NISP Bapepam states that Tri Polyta have met requirement (TPIA, Rp3,425)

· Bapepam stated that Tri Polyta has complied with regulation standards for its merger plan with Chandra Asri. The supervisory board has also said it has completed the screening procedure and will release its effective statement immediately.

· Separately, Tri Polyta will hold an EGM on October 27, 2010 to obtain approval on this plan. The company will merge with Chandra Asri through share swap mechanism, which would bring positive results for Tri Polyta.

· The share swap ratio is 1 (one) Chandra Asri share for 42,660 shares of Tri Polyta shares. Dilution impacts are 76.24% for Tri Polyta and 23.76% for Chandra Asri. The chosen appraisal stated that fair price for Tri Polyta is at Rp3,579 a share.

NISP BNI asks to be prioritized in rights issue (BBNI, Rp3,700)

· BNI management has asked for its right issue plan to be prioritized to go first before Mandiri carries out the same action. The bank’s CEO, Mr. Gatot Suwondo, stated that BNI has more of an urgent need to raise more capital to support expansion to support next year’s loan growth of 15-20%.

· In response to this, Mandiri (BMRI, Rp6,650) CEO stated that he leaves the decision in the hands of the House of Representatives.

· BBNI is trading at 2011F consensus PER of 12.5x and PBV of 2.2x.

Mansek Jasa Marga bonds oversubscribed (JSMR,Rp3,100,Buy,TP:Rp3,200)

Jasa Marga will issue a new bond which tranched into a 10 year bond,Rp1tn,with an interest of 9.35%.pa;and 3 years zero coupon bonds,under Jasa Marga I series JM-10,amounting to Rp500bn with an interest rate of 9.1%pa.Following book building period,the bonds experienced oversubscribed up to 4.5 times.The fund proceeds from bonds issuance will be used to:45%for debt repayment,27%for capex,25%for non-toll road business development,and the remaining 5%for working capital.

We estimates JSMR ’s FY10F revenue reached Rp4.3tn (+17.1%yoy)and net profit up to Rp1.3tn (+34.2%yoy);due to increasing tariff in September 2009.Currently,JSMR trades at PER11F of 14.0x.

NISP Chandra Asri to merge with Tri Polyta Indonesia (TPIA, Rp3,250)

· Chandra Asri is in its way to merge with Tri Polyta Indonesia through share swap mechanism expected to be concluded imminently. This plan will be proposed in Try Polita’s EGM next month. The merged company will be named PT Chandra Asri Petrochemical Tbk.

· The impact will be positive for Try Polita, as of the end of 2009, Chandra Asri’s assets reached US$1.20bn compared to Tri Polyta’s US$280.0mn.

· The impact is also positive for both of the companies’ holding, Barito Pacific (BRPT, Rp1,240) as the merger will unlock Barito’s ownership value in Chandra Asri. Currently, Barito holds 77.9% stake in Tri Polyta and 70.0% stake in Chandra Asri. Barito’s revenue from petrochemical business, which comes from both companies, reached Rp14.30tn or 99.2% of Barito's 2009 consolidated revenue of Rp14.40tn. Considering Try Polita’s 2009 revenue of 4.70tn in 2009, the figure means that Chandra Asri’s revenue reached more than Rp9.00tn during the period.

· Furthermore, based on the prospectus published today, Try Polita’s revenue as of 1H10 reached Rp2.60tn with Rp166.0bn of net profit, while Chandra Asri logged in US$831.0mn of revenue with US$1.0mn of net profit.

· The share swap ratio is 1 (one) Chandra Asri share for 42,660 shares of Tri Polyta shares. Dilution impacts are 76.24% for Tri Polyta and 23.76% for Chandra Asri. The chosen appraisal stated that fair price for Tri Polyta is at Rp3,579 a share.

NISP Jasa Marga bonds oversubscribes by 3.3x times (JSMR, Rp3,100)

· Jasa Marga has received Rp6.40tn of demand for its upcoming Rp1.50tn bonds during the book building period. However the company states that it will not increase the size of the issue.

· Potential buyers mostly are institutional investors such as bank, insurance companies, and asset management which are the biggest buyer. The bonds have received an AA rating from Pefindo.

