The President Post. Dr. Karan. Singh MBA,DBA presently Management Development Director at the President University, writes an interesting article on Leadership entitled “Can you do it? The Transition from Supervisor to Team Leader” in the 12th edition of The President Post. The paper will be published on May the 12th of May 2010

Jakarta Globe, Bloomberg & Reuters

Indonesia Seen Recovering in Strong Q1 Earnings Reports

A slew of strong first-quarter results on Thursday from some of Indonesia’s biggest companies provided further evidence that the domestic economic recovery is on track.

State-controlled miner PT Timah, diversified firm PT Astra International, cement maker PT Semen Gresik and three banks — PT Bank Central Asia, PT Bank CIMB Niaga and PT Bank Permata — all posted healthy numbers.

Higher international commodity prices and strong consumption, supported by low inflation and low interest rates, are driving the recovery. Finance Minister Sri Mulyani Indrawati predicted this month that the economy would grow by between 5.5 percent and 6 percent this year.

Thursday’s results “definitely strengthen the assumption that the domestic economy is recovering,” said Suryadi Candra Kasih, head of research at PT eTrading Securities. Although the assumption had already been “priced in by the market,” he said, “we are penciling in significant earnings growth for Indonesian commodities companies this year.”

Timah, the world’s second-largest tin producer, said its first-quarter net income had surged almost tenfold to Rp 141.82 billion ($15.7 million) because of an increase in the price of the metal.

Timah’s bumper result follows that of PT Aneka Tambang, Indonesia’s second-biggest metal producer by market value, which last week announced that its first-quarter profit had more than doubled to Rp 201.9 billion.

Astra International, an automotive retailer and distributor with interests in plantations and finance, said first-quarter net profit rose 60 percent to Rp 3.014 trillion. The gains were more modest but still significant at Semen Gresik, which reported Rp 802.5 billion in first-quarter profit, up 17.8 percent.

Consumer-oriented companies have also enjoyed a strong earnings in the first quarter. “Cement and consumer-goods companies, except telecommunications, will likely continue posting strong earnings growth this year,” Suryadi said.

PT Bank Central Asia, the country’s largest bank by market value, posted a 16.6 percent rise in first-quarter net income to Rp 1.9 trillion. CIMB Niaga, the local unit of Malaysia’s CIMB Group Holdings, reported a first-quarter net profit of Rp 524.2 billion, more than double that of the year before, while Bank Permata said its first-quarter net profit was up by 62 percent to Rp 269 billion.

Suryadi said all three banks were likely to enjoy robust loan growth this year on the back of low inflation and interest rates.

“There may be some increase [in interest rates], but at the end of the year, the rates will still be low,” paving the way for more lending, he said.

BCA said on Thursday that its outstanding loans had grown by 12.7 percent in the first quarter to Rp 120.85 trillion from a year ago, driven by broad-based consumer lending.

BCA planned to maintain its 15 percent lending target, said Jahja Setiaatmadja, the bank’s vice president director. “Consumer lending will grow mainly on housing credit and vehicle credit,” he said.

Edwin Sinaga, president director of brokerage PT Financorpindo Nusa, said the strong earnings highlighted the improving local economy and were likely to lift the Jakarta Composite Index in the short term. But he warned that the JCI had risen too far.

“What I see happening now is euphoria from excess liquidity that has prompted local stock prices to jump and not reflect their fundamentals anymore,” he said.

Asia’s strong rebound from the global slowdown remains vulnerable to weak demand in Western economies, the International Monetary Fund said Thursday in a report suggesting China should let its currency strengthen as part of measures to reduce the region’s dependence on exports.

“Asia remains more dependent on external demand than other regions. The global economy may stall, and then Asia would suffer the most,” said Roberto Cardarelli, an IMF senior economist.

While much attention has been focused on China’s own need to foster stronger domestic demand to help rebalance its huge trade surpluses with the U.S. and other nations, reforms are needed across the region, the report said.

