AKR Corporindo Tbk AKRA FY 2010 Sales Turnover Increases 36% to Rp 12.2 trillion, Net Profit Rp 311 Billion

PT AKR Corporindo, Tbk. (Bloomberg: AKRA IJ), Indonesia’s leading bulk logistics and infrastructure provider and largest private sector distributor of petroleum and basic chemicals reported 36% increase in sales revenue to Rp 12,195 billion for the fiscal year ended December 31, 2010 compared to the same period during the previous year.
Petroleum sales revenue jumped 49% to Rp 7,474 billion with volume of refined petroleum
products distributed during the year of 2010 increasing by 32%. Increasing demand for High
Speed diesel from coal mining, power, and industrial sectors in Indonesia enabled AKRA to
supply refined products from its extensive logistics infrastructure spread across 15 locations
across Indonesia.
Net profit for the fiscal year ended December 31, 2010, increased by 13% to Rp 311 billion

PT. Harum Energy Tbk (HRUM) - 2010 results update

 12-Month Price Target : Rp 9,300/shr

Booked net income growth in 2010
Harum Energy had been able to book net income growth in 2010
despite extremely bad weather that coal producers had to encounter
last year. Net income grew 7.4% from Rp767 billion to
Rp824 billion. The bottom line of 2010 was below our expectation
of Rp880 billion in 2010. HRUM’s revenue decreased 2.5% from
Rp4.6 trillion to Rp4.5 trillion and above our expectation of Rp4.3
trillion revenue in 2010. Mirroring the revenue, income from operations
also decreased slightly 6.4% from Rp1.2 trillion to Rp1.1
trillion.
 
Extreme weather took its toll
Extreme weather in 2010 took its toll where Indonesian coal producers
had to trim production target. Although HRUM had met its
7.4 million coal production target (according to company but no
specific numbers yet released), we expect the only slight increase
of coal price and appreciation of rupiah offset the positive impact
from the increase of coal production. The other two coal producers
(PTBA and ITMG) that had announced the 2010 results all
saw their net income dropped in 2010. Net income of PTBA decreased
26% and net income of ITMG decreased 39% in 2010.
The numbers highlighted the adverse condition that the Indonesian
coal producers had to face in 2010.

Coal demand and Japan Disaster
Newcastle Coal price did turn lower from the day of Japan Tsunami
(March 11,2011) from US$129.6/tonne to US$123.3 in

Ciputra Property 2010 results: Stronger bottom line profit than sales

Ciputra Property (CTRP IJ)         BUY
Price/Tgt: Rp350/500   Mkt Cap: Rp2.2t        Daily Vol: 10.7m        1-Yr Hi/Lo: Rp455/345
2010 results: Stronger bottom line growth than sales.

What's new:
Ciputra Property (CTRP) registered a good set of results during with 2010 bottom line of Rp155b or more than doubled from 2009's of Rp74b. Earnings were mainly driven by lower tax rate (-8% yoy) as well as lower forex loss (-70% yoy to Rp22b). Revenues increased by 6% yoy to Rp356b with gross and operating margins maintained at 62% and 30% respectively.  
Total debt jumped more than three times to Rp55b and would be more in this year as more capital is needed to build  Ciputra World's apartment funded by bank loans. However, cash increased by 3% yoy to Rp1.3t and

Asia Palm Oil Sector - Next catalyst: US Planting Intentions Report on 31 March

● On 31 March 2011, the USDA will release the US Planting
Intentions Report. If the report concludes that soybean acreage
will come in lower than expected, then soybean prices may spike
up and palm oil prices will follow suit.
● In an earlier review, USDA predicted that farmers will sow 10.1
mn more acres this year compared to 2010, in response to high
farm profitability. If true, 2011 would be the second largest YoY
increase in U.S. crop acreage in the last thirty years. Farmers are
expected to plant 92 mn acres of corn in 2011 (up 3.8 mn acres)
and 78 mn acres of soy (up 0.6 mn acres).
● Although the soy-corn price ratio suggests that soybean should
lose acreage to corn, some farmers may still favour planting
soybean due to high fertiliser costs as well as greater weather

Borneo Lumbung Energi - Soilid Start (OUTPERFORM - Maintained, Rp1,650 - Tgt. Rp2,250, Coal Mining)

Above; maintain Outperform. FY10 net and core profits of Rp348bn and Rp389bn
were well above consensus and our forecasts (at 161% and 171% of our forecasts
respectively), driven by stronger-than-expected sales and lower-than-expected
costs. While Borneo’s operating variables (e.g. stripping ratio, unit costs) have yet to
stabilise due to its ongoing mine expansion, the 2010 strength nonetheless cements
our confidence in its ability to deliver. We upgrade our FY11-12 earnings estimates
by 9-12%, taking into consideration its lower 2010 cost base, while introducing 2013
estimates. We also raise our price target to Rp2,250 from Rp2,050 following our
earnings upgrade, still based on DCF (WACC 12.25%). At 11.7x CY11 P/E, Borneo
is attractive vs. its coal peers (13.2x average). Stock catalysts are expected from
strong 1Q11 volume and positive 2Q11 contract settlement prices.
• Production cost was the biggest surprise, coming in 14% below expectations.
2010 production cost was US$70/tonne vs. our US$76 with hauling and mining
costs being the key differences. Given company’s indication of stripping ratio of
16.5x in 2010, the lower-than-expected cost implied lower unit cost base. Stronger
revenue was largely aided by higher-than-expected sales and production volumes

ELNUSA: Stimulating upstream services

PT Elnusa (ELSA) recorded revenue growth of 14.8% yoy to Rp4.2tn.
Nonetheless, surging COGS pulled down its gross and operating margins quite
significantly. Consequently, net income plunged by 86.3% yoy to Rp64bn.
Integrated downstream services, which now contributes 40% to revenue, grew
strongly by 80.3% yoy, while upstream services remained flat. This year, ELSA
is maxing out its upstream segment with vast capex allocation of US$100.2mn
as the growth was relatively flat. Furthermore, to boost its capacity and in
anticipation of the eventual implementation of the cabotage law, ELSA is
forming a joint venture with a foreign partner to rent out the first Indonesianflagged
seismic vessels. The development would arguably improve ELSA’s
margin, especially in the marine seismic services.

