Japfa Comfeed Indonesia (BUY) - Little impact from SGF sale - Kim Eng

Japfa Comfeed Indonesia will sell its 100% stake in So Good Food (SGF) to the subsidiaries of Malvolia, its parent company, for a consideration of US$100m or Rp899.1b. The divestment raised many questions. However, we believe the absence of SGF will have little, if any, impact on Japfa’s earnings.
We raise our TP for Japfa from Rp3,200 to Rp4,550, based 9.1x net profit FY11F PER. This is in accordance with our higher gross margin assumption of 18.8% on average for FY11F-13F (previously 17%) after factoring in the proposed expansion of the poultry business and the SGF sale. Upgrade to BUY from HOLD.

Indo property, the start of something big - CLSA

Sarina Lesmina has just produced another excellent report on Indo property sector. Property sector is becoming more relevant and investable. Plenty of room to grow as sector still trades at 46% disc to NAV. We like Bumi Serpong (BSDE IJ), Bakrieland (ELTY IJ), and Ciputra Surya (CTRS IJ).

Key points from the report:

Good demand to continue. Marketing sales grew a strong 40% YoY to a record high of Rp4.4tn in 1Q11.
Still massive upside. Despite the growth, mortgage is still at 2% of GDP. There is upside to some sales targets budgeted earlier.
Mortgage on the rise and prices are rising. Strong demand to continue with banks offering competitive mortgage products. Rising selling prices of 10-20% across developers.
Remain bullish on landed residential. We see signs of declining condo yield; 52% more supply will hit the market. We see landed residential demand to be more resilient with higher price appreciation as more infra gets developed.
Evidence of business expansion. There is strong evidence of business expansion and FDI as seen in the +150% QoQ in industrial land sales and office space demand.
Retail market to remain competitive. Plenty of room to grow outside city center. Greater Jakarta has 3.5m sqm space, like Singapore, but for 5x more people.
Opportunities and barriers to growth. Lower property tax effective in 2012 should support demand. Indo has one of the highest % growth in GDP per capita vs. regional peers. As land becomes scarce, developers with huge land bank will benefit. Slow infra development is a barrier. Developers are becoming more involved now.
The start of something big. The sector is becoming more relevant and investable. There are now two companies Bumi Serpong (BSDE IJ) and Lippo Karawaci (LPKR IJ) with mkt cap ~US$2bn.
Attractive discount to NAV. Sector at 46% disc to NAV. BSDE remains a proxy; now at 48% disc to NAV vs 30% of closest peers. Bakrieland (ELTY IJ), at below book value is worth watching as more actions unfold. Among smaller names, Ciputra Surya (CTRS IJ) is very attractive at 63% disc to NAV and single digit PE; the best executor among its siblings.

Small Cap Screen favours MDRN IJ - JP Morgan

Small Cap Screen: Modern Photo (MDRN IJ)
CEO Henri Honoris told Bisnis Indonesia reporter that he has budgeted Rp150bn to open 36 new 7-Eleven outlets, vs its current outlets of 31, all of which are in Jakarta. For FY11, 7-Eleven may contribute Rp400bn sales or 40% of consolidated profit sales of Rp1trn. In FY10, 7-Eleven’s actual sales contribution was Rp73bn, or 10% of consolidated sales of Rp733bn. (Bisnis Indo).

My take – Maria Lapiz, JPM consumer analyst in Thailand, covers CPALL TB that runs the 7-Eleven franchise in Thailand. They started early with the franchise; the first store was opened in 1989. As of 1Q11, they had 5,962 branches, including the 875 located in the PTT petro stations (market leader). If MDRN can be anywhere near as successful as CPALL, then obviously there is significant upside potential to MDRN with start-up market cap of just US$163mn (and 31 outlets currently). 7-Eleven franchise is the major sales and profit driver for CPALL, with US$6.88bn market cap. CPALL trades on 24.5x P/E for FY11 with 18-19% EPS growth estimate for FY11-13. Key risk for MDRN is being a late comer, with Alfamart (AMRT) and Salim's Indomaret already run thousands of outlets all-over Indonesia.

NEWSFLOW
* Perusahaan Gas Negara (PGAS) – raising acquisition budget for oil & gas assets from US$250mn to US$350mn. The fund will be sourced from internal cash, as the company’s cash balance stands at US$1.2bn according to the CEO Mr. Hendi. (Kontan).

* Indika Energi (INDY) – Vice President Director Mr. Wishnu Wardhana told the reporter that the company’s subsidiary Petrosea (PTRO) is looking to pay Rp1,195/share dividend, split its stocks by 10x, and then re-floating 20-30% of outstanding shares to the public. PTRO is budgeting US$100mn capex for heavy equipment, sourced from internal cash. (Kontan).

* Pembangunan Perumahan (PTPP) – Signed MOU with Lippo Karawaci (LPKR) to construct St Moritz The New Royal Suite. The scope of work is to construct the structure of the building, with a contract worth Rp80bn. (Investor Daily).

* Dynaplast (DYNA) – tender offer for 33.25% stake in the company at Rp4500/share. Tender period 26 May to 27 June, payment date 7 July. (Bisnis Indo).

Thermal coal prices rise in thin trade - Reuters

Thermal coal prices moved up during the past week in a thinly traded market that saw renewed interest from some Japanese buyers after a devastating tsunami in March cut national coal demand.

Thermal coal on the globalCOAL Newcastle index for the week to date was $US120.69 per tonne on Monday, up from $US115.88 a week earlier, but market sources said the index represented a market with very little liquidity.
"There's just not a lot of tonnes, there's not a lot of players out there buying and selling," one Singapore-based market source said.

But traders and brokers said there were signs that Japanese buyer interest in coal deals has been reignited after it was forced to stop taking coal shipments in March due to the massive tsunami that shut some power plants.
Japanese buying patterns will likely return to normal by August, the source said, although demand may continue to be sluggish for June and July.
Newcastle coal for June delivery was traded for $US112 per tonne on Friday, while tonnes for August delivery were traded at $US120 per tonne on Tuesday and $US122 per tonne on Friday.

Coal for July was offered at $US121 per tonne on Tuesday with no bids.
Chinese import demand, particularly for Indonesian sub-bituminous coal, has continued as domestic prices moved to the highest level in two years last week, but slowed since last week.
"China buying from Indonesia has cooled down a bit... Indonesian prices are reaching a peak, I think," said another market source based in Singapore.

CPO futures rise on bullish demand - Business Times

KUALA LUMPUR: Crude palm oil futures prices on Bursa Malaysia Derivatives closed higher yesterday with market players bullish over the May 1-25 palm oil export data, due to be released today, dealers said.

June 2011 gained RM17 to close at RM3,460 a tonne, July 2011 increased RM21 to RM3,408, August 2011 rose RM25 to RM3,380 and September 2011 was RM18 higher at RM3,362.

Turnover declined to 18,689 lots from 28,980 lots on Monday while open interest slipped to 102,443 contracts from 102,471 contacts previously.

On the physical market, June South rose RM10 to RM3,450 from the RM3,440 previously - Bernama

Lonsum to pay Rp61/ share dividend - Insider Stories

A palm oil plantation company PT PP London Sumatra Indonesia Tbk that is controlled Sariaatmadja family decided through its shareholders meeting today to pay Rp416.19 billion dividend in cash, or Rp61 per share.
The figure represents 40.28% of the company's net income last year of Rp1.03 trillion.
The company will pay the dividend on July 6, 2011. Investors who buy Lonsum stocks after ex dividend starting on June 17, 2011, they will not entitle with dividend.
The shareholders also accepted the resignation of Goh Cheng Beng (Allan Goh) as director effective on July 31, 2010.
Lonsum’s sales was Rp3.59 trillion last year, a 12.28% increase compared to Rp3.20 trillion in 2009, on higher rubber and palm oil products prices as well as higher sales volume of SumBio oil palm seeds. Cost of goods sold and operating expenses were relatively flat at Rp1.82 trillion and Rp371.89 billion, respectively.

Indo Tambangraya Megah - Least preferred in the sector (ITMG-HOLD-IDR46,700-TP:IDR47,000) - Bahana

1Q11: Net profit up 41% y-y, in line with our but below consensus
ITMG reported 1Q11 net profit of USD95m, up 41% y-y and 438% q-q, in line with our estimate (22.7%) helped by USD9.4m derivative gain, but still below consensus (19.4%). Operating profit in 1Q11 came inline within our estimate, forming some 21% of our full-year estimate, but below consensus expectation forming only about 18% of the estimates. On the top line, ITMG booked 1Q11 revenues of USD468m (+16% y-y or 4.2% q-q) on the back of higher ASP up 31% y-y, as volumes were down 14.5% y-y to 5.2m tons and production was down 13% y-y. Though revenues came in line with consensus (forming 21%), higher cost then expectation dragged down the operating profit below consensus. COGS were up 16% y-y driven by higher cash cost of USD58.5/ton (+21% y-y) on rising fuel cost and higher stripping ratio on Indominco (+2% y-y) and Jorong mine (+25% y-y).

2011 earnings remain intact
ITMG has secured around 62% contracted volumes with selling price of around USD87/ton. Out of remaining 38%, 24% is index linked with the rest remain uncommitted. Based on this, ITMG provides an 2011 ASP guidance between the range of USD85-90/ton. Production cash cost is expected to rise by 11% y-y to USD44/ton, pushing up total cash cost by 14% y-y to USD65/ton. Based on the recent company guidance, we arrived at ASP of USD88.9/ton with total cash cost of USD64.3/ton. This translates into net income of USD419m (+105% y-y). Note there has been continuous downgrade in consensus estimates, bringing our current forecast to 10% below consensus forecasts compared to 22% on March 4, 2011.

Significantly higher 2011 Capex of USD126m, up 39% y-y
ITMG has allocated 2011 Capex of USD126m, much higher than 2010 Capex of USD80-90m. The breakdown of the 2011 Capex would be as follow: around USD57.2m would go towards Trubaindo infrastructure, USD7.1m for Indominco East block washing plant, USD7.2m for Indominco port improvement, USD10.6m for Mayang equipment, USD10.5m for Bharinto development and USD33.4m for maintenance and improvement initiatives.

Reserve expanded & new mine acquisition on the cards
In 2011, ITMG is looking at acquiring new mines with criteria for selection as follows: (1) The mine can produce at least 2-3m tons p.a.; (2) Can be sub-bituminous coal but not in the very low range (3) The new mine must be close to the existing mine; (4) Mine life of at least 15 years and (5) The mine should be green field.

Less than 15% upside; Retain HOLD with TP of IDR47,000
In 2010, ITMG’s dividend payout ratio was 76%, the highest in the sector. The company has USD294m cash in 2010 and we have assumed a 60% dividend payout from 2011 onwards. This translates to highest dividend yield of 4.2% in the sector. We maintain our TP of IDR47,000 and HOLD rating.

Indonesia Strategy - Minister of Finance meeting KTA - Deutsche Bank

Last Friday, Minister of Finance Pak Agus held his first analyst meeting, which lasted well into the night. The discussion touched on issues such as the fiscal budget, fuel subsidy, land reform bill, CPO tax, rupiah, and financial body supervision, and the minister also articulated his readiness to resign if the government’s Newmont NNT acquisition fails.

