Let’s Play Commodity Related … Better Growth with High Volatility

Nickel Restocking and supply disruptions have tightened the market considerably?

Nickel traded on the LME advanced 15 percent this year, the best performer among the six main metals traded on the bourse. Nickel prices also jumped this year after demand surged. World stainless steel output rose 55 percent to 7.47 million metric tons in the first quarter, according to the International Stainless Steel Forum. Nickel increases the resistance of stainless steel to corrosion.

Nickel prices have remained relatively strong despite the jitters in broader markets in early May, as demand returns from the stainless steel sector and supply disruptions continue. LME 3-month nickel came within a whisker of a two-year high in mid-April at $27,590/t, up 49% from the start of the year.

Nickel prices have dropped 22 percent from this year’s high of $27,595 a ton on April 16 on speculation European efforts to curb government debt will erode economic growth and China may step up measures to reduce asset bubbles.

Nickel Consumption may be 1.51 million tons next year, Consumption this year may be 1.435 million tons, outpacing supply of 1.4 million tons, Stainless steel production may be 31.5 million tons in 2011, growing from 29 million tons this year, John Barkas, director of Metalytics Ltd. said at a conference in Shanghai (26 May 2010). Demand for the metal, used to help protect steel from corrosion, will probably exceed supply by 36,000 tons in 2010, the first deficit since 2006, Sumitomo Metal Mining Co.

Furthermore, the ten-month strike at Vale’s Sudbury nickel operations in Canada is no nearer to resolution and production rates there remain vastly reduced. This in part explains why US premiums have risen so rapidly in recent months. Scrap supply is also tight.

Nickel prices have dropped 22 percent from this year’s high of $27,595 a ton on April 16 on speculation European efforts to curb government debt will erode economic growth and China may step up measures to reduce asset bubbles.

Nickel Consumption may be 1.51 million tons next year, Consumption this year may be 1.435 million tons, outpacing supply of 1.4 million tons, Stainless steel production may be 31.5 million tons in 2011, growing from 29 million tons this year, John Barkas, director of Metalytics Ltd. said at a conference in Shanghai (26 May 2010). Demand for the metal, used to help protect steel from corrosion, will probably exceed supply by 36,000 tons in 2010, the first deficit since 2006, Sumitomo Metal Mining Co.

Furthermore, the ten-month strike at Vale’s Sudbury nickel operations in Canada is no nearer to resolution and production rates there remain vastly reduced. This in part explains why US premiums have risen so rapidly in recent months. Scrap supply is also tight.

Short term outlook of Nickel
Restocking and supply disruptions have tightened the market considerably and LME stocks are now in decline. The continued supply disruptions have prompted us to estimated nickel market balance down to deficit.

Crude Palm Oil
On the back of increasing concerns on the China bubble and the EU’s debt crisis made CPO demand lower and depress commodity prices. Europe accounted for 26% of Indonesia’s total CPO exports the second highest after India. This will adversely impact sentiment on Indonesian CPO counters and with possible lower average CPO price. Indonesia’s CPO exports in March reached 1.06m tons, down 9% m-m and 10% y-y, mainly due to lower exports to India, the EU and China.







Should Palm Oil Average at $850 at 2H2010?
I believe the current tightness in crude palm oil supply will keep prices firm crude palm oil and other oilseed price strength would extend into second half 2010.

Palm oil may surge as in the second half as drier-than-usual weather curbs output in Malaysia and yields in Indonesia. Higher prices may also contribute to increased food inflation in China and India, the biggest users. Below-normal rainfall in Malaysia usually will start to be felt in May-August. El Nino, characterized by a warming of sea-surface temperatures across the equatorial Pacific, can cut rainfall in Asia, damaging crops including palm oil, rice, corn and sugar.
Export data released Tuesday showed a healthy increase, above market expectations. Palm oil exports for the May 1-25 period rose to around 1.03 million-1.05 million tons due to higher purchases from the Indian subcontinent and the U.S., data from cargo surveyors Intertek Agri Services and SGS (Malaysia) Bhd. showed.
Many had simply ignored the exports' increase as external cues were more pressing. But now that the dust has settled, and prices have either stabilized or in the case of crude oil, risen, market participants are less jittery and able to concentrate on local cues again.

