Bloomberg Coal at 28-Month High to Beat Oil, Gas on Floods: Energy Markets

By Dinakar Sethuraman and Ben Sharples

Jan. 13 (Bloomberg) -- Coal for producing power may beat oil and natural gas this year as disruptions from Australia to South Africa drive prices for the fuel to a 28-month high.
   
Thermal coal may climb about 14 percent to $150 a metric ton in coming weeks, while increased stockpiles limit gains for oil and natural gas, Joachim Azria, a New York-based analyst at Credit Suisse Group AG, said in a Jan. 10 report. Helen Lau, a Hong Kong-based analyst at UOB Kay Hian Ltd., said on Jan. 4 coal may advance as much as 15 percent. Prices at the Australian port of Newcastle were at $131.80 a ton on Jan. 7, the highest since September 2008, according to IHS McCloskey data.

"There's definitely more possible upside in the coal market at the moment than there is in the oil market," Ben
Westmore, an energy economist at National Australia Bank Ltd. in Melbourne, said in a Jan. 12 interview.
   
Spot prices at Newcastle, the world's biggest coal-export facility, have jumped 20 percent in less than six weeks, according to Petersfield, England-based McCloskey. The worst floods in Queensland state in 50 years shut mines and closed transport lines, disrupting supplies. Coal shipped via South Africa's Richards Bay, Africa's largest terminal for the fuel, gained about 18 percent. Oil in New York rose 5.5 percent in the
same period, while natural gas added 3.3 percent.
   
"Coal should continue to outperform oil and gas in 2011," said Azria, who estimates as much as 2 million tons of thermal supplies have been disrupted by the Australian floods.

Indopremier Securities COMPANY_NOTES ASRI Riding on the strong demand; initiate with BUY

We add ASRI to our property coverage universe with a BUY rating and Dec-2011 SOTP based resulting TP of IDR 430; 48.2% upside potential. ASRI is an established property developer with a track record in integrated township in Serpong area which provide the nearest access to Jakarta; targeting the upper-middle and high income segment. Despite its limited rooms for residential area, ASRI has seen strong pickup in new unit sales this year with new reservation for 9M10 up 108.18% YoY and current sales backlog of IDR 700bn implying 3 years of earning visibility.

Result highlights: Earnings were driven by the Serpong projects and newer commercial/apartments projects (Silkwood Apartment). Property gross margin remains at peak vs historical levels at 52% for FY10, increase from 40% for FY09 thanks to new interchange road that has been completed at km 15.4 along JORR 2 Jakarta-Merak toll road. Silkwood apartment has achieved total property sales of IDR 72bn in FY10 and will contribute materially to earnings from FY11 on.

We forecast 5 years sales and EBITDA CAGR of 26% and 27%, respectively. We expect revenue growth will generate from recurring income over the next 3-5 years. Currently, ASRI plans to build the same project schemes in Pasar Kemis area and potential build up in sales momentum post launch would be one key trigger for a potential re-rating of the stock.

TP and valuation: Our Dec-11 TP of IDR 430 is based on SOTP valuation, and implies a FY11F P/B of 2.89x. Key risk: 1) timing difference between scheduled and actual delivery of projects, 2) potential risk of customer sales cancellations post launch of the new projects, 3) unfavorable of new credit financing schemes.

JP Morgan Indo PTBA pricing risk highlighted

The management of PLN, the state electricity company, told Kompas reporter that they have not agreed on thermal coal price contract for year 2011.  The benchmark coal price issued by the energy ministry showed rising price trend: US$92.68 in October, US$95.51 in November, US$103.41 in December, and US$112.41 in January 2011.

But PLN’s energy director, Nur Pamudji, in his press statement yesterday (13-Jan) said that the company wants to utilize decree no 17/2010 that was issued by energy ministry, allowing them to set 2011 contract price using the average benchmark price in 4Q10. (Kompas, 14 Jan 2011).

My take – Yesterday, Stevanus Juanda (analyst) raised his year 2011 ASP assumption for PTBA, from US$81.6/ton to US$92.4/ton, compared to year 2010 ASP forecast of US$68.0/ton. On his new forecast the stock trades on 16.1x 2011 P/E, versus peer average of 15.1x. His FY10 EPS is 9% below consensus, while his FY11 EPS is 5% below.

His US$92.4/ton ASP assumption could be at risk given the comment from PLN director, as PLN is the biggest buyer in domestic coal market. Implied from Steve’s FY10 forecast is the ASP of US$72.8/ton for 4Q10. If PLN wins the case and use 4Q10 ASP to price its coal for year 2011, the realized ASP can be more than US$10/ton lower (vs Street’s assumption) for PTBA.

Steve rates PTBA O/W and top pick, but on a rising coal export price environment my personal preference goes to the more leveraged plays and INDY.

Credit Suisse Indofood Sukses Makmur - Reinstating coverage with an OUTPERFORM - bad news is mostly priced-in; valuations are attractive

● We are reinstating coverage on Indofood parent with an OUTPERFORM rating and target price of Rp6,400/share, implying 36% upside from the current level.
● Indofood’s share price has underperformed the market both in the past three and 12 months, driven by rising commodity prices and some impact from the listing of its consumer branded division. We believe
that this underperformance provides a good entry level.
● In our view, rising prices of commodities (CPO and wheat) are actually positive for Indofood, as these two commodities contribute around 57% of earnings. We note however regarding the rising trend, there is always some lagging impact towards margins, as prices are only gradually adjusted, instead of immediately.
● In addition, given our view that competition in the instant noodle market has stabilised, Indofood’s pricing strategy is to maintain reasonably strategic and sustainable margins. Therefore, should input costs pressure margins, we would not be surprised if prices would also be adjusted.

NISP Sekuritas Daily 14 Jan 2011 (ASII, KLBF, KRAS, AMRT, UNSP, META)

Astra International spends Rp600bn for land acquisition (ASII, Rp48,000, Buy)
·          Astra International spent Rp600bn to acquire 121ha of land in Karawang, West Java. This land will be utilized for Astra Daihatsu Motor in order to boost production capacity to 300,000 units per year from 200,000 units/year currently. Astra acquires this land through its subsidiaries, Astra Daihatsu Motor and Astra Daihatsu Sales.
·          This is part of Astra US$900mn capex for 2011 where the company also plans to increase its non automotive business both organically and inorganically.
·          ASII is trading at 2011F PER of 12.5x and EV/EBITDA of 9.1x, Buy.
 
