JP Morgan - Buy Perusahaan Gas Negara (PGAS)
Buy Perusahaan Gas Negara (PGAS): 2Q10 results addressed earlier concerns about gas volume drop-off, that was caused by government intervention on gas allocation. Distribution volume is returning to normal but more importantly, average selling price jumped 5.4% QoQ, driving a 16% QoQ growth in EBIT. If we assume the 2Q10 EBIT of Rp2,456bn is sustained in Q3 and Q4, full year EBIT can reach around Rp9.5trn – this is 8% higher than consensus of Rp8.8trn and 25% higher than Stevanus Juanda’s number. If we assume the 2Q10 core net income of Rp1,746bn is sustained in Q3 and Q4, full year core net income can reach around Rp6.7trn – this is 5% higher than consensus of Rp6.4trn and 22% higher than Stevanus Juanda’s number. Bottom-line: concerns on 2011 outlook appear unfounded as forecast for the base year (2010) is being revised upward; the stock trades on attractive P/E multiple of 14.5x FY10 with a 3-4% dividend yield. The stock may re-rate on the back of a continuing decline in Indonesia 10YR government bond yield.
Mandiri Sekuritas PGAS:65.7% gross margin post tariff hike TP IDR5260
15% increase in gas price effective April 1, 2010 subdued lower distributed gas volume (-3.3%QoQ) and giving 12.7% qoq increase in revenue and 16.4% QoQ in operating profit. Post the impact of increase, no short-term catalysts until mid-2012 where PGAS expected to have 180MMSCFD (equity accounted) new supply from West Java FSRT JV with Pertamina. We upgraded our estimates on lower than estimated COGS, resulted in new target price of Rp5,260/share. Admittedly, catalysts are limited, and therefore news on progress in the FSRT project are much needed.
A thicker margin. PGAS recorded a gross margin of 65.7% in 2Q10, up from 60.8% in 1Q10, and 59.3% in 1H09. An increase in average gas price of 8.6% in Q2 to US$6.84/MMBTU helped beefed up the margin. 20% composition of IDR in PGAS tariff resulted in higher ASP in USD terms compared with US$6.3/MMBTU, PGAS indicated. Transmission and fiber optics was up 8.5% QoQ to Rp424bn.
No short-term catalysts seen. PGAS is currently implementing a thorough FSRT (Floating Storage Regasification Terminal) tendering process to avoid any tender dispute. Due to this, a discount have to be applied for the 2012 target of completion to prevent over optimistic expectation. There were also scant progress in gas fields’ acquisitions and additional supplies from gas producers. PGAS CEO, Hendy P. Santoso quoted by Bloomberg, said that he saw limited additional supply in 2011
Rising target price. We revised down our cost of gas on improved gas supply from Conoco Phillips (CoPhi). As CoPhi volume has improved, cost of gas have to be lowered since CoPhi’s gas is priced at US$1.85/MMBTU which is lower than average cost of gas of US$2.53/MMBTU. Our new target price of Rp5,260/share is 13.1% higher than our previous target price.
CLSA PGAS, Lack of catalysts – Downgrade to OPF, from Swati
Indonesia has massive gas reserves but yet a big deficit of gas supply (Domestic gas price now almost double of Henry Hubs). PGAS has been one of the best structural story being in the forefront of delivering stranded gas to gas hungry island of Java. However, the structural story (lack of gas supply) has recently been a bit of a doubled edge sword for gas. Its simply cannot secure any meaningful gas supply contract when demand is surging. LNG receiving terminals is a great solution but unfortunately still 3 years away. With the domestic consumption story taking off in Indonesia, PGAS will have limited operating leverage to benefit. Still great LT story at reasonable valuation but status quo (note we have not change our earnings forecast) means underperformance in the meantime. Patience required.
· PGas is a structural growth story of Indonesia’s shift to gas often marred with execution disappointments.
· We expect material new gas supply only in 2013 when LNG comes on-stream. There could be further delay on this as it will take 24-36months to complete the LNG project from date it’s commenced. Pgas has not signed any firm gas contract for LNG.
· We expect new contracts (piped and LNG receiving terminal to be signed in next six months but this does not mean actual gas supply will increase before 2012 as it takes time to monetize gas.
