PTBA’s 1H10 Rp908bn net income only made up 34.4% of our FY10F and 37.2% of consensus FY10F While volume sales reached 6.4Mt comprising 38.4% of our FY10F estimate and 41.0 % of the company’s FY10 guidance. 2Q slower export volume and slow increase in export ASP (average selling price) were the main culprits. As most of the domestic price and volume has been settled, exports will be the key driver for PTBA’s 2H performance. We made adjustments for domestic price, resulted in lower FY10 earnings estimate. We are maintaining our target price of Rp18,750, as our DCF was insignificantly affected. Recommendation upgrade to Buy on higher than 10% upside.
Export : key 2H10 earning driver. With volume achievement of only 44.1% of the total company estimate for FY10, and domestic contracted prices short of our expectations of Rp685,000/ton (PLN blended contracts : Rp635,100/ton), hopes for PTBA’s earnings improvement should be coming from the export. Assuming all of domestic sales is for PLN, PTBA has to export 5.0Mt in 2H, more than double the amount in 1H. PTBA aims high in the export, with 20-25% spot transactions and calorific value of 6,700-7,000 kcal.
However, export performance in 2Q10 is poor. Revenue from export fell 23.6% to Rp532bn as volume dropped from 1.3Mt in 1Q10 to 0.9Mt in 2Q10. Export ASP also increased at a slower pace compared with domestic ASP. Export ASP in 2Q10 was Rp580k/ton (+5.8%qoq), while domestic ASP was 634k/ton (+12.8% qoq), this is despite domestic coal has lower calorific values.
Tough task ahead. PTBA expects improved export coal prices in 2H10 on two reasons : (1) higher 2010 benchmark price of US$90/ton vs US$70/ton in 2009, and (2) bigger composition of higher calorific values coals. The biggest impediment we see is the ability of state-owned railway company PTKA to ramp up its delivery. With rain continuing to fall hard and the Moslem festivities looming, the current railway which also accommodates passenger trains, might face disruption due to slower traveling time to avoid slippage and lower priority against passenger trains.
Upgrade to Buy. We see limited catalysts in the next 6-months. Near term improvement is the arrival of 6 locomotives by end FY10 to boost PTKA delivery. We see other development projects are still uncertain due to external licensing process and agreements.
Minggu, 08 Agustus 2010
CLSA INDONESIA GDP - 2Q surge but soft components
Indonesian real GDP growth surged to 1.6% QoQ (6.5% saar) from 1.3% (5.1% saar) in
1Q10. (Note: saar stands for seasonally adjusted annualised rate). In YoY terms, GDP growth picked up to 6.2% in 2Q10 from 5.7% in 1Q10. The GDP acceleration was impressive but the shine rubs off with a closer look at the expenditure breakdown.
Private consumption slowed to 4.2% QoQ saar from 8.4% in 1Q10. Investment growth
similarly slowed to 4.3% QoQ saar from 8.7% in 1Q10. Real exports picked up only
moderately from 0.9% to 1.8% QoQ saar and were anyway outpaced by imports for a
negative net export contribution to GDP.
We expect private consumption and investment growth to pick up over the rest of the year but are slightly more cautious about the likely rate of acceleration. As a result, we are revising down our full year real GDP forecast slightly to 6.2%, from 6.5% previously. If private consumption, investment and exports all disappointed, what drove the 2Q10 GDP surge?
It was inventories and statistical discrepancy that provided the residual 0.7ppt of the 1.6% QoQ GDP growth. Domestic final sales (total consumption and investment) provided 1ppt and there was a 0.1ppt drag from net exports.
The sectoral breakdown shows services leading GDP with 9.8% QoQ saar growth, led by
transport & communications. Mining output rebounded at 7% saar after consecutive
contractions in the two previous quarters. Manufacturing and construction growth both
exceeded 5% saar while agricultural output contracted by a marginal 0.5% saar.
Looking beyond quarter to quarter volatility, notable observations are underperformance of the mining sector and outperformance of services. We have indexed the data to a common starting point at March 2006 = 100 in the chart below. The full potential of Indonesia’s extensive resources is hardly being tapped, a stark indication of government inefficiency and poor policy implementation.
