Equity SNAPSHOT Friday, September 21, 2018 Danareksa Sekuritas – Equity SNAPSHOT FROM EQUITY RESEARCH Plantation: Palm Oil Plantation Moratorium Reinforced (Overweight) We think that the issuance of the new Presidential Instruction is a reinforcement of the existing moratorium in place since 2011. However, we also think that the news could provide immediate positive sentiment for the sector. In the long-run, we believe that continued slower plantings could translate into slower supply - a positive for the CPO price. Maintain overweight. To see the full version of this report, please click here Indosat Ooredoo: Ex-Java plans become more concrete (ISAT IJ. IDR 2,970. HOLD. TP IDR 3,300) After the succesful launching in Lampung, ISAT added 4G capacity in South Kalimantan and South Sulawesi and now promotes data under the 4G Plus or 4.5G banner. Over 80% of the network is ready for the installation of 4G technology and the company is finally upgrading its 3G sites to 4G more aggressively. ISAT has to defend its market share while challenges on the operational and financial front may persist. In spite of the cheap valuation we prefer to remain conservative. Maintain HOLD with a TP of Rp3,300. To see the full version of this report, please click here MARKET NEWS Macroeconomy Government: 2019 debt financing target of IDR 359.12tn has been approved Government: House of Representatives agree to set government’s capital injection at IDR74.8tn Sector Indonesian government to allow 14 days for biodiesel delivery Corporate Kalbe Farma: KLBF will add 80 new products by 2020 to its healthy foods portfolio ROTI: To maintain ASP throughout 2018 KEY INDEX Close Chg Ytd Vol (%) (%) (US$ m) Asean - 5 Indonesia 5,931 1.0 (6.7) 405 Thailand 1,752 0.1 (0.1) 2,102 Philippines 7,135 (1.2) (16.6) 82 Malaysia 1,804 0.2 0.4 458 Singapore 3,180 0.1 (6.5) 668 Regional China 2,729 (0.1) (17.5) 26,472 Hong Kong 27,478 0.3 (8.2) 11,084 Japan 23,675 0.0 4.0 16,287 Korea 2,323 0.6 (5.8) 5,696 Taiwan 10,831 (0.2) 1.8 4,300 India 37,121 (0.5) 9.0 431 NASDAQ 8,028 1.0 16.3 113,040 Dow Jones 26,657 1.0 7.8 10,600 CURRENCY AND INTEREST RATE Rate w-w m-m ytd (%) (%) (%) Rupiah Rp/1US$ 14,849 (0.1) (1.8) (9.5) BI7DRRR % 5.50 0.3 0.3 1.3 10y Gov Indo bond 8.23 (0.2) 0.4 1.9 HARD COMMODITY Unit Price d-d m-m ytd (%) (%) (%) Coal US$/ton 113 (1.2) (3.8) 12.3 Gold US$/toz 1,207 0.0 0.9 (7.3) Nickel US$/mt.ton 12,541 1.0 (6.9) (1.3) Tin US$/mt.ton 19,012 0.5 1.2 (5.4) SOFT COMMODITY Unit Price d-d m-m ytd (%) (%) (%) Cocoa US$/mt.ton 2,160 (1.9) 2.0 13.8 Corn US$/mt.ton 116 2.8 (9.5) (7.5) Oil (WTI) US$/barrel 70 (0.1) 4.3 16.2 Oil (Brent) US$/barrel 79 (0.9) 9.0 17.7 Palm oil MYR/mt.ton 2,136 (1.8) (2.4) (10.6) Rubber USd/kg 133 0.9 (1.1) (9.3) Pulp US$/tonne 1,205 N/A 2.8 20.5 Coffee US$/60kgbag 76 (0.3) (0.6) (10.6) Sugar US$/MT 330 0.0 8.7 (16.3) Wheat US$/ton 143 0.3 (6.8) 8.7 Soy Oil US$/lb 28 1.3 (3.3) (16.6) Soy Bean US$/by 850 2.4 (3.6) (10.7) Source: Bloomberg
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Friday,21 September 2018
Plantation OVERWEIGHT
New Palm Oil Plantation Moratorium Reinforced
We think that the issuance of the new Presidential Instruction is a reinforcement of the existing moratorium in place since 2011. However, we also think that the news could provide immediate positive sentiment for the sector. In the long-run, we believe that continued slower plantings could translate into slower supply - a positive for the CPO price. Maintain overweight. Moratorium imposed for new palm oil plantations. The Indonesian government has just issued Presidential Instruction No. 8/2018 on 19-Sep-18 with regards to a moratorium on new palm oil plantations. Key highlights include 1) imposing moratorium on new permits for the conversion of forest area into palm oil plantation (with exemption only to forest areas that have already been planted with palm oil) 2) data verification for the palm oil conversion area, palm oil plantation permits, location permit, Rights to Use (HGU) and other necessary documentations, 3) conformance to the Indonesian Sustainable Palm Oil (ISPO) standards and 4) Enforcement of requiring plantation companies to reserve at least 20% of total planted area for plasma farmers. The moratorium will be valid for 3 years since the issuance of Presidential Instruction. What do we think? We think that the news could provide immediate positive sentiment for the sector. However, we believe that the issuance of the new Presidential Instruction is a reinforcement of the existing moratorium that has been in place since 2011, which has caused plantings activity to decelerate. Continued slower plantings could translate to slower supply in times ahead, hence could be positive for CPO price in the long-run. In addition, we also think that the limitations set ensure future plantings conformance to the best practices.
On the other hand, we believe that the enforcement of requirement for inti companies to reserve at least 20% of total planted area for plasma farmers imply government’s intention to increase palm oil plantings for plasma/smallholder farmers.