· JSMR is trading at 2011F PER of 16.3x and EV/EBITDA of 10.8x.

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 Perusahaan Gas : To expedite its Floating Storage Regasification Terminals (PGAS, Rp3,850, Buy. TP:Rp5,250)

PGAS which has plans to build two FSRT (one in Belawan, North Sumatera, and one in West Java) is eager to complete the two facilities by end 2011. PGAS is in a JV with Pertamina to build West Java terminal and 100% ownership in North Sumatera terminal. Each of the facilities requires an investment of US$250mn. However, PGAS CFO, Riza P admitted that no definite financing arrangements has been done yet. We have not included the projects in our forecasts, as financial feasibility study has not been
completed yet. At Rp3,850, PGAS is trading at FY10F and FY11F PER of 13.5x, and 13.5x, respectively with EV/EBITDA FY10F and FY11F of 8.3x and 7.3x, respectively.

NISP Perusahaan Gas Negara speeds up US$350mn LNG projects (PGAS, Rp3,850)

· PGN has initiated to speed up US$350mn projects for two LNG terminals next year. The projects are the US$250mn Floating Storage Receiving Terminal (FSRT) in Belawan and US$100mn project in West Java.
· The company explained that for the project in West Java, PGN contributed 40% to total project which makes total cost equal with Belawan. PGN expects these two projects could commence in 2012.
· To finance such projects, PGN has received loans commitments from several banks, however, PGN also explores possibility to combine the leverage with bonds issuance.
· PGAS is trading at 2011F consensus PER of 12.6x and EV/EBITDA of 8.2x.

NISP Telkom cooperation with Jasa Marga takes step further (JSMR, Rp3,050; TLKM, Rp 8,800)

· As a follow up to Jasa Marga’s announcement to enter the business in fiber optics, Telkom, which is the company’s partner, has begun to valuate its assets.
· Until last August, Telkom has invested as much as Rp1.70tn in the business. Rp1.10tn will be used to develop new fiber optic lines in Java-Kalimantan, while the remaining Rp600.0bn will be used to install lines in Makassar-Kupang.
· The two companies have not discussed the specifics of their cooperation, which could be in the form of a joint venture or a consortium. Telkom CEO, Mr. Rinaldi Firmansyah, states that this cooperation will not add significant revenue to Telkom, however installment of fiber optics in Jasa Marga toll roads will support the existing Telkom network.
· JSMR is trading at 2011F PER of 16.0x and EV/EBITDA of 10.7x. TLKM is trading at 2011F consensus PER of 12.6x and EV/EBITDA of 4.7x.

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.

NISP Jasa Marga enters 3 new businesses (JSMR, Rp3,100)

· Jasa Marga is preparing a min. of Rp2.70tn for 2011 capex, up by 12.5% YoY. This is due to the company’s plan to expand outside of its toll road business and enter the property, fiber optic, and engineering business. Rp400.0bn is set aside for this endeavor.
· In the property and fiber optic lines, Jasa Marga plans to work together with Pembangunan Perumahan (PTPP, Rp950) and Telkom (TLKM, Rp9,250). The company plans to set up a new subsidiary in charge for its non-core business. Management expects that these lines will contribute an accumulated total Rp200.0bn to revenue until 2013.
· For its Rp1.00tn upcoming bonds, the company has set coupon rate between 8.75%-9.95%. The bonds have a tenor of 10 years with a quarterly payment. In addition the company will issue Rp500.0bn worth of zero coupon bonds with a tenor of 3 years and yield indication around 8.5-9.7% per year.
· JSMR is trading at 2011F PER of 16.3x and EV/EBITDA of 10.8x.

NISP Perusahaan Gas Negara sets 2011F capex at US$600mn (PGAS, Rp3,900)

· Perusahaan Gas Negara is budgeting US$600mn or Rp5.58tn for capex in 2011. This is almost 3 times of the capex this year, which ranges between US$200-250mn.
· PGN CEO, Mr.Hendi Prio Santoso, states that the budget includes acquisition cost for an oil and gas block of US$350mn in response to the growing demand. In addition the company will acquire a gas tank costing US$50mn.
· Capex will 30% be financed from internal cash. The company has currently Rp9.53tn in cash. The balance will be sourced externally however no details have been shared.
· PGAS is trading at 2011F PER of 12.3x and EV/EBITDA of 7.4x.