First, we make some general observations. For someone who is under intense pressure from parliament on the Newmont deal, Pak Agus was remarkably relaxed. He reiterated that he would resign if the government acquisition of Newmont fails, sending an unmistakable message to parliament and the government leadership; his motive for wider good in Indonesia was also convincingly articulated. His detailed explanation of the budget also displayed his knowledge; areas of weakness were "exposed" when immediate solutions weren't readily available, but in some ways this was reassuring. He also lined up the MoF's entire directorate general. Among them was the recently installed head of taxation, who has been tasked with overhauling the corruption-ridden institution and is also the youngest-ever head of custom and duties. Each outlined a clear and sensible agenda.

Budget – Revenue
Tax revenue is the "controllable" part of the budget; a lion share of the revenue is directly under the MoF. YTD April reached Rp331tr or 30% of FY11, ahead of runrate. The c. 20% increase is actually higher than most listed corporates in spite of the much larger revenue base. Taking seasonality into account, the budget is actually ahead: past five years YTD April revenue was 24%. Yet there is still much room to grow, considering the reforms under way and the rampant smuggling and
tax evasion given the still low tax yield (11-12%)

Budget – Expenditure
This is the "uncontrollable" part of the budget. While the MoF should help to make the procurement process less rigid, actual spending lies in the hands of the assigned ministries, e.g. public works for infrastructure, etc. The theme here is simple: areas that needed spending saw underspending (i.e. infrastructure); but areas that didn’t need spending saw overspending (i.e., fuel subsidy). Pak Agus exposed the area where underspending was worst: capex (including infra), a mere 6.8% of FY11 (8.2% at the same time last year). Expenditure was Rp280tr or 23% of FY11 (vs 20% in the same period last year).

Indo property, the start of something big - CLSA

Sarina Lesmina has just produced another excellent report on Indo property sector. Property sector is becoming more relevant and investable. Plenty of room to grow as sector still trades at 46% disc to NAV. We like Bumi Serpong (BSDE IJ), Bakrieland (ELTY IJ), and Ciputra Surya (CTRS IJ).

Key points from the report:

Good demand to continue. Marketing sales grew a strong 40% YoY to a record high of Rp4.4tn in 1Q11.
Still massive upside. Despite the growth, mortgage is still at 2% of GDP. There is upside to some sales targets budgeted earlier.
Mortgage on the rise and prices are rising. Strong demand to continue with banks offering competitive mortgage products. Rising selling prices of 10-20% across developers.
Remain bullish on landed residential. We see signs of declining condo yield; 52% more supply will hit the market. We see landed residential demand to be more resilient with higher price appreciation as more infra gets developed.
Evidence of business expansion. There is strong evidence of business expansion and FDI as seen in the +150% QoQ in industrial land sales and office space demand.
Retail market to remain competitive. Plenty of room to grow outside city center. Greater Jakarta has 3.5m sqm space, like Singapore, but for 5x more people.
Opportunities and barriers to growth. Lower property tax effective in 2012 should support demand. Indo has one of the highest % growth in GDP per capita vs. regional peers. As land becomes scarce, developers with huge land bank will benefit. Slow infra development is a barrier. Developers are becoming more involved now.
The start of something big. The sector is becoming more relevant and investable. There are now two companies Bumi Serpong (BSDE IJ) and Lippo Karawaci (LPKR IJ) with mkt cap ~US$2bn.
Attractive discount to NAV. Sector at 46% disc to NAV. BSDE remains a proxy; now at 48% disc to NAV vs 30% of closest peers. Bakrieland (ELTY IJ), at below book value is worth watching as more actions unfold. Among smaller names, Ciputra Surya (CTRS IJ) is very attractive at 63% disc to NAV and single digit PE; the best executor among its siblings.

Article Vallar: raising the stakes (update 2)

GOOD governance is not synonymous with traditional Bakrie Group methods, but Nirwan Bakrie seems as proud of the reputational value of his deal with British investment firm Vallar as he is with the fact that it puts his family in charge of the world's biggest thermal coal business.

The deal pulling together the group's Bumi Resources interests with those of another big Indonesian operation, Berau Coal Energy, under a London listing and a place in the FTSE 100 is potentially transformational for Bakrie.

But the affable, raspy-voiced, chain-smoking co-head of the Bakrie clan -- his older brother Aburizal has stepped back from the business to pursue presidential ambitions -- has other schemes brewing.

The next priority for its group-altering potential is the massive Masela Block gas property in the Arafura Sea, where Bakrie's petroleum arm, Energi Mega Persada, has bought 10 per cent and wants more. Nirwan's managers are scouting Australian resource acquisitions.

Nirwan says nothing has yet been specifically targeted, but "that's a place we have to be very close with".

Oh, and if he can come to terms with Football Federation Australia, the Bakries would also like an A-League club. Football and Indonesia's colourful soccer politics are Bakrie passions.

Finalising the deal with Vallar, though, is 59-year-old Nirwan's current preoccupation.

Bakrie is a sprawling, acquisitive conglomerate, its assets heavily weighted to resources, with a reputation for questionable dealings with governments, public officials and minority interests.

Add to that a history of debt crunches, the most recent being in 2008, although the Bakries weren't alone in that condition during the global financial crisis shock to resources prices.

"I think you understand, people understand, when they talk about Bakrie, they talk about governance," says Nirwan, who is chief executive of Bakrie and Brothers, the listed holding company.

"No 2 is Bakrie's lack of capital, but now we have Nat Rothschild and Vallar, which is very good in the equity markets, and very good networks in the financial society.

"So this is a very important deal for us. I'm very glad and very proud of this deal."

So he should be. For all the publicity glow around the 39-year-old finance aristocrat Nathaniel Rothschild as the deal's engineer, the people who appear to have done best out of Vallar -- and probably played a larger part in its genesis than is widely acknowledged -- are the Bakries.

As is now legendary, Rothschild floated Vallar as a pound stg. 707 million ($1.1 billion) investment cash box in the middle of last year.

He was introduced to Nirwan in October and they announced the startling Indonesian deal out of the blue on November 16.

According to Rothschild, "the process was slightly over a month, and that's not unusual".

In his world, perhaps. In Indonesia such matters usually take longer and require more spadework. In 2009, for instance, it took six months for Recapital Advisory, headed by emerging entrepreneur Rosan Roeslani, to clinch the purchase and financing for 90 per cent of Berau, Indonesia's fifth-largest coal producer.

It was persistently speculated that Recapital's purchase was substantially funded by Bakrie interests.

Following completion of the initial November 16 deal with Vallar's payment of $US3bn ($2.8bn) and share swaps, Vallar owns 75 per cent of Berau and 25 per cent of Bumi Resources.

Their combined steaming coal production this year is estimated at 78 million tonnes, rising to 140 million tonnes in 2013.

Bakrie and Brothers owns 43 per cent of the transformed Vallar, to be renamed Bumi Plc.

Recapital has 25 per cent, the investors who bought into the Vallar float are diluted to 28 per cent and Rothschild and his associate James Campbell have 4 per cent.

The third Bakrie brother, Indra, 57, was appointed co-chairman with Rothschild, Bumi Resources president director Ari Hudaya becomes chief executive and Bumi Resources finance director Andrew Beckham will be chief financial officer.

The next stage should further strengthen the Jakarta camp's hand when the non-Indonesian owners of 15 per cent of Bumi Resources are offered a swap into Bumi Plc stock.

The offer is expected to accompany a June 17 prospectus for Bumi Plc's "prime listing" on the London exchange. The London company wants to hold 50 per cent of Bumi Resources by the end of the year.

Nirwan acknowledges the London listing requires far higher levels of disclosure and standards of governance than Indonesian investors are able to demand. Even so, Bakrie companies have had numerous scrapes with tolerant local regulators.

But Vallar also offers the prospect of respectability that opens doors in international finance.

"Yes, (already) there's more people coming to see us from the equity side," Nirwan says. "But from the debt side . . . more banks want to talk of course, but we're not having any problems now."

What opens bankers' doors best is a sharp reduction in the group's towering debt load. Nirwan is intent on slicing both borrowings and debt structure.

Bumi Resources management has targeted $US500m to $US600m of asset divestments this year and are back in talks with China Investment Corporation about restructuring its $US1.9bn debt holding.

Until now, the Chinese fund has been too satisfied with its 12 per cent coupon to consider offers of a part-swap into Bumi Resources stock.

Bakrie has given notice it will repay $US600m in October, a year early, and Nirwan says the issue of swapping more debt into Vallar stock hasn't arisen. . . yet.

As to Australian objects of interest, besides the A-League Nirwan is keeping his own counsel for now.

He points out, though, that his family has a history of working with Australian companies, going back to the days of his father, Ahmad Bakrie, founder of the business dynasty.

"We know for sure that we've been able to work with Australian parties for years," he says.

Bakrie Tubemakers began life almost 40 years ago as a pipe-making joint venture between Bakrie and Brothers and Tubemakers of Australia, while Bakrie Construction was a collaboration with Transfield.

Both are now wholly owned by the group, which recently brought Brisbane company Panax Geothermal into Bakrie Power's first Java geothermal development.

But there are plenty of Australian coal people, too, who are already familiar with the East Kalimantan mines now forming the spine of the new Bumi giant.

Kaltim Prima Coal was once a subsidiary of the former CRA, now Rio Tinto, which developed the biggest East Kalimantan mine and port operation with BP in the late 1980s. BHP, before it had Billiton appended, built the PT Arutmin operations.

Bakrie and Brothers joined both projects as minority partners.

It was explicit in their contracts of work with the Indonesian government that the foreign partners would have to sell down in stages to local firms.

But at one point, in 1997, Bakrie appeared keener to sell, at least from Arutmin.

However, faced with a requirement to sell 51 per cent to a local enterprise, BHP Billiton sold out wholly from Arutmin in 2001.

Rio-BP left Kaltin Prima in 2003, ending a spectacular two-year struggle between some of the nation's most powerful business families, officials and provincial and district governments.

Bumi Resources, until then a little-noticed entity, emerged with both projects, for a total of $648m plus assumed debt, subsequently bringing in Tata Power of India as 30 per cent partner.

Article Vallar: raising the stakes (update 1)

The next stage should further strengthen the Jakarta camp's hand when the non-Indonesian owners of 15 per cent of Bumi Resources are offered a swap into Bumi Plc stock.

The offer is expected to accompany a June 17 prospectus for Bumi Plc's "prime listing" on the London exchange. The London company wants to hold 50 per cent of Bumi Resources by the end of the year.

Nirwan acknowledges the London listing requires far higher levels of disclosure and standards of governance than Indonesian investors are able to demand. Even so, Bakrie companies have had numerous scrapes with tolerant local regulators.

But Vallar also offers the prospect of respectability that opens doors in international finance.

"Yes, (already) there's more people coming to see us from the equity side," Nirwan says. "But from the debt side . . . more banks want to talk of course, but we're not having any problems now."

What opens bankers' doors best is a sharp reduction in the group's towering debt load. Nirwan is intent on slicing both borrowings and debt structure.

Bumi Resources management has targeted $US500m to $US600m of asset divestments this year and are back in talks with China Investment Corporation about restructuring its $US1.9bn debt holding.

Until now, the Chinese fund has been too satisfied with its 12 per cent coupon to consider offers of a part-swap into Bumi Resources stock.