Which companies are impacted? We believe that the moratorium issued would not have any significant impact on companies under our coverage (AALI, LSIP and SGRO). Moreover, the companies under our coverage have already reserved at least 20% of their planted area for plasma farmers.
Maintain overweight. We maintain our overweight recommendation on the plantation sector as we believe that demand growth will overtake supply growth ahead. Slower supply was as a result of slower planting activities in the past. Stronger demand will be driven by the full implementation of B20 as well as better demand from India and China.
Company Ticker Rec (Rp) (RpBn) 2018F 2019F 2018F 2019F 2019F
London Sumatra LSIP IJ BUY 2,000 9,138.8 11.1 11.2 1.1 1.0 9.2 Astra Agro Lestari AALI IJ BUY 16,500 25,309.7 15.4 13.5 1.3 1.2 9.5 Sampoerna Agro SGRO IJ BUY 3,000 4,164.6 12.0 10.3 1.0 0.9 9.4
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Equity Research Company Update
Friday,21 September 2018
Indosat Ooredoo(ISAT IJ) HOLD
Company Update Ex-Java plans become more concrete
After the succesful launching in Lampung, ISAT added 4G capacity in South Kalimantan and South Sulawesi and now promotes data under the 4G Plus or 4.5G banner. Over 80% of the network is ready for the installation of 4G technology and the company is finally upgrading its 3G sites to 4G more aggressively. ISAT has to defend its market share while challenges on the operational and financial front may persist. In spite of the cheap valuation we prefer to remain conservative. Maintain HOLD with a TP of Rp3,300. Late in the game but higher capex guidance begins to materialize. Company aims to increase capex intensity, which is part of its 3yr strategy to modernize its network starting with higher FY18 capex budget of Rp8 tn from ~Rp6 tn in previous years. ISAT believes is not late, as capex equipment prices are more reasonable, and that the timing is right as now the ex-Java population is more engaged now to video calling and watching content. ISAT goes a step further upgrading the 3G BTS to 4G for more speed and higher traffic volumes. Dissapointing 1H18, challenging 2H18. ISAT has lagged considerably in 3G/4G BTS rollouts opting to streamline operations and maintain margins first, before embarking aggressively in data like EXCL did. The 1H18 revenue (-27% YoY) and net losses -Rp0.7 tn result in 1H18 were disappointing losing revenue share and EXCL’s total revenue of Rp5.5 tn surpassed that of ISAT. We expect ISAT’s revenue to post negative growth while net loss to persist. ARPU pressures to continue in spite of potential price improvements. ISAT is obliged to follow Telkomsel/EXCL in ex-Java to defend market share. EXCL upped the capex allocation to 50% for Ex-Java (more than before) and ISAT follows suit with an analogous adjustment justifiably so. Still we think ISAT is later comer and destined to grab the less ARPU productive users. The lagging network rollouts are reflected in discounts in headline data prices which are heavy in bonuses. Battle on multiple fronts. Maintain Hold. Market may have been disappointed with ISAT’s operational and financial perofrmance in the last one year and is probably waiting to see if its current execution of capex and marketing strategies could bring significant turnaround. This could take some time and until then we will prefer to stay conservative. We reiterate our Hold call with TP:Rp3300 implies EV/EBITDA-19 3.1x.
Government: The 2019 debt financing target of IDR 359.12tn has been approved The House of Representatives (DPR) has agreed to set the debt financing target at IDR 359.12tn in the 2019 state
budget. This figure is slightly lower than the proposed amount of IDR 359.27tn due to revision of the foreign exchange assumption. The debt financing will be done through the issuance of government bonds (IDR 386.21tn),
local debt (IDR 482.4tn) and foreign debt (IDR 27.57tn). The DPR also agreed to the budget deficit target of 1.84% of GDP, or lower than the budget deficit target in the 2018 state budget (2.12%). (Investor Daily)
Government: House of Representatives agrees to set the government’s capital injection at IDR74.8tn The House of Representatives has agreed to increase the government’s capital injection (PMN) to IDR 74.8tn in the
state budget of 2019, with IDR 17.8tn allocated to State Owned Enterprises. The money will mainly be distributed to three SOE, namely: PLN (IDR 6.5tn), Hutama Karya (IDR 10.5tn) and Sarana Multigriya Finansial (IDR 0.8tn).
(Investor Daily)
SECTOR
Indonesian government to allow 14 days for biodiesel delivery In an effort to enforce the full implementation of the B20 mandate, the Indonesian government plans to give a time
limit for biodiesel delivery. One of the plans is to require biodiesel producers to deliver the FAME within 14 days after receiving a Purchase Order (PO) from fuel distributors/importers. (Kontan)
CORPORATE Kalbe Farma: KLBF will add 80 new products by 2020 to its healthy foods portfolio
Kalbe Farma will strengthen its healthy foods portfolio with the addition of 80 new products by 2025 under the brand Health and Happiness (H2). At present, there are 23 H2 products. In 2019, the company plans to add
another 6 new products seeking to leverage on the healthy lifestyle trend of consumers seeking better nutrition
and preventive healthcare. Kalbe also plans to expand aggressively into export markets, targeting IDR1tn of revenues this year (6% of total revenues). Recently, the company signed an MOU with the Himalaya Drug
Company to conduct research on locally-sourced herbal products with the technology coming from India. (Bisnis Indonesia)
ROTI: To maintain ASP throughout 2018 The management of ROTI has secured wheat flour supply from a local company to mitigate the impact of higher
wheat prices. The company plans to maintain its ASP until the end of this year. To support its FY18F revenues, the company will launch new products in 4Q18. Going forward, expansion of distribution coverage to Batam, Lampung,
Balikpapan, Manado and Papua as well as to the Philippines should sustain revenues growth. (Kontan)
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