Our Comment\r\n\r\nCharoen Pokphand shareholders approved internal transactions with affiliated company CP Prima. The transactions will increase production capacity of Charoen Pokphand poultry feed by 8%. In addition, it allows the company to focus on its poultry feed business as it sold assets reltead to shrimp and fish feed operations. As such, Adi Wicaksono upgraded forecast and TP to Rp1,200 (21% potential upside). \r\n\r\nBerlian Laju Tanker obtained shareholders approval on acquisition of Chembulk. The acquisition will be positive for Berlian, maintain SPEC. BUY, TP is Rp3,150 (27% potential upside). \r\n\r\nIndosat announced it launched fiber optic network from Medan to Aceh, Indosat 3.5G Broadband services and Indosat National Internet Exchange services (INIX) in Aceh. The above will contribute to the future revenue growth, although we do not expect sharp revenue contribution in the immediate term. Maintain BUY. TP is Rp9,600 (15% potential upside).\r\n\r\nKatarina Setiawan\r\n\r\n \r\n\r\n \r\n\r\nHighlights\r\n\r\n• Berlian Laju (BUY): EGM approved acquisition on Chembulk \r\n\r\n• Indosat (BUY): Launched fiber optic network in Sumatra \r\n\r\n• Charoen (BUY): EGM approved internal transactions \r\n\r\n• Apexindo (BUY): Signed new contract for onshore rigs\r\n\r\n• Bakrie & Brothers (HOLD): Subsidiary obtains US$96m contract\r\n\r\n• Telkom (UNDER REVIEW): To acquire companies\r\n\r\n• Bumi Resources: Announcement on acquisition plan and MESOP\r\n\r\n• CP Prima: EGM approved internal restructuring\r\n\r\n• Holcim: EGM yet to approve the refinancing plan\r\n\r\n• Hero Supermarket: To continue converting Hero stores to Giant hypermarkets\r\n\r\n• Property: Bapepam issued new regulations on REITs
A full player in the agribusiness sector \r\n\r\n¨ Completion of internal transactions\r\n\r\nThe company obtained shareholders approval on its internal transactions during its EGM yesterday. The transactions involved: the company’s acquisition of the asset of poultry feed from CP Prima (affiliated company) in the amount of Rp109b; and the sales of assets related to fish feed and shrimp feed to CP Prima in the amount of Rp48b. We view, after this transaction, that the company is more focused on the agribusiness sector. \r\n\r\n¨ To achieve synergy and efficiency in poultry feed division\r\n\r\nAfter the acquisition a new poultry feed with a production capacity of 300,000 tonnes per annum (tpa), the company’s poultry feed capacity will increase by 8% to 4m tpa from 3.7m tpa. This figure includes the poultry feed plant in Makasar with a capacity of 300,000 tpa, which will commence its operation early next year. From our perspective, the acquisition will help the company to achieve synergy in the poultry feed division. With a higher market share in central Java, its margin will improve. It will also enhance its cost efficiency by reducing its costs of transportation and distribution. Therefore, we raise our net profit estimate by 3% in FY08 and 4% in FY09.\r\n\r\n¨ Plans to build poultry feed plant in Lampung\r\n\r\nThe company plans to build a poultry feed plant with a capacity of 300,000 tpa in Lampung in FY08. Its management has budgeted Rp122b for capex. The objective is to build a poultry plant in Lampung in order to improve its market share in the south Sumatra location and to improve its cost efficiency by reducing its raw material costs. However, we have not factored in the plant expansion in our estimate. We will consider raising our estimate if the plan materialises. \r\n\r\n¨ Upgrade to BUY, TP Rp1,200\r\n\r\nWe upgrade our recommendation to BUY from HOLD, and raise our TP to Rp1,200 from Rp900 as the capacity will increase by 8% to 4m tpa, while it is expected that its business operations will achieve more efficiency and lead to the improvement of its margins. Meanwhile, we raise our long-term growth assumption to 5% from 3%, as the company is more focused on agribusiness, while seeking to achieve increased synergy and efficiency. Our target price represents 12.2x P/E 2009 (potential upside 21%).
