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P H
Sep 12,2017 18:29:14

Plantation – Is The Current CPO Price Strength Sustainable?

Malaysian inventory levels are now at 1.94m tonnes, translating to an annualised stock/usage ratio of 10.3%. This is above the historical average of 9.5%, signalling that stock levels are officially in a surplus. With demand continuing to disappoint, with most of the main markets in negative territory YTD, we do not expect the current strength in CPO prices to persist. This would coincide with an anticipated softening of soybean prices once the initial impact of hurricanes in the US wear off and weather normalises. No change to our UNDERWEIGHT stance on the sector.

  • Malaysia’s CPO production rose 13.6% YoY in YTD-Aug, although August’s output was down by a slight 0.9% MoM from July. We believe production would pick up in the next couple of months, as most planters are expecting peak output to be in September/October. For the whole of 2017, we expect Malaysia’s CPO output growth to moderate to 10-12% YoY. 
     
  • Exports rose by 6.4% MoM in August, bringing YTD exports to a 2% increase YoY. In YTD-Aug, exports saw a rise to Pakistan (+14% YoY) and Philippines (+6%). This was offset by a decline in exports to China (-4% YoY) India (-29%) and the US (- 20.5%), while exports to the EU was flat YoY.
     
  • Inventory rose 8.8% MoM to 1.94m tonnes in August, despite a dip in output. Annualised stock/usage ratio for August is now at 10.3% (up from 9.5% in July), which is now above the 15-year historical average of 9.5%. This means that stock levels are now officially in a surplus situation. We expect to see a continuation of rising inventory levels, as production resumes its recovery during the peak seasonal period. 
     
  • 2Q17 results disappointed, as six companies (IOI Corp, Genting Plantations, TSH Resources, Kuala Lumpur Kepong, IJM Plantations and Felda Global Ventures) reported results that were below expectations. Two (Sime Darby and Sawarak Oil Palms) reported results above expectations, with only CB Industrial Product in line. We continue to see strong YoY FFB output growth in 2Q17, although most companies saw lower QoQ production growth. We observe Indonesia continuing to drive this growth, despite most companies guiding for growth to start moderating in 2H17. In Malaysia, while the growth recovery has not been consistent throughout the country, most companies are guiding for output to pick up more strongly in 2H17, with the peak output slated to be in September/October for Malaysia. Most companies continued to guide for strong double-digit FFB growth in 2017, coming from a low base in 2016. For those with downstream operations, we saw stronger QoQ margins, as feedstock prices fell. Most companies continue to guide for stronger margins at their downstream divisions, as selling prices have risen, while feedstock prices continue to weaken.
     
  • We maintain our UNDERWEIGHT rating on the sector, on the back of a strong output recovery and weak demand dynamics. Catalysts include a positive change to global demand and any extreme weather occurrences that would have an impact on global vegetable oil output. Our Top BUY is Sarawak Oil Palms while our Top SELL is London Sumatra. (Hoe Lee Leng)

$AALI $ANJT $BWPT $DSNG $GOLL $GZCO $LSIP $MAGP $PALM $SGRO $SIMP $SMAR $SSMS $TBLA $UNSP

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P H
Jun 13,2017 18:18:49

Our recent conversation with management of Indofood Sukses Makmur ($INDF) revealed more details on the recent Pluit land transaction:

  • Indofood revealed that Mr. Salim had previously received an offer from an independent third party to acquire the land for commercial development, priced at premium price. Hence, the company believes that the land price on the transaction (IDR51m per sqm) should be fair and reasonable. The transaction price is in line with independent valuator assessment.
  • Mr. Salim have opted to sell the land to AIM (Indofood subsidiary) as, in doing so, Salim Ivomas would be able to continue running its cooking oil production facility there. Then, Salim Ivomas will pay land rental fee to AIM which fee determined on arm-length basis. AIM will finance the acquisition via equity injection and debts.
  • AIM is owned by Indofood Sukses Makmur, Indofood CBP ($ICBP), London Sumatra ($LSIP) and Indofood Sukses Makmur ($INDF). The company is consolidated on Indofood Sukses Makmur’s balance sheet. INDF just increased its ownership on AIM, partly to finance the land acquisition.
  • Indofood does not have plan to convert the Pluit land into commercial areas, so far. According to the management, based on Jakarta’s local government permit, the Pluit land can still be used for manufacturing activities until around 2020. According to Jakarta’s zoning and spatial maps, which are issued by the local government, the purchased lands are in the K1 zone – where space is designated for office, commercial and service buildings. Mixed-use buildings can also be built on K1- zone land, with land spanning 20,000 sqm at minimum.
  • Since the announcement of this inter-companies transaction, INDF share price down 5%, which we believe mainly pressured on investor’s concern on how fair the price of the land may be.

  • We maintain BUY on Indofood Sukses Makmur, with a DCF-based IDR10,300 TP (22% upside) that also implies 19x/17x FY17F-18F P/Es respectively. (Andrey Wijaya)




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P H
Feb 06,2017 14:18:46

Regional Plantation: Share Prices Lagging CPO Prices

Share prices of most plantation stocks have not performed in line with CPO prices, possibly due to the anticipated strong recovery in FFB output likely to come from Indonesia. It could also be due to the market’s cynicism that CPO prices would remain at current high levels. We continue to advocate a trading strategy for the plantation sector – buying liquid high beta stocks capable of surprising on the upside in terms of FFB output. NEUTRAL.

  • Share prices not moving in line with CPO prices. CPO prices remain above MYR3,000/tonne currently. We maintain that the current high prices are likely to remain up to end-1Q17. However, we note that despite the current high prices, only the Singapore Exchange (SGX)-listed and Jakarta Stock Exchange (JSX)-listed stocks have moved in a similar direction to CPO prices (Figures1 and 2). Most Malaysian-listed stocks have not performed in line with CPO prices, with the exception of Sime Darby (Figures 3 and 4). This could be due to:
    i. The valuation premium that Malaysian stocks command;
    ii. The anticipated strong recovery in FFB output which is likely to come more from Indonesia, rather than Malaysia;
    iii. The cynicism of investors that CPO price can hold on at current levels. This cynicism is also reflected in the CPO futures price (four months and above), which is trading at a 10% discount to spot prices.
     
  • Still reflecting prices of MYR2,400-2,600/tonne. It is also important to see what current share prices are reflecting in terms of CPO prices now (Figure 5). Based on our analysis, most stocks are still reflecting CPO prices of MYR2,400-2,600/tonne, which corroborates our view that the market does not expect current higher prices to sustain. Stocks reflecting CPO prices above those levels include IOI Corp (IOI), TSH Resources (TSH), IJM Plantations (IJMP) and Felda Global Ventures (FGV).
      
  • 4Q16 results likely mainly in line. We continue to advocate a trading strategy, given our expectation that CPO prices are likely to moderate post-1Q17. As such, we like stocks that are capable of surprising on the upside in terms of earnings and liquid high-beta stocks. For the upcoming results, we believe most earnings would come in within expectations, with four companies – IOIC, FGV, Sarawak Oil Palms (SOP) and TSH – likely to post disappointing earnings due to weaker-than-expected FFB output. We also up our forecasts for two stocks which look capable of posting better-than-expected earnings – Bumitama Agri and First Resources. We raised our forecasts to impute our latest in-house exchange rate assumptions, higher FFB output and PK prices.
     
  • Risks include extreme climate conditions, a change in demand and supply dynamics and extreme fluctuations of exchange rates and crude oil prices.
      
  • Still NEUTRAL. We expect volatility to be the name of the game in 2017, with the current strong CPO prices moderating after 1Q17, as CPO production recovers more significantly and soybean crop from South America starts being harvested. We keep our MYR2,500/tonne CPO price assumption for 2016-2017. Our regional Top Picks – Kuala Lumpur Kepong (KLK), Golden AgriResources and London Sumatra ($LSIP) – remain. We also like Sime Darby as a restructuring play. (Hoe Lee Leng)
      
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P H
Jan 16,2017 11:04:02

$LSIP 4Q16 Preview; Profit recovery likely to boost shares

4Q16 looking good on higher prices and output
We estimate 4Q16 earnings of c.IDR210b (+32% QoQ, +34% YoY), the best quarter in FY16. This was likely driven by strong CPO and kernel price, and output recovery post El Nino, which should provide ST upside for the stock. This should bring FY16 net profit to c.IDR492b, in line with our forecast of IDR484b. Strong output growth post El Nino and continued recovery in rubber futures should offset our conservative CPO ASP for this year. Reiterate BUY and TP of IDR2,100 based on USD9,000 EV/ha, -0.5SD from its long-term mean in view of the muted CPO price outlook.

