong accounting record. Bumi added that the US$314.35mn of the COGS recorded on Darma Henwa is an allocation for Thiess, Bumi’s other coal contractor. Thus, COGS allocation for Darma Henwa was only US$141.27mn. Bumi had also revised its 2009’s COGS and there were no changes in the company’s total COGS amount.
· In the flip side, BEI received the objection and said it will collaborate with Bapepam on this matter.
· We view this is a non event for the company’s fundamental where Bumi had explained the difference back in July 2010.
· Currently, BUMI is trading at 2011F PER of 13.7x and EV/EBITDA of 5.8x, Buy.

NISP Jinchuan will absorb Antam’s nickel (ANTM, Rp2,300, Buy)

· Following recent news on cooperation possibility between Jinchuan Group and Antam, the group said it is ready to deploy up to US$2.00bn for nickel facility development in Halmahera and currently is studying feasibilities on this project.
· As a return, Jinchuan Group will absorb the facility’s output considering that this third world largest mining company requires nickel as the raw material for its stainless steel product.
· There are no further details on this plan; however, the facility in Halmahera will open access to Antam’s nickel reserves and is inline with the company’s plan.
· Currently ANTM is trading at 2011F PER of 10.4x and EV/EBITDA of 5.1x, Buy.

NISP TB Bukit Asam signs long term contract with PLN (PTBA, Rp18,900, Buy)

· TB Bukit Asam signed a 20-year contract to supply an additional 14.5 million tons of coal a year to Perusahaan Listrik Negara (PLN). TB Bukit Asam currently supplies 8.1mn tons coal to PLN, 6.1mn tons of which are conveyed to Suralaya power plant and the balance are for Tarahan and Bukit Asam power plants.
· TB Bukit Asam added that it will start to fulfill the contract after the company completed its railway project in order to boost logistic capacity.
· There is no further explanation when this contract will be started, however, we foresee this is prepared to support PLN’s 10,000 MW project.
· Nevertheless, despite no further details, we see this contract is very positive for TB Bukit Asam. With this secured demand for its coal, the company’s railway projects are becoming bankable where the company could utilize the contract to obtain financing to support the projects.
· Currently, PTBA is trading at 2011F PER of 14.9x and EV/EBITDA of 12.9x, Buy.

NISP Inco pays US$0.02/share interim dividend (INCO, Rp4,600, Buy)

· Inco announced its dividend interim payment of US$200mn or equal to US$0.02 per share (Rp180/share @ Rp8,990/US$). The amount equals to 91.4% of the company’s 1H10 net income of US$218.8mn.
· The decision was made in light of Inco’s strong 1H10 performance and its current strong financial condition. The dividend is payable on October 22, 2010 to shareholders recorded as of 8 October 2010.
· The company’s dividend is attractive as it offers 3.9% yield compared to Inco’s last price.
· We still maintain buy on Inco, which is currently trading at 2011F PER of 10.5x and EV/EBITDA of 7.2x. Also, we foresee the company will deliver satisfying 3Q10 results on the back of the rainy season that enables Inco to lower its fuel usage by optimizing its hydroelectric power plant.

NISP Bumi Resource Mineral obtains green light from stock exchange (BUMI, Rp1,830, Buy)

· Bumi Resource Mineral, Bumi Resource subsidiary for non coal business, has obtained the green light from the Indonesian Stock Exchange to proceed with its IPO plan as the bourse see that one of BRM’s business unit has started to produce revenue this month. Unfortunately, the bourse refuses to share data enlightening which business contributed revenue to BRM.
· Previously, Indonesia Stock Exchange could not agree BRM’s IPO plan as the company has not generated any revenue in its financial statement. Despite having given approval, there are no further details on the schedule.
· BRM plans to increase its equity through offering 20% of its shares to public and aim to raise up to US$300mn of fresh cash. This company controls Bumi Resources’ non coal assets such as Bumi Mauritania, Lemmington Investments, Komblo Bumi, Citra Palu Mineral and Multi Capital (which owned 24% stakes on Newmont Nusa Tenggara).
· The IPO plan will unlock value on Bumi’s non coal assets and would also be positive for BRM as it could utilize its assets to obtain financing for its projects.
· Currently BUMI is trading at 2011F PER of 11.6x and EV/EBITDA of 5.3x, Buy.

