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Nov 29,2016 10:14:30

FSA released a new stock list for Syariah index

The Financial Services Authority (OJK) has released a new stock list for the Syariah index. The FSA has added Waskita Beton Precast ($WSBP), Energi Mega Persada ($ENRG), Aneka Gas Industri ($AGII), Malindo Feedmill ($MAIN), Gajah Tunggal ($GJTL), Bumi Resources Mineral ($BRMS), Cikarang Listrindo ($POWR), and Hexindo Adiperkasa ($HEXA). Furthermore, The FSA has deleted Surya Citra Media ($SCMA), Jasa Marga ($JSMR), Modernland Realty ($MDLN), and Nirvana Development ($NIRO). (OJK).

Bahana comment: SCMA's removal from the syariah index has been well flagged by management in the past couple of months, given the company's strong revenue growth coming from the tobacco sector (non-halal), which accounts for more than 10% of total revenue. Note that competitor $MNCN is also not inside the Syariah index list.

Nov 18,2016 10:59:09


The “warming” coal spread optimism to heavy truck industry as it lifted truck sales recovering from weak condition last year. Based on Gaikindo’s data, sales of trucks and heavy trucks are starting to show uptrend, from 782 units in Augusts to 826 units in September and 983 units in October. This came in line with the stronger benchmark coal price to USD84.89/ton in November 2016, the highest for last three years. Compared to medium truck, which can be used for either mining or infrastructure industry, the heavy truck market is relatively limited or relies heavily on mining sector.


Nov 14,2016 10:00:51

Strategy: Currency Woes Dampen Sentiment

Sharp correction in JCI (down 4% on Friday) was mainly triggered by precipitous IDR weakening on external factors, while domestic macro improvements remain on track. We believe fundamentals still point to a resilient IDR, especially given Indonesia’s relatively high levels of growth among major EM economies. Consumer, pharmaceutical, poultry and high-end retailers would be at risk of IDR weakening, while commodities and heavy equipment players tend to benefit. High dividend yield stocks also offer protection in the current volatile market. Maintain LT positive view.

¨ Currency volatility is back on. Fears over potential Federal Reserve (Fed) rate hike resulted in IDR falling by up to 3% to IDR13,545/USD onFriday. Considerable IDR weakening could lead to higher production costs and potential cost overruns in certain infrastructure projects, which would lead to higher inflation and growth risks. Strong foreign fund inflows have also increased risks.

¨ Indonesia is still on track for macro improvement, in our view particularly with its rising forex reserve of USD115bn and potential influx of repatriated funds by end-2016. However, the weakening IDR is seen as the main spectre for investors and its occurrence could trigger a market melt-down due to panic selling, shifting focus away from real fundamentals. Thus, BI’s firm response and action would be critical in restoring stability and confidence, in our view. We opine that IDR volatility would still linger before it recovers to IDR13,200/USD by end-2016.

¨ Stronger fundamentals now. There have been several episodes of high IDR volatility, with the last one occurring during 2014-15, when IDR depreciated as much as 30% and JCI suffered 13% losses. In our view, the current situation is different especially given the positive macro environment, in contrast to the subdued economic situation during 2014-15,on BI’s tightening rate policy bias.

¨ BI is already in the market to stabilise the currency given considerable depreciation in IDR, and we view this intervention as plausible to show direction. Current account deficit also remains manageable at 2.1% in 9M16 (3Q16: 1.8%) vs peak of 4.3% in 2014.We expect IDR to weaken slightly to 13,600/USD by 3Q17 on the back of larger current account deficit and potential Fed rate hike.

¨ Resilient IDR. In summary, we opine that fundamentals point to a resilient IDR, underpinned by high yield differentials vs developed market (DM) economies and peers, relatively high levels of growth among major emerging market (EM) economies, and ongoing reforms. Domestic consumption and government-led infrastructure spending also continue to serve as supporting factors for economic growth improvements and we still expect the economy to grow at 5.3% in 2017.

¨ Impact of weakening IDR. IDR weakening would impact corporate earnings through operational currency mismatch and/or forex debt translation. Consumer, pharmaceutical, poultry and high-end retailers have high importation costs and would be at risk. Conversely, exporters such as commodities and heavy equipment players would tend to benefit. Companies with high USD debt would also be negatively impacted if IDR weakening continues.

¨ All in, commodities and high dividend yield stocks offer some shield, in our view. We like London Sumatra and United Tractors as commodity plays, while Indocement Tunggal and Hexindo Adiperkasa offer highest dividend yields. Stocks with strong fundamentals for potential bottom-fishing include Bank Negara Indonesia, Astra International, Ciputra Development, Bumi Serpong Damai, Telekomunikasi Indonesia, Indofood Sukses Makmur and Waskita Karya. (Helmy Kristanto)


Sep 19,2016 13:00:32

Hexindo Adiperkasa: Coal Price Recovery & Infrastructure Sales Lift Outlook

Hexindo’s share price still does not reflect its expected earnings recovery ahead (FY16-19F (Mar) CAGR of 36%) due to:

1. Its heavy equipment unit’s gross margin turning positive again;

2. Growth in heavy equipment sales to the infrastructure sector;

3. A sizeable increase in revenue from its spareparts and service & maintenance segment, as the overhaul cycle will beginin FY17 – which is also triggered by recovery in coal prices.

