NISP Flat growth for Japfa Comfeed (JPFA, Rp4,400)

· Japfa Comfeed revenue declined by only 3.3% YoY to Rp6.69tn in 1H10, and net income only increased by 3.8% YoY to Rp264.9bn in 1H10.
· The company’s gross profit was actually up by 10.2% YoY to Rp1.27tn thanks to a decline in cost of goods, however higher G&A expenses made operating profit decline by 10.0% YoY. The company was saved by lower tax expenses making net profit relatively flat.
· However on a quarterly basis, net income slumped by 40.8% QoQ as derivative losses of Rp37.7bn took a chunk out of operating income which was relatively flat with Rp248.8bn in 2Q10.

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.

Danareksa Indofood Sukses Makmur (INDF IJ, Rp4,475 BUY) A new future

BUY, TP of Rp5,100
We have raised our 2010F EPS estimates by 24% to take into account: 1) the stronger pricing power and 2) the firmer rupiah exchange rate which ultimately leads to better margins. Stronger pricing power is evident in the company’s decision to hike noodle prices by Rp50/pack in early Aug. While, a record-high gross margin should provide a buffer against increasing input cost pressures in 2H10. Also worth to note, imminent ICBP listing indicates a premium valuation (around 17-21x P/E10F and 15-19x P/E11F) – or above the current valuations for Indofood and the consumer sector. Yet, any upside from the IPO should lead to greater value for Indofood. All in all, we remain upbeat on the stock given its defensive attributes, meaning that the company should benefit from both burgeoning domestic consumption and commodity price recovery. BUY maintained with a TP of Rp5,100/share, implying 17.1-15.9x P/E10-11F.

Best year for noodles since 2003
Despite mounting raw material cost pressures – particularly wheat – we believe Indofood can sustain the noodles operating margin at around 14% this year. The company has already hiked noodle selling prices by Rp50/pack in early Aug 2010 – about a 4% price increase. This more than offsets the 7% ytd increase in the wheat price that currently hovers around US$6.3/bushel. A rough calculation suggests that the company needs to raise selling prices by around 3% for every 10% increase in the wheat price to maintain its margins. Hence, if the average wheat price surpasses US$5/bushel, Indofood will have to make further price hikes – else the 1Q11 margin will be sacrificed. Note also that we align our average exchange rate assumption with our economists’ estimate, reflecting the stronger rupiah. This, coupled with the company’s stronger pricing power, bodes well for Indofood’s non-agri business.

Stronger contribution from agribusiness
Many parts of Indonesia have experienced poor weather conditions this year. As a result, inflation may exceed 6% in 2010, in our view, since the bad weather - which has raised supply concerns - is forecast to persist. This may mean higher input prices. As such, margins may be lower in the non-agri division: we forecast 13.0-11.5% EBIT margins in FY11F for the noodles and flour segments, respectively. Overall, the EBIT contribution from the CBP division is expected to decline to 35% in FY11F from 40% this year. On the flip side, however, Indofood’s agribusiness division stands to make a stronger contribution – due to firm CPO prices - and we believe this division will contribute around 35% of EBIT, or up from 30% in FY10F.

What’s next after the ICBP listing?
Well, we think ICBP will leverage further - be it for organic expansion or to make acquisitions. Note that its balance sheet is strong with a net cash position of around Rp140bn, after paying down the shareholder loan. Therefore, ICBP will have greater flexibility compared to its holding in raising more debts. With a debt covenant of 3x debt-to-EBITDA ratio, Indofood could only add another Rp4tn debt, while ICBP could raise as much as Rp8tn or twice of Indofood. Factoring this, ICBP has a huge opportunity to acquire new business in order to create more synergy, a beverage company perhaps.

NISP Flat growth for Perusahaan Gas Negara (PGAS, Rp4,000)

· During 1H10, Perusahaan Gas Negara revenue was up by 5.7% YoY to Rp 9.52tn from Rp9.01tn. However net income was unchanged from Rp3.21tn from Rp3.19tn. The results satisfied market expectation, making up 48.7% and 51.0% of full year revenue and net income expectation.
· On quarterly basis, sales were strong, growing by 12.3% QoQ to Rp5.04tn. However net income declined by 19% QoQ to Rp1.43tn as the company recorded forex loss and higher interest expense in this quarter.
· Partial factor to the flat growth was due to the company’s revenue which were in US$, had been adversely affected by the strengthening Rupiah. However management admits that due to unchanging supply, it also expects flat growth or single-digit growth for the full year.
· PGAS is trading at 2011F PER of 12.6x and EV/EBITDA of 7.5x.

