Relevant commodities: Oil +6.6% (US$97), CPO futures KL -3.7% (US$591), Nickel -0.5% (US$7.9/lb), Brazil -6.7%, Rp/US$ -0.0% (Rp9,400), ADRs Telkom +0..3% (Rp6500), Indosat +0.7% (Rp5850). Coal prices rallied by over $7 on the Q4 API2 and Cal 09 contracts and around $5 on the API4 contracts, with most of the trading activity again around the NEWC swap. A 50 kt DES ARA phys coal parcel for Dec delivery traded at $161. Focus on global exchange rates: PGAS vs. ASII Bloomberg headline this morning says “Asian currencies retreat as central banks cut back intervention”. Reportedly, global fund managers have been increasing USD exposure and the flow is continuing. Typically, this could play out to be testing times for the IDR, except that the currency has showed resilience of late. Fundamentally, this makes sense because IDR has been one of the main laggard among Asian FX, Indo’s FX reserves is solid, central banker Boediono has credibility, and current account profile will improve with weaker oil price. Still, I would advice a trade to minimize FX risk in the coming month. (1) Add Perusahaan Gas Negara (PGAS IJ) – For this company, selling price, input cost, capex, and debt are all in hard currency. I have just met with the CEO, CFO, and marketing director yesterday. They all voiced confidence with regards to gas volume ramp-up, now that state-owned electricity company PLN commits to buying large volume at market prices. Effectively, we no longer need to worry about execution risk with regards to distribution network roll-out, as PLN is ready to absorb any additional gas volume that PGAS can deliver. Minister of SoE urged the management to evaluate share buyback, which they are seriously considering. The stock trades on 14.3x ’08 and 8.4x ’09 P/E, with forecast EPS growth of 71% for 2009 and 44% for 2010. MacQ rates Outperform with PxT of Rp3260. A relatively safe utility company with pent-up demand driving volume growth, with limited downside risk to selling price. (2) Reduce Astra International (ASII IJ) – The stock had a firm bounce in the last two days after a major sell-off, but slide in subsidiary company Astra Agro (AALI IJ) continued. CPO futures continues to slide breaking US$600 now. Using subsidiary share prices of Rp4000 for AUTO, Rp12,000 for AALI, and Rp8,850 for UNTR, we back out an implied valuation of around 8x P/E for 2008-09, for ASII’s core auto and motorcycle division. Looks like there is more downside risk to ASII share price if the slide in AALI continues (likely in my view). A weaker Rp/Yen and Rp/USD will increase selling price of cars and motorcycles, reducing affordability and capping sales growth. Also, domestic interest rate is likely to shoot up, reducing affordability even further. On the surface, the stock appears cheap on 7.9x ’08 and 7.0x ’09 P/E, but I personally think a downgrade is coming on the back of a much lower CPO prices. MacQ rates Neutral with PxT of Rp21,000. Ciputra Development – still Lydia ’s top pick CTRA's latest monthly update showed YTD growth of 93% for projects under all three Ciputra arms with total value of Rp1.17tn for 8M08 (66% of the company's FY08 revised guidance). The company remains confident about its current year target, however should macro economic conditions deteriorate, it expects FY09 growth of 15% YoY assuming no project expansion. CTRA believes that currently under-developed townships will continue to perform well with quarterly cluster launchings. With expectations of slowing sales, 15% growth could be easily achieved from a hike in selling prices. Snippets: Bank Int’l Indo (BNII IJ) – share suspension likely to be lifted out today. GO plan is likely to be on at Rp510. Ferry Wong thinks this is a 3-mo process. An entry level of Rp should give you annualized return of 25%. Kalbe Farma – EGM approved phase 2 share buyback, for 5.1% of outstanding shares with Rp419bn budget. Phase 1 already concluded, buying back 4.9% out of the 10% plan. PT Telkom – reported Telkom Flexi subs at 8.3mn as of Aug-08, ADSL Speedy subs at 520k. The number represents a strong Telkom Flexi performance since YE07 at around 6mln. Indosat – so far confirmed to buyback USD208mn bonds out of USD550mn outstanding. Buyback offer still valid until end of today. Best regards Verdi Budiman Indonesia equity sales - Macquarie