Bakrie has given notice it will repay $US600m in October, a year early, and Nirwan says the issue of swapping more debt into Vallar stock hasn't arisen. . . yet.

As to Australian objects of interest, besides the A-League Nirwan is keeping his own counsel for now.

He points out, though, that his family has a history of working with Australian companies, going back to the days of his father, Ahmad Bakrie, founder of the business dynasty.

"We know for sure that we've been able to work with Australian parties for years," he says.

Bakrie Tubemakers began life almost 40 years ago as a pipe-making joint venture between Bakrie and Brothers and Tubemakers of Australia, while Bakrie Construction was a collaboration with Transfield.

Both are now wholly owned by the group, which recently brought Brisbane company Panax Geothermal into Bakrie Power's first Java geothermal development.

But there are plenty of Australian coal people, too, who are already familiar with the East Kalimantan mines now forming the spine of the new Bumi giant.

Kaltim Prima Coal was once a subsidiary of the former CRA, now Rio Tinto, which developed the biggest East Kalimantan mine and port operation with BP in the late 1980s. BHP, before it had Billiton appended, built the PT Arutmin operations.

Bakrie and Brothers joined both projects as minority partners.

It was explicit in their contracts of work with the Indonesian government that the foreign partners would have to sell down in stages to local firms.

But at one point, in 1997, Bakrie appeared keener to sell, at least from Arutmin.

However, faced with a requirement to sell 51 per cent to a local enterprise, BHP Billiton sold out wholly from Arutmin in 2001.

Rio-BP left Kaltin Prima in 2003, ending a spectacular two-year struggle between some of the nation's most powerful business families, officials and provincial and district governments.

Indofood CBP - Too much risk, not enough reward - Macquarie

Event
􀂃 We downgrade our ICBP rating to Underperform from Neutral and lower our TP to Rp4,900 from Rp5,700. We highlight the continuing growth of smaller noodle rivals such as Conscience Foods (CSF SP, Not Rated) that increased its market share to 5% from 3% in FY10A. We believe the growth of smaller rivals entails a greater risk to ICBP’s ongoing volume growth rate and operating margins than the market currently appreciates.

Impact
􀂃 Over the past two quarters, ICBP’s volume growth has slowed, whereas CSF’s growth rate has continued to accelerate (48.1% revenue growth in 1Q11A, driven mostly by volumes). We believe CSF’s accelerating growth trajectory indicates that ICBP has now raised prices and expanded the industry’s profit pool to a level that is allowing smaller rivals to profitably expand, which may already be beginning to impact ICBP’s market share.
􀂃 While CSF and other smaller players’ growth is unlikely to have a noticeable impact on ICBP’s leading market position (73% market share) any time soon, the implications are heavily influenced by the relative maturity of Indonesia’s noodle segment, which is only experiencing volume growth of 3–4% pa. This means that 40% growth by a small rival with 5% market share has the scope to monopolise half of the industry’s volume growth, potentially halving ICBP’s volume growth rate from 3–4% to say 1–2%. We believe this would be poorly received by the market, given ICBP’s relatively full multiples (FY11E PER 16.1x) and heavy reliance on noodles (which comprise 85% of earnings).
􀂃 In addition, we flag that ICBP’s pre-royalty noodle margins have already expanded materially from 0.7% to 17.9% during FY07–10A (regional industry averages are 5–15%). A reinvigoration of volume growth would likely require either tighter pricing and/or higher promotional spending, which could see margins begin to decline. We believe slowing volume growth and/or margin compression will render double digit earnings growth difficult to sustain.

Earnings and target price revision
􀂃 FY11E EPS –2.7%, FY12E EPS –11.1%. We are now forecasting 1.7% and 2.5% volume growth, 8.2% and 3.9% ASP growth, and 15.0% and 14.4% post-royalty noodle margins, for FY11E and FY12E respectively. Price target reduced from Rp5,700 to Rp4,900, in line with our revised SOTP valuation.

Price catalyst
􀂃 12-month price target: Rp4,900 based on a Sum of Parts methodology.
􀂃 Catalyst: 2Q11E result (expected in July/August).

Action and recommendation
􀂃 Downgrade to Underperform: We believe ICBP’s FY11E PER of 16.1x to be
full relative to trend revenue growth of just c10% pa. We also believe the risks posed by smaller rivals appear to be broadly unappreciated by the market, and given the undiversified nature of ICBP’s earnings, we view ICBP’s risk profile as being too high given its limited upside. For exposure to genuine pricing power, we much prefer GGRM (Rp43,300, Neutral, Rp43,000 PT).

UNTR Boosting its coal mining business - UOBKH

BUY United Tractor, UNTR, TP:Rp25,900, Share Price: Rp22,150, Upside: 16.9%
Robust Komatsu Sales in April, 2011 with sales volume of 767 units, a 2.8% decline MoM, but still 76.5% increase YoY.
Japan disaster effect is still hanging in the air, though factories have resumed production. On the back of worries that supply might be disrupted, analyst Stefanus maintains sales volume target for 2011 at a conservative 6,000 units.
BUT, market share have improved to 53% in 4M11 vs 46% YoY in the domestic heavy equipment market.
Tuah Turangga Agung has operated fully, contributing to an increase in sales volume by 51.2% to 1.4mt. And are looking to acquire more coal mining companies around the area. With a bullish target of 10mt of coal sales by 2015 through current subsidiaries and new acquisitions coming up.
Maintain buy with post- rights TP Rp25,900, based on 17.2x 2012F PE, a 17% upside from current price.

Astra International: Buy; Rp58,100; TP Rp65,000; ASII IJ April 4W and 2W sales - DBS Vickers

Astra International’s (ASII) 4W sales volume declined by 30% m-o-m and 12% y-o-y to 31,724 units in April, while 2W sales rose 9% m-o-m and 22% y-o-y to 370,467 units. Its 4W market share has dropped 3% ppt m-o-m to 52% while 2W market share improved by 5% ppt to 53%. 4M11 sales are in line with our estimates, with 4W sales comprising 32% of our FY11F target and 2W sales 33%.

We start to see impact from the Japanese quake with the drop in sales for 4W units. Please note that ASII’s local content for 4W stands at c.65% while local content for 2W is at a much higher c.98%. Hence, the impact of the Japanese quake is more on 4W sales. We expect to see a recovery only after 2Q11. According to the latest information, Daihatsu has resumed normal production, after 20% production cut in April and half of May. Toyota is expected to only resume normal production by June, after a 50% production cut in April and May. We estimate that there should be 27K units lost due to the production cut. However, we believe Toyota and Daihatsu should be able to make up for more than 50% of the lost production as they head into late 3Q-4Q. This is because market pent up demand will continue to rise and the auto manufacturing units are expected to adapt to overtime production shifts.

After Astra’s 6% correction over the past 2 two days, the counter is currently trading at 14.2x FY11F PE, 25% lower than its peak valuation from last year. As we approach June, we expect concerns over the production disruption to start to ease and raise sentiment for the sector.

As such, we maintain our positive stance on the counter with a Buy call and target price of Rp65,000.

PT Telkom (Neutral) - Chasing Singtel stake a distraction? - Macquarie

Event
§ The Indonesian Government (51% TLKM shareholder) has instructed TLKM's
management to assess purchasing Singtel's 35% stake in Telkomsel in a bid to
gain 100% control of Telkomsel separate from last week's AGM.

§ TLKM's proposed buyback was approved at its AGM for up to Rp5tr or 645m
shares (3.2% of outstanding shares) over a maximum period of 18 months, which we
estimate will be ~2% EPS accretive. Whilst the buyback is positive, we maintain
our Neutral call given TLKM's challenging outlook.

Impact
§ Assessing Singtel's Telkomsel stake potentially a distraction. We flag TLKM's
assessment of purchasing Singtel's stake in Telkomsel as a potential distraction
from the bigger picture of improving Telkomsel's underlying operational
performance. We note the key short-term benefit from purchasing Singtel's stake
would be to fast-track TLKM's tower restructuring plans which appear to have
stalled, whilst also improving its growth prospects through diluting the
contribution from its declining fixed line business with minimal execution risk
from an M&A perspective. We assign a probability of less than 50% for the
transaction being realised given Singtel's stated intention to retain its stake
and given Telkomsel's status as Indonesia's incumbent operator in a market with
strong long term growth potential.

§ Buyback ~2% EPS accretive, good use of cash reserves. TLKM's Rp5tr buyback
should be ~2% EPS accretive, also providing near term support to the share
price. The buyback represents 48% of TLKM's cash reserves, increasing its ND/E
from 18% as at 1Q11 to 29% assuming the full allocation is spent. Whilst we see
the buyback as a good use of TLKM's cash, we still prefer a higher dividend
payout ratio given its strong cash generating ability.

§ Outlook remains challenging. TLKM's outlook remains challenging given its
ongoing intention to aggressively defend market share through downward price
adjustments which in our view has accelerated market share declines as
highlighted in our note "Losing Voice" (18 May 2011).

Earnings and target price revision
§ No impact.

Price catalyst
§ 12-month price target: Rp 7,350 based on a DCF methodology.
§ Catalyst: 2Q11 results in July 2011

Action and recommendation
§ TLKM appears fully valued at 12.9x FY11E PER given its challenging outlook
reflected by limited near term earnings growth potential. We continue to prefer
XL Axiata ( EXCL IJ , Rp 6,500 , Outperform , TP: Rp 7,300 ) which in our view
offers stronger leverage to mobile internet relative to peers and benefits from
strength in execution.

TACTICAL SWITCH from ASII to ADRO - JP Morgan

A number of factors underpin this tactical switch recommendation by JPM sales desk: (1) MSCI rebalancing that could result in US$50mn plus buying flow in ADRO over the next few days, (2) Scope for short term trend reversal in Rp:USD (although I would highlight JPM global FX view of continued bearishness in USD vs global currencies, report attached), (3) Investors relative positioning in the two stocks, with ASII being well-owned and ADRO less-so, (4) Newsflow – the much increased scope for ADRO to win the 2000MW power project is new news, while we would struggle to identify the positive catalyst for ASII in the near term.

Reduce Astra International (ASII) – Aditya Srinath (analyst) has downgraded rating from O/W to Neutral. The stock has outperformed the JCI by 19% in the past month alone. The price may inadequately reflect two risks that could come back to haunt:

(1) Fuel subsidy cuts: Sales of unsubsidized fuel declined by 26% in March vs. Jan 2011, are down 38% y/y in 1QFY11. This raises the risk that action either to cut subsidies or limit subsidized fuel sales to private cars could come back into the reckoning in the next few months.

(2) Car taxes: We believe that the issue of taxes could also cloud the outlook before year-end and are concerned about the possibility that the Jakarta municipality (50% of Toyota sales) could seek to follow East Java in raising taxes from 10% to 15%, impacting demand.

The stock trades on 15x P/E FY11 based on JPM estimate, or 14.6x based on consensus.

Add Adaro Energi (ADRO) – Its consortium, composed of ADRO 34%, J-Power 35%, and Itochu 32%, becomes the only party that technically qualifies to provide the 2x1000MW power plant in Central Java, worth US$3.0-3.5bn. The three other parties involved in the tender process are consortiums from Marubeni Corp, China Shenhua Energy, and China National Technical Import and Export Corp. PLN’s CEO Mr. Dahlan Iskan expects to finalize the evaluation and announce the official winner by mid-June. The Investor Daily reporter speculates that the ADRO consortium has offered the electricity provision at US$0.06/kwh. My take – the winning should open up significant volume growth opportunities coming from ADRO’s low CV reserves the Wara coal. Prefer this name to the competing LT growth story from PTBA. ADRO guys simply move faster.