Boosted by strong CPO price and FFB output
We estimate 4Q16 nucleus production of c.0.38m tonnes (+17% QoQ, -1% YoY). This was despite the already high base in 3Q16 (+35% QoQ) as trees recovered post the El Nino stress. This should bring 2016 production to c.1.2m tonnes (-15% YoY). We also expect 4Q16 CPO ASP was higher QoQ and YoY, helped by low global stockpile and also higher seasonal demand. We also expect kernel price remained strong (also due to tight supply) and boost earnings in 4Q16.

Positive impact from rubber futures recovery
Rubber futures on the SICOM and TOCOM (Singapore and Tokyo Commodity Exchange) have advanced to a new high since 2013. We expect this recovery to be sustainable due to less global supply and low stockpiles in China (biggest consumer). We believe LSIP’s rubber division earnings drag may turn around and book a profit in 2017.

2017 outlook
CPO price started this year on a high note as stockpile remains low, and it should continue at least until 1Q17. But we remain conservative in our CPO price forecast (2017F: MYR2,400/t) as we believe it will correct in 2H17 as we approach the peak production season. However, we expect strong growth in output and rubber futures recovery to be the main drivers for LSIP, which can offset our conservative CPO ASP for 2017F.

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P H
Jan 16,2017 09:53:19

PP London Sumatra Indonesia ($LSIP), Beneficiary Of Rubber Price Upcycle

We believe the street has yet to factor in the recent rubber price rally and expect a round of consensus earnings upgrade ahead. Rubber prices have rallied 29.3% since Nov-16. We expect Lonsum’s rubber business to book operating profit of IDR2.6bn in FY17 despite having booked 9M16 operating losses of IDR99bn (25% of 9M16 consolidated operating profit). We raised our earnings forecasts by 6-9% for FY16-18F and reiterate our BUY call with a new TP of IDR2,200 (previous IDR2,050, 31% upside). Consensus earnings upgrade should be a positive catalyst for the stock.

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P H
Jan 11,2017 10:49:56

Regional Plantation: Volatility Is The Name Of The Game

We expect yet another volatile year for CPO prices – similar to last year – due to the recovery in CPO output which we anticipate to start coming through after 1Q17. This should result in a moderation of prices. Demand remains unexciting, given China’s predilection for soybean which remains in abundance, while India has yet to get over its currency issues. We maintain our NEUTRAL sector call. We favour selected big-cap counters like KLK, Sime Darby, Golden Agri and London Sumatra – being high-beta stocks which would fare well in a volatile environment.


$AALI $LSIP $SGRO

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P H
Dec 16,2016 11:41:27

Regional Plantation - 2017 – a Bumper Crop Year?

We believe CPO prices would remain at high levels up to 1Q17, on the back of the still weak CPO output and strong USD. However, post-1Q17, we believe prices are likely to weaken, as the recovery in CPO output would coincide with the South American soybean harvest, which should put pressure on vegetable oil prices. We maintain our MYR2,500/tonne CPO price assumption for 2017, expecting prices to trade at a volatile range of MYR2,300-3,000/tonne during the year. No change to our NEUTRAL sector call and our regional Top Pick of Kuala Lumpur Kepong.

¨ CPO prices shadowing soybean price movement. CPO prices have risen to new highs, at close to MYR3,000/tonne at the time of writing (+12% MoM and 27% YTD). We believe this was in response to the surprise US election result, which led to USD/MYR strengthening by as much as 7% in the last month. This – together with the recent spike in crude oil prices on the back of the Organisation of the Petroleum Exporting Countries’(OPEC) decision to cut oil production, and several other factors in the US – led to a sharp rise in soybean prices (up 11% in one month) to USD0.375/bushel, bringing YTD price increase to 29% YoY. CPO prices followed suit, bolstered also by the lower-than-expected CPO output in Malaysia in October, and the unexpected early end to the peak season.

¨ CPO prices to stay moderate after 1Q17. Going forward, we believe CPO prices are likely to stay at current high levels until 1Q17, given the anticipated weakness in output in 1Q17, coming from the 24-month lagged impact of El Nino. However, post-1Q17, we expect a marked recovery in CPO output, as productivity bounces back post-El Nino. This, together with the higher soybean output that is expected to come out from South America during the same period, would start to weigh on CPO prices. We expect CPO prices to range between MYR2,300-3.000/tonne in 2017, with an average of MYR2,500/tonne.

¨ Demand to remain lackluster. On the demand front, we expect demand from India to pick up once the short-term impact from the INR fiasco dies down. However, China’s demand is likely to remain anaemic, on the back of the abundance of soybean crop as well as its soybean and rapeseed oil held in government reserves.

NEUTRAL sector call maintained, with unchanged CPO price assumptions of MYR2,500 per tonne for 2016 and 2017. Our regional Top Pick remains Kuala Lumpur Kepong (KLK MK, BUY, MYR26.80), given its geographical landbank diversity, exposure to Indonesian downstream operations which enjoys tax advantages and relatively inexpensive valuations versus its peers. We also like Sime Darby (SIME MK, BUY, MYR9.25) in Malaysia for its restructuring angle, given management’s plans to unlock value from the group. In Singapore, we like Golden Agri-Resources (Golden Agri)(GGR SP, BUY, SGD0.46) for its diversified geographical landbank, while its integrated operations well as soybean crushing enables it to capture margins all across the industry spectrum. In Indonesia, we like London Sumatra ($LSIP, BUY, IDR2,050) due to its undemanding valuations, its net cash and its good stock liquidity. (Hoe Lee Leng, Hariyanto Wijaya, CFA, CPA)

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P H
Dec 13,2016 12:25:03

PP London Sumatra Indonesia - Monetising The CPO Price Upcycle And Weakening IDR

We think Lonsum is a good counter to monetise the CPO price upcycle and weakening IDR. Its share price movements tend to follow that of CPO prices. We expect such prices to remain robust up to 1Q17. In addition, we think the strengthening USD should weaken further the IDR to IDR13,700 in FY17, which should increase Lonsum’s earnings during this period. We fine-tune our forecasts to factor in weaker FY17-18 IDR assumptions and reiterate our BUY call on this counter with a higher IDR2,050 TP (from IDR1,900, 17% upside).

¨ A weakening IDR should improve PP London Sumatra Indonesia’s (Lonsum) earnings. We think the USD ought to continue to strengthen, especially after a US Federal Reserve (Fed) rate hike. This strengthening USD trend is projected to result in the USD/IDR rate averaging IDR13,700 in FY17 (2016 YTD: IDR13,290). We think Lonsum should benefit from this weakening IDR trend, as its CPO selling price is linked to the movement of the USD. Based on our sensitivity analysis on its earnings to the USD/IDR rate change, every 1% the IDR weakens, Lonsum’s earnings improve by 3.4%.

¨ Monetising the upcycle in CPO prices. The movement of Lonsum’s share price tend to follow those of CPO prices. We expect such prices to remain relatively robust up to 1Q17. This is on the back of lower-than-normal palm oil inventory levels as a result of the time-lagged impact of El Nino. However, after 1Q17, we expect CPO prices to moderate. This would be on the back of a strong recovery in CPO output post El Nino.

¨ Palm oil production levels to recover in 2017. After Lonsum’s palm oil production is set to decrease by 17.1% YoY in FY16 from the the impact of El Nino, we estimate its production in 2017 to grow by 21.9% YoY to 481,000 tonnes. This would be mainly due to a recovery from the impact of El Nino.

¨ Low increase in minimum wage should make costs more manageable. Palm oil is a labour-intensive business, where employee expenses make up ~40% of total operating cash costs. We consider the Manpower Ministry’s announcement of an 8.25% increase in the minimum wage for 2017 to be low. This is compared with the double-digit percentage increases over the last five years. Meanwhile, fertiliser prices are relatively stable. Therefore, we expect production costs for plantation companies to remain manageable in 2017.