I would be bullish on palm oil spot price for 2H10 and highly recommend accumulating cpo related stock. A recent decline in shares of palm oil producers is an “excellent buying opportunity” given the outlook for prices of the commodity.

Bang Juntri
DISCLAIMER: This report is issued by Bang Juntri. Although the contents of this document may represent the personal opinion of Bang Juntri. We cannot guarantee its accuracy and completeness.

A Cup of Tea 27 May'10

A drop in the euro set off a late-day slide in stocks Wednesday and sent the Dow Jones industrial average to its first close below 10,000 in nearly four months. The Dow fell 69.30, or 0.7 percent, to 9,974.45. It was the first close below 10,000 since Feb. 8. After trading higher most of the day, stocks turned south after the euro dipped below the $1.22 level in afternoon trading.

News suggesting China was reassessing its euro-zone debt holdings pushed investors into profit-taking mode. The Financial Times said a representative of China's State Administration of Foreign Exchange, which manages the reserves under the country's central bank, has been meeting with foreign bankers in Beijing in recent days to discuss the issue. China Investment Corp., the nation’s sovereign wealth fund, may lower its allocation of assets to Europe.


Like No Other Day --- Very Impressive …
Indonesian stocks surged 7.3 percent on Wednesday, rebounding from three-month lows the day before and leading gains in Southeast Asia. Indonesia's benchmark stock index, Asia's second-best performer this year, posted its biggest one-day surge in 18 months, snapping a five-day losing streak to the lowest since Feb. 12.

Investor just buying the shares after the market lost 16.5% in May. All shares look cheap and everyone just buy the shares combine with speculative and investment, like no other day.

Other Southeast Asian stock markets mostly gained, with Singapore rising 1.7 percent, Thailand climbed 1 percent, Vietnam closed up 1.3 percent and the Philippines added 0.7 percent but Malaysia edged down 0.1 percent.

How about Today? Near Term and Long Term?
Yesterday’s gains are partly a short-term technical rebound. With more bad news coming to equities markets, people will sell again, probably late in the afternoon before the long holiday.

Falling risk appetite in global equities would continue to cut foreign inflows, so gains in the region may be short-lived as investors reappraise euro sovereign risks as well as potential conflict between North and South Korea.

For Near Term; I think, after an extended period of heightened risk appetite, fear is feeding on itself and Asian equities are being sold despite improving macroeconomic data. I just little bit worries; I suspect that global strategist has an underweight recommendation on emerging markets. Nomura International Limited start recommended switching from Brazil or Indonesia into India. Still cautions for near-term and short-term trading maybe wise.

For Long Term; I don’t think our economic on crisis situation, our APBN under control and very healthy. At this level our market only around 11x PE’2011 consensus. We could continue to accumulate strong fundamental stocks. I still put target for JCI at 3050 or 14.88x PE’10 and 12.45x PE’11 (consensus).

Consensus TP & Potensial Upside
Foot Note
ASII
Automotive distributor Astra International, the biggest firm by market capitalization, rose 10 percent after it forecast record 2010 car sales. Astra expects domestic vehicle sales to be above 600,000 units this year, an increase from a previous forecast of 520,000 to 530,000 units, and 23 percent higher than 2009 sales.




BUMI
Coal miner Bumi Resources jumped 20 percent after a court ruled against a tax investigation into one of its units. Indonesia's Supreme Court on Monday rejected an appeal by the country's tax office to continue investigating KPC but Indonesia's tax office will continue its investigation into alleged tax evasion at PT Kaltim Prima Coal, a unit of PT Bumi Resources. Pontas Pane, head of investigation at the tax office said that the ruling from the Supreme Court was only about the administrative process and did not change the basis for the tax investigation.