· We downgrade the stock to outperform in absence of any price and volume growth in foreseeable future. That said, we are not turning negative (although less positive) as the stock is cheap, trading at 10.7x 2011CL, with a solid balance sheet, 45% ROE, 22% ROA and 5.6% div yield.
· The stock should re-rate on progress of LNG receiving terminal and new volume contracts.
NISP Perusahaan Gas Negara sets 2011F capex at US$600mn
· Perusahaan Gas Negara is budgeting US$600mn or Rp5.58tn for capex in 2011. This is almost 3 times of the capex this year, which ranges between US$200-250mn.
· PGN CEO, Mr.Hendi Prio Santoso, states that the budget includes acquisition cost for an oil and gas block of US$350mn in response to the growing demand. In addition the company will acquire a gas tank costing US$50mn.
· Capex will 30% be financed from internal cash. The company has currently Rp9.53tn in cash. The balance will be sourced externally however no details have been shared.
· PGAS is trading at 2011F PER of 12.3x and EV/EBITDA of 7.4x.
DBS Perusahaan Gas Negara: Strong 2Q earnings TP Rp4,800
At a Glance
• 2Q10 results in line with expectations
• On track to meet target sales volume and forecasts
• New gas supply contract supports higher volume and tariffs
• Promising outlook but trades at discount to regional peers’ valuations
• Maintain Buy and TP of Rp4,800, with 20% upside.
Comment on Result
2Q revenue grew 11% y-o-y to Rp5t.0tr on 9.3% and 11% increases in gas distribution and transmission volume to 827 MMScfd and 847 MMScfd, respectively.
2Q EBIT improved by a stronger 27% y-o-y to Rp2.5tr helped by 6ppt increase in operating margin following an average 15% hike in gas price for industrial and commercial users in Indonesia effective 1 April 2010. 2Q net profit (excluding forex loss on loan translation) grew by an even stronger 66% y-o-y to Rp1.6tr supported by both higher volume and tariff rates.
Outlook for PGAS is promising given its recent new gas supply contract with ConocoPhillip from Grissik field. Given PLN ’s urgent need for gas, we expect more new supply to come trough over the next few months. We estimate that every 10ppt increase in gas supply will boost PGAS FY10F net earnings by 11.4%.
Recommendation
PGAS is poised to benefit from Indonesia’s rising energy demand fuelled by strong economic growth and rapid infrastructure development. Maintain Buy and DCF-derived target price of Rp4800. PGAS is trading at attractive 12x FY11F PE versus peers’
average of 17x, despite its more promising growth prospects. It also offers higher net dividend yield of 4% versus regional peers’ average of 2%.
Credit Suisse: Perusahaan Gas Negara - Strong 2Q10 results on higher selling prices TP idr5,300
● PGAS posted 2Q10 recurring net profit of Rp1,885 bn, up 35% QoQ and 56% YoY mainly due to higher selling prices. Its reported net profit of Rp1,435 bn in 2Q10 declined 19% QoQ and 27% YoY due to forex and derivative losses.
● The recurring net profit was above our expectation, at about 53% of our 2010 forecast (and 51% of the consensus estimate), as we expect a better 2H10. Gas ASP of US$6.83 in 2Q10 was above our forecast of US$6.4, while the average gas blended cost of US$2.54 was in line with our 2010 forecast. The positive impact of higher ASP was partially offset by weaker 2Q distribution volumes of 813 mmscfd, down 3% QoQ.
● We expect higher distribution volumes in 2H10 due to a recovery in Conoco volumes. Since June 2010, Conoco volumes have recovered to an average of 340 mmscfd, versus its 2010 contract of 350 mmscfd.
● We increase our forecast for average realised selling price to US$6.6/mmbtu, based on higher realised selling prices achieved in 2Q10. We maintain our positive view and our OUTPERFORM rating on PGAS and our DCF-based target price of Rp5,300.
Rabu, 15 September 2010
Minggu, 12 September 2010
CLSA Bank Danamon up 4.7% on the back of DBS raising US$10bn debt
DBS announced this morning an intent to raise US$10bn in senior debt. Please see below, comment from Bret Ginesky.