Wage pressures in China and political risk in Thailand provide an opportunity for Indonesia to expand its manufacturing sector. However, there are issues that need to be addressed including restrictive labour regulations. Services have been growing
from a low base. Maintaining the rapid expansion will require bold policy from government on deregulation and opening to foreign investment.
1Q10. (Note: saar stands for seasonally adjusted annualised rate). In YoY terms, GDP growth picked up to 6.2% in 2Q10 from 5.7% in 1Q10. The GDP acceleration was impressive but the shine rubs off with a closer look at the expenditure breakdown.
Private consumption slowed to 4.2% QoQ saar from 8.4% in 1Q10. Investment growth
similarly slowed to 4.3% QoQ saar from 8.7% in 1Q10. Real exports picked up only
moderately from 0.9% to 1.8% QoQ saar and were anyway outpaced by imports for a
negative net export contribution to GDP.
We expect private consumption and investment growth to pick up over the rest of the year but are slightly more cautious about the likely rate of acceleration. As a result, we are revising down our full year real GDP forecast slightly to 6.2%, from 6.5% previously. If private consumption, investment and exports all disappointed, what drove the 2Q10 GDP surge?
It was inventories and statistical discrepancy that provided the residual 0.7ppt of the 1.6% QoQ GDP growth. Domestic final sales (total consumption and investment) provided 1ppt and there was a 0.1ppt drag from net exports.
The sectoral breakdown shows services leading GDP with 9.8% QoQ saar growth, led by
transport & communications. Mining output rebounded at 7% saar after consecutive
contractions in the two previous quarters. Manufacturing and construction growth both
exceeded 5% saar while agricultural output contracted by a marginal 0.5% saar.
Looking beyond quarter to quarter volatility, notable observations are underperformance of the mining sector and outperformance of services. We have indexed the data to a common starting point at March 2006 = 100 in the chart below. The full potential of Indonesia’s extensive resources is hardly being tapped, a stark indication of government inefficiency and poor policy implementation.
Wage pressures in China and political risk in Thailand provide an opportunity for Indonesia to expand its manufacturing sector. However, there are issues that need to be addressed including restrictive labour regulations. Services have been growing
from a low base. Maintaining the rapid expansion will require bold policy from government on deregulation and opening to foreign investment.
CLSA infrastructure updates
Sarina and Mita met with Prof. Dr. Danang Parikesit, Policy Adviser to the Minister of Public Works to get his take on the lack of the infrastructure development in Indonesia.
· Urgency to have the bill on land acquisition passed by end of this year. The government is on the verge of offering a new Bill on Land acquisition procedure to Parliament.
· The bill will essentially empower the National Land Agency (BPN) to revoke land-right certificates for areas designated for government and PPP’ infrastructure projects.
· The time limit for land clearing negotiation prior to submitting to court for any dispute, is proposed to be shortened as well.
· Construction will start even though the negotiation process is taken up to court.
· Currently, there are 742km toll road in operation
· Our forecast is an additional ~300km to be in operational in next four/five years, mostly from Jasa Marga (JSMR IJ).
· The government had expected 769km additional toll roads in the same period; we believe this target is too ambitious unless the new bill is passed.
· Implications on stocks. JSMR, the largest toll road operator in Indonesia is well positioned to benefit from the change in land acquisition law. Construction companies like Wijaya Karya, and the cement companies (Indocement, and Holcim) are also beneficiaries to more infrastructure development. Indirect beneficiaries will also include the property developers (Bumi Serpong, Summarecon, etc) and cement stocks which benefit from greater infrastructure spending.
· Urgency to have the bill on land acquisition passed by end of this year. The government is on the verge of offering a new Bill on Land acquisition procedure to Parliament.
· The bill will essentially empower the National Land Agency (BPN) to revoke land-right certificates for areas designated for government and PPP’ infrastructure projects.
· The time limit for land clearing negotiation prior to submitting to court for any dispute, is proposed to be shortened as well.
