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January 2018

OVERWEIGHT Market Outlook 2018


Head of Equity Research
Helmy Kristanto
(62-21) 2955 5824
helmy.kristanto@danareksa.co.id

Analysts
Stefanus Darmagiri
(62-21) 29 555 831
stefanus.darmagiri@danareksa.com

Natalia Sutanto
(62-21) 29 555 888 ext.3508
natalia.sutanto@danareksa.com

Maria Renata
(62-21) 29 555 888 ext.3513
maria.renata@danareksa.com

Eka Savitri
(62-21) 2955 5888 ext 3506
eka.savitri@danareksa.co.id

Antonia Febe Hartono, CFA


(62-21) 29 555 888 ext.3504
antonia.hartono@danareksa.com

Adeline Solaiman
(62-21) 29 555 888 ext.3503 A Sanguine Proposition
adeline.solaiman@danareksa.com
Propelled by improving consumption, the economy will grow at a
Yudha Gautama
brisker pace in 2018. While the government’s infrastructure
(62-21) 29 555 888 ext 3509
development drive will continue, we expect a more defined two-
yudha.gautama@danareksa.com
pronged approach with a focus on populist policies which will
promote higher consumption and appease the nation’s grassroots.
Ignatius Teguh Prayoga
In addition, the benign inflation outlook will provide room for further
(62-21) 29 555 888 ext 3511
policy easing by the central bank, if needed. We are positive on the
ignatius.prayoga@danareksa.com
equity market with a year-end index target of 6,854.

www.danareksa.com
January 2018 Market Outlook

TABLE OF CONTENTS page

Market Outlook 1

Automotive Sector 38
Banking Sector 40
Cement Sector 42
Cigarette Sector 44
Coal Sector 46
Construction Sector 48
Consumer Sector 50
Industrial Estate Sector 52
Media Sector 54
Metal Mining Sector 56
Pharmaceutical Sector 58
Plantation Sector 60
Poultry Sector 62
Property Sector 64
Retail Sector 66

Company Outlook 68

Appendix 240
January 2018 Market Outlook

This page has been left blank intentionally


Equity Research
Strategy

Wednesday,27 December 2017

OVERWEIGHT Strategy
A Sanguine Proposition
Propelled by improving consumption, the economy will grow at a brisker pace
in 2018. While the government’s infrastructure development drive will
continue, we expect a more defined two-pronged approach with a focus on
populist policies which will promote higher consumption and appease the
nation’s grassroots. In addition, the benign inflation outlook will provide
room for further policy easing by the central bank, if needed. We are positive
on the equity market with a year-end index target of 6,854.
Key Underpinning Factors
We are positive on the equity market in 2018 for several reasons:
1) Following the disappointing progress in 2016-1H17, economic growth is now
reviving, with domestic consumption expected to improve on the back of higher
energy subsidies and the government’s social assistance program. We expect
GDP growth to improve to 5.3% in 2018; 2) 2018 is a pre-election year with 171
direct regional elections scheduled to take place across Indonesia. With the 3
most populous provinces all having gubernatorial elections in 2018, political
campaign spending will provide support to consumption, we believe.
Furthermore, we also expect political tensions to be less than in 2017, and 3)
potential interest rate cuts given the outlook for muted inflation. As the central
bank continues to adopt an inflation targeting framework, lower inflation will
create room for further policy easing. At this juncture, rising oil prices look to
be the main specter.
Proliferation of Growth Factors
We expect a better macro environment that will be favourable for investment.
More coherent government and central bank policies should continue to
facilitate growth in 2018. The first stage of the transformation process – the
removal of subsidies to facilitate more productive infrastructure spending - is
complete and Indonesia will now move to the second stage of the
transformation through demand creation as private participation increases.
This will support underlying growth factors for the micro environment over the
longer run as well as put Indonesia on a trajectory of higher economic growth.
Index target of 6,854
Given the positive macro trends, we expect the outflows recorded in 2017 to
be reversed in 2018 as: 1) Indonesia will remain an attractive emerging market
for investors and 2) the inflows/outflows trend has occurred intermittently
since 2013. We set our year-end index target at 6,854. Expectations of a higher
index will be mainly underpinned by earnings growth, with the companies in
the Danareksa universe registering 12% estimated earnings growth in 2018
x Helmy Kristanto following the strong growth of 16% in 2017. We like the consumption-related
sectors (consumer, retail and media), as well as banking and construction. Our
(62-21) 2955 5888
10 top picks are: ADHI, ADRO, BBTN, BBRI, ICBP, MAPI, MNCN, PTPP, PWON,
helmy.kristanto@danareksa.co.id and RALS.
Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (Rp) (RpBn) 2017F 2018F 2017F 2018F 2018F
Adhi Karya WIKA IJ BUY 2,800 6,766 15.5 11.3 1.1 1.0 9.2
Adaro Energy ADRO IJ BUY 2,200 57,575 8.5 8.9 1.2 1.2 13.3
Bank Rakyat Indonesia BBRI IJ BUY 3,900 419,376 15.5 13.5 2.6 2.3 18.3
Bank Tabungan Negara BBTN IJ BUY 4,000 36,747 9.8 8.4 1.4 1.2 15.8
Indofood CBP ICBP IJ BUY 9,700 104,083 26.7 24.2 5.3 4.7 20.6
Mitra Adiperkasa MAPI IJ BUY 8,100 10,253 26.9 20.6 2.9 2.6 13.2
Media Nusantara Citra MNCN IJ BUY 1,750 17,916 12.2 10.2 2.0 1.8 18.2
Pembangunan Perumahan PTPP IJ BUY 4,000 16,058 11.3 7.7 1.7 1.5 20.5
Pakuwon Jati PWON IJ BUY 720 30,581 16.0 12.9 3.0 2.5 20.9
Ramayana Lestari Sentosa RALS IJ BUY 1,250 6,908 16.9 16.0 2.0 1.8 11.8

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A year of two halves: 2017 at a glance

External factors appeared to have little impact on the JCI in 2017, with domestic
factors taking center stage. The structural reforms initiated by President Jokowi’s
government finally prompted S&P to upgrade Indonesia to investment grade,
putting Indonesia in a more favourable position. Political tensions eased as the
gubernatorial election in Jakarta was conducted in peaceful fashion.
In 1H17, the direction of the market and inflows moved in the same direction. In
this period, total net inflows reached IDR17.4tn, driven mainly by: 1) the peaceful
Jakarta gubernatorial election, 2) the government’s successful tax amnesty
program and 3) further economic stimulus provided by the government. In 2H17,
however, these two factors decoupled, with foreign investors aggressively
unwinding their positions, with total outflows reaching a staggering IDR60tn. In
our view, investors were discouraged by the still-lethargic economic growth, with
GDP growth falling short of market expectations.

Exhibit 1. JCI index and notable events in Indonesia

Source: Danareksa Sekuritas

Despite the massive outflows in 2H, the market continued to head north. In
December, the market even reached an all-time high, driven mainly by the greater
participation of domestic investors. The central bank’s decision to make further
cuts to its benchmark interest rate to 4.25% helped to support sentiment,
especially in the hope that such policy would help to speed up economic growth
recovery. The finance sector led the outperformance, with a 33% increase mainly
driven by the strong performance of both BBTN and BBNI. The basic industry and
consumer sectors also outperformed, the former mainly underpinned by a rally in
cement counters following a multi-year downtrend, while the expectation of
domestic consumption recovery boosted sentiment in consumer stocks.
In our view, Indonesia continues to offer an attractive proposition over the longer
term, with GDP growth expected to improve to 5.3% in 2018 and the muted
outlook for inflation paving the way for further policy easing by the central bank.

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Exhibit 2. Net Outflow (Monthly) Exhibit 3. Sectoral Performance (YTD)

15,554
Rp, bn
20,000 Agriculture -13.2

10,516
Property -6.3
15,000
Miscelaneous -0.3
10,000
Trade & Service 5.2
5,000

559
Infrastructure 8.3
0 Mining 12.7
-869
-1,189

(5,000) Manufacture 15.8


-3,236

-4,796 JCI

-6,201
15.8

-6,370
(10,000)

-7,271
Jul-17 -10,640 Consumer 18.0

Sep-17 -11,499

Nov-17 -18,616
(15,000)
Nov-16 -12,361

Basic Industry 24.4


(20,000) %
Finance 33.6
Jun-17
Dec-16

Dec-17
Feb-17

Oct-17
Apr-17
May-17

Aug-17
Jan-17

Mar-17

-20 -10 0 10 20 30 40

Source: Bloomberg, Danareksa Sekuritas Source: Bloomberg, Danareksa Sekuritas

In 2018, we are positive on the equity market with year-end index target of 6,854,
mainly supported by:
1. Supportive developments on the macro front, with GDP growth
improving to 5.3% and stronger household consumption given higher
energy subsidies and the government’s social assistance program.
2. 2018 is a pre-election year with 171 direct regional elections scheduled
to take place across Indonesia. With the 3 most populous provinces all
having gubernatorial elections in 2018, political campaign spending will
give a boost to consumption, we believe. Furthermore, we also expect
political tensions to be less than during the election in Jakarta in 2017.
3. Potential interest rate cuts given the outlook for muted inflation. Higher
energy subsidies mean no more electricity tariff increases, which were a
main factor behind the rising inflation and softer purchasing power in
2017. As the central bank continues to adopt an inflation targeting
framework, lower inflation will create room for further policy easing. Our
economist expects inflation to ease to as low as 2.5%. Hence, with BI’s
real interest rate comfort level of 1%, there may be potentially two more
rate cuts in 2018 (or 50 bps) , from the current level of 4.25%.
4. Given the positive macro trends, we expect the outflows recorded in 2017
to be reversed in 2018 as Indonesia will remain an attractive emerging
market for investors. The inflows/outflows trend has occurred
intermittently since 2013.

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Indonesia’s economy: The revival of consumption
Following the economic slowdown back in 2014, Indonesia has been undergoing
structural economic reform, as seen in the shift from a subsidy-driven budget
toward more productive spending on items such as infrastructure. Indeed, higher
infrastructure investment is a wise move, especially in Indonesia, a large archipelago
with a lack of proper nationwide infrastructure. It is believed that improvements in
infrastructure will have a positive impact in both the short and long term. In the
initial stage, infrastructure investment will boost demand in the short term and
support supply in the longer term. On the demand side, higher spending on
infrastructure will provide an instant support for GDP, boosting growth in
infrastructure-related sectors - particularly construction. Over the longer term, the
reduction in disconnectivity will induce higher participation from the private sector
to develop new areas through property development and the creation of satellite
cities.
A study by the International Monetary Fund in October 2014 revealed that in
advanced economies infrastructure spending of 1 percentage point of GDP led to
0.4% higher output in the year it occurs—the demand boost—and 1.5% four years
later as a result of increased supply. The report also assessed the impact of
infrastructure spending on developing and emerging markets. From 120 identified
public investment booms in the sample, the vast majority of them were in emerging
markets and developing economies. These booms were characterized by large and
sustained increases in government investment spending: public investment as a
share of GDP increased by about 7 percentage points of GDP in the first years of the
boom. During this period, the level of output continuously increases, before
stabilizing after the fifth year at a level about 8 percent higher than in the year
before the boom. This suggests a public investment multiplier of about 1–1.3. As
such, there is a considerable economic multiplier from any infrastructure spending.
This is something that Indonesia will enjoy over the longer run, especially given the
current lack of infrastructure connectivity and the country’s improving economic
prospects.
In the report “The Time is Right for an Infrastructure Push” by the IMF, a few key
characteristics are said to distinguish infrastructure from other types of capital.
First, infrastructure investments are often large, capital-intensive projects that tend
to be “natural monopolies”— it is often more cost-effective for services to be
provided by a single entity. Second, they tend to have significant up-front costs, but
the benefits or returns accrue over very long periods of time, often many decades.
This longevity (and the associated difficulty of ascertaining adequate returns over
such a long horizon) can pose a challenge to private financing. Third, infrastructure
investments have the potential to generate positive externalities, so that the social
return from a project can exceed the private returns it can generate for the
operator. This can lead to the under-provision of needed investments. For these
reasons, infrastructure has historically been provided by the public sector, public-
private partnerships, or regulated private entities.

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Exhibit 4. Indonesia Infrastructure Development

Project Location PIC Investment Construction Operational


Value (IDR Bn) Starting Plan Starting Plan
West Semarang SPAM Semarang Regional Water Utility 900 2018 2022
Company (PDAM) of
Semarang
Water and Sanitation

Jakarta Sewerage System Jakarta Government of Jakarta 150,000 2018 2021

National Capital Integrated Coastal Jakarta Government of Jakarta 2,400 2016 2018
Development (NCICD) Phase A and Ministry of Public
Facility

Works and Housing

Bontang Oil Refinery East Kalimantan PT Pertamina 197,580 2019 2023


Tuban Oil Refinery East Java PT Pertamina 108,000 2018 2021
Energy

Revitalization of Existing Oil Refinery Cilacap, Balongan, Dumai, PT Pertamina 246,220 2017 2025
Balikpapan, Plaju
High Voltage Direct Current (HVDC) South Sumatera, Lampung, PT PLN 33,400 awaiting for PLN 2024
Banten, West Java confirmation
Sumatera 500kV Transmision Sumatera PT PLN 24,400 2016 2019
Central - West Java Transmission Line Central Java and West Java PT PLN 7,640 2017 2019
500kV
Central Java Power Plant (Steam Central Java PT PLN 40,000 2016 2019
Power Plant of Batang)
Steam Power Plant of Indramayu Jawa Barat PT PLN 20,000 2017 2019
Steam Power Plant of South Sumatera Selatan PT PLN 18,000 awaiting for PLN 2023
Sumatera Mine Mouth 8 confirmation
Steam Power Plant of South Sumatera Selatan PT PLN 54,000 Cancelled by PLN Cancelled by PLN
Sumatera Mine Mouth 9 and 10
Hydro Power Plant of Karangkatas IV East Java Ministry of Public 1,600 2017 2020
Electricity Facility

and V Works and Housing


Hydro Power Plant of Kesamben East Java Ministry of Public 1,100 2017 2020
Works and Housing
Micro Hydro Power Plant of Lodoyo East Java Ministry of Public 300 2017 2020
Works and Housing
Tol Road of Balikpapan-Samarinda East Kalimantan Indonesia Tol Road 9,970 2017 2018
Authority
Tol Road of Manado - Bitung North Sulawesi Indonesia Tol Road 5,120 2016 2019
Tol Road of Serang - Panimbang Banten Indonesia Tol Road 5,330 2017 2019
Authority
Tol Road of Medan - Binjai North Sumatera PT Hutama Karya 1,600 2015 2017
Tol Road of Palembang - Indralaya South Sumatera PT Hutama Karya 3,300 2015 2018
Tol Road of Bakauheni - Terbanggi Lampung PT Hutama Karya 16,700 2015 2018
Besar
Tol Road of Pekanbaru - Dumai Riau PT Hutama Karya 16,200 2016 2019
Road and Bridge

Tol Road of Terbanggi Besar - Lampung and South Sumatera PT Hutama Karya 21,950 2017 2019
Pematang Panggang - Kayu Agung
Tol Road of Palembang - Tanjung Api- South Sumatera PT Hutama Karya 14,200 2018 2020
Api
Tol Road of Kisaran -Tebing Tinggi North Sumatera PT Hutama Karya 13,454 2018 2019
MRT of North - South Jakarta Lane Jakarta Regional Government 17,012 2013 (Phase I), 2019 (Phase I)
of Jakarta 2016 (Phase II)
Express Train of Soekarno Hatta Banten and Jakarta Ministry of Transport 24,500 2018 2022
Airport
Makasar - Parepare Train Railway South Sulawesi Ministry of Transport 8,250 2015 2018
East Kalimantan Train Railway East Kalimantan PT Kereta Api Borneo 53,300 2017 2021
Light Rail Transit of South Sumatera South Sulawesi Ministry of Transport 12,500 2015 2018
Telecommunication Transportation Facility

LRT Jakarta, Bogor, Depok, Bekasi Jakarta and West Java Ministry of Transport 23,000 2015 2019
International Hub Seaport of Kuala North Sumatera Ministry of Transport 30,000 2019 2021
Tanjung
International Hub Seaport of Bitung North Sulawesi Ministry of Transport 34,000 2020 2022
Seaport of Patimban West Java Ministry of Transport 43,220 2018 2019
Inland Waterways/ Cikarang-Bekasi- Jakarta and West Java PT Pelindo II 3,416 2018 2021
Laut
Palapa Ring Broadband Indonesia Coverage Ministry of 5,130 1h2016 (West and 1Q2018 (West
Communication and Central part), and Central part),
Information 1Q2017 (East 4Q2018 (East
part) part)
Facility

Estimated Total Investment Value (IDR Bn) 1,267,692

Source: Committee for Acceleration of Priority Infrastructure Delivery

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In Indonesia, the benefits from the first stage of the government’s infrastructure
development spending are only starting to be felt. With infra spending as the main
priority of the government since 2015, overall GDP growth has received a boost,
mainly from stronger growth in Gross Fixed Capital Formation (GFCF). In the
recent GDP announcement, GFCF grew the most, reaching 7.11%, or well above
the Household Consumption growth of 4.93% and Government Consumption
growth of 3.46%. While this is encouraging, the contribution from GFCF was
second-largest after Household Consumption which accounted for 56% of
Indonesia’s overall economy.

Exhibit 5. GPD growth Q1-Q3 2017 (YoY) Exhibit 6. GDP Growth Q1-Q3 (YoY)

Net Ex/Im,
20%
1.63%
15%
Fixed
10%
Investment,
33.69% 5%

0%
Private
Consumption, -5%
56.72%
-10%
Private Government Fixed Export Import
ConsumptionConsumption Investment
Government
Consumption, GDP growth Q1-Q3 2016 (YoY) GDP growth Q1-Q3 2017 (YoY)
7.95%

Source: Central Bureau of Statistics Source: Central Bureau of Statistics

Exhibit 7. 3Q2017 GDP Composition Exhibit 8. GDP Growth by Sectors


Others Agriculture
11% 14%
Communucation and Information
Services
Services
Real Estate2%
3% Construction
Financial Service Mining Financial Service
4% 8% Transportation
Communucation
and Information Accomodation, Food and Beverage
5% Agriculture
Accomodation,
Food and Manufacturing Industrues
Beverage Real Estate
3%
Others
Construction Manufacturing
10% Industrues Mining
22%
0% 2% 4% 6% 8% 10% 12%

Transportation Growth Q1-Q3 2017 YoY Growth Q1-Q3 2016 YoY


18%

Source: Central Bureau of Statistics Source: Central Bureau of Statistics

Nonetheless, the path toward achieving high spending on infrastructure has not
been easy, especially since strong political will has been needed to reduce
spending on long-term subsidies, especially energy subsidies. Since infrastructure
is so costly, it takes time for infrastructure spending to translate into stronger
economic growth. Another limiting factor is the cap of a maximum 3% budget
deficit to GDP which pushed the government to focus on improving its revenues
rather than just depend on bonds issuance to support infrastructure spending.

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Exhibit 9. Government Achievement in 2017
Achievement Recipient/Result
Indonesia education program 16.4 Million Student
School Operational Support 7,5 Million Student
Non-cash food support 1,2 Million Family
Education Support for Conditional College 364,4 Thousand Student
Student
Indonesia Healthcare Card Program 91,7 People
conditional cash transfer program 5,99 Million family
Food Subsidy 14,2 Million family
Weaponry defense system -not stated-
Road 611 km
Highway 24,5km
Bridge 6,110 m
Airports 3 Airports

Source: Press Release of Ministry of Finance

Ultimately, these two factors (the shift from subsidy spending and the need to
boost revenues especially from tax) weighed on Household consumption, the
main part of the Indonesian economy.
1. Subsidy spending helped to boost consumption
With subsidy spending reduced by more than IDR300tn, consumption is
adversely affected as consumers are burdened with higher living costs
arising from higher fuel prices. The adjustment has been difficult with
Household consumption growth remaining under pressure. During the
era of high energy subsidies, Household consumption grew by 5.28% on
average in 2011-2014, whereas growth only reached 4.95% in 9M17.

Exhibit 10. Energy Subsidies Exhibit 11. Household Consumption Growth (%YoY)
5.6%
IDR tn 5.5%

300 5.5% 5.4%

240 5.4%
250
210 5.3%
200 5.2% 5.2%

5.1%
150 5.1% 5.0%
100 101.8 5.0% 4.9% 5.0%
100 5.0% 4.9%
58.3 60.8 63.1
43.7 45.4
44.5
47.746.9 4.9%
50
4.8%
0 4.7%
2013 2014 2015 2016 Outlook APBN
4.6%
2017 2018
Electricity Subsidy Fuel and LPG Subsidy 2011 2012 2013 2014 2015 2016 1Q17 2Q17 3Q17
Source: Ministry of Finance Source: Central Bureau of Statistics

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The decision to divert energy subsidies to infrastructure spending was
inevitable and a prerequisite for sustainable long term economic growth.
We also believe that the recent weakness in Household consumption is
transitory, and once the LT benefits of infrastructure spending start to
kick in, Household consumption will likely see a gradual improvement.
Looking at a breakdown of Household consumption, we note that the
Food Spending has posted higher growth since 2014 at the expense of
Non Food Spending. Higher living costs from higher inflation meant that
consumers prioritized spending on more essential items. In 2014, Food
Spending accounted for only 38% of overall Household consumption. It
improved to 39.3% in 9M17.

Exhibit 12. Household Consumption Growth: Food (%YoY) Exhibit 13. Household Consumption Growth: Non Food (%YoY)
6.0 7.0 6.83
5.5 5.62
5.24 6.5
6.49
5.0 4.88 6.0 5.78
4.58 5.5 5.36
4.5
5.0 5.26
4.0 4.21
4.52
4.5
3.5 4.33 4.37
3.51 4.0
3.0 3.5
I II III IV I II III IV I II III IV I II III IV I II III IV I II I II III IV I II III IV I II III IV I II III IV I II III IV I II
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017

Source: Danareksa Research Institute Source: Danareksa Research Institute

We believe that we will start to see some recovery in Household


consumption in 2018 as the government has increased energy subsidies
to keep inflation in check. In addition, there have also been increases in
various healthcare and education subsidies, which will in turn help to
increase disposable income, which is crucial to underpin more meaningful
recovery in consumption. To some extent, the regional elections in 171
areas, including the 3 most populous provinces, will bode well for
consumption, especially consumer staples and low-ticket items.

The recent increase in oil prices undoubtedly poses a risk to overall


recovery in consumption, especially given the wide gap between the
government’s oil price assumption of USD48/barrel and the current oil
price which is above USD55/barrel. Nonetheless, we are of the view that
since 2018 is a pre-presidential election year, the government will want
to avoid any unnecessary volatility in prices and inflation. Instead, more
populist measures are likely to be delivered, we believe. The low budget
deficit of only 2.2% in 2018 also gives the government some wiggle room
to provide more energy subsidies if needed.

2. Increase in tax
Government revenues mainly come from taxation: its contribution is
expected to surpass the 85% mark in 2018. Since the current government
came to power with a reform oriented focus, tax contribution has shown
a major improvement. Back in 2013, tax contribution to overall
government revenues only reached 75%, and with funding needed for
infrastructure development in an environment marked by low commodity
prices, an improvement in tax collection is considered as the only way to
keep the budget deficit below the 3% level.

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Exhibit 14. State revenue Exhibit 15. State Revenue Compostion

IDR Tn
2,000 1,736 1,895 14.0% APBN 2018 85% 15%
1,800 12.0% Outlook
1,550 1,508 1,556 11.6%
1,600 1,439 85% 15%
10.0% 2017
1,400 9.1%
1,200 7.5% 7.8% 8.0% 2016 83% 17%
1,000 6.0%
800 2015 82% 17%
4.0%
600 3.2%
2.0% 2014 74% 26%
400
200 0.0%
2013 75% 25%
- -2.0%
2013 2014 2015 2016 Outlook APBN
2017 2018 0% 20% 40% 60% 80% 100%
State Revenue State Revenue Growth (RHS) Tax Revenue Non Tax Revenue Grant Revenue

Source: Ministry of Finance Source: Ministry of Finance

The tax amnesty program which was aimed at boosting tax compliance appears
to have come at the right time. Dubbed as one of the world’s most successful tax
amnesty programs, better compliance has, however, had an adverse impact on
asset investment (as seen in the low take-up rate for high-end residential
property). The government continues to further improve tax collection, through
both intensification and extensification. This has led to weaker consumption due
to higher tax payments. Nonetheless, we believe the impact will only be short-
lived since better compliance should give a boost to GDP and consumption over
the longer term.
Exhibit 16. Tax Ratio Exhibit 17. Tax Revenues
15.0% 14.3% IDR Tn
1,800 1,618 30.0%
13.7%
14.0% 1,600 1,473
25.0%
1,400 1,240 1,285
13.0% 1,147
1,200 1,077 20.0%
12.0% 11.6% 11.5% 11.6% 1,000
15.0%
11.9% 10.8% 800 12.7%
11.0%
11.4% 600 9.9% 9.2% 10.0%
9.0%
10.7% 10.8% 10.9% 400 6.5%
10.0% 5.0%
10.4%
200 3.6%
9.0% - 0.0%
2013 2014 2015 2016 Outlook APBN 2013 2014 2015 2016 Outlook APBN
2017 2018 2017 2018
Exclude oil, gas, mineral Include oil, gas, mineral
Tax Revenue Growth (RHS)
Source: Ministry of Finance Source: Ministry of Finance

Gradual economic improvements in 3Q – the limiting factor


Two of the three largest sectors by GDP saw an improvement in growth in 3Q with
the manufacturing sector posting faster growth of 4.83% in 3Q (vs 3.47% in 2Q)
and wholesale retail and auto reparation growth climbing to 5.5% from 3.85%. On
the flip side, the agriculture, forestry and fisheries sector posted slower growth of
2.93% from 3.33% in 2Q. Higher leisure spending was also seen in 3Q, with the
transportation, information and communications sector booking strong growth of
7.8%, above overall GDP growth of 5.07%.

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The absence of e-commerce activity in the GDP data may be an indication of
upside potential in the overall economy. GDP calculations are currently based on
the survey done in 2010, at which time e-commerce activity was still in its early
stage. This is also reflected in inflation with transportation prices still in an
uptrend despite the heavy discounting offered by various online transportation
companies such as Go-Jek, Uber and Grab. We are also of the view that the slow
downtrend in real financing costs limits economic improvements to some extent
despite the central bank’s aggressive rate cuts recently. While banks are starting
to cut their interest rates, the pace of the reductions are not commensurate with
the downtrend in inflation.
All components by expenditure have seen faster growth, except for household
consumption which only grew by 4.93% (Q3), relatively flat compared to the
growth in Q1 and Q2 as well as the growth seen in 2016. Taking a closer look at
the data, food consumption growth slowed to 5.04% from 5.24% in 2Q17, while
non-food consumption growth improved to 4.87% from 4.77%. Meanwhile,
leisure consumption is still growing well, improving to 5.77% from 5.48% (Q2).
Household consumption growth in Q3 is still below the average household
consumption growth over the last 5 years of 5.21%. This downtrend has been
evident since 2015 and continued into 2016, mainly stemming from the removal
of fuel subsidies which depressed the purchasing power of consumers.

Exhibit 18. Growth of Household Consumption Components (% YoY)


%
6.0
5.8 5.87
5.62
5.6
5.4 5.48
5.32
5.2 5.24
5.0 5.14
4.8 4.86
4.80
4.6 4.74 4.66 4.52
4.4 4.37
4.2 4.33
4.17
4.0
I II III IV I II III IV I II
2015 2016 2017

Food NonFood Leisure

Source: Danareksa Research Institute

Government consumption in 3Q17 also started to grow again, reaching 3.46% vs


2Q’s level of -1.93%. We believe that this mainly reflects normalization of
government spending following last year’s considerable budget cuts. In 2016, due
to some budgetary constraints, the then newly-elected Finance Minister, Sri
Mulyani, decided to make some considerable adjustments by reducing spending
which adversely affected economic growth. However, given the manageable
deficit currently, the government has not needed to make major budget cuts. As
such, with the normalization of government spending coupled with last year’s low
base, there should be some support for GDP growth in 2017.
Investment also posted encouraging growth of 7.11% in 3Q17, up from 5.35% in
2Q17. This reflects the more conducive investment climate after the government
implemented various stimulus policies. Indonesia’s ease of doing business ranking
improved from129 out of 190 countries in 2012 to 72 presently. In our view, if
investment growth continues to improve to about 8% - 9% (possible, given
improving competitiveness and a better investment climate), then higher
economic growth of 6% - 7% could be achieved, according to our economist.

www.danareksa.com See important disclosure at the back of this report 10


Meanwhile, exports growth jumped to 17.3% from 3.6% (Q2), mainly supported
by non-oil and gas exports and service exports which grew 12.4% (the highest
growth in the last 5 years). This is certainly in line with the improvements seen in
the world economy, which have translated into stronger demand and higher
prices for Indonesia’s export products. It is worth noting that the slowdown in
exports growth in Q2 is seasonal (due to Idul Fitri).
Imports growth reached 15.1%, up from 0.2% (Q2). The increase in imports is in
line with the increase in exports, as some of the country’s export products still
need imported raw materials. The increase in imports was mainly supported by
the increase in imports of non-oil and gas imports as well as services imports.
In 2018, the government will seek to shore up purchasing power with cash
transfers for underprivileged groups and to rein in inflation for the middle class.

www.danareksa.com See important disclosure at the back of this report 11


2018 – Sanguine on Household Consumption
Given that consumption is the mainstay of the Indonesian economy, with a 58%
share, it is imperative that there is some recovery in this segment so that the
economy can grow at a faster pace. In 2017, economic growth has been mainly
underpinned by GFCF on the back of the still massive infrastructure spending. In
2018, we would expect to see some improvement in household consumption
thanks to:
1. Higher energy subsidies
While we believe the switch from spending on energy subsidies to more
productive infrastructure spending is the keystone development of the
Indonesian government, the provision of certain additional energy subsidies in
2018 will still be needed to propel mass market consumption, in our view. Despite
the escalation of some costs in 2017 such as higher electricity tariffs (which partly
eroded purchasing power), the government decided to raise energy subsidies by
5.1% to IDR94.5tn in 2018 from 2017’s budget of IDR89.9tn.
Exhibit 19. Government Subsidies (IDR Bn)

2017 2018
Subsidy (2014-2018) 2014 (LKPP) 2015 (LKPP) 2016 (LKPP) Outlook RAPBN
Energy 341,810 119,091 94,355.1 89,864.0 103,368.4
Subsidy of Fuel and 3Kg LPG 239,994 60,759 43,686.9 44,488.8 51,130.4
Electricity Subsidy 101,816 58,332 50,668.2 45,375.2 52,238.0

Non Energy 50,152 66,880 83,399 79,013 69,040


Food Subsidy 18,165 21,845 22,503.6 19,787.1 7,336.4
Fertilizer Subsidy 21,047 31,316 30,063.2 31,153.4 28,504.0
Seed Subsidy 309 112 1,023.8 1,291.6 -
Public Service Obligation 2,085 3,261 3,800.1 4,319.7 4,430.2
Credit Interest Subsidy 2,760 1,883 15,772.4 13,024.4 18,000.6
Tax Subsidy 5,787 8,462 10,236.2 9,436.7 10,768.2
Total 391,963 185,971 177,754.5 168,876.8 172,407.9

Source: Ministry of Finance

Exhibit 20. Subsidies Growth Exhibit 21. Subsidies by Type


IDR tn IDR tn
450 30% 450
392
400 355 20% 400
350 10.4% 10% 350
300 2.5% 0%
-3.1% 300
250 -6.3% -7.5% -10%
186 250
200 174.2 168.9 -20% 341.8
156.2 200 310
150 -30%
150 66.9 67.4
100 -40% 79 61.7
100
50 -52.6% -50%
50 119.1 106.8 94.5
0 -60% 89.9
45.1 50.2
2013 2014 2015 2016 Outlook APBN 0
2017 2018 2013 2014 2015 2016 Outlook APBN 2018
Subsidy Growth (%) 2017
Non Energy Subsidy Energy Subsidy
Source: Ministry of Finance Source: Ministry of Finance

www.danareksa.com See important disclosure at the back of this report 12


2. Higher education and healthcare subsidies
Education and Healthcare subsidies are also a key policy of Jokowi’s government,
and should, in our view, help to improve Indonesia’s GINI ratio, which has steadily
improved since 2015. With subsidies in both these areas, the people’s quality of
life is expected to get better, and more importantly, the subsidies should support
consumption, thereby underpinning higher economic growth over the longer
term.

The budget for education subsidies has been raised to IDR444.1tn in 2018, up
5.8% y-y, targeting 19.7m people through Indonesia’s Smart Program, with the
building of 61,000 schools. The government has also increased healthcare
subsidies to IDR111tn, more than double the level in 2013 of only IDR46.1tn. The
government is targeting 92.4 million people through National Healthcare
Coverage or Indonesia’s Health Card program.

Exhibit 22. Education Budget Exhibit 23. Health Budget


IDR Tn IDR Tn
500 25.0% 120 111 60.0%
444.1 104.9
450 419.8
390.1 20.0% 100 92.3 50.0%
400 353.4 370.4
332.4 15.0%
350 80 40.1% 40.0%
13.3% 59.7 65.9
300 11.8%
10.4% 10.0%
250 60 46.14 29.6% 30.0%
6.3% 5.8% 5.0%
200
150 40 20.0%
0.0%
100 13.5% 13.7%
-5.1% -5.0% 20 10.3% 10.0%
50 5.8%
0 -10.0% 0 0.0%
2013 2014 2015 2016 Outlook APBN 2013 2014 2015 2016 Outlook APBN
2017 2018 2017 2018
Education Budget Growth (RHS) Health Budget (IDR Tn) Growth (%)
Source: Ministry of Finance Source: Ministry of Finance

3. Increasing coverage for non-cash social assistance


In 2018, the government will support 10mn low-income households by disbursing
non-cash social assistance as beneficiaries of the electronic-based food assistance
program, which will see the first phase of implementation conducted from
February to August 2018. The overall budget for Social coverage will reach
IDR283.3tn in 2018, partly channelled through the allocation of subsidies and
village funds. This is a higher number than 2017’s target of 6mn households.
Exhibit 24. Social Assistance (IDR Tn) Exhibit 25. Social Assistance Program and Target

Village Program Target


Fund, 60 Small Medium Enterprises
Support 117.7 thousand Enterprises
Indonesia Pintar Program 19.6 Million Students
Bidik Misi,
Keluarga Harapan Program 10mn Families
4.1 National Health Assurance
Food Subsidy, Support 92.4mn People
Support, 145.5 Food Support 15.6 Mn Families
20.8 401.7 thousand College
Bidik Misi Program Students
National Health Village Fund 74,958 Villages
Assurance, 25.5
Keluarga
Harapan, Indonesia
17.1 Pintar, 10.8

Source: Ministry of Finance Source: Ministry of Finance

www.danareksa.com See important disclosure at the back of this report 13


4. Uniform fuel prices
The government seeks uniform fuel prices throughout Indonesia by 2019. By end-
Oct 2017, prices were uniform in 25 municipalities in 15 provinces. This is
expected to reach 160 municipalities by the end of 2019 with estimated funds
needed of around IDR3tn. This program will help to ease inflationary pressures in
remote areas of Indonesia, which have for many years, suffered from inequitable
development.

5. Cash-basis intensive projects


The government plans to launch cash-basis labour intensive projects in 2018 in a
bid to boost the people’s purchasing power. President Jokowi initiated the
program to absorb unemployed workers by providing direct income which will be
funded from village funds. Many low-tech infrastructure projects including roads
and bridges are expected to absorb more workers 2018.

The government will disburse money from its IDR18tn cash-basis labour intensive
program starting in January 2018 to support the economy and reduce
unemployment. The program focuses on 100 undeveloped villages and will be
funded from village funds (IDR60tn for 74,954 villages). The Minister of Finance
stated that in 2018, the village funds would be disbursed on three occasions
starting in January.

Exhibit 26. Poverty Line Exhibit 27. Poverty Line and Social Assistance Budget
mn people IDR Tn
32 15% 100 20%

31 80 15%
10%
30 10%
5% 60
29 5%
0% 40
28 0%

27 -5% 20 -5%

26 -10% - -10%
2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017
People in Poverty Social Assistance Budget
Portion of People in Poverty (RHS) Portion of People in Poverty (RHS)
Poverty Reduction (RHS) Poverty Reduction (RHS)
Source: Central Bureau of Statistics Source: Central Bureau of Statistics , Ministry of Finance

Exhibit 28. Real Wage Index Exhibit 29. Composition of Income Household Usage
25% 72%
102
71%
101 20%
70%
100
15% 69%
99 68%
98 10% 67%
97 66%
5%
96 65%
0% 64%
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17
Construction Worker Farmworker
Loan Repayments Saving Consumption (RHS)
Household Worker (monthly)

Source: Central Bureau of Statistics Source: Bank Indonesia

www.danareksa.com See important disclosure at the back of this report 14


6. Regional elections
In 2018, there will be 171 regional elections (to be held on 27 June 2018) in 17
provinces, 115 municipalities and 39 cities. This is nearly double the number of
regional elections in 2017 (101 only). As such, we expect political campaign money
to support the welfare of the nation’s grassroots. In turn, this should bode well
for the demand of consumer staples and low-ticket item consumer goods. The
regional elections in 2018 will also include the 3 most populous provinces: West
Java (population of 48mn), East Java (39mn) and Central Java (3.3mn).

Learning from the past two presidential elections (2009 and 2014), data from
consumer companies depicts significant revenues growth on a yearly basis in the
4 quarters before the elections. In 2009, the sector’s revenues increased by 11.2%
yoy while in 2014 growth was higher at 14.2% yoy (in the 4 quarters prior to the
elections). Should this pattern be repeated in 2018-19, consumer companies will
be positively impacted.
Exhibit 30. Approved Regional Election Budget 2018 Exhibit 31. Top 10 Regional Election Budget

East Java West Kal.


Others Maluku
Central Sul.
Central Java NTT
South Sum.
South Sul.
West Kal. West Java
North Sum. North Sum.
Maluku
Central Java
Central Sul. East Java
NTT West Java
South Sum. - 1,000 2,000 IDRbn
South Sul. Approved Proposal
Source: General Election Commission Source: General Election Commission

www.danareksa.com See important disclosure at the back of this report 15


Lower Inflation has paved the way for further easing
Since the abolishment of most energy subsidies, Indonesia’s inflationary
environment has become more stable. This is a reflection of the stable oil prices
and considerably lower energy subsidies provided under the current government.
Historically, inflation in Indonesia has mostly been driven by cost push events -
especially from hikes in subsidized fuel prices (note that changes in domestic fuel
prices can have a significant impact on domestic inflation). Given BI’s continued
adoption of its Inflation Targeting Framework, any upturn in inflation would be
met by hikes in interest rates, while easing inflationary pressures would prompt
BI to cut rates. As such, lower inflation will result in more relaxed policy on interest
rates, thus helping to underpin further growth in the economy.

The outlook for inflation is largely dependent on government policy on energy,


while global commodity prices are not expected to pose a threat to domestic
inflation. While fuel subsidies are already out of the picture, the government still
provides electricity subsidies to the lower classes.

In early 2017, several government energy policies pushed up inflation. These


policies included gradually imposing higher electricity tariffs on 900VA
households, steadily raising electricity tariffs in January, March and May, as well
as raising the price of 3Kg LPG by IDR1,000 nationally. These price increases
pushed up inflation by c. 1.68% (direct impact) or by about 2.0% overall (direct
and indirect impact). Overall inflation in 2017 is expected to move within the
range of 3.5% - 4.0%.

For 2018, in the absence of energy policy price hikes, inflation is expected to trend
down to around 2.7% - 3.5%. The 2018 budget bill also confirms that the
government has no plans to raise administered prices in 2018 and the effect of
the government's administered price increases in January, March and May 2017
will be removed in February, April and June 2018, respectively, so inflation will
drop significantly.

Exhibit 32. General, food and non-food inflation

%
12.0

10.0

8.0

6.0

4.0

2.0

0.0
May-13
Nov-12

Nov-13

May-14

Nov-14

May-15

Nov-15

May-16

Nov-16

May-17
Feb-17
Aug-12

Feb-13

Aug-13

Feb-14

Aug-14

Feb-15

Aug-15

Feb-16

Aug-16

Aug-17

General Food Non-Food

Source: Danareksa Research Institute

www.danareksa.com See important disclosure at the back of this report 16


Rising oil prices are a risk – the mitigating factor
In our view, the upside risk for inflation in 2018 comes from the prospect of rising
oil prices due to geopolitical tensions in the Middle East in addition to the decision
among OPEC member countries and Russia to extend oil output cuts until the end
of 2018. In the event of rising crude oil prices, fuel prices and electricity tariffs
may be raised further in Indonesia. In turn, this would heighten inflationary risks,
especially as Indonesia’s Crude Oil Price (ICP) assumption is only set at USD48 per
barrel. However, as the energy subsidies budget was raised by 5.1% to IDR94.5tn
in 2018 from 2017’s budget of IDR89.9tn, this may provide a cushion against
further increases in fuel prices.
Exhibit 33. Fuel price in Indonesia
Company Fuel Type 1-15 May 2017 16-31 May 2017 1-15 Jun 2017 16-30 Jun 2017 1-15 Jul 2017 16-31 Jul 2017 1-15 Sep 2017 16-30 Sep 2017 1-15 Okt 2017 16-31 Okt 2017 1-15 Nov 2017 16-30 Nov 2017 1-15 Dec 2017
Pertamina Premium 6550 6550 6550 6550 6550 6550 6550 6550 6550 6550 6550 6550 6550
Pertalite 7400 7400 7400 7400 7400 7500 7500 7500 7500 7500 7500 7500 7500
Pertamax 8250 8250 8250 8250 8250 8250 8250 8250 8250 8250 8250 8400 8400
Pertamax Plus
Pertamax Turbo 9250 9250 9250 9250 9250 9250 9250 9250 9250 9350 9350 9350 9350
Dexlite 7300 7300 7300 7300 7300 7300 7300 7300 7300 7300 7300 7300 7300
Pertamina Dex 8500 8500 8500 8500 8500 8500 8500 8500 8500 8800 8800 8800 8800
Solar 5150 5150 5150 5150 5150 5150 5150 5150 5150 5150 5150 5150 5150
Pertamax Racing 42000 42000 42000 42000 42000 42000 42000 42000
Shell Super 8400 8400 8400 8400 8400 8550 8550 8600 8600 8600 8700 8950 8950
V-Power 9450 9450 9450 9450 9450 9450 9450 9600 9600 9600 9700 9950 9950
Diesel 9300 9300 9300 9300 9300 9300 9300 9300 9300 9300 9400 9650 9650
Total Performance 92 8250 8250 8250 8250 8250 8250 8250 8250 8250 8300 8300 8350 8350
Performance 95 9150 9150 9150 9150 9150 9150 9150 9150 9150 9300 9300 9350 9350
Diesel 9200 9200 9200 9200 9200 9200 9200 9200 9200 9250 9250 9250 9250

Source: BPH Migas


Since 2015, Pertamina has introduced Pertalite, a new form of unsubsidized fuel
which is cheaper than Pertamax. Given its higher octane level, Pertalite is
positioned as being a better quality fuel than subsidized Premium fuel, and the
customer response has been positive. In 2016, Pertalite consumption climbed to
33,184kl/day by the end of 2016 from a mere 47kl/day in early 2016. This trend
persisted in 2017, and Pertalite sales accounted for 40.6% of total gasoline sales
in 1H17 - a considerable improvement from only 9% in 1H16.

In our view, this change in consumer preferences has partly alleviated concerns
on the impact of rising oil prices on administered prices and ultimately the
government’s fuel subsidies overall. We also believe that with the low budget
deficit target in the 2018 budget, the government still has room – if needed - to
raise the energy subsidies allocation if oil prices head stubbornly higher.

In the past, when oil prices were low, the government did not reduce fuel prices
as much, providing some profit buffer at Pertamina, which would then be used to
maintain the stability of fuel prices if oil prices were to rebound. However, this
system only works if the spike in oil prices is temporary with any prolonged
increase in oil prices being addressed through hiking fuel prices (and risking
heightened inflationary pressures) or making revisions to the government budget
by raising subsidies. We believe the latter option will be the first choice of the
government as 2018 will be the pre-election year, and the implementation of
policies which are not populist, such as raising fuel prices, would hit the
government’s popularity.

Inflation targeting framework is the name of the game


With steady inflation, a stable rupiah and manageable CAD, BI was able to cut the
benchmark interest rate by 150 bps as of 2016, and another 25 bps in both August
and September 2017. The rate cut is also intended to act as a monetary stimulus
(boosting economic growth) given the limitations in fiscal expansion.

Given this backdrop, the reverse repo rate - which stood at 4.25% at the end of
December 2017 - may potentially decline to 3.75% - 4.00 % in 2018. This
prediction may depend upon Fed monetary policy normalization not having as
large an impact as originally expected.

www.danareksa.com See important disclosure at the back of this report 17


In 3Q17, Bank Indonesia cut its key policy rate twice given the subdued inflation
outlook. The 7-day reverse repo rate was cut by 25bp to 4.5% in August and by
another 25bp to 4.25% in September 2017. The consensus view was that BI would
keep its policy rate intact in anticipation of Fed rate hikes.

Exhibit 34. Inflation, BI Rate and BI 7-day reverse repo

9.5 8.5
8.5 7.5
7.5
6.5
6.5
5.5
5.5
4.5
4.5
3.5 3.5

2.5 2.5
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Inflation, % YoY BI rata, % pa 7-day Repo Rate

Source: Central Bank, Bureau Central of Statistics

For banks, lower interest rates should help to stimulate loans growth despite
some time lag. In 2018, we foresee 13.5% loans growth for the banks in our
banking universe mainly supported by lending to fund the development of
government-infrastructure projects. From this we anticipate a trickle-down effect
to propel consumer spending in the pre-election year. In addition, mortgages as
the main contributor of consumer loans grew by 10.6% YoY by September 2017.

Exhibit 35. GDP, policy rate, loans and deposits growth Exhibit 36. Consumer Loans
10.0 IDR Tn
% % 35.0 1,400.0
%
25.0
30.0
8.0 1,200.0
25.0 20.0
1,000.0
6.0 20.0 15.0
800.0
4.0 15.0 600.0 10.0
10.0 400.0
200.0 5.0
2.0
5.0
- -
- - Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep
Dec 08
Jun 09
Dec 09
Jun 10
Dec 10
Jun 11
Dec 11
Jun 12
Dec 12
Jun 13
Dec 13
Jun 14
Dec 14
Jun 15
Dec 15
Jun 16
Dec 16
Jun 17

12 13 13 14 14 15 15 16 16 17 17

GDP (LHS) BI rate (LHS) Consumer loans (LHS) YoY growth (RHS)
Loan growth (RHS) Deposit growth (RHS)

Source: Company, Danareksa Sekuritas estimates Source: Financial Services Authority (OJK)

With a 35% risk weight and low credit cost due to the fact that the loans are
collateralized by the property, some banks have aggressively expanded their
mortgage lending since early 2017 through promotional rates as the sweetener
to attract customers. As such, some banks with minimal exposure to mortgages
have sought to gain market share in this segment. These banks include Bank
Mandiri (BMRI IJ, HOLD, TP IDR7,700) and Bank Rakyat Indonesia (BBRI IJ, BUY, TP
IDR3,900). These two banks have gained market share of 8.2% and 5.4%,
respectively, as of September 2017.

www.danareksa.com See important disclosure at the back of this report 18


Exhibit 37. Mortgages Growth Exhibit 38. Mortgages Market Share
500 IDR trn % 35.0 40.0 %
30.0
400
25.0 30.0
300 20.0
200 15.0 20.0
10.0
100
5.0 10.0
- -
Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep
-
12 13 13 14 14 15 15 16 16 17 17
BBCA BMRI BBRI BBNI BBTN BTPN BJTM
Mortgages (LHS) YoY growth (RHS) Sep 16 Dec 16 Sep 17

Source: Financial Services Authority (OJK) Source: Company, Danareksa Sekuritas estimates

At the same time, the market leader in mortgages, Bank Tabungan Negara (BBTN
IJ, BUY, TP IDR4,000) will retain its dominance in our view, particularly in the
subsidized mortgages segment given there is a housing backlog of c.11.4mn units.
Bank Central Asia (BBCA IJ, HOLD, TP IDR21,000) is another big player yet with a
different niche market. BBCA focuses more on the middle-high income population
segment. All in all, mortgage lending for the banks in our banking universe is
expected to grow by 17% in 2018, supported by mortgages for subsidized houses
and in the secondary property market.
Improving Business Sentiment
Business sentiment strengthened during the reporting period of August and
September 2017 as the central bank unexpectedly cut benchmark interest rates.
As such, the main measure of business sentiment, as measured by the Business
Sentiment Index (BSI), rebounded 2.1 percent to 137.1, recovering some of its 4.2
percent loss posted in the previous survey.