¨ Reiterate BUY with a higher IDR2,050 TP (from IDR1,900). We fine-tune our assumptions in order to factor in a weaker IDR by increasing FY17-18 earnings by 7.5%. Our IDR2,050 TP is based on an unchanged P/E target of 16.4x. Our TP implies EV/ha of USD10,518, which is within the range of the EV/ha of the local listed planters.

¨ Lonsum is our Top Pick among the domestic plantation counters. This is due to its undemanding valuation (its EV/ha of USD8,978 is as cheap as the replacement cost of USD10,000), clean balance sheet (with a net cash position of IDR696bn) and good stock liquidity. The key risk to our call is weakening CPO prices from the current strengthening price trend. (Hariyanto Wijaya, CFA, CPA)

$LSIP

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P H
Dec 06,2016 15:21:50

London Sumatra – Still enjoying the breeze ($LSIP) (by adhi.tasmin@maybank-ke.co.id)

·         Share price has passed our previous TP, but we think that there is still upside window as we expect CPO price to remain strong until 1H17, supported by strong USD and tight inventory supply. We expect tight inventory level to continue as we approach the seasonally weakest production period in 1Q17.
·         Besides CPO price, we also see that rubber price outlook is getting better, helped by China’s surging demand. China’s truck and automotive sales has surged for the past months, which lead to decrease in its rubber stockpiles. Coupled with the top rubber producers controlling their exports, we believe that the global rubber price recovery is sustainable. We also see improving automotive and heavy equipment sales domestically.
·         In light of these positive factors, we reiterate BUY and raise our TP to IDR2,100 based on USD9,500 EV/planted ha, -0.5SD from its LT mean compared to -1SD previously. Historically, LSIP can trade at +1SD during commodity boom. 4Q16 results should be the best quarter for 2016, which can boost optimism for share price for the short-term. Biggest risk to note is the CPO price outlook towards 2H17, where output seasonally peaks.

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P H
Nov 30,2016 11:45:12

Indonesia Strategy: Managing Volatility
We opine that Indonesia’s fundamentals remain pointed towards long-term positives. This is underpinned by BI’s pro-growth policies to propel economic growth, the low inflation environment, continued government focus on infrastructure spending, and the security forces’ exemplary conduct in maintaining stability as political tensions rise. Thus, we expect stronger market direction post the Fed’s anticipated rate hike in December.

¨ Outflows dominate. Worries over a potential US Federal Reserve (Fed) rate increase and weakening IDR have triggered outflows in both the equities and fixed income markets. This is a reversal after months of inflows. Post Donald Trump’s win in the recent US elections, the JCI continues to trade at sub-5,200 level, with outflows recorded at IDR9.6tnin November. Similarly, outflows in the fixed income market have deepened, reaching IDR17trn over the past month, with the 10-year government bond continuing to escalate to 8.3% (August: +6.3%). Arguably, a lack of catalysts in the market have also led to the insipid performances, and we are only expecting stronger market direction post the Fed rate increase that is expected by mid-December.

¨ The three spectres are currency, interest rate trends and politics. As highlighted in our 14 Nov 2016 Currency Woes Dampen Sentiment report, the fundamentals still point towards a resilient IDR. This is underpinned by its high-yield differential vs developed market (DM) economies and peers, relatively high levels of growth among major emerging market (EM) economies, and ongoing reforms. Rising current account deficit (CAD) over the next few years is still manageable, while forex reserve levels also improved to USD115bn.

¨ Action by Bank Indonesia (BI) to intervene in the currency market is plausible to indicate direction. An influx of asset repatriation is also expected towards year-end, which would help the IDR to recuperate to a more favourable level. We opine that BI would maintain its current relaxation bias policy to propel economic growth, especially given the subdued inflationary outlook. As the series of rate cuts have yet to result in a meaningful economic trajectory, it is unlikely that the central bank would take the risk by reversing its current relaxation policy.

¨ Over the past five years, the spread between the BI rate and inflation has averaged 130bps vs the current 145bps spread. This provides room for further relaxation if needed. We expect BI to maintain its current benchmark rate until year-end, and potentially make another 25bps cut in early 2017 to further support economic growth under stable IDR circumstances.

¨ Jakarta Governor Basuki Tjahaja Purnama’s alleged religious defamation has raised the political landscape’s temperature, as seen by the magnitude of the anti-Basuki rally that occurred earlier this month. This upheaval is negatively perceived by investors, especially after >2 years of stable politics. The market is likely to take heed of the next rally and, more importantly, how the Government handles the situation. So far, the security forces have been exemplary in restoring stability. We continue to believe that the Government’s position remains strong. As long as these forces remain united under presidential control, any act that destabilises the country can be brought under control quickly.

¨ Commodity plays and blue chips. We like PP London Sumatra (Lonsum) and United Tractors as commodity plays. Bank Negara Indonesia (BBNI), Astra International, Ciputra Development, Bumi Serpong Damai (BSD), Telekomunikasi Indonesia (Telkom), Indofood Sukses Makmur and Waskita Karya are all stocks with strong fundamentals. (Helmy Kristanto)

$LSIP $BBNI $CTRA $BSDE $TLKM $INDF $WSKT

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P H
Nov 29,2016 09:50:16

Plantation: Overpowered by the Bull Factor

We expect favorable CPO fundamental and better soybean prospect to outweigh the impact of weaker Indian palm oil import as a result of India’s demonetization policy. We believe Indian palm oil import should normalize by Jan-17 once the issues have been settled. Maintain overweight with LSIP as our top pick.

Favorable CPO fundamental still prevails. In our previous report, The Time is Ripe!, we highlighted that CPO fundamental will remain strong because of 1) pressure on emerging market currencies, such as IDR and MYR, since 8 Nov post the US presidential election, 2) expectation of subdued output till 1Q17 and 3) slower minimum wage hike set by the government at 8.25% for FY17. Note in previous years, this ranges between 13-19% since FY12. According to the latest estimates by MPOB, Malaysia's palm oil production guided a 3.5% MoM decline in the first 20 days of Nov. This follows a 2.2% MoM decline in Oct-16. Given this, and higher Dec demand in anticipation of Chinese New Year, we expect CPO price to trade within the range of MYR2,800-3,000/ton until year-end.

US proposal for higher biofuel quotas in FY17 an added boost for CPO price. On 23 Nov-16, the US Environmental Protection Agency (EPA) has set higher biofuel quotas at 19.28bn gallons or 72.98bn liters (+6.5% YoY) to be blended into gasoline and diesel for FY17, which is higher than the initial 18.8 billion gallons (71.1bn liters) proposed in May. The revised quota also includes 280mn gallons (1.1bn liters) of increase in advanced biofuel quota, which may boost demand for soya oil-based biodiesel by 700-800mn lbs (0.3-0.4mn tons), according to a Bloomberg article. Increased demand for soy-related products will boost soy products' prices, hence positive for CPO price.

India’s high-denomination banknotes ban poses short-term hiccup for palm oil demand. On 8 Nov-16, India announced immediate ban on the use of 500 Rupee (USD7.50) and 1,000 Rupee (USD15.00) banknotes, which account for 86% of total cash in circulation, in an effort to combat corruption and counterfeit money in the country. Citizens will have until 30 Dec-16 to exchange their old notes for the new ones. We think the ban of high-denomination notes will affect India palm oil import negatively in the short-term, given that India is the largest importer of palm oil, accounting for 19% of total Malaysian palm oil export (10M16) and 22% of total Indonesia palm oil export (8M16). Due to slow distribution of the new notes, cash crunch in India will temporarily disrupt retail demand, including purchases of necessities, as well as delayed shipment of vegetable oils to India. As a result, we could see weaker Indian palm oil import translating into Malaysia’s Nov and Dec CPO export figures, before normalizing in Jan-17. According to Intertek Testing Services, Indian palm oil import fell 75% MoM to 58,360 tons in the first 20 days of Nov.

