Mansek WIKA:Minor noise

Kontan reported that WIKA was late in handing in FY09 financial result revision and the change of use of IPO proceeds to the authority. Yet in fact , they have met with Bapepam rules and requirements as a public company. We view that such revision is insignificant and would not affect future performance. Thus , we maintain our Buy recommendation on WIKA , particularly with the initial number shows results likely will be above expectation , along with strong fundamental. Our target price of Rp570/share reflect s PER10-11F of 12.3-9.5x , or 19% discount to JCI (average discount since listing date).

Reporting misstep. Kontan reported that WIKA was late in handing in the revision to the FY09 financial statement as well as change of use of its IPO proceeds to the capital market regulatory and supervisory body (Bapepam). However , the company informed us that they have reported the error to Bapepam 5 days after they filed its FY09 financial statement , which is on 30 March 2009 , and sent the revision in the forthcoming 11 days. Note that the revision only lies on account reclassifications in their FY09 cash flow statement (Exhibit 1).

Reallocation some of IPO proceeds completed. Regarding the change of use of their IPO proceeds , they have obtained shareholders approval in their EGM back in 27 Jan 2009. They have also reported IPO proceeds realization on 12 October 2009 to Bapepam. The change in IPO proceeds worth Rp100 bn was extended as a loan to a subsidiary (from previously intended for working capital).

No impact. We view that such article could mislead the readers , as WIKA has already complied with Bapepam rules and requirement for public listed company. Moreover , we view that such revision was insignificant , and did not have any effect on FY09 ending balance of cash and cash equivalent.

Maintain Buy with a TP of Rp570/share. Yesterday , WIKA’s share price fell 3.7% from its previous closing , which was likely due to the negative news. We , on the other hand , still like its strong fundamental. In fact , 1H10 results may be better than other publicly listed construction companies , since around 40-50% of its revenue is coming from its non-construction business. Currently , WIKA is trading at PER10-11F of 11.3-8.6x , which still at 28.3% discount to JCI. As such , we maintain our Buy recommendation with target price of Rp570/share.

Indopremier INTP Strong 1H10 Result, Inline with Expectation

Indocement recorded superior performance in 1H10, triggered by strong residential market and lower production cost per ton. All in all, the 1H10 figures were inline with our expectation, in which the company revenue and net profit has reached 43% and 48%, respectively, compared to our FY10 forecast. Indocement’s share price has advanced significantly, but the valuation remained attractive on the back of its ample capacity, the lowest production cost and superior profitability compared to its peers this year, as well as continues to recorded net cash position. We maintained BUY recommendation with new fair value of Rp 19,400 per share due to several changing assumption in DCF-method calculation which still offers 18% upside potential from its yesterday closing price.

Strong 1H10 result, inline with expectation
Indocement booked a 11.8% YoY revenue growth in 1H10 attained to Rp 5.4 trillion which was triggered by the continuing strong domestic demand, mainly from residential market. We noted that the company’s domestic sales grew by 17.4% YoY, higher than national domestic demand which only expanded by 11.5% YoY. Given solid top line performance, lower COGS/ton and optimizing supply chain operations, the company was able to recorded remarkable profitability during the same period. All in all, the 1H10 figures were inline with our FY10F forecast, where Indocement’ revenue and net profit figures have covered 43% and 48% of Rp 12.5 trillion and Rp 3.4 trillion, respectively.

Remain booked 2Q10 remarkable profitability
On quarterly basis, Indocement still recorded remarkable profitability in 2Q10 despite slightly slumped compared to the previous quarter due to lower ASP and higher labor cost. Nevertheless, the gross margin can be maintained at 50% level thanks to its lower production cost. Meanwhile, re-operate several inefficient kilns have resulted in lower EBIT and EBITDA margin. Going forward, we expect the electricity tariff hike would give insignificant impact to production cost since the company has owned electricity power so that the remarkable profitability would be well-maintained.

Improving market share, supported the excess capacity
Backed by bullish domestic demand and excess capacity, Indocement had success to recapture the lost domestic’s market share gradually, which soared by 220 bps YoY and 102 bps QoQ in 2Q10. We suspected that Indocement expropriated Semen Gresik Group market share due to SGG has limited cement production capacity (93% utilization).

Maintain BUY recommendation – fair value Rp 19,400
We use 2011 as the basic year and we get the fair value of INTP becoming Rp. 19,400 per share. Indocement’s share price has advanced significantly, but the valuation remained attractive on the back of its ample capacity, the lowest production cost and superior profitability compared to its peers this year, as well as continues to recorded net cash position. Hence, we maintained BUY recommendation for the stock since our fair value offers 18% upside potential from its yesterday closing price.

Danareksa International Nickel Indonesia (INCO IJ, Rp4,375 BUY) A solid first-half

BUY maintained, TP of Rp5,000
We maintain our BUY call on INCO given the excellent 1H10 performance. In this period, INCO’s net profits surged 61% YoY to USD219mn, representing 51% of our full year forecast. The good profitability came on the back of both higher sales in 2Q10 and higher ASP. Margins also improved, with the net margin widening to 35% in 1H10 from 28% in 1H09 thanks to lower fuel consumption. Looking forward, we remain confident that our full year forecasts for the company will be met, since demand from stainless steel producers for restocking should be strong. INCO’s shares are currently trading at an attractive valuation of PE 10F/11F of 10.5x/12.2x, or less than the mining industry’s 13.6x/13.0x. With our TP of Rp5,000, the shares offer 14% upside potential.

Strong sales and good profit margins in 2Q10
INCO booked strong sales and higher profit margins in 1H10. The higher sales mainly owed to the 11% QoQ increase in sales volume in 2Q10, while the better profit margins resulted from increasing ASP in addition to lower fuel consumption due to a routine maintenance shutdown of a furnace for two weeks in April 2010. As a consequence, the 1H10 net profits were able to grow 61% YoY to USD219mn.

