Macq Indo: top 3 SELLs and BUYs, consumer lending theme on Indo banks

Top three stocks to take profit from:
1. PT Inco (INCO) -- cheaper to buy global diversified miners.
2. Astra Agro Lestari (AALI) -- CPO price momentum weakening.
3. Perusahaan Tambang Bukit Asam (PTBA) – risk of domestic contract renegotiation.

Top three stocks to accumulate into:
1. Bank Mandiri (BMRI) – NPL bottoming-out, loan growth picking-up in 2H09.
2. Perusahaan Gas Negara (PGAS) – Rp strengthening period closer to an end, gas price hike post election.
3. Bumi Resources (BUMI) – most attractively valued coal name in Indo, with potential M&A angle.

Indo bank sector update: consumer lending theme
Indo banks may appear expensive on P/BV but look reasonable on P/E, with an aggregate sector multiple of 14.0x and 11.0x for 2009-10. Our top three picks, BCA, Mandiri and BNI trade on 2010 P/E of 11.9x, 10.5x and 9.4x. Regional average P/E is 14.9x. Growth prospect looks strong, with one driver being the very low mortgage penetration rate. Indonesia has one of the lowest mortgage loan penetration ratios in the world at 2.5% of GDP (vs 20%+ on average in the Asian region) and 9.5% of total system loans. BCA and Mandiri indicate they would like to grow their mortgage segments and lower their rates to below 10%, boosting mortgage lending growth considerably. In 2007, when banks cut rates to below 10%, mortgage loans grew by 30% YoY in the early part of 2008. The expected pullback in share prices today may offer fresh opportunity to accumulate. Report by Ferry Wong (analyst) attached.