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P H
Aug 30,2016 10:29:42
J Resources -  Initiate at Buy/High Risk: Indonesia's Hidden Gem (Ferry Wong - Citi)


We initiate J Resources with a buy recommendation.   
 
-Target price of Rp500 implies 57% return  - We initiate on J Resources ($PSAB), Indonesia's leading gold miner, with a Buy/High Risk (1H) rating and TP of Rp500 (average of DCF and EV/EBITDA fair values). Underpinning our call are: 1) much higher ASPs in 2H16E and 1H17E in a gold upcycle; 2) good mine locations (US$580/oz cash cost; c.50% EBITDA margin) with potential for reserves to grow; and 3) experienced and professional management team. PSAB’s 17E P/E and EV/EBITDA of 16.4x and 5.9x look cheap vs regional peers at 27x-48x and 10-12.5x.   
 
-Commodities team upbeat on near-medium term gold prices -  Although Citi expects the US Fed to hike rates in Dec-16, high political/election uncertainty in the US and the stickiness of ETF and hedge fund flows into gold products have led Citi’s commodities team to boost its near-medium term gold outlook. Citi sees strong support for gold prices above US$1,300/oz.
 
-100% of sales at spot; strong earnings recovery - All of PSAB's sales are at the spot price. The company¡¦s gold ASP reached a 30-month high in July-16 at US$1,332/oz, 10% higher than 1H16's US$1,216/oz and 15% above 2015's US$1,163/oz. Expect an earnings boost from 2H16E onwards, with production set to reach c.220,000oz in 2016E vs. only 99,000oz in 1H16 (scaled back due to weak outlook from 2015). On our sensitivity analysis, every US$100/oz movement from our base case of US$1,250/oz in 2017E would impact PSAB's NP 40%.
 
-Promising reserves growth potential -  PSAB has four operating mines in Indonesia and Malaysia, with total reserves of c.2m oz and production of c.200k oz, Bakan (52% of output), Seruyung (32%), Penjom (15%), and North Lanut (2%). Currently under development & exploration are four more mines (ex-BHP assets), which have the potential to boost output and extend mine life of above 10 years. These four mine sites are strategically located with a blended cash cost of US$570/oz vs. 2015's gold ASP of US$1,163/oz, translating to an EBITDA margin of c.48%.
 
-Strong management team - PSAB was listed on IDX in 2003 (under PT Pelita Sejahtera Abadi), but after major corporate restructuring and a new business focus in 2011, its name was changed to PT J Resources Asia PasifikPSAB is majority controlled by Jimmy Budiarto and family. The company is run by what we think is a solid management team with experience across the mining sector, including those who have served in senior positions at Pama Persada, Bukit Makmur, Berau Coal, Vale, etc.   
 
-Risks:1) Gold PX volatility, 2) production output cuts and 3) trading liquidity.
 
Bull
P H
Jul 27,2016 08:50:23
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
Jul 15,2016 09:56:40
Govt to increase royalty tariff for mining to boost non-tax rev. Details -Bronze, the tariff will be increased to 4% from 3.75%, gold will see the biggest increase to 3.75% from 1%. Royalty for silver also up to 3.25% from 1% and nickel will be increased to 2% from 0.95% . 

$MDKA $PSAB $ANTM

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P H
Jul 11,2016 13:15:30
Indonesia Gold sector: Brexit boost

- Safe-haven status = Gold volumes to highest levels since April
Gold’s function as a safe haven asset amid increased uncertainties has recently re-emerged following the UK’s decision to leave the EU, allowing gold prices to rise to USD1,323/toz, up 9% from its ytd average, with trading volumes up to 574,241 toz in June 2016, way above ytd average of 44,245 toz (exhibit 4). Note that in 1Q16, gold price had already closed at USD1,233/toz, up 17% q-q and was the best performing major asset class (exhibit 10), with gold demand having jumped 21% y-y to 1,289mt, the highest 1Q volume since 2013. This was supported by acceleration in gold investments (+122% y-y) despite slowing central bank buying (-3% y-y) and lack of jewellery demand (-19% y-y). Looking ahead, we expect gold demand to remain well supported due to Brexit.

- UK likely to increase proportion of its gold to total reserves
At this stage, our economist believes that GBP will have the lowest weighting in the IMF’s special drawing rights composition (SDR) post CNY having entered the list in October 2016 (exhibit 8), limiting UK’s ability to increase the country’s debt through quantitative easing (the IMF estimates UK’s 2015 net debt to GDP of 81%, US: 81%, Japan: 126%). Therefore, we expect the Bank of England (BoE) to increase its allocation to gold as a safeguard given increased uncertainties post Brexit. Currently, gold accounts for 9% of the UK’s total reserves. After comparing the UK’s gold holdings to its peers based on country’s total reserves (exhibit 6) we believe, the UK’s upcoming gold purchases could range from 318mt to 1,073mt if the UK were to decide to hedge current increasing uncertainty through higher gold reserves (exhibit 5).   

Outlook: Revise 2016 gold price assumption to USD1,300/toz   
Possibility of central banks deciding to increase gold purchases following the Brexit vote, coupled with improved outlook on India’s demand due to new tax structure and upcoming wedding season, suggests increasingly greater gold demand in 2016. Furthermore, China’s May gold imports jumped 68% m-m to its highest level in 2016 to 115mt, while India’s gold bar imports spiked 46% m-m to around 50mt. Based on aforementioned factors, we revise up our 2016 average gold price assumption from USD1,100/toz to USD1,300/toz (current: USD1,360/toz; ytd average: USD1,219), implying USD1,377/toz gold average price for the rest of 2016.   

