TRIMAM 2H09 Strategy - Jun09

8/6/2019 TRIMAM 2H09 Strategy - Jun09

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ASSET MANAGEMENTDIVISION

June 09

2H09 Strategy:A Reality Check

Research Unit on :


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17/06/2009 2ASSET MANAGEMENT DIVISION

.... Fundamentals will take us further.

If 1Q09 was bad, then 2Q09 was great. Our 2009 investment thesis has called for a powerful rebound after a

bear market bottom in Oct 2008 as sentiment and liquidity improves. Indonesian Stocks, Bonds and Rupiah

had decisively recovered from their respective historic lows since.

Global economic contraction is slowing. Analysis of leading industrial and services output indicators shows

G3 economies are moving from a collapsing phase to a stabilizing phase of the economic cycle. We believe

unprecedented global stimulus will put the world back on economic recovery.

Liquidity checked. Sentiment checked. Fundamentals next. The global crisis will continue to drive short

term volatility in our Indonesia markets; however we expect Indonesia to outperform its peers due to its

underlying macro economic strengths. Successful election may lead to further JCI index gains, driven by further

liquidity and sentiment boost. Fundamental outlook and EPS upgrades will determine this rallys sustainability.

Liquidity & Sentiment has brought about asset pricereflation in Indonesia since our Oct08 lows

A Reality Check


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2Q09 Performance

YTD Performance Ranking1Q09 Performance

Source : Bloomberg, TRIMAM ResearchSource : Bloomberg, TRIMAM Research

Source : Bloomberg, TRIMAM Research

Global Equity Performance

London

Dow Jones

France

GermanS&P 500

Japan

Nasdaq

Malaysia

Korea

Hong Kong

Singapore

Thailand

Philippines

Taiwan

Brazil

India (NFT)

Indonesia

Vietnam

China (SH)

Russia

-50 -25 0 25 50 75 100

(20) (10) 0 10 20 30 40 50 60

Developed West

BRIC

Developed East

ASEAN

Indonesia

(20) (10) 0 10 20 30 40 50 60

Developed West

BRIC

Developed East

ASEAN

Indonesia


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1Q09 Currency Performance 2Q09 Currency Performance

Brazil

Australia

Indonesia

UK

Canada

New Zealand

S. Korea

Russia

India

Switzerland

Europe

Singapore

Thailand

Malaysia

Taiwan

Japan

China

Hong Kong

Dollar Index

Gold

Phillipines

-20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0

YTD Curre ncy Per form ance (%)

Hong Kong

China

Brazil

Phillipines

Australia

Thailand

UK

Canada

Taiwan

New Zealand

India

Malaysia

Europe

Singapore

Switzerland

Indonesia

S. Korea

Russia

Dollar Index

Gold

Japan

-20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0

1Q09 Currency Perfor mance (%)

Global Currency Performance

Source : Bloomberg, TRIMAM Research Source : Bloomberg, TRIMAM Research


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0

100000

200000

300000

400000

500000

600000

700000

1991 1994 1997 2000 2003 2006 2009

Motorcyclesales(units)

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

JCIIndex(Log,B

ase=1991)

Motorcycle Sales (Units/month) JCI Index (Log:1991, RHS)

Strong Index Recovery

L-Shaped Recovery

Asset Price = Fundamental + Liquidity + Sentiment Motorcycle sales collapsed

from a peak of 190k units/mth

in 1997. Sales remained 70%

below peak (


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Bond Yield underperformed 3% in 1Q09, before ascending 4% through 2Q09

Source:Bloomberg, TRIMAM Research

Bond Market Sentiment Improves

0

5

10

15

20

25

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09

10yrGovBondsYield(%)

0

15

30

45

60

75

90

VixIndex(pnts)

Vix Index 1Q09 2Q09 10yr Gov Bonds (LHS, %)


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JCI underperformed 13% in 1Q09, before ascending 64% through 2Q09


Stock Market Sentiment Improves

0

500

1000

1500

2000

2500

3000

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09

JCIIndex(p

nts)

0

15

30

45

60

75

90

VixIndex(p

nts)

Vix Index 1Q09

2Q09 JCI Index (LHS)


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JCI Daily Value exploded 4 fold from Rp1.2tr/day 1Q09 to Rp4.6tr/day 2Q09


Stock Market Liquidity Improves

0

500

1000

1500

2000

2500

3000

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09

JCIIndex(pnts)

0

3

6

9

12

15

18

DailyTradedValu

e(Rptn)

JCI Value (Rptr) 1Q09 2Q09 JCI Index (LHS)


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1

The GlobalFundamentals


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US Housing Inventory at 10 months Home Price and sales data still down

US Existing Home Price Index Futures indicates US

home prices to bottom by end of 2009, at index level

130, about 25% below current price of 170. In Dec

2008, the same futures market predicted US housing

bottom by end of 2010 with bottom price near 110.

