Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ...

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Regional Small/Mid Cap Strategy Q2 2008 Country Assessment Indonesia Despite the seemingly attractive valuations for small caps, interest in these stocks could remain subdued in anticipation of prolonged volatility this quarter due to growing uncertainties in the US market. Market Data Be selective Two of our three stock picks outperformed the market in 1Q08, although none gave positive returns. Bakrie Sumatra Plantation (UNSP) surged by 41% in the quarter and surpassed our target price, but it tumbled before the quarter ended as CPO price corrected. For 2Q08, our focus is on the Plantation sector premised on our still optimistic outlook for CPO price, and our belief that the recent selldown of plantation stocks triggered by a sharp CPO price correction was overdone. We feature three small caps for 2Q08 - two from the Plantation sector and a Sorbitol producer from the Consumer sector. UNSP and Tunas Baru Lampung (TBLA) are featured again this quarter because they should enjoy robust volume growth to hedge against falling CPO price. We also recently upgraded our CPO price assumptions and consequently, target price for UNSP to Rp3,050 and TBLA to Rp.780. We also feature Sorini Agro Asia (SOBI), the second largest Sorbitol producer in the world. Its plan to expand upstream (Cassava plantation) should help future earnings because it would expand margins by c.10% and open new opportunities in the bioethanol business. Our fair value for the stock is Rp2,750, implying 95% potential upside. -1 mth -2 mth -3 mths -6 mths -12 mths Index Performance (%) (%) (%) (%) (%) DBSV Big Caps (12.8) (6.1) (10.4) 9.8 39.7 DBSV Small Caps (16.3) (18.8) (21.7) (19.1) (1.7) Jakarta Stock Exchange (12.1) (7.7) (11.9) 2.6 32.6 Transactions (DBSV Universe): QTD YTD Small Cap Big Cap Small Cap Big Cap Vol (bln shrs) 39.4 32.4 92.6 91.1 Val Rptr) 32.1 480.8 80.6 1,061.7 Source: Bloomberg Herry Dion Mahargono (6221) 36832668 herry.mahargono@id.dbsvickers.com Page 52 www.dbsvickers.com Refer to important disclosures at the end of this report
Regional Small/Mid Cap Strategy Q2 2008 Country Assessment PERFORMANCE REVIEW Our small cap universe substantially underperformed the large caps and the Jakarta Composite Index (JCI) again in 1Q08. It underperformed the large caps and JCI by 15.2% and 14%, respectively, in 4Q07. The weak performance continued to be attributed to strong volatility in the financial market due to growing risks in the US credit market and economy. The JCI and large caps fell 11.9% and 10.4% q-o-q, respectively, in the quarter, while small caps fell 21.7% q-o-q. Only one small cap under our coverage gave a positive return in the quarter; SOBI (+12.8% q- o-q), the second largest sorbitol producer in the world. The worst performers were Adhi Karya (ADHI) (-43.4% q-o-q), SMRA (-40.2% q-o-q) and Total Bangun (TOTL) (-39% q-o-q). Big and Small Caps Performance 325.0 Dec 05 = 100 280.0 235.0 190.0 145.0 100.0 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 JCI Big Cap Small Cap Small Caps Transactions (bn shares) bn shrs 14.0 40% 12.0 10.0 8.0 6.0 20% 4.0 2.0 - 0% Jun-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 Source: JSX Vol (LHS) Small Caps as % of Total (RHS) Page 53
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