Kalbe open to acquisition (KLBF, Rp2,975, Hold)
·          Kalbe Farma announced it is still open for acquisition of pharmaceutical companies. The company continues to study all opportunities, stating that the range of acquisition could be between Rp100bn-Rp1tn. This is outside the capital expenditure allocated for this year, which is between Rp600-650bn.
·          This year revenue is expected to increase by 15% YoY to Rp11.6tn from Rp10.1tn, driven by 10 new drugs launched this year. In addition it will enter the Vietnamese market for generic drugs and antibiotics. It has prepared US$10-15mn for that plan.
·          KLBF is trading at 2011F consensus PER of 17.4x and EV/EBITDA of 10.0x.
 
Krakatau Steel needs 6mn tons of coking coal in 2014 (KRAS, Rp1,180)
·          Krakatau Steel is currently exploring possibility to acquire coking coal mines as the company’s needs to secure coal availability for steel making activities. Krakatau added that it requires 2mn tons/year of coking coal next year and it will be increasing in 2014 by more than three fold along with higher production rate target.
·          The company has not shared further information on this plan and still exploring all the possibilities.
 
Alfaria revenue up by 33% YoY (AMRT, Rp2,800)
·          Sumber Alfaria Trijaya, the owner of Alfamart, stated that revenue has increased by 33% YoY in 2010 to Rp14tn from Rp10.55tn. The success was in line with the starting of operations of 800 new outlets in 2010, making total outlets to reach 4,800 units.
·          However for this year, although another 800 outlets will be opened, its revenue target is dependent on domestic factors such as inflation and electricity tariff. The number of new outlets is deemed to be modest, as the company intends to open new warehouses in Makassar and Bali.
·          The company shared that it has delayed its plan to expand to Vietnam until further notice as it has not met the right partner yet. 

Moody’s cut rating on Bakrie Sumatera Plantations (UNSP, Rp385)
·          Moody’s downgraded its rating on BSP’s bonds to Caa1 from B3 with negative outlook. The rating agency added the downgrade was primarily due to higher leverage position and increasing requirement for refinancing.
·          Moody’s sees BSP has to obtain additional cash ahead of US$160mn and US$150 of sequential maturing bonds in November 2011 and July 2012. The impact of this rating downgrade may make BSP meet difficulties to obtain new loans.
·          UNSP is trading at 2011F consensus PER of 10.6x and EV/EBITDA of 7.0x.

Nusantara to complete toll road acquisition in 2Q11 (META, Rp295)
·          Nusantara Infrastructure will complete an acquisition for a toll road in Jawa Timur by the latest in 4 months or this 2Q11. The investment cost for the 40km road reaches Rp700bn.
·          A total of Rp3-4tn is prepared for toll road acquisition this year. The company is also eyeing to acquire a 20km toll road in Jakarta. Funds will be allocated from internal cash and banking loans with a ratio of 30:70. 

Bloomberg Indonesia Stocks: Adhi Karya, Astra Agro Lestari, Martina Berto

Shares of the following companies had unusual moves in Indonesia trading. Stock symbols are in parentheses, and prices are as of the noon Jakarta-time break.

The Jakarta Composite index gained 10.17 points, or 0.3 percent, to 3,564.94, rising for a second day.

PT Adhi Karya (ADHI IJ), a state-owned construction company, jumped 7 percent to 900 rupiah, the steepest increase since Dec. 14. The company won a 902 billion-rupiah ($99 million) contract to build three coal-fired power plants, Adhi said in an e-mailed statement today.

PT Astra Agro Lestari (AALI IJ), Indonesia’s largest listed plantation company, gained 3.4 percent to 25,800 rupiah. Palm oil futures rose 0.5 percent to 3,668 ringgit ($1,201) a metric ton in Kuala Lumpur, advancing for the first time in five days. Astra Agro plants only oil palm trees.

PT International Nickel Indonesia (INCO IJ), the nation’s largest producer of the metal, climbed 1.1 percent to 4,700 rupiah. Nickel futures fell 0.5 percent to $25,681 a metric ton in London after surging 4.5 percent yesterday.

PT Martina Berto (MBTO IJ), an Indonesian manufacturer of cosmetics, slumped 11 percent to 660 rupiah on its first trading day after selling 355 million shares at 740 rupiah each in an initial public offering earlier this month.

To contact the reporter on this story: Berni Moestafa in Jakarta

ICAP Shipping Indonesia coal exports slow down

While coal exports from Indonesia are running some 27% ahead (basis Jan-October 2010) as compared to a year earlier shipments in the two most recent months slowed considerably compared to earlier levels.

To be specific in the first eight months of the year shipments averaged 24.8 million tonnes and dropped to a minimum of 22.0 mt in July.

For the two most recent months (September and October) shipments were, respectively, 19.5 Mt and 18.4 Mt.

Both of these months are huge quantities in their own right but by the standard of the earlier months the drop of nearly 5.8 Mt per month is considerable. The drop was caused mostly by a reduction in shipments to China.

Bloomberg Indonesia Plans Sukuk Shift to Fund $140 Billion Program: Islamic Finance

Indonesia plans to increase the type of assets that can be used to pay returns on Islamic bonds to road and rail projects in a bid to support its $140 billion development program.

The government is seeking approval from the country’s Shariah board to use future fees from transport facilities to be constructed over the next three years as the underlying asset for sukuk, Rahmat Waluyanto, director general of the finance ministry’s Debt Management Office, said in an interview in Jakarta on Jan. 11.

The cash flows that back Islamic bonds are currently restricted to state-owned property and land, he said.
Islamic banking assets in the nation with the world’s largest Muslim population were 9 percent of Malaysia’s in 2010, according to central bank data. The government also plans to offer tax cuts on Shariah-compliant investment accounts, while Bank Indonesia is streamlining the approval process for new products to expand the industry.
“Once they allow infrastructure projects to be used to issue the debt, investors will have more choice and that will improve liquidity,” Akbar Syarief, a Jakarta-based fund manager at PT Bhakti Asset Management, who helps oversee 700 billion rupiah ($77 million), said in an interview yesterday. “Right now, we can’t find new options, so we can’t trade the papers we hold.”

Ijarah Structure
Sukuk backed by finances from construction of highways are often based on Istisna, a purchase order for an underlying asset that will be delivered at a future date. Investors can also be co-owners through an agreement known as musyarakah, where buyers of the debt and the government contribute funds in cash or in kind. Islamic debt with real estate as the underlying asset is known as Ijarah sukuk, or a sale and lease agreement.
Indonesia’s government can issue up to 30 trillion rupiah of Ijarah debt this year and total offerings of Islamic bonds may climb more next year once legislation is approved to sell Istisna sukuk, said Waluyanto.
“The government is preparing regulations to enable projects as the underlying asset and we’ve made some progress, but we also need to get approval from the Shariah board and get the legal framework in place,” he said.

