INCO Bearish on nickel and firm’s growth strategy: Cut to U/P - BoAML

Downgrading from Buy to U/P, PO cut to Rp4,200
PT Inco has underperformed the IDX by 15% YTD and we believe the underperformance will continue. The stock is trading at 5% above our new, lowered PO of Rp4,200 (NPV-derived). We think nickel prices are peaking, due to substantial supply starting 2H11. Amid falling prices, we believe nickel stocks will find it tough to outperform. Moreover, we are not convinced with the firm’s growth strategy. The forecast dividend yield of about 7% for PT Inco deserves positive consideration but given the lack of implied share price upside, we do not think it covers the equity holding cost. We cut PT Inco rating from Buy to U/P.

…along with cuts to earnings estimates
The BofAML commodity team is cutting its nickel price forecast for 2011 by 10%, to US$10.9/lb, while retaining its 2012 forecast. We have lowered our 2011 earnings forecasts for PT Inco by 5%, and cut our PO to Rp4,900 from Rp4,200. We have increased the company’s WACC from 11% to 12% on higher RFR.

Bearish on nickel; stock moves in tandem with nickel prices
Our mining team estimates that primary nickel production can rise by 160Kt, equivalent to a massive 5.5mt of stainless steel output (i.e., post-crisis levels). This, when stainless steel output is already forecast to rise 7.6% in 2011, after the 26.2% achieved in 2010. We anticipate a small market surplus in 2011, with
fundamentals likely turning over in 2H11.

Bahudopi growth project not convincing
PT Inco seems to have plans to revive the Bahudopi project – apparently because the nickel ore is relatively high-grade. It also has an undertaking agreement to develop Bahudopi by 2010. But given the bleak outlook for nickel prices, expiration of contract of work in 2025 (already been extended in 1996) while extension seems uncertain if the undertaking agreement’s not fulfilled, and lack of cheap energy source nearby, we are not convinced about the project’s feasibility.

Commissioning of Karebbe dam already priced in
We could see modest share price impact when Karebbe dam is commissioned during 2H11, but it seems this is already priced-in and does not affect our bearish 12-month view on the stock. We think the stock price could move down from current levels and rate the stock Underperform.

ASII Ready to roar - CIMB

(ASII IJ / ASII.JK, OUTPERFORM - Maintained, Rp65,850 - Tgt. Rp70,000, Autos)

We are raising our target price to Rp70k from Rp68k, still SOP-based, following our 0-2% earnings upgrade to take into account strong June wholesales and assuming supply recovers from Japan in 2H11. Our new target implies 15x CY12 P/E. We have lifted our FY11 car-sales estimate by 8% to 853k units and Astra's market share for motorcycles to 50% (from 46.5%). While Astra's stock has been on a tear lately, we expect Street earnings upgrades to catalyse its performance further. Our new FY11-12 forecasts are 4% above consensus.

GGRM A win-win move - CIMB

(GGRM IJ / GGRM.JK, OUTPERFORM - Maintained, Rp49,250 - Tgt. Rp56,500, Tobacco)

GG implemented selective price increases of 1-2% in late June in anticipation of cost pressure from rising tobacco and clove prices. Amid buoyant consumption and limited stock buffers for the other tobacco producers, it's a tactical trading of volume for margins in the near term, while buffering its inventory in case tobacco and clove harvests in Sep-Nov 11 are disastrous. If harvests are fine on the other hand, GG would enter the following year with margins to spare for the next round of excise increases. A win-win move altogether, we believe, besides reflecting management's comfort with its branding and revamped distribution. This supports our view of 15-18% sustainable earnings growth for the next three years. No change to our FY11-13 earnings forecasts, Outperform rating or target price of Rp56,500, pegged at 1x PEG and implying 18.5x CY12 earnings. Catalysts are further price increases, low excise-tax adjustments and interim dividends.

PGAS Where's the Gas? Derating in the Pipeline; Assume at UW Target Price: IDR 3,982 - Morgan Stanley

Gas volume constraints - likely until 2013 - and associated earnings risk will hamper the stock's performance over the next 12-18 months, in our view.Longer term,declining ROE from new gas supplies will likely drive a further derating in PGAS shares.

Gas constraints and 2012 earnings risk:Our 2012 EPS estimate is 4% lower than consensus and assumes gas volumes of 895mmscfd. However, we see up to 8% additional downside to our EPS forecast if the 100mmscfd of gas earlier diverted from ConocoPhillips does not return in 2012. We expect new gas supplies in Indonesia to ramp up only in 2013, and with current basins maturing, gas sourcing will remain issue for PGAS in the medium term.

Incremental gas at lower ROE: PGAS is looking to obtain additional gas through liquefied natural gas (LNG) supplies, coal bed methane (CBM), and acquiring stakes in E&P fields. We estimate the gas ROE from these sources would be a low 12-15%, versus PGAS's current average of 46%. We think this will drive a longer-term derating of the stock. Also, PGAS' current transmission business generates an estimated 7% ROE, lower than its 15.7% cost of equity.

Defensive but unattractive valuations/EBITDA growth: PGAS, for which we estimate EBITDA growth at a 7% CAGR, 2010-13, is trading in line with comparables (which have an estimated 15-18% growth) in P/E and EV/EBITDA terms. Hence, we expect the stock to underperform the broader Indonesian market and other Asian utilities.

What's in the price? The current stock price implies 2011/12 gas volumes of 780/890mmscfd, in line with our estimates, and no tariff increase in 2012.

Key upside risks: Higher gas volumes and tariffs, along with marketing rights for LNG, as in our bull case.

ITM (ITMG IJ): Cash cow – BUY – Tp56,000 - CLSA

There is lot of concern with ITM’s low reserve life. However, we feel that the issue has been a bit overblown as the company has plenty of resource. In fact, ITM is sitting on 61% of Indonesia’s known high calorific value coal resource. It is just a matter of cash mgmt as to when to convert to reserves. With high energy coal, a control on costs and no debt ITM is poised to continue generating strong cashflow. We expect higher dividends are here to stay as parent Banpu adds to its coal portfolio elsewhere. BUY

Costs conservatively controlled
ITM has a policy of hedging up to 50% of annual diesel requirements. We estimate it has locked in 45% of this year’s requirement at US$91/bbl oil translating to US$0.77/L diesel, saving 4% off our full year assumed average price. A decrease in the strip ratio and benefits from the completed captive power plant at largest production contributor Indominco will help to keep a lid on costs.

They don’t make ‘em like they used to
ITM is sitting on 61% of Indonesia’s high energy coal resources which it will continue to focus on monetising. Production growth will come from its new Bharinto project and mining at a 2nd block at its largest project, Indominco. The company has not executed on any acquisitions since listing and we don’t see this changing as parent Banpu focuses on acquisitions elsewhere. This is positive for ITM as it reduces the risk of overpaying in an environment of high coal asset prices.

Reserve life low but upside from resources
Accounting for 2011CL production, we expect ITM will have a mine life of 12 years at year end which is lower than other producers. Its 2 largest producing mines have a concession life to at least 2030 and also have the lion’s share of its 1.6bt resources. ITM reviews its mine plans and reserves every 2 years, meaning in 1Q13 reserve upgrades are likely.

Re-initiate with a Buy, target price of Rp56,000
ITM’s share price has lagged peers during 2011, in an underperforming sector. With its higher energy coal and thus higher average selling price, costs under control and 13% production growth, we expect ITM’s earnings to increase 147% in 2011CL. We base our target price on a 2012CL PE of 13x, in line with the recent average.

Potential sale of towers by Indosat to Tower Bersama is positive for both companies - DBS

Tower Bersama Infrastucture: Buy; Rp2,425; TP Rp2,700; TBIG IJ
Indosat: Buy; Rp5,150; TP Rp6,200; ISAT IJ

PT Tower Bersama Infrastructure plans to acquire 4,000 towers owned by PT Indosat, Investor Daily Indonesia reported, citing Helmy Yusman Santoso, finance director Tower Bersama. The acquisition ' s value may be more than USD500 million, the report said. The Indonesian company is likely to use funds from capital expenditures and loans to finance the acquisition, according to Santoso, who didn ' t give a value for the transaction.
Our View
· Positive for Indosat. Indosat owns close to 12K towers in its portfolio, which can result in potential upside of 15%-25% for its share price if all sold for USD125K-140K per tower. This should also provide enough cash ammunition to the company to reduce its FY10 net debt of USD2.2bn (net debt to EBITDA over 2x).
· Positive for Tower Bersama too. 4K towers at USD500m, translates to USD125K per tower, which is fairly attractive considering an average tenancy ratio of slightly over 1x for the big tower portfolio. The construction cost of each tower comes to around USD 100K and it takes couple of months to complete.
· Tower Bersama should be able to raise debt. Tower Bersama’s net debt stood at ~USD180m as at 1Q11. 4K towers should generate USD60m EBITDA annually. Including TBIG’s USD90m EBITDA, consolidated EBITDA of USD150m should easily support net debt of USD680m, below 5x EV/EBITDA.

Focus Asia (Q3 2011) - Soft spot or hard landing? - Credit Suisse

The economies of China and India are slowing. That much is clear. What is less certain, however, is whether the recent weakness represents a short-lived soft spot or the beginnings of a hard landing. Indications from the developed world are starting to look a little more encouraging again, but the two Asian giants are not necessarily beholden to economic developments in the US, Europe and Japan. Instead, a powerful and, as yet, uncompleted tightening of the domestic monetary screw, in response to high and sticky inflation, will likely play the more important role. Apart from anything else, it should help uncover any bubbles that are in existence by bursting them.
India looks reasonably secure on this front, although the property market, big-ticket consumer items and capital goods look set for a rough ride over the next eighteen months. Moreover, the weakness of real money growth suggests that the risks to our bottom-of-the-range 7.5% GDP growth forecasts for 2011/12 and 2012/13 are to the downside.

China presents a bigger cause for concern, in our view, not least because debt has been widely used to finance a property price boom, as well as a lot of economically questionable projects. Many small and medium-sized companies are also now showing signs of distress. The Chinese government should be able to head off a recession, but probably won’t prevent the economy from experiencing what could be termed a “sluggish landing”. Our GDP growth forecasts of 8.7% for 2011 and 8.5% for 2012 hardly sound disastrous, but would, if correct, represent the weakest performance over a two-year period that the economy has experienced for more than a decade. If China does catch a cold, the rest of Asia will suffer to varying degrees even if the Western world is reasonably fit and healthy.

