BAHANA $INKP 16.000 !

*Indah Kiat Pulp & Paper (INKP IJ): Paper mania*

Rating: BUY (initiation)
Target price: IDR16,000 (initiation)
Share price: IDR12,050

*Initiating coverage at BUY, TP of IDR16,000 (33% upside potential):* We initiate our coverage on Indah Kiat (INKP IJ) with a BUY rating and 12M TP of IDR16,000, based on a 2018F PER target of c.12x (33% upside potential), as we believe Indah Kiat will continue to benefit from the ongoing strong pulp price environment. We expect the pulp price rally to sustain in 2018-19F, supported by our key investment thesis: (i) No major capacity additions expected to come online post 2018F, (ii) Continued impact from China’s strict environmental actions in 2017, and (iii) Positive pulp demand outlook due to China’s growing consumption.

*The 3 key catalysts for share price uptrend:*
1) Possible sector re-rating driven by M&A of Brazil's Fibria & Suzano, the top 2 largest players in the country.
(http://reut.rs/2ttC14m
2) Continued strong pulp price environment (PX: USD760/ton, +36% y-y)
3) Potential MSCI index inclusion given Indah Kiat's sizeable mkt cap (USD5bn) and trading liquidity (USD5-10mn per day)

Pulp and Paper: Indonesia
Gregorius Gary
Andri Ngaserin