· Construction will start even though the negotiation process is taken up to court.
· Currently, there are 742km toll road in operation
· Our forecast is an additional ~300km to be in operational in next four/five years, mostly from Jasa Marga (JSMR IJ).
· The government had expected 769km additional toll roads in the same period; we believe this target is too ambitious unless the new bill is passed.
· Implications on stocks. JSMR, the largest toll road operator in Indonesia is well positioned to benefit from the change in land acquisition law. Construction companies like Wijaya Karya, and the cement companies (Indocement, and Holcim) are also beneficiaries to more infrastructure development. Indirect beneficiaries will also include the property developers (Bumi Serpong, Summarecon, etc) and cement stocks which benefit from greater infrastructure spending.
CLSA A pending moratorium on forest conversion will push up prices
There is trouble afoot in Indonesia’s golden industry. Palm oil is a US$18bn industry that generates 2.5% of GDP and employs 4.5% of the workforce. Indonesia accounts for almost half of total global palm oil production, and increasing, with palm oil also lifting its share of the global edible oil market. In sum, it is an Indonesian success story. Now, however, a pending government moratorium on forest conversion is challenging assumptions on the industry’s future growth. Supply constraints mean higher prices; we are OWT plantation firms which have a large landbank such as Golden Agri and Indofood Agri.
Environmental issues to the fore. Indonesia’s success story is on the back foot. Environmental groups have successfully raised issues surrounding sustainability, pressuring large European consumer companies to temporarily halt purchasing palm oil. President Yudhoyono has gone one further and imposed a two-year moratorium on forest conversion starting year-end. While there are good reasons to question the enforceability of this approach, the industry is struggling to find an appropriate response.
Needing a better regulatory regime. We spoke with five of Indonesia’s largest palm plantation companies on Indonesia’s regulatory frame work and the challenges the industry is facing. In aggregate, these companies accounted for 90% of Indonesia’s listed palm plantation universe. There was a universal agreement that NGO’s are leading a shift in perception towards industry practices. But less than half of the companies we spoke with believed the moratorium will impact their business because they sufficient land bank not yet planted. The industry’s biggest problem lies in
pedantic legalology defining a forest.
Supply constraints mean higher prices. Indonesia’s palm oil output has compounded by 10% per annum for the past five years, faster than the industry’s total growth of 7.0%. Thus, Indonesia’s share of the palm oil market has risen to 47% from 33% a decade back. New regulations mean securing land for planting has now become extremely
difficult. As future planting slows so will Indonesia’s supply growth. This will bid up the price of existing landbank; over half of the industry players we spoke with expect land prices will rise by more than 30%.
Who are the beneficiaries? It remains to be seen how government promises meet the reality of the marketplace. Palm oil is an important wealth generator for the country; it is an US$18bn industry that generates 2.5% of GDP and employs 4.5% of the workforce. Greater environmental demands favours corporate plantations over individual smallholders while firms with a large unplanted land bank also stand to gain. On this basis, beneficiaries include Golden Agri (GGR SP - S$0.60 - BUY), London Sumatra (LSIP IJ - Rp9,600 - BUY), Indofood Agri (IFAR SP - S$2.40 - BUY) and Gozco Plantations (GZCO IJ - Rp385 - BUY). Some other companies that are indirectly exposed to palm oil plantation development include heavy machinery providers such as United Tractors (UNTR IJ - Rp19,750 - O-PF) and Hexindo Adiperkasa (HEXA IJ - Rp5,200 - BUY).
Environmental issues to the fore. Indonesia’s success story is on the back foot. Environmental groups have successfully raised issues surrounding sustainability, pressuring large European consumer companies to temporarily halt purchasing palm oil. President Yudhoyono has gone one further and imposed a two-year moratorium on forest conversion starting year-end. While there are good reasons to question the enforceability of this approach, the industry is struggling to find an appropriate response.