Declining operating margin. Elnusa (ELSA) recorded increasing revenue to Rp4.2tn
(+14.8% yoy, +10.6% qoq), due to strong growth in downstream services. However,
as a result of significant COGS increase in FY10 of Rp3.8tn (+22% yoy), gross and
operating margin declined to 9.7% and 3.2%, respectively. Moreover, net income of
Rp64bn (-86.3% yoy), due to significant non-recurring revenues in the previous
period (e.g. one time gain from IMN divestment and other revenues).
Flat upstream services, push expansion. ELSA’s integrated upstream services
business was relatively steady at Rp2.2tn (52% of total revenue), which was due to
lower drilling-rig utilization and the implementation of high-tech rigs. Meanwhile,
the downstream segment was up to Rp2.0tn (+80.3% yoy) and contributed 47% to
total revenue (FY09: 30%). ELSA can’t simply count on its downstream business as it
has relatively small margin. Thus to fortify its upstream business, ELSA has allocated

Bakrie Sumatra Plantation Tbk - Perplexing end to a confusing year

• Below; maintain Underperform. Accounting for the consolidation of its Domba
Mas acquisition, Bakrie Sumatra Plantation (BSP) booked Rp525bn of gains f
rom interest write-offs in 4Q10.
This lifted its reported profit to Rp806bn, +219% yoy, though core profit rose a
modest 22% to Rp274bn, 8% short of our estimate and 19% below consensus due
to higher-than-expected operating & depreciation expenses and a higher tax rate.
Balance sheet remained precarious with gross debt jumping from Rp5.6tr to Rp8.2tr
qoq. Near-term solvency is arguably an issue given short-term debt of Rp1.8tr, at 2x
cash on hand (Rp330bn) and Rp606bn short-term investments. We lower our FY11-
12 earnings forecasts by 2% after refining our assumptions, but maintain our target
price of Rp325, based on a 50% discount to NAV. We also introduce FY13
numbers. The key thing to watch is the integration of Domba Mas. A lack of
feedstock and higher CPO prices are negatives for BSP, potentially providing derating
catalysts.
• A confusing end. FY10 core earnings were Rp274bn (+22% yoy), in our
calculation, accounting for 93% of our forecast and 81% of consensus. Variances
were higher-than-expected operating and depreciation expenses, as well as a
higher tax rate which offset better-than-anticipated gross margins. Not helping is a
lack of disclosure on production and sales. The 29% yoy sales growth was probably
spurred by higher ASPs and the consolidation of ARBV. The latter could also have
been behind gross-margin expansion to 43%, +14% pts yoy. Spectacular reported

Stock analysis - PT. BW Plantation (Target Price Rp 1.480)

In line; upgrade to Outperform from Neutral. FY10 core earnings account for
101% of our forecast and 108% of consensus, with the slight variation due to lower
interest expense of Rp42bn (BW capitalised part of its interest) vs. our Rp72bn
estimate. We are leaving our FY11-12 earnings estimates intact, while introducing
FY13 forecasts. Maintain target price of Rp1,480, still based on a 20% discount to
NAV. We upgrade the stock to Outperform from Neutral as we see catalysts from
robust production growth.
• Margin expansion. FY10 core earnings grew 60% yoy to Rp238bn on 22% yoy
revenue growth from significant increases in ASPs (+18%), partially offset by flat
CPO sales volume due to zero third-party FFB purchased. FY10 gross margins
improved by +3% pts to 65%, with 4Q10 gross margins alone amounting to 67%.
The margin expansion was led by zero third-party FFB purchased in FY10, further
backed by higher ASPs and BW’s ability to manage production costs with the help
of mechanisation.
• Strong production. 4Q10 CPO production was 29.3k tonnes, +22% yoy vs. 3Q10’s
23.4k tonnes (+11% yoy). Consequently, FY10 CPO production was flat at 91.k
tonnes, forming 100% of our forecast. The flat production could be blamed on zero
third-party FFB purchases in FY10 vs. 33.3k tonnes in FY09 and also lower yields of
26 tonnes/ha vs. 27 tonnes/ha a year ago. We expect CPO production to improve

Medco Energi: Oil production has passed 2011 target (MEDC, Rp2,825, Neutral, TP: Rp3,200)

• Medco Energi (MEDC, along five other E&P players, recorded oil production  of 23,863 bopd which has overlapped its 2011 production target of 23,000 bopd, according to BP Migas. BP Migas also stated that 31 contractors (e.g. ConocoPhilips, Kodeco, and Pertamina) still below target. We have not got any detail on each MEDC’s block production; however, MEDC’s 2011 oil production forecast is less optimistic than ours of about 32,000 bopd. We believe that MEDC is still able to lift more oil this year relying on its Rimau block.
• We think this could be a positive update for MEDC given declining national oil production, and only 5 of 31 contractors that were able to achieve this amid disturbed oil production

Indika Energy: Kideco declared final dividend US$245mn (INDY, Rp3,900, Buy, TP: Rp5,400)

• Kideco reported FY10 net profit of US$316.3mn (+9.9% yoy, -15.5% qoq), represent 91.3% our forecasts and 91.1% company’s target. FY10 nett revenue of US$1.6bn, represent 98.5% our forecast or 95.9% company’s target. Below estimates results mostly due to higher cash cost (ex royalty) of US$54.5/ton, 5% higher than ours, and company prefer to be more conservative in treating its exploration cost for west Kalimantan projects which is mostly being expensed instead being capitalized to reflect the true operating cash outflow
• Kideco has declared a final dividend payment of US$245mn. Together with the US$70mn interim dividends paid in November 2010, Kideco’s total dividend payout for FY10 is

Indonesia Stock Market - Recent News

Japan asks for more oil and LNG. Japan has called on Indonesia to supply it with more liquefied natural gas and crude oil after a devastating earthquake followed by tsunami crippled one of it nuclear power plants. Indonesia is the world’s third largest LNG exporter. The supply of LNG would come from Bontang’s excess capacity.

Reminder: CPIN and Kalbe Farma to be included in FTSE March 2011 Indices.  CPIN and Kalbe Farma (KLBF IJ) stocks are included in FTSE indexes.  All constituent changes will be applied after the close of business on Friday, 18 March 2011 and will be effective on Monday, 21 March 2011.

Gudang Garam (GGRM IJ) launching aviation business. GGRM has received an aviation business license from the Transportation Ministry and plans to open its own airline. Surya Air will be a chartered airline that is expected to largely

Telkom Alert : FY10 result guidance is below projection

Telkom CEO is quoted in Investor Daily that the company may deliver yoy revenue and net profit growth of 2-3% and 1% respectively. These would imply FY10 gross revenue and net profit of Rp68.9-69.6tr and Rp11.5tr; which equate to approximately 95% of our FY10 projections. Ex-forex,
Telkom's FY10 NP would have risen by approx 7% yoy.Based on these, we have provided a more detail FY10 result preview (refer to table below). Despite lower top line revenue trend, the consolidated Ebitda may reach Rp38.8tr (+6% yoy), which is inline with our projection.
 