The stock trades on 16.7x P/E FY11 based on JPM estimate, or 15.0x based on consensus.

Is Indonesia the Next Brazil? - CNBC

Published: Monday, 23 May 2011 | 7:37 PM ET
By: CNBC.com

Indonesia’s low debt levels and strong growth potential has made the country a choice destination for investors, prompting financial firms like Deutsche Bank to compare the economy to Brazil’s in the 1990s.

"Indonesia's potential, if realized, could deliver Brazil-type returns for years to come," according to Deutsche's report released last week.

Indonesia has enjoyed an average growth rate of 5.7 percent between 2006 and 2010, and that figure is expected to stay around 6 percent this year. The growth trajectory has resembled that of Brazil's in the 1990s, Deutsche noted.

Already boasting among the lowest budget deficits in Southeast Asia, Indonesia is hoping to reduce it further in 2012 – to 1.4-1.6 percent of GDP from the current 2 percent – as it seeks to win approvals from rating agencies.

In February, Indonesia moved one step closer to an investment grade rating for the first time since the Asian financial crisis, when Fitch Ratings agency raised its outlook on the country's sovereign debt to positive from stable. Both Fitch and Moody’s ratings on Indonesia currently stand at just one notch below investment grade.

Apart from the low debt levels, Deutsche also lauded the country’s consumption power. With 232 million people, Indonesia is home to the world’s world's fourth largest population and the biggest in Southeast Asia.

"This is a population that wants to consume," said Tony Nash, Global Director of Custom Research at the Economist Intelligence Unit (EIU). He says consumption in the country has risen 4-and-a-half times in the last 10 years, with sales of cars rising 57 percent in 2010, and motorbikes up 26 percent.

And the consumption trend is likely to continue for awhile, according to Deutsche’s report.

"The absolute size of (its) working age population will continue rising for at least another 15 years," the bank observed, which will in turn improve Indonesia's productive and income generating capacity.

Since the Asian financial crisis in 1999, Indonesia has worked to restore macroeconomic stability. It has sufficient reserves cover; a low external debt exposure at 27 percent of GDP; and a public debt that is below 30 percent of GDP, among the lowest in the emerging markets.

Couple that with vast natural resource base it boasts, including iron ore and soybeans - it's perhaps easy to see why investors have been drawn to this market. Foreign direct investment was up over 30 percent last year, while the Indonesian equity market has been the best performing Asian market so far this year.

Deutsche cites the country's progress over the past decade in deepening roots with civil society and democratic institutions as a factor aiding investor sentiment.

But more needs to be done if it is to continue attracting investors.

"Inflexible labor markets are a big, big issue for foreign investors," EIU's Nash pointed out. Corruption, infrastructure bottlenecks and uncompetitive regulation are also issues that have continued to plague Indonesia.

"The key next step for Indonesia is institution building, and regulatory predictability," Nash concluded.

Goldman, Morgan Stanley Bullish on Commodities Boosting Oil Forecasts 20% - Bloomberg

Goldman Sachs Group Inc. (GS) and Morgan Stanley increased their forecasts for crude-oil prices by more than 20 percent, signaling a bullish outlook for commodities.

Goldman, which correctly advised investors to sell oil and copper last month before a price slump, boosted its 12-month prediction for Brent crude to $130 a barrel from $107, analysts led by Jeffrey Currie said today in a report. Morgan Stanley raised its estimate by 20 percent to an average $120 this year and by 24 percent to $130 in 2012.

While Goldman and Morgan Stanley join JPMorgan Chase & Co. in saying price declines may present a buying opportunity, interest-rate increases and the European debt crisis have raised concerns that global growth may slow. China, the world’s biggest consumer of everything from energy to copper and soybeans, has increased borrowing costs four times since mid-October to cool the fastest inflation since 2008.

“Economic growth will likely be sufficient to tighten key supply-constrained markets in the second half, leading to higher prices from current levels,” the Goldman analysts said. They also advised buying copper and zinc.

Brent advanced as much as 2.3 percent to $112.65 on ICE Futures Europe Exchange. Copper for delivery in three months climbed 0.8 percent to settle at $8,861 a metric ton on the London Metal Exchange.

Commodities Decline
The Standard & Poor’s GSCI index of 24 raw materials dropped about 10 percent through yesterday since New York-based Goldman told investors on April 11 to sell a basket of commodities including oil, copper and cotton. The gauge rose 1.2 percent today.

“We are substantially more confident when the market is focused on demand growth relative to forward supply constraints as opposed to near-term transient supply shocks,” Currie said today in a telephone interview in London.

Brent jumped 31 percent this year through April 11 amid concern that supplies from the Middle East would be disrupted as protests spread from Tunisia and Egypt. Rising oil prices may be “sowing the seeds of future demand destruction,”, the Paris- based International Energy Agency said on April 12.

Prices of metals and energy dropped “more in line with near-term fundamentals,” Goldman said. A sustained loss of Libyan crude production because of the conflict there and disappointing output from non-OPEC nations will tighten the oil market to critical levels in early 2012, the report said.

Gasoline Costs
A pullback in U.S. gasoline prices “makes us much more comfortable about demand as we go into the summer driving season that kicks off with the Memorial Day this weekend,” Currie said in the interview.

The Organization of Petroleum Exporting Countries will “very likely” raise production to make up for an estimated 1.5 million barrels a day shut in by Libya’s civil unrest, Morgan Stanley analysts led by New York-based Hussein Allidina and Chris Corda said today. The group has an estimated 2 million barrels a day that can be brought to the market quickly, the U.S. bank said.

“We see flat prices moving higher as spare capacity continues its fall to untenable levels,” the Morgan Stanley analysts said.

Sovereign debt in Europe, the contraction in Japan’s economy and the end of the second round of quantitative easing in the U.S. are among “potential triggers” for a loss of confidence that pose a risk to oil, Goldman said.

Net Longs Drop
Money managers reduced their net-long positions in U.S. commodity futures and options by 11 percent in the week ended May 17 to the lowest since July, according to data compiled by Bloomberg. They also reduced bullish bets on oil to a three- month low.

Yesterday, the MSCI All-Country World Index dropped 1.8 percent to the lowest in two months on signs that Europe’s credit crisis had deteriorated as costs to protect Greek debt from default surged to a record. Global manufacturing measured by a JPMorgan index slowed for two consecutive months and stood at 55 in April. A reading of 50 and above suggests expansion.

Oil and gold will lead a rally in raw materials as production fails to keep pace with demand, Ray Eyles, the chief executive officer of JPMorgan’s Asia commodity business, said in an interview last week. Oil supplies will trail consumption in the second half as OPEC and other producers won’t increase output fast enough, the bank said in a report on May 6.

Copper has declined 13 percent from a record $10,190 a ton on Feb. 15. Goldman analysts recommended buying futures for June 2012 delivery.

The bank also favors zinc for delivery in December 2012, forecasting demand to outpace supply next year. The metal, used in production of galvanized steel, has dropped 11 percent this year.

“Although we do not see the zinc balance as tight as copper next year, given how low current prices are relative to industry economics, we believe that zinc price risk is substantially skewed to the upside,” according to the report.

To contact the reporter on this story: Chanyaporn Chanjaroen in London

Wall Street retreats again on growth concerns - Reuters

(Reuters) - U.S. stocks dipped in light volume on Tuesday as lingering concerns about a slowdown in growth more than offset gains in energy shares.

Investors kept trimming large-cap technology positions, pushing the tech-heavy Nasdaq Composite lower.

The S&P's energy sector index .GSPE rose 1.3 percent, while its industrials index .GSPI slipped 0.6 percent, sending the market down for a second day. Sectors associated with cyclical growth have suffered recently, with industrials down more than 5 percent so far this month.

"I don't see any strong positive momentum," said Kim Caughey Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

The S&P 500 closed at its lowest level in over a month and ended below its 50-day moving average for a second straight day. The 50-day MA, now at 1,324.59, could turn into a hurdle for the benchmark to reestablish a strong uptrend.

Occidental Petroleum (OXY.N), rose 3.6 percent to $102.50, while Joy Global (JOYG.O) fell 1.8 percent to $85.96.

Following much weaker-than-expected New York and Philadelphia Fed manufacturing surveys last week, the Richmond Fed survey showed on Tuesday that manufacturing in the central Atlantic region stalled in May after expanding for seven months.

"We don't really have jobs strengthening. We have the economic indicators getting softer and we're heading into the summer," Forrest said.

Energy shares were helped by a near 2 percent rise in U.S. and Brent crude futures. Oil rallied after Goldman Sachs raised its forecast price for the commodity and as the euro erased some of the previous day's losses.

The Dow Jones industrial average .DJI lost 25.05 points, or 0.20 percent, to 12,356.21. The Standard & Poor's 500 Index .SPX dropped 1.09 points, or 0.08 percent, to 1,316.28. The Nasdaq Composite Index .IXIC fell 12.74 points, or 0.46 percent, to 2,746.16.

Gold miners' stocks advanced as bullion rose to its highest in about three weeks on concerns about a spreading debt crisis in the euro zone.

Freeport-McMoRan Copper & Gold Inc (FCX.N) gained 3 percent to $48.82.

Volume was light, with roughly 6.6 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below last year's estimated daily average of 8.47 billion.

Decliners outnumbered advancers on the NYSE by a ratio of about 8 to 7, while on the Nasdaq, about eight stocks fell for every five that rose.

Shares of Russian Internet company Yandex NV (YNDX.O) surged as much as 68 percent in their debut to a session peak at $42.01, in the largest U.S. initial public offering in the Internet sector since Google Inc (GOOG.O).

Yandex raised $1.3 billion in its IPO on Monday by selling 52.2 million shares for $25 each. The offering valued the company at about $8 billion.

Yandex shares closed at $38.84 -- up 55.4 percent.

The U.S. Treasury is expected to sell 15 percent of its stake in American International Group Inc (AIG.N) when the insurer prices its stock offering later on Tuesday. AIG ended down 1.7 percent at $29.46.

(Reporting by Rodrigo Campos)

IHSG jeda siang turun tipis 0,18% dipimpin Astra - Bisnis

JAKARTA: IHSG sesi I ditutup turun tipis 6,98 poin atau 0,18% ke posisi 3.771,47 saat jeda siang ini dari level penutupan kemarin di 3.778,45.

Indeks harga saham gabungan bergerak pada rentang 3.767,88 - 3.785,75.

Dari 425 saham perusahaan yang menopang indeks, sebanyak 117 di antaranya menguat, 76 lainnya tertekan dan 232 sisanya belum bergerak.

Sejumlah saham yang memotori penurunan indeks dengan mengontribusi negatif adalah Astra International sebesar 5,49 poin, lalu Bank Rakyat Indonesia 1,44 poin, Bank Mandiri 1,36 poin, dan Bank Negara Indoesia 1,09 poin.

