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P H
Sep 21,2017 09:15:21

We think the consensus still has not fully factored in the sizeable growth of United Tractors’ mining heavy equipment sales in FY18F-19F, due to the replacement cycle for such equipment coming into effect post the 2010- 2012 sales boom. Its heavy equipment sales margin should improve, as the industry is now in a seller’s market. Maintain BUY, with a new DCF-derived TP of IDR35,600 (from IDR32,900, 16% upside) implying 15.1x P/E on FY18F EPS. Our FY18F EPS is 12.8% higher than the consensus’. A consensus earnings estimate upgrade would be a share price catalyst.

Komatsu sales to the mining sector to keep growing in the coming years. We expect the sizeable increase in mining heavy equipment sales units in 2017 to continue until 2019, as mining heavy equipment sales – which went through a boom in 2010-2012 – has just entered the replacement cycle. Also, we believe Indonesia increasing its FY17 coal production target by 9.9% YoY to a peak of 474m tonnes would boost demand for mining heavy equipment.

After-sales revenue to increase in the coming years. The company’s after-sales revenue, ie spare parts sales and after-sales services revenue, should increase in the coming years as well, after the guarantee periods for new mining heavy equipment end. This should lift its revenue and profit margins, as after-sales services have lucrative profit margins – higher even than that derived from selling heavy equipment.

Profit margins from selling heavy equipment should improve. United Tractors’ profit margins from selling heavy equipment should improve, as:
i. The heavy equipment industry is now back to being in a seller’s market;
ii. Selling mining heavy equipment generates higher profit margins, since this segment (ie units weighing 50 tonnes or more) has less competitors;
iii. Selling new mining heavy equipment should lift after-sales revenue (spare parts and after-sales services revenues), which carry lucrative profit margins.

BUY, with a IDR35,600 TP. We fine-tune our assumptions on mining heavy equipment units and their profit margins and tweak our FY18F-19F earnings by 5.2-8.7% respectively. Our new DCF-derived TP of IDR35,600 (WACC:13.4%; LTG: 2%) also implies 15.1x and 13.2x P/Es on FY18F-19F EPS respectively. Reiterate BUY, as we think the consensus still has not factored in the sizeable increase in mining heavy equipment sales in 2018F- 2019F. Equipment purchased during the sales boom of 2010-2012 has a replacement cycle that starts in 2017 and ends in 2019. We think the improvement in monthly heavy equipment sales would be a share price catalyst for the near term.

Key downside risks to our call are: a significant drop in coal prices, weaker-than-expected coal demand and a strengthening IDR. (Hariyanto Wijaya, CFA, CPA, CMT)

$UNTR $ASII

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P H
Sep 04,2017 08:28:18

GROUND BREAKING PROYEK PLTU JAWA 4 JEPARA, JAWA TENGAH OLEH MENTERI ESDM

1. Menteri Energi dan Sumber Daya Mineral (ESDM) Ignasius Jonan, Kamis (31/8), melakukan ground breaking proyek Pembangkit Listrik Tenaga Uap (PLTU) Jawa 4 di Jepara, Provinsi Jawa Tengah. PLTU Jawa 4 merupakan bagian dari proyek ketenagalistrikan 35.000 MW.

2. Ground breaking ini merupakan bentuk keseriusan pemerintah dalam meningkatkan akses masyarakat terhadap listrik dan menunjang pertumbuhan ekonomi nasional.

3. PLTU Jawa 4 atau PLTU Tanjung Jati B Unit 5 & 6 ini, memiliki kapasitas 2 x 1.000 MW, dan lokasinya berdekatan dengan PLTU Tanjung Jati B Unit 1, 2, 3 & 4, dengan kapasitas 4x660 MW.

4. Financial Closing proyek PLTU Jawa 4 telah dilaksanakan pada 31 Maret 2017. Jangka waktu konstruksi PLTU Jawa 4 diperkirakan memakan waktu 54 bulan, dengan rencana Commercial Operation Date (COD) Unit 5 pada Mei 2021 dan Unit 6 pada September 2021. Apabila dapat beroperasi sesuai rencana, maka kawasan PLTU Tanjung Jati B akan menjadi salah satu fasilitas PLTU terbesar di Asia.

