MARKET OUTLOOK The road to IDX Property 3% Telcos and Media 10% CPO, Energy and Metal Mining 12% Infrastructure 7%

Transcription

1 MARKET OUTLOOK 2011 IDX Target (12-mth): Rp (Overweight) The road to IDX December 2010 JCI F 4700 Mkt Cap Rp tn 3,123 in US$ 346 HD Economic Indicators 2011F GDP growth (%) 6.4 3mth Deposit (%) 6.3 Loan Growth 18% Inflation MoM (%) 6.1 Inflation YoY (%) 6.3 Rp/US$ YE 9050 Rp/US$ average 9035 Bond Rating BBB- PT HD CAPITAL TBK Sona Topas Tower Fl. 11 Jl. Jend. Sudirman Kav. 26 Jakarta T. (+62) F. (+62) /52 New territory Despite the market showing stellar performance as the best emerging market performer in 2010 (42% up YTD) at 13x, 12-mth forward PER, new territory is yet to be seen. We are still optimistic that robust earnings growth of 25%, domestic consumption and FDI-led investment GDP growth of 6.4%, bank lending growth of 18% next year and resumption of infrastructure projects can drive the index to our YE 2011 target of 4.700, implying 16x 2011 PER. The return to investment grade driven theme A few years ago some were skeptical of Indonesia to beat the odds of becoming an Asian soccer power player (but long and behold it surprised us by reaching theaff 2010 finals), and returning to pre-crisis 97 investment grade sovereign rating. The latter could result in a re-rating of valuations to pre-crisis levels. We view the market may be rallying in 2011 to price in such an event happening. The power of three: A recap of the IDX market weighting per sector reveals that three sectors represent close to 70% of the whole market. The three sectors are: Banks (28%), Coal (19%) and Consumer (21%), with Banks as the largest sector weight in the IDX universe. In these sectors, three largest heavyweight counters are Bank BRI: 5.0% (Banks), Adaro Energy: 2.6% (Coal), and Astra International: 7.0% (Consumer). Most of the market movement for 2010 has been related to two stocks: Astra (ASII) and Bank BRI (BBRI). Source: HD Capital Estimates Market Capitalization Sector Breakdown Property 3% Telcos and Media 10% CPO, Energy and Metal Mining 12% Infrastructure 7% (ASII: 7.0%) Consumers Durable and Non-Durable 21% (BBRI: 5.0%) Banking 28% (ADRO: 2.6%) Coal 19% 1

2 The road to becoming a first rate grade Asian soccer power play Recently the Indonesian soccer team's victories in the 2010 AFF have swept the country by storm. Public passion from all-social classes for the sport has not been seen since the early 90's. This turnaround in events may bring Indonesia on the road to becoming a first rate Asian soccer power play, and possibly to perform in the 2014 world cup Indonesian Soccer Team Players The road to investment grade A support for our 12-month index target at may come from the market's rerating which has not been fully priced in yet. If an investment grade rating (BBB-) (last seen pre 1997), then further funds flow could support such a scenario. There is no free lunch: One pre-requisite to an investment grade rating from current BB to BBB- was the partial lifting of fuel subsidies (delayed to March 2011), which also has an inherent inflationary risk. The market reacted negatively in December when a delay of the subsidy lifting occurred which lead also to the delay in investment grade status. According to our economic consensus the lifting of subsidies to private vehicles would only raise inflation by %, far below the 1% level. To raise or not to raise: A derailing of the bullish scenario would be a higher inflationary environment of 8-10% caused by a major fuel subsidy lifting such as 2005 & 2008 followed by a spike in interest rates (which in turn produced undesirable effect of weakening currency). Historically BI has used interest rate hikes as a last measure to contain currency weakness, and with an investment grade rating following subsidy lifting translating into fund flows and stronger currency such a rate hike policy may be overkill. 2