Indonesia, home to 209 million Muslims according to Central Intelligence Agency estimates, had 86 trillion rupiah of Islamic banking assets as of October 2010, or about 3 percent of the total, central bank data show. The amount compares with 337.6 billion ringgit ($110 billion) in Malaysia, or 20 percent of banking assets, according to the Finance Ministry.

Indonesia Sukuk
Sales of sukuk, which pay asset returns to comply with the religion’s ban on interest, rose 56 percent in Indonesia to 26.2 trillion rupiah in 2010, according to Bloomberg data. The government has sold 42 trillion rupiah of the debt since 2008. In Malaysia, issuance dropped 11 percent to 28.5 billion ringgit, while global sales declined 15 percent to $17.1 billion.

Shariah-compliant bonds returned 12.8 percent last year, the HSBC/NASDAQ Dubai US Dollar Sukuk Index shows, compared with 19.8 percent the previous year. Debt in emerging markets gained 12.2 percent, from 29.8 percent in 2009, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index.
The difference between the average yield for sukuk in developing nations and the London interbank offered rate narrowed seven basis points to 282 since Dec. 31, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. The spread narrowed 178 basis points, or 1.78 percentage points, last year.

Project Failure

The yield on Malaysia’s 3.928 percent sukuk maturing in June 2015 rose one basis point to 2.84 percent today, according to prices from Royal Bank of Scotland Group. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s narrowed two basis points to 322, Bloomberg data show.
Investors in Indonesia are “comfortable” with the existing Ijarah sukuk because they know there’s a physical asset and they will get their money back, said Marciano Herman, president director at PT Danareksa Sekuritas, in an interview in Jakarta yesterday.

“If the laws can ensure that investors will be protected should the project be uncompleted, then people will buy such sukuk,” said Herman. “It will take some time before investors get used to such structures because what happens if the project fails?”

Savings Account

Indonesia plans to sell 200.6 trillion rupiah of local and foreign-currency debt in 2011, including sukuk, to fund a budget deficit estimated to reach 124.7 trillion rupiah, or 1.8 percent of gross domestic product, said Waluyanto.

The government may issue dollar-denominated Islamic and non-Islamic bonds in the first half and also plans to sell sukuk to individual investors next month, he said. Indonesia sold 8.033 trillion rupiah of so-called retail notes in February last year, more than the 3 trillion rupiah it targeted.

The yield on Indonesia’s 8.8 percent dollar sukuk maturing in April 2014 was little changed today at 3.26 percent, according to RBS prices. The debt returned 9 percent last year.

“The government is probably pushing to sell debt early before any possible interest-rate increase,” said Syarief at PT Bhakti Asset. “Yields for the retail sukuk have to be more than the average 7 percent that depositors get if they leave their money in a savings account.”

To contact the reporters on this story: Suryani Omar in Jakarta

Bloomberg Crude Oil Falls From Highest Level in 27 Months as Jobless Claims Increase

Crude oil fell from the highest level in 27 months as a bigger-than-forecast increase in U.S. jobless claims signaled that demand will be slow to rebound.

Oil dropped 0.5 percent after the number of first-time claims for unemployment insurance payments jumped to the highest level since October in a Labor Department report. Demand for petroleum products has tumbled 8.2 percent in the past two weeks, according to the Energy Department.

“The jobless claims are making people marginally bearish,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
Oil for February delivery fell 46 cents to settle at $91.40 a barrel on the New York Mercantile Exchange. Yesterday, futures closed at $91.86, the highest level since Oct. 3, 2008. Prices have risen 15 percent in the past year.

Initial jobless claims climbed by 35,000 to 445,000, the government reported today in Washington. The median estimate in a Bloomberg News survey called for 410,000 filings.
“We pulled back after the jobless numbers,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York.

Benchmark U.S. stock indexes fell from two-year highs on the jobs report. The Standard & Poor’s 500 Index slipped 0.4 percent to 1,280.92 at 3:41 p.m. in New York after closing at the highest level since August 2008 yesterday. The Dow Jones Industrial Average dropped 46.47 points, or 0.4 percent, to 11,708.97.

Fuel demand slipped 0.5 percent to 19 million barrels a day in the week ended Jan. 7, the Energy Department said yesterday.    more ...

Bloomberg Stocks in U.S. Decline as Jobless Claims Data Overshadow Earnings Optimism

U.S. stocks fell, sending benchmark indexes lower for the first time in three days, as jobless claims climbed more than economists estimated and concern about a slowdown in Chinese demand dragged down commodity producers.

Alcoa Inc. and ConocoPhillips dropped at least 2.1 percent following a decline in commodities prices after the World Bank said China may raise interest rates further. Merck & Co. slid 6.6 percent, the biggest drop in the Dow Jones Industrial Average, as a trial for a blood-thinner drug was halted. Bank of America Corp. fell 1.5 percent after the lender was removed from Citigroup Inc.’s “Top Picks Live” list.

The Standard & Poor’s 500 Index retreated 0.2 percent to 1,283.76 at 4 p.m. in New York after yesterday rising to the highest since August 2008. The Dow average decreased 23.54 points, or 0.2 percent, to 11,731.90.

“It’s going to be a struggle,” said Kevin Bannon, chief investment officer at Highmount Capital LLC in New York, which manages $2 billion. “Some of the economic reports may be doing a little bit to dampen the rush of enthusiasm at the end of the year about the economy clearly turning the corner.”

The S&P 500 has soared 90 percent from its March 2009 low amid government measures to stimulate the economy and corporate profits that beat forecasts. Companies in the S&P 500 posted higher-than-estimated results in all three quarters reported so far for 2010. Analysts predict that profit will increase 14 percent in 2011, according to data compiled by Bloomberg News.   more ...

Business Times CPO futures up on fresh demand

CPO FUTURES

CRUDE palm oil futures prices on Bursa Malaysia Derivatives rebounded to close higher yesterday on expectations of fresh demand ahead of the Chinese New Year celebrations, a dealer said.

On the futures market, both January 2011 and February 2011 rose RM39 to end at RM3,722 and RM3,718, respectively, while March 2011 rose RM44 to RM3,694 and April 2011 gained RM42 to RM3,655.

Turnover rose to 30,330 lots from 25,042 lots on Wednesday while open interest increased to 89,907 contracts from 88,705 previously.

On the physical market, January South rose to RM3,720 a tonne from RM3,670 previously.

RUBBER

RUBBER prices continued their rally with the latex-in-bulk hitting a record 1,000 sen a kg mark yesterday.

Tyre-grade SMR 20 also hit a new high of 1,592 sen a kg, buoyed by firmer crude oil price.