5. Dengan penambahan kapasitas sebesar 2.000 MW dari PLTU Jawa 4, maka total kapasitas di kawasan PLTU Tanjung Jati akan menjadi 4.640 MW dan sangat strategis dalam menopang sistem kelistrikan Jawa-Madura-Bali.

6. Proyek pembangunan PLTU Jawa 4 dilaksanakan oleh konsorsium PT. Bhumi Jati Power yang terdiri dari Sumitomo Corp (50%), Kansai Electric (25%), dan PT United Tractors Tbk (25%) dengan nilai investasi sekitar USD 4 miliar. Pelaksanaan proyek dilakukan dengan skema Build, Operate and Transfer (BOT) dengan off taker PT. PLN (Persero). Perjanjian Jual Beli Listrik telah dilaksanakan pada 21 Desember 2015 dengan jangka waktu 25 tahun setelah operasi komersial proyek.

7. PLTU Jawa 4 mengadopsi Teknologi Ultra Super-Critical (USC) dengan Tekanan Uap utama sebesar 26 Mpa dan suhu 605 derajat. Sebagai hasil dari teknologi USC, pembakaran akan lebih efisien karena material dikonversikan dengan panas dan tekanan yang lebih tinggi. Pada kondisi ini, CO2 dan emisi gas lainnya akan berkurang akibat turunnya konsumsi batu bara.

8. Proyek PLTU Jawa 4 akan memberi manfaat langsung kepada masyarakat, di antaranya melalui penyediaan lapangan kerja maupun lapangan usaha bagi masyarakat sekitar. Dukungan dari PT Bhumi Jati Power, Gubernur Jawa Tengah, dan Bupati Jepara pun diperlukan untuk peningkatan kompetensi tenaga kerja dan mendorong masyarakat agar dapat mendukung dan berpartisipasi.

9. Sebagai perlindungan serta pemberdayaan terhadap tenaga kerja setempat, Kementerian ESDM telah menerbitkan Peraturan Menteri (Permen) ESDM Nomor 46 Tahun 2017 tentang Standardisasi Kompetensi Tenaga Teknik Ketenagalistrikan. Pemberlakuan standar kompetensi sangat dibutuhkan untuk mewujudkan keselamatan ketenagalistrikan. Dengan memiliki sertifikat kompetensi tenaga teknik, maka para tenaga kerja di subsektor ketenagalistrikan memiliki bukti terhadap kemampuan formal yang dimiliki dan dapat meningkatkan nilai tambah para tenaga teknik saat bekerja di luar negeri. Selain itu, sertifikat kompetensi juga berfungsi sebagai batasan dalam menyeleksi tenaga kerja asing yang masuk ke Indonesia, terutama di era Masyarakat Ekonomi ASEAN saat ini.



(Source : ESDM, Groundbreaking PLTU terbesar di Jawa, Related $UNTR)

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P H
Apr 11,2017 15:05:35

Despite the recent strong share price outperformance, we believe Delta Dunia’s expected sharp improvement in financial performance has yet to be fully reflected in consensus numbers and its share price. We reinitiate coverage with a BUY call and DCF-derived TP of IDR1,500 (40% upside), which implies 2017F P/E of 10.1X on our projections. Our 2017F EPS is 21.8% higher than consensus. We like the stock given its undemanding valuations (2017F EV/EBITDA of 4x vs United Tractors’ 7.5x), improving ROAE, and strong projected 2017F earnings growth of 142% YoY.

  • 2017F earnings projected to surge 142% YoY but yet to be reflected in consensus. Delta Dunia Makmur ($DOID) is not well covered (consensus numbers reflect only one local broker) – this suggests that the projected sharp improvements in its 2017F operational and financial performance have yet to be reflected in consensus and its share price. We expect a sharp turnaround in Delta Dunia’s operational and financial performance in 2017F, as we project a 142% YoY increase in 2017F earnings on the back of a sizable increase in mining contracting volumes, and improvements in its coal mining contracting fees. Our 2017F EPS is currently 21.8% higher than consensus.
     
