Good Morning,
Indonesia continues to see strong institutional inflow. Index now testing the
pre-lehman high levels. Despite such impressive performance the JCI remains
the cheapest Asean market (with the exception of Thailand) at 11.7x 2011 but
yet churning by far the highest ROE of 25%. With most of Asia still
range trading, it is difficult to say whether Indonesia can decisively break
through to new highs in the short term. However, the fundamental story
continues to gain traction as domestic consumption here gathers pace. Talking
to corporate in the last few weeks, it is clear that growth is still
accelerating in the 1Q and there is little reason to believe it would be
derailed. Indocement (proxy of domestic consumption), one of the few companies
reporting their 2009 results blasted our above consensus numbers. Net earnings
of Rp2.7tn which was 19% ahead of our forecast of Rp2.3tn. A strong start to
the year means our volume
assumption of 10% growth for 2010 may be light.
One of the privileges in working in Indonesia is that we get frequent visits
from Chris Wood so we can pick his brain (his main office only 10 seconds walk
from our sales desk). Having a chat with him last night, he feels that the
real clear value in Indonesia is now in the small/mid cap space. Many of the
big caps already trading well above previous highs whereas there has been
little attention in the smaller companies. This gap will surely close up as
risk appetite continues to improve in this market. Our top picks would be;
- Hexindo (HEXA IJ), with more growth than UT's distribution business but @
only 6.7x + net cash
- Ciputra Surya (CTRS IJ), only property play with majority of exposure outside
of Jakarta @ 70% discount to NAV & still 50% below previous high
- Aneka Kimia (AKRA IJ) 8.1x for this little solid consistent that still
churned growth in 2008
- BW plantation (BWPT IJ) - must read - see below
Research Today: BW Plantation (BWPT IJ) - initiate with a BUY - Tp1100 - 47%
upside
Bigger is not always better. In the case of CPO companies, smaller in many
cases is actually better cos it is much easier to grow and manage your estate
at a faster pace.
This must be one of the top ideas in the small/mid cap space (US$1.5m av daily
turnover) where there is almost no research coverage (except local brokerage
houses). BW has one of the best managed CPO estate with the highest percentage
of their planted area going into maturity over the next few years. Their
mechanized harvesting and fertilizing process help lift their FFB yield to
27%+ Vs industry av 21.8% . And yet this stock is among the cheapest (in
every metrics) in the industry trading at only $8,500 EV/ha, and 6.8x EV/Ebita
11CL. Our target price of Rp1,100 is based on a conservative $13,000 EV/ha
(industry average now at $17k) and 13x PE 11CL. The bigger CPO plays currently
already trading well above those numbers. This is a BUY.
Key points from the report:
BW Plantation is a small but extremely fast growing palm oil plantation with
the highest FFB yield in the industry at 27.4 tonnes per ha.
As of 2009, 13,000 ha have reached maturity and will double in current size to
26,000 ha within three years. The total planted area will also double in size
to 80,000 ha by 2013.
Going forward, the challenge for the company would be to replicate their high
yield into relatively much larger new development areas and to maintain this
yield as the company grows bigger.
Macro data supports a positive CPO price outlook and BW Plantation is a key
beneficiary of this as it is among the most leveraged to CPO price movement.
Every US$100/t increase in CPO price will raise the company’s earnings by 23%.
The company generates around 25% of ROAE, while earnings could grow by 30% CAGR
until 2012. Despite the stellar operational performance, the market is valuing
the company at US$8,300EV/ha, still among the cheapest in the industry.
Our target price of Rp1,100 is based on a blended valuation of US$13,000 EV/ha
and 13x 2011 PER.
Perusahaan Gas (PGAS IJ) update, maintain BUY, from Swati
We maintain our current distribution volumes of 926mmscfd
PGas is maintaining distribution gas volumes between 800-900mmscfd for 2010. On
pricing PGas states that is has communicated their planned pricing adjustments
to the industrial customers, nationwide. Based on the feedback from the
customers, they'll decide in 2nd quarter of the application these price
adjustments. We think price hikes will happen.
