* Research call – TLKM downgraded to Neutral from O/W. It’s a country bet from here on, U/W Indo telcos on regional bottom-up context.
* Sales call – switch from TLKM to PGAS. Yes, there is real possibility of the Rupiah going pass 8,000 mark, that would be good for TLKM and bad for PGAS. But for PGAS, has anyone considered the real possibility of gas (distribution) selling price going to US$10/mmbtu (from US$6.32 currently) over-time? I mean….PLN, the biggest gas buyer in town, has just signed a B-to-B purchase agreement at US$10/mmbtu yesterday. For every 10% increase in ASP, core EPS will go up by 21% (a conservative ratio, I think). So for those who likes to think BIG, there is a hidden 122% upside potential to core EPS. Just for the sake of the argument, if FY11 EPS is upgraded by 122%, the P/E could fall to 6.5x from the 14.6x we show currently. On TLKM, what I don’t like about the stock is that the company has entered into an acquisition phase, given its growing free cash flow. In the near term, the company may gravitate towards heavy balance sheet model by buying BTS towers, where its peers are going on opposite direction. I am not sure if the market can appreciate the strategic shift in the short term. Indonesian telecom – no more a bottom-up call (James Sullivan) TLKM downgraded from O/W to Neutral. Indo telco is an U/W on regional context, but still liking EXCL. Telco stocks de-link from EPS revisions and become country proxies above a certain P/E level: Many of our prior top stock picks are now trading at multi-year high earnings multiples, as are their country indices. In our view, many telcos have now become country plays rather than bottom-up stock picks. We downgrade PLDT and TLKM to Neutral with no change to our price targets or estimates. https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-485224-0.pdf Indonesian telecom – more tower deals (Reuters news) 19:16 12Oct10 RTRS-UPDATE 1-Indonesia's Indosat eyes $1.4 bln tower sale -sources * May sell 14,000 towers by end yr or early next yr - sources * Indosat says picked Citigroup as strategic advisor * Telkom and Tower Bersama may bid for the assets - sources (Adds details, quote) By Janeman Latul and Joseph Chaney JAKARTA, Oct 12 (Reuters) - PT Indosat <ISAT.JK>, Indonesia's No. 2 mobile phone provider, may sell up to 14,000 telecom towers worth about $1.4 billion in coming months, three sources with direct knowledge of the matter said on Tuesday. Indonesia needs about $7 to $8 billion of annual investment to build telecom towers across Southeast Asia's biggest economy to boost coverage and tap strong mobile phone growth, though foreign investors are banned from owning or operating towers. Indonesian state telecom firm PT Telekomunikasi Indonesia <TLKM.JK> and private telecom tower operator PT Tower Bersama Infrastructure are likely bidders, said two of the sources, who declined to be identified because the plan was not public. Indosat, controlled by Qatar Telecom <QTEL.QA>, confirmed it was considering a sale. "We're still evaluating the options, we could sell it or retain it. Nothing is definite yet on the sale plan. It may be decided this year or next year," said Fadzri Sentosa, an Indosat director. Sentosa said the company has appointed Citigroup <C.N> as a strategic advisor on its tower assets. Indonesia is one of the world's most crowded telecommunications markets, with 11 operators fighting for custom in a population of 237 million. Indosat has 37.8 million subscribers, well behind PT Telkomsel, a subsidiary of PT Telekomunikasi Indonesia, with 88 million subscribers, but ahead of PT XL Axiata's <EXCL.JK> 35 million. Indosat had 17,372 base transceiver station (BTS) towers as of the first half of 2010, and is likely to use the proceeds of any sale to pay down debt and for expansion of its core business. "Telkom may likely be the bidder as the company is currently consolidating its tower business, but the situation is still fluid, any local telco players could come in to bid for the assets," said one of the sources. Telkom has said it plans capital expenditure of about $2 billion next year to finance infrastructure projects, and is also looking to expand through acquisitions in the region as it sees the domestic market maturing. Tower Bersama, controlled by Saratoga Capital, has raised about $220 million for an initial