Equity SNAPSHOT Thursday, August 27, 2020 Danareksa Sekuritas – Equity SNAPSHOT FROM EQUITY RESEARCH Coal Mining: Scaling down coal production targets (OVERWEIGHT) In response to the soft global coal demand from Covid-19 pandemic, coalminers have scaled down their coal production targets. Larger coal producers in Indonesia have cut coal production targets for 2020 by 4 – 18% from initial guidance. While the near-term coal prices will remain soft, we believe global coal prices will recover in 4Q20 with the Northern hemisphere entering the winter season and more supply cuts. Maintain OVERWEIGHT. To see the full version of this report, please click here United Tractors: Slight recovery in Komatsu volume (UNTR IJ IDR. 23,250 BUY TP IDR 29,000) In July 2020, United Tractors (UNTR) reported better Komatsu sales volume of 85 units (+11.8% mom) and coal sales (+20.6% mom), but lower coal production (-4% mom) and gold production (-18.8% mom). Amid the Covid-19 pandemic, UNTR expects 16% yoy lower coal production of 110mn tons for 2020 and 27 – 38% yoy lower gold production. We believe the solid gold price will help the company to alleviate pressure on earnings from weak coal prices. Maintain BUY with a higher TP of IDR29,000 (DCF valuation). To see the full version of this report, please click here HM Sampoerna: Playing the waiting game (HMSP.IJ IDR. 1,700 SELL TP IDR.1,430) Soft purchasing power coupled with the inability to raise selling prices to pass on higher excise has hit the earnings of HMSP this year. The expected enforcement of HJE in 4Q20 and further excise simplification in 2021 may sustain share price performance. However, the increasing preference toward high-tar cigarette may create headwinds for HMSP. Maintain SELL. To see the full version of this report, please click here Jasa Marga: Almost back to the normal level (JSMR.IJ IDR. 3,940 BUY TP IDR.5,500) At the pubex conducted by IDX, JSMR said that traffic had now reached 90% of the normal level. Since the loosening of social distancing restrictions (PSBB) the daily toll traffic has gradually improved. JSMR will focus on the projects in its pipeline and it has no interest in acquiring new toll roads located outside Java. JSMR will issue bonds with targeted proceeds of IDR2.0tn. JSMR is rated AA- by Pefindo. As of Jun20 the DER and ICR stood at 2.41x and 1.58x, respectively. Maintain BUY. To see the full version of this report, please click here MARKET NEWS MACROECONOMY ▪ Government to distribute salary subsidies today ▪ Government prepares regulation for vaccine procurements CORPORATE ▪ Kalbe Farma will invest up to IDR1tn for Covid-19 vaccine development KEY INDEX Close Chg Ytd Vol (%) (%) (US$ m) Asean - 5 Indonesia 5,340 0.0 (15.2) 578 Thailand 1,323 0.5 (16.3) 1,563 Philippines 5,931 (0.4) (24.1) 99 Malaysia 1,550 (0.3) (2.5) 1,830 Singapore 2,542 (0.7) (21.1) 844 Regional China 3,330 (1.3) 9.2 85,233 Hong Kong 25,492 0.0 (9.6) 17,175 Japan 23,218 (0.3) (1.9) 2,283 Korea 2,369 (0.0) 7.8 12,175 Taiwan 12,833 0.6 7.0 5,984 India 39,074 0.6 (5.3) 515 Nasdaq 11,665 1.7 30.0 243,556 Dow Jones 28,332 0.3 (0.7) 14,200 CURRENCY AND INTEREST RATE Rate w-w m-m ytd (%) (%) (%) Rupiah Rp/1US$ 14,678 0.6 (1.0) (5.9) BI7DRRR % 4.00 - - (1.0) 10y Gov Indo bond 6.79 0.1 (0.1) (0.3) HARD COMMODITY Unit Price d-d m-m ytd (%) (%) (%) Coal US$/ton 50 (0.1) (4.4) (26.6) Gold US$/toz 1,948 (0.3) 0.3 28.4 Nickel US$/mt.ton 15,124 1.2 11.1 8.4 Tin US$/mt.ton 17,565 1.1 (0.7) 2.3 SOFT COMMODITY Unit Price d-d m-m ytd (%) (%) (%) Cocoa US$/mt.ton 130 0.3 2.8 (10.1) Corn US$/mt.ton 43 (0.0) 4.3 (29.0) Oil (WTI) US$/barrel 46 0.1 5.3 (30.8) Oil (Brent) US$/barrel 2,729 (1.0) (2.7) (9.8) Palm oil MYR/mt.ton 135 1.4 13.2 (7.0) Rubber USd/kg 1,205 N/A 2.8 20.5 Pulp US$/tonne 360 (0.8) 2.6 0.1 Coffee US$/60kgbag 147 0.2 1.1 (6.4) Sugar US$/MT 32 (0.1) 8.8 (6.6) Wheat US$/ton 921 0.1 1.6 (2.4) Soy Oil US$/lb 130 0.3 2.8 (10.1) SoyBean US$/by 43 (0.0) 4.3 (29.0)
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Equity SNAPSHOT Thursday, August 27, 2020
Danareksa Sekuritas – Equity SNAPSHOT
FROM EQUITY RESEARCH
Coal Mining: Scaling down coal production targets
(OVERWEIGHT) In response to the soft global coal demand from Covid-19 pandemic, coalminers have scaled down their coal production targets. Larger coal producers in Indonesia have cut coal production targets for 2020 by 4 – 18% from initial guidance. While the near-term coal prices will remain soft, we believe global coal prices will recover in 4Q20 with the Northern hemisphere entering the winter season and more supply cuts. Maintain OVERWEIGHT. To see the full version of this report, please click here
