CLSA Ace Harwdware (ACES IJ), from Nick Cashmore

Nick Cashmore is doing basic research 101. He visited newly opened Ace Hardware (ACES IJ) store over the weekend. This store is just over 5,300 sqm in size making it one of the larger stores in the group. So, this store adds about 4.3% to their floor size. Total ACES floor size is 130k sqm post Gandaria.

Business was brisk, although the brand new mall is still largely empty. Two anchor tenants are Lotte and ACES. Both appear to be doing very good business.

Splashing US$130 for 13 items at ACES, Cashmore found the shopping experience a pleasure. He is coming back for sure. In mid September, ACES will also open their second Toys Kingdom store in town.

The latest ACES store opened over the weekend.
Gandaria is just over 5,300 sqm making it one of the larger stores
Indonesia’s expanding middle class is shifting towards lifestyle spending and ACES is at the forefront of this trend.

Valuation: the stock trades at reasonable valuation, 13.5x 2011 P/E with 25% earnings growth and 20% ROE.

CLSA Cement sector update , from Nick Cashmore, dissecting cement sector 1H10 results

We have been asked why cement companies here make so much money? Indonesia is spread over 17,000 islands of which is 13,000 is inhabited. Imagine trying to distribute goods over this vast area where infrastructure is mostly primitive. Whoever that has established distribution network will have a huge advantage as the barriers to replicate network is very high.

The big three players here control 90%+ market share and each operate in their own region. With cement consumption still one of the lowest in the region, the secular growth story is still very much intact. However, in the short term, cost has been going up (mainly electricity) and new capacity coming online, margins might under a little pressure.

In Nicks piece today, he examined the 1H results on a per tonne basis.

Indocement is generating US$27 net profit on every tonne
Semen Gresik generates US$21 net income per tonne
Holcim Indonesia currently generates only US$13 per

Indocement is the lowest cost and most profitable operator. INTP and especially Holcim offer the most operating leverage until 2012.

CLSA Indocement (INTP IJ) announced full-year financial results this morning. Key Highlights, from Nick Cashmore

Net earnings of Rp2.7tn which was 19% ahead of our forecast of Rp2.3tn. Significant earnings surprise in 4Q09 earnings.
4Q09 earnings of Rp878bn, were up 26% qoq and 71% yoy - this compares with earnings growth of 4% qoq for 3Q09
Margins improved. Operating margins rose to 36% in 4Q09 from 35% in 3Q09 while net margin rose to 27.9% for 4Q09 from 26.5% in 3Q09
The company's full-year operating margin rose to 35%, the highest since 1996; we forecast operating margins will peak at 38%
The cash build continues to grow. The company had US$280m cash on its balance sheet as of December-2009 and is forecast to generate US$465m in operating cashflow this year with only US$60m in capex - hence the firm has free cash of more than US$650m to allocate this year - 11.5% of its current market cap.
Conclusion

Our current 2010 forecast of Rp3.05tn will need to be revised up as will consensus of Rp3.1tn
A strong start to the year means our volume assumption of 10% growth for 2010 may be light
The company remains a cash machine - there has been no indication as to dividends
Our target price of Rp17,000 still implies 21% upside from current levels; likely to be revised up
Still a conviction holding for any investor wanting domestic Indonesian exposure - BUY

CLSA Stocks to trust, from Nick Cashmore

Research Today: Stocks to trust, from Nick Cashmore

“Trust – a firm belief in the reliability or truth or strength of a person or thing; a confident expectation; reliance on the truth of a statement etc without examination.” Oxford English Dictionary

Indeed, trust is a fundamental thesis behind the functioning capital markets and over the last 12 months, this most basic assumption has, however, been tested like never before.

In this note, we highlight some of the Indonesian companies we believe have earned the right to deserve investors’ trust. The list is not long and it is also subjective.

While earnings may face a cyclical downturn, investors should have comfort their interests as minority shareholders are being fairly represented.

(1) Unilever Indonesia (UNVR IJ): Indo’s largest consumer company earnings up 19 out of 20 years, significant outperformer.
(2) Bank Central Asia (BBCA IJ): Indo’s largest private sector bank, a third of the country’s GDP is transacted through the bank’s network each year, conservative, well capitalised, ROE has averaged 20%.
(3) Astra Group: non-core assets divested, financial risk eliminated, focused on core competency, has emerged stronger from each economic crisis
(4) Indocement (INTP IJ): Indo’s largest cement producer by capacity, lowest cost producer, the only one to sell carbon credits.
(5) Inco Indonesia (INCO IJ): Asia’s largest nickel producer, debt free, and one of the lowest cost nickel producers globally.
(6) Indo Tambang (ITMG IJ): Indo’s 4th largest coal miner, parent company Banpu has built a reputation as a reliable supplier in energy.