“There is a need to build up demand from within Asia so that it is driving growth, not only growth in the advanced economies,” said Anoop Singh, director of the IMF’s Asia-Pacific Department.

“A key step is to move away from investment and exports and toward consumption. I do believe this is recognized quite widely in China,” Singh told reporters.

The IMF forecasts 7 percent growth for Asia in 2010, with growth in China at 10 percent. China’s economy expanded by about 12 percent in the first quarter of the year, exceeding expectations and raising concerns over possible overheating, especially in the property sector.

The IMF economists praised China’s efforts so far to cool inflationary pressures from strong inflows of capital that have helped push up property prices and to a lesser extent share prices.

But China needs to go further in reforms aimed at reducing high levels of savings among both households and companies, increasing purchasing power among its consumers that can in turn drive further strong domestic growth.

Allowing the Chinese currency, the yuan, to gain in value is one among many changes needed, they said.

China has kept its currency pegged to the dollar since the global financial crisis struck in 2008 to help cushion its exporters from the plunge in demand due to the global financial crisis. Critics of its exchange rate controls say they keep the yuan undervalued, making Chinese products artificially cheap in overseas markets and contributing to the country’s chronic trade surpluses.

Many analysts expect Beijing to let the yuan rise, though modestly, sometime this year.

But that alone would not be enough to rebalance growth, said Singh. China also needs to beef up education and public health to reduce the burden on savings families use to pay for such services, among other financial reforms.

“This will require a mix of policies. It is very important that this is not viewed as based on one policy, which is the exchange rate,” Singh said.

“It is fairly clear that a strengthening … of the currency is part of a package that will increase the share of consumption” in growth, he said.

Stable growth in the future will depend on coordinated policies in the region, the IMF report emphasized.

“It’s important that everybody has to do something. If one moves and everyone else does not it is not going to make a difference,” Cardarelli said.

Publicly listed PT Bank Central Asia posted Rp 1.9 trillion (US$210 million) in profit in the first quarter of 2010, an 18.3 percent increase from last year’s first quarter profit, bank president director DE Setijoso said Thursday.

As of March, the third party fund rose 15.7 percent to Rp 242.3 trillion and loans grew 12.7 percent to Rp 120.9 trillion, tempointeraktif.com reported.

Consumer loans even increased 34.7 percent, while corporate loans slightly rose 2.4 percent, Setijoso added.

However, the net interest income declined by 25.2 percent to Rp 2.9 trillion.

The number of Americans filing claims for unemployment benefits dropped for a second consecutive week, further evidence that the U.S. job market is slowly improving.

The Labor Department said Thursday that initial applictions for jobless benefits dropped by 11,000 to 448,000, the lowest level in four weeks. The new total was slightly higher than economists had expected.

The four-week average for claims edged up slightly to 462,500, still above the level that economists believe signals sustained improvements in the job maket.

Claims have been on a roller coaster in recent weeks, posting sharp increases in the first two weeks of April and then falling for the past two weeks. Part of those swings reflected troubles that the government has in seasonally adjusting the figures around Easter, which falls at different times each ear.

However, economists said the uneven declines in claims also reflect the fact that the labor market is still struggling to emerge from the country’s worst recession since the 1930s.

The unemployment rate has been stuck at 9.7 percent for three consecutive months. Many economists believe that the 101 percent jobless rate hit in October may turn out to be the peak for unemployment in this slump but they are not forecasting a rapid improvement given all the headwinds still facing the economy. The economy did add 162,000 jobs in March, the lgest increase in three years.

Sal Guatieri, senior economist at BMO Capital Markets, said the new claims report showed that “U.S. labor markets continue to heal, slowly.”

Guatieri predicted that payrolls should show a moderate gain in April. The consensus view of economists surveyed by Thomson Reuts is that payroll jobs increased by 175,000 in April while the unemployment rate will remain stuck at 9.7 percent. The Labor Department will release the April jobless report on May 7.

Many analysts believe that the four-week moving average needs to fall below 425,000 to signal sustained job growth. Applications for jobless benefits peaked during the recession at 651,000 in March 2009.