Indonesia Coal: Buy Bumi and Adaro, to Become Largest Global Exporters - Citigroup

 Huge earnings upgrades; PTBA and Bumi are new Buys — Citi’s Global
Commodities team has raised its thermal coal price forecasts by 13% and 36%, respectively, to average US$139/t and US$148/t for 2012-13. We raise our earnings forecasts by 10-23% for 2012 and by 43-108% for 2013. The sector is attractively valued at 2012E P/E of 9.4x (7.7x in 2013E) vs 38% earnings CAGR in 2012-13E.
 Preferences — Our top pick remains Adaro for its robust medium- to long-term growth potential and its high earnings leverage to the seaborne coal-price up-cycle. Adaro also screens well in global valuation relative to volume production growth to 2015 metrics.
 Indonesian companies: main beneficiaries of seaborne coal-price up-cycle — With one of the strongest volume growth outlooks in the world, we believe the Indonesian coal sector is the best way to play earnings leverage to tight thermal coal markets. By 2015, Bumi and Adaro are expected to be two of the top three exporting companies globally. Growing acceptance of Indonesia’s lower-rank coal should also allow a narrowing in the price discount to the benchmark grades.
 Valuations at Mean Multiple — The sector trades at a mean 12-month forward P/E and EV/EBITDA multiple despite the current coal price up-cycle. In comparison, in the previous up-cycles the sector’s valuations overshot to +2 std. Indonesian coal stocks are attractively valued compared with their global peers. The sector’s 2012E P/E and EV/EBITDA are at 25% and 23%, respective discounts to global peers’.
 New pricing paradigm for coal — The demand for coal from the energy sector appears to be unrelenting, with too few producers expected to meet the strong demand from developing economies. This will leave the coal market exposed to sudden price spikes and a new premium on supply as disruptions become common-place.
 Catalysts — We expect robust Y-Y earnings growth on higher production and better ASP to prop up earnings in 2Q-4Q11. We also expect the substantially higher spot-coal prices in 2H11 on increased Chinese buying should improve sentiment on the sector.

Coal Worst Quarter of 2011 Looms on China, Japan: Energy Markets - Bloomberg

By Dinakar Sethuraman and Archana Chaudhary
July 7 (Bloomberg) -- Coal may extend declines from the highest since 2008, putting it on course for the weakest quarter of the year, as China boosts hydropower use and Japan struggles to start damaged plants against a backdrop of slowing growth.
Thermal coal at the Australian port of Newcastle, the benchmark price for Asia, will range from about $100 to $120 a metric ton this quarter, according to seven of 10 analysts, traders and producers surveyed by Bloomberg News. Coal averaged
$120 a ton in the second quarter and $128 in the first three months, according to data compiled by Bloomberg. The high for this year was $138.50 in the week ended Jan. 14.
China is using increased rainfall to boost hydropower production at the same time as Japan is working to repair plants damaged by the March earthquake, and monsoons in India disrupt coal shipments from Indonesia and Australia, the world's biggest exporters. Prices have fallen in the third quarter from the previous three-month period in six of the past seven years.
"We expect a 15 to 20 percent drop" in prices, said Rahul Bhandare, chairman and managing director at Knowledge Infrastructure Systems Pvt, a coal-marketing company in New Delhi, India. "Economic factors including ballooning inflation
in India and China and problems in Europe will affect the coal trade."

Chinese Imports

China was the biggest driver of global prices in the past two years as its purchases of coal for power generation rose to 92 million tons in 2010 from 15 million in 2008, making the nation the world's second-biggest importer of the commodity after Japan, according to Societe Generale SA.
Imports may fall 16 percent this year to 77 million tons, Emmanuel Fages, a Paris-based analyst at Societe Generale, wrote in a note on June 17. The nation will keep purchases at about 90 million tons, Neil Dhar, executive vice president at Noble Group Ltd., a commodity-trading company, said in Bali in May.
Benchmark prices at China's Qinhuangdao port are already stalling. Coal with an energy value of 5,500 kilocalories per kilogram stopped rising for the first time in a month at 845 yuan ($131) to 860 yuan a ton in the week ending July 4, according to data from the China Coal Transport and Distribution Association in Beijing.
Rizhao New North Coal & Chemical Industry Co. and Guangzhou Twinace Petroleum & Chemical Corp. were among those forecasting declines for coal in the Bloomberg survey. Australia & New Zealand Banking Group Ltd. and Citigroup Inc., predicted prices may rise, citing regional differentials within China and reduced production in Australia.

Australian Premium

Coal shipped from Qinhuangdao to the southern port of Guangzhou, where Chinese demand is greatest, cost $153.50 a ton, or $8.74 less than deliveries from Newcastle, as of June 10, close to the smallest discount since December, according to Seoul-based Mirae Asset Securities Ltd. Coal from Newcastle includes freight charges and tax.
"You are now seeing the arbitrage re-opening for Newcastle coal versus Qinhuangdao," said Mark Pervan, head of commodity research at Australia & New Zealand Banking in Melbourne. "If the Chinese come back into the market with coal prices becoming more attractive for them internationally and you've got a Japanese market that's revisiting increased thermal capacity, I reckon it looks pretty good." Prices will average as much as $135 a ton in the third quarter, according to Pervan.
Coal may also gain after wet weather in Australia's Hunter Valley, the largest coal-producing region in New South Wales, Citigroup said in a June 7 report. Prices for immediate delivery may rally to more than $130 a ton, analysts led by Daniel Hynes in Sydney said.

Coal Inventories

Chinese utilities typically build inventories for the summer from April to July. Stockpiles at Qinhuangdao, which ships half of the country's seaborne coal, rose for the fourth week to 7.95 million tons as of July 4. Imports climbed to a
four-month high of 13.6 million tons in May, according to Chinese customs data.
"It's difficult for prices in the south to increase," said Jay Chi, the Guangzhou-based chief analyst at Guangzhou Twinace Petroleum & Chemical Corp., which buys Indonesian coal to supply power stations in southern China. "As far as we can see, stockpiles at power stations and inventories waiting to be sold are quite high. Hydropower is also back."
China's daily hydropower generation rose 12 percent to 2.31 billion kilowatt hours in mid-June from the beginning of the month, partly as rainfall improved flows along the Yangtze River, the site of the world's biggest hydro dam, according to June 28 data released by the National Development and Reform Commission.

Japanese Purchases

Japan, the world's biggest importer of power-station coal, reduced total coal imports by 22 percent to 13 million tons in May from a year earlier after the March 11 earthquake and subsequent tsunami shut thermal generators, the Finance Ministry
in Tokyo said on June 20.
The nation's demand will drop to 110 million tons this year, from 120 million in 2010, amid the closures, Masato Uchiyama, director of energy business at Electric Power Development Co. in Tokyo, said on May 31. Societe Generale estimates it will fall to 103 million.
India's monsoon, which accounts for more than 70 percent of the nation's rainfall, is 7 percent above a 50-year average since the season began last month, the country's New Delhi-based weather bureau said June 27.

Monsoon Months

The four monsoon months of June to September can slow coal imports on the west coast, where ports including Mundra, Dahej and Kandla are located. Shipments are typically diverted to the east coast where congestion at ports such as Tuticorin and
Ennore leads to delays in offloading.
Prices will fall by at least $5 to $6 a ton "in the next few months," said Vinay Prakash, chief executive officer for coal and carbon at Gujarat-based Adani Enterprises Ltd., India's biggest coal trader.
China has increased interest rates five times since October to contain inflation, which has been above the government's 2011 target of 4 percent every month this year.
"Demand in the third quarter won't change much and prices may stagnate or slightly fall," said Supriatra Suhala, executive director at the Indonesian Coal Mining Association in Jakarta.

For Related News and Information:
Energy markets columns: NI NRGM
Top commodity stories: CTOP
Top China stories: TOP CHINA
Top energy stories: NRGTOP

--With assistance from Paul Gordon in Hong Kong and Winnie Zhu
in Shanghai. Editors: Paul Gordon,
Alexander Kwiatkowski

United Tractors (UNTR IJ) Secured a coal mine in Sount Sumutra - CLSA

UT, through its subsidiary, Pama, acquired 20% stake in Bukit Enim Energi which owns a concession in Muara Enim, South Sumatra with reserve of 110m tonnes (4,500-6,000kcal)
Acquisition cost is US$21m for the 20% stake which implies ~US$1 per tonne reserve. This is financed from their recent rights issue of US$700m, out of which 50% will be used for acquisitions.
We think this is reasonable pricing given it is still a green field investment. UT will have to build the infrastructure as well.
The mine is expected to start production in 2 years with 500,000 tonnes pa initial production and to be ramped up to 7m tonnes pa.
Post this acquisition, UT now doubled its reserve to 200m tonnes. The target is to increase reserve to 400m by 2020. UT this year is expected to sell 4.5m tonnes coal from their existing mines, DEJ and TTA.
Separately, UT is in finalization process of acquiring another mine in Central Kalimantan of 150m tonnes reserve of 5,800-6,000 kcal. This deal is expected to be completed end of this month
UT also wants to increase its stake in Asmin Bara from 30% to 60%. Asmin was purchased earlier this year. Reserve is 40m tonnes, near UT’s current mine TTA in Central Kalimantan. Production is expected to start in a year. UT paid US$40m for the 30% stake, implying US$3 per tonne reserve. The increase of stake in Asmin will require another US$40m, to be financed from the rights issue proceed as well. The transaction is expected to be completed in 2-3 months.
Maintain Buy on UT, now trading at 14.5x PE12, with 20% earnings cagr in the future. As more mines got acquired and start production, there will be upside to its future earnings (2013-onwards).

Gudang Garam – Refocusing on profitability – BUY Tp57,000 - CLSA

Another good piece from Merlissa. She is still a buyer of Gudang Garam (GGRM IJ) as we believe in their ability to deliver double-digit earnings growth despite competitive industry. We upgrade our TP to Rp57,000/sh, implying 19x P/E 2012CL.

Couple of things to highlight:

Refocusing on profitability. Just recently, GGRM raised its ASP by another 1%, which reaffirms our confidence on its continued pricing power. This translates to a 7% ASP increase on yearly basis, mirroring the excise tax hike. We thus believe that GGRM will be able to pass on the excise tax hike, like what they did in the last 3 years.
Gaining market share in mild category. Its new Surya Pro Mild is well accepted by the market – of which they manage to gain ~0.8% market share in less than one year.
Ramping up marketing efforts. Our channel check said that the company is hijacking marketing people from HM Sampoerna (HMSP). Also, their 1Q11 ad spend grew by 50% YoY or about 3.2% of overall sales. This is necessary to create stronger brand equity in the longer term, we believe.
We agree that valuation is not glaringly cheap, yet remains attractive if we compare to its regional peers. Based on PEG valuation, Gudang Garam (GGRM) and Indofood (INDF) are still trading below 1x. Also, Mayora (MYOR) and Mitra Adiperkasa (MAPI) in small-cap category are trading at attractively 0.5x PEG 2012CL.

Gajah Tunggal - Anonymous bondholder warned that GJTL breached covenants - Deutsche Bank

In a letter dated 1st July 2011, an anonymous bondholder noted that GJTL have breached their bond covenants by paying dividends to equity holders (clause 4.1(a)(i)). On the 30th June 2011, GJTL paid dividends of Rp.12/share out of FY10 profits (total dividends paid: Rp42bn or US$4.9m); 0.4% dividend yield and 5% payout ratio.