3 BANK RAKYAT INDONESIA (BBRI IJ) TP (12-mth): Rp 14,750 - BUY Size does matter Financial (Banking) Reuters Bloomberg th Priced by 28 December M hi/lo Rp12,800/6,950 12M potential target Rp14,750 ±% potential +39% Target set on 29 Dec 10 Shares issued Free float (est.) Market cap BBRI.JK BBRI IJ 3M average daily volume 14,614,200 12,340bn 43.23% Rp131,4bn Major shareholders Negara Rep. Indonesia 56.77% Lenny Sugihat 0.00% Still bullish We remain optimistic on BBRI with our TP or Rp.14,750/share (18.7x 2011F: 4.3x 2011 PBV, and 23% 2011F ROE). The recent 10-12% correction from historical highs may be used as an opportunity to build positions for upside potential in Despite the recent correction on slower 3Q10 where its' loans growth slowed due to the scheduled repayment of Rp.1.4T from loans to the agribusiness sector, we are still optimistic that a decline of 30Bp to 15% y/y to be partially compensated by lower loss provisions and that the market has over-reacted to the impact on 2010F- 2011F earnings, which may only be slightly tapered to Rp.9.4T and 11,5T, respectively. The largest in its' class In addition to possessing the largest market cap in the IDX, BBRI is also the major micro lending player with Teras BRI units doubling to 447 units in 9M10 from 217 units the previous year. This presence adds a competitive advance in its segment which is rivaled by Bank Danamon (BDMN). The bank has plenty liquidity, around Rp55tn in short term liquid assets, and additional buffer of 2-3trn of sub debt issuance next year. Worth the price We are optimistic that ROE can be buoyant by 30% 3-year projected CAGR (Compound Annual Growth Rate) loan growth, which may be a realistic approach. Throughout time the bank has been able to grow loans above 25% over the past 5 years, and may have exceeded this record if funding constraints did not cage its' full loan disbursement potential. In the short run the bank can shift to high yielding short-term micro lending like competitor BDMN has done, with the effect of reinvesting income from loans being repaid F 2011F 2012F ROE (%) ROA (%) LDR (%) PER (x) PBV (x) Source: HD Capital Estimates 3

4 ADARO ENERGY (ADRO IJ) TP (12-mth): Rp3,200 - BUY Coming on Strong Mining (Coal) Reuters Bloomberg 12M hi/lo Rp2,650/1,700 12M potential target Rp3,200 ±% potential +28% Target set on 29 Dec 10 Shares issued Free float (est.) ADRO.JK ADRO IJ th Priced by 28 December 2010 Market cap 3M average daily volume 61,251,800 31,985mn 44.45% Rp80,76bn Major shareholders PT Saranatoga Investa S 14.93% PT Triputra Investindo Arya 13.34% A crowd pleaser We like ADRO with a 12-month TP of Rp.3,200, assuming a 2011F PER of 18x, PBV of 4.4x. Our reasons are (1) Expectation of adjustment in higher selling prices due to short-run coal constraints, (2) infrastructure development of coal production and carrying to reduce costs, which may be a competitive advantage (3) Good nd corporate governance and absence from media & tax scandals of the 2 largest market cap competitor (BUMI). A coal story Due to recent spike in coal above $105/ton which is here to stay, we can safely project our FY11-12F average selling estimates (ASP) to US$76/ton (up from recent average of $67/ton). This figure takes into account the one-year lag before theasp catches up with the spot price, the reason is that 2010 prices are lower that spot using 2009 fixed sale contracts. On the positive side, ASP may be further adjusted by 14% in 2011 (from $67 to $76/ton), since the average selling prices is certainly higher than previous year. We predict net profit to be impacted 220% to the upside in Weather impact Coal production in 1H 2010 has suffered significantly from abnormal rainy conditions. Our view is that most coal producers have set their production targets for 2010 too optimistically based on normal weather patterns and thus a deviation of the usually rainfall projections has ruined most normal scenarios. Although Q Q is still regarded as the rainy season, we believe that the company's production target has already taken the normal weather effect pattern into account F 2011F 2012F Revenue (Rp) 18,093 26,938 25,322 32,918 41,148 EBITDA (Rp) 4,455 11,017 9,915 13,386 17,401 Net Profit (Rp) 887 4,531 2,583 5,682 8,352 EV/EBITDA (x) Dividen Yield (%) PER (x) PBV (x)

