Indopremier BWPT - BUY (TP Rp 800)

Good 1Q10 Results
BW posted robust 1Q result with 32.2 bn net profit, rose 15% YoY. Sales volume was below our expectation due to heavy rainfall and no third party purchase. Gross margin was also lower (60% vs 65% in 1Q09) due to ample fertilizer application. We believe this measure would safeguard yield in the coming years. We maintain our EPS forecast for FY10F, Rp51.4/share, swelling 24% YoY. Coupled with much liquidity on the share, we slashed discount to NAV and raise our TP to Rp 800, implying 15.7x PE and USD7089 EV/planted for FY10F. Our TP offers 23% upside potential. We believe BW deserves to be traded in this multiples given superior yield and margin compared to other listed plantation companies. BUY.

Retain our production target
Even though the company only achieve 16-17% of our production target in 1Q10, we still retain our forecast for FY10F. FFB and CPO output should increase in the coming months as weather becomes much more favorable. Production in March and April has shown sharp improvement compared to January-February figures.

…and also margin for FY10F
We also maintain our forecast of 64% gross and 49% EBIT margin as we raise our CPO assumption from USD750 to USD780/ton. In 1Q10, BW has secured ASP of Rp6498/kg and we assume this price level will hold throughout the year.

Mature area expands subtantially
BW’s mature area fetch 15,270 ha, 12% YoY increase. This growth is profound considering the company only added on average 2.2% mature area in 2004-2009. In 2011-2013, BW will append its mature area by 29%, 41% and 50% respectively, in our view. Assuming yield at 24 tons/ha in FY13F, FFB harvested and CPO produced should fetch nearly 1 mn tons and 232,000 tons respectively, more than double that of FY10F.

Indopremier SMGR (BUY TP Rp 10000)

Inline Result
Despite a typical slow revenue growth, Semen Gresik Group was able to record superb profitability in 1Q10, thanks to strengthening Rupiah and cost efficiency program. All in all, the 1Q10 financial performances were inline with our forecast, in which the company revenue and net profit fulfilled 19% and 21% of our full year estimates, respectively. Semen Gresik Group dominates domestic market share, has a strong balance sheet while still conducting favorable valuations. We maintain our BUY rating for this stock with fair value Rp 10,000 which reflects 15.6x-4.83x PE-PBV FY10F valuation.

Still dominate domestic market
Semen Gresik Group (SGG) registered a 12.4% YoY growth in sales volume to 4.24 million tones during the 1Q10 period, the lowest growth compared to its competitors. Consequently, the company market share has plunged from 45.7% in 1Q09 to 43.6% in 1Q10. Loss of market share was expropriated by competitors Indocement and Holcim because of their spare utilization capacity of 25% and 19%, respectively. Nonetheless, worth to point that SGG dominates domestic market share by significant percentage points over its competitors as a result of its sales area diversification strategy.

Recorded superb profitability
Although the 1Q10 revenue only registered a slightly increase (0.6% YoY), SGG was able to record superb profitability, thanks to strengthening Rupiah and cost efficiency program through the use of a low-calorie coal and an alternative fuel development as well as synergy resulted from raw materials supplied from within the group.

Expansion Update
Besides the optimization of SGG production capacity through the construction of 2 new cement plants with total capacity of 5 million tones p.a. and additional capacity of 500k tones, SGG also plans to build 4 packaging plants this year which is aimed to anticipate strong domestic demand for the next 5 years and cost saving in transportation and distribution.

Maintain BUY - fair value at Rp 10,000
All in all, the 1Q10 figures were in-line with our forecast, in which revenue and net profit represent 19% and 21% of our full year estimates, respectively. We maintain our FY10 forecast for Semen Gresik, and at yesterday closing price, the counter is traded at 12.87x-3.98x PE-PBV FY10, still provide attractive valuation in cement sector universe. Hence, we maintain our BUY recommendation with fair value at Rp 10,000 which offers 21% upside potential.