Saham-saham yang menahan laju penurunan indeks lebih dalam dengan memberi kontribusi positif adalah Sinar Mas Multi sebesar 2,20 poin, lalu Indo Tambangraya 0,80 poin, Perusahaan Gas Negara 0,71 poin, dan Borneo Lumbung 0,63 poin.

Sebanyak empat dari sembilan indeks sektoral yang ada di BEI memberikan kontribusi negatif dipimpin oleh sektor aneka industri sebesar 84,86%, lalu consumer goods 23,23%, finansial 12,56%, industri dasar dan kimia 5,49%.

Indeks BISNIS-27 ditutup turun 1,72 poin atau 0,52% ke posisi 326,45 siang ini. BISNIS-27 bergerak di kisaran 326,01 - 328,16.(er)

Bukit Makmur vs Pama in 4M output - Insider Stories

Indonesia's second largest coal mining contractor PT Delta Dunia Makmur Tbk (DOID), parent of PT Bukit Makmur Mandiri Utama (BUMA) posted a 20.2% increase and 1.9% drop in overburden removal and coal output during the first 4 months of this year (4M 2011).

Delta Dunia recorded 100.6 million bank cubic meter (bcm) of overburden removal and 10.5 million tons of coal output in 4M 2011, said a note distributed by Mandiri Sekuritas today.

Delta Dunia's OB removal and coal output in April grew 8.7% and 1.5% to 25.4 million bcm and 2.7 million tons.

PT Pamapersada Nusantara, Indonesia's largest coal mining contractor and owned by PT United Tractors Tbk (UNTR), recorded 227.7 million bank cubic meter (bcm), a 11% growth from 205.1 million bcm a year earlier.

Coal production slightly increased 2.8% to 25.4 million tons from 24.7 million tons. United Tractors's coal miner units sold 1.42 million tons of coal, a 51.2% jump from 939,000 tons.

ISAT dan BTPN akan Bayar Obligasi Jatuh Tempo - Inilah.com

PT Indosat Tbk (ISAT) bermaksud untuk melakukan pembayaran bunga ke 24 dan Pelunasan Pokok atas obligasi Indosat IV Tahun 2005 dengan tingkat bunga 12%.

Demikian dikutip dari keterangan perseroan yang terbitkan, Selasa (24/5). Pembayaran bunga Obligasi dan pelunasan pokok Obligasi tersebut akan dilaksanakan pada tanggal 21 Juni 2011.

Hal yang sama juga dilakukan PT Bank Tabungan Pensiunan Nasional Tbk (BTPN) yang akan melakukan pembayaran bunga obligasi ke-2 atas obligasi Bank BTPN III Tahun 2010 Seri A, dan Seri B dengan tingkat bunga 8.75% dan 9.2%. Perseroan menyebutkan bahwa pembayaran bunga obligasi tersebut akan dilaksanakan pada tanggal 22 Juni 2011.

LPKR telah menyetujui penambahan saham di Lippo Mapletree Indonesia Retail Trust (LMIRT) - Britama

Lippo Karawaci (LPKR) menyetujui untuk menambah kepemilikan di Lippo-Mapletree Indonesia Retail Trust (LMIRT) yang tercatat di Bursa Efek Singapura menjadi sebesar 29,5%.

Serta tambahan 40% kepemilikan Lippo Mapletree Indonesia Retail Trust Management Ltd (LMIRT Mgt), manajer dari LMIRT senilai USD 165 juta. Perjanjian mengenai tambahan kepemilikan LPKR sebesar 9,02% telah ditandatangani melalui anak perusahaan yang dimiliki seluruhnya oleh LPKR dengan Mapletree LM Pte. Ltd. dan Mapletree Capital Management Pte. Ltd., untuk mengakuisisi masing-masing 97.853.918 unit LMIRT dan 40% LMIRT Mgt. Akuisisi ini diperkirakan akan selesai dalam 21 hari kerja sejak ditandatangani.

PTPP berencana menginvestasikan senilai Rp 1,5 Triliun untuk 3 pembangkit listrik - Britama

Pembangunan Perumahan (PTPP) mengincar investasi di 3 pembangkit listrik senilai Rp 1,5 triliun. Ke-3 PLTP tersebut meliputi 2 pembangkit listrik panas bumi (PLTP) hidro di Medan masing-masing berkapasitas 1X10,45 MW senilai Rp 250 miliar. Satu lagi PLTP di Jawa sebesar 1X40 MW senilai Rp 1 triliun. Tahun ini, perseroan menargetkan total investasi Rp 6,6 triliun dan alokasi terbesar untuk pembangkit listrik. Dari investasi tersebut, PTPP menargetkan bisa meraih laba Rp 200 miliar.

UNTR 4M Komatsu sales rises 76.5% - Insider Stories

Distributor of Komatsu heavy equipment PT United Tractors Tbk (UNTR) reported a 76.5% increase in Komatsu sales as during the first four months of this year (4M 2011).

United Tractors sold 2,974 units of the equipment in 4M 2011 from 1,685 units a year earlier, said a morning note distributed by Mandiri Sekuritas today.
"The 4M11 Komatsu sales volume exceed our forecast and market forecast. 4M11 komatsu sales volume represents 42.5% of our FY11F assumption of 7,000 unit and 49.6% of market FY11F assumption of 6,000 unit," the note said.

United Tractors, via its wholly owned subsidiary PT Pamapersada Nusantara, Indonesia's largest coal mining contractor, recorded 227.7 million bank cubic meter (bcm), a 11% growth from 205.1 million bcm a year earlier.
Coal production slightly increased 2.8% to 25.4 million tons from 24.7 million tons. United Tractors's coal miner units sold 1.42 million tons of coal, a 51.2% jump from 939,000 tons.

"The 4M11 overburden removal is inline with our FY11F, which represents 31.3% of our FY11F of 727 million bcm. The coal production is inline with our FY11F, which represents 30.6% of our FY11F of 30.6 million tons," the note said.
For coal mining business, the 4M11 coal sales exceed Mandiri Sekuritas' FY11F, which represents 47.3% of FY11F of 3 million tons.

BNI Bagikan Dividen 30 Persen dari Laba - Kompas

Rapat Umum Pemegang Saham (RUPS) PT Bank Negara Indonesia (Persero) Tbk menetapkan laba bersih perseroan tahun buku 2010 sebesar Rp 4,1 triliun. Sebanyak 30 persen dari laba tersebut akan dibagikan sebagai dividen.

"Dividen senilai Rp 1,23 triliun ini akan dibagikan dalam bentuk tunai kepada sekitar 18 miliar saham, atau senilai Rp 65,98 per lembar sahamnya," sebut Putu B Kresna, Corporate Secretary BNI, dalam rilis yang diterima Kompas.com, Rabu (18/5/2011).

Selain itu, 10 persen dari laba, atau senilai Rp 410,17 miliar, akan digunakan untuk cadangan wajib dalam rangka memenuhi ketentuan Pasal 70 Ayat 1 UU Nomor 40 Tahun 2007 tentang Perseroan Terbatas.

Sementara dana sebesar Rp 387,85 miliar dari laba bersih (9,46 persen) akan digunakan sebagai laba ditahan.

BNI pun tidak luput memberikan bagian sebesar 3 persen dari laba tersebut, atau senilai Rp 123,05 miliar untuk Program Bina Lingkungan. Sementara untuk program kemitraan akan mendapatkan dana sebesar Rp 41 miliar.

Sementara itu, RUPS juga menyetujui perubahan anggaran dasar perseroan, yaitu mengenai ketentuan penjualan saham dalam simpanan, yaitu saham dalam portepel, perusahaan anak perseroan, baik sebagian maupun seluruhnya kepada pihak lain, yang menyebabkan kepemilikan perseroan pada perusahaan anak perseroan terdilusi harus mendapat persetujuan tertulis dari Dewan Komisaris.

Selain itu, rapat pun menyetujui penghapusan ketentuan Dewan Pengawas Syariah sebagai konsekuensi spin-off Usaha Syariah menjadi PT BNI Syariah.

P&G plans to invest $100 million in Indonesia oleochemicals - Reuters

Procter & Gamble Co (P&G) (PG.N) will invest $100 million in the oleochemical sector in Indonesia, the country's industry minister MS Hidayat said on Monday.

"P&G is anticipating the need for 200,000 tonnes of fatty alcohol in the coming ten years from Indonesia," Hidayat said following a meeting with P&G officials at his office.

"To meet the need they are preparing at least $100 million to set up a joint venture with the local partner in the sector," Hidayat added.

High commodity prices and government efforts to boost downstream industries have started to attract investment in Indonesia over the past year.

Indonesia plans to offer fiscal incentives and restructure its export tax policy on crude palm oil, after it steadily hiked the tax to 25 percent in February from just 3 percent a year ago, to do more to spur downstream processing in the country.

The country is still reliant on exports of raw materials, and is aiming to move up the value chain. Agriculture companies are looking to take advantage of growing wealth within Southeast Asia's biggest economy.

Indonesia's economy grew by 6.5 percent in the first quarter of 2011 from a year earlier, data showed in early May, due in part to strong domestic consumption.

Analis: ITMG Direkomendasikan Beli - TopSaham

PT Indo Tambangraya Megah Tbk (ITMG) mengumumkan membukukan kinerja yang positif dalam kuartal pertama tahun 2011.

Pendapatan bersih perusahaan dalam kuartal pertama ini tercatat US$95 juta atau naik 42% dari US$67 juta pada periode yang sama tahun sebelumnya. Peningkatan pendapatan bersih ini disebabkan oleh penjualan bersih yang naik 16% menjadi US$468 juta dari US$403 juta di kurun waktu yang sama tahu lalu yang utamanya karena harga rata-rata jual batubara yang lebih tinggi 31%, yaitu US$87,3 per ton pada kuartal pertama tahun ini dibandingkan dengan US$66,6 per ton pada periode yang sama tahun lalu.

Analis Kim Eng Securities Ricardo Silaen Selasa (24/5) merekomendasikan buy untuk saham perseroan dengan target Rp 62.500. Ini berdasarkan rasio price to earning (PE) 2011-2012 sebesar 13-18 kali.

Kenaikan penjualan bersih yang signifikan juga mengatasi peningkatan biaya produksi dan bahan bakar sehingga pendapatan sebelum bunga dan pajak (EBIT) naik sebesar 26% dari US$93 juta menjadi US$ 117 juta.

Adapun volume penjualan batubara dalam periode ini tercatat 5,5 juta ton yang dikapalkan ke Jepang (1,5 juta ton), China (1,2 juta ton), India (0,6 juta ton),Thailand (0,5 juta ton), Italia (0,5 juta ton), Korea Selatan (0,3 juta ton), Philipina (0,3 juta ton), Taiwan (0,3 juta ton), Hongkong (0,1 juta ton), dan Indonesia (0,1 juta ton). (*/ans)

Indonesia Palm Oil Sector - Presidential decree on two-year moratorium of new forestry permits - Credit Suisse

● The Indonesian government issued a new presidential decree on the two-year moratorium of new permits for primary forest and peat lands, which will postpone the issuance of new forestry permits for primary forests and peat lands, as well as postpone the new issuances of land cultivation rights (HGU) and land use rights (“Hak pakai”) in non-forestry areas.
● We foresee that the two-year moratorium will have minimal impact on Indonesia plantation companies’ CPO output, as most major plantations have sufficient land bank to plant for the next year or two, and larger plantation companies may take over and rehabilitate the defaulting plantation.
● We foresee the risk of downward trend in CPO price onwards due to high CPO supply growth this year, both in Malaysia and Indonesia.
● We maintain our Neutral ratings on AALI, LSIP, SGRO and IFAR, as we remain cautious on the downside risk of CPO price trends ahead.