Maintain overweight. Overall, we expect favorable CPO fundamental and better soybean price prospect to negate the negative impact of weaker Indian palm oil import. Moreover, we believe Indian palm oil import should normalize by Jan- 17 once the issues have been settled. Maintain overweight on the plantation sector with LSIP as our preferred pick.

$AALI $LSIP $SGRO $SMAR

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P H
Nov 29,2016 09:48:19

The Time is Ripe!

We may see pressure of weakening IDR due to rising uncertainty and Fed Fund Rate hike to positively affect CPO players’ earnings. This is further backed by slower wage hike in FY17 and supportive sector fundamental. We prefer LSIP for its cheap valuation and strong financial position.

CPO players as beneficiary of IDR depreciation… On higher chance of Fed Fund Rate hike in Dec and uncertainty of Trump policies, we may see market and pressure on IDR to persist. Given that the Indonesian CPO price is quoted in USD (CIF Rotterdam), we believe listed local CPO players’ earnings should benefit from IDR depreciation against USD. Based on our sensitivity analysis, for every 1% depreciation in IDR, both AALI's and LSIP's net profit would increase by 2.1% and 3.1% respectively. Benefit of IDR depreciation to AALI’s earnings is less profound as it was partially offset by higher forex arising from its outstanding USD-denominated loan.

… And slower wage hike. In addition, the Indonesian government has set minimum wage hike of 8.25% for FY17, which is a slower rate as compared to previous years’ increment of more than 10%. We think CPO players will benefit from slower wage hike as labor cost accounts for 20-30% of CPO players’ production cost.

Fundamental remains supportive of CPO price. We also think high CPO price within MYR2,800-3,000/ton should sustain in view of continued low inventory level for the next several months. The recently reported lower MoM Malaysia CPO output in Oct, we believe, may signal subdued production for the rest of FY16 and into 1Q17, the start of low crop season, hence capping further rise in CPO inventory level. Upcoming Chinese New Year demand and ongoing concerns on delayed soybean planting due heavy rainfall in Argentina and parts of Brazil continue to be a positive factor supporting CPO price.

AALI's and LSIP's performances lag behind the CPO price. Compared to the year-to-date 32% rise in CPO price, share prices of both AALI and LSIP underperformed by 22% and 4% respectively. We think share prices have been penalized as a result of deep production decline which negatively impacted earnings. On the other hand, AALI and LSIP are still reasonably valued at 14.9x and 14.2x FY17 P/E respectively (vs. peers' average of 14.3x). In summary, undemanding valuation coupled with better production and CPO price outlook ahead should present plenty of upsides for the stocks.

Who’s our preferred pick? Despite liking both AALI and LSIP for their stock price sensitivity to CPO price and good liquidity, we prefer to play LSIP to take advantage of
the CPO price momentum and potential weakening of the IDR. Aside from its cheaper valuation as compared to AALI, we like LSIP for its strong and debt-free balance sheet, which provides buffer to foreign exchange risk and rising interest rates. We currently have a buy recommendation on LSIP with TP of Rp1,950 based on 17.0x 3-year average rolling forward mean P/E. Our TP offers 19% upside from current share price.

$AALI $LSIP

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P H
Nov 28,2016 12:08:07

Indonesia Plantations Update: Indonesian Palm Oil Conference notes
 
Plantations: Indonesia

More attendees; Price rebound on volume drop post El Nino: With CPO prices on the rebound, the 12th Indonesian Palm Oil Conference (IPOC) 2016 on 23-25th November 2016 at the Westin Resort Nusa Dua (exhibit 10) with the theme of “Palm Oil Development: Harmonizing Market, Society and the State”, saw around 1,300 delegates, up from the 2015 level of 1,100. Organized by the Indonesian Palm Oil Association (GAPKI), the conference was opened by the chairman of GAPKI, Joko Supriyono, who spoke about the CPO price level which has climbed from its 6-year low at USD630/ton in 2015 to USD660/ton as of October 2016. He pointed out that the price recovery was due to a production drop post El Nino leading to palm oil stocks being at their lowest level of 1.8mn tons in 1H16, down 59% from 4.5mn tons in December 2015. In addition, he stated that Indonesia’s palm oil production in 2016 may only reach 30.9mn tons, -10% y-y. This should drag 2016 exports down by 15% y-y to 22.5mn tons.

5mn cultivating rights certificates to deal with spatial planning: Separately, at the conference, the Minister of Agrarian and Spatial Planning, Sofyan A. Djalil, cited that one of the major problems faced by the palm industry is on agrarian and spatial planning. To address the problem, the minister has issued a policy to accelerate the issue time for cultivating rights certificates (HGUs) to only 90 days. The government will also undertake a pilot project to certify 1,000 plots of smallholders' land, plasma and public land with a total area of 25,000 ha. The government targets to issue 5mn cultivating rights certificates in 2017.     

6 government programs to support industry development: At the conference, the Minister of Agriculture, Amran Sulaiman, stated that there are 6 programs defined by the Government in order to further develop the Indonesian palm oil industry and increase its sustainability:
1.     Improving the productivity of smallholders’ plantations and increasing funding support for Indonesia Estate Crop Fund for Palm Oil (BPDP) to support smallholders’ replanting, as currently smallholders account for more than 40% of total oil palm plantation areas in Indonesia.
2.     Accelerating and encouraging all Indonesian palm oil producers to obtain the Indonesia Sustainable Palm Oil (ISPO) certification for their products in order to be accepted internationally.
3.     Increasing utilization of peatlands for oil palm plantations to further intensify palm oil productivity and also to prevent forest fires.
4.     Converting the legal status of smallholder plantations from plantation business permits (IUPs) to cultivation rights (HGU) to provide legal certainty and help smallholders obtain bank loans, which should support productivity. The cultivation rights will also enable smallholders to obtain replanting programs from BPDP.
5.     Focusing exports on major CPO markets, such as India, China, Pakistan and Bangladesh, but reducing exports to Europe due to the adverse publicity on CPO products from Indonesia.
 

$LSIP $SMAR $SGRO $AALI

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P H
Nov 14,2016 12:36:25

Regional Plantation: Disappointing Output Supports Bullish CPO Price Signal

Malaysia’s CPO production unexpectedly fell MoM in October, which combined with a small reduction in exports, resulted in a minimal rise in inventory. This indicates that production should taper off from hereon, having peaked in September, providing a short-term bullish signal for CPO prices. We now expect prices to remain strong until 1Q17, when signs of a production recovery take place. No change to our NEUTRAL sector call, with Top Picks KLK, Sime Darby, Golden Agri and London Sumatra.
¨ Malaysia’s CPO production fell 2.2% MoM in October, while YTD production decline widened to 15.6% YoY. This was an unexpected decline, which could indicate that the peak production period is over in Malaysia, having peaked in September. We understand that production in Indonesia could still be on the rise in Oct/Nov, as El Nino hit Malaysia first before affecting Indonesia.

¨ Exports fell in October (-1.4% MoM), as China continued to utilise its rapeseed oil and soybean stocks. Exports to China saw a MoM decline of 5.2% in October, while exports to India and the US fell by22.2% and 10.1% respectively.

¨ Malaysia’s YTD-Sep exports dropped 7.3% YoY, with wider declinestoChina (-29%), India (-15.4%), US (-13%) and the EU (-12%). We expect demand from India to improve in the coming months,due to the change in import taxes, while China should see some festive demand prior to Chinese New Year.

¨ Inventory rose 1.8% MoM to 1.57m tonnes in Octoberdue to lower exports, bringing the stock/usage ratio to 8.4% (Sep: 8.3%), below the 12-year average of 10%. With a likely slowdown in production and higher exports, inventory should remain rangebound over the next few months, ranging 1.5-1.8m tonnes.

¨ Recent developments:

i. South American soybean planting partially delayed due towet weather in Argentina and Brazil.Planting is at 6-8% of the intended area currently, vs the 12-16% average. If this continues, it would help reduce high soybean stocks caused by four years of bumper crops in the US;

ii. China’spalm oil imports remain weak, down 38.4% YoY in YTD-Sep, due to high stockpiles–6.2m tonnes of soybean, 3.5m tonnes of rapeseed oil. We understand China plans to release 0.1m tonnes of rapeseed oil into the market per month, which would continue to dampen demand.

iii. India’spalm oil imports fell 10.3% YoY in YTD-Sep. However, this should improve due to the recent cut in import taxes favouring palm oil. We expect palm oil’s market share to rise from the current 56%, while there should also be some switching back to buying crude vs refined oils.

