BASML INDO INCO cut PxT Time to Buy Gold (11 Mar 09)v\:* { BEHAVIOR: url(#default#VML) } o\:* { BEHAVIOR: url(#default#VML) } w\:* { BEHAVIOR: url(#default#VML) } .shape { BEHAVIOR: url(#default#VML) } st1\:* { BEHAVIOR: url(#default#ieooui) } @font-face { font-family: Calibri; } @font-face { font-family: Candara; } @page Section1 {size: 8.5in 11.0in; margin: 1.0in 1.0in 1.0in 1.0in; } A:link { mso-style-priority: 99 } SPAN.MSOHYPERLINK { mso-style-priority: 99 } A:visited { mso-style-priority: 99 } SPAN.MSOHYPERLINKFOLLOWED { mso-style-priority: 99 } P { mso-style-priority: 99 } P.MsoNormal { FONT-SIZE: 12pt; MARGIN: 0in 0in 0pt; FONT-FAMILY: "Times New Roman" } LI.MsoNormal { FONT-SIZE: 12pt; MARGIN: 0in 0in 0pt; FONT-FAMILY: "Times New Roman" } DIV.MsoNormal { FONT-SIZE: 12pt; MARGIN: 0in 0in 0pt; FONT-FAMILY: "Times New Roman" } A:link { COLOR: blue; TEXT-DECORATION: underline } SPAN.MsoHyperlink { COLOR: blue; TEXT-DECORATION: underline } A:visited { COLOR: purple; TEXT-DECORATION: underline } SPAN.MsoHyperlinkFollowed { COLOR: purple; TEXT-DECORATION: underline } P { FONT-SIZE: 12pt; MARGIN-LEFT: 0in; MARGIN-RIGHT: 0in; FONT-FAMILY: "Times New Roman"; mso-margin-top-alt: auto; mso-margin-bottom-alt: auto } PRE { FONT-SIZE: 10pt; MARGIN: 0in 0in 0pt; FONT-FAMILY: "Courier New" } SPAN.EmailStyle18 { COLOR: #1f497d; FONT-FAMILY: Calibri; mso-style-type: personal } SPAN.EmailStyle19 { COLOR: #1f497d; FONT-FAMILY: Calibri; mso-style-type: personal } SPAN.EmailStyle20 { COLOR: navy; FONT-FAMILY: Arial; mso-style-type: personal } SPAN.EmailStyle22 { COLOR: navy; FONT-FAMILY: Arial; mso-style-type: personal-reply } DIV.Section1 { page: Section1
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 Important notice Although this report may contain extracts from or summaries of Merrill Lynch research or morning call notes, it does not in itself constitute Merrill Lynch research and has not been compiled or approved by our Research Department. 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