DBS announced this morning an intent to raise US$10bn in senior debt
While this raise was announced in June today the bank appointed investment banks to sell the offering.
DBS is formally stating that this is for "general funding" purposes
We believe funds could be used to purchase Temasek's 76% in Bank Danamon
Bank Danamon rose 4.7% today on heavy trading of US$12m
We believe Danamon shares could fetch 3.0x book or higher, reflecting a share price of Rp6,400 or higher, which is 15% upside from today's close
While we currently rate the stock an underperform, M&A speculation will continue to drive the shares higher. Our rec is under review.
Please see additional comments by Singaporean bank analyst Derek Ovington:
I think it's important to stress that there's an innocuous explanation for DBS raising so much debt, and that is to fund its growing balance sheet at relatively low cost given low bond yields right now.
However, as Bret points out the BDMN trading suggests there could be more to it than that.
Attached is the note that I wrote on the DBS-BDMN hypothetical. While the deal would be prima facie dilutive, and materially so, the note also shows that DBS could leverage up to mask the dilution and make a 3x book deal at least look more palatable. That's why I can't discount the possibility of a transaction.
I still think there's a low probability that DBS/Temasek will do it, but I may be over-rating their commercial judgement and/or under-rating their strategic desire.
In my view, M&A risk is just another reason to sell DBS (U-PF). It's expensive, has the weakest return profile and is the Singapore bank most exposed to margin downside.
DBS announced this morning an intent to raise US$10bn in senior debt
While this raise was announced in June today the bank appointed investment banks to sell the offering.
DBS is formally stating that this is for "general funding" purposes
We believe funds could be used to purchase Temasek's 76% in Bank Danamon
Bank Danamon rose 4.7% today on heavy trading of US$12m
We believe Danamon shares could fetch 3.0x book or higher, reflecting a share price of Rp6,400 or higher, which is 15% upside from today's close
While we currently rate the stock an underperform, M&A speculation will continue to drive the shares higher. Our rec is under review.
Please see additional comments by Singaporean bank analyst Derek Ovington:
I think it's important to stress that there's an innocuous explanation for DBS raising so much debt, and that is to fund its growing balance sheet at relatively low cost given low bond yields right now.
However, as Bret points out the BDMN trading suggests there could be more to it than that.
Attached is the note that I wrote on the DBS-BDMN hypothetical. While the deal would be prima facie dilutive, and materially so, the note also shows that DBS could leverage up to mask the dilution and make a 3x book deal at least look more palatable. That's why I can't discount the possibility of a transaction.
I still think there's a low probability that DBS/Temasek will do it, but I may be over-rating their commercial judgement and/or under-rating their strategic desire.
In my view, M&A risk is just another reason to sell DBS (U-PF). It's expensive, has the weakest return profile and is the Singapore bank most exposed to margin downside.
Danareksa Plantation Sector (OVERWEIGHT) La Nina strikes
Firm CPO price likely to be sustained into next year
The recent upsurge in the CPO price validates our previous argument made in the early part of the year. This is that CPO production has only been marginally higher due to the impact from bad weather and partly due to poor yields amid unexpected production declines from substitutes. This weaker supply growth - and stronger global demand - has resulted in higher CPO prices. While CPO production may improve in 2H on seasonality, the severity of heavy rainfall will cap production at 46.9mn tons this year – a mere 1.6mn tons increase, or lower than 2009’s 2.0mn tons increase. For now, we maintain our benchmark CPO price estimates at US$850-860/mt CIF for FY10-11E respectively. Our production estimates for Indonesian plantations, however, are cut by 24-16%, as poor yields prevail, slashing the FY10-11E EPS by 39-28% respectively. At the same time, we cut our recommendation on AALI to HOLD, while keeping the rest intact. Our top pick remains on BWPT, mainly due to its robust production and profitability. We also initiate coverage on LSIP with a BUY and a TP of Rp11,250.
