RHB Indonesia Morning Cuppa - 09 March 2018 (Regional Thematic, Plantation, Coal Mining, Today's News)

Top Story

Regional Thematic

Finding Diamonds in The Rough

Our Best Investment Ideas

Based on the excellent absolute performance incurred by our picks for two years in a row, we are repeating this exercise. To find the “Diamonds In The Rough” among the c.500 companies under coverage, in our footprint in ASEAN + Hong Kong, we used a bottom up fundamental analysis and screened for companies that met four criteria:

1. ROEs of 15% or above;

2. Increasing margins;

3. Trading below the average market multiples;

4. Reasonable corporate governance.

Indonesia: Diamonds from Jakarta

Gudang Garam

Gudang Garam is a leading producer of kretek cigarettes, the clove cigarette synonymous with Indonesia. It is the second largest cigarette producer in Indonesia, just behind HM Sampoerna, a subsidiary of Philip Morris International.

Indofood Sukses Makmur

Indofood Sukses (Indofood) is a vertically integrated food producer with four strategic business groups involved in consumer branded products (CBP), flour (Bogasari), agribusiness, and distribution.

Analyst: Andrey Wijaya (6221) 2970 7058

Link to report: Regional_Diamonds the 3rd: Our Best Investment Ideas

Morning Cuppa Full Report: Indonesia Morning Cuppa 090318

Other Stories

Sector Update

Plantation

More Bearish Overtones At POC 2018

Views expressed at the POC 2018 leaned towards more bearish overtones this year, with most speakers expecting prices to remain relatively high in 1H18, before falling to as low as MYR2,200.00-2,400.00/tonne in 2H18. While we expect prices to be a bit more resilient, we believe the key catalysts would, be the total impact of the Indian import duty hike and potential increase in demand from the Indonesian biodiesel mandates. We remain NEUTRAL on the sector and MYR2,550.00/tonne price assumption. Regionally, our Top Picks are FGV, SOP, Wilmar, Genting Plantations and LonSum.

Analyst: Hoe Lee Leng (603) 9207 7605

Link to report: More Bearish Overtones At POC 2018

Morning Cuppa Full Report: Indonesia Morning Cuppa 090318

Other Stories

Sector News Flash

Coal Mining

Regulated Coal Prices For Domestic Coal Power Plants

President Joko Widodo has signed the revision of PP23/2010 which allows MEMR to regulate the coal selling price sold to domestic coal-fired power plants. Details of regulated coal prices would be issued in the near term. We believe that regulated domestic coal price could apply to as much as 25% of production volume from all coking and thermal coal producers regardless of the CV. Bukit Asam has stated that its exposure to regulated coal selling is only around 25% of its production (or 6m tonnes) and not all of its sales are made to PLN. At this moment, we maintain our assumptions until the regulated coal price is implemented. We have done our sensitivity analysis using various DMO coal price scenarios and we think that the recent sell-off in the coal space is excessive. However, this should present an opportunity to accumulate the shares of some solid counters. We remain OVERWEIGHT on the sector. Our Top Picks are Adaro Energy and Bukit Asam.

Analyst: Hariyanto Wijaya, CFA, CFP, CA, CPA (Aust.), CFTe, CMT (6221) 2970 7061

Link to report: Regulated Coal Prices For Domestic Coal Power Plants

Morning Cuppa Full Report: Indonesia Morning Cuppa 090318

Today’s News

Adhi Karya obtained IDR1.32trn new contracts in 2M18

Honda recalls new CR-V

Siloam’s FY17 earning grew 9% YoY

BCA settles for single-digit credit growth this year

Bakrie Land Plantations to convert IDR338bn debts

Delta Dunia and subsidiaries book new contracts

Modernland and Waskita to work on Toll Road City

Top BUYs
		TP	Upside	Catalysts
		(IDR)	(%)	Catalysts
Astra International		9,500	13	Given the robust of the All New Toyota Rush and Daihatsu Terios sales orders, Astra has raised its monthly sales target. Its lowering of Daihatsu Terios’ selling price while positioning Toyota Rush at a higher class are seen as a good strategy to reclaim market share. We also see the company’s coal mining unit benefiting from higher coal prices. We raise its earnings estimates, and SOP-based TP to IDR9,500 (from IDR9,200, 13% upside), implying 16-15x FY18F-19F P/Es. Key risk is the intense competition in the auto industry. SAIC-GM Wuling just launched its 1.8-litre MPV – Wuling Cortez – with an attractive selling price. Maintain BUY.
BSD City		2,650	44	Expectations of higher marketing sales due to lower interest rates, which ought to incentivise mortgage users. BSD City has the largest proportion of mortgage users vis-à-vis other developers. There is also better monetisation from its large landbank.
Bukit Asam		4,100	20	Bukit Asam is the cheapest coal counter in our coal universe. We think earnings growth should be the catalyst for its share price. We believe investors’ concerns about a potential cost-plus margins formula in determining coal selling prices to domestic power plants should fade. This is based on our checks with several competent sources. The formula is only valid for coal sales to new mine mouth power plants. It is not for existing/under construction mine mouth power facilities.
Indofood Sukses Makmur		10,300	28	We expect higher domestic consumer spending in 2018. This would be thanks to the Government stimulus initiatives for low-end consumers. Indofood Sukses Makmur, as one of the largest food & beverage (F&B) players, should benefit from this situation. F&B accounted for around 62% of its total 9M17 EBIT. Higher flour prices may also boost Bogasari Flour Mills’ earnings, which accounted for around 14% of the company’s EBIT.
	Ramayana Lestari	1,550	34	Consumer spending recovery – especially from the lower income segment in 2018 – is likely to benefit Ramayana Lestari after a flat performance in 2017. This is due to increased subsidies by the Government that have been allocated in the 2018 budget via the Ministry of Social Affairs. In addition, President Joko Widodo’s (Jokowi) work-for-cash programme is likely to help raise consumer spending.