United Tractors (UNTR) and Tuah Turranga Agung (TTA) have recently signed a conditional sales and purchase agreement, where the former will acquire a 93% stake in the latter, through equity and mandatory convertible bond purchases at a total transaction value of US$115.6 million. According to a UNTR press release, TTA indirectly holds coal mining concession rights in Kapuas Tengah, Central Kalimantan, where the concession area totals 5,000 ha, lasting for 30 years. At present, TTA is estimated to have about 40 million tons of mineable reserves.
The TTA acquisition is value accretive for UNTR, in our view. We are bullish this on two grounds: 1) Firstly, we believe the acquisition price is compelling versus the prevailing market valuation- the transaction translates to US$3/ton reserve valuation vs. recent coal asset acquisitions in Indonesia, which are valued around US$6-9; While we understand that TTA is a non-producing coal mining concession, the transaction would still be valued at only US$5/ton, if we assume annual coal production of 4 million tons and initial investment of US$20 million per ton of annual production; 2) Secondly, the acquisition should be earnings-enhancing for UNTR, where company''s annual coal production could double to about 8 million tpa beginning 2008; our earnings model suggests that this would advance our current earnings forecast for UNTR by about 15% in the next three years.
Government 10,000 MW coal-fired power plant program continues its progress. As of January 2008, Bisnis Indonesia reported that eight out of eight signed projects under the government fast track program, which consists of 10 projects, are now undergoing construction - as opposed to five projects back in August 2007. The eight projects are expected to commence operations by, at the latest, March 2010. We reckon this positive development will fuel positive sentiment on UNTR''s stock price, and scheduled delivery of these coal-fired power plant projects should triple Indonesia''s coal consumption to about 150 million tpa beginning 2012.
Risk to our call: 1) Reversal on coal price trend; 2) deceleration in oil palm plantation expansion in Indonesia; 3) delayed consummation or cancellation of the TTA acquisition; and 4) protracted execution of the signed power plant projects by the government.
Attached please find the report. If you have any questions, please do not hesitate to contact me.
Our Comment\r\n\r\nMinistry of Finance announced that non-deal road shows to a number of countries conducted in November 2007 indicated strong demand on Indonesian sovereign bonds, up to US$3b. Those will be followed up by deal road shows starting this week. The government is planning to issue US$2b bond in two trenches, each for US$1b with tenor of 10 years and 30 years. This will be Indonesia’s largest sovereign bond issuance so far and largest sovereign bond issue in Asia since 1998. Ratings are BB- (Standard and Poor’s and Fitch) and Ba3 (Moody’s). Underwriters are Barclays Capital, HSBC and Lehman Brothers.\r\n\r\nThe Jakarta market reached record high at 2830 before the holiday, resulted from excess liquidity and anticipation over the Fed rate cut.\r\n\r\nThe US and regional markets are in the red this morning. Oil price was down to slightly below US$93/barrel. \r\n\r\nKatarina Setiawan\r\n\r\n \r\n\r\nHighlights\r\n\r\n• United Tractors (BUY): Acquiring a coal mine\r\n\r\n• Timah: To spend Rp2t to acquire a coal mine\r\n\r\n• Adhi Karya (BUY): Obtained Rp440b new contract\r\n\r\n• Truba Jaya Engineering: new IPO \r\n\r\n• Economy: Strong demand on Indonesian sovereign bonds\r\n\r\nFrom our chartist desk\r\n\r\n• JCI: Negative factors; Dow Jones closed lower by -2% last Friday, yen appreciates agains the US$, upcoming PPI data release. Positive factors: rally on gold and CPO prices. Today, JCI TD sequential chart is on 9th days. Time for profit taking. Trading range is between 2694-2752-2791 (supports) and 2849-2869-2927 (resistances). \r\n\r\n• JSMR: Triangle pattern on weekly chart and double white candles for this stock. Maintain our target Rp2000. BUY.\r\n\r\n• BBRI: TD sequential chart buy set up 4th days confirmed, and candlestick signal : bullish engilfing pattern. BUY.