An exception to the above; (clause 4.1 (b)(iv))
1. After the interest step up date (which will occur in July-2011), dividend payment is allowed but shall not exceed US$20m); or
2. In the event the company is required by the Indonesian Law to pay dividends to its public shareholders prior to the interest step up date, dividend payment is allowed but shall not exceed US$20m.

The anonymous bondholder is currently in the midst of forming a group of bondholders holding 25% of the bonds to call an event of default and accelerate the payments due.

The company should provide more clarity on this issue by the end of today. As it stands, the validity of the arguement put forth in the letter remains to be seen. Indeed, GJTL also paid dividends to equity holders mid-2010, without objections/ breach of covenant issues.

From an earnings and financial health stand point, we believe the company remains capable in servicing its debt notwithstanding the dividend payments;
- Bonds outstanding FY11F: c. US$425m
- EBITDA FY11F: c. US$180m
- Interest expense FY11F: c.US$40m
- Net debt FY11F: US$314m
- Net debt/Equity FY11F: 0.6x

Adaro Energy - Incorporating J.P. Morgan's new coal price assumptions - JP Morgan

We incorporate J.P. Morgan’s higher medium coal price forecasts; maintain Neutral rating and PT of Rp2,400: We incorporate J.P. Morgan global coal team’s revised FY12 and FY13 coal price assumptions of US$128 and US$129 per ton vs. US$125 and US$118 per ton earlier, respectively. As the FY11 coal price estimate remains
unchanged, there is no change to our FY11 forecast, but FY12/FY13 net income forecasts have been hiked by 4%/18%. As J.P. Morgan’s longterm coal price forecast remains unchanged at US$95/ton, our DCF based Jun-12 price target of Rp2,400 remains unchanged even after our estimate revisions. We maintain our Neutral rating.

Risk to volume: We believe there is downside risk to ADRO’s FY11 volume guidance of 46-48 million tons due to the trailing run rate of coal production. Historically, there have been instances of Adaro missing its production volume targets.

Our FY13 net income forecast is slightly below consensus: Our FY12 net income forecast of US$738 million is in line (-2%) with consensus, while our FY13E estimate of US$839 million is 7% below. We attribute the difference to our high cost assumption for Adaro.

High valuation; sell into strength: At 18.5x FY11E P/E and 13x FY12E P/E, ADRO is the most expensive coal name in J.P. Morgan Indonesia’s coverage universe on our estimates vs. the industry FY11E average P/E range of 10-15x. With the recent appreciation in the share price, we recommend to sell into strength.

Indonesia Coal : Bullish on coal outlook; price forecast tweaked up - BoAML

Raising medium-term coal price forecast
China has resumed buying seaborne thermal coal, substantially improving the
outlook for 2012. BofAML Commodity team raised its JFY coal price forecast for
2012 by 7.6% to US$140/t, while keeping its 2011 and LT forecast unchanged.

ADRO our top pick: liquid & asset acquisition next catalyst
We raise ADRO’s net profit forecast by 10% for 2012 and 4% for 2013. We now
use YE12 as the basis for our NPV and raise our PO by 11% to Rp2750. ADRO is
our top pick in the sector. We see potential upside to our NPV from potential coal
asset acquisitions. We understand currently it is still finalizing the acquisition
structure and official announcement could take some weeks or months. We
believe it can raise up to US$2.5bn in loans to fund these acquisitions. As of
March 2011, ADRO’s total cash stood at US$629mn and debt at US$1.6bn. It still
has US$420mn of standby facility. Current net debt-to-EBITDA stands at 1.0, vs.
the maximum of 3.5 set by the existing debt covenant. Meanwhile, in our estimate,
debt service coverage is at 3.2, vs. the minimum of 1.2 at debt covenant.

SAR our second pick
We raise SAR’s net profit forecast by 8% for 2012 and 3% for 2013. We raise our
NPV-derived PO by 10%, to $3.3. Reserve upgrade in 3rd quarter and
commissioning production in Sebuku are company-specific catalysts.

ITMG our third pick: export coal proxy
We raise ITMG’s net profit forecast by 10% for 2012 and 3% for 2013. We raise
ITMG’s NPV-derived PO from Rp52300 to Rp54000. ITMG is Indo’s coal export
proxy and it is now our 3rd pick in the sector. It has been an underperformer
lately, as investors are concerned about a potential rights issue to fund
acquisitions and disappointing earnings. But we think those are priced in, with
ITMG now trading at the lowest earning multiple.

PTBA Neutral: expensive with LT projects priced in
We raise PTBA’s net profit forecast by 3% for 2012 and 2013. We raise PTBA’s
NPV-derived PO from Rp22000 to Rp22500. The stock is not cheap.
Contributions from existing railway plans and some value from new railway
projects (still being engineered) are fully priced in. Neutral.
Indika Neutral: not cheap & Petrosea listing priced in
We raise Indika’s net profit forecast by 6% for 2012 and 2% for 2013. We raise
Indika’s SOTP-derived PO from Rp4025 to Rp4200. Valuation is not cheap and
we see downside in 2011 earnings. Petrosea’s listing seems priced in and we see
dilution to earnings by up to 8%. Neutral.

BUMI U/P: not cheap even assuming debt free
We raise BUMI’s net profit forecast by 12% for 2012 and 1% for 2013. We raise
BUMI’s PO, which is set at 13x 2012E PE, from Rp2900 to Rp3000. The stock is
not cheap and there are too many confusing transactions. U/P.

BYAN U/P: expensive and not liquid
We raise BYAN’s net profit forecast by 30% for 2011 and 19% for 2012 on higher
coal volume and coal price. We raise our PO from Rp6350 to Rp7350, which
implies 70% downside. The stock is too expensive and illiquid. U/P.

Roubini: 'Perfect Storm' Coming for Global Economy in 2013

Published: Wednesday, 6 Jul 2011 | 4:07 PM ET

Weakening economic conditions will come together in 2013 and create a "perfect storm" of global weakness, economist Nouriel Roubini told CNBC.
Known for his generally dour outlook that helped him see the financial crisis before it hit in 2008, Roubini said the US, European nations and others have become adept enough at forestalling their problems that a true crisis won't hit until 2013.

But when it does, the effects are likely to be painful.

"My prediction for the perfect storm is not this year or next year but 2013, because everybody is kicking the can down the road," he said in a live interview. "We now have a problem in the US after the election if we don't resolve our fiscal problems. China is overheating...eventually it's going to have a hard landing."

In the nearer term, Roubini sees slow but steady growth in the US, with gross domestic product likely to be a bit above 2 percent, with unemployment and housing continuing to hold back the economy.

From there, recovery will be difficult as the government cuts spending and raises taxes to ease pressure from the bulging debt and deficit issues.

At the same time, euro zone periphery nations like Greece, Portugal and Spain will continue to wrestle with their own debt problems, and China will act to prevent inflation from getting out of control.

Then the storm hits, he said.

"I see every economy in the world trying to push their problems to the future," he said. "We start with private debt, public debt, supra-national debt—we're kicking the can down the road and eventually this is going to come to a head in 2013."


China's efforts to pull inflation back to the 5 or 6 percent range also will constrain growth and hit its trading partners, said Roubini, head of Roubini Global Economics.

"That implies lower commodities, lower exports from Europe to China, weaker global economic growth and a situation in which all advanced economies have weak economic growth," he said.

Roubini refrained from any specific predictions about GDP or stock market levels, but said the damage will be widespread.

"If we don't have enough job creation there's not enough labor income. Therefore, there's not enough consumption and consumer companies are going to be depressed. Therefore, the recovery is going to remain weak," he said. "The markets are expecting now a robust recovery in the second half of the year. I think the recovery is going to disappoint on the downside."

Euro Drops to One-Week Low Versus Dollar on Concern Debt Crisis to Worsen - Bloomberg

The euro declined to a one-week low against the dollar a day after Portugal became the second nation in the currency region after Greece to receive a junk credit rating from Moody’s Investors Service.

The New Zealand dollar gained versus the greenback after the Pacific Tsunami Warning Center canceled a tsunami warning for the South Pacific nation after an earthquake. The Swiss franc, yen and dollar rose against most of their major counterparts as Europe’s sovereign-debt crisis and China’s decision to increase interest rates spurred demand for a refuge.

“The markets did not digest the downgrade of Portugal to junk status all too well,” said Jessica Hoversen, an analyst at the futures broker MF Global Holdings Ltd. in New York. “Now you have two major European economies regarded as junk by Moody’s. There are contagion fears.”

The euro dropped 0.8 percent to $1.4319 at 5 p.m. in New York, from $1.4429 yesterday, after touching $1.4286, the lowest level since June 28. The euro slid 1 percent to 115.86 yen, from 116.97, after sliding as low as 115.55. The U.S. currency fell 0.2 percent to 80.91 yen, from 81.07.

ECB Outlook

The European Central Bank will increase its main refinancing rate to 1.50 percent tomorrow from 1.25 percent, according to all 55 economists in a Bloomberg News survey. Swaps traders are betting the ECB will raise its target rate by 76 basis points over the next 12 months.

China is raising benchmark interest rates for the third time this year after inflation accelerated to the fastest pace since July 2008. The one-year deposit rate will rise to 3.5 percent, the People’s Bank of China said on its website today. The move may fuel concern that monetary tightening will trigger a slowdown in the world’s second-biggest economy.

To contact the reporter on this story: Catarina Saraiva in New York Read More

Asia Equity Focus Indonesia: A compelling long-term structural story with midterm triggers - Credit Suisse

Indonesia: Gain exposure to stocks as a proxy to domestic consumption and infrastructure building
Indonesia is one of the few countries that did not experience negative growth during the global financial crisis, thanks to resilient domestic demand. Politically, the country now looks more stable than it did in the past and also compared to its Southeast Asia peers, Thailand and Malaysia. The government of Susilo Bambang Yudhoyono is serving a second five-year term and the next set of elections is not due until 2014.

Over the last year, the JCI has posted a strong performance of over 250% after the market trough during the credit crisis and the key question now is whether the equity market has the scope to continue its outperformance.
In our view, Indonesia remains a compelling long-term structural story and we see two key catalysts. First, we believe the passage of the land reform bill is a critical step towards easing Indonesia’s infrastructure bottleneck. This would enable the country to start moving towards a higher investment cycle and achieve higher economic growth. The land reform bill is currently being discussed in parliament and the market is expecting this bill to be passed in H2 2011 or early-2012. Second, given the improvement in fiscal strength and external liquidity, we believe that a further upgrade of Indonesia's credit rating to investment grade is likely. As Indonesia's sovereign rating moves to investment grade, we believe this could potentially attract more foreign investment into the market and should also add to the currency (IDR) gains.