Ready for expansion boost\r\n\r\n¨ Long-term potential capacity\r\n\r\nTwo new cement plants (capacity of 2.5m tons) are expected to turn operational in 2011 and 2012, which will significantly increase the company’s cement production capacity up to 23.4m in FY13. According to the management, one new plant will be built in Central Java. In our view, this is a very strategic location that will help Semen Gresik to increase its market share especially in Central Java and the West Java.\r\n\r\n¨ Synergies helped streamline costs\r\n\r\nSemen Gresik, with its plants located strategically around Indonesia, has implemented a “cross-bagging” strategy, meaning that each of its three companies under the Semen Gresik group will supply the markets closest to the plant. It translates to lower transportation costs and the end of overlaps in the target markets of its three brands (Semen Gresik, Semen Padang, and Semen Tonasa). Hence, in our view, Semen Gresik will be less affected by the increase of fuel price, and therefore have a better pricing power compared to Indocement and Holcim.\r\n\r\n¨ Remains the most profitable cement producer\r\n\r\nUp to now, Semen Gresik remains the most profitable cement producer in Indonesia with its gross margin and net margin of 41% and 18% respectively, much higher than Indocement’s at 35% and 11%, or Holcim’s at 34% and 6% respectively, thanks to more efficient production and operational processes. \r\n\r\n¨ Attractive valuation: maintain BUY\r\n\r\nIn view of the management’s capacity expansion plan and its financing plan, we have upgraded our target price to Rp6,200. We value Semen Gresik’s capacity of 18.4m tonnes per year in FY09 at US$206 EV/tonne, at a 6% discount compared to the EV/tonne of its average local peers. However, this valuation is far higher than our valuation on Indocement at US$197. We believe that Semen Gresik deserves a higher valuation, which is justified by its long-term potential growth from new plant capacity expansion, its consistently higher ROE, margins, and dividends yield. Our target price implies 21.9x FY09 PE and 12.6x FY09 EV/EBITDA. Maintain BUY on Semen Gresik.
Our Comment\r\n\r\nBank of Indonesia plans to issue new regulations in banking sector in March 2008, which is viewed as more lenient and aimed to boost lending and bank expansion. Two interesting points from the regulations include: 1) With regards to purchase of bank shares, which has no effect on changes of controlling shareholders, the central bank does not require fit and proper test to the investor anymore. Previously, investor purchasing more than 5% of share is required to conduct a fit and proper test 2). Banks are not required to obtain permit from BI to open, move or close branches. \r\n\r\nMeanwhile, in light with single presence policy regulation, Khazanah is reported may prefers to merge its subsidiaries Bank Niaga and Bank Lippo. Management of Khazanah is expected to make a decision today.\r\n\r\nRicardo Silaen\r\n\r\n \r\n\r\n \r\n\r\nHighlights\r\n\r\n• Charoen Pokphand (BUY): A full player in the agribusiness sector \r\n\r\n• Semen Gresik (BUY): Ready for expansion boost\r\n\r\n• Bukit Asam (BUY): Asking 25% higher price to Indonesia power\r\n\r\n• Adhi Karya (BUY): Govt approved right issue plan\r\n\r\n• Bakrie and Brothers: To redesign its organization structure\r\n\r\n• Timah: To acquire coal company\r\n\r\n• Bank Niaga & Bank Lippo: Khazanah may prefer a merger\r\n\r\n• Alfa Retailindo: To be acquired by Carrefour\r\n\r\n• Darma Henwa: To expands business to infrastructure sector\r\n\r\n• Samudera Indonesia: Acquired two container vessels\r\n\r\nFrom our chartist desk\r\n\r\n• JCI: Dow Jones was up +0,7% 24th December, 2007. Technical wise, Dow Jones chart will move impulse wave 3 (valid). After deep correction, today we expect a technical rebound on JCI to test level of 2686-2715. Trading range is between 2600-2628-2643 (supports) and 2672-2686-2715 (resistances) \r\n\r\n• UNTR: Corrective c has been completed. Technical front; we see strong technical rebound from this, with trendline target is Rp11200. BUY \r\n\r\n• SIIP: Stochastic is up and TD sequential shows buy countdown 4th days (positive signs), we think this is a good choice in property sector. BUY