Exhibit 39. Appraisal of Present Situations

Source: Danareksa Research Institute

The easing of monetary policy in August and September – the benchmark rate
was cut 25 bps in each month – has created greater optimism toward the
economic outlook, even though the rate cuts may take some time to be
transmitted to the economy. Given this positive development, one of the two
main components of the BSI – the Expectations Index (EI) – climbed 2.3 percent
to 146.9 – a very high level reflecting widespread optimism toward the nation’s
future prospects.

Commensurate with BI’s policy to cut rates, a greater proportion of the CEOs
surveyed (17.6 percent) now believe that interest rates will decline over the next
six months than in the previous survey (11.8 percent). Another 43.4 percent of
CEOs believe interest rates will remain unchanged. Lower interest rates are
expected to support the economy as they should encourage more companies to
take on new borrowings to finance expansion.

www.danareksa.com See important disclosure at the back of this report 19


Exhibit 40. Expectation Index on Key Economic Indicators
May-17 Jul-17 Sep-17 %Change
General Price Expectation 121.1 114.9 115.8 0.8
Loan Rate Expectation 112.7 118.8 109.7 -7.7
Exchange Rate Expectation 97.7 100.9 100.2 -0.6
Stock Price Expectation 107.9 118.4 119.9 1.3

Source: Danareksa Research Institute

Exhibit 41. Expectation for Six Months Ahead


May-17 Jul-17 Sep-17 %Change
Economic Prospects 136.3 125.6 136.7 8.8
Business Prospects 157.8 154 151.1 -1.9
Company's Prospects 155.1 151 152.9 1.3

Source: Danareksa Research Institute

At the corporate level, CEOs claimed better corporate performance during the
reporting months. At the top line, CEOs noted slightly brisker sales growth – this
index added 0.4 percent to 105.4. In addition, they also reported higher capex
spending – the index rose 3.2 percent to 109.7. Although CEOs did claim higher
cost pressures as well (all four cost indices in our survey rose), they also said that
their companies were better able to raise product prices - an indication of a less
challenging business environment.

This also helped to support profits: at the bottom line, CEOs claimed that profits
grew at a brisker pace (this index climbed 7.1 percent to 110.4).

As the government targets higher GDP growth as one of its main long-term goals,
there is a greater need for a major overhaul of the current infrastructure and
logistics system across the country. The government has embarked on making real
efforts to improve connectivity in Indonesia, as seen in massive infrastructure
spending over the past couple of years.

www.danareksa.com See important disclosure at the back of this report 20


Government budget – boosting consumption
While the government’s infrastructure development drive will continue, we
expect a more defined two-pronged approach with a focus on populist policies
which will promote higher consumption and appease the nation’s grassroots. In
our view, the 2018 budget is realistic and achievable, with a focus on boosting
consumption. Lower budget deficit may provide room for further subsidy
spending, if needed.

Exhibit 42. Government Budget of 2018


Outlook 2017 2018 %Change
State Revenue 1,736.1 1,894.7 9.1%
Domestic Revenue 1,733.0 1,893.5 9.3%
Tax Revenue 1,472.7 1,618.1 9.9%
Nontax Revenue 260.2 275.4 5.8%
Grant Revenue 3.1 1.2 -61.3%

State Expenditure 2,098.9 2,220.7 5.8%


Central Government Expenditure 1,343.1 1,454.5 8.3%
Ministry and Institution Expenditure 769.2 847.4 10.2%
Non-Ministry and Institution Expenditure 573.9 607.1 5.8%
Interest payment 218.6 238.6 9.1%
Subsidy 168.9 156.2 -7.5%
Others 56.0 67.2 20.0%
Transfer to Region and Village Fund 755.9 766.2 1.4%
Transfer to Region 697.7 706.2 1.2%
Revenue Sharing Fund 95.4 89.2 -6.5%
General Allocation Fund 398.6 401.5 0.7%
Village Fund 58.2 60.0 3.1%

Primary Balance (144.3) (87.3) -39.5%


Budget Surplus/Deficit (362.9) (325.9) -10.2%
Budget Deficit% to GDP (2.7) (2.2) -18.0%

Budget Financing 362.9 325.9 -10.2%


Debt Financing 427.0 399.1 -6.5%
Investment Financing (59.7) (65.7) 10.1%
Loan Provision (3.7) (6.7) 81.1%
Guarantee Liabilities (1.0) (1.1) 10.0%
Other Financing 0.3 0.2 -33.3%
Source: Ministry of Finance

www.danareksa.com See important disclosure at the back of this report 21


Exhibit 43. State revenue Exhibit 44. State Revenue Compostion

IDR Tn
2,000 1,895 APBN 2018 85% 15%
1,736
1,800 22.0% Outlook
1,550 1,508 1,556
1,600 1,439 85% 15%
17.0% 2017
1,400
1,200 12.0% 2016 83% 17%
11.6%
1,000 9.1%
7.5% 7.8% 7.0% 2015 82% 17%
800
600 3.2% 2.0%
2014 74% 26%
400
-2.7% -3.0%
200
2013 75% 25%
- -8.0%
2013 2014 2015 2016 Outlook APBN
0% 20% 40% 60% 80% 100%
2017 2018
State Revenue State Revenue Growth (RHS) Tax Revenue Non Tax Revenue Grant Revenue

Source: Ministry of Finance Source: Ministry of Finance

The main source of government income is tax revenues. In 2018, tax revenues will
contribute around 86% of total state revenues of IDR1,895tn, up from 75% in
2013. This reflects: 1) better tax compliance, with the Tax Office taking greater
efforts to raise more tax income. The recent tax amnesty program is also expected
to provide a boost for a further increase in tax collection. In 2018, the government
expects the tax ratio to reach 11.6%, up from 10.8% in 2016. And 2) lower
commodity prices in general. Despite the recent upward trend in the oil price, it
is lower than its level in 2013-14. In 2018, income from oil and gas is expected to
reach IDR80.3tn, or much less than the figure of around IDR200tn in 2013-14.

Exhibit 45. Tax Revenue Exhibit 46. Non Tax Revenue


IDR Tn IDR Tn
1,800 1,618 25.0% 450 399 30%
1,600 1,473 400 355
1,285 20.0% 25%
1,400 1,240 350
1,147 275
1,200 1,077 300 262 260 20%
256
15.0%
1,000 250
12.7% 14.6% 15%
800 200
9.9% 9.2% 10.0%
600 9.0% 150 10%
9.9% 9.9%
400 6.5% 8.2%
5.0% 100 6.5%
3.6% 5%
200 50 3.6%
- 0.0% - 0%
2013 2014 2015 2016 Outlook APBN 2013 2014 2015 2016 Outlook APBN
2017 2018 2017 2018
Tax Revenue Growth (RHS) Non Tax Revenue (IDR Bn) Non Tax Revenue Growth (RHS)

Source: Ministry of Finance Source: Ministry of Finance

www.danareksa.com See important disclosure at the back of this report 22


Exhibit 47. Tax Ratio Exhibit 48. Tax Amnesty Redemption

15% 14.3% IDR Bn


13.7% 100,000 89,540
14%
90,000
13% 80,000
70,000
12% 11.6% 11.5% 11.6%
60,000
11.9% 10.8% 50,000
11%
11.4% 40,000
10.7% 10.8% 10.9% 30,000
10%
10.4% 20,000 7,860 9,133
4,940
9% 10,000 130 1,150 250 1,010
1,000
2013 2014 2015 2016 Outlook APBN -
2017 2018 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16Dec-16 Jan-17 Feb-17Mar-17
Exclude oil, gas, mineral Include oil, gas, mineral

Source: Ministry of Finance Source: Ministry of Finance

Exhibit 49. Natural Resources Income Exhibit 50. Income from Oil & Gas
IDR Tn IDR Tn
30 55% 250 106 120
97
25 0.8 0.7 0.7 45% 100
0.9 0.9 200
0.2 3.7 0.2 0.1 0.9 1 0.6 35%
20 3.1 4.2 0.4 4 4.2 80
18.6 3.8 150
19.3 25% 49
15 48 48 60
216.9 40
13.8% 17.9 15% 100 203.6
17.7
12.6% 40
10
5.2% 15.8 5%
17.9 -0.5% 50 20
5 78.2 72.2 80.3
-4.9% -5% 44.1
-8.7%
0 0
0 -15%
2013 2014 2015 2016 Outlook APBN
2013 2014 2015 2016 Outlook APBN
2017 2018
2017 2018
Natural Resources Income (O&G)
General Mining Forestry
Fishery Geothermal Indonesia Crude Price (USD/Barrel)
Growth (RHS)
Source: Ministry of Finance Source: Ministry of Finance

Infrastructure will still be one of the main spending priorities, with a total budget
of IDR410tn, up 5.1% from 2017’s level and almost triple the allocation in 2014 of
only IDR155tn. The government seeks to further expand toll roads, railways and
ports in order to boost connectivity across Indonesia: 1) The development of
832km of new roads, 33km of toll roads and 15,733m of bridges; 2) Airports in 8
new locations; 3) 639km of railway lines; and 4) Various technology and
broadband connectivity developments in the regions.

While infrastructure will remain the government’s main focus (as we have
highlighted in the previous section), the government is also trying to boost
consumption as seen in the escalation of energy subsidies and various social
support programs. Overall, the government’s 2018 budget deficit target of 2.2%,
in our view, is rather conservative, and there may be room for further subsidies
or social cash assistance if needed during the submission of the Revised Budget,
sometime in May 2018.

To cover the 2.2% budget deficit, the government seeks to secure IDR399.2tn of
loan funding, excluding the maturing bonds of IDR384tn, which leads to an overall
funding requirement of IDR783.2tn. The relatively high amount of maturing bonds
in 2018 is also one of the main reasons for the conservative low budget deficit
target in 2018, we believe.

www.danareksa.com See important disclosure at the back of this report 23


Exhibit 51. Government Financing Plan

Source: Ministry of Finance

www.danareksa.com See important disclosure at the back of this report 24


Stimulus program – the key benefits
We also believe that the government’s package of stimulus policies has started to
have a positive impact, especially the 4th stimulus package on the calculation of
minimum wages and the 12th stimulus package on the ease of doing business.

Minimum wages
In the fourth stimulus package, the government created a fixed formula to
determine increases in labour wages. With a fixed formula, the arduous process
of negotiations between labour unions and companies can be navigated more
easily. In addition, this policy should also discourage labour rallies which call for
higher wages. This is a positive development as news of such rallies may spook
investors, thus putting further improvements in FDI inflows at risk.

The central government has worked closely with the Ministry of Manpower to
establish regulations to support the increase in minimum wages through
government regulations (RPP). The new formula now uses only two main inputs
i.e. inflation and provincial GDP growth, which can be clearly measured. Since
their inception, the overall growth in minimum wages has become more rational,
up 8.9% in 2017 and 8.7% in 2018, below the 12-19% range in 2013-2016.

Exhibit 52. National minimum wage

IDR Th
2,500 50%
2,256
2,076 45%
2,000 1,906 40%
1,703
35%
1,506
1,500 1,297 30%
1,089 25%
989
842 909
1,000 19.1% 20%
673 746
16.1% 15%
13.1% 11.9%
500 11.5% 10.9% 12.8% 10.1% 10%
8.0% 8.8% 8.9% 8.7%
5%
- 0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Average National Minimum Wage Growth

Source: Central Bureau of Statistics

Higher rank in the World Bank’s EODB


The government introduced the 12th economic stimulus package back in April in
a bid to improve the 10 parameters with regards to the ease of doing business
(EODB) set by the World Bank.

After the introduction of the policy, Indonesia’s ranking jumped by 15 places to


91 from 106 previously. In 2017, Indonesia’s ranking improved further to 72nd.
The policy is intended to remove unnecessary government regulations and
procedures. President Jokowi targets a ranking of 40th for Indonesia in terms of
the ease of doing business.

www.danareksa.com See important disclosure at the back of this report 25


Exhibit 53. Indonesia’s Rank in Ease of Doing Business Exhibit 54. Indonesia's Ranking on Doing Business Topics

144 Starting a Business


108 Dealing with Construction Permits
38 Getting Electricity
106 Registering Property
55 Getting Credit
43 Protecting Minority Investors
114 Paying Taxes
112 Trading Across Borders
145 Enforcing Contracts
38 Resolving Insolvency

160 140 120 100 80 60 40 20 0

Source: World Bank Source: World Bank

www.danareksa.com See important disclosure at the back of this report 26


Politics: A more favourable environment
2018 is the year preluding the presidential elections in 2019. There will be a total
of 171 direct elections in 2018, exceeding the 101 direct elections in 2017. Out of
171 regional elections, there will be 17 gubernatorial elections, including in the
most populous province, West Java. In Indonesia, one eligible voter equals one
vote, so the outcome of the 2018 regional elections may foretell what will happen
in 2018, especially in regard to the people’s preferences toward candidates.

Exhibit 55. 2018 General Election Total Exhibit 56. Regional Election Stage

Governor, 17
Stage Schedule

Candidates Registration 1 Jan-13 Feb 2018

Regent, 39 Campaign Period 15 Feb - 13 Jul 2018

Election Day 12 Jun- 3 Jul 2018

Vote Recapitulation 27 Jun - 9 Jul 2018

Mayor, 115

Source: General Election Commission Source: General Election Commission

While heightened political tensions are inevitable in any election, the 2017 Jakarta
gubernatorial election was, in our view, particularly hard fought, with the rivalry
between the candidates creating social discord that dented confidence in the
capital market.

Post the election which spilt the community in two, the ultimate goal of the
government is to achieve reconciliation to restore stability which is crucial to
facilitate economic progress. However, this is not necessarily an easy task. In our
view, political harmony is a prerequisite for the creation of a healthy democratic
environment, especially regarding the relationship between the government and
the opposition. The current reform-minded government is perceived to have
effectively delivered structural change on the macro front, and the continuity of
its programs is crucial to support Indonesia’s LT growth. The regional elections in
2018, especially in the country’s three most populous provinces, East Java, West
Java and Central Java, will definitely be seen as the precursor to the 2019
presidential elections.

Against this backdrop, political tensions are likely to remain high in 2018.
Nonetheless, we don’t expect the regional elections in 2018 to be as intense as in
2017 when all the attention was focused on the bitterly-contested election in
Jakarta even though as many as 101 regional elections took place during the
period.
PDI-P is the main political party in Central Java with 31 seats in its regional
parliament, while PKB and PDIP are the two largest parties in East Java, where
they have 20 and 19 seats, respectively. Both PDI-P and PKB are part of the
coalition of government supporting parties. In addition, PDI-P has also performed
well in West Java where it secured the most number of seats (20), followed by
Golkar (17).

www.danareksa.com See important disclosure at the back of this report 27


Exhibit 57. Current composition of regional House of Representative (2014-2019)

West Java Central Java East Java


Golkar 17 10 11
PDI-P 20 31 19
PPP 9 8 5
PAN 4 8 7
PKB 7 13 20
Demokrat 12 9 13
PKS 12 10 6
Hanura 3
Gerindra 11 11 13
NasDem 5
NasDem/Hanura
Total 100 100 100

Source: Regional House of Representative

Although PDI-P has strong political support in West, Central and East Java, this
does not automatically translate into strong support for Jokowi in these areas. In
West Java, for example, Jokowi claimed only 40.2% of the votes in the presidential
election or far less than the 60% achieved by Prabowo. While this seems to show
that the preference for certain candidates is not necessarily the same as the
preference for political parties, the recent defeat of the incumbent governor in
Jakarta may suggest otherwise. Despite his very high approval rating, Basuki
Purnama still lost in the final round of voting by a considerable margin. That said,
the political strategy among candidates to attract voters can be the determining
factor to win a direct election.
Recent surveys by CSIS show that the satisfaction rate in the current government
has continued to improve. According to CSIS, it has now reached 68.3%, up from
only 50.6% in 2015. The Kompas survey in Oct 2017 depicts a similar trend, with
the satisfaction rate climbing to 70.8% from 63.1% in April. According to the
Kompas survey, the highest satisfaction is in the field of politics and stability.
In the recent business sentiment survey conducted by Danareksa Research
Institute, on the political front, CEOs were more satisfied with the performance
of the government. In the survey, the overall measure of Business Confidence in
the Government (BCGI) rose a healthy 5.1 percent to 146.9 following a 2.3 percent
increase in the previous survey. Most notably, CEOs are more confident in the
government’s ability to rein in inflationary pressures – this index added another
7.8 percent to 132.6 after increasing 7.4 percent in the previous survey.
With the trend showing increasing satisfaction in the government’s performance,
the government should continue to make progress. Arguably, infrastructure
development has been the main focus of the government during the first 3 years
of Jokowi’s presidency, and in 2018, we believe the government will gradually
move to the later stage to boost more consumption-driven spending, while
maintaining a low inflation environment.

www.danareksa.com See important disclosure at the back of this report 28


The risk factors

Fed balance sheet reduction


While foreign outflows seem to have had little impact on the equity market given
stronger domestic investor participation, external factors may still pose risks in
2018. In addition to the planned rate hike, the US Federal Reserve also plans to
reduce its balance sheet from USD4.5tn to USD3.0tn. This will undoubtedly
reduce liquidity in the global market. Furthermore, bond yields may head higher
and the US dollar may strengthen against world currencies, including the rupiah.
Volatility may also increase in the capital markets.

In the September 2017 FOMC, the Fed revealed its plans to unwind its balance
sheet. To this end, the Fed seeks to reduce its balance sheet by USD1.5tn by the
end of 2020 or early 2021. In our view, the pace and transparency of this policy is
key, as a sudden move would be likely to create considerable pressure in the
capital markets, especially in Indonesia. However, if the unwinding process is well
defined and transparent, we view that the impact on the global financial markets
would be relatively limited. In this case, the concerns of some market participants
over the possibility of significant yield increases in the US and considerable
strengthening of the US dollar could be allayed.
Exhibit 58. Fed balance sheet changes
25-Oct-17 Change from 26-Jul- Change from 26-
2017 Oct-2017
Total assets 4,461 (4) 7
Selected assets
Securities held outright 4,243 1 25
US Treasury securities 2,466 1 2
federal agency debt securities 7 (1) (12)
Mortgage-backed securities 1,771 2 35
Memo: Overnight securities lending 25 3 5
Memo: Net commitments to purchase mortgage-backed securities 18 (1) (21)

Unamortized premiums on securities held outright 162 (3) (15)


Unamortized discounts on securities held outright (14) 1

Lending to depository institutions * *

Central bank liquidity swaps * * (4)

Net portfolio holdings of Maiden Lane LLC 2 * *

Foreign currency denominated assets 21 * *

Total liabilities 4,420 (5) 6


Selected liabilities
Federal reserve notes in circulation 1,537 22 105
Reverse repurchase agreements 348 4 (37)
Foreign official and international accounts 236 (5) (7)
Others 112 9 (30)
Term deposits held by depository institutions 14 14 (34)
Other deposits held by depository institutions 2,242 (52) 177
US Treasury, General Account 185 2 (235)
Other Deposits 83 5 30

Total capital 41 * 1

* Less than $500 Mn

Source: US Treasury

www.danareksa.com See important disclosure at the back of this report 29


IDR weakening – a rising interest rate spread
We have been arguing that BI will have some room to ease policy further, if
needed, going in the opposite direction to the US Fed’s plans to increase rates.
The rising interest rate spread is perceived to put pressure on the value of the IDR,
so there is the belief that it may thwart BI’s intention to ease its monetary policy
stance. Nonetheless, we believe that another increase in the BI rate is
unnecessary at this stage, especially considering that historic data shows that
higher interest rates policy is not an effective way to defend the currency.

Exhibit 59. Rupiah and BI Rate

USD/IDR (LHS) BI Rate (RHS)


IDR (%)
13000 10.0

12000 9.0

11000 8.0

10000 7.0

9000 6.0

8000 5.0
2007 2008 2009 2010 2011 2012 2013 2014

Source: Danareksa Research Institute

We have argued that there is a negative correlation between the IDR and BI’s
policy rate. As an emerging country, growth is a key factor is luring funds into
Indonesia. Yet with higher interest rates, Indonesia’s economic growth pace
tends to slow - as seen in 2013-14. With a slowdown in growth, Indonesia’s
market loses its shine, inevitably leading to outflows which, in turn, negatively
impact the IDR.

The Twin Deficits – a threat facing the currency


Both the Current Account Deficit and Budget Deficit are perceived as the evil duo,
which can significantly affect the value of the currency. While the abolishment of
fuel subsidies has made it easier for the government to control the budget deficit,
the CAD could still pose a risk in the future.

Over the last couple of years, the CAD has been a major economic concern and is
considered to be the culprit behind the weak IDR back in 2013. The CAD has
essentially been driven by an increase in capital inflows (FDI and portfolio
investment) since 2010 - which has ultimately supported economic growth.
Higher capital inflows consequently led to higher imports of raw materials, which,
in turn, resulted in an expansion in the CAD. As a result, during these periods,
Bank Indonesia tends to tighten monetary policy by raising the benchmark rate
and reducing the growth in the money supply. Arguably, the policy was effective
in bringing down the CAD. However, it came at a considerable cost, i.e. lowering
the pace of economic growth and even putting pressure on the IDR.

www.danareksa.com See important disclosure at the back of this report 30


Exhibit 60. Current Account
US$ MN Rp/US$
6,000 8,500

4,000
9,500

2,000
10,500
0

Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
-2,000 11,500
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

-4,000 12,500

-6,000
13,500
-8,000

14,500
-10,000
Transaksi Berjalan IDR ep
-12,000 15,500

Source: Central Bureau of Statistics

In our view, the CAD is unlikely to pose a serious risk in 2018, despite potential
recovery in consumption. Commodity prices are still holding up relatively well,
and with global economic recovery, commodity demand will continue to be
robust. Bank Indonesia (BI) expects the CAD to increase until 2019 before trending
down to below 2% by 2022. The CAD in 2018 is projected to be between 2-2.5%,
or up from 1.65% in 2017. The increase in the CAD is mainly expected to come
from an increase in imports and services transactions - inline with the higher
economic growth. In our view, the expected increase in the CAD is not alarming
and it will still be well below its level in 2014 of 4.2%. BI also stated that there is
the possibility of a current account surplus should commodity and aggregate
export prices increase. In 2018, we expect the IDR/USD exchange rate to be in the
range of IDR13,250 – 13,500/USD.

Exhibit 61. Balance of Payment


(Billions of USD)
2016 2017
ITEMS 2010 2011 2012 2013 2014 2015 2016
Q1 Q2 Q3 Q4 Q1 Q2 Q3
I. Current Account 5.1 1.7 -24.4 -29.1 -27.5 -17.5 -16.8 -4.7 -5.2 -5.1 -1.8 -2.3 -4.8 -4.3
A. Goods 1) 31.0 33.8 8.7 5.8 7.0 14.0 15.4 2.6 3.8 3.9 5.1 5.6 4.8 5.3
B. Services -9.8 -9.8 -10.6 -12.1 -10.0 -8.7 -7.0 -1.1 -2.4 -1.6 -1.9 -1.2 -2.2 -2.2
C. Primary Income -20.7 -26.5 -26.6 -27.1 -29.7 -28.4 -29.7 -7.4 -7.7 -8.4 -6.1 -7.8 -8.6 -8.4
D. Secondary Income 4.6 4.2 4.1 4.2 5.2 5.5 4.4 1.2 1.2 1.0 1.1 1.0 1.1 1.0
II. Capital Account 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
III. Financial Account 2) 26.5 13.6 24.9 21.9 44.9 16.8 28.6 4.3 6.7 9.9 7.7 7.1 5.8 10.4
- Assets -7.3 -16.5 -18.0 -15.5 -10.8 -21.5 16.9 -0.7 -4.8 3.1 19.3 -3.7 -7.2 -2.5
- Liabilities 33.8 30.1 42.8 37.4 55.7 38.3 11.6 5.0 11.5 6.8 -11.6 10.9 13.1 12.9
1. Direct Investment 11.1 11.5 13.7 12.2 14.7 10.7 16.1 2.8 3.1 6.6 3.5 2.8 4.8 6.8
2. Portfolio Investment 13.2 3.8 9.2 10.9 26.1 16.2 19.0 4.4 8.3 6.6 -0.3 6.6 8.1 4.1
a. Assets -2.5 -1.2 -5.5 -1.3 2.6 -1.3 2.2 -0.2 0.4 1.9 0.0 -1.0 -0.2 -0.7
b. Liabilities 15.7 5.0 14.7 12.1 23.5 17.5 16.8 4.6 7.9 4.6 -0.4 7.6 8.3 4.7
3. Financial Derivatives -0.1 0.1 0.0 -0.3 -0.2 0.0 0.0 0.0 0.0 0.0 0.1 -0.1 0.0 0.0
4. Other Investment 2.3 -1.8 1.9 -0.8 4.3 -10.1 -6.5 -2.9 -4.7 -3.2 4.4 -2.1 -7.1 -0.4
a. Assets -1.7 -6.8 -5.4 -3.4 -3.4 -11.8 2.5 -0.4 -4.0 0.5 6.4 -2.5 -7.3 -1.1
b. Liabilities 4.0 5.0 7.3 2.6 7.7 1.7 -9.0 -2.5 -0.7 -3.7 -2.0 0.4 0.1 0.7
IV. Total (I + II + III) 31.7 15.3 0.5 -7.1 17.4 -0.7 11.8 -0.4 1.5 4.8 5.9 4.8 1.0 6.1
V. Net Error and Omissions -1.3 -3.5 -0.3 -0.2 -2.2 -0.4 0.3 0.1 0.6 0.9 -1.4 -0.3 -0.3 -0.7
VI. Overall Balance (IV + V) 30.3 11.9 0.2 -7.3 15.2 -1.1 12.1 -0.3 2.2 5.7 4.5 4.5 0.7 5.4
VII. Reserves and Related Items 3) -30.3 -11.9 -0.2 7.3 -15.2 1.1 -12.1 0.3 -2.2 -5.7 -4.5 -4.5 -0.7 -5.4
- Reserve Assets Position 96.2 110.1 112.8 99.4 111.9 105.9 116.4 107.5 109.8 115.7 116.4 121.8 123.1 129.4
In Months of Imports & Official Debt Repayment 7.6 6.7 6.2 5.5 6.5 7.4 8.4 7.7 8.0 8.5 8.4 8.6 8.6 8.6
- Current Account (% GDP) 0.7 0.2 -2.7 -3.2 -3.1 -2.0 -1.8 -2.2 -2.2 -2.1 -0.8 -1.0 -1.9 -1.7

Source: Danareksa Research Institute

www.danareksa.com See important disclosure at the back of this report 31


Index target of 6,854 for year-end 2018
With the prospect of brisker economic growth, lower inflation and further interest
rate cuts, we believe that the JCI has 13-14% upside in 2018, with our year-end
index target set at 6,854. Expectations of a higher index will be mainly
underpinned by earnings growth, with the companies in the Danareksa universe
registering 12% estimated earnings growth in 2018 following the strong growth
of 16% in 2017. The main sectors contributing the growth will be construction
(+21% y-y growth) and banking (+15.5%), even though the estimated growth will
be slightly lower than in 2017. The consumption related sectors, i.e. consumer,
cigarettes and retail are also expected to post strong earnings growth in 2018. For
the consumer sector, we expect that the government will implement more
populist government policies to please the nation’s grassroots and that the
people’s purchasing power will improve on the back of easing cost pressures given
that energy and health subsidies will be increased in the government’s 2018 state
budget. We expect the consumer sector to deliver 11.0% earnings growth in 2018
vs 8.4% in 2017, with the earnings growth of retailers reaching 12.4% vs 5.1%.

For the cigarettes sector, we foresee that an improvement in buying power


coupled with less intense competition will provide room for cigarette producers
to increase their selling prices. As such, we expect stronger earnings growth of
11% in 2018 vs 6% in 2017. And for the retailers, aside from general improvements
in consumption, we also believe that continuous gross retail space expansion is
on the cards, with companies focusing further on boosting efficiency. We expect
retailers to book higher earnings growth of 12.4% in 2018, vs 5.1% in 2017.

Exhibit 62. EPS growth by sector

Poultry 29.8%
Construction 21.0%
Banks 16.1%
Media 13.5%
Heavy Equipment 13.1%
Retail 12.4%
Consumer 12.0%
Healthcare 11.5%
Auto 11.0%
Cigarettes 10.7%
Cement 4.0%
Plantation -0.8%
Mining -3.8%
Property -4.7%
Industrial Estate -46.5%
-60% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40%

Source: Danareksa Research Institute

Our year-end 2018 index target is based on three approaches:


PE based model: We employed a PE multiple of 17.4x on our 12% EPS growth
multiple. This translates into a JCI target of 6,820. We believe the potentially
stronger GDP growth might lure inflows, which, in turn, would lead to a rerating
of the market multiple, above the mean level. Concerns on Indonesia’s economic
growth trajectory have been a main factor behind the considerable foreign
outflows this year – and this will be reversed 2018, we believe.

www.danareksa.com See important disclosure at the back of this report 32


Exhibit 63. PE Based model
20.0 19.0 18.0 17.0 16.0 15.0 14.0 13.0 12.0 11.0 10.0
16.0% 8,120 7,714 7,308 6,902 6,496 6,090 5,684 5,278 4,872 4,466 4,060
15.0% 8,050 7,648 7,245 6,843 6,440 6,038 5,635 5,233 4,830 4,428 4,025
14.0% 7,980 7,581 7,182 6,783 6,384 5,985 5,586 5,187 4,788 4,389 3,990
13.0% 7,910 7,515 7,119 6,724 6,328 5,933 5,537 5,142 4,746 4,351 3,955
12.0% 7,840 7,448 7,056 6,664 6,272 5,880 5,488 5,096 4,704 4,312 3,920
11.0% 7,770 7,382 6,993 6,605 6,216 5,828 5,439 5,051 4,662 4,274 3,885
10.0% 7,700 7,315 6,930 6,545 6,160 5,775 5,390 5,005 4,620 4,235 3,850
9.0% 7,630 7,249 6,867 6,486 6,104 5,723 5,341 4,960 4,578 4,197 3,815
8.0% 7,560 7,182 6,804 6,426 6,048 5,670 5,292 4,914 4,536 4,158 3,780
7.0% 7,490 7,116 6,741 6,367 5,992 5,618 5,243 4,869 4,494 4,120 3,745
6.0% 7,420 7,049 6,678 6,307 5,936 5,565 5,194 4,823 4,452 4,081 3,710
5.0% 7,350 6,983 6,615 6,248 5,880 5,513 5,145 4,778 4,410 4,043 3,675
4.0% 7,280 6,916 6,552 6,188 5,824 5,460 5,096 4,732 4,368 4,004 3,640
Source: Danareksa Sekuritas

DDM model: Our DDM model gives rise to a year-end index target of 6,800, based
on a market dividend yield of 2.3%, with growth of 12.1%, Cost of capital of 12%
and nominal terminal growth of 9.4%.

Bottom-up approach: Our bottom-up approach reveals 13.8% upside from the
current level, translating into a JCI index of 6,952.

We have assigned a 40% weighting for the PE based model, and an equal 30%
weighting for both the DDM and bottom-up approaches; thus giving rise to a year-
end index target of 6,854 for year-end 2018.

Exhibit 64. Forward trailing P/E band


IDR
JCI 11x 12x 13x 14x 15x 16x 17x 18x
6,500
18X
6,000 17X

5,500 16x
15x
5,000
14x
4,500 13x
12x
4,000
11x
3,500

3,000

2,500
2011 2012 2013 2014 2015 2016

Source: Danareksa Sekuritas

We believe the big cap stocks will still take center stage in earlier part of 2018,
especially on the expected reversal of outflows, before the focus will be shifted
to medium cap stocks. We like sectors related to the consumption theme and
banking, while retaining our neutral stance on commodities and property.

www.danareksa.com See important disclosure at the back of this report 33


Exhibit 65. Our top 10 top picks
Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (Rp) (RpBn) 2017F 2018F 2017F 2018F 2017F
Adhi Karya WIKA IJ BUY 2,800 6,765.6 15.0 10.9 1.1 0.9 8.6
Adaro Energy ADRO IJ BUY 2,200 57,575 8.5 8.9 1.2 1.2 13.3
Bank Rakyat Indonesia BBRI IJ BUY 3,900 426,776.5 15.5 13.5 2.6 2.3 18.3
Bank Tabungan Negara BBTN IJ BUY 4,000 30,711.0 9.8 8.4 1.4 1.2 15.8
Indofood CBP ICBP IJ BUY 9,700 104,083 26.7 24.2 5.3 4.7 20.6
Mitra Adiperkasa MAPI IJ BUY 8,100 10,252.9 26.9 20.6 2.9 2.6 13.2
Media Nusantara Citra MNCN IJ BUY 1,750 18,416 12.2 10.2 2.0 1.8 18.2
Pembangunan Perumahan PTPP IJ BUY 4,000 16,057.7 11.3 7.7 1.3 1.1 14.0
Pakuwon Jati PWON IJ BUY 720 31,303.7 16.4 13.2 3.0 2.5 20.9
Ramayana Lestari Sentosa RALS IJ BUY 1,250 6,907.6 16.9 16.0 2.0 1.8 11.8
Source: Danareksa Sekuritas

Bank Tabungan Negara (BBTN IJ, IDR 3,470, BUY, TP IDR 4,000) - As one of the
JCI’s big cap best performers, BBNI’s current share price already entirely prices in
the positive outlook for in 2018, in our view. The narrower valuation gap between
BBNI and BMRI is reasonable given the same business model with similar ROAE
expectations. Assets quality should be the bank’s main focus post aggressive loans
growth in the past three years. As such, we conservatively assume a flat gross
NPLs ratio of 2.7% by the end of 2018F. Maintain HOLD with a TP of IDR8,500.

Bank Rakyat Indonesia (BBRI IJ, IDR 3,400, BUY, TP IDR 3,900) - We reiterate our
BUY call on BBRI with an unchanged TP of IDR3,900 as we believe that the
government’s KUR program will continue to support micro lending growth
following the recent decision by the government to provide a higher interest rate
subsidy at 10.55%. This is despite a lower KUR lending rate of 7% (previously 9%).
We assume BBRI’s KUR loans will grow by 32% leading to a higher contribution of
11% in the bank’s loans book by the end of 2018. The bank’s NIM, meanwhile, is
expected to edge down by c.6bps to 7.8% driven by 8bps lower asset yields with
a stable blended CoF of 3.6%. BBRI is one of our top picks in our banking universe.
BUY maintained.

Pembangunan Perumahan (PTPP IJ, IDR 2,590, BUY, TP IDR 4,000) - PTPP’s order
book in 2018 is targeted to grow 21%yoy on the back of strong carry over
contracts. This should translate into 34%yoy growth in revenues. PTPP has equity
investments in 18 associates as the minority investor with ownership ranging from
5%-49% with most of them still in the early stage of development. PTPP has
injected IDR1.1tn of equity into those subsidiaries. We have a BUY on PTPP with
a TP of IDR4,000.

Adhi Karya (ADHI IJ, IDR 1,900, BUY, TP IDR 2,800) - KAI as the main investor in
the LRT project is looking to raise IDR18.1tn of debts after the capital injection of
IDR7.6tn is provided by the government. Meanwhile, ADHI is expected to invest
IDR4.0tn in TOD and depots for the project following the government’s IDR1.4tn
capital injection in 2015. ADHI expects to receive the first payment from KAI on
Jan 18. We maintain our BUY call on ADHI with a target price of IDR2,800.

Adaro Energy (ADRO IJ, IDR 1,800. BUY. TP IDR 2,200) - While we expect lower
coal prices in 2018 to impact the company’s earnings, we continue to like Adaro
Energy (ADRO) on: a) recovery in coal production to cushion further declines in
coal prices, and b) business diversification into the power business to support
long-term earnings. Maintain BUY with a target price of IDR2,200 (based on DCF
valuation with WACC of 9.9%).

Indofood CBP (ICBP IJ, IDR 8,825, BUY, TP IDR 9,700) - Looking forward, we are
confident that the positive momentum can be maintained, especially since sales
should receive a boost from more populist government policies in the pre-election
year of 2018. Maintain BUY with a TP of IDR9,700.

www.danareksa.com See important disclosure at the back of this report 34


Ramayana Lestari Sentosa (RALS IJ, IDR 1,015, BUY, TP IDR 1,250) - RALS is our
top pick in the retail sector as we believe the stock is a momentum play during
the pre-election year. We like RALS as we believe that: 1) now is a good time to
pick up the shares given its attractive valuation, 2) higher sales should be on the
cards in 2018, and 3) a focus on fashion department stores in 2018 will support
the company’s overall profitability. Meanwhile, we still see that the management
is committed toward its store innovation and transformation strategy.

Mitra Adiperkasa (MAPI IJ, IDR 6,200, BUY, TP IDR 8,100) - We have a BUY call
on MAPI with a TP of IDR8,100. We like the stock as we believe: 1) resiliency in
the mid-up segment should boost sales performance in 2018 with better expected
performance of specialty stores and F&B, 2) the management’s operational
turnaround in terms of brand rationalization will continue in 2018, and 3) better
cash position and lower inventory days should be on the cards.

Pakuwon Jati (PWON IJ, IDR 635, BUY, TP IDR 720) - We reiterate our BUY call on
PWON with a target price of IDR720. With solid marketing sales in 11M17, we
believe PWON will achieve marketing sales of IDR2.4tn in 2017 (+4.2%yoy). Going
into 2018, we expect PWON to record higher marketing sales growth supported
by new project launches (+11.1%yoy). We also remain optimistic with PWON’s
strong retail portfolio considering its good visitors traffic.

Media Nusantara Citra (MNCN IJ, IDR 1,255, BUY, TP IDR 1,750) - We recommend
a BUY on MNCN with a TP of IDR 1,750. We think improving local FMCG company
ad spending and content revenues should translate into higher 2018F top line
growth. We also expect the company to maintain its no. 1 audience share position
in the TV industry. Meanwhile, content business efficiencies remain on track along
with the recent re-branding of Global TV and iNews. The cheap valuation,
attractive dividend yield and significant potential upside make MNCN our top pick
in the sector.

Exhibit 66. Sectoral overview


Sector Key Points Recommendation
Automotive We expect modest growth in domestic car and motorcycles sales of 5% yoy in 2018 Neutral
supported by moderate economic growth of around 5.2 – 5.4%. However, competition is
expected to heighten on the back of the launch of new models in the popular segments:
LMPV and LSUV. In turn, this will increase marketing expenses, putting some pressure on
the profitability of carmakers. Maintain Neutral.
Banking The expectation of higher consumer spending in the pre-election year and major Overweight
government-infrastructure projects are two key drivers for a pick-up in loans growth. In
addition, we expect limited downside on assets quality as most banks have already
undertaken aggressive loans restructuring and conservatively employed a higher LLC ratio
in the past two years. This will provide more room for lower credit costs in FY18F in our
view. All in all, 13.5% loans growth and 173bps credit cost expectations for our banking
universe should translate into 16% net profits growth and a decent ROAE of 16.1%. BBRI
and BBTN are our top picks in the sector. OVERWEIGHT.
Cement We maintain our UNDERWEIGHT call on the cement sector as we believe the current lofty Underweight
valuations are not justified. For the sales volume, we expect the industry to record lower
domestic sales volume in 2018 (+5%yoy) vs. +6.0%yoy in 2017. Nonetheless, we expect
the prices to bottom out in 2018 (based on our channel checks with 60 building material
stores, new players have tended to keep prices flat from July to November 2017, even
raising them in several regions). The cement sector currently trades at 38.9x P/E, or near
to its historical +2SD forward trailing P/E of 44.1x.
Cigarette We see room for both HMSP and GGRM to grow since the 2018 excise tax regulation Neutral
creates a more level playing field in the cigarette industry and because populist policies
ahead of the elections in 2019 should bolster purchasing power at the grassroots level.
Improved buying power and less intense competition should allow cigarette producers to
increase their selling prices, in our view. However, with limited upside to our TPs, we
maintain our neutral stance on the sector.
Coal Mining With China and India expected to reduce imports on rising domestic supply, we expect Overweight
coal prices to consolidate at USD78/tonne in 2018. Although coal production of the
companies under our coverage is expected to grow by 4.7% yoy in 2018, we also expect
the 2018 net profits to decline by 5.9% yoy. Our top picks in the coal sector are ADRO and
PTBA. We also like United Tractors (UNTR) as solid coal prices will sustain heavy
equipment demand.

www.danareksa.com See important disclosure at the back of this report 35


Sector Key Points Recommendation
Construction In 2018, we believe that a lot of infrastructure projects will be tendered by the incumbent Overweight
government. Despite a challenging 2017, we are OVERWEIGHT on the sector given: 1) the
government’s plans to secure funding availability, 2) new funding sources, and 3) the
strong order books of the contractors thanks to massive carry-over contracts.
Consumer We believe that more populist government policies will be implemented in 2018 to please Neutral
the nation’s grassroots. Purchasing power should improve on the back of easing cost
pressures given the government’s 2018 state budget will increase energy and health
subsidies. This should help to support demand for consumer products and sustain higher
sector earnings growth of 10.8% yoy.
Industrial Estates We have a NEUTRAL call on the industrial estates sector with DMAS as our top pick. We Neutral
believe there are a lack of catalysts that can boost industrial land sales in 2018 following
the stellar growth in 2017. The weak expected demand in 2018 will consequently translate
into limited price appreciation. Among the companies under our coverage, however, we
still expect DMAS to outperform its peers in terms of land sales given: (i) its ready-for-sale
land bank is the largest and also less scattered, (ii) it has the highest level of inquiries, (iii)
the prices it offers are competitive.
Media We are positive on the outlook for the media sector in 2018 given: 1) FTA TV ad spending Overweight
will improve in 2018 driven by local FMCG and internet companies, 2) higher expected
revenues growth for both SCMA and MNCN as they maintain their leading positions in
terms of audience share, 3) content cost efficiencies which can drive better profitability
and earnings, and 4) attractive dividend yields for both SCMA and MNCN.
Metal Mining With greater nickel demand going forward, we expect the nickel price to increase further Neutral
but at a slower rate as supply concerns are expected to ease and inventory will remain at
a high level. Meanwhile, for the tin outlook, we expect supply risks from Myanmar and
Indonesia to outweigh muted refined tin demand. Maintain Neutral. Top Picks: Timah
(TINS).
Pharmaceutical The government’s continued focus on providing better healthcare facilities/access and an Neutral
increasing aging population ahead should ensure solid growth for pharmaceutical
companies, in our view. It is also worth noting that in 2018, the government allocated 5%
of the total state budget for healthcare spending - the main source of growth for
pharmaceutical companies over the past few years. Nonetheless, valuations in the sector
are at a premium. As such, we maintain our NEUTRAL stance on the sector.
Plantation We forecast a higher stock-to-use ratio of 19.0% (vs. 17.0% in FY17) despite stronger Neutral
consumption with potentially higher palm oil imports by India and China. However, higher
production from continued yield recovery may counter the positive impact of stronger
demand. We assume CPO prices of MYR2,800/ton and MYR2,700/ton in FY17 and FY18
respectively. Maintain neutral on the plantation sector.
Poultry We are currently expecting a narrowing gap between DOC and Broiler supply and demand, Neutral
thanks to continuous efforts from the government’s culling programs, which will result in
a much more stable ASP outlook. The key growth driver for poultry players, we think, will
be volume growth rather than ASP increases, which will benefit big poultry players like
CPIN and JPFA the most due to their large economies of scale. Meanwhile, companies
have attempted to hedge corn prices by building more dry corn silos.
Property We maintain our NEUTRAL stance on the property sector for 2018. We do not see much Neutral
improvement next year as we believe investors will be reluctant to invest in property,
while marketing sales will mostly be supported by real homebuyers. Our top picks in the
sector are PWON and CTRA, which we believe will deliver strong financial performance in
2018 (with estimated 15.4%yoy and 25.3%yoy revenues growth), outperforming their
peers which are only expected to record flat revenues growth (+0.7%yoy).
Retail Taking advantage of the pre-elections year, we think this sector is a good momentum play Overweight
to invest in retail stocks on seasonality since we expect better Lebaran sales in 2018. Our
top pick in the retail sector is RALS. The greater penetration of e-commerce is inevitable
in the next 5-7 years, in our view, but still at an early stage in 2018. Continuous gross retail
space expansion is on the cards, with companies focusing on being more efficient. We are
overweight on the retail sector.

www.danareksa.com See important disclosure at the back of this report 36


Sector Outlook
(In Alphabetical order)

www.danareksa.com See important disclosure at the back of this report 37


Equity Research
Automotive

NEUTRAL Automotive
Heightening competition
ASII relative to JCI Index We expect modest growth in domestic car and motorcycles sales of 5% yoy
xxxx
in 2018 supported by moderate economic growth of around 5.2 – 5.4%.
However, competition is expected to heighten on the back of the launch of
new models in the popular segments: LMPV and LSUV. In turn, this will
increase marketing expenses, putting some pressure on the profitability of
car makers. Maintain Neutral.

Slight increase in domestic car sales in 2017. Domestic car sales are expected
to increase by 1.7% yoy to 1.08mn units in 2017, with motorcycle sales posting
flattish growth. The anemic growth in 2017 reflects the impact of weak
consumer purchasing power. In 11M17, car sales grew by 2.0% yoy, while
motorcycle sales volume posted flat growth.

Source : Bloomberg
Domestic car and motorcycle sales to grow by 5% yoy in 2018. With the
expectation of economic growth of 5.2 – 5.4% yoy in 2018, we expect modest
growth in domestic car sales of 5% yoy to 1.13mn units in 2018, up from an
estimated 1.08mn units this year. With ASII’s market share expected to dip to
52% in 2018 on the delivery of Mitsubishi Expander in 3Q17, we expect flat
growth in ASII’s car sales in 2018. For motorcycles, we expect sales to also
grow by 5% yoy in 2018.

More competitive landscape in the LMPV and LSUV segments. We expect


competition in the domestic car market to intensify following the launch of
new cars in the popular segments: the low-end MPV (LMPV) segment in 3Q17
and the low-end SUV (LSUV) segment at the end of 4Q17. In the low-end MPV
segment, two new brands were launched, namely: Wuling Confero and
Mitsubishi Expander. And in the low-end SUV segment, ASII launched new
generations of Toyota Rush and Daihatsu Terios. The LMPV and LSUV
segments accounted for 22.9% and 8.8% of total car sales in 10M17.

Stiff competition reflected in lower automotive EBIT margins. As a result of


heightened competition, several car brands have aggressively increased their
marketing expenses by providing more discounts and other promotions. Also,
with a widening gap between wholesale car sales and retail car sales, there is
more car inventory at dealerships. As such, car distributors experienced a
lower automotive margin. Astra International (ASII) posted a lower operating
margin of around 0.9% in 9M17 vs. 2.2% in 9M16. We estimate that the
operating margin will remain at a low level of 1.0% in 2017 before increasing
slightly to 2.0% in 2018. These figures are much lower than 2012’s operating
margin of above 3.0%.

Maintain Neutral as a more competitive landscape is expected from the


launch of new models in the popular segments: LMPV and LSUV. In turn, this
will increase the marketing expenses of automakers, which will diminish
profitability. Our top pick in the sector is Astra International (ASII).
x Stefanus Darmagiri
(62-21) 29 555 831
stefanus.darmagiri@danareksa.com

Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Astra International ASII IJ BUY 9,200 323,868.0 17.1 15.4 2.6 2.4 16.3

www.danareksa.com See important disclosure at the back of this report 38


Exhibit 1. Domestic Car Market Exhibit 2. Domestic Motorcycle Market
120 75 800 80

700 75
100 70
600 70
65

ASII market share, %


ASII market share, %

2W sales, '000 units


4W sales, '000 units

80
500 65
60
60 400 60
55
300 55
40
50
200 50
20 45 100 45

- 40 0 40
Jul-14
Oct-14

Jul-15
Oct-15

Jul-16
Oct-16

Jul-17
Oct-17
Apr-14

Apr-15

Apr-16

Apr-17
Jan-14

Jan-15

Jan-16

Jan-17

Jan-14

Jan-15

Jan-16

Jan-17
Jul-14

Jul-15

Jul-16

Jul-17
Oct-14

Oct-15

Oct-16

Oct-17
Apr-14

Apr-15

Apr-16

Apr-17
Source: Gaikindo Source: AISI

Exhibit 3. Car Sales Volume by Brands Exhibit 4. Motorcycle Sales Volume by Brands

11M16 11M17 11M16 11M17


4,071
400 351 4,500 4,104
349
350 4,000
3,500
2W sales, '000 units

300
4W sales, '000 units

3,000
250
173 185 2,500
200 173 172
2,000
150 109 1,2761,223
102 90 1,500
84
100 1,000
50 500 53 69 91 73
0 0
Toyota Daihatsu Suzuki Honda Mitsubishi Honda Yamaha Suzuki Kawasaki

Source: Gaikindo Source: AISI

Exhibit 5. Market Share in Low-MPV market Exhibit 6. Competition lower automotive margin for ASII

Expander Wuling Others 6% 25%


1.7% 1.5% 3.9%
5% 20%

4%
15%
Ertiga
14.1% 3%
10%
2%
5%
Mobilio 1%
Avanza
15.2%
and Xenia 0% 0%
63.7%
-1% -5%
1Q12 4Q12 3Q13 2Q14 1Q15 4Q15 3Q16 2Q17
Automotive EBIT Margin (LHS) Automotive EBIT Contribution (RHS)

Source: Gaikindo Source: Astra International

www.danareksa.com See important disclosure at the back of this report 39


Equity Research
Banking

OVERWEIGHT Banking
Rise and Shine
BBRI relative to JCI Index The expectation of higher consumer spending in the pre-election year and
xxxx
major government-infrastructure projects are two key drivers for a pick-up
in loans growth. In addition, we expect limited downside on assets quality as
most banks have already undertaken aggressive loans restructuring and
conservatively employed a higher LLC ratio in the past two years. This will
provide more room for lower credit costs in FY18F in our view. All in all,
13.5% loans growth and 174bps credit cost expectations for our banking
universe should translate into 16% net profits growth and a decent ROAE of
16.1%. BBRI and BBTN are our top picks in the sector. OVERWEIGHT.

