Mansek Semen Gresik:Thoroughly consider to increase its selling price (SMGR, Rp8,950,Neutral,TP:Rp9,400)

In yesterday ’s analyst meeting,SMGR indicated its attempt to slightly increase selling price in the past several months.Yet,they have to adjust back to its previous level given it lowered their market share.In other way, such upward adjustment was not followed by its competitors,in our view.

In terms of the de-bottlenecking process,the progress was still inline with their schedule.Considerably low sales volume in 1H10 was due to several maintenances activities.In 2H10,they could again increase its production level.Such bottlenecking and maintenances will reduce its cost/ton in near future.Despite the above mentioned condition,we view that selling price could still go up next year,once new electricity tariffs start to have an affect to all cement companies.Even without such increase,we believe margin could still be maintained or slightly increases due to the efficiencies
programs undertaken.The company is currently trading at PER10-11F of 14.2x-12.3x.

Mansek Telkom:net income 1H10 in line with ours and consensus estimates (TLKM,Rp8,450,Buy,TP:Rp12,000)

Revenue 1H10 at Rp32.6tn (+5.0%yoy,6.4%QoQ)in line with our and consensus.Revenue from cellular up by 3.1%yoy (contributes 42.0%of revenue),data revenue up by 18.0%yoy (contributes 29.9%of revenue);meanwhile fixed line down 10.2%yoy (contributes 19.5%of revenue)

Operating profit slightly declined due to increase in maintenance expenses by 20%yoy and depreciation expense by 11%yoy as a result of higher capex.At the non-operating level,TLKM booked gain on foreign exchange at Rp111.3bn (-79.8%yoy)

Net income at Rp6.0tn (-0.7%yoy,+16.2%QoQ),in line with our estimates and consensus.

On subscriber numbers;cellular subscribers at 88.3mn (+16.2%yoy,7.6%qoq)ARPU Rp43k vs Rp47k (yoy);fixed line subscribers at 24.3mn (+9.4%yoy,0%q0q)and broadband subscribers (speedy)at 1.4mn (+73.6%yoy,9%yoy)

TLKM trades at PER10F of 14.3x,we currently have a buy on Telkom.

Mandiri Sekuritas Mayora: 1H10 results are inline with ours and consensus estimate (MYOR, Rp8,400, Buy, TP: Rp9,000)

􀂄 MYOR posted 1H10 net income of Rp211bn (+29%yoy, -22%qoq), which is inline with ours and consensus estimate.
􀂄 The decline in net profit was due to heavy ads expense in 2Q10 that increased by 73%qoq and 75%yoy. Considering seasonality effect, we expect the company will be better in 2H10.
􀂄 We have Buy recommendation on MYOR which currently is trading at PER10-11F of 13.1-11.3x.

Danareksa Telekomunikasi Indonesia: (TLKM IJ, Rp8,150 BUY) Steady performance

Tekomsel shows better performance
Telkomsel has an internal target based on a 50% share of industry net additions. The management set a moving target because of the stiff competition in the marketplace. In 1Q10, Telkomsel failed to meet its internal target as it only attained a 4.2% market share of the total industry net additions of 7.6mn. 2Q10 should be a much better quarter, however, as Telkomsel has indicated net additions of 1.7mn in April 10 and 2.4mn in May. Competition may be tight, but the price war has thankfully eased off, with Telkomsel’s revenues per minute increasing to Rp240 from a low of Rp200.

Developing its broadband business
Broadband has huge growth potential in Indonesia. Some indications suggest there are only 30mn internet users in Indonesia. This translates into a very low penetration rate of 13%. To develop this market, Telkom is targeting fixed broadband services at multi users and mobile broadband at personal users. Pricing remains a key issue. For fixed broadband, Telkom plans to lower its monthly subscription fee from Rp220,000 currently to Rp180,000 for unlimited access. When this service was introduced the subscription fee was Rp250,000. Telkom currently has 1.2mn Speedy subscribers (fixed broadband) and 13.0mn mobile broadband subscribers.

Possible towers spin-off
Telkomsel is mulling the possibility of spinning off its towers to unlock the value of the assets. Telkom has already entered into talks with Singtel (which owns a 35% stake in Telkomsel). The main obstacle to the sale of towers is that the negative investment list does not allow foreign ownership of towers. This means that Singtel would need to be compensated when the towers are sold (to a domestically owned company – most probably under Telkom). So far, Telkom and Singtel have not reached agreement on the pricing. At the end of the day, the towers would be sold to Mitratel (a subsidiary of Telkom). Mitratel would then have about 9,000-10,000 towers available for rent to third parties. The ultimate plan is for Mitratel to go public eventually.

