Investors begin to sort Indonesia shares on Aceh rebuilding program

Investors begin to sort Indonesia shares on Aceh rebuilding program

Edhi Pranasidhi, Dow Jones/Jakarta

Investors are buying shares in Indonesian cement, heavy-equipment and infrastructure-related firms on the expectation those companies will be employed to rebuild the devastated province of Aceh, and analysts expect the trend to continue.

Pharmaceutical shares are also gaining, while financial shares have weakened as banks detail their loan exposure to the stricken region.

The signals from investors are emerging although the size of the human and material costs to Aceh -- close to the epicenter of the Dec. 26 earthquake and tsunami that killed an estimated 139,000 people in 11 countries -- may never be quantified.

Huge sums of government and international-donor funds will be needed to revive the area.

Shares in related companies are rising as a result.

"The reconstruction and rebuilding efforts in Aceh province should boost cement demand, and job orders for infrastructure- related companies," said the head of Macquarie Securities' research department, Laksono Widodo.

Indeed, shares in Semen Gresik, the nation's largest cement maker by output, have risen 14 percent since the first trading day after the disaster, based on Monday's close. Gresik's rival, Indocement Tunggal Prakarsa, has recorded a share-price rise of 25 percent over the period, while shares in Semen Cibinong have risen 11 percent.

The share price of majority-state-owned construction firm Adhi Karya has added 26 percent, while heavy equipment companies Komatsu Indonesia and United Tractors have risen 4.8 percent and 3 percent, respectively, since Dec. 26.

"Adhi Karya, for instance, specializes in building bridges and roads which are much needed to rebuild Aceh," Laksono said.

The government will likely spend Rp 10 trillion (US$1.07 billion) for reconstruction in the province over the next five years. It has also said it hopes the World Bank and the Asian Development Bank will redirect up to $3 billion in currently "unproductive or undisbursed" country loans to support the rebuilding effort.

Finance Minister Yusuf Anwar on Monday said the government will seek international debt rescheduling from the Paris Club of international donors, which would help free up additional official funds to rebuild Aceh.

Indonesia will likely also get international pledges of financial support for Aceh's rehabilitation at an international relief summit on Thursday in Jakarta.

Meanwhile, antibiotics, anti-diarrhea formulas and other basic medicines are needed to stave off potential disease epidemics among Aceh's survivors.

Indonesia's government last week pledged $150 million in emergency relief, including medical services, for Aceh. International humanitarian organizations are spreading out across Aceh to deliver emergency aid to survivors.

Analysts expect pharmaceutical companies like Kalbe Farma, majority-state-owned Indo Farma and Darya Varia Laboratoria, and Dankos Laboratories to benefit immediately and over the full year.

For example, Mohammad Reza, head of research at Kuo Capital Securities, said his firm has upgraded its rating on local drug stocks to 'buy' from 'hold.'

Indonesia's listed banks, however, have had their branch networks in Aceh destroyed and are likely to see a surge in nonperforming loans due to high numbers of bank borrowers among the dead. Investors are already exiting these stocks.

PT Bank Rakyat Indonesia is likely to incur losses due $251 billion loans outstanding in areas hit by the tsunami, Jakarta- based Kim Eng Securities said in a research note Monday.

BRI, which primarily services Indonesia's microfinance and small business sectors, has three branches, one sub-branch and 46 smaller offices in three of the country's worst tsunami-stricken areas.

"The (estimated tsunami-related loss) figure is 7 percent of our forecast 2005 net profit of Rp 3.44 trillion" for Bank Rakyat, said Kim Eng Securities.

The bank's shares lost 3.5 percent in afternoon trade on Monday.

Bank Negara Indonesia also expects an impact.

"We estimate we'll book around Rp 10.7 billion (in losses) in terms of fixed assets in Aceh," said BNI President Sigit Pramono, who added that the bank's Aceh and Meulaboh branches were badly damaged by the tidal waves.

He said the bank will face additional potential losses, as it has around Rp 553 billion in loans in the devastated areas.

BNI's shares have dropped 6.3 percent over the previous four sessions.