2017 Indonesia market outlook - Trimegah · 2017 Indonesia market outlook Plenty of earnings growth ahead 2017 market outlook 5 December 2016 JCI Index Target: JCI Index (as of 28

MARKET OUTLOOK PT Trimegah Securities Tbk - www.trimegah.com 1

Global factors adding to uncertainty level...

Mr. Trump is entering US presidential office with a promise to expand

fiscal stimulus that may prompt the Fed to raise rates more often than

previously expected, and we continue to expect volatility in Europe next

year given elections in Germany and France. Higher expectation for US

growth and a stronger Dollar are usually negative for emerging markets

overall. Foreign investors have recorded USD851mn of net sell in Indo-

nesian equity in Nov with risk of another USD500mn—1bn if Fed indeed

indicates plans to be more aggressive.

...but domestic economy is actually better than six months ago

We track seven micro indicators and found recent economic momentum

more encouraging, raising our stance from neutral to slight positive. Our

proprietary survey (see p.63) also suggests that Indonesians plan to

spend more on property, autos and travelling although less on gadgets

and luxury items. A signal that economy is still recovering on a U-curve

trajectory.

JCI: downside to 5053 near-term, upside to 5964 by end-2017

With 4% downside and 14% upside from index level of 5246 (last clos-

ing before report publication) and a 27% expected earnings growth next

year should be able to cushion the downside, we remain cautious near-

term but more constructive medium-term, especially from end 1Q on-

ward.

Portfolio: tilting towards defensives and commodities for now

We populate our model portfolio with more defensives (MIKA, GGRM,

ROTI) and commodities (DOID, PTBA, PGAS). We also add WSKT (a low

beta construction company that has de-rated) and MAPI (attractive

bottom-up catalyst of Vietnam expansion).

2017 Indonesia market outlook Plenty of earnings growth ahead

2017 market outlook

5 December 2016

JCI Index Target:

JCI Index (as of 28 Nov16) 5,115

End-2016 5,053

1Q-2017 5,229

2Q-2017 5,598

End-2017 5,964

Sebastian Tobing

[email protected]

Rovandi

[email protected]

Trimegah research team

Trimegah’s model portfolio

Source: Trimegah Research, Bloomberg

Note: Given the time required to prepare the report, all index and stock prices in this report are as at end of 28 Nov 2016.

Top

picks

Price (Rp)

Mkt. Cap

TP Rec

EPS growth

P/E (x) EV/EBITDA

(x) P/BV (x)

Divd yield

Beta Upside

28-Nov (Rptrn) 2017 2017 2017 2017 2017 2yr

weekly

DOID 515 4.3 800 55% Buy 99% 4.4 3.4 1.6 0% 1.3

PTBA 11,550 26.6 16,000 39% Buy 125% 6.5 4.3 1.9 2% 1.6

PGAS 2,620 63.5 3,300 26% Buy 12% 9.1 6.0 1.3 3% 1.2

WSKT 2,270 30.8 2,910 28% Buy 81% 14.5 9.5 2.5 1% 0.6

MAPI 4,870 8.1 7,200 48% Buy 109% 16.0 6.2 2.2 0% 0.9

MIKA 2,580 37.2 3,000 16% Buy 11% 47.9 36.1 9.7 1% 0.4

GGRM 62,775 120.8 82,000 31% Buy 19% 15.3 10.0 2.8 4% 0.8

ROTI 1,455 7.4 1,900 31% Buy 22% 22.5 10.1 4.4 1% 0.9

Simple average 34% 60% 17.0 10.7 3.3 2% 0.96

Note: Given the time required to pre-

pare the report, all share prices in this

report are as at end of 28 Nov 2016.

PT Trimegah Securities Tbk - www.trimegah.com MARKET OUTLOOK 2

Table of contents

Economic outlook 3

- Global factors 3

- Indonesia's economy 7

Investment themes 12

Equity strategy 15

Sector and company pages 20

- Bank sector 20

- Automotive sector 50

- Consumer sector (staples, retail, healthcare) 60

- Telecommunication sector 100

- Media sector 120

- Construction sector 130

- Property sector 147

- Cement sector 172

- Coal sector 182

- Others (companies not in a specific sector) 200


Global factors have raised uncertainty levels

Higher global interest rates is becoming a real concern

Mr. Trump’s win in US presidential election has changed US growth and global interest rate expectations over-

night. We are likely to see larger fiscal stimulus plan in the US (Trump has mentioned USD1trn stimulus plan or

6% of GDP), stronger USD, and higher yields. With upcoming fiscal stimulus and already rising inflation, expect

US Fed to accelerate its interest rate hike. We think expectation was for a 50bps increase next year before Mr.

Trump’s win, but there is higher likelihood of a 100bps increase now. US 10 year treasury yield has risen by

~400bps (basis points) to 2.3% and the US rate curve has steepened in the process with 10-2yr treasury yield

rising by 20bps to 1.2% since Mr. Trump’s win.

How high can US Fed rate go?

We think a 25bps US Fed rate increase in December to 75bps was already a high likelihood even if Mr. Trump

had not won the US presidential election. The question is, how much will the Fed increases its rate next year?

Currently Fed rate is at 0.5% with a –1.1% spread over inflation Versus 0.9% long-term spread (30 years histor-

ical average). Assuming the spread over inflation returns to its historical average, Fed rate should rise by 2.0%

to 2.5%. History suggests that Fed rate’s return to normalcy usually takes about two years or on average 25bps

per quarter. Note however, that inflation is also a moving statistic. US inflation swap forward currently stands at

2.5% (a hedging instrument that indicates market’s inflation expectation). If we use this as US inflation bench-

mark, we are looking at Fed rate rising by 2.9% (290 bps) to 3.4%. To put this in perspective, the last time Fed

rate was 3% was in March 2008 before global financial crisis hit its peak.

Figure 1. Fed rate and spread over inflation

Source: Bloomberg, Trimegah Research

Figure 2. Fed rate, inflation, and inflation swap forward


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US Inflation Swap Forward US Inflation Fed Rate

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Fed spread over US inflation

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How does an accelerated interest rate hike in the US affect Indonesia?

In order to do an analysis with longer historical data, we use adjusted BI rate, which is calculated by assuming

same rate cut to BI rate as recent 7-days repo rate. Current adjusted BI rate is 6.0% (BI has cut by 50bps after

switching benchmark rate to 7-days repo rate). Based on latest inflation rate of 3.3%, BI real rate is at 2.7%

and the current spread over Fed real rate is at 3.8% versus average historical spread of 2.7%. This implies that

BI has room of 1.1% before having to increase its rate. It also means there is a risk of 0.9-1.8% increase in BI

rate based on our earlier calculation of a 2.0-2.9% risk of increase in Fed rate over the next two years.

Indonesia’s 10yr govt bond yield is currently 8.2% and US 10yr treasury at 2.4%, implying a 5.8% nominal

spread Vs. historical average of 5.1%. Indonesia’s real rate (taking into account current inflation) is 4.9% and

US at 0.8%, implying 4.1% real spread Vs. historical average of 1.3%. This implies that judging by nominal rate,

there is a risk we could see Indonesia’s 10yr bond yield rising to as high as 9.4% based on US inflation forward

swap currently at 2.5%. Judging by average historical real yield at only 1.3%, Indonesia’s 10yr bond yield could

be as low as 7.0%. The mid-point of the 7.0-9.4% range is 8.2%, exactly where current Indonesia’s 10yr bond

yield is.

Figure 3. BI adjusted real rate currently at 3.8% above Fed real rate Vs. 2.7% average


Figure 4. Indonesia’s nominal and real 10 yr govt bonds spread over US 10 year treasury bonds


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0.0%

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2010 2011 2012 2013 2014 2015 2016

BI real rate spread over Fed real rate Average real spread

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Indo 10yr nominal spread over US treasury

Average nominal spread

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Indo 10yr real spread over US treasury

Average real spread


Indo govt bonds’ yield curve remains flat Vs. other countries steepening

We think it is also worth highlighting that Indonesia’s yield curve remains flat, up to the point that on some days

7yr bonds’ yield could be slightly higher than 10yr bonds. Other countries are already undergoing a steepening

yield curve process. Could Indonesia continue to break the global trend? We do not think so. The question is

whether the short and medium end of the curve falling or the long-end rising. We think there is still risk that the

long-end of the curve (or the 10yr) rising in the near-term.

Figure 5. Indonesia govt bonds’ yield curve currently compared to end-2013 and end-2010


3.0%

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6.0%

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1yr 2yr 3yr 4yr 5yr 6yr 7yr 8yr 9yr 10yr

28-Nov-16 31-Dec-13 31-Dec-10


Risk of IDR weakening against USD

Our interest rate analysis is based on spreads returning to historical averages, but as we could see in the charts,

there were significant deviations from averages. Interest rates could overshoot while finding a new equilibrium,

and so does exchange rate. Historically, US 10 yr treasury yield has a positive correlation with USDIDR spot.

USDIDR already depreciated throughout 2014-16 though, which may reduce the impact of a rapidly rising treas-

ury yield (from 1.5% to currently 2.4% in the last several months).

More charts below show that Indo’s 10yr nominal spread over US treasury and US 10-2yr treasury spread

(measure of steepness of interest rate curve in the US) also show positive correlation. These all suggest that

short-term financial capital flows still have significant effect on the Rupiah standing against USD. We think long-

term fundamentals (which really have not changed much) of Indonesia’s economy and the fact that Rupiah has

depreciated significantly in the past two years should alleviate the impact, but nonetheless we can not ignore the

risk of another 5% depreciation in Rupiah to ~14200 level.

Figure 6. US 10 yr treasury yield Vs. USDIDR


Figure 7. Indo’s 10 yr govt bond nominal spread

Vs. USDIDR


Figure 8. US treasury 10-2yr spread Vs. USDIDR

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USDIDR (RHS)

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Indonesia’s economy is still on a path of gradual recovery

Micro indicators are actually improving

We track seven micro indicators ranging from auto sales volume to banking system’s loan and deposit growth.

Compared to our last assessment in May16, three out of seven indicators have improved and the economic sig-

nal indicated by these factors has improved from “neutral” in May16 to currently “slight positive” (most of these

indicators latest data point is Oct16).

The big question of course, is whether a combination of likely higher interest rates and further Rupiah deprecia-

tion in the short-term could halt economic progress. Our recent conversations with the real sector (IDR revenue)

suggest they are still digesting the impact of Mr. Trump’s win and have not made significant changes to their

plans other than reviewing USD costs and capex. The nature of a potential further depreciation is also important.

A swift depreciation (and likely overshooting) would have a larger negative psychological and real effect than a

gradual depreciation.

We think rising interest rate is unlikely to have significant effect on loan growth and the economy either, espe-

cially as we see little risk of BI raising benchmark rate significantly. Indonesian banks only registered 3.8% YoY

loan growth year-to-date, far below 10.4% in 2015 and 11.6% in 2014.

Hence, despite risk of a depreciating Rupiah and rising interest rate, we still expect GDP growth of 5.1%, similar

to this year. There is upside risk if coal price remains at current level of USD90/ton versus our forecast of

USD75/ton for next year. Kalimantan and South Sumatra combined is 28% of Indonesia’s GDP but the ripple

effect can be larger than Kalimantan’s and South Sumatra’s contribution to Indonesia GDP suggests.

Figure 9. Micro indicators are improving

Source: Trimegah research

Economic indicators May-16 Nov-16

Auto sales volume Positive Positive

Property marketing sales Neutral Neutral

Cement consumption Negative Negative

Retail SSSG Neutral Neutral

Imports growth Negative Positive

SOE construction order book Neutral Positive

Loan and deposit growth Negative Negative

Overall Neutral Slight Positive


Indicator #1: Auto sales momentum remain positive

The positive 4W sales volume momentum that started rebounding in Aug15 has continued its positive trajectory

and we remain upbeat on next year’s 4W volume, expecting ~10% growth, an improvement over this year’s 3%

growth pace (Jan-Oct YoY). 2W sales volume growth remains in negative territory, but at least has stopped

worsening. We are less optimistic on 2W volume as penetration has already reached 40% in 2W (versus 5% for

4W) and expect a structural change in marketing strategy whereby 2W distributors would focus more on increas-

ing ASP by launching higher-end new models (some of recent models are priced at IDR 50mn versus normally

~IDR 15mn).

We have also noticed higher volume of upper-end 4W, which signals higher propensity to spend by upper-end

consumers.

Figure 10. Indonesia 4W sales volume growth YoY

Source: Bloomberg, TRIM Research

Figure 11. Indonesia 2W sales volume growth YoY


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GDP YoY (LHS) Indo 2W sales volume growth YoY (RHS)


Indicator #2: Cement growth momentum remains negative

After rising in June to August, cement domestic consumption 3M Average volume YoY growth slowed down in

September and October. Although cement companies are more optimistic on next year’s volume growth i.e. INTP

expects 5% domestic cement consumption growth next year Vs. 3% YoY growth year-to-date, we choose to be

conservative and maintain negative consumption.

Indicator #3: raising construction SOEs’ new contract growth momentum from neutral to positive

SOE construction companies’ new contract book has improved, currently over 150% growth versus slightly over

100% YoY growth in May (with negative momentum). Given higher base, we expect new contract value to be flat

next year, but total order book would still grow by 31% next year. Under finance minister Ms. Sri Mulyani, the

government has been more prudent and careful in spending, but we remain optimistic that government will stay

committed when it comes to infrastructure, which is the sort of productive spending that Ms. Sri Mulyani likes.

Figure 12. Cement domestic consumption 3M Average Volume and YoY growth

Source: Bloomberg, Trimegah research

Figure 13. Construction SOEs’ cumulative YoY growth


Note: Data includes monthly data for PTPP, ADHI, and WSKT as WIKA has not published Oct16 new contract numbers

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Figure 15. Indonesia GDP versus Imports YoY growth

Source: Companies data, Trimegah research

Indicator # 4: ACES and RALS’ YoY SSSG momentum is neutral

Both RALS (Ramayana Dept Store), which target low to mid-end consumers, and ACES, which target higher end

consumers, show some signs of recovery. However, we still assign a neutral momentum for retail sector as

RALS’ recent strong SSSG could be driven by higher market share as management has improved its product of-

ferings. We also want to wait for 2-3 more months of further recovery in ACES before we are more confident in

calling for a retail recovery.

Indicator # 5: Monthly imports shows positive momentum

Monthly import is another statistic that historically has high correlation with GDP. Imports YoY growth is finally

rebounding and should reach positive YoY growth soon.

Figure 14. Retail stores (ACES and RALS)’ YoY growth (3months MA)

Source: Bloomberg, Trimegah research

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Jun-09 Feb-10 Oct-10 Jun-11 Feb-12 Oct-12 Jun-13 Feb-14 Oct-14 Jun-15 Feb-16 Oct-16

GDP YoY (LHS) Imports YoY (RHS)


Figure 16. Total marketing sales

Indicator #6: Property marketing sales momentum is neutral

We track marketing sales of 11 public listed property companies. Quarterly total marketing sales has not shown

discernible trend and the overall theme remains gradual recovery. On a segmental basis, those with primarily

landed residential are the most volatile and have not shown signs of rebound, which runs against the perception

that landed residential has more end users as buyers and therefore supposedly more stable. Companies with

primarily high rise products have less volatile quarterly marketing sales and seems to be stabilizing (although we

need a couple more quarters to confirm this). Industrial surprisingly is showing a robust rebound.

A major reason of why we expect a gradual recovery rather than a speedy recovery in property market is due to

substantial supply in secondary market (we found that secondary high rise units are being offered at ~14% dis-

count to primary—see p151 for details). We are likely to see a more positive momentum in 2H 2017.


Figure 17. Marketing sales per segment


0

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Primarily high rise

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Primarily industrial

Figure 18. Banking system’s loan and deposit YoY growth

Indicator #7: Loan and deposit momentum remains negative

Deposit growth is still slowing down to below 5% in September. Given LDR is already at 90% level, it is therefore

not surprising to see loan growth slowing down as well. Our discussion with banks suggest that although they

are more optimistic on next year growth, the potential rebound in both deposit and loan growth are unlikely to

be significant. Banks’ NPL (non performing loans) cycle is also still rising so it makes more sense for banks man-

agements to focus more on improving their asset quality rather than loan expansion.


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2011 2012 2013 2014 2015 2016

LDR YoY Deposit Growth YoY Loan Growth(%) (%)


Four Investment themes for 2017

Theme 1: Companies with bottom-up catalysts

In a search for alpha, we have identified companies with secular earnings improvement that should alleviate the

volatility caused by changes in macro outlook. MAPI, DOID, and MPMX benefit from expected improvement in

operations and balance sheet while RALS benefits from expected improvement only. Of these, RALS and DOID

are turnaround stories that are already visible in recent quarterly results, while MAPI and MPMX are arguably

more forward-looking calls and should be less “crowded” trades.

Figure 19. Stocks with clear bottom-up catalysts

Source: Trimegah research, Bloomberg

Ticker Comment 2017 PE 2017 EPS

growth

2017

EV/EBITDA

2017EBITD

A growth

MAPI

We believe MAPI's expansion into Vietnam will be more suc-

cessful than market expects and it will be an important

growth driver for the company. Company has also been able

to reduce debt burden from 1.7 to 1.5 net debt to EBITDA.

18.5 123% 6.2 22%

RALS

RALS has undergone transformation in product line-up that

will still bear fruits in the coming years. We expect the com-

pany to add more celebrities related products and revamps

its kids' clothing line-up to drive sales next year.

15.3 22% 10 18%

DOID

DOID recently obtained sizable long-term contract that in-

creases its EBITDA backlog to ~USD1bn. Despite this year's

strong performance in share price, it is still trading at 3.4x

2017 EV/EBITDA, a 28% discount to closest competitor

UNTR.

4.5 99% 3.4 26%

MPMX

New management is focused on transforming the company

to increase cross-selling between divisions, reduce capex

and to be more cost efficient. We expect write-off for its

financing business to have peaked, something that is not yet

reflected in current share price.

9.7 21% 6.6 10%


Figure 20. Net profit sensitivity for every 10% IDR depreciation in USD

Theme 2: Companies affected by USD depreciation

We perform a sensitivity analysis of all stocks under coverage, particularly impact to net profit for a 10% depre-

ciation in Rupiah against USD. As expected, most of those that are positively impacted by USD depreciations are

mining companies. PGAS’ profit is also quite sensitive to USD changes. Most of those negatively impacted are

either consumer, retail, or airline companies. Note that we already assume that consumer and retail companies

can pass on half of USD cost increase to its customers.

We include PGAS and DOID in our model portfolio. We also include ROTI more as the company has demonstrated

in the past that it was able to pass through most if not all of the cost increase. We include MAPI as we think the

company’s stock-specific expansion plan into Vietnam is very attractive and has larger impact overall.


Figure 21. Potential upside to SOE dividends

Theme 3: More dividends from SOEs

We look at large-cap SOEs under our coverage that historically had given higher dividends. The banks (BBRI,

BBNI, and BMRI) have less room to pay higher dividend particularly if deposit growth is slower than their

planned loan growth, but BMRI management has indicated it is likely to pay slightly higher than the usual 30%.

There is significant upside in dividends from PTBA, PGAS, SMGR, and TLKM, in the order from largest to lowest

upside, based on respective companies’ FCF (Free Cash Flow = EBITDA—Capex) compared to current dividend

amount we assume in our financial models.


Ticker Rating

TP

(Target

Price)

Upside to

TP

Divd

yield

Current payout

ratio assump-

tion

Historical

high payout

ratio

Divd yield

assuming

historical

high

2017 FCF as

% of cur-

rent divi-

dend

PTBA Buy 16,000 39% 2.4% 35% 64% 4% 576%

SMGR Buy 11,300 30% 3.2% 40% 55% 4% 360%

PGAS Buy 3,300 26% 3.4% 40% 57% 6% 442%

BBRI Buy 11,900 14% 2.9% 30% 44% 4% NA

BBNI Buy 6,000 16% 2.7% 25% 35% 4% NA

TLKM Neutral 4,200 9% 4.0% 70% 70% 4% 234%

BMRI Neutral 10,500 3% 2.5% 40% 90% 6% NA

-28%

-22%

-20%

-18%

-16%

-13%

-11%

-8%

-7%

-6%

-5%

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-2%

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-1%

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1% 4%

5% 1

0% 15%

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23%33%

35%

38%

45%

-40%

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-10%

0%

10%

20%

30%

40%

50%

ERA

AAIS

AIN

DF

GIA

AN

IPS

RO

TI

MAPI

EXC

LIC

BP

MD

LN

KLBF

TBIG

MN

CN

SM

GR

AC

ES

MM

LP

ISA

TIN

TP

BS

DE

SIL

OPW

ON

MPM

XSM

RA

WIK

AH

MSP

BK

SL

MIK

AAA

LI

BW

PT

LS

IPSIM

PSG

RO

PSAB

JPFA

MAIN

CPIN

JSM

RAC

ST

WS

BP

MTLA

MAR

IW

SKT

WTO

NM

PPA

DIL

DTLKM

PTPP

DM

AS

RA

LS

UN

VR

AD

HI

LPPF

GG

RM

AS

IIPTB

AAK

RA

AD

RO

PG

AS

ITM

GH

RUM

UN

TR

INCO

DO

ID


Theme 4: A rebound in commodities prices

We view that our coal price average of USD75/ton for 2017 (+16% YoY) and oil price of USD60/barrel (+39.5%

YoY; ~30% of coal miners’ production cost) is a fair level to safeguard a disciplined supply level and is a fair lev-

el to align and share a relatively even profitability among the upstream (coal miners & contractors) and down-

stream (power plants) value chain. Large mining contractors and large miners in Indonesia and China are pro-

posing to hedge contracts under a favorable price of above USD65/ton, which benefits the well-established/large

players in the coal market. This creates a healthy cycle for the big coal miners and contractors in our view.

DOID, PTBA and ADRO are our top picks. 3 of these companies share a similarity which is relatively strong earn-

ings predictability. This is an important factor which should be more emphasized in the commodity market in our

view knowing that coal price rally is expected to be short lived (rally is mainly driven by China’s supply cut policy

rather than from demand side). Note that DOID is able to secure USD3bn worth of contracts from a single miner

(BRAU COAL) until 2025, PTBA is able to secure attractive domestic price contracts for 2017 using 4Q16’s Indo-

nesia coal benchmark (HBA) price average and ADRO has been proven to have the highest flexibility in adjusting

stripping ratios in order to maintain margins.

Figure 22. Trimegah coal price forecast


Coal price to normal-

ize at USD75/tonne

in 2017 and will

gradually fall to

USD65/ton by 2021

and will be used as

o u r l o n g - t e r m

benchmark price


Figure 23. Earnings growth per sector

JCI’s earnings growth to rebound in 2017

Based on our analysts’ bottom-up projections, we expect JCI to post a strong 27% earnings growth, driven by

commodities, construction, banks, and retail. Commodities is driven by expected rebound in commodities prices

and already assuming coal price to fall from current level of USD92/ton (Newcastle generic 1 month contract) to

average USD75/ton next year, which is still a 16% growth versus this year’s average coal price. Banks’ earnings

growth is driven by lower provisioning, which has caused a 2% earnings decline this year. Retail is driven by

earnings recovery in several companies i.e. MPPA, MAPI, ERAA, which have suffered this year.

Largest risk to our JCI earnings growth forecast lies with banks and commodities sectors, which are driven by

banks’ NPL and coal price, respectively. Banks’ earnings growth contributes 46% of JCI’s absolute earnings

growth and commodities sector’s earnings growth contributes 25% of JCI’s absolute earnings growth.


-5%

5%10% 14% 16% 18%

24% 27% 27%31%

45%

68%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Pro

pert

y

Cem

ent

Media

Consu

mer

sta

ple

s

Tele

com

Healthca

re

Auto

motive

JCI

Reta

il

Banks

Const

ruct

ion

Com

moditie

s


Figure 24. JCI PE band

JCI trajectory: near-term flattish (with downside to 5053 level) before up-

ward momentum accelerates

In the short-term, we remain concerned of emerging market outflow affecting Indonesia. Despite a USD850mn

outflow in Nov, Indonesia still registers USD1.6bn in-flow year-to-date and remain prone for more outflow in the

near-term. We expect more outflow leading up to Fed’s decision to increase rate and as Mr. Trump clarifies his

agenda in the coming weeks (we expect Mr. Trump to focus more on fiscal stimulus rather than trade protection-

ism).

Having said that, a 27% earnings growth should be able to attract or at least reduce the outflows and we expect

index to perform better from end-1Q17 onward. Our index targets are 5053 (-1% downside) at end of 2016,

5229 (2% upside) by 1Q17, 5598 (9% upside) by 2Q17, and 5964 (17% upside) at end of 2017. Upside/

downsides are based on index at 5115 on 28 Nov (we have to use delayed prices and index levels given the time

needed for a report this size to be ready for publication).

Our end-2016 and 1Q17 index targets are based on 15.4x PE, slightly lower than 15.9x historical average. Our

2Q17 and end-2017 index targets are based on 15.9x historical average, as we assume a slight re-rating in the

index.


Figure 25. Foreign fund flows in JCI

96435

8731,168

2,126

-1,732

1,942

3,600

1,753

1,292

2,353

2,956

1,712

-1,806

3,830

-1,456

1,611

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

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2012

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2015

2016 Y

tD

USD mn


10

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14

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20

Jan/1

1

Mar/

11

May/1

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Jul/11

Sep/1

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5

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Mar/

16

May/1

6

Jul/16

Sep/1

6

Nov/1

6

Forward PE of 15.9x, Avg PE of 15.9x, +1 StDev of 18.1, -1 StDev of 13.8x


Figure 26. Trimegah’s model portfolio

Model portfolio

We think a portfolio that best captures the short-term risk of outflows or depreciating Rupiah and medium-term

bullish earnings growth outlook is a combination of: 1) Stocks that benefit or less affected by potential short-

term Rupiah depreciation or increase in yields, 2) Bottom-up picks with stock specific catalysts that should be

attractive long-term holdings despite macro turbulence, and 3) Low beta companies with relatively defensive

earnings. Hence, we populate our model portfolio with coal stocks with strong earnings growth (DOID, PTBA),

under-owned forgotten utilities with upstream oil holdings (PGAS), a cheap construction company with strong

growth and plenty of contracts secured (WSKT), a retail company with stock-specific turnaround story (MAPI),

three consumer companies with relatively lower beta and higher earnings growth compared to the sector (GGRM,

ROTI), and a healthcare company with very low beta and defensive earnings (MIKA).

We intentionally try to keep our portfolio beta lower than 1.0 and exclude cyclicals (although we prefer ASII to

banks among cyclicals) as we remain concerned over possibility of a rise in yield in the near-term. Currently Indo

govt yield is very flat with risk of long-end rising.

One notable exclusion from our model portfolio is TLKM, which despite market’s perception as a defensive stock,

we think would behave more as a beta stock now due to its valuation (8x 2017 EV/EBITDA, near historical high)

and risk of heightening competition among telecoms next year.


Top

picks

Price (Rp)

Mkt. Cap

TP Rec

EPS growth

P/E (x) EV/

EBITDA (x)

P/BV (x)

Divd yield

Beta

Upside

28-Nov (Rptrn) 2017 2017 2017 2017 2017 2yr

weekly

DOID 515 4.3 800 55% Buy 99% 4.4 3.4 1.6 0% 1.3

PTBA 11,550 26.6 16,000 39% Buy 125% 6.5 4.3 1.9 2% 1.6

PGAS 2,620 63.5 3,300 26% Buy 12% 9.1 6.0 1.3 3% 1.2

WSKT 2,270 30.8 2,910 28% Buy 81% 14.5 9.5 2.5 1% 0.6

MAPI 4,870 8.1 7,200 48% Buy 109% 16.0 6.2 2.2 0% 0.9

MIKA 2,580 37.2 3,000 16% Buy 11% 47.9 36.1 9.7 1% 0.4

GGRM 62,775 120.8 82,000 31% Buy 19% 15.3 10.0 2.8 4% 0.8

ROTI 1,455 7.4 1,900 31% Buy 22% 22.5 10.1 4.4 1% 0.9

Simple average 34% 60% 17.0 10.7 3.3 2% 0.96


Figure 27. Sector weighting and valuations

Sectoral outlook on 2017

Bullish on coal

We have overweight on coal, supported by healthier coal price level of USD75/72.5/70 per tonne in 2017/18/19

as well as a new healthy and sustainable up-cycle era of the sector. This up-cycle era can be seen from stronger

2017-18 earnings growth, due to coal price recovery and better cost structure–due to low fuel cost, as fuel

makes up ~30% of mining cost. Additionally, we also see healthier supply side, as major companies are

providing conservative production plans. Our top picks are PTBA (Buy, TP IDR16,000), ADRO (Buy, TP

IDR2,000), DOID (Buy, TP IDR800).

Bullish on consumers (staples, retail, healthcare)

We also have overweight on consumers, with more inclination towards discretionary vs. staples, on the back of

higher confidence on consumer purchasing power next year. We believe higher consumer purchasing power is

supported by improvement on overall economic conditions (benign inflation, higher GDP growth, post tax

amnesty and rising commodity prices). Moreover, our belief is further reinforced by our proprietary survey,

which shows more aggressive spending outlook post tax amnesty. However, we are also aware of downside risk

in electricity subsidy removal and exchange rate volatility that might disrupt overall consumer spending. Hence,

we advise investors to look more through bottom-up approach rather than top-down, as reflected in our

preference for companies with higher sales growth, margin expansion, and undemanding valuation. Our top

picks thus include: MAPI (Buy, TP IDR7,200), RALS (Buy, TP IDR1,900), GGRM (Buy, TP IDR82,000).

We are less bullish on interest-rate sensitive sectors except automotive

We have neutral on banks on risk of higher interest rate risk and as NPL risk remains (likely to peak in 1H). We

are also neutral on property as we see only a gradual recovery in price momentum as there is still plenty of sup-

ply in the secondary market. The only exception is automotive, where we see lower risk to our earnings growth

relative to other interest-rate sensitive sectors. It also helps that the largest automotive company, ASII, is a

conglomerate with ~30% of its earnings contributed by commodities businesses.


Sector Weighting 2017 PE 2017 earnings

growth 2017 PBV

Banks Neutral 10.0 31% 1.5

Automotive Overweight 15.3 24% 2.5

Commodities Overweight 9.5 68% 1.5

Property Neutral 18.3 -5% 1.6

Construction Neutral 16.1 45% 2.0

Telecom Neutral 19.5 16% 3.8

Media Neutral 14.2 10% 2.3

Consumer staples Overweight 26.1 14% 7.1

Retail Overweight 17.4 27% 4.1

Healthcare Overweight 31.2 18% 5.7

Cement Neutral 13.9 5% 1.8

JCI 14.8 27% 2.5


Neutral on construction

We have neutral on construction as macro outlook for 2017 seems to have mixed impact on infrastructure SOE.

We foresee budget cut for ministries that might adversely affect SOE contractors. However, looking at

government priority projects, we expect higher portion of oil refinery projects, which should benefit several

companies as these projects give higher gross margin. However, with current valuation, we view the stocks to be

cheap for the time being, as they are currently trading below their 3-years average PE, largely due to massive

foreign selloff caused by uncertainty on emerging market post-US election. We therefore screen our stocks over

their PE ratio, EV to new contract, and potential earnings growth, with WSKT (Buy, TP IDR2,910) and WIKA

(Buy, TP IDR2930) as our top picks.

Neutral on telecommunications and media

We have neutral on telecommunications, as we expect more competitive environment, resulting in prolonged

price war, though not to the extent of 2008-12 price war. Moreover, we also expect slower growth from cellular

business’ EBITDA, mainly due to lower margin. Tower industry outlook is also quite bleak, as we expect lower

demand due to possibility of network sharing regulation change. Likewise, we also have neutral on media as

despite expected higher revenue growth from consumer companies’ expected higher spending, we still assume

rather slow earnings growth. Our top pick for the sector is MARI (Buy, TP IDR1,100).

Neutral on cement

We have neutral on cement, as we expect lingering oversupply condition, potential demand growth slowdown,

prolonged decline in ASP, as well as increase in cost from rising coal price (coal composes ~16-20% of SMGR

and INTP’s COGS). However, the cement companies have put in place cost-efficiency measures, which have

enabled them to protect their market share as well as their margins. Furthermore, we expect slower rate of

decline of ASP in 2017, compared to 2016. Our top pick remains with SMGR (Buy, TP IDR11,300), as we believe

the company will outperform in terms of demand growth, due to it holding the largest market share in areas with

positive demand growth (outside Java).


Bank Sector


High risk-free rate environment. Downgrade the sector tactically into Neutral (prev: Overweight) The recent developments in the share price of JCI stocks made us realign-ing the strategy toward Indonesian banks stocks. We now assume higher

risk-free rate of 8% as in-line with the current 10-yr Indonesian govt bond yield (~8.3%). As a result, the target prices of banks under our coverage are cut, leaving 4 Buys, 3 Neutrals, and 5 Sells. We therefore downgraded the sector rating tactically into Neutral (prev: Overweight). But, there is an upside risk from higher coal price... Since our coal analyst expects USD75/ton coal price in 2017F, it is fair to

expect improvement in coal debtors’ repayment capability. Anecdotal evidence suggest increasing interest coverage ratios of several publicly listed coal firms, which is an early signs of the improvement in the system-wide NPL ratio, in our view. Our checks with BBNI and BNLI revealed some of their coal-related debtors that went NPL have started to repay the interests and instalments again. We therefore expect NPL ratio in all

banks to start gradually declining in 2017F onwards. ...and also rising consumer confidence The declining interest rate environment combined with low inflation and rising consumer confidence index should bode well with consumer loan growth. Historical data suggests positive correlation between consumer loan growth and consumer confidence index. The rising consumer confi-

dence is evidenced by our consumer team survey, revealing more buying appetite in the next 12 months, especially in property products. This, in our view, should lead to higher consumer loan growth. Our top picks now: BBNI, BBTN, and BNLI

We favor BBNI since it is now valued cheap and its asset quality is not as worse as we think. Besides, it is relatively under-owned now since nega-

tive sentiments surrounded the company post the announcement of it providing loans to VIVA (a Bakrie company). We view VIVA to be credit-worthy instead, since it showed an improvement in interest coverage ratio this year. BBTN is also favored for its high earnings visibility from govt public housing program. We think the potential impact from govt funding scheme change into 60:40 (vs. current 90:10) would be muted as BBTN

still have a room for 50bps TD rate cut. Lastly, we recommend to own BNLI as it is expected to benefit greatly from higher coal price.

Banks Tactical Downgrade to Neutral

Companies Data

TICKER

Price

(IDR) Mkt. Cap

TP Ups.

Rec. EPS Growth(%) ROE(%) P/BV (X)

28-Nov (IDR bn) (%) 2016 2017 2016 2017 2016 2017

BBRI 10,475 255,825 11,900 13.6 Buy (2.5) 7.3 18.6 17.5 1.9 1.7

BBNI 5,075 93,696 6,000 18.2 Buy 11.2 38.5 11.8 16.5 1.1 1.1

BBTN 1,600 16,775 1,850 15.6 Buy 29.5 19.2 12.6 13.4 0.9 0.8

BNLI 530 11,722 600 13.2 Buy NM NM (4.3) 7.1 0.5 0.5

BBCA 14,375 350,872 15,000 4.3 Neutral 5.8 15.1 18.3 18.0 3.4 2.9

BMRI 10,150 234,465 10,500 3.4 Neutral (28.1) 74.3 9.6 17.4 1.5 1.6

BNGA 785 19,531 800 1.9 Neutral 250.6 128.3 4.9 10.0 0.6 0.6

BDMN 3,290 31,218 2,000 (39.2) Sell 37.3 10.9 9.0 9.3 0.9 0.8

PNBN 720 17,163 700 (2.8) Sell 54.9 14.6 7.0 7.5 0.6 0.5

BJBR 1,515 14,543 1,100 (27.4) Sell 12.6 (14.9) 18.1 14.6 1.7 1.6

BTPN 2,740 15,842 2,600 (5.1) Sell 3.8 8.1 11.7 11.2 1.0 0.9

BJTM 505 7,472 420 (16.8) Sell 12.7 7.0 15.0 15.1 1.1 1.1

Angga Aditya Assaf

([email protected])

Neutral


Source: Bloomberg. Companies. Trimegah Research

WHERE CAN WE SEEK UPSIDE RISKS? 1. Rising coal price to above USD75/tonne = potential mining NPL decline Figure 1 below depicts the clear inverse relationship between coal price and banking system’s NPL ratio. We can

infer from the graph that mining NPL should decline given the above USD100/tonne coal price. Figure 3 below illustrates anecdotal evidence showing 6 of 11 coal-related firms are showing improvement in repayment capabil-ity. Moreover, our channel checks to BBNI and BNLI also revealed that some mining debtors have shown im-provement in repayment capability. And according to our coal analyst, when the coal price is at USD60/tonne, 90% of publicly listed exporter coal miners report positive EBITDA. That said, if coal price drops but still above

USD60/tonne, we can expect insignificant decline in coal firms’ solvability. Our coal analyst expect USD75/tonne coal price in 2017F. Figure 2 below shows that BBRI owns the highest mining credit risk, followed by BNLI,

BDMN. and BBNI.

Figure 28. System’s mining NPL ratio

vs. coal price

Figure 29. Mining NPL to total NPL of

banks under our coverage (%. 9M16)

Source: Bloomberg. Trimegah Research

Figure 30. Publicly listed coal firms show an improvement in repayment capability..

Coal firms 9M15 Interest

Coverage (X)

9M16 Interest

Coverage (X) Remarks

ADRO 7.42 10.03 Improved

PTBA 14.20 11.90 Worsen

HRUM 4.17 15.55 Improved

TOBA 11.13 6.00 Worsen

UNTR 120.27 139.55 Improved

BYAN 0.11 0.51 Improved

INDY -0.54 -0.75 Worsen

KKGI 50.14 64.81 Improved

DEWA 5.00 1.29 Worsen

DOID 1.86 2.17 Improved

ITMG 180.69 137.43 Worsen

40.0

60.0

80.0

100.0

120.0

140.0

160.0

0.0

1.0

2.0

3.0

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6

System's Mining NPL ratio (%)

Coal price (USD/MT, RHS)

20.0

13.8

11.310.3

3.62.6

1.20.6 0.3

0.0

5.0

10.0

15.0

20.0

25.0

BBRI BNLI BDMN BBNI BMRI BJTM BBCA BNGA BJBR


Source: BI. OJK. Trimegah Research

WHERE CAN WE SEEK UPSIDE RISKS? … (CONT’D) 2. Rising CCI provides growth opportunity for consumer loans As illustrated in the Figure 4 and 5 below, we are seeing potential reversal in consumer loans growth from: 1)

rising consumer confidence index (CCI), and 2) declining interest rates: in general, consumer loans correlate negatively with benchmark interest rate during the past 3 years. Subsequently. Figure 6 complements the argu-ment that there will be potential uptick in vehicle loan growth given the recent uptick in 4W and 2W sales growth. Note that based on the graph presented, automotive sales growth tend to move ahead of vehicle loan growth.

102

104

106

108

110

112

114

116

118

Dec-1

5

Jan-1

6

Feb-1

6

Mar-

16

Apr-

16

May-1

6

Jun-1

6

Jul-

16

Aug-1

6

Sep-1

6

Oct-

16

Figure 31. Consumer Confidence Index

(CCI)

Figure 32. BI Rate vs. consumer loans

growth trend (%)

Source: Gaikindo. Trimegah Research

Figure 33. Auto sales growth trend vs. vehicle loan YoY growth

-15.0

-10.0

-5.0

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35.0

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Aug-12 Aug-13 Aug-14 Aug-15

BI Rate (LHS) Mortgage

Vehicles Multipurpose + others

-15.0

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6

Apr-

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Jun-1

6

4W sales YoY growth 2W sales YoY growth Vehicle loan growth (YoY, RHS))


STOCKS TO PICK… BBNI (Buy, TP IDR5,900) Reason: share price had been under punishment in the recent months due to asset quality concerns and negative

market perception about loan to VIVA, a Bakrie company. However. our recent meeting with the management revealed that the majority of small and medium debtors are having collateral with >3x interest coverage, which should restore investors confidence. We therefore concur that BBNI may report good earnings momentum in the coming quarters, with valuation remains the cheapest among big cap banks. poising to outperform BMRI and

BBCA in the near-term. In addition, VIVA is fundamentally sound now as shown by 1.2x interest coverage ratio (vs. 0.9x in 9M15). Therefore, the weak share price is more sentiment-related than fundamental.

BBTN (Buy, TP IDR1,850) Reason: the company is expected to report ~20% EPS growth in 2017-18F on the back of the continuous govt public housing program. We have already accounted the potential funding change scheme into 60:40 but we believe the management would encounter the impact by cutting TD rate by 50bps. therefore less NIM concerns. Currently, BBTN trades at 0.8x 2017F PBV. undemanding enough for the stock that offers 13-14% ROE in the next couple of years (vs. 11.9% in 9M16).

BNLI (Buy, TP IDR600) Reason: We admit that this a quite exotic stock to pick. BNLI is relatively under-owned due to its asset quality

problems. However, we see BNLI’s earnings to start turning around in 2017F from gradual NPL improvement. Based on its latest disclosure, BNLI owns the highest mining credit risk among small banks. Therefore, the im-provement in coal price should have a positive impact toward earnings and share price. Our recent talk with the company suggests that some of its mining debtors have shown an improved repayment capability. Thus, we may

see more loan upgrades next year. We also tactically upgrade BBRI to Buy (TP: IDR11,900) as share price have weaken in the past few days, opening 13% potential upside to our TP. However, downside risks remain on govt to lower KUR lending rate to 7% while at the same time, there is a possibility of kitchen-sinking event as current CEO will depart in 1Q17—the same event occurred in BBNI and BMRI post CEO changes.

Risks to our call

1). Sharp increase in Fed Fund Rate (FFR). 2) tightening in liquidity. 3) coal price drop to below USD60/tonne level. and 4) any adverse macroeconomic changes.


Investment Thesis:

Beneficiary of rising coal price

About 10% of BBNI’s NPL book comes from mining sector. The ex-pectation of coal price at USD75/tonne should then be very positive

for BBNI. In addition, the recent uptick in mortgage NPLs is ex-pected to reverse in the near-term since it was caused by commodi-

ty price downturn.

Asset quality may not be as risky as we think

The company’s latest quarterly disclosure reveals that the 96.9% of

medium debtors provide 100% collateral. Around 66% of medium debtors also have >3x interest coverage, therefore reducing credit risk concerns. In regards of corporate loans, BBNI provide loans selectively (i.e. to SOEs and private corporations with good financial performance). Moreover, negative sentiment about loan to VIVA is expectedly having muted impact toward BBNI credit risk as VIVA’s financial is now improved (EBITDA coverage 1.2x as of 9M16 vs.

0.9x as of 9M15, and ANTV has the highest viewership rating among local TV stations. according to Nielsen). This points out that the new management applies better lending practice.

Achieving 16-18% ROE (unadjusted for asset revaluation) in

2017-18F is very possible, with current valuation remains

attractive at ~1x 2017F PBV

Such ROE level would be achieved by: 1) higher net interest income from lower restructuring and declining cost of funds—our NIM fore-cast is now raised to 6% (prev: 5.8% as per company guidance) in

2017-18F—, and 2) normalizing credit cost at ~1% level due to waning credit risks from rising coal price and safer lending practice. Besides, valuation remains attractive at near 1x book value, ex-

pected to re-rate in the near-term along with better earnings-momentum.

Valuation: 2017F TP IDR6,000 (prev: IDR6,200)

The TP is derived by using Gordon Growth Model under the assumptions of 17.5% sustainable ROE (unadjusted for asset revaluation) (prev: 15.7%), 10% long-term growth rate, 15.8% cost of equity (prev: 14.8%), and 8% risk–free rate (prev: 6.8%). It implies 1.3x 2017F PBV.

Key investment risks:

Worsening macroeconomic situation. which could impair asset quali-

ty further.

Corporate actions that might have impact to the share price.

Regulatory risks. e.g.. single digit lending rate, capital charge on

domestic systemically important banks (DSIB).

Bank Negara Indonesia is the third

biggest state owned bank by asset size.

The Bank primarily lend to SMEs.

corporates and consumers.

Share Price Rp5,075

Sector Bank

Price Target Rp6,000 (18%)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit (IDRbn) 10,783 9,067 10,085 13,968 17,722

EPS (IDR) 578 487 546 757 960

EPS Growth (%) 18.9 -15.7 12.2 38.5 26.9

DPS (IDR) 146 145 123 137 189

BVPS (IDR) 3,166 4,105 4,613 4,573 5,344

P/E (x) 10.6 10.2 9.3 6.7 5.3

P/BV (x) 1.9 1.2 1.1 1.1 0.9

ROE (%) 18.3 11.9 11.8 16.5 18.0

Div Yield (%) 2.9 2.9 2.4 2.7 3.7

Bank Negara Indonesia Outperform Candidate

BUY Rp6,000

Reuters Code BBNI.JK

Bloomberg Code BBNI.IJ

Issued Shares (m) 18,462

Mkt Cap (IDR bn) 93,696

Average Daily T/O 3-

months (IDR bn)

137.6

52-Wk range (IDR) 5,975 / 4,270

Indonesian Government 60%

Public 40%

EPS 16F 17F

Consensus (IDR) 569 679

TRIM vs Cons. (%) -4.8 11.1

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Company Data

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Nov-15 Mar-16 Jul-16

(Rpbn)Avg. 5 Day MA Trading Value (RHS) Price (LHS)


Income Statement (IDRbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Interest Income 33,750 36,895 42,043 47,072 54,597

Interest

Expense -10,989 -11,335 -12,631 -14,137 -16,247

NII 22,761 25,560 29,413 32,935 38,350

Non Interest

Income 8,987 9,698 9,858 10,561 12,100

Operating

Expense -14,760 -16,510 -18,334 -20,362 -22,545

PPOP 16,988 18,748 20,938 23,134 27,905

Loan Loss

Provision -3,642 -7,336 -8,194 -5,519 -5,581

Operating Profit 13,346 11,412 12,744 17,615 22,324

Profit

Before Tax 13,524 11,466 12,744 17,615 22,324

Tax Expense -2,695 -2,326 -2,585 -3,573 -4,528

Net Profit 10,783 9,067 10,085 13,968 17,722

EPS (IDR) 578 487 546 757 960

EPS Growth

(%) 18.9 -15.7 12.2 38.5 26.9

Dividend

Per Share (IDR) 146 145 123 137 189

Dividend

Growth (%) 28.3 -0.6 -15.2 11.2 38.5

Balance Sheet (IDRbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Cash and

CA with BI 36,033 43,823 45,523 53,030 61,728

Interbank

Placement 19,023 42,416 68,440 66,329 80,534

Marketable

Securities 12,738 9,927 13,210 15,337 17,839

Government

Bonds 43,830 47,222 45,841 48,470 50,824

Loans-net 270,652 314,067 369,399 438,820 513,355

Net Fixed Assets 6,222 20,757 23,619 24,774 27,232

Other Assets 28,075 30,384 24,453 22,810 26,535

Total Assets 416,574 508,595 590,487 669,570 778,046

Total Earning

Assets 367,451 434,137 511,682 580,561 676,052

Deposit 314,669 371,366 436,907 507,590 590,363

Borrowings 11,212 22,524 23,619 26,783 31,122

Other Liabilities 15,268 18,838 22,600 25,858 30,233

Total Liabilities 341,149 412,728 483,126 560,231 651,717

Total

Shareholder's Equity

(unadjusted for asset

revaluation)

59,072 76,415 85,169 84,426 98,656

BVPS (IDR/Share,

unadjusted for asset

revaluation)

3,166 4,105 4,613 4,573 5,344

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Earning Asset Yield (%) 9.5 9.2 8.9 8.6 8.7

Cost of Funds (%) 3.3 3.0 2.9 2.7 2.7

NIM (%) 6.4 6.4 6.2 6.0 6.1

ROE (%) 18.3 11.9 11.8 16.5 18.0

ROA (%) 2.7 2.0 1.8 2.2 2.4

Cost to Income Ratio (%) 46.5 46.8 46.7 46.8 44.7

Loan Growth (%) 10.8 17.5 18.6 18.8 16.9

Deposit Growth (%) 4.5 18.0 17.6 16.2 16.3

LDR (%) 88.2 87.8 88.5 90.5 91.0

LFR (%) 86.5 86.2 86.9 88.8 89.2

RRR (%) 8.2 8.7 7.0 7.0 7.0

CAR (%) 16.2 19.5 20.4 17.9 17.5

Asset/Equity (x) 7.1 6.7 6.9 7.9 7.9

Gross NPL (%) 2.0 2.7 3.3 3.2 3.1

Loan Loss Coverage (%) 128.2 138.2 137.4 140.4 141.0

Cost of Credit (%) 1.3 2.2 2.1 1.2 1.0

Interim Result (IDRbn)

3Q15 4Q15 1Q16 2Q16 3Q16

Total Loans (Gross) 307,122 326,105 326,744 350,327 379,337

Total Deposit 333,106 353,937 371,556 391,490 401,877

Total Asset 456,463 508,595 509,089 539,140 571,509

Net Interest Income 6,445 6,856 6,908 7,003 7,963

Net revenue 8,173 9,319 9,436 9,578 10,842

Operating profit 3,665 3,833 3,754 1,749 4,223

Net Profit 3,568 3,069 2,973 1,399 3,346

Capital History

Date

25-Nov-96 IPO @ Rp850

23-Dec-03 Reverse Stock

28-Dec-10 Additional shares HMETD


Investment thesis:

Lowering 2016F EPS by 16% on rising NPL outlook in 4Q16.

Recently, CEO mentioned in the news that BMRI will raise FY16

provisioning estimates to IDR22trn (vs. our previous estimates of

IDR18.3trn). We also raised our 2016F NPL assumption to 4.2%

(prev: 3.9%) and write-off to IDR11trn (prev: IDR8.8trn) according-

ly as per company confirmation. As a result, our 2016F EPS esti-

mates is lowered by 16% and our 2017F TP is cut to IDR10,500.


The TP is derived by using Gordon Growth Model under the assumptions

of 17.7% sustainable ROE (unadjusted for asset revaluation) (prev:

15.3%), 10% long-term growth rate, 14.6% cost of equity (prev:

13.3%), and 8% risk–free rate (prev: 8%). Leaving only 3% potential

upside to our TP, we therefore downgrade BMRI’s rating into Neutral

(prev: Buy).


Worsening macroeconomic situation, which could impair asset quali-

ty further.

Corporate actions that might have impact to the share price. distrib-

uting special dividends, etc.

Regulatory risks. e.g., single digit lending rate, capital charge on


Bank Mandiri is Indonesia’s biggest

bank by assets. The state owned

bank is focused on wholesale and re-

tail lending and funding

Share Price Rp10,150

Sector Bank


Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit (IDRbn) 19,872 20,335 14,625 25,485 30,638

EPS (IDR) 852 872 633 1,103 1,326

EPS Growth (%) 9.2 2.3 -27.4 74.3 20.2

DPS (IDR) 234 213 264 253 276

BVPS (IDR) 4,400 5,017 6,609 6,336 7,387

P/E (x) 12.7 10.6 16.0 9.2 7.7

P/BV (x) 2.4 1.8 1.5 1.6 1.4

ROE (%) 19.4 17.4 9.6 17.4 18.0

Div Yield (%) 2.3 2.1 2.6 2.5 2.7

Bank Mandiri Poor Earnings Momentum in the Near-term

NEUTRAL Rp10,500

Reuters Code BMRI.JK

Bloomberg Code BMRI.IJ


Mkt Cap (IDRbn) 234,465

Avg. Value Daily

3-month (IDRbn)

243.6

52-Wk range (IDR) 11,950 / 8,175

Indonesian Government 60%

Public 40%

EPS 16F 17F

Consensus (Rp) 739 927

TRIM vs Cons. (%) 1.0 16.1

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Company Data

0.0

100.0

200.0

300.0

400.0

500.0

600.0

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000




Old New Changes (%)

2016F 2017F 2018F 2016F 2017F 2018F 2016F 2017F 2018F

Gross loans(%) 10.3 10.9 11.3 10.3 10.9 11.3 0.0 0.0 0.0

Deposits growth (%) 4.8 12.1 10.0 4.8 12.1 10.0 0.0 0.0 0.0

in IDR bn

Gross Loans 647,299 718,098 799,042 647,299 718,098 799,042 0.0 0.0 0.0

Deposits 676,387 709,287 791,513 676,387 709,287 791,513 0.0 0.0 0.0

Total Assets 910,063 998,877 1,104,640 910,063 996,070 1,077,115 0.0 -0.3 -2.5

in IDR bn

Net interest income 52,530 56,292 64,647 52,531 56,303 64,666 0.0 0.0 0.0

Non-interest income 20,460 23,691 25,986 20,892 24,284 26,455 2.1 2.5 1.8

Provisioning 18,332 10,842 8,913 22,371 10,958 9,561 22.0 1.1 7.3

Non-interest expenses 31,975 36,507 41,705 31,975 36,507 41,705 0.0 0.0 0.0

Net income 17,402 25,109 30,761 14,625 25,485 30,638 -16.0 1.5 -0.4

NIM (%) 6.5 6.3 6.5 6.5 6.4 6.7 0.0 0.1 0.2

ROE (%) 11.2 14.5 15.5 9.6 17.4 18.0 -1.6 2.9 2.4

LDR (%) 91.3 90.7 92.0 91.3 90.7 92.0 0.0 0.0 0.0

Gross NPL (%) 3.9 3.8 3.7 4.2 4.1 3.9 0.4 0.3 0.2

Credit Costs (%) 2.8 1.5 1.1 3.4 1.5 1.2 0.6 0.0 0.1

EPS (IDR) 746 1,076 1,318 633 1,103 1,326 -15.1 2.5 0.6

DPS (IDR) 261 298 269 264 253 276 1.0 -15.1 2.5

BVPS (IDR) 6,662 7,440 8,489 6,609 6,336 7,387 -0.8 -14.8 -13.0

Figure 34. Estimates revision

Source: Trimegah Research



Year end Dec 2014 2015 2016F 2017F 2018F

Interest Income 62,638 71,570 78,347 83,520 94,659

Interest

Expense -23,506 -26,207 -25,816 -27,217 -29,992

NII 39,132 45,363 52,531 56,303 64,666

Non Interest

Income 17,749 21,773 20,892 24,284 26,455

Operating

Expense -25,374 -28,755 -31,975 -36,507 -41,705

PPOP 31,507 38,382 41,448 44,080 49,416

Loan Loss

Provision -5,529 -12,043 -22,371 -10,958 -9,561


Profit

Before Tax 26,008 26,369 18,992 33,095 39,786

Tax Expense -5,353 -5,217 -3,757 -6,548 -7,871

Net Profit 19,872 20,335 14,625 25,485 30,638

EPS (IDR) 852 872 633 1,103 1,326

EPS Growth

(%) 9.2 2.3 -27.4 74.3 20.2

Dividend

Per Share 234 213 264 253 276

Dividend

Growth (%) 17.4 -9.0 24.0 -4.1 8.9


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and

CA with BI 71,303 81,423 72,195 79,995 88,133

Interbank

Placement 70,101 47,473 82,956 83,030 102,638

Marketable

Securities 40,465 43,642 48,806 50,399 55,369

Government

Bonds 86,154 103,869 81,559 87,744 88,475

Loans-net 505,395 564,394 612,345 680,039 758,291

Net Fixed Assets 8,929 9,762 36,762 37,497 37,872

Other Assets 72,692 59,501 61,447 58,412 58,803

Total Assets 855,040 910,063 996,070 1,077,115 1,189,581

Total Earning

Assets 728,519 768,560 836,654 913,207 1,017,832

Deposit 636,382 676,387 709,287 791,513 868,988

Borrowings 24,227 33,765 35,762 36,535 40,690


Total Liabilities 750,195 790,572 840,983 928,327 1,016,526

Total


(unadjusted for

asset revaluation)

102,658 117,070 152,665 146,367 170,634

BVPS (IDR/Share,


revaluation)

4,400 5,017 6,609 6,336 7,387

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F


Cost of Funds (%) 3.7 3.7 3.4 3.3 3.3

NIM (as calculated, in%) 5.8 6.1 6.5 6.4 6.7

ROE (%) 19.4 17.4 9.6 17.4 18.0

ROA (%) 2.3 2.2 1.5 2.4 2.6


Loan Growth (%) 12.0 12.2 10.3 10.9 11.3

Deposit Growth (%) 14.6 6.7 4.8 12.1 10.0

LDR (%) 82.2 86.7 91.3 90.7 92.0

LFR (%) 81.9 86.4 90.1 89.3 90.4

RRR (%) 8.7 9.0 7.0 7.0 7.0

CAR (%) 16.3 18.0 21.4 21.5 21.3

Asset/Equity (x) 8.3 7.8 6.5 7.4 7.0

Gross NPL (%) 2.2 2.6 4.2 4.1 3.9

Loan Loss Coverage (%) 157 145 128 129 132

Cost of credit (%) 1.0 2.0 3.4 1.5 1.2


3Q15 4Q15 1Q16 2Q16 3Q16


Total Deposit 602,656 622,332 655,063 691,359 690,507

Total Asset 905,759 910,063 906,739 971,444 975,163


Net revenue 17,512 19,086 17,225 17,525 20,163


Net Profit 4,658 5,752 3,817 3,263 4,933

Capital History

Date

14-Jul-03 IPO @ IDR675

01-Mar-11 Additional Share HMETD


Investment thesis:

Current CEO is departing, kitchen-sinking event is possible

The company will replace its current CEO, Mr, Asmawi Syam, who will end his term at around 1Q17, Thus, there is a possibility of

kitchen-sinking event next year, as also occured in BBNI and BMRI, Despite its highest upside risk from rising coal price (BBRI’s mining

NPL accounts for 20% of total NPL book), market is likely to expect larger downgrades in 2017F. We conservatively raised our credit cost estimates by 60bps next year, translated into dropping ROE to 17.5%, There is further downside risk if turns out that 2017F NPL ratio is higher than our expectation (2.3%),

There is also a risk that KUR lending rate to be set at 7% (vs,

currently 9%)

With KUR interest subsidy budget being cut to IDR9,5trn while na-tion-wide disbursement target increased to IDR120trn (vs, this

year’s IDR100trn), there is NIM pressure risk in our view. We con-servatively forecasted lower NIM in 2017F (8.1%) from currently 8.3%. However, if govt stops KUR program in 2018F, then NIM will likely to go up again above 8.3% as we assume BBRI would return

to conventional micro loans as its main engine of growth.