Mandiri Sekuritas Perusahaan Gas : 1H10 Above ours, within consensus (PGAS, Rp4,000, Buy, TP: Rp5,260)

􀂄 PGAS 1H10 result announcement showed a net income which already has been reported in newspaper weeks before. Based on full result reported, differences in our forecast lies in our cost assumptions. Therefore we have make cost adjustments. We also do volume upgrade to our forecasts. In his comment to Bloomberg, PGAS CEO, Hendy P. Santoso, hinted 2011 revenue will be flat as no additional supply indicated. This also has been our view that although still attractive, PGAS lacks catalyst, as no new supply is seen until the completion of its Floating Storage Regasification Terminal in 2012.
􀂄 Our new forecast resulted in an upgrade of target price from currently Rp4,650/share to Rp5,260/share. At Rp4,000/share, PGAS is trading at FY10F PER of 14.2x and FY11F PER of 14.0x, with EV/EBITDA 10F and 11F of 8.6x, and 7.6x, respectively.

Danareksa Indofood Sukses Makmur (INDF IJ, Rp4,350 BUY) 1H10 result

Headlines
Revenues were flat in 1H10 at Rp18.1tn (up 0.2% yoy). Much better, however, were the operating profits and earnings which soared 40.3% and 76.4% yoy to Rp3.1tn and Rp1.4tn, respectively mainly thanks to lower input costs and lower interest expenses.

The profitability margins were much better. The gross margin widened 630bps to 32.5% and the operating margin widened 490bps to 17.2%. This is an excellent result as the gross and operating margins are at their highest levels since 2001.

Overall, the top-line figure is in line with our (and the consensus) expectation. The net profits, however, comfortably beat our expectation as they are 67% of our full-year forecast.

Comments
In our view, the better-than-expected result is largely due to: 1) lower wheat costs (US$4.4/bushel in 1H10 vs. US$4.6/bushel in 1H09), and 2) the application of less fertilizer in the company’s plantation division. At the same time, the substantial reduction in the company’s debts - by around Rp2.3tn in 1H10 – slashed the company’s interest expenses by Rp175bn, helping to lift the bottom-line.

How about the 2H10 outlook? Well, we believe Indofood’s margins will likely soften due to higher wheat costs (currently around US$6.2/bushel, US$4.7/bushel ytd). Additionally, the plantation division has little choice but to apply more fertilizer in 2H10 else the yield would be sacrificed. Baring any further price increase, we therefore estimate operating margin of 13.6% for FY10F.

However, we believe the downside risk to margins in noodle division is limited. The company has some pricing power and hiked noodle selling prices by Rp50/pack in early Aug 2010 – a 4% price increase to anticipate higher input cost. This time, impact to volume may not be that much, as: 1) competitors will likely to follow Indofood’s strategy by raising the ASPs (note that Indofood has started to advertise Bu Krim – soap product – to pressure their main rival, Wings), and 2) the timing is close to the Moslem’s festival. Our rough calculation suggests that the company needs to raise selling prices by around 3% for every 10% increase in the wheat price to maintain their margins.

As for Bogasari division, Indofood has yet to increase flour selling prices in their premium products, factoring tougher competition in this category. While for low-end products, the price increase would probably around 10%, taking opportunity from the reduction in Turki imported flour as drought strains Russian wheat supply. Therefore, as market share is company’s main concern, we expect lower EBIT margin in 2H10 compared to 15.2% in 1H10. Note that Bogasari market share has grown to around 55% presently, from 53% in 1Q10.

For the time being, we remain positive on the company given its defensiveness, which should well benefit from Indonesia ’s burgeoning consumer market as well as commodity. The imminent listing of ICBP (expected late Sep-early Oct) will provide a further impetus to the share price. BUY maintained with a TP of Rp5,100, implying 18.8-16.6x PER10F-11F.

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.

NISP Indofood net income jumps by 76.4% YoY (INDF, Rp4,350)

• Indofood booked net income of Rp1.41tn in 1H10, 76.4% YoY higher from Rp799.7bn last year. Revenue was flat with Rp18.12tn. Sales figure was adequate, making up 45.1% of consensus FY expectation, however the net income surpassed expectation with the company already making 63.3% of expectation.

