Arief turns positive on Indonesia just as the DOW fell last night. But... calm down and read his arguments on the reports, I think you will agree Indonesia economic fundamentals actually set to improve in the coming months. His top 5 picks are in order of preference: BMRI, BDMN, ASII, INTP, and BBRI.
Think positive! Shouldn't we get in now.... This is Indonesia. Arief in his new strategy piece has turned positive. He sees limited downside risk to IDR, more resilient than expected domestic demand, healthy banking system, and upside surprise from election in April. All these while valuations are undemanding, hence he suggests to get in ahead of the data point especially on sectors that benefit from easing policy. Downside risk to IDR should be limited given current & capital account improvement. The administration has arranged for bigger standby International loan facilities (to meet U$ demand for loan repayment) and implement partial control on FX buying for speculation by residents and financial players. Stable currency offers flexible monetary and fiscal policies. Gov’t additional fiscal stimulus package, representing 1.4% of GDP, should facilitate a 4% GDP growth target in 2009 and 5.1% in 2010. Throw in aggressive rate cuts to the environment and we could see a strong domestic consumption (~ 65% of GDP) more than offsets external trade contraction. Election from April onwards could also offer upside surprise; Historically, a favorable outcome considerably boosts consumer and business confidences! His top 5 picks are in order of BMRI, BDMN, ASII, INTP, and BBRI. <<Early bird for the next cycle.pdf>> Bank Mandiri Bank Mandiri (BMRI IJ) is now Arief’s top pick out of Indonesia. He raised PO 17% to Rp 2,800 and lifts 2009-10 forecast bottom line by 12-29%. BMRI has successfully revolutionized its operation, strengthened risk management, and cleaned up loan portfolio over the last 4 years and these structural changes are set to deliver sustainable improvement in earnings and RoE. As Indonesia implements easing monetary and expansionary fiscal policies, Arief see 2009-10 earnings benefits from higher NIM, better than anticipated loan growth, and resilient economic growth hence lower loan loss provisions. Stock trades on 6.3x EPS and 1.1x P/BV '09. Arief thinks the bank worth 1.7x BV when market realize fears about relaps restructured loan in BMRI is out of place. http://research1.ml.com/C/?q=V4ruqvv8RwrltljEpgrEYA%3D%3D&r=eryado BDMN: raised PxT to Rp 4,250 Our 2nd favorite name in Indonesia as BDMN is well positioned to benefit from declining interest rate thanks to its hefty time deposits (73% of total) and high LDR (87%). Arief raised PxT by 16% to Rp4,250 to reflect: (1) a 26% increase in our 2009 earnings (we keep 2010 unchanged) and (2) a 1ppt reduction in WACC to 17% as we expect macroeconomic headwinds to decrease. On concern over its remaining F/X forward contract, we believe BDMN has made enough provisions (US$73mn) for the balance. The net notional amount of its F/X contract has declined 84% to US$230mn. Separately, Bloomberg reported BDMN plans to raise ~Rp4tn in rights issue, priced at ~45% discount. We view the pricing as attractive if done based on / below current share price given the stock is now trading at depressed 5.3x '09 P/E and 0.9x '09 P/BV, or 50% disc to our fair P/BV of 1.8x. http://research1.ml.com/C/?q=D1XJDxmNBpHltljEpgrEYA%3D%3D&r=eryado FX forecasts Our global FX team's latest view. For Indonesia, the team believes Rupiah is poised to appreciate in coming months, in light of: i) relatively resilient macro-fundamentals and greater political certainty post-parliamentary and presidential elections, ii) growth outperformance relative to the rest of Asia and scope for further expansionary fiscal and monetary policies, iii) Recent comments from the Indonesian authorities suggesting they are uncomfortable with sustained Rp weakness and reaffirmed their commitment to ‘guarding’ the Rp. EM currencies quarterly forecasts is on pg 13; We expect Rp to hit Rp10,000/US$ at Dec '09, and Rp9,700/US$ at Dec '10. Elsewhere, we are moderately positive on the dollar. The longer and more sustained the downturn in the US, the more powerful the re-balancing which simultaneously shrinks the US current account gap and supports demand for USD. That said, until the US current account imbalance is closed, the USD is vulnerable to outbreaks of risk-seeking behavior brought on by greater optimism over the economic outlook. http://research1.ml.com/C/?q=TSG8K56RyvzltljEpgrEYA%3D%3D&r=prodap US Markets DJIA -3.7%, Vol 1.6B; CCMP -4.1%, Vol 2.3B; SPX -4.5%; SOX -6.6%; DXY +1% ***Stocks crumble as a poor macro data & anxiety ahead of GM & Chrysler's biz plan update offset the signing of the $787B stimulus package by Prez Obama. Volumes spike higher as do volatilities w/ the VIX jumping 13% to 48.6%. All 3 indices finish on the lows while the tape turns super sloppy with 92% of NYSE issues declining! Bonds catch flight to quality bid w/ 10 yr +2 3/32 to yield 2.64% Market Talks * BUMI: Bapepam may appoint counter assessor to assess BUMI’s acquisition transactions. Currently the investigation by Bapepam is still ongoing. On 10 Feb Bapepam has stated that the acquisitions are considered material. (Bisnis Indonesia) * BNGA reported Rp678b net profit for FY08, -55% YoY (all consolidated). This is in line with our estimate. Net interest income is Rp4.801tn, +11% YoY. Provision expense is Rp1.173tn, +82% YoY. * Govt. likely to increase debt financing to Rp7.7tn following the revision of budgets assumptions, Head of Fiscal Policy at Ministry of Finance said. Growth is now projected at 4.5% instead of 4.7%, and budget deficit is at 2.6% instead of 2.5%. (Bisnis Indonesia ) Santy Tandiana Merrill Lynch Indonesia Dir: 6221-515 8997 Mob: 62-8151-4355-954 Important notice Although this report may contain extracts from or summaries of Merrill Lynch research or morning call notes, it does not in itself constitute Merrill Lynch research and has not been compiled or approved by our Research Department. Any mention of individual analysts by name is purely for reference purposes and should not be taken to imply that the analyst concerned has read or approved this report. Reports can be found at www.mlx.ml.com This message w/attachments (message) may be privileged, confidential or proprietary, and if you are not an intended recipient, please notify the sender, do not use or share it and delete it. Unless specifically indicated, this message is not an offer to sell or a solicitation of any investment products or other financial product or service, an official confirmation of any transaction, or an official statement of Merrill Lynch. 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