At noon, the Malaysian Rubber Board’s official physical seller price for tyre-grade SMR 20 surged 13.5 sen to 1,592 sen the highest level ever since the tyre grade rubber was introduced in 1972, while latex-in-bulk rose 10 sen to 1,000.50 sen.

The unofficial seller closing price for tyre-grade SMR 20 rose 1 sen to 1,592.5 sen and latex-in-bulk added 7.5 sen to 1,003.5 sen.

TIN

TIN price on the Kuala Lumpur Tin Market (KLTM) rose US$220 (US$1.00 = RM3.07) to finish at US$26,900 per tonne on heavy buying activities yesterday.

A dealer said the firmer trend was in line with that of the London Metal Exchange (LME) which saw tin ending US$450 higher to US$27,050 overnight on technical correction.

On KLTM, at the opening level of US$26,680, bids overwhelmed offers by 200 tonnes to 50 tonnes.

Turnover increased to 65 tonnes from 50 tonnes on Wednesday with active participation by Japanese, European and local traders.

Meanwhile, the price differential between KLTM and LME narrowed to a premium of US$270 against a premium of US$500 previously. - Bernama

Bloomberg Power-Station Coal May Reach $150 a Ton on Bad Weather, Credit Suisse Says

Power-station coal may rise to $150 a metric ton in the “coming weeks,” driven by extreme weather conditions, before declining in the year, according to Credit Suisse Group AG.

“The unexpected cold weather so far this season has taken a toll on global energy inventories and reset energy prices to varying degrees,” Joachim Azria, a New York-based analyst with Credit Suisse, wrote in a report dated Jan. 10. “We expect coal prices to move above $150 in coming weeks and possibly higher if there are further significant disruptions to supply.”

Prices first rose because of a colder-than-normal winter in the Northern Hemisphere, prompting restocking by countries including China, Azria wrote. Further price increases were supported by supply fears because of heavy rains in Indonesia, Australia and Colombia, as well as floods in Queensland state, according to the Credit Suisse note.

Power-station coal at the port of Newcastle in Australia’s New South Wales, the benchmark for Asia, jumped 4.5 percent to $131.80 a ton in the week ended Jan. 7, according to IHS McCloskey. Prices may decline to about $120 a ton by the end of 2011, Azria said.

Creamer Media Mittal to raise SA steel prices by 5% from Feb 1

South Africa’s largest steel producer ArcelorMittal South Africa (Mittal) has informed customers that the prices of its flat and long products will rise by an average of 5% as from February 1, 2011.The increase will be the first instituted by the JSE-listed group since August 1, 2010, with prices having remained more or less flat since that time, with the strength of the South African rand having offset some recent steel prices rises internationally.

Mittal claims to set its prices using a basket of domestic selling prices in four countries and then adjusting that price to a forecast on the rand/dollar exchange rate.

Chief marketing officer Sunil Kumar tells Engineering News Online that the price of both flat and long products will increase by between R300/t and R350/t, with the price of some products, such as rebar and wire rod, rising by about 7%.
But the price increase is “about 5% across the board”.

He says that the increase comes amid rising prices elsewhere in the world, led by a strong recovery in US steel prices since late November.
“At this stage, we are looking at a quarter-on-quarter price increase of close to $200/t in the US market, which is around a 20% increase,” Kumar revealed, adding that similar trends are filtering through to Europe and Asia.

“We are also seeing raw material prices shooting up, particularly scrap and iron-ore, as well as coking coal, because of the floods in Australia. There are also reports of likely shortages of coking coal, which could push steel prices up further,” he adds.

The company is anticipating that first-quarter sales may be as much as 10% better than its initial forecast of 850 000 t. The group is, therefore, seeking to materially ramp up production across its sites.

Kompas Merger Flexi-Esia Pembatalan Merger Disambut Baik Karyawan

BANDUNG, KOMPAS.com — Serikat Karyawan PT Telekomunikasi Indonesia Tbk (Sekar Telkom) menyambut baik sinyal dari Kementerian Badan Usaha Milik Negara mengenai rencana merger Flexi dengan Esia yang dikatakan "tutup buku".

Sekretaris Jenderal Dewan Pengurus Pusat Sekar Telkom Asep Mulyana, Kamis (13/1/2011) di Bandung, mengatakan, pihaknya menanggapi berita soal tutup buku merger itu dengan mengucapkan syukur dan mendukung pernyataan Menteri BUMN Mustafa Abubakar.

Sebelumnya, ketika ditemui di Kantor Kementerian Koordinator Kesejahteraan Rakyat, Jakarta, Rabu, Mustafa tidak mau berkomentar soal rencana merger Flexi dan Esia dan hanya menyatakan soal itu tutup buku dulu.

Tidak dijelaskan lebih rinci apa yang dimaksud dengan tutup buku, tetapi Sekar Telkom menganggapnya sebagai sinyal yang mengarah pada batalnya merger.

Menurut Asep, Sekar Telkom tak menyetujui rencana merger Flexi dengan salah satu perusahaan milik grup Bakrie tersebut. Ketika diinformasikan soal kabar yang beredar bahwa Presiden Susilo Bambang Yudhoyono tak menyetujui merger tersebut, Asep bertutur, pihaknya mengucapkan terima kasih jika itu benar.

Credit Suisse PT Borneo Lumbung Energi & Metal Tbk In time to capture growth

• We initiate coverage of PT Borneo Lumbung Energi & Metal Tbk (BORN).BORN has been commercially producing coking coals since September 2009 and is the only HCC producer in Indonesia. BORN is targeted  to produce 2.0 mtpa in 2010 and ramp up to 5 mtpa by 2012.

• Highly leveraged to coal prices. BORN is one of the few pure HCC players in Asia directly exposed to HCC prices, which are at premium to other types of coking coal. We believe that BORN’s high exposure to spot prices will benefit it, especially in the next few months with the seasonal weather disruption causing strengthening in HCC spot prices. In addition, BORN has met its capacity expansion target of 3.6 mn t. We believe worries over tight mining fleet and equipment are now behind us, as BORN has the capacity to reach our 2011 volume forecasts of 3.5 mn t. It expects to further boost its capacity to 5 mn t by end-2011, which supports our 67% volume CAGR forecast between 2010 and 2012.

• Catalysts: More mining fleet and logistic infrastructure are planned for 2011, which could bring capacity around further to 5 mn t or could boost volume above our forecasts and even management’s target at 4 mn t. Furthermore, prolonged rainy season, as forecast by Australian Bureau of Meteorology, may worsen the supply situation, pushing spot price higher than $250/t like in 2008 when JFY-08 settled at $300/t. Thus, there could be potential upside to our 2011 ASP forecast of $230/t.