Expect a pick-up in loans growth. Given its proxy to economic health, the
banking sector still faced some challenges in 2017 to push loans growth amid
the rather modest GDP growth pace. This is reflected in the 11.5% YoY loans
growth as of September 2017. However, we expect loans growth in 2018 to be
higher at 13.5% in our banking universe, still mainly coming from government
BBTN relative to JCI Index infrastructure projects. Consumer loans, meanwhile, should gain momentum
xxxx – driven by mortgages in our view, particularly subsidized mortgages as well
as lending for purchases of property in the secondary market.

Minimal downside risk on assets quality. After the lifting of the relaxation
policy in August 2017 and stable commodity prices, we foresee no major
downside risk on assets quality going forward. Credit costs already declined to
197bps in 9M17 with a higher LLC ratio of 151.4%. As such, we project 174bps
credit costs for FY18F. Assuming a 2.4% gross NPLs ratio, the LLC ratio should
stand at a modest level of 150.3% as of December 2018F based on our model.

Lower NIMs outlook. The latest 50bps policy rate cuts should provide more
room for banks to lower their TD rates. Lending rates should follow with a six
Source : Bloomberg months lag-time. In addition, the government’s request for lower lending rate
for several infrastructure projects also creates more pressure. As such, NIM is
expected to touch 6.5% with c. 12bps dip in the assets yield to 9.5% and 6bps
reduction in the blended CoF in FY18F for our banking universe.

OVERWEIGHT: BBRI and BBTN as our top picks. We maintain our positive
view on the sector due to the expected acceleration in loans growth and
milder pressure on assets quality. Our top picks are: 1) BBRI due to its resilient
micro lending business - which should translate into superior NIM - along with
its potential higher fee-income contribution, and 2) BBTN given its strong
focus on mortgages - which should translate into predictable credit costs.

x Eka Savitri
(62-21) 2955 5888 ext 3506
eka.savitri@danareksa.co.id

Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
BRI BBRI IJ BUY 3,900 419,376 15.5 13.5 2.6 2.3 18.3
BTN BBTN IJ BUY 4,000 36,747 9.8 8.4 1.4 1.2 15.8
BTPN BTPN IJ BUY 2,800 13,788 11.2 8.8 0.9 0.8 9.4
BPD Jatim BJTM IJ BUY 830 10,332 8.3 8.0 1.4 1.3 16.3
BNI BBNI IJ HOLD 8,500 177,628 13.2 11.6 1.8 1.6 14.8
Mandiri BMRI IJ HOLD 7,700 347,667 17.8 14.8 2.2 2.0 14.0
BCA BBCA IJ HOLD 21,000 526,335 22.0 19.2 3.9 3.3 18.8

www.danareksa.com See important disclosure at the back of this report 40


Exhibit 1. Loans and Growth Exhibit 2. Customer deposits and Growth
3,500 IDR trn % 30.0 3,500 IDR trn % 16.0

3,000 3,000 14.0


25.0
12.0
2,500 2,500
20.0
10.0
2,000 2,000
15.0 8.0
1,500 1,500
6.0
10.0
1,000 1,000
4.0
500 5.0 500 2.0

- - - -
2013 2014 2015 2016 2017F 2018F 2013 2014 2015 2016 2017F 2018F

Gross loans (LHS) YoY growth (RHS) Cust deposits (LHS) YoY growth (RHS)

Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 3. Asset Yields, NIMS and COFS Exhibit 4. NPLS and LLC Ratio
12.0 %
3.0 % % 200.0
2.7
2.6
10.0 167.2 2.4
2.5 151.6 2.2
150.0
8.0 2.0 1.8 150.3
6.7 6.6 6.7 6.9 6.6 6.5 1.7 147.5
142.0 139.3
6.0 1.5 100.0

4.0 1.0
50.0
2.0 0.5

- -
-
2013 2014 2015 2016 2017F 2018F 2013 2014 2015 2016 2017F 2018F

NIM Asset yields Blended CoFs NPL ratio (LHS) LLC (RHS)

Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 5. Capital Adequacy Ratio Exhibit 6. PBV and ROAES Matrix


2016 2017F 2018F % BBRI BBCA
% 21.0
30.0
18.0 BJTM BBTN BJBR
25.0
15.0 BMRI
BBNI
20.0
12.0 BDMN
15.0 BTPN
9.0
10.0 PNBN BNGA
6.0
5.0 BNLI
3.0
- x
BTPN BBCA BMRI BBNI BBRI BBTN BJTM 0.0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Source: Company, Danareksa Sekuritas estimates Source: Bloomberg, Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 41


Equity Research
Cement

UNDERWEIGHT Cement
At a turning point but challenged by lofty valuations
INTP relative to JCI Index We maintain our UNDERWEIGHT call on the cement sector as we believe the
xxxx
current lofty valuations are not justified. For the sales volume, we expect
the industry to record lower domestic sales volume in 2018 (+5%yoy) vs.
+6.0%yoy in 2017. Nonetheless, we expect the prices to bottom out in 2018
(based on our channel checks with 60 building material stores, new players
have tended to keep prices flat from July to November 2017, even raising
them in several regions). The cement sector currently trades at 38.9x P/E, or
near to its historical +2SD forward trailing P/E of 44.1x.

Expect 5% yoy sales volume growth in 2018. Going into 2018, we expect
modest domestic sales volume growth of 5%yoy, or slightly lower than this
year’s expected sales volume growth of 6%yoy. This slower growth reflects
the expectation of lower growth of bulk cement sales in 2018 given the lower
growth in the infrastructure budget allocation in the government’s 2018 state
budget (+5.3% in 2018 vs. +44.3% in 2017). For bagged cement sales, we
SMGR relative to JCI Index expect lower sales growth in 2018 than in 2017 considering: (i) limited
xxxx improvement in property demand, (ii) lagging impact of improvement in real
GDP to cement sales.

Price check: new players have raised their prices. Based on our channel
checks with 60 building material stores in the main markets of the cement
companies under our coverage, we note that: (i) most of the new players
tended to keep their prices relatively flat from July to November 2017, (ii)
nonetheless, the market leaders, such as INTP (with its Tigaroda brand) and
SMGR (with its Gresik, Padang, and Tonasa brands) have still tried to lower
their prices slightly in a bid to boost market share. This has narrowed the price
gap between the market leaders and other players. On a positive note, in
several areas including West Sumatera and North Sumatera, cement prices
Source : Bloomberg have started to edge higher (by 1-2%).

Price outlook: the bottom is near. With most new players tending to hold
their prices at current levels, we believe the bottom for the prices of these
new players is near. For the market leaders (SMGR and INTP), we expect them
to keep their prices stable in 1H18, as we expect consolidation to occur in this
period. After consolidation, we expect better price discipline with fewer
players dominating the market and we believe that there will be no reduction
in the domestic installed capacity. Thus, we expect average prices in 2H18 to
increase slightly by 2-3% compared to average price in 1H17. And although we
expect a reversal in pricing in 2H18, with the trending down in prices in 2017,
we estimate that on a yoy basis, prices will still be down by 1%yoy.

Underweight on the cement sector with SELL calls on INTP and SMBR. We
are UNDERWEIGHT on the cement sector with SELL calls on INTP (SELL
IDR14,700) and SMBR (SELL IDR460). The cement sector currently trades at
x Antonia Febe Hartono, CFA 38.9x P/E, or near to its historical +2SD forward trailing P/E of 44.1x. While we
(62-21) 2955 5888 ext.3504 believe a turnaround may be on the cards in 2018, we only expect the sector
antonia.hartono@danareksa.com to rerate to +1SD (33.7x P/E).

Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Indocement INTP IJ SELL 14,700 71,416 37.9 36.9 2.7 2.6 7.1
Semen Indonesia SMGR IJ HOLD 8,600 58,722 30.0 27.7 1.9 1.9 6.9
Baturaja SMBR IJ SELL 460 32,772 194.2 218.3 10.1 9.8 4.5

www.danareksa.com See important disclosure at the back of this report 42


Exhibit 1. Supply and demand Exhibit 2. Sales volume for companies under our coverage
Million ton % in mn tons
120 100% 60.0 52.7 15%
47.1 48.3 47.3 46.7 49.5
100 50.0
41.5 10%
80 80% 40.0 36.7
32.7
60 30.0 5%
40 60% 20.0
0%
20 10.0
- 40% - -5%
2010 2012 2014 2016 2018F 2010 2011 2012 2013 2014 2015 2016 2017F2018F
Sales Consumption Utilization rate (RHS) SMGR INTP SMBR Growth (RHS)

Source: ASI, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 3. Revenue of companies under our coverage Exhibit 4. EBITDA margin


in IDRtn 45.0%
60 25% 40.0%
48 46 46 20%
50 44 43 43 35.0%
38 15% 30.0%
40
31 10% 25.0%
30 26
20.0%
5%
20 15.0%
0%
10.0%
10 -5% 5.0%
0 -10% 0.0%
2010 2011 2012 2013 2014 2015 2016 2017F2018F 2010 2011 2012 2013 2014 2015 2016 2017F 2018F
SMGR INTP SMBR Growth (RHS) SMGR INTP SMBR

Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 5. Cement sector’s historical forward trailing PE Exhibit 6. Cement’s sector historical forward trailing PB
(x ) (x )
60.0 4.5
2sd
50.0 4.0
2sd
1sd
40.0 3.5
1sd
30.0 3.0 Average:2.89
Average:23.22
20.0 2.5 -1sd
-1sd
10.0 2.0
-2sd -2sd
0.0 1.5
Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17

Source: Bloomberg, Danareksa Sekuritas estimates Source: Bloomberg, Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 43


Equity Research
Cigarette

NEUTRAL Cigarette
Benefiting from a more level playing field
HMSP relative to JCI Index We see room for both HMSP and GGRM to grow since the 2018 excise tax
xxxx
regulation creates a more level playing field in the cigarette industry and
because populist policies ahead of the elections in 2019 should bolster
purchasing power at the grassroots level. Improved buying power and less
intense competition should allow cigarette producers to increase their
selling prices, in our view. However, with limited upside to our TPs, we
maintain our neutral stance on the sector.

2018: a more level playing field. There are two key points in the 2018 excise
tax regulation that will create a more level playing field in the cigarette
industry. This will reduce the competition from cheaper cigarettes and benefit
the major cigarette players including HMSP and GGRM. The first point relates
to tier simplification which will push more producers into the higher tax
bracket. The second point concerns pricing. The government lowered
minimum selling prices for the end-retailers to 85% (from 90% previously),
GGRM relative to JCI Index accelerating the hike of banderol prices and pushing for higher tax revenues.
xxxx As a result, it is more difficult to offer cheap cigarettes to consumers. It is also
worth noting that the government will allow a 2-month payment delay for the
purchase of excise in the period from 15-31 Dec 2018.

Positive outlook for 2018. Following the better 3Q17 sales volume with ASP
hikes and a supportive outlook from 2018 excise, we are optimistic on the
prospects for both HMSP and GGRM next year. For HMSP, the company
should also benefit from additional regulations that will combine the total
production of SKM and SPM for the volume threshold of excise tax, starting in
2019. Therefore, we expect both companies to book positive volume growth
ranging from 1-2% in 2018. Combined with higher selling prices, we estimate
the sector to maintain an operating margin of 15.8%. Earnings growth should
Source : Bloomberg reach 10.1%.

Maintain neutral. We continue to like HMSP given its strong product


portfolio, tapping the low to high segments. New product launches over the
past 2 years have created a success story and allowed the company to gain
sizeable market share amidst declining industry sales volume. For GGRM, the
company’s success in maintaining its positive sales volume growth should
pave the way for better performance in the coming years. However, the
uncertainty on the airport project poses downside risk given the possibility of
higher debt and lower free cash flow for the financing. Nonetheless, the share
prices of both HMSP and GGRM have increased by 13.2% and 14.7% over the
past three months, resulting in limited upside to our TPs. As such, we maintain
our sector neutral stance on the sector.

x Natalia Sutanto
(62-21) 2955 5888 ext.3508
natalia.sutanto@danareksa.com

Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
HM Sampoerna HMSP IJ HOLD 4,400 517,616 39.5 36.2 14.9 14.3 40.3
Gudang Garam GGRM IJ HOLD 83,800 152,147 20.3 17.9 3.6 3.1 18.8

www.danareksa.com See important disclosure at the back of this report 44


Exhibit 1. Excise tax structures for SKM, 2009-2018 Exhibit 2. Excise tax structures for SKT, 2009-2018

IDR/stick IDR/stick
590 400
600 365
530 345

500 290
300 275
415
400 375 235
325 200
290 200
300

200
100
100

0 0
2009 2011 2013 2015 2017 2018
2009 2011 2013 2015 2017 2018

Source: Ministry of Finance Source: Ministry of Finance

Exhibit 3. HMSP volume (bn sticks) and market share Exhibit 4. GGRM volume (bn sticks) and market share
120 40.0%
34.9% 100 21.9% 22.0%
100 34.3% 33.4% 32.9% 35.0% 21.5%
80 80 21.5%
60 21%
60 30.0% 20.8% 21.0%
40
40
25.0% 20 20.5%
20 81 79 77 38.6
110 110 106 74 - 20.0%
- 20.0%
2014 2015 2016 1H17
2014 2015 2016 9M17
Voume (Bn sticks) - LHS Market share - RHS
Volume - LHS Market share - RHS

Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 5. HMSP’ retail selling prices growth – Ytd Sept 2017 Exhibit 6. GGRM ex-factory selling prices growth - Ytd

Dji Sam Soe 12s 4.1% GG Surya SKM FF 16s 3.3%


A Mild 16s 5.8%
GG International SKM 12s 5.7%
Sampoerna Kretek 12s 5.9%
Dji Sam Soe Magnum… 10.0% GG Mild LTLN 16s 6.0%
U Mild 16s 11.8%
GG Merah SKT 12s 6.3%
Marlboro red 20s 13.0%
GG Surya Promild SKM FF
U Bold 12s 17.4% 11.7%
16s

0.0% 5.0% 10.0% 15.0% 20.0% 0.0% 5.0% 10.0% 15.0%

Source: HMSP Source: GGRM *13 Dec 2017

www.danareksa.com See important disclosure at the back of this report 45


Equity Research
Coal Mining

OVERWEIGHT Coal Mining


Consolidation is on the cards
ADRO relative to JCI Index With China and India to reduce imports on rising domestic supply, we expect
xxxx
coal prices to consolidate at USD78/tonne in 2018. Although coal production
of the companies under our coverage is expected to grow 4.7% yoy in 2018,
we also expect the 2018 net profits to decline by 5.9% yoy. Our top picks in
the coal sector are ADRO and PTBA. We also like United Tractors (UNTR) as
sturdy coal prices to sustain heavy equipment demand.

Coal prices expected to consolidate in 2018. We expect coal prices to


consolidate at USD78/tonne in 2018 (2017F: USD85/tonne) due to: a) rising
domestic supply in China and the continuation of Chinese government policies
to ban coal imports at small ports, b) the current environment of high coal
prices and more domestic coal production to limit coal import in India, and c)
further declines in South Korea’s coal imports given the newly-elected
government’s pledge to limit coal usage. Nonetheless, ASEAN countries are
expected to be a growing center for coal demand going forward. In 2016 –
PTBA relative to JCI Index 2019, global coal imports are expected to decline by 3 year CAGR of 1.6%.
xxxx
Lower net profits amid production recovery. On the back of the strong coal
prices in 2017, coal mining companies under our coverage are expected to
book breakneck growth in net profits of 64.5% yoy in 2017. In 2018, however,
we expect 5.9% yoy lower net profits due to: a) the expectation that
Newcastle coal prices will consolidate at USD78/tonne in 2018 from this year’s
expectation of USD85/tonne, and b) higher costs from higher energy prices
and an increasing stripping ratio. With some coalminers set to boost
production levels, this should help to mitigate further declines in net profits in
2018.

Profitability to remain intact despite lower coal prices and higher costs. The
Source : Bloomberg gross margin of the coal mining companies under our coverage is expected to
decline to 31.9% in 2018 from 34.0% in 2017 reflecting: a) coal prices
consolidation, and b) higher cash costs of production arising from rising
energy costs with a higher crude oil price assumption of USD60/tonne for
2018 (2017F: USD55/tonne). Despite the expected decline in the gross margin,
it is still expected to be better than the gross margin in 2016 of 27.4%.

Top picks in the sector: ADRO, PTBA and UNTR. We continue to like coal
mining companies which have good earnings prospects over the long-term.
Our top picks in the sector are: a) Adaro Energy (ADRO) supported by business
diversification in power plants and coking coal along with adequate reserves
to provide long-term earnings growth and b) Bukit Asam (PTBA) with the
largest coal reserves and diversification into power plants. We also like United
Tractors (UNTR) as sturdy coal prices to sustain heavy equipment demand.

x Stefanus Darmagiri
(62-21) 29 555 831
stefanus.darmagiri@danareksa.com

Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Adaro Energy ADRO IJ BUY 2,200 57,575 8.5 8.9 1.2 1.2 13.3
Bukit Asam PTBA IJ BUY 2,900 26,742 8.0 8.1 2.0 1.8 23.5
Indo Tambangraya ITMG IJ HOLD 21,100 22,599 6.9 8.0 1.7 1.6 20.3
Harum Energy HRUM IJ HOLD 2,200 5,730 9.6 9.0 1.3 1.3 14.3
United Tractors UNTR IJ BUY 38,000 122,442 16.4 14.5 2.7 2.4 17.3

www.danareksa.com See important disclosure at the back of this report 46


Exhibit 1. Coal prices Exhibit 2. Coal trading activities
USD/tonne yoy % Import Export
120 25.0

110 20.0
100
15.0
90
10.0
80
5.0
70
0.0
60
(5.0)
50

40 (10.0)
Jan-14 Oct-14 Jul-15 Apr-16 Jan-17 Oct-17 2012 2013 2014 2015 2016 2017F 2018F

Source: Bloomberg Source: Resources and Energy Quarterly, ABS, IEA, Danareksa Sekuritas

Exhibit 3. Coal to dominate power generations in ASEAN Exhibit 4. Indonesia’s coal requirement for power plant
TWh Coal Oil mn tonnes
RUPTL PLN 2015-2024 RUPTL PLN 2016-2025
Natural Gas Nuclear 180
2,500 Hydro Geothermal RUPTL PLN 2017-2026
Other Renewables 160
2,000
140
1,500
120
1,000 168163 171165
157 151
148 150 148
100 138 138
133 127
500 119 122
106101 111 111
80 9892 99
85 89
0
2005 2015 2020F 2025F 2030F 2035F 2040F 60
2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F

Source: ASEAN Centre for Energy Source: PLN

Exhibit 5. Recovery in coal production in 2018 Exhibit 6. Coal Sector is currently trading at -1SD
% yoy growth (x )
40.0 30
30.0
20.0 25 2sd
10.0
0.0 20 1sd
(10.0)
15 mean
(20.0)
(30.0) 10 -1sd
(40.0)
(50.0) 5 -2sd
(60.0)
2011 2013 2015 2017F 2019F -
Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17
Our Coverage ADRO HRUM ITMG PTBA

Source: Respective companies, Danareksa Sekuritas estimates Source: Bloomberg, Danareksa Sekuritas

www.danareksa.com See important disclosure at the back of this report 47


Equity Research
Construction

OVERWEIGHT Construction
Waiting for the tide to turn
PTPP relative to JCI Index Looking ahead to 2018, a year before the presidential elections, we believe
xxxx
that a lot of infrastructure projects will be tendered by the incumbent
government. Despite a challenging 2017, we are OVERWEIGHT on the sector
given: 1) the government’s plans to secure funding availability, 2) new
funding sources, and 3) the strong order books of the contractors thanks to
massive carry-over contracts.

The government’s plan to secure funding availability. According to the latest


news reports, however, the government is preparing the legal foundations
and scheme for the usage of Hajj funds in the development of infrastructure
projects. If this plan is approved, significant funds would be made available for
the development of many infrastructure projects, we believe.

New sources of funding. In 2017, efforts were made to find new sources of
funding which included assets securitization, project bonds, and Komodo
WIKA relative to JCI Index bonds. This is the first time that such funding sources have been used by a
xxxx domestic company in Indonesia. The pioneer was JSMR which managed to
raise funds totaling IDR7.5tn in 2017. We believe other companies might
follow suit in the near future.

Strong order books on the back of massive carry-over contracts. In 2015 total
new contracts booked by 4 SOE contractors reached IDR98tn, up 41%yoy. In
2016, the increase was even more marked: up 75%yoy to IDR172tn. Since the
construction period for most of the projects is two to three years, the SOE
contractors have seen massive contracts carry-over in their order books. The
contribution from carry-over contracts is expected to reach 58% of the
sector’s order book in 2018.

Source : Bloomberg Most SOE contractors are highly leveraged, yet still below the covenant. The
leverage of most SOE contractors has trended higher as they raised funds for
working capital and investments. Despite this, leverage remains below the
level stipulated in sectoral covenants of 3.0x. In fact, the highest leverage of
the contractors is still below 2.0x. Nonetheless, banks and financial
institutions are still willing to provide loans to the contractors as government
guarantees have been given to the projects.

Our top picks are PTPP and ADHI. Despite the rosy outlook, there are
concerns related to: 1) the lower new contracts growth ahead due to the high
base (owing to strong growth in previous years), 2) regulatory changes with
government intervention risks, and 3) the negative operating cash flow of
several contractors. We remain optimistic, however, since payments are
expected to be made for many projects in 2018. Our top picks in the sector
x Maria Renata are PTPP and ADHI. We like PTPP as its leverage is one of the lowest in the
(62-21) 2955 5888 ext.3513
sector giving the company plenty of room for debt raising if necessary for its
expansion. As for ADHI, sentiment should improve as the signing of the
maria.renata@danareksa.com
Jakarta LRT agreement in mid Dec 17 provides clarity on the project’s future.
Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Pembangunan Perumahan PTPP IJ BUY 4,000 16,057.7 11.3 7.7 1.7 1.5 20.5
Adhi Karya WIKA IJ BUY 2,800 6,765.6 15.5 11.3 1.1 1.0 9.2
Wijaya Karya ADHI IJ BUY 2,100 14,172.5 13.0 10.7 1.2 1.1 10.5
Waskita Karya WSBP IJ BUY 3,000 29,998.3 9.8 8.1 2.2 1.8 24.6
Waskita Beton Precast WSKT IJ BUY 520 9,811.5 8.7 7.3 1.2 1.1 15.4
Wika Beton WTON IJ BUY 800 4,152.5 11.9 9.9 1.5 1.4 14.8

www.danareksa.com See important disclosure at the back of this report 48


Exhibit 1. Infrastructure budget Exhibit 2. Subsidy budget

IDR Tn IDR Tn
500 400
410 342
390 350 310
400
317 300
300 256 250
200
200 156 155 150 119 107
90 95
100 100
50
0 -
2013 2014 2015 2016 Outlook APBN 2013 2014 2015 2016 Outlook APBN 2018
2017 2018 2017

Source: Ministry of Finance Source: Ministry of Finance

Exhibit 3. Infrastructure and subsidy budget to state budget Exhibit 4. Contribution construction to GDP
Infrastructure budget Energy subsidy budget Construction (LHS) % to GDP (RHS)
IDR Tn %

20% 18.0% 18.2% 18.3% 18.6% 1,500 10.4% 10.5%


10.2%
18% 1,288
15.2%
16% 1,300 9.9%
12.9% 1,177 10.0%
14%
12% 1,100 9.5% 1,042
9.0% 9.3% 906 9.5%
10% 8.2%
8% 900 805
6.0% 5.1%
6% 4.2% 4.3% 9.0%
700
4%
2% 500 8.5%
0% 2012 2013 2014 2015 2016
2013 2014 2015 2016 Outlook APBN
2017 2018

Source: Ministry of Finance Source: CEIC

Exhibit 5. Order book Exhibit 6. Net profit


PTPP ADHI WIKA WSKT PTPP ADHI WIKA WSKT
IDR Tn IDR Tn
180 170
4.0 3.7
160 142 3.5 3.1
140 129
3.0
120 104 106 106
2.5 2.1
100 83 88
72 2.0 1.7
80 1.4
57 1.5 1.3
60 43 4952 1.0 1.0 1.0 1.1
41 41 0.7 0.6
33 34 1.0 0.6
40
21 26 0.5 0.60.5 0.5 0.5
18 0.5 0.3 0.3
20
- -
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Source: Respective companies, Danareksa Sekuritas estimates Source: Respective companies, Danareksa Sekuritas

www.danareksa.com See important disclosure at the back of this report 49


Equity Research
Consumer

NEUTRAL Consumer
Bright outlook but a bit pricey
ICBP relative to JCI Index Looking ahead to 2018, a year before the next election, we believe that
xxxx
more populist government policies will be implemented to please the
nation’s grassroots. Purchasing power should improve on the back of easing
cost pressures given the government’s 2018 state budget will increase
energy and health subsidies. This should help to support demand for
consumer products and sustain higher sector earnings growth of 10.8% yoy.

Pre-election = higher growth. In 2018, there will be 171 regional elections (on
27 June 2018) in 17 provinces, 115 municipalities and 39 cities. This is nearly
double the number of regional elections in 2017 (101 only). From the past two
presidential elections (2009 and 2014), data from consumer companies
depicts significant revenues growth on a yearly basis in the 4 quarters before
the elections. In 2009, the sector’s revenues increased by 11.2% yoy while in
2014 growth was higher at 14.2% yoy (in the 4 quarters prior to the elections).
Should this pattern be repeated in 2018-19, consumer companies will be
INDF relative to JCI Index positively impacted.
xxxx
Purchasing power boost from government programs. For 2018, the
government proposes ID94.6tn of energy subsidies, up 5.2% from the amount
in 2017’s revised budget. The government also plans for 10mn low-income
households (2017 target: 6mn) to receive non-cash social assistance. To
further support purchasing power, the government is also planning to launch
a cash-basis labor intensive program in 2018 to absorb job seekers as well as
provide direct income, with funding coming from village funds (2018:
IDR60tn). Combined with continued health subsidies, these government
programs should support purchasing power in the coming years, we believe.

Higher 2018 earnings growth. The revenues growth of consumer companies is


Source : Bloomberg highly correlated with household consumption and GDP growth. Hence, better
expected GDP growth of 5.3-5.4% (DRI estimates) should bode well for the
sector. In our view, the sector’s revenues growth has already bottomed in
2Q17. Therefore, the prospect of easing cost pressures in the coming quarters
should translate into more spending at the grassroots level. For the stocks
under our coverage, we estimate solid FY17-18F top line growth of 6.3% and
8.1% yoy, respectively. Supported by slight 2018F margins improvement
across the board, we estimate FY18F earnings growth of 10.8% yoy.

Top pick in the sector: ICBP. Looking ahead to 2018, a year before the next
election, we believe that more populist government policies will be
implemented to please the nation’s grassroots. This should lead to a recovery
in purchasing power and bode well for the consumer sector. As such, we
continue to like the sector given its defensive nature with proven track record
x Natalia Sutanto and solid balance sheet (FY18F gearing 0.3x). However, with limited upside to
(62-21) 2955 5888 ext.3508
our TP, we maintain our neutral stance on the sector. Our top pick in the
sector is ICBP.
natalia.sutanto@danareksa.com

Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Indofood CBP ICBP IJ BUY 9,700 104,083 26.7 24.2 5.3 4.7 20.6
Indofood INDF IJ BUY 9,100 66,292 15.1 13.7 2.1 2.0 14.8
Kino Indonesia KINO IJ HOLD 2,100 2,886 25.2 20.0 1.4 1.4 7.0
Mayora Indah MYOR IJ HOLD 1,960 49,860 39.1 35.4 7.1 6.2 18.8
Unilever Indonesia UNVR IJ HOLD 52,000 404,390 57.1 51.4 74.9 65.5 135.8

www.danareksa.com See important disclosure at the back of this report 50


Exhibit 1. Sector revenues increased in 4Q before the elections Exhibit 2. Revenues and household consumption
400.0 14.7% 16.0% 30.0% 6.0%
14.0% 25.0% 5.8%
11.2%
300.0 12.0% 20.0% 5.6%
10.0% 5.4%
15.0%
200.0 8.0% 5.2%
10.0%
6.0% 5.0%
100.0 4.0% 5.0% 4.8%
2.0% 0.0% 4.6%

3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
- 0.0% -5.0% 4.4%
2009 2014
Revenue - yoy growth - rolling 2Q (RHS)
H-8Q to H-5Q H - 4Q Yoy growth (LHS) Household consumption - real yoy growth (LHS)

Source: Companies, Danareksa Sekuritas Source: BPS, Danareksa Sekuritas

Exhibit 3. Government subsidies in Energy Exhibit 4. Health subsidy


150 140

106.8 111
94.6 104.9
100 89.9
100 92.3
63.1 47.7
45.4
50 65.9
59.7
46.9 60
43.7 44.5 46.1
0
2016 2017- revise 2018
20
Fuel and LPG Electricity 2013 2014 2015 2016 2017F 2018F

Source: Ministry of Finance, Danareksa Sekuritas Source: Ministry of Finance, Danareksa Sekuritas

Exhibit 5. Sector’s quarterly revenues growth Exhibit 6. Growth and margins of the consumer sector
50,000 14% 20.0%
17.0%
12%
40,000 16.0%
10%
8% 13.0% 12.0%
30,000
6%
4% 8.0%
20,000 9.0%
2% 4.0%
10,000 0%
-2% 5.0% 0.0%
- -4% 2013 2014 2015 2016 2017F 2018F
1Q152Q153Q154Q151Q162Q163Q164Q161Q172Q173Q17 Operating margin Earnings growth - yoy (RHS)

Cons sector revenue (RHS) yoy growth (LHS) Revenue growth - yoy (RHS)

Source: Danareksa Sekuritas Source: Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 51


Equity Research
Industrial Estate

NEUTRAL Industrial Estate


The slow road to recovery
BEST relative to JCI Index We have NEUTRAL call on the industrial estate sector with DMAS as our top
xxxx
pick. We believe there are a lack of catalysts that can boost industrial land
sales in 2018 following the stellar growth in 2017. The weak expected
demand in 2018 will consequently translate into limited price appreciation.
Among the companies under our coverage, however, we still expect DMAS
to outperform its peers in terms of land sales given: (i) its ready-for-sale land
bank is the largest and also less scattered, (ii) it has the highest level of
inquiries, (iii) it offers competitive prices.

The strong demand in 2017 may not be sustainable in 2018. In 9M17, the
companies under our coverage recorded industrial land sales of 62ha, up by
2.6%yoy. Going into 4Q17, we are convinced that the companies under our
coverage will achieve our targeted marketing sales of 109ha (+15.3%yoy),
slightly below the managements’ target of 110ha. This may not be sustainable
in 2018, however, given a lack of catalysts which could boost industrial land
DMAS relative to JCI Index sales next year either in relation to company expansion or factory relocation.
xxxx We argue that industrial land sales can be proxied by the Business Sentiment
Index (BSI). Since the BSI has tended to be volatile one year before the
elections, we expect lower industrial land sales to be recognized next year
(107ha in 2018 vs 109ha in 2017).

Limited price appreciation. We only expect limited price appreciation in 2018.


In the industrial estates business, the pricing mechanism is a function of
supply and demand. Thus, given limited inquiries, industrial estate players will
have limited bargaining power to raise prices. For the companies under our
coverage, we expect DMAS to adjust prices to reflect inflation. BEST and SSIA,
by comparison, are expected to keep prices relatively unchanged.

Source : Bloomberg Competitors do not pose a threat yet. From five industrial estate submarkets
in the greater Jakarta area, the main threat to the industrial players under our
coverage emanates from the Karawang submarket. In Karawang, Colliers
expects an additional 2,400ha of industrial estates. Although DMAS has the
closest proximity to the area, we do not expect the Karawang industrial
estates to pose a major threat in the near term, given: (i) the tendency of
customers to prefer ready-to-use land plots (from potential new supplies of
2,400ha, only 400ha have been developed), (ii) the narrowing price gap
between industrial estates in Karawang and industrial estates in Bekasi.

DMAS to gain the most. Our top pick in the sector is DMAS (BUY TP IDR240).
Although we expect lower industrial land sales to be recognized in 2018
overall, we still believe that DMAS will record more land sales (60ha) than
either BEST (40ha) or SSIA (7ha), supported by: (i) the highest level of
inquiries, (ii) less scattered land and the largest ready-for-sale land bank, (iii)
the competitive prices offered. We believe that the expected land sales in
x Antonia Febe Hartono, CFA 2018 will create positive sentiment on the stock as, historically, movements
(62-21) 2955 5888 ext.3504 on the discount to NAV are more driven by land sales volume.
antonia.hartono@danareksa.com

Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Bekasi Fajar BEST IJ BUY 320 2,412 4.9 4.4 0.6 0.6 13.2
Puradelta Lestari DMAS IJ BUY 240 8,049 10.1 9.5 1.1 1.0 11.1
Surya Semesta SSIA IJ HOLD 540 2,183 1.9 n/m 0.6 0.7 n/m

www.danareksa.com See important disclosure at the back of this report 52


Exhibit 1. Land sales of companies under our coverage Exhibit 2. Marketing sales of companies under our coverage
in Ha in IDRbn
120 103 4,000 30%
3,513
99 91 90
100 20%
3,000 2,754
80 2,464 2,515 2,568 10%
65 60 60 60 60 2,269 2,233
60 53 1,922 0%
47 42 42 2,000
36 40 40 -10%
40 31 30
23 1821 -20%
20 10 1,000
7 7
-30%
-
- -40%
2012 2013 2014 2015 2016 2017 2018 2019
DMAS BEST SSIA 2012 2013 2014 2015 2016 2017F 2018F 2019F
DMAS BEST SSIA Growth (RHS)
Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 3. Aggregate revenue of companies under our coverage Exhibit 4. Gross land bank of companies under our coverage
in IDRbn in Ha
9,000 7,742 7,841 40% 1,200
6,842
7,000 6,215 6,301 30% 1,000
5,880 5,632 5,948 20% 800
5,000 10%
600
3,000 0%
400
-10%
1,000 200
-20%
(1,000) -30% -
2012 2013 2014 2015 2016 2017F 2018F 2019F
DMAS BEST SSIA
DMAS BEST SSIA Growth (RHS) Industrial Commercial Residential
Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 5. Industrial estate’s historical discount to NAV Exhibit 6. Industrial estate’s sector historical forward trailing PE
60% (x )
-2SD 16
14 2sd

-1SD 12 1sd
65%
10
Mean mean 8.03
8
6 -1sd
70% +1SD
4 -2sd
2
+2SD 0
75% Feb 12 Feb 13 Feb 14 Feb 15 Feb 16 Feb 17
Jun 15 Dec 15 Jun 16 Dec 16 Jun 17
Source: Bloomberg, Danareksa Sekuritas estimates Source: Bloomberg, Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 53


Equity Research
Media

OVERWEIGHT Media
FTA TV ad spending will improve in 2018
SCMA relative to JCI Index We are positive on the outlook for the media sector in 2018 given: 1) FTA TV
xxxx
ad spending will improve in 2018 driven by local FMCG and internet
companies, 2) higher expected revenues growth for both SCMA and MNCN
as they maintain their leading positions in terms of audience share, 3)
content cost efficiencies which can drive better profitability and earnings,
and 4) attractive dividend yields for both SCMA and MNCN.

Ad spend to grow in 2018. FTA TV ad spending is expected to improve in


1H18, relative to 1H17, thanks to higher consumption growth in 2018. We
think that supported by higher fiscal subsidies in 2018, local FMCG companies
will record higher revenues and ad spending growth in 2018 for the
companies under our coverage (UNVR, ICBP, MYOR, KLBF), assuming cost
efficiency strategies are still implemented. We believe FMCG companies will
Source : Bloomberg
seek to expand further, particularly by launching new products. Meanwhile, a
recent Nielsen survey reveals that: 1) internet companies such as Traveloka
MNCN relative to JCI Index have been advertising heavily in recent quarters, and, 2) TV dominancy in the
xxxx adverting industry persists with nearly 80% market share despite an increase
in digital ads.

SCMA and MNCN to maintain their leading audience share positions; higher
revenues growth in 2018. SCMA and MNCN can be expected to maintain their
large scale advantage during the demand upturn next year despite stiffer
competition from ANTV. We expect MNCN to maintain its no. 1 position in
terms of audience share at 34-35% in 2017-18F with SCMA no. 2 with
audience share at 27-28% in 2017-18F. We forecast aggregate revenues
growth in 2018 of +5.5% yoy for SCMA and MNCN, taking into account: 1)
better expected SCTV and IVM revenues growth next year and 2) RCTI’s
recently booked billing commitments and more upside on MNCN’s content
Source : Bloomberg revenues from Malaysia’s DTH satellite pay-TV license.

Better content cost efficiencies; capex intensity likely to be modest. SCMA


and MNCN can 1) leverage on strong in house production capabilities to gain
further content cost efficiencies and 2) monetize their local content library by
selling it to various video drama streaming and Over the Top (OTT) platforms.
We estimate better gross and EBITDA margins in 2018, which will translate
into better earnings delivery. With capex intensity likely to be modest, we
expect SCMA to maintain its net cash and MNCN to have stable net gearing
going forward.

Attractive dividend yields, cheap valuations with expected better earnings


on the cards. Attractive dividend yields for both SCMA and MNCN will provide
further support for the stocks to rerate ahead, in our view. Our top pick is
MNCN given its cheap valuation, stronger estimated revenues growth and
improving profitability in 2018, followed by SCMA. The risks to our call
include: 1) stagnating or worsening audience share, 2) higher content and
x Adeline Solaiman operating costs, 3) stiffer competition.
(62-21) 2955 5888 ext.3503
adeline.solaiman@danareksa.com

Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Surya Citra Media SCMA IJ BUY 2,800 35,823 24.1 22.4 9.6 8.6 40.5
Media Nusantara Citra MNCN IJ BUY 1,750 17,916 12.2 10.2 2.0 1.8 18.2

www.danareksa.com See important disclosure at the back of this report 54


Exhibit 1. Media vs. FMCG revenues growth yoy, % Exhibit 2. Media vs. FMCG ad spending growth yoy, %

Source: Company, Danareksa Sekuritas Estimates Source: Company, Danareksa Sekuritas Estimates

Exhibit 3. Media vs. Cigarettes revenues growth yoy, % Exhibit 4. Media vs. Cigarettes ad spending growth yoy, %

Source: Company, Danareksa Sekuritas Estimates Source: Company, Danareksa Sekuritas Estimates

Exhibit 5. Indonesians spend more hours watching TV per week Exhibit 6. All Time Audience Shares, %

Source: Roy Morgan Source: Company, Danareksa Sekuritas Estimates

www.danareksa.com See important disclosure at the back of this report 55


Equity Research
Metal Mining

NEUTRAL Metal Mining


Slow but sure
TINS relative to JCI Index With greater nickel demand going forward, we expect the nickel price to
xxxx
increase further but at a slower rate as supply concerns are expected to ease
and inventory will remain at a high level. Meanwhile, for the tin outlook, we
expect supply risks from Myanmar and Indonesia to outweigh muted refined
tin demand. Maintain Neutral. Top Picks: Timah (TINS).

NICKEL: Nickel prices have revived. This owes to: a) nickel supply concerns
following the closure of over half of the nickel mining area in the Philippines
due to environmental concerns, b) greater demand from stainless steel
producers and c) new demand from the greater usage of nickel in the
rechargeable batteries for electric vehicles. The government of Indonesia
relaxed the nickel ore export ban in the beginning of the year which put some
pressure on the nickel price in the beginning of 2017.

Slow but sure for the nickel price in 2018. With greater nickel ore production
INCO relative to JCI Index from Indonesia on relaxation of the export ban and from the Philippines on
xxxx the possibility of the resumption of mining operations to ease supply
concerns, we expect the nickel price to increase going forward but at a slow
pace on the continuation of modest demand growth going forward. With the
average nickel price at USD10,500/tonne for 2017, it is expected to increase
gradually to USD11,000/tonne in 2018 and USD11,500/tonne in 2019.

TIN: Rising exports of tin from Indonesia in 2017. With stronger refined tin
prices averaging around US20,121/tonne in 11M17 (+14.0% yoy), tin miners in
Indonesia boosted their refined tin production in 2017. As such, refined tin
exports from Indonesia increased by 23.7% yoy to 71,134 tonnes in 11M17.
Given limited tin reserves from Indonesia, we expect lower refined tin exports
from Indonesia in 2018.
Source : Bloomberg
Tin market outlook 2018: supply risks to outweigh muted tin demand. We
expect muted refined tin demand due to the continued miniaturization of
electronic equipment (meaning lower solder usage). For 2018, ITRI expects
global refined tin consumption growth of only 0.8% yoy. However, we expect
supply risks to persist as peak production in Myanmar will limit supply growth.
Almost all the tin-ore imported by China comes from Myanmar. Moreover,
limited reserves will also be reflected in tin ore production in Indonesia. As
such, with global refined tin production to remain flattish, this will be
reflected in a global market deficit in refined tin in 2018. We assume an
average refined tin price of USD21,000/tonne in 2018 and USD22,000/tonne
in 2019.

Top picks: TINS. Within metal-mining, we prefer tin due to supply risk amid
muted demand growth, whereas nickel will only show strong demand in the
longer term. We like TINS given the expectation of better tin prices and
production volume which will enhance net profits. For nickel exposure, INCO
x Stefanus Darmagiri is preferable since the company’s share price is heavily correlated to nickel
(62-21) 29 555 831 price movements.
stefanus.darmagiri@danareksa.com

Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Timah TINS IJ BUY 1,100 5,958 23.2 22.5 1.0 1.0 6.2
Vale Indonesia INCO IJ HOLD 3,100 28,319 n/m 111.7 1.1 1.1 1.0
Aneka Tambang ANTM IJ HOLD 700 15,139 n/m n/m 0.8 0.8 (0.4)

www.danareksa.com See important disclosure at the back of this report 56


Exhibit 1. Nickel prices Exhibit 2. Global refined nickel market balance
USD/tonne '000 tonnes % weeks
25,000 500
16 14.0
450 14 13.0
20,000 12 12.0
400 10
11.0
8
15,000 350 10.0
6
9.0
4
300
2 8.0
10,000
250 0 7.0
(2) 6.0
5,000 200 2013 2014 2015 2016 2017F 2018F 2019F
Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Production Growth (LHS) Consumption Growth (LHS)
Inventory (RHS) Market Price (LHS) Weeks of consumption (RHS)

Source: Bloomberg Source: Resources and Energy Quarterly, ABS, IEA, Danareksa Sekuritas

Exhibit 3. Combine nickel inventory level Exhibit 4. China’s nickel based stainless steel production
tonnes '000 tonnes
600,000 LME Inventory SHFE Inventory
1,900

500,000 1,800
1,700
400,000 1,600

300,000 1,500
1,400
200,000
1,300

100,000 1,200
1,100
0
1,000
Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17

Source: Bloomberg Source: Antaike, Bloomberg

Exhibit 5. Tin price Exhibit 6. Refined tin export from Indonesia

US$/ton tons tonnes USDmn


25,000 15,000 16,000 350
14,000 300
12,000
250
20,000 10,000
10,000
200
8,000
150
15,000 5,000 6,000
100
4,000
2,000 50
10,000 0
0 0
Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Inventory (RHS) Market Price (LHS)
Volume (LHS) Value (RHS)

Source: Bloomberg Source: Bloomberg, Ministry of Trade

www.danareksa.com See important disclosure at the back of this report 57


Equity Research
Pharmaceutical

NEUTRAL Pharmaceutical
Plenty of room for growth but high valuations
KAEF relative to JCI Index The government’s continued focus on providing better healthcare
xxxx
facilities/access and an increasing aging population ahead should ensure
solid growth for pharmaceutical companies, in our view. It is also worth
noting that in 2018, the government allocated 5% of the total state budget
for healthcare spending - the main source of growth for pharmaceutical
companies over the past few years. Nonetheless, valuations in the sector are
at a premium. As such, we maintain our NEUTRAL stance on the sector.

Underserved healthcare market, plenty of room for growth. The number of


participants in the National Health program has increased significantly,
reaching 186mn people in early December 2017 (2014: 133mn). While the
healthcare allocation in the government budget has continued to increase,
Indonesia’s healthcare market nonetheless remains underserved (Exhibit 2).
Additionally, an increasing proportion of the population are reaching a mature
age (above 65 years old, 2020: 8% and 2025: 9.8%) and higher life expectancy
KLBF relative to JCI Index should create more room for pharmaceutical companies to grow in the future.
xxxx To meet the increasing demand for drugs, many pharmaceutical companies
have started to expand through the development of active ingredient
factories (KAEF) and biosimilar/oncology factories (KLBF), while others
including Pharpros (which supplies 35% of the government’s total required
TBC drugs), Bayer Indonesia (planned investment of IDR1.9tn by 2019) and
Merck have also boosted their production capacities.

FY18F sector earnings growth of 10.5% yoy. At present, the growth in the
pharmaceutical industry hinges on government spending on healthcare. For
2018, the government will continue to allocate 5% of the total state budget
for healthcare spending (IDR110.2tn), while the Ministry of Health’s allocation
for JKN reached IDR25.5tn. Against this backdrop, we expect the
Source : Bloomberg pharmaceutical companies under our coverage to book 2018F top line growth
of 9.9% yoy. For Kalbe Farma, the increasing contribution from generic drugs
will put pressure on margins in the prescription division. However, thanks to
the solid performance of the OTC/Consumer Health and nutrition segments,
we estimate the company to maintain margins in 2018F, thereby allowing
10.3% yoy earnings growth. For Kimia Farma, we believe the company
remains the major beneficiary of the National Health Program. As such, we
estimate that KAEF will book FY17 top line and bottom line growth of 13.8%
and 12.1% yoy, respectively.

Maintain Neutral. The main risk for the pharmaceuticals industry is a


weakening currency since around 90% of raw materials are imported.
Therefore, the government is making efforts to develop new factories to
produce active ingredients, thus paving the way for more local content in
drugs. Meanwhile, the government will issue a regulation to utilize up to 75%
of the tobacco levy earnings to cover the deficit of the national health
program (JKN) starting in 2018. This is intended to improve healthcare
x access/facilities going forward. While the potential in the healthcare sector is
Natalia Sutanto
huge, both companies under our coverage are already trading at premium
(62-21) 2955 5888 ext.3508 valuations. As such, with limited upside to our TPs, we reiterate our Neutral
natalia.sutanto@danareksa.com call on the sector.
Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Kimia Farma KAEF IJ SELL 1,910 14,218 47.0 41.6 5.8 5.2 13.1
Kalbe Farma KLBF IJ HOLD 1,700 78,516 32.6 29.5 5.9 5.2 18.8

www.danareksa.com See important disclosure at the back of this report 58


Exhibit 1. Indonesia’ pharma market and growth Exhibit 2. Healthcare professionals and spending (% of GDP)
IDR tn 80 8
80 16%
67 7
60 63
56 60 6
60 12%
5
40 4
40 8%
3
20 2
20 4% 1
0 0
- 0% South Singapore Malaysia India Vietnam Indonesia
2013 2014 2015 2016 Korea
Health professionals per 10,000 pops (LHS)
Ethical Generic OTC
Growth (RHS) % of GDP (RHS)

Source: IMS 2016 Source: BPS, Danareksa Sekuritas

Exhibit 3. Population above 65 years old – 2015-2035 (%) Exhibit 4. Healthcare allocation in government spending (IDR tn)
% of total 140
population

16 14.44 111
104.9
14
11.9 100 92.3
12
9.79
10
8.03 65.9
8 6.86 59.7
60
6 46.1
4
2
20
0
2013 2014 2015 2016 2017F 2018F
2015 2020 2025 2030 2035

Source: World Bank, Statista Source: Ministry of Finance, Danareksa Sekuritas

Exhibit 5. KLBF revenue, operating & earnings, 2015-18F Exhibit 6. KAEF revenue, operating and earnings, 2015-18F
25 20.0% 8.0 20.0%
15.0% 14.1%
6.0 12.1% 15.0%
14.7% 10.0%
15 4.0 10.0%
10.3%
5.0%
2.0 2.1% 2.3% 5.0%
4.9%
0.0%
- 0.0%
5 -5.0% 2015 2016 2017F 2018F
-3.0%
2015 2016 2017F 2018F
Revenue - IDR tn (LHS) Operating margin (RHS)
Revenue - IDR tn (LHS) Operating margin (RHS)

Earnings growth (RHS) Earnings growth (RHS)

Source: Danareksa Sekuritas estimates Source: Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 59


Equity Research
Plantation

NEUTRAL Plantation
2018: The Year of Indifference
AALI relative to JCI Index We forecast a higher stock-to-use ratio of 19.0% (vs. 17.0% in FY17) despite
xxxx
stronger consumption with potential higher palm oil imports by India and
China. However, higher production from continued yield recovery could
counter the positive impact of stronger demand. We assume CPO prices of
MYR2,800/ton and MYR2,700/ton in FY17 and FY18 respectively. Maintain
neutral on the plantation sector.