¨ Still NEUTRAL. Given the unexpected reversal of output in October, we now believe Malaysian output is likely to disappoint for the rest of 2016 and 1Q17, as it plateaus off from the seasonal peak. This would result in CPO prices remaining at stable levels of MYR2,600-2,900/tonne for the next few months. After 1Q17 however, production is expected to recover more significantly, thereby lowering CPO prices. We keep our MYR2,500/tonne CPO price assumption for 2016-2017. Our regional Top Picks remain Kuala Lumpur Kepong, Golden Agri and London Sumatra.We also like Sime Darby as a restructuring play. (Hoe Lee Leng, Hariyanto Wijaya, CFA, CFP, CA, CPA)

$AALI $LSIP $SGRO $SMAR

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P H
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)

$BBNI $ASII $CTRA $ BSDE $TLKM $INDF $WSKT $UNTR $LSIP $INTP $HEXA

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P H
Aug 29,2016 22:08:55
Indonesia Equities: Pricing In Near Term Positives

Key Points

- +9% gains in MSCI Indonesia since our country upgrade in July - Since our upgrade of Indonesian equities to overweight two months ago in the MIG publication after clarity on its tax amnesty programme emerged, sentiment has further improved following the appointment of well respected Finance Minister Sri Mulyani Indrawati. The Indonesian equity market has seen strong equity inflows in 3Q16 lifting the index up ~9% (local currency terms, +8.2% in USD), which has outpaced world equities’ gains (+5.2%) for the same period and supported our call.

- Year to date’s gains of +18.6% has also more than recouped 2015’s losses of -12%, which has supported the turnaround highlighted in our January 2016’s South East Asia Equity Strategy report. The equity market rally year to date has been supported by a benign environment of lower interest rates, stable IDR currency vs the USD, under-owned positions in global portfolios and improving confidence in Indonesia’s recovery story. Estimated equity inflows into Indonesia so far for 3Q has exceeded the total inflows for 1H16, driving the market to new highs. Since mid May this year, it is estimated that net equity inflows reached $1.7bln, vs $1.6bln net outflows over the whole of 2015 (source: JPM estimates).


- Near term positives post amnesty and cabinet reshuffle look priced in, valuations are now close to 10 year high – At 16x PER, Indonesian equities is now trading close to +2 standard deviations to its 10 year historical average multiple and at its highest valuation level since 2007, which we believe has priced in much of the near term positives. Although near term liquidity is likely to remain supportive given benign expectations on interest rates, we caution that valuations have caught up and believe it is prudent to start taking some money off the table. On domestic updates, while the recently released 2017 budget is credible, it is unlikely to lead to further corporate earnings upgrades given a moderate government spending target of 6% (planned fiscal deficit for 2017 is 2.4% of GDP, flat/lower than 2016E). Towards the end of September and December which marks the first and second phases of the tax amnesty programme’s staggered tax rates for declared wealth, investor sentiment may also be influenced by expectations over the tax collections.


- Muted start to the 9-month tax amnesty programme, although still early days - As of 23rd August 2016, the asset declaration in the Tax Amnesty Program has reached Rp51.7tn, consisting of 85% onshore/15% offshore assets (12% overseas assets declared, 3% overseas net assets repatriated), while asset repatriation has reached Rp1.6 tn. Momentum of onshore assets declared in first half of August has picked up, with the tax office reporting about Rp11.5tn worth of onshore assets declared (>4x July’s). About three-quarters of the assets declared were from private individuals, and the balance private entities, which we view as supportive of property sector’s recovery given interest rates are expected to remain low while the Ministry of Finance has allowed repatriated funds to be invested in real assets (such as property and gold).


- Looking ahead, earnings upgrades need to pick up momentum for the rally to have more legs - Earnings wise, the recent 2Q results season was mixed with single digit corporate top line growth from a year ago. Concerns on banks remain dragged by asset quality issues while commodity related earnings have been moderate. Following the latest 2Q earnings season (where consensus earnings were trimmed -2% lower for FY16E and FY17E), FY16E and FY17E earnings are now forecast to grow +7% and +14% respectively (higher than Asia ex Japan equities’ 2.2% FY16E and 11% for FY17E respectively) which we believe is priced in current valuations.

Time to lock in some profits – Switch out of names which have rallied and offer no upside to target prices
- Sectors we are cautious on are: Commodity related plays which have rallied and priced in recovery expectations (coal – Bukit Asam, ITMG, palm oil – Astra Agro, London Sumatra), Banks (loans growth will be moderate while we expect asset quality concerns to remain a near term overhang) and Utilities (in particular, Perusahaan Gas – where we think profitability will remain pressured by regulatory efforts to lower gas prices).

Preferred Picks/Switch Ideas

- Preferred Sectors we would accumulate new positions are: Property (Bumi Serpong – Western Jakarta play, large landbank catering to middle income buyers), Telecommunications (Telekomunikasi Indonesia – improving smartphone penetration and data usage supported by a young population), Consumer (Indofood and Media Nusantara, which benefit from an improving domestic economy in 2H16) and Infrastructure (Jasa Marga – No. 1 toll road operator, long term beneficiary of infrastructure development in Indonesia).


- Risks to the current rally include weaker than expected global economy, faster than expected Federal Reserve interest rate hikes which may result in global liquidity volatility and disappointments in the domestic recovery and infrastructure spending pace (continues to be a focus in the 2017 budget, with 9% yoy expected growth).


$PTBA $KKGI $HRUM $ITMG $AALI $LSIP $SGRO $SMAR $PGAS $BBCA $BBRI $BMRI $BBNI $BSDE $ASRI $LPCK $LPKR $CTRA $TLKM $INDF $ICBP $AISA $MNCN $JSMR

Bull
P H
Jul 27,2016 08:50:24
EARNINGS CALENDAR (Half Year 2016 - Estimated)

JULY 2016

Jul 25, 2016 :
$BBTN (Bank Tabungan Negara (Persero) Tbk PT)

Jul 26, 2016
$BDMN (Bank Danamon Indonesia Tbk PT)
$BMRI (Persero) Tbk PT Earnings Release - 4:00PM GMT+7

Jul 27, 2016
$AALI (Astra Agro Lestari Tbk PT)
$HMSP (Hanjaya Mandala Sampoerna Tbk PT)
$LPPF (Matahari Department Store Tbk PT)
$MPPA (Matahari Putra Prima Tbk PT)
$PTBA (Bukit Asam (Persero) Tbk PT)

Jul 28, 2016
$ASII (Astra International Tbk PT)
$BEST (Bekasi Fajar Industrial Estate Tbk PT)
$BJBR (PT Bank Pembangunan Daerah Jawa Barat dan Banten Tbk)
$DOID (Bloomberg)
$NCO (Vale Indonesia Tbk PT)
$JPFA (Bloomberg)
$PSAB (Bloomberg)
$SSMS (Bloomberg)
$SMGR (Semen Indonesia (Persero) Tbk PT)
$UNTR (United Tractors Tbk PT)
$UNVR (Unilever Indonesia Tbk PT)

Jul 29, 2016
$ASRI (Alam Sutera Realty Tbk PT)
$ADHI (Bloomberg)
$BSDE (Bumi Serpong Damai Tbk PT)
$BNGA (Bloomberg)
$BNLI (Bloomberg)
$BNII (Bloomberg)
$BKSL (Bloomberg)
$BHIT (Bloomberg)
$BISI (Bloomberg)
$CPIN (Bloomberg)
$CTRA (Ciputra Development Tbk PT)
$CTRP (Bloomberg)
$ELSA (Bloomberg)
$GIAA (Bloomberg)
$GJTL (Bloomberg)
$GGRM (Gudang Garam Tbk PT)
$NKP (Bloomberg)
$INTP (Indocement Tunggal Prakarsa Tbk PT)
$INDF (Indofood Sukses Makmur Tbk PT)
$ICBP (Indofood CBP Sukses Makmur Tbk PT)
$INDY (Bloomberg)
$KARW (Bloomberg)
$KAEF (Bloomberg)
$KIJA (Bloomberg)
$KLBF (Kalbe Farma Tbk PT)
$KRAS (Bloomberg)
$LPKR (Lippo Karawaci Tbk PT)
$LSIP (Perusahaan Perkebunan London Sumatra Indonesia Tbk PT)
$MAPI (Bloomberg)
$PWON (Bloomberg)
$PNBN, $PNLF, $PNIN (Bloomberg)
$PTPP (Bloomberg)
$RALS (Bloomberg)
$SMRA (Bloomberg)
$TBLA (Bloomberg)
$TLKM (Telekomunikasi Indonesia (Persero) Tbk PT)
$TOTL (Bloomberg)
$WSKT (Bloomberg)