  • Spike in 2017F mining contracting volume. Delta Dunia owns 100% o fPT Bukit Makmur Mandiri Utama (Bukit Makmur), the second largest coal mining services contractor in Indonesia in terms of volume. We estimate its 2017F overburden removal volume and coal production to grow by 19.1% and 24.8% respectively. Volume growth in 2017F would mostly come from a ramp-up in coal production at Berau Coal ($BRAU), Sungai Danau Jaya (a subsidiary of Geo Energy Group, and Tadjahan Antang Mineral.
     
  • Stabilising coal price above USD70/tonne favours its mining fees. Most of Bukit Makmur’s mining contracting fees have three tiers, which are reviewed every month and determined based on the rolling average for coal prices over the last three months. Coal mining fees in the first tier (when average coal price <USD60/tonne) is 6% and 12% lower than second tier (when coal price is between USD65-75/tonne) and third tier (when coal price is >USD75/tonne) respectively. Due to weak coal prices, Delta Dunia’s mining fees were in the first tier (the cheapest) during 8M16. Its mining contracting fees moved up to the second tier in Aug 2016 and the third tier (the highest) since Sep 2016. As we project coal prices to sustain above USD70/tonne, we expect Delta Dunia to continue to enjoy higher profit margins from higher mining fees.
     
  • Reinitiating coverage with BUY and TP of IDR1,500. We reinitiate coverage on Delta Dunia with BUY as we think its upcoming sizable improvements in operational and financial performance are still not fully reflected in its share price. Our TP of IDR1,500 is derived using DCF (WACC: 9.8%, TG: 1%), and implies 2017F P/E of 10.1x and EV/EBITDA of 5x – this compares with United Tractors’ ($UNTR) FY17F P/E of 16.7x and EV/EBITDA of 7.5x. Near-term catalyst is a potential sharp upgrade in consensus earnings. Key risks to our call include a slump in coal prices. (Hariyanto Wijaya, CFA, CPA)
     
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P H
Feb 21,2017 09:45:23

Bank Permata’s FY16 losses are likely to slow group earnings growth. However, higher earnings from Astra’s automotive, agribusiness and heavy equipment units should partially offset the lower income from its financial units. We reduce our FY16F earnings but keep our FY17F forecast, as we expect its financial services arm to recover this year. In 2017, Astra should also benefit from improved consumer spending, as well as higher CPO and coal prices. Our SOP-based TP drops to IDR9,100 (from IDR9,250, 15% upside) implies 19x/16x FY17/18F P/Es. BUY.

  • Unexpected FY16 losses from Bank Permata. PT Bank Permata Tbk (Bank Permata) ($BNLI) – which is 44.6%-owned by Astra – surprisingly recorded a net loss of IDR6.5trn for FY16. This was driven by substantial new provision allocations for non-performing loans (NPL), which significantly increased in 4Q16. In 4Q16, the bank allocated IDR4.3trn in new provisions for allowances for impairment losses, which pressured FY16 earnings.
     
  • The increase in NPL was driven by loans to the manufacturing, agribusiness, wholesale & retail trading, as well as mining sectors. This year, we expect Bank Permata’s NPL to improve – especially for loans given to the agribusiness and mining sectors. These sectors are benefiting from the current increase in commodity prices, such as CPO, rubber and coal prices.
     
  • Lower FY16F earnings. Astra’s financial services unit – comprising PT Federal International Finance, PT Toyota Astra Financial Services, PT Astra Sedaya Finance, PT Surya Artha Nusantara Finance and Bank Permata – accounted for 18% of Astra’s 9M16 consolidated earnings. In our calculation, Astra’s financial unit is likely to book a net loss of IDR1.3trn in 4Q16 (from earnings of IDR750bn in 3Q16). Hence, we cut Astra’s FY16F consolidated earnings estimates by 19% to IDR14trn.
     
  • Tailwinds ahead. We see strong tailwinds for Astra’s mining, agribusiness and auto arms ahead, driven by:
    i. Higher coal prices and slower growth of labour costs for its plantation unit, which may lift earnings;
    ii. Its auto business is likely to maintain strong sales growth, boosted by lower financing costs;
    iii. Hidden value in its property arm (just launched in Oct 2016) which may be unlocked once its assets start to be monetised.

