Good Morning.  The new resistance level is now 1900 
instead of 2000.  But the mkt has been able to hold that in the last 4 days 
of weakening. Interesting to note that it has been predominantly locals who 
the market recently, hence the large volatility levels in the retail heavy 
sectors mining, plantation and propert stocks.  Foreign institutional 
investors have actually been consistent (cautious) net-buyers of the big cap 
stocks, providing some support. 

With the DXY below 80 
again, we should see some decent support in this market again.  Dollar 
continued to slide despite on the positive result of US treasuries overnight 
where a $40B 2 year auction garnered well over 3:1 bid to cover.  I guess 
there is just no end to this supply chain.  Someone should apply the output 
gap theory to Treasuries.  We have another $37 billion 5-year notes on 
tonight and $27 billion in 7-year notes on June 25. That is $165 billion in 
Treasuries this week alone.  Annualized this you got $8.58 trillion 
dollars! Yehaa!

The JCI has been down about 10% from the high 
earlier this month. A healthy correction after gaining 60% (USD terms) from the 
beginning of the year.  Our in house technical guru Laurence Balanco view 
for the JCI is unchanged as the up-trend remains intact as the index continues 
to make its way towards the next resistance zone at 2,222-2,273. The expected 
advance up to the 2,222 area should be the final thrust in this advance 
and should also register a bearish price/momentum divergence. Key support level 
for the uptrend is found at the 1,891-1907. It would take a close below this 
level to derail the uptrend off the March 

A couple notes for our favourite 

CPO stocks got hammered 
yesterday presenting a buying opportunity (but CPO spot prices up 6%). Our view 
is that supply tightness will last until 2010-2011 due to El Nino (El Nino is 
now pretty much confirmed, focus will shift to predicting the strength of the 
coming El Nino which the visibility will increase over time).  
Historically, CPO prices can double in the case of a severe El Nino.  That 
could translate into a massive windfall for plantation companies even tho 
volumes will drop.  Top pick - LSIP and UNSP

China IPPs 
(coal): State Grid stats reported that 2nd 10 days of June saw a power 
generation pickup of positive 3.8% YoY growth vs. 1st days of 0.2% YoY decline. 
According to the same source, generation growth is positive in both coastal 
regions and industry-centric provinces. Guangdong is up 12.3% YoY especially. 
have been expecting power output to turn positive starting 3Q09 but June's MTD 
number suggests a high chance of positive growth in this 

Research Today: Indo banks, highest ROA in Asia and 
funding future returns

Nick Cashmore looked at Indonesian banking sector. 
We are cautious on the near term outlook but the future of Asia’s most 
profitable banking market looks rosy. Take any weakness as an opportunity to 
accumulate Indo banking stocks.

The reality is that Indonesia’s 
bank ROA is the highest in Asia and these conditions are unlikely to dissipate 
anytime soon.

We think there are 3 possible explanations for 
higher ROA for Indo banks:

(1) post 97-98 Asian crisis, 
Indonesian banks have been focusing on higher margin NON corporate loans. And 
this includes consumer, micro, and SME

(2) ROA is higher now than 
pre-Asian crisis because back then banks were focusing on small margin related 
party lending.

(3) We also suspect that bankers here still 
remember the 97-98 crisis and have been  overly cautious in lending  
policies and loan pricing, always assuming the worse. With high provision in 
mind all the time, loan is being priced accordingly (high). But the high NPL 
fears never materialized so far, resulted in high NIMs for Indo 

None of the 3 factors above will change in the near term 
future, in our view. Consumer, micro, and SME sectors are still very much 
under-penetrated in Indonesia and this should mean room for 

Banks will continue  to  play 
an important role in supporting Indonesia’s growth rate. Over the past 5 years, 
banks’ LDR rose from 50% to 64%. There might be an issue with future funding 
shortage. Current rate of growth can’t be sustained. Banks will have to boost 
internal capital generation.

Key points from the 

*Intermediating growth. Over the past 5 years, total sector 
assets have grown 69% to US$122bn. Indonesia’s GDP doubled over the same 
*Future funding shortage. Current rate of growth can’t be sustained. 
Slow internal capital generation means banks will need to boost internal 
generation by cutting div, raising capital, and or constraining credit 
*BBCA, BBRI, and BMRI have already reduced payout ratios, BDMN has 
done the rights issue.
*Highest ROA in Asia, unlikely to dissipate 
*Valuations: near term, one SD above the 5-year 

News Headlines/Others:

update.  After last week’s Presidential candidate, the VP candidates debate 
took place last night.  Local media reports that the debate was a bit 
livelier than the presidential one last week but did not spur any heated 
discussions or controversy.  It is probably fair to say that the debates 
have not changed public perception/support of the candidates thus the 
SBY-Boediono ticket remains the most popular with less than three weeks into 
Presidential elections on July 8, 2009.