NISP Indika obtains US$124.0mn contract from Pertagas (INDY, Rp3,200)

· Indika Energy through its subsidiary, Tripatra, has obtained a US$138.0mn contract from Pertagas to build an oil&gas construction run by the latter company.
· In addition Indika is currently participating in the US$3.15bn tender, which includes the US$1.0bn Exxon Mobil project in Cepu. However the value of the contract targeted by Indika is undisclosed.
· The company has not released its financial statements due to audit process, however it expects its half year target for coal sales volume of 14.5mn ton will be achieved.
· INDY is trading at 2011F consensus PER of 9.1x and EV/EBITDA of 31.0x.

NISP BNI green shoe shares to be sold today (BBNI, Rp3,000)

The government will sell its existing BNI green shoe shares today at a minimum price of Rp2,900. It has appointed Bahana Securities, Macquarie, Danareksa and Mandiri Sekuritas as underwriters of this action.

The government owns 473.8mn shares or 3.1% out of total BNI shares as green shoe shares from the bank’s secondary offering in 2007, at the price of Rp2,050. This makes total potential revenue from the sales to reach Rp1.37tn.

However, the Minister of SOE stated that the shares could be sold at a slight discount.

BBNI is trading at 2010F consensus PER of 12.2x and PBV of 2.1x.

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.

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.

AmCapital PGN (PGAS, Rp3,875): Supply hiccup sees no short-term resolution

· During the conference call on Wednesday 12 May 2010, PGN highlighted the recent issue of declining gas supply, mainly the sizable contracted gas from the Corridor Block, an onshore Sumatra-based gas field operated by ConocoPhillips (CoPhi), which has been dedicated for PGN’s West Java customers.

· The company disclosed its total gas distribution volume for Jan’10-Mar’10 had been gradually falling from as much as 906.8mmcfd on Jan’10 to as low as 773.3mmcfd on Mar’10. Note that PGN reported 1Q10 average gas distribution volume of 841mmcfd, 70.9% of which came from the company’s Strategic Business Unit or SBU Area 1 that covers the South Sumatra and West Java (including Banten and Jakarta) regions. ConocoPhillips and Pertamina are the largest gas suppliers for the SBU Area 1, accounting for some 89% of total gas sold in the SBU 1 Area in 2009.

· At the meantime, the contracted gas volume from CoPhi’s Corridor Block had continued to drop after peaking at 378.5mmcfd on Jan’10 to 275.0mmcfd on Mar’10 or an average 1Q10 volume of 325mmcfd. This reflected some 7.3% below its contracted FY10 volume.

· No recent update on recent flow rate from the CoPhi’s Corridor has been provided during the call. Still, the company maintains its FY10 distribution volume guidance at 800-900mmcfd as PGN confirmed another South Sumatra-based gas flowing to West Java from Medco Energi’s Lematang Block beginning on April 2010.

· We understand that 1) the allocation of gas from CoPhi’s Corridor has been altered in a bid to support the Enhanced Oil Recovery (EOR) program at Chevron’s Duri, Riau, which is the country’s largest oil field 2) there has also been short fall of gas at another CoPhi’s gas fields at the South Jambi block, which has been dedicated to Singapore-based customer.

· At this juncture, it seems that PGN has no short-term resolution for the declining supply from the CoPhi’s Corridor Block, though it said of the Government’s established task force team may address the gas supply issue while Indonesia’s Vice President Boediono will set up a monitoring team, including upstream regulator BP Migas, to seek solutions.

· Though in short-term the supply hiccup may deter the sentiment on the counter and PGN’s FY10 earnings profile (CoPhi’s gas accounted for 38.6% of 1Q10 gas distribution volume and it costs the least at US$1.85/mmbtu), the longer term positive is the make-up gas from both CoPhi’s Corridor Block and Pertamina South Sumatra may be sold at higher price, assuming both companies are able to fulfill its volume commitment.