    In addition, in 2017, Bank Permata is likely to book lower new provisions for NPL. The bank’s allowances for its impairment losses coverage ratio increased to 75% at end-Dec 2016 (from 51% at end-Mar 2016).
     
  • Maintain BUY with a lower SOP-based TP of IDR9,100 (from IDR9,250, 15% upside) that also implies 19x/16x FY17F/FY18F P/Es respectively. While rising NPLs at Bank Permata are a key risk to our call, our sensitivity analysis indicates its impact on Astra’s value should not be significant. (Andrey Wijaya)

$ASII $AALI $UNTR

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P H
Dec 01,2016 23:04:38

United Tractors ($UNTR): Weakening IDR and Coal Price Recovery Play

We think United Tractors should be a good play to monetise the weakening IDR and coal price recovery. We opine that IDR is to weaken further to IDR13,700 in FY17 vs IDR13,290 YTD. Therefore, Pamapersada’s profit margins as the biggest contributor to consolidated earnings should expand. This is on the combination of the weakening IDR and mining contracting fee recovery. We also believe heavy equipment sales would increase. This is due to the sizable rise in customers’2017 capex for such equipment. Reiterate BUY with a higher IDR26,300 TP (from IDR24,700, 20% upside).

¨       Beneficiary of a weakening IDR. We opine that the strengthening USD should cause the IDR to weaken further and average at IDR13,700 in FY17 vs IDR13,290 YTD. The USD’s contribution to PT Pamapersada Nusantara’s (Pamapersada) revenue and costs is at 100% and 60% respectively. Its gross margins, the biggest contributor to United Tractors’ consolidated earnings, tend to expand when the IDR weakens (Figure 1). We expect Pamapersada’s gross margins to expand to 22% in FY17 on a weakening IDR and recovery in mining contracting fees. This is due to the recovery in coal prices.

¨       Heavy equipment sales to improve sizably in FY17. We did channel checks on Delta Dunia Makmur. Its subsidiary PT Bukit Makmur Mandiri Utama (Bukit Makmur) is Indonesia’s second-largest coal mining contractor. Bukit Makmurhas allocated a sizable USD180m capex for FY17 (FY15: USD55m) (Figure 4), which is mainly slated for the purchaseof heavy equipment. This is because Bukit Makmur wants to replace some portions of its mining contracting heavy equipment fleet. This should boost United Tractors’ Komatsu and Scania unit sales for the mining sector during this period.

¨       Reiterate BUY, with a higher IDR26,300 TP. We fine-tune our assumptions on the IDR to accommodate the view that the currency would weaken further. This results in higher FY16-18 EPS by 4.6-7.2%. We reiterate our BUY call with a higher DCF-derived IDR26,300 TP (WACC:12.2%, LTG:2%), which implies 14.8x P/E on our FY17F EPS (its 6-year mean P/E). The call is retained as we think its FY17 earnings recovery has still not been fully factored in by consensus and share price. Our FY17F EPS is 22.5% higher than consensus. We think revising up FY17F consensus earnings should boost share price.

¨       Key risks to our BUY call include coal prices decreasing to <USD50/tonne and a strengthening IDR.

¨       October’s operational performance keeps improving. Pamapersada keeps booking improving mining contracting volumes (Figure 5). Its October coal production grew 15.1%YoY (+10%MoM) due to the recovery in coal prices. We think the decrease in stripping ratio to 5.9x in October is just temporary. This is because coal companies are likely to increase their stripping ratios in FY17, based on our channel checks. United Tractors booked 218 Komatsu sales units (+207%YoY, +7.4%MoM), with the construction and agro sectors as the drivers of growth. (Hariyanto Wijaya, CFA, CFP, CA, CPA)

$UNTR $ASII $DOID

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P H
Nov 18,2016 10:59:09

INCREASING COAL PRODUCTION DRIVES HEAVY TRUCK SALES UP

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.

$UNTR $HEXA

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P H
Nov 16,2016 09:22:30

Coal Mining - Sector Has Mixed Expectations For 2017

We visited four coal miners recently, and got updates on their outlook for 2017. On production, only Indo Tambang is aiming for flat growth while Harum Energy has the highest target (+33% YoY). Up until now, none of the miners’ customers have locked in their FY17 coal purchase prices. Meanwhile, all players expect their stripping ratios to rise next year. We reiterate our BUY on United Tractors, as we expect earnings to recover (mostly on a rise in mining contracting volume). It would also benefit from a weakening IDR and is the safest play on the recovery in coal prices.