We believe that lower than expected revenue is largely due to weak Telkomsel number, in particular during 4Q10. Intense competition remains during the 4Q10. As we have highlighted, Tsel launched new promo "Double Talkmania" in response to the competitors' promo. These should result into lower service prices (including for voice and SMS).
 

Unfortunately, we think this will continue into 1Q11. We have noticed that Natrindo Telecom Selular (NTS) had recently received more support from its parent company; while XL had just launched another new acquisition strategy. We argue with still 10 operators in the market, the industry will continue to face with a very high churn rate of 15-20% per month - making it difficult for any operator to raise their prices - until after perhaps there are regulatory changes that may be more fair to major three operators.

Price (IDR) 7,150
Price target (IDR) 9,000
52-week range (IDR) 9,800.00 -7,100.00
Market cap (USDm) 16,065
Shares outstanding (m) 19,733.7
Net debt/equity (%) 9.3
Book value/share (IDR) 2,561
Price/book (x) 2.79

analysis by : Deutsche Bank

Tambang Batubara Bukit Asam : Improved outlook

• In line; upgrade to Outperform from Neutral. 2010 core and operating profits of Rp1.99tr (-27% yoy) and Rp2.3tr (-35% yoy) respectively matched our forecasts, accounting for 97% and 100% of our numbers. While FY10 numbers were slightly below consensus estimates, a positive feature of 4Q10 was an improved cost structure. This and the positive settlement of 2011 domestic prices are behind our 8- 10% EPS upgrades for FY11-12 and DCF-based target price to Rp27,300 (from Rp25,900, WACC 12.4%). We also introduce FY13 forecasts. Following our upgrade and its recent share-price retreat, we raise PTBA to Outperform, anticipating stock catalysts from additional capacity.

• Strong operating performance, helped by cost efficiencies. 4Q10 core and operating profits were up 18% and 14% qoq respectively, on the back of lower operating costs, a continuation of the trend in previous quarters. The company had shifted more production in-house. 2010 operating performance was in line with our expectation, with sales volume of 12.95Mt (+4% yoy) and ASPs of Rp612,366/tonne
(-18% yoy).

• Positive 2011 domestic price settlement. Selling prices to the Suralaya power plant (38% of sales) have been settled at Rp815,000/ tonne (US$91.50). While this is slightly below our expectation, the settlement

re-iterating BUY, BUMI (BUMI Resources Tbk), thermal tail winds

analysis by : CLSA Indonesia

Nick Cashmore re-iterates his BUY call on BUMI for an exposure to thermal coal super cycle. Cheapest coal play + deleveraging.

 

Post the 25% Vallar purchase, a potential step-up agreement could see Vallar lifting that stake to 51%. More currently, the 7% Newmont divestment could go to BRMS again as SOEs have indicated no interest.

 

BUMI is an aggressive deleveraging story. Vallar’s access to financing + BUMI’s penchant for M&A could be a powerful combination. The group has also indicated its desire to repay the first tranche of expensive US$600mn in CIC debt this August.

 

The stock is a conviction BUY. 

 

Key points from report:

• Asia’s thermal coal market has tightened overnight. Japan is the largest importer of thermal coal; Indonesia is the largest exporter
• BUMI is the most sensitive to higher spot prices. 10% coal price increase will lift earnings by 30%
• Vallar now owns 25% of BUMI, and is in talks to raise it to 51%
• Aggressive deleveraging, redeemed US$300m in convertible bonds and is thinking of redeeming first tranche of CIC

Impact of Japan's earthquake and tsunami to Indonesia stock market

Japan is a very important market for Indonesia. It is Indonesia's number one export destination for non-oil and gas products, accounting for ~13% (US$16.5bn) of total exports. It is also the number two contributor of FDI for Indonesia, accounting for 18% (US$836m) in 2009. As a result, this disaster will have significant impact on trade flows.

 

In term of listed companies, United Tractors (UNTR IJ) and Astra Int’l (ASII IJ) could be negatively affected (please see attached reports for the details). UNTR’s Komatsu large equipments are produced in the affected areas. Large equipment represents about 40-50% of heavy equipment sales revenue, or ~10% of its earnings.

 

For ASII, the impact on the car/motorcycle business is limited as the risk for ASII is coming from UNTR exposure, which accounts for 17% of total ASII earnings. Hexindo (HEXA IJ) could be more severely affected here, due to heavy reliance on the affected production area (Ibaraki).

 

Back to the bigger picture, we think these are the impacts:

1. Japan’s reconstruction efforts will be positive for commodities in general
2. Nuclear expansion around the region (China, etc) will slow down and more reliance will go to thermal coal and LNG
3. Tension in the middle East might be off investors radar screen at the moment.  Oil price could still spike from here.

And here is why:

 

1.  Reconstruction efforts.  Japan will be able to afford an aggressive reconstruction program a'la the Kobe earthquake in 1995. Economist Eric Fishwick points out that Japan is a saving surplus economy. It is the long run not the immediate fiscal implications of Sendai that are the problem. Aggressive reconstruction program is bullish for commodities in general.

 

2.  Energy front.  Japan's nuclear industry provides about one-third of the nation's power need now in crisis.  In total, around 10GW of nuclear capacity, or around 6% of Japan’s energy supply has been temporarily shutdown.  History

Bumi Resources Minerals successfully de-leverages balance sheet

PT Bumi Resources Minerals Tbk (“BRMS” or “the
Company”) reports today that its parent company, PT Bumi
Resources Tbk (“BUMI”) is converting its Rp 4.95 trillion
(approximately US$ 546 million) mandatory convertible
note (“MCN”) into equity ownership in BRMS at the
conversion price of Rp 670 / share. Consequently, BRMS
issues 7.4 billion new shares in the name of BUMI for the
MCN settlement.
Kenneth Farrell (CEO of BRMS) said,” In December 2010, we
used part of the initial public offerings proceed to repay the
US$ 148 million loan facility from the Bright Ventures Pte
Ltd. Therefore, the US$ 546 million MCN settlement will

United Tractors - Strong Komatsu sales continue in February

Strong February heavy equipment sales

Komatsu sales in February remained stellar reaching c. 690 units (tentative),

+74% YoY, which showed that the record high monthly sales in January

totaling 731 units was not just simply due to carry-over sales from last year.

