NISP Bank Mandiri hints of 36.4% YoY growth (BMRI, Rp7,000)

· Bank Mandiri shared that it expects to book Rp6.30tn of net income in 3Q10, or 36.4% YoY increase from Rp4.62tn in 3Q09. If realized, this means that the bank’s net income is higher by 24.8% QoQ from Rp4.03tn in 1H10. Full year market expectation is Rp8.73tn.

· While the bank’s credit target is expected to have exceeded Rp203.0tn or 21.0% YoY higher from 3Q09. The bank has revised its credit target from 15-18% growth to 18.0-20%, and expected to continue next year.

· Mandiri has agreed to postpone its rights issue to next year for the benefit of BNI (BBNI, Rp3,700) .If BNI’s own process proceeds on schedule this year, Mandiri expects its rights issue process will be completed by the first week of February.

· BMRI is trading at 2011F consensus PER of 14.3x and PBV of 3.0x.

Mandiri Sekuritas Charoen Pokphand : Launching buyback program (CPIN, Rp7,650, Not rated)

Charoen Pokphand Indonesia (CPIN) will launch a buyback program with maximum amount of Rp50bn to buy a maximum of 7mn shares (implying a maximum price of Rp7,143/share). CPIN share was closed yesterday at Rp7,650/share. Impact on the buyback if it is fully exercised at Rp7,600/share on proforma June 30, 2010 is higher ROE by 43bps from 29.15% to 29.58%. Buyback shares will not be resold and will be used to reduce paid up capital. CPIN will hold its EGM on October 19, 2010 to get shareholders approval on the buyback program and its planned stock split. We did not have a rating on the stock. At current share price, CPIN is traded at PER11F Bloomberg consensus of 13.0x, and EV/EBITDA11F of 8.8x.

Mandiri Sekuritas Telkom: 1Q10 net income in line with ours and consensus (TLKM, Rp7,850, Buy, TP: Rp12,000)

Telkom reported 1Q10 net earnings of Rp2.8tn (+13%yoy) which came in-line with ours and consensus estimates. 1Q10 revenues totaled Rp16.6tn (+6%yoy). Revenue breakdown as follows: 40% cellular, 30% data, internet, IT, 20% fixed lines, 6% interconnection and the remainder for other services. Main revenue driver came from data, internet and IT services which grew by 25%yoy. However what’s noticeable was the slowdown in net cellular ads of only 400k (from 4Q09) to 82mn subscriber as of 1Q10, the lowest among major GSM players. EBITDA margin was about 54.5%, which also slightly declined from 56.7% in 4Q09. Our concern stems on Telkom’s ability to raise subscriber base (though still a runaway market leader with about 50% of the GSM market) despite the healthy growth comings from its content services segment. We currently have a buy on the stock, which trades at about PER10F 14.5x.

NISP Telkom rings in Rp2.78tn net income (TLKM, Rp7,850)

• PT Telekomunikasi Indonesia Tbk has booked net income of Rp2.78tn for 1Q10, 13% YoY increase from Rp2.46tn the previous year. Operational revenue grew less at a rate of 6.2% to Rp16.59tn. Net income and revenue came only 24% and 22% of market full year expectation for 2010F of Rp12.68tn and Rp71.01tn.

• CEO of Telkom, Mr. Sudiro Asno, credited the increase in net profit to higher revenue from data and multimedia services, which rose 25% to around Rp5.0tn and gains due to the favorable foreign-exchange rate of Rp164b. Cellular revenue only increased by 3.0% to Rp6.69tn while fixed line revenue dropped by 6.7% YoY to Rp3.34tn.

• The company shared that it had submitted its plan to issue Rp3.0tn bonds to Bapepam and hopes that the body will respond with an effective statement on June 24th, 2010. The company’s outstanding debt position at the end of March 2010 reaches Rp19.6tn, Rp7.8tn of which will mature this year.

• TLKM is trading at 2010F consensus PER of 12.3x and EV/EBITDA of 4.6x.

Mandiri Sekuritas Bank Tabungan Pensiunan Nasional: BTPN 1Q2010 Result Increased Significantly (BTPN, Rp7,850, Not Rated)

􀂄 BTPN posted a significant increase in Net Profit of its 1Q2010 result to reach Rp154.6 bn (+165.2% yoy), which within our expectation based on the projection of our Bonds report and the consensus estimates.