¨ No customer has locked in FY17 purchase prices. The increase in coal prices was faster than what the coal miners’ customers had expected. As a result, no customer has locked in their FY17 coal purchase prices yet. Some have only locked in their 2017 coal purchase volume, as they think coal prices may retreat from the currently high levels.

¨ Higher stripping ratios, but with unchanged mining contracting fees. Based on our talks with the coal miners, all of them expect their stripping ratios to rise next year. However, they still hope to see mining contracting fees remaining unchanged. Up until now, most of the firms were still negotiating mining contracting volumes and fees with their contractors. The miners’ expectations for an unchanged mining contract fee in FY17 are different from United Tractors. It expects less discounts in FY17 due to the recovery in coal prices.

¨ Harum Energy expects to see the biggest production increase. Harum Energy expects its coal production to hit 4m tonnes (vs its FY16 target of 3m tonnes) next year. In 2012, its production peaked at 12m tonnes. In 2011-2016, it cut down on coal production to preserve the long-term value of its assets, as coal prices fell. Meanwhile, Indo Tambangraya Megah (Indo Tambang) expects production growth to stay flat (Figure 1).

¨ Harum Energy is the most exposed counter to the spot coal price. Among the four coal miners, Harum Energy is the most exposed to spot coal price. This is as it sells its coal using spot prices. Therefore, it should start benefiting from the increase in prices from 4Q16 onwards. By contrast, its peers should fully benefit from the current increase in prices from 2017 onwards, as most of their coal selling prices for FY16 have been locked in.

¨ Indo Tambang has the biggest exposure to the China market. China is the main driver behind the increase in imported coal demand. Indo Tambang is the most exposed coal miner to this market (25% of sales are made to Chinese customers), followed by Adaro Energy (14% of sales) (Figure 1). As at 9M16, Harum Energy and Bukit Asam have not sold coal to China. However, they said they would record sales to China from 4Q16 onwards.

¨ All coal miners are the beneficiaries of the weakening IDR. We expect the IDR to continue softening to reach an average of IDR13,700/USD in FY17 (YTD average: IDR13,286/USD). The coal miners’ revenues are mostly dominated in USD terms. Meanwhile, the contribution of USD to their costs is less than to their revenue (Figure 1), which should improve profit margins. Harum Energy and Indo Tambang are likely to benefit the most from a weakening IDR, considering that the difference between USD contributions to their revenue and total costs are the highest.

¨ Reiterate BUY on United Tractors with a IDR24,700 TP. We reiterate our BUY call on United Tractors, as its earnings are set to recover in FY17 from higher heavy equipment sales, and mining contracting and coal sales volumes. We think this has not been factored in by consensus yet. The company should also benefit from the weakening IDR in its mining contracting and coal sales businesses. Also, with consensus lifting its earnings estimate, this should also boost United Tractor’s share price performance. We consider this stock as the safest play on the recovery in coal prices. (Hariyanto Wijaya CFA, CPA)

$ITMG $HRUM $UNTR $PTBA $KKGI $BUMI $BORN $ADRO

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P H
Nov 16,2016 09:19:12

JCI index closed lower on Tuesday final trading session, decreased by 0.73% to 5,079 with $HMSP, $ADRO, and $UNTR consecutively became lagging movers. The value of transaction was Rp7.3 tn which involved Rp552 bn foreign net sell. Meanwhile, Rupiah closed at 13,369 per USD or strengthened by 8 points. Regional administrations may face challenges in implementing an upcoming rule to boost infrastructure spending in their regions, owing to low capacity and weak spending quality. From our technical desk, we predict JCI could close at positive teritorry with technical range of 5,040,-5,170.