• OUTPERFORM, Rp2,200 target: We set our target price at Rp2,200 based on 18x 2011E P/E, at par with its coal peers. We believe there could be more upside to our volume, pricing and costs forecasts. The stock at Rp 1,670 is trading at 13.8x 2011E P/E based on our earnings forecasts. However, our sensitivity analysis based on the most bullish price and volume scenarios may well place its current share price in the 8.5-11.7x 2011E P/E range. Risks to our recommendation and target price include execution risks (given short historical track record), operating risks (prices, costs and volume) and regulatory risks (obtaining the required permits, agreements and approvals).

Financial Times VALLAR : Buy more Bumi

Vallar, a natural resources fund founded by Nat Rothschild, has deferred closing part of its $3bn deal with Indonesian miner Bumi, originally intended for this month, until February.

The company said the share exchange with Bumi, in which it is taking a 25 per cent stake, would now take place when it published its prospectus for Bumi plc, the new name for London-quoted Vallar. In November, Vallar, which had raised £707m in July, announced the creation of the company, which will be the largest foreign supplier of thermal coal to China.

It is paying $1.58bn for 75 per cent of Berau Coal Energy, the fifth-largest producer in Indonesia, comprising $739m in cash and 52.3m shares priced at £10 each. A total of 90m Vallar shares at £10 will be issued in exchange for 25 per cent of Bumi, the crown jewel of Indonesia’s family owned Bakrie Group. “[The exchange] was originally a fluid situation, and the reason why we did it this way is to simultaneously do the Bumi exchange at the same time as publishing the prospectus [for Bumi plc],” said Mr Rothschild, Vallar chairman.

The Berau deal will close in April, according to the company.
Vallar shares rose 56p to £12.86. Mr Rothschild said Vallar, which has a market capitalisation of £866m, “is on track for a premium [FTSE 100] listing by April”. He added that Vallar hoped to increase its stake in Bumi after the share transaction by offering the remaining shareholders Vallar stock.

Last week, the Financial Times reported Vallar is considering more coal acquisitions in North America and Australia with up to $1bn in value. In December, Mr Rothschild held discussions with the China Investment Corporation, the state-run sovereign wealth fund which holds $1.9bn of debt in Bumi, which could contribute $100m in finance.

However, Mr Rothschild ruled out acquisitions before the Bumi and Berau deals had closed “In the next two to three months it doesn’t make sense to divert our efforts elsewhere,” he said.

Samuel Sekuritas Coal Sector - The Black Diamond (Maintain Overweight)

·Robust global coal price due to supply constraint. Severe weather condition and floods in Australia’s Queensland state, which is the worst in the last 50 years, has disrupted supply of coking coal, prompting half of Queensland included BHP Biliton Ltd and Rio Tinto Group to declare force majeure, a legal clause that allows mines to miss deliveries. Queensland represents well over 35% of Australia’s coal exports estimated 259 mn. Australia accounts for two-third of global exports of coking coal. Flooding is also affecting thermal coal, driving the price of supplies at the Newcastle port to US$129.9/ton, the most since Oct 2008, up by 42% YoY.

·                                

Reiterate positive view on thermal coal price. We remain positive on thermal coal prices given tighter supply and demand balance. We expect thermal coal market will be in deficit by around 11 mn ton this year. Morever, supply disruption over the winter/rainy season could lead to large spike in coal prices. While there are concerns that China’s demand will be lower due to power restriction to meet energy efficiency, but we see demand from Indian and Indonesian domestic demand remain strong. India’s import is expected to grow to 108 mn ton in 2012 (from 75 mn ton in 2010) while Indonesia’s demand will increase from 62 mn ton in 2010 to 90 mn ton in 2012.

·                          

  Coal price upgrades. We have raised our thermal coal prices forecasts to US$115/ton in 2011 and US$105/ton in 2012. With recent Xstrata December coal settlement with the Japanese power plant concluded at US$115/ton, we believe our price assumption is reasonable. On our revised forecast, we upgraded earning estimates BUMI by 32.7% and 32.8%, ADRO by 5.4% and 24.8% and PTBA by17.3% and 24.2%, respectively in FY11-12. Our sensitivity analysis shows that BUMI is the most sensitive to coal price fluctuation. Every 5% increase in coal price will lift BUMI’s earning by 14.4%, ADRO by 11.3% and PTBA by 10.1%.

·                               

 Overweight the sector, top pick: ADRO. Currently Indonesia coal sector is trading at 13.5x PER’11, relatively the same with sector historical trading average of 13x. Our top pick for coal sector is Adaro given its robust production outlook, low production cost and buoyant coal price. We have upgraded ADRO to Rp3,250 (from Rp2,800), BUMI to Rp3,950 (from Rp3,250) and PTBA to Rp27,500 (from 22,500).

CLSA Coal and CPO

iIt never was my thinking that made the big money for me. It always was my sitting.”

- Jesse Livermore -

It's usually not a good idea to be staring at screens in volatile times, because one (or probably just me) tends to over-react.  One minute you panic sell and next panic buy.  You can always find a reason.  Of course sitting tight is not always easy.  Especially these days with the combination of multiple Bberg screens + Blackberries + CNBC, there are just too many noises.  As sad as it is., checking my blackberry every minute is my favorite hobby.  Maybe I should look into buying some Research In Motion to hedge my addiction. 

Well, good news is all the noises have contributed to the recent in discriminated selling in this market (including all the coal and CPO names) presenting a buying opportunity. While it is true that inflation is picking up in this part of the world, fundamentals of coal and CPO stocks are getting better and better.   

Spot coking coal prices have risen above $300/t FOB Australia, as steel mills scramble to secure supplies. Further rains in Queensland mean a significant percentage of rail and mine capacity will struggle to recover before the month end. Coking coal play in Indonesia is Borneo Lumbung (BORN IJ).

Thermal coal prices are increasing at a slower pace on the seaborne market, but continue to decline in China (this has led to power shortages in some areas of China, so it is not sustainable). In addition to the Australian floods, heavy rains in South Africa, Colombia and Indonesia are also pressuring export volumes there, tightening the global market. We continue to like Bumi, PTBA, Indika and Adaro. 

On the CPO side, the recent data continue to be bullish for grain prices all around. USDA's January report shows actual ending stocks are lower than consensus, despite several downward revisions in carryouts over the past few months. Our plantation analyst Di Shui thinks that this is very bullish for commodity markets and likely the immediate catalyst needed to bolster vegetable oil space and reinvigorate CPO prices after recent sell off. As highlighted in her note yesterday, sector valuation is no where close to record high (almost half of peak valuations in 2008).

