UBS targets JCI to reach 4,450 in 2011

JAKARTA: UBS Investment Research estimates that Jakarta Composite Index (JCI) might reach 4,450 in the next 12 months."We expect the JCI to rise at least 20% in 2011, driven by: a stable 12-month forward PE, expected 14% operating profit growth in 2012 and a 6% cumulative upgrade to our operating profit estimates," the report published on December 1 2010 said.The foreign brokerage overweights consumer, banks, and resources. In a nutshell, the JCIs 43% index return YTD came from a 12-month forward PE re-rating from 13.3x to 14.0x (+5.3%), a 19% return on UBS's original 19% 2011 earning per share (EPS) growth forecast in December 2009, and a cumulative 15% upgrade on our 2011 EPS estimates.At 2,534 at end-2009, the JCI traded at 13.3x 2010E EPS, with forecast 18% and 19% EPS growth for 2010 and 2011, respectively. Almost a year later, the JCI is now at 3,725, the market is trading at 14.0x 2011E EPS. "We forecast EPS growth of 30%/26%/17% in 2010/2011/2012. Note how small the PE re-rating on forward PE was, and how high the EPS upgrade has been." UBS has raised 2010/2011 EPS growth forecasts from 18%/19% to 30%/26%. UBS also provides seven most preferred stocks and three least preferred stocks.The most preferred stocks are Bank Negara Indonesia, Semen Gresik, Indofood Sukses Makmur, Delta Dunia Makmur, Adaro Energy, London Sumatra Indonesia, and Indosat.The least preferred stocks are Bank Central Asia, United Tractors, and Indo Tambangraya Megah. (wiw)

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