On the volumes, we think it is just start of the year and PGas should be able
to sign more contracts this year meaning volumes 2H10 will be higher than 1H10
as usually the case. Pgas has allocated US$400m for buying minority stakes in
upstream assets.
Last year Conoco Philips delivered 260mmscfd of gas and PGas total distribution
volumes reached about 800mmscfd for the full year. This year Conoco is
contracted to supply 350mmscfd of gas meaning PGas should reach 890mmscfd + we
have 70mmscfd of Medco gas. Therefore our VOLUME forecasts are achievable if
things get resolved with Conoco Philips which we believe it should.
Apparently Conoco Phillips has diverted some of gas which was earlier flowing
to PGas to Chevron. PGas is not looking at legal action now and thinks that it
can be resolved without any legal action since the Government realizes that
severe gas shortage will lead to closure of industries etc and have negative
ripple effects on the economy.
Maintain Conviction buy and see the weakness as an opportunity to BUY.
Indocement (INTP IJ) announced full-year financial results this morning. Key
Highlights, from Nick Cashmore
Net earnings of Rp2.7tn which was 19% ahead of our forecast of Rp2.3tn.
Significant earnings surprise in 4Q09 earnings.
4Q09 earnings of Rp878bn, were up 26% qoq and 71% yoy - this compares with
earnings growth of 4% qoq for 3Q09
Margins improved. Operating margins rose to 36% in 4Q09 from 35% in 3Q09 while
net margin rose to 27.9% for 4Q09 from 26.5% in 3Q09
The company's full-year operating margin rose to 35%, the highest since 1996;
we forecast operating margins will peak at 38%
The cash build continues to grow. The company had US$280m cash on its balance
sheet as of December-2009 and is forecast to generate US$465m in operating
cashflow this year with only US$60m in capex - hence the firm has free cash of
more than US$650m to allocate this year - 11.5% of its current market cap.
Conclusion
Our current 2010 forecast of Rp3.05tn will need to be revised up as will
consensus of Rp3.1tn
A strong start to the year means our volume assumption of 10% growth for 2010
may be light
The company remains a cash machine - there has been no indication as to
dividends
Our target price of Rp17,000 still implies 21% upside from current levels;
likely to be revised up
Still a conviction holding for any investor wanting domestic Indonesian
exposure - BUY
News Headlines/Others:
Politics: thirty-nine lawmakers bribed in Bank Indonesia case, court told.
Thirty-nine former and current members of the House of Representatives were
formally accused in court on Thursday of taking billions of rupiah in bribes in
connection with the appointment of a senior deputy governor of the central bank
in 2004. The list of names is released by the Anti Corruption Court yesterday.
The local news also reports that the Prosperous Justice Party (PKS), which
broke ranks with the Democratic Party-led coalition during the legislative
probe into the bailout of Bank Century is accusing the govt of using law
enforcers to strike back at it and other rivals. PKS cited a case brought
against one of its lawmakers regarding allegations that he owed Bank Century
US$22mn.
Bank Negara Indonesia (BBNI IJ) gets Finance Ministry’s approval on rights
issue. Finance Minister Sri Mulyani has approved a plan by the state owned
BBNI to raise fund up to Rp6tn (US$660m) in a rights issue. The bank now needs
to get a final approval from the House of Representative.
Telco tower remains closed to foreign investors. The Investment Coordinating
Board (BKPM) chairman has announced that his office will abide by the 2008 and
2009 ministerial decrees that effectively closed telecom tower for foreign
investment, ending the disagreement between BKPM and Technology Minister.
Govt to chase taxes from micro and SME. Starting this year, the Tax Directorate
General will start to chase tax payments from SME and micro businesses. The
estimated number of people in the SME and micro businesses reaches 51.27mn
people with total contribution to investment value of Rp640.38tn or more than
50% of total investment in the country. Govt will enforce a 50% discount to
income taxes for micro and SMEs.