Buy Astra Agro (AALI IJ) and London Sumatera (LSIP IJ).   For the most leverage, I would look at Bakrie Sumatra (UNSP IJ)

CLSA Global Mediacom (BMTR IJ), pay TV dominator

Jessica Irene looked at Global Mediacom (BMTR IJ). Jessica noted that there is  at least 40% potential upside from share price.  Current share price is just valuing their stake in MNCN, basically you are  getting their dominant pay TV business for free.  At 3% pay TV penetration this iz is going through hyper growth, arguably the gem for Global Mediacom

In our recent initiation of MNCN "Prime Time", we highlighted several reasons why we like the company. MNC is the largest free-to-air TV broadcaster in Indonesia with 37% audience share nationwide, trading at 13x 2011CL earnings. We think that media companies are proxy to the consumer sector and these companies are relatively under researched, giving it a reasonably cheap valuation.

Why BMTR over MNCN?

• Cheaper entry to MNCN. 69% stake in MNCN is worth 97% of BMTR’s market cap.BHIT (the ultimate holding company) owns 51.27% of BMTR based on the latest 9M10 financial statements.
• You get the BMTR pay TV business for free. BMTR owns 75% stake in Indovision, the country’s largest pay TV network in Indonesia. If we assign a 15x 2010 annualized EBITDA, the stake in pay TV business is worth Rp408/share.
• Massive upside in Indo pay TV business. Pay TV is arguably the most interesting part of BMTR business. Pay TV penetration in Indonesia is still very low at 3%. Since the new management team in 2004, Indovision’s subscribers have grown tenfold from 80k to 800k. And Indovision’s commands a whopping 80% market share!

Mandiri Sekuritas ID (13-Jan-2011) ADHI: New EPC contr

Adhi Karya: New EPC contract obtained has reached Rp903bn (ADHI, Rp840, Neutral, Rp870)
􀂄 ADHI has obtained new 3 EPC contracts for steam power plant (PLTU) amounting to Rp903bn early of this year. Each power plant has capacity 2x7MW, namely: PLTU Tembilahan, located in Indragiri Hilir, Riau (Rp277bn), PLTU Sintang, in Sanggau, West Kalimantan (Rp357bn) and PLTU Tanjung Selor, in East Kalimantan (Rp268bn).
􀂄 ADHI is targeting new contract FY11F to increase by 20.0% yoy from Rp8.1tn in FY10. ADHI will focus in EPC projects in this year. In FY10, Infrastructure contributed 45.1% of revenue, meanwhile EPC and building contributed 31.6% and 23.4%, respectively.
􀂄 We see EPC projects have robust room to growth due to government plan to increase the electrification ratio in Indonesia. Hence, the contribution of EPC projects to ADHI’s revenue will increase in the future.
􀂄 We have a Neutral recommendation, currently; ADHI is traded at PER11F of 7.9x

Sarana Menara Nusantara: Key takeaways from meeting with management (TOWR, Rp12550, Not Rated)
􀂄 Sarana Menara Nusantara (TOWR), also known as Protelindo, operates towers for wireless network purposes. Currently, TOWR has around 4,800 towers (3,168 co-location), of which around 3,900 (81%) of them is bought from and dedicated to Hutchinson. Number of tenants (BTS attached in towers) is at 7,996.
􀂄 Tower industry is high leveraged, yet very promising, which can be seen in high EBITDA and net margin. Up to 9M10, EBITDA margin stood at steady level of 86.2%, much higher even compared to global players. TOWR expect FY10F revenue at US$145mn (Rp1.3tn) or slightly up by 20.4% yoy.
􀂄 For year 2011-2012, TOWR still expect rapid growth in their business with revenue and EBITDA average growth at 15.7% and 16.0%.
􀂄 We currently have no recommendation on the stock, based on Bloomberg consensus, TOWR is traded at EV/EBITDA 11F 12.2x

Mandiri Sekuritas ID (13-Jan-2011) Plantation: Tightness demand-supply on CPO and Soybean Oil is favorable for the price; HRUM: Key takeaways from meeting with the CEO; ELTY: To divest 75% ownership in Bakrie Toll, yet to remain its majority stakes

Plantation: Tightness demand-supply on CPO and Soybean Oil is favorable for the pricex
􀂄 United States Department of Agriculture (USDA) released its Jan11 forecast on demand supply of CPO and Soybean Oil on 12 January 2011.
􀂄 Based on USDA’s Jan11 forecast, tightness in demand-supply on CPO and Soybean oil is projected to continue, which is favorable for the price of CPO and Soybean oil.
􀂄 We maintain overweight recommendation on Plantation. Our Top Picks are London Sumatra (LSIP, Rp12,050, Buy, TP:Rp14,100) and Sampoerna Agro (SGRO, Rp3,125, Buy, TP:Rp3,950). Currently, LSIP is trading at PER FY11F of 12.8x. Meanwhile, SGRO is trading at PER FY11F of 12.4x.

Harum Energy: Key takeaways from meeting with the CEO (HRUM, Rp 9,350, Buy, TP: Rp 10,000)
􀂄 Harum Energy has confirmed to meet its FY10 coal production target of 7.3Mt combining Mahakam Sumber Jaya (MSJ) and Santan Batubara (SB).
􀂄 Pricing for 1Q11 is 75% fixed and 25% index linked, while the rest quarters have not been priced yet. 1Q11 volume is expected to contribute 25% of total FY11 sales volume, so it will lead to only 18%-19% fixed price for FY11 sales volume.
􀂄 This is great pricing strategy in our view amid coal price hike. Therefore we expect much higher selling price for 2Q11
which potentially to reach around US$ 90/ton.
􀂄 Our previous FY11 forecasts still use conservative average selling price assumption at only US$ 82.5/ton. So we still expect large potential upside for HRUM if thermal coal price benchmark remain stable at range US$ 115 - 120/ton
􀂄 Currently we have Buy rating on HRUM. HRUM is trading at 13.3x adjusted PER11F.


Bakrieland Development: ELTY to divest 75% ownership in Bakrie Toll, yet to remain its majority stakes (ELTY, Rp144, Under review)
􀂄 Bakrieland Development (ELTY) plans to divest up to 75% its ownership in Bakrie Toll Road (Bakrie Toll)¸ the company’s toll-road operator subsidiary. Based on news in Investor Daily, the President Director, Hiramsyah Thaib, mentioned that the company plans to IPO a totaling 20-30% of its ownership through IPO, while the remaining will be divested to strategic partner(s). ELTY will assure the majority stakeholder in the company by holding 25% ownership.
􀂄 Following Avenue Capital Group's non-participation in ELTY’s recent rights issue, we may suspect that the fund may return to the company through the private placement mechanism mentioned above. We note that the fund has been a long-run infrastructure investor in Philippines, while its representative in ELTY’s BoC is also a long-term experienced individual in the industry.
􀂄 Nevertheless, the time frame of the IPO is still unclear. Based from our recent talk with the company, it is indicated that the soonest will be end of 2011, awaiting performance progress of the only recently opened Kanci-Pejagan toll road. As at end of 2010, Kanci-Pejagan toll road has tapped of an average 15,000/day car traffic, below its initial target of an average 17,000/day. The company expects the traffic to improve up to average 19,000/day at end of 2011. Kanci-Pejagan toll road is expected to contribute up to 10% of total revenue in our forecast 2011.
􀂄 We are still reviewing our forecast on the stock. ELTY currently trades at 59% discount to our RNAV11F.

