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
Basic Materials
Neutral
Energy
Overweight
Telecommunications
Overweight
Metal prices such as nickel and tin have rebounded strongly
followed by sharp increases in metal producer share price (+114%
ytd). However, for nickel producers, the share price has already
increased, implying much higher commodity prices compared to
current level, thus valuation is rich. Yet, for one company, Timah
(TINS), we believe the upside remains attractive. TINS is the one of
the top tin producers in the world, and is thus well positioned to
directly benefit from rising tin price.
We remain positive on energy sector, especially coal, as rising
domestic demand will play a more prominent role going forward.
Development of the 10,000MW coal-fired power plants continues to
progress with estimated completion in 2010. The power plants will
demand c.35-40mn tons of coal p.a. on top of current domestic
consumption of about 50mn tons p.a. This will provide plenty of
growth opportunities for coal producers in our view.
Having said that, we pick Bukit Asam (PTBA) as our top pick in the
sector underpinned by its strong exposure in domestic market and
the several projects underway (incl. transportation infrastructure
enhancement, power plant projects and acquisition) to ramp up its
production going forward.
TLKM reported higher than expected 2Q09 earnings on the back of
strong margins, which we believe is due to the rising effective tariff
environment in the Indonesian telco industry. While this benefited
telcos in general (including Excelcomindo), ISAT departed from the
norm by reporting disappointing 2Q09 results. Following a change in
management (after Qtel has taken control of ISAT), the company
raised its effective tariff aggressively with the aim of shifting its focus
to high ARPU subscribers. In a price sensitive market, ISAT suffered
13% q-o-q fall in subscriber base while 1H09 ARPU drop 17% y-o-y.
Looking ahead, we think its competitors would take advantage of
ISAT’s weakness to gain market share while ISAT continues to churn
out customers. We remain optimistic on TLKM given its strong track
record in the cellular business as well as its strong balance sheet
(FY10F: 0.3x net gearing). We reiterate our BUY call on TLKM with a
DCF-based price target of Rp10,500.
TINS
PTBA
TLKM
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