As we discussed in our recent scenario, the US authorities have the necessary tools and margin for manoeuvre to resolve the banking crisis. The remaining risks are primarily execution risks (insufficient or ineffective private sector incentives and poor communication). It is also certain that the ultimate cost for the taxpayer will be extremely high.
The banking system stress test is part and parcel of the new Administration’s financial stability plan. It will not solve the problems of the banking system once and for all. At best, it will give a snapshot of banks’ capital requirements, based on conservative, but not extreme, assumptions. But the stress test should help restructure the banking system swiftly and efficiently, i.e. favour asset disposals, recapitalisations, mergers and/or liquidations.
That said, there are still many uncertainties relative to the contents of the stress test. We discuss them here according to three themes:
1. The method and level of stress adopted by regulators. Assumptions regarding the economic outlook appeared pessimistic enough in February, but are now closer to the consensus. Nevertheless, the stress estimates for loan portfolio losses may be greater than suggested by macroeconomic assumptions, as revealed in the press this morning.
2. Whether or not to disclose detailed results for each bank. The Treasury is more in favour of disclosing results for individual banks than the regulators are. The advantage would be to identify banks deemed as robust and those considered to be undercapitalised, hence lifting uncertainly and speeding up restructuring of the banking sector. The risk would be to trigger panic selling of stocks in banks deemed insolvent; this risk could be contained by the concomitant announcement of capital increases (public or private).
3. The Treasury’s capacity to recapitalise the banking system single-handed. The IMF’s recent estimates are a useful reference. The public funds already released would be enough in a relatively favourable growth and leverage scenario, but insufficient in grimmer conditions.
Selasa, 28 April 2009
Citigroup - Asia Macro and Strategy Outlook: Green Shoots - Premature Harvest
Talk of "green shoots" should be put in perspective, even if regional YoY GDP growth is expected to bottom in 1Q09/2Q09 — Except for China, signs of a real recovery remain elusive, though production stabilized and expectations have caught up with reality. Prospects hinge on the G3 outlook, which remains fragile.
We are nearing, or have already reached, the end of the rate cutting cycle — Korea Taiwan and Malaysia have probably ended their rate cuts, while China may be the first to tighten policy. Only in Indonesia, India and the Philippines do we still expect sizeable cuts, though the pace of cuts will slow.
Concerns about external liquidity risks in emerging markets, including Asia, have significantly abated, and should continue to improve — Concerns over external funding will likely improve given (1) strong government commitment globally to support systemically important institutions, (2) strengthening of resources of the IMF and other multilateral financial institutions, (3) proliferation of bilateral swaps, (4) re-opening of private capital markets, (5) improving current accounts.
Concern about fiscal deterioration will be better factored into sovereign credit spreads, and we are biased to pay on the longer end — Revenue slippage, countercyclical fiscal policies and realisation of contingent liabilities could cause fiscal balance sheets to deteriorate. South Asia, the Philippines and Malaysia, where debt to GDP is already very high, will face more fiscal constraints. We don’t find a compelling case for receiving front-end rates except in Hong Kong and India, and are biased to pay in the long-end of the curve, especially in Malaysia, Korea and Taiwan.
While Asian FX is vulnerable to a near-term relapse of risk aversion, the longer term FX appreciation view remains intact — Near-term FX outlook would depend on risk environment. Anchored appreciation expectations on CNY, and improving external flows should support medium-term FX appreciation. We remain marginally bearish on SGD, neutral on MYR and biased long on IDR and KRW.
We are nearing, or have already reached, the end of the rate cutting cycle — Korea Taiwan and Malaysia have probably ended their rate cuts, while China may be the first to tighten policy. Only in Indonesia, India and the Philippines do we still expect sizeable cuts, though the pace of cuts will slow.