• Profitability was strong as gross and operating margin rose to 32.5% and 17.2%, on the back of lower cost of goods.

• Sales actually declined in 2Q10 to only Rp8.81tn compared to Rp9.31tn. However again, lower cost of goods sold made gross profit rise by 10.4% to Rp3.09tn making net income increase by 23.2% QoQ to Rp778.6bn.

• INDF is trading at 2011F consensus PER of 14.8x and EV/EBITDA of 7.2x.

Mandiri Sekuritas Indofood: 1H10 net income exceeds ours and consensus expectation (INDF, Rp4,350, Buy, TP: Rp4,500)

􀂄 INDF posted 1H10 net income of Rp1.4tn (+76%yoy, +23%qoq), which is above ours and consensus estimates. The net income yoy growth was mainly due to increase in noodle selling price.

􀂄 Looking at segmental performance, CBP division performed well with 8.3%yoy growth that compensated revenues contraction from wheat flour segment. Agribusiness segment posted flat growth yoy.

􀂄 INDF is currently trading at PER10-11F consensus of 17.1-14.8x.

Mansek ISAT:1H10 results hurt by higher financing cost and lower forex gains (ISAT,Rp4,625,Buy,TP:Rp5,400)

As we reported last week,ISAT ’s net profit fell to Rp287bn (-72%yoy)even though operationally the results were in-line on revenue and operating levels.The rise in financing costs (+22%yoy)to Rp1.1tn and lower forex gain due to Rupiah strengthening (-49%yoy)of Rp370bn led to the shortfall in net earnings way below consensus and ours.Additionally, 1H10 subscribers were at 37.8mn (+35%yoy),however this is lower than the subscriber base in 1Q10 of 39.1mn.

Apparently,among the 3 major telco operators,only Indosat registered a qoq decline on subscribers as of 1H10.On the bright-side,despite the drop in subscriber numbers,its cellular revenues grew the highest qoq at 7.7%versus EXCL and Telkomsel ’ s 4.2%and 5.7% growth respectively.Among the big 3 operator ’s revenue market share of ISAT stood at 18% and continues to trail Telkom (66%revenue market share)but is still ahead of EXCL (which accounted for 16%revenue market share among the 3 operators).Currently the stock trades at PER10F 15.4x.

NISP PGN’s 1H10 distribution volume only down by 1.7% QoQ in 1H10 (PGN, Rp4,000, Buy)

PGN during its public expose cited that its distribution volume in 1H10 reached
827mmscfd or decreased slightly by 1.7% from 841mmscfd in 1Q10. The
company stated that the supply disruption from Conoco Phillips has improved to
320mmscfd from as low as 275mmscfd in March ’10.

In the meantime, the company’s transmission volume is up by 11.9% to reach
848mmscfd from 758mmscfd in 1Q10 as the company booked the converted
supply from Conoco Phillips as transmission revenue.

The company’s distribution average selling price reached US$6.37/mmscfd up
from US$5.5mmscfd in 1Q10 after the company raised its selling price by 15% in
April 2010.

The company’s 1H10 operational figures are relatively in-line within our
expectation as we expect some improvement on Conoco Phillips gas supply.
Overall, we foresee that PGN’s 2Q10 performance could be higher than the 1Q10
considering the selling price hike impact has taken place in 2Q10. The company
will release its 1H10 result by the end of this month. PGN is currently trading at
2010F PER of 14.2x and EV/EBITDA of 9.0x, Buy.

Danareksa International Nickel Indonesia (INCO IJ, Rp4,375 BUY) A solid first-half

BUY maintained, TP of Rp5,000
We maintain our BUY call on INCO given the excellent 1H10 performance. In this period, INCO’s net profits surged 61% YoY to USD219mn, representing 51% of our full year forecast. The good profitability came on the back of both higher sales in 2Q10 and higher ASP. Margins also improved, with the net margin widening to 35% in 1H10 from 28% in 1H09 thanks to lower fuel consumption. Looking forward, we remain confident that our full year forecasts for the company will be met, since demand from stainless steel producers for restocking should be strong. INCO’s shares are currently trading at an attractive valuation of PE 10F/11F of 10.5x/12.2x, or less than the mining industry’s 13.6x/13.0x. With our TP of Rp5,000, the shares offer 14% upside potential.