The number of people continuing to claims benefits fell by 18,000 to 4.65 million.

That figure lags the initial claims by one week. It doesn’t include millions of people who have used up the regular 26 weeks of benefits typically provided by states and are receiving extended benefits of up to 73 additional weeks paid by the federal government.

About 5.4 million people were receiving extended benefits for the week ending April 10, the latest data available.

The department said that 43 states and territories had declines in claims for the week ending April 17 while 10 states saw increases.

The states with the largest declines were New York, a drop of 21,000 which was attributed to fewer layoffs in the service and transportation industries, and California, which saw claims fall by 15,380.

The states and territories with the largest increases in claims for the week of April 17 were Puerto Rico, up 3,549; Iowa, up 1,606, and Georgia, up 1,412.

There have been some hopeful signs recently in the economy. Many companies are reporting strong first-quarter profits as consumers, who account for 70 percent of the total economy, spend more.

While the profit turnaround has not yet produced a dramatic increase in hiring, it at least provides hope that the worst of the economic slump is over.

Companies in the Standard & Poor’s 500 index have reported 76 percent higher operating earnings than a year ago – on pace to be the biggest year-over-year increase ever, according to S&P analyst Howard Silverblatt. Nearly half the companies in the index have reported earnings so far.

Part of the reason for the big jump is that the economy was hitting the depths of the recession a year ago, making the rebound look more impressive.

Among the winners was Ford Motor Co. which reported a $2.1 billion profit on 15 percent higher revenue for the first quarter this year and said it plans to boost production. Caterpillar Inc. also reversed a loss from a year ago and said demand for its construction and mining equipment is surging.

A number of major corporations have boosted their full-year profit forecasts this month. This week alone, the list includes DuPont Co., Estee Lauder Cos. and Whirlpool Corp.

Faisal Maliki Baskoro | The Jakarta Globe

‘Indonesia Inc.’ Hits the Road in Search of New Investors

In a bid to promote Indonesia as an investment destination, 10 state-owned companies will go on a non-deal road show next week in Hong Kong and Singapore.

The road show will include the eight biggest publicly listed state-owned companies as well as two companies that have initial public offerings in the pipeline — national flag carrier PT Garuda Indonesia and steel maker PT Krakatau Steel.

The road show is being organized by state-owned PT Danareksa Sekuritas, PT Mandiri Sekuritas and PT Bahana Securities. “Now is the time to buy Indonesia,” Danareksa Sekuritas president director Edgar Ekaputra said on Wednesday.

The road show will be a good opportunity to gauge investor interest in the planned Garuda and Krakatau Steel IPOs, he said.

Krakatau Steel is planning to sell about 30 percent of its equity in November for about Rp 3.5 trillion ($388.5 million).

Meanwhile, Garuda plans to sell as much as 40 percent of its equity for up to $400 million in the third quarter.

The other eight state-owned companies are PT Telekomunikasi Indonesia, PT Bank Mandiri, PT Bank Rakyat Indonesia, gas distributor PT Perusahaan Gas Negara, miners PT Aneka Tambang and PT Tambang Batubara Bukit Asam, cement maker PT Semen Gresik, and toll road operator PT Jasa Marga.

Kartika Wirjoatmodjo, managing director at PT Mandiri Sekuritas, said the road show would be a good pre-marketing opportunity for Garuda and Krakatau Steel.

“In general, listed state-owned companies have performed well in the stock market. We want future investors to understand and feel comfortable with Garuda and Krakatau Steel as well,” he said, adding that there would be special sessions for Garuda and Krakatau Steel to promote themselves to investors and analysts.

Kartika said the road show had already attracted the attention of more than 40 potential investors, including large British insurer Prudential.

“We want the investors to understand that the State-Owned Enterprises Ministry is very pro-market and transparent,” he said.

The road show will also features individual presentations from each listed SOE on their recent performance.

