Invest at Future Bluechip Stock, Auto is the one

Jakarta, 11 October 2012 When I grew-up first thing I dreamed was to own a car…. Car is the top consumption list in humanity. Not just because of lack of public transportation but flexibility to go anywhere is essential by having our own car. This is why most of Auto Companies led the country’s largest corporation, GM in US, Toyota in Japan, and Astra in Indonesia. I believe Auto Company will continue to lead Indonesia Top Corporation list by looking at Indonesia penetration rate below 5% versus Malaysia 30%. We recommend investing at potential small cap auto companies. To increase the penetration rate we need purchasing power to increase and/or price of goods to decease. By providing affordable car will create new market segment and certainly with bigger market. This is what we called as pyramid economy. What new and what start to leveraging Indonesia auto-car is LCGC (Low Cost Green Car). This is car that will get incentive by government as it has specification such as; Price to below Rp100mn Fuel consumption of 20-22km/liter (avanza 12km/liter) Car’s component must have minimum 40% of local content at 1st year and increase to 80% over the five years. LCGC will get incentive from lower tax. Astra made his first step, introducing Toyota Agya and Daihatsu Ayla. Price to range at Rp75mn-Rp100mn. This implied to Rp22-30mn down payment and Rp1-1.5mn monthly instalment. I believe motorbike owner will buy one. In summary: LCGC will create new low and bigger market segment, pyramid economy apply. Low fuel consumption will attract existing car user, since subsidy fuel is getting serious of being cut. The most leverage is pure auto player. My Top-pick is TURI ASII’s shareholder also shareholder of TURI 44% TURI is the second largest dealer after AUTO 2000 (Own by ASII) Toyota and Daihatsu contribute 72% of 1H12 total sales. Currently TURI is trade at 11x annualised P/E 2012 vs ASII 17x and IMAS 13x. During the boom on Nissan sales. IMAS is trade above 17x P/E Looking at potential growth in LCGC and potential re-rating TURI still has potential to double from current share price. Looking at TURI shareholder, and business potential TURI is definitely a future Bluechip Stock. Suryadi Candra Kasih Institutional Sales - ECM suryadick@gmail.com

US Dollar start to strengthen from now

Kebijangan Fed untuk merubah porsi maturity obligasi jangka pendek ke jangka panjang / “Operation Twist” akan membuat kurva yield obligasi semakin curam dan akan menarik dana kembali masuk ke amerika. Maka mulai dari hari ini USD akan kembali menguat.

Buy stock at crash make you rich faster

Salah satu cara membuat anda kaya cepat adalah membeli saham ketika market saham krisis bukan ekonomi negaranya.

It’s only and purely a panic selling

SUMMARY

Pergerakan IHSG mulai terlepaskan dari pergerakan Dow Jones. Alasan pergerakan IHSG melepaskan diri dari pergerakan Dow Jones ini juga di topang oleh struktur ekonomi negara maju yang berbeda dengan negara berkembang seperti Indonesia. Indonesia sangat di berkahkan dengan ekonomi berpopulasi besar yang dimana konsumsi domestik masih menjadi kunci terbesar pertumbuhan ekonomi (sekitar 60% lebih dari total ekonomi). Penjualan saham yang panik di tahun 2008 berbeda dengan yang ada di 2011. Semua indikator ekonomi Indonesia masih menunjukan trend penguatan di tahun 2011 ini.


INSIDE

 IHSG is decoupling from Dow Jones
 Panic Selling in 2008 unlike in 2011
 Indonesia’s Consumer Related Indicators in 2008 vs in 2011
 Stock-Picking:
o Big Cap. : ASII – AmChart Plus Minus
BBRI – AmChart Plus Minus
BBCA – Parabolic SAR
GGRM – AmChart Plus Minus
o Medium Cap.: HRUM – AmChart Trending
CPIN– AmChart Plus Minus
o Small Cap.: ASRI – AmChart Plus Minus
LPCK – AmChart Bottom Fishing

JCI is at premium but regional market is also over-sold

JCI's valuation is premium to regional market at the moment. The turbulence of US market did not pushed JCI low enough compared to the fall in the regional market. So, does it mean JCI will drop from now? Yes, but with tolerated percent.