Recommendation: PSAB as our precious metal top-pick
Stock wise, PSAB is our top pick as the company is already in producing phase with expected gross margin expansion to 54% from 52% following gold price appreciation. On PSAB, we cut our earnings forecasts (exhibit 13) due to lower production volumes, but the stock remains a BUY, and we increase our DCF-based 12M TP to IDR413 (from IDR280) on better price outlook. We also reiterate BUY on gold exploration companies UNTR and MDKA on better gold price outlook. For ANTM, we raise our earnings forecasts on higher gold earnings contribution and expect additional 60mt gold refinery revenue derived from Freeport Indonesia’s anode slime project in Gresik starting 2018. As such, we upgrade ANTM to HOLD (from Reduce) with a new TP of IDR680 (from IDR207). Risk to our sector call is lower gold prices.

$PSAB $UNTR $MDKA $ANTM
Bull
P H
Jun 17,2016 13:55:39
Gold Price Drops Below $1,300 On Rumors Brexit Vote Could Be Postponed

Gold futures are selling off Thursday afternoon, due to rumors that the Brexit Referendum vote could be postponed after the death of a popular politician.

The selloff started as news circulated that U.K. Member of Parliament, Jo Cox was killed after being shot at least twice following a meeting with her constituents.

According to some sources, Cox, who is a member of the Labour Party was a strong campaigner for the “remain” side for the June 23 referendum on whether or not the U.K should remain a member of the European Union.

Quoted by the Associated Press, Prime Minister David Cameron said "this is absolutely tragic and dreadful news."

"We have lost a great star," he said." She was a great campaigning MP with huge compassion and a big heart."

Campaigning for both sides of the referendum halted political activities for the day as a result of the tragic death.

“People are questioning whether or not the vote will happen next week and that is why gold is reacting,” said one Chicago Trader, who wished to remain anonymous.

Gold has fallen sharply after hitting a 22-month high at $1,318.90 an ounce at the start of the North American trading session. Since the news of Cox’s death, gold has fallen more than 1%, but is still holding on to some post-FOMC gains.

August Comex gold futures last traded at $1,296.40 an ounce, up 0.60% on the day.

Bill Baruch, senior commodity broker at iiTrader, said that the tragic news has sparked some profit taking; however, he added that the selloff is probably exaggerated because of over-exuberance in the marketplace ahead of next week’s referendum.

While investors were spooked as a result of the shooting, Jim Wyckoff, senior technical analyst at Kitco.com said that he hadn’t heard any rumors that the referendum would be postponed. He added that it is an unlikely scenario, “knowing the Brits gritty resolve.”

$TMPI $PSAB US:ABX US:FCX

Bull
P H
Aug 21,2015 22:28:15
Indonesia Metals: Gold sector review

Better times ahead
Higher China gold holdings: The People’s Bank of China (PBoC) has stated that the country’s gold reserves have increased 57% since 2009 or by 604mt to 1,658mt in 2Q15 (exhibit 6). This represents 2% of total gold reserves and should leave room for further enhancement, in our view. We think the rise in gold reserves confirms China’s commitment to gold as a reserve asset. Coupled with its recent yuan devaluation, we believe China is attempting to move away from USD dependency. Central banks globally booked net purchases of 137.4mt in 2Q15, led by Russia’s 36.8mt net buy, raising the country’s total gold reserves to 1,275mt and maintaining gold at 13% of foreign reserves.

10% lower gold mining costs on falling oil prices: Recycled 2Q15 gold production was subdued, following the 1Q15 rise in the use of readily available gold, causing 28% q-q and 8% y-y declines to 251.1mt. Gold mine production was up 8% q-q and 3% y-y, helped by Newmont’s Batu Hijau mine entry into a high-grade area, which added 5mt of output versus 2Q14. The World Gold Council (WGC) estimates that 10% of overall gold mining costs are oil-related; thus, the lower oil price outlook should benefit miners.

Price to be range-bound on lower consumer (jewellery) demand… On a more negative note, based on WGC data, 2Q15 gold demand fell 15% q-q and 11% y-y to 915mt (exhibit 2) on lower consumer demand in India (-25% y-y) and China (-3% y-y). Jewellery demand represented 56% of gold demand (exhibit 3), down 14% y-y to 513.5mt, causing gold price to fall 2% q-q and 8% y-y to USD1,192/oz due to weakness in key India, China and US markets:
§ India jewellery demand fell 22% q-q as crops were damaged in 1Q15 due to heat waves, affecting incomes in the all-important rural population (>50% of gold demand in India).
§ Greater China demand fell 21% q-q and 7% y-y on economic weakness and stock market volatility, with the Shanghai Composite Index having risen to a seven-year high in June, drawing attention away from gold jewellery.
§ US jewellery demand rose 16% q-q and 2% y-y to 25.5mt, following an 11% y-y rise in gold imports in April-May.

…on interest-rate hikes amid gold purchases; Top pick: $PSAB
Gold’s relatively resilient nature can be seen from its minimal ytd average gold price slip of just 8% to USD1,188/oz. Going forward, while we expect support for the sector from higher China holdings and lower gold mining costs due to lower global oil prices, we do not expect a surge in gold prices, partly curbed by the expected Fed interest-rate increase (causing USD appreciation) and El Nino disrupting agricultural output and farmer incomes (especially in India). Nevertheless, we are of the view that gold still remains a safe-haven asset, leading to continued purchases by China and US investors amid current global economic uncertainties, allowing for limited price downside this year. Thus, we expect an average 2015 gold price of USD1,125/oz (-11% y-y), before rising to USD1,200/oz in 2016. On stocks, limited price appreciation should benefit companies with sizeable production growth like J Resources (PSAB), which remains our top pick in the sector, we believe due to its ability to raise 2016 production by 20% y-y to 285k oz.
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