The nickel market has slowed but is still expanding
We are keeping our assumptions and forecasts intact for this year. Although nickel consumption has slowed a little bit, we believe that the slowdown is temporary and that restocking will begin by the end of 3Q10. Our conviction is based on the manufacturing activities of major manufacturing countries which still indicate expansion (see Exhibit 4 for worldwide purchasing manager indices that are still above 50). As such, nickel prices should hold up in the coming months, we believe.

JPM PT Aneka Tambang Tbk Lower-than-expected 1Q10; reduce PT to Rp2,900

• 1Q10 net income grew strongly Y/Y but below expectations: ANTM reported 1Q10 net profit of Rp202B, up by a strong 124.7% Y/Y. With 1Q historically contributing to an average of 23.4% of full year net income, 1Q10 net income came in below both our (14.3%) and consensus (15.6%) full year forecasts of Rp1,417B and Rp1,297B respectively. The lower-than-expected profit was driven by lower-than- expected volume and higher SGA costs.

• Contribution from mining activities improved: The gross margin improved from 6.1% in 1Q09 to 28.7% in 1Q10 despite declining Y/Y sales. The reason for this is that ANTM decided to limit its gold trading activities, which carry a minimal margin, and focused on high-margin
mining activities. ANTM’s nickel operation swung from a loss of Rp29B in 1Q09 to a profit of Rp308B in 1Q10.

• Model revisited and earnings adjusted downwards: With the lower volume and higher costs delivered in 1Q10, we revisit our model and incorporate the 1Q10 result into our forecast. In our revised model, we do not adjust the selling price but we adjust volume downwards and
SGA cost upwards. These result in us lowering FY10E net income by 12.2% and long-term earnings (10-year average until FY20E) by an average of 9.4%.

• Maintain OW and lower our PT to Rp2,900: The reduction in earnings forecasts caused us to lower our SOTP-based Dec-10 price target from Rp3,200 to Rp2,900. However, with an ample 18.3% upside still implied by our price target and potential positive momentum on metal prices, we maintain our OW rating on ANTM. Key risks to our price target include:
(1) an unexpected decline in nickel prices; (2) smaller-than-expected cost
decline.

A Cup of Tea 03 Aug'10

U.S. stocks closed at their highest level in 10 weeks on Monday, Dow Jones Industrial Average surged 208.44 points, or 2 percent, 10,674.38. Stocks rallied, sending the MSCI World Index to an 11-week high, oil surged above $81 a barrel and Treasuries fell following better-than-estimated earnings and growth in U.S. manufacturing and construction spending.

The July manufacturing PMI for the US came in at 55.5 from 56.2 in June and above the 54.7 expected by economists. Any score above 50 indicates growth in the manufacturing sector. U.S. construction spending unexpected increased 0.1% in June compared with a 0.7% loss expected. Growth in Europe’s manufacturing industry accelerated more than previously estimated in July, indicating an export-led recovery maintained its momentum. A gauge of manufacturing in the 16-nation euro region increased to 56.7 from 55.6 in the previous month.

TIN
Tin, the best performing industrial metal this year, climbed to the highest level since September 2008 as shrinking inventories signaled steady demand. The metal ended up $380 at $19,880 a tonne. LME inventories of the metal used in packaging solder and cans have shrunk 43 percent this year to 15,370 tons, the lowest level since June 2009. Exports of tin from Indonesia, the world’s largest producer, dropped 16 percent this year. Outbound shipments fell 25.7 percent in June from a year ago.

Tin continues to provide one of the most robust fundamental pictures across the base metals complex, in 2010 and in 2011” due to a “clear global market deficit. The shortage is due to falling production in Indonesia and robust consumption in Japan and, to a lesser extent, in Europe as manufacturing and electronic sectors increase output after the crisis. With falling production in Indonesia and better ISM data, I believe tin prices will rise above the key $20,000 a tonne level as soon as this week, and would surge to its record high of more than $25,000 in 2011.

Nickel
The base metals have recovered from the depressed levels of early June with prices trending higher in July. Concerns about sovereign credit risk in the euro zone and the uncertain impact of monetary tightening in China drove nickel prices lower by almost 35% in June 2010. However, a series of strikes, project delays and production problems have hurt nickel production in recent period. LME inventories have dropped by about 25 percent to five month low at 116,778 tonnes as on 30th July 2010. All these factors are supporting nickel and we expect LME nickel to touch $22,000-23000 in near term. Last night Nickel closed higher at $21875.

Crude Palm Oil
CPO Ends Up 2.1% amid Broad-Based Rally in Commodities; Higher Exports. Overseas buying in the cash market and slow growth in output supported prices and counterbalanced the ringgit's rally, which is bearish for prices. CPO rallied as crude oil prices rose as much as 95 cents to $79.90 a barrel in Asia.
Malaysia's palm oil exports in July reached 1.40 million to 1.41 million tons or 4.4%-4.7% higher than the June figures issued by cargo surveyors Intertek Agri Services and SGS (Malaysia) Bhd. Data from SGS showed Pakistan's palm oil purchases from Malaysia rose two-fold on month in July to cover demand for Ramadan, the Islamic holy month of fasting.

With La Nina weather now underway, recent heavy rain in several oil-palm growing regions is already hurting output growth, although it is likely to boost yields in the future. Analysts at the investment bank forecast cash CPO prices to gain 15%-20% this year as biological yield stress caused by dry weather earlier this year hurt production.

My View
I am still bullish for both sector. I had buy and hold recommendation for mid term investment.

Consensus Target Price for Metal and CPO shares








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.