Demand supply imbalances to persist
Consumption of global vegetable oil is likely to increase by 3.9% over the course of one year, a touch below its production growth of 4.0%. The risk shall still be on the supply side, we believe. Heat and dryness in West Europe, Russia, Kazakhstan and some parts of South America have affected the grain and oilseed crops. Canada and Eastern Europe, on the other hand, have been too wet. As a consequence, over 3mn tons of rapeseed is expected to be lost over the next season, capping global vegetable oil supply growth. Note that oil yields on rapeseed have been around 39-43%, and therefore making a significant contribution to vegetable oil supply. Soybean, however, may see higher production in the US on larger than expected plantings, albeit much of them shall likely be offset by a sharp decline in South America’s production, largely due to a shift in plantings towards wheat and sunflower seed aside from smaller average yields. On a net basis, soybean production is likely to drop by as much as 3.4mn tons next season. Soybean-crushing activities, however, may have picked up, but much of the resulting soya oil will be absorbed for bio-fuel purposes, hence the sustained robust demand for palm oil and positive price outlook.
Strained by bio-fuel consumption
As much as we hate to admit it, the rising consumption of vegetable oil for bio-fuel purposes is likely to result in food and energy tussles. Almost half of the increase in global vegetable oil consumption is used for bio-fuel feedstock. The EU, which uses 60% of rapeseed oil consumption in the EU for bio-fuel purposes, may see a shortage of feedstock supply over the next season, pushing the price above US$465/ton, as alternatives are limited due to technical requirements. Even if there is stock availability, it will have to compete with China’s requirement for food purposes. The significant price premium of rapeseed, however, will lead to greater demand for cheaper alternatives such as palm oil. Meanwhile, the largest exporters of soya oil, Brazil and Argentina, will see their exports dwindle next year. Indeed, soya oil is the major feedstock for Argentina’s (90%) and Brazil’s (83%) bio-diesel production. Argentina’s government has raised the mandatory admixture of bio-diesel to 7% starting next month from currently 5% and will raise it further to 10% starting next year. As for Brazil, the government has kept its 5% mandatory admixture of bio-diesel.
Short term CPO production setback
While we expect CPO yields to improve over the course of one year, the short-term (about 6 months) production increase will still be marginal. Heavy rainfall has limited pollination from taking place and led to slower production growth. The next 18 months will be crucial for palm oil production, we believe, as the effects from heavy rainfall will lead to smaller bunches being produced, aside from lower quality and a lower OER. At least for Indonesian plantations, production is expected to grow by about 1.2mn tons this year, or lower than 2009’s increase of 1.9mn tons. Some 5.7mn ha are expected to be mature this year, just an additional 380,000ha from 2009’s 5.4mn ha. By next year, the production increase will basically emerge from newly mature areas from plantings done in 2006-2007, some additional 400,000ha. And as for Malaysia’s plantations, maturing areas will stay the same. Over the longer term, production may also be hampered by a lack of new plantings as erratic rainfall continues. This is aside from the government’s role of limiting new land bank issued to planters.
The recent upsurge in the CPO price validates our previous argument made in the early part of the year. This is that CPO production has only been marginally higher due to the impact from bad weather and partly due to poor yields amid unexpected production declines from substitutes. This weaker supply growth - and stronger global demand - has resulted in higher CPO prices. While CPO production may improve in 2H on seasonality, the severity of heavy rainfall will cap production at 46.9mn tons this year – a mere 1.6mn tons increase, or lower than 2009’s 2.0mn tons increase. For now, we maintain our benchmark CPO price estimates at US$850-860/mt CIF for FY10-11E respectively. Our production estimates for Indonesian plantations, however, are cut by 24-16%, as poor yields prevail, slashing the FY10-11E EPS by 39-28% respectively. At the same time, we cut our recommendation on AALI to HOLD, while keeping the rest intact. Our top pick remains on BWPT, mainly due to its robust production and profitability. We also initiate coverage on LSIP with a BUY and a TP of Rp11,250.