Valuation: 2017F TP IDR11,900 (unchanged), tactical upgrade to Buy

The TP is derived by using Gordon Growth Model under the assumptions of 19.4% sustainable ROE (unadjusted for asset revaluation) (prev: 18%), 10% long-term growth rate, 15.8% cost of equity (prev: 14.6%),

and 8% risk–free rate (prev: 6.8%). Due to 14% potential upside to our

TP, we therefore upgrade BBRI rating into Buy (prev: Neutral).



ty further,

Corporate actions that might have impact to the share price,

Regulatory risks, e,g,, single digit lending rate, capital charge on

domestic systemically important banks (DSIB),

BBRI is Indonesia’s biggest MSME lender

with the most extensive network of

branches and outlets throughout the

country, The bank also offers corporate

and consumer loans,


Sector Bank


Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit (IDRbn) 24,215 25,398 24,772 26,585 35,271

EPS (IDR) 983 1,030 1,014 1,089 1,444

EPS Growth (%) 13.6 4.9 -1.6 7.3 32.7

DPS (IDR) 258 258 298 304 272

BVPS (IDR) 3,959 4,578 5,453 6,237 7,409

P/E (x) 11.9 11.1 10.0 9.3 7.0

P/BV (x) 2.9 2.5 1.9 1.6 1.4

ROE (%) 24.8 22.5 18.6 17.5 19.5

Div Yield (%) 2.5 2.5 2.9 3.0 2.7

Bank Rakyat Indonesia Tactical Upgrade into Buy

BUY Rp11,900

Reuters Code BBRI,JK

Bloomberg Code BBRI,IJ



Avg, Value Daily

3-month (IDRbn)

266.4

52-Wk range (IDR) 12,975 / 9,525

Indonesian Government 57.8%

Public 42.2%

EPS 16F 17F

Consensus (Rp) 1,037 1,173

TRIM vs Cons, (%) -2.3 -6.7

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Company Data

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000





Year end Dec 2014 2015 2016F 2017F 2018F

Interest Income 75,122 85,434 94,200 103,772 120,000

Interest

Expense -23,680 -27,154 -27,796 -29,412 -32,926

NII 51,442 58,280 66,404 74,361 87,074

Non Interest

Income 9,299 12,398 13,559 14,422 16,304

Operating

Expense -26,715 -31,265 -36,293 -41,579 -47,647

PPOP 34,026 39,413 43,670 47,203 55,731

Loan Loss

Provision -5,719 -8,900 -12,977 -13,191 -10,611


Profit

Before Tax 30,804 32,494 31,693 34,012 45,120

Tax Expense -6,578 -7,083 -6,909 -7,414 -9,835

Net Profit 24,215 25,398 24,772 26,585 35,271

EPS (IDR) 983 1,030 1,014 1,089 1,444

EPS Growth

(%) 13.6 4.9 -1.6 7.3 32.7

Dividend

Per Share 258 258 298 304 272

Dividend

Growth (%) 14.4 0.0 15.6 2.2 -10.6


Year end Dec 2014 2015F 2016F 2017F 2018F

Cash and

CA with BI 73,654 90,489 80,826 92,639 107,473

Interbank

Placement 62,035 49,835 80,420 119,277 169,703

Marketable

Securities 84,168 124,874 76,984 88,178 92,177

Government

Bonds 4,304 3,816 4,453 5,109 4,953

Loans-net 479,211 547,318 626,027 695,870 795,461

Net Fixed Assets 5,917 8,039 24,936 26,143 27,687

Other Assets 92,665 54,055 103,776 109,442 120,976

Total Assets 801,955 878,426 997,422 1,136,658 1,318,430

Total Earning

Assets 694,877 751,955 861,738 983,776 1,143,718

Deposit 622,322 668,995 763,458 874,676 1,016,078

Borrowings 24,987 35,480 42,168 47,018 49,510


Total Liabilities 704,218 765,299 863,956 984,038 1,137,186

Total

Shareholder's

Equity

(unadjusted for

asset revalua-

97,560 112,833 133,172 152,325 180,950

BVPS (IDR/

Share, unadjust-

ed for asset

revaluation)

3,959 4,578 5,453 6,237 7,409

Key Ratio Analysis

Year end Dec 2013 2014 2015F 2016F 2017F


Cost of Funds (%) 3.9 3.9 3.6 3.3 3.2

NIM (%) 8.3 8.1 8.2 8.1 8.2

ROE (%) 24.8 22.5 18.6 17.5 19.5

ROA (%) 3.4 3.0 2.6 2.5 2.9


Loan Growth (%) 14.0 14.0 14.9 11.5 14.1

Deposit Growth (%) 23.4 7.5 14.1 14.6 16.2

LDR (%) 81.8 86.9 87.4 85.0 83.3

LFR (%) 76.8 80.6 80.8 78.7 77.6

RRR (%) 8.5 9.5 7.0 7.0 7.0

CAR (%) 18.3 20.6 20.9 21.2 19.7

Asset/Equity (x) 8.2 7.8 7.5 7.5 7.3

Gross NPL (%) 1.7 2.0 2.2 2.3 2.2


Cost of Credit (%) 1.2 1.6 2.0 1.8 1.3


3Q15 4Q15 1Q16 2Q16 3Q16


Total Deposit 635,948 668,995 658,736 683,739 694,843

Total Asset 802,299 878,426 864,939 907,843 931,693


Net revenue 18,480 20,021 19,898 21,605 21,189


Net Profit 6,471 6,981 6,245 5,930 6,775

Capital History

Date

10-Nov-03 IPO @ Rp875

11-Jan-11 Stock Split 1:2


Investment thesis:

Decent earnings momentum in the next couple of years...

We expect BBCA to post 6%/15% YoY EPS growth in 2016/17F from

moderating credit cost as NPL risk wanes, and higher fee-based

income growth, where the company’s pricing power is the strongest.

...but the rising risk-free rate leaves only limited upside

Despite that, we lowered our target price as we raise our risk-free

rate assumptions to 8% (prev: 6.8%) to account for the most recent

development within Indonesian capital market.


Our TP is derived by using Gordon Growth Model under the assumptions

of 17.8% sustainable ROE (unadjusted for asset revaluation) (prev:

17.1%), 10% long-term growth rate, 12.5% cost of equity (prev:

12.3%), and 8% risk–free rate (prev: 6.8%).



ty,

Corporate actions that might have impact to the share price, e,g,,

small banks acquisition,

Regulatory risks, e,g,, single digit lending rate, capital charge on

domestic systemically important banks (DSIB),

Bank Central Asia is the largest

transactional bank in Indonesia which

provides various financial services

including leasing, consumer financing

services, securities brokerage and

investment banking service


Sector Bank


Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit (IDRbn) 16,486 18,019 19,070 21,940 24,499

EPS (IDR) 669 731 781 899 1,004

EPS Growth (%) 15.5 9.3 6.9 15.1 11.7

DPS (IDR) 125 153 162 172 198

BVPS (IDR) 3,062 3,625 4,269 4,996 5,802

P/E (x) 19.6 18.2 18.4 16.0 14.3

P/BV (x) 4.3 3.7 3.4 2.9 2.5

ROE (%) 21.8 20.2 18.3 18.0 17.3

Div Yield (%) 0.9 1.1 1.1 1.2 1.4

Bank Central Asia Downgrade to Neutral

NEUTRAL Rp15,000

Reuters Code BBCA,JK

Bloomberg Code BBCA,IJ




months (IDRbn)

286.0

52-Wk range 16,200 / 12,375

Dwimuria Investama Andalan 47.2%

Anthony Salim 1.8%

Public 51%

EPS 16F 17F


TRIM vs Cons, (%) -3.9 -0.7

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Company Data

0.0

100.0

200.0

300.0

400.0

500.0

600.0

-

5,000

10,000

15,000

20,000





Year end Dec 2014 2015 2016F 2017F 2018F

Interest Income 43,771 47,082 52,064 56,532 61,808

Interest

Expense -11,745 -11,213 -11,643 -11,950 -13,022

NII 32,027 35,869 40,421 44,583 48,786

Non Interest

Income 9,351 12,012 12,294 12,573 15,318

Operating

Expense -18,397 -21,718 -24,857 -27,985 -31,521

PPOP 22,981 26,162 27,858 29,171 32,583

Loan Loss

Provision -2,240 -3,505 -3,880 -1,588 -1,785


Profit

Before Tax 20,741 22,657 23,978 27,583 30,798

Tax Expense -4,229 -4,621 -4,891 -5,626 -6,282

Net Profit 16,486 18,019 19,070 21,940 24,499

EPS (Rp) 669 731 781 899 1,004

EPS Growth

(%) 15.5 9.3 6.9 15.1 11.7

Dividend

Per Share 125 153 162 172 198

Dividend

Growth (%) 7.6 22.4 6.2 5.8 15.1


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and

CA with BI 58,453 55,624 54,904 59,677 65,537

Interbank

Placement 16,633 64,698 58,262 61,213 62,362

Marketable

Securities 47,245 24,930 29,968 29,937 29,939

Government

Bonds 29,018 30,143 30,489 33,178 36,443

Loans-net 339,859 378,616 419,332 471,972 535,997

Net Fixed Assets 8,845 9,712 16,510 17,336 18,203

Other Assets 53,103 30,649 38,944 41,980 45,990

Total Assets 553,156 594,373 648,410 715,292 794,471

Total Earning

Assets 514,906 554,966 599,232 662,361 737,213

Deposit 450,155 476,820 512,258 558,086 613,783

Borrowings 3,081 1,743 3,883 4,366 4,953



Total



revaluation)

75,488 89,369 104,206 121,951 141,623

BVPS (IDR/Share,


revaluation)

3,062 3,625 4,269 4,996 5,802

Key Ratio Analysis

Year end Dec 2014 2015F 2016F 2017F 2018F


Cost of Funds (%) 2.7 2.4 2.3 2.2 2.2

NIM (%) 6.5 6.7 7.0 7.1 7.0

ROE (%) 21.8 20.2 18.3 18.0 17.3

ROA (%) 3.1 3.1 3.1 3.2 3.2


Loan Growth (%) 11.0 11.9 11.3 12.4 13.4

Deposit Growth (%) 9.5 5.9 7.4 8.9 10.0

LDR (%) 77.0 81.3 84.2 86.9 89.7

LFR (%) 76.6 80.8 83.8 86.5 89.3

RRR (%) 8.6 7.9 7.0 7.0 7.0

CAR (%) 17.2 19.0 17.7 18.3 18.8

Asset/Equity (x) 7.3 6.7 6.2 5.9 5.6

Gross NPL (%) 0.6 0.7 1.4 1.3 1.2

Loan Loss Coverage (%) 324 322 201 206 209

Cost of Credit (%) 0.6 0.9 0.9 0.3 0.3

Interim Results (IDRbn)

3Q15 4Q15 1Q16 2Q16 3Q16

Total Loans 364,846 391,674 377,313 391,887 401,045

Total Deposit 462,252 476,820 473,629 493,774 496,547

Total Asset 584,444 594,373 603,427 626,176 660,145


Net revenue 11,815 13,406 12,827 13,299 13,532


Net Profit 4,827 4,651 4,507 5,069 5,551

Capital History

Date

31-May-00 IPO @ Rp1,400

28-Jan-08 Stock Split 1:2


Investment thesis:

The company offers sustainable and rising ROE outlook

BBTN remains the beneficiary of govt public housing program. Due to the nation-wide large housing backlog, the company is expected to tap more subsidized mortgage loans as well as construction loans. Putting all of that into our model, BBTN is expected to reap 19-21% EPS growth and ~15% ROE in 2017-18F (unadjusted for asset reval-uation).

Risks about change in FLPP scheme priced-in

Govt already announced IDR15.6trn subsidized housing mortgage budget for 2017F, a 16% YoY increase from this year’s budget. However, there is a risk of funding scheme change into 60:40 (vs. current 90:10) which could have some NIM pressure risk for BBTN. But this would likely be offset by potential TD rate cut. Management stated that, given current balance sheet condition, there is a 50bps room of TD rate cut. Nonetheless, such risk has already been priced-in by the market.

Less budget risk in the future

BBTN guided to receive IDR5.3trn deferred subsidized mortgage facility (FLPP) budget from the govt by 4Q16. Such amount should’ve been disbursed in 2015. Management stated to engage in formal agreement to avoid similar situation from happening again in the future.


The TP is derived by using Gordon Growth Model under the assumptions of 16.1% sustainable ROE (unadjusted for asset revaluation) (prev: 14.1%), 5% long-term growth rate, 15.5% cost of equity (prev: 13.3%), and 8% risk–free rate (prev: 6.8%).


Worsening macroeconomic situation and rise in interest rates; these

would have impact on BBTN’s margins and asset quality.

Corporate actions that might have impact to the share price, e.g.,

the establishment of multifinance and insurance subsidiaries.

Regulatory risks, e.g., single digit lending rate, capital charge on


Govt intervention risks, e.g., adverse change in funding scheme,

budget cut, etc.

Bank Tabungan Negara is a state-owned

bank which focuses on providing mort-

gage loans. The bank also offers sharia

compliant banking products.

Share Price Rp1,600

Sector Bank


Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit (IDRbn) 1,146 1,851 2,397 2,862 3,454

EPS (IDR) 108 175 229 273 329

EPS Growth (%) -27.0 62.0 30.7 19.4 20.7

DPS (IDR) 44 21 43 52 63

BVPS (IDR) 1,155 1,310 1,814 1,752 2,019

P/E (x) 11.2 7.4 7.0 5.9 4.9

P/BV (x) 1.0 1.0 0.9 0.9 0.8

ROE (%) 9.3 13.4 12.6 15.6 16.3

Dividend Yield (%) 2.8 1.3 2.7 3.2 3.9

Bank Tabungan Negara Rising ROE Outlook Offers Another Re-rating Event

BUY Rp1,850

Reuters Code BBTN.JK

Bloomberg Code BBTN.IJ


Mkt Cap (Rpbn) 16,775


months (IDR bn)

29.3

52-Wk range 2,100 / 1,125

Indonesian Goverment 60%

Public 40%

EPS 16F 17F


TRIM vs Cons. (%) 5.0 4.7

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Company Data

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

-

500

1,000

1,500

2,000

2,500





Year end Dec 2014 2015 2016F 2017F 2018F

Interest Income 12,807 14,966 17,348 19,900 22,755

Interest

Expense -7,343 -8,155 -9,177 -10,073 -11,243

NII 5,465 6,811 8,171 9,827 11,512

Non Interest

Income 895 1,107 803 879 960

Operating

Expense -4,010 -4,490 -5,281 -6,213 -7,143

PPOP 2,349 3,427 3,693 4,493 5,329

Loan Loss

Provision -772 -894 -620 -573 -597


Profit

Before Tax 1,579 2,542 3,073 3,920 4,732

Tax Expense -434 -691 -676 -1,058 -1,278

Net Profit 1,146 1,851 2,397 2,862 3,454

EPS (IDR) 108 175 229 273 329

EPS Growth

(%) -27.0 62.0 30.7 19.4 20.7

Dividend

Per Share (IDR) 44 21 43 52 63

Dividend

Growth (%) 14.0 -52.3 105.9 19.4 20.7


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and

CA with BI 10,292 12,168 11,903 13,598 15,446

Interbank

Placement 1,496 7,839 25,821 20,359 21,810

Marketable

Securities 5,437 1,808 2,486 2,491 2,534

Government

Bonds 8,238 8,231 8,642 9,075 9,528

Loans (incl. sharia -

net) 114,346 136,905 159,943 190,370 223,970

Net Fixed Assets 1,488 1,553 4,598 4,828 221,394

Other Assets 3,284 3,302 3,321 3,340 5,069

Total Assets 144,582 171,808 216,715 244,061 279,141

Total Earning

Assets 129,518 154,784 196,892 222,294 279,141

Deposit 106,471 127,709 150,032 171,152 255,267

Borrowings 6,998 7,727 8,860 10,003 11,487



Total



revaluation)

12,253 13,860 19,018 18,369 21,167

BVPS (IDR/Share,


revaluation)

1,155 1,310 1,814 1,752 2,019

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F


Cost of Funds (%) 6.1 5.9 5.4 4.9 4.8

NIM (%) 4.4 4.8 4.6 4.7 4.8

ROE (%) 9.3 13.4 12.6 15.6 16.3

ROA (%) 0.8 1.1 1.1 1.2 1.2


Loan Growth (%) 15.4 19.9 16.7 18.8 16.2

Deposit Growth (%) 10.7 19.9 17.5 14.1 13.6

LDR (%) 108.9 108.8 108.1 112.6 115.2

LFR (%) 100.8 99.1 98.7 102.5 104.6

RRR (%) 8.8 8.6 7.0 7.0 7.0

CAR (%) 14.6 17.0 21.2 18.9 18.5

Asset/Equity (x) 11.8 12.4 11.4 13.3 13.2

Gross NPL (%) 4.0 3.4 3.0 2.8 2.6


Cost of Credit (%) 0.7 0.6 0.4 0.3 0.3


3Q15 4Q15 1Q16 2Q16 3Q16

Total Loans (gross) 131,580 138,956 142,944 149,316 153,814

Total Deposit 124,448 127,709 131,118 134,503 147,421

Total Asset 166,038 171,808 178,419 189,513 197,294


Net revenue 2,012 2,233 2,035 2,190 2,190

Operating profit 569 814 689 696 812

Net Profit 419 629 491 551 579

Capital History

Date

17-Dec-09 IPO @ Rp800


Investment thesis:

The biggest beneficiary of rising coal price among small

banks in our universe

It is because of BNLI’s large mining NPL in its loan book—mining NPL

accounts for ~14% of total NPL book. Therefore, we expect BNLI to experience faster SML and NPL improvement than any other banks

under our coverage. Our recent meeting with the company revealed that there are some coal-related debtors that shows improvement in repayment capability, which a good sign in our view.

Good earnings momentum to start next year, expecting ~8%

ROE in 2017-18F

We expect BNLI to start reporting positive earnings in 2017F as we assume NPL ratio to decline faster from rising coal price. Our model says earnings will turn to IDR2trn next year along with ROE turna-round to ~7-8% in 2017-18F on the back of normalizing credit costs.

Valuation: 2017F TP IDR600 (prev: IDR700). Reiterate Buy


of 8.9% sustainable ROE, 5% long-term growth rate, 12.5% cost of equity (prev: 11.3%), and 8% risk–free rate (prev: 6.8%).

Key investment risks


would have impact on BNLI’s margins and asset quality. Note that

BNLI’s SML loans is still high.


Standard Chartered Bank ownership divestment.



PT Bank Permata, Tbk provides

commercial and forex banking ser-

vices through a network of offices in

Indonesia.

Share Price Rp530

Sector Bank

Price Target Rp600 (13%)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit (IDRbn) 1,587 247 -1,009 1,789 2,258

EPS (IDR) 134 21 -46 81 102

EPS Growth (%) -17.3 -84.3 -317.3 -277.2 26.2

DPS (IDR) 0 0 0 0 0

BVPS (IDR) 1,442 1,599 1,052 1,133 1,235

P/E (x) 10.5 35.0 -11.6 6.6 5.2

P/BV (x) 1.0 0.5 0.5 0.5 0.4

ROE (%) 9.3 1.3 -4.3 7.1 8.3

Div Yield (%) 0.0 0.0 0.0 0.0 0.0

Bank Permata Reiterate Buy

BUY Rp600

Reuters Code BNLI.JK

Bloomberg Code BNLI.IJ



Avg. Value Daily

3 month (IDR bn) 6.9

52-Wk range (IDR) 1,180 / 540

PT Astra International Tbk 44.6%

Standard Chartered Bank 44.6%

Public 10.9%

EPS 16F 17F

Consensus (Rp) N/A N/A

TRIM vs Cons. (%) N/A N/A

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Company Data

0.0

20.0

40.0

60.0

80.0

100.0

-

200

400

600

800

1,000

1,200





Year end Dec 2014 2015 2016F 2017F 2018F

Interest Income 15,547 16,131 14,712 14,094 14,302

Interest

Expense 10,117 9,934 8,602 7,695 7,479

NII 5,429 6,197 6,109 6,398 6,823

Non Interest

Income 1,990 2,153 2,044 1,960 2,209

Operating

Expense 4,195 4,378 4,487 4,763 4,913

PPOP 3,224 3,972 3,666 3,596 4,120

Loan Loss

Provision 1,178 3,678 4,960 1,302 1,225

Operating Profit 2,046 294 -1,294 2,294 2,895

Profit

Before Tax 2,046 294 -1,294 2,294 2,895

Tax Expense 459 46 -285 505 637

Net Profit 1,587 247 -1,009 1,789 2,258

EPS (IDR) 134 21 -46 81 102

EPS Growth

(%) -17.3 -84.3 -317.3 -277.2 26.2

Dividend

Per Share 0 0 0 0 0

Dividend

Growth (%) 0 0 0 0 0


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and

CA with BI 15,869 14,846 10,806 10,819 10,769

Interbank

Placement 1,396 8,291 15,652 8,519 8,416

Marketable

Securities 14,888 11,519 10,291 10,304 9,193

Government

Bonds 1,182 3,970 3,390 2,573 2,576

Loans-net 131,388 125,868 112,802 117,420 122,636

Net Fixed Assets 1,129 2,724 2,806 2,890 2,948

Other Assets 7,489 7,342 7,605 7,965 8,355

Total Assets 185,354 182,689 170,247 168,252 172,855

Total Earning

Assets 160,866 157,777 149,030 146,578 150,783

Deposit 148,006 145,461 128,643 128,802 131,327

Borrowings 10 0 0 0 0



Total

Shareholder's Equity 17,083 18,813 23,259 25,049 27,307

BVPS (IDR/Share) 1,442 1,599 1,052 1,133 1,235

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F


Cost of Funds (%) 6.7 6.3 5.8 5.8 5.5

NIM (%) 3.5 3.9 4.0 4.3 4.6

ROE (%) 9.3 1.3 -4.3 7.1 8.3

ROA (%) 0.9 0.1 -0.6 1.1 1.3


Loan Growth (%) 11.4 -2.9 -8.2 3.4 3.8

Deposit Growth (%) 11.2 -1.7 -11.6 0.1 2.0

LDR (%) 90.1 89.0 92.4 95.5 97.2

LFR (%) 89.3 88.6 90.5 93.7 95.3

RRR (%) 9.2 8.8 7.0 7.0 7.0

CAR (%) 15.2 15.0 18.6 20.0 21.0

Asset/Equity (x) 10.9 9.7 7.3 6.7 6.3

Gross NPL (%) 1.7 2.7 4.9 4.5 4.2


Cost of credit (%) 0.8 2.3 3.2 0.9 0.8


3Q15 4Q15 1Q16 2Q16 3Q16

Total Loans 134,824 129,487 126,645 121,054 113,677

Total Deposit 150,892 145,461 136,779 139,115 130,326

Total Asset 194,487 182,689 174,722 181,509 171,029


Net revenue 2,005 2,098 2,067 1,983 2,071

Operating profit 73 -986 -562 -650 -595

Net Profit 101 -691 -376 -459 -398

Capital History

Date

17-Dec-09 IPO @ Rp800


Investment thesis:

Earnings and ROE turnaround to continue in 2017F

We view BNGA’s earnings turnaround to continue until 2017F as its credit cost normalizes, trajecting its ROE to ~10% in the next couple

of years.

JCI re-inclusion: another upside risk for BNGA

Following the more stable daily trading volume, relatively less vola-tile share price now, and improved financial performance, we believe there is a high chance of BNGA being re-included in JCI. This, in our

view, would attract a wider range of investors and would drive valu-ation higher.

Valuation: 2017F TP IDR800 (prev: IDR950). Downgrade to Neu-tral


of 11.2% sustainable ROE (exclude asset revaluation) (prev: 10.7%), 5% long-term growth rate, 15.6% cost of equity (prev: 14.2%), and 8% risk–free rate (prev: 6.8%). Due to limited potential upside to our new TP, we downgrade the rating into Neutral (prev: Buy).

Risks to our call

Worsening macroeconomic situation; these would have impact on

BNGA’s asset quality, in particular.

Corporate actions that might have impact to the share price.



PT Bank CIMB Niaga Tbk operates in individual and

private banking, merchant and corporate banking,

regional banking, and investment services. The Bank

also provides financial services such as leasing,

factoring, stock broking, underwriting, insurance,

investment management through its subsidiaries.

Share Price Rp785

Sector Bank


Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit (IDR bn) 2,342 428 1,500 3,424 4,186

EPS (IDR) 93 17 60 138 168

EPS Growth (%) -45 -82 254 128 22

DPS (IDR) 0 0 0 0 0

BVPS (IDR) 1,132 1,141 1,237 1,375 1,543

P/E (x) 9.0 35.0 13.0 5.7 4.7

P/BV (x) 0.7 0.5 0.6 0.6 0.5

ROE (%) 8.2 1.5 4.9 10.0 10.9

Div Yield (%) 0.0 0.0 0.0 0.0 0.0

CIMB Niaga Downgrade to Neutral

NEUTRAL Rp800

Reuters Code BNGA.JK

Bloomberg Code BNGA.IJ



Avg. Value Daily

3 month (IDR bn) 23.7

52-Wk range (IDR) 1,090 / 480

CIMB Group Sdn Bhd, Malaysia 92.5%

Public 7.5%

EPS 16F 17F

Consensus (Rp) N/A N/A

TRIM vs Cons. (%) N/A N/A

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Company Data

0.0

20.0

40.0

60.0

80.0

100.0

-

200

400

600

800

1,000

1,200





Year end Dec 2014 2015 2016F 2017F 2018F

Interest Income 20,813 22,319 20,967 20,743 21,320

Interest

Expense 10,123 10,932 9,999 10,003 9,570

NII 10,689 11,386 10,968 10,740 11,750

Non Interest

Income 4,282 4,050 4,261 4,866 5,560

Operating

Expense 6,830 7,683 7,091 7,170 7,529

PPOP 6,425 6,035 6,249 6,263 7,282

Loan Loss

Provision 3,466 5,343 4,269 1,697 1,700

Operating Profit 2,958 692 1,980 4,566 5,582

Profit

Before Tax 3,200 570 2,000 4,566 5,582

Tax Expense 856 142 500 1,141 1,395

Net Profit 2,342 428 1,500 3,424 4,186

EPS (Rp) 93 17 60 138 168

EPS Growth

(%) -45 -82 254 128 22

Dividend

Per Share 0 0 0 0 0

Dividend

Growth (%) 0 0 0 0 0


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and

CA with BI 22,591 21,193 17,744 18,673 20,247

Interbank

Placement 3,027 5,884 7,338 10,066 9,701

Marketable

Securities 10,826 9,822 8,919 9,387 10,178

Government

Bonds 11,484 16,050 12,487 13,141 14,249

Loans-net 163,623 163,683 164,542 172,769 190,046

Net Fixed Assets 2,485 3,362 6,541 6,737 6,939

Other Assets 2,157 2,542 3,399 3,558 3,794

Total Assets 233,162 238,849 237,044 250,842 272,206

Total Earning

Assets 204,429 208,646 206,315 218,782 238,172

Deposit 174,723 178,533 178,390 187,731 203,555

Borrowings 8,815 6,685 6,016 6,136 6,259



Total



revaluation)

28,448 28,679 30,780 34,204 38,390

BVPS (IDR/Share,


revaluation)

1,132 1,141 1,237 1,375 1,543

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F


Cost of Funds (%) 5.4 5.5 5.0 5.0 4.5

NIM (%) 5.4 5.5 5.3 5.1 5.1

ROE (%) 8.2 1.5 4.9 10.0 10.9

ROA (%) 1.0 0.2 0.6 1.4 1.5


Loan Growth (%) 12.2 0.0 0.5 5.0 10.0

Deposit Growth (%) 6.7 2.2 -0.1 5.2 8.4

LDR (%) 93.6 91.7 92.2 92.0 93.4

LFR (%) 90.6 89.4 90.2 90.0 91.4

RRR (%) 8.4 8.2 6.5 6.5 6.5

CAR (%) 15.4 16.2 17.5 19.1 19.6

Asset/Equity (x) 8.2 8.3 7.7 7.3 7.1

Gross NPL (%) 4.0 3.8 4.2 4.1 3.9


Cost of credit (%) 1.8 2.6 2.1 0.8 0.7


3Q15 4Q15 1Q16 2Q16 3Q16

Total Loans 172,222 177,537 171,021 175,336 174,084

Total Deposit 185,716 178,533 172,739 179,292 178,668

Total Asset 244,285 238,849 231,667 239,385 237,123


Net revenue 3,532 3,476 3,555 3,724 3,566


Net Profit 89 163 269 467 563

Capital History

Date

15-Jan-90 IPO @ IDR9,900

08-Sep-90 1:3 Rights @ IDR8,000

24-Jan-14 Additional Shares without HMETD


Investment thesis:

Improving NPL outlook...

We view PNBN as the bank with conservative lending strategy, pre-

serving asset quality. With positive NPL momentum in 9M16 (NPL

ratio down to 2.7% from previously 2.8% in 6M16), we expect stabi-

lizing NPL ratio within 2.6-2.7% this year before declining gradually

in the following years given more favorable macro conditions, i.e.,

rising coal price, stable IDR and inflation, and rising consumer confi-

dence.

...and to benefit from declining interest rates

Given its current low CASA (~39%), we view PNBN to reap benefit

from declining benchmark interest rate. From a historical perspec-

tive, PNBN’s NIM hovered within 4.5%-5% range during low interest

rate period (2010-12). During that period also, PNBN’s CASA was

above 50%.

Expect ROE turnaround to ~8% in 2017-18F, but at current

valuation, it is already priced-in

We expect PNBN to report 55/15% EPS growth in 2017/18F, leading

ROE to 7.5/8.1% in the respective years on 1) much lower provi-

sioning expense from improving NPLs and 2) rising NIM to ~5%.

Despite that, we view the turnaround to be already priced-in by the

market as our new TP implies limited upside.

Valuation: 2017F TP IDR700 (prev: IDR900), downgrade to Sell


of 8.6% sustainable ROE, 5% long-term growth rate, 12% cost of equity

(prev: 10.8%), and 8% risk–free rate (prev: 6.8%). It implies 0.6x

2017F PBV. Due to negative potential upside, we downgrade PNBN’s

rating into Sell (prev: Neutral).

Key investment risks


would have impact on PNBN’s margins and asset quality.


potential sale of ANZ stake.



PT Bank Pan Indonesia Tbk provides

commercial banking and foreign

exchange services in Indonesia and

overseas

Share Price Rp720

Sector Bank

Price Target Rp700 (-3%)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit (IDR bn) 2,367 1,407 2,179 2,497 2,934

EPS (IDR) 98 58 91 105 123

EPS Growth (%) 4.7 -40.6 56.5 14.6 17.5

DPS (IDR) 0 0 0 0 0

BVPS (IDR) 864 1,177 1,298 1,402 1,526

P/E (x) 11.9 14.0 7.9 6.9 5.9

P/BV (x) 1.3 0.7 0.6 0.5 0.5

ROE (%) 11.4 5.0 7.0 7.5 8.1

Div Yield (%) 0.0 0.0 0.0 0.0 0.0

Bank Pan Indonesia Downgrade to Sell

SELL Rp700

Reuters Code PNBN.JK

Bloomberg Code PNBN.IJ



Avg. Value Daily

3-month (IDR bn) 7.9

52-Wk range (IDR) 1,090 / 560

PT Panin Financial Tbk 46.04%

Vortraint No. 1103 PTY Limited 38.82%

Public 15.14%

EPS 16F 17F


TRIM vs Cons. (%) 6.0 5.5

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Company Data

0.0

10.0

20.0

30.0

40.0

50.0

60.0

-

200

400

600

800

1,000

1,200





Year end Dec 2014 2015 2016F 2017F 2018F

Interest Income 15,492 16,915 17,320 17,471 18,251

Interest

Expense 9,285 9,714 9,315 8,864 8,725

NII 6,207 7,201 8,006 8,607 9,526

Non Interest

Income 1,878 1,018 1,205 1,192 1,362

Operating

Expense 4,089 4,431 4,764 5,152 5,554

PPOP 3,996 3,788 4,447 4,647 5,334

Loan Loss

Provision 463 1,362 790 494 499


Profit

Before Tax 3,677 2,458 3,657 4,152 4,835

Tax Expense 1,083 890 1,316 1,495 1,741

Net Profit 2,367 1,407 2,179 2,497 2,934

EPS (IDR) 98 58 91 105 123

EPS Growth

(%) 4.7 -40.6 56.5 14.6 17.5

Dividend

Per Share 0 0 0 0 0

Dividend

Growth (%) 0 0 0 0 0


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and

CA with BI 12,407 12,173 10,708 11,443 12,210

Interbank

Placement 4,340 8,475 10,633 20,571 20,364

Marketable

Securities 20,509 13,816 20,078 14,304 15,263

Government

Bonds 4,092 5,263 5,354 5,006 5,342

Loans-net 111,944 117,744 121,290 128,872 139,524

Net Fixed Assets 2,502 9,134 9,408 9,691 9,884

Other Assets 9,158 8,158 7,583 7,942 8,332

Total Assets 172,639 183,121 193,433 206,379 219,504

Total Earning

Assets 154,815 158,983 170,416 182,197 194,206

Deposit 126,105 128,316 133,856 143,041 152,629

Borrowings 3,820 3,309 3,110 3,304 3,574



Total


BVPS (IDR/Share) 864 1,177 1,298 1,402 1,526

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F


Cost of Funds (%) 6.5 6.6 6.1 5.8 5.5

NIM (%) 4.1 4.6 4.9 4.9 5.1

ROE (%) 11.4 5.0 7.0 7.5 8.1

ROA (%) 1.4 0.8 1.1 1.2 1.3


Loan Growth (%) 8.7 5.7 3.3 6.3 8.2

Deposit Growth (%) 4.9 1.8 4.3 6.9 6.7

LDR (%) 90.4 93.8 92.9 92.4 93.7

LFR (%) 88.4 92.4 90.2 88.7 90.3

RRR (%) 8.6 8.4 7.0 7.0 7.0

CAR (%) 17.3 20.1 20.7 21.1 21.5

Asset/Equity (x) 8.3 6.5 6.3 6.2 6.0

Gross NPL (%) 2.0 2.4 2.7 2.7 2.6


Cost of credit (%) 0.3 0.9 0.5 0.3 0.3


3Q15 4Q15 1Q16 2Q16 3Q16

Total Loans 126,995 128,695 127,479 135,620 132,819

Total Deposit 129,160 128,316 127,923 134,213 133,835

Total Asset 182,234 183,121 183,446 192,111 195,016


Net revenue 1,964 2,359 2,270 2,524 2,414


Net Profit 160 259 574 525 610

Capital History

Date

29-Dec-82 IPO @ 3,475

16-Jul-09 Warrant conversion


Investment thesis:

NPL was worse than expected, but already priced-in

BJTM continued to report rising NPL to ~4.9% as of 9M16 as it has

seen deteriorating commercial and SME loans. At the same time, the

company needs to raise its coverage ratio to maintain prudency,

therefore leading to potential worsening earnings momentum in the

coming quarters. We therefore raise our NPL and provisioning esti-

mates accordingly to align with their quarterly trends. As the result,

BJTM’s ROE is expected to hover at around 15% for 2016-18F. How-

ever, we view such risks are already priced-in by the market.

BJTM’s selling point for now: its high dividend yield

Despite moderating fundamental, BJTM remains an attractive invest-

ment choice for those who seek for dividends. We forecast 8.9%

dividend yield in 2017F, higher than 10-yr govt bond yield of ~7%.

It is logical to assume higher dividend amount each year as along

with the increasing East Java Municipal’s budget.

Valuation: 2017F TP IDR420 (prev: IDR500). Downgrade to Sell.


of 13.7% sustainable ROE, 5% long-term growth rate, 14.8% cost of

equity, and 8% risk–free rate (prev: 13.3%). Due to negative potential

upside, we therefore downgrade the BJTM’s rating into Sell (prev: Neu-

tral).

Key Investment risks:

Adverse macroeconomic situations which could impact loans, deposit

growth as well as asset quality.

Regulatory risks, e.g., single digit lending rate, etc.

Intervention risks, i.e., any intervention from East Java govt on

BJTM’s business.

Corporate actions that might add another volatility to the share

price.

PT Bank Pembangunan Daerah Jawa

Timur Tbk is a full service bank in

Indonesia based in Surabaya, East

Java.

Share Price Rp505

Sector Bank

Price Target Rp420 (-17%)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit (IDRbn) 939 885 997 1,066 1,152

EPS (IDR) 63 59 67 72 78

EPS Growth (%) 13.9 -5.8 13.6 7.0 8.1

DPS (IDR) 41 41 43 44 45

BVPS (IDR) 405 422 449 478 511

P/E (x) 8.0 8.5 7.5 7.0 6.5

P/BV (x) 1.2 1.2 1.1 1.1 1.0

ROE (%) 15.5 14.0 15.0 15.1 15.3

Div Yield (%) 8.0 8.0 8.6 8.7 8.9

BPD Jawa Timur Downgrade to Sell

SELL Rp420

Reuters Code BJTM.JK

Bloomberg Code BJTM.IJ



Avg. Value Daily

3-month (IDRbn)

23.8

52-Wk range (IDR) 720 / 404

Govt of East Java Province 51.46%

Govt of City/Regents 28.54%

Public 20.00%

EPS 16F 17F


TRIM vs Cons. (%) -7.4 -11.7

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price & Value

Company Data

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

-

100

200

300

400

500

600

700

800

Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16




Year end Dec 2014 2015 2016F 2017F 2018F

Interest Income 4,084 4,704 5,025 5,549 6,207

Interest

Expense -1,203 -1,580 -1,550 -1,674 -1,899

NII 2,881 3,124 3,474 3,876 4,308

Non Interest

Income 373 339 504 572 672

Operating

Expense -1,399 -1,667 -2,004 -2,409 -2,859

PPOP 1,855 1,796 1,974 2,039 2,122

Loan Loss

Provision -504 -599 -553 -519 -479


Profit

Before Tax 1,376 1,261 1,421 1,521 1,643

Tax Expense -437 -377 -425 -454 -491

Net Profit 939 885 997 1,066 1,152

EPS (Rp) 63 59 67 72 78

EPS Growth

(%) 13.9 -5.8 13.6 7.0 8.1

Dividend

Per Share 41 41 43 44 45

Dividend

Growth (%) 2.2 0.0 6.7 1.0 2.9


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and

CA with BI 1,889 2,112 2,362 2,629 2,956

Interbank

Placement 3,326 3,024 4,129 4,815 5,539

Marketable

Securities 2,811 3,918 4,276 4,803 5,404

Government

Bonds 533 1,584 1,555 1,528 1,474

Loans-net 25,544 27,424 30,067 33,544 37,597

Net Fixed Assets 321 339 356 374 393

Other Assets 3,574 4,403 3,773 4,142 4,556

Total Assets 37,998 42,804 46,519 51,835 57,919

Total Earning

Assets 32,620 36,449 40,547 45,222 50,556

Deposit 30,419 34,411 38,345 43,069 48,467

Borrowings 919 1,471 843 940 1,050

Other Liabilities 617 626 680 758 847


Total


BVPS (Rp/Share) 405 422 449 478 511

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F


Cost of Funds (%) 4.1 4.7 4.1 4.0 4.1

NIM (%) 6.9 6.9 6.7 6.7 6.7

ROE (%) 15.5 14.0 15.0 15.1 15.3

ROA (%) 2.6 2.2 2.2 2.2 2.1


Loan Growth (%) 18.6 8.5 9.9 11.4 11.7

Deposit Growth (%) 16.6 13.1 11.4 12.3 12.5

LDR (%) 86.5 83.0 81.9 81.3 80.8

LFR (%) 86.1 82.6 81.4 80.8 80.2

RRR (%) 9.4 9.8 7.0 7.0 7.0

CAR (%) 22.2 21.2 19.8 18.6 17.5

Asset/Equity (x) 6.3 6.8 7.0 7.3 7.7

Gross NPL (%) 3.4 4.3 4.9 4.8 4.6


Cost of Credit (%) 1.9 2.1 1.8 1.5 1.2


3Q15 4Q15 1Q16 2Q16 3Q16


Total Deposit 43,754 34,264 41,506 40,302 41,166

Total Asset 52,093 42,804 49,145 48,061 50,155

Net Interest Income 831 720 845 1,137 557

Net revenue 908 892 869 1,229 642


Net Profit 172 188 313 248 275

Capital History

Date



Investment thesis:

Rising competition and asset quality risk in SME segment

As BTPN ventures to new iSME segment, we view the company

might face both rising asset quality risk and fierce competition.

Adding with pensioners loan market matures, eroded margins and

credit cost are the apparent risks that BTPN should face in the near

to medium-term.

Earnings to remain soft from continuing investments in BTPN

WoW!

As per company guidance, earnings are likely to remain soft in near-

term since BTPN is focusing on developing BTPN WoW!, an initiative

to improve funding strength. We think BTPN WoW may translate into

better CASA ratio in the next 2-3 years.


The TP is derived from Gordon Growth Methodology (GGM) under the

assumptions of: 11.4% sustainable ROE, 5% long-term growth rate,

12.5% cost of equity (prev: 11.3%), and 8% risk-free rate (prev:

6.8%). Due to negative potential upside, we downgrade BTPN’s rating

into Sell (Prev: Neutral).


Higher-than-expected loan growth

Lower-than-expected NPL formations in non-pensioners loans

Softening competition in SME lending market

Market illiquidity

PT Bank Tabungan Pensiunan Nasional

Tbk is a financial institution that special-

izes in funding and lending. It offers

accounts in deposits and savings, pen-

sion loans, SME loans, and other financial

products.

Share Price Rp2,740

Sector Bank

Price Target Rp2,600 (-5%)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit (Rpbn) 1,885 1,753 1,820 1,967 2,096

EPS (Rp) 320 291 315 340 362

EPS Growth (%) -12.6 -9.1 8.1 8.1 6.5

DPS (Rp) 0 0 0 0 0

BVPS (Rp) 2,063 2,381 2,697 3,037 3,400

P/E (x) 8.6 9.4 8.7 8.1 7.6

P/BV (x) 1.3 1.2 1.0 0.9 0.8

ROE (%) 15.6 12.6 11.7 11.2 10.7

Div Yield (%) 0.0 0.0 0.0 0.0 0.0

Bank Tabungan Pensiunan Nasional Downgrade to Sell

SELL Rp2,600

Reuters Code BTPN.JK

Bloomberg Code BTPN.IJ




month (IDR bn)

0.5

52-Wk range 3,100 / 2,000

Sumitomo Mitsui Banking Corp 40.0%

Summit Global Capital Man. B.V. 20.0%

TPG Nusantara S.a.r.l 8.4%

Public & Others 31.6%

EPS 16F 17F


TRIM vs Cons. (%) 0.6 -5.7

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Company Data

0.0

5.0

10.0

15.0

20.0

25.0

30.0

-

500

1,000

1,500

2,000

2,500

3,000

3,500

Nov-15 Feb-16 May-16 Aug-16




Year end Dec 2014 2015 2016F 2017F 2018F

Interest Income 12,293 13,004 14,090 15,254 16,457

Interest

Expense -5,252 -5,308 -5,415 -5,817 -6,398

NII 7,041 7,696 8,675 9,437 10,059

Non Interest

Income 740 706 782 940 1,301

Operating

Expense -4,480 -5,156 -5,964 -6,837 -7,812

PPOP 3,300 3,246 3,493 3,540 3,547

Loan Loss

Provision -744 -786 -968 -810 -638


Profit

Before Tax 2,544 2,433 2,526 2,730 2,909

Tax Expense -659 -680 -706 -763 -813

Net Profit 1,885 1,753 1,820 1,967 2,096

EPS (Rp) 320 291 315 340 362

EPS Growth

(%) -12.6 -9.1 8.1 8.1 6.5

Dividend

Per Share 0 0 0 0 0

Dividend

Growth (%) 0.0 0.0 0.0 0.0 0.0


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and

CA with BI 5,758 6,127 5,870 6,653 7,544

Interbank

Placement 6,713 6,209 12,820 18,564 23,574

Marketable

Securities 4,734 4,930 5,284 5,223 5,917

Government

Bonds 0 0 0 0 0

Loans-net 52,101 58,710 63,633 70,226 77,218

Net Fixed Assets 730 876 964 1,060 1,113

Other Assets 4,978 4,187 4,709 4,078 4,627

Total Assets 66,038 71,015 84,115 96,327 109,330

Total Earning

Assets 75,015 81,040 93,280 105,805 119,994

Deposit 51,364 57,475 66,056 74,620 84,533

Borrowings 3,903 2,766 3,217 3,547 3,892



Total


BVPS (Rp/Share) 2,063 2,381 2,697 3,037 3,400

Key Ratio Analysis

Year end Dec 2014 2015F 2016F 2017F 2018F


Cost of Funds (%) 8.4 7.8 7.6 7.1 6.9

NIM (%) 11.0 11.2 11.2 10.5 9.8

ROE (%) 15.6 12.6 11.7 11.2 10.7

ROA (%) 2.5 2.2 2.0 1.9 1.7


Loan Growth (%) 12.6 12.6 8.6 10.2 9.7

Deposit Growth (%) 0.5 11.9 14.9 13.0 13.3

LDR (%) 102.4 103.1 97.4 95.1 92.1

RRR (%) 9.6 8.7 7.0 7.0 7.0

CAR (%) 25.3 23.8 25.3 24.6 24.9

Asset/Equity (x) 6.2 5.8 6.0 6.0 6.1

Gross NPL (%) 0.7 0.7 0.8 0.8 0.6


Cost of Credit (%) 1.4 1.3 1.5 1.1 0.8


3Q15 4Q15 1Q16 2Q16 3Q16

Total Loans 57,577 59,262 59,975 62,377 63,327

Total Deposit 59,103 60,273 61,714 65,316 63,880

Total Asset 80,113 81,040 83,552 86,671 86,089


Net revenue 1,185 2,169 2,205 2,391 2,362


Net Profit 367 327 429 489 481

Capital History

Date

12-Mar-08 IPO @ 2,850

15-Mar-12 Additional listing without RI


Share Price Rp1,515

Sector Bank

Price Target Rp1,100(-27%)

Year end Dec 2014 2015 2016F 2017F 2017F

Net Profit (IDRbn) 1,116 1,377 1,551 1,319 1,294

EPS (IDR) 115 142 162 137 135

EPS Growth (%) -18.7 23.4 13.8 -14.9 -1.9

DPS (IDR) 78 72 86 92 96

BVPS (IDR) 726 795 894 939 978

P/E (x) 6.3 5.3 9.4 11.0 11.2

P/BV (x) 1.0 0.9 1.7 1.6 1.5

ROE (%) 15.9 17.9 18.1 14.6 13.8

Div Yield (%) 5.2 4.7 5.7 6.1 6.4

BPD Jawa Barat & Banten Maintain Sell on Valuation, Downside Risks

SELL Rp1,100

Reuters Code BJBR.JK

Bloomberg Code BJBR.IJ




month (IDR bn)

23.1

52-Wk range 1,760 / 700

Government of West Java Province 61.9%

Government of Banten Province 13.1%

Public 25%

EPS 16F 17F


TRIM vs Cons. (%) -3.9 -26.5

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Company Data

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

-

500

1,000

1,500

2,000



Investment thesis:

Demanding valuation

BJBR now trades at ~1.5x 2017F PBV, still relatively expensive compare to its historical. We concur high valuation was due to BJBR

having a bulk of recovery income, which we expect it to support earnings growth in the next 2-3 years. This already reflected in its

valuation—last month BJBR even traded at 1.9x book, premium over BMRI. Such valuation portends a derating event since there is a rising asset quality risk at the subsidiary level.

No significant fundamental improvement at the bank-level,

sharia faces rising asset quality risks

Aside from recovering NPLs (which is unsustainable, in our view), there are no changes in BJBR’s business-as-usual activities. At the subsidiary level, sharia NPL rose due to downgrades in commercial loans. This might result in a weaker earnings momentum in the coming quarters as BJBR must restore its consolidated coverage

ratio to >70% to maintain prudency.


Our IDR1,100 target price in 2017F is derived by using Gordon Growth Model under the assumptions of 14.5% sustainable ROE, 5% long-term growth rate, 15% cost of equity (prev: 13.8%), 8% risk–free rate

(prev: 6.8%), and IDR2.2trn unsustainable recovery income.

Risks to our call

Slower-than-expected NPL recoveries.

Adverse macroeconomic situations which could impact loans, de-

posit growth as well as asset quality

Regulatory risks, e.g., single digit lending rate, etc

Corporate actions (e.g., rights issue, buying an insurance company,

etc) might add another risk to the share price.

Intervention risks, i.e., any intervention from West Java govt on

BJBR’s business.

BPD Jawa Barat & Banten is a bank

headquartered in Bandung, West

Java. The bank offers commercial

banking products.



Year end Dec 2014 2015 2016F 2017F 2018F

Interest Income 8,792 10,084 11,316 12,343 13,466

Interest

Expense -4,330 -5,108 -5,620 -5,995 -6,571

NII 4,462 4,976 5,696 6,347 6,895

Non Interest

Income 617 566 1,564 672 647

Operating

Expense -2,948 -3,594 -4,116 -4,667 -5,234

PPOP 2,130 1,948 3,143 2,352 2,308

Loan Loss

Provision -663 -136 -1,163 -667 -655


Profit

Before Tax 1,438 1,766 1,980 1,685 1,653

Tax Expense -318 -385 -425 -362 -355

Net Profit 1,116 1,377 1,551 1,319 1,294

EPS (Rp) 115 142 162 137 135

EPS Growth

(%) -18.7 23.4 13.8 -14.9 -1.9

Dividend

Per Share 78 72 86 92 96

Dividend

Growth (%) -8.1 19.4 7.5 4.5 -1.9


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and

CA with BI 7,946 8,479 7,318 8,037 8,904

Interbank

Placement 4,890 3,921 10,278 9,904 9,552

Marketable

Securities 7,694 14,147 11,078 12,020 13,141

Government

Bonds 0 0 0 0 0

Loans-net 48,028 54,368 59,169 65,219 72,430

Net Fixed Assets 1,045 1,023 1,193 1,241 1,291

Other Assets 6,259 6,758 7,498 8,320 9,194

Total Assets 75,861 88,697 96,534 104,740 114,511

Total Earning

Assets 66,584 78,588 87,469 94,758 103,538

Deposit 53,119 62,903 67,621 74,383 82,565

Borrowings 456 435 484 466 518



Total


BVPS (Rp/Share) 726 795 894 939 978

Key Ratio Analysis

Year end Dec 2014 2015F 2016F 2017F 2018F


Cost of Funds (%) 7.4 7.7 7.5 7.3 7.3

NIM (%) 6.8 6.7 6.7 6.8 6.8

ROE (%) 15.9 17.9 18.1 14.6 13.8

ROA (%) 1.5 1.6 1.6 1.3 1.1


Loan Growth (%) 10.4 12.1 9.2 10.2 11.0

Deposit Growth (%) 15.4 16.8 7.2 9.5 10.5

LDR (%) 92.5 88.7 90.4 91.0 91.4

LFR (%) 89.8 86.5 86.8 87.3 87.7

RRR (%) 9.7 9.7 7.0 7.0 7.0

CAR (%) 19.7 18.5 18.9 18.3 17.5

Asset/Equity (x) 10.8 11.5 11.3 11.6 12.2

Gross NPL (%) 4.2 2.9 3.1 2.9 2.8


Cost of credit (%) 1.0 0.2 1.3 0.7 0.6


3Q15 4Q15 1Q16 2Q16 3Q16

Total Loans 54,746 60,488 60,297 65,501 68,565

Total Deposit 77,431 63,307 74,914 68,947 73,458

Total Asset 95,636 88,697 95,710 97,202 101,568


Net revenue 1,351 1,628 1,552 1,809 1,744


Net Profit 281 516 449 409 309

Capital History

Date



Investment thesis:

Potential NIM squeeze due to SME lending competition and

“single digit lending rates”

Due to shifting in loan mix toward SME from previously mass market

segments, NIM is expected to be at risk from rising competition and

asset quality risks. Several other big banks have implemented <10%

SME lending rate.

ROE depends on how much opex efficiencies the company can

make

BDMN is still undergoing a restructuring process, which we view may

take a while before translating into higher revenue growth. It all

comes down to how much operating efficiencies BDMN can make in

the near to medium-term in order to maintain ROE.

Valuation: 2017F TP IDR2,000 (prev: IDR2,300), reiterate Sell

The TP derived from Gordon Growth Methodology (GGM) under the

assumptions of: 9.8% sustainable ROE, 5% long-term growth rate,

14.8% cost of equity (prev: 13.3%), and 8% risk-free rate (prev:

6.8%).


Higher-than-expected loan growth.

Lower-than-expected NPL and special mentions

Potential M&A activity

Illiquidity in the stock market

PT Bank Danamon Indonesia Tbk pro-

vides general banking services. The bank’

s head office is located in Jakarta with

branch offices throughout Indonesia.

Share Price Rp3,290

Sector Bank


Year end Dec 2014 2015F 2016F 2017F 2018F

Net Profit (IDRbn) 2,604 2,393 3,286 3,643 4,222

EPS (IDR) 272 250 346 384 445

EPS Growth (%) -35.6 -8.1 38.7 10.9 15.9

DPS (IDR) 127 81 76 104 115

BVPS (IDR) 3,381 3,540 3,847 4,127 4,456

P/E (x) 16.7 12.8 9.5 8.6 7.4

P/BV (x) 1.3 0.9 0.9 0.8 0.7

ROE (%) 8.0 7.1 9.0 9.3 10.0

Div Yield (%) 3.8 2.5 2.3 3.2 3.5

Bank Danamon Remains a Sell at Our Counter

SELL Rp2,000

Reuters Code BDMN.JK

Bloomberg Code BDMN.IJ



Avg. Value Daily

3 month (IDRbn)

9.5

52-Wk range (IDR) 4,220 / 2,665

Asia Financial (Ina)Pte.Ltd. 67.4%

Public 32.6%

EPS 16F 17F


TRIM vs Cons. (%) -9.0 -16.9

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price & Value

Company Data

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

-

1,000

2,000

3,000

4,000

5,000





Year end Dec 2014 2015F 2016F 2017F 2018F

Interest Income 22,991 22,421 21,301 21,350 21,923

Interest

Expense -9,312 -8,772 -8,218 -8,192 -8,446

NII 13,680 13,648 13,083 13,158 13,477

Non Interest

Income 4,763 4,608 4,696 4,871 5,204

Operating

Expense -10,394 -9,231 -8,892 -8,798 -8,907

PPOP 8,049 9,025 8,887 9,231 9,775

Loan Loss

Provision -3,986 -5,082 -4,404 -4,272 -4,045


Profit

Before Tax 3,554 3,282 4,482 4,959 5,730

Tax Expense -871 -812 -1,121 -1,240 -1,433

Net Profit 2,604 2,393 3,286 3,643 4,222

EPS (Rp) 272 250 346 384 445

EPS Growth

(%) -35.6 -8.1 38.7 10.9 15.9

Dividend

Per Share 127 81 76 104 115

Dividend

Growth (%) 0.7 -35.6 -7.2 37.3 10.9


Year end Dec 2014 2015F 2016F 2017F 2018F

Cash and

CA with BI 13,125 12,239 10,412 10,630 10,958

Interbank

Placement 14,533 21,849 28,880 34,907 39,555

Marketable

Securities 8,888 6,392 6,945 7,104 7,330

Government

Bonds 6,605 6,916 7,068 7,228 7,457

Loans-net 106,77

4 99,483 98,580 99,360 102,455

Net Fixed Assets 2,490 2,559 2,764 2,985 3,224

Other Assets 43,406 38,620 38,961 39,858 40,786

Total Assets 195,82

1

188,05

7

193,61

0

202,07

3 211,764

Total Earning

Assets 30,145 28,010 26,520 27,093 27,794

Deposit 116,49

5

115,14

2

115,76

0

118,40

9 122,174

Borrowings 14,497 13,086 13,662 14,307 15,042


Total Liabilities 163,17

4

153,84

3

156,82

7

162,63

3 169,195

Total


BVPS (Rp/Share) 3,381 3,540 3,847 4,127 4,456

Key Ratio Analysis

Year end Dec 2014 2015F 2016F 2017F 2018F


Cost of Funds (%) 6.5 6.1 5.9 5.8 5.8

NIM (%) 8.4 8.4 8.0 7.7 7.5

ROE (%) 8.0 7.1 9.0 9.3 10.0

ROA (%) 1.3 1.3 1.7 1.8 2.0


Loan Growth (%) 3.6 -6.1 -0.8 0.7 2.9

Deposit Growth (%) 6.7 -1.2 0.5 2.3 3.2

LDR (%) 94.1 89.3 88.1 86.8 86.5

LFR (%) 85.3 82.4 81.6 80.5 80.9

RRR (%) 8.8 8.3 7.0 7.0 7.0

CAR (%) 17.9 17.9 20.0 20.6 20.0

Asset/Equity (x) 6.0 5.5 5.3 5.2 5.0

Gross NPL (%) 2.4 3.3 3.3 3.2 2.9


Cost of Credit (%) 3.6 4.9 4.3 4.2 3.8


3Q15 4Q15 1Q16 2Q16 3Q16


Total Deposit 114,053 116,776 111,088 104,461 102,200

Total Asset 196,012 188,057 179,334 174,859 174,686


Net revenue 4,550 4,742 4,361 4,677 4,573

Operating profit 897 1,289 1,107 1,268 1,066

Net Profit 690 498 814 921 782

Capital History

Date

6-Dec-89 IPO @ Rp. 12.000

7-Sep-11 Additional Share HMETD


Automotive Sector


Channel check findings: recovery on all level is confirmed

We believe auto recovery is confirmed for all auto-related sectors (auto

financing, rental, distribution and spare parts). We had recent visits to

Astra Otoparts (AUTO IJ), Assa Rent (ASSA IJ) and BFI Finance (BFIN IJ).

These players are in the OEM components, auto rental and financing

sectors. All of them confirmed that revenue and net profit growth is clear-

ly visible for 2017 deriving from auto recovery on sales volume, healthy

margins and decline in cost of funds. Capex growth is a mixed bag (2017

AUTO capex decline, ASSA capex grow and BFIN relatively flat) as the

auto industry chain still face overcapacity challenge from over expansion

in the auto boom period back in 2010-12.

Competition remains but relatively healthier

We believe 4W manufacturing companies are aware of the competition

coming from 2 key brands mid 2017 which are Mitsubishi XM (7-seater

MPV) and China’s Wuling (MPV brand selling at very cheap price). This

should set a well-balanced expectation of supply/demand for next year

and would keep inventory at a minimum level from wholesales to dealers.

This also implies no massive 4W price discounts in 2017 in our view.

Commodity rally should have a positive impact to 4W/2W sector

Coal price rallied by ~+100% YTD, CPO +18% YTD, Nickel +28% YTD,

Tin +40% YTD. We see small scale coal miners ramping up production

over the past 1 month. This should improve the economy of mining-

related areas such as Kalimantan & Sumatra and would indirectly have a

positive impact to auto demand especially for the 2W sector in our view.

ASII has a well-balanced mix of growth

We remain positive for ASII’s 2017 outlook due to lower interest rate,

tamed inflation and positive effect from commodity recovery. For ASII’s

auto business, we believe ASII is able to sustain overall 4W margins

despite the flood in cheap LCGCs due to higher ASP hike for the premium

cars. We also expect ASII would book 2W ASP growth several years

ahead due to the 2W market trend for larger exposure of premium scoot-

ers. We have a BUY for ASII with TP of IDR9,200. We also provide sever-

al small cap options worthwhile to consider for long-term investments

such as MPMX and NIPS given both have attractive earnings growth and

valuations are undemanding. MPMX is a business restructuring play via

enhanced cost efficiencies, business optimization and synergies. Whereas

NIPS is suitable for investors seeking for strong business growth.

Automotive Sector A Well-Balanced Growth Mix

Willinoy Sitorus

([email protected])

Sandro Sirait

([email protected])

Overweight

Ticker Price

Market cap

TP Ups. Call EPS growth

(%) P/E (x) EV/EBITDA (x) P/BV (x) ROAE (%)

(IDR) (IDR bn) (ID) (%) 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017

ASII 7,825 316,784 9,200 17.6 BUY 14.1 24.4 19.2 15.4 12.2 10.6 2.8 2.6 15.5 17.4

MPMX 810 3,615 950 17.3 BUY 8.1 20.8 11.7 9.7 7.6 6.6 0.6 0.6 6.5 7.4

NIPS 470 769 570 21.3 BUY 79.0 58.7 12.7 8.0 8.0 6.1 1.0 0.9 7.9 11.2


Figure 35. Domestic 4W sales volume and growth, 2013-18F

Source: Gaikindo, Trimegah research

1,230 1,2081,013 1,078

1,1861,286

10.2%

-1.8%

-16.1%

6.4%

10.0%8.5%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

0

500

1,000

1,500

2,000

2,500

2013 2014 2015 2016F 2017F 2018F

Domestic 4W sales volume

Domestic 4W sales volume growth (RHS)

('000 units)Expect 4W industry sales

volume to book 7.7%

CAGR from 2015 to 2018

Source: CEIC, Trimegah research

Figure 36. 2W penetration rate is a relatively

mature market as compared to 4W

Figure 37. 4W penetration rate is relatively

less mature market compared to 2W

Source: CEIC, Trimegah research

61.168.8

76.484.7

93.099.7

26%28%

31%34%

37%39%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015

Registered 2W 2W penetration rate (RHS)

(m units)

8.9 9.510.4

11.512.6

13.43.7%

3.9%4.3%

4.6%

5.0%5.3%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

0

2

4

6

8

10

12

14

16

18

20

2010 2011 2012 2013 2014 2015

Registered 4W 4W penetration rate (RHS)

(m units)

Figure 38. 4W and 2W YoY growth diver- Figure 39. 2W:4W sales volume ratio

9%

-7%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

4W domestic sales vol. growth

2W domestic sales vol. growth

6.4

6.1 6.1 6.0

7.1

6.4

6.6

5.7

6.5

6.9

6.7

5.65.5

5.3

5.6

5.9

6.2

6.5

6.8

7.1

2W:4W ratio

Source: AISI, Trimegah research Source: Gaikindo, Trimegah research


Figure 40. GDP growth and 4W/2W growth Figure 41. Inflation and 4W/2W growth

Source: Gaikindo, AISI, BPS Source: Gaikindo, AISI, BPS

4.5%

4.8%

5.0%

5.3%

5.5%

5.8%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Jun-13

Aug-13

Oct-

13

Dec-13

Feb-14

Apr-

14

Jun-14

Aug-14

Oct-

14

Dec-14

Feb-15

Apr-

15

Jun-15

Aug-15

Oct-

15

Dec-15

Feb-16

Apr-

16

Jun-16

4W growth 2W growth GDP growth (RHS)

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Jun-13

Aug-13

Oct-

13

Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Oct-

14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-

15

Dec-15

Feb-16

Apr-16

Jun-16

4W growth 2W growth Inflation, YoY (RHS)

Source: Gaikindo, Trimegah research

24,724

8,446

2,774

-23,330

25,067

-26,421

6,020

-22,797

5,061

-1,987

1,218

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

1Q142Q143Q144Q141Q152Q153Q154Q151Q162Q16 Jul' -Aug'

16

WS - RS

(units) Massive price

discounts

Price

discounts

Massive price

discounts

The 4W industry has

relative healthy in-

ventory level over the

past 3 quarters given

narrower gap be-

tween wholesales and

retail/dealer sales

level

Figure 42. Quarterly residual of wholesales to retail/dealer


Well positioned from the 4W industry’s growth mix

We see that ASII is poised to benefit from the 4W industry’s rise in LCGC

and rise in high-end/luxury cars (> IDR400m/unit). We believe ASII’s

LCGCs such as Toyota Calya/Daihatsu Sigra would be a backbone of

ASII’s 4W volume growth (LCGC contributes 23% of ASII’s 8M16 sales

volume) and ASII’s high-end/luxury cars such as Toyota Fortuner, Al-

phard and BMW (7% of 8M16 sales volume) would help reduce any over-

all value distortions on ASII’s top line and 4W margins. Over the past 3-

years, ASII’s largest threat has been Honda. Now, we do not expect this

market share war going on with Honda to linger given Honda’s current

limited production capacity (running >90% utilisation rate). Given indus-

try’s utilization improvements and a healthy economic expectations, we

do not expect any over pile 4W inventories at dealer level that would give

any severe price discounts in the next 2 years at least.

