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Good morning,
Coal Mining - The
Sun To Start Shining
The dry season –
which Indonesian weather forecaster BMKG says is to kick in from June –
should boost mining contracting volume for both coal getting and overburden
volume. The resulting higher volume and profitability should benefit coal
mining contractors. We maintain NEUTRAL on the coal sector, as we think there
is a limited probability for coal prices to increase significantly in the
medium term. Our Top Picks are Delta Dunia Makmur and Bukit Asam.
¨ Delta
Dunia Makmur and United Tractors should be the beneficiaries. Delta Dunia Makmur,
as Indonesia’s second largest coal mining contractor in terms of volume,
should benefit the most from rising mining contracting volume in the coming
months. This is as all of its revenue comes from coal mining and mining
services. Meanwhile, United Tractors should also benefit, as the mining
contracting business is its biggest revenue contributor (46% of 1Q17
consolidated revenue). Rising mining contracting volume should increase
revenue and profitability, as higher productivity should decrease mining
contracting costs per unit bcm.
¨ June
domestic coal price benchmark reduced to USD75.46/tonne. The Government of
Indonesia decreased the domestic coal price benchmark (CV: 6,322kcal/kg GAR)
to USD75.46/tonne in June (May: USD83.80/tonne), in line with our
expectation. Our FY17F average coal price assumption is USD73/tonne.
¨ Maintain
NEUTRAL, with our Top Picks being Delta Dunia Makmur and Bukit Asam. We like Delta
Dunia Makmur as it has sizable FY17F earnings growth of 142% YoY, with
undemanding valuation. Its FY17F P/E of 5.6x and EV/EBITDA of 3.5x are much
cheaper than closest peer United Tractors’ FY17F P/E of 13.6x and EV/EBITDA
of 6.7x. We think rising monthly mining contracting volume in coming months
would be its near-term key catalyst.
We like Bukit Asam as we think its position
as the only state owned enterprise (SOE) engaging in coal mining should
benefit from synergy between SOEs (especially with Perusahaan Listrik Negara,
or PLN) as its coal sales volume to other SOEs keeps increasing, and it has
long-term coal domestic commitments to other SOEs. Bukit Asam has an
undemanding valuation, trading at FY17F P/E of 7x. Key near-term catalyst of
Bukit Asam is agreement between Bukit Asam and PLN regarding the FY17F coal
selling price.
¨ Key
risks to our call
include significant decrease in coal price and weaker-than-expected coal
demand. (Hariyanto Wijaya, CFA, CPA, CFTe)
Link
to report: The Sun To Start Shining
Link
to daily report: Indonesia Morning Cuppa 060617
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Company Update:
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Alam
Sutera
(ASRI IJ, BUY, TP: IDR540), Slow Demand For Mid-High Range Of Products
Last Saturday, we
attended Alam Sutera’s launch of its Orlanda Phase 2 cluster (part of the
Sutera Sitara project) in Tangerang. The event, held in the centre booth at
Mall@Alam Sutera’s concourse, was a convenient point for shoppers and
interested home buyers to visit. Banks like Bank Permata, OCBC NISP, Bank
Central Asia, UOB, Bank Mandiri, CIMB Niaga are now offering housing loans
for the units. We maintain our BUY call and IDR540 TP (66% upside) on this
counter.
¨ Landed
residential development. Orlanda Phase 2, located inside the Sutera Sitara mega
cluster, is a continuation of Orlanda Phase 1. Sutera Sitara itself is a
gated residential community located 1.5km away from Mall@Alam Sutera and
nearby traditional and modern markets such as Pasar 8 and Flavor Bliss. Other
facilities in the surrounding area include the Santa Laurensia high school,
Binus University and OMNI Hospital.
¨ Unit
types and prices. The
second phase has three types of houses with land areas ranging 140-240
sqm/unit, while the buildings span 134-243 sqm/unit. The prices of the units
range from IDR3.63bn to IDR6.31bn, or IDR25.92-26.3m/sqm respectively. It is
offering a 20% discount for buyers paying by cash.
Other buyers may opt for 12-24 month
in-house instalment payments or pay via mortgages. A mortgage provider, China
Construction Bank Indonesia, is offering home buyers a 7.25% fixed rate for
two years.
¨ What
we observed.
We dropped by the launch at 4.20pm, and found that the site was not crowded (although
we note that this was also possibly due to the Ramadan season). A
marketing agent told us that preorders were taken for 10 units, out of 35
units being offered. This implies a 29% take-up rate. Orlanda Phase 2 area is
considered a project for the mid-to-high segment, as a 240-sqm house is
priced above IDR5bn. Also, buyers of these type of houses will be subject to
an additional 5% tax (ie Indonesia’s Super Luxury Tax), as the price falls
within the bracket of the value of a luxury home.
We also drove to the cluster site and found
that most of the sub-clusters in Sutera Sitara are already developed. Some,
in fact, are already occupied – eg Jingga, Pelangi, Mentari, and Orlanda
Phase 1. Orlanda Phase 2, which is still under construction, is scheduled to
be handed over to buyers in Aug 2019.