Maintain BUY
Although Telkom is a solid company with a healthy balance sheet and strong operating cash flow, subdued growth due to tight competition has put the stock price under pressure. Going forward, however, a second wave of growth from the data business could make the stock an attractive investment proposal given the stock’s discount to the market. BUY maintained with a target price of Rp9,650

Merger overhang
The proposed Flexi –BETL merger has entered a “status quo” period, since approval for the merger will need to be sought from the new management of Telkom. The Ministry of State Owned Enterprises has yet to appoint the new members of Telkom’s BOD. Hence, the existing management term will retain their positions until the next extraordinary general meeting. Telkom’s intention is to utilize the CDMA based technology for lower priced services whilst keeping Telkomsel as a provider of premium services. By focusing on two market segments, it should be easier for Telkom to compete in the marketplace.

Blackberry price war?
The Blackberry is quickly gaining popularity in Indonesia. However, the size of the market is still quite limited and there are less than 2mn users. The relatively high subscription fees and costly handsets put the device out of the reach of most Indonesians. Moreover, from a technical aspect, the 3G network is still limited to the large cities in Indonesia (although Blackberry can still utilize the 2G network). In a bid to spur growth, operators have been offering lower subscription fees. Nonetheless, price is not everything and network quality is an important consideration for some Blackberry users. In this regard, the cheaper offerings from 3 and Axis may find the going tough as the quality of their networks is not as good as the quality of the incumbents’ networks. In our estimates, the variable cost for the operator to Research in Motion is about US$8 per month. At this level, 3 and Axis are barely making money.

Mandiri Sekuritas Semen Gresik: To acquire cement producer in Southeast Asia (SMGR, Rp8,250, Buy, TP: Rp9,400)

SMGR plans to acquire cement producer, which located in Southeast Asia region in order to increase its capacity. Rumor said that they are eyeing Cement Industries of Malaysia Berhad (CIMA). They budgeted around US$300mn to acquire cement producer which has 2-3mn tons of capacity. Note that CIMA has total cement production capacity of 3.4mn tons, thus the US$300mn acquisition is equal to EV/ton of US$88, assuming they have no debt. Should realized, this will bring positive outcome to SMGR as they will have an additional capacity without having to wait its new plant in which currently under construction. SMGR is currently trading at PER10F of 13.1x and the lowest EV/ton of US$249.

Mandiri Sekuritas Semen Gresik plans to acquire a regional cement producer (SMGR, Rp8,250, Buy)

• Semen Gresik (SMGR) plans to acquire a regional cement producer with 2-3mn tons production capacity to boosts its annual capacity and to expand its market coverage. The management stated that they have prepared US$300mn investment cost to execute this plan slated for this year. However, they did not give further details regarding the targeted company’s profile.

• In the meantime, the company also cited another alternative is to acquire a domestic cement company, namely Semen Baturaja in Sumatera with annual capacity of 1.2mn tons. We believe that acquiring a domestic cement company would be wiser for Semen Gresik rather than striving to be a regional player as domestic cement demand still offers ample growth with higher profitability also.

• Currently SMGR is trading at 2010F PER of 12.9x and EV/EBITDA of 7.9x, Buy.

AmCapital Semen Gresik (SMGR, Rp8,250) Danareksa and PPA bought 1.25% stake from the Rajawali Group

The Government of Indonesia (via Danareksa and Perusahaan Pengelola Aset or PPA), finally bought the 1.25% stake in Semen Gresik, Indonesia’s largest cement producer by capacity, from the Rajawali Group, local newspaper reported, citing the Managing Director of Rajawali Group Darjoto Setyawan. The group sold its stakes in Semen Gresik at Rp7,000 per share.

NISP Government bought 1.25% Semen Gresik’s shares from Rajawali Group (SMGR, Rp8,250, Buy)

• The Government on 30 April, has bought 1.25% Semen Gresik’s (SMGR) shares from Rajawali Group with total transaction value of Rp516.9bn. This transaction was settled through Perusahaan Pengelola Aset (PPA) and Danareksa.

• Currently SMGR is trading at 2010F PER of 12.9x and EV/EBITDA of 7.9x, Buy.