We expect ASII to reap good 2W returns despite mature industry

2015-18 2W industry sales may just book a mere ~3% CAGR sales, yet

we expect Astra’s dominancy in the 2W market to linger. Astra’s (Honda

brand) 2W market share rose from only 53% 5 years ago back in 2011 to

72% in 8M16 gradually eating Yamaha, Suzuki and Kawasaki’s market

share. In 2017-18, we expect ASII to maintain its market share in the

scooter segment at around ~78% level albeit higher price/unit sales mix

driven by the soon-to-be-launched completely knock-down (CKD) premi-

um scooter, PCX 150 (currently overpriced at ~IDR39m/unit but price is

expected to decline as soon as the CKD version is released to compete

with the popular Yamaha NMAX). Also we expect ASII’s rising market

share in the sports bike segment to continue knowing that the launch of

Honda CBR150R in 1H16 was well accepted in the market bringing ASII’s

sports bike market share to 45% in 1H16 vs 34% in 2015.

Maintain our earnings and TP

We like ASII due to its position as a bellwether to the market, beneficiary

of low interest rate environment, visible earnings recovery and is poised

to benefit from the long-term auto growth dynamics. We maintain our

current earnings and SOTP based TP of IDR9,200. ASII is currently trad-

ing at 15.4x 2017 P/E.

Astra International Well Positioned For Growth

BUY Rp9,200

Reuters Code MPPA.JK

Bloomberg Code MPPA.IJ



Average Daily Trading

Value

USD 9.3mn

52-Wk range Rp3,500 / Rp1,720

Jardine Cycle & Carriage Ltd 50.11%

Public 49.9%

Company Update

Stock Data

Major Shareholders

Stock Price Companies Data

Willinoy Sitorus

([email protected])

Astra International (ASII) is the top 5 JCI largest company by market cap. Through its subsidiaries, ASII operates in the automotive, heavy equipment, financial, plantation and infrastructure sector.

Share Price Rp7,825

Sector Automotive


Reuters Code ASII.JK

Bloomberg Code ASII.IJ

Issued Shares 40,484

Mkt Cap. (Rpbn) 316,784

Avg. Value Daily 6

Month (Rpbn)

289.6

52-Wk range 8875 / 5700

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue (IDRbn) 201,701 184,196 198,801 225,061 258,530

Net Profit (IDRbn) 19,191 14,464 16,500 20,530 23,660

EPS Growth (%) -1.2 -24.6 14.1 24.4 15.2

Core profit (IDRbn) 18,783 16,209 14,681 17,887 20,209

Core EPS Growth (%) 8.5 -13.7 -9.4 21.8 13.0

P/E (x) 16.5 21.9 19.2 15.4 13.4

P/BV (x) 3.3 3.1 2.8 2.6 2.3

Div. Yield (%) 2.8 3.0 2.2 2.6 3.2

EV/EBITDA 13.3 12.8 12.2 10.6 9.5

Consensus

Core EPS 16E 17E


TRIM vs. Cons. (%) 3.0% 8.5%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16

(Rpbn)Avg. 5 Day MA Trading Value (RHS)Series1


Income Statement (IDRbn) Balance Sheet (IDRbn)

Cash Flow (IDRbn)

Interim results

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 201,701 184,196 198,801 225,061 258,530

Revenue growth 4.0% -8.7% 7.9% 13.2% 14.9%

Gross Profit 38,809 36,710 37,053 43,276 48,697

Opr. Profit 20,163 17,212 16,845 20,018 22,678

EBITDA 27,588 28,107 28,480 32,460 35,727

EBITDA growth 11.8% 1.9% 1.3% 14.0% 10.1%

Net int. inc./(exp) 151 145 87 137 204

Gain/(loss) Forex -126 -291 -511 -13 -14

Assoc. earnings 6,245 4,467 4,356 5,543 5,946

Other inc./(exp.) 625 -1,903 2,829 3,386 4,396

Pre-tax profit 27,058 19,630 23,606 29,070 33,210

Pre-tax growth -1.7% -27.5% 20.3% 23.1% 14.2%

Tax 4,927 4,017 5,085 6,288 7,058

Minority Int. 2,940 1,149 2,021 2,253 2,492

Extra. items 0 0 0 0 0

Net profit 19,191 14,464 16,500 20,530 23,660

Net profit growth -1.2% -24.6% 14.1% 24.4% 15.2%

Year end Dec 2014 2015 2016F 2017F 2018F

Cash 20,902 27,102 13,493 17,060 22,500

Receivables - net 54,759 53,005 53,974 61,103 70,190

Inventory 16,986 18,337 16,849 18,936 21,858

Other curr asset 4,594 6,717 6,717 6,717 6,717

Current assets 97,241 105,161 91,032 103,817 121,264

Net fixed asset 61,336 58,545 56,810 55,268 50,120

Other non curr.

asset 77,450 81,729 83,385 90,135 98,214

Non-current as-

sets 138,786 140,274 140,194 145,403 148,334

Total asset 236,027 245,435 231,227 249,220 269,598

ST debt 37,421 36,202 10,000 10,000 10,000

Other curr. liab. 36,820 40,040 38,291 40,621 43,882

Current liabilities 74,241 76,242 48,291 50,621 53,882

LT debt 32,651 34,447 34,447 34,447 34,447

Other LT Liab 8,948 8,213 8,213 8,213 8,213

Non-curr. liabili-

ties 41,599 42,660 42,660 42,660 42,660

Total liabilities 115,840 118,902 90,951 93,281 96,542

Minority interest 24,693 24,490 28,820 32,038 35,555

Sh. equity 95,494 102,043 111,456 123,901 137,501

Total liab. & equity 236,027 245,435 231,227 249,220 269,598

Year end Dec 2014 2015 2016F 2017F 2018F

Net profit 19,191 14,464 16,500 20,530 23,660

Depr. / amort. 7,425 10,895 11,635 12,442 13,049

Chg in working cap -3,460 1,500 -1,230 -6,887 -8,747

Others -8,193 -569 652 -4,305 -5,487

CF operations 14,963 26,290 27,557 21,780 22,475

Capex -9,917 -8,104 -9,900 -10,900 -7,900

Others 353 563 -2,307 -2,446 -2,592

CF investing -9,564 -7,541 -12,207 -13,346 -10,492

Net change in debt 5,675 577 -26,202 0 0

Equity raised 17,697 0 0 0 0

Dividends -8,739 -9,404 -7,087 -8,085 -10,060

Others -18,678 -4,580 4,300 3,218 3,517

CF financing -4,045 -13,407 -

28,989 -4,867 -6,543

Net cash flow 1,354 5,342 -

13,639 3,568 5,439

Others 994 1,032 61 0 0

Cash at BoY 18,555 20,728 27,072 13,493 17,060

Cash at EoY 20,902 27,102 13,493 17,060 22,500

Year end Dec 2Q15 3Q15 4Q15 1Q16 2Q16

Sales 47,318 45,672 46,019 41,887 46,321

Gross Profit 9,357 9,345 9,447 7,973 8,874

Opr. Profit 4,953 5,260 5,827 3,855 4,619

Net profit 4,060 3,945 2,467 3,112 4,004

Gross Margins (%) 19.8% 20.5% 20.5% 19.0% 19.2%

Op. Margins (%) 10.5% 11.5% 12.7% 9.2% 10.0%

Net Margins (%) 8.6% 8.6% 5.4% 7.4% 8.6%

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 19.2 19.9 18.6 19.2 18.8

Opr Margin (%) 10.0 9.3 8.5 8.9 8.8

EBITDA Margin (%) 13.7 15.3 14.3 14.4 13.8

Net Margin (%) 9.5 7.9 8.3 9.1 9.2

ROAE (%) 21.4 14.6 15.5 17.4 18.1

ROAA (%) 8.5 6.0 6.9 8.5 9.1

Stability

Current ratio (x) 1.3 1.4 1.9 2.1 2.3

Net Debt to Equity

(x) 0.5 0.4 0.3 0.2 0.2

Net Debt to EBITDA

(x) 1.8 1.5 1.1 0.8 0.6

Interest Coverage

(x) 14.7 12.6 12.0 15.0 17.3

Efficiency

Receivables (days) 37 39 36 36 36

Inventory (days) 35 44 40 36 35

A/P (days) 40 49 44 40 40

Key Ratio Analysis

Capital History

Date

4-Apr-90 IPO price @ IDR14,850

16-Dec-93 1:5 rights @ IDR13,850

5-Jun-12 1:10 stock split


Auto battery spin off should provide better focus

Back in Jun’ 16, NIPS did a spin-off for its auto-battery under the name,

PT. Nipress Energi Otomotif as a separate division from its industrial

battery. This would allow higher-focus (both auto & industrial batteries

have different business structure model) as to maximize battery produc-

tion capacity which is currently running at ~40% utilization rate. The spin

-off is NIPS’ fresh start in boosting long-term market share to 40% in the

auto industry from current 18%. Note GS Yuasa (competitor) currently

holds 70% market share. With its collaboration with Johnson Control

(world’s largest battery producer with 33% market share), NIPS is confi-

dent that its NS maintenance-free battery product (launched in 3Q15)

would become a success as it is the only auto-battery product providing

18 months guarantee with accessible guarantee claims across Indonesia.

Light capex post-industrial battery capacity expansion

Due to sluggish industrial battery demand (1H16 industrial battery sales

volume only reached 64.9k units, down 41.9% YoY), NIPS decides to

temporarily halt its new additional 344k industrial battery plant opera-

tions (the plant is already completed and just need a bit of light capex to

kick-start). We expect the new industrial battery plant to start operating

by 4Q16 before seeing strong 2017 revenue growth from this segment in

2017 and higher margins (industrial battery have ~3%-5% higher gross

margin compared to auto battery). We expect NIPS 2016-18 capex to be

light after NIPS’ hefty ~IDR400bn capex over the past 2 years (2014-

15). Hence, we expect a strengthening balance sheet as net debt equity

would drop from 1.0x in 2015 to 0.52x in 2017.

BUY with TP of IDR570

We use a DCF-based TP with 11.6% WACC and 2% terminal growth rate.

NIPS is currently trading at 7.8x/6.3x 2017-18 P/E. Key earnings growth

for 2017 (+58.7% YoY) is the increase in industrial battery sales which

have higher margin mix.

Nipress Valuably Cheap

BUY Rp570






Value

USD 9.3mn

52-Wk range Rp3,500 / Rp1,720

PT Trinitan International 26.43%

PT RDPT Nikko Indonesia 16.82%

PT. Tritan Adhitama Nugraha 16.34%

Ferry Joedianto R. Tandiono 5.33%

Public 35.1%

Company Update

Stock Data

Major Shareholders

Stock Price

Companies Data

Willinoy Sitorus

([email protected])

Nipress manufactures auto (4W and 2W) and industrial batteries. The company distributes its product domestically and internationally, indcluding Europe, Asia, Middle East, Africa, and South America.

Share Price Rp470

Sector Automotive


Reuters Code NIPS.JK

Bloomberg Code NIPS.IJ

Issued Shares 1,635

Mkt Cap. (Rpbn) 769

Avg. Value Daily 6

Month (Rpbn)

0.0

52-Wk range 610 / 380

Year end Dec 2014 2015 2016F 2017F 2018F

Sales (Rpbn) 1,016 988 1,251 1,516 1,759 Net Profit (Rpbn) 50 31 60 96 120 Core Profit (Rpbn) 69 69 70 127 160 EPS (Rp) 33 21 37 59 73 Core EPS (Rp) 47 46 43 78 98 EPS Growth (28.9) (38.3) 79.0 58.7 25.3

BVPS (Rp) 392 410 465 522 589 P/E (x) 14.0 22.8 12.7 8.0 6.4 Core P/E (x) 10.1 10.2 10.9 6.0 4.8 P/BV (x) 1.2 1.1 1.0 0.9 0.8 EV/ EBITDA (x) 7.7 11.4 8.0 6.1 5.1

Consensus

Core EPS 16E 17E

Consensus (Rp) na na

TRIM vs. Cons. (%) na na

0.0

0.1

0.1

0.2

0.2

0.3

0.3

0.4

0.4

0.5

0

100

200

300

400

500

600

700





Cash Flow (IDRbn)

Interim results

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 1,016 988 1,251 1,516 1,759

% growth 11.5 (2.8) 26.6 21.2 16.0

Gross Profit 181 183 207 274 318

Opr Profit 105 85 130 168 195

EBITDA 128 112 159 199 227

% growth 38.2 (12.5) 41.2 25.6 14.1

Int inc/(exp) -37 -43 -49 -40 -35

Other inc/(exp) -37 -43 -49 -40 -35

Pre-tax Profit 67 42 81 128 160

Tax -18 -11 -20 -32 -40

Minority Int. 0 0 0 0 0

Extra. Items 0 0 0 0 0

Net Profit 50 31 60 96 120

% growth 46.9 (38.3) 96.9 58.7 25.3

Year end Dec 2014 2015 2016F 2017F 2018F

Cash and Deposits 33 40 28 19 7

Other Curr. Assets 638 661 698 873 1,013

Net Fixed Assets 530 836 842 849 850

Other Assets 5 10 10 10 10

Total Assets 1,207 1,548 1,579 1,752 1,880

ST Debt 299 429 390 351 316

Other Current Liab 220 241 140 223 219

LT Debt 17 194 144 114 84

Other LT Liabs 70 61 61 61 61

Minority Interest 0 0 1 1 1

Total Liabilities 625 939 749 763 694

SH. Equity 582 609 760 853 963

Net Debt/(cash) 283 583 506 446 393

Net Working Capital 152 32 196 318 485

Year end Dec 2014 2015 2016F 2017F 2018F

EBIT 105 85 130 168 195

Depr/Amort 23 28 29 31 32

Chg in Working

Capital 52 -2 -137 -92 -144

Others -198 -248 0 0 0

CF's from oprs -18 -138 21 107 83

Capex -185 -256 -35 -50 -40

Others 0 203 0 0 0

CF's from investing -185 -53 -35 -50 -40

Net change in debt -144 307 -89 -69 -65

Others 366 -101 91 3 10

CF's from financing 222 206 2 -66 -56

Net cash flow 19 14 -12 -9 -12

Cash at BoY 7 33 40 28 19

Cash at EoY 33 40 28 19 7

2Q15 3Q15 4Q15 1Q16 2Q16

Sales 217 259 241 280 231

Gross Profit 36 48 51 48 37

Operating Profit 22 30 26 30 22

Net Profit 7 -26 35 20 8

Gross Mar. (%) 16.5 18.7 21.3 17.0 15.8

Opr Margins (%) 10.1 11.7 10.9 10.7 9.7

Net Margins (%) 3.3 (9.9) 14.4 7.1 3.6

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margins (%) 17.8 18.5 16.6 18.1 18.1

Op Margins (%) 10.3 8.6 10.4 11.1 11.1

EBITDA Margins (%) 12.6 11.4 12.7 13.1 12.9

Net Margins (%) 4.9 3.1 4.8 6.3 6.8

ROE (%) 8.5 5.0 7.9 11.2 12.5

ROA (%) 4.1 2.0 3.8 5.5 6.4

Stability

Current ratio (x) 1.3 1.0 1.4 1.6 1.9

Net Debt/Equity (x) 0.49 0.96 0.67 0.52 0.41

Int Coverage (x) 2.8 2.0 2.6 4.2 5.6

Efficiency

A/P days 92 106 46 63 54

A/R days 116 118 100 107 108

Inventory days 98 112 90 95 97

Key Ratio Analysis

Capital History

Date

Jul’ 91 IPO @ IDR5,000

Jan’ 14 Rights issue @ IDR300


Low hanging-fruit business synergies

We expect MPMX would cross-sell its auto financing business to its 2W

distribution customers in East Java (market share of more than 75%

there). It is worth noting that its 2W distribution only use ~1% of MPM

Finance for customers purchasing 2Ws via installments. With Synergy

with an online transportation company, MPM Rental segment would be

able to fully utilize idle cars in the pool ensuring maximum 4W asset

deployment.

Unlock value from divestment of its financing business

Should MPM Finance is being divested (most probably in 1H17), this

would de-leverage MPMX consolidated balance sheet position to be below

1x and would also reduce the cost of funds for MPMX’s other business

segments.

Numerous cost efficiency attempts

Since the beginning of this year, MPMX has been implementing an auto-

matic write-off for its financing business shown from increasing provision

expense (+40% YoY in 1H16). The system ensures that YTD2016 new

financing loans of IDR2.8trn (out of total IDR4.8trn loan outstanding) is

healthy and would gradually reduce provision expenses going forward.

Furthermore, MPMX new blending factory (expected to commence in

2H17) would reduce dependency on MPMX’s expensive blending out-

source facilities going forward. Lastly, MPMX plans to have its own 2W

warehouse to reduce any major rental expenses. The new warehouse is

expected to be completed by 2Q17.

BUY with TP of IDR950

In calculating our SOP based TP, we use DCF-based approach for MPMX's

non-financing segments (auto distribution, oil lubricant, car rental, insur-

ance) and use 0.39x 2017 P/BV target for MPM Finance (53% discount to

peers' 1-year trailing P/BV). MPMX is currently trading at 9.6x/8.0x 2016-

2017 P/E with 2016 P/BV of only 0.5x, undemanding in our view.

Mitra Pinasthika Mustika Upside From Business Restructuring

BUY Rp950






Value

USD 9.3mn

52-Wk range Rp3,500 / Rp1,720

PT Saratoga Investama Sedaya 34.2%

Morning light Investment 15.3%

Nugraha Eka Kencana 14.4%

Claris Investments 6.8%

Public 29.3%

Company Update

Stock Data

Major Shareholders

Stock Price

Companies Data

Sandro H. Sirait

([email protected])

Mitra Pinasthika Mustika is an automotive-related company catering to the 4W/2W distribution segment, auto components (lubricant oil), 4W rental and financing related business.

Share Price Rp815

Sector Automotive

Price Target Rp950 (+17%)

Reuters Code MPMX.JK

Bloomberg Code MPMX.IJ

Issued Shares 4,463


Avg. Value Daily 6

Month (Rpbn)

0.9

52-Wk range 810 / 378

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue (IDRbn) 16,076 16,640 17,179 18,235 19,373

Net profit (IDRbn) 487 285 308 372 455

EPS (IDR) 109 64 69 83 102

EPS growth (%) -7.5 -41.5 8.1 20.8 22.2

P/E (x) 7.4 12.7 11.7 9.7 8.0

P/B (x) 0.7 0.7 0.6 0.6 0.6

EV/EBITDA (x) 7.2 8.1 7.6 6.6 5.9

Div. yield (%) 0.0 0.0 0.8 0.9 1.0

Consensus

Core EPS 15E 16E

Consensus (Rp) na na

TRIM vs Cons. (%) - -

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0

100

200

300

400

500

600

700

800

900





Cash Flow (IDRbn)

Interim results

Key Ratio Analysis

Capital History

Date

29-May-13 IPO @ 1,500

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 16,076 16,640 17,179 18,235 19,373

Gross profit 2,314 2,299 2,465 2,695 2,914

Opr. profit 868 713 723 825 962

EBITDA 1,275 1,138 1,194 1,312 1,430

Growth (%) 3.3% -10.8% 5.0% 9.9% 9.0%

Net int. inc/(Exp) (174) (216) (181) (169) (161)

Share in NI of associ-

ates 5 4 4 5 5

Pre-tax profit 699 501 546 660 806

Tax 186 194 211 255 311

Minority int. 26 23 27 33 40


Reported net profit 487 285 308 372 455

Growth (%) -7.5% -41.5% 8.1% 20.8% 22.2%

Year end Dec 2014 2015 2016F 2017F 2018F

Cash and equivalents 1,422 1,484 1,702 2,133 2,427

Other current asset 4,779 4,971 5,518 5,382 5,567

Net fixed asset 3,214 3,351 3,519 3,553 3,606

Other non-curr. asset 4,535 4,675 4,190 4,241 4,300

Total asset 13,950 14,480 14,929 15,308 15,900

ST debt 2,769 2,329 2,377 2,433 2,433

Other curr liab 1,438 1,720 1,762 1,683 1,782

LT debt 4,271 4,825 4,852 4,852 4,852

Other LT liab 212 266 273 280 287


Minority interest 722 749 795 850 918

Shareholders equity 4,539 4,591 4,871 5,212 5,629


Year end Dec 2014 2015 2016F 2017F 2018F

Net profit 487 285 308 372 455

Depr / Amort 156 166 273 290 270

Chg in work. cap (474) 48 (216) (230) (67)

Others (559) 397 (290) 286 (19)

CF from op. (390) 896 76 719 639

Capex (727) (303) (441) (324) (324)

Others (276) (262) 485 (51) (59)

CF from investing (1,003) (565) 44 (375) (383)

Net change in debt 1,454 100 75 55 0

Changes in capital 0 0 0 0 0

Others 258 (369) 23 32 38

CF from financing 1,712 (269) 98 87 38

Others 0 0 0 0 0

Net cash flow 319 62 218 431 294

Cash at BoY 1,103 1,422 1,484 1,702 2,133

Cash at EoY 1,422 1,484 1,702 2,133 2,427

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross margin 14.4% 13.8% 14.4% 14.8% 15.0%

Op. margin 5.4% 4.3% 4.2% 4.5% 5.0%

EBITDA margin 7.9% 6.8% 7.0% 7.2% 7.4%

Net margin 3.0% 1.7% 1.8% 2.0% 2.3%

ROAE 11.2% 6.2% 6.5% 7.4% 8.4%

ROAA 3.9% 2.0% 2.1% 2.5% 2.9%

Stability

Current ratio (x) 1.5 1.6 1.7 1.8 1.9

Net debt/equity (x) 1.1 1.1 1.0 0.8 0.7

Net debt/EBITDA (x) 4.4 4.9 4.6 3.9 3.4

Interest coverage (x) 3.1 2.2 2.8 3.2 3.6

Efficiency

A/R turnover (days) 16 20 20 20 20

Inv. turnover (days) 14 18 21 23 23

A/P turnover (days) 21 25 27 24 22


Revenue 4,280 4,008 4,451 4,143 4,739

Gross Profit 597 556 575 601 664

Opr. Profit 213 223 70 167 235

Net profit 117 104 (51) 72 108

Gross Margins (%) 14.0% 13.9% 12.9% 14.5% 14.0%

Opr. Margins (%) 5.0% 5.6% 1.6% 4.0% 5.0%

Net Margins (%) 2.7% 2.6% -1.2% 1.7% 2.3%


Consumer Sector


Consumer Sector Shop ‘til you drop!

Companies Data

Higher confidence on consumer purchasing power next year

We believe consumer purchasing power should continue to improve

gradually next year which is in line with the improvement on overall

economic conditions (benign inflation, higher GDP growth, post tax

amnesty, and rising commodity prices). However, we are cautious to-

ward electricity subsidy removal and volatility in exchange rate that

might disrupt overall consumer spending. Despite the mixed signals, we

view some consumer companies still able to outperform their competi-

tors through innovation and better operations.

Trimegah’s proprietary survey: more aggressive spending out-

look post–tax amnesty

Key highlights: 1) More aggressive spending next year (see page 63)

particularly on the intention to purchase property/do renovation as well

on travelling, 2) Majority of the respondents prefer to purchase using

credit card than cash, 3) Disposable incomes will be used for the pur-

chase of groceries, travelling, and fashion apparels, 4) Majority of the

respondents still prefer shopping in specialty stores, followed by depart-

ment stores and online retailers. Additional highlights: Out of our top 10

most preferred fashion brands, 5 are operated under MAPI with Zara

topping the survey.

Our top picks…

We are being more constructive towards discretionary stocks vs. sta-

ples—but, advise investors to look more through bottom-up approach

rather than top-bottom. We like companies that offer to do things better

going forward, and thus have 1) higher sales growth, 2) margin expan-

sion, and 3) undemanding valuation. Hence, our top 3 picks are MAPI

(Buy, TP IDR7,200), RALS (Buy, TP IDR1,900), and GGRM (Buy,

TP IDR82,000). MAPI and RALS both offer transformational strategy

that enables them to boost sales growth going forward coupled with

expanding margin from better inventory turnover and merchandise mix.

GGRM will have a stronger earnings growth in the coming years, in our

view, as they still have room for more upside in price increase—not to

mention their undemanding valuation.

Christy Halim

([email protected])

Kevie Aditya

([email protected])

Patricia Gabriela

([email protected])

Overweight

TICKER

Price

(IDR) Mkt. Cap

TP Ups.

Rec. EPS Growth(%) EV/EBITDA (x) Div. yield (%) PE (x)

28-Nov (IDR bn) (%) 2016 2017 2016 2017 2016 2017 2016 2017 Staples

INDF 7,325 64,317 9,200 25.6 Buy 34.9 19.1 17.5 14.7 6.7 6.6 2.3 3.2

ICBP 8,350 97,377 9,200 10.2 Neutral 24.0 10.3 25.9 23.5 16.6 14.8 1.5 1.9

GGRM 62,775 120,785 82,000 30.6 Buy 3.4 19.0 18.2 15.3 11.6 10.0 4.1 3.9

HMSP 3,870 450,151 4,300 11.1 Buy 17.8 10.1 36.9 33.5 27.5 24.9 2.3 2.7

KLBF 1,400 65,625 1,800 28.6 Buy 14.2 18.8 28.4 23.9 18.7 15.7 1.5 1.8

ROTI 1,455 7,365 1,900 30.6 Buy -1.6 21.6 27.4 22.5 12.7 10.1 0.7 0.9

AISA 1,870 6,019 2,300 23.0 Buy 62.6 25.5 11.6 9.3 6.1 5.4 0.9 1.1

UNVR 40,100 305,963 44,000 9.7 Neutral 11.7 15.3 46.8 40.6 32.5 28.3 2.1 2.5

Retail

RALS 1,145 8,125 1,900 65.9 Buy 35.8 21.7 18.6 15.3 12.3 10.0 2.6 3.4

MAPI 4,870 8,084 7,200 47.8 Buy 468.9 122.5 41.1 18.5 7.6 6.2 0.1 0.3

LPPF 14,250 41,580 20,000 40.4 Buy 17.1 15.5 20.0 17.3 13.9 11.9 3.0 3.5

ERAA 605 1,755 800 32.2 Buy 8.9 17.5 7.1 6.1 7.2 6.3 3.3 4.2

ACES 845 14,492 950 12.4 Buy 10.8 14.3 24.9 21.8 17.2 14.9 2.0 2.5

MPPA 1,700 9,143 1,500 (11.8) Sell -57.7 241.6 111.5 32.6 18.2 11.3 1.9 1.8

Healthcare

MIKA 2,580 37,227 3,000 16.3 Buy 23.9 10.7 53.5 48.3 41.3 36.4 1.0 1.2

SILO 10,400 13,531 10,800 3.8 Neutral 51.2 54.4 112.9 73.1 20.5 16.2 0.1 0.1


Our story next year...

We are optimistic that consumer purchasing power continue to improve gradually next year—in line with the im-

proving on overall economic conditions. Some factors that we believe will drive consumer purchasing power:

1) Benign inflation.

Our macro economist predicts that inflation will increase slightly to 4.0% in 2017F (vs 3.5% in 2016F). The

increase is still in moderate level, in our view, as the value is still lower than 10-years average at 6.1%.

2) Improvement on real GDP growth.

3Q16 real GDP growth came in at 5.0% YoY, slightly below consensus of 5.1%. While private consumption

growth is reported slightly lower to 5.0% in 3Q16 from 5.1% in 2Q16 on the back of shifting post Lebaran

period, we continue to think private consumption will be the main growth factor to GDP growth on the back

of stable inflation and interest rate. We expect GDP growth to remain at 5.1% in 2017F (pretty much similar

to this year).

3) Post tax amnesty effect.

We view that consumers will have more confident in spending their money post tax amnesty, as they have

less concern on their expenses. Our discussions with Nielsen suggested that prior to tax amnesty, wholesal-

ers/retailers prefer not to stock up excessive inventory to prevent tax officers scrutiny. Post tax amnesty,

however, we expect wholesalers/retailers to have higher confidence on inventory stock up, that would trans-

late to higher sales volume next year.

4) Rising commodity prices.

The recent rise in coal price is expected to significantly boost overall consumption on coal areas, particularly

in Kalimantan and South Sumatera, in our view. Purchasing power has been low in those particular areas in

the past few years and is reflected in retailers’ negative SSSG. However, lately we have been seeing improve-

ments in retailers’ SSSG in those particular areas which are expected to continue to next year—as we expect

small miners to resume their production next year. At the same time, the resilient palm oil and rubber prices

will also support rural household purchasing power.

All of the above factors, we believe, will promote a better story for consumer by next year. Not only staples, we

view that discretionary items will as well benefited on the back of better purchasing power. That being said, com-

panies will have more confidence in adjusting its prices without significantly affecting volumes.

Retailers: Inventory trending down = margin expansion on hand!

Due to bad consumer purchasing power last year, many retailers are stuck with inventory problems—which re-

sulted in massive discounts from the end of last year. This year, as we see inventory stabilizing to retailers’ opti-

mum level, we expect margin to further expand.

Figure 43. Inventory turnover days

143

159

134

128

137135

124

120

125

130

135

140

145

150

155

160

40

60

80

100

120

140

160

180

200

220

240

3M15 6M15 9M15 FY15 3M16 6M16 9M16

Average RALS ACES LPPF MAPI MPPA

Source: TRIM Research


Trimegah’s proprietary survey: expect an increase in purchasing power next year

We did a survey on consumer’s purchasing power and managed to collect 100 respondents across different areas

including Jakarta, Tangerang, Medan, Surabaya etc. to get a better sense of consumer’s purchasing power.

Some interesting results that we found throughout our survey: 1) Most of our respondents plan to be more ag-

gressive in terms of their spending next year particularly on the intention to purchase property/do renovation as

well on travelling, 2) Majority of the respondents (52% of respondents) are less worried of their credit card bill-

ing as they prefer to purchase using credit card than cash, 3) When they have some extra money, the top three

shopping priority includes groceries (19%), travelling (19%), and fashion apparels (18%), 4) Specialty stores is

still preferred the most by our respondents as a place to shop their fashion apparels.

Figure 44. Survey: Our respondents’ spending pattern


-

20

40

60

80

100

Buy a

property/do

renovation

Purchase

new/used

vehicle

Purchase

life/health

insurance

Travelling

(overseas)

Purchase new

gadget

Purchase

luxury items

Past 12 months Next 12 months

It is also interesting to note that despite the boom of e-commerce shopping, it is only ranked third (24% of re-

spondents) in terms of shopping location preference—lagging behind specialty stores (34%) and department

stores (27%). This is in-line with what we’ve found on the ground, wherein companies with both online and of-

fline stores mentioned that sales through their e-commerce platforms are still relatively very small. Hence, we

believe fashion retailers like MAPI, LPPF, and RALS will still do well in the near future.

We also see that among the fashion apparels brands, Zara (operated under MAPI IJ) still topped the survey with

31% votes—double the percentage for its closest competitors H&M (16%) and Uniqlo (14%).


Figure 7. Age range of respondents Figure 45. Survey: Shopping priority

19%

18%

15%

13%

3%

13%

19%

Groceries

Fashion

Smartphones

Electronics

Cigs

Vitamins

Travelling

Figure 46. Survey: Most favored apparel

brands


4%

18%

9%

4%

3%

4%4%4%

16%

35%

Forever21

H&M

M&S

Mango

Massimo Dutti

Nike

Pull n Bear

The Executive


Some cost pressure are on the board, but minor impact

Despite of the optimism that remains on the overall consumer purchasing power, we noted some cost pressure

that might affect both companies and consumers. These cost pressure include: 1) The recently announced na-

tional minimum wage (UMR) for next year which, on average, lower than last year’s, 2) The likelihood of electrici-

ty subsidy removal, and 3) Soft commodity prices that started to crawling up.

1) Minimal increase in minimum wage (UMR) next year

Company: The minimal increase of 9.1% on minimum wage will impact salaries and wages expenses on

consumer companies, in a positive way as the increase is lower than last year’s at 11.1%. We see retailers

will be positively impacted the most as huge portion of their salaries and wages expenses are linked to mini-

mum wage.

Consumer: The minimal increase of minimum wage indeed raises concern on the buying power of middle-

lower income customers—and in turn, its effect towards retailers targeting those segment. However, we

note that the rising minimum wage is still 5.1% above the expected inflation, thus we remain opti-

mistic on consumer’s purchasing power next year. Please be reminded that there is also a rise in non-taxable

income, which is positive for middle-lower income customers.

2) Electricity subsidy removal

The government is planning to remove electricity subsidy on households with 900VA, in which around

18.7mn households will be affected by this. We view that this could become one of the risks that can hamper

growth prospects of companies. Note that the removal of this subsidy will cost the household additional of

IDR92,600/month for electricity expenses (from previous billing of IDR75,000/month based on average con-

sumption of 124kWh/month). From the consumer point of view, such significant increase in the amount of

electricity bill that needs to be paid will eventually affect the overall consumer spending power, yet we are

expecting some of it can be offset through the increase in minimum wage.

3) Recovery of soft commodity prices

In addition, we see that some of the soft commodity prices have started crawling up. While this might not

significantly impacting retailers and healthcare companies, we believe consumer staples companies are im-

pacting the most. Even though CPO, sugar, and skim milk prices has started to rise, we have not seen the

impact in 3Q16 yet due to inventories. We view that it will start impacting from 4Q16 onwards which then will

translate into higher costs and could affect overall margins. While this might not be affecting much to the big

consumer names with strong pricing power, the smaller ones though will be more impacted since they need

to bear some of these cost by themselves. At the same time, higher product costs will affect overall consum-

er buying power.

4) Volatility of exchange rate

As some of the consumer companies under our coverage have high exposure towards exchange rate, we be-

lieve a volatility on exchange rate post Trump effect will definitely disrupt their profitability. Though some of

these companies are able to pass on their USD cost, but the question remains: will they be able to pass

100% of their increased cost without affecting consumer demand.


Our top picks...

We believe consumer’s purchasing power will remain strong across all consumer segments, thus being more con-

structive towards discretionary stocks vs. staples—although not ignoring selected names in staples universe that

deserve re-rating, eg; GGRM. Why discretionary? We are expecting larger room for sales growth and margin ex-

pansion to take place within the discretionary names (thanks to normalized inventory level, see page 62), not to

mention that the latter has been lagging behind the staples names throughout the last few years—thus the unde-

manding valuation.

Nevertheless, we advise investors to look more through bottom-up approach rather than top-bottom—in simple

words, the companies that do things better going forward than they are in the few years back. We also apply the

following categories to choose our top picks: 1) Higher sales growth, 2) Further margin expansion, and 3)

Undemanding valuation, with >30% upside to our TP.

MAPI (BUY, TP IDR7,200, 50% ups.)

Two of MAPI’s main growth engine for next year: 1) Rapid expansion of its F&B division (esp. Starbucks) and 2)

Expansion of Inditex brands (eg; Zara) to Vietnam, in which we expect at least IDR1bn sales per day with only 1

store opened, 3-4x more than Zara Indonesia’ sales. Besides, we also see margin improvements on the back of

1) Inventory getting back to optimum level of ~160 days, means less discounting and 2) Disposal of non-

performing brands (eg; Burger King, Domino’s Pizza), and 3) Lowered interest expenses from deals with CVC and

GA.

RALS (BUY, TP IDR1,900, 58% ups.)

We see that RALS’ transformation has successfully bring fresh air to the company, shown by the positive data

points this year – we expect 5.0% SSSG until the end of this year (after a series of negative SSSG last year) and

the rise of Direct Purchase products (which provide better margins). We expect the trend to continue next year,

coupled with rising coal price which gives the largest benefit for RALS among all retailers—note that 1) RALS’

outer Java SSSG is strongly related to commodity prices, and 2) Outer Java area contributed 39.1% to RALS’

total sales in 10M16!

GGRM (BUY, TP IDR82,000, 30% ups.)

We view that GGRM deserves a re-rating as it offers: 1) a healthier FCF coupled with a toned down capex going

forward, 2) a stronger earnings growth in 2017-18F as GGRM still have room for more upside in price increase

(company has been conservative in increasing its price this year), and 3) a really attractive valuation which

should not be ignored. GGRM currently trades at 15x 2017F PE and offers 19/20% earnings growth in 2017/18F

(vs HMSP at 33x 2017F PE with 10/15% earnings growth).


Indofood Sukses Makmur Opportunity to participate in the growing ICBP

Indofood is a well-established company

and a leading player in each business

category in which it operates from pro-

duction of raw materials to consumer

products in the market.

Share Price Rp7,325

Sector Consumer

Price Target Rp9,200(+26%)

BUY Rp9,200

Reuters Code INDF.JK

Bloomberg Code INDF.IJ

Issued Shares 8,780


Avg. Value Daily 6 Month (Rpbn)

84.1

52-Wk range 9200 / 4840

CAB Holdings Ltd, Seychelles 50.1%

Anthoni Salim 0.02%

Public 49.9%

EPS 16F 17F


TRIM vs Cons. (%) 1.8% -2.4%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Christy Halim

([email protected])

9M16 results: above expectations on forex gain!

In 9M16, INDF reported 5% higher revenue YoY to Rp49.9tn—in line

with our estimates at 75% (below consensus at 71%), while net profit jumped 93% YoY to Rp3.2tn— above ours and consensus estimates at

83% and 82%, respectively. The significant increase on net profit is mainly on the back of the occurrence of forex gain in 9M16. Note that INDF experienced forex loss of Rp 1.8tn in 9M15.

CBP performance to remain strong going forward…

We expect its listed subsidiary, ICBP, to continue delivering strong per-formance with higher growth coming from its each division, particularly dairy, snack foods, and beverages. Despite of minimal noodles’ volume growth due to its high penetration, noodles will continue to become ICBP’s backbone. Higher contribution from ICBP will provide margin improvement to INDF. We revised up volume growth of dairy division to

15% (from 11%), reflecting its strong volume growth YTD.

Maintain Bogasari’s EBIT margin this year

We expect Bogasari to continue deliver soft performance in 4Q16 on lower ASP with minimal volume growth. In 9M16, ASP was 2% lower while volume grew 4% YoY. We lowered our ASP assumption by 2% this year as we expect ASP to remain stable until the end of the year. How-

ever, with the lower wheat prices and Bogasari being the market leader, we maintain EBIT margin for Bogasari at 8% in 2016E.

Agribusiness remain a challenge in 4Q16

We view its agribusiness division continue to remain a challenge in 4Q16 on the back of lower-than-expected production volume. We revised

down our CPO production estimates to –20% in 2016E (from previously –10%) - in line with the company’s guidance. At the same time, we adjusted upwards our ASP assumption for CPO by ~18% in 2016E and 23% in 2017E as we increased our CPO price assumption to RM2,600 in 2016E and RM2,700 in 2017F. Nevertheless, we remain optimistic for its performance in 2017F supported by production recovery and higher CPO price.

Reiterate BUY with TP Rp9,200

We tweaked our estimates to be in line with the 9M16 financial results as well as the changed in company’s guidance, resulting in 3.9% earn-ings upgrade in 2016E and 5.3% in 2017F. We also rollover our valua-

tion to 2017F EPS and lowered EV/EBITDA multiple for ICBP, thus we obtain our new TP of Rp9,200 (from Rp10,300), implying 18.5x FY17F

P/E with 15% estimated earnings growth over the next two years. Cur-rently, INDF trades at 14.7x 2017E P/E. Maintain BUY!

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 63,594 64,062 66,873 71,527 77,290

Core net profit 3,861 2,724 3,675 4,378 4,878

Core EPS (Rp) 440 310 419 499 556

Core EPS Growth 54.3% -29.4% 34.9% 19.1% 11.4%

DPS (Rp) 147 201 169 232 249

BVPS (Rp) 2,859 3,106 3,401 3,667 3,974

P/E (x) 16.7 23.6 17.5 14.7 13.2

Div Yield (%) 1.7% 2.4% 2.0% 2.7% 2.9%

Companies Data


Income Statement (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 63,594 64,062 66,873 71,527 77,290

Revenue growth (%) 14.3% 0.7% 4.4% 7.0% 8.1%

Gross profit 17,129 17,258 19,224 20,716 22,477

Opr profit 7,320 7,363 8,494 9,270 10,130

EBITDA 9,787 9,811 11,433 11,718 13,857

EBITDA growth (%) 19.5% 0.2% 16.5% 2.5% 18.3%

Net income/exp -860 -2,067 -1,368 -1,450 -1,398

Gain/ (loss) forex 80 244 0 0 0

Other income/(exp) 135 -92 567 569 571

Pre-tax profit 6,340 4,962 7,188 7,882 8,794

Tax -1,856 -1,730 -2,038 -2,326 -2,601

Minority interest -1,288 -742 -1,074 -1,178 -1,314

Extra items 0 0 0 0 0

Reported net profit 3,942 2,968 4,076 4,378 4,878

Core net profit 3,861 2,724 3,675 4,378 4,878

Growth (%) 54.2% -29.4% 34.9% 19.1% 11.4%

Dividend per share 147 201 169 232 249

Growth (%) -43.1% 36.1% -15.7% 37.3% 7.4%

Dividend payout ratio 52% 45% 50% 50% 50%

Balance Sheet (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F


Other curr asset 26,857 29,741 16,314 17,176 18,475

Net fixed asset 21,982 25,096 27,524 28,288 28,794

Other asset 23,081 23,876 34,650 37,017 39,471

Total asset 86,077 91,832 88,793 92,577 98,924

ST debt 5,070 5,972 5,972 5,972 5,972

Other curr liab 17,589 19,136 13,165 12,920 14,570

LT debt 16,838 16,894 16,894 16,894 16,894

Other LT Liab 6,306 6,708 5,974 6,486 7,180



Shareholders Equity 25,104 27,269 29,862 32,201 34,891

Net debt / (cash) (12,739) (14,471) (17,243) (17,452) (15,363)

Total cap employed 63,418 66,724 69,656 73,686 78,383

Net Working capital 9,268 10,605 3,149 9,268 9,268

Debt 26,896 27,547 27,547 27,547 27,547

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F


Depr/Amort 1,324 1,790 1,678 1,936 2,194

Chg in non-cash working 1,687 (909) (907) (1,101) 160

Others (1,062) (4,030) (4,418) (4,892) (5,252)

CF's from operations 9,269 4,214 4,848 5,212 7,232

Capex (1,792) (5,397) (5,453) (4,183) (4,331)

Others (8,371) (269) 265 (626) (577)

CF's from investing (10,163

)

(5,666) (5,188) (4,809) (4,908)

Net change in debt (1,669) (1,259) (1,484) (2,038) (2,189)

Others 3,072 1,119 (1,061) 1,312 1,840

CF's from financing 1,403 (141) (2,545) (727) (349)

Net cash flow 509 (1,593) (2,885) (323) 1,975

Cash at BoY 13,519 14,040 13,076 10,305 10,096

Cash at EoY 14,158 13,076 10,305 10,096 12,184

Free Cash Flow (893) (1,452) (340) 403 2,324

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 26.9% 26.9% 28.7% 29.0% 29.1%

Opr Margin (%) 11.5% 11.5% 11.5% 11.5% 11.5%

EBITDA Margin (%) 15.4% 15.3% 17.1% 16.4% 17.9%

Core Net Margin (%) 6.1% 4.3% 5.5% 6.1% 6.3%

ROAE (%) 16.5% 11.3% 14.3% 14.1% 14.5%

ROAA (%) 4.8% 3.3% 4.5% 4.8% 5.1%

Stability

Current ratio (x) 1.8 1.7 1.4 1.4 1.5

Net Debt to Equity (x) 0.5 0.5 0.6 0.5 0.4

Net Debt to EBITDA (x) 1.3 1.5 1.5 1.5 1.1

Interest Coverage (x) 4.7 2.8 4.2 4.6 5.0

Efficiency

A/P (days) 39 39 38 39 39

A/R (days) 27 27 28 27 27


Interim Result (Rpbn)

3Q15 4Q15 1Q16 2Q16 3Q16

Sales 14,929 16,498 16,516 17,568 15,782

Gross Profit 3,915 4,391 4,614 5,186 4,762

Opr. Profit 1,574 1,938 1,879 2,135 1,918

Net profit (47) 1,284 1,086 1,145 1,009

Gross Margins (%) 26.2% 26.6% 27.9% 29.5% 30.2%

Opr Margins (%) 10.5% 11.7% 11.4% 12.2% 12.2%

Net Margins (%) -0.3% 7.8% 6.6% 6.5% 6.4%

Capital History

Date

14-July-94 IPO@Rp6,200


Indofood CBP Sukses Makmur Continuous strong foothold ahead

Christy Halim

([email protected])

Listed in 2010, ICBP is an established

market-leading producer of packaged

food products, with a diverse product

range.

Share Price Rp8,350

Sector Consumer


NEUTRAL Rp9,200

Reuters Code ICBP.JK

Bloomberg Code ICBP.IJ




46.1

52-Wk range 10275 / 5663

PT Indofood Sukses Makmur Tbk 80.5%

Public 19.5%

EPS 16F 17F


TRIM vs Cons. (%) 3.5% -0.8%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Companies Data

Christy Halim

([email protected])

Companies Data

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 30,022 31,741 34,484 37,014 40,174

Net Profit 2,645 3,001 3,764 4,150 4,503

EPS (Rp) 227 257 323 356 386

EPS Growth 18.9% 13.5% 25.4% 10.3% 8.5%

DPS (Rp) 51% 46% 50% 50% 50%

BVPS (Rp) 1,171 1,325 1,519 1,714 1,922

P/E (x) 36.8 32.5 25.9 23.5 23.7

Div Yield 2.0% 2.1% 1.3% 1.7% 1.8%

9M16: A good set of result

ICBP reported total net profit of Rp2.8tn (+16% YoY) on the back of 10%

higher revenue YoY to Rp26.5tn—relatively in line with our estimates, formed 77% each to revenue and net profit (vs 74% of revenue and 79% of

net profit to consensus). Margins improved across the board, thanks to lower raw material prices and manageable opex. However, ICBP reported weaker growth in 3Q16, mainly due to Lebaran seasonality as consumer purchasing power tend to soften post Lebaran period.

What to expect in 4Q16?

While ICBP continues to benefit from the lower soft commodity prices thus far, we have seen some of the commodity prices’ has gone up. YTD, sugar prices has increased 55%, CPO 28%, and skim milk 20%. We believe these will affect the company’s earnings and overall margins in 4Q16 despite of the strengthening in exchange rate by 1% QoQ and

5% YoY in 3Q16.

ICE CREAM: something to look on next year!

While its dairy division continues to perform well on both SCM and liquid categories, ICBP plans to expand its dairy business by putting more focus on its ice cream products starting next year. ICBP recently launched Espessia ice cream with five new flavours and Nusantara ice

cream with two flavours under the brand of Indoeskrim. ICBP will in-vests more in freezers and expands its distribution networks to better penetrate their products to the market.

Dairy’s performance to remain strong

Following the strong volume growth of dairy up to 9M16, we revised up

our volume growth forecasts to 15% (from previously 11%) - in line with the recent changed in company’s guidance. Dairy’s EBIT margin is also revised upwards to 12.8% (from previously 10.7%) in 2016F. As such, we expect dairy division to deliver strong performance in 4Q16 despite of the rising skim milk prices. On the other hand, the company lowered its volume growth on food seasonings to 1-3% (from 2-5%) while maintaining its EBIT margin at 4-6%.

Maintain NEUTRAL with lower TP Rp9,200

We tweaked our forecasts to better reflect the 9M16 financial results and adjust the recent changed in company’s guidance, resulting with ~2%

earnings upgrade in 2016F and 6% in 2017E. We now peg our TP to 25.9x 2017E which is the 5-year average forward +1 STD as we believe that its future potential growth has been priced in and prefer its parent

company, INDF IJ, at a cheaper valuation. As such, our TP is lowered to Rp9,200 (from Rp10,300). Currently, ICBP trades at 23.5x 2017E P/E.


Income Statement (Rpbn) Balance Sheet (Rpbn)

Cash Flow Key Ratio Analysis

Interim Results Capital History

Date

10-Oct-10 IPO @ Rp5,395

27-Jul-16 Stock split 1:2 ratio

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 30,022 31,741 34,484 37,014 40,174

Revenue Growth (%) 19.6% 5.7% 8.6% 7.3% 8.5%

Gross Profit 8,100 9,619 10,720 11,540 12,523

Opr. Profit 3,185 3,992 4,734 5,144 5,481

EBITDA 3,919 4,558 5,533 6,046 6,507

EBITDA Growth (%) 17.6% 16.3% 21.4% 9.3% 7.6%

Net Int Inc/(Exp) 175 175 144 147 171

Gain/(loss) Forex 115 -35 0 0 0

Other Inc/(Exp) 36 56 139 206 281

Pre-tax Profit 3,445 4,010 4,878 5,291 5,652

Tax -871 -1,086 -1,219 -1,323 -1,413

Minority Int. 71 78 94 102 109


Reported Net Profit 2,645 3,001 3,753 4,070 4,348

Core Net Profit 2,530 3,036 3,753 4,070 4,348

Growth (%) 1.0% 20.0% 23.6% 8.5% 6.8%


Growth (%) 10% 7% -38% 25% 8%


Year end Dec 2014 2015 2016F 2017F 2018F


Other curr asset 6,279 6,304 6,598 7,100 7,808

Net fixed asset 5,809 6,556 8,606 9,850 10,995

Other asset 5,598 6,043 6,162 6,776 7,567

Total asset 25,029 26,561 28,699 32,203 35,780

ST debt 805 719 694 739 717

Other curr liab 5,403 5,283 5,377 5,958 6,531

LT debt 1,590 1,432 1,220 1,526 1,774

Other LT Liab 2,647 2,740 2,674 2,950 3,305

Minority interest 929 932 1,026 1,129 1,238



Net (debt) / cash 3,937 4,788 4,429 5,174 5,801


Net Working capital 875 1,021 1,221 1,142 1,277

Debt 3,406 2,869 2,904 3,303 3,609

Year end Dec 2014 2015 2016F 2017F 2018F

Core Net Profit 2,530 3,036 3,753 4,070 4,348

Depr / Amort 473 549 655 755 855

Chg. in non-cash Working

Cap 670 -442 -200 79 -135

Others 72 378 0 0 0

CF's from oprs 3,861 3,486 4,208 4,905 5,068

Capex -1,500 -1,391 -2,706 -2,000 -2,000

Others -250 -657 -119 -614 -792

CF's from investing -1,750 -2,047 -2,824 -2,614 -2,792

Net change in debt -544 -1,242 -1,737 -1,525 -1,809

Others 257 -23 -65 276 355

CF's from financing -286 -1,265 -1,803 -1,249 -1,454

Net cash flow 1,824 173 -419 1,042 823

Cash at BoY 5,379 7,226 7,657 7,333 8,477

Cash at EoY 7,343 7,657 7,333 8,477 9,410

Free Cashflow 2,361 2,095 1,502 2,905 3,068

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin 27.0% 30.3% 31.1% 31.2% 31.2%

Opr Margin 10.6% 12.6% 13.7% 13.9% 13.6%

EBITDA Margin 13.1% 14.4% 16.0% 16.3% 16.2%

Core Net Margin 8.4% 9.6% 10.9% 11.0% 10.8%

ROAE 20.5% 20.6% 22.6% 21.6% 20.6%

ROAA 11.4% 11.6% 13.6% 13.4% 12.8%

Stability

Current ratio (x) 2.2 2.3 2.3 2.3 2.4

Net Debt to Equity (x) -0.3 -0.3 -0.3 -0.3 -0.3

Net Debt to EBITDA (x) -1.0 -1.1 -0.8 -0.9 -0.9


Efficiency

A/P (days) 43 43 40 42 42

A/R (days) 33 36 35 34 35



Sales 7,545 7,645 8,922 9,253 8,296

Gross Profit 2,315 2,227 2,809 2,951 2,700

Operating Profit 1,004 796 1,332 1,406 1,232

Net Profit 706 557 945 1,034 853

Gross Margins 30.7% 29.1% 31.5% 31.9% 32.5%

Opr Margins 13.3% 10.4% 14.9% 15.2% 14.8%

Net Margins 9.4% 7.3% 10.6% 11.2% 10.3%


Gudang Garam A promising company with an undemanding valua-tion

Patricia Gabriela

([email protected])

Reiterate BUY on GGRM with similar TP of IDR82,000

GGRM’s share price has been under pressure these past months as

investors worry on their pricing power. With recent hikes earlier this

month, GGRM just increased its ASP of 4.8% Ytd (vs 11M15 at 9.2%

Ytd). Compared to its competitor, HMSP, which has upped ASP of 7.7%

Ytd. As our channel check has mentioned in previous report, we still

expect further price hikes in the next coming months as response to

excise tax hike burden. We have assumed 13/12% for GGRM’s price

increase in 2016/17F, on average. However, since GGRM already posted

an aggressive price hikes by end of 2015, we view price hikes of ~7% in

2016F is more than enough (in year end to year end basis). That being

said, we still like GGRM with an undemanding valuation of 10.0x 2017F

PE (a discount of 69% from HMSP’s valuation). Our TP of IDR82,000

implies 19.9x 2017F PE, a discount of 39% from HMSP’s valuation.

Expect a higher A&P expenses for market share

As threat from new product continues (primarily on SKM FF segment),

we expect GGRM to increase its ads expenses to maintain its market

share. We have assumed 2.9/3.1% ads expenses in 2016/17F (vs 2.6%

in 2015). However, please note that the increase in ads expenses also

occurred to its competitors. Per 9M16, HMSP upped its ads expenses

proportion to revenue by 10bps YoY while RMBA did more aggressive at

260bps. We believe ads expenses is crucial to promote cigs brand.

The rise of relatively “new” brand

We cannot deny that one of GGRM’s flagship brand, Surya (9.4% mar-

ket share, based on Nielsen), has been under pressure this year. How-

ever, we see a volume improvement on its other brands, such as GG

Inter (4.5% market share), Surya Pro (0.5%), Surya Pro Mild (2.6%),

and GG Merah (1.6%). YoY, Surya Pro recorded a growth of 24.2%

thanks to more support from marketing expenses. Surya Pro Mild,

meanwhile, grew by 7.1% YoY as it has a relatively low price in Mild

segment. Another point worth to be noted, GG Merah is the only SKT

brand that posted a growth amid the negative SKT segment.

Founded in 1958, Gudang Garam grew

into one of the biggest and most well-

known cigarette company in Indonesia,

providing both the choice and quality as-

sociated with Gudang Garam.

BUY Rp82,000

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price Year end Dec 2014 2015 2016F 2017F 2018F

Sales (Rp bn) 65,186 70,366 77,272 84,883 95,862

EBITDA (Rp bn) 10,071 11,812 11,969 13,801 15,835

Net Profit (Rp bn) 5,369 6,436 6,652 7,918 9,464

EPS (Rp) 2,790 3,345 3,457 4,115 4,919

EPS Growth (%) 24% 20% 3% 19% 20%

DPS (Rp) 800 800 2,600 2,420 2,881

BVPS (Rp) 17,151 19,698 20,601 22,296 24,334

EV/EBITDA (x) 13.6 11.7 11.6 10.0 8.5

P/E (x) 22.5 18.8 18.2 15.3 12.8

Div Yield (%) 1.3 1.3 4.1 3.9 4.6

Companies Data


Sector Cigarette

Price Target Rp82,000 (+31%)

Reuters Code GGRM.JK

Bloomberg Code GGRM.IJ

Issued Shares 1,924



93.0

52-Wk range 77,950 / 48,275

PT Suryaduta Investama 69.3%

Others 7.2%

Public 23.5%

Core EPS 16F 17F


TRIM vs Cons. (%) 0.4% 4.9%



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 65,186 70,366 77,272 84,883 92,862

Revenue Growth

(%)

17.6% 7.9% 9.8% 9.9% 9.4%

Gross Profit 13,380 15,486 16,671 19,175 21,750

Opr. Profit 8,578 10,065 10,166 11,907 13,845

EBITDA 10,071 11,812 11,969 13,801 15,835

EBITDA Growth (%) 29.1% 17.3% 1.3% 15.3% 14.7%

Net Int Inc/(Exp) (1,372) (1,430) (1,240) (1,283) (1,149)

Gain/(loss) Forex 17 72 (14) - -

Other Inc/(Exp) 36 87 150 100 100

Pre-tax Profit 7,206 8,635 8,926 10,624 12,697

Tax (1,811) (2,182) (2,256) (2,685) (3,209)

Minority Int. 27 17 17 20 24

Extra. Items - - - - -


Core Net Profit 5,383 6,399 6,680 7,939 9,488

Growth (%) 22.5% 18.9% 4.4% 18.8% 19.5%

Dividend per share 800 800 2,600 2,420 2,881

growth (%) 0.0% 0.0% 225.0% -6.9% 19.0%

Dividend payout

ratio

35.6% 28.7% 77.7% 70.0% 70.0%


Year end Dec 2014 2015 2016F 2017F 2018F


Other curr asset 36,944 39,843 42,416 44,855 46,968

Net fixed asset 18,973 20,106 19,804 19,460 19,073

Other asset 728 830 718 707 695

Total asset 58,234 63,505 64,517 67,023 70,339

ST debt 18,147 20,561 19,675 18,712 17,668

Other curr liab 5,636 3,484 3,627 3,814 4,228

LT debt - - - - -

Other LT Liab 1,317 1,452 1,452 1,452 1,452




Net debt / (cash) 16,559 17,835 18,096 16,711 14,065



Debt 18,147 20,561 19,675 18,712 17,668

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 5,369 6,436 6,652 7,918 9,464

Depr / Amort 1,440 1,715 1,802 1,894 1,990

Chg in Working Cap (5,224) (5,050) (2,431) (2,252) (1,699)

CF's from oprs 1,585 3,101 6,024 7,561 9,754

Capex (5,625) (2,848) (1,500) (1,550) (1,603)

Others 650 (102) 113 11 12

CF’s from investing (4,975) (2,950) (1,387) (1,539) (1,590)

Dividend (1,539) (1,539) (5,003) (4,657) (5,543)

Others 5,183 2,521 (869) (942) (1,020)

CF’s from financing 3,644 982 (5,872) (5,599) (6,563)

Net cash flow 254 1,132 (1,234) 423 1,601

Cash at BoY 1,427 1,681 2,813 1,579 2,002

Cash at EoY 1,681 2,813 1,579 2,002 3,603

Free Cashflow (4,040) 252 4,524 6,011 8,152

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 20.5% 22.0% 21.6% 22.6% 23.4%

Opr Margin (%) 13.2% 14.3% 13.2% 14.0% 14.9%

EBITDA Margin (%) 15.4% 16.8% 15.5% 16.3% 17.1%

Core Net Margin (%) 8.3% 9.1% 8.6% 9.4% 10.2%

ROAE (%) 17.3% 18.2% 17.2% 19.2% 21.1%

ROAA (%) 9.9% 10.6% 10.4% 12.0% 13.8%

Stability Current ratio (x) 1.6 1.8 1.9 2.1 2.3




Efficiency A/P (days) 6 11 14 15 15

A/R (days) 10 8 8 8 8

Inventory (days) 229 239 232 227 220


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 17,786 19,354 17,993 18,970 19,249

Gross Profit 3,708 4,908 4,266 3,773 3,998

EBITDA 3,049 3,969 3,123 2,311 3,142

Opr. Profit 2,614 3,484 2,635 1,815 2,635

Net profit 1,705 2,329 1,693 1,160 1,732

Core profit 1,676 2,334 1,711 1,171 1,727

Gross Margins (%) 20.8% 25.4% 23.7% 19.9% 20.8%

EBITDA Margins (%) 17.1% 20.5% 17.4% 12.2% 16.3%

Opr Margins (%) 14.7% 18.0% 14.6% 9.6% 13.7%

Net Margins (%) 9.6% 12.0% 9.4% 6.1% 9.0%

Core Margins (%) 9.4% 12.1% 9.5% 6.2% 9.0%

Capital History

Date

27-Aug-90 IPO@Rp10,250

27-May-96 Stock split 1:2


HM Sampoerna Pricing power Patricia Gabriela

([email protected])

Share Price Rp3,870

Sector Cigarette


Neutral Rp4,100

Reuters Code HMSP.JK

Bloomberg Code HMSP.IJ




66.7

52-Wk range 4,485 / 3,560

PT Philip Morris Indonesia 92.5%

Others 7.5%

Core EPS 16F 17F


TRIM vs Cons. (%) 2.3% 1.4%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

PT Hanjaya Mandala Sampoerna Tbk

manufactures hand rolled and machine-

rolled clove-blended cigarettes. The

Company distributes its products in do-

mestic and international market. Through

its subsidiaries, the Company also devel-

ops properties.