We attributed this condition to strong heavy equipment demand following

buoyant coal and palm oil prices. United Tractors (UNTR) heavy equipment

sales in 2M11 has exceeded our monthly sales forecast of 565 units translating

to 6,500 units (UNTR: 6,000 units; +11% YoY), +20% YoY, in 2011F.

 

Supply availability would be limiting sales factor

We believe the challenge for delivering higher sales would come from the

supply availability as we have heard about supply difficulty that hit Hitachi

Stock Research Today: Perusahaan Gas Negara Tbk (PGAS) downgrade

We downgrades Perusahaan Gas Negara Tbl (PGAS) to UPF (from OPF) as the stock goes ex-growth for next two years. We cut our TP from Rp4,650 to Rp3,700.

 

The current weakness in the stock price is because of the partial diversion of Conoco Phillips volume from PGAS to Chevron. PGas’s current contracted amount from Conoco Phillips is 375mmscfd, but Conoco Phillips is delivering only

Company Profile : Borneo Lumbung Energy & Mineral

The only coking coal play in Indonesia
PT Borneo Lumbung Energi (BORN) is a producer of hard coking coal. It
operates one coal mine Asmin Koalindo Tuhup in Central Kalimantan and one
heavy equipment rental company Borneo Mining Services (solely for internal
usage). It is based in Indonesia and has been listed on the Jakarta Stock
Exchange since November 2010. Based on the current market cap of US$2.8bn,
BORN is currently the sixth largest coal company in Indonesia, but it is the only
one that produces coking coal. The company is 75%-owned by Samin Tan and
Surjadinata Sumantri – founders of Renaissance Capital Asia, a financial advisory
and private equity firm. Free float is 25%. BORN’s production capacity was 3.6mn
t by end-2010, and it plans to ramp up capacity to 5mn t by end-2011.
Operations done by Coal Contract of Work (CCOW)

Based on the third generation of CCOW, BORN has the right to mine for coal in a

Gudang Garam - Back to basics ( 2011 Outlook)

• Maintain Outperform, albeit with lower target price of Rp55,000 (from Rp63,000), following our 4-7% earnings downgrade for FY10-12 as well as changes to our index target (to 14x from 16x). Our target price remains set at 20% above our market target. Our recent meetings with the company confirm that its fundamentals are intact. The company had raised selling prices for its machine-rolled cigarettes (MRC) by 1.3% in Jan 11 (4% excise tax in FY11). Nonetheless, given lower volume growth, we have reduced our volume-growth expectation for 2010 (from 4% to 2.5%) while maintaining margin estimates. Catalysts could include margin expansion, better-than-expected dividends as well as subsiding inflation fears, we believe.

• Second year of consolidation. Gudang Garam will be reinforcing its marketing efforts this year, together with

Plantation Sector: Sooner-than-expected recovery?

Sooner-than-expected recovery?

 

The CPO price is down 6.0% ytd at US$1,205/ton (10% off this year’s high), largely because of concerns over improving South America soybean production and expected recovery of palm oil production in major exporting countries. Yet we believe these concerns are overdone. This is because: 1) it will be some time before the expected weakening of the “La Nina” weather phenomenon gives way to favorable weather, 2) robust demand for soybeans may continue to support prices, and 3) progressive increases of Indonesian export taxes might limit exports (the January 2011 data shows a monthly decline of 15%).  Hence, CPO prices should stay firm until at least 2Q. Beyond this, prices are likely to weaken as demand rationing and an upturn in the yield-cycle might kick in by then. In the sector, we continue to favor BWPT (BW Plantation) given it is a low-cost producer and because of its higher-than-average FFB yield. BUY maintained with a TP of Rp1,350, implying P/E11F of 15.5x.

 

Is “La Nina” over?

According to the Australian Government Bureau of Meteorology, “La Nina” is expected to weaken during 2Q11. However, a recovery in production remains difficult to predict. This is because the production recovery depends on how quickly the fading “La Nina” gives way to more favorable weather conditions. Note that in the first month of 2011, Malaysia’s total

Bakrie finalizes sale of 25% Bumi Resources Tbk (BUMI IJ) to Vallar

This afternoon the 25% BUMI sale to Vallar (VAA LN) finally took place.

• 5.19bn shs@ 2500 was crossed in the market, worth about USD 1,477m.
• Prior to this cross a number of other crosses took place, about 3.4bn shs at various levels, which are likely antecedents and related to the above transaction.
• Today was the imposed deadline to close this deal failing which a USD 150m penalty would be levied against Bakrie. So it's a good thing it closed.
• The sale/purchase prospectus also mentioned a "step-up" possibility which could see Vallar increasing its stake in BUMI to 51%.

Latest consolidation news in the industry - Indosiar (IDKM IJ) acquisition by Emtek (EMTK IJ)

After a few days of trading suspension, pending the clarity of Surya Citra Media (SCMA IJ) and Indosiar (IDKM IJ) merger deal, Emtek Group (EMTK IJ) has shed some light on the matter with its official announcement yesterday.
As SCMA’s parent company, Emtek announced yesterday that Indosiar (IDKM IJ) will be merged into the group at the parent company level. Emtek plans to acquire a controlling stake in Indosiar, positioning Indosiar as SCMA’s sister company.

Key points for the announcement are as follows:
• Emtek will be purchasing 27.24% of Indosiar from Prima Visualindo, the current majority shareholder of Indosiar.
• Purchase price is set at Rp900 per share, lower than the pre-suspension close of Rp1,010 per  share. Total acquisition cost is Rp496.5bn.
• Emtek is required to do a tender offer following the acquisition. Tender offer price announced is the same as the purchase price at Rp900 per share. Depending on the subscription rate, Emtek will need another Rp1.8tn at most for the tender offer. There will be no earnings consolidation between Indosiar and SCMA. However, key benefits for both stations are as follows:
• Both stations will have greater bargaining power following the ownership consolidation. The two stations combined will be the second largest media group with 25% audience share.
• Both stations will benefit from synergies whereby they can share licensing rights, studios, broadcasting towers, talents, and other broadcasting assets.
• Potential turnaround story for Indosiar. Emtek’s SCMA is one of the best stations in terms of cost efficiencies, brand recognition, and cashflow management. Assuming that Emtek will do the same for Indosiar, the turnaround is imminent. Company that will benefit from the turnaround is Emtek at the parent level.
 