Our Comment\r\n\r\nBakrie & Brothers met with Bapepam and BEI to inform a rights issue plan to raise Rp47t for acquisition of Bakrieland, Energi Mega Persada and Bumi Resources. The company is in the process of completing the rights issue prospectus. Market cap of Bakrie & Brothers is approximately US$757 million while combined market cap of the above companies is roughly US$17 billion (Energi Mega’s is US$2.3b, Bakrieland’s is US$1.4b and Bumi’s is US$13.2b). The acquisition will increase Bakrie & Brothers market cap significantly. The rights issue will create massive dilution. After the acquisition, Bakrie & Brothers will become a holding company for subsidiaries engaging in 5 sectors: mining, property, plantation, telecommunication and infrastructure.\r\n\r\nNo further information on the acquisition (i.e., timing, size, mechanism) is announced. Maintain HOLD recommendation.\r\n\r\nThe US and regional markets rebounded strongly this morning. CPO price broke US$1000/ton, an all-time high. We expect continued strong positive sentiment on palm oil companies such as Astra Agro, Bakrie Sumatra, London Sumatra and Tunas Baru Lampung. Bakrie Sumatra also benefits from strengthening rubber price. \r\n\r\nKatarina Setiawan\r\n\r\n \r\n\r\n \r\n\r\nHighlights\r\n\r\n• Mitra Adi Perkasa (UNDER REVIEW): Company visit\r\n\r\n• United Tractors (BUY): December operational update\r\n\r\n• Bakrie & Brothers (HOLD): To raise Rp47t for acquisition\r\n\r\n• Bank BNI: Government to offer 10% stake\r\n\r\n• Darma Henwa: Obtained US$250m projects \r\n\r\n• Cement sector: Higher than expected FY07 consumption\r\n\r\nFrom our chartist desk\r\n\r\n• JCI: Dow Jones closed +1,4%. Today JCI has room for upside until 2869, referring to trend line. But many stocks are in overbought condition, consider profit taking. Trading range is between 2712-2762-2786 (supports) and 2836-2861-2911 (resistances) \r\n\r\n• BNII: Daily TD sequential is still valid, entering buy set up 4th days, with increasing volume. Maintain our target at Rp370. BUY\r\n\r\n• UNTR: New high followed by big volume, weekly TD sequential buy countdown supported this argument. Target is at Rp13,100. BUY
Our Comment\r\n\r\nRicardo Silaen and Rohan Suppiah published an initiating note on Truba Alam. The company is the beneficiary of current power shortfall in Indonesia. Since the Asian financial crisis in 1998, very little new power infrastructure has been put into place. Starting end of 2005, the government launched a series of initiatives to speed up power capacity expansion. In addition, due to the lower cost and widely availability of coal, Indonesia will boost the use of coal vis-à-vis diesel as a source of fuel. Truba in unique position to benefit from the above. It is part of a group that has long experience in building most of PLN’s coal-fired and gas-fired power plants. Regional peers are trading at median 24x 2009F PER, while Truba is trading at 19.8x. Initiate with a BUY, TP is Rp1,850 (34% potential upside).\r\n\r\nWe also published an initiating note on Alam Sutera. The property project has a premium location in the centre of so-called Golden Pentagon, about 15km from Jakarta. The project is targeted to middle-upper income class segment. It is supported by first class medical facilities and an international school. The company is building a new route which will cut travel distance to Jakarta by 3km, expected to be finished in H208. It is expanding its commercial development. First step will be to construct a new shopping mall, expected to be completed in 2010. Estimated NAV is Rp340/share. BUY, TP is Rp300 (36% potential upside).\r\n\r\nThe US and regional markets are deeply in the red this morning. Weak retail sales and sharp decline of the Citigroup share price caused the plunge in the US market. Alan Greenspan comment that the US is likely to enter a recession did not help. \r\n\r\nKatarina Setiawan\r\n\r\n \r\n\r\n \r\n\r\nHighlights\r\n\r\n• Truba Alam (BUY): Plugging a lucrative energy blackhole \r\n\r\n• Alam Sutera (BUY): Book Now! \r\n\r\n• Arpeni Pratama (HOLD): To issue Rp750b bond\r\n\r\n• Bakrie & Brothers (HOLD): Reverse stock\r\n\r\n• Bakrieland: To issue Rp500b bonds\r\n\r\n• Jasa Marga: Proposed a toll hike\r\n\r\n• Telco: Pressure from new interconnection rule\r\n\r\nFrom our chartist desk\r\n\r\n• JCI: Dow Jones closed lower by –2,1% this morning. JCI’s trend line is 2862, which is its first support level, next target 2585 (fibonacci). Most big cap stocks are still in overbought condition, as we mentioned yesterday. Trading range is between 2682-2634-2508 (supports) and 2808-2886-3011 (resistances) \r\n\r\n• BBRI: Lower line of daily Bollinger band cuts shoulder of last candle, and tries to break up resistance level. Target price is Rp7950. BUY\r\n\r\n• SOBI: High demand/volume, strong TD sequential buy set up fifth days, and buy countdown. Resistance level is Rp2450. BUY