Needing a better regulatory regime. We spoke with five of Indonesia’s largest palm plantation companies on Indonesia’s regulatory frame work and the challenges the industry is facing. In aggregate, these companies accounted for 90% of Indonesia’s listed palm plantation universe. There was a universal agreement that NGO’s are leading a shift in perception towards industry practices. But less than half of the companies we spoke with believed the moratorium will impact their business because they sufficient land bank not yet planted. The industry’s biggest problem lies in
pedantic legalology defining a forest.
Supply constraints mean higher prices. Indonesia’s palm oil output has compounded by 10% per annum for the past five years, faster than the industry’s total growth of 7.0%. Thus, Indonesia’s share of the palm oil market has risen to 47% from 33% a decade back. New regulations mean securing land for planting has now become extremely
difficult. As future planting slows so will Indonesia’s supply growth. This will bid up the price of existing landbank; over half of the industry players we spoke with expect land prices will rise by more than 30%.
Who are the beneficiaries? It remains to be seen how government promises meet the reality of the marketplace. Palm oil is an important wealth generator for the country; it is an US$18bn industry that generates 2.5% of GDP and employs 4.5% of the workforce. Greater environmental demands favours corporate plantations over individual smallholders while firms with a large unplanted land bank also stand to gain. On this basis, beneficiaries include Golden Agri (GGR SP - S$0.60 - BUY), London Sumatra (LSIP IJ - Rp9,600 - BUY), Indofood Agri (IFAR SP - S$2.40 - BUY) and Gozco Plantations (GZCO IJ - Rp385 - BUY). Some other companies that are indirectly exposed to palm oil plantation development include heavy machinery providers such as United Tractors (UNTR IJ - Rp19,750 - O-PF) and Hexindo Adiperkasa (HEXA IJ - Rp5,200 - BUY).
Mandiri Sekuritas Economy: Strong 2Q10 GDP growth
Indonesia’s GDP grew by 6.20% yoy in 2Q10, or 2.80% from the previous quarter, beating ours and consensus’ estimate of 6.0%. In 1H10, the economy advanced by 5.93% yoy.
Private consumption remained the backbone of the economic growth in 2Q10, as it grew by 5.0% yoy (vs. 3.9% yoy in 1Q10), followed by exports 14.6% yoy (vs. 20.0% in 1Q10) and investment by 8.0% yoy (vs. 7.8% in 1Q10). Government consumption, as we expected, contracted (-9.0% yoy) in 2Q10, given the slow budget disbursement and higher base spending in 2009.
On the sector basis, untradeable sector such as trade, communication, financial and services drove the growth in 2Q10. Improvement also was seen in the tradable sector as it partly caters to global demand recovery. The stronger jump seen in manufacturing, oil and gas, and agriculture sectors.
Given the expected stronger loan growth, limited interest rate hike by the end of the year, faster investment spending and late fiscal boost, we think, the economy sets to expand further in the 2H10. External demand seems to remain supportive to the economy although its contribution is expected to diminish gradually on stronger import demand. Accordingly, we revised our GDP growth forecast to 6.0% from 5.8% yoy in 2010, while keeping the 2011 growth at 6.3% yoy.
Private consumption remained the backbone of the economic growth in 2Q10, as it grew by 5.0% yoy (vs. 3.9% yoy in 1Q10), followed by exports 14.6% yoy (vs. 20.0% in 1Q10) and investment by 8.0% yoy (vs. 7.8% in 1Q10). Government consumption, as we expected, contracted (-9.0% yoy) in 2Q10, given the slow budget disbursement and higher base spending in 2009.
On the sector basis, untradeable sector such as trade, communication, financial and services drove the growth in 2Q10. Improvement also was seen in the tradable sector as it partly caters to global demand recovery. The stronger jump seen in manufacturing, oil and gas, and agriculture sectors.
Given the expected stronger loan growth, limited interest rate hike by the end of the year, faster investment spending and late fiscal boost, we think, the economy sets to expand further in the 2H10. External demand seems to remain supportive to the economy although its contribution is expected to diminish gradually on stronger import demand. Accordingly, we revised our GDP growth forecast to 6.0% from 5.8% yoy in 2010, while keeping the 2011 growth at 6.3% yoy.
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