NISP Adaro aims to acquire Bhakti Energy Persada (ADRO, Rp1,790, Buy)

· Adaro is currently eyeing to acquire Bhakti Energi Persada (BEP), a coal company that operates two mines with total coal reserve of 115.6mn tons. BEP is an active mine as it has commenced coal mining activity last year. Annual coal production for 2010F is estimated at 700k tons with 2011F target of 2mn tons.
· BEP requires US$400mn to boost its production next year; however, the company has not managed to obtain such funding.
· Adaro foresees it would not meet any obstacles in this transaction as BEP is owned by, Benny Subianto and T.P. Rachmat, which is also the owner of Adaro. Nevertheless, this transaction will be categorized as an affiliated transaction.
· Adaro will employ its internal cash to finance this acquisition as the company cash position stood at Rp5.3tn as of 1H10.
· We still wait for Adaro to update the rationale as the reserve in BEP is relatively small compared to Adaro’s 930mn reserves. Also, whether the proceeds will be injected in BEP or paid to the existing shareholders.
· Separately, Adaro’s share price posted a huge decline in the last few days amid two factors, which are 1) weak 1H10 bottom line and 2) rumors on placement at Rp1,500 – Rp1,750. We view that the second factor has a largest role in the decline; however, the company’s IR confirmed that there are no such plan for Adaro. On weak 1H10 bottom line, we view that this was largely due to higher effective tax rate and Rp127.3bn of forex loss in 2Q10.
· The company has a potential of posting a better performance in 2H10 due to stable mining activities as the planned stripping ratio is scheduled to be unchanged compared to a QoQ increase in 2Q10.
· Thus, recent hefty correction opens a cheaper entry to ADRO as it is currently trading at 2011F PER of 10.5x and EV/EBITDA of 4.9x, Buy.

NISP Antam starts Chemical Grade Alumina project next year (ANTM, Rp2,075, Buy)

· Antam will start its CGA project next year as the company has signed the engineering, procurement and construction (EPC) agreement yesterday. This US$450mn project involves Wijaya Karya (WIKA, Rp590), Nusea, Tsukishima Kikai Co. Ltd., and Indonesia Chemical alumina (owned by Antam and Showa Denko).
· The construction is scheduled to start in 1Q11 and the facility is expected to commence in 1Q14. The project will bear 300k ton CGA production capacity, 200k tons of which is exclusive for Showa Denko and will be shipped to Japan . Meanwhile, the balance will be allocated for domestic market.
· The progress is positive for Antam despite the impact would not be imminent.
· Currently ANTM is trading at 2011F PER of 11.2x and EV/EBITDA of 5.8x, Buy.

NISP Antam posts superb performance in 1H10 (ANTM, Rp2,050, Buy)

· Antam posted 238.0% YoY growth in net income to Rp756.3bn compared to Rp223.8bn a year earlier. The result may exceed our full year expectation as it came in 60.9% to our 2010F net income estimate at Rp1.2tn while consensus expects Rp1.3tn of full year net income.

· Such increase was largely due to Antam’s ability to improve its profitability where operating margin rose to 32.6% in 1H10 from 10.2% a year earlier. This was a result from the company’s recovery in nickel business in 1H10. During the period Antam sold 52.1% YoY higher ferronickel at 6,082 tons with 70.2% YoY increase on ASP at US$9.4/lb from as low as US$5.5/lb a year earlier.

