Indonesia

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Thailand and Chinese ADRs.
• This week, the highest gross spreads are Sezzle Inc (SZL AU), 21Vianet Group (VNET US), Link Administration Holdings (LNK AU), Alliance Aviation Services (AQZ AU), True Corp Pcl (TRUE TB). 
• Lowest gross spreads are Yancoal Australia (3668 HK), Hwa Hong Corp (HWAH SP), AKM Industrial (1639 HK), Virtus Health (VRT AU), Irongate Group (IAP AU), Uniti Group Ltd (UWL AU).

• PT Avia Avian (AVIA IJ) is the leading decorative paint and coatings player in Indonesia listing last December and trading 20% below its IPO price but with an institutional following.
• 1Q2022 results were weaker due to a high base last year but has seen a strong pick-up since. It has raised prices twice to offset higher raw material prices. 
• PT Avia Avian is an interesting proxy for the recovery in the domestic economy together with the property market plus M&A could be a further catalyst this year.

• The six Indonesian banks have strong capital adequacy ratios, healthy credit quality and good NPL coverage; also, GDP recovery supports positive cost of risk trends and the bank earnings outlook
• We believe that Bank Mandiri screens best, with its attractive pre-provision profitability and steadily improving cost of risk, whilst trading on undemanding multiples versus peers; we also like Bank Rakyat
• We see Bank Permata as a potential “turn around” stock, especially if management can improve credit quality, and keep lowering its cost of risk to boost returns

• Mitra Adiperkasa‘s recent 1Q2022 results and a follow up conversation with management confirmed continuing momentum in the recovery with a lot more to come in the next few quarters.
• Sports, digital, and F&B are leading the recovery with greater mobility boosting sales but online sales remain strong reflecting changing consumer habits and the success of the company’s strategy there.
• Mitra Adiperkasa is back on an expansion tack both in Indonesia and in Thailand, Vietnam, and the Philippines, with capex forecast at 2019 levels this year. 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. Adani Ports & Special Economic Zone
2. Yanzhou Coal Mining Company Limited H
3. Vedanta Resources
4. Indika Energy
5. Pakuwon Jati

and more…

• The Axiata Group (AXIATA MK) EGM narrowly approved the ordinary resolution relating to the proposed acquisition of Link Net (LINK IJ) shares and the proposed MTO. 
• The next catalyst is the First Media (KBLV IJ)’s EGM to approve the transaction on 6 June. The proposed MTO at IDR4,800 per share is targeted to complete by 3Q. 
• BNM regulatory approval was received on 12 April. At the last close, the gross and annualised spread of the MTO price for a 3Q completion is 4.6% and 13.1%, respectively.

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.

• Delta Dunia Makmur
• Indika Energy
• JSW Steel Ltd
• Medco Energi
• Pakuwon Jati
• UPL Ltd

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.

• Alam Sutera Realty
• Evergrande
• Greenland Holdings Corp
• Indika Energy

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.

• Agung Podomoro Land

• Ultrajaya Milk Industry & Trading saw continued growth momentum in 1Q2022 both for its core UHT milk business (No.1) and its carton tea business as mobility restrictions were lifted.
• The company also sources more of its milk requirements locally, which means less exposure to imported milk power but prices there have started to come off. 
• Management remains optimistic that the company can achieve double-digit growth this year plus it has increased ASPs by +3% in April. Valuations at a discount to staple peers. 

• GoTo (GOTO IJ) completes 20 trading days today. Based on the average price over the period and the last close, the stock meets the Fast Entry criteria for IDX30/LQ45/IDX80 inclusion.
• Using a free float of 66%, we estimate passive trackers buying 5.42bn shares (US$74m) of GoTo (GOTO IJ). Announcement could come in a few days with implementation at month-end. 
• With the real float close to 4%, passive trackers will need to buy 11.6% of the real float and the stock could move higher in the short-term.

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.

• AAC Technologies Holdings
• Greenko Energy Holdings
• Yuzhou Group

We view Perusahaan Gas Negara (PGN) as “Low Risk” on the LARA scale, mainly due to its indirect SOE status. PGN is 57% owned by Pertamina, which is in turn fully owned by the Indonesian government through the Ministry of State-Owned Enterprises. PGN is the dominant player in Indonesia’s natural gas transmission and distribution sector, with a near monopoly over the country’s gas pipelines. As a utilities company, PGN plays a key role in ensuring the supply of affordable gas for end-consumers and helping the country transition to cleaner energy (and away from coal).

Our assessment also considers PGN’s robust standalone financial and leverage profile. That said, the company faces declining pricing power and its margins could weaken, due to the government’s price cap on natural gas sales to industrial consumers. The PGASIJ bond has a Change of Control put at 101, in the event the government ceases to own at least a 51% stake in the company.

Our fundamental Credit Bias is “Stable”, considering PGN’s healthy financial profile and strong liquidity. Moreover, the high oil price environment would benefit its upstream operations (under Saka Energi). That said, the company faces a debt maturity wall in May 2024, when the USD 1.35 bn PGASIJ 5.125 24 and USD 405 mn SAKAEI 4.45 24 will come due.

We initiate coverage of PGN with a “Hold” recommendation.

• Leading dairy and premium foods player Cisarua Mountain Dairy continued to demonstrate its resilience during 1Q2022 despite some omicron disruption, and rising pressure from raw materials.
• Growth will be driven this year through capacity expansion and a focus on expanding distribution channels, especially through general trade and Miss Cimory MCM. 
• Management remains confident in the growth outlook and will potentially raise prices in 3Q2022 to offset inflationary pressures although powdered milk prices have already stabilized. Top consumer staples pick.