Markets / Cement Sector / Mining Sector / BMRI / Jaya Agra / Picture of the Day (update3) - Credit Suisse

3) Local News: Mining Sector / BMRI / Jaya Agra Wattie
Please note that the items below are taken directly from local newspapers. Hence, Credit Suisse does not guarantee the accuracy of the stories.

Indonesia Mining Sector: Government to Audit 8,000 Mining Permits
Subsequent to the regulations on forestry-permit moratorium and underground mining activities, Indonesia will audit over 8,000 mining permits to ensure their compliance with the mining and environmental laws. Finance Minister, Agus Martowardojo added that there are many overlapping permits, which needs to be sorted out. However, it is still unclear if the audit results will lead to any permit cancellations.

Sales commentary: The audit would benefit large mining companies, which are more likely to be properly licensed, in our view. The audit could also result in the cracking down of small/illegal miners, who are also typically not environmental friendly, and this should exert positive impact on the sector as production would be better monitored. In the mining sector, we continue to like the coal names: Borneo Lumbung Energi (BORN, O, PT Rp2,000), Indo Tambangraya Megah (ITMG, O, PT Rp57,000), PT Bukit Asam (PTBA, O, PT Rp26,500) and Indika Energy (INDY, O, PT Rp5,400).

Bank Mandiri (BMRI, O, PT Rp8,950): Rp120/share final dividend
BMRI 2010 DPR is set at 35%, where the final dividend stands at Rp120/share (yield = 1.7%). In the AGM , BMRI reappointed Budi G. Sadikin (micro banking) and Sentot A. Sentausa (risk management) as managing directors and appointed Royke Tumilaar as managing director to replace Thomas Arifin (treasurer). BMRI is also approved to acquire 60% stake in general insurance company, PT Asuransi Dharma Bangsa. Meanwhile, BMRI is also studying to expand its operations into Malaysia by acquiring a small-to-mid-sized bank with retail or consumer banking focus.

Sales commentary: We like BMRI on its strong management and strong execution ability. BMRI is targeting to strengthen its positioning as a financial powerhouse in the Indonesian banking sector and be included in the top five banking companies in the region in the medium-term.

Jaya Agra Wattie (Not Listed): Rp500/share IPO Price
Diversified plantation company, Jaya Agra Wattie (JAW) plans to list on the IDX on May 30, 2011. In the IPO, JAW raised Rp566 bn (US$66 mn) from the sale of 1.13 bn shares (30% stake) at Rp500/share. The IPO proceeds will be used for: 1) rubber and CPO planting and development of processing facilities (90% of the proceeds); and 2) land acquisitions, working capital and capex.

Sales commentary: We notice that Hadi Surya, the Chairman and CEO of Berlian Laju Tanker (BLTA, Not Rated), sits in the management board of Jaya Agra Wattie. BLTA had also recently floated its freight transportation subsidiary, Buana Listya Tama (BULL, Not Rated).

Markets / Cement Sector / Mining Sector / BMRI / Jaya Agra / Picture of the Day (update2) - Credit Suisse

2) Indonesia Cement Sector: Awaiting the Land Reform Bill
Sales commentary: While the momentum to pass the land reform bill is positive, we should not, unfortunately, rule out the possibility of a delay in the timely passing of the bill in 2H11. Fortunately, we can still expect Indonesia 2011 cement consumption volume growth at 6.0-6.5% (in-line with targeted GDP growth this year) as the base-case, which is decent. At the company level, we agree with Ella to go long on Semen Gresik (SMGR, O, PT Rp11,000), as we reckon SMGR’s 27% (5.0 mn tpa) capacity expansion (82% completed in mid-May 2011) is yet fully reflected on the stock price.

· The Finance Ministry is confident that the land reform bill will be passed in 2H11.
· If passed, the long awaited bill is expected to accelerate land clearing process, by clearly delineating the procedure to resolve any problems pertaining to the process – especially on the value of the land and compensation to land owners.
· Ella Nusantoro believes that the timely passing of the bill would be positive for the cement sector amid robust execution in infrastructure investments starting in 2012.
· Ella maintains her Overweight rating on the sector, with SMGR as the sector’s top pick.

Markets / Cement Sector / Mining Sector / BMRI / Jaya Agra / Picture of the Day (update1) - Credit Suisse

Highlights of the Day

1. Markets: Review and Outlook
2. Indonesia Cement Sector: Awaiting the Land Reform Bill
3. Local News: Mining Sector / BMRI / Jaya Agra Wattie
4. Picture of the Day: Honda Spacy – Launched in Early May 2011

1) Markets: Review and Outlook

Equities: The JCI opened the week with 2.4% correction to 3778 on Monday, weighed by across the board, heavy profit-taking following its new all-time high last week. Turnover was decent at US$630 mn, mostly driven by selling activities in the afternoon session. Follow through selling, weak regional markets open and renewed concerns over EU sovereign credit crisis would likely continue to weigh on the JCI today.

Fixed Income: The bond market was weak yesterday with yields up by 10bps, largely driven by anxieties over the EU credit crisis. Similarly, the NDS (Non-Deliverable Cross Currency Swap) was higher by 25 bps, amid the unwinding of the structured notes in the market. The government stated that it is allocating Rp3.0 tn (US$ 350 mn) for bond buyback in times of crisis, which should be a confidence booster for the market. Benchmark 10-year government bond yield stood at 7.47%.

Currency: The rupiah ended lower at 8593 against the greenback, in-line with the sell-offs in Indonesia ’s bond and equities markets.

Coal:Looming power shortage - Mandiri

Power blackout due to price controls and drop in hydropower generation due to drought in China have impinged energy supplies in coastal areas with stockpiles holding period around 4-5 days. The provinces in Jiangsu, Zhejiang, Fujian and Anhui are expected to face combined power shortage up to 19mn kilowatts (China Daily) or equivalent to around 60Mt coal (assuming 75% represented by coal fired powerplant). China has experienced power deficits in the past during summer in July-August as the increase usage of air-conditioners. Looming power shortage have increased the power station coal prices locally up to 840 yuan (US$130) and it is positive for China’s coal imports. While power crisis in Japan, we only see immediate hike in oil import vs moderate increase in coal import learning from the Niigata Chuetsu earthquake that led the Kashiwazaki-Kariwa nuclear outage in July 2007 (please see ex. 6). Japan’s coal imports rose by 12.6Mt (±8%) on average in 12 months after the event, remain positive in long term. China and Japan in total contributed 55% for Indonesia’s FY10 coal export.

Indonesian coal remain as the proxy. We believe amid looming power shortage in China and Japan, Indonesia would be the best option for coal supply the lower freight days than buying from other countries like Australia and South Africa, when inventory days in China and Japan power stations have been critical issue. The expected rebound in baltic freight index might support this issue as well.

The future of Indonesia-Japan coal partnership. Indonesia and Japan are discussing the development of mega-float projec. The technology was developed by Japan Inc. Japan Coal Energy Center (J-coal) is reported to complete the study by 2H12. Mitsubishi Heavy Industries Ltd and Nippon Steel Corp are likely to be the suppliers. The floats, 600 x 150 metres, is expected to be able to accommodate two Panamax ships and stockpile of 600k tons. The project is expected to worth ¥100bn and will enable speedier transfer of the fuel from barges to bigger ships in 2014. We believe once it is completed, there should be an off take agreement to secure coal supply.

BUMI, HRUM and ITMG will be the beneficiaries. Among coal producers under our coverage, BUMI and HRUM have similar exposure to China market which contributed around 26%, while ITMG about 23%. In 2010 Japanese market contributed around 15%-20% to BUMI, HRUM and ITMG, considerably higher than peers. Pricing strategy is also playing important role amid to hedge against rising fuel prices currently. In this account, we see BUMI and HRUM’s 1Q11’s ASP looks relatively attractive than peers.

HRUM, INDY and ITMG traded at single digit PER12F. Some of our coal picks have been traded fairly this year. If we roll into 2012 valuation, HRUM, INDY and ITMG are traded at the most attractive valuation in our coal coverage at single digit PER12F.

Indofood Sukses Makmur - SIMP IPO: capital raising or transfer? - MACQUARIE RESEARCH

Event
§ Indofood Agri (IFAR SP, Not Rated), which is 58.2%-owned by INDF, has announced the outcome of its SIMP IPO book-build process, including that it has agreed to sell 3,163m new SIMP shares (representing 20% of SIMP's expanded shares on issue) at a price of Rp1,100/share. The offer will therefore raise Rp3,480bn (cUS$400) and capitalise SIMP at Rp17,398bn. The IPO is currently expected to take place on 9 June 2011.

Impact
§ A straight value transfer from IFAR holders to new SIMP holders: We are extremely disappointed with the terms of this transaction, which we estimate will succeed in unnecessarily transferring S$224m of value from existing IFAR shareholders to new SIMP shareholders (amounting to S$0.156 per IFAR share, or 8%) – an outcome about which most IFAR shareholders will quite rightly feel aggrieved. As a 58.2% shareholder in IFAR, and also direct owner of an additional 8.4% of SIMP, INDF will also be impacted, with the estimated value destruction to INDF shareholders estimated at Rp120/share (c2%).
§ Implied capital raising price is S$1.26/share (a 38% discount): The key issue is that all of IFAR's operating and financial interests are held through its 90% shareholding in SIMP (which will be diluted to 72% post-offer). In economic substance, the “IPO” therefore amounts to little more than an IFAR placement. We highlight that the SIMP IPO price is the equivalent of a S$1.26/share IFAR placement price – a 38% discount to IFAR's previous close of S$2.04 (IFAR's share price fell 16% to S$1.72 in Monday's trading).
§ While the capital raised may add some offsetting value over time if it is invested wisely, the capital could also have been procured via a direct IFAR placement at a much lesser discount, or via a rights issue that allowed existing shareholders to avoid being forced to except substantial dilution.

Earnings and target price revision
§ FY11E EPS downgraded by 12%, due to incorporation of our recently downgraded ICBP estimates, as well as INDF's weak 1Q11A result. We are yet to incorporate the dilutionary impact of the SIMP IPO. Price target lowered to Rp5,100 from Rp5,300, in line with our updated M2M NAV.

Price catalyst
§ 12-month price target: Rp 5,100 based on a RNAV methodology.
§ Catalyst: SIMP IPO (currently scheduled for 9 June 2011).

Action and recommendation
§ Neutral maintained: We have previously been calling INDF as a trading sell in the lead-up to the SIMP IPO (see our note An opportunity to lighten, 10 May 2011), with a Rp5,000–5,500 price target range. However, as we believe that the SIMP IPO has been materially underpriced, and will therefore likely perform strongly post IPO, we suggest investors cover their INDF trading short in the low Rp5,000s. However, we also flag that this transaction could contribute to the emergence of a “corporate governance discount” over time.