With banks and consumers remaining largely undergeared, we see room for the economy to leverage up. On the earnings front, consensus earnings forecasts indicate strong earnings growth, with 20% in 2011 and 18.5% in 2012 – clearly above emerging market expectations and potential and before any positive implications arise from the reduction of the infrastructure bottleneck after the potential passing of the land reform bill. In terms of valuation, the market is trading at a 12-month forward P/E of 13.2, close to its five-year average despite better growth and positive surprise potential. Easing inflation, accelerating domestic consumption, low credit penetration and the potential upgrade of Indonesia's sovereign rating to investment grade give the equity market further support. Against this backdrop, we have increased our recommendation for Indonesia from neutral to overweight. We recommend investors gain exposure to Indonesian equities via index-replicating products or by focusing on our preferred consumer and infrastructure-related sectors. Our favorite stocks are Indofood Sukses Makmur (INDF IJ, BUY), Indosat (ISAT IJ, BUY) and United Tractors (UNTR IJ, BUY).

Spotlight - Wijaya Karya - Expanding mode (WIKA-BUY-IDR670-TP:830) - Bahana

IDR4.5t new contracts till June, inline to achieve 2011 targets
Wijaya Karya (WIKA) reported strong 4M11 new book orders of IDR3.16t (excluding JO), nearly triple from the same period a year ago, with power plant/ME and Toll/road/bridges as the major contributors (exhibit 9). In April, WIKA obtained additional IDR317b new book orders from power plants in Timor Leste and Ambon, IDR268b from buildings construction, IDR82b from Port/Irrigation and combined IDR138b from Realty, Metal/Trading and other business group, bringing total additional new book orders of IDR805b. Our recent conversation with management reveals that WIKA has reached IDR4.5t new book orders till June 2011, accounting for 48% of our 2011 new order book estimates, which is inline in our view.

3 investments projects to support recurring incomes
WIKA’s first investment project, Diesel Engine Power Plants (3x18MW), in Bali commenced in March 2011, expecting to contribute annual recurring incomes of IDR165b. Its 3 new other projects are expected to continue supporting its recurring income going forward. Scheduled for completion in 2013, WIKA will start building 6 Asphalt plants under the joint operation with Timah in Buton Island with annual capacity of 300kton. This new products would cover the partial supply shortage for asphalt. The current domestic consumption stands at 1.5mtons per annum and only 20% are locally sourced (Pertanina) while the remaining is still imported. WIKA’s other projects include Geothermal Power Plant in Sumedang – West Java and Surabaya-Mojokerto Toll road. However, progress of these last two projects will be depended on the success of geothermal exploitation (2011-13) and land acquisition respectively.

More expansions ahead, BUY with TP IDR830
We see more opportunities for WIKA’s expansion ahead, to cover the recent launch of the Master Plan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI). Amongst others, infrastructure related projects are on the top priority list (exhibit 12). Thus, we believe that WIKA would be the main beneficiary from this development. Wika recently commenced the additional capacity on its concrete facilities under its subsidiary company, with total annual capacity of 1.5mton (vis-à-vis IDR1.3mton previously). On property front, WIKA realty, the property arm of the company, will launch mix use of property in Cawang, East Jakarta this year. We see continues expansion in WIKA Realty under JO with other SOE companies which own sizeable and idle land banks. We expect WIKA ro book 2011 strong revenue growth of around 30% y-y to IDR7.8t coming from IDR19.7t total book order this year. As the company focus on product mix and efficiency to improve margins, we estimate 2011-12 operating margin improvements to 8.2% and 8.3% respectively. 2011-12 bottom lines are likely to grow 16% and 30% y-y respectively, with net margins of 4.3% and 4.5%. We reiterate our BUY rating on WIKA with TP IDR830, trading at 2011 implied P/E of 15x, or 20% discount to regional average of 18.8x.

Topics: The Rise and Fall of US Commercial Real Estate - JP Morgan

The following commentary has been developed exclusively for J.P.Morgan's private banking clients. To preserve the integrity of our ongoing dialogue with you, it is important that this information remain private. For your convenience, a PDF version is attached.

Eye on the Market, July 5, 2011
Topics: The Rise and Fall of US Commercial Real Estate

There was a time early in the recession when residential property prices had begun to collapse, but commercial property prices were still holding in. We cut our allocations to commercial property (red dot), although given the illiquidity of the asset class, this was more of a benefit to newly funded portfolios than existing ones. By the end of 2009, commercial property prices, when measured on a national level, fell even more than residential property prices. The primary driver of the collapse: a massive expansion in the use of debt, which contributed to skyrocketing prices. The 2nd chart shows commercial real estate credit extended by private markets (banks, insurance companies) and by public markets (e.g., rated property-backed debt, securitized commercial real estate loans). It almost doubled as a percentage of GDP from 2000 to 2007.

Any silver linings? Unlike residential property, the oversupply of office property was less severe. To illustrate this, consider the chart below (left), on the three expansions in office property since the Volcker disinflation of the early 1980s:

[1] The first was the worst: the tax boom. The 1981 Economic Tax Recovery Act ushered in accelerated depreciation allowances for real estate and the ability to offset active income with passive losses. This fueled a massive expansion in commercial property construction. The 1986 Tax Reform Act then ended this tax arbitrage. Unoccupied buildings never needed in the first place drove vacancies to 30%-40% in some cities, prices collapsed, and banks suffered losses of 15% or more on commercial property loans.

[2] The next was the tech boom, when markets were pricing in 5% perpetual GDP growth and the elevated payroll growth/ office space needs that it implies. The tech sector played a large role (as one sign of optimism, Cisco traded at 150 times earnings), but it wasn’t just tech that was expected to expand; everybody was (Merck traded at 35 times earnings). As a sign of how things have changed, both Cisco and Merck now trade closer to 10 times earnings.

[3] The third episode was the recent credit boom, when the cheapest and most abundant credit in history (see below for more details) pushed office construction higher, although the peak this time was lower than the prior two. While office vacancy rates are still elevated, they are starting to stabilize (see chart), as are national measures of office rents per square foot. The retail expansion did match prior peaks, a reflection of the consumer credit boom and bust.

As a result, we have been more active over the last 2 years in commercial property investing than residential, as the latter suffers from worse oversupply. Since the onset of the recession, we have been opportunistically adding exposure to commercial real estate through distressed property funds, mezzanine financing and commercial mortgage backed securities. To be clear, there are plenty of impaired properties after the construction boom shown on the prior page; but there are just as many valuable ones that are simply over-leveraged, or held by banks that need to shrink their exposure to the sector.

The attached document walks through the troubled history of the CMBS markets, the resulting opportunities for mezzanine lending to commercial real estate owners, REITs vs private market purchases, the widening divergence between prices for trophy and distressed assets, the opportunities created in commercial property by the Great Deleveraging in Europe, some war stories from the commercial property front, and where commercial real estate fits in the recent history of flawed “firewall” thinking.

Michael Cembalest
Chief Investment Officer

XL Axiata – Solid Operator – BUY Tp7,600 - CLSA

We caught up with EXCL and came away with increased confidence in our bullish call.
After instigating the 2007 price war (tariffs cut up to 92%) Excel now has sufficient scale and is squarely focused on ROIC/ROE. Competition has become more rational and tariffs are likely to remain stable.
Options to divest its tower assets are not urgent as its balance sheet has degeared from its peak of 400% in 2008 to 40% in 2011. EXCL however prefers to spin off the entire tower portfolio versus a staged tranced sale like Indosat.
The stock currently trades at 12x 11CL PE, a discount to regional and Indonesian telecom peers despite 48% earnings growth and 30% ROE. Maintain a BUY call with a TP suggesting 30% upside. Our TP is derived from a blended 13x 12CL target PE and DCF valuation.

Bank Central Asia - Changing in lending attitude; Maintain BUY - Deutsche Bank

BCA shares have done well +20% YTD (and is +15% relative to the index).
Yet, despite this strong performance and its premium valuations, we retain our BUY rating on the stock. We believe that the bank's current valuations are warranted given BCA's strong fundamental outlook.

We argue that BCA will increasingly utilise its balance sheet strength to "restructure" its asset base (ie shifting its earnings assets from low-yielding into higher-yielding loan portfolio). Also, recent changes at the top management may have accelerated such balance sheet change in the bank, in our view.

Specifically in the consumer loan segments, 1Q11 loan growth have been at 36% yoy (ahead of consolidated loan growth of 25%). Loan growth are still focussed into its existing deposit customers to ensure quality. After all, out of approximately 9 million deposit customers, only 53,000 clients are BCA's mortgage customers.

In recent development, we understand BCA is "proactively" offering a TOP UP programme to its existing mortgage customers using the same property as collaterals. Interest rate offered are similar to existing mortgage rates of 9.5%. Essentially, this will lower lending rates for consumer loans. While this may not be substantial to the bank's overall earnings, this is an evidence of the bank's change in lending attitude (and in turn should suggest limited earnings risks). Combined with continued cost efficiency efforts, these should help keeping the bank's high profitability.

Property:Building its growth momentum - Mandiri

The JCI has increased by 5.4% year to date, with Misc Industry leading the pack with 22% gains, followed by Banking (+11.9%) and Consumer (+9.1%) sectors, respectively. However, the property sector underperformed the overall trend as it rose only 2.0% to date. While the basic industry index (incl. cement stocks), despite its downbeat sentiment due to rising energy prices, has shown a modest improvement of 4.3% , the next in line should be the property sector, in our view. Favorable macroeconomic conditions and strong performance are among the factors supporting the outlook for property sector in the remaining part of the year. Our top picks are still SMRA and BSDE, given our positive view of the outlook of the growth in the Serpong area.

Macroeconomic conditions are in favor of growth in the property sector. The on-year inflation continued to ease from 5.98% to 5.54% in June11. Our economist now views that inflation will remain under control in the 2H11, due to last year’s high base and relatively favorable weather. Given that, policy rate will only be expected to increase by another 25 bps to 7% later this year. This should bode well for the growth of the property sector as mortgage rate will likely remain low. Mortgage rate in May11 remained at mild ranging from 9.5% - 12.0%, while the YTD Apr11 mortgage loan growth continued accelerating to 17.5% ytd (vs. YTD Mar11 of 15.6%), showing continued strong demand for the property sector.

Solid operational growth, with no negative sentiment on stock movements due to seasonality. In the meantime, on the back of solid FY10 marketing sales (avg. growth 60% YoY), most property companies under our coverage are expected to show strong FY11 operational figures with EPS10-11F growth averaging 55%. In addition, seasonality on operating results that often brings negative sentiments on the stock movement is unlikely to occur for the remaining quarters, given a pickup in sales since the 2Q10 that mostly will be incurred this year. Note that we omitted the seasonality trend for APLN as a high-rise developer which recognizes revenue based on project completion. So far the company’s project has been on schedule.

Serpong developers are our top picks: SMRA and BSDE. Given favorable conditions above, we view now is the right moment to buy property stocks. Our top picks are developers with main exposures in Serpong, namely SMRA and BSDE, with ASRI as an alternative stock outside our basket. We expects sustainable ASP growth in Serpong, as we are intrigued by its demographic profile, resembling to that in the West/North Jakarta areas, with strong purchasing power and entrepreneurial spirit to develop the commercial side of the area.