Maintain Neutral rating

We maintain our TP on HMSP at IDR4,100, implying 35.3x 2017F PE

(based on +1.4 stdev 5-years historical forward PE band). Although its

new brand, U Bold, is deemed to be quite successful (1.8% market

share in 3Q16 vs 0.9% in 2Q16) thanks to more city penetration, it

could cannibalize the higher margin A Mild brand. Although we expect

Marlboro Filter Black to be able to grab 1-2% market share in 2017F,

hence will contribute 300-400mn sticks per month to HMSP (~4% of

HMSP’s 2017F volume expectation), it remains to be seen whether such

volume would provide healthy returns on R&D and marketing. One

positive thing is HMSP’s pricing power and its willingness to maximize it

(7.7% ASP increase Ytd, 9% on avg.), we believe HMSP will continue to

post a strong earnings growth of 18/10% in 2016/17F.

Ads expenses will remain high, but it is for market share pur-

pose

Big cigs company for the likes of HMSP and GGRM are having a hard

time on market share this year, as the impact of new brand introduced

last year by RMBA (Dunhill Kretek Filter) and Djarum Group (LA Bold).

Ads expenses are an important factor on cigs brand market share,

hence we view the high proportion of ads expenses is a positive event

(as long as maintained at certain level). We assumed 3.3% of ads ex-

penses proportion to HMSP’s revenue in 2017F (vs 3.1% in 2016F) and

expect its market share to up by 0.2% next year.

Another price hikes coming in Dec’16

We expect HMSP to increase its price again by Dec’16 as company con-

tinue to revise up its price per month. Though the exact value is not yet

disclosed, but historically HMSP increased its price by 1-2% on avg. We

assumed 11% price hikes on avg. for HMSP in 2016/17F.

Year end Dec 2014 2015 2016F 2017F 2018F

Sales (Rp bn) 80,690 89,069 95,957 105,264 115,926

EBITDA (Rp bn) 14,261 14,641 16,116 17,927 20,756

Net Profit (Rp bn) 10,181 10,363 12,206 13,442 15,469

EPS (Rp) 88 89 105 116 133

EPS Growth (%) -6% 2% 18% 10% 15%

DPS (Rp) 92 105 89 105 116

BVPS (Rp) 116 275 291 301 319

EV/EBITDA (x) 31.8 30.6 27.5 24.9 21.5

P/E (x) 44.2 43.4 36.9 33.5 29.1

Div Yield (%) 2.4% 2.7% 2.3% 2.7% 3.0%

Companies Data



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 80,690 89,069 95,957 105,264 115,926

Revenue Growth

(%)

7.6% 10.4% 7.7% 9.7% 10.1%

Gross Profit 20,500 21,764 23,664 26,420 30,115

Opr. Profit 13,694 13,986 15,637 17,405 20,188

EBITDA 14,261 14,641 16,116 17,927 20,756

EBITDA Growth (%) -5.0% 2.7% 10.1% 11.2% 15.8%

Net Int Inc/(Exp) 10 (69) 773 666 610

Gain/(loss) Forex - - - - -

Other Inc/(Exp) (111) (62) - - -

Pre-tax Profit 13,718 13,933 16,410 18,071 20,797

Tax (3,537) (3,569) (4,204) (4,630) (5,328)

Minority Int. - - - - -



Core Net Profit 10,181 10,363 12,206 13,442 15,469

Growth (%) -5.9% 1.8% 17.8% 10.1% 15.1%


growth (%) 7.1% 15.0% -15.1% 17.4% 10.1%

Dividend payout

ratio

98.4% 120.3% 100.4% 100.0% 100.0%


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and equivalents 65 1,719 6,537 6,071 8,162

Other curr asset 20,712 28,089 25,004 29,321 29,989

Net fixed asset 5,920 6,281 6,783 7,334 7,946

Other asset 1,684 1,922 2,007 2,100 2,218

Total asset 28,381 38,011 40,330 44,827 48,314

ST debt 2,835 - - 3,158 3,478

Other curr liab 10,765 4,539 5,013 4,877 5,938

LT debt - - - - -

Other LT Liab 1,282 1,456 1,495 1,734 1,814

Minority interest - - - - -



Net debt / (cash) 2,770 (1,719) (6,537) (2,914) (4,684)



Debt 2,835 - - 3,158 3,478

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 10,181 10,363 12,206 13,442 15,469

Depr / Amort 567 655 479 522 569

Chg in Working

Cap

961 (13,602) 3,559 (4,453) 392

CF's from oprs 11,709 (2,584) 16,244 9,511 16,430

Capex (1,778) (1,016) (980) (1,073) (1,180)

Others (235) (239) (85) (93) (117)

CF’s from invest-

ing

(2,013) (1,255) (1,065) (1,167) (1,297)

Dividend (10,651) (12,250) (10,400) (12,206) (13,442)

Others 272 17,834 39 3,397 399

CF’s from financ-

ing

(10,379) 5,584 (10,361) (8,809) (13,042)

Net cash flow (683) 1,744 4,818 (465) 2,091

Cash at BoY 657 (26) 1,719 6,537 6,071

Cash at EoY (26) 1,719 6,537 6,071 8,162

Free Cashflow 9,931 (3,601) 15,264 8,437 15,250

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 25.4% 24.4% 24.7% 25.1% 26.0%

Opr Margin (%) 17.0% 15.7% 16.3% 16.5% 17.4%

EBITDA Margin (%) 17.7% 16.4% 16.8% 17.0% 17.9%

Core Net Margin (%) 12.6% 11.6% 12.7% 12.8% 13.3%

ROAE (%) 73.6% 45.5% 37.1% 39.0% 42.9%

ROAA (%) 36.5% 31.2% 31.2% 31.6% 33.2%


Net Debt to Equity (x) 0.2 - - 0.1 0.1

Net Debt to EBITDA (x) 0.2 - - 0.2 0.2

Interest Coverage (x) 288.8 101.0 329.6 347.1


A/R (days) 6 12 12 6 6

Inventory (days) 105 99 100 100 100


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 21,775 23,552 21,921 25,415 22,939

Gross Profit 5,487 6,017 5,653 5,908 5,619

EBITDA 3,725 3,891 4,160 3,928 3,906

Opr. Profit 3,558 3,707 3,989 3,753 3,722

Net profit 2,585 2,767 3,119 3,029 2,933

Core profit 2,585 2,767 3,119 3,029 2,933

Gross Margins (%) 25.2% 25.6% 25.8% 23.2% 24.5%

EBITDA Margins (%) 17.1% 16.5% 19.0% 15.5% 17.0%

Opr Margins (%) 16.3% 15.7% 18.2% 14.8% 16.2%

Net Margins (%) 11.9% 11.7% 14.2% 11.9% 12.8%

Core Margins (%) 11.9% 11.7% 14.2% 11.9% 12.8%

Capital History

Date

15-Aug-90 IPO@Rp12,600

10-Sept-01 Stock split 1:5

13-Jun-16 Stock split 1:25


Kalbe Farma Positive growth supported from volume Patricia Gabriela

([email protected])

Prescription pharma: Branded generic starts to record a positive

growth

As non UHC (Universal Health Coverage) hospitals are seeing a patient

volume growth this year, we view the impact will be positive to KLBF as

majority of its prescription pharma is still supported from branded ge-

neric drugs (56% of the segment). Per 9M16, branded generic grew by

4% YoY (vs –5% in 9M15) on volume basis. Margin compression is

inevitable, but company is developing a higher margin product e.g.

oncology which we has discussed in our previous report.

Consumer health: Recovery of energy drink segment

In 9M16, KLBF’s consumer health division posted a growth of 11% YoY,

back to its double-digit track (from previously single-digit growth due to

the weak performance of energy drink). To be specific, the segment

recorded growth of 22% YoY in 3Q16. Aside from the higher demand of

OTC and new product, company also see a recovery demand of Extra

Joss with a single-digit growth (which comprises ~25% of consumer

health) thanks to the product’s new variant: Extra Joss Blend and Extra

Joss Go. We have expected a growth of 14/16% on KLBF’s consumer

health in 2016/17F.

Nutritionals: Continue to be strong

Nutritionals kept its record as the highest growth segment with 11% YoY

in 9M16. Morinaga (~60% of nutritionals) continue to grow strong after

tough competition earlier this year. Though skim milk price has shown

an upward trend of 14% YoY per Nov’16, but we can expect the price to

translate at ~6 months time lag. We also believe in the improving pur-

chasing power next year, hence company can pass on this cost increase

to consumer. Company has launched Blackmores last 3Q16.

Maintain Buy on KLBF with lower TP of IDR1,800

We continue to like KLBF as: 1) volume growth starts to recover and we

see a stable growth from its new innovative product, 2) margin expan-

sion on the back of efficiency. We lower our TP as we are cautious on

USD/IDR volatility next year that might impact its pharmacy and nutri-

tionals segment. Our new TP of IDR1,800 implies 32x 2017F PE.

Kalbe Farma is the largest publicly-listed

pharmaceuticals company in Southeast

Asia.

Share Price Rp1,400

Sector Healthcare


Buy Rp1,800

Reuters Code KLBF.JK

Bloomberg Code KLBF.IJ




54.9

52-Wk range 1,815 / 1,135

PT. Gira Sole Prima 10.2%

Others 46.5%

Public 43.3%

Company Update

Stock Data

Major Shareholders


Sales (Rp bn) 17,369 17,887 19,669 22,388 25,643

EBITDA (Rp bn) 3,060 2,995 3,390 3,870 4,533

Net Profit (Rp bn) 2,065 2,004 2,260 2,587 3,044

EPS (Rp) 44 43 49 56 66

EPS Growth (%) 8% -3% 14% 14% 17%

DPS (Rp) 17 19 22 25 29

BVPS (Rp) 199 223 251 281 317

EV/EBITDA (x) 20.9 21.1 18.7 16.3 13.9

P/E (x) 31.1 32.4 28.4 24.9 21.2

Div Yield (%) 1.2% 1.4% 1.5% 1.8% 2.1%

Companies Data

Consensus

Core EPS 16F 17F


TRIM vs Cons. (%) 1.1% 2.7%



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 17,369 17,887 19,669 22,388 25,643

Revenue Growth

(%)

8.5% 3.0% 10.0% 13.8% 14.5%

Gross Profit 8,476 8,592 9,577 10,907 12,584

Opr. Profit 2,752 2,643 2,962 3,384 3,974

EBITDA 3,060 2,995 3,390 3,870 4,533

EBITDA Growth (%) 9.1% -2.1% 13.2% 14.2% 17.1%

Net Int Inc/(Exp) 11 77 98 108 122

Gain/(loss) Forex 14 42 - - -

Other Inc/(Exp) (20) (25) (60) (40) (20)

Pre-tax Profit 2,764 2,721 3,059 3,491 4,096

Tax (643) (663) (746) (851) (998)

Minority Int. 56 53 53 53 53



Core Net Profit 2,110 2,026 2,314 2,640 3,098

Growth (%) 7.1% -4.0% 14.2% 14.1% 17.3%


growth (%) -10.5% 11.8% 14.2% 14.5% 17.7%

Dividend payout

ratio

39% 45% 45% 45% 45%


Year end Dec 2014 2015 2016F 2017F 2018F


Other curr asset 6,226 6,030 6,594 7,421 8,384

Net fixed asset 3,404 3,938 5,010 5,664 6,416

Other asset 914 1,009 1,009 1,009 1,009

Total asset 12,439 13,696 15,260 16,994 19,045

ST debt 252 266 303 344 392

Other curr liab 2,134 2,100 2,292 2,520 2,778

LT debt 44 128 128 128 128

Other LT Liab 245 265 265 265 265




Net debt / (cash) (1,598) (2,325) (2,216) (2,427) (2,716)



Debt 296 394 430 472 519

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 2,065 2,004 2,260 2,587 3,044

Depr / Amort 308 351 428 486 559

Chg in Working Cap (78) 162 (371) (600) (705)

CF's from oprs 2,295 2,517 2,317 2,473 2,899

Capex (787) (885) (1,500) (1,140) (1,311)

Others (17) (95) - - -

CF’s from investing (805) (981) (1,500) (1,140) (1,311)

Dividend (810) (907) (1,017) (1,164) (1,370)

Others (218) 164 128 84 118

CF’s from financing (1,028) (743) (889) (1,080) (1,251)

Net cash flow 462 794 (73) 253 386

Cash at BoY 1,356 1,819 2,658 2,585 2,838

Cash at EoY 1,819 2,658 2,585 2,838 3,174

Free Cashflow 1,522 1,625 797 1,305 1,549

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 48.8% 48.0% 48.7% 48.7% 49.1%

Opr Margin (%) 15.8% 14.8% 15.1% 15.1% 15.5%

EBITDA Margin (%) 17.6% 16.7% 17.2% 17.3% 17.7%

Core Net Margin (%) 11.8% 11.0% 11.8% 11.8% 12.1%

ROAE (%) 23.7% 20.2% 20.3% 20.8% 21.7%

ROAA (%) 17.4% 15.3% 15.6% 16.0% 16.9%


Net Debt to Equity (x) (0.2) (0.2) (0.2) (0.2) (0.2)

Net Debt to EBITDA (x) (0.5) (0.8) (0.7) (0.6) (0.6)



A/R (days) 50 50 48 47 47

Inventory (days) 126 120 114 112 112


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 4,408 4,760 4,550 5,006 4,820

Gross Profit 2,113 2,181 2,194 2,469 2,372

EBITDA 682 761 814 846 835

Opr. Profit 593 664 719 748 734

Net profit 436 505 563 583 556

Core profit 441 523 581 591 567

Gross Margins (%) 47.9% 45.8% 48.2% 49.3% 49.2%

EBITDA Margins (%) 15.5% 16.0% 17.9% 16.9% 17.3%

Opr Margins (%) 13.5% 14.0% 15.8% 15.0% 15.2%

Net Margins (%) 9.9% 10.6% 12.4% 11.6% 11.5%

Core Margins (%) 10.0% 11.0% 12.8% 11.8% 11.8%

Capital History

Date

30-Jul-91 IPO@Rp7,800

08-Oct-12 Stock split 1:5

13-Dec-13 Decrease in issued and

fully paid shares


PT Nippon Indosari Corpindo Tbk produc-

es baked goods. The Company produces

bread, cakes, bread pudding, lasagna,

and other foods.

Share Price Rp1,455

Sector Consumer


Year end Dec 2014 2015 2016F 2017F 2018F

Sales - net (Rp bn) 1,880 2,175 2,470 2,869 3,319

Net Profit (Rp bn) 189 274 269 327 384

EPS (Rp) 37.3 54.1 53.2 64.6 75.9

EPS Growth 18.7% 45.1% -1.7% 21.6% 17.4%

DPS (Rp) 3 9 11 13 15

BVPS (Rp) 190 235 277 329 390

P/E (x) 39.1 26.9 27.4 22.5 19.2

Div Yield 0.9% 2.7% 3.2% 3.9% 4.6%

Nippon Indosari Corpindo Potential future growth to grab!

BUY Rp1,900

Reuters Code ROTI.JK

Bloomberg Code ROTI.IJ

Issued Shares 5,062



3.8

52-Wk range 1770 / 1160

PT Indoritel Makmur Internasion-

al Tbk

31.50%

Bonlight Investments, Ltd 25.10%

Pasco Shikishima Corporation 8.50%

Sojitz Corporation 4.25%

Public 30.6%

EPS 16F 17F


TRIM vs Cons. (%) -6.4% -6.0%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Companies Data

9M16 result—pretty much in-line with estimates! ROTI reported decent revenue growth of 17% in 9M16, supported by higher volume across bread categories. Both sweet and white bread posted 10% and 22% sales growth, respectively—this is in line with the

company’s overall focus on its sweet and white bread (both contributed around 98% to total sales). However, net profit only grew 6% in 9M16 as a result of higher costs and expenses including direct labour, A&P, expired inventories, and salaries and wages, thus, overall margins also seen declining. Competition at home is intensifying

While we continue to see ROTI’s performance to remain defensive in 4Q16, we view domestic competition is intensifying despite of its smaller scale in proportion compared to Sari Roti. We have seen several new brands of bread in the market lately, with the recent one is Prime Bread, produced by PT Gardenia Makmur Selaras. Prime Bread is priced lower than Sari Roti at around Rp3,500/pack (vs Sari Roti at around

Rp5,000/pack), however, with its limited product availability currently and smaller business scale (not economies of scale) compared to Sari Roti, we believe ROTI will continue to be the market leader in the mass-produced bread industry. By entering into the Philippines market, we believe Sari Roti can establish a new source of revenue in a populous and growing consumer market like Indonesia. Despite of its small contri-bution at the beginning, we are expecting its JV with Monde Nissin in

Philippines to start contributing in 2018. Changed our estimates slightly… We maintain our conservative estimates for ROTI as we believe ROTI will continue to provide topline growth on the back of higher volume and

lower sales returns, even though we expect normalization in some of the input costs particularly wheat, following the increase in CPO, sugar and

skim milk prices as well as higher direct labor costs. We did a sensitivity analysis to measure the effect of the increase in wheat prices and we found out that every 10% increase on wheat prices, it will reduce gross margin by around 1.1%, assuming other things remain constant. As we changed our USD/IDR exchange rate assumption in 2016F and 2017F, our estimates slightly reduced by around 1% in 2016F.

Reiterate BUY at Rp1,900 Looking at the future potential growth of bread industry in Indonesia, combined with its strong distribution networks and continuous product

innovation, we reiterate our BUY call on ROTI with our TP of Rp1,900 implying 29.4x 2017F P/E. As ROTI’s share price declined by ~13% in the past one month, which mainly due to the overall slowing down in the

market, we see an opportunity to buy with it is currently trading just slightly above average 3-yr forward P/E. Currently, it trades at 22.5x 2017F P/E.

Christy Halim

([email protected])





Date

28 June 2010 IPO @ Rp1,275

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 1,880 2,175 2,470 2,869 3,319

Revenue Growth (%) 24.9% 15.6% 13.6% 16.2% 15.7%

Gross Profit 901 1154 1274 1510 1738

Opr. Profit 299 453 400 512 584

EBITDA 28.0% 51.7% -11.7% 27.9% 14.1%

EBITDA Growth (%) 395 566 564 697 790

Net Int Inc/(Exp) -46 -72 -41 -76 -72

Gain/(loss) Forex 4 0 0 0 0

Other Inc/(Exp) 32 38 12 15 17

Pre-tax Profit 253 381 359 436 512

Tax -64 -108 -90 -109 -128



Reported Net Profit 189 274 269 327 384

Core Net Profit 185 274 269 327 384

Growth (%) 17.9% 48.2% -1.6% 21.6% 17.4%


growth (%) -59% 182% 21% 22% 17%


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and equivalents 163 515 568 723 937

Other current asset 258 298 315 365 424

Net fixed asset 1,680 1,821 2,157 2,322 2,466

Other asset 43 72 82 95 110

Total asset 2,143 2,706 3,122 3,506 3,937

ST debt 126 160 173 195 225

Other curr liab 182 236 207 258 288

LT debt 291 0 198 225 262

Other LT Liab 584 1,122 1,141 1,163 1,190



Shareholders Equity 960 1,189 1,405 1,666 1,973

Net debt / (cash) 176 -515 -370 -498 -675


Net Working capital 76 61 108 108 136

Debt 339 0 198 225 2,205

Year end Dec 2014 2015 2016F 2017F 2018F

Net profit 189 274 269 327 384

Depr/Amort 96 113 164 185 206

Chg in non-cash working

capital -55 96 -34 22 2

Others 135 73 0 0 0

CF's from operations 365 556 400 534 592

Capex -598 -257 -500 -350 -350

Others 202 17 -10 -13 -15


Net change in debt 163 130 145 -38 -40

Others -70 -93 19 23 27

CF's from financing 93 37 164 -16 -13

Net cash flow 63 352 53 155 214

Cash at BoY 101 163 515 568 723

Cash at EoY 164 515 568 723 937

Free Cash Flow -233 298 -100 184 242

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross margin 47.9% 53.1% 51.6% 52.6% 52.4%

Opr margin 15.9% 20.8% 16.2% 17.8% 17.6%

EBITDA margin 21.0% 26.0% 22.8% 24.3% 23.8%

Core net margin

ROE 19.6% 23.0% 19.2% 19.6% 19.5%

ROA 8.8% 10.1% 8.6% 9.3% 9.8%

Stability

Current ratio (x) 1.4 2.1 2.3 2.4 2.7

Net debt to equity (x) 0.2 -0.4 -0.3 -0.3 -0.3

Net debt to EBITDA (x) 0.4 -0.9 -0.7 -0.7 -0.9


Efficiency

A/P (days) 52 50 52 52 51

A/R (days) 38 38 38 38 38



Sales 530 605 611 582 644

Gross Profit 283 326 324 293 333


Net Profit 74 78 86 43 75

Gross Margins 53.3% 53.9% 53.1% 50.3% 51.7%

Opr Margins 21.4% 24.5% 21.6% 12.7% 18.3%

Net Margins 14.0% 12.9% 14.1% 7.3% 11.6%


Going back to its consumer scape Post the divestment of its plantation business, Golden Plantation (GOLL), AISA is going back to focus on expanding its consumer business. Its food manufacturing division posted 9% revenue growth CAGR13-15, and we

expect the division to post 10% growth CAGR16-18E mainly on the back of the rising “Bihunku” products and growing snacks business. We view that AISA will strengthen its dominance in the food manufacturing busi-ness along with aggressive new product launching and expand its distri-bution network. Rice mills: Focus on branded pack with higher margin!

Aside from the growing food manufacturing business, AISA is also ex-panding its rice business particularly focusing on the branded pack rice which offer higher margin than branded bulk rice. AISA is expecting its branded pack rice to contribute ~40% to total at the end of 2016E (28% as of 9M16). As rice can be said as a major staple food item for most

Indonesians, we continue to see a promising outlook on rice industry. The

rice division recorded 30% revenue growth CAGR13-15, and we expect rice business to continue deliver its solid performance with 23% revenue growth CAGR16-18E and 69% contribution to total gross sales. Divestment of GOLL—to lower debt burden AISA divested 78.2% stake of its agribusiness under PT Golden Plantation (GOLL IJ) to PT JOM Prawarsa Indonesia at Rp521.4bn on May-16. We

believe the management decision to divest its agribusiness division is positive for AISA and thus, we are expecting AISA’s financial performance to improve as AISA turns to be a pure consumer company. At the same time, AISA’s capital structure will also improve as AISA able to wipe off

~Rp1.1tn of debt attributable to GOLL (accounted ~47% of AISA’s total LT debt). We are expecting AISA’s total debt to reduce by around Rp1tn in 2016E and its debt-to-equity ratio to be 0.82x in 2016E.

BUY, TP Rp2,300 We are assuming coverage on Tiga Pilar (AISA IJ) with a BUY rating and target price of Rp2,300, based on historical 5-year avg forward P/E of 12.4x. Currently, the stock is trading at 10.3x 1-year forward P/E. Even though the stock has re-rating by around 68% post GOLL divestment in

May-16, we view that the stock continues to be attractive, considering potential future growth on its rice mills and food manufacturing business, improvement on margins and capital structure as well as still being one of the cheapest consumer company compared with its peers. BUY!

PT Tiga Pilar Sejahtera Food Tbk produc-

es and distributes different types of noo-

dles such as dried noodle, instant noodle,

and snack noodle. The Company, through

its subsidiaries also produces and distrib-

utes seafood products.

BUY Rp2,300

Reuters Code AISA.JK

Bloomberg Code AISA.IJ

Issued Shares 3,219


Avg. Value Daily 6 Month (Rpbn) 8.2

52-Wk range 2340 / 860

EPS 16F 17F


TRIM vs Cons. (%) 32.3% 31.5%

Stock Data

Major Shareholders

Consensus


Net Sales (IDR, bn) 5,140 6,010 6,518 7,823 9,143

Net Profit (IDR, bn) 332 323 518 650 759

EPS (IDR) 117 116 177 218 252

EPS Growth (%) 9.0% -1.1% 52.1% 23.2% 15.6%

DPS (IDR) 10 -1 16 20 24

Dividend yield (%) 946 1,047 1,169 1,351 1,564

P/E (x) 15.9 16.1 10.6 8.6 7.4

P/BV (x) 1.5% -0.2% 2.4% 3.1% 3.6%

Companies Data

Share Price Rp1,870

Sector Consumer Staples


Company Update

PT Tiga Pilar Corpora 16.0%

Primanex 12.0%

Others 39.5%

Public 32.5%

Tiga Pilar Sejahtera Rice Mills, the growth engine

Christy Halim

([email protected])


Valuation

We are assuming coverage on Tiga Pilar (AISA IJ) with a BUY rating and target price of Rp2,300, based on histor-

ical 5-year avg forward P/E of 12.4x. Currently, the stock is trading at 10.3x 1-year forward P/E. Even though

the stock has re-rating by around 68% post GOLL divestment, we view that the stock continues to be attractive,

considering potential future growth on its rice mills and food manufacturing business, improvement on margins

and capital structure as well as being one of the cheapest consumer company compared with its peers. Another

potential re-rating on the stock, BUY!

Figure 47. Target Price


Figure 48. 5-year avg forward P/E


0

3

6

9

12

15

18

21

24

Nov

-13

Dec

-13

Jan-

14

Feb-

14

Mar

-14

Apr-

14

May

-14

Jun-

14

Jul-

14

Aug-

14

Sep-

14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb-

15

Mar

-15

Apr-

15

May

-15

Jun-

15

Jul-

15

Aug-

15

Sep-

15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb-

16

Mar

-16

Apr-

16

May

-16

Jun-

16

Jul-

16

Aug-

16

Sep-

16

Oct

-16

Nov

-16

Fwd PE Avg fwd PE Fwd PER +1 STD

Fwd PER +2 STD Fwd PER -1 STD Fwd PER -2 STD

(x)

Target Price 2,300

5-year avg fwd P/E (x) 12.4

1-year fwd EPS (Rp) 190

Target Price (Rp) 2,300

Current Price (Rp) 1,870

Potential upside/(downside) 23%

2015 2016E 2017E 2018E CAGR16-18E

EPS (Rp) 116 177 218 252 19.4%

P/E at TP 19.8 13.0 10.6 9.1

P/E at current price 17.2 11.3 9.2 7.9


Income Statement (Rp bn) Balance Sheet (Rp bn)

Cash Flow (Rp bn) Key Ratio Analysis


Year end Dec 2014 2015 2016F 2017F 2018F

Net revenue 5,140 6,010 6,518 7,823 9,143

Net rev growth (%) 26.7% 16.9% 8.5% 20.0% 16.9%

Gross profit 1041 1274 1592 1881 2189

Opr profit 679 739 1009 1150 1326

EBITDA 779 867 1161 1325 1523

Net income/exp -195 -239 -250 -216 -246


Other income/(exp) 30 1 5 6 7

Pre-tax profit 484 500 758 934 1080

Tax -106 -127 -190 -234 -270

Minority interest -46 -50 -50 -50 -50


Reported net profit 332 323 518 650 759

Core net profit 330 319 518 650 759

Growth (%) 9.0% -3.3% 62.6% 25.5% 16.8%

Dividend per share 10 -1 16 20 24

Growth (%) 34% -114% -1297% 25% 17%

Dividend payout

ratio 10% -1% 10% 10% 10%

Year end Dec 2014 2015 2016F 2017F 2018F

Cash & cash equiva-

lents 1,217 589 1,917 1,690 1,735

Other curr asset 2,761 3,875 3,084 3,896 4,648

Net fixed asset 1,786 2,290 2,438 2,763 3,066

Other asset 1,611 2,307 823 987 1,154

Total asset 7,374 9,061 8,262 9,337 10,603

ST debt 203 352 200 268 327

Other curr liabilities 1,290 2,399 2,281 2,735 3,195

LT debt 1,307 1,351 469 563 658

Other LT liabilities 988 993 1,000 924 943




Net debt/ (cash) 1,866 3,523 1,152 1,715 2,106


Net working capital 1,471 1,476 803 1,161 1,453

Debt 3,082 4,111 3,069 3,405 3,841

Year end Dec 2014 2015 2016F 2017F 2018F

Net profit 332 323 518 650 759

Depr/Amort 99 127 152 175 197

Chg in non-cash work-

ing capital -465 -851 680 -634 -581

Others 387 800 0 0 0

CF's from operations 354 399 1,350 191 375

Capex -462 -847 -300 -500 -500

Others -112 -236 1,484 -165 -167

CF's from investing -574 -1,083 1,184 -665 -667

Net change in debt 1,648 1,012 -1,162 278 367

Others -547 -957 -43 -32 -31

CF's from financing 1,102 55 -1,206 246 336

Net cash flow 882 -629 1,329 -227 45

Cash at BoY 317 1,217 589 1,917 1,690

Cash at EoY 1,217 589 1,917 1,690 1,735

Free Cash Flow -108 -448 1,050 -309 -125

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross margin 20.2% 21.2% 24.4% 24.0% 23.9%

Opr margin 12.6% 12.2% 15.4% 14.6% 14.4%

EBITDA margin 15.2% 14.4% 17.8% 16.9% 16.7%

Net margin 6.5% 5.4% 8.0% 8.3% 8.3%

ROE 10.9% 9.6% 13.8% 15.0% 15.1%

ROA 4.5% 3.6% 6.3% 7.0% 7.2%

Stability

Current ratio (x) 2.7 1.6 2.0 1.9 1.8

Net debt to equity (x) 0.6 1.0 0.3 0.4 0.4

Net debt to EBITDA (x) 2.4 4.1 1.0 1.3 1.4


Efficiency

A/P (days) 15 21 15 16 17

A/R (days) 79 100 79 85 87

Inventory (days) 99 107 99 102 103


Sales 1,346 1,507 1,661 1,909 1,409

Gross Profit 305 357 406 473 376


Net Profit 59 69 123 132 91

Gross Margins 22.7% 23.7% 24.4% 24.8% 26.7%

Opr Margins 12.5% 12.8% 18.3% 16.2% 15.6%

Net Margins 4.4% 4.6% 7.4% 6.9% 6.4%

Date

11 June 1997 IPO @ Rp950


A well established FMCG company With its long history and expertise in FMCG industry, Unilever has now grown its business with 39 brands on more than 1,000 SKUs catering different segments in the market. We believe around 95% of Indonesian

households at least use one of Unilever’s products which suggest its strong position in the market. In addition, Unilever is leading in most of its categories. F&B grew faster, but HPC is catching up We view that F&B will continue to be an important growth engine to Unilever despite of its lower margin as compared to HPC. F&B division

reported 17% growth CAGR10-15, and we expect the trend to continue going forward supported by positive economic outlook next year. Despite of higher growth, HPC continues to dominate Unilever’s total sales proportion. Margins wise, HPC also delivered higher margin com-pared to F&B in which one of the main reason is due to its wider range

of products. Unilever has recently entered into fragrance market, by

launching Molto Eau de Perfume, and Molto premium fabric softener. While its current contribution is still very minimal to total revenue, we are doubtful on public’s acceptance of having perfume and fabric soften-er under same brand. Some cost pressure on board This includes 1) volatility in USD/IDR exchange rate—as around 60% of

its total raw materials are USD denominated 2) Opex—we noted that Unilever’s biggest proportion of opex are A&P, distribution costs, and service fees & royalty expenses. Recently, Unilever is implementing the zero-based budgeting that is initiated by its parent company which is

aimed to evaluate their ads spending and its effectiveness. Defensive stock, but valuation is demanding…

Unilever’s sound fundamentals backed with strong operation and proven long track record made Unilever to be consider as defensive stock. How-ever, the stock has always been trading at a premium compared to other consumer names. The stock has gone up by 11% YTD, while JCI was up by 14% - Unilever has slightly underperformed JCI, we view this is due to the recent decline in the overall market. Thus, we are assum-

ing coverage on Unilever with a Neutral rating and our TP of Rp44,000 based on 3-year average forward P/E of 44.5x. We believe the premium valuation is unjustified as we do not see any strong upcoming catalysts

on the stock. At the same time, business landscape in the ice cream market is getting more competitive with several new player entering the market as well as in HPC division. Currently, Unilever is trading at 40.6x 2017F forward P/E.

Established in 1933, Unilever Indonesia

has currently grown to become one of

Indonesia’s leading FMCG company with

the fourth largest market cap on IDX.


Sector Consumer


Year end Dec 2014 2015 2016F 2017F 2018F

Sales 34,512 36,484 39,921 44,229 48,965

Net Profit 5,944 5,856 6,541 7,543 8,373

EPS (Rp) 779 768 857 989 1097

EPS Growth 11.9% -1.5% 11.7% 15.3% 11.0%

DPS (Rp) 672 733 857 989 1097

BVPS (Rp) 622 633 633 633 633

P/E (x) 51.5 52.2 46.8 40.6 36.5

Div Yield 11.3% 12.4% 14.5% 16.7% 18.5%

Unilever Indonesia Premium valuation for defensive proxy?

NEUTRAL Rp44,000

Reuters Code UNVR.JK

Bloomberg Code UNVR.IJ

Issued Shares 7,630



83.2

52-Wk range 47800 / 34150

Unilever Indonesia Holding BV 85%

Public (<5%) 15%

EPS 16F 17F


TRIM vs Cons. (%) 1.3% 4.6%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Companies Data

Christy Halim

([email protected])


Figure 1. xxx

Source: Company

Tighter competition in ice cream market

Within the F&B division, some brands that become main contributors to Unilever includes Bango, Royco, Sari-

wangi, and Walls. Ice cream itself contributed around 15% to total sales. Despite of the still low ice cream con-

sumption per capita in Indonesia at around 0.6 litres (vs average of 2 litres per annum in several other coun-

tries), we view that the business landscape for ice cream will become more competitive going forward. Unilever

introduced new variants to its ice cream products every year to cater consumer taste and preference better—

several new products that has been launched this year includes Wall’s Solero lime and vanilla split, Wall’s Cor-

netto Royale matcha green tea , Magnum Crème Brulee and limited edition Tiramisu.

Figure 49. The new ice cream variants launched this year

One of the largest competitor to Unilever is Campina in our view, as both produced similar products to the mar-

ket with similar pricing point. However, we noted the recent launch of Glico Wings ice cream early this month to

the market as a result of JV between Wings Group and Ezaki Glico. In the beginning, they will produce and sell

16 products under four brands including Waku Waku, Jcone, Frostbite, and Haku. Our on-the-ground check on

several minimarkets and supermarkets in Jakarta shows that Glico Wings has started to place some freezers in

some Family Mart minimarket in Jakarta while the ice cream products itself will be available by the end of this

month.

According to the company’s recent news, they are expecting to be the third largest ice cream producer in Indo-

nesia with around 10% market share in few upcoming years. In terms of its pricing point, we view that Glico

Wings priced its ice cream relatively cheaper compared to Wall’s and Campina. We believe the existence of Glico

Wings will become a threat to Unilever as Glico is a Japanese confectionary company headquartered in Osaka,

Japan, and its JV partner, Wings Group, has strong local distribution and marketing. At the same time, ice cream

contributed around 15% to total Unilever’s sales currently, and thus, it will eventually be sizeable to Unilever in

the future. On the same note, Indofood CBP (ICBP) is also looking to put more focus on its ice cream business

“Indoeskrim” starting next year.





Year end Dec 2014 2015 2016F 2017F 2018F

Net revenue 34,512 36,484 39,921 44,229 48,965

Net revenue

growth (%) 12.2% 5.7% 9.4% 10.8% 10.7%

Gross profit 17,207 18,649 20,888 23,961 26,990

Opr profit 8,030 7,944 8,867 10,251 11,376

EBITDA 8,385 8,427 9,476 10,910 12,086

Net income/exp -86 -110 -146 -194 -212


Other income/(exp) 0 0 0 0 0

Pre-tax profit 7,945 7,834 8,721 10,057 11,164

Tax 2,001 1,978 2,180 2,514 2,791



Reported net profit 5,944 5,856 6,541 7,543 8,373

Core net profit 5,944 5,856 6,541 7,543 8,373

Growth (%) 11.9% -1.5% 11.7% 15.3% 11.0%


Growth (%) 1% 9.1% 17.0% 15.3% 11.0%

Dividend payout

ratio 86% 95% 100% 100% 100%

Year end Dec 2014 2015 2016F 2017F 2018F


Other curr asset 5,478 5,995 5,998 6,620 7,337

Net fixed asset 7,348 8,321 9,211 9,552 9,842

Other asset 595 786 767 818 901

Total asset 14,281 15,730 16,523 17,677 19,010

ST debt 1,250 1,700 2,795 3,096 3,428

Other curr liab 7,614 8,428 8,063 8,842 9,756

LT debt 0 0 0 0 0

Other LT Liab 670 775 838 911 999




Net (debt) / cash 391 1,072 2,248 2,409 2,497


Net Working capital -2,136 -2,433 -2,065 -2,222 -2,419

Debt 1,250 1,700 2,795 3,096 3,428

Year end Dec 2014 2015 2016F 2017F 2018F

Core Net Profit 5,944 5,856 6,541 7,543 8,373

Depr / Amort 354 483 610 660 710

Chg. in non-cash Working

Cap 293 296 -368 157 197

Others -129 -337 0 0 0

CF's from oprs 6,236 6,463 6,299 6,783 8,359

Capex -1,000 -1,100 -1,500 -1,000 -1,000

Others -7 -329 19 -52 -83


Net change in debt -5,243 -5,325 -5,446 -7,241 -8,041

Others 390 183 63 73 88

CF's from financing -4,854 -5,142 -5,383 -7,168 -7,953

Net cash flow 602 -273 -81 140 244

Cash at BoY 261 859 628 547 687

Cash at EoY 859 628 547 687 930

Free Cashflow 5,463 5,199 5,283 7,359 8,280

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin 49.9% 51.1% 52.3% 54.2% 55.1%

Opr Margin 23.3% 21.8% 22.2% 23.2% 23.2%

EBITDA Margin 24.3% 23.1% 23.7% 24.7% 24.7%

Core Net Margin 17.2% 16.1% 16.4% 17.1% 17.1%

ROAE 125.2

%

121.3

%

135.5

%

156.2

%

173.4

%

ROAA 41.6% 37.2% 39.6% 42.7% 44.0%

Stability

Current ratio (x) 0.7 0.7 0.6 0.6 0.6




Efficiency

A/P (days) 87 96 87 90 90

A/R (days) 29 30 28 29 29



Sales 8,745 8,937 9,988 10,757 9,356

Gross Profit 4,435 4,685 5,021 5,470 4,812


Net Profit 1,253 1,669 1,570 1,728 1,452

Gross Margins 50.7% 52.4% 50.3% 50.9% 51.4%

Opr Margins 19.5% 25.6% 21.5% 21.7% 21.4%

Net Margins 14.3% 18.7% 15.7% 16.1% 15.5%

Date

1-Nov-82 IPO @ Rp3,175

11-Jul-89 1:6 bonus issue

7-Mar-93 6.688:100 bonus issue

1-Feb-98 Company listing

6-Nov-00 1:10 stock split

15-Sep-03 1:10 stock split


More optimistic on margin expansion!

RALS recorded IDR362bn net profit in 9M16, on the back of strong im-

provement of net margin to 5.6% (vs. 5.0% in 9M15). Margin expansion

was notably due to: 1) Strong SSSG of 7.1% mtd in 9M16, 2) Better

merchandise mix, wherein Direct Purchases (DP) fashion products contin-

ue to post strong growth of 13%, and 3) Improvement in RALS’ super-

market business (“SPAR”) despite still recording a net operating loss of

IDR51bn (vs. IDR88bn net loss in 9M15).

And even more optimistic on 2017 sales growth!

We see that RALS continuously grab market share vs. LPPF thanks to its

successful promotional activities and transformation strategy. We are

optimistic that RALS could achieve 7.0% SSSG next year, especially as

we expect SSSG improvements in outer-Java area thanks to rising coal

price. We also expect margin to further expand in 2017 as we expect DP

products to continue posting strong growth and as more supermarkets

are converted to SPAR which has better profitability.

Greatest beneficiary of rising coal price

While many retailers are focusing growth only in Java area, RALS has had

an established presence in Kalimantan and Sumatera area. In fact, outer

Java area contributed 39.1% to RALS total sales in 10M16 (vs. 33.8% for

Greater Jakarta and 27.1% for the rest of Java). As coal price passed the

USD100/tonne level by the end of last month, we expect further increase

to consumer purchasing power in those areas as small miners resume

their production.

Reiterate BUY with upgraded TP of IDR1,900 (+66% ups.)

We upgraded our net profit estimates by 9.1% and 17.0% in 2016-17F,

respectively, on the back of better-than-expected profit margins—

reiterating our positive view on the company! Our TP is pegged to 1.8x

PEG (-0.5 stdev from 3-years average forward PE) and implies 25.1x

2017F PE.

Ramayana Lestari Sentosa Better and stronger

Kevie Aditya

([email protected])

Share Price Rp1,145

Sector Retail


BUY Rp1,900

Reuters Code RALS.JK

Bloomberg Code RALS.IJ

Issued Shares 7,096



13.6

52-Wk range 1410 / 550

PT. Ramayana Makmursentosa 55.9%

Public 44.1%

EPS 16E 17E


TRIM vs Cons. (%) 8.6% 13.0%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

PT Ramayana Lestari Sentosa Tbk oper-

ates department stores in Indonesia

which sell items such as clothes, acces-

sories, bags, shoes, cosmetics, and daily

needs.

Year end Dec 2015 2016E 2017E 2018E 2019E

Sales 7,786 8,228 9,014 9,990 11,141

Net Profit 322 437 531 607 686

EPS (Rp) 47.4 61.5 74.9 85.5 96.7

EPS Growth (%) -5.3% 29.9% 21.7% 14.2% 13.1%

DPS (Rp) 27 30 39 47 54

BVPS (Rp) 470 546 616 694 784

P/E (x) 24.2 18.6 15.3 13.4 11.8

Div Yield (%) 2.4% 2.6% 3.4% 4.1% 4.7%

Companies Data



Year end Dec 2015 2016E 2017E 2018E 2019E

Revenue 7,786 8,228 9,014 9,990 11,141

Revenue Growth (%) -2.0% 5.7% 9.5% 10.8% 11.5%

Gross Profit 1,996 2,204 2,454 2,732 3,047

Opr. Profit 234 363 441 507 578

EBITDA 419 561 662 757 855

EBITDA Growth (%) -

14.5%

33.8% 18.2% 14.3% 13.0%

Net Int Inc/(Exp) 114 110 134 149 165


Other Inc/(Exp) 2 1 1 1 1

Pre-tax Profit 365 474 576 658 745

Tax (29) (37) (45) (52) (58)




Core Net Profit 322 437 531 607 686

Growth (%) -9.1% 35.8% 21.7% 14.2% 13.1%


Dividend payout ratio

(%)

54.0% 63.3% 63.3% 63.3% 63.3%


Year end Dec 2015 2016E 2017E 2018E 2019E


Other curr asset 1,987 2,007 2,082 2,180 2,298

Net fixed asset 1,333 1,385 1,640 1,944 2,223

Other asset 1,255 1,667 1,915 2,178 2,529

Total asset 4,575 5,059 5,637 6,303 7,050

ST debt 0 0 0 0 0

Other curr liab 961 902 988 1,095 1,210

LT debt 0 0 0 0 0

Other LT Liab 280 280 280 280 280




Net debt / (cash) (844) (1,256) (1,504) (1,768) (2,119)

Total cap employed 472 472 472 472 472

Net Working capital 47 (79) 10 9 (2)

Debt 0 0 0 0 0

Cash Flow (Rpbn)

Year end Dec 2015 2016E 2017E 2018E 2019E

Net Profit 336 437 531 607 686

Depr / Amort 186 198 222 250 277

Chg in Working Cap 47 (79) 10 9 (2)

Others 0 0 (0) 0 (0)

CF's from oprs 568 556 764 865 961

Capex (104) (250) (477) (554) (556)

Others 75 (0) 0 0 0

CF's from investing (29) (250) (477) (554) (556)

Net change in debt 0 0 0 0 0

Others (320) 106 (39) (47) (54)

CF's from financing (320) 106 (39) (47) (54)

Net cash flow 219 412 248 264 351

Cash at BoY 625 844 1,256 1,504 1,768

Cash at EoY 844 1,256 1,504 1,768 2,119

Free Cashflow 465 306 287 311 405

Key Ratio Analysis

Year end Dec 2015 2016E 2017E 2018E 2019E

Profitability

Gross Margin (%) 25.6% 26.8% 27.2% 27.3% 27.3%

Opr Margin (%) 3.0% 4.4% 4.9% 5.1% 5.2%

EBITDA Margin (%) 5.4% 6.8% 7.3% 7.6% 7.7%

Core Net Margin (%) 4.1% 5.3% 5.9% 6.1% 6.2%

ROAE (%) 10.1% 12.1% 12.9% 13.1% 13.1%

ROAA (%) 7.4% 9.1% 9.9% 10.2% 10.3%


Net Debt to Equity (x) -25% -32% -34% -36% -38%

Net Debt to EBITDA

(x)

-201% -224% -227% -233% -248%

Interest Coverage (x) Efficiency A/P (days) 55.34 51.21 46.56 46.12 45.90

A/R (days) 0.15 0.13 0.10 0.10 0.10

Inventory (days) 51.45 50.56 49.11 48.74 48.56


2015 2016E 2017E 2018E 2019E

Sales 2,628 1,721 1,485 2,883 2,072

Gross Profit 714 426 394 802 562

Opr. Profit 204 11 (16) 270 107

Net profit 213.66 61.54 8.40 245.65 107.59

Gross Margin (%) 27.2% 24.7% 26.6% 27.8% 27.1%

Opr Margin (%) 7.8% 0.6% -1.0% 9.4% 5.1%

Net Margin (%) 8.1% 3.6% 0.6% 8.5% 5.2%

Capital History

Date

15-Jul-96 IPO @ Rp. 3,200


We visited Zara Vietnam (operated by MAPI) earlier this month…

The store is located in the heart of Ho Chi Minh city (HCMC) in Vincom

Center B—one of the most prestigious shopping centers in town. The

store is very crowded, not only on weekends but also on weekdays—

definitely a BOOM! The crowd seems to be at least 3x of that in a Jakarta

store—which implies that it should be highly profitable (please refer to

our Walking the Streets: Retailers in Ho Chi Minh report dated Nov 16th,

2016)

Our rough calculation suggests that Zara Vietnam could contrib-

ute at least IDR1bn revenue per day!

Assuming that Zara accounted for 80% Inditex sales (wherein Inditex

contributed 25% of specialty stores’ sales), each store in Jakarta contrib-

utes ~IDR150bn annualized revenue per year in 9M16— approximately

IDR400mn revenue per day. Meanwhile, from 9M16 financial statement,

we can see that Vietnam has contributed IDR40bn after half-month of

opening, so roughly calculating revenue per day will be ~IDR2.5bn. Con-

servatively assuming that sales stabilized after months of opening, we

are confident that Zara Vietnam could still contribute at least IDR1bn

revenue per day (2-3x Zara Indonesia’s revenue)—and thus, IDR360bn

revenue per year!

Conservatively assuming an EBIT margin of 8% (MAPI’s 9M16 specialty

stores’ EBIT margin stands at 6.2%), we expect an additional EBIT of

~IDR30bn/year! Fantastic number, in our view, considering MAPI’s 9M16

EBIT number merely stand at IDR577bn. We expect profit from Vietnam

store to positively affect MAPI’s 4Q16 profitability, noting that Zara Vi-

etnam store has only start operating in mid Sept’16!

Optimistic on our BUY call, increase TP to IDR7,200 (+50% ups!)

In addition to our optimism on Zara Vietnam, we remains optimistic on

further margin expansion on the back of controlled inventory level and

more focused expansion. We now peg our TP to 0.7x PEG, 30% discount

for 3-years average forward PEG. Our TP IDR7,200 implies 23.6x 2017

Core PE and 6.2x 2017F EV/EBITDA. BUY!

Mitra Adi Perkasa Zara Vietnam is the next game changer!

Kevie Aditya

([email protected])

Share Price Rp4,870

Sector Retail


BUY Rp7,200

Reuters Code MAPI.JK

Bloomberg Code MAPI.IJ

Issued Shares 1,660



7.9

52-Wk range 5900 / 3500

PT Satya Mulia Gema Gemilang 56.0%

Public 44.0%

EPS 16F 17F


TRIM vs Cons. (%) -19.8% 25.0%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

PT Mitra Adiperkasa Tbk operates depart-

ment stores and specialty stores selling a

broad range of goods including clothing,

toys, food, and other merchandise.

Year end Dec 2015 2016F 2017F 2018F 2019F

Sales 12,833 14,500 16,687 19,285 22,441

Net Profit 37 154 412 639 877

EPS (Rp) 22 93 248 385 528

Core Net Profit 39 243 507 734 972

Core EPS (Rp) 24 146 305 442 585

Core EPS Growth (%) -45.5% 518.4% 108.6% 44.8% 32.4%

DPS (Rp) 0 3 14 37 58

BVPS (Rp) 1,792 2,028 2,167 2,420 2,795

Core P/E (x) 205.8 33.3 16.0 11.0 8.3

Div Yield (%) 0.0% 0.1% 0.3% 0.8% 1.2%

Companies Data



Year end Dec 2015 2016F 2017F 2018F 2019F

Revenue 12,833 14,500 16,687 19,285 22,441

Revenue Growth (%) 8.5% 13.0% 15.1% 15.6% 16.4%

Gross Profit 5,783 6,635 7,720 9,018 10,494

Opr. Profit 523 792 1,053 1,386 1,720

EBITDA 1,120 1,428 1,749 2,147 2,555

EBITDA Growth (%) 2.4% 27.5% 22.4% 22.8% 19.0%

Net Int Inc/(Exp) (388) (434) (324) (278) (216)

Gain/(loss) Forex (32) (22) 0 0 0

Other Inc/(Exp) 46 (56) (43) (43) (43)

Pre-tax Profit 148 280 687 1,065 1,461

Tax (118) (126) (275) (426) (585)

Minority Int. (7) 0 0 0 0



Core Net Profit 39 243 507 734 972

Growth (%) -50.0% 468.9% 122.5% 51.9% 35.7%


Dividend payout

ratio (%)

0.0% 15.0% 15.0% 15.0% 15.0%


Year end Dec 2015 2016F 2017F 2018F 2019F

Cash and equivalents 504 1,978 352 466 305

Other curr asset 5,192 5,620 6,202 6,888 7,771

Net fixed asset 2,674 2,560 2,456 2,356 2,252

Other asset 1,113 1,113 1,113 1,113 1,113

Total asset 9,483 11,271 10,123 10,823 11,441

ST debt 937 1,282 621 0 0

Other curr liab 2,354 2,678 2,885 3,130 3,446

LT debt 2,719 3,446 2,520 3,178 2,856

Other LT Liab 498 498 498 498 498




Net debt / (cash) 3,152 2,750 2,790 2,712 2,551



Debt 3,656 4,729 3,142 3,179 2,856

Cash Flow (Rpbn)

Year end Dec 2015 2016F 2017F 2018F 2019F

Net Profit 30 154 412 639 877

Depr / Amort 597 636 695 761 834

Chg in Working Cap (379) (107) (374) (442) (566)

Others 7 0 0 0 0

CF's from oprs 255 683 733 958 1,145

Capex (592) (522) (591) (661) (730)

Others (59) 0 0 0 0


Net change in debt 558 1,073 (1,587) 37 (322)

Others (19) 238 (181) (220) (254)

CF's from financing 539 1,310 (1,768) (183) (576)

Net cash flow 143 1,471 (1,626) 115 (161)

Cash at BoY 513 504 1,978 352 466

Cash at EoY 504 1,978 352 466 305

Free Cashflow (268) 443 361 490 570

Key Ratio Analysis

Year end Dec 2015 2016F 2017F 2018F 2019F

Profitability

Gross Margin (%) 45.1% 45.8% 46.3% 46.8% 46.8%

Opr Margin (%) 4.1% 5.5% 6.3% 7.2% 7.7%

EBITDA Margin (%) 8.7% 9.8% 10.5% 11.1% 11.4%

Core Net Margin (%) 0.3% 1.4% 2.6% 3.4% 4.0%

ROAE (%) 1.3% 6.2% 12.6% 17.5% 20.9%

ROAA (%) 0.4% 1.9% 4.1% 6.4% 8.1%



Net Debt to EBITDA

(x)

2.8 1.9 1.6 1.3 1.0



A/R (days) 9 9 9 9 9

Inventory (days) 171 171 171 171 171


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 3,299 3,432 3,167 3,494 3,629

Gross Profit 1,477 1,598 1,448 1,604 1,682

Opr. Profit 115 217 131 215 232

Net profit (6) 10 15 31 74

Gross Margin (%) 44.8% 46.6% 45.7% 45.9% 46.3%

Opr Margin (%) 3.5% 6.3% 4.1% 6.1% 6.4%

Net Margin (%) -0.2% 0.3% 0.5% 0.9% 2.0%

Capital History

Date

10-Nov-04 IPO @ Rp625


3Q16 result is indeed disappointing, but looks priced in

LPPF posted a –22.2% SSSG in 3Q16 alone, a bit disappointing even after

taking into account the seasonality basis (it was lower than management’s

guidance of –18-20% SSSG). Cumulative SSSG currently stands at 6.0%,

hence management decided to change their FY16 SSSG forecast to 5.0-

6.5% (vs. previous guidance of 7.0-7.5%).

The lower-than-expected 3Q SSSG was mainly attributed to the weakening

sales of consignment products, which affects Greater Jakarta the most

(which has higher sales contribution coming from consignment products). An

internal assortment problem on ladies’ and girls’ apparels are mentioned to

be the cause of weakening consignment sales. Management is confidence

that the problem is temporary, but we believe we have yet to see further

progress on this issue.

However, we see that LPPF’s share price has fallen by 24% during the past 3

months (while JCI rose 1%!), so it seems that investors have been pricing in

the 3Q result, in our view.

Nevertheless, 9M16 EBIT margin expanded by 70bps to 26.9%

Despite weak sales growth, LPPF’s merchandise margins have continued to

improve (on the back of higher portion of Direct Purchase products) and

efficiency is coming from the use of LTE lighting (utilities & telco accounted

for 2.8% of sales in 9M16 vs. 3.9% in 9M15). Ytd, a total of 110 out of 148

stores have used LTE lighting.

Still bullish on better purchasing power next year, but expect con-

servative SSSG for LPPF on the back of tightening competition

We expect to end the year with a 5.5% SSSG, and expect SSSG to strength-

en to 6.0% by the end of next year. Our SSSG is considerably conservative,

in our view, considering that LPPF posted double digits SSSG during years

2010-14. Although we are bullish on better purchasing power next year, we

are concerned on more competition coming from RALS (Buy, TP IDR1,900)

that has shown good progress on its transformation and is likely to gain

more market share, in our view.

Undemanding valuation! Maintain BUY with lower TP of IDR20,000

LPPF is currently trading at 18.7x 2017F P/E, trading at below –2SD of its 3-

years historical forward PE band. It is indeed an attractive entry point, in our

view, especially after considering that LPPF is still a solid company with

continuously improving sales and profitability margins. We now peg our

valuation to 1.6x PEG, in order to better accommodate the slower EPS

growth that we expect in the upcoming years. Our target price reflects 24.3x

2017F PE.