Citigroup Indonesia Macro View - Outlook in 2011 – Volatility and Opportunity

 We expect Indonesia will grow 6.3%-6.5% in 2011-12; Investment key —

Private consumption and investment should be the main driver, and unlike in 2010, domestic demand growth should exceed overall GDP growth. Investment will likely be supported by accommodative domestic global and liquidity conditions; an encouraging trend is the sizeable pick-up in FDI we saw in 2010.

 BI “diluted” its inflation targeting framework; we upgrade inflation forecasts

— We upgrade our inflation forecast to 6.5% from 6.0% in 2011F, with signs of rising core (in fact, our estimate of core on QoQ sa already show annualized rate of 5.1% in Dec). BI risks hurting its credibility by shifting its monetary policy framework to targeting core inflation instead of headline inflation – we maintain our rate hike forecast of 75bps in 2011 starting in March with possible delay to April.

 Budget deficit in 2011F likely to remain below target at 1.2% of GDP — We expect to see more concerted efforts to speed up spending in 2011 vs. 2010 (deficit of only 0.6% of GDP) but still likely to fall below target. Higher oil prices and interest rates would have a small negative impact.

 Bond supply target could be cut in 2011F; Global bonds to increase —

The original gross bond issuance for 2011F is targeted to increase 30% YoY, but with surplus funds (of about Rp47trillion) in 2010, we expect bond issuance could be cut by at least Rp30 trillion. Government is targeting 16%-25% of gross bond issuance (equivalent to $3.6bn-$5.7bn) in global bonds (including sukuk), much higher than the $2.7bn issuance in 2010.

 External liquidity position has improved; provides buffer for intervention

— FX reserves rose 46% in 2010, the fastest pace in Asia – FX reserves can cover over 2x ST debt by remaining maturity (ex-standstill) vs. 1.5-1.6x pre- Lehman. Coverage still looks “decent” at 1.25x after factoring in potential “mobile” portfolio flows. We expect FX reserves will rise gradually to $115bn in 2011F – CA surplus and portfolio flows to shrink but FDI to rise.

 Market Outlook: IDR weakness temporary; IDR curves to bear flatten —

While IDR may remain under pressure in the near term, we think this will eventually reverse: 1) BI’s dovish stance should eventually shift in the coming months; 2) BI’s war chest of $96bn of FX reserves will be used to mitigate FX volatility, while IDR’s high carry will be tempting; 3) Fundamentals remain solid – rating upgrade path intact; and, 4) inflows into EM debt and equities should persist and Indonesia should benefit. We expect curve flattening in local bonds

– 5yr IDR bonds should back up to 100bps gap as rate hiking starts while long end would need to re-price with 10yr likely settling at 8.75%-9% by year-end.

Macquarie Research Macro Mantra - Indonesia: Cutting through the noise

§ Given the recent heightened focus on Indonesian inflation, we look at the outlook for the economy in 2011.

Inflation

§ We are forecasting CPI inflation to average 6.0% YoY in 2011. In these forecasts we have factored in aggressive increases in food prices stemming from: 1) potential supply-side shocks that exaggerate the normal seasonal upswings for Chinese New Year and Ramadan; and 2) structurally higher global commodity prices. That said, there is upside risk to this forecast.

§ For core CPI inflation, which accounts for ~60% of the index and strips out volatile commodity prices and administered prices, we see a trajectory that begins to lift in 1Q11 and nears 5.0% YoY in mid-2011 before moderating in 2H11, as is the case with headline CPI inflation. The emergence of more favourable base effects in 3Q11 created by 2010’s supply-side shocks are the primary reason for this anticipated inflation moderation.

Rates

§ For 2011 we believe Bank Indonesia (BI) will raise rates a cumulative total of 100bp to 7.50%. Thus far, volatile food prices have been the main driver of inflation pressure and in 2007-08 there was strong passthrough from food

prices to cost-push pressures, borne out in core CPI inflation.

§ Guidance from BI suggests that should core CPI inflation break above 5.0% YoY, it would hike rates. Given that core CPI should begin to edge toward that level from March, we believe the March/April meetings stand as likely starting points for rate hikes.

§ Rate increases at this stage should be viewed as part of efforts to manage inflation expectations, prevent an inflation spiral, and ensure the long-term sustainability of Indonesia’s economic growth. Note that 6-month forward

inflation expectations are below their July 2010 level, suggesting demanddriven price pressure is not as strong as headline CPI suggests.

§ A downside risk is that if cost-push inflation pressures increase, and BI is behind the curve, it may cause delays to subsidy rationalisation, or worse increased subsidies. This, in turn risks undermining improvements to public finances and could hurt credit rating upgrade prospects. It also risks damage to the balance of payments position and a structural weakening of the rupiah.

§ The upcoming rice harvest could prove crucial. La Niña is typically supportive of higher crop yields, hinting food price pressure may ease in the coming months and potentially containing inflation expectations. This raises the

prospect that BI could leave rates unchanged in 2011. Note, this would also ease pressure for rupiah gains (Macq USD/IDR end-2011 forecast 8000).

Growth

§ We maintain our 2011 full-year GDP growth forecast of 6.5%, driven by consumer spending and investment, with support from the continued external recovery and rising global commodity demand.

§ While convention is inflation hurts consumption, Indonesia's large rural population (50% of total) and agricultural labour force (40% of total labour force) suggest an uptick in domestic food commodity prices bolsters incomes

and may benefit consumer spending. Additionally, higher global commodity prices improve the feasibility of resources-related investment in Indonesia, providing further support to growth.

NISP Sekuritas Daily 13 Jan 2011 (BUMI, LSIP, ADHI, SSIA, New IPO)

Vallar shows progress in acquisition on Bumi Resources (BUMI, Rp3,075, Buy)

·          Vallar announced significant progress in its acquisition progress over Bumi Resources and Berau Coal (BRAU, Rp540). Vallar said that all plans are on track and the acquisition on Bumi is scheduled to be concluded in February 2011. Meanwhile, completion schedule target on Berau is 8 April 2011 where Vallar will provide tender offer for Berau shares.