NISP Semen Gresik’s net income grows by 17.8% YoY in 1Q10 (SMGR, Rp8,200, Buy)

• Semen Gresik (SMGR) posted a solid result in 1Q10 with net profit growing by 17.8% YoY to reach Rp802bn compared to Rp681bn in 1Q09. However, the company’s revenue was relatively flat as it was only up by 0.6% to Rp3.24tn vs. Rp3.22tn in 1Q09. This figure is relatively in-line with our estimation as the company’s revenue and net income accounted for 21% and 21.2% of our full year estimate.

• However on quarterly basis, reflecting performance of its peers, results came lower than 4Q09 achievement as sales volume in 4Q09 was exceptionally high and due to wet season in 1Q10. The company’s revenue and net income figure is down by 18.5% and 12.6%, respectively.

• During 1Q10, the company booked 12.4% YoY growth on domestic sales volume to reach 4.2mn tons while export sales remained low at only 30.3k tons or down by 86.0% YoY compared to 215.4k tons in 1Q09.

• The company’s margins in 1Q10 improved across the board as operating and net margin was up by 4.3% and 3.6% to 31.2% and 24.7%, respectively. While on quarterly basis, the company’s gross and operating margin was down by 3.2% and 1.1% due to a cash cost escalation in 1Q10 along with higher coal and oil price.

• Overall, Semen Gresik’s 1Q10 result was in-line with our estimate and we expect the next earning catalyst for the company will come from the 5% tax reduction as the company’s free float shares is above 40%. We maintain our Buy recommendation on the counter while SMGR is trading at 2010F PER of 12.8x and EV/EBITDA of 7.8x.

Mandiri Sekuritas Semen Gresik: 1Q10 net profit grew 17.8% yoy, inline with consensus estimates (SMGR, Rp8,200, Buy, TP: Rp9,400)

SMGR booked a relatively flat growth in the top line level, of only 0.6% yoy. This is lower than its sales volume growth of 7.1% yoy. It thus suggests that there was no increase in the domestic average selling price. This is inline with our and consensus estimates, as historically 1Q-to-FY figure stood around 21%. Despite relatively flat ASP, the company was able to booked better margins. Thus bottom line growth is higher of some 21.6% yoy. SMGR is currently trading at the cheapest EV/ton of US$247. That said, we maintain our Buy recommendation with a price target of Rp9,400/share.

NISP BRI net income grows by 25% (BBRI, Rp8,650)

• For the first quarter of 2010, BRI managed to book Rp2.15tn as net income, or 25% YoY higher than Rp1.72tn in 1Q09. The result came in 24.3% of market expectation for full year 2010F of Rp8.83tn.

• The performance was due to a rise in net interest income for the bank, which grew 24% YoY to Rp6.7tn. NII grew at a faster rate than operating expenses, which contracted slightly by 3%YoY to Rp4.5tn.

• The lower interest rate condition unfazed BRI, as NIM was comparatively steady at 9.37% compared to 9.46% enjoyed last year. However on the asset quality side, NPL increased to 4.10% from 3.24% the previous year.

• BBRI is trading at 2010F consensus PER of 12.0x and PBV of 3.2x.

Mandiri Sekuritas Bank Rakyat Indonesia: BBRI Net Profit 1Q2010 Perk Up (BBRI, Rp8,650, Neutral, TP: Rp9,400)

􀂄 BBRI posted an increase 25.1% in net profit for its 1Q2010 result to Rp2,151, which in line with our expectation and consensus estimates.

􀂄 The bank’s Net Interest Income increased by 24.1%, as the bank maintained to push the credit growth by 27.7% yoy, to arrive its interest income surge by 15.4%, supported by sustainable interest expense. NPL of the bank stood at 4.1%, led the bank to book provisioning expenses Rp1,420 bn (vs. Rp886 bn FY09). However, the strong Net Interest Income, as well as flat operating expenses, assisted the bank to post sound net profit figure.

􀂄 BBRI booked gross loan at Rp212,230 bn (+3.3% qoq). However its deposits declined by 4%, due to seasonality at the beginning of the year, resulting LDR up to 86.5% (vs. 81.4%). ROAE remained strong at 33.6% (vs 33.7% FY09) as well as CAR at 15.4% (vs. 14.9%).

􀂄 BBRI currently trades at P/BV10 3.1x and PER10 11.8x. We have Neutral recommendation on the counter.