􀂄 BTPN’s net interest income for 1Q2010 is reported at Rp782.2 bn, a 127.6% increase as the result from higher portion of its micro loan that gives higher margin for the bank, which this is reflected on the NIM figure that arrived at 14.9% (vs. 12.2% FY09 and 9.8% 1Q09.

􀂄 The bank booked gross loan of Rp17.7 tn (+12.7% qoq), which expected as the bank plans to gain more contribution from the micro loan this year. NPL is figured at 1.5% (vs. 0.5% Fy09), while ROE is 30.3%, LDR 87.5%, CAR 17.6% (vs. 23.0%, 84.9% and 18.5% for FY09, respectively. The bank plans to issue Rp750 bn conventional bonds on the 2Q this year, which aimed to support its long term funding. Third party funds of the bank is currently Rp20,2 tn (+9.1% qoq).

􀂄 Based on Bloomberg consensus, the bank is currently trading at P/BV10 3.0x and PER10 15.9x. We don’t have recommendation on the counter.

Danareksa Telekomunikasi Indonesia (TLKM IJ, Rp7,950 BUY) Further growth in the distance

The data segment offers the greatest potential
Indonesia’s telecommunications industry is nearing maturity. Cellular subscribers have reached 197mn (based on data from BRTI), translating into a penetration rate of 85%. This number could be overstated as it is based on SIM card penetration. Nonetheless, we think that with this level of market penetration, the voice and SMS segment has reached maturity. Thus, natural growth should follow the real GDP growth. In contrast, the data segment is still promising as the penetration rate is still quite low. Factors affecting growth in this segment include: 1) purchasing power 2) equipment prices 3) software applications and 4) pricing of data services.

The price war to be resumed?
We notice that the telecom operators have been offering very low SMS prices, even after a gentleman’s agreement among the operators (witnessed by the BTRI regulatory body) to avoid a costly price war. The main operators are offering free SMS that can be used both “on-net” and “off-net”. The common structure is that for a certain usage of voice calls and/or SMS, users will be eligible for a certain amount of free SMS that can be sent to any operator. However, there are different types of segmentation based on geographical area, time of usage and activation periods (old vs. new customers) before a customer is eligible for free SMS. We believe it is more of a marketing gimmick than anything, given the complicated nature of the terms and conditions which apply.

Maintaining its dominant position
Telkom has announced its FY09 results. They are within expectations down to the operating level. However, we underestimated the interest expenses and tax payment, meaning the bottom line was lower than expected. Telkom has maintained its market leadership in almost all segments. Going forward, Telkom does not plan to reduce its capex as its competitors do. This is key to maintaining its dominant market position even with the market mature. The second wave of growth will come from data transmission. Telkom intends to spend about US$2.0bn on capex in FY10. This will give it the edge in the data market.

Maintain BUY despite earnings downgrade
We have revised our earnings estimate mainly to align our numbers with the FY09 results. The most significant change is a higher tax rate of 30% compared to 23% previously. Earlier we had expected Telkom to be eligible to enjoy tax incentives due to its high free float. However, this did not turn out to be the case and the effective tax rate was 29% in FY09. As a result, we lower our EPS estimates by 7.2% for FY10 and by 15.4% for FY11. Nonetheless, we remain positive on Telkom. It has strong cash flow which allows the company to continue to invest for future growth. Despite our lower Target Price of Rp9,650 we maintain our BUY recommendation on the stock.

NISP Rajawali Group to sell its stake on Semen Gresik at Rp7,000/share (SMGR, Rp7,450, Buy)

• It is reported that Rajawali Group, through its subsidiary Blue Valley Holdings, plans to sell a 17.4% stake at Semen Gresik (SMGR) at US$800mn or that translates into Rp7,000/share. The selling price is at a 6% discount to the share’s last traded price.

• Rajawali Group has appointed JP Morgan as the sole book runner for the transaction which will be offered through a book building process to investors. It also has an option to sell an additional 6.3% to total 23.7%.

• We believe this transaction is only on shareholder level, thus will not affect Semen Gresik’s operational performance. The company has previously said that although Rajawali Group sells its stake; it will only give minimal impact to the company as its management system has already well developed.

• However, this transaction will give some negative sentiment on the share price as the execution price is well below the current market price.

• As this transaction will only give minimal impact on the company’s performance, we still maintain our Buy stances on the counter. Semen Gresik is currently trading at 2010F PER of 11.4x and EV/EBITDA of 6.4x.

