Indonesia

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

• Indo Tambangraya Megah (ITMG IJ) is a 2.3 bn USD company with ~880 mn USD net cash adding >100 mn USD of free cash flow a month.
• At a 103 USD/ton ASP the company made a 475 mn USD profit for 2021. We estimate prices are easily around 200 USD/ton for the company in the current environment.
• Indo Tambangraya Megah (ITMG IJ) has a track record of paying >70% of its profits as dividends since 2009 ( implying a yield of 37% for FY22 ). 

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• China South City
• Country Garden Holdings Co
• Powerlong Commercial Management Holdings
• Sawit Sumbermas Sarana

• Bukalapak (BUKA IJ) held its AGM this week, which effectively repeated the messages from its 1Q2022 results including guidance for FY2022 but there is more excitement beneath the headline numbers.
• One key metric tracked by management is the contribution margin, which is moving towards positive territory put take rates will improve for both Mitra and through its specialty store strategy. 
• AlloFresh has launched and is testing the offline line efficiencies before being applied to Mitra partners and AlloBank has also started its digital journey. Bukalapak looks cheap. 

• PT Nippon Indosari Corpindo (ROTI IJ) recently announced that it will launch two new product lines away from bread including Sari Roti chocolate spread and UHT Milk. 
• Investment in these products will be relatively small but it will increase the visibility of Sari Roti brands on the shelves of modern retail adding to its bread and cakes. 
• Wheat prices have stabilised recently but ROTI may consider raising prices further after assessing June performance. 2Q2022 performance has been stronger than expected post-Lebaran, as demand improved with greater mobility.

• Axiata Group (AXIATA MK) recently completed the acquisition of a 66.03% stake in Link Net (LINK IJ).  
• Axiata is now obligated to undertake a mandatory tender (MTO) offer to acquire the remaining 33.97% equity interest in Link Net. There are no conditions attached to the MTO.
• The MTO is expected to be completed in the third quarter of 2022. The spread has narrowed, yet there is still some left.

• Adaro Energy continues to ride the wave of higher coal prices but at the same time, it aims to increase production this year by over 13% further driving revenues.
• The company is on the cusp of a transformation, with the construction of a new smelter in North Kalimantan in a new green industrial park, the world’s largest planned. 
• FY2022 will see a sharp spike in earnings but Adaro will also pay out a significant dividend with a payout ratio similar to last year implying a yield over 20%.

• Newly built facility driving top line: In response to robust demand for its shrimp products from overseas markets (US – 87.6% and Japan – 12% of revenue in FY21), PMMP has expanded production facilities every 1-2 years, with the 8th plant (TMM4) coming on stream in Oct21, pushing up production capacity to 27,100 tons (+8% YoY).

• Kino Indonesia (KINO IJ) continues to look like a lesser known consumer proxy despite its interesting portfolio of leading brands in beverages, personal care, food, and pharmacy. 
• The company is already seeing a strong rebound in the sales of beverages and personal care products, as mobility resumes in Indonesia. 
• Higher packaging, distribution, and input costs are putting some pressure on margins but this is being offset through selective price increases. The recent pull-back in share price provides an opportunity.

• The completion of the acquisition of a 66% stake in Link Net by Axiata Group and XL Axiata is a significant positive for the latter on its convergence journey.
• The deal will bring significant synergies for both parties but it gives XL Axiata (EXCL IJ) access to a nationwide fibre backbone, which will be invaluable for 5G longer-term.
• XL Axiata (EXCL IJ) will now be able to offer a truly bundled service including the best quality high-speed broadband and pay-TV through First Media. Valuations are attractive.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Fosun International
2. Country Garden Holdings Co
3. Logan Property Holdings
4. China Jinmao Holdings
5. Lifestyle International Holdings

and more…

• A webinar hosted by Smartkarma with Siloam International Hospitals revealed strong momentum behind its base-case revenues, with patient numbers, and some positive pricing strategies driving revenues.
• The company also continues to develop its centres of excellence and leading positions in a number of specialisations, which helps to widen catchment areas and increase the complexity of treatments. 
• Siloam continues to expand its hospital portfolio but may look to acquire more brownfield assets in the future plus it is experimenting with a managed services model. Valuations are attractive.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Indika Energy

• Sumber Alfaria Trijaya (AMRT IJ) was added to the LQ45 Index in January and the MSCI Indonesia Index in May. The pick-up in liquidity should result in FTSE inclusion.
• If added, passive FTSE trackers will need to buy 631m shares (US$78m; 5 days of ADV) of Sumber Alfaria Trijaya (AMRT IJ) at the close of trading on 16 September.
• Sumber Alfaria Trijaya Tbk Pt (AMRT IJ) trades in line with the average of its peers on EV/EBITDA and forward PE, though it trades expensive as compared to the median.

• Axiata Group (AXIATA MK) and XL Axiata (EXCL IJ) completed the acquisition of a combined 66.03% interest in Link Net (LINK IJ) at IDR4,800 per share. 
• Axiata will disclose the details of the MTO in due course. We think that the MTO opens on 7 July with the earliest possible close of 11 August. 
• At the last close, the gross and annualised spread of a 19 August payment is 3.7% and 23.7%, respectively.

• Ekta is in the early stages of building a suite of blockchain-powered products including an NFT marketplace, a hybrid crypto exchange, a blockchain-based game, and a real estate investment business
• Ekta’s mainnet, called EktaChain, tokenizes real-world assets such as property, music, art, and gold
• Ekta token holders will be able to transact and interact with financial products to grow their wealth, earn money by playing games, as well as host, exchange, and trade digital and tangible assets