PTBA Given The Benefit of The Doubt - Batavia

• Significant increase of 1Q11 net profit
PTBA recorded significant increase in 1Q11 net profit. This increase was a result of raising average sales price for domestic sales and export sales. PTBA’s net profit rose by 104% y-o-y to IDR760 billion reflecting 29% of our net profit valuation for full year 2011. Average domestic sales price on 1Q11 was IDR743,000 per tonne or increased by 29% y-o-y, while average export sales price increased 54% to U.S. $ 88 per tonne.

• Relatively stable q-o-q sales volume in 1Q11
1Q11 sales volume was 3.1 millions tones, relatively similar to 1Q10’s. The largest sales portion came from the 5,900-kcal coal that is used as fuel for power plant. We expect PTBA to increase the sales volume in 4Q11 due to the arrival of 6 additional locomotives that can increase coal transport capacity. Hence FY2011 we gave PTBA the benefit of the doubt to achieve its sales volume target above 16 million tons.

• More than IDR 1 trillion of capital expenditure
PTBA allocated more than IDR 1 trillion of capital expenditure this year which will be used for several projects. The ongoing projects are Existing Railway Project that is expected to be completed in 2014, New Railway Project, and Banjarsari Mine Mouth PP 2x100MW (U.S. $ 239 million).

• Bullish on PTBA
We upgrade our target price based on DCF model to IDR 26,800, assuming the weather is conducive and the Existing Railway Project will increase the capacity of freight above 13 millions tonnes this year, up 23% from a year earlier. We expect potensial upside of 26% based on the current price of IDR 21,350.

Bear Market in Tin Ending as Shortages Mean PT Timah’s Profit Advances 55% (update1) - Bloomberg

Erfandi’s fleet of bamboo rafts are dredging 33 percent less tin ore from the rivers of Indonesia’s Bangka Island than in 2008, as miners fail to keep pace with consumption that jumped 14 percent in two years.

The vessels operating in the world’s largest exporting nation are hauling up no more than 40 kilograms (88 pounds) of ore daily, from 60 kilograms, as reserves get depleted, said the 46-year-old foreman. Miners from China to Peru are also struggling to meet demand for the metal, used to solder components in almost all electronic equipment.

While commodity investors suffered their worst quarter in a year as wheat, cotton and crude retreated, prices will rebound because of shortages, a Bloomberg survey of analysts in June showed. Tin fell 22 percent from a record in April, entering a so-called bear market, and will rally 15 percent to $30,000 a metric ton by Dec. 31, a Bloomberg survey of 15 traders, analysts and smelters showed. The market will be in deficit for the fourth time in five years, Barclays Capital says.

“It’s a market where there’s not enough of the metal coming out of mines around the world,” said Nic Brown, the head of commodities research at Natixis Commodity Markets Ltd. in London who predicted higher prices last July, nine months before they reached a record. “If you remain positive on the basic growth story out of China, and the other developing countries, the fundamentals in the tin market have not changed that much.” Read More ...

Asia Coal-Australia thermal coal nudges up above $122/T - Reuters

Australia's thermal coal index nudged up to above $122 a tonne this week, remaining in a tight trading range that is likely to hold until Japan returns to its pre-quake
buying levels, brokers said on Tuesday.

Only one deal was reported so far this week with a contract for Newcastle coal in October agreed at $124.50 a tonne, a Singapore-based broker said, indicating some price recovery over the next three months.

Steam coal prices in Australia finished the second quarter little changed but have shed nearly 7 percent so far this year, after the deadly earthquake and tsunami in Japan slashed coal demand in the world's largest consumer of steam coal, which is also the largest buyer of Australian coal.

Thermal coal on the globalCOAL Newcastle index for the week so far was $122.25 per tonne, up from $120.97 on Friday.

Sales have been thin in recent weeks, with Japanese and Chinese buyers out of the market, and they are likely to stay away until around September, when winter buying starts.

"The market has been stagnate at the $120 level for some time," a coal broker said. "There is a lot of coal available right now and nothing really driving the market with Japan away."

Top thermal coal exporter Xstrata was close to an agreement with Japanese utilities for the July-start annual contract, with talk of the settlement price around $127 a tonne, according to three brokers.

Newcastle Weekly Coal Exports Rise 4%; Ship Queue Unchanged - Bloomberg

Coal shipments from Australia’s Newcastle port rose by 4 percent last week. The queue of ship waiting to load coal cargoes was unchanged at eight, Newcastle Port Corp. said on its website today.

To contact the reporter on this story: Ben Sharples in Melbourne

NYMEX-U.S. crude rises 2 percent on demand optimism - Reuters

* Oil rebounds as demand hopes rise
* Moody's cuts Portugal rating, trims gains in late trade
* Coming up: API oil data, 4:30 p.m. EDT Wednesday

NEW YORK, July 5 (Reuters) - U.S. crude oil futures rose more than 2 percent on Tuesday, bouncing back after a long holiday weekend, as commodities rose on demand optimism.

Barclays Capital raised its 2012 price forecast for Brent and U.S. crude, while Saudi Arabia reduced just slightly the price of oil it sells to Asian customers, both helping to improve sentiment.

In addition, U.S. factory orders rose in May and commodities buyers looked forward to improved oil demand for the second half of the year.

Ahead of weekly inventory data, a Reuters poll of analysts forecast that domestic crude stocks fell 2.3 million barrels in the week to July 1. [EIA/S]

Distillate stocks were forecast up 600,000 barrels while gasoline inventories were projected to have been little changed from the week to June 24.

FUNDAMENTALS

* On the New York Mercantile Exchange, crude for August delivery CLQ1 settled at $96.89 a barrel, gaining $1.95, or 2.05 percent, after trading between $94.34 and $97.48, the highest for front-month NYMEX crude since June 15.

* Late selling pared the day's gains after Moody's Investors Service cut Portugal's credit rating, causing the euro to fall against the dollar and snap six days of gains. In late trading, the dollar was up 0.55 percent against a basket
of currencies. [USD/] .DXY

* In London, ICE Brent crude for August delivery LCOQ1 settled at $113.61, gaining $2.22, or 1.99 percent, after trading between $110.45 and $114.44. The settlement and session high were the loftiest for front-month Brent since June 22.

* U.S. crude's discount to Brent widened to $16.72, from $16.51 on Monday. CL-LCO1=R

* Saudi Arabia trimmed the price for its August Arab Light crude by just 10 cents from the July level for Asian customers, who buy more than half of Saudi crude exports. The move may make it difficult for Riyadh to increase exports despite
expectations that the kingdom would pump more to meet rising demand in the second half of the year. [ID:nL6E71516K]

* Barclays Capital raised its 2012 forecast for Brent LCOc1 by $10 to $115 a barrel, and raised its 2012 forecast for U.S. light sweet crude CLc1 by $4 to $110. Barclays left its Brent forecast for 2011 at $112 but cut its 2011 forecast for U.S. crude by $6 to $100. [ID:nL6E7I50DP]

* Brent will fall to $90 a barrel by September because of the International Energy Agency's move to release oil reserves and an increase in Saudi Arabia's production, before bouncing for the longer term, Citigroup said. [ID:nL6E7I50MH]

* China's local government debt may be 3.5 trillion yuan ($540 billion) larger than auditors estimated, potentially putting banks on the hook for deeper losses that could threaten their credit ratings, Moody's said. [ID:nL3E7I507Y]

* Venezuela's energy policy is not affected by health problems suffered by President Hugo Chavez, his oil minister said on Monday. [ID:nN1E7630WX]

MARKETS NEWS

* The Dow Jones industrial average .DJI and the Standard & Poor's 500 Index .SPX fell while the Nasdaq Composite Index .IXIC rose as investors paused after last week's surge. [.N]

* Gold rose nearly 2 percent as risk-averse investors bought the precious metal on concerns about China's economic outlook and worries about the Greek debt crisis. [GOL/]

* Copper closed up for a sixth day as supply threats in Chile and upbeat U.S. data added fuel to the rally. [MET/L

Medco Menang Tender PLTG Batam Rp 179 Miliar - Detikfinance

Jakarta - Anak usaha PT Medco Energi Internasional Tbk yatu PT Medco Power Indonesia memenangkan tender proyek pembangunan pembangkit listrik tenaga gas (PLTG) berkapasitas 3,8,5 MW di Batam senilai Rp 179 miliar milik PLN.

Demikian disampaikan oleh Direktur Utama Medco Power Fazil E. Alfitri dalam siaran pers, Selasa (5/7/2011).

"Medco berpartisiasi dalam tender proyek tersebut bersama konsorsium Dalle Engineering Construction dan Top Deal International Ltd. Pembangunan PLTG ini diperkirakan dimulai Agustus 2011 dan diharapkan selesai 12 bulan," katanya.

Saat ini Medco dan konsorsiumnya tersebut telah berhasil membangun PLTG dan PLTGU dengan total kapsitas 160 MW dan sedang membangun tambahan pembangkit dengan mesin combine cycle berkapasitas 30 MW serta akan mulai membangun PLTG baru dengan kapasitas 70 MW dalam waktu dekat ini.
Pembangunan dilakukan setelah perundingan komersial pembelian gas sebesar 20 juta kaki kubik antara perseroan dengan PT Universal Batam Energy dengan penjual gas (yang diwakili Premier Oil Natuna Sea BV) selesai.

Sementara Direktur Utama Medco Lukman Mahfoedz mengatakan, proyek PLTG Batam ini akan memberikan tambahan pendapatan kepada Medco dalam 1 tahun ke depan.

Sampai saat ini Medco telah menyediakan tenaga listrik untuk PLN Batam sebesar 160 MW, PLN Sumatera selatan 24 MW, dan PLN Jawa-Bali sebesar 1.320 MW.

Rajawali Grup Akan Perbesar Kepemilikannya di CMNP

Topsaham- Rajawali Corporation dikabarkan berencana untuk menambah kepemilikan sahamnya di PT Citra Marga Nusphala Tbk (CMNP) hingga mayoritas. Rencana tersebut untuk memperkuat dibidang infrastruktur.

Untuk itu Rajawali Grup menawarkan pembelian saham CMNP kepada pemegang saham lain yang berniat untuk melepasnya dengan harga diatas rata-rata pasar.

Salah satu pemegang saham CMNP yang tengah ditawarkan Rajawali yaitu yang dimiliki Hari Tanoesudibyo yang memiliki sekitar 14% saham CMNP.

APLN aims to launch Rp800 bio bonds - Insider Stories

Property developer PT Agung Podomoro Land Tbk (APLN) is considering to raise Rp800 billion financing via rupiah denominated bond issuance. The proceed will be used by the developer to bankroll capital expenditure requirement.
A source familiar with the matter said Agung Podomoro has picked four underwriters to arrange the issuance. They are Deutsche Bank, Indo Premier Securities, Mandiri Sekuritas, and Standard Chartered Securities.
Agung Podomoro's Corporate Secretary Prisca Batubara said the company is unable to comment the information regarding to the proposed bond issuance. "It is too early to explain the plan."