The logic of global market move in positive correlation is correct, but not always the high valuation market will go down to adjust to the low valuation market, but the low can also go up to adjust the high one.

I believe JCI fragile from US thunder and regional market is over-sold at the moment. Even few of them already traded at the lowest valuation since 2008 therefore, I believe they will rebound from now.

Now, JCI is traded at 15x earnings. Historically, at period of positive real interest rate cycle like today, JCI traded lowest to just 13x or equal to 3200.

The fed will continue give doping to their market, QE will never end. They just can't accept the reality. What does it mean? Just imagine how a doping football player stop doping.


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Market Strategy: Its economic cycle, the phase is changing now

Investment Highlight
If you believe on economic cycle, the phase is changing now. We would have very high inflation in 2011, if central bank does nothing on tighten the policy, inflation will accelerate and finally cause more problems. But if central bank increases interest rate it is not good for equity. I believe inflation rate higher than interest rate at least for 1 year now onward. We set JCI’s target to 2,772 implied 11x PER forward.



JCI’s Valuation
Looking at what happened in 2010 inflation was accelerating from 3.4% in early 2010 to highest 6.9% in dec10. In the same time, Indonesia’s GDP rose to 6% in 3Q10 from 4% in 4Q09 and unemployment dropped from 8% in 3Q10 to 7% in 4Q09. This inflation phenomenal we called it as demand-pull inflation or inflation cause by increased
in consumption. It’s also reflected from growth in car sales, housing sales and other consumer goods sales. As the result, JCI rose by 46% with ASII, UNVR, KLBF, banking and property stocks lead the market.

Although inflation has shown fear in 4Q10, JCI stubbornly record high. We believe this due to optimism in re-rating Indonesia’s investment grade or one more level to investment grade by moody and too much liquidity from money printing in US and EU countries to Asia.

In Indonesia’s growing economic we always have inflation, but in 2011 the source would come from supply-side where most of the inflation rate comes from commodities price and have already been reflected in Coal prices, CPO prices, and Chili prices early this year. Nevertheless, street is predicting more supply constrain and unpredicted weather in supplier today’s push commodities price to skyrocket in 2011.

Central bank’s role is to tighten the policy to tame the current accelerating inflation rate. The most feasible policy in short-run is to increase interest rate. However, we believe increasing interest rate would not effective in situation where inflation causes by supply-side. We believe central bank has same though by looking at the statement he made in newspaper.

We value JCI at 11x PER forward or at level 2,772. In historical negative real interest rate JCI is traded at average 11x PER and positive real interest rate economic phase traded at 14x PER forward. We believe our target is conservative as we are using current buoyant earnings consensus. Looking at today’s market sentiment, potential earnings downgrade by analysts are wide.




Where can it be right?
1. In the phase of inflation higher than interest rate, market is bearish.
2. We believe inflation rate higher than interest rate in 2011.
3. Increasing interest rate ineffective to bring cost-push inflation down.
4. If BI rate increase, stock market will decrease
5. In historical, negative real interest rate phases were last only for 1 year and positive real interest rate phases were last for 1.5 – 2 years. Today, Indonesia has past 602 days of positive real interest rate.
6. Indonesia inflation rate in December is 6.9% or higher than interest rate 6.5%. In economic history, inflation rate higher than interest rate last for at least one year not one month.

Where can it be wrong?
1. Commodities prices not rise as high as street expecting
2. Central bank or government policies succeed to slow down inflation rate.