The merger is hugely positive for the Indonesian media sector. Consolidation ease competition, and the top three media players: MNC Group (RCTI, MNC TV, and Global TV), Emtek (SCTV and
Indosiar), and the Trans Group (Trans TV and Trans 7) control almost 90% of the total audience
share. Emtek looks interesting, given it is exposed to Indosiar’s turnaround story.

Indo Tambang Raya Megah - Alert: Analyst Meet - Cost Pressures to Taper Off

We came away from a meeting with the company more assured that the surging costs seen in 2H10 are unlikely to transpire in 2011, barring a further surge in the oil price and another major weather disruption.

 

The company attributed the weak 2010 results to:

1. Heavier than normal rainfall, which: 1) forced a move to a different pit in its Indominco mine and 2) resulted in sizable demurrage costs of US$23m. The former resulted in a substantially higher stripping ratio (SR).

 

2. Surging fuel prices (average of US$0.72/l in 2010 vs. US$0.52/l in 2009). For 2011, the company has hedged c.80% of its fuel requirement at c. US$90/b.

 

3. Several one-off items, such as the write-off of an underground project’s deferred exploration and development costs of US$25m and a standby fee to contractors of US$9m as the Jorong mine operation was suspended for several months.

 

4. Derivative losses. The company booked US$71m losses (realized and unrealized) on its coal  swap contracts in 2010.

 

Post the meeting, we take comfort in our view that the cost pressures are likely to taper off substantially in 2011. First, the company expects the SR of its major Indominco mine would decline to 13.6x in 1Q11 from 14.7x in 4Q10. Demurrage costs are also expected to be substantially lower as the company slows vessel acceptance and expects the waiting period for the vessels to normalize starting March. Finally, we expect the company’s coal swap losses to decline to c. US$30m in 2011E on our benchmark coal price assumption of US$122/t.

 

The company is upbeat on the coal price outlook and hence has locked in prices for only 40% of its 2011E volume target as at February. The buoyant coal price outlook, normalizing costs and attractive valuations lead us to maintain our Buy call. We view the current share price weakness as an enhanced buying opportunity.

Valuation
Our target price for ITM of Rp61,200 is based on 2011E EV/EBITDA of 7.3x. This is based on 1 standard deviation above the stock's mean since its listing. We have opted to use EV/EBITDA as our valuation metric to avoid distortions caused by differences in tax rates between Indonesian companies and their regional peers. The discount to the global average is warranted, in our view, given Indonesia's higher risks.
 

Risks
We rate ITM Low Risk , based on our quantitative risk rating system, which tracks 260-day historical share price volatility. We believe Low Risk is appropriate given the company's sizable cash and relatively high dividend payout. Risks that could prevent the shares from reaching our target price include: a) coal price volatility; b) fluctuating crude oil prices; c) poor weather conditions that might hamper coal production.

analysis by : Citi

Wilmar reportedly planning to expand into consumer flour in Indonesia.

News reports suggest that Wilmar is planning to enter Indonesia’s consumer flour market as early as 2012. 

· FFM is reportedly planning to spend US$46mn to double its flour production capacity in Indonesia and Malaysia      over the next 2Y. Plans appear to be for Wilmar to use its distribution network to sell the flour. 

·         This may be a threat to Indofod (INDF IJ) as Indonesia's flour market is dominated by Bogasari Flour Mills (Indofood) who has about 55% market share in the flour segment.

·         We also hear that Wilmar is planning to expand into branded cooking oil segment in Indonesia. This would be a threat to Indofood cooking oil Bimoli which is currently the market leader in branded cooking oil category.

Aneka Tambang (ANTM) 2010: strong performance, high operating expenses

● 4Q10 and full-year unaudited results: ANTM’s net profit increased 257% QoQ and 122% YoY, ~10% above consensus but ~11% below our estimates. Its revenue ex. gold trading rose 45% QoQ and 51% YoY, approximately 4% above our 2010 estimate. ANTM’s gross profit was 7% above our expectation, but higher opex and lower dividends from Newcrest put its net profit below our initial forecast.

● ANTM’s significant increase in earnings was primarily driven by strong nickel and gold prices in 2010, as well as additional gold production from Cibaliung. We revise our 2010 earnings estimate to reflect the unaudited results. We also revise our 2011-12 earnings estimates to reflect latest nickel price forecasts and higher fuel prices.

● Strong nickel and gold prices have primarily been driven by growth in global industrial production (indicated by Global IP). Despite positive outlook, we remain cautious given the oversupply concerns about nickel. However, ANTM should benefit from its product mix

from gold, which would provide further earnings hedge.

● We maintain our NEUTRAL rating and target price of Rp2,600.

analysis by: Credit Suisse

KIJA (Kawasan Industri Jababeka Tbk) Off the hurdle

Off the hurdle

KIJA (Kawasan Industri Jababeka Tbk) has finally signed the long-awaited 20-year Electricity Sales and Purchase Agreement with PLN for 100% off-take of electricity generated from its 130-MW combined cycle power plant. The deal will ultimately guarantee the company of some US$85mn annual revenue (EBITDA margin: 34%), which is expected to contribute up to 55% of total revenue onwards. Yet, we see its revenue contribution to start streaming only by 2012, later that we have earlier assumed. Less operational efficiency is seen if the plant runs only with 2 out of 3 planned turbines. This resulted in reduction in the EPS11F by 49% to only Rp9. However, we still like the company, especially given the prospects of its industrial estates post the power plant completion. KIJA can now establish itself as a proxy of fully integrated-industrial estate developer, coupled with the outlook of the country’s economy. We upgraded our TP to Rp150/share, benchmarking it to the current trading discount to NAV of its peers of 58%. BUY. KIJA is trading at attractively 62% discount to RNAV11F.

Passed the biggest hurdle. We understand the prolonged time waiting of the power plant contribution that now we expect to start streaming by 2012. The company said minimal profit is seen if they run the power plant only with the currently installed two turbines. This is evidenced in the company 9M10 book, where KIJA experienced loss supplying PLN on emergency contract basis, while taking similar pricing structure of ±9cents/ kwh. Given such condition, it led us to eliminate our earlier power plant assumption in 2011, hence reducing our EPS11F to Rp9 from initially Rp17. Nonetheless, we are still positive on the company’s growth outlook in 2012, as we are confident that KIJA has passed its biggest hurdle in completing the project.

Loan disbursement to complete the project. We don’t see any more major issue that will impede the completion of the project. The next stage would be the disbursement of the remaining US$40mn syndicated loan that US$20mn is used to complete the project, while the remaining to refinance the maturing CIMB-Niaga’s bridging loans. The company expects this to be received by the end of Mar11.