Govt to issue Rp5tn of bonds next week. Government plans to issue Rp5tn of
bond and bills on Tuesday. The proceeds would go toward financing 2010 budget
deficit, which has been projected to be 2.1% of GDP.
Bank Tabungan Negara (BBTN IJ) lowers mortgage rate by 50bps. BBTN is planning
to lower its mortgage rate as of April 1, 2010. This is the second time in the
year that the bank decided to cut its interest rate.
Bakrieland (ELTY IJ) to increase its convertible bond to US$155mn. ELTY plans
to increase its equity linked bonds to US$155mn from previously US$150mn with
8.625% yield. ELTY will close the bond offering on March 23, 2010 and on that
date the firm will also decide the conversion share price.
Telco towers business to remains close for foreigner. The Investment
Coordinating Board (BKPM) chairman has announced that his office will abide by
the 2008 and 2009 ministerial decrees that effectively closed telecom tower for
foreign investment, ending the disagreement between BKPM and Technology
Minister. BKPM chief, who initially floated the govt’s initial plan to open the
sector to foreign investors, threw in the towel.
Matahari (MPPA IJ) to repay its bonds. MPPA plans to redeem both of its Rupiah
and USD bonds for Rp528bn and US$200mn respectively. Bondholders will have a
choice to sell or hold on to the bonds until maturity date.
Govt to push ahead with further economic reforms. The Finance Ministry, Sri
Mulyani, said that accelerating economic growth this year should provide
momentum to push ahead with reforming civil institutions as well as removing
obstacles to economic growth. This will also include reforming key
institutions such as Attorney General’s office, the Supreme Court and National
Police, and developing infrastructure.
Moody’s upgrades Paiton Energy Funding debt rating. Moody’s raises the debt
rating of Paiton Energy Funding to Ba3 from B1 with a stable outlook. The
rating follows the financing closure for Paiton’s US$1.52bn expansion plan for
US$815MW P3 coal-fired power plant and reflects the company’s good operating
track record.
Govt’s support to SME and infrastructure. Govt plans to develop a project
guarantee scheme to support funding for SME as well as high-risk infrastructure
projects.
Key Indicators:
JCI: 2737.24 -19.02 (-0.69%), Vols US$625mn, YTD: +12.21% in US$ term.
We are 2x better seller as of this morning.
Chart of the Day:
Quoting from Chris Wood’s Greed and Fear today:
The Indonesian stock market now only 3% below its pre-financial crisis high in
rupiah terms, and foreigners buying markets like Thailand and the Philippines
again. Asean is enjoying its moment in the sun. Still for Asia as a whole to
break out in a convincing fashion, China surely needs to perform. That requires
investors to become less concerned about tightening, which should happen sooner
or later. But it also probably requires a lack of open conflict on exchange
rate policy.
We decide to discontinue our President Obama series for now. The series was
initially prepared ahead of his plan to visit Indonesia next week. The trip is
now postponed until June as he attempts to push his health care reform bill
through Congress.
Did You Know That?
Twenty five year old Indonesian David Gurnani, was proclaimed the biggest
winner of the first season of the “The Biggest Loser Asia” in the reality TV
show’s finale. David, a textile salesman, is a shadow of his former self after
having lost 83kg from his starting weight of 157kg. He also lost 45% of his
body fat. The program is the spin-off of NBC’s US Show “The Biggest Loser”.
David used to love every kind of food, including junk food. Blood pressure was
180 over 110. David trained between 10-12 hours a day and really watched his
diet. After 2.5months training, the result was stunning. Some of the Indonesian
reporters who met the four finalists before the finale failed to recognize him.
One reporter who was sitting next to David asked “So which one is David?” to
which he responded “It’s me, Pak”.
David Gunarni, before and after the program
Source: Jakarta Globe