Both existing home and new home Inventories have

stabilized at 10 12 months of sales. US Home

Prices will remain under pressure as long as

inventory months remain above LT average of 5 6

months.

Source:Bloomberg, TRIMAM Research Source:Bloomberg, TRIMAM Research

US Housing Still Need Time to Clear

0

2

4

6

8

10

12

14

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

InventoryMonths

Existing Home Supply New Home Supply

100

125150

175

200

225

250275

300

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

P

riceIndex(pnts)

0

12502500

3750

5000

6250

75008750

10000

UnitsSold('000)

Units Sold Existing Home Price Futures

New Home Price Index Existing Hme Price Index


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On Balance Sheet Deleveraging

Source : Bloomberg, TRIMAM Research

Source : Various Sources, TRIMAM Research

Off Balance Sheet Deleveraging

On Balance Sheet Deleveraging As of 1Q09,western banks are on average leveraged >25x.

This is much higher than Asias average at 10x.

This translates to systemic instability for the

west and an incapacity for its banking system to

support growth going forward.

Off Balance Sheet Deleveraging The

derivative market is extremely complex and

opaque. It is this market which caused the

systemic breakdown of the financial system in

Oct08, as financial institutions could not gauge

risks arising from this asset class, leading to

mistrust between institutions and hence

interbank market freezes.

Deleveraging in the Western Banking System

0.0

10.0

20.0

30.0

40.0

1Q01 2Q02 3Q03 4Q04 1Q06 2Q07 3Q08SimpleLeverage

(A/E)

West Developed AsiaDeveloping Asia Indonesia

1.533.2

175.8

0

50

100

150

200

250

US Monetary

Base

US Debt

Securities

Derivatives

US$tr


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US Services PMI (Leading Indicator)

US Industrial PMI (Leading Indicator)

Source:Bloomberg

Source:Bloomberg

30

40

50

60

70

2004 2005 2006 2007 2008 2009

USMan

ufacturingPMI

30

40

50

60

70

2004 2005 2006 2007 2008 2009

USServicesPMI

G3 Economies Contracting at a slower pace (US)


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Chinas Easy Monetary Policy

China Manufacturing PMI (Leading Indicator)

Source:Bloomberg

Source:Bloomberg

The Chinese Stimulus is Working

30

40

50

60

70

2005 2006 2007 2008 2009

China

IndustrialPMI

0

10

20

30

40

2005 2006 2007 2008 2009

Money Supply YoY (%) Loan Growth YoY (%)


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Collapse in Exports and Imports

Consumption and Investments Held Up

Source:Bloomberg

Source:Bloomberg

0

10

20

30

40

2005 2006 2007 2008 2009

Retail Sales YoY (%)

Urban Fix Asset Investment YoY (%)

-60

-40

-20

0

20

40

60

2005 2006 2007 2008 2009

Exports YoY (%) Imports YoY (%)

Backed by Government Expenditure


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Collapse Stabilizing Bottom Recovery Growth

Mapped Based on 1Q09 GDP Numbers


Global Economies At A Glance

USAEurope

Japan

BrazilIndiaRussiaChina

Hong KongMalaysiaPhilippines

SingaporeTaiwanThailandVietnam

S.KoreaIndonesia


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2

The IndonesiaMarket Outlook


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0.240.870.200.04-0.170.28+ 30 Days

19.6744.0913.456.47-3.8838.21-30 to +30 Days

1.32-1.680.192.091.764.22- 1 Day

0.710.070.810.681.000.99- 5 Days

0.400.220.430.730.240.37- 10 Days

0.290.610.390.33-0.150.28- 20 Days

0.300.380.240.18-0.140.84- 30 Days

0.03

0.13

0.35

3.12

2004Presidential 1

0.06

0.78

0.56

2.78

2004Legislative

0.46

1.66

2.22

12.18

1999National

Election Return (%) 2004Presidential 2

2009Legislative

Ave.

