Kim Eng Indonesia Equity Daily, 24 Apr 09

Our Comment

Teguh Sunyoto published an update on Total Bangun Persada. The management indicated that the 33% YoY net profit decline in 1Q09 was mainly attributable to higher-than- expected operating expenses and higher tax rate (final tax 3% on revenue vs. old system 30% on pretax income).

On a positive note, 1Q09 net profit has already represented 78% of last year´s net profit of Rp17b.. Gross margin was up to 7.9% in 1Q09 (from 5.6% in 2008 and 7.6 in 1Q08), as expected. This was not only helped by lower cost of construction but also because of the successful management strategy to break up and subcontract (delegate) its large-size projects which typically command smaller margin (gross margin 4% or less) to other smaller contractors.

We reckon there are at least three repeat customers, which potentially will give an important contribution to Total business. Those are the Para Group, Ramayana and Bina Nusantara Group. Para Group´s subsidiary, Bank Mega for example, plans to open nearly 300 new micro banking unit/branches up to 2010.

We upgrade our recommendation on Total to BUY due to the expectation on higher profitability and its promising prospect especially from its repeat customer base. Our target price of Rp180 is based on 7x FY10 P/E which is 33% below valuation of Malaysian construction firm at 10.5x FY10 P/E.

Bank Danamon reported that a net profit declined 30% YoY to Rp393b in 1Q09., below consensus estimate. Lower net profit was mainly caused by higher provision, higher operating expenses and non-recurring expense from arising foreign exchange forward contracts. Net interest income slightly increased by 5% YoY.

Total Loan in Q109 showed growth of 13% YoY, driven by growth in mass market and micro and small-scale business which grew by 25% YoY and 4% YoY respectively. Gross NPL increased by 60bp to 2.9% as deteriorating operating environment has impacted the credit quality. Capital Adequacy ratio (CAR) declined to 16.9% in 1Q09 from 20.8% in 1Q08 due to growing in earning assets and a decline in Tier 2 Capital (the bank has fully amortized its US$300m subordinated debt in March 2009).

Indonesia stock market experienced technical problems in relation to the new system implemented by the stock exchange. The market was forced to close early. Directors of the exchange said that the problems have been fixed this morning. We see that volume will probably be lower today as market players hold their trading while making sure that the system is running well.

Golkar announced Jusuf Kalla as candidate for President. Golkar-Partai Demokrat break up has caused concerns in the market. We see that announcement of President Yudhoyono´c running mate will erase the uncertainties.

By - Katarina Setiawan

Highlights

o Total Bangun (BUY): On the right track
o Bank Danamon: Net profit declined 30% YoY to Rp393b in 1Q09
o P Gas Negara (BUY): Government to cancel Duri-Medan pipeline
o Telkom (HOLD): Obtained tax incentive
o Semen Gresik (HOLD): To appoint Bank Mandiri to seek financing
o Timah: Production may fall below forecast