Mandiri Sekuritas Semen Gresik: FY09 result is inline with consensus (SMGR, Rp7,550, Neutral, TP: Rp8,600)

Higher sales volume as well as price tag lifted FY09 revenue, as well as margins. FY09 revenue was up 17.8% yoy, and net profit grew 31.8% yoy. This is inline with consensus estimates yet slightly higher than ours. As for FY10, SMGR targeted a conservative net profit growth of only 10% yoy, citing SMGR’s president director. The figure is below our and consensus estimates growth of 11.3% and 15.1%, respectively. Currently SMGR is trading at PER10F of 12.4x and EV/ton of US$222.

Danareksa Telekomunikasi Indonesia (TLKM IJ, Rp7,400 BUY) Still growing

Still Growing

TP raised to Rp8,350
We have raised our target price to Rp8,350, offering 17.5% potential upside from the current share price. Our upgrade reflects the following: 1) the tax incentive obtained from 40% plus free float, 2) healthy subscriber growth in 1Q09, and 3) the end of last year’s price war which makes Telkom’s business model more sustainable. Note that Telkom is maintaining its plans to spend capex of US$1.6bn while the other players are tending to reduce capex because of the crowded market. Being the leader in the industry and having strong operating cash flow should help the company to maintain its preeminent position we believe.

End of the price war
Since the big three operators decided to declare a truce and end last year’s price war, there has been less advertising that promotes lower tariffs. This is good news as the price war had definitely put profitability margins under pressure. The operators have now tweaked their pricing in an effort to boost their revenues per minute (RPM). Telkomsel, for instance, has reduced bonuses and changed its pricing structure within the four time bands to boost its RPM. This shall help increase the company’s profitability and generate better cash flow.

The only growing operator
Telkomsel was the only operator to report positive net additions in 1Q09. In this period, the company added 6.8mn subscribers to increase its subscriber base to 72.1mn in total. In contrast, both Indosat and XL reported negative net additions (mainly because these operators refrained from offering special offers on starter packs, a practice which had previously helped to get new subscribers to sign up). Telkomsel, as the market leader and with a strong position out of Java, has not been hit by this phenomenon.

Enjoying tax benefits
Telkom will enjoy tax incentives in the coming years as the company is eligible for a 500bps cut in its income tax rate from the current level of 28% in FY08. Telkom qualifies for the tax incentive as its free float has reached over 40% with its shareholders numbering more than 300 in total. Thus, according to the guidance provided by the company, we lower our income tax assumption from 30% to 23%.

Earnings revision
We have altered our earnings estimates - but with minimal impact on the bottom line. The 1Q09 result was slightly weaker than expectations, especially in regard to the revenues. Nonetheless, we think that the RPM has now reached its bottom. There is no significant change at the bottom line from the weaker revenues because of the positive impact of the previously mentioned tax incentive.

Mandiri Sekuritas Telkom: Go Defensive (TLKM, Rp7,300, Buy, TP: Rp8,200)

TLKM share price has increased by 5.8% ytd. Despite an indication by the company that earnings dropped by around 12%yoy in FY08, we have see TLKM stock price rise by 5.8% ytd. The main reason being that it’s considered a defensive play, and it had been trading at discount to regional peers.

Still a slow growth going forward, but TLKM is our sector pick. Though we stick to our view on low growth (EPS to grow by 1.4%yoy in FY09F), we flip our call on the stock from Sell to Buy, as we see “growth” is no more a distinguishing factor to chose our sector top pick. We put a Buy for the stock and now rely our call amongst others on TLKM’s highest free float (48.8% vs 20% for ISAT), and dividend yield (4.4% vs 3.5% for ISAT), its large cap (Market cap of Rp144tn vs Rp30tn for ISAT) and
overall a defensive play. We don’t like small caps – EXCL because of huge forex debt and losses, low free-float and while we have a Buy for BTEL considering its cheap valuation vise, we like to emphasize that the stock will underperform given the risk exposed to Bakrie Group.

Reverse our call from Sell to Buy. We arrive at a new TP of Rp8,200/share (+12.3% upside) after fine tuning our earnings and adjusting our WACC from 14.9% to 13.6%. Our TP implies PER09F of 14.2x, higher than regional peer average but lower than ISAT. Note that though ISAT has historically traded at premium to TLKM given its better growth, but now given that ISAT’s free float is about half of TLKM, we think TLKM should trade inline with ISAT. In order for TLKM to trade inline with ISAT, TP should be Rp9,100/share, indicating a further 10.9% upside to our TP. Currently Telkom PER09F 12.6x.