Danareksa Bank Rakyat Indonesia (BBRI IJ, Rp8,450 BUY) Micro driven growth

Reality check; BUY retained
We raise our 3-yr CAGR loan growth estimate to 23% p.a., driven largely by brisker micro loans expansion, supported by stronger consumption growth and benign inflation. This is a reasonable estimate, we believe, since BBRI’s micro loans have grown 23% over the past 5 years, exceeding the industry average of 21%. BBRI’s uncontested rural presence, with 4,500 micro outlets, has helped the bank grow its high yielding loans - and deposits too. This shall remain the case going forward, in our view. Along with higher loans growth, we raise our provisioning expenses to around 2.0-2.5% of average loans to be on the conservative side and trim our NIM to 8.7% - lower yes, but still far above the industry’s average. Our FY10-11 EPS estimates are therefore lowered by 6-14%. However, we still arrive at a higher TP of Rp9,900 thanks to the increase in our loans growth estimate. Our new DDM derived TP implies 3.9-3.3x P/BV 2010-11, at the high-end of its trading range, but justified by the bank’s above-industry loan growth, superlative NIM and robust ROE.

Plenty of room to grow its micro loans
We expect BBRI’s micro loans to grow 24% over the next 2 years, accounting for 28% of the total loans portfolio. Competition to extend micro loans has admittedly escalated in recent years - with banks attempting to extend higher yielding loans to the growing middle-low income population – amidst stronger consumption growth. However, BBRI remains ahead of the pack thanks to its extensive infrastructure and, in particular, its rural network. This year, the bank will open another 50 micro outlets. Some of them will even be in major cities with the idea of garnering cheap deposits so that they can later be channeled to borrowers in rural areas as high yielding fixed rate loans. With an estimated LDR of 86%, the bank has to search for more deposits. The prospects in this segment are good and it is important to realize that it is far from mature - micro loans per borrower are estimated to be only Rp2.2mn in 2009, or far below BBRI’s average of Rp10mn per borrower and significantly below BI’s limit of Rp50mn/ borrower.

Cross selling shall help the bank grow its deposits
The bank’s NIM shall inevitably decline this year (to 8.7%, in our estimates). Larger deposits are needed, especially if BBRI is to grow its loans in excess of 20% p.a., but the focus is more on growing its low cost funds. Opening micro outlets is an alternative, but corporates is another option. The idea is to lend to corporates at 50bps below the normal rate of 11-12% or at the prime rate, with the aim of attaining greater fee-based income and deposits. The lending rate will be low, but with the overall lending to corporates kept at about 18-20% of the bank’s total loan portfolio, there will be minimal impact on BBRI’s overall asset yield. The focus will be on SOE companies, for which NPLs are virtually zero.

Sub-debt issuance is a likely scenario
There is potential risk to BBRI’s CAR of 13% - in particular since implementation of the Basel II accord on operational risk shall cut its CAR by 1.5-2.0%, in our estimates. BBRI views 12% as a minimum level for CAR, although this is insufficient if it seeks to grow its loans in excess of 22% p.a. Unlike other SOE banks, the issuance of sub-debt - rather than raising equity – is the best option for the bank given that the latter would result in potential earnings dilution with no extra tax benefits (one downside though is the higher COF from the additional cost of debt). While we believe that the bank’s capital is sufficient this year (partly due to last year’s Rp2trn sub-debt issuance), a further decline in capital is expected next year. For now, there is no definite plan for additional sub-debt issuance although the bank’s management hasn’t ruled out the possibility of a sub-debt issuance in 2H10.

Mandiri Sekuritas Bank Rakyat Indonesia: FY09 results above our expectation and consensus estimates (BBRI, Rp8,250 Buy, Rp8,700)

􀂄 Bank Rakyat Indonesia recorded a net profit of Rp7.3tn (+22.7% yoy) in 2009, which was above our expectation and consensus estimates.

􀂄 The bank reported higher than expected fee based income, mainly derived from fees and commissions charged to its customers.

􀂄 Meanwhile, NIM declined to 9.1% in 2009 from 10.2% in 2008, partly attributed to strong growth in time deposits during the year (CASA proportion declined from 63.5% in 2008 to 60.6% in 2009) which led to a higher increase in interest expense compared to interest income (44.4% yoy vs. 24.9% yoy).

􀂄 During the analyst meeting yesterday, the management mentioned about the targeted loan growth of 20-25% yoy this year and expected improvement in CASA proportion, supported by full online system effective Nov09. Despite that, the bank only targets NIM to maintain between 8.5% -9.5%.

􀂄 At present, BRI is trading at 2010F P/BV of 3.1x and PER of 13.0x. We maintained our buy recommendation on the counter.