Concerns about external liquidity risks in emerging markets, including Asia, have significantly abated, and should continue to improve — Concerns over external funding will likely improve given (1) strong government commitment globally to support systemically important institutions, (2) strengthening of resources of the IMF and other multilateral financial institutions, (3) proliferation of bilateral swaps, (4) re-opening of private capital markets, (5) improving current accounts.
Concern about fiscal deterioration will be better factored into sovereign credit spreads, and we are biased to pay on the longer end — Revenue slippage, countercyclical fiscal policies and realisation of contingent liabilities could cause fiscal balance sheets to deteriorate. South Asia, the Philippines and Malaysia, where debt to GDP is already very high, will face more fiscal constraints. We don’t find a compelling case for receiving front-end rates except in Hong Kong and India, and are biased to pay in the long-end of the curve, especially in Malaysia, Korea and Taiwan.
While Asian FX is vulnerable to a near-term relapse of risk aversion, the longer term FX appreciation view remains intact — Near-term FX outlook would depend on risk environment. Anchored appreciation expectations on CNY, and improving external flows should support medium-term FX appreciation. We remain marginally bearish on SGD, neutral on MYR and biased long on IDR and KRW.
Indopremier BLTA - HOLD TP Rp 690
Gleaming 2008 performance, boosted by Chembulk acquisition
The year 2008 was an impressing year for BLTA’s performance which was mainly bolstered by Chembulk Tankers LLC acquisition in late 2007. The company’s revenue grew significantly by 92.4% YoY in FY08, reached Rp 7.01 trillion compared to FY07 of Rp 3.64 trillion. We noted that around 74% of its total revenue was coming from Chemical tanker’s revenue which has soared by 159% YoY, attaining to Rp 5.17 trillion, fuelled by Chembulk acquisition.
Quarterly profitability dropped in 4Q08
On quarterly basis, the company’s revenue was able to book 8% QoQ growth, shoved by Chemical tanker and Gas tanker revenues hike by 8.7% QoQ and 36.6% QoQ, respectively. Nevertheless, we noted that the company’s margin in 4Q08 has significantly dropped on average 90.7 – 261.3 bps caused by direct cost and operating expense hike, mainly driven by the hike of bunker price which was not compensated by its revenue hike. Meanwhile, the bottom line booked net margin decline in the same period and knocked to -9.63% level which was dragged by 1421.9% QoQ forex loss and 64.5% QoQ interest expense hike reaching to Rp 409 billion and Rp 1.31 trillion, respectively.
Prospect and projection
We view that year 2009 could be not a good year for shipping industry amid global crisis and freight rate decline as vessels supply excess. The prospect would be better in 2010 which is fuelled by freight rate recovery, tightened MARPOL Anex II regulation and Cabotage implementation for Oil and Gas per 1 January 2010. Therefore, we forecast the 2009 operational performance will grow by 4.4% YoY – 8.5% YoY while net profit is projected to drop by 49.9% YoY becoming Rp 781 billion as higher in financial cost and forex loss book. For year 2010, we forecast the company’s financial performance will be increase on average 7% YoY – 23.4% YoY amidst recovering in shipping industry.
Valuation – Maintain HOLD recommendation
Amid financial crisis global, we are much concern on BLTA’s borrowing of Rp 16.53 trillion which would expose BLTA with high interest expense which would potentially slashed the company’s bottom line. In addition, it is worried to re-encroach 3.5x Net DER covenant in FY09 amidst rising in Net DER. Therefore, we maintain our HOLD recommendation with new target price at Rp 690,- per share from previous TP of Rp 480,- per share which is calculated by 19.3% WACC assumption in DCF model. This TP reflects valuation PE09-PBV09 at 3.69x – 0.40x and represented 4% loss potential compared to yesterday’s closing price.
The year 2008 was an impressing year for BLTA’s performance which was mainly bolstered by Chembulk Tankers LLC acquisition in late 2007. The company’s revenue grew significantly by 92.4% YoY in FY08, reached Rp 7.01 trillion compared to FY07 of Rp 3.64 trillion. We noted that around 74% of its total revenue was coming from Chemical tanker’s revenue which has soared by 159% YoY, attaining to Rp 5.17 trillion, fuelled by Chembulk acquisition.