Buy with new TP Rp150/share. Despite lowered EPS11F, we still like the company, due to its prospects post the power plant completion. We expect land sales to continue showing growth, especially given the guaranteed power supply from the power plant, coupled with the newly dry port service and other maintenance facilities in the area. KIJA is now a proxy of a fully-integrated industrial developer in the country. Buy, with upgraded TP Rp150/share.

analysis by : Mandiri Sekuritas

Bank Tabungan Pensiunan - More upbeat growth outlook

Above; upgrade to Neutral from Underperform. FY10 results were ahead of  consensus and our expectations, with net and core profits at 105% and 128% of the respective forecasts, owing to better-than-expected topline growth and low provisioning charges, as the bank slashed its provisioning coverage to 128% from 335.5% at Dec 09. PPOP was 10% higher than our forecast. We upgrade the stock to Neutral on a higher loan-growth outlook, though expecting asset quality and NIM to face more pressure. Factoring in higher loan growth, we raise our FY11-12 EPS estimates by 31-42%, after adjusting for new shares from its rights issue. We also introduce FY13 forecasts.  Following this, we have a new target price of Rp14,600 (from Rp7,100), still based on GGM valuation with a discount rate of 16.2% and implying 3.1-2.4x CY11-12 P/BV.

• Strong topline growth. 2010 was a strong year for the bank, with 48% yoy loan growth far outpacing sector growth of 23%. Micro loans were the star, supported by a surprising 40% increase in pension loans, about double its historical average. There was an unusually high number of new pensioners in 2010, with a similar boost unlikely in the near future. NIM climbed from 10.1% in FY09 to 13.9% in FY10 as the bank continued to expand its high-yielding micro segment. However, NIM may have reached its peak at 15.0% in 2Q10 as lower NIM for 3Q10 and 4Q10(13.3% and 13.5%) seem to signal normalisation, especially amid benchmark rate increases and intensifying competition in 2011.

• Cost of credit crept up. The bank posted its fourth consecutive quarter of higher cost of credit (provisioning plus net write-offs), which increased from -0.2% in 4Q09 to 2.4% in 4Q10. NPL ratio also went up to 1.1% in 4Q10 from 0.5% in 4Q09. We expect continuing pressure on asset quality as its micro loans mature.

• Lower cost-income as expansion slowed down. BTPN maintained cost-income ratio at a stellar 53.4% in 4Q10 following 52.8% in 3Q10, further solidifying its turnaround from previously high ratios of 68.8% in 4Q09. We expect the ratio to stay below 60.0% as the bank switches away from a focus on expansion to harvesting its established network. After massive openings of 500 branches in 2009, BTPN opened 13 branches in 2010, and plans to add only 20 in 2011.

Aneka Tambang - Indonesia - Brighter outlook

• Above; raised to Outperform from Neutral. 2010 net and operating profits of Rp1.66tr (+176% yoy) and Rp1.99tr (+238% yoy) were 7-8% ahead of our forecasts and consensus. The strong achievement was led by higher-than-expected ASPs, supported by in-line production and costs. This has generated greater confidence in its 2011-12 outlook amid improving nickel and gold prices. We upgrade our FY11-12 earnings estimates by 8-9% (and introduce 2013 estimates). Following this, we raise our DCF-based price target to Rp2,975 from Rp2,800 (WACC 11.4%). We
also upgrade the stock to Outperform, anticipating stock catalysts from nickel and gold price upside.

• Strong earnings delivery. 4Q10/FY10 earnings were supported by higher-thanexpected ASPs for ferronickel, nickel ore and gold, especially in 4Q10. FY10 production largely met our expectations: ferronickel 18,688 tonnes (+49% yoy), accounting for 98% of our projection; gold 2,780 kg (flat yoy), 99% of our forecast; nickel ore 7.0wmt (+20% yoy), 112% of our projection. 2010 earnings also yielded few cost surprises, indicating better cost management.

• Brighter outlook. The sound operating performance bodes well for 2011. For ferronickel, signs of short-term support for nickel prices translate to upside for our 2011-12 price assumption of US$24,000/tonne. We maintain our forecast of FeNi production volume of 18,000 tonnes (-5% yoy) in 2011, factoring in possible maintenance of its production facilities, before a volume increase to 20,000 tonnes (+11% yoy) in 2012. For gold, a second quarter of contributions from its Cibaliung project in 4Q10 suggests firming operations at the new project. We forecast combined gold production of 3,000kg for 2011-12.

Analysis by : CIMB

Indonesia Economics - Headline inflation down, core inflation up; Bank Indonesia might pause this Friday

● CPI inflation of 0.1% MoM (6.8% YoY) in February was below market and our expectations, led by a pull back in volatile food prices. The government initiatives, along with the harvest seasons, are likely to help ease food price inflation in the near term.

● Core inflation resumed its rise to 4.4% YoY in February from 4.2% in January. Although still low by Indonesia’s standards, it has been gradually trending up in the past 12 months. We think the risk to core inflation remains to the upside.

● The fall in headline inflation, recent appreciation of the rupiah, and dovish comments from the Deputy Governor last week suggest that Bank Indonesia might pause this Friday.

● However, if core inflation continues to pick up as we expect, then BI would need to tighten monetary policy further in the coming months. We maintain our view that BI will hike rates by another 75 bp in the rest of 2011.

Indonesia Coal Mining - 4Q10 demurrage charge and 4Q10 earnings preview of Indonesian coal mining firms

Indonesia Coal Mining

4Q10 demurrage charge and 4Q10 earnings preview of Indonesian coal mining firms

Downside surprise likely to 4Q10 and FY10 earnings due to demurrage charge: We believe that the demurrage charge could potentially affect 4Q10 and FY10 net incomes of Indonesian coal companies. ITMG reported US$10MM of demurrage charge in 4Q10, which amounted to 16% of 4Q10 operating profit. As bad weather had affected the operations of mines, our channel checks indicate that ships had been waiting for coal shipments at the ports across Kalimantan.

ITMG(Indo Tambangraya Megah), ADRO (Adaro) and BUMI (Bumi Resources) are affected: According to our industry comparison, the effect of the demurrage charge varies across companies, with Kalimantan producers being affected more than Sumatra producers. We believe ITMG, ADRO, and BUMI are affected the most, while the demurrage charge is negligible for INDY and PTBA. ADRO is likely to suffer US$60MM of demurrage charge in FY10E vs. US$18MM (estimate) for BUMI and US$23.5MM (actual) for ITMG. INDY indicated that its demurrage charge is near zero, while PTBA indicated that its demurrage charge is only about US$1MM. The reason for

INDYs very good performance is the availability of excess capacity that has enabled the company to ramp up production to meet its target despite unfavorable weather.