Demand supply imbalances to persist
Consumption of global vegetable oil is likely to increase by 3.9% over the course of one year, a touch below its production growth of 4.0%. The risk shall still be on the supply side, we believe. Heat and dryness in West Europe, Russia, Kazakhstan and some parts of South America have affected the grain and oilseed crops. Canada and Eastern Europe, on the other hand, have been too wet. As a consequence, over 3mn tons of rapeseed is expected to be lost over the next season, capping global vegetable oil supply growth. Note that oil yields on rapeseed have been around 39-43%, and therefore making a significant contribution to vegetable oil supply. Soybean, however, may see higher production in the US on larger than expected plantings, albeit much of them shall likely be offset by a sharp decline in South America’s production, largely due to a shift in plantings towards wheat and sunflower seed aside from smaller average yields. On a net basis, soybean production is likely to drop by as much as 3.4mn tons next season. Soybean-crushing activities, however, may have picked up, but much of the resulting soya oil will be absorbed for bio-fuel purposes, hence the sustained robust demand for palm oil and positive price outlook.
Strained by bio-fuel consumption
As much as we hate to admit it, the rising consumption of vegetable oil for bio-fuel purposes is likely to result in food and energy tussles. Almost half of the increase in global vegetable oil consumption is used for bio-fuel feedstock. The EU, which uses 60% of rapeseed oil consumption in the EU for bio-fuel purposes, may see a shortage of feedstock supply over the next season, pushing the price above US$465/ton, as alternatives are limited due to technical requirements. Even if there is stock availability, it will have to compete with China’s requirement for food purposes. The significant price premium of rapeseed, however, will lead to greater demand for cheaper alternatives such as palm oil. Meanwhile, the largest exporters of soya oil, Brazil and Argentina, will see their exports dwindle next year. Indeed, soya oil is the major feedstock for Argentina’s (90%) and Brazil’s (83%) bio-diesel production. Argentina’s government has raised the mandatory admixture of bio-diesel to 7% starting next month from currently 5% and will raise it further to 10% starting next year. As for Brazil, the government has kept its 5% mandatory admixture of bio-diesel.
Short term CPO production setback
While we expect CPO yields to improve over the course of one year, the short-term (about 6 months) production increase will still be marginal. Heavy rainfall has limited pollination from taking place and led to slower production growth. The next 18 months will be crucial for palm oil production, we believe, as the effects from heavy rainfall will lead to smaller bunches being produced, aside from lower quality and a lower OER. At least for Indonesian plantations, production is expected to grow by about 1.2mn tons this year, or lower than 2009’s increase of 1.9mn tons. Some 5.7mn ha are expected to be mature this year, just an additional 380,000ha from 2009’s 5.4mn ha. By next year, the production increase will basically emerge from newly mature areas from plantings done in 2006-2007, some additional 400,000ha. And as for Malaysia’s plantations, maturing areas will stay the same. Over the longer term, production may also be hampered by a lack of new plantings as erratic rainfall continues. This is aside from the government’s role of limiting new land bank issued to planters.
CLSA Indo banks by Bret Ginesky
This is has been talked about for a while and expected by the market. To facilitate a more competitive lending landscape and the same time making sure there is a wide enough safety net, BI will start penalizing banks with LDR at extreme ends and ask for higher reserves. There is going to be short term impact to earnings esp for Banks with low LDR like BCA but most likely going to be mostly offset by higher fee income. Does not change the structural story. Remain OWT Indo banking sector.
· Bank Indonesia’s minimum required reserves now stand at 10.5% from 7.5% previously. As a new primary reserve of 3% of rupiah deposits was added. These funds will earn a 2.5% interest rate.
· A liquidity reserve was also imposed penalizing banks with an LDR below 78% and above 100%. The point of this is to increase competition and lending.
· BI tightens policy without raising interest rates allowing the central government to buffer the inflow of funds into the country. Indonesia already boasts one of the lowest required reserves in our Asia (xJapan) coverage universe, this helps bring reserves closer to the peer median.
· Banks will almost certainly do their utmost to offset these costs through fees, charges and possibly higher interest rates. The net impact on 2011 is to lower earnings by 4-8%. BCA is the most affected.
· We remain OWT the sector as they are a prime beneficiary of accelerating growth and asset reflation. Our top picks are BBNI and BMRI. UWT BDMN.
· Bank Indonesia’s minimum required reserves now stand at 10.5% from 7.5% previously. As a new primary reserve of 3% of rupiah deposits was added. These funds will earn a 2.5% interest rate.
· A liquidity reserve was also imposed penalizing banks with an LDR below 78% and above 100%. The point of this is to increase competition and lending.
