*INCO and PTBA 1Q08 - weak as expected *Mining laws *Macro: collective inflation *PacRim monthly wrap

INCO 1Q08 weak as expected
INCO 1Q08 net income -39% YoY, -30% QoQ at U$139.6mn, accounting for 14% of Daisy’s FY08 due to weak nickel price. Sales volume was 5% short of Daisy est' due to delayed booking of 5mn lbs of nickel shipped on 1 April but production came in above. Daisy has reminded of weak 1Q but maintained her FY08 forecasts, as she see signs of stainless re-stocking cycle starting in 2Q. Inco’s ASP for 1Q08 was US$9.6/lb, -11% QoQ. Production volume of 44.3mn lbs, +12% YoY, 8% QoQ, was 8% above Daisy’s est’ thanks to stable water level, optimization of all furnaces and no planned maintenance in 1Q08. Our Buy thesis is driven by: i) 16% div yield potential on 13% FCF yield, ii) undemanding valuation at 7.1x '08 PE, or at 30% disc to peers’, and 29% disc to its NPV of Rp9,200, and iii) high correlation with nickel prices R²= 65%. These factors remain unchanged despite weak 1Q08. Buy on any correction, PxT Rp 10,200.

<<1Q08 below forecasts, but only due to accounting lag.pdf>>

PTBA booked net profit at Rp 286.38bn, +44% YoY, accounting for 14% of Daisy' FY estimates. Revenue rose 29% YoY to Rp1,234bn, accounting for 16% of Daisy's FY est'. Daisy maintains estimates as she expect a stronger earnings for the remaining of the year. The delivery of 9 locomotives in April should boost railway capacity by 20% per annum and could provide upside risk. Retained Buy PxT Rp15,470.

Mining laws
Indo mining stocks have been weak on talks about govt plan to impose new rules and restrict concession area. Verdi/Daisy believes the large listed companies such as BUMI, ITMG and INCO which operate under Contract of Work are riding on lex-specialis status, hence any changes require both parties to agree. As for the state-owned PTBA, TINS, and ANTM, we believe they get their licenses as per procedure. There was also talks about “state reservation area” which we believe none of the big listed companies are operating over; In fact we suspect these areas have not even been granted to the big operators, hence any noises are probably surrounding small/shady players who are working with certain division of regional governments. On the concerns over concession hectares, we believe operators will manage by utilizing various subsidiaries/legal entity.

Collective Inflation
Central bankers claim “inflation is not their fault” because it’s driven by high food and energy prices. But commodity prices are partly due to loose global monetary policy and strong global demand so taming resource prices probably requires a global monetary tightening. One benefit of tight policy (lower commodity inflation) is felt globally, but the cost (slower growth) is primarily borne at home. TJ see upside risk to inflation -not downside risks to growth- as key macro challenge for Asia. He is bullish on Asian currencies and property, but reminds us that “investment clock” suggests rising inflation is headwind for stock market.

PacRim Monthly Wrap
Willie Chan’s Regional market wrap: Global markets bounced back with the MSCI US showing strong run, outperforming the MSCI Asia Pac x JP and MSCI Euro. Most corporate earnings in the US have been better than expected. Weak USD boosted commodities and oil prices and rice price jumped to a record high. The MSCI Asia Pac x JP has climbed 7.9%, underperforming the MSCI EM by -0.4% pt in April. The MSCI Indonesia dropped -7.6% in April, and was the worst performer in the region. The market fell ~13% in early April but rebounded as investors considered the correction overdone. Worries remain over corporate earnings and accelerating inflation due to the rising food and energy prices. BI kept key interest rate at 8%, the lowest in about three years while govt mulls whether to hike domestic fuel prices to reflect global crude price.

Market News
* BNGA 1Q08 - net profit was Rp 207.2bn, +3% YoY, representing 23% of Arief's FY08. Net Int' inc was Rp 657.2bn, 26% of MLFY. NIM was 5.0% from 6.1% in 1Q07. Gross NPL declined to 3.77% from 4.02% a year ago. LDR rose to 92% from 87%. We rate Buy PxT Rp 930.

* AALI 1Q08 net profit at Rp827.05bn, +207% YoY, representing 29% of Bonny's FY est'. Revenue at Rp2.27tn, +100% YoY, was 28% of ML FY08. We rate Sell due to expensive valuation and decelerating production growth.

* PGAS - with Pertamina, and PLN signed agreement to build US$650mn LNG receiving terminal in Banten. 50% of the 3mn per year terminal capacity will be absorbed by PLN. The first phase of the project to be completed in 2012, while the second in 2018. (Bisnis Indonesia)

* ELTY partnering with Jakarta Propertindo to develop 8 property and infrastructure projects in Jakarta worth Rp5tn. (Bisnis Indonesia)

* Telkomsel decided not bid for Wimax license, and will let TLKM, its parent company to focus on the technology. Telkomsel will focus on developing long term evolution (LTE) technology, targeting application in 2010. Verdi feels the decision is rather disappointing for Telkomsel, which highlight the complexity of the relationship between PT Telkom and Telkomsel.