5%-7% downside risk likely to 4Q10 earnings: For companies that are affected, we expect the demurrage charge will result in a 5%-7% cut in consensus 4Q10 earnings forecasts. For full-year FY10, the most affected is likely to be ADRO (11%), followed by ITMG (6%).

4Q10 earnings preview below expectations: Due to the bad weather in 4Q10 which led to lower production volume and higher cost, we believe that Indonesian coal firms will report below-forecasted 4Q10 earnings.

Operations are improving; we maintain our positive view on the sector: We observe that operations are improving across the board for coal companies and believe that starting 2Q11, Indonesian coal companies could start reporting strong earnings. With this, we maintain our positive view on the Indonesian coal mining sector.

analysis by : JPMorgan

Perusahaan Gas Negara (PGAS IJ, Rp3,750 BUY) Steady Flow

BP Migas to prioritize oil production

Falling oil production raises concerns for the government since revenues from oil exports remain important to balance out the cost of imported oil for consumption. In the past five years, oil production has been below 1.0mn barrels per day. This has prompted BP Migas to prioritize an increase in lifting capacity, including a shift in gas production to old oil fields. This is also the case for Conoco Phillips’s gas production. Instead of delivering gas to PGAS, Chevron was given priority to use Conoco Phillips’ gas in order to boost oil lifting capacity. Chevron has relatively old oil wells and they need to be injected with hot gas to lift the oil to the surface. As a consequence of this policy, PGAS’s gas allocation is below the contract numbers. Currently, Conoco Phillips is only able to provide 300-350 mmscfd of gas to PGAS, below its contract of 375mmscfd.

 

Shortfall from Pertamina as well

PGAS also has a gas purchase agreement with Pertamina amounting to 250 mmcfd. However, for unspecified reasons Pertamina has only been able to supply around 170-180 mmscfd or a maximum of 200mmscfd, which falls short of the initial volume under the sale and purchase agreement. PGAS has not been able to confirm when Pertamina will be able to deliver the gas as promised. So far PGAS has not imposed any penalty on Pertamina because of the shortfall. The management guidance of gas volume is around 800-850 mmscfd (which takes into account the shortfall from Pertamina and Conoco Phillips). Our estimate is below 800 mmscfd for the next five years, already reflecting the current situation.

 

Construction to start on West Java floating terminal

PGAS has started construction on the LNG receiving terminal in West Java. Total capex allocated for this project is around US$100mn, mainly for the onshore facility, pipeline and jetty. This capex excludes the FSRU unit as PGAS intends to lease the vessel from Golar Energy, a global FSRU operator. By leasing the vessel, PGAS will not bear the capex for the FSRU and operating start-up time could be faster. PGAS would, however, be liable to pay certain amounts that comprise maintenance and operational expenses. PGAS is fully aware of the lack of expertise it has in operating and maintaining such a unit. The total capacity of the receiving terminal is designed to handle gas of 500mmscfd. However, PGAS has so far only been able to secure around 140mmscfd that will be directly allocated to PLN. According to PGAS, this is basically the break-even volume. Any volume above that amount will translate into profits for PGAS. This project is under PT Regas Nusantara, a joint venture between PGAS (40%) and Pertamina (60%). The project is expected to start commercial operation in 2H12 or early FY13.

 

Maintain BUY

We have already incorporated the shortfall of gas supply from Conoco Phillips and Pertamina in our model. We have not included the upside potential from the LNG receiving terminal due to a lack of gas supply at the current time. With these assumptions we arrive at a DCF Target Price of Rp5,430. BUY maintained.

Land acquisition law in INDONESIA - which sectors would benefit?

 Land acquisition law - which sectors would benefit?

New land acquisition bill -another step of reform: 

The land acquisition bill is currently in parliament. We think there’s sufficient support for the bill to be passed before the end of this year. The new law should enable the speeding up the land acquisition process, which has hindered the progress of infrastructure development. The most important reform in the bill, in our view, would be clarity on the procedures and steps in the government’s land acquisition, by allowing land-rights cancellation and limiting the timing of pricing discussion of land acquisition for public use.
• We identify the beneficiaries from the new land acquisition bill:
1) Toll road player Jasa Marga (JSMR), which has a 73% market share in toll roads, currently has 191km of projects in the pipeline that could add around 10% upside to its fair value. We have an OW on JSMR with a Dec-11 PT of Rp3,600.
2) Property players in Serpong (Bumi Serpong Damai, Alam Sutera, Summarecon), located near the Cengkareng-Kunciran and Kunciran- Serpong toll roads (which are JSMR’s concessions).
3) Cement sector. In the past five years, growth in bulk cement sales (which is partly used for infrastructure and other projects) was merely 2% CAGR. The demand for bulk cement merely comprises 16-18% of total cement demand. We view that growth in the infrastructure sector
will help boost cement demand, possibly adding growth of 4-5 ppt to 10-11% y/y versus the previous 10-yr average of 6-8% y/y. Semen Gresik’s (SMGR) capacity will be able to absorb the additional demand after its capacity expansion in FY12. We have an OW rating on SMGR
with a Dec-11 price target of Rp9,600.
4) State-owned contractors and certain private contractors. This includes companies such as Wijaya Karya, Adhi Karya, and Duta Graha Indah, which have more than 50% of their order books based on government or state-owned projects.
5) Heavy equipment industry would benefit to some extent, in particular through sales to the construction sector.

• Key Risk – a watered-down land acquisition law: A key risk would be a watered-down version of the bill with important clauses such as the land-rights cancellation taken out.

New land acquisition law could provide better clarity on procedures and timing

In the past six years, land acquisition for the Trans Java toll road, which spans 765km, has only reached 37%. The difficulty in acquiring land has hindered the progress of infrastructure development, and also has caused uncertainty in the project implementation scheduling, affecting the rate of return. Such uncertainty has discouraged and hindered the development of infrastructure, such as roads and electricity, in Indonesia.
Positive progress on the procedures of land acquisition bill is evident, as the Consultative Body has authorized the bill on land acquisition to undergo processing. Initial progress suggests that there is a strong likelihood that the land acquisition bill would be passed before the end of this year.