· Our sensitivity calculates: 1) on our base assumption of 320mmcfd for the CoPhi’s Corridor gas, any 10% decline in Corridor’s volume will escalate our FY10 blended cost of gas by 1.2% and lower our FY10 core EPS by 5.2%, 2) assuming the CoPhi’s Corridor gas only flows at 270mmcfd this year, our blended FY10 cost of gas will increase by 1.9% and our FY10F EPS will decline by 8.1%.

· PGN has no update on the planned M&A though it admitted fail in one of its two targeted gas block targets, while on the LNG receiving terminal, it seeks operation by mid-2012 for the West Java-based terminal, in which it has joint venture with Pertamina.

· We are in the process of re-initiating our coverage in PGN. At our revised estimates prior to factoring the CoPhi’s Corridor and shortfall at Pertamina South Sumatra, we forecast FY10-11F core EPS of Rp245-Rp278, translating into core PE of 15.2x-13.7x, respectively. Higher or lower gas supply is the main risk in PGN.

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).

Mandiri Sekuritas Indika Energy: 1Q10 net income above ours and consensus (INDY, Rp3,050, Buy, TP: Rp2,750)

Indika posted net earnings of Rp292bn, a 35% drop yoy, which was mainly due to the added interest burden coming from its US$255mn bonds issue late last year. Despite the drop, net income was above ours and consensus estimates.

There were significant improvements at operating level (non coal production) with operating income growing 7-folds (albeit a low base in 09), with the full contribution of Petrosea as well as that of Tripatra. We have reason to believe that Indy’s operating performance can improve further with a thicker order book from Tripatra, which is seen to jump over US$800mn spread over until 2014. Possible upgrade likely due to better operating performance rather than an upside on coal production. Currently the stock trades at PER10F of 18.6x.

Danareksa Indofood Sukses Makmur (INDF IJ, Rp3,900 BUY) Counting on noodles

Headlines
l On the back of a 4.8% yoy increase in revenues to Rp9.3tn in 1Q10, operating profits jumped 25.2% to Rp1.4tn, reflecting excellent operating performance in the quarter.

l There was a big improvement in margins. Gross margin widened by some 480 basis points. This and lower interest costs helped push up core profits by 78.3% yoy (+37.0% qoq) to Rp562bn.

l The sales volume of consumer branded products (CBP) saw a significant improvement across the board (see exhibit 2). The largest contributor, the noodles division, registered volume growth of 4.0% yoy and 11.0% qoq. On a yearly basis, this is the strongest growth since 2007

Comments:
l Bottom-line, it was a good result and broadly in line with our forecast. The slight difference owes to the forex gain of Rp97bn vs. our forex loss assumption of Rp95bn. This mainly owes to our conservative exchange rate assumption of Rp9,649/US$ for YE10 vs. Rp9,115 in 1Q10.

l It’s the noodles business that counts. The superlative 4.0% yoy growth in noodles sales volume to 2.9bn packs in 1Q10 despite the 1% industry decline overall is a clear indication of Indofood’s strong brand equity and relatively weak competition. We share the management’s view that packaging changes in early 2010 - in addition to the improving economic conditions - helped spur volume growth. The 14.7% increase in operating profits to Rp416bn was also helped by lower wheat costs, while the full impact of last year’s price hikes helped lift the EBIT margin to 13.3%. For FY10F, we forecast noodle’s EBIT margin of 10.9%.

l The Bogasari and cooking oil divisions had to face relatively stiff competition, limiting and even lowering margins. Whilst Bogasari faces competition from imported flour (with a 15% price differential), its cooking oil competes against Wilmar’s products. As a result, the company has to sacrifice either volume or margins – and the company’s indication is that it places a higher emphasis on maintaining volume sales rather than margins. We estimate a decline in Bogasari’s operating margin to 9.6% in FY10F from 11.4% in 1Q10.

l We remain positive on Indofood for the following reasons: 1) potential de-leveraging following the imminent ICBP listing, and 2) stable noodle margins underpinned by the firm rupiah, lower wheat costs, and improving purchasing power. Our forecast is intact for the time being and we reiterate our BUY call on the stock with a TP of Rp4,500, implying 18.8-16.6x PER10F-11F, still a 20% discount to its regional peers.