Asia Credit:Indo coal -Indika 2Q17result update and maintain Buy;D/G BUMA to Hold

In this report we look at the Indika’s 2Q17 result announcement and alsoreassess our bond recommendations.

    Our regular readers would know that we have been positive on Indo coalnames relative to Indo property names. Indo coal names under our coverage -Indika and BUMA - have outperformed with spread compressing compared toother higher beta Indo HY names (Figure 1). Bonds do appear closer to fairvalue with limited room for further outperformance, in our view. That said, coalprice sentiments continue to remain supportive. DB commodities teamrecently upgraded their coal price forecast on sustainably higher Chinadomestic prices. Our team has raised seaborne forecasts for 2018/19 by +10-15% to Newcastle FOB at USD 81/78/t and Richards Bay FOB at USD 78/75/t,up from USD 71/68/t and USD 70/67/t, respectively. Please refer to full reportfor more details. Such high coal price is more beneficial for Indika than BUMA,in our view.

    Thus, we downgrade BUMA 22s (bid price 105.25; bid z-spd of 461bps) toHold given fair valuation and still maintain Buy on Indika 2022s (ask price of101.375; ask z-spd of 478bps) on favorable coal price sentiments.