Further reform is needed to encourage the private sector

Indonesia’s Mid-Term Development Plan for 2010-2014 budgeted around Rp1,429 trillion (US$158 billion) of infrastructure projects, of which around 65% will be funded by the private sector. We view that the target is quite ambitious, considering that the contribution from the private sector has been relatively small previously. There are a few groups and companies from the private sector, which have expressed interest to invest in the infrastructure sector. These include Astra International (ASII IJ), with its Astratel subsidiary, and Rajawali group (which recently purchased a
stake in Nusantara Infrastructure - META IJ). To entice the private sector, the government has established infrastructure funds and guarantee funds to guarantee funding. The government has also de-regulated some sectors of infrastructure, such as ports and power plants.
To further support private sector investment, we view that consistency on the policy and implementation of the policy would be needed. For example, under the Electricity Law No. 30/2009, the Perusahaan Listrik Negara (state-owned electricity company) will no longer have the monopoly rights in distributing electricity to end customers. However, it is subject to the “first right of priority” provided to the Perusahaan Listrik Negara.

Indonesia Stock Exchange - Market review 2011-03-01

RESEARCH CALLS

* Infrastructure – The land acquisition bill is currently in parliament. We think there’s sufficient support for the bill to be passed before the end of this year. The new law should enable the speeding up the land acquisition process, which has hindered the progress of infrastructure development. The most important reform in the bill, in our view, would be clarity on the procedures and steps in the government’s land acquisition, by allowing land-rights cancellation and limiting the timing of pricing discussion of land acquisition for public use.

 

* Jasa Marga (JSMR) – Upgrade to Overweight from Underweight, with a new Dec-11 price target of Rp3,600. Raise our FY11E and FY12E earnings by 8%: We change the percentage of tariff hike increase for JSMR from 10% in FY11-12 to 14% in FY11 and 11% in FY12 as we factor in higher inflation.

 

NEWS HIGHLIGHTS

* Indo bond rating – Indonesia is getting closer to obtaining an investment grade rating, its first since the Asian financial crisis more than a decade ago, after Fitch Ratings raised its outlook to positive from stable. "Indonesia only requires a small step toward investment grade," said Darmin on February 24. (vivanews).

 

* Inflation – Deputy governor Bank Indonesia Mr.Hartadi told the press that monthly inflation for February may come in under 0.5%. (Investor Daily).

 

* The government postponing the plan to let gasoline prices go up in Jakarta – ministry of finance Agus Marto told the press that the government will better prepare the fuel subsidy policy before making it effective. The comment follows the early signal by coordinating minister Hatta Rajasa. (Kontan).

 

* Indika (INDY) – short prospectus out on the local press for the IPO of PT Mitrabahtera Segara Sejati (MBSS), upon which time Indika will acquire a majority (51%) stake in the company. Bookbuilding period 1-15 March, listing on 4 April. Local underwriters are OSK and Mandiri Sekuritas. Up to 9M10, the company reported a net profit of Rp158bn (US$17.5mn). MBSS plans to list 215mn shares or 12.3% to buy 20-30 tug-boats with 1200-2800HP, 270-365 feet barges, and floating crane with capacity of 20-45 thousand tons per day. (Kontan).

 

* Agung Podomoro Land (APLN) – the company has revised up internal marketing sales target for year 2011 from Rp3trn to Rp4trn. Since IPO, the company has acquired three new projects namely Green Lake, Green Permata Residences (14ha for Rp190bn), and Grand Taruna (40ha for Rp35bn). (Kontan).

 

* Jasa Marga (JSMR) – the company plans to hike Jakarta-Cikampek toll tariff by between Rp500-2000 on 2 March, following completion of the Cikarang Utama gateway that is expected to cut down travel time by 20 minutes. (Bisnis Indo). 

Analysis by: JP Morgan

AALI (Astra Agro Lestari Indonesia): Growth came from the low-margin generating

Growth came from the low-margin generating 3rd parties FFB

AALI- (Astra Agro Lestari Indonesia) CPO production grew by 17.3%yoy. The figure seemed to suggest a good achievement, but when we go through to the details, the key driver of growth came from the low-margin generating 3^rd parties FFB, which grew by 143.2%yoy. Meanwhile, FFB from Nucleus grew by 11.1%yoy, mainly came from normalized FFB production pattern and newly matured estates of 17,692ha (11.9% of total matured nucleus in FY10) which should result in higher cost per Nucleus unit palm products in FY11F by 8.1%yoy.  We have been concerned on AALI (Astra Agro Lestari Indonesia) organic growth from new planting because of its limited unplanted Rights to Cultivate.  Meanwhile, 63.1% of its planted area (nucleus and plasma) is above 15 years old, declining FFB yield phase. Therefore, we maintain our NEUTRAL recommendation with TP of Rp24,500/share, which implies PER 11F of 15.8x. 

Volume growth is dominated by low-margin generating 3^rd parties FFB.  Jan 11 CPO production grew by 17.3% yoy. Out of 13,592 ton increase in CPO production in Jan’11, around 9,136 ton came from 3^rd parties FFB. Although FFB from 3^rd parties is good to boost CPO production volume, it only generates operating margin of around 10% only, which is significantly lower than the processed FFB from the Nucleus.

Higher cost per Nucleus’ unit palm products. Around 17,692ha (11.9% of total matured nucleus in FY10F) is reclassified from immature (all occurred cost is capitalized to balance sheet) to mature (all occurred cost is expensed on income statement). This newly matured and normalized FFB production pattern is the main driver of the Nucleus’ FFB growth of 11.1% yoy in Jan11 (Remember that in 1H10, there was unusual low FFB production pattern). We estimates Nucleus cost per palm product in FY11F to increase by 8.1% yoy because Nucleus cost per ha is relatively the same between newly matured estates and estates in their pea k production phase, meanwhile FFB yield of newly matured estate only around 9 ton FFB/ha, which is significantly  lower than in the peak production phase.

Concern on limited unplanted land bank for organic growth. AALI just planted around 3,500ha in FY10, a small percentage compared with total planted area of 206,549ha.  The reason is AALI has limited unplanted land bank. We estimate AALI has limited unplanted Rights to Cultivate of around 15,000 ha, which provides a small space for new planting because not all unplanted area is feasible for planting. AALI itself plans to do new planting of 3,000 ha in FY11F.

Maintain NEUTRAL recommendation on the counter. We maintaining our Neutral recommendation on AALI with TP of Rp24,500/share (WACC of 10.9% and Terminal Growth of 6.0%), which implies PER11F of 15.8x