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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
Nov 08,2016 19:10:33

United Tractors ($UNTR): FY17 Management Guidance Confirms Our Bullish View

We have turned bullish on United Tractors since our August 2016 report “Still At Beginning Of Upcycle, Time To Accumulate”. Management’s guidance for FY17 operational targets, disclosed yesterday, confirms our bullish view as the management guides for higher heavy equipment sales units (mining and construction as key drivers), higher spare parts sales, higher mining contracting volume with better mining contracting fee and higher coal sales. We reiterate our BUY call with TP of IDR24,700 as we think revising up consensus earnings ahead should boost its share price.

¨ Higher mining contracting volume with higher mining fee. Mining contracting business is the main contributor to its consolidated earnings (51% of 9M16 consolidated gross profit). The management, who always give conservative guidance, guides its FY17F overburden volume and coal volume to grow by 10% YoY and 5% YoY respectively. The management thinks the FY17 strip ratio will increase and expects its mining contracting fee to recover in FY17F due to a lower discount on its mining contracting fee, which should improve the gross margin of its mining contracting business.

¨ Komatsu sales volume to recover with mining and construction as drivers. The management guides Komatsu sales to recover to 2,500 units in FY17F, which would be driven by demand from mining and construction sectors. Sales composition of big-size heavy equipment is expected to increase in FY17 due to higher demand from coal mining sector, which comes from medium to large coal miners. Currently, United Tractors has only a few big-sized heavy equipment items on its balance sheet and it takes around three months’ time from receiving order to deliver to its customers.

¨ Sales of spare parts to increase due to refurbishment cycle. Management describes that its spare part sales is on an increasing trend over the last two months, which was driven by resuming operation of some heavy mining equipment. Management estimates the refurbishment cycle of peak heavy equipment sales from 2011 should increase its spare part sales in FY17.

¨ Mining coal sales to increase to 7.5m tonnes in FY17F. as management guided for coal sales to increase to 7.5m tonnes. The volume increase comes from a ramp up in the production of its subsidiary, i.e. PT Asmin Bara Bronang.

¨ Unlikely to reverse impairment loss. Due to a slump in coal price until the beginning of 2016, United Tractors booked sizable impairment losses in 2014 and 2015. Based on our discussion with United Tractors, although coal price recovers, they are unlikely to reverse the impairment losses.

¨ Reiterate BUY with a IDR24,700 TP derived from DCF which implies a 14.9x FY17F P/E. We think consensus earnings upgrade post management guidance on FY17 operational targets should increase further the share price.

$UNTR $ASII

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P H
Nov 08,2016 18:29:18

MQQ Strategy – Nov 2016 update

- The Mansek Quant Quest (MQQ) strategy marked its debut with 2.9% return (vs JCI’s 1.1%) in October. We reshuffle the MQQ ten-stock portfolio for November by substituting $KREN and $LPPF with $BBNI and $BJTM.

- Top picks for November 2016. We reshuffle our MQQ ten-stock portfolio, adding $BBNI and $BJTM to replace $KREN and $LPPF. Estimated outperformance (equal-weighted) of the rebalanced portfolio is 1.8% relative to our Quant universe, with greatest contributions coming from Value and Profitability again this month. For a forecast of each stock in the universe, please refer to Figure 8 inside.

- Outperformed in October 2016. October is a boost to confidence. The MQQ’s recommendations (includes Mansek non-rated) managed to gain an equalweighted return of 2.9% (vs JCI’s 1.1%) in its debut. The biggest contributors were the coal-related stocks – $PTBA (+23.6%) and $UNTR (+22.2%), while the cement companies dragged on performance – $INTP (-5.2%) and $SMGR (-2.5%). Overall, it is a tougher month as the MQQ strategy tends to perform better in trending markets, while October is rather uneventful for the JCI.

- What investment styles worked? Momentum and Profitability worked spectacularly in October, with each recorded a long-only return of 8.3% mom and 11.4% mom respectively. Monthly style performance, however, can swing widely, and is thus a noisy indicator of future performance. The MQQ weighting to each style in November remains largely similar – 26% Value, 23% Profitability, 25% Growth and 26% Low Risk.

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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 25,2016 21:46:01
Philippines’ coal demand to grow over 1 mln T/yr until 2020 – industry group


MANILA, July 21 (Reuters) – The Philippines’ coal consumption could grow by more than 1 million tonnes annually until 2020 as it expects to switch on more coal-fired power plants to support its economy, the head of a local industry group said on Thursday.