A better picture on supply and demand. We are neutral on the plantation


sector as we think the impact of higher consumption will be offset by higher
production in FY18. Based on Oilworld estimates, global palm oil consumption
is expected to reach 67.1mn tons (+4.5% YoY), while global palm oil
production is predicted to grow to 69.3mn tons (+4.7% YoY), putting the
global palm oil stock-to-use ratio at 19.0% (up from 17.0% in FY17). As the
yield has yet to fully normalize, we expect further yield recovery in FY18
following the impact of El Nino.
LSIP relative to JCI Index
xxxx Potentially higher imports by China and India. We expect India and China to
be key drivers of palm oil demand in FY18. India may import more palm oil on
the poor oilseeds production outlook and the lower acreage in the FY17 kharif
sowing season (ended Sep’17) and ongoing rabi sowing season. Based on the
latest oilseed crop sowing data, FY17 kharif planted area reached 17.3mn Ha
(-8.9% YoY), while ongoing rabi planted area totalled 6.8mn Ha (-6.0% YoY) as
per 7-Dec-17. Moreover, China may also increase its palm oil imports given its
below average palm oil inventory level at 0.49mn tons (vs. 0.70mn tons
average) as of the end of Nov’17.

Indonesia’s biodiesel absorption at the 2.5-3.0mn KL level in FY18. We


estimate Indonesia’s biodiesel absorption to stand at the 2.5-3.0mn KL level in
Source : Bloomberg FY18, translating into CPO demand of 2.2-2.6mn tons. We think the majority
of the absorption is likely to come from the PSO sector, where compliance and
procedures are in place. We believe non-compliance in the non-PSO sector is
likely to persist due to the absence of the subsidy disbursement scheme for
non-PSO. Meanwhile, we think Indonesia’s biodiesel target is likely to be
missed in FY17 as the 11M17 biodiesel realization reached only 1.79mn KL (vs.
the FY17 target of 2.53mn KL) as reported by the Indonesia Palm Oil
Plantation Fund Management Agency (BPDP).

Maintain neutral. We stick with our neutral call on the sector, with LSIP as our
top pick given its cheap valuation, clean balance sheet and good stock
liquidity. We think LSIP will be the best play to monetize short-term volatility
in CPO prices. We assume a CPO price of MYR2,800/ton and MYR2,700/ton in
FY17 and FY18 respectively. Currently, the sector is trading at 13.2x PE (-1SD)
and EV/Ha of USD8,149 (-1.5SD).

x Yudha Gautama
(62-21) 2955 5888 ext 3509
yudha.gautama@danareksa.com

Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Astra Agro Lestari AALI IJ HOLD 14,300 25,117.2 13.2 13.6 1.4 1.3 9.7
London Sumatra LSIP IJ BUY 1,770 8,627.3 10.5 10.4 1.0 1.0 9.8
Sampoerna Agro SGRO IJ SELL 2,240 4,673.9 16.5 15.5 1.3 1.2 8.0

www.danareksa.com See important disclosure at the back of this report 60


Exhibit 1. GLOBAL PALM OIL SUPPLY & DEMAND Exhibit 2. INDIA OILSEED PLANTING PROGRESS
(mn tons) India Kharif Oilseed Planting India Rabi Oilseed Planting Progress
80.0 24.0% Area Sown (mn Ha) Area Sown (mn Ha)
69.3 2017 2016 % Change 2017 2016 % Change
70.0 66.2 64.2 67.1
62.3 62.4 22.0%
60.0 59.2 60.4 58.3 Groundnut 4.2 4.7 -11.5% R apes eed & Mus tard 5.9 6.4 -7.6%
60.0 56.6 56.7
52.5 51.2 20.0% S oybean 10.6 11.5 -7.7% Groundnut 0.3 0.3 2.6%
49.4
50.0 47.8 S unflower 0.1 0.2 -18.9% S afflower 0.1 0.1 -19.0%
18.0% S es amum 1.4 1.6 -12.7% S unflower 0.1 0.1 3.4%
40.0 Niger 0.2 0.2 3.0% S es amum 0.0 0.0 15.8%
16.0%
30.0 C as tor 0.8 0.9 -3.0% L ins eed 0.3 0.2 29.8%
14.0% Total 17.3 19.0 -8.9% Other Oils eeds 0.0 0.0 -47.4%
20.0
*Sowing progres s is s tated as per end of 28 Total 6.8 7.2 -6.0%
10.0 12.0% Sep 2017 and corres ponding period in 2016. *Sowing progres s is s tated as per end of 07 Dec 2017
and corres ponding period in 2016.
- 10.0%
10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18F
Production Disappearance Stock-to-Use Ratio (%)
Figures are based on 12-month ending 30 Sep. E.g. 2015 figure include numbers from Oct14-Sep15

Source: OilWorld Source: Solvent Extractors’ Association of India

Exhibit 3. CHINA PALM OIL INVENTORY STILL BELOW AVERAGE Exhibit 4. INDONESIA BIODIESEL ABSORPTION TREND
(mn tons) (mn KL)
1.60 3.00 2.74
1.40
2.50
1.20
1.00 2.00 1.84 1.79
0.80
1.50
0.60 1.05
0.92
0.40 1.00
0.67
0.20 0.36
0.50
0.22
-
Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17
May-12

May-13

May-14

May-15

May-16

May-17
Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

-
2010 2011 2012 2013 2014 2015 2016 11M17
Indonesia Biodiesel Absorption (mn KL)
China Palm Oil Inventory (mn tons)

Source: Cofeed Source: Indonesia Palm Oil Fund Management Agency

Exhibit 5. PLANTATION PE BAND CHART Exhibit 6. PLANTATION EV/HA BAND CHART


30.0 20,000

18,000 +2 sd
25.0 +2 sd
16,000 +1 sd
+1 sd
20.0 14,000
mean mean
12,000
15.0 -1 sd 10,000 -1 sd

8,000
10.0 -2 sd -2 sd
6,000

5.0 4,000
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

P/E -2 std -1 std mean +1 std +2 std EV/Ha -2 std -1 std mean +1 std +2 std

Source: Bloomberg, Danareksa Sekuritas estimates Source: Bloomberg, Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 61


Equity Research
Poultry

NEUTRAL Poultry
Expecting better stability in supply and demand
CPIN relative to JCI Index We are currently expecting a narrowing gap between DOC and Broiler supply
xxxx and demand, thanks to continuous efforts from the government through
culling programs, which will result in much more stable ASP outlook. The key
growth driver for poultry players, we think, will be in volume terms instead
of ASP, which will benefit big poultry players like CPIN and JPFA the most
due to its large economic of scale. Meanwhile, corn prices have been in an
attempt to be hedged by building more dry corn silos.

The government is continuously on tackling the oversupply issues. The


government continues to take efforts to stabilize the supply and demand of
DOC and Broiler in Indonesia through various culling programs, which we think
will continue in 2018. This, we believe, will gradually narrow the gap between
the supply and demand, resulting a much more stable ASP in the future
Source : Bloomberg although oversupply may remain in 2018. Even though ASP volatility will still
be there, but the trend will be much more stable which has already been
captured in 2017 compared to 2015.
JPFA relative to JCI Index
xxxx Taking benefit from oligopolistic industry. The key growth driver for the
poultry industry going forward, we believe is not going to be the ASP growth
anymore, which we estimate to increase only by +1-2% yoy in 2018F on
animal feed, DOC, and broiler. We think the key growth driver going forward
will be in volume terms, which especially will benefit the big poultry players
the most, such as CPIN and JPFA due to their large economic of scale.
Meanwhile, along with expected better consumption in 2018, we believe a
better demand outlook will cushion the growth of volume animal feed, DOC,
and broiler in a range of 8-10% yoy.

Hedging corn price strategy implemented. The main concern for poultry
industry in 2017 has been higher corn prices since the government banned
Source : Bloomberg import corn in early 2017 for local farmer protection. The government has set
up a floor price for local corn price at around IDR4,000/kg but this price is
even higher compared to the normal import corn price, which is usually in
range of IDR3,200-3,500/kg. Many smaller non-listed poultry companies
became less competitive due to 1) weak infrastructure, 2) smaller economic
scale, and 3) weak cost structure that have made them unable to hedge the
corn price fully. This, we believe, once again has been benefitting large poultry
players the most, such as CPIN and JPFA.

Top pick: JPFA. In terms of profitability, as we estimate 1) better stability in


DOC and Broiler ASP, 2) better volume, and 3) stronger ability to hedge corn
prices since companies have been building more dry corn silos, gross margins
should improve in 2018. This, we estimate, will filter through to overall better
EBITDA margins and better earnings delivery in 2018. We like big poultry
players like CPIN and JPFA, however we think CPIN’s current valuation is not
x Adeline Solaiman attractive. Our top pick within the sector is JPFA. Risk to our call include lower-
(62-21) 2955 5888 ext.3503 than-expected GDP growth and higher volatility in DOC and broiler prices.
adeline.solaiman@danareksa.com

Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Charoen Pokphand Ind. CPIN IJ HOLD 3,100 50,997.8 19.8 15.0 3.1 2.6 19.1
Japfa Comfeed Indonesia JPFA IJ BUY 1,650 14,776.6 10.6 8.4 1.5 1.3 16.0
Malindo Feedmill Indonesia MAIN IJ HOLD 800 1,656.7 42.0 22.0 0.9 0.8 3.9

www.danareksa.com See important disclosure at the back of this report 62


Exhibit 1. DOC ASP in November 2017, IDR/kg Exhibit 2. Broiler ASP in November 2017, IDR/kg

Source: JPFA Survey in West Java Source: JFPA Survey in West Java

Exhibit 3. Corn ASP +5% sensitivity to net profits Exhibit 4. Soybean meal ASP +5% sensitivity to net profits

Source: Company, Danareksa Sekuritas Estimates Source: Company, Danareksa Sekuritas Estimates

Exhibit 5. DOC ASP +5% sensitivity to net profits Exhibit 2. Broiler ASP +5% sensitivity to net profits

Source: Company, Danareksa Sekuritas Estimates Source: Company, Danareksa Sekuritas Estimates

www.danareksa.com See important disclosure at the back of this report 63


Equity Research
Property

NEUTRAL Property
Best to be selective
ASRI relative to JCI Index We maintain our NEUTRAL stance on the property sector for 2018. We do
xxxx
not see much improvement next year as we believe investors will be
reluctant to invest in property, while marketing sales will mostly be
supported by real homebuyers. Our top picks in the sector are PWON and
CTRA, which we believe will deliver strong financial performance in 2018
(with 15.4%yoy and 25.3%yoy revenue growth), outperforming its peers that
only recorded flat revenue growth (+0.7%yoy).
Marketing sales in 11M17: still underpinned by bulk sales. In 11M17, based
on the indicative numbers, the aggregate marketing sales reached IDR20.6tn,
up by IDR1.9tn compared to the marketing sales in 10M17. This figure is
76.8% of the full year management marketing sales target of IDR26.8tn and
90.7% of our marketing sales target of IDR22.7tn. Among the individual
companies, we note that BSDE, PWON, and SMRA managed to outperform
their peers with their 11M17 marketing sales reaching 96.9%, 85.4%, and
87.4% of their targets. As such, we expect these companies to meet or fall
BSDE relative to JCI Index only slightly short (with 90-91% achievement) of their marketing sales targets.
xxxx
Outlook for 2018: Remain NEUTRAL. We do not foresee much improvement
in property demand in 2018 (we only expect aggregate marketing sales to
grow by 8.6%yoy, higher than our 2017 marketing sales growth estimate of
2.7%) as we believe that marketing sales will still be supported by real
homebuyers rather than investors. We believe that investors will remain
reluctant to invest in property considering: (i) limited price appreciation, (ii)
the historically low rental yields, (iii) the considerable price gap between the
primary and secondary property markets, (iv) uncertainty regarding the
presidential elections, (v) scrutiny from the tax authorities which encourages
people to place their money in banks or to invest in higher yielding assets,
such as government bonds.
Source : Bloomberg The varied take-up rates imply that buyers remain selective. Based on our
mapping of 34 launches conducted by companies under our coverage in 2017,
we note that the take-up rates for the product launches range widely from
one project to another. For instance, from 19 landed residential projects
launched in 11M17, the take-up rates range from 10.6% (Amarine phase 2
with 85 units available for sale) to 100% (Alegria with 184 units available for
sale). This clearly shows that customers remain selective when buying
property. While we do not foresee much improvement in demand in 2018, we
also believe that buyers will remain selective.
PWON and CTRA are our Top Picks for 2018. Given our optimism on the
outlook for the retail property segment, we believe PWON (BUY IDR720) -
which has the highest contribution from this segment - will outperform its
peers and deliver strong financial performance. In addition, we also expect
CTRA (BUY IDR1,350) to deliver strong financial performance in 2018 on the
x Antonia Febe Hartono, CFA back of revenues recognition from the bulk sales of serviced apartments, and
(62-21) 2955 5888 ext.3504
(ii) the normalization of revenues recognition after two years of slow revenues
recognition in 2015 and 2016. We have BUY call on SMRA due to cheap
antonia.hartono@danareksa.com
valuation.
Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Alam Sutra ASRI IJ HOLD 400 7,034 5.0 8.7 0.8 0.8 9.4
Bumi Serpong Damai BSDE IJ BUY 2,000 31,950 8.1 11.5 1.3 1.2 10.9
Ciputra Development CTRA IJ BUY 1,350 17,970 23.1 14.4 1.6 1.4 10.5
Pakuwon Jati PWON IJ BUY 720 30,581 16.0 12.9 3.0 2.5 20.9
Summarecon Agung SMRA IJ BUY 1,100 12,407 43.2 32.9 1.9 1.8 5.7

www.danareksa.com See important disclosure at the back of this report 64


Exhibit 1. Marketing sales of companies under our coverage Exhibit 2. Aggregate revenue of companies under our coverage
IDR tn % in IDR bn
30 26.8 27.1 60% 40,000 100%
25.3 24.7
25 21.0 22.1 22.7
40% 30,000
20 50%
15 20% 20,000
10 0%
0% 10,000
5
- -20% - -50%
2012 2013 2014 2015 2016 2017F 2018F 2012 2013 2014 2015 2016 2017 2018
CTRA ASRI SMRA Total revenue Total revenue growth (RHS)
BSDE PWON Growth (RHS) Dev. revenue growth (RHS) Rec. revenue growth (RHS)
Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 3. Revenue contribution of companies under our coverage Exhibit 4. Payment profile of companies under our coverage
100% 100%

80% 80%

60% 60%

40% 40%

20% 20%

0% 0%
CTRA PWON ASRI SMRA BSDE CTRA BSDE SMRA ASRI PWON
Development Shopping centre Hotel Other recurring Inhouse financing Mortgage Cash

Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 5. Properties’ historical discount to NAV Exhibit 6. Property’s sector historical forward trailing PE
45.0% (x )
-2SD 29
50.0%
24 2sd
-1SD
55.0% 19 1sd
Mean
mean14.09
60.0% 14
-1sd
+1SD
65.0% 9
-2sd

+2SD 4
70.0%
Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17
Jun 2016 Sep 2016 Dec 2016Mar 2017 Jun 2017 Sep 2017

Source: Bloomberg, Danareksa Sekuritas estimates Source: Bloomberg, Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 65


Equity Research
Retail

OVERWEIGHT Retail
Benefitting from populist policies in 2018
RALS relative to JCI Index Taking advantage of the pre-elections year, we think this is a good
xxxx momentum play to invest on retail stocks for seasonality basis as we expect
a better Lebaran sales in 2018. Our top pick within the retail sector is RALS.
The penetration of e-commerce is inevitable in the next 5-7 years horizon, in
our view, but still in early stage for 2018. Continuous gross retail expansions
are on the cards, with companies focus on continue to be more efficient. We
are overweight on the retail sector.

Taking advantage of the pre-elections year, better consumption on the


cards. In the hope of more favorable political policies during the 2018 pre-
election year, Jokowi’s administration is likely to turn more populist by 1)
hiking energy subsides, 2) hiking health care subsidies, 3) increasing coverage
for non-cash social assistance, 4) uniform fuel prices, and 5) continuing to
Source : Bloomberg launch cash-basis intensive projects to absorbs unemployment. Helped by
expected lower inflation and USD/IDR stability, we continue to expect
LPPF relative to JCI Index
recovery in purchasing power in 2018 translating to better GDP growth and
xxxx higher consumer confidence.

The penetration of e-commerce is inevitable yet still in early stage next year.
E-commerce penetration is inevitable in the next 5-7 years horizon, but in our
view looking at 2018 alone, we believe the penetration is still in infancy (<10%
of overall retail transaction in Indonesia). Some limitation of growth are still
there, namely 1) low penetration of credit cards, 2) fears over online payment
fraud, 3) high logistic costs, and 4) limited local investors to fund the e-
commerce startups.

Continuous gross retail expansion and operating efficiencies outlook. Gross


retail expansion should continue for retailers, both mid up, such as MAPI and
Source : Bloomberg
low-end fashion retailers, such as LPPF and RALS. Margins should remain
stable supported by management efforts aimed at improving efficiency at the
operating level, particularly on the low-end segment. Meanwhile, we are
expecting a much gross margin improvement on the mid-up retailers segment
due to brand rationalization in MAPI and a solid double-digit growth in ACES.

Top pick: RALS for momentum play. As we are currently expecting a better
Lebaran sales in 2018, we think this is a good momentum play to invest into a
stock like RALS for seasonality basis. RALS is our top pick in the sector given 1)
better expected 2018F sales performance to be followed by improving SSSG
and 2) a stable profits outlook, 3) a healthy balance sheet with strong cash
position, and 4) an attractive valuation. Risks to our call include lower than
expected GDP growth and lower purchasing power in 2018.
x Adeline Solaiman
(62-21) 2955 5888 ext.3503
adeline.solaiman@danareksa.com

Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (IDR) (IDRbn) 2017F 2018F 2017F 2018F 2018F
Ramayana Lestari Sentosa RALS IJ BUY 1,250 6,907.6 16.9 16.0 2.0 1.8 11.8
Matahari Department Store LPPF IJ BUY 12,500 30,920.2 16.0 14.9 13.1 10.0 76.0
Ace Hardware Indonesia ACES IJ BUY 1,300 19,519.9 24.9 22.1 6.2 5.9 27.3
Mitra Adiperkasa MAPI IJ BUY 8,100 10,252.9 26.9 20.6 2.9 2.6 13.2
Erajaya Swasembada ERAA IJ BUY 1,100 2,218.5 7.5 6.7 0.6 0.6 18.8
Matahari Putra Prima MPPA IJ SELL 350 2,291.0 n/m 54.7 1.0 1.0 1.8

www.danareksa.com See important disclosure at the back of this report 66


Exhibit 1. BI Retail Sales Index (RSI), % Exhibit 2. Consumer Confidence Index, x

Source: Bank Indonesia Source: Danareksa Research Institute

Exhibit 3. LPPF’s SSSG YTD, % Exhibit 4. RALS’ SSSG YTD, %

Source: Company Source: Company

Exhibit 5. MAPI’s SSSG YTD, % Exhibit 2. ACES’ SSSG YTD, %

Source: Company Source: Company

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Company Outlook
(In Alphabetical order)

www.danareksa.com See important disclosure at the back of this report 68


Equity Research
Company Update

BUY Ace Hardware Indonesia (ACES IJ)


Maintain Solid performance on the cards
Last price (IDR) 1,145 We have a BUY call on ACES with a TP of IDR1,300. We like the stock since we
Target Price (IDR) 1,300 expect: 1) revenues to grow briskly in 2018F by around 12.4% yoy (supported
by less intense competition from smaller players and continuous gross retail
Upside/Downside +13.5%
expansion), 2) stable profits due to solid expected sales performance which
Previous Target Price (IDR) 1,300 will filter through to overall better earnings delivery next year, 3) a strong net
cash position with expected stability in the USD/IDR next year which will
Stock Statistics
cushion ACES’ overall performance.
Sector Retail
Bloomberg Ticker ACES IJ Expecting revenues to grow by 12.4% yoy in 2018F. Gross retail space
No of Shrs (mn) 17,048 expansion will remain on the cards in 2018, assuming 11-12 new store openings
next year. We expect revenues to grow more briskly in 2018F by 12.4% yoy,
Mkt. Cap (IDR bn/USDmn) 19,520/1,438
benefiting from the recent difficulties in importing goods in 2017, which will
Avg. daily T/O (IDR bn/USDmn) 14.3/1.1 reduce competition from smaller players. Meanwhile, we expect recent
merchandising improvements especially in ACES’ lifestyle division - mainly on
Major shareholders
1) travel goods and 2) bed sheets - to cushion solid sales performance ahead.
PT Kawan Lama Sejahtera 59.9% We believe SSSG should remain positive, reaching at least 6% next year.
Estimated free float 39.1%

EPS Consensus(IDR)
Profits stability; better earnings delivery. Due to solid expected sales next year,
we expect profitability to remain at least stable. This will filter through to better
2017F 2018F 2019F expected earnings delivery in 2018 of around 12.5% yoy. Meanwhile, on the
Danareksa 46.0 51.7 57.0 balance sheet side, ACES will remain in a strong net cash position. Also, the
Consensus 45.1 50.7 55.9 stock is expected to have a decent dividend yield at around 3.8% in our
Danareksa/Cons 2.0 2.1 2.0
estimate.

ACES relative to JCI Index Expected USD/IDR stability will cushion overall performance. Expected
USD/IDR stability will cushion solid performance for ACES’ overall performance
in 2018 as we notice that nearly 80% of ACES’ goods are imported. Based on
our sensitivity analysis, every 3% weakening of the USD/IDR will likely lead to
4-5% lower overall net profits. EPS growth is estimated to reach 12.5% yoy in
2018F.

BUY with a TP of IDR1,300. We have a BUY call on ACES with a TP of IDR1,300,


implying 25.1x 2018F P/E, which is about +1SD based on 5 years historical P/E.
We think the stock is currently trading at an attractive valuation. The risks to
our call include lower-than-expected GDP growth and weaker purchasing
power.

Source : Bloomberg
Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Adeline Solaiman Revenue, (IDRbn) 4,743 4,936 5,769 6,483 7,142
(62-21) 2955 5888 ext.3503 EBITDA, (IDRbn) 759 795 973 1,097 1,212
adeline.solaiman@danareksa.com EBITDA Growth, (%) 2.4 4.7 22.4 12.8 10.5
Net profit (IDRbn) 588 713 783 882 972
EPS (IDR) 34.5 41.9 46.0 51.7 57.0
Natalia Sutanto
(62-21) 2955 5888 ext.3508
EPS growth (%) 5.1 21.3 9.8 12.5 10.2
natalia.sutanto@danareksa.com BVPS, (IDR) 154.2 179.1 185.4 193.3 201.0
DPS, (IDR) 15.6 16.7 39.8 43.9 49.4
PER (x) 33.2 27.4 24.9 22.1 20.1
PBV (x) 7.4 6.4 6.2 5.9 5.7
Dividend yield (%) 1.4 1.5 3.5 3.8 4.3
EV/EBITDA (x) 24.9 23.7 19.2 17.0 15.3
Source : ACES, Danareksa Estimates

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Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 4,743 4,936 5,769 6,483 7,142
COGS (2,489) (2,584) (3,006) (3,378) (3,721)
Gross profit 2,254 2,352 2,763 3,106 3,421
EBITDA 759 795 973 1,097 1,212
Oper. profit 677 730 896 1,009 1,112
Interest income 9 22 21 24 26
Interest expense (41) (37) (36) (41) (45)
Forex Gain/(Loss) 16 4 0 0 0
Income From Assoc. Co’s 0 0 0 0 0
Other Income (Expenses) 75 147 100 112 123
Pre-tax profit 737 866 980 1,103 1,216
Income tax (152) (157) (202) (227) (251)
Minority interest 3 4 5 6 6
Net profit 588 713 783 882 972
Core Net Profit 572 709 783 882 972

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 622 704 797 869 931
Receivables 16 28 13 23 13
Inventory 1,522 1,590 1,704 1,683 1,783
Other Curr. Asset 307 500 505 510 515
Fixed assets - Net 457 589 590 655 721
Other non-curr.asset 343 320 322 325 328
Total asset 3,268 3,731 3,931 4,065 4,290

ST Debt 22 5 5 5 5
Payables 127 108 189 181 267
Other Curr. Liabilities 262 276 280 284 288
Long Term Debt 0 0 0 0 0
Other LT. Liabilities 226 294 297 300 303
Total Liabilities 639 682 771 770 863
Shareholder'sFunds 2,628 3,054 3,160 3,295 3,427
Minority interests 1 (5) 0 0 0
Total Equity & Liabilities 3,268 3,731 3,931 4,065 4,290

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Exhibit 3. Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 588 713 783 882 972
Depreciation and Amort. 82 65 77 89 101
Change in Working Capital (203) (100) (17) 3 (3)
OtherOper. Cash Flow 198 (103) 145 64 55
Operating Cash Flow 666 576 988 1,038 1,124

Capex (71) (190) (201) (201) (201)


Others Inv. Cash Flow (19) 26 20 23 25
Investing Cash Flow (90) (165) (182) (179) (177)

Net change in debt 3 (17) 0 0 0


New Capital 0 0 0 0 0
Dividend payment (266) (285) (678) (748) (842)
Other Fin. Cash Flow (83) (24) (35) (40) (44)
Financing Cash Flow (346) (326) (713) (788) (885)

Net Change in Cash 231 85 93 71 62


Cash - begin of the year 391 622 704 797 869
Cash - end of the year 622 704 797 869 931

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 4.4 4.1 16.9 12.4 10.2
EBITDA 2.4 4.7 22.4 12.8 10.5
Operating profit 2.2 7.8 22.7 12.6 10.2
Net profit 4.4 21.3 9.8 12.5 10.2
Profitability (%)
Gross margin 47.5 47.6 47.9 47.9 47.9
EBITDA margin 16.0 16.1 16.9 16.9 17.0
Operating margin 14.3 14.8 15.5 15.6 15.6
Net margin 12.4 14.5 13.6 13.6 13.6
ROAA 18.9 20.4 20.5 22.1 23.3
ROAE 23.8 25.1 25.2 27.3 28.9
Leverage
Net Gearing (x) (0.2) (0.2) (0.3) (0.3) (0.3)
Interest Coverage (x) 16.3 19.9 24.7 24.5 24.8

Source : ACES, Danareksa Estimates

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Equity Research
Company Update

BUY Adaro Energy (ADRO IJ)


Maintain Diversification to sustain earnings growth
Last price (IDR) 1,800 While we expect lower coal prices in 2018 to impact on the company’s
Target Price (IDR) 2,200 earnings, we continue to like Adaro Energy (ADRO) on: a) recovery in coal
production to cushion further declines in coal prices, and b) business
Upside/Downside +22.2%
diversification into the power business to support long-term earnings.
Previous Target Price (IDR) 2,200 Maintain BUY with target price of IDR2,200 (based on DCF valuation with
WACC of 9.9%).
Stock Statistics
Sector Coal Mining
Coal production recovery for 2018. The unfavorable weather conditions in
Bloomberg Ticker ADRO IJ 1H17 were reflected in the expected coal production of only 52mn tonnes in
No of Shrs (mn) 31,986 2017 (-1.1% yoy), which is at the low range of the company’s initial target of 52
Mkt. Cap (IDR bn/USDmn) 57,575/4,240 – 54mn tonnes. Thanks to 7.2% qoq higher coal production in 3Q17, the
company managed to post flat growth in coal production to 39.4mn tonnes in
Avg. daily T/O (IDR bn/USDmn) 64.4/4.7
9M17. Going into 2018, we expect coal production to recover by 3.8% yoy to
Major shareholders 54mn tonnes with the expectation of: a) better weather and b) more coal
production from the Balangan mine and coking coal from Adaro MetCoal
Adaro Strat. Inv. 43.9%
Companies (AMC).
Estimated Free Float 42.9%

Potential growth from AMC. As Balangan’s thermal coal mine is only expected
EPS Consensus(USD Cents) to sustain its coal production as one concession will only start operation in 2019
(although the long-term coal production for this mine is expected to reach 7 –
2017F 2018F 2019F
8mn tonnes in the future), we expect potential growth to come from the
Danareksa 1.6 1.5 1.4 development of AMC as it has resources of around 1.27bn tonnes. AMC
Consensus 1.5 1.5 1.5 currently only operates 1 out of 7 CCoWs at Haju Mine with annual production
Danareksa/Cons 4.0 (1.1) (5.0) capacity of 1mn tonnes.
ADRO relative to JCI Index The power business shall sustain long-term growth. The company’s business
diversification into power plants is expected to sustain the company’s growth
over the long-term. This will help the company to reduce the volatility in its
current business models. In the power business, the subsidiary of ADRO, BPI is
expected to complete the construction of the Batang Power Plant (in which it
has a 34% stake) by 2020. ADRO is expected to supply around 5mn tonnes of
coal per annum to this power plant.

Maintain BUY with target price of IDR2,200 (based on DCF valuation with WACC
of 9.9%). We continue to like ADRO on its business diversification into power
plants which should sustain growth supported by adequate reserves. Our target
price implies 11.9x 2018F PE.
Source : Bloomberg
Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (USDmn) 2,684 2,524 3,303 3,371 3,374
EBITDA, (USDmn) 735 869 1,361 1,313 1,275
EBITDA Growth, (%) (15.8) 18.2 56.6 (3.5) (2.9)
Net profit (USDmn) 152 335 499 474 456
EPS (USDCents) 0.5 1.0 1.6 1.5 1.4
Stefanus Darmagiri EPS growth (%) (14.3) 119.5 49.2 (5.0) (3.9)
(62-21) 29 555 831
BVPS, (USDCents) 9.0 9.8 10.8 11.4 12.0
stefanus.darmagiri@danareksa.com
DPS, (USDCents) 0.2 0.2 0.2 0.6 0.9
PER (x) 27.8 12.7 8.5 8.9 9.3
PBV (x) 1.5 1.3 1.2 1.2 1.1
Dividend yield (%) 1.8 1.8 1.8 4.3 6.5
EV/EBITDA (x) 6.9 5.3 3.0 2.8 2.6
Source : ADRO, Danareksa Estimates

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Exhibit 1. Income Statement
Year to 31 Dec (USDmn) 2015A 2016A 2017F 2018F 2019F
Revenue 2,684 2,524 3,303 3,371 3,374
COGS (2,141) (1,839) (2,134) (2,260) (2,316)
Gross profit 543 685 1,170 1,111 1,059
EBITDA 735 869 1,361 1,313 1,275
Oper. profit 410 534 990 924 869
Interest income 12 9 11 24 28
Interest expense (61) (50) (58) (52) (45)
Forex Gain/(Loss) (16) 2 0 0 0
Income From Assoc. Co’s (3) 0 (20) (20) (10)
Other Income (Expenses) (62) 51 0 0 0
Pre-tax profit 280 547 922 876 842
Income tax (129) (206) (369) (351) (337)
Minority interest 1 (6) (54) (52) (50)
Net profit 152 335 499 474 456
Core Net Profit 169 136 499 474 456

Exhibit 2. Balance Sheet


Year to 31 Dec (USDmn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 702 1,077 1,486 1,718 1,935
Receivables 198 305 300 307 307
Inventory 73 73 84 89 92
Other Curr. Asset 119 137 137 137 137
Fixed assets - Net 1,467 1,544 1,492 1,422 1,335
Other non-curr.asset 3,399 3,385 3,267 3,148 3,029
Total asset 5,959 6,522 6,767 6,821 6,835

ST Debt 123 154 193 218 387


Payables 196 208 273 289 296
Other Curr. Liabilities 135 283 283 283 283
Long Term Debt 1,444 1,296 1,128 941 585
Other LT. Liabilities 707 796 796 796 796
Total Liabilities 2,606 2,736 2,673 2,527 2,347
Shareholder'sFunds 2,866 3,146 3,454 3,654 3,849
Minority interests 487 639 639 639 639
Total Equity & Liabilities 5,959 6,522 6,767 6,821 6,835

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Exhibit 3. Cash Flow
Year to 31 Dec (USDmn) 2015A 2016A 2017F 2018F 2019F
Net income 152 335 499 474 456
Depreciation and Amort. 322 448 371 389 406
Change in Working Capital (114) 34 59 5 5
OtherOper. Cash Flow 199 (100) 40 28 17
Operating Cash Flow 560 716 969 896 883

Capex (101) (229) (200) (200) (200)


Others Inv. Cash Flow (5) 10 11 24 28
Investing Cash Flow (107) (219) (189) (176) (172)

Net change in debt (312) (119) (129) (162) (188)


New Capital 0 164 0 0 0
Dividend payment (75) (75) (184) (275) (261)
Other Fin. Cash Flow (109) (92) (58) (52) (45)
Financing Cash Flow (497) (123) (371) (489) (493)

Net Change in Cash (43) 374 409 231 218


Cash - begin of the year 745 702 1,077 1,486 1,718
Cash - end of the year 702 1,077 1,486 1,718 1,935

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales (19.3) (6.0) 30.9 2.1 0.1
EBITDA (15.8) 18.2 56.6 (3.5) (2.9)
Operating profit (26.3) 30.2 85.3 (6.6) (6.0)
Net profit (14.3) 119.5 49.2 (5.0) (3.9)
Profitability (%)
Gross margin 20.2 27.1 35.4 33.0 31.4
EBITDA margin 27.4 34.4 41.2 38.9 37.8
Operating margin 15.3 21.2 30.0 27.4 25.7
Net margin 5.7 13.3 15.1 14.1 13.5
ROAA 2.5 5.4 7.5 7.0 6.7
ROAE 5.4 11.1 15.1 13.3 12.1
Leverage
Net Gearing (x) 0.3 0.1 0.0 (0.1) (0.2)
Interest Coverage (x) 6.8 10.7 17.0 17.7 19.3

Source : ADRO, Danareksa Estimates

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Equity Research
Company Update

BUY Adhi Karya (ADHI IJ)


Maintain Waiting for the first payment from the LRT project
Last price (IDR) 1,900 KAI as the main investor in the LRT project is looking to raise IDR18.1tn of
Target Price (IDR) 2,800 debts after the capital injection of IDR7.6tn is provided by the government.
Meanwhile, ADHI is expected to invest IDR4.0tn in TOD and depots for the
Upside/Downside +47.4%
project following the government’s IDR1.4tn capital injection in 2015. ADHI
Previous Target Price (IDR) 2,800 expects to receive the first payment from KAI in Jan 18. We maintain our BUY
call on ADHI with a target price of IDR2,800.
Stock Statistics
Sector Construction KAI is the main investor in the Jakarta LRT... The Ministry of Transportation
Bloomberg Ticker ADHI IJ (MoT), KAI and ADHI signed the agreement on the implementation of the
No of Shrs (mn) 3,561 Jakarta LRT project in mid of Dec 17. The value of the project is set at IDR29.9tn
consisting of IDR25.7tn for the development of infrastructure, 17 stations,
Mkt. Cap (IDR bn/USDmn) 6,766/498
rolling stock, and IDR4.2tn for depots. In the agreement, KAI as the concession
Avg. daily T/O (IDR bn/USDmn) 32.4/2.4 holder has a concessionary period of 50 years to operate the trains. To carry
out its mandate, KAI is entitled to receive additional capital of IDR7.6tn from
Major shareholders
the government and subsidies in the operation of the railway. Hence, KAI is
Government 51.0% looking for IDR18.1tn of debts to obtain the funds needed.
Public 49.0%

EPS Consensus(IDR)
….While ADHI acts as the contractor. ADHI is expected to use the IDR1.4tn of
funds received from its capital injection in 2015 for the development of TOD
2017F 2018F 2019F and depots. From the total construction costs of IDR22.0tn, ADHI is expected to
Danareksa 126.7 173.9 147.1 provide around IDR4.0tn by leveraging the IDR1.4tn capital injection received.
Consensus 146.9 220.0 259.5 Hence, ADHI is looking for IDR3.0tn-4.0tn of debts from overseas creditors with
Danareksa/Cons (13.7) (20.9) (43.3)
financial closing expected in Mar 18.

ADHI relative to JCI Index The first tranche of payment for the LRT project is targeted for Jan 18. So far
ADHI has not received any payment from the project while the receivables from
this project reached IDR4.3tn as of Sep 17. The value is expected to reach
around IDR5.0tn as of Dec 17. The first payment to ADHI is expected to be made
in mid-Jan 18. ADHI’s DER stood at 1.41x as of Sep 17. Assuming a maximum
DER of 3.0x and equity value of IDR5.6tn, the company may potentially raise
IDR8.8tn of funds through debts.

Maintain BUY. We expect the 2018 revenues to grow by 44.8% yoy and the net
income to grow by 37.3% yoy given the higher contribution from the Jakarta
LRT. We expect the project to generate IDR10.0tn of revenues in 2018 or double
the amount in 2017. Our target price of IDR2,800 implies 2018 PE of 15.7x.

Source : Bloomberg
Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 9,390 11,064 14,160 20,506 17,544
EBITDA, (IDRbn) 579 671 982 1,428 1,249
EBITDA Growth, (%) (8.0) 15.8 46.3 45.4 (12.5)
Net profit (IDRbn) 464 313 451 619 524
EPS (IDR) 202.8 88.0 126.7 173.9 147.1
Maria Renata EPS growth (%) 12.7 (56.6) 43.9 37.3 (15.4)
(62-21) 2955 5888 ext.3513 BVPS, (IDR) 2,254.5 1,525.8 1,738.9 2,028.7 2,243.1
maria.renata@danareksa.com
DPS, (IDR) 18.2 26.2 20.2 29.0 39.8
PER (x) 9.7 22.4 15.5 11.3 13.4
PBV (x) 0.9 1.3 1.1 1.0 0.9
Dividend yield (%) 0.9 1.3 1.0 1.5 2.0
EV/EBITDA (x) 10.0 11.8 9.6 7.9 8.9
Source : ADHI, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 75


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 9,390 11,064 14,160 20,506 17,544
COGS (8,415) (9,949) (12,685) (18,405) (15,708)
Gross profit 975 1,115 1,474 2,102 1,836
EBITDA 579 671 982 1,428 1,249
Oper. profit 611 729 1,063 1,538 1,369
Interest income 51 163 135 90 73
Interest expense (137) (258) (299) (424) (433)
Forex Gain/(Loss) 165 64 0 0 0
Income From Assoc. Co’s 0 0 0 0 0
Other Income (Expenses) 56 (85) (105) (61) (26)
Pre-tax profit 746 613 793 1,143 982
Income tax (281) (298) (341) (522) (457)
Minority interest (1) (2) (1) (2) (2)
Net profit 464 313 451 619 524
Core Net Profit 311 379 557 680 550

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 4,317 3,365 4,488 3,642 3,814
Receivables 6,405 9,802 10,541 15,266 13,060
Inventory 163 131 189 255 204
Other Curr. Asset 3,807 3,537 4,188 5,011 5,061
Fixed assets - Net 1,099 1,460 1,907 2,338 2,753
Other non-curr.asset 970 1,800 2,161 2,599 3,133
Total asset 16,761 20,095 23,474 29,112 28,025

ST Debt 1,115 2,844 3,082 4,350 4,885


Payables 6,704 8,604 8,712 12,550 10,781
Other Curr. Liabilities 1,595 1,596 1,473 1,360 1,257
Long Term Debt 2,003 1,428 3,861 3,487 2,988
Other LT. Liabilities 181 180 145 130 117
Total Liabilities 11,599 14,653 17,272 21,878 20,028
Shareholder'sFunds 5,154 5,433 6,192 7,224 7,987
Minority interests 8 10 10 10 10
Total Equity & Liabilities 16,761 20,095 23,474 29,112 28,025

www.danareksa.com See important disclosure at the back of this report 76


Exhibit 3. Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 464 313 451 619 524
Depreciation and Amort. 32 58 81 110 120
Change in Working Capital 688 (499) (964) (1,388) 835
OtherOper. Cash Flow 493 (105) 473 796 686
Operating Cash Flow 1,677 (233) 42 137 2,165

Capex (1,146) (1,702) (1,214) (1,274) (1,326)


Others Inv. Cash Flow (270) 192 (5) (77) (127)
Investing Cash Flow (1,416) (1,511) (1,219) (1,351) (1,453)

Net change in debt 849 1,154 2,671 895 36


New Capital 2,714 1 0 0 0
Dividend payment (65) (93) (72) (103) (142)
Other Fin. Cash Flow (254) (270) (299) (424) (433)
Financing Cash Flow 3,245 791 2,300 368 (540)

Net Change in Cash 3,506 (952) 1,123 (846) 172


Cash - begin of the year 811 4,317 3,365 4,488 3,642
Cash - end of the year 4,317 3,365 4,488 3,642 3,814

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 8.5 17.8 28.0 44.8 (14.4)
EBITDA (8.0) 15.8 46.3 45.4 (12.5)
Operating profit (6.7) 19.2 45.9 44.7 (11.0)
Net profit 43.1 (32.4) 43.9 37.3 (15.4)
Profitability (%)
Gross margin 10.4 10.1 10.4 10.2 10.5
EBITDA margin 6.2 6.1 6.9 7.0 7.1
Operating margin 6.5 6.6 7.5 7.5 7.8
Net margin 4.9 2.8 3.2 3.0 3.0
ROAA 3.4 1.7 2.1 2.4 1.8
ROAE 13.4 5.9 7.8 9.2 6.9
Leverage
Net Gearing (x) (0.2) 0.2 0.4 0.6 0.5
Interest Coverage (x) 4.5 2.8 3.6 3.6 3.2

Source : ADHI, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 77


Equity Research
Company Update

HOLD Alam Sutera Realty (ASRI IJ)


Maintain Mixed Signals
Last price (IDR) 358 We reiterate our HOLD call on ASRI with an unchanged target price of IDR400.
Target Price (IDR) 400 While we expect ASRI to record stellar marketing sales in 2018 (+54.0%yoy),
largely thanks to more land sales to CFLD, ASRI is expected, nonetheless, to
Upside/Downside +11.7%
book lower revenues (-23.1%yoy) and lower net profits (-43.0%yoy) with less
Previous Target Price (IDR) 400 revenues recognition from CFLD. ASRI currently trades at a 75.7% discount to
NAV, near to its historical +1SD discount of 74.3%.
Stock Statistics
Sector Property
November 2017 marketing sales: still backed by inventory. ASRI indicated
marketing sales of IDR1.5tn in 11M17, or reaching just 49.0% of our full year
Bloomberg Ticker ASRI IJ
marketing sales target (IDR3.0tn) and 29.4% of the management’s target
No of Shrs (mn) 19,649 (IDR5.0tn). In November alone, ASRI Indicated marketing sales of IDR100bn,
Mkt. Cap (IDR bn/USDmn) 7,034/518 supported by the sale of inventory. While ASRI previously mentioned that it had
Avg. daily T/O (IDR bn/USDmn) 12.7/0.9 two project launches in the pipeline for this year, ASRI is still completing the
land preparation progress for these projects; thus the project launches will be
Major shareholders delayed to next year.
Tangerang Fajar Industrial Estate 25.2% We downgrade our marketing sales target. If we exclude the potential land
Manunggal Prime Development 18.7% sales to CFLD of IDR1.0tn from our marketing sales target, ASRI’s marketing
Estimated free float (%) 48.1
sales in 11M17 reached 75.3% of our full year target. Nonetheless, we
downgrade our marketing sales target to IDR2.5tn (from IDR3.0tn) given: (i) less
EPS Consensus(IDR) land sales to CFLD (IDR750bn vs. the initial target of IDR1.0tn), (ii) expectations
2017F 2018F 2019F that ASRI is unlikely to book additional commercial land plot sales in the Alam
Danareksa 72.0 41.0 83.3 Sutera township. Although the company stated that there were abundant
inquiries on potential commercial plot sales, it stated that currently there was
Consensus 54.9 57.6 60.4
no follow up from the potential buyers.
Danareksa/Cons 31.3 (28.8) 37.8
2018: stellar marketing sales but lethargic financial performance Going into
ASRI relative to JCI Index 2018, we expect ASRI to record strong marketing sales growth of 54.0%yoy.
While we remain cautious on the outlook for property demand next year, as
indicted by the flattish growth in regular sales (+0.3%yoy), we expect ASRI to
deliver more land sales to CFLD next year (100ha vs. 37ha this year).
Nonetheless, the revenues recognition from the transaction will only be
recognized in 2019. Thus, we expect ASRI to record sluggish financial
performance in 2018 with less revenues recognition from CFLD sales (IDR750bn
of sales to be recognized in 2018 vs. IDR1.4tn in 2017).
Maintain HOLD. We reiterate our HOLD call on ASRI with a target price of
IDR400. To arrive at our target price, we use SOTP based valuation with WACC
of 12.1%, Terminal Growth of 4.0% and a 73% target discount to NAV (historical
+1SD discount to NAV). ASRI currently trades at a 75.7% discount to NAV, near
to its historical +1SD discount of 74.3%.
Source : Bloomberg Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 2,784 2,716 4,058 3,121 4,388
Antonia Febe Hartono, CFA EBITDA, (IDRbn) 1,706 1,177 1,871 1,244 2,125
(62-21) 2955 5888 ext.3504 EBITDA Growth, (%) (13.8) (31.0) 58.9 (33.5) 70.8
antonia.hartono@danareksa.com Net profit (IDRbn) 597 509 1,415 806 1,637
EPS (IDR) 30.4 25.9 72.0 41.0 83.3
Natalia Sutanto EPS growth (%) (45.6) (14.7) 178.1 (43.0) 103.1
(62-21) 2955 5888 ext.3508 BVPS, (IDR) 328.5 360.5 426.0 449.0 522.1
natalia.sutanto@danareksa.com
DPS, (IDR) 7.0 0.0 (6.5) (18.0) (10.3)
PER (x) 11.8 13.8 5.0 8.7 4.3
PBV (x) 1.1 1.0 0.8 0.8 0.7
Dividend yield (%) 2.0 0.0 (1.8) (5.0) (2.9)
EV/EBITDA (x) 8.1 11.6 7.3 11.2 5.6
Source : ASRI, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 78


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 2,784 2,716 4,058 3,121 4,388
COGS (728) (1,251) (1,858) (1,568) (1,911)
Gross profit 2,056 1,465 2,200 1,554 2,476
EBITDA 1,706 1,177 1,871 1,244 2,125
Oper. profit 1,628 1,096 1,789 1,158 2,042
Interest income 38 53 59 54 34
Interest expense (159) (226) (283) (236) (231)
Forex Gain/(Loss) (438) 157 68 24 0
Income From Assoc. Co’s 0 0 0 0 0
Other Income (Expenses) (167) (358) (60) (62) (35)
Pre-tax profit 902 723 1,573 938 1,810
Income tax (217) (213) (154) (130) (169)
Minority interest (88) (1) (4) (2) (5)
Net profit 597 509 1,415 806 1,637
Core Net Profit 1,035 351 1,347 782 1,637

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 638 1,189 1,073 689 2,620
Receivables 151 197 349 269 378
Inventory 1,156 1,208 858 648 522
Other Curr. Asset 454 241 234 194 209
Fixed assets - Net 1,097 1,149 1,256 1,363 1,476
Other non-curr.asset 14,914 15,955 16,962 17,588 18,106
Total asset 18,710 20,186 20,980 20,997 23,558

ST Debt 77 323 369 685 279


Payables 1,288 631 632 641 782
Other Curr. Liabilities 2,387 2,480 2,211 2,051 2,818
Long Term Debt 7,291 7,511 7,314 6,851 7,289
Other LT. Liabilities 1,064 2,053 1,978 1,841 2,026
Total Liabilities 12,107 12,998 12,504 12,069 13,194
Shareholder'sFunds 6,454 7,083 8,370 8,823 10,258
Minority interests 148 105 105 105 105
Total Equity & Liabilities 18,710 20,186 20,980 20,997 23,558

www.danareksa.com See important disclosure at the back of this report 79


Exhibit 3. Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 597 509 1,415 806 1,637
Depreciation and Amort. 78 81 82 86 83
Change in Working Capital 1,044 (411) (64) 180 910
OtherOper. Cash Flow (1,540) 827 (19) (121) 211
Operating Cash Flow 178 1,006 1,413 951 2,841

Capex (1,295) (787) (738) (653) (543)


Others Inv. Cash Flow 642 53 (231) 54 34
Investing Cash Flow (653) (733) (969) (599) (509)

Net change in debt 762 466 (151) (147) 32


New Capital (125) 109 0 0 0
Dividend payment (135) 10 (127) (354) (202)
Other Fin. Cash Flow (269) (307) (283) (236) (231)
Financing Cash Flow 233 278 (561) (736) (401)

Net Change in Cash (242) 551 (117) (384) 1,932


Cash - begin of the year 881 638 1,189 1,073 689
Cash - end of the year 638 1,189 1,073 689 2,620

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales (23.3) (2.4) 49.4 (23.1) 40.6
EBITDA (13.8) (31.0) 58.9 (33.5) 70.8
Operating profit (14.7) (32.6) 63.1 (35.2) 76.3
Net profit (45.6) (14.7) 178.1 (43.0) 103.1
Profitability (%)
Gross margin 73.9 53.9 54.2 49.8 56.4
EBITDA margin 61.3 43.4 46.1 39.9 48.4
Operating margin 58.5 40.4 44.1 37.1 46.5
Net margin 21.4 18.7 34.9 25.8 37.3
ROAA 3.3 2.6 6.9 3.8 7.3
ROAE 9.5 7.5 18.3 9.4 17.2
Leverage
Net Gearing (x) 1.0 0.9 0.8 0.8 0.5
Interest Coverage (x) 10.2 4.9 6.3 4.9 8.8

Source : ASRI, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 80


Equity Research
Company Update

HOLD Aneka Tambang (ANTM IJ)


Maintain More nickel sales to improve earnings
Last price (IDR) 630 With higher nickel ore and ferronickel sales volume, we expect the earnings
Target Price (IDR) 700 of Aneka Tambang (ANTM) to improve in 2018. However, challenges from the
operation of Tayan CGA will impact the company’s profitability. Gold sales
Upside/Downside +11.1%
volume is expected to post flattish growth. Maintain HOLD with an
Previous Target Price (IDR) 700 unchanged target price of Rp700 (based on DCF valuation with WACC of 9.6%
and long-term growth of 3%).
Stock Statistics
Sector Metal Mining More nickel-ore exports in 2018. ANTM has been granted an export quota for
low-grade nickel ore (Ni < 1.7%) totaling 4.0mn wmt (including an additional
Bloomberg Ticker ANTM IJ
quota of 1.2mn wmt granted recently) for 2017. With the nickel-ore export
No of Shrs (mn) 24,031 quota only issued in 2Q17, ANTM only managed to export 1.9mn wmt of nickel
Mkt. Cap (IDR bn/USDmn) 15,139/1,115 ore in 9M17. With an additional quota, we believe that the company will boost
Avg. daily T/O (IDR bn/USDmn) 24.9/1.8 nickel-ore exports to around 3.9mn wmt for 2018. (2017F: 2.7mn wmt).