BTPN (BTPN IJ), Micro Masters, initiate with BUY by Bret Ginesky - Tp4,000 - CLSA

This is entrepreneurial spirit at its best in Indonesia. Management led by Jerry Ng (Brainchild behind Danamon DSP business) joined BTPN in 2008 and in a few short years have built the second most profitable bank in Asia in terms of ROA. This 100% consumer focused lending franchise manages to achieve a staggering 13%+ NIM, its book valued increased over 50% CARG since the bank reinvented themselves with new mgmt. With its massive underpenetrated consumer lending market, we forecast book value still to grow CARG 40% next three years. It will be hard to find a bank that can create value like this one anywhere in world.

Most profitable ROA Bank in Asia ex Japan: Higher yielding assets, cost to income (CIR) improvement and limited NPL’s should offset funding cost headwinds and establish BTPN as the most profitable (ROA) bank in Asia in2011.

Historical precedence: BTPN’s management team developed and implemented Danamon’s urban microfinance platform (DSP). We believe this team consisting of ex-Danamon execs will enhance the microfinance business while adding bolt on acquisitions. BTPN’s highly-profitable niche pension lending business (80% of loans) will remain the primary earnings driver for the coming years.

Challenges Remain: A weak funding franchise (CASA 12%) and lack of share price liquidity are the primary risks to BTPN’s growth trajectory. While CIR improvements will boost near term earnings, over the long term this will prove a challenge as micro, pension and funding branches can not be integrated, thereby driving higher costs than peers.

Attractive Valuation: Shares trade at 3.0x /12.7x 11CL PBV / PE a premium of 13% and discount of 4% to peers with forecasted net profit growth of 41% CAGR from 2009 through 12CL and the.

Our fair value of Rp4,000 implies a 3.2x / 14.7x PBV / PE for 12CL, and a 5.65% PPOP ROA in line with high ROA Indo peers.

BORN Not a bullish takeaway, but still within target - BOAML

Having met management at our 2011 Asian Stars Conference in Singapore, these are some of our takeaways.

Volume ramp-up slower than expected
BORN is still guiding for 3.6mt coal production/sales for 2011, though output in May was only 285,000t (vs. 0.532mt in 1Q). BORN claimed this was mainly due to sub-optimal mine site productivity (e.g., equipment utilization not at full capacity), and not barging issue. Our FY sales estimate of 3.24mt still looks achievable.

Coking coal prices seen trending down
BORN expects prices to trend down in 2H (consistent with our view) as more Queensland coal hits the market. We understand it has not made any sales to China in 1Q. It believes it can return to China if its price acceptance level improves (still no more than US$240/t). It guided for full-year ASP at US$220-240/t, which looks very conservative given 2Q saw ASPs settled at US$250-300/t.

We maintain our full-year estimate of US$260/t.
9-12% discount because of slightly higher VM and lower CSR While BORN products can be considered premium HCC, its Coke Strength after Reaction (CSR; ie, strength of coke while hot) is relatively low end at 60% (industry average 65%). Its Volatile Matter (the amount of material liberated at elevated temperatures) is mid-range at 26.5% (on average coke feeds seek to achieve 24% VM). BORN now gets a 9-12% discount to the index price for its coal, a much wider discounts amid rising prices – when index price was US$225/t, BORN’s was US$221/t; but when the index was US$330/t, its ASP was US$300/t.

Perhaps it was driven by buyers’ higher bargaining power or BORN’s relatively new products (commercial production only about 2 years). But we don’t think the 9-12% discount will stick when coal price potentially drop to US$200/t in 2012.

Retaining our NPV-derived PO of Rp1,750
The stock already trades at 11% discount to our NPV-derived PO. Given falling coking coal prices, while it is difficult for the stock to outperform, we see limited downside in share price. We reiterate our Buy and PO of Rp1,750.

Hold SMRA, TP: Rp1,130, Share Price: 1,090, Upside:3.7% - UOBKH

2011 Marketing sales may grow by 15% YoY to Rp2.5tn
Next catalyst includes the finishing of Summarecon Mall part 2, Summarecon Mall Bekasi and Office Tower
As of 5M11, SMRA has registered Rp740bn in marketing sales.
Expansion in Bandung is on its way. The company is in process of acquiring total of 300ha of land in Gedebage, near Braga area. So far have acquired 100ha during the process.
Earnings revision on FY11 net profit, reduced by 15% to Rp290bn considering higher debt from bank loans.
Current share price is only at 32% discount to our RNAV of RP1,613/share. 2011F P/B is high at 3.1x vs peers'2.5x.

Indonesia Daily Focus: Still bullish on JCI amid the madness. Maintain HOLD on SMRA, trading buy on dips - UOBKH

'Twas a bloody Monday too in the US, as lack of major news and earnings report in the US brings investors to focus on Europe's turmoil and reflecting it on the market. It does seem like the debt issue is becoming deeper and extended than we initially thought it would, creating new concerns globally.

China's lower PMI data also did not fail to contribute to all the negativity in the market. Should we be on the lookout for China's slowdown too? Nouriel Roubini, “Dr. Doom”, noted for his 2008 crash forecast, is on the lookout for China's hard landing, most likely after 2013. He notes that China is now awash with excessive supply of money, infrastructure and property – a lot of ghost town of residential development and smelters closed to prevent global prices from plunging.

Our analyst, Mark Po, thinks its time for us to take a look back and review on the China cement sector, as it was one of the best performers YTD, outpacing the HSIndex (CNBM by 58.6% and Anhui by 27.2%). Hence might be a target of profit taking in the near term considering there is a slow down in number of new projects in 1Q11, down -9.4% YoY, and weaker sentiments from the likely continued China's tightening measures.

On a lighter note, we are still bullish on HK retail sector, as more retailers are planning to do IPO within 2011-2012, with the newest addition Chow Tai Fook on its plan to raise US$3-4bn by 1Q12. Which will increase attractiveness to this jewelry sector.

Meanwhile, I expect the JCI to be trading sideways for this week. Though foreign investors were net sell on Monday trading, I believe domestic players will bottom fish today, on the lookout to buy big cap names on dips, as yesterday's drop provides a good opportunity to accumulate on selective names. Mid to long term view on Indonesia is still bullish.

Bank Mandiri: Hold; Rp7,100; TP Rp7,100; BMRI IJ Declares 35% dividend payout and proposes to acquire a general insurance business - DBS Vickers

In BMRI’s AGM yesterday, shareholders approved a 35% dividend payout (amounting to Rp3.2trn) or Rp138.27 per share. This is inline with our estimates. The dividend payout is higher than BBRI’s 20% dividend payout and BBTN’s 30% dividend payout. However, we believe BMRI’s 35% dividend payout is reasonable given its stronger capital position post rights. BMRI completed its rights issue back in Feb-11 which raised up to Rp11.7trn and improved its total CAR to 18% post rights. BBNI has yet to finalise its dividend payout, pending its AGM on 27 May.

Separately, BMRI’s shareholders gave their approval for the management to acquire general insurer PT Asuransi Dharma Bangsa (ADB). Currently, the insurer is jointly-owned by Dana Pensiun Bank Mandiri I and PT Estika Yasakelola. After securing the shareholders’ approval, BMRI plans to get permissions from local authorities, including Bank Indonesia and Bapepam. The acquisition will be completed by 3Q11.

In March, Bank Mandiri and French insurance company, AXA S.A had signed an agreement to buy stakes at ADB. The agreement mentioned that BMRI will purchase 120,000 shares of the 126,718 new shares issued by ADB, while AXA S.A. will purchase the current 73,282 existing shares and the remaining 6,718 new shares. Upon the completion of this transaction, BMRI will become majority shareholder with 60% shareholding and AXA will hold the remainder 40% stake. With this acquisition, BMRI should be able to gain market share in the insurance business, as insurance penetration in Indonesia is still relatively low. This would also complement BMRI’s financial services portfolio, functioning as a universal bank.

No change in our recommendation – Hold, TP Rp7,100. BMRI is likely to face NIM pressure in the near term after re-pricing its variable rate government bonds. While it appears challenging to achieve its 5.3% NIM target, in our opinion, BMRI stated that they will continue to leverage on its transactional banking platform and business banking base (to gather more CASA) to keep cost of funds low as well as leverage on its growth for higher yielding loans (micro and consumer). BMRI could also gear up its loan-to-deposit ratio, which currently stands at 70% from the excess liquidity it carries in its balance sheet. BMRI could be re-rated if the government passes regulations to allow state-owned banks the liberty and flexibility to undertake bad debts cuts on state-owned enterprise loans and the amendment to the land acquisition bill. These proposals are pending Parliamentary approval.

Lippo Karawaci - Largest healthcare play - Bahana

2011-12 healthcare revenue to grow 32-34%
With the listing of Sejahteraraya Anugrahjaya (SRAJ–NOT RATED-IDR470), Lippo Karawaci (LPKR) is no longer the only healthcare play in the market. However, LPKR remains as the biggest healthcare play in Indonesia given SRAJ’s 1Q11 revenue of just IDR41b, compared to LPKR’s 1Q11 healthcare revenue of IDR288b, up 17% y-y and accounting for nearly 33% of the company’s total revenue, helped by the opening of Siloam-Jambi in February 2011, its fifth hospital. For the rest of this year, LPKR will add 2 new hospitals (MRCCC-Jakarta and Balikpapan), before adding 2 more hospitals in Tangerang and Makassar in 2012. We estimate 2011 healthcare revenue to reach nearly IDR1.4t, up 32% y-y with 2012 revenue growth rising to 34% y-y to IDR1.8t, supported in part by growing healthcare needs coupled with continued limited healthcare facilities.

3-5% earnings upgrades in 2011-12; Raised to BUY
As we learned more about LPKR’s plans, we have raised our 2012 revenue projection to IDR4.6t stemming from higher healthcare contribution on earlier hospital openings. Additionally, LPKR will benefit from more revenue recognition from St. Moritz apartments (hand-over schedule early 2012). Despite 2011-12 y-y revenue growth of 19-26%, we estimate 2011-12 lower bottom line growth of 15-16% to IDR602-689b on higher COGS and opex to support sales. However, with minimal impact on 2011-12 bottom line growth (i.e. 3-5% higher; exhibit 6), we retain our TP at IDR800, based on 30% discount to NAV per share of IDR1,145. Note that our 16% higher NAV to IDR29.2t from more construction progress, growing healthcare business and higher land selling prices have been offset by higher net debt position, advances from customers and increased shares post the non pre-emptive rights. However, as LPKR’s share price has underperformed the market by 13.9% in the past month (exhibit 5), we now upgrade to BUY given 19% upside potential to our target price.

Strong industrial sales; Marriott hotels = support for apartments
1Q11 sales from Cikarang of IDR370b (65% of total 2010 sales) were up 141% q-q, supported by industrial and residential products. Growing demand in industrial areas has led to some 15% higher selling prices this year in Cikarang, which also caters to housing, providing more value add for industrial users. In 2011, LPKR will focus on selling industrial and residential areas with IDR600b sales target, achievable given just 5.5% y-y growth target. On the apartment front, LPKR reported more than 50% take up rate on the recent launch of apartment tower in St Moritz with selling price of IDR21m/sqm, 10% higher than previous launches following news on the entry of JW Marriott Hotels in its 2-mixed used developments, increasing prestige and value add. These 2 hotels in the South and West Jakarta should provide alternatives for five-stars hotels, which are currently concentrated in the CBD/Central Jakarta area.