Quarterly profitability dropped in 4Q08
On quarterly basis, the company’s revenue was able to book 8% QoQ growth, shoved by Chemical tanker and Gas tanker revenues hike by 8.7% QoQ and 36.6% QoQ, respectively. Nevertheless, we noted that the company’s margin in 4Q08 has significantly dropped on average 90.7 – 261.3 bps caused by direct cost and operating expense hike, mainly driven by the hike of bunker price which was not compensated by its revenue hike. Meanwhile, the bottom line booked net margin decline in the same period and knocked to -9.63% level which was dragged by 1421.9% QoQ forex loss and 64.5% QoQ interest expense hike reaching to Rp 409 billion and Rp 1.31 trillion, respectively.
Prospect and projection
We view that year 2009 could be not a good year for shipping industry amid global crisis and freight rate decline as vessels supply excess. The prospect would be better in 2010 which is fuelled by freight rate recovery, tightened MARPOL Anex II regulation and Cabotage implementation for Oil and Gas per 1 January 2010. Therefore, we forecast the 2009 operational performance will grow by 4.4% YoY – 8.5% YoY while net profit is projected to drop by 49.9% YoY becoming Rp 781 billion as higher in financial cost and forex loss book. For year 2010, we forecast the company’s financial performance will be increase on average 7% YoY – 23.4% YoY amidst recovering in shipping industry.
Valuation – Maintain HOLD recommendation
Amid financial crisis global, we are much concern on BLTA’s borrowing of Rp 16.53 trillion which would expose BLTA with high interest expense which would potentially slashed the company’s bottom line. In addition, it is worried to re-encroach 3.5x Net DER covenant in FY09 amidst rising in Net DER. Therefore, we maintain our HOLD recommendation with new target price at Rp 690,- per share from previous TP of Rp 480,- per share which is calculated by 19.3% WACC assumption in DCF model. This TP reflects valuation PE09-PBV09 at 3.69x – 0.40x and represented 4% loss potential compared to yesterday’s closing price.
Indopremier BDMN (HOLD - TP Rp 2,600)
From the 1Q09 BDMN financial result, we may conclude several points:
1. Company’s intention to move conservatively this year has been reflected on the 1Q09 financial performance. The credit slowed 5% QoQ, fuelled by falling loan book for corporate and SME lending which fell by 18% QoQ and 8% QoQ, respectively. The success of almost Rp 4trn rights issue would overcome liquidity and capital adequacy problem. Hence, BDMN might not enforce the funding from third party fund, which on 1Q09 tumbled 1% QoQ. Mild growth on credit and third party fund would stabilize the NIM, in our view.
2. As we expected, soaring NPL has been an embedded risk for BDMN. The NPL ratio in 1Q09 rose to 2.9%, compare with 2.3% in 4Q08. Higher NPL ratio in 1Q09 came from corporate and SME lending. Loan book under special mention category depicted discouraging movement, where the corporate lending has bigger portion under this category in 1Q09. BDMN would need more provisioning than our earlier expectation. We expect bad debt might also come from motorcycle financing and consumer mass market. Moreover, the NPL coverage in 1Q09 has tumbled nearing 100%, from 136% in 4Q08, which means the bank would need more provisioning to cushion the bad debt.
3. Loss on derivative transaction still shadowed BDMN’s performance. In 1Q09, the bank booked Rp 31billion of realized cost of unwound foreign exchange forward contracts and provisioning of the outstanding contracts. As of end of March 2009, there are a US$23 million marked to market value of outstanding contract from 15 customers, while the unwound contracts have total receivable of Rp 2.3trn.