We tweak our assumptions and upgrade to BUY with a TP of IDR3,300 (from IDR1,200, 27% upside).

¨ Earnings to recover at a FY16F-19F CAGR of 36%. Hexindo Adiperkasa’s (Hexindo) accounting year ends in March. Its earnings peaked at USD72m in FY12 and declined thereafter, mainly from thedecrease in business volume stemming from thecontinuous downtrend in coal pricesuntil January. Around 60% of itsconsolidated revenue (FY16) iscoal-related. As coal prices are recovering and have increased by 39%YTD, we think in FY16 it was the bottom of Hexindo’s earnings and it should see asizeable earnings recovery ahead.

¨ Heavy equipment unit rebounds and books positive gross margin again. Hexindo’s gross margin from heavy equipment salesstarted to decline when its inventory outstanding days exceeded 120 days in FY14. It hit a bottom in FY16when the companybooked a gross margin of -2.8% from selling heavy equipment. We expect its gross margin from heavy equipment sales to recover from FY17 onwards, as Hexindo has no more long outstanding inventory ofheavy equipment and its inventory is now precisely reflected in its balance sheet (Figure 1).

¨ Infrastructure spending to boost demand forheavy equipment. The Joko Widodo (Jokowi)-led Government is focusing on building infrastructure across Indonesia, which willboost heavy equipment sales to the infrastructure sector.

¨ Overhaul cycle of mining heavy equipment should start inFY17.In FY12, Hexindo booked significant heavy equipment sales of USD477m, of which 930 of a total 3,084 units were sold to the mining sector. Heavy equipment needs to undergo an overhaul after 15,000 working hours.We think the mining heavy equipment should enter an overhaul cycle in FY17, which will boost revenue from service & maintenance and spareparts sales.

¨ Upgrade to BUY with a IDR3,300 TP. We fine-tune our assumptions and increase our FY17forecast by 34%. Upgrade to BUY from Neutral, with a DCF-derived TP of IDR3,300 (WACC: 14.1%, long-term growth: 2.0%) asits share price still does not reflect a sizeable recovery in Hexindo’s earnings ahead.

¨ Our TP implies a FY18F P/E of 12.9x (-0.4 SD from its 5-year mean P/E).

¨ Key risks to our call include weaker-than-expected demand for coal and a significant decrease in coal prices. (Hariyanto Wijaya, CFA, CPA)


Apr 11,2016 09:42:44
Mining Sector

Trimegah Securities Mining Conference Takeaways

Mining conference: INCO, DOID, ADRO, HEXA, ELSA
We recently hosted a small Mining Conference on 4th April 2016, inviting 4 prominent mining-related companies (eg; INCO—nickel producer, DOID—mining services contractor, ADRO—coal producer, and HEXA—heavy equipment distributor) and ELSA, a strong player in the O&G related industry. Most of the attendees are from asset management and no representative of pension funds were present, which we think indicates the general positioning among locals: pension funds already own the sector while asset managements are underweight and looking for opportunities.

1) Investors are not sure where commodities prices are heading, and so are the corporates
Most of the questions revolve around commodities prices, which seem to be one question that corporates have difficulty on answering. This is not surprising, given recent volatility in commodities prices particularly crude oil. Most corporates seem to be assuming that coal and/or oil prices to hover around current prices in making their investment/operational decisions. The assumptions in our financial models are slightly more conservative. We assume coal price to decline from current level of USD51/ton to USD48.5/ton whereas oil price to USD40/barrel.

2) Corporates are focusing on cost efficiency
Given lack of faith in any commodity price forecast, corporates are focusing on cost efficiency instead. A mining consultant who attended our lunch event mentioned that there is plenty of interest on using technology to improve operational efficiency at mining companies these days. This ranges from replacing regular light bulbs with LED to installing GPS on all excavators. This should benefit the larger mining contractors i.e. UNTR and DOID, which have the economies of scale to invest in the higher-end technologies to improve efficiency.

3) Expect overall heavy equipment sale to remain sluggish
Coal miners and mining contractors are delaying purchase of new equipment. The impact is less on UNTR as it means higher maintenance activity which is normally a higher margin business, but likely to hurt the smaller heavy equipment sellers more.

ADRO remain our top pick in the sector
We have Buys on ADRO and ELSA, with ADRO as our top pick. We like ADRO for its good corporate governance and healthy balance sheet. We also view Batang power plant as a strong catalyst, with projected NAV of IDR104/share (~15% of ADRO’s market cap). Among others, we think INCO has a positive outlook on volume, albeit nickel price remains a risk.