Director’s Cut- Indonesia banks top profit rankings :: Macquarie Research,

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Director’s Cut
Indonesia banks top profit rankings
Since the GFC investors are far more concerned with the financial stability and
profitability of financial companies, especially banks. Ismael Pili’s highly
detailed work on the profitability of the Asian banking sector, and his country
preferences, is therefore perfectly suited to investors who may be looking at
switching in response to the headwinds facing European and US banks.
Ismael Pili’s analysis is based on Operating Return Analysis (ORA), which is
like the Du Pont breakdown for banks. One interesting finding is the strength of
Indonesian banks, which rank Number One in terms of current and improved
profitability. He argues this is a good sign Indonesian banks will outperform, and
the one he favours most is Bank Mandiri (BMRI IJ).
While profits underpin a stock’s attraction, it’s not the only factor. When he also
considers M&A, politics, macro factors, valuations, risk tolerance and the
attraction of other sectors, the countries Ismael favours are Indonesia,
Singapore and Korea. In terms of exposure, his preferred picks are UOB Bank
(UOB SP) in Singapore and Woori (005940 KS) in Korea. On the other side of
the coin, the countries he likes the least are Hong Kong, India and Taiwan. In
these countries he prefers larger, well capitalised banks


Highlights
 Going into earnings season, Jason Gammel’s top picks among the big oils
are Occidental (OXY US) and Royal Dutch Shell (RDSA LN).
 Lee Bowers says Rio Tinto’s (RIO AU) second quarter production bounced
back fairly well and he believes the stock is still cheap on almost all metrics.
 Tim Nollen says underlying growth trends for global ad stocks remain
resilient, and he favours Publicis (PUB FP) and Interpublic (IPG US).
 Gary Pinge is growing increasingly cautious on the level of organic growth at
Li & Fung (494 HK) and has cut his target price another 20% to HK$11.00.
 Scott Russell remains negative on PICC Property and Casualty (2328 HK),
and suggests to switch to Ping An Insurance (2318 HK).
 Nitin Mohta says Tata Consultancy (TCS IN) reported another quarter of
sector leading performance, and he maintains his Outperform.