Goldman favors Indosat, Indonesian stocks

Goldman favors Indosat, Indonesian stocks

Bloomberg, Jakarta

Indonesian companies such as PT Indosat and PT Mitra Adiperkasa, which runs Starbucks Coffee outlets, are attractively valued and investors should buy their shares, according to Goldman Sachs Group Inc.

Strategists led by Rick Loo in Singapore raised their recommendation for Indonesian equities to "overweight" from "market weight" in a note dated May 19. The rating increase suggests investors should own a higher percentage of Indonesian shares than are represented in benchmark indexes.

The Jakarta Composite Index has dropped 9.4 percent since its high this year on March 22, paring 2005's gain to 4.4 percent and giving the measure a price-forecast earnings multiple of 11 times. Morgan Stanley Capital International's Asia-Pacific Index of about 900 regional stocks trades at 14.9 times estimated earnings, having lost 3.8 percent this year.

"Indonesian stocks are cheap compared with regional peers, with attractive earnings growth," said Baradita Katoppo, head of research at Kim Eng Securities in Jakarta. "Any weakness is a buying opportunity."

Loo joined Goldman, the world's third-biggest securities firm by capital, in July last year. He declined to comment. Eddie Naylor, a Hong Kong-based spokesman for Goldman, said the firm's strategists would not be available for comment. He also declined to give any of their biographical details.

Not all investors and analysts share the view that now is the time to start buying Indonesian stocks, citing risks such as weakness in the currency and the government's budget deficit. The currency has lost 2.1 percent of its value so far this year.

"The rupiah is still finding it difficult to rebound. We still face a swelling budget deficit," said Erwan Teguh, head of research at PT Danareksa Sekuritas. "Investors are now becoming more risk-averse."

The government said on May 16 that this year's deficit may widen to as much as 1.2 percent of gross domestic product from an earlier estimate of 0.8 percent, because of higher than expected crude oil prices. Indonesia imports about a quarter of its fuel requirement, and subsidizes gasoline, diesel and kerosene for household use.

Goldman's optimism stems from Indonesia's improving political stability and expectations of faster growth. It's the investment bank's second upgrade on Indonesia this year. In January, Goldman boosted the country to "market weight" from "underweight."

The country's US$258 billion economy grew 6.35 percent in the first quarter, beating economists' estimates, the Central Statistics Bureau said on May 16. The economy is set to expand as much as 6 percent this year, the fastest pace since 1996, and by 6.5 percent in 2006, the government said this week.

Goldman said an increase in disposable income will drive consumption, calling Mitra Adiperkasa, a "good proxy for discretionary spending." The retailer said May 4 that net income in the three months ended March 31 jumped 45 percent from a year earlier, as sales surged 35 percent. Mitra Adiperkasa's shares have jumped 41 percent this year.

Shares of Indosat, Indonesia's second-largest phone company, and another of the brokerage's top picks, have dropped 17 percent this year. Jakarta-based Indosat has a 32 percent share in the domestic cellular market. It competes with PT Telekomunikasi Selular, the nation's biggest cellular-phone company, which controls a 55 percent share.

Shares of PT Semen Gresik, down 16 percent this year, were also rated favorably. The Indonesian cement maker company said last week it received approval from the government, which owns a 51 percent share, to build a $400 million plant to boost capacity and prepare for increased demand.

The increase in infrastructure projects may boost earnings at cement makers, such as Gresik and rival PT Indocement Tunggal Prakarsa, and may help the index rise further, Kim Eng's Katoppo said. The benchmark JCI may end this year 20 percent higher at 1,200, Katoppo said. The index surged 45 percent last year, and jumped 63 percent in 2003.