Major shareholders
Rising ferronickel sales volume. Despite repair works conducted in 1Q17,
ANTM expects a slight increase in ferronickel production volume to 21,000
Government of Indonesia 65.0%
tonnes in 2017 (2016: 20,293 tonnes). The ferronickel production is expected
Estimated Free Float 35.0% to increase further to 23,000 tonnes in 2018 thanks to integration of the
Estimated free float (%) 35.0 operations of Pomalaa Ferronickel Plan Expansion Project (P3FP). Ferronickel
production jumped by 9.9% yoy to 15,813 tonnes in 9M17.
EPS Consensus(IDR)
2017F 2018F 2019F Energy conversion to coal lowered cash costs of production. The completion
Danareksa (11.0) (2.8) 0.3
of the construction of a coal based power plant with capacity of 2x30MW at
ANTM’s Pomalaa mining area in 4Q17 will help ANTM to maintain ferronickel
Consensus 3.2 6.7 21.0
cash costs of production at a competitive level. However, the company
Danareksa/Cons (440.5) (142.1) (98.8) experienced higher ferronickel cash costs (+4.1% yoy to USD3.52/lb in 9M17),
which, we believe, were due to higher coal prices and higher crude oil prices.
ANTM relative to JCI Index
Evaluating its investment at CGA. Due to the challenges from the operation of
Tayan Chemical Grade Alumina (CGA), Showa Denko (SDK) has ceased its
partnership with ANTM in the Tayan CGA project. SDK conveyed its 20% interest
in Tayan CGA to ANTM and/or a third party. As such, ANTM and its independent
advisors are conducting thorough financial, legal and commercial evaluations.
ANTM owns an 80% stake in the project.
Maintain HOLD. ANTM is expecting to book better earnings in 2018 owing to
higher nickel ore and ferronickel sales volume and better nickel prices albeit
with growth at a slow rate. However, the challenging operations of Tayan CGA
will impact the company’s earnings. Maintain HOLD with a target price of Rp700
(based on DCF valuation with WACC of 9.6% and long-term growth of 3%).
Source : Bloomberg Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 10,532 9,106 8,997 10,784 11,128
EBITDA, (IDRbn) 57 676 723 778 926
EBITDA Growth, (%) (91.3) 1,076.3 7.0 7.5 19.0
Net profit (IDRbn) (1,441) 65 (264) (68) 6
EPS (IDR) (109.5) 2.7 (11.0) (2.8) 0.3
Stefanus Darmagiri EPS growth (%) 40.4 (102.5) (507.2) (74.4) (108.9)
(62-21) 29 555 831 BVPS, (IDR) 1,391.7 766.1 755.1 752.3 752.5
stefanus.darmagiri@danareksa.com DPS, (IDR) 0.0 0.0 0.0 0.0 0.0
PER (x) n/m 233.6 n/m n/m 2,505.2
PBV (x) 0.5 0.8 0.8 0.8 0.8
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
EV/EBITDA (x) 303.1 26.1 26.9 29.2 26.5
Source : ANTM, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 81


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 10,532 9,106 8,997 10,784 11,128
COGS (10,336) (8,254) (8,358) (10,023) (10,214)
Gross profit 195 852 639 761 914
EBITDA 57 676 723 778 926
Oper. profit (701) 8 (139) (114) 4
Interest income 73 343 249 115 34
Interest expense (246) (319) (403) (441) (413)
Forex Gain/(Loss) (290) 97 196 332 330
Income From Assoc. Co’s (497) (282) (254) 19 53
Other Income (Expenses) (8) 390 0 0 0
Pre-tax profit (1,669) 237 (352) (90) 8
Income tax 228 (172) 88 23 (2)
Minority interest 0 0 0 0 0
Net profit (1,441) 65 (264) (68) 6
Core Net Profit (1,151) (32) (460) (399) (324)

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 8,087 7,623 4,887 3,711 1,240
Receivables 578 990 789 975 1,006
Inventory 1,753 1,388 1,602 1,920 1,829
Other Curr. Asset 835 628 720 864 885
Fixed assets - Net 12,268 12,959 14,612 17,120 18,698
Other non-curr.asset 6,833 6,389 6,361 6,752 7,017
Total asset 30,357 29,982 29,059 31,448 30,785

ST Debt 3,208 3,275 2,716 2,659 2,620


Payables 766 648 593 711 728
Other Curr. Liabilities 365 429 696 820 831
Long Term Debt 7,155 6,850 6,468 8,651 7,984
Other LT. Liabilities 546 370 441 529 539
Total Liabilities 12,040 11,573 10,914 13,371 12,701
Shareholder'sFunds 18,317 18,409 18,145 18,077 18,083
Minority interests 0 0 0 0 0
Total Equity & Liabilities 30,357 29,982 29,059 31,448 30,785

www.danareksa.com See important disclosure at the back of this report 82


Exhibit 3. Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income (1,441) 65 (264) (68) 6
Depreciation and Amort. 723 687 949 985 1,022
Change in Working Capital 1,410 96 125 (406) 66
OtherOper. Cash Flow (119) 211 133 159 382
Operating Cash Flow 573 1,059 943 670 1,477

Capex (1,946) (1,257) (2,500) (3,400) (2,500)


Others Inv. Cash Flow 267 440 179 (202) (335)
Investing Cash Flow (1,679) (817) (2,321) (3,602) (2,835)

Net change in debt 2,095 (206) (947) 2,077 (717)


New Capital 5,377 27 0 0 0
Dividend payment 0 0 0 0 0
Other Fin. Cash Flow (899) (527) (412) (321) (396)
Financing Cash Flow 6,574 (705) (1,359) 1,755 (1,113)

Net Change in Cash 5,468 (463) (2,736) (1,176) (2,471)


Cash - begin of the year 2,619 8,087 7,623 4,887 3,711
Cash - end of the year 8,087 7,623 4,887 3,711 1,240

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 11.8 (13.5) (1.2) 19.9 3.2
EBITDA (91.3) 1,076.3 7.0 7.5 19.0
Operating profit 411.8 (101.2) (1,807.6) (18.0) (103.5)
Net profit 93.8 (104.5) (507.2) (74.4) (108.9)
Profitability (%)
Gross margin 1.9 9.4 7.1 7.1 8.2
EBITDA margin 0.5 7.4 8.0 7.2 8.3
Operating margin (6.7) 0.1 (1.5) (1.1) 0.0
Net margin (13.7) 0.7 (2.9) (0.6) 0.1
ROAA (5.5) 0.2 (0.9) (0.2) 0.0
ROAE (9.5) 0.4 (1.4) (0.4) 0.0
Leverage
Net Gearing (x) 0.1 0.1 0.2 0.4 0.5
Interest Coverage (x) (2.9) 0.0 (0.3) (0.3) 0.0

Source : ANTM, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 83


Equity Research
Company Update

HOLD Astra Agro Lestari (AALI IJ)


Maintain Weighed Down by its Interest Burden
Last price (IDR) 13,050 We estimate that AALI will book lower earnings in FY18 on higher interest
Target Price (IDR) 14,300 expenses as a result of its loan restructuring plans. Meanwhile, we expect
AALI to focus on its replanting program. Maintain HOLD with a lower TP of
Upside/Downside +9.6%
IDR14,300, based on 15.0x P/E.
Previous Target Price (IDR) 15,000
Slight decline in FY18 earnings. We expect AALI’s earnings to fall by 3.0% to
Stock Statistics
IDR1.85tn in FY18, weighed down by higher interest expenses, despite higher
Sector Plantation revenues boosted by higher volumes. We forecast AALI’s FY18 CPO price to
Bloomberg Ticker AALI IJ average IDR7,885/kg (-1.9%yoy), while production costs are expected to remain
No of Shrs (mn) 1,925 flat at IDR5,547/kg (+0.3%yoy). We assume a minimum wage hike of 8.25%, an
Mkt. Cap (IDR bn/USDmn) 25,117/1,850
inflation rate of 3% and flat fertilizer costs.
Avg. daily T/O (IDR bn/USDmn) 12.3/0.9 Higher interest expenses ahead. We estimate that AALI will book higher
interest expenses ahead (~IDR260bn) on its loan restructuring plans. Referring
Major shareholders
to its 9M17 financials, AALI has entered into a 5-year USD250mn club deal loan,
Astra International 79.7% which has been fully hedged (with Cross Currency Interest Rate Swap) at rates
Public 20.3% of IDR13,498-13,500 and 7.74-7.85% (interest + hedging cost). In Oct’17, the
Estimated free float (%) 20.3 facility was drawn down and used to repay outstanding loans of IDR3.9tn (59%
USD-denominated loans). On the bright side, this eliminates AALI’s foreign
EPS Consensus(IDR) exchange risk.
2017F 2018F 2019F
Danareksa 991.4 961.9 993.5 Normalizing production. We expect AALI’s FY18 FFB production to revert back
Consensus 1,083.8 1,096.9 1,200.8
to FY15’s level. Hence, we assume FFB growth of 5% in FY18, following
estimated FY17 FFB growth of 10%. In FY18, we estimate AALI’s CPO production
Danareksa/Cons (8.5) (12.3) (17.3)
to reach 1.81mn tons (+2.9%yoy). In 9M17, AALI booked CPO production of
AALI relative to JCI Index 1.20mn tons (+15.2%yoy).

Focus on replanting. Going forward, we expect AALI to focus on replanting at a


rate of 3,000-3,500Ha/annum. We input the replanting target of 3,500Ha in
FY18. In 9M17, AALI has replanted a total of 1,743Ha.

Maintain HOLD with a lower TP of IDR14,300, based on 15.0x sector P/E (-


0.5SD). The counter is currently trading at 13.6x FY18 P/E and EV/Ha of
USD9,189. Our FY18 EPS estimate is 12% below as we don’t think the consensus
has priced in the higher interest expenses from the loans restructuring.

Source : Bloomberg Key Financials


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 13,059 14,121 15,843 16,308 16,721
EBITDA, (IDRbn) 2,721 3,662 3,857 4,047 4,107
EBITDA Growth, (%) (38.7) 34.6 5.3 4.9 1.5
Net profit (IDRbn) 619 2,007 1,908 1,851 1,912
EPS (IDR) 393.1 1,042.8 991.4 961.9 993.5
Yudha Gautama EPS growth (%) (75.3) 165.2 (4.9) (3.0) 3.3
(62-21) 2955 5888 ext 3509 BVPS, (IDR) 7,166.1 8,902.9 9,581.5 10,245.9 10,950.9
yudha.gautama@danareksa.com DPS, (IDR) 472.0 99.0 312.8 297.4 288.6
PER (x) 33.2 12.5 13.2 13.6 13.1
PBV (x) 1.8 1.5 1.4 1.3 1.2
Dividend yield (%) 3.6 0.8 2.4 2.3 2.2
EV/EBITDA (x) 10.3 7.8 7.1 6.7 6.2
Source : AALI, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 84


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 13,059 14,121 15,843 16,308 16,721
COGS (9,977) (10,445) (11,780) (12,125) (12,499)
Gross profit 3,082 3,676 4,062 4,183 4,222
EBITDA 2,721 3,662 3,857 4,047 4,107
Oper. profit 1,853 2,659 2,804 2,887 2,889
Interest income 28 26 15 36 82
Interest expense (126) (145) (57) (262) (230)
Forex Gain/(Loss) (580) 201 14 0 0
Income From Assoc. Co’s 5 (13) (23) 9 20
Other Income (Expenses) (5) (519) 77 77 77
Pre-tax profit 1,176 2,209 2,831 2,747 2,837
Income tax (480) (94) (821) (797) (823)
Minority interest (77) (107) (102) (99) (102)
Net profit 619 2,007 1,908 1,851 1,912
Core Net Profit 1,199 1,806 1,894 1,851 1,912

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 294 532 236 1,546 2,544
Receivables 88 579 109 113 115
Inventory 1,692 2,097 1,683 2,332 2,551
Other Curr. Asset 740 844 951 979 1,009
Fixed assets - Net 11,950 12,057 12,597 12,252 12,322
Other non-curr.asset 6,749 8,117 8,507 9,065 8,856
Total asset 21,512 24,226 24,083 26,286 27,398

ST Debt 2,025 1,985 0 0 0


Payables 834 1,071 983 1,006 1,027
Other Curr. Liabilities 663 887 875 934 955
Long Term Debt 5,708 2,116 2,647 3,375 2,970
Other LT. Liabilities 583 574 578 592 607
Total Liabilities 9,814 6,633 5,082 5,907 5,559
Shareholder'sFunds 11,285 17,135 18,441 19,720 21,077
Minority interests 414 458 560 659 762
Total Equity & Liabilities 21,512 24,226 24,083 26,286 27,398

www.danareksa.com See important disclosure at the back of this report 85


Exhibit 3. Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 619 2,007 1,908 1,851 1,912
Depreciation and Amort. 885 1,001 1,117 1,231 1,292
Change in Working Capital (882) (779) 820 (647) (231)
OtherOper. Cash Flow 34 349 (99) 290 184
Operating Cash Flow 657 2,578 3,746 2,726 3,158

Capex (2,542) (1,827) (2,144) (1,533) (1,229)


Others Inv. Cash Flow (857) (562) 113 124 158
Investing Cash Flow (3,400) (2,388) (2,031) (1,409) (1,071)

Net change in debt 3,306 (3,632) (1,454) 728 (405)


New Capital 0 3,970 0 0 0
Dividend payment (750) (191) (602) (572) (555)
Other Fin. Cash Flow (130) (101) 45 (163) (128)
Financing Cash Flow 2,426 47 (2,011) (7) (1,088)

Net Change in Cash (317) 237 (296) 1,310 998


Cash - begin of the year 611 294 532 236 1,546
Cash - end of the year 294 532 236 1,546 2,544

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales (19.9) 8.1 12.2 2.9 2.5
EBITDA (38.7) 34.6 5.3 4.9 1.5
Operating profit (50.2) 43.5 5.5 2.9 0.1
Net profit (75.3) 224.2 (4.9) (3.0) 3.3
Profitability (%)
Gross margin 23.6 26.0 25.6 25.7 25.3
EBITDA margin 20.8 25.9 24.3 24.8 24.6
Operating margin 14.2 18.8 17.7 17.7 17.3
Net margin 4.7 14.2 12.0 11.4 11.4
ROAA 3.1 8.8 7.9 7.4 7.1
ROAE 5.5 14.1 10.7 9.7 9.4
Leverage
Net Gearing (x) 0.6 0.2 0.1 0.1 0.0
Interest Coverage (x) 14.8 18.4 49.3 11.0 12.6

Source : AALI, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 86


Equity Research
Company Update

BUY Astra International (ASII IJ)


Maintain Upside despite stiffer competition
Last price (IDR) 8,000 We believe Astra International (ASII) is still a proxy to the automotive sector
Target Price (IDR) 9,200 as 46% of the net profits came from this division in 9M17. Although
competition in the automotive market is likely to persist in 2018, we maintain
Upside/Downside +15.0%
BUY recommendation as there is upside to our target price of IDR9,200 (based
Previous Target Price (IDR) 9,200 on SOTP valuation) and we expect ASII to continue to book solid earnings in
2018 supported by heavy equipment and the mining business.
Stock Statistics
Sector Automotive Strong earnings in 2017 from heavy equipment and the financial business. We
Bloomberg Ticker ASII IJ expect strong earnings for ASII in 2017 backed by: a) the heavy equipment
No of Shrs (mn) 40,484
business with solid Komatsu sales volume (+60.5% yoy) and b) recovery in the
financial services business thanks to an improvement in the non-performing
Mkt. Cap (IDR bn/USDmn) 323,868/23,851
loans (NPLs) of Bank Permata (down to 4.7% in 9M17 from 8.8% in 2016). In the
Avg. daily T/O (IDR bn/USDmn) 257.0/18.9 automotive division, we expect flat earnings growth due to intense competition
stemming from the launch of new models. This will reduce ASII’s market share
Major shareholders slightly to 54% in 2017 (2016: 55%) and b) reduce the automotive EBIT margin.
Jardine Cycle & Carriage 50.1%
Estimated free float 49.9% 2018: Expect hiccups in ASII’s market share but…. While domestic car sales
are expected to increase by 5% yoy to 1.1mn units in 2018, we expect flat
growth in ASII’s car sales volume with market share expected to dip to 52% in
EPS Consensus(IDR) 2018 from an expected 54% in 2017 due to intense competition. Nonetheless,
2017F 2018F 2019F we believe that the launch of the new generations of Toyota Rush and Daihatsu
Terios on 23 November 2017 for delivery in 2018 will mitigate further declines
Danareksa 466.7 518.3 584.3
in market share even though sales volumes of those models are only about 5.6%
Consensus 485.5 537.9 584.7 of ASII’s total sales.
Danareksa/Cons (3.9) (3.7) (0.1)
…heavy equipment and the mining division to sustain earnings. We expect
ASII relative to JCI Index ASII to continue to book solid earnings in 2018 on strong demand for heavy
equipment under its subsidiary United Tractors (UNTR IJ, BUY, TP IDR38,000)
amid limited supply from the Komatsu principal in Japan. Moreover, thanks to
sturdy coal prices, coal production and OB removal are expected to increase by
5 – 10% yoy in 2018 with coal sales volume to jump 48.5% yoy. Hence, we
expect earnings to grow by 11.0% yoy in 2018.

Maintain BUY. While we expect the intense competition in the domestic car
market to persist, we maintain BUY recommendation as the stock offers upside
to our target price of IDR9,200 (based on SOTP valuation) with strong
performance from heavy equipment and the mining business expected to
support earnings in 2018. Our target price implies 17.8x 2018F PE.

Source : Bloomberg Key Financials


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 184,196 181,084 202,056 218,314 237,361
EBITDA, (IDRbn) 24,494 24,219 28,631 33,034 36,984
EBITDA Growth, (%) (10.2) (1.1) 18.2 15.4 12.0
Net profit (IDRbn) 14,464 15,156 18,895 20,981 23,656
EPS (IDR) 357.3 374.4 466.7 518.3 584.3
Stefanus Darmagiri EPS growth (%) (24.6) 4.8 24.7 11.0 12.7
(62-21) 29 555 831 BVPS, (IDR) 2,520.6 2,765.3 3,044.9 3,329.8 3,655.0
stefanus.darmagiri@danareksa.com DPS, (IDR) 216.0 168.0 187.2 233.4 259.1
PER (x) 22.4 21.4 17.1 15.4 13.7
PBV (x) 3.2 2.9 2.6 2.4 2.2
Dividend yield (%) 2.7 2.1 2.3 2.9 3.2
EV/EBITDA (x) 15.0 15.1 12.5 10.8 9.6
Source : ASII, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 87


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 184,196 181,084 202,056 218,314 237,361
COGS (147,486) (144,652) (160,332) (171,581) (185,743)
Gross profit 36,710 36,432 41,723 46,734 51,619
EBITDA 24,494 24,219 28,631 33,034 36,984
Oper. profit 17,212 17,534 20,812 24,393 27,490
Interest income 1,515 1,699 1,641 1,132 1,125
Interest expense (1,370) (1,745) (1,390) (1,403) (1,423)
Forex Gain/(Loss) (291) (155) 784 445 767
Income From Assoc. Co’s 4,467 3,349 6,737 7,201 7,831
Other Income (Expenses) (1,903) 1,571 198 198 198
Pre-tax profit 19,630 22,253 28,781 31,966 35,988
Income tax (4,017) (3,951) (5,756) (6,393) (7,198)
Minority interest (1,149) (3,146) (4,131) (4,592) (5,135)
Net profit 14,464 15,156 18,895 20,981 23,656
Core Net Profit 14,755 15,311 18,111 20,536 22,889

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 27,102 29,357 20,252 20,127 21,846
Receivables 53,005 56,126 60,686 64,144 69,518
Inventory 18,337 17,771 16,562 17,724 19,187
Other Curr. Asset 6,233 6,250 4,921 5,317 5,781
Fixed assets - Net 62,038 66,695 68,413 73,086 77,696
Other non-curr.asset 78,236 84,757 90,787 97,031 105,058
Total asset 245,435 261,855 262,521 278,328 299,986

ST Debt 36,202 45,820 38,787 35,100 34,496


Payables 27,633 30,085 30,285 32,410 35,085
Other Curr. Liabilities 12,407 13,174 13,174 13,174 13,174
Long Term Debt 34,447 25,090 16,367 17,609 18,896
Other LT. Liabilities 8,213 7,780 7,780 7,780 7,780
Total Liabilities 118,902 121,949 106,392 106,073 109,431
Shareholder'sFunds 102,043 111,951 123,268 134,802 147,967
Minority interests 24,490 27,955 32,862 37,453 42,588
Total Equity & Liabilities 245,435 261,855 262,521 278,328 299,986

www.danareksa.com See important disclosure at the back of this report 88


Exhibit 3. Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 14,464 15,156 18,895 20,981 23,656
Depreciation and Amort. 10,895 3,889 7,819 8,641 9,494
Change in Working Capital 1,500 232 (1,823) (2,891) (4,626)
OtherOper. Cash Flow (738) (1,076) (1,671) (1,097) (2,489)
Operating Cash Flow 26,121 18,201 23,220 25,635 26,035

Capex (9,063) (8,546) (9,538) (13,314) (14,104)


Others Inv. Cash Flow (1,212) (3,700) (2,968) (3,744) (4,116)
Investing Cash Flow (10,275) (12,246) (12,506) (17,058) (18,220)

Net change in debt 577 261 (15,757) (2,444) 683


New Capital 0 0 0 0 0
Dividend payment (8,744) (6,801) (7,578) (9,447) (10,491)
Other Fin. Cash Flow (1,479) 2,840 3,516 3,189 3,712
Financing Cash Flow (9,646) (3,700) (19,819) (8,703) (6,096)

Net Change in Cash 6,200 2,255 (9,105) (126) 1,719


Cash - begin of the year 20,902 27,102 29,357 20,252 20,127
Cash - end of the year 27,102 29,357 20,252 20,127 21,846

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales (8.7) (1.7) 11.6 8.0 8.7
EBITDA (10.2) (1.1) 18.2 15.4 12.0
Operating profit (14.6) 1.9 18.7 17.2 12.7
Net profit (24.6) 4.8 24.7 11.0 12.7
Profitability (%)
Gross margin 19.9 20.1 20.6 21.4 21.7
EBITDA margin 13.3 13.4 14.2 15.1 15.6
Operating margin 9.3 9.7 10.3 11.2 11.6
Net margin 7.9 8.4 9.4 9.6 10.0
ROAA 6.0 6.0 7.2 7.8 8.2
ROAE 14.6 14.2 16.1 16.3 16.7
Leverage
Net Gearing (x) 0.3 0.3 0.2 0.2 0.2
Interest Coverage (x) 12.6 10.0 15.0 17.4 19.3

Source : ASII, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 89


Equity Research
Company Update

HOLD Bank Central Asia (BBCA IJ)


Maintain How High Can You Go?
Last price (IDR) 20,925 We reiterate our HOLD call on BBCA, noting its premium valuation at 3.3x
Target Price (IDR) 21,000 2018F P/BV, far above the average for our universe of banks at 2.2x P/BV for
2018F. At the same time, we also foresee limited room for a lower blended
Upside/Downside +0.4%
CoF going forward as its TD rate already stands at 4.5%, far below its peers.
Previous Target Price (IDR) 21,000 As compression in asset yields is inevitable in a low interest rates
environment and due to participation in government-infrastructure projects,
Stock Statistics
we expect the assets yield to decline to 8.6% due to 18bps loan yields
Sector Banking reduction in FY18F.
Bloomberg Ticker BBCA IJ
No of Shrs (mn) 24,945 Limited room for a lower blended CoF. Given BBCA’s status as the transactional
bank of choice, the bank benefits from substantial CASA deposits in its funding
Mkt. Cap (IDRbn/USDmn) 521,969/38,439
structure. In addition, its current maximum TD rate is currently 4.5%, giving the
Avg. daily T/O (IDRbn/USDmn) 285.3/21.0 bank the lowest blended CoF in the industry at 2.2% in 3Q17. As a result, we
view limited room for further declines in its blended CoF going forward. We
Major shareholders
thus project a stable blended CoF of 1.9% in 2018 with a 78% CASA deposits
PT Dwimuria Investama 54.9% proportion of total customer deposits by the end of next year.
Anthony Salim 1.8%
Estimated free float 43.3% More infrastructure projects in its loans book. BBCA seeks to participate in
several infrastructure projects that match with its risk appetite – namely toll
EPSConsensus(IDR) roads and the Jabodetabek LRT project, yet with longer maturity profile and the
2017F 2018F 2019F lower yields. Lending for government infrastructure projects will be the main
growth driver in 2018, we believe. In addition, mortgages will serve to balance
Danareksa 958.0 1,097.9 1,285.0
BBCA’s loans portfolio going forward given that the bank can offer one of the
Consensus 937.1 1,051.0 1,197.4 lowest rates in the market through its fix and cap program.
Danareksa/Cons 2.2 4.5 7.3
Expect lower asset yields. With total loans in the pipeline of IDR15-20tn
BBCA relative to JCI Index dedicated to infrastructure projects, we expect further loans yields
compression. In addition, bigger exposure on mortgages should also put more
pressure due to its fix and cap program. All in all, we expect loan yields to drop
by 18bps to 9.8% resulting to lower asset yields of 8.6% next year.

HOLD maintained with a TP of IDR21,000. We reiterate our HOLD call on BBCA


with an unchanged GGM-derived TP of IDR21,000 assuming 7.8% CoE, 19%
sustainable ROAE and 3% long-term growth. Our TP implies 3.3x 2018F P/BV
multiple, its 15-years mean forward P/BV.

Key Financials
Source : Bloomberg
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
PPOP, (IDRbn) 26,162 30,400 34,155 37,878 43,267
Net profit (IDRbn) 18,019 20,606 23,620 27,068 31,682
EPS (IDR) 730.8 835.8 958.0 1,097.9 1,285.0
EPS growth (%) 9.3 14.4 14.6 14.6 17.0
BVPS, (IDR) 3,624.8 4,560.3 5,371.7 6,310.6 7,429.3
PER (x) 28.9 25.2 22.0 19.2 16.4
Eka Savitri
(62-21) 2955 5888 ext 3506 PBV (x) 5.8 4.6 3.9 3.3 2.8
eka.savitri@danareksa.co.id Dividend yield (%) 0.6 0.6 0.7 0.8 0.8
ROAE (%) 21.9 20.5 19.3 18.8 18.7
Source : BBCA, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 90


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Interest Income 47,082 50,426 54,789 59,512 65,961
Interest Expense (11,213) (10,347) (11,159) (12,020) (12,962)
Net Interest Income 35,869 40,079 43,630 47,492 53,000
Non-Interest Income (NII) 12,007 13,700 15,532 17,909 21,085
Oper. Income 47,876 53,779 59,163 65,402 74,085
Oper. Expenses (21,714) (23,379) (25,008) (27,524) (30,818)
Pre-provisions profit 26,162 30,400 34,155 37,878 43,267
Provisions & Allowances (3,505) (4,561) (4,672) (4,030) (3,650)
Operating Profits 22,657 25,839 29,483 33,848 39,617
Non-Operating Income 0 0 79 26 28
Exceptionals 0 0 0 0 0
Pre-tax Profit 22,657 25,839 29,561 33,874 39,645
Income Tax (4,621) (5,207) (5,912) (6,775) (7,929)
Minorities (17) (27) (29) (31) (34)
Net Profit 18,019 20,606 23,620 27,068 31,682

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Gross Loans 387,643 415,896 460,163 520,253 598,289
Provisions (9,026) (12,505) (15,115) (15,881) (17,267)
Net Loans 378,616 403,391 445,048 504,372 581,022
Govt. Bonds 0 0 69 35 17
Securities 52,937 113,836 127,839 139,811 159,201
Other Earnings Assets 10,516 11,788 11,769 12,838 13,817
Total Earnings Assets 523,676 599,065 654,695 728,773 829,101
Fixed Assets 16,758 25,234 27,801 30,474 33,516
Non-Earnings Assets 11,161 13,099 11,540 11,933 12,191
Total Assets 594,373 676,739 743,602 825,787 928,840

Customer Deposits 473,666 530,134 574,955 632,664 706,846


Banks Deposits 4,156 4,901 5,585 5,380 5,318
Int. Bearing Liab. - Others 490,028 548,431 595,303 654,059 729,522
Total Liabilities 504,748 564,024 610,880 669,918 745,388
Share capital & Reserves 7,374 13,930 13,977 13,981 14,001
Retained Earnings 81,995 98,503 118,462 141,606 169,169
Shareholders' Funds 89,369 112,433 132,440 155,587 183,170
Minority interests 256 282 282 282 282
Total Equity & Liabilities 594,373 676,739 743,602 825,787 928,840

www.danareksa.com See important disclosure at the back of this report 91


Exhibit 3. Ratios
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Yield on Earning Assets 9.4 9.0 8.7 8.6 8.5
Cost of funds 2.4 2.0 2.0 1.9 1.9
Interest Spread 7.0 7.0 6.8 6.7 6.6
Net Interest Margin 7.2 7.1 7.0 6.9 6.8
Cost/Income Ratio 45.4 43.5 42.3 42.1 41.6
Oper. Exp./Oper. Gross Inc. 61.7 59.7 58.1 56.3 54.5
Gross NPL Ratio 0.7 1.3 1.2 1.1 1.0
LLP/Gross NPL 322.2 229.4 278.4 279.7 285.9
Cost of Credit 1.0 1.1 1.1 0.8 0.7
Loan to Deposit Ratio 81.8 78.5 80.0 82.2 84.6
Loan to Funding Ratio 79.8 76.4 78.0 80.3 82.8
CASA Mix 75.4 76.3 76.9 78.0 78.5
ROAE 21.9 20.4 19.3 18.8 18.7
ROAA 3.1 3.2 3.3 3.4 3.6
CAR 19.0 22.2 23.7 24.9 26.2

Exhibit 4.Dupont and growth


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Dupont
Pre-Tax ROAA 3.9 4.1 4.2 4.3 4.5
Tax Retention rate 79.6 79.8 80.0 80.0 80.0
Post-Tax ROAA 3.1 3.2 3.3 3.5 3.6
Goodwil, Assoc& Min 0.0 0.0 0.0 0.0 0.0
Leverage 7.0 6.3 5.8 5.4 5.2
ROAE 21.9 20.5 19.3 18.8 18.7
Growth (%)
Interest income 11.2 7.1 8.7 8.6 10.8
Net Interest Income 17.2 11.7 8.9 8.9 11.6
Other Oper. Expenses 18.6 7.7 7.0 10.1 12.0
Fee Based Income 14.7 12.5 17.1 13.7 13.6
Pre-Provision Oper. Profit 15.0 16.2 12.3 10.9 14.2
Net Profit 9.3 14.4 14.6 14.6 17.0
Shareholders’ Equity 18.4 25.8 17.8 17.5 17.7
Loan 11.9 7.3 10.6 13.1 15.0
Earnings Asset 9.2 14.4 9.3 11.3 13.8
Deposit 5.8 12.0 8.5 9.9 11.6
Int. Bearing Liab. 5.6 11.9 8.5 9.9 11.5
CASA 7.1 13.3 9.4 11.5 12.3
Total Asset 7.5 13.9 9.9 11.1 12.5

Source : BBCA, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 92


Equity Research
Company Update

HOLD Bank Mandiri (BMRI IJ)


Maintain Fairly Priced-in
Last price (IDR) 7,450 We reiterate our HOLD call on BMRI as we believe that the current valuation
Target Price (IDR) 7,700 already prices in the positive outlook for next year. Given an SOE bank status,
we concerns on its lending related to the development of large-scale
Upside/Downside +3.4%
government-related infrastructure projects. This is because these loans carry
Previous Target Price (IDR) 7,700 low yields with long tenors. Hence, we expect the loan yield to drop by 29bps
to 9.9%, translating into a lower NIM of 5.5% assuming a flat blended CoF at
Stock Statistics
3.1% in FY18F. HOLD maintained.
Sector Banking
Bloomberg Ticker BMRI IJ Higher corporate lending exposure. Given its status as an SOE bank, BMRI is
No of Shrs (mn) 46,667 under more pressure to provide financing for government-related
infrastructure projects. Note that its peer, BBNI, another major SOE bank with
Mkt. Cap (IDRbn/USDmn) 347,667/25,603
high corporate lending exposure, has size limitations in regard to the amount
Avg. daily T/O (IDRbn/USDmn) 260.7/19.2 of financing it can provide. We thus estimate 14.9% yoy growth in BMRI’s
corporate lending next year, above our loans growth expectation of 11.6%. This
Major shareholders
will translate to 41% contribution to total loans book by the end of 2018.
Government of Indonesia 60.0%
Estimated free float 40.0% Further pressure on its NIM. Given the higher corporate lending exposure, loan
yields will continue to drop by c.29bps to 9.9% in FY18F. In addition, we also
EPSConsensus(IDR) believe that asset yields compression will stem from BMRI have IDR100.2trn of
2017F 2018F 2019F government recap bonds as of September 2017 given the decline in
Danareksa 419.0 505.5 602.0 government bond yields. As such, we assume a 10bps decline in asset yields to
8.4% whilst assuming a flat blended CoF at 3.1%. This should translate into
Consensus 446.6 549.8 631.6
10bps compression in the NIM to 5.5% in FY18F.
Danareksa/Cons (6.2) (8.1) (4.7)
Gradual improvement in asset quality. BMRI’s asset quality would gradually
BMRI relative to JCI Index improve on the back of its recent shifting more towards corporate and
consumer lending. Moreover, both segments provide more manageable credit
costs in our view, compared to commercial lending segment for example. All
in, we expect a major drop in credit cost to 205bps for next year (9M17: 244bps)
and 3.4% gross NPLs ratio by end of 2018 with 136.6% LLC ratio.

Maintain HOLD, TP of IDR7,700. We maintain our HOLD call on BMRI with an


unchanged GGM-derived TP of IDR7,700 (implying 2.04x 2018F P/BV) as we
view the current valuation already prices in. We assume 9.25% CoE, 15.8%
sustainable ROAE and 3% long-term growth.

Source : Bloomberg
Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
PPOP, (IDRbn) 38,382 43,258 45,051 48,088 51,319
Net profit (IDRbn) 20,335 13,807 19,555 23,590 28,094
EPS (IDR) 435.7 295.9 419.0 505.5 602.0
EPS growth (%) 2.3 (32.1) 41.6 20.6 19.1
Eka Savitri BVPS, (IDR) 2,508.6 3,221.6 3,452.1 3,755.4 4,176.8
(62-21) 2955 5888 ext 3506
eka.savitri@danareksa.co.id PER (x) 17.2 25.3 17.8 14.8 12.4
PBV (x) 3.0 2.3 2.2 2.0 1.8
Dividend yield (%) 1.7 1.8 2.5 2.7 2.4
ROAE (%) 18.5 10.3 12.6 14.0 15.2
Source : BMRI, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 93


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Interest Income 71,570 76,710 81,842 87,045 93,520
Interest Expense (26,207) (24,885) (27,627) (29,817) (33,123)
Net Interest Income 45,363 51,825 54,215 57,228 60,397
Non-Interest Income (NII) 21,516 21,939 24,307 26,932 30,220
Oper. Income 66,879 73,764 78,522 84,160 90,617
Oper. Expenses (28,755) (31,268) (33,471) (36,072) (39,297)
Pre-provisions profit 38,382 43,258 45,051 48,088 51,319
Provisions & Allowances (12,043) (24,645) (17,884) (15,607) (13,423)
Operating Profits 26,339 18,613 27,167 32,481 37,896
Non-Operating Income 30 (40) (40) (40) (40)
Exceptionals 0 0 0 0 0
Pre-tax Profit 26,369 18,573 27,127 32,441 37,857
Income Tax (5,217) (3,923) (6,690) (7,920) (8,780)
Minorities (817) (844) (882) (932) (983)
Net Profit 20,335 13,807 19,555 23,590 28,094

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Gross Loans 586,675 649,323 719,942 803,550 912,200
Provisions (22,282) (32,617) (34,667) (36,828) (41,049)
Net Loans 564,394 616,706 685,275 766,721 871,150
Govt. Bonds 103,869 98,933 103,513 98,727 93,941
Securities 43,642 56,552 50,545 50,815 48,275
Other Earnings Assets 8,506 12,362 14,037 17,651 20,086
Total Earnings Assets 815,952 935,156 996,649 1,076,654 1,181,358
Fixed Assets 17,470 44,737 73,104 103,005 134,602
Non-Earnings Assets 20,325 18,877 18,434 19,016 18,775
Total Assets 910,063 1,038,594 1,103,526 1,206,386 1,338,232

Customer Deposits 622,332 702,060 772,646 857,957 966,340


Banks Deposits 12,636 9,339 7,439 7,960 8,517
Int. Bearing Liab. - Others 746,892 837,515 916,895 1,006,313 1,119,213
Total Liabilities 790,572 885,336 938,631 1,026,405 1,137,603
Share capital & Reserves 27,846 53,523 53,523 53,523 53,523
Retained Earnings 89,225 96,818 107,574 121,728 141,393
Shareholders' Funds 117,070 150,341 161,097 175,251 194,916
Minority interests 2,422 2,916 3,798 4,730 5,713
Total Equity & Liabilities 910,063 1,038,594 1,103,526 1,206,386 1,338,232

www.danareksa.com See important disclosure at the back of this report 94


Exhibit 3. Ratios
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Yield on Earning Assets 9.0 8.8 8.5 8.4 8.3
Cost of funds 3.6 3.1 3.1 3.1 3.1
Interest Spread 5.4 5.6 5.3 5.3 5.2
Net Interest Margin 5.7 5.9 5.6 5.5 5.3
Cost/Income Ratio 42.8 42.0 42.6 42.9 43.4
Oper. Exp./Oper. Gross Inc. 71.8 81.3 74.4 71.5 69.4
Gross NPL Ratio 2.6 4.0 3.7 3.4 2.9
LLP/Gross NPL 144.9 124.6 129.8 136.6 154.4
Cost of Credit 2.2 4.0 2.6 2.0 1.6
Loan to Deposit Ratio 94.3 92.5 93.2 93.7 94.4
Loan to Funding Ratio 79.9 79.1 79.5 80.7 82.4
CASA Mix 66.3 65.2 66.5 66.9 66.1
ROAE 18.5 10.3 12.6 14.0 15.2
ROAA 2.3 1.4 1.8 2.0 2.2
CAR 18.6 21.4 17.8 17.2 16.9

Exhibit 4.Dupont and growth


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Dupont
Pre-Tax ROAA 3.0 1.9 2.5 2.8 3.0
Tax Retention rate 80.2 78.9 75.3 75.6 76.8
Post-Tax ROAA 2.4 1.5 1.9 2.1 2.3
Goodwil, Assoc& Min (0.1) (0.1) (0.1) (0.1) (0.1)
Leverage 8.0 7.3 6.9 6.9 6.9
ROAE 18.5 10.3 12.6 14.0 15.2
Growth (%)
Interest income 14.3 7.2 6.7 6.4 7.4
Net Interest Income 15.9 14.2 4.6 5.6 5.5
Other Oper. Expenses 13.3 8.7 7.0 7.8 8.9
Fee Based Income 11.3 7.2 8.4 12.0 13.5
Pre-Provision Oper. Profit 21.8 12.7 4.1 6.7 6.7
Net Profit 2.3 (32.1) 41.6 20.6 19.1
Shareholders’ Equity 14.0 28.4 7.2 8.8 11.2
Loan 12.2 10.7 10.9 11.6 13.5
Earnings Asset 5.8 14.6 6.6 8.0 9.7
Deposit 5.7 12.0 9.7 11.0 12.6
Int. Bearing Liab. 6.0 12.1 9.5 9.8 11.2
CASA 17.1 10.2 11.8 11.7 11.2
Total Asset 6.4 14.1 6.3 9.3 10.9

Source : BMRI, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 95


Equity Research
Company Update

HOLD Bank Negara Indonesia (BBNI IJ)


Maintain Profit Taking Time
Last price (IDR) 9,525 As one of the JCI’s big cap best performers, BBNI’s current share price already
Target Price (IDR) 8,500 entirely prices in the positive outlook for next year, in our view. The narrower
valuation gap between BBNI and BMRI is reasonable given the same business
Upside/Downside -10.8%
model with similar ROAE expectations. Assets quality should be the bank’s
Previous Target Price (IDR) 8,500 main focus post aggressive loans growth in the past three years. As such, we
conservatively assume a flat gross NPLs ratio of 2.7% by the end of 2018F.
Stock Statistics
Maintain HOLD with a TP of IDR8,500.
Sector Banking
Bloomberg Ticker BBNI IJ One of the JCI’s big cap best performers. BBNI’s share price has rallied by
No of Shrs (mn) 18,649 +68.3% ytd, outperforming other big cap Indonesian banks such as BBRI
Mkt. Cap (IDRbn/USDmn) 177,628/13,081
(+45.2%) and BMRI (+29.6%). This might be justified due to its strategy to focus
more on significant government-infrastructure projects in Indonesia. We also
Avg. daily T/O (IDRbn/USDmn) 124.5/9.2 see a narrower valuation gap between BBNI and BMRI as both banks offer
similar ROAE expectations at 14-15%. Nonetheless, the current share price
Major shareholders
already entirely prices in the positive outlook for next year, in our view.
Government of Indonesia 60.0%
Size is the key constraint. Due to its similar business model with a focus on
Estimated free float (%) 40.0 corporate lending, BBNI and BMRI are facing the same challenges to support
government infrastructure projects. In addition, BBNI has already financed
EPSConsensus(IDR) quite a substantial amount of loans with few projects in the pipeline, i.e.
2017F 2018F 2019F transportation (IDR3.8tn) and power (IDR3.5tn). Yet, given constraints
concerning its size, we assume no further sizeable loans are financed in
Danareksa 701.9 804.2 907.8
infrastructure projects by BBNI going forward.
Consensus 712.5 822.4 917.4
Danareksa/Cons (1.5) (2.2) (1.0) Should shift its focus toward assets quality. Post aggressive loans growth with
3-year CAGR of 18.8%, BBNI should shift its focus more towards assets quality,
BBNI relative to JCI Index in our view. Note also, there is usually an 18-months lag time until borrowers
start facing difficulties in repaying their loans. Despite the requirement of
higher collateral value, we still see some downside risks on its non-SOE
corporate names risk profile. All in all, we think a gross NPLs ratio of 2.7% by
the end of next year looks reasonable.

Maintain HOLD, TP of IDR8,500. Maintain HOLD on BBNI as the share price


already entirely prices in next year’s outlook in our view. Our GGM-derived TP
assumes 10.6% CoE, 14% sustainable ROAE and 3% long-term growth.

Source : Bloomberg Key Financials


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
PPOP, (IDRbn) 18,748 22,082 25,371 28,550 32,514
Net profit (IDRbn) 9,067 11,339 13,089 14,997 16,930
EPS (IDR) 486.2 608.0 701.9 804.2 907.8
EPS growth (%) 0.1 25.1 15.4 14.6 12.9
BVPS, (IDR) 4,097.6 4,673.7 5,200.1 5,843.4 6,569.7
Eka Savitri
(62-21) 2955 5888 ext 3506
PER (x) 19.1 15.3 13.2 11.6 10.2
eka.savitri@danareksa.co.id PBV (x) 2.3 2.0 1.8 1.6 1.4
Dividend yield (%) 1.3 2.3 1.9 1.7 2.0
ROAE (%) 13.6 14.0 14.4 14.8 14.9
Source : BBNI, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 96


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Interest Income 36,895 43,768 49,675 55,673 62,385
Interest Expense (11,335) (13,773) (15,848) (17,638) (19,201)
Net Interest Income 25,560 29,995 33,828 38,035 43,184
Non-Interest Income (NII) 9,090 10,702 13,047 15,297 18,144
Oper. Income 34,650 40,697 46,875 53,332 61,329
Oper. Expenses (16,510) (19,217) (21,503) (24,781) (28,815)
Pre-provisions profit 18,748 22,082 25,371 28,550 32,514
Provisions & Allowances (7,336) (7,853) (8,882) (9,715) (11,248)
Operating Profits 11,412 14,229 16,489 18,835 21,266
Non-Operating Income 54 74 102 80 90
Exceptionals 0 0 0 0 0
Pre-tax Profit 11,466 14,303 16,591 18,916 21,355
Income Tax (2,326) (2,893) (3,401) (3,783) (4,271)
Minorities (74) (71) (101) (136) (154)
Net Profit 9,067 11,339 13,089 14,997 16,930

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Gross Loans 326,105 393,275 465,457 543,715 629,390
Provisions (12,039) (16,681) (18,684) (21,103) (23,647)
Net Loans 314,067 376,595 446,773 522,612 605,743
Govt. Bonds 47,222 63,006 81,113 65,278 52,551
Securities 9,927 23,765 15,380 24,670 23,688
Other Earnings Assets 0 0 0 0 0
Total Earnings Assets 446,140 545,213 615,851 701,597 783,225
Fixed Assets 26,349 28,426 33,640 35,585 41,666
Non-Earnings Assets 8,414 9,824 8,663 8,782 8,286
Total Assets 508,595 603,032 681,423 777,250 867,402

Customer Deposits 353,937 415,453 478,487 548,728 628,220


Banks Deposits 4,248 9,735 7,321 7,622 8,027
Int. Bearing Liab. - Others 417,327 497,772 566,920 648,267 742,399
Total Liabilities 430,157 513,778 582,252 665,945 742,399
Share capital & Reserves 34,877 36,359 36,359 36,359 36,359
Retained Earnings 41,538 50,798 60,615 72,613 86,157
Shareholders' Funds 76,415 87,157 96,974 108,972 122,516
Minority interests 2,023 2,097 2,197 2,333 2,488
Total Equity & Liabilities 508,595 603,032 681,423 777,250 867,402

www.danareksa.com See important disclosure at the back of this report 97


Exhibit 3. Ratios
Year to 31 Dec (%) 2015A 2016A 2017F 2018F 2019F
Yield on Earning Assets 9.0 8.8 8.6 8.5 8.4
Cost of funds 3.0 3.0 3.0 2.9 2.8
Interest Spread 6.0 5.8 5.6 5.5 5.6
Net Interest Margin 6.2 6.1 5.8 5.8 5.8
Cost/Income Ratio 46.8 46.5 45.9 46.5 47.0
Oper. Exp./Oper. Gross Inc. 75.5 74.2 73.7 73.5 73.6
Gross NPL Ratio 2.7 3.0 2.7 2.7 2.6
LLP/Gross NPL 138.2 143.3 146.8 146.0 145.1
Cost of Credit 2.4 2.2 2.1 1.9 1.9
Loan to Deposit Ratio 92.1 94.7 97.3 99.1 100.2
Loan to Funding Ratio 79.9 80.3 83.2 84.8 85.6
CASA Mix 61.5 64.4 66.1 66.4 66.7
ROAE 13.4 13.9 14.2 14.6 14.6
ROAA 2.0 2.0 2.0 2.1 2.1
CAR 19.5 18.6 18.3 17.6 17.2

Exhibit 4.Dupont and growth


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Dupont
Pre-Tax ROAA 2.5 2.6 2.6 2.6 2.6
Tax Retention rate 79.7 79.8 79.5 80.0 80.0
Post-Tax ROAA 2.0 2.1 2.1 2.1 2.1
Goodwil, Assoc& Min 0.0 0.0 0.0 0.0 0.0
Leverage 6.8 6.8 7.0 7.1 7.1
ROAE 13.6 14.0 14.4 14.8 14.9
Growth (%)
Interest income 10.6 18.6 13.5 12.1 12.1
Net Interest Income 14.2 17.4 12.8 12.4 13.5
Other Oper. Expenses 2.5 16.4 11.9 15.2 16.3
Fee Based Income 19.3 16.8 20.6 16.5 15.5
Pre-Provision Oper. Profit 22.9 17.8 14.9 12.5 13.9
Net Profit 0.1 25.1 15.4 14.6 12.9
Shareholders’ Equity 29.4 14.1 11.3 12.4 12.4
Loan 17.5 20.6 18.4 16.8 15.8
Earnings Asset 19.2 22.2 13.0 13.9 11.6
Deposit 18.3 18.7 14.3 14.5 14.4
Int. Bearing Liab. 20.7 19.3 13.9 14.3 14.5
CASA 11.3 24.4 17.2 15.1 14.9
Total Asset 22.1 18.6 13.0 14.1 11.6

Source : BBNI, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 98


Equity Research
Company Update

BUY BPD Jatim (BJTM IJ)


Maintain A Dividend Play
Last price (IDR) 690 We maintain our BUY call on BJTM with a GGM-derived TP of IDR830, liking
Target Price (IDR) 830 the stock for its decent dividend yield of 6.9% for FY18F’s net profit assuming
a lower payout ratio of 55%. In addition, we also like the bank for its strong
Upside/Downside +20.3%
foothold in East Java’s civil servants multipurpose lending segment with the
Previous Target Price (IDR) 830 potential lifting of the government’s moratorium on civil servants
recruitment. That said, capital will remain healthy at 24.5% due to the low
Stock Statistics
risk weighting on multipurpose loans. Commercial lending, meanwhile, will
Sector Banking be driven mainly by the syndicated loans scheme in our view, as the bank is
Bloomberg Ticker BJTM IJ aiming for a more manageable risk profile.
No of Shrs (mn) 14,975
Generous dividend payer. The dividends paid by BJTM are a key source of
Mkt. Cap (IDRbn/USDmn) 10,332/761
revenues for East Java’s regional government. With a safe level of capital of
Avg. daily T/O (IDRbn/USDmn) 8.0/0.6 24.5% by the end of next year assuming only 7.5% loans growth, the dividend
payout ratio will still be attractive at 55% for next year in our estimate. This
Major shareholders
translates into dividends per share of IDR49 with only +3% net profits growth.
East Java provincial government 51.4%
East Java regencies government 28.5% Consumer lending will continue to be the driver. While multipurpose loans will
Estimated free float (%) 20.0 continue to account for most of BJTM’s loans, the bank can also leverage its
strong customer-base covering regional civil servants to boost its mortgage
EPSConsensus(IDR) lending. While for commercial lending, it will only be driven by the syndicated
2017F 2018F 2019F loans scheme (along with other big SOE banks in general) on certain
infrastructure projects, i.e. the Pasuruan-Banyuwangi toll road. For 2018F, we
Danareksa 85.9 88.4 93.6
estimate consumer loans growth of 8.6%. This will elevate the contribution
Consensus 80.7 88.6 93.4 from consumer loans to total loans to 68.3% by the end of next year.
Danareksa/Cons 6.4 (0.2) 0.2
Lower NIM projection. Amidst tight competition in multipurpose lending with
BJTM relative to JCI Index BBRI as its closest peer, BJTM recently cut its lending rate in this segment to 11-
12% (previously 13-14%). Meanwhile, the funding structure will remain secure
in our view thanks to strong support from the local government, both
institutional and retail customer-based. All in all, we project the NIM to dip by
c.20bps to 8.8% due to a lower asset yield of 12.4% while the blended CoF will
only improve to 3.8% for FY18F.