AUGUST 2016
Aug 1, 2016
$HRUM (Harum Energy Tbk PT)
$SSIA (Surya Semesta Internusa Tbk PT)

Aug 10, 2016
$ITMG (Indo Tambangraya Megah Tbk PT)

Aug 12, 2016
$EXCL (XL Axiata Tbk PT)

Aug 29, 2016
$ADRO (Adaro Energy Tbk PT)
$ANTM (Aneka Tambang (Persero) Tbk PT)
$BBRI (Bank Rakyat Indonesia (Persero) Tbk PT)
$ISAT (Indosat Tbk PT)
$PGAS (Perusahaan Gas Negara (Persero) Tbk PT)

SEPTEMBER

Sep 13, 2016
$SMCB (Holcim Indonesia)

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P H
Jun 20,2016 23:56:51
Sawit, Sumber Energi Terbarukan Harapan Dunia: CPO akan menjadi bahan baku utama untuk bahan bakar nabati di masa mendatang, dan Indonesia akan menjadi produsen yang paling penting. Setidaknya tidak ada negara yang mampu mengejar produksinya. (SAWIT INDONESIA)

$AALI $LSIP $SMAR $SGRO
Bull
P H
Jun 07,2016 12:26:34
BERITA SAHAM 07 JUNI 2016


•PERTUMBUHAN EKONOMI : Pemerintah memberi sinyal penurunan asumsi laju produk domestik bruto dari usulan RAPBNP 2016 sebesar 5,3% menjadi 5,1%-5,2%. (BISNIS INDONESIA)

•REGULASI IMPOR PONSEL & KOMPUTER : Per 1 Juli, Importir Produsen Wajib Investasi
Mulai 1 Juli 2016, impor telepon seluler, komputer genggam (handheld), dan komputer tablet khususnya untuk perangkat yang berada dalam jaringan 4G LTE oleh importir produsen wajib menyertakan bukti investasi di dalam negeri. (BISNIS INDONESIA)

•INDUSTRI PAKAN TERNAK : Jagung Ditekan, Impor Gandum Melonjak, Pengetatan impor jagung berimbas pada meningkatnya impor gandum untuk pakan ternak. Penurunan impor jagung juga telah menyebabkan penyerapan komoditas itu dari petani lokal naik cukup signifikan. (BISNIS INDONESIA) Comment : good for BISI

•TAMBAHAN MODAL BUMN : PMN Cair, Rencana penerbitan saham baru oleh BUMN kembali mencuat setelah pemerintah mengusulkan Penyertaan Modal Negara (PMN) dalam Rancangan APBN Perubahan 2016 kepada DPR. (BISNIS INDONESIA)

•WTON : Perusahaan beton pracetak PT Wijaya Karya Beton Tbk. sudah mengantongi proyek infrastruktur HSR Jakarta-Bandung dan menggenggam total nilai kontrak baru hingga Rp1,3 triliun. (BISNIS INDONESIA)

•RI MASUK LIMA BESAR DUNIA - Ledakan Besar di Ritel : Lompatan peringkat Indonesia, dari 12 menjadi 5, dalam Global Retail Development Index (GRDI) 2016 kian mengonfirmasi terjadinya booming sektor ritel di Tanah Air. (BISNIS INDONESIA) Comment : Good For ACES, RANC

•STOK CPO MENURUN : Ramadan Kerek Harga CPO, Persediaan minyak kelapa sawit di Malaysia, sebagai produsen kedua terbesar di dunia, diprediksi menyusut ke level terendah dalam dua tahun terakhir. Harga pun berpeluang mencapai level 2.900 ringgit per ton pada bulan ini. (BISNIS INDONESIA) Good For LSIP, AALI

•TLKM : PT Telekomunikasi Indonesia Tbk mengaku sudah meraih pendapatan sekitar Rp 15 triliun dari segmen High End Market yang dikelola Enterprise Customer Facing Unit (CFU). (INDO TELKO)

•BBRI- BMRI : Bank BRI (Persero) Tbk dan Bank Mandiri (Persero) Tbk berkomitmen membiayai permodalan bagi distributor minyak pelumas buatan PT Pertamina Lubricants. (KOMPAS)

•BMRI : Bank Mandiri’s e-money solution provider PT Digital Artha Media (DAM) will sign partnership agreements with 13 e-commerce companies while Indonesian Agency for Creative Economy (BEKRAF) has joined hands with several venture capital firms to fund the 16 sub-sectors in the creative industry. (DEAL STREET ASIA)

•Harga Nickel Dan Timah
Tin 3M : 16945  +350  +2.11%
Nickel 3M : 8665  +165  +1.94%

$ERAA $TELE $TRIO $GLOB $BISI $CPIN $MAIN $JPFA $WTON $WIKA $ACES $RANC $AALI $LSIP $SIMP $SMAR $SGRO $TLKM $BMRI $BBRI

 -----------------------------------------

( OCBC, DISCLAIMER ON)
Bull
P H
May 16,2016 23:03:36
Indofood
1Q growth was strong (ICBP EBIT 32% y/y growth), sustainability is questionable but at least will be better than last year;
Wage increase (10-12%) tops inflation (5%); Jan to Mar saw an uptrend, No numbers released for April.
Sales contribution:66% noodles, 19% dairy, 6% snacks, 2% food seasonings, and rest are nutrition & special foods and beverages.
Noodles:
-         Sustainable margin 13-15% even - in the long run
-         Indofood has strong penetration. Growth probably 1-3% in the next 5 years. Price will mirror inflation
-         Top line will see high single digits growth
-         Two players market: INDF (75%) and Wings (25%)
-         95% domestic sales
-         Competition: Not worried with Mie mewah as users are very loyal to instant noodle brands
Dairy (stellar 32% y/y vol growth in 1Q, with margin expanding by 10% to 18.5%):
-         Expanded in weaker areas esp for milk and condensed milk
-         Targeted  marketing approach last year
-         Margin strength supported by drop in global milk prices
-         But milk price is very volatile
-         Sustainable margin 7-9%
Snacks:
-         Last year saw customers down trading to cheaper products
-         Trend reversing back this year
Beverages:   
-         Guided for 30% growth this year, but only flat in 1Q
-         Will revise this down, and increase on dairy
Seasonings: Margin squeezed on higher packaging cost and higher ingredients
Agri: Guiding for flat production this year at max, from -5% y/y earlier. Price expectations? Price taker and they don't hedge
Bogasari: Flour is growing 9% in 1Q; 70% of sales are going into ICBP, rest into industrial players; Inline with industry growth
Downside risks:
-         Mixed signals
-         They can probably achieve guidance of low double digits growth
INDF breakdown:
-         Sales : 52% CBP; 24% Bogasari; 16% Agri; 8% Distribution
-         EBIT: 63% CBP; 24% Bogasari; 11% Agri; 1.6% Dist
-         Marketing expenses as % of sales have been increasing: ICBP is 4.2% of net sales, budget is 5%; Lower than peers

$INDF $ICBP $SIMP $LSIP

Bull
P H
May 03,2016 08:56:12
Indofood Sukses - Support from margin expansion

INDF's 1Q16 results were above estimates (29% FY16F) on better-than-expected margin. We subsequently raised our FY16-17F earnings estimates by 10-11% and upgraded our TP to IDR8,500 from IDR8,000. Our new TP implies 20% discount to our SOTP valuation, similar to previous TP, or 18x PER FY17F. Maintain BUY as we expect INDF to benefit from its exposure to the CBP business and El Nino’s positive impact on its agribusiness.