INCO – Buy Price: Rp4,925 - Target Price: Rp5,950 Benefit from high nickel price - Samuel

INCO’s 1Q11 earnings and revenue grew by 47% and 26% YoY respectively.
1Q11 Revenue and net income were above our estimate. Revenue accounts for 29% and net profit accounts for 31% from our estimate.
Growth in revenue and net income in 1Q11 were mainly driven by higher ASP and lower input cost even though volume in 1Q11 was lower.
Production volume in 4Q11 is expected to drop by 30% due to furnace shutdown.
Karebbe project status is 87% completed and will be online in 2H11. With the addition of Karebbe, overall production cost is expected to reduce by around 6%.
We revise our forecast factoring rising nickel price and lower production cost despite lower target production volume in FY11 and expected higher volume in FY12.
We also change our nickel price assumption from US$7.6/LB to US$11/LB for FY’11F as we are bullish towards nickel price until the end of this year on the back of lower LME nickel inventory, possible global supply deficit for this year, and the expectation that Rupiah will remain strong this year.
Our new target price of Rp5,950 (previously Rp4,700), reflecting 10.35x – 11.7x PE’11F–12F.
With this new target price, we upgrade our recommendation to BUY as the new TP offers 20.8% upside to the current price. Buy.

Tanjung Priok port expansion coming-up => PTPP IJ - JP Morgan

Trade idea – Pembangunan Perumahan Persero (PTPP IJ). Our head of research Aditya Srinath attended the small group meeting with finance minister Agus Marto last Friday night. One of the specifics mentioned during the meeting is that the government seems ready to push for Tanjung Priok port expansion project this year. From various local government websites, infrastructure analyst Liliana Bambang found out that tender process for the project may kick-off as early as in second week of June 2011. State-owned port company Pelindo II will be project leader, so the contest is to select the state construction company that can partner with Pelindo II and do the construction.

Tanjung Priok port expansion project should have been one of the government’s highest priority, with potentially strong contribution to the country’s GDP growth. The port is currently overloaded, with current traffic reaching 4.8mn TEU versus stated capacity of 4.0mn TEU. Stage one of the expansion will add around 1.9mn TEU capacity to the port, with a budget of around Rp10 trillion (US$1.1bn). The longer term plan is that by 2014, Tanjung Priok port capacity should have been expanded to 8.0mn TEU, to become an international hub port. This ambition needs around 300 hectares of reclaimed land, and 6 hectares of land area.

My take – headline news on the Tanjung Priok port expansion project tender process may provide fresh catalyst for the listed construction company PTPP, who in my view could be the front runner to win the construction project. The stock trades on 9.2x P/E for FY11 based on management target.

Sales note re-run: PTPP IJ is one stock to accumulate in weak market
I met with some senior management personnel at PT Pembangunan Perumahan (PTPP) yesterday with the following take-aways:

1) FY11 earnings set to grow aggressively. PTPP entered the year 2011 with Rp6.0trn worth of carry-over project, more than double the amount (Rp2.6trn) when it entered year 2010. The Rp6.0trn backlog, coupled with Rp3.0trn new contracts obtained during 1Q11, stacks-up well against FY11 revenue target of Rp8.5trn (in other words, the revenue projection is almost in the bag). FY10 actual revenue was Rp4.4trn, so the Rp8.5trn forecast represents a 93% yoy increase. PTPP management targets FY11 net profit of Rp335bn, on the back of Rp8.5trn revenue and 4% net margin, or 66% yoy (implied FY11 P/E of 9.2x).

2) Zero option value on the government fixing land acquisition law. Infrastructure investments have picked-up considerably even before the government addressed the land acquisition hurdles, which set to accelerate when it does. I personally think there is a good chance that the law can be passed within the next 12 months, to ensure president SBY leaves with good legacy (his term will end in 2014, and it may take 2 years for the country to feel the impact of explosive infrastructure investments with revised land acq law). PTPP is the stock to buy when the event occurred, being state construction company with low financial leverage, allowing the company to further double revenue in year 2012 without capital constraint.

Commodity: Less stringent than expected - Mandiri

The Government of Indonesia last week issued two crucial regulations for commodities sector: (1) President Instruction (Inpres) No 10 Year 2011 which prohibits new permit issuance on forest conversion valid for 2 years and (2) Presidential Decree No 28 Year 2011 that allows the use of protected forest area for underground mining. Several exemptions in the Inpres 10/2011, such as permit already given and permit extension, are less stringent than expected. The regulation relatively does not have any impacts of the coal, metal, and plantation companies with large existing land bank, such as SGRO and LSIP; however, it may be detrimental to AALI’s short term expansion.

New regulation is less stringent than expected. The Government of Indonesia last week issued two crucial regulations for commodities sector: (1) President Instruction (Inpres) No 10 Year 2011 about forestry moratorium regulation, which prohibits new permit issuance on forest conversion until the next 2 years, and (2) Presidential Decree No 28 Year 2011 that allows the use of protected forest area for underground mining, which valid for 20 years and subject to renewal. Some exemptions in Inpres 10/2011 include permits already given (location permit), permits extension, and permits relating to geothermal, oil & gas, rice and sugar industry. The regulation disappointed environmentalists as such exemptions cover wider sector than expected after pressure from companies worried about their expansion.

The moratorium may adversely impact AALI. In plantation sector, AALI may receive the biggest blow from the moratorium regulation because AALI has the smallest land permit for new planting. The moratorium increases land acquisition cost as the people who already have location permits, HGU, and planted plantation, may exorbitantly increase their land prices. For this reason, AALI does not set new planting target for this year onwards. SGRO and LSIP are not impacted by this regulation as they have secured enough location permits for expansion.

No significant impact in our coal or metal coverage. The Presidential Decree no 41/2004 allows 13 companies affected by the Forestry Law 41/1999 (restriction open pit mining in protected forest area) to continue their mining operations despite the provisions. In addition to the Government Regulation No 2/2008 and No 10/2010, all companies that have activities in a production or protected forest must pay forestry fee ranging from Rp1.2mn – Rp3.0mn per hectare and recovered land with ratio 1:2. Since 2008 the Forestry Department requests companies to apply for a borrow-use permit for their activities in those areas. Therefore there is no significant impact in the coal companies under our coverage since their existing agreements (mostly Contract of Work holders) are respected. This only applies to new licenses or permits.

This is positive for BRMS. The signing of the PP 28/2011 will positively impact the currently Bumi Minerals’ (BRMS) proposal for obtaining its exploitation borrow-and use-permit for the underground mining activities of Dairi Prima Mineral, BRMS’s high grade zinc asset that it 80% effectively owns. Dairi Prima will commence its production in 2H 2012, with expected steady production of 115k tons of Zinc and 60k tons of lead. Based on the current price, the revenue contribution is significant of about US$380mn. Based on the current projected total cash cost/ton, EBITDA in 2013 is estimated to reach US$285mn.

Why Strong Dollar Hurts Stocks, and What You Can Do - By: Jeff Cox CNBC.com Staff Writer

Published: Monday, 23 May 2011 | 2:00 PM ET

The dollar and stock market used to be close comrades, rising and falling together on the strength of the US economy. But those days are over.

In their place has come an inverse relationship in which the greenback's weakness sends investors into risk assets like stocks, based largely on the notion that an export driven economy is the best we can hope for.

With the subsequent grand scale monetary intervention from the Federal Reserve following the financial crisis in 2008 and 2009 still ruling the day, strong-dollar/weak stocks remains the trade of the day today and the dominant force in the market so far this month.

"Until we see the Fed step away from its inflationary policies, you're going to see this relationship," said Brian LaRose, strategist at United-ICAP in Jersey City, NJ. "As long as this dollar rally continues we have a very hard time seeing the bullish commodity-equity trade continue from here."

The bad news for stock investors is that the dollar has been on a rally predicated in large part on the renewed fears that eurozone nations such as Greece and Portugal are on the cusp of defaults. Investors have sought the greenback as a safe haven against global tumult.

Consequently, many strategists are advising their clients to reposition their risk portfolios as the dollar rally continues.

"The dollar rally is a headwind," analysts at RBC Capital Markets said in a note to clients. "The inverse correlation between it and the equity market is the strongest we've seen since 1971. Meanwhile, the recent rally in the dollar has done very little to encourage the unwinding of record short positions."

Strong volume in short positions—which in this case bet against dollar strength—normally would be seen as contrarian bullish signs and spark a selloff from holders of those options and thus boost the dollar.

But the dollar has risen even without the strength of short-covering. That might suggest that once the shorts do start to bail out, the dollar will gain even further.

For the stock market, that would be bad news if current trends hold up.

As such, RBC has changed its allocation in several sectors, upgrading its positions in defensives such as health care and consumer staples and downgrading energy and materials, areas that will get stung by falling commodity prices.

Bank of America Merrill Lynch has taken similar positions, also boosting its view on health care while cutting exposure to industrials and energy and materials.

Barclays Capital warned its clients to begin shifting their strategy from one that is based on Fed policies that weaken the dollar to a less certain environment in which companies with solid valuations will offer safety.

Considering a dollar that the firm considers "cheap," energy stocks now appear to be expensive.

"We have made the point (within the context of small-caps’ relative performance and sector selection) that until the Fed begins draining liquidity, valuation should take a back seat to the business cycle as a performance driver," Barclays said in a research note. "We believe we are seeing the early signs of a transformation toward the point when valuation will play a much bigger role."

In ideal circumstances, this isn't the way the markets are supposed to work.

Consumer-driven economies help keep dollar demand high and preserve its value. Companies, then, don't need to rely on cut-rate prices for exports, but rather are driven by organic business growth on the home front.

Over the course of the past 45 years or so, bull markets for the dollar have resulted in 80 percent gains for the Standard & Poor's 500 [.SPX 1317.37 -15.90 (-1.19%) ], as opposed to 20 percent rises during bear markets, according to research from Bespoke Investment Group.

But with unemployment at a stubbornly high 9 percent and the housing market showing little or no signs of recovery, there's not much hope that the consumer will help propel the dollar higher.

That's a scary prospect for a market facing the end of direct Fed involvement through its quantitative easing program, and as Washington dithers over ways to fix the country's debt problem.

"Investors are currently embracing risk because of the Federal Reserve’s quantitative easing policy," strategists Daniel Aaronson and Lee Markowitz, of Continental Capital Advisors in New York, said in a recent research note. "However, there is a limit to what the Fed can do in light of the government’s indebtedness. Eventually, markets will recognize the severity of the government’s situation and there will be nothing that the Fed can do."

The dollar-stocks inverse relationship, then, could depend on how the various economic and political scenarios play out.

"That's certainly the way things are going to be for the foreseeable future, though I don't know that's the way things are going to be forever," said Susan Fulton, founder and principal at FBB Capital Partners in Bethesda, Md. "The ups and downs are more geopolitical than they are attached to the dollar."

For strategy, Fulton said her firm has been using exchange-traded funds for South America and Asia and in general focusing on diversification.

It's a strategy that reflects an uncertain environment as investors wait for the markets to return to normal and the dollar and stocks to move together again.

"We'll get back to that point. The problem is you have to get past the pain first," said LaRose, of United-ICAP. "As much as you'd like to say things are going to get better, unfortunately you have to go through the bad to get better."
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