BUY with a TP of IDR830. We maintain our BUY call on BJTM with a GGM-
derived TP of IDR830 assuming 11% CoE, 15.1% sustainable ROAE and 3% long-
term growth. Our TP implies 1.5x 2018F P/BV. We believe that our target P/BV
multiple is reasonable given the ROAE projection is above the 16% level for the
next three years.

Source : Bloomberg Key Financials


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
PPOP, (IDRbn) 1,796 1,961 1,968 2,025 2,158
Net profit (IDRbn) 885 1,028 1,282 1,320 1,398
EPS (IDR) 59.3 68.9 85.9 88.4 93.6
EPS growth (%) (5.8) 16.2 24.7 3.0 5.9
BVPS, (IDR) 422.0 483.0 521.6 561.4 603.5
Eka Savitri PER (x) 12.0 10.3 8.3 8.0 7.6
(62-21) 2955 5888 ext 3506
PBV (x) 1.7 1.5 1.4 1.3 1.2
eka.savitri@danareksa.co.id
Dividend yield (%) 6.0 6.2 6.7 6.9 7.3
ROAE (%) 14.3 15.2 17.1 16.3 16.1
Source : BJTM, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 99


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Interest Income 4,704 4,904 4,951 5,146 5,470
Interest Expense (1,580) (1,446) (1,436) (1,489) (1,540)
Net Interest Income 3,124 3,458 3,515 3,657 3,930
Non-Interest Income (NII) 339 350 376 415 464
Oper. Income 3,463 3,808 3,891 4,072 4,394
Oper. Expenses (1,667) (1,846) (1,923) (2,047) (2,236)
Pre-provisions profit 1,796 1,961 1,968 2,025 2,158
Provisions & Allowances (599) (510) (205) (223) (261)
Operating Profits 1,197 1,452 1,763 1,802 1,897
Non-Operating Income 64 1 30 32 31
Exceptionals 0 0 0 0 0
Pre-tax Profit 1,261 1,452 1,793 1,834 1,928
Income Tax (377) (424) (511) (513) (530)
Minorities 0 0 0 0 0
Net Profit 885 1,028 1,282 1,320 1,398

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Gross Loans 28,412 29,675 31,152 33,493 36,607
Provisions (988) (1,322) (1,251) (1,310) (1,410)
Net Loans 27,424 28,353 29,901 32,183 35,197
Govt. Bonds 0 0 0 0 0
Securities 5,502 3,528 3,705 3,890 4,085
Other Earnings Assets 0 0 0 0 0
Total Earnings Assets 37,069 38,301 39,713 43,200 47,093
Fixed Assets 696 1,281 1,368 1,460 1,559
Non-Earnings Assets 816 780 450 451 451
Total Assets 42,804 43,033 45,375 49,256 53,683

Customer Deposits 34,264 32,799 35,312 38,439 42,057


Banks Deposits 853 1,218 605 617 629
Int. Bearing Liab. - Others 36,062 35,312 37,450 40,737 44,529
Total Liabilities 36,508 35,823 37,588 40,876 44,673
Share capital & Reserves 4,239 4,766 4,766 4,766 4,766
Retained Earnings 2,057 2,443 3,020 3,614 4,243
Shareholders' Funds 6,295 7,210 7,786 8,380 9,009
Minority interests 0 0 0 0 0
Total Equity & Liabilities 42,804 43,033 45,375 49,256 53,683

www.danareksa.com See important disclosure at the back of this report 100


Exhibit 3. Ratios
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Yield on Earning Assets 13.4 13.0 12.7 12.4 12.1
Cost of funds 4.7 4.1 3.9 3.8 3.6
Interest Spread 8.8 9.0 8.7 8.6 8.5
Net Interest Margin 8.9 9.2 9.0 8.8 8.7
Cost/Income Ratio 48.1 48.5 49.4 50.3 50.9
Oper. Exp./Oper. Gross Inc. 76.3 72.4 66.9 67.6 68.0
Gross NPL Ratio 4.3 4.8 4.7 4.5 4.4
LLP/Gross NPL 81.0 93.5 85.1 86.4 87.2
Cost of Credit 2.2 1.8 0.7 0.7 0.7
Loan to Deposit Ratio 82.9 90.5 88.2 87.1 87.0
Loan to Funding Ratio 79.8 84.8 84.2 83.2 83.2
CASA Mix 74.7 75.4 78.3 79.4 80.2
ROAE 14.3 15.2 17.1 16.3 16.1
ROAA 2.2 2.4 2.9 2.8 2.7
CAR 21.4 24.3 24.2 24.5 24.5

Exhibit 4.Dupont and growth


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Dupont
Pre-Tax ROAA 3.1 3.4 4.1 3.9 3.7
Tax Retention rate 70.1 70.8 71.5 72.0 72.5
Post-Tax ROAA 2.2 2.4 2.9 2.8 2.7
Goodwil, Assoc& Min 0.0 0.0 0.0 0.0 0.0
Leverage 6.5 6.4 5.9 5.9 5.9
ROAE 14.3 15.2 17.1 16.3 16.1
Growth (%)
Interest income 15.2 4.3 1.0 3.9 6.3
Net Interest Income 8.4 10.7 1.7 4.0 7.5
Other Oper. Expenses 19.2 10.8 4.2 6.4 9.2
Fee Based Income 82.8 25.8 17.5 20.0 17.5
Pre-Provision Oper. Profit (3.2) 9.2 0.3 2.9 6.5
Net Profit (5.8) 16.2 24.7 3.0 5.9
Shareholders’ Equity 4.2 14.5 8.0 7.6 7.5
Loan 8.5 4.4 5.0 7.5 9.3
Earnings Asset 12.5 3.3 3.7 8.8 9.0
Deposit 13.7 (3.1) 5.6 8.7 9.3
Int. Bearing Liab. 14.4 (2.1) 6.1 8.8 9.3
CASA 15.9 (2.3) 9.6 10.3 10.3
Total Asset 12.6 0.5 5.4 8.6 9.0

Source : BJTM, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 101


Equity Research
Company Update

BUY Bank Rakyat Indonesia (BBRI IJ)


Maintain Still Big on Micro Lending
Last price (IDR) 3,400 We reiterate our BUY call on BBRI with an unchanged TP of IDR3,900 as we
Target Price (IDR) 3,900 believe that the government’s KUR program will continue to support micro
lending growth following the recent decision by the government to provide a
Upside/Downside +14.7%
higher interest rate subsidy at 10.55%. This is despite a lower KUR lending
Previous Target Price (IDR) 3,900 rate of 7% (previously 9%). We assume BBRI’s KUR loans will grow by 32%
leading to a higher contribution of 11% in the bank’s loans book by the end of
Stock Statistics
2018. The bank’s NIM, meanwhile, is expected to edge down by c.6bps to
Sector Banking 7.8% driven by 8bps lower asset yields with a stable blended CoF of 3.6%. BBRI
Bloomberg Ticker BBRI IJ is one of our top picks in our banking universe. BUY maintained.
No of Shrs (mn) 123,346
Mkt. Cap (IDRbn/USDmn) 419,376/30,884
Biggest micro lender. We view that the government’s KUR program should
benefit BBRI over the long term. This is because the KUR program will provide
Avg. daily T/O (IDRbn/USDmn) 300.1/22.1 BBRI with good quality borrowers for its regular micro loans product, called
Kupedes. Note that the ticket size of KUR micro is limited to only IDR25mn with
Major shareholders
a maximum of four cycles. Thus, if a borrower needs a larger loan, BBRI can
Government of Indonesia 56.8% offer its Kupedes product. With expected 32% growth in KUR loans, the
contribution will reach 32% of the bank’s micro loans by the end of 2018F.
Estimated free float (%) 43.3
Slight decline in the NIM. The government’s recent unofficial announcement
EPSConsensus(IDR) on a higher interest rate subsidy for KUR program should benefit BBRI even with
2017F 2018F 2019F a lower KUR lending rate of 7%. Yet, in a low interest rate environment, we
already assume asset yields will fall by c.8bps to 11.1% in FY18F. While on the
Danareksa 223.1 255.9 310.9
funding side, we conservatively project a stable blended CoF at 3.6%. All in all,
Consensus 229.8 261.8 291.4 we expect the NIM to slip 6bps to 7.8% in FY18F.
Danareksa/Cons (2.9) (2.3) 6.7
Stable assets quality. Significant micro lending exposure in the bank’s loans
BBRI relative to JCI Index book should translate into stable assets quality in our view. The government’s
KUR program, in addition, is guaranteed by two SOE insurance companies
(Askrindo and Jamkrindo). That said, we assume a gross NPLs ratio of 2.2% by
the end of next year with a 233bps credit cost since we expect milder pressure
in the non-SOE corporate segment. This will result in a higher LLC ratio of
172.4% by the end of next year.

Maintain BUY, TP of IDR3,900. We maintain our GGM-derived TP of IDR3,900


(implying 2.6x 2018F P/BV multiple) assuming ROAE of 19.4%, while
maintaining our assumptions of 9.25% CoE and 3% long-term growth.

Source : Bloomberg Key Financials


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
PPOP, (IDRbn) 39,413 47,755 53,245 59,107 67,654
Net profit (IDRbn) 25,398 26,196 27,521 31,563 38,343
EPS (IDR) 205.9 212.4 223.1 255.9 310.9
EPS growth (%) 4.8 3.1 5.1 14.7 21.5
BVPS, (IDR) 914.8 1,187.1 1,320.9 1,487.3 1,689.3
Eka Savitri PER (x) 16.8 16.3 15.5 13.5 11.1
(62-21) 2955 5888 ext 3506
eka.savitri@danareksa.co.id PBV (x) 3.8 2.9 2.6 2.3 2.0
Dividend yield (%) 1.8 2.5 2.6 2.6 3.1
ROAE (%) 24.2 20.3 17.8 18.3 19.6
Source : BBRI, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 102


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Interest Income 85,434 94,788 105,745 115,073 126,126
Interest Expense (27,154) (27,212) (31,710) (34,455) (36,686)
Net Interest Income 58,280 67,576 74,035 80,618 89,440
Non-Interest Income (NII) 12,323 16,799 20,312 24,053 28,447
Oper. Income 70,602 84,375 94,348 104,671 117,887
Oper. Expenses (31,265) (37,098) (41,103) (45,564) (50,234)
Pre-provisions profit 39,413 47,755 53,245 59,107 67,654
Provisions & Allowances (8,900) (13,791) (17,533) (17,969) (19,192)
Operating Profits 30,513 33,965 35,712 41,138 48,462
Non-Operating Income 1,981 9 75 172 128
Exceptionals 0 0 0 0 0
Pre-tax Profit 32,494 33,974 35,787 41,310 48,590
Income Tax (7,083) (7,746) (8,231) (9,708) (10,204)
Minorities (13) (32) (35) (39) (43)
Net Profit 25,398 26,196 27,521 31,563 38,343

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Gross Loans 564,481 643,471 724,651 819,729 936,684
Provisions (17,162) (22,184) (28,431) (31,431) (35,093)
Net Loans 547,318 621,287 696,220 788,298 901,591
Govt. Bonds 3,816 3,318 3,314 2,189 2,189
Securities 124,874 131,483 132,473 131,239 119,319
Other Earnings Assets 16,262 19,327 22,258 25,176 28,511
Total Earnings Assets 781,292 903,452 987,077 1,085,737 1,196,685
Fixed Assets 14,687 32,262 35,838 39,626 43,848
Non-Earnings Assets 13,515 14,491 14,003 14,247 14,125
Total Assets 878,426 1,003,644 1,096,959 1,211,732 1,367,744

Customer Deposits 649,373 732,559 806,631 899,549 1,004,443


Banks Deposits 11,165 2,230 11,380 11,604 11,832
Int. Bearing Liab. - Others 748,344 836,326 914,346 1,009,272 1,140,635
Total Liabilities 765,299 856,832 933,595 1,027,809 1,158,851
Share capital & Reserves 5,558 20,446 20,446 20,446 20,446
Retained Earnings 107,274 125,975 142,487 163,004 187,927
Shareholders' Funds 112,833 146,421 162,933 183,450 208,373
Minority interests 294 391 430 473 521
Total Equity & Liabilities 878,426 1,003,644 1,096,959 1,211,732 1,367,744

www.danareksa.com See important disclosure at the back of this report 103


Exhibit 3. Ratios
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Yield on Earning Assets 11.3 11.3 11.2 11.1 11.1
Cost of funds 3.8 3.4 3.6 3.6 3.4
Interest Spread 7.6 7.8 7.6 7.5 7.6
Net Interest Margin 7.7 8.0 7.8 7.8 7.8
Cost/Income Ratio 44.2 43.7 43.6 43.5 42.6
Oper. Exp./Oper. Gross Inc. 68.8 69.7 71.7 70.4 68.6
Gross NPL Ratio 2.0 2.0 2.3 2.2 2.1
LLP/Gross NPL 150.5 169.0 171.5 172.4 175.0
Cost of Credit 1.7 2.3 2.6 2.3 2.2
Loan to Deposit Ratio 86.9 87.8 89.8 91.1 93.3
Loan to Funding Ratio 76.5 78.0 80.4 82.4 83.3
CASA Mix 57.8 59.8 59.8 60.4 61.1
ROAE 24.1 20.2 17.8 18.2 19.6
ROAA 3.0 2.8 2.6 2.7 3.0
CAR 18.6 21.6 20.4 20.5 20.4

Exhibit 4.Dupont and growth


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Dupont
Pre-Tax ROAA 3.9 3.6 3.4 3.6 3.8
Tax Retention rate 78.2 77.2 77.0 76.5 79.0
Post-Tax ROAA 3.0 2.8 2.6 2.7 3.0
Goodwil, Assoc& Min 0.0 0.0 0.0 0.0 0.0
Leverage 8.0 7.3 6.8 6.7 6.6
ROAE 24.2 20.3 17.8 18.3 19.6
Growth (%)
Interest income 13.7 10.9 11.6 8.8 9.6
Net Interest Income 13.3 16.0 9.6 8.9 10.9
Other Oper. Expenses 17.3 18.7 10.8 10.9 10.2
Fee Based Income 21.1 25.4 22.4 18.4 15.6
Pre-Provision Oper. Profit 15.6 21.2 11.5 11.0 14.5
Net Profit 4.8 3.1 5.1 14.7 21.5
Shareholders’ Equity 15.7 29.8 11.3 12.6 13.6
Loan 14.0 14.0 12.6 13.1 14.3
Earnings Asset 7.4 15.6 9.3 10.0 10.2
Deposit 7.5 11.2 11.3 11.4 11.5
Int. Bearing Liab. 7.8 11.8 9.3 10.4 13.0
CASA 18.4 15.2 11.2 12.6 12.8
Total Asset 9.5 14.3 9.3 10.5 12.9

Source : BBRI, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 104


Equity Research
Company Update

BUY Bank Tabungan Negara (BBTN IJ)


Maintain A Housing-centric Bank
Last price (IDR) 3,470 We continue to like BBTN, noting its resilient business model on mortgages.
Target Price (IDR) 4,000 Subsidized mortgages will remain the main growth driver with a IDR2.5tn
government budget for next year’s interest rate subsidy scheme. We believe
Upside/Downside +15.3%
this should be sufficient to finance around 225K house purchases. Meanwhile,
Previous Target Price (IDR) 4,000 the formation of BP-Tapera should reduce uncertainty in subsidized
mortgages funding going forward. BBTN is one of top picks in our banking
Stock Statistics
universe. BUY maintained, TP of IDR4,000.
Sector Banking
Bloomberg Ticker BBTN IJ Focusing on the housing-related segment. The housing-related segment, i.e.
No of Shrs (mn) 10,590 mortgages for both subsidized and non-subsidized houses also house
Mkt. Cap (IDRbn/USDmn) 36,747/2,706
construction, will remain its bread and butter business amid a housing backlog
of c.11mn units. Furthermore, IDR2.5tn in next year’s budget for interest rate
Avg. daily T/O (IDRbn/USDmn) 72.0/5.3 subsidies can finance c.225K houses. While, the formation of BP-Tapera should
gradually replace the subsidized mortgage funding from the state budget going
Major shareholders
forward. We thus project 19.5% growth in subsidized mortgages, resulting in a
Government of Indonesia 60.0% 36.4% contribution to total loans book as of December 2018F.
Estimated free float 40.0%
More predictable earnings growth. Given its substantial mortgages exposure,
EPS Consensus(IDR) we expect stable credit costs. This is because the mortgages are secured by the
2017F 2018F 2019F physical property themselves. While for construction loans, BBTN focuses more
Danareksa 296.1 345.5 400.6 on providing loans for projects with working orders (Surat Perintah Kerja/SPK).
All in all, with a stable NIM at 4.4% and 48bps credit costs, we expect 16.7%
Consensus 287.1 337.3 382.7
earnings growth to IDR3.7tn next year.
Danareksa/Cons 3.1 2.4 4.7
More back up plans on capital. With a 17.2% loans growth projection for next
BBTN relative to JCI Index year, the bank’s capital level will continue to fall to 15.2%. BBTN’s management
is also still waiting for a lower risk weight policy on subsidized mortgages as this
sub-segment currently has a risk weight of 35%. Additionally, BBTN also aims to
issue subordinated notes of IDR2tn to provide supplemental capital. While this
amount will boost its CAR by c.200bps, we have not included it in our
assumptions.

BUY: IDR4,000TP. Maintain BUY with a GGM-derived TP of IDR4,000 assuming


a lower CoE at 10.7% (lower risk factor of 0.7% from 1%), 16.2% sustainable
ROAE and 3% long-term growth. Our new TP implies 1.7x 2018F P/BV. BBTN is
one of our top picks in our banking universe.

Source : Bloomberg
Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
PPOP, (IDRbn) 3,427 4,060 4,770 5,652 6,474
Net profit (IDRbn) 1,851 2,619 3,135 3,658 4,241
EPS (IDR) 174.9 247.4 296.1 345.5 400.6
EPS growth (%) 61.3 41.5 19.7 16.7 15.9
Eka Savitri BVPS, (IDR) 1,309.4 1,806.9 2,043.8 2,320.2 2,648.7
(62-21) 2955 5888 ext 3506
eka.savitri@danareksa.co.id PER (x) 16.6 11.7 9.8 8.4 7.2
PBV (x) 2.2 1.6 1.4 1.2 1.1
Dividend yield (%) 1.2 1.7 2.0 2.4 2.5
ROAE (%) 14.2 15.9 15.4 15.8 16.1
Source : BBTN, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 105


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Interest Income 14,966 17,139 19,835 22,952 26,135
Interest Expense (8,155) (8,975) (10,379) (11,910) (13,506)
Net Interest Income 6,811 8,164 9,456 11,042 12,629
Non-Interest Income (NII) 939 1,000 1,481 1,729 2,010
Oper. Income 7,751 9,164 10,937 12,771 14,640
Oper. Expenses (4,490) (5,387) (6,167) (7,120) (8,166)
Pre-provisions profit 3,427 4,060 4,770 5,652 6,474
Provisions & Allowances (894) (708) (782) (998) (1,106)
Operating Profits 2,534 3,352 3,988 4,654 5,368
Non-Operating Income 8 (22) 0 0 0
Exceptionals 0 0 0 0 0
Pre-tax Profit 2,542 3,330 3,988 4,654 5,368
Income Tax (691) (711) (854) (996) (1,127)
Minorities 0 0 0 0 0
Net Profit 1,851 2,619 3,135 3,658 4,241

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Gross Loans 127,732 150,222 179,321 210,094 245,206
Provisions (1,726) (1,725) (1,907) (2,161) (2,445)
Net Loans 126,006 148,497 177,413 207,932 242,761
Govt. Bonds 8,231 9,244 6,988 5,069 4,910
Securities 1,808 4,172 7,150 7,500 7,650
Other Earnings Assets 10,899 13,833 13,520 15,335 17,452
Total Earnings Assets 156,710 195,373 231,201 268,259 308,474
Fixed Assets 3,237 6,557 6,841 7,209 7,446
Non-Earnings Assets 3,102 4,157 5,570 7,463 10,001
Total Assets 171,808 214,168 251,901 293,598 339,893

Customer Deposits 127,709 159,988 190,596 225,923 266,197


Banks Deposits 1,721 3,653 2,797 3,356 3,323
Int. Bearing Liab. - Others 153,745 190,026 225,142 263,646 306,181
Total Liabilities 157,947 195,038 230,263 269,033 311,850
Share capital & Reserves 7,207 10,201 10,201 10,201 10,201
Retained Earnings 6,653 8,930 11,438 14,364 17,842
Shareholders' Funds 13,860 19,131 21,638 24,565 28,043
Minority interests 0 0 0 0 0
Total Equity & Liabilities 171,808 214,168 251,901 293,598 339,893

www.danareksa.com See important disclosure at the back of this report 106


Exhibit 3. Ratios
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Yield on Earning Assets 10.4 9.7 9.3 9.2 9.1
Cost of funds 5.8 5.2 5.0 4.9 4.7
Interest Spread 4.6 4.5 4.3 4.3 4.3
Net Interest Margin 4.7 4.6 4.4 4.4 4.4
Cost/Income Ratio 56.7 57.0 56.4 55.7 55.8
Oper. Exp./Oper. Gross Inc. 84.2 81.8 81.3 81.1 80.9
Gross NPL Ratio 3.6 2.8 2.5 2.4 2.3
LLP/Gross NPL 34.7 37.1 39.1 39.7 40.2
Cost of Credit 0.8 0.5 0.5 0.5 0.5
Loan to Deposit Ratio 100.0 93.9 94.1 93.0 92.1
Loan to Funding Ratio 84.2 79.9 80.6 80.7 81.1
CASA Mix 48.0 49.3 51.7 52.9 53.3
ROAE 14.2 15.9 15.4 15.8 16.1
ROAA 1.2 1.4 1.3 1.3 1.3
CAR 17.7 20.4 16.7 15.2 15.3

Exhibit 4.Dupont and growth


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Dupont
Pre-Tax ROAA 1.6 1.7 1.7 1.7 1.7
Tax Retention rate 72.8 78.6 78.6 78.6 79.0
Post-Tax ROAA 1.2 1.4 1.3 1.3 1.3
Goodwil, Assoc& Min 0.0 0.0 0.0 0.0 0.0
Leverage 12.1 11.7 11.4 11.8 12.0
ROAE 14.2 15.9 15.4 15.8 16.1
Growth (%)
Interest income 16.9 14.5 15.7 15.7 13.9
Net Interest Income 24.6 19.9 15.8 16.8 14.4
Other Oper. Expenses 12.0 20.0 14.5 15.4 14.7
Fee Based Income 13.8 10.8 22.0 18.7 17.4
Pre-Provision Oper. Profit 45.9 18.4 17.5 18.5 14.6
Net Profit 61.6 41.5 19.7 16.7 15.9
Shareholders’ Equity 13.1 38.0 13.1 13.5 14.2
Loan 20.2 17.6 19.4 17.2 16.7
Earnings Asset 18.7 24.7 18.3 16.0 15.0
Deposit 20.2 26.4 18.2 18.6 17.6
Int. Bearing Liab. 19.3 23.6 18.5 17.1 16.1
CASA 25.3 29.9 23.8 21.4 18.6
Total Asset 18.8 24.7 17.6 16.6 15.8

Source : BBTN, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 107


Equity Research
Company Update

Bank Tabungan Pensiunan Nasional


BUY (BTPN IJ)
Maintain Business Transformation is Still Ongoing
Last price (IDR) 2,400 At 0.8x 2018 P/BV, BTPN looks undervalued in our view. Furthermore, its
Target Price (IDR) 2,800 ongoing business transformation towards a digitalized business model will
support the mass-market segment through optimisation of BTPN Wow! and
Upside/Downside +16.7%
Jenius initiatives. We also expect the bank’s assets quality to remain
Previous Target Price (IDR) 2,800 manageable with a gross NPLs ratio of 0.8% backed by its prudent risk
management team. All in all, with opex expected to decline by 1.4% to
Stock Statistics
IDR7.2tn and a stable credit cost of 140bps, net profits should rebound to
Sector Banking IDR1.6tn next year. BUY maintained with a GGM-derived TP of IDR2,800.
Bloomberg Ticker BTPN IJ
No of Shrs (mn) 5,745 The progress to revamp its business model is on-track. The business
transformation is still ongoing, shifting the bank away from a brick and mortar
Mkt. Cap (IDRbn/USDmn) 13,788/1,015
business model to a more tech savvy business model. Going forward, BTPN will
Avg. daily T/O (IDRbn/USDmn) 0.6/0.0 utilize more BTPN Wow! and Jenius digital initiatives for both lending and
funding activities. BTPN will also consolidate its conventional outlets to offer
Major shareholders
comprehensive products and services from previously dedicated outlets for
Sumitomo Mitsui 40.0% each business line, i.e. BTPN Purna Bakti for its pension loan products and BTPN
Summit Global Capital Management BV 20.0% Sinaya for its funding products.
Estimated free float 40.0%
Sound assets quality. Unlike its competitors in the mass-market segment which
EPS Consensus(IDR) have struggled with higher NPLs since 2014, BTPN has managed its loans
2017F 2018F 2019F portfolio well. That said, despite the rebalancing in the loans mix towards
commercial lending, we assume that the gross NPL ratio can be maintained at
Danareksa 221.6 283.3 338.5
0.8% with a 140bps credit cost in our forecast.
Consensus 217.9 342.0 415.0
Danareksa/Cons 1.7 (17.2) (18.4) Decent capital level. BTPN is well-known for its abundant level of capital due
to its 0% payout ratio policy and high-margin business model. In addition, micro
BTPN relative to JCI Index lending own lower risk weight compared to other loans segment, ie corporate
lending. As such, we expect CAR will still at the healthy level of 23.5% by end of
December 2018F assuming 10.4% loans growth.

BUY maintained, TP of IDR2,800. We maintain our BUY call on BTPN with an


unchanged GGM-derived TP of IDR2,800 (implying 0.9x 2018F P/BV) assuming
11.1% CoE, 10.3% sustainable ROAEs and 3% long-term growth.

Key Financials
Source : Bloomberg Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
PPOP, (IDRbn) 3,246 3,479 2,919 3,572 4,006
23
Net profit (IDRbn) 1,702 1,752 1,273 1,628 1,945
EPS (IDR) 291.4 305.0 221.6 283.3 338.5
EPS growth (%) (8.9) 4.7 (27.3) 27.8 19.5
BVPS, (IDR) 2,367.9 2,797.9 2,900.8 3,099.1 3,346.2
PER (x) 8.5 8.1 11.2 8.8 7.3
Eka Savitri PBV (x) 1.0 0.9 0.9 0.8 0.7
(62-21) 2955 5888 ext 3506
eka.savitri@danareksa.co.id Dividend yield (%) 0.0 4.0 3.1 3.4 3.7
ROAE (%) 13.2 11.7 7.8 9.4 10.5
Source : BTPN, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 108


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Interest Income 13,004 13,695 14,369 14,910 15,817
Interest Expense (5,308) (4,841) (4,766) (4,901) (4,941)
Net Interest Income 7,696 8,854 9,604 10,009 10,876
Non-Interest Income (NII) 706 689 655 802 962
Oper. Income 8,401 9,543 10,258 10,811 11,838
Oper. Expenses (5,156) (6,064) (7,339) (7,239) (7,832)
Pre-provisions profit 3,246 3,479 2,919 3,572 4,006
Provisions & Allowances (786) (870) (938) (1,037) (1,099)
Operating Profits 2,460 2,610 1,981 2,536 2,907
Non-Operating Income (27) (5) (15) (16) (12)
Exceptionals 0 0 0 0 0
Pre-tax Profit 2,433 2,605 1,966 2,520 2,895
Income Tax (680) (729) (492) (630) (637)
Minorities (51) (124) (201) (262) (314)
Net Profit 1,702 1,752 1,273 1,628 1,945

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Gross Loans 58,587 63,168 68,214 75,316 83,967
Provisions (544) (685) (759) (850) (948)
Net Loans 58,044 62,483 67,455 74,466 83,020
Govt. Bonds 0 0 0 0 0
Securities 4,930 5,953 6,559 7,031 7,393
Other Earnings Assets 667 765 0 0 0
Total Earnings Assets 71,558 80,492 84,865 93,327 102,490
Fixed Assets 1,888 2,880 3,282 3,755 4,262
Non-Earnings Assets 2,931 3,736 3,333 3,535 3,434
Total Assets 81,040 91,371 101,812 111,746 124,544

Customer Deposits 57,222 61,806 67,712 75,151 84,924


Banks Deposits 0 915 729 743 758
Int. Bearing Liab. - Others 65,726 73,490 81,742 90,261 101,117
Total Liabilities 66,863 74,823 84,471 93,003 104,068
Share capital & Reserves 1,693 2,208 2,208 2,208 2,208
Retained Earnings 12,136 13,866 14,457 15,596 17,016
Shareholders' Funds 13,829 16,074 16,666 17,805 19,224
Minority interests 348 475 676 938 1,252
Total Equity & Liabilities 81,040 91,371 101,812 111,746 124,544

www.danareksa.com See important disclosure at the back of this report 109


Exhibit 3. Ratios
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Yield on Earning Assets 18.8 18.0 17.4 16.7 16.2
Cost of funds 8.3 7.0 6.1 5.7 5.2
Interest Spread 10.5 11.1 11.2 11.0 11.0
Net Interest Margin 11.1 11.6 11.6 11.2 11.1
Cost/Income Ratio 61.4 63.5 71.5 67.0 66.2
Oper. Exp./Oper. Gross Inc. 82.1 81.9 86.8 83.9 82.7
Gross NPL Ratio 0.7 0.8 0.8 0.8 0.8
LLP/Gross NPL 131.8 136.5 138.6 139.3 139.3
Cost of Credit 1.4 1.4 1.4 1.4 1.4
Loan to Deposit Ratio 102.4 102.2 100.7 100.2 98.9
Loan to Funding Ratio 89.2 86.1 83.6 83.6 83.2
CASA Mix 13.6 12.2 14.6 16.8 18.4
ROAE 13.2 11.7 7.8 9.4 10.5
ROAA 2.2 2.0 1.3 1.5 1.6
CAR 24.0 24.4 24.5 23.5 23.3

Exhibit 4.Dupont and growth


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Dupont
Pre-Tax ROAA 3.1 3.0 2.0 2.4 2.5
Tax Retention rate 72.0 72.0 75.0 75.0 78.0
Post-Tax ROAA 2.2 2.2 1.5 1.8 1.9
Goodwil, Assoc& Min (0.1) (0.1) (0.2) (0.2) (0.3)
Leverage 6.1 5.8 5.9 6.2 6.4
ROAE 13.2 11.7 7.8 9.4 10.5
Growth (%)
Interest income 5.8 5.3 4.9 3.8 6.1
Net Interest Income 9.3 15.1 8.5 4.2 8.7
Other Oper. Expenses 15.1 17.6 21.0 (1.4) 8.2
Fee Based Income (4.6) (2.4) (5.0) 22.5 20.0
Pre-Provision Oper. Profit (1.7) 7.2 (16.1) 22.4 12.1
Net Profit (8.9) 3.0 (27.3) 27.8 19.5
Shareholders’ Equity 16.2 16.2 3.7 6.8 8.0
Loan 12.7 7.8 8.0 10.4 11.5
Earnings Asset 7.5 12.5 5.4 10.0 9.8
Deposit 11.9 9.6 9.1 10.9 12.9
Int. Bearing Liab. 6.5 11.8 11.2 10.4 12.0
CASA (1.3) (1.7) 30.7 27.2 23.9
Total Asset 8.0 12.7 11.4 9.8 11.5

Source : BTPN, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 110


Equity Research
Company Update

BUY Bekasi Fajar Industrial Estate (BEST IJ)


Maintain Beating expectations
Last price (IDR) 250 We reiterate our BUY call on BEST with target price of IDR320. With stellar
Target Price (IDR) 320 marketing sales in 11M17 that beat our forecast and the management’s
target, we expect BEST to record sound financial performance in 4Q17 and
Upside/Downside +28.0%
2018F. For marketing sales, we expect BEST to record land sales of 40ha in
Previous Target Price (IDR) 320 2018, inline with the management’s guidance of 35-45ha. We believe the land
sales will be backed by existing inquiries that have currently reached 78ha.
Stock Statistics
Sector Industrial Estate Stellar marketing sales in 11M17. BEST recorded industrial land sales of 42ha
Bloomberg Ticker BEST IJ in 11M17, beating our land sales target of 35ha and the management’s target
No of Shrs (mn) 9,647 of 30-40ha. On a monthly basis, BEST recorded marketing sales of 12ha,
supported by sizable land sales to two consumer goods companies. Despite
Mkt. Cap (IDR bn/USDmn) 2,412/178
outstanding inquiries of 78ha, we believe there will be no additional land sales
Avg. daily T/O (IDR bn/USDmn) 4.4/0.3 in December 2017. As such, our full year marketing sales target is revised up
from 35ha to 42ha.
Major shareholders
Argo Manunggal Land Development 48.1% 2018 land sales: to be backed by existing inquiries. With the current inquiries
Daiwa House Industry Corporate 10.0% outstanding that have reached 78ha sourced from 14 companies, we also revise
Estimated free float 41.9% up our land sales target for 2018 from 35ha to 40ha. Our target is in-line with
the management’s land sales guidance of 35-45ha. Nonetheless, for the pricing,
EPS Consensus(IDR) we maintain our flat price assumption of IDR2.6mn/sqm. While the company
2017F 2018F 2019F stated that it aims to increase the offered price from IDR2.5-3.0mn/sqm in 2017
Danareksa 50.6 56.3 52.5 to IDR2.6-3.2mn/sqm, we believe that with the aggressive land sales target in
Consensus 41.5 51.7 56.7
2018, the company may decide to offer price discounts in a bid to achieve its
land sales target.
Danareksa/Cons 22.0 9.0 (7.5)

BEST relative to JCI Index Stellar financial performance expected in 4Q17 and 2018. We expect BEST to
record stellar financial performance in 4Q17, mainly supported by recognition
of 13ha of industrial land sales. Revenues are expected to reach IDR436bn
(+103.8%qoq) in 4Q17 with net profits of IDR162bn (+45.8%qoq). Meanwhile,
for 2018, we expect BEST to record 13.8%yoy revenues growth and 11.3%yoy
net profits growth, backed by an estimated 31ha backlog.

Reiterate BUY. We reiterate our BUY call on BEST with target price of IDR320.
In arriving on our target price, we use NAV based valuation. BEST currently
trades at a 78.3% discount to NAV, or nears to its historical +1SD discount to
NAV of 78.1%.

Source : Bloomberg Key Financials


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 687 824 1,075 1,224 1,202
Antonia Febe Hartono, CFA EBITDA, (IDRbn) 406 530 635 727 698
(62-21) 2955 5888 ext.3504
EBITDA Growth, (%) (15.1) 30.6 19.8 14.6 (4.0)
antonia.hartono@danareksa.com
Net profit (IDRbn) 212 336 488 543 506
EPS (IDR) 21.9 34.8 50.6 56.3 52.5
Natalia Sutanto EPS growth (%) (45.9) 58.8 45.4 11.3 (6.9)
(62-21) 2955 5888 ext.3508 BVPS, (IDR) 315.1 351.2 399.9 453.4 502.7
natalia.sutanto@danareksa.com DPS, (IDR) (2.3) (1.2) (2.0) (2.8) (3.2)
PER (x) 11.4 7.2 4.9 4.4 4.8
PBV (x) 0.8 0.7 0.6 0.6 0.5
Dividend yield (%) (0.9) (0.5) (0.8) (1.1) (1.3)
EV/EBITDA (x) 8.5 6.9 5.9 5.1 5.3
Source : BEST, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 111


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 687 824 1,075 1,224 1,202
COGS (201) (211) (327) (370) (365)
Gross profit 486 613 749 854 838
EBITDA 406 530 635 727 698
Oper. profit 396 521 620 709 678
Interest income 0 0 0 0 0
Interest expense (90) (118) (105) (137) (143)
Forex Gain/(Loss) 0 0 0 0 0
Income From Assoc. Co’s 5 (3) 4 7 7
Other Income (Expenses) (65) (30) 0 (1) (2)
Pre-tax profit 245 369 519 578 541
Income tax (33) (33) (30) (34) (34)
Minority interest 0 0 0 (1) 0
Net profit 212 336 488 543 506
Core Net Profit 212 336 488 543 506

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 378 442 374 461 576
Receivables 106 235 248 282 277
Inventory 366 736 815 887 961
Other Curr. Asset 658 435 487 555 547
Fixed assets - Net 110 172 239 303 364
Other non-curr.asset 3,013 3,184 3,511 3,810 4,116
Total asset 4,631 5,205 5,674 6,297 6,841

ST Debt 236 457 49 30 1,113


Payables 99 21 33 37 37
Other Curr. Liabilities 49 40 43 50 49
Long Term Debt 1,187 1,235 1,626 1,741 728
Other LT. Liabilities 18 62 62 63 63
Total Liabilities 1,589 1,815 1,813 1,920 1,989
Shareholder'sFunds 3,040 3,388 3,858 4,374 4,849
Minority interests 2 3 3 3 3
Total Equity & Liabilities 4,631 5,205 5,674 6,297 6,841

www.danareksa.com See important disclosure at the back of this report 112


Exhibit 3.Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 212 336 488 543 506
Depreciation and Amort. 10 9 14 18 20
Change in Working Capital (371) (363) (128) (164) (62)
OtherOper. Cash Flow (525) 49 (201) (142) (144)
Operating Cash Flow (675) 32 173 256 320

Capex (58) (73) (81) (81) (81)


Others Inv. Cash Flow (55) (57) (20) (20) (20)
Investing Cash Flow (113) (130) (101) (101) (101)

Net change in debt 957 268 (17) 96 69


New Capital 3 25 0 0 0
Dividend payment (22) (12) (19) (27) (30)
Other Fin. Cash Flow (90) (118) (105) (137) (143)
Financing Cash Flow 848 163 (141) (68) (104)

Net Change in Cash 60 64 (69) 87 115


Cash - begin of the year 318 378 442 374 461
Cash - end of the year 378 442 374 461 576

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales (18.2) 20.0 30.5 13.8 (1.8)
EBITDA (15.1) 30.6 19.8 14.6 (4.0)
Operating profit (16.1) 31.5 19.1 14.3 (4.3)
Net profit (45.9) 58.8 45.4 11.3 (6.9)
Profitability (%)
Gross margin 70.7 74.4 69.6 69.8 69.7
EBITDA margin 59.1 64.3 59.0 59.4 58.1
Operating margin 57.6 63.1 57.7 57.9 56.4
Net margin 30.8 40.8 45.4 44.4 42.1
ROAA 5.1 6.8 9.0 9.1 7.7
ROAE 7.2 10.5 13.5 13.2 11.0
Leverage
Net Gearing (x) 0.3 0.4 0.3 0.3 0.3
Interest Coverage (x) 4.4 4.4 5.9 5.2 4.7

Source : BEST, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 113


Equity Research
Company Update

BUY Bukit Asam (PTBA IJ)


Maintain Enticing valuation
Last price (IDR) 2,460 We like Bukit Asam (PTBA) given: a) better coal production growth at 3-year
Target Price (IDR) 2,900 CAGR of 8.4% in 2016 – 2019 despite flat coal production growth in 2018, b)
Upside/Downside +17.9%
sustained growth from the power business over the medium term, and c) its
abundant reserves which will underpin its coal production going forward.
Previous Target Price (IDR) 2,900
Maintain BUY recommendation with target price of IDR2,900 (based on DCF
Stock Statistics valuation with WACC of 11.5% and long-term growth of 3%).
Sector Coal Mining
Better coal production at 3-year CAGR of 8.4% despite flat production in 2018.
Bloomberg Ticker PTBA IJ With the expectation of improvements in the railway capacity by 15.7% yoy to
No of Shrs (mn) 10,871 20.5mn tonnes in 2017 thanks to the completion of double-track railway
Mkt. Cap (IDR bn/USDmn) 26,742/1,969 between Muara-Enim and Prabumulih, the company expects coal production
Avg. daily T/O (IDR bn/USDmn) 44.9/3.3 to increase by 11.7% yoy to 21.9mn tonnes in 2017. While the management
expects flat growth in coal production in 2018 due to railway capacity
Major shareholders limitations, coal production is nonetheless expected to improve further in 2019
Government of Indonesia 65.0% owing to additional locomotives and wagons. As such, coal production is
Estimated Free Float 26.5%
expected to increase by 3-year CAGR of 8.4% in 2016 – 2019.

Expect a higher stripping ratio. Despite firm coal prices, PTBA’s stripping ratio
EPS Consensus(IDR) fell to 3.8x in 9M17 from 5.5x in 9M16. Hence, the total costs declined by 13.2%
2017F 2018F 2019F yoy. And with the company expecting a higher stripping ratio of around 4.5 –
Danareksa 306.5 305.1 330.1
5.0x for 2018 (up from this year’s expectation of 4.0x), cash costs will increase
further. As such, we expect a slight decline in the net margin to 18.7% in 2018
Consensus 287.5 280.3 278.1
from 18.9% in 2017.
Danareksa/Cons 6.6 8.9 18.7

PTBA relative to JCI Index The power business to sustain growth in the medium term. The company
currently operates three coal-based power plants, namely: a) Banjarsari
2x110MW, b) Tanjung Enim 3x10MW and c) Tarahan Port 2x8MW. Moreover,
its subsidiary Huadian Bukit Asam Power (HBAP) – in which PTBA has a 45%
stake - recently signed a power purchase agreement amendment with PLN for
the Central Banko power plant (Sumsel 8) with capacity of 2 x 620 MW. With
investment costs of USD1.7bn and an expected commercial operation date of
2021, the power business will provide sustained growth in earnings over the
medium term.

