Danareksa Revealing the true potential PTBA (TP Rp24,500)

TP upped to Rp24,500
We have greater confidence in PTBA after approval was given by the Minister of Transportation to start the construction of a 307-km railway track connecting its Banko Tengah Mine in South Sumatera to Srengsem in Lampung. The railway, when finished and fully utilized, will provide additional throughput capacity of 20Mt to PTBA. At almost the same time, PTBA and the state railway company PT Kereta Api (PTKA) signed an agreement that will provide a gradual increase in railway capacity to 22.7Mt, or higher than the 20Mt expected earlier. With total throughput capacity of the railways to swell to 42.7Mt in the long-term from currently 11.3Mt, PTBA can begin unlocking its 1,770Mt reserves just in time for when demand for coal is increasing worldwide. We estimate the increase in capacity will help push up the company’s sales at a 5-year CAGR of 14% to 25.7Mt in 2014. Based on this expectation, our DCF valuation produces a TP of Rp24,500, implying a PE 10F/11F of 24.8x/19.2x. This sounds expensive but at a PEG 10F/11F of 1.24x/0.96x, the shares remain attractive we believe. BUY maintained.


Higher revenues and earnings
The increase in railway capacity will help PTBA increase sales. This will mean higher revenues and higher earnings. In 2017, when capacity is estimated to increase to 42.7Mt (our previous estimate was 20Mt), PTBA’s sales are expected rise to 44.7Mt (our earlier estimate was 22.1Mt) and its revenues are expected to reach Rp23,226bn (99% higher than our previous estimate of Rp11,654bn). Although PTBA forecasts the 42.7Mt throughput capacity to be available by 2016, we are more conservative and expect this level of capacity to be attained one year later in 2017. We take this view since the railway capacity next year will be the same as this year at 10.3Mt (it had been previously estimated to increase to 11.3Mt). This is due to slight delays in the delivery of rolling stocks from PTKA from early 2010 to the end of 2010. As a consequence, we lower our sales estimate for 2010 to 14.3Mt (previously 15.5Mt). This also means lower 2010 revenues and lower earnings estimates of Rp8,797bn (previously Rp9,507bn) and Rp2,279bn (previously Rp2,499bn), respectively. However, we choose not to change our target of 13.7Mt capacity in 2011 since the new rolling stocks, when ready, will give a 21% boost to capacity, matching our existing target.


“Take or pay” scheme secures capacity target
The agreement between PTKA and PTBA contains a clause about a “take or pay” scheme which has been devised as a guarantee by PTKA should the throughput target fail to be achieved. We view this positively as it shows a commitment from PTKA to overcome any obstacles hampering the company from delivering the promised capacity to PTBA, including the issue of Rp450bn-600bn of tax clearance arising from asset revaluation which so far has not been approved by the Minister of Finance, thus holding back the establishment of PT Kereta Api Trans Sriwijaya, the joint venture with PTKA that will be responsible for the development of the Banko Tengah-Srengsem railway. For PTBA the scheme (the formula is yet to be calculated by both companies) will minimize any potential losses that might be incurred caused by delays in the delivery of targeted railway capacity.

DBS Medco Energi (Rp3,050; Buy; TP Rp3,670; MEDC IJ)

Plan to issue US$300mn bond
It is reported that Medco Energi (MEDC) is currently planning to issue a US$300mn bond to refinance part of its outstanding bond that is due next year. Currently, MEDC has
a US$325mn bond maturing in 22 May 2010 and another outstanding Rp513bn and Rp986bn due in 2012 and 2014 respectively. At present, the company is in the process of selecting underwriters for the bond issuance.

Bahana LSIP Unfavorable impact from forex rate move

Strengthening IDR to produce adverse impact on the margins
With the recent revised assumption in the USD/IDR exchange rate to IDR9,700/USD at end 2009 and IDR9,500/USD at end 2010 (from the initial estimated IDR10,000/USD at 2009 and 2010), we have accordingly downgraded LSIP’s 2009 and 2010 revenues to IDR2.9t (-4.5%) and to IDR3.3t (-10.8%) respectively (table 1), on the back of the unfavorable impact from the forex rate move towards the domestic selling price. Ironically, although the company would be benefited from obtaining the lower average production costs arising from the weakening in USD against IDR, the slower than expected revenue growth would pressure the company’s gross margins to 39.0% from 40.2% in 2009 and to 45.5% from 46.2% in 2010. It is worth of noting that around 56% of the costs are in USD related. Meanwhile, we maintain our CPO average price assumption at USD600/MT for 2009 and USD700/MT for 2010. To improve the operating cost efficiency going forward, LSIP would utilize its house transportation system to reduce its transportation cost. This would allow the operating margin to improve to 33.5% in 2010 from the estimated in 26.7% in 2009.

Forex gains to prevent the bottom lines from deteriorating
Despite the lower than expected margins, the bottom lines have only downwardly corrected 3.1% and 9.6% for 2009 and 2010 respectively, to IDR5.9t (-36.5% y-y growth) and IDR8.1t (+37.5% y-y growth). This is helped by the expected foreign exchange gains of IDR28b 2009 and IDR8b in 2010 arising from the continued weakening in USD against the IDR. It is worth of noting that the company carried net debts of USD22m at end June 2009.