$INDF $ICBP $LSIP $SIMP
Bull
P H
Apr 29,2016 09:42:41
Indonesia: 12th stimulus policy – Further Streamlining in Various Permits
 
The government released the details of its 12th stimulus policy, which mostly aim to further simplify various permits in doing business. While the latest policy appears to be an accentuation of previous stimulus to streamlines business process, in our view the government continues to show its focus to attract more investment into domestic economy, especially given sizeable contribution from Gross Fixed Capital Formation (GFCF) to overall Indonesia’s economy.
 
Efforts to lure more investment
President Joko Widodo through several cabinet meetings has emphasized his means to increase the rating of the country’s Ease of Doing Business (EODB) to the 40th rank. The World Bank surveyed that Indonesia stood at rank 109th from a total of 189 surveyed countries. Other ASEAN countries such as Singapore and Malaysia stand at the 1st and 18th rank of the list. Currently, there are 10 indicators that measure the EODB rank for a country. The indicators are business starting process, construction permit dealing process, tax payment, credit accessibility, contract enforcement, electricity supply, across border trading, insolvency settlement, and minority investors protection. To comply with the indicators, the Indonesian Economic Ministry along with the Investment Coordinating Board formed deregulations through the 12th Economic Stimulus.
 
Key points of the 12th stimulus policy
The 12th stimulus introduced a new deregulation scheme that will cut 94 procedures into only 49 procedures and 9 permits to only 6 permits. Furthermore, the stimulus package is followed by the release of 16 new regulations.
¨ For the business starting process, the initial regulation requires investors to go through 13 procedures that will take 47 days and IDR6.8m-7.8m to obtain Business Permit (SIUP), Company Registration (TDP), Deed of Establishment, location permit, and nuisance permit. With the deregulation, investors will only need 7-10 days procedure with IDR2.7m fee. Moreover, the government will only require 3 permits for micro, small and medium enterprises (MSME), which are SIUP, TDP, and deed of establishment.
¨ The government also released a new regulation through regulation no 7/2016 on changes in authorised capital for limited company. With the new regulation, MSME’s authorised capital will be determined by mutual agreement of the founders as outlined in the deed of establishment. However, the regulation will keep enacting the minimum requirement of IDR50m for limited company.
¨ As for building construction permit, the government will cut the process into 14 procedures within 52 days from initial of 17 procedures and 210 days of processing time. Moreover, the building construction permit fee will be reduced to IDR70m from the initial fee of IDR86m.
¨ Tax payment process will be cut into 10x payments with online system from an initial of 54x payments. While property registration will be cut into 3 procedures in 7 days with a fee of 8.3% from the value of property. The government previously imposed 5 procedures with 25 processing days and 10.8% fee for the property registration.
¨ The government also decreases the simple lawsuit settlement process to only 8 procedures in 28 days. Any disagreement on the verdict will be able to appeal with additional 3 procedures and maximum of 10 days of settlement.
 
Follow-up measure to reduce overall execution risk

Before the release of the 12th stimulus package, the government has released a total of 195 regulations from September 2015- April 2016. The government stated that as of 18 April, it has successfully completed 169 regulations or 87% from the total regulation released. There are 16 (8%) regulations that are still in the discussion process, while the remaining 10 regulations that will be taken out from the Economic Stimulus Package. The government stated that each packages received positive responses from investors and citizens. However, the government will increase its socialisation and evaluate the implementation through dissemination and business clinics. The business clinics aimed to further discuss the stimulus packages with stakeholders to ensure the on the ground efficiency of the packages. Moreover, the business clinic will also serve as the communication facility between investors and government to resolve any problems, including the export increment issues. The clinics and dissemination will be implemented in 3 regions, such as Palembang, Balikpapan, and Lombok.
 
The near term catalyst is the tax amnesty approval
We continue to believe that tax amnesty approval could serve as one of major catalyst in the near term. Post the Parliament’s recess session, the long-awaited tax amnesty bill is finally being discussed under the Commission XI, which has been holding hearing sessions with experts, business leaders and other stakeholders. Given its importance on the overall budget and the progress of infrastructure development, the Government is mulling over the fact that the bill could take effect in June. We believe the initial approval of the tax amnesty could be an important catalyst for the near term, as well as a major step taken in the right direction to finally foster the compliance of taxpayers – which could help solidify the Government’s overall budget composition going forward. As such, we expect further foreign fund inflows to support the market post the approval of the tax amnesty although we acknowledge that execution risks still remain at this juncture. Our top pick in the market are $BBCA, $BBTN, $ICBP, $INDF, $ADHI, $LPPF, $MIKA, $TLKM, $BSDE and $LSIP.


Bull
P H
Apr 26,2016 10:37:22
Soft Commodity…. Why we are BULLISH on CPO names – BUY SGRO & LSIP


·         Long-term structural decline in supply: less new planting, cut-backs in fertilizing etc due to strained cashflow past few years, moratorium on new land. All should support higher CPO px long-term.


·         Near-term catalysts in-check: biodiesel positive development, CPO inventory days should start to decline and reach as low as 40 days in 3Q16 (insufficient) on the back of el-nino effect (recall takes 9 months for elnino to impact production yield).


·         New emerging catalysts: extreme weather anomalies in brazil and argentina. This should boost soybean px, and hence CPO px. All of this should help CPO px break above MYR3000 this year. Our earnings today assume 3000 – hence likely to see some upside risk.


·         Top-picks: SGRO and AALI. On the latter, even if we assume right issue (15% earnings dilution) still see c.20% upside potential. Risk on AALI is potential MSCI deletion. But in reality if CPO px move up, all cpo stocks will move higher – so even LSIP is still appealing at this price.

$LSIP $SGRO
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P H
Apr 18,2016 08:54:59
Indofood Sukses Makmur(INDF) - EBIT Lifted By Consumer And Agri Units
 
We maintain BUY on Indofood with a higher IDR8,600 TP (from IDR7,150, 20% upside) as we changed our valuation base to SOP (from P/E). Higher consumer branded products (CBP) and agribusiness earnings should boost its EBIT, thanks to lower input costs and a higher CPO price. In addition, an improved distribution network should enable Indofood to identify the sales trend for each region, which could boost its sales. Key risks to our call include a significant decline in the price of CPO.

¨ Better CBP EBIT. Indofood Sukses Makmur’s (Indofood) CBP division, which produces noodles, should benefit from lower flour costs – which makes up the main cost of its inputs. In 1Q16, flour prices declined 2-3% from lower commodity wheat prices and a stabilised IDR. We think flour prices should decline further on the back of a downtrend in wheat prices and the entry of new players, which commonly set their prices lower than those of existing players. This could lead to price competition and ultimately benefit CBP players.

¨ Accelerating EBIT for agri unit. Its agribusiness should directly benefit from a higher CPO price due to lower supply. We estimate that the disruption in CPO supply after last year’s El Nino could boost the average CPO price by 14% YoY to IDR8,000/kg in 2016F (2015: IDR7,000/kg). Since most agribusiness’ costs are fixed, a higher CPO price should increase EBIT significantly.

¨ Strengthened distribution network. Its distribution arm aggresively expanded its network by establishing new branches, adding stock points and increasing the number of registered retail outlets. It also strengthened its logistics capabilities, by adding sales team workforces. Indofood aims to grow its penetration – especially in rural areas – by expanding its outlets.

¨ Likely to maintain dominant position in flour. Despite new flour producers flooding the Indonesian market for the past three years, Bogasari – the largest local flour producer – has maintained its market share of ~60%. This year, Wings and Mayora group are expanding and building new flour mills. This should not hurt Bogasari’s position, in our view, thanks to its strong brand names. To deal with rising competition, Bogasari will focus on maintaining its current customers and helping them to grow faster than the industry average.

¨ Maintain BUY. We raise our TP – which is now based on SOP (from P/E previously) – to IDR8,600 (from IDR7,150). Our TP implies 19x/17x FY16F/FY17F P/Es. Indofood’s FY15 earnings fell to IDR3trn (-25% YoY), driven by higher unrealised forex losses on foreign currency-denominated debts which caused financing costs to surge. However, its FY15 core earnings were still in line with expectations. Hence, we maintain our FY16F/FY17F core earnings at IDR3.6trn/4.1trn.