Maintain BUY with target price of IDR2,900 (based on DCF valuation with WACC
of 11.5% and long-term growth of 3%). The stock is currently trading
undemanding at 8.1x 2018F PE. Our target price implies 2018F PE of 9.5x.
Source : Bloomberg Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 13,734 14,059 17,653 17,743 19,753
EBITDA, (IDRbn) 2,826 2,876 4,662 4,768 5,281
EBITDA Growth, (%) 21.0 1.8 62.1 2.3 10.8
Net profit (IDRbn) 2,036 2,006 3,332 3,317 3,588
EPS (IDR) 187.3 184.6 306.5 305.1 330.1
Stefanus Darmagiri EPS growth (%) 9.4 (1.5) 66.1 (0.5) 8.2
(62-21) 29 555 831 BVPS, (IDR) 844.0 958.7 1,200.6 1,398.4 1,621.8
stefanus.darmagiri@danareksa.com DPS, (IDR) 64.9 56.2 64.6 107.3 106.8
PER (x) 13.1 13.3 8.0 8.1 7.5
PBV (x) 2.9 2.6 2.0 1.8 1.5
Dividend yield (%) 2.6 2.3 2.6 4.4 4.3
EV/EBITDA (x) 9.1 8.8 5.3 5.5 5.2
Source : PTBA, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 114


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 13,734 14,059 17,653 17,743 19,753
COGS (9,594) (9,657) (11,279) (11,345) (12,699)
Gross profit 4,140 4,401 6,374 6,398 7,054
EBITDA 2,826 2,876 4,662 4,768 5,281
Oper. profit 2,414 2,531 4,279 4,233 4,646
Interest income 273 202 184 210 162
Interest expense (157) (149) (103) (103) (103)
Forex Gain/(Loss) 0 0 0 0 0
Income From Assoc. Co’s 134 150 150 150 150
Other Income (Expenses) 0 (37) (37) (37) (37)
Pre-tax profit 2,664 2,697 4,473 4,453 4,819
Income tax (627) (673) (1,118) (1,113) (1,205)
Minority interest (1) (18) (23) (23) (26)
Net profit 2,036 2,006 3,332 3,317 3,588
Core Net Profit 2,036 2,006 3,332 3,317 3,588

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 3,115 3,675 4,195 3,232 1,394
Receivables 1,596 2,285 1,935 1,944 2,165
Inventory 1,233 1,102 1,450 1,458 1,632
Other Curr. Asset 1,654 1,288 1,030 1,030 1,030
Fixed assets - Net 5,579 6,088 9,714 13,161 16,427
Other non-curr.asset 3,716 4,139 4,202 4,321 4,455
Total asset 16,894 18,577 22,526 25,148 27,103

ST Debt 1,336 1,439 1,500 2,000 1,500


Payables 1,146 539 1,347 1,355 1,517
Other Curr. Liabilities 2,441 3,065 3,235 3,175 3,016
Long Term Debt 670 751 751 751 751
Other LT. Liabilities 2,014 2,231 2,488 2,488 2,488
Total Liabilities 7,606 8,024 9,320 9,769 9,271
Shareholder'sFunds 9,175 10,421 13,051 15,202 17,630
Minority interests 113 131 154 177 203
Total Equity & Liabilities 16,894 18,577 22,526 25,148 27,103

www.danareksa.com See important disclosure at the back of this report 115


Exhibit 3.Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 2,036 2,006 3,332 3,317 3,588
Depreciation and Amort. 412 345 383 535 634
Change in Working Capital 236 (72) 1,300 430 (892)
OtherOper. Cash Flow (901) (404) (163) (235) (193)
Operating Cash Flow 1,782 1,875 4,852 4,047 3,138

Capex (721) (301) (3,990) (3,975) (3,900)


Others Inv. Cash Flow (120) 188 184 210 162
Investing Cash Flow (841) (113) (3,806) (3,765) (3,738)

Net change in debt (642) (353) 0 0 0


New Capital (402) 0 0 0 0
Dividend payment (706) (611) (702) (1,166) (1,161)
Other Fin. Cash Flow (116) (239) 177 (80) (77)
Financing Cash Flow (1,866) (1,203) (525) (1,246) (1,238)

Net Change in Cash (924) 559 521 (964) (1,838)


Cash - begin of the year 4,039 3,115 3,675 4,195 3,232
Cash - end of the year 3,115 3,675 4,195 3,232 1,394

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 5.0 2.4 25.6 0.5 11.3
EBITDA 21.0 1.8 62.1 2.3 10.8
Operating profit 17.8 4.8 69.1 (1.1) 9.8
Net profit 9.4 (1.5) 66.1 (0.5) 8.2
Profitability (%)
Gross margin 30.1 31.3 36.1 36.1 35.7
EBITDA margin 20.6 20.5 26.4 26.9 26.7
Operating margin 17.6 18.0 24.2 23.9 23.5
Net margin 14.8 14.3 18.9 18.7 18.2
ROAA 12.8 11.3 16.2 13.9 13.7
ROAE 23.2 20.5 28.4 23.5 21.9
Leverage
Net Gearing (x) (0.1) (0.1) (0.1) 0.0 0.0
Interest Coverage (x) 15.3 17.0 41.7 41.3 45.3

Source : PTBA, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 116


Equity Research
Company Update

BUY Bumi Serpong Damai (BSDE IJ)


Maintain Steady progress
Last price (IDR) 1,660 BSDE has indicated marketing sales of IDR7.0tn in 11M17, or reaching 96.5%
Target Price (IDR) 2,000 of our full year target (IDR7.3tn) and 96.9% of the management’s target
(IDR7.2tn). In November alone, BSDE’s indicative marketing sales reached
Upside/Downside +20.5%
IDR200bn supported by proceeds generated from the price lock program.
Previous Target Price (IDR) 2,000 Going into 2018, we believe the marketing sales of BSDE will remain firm,
underpinned by commercial land plot sales. Maintain BUY.
Stock Statistics
Sector Property Additional IDR200bn marketing sales in November 2017. BSDE has indicated
Bloomberg Ticker BSDE IJ
marketing sales of IDR7.0tn in 10M17, or reaching 96.5% of our full year target
(IDR7.3tn) and 96.9% of the management’s target (IDR7.2tn). In November
No of Shrs (mn) 19,247
alone, BSDE’s indicative marketing sales reached IDR200bn, supported by
Mkt. Cap (IDR bn/USDmn) 31,950/2,353 proceeds from “Price Lock”. In regard to the latter, note that the marketing
Avg. daily T/O (IDR bn/USDmn) 25.7/1.9 sales from the launch of The Savia (amounting to IDR90bn, a 47% take-up rate
from 192 units available for sale) were included in the proceeds of the “Price
Major shareholders Lock” program.
Paraga Artamida 26.6%
Set to achieve our full year marketing sales target. With the solid marketing
Ekacentra Usahamaju 25.0% sales in 11M17 along with the “Price Lock” program up to December 2017, we
Estimated free float (%) n/a believe BSDE can achieve our full year marketing sales target. BSDE is currently
accepting reservations for upper segment landed residential units in BSD City’s
EPS Consensus(IDR)
Jadeite with 124 units available for sale and prices ranging from IDR4.2-
2017F 2018F 2019F 11.7bn/unit. The launching will take place in January 2018.
Danareksa 203.8 144.7 84.5
Outstanding financial performance this year. As we expect the company to
Consensus 152.4 149.5 155.1
recognize revenues from the commercial land plot sales this year, we estimate
Danareksa/Cons 33.7 (3.3) (45.5) that company will recorded revenue of IDR9.4tn, up by 44.3%yoy and net profit
of IDR3.9tn, up by 118.4%yoy.
BSDE relative to JCI Index
Flat marketing sales in 2018. Going into 2018, we only expect BSDE to record
flat marketing sales of IDR7.3tn (+0.2%yoy), still mainly underpinned by land
plot sales. While we remain cautious on the outlook for property demand in
2018 (as reflected in our flattish growth estimate for regular property sales of
+1.6%yoy), we believe that BSDE will enjoy greater flexibility in conducting
product offerings given its ample land bank of more than 4,000ha.
We reiterate our BUY call. We reiterate our BUY call on BSDE with target price
of IDR2,000 (SOTP based valuation with WACC of 13.3%, Terminal Growth of
4% and 68% discount to NAV). Our target discount to NAV is based on the
historical +1SD discount to NAV of BSDE. The higher target discount to NAV is
inline with our cautious view on the outlook for property demand next year.

Source : Bloomberg Key Financials


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 6,210 6,522 9,408 7,748 6,039
Antonia Febe Hartono, CFA EBITDA, (IDRbn) 3,103 3,060 5,231 3,952 2,724
(62-21) 2955 5888 ext.3504 EBITDA Growth, (%) 11.1 (1.4) 70.9 (24.4) (31.1)
antonia.hartono@danareksa.com Net profit (IDRbn) 2,139 1,796 3,923 2,784 1,627
EPS (IDR) 111.2 93.3 203.8 144.7 84.5
Natalia Sutanto EPS growth (%) (46.5) (16.0) 118.4 (29.0) (41.6)
(62-21) 2955 5888 ext.3508 BVPS, (IDR) 979.4 1,069.3 1,263.6 1,387.6 1,457.5
natalia.sutanto@danareksa.com
DPS, (IDR) 19.9 11.3 9.5 20.7 14.7
PER (x) 14.9 17.8 8.1 11.5 19.6
PBV (x) 1.7 1.6 1.3 1.2 1.1
Dividend yield (%) 1.2 0.7 0.6 1.2 0.9
EV/EBITDA (x) 10.9 11.8 6.7 9.1 13.4
Source : BSDE, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 117


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 6,210 6,522 9,408 7,748 6,039
COGS (1,572) (1,840) (2,538) (2,137) (1,597)
Gross profit 4,638 4,681 6,870 5,611 4,442
EBITDA 3,103 3,060 5,231 3,952 2,724
Oper. profit 2,901 2,835 4,909 3,615 2,486
Interest income 251 222 143 222 163
Interest expense (575) (613) (613) (657) (772)
Forex Gain/(Loss) 139 (116) 39 11 0
Income From Assoc. Co’s 48 241 80 105 136
Other Income (Expenses) (48) (145) 0 0 0
Pre-tax profit 2,715 2,425 4,558 3,296 2,013
Income tax (364) (387) (335) (299) (261)
Minority interest (212) (241) (300) (213) (125)
Net profit 2,139 1,796 3,923 2,784 1,627
Core Net Profit 2,001 1,913 3,884 2,773 1,627

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 6,109 3,569 5,554 4,069 3,845
Receivables 166 417 607 500 389
Inventory 6,548 7,441 8,423 9,356 10,243
Other Curr. Asset 3,283 4,302 3,318 3,172 3,815
Fixed assets - Net 803 823 971 441 687
Other non-curr.asset 18,429 21,127 24,949 27,880 29,596
Total asset 36,022 38,292 44,864 46,460 49,618

ST Debt 2,055 1,121 2,300 1,390 2,261


Payables 317 261 721 753 913
Other Curr. Liabilities 3,774 4,184 5,123 4,840 5,789
Long Term Debt 5,869 6,527 6,223 6,635 6,024
Other LT. Liabilities 1,910 1,846 2,404 2,363 2,808
Total Liabilities 13,925 13,939 16,771 15,981 17,795
Shareholder'sFunds 18,850 20,581 24,321 26,707 28,051
Minority interests 3,247 3,772 3,772 3,772 3,772
Total Equity & Liabilities 36,022 38,292 44,864 46,460 49,618

www.danareksa.com See important disclosure at the back of this report 118


Exhibit 3.Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 2,139 1,796 3,923 2,784 1,627
Depreciation and Amort. 196 225 322 337 238
Change in Working Capital (2,171) (1,723) 1,190 (931) (311)
OtherOper. Cash Flow (259) 414 709 398 797
Operating Cash Flow (94) 712 6,145 2,588 2,351

Capex (955) (969) (2,024) (1,137) (824)


Others Inv. Cash Flow (364) (1,736) (2,235) (1,408) (985)
Investing Cash Flow (1,319) (2,705) (4,259) (2,544) (1,809)

Net change in debt 3,493 (381) 1,104 (453) 264


New Capital 0 0 0 0 0
Dividend payment (383) (217) (182) (398) (283)
Other Fin. Cash Flow 1,591 50 (822) (678) (747)
Financing Cash Flow 4,701 (548) 99 (1,529) (766)

Net Change in Cash 3,289 (2,540) 1,986 (1,485) (224)


Cash - begin of the year 2,820 6,109 3,569 5,554 4,069
Cash - end of the year 6,109 3,569 5,554 4,069 3,845

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 10.6 5.0 44.3 (17.6) (22.1)
EBITDA 11.1 (1.4) 70.9 (24.4) (31.1)
Operating profit 8.9 (2.2) 73.1 (26.3) (31.2)
Net profit (44.0) (16.0) 118.4 (29.0) (41.6)
Profitability (%)
Gross margin 74.7 71.8 73.0 72.4 73.6
EBITDA margin 50.0 46.9 55.6 51.0 45.1
Operating margin 46.7 43.5 52.2 46.7 41.2
Net margin 34.5 27.5 41.7 35.9 26.9
ROAA 6.7 4.8 9.4 6.1 3.4
ROAE 12.5 9.1 17.5 10.9 5.9
Leverage
Net Gearing (x) 0.1 0.2 0.1 0.1 0.1
Interest Coverage (x) 5.0 4.6 8.0 5.5 3.2

Source : BSDE, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 119


Equity Research
Company Update

HOLD Charoen Pokphand Indonesia(CPIN IJ)


Maintain Big scale advantage but not cheap
Last price (IDR) 3,110 We recommend to HOLD CPIN at TP IDR3,100. We believe for CPIN, 1) the key
Target Price (IDR) 3,100 growth driver going forward will come from volume terms, instead of ASP, 2)
more culling programs initiated by the government is likely to continue in
Upside/Downside -0.3%
2018 to stabilize the DOC and Broiler ASP, meanwhile, 3) management’s focus
Previous Target Price (IDR) 3,100 going forward will be on corn price management. However, in terms of
valuation, we think CPIN is not cheap.
Stock Statistics
Sector Poultry Growth in volume terms despite lagging ASP. The key growth driver for CPIN
Bloomberg Ticker CPIN IJ going forward will come from volume, instead of ASP which we estimate to only
No of Shrs (mn) 16,398 grow around 1-2% yoy for ASP in animal feed, DOC and broiler division
respectively. CPIN’s large economies of scale will give a competitive edge over
Mkt. Cap (IDR bn/USDmn) 50,998/3,756
smaller poultry players, which will cushion volume in animal feed, DOC, and
Avg. daily T/O (IDR bn/USDmn) 19.4/1.4 broiler level, which we estimate to be around 8-10% yoy. This will translate to
an overall expected +11.6% yoy revenues growth in 2018, that will stay solid at
Major shareholders
a double digit level although at a lower-pace compared to 2017 after stripping
PT Central Agromina 55.5% off the inorganic broiler.
Estimated free float 44.5%

EPS Consensus(IDR)
Culling programs will help to stabilize DOC and Broiler ASP. Supported by the
government’s effort to reduce the supply and demand imbalances in the
2017F 2018F 2019F market, we expect that the trend of DOC and Broiler ASP is going to be much
Danareksa 157.1 207.7 250.9 more stable in the following years compared to 2015 level. We think the
Consensus 156.9 213.6 254.3 government’s will continue to propose more culling programs in 2018 to further
Danareksa/Cons 0.1 (2.8) (1.4)
tackle of the oversupply issues which we think will likely to remain in 2018.

CPIN relative to JCI Index Focus on corn price management. Internally, the management focus going
forward will be more on corn price hedging strategy. In this regard, CPIN will
utilize its dry corn silos. With better integrated infrastructure than its peers,
JPFA and MAIN, CPIN is well placed to manage its cost more effectively. The
recent increases in corn prices will particularly impact smaller poultry players,
making them less competitive. Against this backdrop (better cost efficiency
management and more stable DOC and Broiler ASP), we expect better gross
margins in 2018. This, we believe will translate to a better EBITDA margins and
earnings delivery.

HOLD at TP IDR3,100. In terms of valuation, we think CPIN is not as cheap as


JPFA, hence we recommend to HOLD at TP IDR3,100 (assuming 12% WACC and
3% terminal growth). Risks to our call include lower-than-expected GDP growth
and weaker purchasing power.
Source : Bloomberg

Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 29,921 38,257 50,612 56,483 62,848
EBITDA, (IDRbn) 4,032 5,225 4,678 5,747 6,721
EBITDA Growth, (%) 30.6 29.6 (10.5) 22.8 17.0
Adeline Solaiman Net profit (IDRbn) 1,741 2,247 2,576 3,405 4,114
(62-21) 2955 5888 ext.3503 EPS (IDR) 106.1 137.0 157.1 207.7 250.9
adeline.solaiman@danareksa.com
EPS growth (%) (0.5) 29.1 14.6 32.2 20.8
BVPS, (IDR) 778.9 862.2 996.5 1,179.0 1,396.7
DPS, (IDR) 16.9 29.5 21.7 25.1 33.2
PER (x) 29.3 22.7 19.8 15.0 12.4
PBV (x) 4.0 3.6 3.1 2.6 2.2
Dividend yield (%) 0.5 0.9 0.7 0.8 1.1
EV/EBITDA (x) 14.3 10.5 11.8 9.4 7.7
Source : CPIN, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 120


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 29,921 38,257 50,612 56,483 62,848
COGS (24,817) (31,743) (44,164) (48,762) (53,930)
Gross profit 5,103 6,514 6,448 7,722 8,918
EBITDA 4,032 5,225 4,678 5,747 6,721
Oper. profit 3,346 4,459 3,970 4,956 5,841
Interest income 23 45 67 141 108
Interest expense (642) (647) (645) (574) (468)
Forex Gain/(Loss) (587) 169 32 15 0
Income From Assoc. Co’s 0 0 0 0 0
Other Income (Expenses) 45 (42) 8 0 0
Pre-tax profit 2,185 3,984 3,432 4,538 5,481
Income tax (449) (1,732) (858) (1,134) (1,370)
Minority interest 4 (5) 2 2 3
Net profit 1,741 2,247 2,576 3,405 4,114
Core Net Profit 2,327 2,078 2,544 3,390 4,114

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 1,679 2,504 2,196 1,449 3,384
Receivables 3,340 2,837 3,552 3,671 3,985
Inventory 5,484 5,110 5,690 5,861 5,899
Other Curr. Asset 1,556 1,608 2,163 2,350 2,557
Fixed assets - Net 11,310 11,977 13,530 14,999 16,633
Other non-curr.asset 1,548 168 172 177 181
Total asset 24,917 24,205 27,304 28,505 32,638

ST Debt 2,383 2,964 2,735 1,580 1,580


Payables 2,908 1,727 3,017 3,356 3,739
Other Curr. Liabilities 412 859 555 683 798
Long Term Debt 5,881 3,646 3,812 2,651 2,651
Other LT. Liabilities 546 851 827 886 951
Total Liabilities 12,130 10,048 10,946 9,156 9,719
Shareholder'sFunds 12,772 14,138 16,340 19,334 22,903
Minority interests 14 19 18 15 16
Total Equity & Liabilities 24,917 24,205 27,304 28,505 32,638

www.danareksa.com See important disclosure at the back of this report 121


Exhibit 3. Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 1,741 2,247 2,576 3,405 4,114
Depreciation and Amort. 686 766 709 791 880
Change in Working Capital (149) (304) (5) 49 30
OtherOper. Cash Flow 284 997 (281) 375 268
Operating Cash Flow 2,561 3,706 2,998 4,621 5,292

Capex (2,742) (1,862) (2,024) (2,259) (2,514)


Others Inv. Cash Flow 248 1,425 63 136 103
Investing Cash Flow (2,494) (437) (1,962) (2,123) (2,410)

Net change in debt 1,667 (1,654) (284) (2,315) 0


New Capital 0 0 0 0 0
Dividend payment (277) (483) (355) (412) (545)
Other Fin. Cash Flow (759) (280) (705) (518) (402)
Financing Cash Flow 631 (2,417) (1,344) (3,245) (946)

Net Change in Cash 698 852 (309) (747) 1,935


Cash - begin of the year 885 1,679 2,504 2,196 1,449
Cash - end of the year 1,679 2,504 2,196 1,449 3,384

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 2.6 27.9 32.3 11.6 11.3
EBITDA 30.6 29.6 (10.5) 22.8 17.0
Operating profit 27.4 33.2 (11.0) 24.9 17.9
Net profit (0.5) 29.1 14.6 32.2 20.8
Profitability (%)
Gross margin 17.1 17.0 12.7 13.7 14.2
EBITDA margin 13.5 13.7 9.2 10.2 10.7
Operating margin 11.2 11.7 7.8 8.8 9.3
Net margin 5.8 5.9 5.1 6.0 6.5
ROAA 7.6 9.1 10.0 12.2 13.5
ROAE 14.5 16.7 16.9 19.1 19.5
Leverage
Net Gearing (x) 0.5 0.3 0.3 0.1 0.0
Interest Coverage (x) 5.2 6.9 6.2 8.6 12.5

Source : CPIN, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 122


Equity Research
Company Update

BUY Ciputra Development (CTRA IJ)


Maintain Brighter outlook
Last price (IDR) 1,165 We maintain our BUY recommendation on CTRA with target price of IDR1,350 as
Target Price (IDR) 1,350 we expect CTRA’s financial performance in 2018 to outperform its peers given: (i)
recognition of its service apartment sales to Ascot, (ii) the normalization of
Upside/Downside +15.9%
revenues recognition after two years of slow revenues recognition. Gearing wise,
Previous Target Price (IDR) 1,350 we also expect CTRA to reported gearing ratio ahead (47.8% in 2018 vs. 63.0% in
9M17) on the back of (i) SGD115mn debt refinancing, (ii) limited capex in 2018.
Stock Statistics
Sector Property Marketing sales in 11M17: on track to meet our full year target. CTRA recorded
marketing sales of IDR6.8tn in 11M17, up by 7.2%yoy. This figure is 94.3% of our
Bloomberg Ticker CTRA IJ
marketing sales target (IDR7.3tn) and 80.5% of the management’s target
No of Shrs (mn) 15,425 (IDR8.5tn). In November, CTRA recorded marketing sales of IDR615bn, supported
Mkt. Cap (IDR bn/USDmn) 17,970/1,323 product launching in Citraraya Tangerang (220 units available for sale, 59.5%
Avg. daily T/O (IDR bn/USDmn) 21.4/1.6 take up rate, total proceeds of IDR80bn) as well as the soft launching of Denver
apartment in Surabaya (IDR110bn). With two projects launching in December
Major shareholders (Citra Plaza Batam and Citra Maja Raya), we believe that CTRA should achieve our
Founder 30.6% full year marketing sales target of IDR7.3tn.
Credit Suisse AG, Singapore 7.9% Expect stellar financial performance in 2018. Although we remain cautious on the
Estimated free float 45.0% outlook for property demand in 2018 considering 171 regional elections will take
place (as reflected in our flattish marketing sales target which is up by only
EPS Consensus(IDR) 0.5%yoy), we expect CTRA to record solid financial performance (+25.3%yoy at the
2017F 2018F 2019F topline and +60.6%yoy at the bottom line) given: (i) revenues recognition from the
Danareksa 50.5 81.1 89.4 bulk sales of service apartments in 4Q18, (ii) the normalization of revenues
Consensus 54.0 68.9 79.9
recognition after two years of slow revenues recognition in 2015 and 2016.
Danareksa/Cons (6.5) 17.7 11.9 Manageable gearing. In 9M17, CTRA reported a gearing ratio of 63.0%, slightly
higher than its level in December 2016 of 46.6%. This stemmed from the issuance
CTRA relative to JCI Index of SGD150mn of Medium Term Notes which carry a coupon rate of 4.85% and are
due in 2021. Nonetheless, as the bulk of the proceeds from the bonds issuance will
be used to refinance debts (SGD115mn) as well as for the repayment of Medium
Term Notes due in 2018 in October 2017 (amounting to SGD47mn), we expect the
gearing to normalize by the end of 2017 at 49.6%. Going into 2018, we expect the
gearing to stand at 47.8% considering the limited capital expenditure allocation of
IDR1.5tn (flat compared to the capex allocation in 2017).
Maintain our BUY recommendation. We maintain our BUY recommendation on
CTRA with target price of IDR1,350. In arriving at our target price, we use SOTP
based valuation with WACC of 12.6%, Terminal Growth of 4.0%, and a 62.5% target
discount to NAV. Our target discount to NAV is based on the historical +1SD
discount to NAV.
Source : Bloomberg Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 7,514 6,739 6,457 8,092 8,598
Antonia Febe Hartono, CFA EBITDA, (IDRbn) 2,577 2,048 1,898 2,485 2,747
(62-21) 2955 5888 ext.3504
EBITDA Growth, (%) 7.2 (20.5) (7.3) 30.9 10.6
antonia.hartono@danareksa.com
Net profit (IDRbn) 1,645 1,112 937 1,505 1,659
EPS (IDR) 107.3 72.1 50.5 81.1 89.4
Natalia Sutanto EPS growth (%) (3.4) (32.8) (30.0) 60.6 10.2
(62-21) 2955 5888 ext.3508 BVPS, (IDR) 750.8 831.4 737.0 814.3 897.6
natalia.sutanto@danareksa.com DPS, (IDR) (10.3) (7.9) (4.5) (3.8) (6.0)
PER (x) 10.9 16.2 23.1 14.4 13.0
PBV (x) 1.6 1.4 1.6 1.4 1.3
Dividend yield (%) (0.9) (0.7) (0.4) (0.3) (0.5)
EV/EBITDA (x) 7.8 10.3 13.7 10.8 9.4
Source : CTRA, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 123


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 7,514 6,739 6,457 8,092 8,598
COGS (3,786) (3,450) (3,315) (4,240) (4,391)
Gross profit 3,729 3,290 3,142 3,852 4,207
EBITDA 2,577 2,048 1,898 2,485 2,747
Oper. profit 2,353 1,806 1,654 2,239 2,500
Interest income 230 217 284 289 246
Interest expense (487) (566) (608) (638) (660)
Forex Gain/(Loss) 0 0 0 0 0
Income From Assoc. Co’s 7 (2) (2) (2) (2)
Other Income (Expenses) 63 46 91 91 91
Pre-tax profit 2,166 1,501 1,419 1,979 2,176
Income tax (425) (330) (393) (331) (359)
Minority interest (95) (59) (89) (143) (158)
Net profit 1,645 1,112 937 1,505 1,659
Core Net Profit 1,645 1,112 937 1,505 1,659

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 3,034 3,468 3,454 3,110 4,236
Receivables 1,323 1,702 1,631 1,694 2,177
Inventory 7,010 7,945 8,974 9,901 10,734
Other Curr. Asset 655 595 666 672 803
Fixed assets - Net 2,962 3,034 3,120 3,207 3,295
Other non-curr.asset 11,274 12,328 13,631 14,844 16,169
Total asset 26,259 29,072 31,477 33,429 37,415

ST Debt 1,375 1,686 2,664 3,359 2,738


Payables 1,417 1,372 1,464 1,559 1,999
Other Curr. Liabilities 5,221 4,253 3,632 3,468 4,400
Long Term Debt 3,902 4,976 5,110 4,851 5,713
Other LT. Liabilities 1,293 2,487 2,951 3,011 3,693
Total Liabilities 13,208 14,774 15,820 16,248 18,543
Shareholder'sFunds 11,510 12,824 13,679 15,113 16,660
Minority interests 1,540 1,474 1,978 2,068 2,211
Total Equity & Liabilities 26,259 29,072 31,477 33,429 37,415

www.danareksa.com See important disclosure at the back of this report 124


Exhibit 3. Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 1,645 1,112 937 1,505 1,659
Depreciation and Amort. 223 243 244 246 247
Change in Working Capital (694) (1,291) (1,198) (1,082) 410
OtherOper. Cash Flow 257 348 324 349 413
Operating Cash Flow 1,431 412 307 1,017 2,729

Capex (1,151) (701) (750) (750) (750)


Others Inv. Cash Flow (666) (287) (522) (461) (504)
Investing Cash Flow (1,817) (988) (1,272) (1,211) (1,254)

Net change in debt 637 1,403 510 436 461


New Capital 0 0 0 0 0
Dividend payment (158) (123) (83) (70) (112)
Other Fin. Cash Flow 53 (272) 524 (517) (699)
Financing Cash Flow 531 1,009 952 (151) (350)

Net Change in Cash 146 433 (13) (344) 1,126


Cash - begin of the year 2,889 3,034 3,468 3,454 3,110
Cash - end of the year 3,034 3,468 3,454 3,110 4,236

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 18.5 (10.3) (4.2) 25.3 6.3
EBITDA 7.2 (20.5) (7.3) 30.9 10.6
Operating profit 6.8 (23.3) (8.4) 35.4 11.7
Net profit (2.4) (32.4) (15.7) 60.6 10.2
Profitability (%)
Gross margin 49.6 48.8 48.7 47.6 48.9
EBITDA margin 34.3 30.4 29.4 30.7 32.0
Operating margin 31.3 26.8 25.6 27.7 29.1
Net margin 21.9 16.5 14.5 18.6 19.3
ROAA 6.6 4.0 3.1 4.6 4.7
ROAE 14.7 9.1 7.1 10.5 10.4
Leverage
Net Gearing (x) 0.2 0.2 0.3 0.3 0.2
Interest Coverage (x) 4.8 3.2 2.7 3.5 3.8

Source : CTRA, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 125


Equity Research
Company Update

BUY Erajaya Swasembada (ERAA IJ)


Maintain More growth from various new products
Last price (IDR) 765 We recommend to BUY on ERAA at TP IDR1,100. We like the company as we
Target Price (IDR) 1,100 believe 1) ERAA should benefit from 4G growth and recent product launches
since TKDN issues have been resolved in early 2017, 2) stable gross and
Upside/Downside +43.8%
operating margins should be on the cards with management’s continued
Previous Target Price (IDR) 1,100 focus on boosting productivity and efficiency internally, and 3) financing costs
may east as per our estimate which will support to show a healthy balance
Stock Statistics
sheet.
Sector Retail
Bloomberg Ticker ERAA IJ Benefitting from 4G growth and recent product launches. Indonesia is
No of Shrs (mn) 2,900 experiencing a rapid growth in mobile data usage, 4Q LTE. This, we believe,
offers the national leading mobile phone distributor, ERAA, ample room for
Mkt. Cap (IDR bn/USDmn) 2,219/163
business expansion going forward. We forecast 9.5% yoy revenues growth in
Avg. daily T/O (IDR bn/USDmn) 7.8/0.6 2017-18F, or higher growth than 2016, driven by continuous new product
launched since the TKDN issues have been resolved.
Major shareholders
PT Eralink International 59.9% Stable gross and operating margins. The gross margin is expected to remain
Estimated free float 39.9% stable at around 8.8% in 2018F, supported by the management’s continued
EPS Consensus(IDR)
focus on the Samsung, Apple, Xiaomi, Lenovo, and Oppo brands, which
generally enjoy better margins and are expected to make a higher retail sales
2017F 2018F 2019F contribution in the future. Operationally, ERAA is committed toward boosting
Danareksa 102.2 114.3 130.6 productivity and efficiency. The company will retain its focus on regional
Consensus 104.5 122.5 133.1 decentralization in product distribution in a bid to enhance productivity for
Danareksa/Cons (2.2) (6.7) (1.9)
direct delivery.

ERAA relative to JCI Index Financing costs may east, healthier balance sheet. We expect pretax profits to
grow by around 11.8% yoy in 2018F due to possibly lower financing costs.
Operationally, meanwhile, the management seeks to improve working capital
efficiency through better inventory control (AR and AP days). This, in turn, may
reduce gearing and give rise to a better cash position in our view. Meanwhile,
inventory days are expected to trend down slightly.

Enticing valuation, new product launches next year – BUY with a TP of


IDR1,100. New product launches from ERAA’s top brands next year will be the
positive catalyst for growth in 2018, supported by a more resilient mid-up
target segment and less competition from smaller players. We believe that with
the stock trading at only 6.7x P/E 2018F, -1sd based on 3 years P/E, it is too
cheap to ignore. We recommend to BUY with a TP of IDR 1,100, implying 10x
P/E 2018F, mean of 3 years. The risks to our call include lower-than-expected
Source : Bloomberg
GDP.
Key Financials
Adeline Solaiman Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
(62-21) 2955 5888 ext.3503 Revenue, (IDRbn) 20,008 20,547 22,502 24,644 26,989
adeline.solaiman@danareksa.com EBITDA, (IDRbn) 445 549 602 661 725
EBITDA Growth, (%) (1.9) 23.4 9.7 9.8 9.7
Natalia Sutanto Net profit (IDRbn) 229 264 296 331 379
(62-21) 2955 5888 ext.3508 EPS (IDR) 79.0 91.0 102.2 114.3 130.6
natalia.sutanto@danareksa.com
EPS growth (%) 7.6 15.2 12.3 11.9 14.2
BVPS, (IDR) 1,082.2 1,154.7 1,235.1 1,325.1 1,425.7
DPS, (IDR) (20.0) (20.0) (23.3) (26.8) (30.0)
PER (x) 9.7 8.4 7.5 6.7 5.9
PBV (x) 0.7 0.7 0.6 0.6 0.5
Dividend yield (%) (2.6) (2.6) (3.1) (3.5) (3.9)
EV/EBITDA (x) 8.3 4.6 3.8 3.0 2.3
Source : ERAA, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 126


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 20,008 20,547 22,502 24,644 26,989
COGS (18,502) (18,755) (20,536) (22,485) (24,619)
Gross profit 1,506 1,792 1,967 2,159 2,370
EBITDA 445 549 602 661 725
Oper. profit 393 484 531 583 640
Interest income 1 4 4 5 6
Interest expense (155) (154) (143) (137) (122)
Forex Gain/(Loss) 0 0 0 0 0
Income From Assoc. Co’s 0 0 0 0 0
Other Income (Expenses) 85 50 28 18 9
Pre-tax profit 323 384 419 469 532
Income tax (91) (122) (125) (140) (157)
Minority interest (4) 2 2 2 3
Net profit 229 264 296 331 379
Core Net Profit 229 264 296 331 379

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 127 615 774 975 1,229
Receivables 2,387 1,876 2,439 2,287 2,445
Inventory 2,553 2,203 2,636 2,662 2,842
Other Curr. Asset 399 475 316 319 323
Fixed assets - Net 437 457 503 548 591
Other non-curr.asset 1,898 1,799 1,698 1,715 1,732
Total asset 7,800 7,425 8,367 8,506 9,163

ST Debt 1,462 902 812 730 657


Payables 2,873 2,921 3,718 3,675 4,110
Other Curr. Liabilities 64 112 113 114 116
Long Term Debt 138 4 4 3 3
Other LT. Liabilities 58 76 77 78 78
Total Liabilities 4,595 4,015 4,723 4,600 4,965
Shareholder'sFunds 3,138 3,349 3,582 3,843 4,135
Minority interests 67 61 61 62 62
Total Equity & Liabilities 7,800 7,425 8,366 8,505 9,162

www.danareksa.com See important disclosure at the back of this report 127


Exhibit 3. Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 229 264 296 331 379
Depreciation and Amort. 52 65 72 78 86
Change in Working Capital 319 931 68 72 85
OtherOper. Cash Flow 134 74 135 127 111
Operating Cash Flow 735 1,335 571 608 660

Capex (91) (89) (104) (108) (113)


Others Inv. Cash Flow (473) 103 (13) (13) (12)
Investing Cash Flow (564) 14 (116) (121) (126)

Net change in debt 30 (694) (91) (82) (73)


New Capital 0 0 0 0 0
Dividend payment (58) (58) (68) (78) (87)
Other Fin. Cash Flow (182) (108) (144) (135) (120)
Financing Cash Flow (211) (860) (302) (294) (280)

Net Change in Cash (39) 488 153 193 254


Cash - begin of the year 170 127 615 774 975
Cash - end of the year 127 615 774 975 1,229

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 38.4 2.7 9.5 9.5 9.5
EBITDA (1.9) 23.4 9.7 9.8 9.7
Operating profit (4.2) 23.2 9.7 9.8 9.8
Net profit 7.6 15.2 12.3 11.9 14.2
Profitability (%)
Gross margin 7.5 8.7 8.7 8.8 8.8
EBITDA margin 2.2 2.7 2.7 2.7 2.7
Operating margin 2.0 2.4 2.4 2.4 2.4
Net margin 1.1 1.3 1.3 1.3 1.4
ROAA 3.3 3.5 3.8 3.9 4.3
ROAE 7.5 8.1 8.6 8.9 9.5
Leverage
Net Gearing (x) 0.5 0.1 0.0 (0.1) (0.1)
Interest Coverage (x) 2.5 3.1 3.7 4.3 5.3

Source : ERAA, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 128


Equity Research
Company Update

HOLD Gudang Garam (GGRM IJ)


Maintain Solid FY18 earnings growth
Last price (IDR) 79,075 Decent sales volume growth and higher ASP bode well for strong FY17F
Target Price (IDR) 83,800 earnings growth, in our opinion. In addition, the new excise tax regulation will
benefit big players like GGRM the most, in our view, paving the way for better
Upside/Downside +6.0%
performance in the coming years. Nonetheless, given the limited upside we
Previous Target Price (IDR) 83,800 maintain our HOLD recommendation with a TP of IDR83,800.
Stock Statistics
FY17-18F net profits growth of 12% to 13% yoy. GGRM’s sales volume growth
Sector CIGARETTE remained firm in 9M17 – or similar to its level in 1H17 of 2.4% yoy. At the same
Bloomberg Ticker GGRM IJ time, the company has also been able to pass on higher excise taxes by
No of Shrs (mn) 1,924 gradually raising its selling prices (as of September 2017, ASP were up 9% yoy).
As a result, GGRM reported solid 3Q17 earnings growth with better margins.
Mkt. Cap (IDR bn/USDmn) 152,147/11,205
Given the encouraging performance, we estimate FY17-18F sales volume
Avg. daily T/O (IDR bn/USDmn) 83.4/6.1 growth of 2% yoy. Combined with higher selling prices, we estimate that the
FY17-18F gross margins will be maintained at 21.3% - 21.4%. And at the bottom
Major shareholders
line, we estimate FY17-18F net profits of IDR7.5tn and IDR8.5tn, respectively.
SURYADUTA INVESTAMA 69.3%
SURYAMITRA KUSUMA 6.3% Excise tax simplification to benefit the big players. Through the 2018 excise
Estimated free float (%) 24.4% tax regulation, the government has simplified the excise tax structure by
reducing the number of categories to 10 from 12 with the ultimate goal of just
EPS Consensus (IDR) 5 categories by 2021. The regulation also stipulates that cigarette retail selling
2017F 2018F 2019F prices in 2018 can apply a maximum discount of 15% (i.e. 85% of the banderol
Danareksa 3,896.9 4,411.1 4,973.4 price). For GGRM, its only product included in this category is GG Mild. We view
Consensus 3,843.3 4,351.0 4,933.9
the regulation positively, as we believe that the big players will benefit at the
expense of the smaller producers who find it more difficult to compete. At the
Danareksa/Cons 1.4 1.4 0.8
same time, we also expect cigarette producers to benefit from the ongoing
GGRM relative to JCI Index economic improvements, marked in particular by much-needed infrastructure
development which should create multiplier effects in the local economy and
ultimately lead to a recovery in purchasing power.

Maintain HOLD with unchanged TP. No further details were provided on the
company’s plans to develop an airport. As such, the capex for this plan is not
included in our forecast. The risk remains however and if the plans were
approved, the company would face the prospect of recording lower free cash
flow and additional debt. Therefore, with limited upside to our TP, we maintain
our HOLD recommendation with a TP of IDR83,800, based on the median value
of DCF valuation (WACC of 11.1% and TG of 4%) and +1SD average 2-year PE of
18.6x.

Source : Bloomberg
Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 70,366 76,274 84,069 92,797 103,145
EBITDA, (IDRbn) 11,654 12,058 12,932 14,095 15,155
EBITDA Growth, (%) 15.8 3.5 7.2 9.0 7.5
Net profit (IDRbn) 6,436 6,677 7,498 8,487 9,569
Natalia Sutanto EPS (IDR) 3,344.8 3,470.3 3,896.9 4,411.1 4,973.4
(62-21) 2955 5888 ext.3508 EPS growth (%) 19.0 3.8 12.3 13.2 12.7
natalia.sutanto@danareksa.com BVPS, (IDR) 19,697.7 20,522.4 21,828.4 25,128.8 28,845.0
DPS, (IDR) 800.0 2,600.0 2,599.2 1,110.6 1,257.2
PER (x) 23.6 22.8 20.3 17.9 15.9
PBV (x) 4.0 3.9 3.6 3.1 2.7
Dividend yield (%) 1.0 3.3 3.3 1.4 1.6
EV/EBITDA (x) 14.6 14.1 12.9 11.6 10.5
Source : GGRM, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 129


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 70,366 76,274 84,069 92,797 103,145
COGS (54,880) (59,657) (66,154) (72,909) (81,238)
Gross profit 15,486 16,617 17,915 19,888 21,907
EBITDA 11,654 12,058 12,932 14,095 15,155
Oper. profit 9,906 9,972 10,737 11,948 13,163
Interest income 125 161 139 194 242
Interest expense (1,430) (1,191) (847) (789) (606)
Forex Gain/(Loss) 72 2 0 0 0
Income From Assoc. Co’s 0 0 0 0 0
Other Income (Expenses) (38) (14) 0 0 0
Pre-tax profit 8,635 8,931 10,029 11,352 12,800
Income tax (2,182) (2,258) (2,536) (2,871) (3,237)
Minority interest (17) 4 5 6 6
Net profit 6,436 6,677 7,498 8,487 9,569
Core Net Profit 6,364 6,675 7,498 8,487 9,569

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 2,726 1,595 2,608 3,241 4,071
Receivables 1,568 2,090 2,303 2,542 2,826
Inventory 37,256 37,545 37,105 39,059 41,503
Other Curr. Asset 1,019 703 772 863 963
Fixed assets - Net 20,106 20,499 20,637 20,705 20,819
Other non-curr.asset 830 520 575 639 713
Total asset 63,505 62,952 64,000 67,049 70,895

ST Debt 20,561 19,753 17,655 13,920 10,314


Payables 2,370 1,125 1,451 1,604 1,575
Other Curr. Liabilities 1,114 760 843 942 1,055
Long Term Debt 0 0 0 0 0
Other LT. Liabilities 1,452 1,749 1,910 2,097 2,319
Total Liabilities 25,498 23,387 21,858 18,562 15,264
Shareholder'sFunds 37,900 39,487 42,000 48,350 55,500
Minority interests 108 77 142 136 130
Total Equity & Liabilities 63,505 62,952 64,000 67,049 70,895

www.danareksa.com See important disclosure at the back of this report 130


Exhibit 3. Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 6,436 6,677 7,498 8,487 9,569
Depreciation and Amort. 1,715 2,063 2,195 2,147 1,991
Change in Working Capital (1,171) (2,064) 552 (2,041) (2,757)
OtherOper. Cash Flow (2,574) 999 723 605 376
Operating Cash Flow 4,405 7,675 10,967 9,198 9,180

Capex (2,848) (2,455) (2,332) (2,216) (2,105)


Others Inv. Cash Flow 23 472 84 130 169
Investing Cash Flow (2,825) (1,983) (2,249) (2,086) (1,936)

Net change in debt 2,414 (808) (2,099) (3,735) (3,605)


New Capital (2) (1) 16 0 0
Dividend payment 1,539 5,003 5,001 2,137 2,419
Other Fin. Cash Flow (1,315) (1,012) (622) (608) (390)
Financing Cash Flow 2,636 3,182 2,297 (2,206) (1,576)

Net Change in Cash 4,216 8,874 11,015 4,907 5,668


Cash - begin of the year 1,588 2,726 1,595 2,608 3,241
Cash - end of the year 2,726 1,595 2,608 3,241 4,071

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 7.9 8.4 10.2 10.4 11.2
EBITDA 15.8 3.5 7.2 9.0 7.5
Operating profit 15.5 0.7 7.7 11.3 10.2
Net profit 19.0 3.8 12.3 13.2 12.7
Profitability (%)
Gross margin 22.0 21.8 21.3 21.4 21.2
EBITDA margin 16.6 15.8 15.4 15.2 14.7
Operating margin 14.1 13.1 12.8 12.9 12.8
Net margin 9.1 8.8 8.9 9.1 9.3
ROAA 10.6 10.6 11.8 13.0 13.9
ROAE 18.2 17.3 18.4 18.8 18.4
Leverage
Net Gearing (x) 0.5 0.5 0.4 0.2 0.1
Interest Coverage (x) 6.9 8.4 12.7 15.1 21.7

Source : GGRM, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 131


Equity Research
Company Update

HOLD Harum Energy (HRUM IJ)


Maintain Supported from coal production growth
Last price (IDR) 2,160 Harum Energy (HRUM) is expected to post double-digit coal production
Target Price (IDR) 2,200 growth of 19.8% in 2016 – 2019, the highest among the coalminers under our
coverage, attributable to the low-base in 2016. This will help lead to higher
Upside/Downside +1.9%
net profits in the next two years despite a lower coal price assumption.
Previous Target Price (IDR) 2,200 However, as we still have concerns on the company’s coal reserves with a
mining life of around 13 years based on the current production rate, we
Stock Statistics
maintain our HOLD recommendation with a target price of IDR2,200 (based
Sector Coal Mining on DCF valuation with WACC of 12%).
Bloomberg Ticker HRUM IJ
No of Shrs (mn) 2,653 Strong coal production growth for 2018. Better coal prices in 2H16 resulted in
a higher monthly production run-rate in that period. As such, coal production
Mkt. Cap (IDR bn/USDmn) 5,730/422
is expected to reach 4.2mn tonnes (+31.3% yoy) in 2017. Going into 2018, we
Avg. daily T/O (IDR bn/USDmn) 7.0/0.5 expect coal production to grow further by 19.0% yoy to 5.0mn tonnes
supported by the commencement of operations at its Karya Usaha Pertiwi
Major shareholders
(KUP) mining area in 2018. The company’s other mining areas, such as Santan
Karunia Bara Perkasa 71.0% Batubara and Tambang Batubara Harum, are expected to be in maintenance
Estimated Free Float 28.9% mode.

Downward revision in mining contracting fees will mitigate the impact of a


EPS Consensus(USD Cents) higher stripping ratio. The company managed to renegotiate its mining fees
2017F 2018F 2019F for which the revised contractor unit rate will apply in 4Q17. As such, this
Danareksa 1.7 1.8 1.8 revision is expected to mitigate the impact of a higher stripping ratio of around
Consensus 1.6 1.9 2.1
8.5x in 2017 (2016: 6.2x) and about 9.0x in 2018 as well as longer hauling
distances. Nonetheless, the impact of lower coal prices is expected to push
Danareksa/Cons 3.6 (7.3) (12.2)
down the company’s gross margin to 30.2% in 2018 from 32.4% in 2017.
HRUM relative to JCI Index
Maintain HOLD. Although the company is expected to post double-digit coal
production growth of 19.8% in 2016 – 2019, the highest among the coalminers
under our coverage, we maintain our HOLD recommendation with a target
price of IDR2,200 (based on DCF valuation with WACC of 12%) as we still have
concerns on the company’s coal reserves with a mining life of around 13 years
based on the current production rate. Our target price implies 11.2x 2017F PE
and 9.6x 2018F PE.

Source : Bloomberg Key Financials


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (USDmn) 249 217 330 374 404
EBITDA, (USDmn) 12 45 78 81 84
EBITDA Growth, (%) (61.4) 259.7 76.0 3.8 3.7
Net profit (USDmn) (19) 13 45 48 50
EPS (USDCents) (0.7) 0.5 1.7 1.8 1.8
Stefanus Darmagiri EPS growth (%) (4,608.2) (169.4) 235.8 6.2 4.6
(62-21) 29 555 831 BVPS, (USDCents) 10.1 10.4 11.8 12.7 13.6
stefanus.darmagiri@danareksa.com DPS, (USDCents) 0.0 0.0 0.3 0.9 0.9
PER (x) n/m 32.2 9.6 9.0 8.6
PBV (x) 1.6 1.5 1.3 1.3 1.2
Dividend yield (%) 0.1 0.0 1.6 5.5 5.9
EV/EBITDA (x) 18.9 4.5 2.0 1.4 0.9
Source : HRUM, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 132


Exhibit 1. Income Statement
Year to 31 Dec (USDmn) 2015A 2016A 2017F 2018F 2019F
Revenue 249 217 330 374 404
COGS (203) (149) (223) (261) (286)
Gross profit 46 68 107 113 118
EBITDA 12 45 78 81 84
Oper. profit 1 32 67 70 73
Interest income 4 3 6 7 8
Interest expense (2) (2) 0 0 0
Forex Gain/(Loss) 0 0 0 0 0
Income From Assoc. Co’s (4) (3) 4 4 3
Other Income (Expenses) (15) (1) (5) (3) (2)
Pre-tax profit (18) 29 72 78 82
Income tax (1) (11) (18) (19) (20)
Minority interest 0 (5) (9) (11) (12)
Net profit (19) 13 45 48 50
Core Net Profit (19) 13 45 48 50

Exhibit 2. Balance Sheet


Year to 31 Dec (USDmn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 196 231 277 314 357
Receivables 10 24 23 24 23
Inventory 8 8 21 24 23
Other Curr. Asset 12 5 5 5 5
Fixed assets - Net 98 89 87 87 87
Other non-curr.asset 57 56 61 64 66
Total asset 381 413 475 518 562

ST Debt 0 0 0 0 0
Payables 26 37 28 36 44
Other Curr. Liabilities 7 16 16 16 16
Long Term Debt 0 0 0 0 0
Other LT. Liabilities 5 5 5 5 5
Total Liabilities 37 58 49 57 65
Shareholder'sFunds 272 282 320 344 369
Minority interests 71 73 106 117 128
Total Equity & Liabilities 381 413 475 518 562

www.danareksa.com See important disclosure at the back of this report 133


Exhibit 3.Cash Flow
Year to 31 Dec (USDmn) 2015A 2016A 2017F 2018F 2019F
Net income (19) 13 45 48 50
Depreciation and Amort. 10 11 11 12 12
Change in Working Capital 4 13 (21) 5 9
OtherOper. Cash Flow 3 1 (11) (13) (15)
Operating Cash Flow (3) 38 24 51 56

Capex (5) (10) (14) (14) (13)


Others Inv. Cash Flow 8 6 11 13 15
Investing Cash Flow 2 (3) (3) (1) 2

Net change in debt 0 0 0 0 0


New Capital 0 0 0 0 0
Dividend payment 0 0 (7) (24) (25)
Other Fin. Cash Flow (5) 0 33 11 12
Financing Cash Flow (5) 0 26 (13) (14)

Net Change in Cash (6) 35 46 37 44


Cash - begin of the year 201 196 231 277 314
Cash - end of the year 196 231 277 314 357

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales (47.8) (12.9) 51.9 13.4 7.9
EBITDA (61.4) 259.7 76.0 3.8 3.7
Operating profit (97.3) 5,517.8 108.9 3.8 3.7
Net profit (4,608.2) (169.4) 235.8 6.2 4.6
Profitability (%)
Gross margin 18.4 31.3 32.4 30.2 29.2
EBITDA margin 5.0 20.5 23.8 21.8 20.9
Operating margin 0.2 14.9 20.4 18.7 18.0
Net margin (7.7) 6.1 13.6 12.7 12.3
ROAA (4.7) 3.4 10.1 9.6 9.2
ROAE (6.9) 4.8 14.9 14.3 14.0
Leverage
Net Gearing (x) (0.6) (0.6) (0.6) (0.7) (0.7)
Interest Coverage (x) 0.3 20.5 0.0 0.0 0.0

Source : HRUM, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 134


Equity Research
Company Update

HOLD HM Sampoerna (HMSP IJ)


Maintain Brisker growth ahead
Last price (IDR) 4,450 We continue to like HMSP, noting that the solid performance of its new and
Target Price (IDR) 4,400 existing brands should allow the company to maintain a strong foothold in
the domestic cigarette market. Furthermore, the company also stands to
Upside/Downside -1.1%
benefit from improving economic conditions and also from the new
Previous Target Price (IDR) 4,400 government regulation which creates a more level playing field. We expect
earnings growth to reach an impressive 9.2% yoy in FY18. With limited upside
Stock Statistics
to our TP, we maintain our HOLD recommendation.
Sector CIGARETTE
Bloomberg Ticker HMSP IJ Solid performance of its new brands. By the end of September 2017, HMSP’s
No of Shrs (mn) 116,318 existing and new brands had performed well, sustaining market share at 32.9%
in this period. Most notably, Sampoerna A Mild (16) and Dji Sam Soe maintained
Mkt. Cap (IDR bn/USDmn) 517,616/38,119
their market shares of 10.4% and 4.4%, respectively, in 3Q17, while Marlboro’s
Avg. daily T/O (IDR bn/USDmn) 63.1/4.6 market share increased on the back of the robust performance of Marlboro
Filter Black. In 3Q17, Marlboro’s market share rose to 5.2% from 4.7% in 4Q16.
Major shareholders
Also encouragingly, the newly-launched Magnum Mild brand already obtained
PHILIP MORRIS INDONESIA 92.5% market share of 2.2% in 3Q17. Thus, with a product portfolio tapping all market
VONTOBEL HOLDING AG 0.4% segments, we are confident that HMSP’s momentum can be maintained going
Estimated free float 7.5% forward. For 2017, we estimate -2.8% yoy sales volume growth, improving to
an estimated 1.1% in 2018 as consumption picks up on the back of easing cost
EPS Consensus(IDR) pressures.
2017F 2018F 2019F
Danareksa 112.6 123.0 137.5 Earnings expected to grow 9% yoy in 2018. For 2018, the government will
Consensus 112.3 122.7 135.2
impose higher excise tax increases on SKM and SPM than it did last year.
Nonetheless, with robust sales growth of the company’s new products in
Danareksa/Cons 0.2 0.2 1.7
addition to gradual price increases, decent revenues growth should be on the
HMSP relative to JCI Index cards. In our estimate, the FY18 revenues will reach IDR110.7tn, +10.4% yoy,
supported by higher volume and price increases with the operating margin
maintained at 16.7%. This will filter through to a solid FY18 bottom line of
IDR14.3tn, +9.2% yoy.