However, she confirmed that Agung Podomoro is exploring options of financing to underpin Rp3 trillion capital expenditure this year. "We are also seeking bank loan facilities to meet the capex," she said.
Prisca explained the company has obtained Rp2 trillion cash from sales up to May.
PT Pemeringkat Efek Indonesia has also confirmed that the company provided rating for Agung Podomoro. However, Pefindo Director Salyadi Saputra declined to mention the rating.

MIRA Harus Jelaskan ke Publik Soal Laporan Keuangan Opini Disclaimer

Topsaham- Bursa Efek Indonesia (BEI) meminta PT MItra Internasional Resources Tbk (MIRA) untuk lalukan paparan publik secepatnya. Hal itu terkait laporan keuangan auditan 2010 yang mendapat predikat opini disclaimer (tidak memberikan pendapat) dari Akuntan Publik Johan Malonda & Rekan.


Edy Sugito, Direktur Penilaian Perusahaan BEI di Jakarta Selasa (5/7)mengatakan, perseroan harus melakukan paparan publik mengenai kondisi perusahaan saat ini terlebih dahulu. Setelah itu, bursa akan meminta penjelasan secara komprehensif terkait kondisi laporan keuangan dan kinerja perseroan serta anak usahanya.

Sehingga bursa dapat mempertimbangkan lebih lanjut tindakan apa yang akan dilakukan terhadap perseroan selain suspensi sahamnya. "Mereka (Mitra International) mau public ekspose. Soal disclaimer aja mereka sudah dua kali. Mereka sudah kita suspen sesuai dengan aturan," tegas Eddy.

Ia menambahkan, setelah paparan publik tersebut selesai dilakukan, bursa akan memanggil manajemen perseroan untuk meminta penjelasan secara lebih lengkap mengenai penyebab opini di laporan keuangan tersebut. Selanjutnya, akan dipertimbangkan pula apakah suspensi terus diberlakukan atau tidak berdasarkan penjelasan perseroan.

"Tunggu hasil public eksposenya dulu, dan akan kami lihat juga seberapa cepat MIRA dapat melakukan audit ulang dan menyampaikan re-submite laporan akuntan yang bukan disclaimer, karena obatnya cuma
itu," kata Edy.

CTRP may secure Rp1.7 trio loan - Insider Stories

PT Ciputra Property Tbk (CTRP), that is controlled by Indonesian businessman Ciputra, may secure Rp1.7 trillion loan facility in the second half of this year. The financing will be utilized by the developer to bankroll Ciputra World I project in Kuningan, Jakarta.

Director Artadinata Djangkar said the company is now in the last talks with a local bank. However, he declined to name the bank.
"We are in talks with a publicly listed local bank. It is possibility that the bank will set a consortium with other lenders," he said yesterday.

MICE di Backdoor Listing Roda Mas

Topsaham- PT Multi Indocitra Tbk (MICE) dikabarkan sudah merampungkan diakuisisi sekitar 60,44% saham Roda Mas yang dimiliki PT Buana Graha Utama dengan harga Rp 850-1.000 per saham.

Roda Mas berencana membeli MICE untuk dijadikan sebagai kendaraan backdoor listing. Sehingga nantinya MICE akan berubah menjadi Roda Mas.

Pada perdagangan pentutupan sesi I hari ini, harga saham MICE turun 30 poin (4,41%) ke level Rp 650 per lembar. Sahamnya sudah ditransaksikan 241 kali dengan volume 6.917 lot senilai Rp 2,3 miliar.

Astra International (Outperform) - June auto volumes again strong; Toyota market share bounces back - Macquarie

Event
· Indonesia's local newspaper the Investor Daily has reported (4/7) that Indonesia's new car sales (wholesale) reached 70.4k units in June. This was flat YoY (pcp 70.4k) but up 15.2% MoM from 61.1k units in May, and represented an acceleration in the rate of recovery from the Japanese earthquake impact.
· Importantly, sales of Toyota-branded vehicles were 26.2k units - largely flat YoY (pcp 26.0k) but a sharp MoM improvement from just 19.6k in May. This implies a June market share for Toyota of 37.2% (May 32.0%) - ie, nothing less than a full recovery following April and May's sharp contraction (Toyota's FY10A market share was 36.8%). Daihatsu's volumes were not disclosed, but Daihatsu's production had already fully recovered by the end of May, with its May market share of 17.1% surprising on the upside (compared to 15.5% in FY10A).

Impact
· We believe this to be another stronger-than-expected monthly data print for ASII and has resulted in 2Q11A Indonesian car sales of 190k comfortably beating our initial 167k forecast (while Toyota volumes of 67k beat our 63k forecast). We believe the print is likely to alleviate any lingering uncertainty about the impact of the Japanese earthquake and also augurs well for the direction of earnings revisions, in our view (which we feel were likely incorporating a more material impact than has transpired).
· The source of the data was not disclosed, but Toyota Astra Motor's Marketing Director, Joko Trisanyoto, was quoted at length in the article, and hence we believe is the likely source. We note that in past local Indonesian papers have frequently reported data ahead of its official release, and the quoted data has been usually reliable and accurate. (With that said, we note that the quoted vehicle sales number for 1H11A of 415.2k units implies only 68.0k unit sales in June relative to the previous official 5M11A data point of 347.2k; however, this is mostly likely due to a minor restatement of prior months' data prints, which happens relatively often).
· With respect to outlook, Joko said he was expecting sales to continue at around the present run-rate during 3Q11E, due to the seasonal impact of extended holidays during the quarter (which typically result in a well-expected dip), but sales were expected to increase further in 4Q11E - possibly to levels approaching the record March 2011 levels (March sales were 82.1k units). If this proves to be the case, this would also entail upside to our current vehicle sales forecasts for the balance of the year (currently 180k units in 3Q11E, and 220k units in 4Q11E).

Action and recommendation
· ASII's share price has performed strongly in recent times, as the stock has played catch-up after an extended period of consolidation and (more recently) benefited from the lifting of residual earthquake-induced uncertainty as well as a strong push by the JCI to new highs. As a result, the stock is now trading only modestly below our Rp70,000 target price target, and we believe the valuation calculus is therefore beginning to become more challenging (16.1x FY11E PER, but closer to 20x for the automotive component of our valuation).
· However, we do not yet consider ASII to be demonstrably overvalued - particularly given that the risks to our FY11 estimates now look to be clearly on the upside. In addition, the stock is likely to be a continuing beneficiary of any ongoing "long Indonesia" flows, while monthly 4W volume prints are likely to continue surprise on the upside during 2H11E, in our view, which could act as additional positive catalysts.
· We therefore see it as risky to call a top at this stage and remain comfortable with our Outperform call, although we do caution that risks are increasing. We intend to review our earnings estimates and investment opinions following ASII's upcoming 2Q11E result.

Bear Market in Tin Ending as Shortages Mean PT Timah’s Profit Advances 55% - Bloomberg

By Glenys Sim and Yoga Rusmana
July 04, 2011 12:01 EDT



Erfandi’s fleet of bamboo rafts are dredging 33 percent less tin ore from the rivers of Indonesia’s Bangka Island than in 2008, as miners fail to keep pace with consumption that jumped 14 percent in two years.

The vessels operating in the world’s largest exporting nation are hauling up no more than 40 kilograms (88 pounds) of ore daily, from 60 kilograms, as reserves get depleted, said the 46 year-old foreman. Miners from China to Peru are also struggling to meet demand for the metal, used to solder components in almost all electronic equipment.

While commodity investors suffered their worst quarter in a year as wheat, cotton and crude retreated, prices will rebound because of shortages, a Bloomberg survey of analysts in June showed. Tin fell 23 percent from a record in April, entering a so-called bear market, and will rally 16 percent to $30,000 a metric ton by Dec. 31, a Bloomberg survey of 15 traders, analysts and smelters showed. The market will be in deficit for the fourth time in five years, Barclays Capital says.

“It’s a market where there’s not enough of the metal coming out of mines around the world,” said Nic Brown, the head of commodities research at Natixis Commodity Markets Ltd. in London who predicted higher prices last July, nine months before they reached a record. “If you remain positive on the basic growth story out of China, and the other developing countries, the fundamentals in the tin market have not changed that much.”

Fresh Fruit

Prices climbed 49 percent to $25,795 in the past 12 months on the London Metal Exchange. PT Timah, based in Pangkalpinang, Indonesia, will post a 55 percent profit gain this year, analysts’ estimates compiled by Bloomberg show. Dole Food Co., the world’s biggest fresh fruit and vegetable producer, said in May that it’s paying more for tinplate. The packaging material is made from sheets of iron or steel coated with tin.

Solder represents 52 percent of demand and tinplate 17 percent, according to ITRI Ltd., a St. Albans, England-based researcher. The metal is used in electronic goods and a high proportion of electrical appliances, ITRI said.

Tinplate prices rose as much as 15 percent to 20 percent in some countries in the past year, according to H.J. Heinz Co., which sells 1.5 million cans of baked beans every day in the U.K. alone. Each 415-gram (0.9 pound) container uses a third of a gram of tin, the Pittsburgh-based company said in an e-mail.

Global sales of electronic equipment rose 17 percent to $1.85 trillion in 2010 and may gain another 6 percent this year, according to Bannockburn, Illinois-based IPC, an association for suppliers to the industry.

“As long as there’s a circuit board, there will be tin,” said Wu Xiaofeng, an analyst at Shanghai Metals Market, which has more than 400 researchers.

Earth’s Crust

Tin is more than 31 times rarer than copper in the earth’s crust and the two metals were combined to make bronze as long as 5,500 years ago, according to the U.S. Geological Survey. This year, global demand may rise 0.5 percent to an all-time high of 366,000 tons, exceeding supply by 6,000 tons, Barclays Capital estimates. Based on last year’s average price, that would value consumption at almost $7.5 billion.

The metal advanced 166 percent since reaching a two-year low in December 2008 as demand rebounded from the worst global recession since World War II and floods cut Indonesian output. That outpaced the 156 percent gain in the London Metal Exchange Index of six metals and the 52 percent jump in the MSCI All- Country World Index of equities. Treasuries returned 4.1 percent, a Bank of America Merrill Lynch index shows.

Electronic Goods

The Standard & Poor’s GSCI gauge of 24 commodities fell 7.8 percent last quarter as wheat dropped 20 percent, cotton slumped 41 percent and oil retreated 11 percent. The index pared losses in the final three days, advancing 4 percent.

Sales of electronic goods and tin prices could slump should economies weaken. U.S. consumer confidence dropped to a seven- month low last month, the New York-based Conference Board’s sentiment index showed. Federal Reserve Chairman Ben S. Bernanke said June 22 that part of the slowdown in the world’s biggest economy may be “longer lasting.”

More than two-dozen countries raised interest rates this year to cool inflation. China, the world’s biggest tin consumer, increased rates four times since October to contain prices that gained 5.5 percent in May from a year earlier, the fastest pace since 2008. Japan entered its third recession in a decade in the first quarter.

