*INCO - buy opportunity *BDMN 1Q08 in-line *April Most/Least preferred list *PGAS-PLN deal soon? *GEM

INCO - buying opportunity
INCO share price -6% yest', -16% WoW, too cheap to ignore! PT Inco will release 1Q08 on 25 April, where Daisy expects net profit to fall 13% QoQ and 23% YoY, accounting for 17% of her FY est'. Weak 1Q08 is likely due to nickel prices -31% on de-stocking by stainless producers. Daisy maintains her FY08 forecast, as she sees nickel prices recover to US$15/lb in 2Q08 (U$13 in 1Q08), bringing FY avg to US$14.5/lb (MLf). Note that INCO is highly correlated to nickel prices with R= 65%. Other main misconception is capex where Daisy assumes U$60 mn in 2009, and U$60mn in 2010. INCO guided U$225mn for 2009; We are yet to include furnace overhauling (12 yrs schedule) as the company are still re-assessing the necessity. In 2010 there is potential for new-tech 'HPAL' capex project, which license have not been granted and INCO yet to secure CoW beyond 2025. In principal they embark on >U$1bn IF HPAL meets >30 yrs return assessment. Note that Daisy NPV would also change if we add in 30 yrs returns from HPAL. INCO still offers attractive 13% FCF yield, able to fund 16% div yield. Trades on 6.7x '08 PE, or at 30% discount to peers and 29% discount to its NPV of Rp9,200. Buy PxT Rp10,200.

<<INCO_23Apr08.pdf>> <<Most&Least_23Apr08.pdf>>
BDMN 1Q08 in-line
BDMN reported 1Q08 NPAT of Rp563bn, +9% QoQ and 17% YoY, representing 23% of Arief's FY est' and consensus. Concerns over potential huge losses from the sell-off in bond market was unfounded, as BDMN booked only Rp10bn losses from its govt bond portfolio. Healthy 1Q08 driven by: i) Solid loan growth +31% YoY, above Arief's est of 25% for FY08, ii) NIM at 11.3%, above Arief's FY est' of 10.9% and FY07 of 10.4%, iii) Cheap deposit +25% YoY, representing 30% of total deposits, iv) Cost of credit was only 2% of total earnings asset - below FY07 level of 2.3%, v) Mass market loan +32% YoY, accounting for 44% of total loan portfolio, vi) NPL ratio only 2.3% with NPL coverage reaching 125%. Restructured loan accounted for just 1.1% of total loan portfolio. We continue to like BDMN as the bank offers the best leverage on under-penetrated mass market demand boom, and upside risk from better capital management. Arief expects BDMN to deliver 20% EPS CAGR and avg RoE of 24% over 2007-10. Trades at 9.2x P/E and 2.1x P/BV on 2009 est'. Buy PxT Rp10,500.

Most/Least preferred for Apr
For April edition of most preferred stocks, Verdi and team place BNBR, PGAS and INCO. Short-term catalysts: i) BNBR: coal price settlement for JFY08, share buyback and special div by subisidary BUMI, ii) PGAS: completion of SSWJ parallel line and gas sales agreement with PLN, iii) INCO: Next div on Oct 08 where we expect 16% annualized div yield, and recovery in nickel price in 2Q08. Meanwhile, his least preferred list includes UNSP, FREN, and ANTM. Potential downside risks: i) UNSP: weak 1Q08 due to increase in export tax, flattening CPO price, and higher fertilizer cost, ii) FREN: loss of revenue share to GSM players in 1H08, iii) ANTM: high cash production cost in 1H08 due to strong oil price, and upcoming change in it board of directors.

PGAS - PLN deal soon?
Bloomberg reported PLN plans to buy 150mmscfd of gas from PGAS in July at U$5.65/mmBTU, President Director Sutikno said. The US$5.65 price disclosed is better than expected (ML assumes US$5.50). The market has even feared that the pricing will come in well below US$5.50 -- so the US$5.65 price is very positive. Verdi trimmed his EPS est' for FY08 due to lack of re-assurance that the PLN-PGAS deal will materialize in-time. It is reassuring that the article also stated the contract will be signed this month and is expected to last for 5 years with extendable option. The gas will be used to feed the Muara Tawar power plant in western Java. PGAS share price has underperformed by >10% in the last few weeks despite strong energy prices and flight to steady, cash generative companies. Buy PxT Rp17,500.

Global Emerging Markets
Brazil, the largest MSCI emerging market, hit a new all-time high this morning...And in recent days we have seen new all-time highs in the following EM equity indices: Brazil ($-terms), Mexico ($-terms), South Africa, Russian materials, Kuwait, Oman. All are commodity-sensitive. Ex China & India (both importers of commodities), the MSCI EM index is down just 0.8% year-to-date! One obvious reason for this out performance is the 33% weighting within the MSCI EM index of energy and materials. And ML's Fund Manager Survey shows investors have not been sufficiently OW commodity-plays in EM, a painful trade when one studies that amazing divergence of performance in say the South African market YTD (top performers "platinum", "resources", "steel", "sugar" all up 35-70%; worst performers down "property", "motors", "tourism" down more than 30%). We will know the positive impact of commodities on EM equities is coming to a close when the US dollar rallies on a sustained basis. There is a very close relationship between the Euro-dollar exchange rate & oil prices. What do you do at that point? Mike Hartnett says rotate aggressively into China and India. Our directional bet continues to be that it's too early to flip the trade. But the long-only community must be encouraged to take advantage of this divergent stock performance as the summer progresses.