PT Matahari Department Store Tbk en-

gages in the retail business for several

types of products such as clothes, acces-

sories, bags, shoes, cosmetics, house-

hold appliances, and management con-


Sector Retail


Year end 31 Dec 2015 2016F 2017F 2018F 2019F

Sales 16,083 17,606 19,768 22,449 25,432

Core Net Profit 1,774 2,078 2,400 2,764 3,181

Core EPS (Rp) 608 712 823 948 1,090

EPS Growth (%) 23.2% 17.1% 15.5% 15.2% 15.1%

DPS (Rp) 292 427 499 576 663

BVPS (Rp) 379 664 988 1,360 1,787

P/E (x) 23.4 20.0 17.3 15.0 13.1

Div Yield (%) 2.0% 2.9% 3.4% 3.9% 4.5%

Matahari Department Store Cheap valuation, weak 3Q result seems priced in

BUY Rp20,000

Reuters Code LPPF.JK

Bloomberg Code LPPF.IJ

Issued Shares 2,918



106.2

52-Wk range 22575 / 13325

PT. Multipolar Tbk 17.5%

Public (<5%) 82.5%

EPS 16F 17F


TRIM vs Cons. (%) -3.2% -2.3%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price Company Data

Kevie Aditya

([email protected])



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 14,451 16,083 17,606 19,768 22,449

Revenue Growth (%) 17.3% 13.6% 10.9% 12.7% 13.6%

Gross Profit 5,048 5,671 6,295 7,112 8,077

Opr. Profit 2,111 2,330 2,600 2,993 3,437

EBITDA 2,339 2,570 2,867 3,294 3,779

EBITDA Growth (%) 17.7% 9.9% 11.6% 14.9% 14.7%

Net Int Inc/(Exp) (233) (93) 19 33 47


Other Inc/(Exp) (27) 8 0 0 0

Pre-tax Profit 1,851 2,245 2,619 3,026 3,484

Tax (431) (464) (541) (625) (720)




Core Net Profit 1,440 1,774 2,078 2,400 2,764

Growth (%) 23.4% 25.5% 16.7% 15.5% 15.2%


Dividend payout ratio 40.0% 60.0% 70.0% 70.0% 70.0%


Year end 31 Dec 2014 2015 2016F 2017F 2018F

Cash and equivalents 786 947 1,653 2,373 3,333

Other curr asset 1,332 1,326 1,444 1,715 1,914

Net fixed asset 726 877 1,040 1,222 1,428

Other asset 569 740 740 740 740

Total asset 3,413 3,889 4,876 6,049 7,416

ST debt 279 0 0 0 0

Other curr liab 2,240 2,439 2,594 2,822 3,104

LT debt 410 0 0 0 0

Other LT Liab 325 344 344 344 344



Shareholders Equity 159 1,106 1,937 2,883 3,967

Net debt / (cash) (97) (947) (1,653) (2,373) (3,333)

Total cap employed 894 1,450 2,281 3,227 4,311

Net Working capital (908) (1,113) (1,151) (1,107) (1,190)

Debt 689 0 0 0 0

Cash Flow (Rpbn)

Year end 31 Dec 2014 2015 2016F 2017F 2018F

Net Profit 1,419 1,781 2,078 2,400 2,764

Depr / Amort 228 241 267 301 342

Chg in Working Cap 227 227 38 (44) 83

Others 179 196 0 0 0

CF's from oprs 1,874 2,249 2,383 2,657 3,189

Capex (171) (334) (430) (483) (549)

Others (98) (129) 0 0 0


Net change in debt (988) (700) 0 0 0

Others (629) (925) (1,247) (1,454) (1,680)

CF's from financing (1,617) (1,625) (1,247) (1,454) (1,680)

Net cash flow (12) 161 706 720 960

Cash at BoY 798 786 947 1,653 2,373

Cash at EoY 786 947 1,653 2,373 3,333

Free Cashflow 1,903 1,982 1,938 2,148 2,603

Key Ratio Analysis

Year end 31 Dec 2014 2015 2016F 2017F 2018F

Profitability Gross Margin (%) 34.9% 35.3% 35.8% 36.0% 36.0%

Opr Margin (%) 14.6% 14.5% 14.8% 15.1% 15.3%

EBITDA Margin (%) 16.2% 16.0% 16.3% 16.7% 16.8%

Core Net Margin

(%)

10.0% 11.0% 11.8% 12.1% 12.3%

ROAE (%) -447.9% 281.5% 136.5% 99.6% 80.7%

ROAA (%) 44.7% 48.8% 42.6% 39.7% 37.3%


Net Debt to Equity

(x)

(0.6) (0.9) (0.9) (0.8) (0.8)

Net Debt to EBITDA

(x)

(0.0) (0.4) (0.6) (0.7) (0.9)

Interest Coverage

(x)

9.0 25.1 (137.3) (90.5) (72.4)


A/R (days) 5 3 3 3 3

Inventory (days) 120 109 109 120 120


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 5,260 3,891 3,279 5,770 4,186

Gross Profit 1,812 1,378 1,162 2,122 1,468

Opr. Profit 927 544 367 1,155 560

Net profit 736 397 244 913 453

Gross Margins (%) 34.4% 35.4% 35.4% 36.8% 35.1%

Opr Margins (%) 17.6% 14.0% 11.2% 20.0% 13.4%

Net Margins (%) 14.0% 10.2% 7.4% 15.8% 10.8%

Capital History

Date

October-1989 IPO @IDR7,900

July-1990 1:5 Bonus Issue

July-1992 2:1 Bonus Issue

July-1994 1:5 Stock Div

June-1997 Founder Shareholder

July-2001 Right Issue

November-2009 Reverse Stock 5:1

December-2009 Additional share HMETD


No surprise in 9M16, in-line!

ERAA booked IDR15.6bn revenue in 9M16, up by 11.8% YoY and is in-

line with our estimates. We remain optimistic on ERAA’s performance

until the end of this year—especially as ERAA usually book better sales

during year-end. Gross margin slightly improved to 8.2% (vs. 7.9% in

9M15) on the back of 1) Increased contribution from retail sales which

have better margins, 2) Better margins from ERAA’s handset sales, and

3) Rapid growth of accessories sales which have higher margins.

Rapid expansion of retail outlets

Until 9M16, ERAA had expanded its retail outlets to a total of 668 outlets

(vs. 603 outlets in 2Q16 and 556 outlets in 4Q15!). We see this as ER-

AA’s commitment to further increase their higher margin retail sales

contribution—as it aims for 45% of its total sales to come from its retail

business.

Samsung’s Galaxy Note 7 recall: merely a lost opportunity

We knew that the failure of Galaxy Note 7 has negatively impact ERAA’s

share price in the past few months. However, we learnt that the inci-

dence neither negatively impact ERAA’s sales nor profitability because all

the loss was handled by Samsung (those who have pre-ordered through

ERAA was given a IDR1mn shopping voucher).

Nevertheless, we see the incidence as a lost opportunity. We strongly

believe ERAA’s earnings could easily surpass our numbers if they suc-

cessfully marketed Galaxy Note 7—noting that the phone was highly

sought during the pre-order period.

Local contents regulation (“TKDN”) is a definite positive for ERAA

ERAA is on the process of contract negotiation with two international

manufacturers, as many manufacturers are trying to fulfill the TKDN

requirement as soon as possible. Lately we also see less competition

from online retailers, as now they have to comply to the regulation—

thus, not selling handsets that have not fulfilled “TKDN”.

Maintain BUY with lower TP IDR800

We maintain our forecast for ERAA, but lower our TP to IDR800 as we

now peg our TP to 8.0x 2017F PE (-0.7SD from its 3-years average for-

ward PE). Note that ERAA is still the cheapest retailer in our universe,

currently trading at merely 6.1x 2017F P/E.

Erajaya Swasembada Continues to execute well

Kevie Aditya

([email protected])

Share Price Rp605

Sector Retail


BUY Rp800

Reuters Code ERAA.JK

Bloomberg Code ERAA.IJ

Issued Shares 2,900



8.0

52-Wk range 930 / 482

PT Eralink International 60.0%

Public 40.0%

EPS 16E 17E


TRIM vs Cons. (%) -9.6% -7.4%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

PT Erajaya Swasembada Tbk distributes

and retails cellular telephones. The

Company is licensed to distribute inter-

national brands of cell phones, and oper-

ates a chain of retail shops in Indonesia.

Companies Data

Year end Dec 2015 2016F 2017F 2018F 2019F

Revenue 20,008 23,211 25,721 28,277 30,835

Net Profit 226 247 290 363 410

EPS 78 85 100 125 141

Core Profit 226 247 290 363 410

Profit Growth (%) 6.9% 9.3% 17.5% 25.1% 12.8%

Core EPS (Rp) 78 85 100 125 141

DPS (Rp) 20 20 25 30 50

Core P/E (x) 7.8 7.1 6.1 4.8 4.3

EV/EBITDA (x) 6.9 7.2 6.3 6.5 6.0

Div Yield (%) 3.7% 3.3% 4.1% 5.0% 5.9%



Cash Flow (Rpbn) Key Ratio Analysis


2Q15 3Q15 4Q15 1Q16 2Q16

Sales 4,732 5,267 6,057 4,850 5,512

Gross Profit 363 384 401 409 469

EBITDA 118 124 136 144 159

Opr. Profit 103 113 123 129 144

Net profit 40 54 62 61 65

Core profit 40 54 62 61 65

Gross Margins (%) 7.7% 7.3% 6.6% 8.4% 8.5%

EBITDA Margins (%) 2.5% 2.4% 2.3% 3.0% 2.9%

Opr Margins (%) 2.2% 2.1% 2.0% 2.6% 2.6%

Net Margins (%) 0.8% 1.0% 1.0% 1.3% 1.2%

Core Margins (%) 0.8% 1.0% 1.0% 1.3% 1.2%

Capital History

Date

14-Dec-11 IPO@Rp1,000

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 14,451 20,008 23,211 25,721 28,277

Revenue Growth (%) 14% 38% 16% 11% 10%

Gross Profit 1,289 1,506 1,834 2,019 2,234

Opr. Profit 409 393 408 473 558

EBITDA 449 440 457 524 613

EBITDA Growth (%) -14% -2% 4% 15% 17%

Net Int Inc/(Exp) -89 -181 -154 -161 -174

Gain/(loss) Forex -1 -5 -2 -3 0

Other Inc/(Exp) 69 87 87 94 98

Pre-tax Profit 296 320 332 389 484

Tax 82 91 83 97 121




Core Net Profit 212 226 246 289 360

growth (%) -39% 7% 9% 17% 25%


growth (%) -1 N/A 0% 27% 17%


Year end Dec 2014 2015 2016F 2017F 2018F


Other curr asset 4,124 5,339 5,805 6,060 6,514

Net fixed asset 402 437 466 495 522

Other asset 1,430 1,898 1,970 1,977 1,987

Total asset 6,126 7,800 8,283 8,671 9,209

ST debt 1,439 1,450 1,350 1,350 350

Other curr liab 1,474 2,945 3,280 3,438 3,585

LT debt 124 140 186 186 1,286

Other LT Liab 76 60 67 75 84




Net cash (debt) (1,393) (1,463) (1,494) (1,396) (1,450)



Debt 1,563 1,590 1,536 1,536 1,636

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 212 226 246 289 360

Depr / Amort 40 48 49 52 55

Chg in Working Cap -147 197 -133 -110 -284

Others -297 -428 -70 6 -33

CF's from oprs -193 43 92 237 98

Capex -168 -75 -78 -80 -82

Others -22 12 0 0 0


Net change in debt 390 49 -76 0 100

Others 82 -72 -22 -59 -70

CF's from financing 472 -23 -98 -59 30

Net cash flow 89 -43 -85 98 46

Cash at BoY 80 170 127 42 140

Cash at EoY 170 127 42 140 185

Free Cashflow -360 -32 14 156 15

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 8.9% 7.5% 7.9% 7.8% 7.9%

Opr Margin (%) 2.8% 2.0% 1.8% 1.8% 2.0%

EBITDA Margin (%) 3.1% 2.2% 2.0% 2.0% 2.2%

Core Net Margin (%) 1.5% 1.1% 1.1% 1.1% 1.3%

ROAE (%) 7.3% 7.3% 7.5% 8.2% 9.6%

ROAA (%) 3.8% 3.2% 3.1% 3.4% 4.0%

Stability

Current ratio (x) 1.5 1.2 1.3 1.3 1.7





A/R (days) 32 34 34 34 34



10M16 numbers show improvement in terms of sales

ACES managed to book strong performance in 10M16 with 3.7% SSSG,

in our view, considering that last year was its 20th Anniversary Boom

Sale—drawing optimism to recovery in 4Q16 despite disappointing 3Q16.

We revised our SSSG target to 1.5% for this year (from 2.5% previously)

on the back of its disappointing 3Q. Note that 10M16 SSSG stands at

1.1%, so we expect ACES to maintain its strong performance in the last 2

months of this year.

More optimistic on next year, although remains conservative

We expect 3.0% SSSG next year on the back of our optimism towards

better consumer purchasing power for middle-upper segment next year,

post-tax amnesty. As seen in our proprietary survey (see page 63), there

is indeed growing appetite to purchase property next year. Although it is

still too early to judge on how this is going to impact ACES, we definitely

see this as a positive trend for ACES. Note that we view 3.0% SSSG as a

very conservative number considering that ACES booked >5.0% SSSG in

the years 2010-13.

Share price has dropped 16% in the last 3 months

We view that the stock has been over-punished over the past few months

on the back of its disappointing sales figure in 3Q16. Nevertheless, we

admire ACES for being able to maintain its profitability margins at a

respectable level (12.4% EBIT margin in 9M16 vs. 12.9% in 9M15).

Thus, we upgrade our call to BUY with maintained TP of IDR950

(+12% ups.)

We pegged our TP to 1.6x PEG (with 13.5% EPS CAGR 2017-20F), imply-

ing 20.9x 2017F PE—which is ACES’ 3-years average forward PE. Down-

side risks to our call include: 1) Rupiah depreciation that lowers consum-

er’s purchasing power (note that for ACES, Rupiah depreciation is passed

on to customers), and 2) Further slowdown of property market.

Ace Hardware Indonesia Has been overpunished, upgrade to Buy!

Kevie Aditya

([email protected])

Share Price Rp845

Sector Retail


BUY Rp950

Reuters Code ACES.JK

Bloomberg Code ACES.IJ




5.0

52-Wk range 1040 / 730

PT Kawan Lama Sejahtera 60.0%

Public 40.0%

EPS 16E 17E


TRIM vs Cons. (%) 23.3% 12.8%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price Year end Dec 2015 2016E 2017E 2018E 2019E

Sales 4,743 5,058 5,625 6,261 6,973

Net Profit 568 681 774 872 986

EPS (Rp) 33 40 45 51 58

EPS Growth (%) 2.9% 19.9% 13.5% 12.7% 13.1%

DPS (Rp) 16 17 21 22 25

BVPS (Rp) 154 181 205 234 267

P/E (x) 25.0 20.9 18.4 16.3 14.4

Div Yield (%) 1.9% 2.0% 2.5% 2.6% 3.0%

Companies Data

Ace Hardware Indonesia is a home

improvement and lifestyle retailer es-

tablished by a reputable Kawan La-

ma Group. They cater middle-class

consumers with more than 70,000 SKUs.



Year end Dec 2015 2016E 2017E 2018E 2019E

Revenue 4,743 5,058 5,625 6,261 6,973

Revenue Growth (%) 4.4% 6.7% 11.2% 11.3% 11.4%

Gross Profit 2,254 2,403 2,693 3,016 3,378

Opr. Profit 688 697 790 893 1,012

EBITDA 778 791 906 1,032 1,177

EBITDA Growth (%) 3.8% 1.7% 14.5% 13.9% 14.1%

Net Int Inc/(Exp) 6 12 20 23 27


Other Inc/(Exp) 26 197 134 149 166

Pre-tax Profit 737 906 945 1,065 1,205

Tax (152) (168) (176) (198) (224)

Minority Int. (3) (4) (5) (5) (6)



Core Net Profit 568 681 774 872 986

Growth (%) 2.9% 10.8% 14.3% 13.0% 13.5%

Dividend per share 16.0 16.7 21.1 22.0 24.8

Dividend payout ratio

(%)

48.5% 48.5% 48.5% 48.5% 48.5%


Year end Dec 2015 2016E 2017E 2018E 2019E

Cash and equivalents 622 873 989 1,169 1,393

Other curr asset 1,846 1,978 2,175 2,397 2,644

Net fixed asset 457 487 584 680 773

Other asset 343 361 374 389 406

Total asset 3,268 3,698 4,123 4,635 5,216

ST debt 23 0 0 0 0

Other curr liab 389 391 406 427 450

LT debt 0 0 0 0 0

Other LT Liab 226 226 226 226 226

Minority interest 1 (4) (8) (13) (19)



Net debt / (cash) (599) (873) (989) (1,169) (1,393)



Debt 23 0 0 0 0

Cash Flow (Rpbn)

Year end Dec 2015 2016E 2017E 2018E 2019E

Net Profit 588 742 774 872 986

Depr / Amort 82 94 116 139 165

Chg in Working Cap (24) (142) (196) (217) (241)

Others 41 6 0 0 0

CF's from oprs 643 690 689 789 905

Capex (130) (124) (213) (235) (258)

Others 7 0 0 0 0


Net change in debt (4) (23) 0 0 0

Others (290) (285) (360) (375) (423)

CF's from financing (294) (308) (360) (375) (423)

Net cash flow 225 257 116 180 224

Cash at BoY 391 616 873 989 1,169

Cash at EoY 616 873 989 1,169 1,393

Free Cashflow 513 566 476 555 647

Key Ratio Analysis

Year end Dec 2015 2016E 2017E 2018E 2019E

Profitability

Gross Margin (%) 47.5 47.5 47.9 48.2 48.4

Opr Margin (%) 14.5 13.8 14.0 14.3 14.5

EBITDA Margin (%) 16.4 15.6 16.1 16.5 16.9

Core Net Margin (%) 11.1 11.5 11.8 12.0 12.2

ROAE (%) 23.8 26.0 23.5 23.3 23.1

ROAA (%) 18.9 21.3 19.8 19.9 20.0

Stability

Current ratio (x) 6.0 7.3 7.8 8.4 9.0


Net Debt to EBITDA

(x)

(0.8) (1.1) (1.1) (1.1) (1.2)

Interest Coverage (x) 224.9 263.8 NA! NA NA

Efficiency

A/P (days) 17 16 16 15.9 15.9

A/R (days) 1.2 1.2 1.6 1.6 1.6

Inventory (days) 220 220 220 220.2 220.2


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 1,235 1,287 1,161 1,177 1,213

Gross Profit 597 605 556 554 578

Opr. Profit 173 242 159 99 181

Net profit 195 195 140 99 238

Gross Margin (%) 48.3% 47.0% 47.9% 47.1% 47.6%

Opr Margin (%) 14.0% 18.8% 13.7% 8.4% 14.9%

Net Margin (%) 15.8% 15.2% 12.0% 8.4% 19.6%

Capital History

Date


Expect FY16 sales to remain flat until the end of this year

Although we remains positive on better consumer purchasing power this

4Q16, we expect MPPA’s sales figure to stay flat at IDR14.2tn (+1.7%

yoy). We also remain cautious on threats from minimarkets, highlighting

on the good result posted by one of the minimarket players AMRT, which

revenue increases by 18% yoy to IDR41.4tn in 9M16.

Profitability margins are still under-pressure

Even though they are done with inventory actions occurred in the 1H16,

3Q16 EBIT margin is still weak at 2.7% as we see pressures coming from

an increase of rental and salary expenses. Moreover. we don’t expect to

improve much in either 4Q16 or even going forward to next year.

Despite its strong presence in outer Java area, we don’t see MPPA

as the main beneficiary of rising coal price

Coal price has passed the USD100/ton level by the end of last month.

Even though MPPA has established a strong presence in outer Java area

(vs. its hypermarket competitors Carrefour and Giant Ekspres) we are

also still worried on the pressures from the minimarkets which has also

established strong network there.

The good thing is, we see inventory trending down

We see that inventory has consistently fall from 116 days in 1H15 to 84

days in 9M16—definitely a positive. To further create efficiency, MPPA 1)

plans to cut their number of SKUs from 140,000 to 40,000, and 2) has

changed their accounting policy by implementing a shift to the cost

method of inventory valuation—thus, it could better track its sales perfor-

mance and the profitability of each product.

Cut our earnings by 41%/23% for 2016/17F, downgrade to Sell

with TP IDR1,500

We pegged our valuation to 29.3x 2017F PE, which is the 3-years aver-

age forward PE for the year 2012-14 (before inventory problem oc-

curred). Although we definitely see MPPA improving next year, we still

view the stock as expensive in terms of valuation—thus, downgrading our

call to Sell. Upside to our call will include 1) Better than expected SSSG

(especially in outer Java areas, where coal price is rising), 2) Better than

expected marketing income.

Matahari Putra Prima Valuation remains unattractive

Kevie Aditya

([email protected])

Share Price Rp1,700

Sector Retail


SELL Rp1,500



Issued Shares 5,378



10.5

52-Wk range 2130 / 1185

PT. Multipolar Tbk 50.2%

Prime Star Investment Pte.Ltd. 26.1%

Public 23.7%

EPS 16E 17E


TRIM vs Cons. (%) -40.4% -15.4%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

PT Matahari Putra Prima Tbk operates re-

tail stores. The Company focuses on

merchandising operations which includes

general merchandise and food discount

stores, including hypermarkets. Matahari

Putra Prima offers its services throughout

Indonesia.

Year end Dec 2015 2016E 2017E 2018E 2019E

Sales 13,929 14,163 16,332 18,925 21,736

Net Profit 183 82 280 325 381

EPS (Rp) 34 15 52 61 71

Core Net Profit 194 82 280 325 381

Core EPS (Rp) 36 15 52 61 71

Core EPS Growth (%) -61.6% -57.7% 241.6% 16.2% 16.9%

DPS (Rp) 43 33 31 24 28

BVPS (Rp) 516 488 507.4 536.7 583.3

Core P/E (x) 47.2 111.5 32.6 28.1 24.0

Div Yield (%) 2.5% 1.9% 1.8% 1.4% 1.7%

Companies Data



Year end Dec 2015 2016E 2017E 2018E 2019E

Revenue 13,929 14,163 16,332 18,925 21,736

Revenue Growth (%) 2.5% 1.7% 15.3% 15.9% 14.9%

Gross Profit 2,356 2,339 2,796 3,259 3,764

Opr. Profit 282 167 433 502 575

EBITDA 588 524 852 986 1,130

EBITDA Growth (%) -38.4% -10.8% 62.5% 15.8% 14.5%

Net Int Inc/(Exp) -36 -71 -76 -88 -90


Other Inc/(Exp) -14 0 0 0 0

Pre-tax Profit 233 96 357 415 485

Tax -50 -14 -77 -89 -104




Core Net Profit 194 82 280 325 381

Growth (%) -61.6% -57.7% 241.6% 16.2% 16.9%


Dividend payout

ratio (%)

41.7% 97.0% 60.0% 40.0% 40.0%


Year end Dec 2015 2016E 2017E 2018E 2019E


Other curr asset 3,562 3,512 3,779 4,101 4,418

Net fixed asset 1,462 1,575 1,741 1,880 1,991

Other asset 861 861 861 861 861

Total asset 6,294 6,123 6,587 7,179 7,781

ST debt 250 0 0 0 0

Other curr liab 2,565 2,603 2,864 3,189 3,540

LT debt 400 590 690 800 800

Other LT Liab 304 304 304 304 304




Net debt / (cash) -241 -415 -484 -464 -290



Debt 650 590 690 800 800

Cash Flow (Rpbn)

Year end Dec 2015 2016E 2017E 2018E 2019E

Net Profit 194 82 280 325 381

Depr / Amort 307 357 419 484 555

Chg in Working Cap -594 88 -6 2 34

Others -49 -49 -49 -49 -49

CF's from oprs -141 479 644 764 921

Capex -494 -470 -585 -624 -666

Others -89 4 4 4 4


Net change in debt 650 -60 100 110 0

Others -265 -265 -211 -202 -164

CF's from financing 385 -325 -111 -92 -164

Net cash flow -339 -312 -47 53 96

Cash at BoY 748 487 253 284 414

Cash at EoY 409 175 206 336 510

Free Cashflow -195 117 168 258 375

Key Ratio Analysis

Year end Dec 2015 2016E 2017E 2018E 2019E

Profitability

Gross Margin (%) 16.9

%

16.5% 17.1% 17.2% 17.3%

Opr Margin (%) 2.0% 1.2% 2.7% 2.7% 2.6%

EBITDA Margin (%) 4.2% 3.7% 5.2% 5.2% 5.2%

Core Net Margin (%) 1.4% 0.6% 1.7% 1.7% 1.8%

ROAE (%) 6.5% 3.0% 10.5% 11.6% 12.6%

ROAA (%) 3.0% 1.3% 4.4% 4.7% 5.1%



Net Debt to EBITDA

(x)

0.4 0.8 0.6 0.5 0.3



A/R (days) 1 1 1 1 1



3Q15 4Q15 1Q16 2Q16 3Q16

Sales 3,593 3,481 3,265 3,736 3,393

Gross Profit 597 556 459 673 558

Opr. Profit 108 -53 -107 115 90

Net profit 70 -52 -123 102 53

Core profit 72 -57 -120 105 56

Gross Margin (%) 16.6% 16.0% 14.1% 18.0% 16.5%

Opr Margin (%) 3.0% -1.5% -3.3% 3.1% 2.7%

Net Margin (%) 1.9% -1.5% -3.8% 2.7% 1.6%

Core Margin (%) 2.0% -1.6% -3.7% 2.8% 1.7%

Capital History

Date

18-Dec-92 IPO @ Rp7,150


Mitra Keluarga Remains ‘healthy’ Patricia Gabriela

([email protected])

Offset impact from UHC: patient volume—revenue per patient

While MIKA’s patient volume is in a recovery mode this year with growth

of 8.9% YoY in 9M16 (vs –1.2% YoY in 9M15), but we see a problem in

its revenue per patient, primarily inpatient. As the impact of UHC

(Universal Health Coverage), MIKA experienced less complex treatment

which contribute much to its revenue per inpatient. Not to mention,

MIKA did not increase its drugs price (47% of revenue, 38% of gross

profit) this year but only services. Hence, MIKA’s revenue per inpatient

in 9M16 declined by 0.5% YoY (vs 12.0% YoY in 9M15). Following this,

we tweaked up our 2016/17F assumption on patient volume by 2.7%

but tweaked down our price increase assumption by 300bps. That being

said, our new 2016/17F revenue down by 2/4% from previous number.

Margin expansion remains on track

MIKA’s drugs procurement strategy applied in 2Q15 has upped its gross

margin by 220bps to 48.1% in 9M16. Company will continue to do drugs

procurement, though we see the impact will be limited as MIKA has

applied the strategy to majority of its hospitals. Company will also do

procurement for its lab business (11-12% of revenue). There will not be

significant margin expansion from such procurement (the business’

COGS is ~17.3% of revenue), but we believe can help improve overall

profitability line.

Hospital expansion on the pipeline

There are two new hospitals outside Jakarta currently under develop-

ment. We expect those new hospitals to start commencing by 2018F,

hence give no hospital expansion in 2017F. However, MIKA’s volume

growth can still be provided from additional bed capacity in existing

hospitals.

Maintain Buy rating on MIKA with similar TP of IDR3,000

MIKA’s valuation will still be a premium compared to competitors, but

MIKA offers: 1) stable and highest profitability line at 29.2% in 2016F

(vs regional’s average at 10.2%), 2) ROE of 19.9% (vs regional’s aver-

age at 11.6%), and 3) dividend payout ratio of ~64% in 2017F (vs

regional’s average at 38.3%). We maintain our TP of IDR3,000 implying

42x 2017F EV/EBITDA; hence Buy rating.

PT Mitra Keluarga Karyasehat Tbk is one

of the largest private hospital groups in

Indonesia with 25 years of brand herit-

age.

Share Price Rp2,580

Sector Healthcare


Year end Dec 2014 2015 2016F 2017F 2018F

Sales (Rp bn) 1,946 2,141 2,444 2,708 3,011

EBITDA (Rp bn) 666 696 852 968 1,103

Net Profit (Rp bn) 517 567 702 777 860

EPS (Rp) 37 39 49 54 60

EPS Growth (%) 30% 5% 24% 11% 11%

DPS (Rp) 34 20 25 32 35

BVPS (Rp) 128 227 245 267 292

EV/EBITDA (x) 52.1 50.1 40.9 36.1 31.7

P/E (x) 69.0 65.7 53.0 47.9 43.3

Div Yield (%) 1.3% 0.8% 1.0% 1.2% 1.4%

Buy Rp3,000

Reuters Code MIKA.JK

Bloomberg Code MIKA.IJ




16.0

52-Wk range 2980 / 2010

Lion Investment Partners B.V. 49.7%

PT Griyainsani Cakrasadaya 32.3%

Public 18%

Core EPS 16F 17F


TRIM vs Cons. (%) 4.2% -0.9%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Companies Data



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 1,946 2,141 2,444 2,708 3,011

Revenue Growth (%) 11.7% 10.0% 14.1% 10.8% 11.2%

Gross Profit 865 972 1,185 1,322 1,474

Opr. Profit 586 604 746 837 941

EBITDA 666 696 852 968 1,103

EBITDA Growth (%) 19.2% 4.5% 22.5% 13.6% 13.9%

Net Int Inc/(Exp) 80 135 144 147 145

Gain/(loss) Forex 2 3 - - -

Other Inc/(Exp) 40 2 18 22 23

Pre-tax Profit 667 739 890 984 1,087

Tax (133) (151) (177) (196) (216)

Minority Int. 17 22 22 22 22



Core Net Profit 533 586 713 788 871

Growth (%) 30.6% 9.9% 21.7% 10.5% 10.5%


growth (%) 3033% -40.7% 25.0% 25.5% 10.7%



Year end Dec 2014 2015 2016F 2017F 2018F


Other curr asset 220 234 245 267 293

Net fixed asset 771 884 1,135 1,442 1,819

Other asset 208 215 243 276 331

Total asset 2,169 3,720 3,987 4,319 4,686

ST debt - - - - -

Other curr liab 205 206 218 229 241

LT debt - - - - -

Other LT Liab 195 235 235 235 235

Minority interest 61 83 - - -



Net debt / (cash) (970) (2,387) (2,365) (2,334) (2,244)


Net Working capital 984 2,415 2,392 2,373 2,295

Debt - - - - -

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 517 567 702 777 860

Depr / Amort 79 91 106 131 161

Chg in Working Cap 58 (14) 2 (12) (13)

CF's from oprs 654 645 811 896 1,008

Capex (173) (113) (357) (438) (538)

Others (70) (6) (28) (33) (55)


Dividend (470) (291) (364) (457) (505)

Others (79) 1,180 (83) - -

CF's from financing (549) 889 (447) (457) (505)

Net cash flow (138) 1,414 (22) (31) (91)

Cash at BoY 1,108 970 2,387 2,365 2,334

Cash at EoY 970 2,387 2,365 2,334 2,244

Free Cashflow 434 445 349 352 364

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 44.4% 45.4% 48.5% 48.8% 49.0%

Opr Margin (%) 30.1% 28.2% 30.5% 30.9% 31.3%

EBITDA Margin (%) 34.2% 32.5% 34.9% 35.7% 36.6%

Core Net Margin (%) 26.5% 26.4% 29.2% 29.1% 28.9%

ROAE (%) 29.9% 22.5% 20.6% 21.0% 21.3%

ROAA (%) 24.0% 19.3% 18.2% 18.7% 19.1%






A/R (days) 25 26 25 24 24



3Q15 4Q15 1Q16 2Q16 3Q16

Sales 500 539 625 636 566

Gross Profit 223 243 296 316 266

EBITDA 157 152 224 230 192

Opr. Profit 135 127 199 205 166

Net profit 130 127 184 188 157

Core profit 134 132 191 195 163

Gross Margins (%) 44.6% 45.2% 47.4% 49.7% 47.0%

EBITDA Margins (%) 31.5% 28.3% 35.8% 36.1% 33.8%

Opr Margins (%) 26.9% 23.5% 31.8% 32.2% 29.4%

Net Margins (%) 25.9% 23.7% 29.4% 29.6% 27.8%

Core Margins (%) 26.7% 24.5% 30.5% 30.7% 28.8%

Capital History

Date

24-Mar-15 IPO@Rp17,000

16-Oct-15 Stock split 1:10


Patricia Gabriela

([email protected])

Siloam Hospital Group is the leader of in-

tegrated healthcare services in Indone-

sia. It operates 20 hospitals in total with

more than 3,900 bed capacity.


Sector Healthcare

Price Target Rp 10,800 (+4%)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Sales (Rp bn) 2,472 3,042 3,845 4,807 6,007

EBITDA (Rp bn) 467 495 581 679 794

Net Profit (Rp bn) 72 70 106 164 201

EPS (Rp) 55 54 82 126 154

EPS Growth (%) 29% -2% 51% 54% 22%

DPS (Rp) - 5 5 8 13

BVPS (Rp) 1,276 1,337 1,417 2,534 2,676

EV/EBITDA (x) 28.5 27.1 23.1 18.4 15.7

P/E (x) 188.3 192.2 127.1 82.3 67.3

Div Yield (%) 0.0% 0.0% 0.1% 0.1% 0.1%

Reuters Code SILO.JK

Bloomberg Code SILO.IJ

Issued Shares 1,301



17.3

52-Wk range 11750 / 7225

PT Megapratama Karya Persada 60.5%

Public 39.5%

Core EPS 16F 17F


TRIM vs Cons. (%) 2.3% 1.9%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Companies Data

Siloam Hospitals CVC’s execution: Long term story

New rental rate applies starting from this year

It has been a public knowing that LPKR, who owns SILO’s land and

building, is short in cash due to its tremendous projects. The impact,

unfortunately, is negative for SILO as LPKR has doubled its rental rate to

SILO. From previous agreement of 1/2/3% in 1st/2nd/3rd year of oper-

ating, to 2/4/6% in SILO’s new hospital opened by 2016F. Given the

case, we tweaked up our 2017/18F rental expense from 2.8% of gross

revenue to 3.2/3.5%.

But finance cost down which brings more upside on earnings

growth

SILO will use some of its proceeds from IDR1.3trn rights issue to pay off

liability to LPKR. Per 9M16, its liabilities to related parties amounted to

IDR352.7bn with avg. rate of 7.97% p.a. By 1Q17, company targets to

pay off its debt to LPKR, hence will wipe off its loan interest by ~90% in

2017/18F, on our calculation.

CVC strategy: focus on each profitability line

To further boost SILO’s earnings, CVC plans to: 1) Increase price per

patient, 2) Rationalize material cost, 3) Reduce its opex through effi-

ciency in human resource, and 4) Increase the utilization of its medical

equipment as it has a fixed opex. SILO will push its CT-Scan and MRI

utilization, thus will not only boost revenue but also reduce its cost

proportion. We note that SILO’s medical equipment utilization is still

below 25%, blended.

Valuation: Neutral on SILO with lower TP of IDR10,800

In our previous report, we mentioned that we are eager to take the risk

on SILO’s improvement as we believe CVC will bring a positive insight to

the company, though more on a long term. While SILO will experience a

higher rental rate, but our 2017F net profit still expand by 11% from

previous number, thanks to finance cost savings. We expect 2017/18F

net margin to be at 2.5/2.5% (vs 2.0% in 2016F). We lowered down our

TP as the impact of rights issue dilution, maintaining our TP valuation at

19.2x 2017F EV/EBITDA.

NEUTRAL Rp10,800



Year end Dec 2014 2015 2016F 2017F 2018F

Net Revenue 2,472 3,042 3,845 4,807 6,007

Revenue Growth

(%)

33.9% 23.1% 26.4% 25.0% 25.0%

Gross Profit 952 1,177 1,505 1,902 2,390

Opr. Profit 146 158 212 254 313

EBITDA 467 495 581 679 794

EBITDA Growth (%) 50.4% 6.0% 17.4% 16.8% 17.1%

Net Int Inc/(Exp) (40) (52) (49) 5 7

Gain/(loss) Forex - - - - -

Other Inc/(Exp) (34) (53) (65) (75) (86)

Pre-tax Profit 106 106 163 259 321

Tax (37) (44) (65) (104) (128)

Minority Int. (3) (9) (9) (9) (9)



Core Net Profit 72 70 106 164 201

Growth (%) 44.1% -2.0% 51.2% 54.4% 22.3%


growth (%) 0.0% 0.0% 17.1% 34.4% 54.4%

Dividend payout

ratio

0% 9% 10% 10% 10%


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and equivalents 280 160 165 1,061 1,110

Other curr asset 561 796 847 1,037 1,275

Net fixed asset 1,589 1,553 1,622 1,701 1,683

Other asset 416 477 477 477 477

Total asset 2,846 2,986 3,111 4,276 4,545

ST debt 16 10 10 10 10

Other curr liab 466 620 641 708 791

LT debt 31 23 23 23 23

Other LT Liab 674 593 593 239 239

Minority interest 5 (4) - - -

Total Liabilities 1,186 1,246 1,267 979 1,063


Net debt / (cash) (233) (127) (132) (1,029) (1,077)


Net Working capital 358 326 361 1,381 1,584

Debt 47 33 33 33 33

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 72 70 106 164 201

Depr / Amort 321 337 369 424 481

Chg in Working Cap 18 (82) (30) (124) (154)

CF's from oprs 411 326 446 465 528

Capex (508) (301) (438) (503) (463)

Others (128) (61) - - -

CF’s from investing (636) (362) (438) (503) (463)

Dividend - (6) (7) (11) (16)

Others (9) (78) 4 945 -

CF’s from financing (9) (84) (3) 935 (16)

Net cash flow (234) (120) 5 896 49

Cash at BoY 515 280 160 165 1,061

Cash at EoY 280 160 165 1,061 1,110

Free Cashflow (74) 44 29 (50) 52

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 38.5% 38.7% 39.1% 39.6% 39.8%

Opr Margin (%) 5.9% 5.2% 5.5% 5.3% 5.2%

EBITDA Margin (%) 14.0% 11.9% 11.1% 10.4% 9.8%

Core Net Margin (%) 2.9% 2.3% 2.8% 3.4% 3.3%

ROAE (%) 4.3% 4.1% 5.9% 6.4% 5.9%

ROAA (%) 2.6% 2.4% 3.5% 4.5% 4.6%






A/R (days) 36 43 41 39 39



3Q15 4Q15 1Q16 2Q16 3Q16

Gross sales 1,026 1,131 1,254 1,301 1,270

Gross Profit 290 320 375 391 356

EBITDA 125 104 161 159 140

Opr. Profit 39 17 74 69 48

Net profit 22 - 41 29 16

Core profit 22 - 41 29 16

Gross Margins (%) 28.3% 28.3% 29.9% 30.1% 28.0%

EBITDA Margins (%) 12.2% 9.2% 12.8% 12.2% 11.1%

Opr Margins (%) 3.8% 1.5% 5.9% 5.3% 3.8%

Net Margins (%) 2.2% 0.0% 3.2% 2.2% 1.3%

Core Margins (%) 2.2% 0.0% 3.2% 2.2% 1.3%

Capital History

Date

12-Sept-13 IPO@Rp9,000


Telecommunication Sector


Telecommunication Sector Long term play

A more competitive environment

This considers: 1) EXCL’s intention to recover its growth momentum and

increase market share in outer Java; 2) Telkomsel’s (65% owned by TLKM)

offered significant 4G bonus volume (since Sep’16) and more data-centric

promotion. We expect more competition to result in: a) Data yield continue

falling by 27% YoY in 2017, b) Voice yield growth stagnating to –0.6%YoY

in 2017 from previously +12%YoY, and c) SMS yield falling by –3%YoY in

2017. Note however, that we do not yet foresee a price war to the extent

of 2008-12 price war. We still expect overall cellular revenue growth will

increase from 9% in 2016 to 11% in 2017F on the back of EXCL’s growth

recovery.

Expect slower growth from cellular business’ EBITDA

Despite better top-line growth, our cellular EBITDA growth is lower in

2017F compared to 2016F, mainly due to lower margin as the result of:

Expansion to data service (lower margin than voice and SMS), additional

cost of license fee for ISAT, and lower margin for EXCL partly from 2nd

tower-sale-and-lease-back this year. Our 2016/17F aggregate cellular

EBITDA growth is 13/10%YoY.

Demand in tower industry still lackluster

We think the industry still experiencing lower demand partly due to possi-

bility of network sharing regulation change. We see potentially more net-

work roll-out (BTS) from Telkomsel, but it yet give significant impact to our

TBIG’s earning growth estimates. Telkomsel might need to increase its

network capacity following additional data traffic resulted from volume-

driven pricing strategy, in our view.

Neutral on sector

We have a Neutral for the sector considering slower growth in EBITDA in

the midst of more competitive environment. ISAT is still the cheapest and

the most undervalued in terms of EV/EBITDA considering its position as

no. 2 market share holder, but we view that potential growth momentum

is better for ISAT in 2018F relative to 2017F.

Paula Ruth

([email protected])

Neutral

TICKER

Price

(IDR) Mkt. Cap

TP Ups.

Rec. EPS Growth(%) PE (x) EV/EBITDA (x) Div. yield (%)

28-Nov (IDR bn) (%) 2016 2017 2016 2017 2016 2017 2016 2017

TLKM 3,840 380,399 4,200 9.4 Neutral 19.8 11.5 19.3 17.3 9.1 8.2 3.5 4.0

ISAT 6,200 33,690 6,700 8.1 Neutral NM 88.5 41.1 21.8 3.7 3.5 1.5 2.4

EXCL 2,040 21,803 2,200 7.8 Neutral NM NM (19.9) (26.1) 4.1 3.9 0.0 0.0

TBIG 5,625 25,489 6,100 8.4 Neutral -12.9 10.9 20.5 18.5 14.6 13.3 1.2 1.4

Companies Data


Figure 50. Big 3 Cellular Service Performance: Data, Voice, and SMS

Source: Companies, TRIM Research

Note: EXCL did not disclose actual revenue and traffic for voice and SMS separately starting from 2Q16.

Service revenue and service contribution Traffic vs. average yield


Figure 51. 3Q16 Big 3 Telecoms - Revenue Breakdown


Net debt/

EBITDA

USD debt

(USD mn)

% USD

debt of

total debt

Hedged portion

of USD Debt

% Unhedged USD

debt to total debt

16E 17E 9M16 9M16 9M16 Note

TLKM 0.1 0.1 ~87 4% NA NA Company has forward contact for upcoming payments (principal and interest)

ISAT 1.3 1.0 350 12% 50% 6.0% Hedged for principal amount only.

EXCL 1.6 1.4 186 30% 100% 0.0% 86% of USD350mn debt are hedged for prin-cipal amount only, the rest for principal and interest amount.

Figure 52. Big 3 Telecoms’ net debt/EBITDA and USD debt portion

Data 35%

Voice 26%

SMS17%

Others 22%

ISAT

Data Voice SMS Others

Data41%

Non-data47%

Others 3%

EXCL

Data Non-data Others

Data32%

Voice47%

SMS15%

Others 5.9%

Telkomsel

Data Voice SMS Others



Figure 53. Big 3 Subscriber, Revenue, and EBITDA market share

Note: ISAT cellular revenue included tower rental

revenue, while EXCL cellular revenue excluded it.

4Q15 Telkomsel’s EBITDA above excluding one-off

from extra incentive for employees.


Figure 54. Big 3 Telecom Fw. Hist. EV/EBITDA band (until 25 Nov)

Source: Companies, Bloomberg, TRIM Research

3

4

5

6

7

8

9

10

11

Jan-1

0

Mar-1

0

May-1

0

Jul-1

0

Sep-1

0

Nov-1

0

Jan-1

1

Mar-1

1

May-1

1

Jul-1

1

Sep-1

1

Nov-1

1

Jan-1

2

Mar-1

2

May-1

2

Jul-1

2

Sep-1

2

Nov-1

2

Jan-1

3

Mar-1

3

May-1

3

Jul-1

3

Sep-1

3

Nov-1

3

Jan-1

4

Mar-1

4

May-1

4

Jul-1

4

Sep-1

4

Nov-1

4

Jan-1

5

Mar-1

5

May-1

5

Jul-1

5

Sep-1

5

Nov-1

5

Jan-1

6

Mar-1

6

May-1

6

Jul-1

6

Sep-1

6

Nov-1

6

EXCL Fw-EV/EBITDA TLKM Fw-EV/EBITDA ISAT Fw-EV/EBITDA

8x

4x

4x


More optimist on data growth for the next several years We expect data service to continue to drive Indonesia’s telecom industry growth supported by more affordable smartphone, further 4G-LTE adoption, and higher apps usage by existing smartphone users. From our on-the-ground observation in Jakarta last Oct’16, popular brand LTE smartphone already more affordable: Samsung Z2

IDR900K (~USD67), 18% below Samsung J1 Mini- previously considered as one of the cheapest popular brand LTE smartphone in Jun 2016. Based on experience with 2G, there will be significant increase in penetration when mobile handset’s price down to USD50. We expect Big 3 Telecom’s avg. monthly data traffic per smartphone to grow from only ~600MB in 2015 to 3.4GB in 2021E, implying 35% CAGR. Based on Ericsson report, Asia Pacific

monthly data traffic per smartphone is expected to grow from FY15 1GB to 6.5GB (37% CAGR).

Note: ISAT cellular revenue included tower rental revenue, while EXCL cellular revenue excluded it. 4Q15 Telkomsel’s EBITDA above excluding

one-off from extra incentive for employees.

Figure 56. Big 3 Telecoms: Cellular revenue and EBITDA for 2014-2019F


Figure 55. Big 3 Telecoms: Data revenue, yield, and traffic for 2014-2019F

Source: Companies, World Bank, TRIM Research


Figure 57. Big 3 Telecoms: Annual market share for 2014-2019F


Telekomunikasi Indonesia Encouraging higher 4G usage

Paula Ruth

([email protected])

Increase revenue for the next 2-3 years from data service

We maintain similar revenue target for 2016E-17E, but slightly in-

creased our 2018-19F TLKM’s revenue by 3% compared to old est. as

we are more optimist on data revenue growth in the next several years

aligned with rising smartphone penetration and higher data usage per

smartphone. For 2017-19F, our Telkomsel’s (65% owned by TLKM)

revenue growth is 12-8%YoY as we expect: 1) Strong data revenue

growth of 34-16%YoY; 2) Modest voice revenue growth of 6-2%YoY; 3)

SMS revenue to go down by 11-6%YoY.

Lower long-term EBITDA margin estimates

There is risk of declining EBITDA margin from Telkomsel’s expansion to

data service (lower margin than voice and SMS), in our view. However,

as we noticed positive trend in smartphone penetration, data traffic, and

eventually data revenue, we view that data margin may also gradually

improve and limit blended margin decrease. We slightly lowered TLKM’s

2021-27F long term EBITDA margin est. from 52-51% to 52-50%. Note

that TLKM’s fixed broadband, Indihome, might be able to post higher

margin along with bigger number of subscribers. For 2016-17F, we

increased EBITDA margin estimates following better than expected

margin in 3Q16.

Telecom regulation change still pending

We have not included impact from potential change in interconnection

and network sharing regulation (change yet approved). We view if regu-

lation change is approved (may first bring negative sentiment to TLKM),

additional time might still be needed until it is widely implemented and

bring significant financial impact to the industry.

Lower TP by 9% to IDR4,200 (9% ups.) – Maintain Neutral

We use DCF to calculate TP. We increased our RFR from 6.8% to 8.0%

resulted to increase in WACC from 10.0% to 10.9%. Telkomsel 10.0x

2017F EV/EBITDA, roughly similar to Singtel’s at 9.5x (adj. with 35% of

2017F Telkomsel’s EBITDA). TLKM trades at 8x 2017F EV/EBTIDA

(based on adj. EBITDA without Singtel’s 35% ownership in Telkomsel).

TLKM’s current price translates to 17x 2017F PE. TLKM‘s 2017F EV/

EBITDA is similar to average telecoms without Indonesia (8x). TLKM

trades at slightly cheaper for 17PE to avg. regional telecoms excl. Indo-

nesia at 18x 2017F PE.

Telekomunikasi Indonesia (Telkom) is a

state-owned telecommunication compa-

ny that has a near monopoly in fixed-line

telco industry and also has the largest

market share in mobile telco industry

through its 65% owned subsidiary

Telkomsel.

Share Price Rp3,840

Sector Telecommunications

Price Target Rp4,200 (9% ups.)

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 89,696 102,470 115,908 130,246 143,234

EBITDA 45,673 51,415 59,466 66,117 73,007

Net Profit 14,471 15,489 18,981 21,699 24,251

EPS 146 156 192 219 245

Core Profit 13,977 16,432 19,690 21,961 24,251

Core EPS (Rp) 141 166 199 222 245

Core EPS Growth (%) 9.0% 17.6% 19.8% 11.5% 10.4%

DPS (Rp) 89 94 134 153 171

BVPS (Rp) 684 758 785 870 961

EV/EBITDA (x) 11.8 10.5 9.1 8.2 7.5

Core P/E (x) 27.2 23.1 19.3 17.3 15.7

Div Yield (%) 2.3% 2.4% 3.5% 4.0% 4.5%

Neutral Rp4,200

Reuters Code TLKM.JK

Bloomberg Code TLKM.IJ

Shares 99,062


Avg. Value Daily 6

Month (Rpbn) 385.2

52-Wk range 4570 / 2900

Government of RI 52.6%

The Bank of New York Mellon Corp 8.3%

Public 39.1%

EBITDA 16F 17F

Consensus (Rp bn) 59,730 66,723

TRIM vs Cons. (%) -0.4% -0.9%

Company Update

Stock Data

Major Shareholders

Consensus

Companies Data

Stock Data Stock Data Stock Price



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 89,696 102,470 115,908 130,246 143,234

Revenue Growth (%) 8.1% 14.2% 13.1% 12.4% 10.0%

Gross Profit NA NA NA NA NA

Opr. Profit 28,542 32,881 40,364 45,167 50,299

EBITDA 45,673 51,415 59,466 66,117 73,007

EBITDA Growth (%) 9.3% 12.6% 15.7% 11.2% 10.4%

Net Int Inc/(Exp) (576) (1,074) (1,011) (408) (431)

Gain/(loss) Forex (14) (46) (216) 0 0

Other Inc/(Exp) 661 (419) (684) (350) 0

Pre-tax Profit 28,613 31,342 38,454 44,409 49,868

Tax (7,339) (8,025) (9,746) (11,255) (12,638)

Minority Int. 6,803 7,828 9,728 11,455 12,979



Core Net Profit 13,977 16,432 19,690 21,961 24,251

Growth (%) 9.0% 17.6% 19.8% 11.5% 10.4%


growth (%) -12.6% 4.9% 43.0% 14.3% 11.8%



Year end Dec 2014 2015 2016F 2017F 2018F

Cash and equiva-

lents 20,469 30,935 33,471 31,721 27,940

Other curr asset 13,825 16,977 18,087 20,831 23,217

Net fixed asset 94,809 103,700 116,063 126,526 135,901

Other asset 12,719 14,561 16,187 20,109 24,348

Total asset 141,822 166,173 183,808 199,187 211,406

ST debt 7,709 4,444 1,944 4,798 10,033

Other curr liab 24,609 30,969 40,303 45,913 51,109

LT debt 15,743 30,168 35,905 32,493 23,529

Other LT Liab 7,769 7,164 7,199 6,554 5,927




Net debt / (cash) 2,983 3,677 4,378 5,570 5,622


Net Working capital 1,976 12,499 9,311 1,840 (9,985)

Debt 23,452 34,612 37,849 37,291 33,562

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Core Net Profit 13,977 16,432 19,690 21,961 24,251

Depr / Amort 17,131 18,534 19,102 20,950 22,709

Chg in Working Cap 4,832 1,979 11,121 3,571 2,492

Others 1,796 6,724 (709) (261) 0

CF's from oprs 37,736 43,669 49,204 46,221 49,452

Capex (26,105) (25,833) (29,599) (30,012) (30,439)

Others 1,357 (1,588) (3,954) (4,115) (3,875)

CF's from investing (24,748) (27,421) (33,553) (34,127) (34,314)

Net change in debt 3,196 11,160 3,237 (558) (3,729)

Others (17,283) (16,942) (16,351) (13,286) (15,189)


Net cash flow (1,099) 10,466 2,536 (1,751) (3,781)

Cash at BoY 21,568 20,469 30,935 33,471 31,721

Cash at EoY 20,469 30,935 33,471 31,721 27,940

Free Cashflow 11,631 17,836 19,604 16,209 19,013

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) NA NA NA NA NA

Opr Margin (%) 31.8% 32.1% 34.8% 34.7% 35.1%

EBITDA Margin (%) 50.9% 50.2% 51.3% 50.8% 51.0%

Core Net Margin (%) 15.6% 15.5% 17.0% 16.9% 16.9%

ROAE (%) 21.9% 22.2% 25.8% 26.8% 26.7%

ROAA (%) 10.3% 10.3% 11.3% 11.5% 11.8%

Stability

Current ratio (x) 1.1 1.4 1.2 1.0 0.8




Efficiency

A/P (days) NA NA NA NA NA

A/R (days) 30 28 30 29 29

Inventory (days) NA NA NA NA NA


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 26,919 26,711 27,542 28,912 29,734


Opr. Profit 8,823 9,395 10,250 9,806 10,965

Net profit 4,098 3,944 4,587 5,339 4,806

Core profit 4,063 4,665 5,089 4,964 5,240

Gross Margins (%) NA NA NA NA NA

Opr Margins (%) 32.8% 35.2% 37.2% 33.9% 36.9%

Net Margins (%) 15.2% 14.8% 16.7% 18.5% 16.2%

Core Margins (%) 15.1% 17.5% 18.5% 17.2% 17.6%

Capital History

Date

14-Nov-95 IPO @ Rp. 2,050


Indosat Facing more agressive competitors

Paula Ruth

([email protected])

PT Indosat Tbk is a telecommunication

and information service provider in Indo-

nesia that provides cellular services

(prepaid and postpaid), fixed data ser-

vices or MIDI (Multimedia, Internet &

Data Communication) and fixed voice

services including fixed wireless access

services.

Share Price Rp6,200



Year end Dec 2014 2015 2016F 2017F 2018F

Sales 24,085 26,769 29,251 31,654 34,920

EBITDA 10,033 11,473 12,709 13,565 14,802

Net Profit (2,008) (1,310) 1,004 1,636 2,646

EPS (370) (241) 185 301 487

Core Profit (567) (86) 819 1,544 2,555

Core EPS (Rp) (104) (16) 151 284 470

Core EPS Growth (%) NM NM NM 88.5% 65%

DPS (Rp) NM NM 92 151 243

BVPS (Rp) 2,506 2,297 2,481 2,689 3,026

EV/EBITDA (x) 4.7 4.1 3.7 3.5 3.2

Core P/E (x) NM NM 41.1 21.8 13.2

Div Yield (%) NM NM 1.5% 2.4% 3.9%

Neutral Rp6,700

Reuters Code ISAT.JK

Bloomberg Code ISAT.IJ

Issued Shares 5,434


Avg. Value Daily 6

Month (Rpbn) 3.9

52-Wk range 7125 / 4700

Ooredoo Asia Pte. Ltd. 65.0%

Government of RI 14.3%

Public 20.7%

EBITDA 16F 17F


TRIM vs Cons. (%) -0.5% -2.7%

Company Update

Stock Data

Major Shareholders

Consensus


2nd highest data traffic among Big 3 Telecoms

In terms of 3Q16 data traffic, ISAT reached no. 2 highest traffic, replac-

ing EXCL. Telkomsel still remain as the operator with the highest data

traffic. As we see EXCL becoming more aggressive to pursue growth,

incl. network improvement in outer Java, and ISAT might face slower

growth next year, we assume ISAT’s data revenue market share to be

relatively flat (2016E 23% to 2018E 22%) after experiencing increase in

market share at least in 2014 (19%) and 2015 (21%). We still assume

ISAT to be able to retain its no. 2 position in the market for long run.

Slower EBITDA growth next year

We de-rate our TP from 4.4x to 3.7x 2017F EV/EBITDA considering

higher price war risk and slower growth next year. However, we see

possibility of better growth in 2018F as data revenue will have bigger

contribution to the company’s top-line. We expect EBITDA growth to

decrease from 2016F 11%YoY to 2017E 7%YoY, due to lower top-line

growth and declining EBITDA margin, including from higher license fee,

but expect higher EBITDA growth in 2018F. The company announced its

plan to reduce data quota in 4Q16, but we think the net impact will

depend on behavior of subscribers and competitors.

Valuation: Decrease TP to IDR6,700 (8% ups.) – Neutral

We arrive at our TP using DCF method. We increased our WACC from

9.6% to 10.2% due to higher RFR from 6.8% to 8.0%. Changing RFR

caused 4% decrease to TP, assuming all else the same. We reduced our

TP by 15% and downgrade our recommendation to Neutral. Our TP

implied 3.7x 2017F EV/EBITDA, near to –1 STD hist. fw-EV/EBITDA of

3.8x. ISAT trades at 4x 2017F EV/EBITDA, similar to EXCL, but signifi-

cantly cheaper than TLKM at 8x. ISAT‘s 2017F PE is 22x, still higher

than TLKM at 17x, but still below EXCL (we forecast core loss for EXCL in

2017E).

Upside risks

There might be upside risk from positive sentiment when interconnec-

tion rate cut and/or network sharing regulation change is approved by

Gov’t.

Companies Data


Figure 58. Forecast drivers

Source: Companies and TRIM Research

31 December 2013A 2014A 2015A 2016E 2017E 2018E 2019E

Indosat

Mobile subs (m) 60 63 70 82 83 84 85

Implied ARPU (Rp 000) 27 26 27 27 27 30 32

% growth -2.2% -3.4% 3.9% -2.7% 0.6% 10.3% 6.8%

Voice Outgoing MOU (min/sub/month) 46 41 39 44 48 51 51

Total MOU (min/sub/month) 93 78 70 71 72 74 74

Total minutes carried

(b min) 62 54 57 64 71 74 75

% growth -6.0% -12.7% 5.8% 12.7% 10.0% 5.0% 1.0%

Incoming minutes (%) 29% 29% 30% 31% 31% 31% 31%

Voice revenue / outgoing minute (Rp) 211 192 190 174 153 146 147

% growth 14.0% -9.3% -0.7% -8.4% -12.0% -5.0% 1.0%

Data

Data traffic (terabyte) 30,517 85,359 199,054 500,869 876,621 1,312,461 1,635,339

% growth 100.8% 179.7% 133.2% 151.6% 75.0% 49.7% 24.6%

Data Rate (Rp/kb) NA 0.05 0.04 0.02 0.02 0.01 0.01

% growth NA NA -32.7% -41.0% -24.2% -16.0% -7.9%

SMS Outgoing SMS (bn) 274 237 237 205 198 192 187

% growth 1.9% -13.5% 0.0% -13.7% -3.0% -3.0% -3.0%

Revenue / outgoing SMS (Rp) NA NA 21 24 24 23 22

% growth NA NA NA 15.3% -3.0% -3.0% -2.0%

(in Rp tr) Cellular - net revenue 19.4 19.5 21.9 24.3 26.5 29.6 32.0

% growth 4.8% 0.5% 12.4% 10.9% 9.2% 11.6% 8.0%

Fixed voice service 1.2 1.1 1.1 1.0 0.9 0.8 0.7

% growth 18.9% -9.8% 2.1% -12.0% -9.4% -9.3% -9.2%

Fixed data (MIDI) 3.3 3.5 3.8 4.0 4.2 4.5 4.8

% growth 12.3% 7.4% 7.0% 6.4% 6.3% 6.2% 6.0%

Net revenue 23.9 24.1 26.8 29.3 31.7 34.9 37.5

% growth 6.4% 1.0% 11.1% 9.3% 8.2% 10.3% 7.4%

EBITDA 10.4 10.0 11.5 12.7 13.6 14.8 15.4

% growth -1.6% -3.3% 14.4% 10.8% 6.7% 9.1% 3.7%

EBITDA margin 43.5% 41.7% 42.9% 43.4% 42.9% 42.4% 40.9%

Capex / revenue 39.3% 28.4% 37.5% 25.7% 23.7% 22.1% 26.8%


Figure 59. ISAT—Changes in assumption & forecast


Revenues - Current 2016E 2017E 2018E 2019E Note

Revenues - Current 29,251 31,654 34,920 37,497 More optimist on data revenue growth in the

next several years Revenues - Old 28,864 30,799 32,189 33,135

% change 1.3% 2.8% 8.5% 13.2%

Cellular Revenue - Current 24,272 26,516 29,603 31,982

Cellular Revenue - Old 23,905 25,592 26,706 27,351

% change 1.5% 3.6% 10.8% 16.9%

Fixed line, MIDI, others revenue - Current 4,979 5,138 5,317 5,515

Fixed line, MIDI, others revenue - Old 4,960 5,208 5,483 5,785

% change 0.4% -1.3% -3.0% -4.7%

EBITDA - Current 12,709 13,565 14,802 15,351

EBITDA - Old 12,376 12,950 13,328 13,582

% change 2.7% 4.7% 11.1% 13.0%

EBITDA margin - Current 43.4% 42.9% 42.4% 40.9% In 2017, ISAT expects cost saving from IT

outsourcing, electricity, and possibility of

joint-procurement with Ooredoo Group. This

may help to partly offset Ooredoo’s license

fee cost impact. We assume no cut in inter-EBITDA margin - Old 42.9% 42.0% 41.4% 41.0%

D&A - Current (9,250) (9,345) (9,423) (9,576)

D&A - Old (9,249) (9,379) (9,532) (9,689)

% change 0.0% -0.4% -1.1% -1.2%

EBIT - Current 3,459 4,220 5,379 5,775

EBIT - Old 3,126 3,571 3,795 3,893

% change 10.6% 18.2% 41.7% 48.3%

Net interest expense - Current (2,122) (1,805) (1,507) (1,342)

Net interest expense - Old (2,218) (1,835) (1,530) (1,274)

% change -4.3% -1.7% -1.5% 5.4%

Net Income - Current 1,003 1,635 2,646 3,029

Net Income - Old 689 1,164 1,522 1,757

% Change 45.6% 40.4% 73.8% 72.4%

Core profit - Current 818 1,544 2,555 2,938 3Q16 actual is 65% higher than our est.