“The global macroeconomic environment is the greatest risk the market faces,” said Liang Haisan, a Shanghai-based analyst at Citic Newedge Futures Co., a venture between Citic Group, China’s biggest state-owned investment company, and Newedge Group. “China won’t be spared from a global slowdown.”

Economic Slump

Another economic slump would slash demand for tin, driving prices as low as $22,000 by the end of the year, according to the median estimate of 11 people in Bloomberg’s survey. That would still be 87 percent higher than the average over the last decade, data from the London Metal Exchange show.

Inventories monitored by the LME suggest there is no supply crunch yet, after gaining 37 percent to 22,305 tons this year. There are also signs that trend may reverse. Orders to remove metal from warehouses, known as canceled warrants, rose fivefold on June 28 to the highest level since April 2010, LME data show.

Increasing inventory is no bar to rising prices. Warehouse stockpiles had jumped 15 percent this year when the metal traded at the all-time high of $33,600 on April 11.

Immediate Delivery

Part of the increase in inventories may have been caused by LME prices trading at a premium to those in China, spurring exports, according to CRU, a research company based in London. That premium no longer exists, CRU says. LME tin for immediate delivery averaged $1,579 a ton more than Chinese prices from October through mid-April, according to Bloomberg calculations.

Demand is poised to rise because the world economy is still expanding. U.S. growth will accelerate to 3.2 percent this quarter, from 2.3 percent in the prior three months, the median of 68 economists’ estimates compiled by Bloomberg show. The world economy will expand 4.3 percent this year and 4.5 percent in 2012, the International Monetary Fund said June 17.

Demand for electronic goods is accelerating. Global sales of mobile-phone handsets will rise about 12 percent to about 1.8 billion units this year, Gartner Inc., a Stamford, Connecticut- based researcher, said in a May report. Shipments of tablet computers will advance 12-fold from 2010 to 2015, IHS iSuppli, an El Segundo, California-based researcher, said in February.

Chinese requirements may rise 6.8 percent to 157,000 tons this year, compared with domestic supply of 155,000 tons, according to Ran Jun, a senior analyst at Antaike Information Development Co., a state-backed research group.

Trade Ministry

Shipments from Indonesia were worth $1.71 billion last year, from $1.25 billion in 2009, according to the trade ministry. In Bangka Belitung Province, the industry has created about 300,000 jobs, said Johan Murod, a director at PT Bangka Belitung Timah Sejahtera, a group of six smelters.

The market is “critically dependent” on exports from Indonesia, Peru and Bolivia, said Edward Meir, a senior analyst at MF Global Holdings Ltd. in Darien, Connecticut. Output from the two South American nations may drop to a combined 48,000 tons this year from 51,100 in 2010, CRU estimates. Indonesian supply may increase “slightly,” ITRI forecasts.

The average metal content of ore is declining because richer deposits are now exhausted, Mohd. Ajib Anuar, group chief executive officer of Malaysia Smelting Corp., the country’s biggest producer, said in an interview in January. Mining companies are removing twice as much waste as they did two decades ago to get to the ore, he said.

Trawling Offshore

PT Timah will report net income of 1.47 trillion rupiah ($172 million) this year, compared with 948 billion rupiah in 2010, the mean of 10 analyst estimates shows. The shares have climbed 20 percent in the past year in Jakarta.

A rally would also help the miners of Bangka Island, including Erfandi, who used just one name, and Andri Salim. He used to dig up ore from his backyard and now supervises 10 workers trawling for the metal offshore.

“People are buying new cars, motorcycles and sending their children to good schools all because of tin,” the 47 year-old Salim said. “We can see tall buildings, hotels, three shopping malls and lots of stores.”

To contact the reporters on this story: Glenys Sim in Singapore

Kawasan Industri Jababeka - Growth potential from integrated model - UBS

􀂄 Initiate coverage with a Buy rating and a Rp250 price target Kawasan Industri Jababeka (Jababeka) is the largest listed industrial estate developer in Indonesia. The company’s main focus is on the development of the Cikarang Industrial Estate, near Jakarta. It is the country’s most integrated industrial estate, which includes a 130MW power plant and Indonesia’s only dry port, as well as residential and industrial developments.

􀂄 Strong demand for industrial land plots Jababeka’s land sales increased eightfold in 2010 YoY to 116ha. We expect this trend to continue, supported by: 1) investment growth—foreign direct investment inflows rose 173% YoY in 2010; 2) a manufacturing sector recovery, with 15% growth in 2011E; and 3) loan growth of 24% in 2011E.

􀂄 Strong recurring income growth We forecast 218% YoY recurring revenue growth for Jababeka in 2011-12 and estimate the company’s power plant will contribute 36%/37% of total recurring sales income in 2012/2013. Jababeka has an off-take agreement with the state electricity company, PLN. Construction of additional power plant capacity is scheduled to be completed in Q411/Q112.

􀂄 Valuation: sum-of-the-parts-based price target Our price target is double the current share price. It implies a 50% discount to 2012E RNAV and 1.8x/1.7x/1.5x 2011/2012/2013E P/BV. The stock is trading at 1.0x/0.9x/0.8x 2011/2012/2013E P/BV. We base our price target on a sum of the parts. We use DCF to value the power plant and dry port projects, the discounted development method for development property, and single cap rate methodology for investment property.

Bulk Commodities - No more tough times for the Coal Miner’s Daughter - Citigroup

 New pricing paradigm for coal — The demand for coal from the energy and steel sectors appears to be unrelenting and is likely to keep coal prices elevated for the foreseeable future. With large parts of the industry handicapped by infrastructure constraints, it's being left up to too few producers to meet the strong demand from developing economies. This will leave the coal market exposed to sudden price spikes and a new premium on supply as disruptions become common place.
 Demand rising from developing economies — Despite the modest outlook for advanced economies, we think that the strong EM growth should keep global growth buoyant, at 3-4% this year and 2012, and even higher thereafter – well above the long-run norm of just below 3% YoY.
 Coal still king in energy markets — We have increased our price forecasts for thermal coal by between 13-45% over our new 10 year forecast. Thermal coal's share of the electricity generating capacity is rising, not only in Japan and Germany (after the nuclear crisis in March) but also in developing economies. China and India are becoming significant importers as domestic production in both countries lags behind demand.
 Metallurgical coal at a premium, but past peak — As developing economies (outside of China) boost steel consumption over the next decade, demand for premium hard coking coal will likely remain strong. With new sources of supply scarce, we believe HCC prices have permanently jumped up to a new level. Therefore we have increased our forecasts of prices in 2014-2018 by an average of 15%.
 Long Term Price Upgraded — We have raised our LT thermal coal price to $105/t based on rampant (and permanent) cost inflation. Our new LT HCC price of $200/t reflects our views that the industry's high margins (~50%) are here to stay as a lack of new supply creates a high barrier to entry.

Indofood CBP Sukses Makmur (ICBP-BUY-IDR5,600-TP:6,700) Food for thought - Bahana

Continued price increases = 2Q11 margin protection
Our recent lunch with ICBP reveals that the company has continued to raise prices for its products with the latest June price hike of 2% on its “Cap Enak” condensed milk. This followed a slew of price increases in 1Q11 as follows:
§ 7-8% on noodles (mid January 2011)
§ 3% on dairy products (February 2011)
§ 6-11% on potato chips (February 2011)

This suggests that the company will emerge relatively unscathed from the adverse impact of higher commodity prices in 1Q11. Our sensitivity analysis shows that for every 1% price hike on ICBP’s noodle division, net profit will rise 7%. At this stage, we expect these price increases will allow ICBP to book 2011 noodle EBIT margin of 16.4%, relatively stable when compared to 16.5% registered in 2010. Note that noodles accounted for 71% of ICBP’s 1Q11 sales and 80.3% of the company’s operating profit (exhibit 6 & 9).

Higher margins in the offing; Weak volumes due to bad harvests
Looking ahead into 3Q and 4Q11 earnings, we expect ICBP to experience margin expansions, not only due to the aforementioned price increases, but also on the back of softening commodity prices and continued IDR strength. However, it is worth noting that based on our conversation with the management, there are no plans to implement further price increases for the rest of the year given that volumes have not picked up in 2Q11 relative to 1Q11 levels. The management attributed this weak volume growth towards failed harvests in Java due to pest problems. We also believe weak purchasing power also stemmed from over extension in credits of motorcycles, electronic products such as hand phones, TVs, DVDs, etc. Finally, we must also not underestimate the impact on weaker purchasing power in Java caused by lower overseas workers’ remittances as a result of continued tension in the middle east.

Unjustified valuation: The UNVR comparison
Exhibit 10-12 shows that ICBP has outpaced Unilever Indonesia (UNVR-REDUCE-IDR14,950-TP:IDR12,275) in terms of growth from top to bottom line. On the balance sheet side, ICBP has transformed itself from a 57% net geared company in 2009 to a net cash company in 2010 (exhibit 13) while UNVR has depleted most of its cash reserves by the end of 2010 and we expect the company to become 24.5% net geared by 2011. Meanwhile, in terms of valuations, UNVR is trading on 2011 PE of 30.6x, compared to ICBP’s 16.8x PE, reflecting 82% premium. We believe UNVR’s premium over INDF is unjustified, particularly given the latter’s balance sheet repair. Additionally, ICBP’s valuation is also cheap when compared to its regional peers which are trading on 2011 PE of 21.5x (exhibit 14). Therefore, we reiterate our positive view on ICBP on 19.6% upside potential to our target price of IDR6,700, which reflects PE re-rating to 20x. BUY.

Bank Tabungan Pensiunan Nasional - Maintaining strong performance - Macquarie

Event
§ We upgrade BPTN's target price by 4% to Rp3,650 following the 1Q11 results and our recent company visit. Maintain Outperform.
Impact
§ NIM expected to remain above 11%. 1Q11 NIM was 12.9%, stable compared to the 4Q10 level as there has been no price change in 1Q11. We expect NIM to decline to 12% in FY11 and to 11.6% in FY12 due to a shift in the micro loan composition – from unsecured loan with higher yield to secured loan with lower yield. Nonetheless, BPTN's NIM should remain one of the highest in the sector due to increasing micro loan contribution (from the current 20% of total loan to 26% by 2012), which offers an average yield of 30%+.
§ NPL peak had passed. 1Q11 NPL came down to 1.0% from 1.1% in 4Q10. This is better than our and the initial management expectation of 1.6% this year due to the peaking of micro loans NPL. Management believes that the micro loan NPL may have peaked in December at 5.3% given the proportion of higher risk unsecured micro loans has declined and the average micro loan tenure is 18–24 months (micro business started in 2009). Hence, we believe that NPL has stabilised and expect NPL to reach 1.3% this year.
§ New initiatives do not necessarily imply cost surprise. Cost to income shot up to 72% during the bank's major initiative to expand into micro loans in 2009. Since then, cost to income has declined to 53% as of 1Q11. BTPN is currently undertaking a few pilot projects in an effort to explore new business lines. If such expansion materializes, cost to income may rise, but we believe not as drastically as before, given the higher base. Hence, we lower our cost to income assumptions to a more stable 57–58% level for 2011 to 2013.