NISP Bank Rakyat Indonesia posted strong net income in 2009 period (BBRI, Rp8,250)

• During 2009 BRI managed to post Rp7.3tn of net income, 22.7% YoY higher compared to Rp6.0tn a year earlier. The bank’s net income managed to surpass the consensus’ expectation of Rp6.9tn for the period. This was due to BRI’s ability to post robust growth on loans that reached Rp205.5tn last year, or increased by 27.6% YoY from Rp161.1tn a year earlier.

• The bank still maintains MSME’s loans composition as it gives better yields than the corporate loans segment. During 2009, total MSME loans reached 81.37% of the bank’s total loans, which was higher than 80.88% in 2008 period.

• In TPF side, total deposits grew by 26.1%, or relatively inline with loans growth
in the corresponding 2009. Most of the TPF are still dominated by low cost funding, which accounted for 60.6% of the bank’s total deposit account.

• The combination of favorable assets yield and low cost funding helped the bank
to post a higher net interest income of Rp22.9tn last year, 16.6% YoY higher from Rp19.6tn a year earlier. This was also added by stronger other operating income of Rp3.3tn (+30.7% YoY) from higher fee based income.

• Thus, despite BRI posted a two fold increase in provision, the bank still managed
to book a strong growth in its bottom line.

• On asset quality side, NPL edged higher to 3.5% in 2009 from 2.8% in 2008, however there was a significant improvement during 4Q09 where the bank’s NPL improved from 3.9% in 3Q09 to 3.5% in the end of 4Q09. The bad debt amount also decreased to Rp6.6tn in 4Q09 from Rp7.5tn in 3Q09. Thus the bank decided to lower its provision expenses to Rp407.8bn from Rp2.7tn in 3Q09. The bank felt comfortable with its NPL coverage ratio that reached 1.6x at the end of 2009 period.

• Going forward, BRI aims to maintain its loan growth at 20% YoY – 25% YoY and
aims it NIM to range between 8.5% - 9.5%.

• BBRI is trading at 2010F consensus PER of 11.7x and PBV of 3.1x.

Danareksa Gudang Garam (GGRM IJ, Rp8,000 BUY) Earnings upgrade

Earnings upgrade



FY09-10 earnings forecast increased by 27-30%
We have raised our forecasts to reflect the excellent 1Q09 results. We forecast higher sales, higher margins, higher interest expenses, and a lower income tax rate. The net effect is 27-30% higher earnings forecasts for FY09-10. Applying a WACC of 16.5%, we arrive at a higher TP of Rp9,500 compared to Rp7,000 previously. Our new target price translates into a very attractive valuation of 7.5-7.1x PE09-10F and 1.0-0.9x PBV09-10F. Maintain BUY recommendation.

1Q09 Results: outstanding
Gudang Garam has posted an excellent set of 1Q09 results. Net profits jumped 132% to Rp781 bn on the back of a significant margins improvement and efficiency gains. Sales grew 11% to Rp7,651 bn, driven by higher selling prices we believe. The gross profits and operating profits increased by 58% and 94% respectively, beating expectations. Another boost was provided by the lower income tax rate of 28% as a result of new tax regulations, although net interest expenses did rise 11%.

Sales push
A sales push now appears to be in the making. In this regard, Gudang Garam increased its ownership in its now fully owned subsidiary, Surya Madistrindo, a distribution company in 2008. Consequently, Gudang Garam’s sales contribution through this subsidiary continued to increase (it rose to 23% YoY in 1Q09 from 5% in 1Q08). This is good news as it reduces Gudang Garam’s reliance on its existing affiliate distributors. And going forward, it should help Gudang Garam to boost sales further. Given the rosier prospects for the consumer sector as evidenced by high consumer confidence, we raise our sales growth estimate to 7.9% YoY driven by 5% price increases and 3% volume growth assumptions.

Excellent operating performance
The 1Q09 results show excellent operating performance. The gross margin rose to 22% from 15.4% in 1Q08 thanks to lower material costs, lower production overhead costs, and higher selling prices (the company successfully passed on more of its excise tax burden to the consumer). The company also managed to keep its operating expenses at a relatively low level. As a result, the operating margin jumped to 15.6%, its highest level in 6 years. The company’s balance sheet is very strong. Net gearing declined to only 16% from 21% at the end of 2008. Moreover, its net working capital shortened to 223 days, down 11 days y-o-y, largely because of improving inventory turnover.