Core profit - Old 489 1,053 1,411 1,646

% change 67.5% 46.6% 81.0% 78.5%

Capex - Current 7,510 7,492 7,705 10,032

Capex - Old 7,494 8,407 8,874 9,099

% change 0.2% -10.9% -13.2% 10.3%


YE Dec 31 (in Rp b) 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F

EBIT 5,379 5,775 5,713 5,803 5,568 5,191 4,682 4,109 3,664 3,192

Tax Rate 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%

EBIT*(1-t) 3,765 4,042 3,999 4,062 3,897 3,633 3,277 2,876 2,565 2,234

+ D & A 9,423 9,576 10,007 10,420 10,784 11,123 11,455 11,779 12,096 12,406

- Capex (7,705) (10,032) (10,386) (9,923) (9,690) (9,880) (10,042) (10,192) (10,337) (10,481)

+ Decrease/(increase) in

non cash working capital 199 2,108 409 (292) (66) 325 312 309 312 318

FCFF 5,682 5,694 4,029 4,266 4,925 5,203 5,002 4,772 4,636 4,478

FCFF - Discounted 5,157 4,691 3,013 2,895 3,034 2,908 2,538 2,198 1,938 1,699

Value of cash-flows thro

2027 30,070

Terminal value– 3.3x

EV/EBITDA 19,527 Risk free rate 8.00%

Equity market premium 5.00%

Enterprise value 49,597 Beta 0.87

Net Debt / (Cash) 13,440 Cost of equity 12.35%

Equity value 36,157 Cost of debt 8.25%

# of shares (mn) 5,434 Debt/total capital 53%

Value per share (mn) 6,654 10.2% WACC

Target price after rounding 6,700

Figure 60. DCF calculations


TP (IDR/sh) Beta

6,700 0.70 0.87 1.00 1.10 1.20

Terminal

EV/

EBITDA

(x)

3.0 6,500 6,300 6,200 6,000 5,900

3.3 6,900 6,700 6,500 6,400 6,200

3.8 7,400 7,200 7,000 6,900 6,700

5.0 8,800 8,500 8,300 8,100 8,000

6.0 9,900 9,600 9,300 9,200 9,000

7.0 11,100 10,700 10,400 10,200 10,000

8.0 12,200 11,800 11,500 11,200 11,000

Figure 61. TP sensitivity analysis




Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 24,085 26,769 29,251 31,654 34,920

Revenue Growth (%) 1% 11% 9.3% 8.2% 10.3%


Opr. Profit 1,807 2,704 3,459 4,220 5,379

EBITDA 10,033 11,473 12,709 13,565 14,802

EBITDA Growth (%) -3% 14% 11% 7% 9%

Net Int Inc/(Exp) (2,264) (2,611) (2,122) (1,804) (1,507)

Gain/(loss) Forex (395) (1,599) 421 0 0

Other Inc/(Exp) (1,110) (280) (164) 130 130

Pre-tax Profit (1,962) (1,786) 1,594 2,546 4,002

Tax 84 622 (453) (764) (1,201)

Minority Int. (130) (147) (138) (146) (155)


Reported Net Profit (2,008) (1,310) 1,004 1,636 2,646

Core Net Profit (567) (86) 819 1,544 2,555

Growth (%) -15% -85% NM 88% 65%

Dividend per share NM NM 92 151 243

growth (%) NM NM NM 63% 62%

Dividend payout

ratio 50% 50% 50% 50% 50%


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and equiva-

lents 3,480 3,623 1,778 2,986 4,044

Other curr asset 5,111 6,295 6,550 6,918 7,492

Net fixed asset 40,776 41,822 40,082 38,228 36,510

Other asset 3,903 3,648 4,819 5,072 5,354

Total asset 53,270 55,389 53,229 53,205 53,400

ST debt 11,797 7,069 5,584 2,828 2,538

Other curr liab 9,351 12,983 13,786 14,196 14,969

LT debt 11,350 16,607 12,722 13,598 11,160

Other LT Liab 6,474 5,465 6,738 6,905 7,071

Minority interest 681 781 919 1,065 1,220


Shareholders

Equity 13,618 12,483 13,479 14,613 16,441

Net debt / (cash) 19,666 20,053 16,529 13,440 9,655

Total cap em-

ployed 32,122 35,336 33,859 36,181 35,893

Net working capi-

tal (12,557) (10,134) (11,042) (7,120) (5,971)

Debt 23,146 23,676 18,307 16,426 13,698

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Core Profit (567) (86) 819 1,544 2,555

Depr / Amort 8,226 8,769 9,250 9,345 9,423

Chg in Working Cap 1,981 2,448 548 42 199

Others (2,291) (2,866) 185 91 91

CF's from oprs 7,349 8,265 10,802 11,023 12,268

Capex (6,391) (7,084) (7,510) (7,492) (7,705)

Others 1,388 (62) (423) 59 40


Net change in debt (1,008) (1,036) (5,369) (1,880) (2,728)

Others (49) (50) 655 (502) (818)


Net cash flow 1,246 143 (1,845) 1,208 1,057

Cash at BoY 2,234 3,480 3,623 1,778 2,986

Cash at EoY 3,480 3,623 1,778 2,986 4,044

Free Cashflow 958 1,181 3,292 3,532 4,563

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability Gross Margin (%) NA NA NA NA NA

Opr Margin (%) 7.5% 10.1% 11.8% 13.3% 15.4%

EBITDA Margin (%) 41.7% 42.9% 43.4% 42.9% 42.4%

Core Net Margin (%) -2.4% -0.3% 2.8% 4.9% 7.3%

ROAE (%) -3.8% -0.7% 6.3% 11.0% 16.5%

ROAA (%) -1.1% -0.2% 1.5% 2.9% 4.8%





Efficiency A/P (days) NA NA NA NA NA

A/R (days) 32 37 36 36 36



3Q15 4Q15 1Q16 2Q16 3Q16

Sales 6,962 7,187 6,813 7,129 7,582


EBITDA 3,205 2,906 2,961 3,080 3,425

Opr. Profit 1,128 383 743 847 1,156

Net profit (389) (188) 217 211 417

Core profit 116 (149) 84 195 408


EBITDA Margins (%) 46% 40% 43% 43% 45%

Opr Margins (%) 16% 5% 11% 12% 15%

Net Margins (%) -5.6% -2.6% 3.2% 3.0% 5.5%

Core Margins (%) 1.7% -2.1% 1.2% 2.7% 5.4%

Capital History

Date

19-Oct-94 IPO @ Rp. 7,000


XL Axiata Recovery momentum still uncertain

Paula Ruth

([email protected])

Expect top-line growth to recover next year

We still estimate negative top-line growth for EXCL this year, but notice

potentially better growth trend next year as : 1) Combined voice and

SMS portion in revenue to decrease; 2) Demand for data remain strong; 3) EXCL’s intention to monetize 4G traffic growth in 2017 (though im-pact depend of market dynamic); 4) Additional driver for revenue from outer Java supported by aggressive offering and network improvement, such as 900Mhz roll out for 3G sites (to complete early 2017F) and

further network upgrade for 4G preparation.

Looking for momentum next year

We expect top-line turnaround next year, though cautiously assume next year’s growth rate of 6%YoY, below industry rate, driven by stronger data revenue growth, but partially off-set by faster decline in combined voice & SMS revenue compared to last year. Our forecasts

suggested that EXCL might be able to post positive YoY revenue growth starting 2Q17 and more attractive revenue and EBITDA YoY growth in 3Q17F (comparable with post tower sale-and-lease-back in 3Q16), im-plying potential re-rating. There might be faster timing of better revenue growth momentum if EXCL can post significantly better than expected result in 4Q16.

Decrease TP to IDR2,200 (8% ups.) – Maintain Neutral

We calculate our TP using DCF method. We revised up our RFR assump-tion from 6.8% to 8.0%, causing WACC increase from 10.1% to 10.8%. Although we expect positive revenue growth in 2017E, our model indi-cates longer time until core profit turnaround. Our new TP is 35% below

our old TP, as we further de-rated our TP from 5x to 4x 2017F EV/

EBITDA, below –2 STD of EXCL’s fw-hist. EV/EBITDA of 4.4x. The com-pany trades at 2017F EV/EBITDA of 3.9x.

PT XL Axiata Tbk, doing business as XL,

is an Indonesia-based mobile telecom-

munications services operator. The oper-

ator's coverage includes Java, Bali, and

Lombok as well as the principal cities in

and around Sumatra, Kalimantan and

Sulawesi.

Share Price Rp2,040



Year end Dec 2014 2015 2016F 2017F 2018F

Sales 23,460 22,876 21,504 22,679 24,785

EBITDA 8,623 8,393 8,177 8,565 9,627

Net Profit (804) (25) 481 (397) 114

EPS (75) (2) 45 (37) 11

Core Profit 148 1 (1,094) (837) (326)

Core EPS (Rp) 14 0 (102) (78) (31)

Core EPS Growth (%) -92.4% -99.2% NM NM NM

DPS (Rp) 4 0 0 0 0

BVPS (Rp) 1 1 2.0 2.0 2

EV/EBITDA (x) 3.9 4.0 4.1 3.9 3.5

Core P/E (x) 148 17,799 (19.9) (26.1) (66.8)

Div Yield (%) 0.2% 0.0% 0.0% 0.0% 0.0%

Neutral Rp2,200

Reuters Code EXCL.JK

Bloomberg Code EXCL.IJ



Avg. Value Daily 6

Month (Rpbn) 44.7

52-Wk range 4217 / 2030

Axiata Investments (Indonesia)

Sdn. Bhd.

66.4%

Public 33.6%

EBITDA 16F 17F


TRIM vs Cons. (%) -3.7% -5.9%

Company Update

Stock Data

Major Shareholders

Consensus

Companies Data



Figure 62. Forecast drivers


31 December 2013A 2014A 2015A 2016F 2017F 2018F 2019F

XL Axiata

Mobile subs (m) 61 60 42 46 47 48 49

Implied Net ARPU (Rp 000) 31 31 36 39 39 42 44

% growth -11.0% -1.6% 16.9% 8.6% 1.2% 6.8% 4.5%

Voice Outgoing MOU (min/sub/month) 169 130 106 50 31 26 23

Total MOU (min/sub/month) 338 260 213 102 64 55 48

Total minutes carried (b min) 216 188 130 54 34 30 27

% growth 1.3% -13.0% -30.7% -58.6% -36.0% -12.0% -10.0%

Incoming minutes (%) 50% 50% 50% 51% 51% 51% 51%

Voice revenue / outgoing minute (Rp) 72 85 128 281 351 362 366

% growth -8.7% 18.7% 50.7% 119.9% 24.9% 3.0% 1.0%

Data Data traffic (terabyte) 54,615 123,824 186,300 484,465 866,010 1,280,542 1,571,932

% growth 141.5% 126.7% 50.5% 160.0% 78.8% 47.9% 22.8%

Data Rate (Rp/kb) 0.07 0.04 0.03 0.02 0.01 0.01 0.01

% growth -51.8% -37.6% -24.4% -49.9% -20.0% -14.5% -5.3%

SMS Outgoing SMS (bn) 259 253 138 33 18 14 11

% growth 5.9% -2.1% -45.4% -76.5% -43.4% -22.0% -20.0%

Revenue / outgoing SMS (Rp) 18 19 28 83 114 115 117

% growth -9.2% 5.6% 51.6% 195.6% 37.4% 1.0% 1.0%

(in Rp tr) Gross revenue (Rp t) 21.4 23.6 23.0 21.6 22.8 24.9 26.5

% change 0.3% 10.4% -2.6% -6.0% 5.5% 9.3% 6.5%

Net revenue (Rp t) 21.3 23.5 22.9 21.5 22.7 24.8 26.4

% change 1.4% 10.3% -2.5% -6.0% 5.5% 9.3% 6.5%

EBITDA (Rp t) 8.7 8.6 8.4 8.2 8.6 9.6 10.3

% change -11.1% -0.4% -2.7% -2.6% 4.7% 12.4% 6.9%

EBITDA margin 40.7% 36.8% 36.7% 38.0% 37.8% 38.8% 39.0%

Capex / revenue 32.6% 24.5% 21.2% 32.0% 30.0% 24.0% 24.0%


Figure 63. EXCL —Changes in assumption & forecast


YE 31 Dec (Rp bn) 2016F 2017F 2018F 2019F Note

Revenues - Current 21,504 22,679 24,785 26,389 More optimist on data revenue

growth in the next several years

Revenues - Old 21,208 22,332 23,135 23,703

% change 1% 2% 7% 11%

EBITDA - Current 8,177 8,565 9,627 10,289

EBITDA - Old 8,192 8,655 9,584 10,059

% change -0.2% -1.0% 0.4% 2.3%

EBITDA margin - Current 38.0% 37.8% 38.8% 39.0% Assume higher marketing expense.

We changed our assumption from

assuming lower interconnection rate

starting Sept’16 to no rate cut

(regulation change still delayed). EBITDA margin - Old 38.6% 38.8% 41.4% 42.4%

D&A - Current (7,773) (8,303) (8,836) (8,831)

D&A - Old (7,449) (7,861) (8,288) (8,646)

% change 4.4% 5.6% 6.6% 2.1%

EBIT - Current 404 262 791 1,457

EBIT - Old 744 794 1,296 1,413

% change -46% -66.9% -39.0% 3.2%

Net interest expense - Current (1,693) (1,245) (1,226) (940)

Net interest expense - Old (1,663) (1,438) (1,300) (969)

% change 1.8% -13.4% -5.7% -2.9%

Net profit - Current 481 (397) 114 828

Net profit - Old 1,440 (43) 437 773

% Change -66.6% NM -74.0% 7.1%

Core profit - Current (1,094) (837) (326) 388 3Q16 core loss is higher than our

estimate.

Core profit - Old (806) (483) (3) 333

% change NM NM NM 16.4%

Capex - Current 6,881 6,804 5,948 6,333 Company guides max. IDR7tn for

2016E

Capex - Old 5,938 5,940 5,846 5,990

% change 15.9% 14.5% 1.8% 5.7%

Capex of revenue – Current 32.0% 30.0% 24.0% 24.0%

Capex of revenue – Old 28.0% 26.6% 25.3% 25.3%

Net debt – Current 12,783 11,793 8,663 5,599

Net debt – old 13,076 11,392 8,665 5,726

% change -2.2% 3.5% 0.0% -2.2%


YE Dec 31 (in Rp b) 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F

EBIT 791 1,457 2,209 2,016 1,446 2,417 1,694 1,533 719 509

Tax Rate 25% 25% 25% 25% 25% 25% 25% 25% 25% 25%

EBIT*(1-t) 593 1,093 1,657 1,512 1,085 1,813 1,271 1,150 539 382

+ D & A 8,836 8,831 8,353 8,730 9,134 8,494 8,880 9,276 9,680 10,091

- Capex (5,948) (6,333) (6,067) (6,407) (6,646) (6,823) (6,973) (7,109) (7,236) (7,358)

+ Decrease/(increase) in

non cash working capital (104) (352) (300) (264) 105 131 98 79 78 91

FCFF 3,377 3,239 3,643 3,571 3,677 3,614 3,275 3,396 3,061 3,206

FCFF - Discounted 3,048 2,638 2,678 2,369 2,201 1,953 1,597 1,494 1,216 1,149

Value of cash-flows thro

2027 20,342

Terminal value– 4.5x

EV/EBITDA 15,196 Risk free rate 8.0%

Equity market premium 5.0%

Enterprise value 35,538 Beta 0.869

Net Debt / (Cash) 11,793 Cost of equity 12.3%

Equity value 23,745 Post-tax cost of debt 8.3%

Value per share (mn) 2,222 Debt/total capital 37.6%

WACC 10.8%


Figure 64. DCF calculations


Potential forex volatility impact to interest expense

EXCL’s remaining USD debt (30% to total debt) are already hedged. Among the hedged USD debt, ~14% USD

debt are hedged for principal and interest, while remaining ~86% hedged for principal only (~25% of total debt), implying impact to profitability. Interest expense still accounted 8-6% of our 2016-17F EXCL’s revenue. Our 2016-17F forex rate assumption is IDR13.6K-13.7K/USD (vs. current rate of ~IDR13.5K/USD).

De-rating

We de-rate our TP from 5x to 4x 2017F EV/EBITDA considering: 1) Substitution effect from voice and SMS to

data is relatively faster in EXCL compared to other telco players; 2) Ability to monetize data remain uncertain

considering market dynamic and subscriber behavior; 3) Time gap until the company manage to show better

momentum on top-line growth and core profit turnaround.

Risks

Upside risk might occur if revenue growth from expansion in outer Java is higher than we expected and/or less

pressure in 4G data tariff in the industry. Downside risk if EXCL cannot grow its data revenue fast enough to

offset decline in voice, SMS, and interconnection (related to off-net incoming call and SMS).



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 23,460 22,876 21,504 22,679 24,785

Revenue Growth (%) 10.3% -2.5% -6.0% 5.5% 9.3%


Opr. Profit 1,782 1,258 404 262 791

EBITDA 8,623 8,393 8,177 8,565 9,627

EBITDA Growth (%) -0.4% -2.7% -2.6% 4.7% 12.4%

Net Int Inc/(Exp) (1,496) (1,080) (1,693) (1,245) (1,226)

Gain/(loss) Forex (1,295) (2,521) 481 0 0

Other Inc/(Exp) 5 1,713 1,450 587 587

Pre-tax Profit (1,003) (631) 641 (397) 151

Tax 200 605 (160) (0) (38)



Reported Net Profit (804) (25) 481 (397) 114

Core Net Profit 148 1 (1,094) (837) (326)

Growth (%) -92.4% -99.2% NM -23.5% -61.0%


growth (%) -94.1% NM NM NM NM

Dividend payout

ratio -5% 0% 0% 0% 28%


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and equiva-

lents 6,951 3,312 2,133 1,108 1,735

Other curr asset 6,358 6,840 5,851 6,295 6,793

Net fixed asset 35,207 33,427 31,717 29,822 26,583

Other asset 15,114 15,266 15,743 15,812 16,307

Total asset 63,631 58,844 55,443 53,036 51,419

ST debt 3,922 3,922 3,050 2,893 2,500

Other curr liab 11,477 11,826 9,939 9,967 10,362

LT debt 25,707 23,031 11,866 10,008 7,898

Other LT Liab 8,478 5,973 8,997 8,742 9,028



Shareholders

Equity 14,048 14,092 21,591 21,427 21,631

Net debt / (cash) 22,677 23,642 12,783 11,793 8,663

Total cap em-

ployed 48,233 43,096 42,454 40,177 38,557

Net working capi-

tal (2,089) (5,597) (5,006) (5,457) (4,334)

Debt 29,628 26,953 14,916 12,901 10,398

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit (804) (25) 481 (397) 114

Depr / Amort 6,841 7,135 7,773 8,303 8,836

Chg in Working Cap 4,838 (132) (898) (416) (104)

Others (2,336) 528 0 0 (0)

CF's from oprs 8,540 7,506 7,356 7,490 8,846

Capex (7,095) (4,146) (6,881) (6,804) (5,948)

Others (9,583) (460) 0 0 0

CF's from investing (16,67

8) (4,605) (6,881) (6,804) (5,948)

Net change in debt 4,961 (5,287) (11,955

) (2,015) (2,503)

Others 8,808 (1,269) 10,301 304 232

CF's from financing 13,769 (6,556) (1,654) (1,711) (2,271)

Net cash flow 5,632 (3,655) (1,179) (1,025) 627

Cash at BoY 1,319 6,967 3,312 2,133 1,108

Cash at EoY 6,951 3,312 2,133 1,108 1,735

Free Cashflow 1,445 3,361 475 686 2,898

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability Gross Margin (%) NA NA NA NA NA

Opr Margin (%) 7.6% 5.5% 1.9% 1.2% 3.2%

EBITDA Margin (%) 36.8% 36.7% 38.0% 37.8% 38.8%

Core Net Margin (%) 0.6% 0.0% -5.1% -3.7% -1.3%

ROAE (%) 1.0% 0.0% -6.1% -3.9% -1.5%

ROAA (%) 0.3% 0.0% -1.9% -1.5% -0.6%





Efficiency A/P (days) NA NA NA NA NA

A/R (days) 18 15 19 17 17



3Q15 4Q15 1Q16 2Q16 3Q16

Sales 5,831 5,954 5,616 5,237 5,229


EBITDA 2,196 2,320 2,191 2,065 1,979

Opr. Profit 515 439 320 -24 179

Net profit 344 481 169 55 -65

Core profit 137 -83 -200 -606 -514


EBITDA Margins (%) 37.7% 39.0% 39.0% 39.4% 37.8%

Opr Margins (%) 8.8% 7.4% 5.7% -0.5% 3.4%

Net Margins (%) 8.8% 7.4% 5.7% -0.5% 3.4%

Core Margins (%) 2.3% -1.4% -3.6% -11.6% -9.8%

Capital History

Date

29-Oct-05 IPO @ Rp. 2,000


Share Price Rp5,625



Year end Dec 2014 2015 2016F 2017E 2018E

Sales 3,307 3,421 3,708 4,092 4,471

EBITDA 2,717 2,911 3,200 3,520 3,852

Net Profit 701 1,430 1,251 1,381 1,404

EPS (Rp) 28 315 275 305 310

EPS Growth (%) -92.3% 1031.0% -12.9% 10.9% 1.6%

DPS (Rp) 0 58 73 80 82

BVPS (Rp) 458 338 520 744 972

P/E (x) 201.7 17.8 20.5 18.5 18.2

EV/EBITDA (x) 17.2 16.1 14.6 13.3 12.1

Div Yield (%) 0.0% 1.0% 1.3% 1.4% 1.5%

Tower Bersama Infrastructure Overall tower industry trend remains lackluster

Neutral Rp6,100

Paula Ruth

([email protected])

Reuters Code TBIG.JK

Bloomberg Code TBIG.IJ

Outstanding

Shares*

4,531


Avg. Value Daily 6

Month (Rpbn) 17.0

52-Wk range 7000 / 5275

PT Wahana Anugerah Sejahtera 27.5%

PT Provident Capital Indonesia 24.7%

Public 47.8%

EBITDA 16F 17F


TRIM vs Cons. (%) 0.4% -0.6%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Companies Data

PT Tower Bersama Infrastructure Tbk provides

telecommunication infrastructure services to In-

donesian wireless carriers. The Company devel-

ops and operates telecommunication supporting

infrastructure including tower and in-building

systems across Indonesia.

Indication of better demand from Telkomsel...

We increased our 2016E (net) additional tenants from 2K to 2.3K, on

the back of more network roll-out from Telkomsel. We think this is align

with Telkomsel’s 4G volume-driven pricing strategy since last Sept,

which potentially drive subscribers’ 4G data traffic. Telkomsel said

among its ~20K new BTS in 9M16, ~85% are co-locations. We still view

the tower industry at lackluster demand period, as several operators still

intend to pursue network modernization.

.. but insignificant impact to revenue and EBITDA estimate

This only increased our 2016E-18E revenue by 2%. The company expe-

rienced decrease in tenancy rental rate in FY15 as contracts with

Telkomsel excluded electricity expense, but quarterly trend in 1H16

indicated slight increment. Thus, we expect tenancy rental rate to rise a

bit in 2016Em but still assume slight rate decrease gradually in the long

term. Our 2016E-17E EBITDA is 2-3% above to old estimates.

Valuation: TP Rp6,100—Maintain Neutral

We slightly increased our TP by 3% compared to our TP before. We raise

RFR assumption from 6.8% to 8.0%. Our number of outstanding shares

already assumed treasury stock cancellation of 265mn of shares (5.53%

of capital issued and fully paid-in capital). TBIG trades at 13x 2017E EV/

EBITDA. In calculating our TP, we use DCF method assuming WACC of

7.8%.

*) Assume 265mn treasury stock cancellation.



Year end Dec 2014 2015 2016E 2017E 2018E

Revenue 3,307 3,421 3,708 4,092 4,471

Growth (%) 22.9% 3.5% 8.4% 10.4% 9.3%

Gross Profit 2,797 2,972 3,225 3,545 3,859

Opr. Profit 2,505 2,661 2,904 3,183 3,467

EBITDA 2,717 2,911 3,200 3,520 3,852

Growth (%) 23.2% 7.2% 9.9% 10.0% 9.4%

Net Int Inc/(Exp) (1,404) (1,599) (1,223) (1,321) (1,575)

Gain/(loss) Forex (192) (45) 24 0 0

Other Inc/(Exp) 521 73 (38) 0 0

Pre-tax Profit 1,431 1,089 1,667 1,862 1,892

Tax (689) 356 (401) (465) (473)

Minority Int. (41) (15) (15) (15) (15)


Reported Net Profit 701 1,430 1,251 1,381 1,404

Core Net Profit 126 1,429 1,246 1,381 1,404

growth (%) -92.3% 1031.0% -12.9% 10.9% 1.6%


growth (%) NM NM NM 0.0% 0.0%

Dividend payout 0.0% 18.3% 26.4% 26.4% 26.4%


Year end Dec 2014 2015 2016E 2017E 2018E


Other curr asset 2,408 2,309 2,253 2,303 2,353

Net fixed asset 15,515 16,654 18,243 19,785 21,268

Other asset 2,806 3,540 4,382 5,382 6,620

Total asset 21,629 22,800 25,850 28,217 31,005

ST debt 7,314 439 512 1,211 1,249

Other curr liab 1,810 1,475 1,475 1,475 1,475

LT debt 8,748 18,041 20,178 20,814 22,516

Other LT Liab 1,653 1,253 1,253 1,253 1,253




Net (debt) / cash (15,162) (18,184) (19,718) (21,279) (23,001)


Net Working capital (5,816) 691 1,238 364 393

Debt 16,062 18,480 20,690 22,025 23,765

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016E 2017E 2018E

Core Net Profit 126 1,429 1,246 1,381 1,404

Depr / Amort 212 250 296 338 385

Chg in Working Cap 0 0 (45) (51) (50)

Others 2,215 539 107 0 0

CF's from oprs 2,553 2,218 1,604 1,668 1,739

Capex (1,782) (1,226) (1,555) (1,570) (1,516)

Others (581) (365) 0 0 0


Net change in debt 1,445 (298) (1,225) (1,329) (1,581)

Others (1,441) (951) 1,852 1,005 1,376

CF's from financing 4 (1,249) 627 (324) (205)

Net cash flow 193 (622) 676 (226) 17

Cash at BoY 707 918 296 972 746

Cash at EoY 901 296 972 746 764

Free Cashflow 770 993 49 98 223

Key Ratio Analysis

Year end Dec 2014 2015 2016E 2017E 2018E


Opr Margin (%) 75.8% 77.8% 78.3% 77.8% 77.5%

EBITDA Margin (%) 82.2% 85.1% 86.3% 86.0% 86.1%

Core Net Margin (%) 3.8% 41.8% 33.6% 33.8% 31.4%

ROAE (%) 5.3% 79.3% 64.1% 48.2% 36.1%

ROAA (%) 0.6% 6.4% 5.1% 5.1% 4.7%






A/R (days) 39 48 48 48 48


Interim Result (Rpbn) Capital History

Date

26-Oct-10 IPO @ Rp2,025

3Q15 4Q15 1Q16 2Q16 3Q16

Sales 869 880 901 917 942

Gross Profit 739 772 800 814 835

Opr. Profit 655 698 726 736 756

EBITDA 736 759 784 795 818

Net profit 321 634 747 95 96

Gross Margins (%) 85.0% 87.7% 88.7% 88.9% 88.7%

EBITDA Margins (%) 84.7% 86.2% 87.0% 86.7% 86.9%

Opr Margins (%) 75.4% 79.3% 80.5% 80.4% 80.2%

Net Margins (%) 37.0% 72.0% 82.8% 10.4% 10.2%


Media Sector


Media Sector Still prefer radio over TV

TICKER

Price

(IDR) Mkt. Cap

TP Ups.

Rec.

EPS Growth

(%) PE (x)

EV/EBITDA

(x)

Div. yield

(%)

28-Nov (IDR bn) (%) 2016 2017 2016 2017 2016 2017 2016 2017

MNCN 1,735 23,727 1,900 9.5 Neutral 7.0 10.4 15.0 13.6 10.6 9.4 3.5 3.6

MARI 915 481 1,100 20.2 Buy 13.2 7.0 12.2 11.4 7.8 6.8 0.8 4.2

Companies Data

Paula Ruth

([email protected])

Neutral Supported by optimism on consumer sector’s revenue growth

We expect media companies’ to be able to pursue higher revenue growth

in the next several years on the back of higher spending from consumer

companies. Based on our Consumer Committee’s view for companies in

Trimegah Consumer Sector, we see that growth in Advertising & Promotion

expenditure to be driven by Pharmacy in 2016E and Cigarette Companies

in 2017E. MNCN, one of listed media companies whose TV station rated

no. 1 by Nielsen, said that its 9M16 advertising revenue from cigarette

jumped significantly. MNCN mentioned possibility that this might be due to

spots in Euro Cup program and possibility of impact from prohibition of

outdoor advertising for Tobacco by Gov’t.

Radio still has potential in Indonesia

Nielsen survey stated that Radio Advertising Expenditure (Adex) still in-

creased during Jan—Jun 2016 with peak during May-Jun’16 due to Lebaran

Festive Season. According to the same report, 1H16 top advertisers in

radio are: 1) Shell, 2) UNVR, and 3) Telkomsel (65% owned by TLKM),

with 1H16 highest Adex came from Shell and highest number of spots

from UNVR. Nielsen also found that more than half (57%) of radio listen-

ers are Gen Z (10-19 years old) and Millenials (20-34 years old), but most

of them tune to radio from mobile phone. We view this indicates possibil-

ity that demand for radio will still exist in the future (see Figure 3).

MARI as top pick

We have a Neutral for the sector because, although MNCN has strong

audience share momentum, we assume its earning will grow in gradual

manner. Meanwhile, we still have a Buy for MARI (TP IDR1,100), a radio

company which has largest listenership in Indonesia.


Figure 66. Quarterly Nielsen’s audience share vs. revenue

Source: Companies, Nielsen, TRIM Research

Quarterly audience share is calculated from average monthly audience share within that quarter.

Figure 65. Trimegah Consumer Sector— Advertising & Promotion (A & P) Expense


Trimegah Consumer Sector: UNVR, ICBP, HMSP, GGRM, and KLBF


Figure 67. Advertising in Radio

Source: Nielsen, TRIM Research


Media Nusantara Citra Audience share remain strong but bottom-line still lagging

Paula Ruth

[email protected]

RCTI still delivers competitively strong program

During 3Q16, MNCN prime time (4 Free-to-Air / FTA TVs) audience share

remained strong at avg. 45%. This is relatively similar to 1H16, but

improved compared to 3Q15 at just 36% in average. In addition, RCTI

launched new sinetron “Anugrah Cinta” last August which immediately

hit no. 2 in Nielsen’s top 10 drama series, just below RCTI no. 1 drama

series “Anak Jalanan”. According to Nielsen, between Jun to Sep’16,

RCTI actually posted slight increase in prime time audience share from

26% to 31%, but blended impact to MNCN’s total audience share was off

-set by decrease in MNC TV’s share from 13% to 9%.

Top-line growth recovery to last longer

Looking into consumer industry as media industry clients, our Consumer

Committee expects generally higher top-line growth in the next several

years, supported by combination of better consumers’ purchasing pow-

er, new products innovation, and/or volume recovery. Thus, we expect

MNCN to book 2016E-18E revenue growth at 8-10%, after slight nega-

tive YoY growth last year.

Conservatively assume gradual impact to bottom-line

Although we think RCTI’s high rating momentum will drive MNCN’s reve-

nue growth, resulted margin expansion might not fully reflected to

blended level instantly, considering that MNCN’s iNews TV (just launched

Apr’15) still needs time to achieve economies of scale. We expect slight

operating margin improvement from 2016E at 35% to 2019E at 37%, on

the back of better operating scale of iNews TV and growing demand for

TV advertisement in the next several years from consumer sector. Our

consumer committee expect generally higher top-line growth in the next

several years based on combination of better purchasing power, new

products innovation, and/or volume recovery. Our 2016E-18E core profit

growth is 7%-13%YoY.

Valuation: DCF-based TP of IDR1,900 (9% upside) - Neutral

We changed our risk free rate from 6.8% to 8% resulted to WACC in-

crease from 10.7% to 11.6%, lowering TP by 13.6% to IDR1,900. We

maintain our Neutral recommendation. Our MNCN’s target price implies

15x 2017 PE. MNCN trades at 2017 PE of 14x, below SCMA 19x.

MNCN (Media Nusantara Citra) owns and

operates three FTA (Free To Air) TV sta-

tions: 1) RCTI (Rajawali Citra Televisi In-

donesia), 2) MNC TV, and 3) Global TV.

Altogether, MNCN commands 45% audi-

ence market share in 2016E, the largest

among TV ownership groups in Indone-

sia.

Share Price Rp1,735

Sector Media


NEUTRAL Rp1,900

Reuters Code MNCN.JK

Bloomberg Code MNCN.IJ

Issued Shares 13,675 Mkt Cap. (Rpbn) 23,727

Avg. Value Daily 6

Month (Rpbn) 26.4

52-Wk range 2415 / 1185

PT Global Mediacom Tbk 65.2%

Public 34.8%

EPS 16F 17F

Consensus (Rp bn) 118 136

TRIM vs Cons. (%) -3.7% -7.1%

Company Update

Stock Data

Major Shareholders

Consensus

Companies Data Stock Data Stock Data Stock Price

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 6,666 6,445 6,939 7,588 8,362 Net Profit 1,761 1,186 1,700 1,745 1,965

Core Net Profit 1,827 1,474 1,578 1,742 1,961

Core EPS (Rp) 134 108 115 127 143

EPS Growth (%) 1.0% -19.3% 7.0% 10.4% 12.6%

DPS (Rp) 65 43 62 63 71

BVPS (Rp) 651 656 737 804 885

P/E (x) 13.0 16.1 15.0 13.6 12.1

Div Yield (%) 3.7 2.5 3.5 3.6 4.1


Figure 68. DCF calculations (in IDR bn)

Periods 1 2 3 4 5 6 7 8 9 10

Years 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

EBIT x (1 - tax) 2,307 2,440 2,718 3,031 3,364 3,703 4,078 4,460 4,881 5,345

Less: Capital Expenditure (908) (855) (837) (822) (851) (930) (1,016) (1,110) (1,214) (1,329)

Changes in Working Capital (565) (295) (604) (648) (727) (794) (870) (959) (1,055) (1,161)

Add: Depreciation & Amorti-

zation 324 358 390 421 453 487 524 564 609 657

FCFF 1,158 1,648 1,666 1,982 2,239 2,467 2,716 2,955 3,220 3,511 Discount Factor 1.12 1.25 1.39 1.55 1.73 1.93 2.15 2.40 2.68 2.99 PV of FCFF 1,038 1,324 1,199 1,279 1,295 1,278 1,261 1,230 1,201 1,174

Terminal Value 56,028 Sum of PV of FCFF 12,278 Risk Free Rate 8.00% PV of Terminal Value 18,729 Market Premium 5.0%

Add: Cash & Marketable Sec 232 Stock Beta

1.33

Less: Debt 5,003 Cost of Equity 14.6% NAV (IDR bn) 26,236 6.0% Cost of debt

Total Share (billion) 13.675 Debt portion of

capital 30.1%

NAV (IDR / share) 1,918 WACC 11.6%

Target Price 1,900 Terminal growth

rate 5.0%

Source: Company, Bloomberg, Trimegah research



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 6,666 6,445 6,939 7,588 8,362

Growth (%) 2.2% -3.3% 7.7% 9.3% 10.2%

Gross Profit 3,853 3,584 3,782 4,173 4,641

Opr. Profit 2,604 2,194 2,437 2,727 3,076

EBITDA 2,780 2,403 2,692 3,016 3,400

Growth (%) 2.1% -13.6% 12.0% 12.0% 12.7%

Net Int Inc/(Exp) 28 (133) (195) (244) (281)

Gain/(loss) Forex (77) (315) 167 0 0

Other Inc/(Exp) (12) (65) (4) 4 5

Pre-tax Profit 2,542 1,681 2,404 2,486 2,800

Tax (660) (404) (601) (621) (700)

Minority Int. 121 91 103 120 135



Core Net Profit 1,827 1,474 1,578 1,742 1,961

growth (%) 1.0% -19.3% 7.0% 10.4% 12.6%


growth (%) -20.7% -33.9% 43.4% 2.6% 12.6%

Dividend payout

ratio

50.4% 49.5% 49.5% 49.5% 49.5%


Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Core Profit 1,827 1,474 1,578 1,742 1,961

Depr / Amort 176 209 256 290 324

Chg in Working Cap 1,188 464 (69) 529 565

Others (2,093) (898) (1,216) (1,423) (1,474)

CF's from oprs 1,098 1,249 549 1,137 1,377

Capex 1,289 1,420 881 915 908

Others (4,024) (2,484) (1,681) (1,761) (1,827)

CF's from investing (2,736) (1,064) (800) (845) (919)

Net change in debt 2,665 599 873 332 615

Others (470) (1,518) (580) (832) (854)

CF's from financing 2,195 (919) 293 (501) (239)

Net cash flow 557 (734) 42 (208) 218

Cash at BoY 575 1,132 398 440 232

Cash at EoY 1,132 398 440 232 450

Free Cashflow 2,387 2,670 1,430 2,053 2,285

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 57.8% 55.6% 54.5% 55.0% 55.5%

Opr Margin (%) 39.1% 34.0% 35.1% 35.9% 36.8%

EBITDA Margin (%) 41.7% 37.3% 38.8% 39.8% 40.7%

Core Net Margin (%) 27.4% 22.9% 22.7% 23.0% 23.4%

ROAE (%) 22.4% 16.5% 16.6% 16.5% 17.0%

ROAA (%) 15.7% 10.5% 10.2% 10.1% 10.4%






A/R (days) 176 192 192 192 192

Inventory (days) 212 203 198 201 203


3Q15 4Q15 1Q16 2Q16 3Q 16

Sales 1,700 1,414 1,539 2,030 1,696

Gross Profit 917 722 882 1,149 930

Opr. Profit 571 317 518 780 592

Net profit (47) 536 480 523 441

Core profit 174 482 353 496 387

Gross Margins (%) 53.9% 51.0% 57.3% 56.6% 54.9%

Opr Margins (%) 33.6% 22.4% 33.6% 38.4% 34.9%

Net Margins (%) -2.8% 37.9% 31.2% 25.7% 26.0%

Core Margin (%) 10.3% 34.1% 22.9% 24.4% 22.8%

Capital History

Date

22-Jun-07 IPO @ Rp900

Year end Dec 2014 2015 2016F 2017F 2018F

Cash and equiva-

lents

1,132 398 440 232 450

Other curr asset 7,538 7,328 7,365 7,980 8,708

Net fixed asset 2,659 4,145 4,771 5,397 5,981

Other asset 2,280 2,602 3,951 4,227 4,563

Total asset 13,609 14,475 16,528 17,836 19,702

ST debt 55 117 209 140 155

Other curr liab 837 923 995 1,046 1,173

LT debt 3,144 3,681 4,462 4,862 5,462

Other LT Liab 180 187 176 189 202



Shareholders Equi-

ty

8,907 8,966 10,085 10,998 12,108

Net (debt) / cash (2,067) (3,399) (4,231) (4,771) (5,167)



Debt 3,199 3,798 4,671 5,003 5,618


Plenty of growth ahead

We remain optimistic that MARI can grow its revenue at 17% CAGR in

2016-18 on the back of: 1) Expanding number of radio stations in Jakar-

ta, the largest radio market in Indonesia, 2) Management executing on

plans to increase spot ads during non-prime time hours. Our earnings

CAGR of 15% in the same period is conservative as we already assume

higher costs of marketing the new radio stations in the first two years

post expansion.

Expanding number of radio stations in Jakarta

At its IPO, management stated plans to own another radio station in

Jakarta, and expand to one or two other cities in the course of two years.

We believe MARI will execute opening a new radio station in Jakarta soon.

Since Jakarta is the largest radio ad market in Indonesia (could be as

high as 50% of total radio ads), the new radio station should be able to

provide healthy return on investment.

Valuation: Maintain Buy with TP of IDR 1,100 (20% ups.)

We roll-over our forecast to 2017F. We decreased our DCF-based TP by

5% as we increased our risk-free rate from 7.2% to 8.0%. MARI trades at

11x 2017F PE. Our TP implies 2017F PE of 13x with 2016-19F core EPS

CAGR of 16%.

PT Mahaka Radio Integra Tbk is a radio

broadcasting company. The Company op-

erates FM radio stations that primarily

broadcast across Jakarta and Surabaya.

Share Price Rp915

Sector Media


Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 95 102 112 130 154

Net Profit 29 39 40 44 54

EPS 64 86 77 84 103

Core Profit 30 35 39 42 52

Profit Growth (%) -0.3% 17.2% 13.2% 7.0% 22.4%

Core EPS (Rp) 56 66 75 80 98

DPS (Rp) 147 - 8 39 42

Core P/E (x) 16.2 13.8 12.2 11.4 9.3

EV/EBITDA (x) 11.3 9.3 7.8 6.8 5.3

P/BV (x) 8.9 5.4 3.0 2.6 2.2

Div. Yield (%) 16.0% 0.0% 0.8% 4.2% 4.6%

Mahaka Radio Integra Bringing radio to its full potential

BUY Rp1,100

Reuters Code MARI.JK

Bloomberg Code MARI.IJ

Issued Shares 525

Mkt Cap. (Rpbn) 481

Avg. Value Daily 6

Month (Rpbn)

0.5

52-Wk range 995 / 620

PT. Beyond Media 52.2%

PT. Mahaka Media Tbk. 17.4%

Nusantara Radio Holdings Ltd. 10.2%

Public 20.0%

EPS 16F 17F

Consensus (Rp) NA NA

TRIM vs Cons. (%) NA NA

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Company Data

Paula Ruth

[email protected]



Figure 69. DCF-based NAV calculation

Year 1 Year 2 Year 3 Year 4 Year 5

in Rpbn 2018F 2019F 2020F 2021F 2022F

EBIT (1- tax) 54 64 77 91 107

Depreciation and Amortisation 8 9 9 10 11

Changes in non-cash Working Capital (12) (11) (15) (16) (16)

Capex (15) (5) (6) (7) (8)

FCFF 35 56 64 78 93

Discounted FCFF 32 46 47 52 56

Discounted FCFF Year 1-5 233 Terminal Value Assumptions

Terminal Value 260 Terminal ROIC 15.0%

Net debt (cash) (2) WACC 10.8%

Loans to related parties (cash equivalent)

70 LT Growth 5.0%

NAV 561 EV/Invested Capital 1.7

Invested Capital in 2022 253

Shares outstanding (mn) 525 EV in 2022 435

NAV / share (post-IPO) 1,068



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 95 102 112 130 154

Revenue Growth (%) 18% 7% 10% 16% 18%

Opr. Profit 40 47 53 58 72

EBITDA 42 49 55 64 80

EBITDA Growth (%) 4% 18% 13% 16% 24%

Net Int Inc/(Exp) 9 7 5 3 4


Other Inc/(Exp) (0) 3 1 1 0

Pre-tax Profit 39 51 54 59 72

Tax (10) (11) (13) (15) (18)


Extra. Items 0 0 0 0


Core Net Profit 30 35 39 42 52

growth (%) 0% 17% 13% 7% 22%


growth (%) 31% -100% NM 413% 8%



Year end Dec 2014 2015 2016F 2017F 2018F


Other curr asset 75 65 73 93 111

Net fixed asset 4 3 38 58 65

Other asset 21 23 24 29 29

Total asset 166 156 185 258 296

ST debt 56 40 12 12 12

Other curr liab 42 23 6 30 36

LT debt 0 0 0 20 20

Other LT Liab 14 5 6 11 11



Shareholders Equity 54 88 162 186 218

Net cash (debt) 10 25 39 46 60



Debt 56 40 12 32 32

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F


Depr / Amort 2 2 3 6 8

Chg in Working Cap 20 11 54 (5) 12

Others (59) (22) (78) 11 (21)

CF's from oprs (8) 25 18 55 50

Capex 1 1 37 26 15

Others (2) (3) (74) (53) (29)


Net change in debt (16) (27) (28) 20 0

Others 21 5 31 (20) (22)

CF's from financing 6 (22) 2 (0) (22)

Net cash flow (3) 2 (17) 28 14

Cash at BoY 19 16 19 2 29

Cash at EoY 16 19 2 29 43

Free Cashflow (7) 27 55 81 65

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability Opr Margin (%) 41.7% 46.4% 46.9% 44.7% 46.7%

EBITDA Margin (%) 43.7% 48.0% 49.5% 49.4% 51.9%

Core Net Margin (%) 31.2% 34.1% 35.1% 32.5% 33.6%

ROAE (%) 50.6% 49.0% 31.5% 24.2% 25.6%

ROAA (%) 16.8% 21.6% 23.1% 19.0% 18.6%

Stability

Current ratio (x) 1.4 2.1 7.1 4.1 4.2



Interest Coverage (x) (4.5) (6.8) (12.1) (22.4) (20.0)


A/R (days) 247 217 201 219 219


Capital History

Date

11-Feb-2016 IPO @ Rp. 750


Construction Sector


Construction Sector Lucrative price offsets the headwind ahead

We expect lower government-disbursement from Ministries

Macro outlook for 2017 seems to have a mixed impact on infrastructure

SOE where we foresee budget cut for ministries that might impact nega-

tively on SOE contractors. Based on government priority projects, we

can expect higher portion of oil refinery projects as government plans to

refurbish 5 oil refineries projects; Cilacap, Balongan, dumai, Balikpapan,

and Plaju, whilst the amount for toll-road projects should decrease. The

increase in oil refinery projects will benefit several companies due to the

higher gross margin these projects give.

But valuations are cheap for the time being

Construction-sector stocks are currently trading below their 3-years

average PE, but does not necessarily translate to a downwards rerating

as the main cause of depreciation itself was due to the recently occurred

massive foreign selloffs following uncertainty over emerging markets

post-Trump election (and made worse due to the fact that ~15% of

infra/construction stocks were owned by foreign investors).

In search of the one with most value-for-money..

As macro condition is not exactly at the sector’s favor, coupled by at-

tractive entry-point prices, we screen potential stocks over their: 1)

Price-to-equity ratio, 2) EV-to New Contract, 3) Potential earnings

growth. We also believe that given how tight 2017 state budget’s alloca-

tion to infrastructure / construction related ministries is (which was

lowered by 7% YoY), companies’ ability to add leverage becomes ex-

tremely crucial and would potentially be the game-changing factor for

2017.

..with WSKT and WIKA as our top picks

We pick WSKT and WIKA as our top picks as both of them offer security

amid the volatility macro uncertainty ahead. WSKT’s sheer order book

size (which is way above its peers) that should secure their revenue as

well as net profit growth for another 3-4 years, while still having high

chances on securing Indonesia’s upcoming toll-road related new con-

tracts, and WIKA’s current order book manage to cover 99% of our

revenue estimate for the next three years.

Sebastian Tobing, CFA

([email protected])

Gabriela Jacoub

([email protected])

NEUTRAL

Companies Data

Rec.

TP Sh. Px. Ups EPS Growth EV/EBITDA(x) Div. yield (%)

(Rp/sh) (Rp/sh) (%) 2016 2017 2016 2017 2016 2017

WSKT BUY 2,910 2,270 28.2 17.3 80.8 16.0 9.5 0.3 0.6

WIKA BUY 2,930 2,330 25.8 17.7 6.6 7.7 4.4 0.9 1.0

WSBP BUY 630 555 13.5 202.9 0.1 9.4 7.3 0.0 0.0

PTPP NEUTRAL 4,210 3,900 7.9 27.1 12.1 8.7 6.5 1.0 1.1

ADHI NEUTRAL 1,930 1,830 5.5 -50.7 30.1 6.9 5.5 1.1 1.4

WTON SELL 760 805 -5.6 106.3 -20.8 9.7 10.8 1.4 0.8


2017: What to Expect

Macro outlook for 2017 seems to have a mixed impact on infrastructure SOE. We are seeing budget cut for min-

istries that might impact negatively on SOE contractors. Yet, oil refinery projects that should start to tender in

2017, should positively impact certain SOEs due to their average higher margin.

1) Infrastructure budget to increase, but not necessarily from SOEs

As overall construction sector’s new contracts are 98% correlated with infrastructure state budget, a 23% YoY in

Indonesia’s 2017 proposed infrastructure budget should boost the sector as a whole. It should be noted however

that this does not necessarily mean that it would instantly increase the year’s SOE new contract outlook especial-

ly considering that despite new projects varying from toll roads, power plants, and even low income housing pro-

jects (which all is being derived from numerous ministries), state budget’s disbursements to ministries had been

lowered by 7% YoY. The state budget’s overall increase itself was mainly due to the increase in government dis-

bursements to local governments where they would typically appoint smaller-scale contractors for their projects

instead of SOE contractors.

2) A shift towards oil refinery projects that yields better margin than toll-roads

Based on government priority projects, we can expect higher portion of oil refinery projects as government plans

to refurbish 5 oil refineries projects; Cilacap, Balongan, Dumai, Balikpapan, and Plaju (total investment value:

IDR210tn), whilst the amount for toll-road projects should decrease which then create a positive sentiment to

both WIKA and PTPP as they already have on-going Energy-sector EPC exposure that can contribute higher gross

margins at ~12% compared to toll road’s ~10% gross margin. ADHI, on the other hand, might experience diffi-

culty in benefitting from this EPC construction sector as they are currently still in loss making state over their

past Energy-sector EPC projects.

Figure 70. Infrastructure State Budget & Priority Project Types

Source: Trimegah Research, kppip.go.id, kemenkeu.go.id


2017: A lucrative entry point

Each infra / construction-sector stocks are currently trading below their 3-years average PE. Though it is current-

ly at a downtrend, this does not necessarily translate to a downwards rerating, as we think the decrease itself is

due to large foreign-flow exposure to Indonesia (on average, 15.4% of infrastructure shares were owned by for-

eign investors); which experienced massive sell-off following Trump’s election towards emerging-market pro-

spects. On average, 15.4% of infrastructure shares is owned by foreign investor. We think this uncertainty

should sustain until Trump had finally sits his office and the market can then assess his policy direction. Thus, we

remain prudent in stock picking where we look for the ones with most value-for-money among all.

Figure 71. WIKA’s Forward PE Band Figure 72. ADHI’s Forward PE Band

Figure 73. PTPP’s Forward PE Band Figure 74. WSKT’s Forward PE Band

Figure 75. WTON’s Forward PE Band Figure 76. WSBP’s Forward PE Band

Source: Trimegah Research, Company Source: Trimegah Research, Company




The search for the true value-for-money item

Our definition of cheap will be based on 2 aspects; price-to-earnings ratio and Enterprise Value-to-new contract,

along with companies’ ability to add debt, order book scale, and revenue coverage. Given that 2017’s state-

budget’s allocation for ministries is tight, having room to leverage would be the key differentiating factor for each

companies. We also see order book and earnings coverage as added features that should hedge the fluctuation of

new contract that might happen in the year ahead.

In terms of Pricing: WSKT

In terms of pricing, WSKT and ADHI are the two cheapest stock in PE perspective, yet WSKT is still cheaper than

ADHI in terms of EV/ New Contract. Therefore, we can conclude that WSKT is the cheapest one.

In terms of room to leverage: WTON & WSBP

WSBP and WTON are the ones with least leverage, which is due to their business nature as a precast manufac-

turer rather than contractor. Being a precast manufacturer implies that they have less exposure to lengthy ac-

count receivables as goods were sold in a cash and carry basis, which translates to lower necessity to add debt.

In terms of order book scale: WSKT & WIKA

The one with the biggest order book is WSKT, with an estimated order book of ~IDR126trn, followed by WIKA at

IDR77trn.

In terms of 3 years revenue coverage: WIKA & WSKT

Revenue coverage is a percentage of how big 2016’s order book compared to the next 3 years of its forecasted

revenue. The higher the percentage is, the more guaranteed the revenue for 3 years ahead. Thus, more potential

downside. On this sense, WIKA is the one who is least exposed to fluctuation, followed by WKST.

WSKT and WIKA as our top picks.

Based on the description stated above, we pick WSKT and WIKA as our top picks as both of them offers security

over a possible fluctuation of new contract ahead. . WSKT is our top pick due to the sheer order book scale which

should secure both revenue as well as Net Profit growth for another 3-4 years ahead, whilst still having chances

on further increasing their order book following Indonesia’s aggressive stance on nation-wide toll-road connectiv-

ity. On top of that WSKT is the cheapest one among its peers. WIKA also have huge order book which could cov-

er our next 3 years revenue forecast.

2017 PE EV/ New Con-

tract

3 Years Revenue

Coverage

WSKT 14 0.7 74%

ADHI 14 0.8 27%

WIKA 20 0.9 99%

PTPP 18 1.0 72%

WSBP 16 1.5 24%

WTON 26 2.7 19%

Figure 77. Construction PE & EV/ New Contract Ratio & Debt to Equity Ratios

Source: Trimegah Research, Company


Three reasons why we like WSKT

We like WSKT on the back of 1) It has the biggest order book, followed

by massive 2016 new contract figure 2) Predictable 2017 EPS growth,

and 3) Currently being traded at a cheap 14x PE.

Poised as the king of order book growth

Back in 2011, WSKT’s new contract figure was merely at IDR9.7trn, the

smallest among its peers. However, they’ve steadily grew at a 27%

CAGR ever since, to the point of being the contractor with the largest

new contract figure among all, with a staggering IDR5.9trn new order

achievement in 9M16 alone (139% higher than the 2nd largest new

contract achiever, WIKA). Note that this achievement was somewhat

consistent, where they also held the largest new contract figure in both

2015 and 2014.

Massive order book ensures 2017’s stable earnings growth

Going forward, as 2016 becomes a high base for WSKT, and further

considering the decline in the amount of toll-road tenders, we expect a

slow down in WSKT’s new contract growth. However, even if their new

contract declines by 14% YoY, we see that their 2017 EPS can still grow

by 81% (vs. 91% growth if they manage to keep their new contract

constant) in assumption that their burn rate remains the same. As thus,

having a huge order book would help bolster their EPS growth should

new contract figure fluctuate.

Lucrative price tag

WSKT is currently trading at 17.8x PE, below their average PE of 16x.

New contract-wise, they’re still trading at 0.72x 9M16 EV/new contract,

the lowest compared to its peers; PTPP at 1x, WIKA at 0.9, ADHI at

0.8x.

Valuation

We re-initiate WSKT with a BUY at IDR2,910 TP, implying 28.2% upside

from current price. Our price estimate implies 15x 2017 PE, which is

their average 3-Year PE.

Waskita Karya On a High Ground


([email protected])

Maria Gabriela

([email protected])

PT Waskita Karya Persero Tbk is a

general contractor engaged in di-

verse range of construction activities

such as roads, bridges, harbors, air-

ports, buildings, sewerages, facto-

ries and other industrial facilities.

BUY Rp2,910

Share Price Rp2,270

Sector Home Builders

Price Target Rp2,910 (28.2%)

Company Update

Reuters Code WSKT.JK

Bloomberg Code WSKT.IJ



Avg. Value Daily 6

Month (Rpbn) 97.5

52-Wk range 2860 / 1605

Stock Data

Republic of Indonesia Serie B 66.04%

Public 33.96%

Major Shareholders

EPS 16F 17F


TRIM vs Cons. (%) -28.2% 5.4%

Consensus

Stock Price

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

-

500

1,000

1,500

2,000

2,500

3,000

Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16

(Rpbn)Avg. 5 Day MA Trading Value (RHS)

Company Data

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 10,287 14,153 21,894 35,560 50,425

Net profit 487 860 1,179 2,131 3,040

EPS 50 74 87 157 224

EPS Growth (%) 34.1 46.7 17.3 80.8 42.7

DPS (Rp) 13 7 7 13 19

BVPS (Rp) 286 835 771 921 1,136

EV/EBITDA (x) 38.8 24.0 16.0 9.5 6.8

P/E (x) 45.0 30.7 26.1 14.5 10.1

PEG (x) 1.3 0.7 1.5 0.2 0.2

Div Yield (%) 0.6 0.3 0.3 0.6 0.8



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 10,287 14,153 21,894 35,560 50,425

Revenue Growth (%) 6.2 37.6 54.7 62.4 41.8

Gross Profit 1,109 1,921 2,969 4,878 6,920

Opr. Profit 431 518 781 1,140 1,627

EBITDA 961 1,558 2,333 3,909 5,489

EBITDA Growth (%) 32.6 62.0 49.8 67.6 40.4

Net Int Inc/(Exp) (140) (267) (304) (323) (415)

Gain/(loss) Forex (3) 13 0 0 0

Other Inc/(Exp) 24 146 83 151 195

Pre-tax Profit 756 1,398 1,993 3,604 5,122

Tax (254) (350) (763) (1,380) (1,961

)

Minority Int. (0) (0) 0 0 0


Reported Net Profit 502 1,048 1,230 2,224 3,161

Core Net Profit 487 860 1,179 2,131 3,040

Growth (%) 34.4 76.4 37.1 80.8 42.7


Year end Dec 2014 2015 2016F 2017F 2018F


Other curr. Assets 8,430 12,564 14,410 23,298 33,076

Net Fixed Assets 622 2,183 2,773 3,079 3,385

Other Assets 1,815 10,051 16,170 21,026 22,992

Total Assets 12,542 30,309 38,662 50,549 62,746

ST Debt 1,917 3,488 4,939 5,580 5,930

Other Curr Liab. 5,811 10,177 13,809 22,151 30,093

LT Debt 1,246 4,809 7,153 6,813 6,848

Other LT Liab. 803 2,131 2,301 3,497 4,459




Net Debt/(Cash) 1,488 2,234 4,012 6,813 7,647


Net Working Capital 2,377 4,410 971 -1,288 345

Debt 3,167 8,034 11,824 12,124 12,509

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 502 1,048 1,230 2,224 3,161

Depr/Amort 86 143 119 133 147

Chg in Working Capi-

tal -509 232 1,785 -545 -1,836

CF's from Oprs 78 1,422 3,134 1,812 1,472

Capex 0 0 0 0 0

Others -1,516 -9,940 -6,828 -5,295 -2,419


Net Change in Debt 3,163 8,035 11,830 12,131 12,516

Others -1,190 -1,053 -8,339 -10,811 -11,422

CF's from Financing 1,973 6,982 3,491 1,320 1,094

Net Cash Flow 535 -1,536 -202 -2,163 147

Cash at BoY 1,120 1,675 5,511 5,309 3,145

Cash at EoY 1,675 5,511 5,309 3,145 3,292

Free Cashflow 78 1,422 3,134 1,812 1,472

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin - before 10.8 13.6 13.6 13.7 13.7

Op. Margin (%)

EBITDA Margin (%) 9.3 11.0 10.7 11.0 10.9

Core Net Margin (%) 4.7 6.1 5.4 6.0 6.0

ROE (%) 19% 17% 12% 19% 23%

ROA (%) 5% 5% 4% 5% 6%

Stability

Current Ratio (x) 1.3 1.3 1.1 1.0 1.0



Efficiency

A/P days 95 118 120 129 129

A/R days 70 89 86 80 75

Inventory Days 18 21 24 23 22


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 3,438 6,731 3,072 5,013 5,923

Gross Profit 428 975 484 997 938


Net Profit 229 647 127 459 348

Gross Margins (%) 12% 14% 16% 20% 16%

Opr Margins (%) 9% 11% 12% 17% 14%

Net Margins (%) 7% 10% 4% 9% 6%

Capital History

Date

09-Dec-12 IPO @ IDR380

08-Jul-15 Right Issue @IDR100


Wijaya Karya

Three reasons why we have a buy on WIKA

We re-initiate WIKA with a buy on the back of 1) significant progress in High

Seed Railway project 2) Potential revenue upside from Jakarta LRT’s first-phase

construction, and 3) cheap valuation.

Significant progress in HSR project

HSR project has been hitting two speed bumps, 1) the debt financing from China

Development Bank (CDB) that cannot be drown down by WIKA, 2) Tight deadline

on HSR land clearing progress. Yet, as of 11M16, WIKA has managed to gain

approval of supreme court’s legal opinion, officially appointing WIKA as the con-

tractor of HSR. As thus, CDB has the necessary assurance to disburse the loan

needed for HSR construction. As of 11M16, land clearing has also reached 85%,

which is a significant progress from 8M16’s 45%, making HSR’s IDR16.7trn new

contract highly probable to secure.

LRT Jakarta as another potential catalyst

Jakpro has appointed WIKA to be the contractor of Jakarta LRT, constructing LRT

from Depok to Velodrome which spans for 5.8 km, with 6 planned stations. WIKA

could seize an additional IDR5tn from this contract as soon as it is signed. These

two catalysts suggests that WIKA could add IDR21.7trn of new contract by 4Q16,

lifting their potential new contract figure to IDR46trn, ~88% of their FY16 target.