$INDF $ICBP $LSIP $SIMP
Bull
P H
Apr 12,2016 11:19:17
Plantation: Inventory Drops Below 2m Tonnes

Malaysia’s inventory level has dropped below the all-important 2m tonne psychological mark to 1.89m tonnes. We expect it to hover around these levels for the next few months, as CPO production may remain flattish until end-2Q16/early-3Q16. We also expect strong CPO prices to persist until the start of the run-up of the next seasonal peak. Maintain OVERWEIGHT. First Resources, Genting Plantations and London Sumatra are our Top Picks for Singapore, Malaysia and Indonesia respectively.

¨ Malaysia’s CPO production rose 16.9% MoM in March, coming from a short month in February and an improvement in rainfall. YoY production was still down 18.4% in March, while YTD production declined 10.2%. We expect FFB output to remain flattish over the next few months, before starting the run-up to the next seasonal peak at end-2Q16/beginning-3Q16.

¨ Better exports in March. Given the shortened February (a festive month), March’s exports recovered 22.9% MoM and brought YTD (Mar 2016) exports to an increase of 10.5% YoY. This was due to higher exports to India (+10% YoY) and the EU (+23% YoY), offset by lower exports to China (-27% YoY).

¨ Inventory fell below 2m tonnes, dropping by a steep 13.1% MoM to 1.8m tonnes. We highlight that stock/usage ratios are now at 10.9% (down from 13.2% in February) and close to the 12-year average of 10%. We expect inventory levels to hover around these levels for the next few months.

¨ Recent developments:
i. US Department of Agriculture’s (USDA) planting intentions survey results show that soybean planting to decline 0.5% to 82.24m acres in 2016, while corn planting is set to rise 6.4% YoY to 93.6m acres;

ii. China’s edible oil imports rose YTD Feb 2016 (+35.6% YoY) while palm oil imports rose 5.7% YoY (vs soybean import decline of 8.7%);

iii. India saw strong 21.8% YoY growth in edible oil imports in YTD Feb 2016, with palm oil imports up 11%. We expect this growth rate to be maintained, as India expects to import 10-15% more edible oil in 2016;

iv. Malaysia’s reinstated export tax levy of 5% for April (for CPO price above MYR2,400/tonne) should see downstream players record better margins as this translates to a USD30-35/tonne discount for CPO feedstock. Although it is still smaller than Indonesia’s USD50/tonne discount, it does make Malaysian refiners slightly more competitive.

¨ Still OVERWEIGHT. We expect more upside for plantation stocks, as most still only reflect CPO prices of MYR2,300-2,500/tonne. YTD, Malaysian CPO production is down 10% but CPO prices have risen 22%. Our Top Pick for the region remains First Resources, while Genting Plantations and London Sumatra Indonesia are top choices for Malaysia and Indonesia respectively.

$AALI $LSIP $SIMP $SMAR $BWPT $SGRO $GOLL
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P H
Mar 21,2016 08:28:31
Plantation - All In Agreement For Higher Prices In 1H16

The general tone of the speakers at the 2016 Palm and Lauric Oils Conference (POC) was bullish. It was a rare occurrence to witness the three “stars” of the POC unanimously bullish on the CPO price direction. Their CPO price forecasts, up to 1H16, had ranged between MYR2,700-3,200/tonne. This is in line with our view that 1H16 would see stronger prices vs 2H16, on the back of the delayed impact of the El Nino. We maintain our MYR2,700/tonne average price for the year and our OVERWEIGHT recommendation. Top Picks include First Resources, Genting Plantations and London Sumatra.

$AALI $LSIP $BWPT $GOLL $SMAR SG:EB5
Bull
P H
Mar 14,2016 15:52:32
All In Agreement For Higher Prices In 1H16

The general tone of the speakers at the 2016 Palm and Lauric Oils Conference (POC) was bullish. It was a rare occurrence to witness the three “stars” of the POC unanimously bullish on the CPO price direction. Their CPO price forecasts, up to 1H16, had ranged between MYR2,700-3,200/tonne. This is in line with our view that 1H16 would see stronger prices vs 2H16, on the back of the delayed impact of the El Nino. We maintain our MYR2,700/tonne average price for the year and our OVERWEIGHT recommendation. Top Picks include First Resources, Genting Plantations and London Sumatra.

¨ A bullish overtone. During the POC, many speakers projected that the El Nino impact would be significant, while the Indonesian biodiesel mandate increased the usage of palm oil further. Most speakers also made references to the disconnect between CPO and crude oil prices; most also believed that 2H16 would see a period of lower prices vis-à-vis 1H16.

¨ Average price forecasts in line with our projections. The CPO price projections made by the speakers ranged between MYR2,200 and MYR3,200/tonne, although we highlight that the three “stars” of the POC - Thomas Mielke, Dr James Fry and Dorab Mistry, were unanimously bullish, with CPO price forecasts ranging between MYR2,700-3,200/tonne. We concur with the view that CPO prices would be higher in 1H16 vs 2H16, as we expect the delayed impact of the El Nino to hit productivity in 1Q, 2Q and 3Q, before recovering in 4Q16. We maintain our MYR2,700/tonne average price projection for 2016. Most speakers shared with our belief that although the Indonesian biodiesel demand is a significant factor to consider, implementation is key.

¨ Risks include: i) significant change in crude oil price trend, ii) weather abnormalities, iii) change in emphasis on implementing global biofuel mandates and trans-fat policies, iv) significant changes in trade policies of vegetable oil importing or exporting countries, and v) sharper-than-expected global economic slowdown

¨ OVERWEIGHT maintained. We make no change to our OVERWEIGHT stance on the sector, with our Top Picks being First Resources (SG:EB5), London Sumatra, ($LSIP) and Genting Plantations.
Bull
P H
Apr 27,2015 16:35:49
Masih break support lagi di 1500... tunggu di 1230?
Bear
P H
Apr 23,2015 10:35:47
London Sumatra is among the cheapest plantation stocks in Indonesia, at a fire-sale EV/ha of USD6k. Maintain BUY, with a TP of IDR2,366 (55%). While palm oil prices are still lacklustre and investor interest in the sector remains subdued, we believe the current cycle has already bottomed. We cut our CPO price estimate but roll forward our valuations – as we believe investors should start looking ahead into 2016. ¨ Sluggish prices but cycle has hit a bottom already. Palm oil prices continue to be lacklustre and investor interest in the sector is muted. This is understandable, as palm oil prices have been in a multi-year downcycle. Nevertheless, commodity downcycles do not last forever and we believe the current cycle has already bottomed. ¨ Biodiesel mandates in Indonesia and Malaysia a possible catalyst. While Indonesia’s B10 biodiesel programme is imminent, palm oil prices have languished so far this year. The YTD average price per tonne is only at MYR2,260 vs our average assumption of MYR2,500. We cut our 2015 price assumption to MYR2,350 per tonne, which still implies stronger prices going forward. Biodiesel mandates in both Malaysia and Indonesia may give palm oil prices a jumpstart, as the quantum of demand is significant. We expect the average price to strengthen to MYR2,500 per tonne next year. ¨ Long-term CPO production growth eases. While biodiesel may jump-start palm oil prices, a sustained upcycle in prices is commonly supported by a structural slowdown in production growth. Judging from the slowdown in new planting in Indonesia, this may happen by 2017 at the latest. ¨ Lowering FY15 CPO price. We revise our effective CPO price assumptions for London Sumatra to IDR8,162 per kg for FY15 (from IDR8,787), and to IDR8,383 per kg for FY16 (from IDR8,796). Our forecasts are reduced accordingly by 8.2% and 2.5%. ¨ Rolling forward valuation to 2016. We roll forward our valuation to an 16x P/E, which leads to our TP being marginally reduced to IDR2,366 from IDR2,395 previously. London Sumatra trades at undemanding 10x-11x forward earnings and a fire-sale EV/ha level of USD6k. $LSIP
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LSIP
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PP London Sumatra Indonesia Tbk
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