BUMI average coal selling price fell nearly 16 percent in the January-March period this year. The firm sold coal at an average price of $62.9 per ton in the first quarter, against $74.7 per ton a year ago. Bumi also sold 16 million tons of coal in the January-March period this year, up 41.6 percent from 11.3 million tons in the same period last year.


Bang Juntri
DISCLAIMER: This report is issued by Bang Juntri. Although the contents of this document may represent the personal opinion of Bang Juntri. We cannot guarantee its accuracy and completeness.

A Cup of Tea 26 May'10

Most Southeast Asian stock markets fell to multi-week lows on Tuesday due to worries over the euro zone debt crisis and tension on the Korean peninsula. The cumulative effect of the euro zone crisis, the North Korea situation and volatility in currencies has discouraged investors from buying. Indonesia fell 3.7 percent and Thailand slid 3.1 percent. Singapore fell 2.7 percent to its lowest in nearly seven months.

Concern the European debt crisis will spread has driven the MSCI World Index down 16 percent after Greece, Spain and Portugal had their credit ratings cut. Four Spanish banks said they will combine as regulators push lenders to merge with stronger partners, boosting speculation that the nation’s ailing lenders signal widening turmoil.

U.S. stocks erased losses, paring a global retreat in equities, while the euro wiped out most of its declines against the dollar and yen on speculation financial reform will hurt bank earnings less than estimated. Dow finished down 22.82 at 10,043.75.

Just Reminder for Our Economic
Indonesia’s GDP grew at a 5.7% YoY rate from last year’s first quarter. Indonesia’s credit growth is one of its most important drivers, contributing at least one-third of economic growth. Loan-growth trend is already encouraging. Indonesian banks' balance sheets are robust with a low average loan-to-deposits ratio. Against the backdrop of high consumer confidence in Indonesia, banks are also increasingly willing to lend and this should drive economic growth.

Indonesia an upgrade in its sovereign credit rating to BB from BB- by S&P in March 2010. The S&P rating also comes with a positive outlook, suggesting a bias toward further upgrade in the next six to 18 months.

Inflation should be well in the coming months on top of a 10% electricity hike in July, and we could see a more “Neutral” policy language from BI. Despite recent volatility, we expect USD-IDR can still at range 8500-9500 in the coming months.

Technical View
It wills a technical rebound? ... Indonesian stocks are “oversold” and likely to rebound. The market is near-term oversold at 23% retracement and at this level our market only around 10.47x PE’2011 consensus. Yes it is Very risky if market breaks 2480 level, it will trigger selling pressure and next support only at 2410 level.

For today, I don’t think we’ll go and touch a high yesterday intraday chat above 2609.016 level, but I think we can rally here somewhat.

I don’t think our economic on crisis situation, our APBN under control and very healthy. Yes our currencies had under pressure yesterday but BI still control the movement and still at range 8500-9500.
The market has lost 16.5 percent so far in May, adding cheaper valuations were not enough to tempt buyers right now. But for investment strategy, I think we could continue to accumulate strong fundamental stocks. Bulls were inspired to go back into the market.


If You Were a Pessimistic “Leave it” ... If You Were Not, You Can Add Some of Your Portfolios at Very Cheap Prices for Midterm Investment and Enjoy The Gain by The End of The Year (friend said).

Bang Juntri
DISCLAIMER: This report is issued by Bang Juntri. Although the contents of this document may represent the personal opinion of Bang Juntri. We cannot guarantee its accuracy and completeness.

A Cup of Tea 24 May'10

Time to Investment

If You Were a Pessimistic “Leave it” ... If You Were Not, You Can Add Some of Your Portfolios at Very Cheap Prices for Midterm Investment and Enjoy The Gain by The End of The Year (friend said).

The Jakarta market fell 8.2% this week and 12.45% from 52 weeks higher, pushing it to third from first in the ranking of Southeast Asia's best performing markets. Last week JSX drop to the lowest level at 2584.98 in the morning (15.90% from 52 weeks higher) after that JSX slightly rebound and closed at 2623.22 levels. Thai market is now the top performer, followed by Philippines.