·          Despite no cash flow impact for Bumi Resources, existence of Vallar in shareholders structure will enable Bumi to obtain wider financial access to support growth strategy and obtaining favorable funding structure.

·          BUMI is trading at 2011F PER of 14.5x and EV/EBITDA of 5.7x, Buy.

London Sumatra seeks approval for stock split (LSIP, Rp12,050)

·          In announcement published today, London Sumatra to hold an EGM on 28 January 2011 in order to seeks shareholders’ approval for stock split.

·          The company aims to increase its shares liquidity where it is reported the split ratio is 1 : 5, translating nominal price adjustment to Rp100/share from Rp500/share currently.

·          This plan will deliver positive sentiment on Lonsum’s share price as liquidity will be higher and enables wider segment of investors to access the company’s shares.

·          LSIP is trading at 2011F consensus PER of 13.3x and EV/EBITDA of 8.8x.

Adhi wins Rp902.8bn contract at beginning of year (ADHI, Rp840)

·          Adhi Karya shared that it has won several EPC contracts for a hydrothermal power plant worth a total of Rp902.8bn. The plants will be located in Riau, Kalimantan Barat and Kalimantan Timur.

·          This year, EPC contracts will become Adhi’s focus in driving revenue. The company targets new contracts to grow by 20% to Rp9.72tn from 2010 achievement. EPC contracts make up 31.6% of ADHI revenue, following construction projects.

·          ADHI is trading at 2011F consensus 7.5x and EV/EBITDA 4.2x.

Surya Semesta targets Rp143bn net income in 2011 (SSIA, Rp880)

·          Surya Semesta is targeting Rp143bn of net income this year, up by 30% YoY from 2010E figure of Rp110bn. This is backed on 30% revenue growth from Rp1.6tn to Rp1.9tn.

·          The company expects revenue to be driven from higher areal sales and also from its construction and hotel business. Its subsidiary, Suryacipta Swadaya, has already secured a purchase commitment for 130ha of its land in the Kawasan Industri Suryacipta City. 121 ha will be purchased by Astra Internasional, which could attract other potential buyers. 

Garuda price between Rp750-Rp1000 (New IPO)

·          The government has set the price range for Garuda between Rp750-Rp1000. With that price, EV/EBITDA is between 7-4x and 10.8x. As much as 9.36bn shares are for offering or 36.84% from total shares.

·          The company cannot pay out dividends as it is still has an accumulated loss in its book; however it plans for quasi reorganization to erase the loss.

·          Book building is between January 12-24, while offering date is on February 2,4,7, 2011. The shares will be listed on February 11, 2011. Underwriter is Mandiri Sekuritas, Bahana Securities and Danareksa Securities.

Deutsche Bank ank Mandiri - Potential recovery of US$161-236m from Garuda divestment

We have attended Garuda Indonesia's public announcement re: its IPO plan, which will be completed on 11th Feb 2011. Currently, Mandiri holds approx 1.9bn shares in Garuda, which would represent 7.5% of the company's enlarged capital. Based on Garuda's IPO price range of Rp750-1,100, we estimate that proceeds to Mandiri could reach Rp1.5-2.1tr (or US $161-236m) - see table below for more details.

We believe that the recovery should be reflected in Mandiri's 2011 earnings. At present, our current forecasts do not take into account any recovery gain from the Garuda divestment. Based on our existing forecasts, the potential gain could represent 11.7-17.2% of DB's FY2011 pre-rights issue profit before tax estimates of Rp12.4tr. Based on a 9M10 capital base, the post-tax gain would raise CAR by 38-56bps to 13.7-13.9% and BVPS (as of 9M10) by 2.8-4.1%.

Recent sell down based on concerns over rising inflation (and subsequent BI rate increases) are overblown, in our view. Mandiri remains fundamentally sound. Amongst major banks, the bank is one of the primary beneficiaries from higher rates as it has twice the amount offloating-rate earnings assets to floating-rate funding. The bank's low cost of funds and excess liquidity should allow it to gain loan market shares. Amongst major banks, Mandiri is the only bank with four strong subsidiaries (insurance, finance, micro bank and auto finance). As in our 17th Aug 2010 report "Small but faster growing subsidiaries", we have estimated that their combined three year earnings Cagr should be 60%.

JP Morgan Indo : Discount shopping time in Indonesia stock market

* Spain stock market +5.4% overnight despite an upcoming €4bn debt auction today. This week suppose to be the most difficult week for Eurozone debt auction activity, with total issue approacing €30bn. Looking forward, the auction calendar looks very light until end-Feb (report attached: Euro area government issuance 2011 update, Gianluca Salford). Today’s risk rally may have leg.

* Mining is Indonesia’s biggest market cap by sector (US$78bn). Mining, gas utilities, plantation, oil&gas combined account for 51% of total Indonesia’s market cap. Banks and consumer cyclical account for 37% of market cap.

* The prospect of Indonesia getting sovereign rating upgrade (to investment grade) by Jun-2011 may start to build. Most investors previously expect a much later date. This, combined with the 25-30% fall in the rolling P/E valuation for bank stocks, could offer attractive trading opportunity for the sector despite the continuing concern on supply driven inflation.

* The thoughts of investors selling down Indonesian equities to switch to developed market (DM) equities could be more myth than reality. It could be true that the buying focus has shifted to other markets in recent weeks, but at least on our own trading pad, the selling flow has been driven by a mix of index shorts, sector switching (primarily from rate sensitive to mining), profit taking after the huge run in coal stocks, and arbitrage selling of banks (in anticipation of the US$1.5bn share placement in BMRI). My understanding is that country funds have been getting subscription of late.

* Better late than never, Stevanus Juanda today upgrades his earnings forecast on coal stocks, following coal price upgrade by coal analyst John Bridges on 15 Dec, using US$120/t thermal coal price versus US$105/t previously. For FY11E EPS, Indika upgraded by 36%, Adaro by 29%, Indo Tambang by 11%, Berau Coal by -1%, Bukit Asam by -2%, and Bumi Resources by -15%. Steve must be making major assumption changes other than coal price, since the most leverage companies getting negative EPS revision instead of an upgrade. Call him at +6221 5291-8574 for queries. My personal preference stays with Indika and the two most leveraged coal stocks of Indonesia.

* Simone Yeoh and Aditya Srinath (analyts) upgrade their CPO price assumption from M$2,800/t in 2011-12E to M$3,400/t in 2011E and M$3,200/t in 2012E (M$2,750/t in 2010). Aditya remains positive on AALI and LSIP.