+ 1 Day 1.13 5.09 4.86

+ 5 Days 0.003 2.22 1.08

+ 10 Days 0.51 0.84 0.78

+ 20 Days 0.24 1.22 0.40

Election Return Matrix

Source : TRIMEGAH RESEARCH

5 Elections since 1999

(1) Jun 1999 : National

(2) Apr 2004 : Legislative

(3) Jul 2004 : Presidential (1)

(4) Sept 2004: Presidential (2)

(5) April 2009: Legislative

Coming Soon : Jul 2009: Presidential

Increased Volume in 4 of 5

Elections

On average booked 20%

gains between 30 daysbefore and 30 days after

each election.

Presidential Election Potential Sentiment & Liquidity Boost


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2009 Legislative Election 2009 Presidential Election

Presidential Election Potential Sentiment & Liquidity Boost

Source:Bloomberg, TRIMEGAH Research Source:Bloomberg, TRIMEGAH Research

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

30-day

s

20-day

s

10-day

s

5-da

ys1-da

y1-da

y

5-da

ys

10-day

s

20-day

s

30-day

s

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Trading Volume (LHS,Rpbn)

IDX's Return (RHS)

1.12%

1.14%

1.16%

1.18%

1.20%

1.22%

1.24%

1.26%

1.28%

30-day

s

20-day

s

10-day

s

5-da

ys1-da

y1-da

y

5-da

ys

10-day

s

20-day

s

30-day

s

8.00

8.20

8.40

8.60

8.80

9.00

9.20

9.40

9.60

9.80

Trading Volume (LHS,Rpbn)

IDX's Return (RHS)


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Asset Price = Fundamental + Liquidity + Sentiment Consensus has priced in

more than -ve 35% YoY 2009

EPS growth, and 5% EPS

growth in 2010.

1Q09 GDP growth was 4.4%

YoY, a tad lower than 4.9%

average since Yr 2000. Index

EPSg during this period

average 17% p.a.

This means consensus is still

pricing in below trend

corporate earnings growth

despite near trend GDP

growth outlook for both 2009and 2010.

We expect aggressive

consensus EPS upgrades

once macro news flow

improves in 2H09. Source:Bloomberg, TRIMAM Research

Lots of Room for Fundamental Expectations to Improve

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09

2009vs2008EPSg

rowth(%)

0%

2%

4%

6%

8%

10%

12%

14%

2010vs2009EPSg

rowth(%)

Est 2009 vs 2008 EPSg (LHS) Est 2010 vs 2009 EPSg (RHS)


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Initial Target Price Upgrade Driven by WACC & LTg We believe the trend has

already started, catalyzed by

realized 1Q09 Index EPS was

flat QoQ compared to 4Q08despite continued forex

losses. This reflects strong

core earnings growth in

Indonesia.

In April 09, analysts started

raising target prices after

news of global economic

stabilizations and strong 1Q09

results boosted confidence.

Initial trends were WACC (rfr

& market risk premium)

adjustments. Lately, earnings

upgrades has started.


And Analysts Has Started Raising Target Prices

-

500

1,000

1,500

2,000

2,500

3,000

Mar-0

8

Apr-0

8

May-08

Jun-08

Jul-0

8

Aug-08

Sep-08

Oct-0

8

Nov-08

Dec-08

Jan-09

Feb-

09

Mar-0

9

Apr-0

9

May-09

JCiIndexTP

Ave. JCI TP Pessimistic JCI TP Optimistic JCI TP


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Early Upside Surprise, TP Raised

Banks

Mining

Stronger than expectedThe banking sector earnings has shown resilience despite the global turmoil, achieving >15% QoQ loan bookgrowth, Industry NPL levels < 6%. Key concerns regarding capital adequacy (CAR) with regards to Basel IIimplementation in 2010 was eventually resolved with news of capital raising (BDMN), sub-debt and dividendretention (gov. owned banks). With leverage (A/E) ratio at 10x and CAR in excess of 15%, and better thanexpected NPL formation, we expect banks to continue to outperform in the LT.

Sectoral Outlook 2H09

Cement

Proxy to property and electionsNegative 1H09 volume numbers is larger due to supernormal volume growth in 2008 rather than weak underlyingdemand. Bottomed energy prices will support cement pricing and margins going forward. We believe news flowpertaining to improving property marketing sales, increased infrastructure spending after election providespotential for sales volume upgrades. One risk (however small) for the sector is that we cannot rule out risks ofgovernment intervention in cement pricing.

Proxy to commoditiesWith improving commodities prices, margin improvement will drive producers to ramp up production. Improvingglobal growth fundamentals (esp. Chinese economic data) should support this view. Heavy equipment salesvolume has already bottomed for plantation sector. Coal sector sales has been held steady. We expectconsensus to catch up on expectations.

HeavyEquipment


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TRIMAM 2H09 Strategy - Jun09