Yet, we remain conservative and exclude Jakarta LRT from our TP calculation

given the uncertainty. We estimate that WIKA should be able to reach ~IDR43trn

of new contract in FY16, approximately 82% achievement (assuming that HSR

project is being signed by 2016, and WIKA still gets new contracts with a busi-

ness as usual rate).

Attractive entry point pricing

WIKA is actually one of the most expensively priced share compared the other

SOE construction companies, which is being currently being traded at 20x (vs.

15x PE for WSKT). However, from a PE perspective, WIKA is trading at its least

demanding PE, where currently it is on –1STD from 3-Years forward average. The

catalysts above ensures that a rerating to a lower PE seem unlikely.

Valuation

We re-initiate WIKA with a buy and TP of IDR2,930, implying 26% upside from

current price. Our price estimate implies 26x 2017PE, which is their 3-Years

average PE.

Gearing Up

PT Wijaya Karya Persero Tbk, through its sub-

sidiaries, offers construction services; manu-

factures building materials; and develops real

estate. The Company constructs commercial

and residential apartments, rail transportation

systems and bridges; and man

BUY Rp2,930

Share Price Rp2,330

Sector Real Estate


Company Update

Reuters Code WIKA.JK

Bloomberg Code WIKA.IJ

Issued Shares 6,616


Avg. Value Daily 6

Month (Rpbn) 49.8

52-Wk range 3139 / 2037

Stock Data

Republic of Indonesia Serie B 65.05%

Director 0.0%

Employee 1.1% Public 33.8%

Major Shareholders

Core EPS 16F 17F


TRIM vs Cons. (%) 12.3% -24.3%

Consensus

Stock Price

0.0

50.0

100.0

150.0

200.0

-

500

1,000

1,500

2,000

2,500

3,000

3,500



Company Data

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 12,463 13,620 18,838 19,782 22,979

Net profit 701 653 769 1,108 1,179

EPS 114 106 116 124 132

EPS Growth (%) 5 -7 9 7 6

DPS (Rp) 20 20 20 23 24

BVPS (Rp) 793 884 1,874 872 1,058

EV/EBITDA (x) 8 7 8 4 4

P/E (x) 20 22 20 19 18

PEG (x) 4 -3 2 3 3

Div Yield (%) 1 1 1 1 1


([email protected])

Maria Gabriela

([email protected])



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 12,463 13,620 18,838 19,782 22,979

Revenue Growth (%) 5 9 38 5 16

Gross Profit 1,794 1,943 2,790 2,975 3,527

Opr. Profit 1,401 1,514 2,211 2,269 2,708

EBITDA 1,592 1,786 1,633 2,846 3,453

EBITDA Growth (%) 17 12 -9 74 21

Net Int Inc/(Exp) -124 -372 -674 -418 -664

Gain/(loss) Forex -2 28 -17 0 0

Other Inc/(Exp) -129 -72 -155 -127 -147

Pre-tax Profit 1,146 1,098 1,366 1,724 1,898

Tax -395 -395 -565 -593 -689

Minority Int. -136 -78 -133 -105 -123


Reported Net Profit 615 625 668 1,025 1,085

Core Net Profit 701 653 769 1,108 1,179

Growth (%) 5 -7 18 44 6


Year end Dec 2014 2015 2016F 2017F 2018F



Net Fixed Assets 3,944 4,702 5,621 7,882 9,986

Other Assets 2,484 2,340 3,070 3,699 4,443

Total Assets 15,909 19,602 29,602 27,309 31,673

ST Debt 1,708 1,818 3,462 4,196 4,643

Other Curr Liab. 6,768 8,780 9,965 10,981 12,943

LT Debt 1,324 1,692 1,849 2,160 2,363

Other LT Liab. 1,233 1,874 1,928 2,170 2,260

Minority Interest 989 1,063 1,030 1,276 1,547



Net Debt/(Cash) 731 950 -2,850 2,962 2,967


Net Working Capital 1,005 1,963 7,484 551 -342

Debt 3,032 3,510 5,311 6,356 7,006

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 615 625 668 1,025 1,085

Depr/Amort 0 0 -578 577 745


tal 0 0 -1,540 1,437 1,112

CF's from Oprs 615 625 -1,450 3,039 2,942

Capex -1,268 -325 -862 -3,426 -3,532

Others 0 0 -234 -46 -83

CF's from investing -1,268 -325 -1,095 -3,472 -3,615

Net Change in Debt 1,706 1,120 1,855 1,286 740

Others 654 -774 6,292 -5,620 577

CF's from Financing 2,360 346 8,147 -4,334 1,317

Net Cash Flow 1,707 646 5,601 -4,767 644

Cash at BoY 1,387 2,301 2,560 8,162 3,395

Cash at EoY 3,094 2,947 8,162 3,395 4,039

Free Cashflow -653 300 -2,312 -387 -589

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability


Op. Margin (%) 11.2 11.1 11.7 11.5 11.8

EBITDA Margin (%) 12.8 13.1 8.7 14.4 15.0

Core Net Margin (%) 5.6 4.8 4.1 5.6 5.1

ROE (%) 14.2 11.9 7.0 6.6 11.9

ROA (%) 4.0 3.5 2.5 2.3 3.5

Stability

Current Ratio (x) 1.1 1.2 1.6 1.0 1.0

Net Debt to Equity (x) 0.1 0.2 (0.2) 0.4 0.3


Efficiency

A/P days 50 63 57 59 52

A/R days 114 124 99 103 100



3Q15 4Q15 1Q16 2Q16 3Q16

Sales 3,313 5,529 1246 3,307 3,306

Gross Profit 559 786 749 522 454


Net Profit 190 235 605 185 145

Gross Margins (%) 16.9 14.2 60 16% 14%

Opr Margins (%) 13.7 11.7 52 12% 11%

Net Margins (%) 5.7 4.2 49 6% 4%

Capital History

Date

29 Oct 07 IPO @ IDR420

23—29 Nov 16 Rights Issue


Three reasons why we like WSBP

We like WSBP on the back of: 1) Strong 9M16 performance, seizing

IDR7.5tn new contract on 9M16 vs. WTON’s new contract achievement

of IDR3tn. 2) One of the beneficiaries of WSKT’s huge growth on 2016.

3) Reasonably priced at 16x PE.

Strong 9M16 operational & financial performance...

WSBP managed to set a great first impression by growing their 9M16

revenue and profit by 89% and 86% respectively. From an operational

perspective, they’ve secured 93% (~IDR7.5trn) of their FY16 target,

and it should be stressed that the majority of their total contract was

contributed by WSKT’s toll road projects; Cimanggis-Cibitung, Pemalang

-Batang, and Batang-Semarang. They have also snatched up turnkey

projects such as Becakayu toll road, which should contribute to better

9M16’s gross margin.

…which should sustain thanks to WSKT’s full support over them

Their stellar 2016 new contract achievement should not be an one-off

event since they were given by WSKT, WSBP’s parent company. We see

that WSBP’s new contract is correlated with WSKT’s previous year new

contract, and as WSKT’s 9M16 new contract tripled, should then become

a catalyst to WSBP’s 2017 new contract. If the precast project takes up

20% of WSKT’s overall construction project, it would result in WSBP’s

2017 new contract to be at ~IDR11tn for FY17. The increase in revenue

should translate to 79% growth in 2017 net profit, assuming that there

are no opex efficiency conducted.

Valuation is relatively expensive, but for a very good reason

If we measure its value over their new contracts, which is currently

trading at 1.43x EV/new contracts, is cheaper than their direct competi-

tor, WTON, which is currently being traded at 2.7x. In terms of PE they

are also the third cheapest one.

Valuation

We initiate WSBP with TP of IDR630, implying 13.5% upside from cur-

rent price. Our price estimate implies 18.5x PE from 2017EPS, which is

their above 1 standard deviation to their average PE since initial public

offering in early September 2016.

Waskita Beton Precast The Prodigy


([email protected])

Maria Gabriela

([email protected])

PT. Waskita Beton Precast tbk oper-

ates as a construction services com-

pany. The Company offers precast

concrete for buildings and bridges,

retaining walls, drainages, ready-mix

concrete, barriers, and rail pads.

BUY Rp630

Share Price Rp555

Sector Engineering&Construction

Price Target Rp630(13.5%)

Company Update

Reuters Code WSBP.JK

Bloomberg Code WSBP.IJ



Avg. Value Daily 6

Month (Rpbn) NA

52-Wk range 645 / 490

Stock Data

Waskita Karya Tbk 60.00% Public 40.00%

Major Shareholders

EPS 16F 17F


TRIM vs Cons. (%) 25.1% -9.3%

Consensus

Stock Price

0.0

200.0

400.0

600.0

800.0

1,000.0

-

100

200

300

400

500

600

700



Company Data

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 642 2,644 5,013 6,230 8,566

Net profit 140 334 700 890 930

EPS 22,696 38 27 34 35

EPS Growth (%) -30 27 4

DPS (Rp) 0 0 0

BVPS (Rp) 113,698 153 299 333 368

EV/EBITDA (x) 62 20 9 7 6

P/E (x) 0 14 21 16 16

PEG (x) -1 1 3

Div Yield (%) 0 0 0 0 0



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 642 2,644 5,013 6,230 8,566

Revenue Growth (%) 311.9 89.6 24.3 37.5

Gross Profit 147 419 852 997 1,114

Opr. Profit 142 363 767 887 936

EBITDA 149 451 976 1,257 1,508

EBITDA Growth (%) 202.1 116.4 28.8 20.0

Net Int Inc/(Exp) 1 (19) (45) 31 22



Pre-tax Profit 143 346 722 918 958

Tax (2) (11) (22) (28) (29)


Extra. Items (1) 0 0 0 0


Core Net Profit 140 334 700 890 930

Growth (%) 138.0 109.9 27.1 4.5


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and equivalents 272 98 7,689 6,830 5,540

Other curr. Assets 709 905 1,332 1,701 2,291

Net Fixed Assets 222 987 2,279 3,909 5,837

Other Assets 0 2,342 2,547 3,165 4,352

Total Assets 1,203 4,333 13,848 15,606 18,021

ST Debt 0 302 900 900 900

Other Curr Liab. 500 2,130 3,557 4,425 5,910

LT Debt 0 459 1,411 1,411 1,411

Other LT Liab. 0 110 115 115 115


Total Liabilities 500 3,002 5,983 6,851 8,336

Shareholder's Equity 702 1,331 7,864 8,754 9,684

Net Debt/(Cash) -272 663 -5,378 -4,519 -3,229

Total cap employed 702 2,092 10,175 11,065 11,995

Net Working Capital 480 -1,429 4,565 3,207 1,022

Debt 0 761 2,311 2,311 2,311

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 141 335 701 890 930

Depr/Amort 7 87 209 370 572


tal -208 1,735 1,598 499 895

CF's from Oprs -60 2,158 2,507 1,759 2,397

Capex -229 -853 -1,500 -2,000 -2,500

Others 0 -2,342 -205 -618 -1,187

CF's from investing -229 -3,195 -1,705 -2,618 -3,687

Net Change in Debt 0 761 2,311 2,311 2,311

Others 562 103 4,478 -2,311 -2,311

CF's from Financing 562 864 6,789 0 0

Net Cash Flow 272 -174 7,591 -859 -1,290

Cash at BoY 0 272 99 7,689 6,830

Cash at EoY 272 99 7,689 6,830 5,540

Free Cashflow -289 1,304 1,007 -241 -103

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin - before 23 16 17 16 13

Op. Margin (%) 22 14 15 14 11

EBITDA Margin (%) 23 17 19 20 18

Core Net Margin (%) 22 13 14 14 11

ROE (%) 20 33 15 11 10

ROA (%) 12 12 8 6 6

Stability

Current Ratio (x) 2 0 2 2 1

Net Debt to Equity (x) -2 -1 -2 -2

Interest Coverage (x) 19 17 19 20

Efficiency

A/P days 95 70 81 81 81

A/R days 359 78 72 72 72



9M15 9M16

Sales 1,617 3,066

Gross Profit 250 744

Operating Profit 214 690

Net Profit 211 392

Gross Margins (%) 15.50% 24.30%

Opr Margins (%) 13.20% 22.50%

Net Margins (%) 13.10% 12.80%

Capital History

Date

20-Sep-16 IPO @ IDR490


Why we are neutral on PTPP

We like PTPP based on: 1) Least effected by ministry spending. 2) Has the second

highest order book growth after WSKT, 3) Unique project specialty ensures

2017’s port-heavy new contract achievement. Yet, we fail to see a concrete

catalysts for the years ahead and it is quite expensive compared to its peers.

Least effected by ministry spending

42% of their order book is from private sector, and the other 37.82% is from

SOE. As of July 2016, only 9.38% of their new contract is from the government.

Thus, PTPP should have limited downside from the lower ministry disbursement.

The second most rapidly growing order book

PTPP had constantly grew their order book at 17% p.a. and said growth can still

be expected in 2016 as they managed to grow their new contract achievement by

42% by 9M16. The growth itself should also persist in 2017 as they’ve managed

to reduce their exposure to government-related projects and would pursuit both

SOE and private sector’s instead.

Unique talent for port building

Their expertise is shown as they’ve developed Kalibaru Port in Jakarta. This

unique feature should benefit PTPP as we expect government to tender three

ports: Bitung International port hub, kuala tanjung port hub, and Patimban port

in 2017, which in total should add up to IDR64trn worth of new contracts. Yet

there is significant risk since those ports are budgeted on Ministry of Transport’s

budget. Seeing that Ministry of Transport’s 2017 bugdet has just been slashed by

11%, tender delays or financing scheme that will not play to PTPP’s advantage is

highly possible.

Not the cheapest compared to its peers

Indeed PTPP is trading at two standard deviation below their 3-year PE average.

Yet in terms of PE ratio, it is the second most expensive one after WIKA. Further-

more, their enterprise value is actually selling at 1x their new contract, the most

expensive ratio compared to other construction companies.

Valuation

We re-initiate PTPP with a neutral and TP of IDR4,210, implying 7.9% upside

from current price. Our price estimate implies 19.5x PE from 2017EPS, which is

their average 3-year PE.

Pembangunan Perumahan The Niche in the Sector

PT Pembangunan Perumahan Persero

Tbk is a full service construction

company. The Company develops of-

fices and hotels in Indonesia.

NEUTRAL Rp4,210

Share Price Rp3,900



Company Update

Reuters Code PTPP.JK

Bloomberg Code PTPP.IJ

Issued Shares 4,956


Avg. Value Daily 6

Month (Rpbn) 39.4

52-Wk range 4850 / 3300

Stock Data

Republic of Indonesia 51.00% Cooperative employees PT PP 0.54%

Public 48.46%

Major Shareholders

EPS 16F 17F


TRIM vs Cons. (%) -1.1% -12.1%

Consensus

Stock Price

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

-

1,000

2,000

3,000

4,000

5,000



Company Data

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 12,427 14,217 18,113 22,349 28,858

Net profit 571 750 975 1,368 1,834

EPS 118 155 197 221 296

EPS Growth (%) 15.6 31.4 27.1 12.1 34.1

DPS (Rp) 22 31 38 43 58

BVPS (Rp) 482 1,057 2,074 1,830 2,062

EV/EBITDA (x) 13.8 11.0 8.7 6.5 5.2

P/E (x) 33.1 25.2 19.8 17.7 13.2

PEG (x) 2.1 0.8 0.7 1.5 0.4

Div Yield (%) 0.6 0.8 1.0 1.1 1.5


([email protected])

Maria Gabriela

([email protected])



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 12,427 14,217 18,113 22,349 28,858


Gross Profit 1,550 2,007 2,237 2,999 3,803

Opr. Profit 1,339 1,664 2,030 2,696 3,381

EBITDA 1,397 1,748 2,221 2,942 3,681

EBITDA Growth (%) 17 25 27 32 25

Net Int Inc/(Exp) -354 -362 -565 -671 -690


Other Inc/(Exp) -83 -111 -68 -73 -76

Pre-tax Profit 921 1,287 1,423 1,985 2,640

Tax -387 -442 -427 -595 -792

Minority Int. 0 -105 -50 -50 -50


Reported Net Profit 533 740 946 1,339 1,798

Core Net Profit 571 750 975 1,368 1,834

Growth (%) 16 31 30 40 34


Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 533 740 946 1,339 1,798

Depr/Amort 57 84 192 246 300


tal -643 -83 1,004 -618 -1,025

CF's from Oprs -52 742 2,142 967 1,073

Capex -498 -387 -760 -760 -760

Others 61 -2,134 -29 -864 -614

CF's from investing -437 -2,521 -789 -1,624 -1,374

Net Change in Debt 1,275 646 1,014 1,050 130

Others 99 775 -629 -492 -94

CF's from Financing 1,374 1,421 385 558 36

Net Cash Flow 885 -358 1,738 -99 -265

Cash at BoY 2,397 2,408 3,025 4,764 4,665

Cash at EoY 2,408 3,025 4,764 4,665 4,401

Free Cashflow -551 355 1,382 207 313

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin - before 12 14 12 13 13

Op. Margin (%) 11 12 11 12 12

EBITDA Margin (%) 11 12 12 13 13

Core Net Margin (%) 5 5 5 6 6

ROE (%) 25 20 12 12 15

ROA (%) 4 4 4 5 6

Stability

Current Ratio (x) 1.4 1.4 1.4 1.3 1.3



Efficiency

A/P days 220 220 223 224 224

A/R days 58 66 65 65 63



3Q15 4Q15 1Q16 2Q16 3Q16

Sales 3,553 5,443 2,588 3,885 4,373

Gross Profit 495 829 360 573 632


Net Profit 217 362 98 257 211

Gross Margins (%) 13.9 15.2 13.9 15 14

Opr Margins (%) 11.4 13.8 10.1 12 12

Net Margins (%) 6.1 6.7 3.8 7 5

Capital History

Date

09-Feb-10 IPO @ IDR560


Year end Dec 2014 2015 2016F 2017F 2018F



Net Fixed Assets 710 2,989 3,020 3,726 4,432

Other Assets 392 709 1,276 1,948 2,316

Total Assets 14,579 19,129 23,254 27,998 33,751

ST Debt 1,577 1,765 2,297 2,837 3,087

Other Curr Liab. 8,284 9,350 11,612 13,918 17,586

LT Debt 1,455 1,913 2,395 2,905 2,785

Other LT Liab. 928 982 1,075 1,391 1,907

Minority Interest 0 -105 -50 -50 -50



Net Debt/(Cash) 624 653 -72 1,077 1,472


Net Working Capital 3,616 4,316 5,051 5,570 6,330

Debt 3,032 3,678 4,692 5,742 5,872


Three reasons we put neutral on ADHI

Despite being the cheapest stock in term of PE, we see the reasoning behind the

cheap valuation. We see that ADHI has: 1) Slower new contract achievement

than expected. 2) LRT scheme not exactly at their favor, and 3) Possible addition-

al EPC loss in 2017.

New contract achievement slower than expected

ADHI new contract figure has been sluggish compared to other companies,

achieving only IDR11.4tn as of 9M16, achieving 61% of their FY16. Bear in mind

that 61% achievement is from their revised target (which has been lowered by

18% in 3Q16). We see their probability of achieving their new contract target to

be rather slim, especially considering their new contract in 10M16 was merely

IDR400bn. Assuming that their achievement stays constant in both November

and December, new contract achievement would only reach 67%. In our TP

calculation however, we estimate ADHI’s monthly new contract figure to be at

IDR1trn, which uis their average new contract achievement rate in 2016. As thus,

we expect ADHI to be able to achieve IDR14trn for the year.

LRT financing scheme disclosed and its not exactly at their favor

ADHI would only receive IDR10.5tn from State Budget (IDR2tn in 2017, IDR5tn

in 2018, and IDR3tn in 2019) with the remaining IDR11tn being bank loans,

making ADHI’s total liability figure to be at IDR23tn which would then breach

their 3.5x maximum DER covenant. To avoid this, a corporate action is in place

to maintain DER below 3.5x; ADHI to issue preferred stock and perform spin off

of ADHI Gedung on 2017 which is estimated to raise their equity by IDR2.5tn to

IDR7.5tn, thus granting the ability to add debt up to IDR25.37tn whilst still main-

taining a favorable below 3.5x DER.

Downside risk from EPC loss in 2017

Their EPC-issue remains a threat as they will still recognize an additional

IDR200bn EPC loss in 2017, which also marks 30% of their FY 2017 estimated

net profit.

Valuation

We re-initiate ADHI with a neutral and TP of IDR1,930, implying 5.5% upside

from current price. Our price estimate implies 18.2x 2017PE which is the average

between the mean of 3-Year PE band and –1 standard deviation of 3-Year PE.

Adhi Karya Cheap for a reason

PT Adhi Karya Persero Tbk provides

construction and engineering, me-

chanical and electrical, and property

development services . The Company

also manufactures liquid and pre-

cast concrete.

NEUTRAL IDR1,930

Share Price Rp1,830



Company Update

Reuters Code ADHI.JK

Bloomberg Code ADHI.IJ

Issued Shares 3,561


Avg. Value Daily 6

Month (Rpbn) 51.6

52-Wk range 2910 / 1830

Stock Data

Government 51.00% Public 49.00%

Major Shareholders

EPS 16F 17F


TRIM vs Cons. (%) -36.9% -45.5%

Consensus

Stock Price

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

-

500

1,000

1,500

2,000

2,500

3,000

3,500



Company Data

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 8,654 9,390 11,402 14,221 20,045

Net profit 287 386 297 386 850

EPS 160 169 83 108 239

EPS Growth (%) -36 6 -51 30 120

DPS (Rp) 68 35 20 26 59

BVPS (Rp) 972 2,258 1,394 2,229 2,523

EV/EBITDA (x) 10 11 7 6 4

P/E (x) 11 11 22 17 8

PEG (x) 0 2 0 1 0

Div Yield (%) 4 2 1 1 3


([email protected])

Maria Gabriela

([email protected])



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 8,654 9,390 11,402 14,221 20,045

Revenue Growth (%) -12 9 21 25 41

Gross Profit 1,109 1,921 2,969 4,878 6,920

Opr. Profit 660 611 951 1,197 1,647

EBITDA 686 641 983 1,235 1,686

EBITDA Growth (%) -27 -7 53 26 37

Net Int Inc/(Exp) -103 -86 -150 -488 -521


Other Inc/(Exp) -8 68 0 0 0

Pre-tax Profit 600 746 391 509 1,126

Tax -268 -281 -98 -127 -281




Core Net Profit 287 386 297 386 850

Growth (%) -36 34 -23 30 120


Year end Dec 2014 2015 2016F 2017F 2018F



Net Fixed Assets 857 1,477 1,947 2,325 2,638

Other Assets 117 593 713 927 1,098

Total Assets 10,459 16,761 16,784 25,105 32,952

ST Debt 692 1,115 1,598 3,873 6,957

Other Curr Liab. 33 28 55 60 80

LT Debt 1,577 2,003 1,972 3,097 2,713

Other LT Liab. 61 181 202 231 285




Net Debt/(Cash) 1,458 -1,199 290 -2,080 -1,479


Net Working Capital 2,415 5,277 4,478 8,011 8,246

Debt 2,269 3,119 3,569 6,970 9,670

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 329 464 290 377 838

Depr/Amort 25 30 32 38 40

Chg in Working

Capital -1,337 796 -713 177 -1,145

CF's from Oprs -983 1,290 -391 592 -267

Capex -542 -1,623 -666 -830 -574

Others 0 0 0 0 0

CF's from investing -542 -1,623 -666 -830 -574

Net Change in Debt 522 892 505 3,415 2,729

Others -124 2,946 -487 2,594 210

CF's from Financing 398 3,838 18 6,009 2,939

Net Cash Flow -1,126 3,505 -1,038 5,771 2,099

Cash at BoY 1,940 811 4,317 3,279 9,050

Cash at EoY 811 4,317 3,279 9,050 11,149

Free Cashflow -1,525 -333 -1,057 -238 -840

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability


Op. Margin (%) 7.6 6.5 8.3 8.4 8.2

EBITDA Margin (%) 7.9 6.8 8.6 8.7 8.4

Core Net Margin (%) 3.3 4.1 2.6 2.7 4.2

ROE (%) 20% 13% 6% 6% 10%

ROA (%) 3% 3% 2% 2% 3%

Stability

Current Ratio (x) 1.3 1.6 1.5 1.6 1.4

Net Debt to Equity (x) 0.83 -0.23 0.06 -0.26 -0.16


Efficiency

A/P days 228 244 225 225 225

A/R days 72 80 80 80 86



3Q15 4Q15 1Q16 2Q16 3Q16

Sales 2,204 3,974 1,329 1,802 2,562

Gross Profit 212 433 127 141 314


Net Profit 67 326 11 45 59

Gross Margins (%) 9.6 10.9 9.6 8 12

Opr Margins (%) 5.5 7.1 3.7 2 8

Net Margins (%) 3.0 8.2 0.8 3 2

Capital History

Date

18-Mar-04 IPO @ IDR150

09— 21 Oct 15 Right Issue


Three reasons why we have a sell on WTON

Despite a few upside potential such as potential beneficiaries from HSR construc-

tion, we see that WTON does not have any lasting competitive advantage to

WSBP. Therefore, WTON should see a decrease in revenue in the near future.

Still a chance of becoming HSR project beneficiary

As WIKA, WTON’s parent company, manages to secure High Speed Railway’s

contract, WTON should gain benefit over the project’s precast requirements.

However, it should be noted that as the project itself is a JV with China Railway,

there is a possibility that China Railway would provide a portion of the required

precast thus reducing WTON’s potential new contract figure.

More variety in product and is inevitably more experienced...

WSBP has just been established in 2014 while WTON has been providing precast

since 1973. WTON also has products readily available while WSBP would need

more time to provide the goods as it has yet been produced. As a example,

WTON produces “strippers”, a precast item commonly used in railway projects,

which WSBP does not have. This enables the former to have a better product

portfolio and at the same time appeal to a much broader audience.

… Yet no barrier for other precast companies to catch up

Yet it is crucial to bear in mind that other precast company could build facility to

produce the same goods as WTON if given enough time. Especially if one of them

has fresh funds from IPO. To top it of WTON could only attain IDR3tn new con-

tract on 9M16. It is still growing by 36% YoY, yet this is small compared to

IDR7.5tn from WSBP. With no sign of slowing down from WSBP, WTON is facing a

credible threat.

Valuation

We re-initiate WTON with SELL and TP of IDR760, implying 5.6% downside from

current price. Our price estimate implies 25x 2017PE which is the average be-

tween the mean of 3-Year PE band and –1 standard deviation of 3-Year PE.

Wijaya Karya Beton Challenging Times Ahead

PT Wijaya Karya Beton Tbk manufac-

tures and distributes construction

products. The Company produces

and markets precast concrete struc-

tures, including bridge beams, re-

taining walls, pipes, and bearings.

SELL IDR760

Share Price Rp805

Sector Real Estate

Price Target Rp760 (-5.6%)

Company Update

Reuters Code WTON.JK

Bloomberg Code WTON.IJ

Issued Shares 8,715


Avg. Value Daily 6

Month (Rpbn) 21.1

52-Wk range 1075 / 780

Stock Data

Wijaya Karya 60.00% Koperasi Karya Mitra Satya 7.70%

Yayasan Wijaya Karya 1.00%

Public 27.00%

Treasury Stock 4.30%

Major Shareholders

EPS 16F 17F


TRIM vs Cons. (%) 23.3% -26.2%

Consensus

Stock Price

0.0

20.0

40.0

60.0

80.0

100.0

-

200

400

600

800

1,000

1,200



Company Data

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 3,277 2,653 3,436 3,519 3,718

Net profit 331 161 333 264 308

EPS 38 19 38 30 35

EPS Growth (%) 35 -51 106 -21 17

DPS (Rp) 0 12 11 6 7

BVPS (Rp) 253 260 286 311 339

EV/EBITDA (x) 13 19 10 11 10

P/E (x) 21 43 21 27 23

PEG (x) 2 -2 1 -4 4

Div Yield (%) 0 1 1 1 1


([email protected])

Maria Gabriela

([email protected])



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 3,277 2,653 3,436 3,519 3,718

Revenue Growth (%) 24 -19 30 2 6

Gross Profit 487 329 596 514 587

Opr. Profit 409 238 512 427 491

EBITDA 495 328 649 580 660

EBITDA Growth (%) 25 -34 98 -11 14

Net Int Inc/(Exp) 6 -26 -71 -78 -84

Gain/(loss) Forex -5 -8 -3 -1 -1


Pre-tax Profit 412 206 439 349 407

Tax -89 -34 -110 -87 -102




Core Net Profit 331 161 333 264 308

Growth (%) 35 -51 106 -21 17


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and equivalents 1,038 824 1,283 1,810 2,317


Net Fixed Assets 1,675 2,001 1,345 1,324 1,271

Other Assets 1 0 0 0 0

Total Assets 3,802 4,456 4,397 4,881 5,456

ST Debt 199 211 235 259 278

Other Curr Liab. 1,311 1,582 1,266 1,514 1,827

LT Debt 0 320 320 320 320

Other LT Liab. 90 79 79 79 79




Net Debt/(Cash) -840 -292 -728 -1,230 -1,719


Net Working Capital -1,510 -1,793 -1,501 -1,774 -2,105

Debt 568 453 557 581 600

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 329 174 331 264 307

Depr/Amort 86 90 137 153 169


tal -283 95 -454 270 192

CF's from Oprs 132 359 14 686 668

Capex 474 91 280 285 285

Others -1,214 -507 239 -417 -401

CF's from investing -740 -416 519 -132 -116

Net Change in Debt 26 333 24 24 19

Others 385 901 -182 -98 -47

CF's from Financing 1,234 -158 -74 -28 -45

Net Cash Flow 625 -215 459 527 507

Cash at BoY 413 1,038 824 1,283 1,810

Cash at EoY 1,038 824 1,283 1,810 2,317

Free Cashflow 1,038 824 1,283 1,810 2,317

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability


Op. Margin (%) 12.5 9.0 14.9 12.1 13.2

EBITDA Margin (%) 15.1 12.4 18.9 16.5 17.8

Core Net Margin (%) 10.1 6.1 9.7 7.5 8.3

ROE (%) 22.5 7.8 13.9 10.1 10.9

ROA (%) 9.8 4.2 7.5 5.7 5.9

Stability

Current Ratio (x) 1.4 1.4 2.0 2.0 2.0



Efficiency

A/P days 48 76 59 59 59

A/R days 49 71 55 55 55



3Q15 4Q15 1Q16 2Q16 3Q16

Sales 657 1,104 733 786 723

Gross Profit 74 140 91 110 105


Net Profit 33 87 50 59 55

Gross Margins (%) 11.3 12.7 12.4 14 15

Opr Margins (%) 8.2 10.0 10.0 79 79

Net Margins (%) 5.1 7.9 6.9 69 66

Capital History

Date

08-Apr-14 IPO @ IDR590


Property Sector


Property Sector

Wisnu Budhiargo

([email protected])

Maria Gabriela

([email protected])

The best has yet to come

Marketing sales has yet to pick up..

We remain neutral on Property sector following lackluster marketing sales perfor-

mance. 2016 targets achievement are still a long way to go, with average deficit

reaching ~40%, especially on larger market-capped developers; SMRA at 37%,

BSDE at 40% and CTRA at 38%. Note that several big-names had lowered their

marketing sales target, and we expect more to come following the lack of sales

improvement for the year. Our neutral stance is further supported by the not-so-

favorable gap between primary and secondary prices, which is still at ~15%,

whilst we think demand would again be conducive only if it goes back to being in

the low-single digits.

..although premium-segment developers are showing prospect..

Whilst overall marketing sales still at turmoil, we still believe middle-upper seg-

ment developers are the ones performing. PWON had reached 88% of their

(revised) marketing sales target, whilst DILD reaching 55%. Note that tax am-

nesty-related cash has yet been fully absorbed by the sector, and is less likely

being spent on middle-segment properties as well. On that sense, we think inner-

city focused developers are the ones to benefit the most during the next property

upcycle.

..while industrial estates takes the cake

Industrial estates had performed better than expected, especially DMAS where

they’ve not only meet their preassigned target while still having much room for

sales addition (note that as of 9M16 DMAS had reached 6% excess over their

land sales target).

2017 should be better following more incentives..

We have yet given up altogether though as we still believe 2017 should see

better demand following the incentives that had happened in late-2016. Relaxed

LTV and mortgage limitations, followed by cheaper mortgage rates, as well as

broader foreign-purchasable supply should be the main property demand driver

for 2017, as thus would lean more towards middle-upper segment properties,

especially those that are directly benefitted by Jakarta’s upcoming MRT.

..with PWON and DMAS as our top picks

We pick both PWON and DMAS due to their robust balance and stable earnings.

We like PWON following their ability to mitigate earning volatility thanks to their

second-to-none recurring income performance, whilst DMAS due to their strong

yet consistent land sales performance. Note that we are Neutral on the sector

itself as we do not expect demand to drastically improve in 2017, however, our

top picks represents the stocks that we believe has the least earnings downside.

Wisnu Budhiargo

([email protected])

Gabriela Jacoub

([email protected])

Neutral

Companies Data

Rec.

TP Sh. Px. Ups Discount

to NAV

(%)

EPS 2017 PE (x) EV/EBITDA

(x)

Div.yld.(%)

(Rp/sh) (Rp/sh) (%) (IDR) (% YoY) 2016 2016 2016

PWON BUY 790 680 16.1 52 30 14 27 10 0

DMAS BUY 290 230 26.0 72 13 24 22 10 4

DILD BUY 780 500 56.0 77 497 19 13 13 2

MDLN BUY 670 340 97.0 79 46 -69 5 1 2

MMLP BUY 760 670 13.4 NA 21 41 45 37 0

BKSL BUY 170 95 78.9 77 4 113 48 22 2

MTLA BUY 510 264 93.1 84 20 23 7 5 7

BSDE NEUTRAL 1,800 1,680 7.1 68 140 -14 10 8 3

SMRA SELL 1,330 1,360 -2.2 68 16 72 150 17 0


NAVs seem attractive at the moment..

As of 28/11/2016, sector’s valuation was at an attractive position, where stocks’ under our radar’s average dis-

count to NAV was at 70% with PWON leading the herd at 52% discount to NAV. Note that valuations were al-

ready relatively cheap prior to JCI’s post-Trump US Presidency victory price drop, where sector’s average dis-

count to NAV as of 10/11/2016 was at 67% and then fell to 71% as of 15/11/2016. What we’d like to highlight is

that prices were already cheap to begin with, and global sentiments had only made it even cheaper. But this

does not necessarily mean that the sector itself is currently worth any overweight rating, as NAV would only

measure their asset size, whilst monetization ability still remain as the sector’s main issue.

..but not so much on marketing sales performance

At this point, larger NAV becomes irrelevant so long as monetization ability remains an issue. Marketing sales

throughout 2016 has yet shown significant improvement, let alone sales growth. As of 9M 2016, sector’s cumula-

tive marketing sales was at a 10% deficit over 2015’s 9M achievement, and further note that 2016’s sales target

was being set on a relatively conservative manner with target growth being capped at ~10% (except for DILD,

where target was at an aggressive 35% increase). We do not expect the sector to meet its target for the year,

especially considering that in order to do so it would require ~170% improvement over 3Q16’s marketing sales

achievement, hence our Neutral stance over the sector.

Figure 78. Developer NAVs under our coverage

Figure 79. Developers’ Marketing Sales Performance (IDRbn)

2014 2015 2016 Target

Achieve-

ment

9M YoY

Growth Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

APLN* 1,830 630 1,060 2,830 940 460 300 760 1,017 519 554 69.7%** 23%

DILD 632 549 621 736 252 245 884 493 702 298 400 54.7% 1%

PWON 586 543 842 1,129 1,200 799 501 600 594 550 656 81.8%** -28%

SMRA 650 1,790 1,810 351 1,200 1,500 296 1,354 401 1,312 489 62.9% -27%

BSDE 1,765 985 2,250 1,507 2,200 1,259 1,141 2,157 1,204 1,329 1,568 59.7% -11%

ASRI* 900 1,600 1,300 455 568 548 349 435 418 578 464 58.4% 0%

CTRA* 1,730 1,770 2,300 2,830 1,745 2,555 1,000 3,900 1,100 1,900 2,800 62.4% 9%

BKSL 452 518 420 255 212 164 115 278 156 244 246 53.8% 31%

MTLA - - - - 229 266 278 334 241 277 522 79.1% 35%

MDLN - - - - 1,456 606 522 587 221 233 508 22.9% -63%

DMAS 0 580 82 927 378 177 1,119 0 43 152 708 106.2% -46%

BEST* 73 154 256 300 213 0 0 226 0 189 188 54.0% NA

KIJA* 188 262 121 450 292 225 207 285 49 421 550 72.9% 41%

TOTAL - - - - 9,200 7,932 5,913 10,489 5,683 7,493 5,823

RNAV (IDR) Price as of 28/11/2016 (IDR) Discount to NAV

PWON 1,412 680 52%

DMAS 824 230 71%

DILD 2,237 500 77%

MDLN 1,659 340 79%

MTLA 1,748 264 84%

BKSL 410 95 78%

BSDE 5,333 1,680 67%

SMRA 4,220 1,360 68%


Source: Trimegah Research, Company. *not under our coverage universe **revised target


Incentives were leaned towards high-rise developers..

Looking back, 2016 had experienced numerous incentives which highly benefits both supply and demand side,

however, demand was still relatively weak. It should be noted that 2016 was also the year where potential buy-

ers, especially high networth individuals, were in a wait-and-see stance following July’s tax amnesty. Given that

its been done, yet demand had yet rebounded, we expect mid-2017 to be the turning point of the sector as we

think buyers should be less concerned by tax payments by then, and would again opt for property purchase as a

means of investment.

..with added prospect over MRT

Figure 80. Recent Property-Related Incentives

Figure 81. Jakarta MRT Map



As Jakarta’s Mass Rapid Transit is getting

closer to completion, we expect high possi-

bility of affected area’s land value to fur-

ther appreciate (as precedent, based on

our discussions with property agents; Cen-

tury21 and Leads, land price in Cipete and

Cilandak appreciated by ~40% during

Antasari non-toll elevated road’s comple-

tion).

Following the same rationale, we expect

developers with exposure to MRT stations

to experience better take-up and sales rate

as to the ones that are not, and the ones

that should benefit the most are the ones

that has direct immediate access to said

stations; PWON, over their Blok M Plaza

asset which is directly connected to Blok M

Plaza, and DILD over their South Quarter

Simatupang asset and Kebon Melati asset

which are within close proximity to Lebak

Bulus and Bunderan HI station, respective-

ly.

Effective as of Aug-16

Lowers required Down

Payments for new mort-

gages to 15% (lowest,

first mortgage) and 25%

(highest, third mortgage).

Also grants second mort-

gage for indent properties.

Effective as of Sep-16

Lowers property final tax

from 5% to 2.5%.

Effective as of Sep-16

Enables KITAS-holding

expats to purchase HGB-

titled Apartments (priced

above IDR3bn-Jakarta)

and SHM-titled Landed

houses (priced above

IDR10bn-Jakarta).

Effective as of Oct-16

Lowers BPHTB tariff to 0%

for properties priced below

IDR2bn located in Jakarta.

Potentially by 2017

Further relaxes Indonesia

property purchasable

expatriates (currently

limited to KITAS holders,

potentially broadened to

visit-visa holders).

LTV Relaxation Property Final Tax Foreign Ownership Jakarta BPHTB Foreign Ownership

Main Beneficiaries:

BSDE due to their large

mortgage buyer-base,

PWON & DILD due to in-

dent property mortgage

exposure.

Main Beneficiaries:

MDLN and BKSL due to

90%+ development-based

revenue.

Main Beneficiaries:

PWON and DILD due to

project portfolio being

highly exposed to expat-

prone areas.

Main Beneficiaries:

PWON, DILD and MDLN

due to landbank and sup-

ply portfolio being highly

exposed to Jakarta.

Main Beneficiaries:

PWON and DILD as it

would further increase

their potential demand

pool.


Secondary-primary price gap are getting less threatening..

Figure 82. Jakarta Apartment Secondary—Primary Price per sm Comparison (IDRbn)

Source: Trimegah Research, Cushman & Wakefield Indonesia, Century21, Rumah123.com

Figure 83. Jakarta Primary—Secondary Price Trend

Source: Bank Indonesia, Trimegah Research

..especially considering the gap-trend

Historically speaking, Jakarta is now fac-

ing a downwards trend in terms of prima-

ry-secondary price spread; making room

for an ideal primary market-driven prop-

erty demand environment to occur as in-

vestment oriented-buyer’s would then

have better confidence on being able to

dispose their investments at a favorable

price. As of end-Q3 2016, the spread was

at 14.4% (vs. 18.8% in Q3 2015) and

historically, should see lower spread by

Q4. Following the trend, we should see

2017’s spread to further decrease by an-

other 3-4%.

Our market findings (which was based on on-the-ground research on Greater Jakarta’s properties-for-sale in Q3

2016), indicates that the price difference between primary market and secondary market units are within the

range of 5% - 35% and would highly vary depending on the area as well as price-segmentation; with North Ja-

karta’s Upper-Middle segment apartments having the most spread between primary-secondary prices, with Cen-

tral Jakarta’s Lower-Middle segment units being the least, followed by East Jakarta’s Middle segment units. It

should be noted however that the spread itself could vary depending on both listing and transacted price availa-

bilities.


Pakuwon Jati

Wisnu Budhiargo

([email protected])

Maria Gabriela

([email protected])

Three reasons why we like PWON

We upgrade PWON with a Buy and IDR790,- TP (16% upside) on the

back of: 1) Robust occupancy with NLA addition within hindsight, 2)

Potential upside from high quality development pipeline, and 3) New

large-scale inner city land bank acquisition ensures ample development

growth.

Robust recurring income performance, with more NLA to come

Their high-performing investment properties’ performance remained

robust where occupancy remained at +90% level, and gets even better

thanks to recent NLA additions followed by both planned and potential

further NLA additions. They currently have 510sm of shopping malls

operational whilst 110sm is currently under construction, adding 21% of

fresh supply by 2019. Note that their flagship retail development, Tun-

jungan Plaza, still holds the crown of being the largest shopping mall in

Surabaya with 98% occupancy rate (as of 6M16). Overall recurring

revenue contributes 47% to their topline, and is estimated to grow by

60% over 5 years.

Expect brand new launches in 2017

PWON had always been known for high-quality superblocks in both

Jakarta and Surabaya. Following their recent land acquisition of both

Simatupang (4.2Ha) and Daan Mogot (11Ha), we can expect fresh new

inner-city exciting developments of similar quality to be launched

throughout 2017. Both landbanks would not only provide strata invento-

ry, but would also create room for further increment in PWON’s recur-

ring income portfolio, further strengthening their position as Indonesia’s

King of Investment Properties.

Valuation

Our TP is derived using SOTP where we use DCF for both development

and recurring income whilst idle land banks are being valued based on

their current market price (see p.3 for valuation details). PWON current-

ly trades at 49% discount and 24x 2017 PE.

Pakuwon Jati is a property developer focusing

on upper-middle segment mixed-use develop-

ments in Jakarta and Surabaya.

Share Price Rp680

Sector Real Estate


BUY Rp790

Reuters Code PWON.JK

Bloomberg Code PWON.IJ



Avg. Value Daily 6

Month (Rpbn) 54.6

52-Wk range 765 / 416

Burgami Inv. Ltd. 20.9%

PT. Pakuwon Arthaniaga 16.7%

Concord Media Inv. Ltd. 7.4% Raylight Investment Ltd 7.1% Public 47.8%

Core EPS 16F 17F


TRIM vs Cons. (%) -31.7% -37.0%

Simatupang to the rescue!

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

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Company Data

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 3,873 4,625 5,123 4,602 5,234

EBITDA 2,472 3,441 3,245 3,566 4,236

Net Profit 2,599 1,401 1,259 1,435 1,777

EPS 54 29 26 30 37

DPS (Rp) 4 6 5 6 7

BVPS (Rp) 128 150 171 195 225

P/E (x) 13 23 26 23 18



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 3,873 4,625 5,123 4,602 5,234

% growth 28 19 11 -10 14

Gross Profit 2,158 2,669 2,229 2,305 2,744

Opr Profit 1,890 2,265 1,841 1,907 2,316

EBITDA 2,472 3,441 3,245 3,566 4,236

% growth 0 0 0 0 0

Net Int Inc/(Exp) 0 -157 -228 -237 -170

Gain/(loss) Forex -40 -277 -268 -268 -268

Other Inc/(Exp) 720 -839 -1,277 -1,335 -1,238

Pre-tax Profit 2,610 1,425 1,259 1,435 1,777

Tax -10 -25 0 0 0


Net Profit 2,599 1,401 1,259 1,435 1,777

% growth 129 -46 -10 14 24


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and Deposits 2,809 2,071 2,881 2,490 -23

Inventory 1,665 2,244 3,783 3,568 3,490

Other Current Assets 7 10 10 10 10

Net Fixed Assets 964 1,457 1,965 2,447 2,924

Investment Properties 8,156 8,887 9,434 9,975 10,510

Other Noncurrent Assets 21 3 3 3 3

Total Assets 16,771 18,778 19,448 19,936 18,226

ST Debt 514 536 0 866 350

Other Current Liabilities 3,399 3,887 4,233 4,677 3,833

LT Debt 956 1,651 2,686 1,821 1,471

Other LT Liabs 3,625 3,248 3,073 3,117 3,117

Minority Interest 2,110 2,236 2,236 2,236 2,236



Net Debt/(Cash) -1,338 116 -195 196 1,843

Net Working capital 1,594 985 3,670 1,826 464

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 2,599 1,401 1,259 1,435 1,777

Depr/Amort 582 1,177 1,404 1,659 1,920

Others 0 0 0 0 0

Chg in Opr Ass&Liab 1,303 -1,412 460 51 -1,081

CF's from Oprs 4,484 1,165 3,875 3,470 2,489

Capex -5,079 -2,398 -3,495 -3,642 -2,905

Others 1,884 126 0 0 0

CF's from Investing -3,196 -2,272 -3,495 -3,642 -2,905

Net Change in Debt -294 717 499 1,000 134

Others -312 -348 -992 -598 -211

CF's from Financing -605 369 -493 402 -76

Net Cash Flow 683 -738 -113 230 -492

Cash at BoY 2,126 2,809 2,071 1,958 2,188

Cash at EoY 2,809 2,071 1,958 2,188 1,697

Free Cashflow -595 -1,374 175 -386 -568

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margins (%) 56% 58% 44% 50% 52%

Op Margins (%) 49% 49% 29% 28% 39%

EBITDA Margins (%) 64% 74% 63% 78% 81%

Net Margins (%) 67% 30% 25% 31% 34%

ROA (%) 20% 8% 6% 7% 8%

ROE (%) 52% 21% 16% 16% 18%

Stability

Current Ratio (x) 1.4 1.2 1.6 1.2 1.6

Net Debt/Equity (x) -0.2 -0.3 -0.3 -0.3 -0.2

Int Coverage (x) 6.5 9.0 4.3 4.6 5.1

Efficiency

A/P days 20 31 25 28 23

A/R days 42 42 40 33 30

Inventory Days na na na na na


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 1137 1062 1246 1195 1194

Gross Profit 658 576 749 617 704


Net Profit 827 434 605 353 426

Gross Margins (%) 58 54 60 51 59

Opr Margins (%) 50 40 52 27 64

Net Margins (%) 73 41 49 29 35

Capital History

Date

09-Oct-89 IPO @ IDR7,200

02-Jan-12 Right Issue III

30-Mar-12 Stock Split III (36,119,701,800)

03-Jul-15 Cash Dividend @ IDR4.5


Puradelta Lestari Size does matter

PT Puradelta Lestari sells industrial, resi-

dential and commercial land through

their estate, Kota Deltamas.

Share Price Rp230

Sector Property


Buy Rp290

Reuters Code DMAS.JK

Bloomberg Code DMAS.IJ



Avg. Value Daily 6

Month (Rpbn) 13.1

52-Wk range 296 / 183

AFP International Capital Ltd. 53.9%

Sojitz Corp. 22.5%

Public 20.0%

EPS 16F 17F


TRIM vs Cons. (%) 8.5% -35.9%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Three reasons why we like DMAS

We re-initiate DMAS with a Buy and a IDR290,- TP (26% upside) on the

back of: 1) Great 2015 marketing sales performance, and should remain

satisfactory throughout 2016 with plenty of traffic generating catalysts,

2) Remain as the king of industrial landbank, and 3) Cash-rich balance

sheet with 4% divd yield, highest among property comps. DMAS also

has underperformed BEST by ~30% this year despite similar marketing

sales (DMAS 10.4 ha Vs. BEST 6.5 ha year-to-date).

Realistic marketing sales target, company should deliver

DMAS had booked 90.5Ha in land sales throughout 2015, and targets

50Ha in 2016. Although as of 1Q DMAS had only booked 2.2Ha, compa-

ny guides optimistic tone upon achievement, whereas an additional

8.2Ha had been secured whilst intensive negotiation on another 37Ha is

currently on-going. If all goes through as planned, 95% of target should

be secured by end of 3Q.

Still the largest non-scattered landbank holder in West Java

Puradelta Lestari holds the largest net saleable landbank in the immedi-

ate area (+125% to LPCK, +65% BEST, +60% KIJA) and has the ability

to accommodate any upcoming anchor tenants with ease due to their

land bank being one big bulk land, in which would be beneficial since

anchor buyers would usually require at least 50+ Ha of non-scattered

land. As a result, as FDI picks up, Puradelta Lestari should be their first

pick for investment.

Strong commitment to dividend yield

DMAS has a net cash balance sheet and has shown strong commitment

to dividend, as it gave a payout ratio of 73% in 2015 when it had a

record profit and management is committed to a minimum of 30% pay-

out. We assume 40/50% payout ratio to arrive in 4/3% divd yield in

2016/17 with upside if company can achieve better marketing sales.

Valuation

We come to a DCF-based TP of IDR310 (35% upside), implying 10x

2016 P/E. Price target is based on our DCF estimate, with Beta of 1.7,

risk-free rate of 7.2% and WACC of 15.5%. The stock is trading at

9x/14x 2016E/2017E P/E. RNAV-wise, our TP implies 41% discount to

RNAV whilst current price reflects 57% discount to RNAV.

Wisnu Budhiargo

([email protected])

Maria Gabriela

([email protected])

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Year end Dec 2014 2015 2016F 2017F 2018F

Sales 1,538 2,286 1,786 1,133 1,406

EBITDA 944 1,359 1,000 589 728

Net Profit 964 412 497 614 683

EPS 22 28 21 12 15

DPS (Rp) 0 23 9 7 5

P/E (x) 11 8 11 19 15

Dividend Yield (%) 0 0 0 0 0

Companies Data



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 1,538 2,286 1,786 1,133 1,406

Revenue Growth (%) -19% 49% -22% -37% 24%

Gross Profit 1,076 1,449 1,142 734 911

EBIT 1,003 1,441 1,057 614 772

EBIT Growth (%) 6% 44% -27% -42% 26%

EBITDA 1,007 1,445 1,064 623 782

EBITDA Growth (%) 6% 44% -26% -41% 26%

Pretax income 1,047 1,637 1,290 850 1,006

Net income 964 1,524 1,200 793 935

Gross margin 70% 63% 64% 65% 65%

Net margin 61% 59% 56% 52% 52%


Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Cash receipts 1,306 2,588 1,667 1,235 1,683

Cash payments -375 -675 -360 -335 -506

Taxes paid -60 -158 -89 -57 -70

CF from op. 876 1,760 1,240 857 1,116

Payments for land -95 -786 -780 -819 0

Inv. Prop. Acq. -4 -9 0 0 0

PPE Acquisition -89 -51 -80 -80 -80

CF from Inv. -188 -846 -860 -899 -80

CF from financing -591 -1,197 -457 -360 -238

Net cash flow 98 -283 -77 -401 798

Cash at BoY 1,285 1,381 1,209 1,133 731

Cash at EoY 1,381 1,209 1,133 731 1,529

Key Ratio & Drivers Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 70% 63% 64% 65% 65%

Net Margin (%) 61% 59% 56% 51% 51%

EBITDA Margin (%) 65% 63% 60% 55% 56%

Core Net Margin

(%) 61% 59% 56% 51% 51%

ROAE (%) 16% 20% 12% 7% 8%

Presales (Rp Bn) 1,642 1,767 1,081 1,532 1,765

Volume (Ha) 97 91 51 56 60

ASP (Rp mn / sqm) 2 3 3 3 4

Stability

Current ratio (x) 4.1 4.8 5.0 3.6 3.3

Gross D/E (x) 0.1 0.0 0.0 0.0 0.0

Net D/E (x) -0.1 -0.1 -0.1 -0.1 -0.2


3Q15 4Q15 1Q16 2Q16 3Q16

Revenue 425 582 588 388 36

Gross Profit 307 333 338 250 27


Net Profit 451 144 271 215 8

Gross Margin 72 57 57 64 75

Operating Margin 67 28 50 43 6

Net margin 106 24 46 55 22

Capital History

Date

29-May-15 IPO@Rp210

Year end Dec 2014 2015 2016F 2017F 2018F

Cash & equiv. 1,381 1,209 1,133 731 1,529

Inventories 2,236 1,719 1,357 1,182 1,064

Undeveloped land 3,792 3,792 4,572 5,391 5,391

Inv. properties 10 0 0 0 0

PPE 134 258 331 402 471

Total Assets 7,603 7,766 8,176 8,492 9,244

Sales advances 521 636 517 619 896

ST debt 307 0 0 0 0

LT debt 286 0 0 0 0

Total liabilities 1,203 793 675 777 1,054

Total equities 6,393 8,640 9,382 9,815 10,512


Three reasons why we like Intiland

We re-initiate DILD with a Buy and TP at IDR780 (50% upside) on the back of: 1)

Main beneficiary of upcoming demand over upper-segment vertical / landed hous-

ings through tax amnesty-related increased purchasing confidence, 2) Further ASP

appreciation potential as a result of better accessibility backed by upcoming MRT-

infra’ delivery, whilst having better affordability given cheaper monthly payments

thanks to second-house mortgage relaxation, 3) Relatively strong marketing sales

performance despite the absence of major new launches.

Tax amnesty to unleash pent-up demand due to tax disclosure concern

DILD mainly focuses on upper-segment properties, which demand has been

suppressed not just due to recent economic slow-down, but also due to buyers’

concern of being chased by tax department when they invest in large ticket items

such as high-end apartments. We think buyers would be more comfortable buying

after declaring their net worth in tax amnesty. Note that 46% of DILD’s NAV has

upper-segment individuals as captive market.

Main beneficiary of the highly coveted MRT-infra

14% of Company’s NAV has high exposure to MRT, in which should create further

room for ASP appreciation (overseas precedence shows 25% increment is possi-

ble), a much needed price catalyst in the currently challenging property-sector

environment.

Flagship-level architecture made affordable thanks to mortgage relaxation

DILD’s reputation of being one of the few developers whom puts effort on creating

flagship properties through high-profile architectural firm creates an upper edge in

terms of take up potential, where their upcoming / existing major assets utilizes

world-class architecture firms that provides better value-for-money projects and

should translate to better chances of being bought over its direct competitors.

Timing is further supported by mortgage-relaxation as it significantly decreases

monthly payments as to compared to developer installments, which again should

create additional attractiveness.

Valuation

Our TP is a sum of the parts comprised of: 1) DCF for launched and within pipeline

development and investment properties, 2) Market replacement cost of idle land-

bank. DILD currently trades at 77% discount to NAV and 15x 2016 PE.

DILD is a leading Indonesian property develop-

er with a primary focus on property develop-

ment, management and investment. Compa-

ny’s portfolio includes middle to high-end town-

ships & estates, mixed-use & high rise develop-

ments,and industrial estates in Greater Jakarta,

Share Price Rp500

Sector Real Estate


Intiland Development Against all odds

BUY Rp780

Reuters Code DILD.JK

Bloomberg Code DILD.IJ



Avg. Value Daily 6

Month (Rpbn) 14.3

52-Wk range 665 / 455

Credit Suisse Singapore 19.9%

DB Singapore 12.6%

UBS AG Singapore 9.6%

Public 56.9%

EPS 16F 17F


TRIM vs Cons. (%) -8.4% 8.2%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Wisnu Budhiargo

([email protected])

Maria Gabriela

([email protected])

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(Rpbn)Avg. 5 Day MA Trading Value (RHS)Year end Dec 2014 2015 2016F 2017F 2018F

Sales (Rp bn) 1828 2201 2334 2799 2994

Net Profit (Rp bn) 431 402 401 476 583

EPS (Rp) 39 40 48 60 67

EPS Growth (%) -11 2 21 24 11

DPS (Rp) 8 10 8 8 9

BVPS (Rp) 0 0 0 0 0

P/E (x) 13 12 10 8 8

Div Yield (%) 2 2 2 2 2

Company Data


Changes in Forecast

Following the less than ideal property demand environment, we expect Kebon Melati and Darmo Harapan’s

launch to be pushed back to mid-2017, as thus lowering DILD’s 2016 marketing sales estimated achievement to

be at IDR2.3tn, 12% lower than our initial estimate of IDR2.6tn. DILD had also undergone a divestment agree-

ment with Reco Kris Private ltd. in which the Reco would own 40% of PT Putra Sinar Permaja (DILD’s subsidiary

that develops their South Quarter project) in exchange for IDR1.03tn which will be paid by January 2017 the lat-

est. This act would reduce DILD’s 2017 overall recurring income by 17%, but would grant better leverage which

is much needed upon developing South Quarter’s 2nd phase (which includes 2 condominium towers with estimat-

ed total salable area of 68.000sm and potential marketing sales of IDR2.3tn). Initially South Quarter accounts for

1.4% of DILD’s NAV, but would be lowered to 0.8% following the divestment. As a result, 2016’s estimated reve-

nue is lowered by 5% whilst profit should increase by 1%. Following adjustments in launch dates as well as ad-

justing for increased risk-free rate, we lower our target price by to IDR690,- (51.9% upside, 65% discount to

NAV).

Current Previous Changes

2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E

Marketing Sales 2,304 3,384 2,959 2,605 3,384 2,841 -12% 0% 4%

Revenue 2,334 2,799 2,994 2,456 2,944 3,080 -5% -5% -3%

Gross Profit 1,122 1,291 1,398 1,167 1,377 1,470 -4% -6% -5%

EBITDA 654 761 862 656 825 931 0% -8% -7%

Core Profit 412 497 614 408 556 681 1% -11% -10%

Gross Margin 48% 46% 47% 48% 47% 48% 1% -1% -1%

EBITDA Margin 28% 27% 29% 27% 28% 30% 1% -1% -1%

Core Margin 18% 18% 21% 17% 19% 22% 1% -1% -2%

Figure 84. Forecast changes



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 1828 2201 2334 2799 2994


Gross Profit 993 1043 1122 1291 1398

EBIT 595 571 609 706 798

EBIT Growth (%) 49 -4 7 16 13

EBITDA 637 605 654 761 862

EBITDA Growth (%) 45 -5 8 16 13

Pretax income 528 533 580 697 811

Net income 431 402 401 476 583

Gross margin 54 47 48 46 47

Net margin 24 18 17 17 19


Year end Dec 2014 2015 2016F 2017F 2018F

Cash & equiv. 552 405 497 389 89

Inventories 3,125 3,564 3,803 5,029 5,452


Fixed Assets 1,019 1,343 1,574 1,953 2,140

Total Assets 9,008 10,289 11,600 14,458 15,408

Sales advances 1,760 1,343 1,389 2,006 2,346

Bank Loan 1,620 2,691 3,132 3,099 3,174

Bonds Payable 497 498 744 754 600


Total equities 4,382 4,682 4,983 5,358 5,821

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Cash receipts 2,308 1,789 2,334 2,799 2,994

Cash payments -2,772 -2,459 -1,212 -1,508 -1,596

Tax paid -107 -123 -101 -101 -99

CF from op. -727 -1,058 386 464 574

Capital expenditure -98 -51 -900 -1,500 -700

Security investment /

asset sale 3 35 0 0 0

Dividend received 5 8 0 0 0

CF from Inv. -89 -8 -900 -1,500 -700

CF from financing 852 918 606 927 -174

Net cash flow 35 -148 93 -108 -300

Cash at BoY 529 552 405 497 389

Cash at EoY 552 405 497 389 89

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Gross Margin (%) 54 47 48 46 47

Net Margin (%) 24 18 17 17 19

EBITDA Margin (%) 35 27 28 27 29

Core Net Margin (%) 25 18 18 18 21

ROAE (%) 10 9 52 54 55

Presales (Rp Bn) 2,537 1,873 2,304 3,384 2,959

Chg in total debt 933 1021 686 -23 -79

Gross D/E (%) 48 68 78 71 64

Net D/E (%) 36 59 68 65 63


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 581 626 589 541 528

Gross Profit 268 378 240 227 243


Net Profit 84 187 101 50 55

Gross Margins (%) 46 60 40 42 46

Opr Margins (%) 25 37 24 18 22

Net Margins (%) 15 29 17 9 10

Capital History

Date

04-Feb-91 IPO@Rp6,500

04-Jul-10 Rights Issue

26-Jul-10 Stock Split 2:1

19-Jul-12 Cash Dividend @ IDR3



17-Jun-15 Cash Dividend @I DR5



Modernland, a multi-years growth story in the making

We initiate MDLN with a Buy and TP at IDR670,- (97% upside) on the

back of: 1) 59.5% of NAV are highly benefitted by soon to be effective

LTV-relaxation, 2) Current NAV reflects cheaply priced assets, whilst

holding the ability to unlock new ASP heights, 3) Key beneficiary of

lowered Final Tax payment. Our TP is a sum of the parts comprised of:

1) DCF for major existing development properties, 2) Market replace-

ment cost of Company’s matured properties and idle landbank, 3) Capi-

talization of their currently revenue-generating investment properties.

