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.