Left Brain Right B - the DBS Vickers Securities Equities Research

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Indonesia
SECTOR REMARKS STOCK SELECTION
Conglomerate/
Automotive
Neutral
Cement and Construction
Overweight
Consumer Goods
Neutral
Banking
Overeweight
Plantation
Neutral
Auto sales have shown a recovery since May09 and the latest auto
sales data indicate that the decline in car and motorcycle sales could
be lower than our estimate. However, on motorcycle sales, Astra
may have lost its domination as Yamaha has reached the same
market share. While data on ASII and its subsidiaries have shown
positive developments, its valuation has become demanding and all
positive expectation have been priced in on ASII stock price.
We are upbeat on the sector on the back of the expected demand
recovery, demand from infrastructure as well as continued
improvement exercised by cement producers. We expect cement
sales to fully recover next year on the back of faster economic growth
with recovery in the property sector. We pick SMGR as our top pick
as we believe that the company still offers more upside potential
from efficiency programs. At the same time, the construction
commencement of SMGR’s two cement plants will ensure the
company’s leading position in the market.
The outlook for consumer goods companies should get a boost from
lower borrowing costs in 4Q09, as banks look set to lower
borrowing rates. Stable commodity and fuel prices as well as lower
consumer borrowing rates should be together maintain momentum
for consumer staples and discretionary in 4Q09, despite a seasonally
lower demand post-Eid festival. However, recent jump in stock prices
has priced in these expectations.
We are positive on the banking sector as we have seen there is a
recovery in the sector. A strong sign of recovery in loan growth is
seen from some banks preparing to issue sub-debts. At the same
time, loan quality should improve in 3Q09. The agreement between
14 banks and BI also signal that banks will temporarily enjoy higher
NIM as deposit rates fall faster than lending rates, although we
believe that the latter will follow deposit rate but with some time
lag. At the end, the lower lending rate that is expected to start in
4Q09 will increase demand for loan from all segments.
We expect 4Q09 palm oil price to rebound on seasonally slower palm
oil supply growth and run down in US soybean oil inventory.
However, as most plantation stocks have not moved in-tandem with
CPO price’s current correction, we recommend investors to remain
selective. We currently have Hold calls on both Astra Agro Lestari and
London Sumatra.
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SMGR
KLBF
BBRI
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