· Despite such higher volume, COGS was lower at Rp2.9tn, 26.5% YoY lower from Rp4.0tn in 1H09. This was due to small contribution from gold trading business and also stronger Rupiah exchange rate.

· On quarterly basis, revenue leapt by 60.7% QoQ due to delay shipment in 1Q10 that booked in 2Q10 period.

· In all, Antam managed to deliver a positive surprise in 1H10 period. Currently the company is trading at 2011F PER of 11.0x and EV/EBITDA of 5.7x, Buy.

NISP Bumi Resources managed to deliver satisfying 1H10 results (BUMI, Rp1,710, Buy)

· During 1H10, Bumi Resources managed to become the largest coal producer to post a positive growth in its operating income at US$531.8mn, 5.4% YoY higher from US$504.6mn a year earlier. In addition, all of the coal producers in our coverage posted negative growth during the period, due to lower selling price and higher direct cost. Bumi’s result came in inline with our expectation as 1H10 operating income came in at 45.2% to our and consensus’ full year expectation.

· However, as the company kept improving its tax policy in order to cope with recent issue, the company deducts its tax payables that caused a higher effective tax at 48.6% compared to 40.9% in 1H109. Hence, bottom line decreased by 30.0% YoY to US$134.6mn from US$192.3mn. The company’s tax payable position in 1H10 decreased to US$249.0mn from US$590.2mn a year earlier.

· Operational wise, revenue grew by 25.1% YoY on the back of higher sales volume and stronger ASP in 1H10. This improvement managed to overcome stronger COGS as the company boosted its production during 1H10.

· On quarterly basis, the company also managed to demonstrate positive performance on the back of stable sales volume and 14.2% QoQ increase in ASP.

· In all, Bumi Resources managed to post strong results in 1H10 and we foresee it will continue in 2H10 due to stable high selling price as the company is about to deliver another 10mn tons – 12mn tons at US$104/ton to Japan in the next three quarters.

· Currently the company is trading at 2011F PER of 10.9x and EV/EBITDA of 5.1x, Buy.

NISP Adaro posted soft revenue despite stronger sales volume in 1H10 (ADRO, Rp1,980, Buy)

· Despite posting 22.0% YoY growth in sales volume, Adaro logged in a disappointing 48.7% YoY decrease in net profit to Rp1.15tn in 1H10 from Rp2.24tn a year earlier. Such decrease was due to three key factors, which are 1) lower ASP, 2) higher direct cost and 3) forex translation on stronger Rupiah. The company’s bottom line came in only 28.9% to our and consensus’ full year expectation.

· During 1H10, the company’s ASP dipped by 10% YoY to around US$61/ton in 1H10 period. However, as the company managed to improve its sales volume by 22.0% YoY on higher coal production, Adaro’s revenue in US$ term increased by 11.9% to US$1,304mn in 1H10 from US$1,165mn a year ago. Nevertheless, stronger Rupiah, which increased by 17.0% YoY to an average of Rp9,189/US$ in 1H10 from Rp11,067 in 1H09, eroded the company’s revenue that was booked in Rupiah to Rp11.95tn from Rp12.90tn in the same period.

· At the same time, higher coal sales caused an extra direct cost of 7.4% YoY to Rp8.0tn, where this was largely due to the increase in planned stripping ratio from 5.0x to 5.5x due to mining the deeper part of the mine as well as the 20% production increase compared to 1H09.

· Such weak condition was also added by higher forex loss and an increase in effective tax rate of 54.4% from 47.1% a year earlier. As such, the company’s bottom line eroded significantly in 1H10.

· On quarterly basis, sales volume was lower due to heavy rainfall and affected the company revenue, which decreased by 9.7% QoQ. This was also added by forex loss and higher interest expense on additional bonds issued last year. Thus, net income plunged by 66.1% YoY.

· In all, despite weak bottom line, the company’s revenue and operating income came in inline with our expectation. The risk is weather condition in 2H10, which may affect sales volume and profitability in the upcoming quarters.

