BASML INDO INCO cut PxT Time to Buy Gold (11 Mar 09)v\:* {
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Daisy
cut INCO PxT to Rp 1,900 and net profit by 12-14% for 2009-10 on the back of
lower nickel px forecast. I guess what matters most now is whether the
US rally overnight marks the turning
point; I have not seen any notes suggesting such from either Rosie or
Bernstein. Ok, Indonesian economy is 'different' but volume yesterday remained
muted ~U$ 115mn, tho' the big banks did reasonably well with 3-5% performance.
For those who want to buy, we recommend stick to big caps BMRI, BDMN, ASII,
INTP
and BBRI.
INCO:
cut PxT to Rp1,900
Daisy cut PT Inco PxT by 5% to Rp1,900, and net
profit by 12-14% for 2009-10 to reflect our lower nickel px
forecasts. Our commodity
team cut nickel px on March 5 to US$4.3/lb in '09, $5.0 in '10, $4.85 in '11,
and $4.95 LT, lower by 9.3%, 8.5%, 19.2%, and 31.7%
respectively. We anticipate a nickel oversupply by 17,000-20,000t
in 2009-10 as stainless steel capacity is still being aggressively cut and
inventory piling up in the warehouse (+60% in the last
3mths). We do not see
recovery in near term unless the global economy recovers and LME inventories
fall. But
downside on nickel px is limited as at current level, even PT Inco being one of
the most efficient nickel producers, is barely making profit. Daisy regards PT
Inco as the best play for nickel recovery. She sees huge cost reduction to
US$2.5/lb in 1Q09, a 37% drop from US$4/lb in 4Q08, driven by lower diesel px
(no more old inventory and drop in the HSFO px), lower service & contractor
costs, and from running on hydro power alone. Current shr px factored in
US$4.7/lb nickel px (vs. US$4.9 YTD).
<<INCO_11Mar09.pdf>>
Time
to buy?
It is getting confusing as the world getting more
divided by those who are negative and positive on equity market. It would be
nice if we can end the bear era just by having banks’ CEO commenting
positively. Most of the notes coming from our US
office remain cold toward equity. I am running out of people to ask ‘is this
it’ so this morning the one sitting next to me responded “no”. The good thing
is from the economy perspective, Indonesia measures up well with Debt/GDP ratio
of 26% , GDPg of 3.6%, and the banking sector LDR stands at ~74% with 3.1% NPL,
15% loan growth forecast and declining interest rate environment. BI cut 50bps
this month to 7.75%, the lowest level since the rate was introduced in 2005.
Given -175bp for the past 4 consecutive months we think we are not far from its
impact to the overall economy.
But to those who want to buy
Indonesia, we still recommend to
stick with the big caps: BMRI, BDMN, ASII, INTP and BBRI.
Market
Talks
* UNTR to pay
Rp465.38bn of debts maturing this year. UNTR will use
internal cash to pay the debt, but will consider attractive external financing
facilities. By end of 2008, cash stood at Rp3.32tn. (Investor
Daily)
* BBRI plans to
open additional 200 wet market outlets (Teras BRI) in 1H09.
The outlets will be used as points for micro loan application. BRI also plans
to
add another 400 wet market outlets in 2H09.
*
BDMN: PT Esa Kertas
Nusantara (EKN), a local paper producer, has filed a lawsuit against
BDMN, to seek Rp1tn in damages for
selling ‘misleading derivative products’. EKN claimed that BDMN sold the
products aimed at speculative gains rather than for hedging purposes. BDMN said
the bank is in the middle of restructuring the contract. (Jakarta
Post)
* ADMF plans to
issue Rp500bn bond in 2H09 to increase capital and to pay
maturing debts. Indo Premier, HSBC, and CIMB-GK Securities has been appointed
as
underwriters. ADMF is the 75%-owned subsidiary of BDMN. (Bisnis Indonesia)
US
notes
Rosenberg points out data
continues to show deterioration, with the US Manpower hiring intentions index
sagged
to -1 in 2Q from +10 in 1Q and +15 in 2Q … the first time ever in negative
terrain in 28 years. Suggests we could soon see a 1 million payroll plunge in
one of the next three months. Those intending to hire fell to 15% from 16% in
1Q. Rosie thinks Bernanke better stop talking about quantitative easing and
embark on the program to buy coupons: The financial markets are becoming
unglued and monetary policy is, in a word, impotent. Since the funds rate was
taken to
near-0% on December 16th: Yield on the 10-year note has surged 50 basis
points.
Mortgage rates have come down an insignificant 40 basis points. New car loans
rates have jumped 25 basis points. Rates on home-equity lines of credit haven't
budged. Three-month Libor is back above 1.3% and has risen 8 bps in the past
week. The Dow has lost
2,400 points since the Fed went to ZERO. It's time for some dramatic action,
not just to bring credit spreads in, but to take the whole yield
curve. Bernstein also
insists that changing Mark-To-Market accounting is not a
solution.
Policy makers should manage that inevitable consolidation rather than attempt
to
stymie it, and it is more important to overcapitalize good banks than it is to
keep bad banks alive.
http://research1.ml.com/C/?q=TPjvAqEONxHltljEpgrEYA%3D%3D&r=prodap
http://research1.ml.com/C/?q=fSvu8yKjVNPltljEpgrEYA%3D%3D&r=mornap
Where
are we?
Rosie thinks the US is nearly half
way of the recession and these are among what he expects to unfold going
forwards:
Deflation backdrop to intensify – CPI to average -1% this Year, unemployment
rate 10% by year-end, Capacity utilization rates break below 70% (bad news for
capex), $20 trillion household net worth spells rising savings rate
(deflationary), and another 15% decline in home prices
http://research1.ml.com/C/?q=NDIVPInyKPLltljEpgrEYA%3D%3D&r=prodap
Aurum
= tedium
US Strategist Rich Bernstein throws
open the debate on the market's favorite asset : Gold. He notes that the
proportion of
shares outstanding of the most popular gold ETF has risen by 33% so far this
year and that 2% of assets in "small cap stock funds" are also invested in the
same gold ETF. The risks to holding gold in the near-term are
rising, particularly given falling inflation expectations
(see the China CPI/ PPI) and US$ strength. In
the near-term, a switch into oil looks preferable. Hedge funds are very long
gold…we calculate large speculators now have about $16bn net long exposure to
gold. Has gold become a momentum investment rather than a fundamental one? It
seems that the short-term risks to holding gold may be increasing even if the
long-term diversification benefits of gold stand true. We would highlight the
triple top on the chart and the break of the 50 day ma last night. Equity
market
rally suggests “fear” is on the back burner and gold likely next to test $850
support @200 day ma. Bernstein:
http://research1.ml.com/C/?q=XI87iswdOGPltljEpgrEYA%3D%3D&r=patrli Gold:
http://research1.ml.com/C/?q=kO5NwsEMC4PltljEpgrEYA%3D%3D&r=patrli
Santy
Tandiana
Merrill Lynch Indonesia
Dir:
6221-515 8997
Mob:
62-8151-4355-954
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