public offering in late October, as more firms seek to raise capital from investors in a Jakarta stock market <.JKSE> at record highs this year. (Additional reporting by Fathiya Dahrul; Editing by Neil Chatterjee) ((Reuters Messaging:[email protected]; +852 2843-6557)) ((If you have a query or comment on this story, send an email to [email protected])) ($1=8920 Rupiah) Keywords: INDOSAT/TOWERS PGAS news PLN will buy 150mmscfd of gas at US$10 from PGAS and Pertamina. Meanwhile, Total SA and Inpex will supply 1.1mn tons of LNG per year to PGAS and Pertamina from 2012-22. The supply is coming from Bontang plant. My take – this sounds like an incremental business for PGAS that can lift consensus DCF estimate. What is unclear at this point is what kind of margin can PGAS earn from these new contracts. PGAS has lagged the JCI index by 30% YTD. Should be time to add. Listrik Negara Plans to Buy Gas From Gas Negara, Pertamina 2010-10-05 04:29:06.283 GMT By Bambang Djanuarto Oct. 5 (Bloomberg) -- PT Perusahaan Listrik Negara plans to sign a gas purchase agreement on Oct. 12 to buy 150 million standard cubic feet of gas a day at $10 per million British thermal units from PT Perusahaan Gas Negara and PT Pertamina, Dahlan Iskan, president director at Listrik Negara said in Jakarta today. Gas Negara will supply the fuel next year from its liquefied natural gas receiving terminal in West Java, Iskan said. Total, Inpex Sign LNG Deal With Gas Negara Venture (Update1) 2010-10-12 04:29:20.172 GMT By Bambang Djanuarto Oct. 12 (Bloomberg) -- Total SA and Inpex Corp. signed an agreement today with a venture of PT Pertamina and PT Perusahaan Gas Negara to supply an average 1.1 million tons of liquefied natural gas a year from 2012 to 2022, a Pertamina executive said. PT Total EP Indonesie, a unit of Total, and Inpex will supply LNG from the Bontang plant on Indonesia’s part of Borneo island to a receiving terminal in west Java operated by the venture PT Nusantara Regas, said Hari Karyuliarto, head of LNG business at Pertamina. “Nusantara Regas will re-sell the gas to PT Perusahaan Listrik Negara at about 200 million to 240 million cubic feet a day for the same period of the contract,” Karyuliarto said. Indonesia, the largest natural gas supplier after Qatar and Malaysia, is trying to increase the use and investment of the cleaner burning fuel to make up for declining crude oil output, which led the country to leave the Organization of Petroleum Exporting Countries in 2008. LNG is natural gas that has been cooled to liquid for shipping to markets beyond the reach of pipelines. Gas Negara, Indonesia’s largest distributor of the fuel, may invest $250 million to build an LNG receiving terminal in Belawan, North Sumatra province, next year, Finance Director Riza Pahlevi Tabrani said on Sept. 23. Newsflow * PT Telkom – CEO told the press that the company is competing with three other bidders to acquire a company that is involved in telecom, information, and media, with a budget of more than Rp1trn. The process could be finalized by year-end. (Bisnis Indo) * Jasa Marga – plans to complete the acquisition of Waru-Wonokromo-Tanjung Perak tollroad route by year-end. JSMR wants a more than 51% stake in the project. (Bisnis Indo). * Krakatau Steel – with an IPO price range of Rp800-1150, KS will raise between Rp2.52trn-3.63trn for 20% stake. The deal is being priced between 9-11x P/E for 2011. South Korean steel producers (Posco) have reportedly expressed their interests to participate in the IPO. (Bisnis Indo). * Ancora (OKAS) – planning a rights issue in 1Q11 to acquire a coal mine with around 20mn tons reserves. (Bisnis Indo). * Japfa Comfeed (JPFA) – to merge its two subsidiary companies PT Multiphala Agrinusa (MAG) and PT Bintang Terang Gemilang (BTG), for streamlining and efficiency. (Kontan). This communication is for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. All market prices, data and other information are not warranted as to completeness or accuracy and are subject to change without notice. Any comments or statements made herein do not necessarily reflect those of JPMorgan Chase & Co., its subsidiaries and affiliates. This transmission may contain information that is privileged, confidential, legally privileged, and/or exempt from disclosure under applicable law. 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