· Currently Adaro is trading at 2011F PER of 11.6x and EV/EBITDA of 5.4x, Buy.

NISP Antam has no interest for NNT’s IPO (ANTM, Rp2,050, Buy)

· Despite its previous bid in the divestment program, Antam said that the company has no interest in acquiring ownership in Newmont, including in Newmont Nusa Tenggara’s IPO plan in 1Q11. Antam preferred to put more focus on its existing projects, which are Cibaliung gold mine, chemical grade alumina and FeNI IV.

· This statement erases possibilities that Antam may stand as a bidder in Newmont’s IPO where previously the Ministry of SOE encourages the company to bid Newmont.

· There is no impact on this news as we foresee that Antam also views Newmont’s IPO price may double from the previous offer in the divestment program.

· Currently, ANTM is trading at 2011F PER of 11.0x and EV/EBITDA of 5.7x, Buy.

NISP Kalbe Farma reduces revenue target on Kageo sale (KLBF, Rp2,325, Buy)

· Kalbe Farma reduced its target a percentage from previously 13.0%-15% to only 12%-14% YoY growth from Rp9.09tn last year. This is due to the decreased revenue from Kageo Igar, which is part of its packaging division. Net income target is unchanged at Rp1.20-1.30tn, or 29.2%-39.9% YoY growth from Rp929.0bn in 2009.

· The packaging division as a whole only contributes 4% to total sales. The company believes that the divestment will allow them to focus on its core business.

· This is expected by us as the company’s distribution business is more of revenue driver than its packaging sub-division. In addition the Kageo sale will improve the company’s profitability ratio as the packaging division has low margins. Currently KLBF is trading at 2011F PER of 13.8x and EV/EBITDA of 7.7x, Buy.

NISP TB Bukit Asam signs new project (PTBA, Rp16,700, Buy)

• TB Bukit Asam has signed an agreement for its new railway project that will connect Tanjung Enim and a new port at Tanjung Api Api, South Sumatera. This 270km railway project involves TB Bukit Asam, Adani Group and South Sumatra Provincial Government. Adani is an India based company specializing in power, infrastructure, global trading, logistics and energy.

• This is a completely new project apart of the company’s railway project with Rajawali and China Railway Engineering. This project will connect Tanjung Enim to Palembang, while project with Rajawali and China Railway Engineering connects Tanjung Enim with Lampung.

• From the brief explanation, we find that Adani will provide the whole US$1.65bn funding, which makes the group own 98% stakes in this project. TB Bukit Asam will supply the 34mn tons coal per year through this new infrastructure.
However, there are no further explanations explaining whether Adani has exclusive right for the coal or will only collect the fees from the railway, uploading and unloading activities and port fee.

• Initial estimates showed this project will be able to bear 34mn tons capacity and will commence in 2014. Hence, this is positive for TB Bukit Asam as it would make the company one of the largest coal producers in Indonesia. In addition current existing projects already bear 60.7mn tons coal capacity per year. With this new project, the company’s maximum logistic capacity will reach 94.7mn tons, which will provide access to TB Bukit Asam’s abundant reserves.

• Currently PTBA is trading at 2011F PER of 13.2x and EV/EBITDA of 11.6x, Buy.

NISP Kalbe Farma capex 50.0% utilized (KLBF, Rp2,375, Buy)

• Kalbe Farma has spent up to Rp225.0bn of capex or 50.0% of total budget this year. Spending is divided equally for construction of its new production facility in Cikarang, branches, and other spending including for IT development.

• US$5-10mn is prepared for expansion to Vietnam where Kalbe will target the prescription pharmaceutical business, including generics and antibiotics. The company is currently looking for a local business partner.

• The company shared that next year capex spending could reach Rp500.0bn or 11.1% higher than Rp450.0bn spent today.

• Currently KLBF is trading at 2011F PER of 14.1x and EV/EBITDA of 7.8x, Buy.