· BI tightens policy without raising interest rates allowing the central government to buffer the inflow of funds into the country. Indonesia already boasts one of the lowest required reserves in our Asia (xJapan) coverage universe, this helps bring reserves closer to the peer median.
· Banks will almost certainly do their utmost to offset these costs through fees, charges and possibly higher interest rates. The net impact on 2011 is to lower earnings by 4-8%. BCA is the most affected.
· We remain OWT the sector as they are a prime beneficiary of accelerating growth and asset reflation. Our top picks are BBNI and BMRI. UWT BDMN.
CLSA Mango Mania
The market charged ahead in full steam setting yet another record high at 3,217 yesterday. Foreign investors have stepped up buying giving support to the big cappers. Turnover over the last couple of days has been surprisingly good even tough it will be a short week for Indonesia. Market will be closed from 8 - 14 August for Hari Raya holiday. We may see some profit taking from the local camps ahead of long holiday.
In his latest presentation “Mango Mania”, Nick Cashmore has just laid out reasons to own ASEAN (please see attached). As a region, ASEAN has an interesting history. The oldest university in Asia is located in the Philippines (Santo Tomas, 1611). The region also boasts the largest Buddhist monument in world (Indonesia, Borobudur 9th century). The longest reigning monarch in the world is in Thailand. One of the Asian greatest sport heroes is from this region: Manny Pacquiao from the Philippines.
Of course the region faces many challenges (high logistic costs and weak institutional structures among others) but still there many more positive attributes and potentials.
Economically, ASEAN generates GDP of US$1.6tn and has doubled since 2005. GDP is about the same size of India. Per capita GDP is approaching US$3,000. The region is globally competitive is soft commodities and is among one of the least indebted areas in the world (pls see the chart below). Plenty of rooms to add leverage into the system. Clearly, ASEAN is a force to be reckoned with.
SE Asians also have the knack for rapid reproduction. Demographics is also looking great with a population of 600mn of whom more than half are less than 30 years old. To put it into perspective, within two decades SE Asia will be larger than Europe in terms of population. And in the next 15 years, SE Asia will add as many people as China.
A stockbroker can make a nice career broking ASEAN market these days. SE Asia is now more liquid and meaningful for investors. Combined market cap is US$1.5tn with daily average turnover of US$3.8bn.
Two blue chip Indonesian stocks mentioned in the report are BCA (BBCA IJ) and Indocement (INTP IJ). For mid and small cap ideas, we like Holcim (SMCB IJ) and biscuit maker Mayora (MYOR IJ).
In his latest presentation “Mango Mania”, Nick Cashmore has just laid out reasons to own ASEAN (please see attached). As a region, ASEAN has an interesting history. The oldest university in Asia is located in the Philippines (Santo Tomas, 1611). The region also boasts the largest Buddhist monument in world (Indonesia, Borobudur 9th century). The longest reigning monarch in the world is in Thailand. One of the Asian greatest sport heroes is from this region: Manny Pacquiao from the Philippines.
Of course the region faces many challenges (high logistic costs and weak institutional structures among others) but still there many more positive attributes and potentials.
Economically, ASEAN generates GDP of US$1.6tn and has doubled since 2005. GDP is about the same size of India. Per capita GDP is approaching US$3,000. The region is globally competitive is soft commodities and is among one of the least indebted areas in the world (pls see the chart below). Plenty of rooms to add leverage into the system. Clearly, ASEAN is a force to be reckoned with.
SE Asians also have the knack for rapid reproduction. Demographics is also looking great with a population of 600mn of whom more than half are less than 30 years old. To put it into perspective, within two decades SE Asia will be larger than Europe in terms of population. And in the next 15 years, SE Asia will add as many people as China.
A stockbroker can make a nice career broking ASEAN market these days. SE Asia is now more liquid and meaningful for investors. Combined market cap is US$1.5tn with daily average turnover of US$3.8bn.
Two blue chip Indonesian stocks mentioned in the report are BCA (BBCA IJ) and Indocement (INTP IJ). For mid and small cap ideas, we like Holcim (SMCB IJ) and biscuit maker Mayora (MYOR IJ).
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