United Tractors: Slight recovery in Komatsu volume (UNTR
IJ IDR. 23,250 BUY TP IDR 29,000) In July 2020, United Tractors (UNTR) reported better Komatsu sales volume of 85 units (+11.8% mom) and coal sales (+20.6% mom), but lower coal production (-4% mom) and gold production (-18.8% mom). Amid the Covid-19 pandemic, UNTR expects 16% yoy lower coal production of 110mn tons for 2020 and 27 – 38% yoy lower gold production. We believe the solid gold price will help the company to alleviate pressure on earnings from weak coal prices. Maintain BUY with a higher TP of IDR29,000 (DCF valuation). To see the full version of this report, please click here
HM Sampoerna: Playing the waiting game (HMSP.IJ IDR. 1,700 SELL TP IDR.1,430) Soft purchasing power coupled with the inability to raise selling prices to pass on higher excise has hit the earnings of HMSP this year. The expected enforcement of HJE in 4Q20 and further excise simplification in 2021 may sustain share price performance. However, the increasing preference toward high-tar cigarette may create headwinds for HMSP. Maintain SELL. To see the full version of this report, please click here
Jasa Marga: Almost back to the normal level (JSMR.IJ IDR. 3,940 BUY TP IDR.5,500) At the pubex conducted by IDX, JSMR said that traffic had now reached 90% of the normal level. Since the loosening of social distancing restrictions (PSBB) the daily toll traffic has gradually improved. JSMR will focus on the projects in its pipeline and it has no interest in acquiring new toll roads located outside Java. JSMR will issue bonds with targeted proceeds of IDR2.0tn. JSMR is rated AA- by Pefindo. As of Jun20 the DER and ICR stood at 2.41x and 1.58x, respectively. Maintain BUY. To see the full version of this report, please click here
MARKET NEWS
MACROECONOMY ▪ Government to distribute salary subsidies today
▪ Government prepares regulation for vaccine procurements CORPORATE
▪ Kalbe Farma will invest up to IDR1tn for Covid-19 vaccine development
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Thursday, 27 August 2020
Coal Mining OVERWEIGHT
Maintain Scaling down coal production targets
In response to the soft global coal demand from Covid-19 pandemic, coalminers have scaled down their coal production targets. Larger coal producers in Indonesia have cut coal production targets for 2020 by 4 – 18% from initial guidance. While the near-term coal prices will remain soft, we believe global coal prices will recover in 4Q20 with the Northern hemisphere entering the winter season and more supply cuts. Maintain OVERWEIGHT. Coal demand to remain soft. Global coal prices have remained soft due to anemic demand amid the Covid-19 pandemic. Major importers (ex-China) reported lower coal imports such as: a) India (-35.8% yoy) to 57mn tons during April – July 2020 due to high stockpiles at pits, plants and ports, b) Japan (-3.6% yoy) to 62mn tons in 7M20 caused by weak power demand and low LNG prices. China’s coal imports jumped 6.8% yoy to 200mn tons in 7M20. With China continuing its policy to curb thermal coal and solid coal imports, we expect China to import less coal in 2H20 despite a decoupling between China’s domestic coal price and the seaborne market. Supply cut by Indonesia in response to soft coal demand. Several large coal miners in Indonesia have started to scale down their coal production targets for 2020 in response to soft global coal demand amid the Covid-19 pandemic. Under our coverage, Bukit Asam (PTBA) recently cut its coal production target to 25mn tons from initially 30.3mn tons and Adaro Energy (ADRO IJ) revised down its coal production target to 52 – 54mn tons from initial guidance of 54 – 58mn tons. Other coal miners, such as Bumi Resources’ Kaltim Prima Coal (KPC) and Arutmin, scaled down their coal production targets to 85 – 90mn tons from previous guidance of 83 – 88mn tons. Indonesia’s coal mining contractors lowered coal production targets. Pamapersada Nusantara (PAMA), the subsidiary of United Tractors (UNTR IJ.BUY.TP: IDR29,000) in coal mining contracting and the largest coal mining contractor in Indonesia cut its coal production target to 110mn tons (from previously 130mn tons) with OB removal of 810mn bcm (from previously around 900mn