Our Economic
Indonesia’s GDP grew at a 5.7% YoY rate from last year’s first quarter. Indonesia’s credit growth is one of its most important drivers, contributing at least one-third of economic growth. Loan-growth trend is already encouraging. Indonesian banks' balance sheets are robust with a low average loan-to-deposits ratio. Against the backdrop of high consumer confidence in Indonesia, banks are also increasingly willing to lend and this should drive economic growth.

Indonesia an upgrade in its sovereign credit rating to BB from BB- by S&P in March 2010. The S&P rating also comes with a positive outlook, suggesting a bias toward further upgrade in the next six to 18 months.
Inflation should be well in the coming months on top of a 10% electricity hike in July, and we could see a more “Neutral” policy language from BI. Despite recent volatility, we expect USD-IDR can still at range 8500-9500 in the coming months.


It’s Time? … YES

Yes, the JSX lowest level last week was at 2584.98 or 12.61x PE2010 or 10.77x PE2011 (PE Consensus) before closing at 2623.22, very good for entry level.

Overall I believe our fundamental economic still strong and The European problem just give minority impact on our economic. I highly recommended to start accumulate shares with good fundamental.

My JSX target was still at 3050 or 14.88x PE2010 Consensus.






Consensus TP & Potensial Upside



















Bang Juntri
DISCLAIMER: This report is issued by Bang Juntri. Although the contents of this document may represent the personal opinion of Bang Juntri. We cannot guarantee its accuracy and completeness.

Danareksa Delta Dunia Makmur (DOID IJ, Rp 980 BUY) Learning a hard lesson

Maintain BUY, TP stays at Rp2,350
We maintain our BUY recommendation on DOID. Our optimism centers on the fact that the contribution from its mining contracting business will be fully reflected in the full-year earnings starting this year. On the basis of this, we estimate excellent net profits growth of 28% 5-year CAGR in 2010. For 2010F, we forecast 18% growth in revenues, supported by a higher volume of work and higher average contract prices compared to last year. Although the cost of revenues will rise due to higher depreciation, the gross margin still improves thanks to the increasing revenues. There will, however, be higher interest expenses and higher forex losses arising from the additional USD110mn of debts this year. This trims our 2010F net profits forecast to Rp846bn from our previous forecast of Rp1,083bn. Our blended-valuation based TP remains at Rp2,350 (implying PE and EV/EBITDA 10F/11F of 18.7x/10.3x and 7.1x/5.1x, respectively), however. With the lower-than-expected operating expenses in 2009, we revise our estimates for operating expenses in the following years. This gives a boost to our net profit forecasts. With the net profits growing at a very brisk 3-year CAGR of 63% in 2009-2012 (compared to UNTR’s 12% net profit growth of 3-year CAGR in 2009-2012), we feel the high implied PE 10F is justified.

Regaining credibility may take some time
This week DOID announced that it had agreed with Recapital Investment Group to halt discussions on acquiring a 51% stake in Berau, explaining that commercial terms could not be agreed upon. Consequently, the company’s planned rights issue is off. The announcement raises questions over DOID’s credibility since rumors of a rights issue spread in mid-March 2010 (the official announcement of rights issue was finally made on 30 March), causing DOID’s share price to slump 30% from Rp1,400 on 17 March to Rp980 on 20 May. Yes, DOID does have solid fundamentals, but we still believe it will take time before investors regain confidence in the company. Most of all, investors will want to see DOID “deliver” good results going forward and avoid any other such confidence sapping deals while still focusing on its key organic strengths.

The valuation remains attractive
Our TP of Rp2,350 is unchanged. It is derived from a blended valuation of DCF and relative valuation methods, considering that while the 2010F net profits are 22% lower than our previous forecast, the net profits in the coming years are estimated to be higher due to lower operating expenses. As for the valuation, DOID’s shares now trade at EV/EBITDA 10F/11F of 4.1x/3.0x, or much more attractive than UNTR’s shares which trade at EV/EBITDA 10F/11F of 6.1x/5.0x. BUY maintained.