Earnings and target price revision
§ FY11E EPS and FY12E EPS increased by 17% and 18%, respectively, on the back of better-than-expected 1Q11 results, due mainly to higher than expected NIM. As a result, we raise our TP by 4% to Rp3,650.
Price catalyst
§ 12-month price target: Rp3,650 based on a Gordon growth model methodology.
§ Catalyst: Strong 2Q11 results, lower NPL, lower cost to income ratio.

Action and recommendation
§ We maintain our Outperform recommendation due to the bank's strong performance, high CAR and low NPL. The stock is trading at 3.1x P/BV and 11.2x PER in 2011E, and offering 25% ROE.

H2 2011 outlook: Global growth reacceleration and peaking inflation offers re-rating catalysts for Asian equities - Credit Suisse

We expect that a reacceleration in global growth and peaking inflation will offer key catalysts for a re-rating of the Asian equity markets in H2 2011.
With growth moderation, peaking inflation and easing energy prices, Asian central banks are nearing a pause in monetary tightening. The end of QE2 will further reduce overheating and asset bubble risks.
We stay overweight Asian equities and project a 16% upside potential in the MSCI Asia ex-Japan over the next 12 months. We overweight China, Hong Kong and Indonesia, but have moved A shares to neutral due to new issues supply overhang.

Research Monthly Asia: Looking through uncertainty to positive fundamentals - Credit Suisse

Overview Global
Recent weak economic data mask strong global fundamentals: Secular emerging country growth and supportive financial conditions in rich countries.
Greece’s long-term problems cannot be solved quickly but the near-term crisis is the need for funding by mid-July, and we think political impetus exists to deliver this.
Given this, plus attractive valuations, we remain strategically overweight stocks, commodities and real estate, and underweight fixed income.

Overview Asia
Asian central banks are near pause in rate hikes due to peaking inflation in the region.
Recent bearish sentiment triggered by China hard landing fears creates a strategic buying opportunity for fundamentally attractive growth-sensitive Asian stocks.
We remain positive on commercial real estate in many Asian cities thanks to expanding rental markets.

Bumi Plc to add 3.3% stake in BUMI - Insider Stories

Bumi Plc, London-based company, has agreed to issue 11.74 million voting ordinary shares to purchase 676.65 million shares in PT Bumi Resources Tbk (BUMI) or 3.3%.
In an official statement filed to London Stock Exchange on June 30, the additional shares swap is part of a step-up transactions.

Following the shares swap, Bumi Plc's shareholding in BUMI will increase to 32.1% from 28.9%. Assuming to Bumi Plc's closing price at 11.35 pound sterling on July 4, the shares swap equal to Rp2,689 per share BUMI.

S&P Warning Sows New Uncertainty on Greek Rescue - CNBC

Credit ratings agency Standard & Poor's cast new uncertainty on Monday over euro zone efforts to rescue debt-crippled Greece by warning it would treat a French bank plan for a rollover of privately-held debt as a default.

The threat abruptly ended a relief rally in stock and bond markets after Greece adopted a new, tougher austerity plan last week, prompting euro zone finance ministers to agree on Saturday to throw Athens a 12 billion euro short-term lifeline.

Bank stocks fell in Europe [.SX7P 189.56 --- UNCH (0)] and the cost of insuring Greek debt against default resumed an inexorable climb only briefly interrupted last week when the Greek parliament backed a new wave of spending cuts, tax rises and public asset sales.

Investors fear that a default by Greece, which has seen violent protests against austerity, would send shockwaves through the world finance system with some analysts saying it could call the whole euro zone into question.

While S&P's statement did not deal a death blow to the complex French rollover plan — seen by critics as a bailout for creditor banks rather than for Greece — it highlighted the difficulty of arranging private sector involvement in a second rescue package.

"It is our view that each of the two financing options described in the (French banks') proposal would likely amount to a default under our criteria," S&P said in a statement.

North European creditor nations, led by Germany, are insisting that banks and insurers must share the burden of any new financial support for Greece, which is estimated to need some 120 billion euros in new funding until end-2014.

French banks, major holders of Greek sovereign debt, proposed voluntarily renewing some of the bonds when they mature but on different terms.

Many investors and economists believe Greece will have to restructure its debt in the medium-term and the bailouts are only buying time and shifting the eventual cost from banks to taxpayers.

"The relief that we had last week with the votes is now somewhat put on the back-burner by this news (from S&P)," said Marc Ostwald, strategist at Monument Securities. "It would be nice to have some more details on it."

Confidence Punctured

S&P has been the most hawkish agency recently on Greece, downgrading its sovereign rating to CCC last month from B on a view that any restructuring of its 340 billion euro debt pile — 150 percent of annual economic output and rising — would count as an effective default.

The statement punctured some of the confidence voiced last week by bankers and public officials involved in the talks that the French proposal, seen as a template for other European private bondholders, would not trigger a default.

However, Fitch Ratings has hinted it may not be so severe and may avoid downgrading Greek debt to default after the transaction period, leaving the European Central Bank a chance to go on accepting the bonds as collateral in refinancing operations.

Under its standard procedure, the ECB bases its decisions on the rating agency that offers the highest rating, even if it is alone.

ECB officials have declined comment on how they would behave in this case but ECB policymaker Lorenzo Bini Smaghi has said the bank will not break its own rules.

S&P said it would assign a new rating "after a short time" once the debt rollover plan was actually be implemented, adding that the new rating would be forward-looking and reflect Greece's new sovereign credit situation.

It stopped short, however, of saying unequivocally the new rating would take Greece out of default, whereas Fitch said in a statement last month that its new rating, once the plan would be implemented, would take Greece out of restricted default.

Bankers and officials say negotiations on the bank rollover plan are still under way, with German authorities and banks seeking some changes to the French model, and a solution may take several weeks.

S&P itself said changes to the plan could alter its judgment.

"S&P's quick reaction to the French model is positive, because it gives guidance to the German banks what parts they need to modify to avoid a default in any shape or form.

It's an important pointer," Germany's public banks said in a statement.

Finance ministers of the 17-nation currency area are due to agree on the outlines of the second Greek rescue package, after last year's 110 billion euro bailout, at a meeting in Brussels next week, but details will not be signed off until September.

A senior Greek bank executive played down the S&P setback.

"If the 'selective default' period is short, covering just the settlement period for the bond exchange to take place, then there would be no funding issue for Greek banks," the banker, who declined to be named, told Reuters.

Uphill Struggle

Greece faces an uphill struggle this week to start the process of selling off state-owned assets and reform its tax system to meet European Union and IMF bailout conditions.

Jean-Claude Juncker, the chairman of euro zone finance ministers, said Athens faced a severe loss of its sovereignty with increasingly intrusive outside supervision of its fiscal policy and privatization agency.

The deep spending cuts required under the loan terms have sparked angry protests on the streets of Athens where hooded youths have fought running battles with riot police.

"The initiatives that must be undertaken in the coming days and weeks have only one goal, to resurrect the economy, halt recession and return to growth for the benefit of all citizens and mainly the unemployed and weak income groups," combative Finance Minister Evangelos Venizelos said on Monday.

BPD Jawa Barat & Banten - Growing through loans TP 1500 - MACQUARIE RESEARCH

Event
§ We lower our non-interest income contribution and increase our loan growth assumptions based on 1Q11 results and our recent conversation with the bank's management. We maintain our Outperform recommendation on Bank Jabar as the bank continues to focus on increasing its LDR and trades at an undemanding valuation. We maintain our target price at Rp1,500.

Impact
§ Higher loan growth expected. We increase our loan growth assumption to 25% YoY for this year from 18% YoY previously as 1Q11 loans grew 25% YoY to Rp24.7tr; this was mainly helped by strong micro and consumer loan growth. Micro loans grew 6% QoQ in 1Q11, helped by outsourced selling agents. Meanwhile, the bank has extended its civil servant salary loan term and ceiling, which helped consumer loans to grow 5% QoQ in 1Q11. We believe there is still upside potential to FY11 loan growth as the company has set a more optimistic loan growth target of 30% for this year.
§ NIM expected to bounce back by end of FY11. The bank is targeting a flat NIM of 7.3% by the end of this year – a recovery from 6.5% in 1Q11 – mainly through increasing its LDR. We believe this is achievable as the LDR reached 74% as of May from 70% by the end of 1Q11, based on our conversation with management. Meanwhile, the bank is committed to focusing more on its better yielding micro loans and slowing down its commercial loan growth. This was evident in its 1Q11 result, where micro loans grew 6% QoQ while commercial loans only grew 2% QoQ. Note that micro loans offer the highest effective interest rate of 25% pa vs 14% pa for commercial and 16-21% pa for consumer.
§ Non-interest income contribution to remain stable. Fee based income contributed about 90% to non-interest income, driven mainly by local remittances. Thus, considering the bank's focus on growing its loan book, we believe contribution of non-interest income to total income will remain stable. Hence, we have lowered our estimate for non-interest income contribution to total income, from 13% previously to 9% in FY11E.

Earnings and target price revision
§ FY11E and FY12E EPS adjusted by -3% and 2%, respectively, on the back of lower non-interest income contribution partially offset by higher loan growth assumptions based on 1Q11 results. We maintain our TP at Rp1,500.

Price catalyst
§ 12-month price target: Rp1,500 based on Gordon growth model.
§ Catalyst: Higher loan growth, higher NIM and lower NPL

Action and recommendation
§ Maintain Outperform. The stock is currently trading at 11.3x 2011E PER and 2.1x 2011E P/BV, which is undemanding compared to the sector valuation of 15.7x 2011E PER and 3.4x 2011E P/BV.

Initiation: Kawasan Industri Jababeka (KIJA Buy PT 250): Small cap potential 2 bagger - UBS

Analysts Tim Alamsyah and Felicia Tandiyono initiate coverage on KIJA, Indonesia's largest and most integrated industrial estate with a 5,600ha developed area. Its developed area, with supporting infrastructure, combined with a scarcity for industrial land should enable the company to generate strong sales growth.

We believe the stock price can double in 2012 based on the following reasons:

1) A play on rising FDI inflow in Indonesia. Industrial land sales are entering a turnaround period, eg last year's sales eight-fold YoY.
2) We forecast strong recurring income growth of 218% YoY in 2012 supported by additional capacity at its power plant.
3) Fully integrated industrial estate model: the only industrial estate with ample infrastructure support of dry port and power plant. We do not believe any other industrial estate developer in Greater Jakarta area can replicate Jababeka's development.

Key catalysts:

1) On schedule completion of power plant upgrade in Q411/Q112 as it would demonstrate management's project execution ability.
2) Completion of access road across Cikarang Industrial estate.
3) Passing of land acquisition for public infrastructure bill.

Risks:
1) Refinancing and/or equity dilution. Jababeka must repay US$40 mn loan maturing in October this year and currently have US$9.3 mn in cash.
2) Limited landbank with only 200 ha of remaining industrial land.
3) Gas supply risk for power plant project.