Good Morning,
Indonesia continues to see strong institutional inflow. Index now testing the
pre-lehman high levels. Despite such impressive performance the JCI remains
the cheapest Asean market (with the exception of Thailand) at 11.7x 2011 but
yet churning by far the highest ROE of 25%. With most of Asia still
range trading, it is difficult to say whether Indonesia can decisively break
through to new highs in the short term. However, the fundamental story
continues to gain traction as domestic consumption here gathers pace. Talking
to corporate in the last few weeks, it is clear that growth is still
accelerating in the 1Q and there is little reason to believe it would be
derailed. Indocement (proxy of domestic consumption), one of the few companies
reporting their 2009 results blasted our above consensus numbers. Net earnings
of Rp2.7tn which was 19% ahead of our forecast of Rp2.3tn. A strong start to
the year means our volume
assumption of 10% growth for 2010 may be light.
One of the privileges in working in Indonesia is that we get frequent visits
from Chris Wood so we can pick his brain (his main office only 10 seconds walk
from our sales desk). Having a chat with him last night, he feels that the
real clear value in Indonesia is now in the small/mid cap space. Many of the
big caps already trading well above previous highs whereas there has been
little attention in the smaller companies. This gap will surely close up as
risk appetite continues to improve in this market. Our top picks would be;
- Hexindo (HEXA IJ), with more growth than UT's distribution business but @
only 6.7x + net cash
- Ciputra Surya (CTRS IJ), only property play with majority of exposure outside
of Jakarta @ 70% discount to NAV still 50% below previous high
- Aneka Kimia (AKRA IJ) 8.1x for this little solid consistent that still
churned growth in 2008
- BW plantation (BWPT IJ) - must read - see below
Research Today: BW Plantation (BWPT IJ) - initiate with a BUY - Tp1100 - 47%
upside
Bigger is not always better. In the case of CPO companies, smaller in many
cases is actually better cos it is much easier to grow and manage your estate
at a faster pace.
This must be one of the top ideas in the small/mid cap space (US$1.5m av daily
turnover) where there is almost no research coverage (except local brokerage
houses). BW has one of the best managed CPO estate with the highest percentage
of their planted area going into maturity over the next few years. Their
mechanized harvesting and fertilizing process help lift their FFB yield to
27%+ Vs industry av 21.8% . And yet this stock is among the cheapest (in
every metrics) in the industry trading at only $8,500 EV/ha, and 6.8x EV/Ebita
11CL. Our target price of Rp1,100 is based on a conservative $13,000 EV/ha
(industry average now at $17k) and 13x PE 11CL. The bigger CPO plays currently
already trading well above those numbers. This is a BUY.
Key points from the report:
BW Plantation is a small but extremely fast growing palm oil plantation with
the highest FFB yield in the industry at 27.4 tonnes per ha.
As of 2009, 13,000 ha have reached maturity and will double in current size to
26,000 ha within three years. The total planted area will also double in size
to 80,000 ha by 2013.
Going forward, the challenge for the company would be to replicate their high
yield into relatively much larger new development areas and to maintain this
yield as the company grows bigger.
Macro data supports a positive CPO price outlook and BW Plantation is a key
beneficiary of this as it is among the most leveraged to CPO price movement.
Every US$100/t increase in CPO price will raise the company’s earnings by 23%.
The company generates around 25% of ROAE, while earnings could grow by 30% CAGR
until 2012. Despite the stellar operational performance, the market is valuing
the company at US$8,300EV/ha, still among the cheapest in the industry.
Our target price of Rp1,100 is based on a blended valuation of US$13,000 EV/ha
and 13x 2011 PER.
Perusahaan Gas (PGAS IJ) update, maintain BUY, from Swati
We maintain our current distribution volumes of 926mmscfd
PGas is maintaining distribution gas volumes between 800-900mmscfd for 2010. On
pricing PGas states that is has communicated their planned pricing adjustments
to the industrial customers, nationwide. Based on the feedback from the
customers, they'll decide in 2nd quarter of the application these price
adjustments. We think price hikes will happen.
On the volumes, we think it is just start of the year and PGas should be able
to sign more contracts this year meaning volumes 2H10 will be higher than 1H10
as usually the case. Pgas has allocated US$400m for buying minority stakes in
upstream assets.
Last year Conoco Philips delivered 260mmscfd of gas and PGas total distribution
volumes reached about 800mmscfd for the full year. This year Conoco is
