Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ...
Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ...
Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ...
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Regional <strong>Small</strong>/<strong>Mid</strong> <strong>Cap</strong> <strong>Strategy</strong> Q2 2008<br />
Country Assessment<br />
Indonesia<br />
Despite <strong>the</strong> seemingly attractive valuations for small caps,<br />
interest in <strong>the</strong>se stocks could remain subdued in<br />
anticipation of prolonged volatility this quarter due to<br />
growing uncertainties in <strong>the</strong> US market.<br />
Market Data<br />
Be selective<br />
Two of our three stock picks outperformed <strong>the</strong> market in 1Q08, although none gave<br />
positive returns. Bakrie Sumatra Plantation (UNSP) surged by 41% in <strong>the</strong> quarter <strong>and</strong><br />
surpassed our target price, but it tumbled before <strong>the</strong> quarter ended as CPO price<br />
corrected.<br />
For 2Q08, our focus is on <strong>the</strong> Plantation sector premised on our still optimistic<br />
outlook for CPO price, <strong>and</strong> our belief that <strong>the</strong> recent selldown of plantation stocks<br />
triggered by a sharp CPO price correction was overdone. We feature three small caps<br />
for 2Q08 - two from <strong>the</strong> Plantation sector <strong>and</strong> a Sorbitol producer from <strong>the</strong><br />
Consumer sector.<br />
UNSP <strong>and</strong> Tunas Baru Lampung (TBLA) are featured again this quarter because <strong>the</strong>y<br />
should enjoy robust volume growth to hedge against falling CPO price. We also<br />
recently upgraded our CPO price assumptions <strong>and</strong> consequently, target price for<br />
UNSP to Rp3,050 <strong>and</strong> TBLA to Rp.780. We also feature Sorini Agro Asia (SOBI), <strong>the</strong><br />
second largest Sorbitol producer in <strong>the</strong> world. Its plan to exp<strong>and</strong> upstream (Cassava<br />
plantation) should help future earnings because it would exp<strong>and</strong> margins by c.10%<br />
<strong>and</strong> open new opportunities in <strong>the</strong> bioethanol business. Our fair value for <strong>the</strong> stock is<br />
Rp2,750, implying 95% potential upside.<br />
-1 mth -2 mth -3 mths -6 mths -12 mths<br />
Index Performance (%) (%) (%) (%) (%)<br />
<strong>DBS</strong>V Big <strong>Cap</strong>s (12.8) (6.1) (10.4) 9.8 39.7<br />
<strong>DBS</strong>V <strong>Small</strong> <strong>Cap</strong>s (16.3) (18.8) (21.7) (19.1) (1.7)<br />
Jakarta <strong>Stock</strong> Exchange (12.1) (7.7) (11.9) 2.6 32.6<br />
Transactions (<strong>DBS</strong>V Universe): QTD YTD<br />
<strong>Small</strong> <strong>Cap</strong> Big <strong>Cap</strong> <strong>Small</strong> <strong>Cap</strong> Big <strong>Cap</strong><br />
Vol (bln shrs) 39.4 32.4 92.6 91.1<br />
Val Rptr) 32.1 480.8 80.6 1,061.7<br />
Source: Bloomberg<br />
Herry Dion Mahargono (6221) 36832668 herry.mahargono@id.dbsvickers.com<br />
Page 52<br />
www.dbsvickers.com<br />
Refer to important disclosures at <strong>the</strong> end of this report