The Southeast Asian country’s consumption of the fossil fuel reached 22 million tonnes last year, and about 80 percent of that, or a record high 17.4 million tonnes, had to be imported almost entirely from Indonesia, the world’s top seller of thermal coal used in electricity generation.

Higher Philippine coal demand could be good news for Indonesia though it might be insufficient to move prices in an over-supplied market.

The Philippines relies heavily on coal imports as domestic supply, mainly from mine operated by Semirara Mining Corp , is not enough and the heat content is too low to be used in most of the country’s power plants. Imports in 2014 totalled 15.2 million tonnes, based on government data.

“We’re looking at an increment of 1 million tonnes per year until 2020,” Arnulfo Robles, executive director of the Philippine Chamber of Coal Mines, told reporters on the sidelines of a power industry forum.

“That’s a very conservative estimate,” he said. Robles welcomed Energy Secretary Alfonso Cusi’s policy statement earlier this month retaining coal as a core part of the country’s electricity generation mix while at the same time pushing aggressively for clean energy.

Robles downplayed the impact of an Indonesian ban on coal shipments to the Philippines, saying only small vessels have so far been stopped from delivering coal. Supply to the country’s power producers is delivered through large ships, he said.

Last month Indonesia said a halt on coal shipments to the Philippines would remain in place because of security concerns, after seven Indonesian sailors were kidnapped in the southern Philippines.

(Source : Adaro Blog, Reporting by Enrico dela Cruz; Editing by Christian Schmollinger)

$ADRO $PTBA $KKGI $BUMI $BRAU $BYAN $UNTR

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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
May 07,2016 13:15:28
Astra International: Negative News Likely Priced In
 
Upgrade Astra to BUY (from Neutral) with higher SOP-based IDR7,400 TP (from IDR6,800, 12% upside) driven by a higher valuation of its agribusiness. Clearer details of its rights issue have been released, which should eliminate its overhang. The accelerated vehicle monthly sales, expected to recover in 2H16, is also a catalyst for its auto earnings. Negative news, such as lower mining contractors’ fee and higher NPLs, have likely been priced in since its share price fell 15% in the last two weeks. It is trading at an attractive -1SD of its 5-year mean forward P/E.
 
¨ Clearer details of Agri’s rights issue should eliminate its overhang. Since Astra Agro Lestari (Agri) (AALI, BUY, TP: IDR19,500) has disclosed more details of its rights issue – including June 2016 as targeted completion month – we see the overhang on its value to be eliminated. The exercise price of its rights issue should be announced late May, which would be a catalyst for Agri’s share price increase. In addition, we expect Agri to book strong earnings for the current quarter, due to a spike in the domestic CPO price since end-March (average 1Q16 CPO price: IDR6,593/kg vs average price in April: IDR8,630/kg).

¨ Expect better vehicle sales in 2H16. Lower financing costs, as well higher consumer spending should boost both four-wheel (4W) and two-wheel (2W) vehicles sales. New Toyota models – such as the All New Sienta, All New Kijang Innova and All New Fortuner – should increase 4W monthly sales. In addition, finance companies have started lowering their lending rates at end March 2016 – which should provide an additional engine for sales growth. 2W sales growth would be driven by the higher low-end consumer income – which has been boosted by higher CPO price. Notably, last year’s lower YoY 2W sales were attributed to a decline in sales in Kalimantan and Sumatra – where their main income sources are derived from commodities.

¨ Fine tune earnings estimates. Following Astra International’s (Astra) dissapointing 1Q16 earnings, we adjust its FY16-17 earnings estimates to IDR18trn/19trn (-6%/-6%) on the back of lower auto earnings following the implementation of the restructuring of a two-tiered distribution model, effective 1Q16. Our adjustment also includes the lower mining contractors’ earnings impacted by the lower contractors’ fees. We also raise uncollectible receivables (bad-debts) expenses for its financing companies.