Responding the 1Q09 figures, we revised the NPL ratio assumption to become 4% from the previous assumption of 3%. Meanwhile, for the NPL coverage, we assume 120% coverage would be sufficient. Growth estimation for loan book and third party fund remained the same, referring to BDMN’s guideline and our estimation. Under Gordon Growth Method, the fair value for BDMN is at 1.4x PBV09, translated into Rupiah, at Rp 2,600. We maintain our HOLD recommendation.
1. Company’s intention to move conservatively this year has been reflected on the 1Q09 financial performance. The credit slowed 5% QoQ, fuelled by falling loan book for corporate and SME lending which fell by 18% QoQ and 8% QoQ, respectively. The success of almost Rp 4trn rights issue would overcome liquidity and capital adequacy problem. Hence, BDMN might not enforce the funding from third party fund, which on 1Q09 tumbled 1% QoQ. Mild growth on credit and third party fund would stabilize the NIM, in our view.
2. As we expected, soaring NPL has been an embedded risk for BDMN. The NPL ratio in 1Q09 rose to 2.9%, compare with 2.3% in 4Q08. Higher NPL ratio in 1Q09 came from corporate and SME lending. Loan book under special mention category depicted discouraging movement, where the corporate lending has bigger portion under this category in 1Q09. BDMN would need more provisioning than our earlier expectation. We expect bad debt might also come from motorcycle financing and consumer mass market. Moreover, the NPL coverage in 1Q09 has tumbled nearing 100%, from 136% in 4Q08, which means the bank would need more provisioning to cushion the bad debt.
3. Loss on derivative transaction still shadowed BDMN’s performance. In 1Q09, the bank booked Rp 31billion of realized cost of unwound foreign exchange forward contracts and provisioning of the outstanding contracts. As of end of March 2009, there are a US$23 million marked to market value of outstanding contract from 15 customers, while the unwound contracts have total receivable of Rp 2.3trn.
Responding the 1Q09 figures, we revised the NPL ratio assumption to become 4% from the previous assumption of 3%. Meanwhile, for the NPL coverage, we assume 120% coverage would be sufficient. Growth estimation for loan book and third party fund remained the same, referring to BDMN’s guideline and our estimation. Under Gordon Growth Method, the fair value for BDMN is at 1.4x PBV09, translated into Rupiah, at Rp 2,600. We maintain our HOLD recommendation.
CIMB Astra Internasional Quick takes - 1Q09 results preview
(ASII IJ / ASII.JK, UNDERPERFORM - Maintained, Rp15,450 - Tgt. Rp15,300, Automobiles and Parts)
1Q09 results should be weak for Astra, with its three main businesses hit hard by the slowdown. The auto business was probably hit the hardest, given its sensitivity to interest rates (volume declines of 7-37% qoq) and currency (depreciated another 6% qoq). We estimate 1Q09 earnings at Rp1.2tr-1.5tr, -30 to -45% qoq, and a similar decline yoy. Given a higher base in 2Q-3Q08, earnings may continue to decline steeply going into 2-3Q09. Against this and with its defensive' appeal fading under a higher risk appetite, we maintain our Underperform rating, albeit with a higher target price of Rp15,300 (from Rp10,650) after our adjustments for its agribusiness and heavy equipment business. Our target price remains based on sum-of-the-parts analysis.
1Q09 results should be weak for Astra, with its three main businesses hit hard by the slowdown. The auto business was probably hit the hardest, given its sensitivity to interest rates (volume declines of 7-37% qoq) and currency (depreciated another 6% qoq). We estimate 1Q09 earnings at Rp1.2tr-1.5tr, -30 to -45% qoq, and a similar decline yoy. Given a higher base in 2Q-3Q08, earnings may continue to decline steeply going into 2-3Q09. Against this and with its defensive' appeal fading under a higher risk appetite, we maintain our Underperform rating, albeit with a higher target price of Rp15,300 (from Rp10,650) after our adjustments for its agribusiness and heavy equipment business. Our target price remains based on sum-of-the-parts analysis.
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