Strong sales and good profit margins in 2Q10
INCO booked strong sales and higher profit margins in 1H10. The higher sales mainly owed to the 11% QoQ increase in sales volume in 2Q10, while the better profit margins resulted from increasing ASP in addition to lower fuel consumption due to a routine maintenance shutdown of a furnace for two weeks in April 2010. As a consequence, the 1H10 net profits were able to grow 61% YoY to USD219mn.

The nickel market has slowed but is still expanding
We are keeping our assumptions and forecasts intact for this year. Although nickel consumption has slowed a little bit, we believe that the slowdown is temporary and that restocking will begin by the end of 3Q10. Our conviction is based on the manufacturing activities of major manufacturing countries which still indicate expansion (see Exhibit 4 for worldwide purchasing manager indices that are still above 50). As such, nickel prices should hold up in the coming months, we believe.

Mansek Excelcomindo :1H10 net income up 87%yoy,above ours and consensus (EXCL,Rp4,750,Buy,TP:Rp4,300)

XL Axiata posted in-line top-line of Rp8.33tn,while overachieving on the bottom-line to Rp1.32tn (+87%yoy).There were some cost improvements;the growth in operating costs was only at 8%yoy while top-line grew by 35%yoy.On operating statistics,1H10 subscriber base grew to 35.2mn (+43%yoy, +7%qoq),ARPU at Rp34,000 (6%yoy,-3%qoq).Due to higher than expected performance,we are currently reviewing our forecasts and price objective with an imminent upward bias. Currently,the stock trades at PER10F-11F of 18.2x and 14.1x.

Mansek International Nickel:1H10 net income above ours and consensus estimates (INCO,Rp4,125,BUY,TP:Rp5,900)

INCO reported 1H10 net income of US$219mn (+61.1%yoy),represented 66.3%of our FY forecast and 63.4%of consensus estimates.
Actual average HSFO (High Sulphur Fuel Oil)price of US$76.79 per barrel in 2Q10 and US$76.03 per barrel in 1Q10 was lower than our average HSFO price assumption of US$95.00 per barrel.
The company ’s 1H10 sales grew by 27.8%yoy.2Q10 sales was higher than in 1Q10 of,42.3%qoq,margin reached 47.4%,which increase from 41.2%in 1H09 (vs our target for FY10 of 41.6%)
At current price,INCO is trading at 2010F and 2011F PER of 13.8x and 9.4x.We maintain our BUY recommendation on the counter.

Mansek Indosat:has issued US$650mn bonds (ISAT, Rp4,950,Buy,TP:Rp5,400)

Indosat Palapa Company BV,a subsidiary of ISAT has issued a 10 years Guaranteed Senior Notes amounting to US$650mn;callable after 5 years and guaranteed by ISAT.The bond got Ba1 rating from Moody ’s,BB from Standard and Poors and BBB-from Fitch rating agency.The bonds priced at 99.478%and provide yield at 7.45%and will be listed in SGX-ST,Singapore.The bond proceed will be used for debt refinancing.

ISAT will allocate capex FY10 totaling US$550-700mn,which around 70%will be used for networking and equipment. The company aims,subscribers to reach 39.1mn by end 1H10,compared with 33.1mn by end 2009.ISAT trades at PER10F of 16.1x,we have a Buy recommendation.

Mansek EXCL has allocated Rp4.5tn for network expansion (EXCL,Rp4,100,Buy,TP: Rp4,300)

EXCL has allocated Rp4.5tn for net work expansion.In 2010,EXCL targets to build 1,500-2,000 tower and BTS,while in 1H10 it has already built 900 units valued at Rp2,3tn.This year,the company allocated total capex of US$450mn.By end of Mar 2010,EXCL had 19,904 BTS which cover 90%of Indonesia and number of subscribers of 32.5mn.EXCL targets total BTS of more than 20,000 units by end 2010 and number of subscribers of 38- 39mn.EXCL trades at PER10F-11F of 15.7x and 12.2x,we have Buy
recommendation.

