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Fairly valued with nickel price weakness

Vale Indonesia (INCO) – HOLD (Downgrade)

Price: Rp2,510 – Target Price: Rp2,400

Fairly valued with nickel price weakness

Slowing growth in China has caused nickel demand to weaken with LME nickel inventory levels remaining stubbornly high despite the Indonesian nickel ore ban. As a result, nickel price has collapsed and in 3Q15 fell to its lowest levels since 1Q09 and is down by 30% YTD. This has caused significant reductions to nickel price estimates as high LME inventory levels are expected to persist with weakening nickel demand expectations. We have cut our nickel price estimates by 20% in FY15 and by 33% in FY16 in-line with current market expectations. We rollover INCO’s DCF based valuation to 2016 and downgrade recommendation to HOLD with target price reduced from Rp3,400/sh to Rp2,400/sh (16E’EV/EBITDA 9.1x and 16E’PBV 1.0x).



Struggling, yet remain promising

Summarecon Agung (SMRA) – BUY (Maintain)

Price: Rp1,420 – Target Price: Rp1,650

Struggling, yet remain promising

As the uncertainty over the economic activity recovery remains doubtful this year and several measurement indicators such as: car sales, mortgage and corporate loan seem still far from improving, we continue to maintain our neutral call on the sector. On the other hand, regardless of the potential weakening pre sales, we still expect to witness SMRA reporting stable earnings growth going forward, backed by its potential future pipeline projects and solid recurring as well as demand recovery. Its plan to list SIP (Summarecon Investment Property) sounds to not only unlock the company value but could also strengthen SIP position in the competition map. Moreover we also look forward to see SBK and SBD new township as another earnings boom for SMRA in the near future. Maintain our BUY call with lower TP of IDR1.650 (16.2% potential upside). Over the counter SMRA traded at 13.3x FY16E P/E and 2.5x FY16E PBV.


Attractive Valuation

Banking Sector – NEUTRAL (Maintain)

Attractive Valuation

While loan growth improved and BI estimated NPL to stabilize in Aug’15, we still prefer to wait for any signs of improvement to confirm that loan and NPL are sustainably improving. The continuing depreciation on IDR and slowing growth can still pressurize asset quality. We still believe that government infrastructure program remains a key point to stimulate the economy and bank activity. We hope it can really start soon as budget spending normally occurs in 3Q and 4Q. The recent sharp drop in banks’ stock prices make the valuation more attractive with forward PBV currently below 2 standard deviation for banks under our coverage (BBCA, BMRI, BBRI, and BBNI). We still maintain neutral on the sector with BBCA and BBRI as our prefered stocks.

  • Improvement in loan growth.
  • Liquidity still not stretched.
  • Pressure on NPL to continue.
  • Government infrastructure project remains a key point.
  • Recent price drop offers attractive valuation.
  • Maintain NEUTRAL with BBCA and BBRI as our prefered stocks.

Jaded to get better result

United Tractors (UNTR) – Hold (Maintain)

Price: Rp15,700 – Target Price: Rp18,350


Jaded to get better result

As expected UNTR continued to note poor monthly sales. Despite machinery business up +27.7%MoM, the segment posted weak yearly and 8M15 result. Its two other revenue engines (mining contracting and coal mining) confirm that the recovery remains doubtfull. In the same period, CM and MC segment also worsen. Our stance on UNTR is unchanged, volume growth stays under pressure, while weakening rupiah currency and any slight improvement on ASP appear not to  impact massively on company’s earnings growth this year. Our major concern lies on the potential continuing economic downturn as well as unchanged global commodity market. Having said that we maintain our HOLD call on the stock with lower TP of IDR18,350/shr.

  • Unsurprising monthly result.
  • Lowering our assumption.
  • Expect the same trend.

SIMP - Attractive valuation

Salim Ivomas Pratama (SIMP) – BUY (Initiate)

Price: Rp430 – Target Price: Rp550

Attractive valuation

  • Benefited by strong cooking oil brand.
  • Growth potential from maturing oil palm trees.
  • Natural hedging against price volatility.