Mandiri Sekuritas Holcim Indonesia: Net profit grew 38.0% yoy, slightly below expectation (SMCB, Rp2,425, Neutral, TP Rp2,500)

Higher domestic sales volume (+19.0% yoy) boost 1H10 revenue to Rp2.8tn (+8.1% yoy). This shows that average selling price was lower compared with 1H09. Nevertheless, margins improved given lower cost/ton. Thus, 1H10 net profit grew 38.0% yoy to Rp386bn. Overall, the figures are inline with ours, yet slightly below consensus’ estimates. SMCB is currently trading at EV/ton of US$259, vs average peers of US$296.

CLSA JASA MARGA (JSMR IJ), leaner operation, BUY, TP Rp2,950

Sarina has just written a report on Jasa Marga (JSMR IJ), the country’s largest toll road operator in Indonesia. We increase our profit forecasts by ~10-17% for 2010-12, on the back of higher margin assumptions.

The stock is trading at 13.4x PER11CL. Our TP is also increased to Rp2,950/sh, implying 15x PER11CL.

The company has almost a de facto monopoly in the toll road business in the country. With vehicle sales going very strong in Indonesia, we are only going to see more traffic (some toll roads are congested on the daily basis). No issue with the top lines.

As such, the key factors that determine short-medium term margins are (1) cost of capital and (2) overall cost management. And it seems like things are going really well for JSMR on these two fronts. We expect further margin expansion.

(1) Declining cost of capital. JSMR has a bond of Rp650bn expiring Dec2010, which carries a 16.15% coupon. We believe this can be refinanced at a lower cost (we expect single digit rates). If we lower our cost of capital to 11% (from 14.5% previously), the equity value per share of the company (DCF derived) will come to be Rp4,578/sh vs Rp3,071/sh now.

(2) Better than expected cost management as JSMR pushes forward with its cost management, and the e-toll system. EBITDA margin expanded to 65.6% in 2Q10, the highest in their history. Margins have expanded steadily in the past four years. About 20% of JSMR’s workforces are outsourced.

CLSA INDF, re-initiating coverage, conviction BUY, TP Rp2,550

Our consumer analyst Swati has just written a very interesting (non consensus) report on Indofood (INDF IJ) . This is a re-initiation report. Swati has Rp2,550 TP and a conviction BUY call. She arrives at this target price by applying a multiple of 13x 2010 CL PE, which is also the 10 year average P/B of 2.2x. Regional consumer peers trade at 13.5x 2010 PE.

Consumer or plantation play?
Contrary to the popular perception, INDF is not really a plantation play (anymore). Consumer-related operations will contribute 70% to net income this year. While agribusiness will contribute 30% to net profits AFTER eliminating inter-segment sales, interest expense related to acquisition and amortization of goodwill and minority interests. See the charts below:

Noodle recovery and potential, the key driver to group earnings in the years ahead
For the first time in 5 years, INDF’s noodle operations are showing signs of recovery. EBIT margins have recovered from all time lows, no doubt helped by lower CPO and wheat prices.

Despite being the largest market in the world, Indo’s noodle market still has great potential. Euromonitor predicts Indo’s noodle market will grow by 11.2% pa for the next 5 years, second only to Vietnam.

Key points from the report:
· We reinitiate coverage on INDF with a conviction Buy call.
· INDF is one of the world’s largest producers of instant noodles and is a proxy to Indonesia’s growing domestic consumption with a market share of about 72% in instant noodles.
· We see a turnaround in noodle margins this year as market share stabilize, price war subsides and input costs fall.
· We argue that INDF is a consumer related company as consumer related operations will contribute 70% to net income this year.
· INDF’s margins on flour segment will suffer this year as competition increases. Indofood emphasize market share and therefore we conservatively forecast 5% ebit margins this year vs 8-11% historically.
· Indolakto we believe will be earnings accretive from 2013 onwards.
· We derive fair value of Rp2550/sh. A blue sky multiple would lift this higher.

Credit Suisse - Medco Energi (MEDC.JK, Rp2,025, N, TP Rp2,000) - Lower oil price assumptions, with cut in earnings estimates

Medco Energi (MEDC.JK, Rp2,025, N, TP Rp2,000) - Lower oil price assumptions, with cut in earnings estimates

· The Credit Suisse global oil team has revised down its oil price assumptions, as the recovery in oil price is likely to take longer than previously expected. We have now assumed a WTI oil price of US$50/bbl (barrel) for 2009E, down from US$60/bbl; and US$60/bbl for 2010E, down from US$80/bbl. Our long-term oil price assumption is now US$70/bbl, down 30% from US$100/bbl.

· In addition to the oil price assumption change, we have also assumed a 15% cut in Medco’s capital expenditure for likely difficulties in getting financing. Consequently, we have reduced our 2009E net profit estimate by around 33% to US$38 mn and our 2010E estimate 38% to US$35 mn. 2009E and 2010E EPS are revised down around 33% and 38%, respectively.

· Medco has always traded at discount to its valuation. Therefore, we retain our target price of Rp2,000, as it reflects an implied oil price of US$42/bbl. We believe in the long-term potential upside of Medco, but retain our NEUTRAL rating, as we expect a fall in earnings this year on lower oil prices and oil/gas output.