Better weather and nucleus production in 2H09
As we mentioned in the previous Spotlight, LSIP had reached higher nucleus production of 10.2% y-y to 520k tons (1H09) while FFB purchase dropped 11% y-y to 214k tons. This lower FFB purchase decline and 46% y-y decline in CPO price contributed to 33% y-y lower FFB cost in 1H09. This trend is likely to stands intact, enabling FFB cost to stay low. As discussed with the management, the better weather, supported by sufficient rainfall, could help LSIP production in 2H09.

Downgrading to HOLD with lower target price of IDR8,800
Apart from the foreign exchange rate, we have maintained our other assumptions. For example, we have retained our 2009 and 2010 CPO sales volume target of 347k MT and 376k MT while the average CPO prices stand at USD600/MT and USD700/MT respectively. The lower earnings expectation, due to the unfavorable impact from foreign exchange rate move, has encouraged us to lower our recommendation to HOLD with the revised target price of IDR8,800 (-9.3% from previous estimates). This is based on 14.8x 2010 PE, some 20% discount from the average Malaysian planters’ 18.5x 2010 PE.

Bahana Beacon

CORPORATE
• Bank Mandiri (BMRI-BUY-IDR4,600-TP:IDR4,700), announced on Sunday that it had cut another 50 basis points from its average lending rate. The cut, which is the fifth by the bank since early this year, brings its average rate down by a total of 2.25 ppt in a move aimed at easing the burden on borrowers and stimulating the economy. BI held its key rate steady at 6.5% in September. However, Muliaman noted that the spread between time-deposit rates and base lending rates was still too wide, at more than 6% because of perceived risk. Bank Danamon (BDMN-BUY-IDR4,800-TP:IDR5,700 president director Sebastian Paredes said his bank would also cut lending rates gradually in the months ahead, although he admitted the rate cuts would probably be slower than cuts to its deposit rate (The Jakarta Post)

• Bank Bukopin (BBKP-HOLD-IDR415-TP:IDR470) to conduct rights issue amounting to IDR119b with nominal value of IDR100 per share. For every 20 shares owned by shareholders will have the right to order 1 new share with exercise price at IDR415. Ex-date will be on 11 December 2009. (Bisnis Indonesia)

• Aneka Tambang (ANTM-REDUCE-IDR2,575-TP:IDR2,000) has confirmed to lead the buying consortium for 14% shares of Newmont Nusa Tenggara as part of its divestment program in 2008-2009. ANTM cooperates with 3 local governments to conduct this project. (Bisnis Indonesia)

• Indika Energy (INDY-BUY-IDR2,350-TP:IDR3,100) plans to issue USD250m worth of senior notes through its wholly-owned subsidiary, Indo Integrated Energy II B.V. The bond issuance will be listed in Singapore Stock Exchange and has been awarded with B+ rating by Fitch Ratings. (Kontan)

• Medco Energi Internasional (MEDC-HOLD-IDR3,050-TP:IDR3,050) plans to issue USD300m worth of bond to settle its debt. The company itself invites several underwriters in issuing this bond. Meanwhile, there is still no further information regarding this. "We will disclose the details with Indonesia Stock Exchange", said The Corporate Secretary, Cisca Alimin. (Bisnis Indonesia)

• Adhi Karya (ADHI-HOLD-IDR440-TP:IDR500) has secured a new project contract worth of IDR4.5t during January-September 2009. The value of the contract itself has only reached half of this year target at IDR8.9t. "We are optimistic to reach the target because currently we are following tender offers which will be announced on 3Q09", said The Corporate Secretary, Kurnadi Gularso. (Investor Daily)

• Berau Coal may report profit more than doubled this year as output gained. Berau's net income may climb to USD180m in 2009 compared with USD78m in 2008. Benchmark coal prices may average USD80 a metric ton next year from an estimated USD70 per ton this year, said Bob Kamandanu, CEO of Berau Coal. (The Jakarta Post)

• The Rajawali Group is planning to expand its palm oil plantations to 250,000 hectares from 40,000 hectares in the next 5 years and will list its plantation firm on the IDX in 2011. (The Jakarta Post)

CIMB Kalbe Farma Company update - Exuding confidence

(KLBF IJ / KLBF.JK, OUTPERFORM - Maintained, Rp1,290 - Tgt. Rp1,900, Healthcare)

We maintain our Outperform rating on Kalbe, earnings estimates and end-CY10 target price of Rp1,900 (DCF at WACC 14.5%, LTG 8%), implying 14.3x and 11.6x of CY10-11 EPS. We believe improving purchasing power and margin expansion from both lower input cost and currency strength should propel Kalbe's earnings growth to 23-39% over the next three years, from 2% over the past three. Additionally, we believe cash generation post-debt repayment and the Enseval tender offer may offer upside surprises. Potential catalysts could come from a possible placement on the treasury shares it has been accumulating since 1Q07. We believe the placement proceeds will be used for another acquisition of a pharmaceutical-related business.