¨ BUY. Demand for mid-high
priced units is slow, compared to Chiara (60% take-up rate) or the fully-sold
Crystal 8 shoplots. This may be due to the affordability of the units, as
well as the additional 5% tax. We estimate Alam Sutera’s YTD marketing sales
have reached IDR772bn – this includes our assumption of a 80% take-up rate
for Chiara, Crystal 8, and 30% of Orlanda Phase 2 units being booked. This is
a concern, as it is only 15% of its full-year target of IDR5trn. Nonetheless,
we keep our earnings estimates, BUY call and TP of IDR540, on the expectation
that marketing sales may improve in 2H17. Downside risks to our call are an
economic slowdown leading to failure in achieving marketing sales, changes in
government regulations and delays in project deliveries. (Yualdo Tirtakencana)
Link to report: Alam Sutera : Slow Demand For Mid-High Range Of Products
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Sector Update:
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President Trump
announced last week that the US is withdrawing from the Paris Agreement,
which sent bearish sentiments to the oil markets. However, we believe that
the implication is both positive and negative for the markets. It is possible
that there would be higher crude oil production, but we believe more because
of lax environmental regulations on US producers, regardless of the Paris
Agreement. On the other hand, we also believe that pulling out of this
agreement may result in fuel efficiency initiatives and plans from the
automakers being put on the back burner, paving the way for gas guzzlers and,
thus, higher oil demand in the future. This would also be bad news for
renewables, such as solar, wind and EVs. We maintain our crude oil price
forecast at USD60/bbl for 2017-2018 and NEUTRAL call on the oil & gas
sector.
¨ US
pulls out of the Paris climate agreement (Paris Agreement): President Donald
Trump announced that the US is withdrawing from the Paris Agreement. The
country now joins only two nations in the world that are not part of this
accord, ie Nicaragua and Syria. The announcement resulted in a negative
movement in crude oil prices, with the market expecting the possibilities of
more drilling in the US, which would increase supply and, thus, put more
pressure on oil prices.
¨ The
impact is actually both negative and positive for the oil markets, in our
opinion.
As we mentioned on 14 Nov 2016 report, Thai
Oil: Markets Set To Tighten In 2017 – with regards to our expectations
of a Mr Trump win – on the negative side for the oil market, we expect higher
US crude oil output. This was because a Trump administration had advocated
for more oil & gas output and to cut red tape, which had held back
billions of investment dollars in new projects. This is a more immediate and
tangible action that the current administration can take. We also mentioned the
possibility of President Trump pulling out of the Paris Agreement, as his
rhetoric during the election campaign was that climate change was a hoax.
However, contrary to oil market movements last week, we view the pulling out
of this agreement as positive to the oil markets. This is because it could
mean that fuel efficiency initiatives for automobiles going forward would be
put on the back burner. This paves the way for the return of gas guzzlers
and, thus, higher oil demand in the future. This would also be bad for
renewables, such as solar, wind and electric vehicles (EVs). For more details
on the scenarios for EVs and their impacts on the oil sector, see our 29 May
thematic report, Regional Strategy: The Dawn Of E-Mobility.
¨ What
is the Paris Agreement? Speaking to NBC News, Dr Ben Sanderson, a
climate change research scientist at the National Centre for Atmospheric
Research in Colorado, US, said that the Paris Agreement targeted a global
warming temperature change of 1.5 degrees Celsius under a best case scenario.
In order to achieve this, it would require global cooperation and a radical
restructuring of the world’s energy and transport infrastructure within the
next couple of decades. Even with a goal of 1.5 degrees Celsius change,
however, there would be still be notable climate shifts, with significant
heat waves in most regions and a long-term increase in sea levels by at least
a meter.
¨ Under
a worst case scenario, the world would see warming by 4-6 degrees Celsius by
the end of the century and up to 12 degrees Celsius in the long term. This
would correspond to a shift in climate that take place over the course of a
single lifetime instead of taking place over tens of millions of years as it
would normally do. This would vastly change the climate envelope that species
today have adapted to and lead to a mass extinction event. The ice sheets
would ultimately melt, and sea levels would increase by 3-5m by 2300,
completely submerging many coastal cities. (Kannika
Siamwalla, CFA)
Link to report: Regional Oil & Gas : Make Our Planet Great Again
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Media Highlights:
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Corporate
Personal accounts containing at least
IDR200mn to be reported for tax purposes
Kalbe Farma is optimistic to achieve sales
growth targets
Modern International cancels the sale of
7-Eleven retail chain
Global Mediacom prepares USD100m for capex
Golden Eagle Energy sets target of 1.4m
tonnes coal output in 2017
Adi Sarana Armada plans to expand its
automotive auction business
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Our
Recent Publication:
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Economics Update: Fasting Month Preparation
Drives Inflation In May
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Economics Update: M2, Loan Growth Continues
To Pick Up In April
Link to report: M2,
Loan Growth Continues To Pick Up In April
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Company Update: ACE Hardware - Currently
Expensive
Link to report: ACE
Hardware: Currently Expensive
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Company Update: United Tractors – Dry
Season To Boost Mining Contracting Volume
Link to report: United
Tractors : Dry Season To Boost Mining Contracting Volume
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Sector Update: Auto & Autoparts – Still
a Far Distance From Indonesia’s Industry Roadmap
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Results Review: XL Axiata – Playing
Catch-Up
Link to report: XL
Axiata : Playing Catch-Up
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Not-Rated Note: Mitra Pinasthika Mustika –
Structural Reform Is Underway
Link to report: Mitra
Pinasthika Mustika : Structural Reform Is Underway
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Company Update: Mitra Adiperkasa – Going
For Full Earnings Potential
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Company Update: Bumi Serpong Damai –
Maintains a Solid Performance
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Company Update: Bank Rakyat Indonesia –
Growing Bigger Through Micro Lending
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Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
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