ML INDO : PGAS volume could surprise Flows CPO Fund Mgr Survey (22 May 2009)

While investors continue to have doubt over PGAS execution risk, PGAS volume ramp-up up to April does not disappoint. Gas delivery rose from 720 mmscfd in 1Q to 770mmscfd in April.

At this rate, Daisy's FY09 volume expectation of 720 mmscfd could be easily surpassed. Also, the no. of customers that took up gas below the minimum payment level fell from 270-350 in 1Q to 260, while gas contracts not absorbed by customers dropped from 2-3% in 1Q to 1.6%.

Separately, 3-days planned gas supply stoppage from Conoco Philips for maintenance is not a concern, as impact is minimal at 5-2 mmscfd for transmission and distribution respectively.

On the customer front, by end-09, 56% of PGAS' revenue will come from state owned PLN. This will underpin PGAS's robust growth as we expect PLN's gas consumption to grow at 3-yr CAGR of16%.

We only expect PGAS to grow 7% for 2008-12. Trades at 9.8x '10 P/E,a 41% disc to regional utilities. Potential earnings upside from higher volume, lower tax rate,and higher dividend.

Buy PO Rp3,200


Market News

* Politics:
During a presidential debate,incumbent President SBY pledged to boost economic growth to 7% by 2014 (more conservative than VP Kalla's +8% promise and Megawati's +10%), to accelrate reform of the bureaucracy and cut red-tape for business startups. (Jakarta Post)

* Timah (TINS) cut back this year's capex to Rp 350 bn from Rp 900 bn as it delays plan to buy coal mining company and to built an ash plat plant due to limited fund following the drop in tin prices. (Bloomberg)

* United Tractors (UNTR) to pay dividend of Rp 320/shr or 3.2% yield, of which Rp 100/shr interim has been paid last year. This represent 40% of 2008's profit. Separately, UT allocated Rp 650 bn to acquire coal mines. They continue to do due dilligence on target mines. Funding will come from rights issue proceed from last year. (Bisnis Indonesia)

* Indocement (INTP) - post +14% performance over the past 3 days, media Bisnis Indoensia is speculating that Heidelberg may change their mind on selling 15% stake in Indocement. (Bisnis Indoensia)

* Medco (MEDC) to get 20-year extension for its Block A gas field in Aceh. Medco's current contract for Block A will expire in 2011. Medco owns 41.67% in the field. (Bisnis Indoensia) EM more inflow EM equity funds saw $2.5 bn inflow in week to 20 May, bringing total inflows over past 9 weeks to $20bn ,the largest 9 week inflow since EEM $55 peak in Nov-07. BAS-ML fund flow trading rule still signals Sell, as inflows over past 4 weeks represents 3.2%of AUM.

In recent weeks trading rule has been wrong-footed by big policy stimulus and reallocation into equities. But Mike Hartnett feels the case for EM pause/pullback is now strengthened by big EM bullishness revealed in Fund Mgr Survey, e.g. 55% asset allocators OW EM, 80% of PMs OWChina, i.e. "pain trade" no longer up.

Note also EEM struggles once its gets >20% above its 200 mda (was 17% above yest'). By region: inflows into Asia ($0.9bn), GEM ($0.9bn),LatAm ($0.6bn). EMEA flows flat. By country: big inflows into Brazil & China. CPO: beginning of the fall?Jeffrey Ngreiterates his bearish view on CPO following the futures mkt down as much as 4.7%yest', breaking key support of RM2,500/mt as rain lashed oil palm growing regions and on concerns that high prices may curb demand.

He has been bearish since the rally began in late March. The rally, in our view, was driven by liquidity, tactical positioning by refiners and supported by low inventory data.Meanwhile, long term fundamentals are unchanged - production to recover, US soybean planting starts might be revised upward in June and stockpiling is over. CPO price in 2009 is supply driven and with production picking up in2H09, the only direction CPO going is downward. Jeff sees current levels as agood opportunity to take profit.

Global Fund Mgr Survey: No"Sell in May"

Investors are now positioned for global economic recovery according to the May Fund Mgr Survey. The unrelenting gloom 3mths ago has been replaced by fairly typical early-cyclicalsentiment, with the only hint of potential irrational-exuberance in Emerging Markets.

For the first time since March '05, investors expect corporate profits to improve in the next 12 months, with many forecasting EPS growth to exceed10%. Asset allocators are still hedging their bets: they remain U/W equities (-6%)and have only marginally lowered cash O/W (+21% from +24%).

A brief 9-month so journ into bonds ended with allocators cutting to a net 3% U/W. They stay U/WEurope & Japan, but a record net 40% of investors see GEM as the region toO/W for the next 12 mths.

Investors´ top 3 global sectors are now tech , energy, & materials as May saw a rout in defensive sectors: pharma fell to-2% from +21%, staples -1% from +9%, and utilities -19% from -15% (now the mostU/W sector). In Asia, cash positions droppedsharply with a net 9% saying they are now UW cash.