How JCI move in 2011
JCI rebound in short-run after inflation rate announced in late jan11 to early feb11
JCI decline back as inflation accelerates back until 2Q2011 (Feb 2011 – July 2011)
JCI consolidate after big decline in 3Q2011 (Aug 2011 – Sep 2011)
JCI bullish after highest inflation rate reported in 4Q2011 (Oct 2011 – Dec 2011)

Sector to overweight
1. Banks with high liquidity such as, BMRI, BBCA and BBNI
2. Commodities play. Supply constrain push price higher
3. Companies with low leverage or DER
4. Coal with highest price sensitive: BORN, INDY, HRUM, ITMG, and PTBA
5. CPO with highest price sensitive: AALI, LSIP, SGRO and BWPT
6. Commodity related plays: HEXA, UNTR, and DOID

Sector to avoid
Bank with tight liquidity
Company with high leverage or DER

Appreciation

This is a powerful message for our modern society.
We seem to have lost our bearing & our sense of direction.


One young academically excellent person went to apply for a managerial position in a big company.

He passed the first interview; the director did the last interview.
The director discovered from the CV that the youth's academic achievements were excellent all the way, from the secondary school until the postgraduate research, never had a year when he did not score.

The director asked, "Did you obtain any scholarships in school?"
The youth answered "none".

The director asked, "Was it your father who paid for your school fees?"
The youth answered, "My father passed away when I was one year old, it was my mother who paid for my school fees.

The director asked, "Where did your mother work?"
The youth answered, "My mother worked as laundry woman.
The director requested the youth to show his hands.
The youth showed a pair of hands that were smooth and perfect.

The director asked, "Have you ever helped your mother wash the clothes before?"
The youth answered, "Never, my mother always wanted me to study and read more books. Furthermore, my mother can wash clothes faster than me.

The director said, "I have a request. “When you go back today, go and clean your mother's hands, and then see me tomorrow morning.”

The youth felt that his chance of landing the job was high. When he went back, he happily requested his mother to let him clean her hands.
His mother felt strange, happy but with mixed feelings, she showed her hands to the young man.

The youth cleaned his mother's hands slowly. His tear fell as he did that. It was the first time he noticed that his mother's hands were so wrinkled, and there were so many bruises in her hands. Some bruises were so painful that his mother shivered when they were cleaned with water.

This was the first time the youth realized that it was this pair of hands that washed the clothes everyday to enable him to pay the school fee. The bruises in the mother's hands were the price that the mother had to pay for his graduation, academic excellence and his future.

After finishing the cleaning of his mother’s hands, the youth quietly washed all the remaining clothes for his mother.

That night, mother and son talked for a very long time.

Next morning, the youth went to the director's office.

The Director noticed the tears in the youth's eyes, asked: "Can you tell me what have you done and learned yesterday in your house?"

The youth answered, "I cleaned my mother's hand, and also finished cleaning all the remaining clothes'

The Director asked, "Please tell me your feelings."

The youth said:
1. I know now what appreciation is. Without my mother, there would not have been the successful me today.
2. By working together and helping my mother, only I now realize how difficult and tough it is to get something done.
3. I have come to appreciate the importance and value of family relationships.

The director said, "This is what I am looking for to be my manager.
I want to recruit a person who can appreciate the help of others, a person who knows the sufferings of others to get things done, and a person who would not put money as his only goal in life. You are hired.

Later on, this young person worked very hard, and received the respect of his subordinates. Every employee worked diligently and as a team. The company's performance improved tremendously.

A child, who has been protected and habitually given whatever he wanted, would develop "entitlement mentality" and would always put him self first. He would be ignorant of his parent's efforts. When he starts work, he assumes that every person must listen to him, and when he becomes a manager, he would never know the sufferings of his employees and would always blame others. For this kind of a person, who may be good academically, may be successful for a while, but eventually would not feel sense of achievement. He will grumble and be full of hatred and fight for more. If we are this kind of protective parents, are we really showing love or are we destroying the children instead?*

You can let your children live in a big house, eat a good meal, learn piano, watch a big screen TV. But when you are cutting grass, please let them experience it. After a meal, let them wash their plates and bowls together with their brothers and sisters. It is not because you do not have money to hire a maid, you want them to understand, no matter how rich their parents are, one day their hair will grow gray, same as the mother of that young person. The most important thing is your children learn how to appreciate the effort and experience the difficulty and learn how to work with others to get things done.