“This is a very rare opportunity. We want to present ourselves as Indonesia Inc,” Kartika said.

There are currently 16 SOEs listed on the Indonesia Stock Exchange (IDX).

Chandra Pasaribu, an analyst at Danareksa Sekuritas, said listed SOEs had performed well compared to the 50 biggest non-SOE listed companies.

“In general, the listed SOEs have performed very well despite their limitations.” SOEs were bound by more laws and regulations than private sector companies which limited their flexibility, Chandra said.

Yohanes Obor | The Jakarta Globe

A Honda employee checking new cars at the company’s factory in Karawang, West Java. Domestic vehicle sales improved dramatically in the first quarter over the same period last year. (EPA Photo/Adi Weda)

Indonesian Vehicle Sales Soar in Q1 as Economy Improves

Vehicle sales surged during the first quarter of 2010, rising 73 percent from the same quarter last year, as the economic recovery gained momentum and consumers and businesses found themselves with more money and improved confidence in the future.

Sales of commercial trucks rose 87 percent, indicating that investment and activity in the commodity and infrastructure sectors were gaining momentum.

A total of 173,985 vehicles were sold during the first quarter, up from 100,260 during the first quarter last year, according to data released by the Indonesian Automotive Industry Association (Gaikindo) on Wednesday.

As a result, Gaikindo has raised its target for 2010 sales from 550,000 units to 650,000.

Gaikindo said sales of commercial trucks reached 44,091 during the first quarter.

Elvina Afny, the head of domestic marketing at PT Astra Daihatsu Motor, told the Jakarta Globe that a recovery in truck sales drove much of the recovery in overall vehicle sales.

“Last year consumers’ intention to buy trucks decreased as the economy remained uncertain, but they started buying them this year as the economy improved,” Elvina said.

Bagus Hananto, an analyst at PT NISP Sekuritas, said in a report on Wednesday that car sales would continue their upward trajectory in the coming quarters, saying low interest rates and an improving economy would fuel the growth.

Bank Indonesia is widely expected to keep its benchmark interest rate at 6.5 percent while inflation remains contained. The government has proposed lifting its official forecast for economic growth to as high as 5.8 percent for 2010. The economy grew 4.5 percent last year.

Meanwhile, the Indonesian Motorcycle Industry Association (AISI) said motorcycle sales increased by 33 percent to 1.66 million units in the first quarter, from 1.2 million units a year earlier.

“The increase in people’s purchasing power and the improving economy have increased demand for motorcycles this year,” AISI chairman Gunadi Sindhuwinata said.

Yamaha led the market with 46.1 percent of bikes sold, followed closely by Honda with 45.6 percent.

“Yamaha’s achievement was driven by its intensive promotion strategy that managed to win consumer attention to its products,” Bagus said.

However, he said, Honda managed to regain the top position last month as the brand posted 19.9 percent month-on-month sales growth.

Julius Aslan, marketing director of PT Astra Honda Motor, said, “The sales growth in March was mainly supported by the sales of two types of Honda after the company introduced updated models in February.”

State-owned electricity company PT PLN said Wednesday it had no longer subsidized its 6,600 volt- ampere (VA) customers this year to help reduce its expenses.

PLN risk and business management director Murtaqi Syamsuddin said the 6,600 VA customers with a high power consumption were charged Rp 1,380 (15 U.S. cents) per kilowatt hour (kWh), Antara news agency reported.

The subsidy rate was Rp 670 per kWh.

The dividend payment proposal was endorsed by the bank’s shareholders meeting in Jakarta on Tuesday.

Speaking to reporters following the shareholders meeting, Bukopin president director Glen Glenardi said that the bank booked net profits of Rp 363 billion (US$40.16 million) last year, a 2 percent decline from the net profits recorded in 2009.

Glen said that the bank’s net profit was expected to increase by 15 percent this year on the projected increase in lending during the year. “We hope lending will increase by 20 percent this year,” he said.

He said that the bank needed to improve its capital structure to be able to support the lending expansion. – JP/rch