bcm). Hence, we can infer that coal miners have asked the contractors to scale down the production given weak demand. Global coalminers have also started to cut production. The global coal player, Glencore has cut coal production target by 13.3 – 14.0% from initial guidance due to Covid-19 and to maintain profitability. Also, Coal India Limited (CIL), the largest coal producer in India has reduced its coal production target to 650 – 660mn tons for the fiscal year ending 2021 from 710mn tons previously due to the disruption from Covid-19. Meanwhile, the Russian Energy Minister expects a further drop in coal exports by 10 – 22% yoy for 2020. Russia - the world’s third-largest coal exporter - reported 4.8% yoy lower exports of 105mn tons in 7M20 with coal production down by 8.9% yoy at 227mn tons. Maintain OVERWEIGHT. While the near-term outlook for coal prices remains muted, any global coal demand recovery amid supply cuts will push up coal prices from the current level. In addition, we expect the winter season in the Northern Hemisphere in 4Q20 and global economic recovery in 2021 post Covid-19 to lift up coal prices from their currently low level of USD50/ton. Our top pick is Bukit Asam (PTBA IJ.BUY.TP:IDR3,200) given its continued diversification. The key risks are uncertainty in China’s coal imports policy and a prolonged Covid-19 pandemic.
Company Ticker Rec (Rp) (RpBn) 2020F 2021F 2020F 2021F 2021F
Bukit Asam PTBA IJ BUY 3,200 23,835 6.0 5.9 1.2 1.2 20.6 Adaro Energy ADRO IJ BUY 1,300 35,504 6.7 7.2 0.6 0.6 9.1 Indo Tambangraya ITMG IJ BUY 11,000 9,491 10.9 8.9 0.8 0.8 8.9 Harum Energy HRUM IJ HOLD 1,350 4,285 16.8 18.0 1.2 1.2 5.5
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Equity Research Company Update
Thursday,27 August 2020
HM Sampoerna(HMSP IJ) SELL
Maintain Playing the waiting game
Soft purchasing power coupled with the inability to raise selling prices to pass on higher excise has hit the earnings of HMSP this year. The expected enforcement of HJE in 4Q20 and further excise simplification in 2021 may sustain share price performance. However, the increasing preference toward high-tar cigarette may create headwinds for HMSP. Maintain SELL. Lower volume and ASP growth; we revise down our 2020 earnings estimate by 18%. We expect HMSP’s 2020 sales volume to decline by 16.6% (1H20: -18.2% yoy) with the expectation that the pick-up in economic activities in July 2020 will provide further support for cigarette sales. Delays in the implementation of the 2020 minimum retail selling prices may prevent HMSP from raising prices. We estimate FY20 top line growth of -10% yoy on the back of negative volume growth and +7.8% yoy blended revenues/stick growth. This leads to a lower gross margin of 21.8% in 2020. Amid the pressure on volume, we foresee further efficiencies in opex, and trim our opex/revenues estimate to 8.5%. Taking into account this year’s tax cuts, we forecast net profits of IDR10.6tn, or -23% yoy. We revise down our FY20 earnings estimate by 18%. Facing headwinds until greater certainty emerges on the 2021 excise regulation. The management has admitted that the daily consumption of cigarettes has fallen during the pandemic due to soft purchasing power. HMSP’s products are premium priced and, as such, further downtrading toward affordable products has hit sales volume. Data from the management shows that the cigarette volume of producers below tier 1 reached 25% of the total market share in 2Q20 vs. only 20% in the same period last year. The positive catalyst for HMSP (and also GGRM) will come from the issuance of the 2021 excise tax regulation that includes the simplification of the excise tax structure as it creates a more level playing field whilst seeking to ensure that the government achieves its revenues target. Maintain Sell. At the current share price, HMSP is trading at a rich valuation of 19x FY21 PE. In our view, the company’s efforts to offer new products for the lower segment market will support volume ahead. Margins may be negatively impacted, however. The expected enforcement of HJE in 4Q20 and further excise simplification in 2021 iya, may sustain share price performance. As we roll over our valuation to 2021, based on the FY21 PE of parent company of 15x, our new TP is IDR1,430. We maintain our Sell recommendation on HMSP. using the -1SD average 10-y PE of 20.1x, our new TP is set at IDR1,800. With limited upside, we upgrade our call to HOLD.