5 ASTRA INTERNATIONAL (ASII IJ) TP (12-mth): Rp80,000 - BUY Its' time to trade up Consumer (Automotive) Reuters Bloomberg 12M hi/lo Rp60,750/32,750 12M potential target Rp80,000 ±% potential +49% Target set on 29 Dec 10 Shares issued Free float (est.) Market cap ASII.JK ASII IJ th Priced by 28 December M average daily volume 4,011,940 4,048mn 49.89% Rp217,60bn Major shareholders Jardine Cycle and Carriage Ltd 50.11% Budi Setiadharma 0.02% Picking up speed We are optimistic on Astra International (ASII) outlook with a 12-month price target of Rp assuming 2011F PER 14.5x, PBV 3.9x, EPS growth of 11%, driven by catalysts such as continued 2011 auto sales growth & improved contribution from subsidiary units Astra Agro (AALI) & United Tractors (UNTR). A financing story We view fear of decelerating auto sales growth from the government's plan to limit subsidies to private car consumers & tax for additional new car ownership has been exaggerated, since it may be offset by the reality that interest rates (which affects availability of financing) are the most important factor in deciding the sales trend. With the support of car financing from low interest rate environment, we predict 2011F car sales to grow 13%. The theory is that as long as financing is available for a reasonable price, people still buy cars. Subsidiary contribution Higher outlook for CPO and Coal prices may benefit subsidiaries AALI & UNTR, with the Pama mine unit to receive future coal supplying contracts after its becomes productive in With coal prices expected to stay above $100/ton next year, and CPO above US$900/ton, thus it may be safe to presume EBIT margins of 20% for UNTR and 35% foraali. New kids on the block are not a threat We believe that new comers from Nissan's March and Mercedes Benz's Smart fuel efficiency vehicles are a non-existent threat to market share (56%), since the majority of Indonesian car buyers are into a whole different segment: family vehicles (MPV) such as Toyota Avanza and Innova. In addition the brand image of Toyota is still firmly entrenched in the consumer F 2011F 2012F Sales (Rp) 97,064 98, , , ,550 EBITDA (Rp) 14,450 16,103 19,324 25,121 31,401 Net Profit (Rp) 9,191 10,040 12,550 13,805 16,152 EV/EBITDA (x) Dividen Yield (%) PER (x) PBV (x)

6 DISCLAIMER The information contained in this report has been taken from sources which we deem reliable. However, none of P.T. HD Capital, Tbk and/or its affiliated companies and/or their respective employees and/or agents makes any representation or warranty (express or implied) or accepts any responsibility or liability as to, or in relation to, the accuracy or completeness of the information and opinions contained in this report or as to any information contained in this report or any other such information or opinions remaining unchanged after the issue there of. We expressly disclaim any responsibility or liability (express or implied) of P.T. HD Capital, Tbk, its affiliated companies and their respective employees and agents what so ever and howsoever arising (including, without limitation for any claims, proceedings, action, suits, losses, expenses, damages or costs) which may be brought against or suffered by any person as a results of acting in reliance upon the whole or any part of the contents of this report and neither P.T. HD Capital, Tbk, its affiliated companies or their respective employees or agents accepts liability for any errors, omissions or mis-statements, negligent or otherwise, in the report and any liability in respect of the report or any inaccuracy therein or omission there from which might otherwise arise is hereby expresses disclaimed. The information contained in this report is not be taken as any recommendation made by P.T. HD Capital, Tbk or any other person to enter into any agreement with regard to any investment mentioned in this document. This report is prepared for general circulation. It does not have regards to the specific person who may receive this report. Inconsidering any investments you should make your own independent assessment and seek your own professional financial and legal advice. 6