Mandiri Sekuritas Inco: 1Q10 net earnings up by 344%yoy, in-line with ours but slightly above consensus (INCO, Rp4,475, Buy, TP:Rp5,900)

􀂄 Yesterday, Inco reported net income of US$76mn, up by more than 3-folds yoy on the back of sharp recovery of nickel prices and higher sales volumes. ASP for 1Q10 grew by 71%yoy to US$14,182/t, while nickel in matte sales volume improved by 23%yoy. The company was also able to pare down costs as well in areas of supplies, contracts and services which further contributed to its much improved margins. We maintain buy on the stock, currently having a 32% upside to our TP and trading at PER10F of 15.1x.

NISP Inco posts 344.0% YoY growth in 1Q10 net income (INCO, Rp4,475, Under Review)

• During 1Q10 Inco managed to post a robust growth in its financial performance where the company’s net income surged by 344.0% YoY to US$76.3mn from US$17.2mn in 1Q09. The result came at 21.3% to our 2010F full year net income expectation of US$358.2mn and 28.8% of the consensus’ net income estimates.

• Such increase was mainly backed by the company’s ability to boost sales volume and also benefited from higher selling price. During 1Q10, Inco sold 18,021 tons of nickel, 23.3% YoY higher from 14,610 tons. Selling price leapt by 70.7% YoY to US$14,182/ton from US$8,309/ton amid robust global nickel price condition.

As such, the company’s profitability jumped as operating margin reached 39.3% in 1Q10 from 4.3% in 1Q09.

• On a quarterly basis, the company also posted significant improvement as net income grew by 27.2% QoQ from US$60.0mn in 4Q09. This growth was driven by the company’s ability to lower its cost on contracts, supply and services. Hence, despite the company using higher diesel and HSFO in 1Q10, Inco managed to increased its profitability where gross margin rose to 41.2% in 1Q10 from 39.4% in the previous quarter.

• During 1Q10, Inco uses 32,000 kl at US$0.59/liter of diesel compared to 24,700 kl at US$0.56/liter in 4Q09. HSFO usage rose to 741,831 barrel at US$76.03/barrel in 1Q10 from 605,706 barrel at US$68.81/barrel in 4Q09.

• Overall, the company managed to post a performance that satisfies our expectation and we currently reviewing our recommendation as the company’s share price has exceeded our target price of Rp4,000. Inco is currently trading at 2010F PER of 13.0x and EV/EBITDA of 7.6x.

NISP PGN books Rp1.77tn net profit or up by 45.2% YoY (PGAS, Rp4,050, Buy)

• PGN booked Rp1.77tn net profit in 1Q10 or up by 45.2% YoY from Rp1.22tn in 1Q09. The company’s bottom line showed stronger growth compared to its revenue figure which grew only by 0.2% YoY to Rp4.48tn vs Rp4.47tn in 1Q09 due to lower distribution gas volume in 1Q10. The company’s revenue figure was slightly below our number as it only accounted for 21.8% of our full year estimate while its bottom line is in-line with our estimate.

• On operational side, the company’s distribution volume is up by 16.6% YoY to reach 841 mmscfd vs 721 mmscfd in 1Q10, relatively in-line with our new assumption of 845 mmscfd. While the company’s transmission volume was slightly down by 2.7% YoY to only 758 mmscfd from 779 mmscfd in 1Q10.

• The company’s margins in 1Q10 were improved as it was able to maintain operating expense at the same level as last year and benefited from a forex gain of Rp199bn compared to Rp134bn in 1Q10. The company’s operating and net margin was up by 2.4% and 12.2% to 47.0% and 54.8%, respectively.

• Overall, PGN’s 1Q10 result was relatively in-line with our estimate as we had lowered our distribution volume assumption due to supply disruption from Conoco Phillips. We maintain our Buy recommendation on the counter while PGAS is currently trading at 2010F PER of 12.7x and EV/EBITDA of 7.6x.

Mandiri Sekuritas PGAS: 1Q10 net income at Rp1.8tn, above ours and consensus estimates (PGAS, Rp4,050, Neutral, TP: Rp4,225)

􀂄 PGAS posted 1Q10 net income of Rp1.8tn (+45.2%yoy, -3.1%qoq), above ours and consensus estimates.
􀂄 The company booked forex loss reversal from Rp134bn loss in 1Q09 to Rp199bn gain in 1Q10 as most loans are US$
denominated.
􀂄 We still have Neutral recommendation on PGAS which currently is trading at PER10-11F of 18.3-17.3x.