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Equity Research Company Update
Thursday, 27 August 2020
United Tractors (UNTR IJ) BUY
Maintain Slight recovery in Komatsu volume
In July 2020, United Tractors (UNTR) reported better Komatsu sales volume of 85 units (+11.8% mom) and coal sales (+20.6% mom), but lower coal production (-4% mom) and gold production (-18.8% mom). Amid the Covid-19 pandemic, UNTR expects 16% yoy lower coal production of 110mn tons for 2020 and 27 – 38% yoy lower gold production. We believe the solid gold price will help the company to alleviate pressure on earnings from weak coal prices. Maintain BUY with a higher TP of IDR29,000 (DCF valuation). July 2020: mixed operational numbers with higher Komatsu volume. UNTR reported mixed operational volume in July 2020 with Komatsu sales of 85 units (+11.8% mom, but -58.5% yoy) and 20.6% mom higher coal sales volume of 0.7mn tons. Nonetheless, coal production under PAMA declined slightly by 4% mom with gold production also down by 18.8% mom due to the low utilization rate and lower grade. In 7M20, Komatsu volume declined by 55.8% yoy to 938 units, while coal production declined by 11.0% yoy to 65.2mn tons. The Komatsu volume and coal production for 7M20 are within expectations at 63% and 60% of our new estimates, respectively. Downward revision on the coal and gold production 2020 targets. The Covid-19 pandemic caused several coal miners to lower their coal production targets for 2020. Hence, PAMA targets 16.2% yoy lower coal production of 110mn tons with OB removal of 810mn bcm (-18.2% yoy). Previously, UNTR targeted flattish coal production of 131mn tons. Meanwhile, gold production is also revised to 256k – 300k oz (-26.8 – 37.8% yoy) from initial guidance of 360k oz as the pandemic has lowered the utilization at the mining areas since only 50% of the employees are working. Nonetheless, the management indicated that several initiatives had been adopted to improve utilization gradually with the expectation that utilization will be back to normal by Oct/Nov 2020. Hence, while we expect low gold production in 3Q20, we expect the solid gold price to help minimize pressure on the company’s financial performance. Maintain BUY with a higher TP of IDR29,000 (DCF valuation; WACC of 12.1% and LT growth of 3%) as we use a higher gold price assumption for 2020/2021 and lower assumptions under the coal mining business. Solid gold prices will help the company to alleviate pressure on earnings from the coal business due to weak coal prices. In addition, the commencement of operations at its power plant at Tanjung Jati at end-2021 will help the company to enhance earnings beyond coal. Our new TP implies 10.6x 2021F PE.
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Equity Research Company Report
Thursday,27 August 2020
Jasa Marga(JSMR IJ) BUY
Maintain Almost back to the normal level
At the pubex conducted by IDX, JSMR said that traffic had now reached 90% of the normal level. Since the loosening of social distancing restrictions (PSBB) the daily toll traffic has gradually improved. JSMR will focus on the projects in its pipeline and it has no interest in acquiring new toll roads located outside Java. JSMR will issue bonds with targeted proceeds of IDR2.0tn. JSMR is rated AA- by Pefindo. As of Jun20 the DER and ICR stood at 2.41x and 1.58x, respectively. Maintain BUY.
