After the Fed cut interest rate by another 25 bps market rallied, yesterday
closed at all time high, surpassing the 2,700 mark. At this point the market is
now valued at 20x 2007 earnings and around 16x 2008 earnings. We believe this
was driven more by liquidity as opposed to fundamentals, as 3Q results were at
best in line with expectations, bar perhaps in the resource and mining sector,
whereby companies are reporting big earnings gain, either expected or
unexpected.
Telkom reported earnings that grew by only 6.5% y-o-y, reined in by forex
losses. However this is in line with our expectations, coming in at 71% of our
FY forecasts. Our analysts is still quite bullish on the company as total
revenues still increased by 21.7% y-o-y driven by increases in total cellular
subs which increased by 37% y-o-y. It is interesting to note that now the
biggest contributor to Telkoms revenue is now shifting towards data and
interconnection charges. As a result going forward these will be the areas for
capital expenditure. BUY, TP: Rp 14,500.
Banks results in our opinion were mostly in line with our expectations,
although compared to consensus, some of the heavy weight such as BBRI, BBCA and
BDMN reported below expectation earnings. These banks now command valuation of
close to 4x 2008 book value. Not cheap, but these banks do have a strong
business model and a strong competitive advantage in the market they are
targeting resulting in superior ROE despite the fact that their LDR are still
below 80% and with CAR of over 20%. These point to strong loan growth potential
in the future, especially given Indonesia s robust economic growth and
basically under penetrated finance sector, which currently only accounts for
less than 30% of GDP. We continue to like these banks and recommend a BUY.
Mid to small banks such as BNGA and LPBN reported earnings that were below
our expectations. In BNGAs case this is due to lower loans growth and NIM and
higher NPLs. In LPBNs case this is due to losses in the sale of marketable
securities which resulted in quarterly earnings down by 60%. Mid sized banks
are more prone to earnings volatility due their size. Even though we had to
downgrade earnings for these banks we still believe in their business model:
BNGAs strength in mortgage and LBPNs strong deposit franchise. These banks
are also trading at PBV of less than 2x 2008 book value, half of the valuation
of the big banks.
Cement companies reported strong results in the 3Q. The big boys such as SMGR
and INTP reported strong volumes and as a result 9M net profit were over 80% of
our FY forecasts. Profitability is also improving with pricing continuing to
strengthen. We are of the opinion that players are careful to keep price stable
so as not to resort to price war. Meawhile Holcim (SMCB) reported a stronger
than expected earnings. 3Q results were a marked improvement operationally from
the previous quarter due to strength in pricing, which is an achievement given
that its pricing is now above that of both SMGR and INTP. SMCB is a recovery
play and therefore we continue to have a BUY, TP 1,800. Although we like the
fundamentals going for INTP and SMGR, we believe that valuation wise these
companies are less attractive compared to SMCB. We have a SELL on INTP, TP
Rp8,050 and a HOLD on SMGR, TP Rp 5,500.
Two resource companies stand out due to improved pricing outlook. TINS
reported very strong earnings with earnings growing by 20x last years figures
and accounting for 100% of our FY figures. This was achieved on the back of
higher tin metal volumes and better selling prices. We have adjusted our tin
price forecasts from US$12,500/ton and US$11,000/ton to US$14,000/ton and
US$13,000/ton respectively on the back of a better tin market outlook. We
maintain our BUY recommendation on the stock with a new target price of
Rp25,000.
PGAS reported earnings are in line with our FY07 estimate after stripping out
the non-core components. The current oil price of around US$90/barrel implies
an equivalent unsubsidized domestic diesel price of US$19/mmbtu. This price
level is significantly higher than PGAS current selling price of US$5.5/mmbtu.
The selling price is also still lower than the subsidized diesel price of some
US$13.5/mmbtu. In our opinion this condition will provide a good opportunity
for PGAS to raise its selling price in the near future. Maintain BUY with a new
TP of Rp 17,000, implying a 2009 PER of 12.4x, still lower than its regional
competitors 19x.
Consumers reported good results, mainly in line with our forecasts. UNVR
reported sales growth of 11% y-o-y while both RALS and MAPI reported top line
growth of 15%, in line with the markets expectations. UNVR and RALS operating
margins improved compared to a year ago while MAPIs slight declined due to
higher operating expenses. Overall however, we see improvements in the consumer
sector with consumer confidence starting to strengthen although not strong as
expected. The consumer sector has been a under performer for the past 2.5 years
but as the economy improves, so should its consumers. Maintain buyers of UNVR,
RALS and MAPI.
Elvira Tjandrawinata
Danareksa Sekuritas
[EMAIL PROTECTED]
(62) (21) 350 9888 ext. 3500
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