¨ Upgrade to BUY, higher TP. We raise our SOP-based TP to IDR7,400 (from IDR6,800), driven by a higher valuation of Agri. We believe that the overhang caused by its rights issue would be eliminated soon. In addition, the accelerated vehicles monthly sales volume would be a catalyst for its auto earnings. Negative news – such as lower mining contractors’ fee and non-performing loans (NPLs) – has likely been priced in since the share price has fallen by c.15% in last two weeks. Astra is now trading at an attractive valuation -1SD of its 5-year average rolling forward P/E. Key risks to our call include weak consumer spending and the depreciating IDR vs USD.

$ASII $AALI $UNTR $BNLI

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P H
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.

$INCO $DOID $ADRO $HEXA $ELSA $UNTR
Bear
P H
Mar 09,2016 12:11:35
YTD coal stocks have performed very well and outperformed the market. $ADRO is up 32.0+, $PTBA +28.2% and $ITMG +16.2% - all way above JCI’s 5.6%. $ADRO is the best performer YTD as we think the market is so excited with the court’s decision on land acquisition case for the Batang power which is in favour of the project. Speaking about diversification into power projects, it’s not only $ADRO doing it, but also $PTBA and $UNTR. $ITMG does not have a power project on hand now, but is actively looking at some opportunities, we believe. The diversification into power is positive, but we think it will take time for the projects to substantially contribute to earnings as we reckon the projects will be ready only in 3-4 years. This means uncertainty in the projects remains high while at the same time coal price remains weak. Having said that, we maintain our Neutral rating on the sector with $PTBA being our top pick due to its strong balance sheet, low cost and high exposure to domestic market.

$IHSG
Bear
P H
Apr 29,2015 08:00:19
Indo Strategy - Positioning amidst slowest growth in a decade Too early to bottom fish The market sharp sell-down may appear excessive, yet we think it may be too early to be an aggressive buyer. The outlook of subdued growth outlook, probably a bit slower, broader and longer lasting than most envisaged, suggests it is still better to seek out stocks with relative earnings visibility. Indeed there is little indication to suggest this slowdown has stabilized thus far. Broad based slowdown Growth that was designed to slowdown in order to rein in CAD, e.g. BI allowing Rp to weaken for an essentially dollarized economy, has proven to be very potent. Weaker commodity prices along with the transition easing from the recent investment surge may well have contributed as well. Indeed, the recent earnings trend suggests a more pronounced and broad-based slowdown. This ranges from large ticket items to even basic consumer staples. Bellwether FMCGs that have already reported are showing that top-line growth running at a decade low pace (ex-GFC period); a reflection of weaker buying power and rising competition. Equally, we have also noticed an uptick in NPL though more toward the SME and micro segments. In addition, our channel checks across various industries, including bellwether consumer packaging, mostly reported a deteriorating environment. Slower and longer? Contrary to general expectations, we think it is premature to assume an economic recovery in 2H15. Indeed sub-5% growth for the year cannot be ruled out. Recently the capex trend suggests easing post the initial surge 3-4 years ago. That along with the job creation trend, easily half the pace seen in the past couple of years, is not supportive of any fast economic recovery in the second half. While we remain upbeat that the govt. infrastructure spending will be punchier into 2H, we think the direct economic impact would be muted. Indeed the more powerful multiplier effect will only be visible in the medium term. Indeed there is little indication to suggest this slowdown has already stabilized. As such, we believe stock picking toward earnings visibility and predictability will be key in this 'new normal'. Macro improving vs Micro worsening - Market context In balance, we think the market downside risk is limited; yet we think it may be too early to be an aggressive buyer. We think the macro environment is turning more positive, e.g. CAD possibly below BI's guidance of 1.6% in 1Q, along with easing inflation, etc. Politics too, seems to have stabilized, which should pave the way for the govt. to kick-start major infrastructure projects. Yet, faced with the possibly of the slowest growth in a decade (ex-GFC), along with flow favoring North Asia, we think stock picking towards better earnings visibility matters, notwithstanding the fact that initial sell-down tends to be indiscriminate. Within our DB Portfolio stocks, we think the following have high earnings visibility: BBCA and BBNI (Banks), TLKM (Telco), ICBP and KLBF (Consumer). Conversely, stocks that have done well in spite of worsening earnings fundamental such as ASII and UNTR appear more exposed. $IHSG
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United Tractors Tbk.
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