Maintain HOLD. In our view, the new government regulation will create a more
level playing field in the cigarette industry, which ultimately should benefit the
big players including HMSP. Coupled with improving economic conditions in
2018, this should bode well for HMSP, we believe. Nonetheless, with limited
upside to our TP, we maintain our HOLD recommendation. The main risks to
our call include sluggish demand for cigarettes and unsupportive government
regulations.

Source : Bloomberg
Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 89,069 95,467 100,224 110,688 123,548
EBITDA, (IDRbn) 14,703 16,745 17,410 19,417 21,645
EBITDA Growth, (%) 2.3 13.9 4.0 11.5 11.5
Net profit (IDRbn) 10,363 12,762 13,097 14,307 15,990
EPS (IDR) 89.1 109.7 112.6 123.0 137.5
Natalia Sutanto EPS growth (%) 1.8 23.1 2.6 9.2 11.8
(62-21) 2955 5888 ext.3508 BVPS, (IDR) 275.2 293.8 298.7 311.2 327.9
natalia.sutanto@danareksa.com DPS, (IDR) 105.3 89.0 107.7 110.5 120.7
PER (x) 49.9 40.6 39.5 36.2 32.4
PBV (x) 16.2 15.1 14.9 14.3 13.6
Dividend yield (%) 2.4 2.0 2.4 2.5 2.7
EV/EBITDA (x) 35.1 30.6 29.5 26.4 23.6
Source : HMSP, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 135


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 89,069 95,467 100,224 110,688 123,548
COGS (67,305) (71,612) (75,663) (83,577) (93,435)
Gross profit 21,764 23,855 24,561 27,111 30,113
EBITDA 14,703 16,745 17,410 19,417 21,645
Oper. profit 14,048 16,020 16,637 18,526 20,654
Interest income 99 854 812 550 665
Interest expense (120) (8) 0 0 0
Forex Gain/(Loss) (18) (15) 0 0 0
Income From Assoc. Co’s 16 0 8 0 0
Other Income (Expenses) (92) 159 0 0 0
Pre-tax profit 13,933 17,011 17,457 19,077 21,320
Income tax (3,569) (4,249) (4,361) (4,769) (5,330)
Minority interest 0 0 0 0 0
Net profit 10,363 12,762 13,097 14,307 15,990
Core Net Profit 10,382 12,777 13,097 14,307 15,990

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 1,719 5,056 4,783 5,122 6,851
Receivables 4,727 4,996 5,181 5,741 6,420
Inventory 19,072 19,442 19,542 20,443 20,316
Other Curr. Asset 2,941 2,519 2,855 3,034 3,202
Fixed assets - Net 6,281 6,895 7,359 7,775 8,092
Other non-curr.asset 1,922 1,965 2,023 2,014 2,148
Total asset 38,011 42,508 43,377 45,764 48,664

ST Debt 0 0 0 0 0
Payables 3,191 3,871 3,650 4,138 4,566
Other Curr. Liabilities 781 1,898 2,200 2,409 2,676
Long Term Debt 0 0 0 0 0
Other LT. Liabilities 2,021 2,564 2,783 3,021 3,280
Total Liabilities 5,994 8,333 8,633 9,568 10,521
Shareholder'sFunds 32,016 34,175 34,744 36,196 38,142
Minority interests 0 0 0 0 0
Total Equity & Liabilities 38,010 42,508 43,377 45,764 48,663

www.danareksa.com See important disclosure at the back of this report 136


Exhibit 3.Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 10,363 12,762 13,097 14,307 15,990
Depreciation and Amort. 440 616 773 891 991
Change in Working Capital (4,839) 39 (505) (973) (124)
OtherOper. Cash Flow (7,392) 785 (787) (458) (500)
Operating Cash Flow (1,428) 14,203 12,577 13,767 16,357

Capex (971) (1,209) (1,270) (1,308) (1,308)


Others Inv. Cash Flow (1,320) 506 787 559 532
Investing Cash Flow (2,291) (703) (483) (748) (776)

Net change in debt (2,835) 0 0 0 0


New Capital 20,414 (19) 0 0 0
Dividend payment 12,250 10,352 12,527 12,856 14,044
Other Fin. Cash Flow 45 209 160 176 192
Financing Cash Flow 29,874 10,543 12,687 13,031 14,236

Net Change in Cash 26,155 24,042 24,782 26,051 29,817


Cash - begin of the year 65 1,719 5,056 4,783 5,122
Cash - end of the year 1,719 5,056 4,783 5,122 6,851

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 10.4 7.2 5.0 10.4 11.6
EBITDA 2.3 13.9 4.0 11.5 11.5
Operating profit 1.8 14.0 3.9 11.4 11.5
Net profit 1.8 23.1 2.6 9.2 11.8
Profitability (%)
Gross margin 24.4 25.0 24.5 24.5 24.4
EBITDA margin 16.5 17.5 17.4 17.5 17.5
Operating margin 15.8 16.8 16.6 16.7 16.7
Net margin 11.6 13.4 13.1 12.9 12.9
ROAA 31.2 31.7 30.5 32.1 33.9
ROAE 45.5 38.6 38.0 40.3 43.0
Leverage
Net Gearing (x) (0.1) (0.1) (0.1) (0.1) (0.2)
Interest Coverage (x) 116.9 2,096.1 0.0 0.0 0.0

Source : HMSP, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 137


Equity Research
Company Update

HOLD Indo Tambangraya Megah (ITMG IJ)


Maintain Finally starting to make acquisitions
Last price (IDR) 20,000 Although Indo Tambangraya Megah (ITMG) managed to improve its coal
Target Price (IDR) 21,100 reserves through acquisitions of small coal mining companies and in spite of
its attractive dividend yield, we maintain our HOLD recommendation with
Upside/Downside +5.5%
target price of IDR21,100 (based on DCF valuation with WACC of 11.9%) as we
Previous Target Price (IDR) 21,000 remain concerned by the company’s limited reserves. Our target price implies
8.8x 2018F PE.
Stock Statistics
Sector Coal Mining Further cut in coal production in 2017. Due to unfavorable weather conditions
Bloomberg Ticker ITMG IJ in 1H17 with heavy rainfall persisting in some mining areas, the company cut
No of Shrs (mn) 1,130 further its coal production target to 22.6mn tonnes (-11.7% yoy) for 2017 from
its previous target of 23.8mn tonnes. In 9M17, coal production declined by
Mkt. Cap (IDR bn/USDmn) 22,599/1,664
15.3% yoy to 16.1mn tonnes. With better weather conditions, however, the
Avg. daily T/O (IDR bn/USDmn) 25.8/1.9 management expects coal production to increase by 12.3% qoq to 6.4mn
tonnes in 4Q17.
Major shareholders
Banpu Minerals 65.1% Outlook 2018: Recovery in coal production expected. With coal prices to
Estimated Free Float 31.9% remain sturdy but no production guidelines yet provided by ITMG for 2018 as
they are still being finalized, we expect coal production to recover to around
24mn tonnes in 2018. The main driver is expected to be favorable weather
EPS Consensus(USD Cents) conditions in 2018.
2017F 2018F 2019F
Danareksa 21.3 18.5 17.9 Finally starting to make acquisitions, though relatively small. After seeking
Consensus 21.1 20.1 19.8
hard-to-find coal mining assets, ITMG finally managed to acquire a 70% stake
in Tepian Indah Sukses (TIS), a small coal mining concession with total reserves
Danareksa/Cons 1.1 (8.0) (9.4)
of around 4.7mn tonnes at USD9.5mn. As the asset is located near to the
ITMG relative to JCI Index company’s Trubaindo concession, it has high quality assets with calorific value
of 6,400 kcal/kg similar to Trubaindo (CV 6,500 kcal/kg). At EV/reserves
acquisition of around USD2.89/tonne, we believe the acquisition was done at a
relatively fair price. Going forward, we expect ITMG to seek more coal mining
assets for acquisition.

Maintain HOLD with a higher target price. We maintain our HOLD call with a
target price of IDR21,100 (based on DCF valuation with WACC of 11.9%). While
ITMG provides an attractive dividend yield and recently managed to acquire
small coalmining companies, we still have concerns over its reserves. The
upside potential comes from the possible acquisition of large sized coal mining
assets which would increase reserves significantly.

Source : Bloomberg Key Financials


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (USDmn) 1,589 1,367 1,679 1,719 1,770
EBITDA, (USDmn) 258 273 442 385 337
EBITDA Growth, (%) (14.0) 5.9 62.0 (13.0) (12.5)
Net profit (USDmn) 63 131 241 209 203
EPS (USDCents) 5.6 11.6 21.3 18.5 17.9
Stefanus Darmagiri EPS growth (%) (68.6) 107.1 84.5 (13.3) (3.0)
(62-21) 29 555 831 BVPS, (USDCents) 73.9 80.3 88.7 93.6 98.9
stefanus.darmagiri@danareksa.com DPS, (USDCents) 10.1 3.7 13.0 13.5 12.7
PER (x) 26.4 12.7 6.9 8.0 8.2
PBV (x) 2.0 1.8 1.7 1.6 1.5
Dividend yield (%) 6.9 2.5 8.8 9.2 8.6
EV/EBITDA (x) 5.4 4.9 2.8 3.1 3.4
Source : ITMG, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 138


Exhibit 1. Income Statement
Year to 31 Dec (USDmn) 2015A 2016A 2017F 2018F 2019F
Revenue 1,589 1,367 1,679 1,719 1,770
COGS (1,239) (1,037) (1,178) (1,252) (1,310)
Gross profit 350 331 501 467 460
EBITDA 258 273 442 385 337
Oper. profit 194 209 366 323 309
Interest income 4 2 3 4 4
Interest expense (1) (1) 0 0 0
Forex Gain/(Loss) (5) (4) 0 0 0
Income From Assoc. Co’s 0 0 0 0 0
Other Income (Expenses) (53) (14) (15) (20) (15)
Pre-tax profit 139 192 354 307 298
Income tax (76) (61) (113) (98) (95)
Minority interest 0 0 0 0 0
Net profit 63 131 241 209 203
Core Net Profit 91 139 241 209 203

Exhibit 2. Balance Sheet


Year to 31 Dec (USDmn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 268 328 406 462 505
Receivables 119 132 161 165 162
Inventory 117 62 94 100 100
Other Curr. Asset 8 17 17 17 17
Fixed assets - Net 255 224 220 230 274
Other non-curr.asset 411 447 435 423 411
Total asset 1,178 1,210 1,332 1,396 1,470

ST Debt 0 0 0 0 0
Payables 133 98 126 134 147
Other Curr. Liabilities 151 141 141 141 141
Long Term Debt 0 0 0 0 0
Other LT. Liabilities 59 64 64 64 64
Total Liabilities 344 302 331 338 352
Shareholder'sFunds 835 907 1,002 1,058 1,118
Minority interests 0 0 0 0 0
Total Equity & Liabilities 1,178 1,210 1,332 1,396 1,470

www.danareksa.com See important disclosure at the back of this report 139


Exhibit 3.Cash Flow
Year to 31 Dec (USDmn) 2015A 2016A 2017F 2018F 2019F
Net income 63 131 241 209 203
Depreciation and Amort. 64 64 76 61 28
Change in Working Capital 37 (9) (33) (2) 16
OtherOper. Cash Flow 33 (47) (2) (4) (4)
Operating Cash Flow 197 139 281 265 242

Capex (23) (22) (60) (60) (60)


Others Inv. Cash Flow (16) 4 3 4 4
Investing Cash Flow (39) (18) (57) (56) (56)

Net change in debt 0 0 0 0 0


New Capital 0 0 0 0 0
Dividend payment (115) (42) (147) (153) (143)
Other Fin. Cash Flow (2) (18) 0 0 0
Financing Cash Flow (116) (60) (147) (153) (143)

Net Change in Cash 42 60 78 56 43


Cash - begin of the year 226 268 328 406 462
Cash - end of the year 268 328 406 462 505

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales (18.2) (14.0) 22.8 2.4 3.0
EBITDA (14.0) 5.9 62.0 (13.0) (12.5)
Operating profit (18.2) 7.7 75.6 (11.7) (4.6)
Net profit (68.6) 107.1 84.5 (13.3) (3.0)
Profitability (%)
Gross margin 22.0 24.2 29.8 27.1 26.0
EBITDA margin 16.2 20.0 26.3 22.4 19.0
Operating margin 12.2 15.3 21.8 18.8 17.4
Net margin 4.0 9.6 14.4 12.2 11.4
ROAA 5.1 10.9 19.0 15.3 14.1
ROAE 7.3 15.0 25.3 20.3 18.6
Leverage
Net Gearing (x) (0.3) (0.4) (0.4) (0.4) (0.5)
Interest Coverage (x) 177.8 228.7 0.0 0.0 0.0

Source : ITMG, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 140


Equity Research
Company Update

SELL Indocement Tunggal Prakarsa(INTP IJ)


Maintain Overvalued
Last price (IDR) 19,400 We reiterate our SELL call on INTP with a target price of IDR14,700. While we
Target Price (IDR) 14,700 expect INTP to realize additional USD2-3/ton lower manufacturing costs from
the full operation of grinding at P14 by 2018, we don’t expect the cost savings
Upside/Downside -24.2%
to translate into better profitability margins given an estimated 1% yoy
Previous Target Price (IDR) 14,700 decline in ASP in 2018. INTP currently trades at 36.9x 2018F P/E, or above its
historical +2sd forward trailing PE of 34.8x, unjustified in our opinion.
Stock Statistics
Sector Cement 1%yoy compression in ASP expected in 2018. Following price declines of
Bloomberg Ticker INTP
IDR2,000/sack in September 2017, IDR1,500/sack in October 2017, and
IDR1,000/sack in November 2017, INTP said that it would not reduce the price
No of Shrs (mn) 3,681
of Tigaroda further in December 2017 but that it may reduce the price of its
Mkt. Cap (IDR bn/USDmn) 71,416/5,259 Rajawali brand by another IDR1,000/sack in selected areas. As such, we foresee
Avg. daily T/O (IDR bn/USDmn) 32.5/2.4 1-2%qoq lower ASP in 4Q17. While prices may be kept relatively flat in 1H18
before being raised by 2-3%qoq following consolidation, on a yoy basis, we still
Major shareholders expect ASP to be 1%yoy lower in 2018.
Birchwood Omnia Limited 51.0%
To fully realize cost savings from P14 in 2018. Following the operational
Mekar Perkasa 13.0% commencement of P14 toward the end of 2016, INTP claimed that it had
Estimated free float 36.0% realized USD4-5/ton of production cost savings. Going into 2018, INTP expects
to realize an additional USD2-3/ton of cost savings from the full operation of
EPS Consensus(IDR)
the cement mill in P14. We believe that with these cost savings, coupled with
2017F 2018F 2019F the outlook for normalizing coal prices, INTP will record 6bps higher EBITDA
Danareksa 512.5 526.1 655.0 margins in 2018 despite negative prices.
Consensus 584.0 706.4 842.5
“Rajawali” to give a higher contribution in 2018. Based on the company’s
Danareksa/Cons (12.2) (25.5) (22.2) indications, in 9M17, the contribution of “Rajawali” sales reached 1%, lower
than the company’s full year target of 2%. Going into 2018, INTP expects
INTP relative to JCI Index
Rajawali’s contribution to increase to 3-5%. Nonetheless, we only expect
Rajawali’s higher contribution to have a 0.1-0.3% impact on INTP’s ASP in 2018.
On a positive note, however, the company said that it would not use “Rajawali”
to replace “Tiga Roda” but only sell “Rajawali” in certain areas where the price
gap between Tigaroda and the cement of competitors is high (10-15%).
Reiterate SELL. We reiterate our SELL call on INTP with target price of
IDR14,700. To arrive at our target price, we use the DCF based valuation with
WACC of 13.0% and Terminal Growth of 4.0%. Our target price implies 27.9x
2018F P/E, or near to its historical +1SD forward trailing PE of 27.5x. While we
company to realize additional cost saving from P14 in 2018, we believe the
current valuation of INTP that reached 36.9x 2018F P/E, or above its historical
+2sd forward trailing PE of 34.8x is unjustified.
Source : Bloomberg Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 17,798 15,362 14,536 15,141 16,458
Antonia Febe Hartono, CFA EBITDA, (IDRbn) 5,966 4,611 3,121 3,266 3,948
(62-21) 2955 5888 ext.3504 EBITDA Growth, (%) (11.4) (22.7) (32.3) 4.7 20.9
antonia.hartono@danareksa.com Net profit (IDRbn) 4,357 3,870 1,887 1,937 2,411
EPS (IDR) 1,183.5 1,051.4 512.5 526.1 655.0
Stefanus Darmagiri EPS growth (%) (17.3) (11.2) (51.3) 2.7 24.5
(62-21) 29 555 831 BVPS, (IDR) 6,483.1 7,100.5 7,274.2 7,452.6 7,674.6
stefanus.darmagiri@danareksa.com
DPS, (IDR) 1,349.6 414.9 338.8 347.8 433.0
PER (x) 16.4 18.5 37.9 36.9 29.6
PBV (x) 3.0 2.7 2.7 2.6 2.5
Dividend yield (%) 7.0 2.1 1.7 1.8 2.2
EV/EBITDA (x) 10.5 13.4 19.8 19.0 16.0
Source : INTP, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 141


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 17,798 15,362 14,536 15,141 16,458
COGS (9,889) (9,030) (9,644) (10,018) (10,555)
Gross profit 7,909 6,331 4,892 5,123 5,903
EBITDA 5,966 4,611 3,121 3,266 3,948
Oper. profit 5,029 3,618 1,968 2,063 2,695
Interest income 589 496 503 474 474
Interest expense (27) (12) 0 0 0
Forex Gain/(Loss) 0 0 0 0 0
Income From Assoc. Co’s 25 17 18 18 19
Other Income (Expenses) 28 27 27 27 27
Pre-tax profit 5,645 4,146 2,515 2,582 3,215
Income tax (1,288) (276) (629) (646) (804)
Minority interest 0 0 0 0 0
Net profit 4,357 3,870 1,887 1,937 2,411
Core Net Profit 4,357 3,870 1,887 1,937 2,411

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 8,656 9,674 9,489 9,479 8,367
Receivables 2,535 2,605 2,625 2,858 3,084
Inventory 1,521 1,780 1,866 1,926 2,020
Other Curr. Asset 422 365 409 423 453
Fixed assets - Net 13,814 14,644 15,150 15,599 17,329
Other non-curr.asset 691 1,082 1,082 1,082 1,082
Total asset 27,638 30,151 30,621 31,367 32,335

ST Debt 0 0 0 0 0
Payables 1,622 2,089 1,930 2,005 2,112
Other Curr. Liabilities 1,066 1,099 1,111 1,135 1,182
Long Term Debt 0 0 0 0 0
Other LT. Liabilities 1,085 824 802 793 789
Total Liabilities 3,772 4,012 3,843 3,932 4,083
Shareholder'sFunds 23,866 26,139 26,778 27,435 28,252
Minority interests 0 0 0 0 0
Total Equity & Liabilities 27,638 30,151 30,621 31,367 32,335

www.danareksa.com See important disclosure at the back of this report 142


Exhibit 3.Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 4,357 3,870 1,887 1,937 2,411
Depreciation and Amort. 851 922 1,153 1,204 1,253
Change in Working Capital (231) 218 (248) (195) (190)
OtherOper. Cash Flow (563) (485) (503) (474) (474)
Operating Cash Flow 4,414 4,526 2,288 2,470 3,000

Capex (2,516) (1,758) (1,659) (1,653) (2,983)


Others Inv. Cash Flow 547 111 503 474 474
Investing Cash Flow (1,969) (1,647) (1,156) (1,178) (2,509)

Net change in debt (4) (14) (70) (22) (9)


New Capital 0 0 0 0 0
Dividend payment 4,968 1,527 1,247 1,280 1,594
Other Fin. Cash Flow (74) (319) 0 0 0
Financing Cash Flow 4,890 1,194 1,177 1,258 1,585

Net Change in Cash 7,335 4,073 2,309 2,550 2,077


Cash - begin of the year 11,256 8,656 9,674 9,489 9,479
Cash - end of the year 8,656 9,674 9,489 9,479 8,367

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales (11.0) (13.7) (5.4) 4.2 8.7
EBITDA (11.4) (22.7) (32.3) 4.7 20.9
Operating profit (14.1) (28.1) (45.6) 4.8 30.7
Net profit (17.3) (11.2) (51.3) 2.7 24.5
Profitability (%)
Gross margin 44.4 41.2 33.7 33.8 35.9
EBITDA margin 33.5 30.0 21.5 21.6 24.0
Operating margin 28.3 23.5 13.5 13.6 16.4
Net margin 24.5 25.2 13.0 12.8 14.7
ROAA 15.4 13.4 6.2 6.2 7.6
ROAE 18.0 15.5 7.1 7.1 8.7
Leverage
Net Gearing (x) (0.4) (0.4) (0.4) (0.3) (0.3)
Interest Coverage (x) 189.5 306.0 0.0 0.0 0.0

Source : INTP, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 143


Equity Research
Company Update

BUY Indofood CBP Sukses Makmur(ICBP IJ)


Maintain More room for growth
Last price (IDR) 8,925 Looking forward, we are confident that the positive momentum can be
Target Price (IDR) 9,700 maintained, especially since sales should receive a boost from more populist
government policies in the pre-election year of 2018. Maintain BUY with TP
Upside/Downside +8.7%
of IDR9,700.
Previous Target Price (IDR) 9,700
Room for growth for both noodles and dairy. The sales volumes of both
Stock Statistics
noodles and dairy were reportedly higher in 3Q17 (up by 8.5% yoy and 3% yoy)
Sector Consumer – or far better performance than in previous quarters when sales volume
Bloomberg Ticker ICBP IJ growth was negative. As a result, the company recorded solid yoy growth in
No of Shrs (mn) 11,662 revenues. Looking ahead, we are confident that the growth can be maintained.
In particular, we note the high correlation between noodles sales volume and
Mkt. Cap (IDR bn/USDmn) 104,083/7,665
government spending with the latter expected to increase along with higher
Avg. daily T/O (IDR bn/USDmn) 37.6/2.8 subsidies. For dairy, meanwhile, the demographic bonus arising from a growing
productive population should translate into stronger growth for dairy products.
Major shareholders
In our estimates, the FY18F sales volume for noodles and dairy will grow by
Indofood Sukses Makmur Tbk 80.5% 0.5% and 6% yoy, respectively.
Estimated free float 19.5%

EPS Consensus(IDR)
Earnings growth expected to reach 10.3% yoy in FY18F. ICBP’s other divisions
(Snacks, Nutritional, Beverages and Seasonings) - which provided a combined
2017F 2018F 2019F contribution to revenues of 17% - also reported higher 3Q17 volume growth
Danareksa 333.9 368.4 407.9 despite stiffer competition which is also curbing margins. For 2018, we expect
Consensus 332.9 364.8 399.1 sales volume growth from Snacks and Beverages of 18% yoy and 2% yoy,
Danareksa/Cons 0.3 1.0 2.2
respectively. At the topline, we expect overall revenues to grow by 7.6% to
IDR39tn in FY18F. Combined with easing cost pressures, a better product mix,
ICBP relative to JCI Index higher ASP and continued efficiency in opex should all help the company to
record a FY18 operating margin of 14.6% with 10.3% yoy bottom line growth.

Maintain BUY with an unchanged TP. At the current share price, ICBP is trading
at FY18F PE of 24.2x, still below its average 2-year PE of 25x. In our view,
continued product innovation supported by the company’s extensive
distribution network will help the company to maintain its solid performance in
the pre-election year of 2018. This will give support to the share price. Maintain
BUY with an unchanged TP of IDR9,700.

Source : Bloomberg
Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 31,741 34,466 36,291 39,038 42,302
EBITDA, (IDRbn) 4,456 5,541 5,771 6,265 6,827
EBITDA Growth, (%) 24.0 24.3 4.1 8.6 9.0
Net profit (IDRbn) 3,001 3,600 3,894 4,296 4,757
EPS (IDR) 257.3 308.7 333.9 368.4 407.9
Natalia Sutanto EPS growth (%) 13.5 20.0 8.2 10.3 10.7
(62-21) 2955 5888 ext.3508 BVPS, (IDR) 1,325.2 1,506.1 1,686.5 1,888.7 2,113.4
natalia.sutanto@danareksa.com
DPS, (IDR) 11.0 13.2 14.2 15.7 17.4
PER (x) 34.7 28.9 26.7 24.2 21.9
PBV (x) 6.7 5.9 5.3 4.7 4.2
Dividend yield (%) 0.1 0.1 0.2 0.2 0.2
EV/EBITDA (x) 22.2 17.6 16.9 15.3 13.8
Source : ICBP, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 144


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 31,741 34,466 36,291 39,038 42,302
COGS (22,122) (23,607) (24,971) (26,758) (28,901)
Gross profit 9,619 10,859 11,320 12,280 13,401
EBITDA 4,456 5,541 5,771 6,265 6,827
Oper. profit 3,908 4,936 5,166 5,680 6,260
Interest income 426 403 383 475 561
Interest expense (314) (179) (188) (241) (273)
Forex Gain/(Loss) 28 0 0 0 0
Income From Assoc. Co’s 0 0 0 0 0
Other Income (Expenses) (38) (171) (11) (11) (12)
Pre-tax profit 4,010 4,989 5,351 5,903 6,535
Income tax (1,086) (1,358) (1,456) (1,607) (1,779)
Minority interest 78 (31) 0 0 0
Net profit 3,001 3,600 3,894 4,296 4,757
Core Net Profit 2,972 3,600 3,894 4,296 4,757

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 7,658 8,372 8,666 10,326 12,125
Receivables 3,364 3,894 4,100 4,410 4,779
Inventory 2,547 3,110 3,290 3,525 3,807
Other Curr. Asset 294 196 206 221 240
Fixed assets - Net 6,556 7,114 7,524 7,983 8,491
Other non-curr.asset 6,043 6,216 7,730 8,315 9,011
Total asset 26,561 28,902 31,516 34,781 38,453

ST Debt 1,241 970 1,026 1,099 1,187


Payables 2,581 3,083 3,261 3,495 3,775
Other Curr. Liabilities 2,181 2,417 2,538 2,730 2,958
Long Term Debt 1,416 872 848 1,017 1,189
Other LT. Liabilities 2,755 3,059 3,233 3,467 3,748
Total Liabilities 10,174 10,401 10,907 11,808 12,856
Shareholder'sFunds 15,455 17,564 19,667 22,026 24,646
Minority interests 932 937 942 947 951
Total Equity & Liabilities 26,561 28,902 31,516 34,781 38,453

www.danareksa.com See important disclosure at the back of this report 145


Exhibit 3. Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 3,001 3,600 3,894 4,296 4,757
Depreciation and Amort. 549 605 605 585 567
Change in Working Capital (452) (152) (100) (153) (181)
OtherOper. Cash Flow (112) (224) (196) (234) (288)
Operating Cash Flow 2,986 3,829 4,204 4,494 4,854

Capex (1,295) (1,164) (1,014) (1,044) (1,075)


Others Inv. Cash Flow (20) 230 (1,131) (110) (134)
Investing Cash Flow (1,315) (933) (2,145) (1,155) (1,209)

Net change in debt 32 (815) 32 242 260


New Capital (1,201) (1,491) (1,791) (1,937) (2,137)
Dividend payment (1,294) (1,493) (1,791) (1,937) (2,137)
Other Fin. Cash Flow 1,108 1,618 1,785 1,952 2,169
Financing Cash Flow (1,357) (2,182) (1,764) (1,680) (1,846)

Net Change in Cash 315 714 294 1,659 1,799


Cash - begin of the year 7,343 7,658 8,372 8,666 10,326
Cash - end of the year 7,658 8,372 8,666 10,326 12,125

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 5.7 8.6 5.3 7.6 8.4
EBITDA 24.0 24.3 4.1 8.6 9.0
Operating profit 25.3 26.3 4.7 10.0 10.2
Net profit 13.5 20.0 8.2 10.3 10.7
Profitability (%)
Gross margin 30.3 31.5 31.2 31.5 31.7
EBITDA margin 14.0 16.1 15.9 16.0 16.1
Operating margin 12.3 14.3 14.2 14.6 14.8
Net margin 9.5 10.4 10.7 11.0 11.2
ROAA 11.6 13.0 12.9 13.0 13.0
ROAE 20.6 21.8 20.9 20.6 20.4
Leverage
Net Gearing (x) (0.3) (0.4) (0.3) (0.4) (0.4)
Interest Coverage (x) 12.4 27.6 27.5 23.6 22.9

Source : ICBP, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 146


Equity Research
Company Update

BUY Indofood Sukses Makmur(INDF IJ)


Maintain Enticing valuation
Last price (IDR) 7,550 In our view, INDF is still a proxy to ICBP but with a more attractive valuation.
Target Price (IDR) 9,100 As such, the better-expected performance of ICBP and Bogasari in 2018
should help INDF to book solid FY18F revenues and net profits growth of 7%
Upside/Downside +20.5%
and 10.6% yoy, respectively. Maintain BUY with TP IDR9,100.
Previous Target Price (IDR) 9,100
Estimated earnings growth of 5.7% yoy in FY17F. INDF’s agribusiness reported
Stock Statistics
robust top line growth of 20.8% yoy in 9M17 supported by higher sales volume
Sector CONSUMER of CPO (+11% yoy) and PK (+18% yoy) with higher ASP. In 4Q17, we expect
Bloomberg Ticker INDF IJ higher expected production and the CPO prices to remain stable. Nonetheless,
No of Shrs (mn) 8,780 this is likely to be offset by a significant revenues contribution from Edible Oils
and Fats, we believe. Given this, we expect that INDF will see more support
Mkt. Cap (IDR bn/USDmn) 66,292/4,882
from the performance of ICBP and Bogasari in 4Q17. For Bogasari, 4% ASP
Avg. daily T/O (IDR bn/USDmn) 61.0/4.5 increases (mostly in 3Q17) and steady volume will support solid 7.4% revenues
growth. ICBP’s performance is also expected to be robust. Given this support,
Major shareholders
we expect INDF to book FY17F revenues and net profits growth of 7.5% and
First Pacific Company Limited 50.1% 5.7% yoy, respectively.
Vanguard Group 1.6%
Estimated free float 48.3% ICBP and Bogasari to bolster the 2018 performance. More populist
government policies ahead of the elections should boost consumer incomes
EPS Consensus(IDR) and lift purchasing power in 2018. This should help ICBP to achieve top line
2017F 2018F 2019F growth of 7.0% yoy (note that 51% of INDF’s revenues are contributed by ICBP).
Danareksa 499.0 552.0 614.6 Regarding its agribusiness, our plantations analyst forecasts 2017-18F CPO
Consensus 503.8 535.7 582.7
prices of MYR2,800-2,700/ton and higher production from continued yield
recovery that may counter the positive impact of stronger demand. For
Danareksa/Cons (1.0) 3.0 5.5
Bogasari, its better performance should continue backed by stable ASP and
INDF relative to JCI Index rising demand. We estimate 4% volume growth in 2018. Raw material prices
should also be stable, we believe. Against this backdrop, we expect INDF to
book FY18 net profits of IDR4.8tn, +10.6% yoy.

Maintain BUY. We maintain our BUY recommendation on INDF with TP of


IDR9,100 – based on SOTP. At the current share price, INDF trades at FY18F PE
of 13.7x, a 43% discount to ICBP. Share price performance has been
disappointing, however, underperforming the market by 16.9% in the past
three months. In our view, INDF remains a proxy to ICBP but with a more
attractive valuation. Given the 20% upside to our TP, we maintain our BUY
recommendation.

Key Financials
Source : Bloomberg Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 64,062 66,750 71,768 76,790 82,348
EBITDA, (IDRbn) 8,744 10,377 10,916 11,859 12,725
EBITDA Growth, (%) (2.3) 18.7 5.2 8.6 7.3
Net profit (IDRbn) 2,968 4,145 4,381 4,847 5,396
EPS (IDR) 338.0 472.0 499.0 552.0 614.6
EPS growth (%) (24.7) 39.6 5.7 10.6 11.3
BVPS, (IDR) 3,105.7 3,299.9 3,565.9 3,871.6 4,213.4
Natalia Sutanto DPS, (IDR) 220.0 168.0 235.0 248.4 274.8
(62-21) 2955 5888 ext.3508
PER (x) 22.3 16.0 15.1 13.7 12.3
natalia.sutanto@danareksa.com
PBV (x) 2.4 2.3 2.1 2.0 1.8
Dividend yield (%) 2.9 2.2 3.1 3.3 3.6
EV/EBITDA (x) 9.0 7.1 7.2 6.4 6.2
Source : INDF, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 147


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 64,062 66,750 71,768 76,790 82,348
COGS (46,804) (47,322) (51,070) (54,205) (58,077)
Gross profit 17,258 19,428 20,698 22,585 24,271
EBITDA 8,744 10,377 10,916 11,859 12,725
Oper. profit 6,877 8,272 8,702 9,502 10,241
Interest income 599 545 501 478 440
Interest expense (1,534) (1,574) (1,368) (1,337) (1,232)
Forex Gain/(Loss) (888) 273 (15) 16 162
Income From Assoc. Co’s (334) (246) 0 0 0
Other Income (Expenses) 242 116 71 69 107
Pre-tax profit 4,962 7,385 7,891 8,729 9,718
Income tax (1,730) (2,533) (2,310) (2,555) (2,845)
Minority interest (264) (708) (1,199) (1,327) (1,477)
Net profit 2,968 4,145 4,381 4,847 5,396
Core Net Profit 3,856 3,871 4,397 4,831 5,235

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 13,076 13,362 10,952 12,250 9,089
Receivables 5,117 5,205 5,136 5,644 6,069
Inventory 7,627 8,470 8,712 8,339 9,396
Other Curr. Asset 15,906 1,415 1,538 1,748 1,911
Fixed assets - Net 25,096 25,702 28,952 32,608 36,570
Other non-curr.asset 23,918 27,487 30,173 26,999 27,359
Total asset 91,832 82,175 85,999 88,122 90,928

ST Debt 8,921 9,305 10,415 10,242 12,183


Payables 5,174 4,760 5,282 5,631 5,956
Other Curr. Liabilities 11,012 5,154 4,646 4,991 5,087
Long Term Debt 16,894 11,888 12,975 11,967 9,618
Other LT. Liabilities 6,708 7,126 7,240 7,956 8,491
Total Liabilities 48,710 38,233 40,558 40,786 41,336
Shareholder'sFunds 27,269 28,974 31,310 33,994 36,996
Minority interests 15,852 14,967 14,131 13,342 12,597
Total Equity & Liabilities 91,832 82,175 85,999 88,122 90,928

www.danareksa.com See important disclosure at the back of this report 148


Exhibit 3.Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 2,968 4,145 4,381 4,847 5,396
Depreciation and Amort. 2,102 2,278 2,602 2,792 2,974
Change in Working Capital 34 (1,111) 209 347 (1,020)
OtherOper. Cash Flow 306 9,959 1,287 860 590
Operating Cash Flow 5,410 15,270 8,479 8,846 7,940

Capex (5,754) (3,188) (6,014) (6,560) (6,993)


Others Inv. Cash Flow (126) (2,162) (2,024) 3,765 135
Investing Cash Flow (5,880) (5,350) (8,038) (2,795) (6,857)

Net change in debt 641 (5,151) 1,284 (1,181) (408)


New Capital 1,811 (1,850) (818) (771) (726)
Dividend payment (1,932) (1,475) (2,063) (2,181) (2,413)
Other Fin. Cash Flow (1,132) (1,157) (1,253) (620) (696)
Financing Cash Flow (612) (9,633) (2,850) (4,753) (4,244)

Net Change in Cash (1,082) 287 (2,410) 1,298 (3,161)


Cash - begin of the year 14,158 13,076 13,362 10,952 12,250
Cash - end of the year 13,076 13,362 10,952 12,250 9,089

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 0.7 4.2 7.5 7.0 7.2
EBITDA (2.3) 18.7 5.2 8.6 7.3
Operating profit (1.5) 20.3 5.2 9.2 7.8
Net profit (24.7) 39.6 5.7 10.6 11.3
Profitability (%)
Gross margin 26.9 29.1 28.8 29.4 29.5
EBITDA margin 13.6 15.5 15.2 15.4 15.5
Operating margin 10.7 12.4 12.1 12.4 12.4
Net margin 4.6 6.2 6.1 6.3 6.6
ROAA 3.3 4.8 5.2 5.6 6.0
ROAE 11.3 14.7 14.5 14.8 15.2
Leverage
Net Gearing (x) 0.3 0.2 0.3 0.2 0.3
Interest Coverage (x) 4.5 5.3 6.4 7.1 8.3

Source : INDF, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 149


Equity Research
Company Update

BUY Japfa Comfeed Indonesia (JPFA IJ)


Maintain The raising stars
Last price (IDR) 1,295 JPFA is our top pick within the poultry industry. We believe for JPFA 1) the
Target Price (IDR) 1,650 growth going forward will come from volume terms instead of ASP, 2) heading
strategy on the local corn prices remain to be the key focus next year which
Upside/Downside +27.4%
will cushion profitability improvement ahead, and 3) in the effort to manage
Previous Target Price (IDR) 1,650 better working capital, we estimate net gearing will stay manageable ahead.
Stock Statistics
Grow in volume terms, instead of ASP. The government’s effort on managing
Sector Poultry supply and demand in DOC and Broiler through culling programs will gradually
Bloomberg Ticker JPFA IJ narrow the supply and demand gap in DOC and Broiler, which we believe will
No of Shrs (mn) 11,411 stabilize the ASP. For JPFA, the key growth driver going forward will come
mainly from volume that we estimate to grow around 8-10% yoy in 2018.
Mkt. Cap (IDR bn/USDmn) 14,777/1,088
Meanwhile, we estimate ASP to grow only about 1-2% yoy in 2018. This will
Avg. daily T/O (IDR bn/USDmn) 6.9/0.5 translate to an overall expected 10.9% yoy revenue growth in 2018, which we
estimate to be better compared to 2017 due to expected better consumption.
Major shareholders
Japfa Ltd. 51.0% Hedging strategy on the corn prices, improving EBITDA margins ahead.
KKR Jade Investments Pte Ltd. 12.0% Managing hedging strategy by 1) building dry corn silos and 2) corn prices
Estimated free float 37.0% speculation will help the company forward to manage its cost, as so far we still
have not seen any easing on corn regulation. Due to JPFA large economies of
EPS Consensus(IDR) scale, the company can take benefit from its strong infrastructure and better
2017F 2018F 2019F cost structure compared to smaller players. This will support the prospect of
Danareksa 122.2 153.5 179.1 gross and EBIDA margins improvement in 2018.
Consensus 113.0 153.3 167.8
Manageable net gearing. In the continuous effort to manage better cash
Danareksa/Cons 8.1 0.2 6.8
position and working capital, we estimate JPFA will perform a manageable
JPFA relative to JCI Index position net gearing position, which will be much better compared to 2013-
2014 historical trend. Stability in financial liquidity risk should be on the card, a
part of the management’s strategy to hedge the risk.

BUY at TP IDR1,650. JPFA is our top pick within the poultry sector in Indonesia
due to 1) expected better stability in DOC and Broiler prices, 2) more
manageable corn prices, and 3) better consumption in 2018. Meanwhile, in
terms of valuation, JPFA remains attractive. We recommend to BUY on JPFA at
IDR1,650 (WACC 11.8% and 3% terminal growth). Risks to our call include lower
than expected GDP growth, weaker USD/IDR assumption, and volatility in corn
and soybean meal prices.

Source : Bloomberg Key Financials


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 25,023 27,063 28,985 32,149 35,722
EBITDA, (IDRbn) 2,289 3,547 2,941 3,336 3,544
EBITDA Growth, (%) 30.6 55.0 (17.1) 13.4 6.2
Net profit (IDRbn) 468 2,065 1,394 1,751 2,044
EPS (IDR) 43.9 180.9 122.2 153.5 179.1
EPS growth (%) 38.0 312.0 (32.5) 25.6 16.7
Adeline Solaiman
BVPS, (IDR) 526.4 775.0 888.2 1,028.2 1,190.5
(62-21) 2955 5888 ext.3503
adeline.solaiman@danareksa.com DPS, (IDR) 6.8 14.0 9.0 13.4 16.9
PER (x) 29.5 7.2 10.6 8.4 7.2
PBV (x) 2.5 1.7 1.5 1.3 1.1
Dividend yield (%) 0.5 1.1 0.7 1.0 1.3
EV/EBITDA (x) 8.6 5.1 6.0 5.1 4.6
Source : JPFA, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 150


Exhibit 1. Income Statement
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Revenue 25,023 27,063 28,985 32,149 35,722
COGS (21,030) (21,584) (23,828) (26,283) (29,163)
Gross profit 3,993 5,479 5,157 5,866 6,559
EBITDA 2,289 3,547 2,941 3,336 3,544
Oper. profit 1,728 2,921 2,224 2,612 2,943
Interest income 18 26 27 27 51
Interest expense (681) (510) (573) (449) (396)
Forex Gain/(Loss) (479) 11 0 0 0
Income From Assoc. Co’s 0 0 0 0 0
Other Income (Expenses) 112 319 282 272 275
Pre-tax profit 698 2,767 1,960 2,462 2,873
Income tax (173) (595) (490) (616) (718)
Minority interest (56) (107) (76) (95) (111)
Net profit 468 2,065 1,394 1,751 2,044
Core Net Profit 947 2,054 1,394 1,751 2,044

Exhibit 2. Balance Sheet


Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 901 2,701 3,582 3,388 3,265
Receivables 1,254 1,297 1,366 1,515 1,684
Inventory 5,855 5,500 5,911 6,141 6,421
Other Curr. Asset 1,583 1,551 1,707 1,887 2,095
Fixed assets - Net 6,809 7,512 8,389 9,273 10,388
Other non-curr.asset 746 678 755 783 815
Total asset 17,159 19,251 21,722 23,000 24,679

ST Debt 2,067 2,260 1,303 2,235 1,386


Payables 2,912 2,528 3,003 3,413 3,899
Other Curr. Liabilities 373 405 387 445 500
Long Term Debt 4,761 3,609 5,253 3,417 3,417
Other LT. Liabilities 936 1,075 1,109 1,222 1,355
Total Liabilities 11,050 9,878 11,055 10,732 10,558
Shareholder'sFunds 5,612 8,843 10,134 11,732 13,584
Minority interests 498 529 532 535 537
Total Equity & Liabilities 17,159 19,251 21,722 23,000 24,679

www.danareksa.com See important disclosure at the back of this report 151


Exhibit 3. Cash Flow
Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F
Net income 468 2,065 1,394 1,751 2,044
Depreciation and Amort. 561 626 717 723 600
Change in Working Capital 63 (73) (5) 31 37
OtherOper. Cash Flow 701 548 372 300 192
Operating Cash Flow 1,794 3,165 2,478 2,806 2,874

Capex (1,089) (1,550) (1,594) (1,607) (1,715)


Others Inv. Cash Flow 143 244 (51) (1) 19
Investing Cash Flow (945) (1,306) (1,645) (1,608) (1,695)

Net change in debt (393) (819) 720 (791) (716)


New Capital 0 702 0 0 0
Dividend payment (73) (160) (103) (153) (193)
Other Fin. Cash Flow (589) (479) (570) (447) (393)
Financing Cash Flow (1,056) (756) 47 (1,391) (1,302)

Net Change in Cash (207) 1,103 881 (194) (123)


Cash - begin of the year 768 901 2,701 3,582 3,388
Cash - end of the year 901 2,701 3,582 3,388 3,265

Exhibit 4. Key Ratios


Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 2.3 8.2 7.1 10.9 11.1
EBITDA 30.6 55.0 (17.1) 13.4 6.2
Operating profit 34.5 69.0 (23.9) 17.5 12.7
Net profit 38.0 340.9 (32.5) 25.6 16.7
Profitability (%)
Gross margin 16.0 20.2 17.8 18.2 18.4
EBITDA margin 9.1 13.1 10.1 10.4 10.4
Operating margin 6.9 10.8 7.7 8.1 8.2
Net margin 1.9 7.6 4.8 5.4 5.7
ROAA 2.8 11.3 6.8 7.8 8.6
ROAE 9.0 28.6 14.7 16.0 16.1
Leverage
Net Gearing (x) 1.0 0.3 0.3 0.2 0.1
Interest Coverage (x) 2.5 5.7 3.9 5.8 7.4

Source : JPFA, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 152


Equity Research
Company Update

BUY Jasa Marga (JSMR IJ)


Maintain Still leading the way
Last price (IDR) 6,200 Around 47% of the toll road concessions held by JSMR are under development
Target Price (IDR) 7,800 – covering a length of almost 600km in total. In 2018, JSMR may acquire more
toll roads, with those located on the Trans Java route most likely to be
Upside/Downside +25.8%
acquired. We don’t believe that a lack of funding is a major issue anymore
Previous Target Price (IDR) 7,800 since JSMR managed to issue three new funding instruments in 2017: assets
securitization, project bonds, and Komodo bonds. These instruments give
Stock Statistics
JSMR more funding options going forward. Maintain BUY.
Sector Toll Road
Bloomberg Ticker JSMR IJ Conducting a feasibility study in regard to acquiring several WSKT toll roads.
No of Shrs (mn) 7,258 JSMR has expressed its interest in buying 6 WSKT toll roads that form part of
the Trans Java route. The size of the transaction would depend upon the
Mkt. Cap (IDR bn/USDmn) 44,999/3,314
valuation demanded by WSKT with the deal possibly finalized in 1Q18. Actually,
Avg. daily T/O (IDR bn/USDmn) 46.8/3.5 WSKT plans to divest 10 toll roads, of which seven form part of the Trans Java
route. In other reports, WSKT is said not to be interested in offering the
Major shareholders
Pemalang – Batang toll road to JSMR. WSKT has a 60% stake in this toll road.
Government 70.0%
Estimated free float 30.0% Plans to issue another project bond in 2018. JSMR is studying the possibility of
EPS Consensus(IDR)
issuing project bonds phase 2 through its subsidiary in 2018. JSMR has several
brown field projects that could be used as the underlying assets of the project
2017F 2018F 2019F bonds, i.e. the Nusa Dua – Ngurah Rai – Benoa toll road, and the Surabaya –
Danareksa 345.9 336.8 388.9 Mojokerto toll road. In Sep 17, JSMR issued its first project bonds amounting to
Consensus 301.8 310.3 339.4 IDR1.5tn by using the Kebon Jeruk – Ulujami (JORR W2) toll road as the
Danareksa/Cons 14.6 8.5 14.6
collateral. The toll road commenced operation in 2014.

JSMR relative to JCI Index More toll roads may be tendered in 2018. The government plans to open
tender offers for six toll road projects to investors in 2018. These toll roads are:
Semarang – Demak, Semanan – Balaraja, Kamal - Balaraja – Teluknaga,
Samarinda – Bontang, Bawen – Jogja, and Cileunyi-Tasikmalaya-Cilacap.
However, three of the toll roads have been initiated by private entities,
including JSMR which has a partnership with UEM Group Bhd for the Cileunyi-
Tasikmalaya-Cilacap toll road (183km) with an investment of IDR35.0tn. Two
other toll roads initiated by private entities are: Semanan – Balaraja (31.7km) -
which was initiated by the Alam Sutra Group - and Kamal - Balaraja – Teluknaga
(48.3km) – which was initiated by the Salim Group and Agung Sedayu Group.

Maintain BUY. JSMR operates 665km of toll roads, giving it 62.2% market share.
The total traffic on JSMR’s toll roads accounts for around 80% of the total toll
road traffic in Indonesia. We expect 16.0%yoy revenues growth in 2018 on the
Source : Bloomberg
back of 11.8%yoy revenues growth from the existing toll roads. We expect the
existing toll roads to contribute 82% of total revenues in 2018.
Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Revenue, (IDRbn) 7,631 8,832 9,866 11,443 13,349
EBITDA, (IDRbn) 2,514 3,044 3,286 3,314 3,562
Maria Renata EBITDA Growth, (%) 27.6 21.1 7.9 0.9