Mandiri Sekuritas Property: Bakrieland Development (ELTY) to acquire Bukit City (BKSL)

• ELTY hints to acquire 14% - 20% shares of Sentul City (BKSL), with fund sourced from the Right Issue, amounting to Rp1 tn, which planned to be proposed in the upcoming AGM, June 24, 2010. Even though declined to confirm, ELTY’s President Director stated that the company is currently having a plan to expand its business with seeing option of either acquire new land bank or other property company. With regards to the targeted
new land bank, based on Kontan, ELTY is looking at land bank in Bogor, Sukabumi and Rasuna.

• With total current land bank of 1,900 ha, BKSL is currently trading at 81% discount to NAV. In the mean time, ELTY is trading 63% discount to our NAV10. We still have buy recommendation on ELTY with TP Rp500.

Mandiri Sekuritas Jasa Marga eyeing a majority shares on Trans Jawa Corporation (JSMR, Rp1,990, Buy, TP: Rp2,400)

􀂄 JSMR declared that they are ready to become the majority shareholder of a holding company called Trans Jawa Corporation (consisting of companies holding concession agreement of Trans Java Toll Road project) if this holding company is eventually set up the government. At end 2009, the government announced that it will form a holding company to supervise Trans Java toll road projects. Trans Java toll road is scheduled to be completed by 2014, whereas 300Km of total 882Km of length are owned by JSMR.

􀂄 JSMR is currently conducting due diligence to increase its stake in Aloha (Waru)-Tanjung Perak toll road in Surabaya, East Java, from 2.5% to 55%. The toll road development halted, as PT Margaraya Jalan Tol (MJT) as the toll road holder concession, has financial difficulties due to cost overruns.

􀂄 Currently, JSMR trades at PE’10F of11.4x and PB’10F of 1.7x

JP Morgan - an eventful week for Indonesia

This is going to be an eventful week; look for opportunistic buying window in a potentially volatile market. Domestically, Bank Mandiri and BRI will select their CEOs on 17 and 21 of May. Replacement for finance minister Sri Mulyani could be announced either on 20 May, or during the weekend of 23 May. Internationally, there is a chance that China revalues its Yuan sometime this week, before the big strategic meeting with the US officials on 24 May.

Stocks to watch:
(1) Bumi Resources – Moody’s may downgrade Ba3 rating, offset by potential consensus upgrade post Batu Hijau’s strong 1Q10 performance, rising gold price.
(2) Astra International – local city council looking to proceed with the 2008 regulation tax law. May slap 10% new tax on fuel (charged at the fuel pumps). May increase vehicle registration tax from 10% to 20%.
(3) Semen Gresik – beneficiary of EUR collapse. 5mn ton expansion plan costs US$600mnn, 1/3 of that in EUR as biggest supplier is based in Denmark. Consensus EPS too conservative after global NDR with the management.
(4) Medco – continuing noise/political pressure for government to decide on Donggi-Senoro gas allocation. M&A potential with Pertamina rumored to be potential acquiror.
(5) Property stocks – longer term beneficiary of ID strength and buoyant liquidity, potential opening-up to foreign ownership.

The JPMorgan view – on asset allocation, we are focused on a medium-term rebound in risky assets, accepting that the next month will be volatile. On equities, focus on Industrials and IT across sectors. Banks remain hostage to regulatory and legal risks. On FX, near-term bearish EUR, even as we flatline EUR/USD forecasts at 1.25. On commodities, stay long crude.

One can detect three different paths for risky assets over coming months. The first is down, in a repeat of the subprime/Lehman crisis of 2008. A second is volatile range trading as the bullish forces of growth and liquidity battle the bearish forces of uncertainty, back and forth to an eventual draw. The third is a clear victory of the bullish forces and a renewed rally, just as happened after the Jan/Feb correction. Our eyes are on the third –– the rally –– although we recognise that the rise in fundamental uncertainty that we are seeing could easily make us range trade for another 1-2 months in risky assets, as investors stay on the sidelines, waiting for the dust to settle