People able to sue 
government for poor public services.  The Parliament passed the bill into 
law yesterday.  The bill makes it possible to punish public service 
providers who fail to perform their duties.  If the public are injured or 
die as a result of negligence, that is now a criminal 

More regional flights from and to Indonesia.  
Air Asia has seen short-haul travel within Asian region growing between 5-10% 
over the last two years.  For example Jakarta-Singapore and Bali-Singapore 
routes will be doubled to four times a day while Bandung (capital of West Java) 
– Singapore and Bandung-Kuala Lumpur (Malaysia) routes will also be 
increased.  At the same time, long-haul travels have been in 

Indonesia launches first physical CPO market.  The 
Jakarta Futures Exchange (JFX) launched the first organized physical market for 
crude palm oil (CPO) in an attempt to create a new price 

PLN looking to issue Rp1.5tn bond.  The SOE power 
company PLN has appointed a consortium of financial advisor to explore the 
issuance of Rp1.5tn bond.  No further details.

Gas (PGAS IJ) pays out 157% dividend of 2008 net profit.  The annual 
shareholder meeting approved a dividend payout of Rp1tn or about Rp41.74 per 
share.  PGAS reported a net profit of Rp633.8bn in 

Medco Energy (MEDC IJ) update.  Japanese buyers have 
extended the heads of agreement (HOA) for the sale of gas from the planned 
Donggi-Senoro LNG plant.  This will give Medco more time to continue 
negotiations with the government.  Medco is a member of the consortium 
(holding a 20% stake) that established Donggi Senoro LNG, the company that will 
construct and operate the liquefied natural gas plant.

may follow the Japanese and Chinese lead in Indonesian infrastructure 
The Japanese has been actively contributing in Indonesia infrastructure 
within area of the Ministry of Public Works. While the Chinese involves in the 
national power plant projects as well as the recent Suramadu Bridge. Now, the 
Korean is preparing to participate in the country’s tollroad project. The 
International Cooperation Agency (Koica) has proposed to the Government a 
cooperation scheme with the Ministry of State Owned Enterprise to construct 
3,000km Trans-Sumatra tollroad. The plan has ambitious construction schedule of 
20 years. No further detail presented however we estimate this project will 
require Rp300tn of investment over the years. This would be very positive for 
the logistic in the resources rich Sumatra island.


JCI: 1,914.39 -60.64 (-3.07%), T/O USD 426.5 mil, YTD: 


TLKM US$28.41 = IDR7,419

ISAT US$23.50 
= IDR4,909

It is interesting to note that it has been 
predominantly locals who sold the market recently, hence the large volatility 
levels in the retail heavy sectors mining, plantation, property, and Bakrie. 
Foreign institutional investors have actually been consistent (cautious) 
net-buyers of the big cap stocks, providing some 

RESOURCES: following an overnight rebound in 
metal/commodity prices, some recovery is expected. But as players will be 
local again, sustainability might not be there.

CPO: CPO prices 
saw a remarkable recovery (+6% y'day) as the chances of an El Nino effect 
hitting the globe are increasing (from 50% to 62% apparently). Expect 
names to be among the outperformers. RUPIAH: got hit by profit taking as well 
last couple of days. But staging a slight recovery, thanks to USD 

Chart of the Day: breakdown of Indonesian 
bank assets

Did You Know?

That the 
Franchise industry in Indonesia has grown by double digits over the past few 
years both in sales and in the number of outlets?  The industry has 
survived the test of times, generating close to Rp50tn (US$4.76bn) in sales 
annually. According to data from the Trade Ministry, there are currently 1,010 
franchises, out of which 260 are foreign franchises. In term of number of 
outlets, there are no less than 42,900 outlets which employ 820k 

Daniel Oen
CLSA Indonesia | Institutional 
Phone: (62-21) 2554-8802
 Toll free - HK: 
 Toll free - SIN: 800-621-1104
 Toll free - US: 
800-460-2581 <> 

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