Our Comment\r\n\r\nThe Jakarta market plunged another 5% yesterday, posting a total of 8.4% (238 points) in the past two days. The Jakarta Composite Index is now at 2592, a level last seen three months ago. Yesterday’s plunge (137.7 points) is the second worst (in points) since 2000. The worst took place in August 2007 (139.6 points) when the market experienced heavy selling triggered by Agis and plummeted BNI share price following the privatization.\r\n\r\nThe trigger this time is concerns over recession in the US, massive losses at Citigroup, and new interconnection regulation expected to cut revenue growth of telco operators. We believe the new interconnection regulation will not bring significant negative impact on the operators. Indosat may even benefit from it. This morning the company advertised a new promotional program which offers free talk for the first minute. There are terms and conditions applied, which may include limitation to specific time of the day and other limitations. We expect the program to be well accepted by the market as all other promotions available in the market offer low tariff starting only at the second minute or even later. BUY Indosat, HOLD Telkom.\r\n\r\nAs the Jakarta market has been corrected sharply in the past two days, there exists a potential rebound. However, we are not out of the woods yet. Expect the index to remain volatile in the short term while all eyes will be watching the US economy very closely. \r\n\r\nKatarina Setiawan\r\n\r\n \r\n\r\n \r\n\r\nHighlights\r\n\r\n• Indosat (BUY): Bold new promotion\r\n\r\n• Bumi Resources: Eyeing coal liquefaction project\r\n\r\n• Kimia Farma: Govt to conduct secondary offering\r\n\r\n• Bakrie Telecom: Rp3t rights issue\r\n\r\n• Hotel Sahid: To conduct Secondary Public Offering\r\n\r\n• New IPO: Triwira Insanlestari\r\n\r\nFrom our chartist desk\r\n\r\n• JCI: Dow Jones was corrected –0,3% . In our view; JCI is still heading a negative direction with strong trend line of 2350, and long term at 2200 (fibonacci). The main reason is that impulse wave 5th has been completed. Trading range is between 2361-2485-2539 (supports) and 2663-2734-2859 (resistances) \r\n\r\n• BBRI: Daily on MACD (20 days) and stochastic iremain intact. Maintained target price is Rp7950. BUY ON WEAKNESS\r\n\r\n• ITMG: Bullish harami in the weekly chart was supported by long white candle. Resistance level is Rp22700. BUY
Our Comment\r\n\r\nWe published a note on telecommunication sector. Telco stocks have seen share prices corrected sharply since last week triggered by worries over new interconnection tariff cut. The tariff cut is not yet final, but latest proposal (January 200 mentions around 9%-47% reduction. The new tariff is expected to be released soon. The start of implementation, however, is not clear but is almost certain to be later (could be significantly later) than the release. Overall, impact on the new IC tariff will not be as significant as that of last year. This is because proportion of on-net calls (which do not involve IC) has been significantly larger compared to last year’s. That resulted from aggressive promotional programs launched by all telco operators which offer sharp decline in on-net tariff. In addition, interconnection revenue represents not a big part of total revenue of the telco operators. Hence, the limited impact. In general, net receivers of minutes will be losing as they will receive lower terminating call IC. Net senders, on the other hand, will benefit from lower originating call IC. Smaller/new comers in general will benefit from the new tariff. As the impact will be small, we maintain projections and recommendations on the telco stocks (BUY Indosat, HOLD Telkom, SELL Mobile-. \r\n\r\nThe US market plunged 2.5% this morning. The trigger this time is a fresh round of subprime write-downs (Merrill Lynch announced ugly losses) and potential downgrades of mortgage insurance credit ratings. Speech from the Fed Chairman which reiterates concerns over the US economy did not help. Regional markets opened this morning are in the red. Expect the Jakarta market to go down today and remain volatile in the short term while all eyes will be watching the US economy very closely. \r\n\r\nKatarina Setiawan\r\n\r\n \r\n\r\n \r\n\r\nHighlights\r\n\r\n• Telco sector: Small impact from interconnection tariff cut\r\n\r\n• Indofarma: To divest subsidiary for Rp600b \r\n\r\n• Bank Danamon: To issue Rp2.25t bond\r\n\r\n• Apexindo: New contract on onshore rig\r\n\r\nFrom our chartist desk\r\n\r\n• JCI: Dow Jones was deeply corrected, –2,5%. Yen/dollar still continues strengthening, both will bring negative impact to the JCI. We maintain target trend line at 2350 in the mid-term. Trading range is between 2438-2528-2589 (supports) and 2679-2709-2799 (resistances) \r\n\r\n• MEDC: Negative crossing of exponential moving average and stochastic indicators. Our short term target price is Rp4100. TRADING SELL\r\n\r\n• ITMG: Strong trading volume, and daily TD sequential buy set up entering 7th days. Target is Rp25000. BUY ON WEAKNESS