Traffic reached 90% of the normal level. JSMR’s current traffic has reached 90% of the normal level. The lowest traffic was in Apr-May20 due to the implementation of PSBB (large-scale social distancing) that caused daily toll revenues to drop by more than 50%. Since the loosening of PSBB in Jun20, traffic has gradually improved. It was only 20% less in Jul20, and it is 10% lower now. Traffic is not yet normal as most students are still studying from home and many people still avoid visiting malls at the weekend.
The massive development era has passed. In the past 3 years JSMR has acquired 20 new toll roads with a total length surpassing 500km of which 18 of them have already started to operate (partially or fully operated). In the future, JSMR will only acquire 1-2 new toll roads every year. This is to maintain positive cash flow and leverage. Currently, JSMR owns 33 concessions of which 13 are under JSMR and 20 at the subsidiary level. There are 25 toll roads that are fully operated, 3 toll roads partially operated, and 5 toll roads under the land clearing and construction stage. However, the management stated that it now has no interest in acquiring new toll roads outside Java. JSMR’s DER stands at 2.41x with an ICR of 1.58x as of Jun20. This is still below the creditors’ requirement at a maximum 5.0x for DER and no less than 1.25x for ICR.
In the process of issuing bonds. JSMR will issue bonds with targeted proceeds of IDR2.0tn. JSMR is rated AA- by Pefindo (as of 19 Aug20). There are 4 series to be offered, namely: 1) A Series (3 years): coupon 7.25% to 8.50% p.a., 2) B Series (5 years): coupon 7.50% to 8.75% p.a., 3) C Series (7 years): coupon 8.0% to 9.0% p.a., and 4) D Series (10 years): coupon 8.25% to 9.25% p.a. The bonds are targeted to be issued in early Sep20. The proceeds will be used for debt refinancing. JSMR has IDR5.2tn of upcoming loans maturing in total in the near future. They consist of: 1) IDR4.0tn of Komodo Bonds which will mature on 11 Dec20, 2) IDR1.0tn nominal of Jasa Marga XIV bonds issued in 2010 which will mature on 10 Oct20, and 3) IDR200bn of loans at the subsidiary level. Besides that, JSMR still has a IDR4.5tn bank loans facility. As such, the management is optimistic the company has sufficient funds to meet all requirements.
Maintain BUY. We maintain our forecast and BUY recommendation on JSMR. We expect FY20 earnings of IDR1.2tn, implying negative growth of -43.4%yoy while the FY21 earnings are expected to grow by +53.4%yoy to IDR1.9tn.
MACROECONOMY Government to distribute salary subsidies today
After being postponed some days ago, the Ministry of Manpower will give the salary subsidies of IDR600k/worker
today for those workers having below IDR 5 million of monthly salary. The government targets to distribute 2.5 million beneficiaries in every week. The subsidies will be given until December, as such the total subsidies that will
be received is IDR 2.4 million/worker. (Kontan)
Government prepares regulation for vaccine procurements
The Coordinating Ministrer of Economics stated that the govt will enact the President Regulation (Perpres) to regulate the covid-19 vaccines procurement. Previously the govt has secured 20-30 million vaccines for 2020 from Sinovac,
and it will be extended in 2021. In 1Q21, the govt is ready for 80-130 million of vaccines, 2Q21 until 4Q21 will reach 210 million vaccines. Hence the total vaccines in 2021 will reach 340 million doses. (Kontan)
CORPORATE Kalbe Farma will invest up to IDR1tn for Covid-19 vaccine development
KLBF prepares 3 scenarios to produce the Covid-19 vaccine through the joint development with Genexine (South Korea).
Below are several scenarios: 1. Produce in small scale ranging from 1milion to 3 milion doses with minimum investment for the fill and
finish process
2. Medium scale up to 10 million doses 3. Large scale up to 25 million doses
Total investment is estimated around IDR500bn to IDR1tn to import machines. In Indonesia, it is expected to commence the phase 2 clinical trial in October or November 2020. The government has provided incentives of super
tax deduction up to 200-300% for the companies with vocational and research development in Government
Regulation No 45/19. However, it requires further guidance for the implementation. The company stated that the government needs to provide incentives for the company that work to develop the Covid-19 vaccine. This vaccine
will be the first vaccine development for KLBF. Going forward, KLBF plans to further develop herbal products with locally source raw materials. (Investor Daily)
Gedung BRI II Lt.23, Jl. Jenderal Sudirman Kav.44-46 Bendungan Hilir, Tanah Abang – Jakarta Pusat 10210 Indonesia Indonesia Tel (62 21) 50914100 Fax (62 21) 2520990
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