MDLN currently trades at 13x 2016 PE and at a steep 66% discount to

RNAV.

Plenty of exciting developments in Jakarta Garden City in 2H16

and 2017

MDLN’s Jakarta Garden City (JGC, 244ha, 80% of our SOTP) residential

township currently sells at ~IDR 10mn psm versus Kelapa Gading

~25mn psm despite only 20mins driving distance post completion of a

direct access road. Aeon mall is also under construction and its opening

in early 2017 should be a catalyst for land value in JGC. Management

has been more active in finding ways to increase value further in JGC

and we are optimistic we can see more facilities or deals signed soon.

Bekasi industrial estate will become new growth driver from

2018 onward

MDLN’s Bekasi industrial estate (961ha with license for 2200ha) will

benefit from Cibitung—Cilincing toll road (has not begun construction)

which would provide it with nearer access to Jakarta port compared to

existing industrial estates in Cikampek/Cikarang area. We expect the

Bekasi industrial estate to be launched in 2018 at the earliest.

What can the Company do to improve outlook further?

Given that their operating cash flow are being highly burdened by inter-

est cost (reaching 36% of EBITDA), we think the Company should be

able to carry themselves forward by performing bulk land sales (as they

did back in 2013) to gain fresh cash and lower their interest level. We’ve

observed their available assets, and come to an impression that either

JGC or Bekasi land bank has the highest chance of being sold immedi-

ately. By doing so, MDLN not only gains edge on their cash flow but also

an enlarged Bekasi’s working capital war chest.

Modernland is a township developer

which focuses on both middle-upper

segment landed residential develop-

ments and industrial estates. Their

notable assets include Jakarta Gar-

den City in East Jakarta and Modern

Cikande Tangerang.

Share Price Rp340

Sector Real Estate


Modernland Realty For those who seek untapped value

BUY Rp670

Reuters Code MDLN.JK

Bloomberg Code MDLN.IJ



Avg. Value Daily 6

Month (Rpbn) 5.2

52-Wk range 510 / 315

AA Land Pte. Ltd. 16.08% Woodside Global Ventures Inc. 11.17%

Webster Heights Holding Pte. Ltd. 11.54%

Public 67.68%

EPS 16F 17F


TRIM vs Cons. (%) -34.6% -27.8%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Wisnu Budhiargo

([email protected])

Gabriella Jacoub

([email protected])

0.0

5.0

10.0

15.0

20.0

25.0

-

100

200

300

400

500

600



Sales (Rp bn) 2,840 2,962 3,488 2,171 2,428

Net Profit (Rp bn) 706 873 807 246 371

EPS (Rp) 56 70 64 20 30

EPS Growth (%) -71.19% 23.67% -7.64% -69.46% 50.66%

DPS (Rp) 5 12 6 6 2

BVPS (Rp) 425 483 541 555 582

P/E (x) 6 5 5 18 12

Div Yield (%) 1.45% 3.47% 1.81% 1.67% 0.51%

Companies Data





Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 2,840 2,962 3,488 2,171 2,428

Revenue Growth 54% 4% 18% -38% 12%

Gross Profit 1,600 1,676 1,885 1,175 1,316

EBIT 1,201 1,258 144 149 154

EBIT Growth (%) 18.70% 4.70% -89% 3% 3%

EBITDA 1407 1506 1,531 907 1,016

EBITDA Growth (%) 19% 7% 2% -41% 12%

Pretax income 714 960 807 246 371

Net income 706 873 807 246 371

Gross margin 56% 57% 54% 54% 54%

Net margin 25% 29% 23% 11% 15%

Year end Dec 2014 2015 2016F 2017F 2018F

Cash & equiv. 583 519 2,115 2,584 3,002

Inventories 924 851 746 851 1,049


Fixed Assets 1,131 1,128 1,184 1,234 1,281

Total Assets 10,359 12,843 12,588 13,516 14,658

Sales advances 603 1,099 585 965 1,364

Bank Loan 216 308 308 308 308

Bonds Payable 3,378 4,231 4,231 4,231 4,231


Total equities 5,323 6,057 6,776 6,950 7,299

Year end Dec 2014 2015 2016F 2017F 2018F

Cash receipts 2,601 275 202 -203 -380

Cash payments -2,351 -495 -507 375 394

Tax paid -103 -16 0 0 0

CF from op. 147 -237 -1,416 842 740

Capital expenditure -25 10 3,100 -300 -300

Security invest-

ment / asset sale -43 -33 0 0 0


CF from Inv. -68 -23 3,100 -300 -300

CF from financing -9 -23 -79 -73 -22

Net cash flow 71 -283 1,605 470 418

Cash at BoY 512 509 509 2,115 2,584

Cash at EoY 583 227 2,115 2,584 3,002

Year end Dec 2014 2015 2016F 2017F 2018F

Gross Margin (%) 56 57 54 54 54

Net Margin (%) 25 29 23 11 15

EBITDA Margin (%) 50 51 44 42 42

Core Net Margin (%) 25 29 23 11 15

ROAE (%) 12% 11% 11% 6% 6%

Presales (Rp Bn) 3651 3651 -832 3057 3019

Chg in total debt 159 -113 0 0 0

Gross D/E (x) 95% 112% 86% 94% 101%

Net D/E (x) 68% 75% 67% 65% 62%

3Q15 4Q15 1Q16 2Q16 3Q16

Sales 735 814 621 1,112 402

Gross Profit 334 581 308 575 195


Net Profit 144 407 50 26 3

Gross Margins (%) 45 71 50 52 49

Opr Margins (%) 32 61 37 27 49

Net Margins (%) 20 50 8 2 1

Date

18-Jan-93 IPO@Rp4,650

16-Jan-12 Additional Share @Rp 500

13-Nov-13 Stock Split 1:2

mailto:IPO@Rp4,650


Metropolitan Land

Three reasons to Buy MTLA

We re-initiate MTLA with a Buy and a IDR510 TP (93% upside) on the

back of: 1) Beneficiary of lower mortgage rate trend (~60% of market-

ing sales below IDR650mn per unit and 90% of its buyers use mort-

gage), 2) Upside in land value thanks to planned infrastructure in Great-

er Jakarta, and 3) Solid recurring income (39% of profit) in malls that

should also benefit from infrastructure build-out. Also note that MTLA

has delivered strong marketing sales considering current property mar-

ket environment, with 1Q16 up 25% YoY. The only issue is liquidity (90

days ADTV of IDR 0.2bn).

Beneficiary of lower mortgage rate trend

MTLA benefits from non-subsidized mortgage rate coming down

(promotion rate by big banks have fallen from 10% to 8% in last 3mos).

90% of MTLA’s buyer profile are mortgage-buyers, who tend to opt for

lower-middle segment houses (categorized as <500m per unit), which

fits MTLA’s product portfolio like a glove. 65% of their NAV are aimed

towards lower-middle segment, and backed by solid historical marketing

sales despite overall slowing in the property market.

Land bank benefits from infra build-out in Greater Jakarta

They’re also the main beneficiary of upcoming major infrastructure, LRT,

which shall be located nearby their major assets, creating room for

potential ASP upside (see p.8). They’re higher-end property line up also

ensures that they’re well-equipped should tax amnesty bill is passed.

Solid recurring income in malls that also benefit from infra

36% of their revenue (2016E) is recurring (mostly malls with some

hotels), and is expected to further grow following the completion of their

latest shopping mall in a growing end-user neighborhood. Our NAV for

MTLA’s recurring business implies 11% cap rate, which we think is con-

servative (current going rate is 8-10%).

Valuation

Our TP is derived using 83% discount to NAV for development property

and we use DCF for recurring income (see p.3 for details on NAV). MTLA

currently trades at 8.6x 2016 PE.

Metropolitan Land is a township develop-

er focusing on lower-middle segment

houses in Greater Jakarta.

Share Price Rp264

Sector Real Estate


BUY Rp510

Reuters Code MTLA.JK

Bloomberg Code MTLA.IJ

Issued Shares 7,655


Avg. Value Daily 6

Month (Rpbn) 0.1

52-Wk range 340 / 178

Reco Newton PTE LTD 37.5%

PT Metropolitan Perada Int. 36.7%

DBS Bank LTD 14.7%

Public 10.7%

Core EPS 16F 17F


TRIM vs Cons. (%) 31.9% 13.4%

Beneficiary of mortgage trends

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

0.0

0.2

0.4

0.6

0.8

1.0

-

50

100

150

200

250

300

350

400



Wisnu Budhiargo

([email protected])

Gabriella Jacoub

([email protected])

Company Data

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 1,118 1,089 1,250 1,543 1,787

EBITDA 467 461 544 633 719

Net Profit 268 214 284 349 418

EPS 35 28 36 45 54

DPS (Rp) 3.5 5.6 7.2 9.0 10.7

BVPS (Rp) 255 276 306 344 389

EV/EBITDA (x) 6.2 6.7 5.3 3.8 3.0

P/E (x) 8.8 11.1 8.6 7.0 5.8

Price to Marketing Sales (x) 0.29 0.28 0.24 0.20 0.18



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 1,118 1,089 1,250 1,543 1,787

% growth 31 -3 15 23 16

Gross Profit 648 660 752 884 1,007

Opr Profit 432 419 498 582 664

EBITDA 467 461 544 633 719

% growth 1 1 1 1 1

Net Int Inc/(Exp) 63 77 62 40 28


Other Inc/(Exp) -1 -40 -36 -36 -36

Pre-tax Profit 550 596 600 684 766

Tax 6 2 86 105 118

Minority Int. 41 26 26 26 26


Net Profit 268 214 284 349 418

% growth 11 -20 32 23 20


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and Deposits 302 216 210 390 626

Inventory 1,372 1,687 1,736 1,517 1,444


Net Fixed Assets 316 364 422 475 525

Investment Properties 808 981 887 881 1,010

Other Noncurrent

Assets 85 79 79 79 79

Total Assets 3,251 3,621 3,717 3,799 4,203

ST Debt 436 446 286 0 380

Other Current Liabili-

ties 167 254 323 346 365

LT Debt 416 483 380 380 0

Other LT Liabs 202 225 248 274 286




Net Debt/(Cash) 549 712 456 -10 -246


Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 268 214 284 349 418

Depr/Amort 35 43 47 51 55

Others 0 1 2 3 4

Chg in Opr Ass&Liab -426 -131 -45 195 41

CF's from Oprs -124 126 285 595 514

Capex -124 -91 -104 -104 -104

Others -331 9 -170 119 32

CF's from Investing -115 -260 15 -72 -207

Net Change in Debt 209 77 -263 -286 0

Others -55 -35 -43 -57 -70

CF's from Financing 154 42 -305 -343 -70

Net Cash Flow -85 -93 -5 180 236

Cash at BoY 382 302 216 210 390

Cash at EoY 297 209 211 390 626

Free Cashflow -304 -34 124 455 384

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margins (%) 58% 61% 60% 57% 56%

Op Margins (%) 39% 38% 40% 38% 37%

EBITDA Margins (%) 42% 42% 44% 41% 40%

Net Margins (%) 24% 20% 23% 23% 23%

ROE (%) 14% 10% 12% 13% 14%

ROA (%) 8% 6% 8% 9% 10%

Stability

Current Ratio (x) 3.4 3.1 3.8 6.8 3.5

Net Debt/Equity (x) 0.3 0.3 0.2 0 -0.1

Net Debt/EBITDA (x) 1.2 1.5 0.8 0 -0.3

Int Coverage (x) 6.9 5.4 8 14.6 23.9

Efficiency

A/P days 30 25 72 67 66

A/R days 108 77 93 93 93

Inventory Days 1067 1437 1273 840 676


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 223 339 246 286 232

Gross Profit 129 212 151 162 146


Net Profit 29 84 65 61 43

Gross Margins (%) 57 62 61 57 63

Opr Margins (%) 25 44 38 34 34

Net Margins (%) 13 24 26 21 18

Capital History

Date

09-Jun-11 IPO @ Rp240

08-Aug-15 Stock Dividend 1:100


Sentul City, the next Serpong phenomenon

We initiate BKSL with a Buy and TP at IDR170,- (79% upside) on the back of: 1)

Better monetization strategy which highly involves Joint Ventures, 2) Current NAV

reflects cheaply priced assets, whilst assets are no longer affiliated with troubled

Bakrie Group, 3) Key beneficiary of currently under construction Light Rail Train

infrastructure. Our TP is a sum of the parts comprised of: 1) DCF for major

existing development properties, 2) Discounted market value of BKSL’s idle

landbank, 3) Capitalization of their currently revenue-generating investment

properties. BKSL currently trades at 24x 2017 PE at a steep 78% discount to

readjusted net asset value and 12% discount to readjusted replacement value.

Game-changing developments as main growth driver

Though Sentul City (BKSL’s main asset that accounts for 90% of their NAV) has

adequate amenities as of now, major developments within the estate are current-

ly undergoing construction, e.g. AEON Mall, Trisakti University, JV Apartments, in

which should serve as estate’s major traffic attractor and at the same time in-

creasing ASP growth potential.

Learning from past mistakes, they now eye on broader target market

As competition gets tighter, BKSL had realized that their old sales strategy is no

longer relevant to the current market. Instead of hoarding their extra large land

bank for themselves, they are now leaning towards utilizing JV-projects as means

of asset monetization. Verdura apartment serves as their latest JV-project, where

they’re co-developing a 3-towered apartment block worth ~IDR1.2tn with PTPP

Properti (PPRO.IJ) and the trend itself should sustain as BKSL had made further

commitments with PPRO to co-develop other projects within the estate. Note that

PPRO specializes on middle-segment high rise developments, thus should add

more colour on BKSL’s buyer-segment portfolio (which is currently heavy on

middle-upper segment buyers).

Further supported by major infrastructure pipeline

BKSL is one of the few developers that are directly benefitted by the much antici-

pated upcoming Light Rail Train (LRT) public transportation where one of the

stations is within their Sentul City estate, further adding asset attractiveness to

both exiting residents as well as potential buyers. Key point is that with said LRT,

it not only adds transportation options, but should potentially reduce Jagorawi toll

road’s traffic flow thus adding convenience to both lower-middle segment buyers

(which actually utilizes said LRT) and middle-upper segment buyers that utilizes

Jagorawi toll road as their main mean of access.

Sentul City Tbk is a township devel-

oper which focuses middle-upper

segment landed residentials in

Greater Jakarta, with notable expo-

sure in Sentul, Bogor.

Sentul City The giant is on the move

BUY Rp170

Wisnu Budhiargo

([email protected])

Maria Gabriela Jacoub

([email protected])

Share Price Rp95

Sector Real Estate


Reuters Code BKSL.JK

Bloomberg Code BKSL.IJ



Avg. Value Daily 6

Month (Rpbn) 19.6

52-Wk range 121 / 52

PT Citra Kharisma Komunika 34.33% PT Sakti Generasi Perdana 7.94%

EFG Bank AG, Singapore 6.53%

Public 51.20%

EPS 16F 17F

Consensus (Rp) 3 4

TRIM vs Cons. (%) -23.1% -7.0%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

0.0

10.0

20.0

30.0

40.0

50.0

60.0

-

20

40

60

80

100

120

140



Sales (Rp bn) 712 560 726 794 1,038

Net Profit (Rp bn) 28 50 69 146 155

EPS (Rp) 1 1 2 4 4

EPS Growth (%) -95% 62% 38% 113% 6%

DPS (Rp) 0 0 0 0 0

BVPS (Rp) 176 168 170 174 178

P/E (x) 107 66 48 22 21

Div Yield (%) 0% 0% 0% 0% 0%

Companies Data


Capital History

Date

18-Jul-97 IPO@Rp500

29-Jul-99 14:5 Rights @ Rp500

01-Aug-06 Reverse Stock 4:1 A Series @500

01-Aug-06 Reverse Stock 4:1 B Series @100

09-Oct-06 Additional Share HMETD @100

05-Oct-09 Additional Share @100

29-Jan-10 Company Listing HMETD

03-Aug-10 Warrant Conversion






19-Aug-11 Additional Share @100

29-Dec-15 Additional Share @50



Capital History

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 712 560 726 794 1,038

Revenue Growth -26% -21% 30% 9% 31%

Gross Profit 324 230 345 478 583

EBIT 152 205 174 217 252

EBIT Growth (%) 389% 35% -15% 24% 16%

EBITDA 167 217 187 230 322

EBITDA Growth (%) 19% 7% -14% 23% 40%

Pretax income 39 62 83 163 173

Net income 28 50 69 146 155

Gross margin 46% 41% 47% 60% 56%

Net margin 4% 9% 9% 18% 15%

Year end Dec 2014 2015 2016F 2017F 2018F

Cash & equiv. 243 568 773 1,023 1,504

Inventories 1,936 2,091 2,201 2,184 2,410


Fixed Assets 190 178 165 152 140

Total Assets 9,987 11,146 11,899 12,534 13,238

Sales advances 0 0 0 156 156

Bank Loan 633 643 948 1,548 2,065

Bonds Payable 0 0 0 0 0


Total equities 5,514 5,814 5,868 5,997 6,135

Year end Dec 2014 2015 2016F 2017F 2018F

Cash receipts 974 542 909 995 1,301

Cash payments -624 -597 -572 -475 -684

Tax paid -23 -86 -61 -41 -54

CF from op. -17 -114 -6 260 261

Capital expenditure -82 -41 -420 -420 0

Security invest-

ment / asset sale 4 0 0 0 0


CF from Inv. -78 -41 -420 -420 0

CF from financing -114 480 470 153 348

Net cash flow -209 325 205 250 481

Cash at BoY 452 243 568 773 1,023

Cash at EoY 243 568 773 1,023 1,504

Year end Dec 2014 2015 2016F 2017F 2018F

Gross Margin (%) 46% 41% 47% 60% 56%

Net Margin (%) 4% 9% 9% 18% 15%

EBITDA Margin (%) 23% 39% 26% 29% 31%

Core Net Margin (%) 12% 13% 8% 20% 22%

ROAE (%) 7% 0% 0% 1% 1%

Presales (Rp Bn) 1644 770 773 1003 1107

Chg in total debt -462 50 470 153 348

Gross D/E (x) 68% 79% 90% 96% 103%

Net D/E (x) 11% 11% 16% 26% 34%


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 116 162 143 109 226

Gross Profit 45 61 91 53 143

Operating Profit -36 259 52 38 97

Net Profit -55 179 21 35 53

Gross Margins (%) 38 38 64 49 63

Opr Margins (%) -31 160 36 35 43

Net Margins (%) -47 111 15 32 24

mailto:IPO@Rp4,650


Mega Manunggal Property Staying true to their words

Wisnu Budhiargo

([email protected])

Maria Gabriela

([email protected])

Phenomenal expansion growth rate; proven on track

Mega Manunggal Logistic Property builds and leases customized ware-

house to consumer companies and with limited competition, the possi-

bility of them being Indonesia’s largest logistic warehousing company is

wide open. They’re committed to expand their NLA to 500.000sm by

2020 (which is then being shortened to 2018 given their rapid expan-

sion), and had walked their talk as total NLA has reached 271.000sm as

of 3Q2016 (including the ones currently under construction), fulfilling

54%% of their initial target in just 1 year; which as result should boost

their EBIT by 73% as of end-2018.

Still a stable yet cash-rich business model

MMLP’s future warehouses are mostly built based on built-to-suit or-

ders, hence lowering the risk of holding non-performing properties. The

company also receives down payment from its tenant to help with land

acquisition as well as transition cost.

E-commerce business still promising, backed by prudent TPL

We think MMLP still serves as Indonesia’s e-commerce industry’s proxy

following Lazada’s long-term lease continuation (where they’ve commit-

ted to occupy ~60,000sm), which happens to be the world’s largest e-

commerce player, Alibaba, choice of Indonesian investment. Aside from

that, they’re still being supported by growing third party logistics (TPL)

which accounts for ~30% of their vast client base.

Upgrade MMLP to BUY with TP of IDR800 (22% upside)

We upgrade our rating on MMLP with a BUY and price target of RP 760,

implying 13% upside over DCF valuation method. We like MMLP as it

deserves a premium for its exceptionally rapid growth and demand

backlog. Note that we only assume 50k sqm of gross un-signed future

NLA in our model. In a bullish scenario of 100k sqm of un-signed future

NLA and land price appreciation assumption unchanged at 10% p.a.,

our NAV would rise to IDR 1,010/share.

MMLP is a rental warehouse developer,

focusing on long-term build-to-suit con-

tracts in Greater Jakarta

Share Price Rp670

Sector Property


BUY Rp760

Reuters Code MMLP.JK

Bloomberg Code MMLP.IJ

Issued Shares 5,714


Avg. Value Daily 6

Month (Rpbn) 2.7

52-Wk range 850 / 615

PT Mega Mandiri Properti 69.3%

Vasanta Investments LTD 5.8%

Sutedja Hungkang 0.7%

Nicholas The 0.0%

Core EPS 16F 17F


TRIM vs Cons. (%) -40.5% -33.2%

Company Update

Stock Data

Major Shareholders

Consensus

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

0

100

200

300

400

500

600

700

800

900



Stock Price

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 142 163 168 232 282

EBITDA 115 123 124 178 221

Net Profit 286 114 85 119 152

EPS 382 20 15 21 0

Core Profit 49 82 85 119 152

Core EPS (Rp) - 14 15 21 27

Core EPS Growth (%) - - 0.0 0.4 0.3

DPS (Rp) 0 0 0 0 1

BVPS (Rp) 253 446 454 475 501

EV/EBITDA (x) - 38 37 25 23

Core P/E (x) - 47 45 32 27

Div Yield (%) - - - - -

Company Data



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 142 163 168 232 299 Revenue Growth (%) 13% 14% 2% 39% 29%

Gross Profit 129 147 150 210 272

Opr. Profit 114 122 120 175 230

EBITDA 8% 7% -1% 45% 32%

EBITDA Growth (%) 115 123 124 178 235

Net Int Inc/(Exp) -43 -24 -19 -32 -61

Gain/(loss) Forex -15 -29 0 0 0

Other Inc/(Exp) 253 62 0 0 0

Pre-tax Profit 309 131 102 143 170

Tax -14 -16 -17 -23 -30





Growth (%) -447% 68% 4% 41% 17%


growth (%) 0% 0% 100% 200% 300%

Dividend payout

ratio 0 0 1 2 3


Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 49 82 85 119 140

Depr/Amort 1 1 4 4 4

Chg in Working Capital 13 -74 111 29 14

CF's from Oprs 70 76 199 152 158

Capex -52 -578 -324 -511 -479

Others -35 -56 0 0 0


Net Change in Debt -24 -57 2 0 0

Others 24 57 -2 0 0

CF's from Financing 30 930 -38 0 0

Net Cash Flow 14 371 -163 -358 -320

Cash at BoY 6 11 382 219 -139

Cash at EoY 11 382 219 -139 -459

Free Cashflow 76 -529 -89 -303 -230

Key Ratio Analysis

Year end 31 Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 91% 90% 89% 90% 91%

Opr Margin (%) 81% 74% 72% 75% 77%

EBITDA Margin (%) 81% 75% 74% 77% 78%

Core Net Margin (%) 34% 50% 50% 51% 47%

ROAE (%) 11% 7% 5% 7% 7%

ROIC (%) 10% 6% 6% 7% 8%

Stability Current ratio (x) 0.6 3.0 2.6 -0.3 -2.1


Net Debt to EBITDA

(x) 5.1 1.6 3.0 4.1 4.5


Efficiency

A/P (days) 587 402 678 883 662

A/R (days) 31 25 23 23 25



Date

29-Jun-15 IPO@Rp585

Year end Dec 2014 2015 2016F 2017F 2018F

Cash and equivalents 11 383 219 -139 -459


Net fixed asset 2039 2402 2723 3229 3704

Other asset 17 284 284 284 284

Total asset 2139 3204 3307 3461 3620

ST debt 55 125 10 10 10

Other curr liab 82 51 107 142 161

LT debt 541 461 578 578 578

Other LT Liab 13 17 17 17 17




Gross debt 596 586 588 588 588

Net debt / (cash) 585 203 368 727 1047

Invested capital (adj.) 1191 1887 2097 2575 3035

Adjusted Equity (adj.) 606 1684 1729 1848 1988

3Q15 4Q15 1Q16 2Q16 3Q16

Sales 42 43 46 42 43



Net Profit 2 104 26 16 22

Gross Margins (%) 91 90 86 93 90

Opr Margins (%) 75 69 70 63 72

Net Margins (%) 5 240 56 39 52


Bumi Serpong Damai

Wisnu Budhiargo

([email protected])

Maria Gabriela

([email protected])

Three reasons why we’re Neutral on BSDE

We re-initiate BSDE with a Neutral and IDR1,800,- TP (7% upside) on

the back of: 1) Marketing sales not as performing as well as initially

expected, 2) Large land bank reserve still remains favorable but not

requires longer time to monetize, and 3) New infrastructure is being laid

in BSDE’s favor.

Marketing sales performance is not exactly ideal

BSDE booked IDR4.1tn in marketing sales throughout 9M16. Not great,

but relatively good considering today’s property demand climate which

is still far from favorable. Note that BSDE has yet lowered their market-

ing sales target, which implies demand confidence. However, given that

the deficit itself amounts to ~IDR2.7tn (which is ~76% higher than Q3’s

achievement), we do not expect BSDE to be able to meet its target for

the year, instead we expect ~80% achievement.

Their landbank is the thing worth holding on to..

Being one of the early initiators of Serpong, BSDE controls massive

amount, if not the largest, of developable land in the area whilst the

immediate area itself being the hottest battle ground among Indonesia’s

listed property developers. BSDE controls 4.092ha of landbank in total,

where 56% is within BSD City development area. Historically, BSD City

is able to monetize an average of 50Ha of land per year, with ASP

growth at 7-10%. This should translate to a potential recurring develop-

ment sales of ~IDR3tn per year for ~30 years to come from BSD City

alone.

..and is being further strengthened by upcoming infras

Given that property-landbank monetization highly requires adequate

infrastructure, BSDE is being highly benefitted by their recent success

over Serpong-Balaraja tollroad which grants yet another direct access to

their massive 2.300Ha landbank (making BSDE a company with not only

large amount of asset, but quality asset that is relatively easy to dispose

and then translate to less discounted NAV).

Valuation

TP is derived using SOTP; estimated market price for both developed

and idle landbanks, and net income capitalization for their investment

properties. Currently trades at 67% discount and 10x 2017 PE.

PT Bumi Serpong Damai Tbk develops real es-

tate including housing infrastructure, commer-

cial and industrial estates, golf courses, and

public facilities.

Share Price Rp1,680

Sector Real Estate

Price Target Rp1,800(7%)

NEUTRAL Rp1,800

Reuters Code BSDE.JK

Bloomberg Code BSDE.IJ



Avg. Value Daily 6

Month (Rpbn) 69.5

52-Wk range 2380 / 1580

Paraga Artamida 26.6%

Ekacentra Usahamaju 25.0%

Serasi Niaga Sakti 3.1% Metropolitan Transcities

Indonesia 1.3%

Public 38.9%

Core EPS 16F 17F


TRIM vs Cons. (%) 59.6% 13.6%

Close, but no cigar

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

0

500

1000

1500

2000

2500



Company Data

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 5,614 6,210 7,898 7,449 7,101

EBITDA 2,781 3,030 4,386 3,974 3,668

Net Profit 3,818 2,140 3,129 2,690 2,531

EPS 218 122 163 140 131

DPS (Rp) 55 31 41 35 33

BVPS (Rp) 877 1,077 1,211 1,327 1,435

P/E (x) 8 14 10 12 13


NAV—Still remain as one of the largest landbank holder

We estimate BSDE’s RNAV to be at IDR78tn or IDR4.354,- per share implying 59% discount to NAV towards cur-

rent price. BSDE’s largest NAV contributor is still being held by BSD City, in which accounts for 80% (for both

phase II and III landbank). BSDE’s investment properties are being valued through capitalization method in

which we apply 12% capitalization rate and accounts for 5% of BSDE’s NAV. Our target price implies 55% dis-

count to RNAV (NAV-after cash and debts).

Marketing Sales—Not quite there yet

BSDE had achieved 60% of their 2016 marketing sales throughout 9M16, and we expect their marketing sales to

achieve IDR5.6tn by the end of the year following the launches in Simatupang, Jagir as well as the existing in-

ventory sales from Element Rasuna (which each should be able to generate IDR248bn, IDR256bn and IDR526bn,

respectively by end-2016 if all projects meet their allotted target). We expect BSDE’s 2017 marketing sales to

reach IDR5.9tn, implying 7% YoY growth over 2016’s estimated achievement. In terms of marketing sales per-

formance, BSDE’s still at the front line; SMRA at 49% pre-revised 2016 target as per 9M16, ASRI at 58%, whilst

CTRA’s leading at 62% achievement.

2015 1Q16 2Q16 3Q16 9M16

Landed Houses 4,357 816 533 1,230 2,579

Land Plots 609 98 293 0 391

Strata Apartments 655 97 373 110 581

Industrial 22 14 4 0 17

Shophouses 1,114 179 125 228 533

Land Plots—JV 0 0 0 0 0

Total 6,757 1,204 1,329 1,568 4,101

Area (m2) Market Value Develop Cost Marketing

Fee NAV

Landbank 40,720,329 96,355 12,927 4,818 71,676

High Rise inventory 250,559 5,830 2,394 291 2,888

Recurring Income 3,825

TOTAL NAV (IDR bn) 78,389

After Cash-Debt RNAV (IDR bn) 76,175

RNAV/ Share (IDR) IDR 4,354

Target Price IDR 1,950

Discount to NAV 55%






Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 5,614 6,210 7,898 7,449 7,101

% growth -2 11 27 -6 -5

Gross Profit 4,167 4,638 6,093 5,767 5,517

Opr Profit 2,664 2,901 4,311 3,898 3,592

EBITDA 2,781 3,030 4,386 3,974 3,668

% growth -7 9 45 -9 -8

Net Int Inc/(Exp) -107 -324 -244 -314 -210


Other Inc/(Exp) 1,717 0 -35 -35 -35

Pre-tax Profit 4,304 2,715 4,032 3,549 3,346

Tax -310 -364 -454 -429 -408


Net Profit 3,818 2,140 3,129 2,690 2,531

% growth 42 -44 46 -14 -6


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and Deposits 2,820 6,109 4,241 3,732 3,472

Inventory 6,548 6,548 4,193 3,993 4,056

Other Current Assets 5,350 7,040 9,485 7,287 6,986

Undevelopment Land 8,038 8,594 11,450 15,530 16,597

Net Fixed Assets 607 803 1,056 1,180 1,304

Investment Properties 2,715 3,278 2,747 2,716 2,686

Other Noncurrent Assets 2,128 3,650 3,655 3,655 3,655

Total Assets 28,207 36,022 36,828 38,093 38,756

ST Debt 1,506 1,989 377 377 377

Other Current Liabilities 348 534 255 262 265

Other LT Liabs 5,161 5,641 4,963 4,558 4,738

Minority Interest 3,091 3,247 3,701 4,130 4,538



Net Debt/(Cash) 1,437 1,641 2,472 2,198 632


Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 3,818 2,140 3,129 2,690 2,531

Depr/Amort 117 130 76 76 76

Others - - - - -

Chg in Opr Ass&Liab -5,496 -2,546 -1,053 2,001 420

CF's from Oprs -1,561 -277 2,151 4,766 3,026

Capex -1,289 -1,444 -2,654 -4,249 -1,235

Others - - - - -

CF's from Investing -1,390 -1,288 -2,200 -3,820 -827

Net Change in Debt 164 3,493 -1,037 -783 -1,827

Others - - - - -

CF's from Financing 1,474 4,854 -1,819 -1,455 -2,459

Net Cash Flow -1,477 3,289 -1,868 -509 -260

Cash at BoY 4,297 2,820 6,109 4,241 3,732

Cash at EoY 2,820 6,109 4,241 3,732 3,472

Free Cashflow -2,999 -2,010 -934 146 1,367

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margins (%) 74 75 77 77 78

Op Margins (%) 47 47 55 52 51

EBITDA Margins (%) 50 49 56 53 52

Net Margins (%) 68 34 40 36 36

ROA (%) 42 17 18 13 11

ROE (%) 19 8 10 7 7

Stability

Current Ratio (x) 7.9 7.8 28.4 23.5 22.6

Net Debt/Equity (x) 0.1 0.1 0.1 0.1 0.0

Int Coverage (x) -14.0 -7.9 -7.6 0.0 0.0

Efficiency

A/P days 10 10 10 10 10

A/R days 8 8 8 8 8

Inventory Days 1,088 1,343 1,324 1,165 943


Date

06-Jun-08 IPO @ IDR550

20-Dec-10 Additional Share HMETD

16-May-14 Additional Listing without Right Issue

14-April-15 Additional Share HMETD

3Q15 4Q15 1Q16 2Q16 3Q16

Sales 1,291 614 843 1,766 1,383

Gross Profit 973 386 548 1,289 1,034


Net Profit 314 624 527 563 336

Gross Margins (%) 75 62 65 73 74

Opr Margins (%) 38 47 57 46 37

Net Margins (%) 24 101 62 31 24


Summarecon Agung

Wisnu Budhiargo

([email protected])

Maria Gabriela

([email protected])

Three reasons why we are neutral on SMRA

We re-initiate SMRA with a Sell and IDR1,330,- TP (2.2% downside) on

the back of: 1) Far from ideal marketing sales performance, 2) Minority

interest still dominates bottom-line portion, and 3) Sold good’s tight

margin.

Satellite-area sales has yet fully rebounded

10M16 marketing sales was at 69% post-revision achievement, which is

still far from ideal as it reflects 22% lag in YoY sales achievement.

Serpong, their main sales arsenal, is still at 76% achievement despite

being at the 10th month with no major new launches in sight. Bandung

and Kerawang, on the other hand, shows promise following their sold

out streak, and with new cluster launches ahead should be able to meet

their area-specific targets.

Supplies are being sold at an unfavorable margin

Both Bandung and Bekasi acts a double-edged blade to SMRA, as both

despite selling well, is being sold at an unfavorable margin (of approxi-

mately 30-35%, which is relatively low as to compared to typical landed

residential unit’s margin of ~50%). It should be noted that both are new

projects with 5-10 years development horizon, as thus, early marketing

sales will not be at their optimum ASP. Bandung, specifically, has to

bear worse margin and revenue booking given its moist soil condition

(which then costs more and take longer to develop).

Results should still be on the lower-end

We do not expect their high minority interest-ridden earnings to end its

streak until 2018 given that 2014-2016’s sales were mostly derived

from JV-related projects. As a result, net margin would still be at the

lower-end of the curve, whereas we expect to be at 2% by FY2016.

Valuation

Our TP is derived using SOTP where we use estimated developed land-

bank’s market price and DCF for their investment properties (see p.3 for

valuation details). SMRA currently trades at 63% discount and 86x 2017

PE.

PT Summarecon Agung Tbk and its subsidiaries

develop and invest in real estate. The Compa-

ny develops and operates residential houses,

apartments, shopping centers, recreational

centers and office buildings.

Share Price Rp1,360

Sector Real Estate

Price Target Rp1.330 (-2.2%)

NEUTRAL Rp1,330

Reuters Code SMRA.JK

Bloomberg Code SMRA.IJ



Avg. Value Daily 6

Month (Rpbn) 47.0

52-Wk range 1970 / 1225

Harto Djojo Nagaria 0.3%

PT. Semarop Agung 25.4% PT. Sinamegah Jayasentosa 6.6%

BNYMSNAV RE AMS Pool 5.6% Public 62.1%

Core EPS 16F 17F


TRIM vs Cons. (%) -71.6% -63.6%

Still a long way to go

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

0.0

20.0

40.0

60.0

80.0

100.0

120.0

0

500

1000

1500

2000

2500



Company Data

Year end Dec 2014 2015 2016F 2017F 2018F

Sales 5,757 5,624 5,017 5,146 4,240

Net Profit 1,385 855 131 225 183

EPS 96 59 9 16 13

EPS Growth (%) -37 -38 -85 72 -19

DPS (Rp) 58 18 3 5 4

BVPS (Rp) 889 522 514 510 516

P/E (x) 14 23 148 87 106



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 5,757 5,624 5,017 5,146 4,240

% growth 41 -2 -11 3 -18

Gross Profit 3,057 2,907 2,344 2,430 2,033

Opr Profit 2,077 1,768 1,227 1,293 1,100

EBITDA 2,285 2,006 1,480 1,560 1,383

% growth 59 56 47 47 48

Net Int Inc/(Exp) -224 -387 -587 -640 -667



Pre-tax Profit 1,936 1,382 640 653 433

Tax 319 318 300 219 200


Net Profit 1,385 855 131 225 183

% growth 26% -38% -85% 72% -19%


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and Deposits 1,771 1,504 1,611 1,029 432

Inventory 3,341 4,925 5,100 5,610 6,171


Net Fixed Assets 4,322 5,737 6,311 6,942 7,637

Investment Properties 368 420 400 364 321

Other Noncurrent Assets 4,033 4,328 4,162 4,017 3,872

Total Assets 1,294 983 922 922 922

ST Debt 15,873 18,758 19,153 19,544 19,923

Other Current Liabilities 506 983 1,311 3,375 5,017

LT Debt 3,188 3,426 2,374 2,419 2,212

Other LT Liabs 1,855 1,590 2,252 1,991 2,273

Minority Interest 993 1,517 1,308 1,099 1,049



Net Debt/(Cash) 2,643 4,709 5,503 6,744 7,566

Net Working capital 2,161 2,880 3,672 1,505 -58

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 1,385 855 131 225 183

Depr/Amort 208 239 253 267 283

Others 326 349 723 -261 282

Chg in Opr Ass&Liab -1,788 -1,464 -1,012 -479 -676

CF's from Oprs 131 -21 95 -248 72

Capex -2,560 -2,001 -640 -717 -788

Others -240 94 0 0 0

CF's from Investing -2,800 -1,907 -640 -717 -788

Net Change in Debt 1,900 1,799 901 660 225

Others -279 -139 -248 -276 -105

CF's from Financing 1,621 1,660 653 383 120

Net Cash Flow -1,048 -267 107 -582 -597

Cash at BoY 2,819 1,771 1,504 1,611 1,029

Cash at EoY 1,771 1,504 1,611 1,029 432

Free Cashflow -2,155 -1,749 -321 -801 -566

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margins (%) 53 52 47 47 48

Op Margins (%) 36 31 24 25 26

EBITDA Margins (%) 40 36 29 30 33

Net Margins (%) 24 15 3 4 4

ROA (%) 25% 12% 2% 3% 2%

ROE (%) 9% 5% 1% 1% 1%

Stability

Current Ratio (x) 158% 165% 200% 126% 99%

Net Debt/Equity (x) 41% 63% 74% 92% 102%

Int Coverage (x) 683% 372% 181% 175% 140%

Efficiency

A/P days 39 39 39 39 39

A/R days 14 14 14 14 14

Inventory Days 706 1,022 870 982 1,446


3Q15 4Q15 1Q16 2Q16 3Q16

Sales 1,900 1,127 1,047 1,271 1,296

Gross Profit 930 583 477 584 584


Net Profit 468 90 28 (4) 33

Gross Margins (%) 49.0 51.7 45.5 45.9 45.0

Opr Margins (%) 35.1 24.0 24.8 20.8 23.8

Net Margins (%) 24.6 7.9 2.7 (0.3) 2.6

Capital History

Date

07-May-90 IPO @ IDR6,800

17-Feb-94 1:2 Bonus Issue

25-Jul-94 3:50 Stock Div.

16-Dec-94 1:2 Stock Dividend

10-Jul=96 4:100 Bonus Issue

11-Nov-96 Stock Split

04-Sep-97 3:100 Stock Dividend

16-Jul-02 1:10 Stock Dividend

12-Aug-02 4:1 Stock Dividend

25-Jun-10 Warrant Coversion

07-Jun-13 1:1 Bonus Issue


Cement Sector


Downgrade sector to neutral

We downgrade our cement sector call to Neutral, on the back of: 1)

potential demand growth slowdown, 2) delayed Rembang plant and

INTP’s plummeting ASP, 3) significant coal price increase.

Capacity growth still outpacing demand growth

We decided to slightly revise down our FY17 domestic cement sales to

66m tonne (previous: 70mn), while also revising down our capacity

forecast to 102mn tonne (previous: 105mn), implying 36mn tonne

oversupply. Slower expected demand growth is largely due to lacklustre

property marketing sales growth. Despite better outlook from infrastruc-

ture, demand growth is still dominated by bag sales (mostly from prop-

erty). Consequently, we expect ASP to still decline, albeit at a much

slower rate.

Hurdles on big players

Both SMGR and INTP have had setbacks that might be detrimental to

their FY17 performance. Rembang plant potential delay would cause

significant loss of potential revenue as well as market share. Similarly,

INTP’s major ASP drop—due to underperforming demand growth in its

home market—would lead to a decline in both top and bottom line.

Rising coal price

Substantial increase in coal price would have adverse effects on cement

industry, as coal is a significant cost component in cement manufactur-

ing process. However, recent tighter competition landscape has forced

cement players to be more cost-efficient. Thus, we expect the compa-

nies’ cost-efficiency measures to slightly offset the negative impacts

from rising coal price.

SMGR remains as top pick

We maintain our buy call on SMGR with TP of 11,300 (30.3% upside), as

we believe regions in which SMGR holds the largest market share—i.e.

outside Java—will outperform in terms of demand growth. Despite this,

SMGR still has undemanding valuation, and currently trades at an at-

tractive 12.4x 2017F PE, still at 24% discount to INTP’s 15.4x 2017F PE.

Downside risk to our call

Downside risks: 1) Further prolonged cement ASP, 2) big players losing

more market share, 3) Further sluggish property demand resulting in

slower volume growth, 4) Further significant increase in coal and energy

price.

2017F P/E

SMGR 12.5

INTP 15.4

Rec.

TP Sh.Pr. Ups/dw EPS Growth (%) PE (x) EV/EBITDA (x) Div. yield (%)

(Rp/sh) (Rp/sh) (%) 2016 2017 2016 2017 2016 2017 2016 2017

SMGR Buy 11,300 8,675 30.3% -9.1 0.7 12.5 12.4 7.3 7.5 3.5 3.2

INTP Neutral 16,400 15,350 6.8% -11.8 -7.5 14.2 15.4 8.1 7.0 5.6 5.2

Cement Sector Tighter competitive landscape

Companies Data

Billy Theodorus

([email protected])

Neutral


Figure 86. Domestic Sales, Capacity, and Utilisation Trend

Source: ASI, TRIM Research

Our decision to revise down our 2017 sales target is based on our expectation of slower overall demand growth

in 2017, mainly due to lower expectation of property sector’s marketing sales achievement this year—in general,

there is a one year lag between marketing sales and actual construction of the properties—which led to lower

expected demand for cement from property sector in 2017. This will be explained further in the next page.

Modest growth accompanied by low utilisation ahead

As mentioned in our previous cement sector report, we still expect the domestic cement supply-demand imbal-

ance to linger in 2017. This can be seen by the growth in design capacity outpacing the growth in domestic con-

sumption (sales), shown by higher 2010-17F design capacity CAGR at 8.5% (vs. 5.3% for consumption). None-

theless, we decided to slightly revise down our forecast for 2017 domestic cement sales to 66m (previous:

70mn) tons, implying 4.5% YoY growth—we also revise down our 2016 target to 63m (previous: 64m) tons, im-

plying 3.5% YoY growth, due to slightly lower than expected 10M16 domestic sales so far at 52m tons. Likewise,

we also reduce our expectation of annual design capacity for 2017 to 102mn tons (previous: 105mn) due to pro-

jected delay in SMGR’s Rembang plant operation date, thus implying 65% utilisation rate (see Figure 86).

Figure 87. Quarterly ASP trend


800

850

900

950

1,000

1,050

1Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q16

ID

R '0

00

/to

n

SMGR INTP

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

800

850

900

950

1,000

1,050

2014 2015 2016F 2017F 2018F

ID

R '

00

0/

ton

SMGR INTP

SMGR % Change (RHS) INTP % Change (RHS)

Figure 88. Annual ASP of SMGR and INTP

Figure 87 shows that cement ASP (we use SMGR and INTP as price benchmark) have constantly been in declining

trend since reaching its peak in 4Q14, with INTP being the most aggressive in its price cut (9.4% decline YTD vs.

SMGR’s 2.3%). We believe the growing gap between the two companies’ declining ASP can largely be attributed

to the significant decline in domestic consumption in Jakarta, Banten, and West Java area—which can be consid-

ered as INTP’s home market—as well as growing number of new entrants in the region.

44

49

5559 60 61

6366

53 57

61

66

74 75

93

102

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

-

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016F 2017F

(mn tons)Total domestic cement sales volume Design Capacity Utilisation

Growth in de-

mand is out-

paced by growth

in capacity, cre-

ating low utili-

sation environ-

ment.


On a more general note, we believe the significant decline in overall cement ASP was caused by the sudden jump

in cement oversupply in 2016 (an 110% YoY increase to 29mn ton). In 2017, however, we expect the oversupply

would still increase, but at much lower rate (22% YoY increase to 36mn ton). Moreover, we also believe cement

players would start to adapt and consolidate their market share, which will lead to cement players being less ag-

gressive in their price war. Therefore, as can be seen in Figure 88, we still expect an overall decline in ASP in

2017, albeit in much lower rate compared to 2016. Additionally, we also expect INTP would have a prolonged

period of ASP decline due to expected sluggish growth in cement consumption in its home market.

Demand growth potential

We believe the main drivers for domestic cement demand are derived from infrastructure and property sectors.

From infrastructure side, we believe there is a sound upside potential for cement demand from growing govern-

ment’s infrastructure spending. As can be seen in Figure 89, the trend shows growing allocation of infrastructure

budget relative to GDP, almost doubling from 1.7% of GDP in 2014 to 3.0% in 2017F (assuming 5.1% GDP

growth in 2017). Consequently, infrastructure contribution to cement sales—indicated by bulk sales—shows a

stable growth, from 18.5% in 10M11 to 24.1% in 10M16 (see Figure 90). We believe this trend is likely to contin-

ue in the coming years, provided the government remains committed to its infrastructure development plans.

Figure 89. Infrastructure Budget as % of

Source: BPS, ASI

Figure 90. Cement Sales Breakdown

86114.2

145.5

184.3 177.9

290.3317.1

387.3

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0

50

100

150

200

250

300

350

400

450

2010 2011 2012 2013 2014 2015 2016F 2017F

ID

R t

n

Infrastructure Budget (LHS) % of GDP (RHS)

81.5% 80.8% 78.9% 78.4% 76.5% 75.9%

18.5% 19.2% 21.1% 21.6% 23.5% 24.1%

60%

65%

70%

75%

80%

85%

90%

95%

100%

10M11 10M12 10M13 10M14 10M15 10M16

Bag Bulk

Property sector, on the other hand, presents less favourable outlook for demand growth in 2017. 2016 Marketing

sales, both realised and expected, have been lacklustre (see property sector section for details), with many com-

panies still falling short of this year’s target. In consequence, we believe this would translate into unsatisfactory

demand growth from property.

Moreover, the sluggish property situation is also exacerbated by expected 7DRR hike in 2017F—thus, also mort-

gage rate hike—due to high possibility of Fed Fund Rate hike in the course of 2017. Our data shows that cement

domestic sales from 2010-9M16 is negatively correlated (-0.7, to be precise) with BI rate (we use BI rate as a

proxy for mortgage rate). Thus, assuming higher interest rate environment in 2017, we expect this would trans-

late into slower growth in cement demand.

Summing it up

Despite positive outlook from infrastructure side, it should be noted that bulk sales still only composes less than

25% of cement revenue. Therefore, we decided to revise down our 2017F cement consumption growth to 4.5%

(previous: 9.9%), as we expect the negative impact from sluggish property sector would outweigh the more

cheerful tone of infrastructure sector.


Rising coal price vs. cost-efficiency

The recent sudden rise in coal price has raised some concerns on its impact on cement companies’ costs. Our

estimate of 2017F average coal price has been revised up 21% to USD75/ton. Coal is quite an essential factor in

cement industry’s costs, as most plants use coal for some of their power sources. In fact, coal composes ~16-

20% of SMGR and INTP’s COGS.

In response, the industry would be forced to implement even stricter cost-efficiency to retain their margins. For

example, INTP’s management has stated that their new plant (P14) is able to use cheaper low calorific value

(CV) coal. Similarly, SMGR also has built a Waste Heat Recovery Power Generator in Padang, West Sumatra and

is building another one in Tuban, East Java. These power generator would be able to convert hot gases produced

from cement manufacture into energy, allowing more operating efficiency. In addition, the companies can also

buy cheaper coal from smaller mines.

Therefore, one of the key themes in 2017 cement sector who can be the most cost-efficient in order to offset the

impact of rising costs from coal.

Big players to retain their market share

As shown in Figure 91, the big players (SMGR and INTP) have been gradually losing market share since 2014,

largely due to foreign cement companies (e.g. Anhui Conch, Siam Cement Group) entering the sector. We expect

the big players to still lose some market share in FY16, before starting to retain—if not regain—some market

share in FY17.

We expect INTP to slightly gain market share to 26.7%, due to additional 4.4mn annual capacity from the newly

commissioned P14 plant. SMGR, on the other hand, is expected to slightly lose market share to 41.7%, due to

the expected delay of Rembang plant. Overall however, we expect the combined market share of the big players

to slightly rise to 68.4% (vs. 2016F’s 67.8%).

Figure 91. Market Share Trend

Source: ASI, TRIM Research

38.7%46.5%

40.4% 39.8% 40.7% 43.4% 43.5% 43.2% 42.4% 41.7%

28.0%

30.2%

28.8% 30.7% 31.9% 30.1% 30.2% 27.4% 25.4% 26.7%

33.3%23.3%

30.8% 29.4% 27.3% 26.5% 26.3% 29.4% 32.2% 31.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

SMGR Market Share INTP Market Share Others

Expect the big play-

ers (SMGR and INTP)

to hold their market

share in FY17, alt-

hough SMGR will

slightly lose its mar-

ket share in FY17

due to Rembang

Plant delay.


Maintain Buy call—revise TP to Rp11,300

We maintain our Buy call on SMGR, but with revised TP of Rp11,300

(previous: Rp12,100) on the back of: 1) SMGR’s superior market share

in region with outperforming demand growth, 2) undemanding valua-

tion. Downside risk to our call includes total shutdown of Rembang

plant, prolonged decline of cement price, more foreign players entering

cement market, significant rise in energy and coal price, as well as un-

stable IDR.

Overall better market share in outperforming regions

As mentioned in our previous cement sector report (published on Octo-

ber 4, 2016), we expect gradual growth of sales contribution from out-

side Java region. This is already apparent in 10M16 cement industry

sales geographical breakdown, with outside Java region logging in 4.7%

YoY growth (vs. –1.1% YoY in Java, and –7.4% YoY in Western Java!).

Outside Java, SMGR has the largest market share at 46.3% (vs. INTP at

16.2%). As we believe outside Java region will keep on delivering supe-

rior demand growth, this will translate into better revenue and thus

earnings growth in years ahead.

Compelling value in Semen Gresik

Although the uncertainty in Rembang plant situation seems like a valid

reason for cheaper valuation, we believe SMGR’s share price has been

over-punished in 2016YTD. SMGR’s share price has declined 24%, and

underperforming JCI by 35%. Considering our TP has taken into account

the loss of 2017F potential earnings from Rembang plant delay, this

leaves an ample 30% upside.

Valuation: TP Rp11,300, 30.3% upside, Buy

We decrease our TP to Rp11,300, and change our valuation method to

PE multiples only (previous: combination of DCF and PE). We derived

our TP from 5-year average Forward PE of 16.2x, similar with INTP’s

16.4x. Currently, SMGR trades at 12.4x 2017F PE, implying 24% dis-

count to INTP at 15.4x, despite 5-year average of only 2% discount.

Year end Dec 2014 2015 2016F 2017F 2018F

Sales (Rpbn) 26,987 26,948 26,062 26,640 31,081

Net Profit (Rpbn) 5,560 4,521 4,112 4,140 4,943

EPS (Rp) 937 762 693 698 833

EPS Growth (%) 3.5 -18.7 -9.1 0.7 19.4

DPS (Rp) 407 375 306 279 333

BVPS (Rp) 4,054 4,454 4,772 5,164 5,720

EV/EBITDA (x) 6.3 6.3 7.3 7.5 7.0

P/E (x) 9.3 11.4 12.5 12.4 10.4

Div Yield (%) 4.7 4.3 3.5 3.2 3.8

Semen Indonesia Staying strong in the face of a storm

Billy Theodorus

([email protected])

Companies Data

PT Semen Gresik (Persero) Tbk manu-factures cement including portland ce-ment, oil well cement, and mixed ce-ment. Through its subsidiaries, the Company also develops and operates an industrial estate, mines limestone and clay, and packages and istributes cement.

Share Price Rp8,675

Sector Cement


Buy Rp11,300

Reuters Code SMGR.JK

Bloomberg Code SMGR.IJ

Issued Shares 5,932


Avg. Value Daily 6

Month (Rpbn) 102.5

52-Wk range 11875 / 8050

Republic of Indonesia 51.0%

Public 49.0%

EPS 16F 17F


TRIM vs Cons. (%) 0.3% -3.2%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

0

2000

4000

6000

8000

10000

12000

14000





Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 26,987 26,948 26,062 26,640 31,081

Revenue Growth (%) 10 0 -3 2 17

Gross Profit 11,579 10,646 10,078 10,169 11,917

Opr. Profit 6,947 5,899 5,374 5,498 6,530

EBITDA 8,210 7,326 7,000 7,244 8,386

EBITDA Growth (%) 2 -11 -4 3 16

Net Int Inc/(Exp) -97 -129 -196 -344 -306


Other Inc/(Exp) 227 80 142 143 164

Pre-tax Profit 7,077 5,851 5,319 5,298 6,388

Tax -1,510 -1,325 -1,186 -1,139 -1,425

Minority Int. -8 -4 -21 -19 -21



Core Net Profit 5,560 4,521 4,112 4,140 4,943

growth (%) 4 -19 -9 1 19


growth (%) 11 -8 -18 -9 19

Dividend payout ratio 43 49 44 40 40


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and eq. 5,032 3,992 2,360 3,993 6,626

Other curr asset 6,617 6,547 6,438 6,670 7,649

Net fixed asset 20,221 25,168 27,542 28,796 29,690

Other asset 2,462 2,447 1,833 1,916 2,050

Total asset 34,332 38,153 38,173 41,374 46,014

ST debt 598 846 640 731 772

Other curr liab 4,674 5,754 4,034 4,282 5,018

LT debt 3,798 3,809 3,985 4,276 4,771

Other LT Liab 257 304 91 94 105

Minority interest 958 1,021 1,117 1,360 1,420


Shareholders Eq. 24,046 26,420 28,305 30,631 33,928

Net (debt) / cash -636 663 2,264 1,014 -1,083



Debt 4,396 4,655 4,625 5,007 5,543

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Core Net Profit 5,560 4,521 4,112 4,140 4,943

Depr / Amort 1,263 1,427 1,626 1,746 1,856

Chg in Working Cap -559 959 -776 24 -236

CF's from oprs 6,263 6,908 4,962 5,909 6,563

Capex -1,323 -5,054 -2,444 -1,306 -942

Others -1,749 -1,283 -928 -1,784 -1,949


Net change in debt -49 259 58 59 -14

Others -2,323 -1,870 -3,280 -1,245 -1,024

CF's from financing -2,373 -1,611 -3,222 -1,186 -1,039

Net cash flow 819 -1,040 -1,631 1,633 2,633

Cash at BoY 4,213 5,032 3,992 2,360 3,993

Cash at EoY 5,032 3,992 2,360 3,993 6,626

Free Cashflow 4,940 1,854 2,518 4,603 5,621

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 42.9 39.5 38.7 38.2 38.3

Opr Margin (%) 25.7 21.9 20.6 20.6 21.0

EBITDA Margin (%) 30.4 27.2 26.9 27.2 27.0

Core Net Margin (%) 20.6 16.8 15.8 15.5 15.9

ROAE (%) 24.8 17.9 15.0 14.0 15.3

ROAA (%) 17.1 12.5 10.8 10.4 11.3



Net Debt to EBITDA (x) -0.1 0.0 0.3 0.1 -0.1


Efficiency A/P (days) 64.6 75.2 51.9 55.0 57.4

A/R (days) 40.9 45.7 39.6 40.1 40.4

Inventory (days) 63.8 57.6 69.3 69.1 67.8


Date

Aug-91 IPO @ Rp7,000

Jul-95 3:1 Rights @ Rp.3,275

Aug-07 1:10 Stock Split

3Q15 4Q15 1Q16 2Q16 3Q16

Sales 6,474 7,833 6,021 6,449 6,612

Gross Profit 2,507 3,133 2,425 2,563 2,586

Opr. Profit 1,309 1,800 1,234 1,330 1,338

Net profit 1,013 1,323 1,034 931 973

Gross Margins (%) 38.7 40.0 40.3 39.7 39.1

Opr Margins (%) 20.2 23.0 20.5 20.6 20.2

Net Margins (%) 15.6 16.9 17.2 14.4 14.7


Maintain Neutral—Revise TP to Rp16,400

We maintain neutral call on INTP with TP of Rp16,400, on the back of 1)

poor realised and expected demand growth from its strongest market,

2) larger than expected decline in ASP, 3) more efficient P14 plant.

Downside risk to our call is further decline of demand in Java, especially

Western Java region, significant rise in coal and energy price, and pro-

longed ASP decline, while upside risk includes rising cement ASP and

elimination of new smaller competitors.

Limited potential demand growth in West Java

In Jakarta, Banten, and West Java area, where INTP holds ~46% mar-

ket share (vs. SMGR at ~20%), 10M16 demand declined ~8% YoY.

Despite INTP having terminals and facilities in outside Java, lower mar-

ket share at those regions mean INTP would not be the main beneficiary

of the superior growth in Outside Java. Likewise, with the government’s

plan of massive infrastructure development in outside Java, we expect

limited growth in INTP’s cement sales.

Worsening ASP

INTP’s ASP has declined 9.4% YTD, much larger than SMGR’s 2.3%

decline. This led us to revise our 2017F ASP assumption, leading to a

9.8% and 18.6% decrease in 2017F revenue and net profit, respective-

ly. We believe the main contributor to above-average ASP decline is

negative growth in INTP’s home market: West Java. As we expect lim-

ited growth in West Java region, we expect slower recovery in ASP for

INTP.

More efficient plant

With the inauguration of INTP’s new plant in Oct-16, we also expect

improving cost-savings measures in FY17. In this low utilisation environ-

ment, switching from old plants to a new and more efficient price should

help to retain—if not improve—margins.

Maintain neutral with TP: Rp16,400 (6.8% upside)

We revise our TP to Rp16,400, implying 16.4x 2017F PE, and change

our valuation method to PE multiples only (Previous: combination of DCF

and PE). Currently, INTP trades at 15.4x 2017F PE.

Indocement Tunggal Prakarsa provides

cement and readymix as well as the

aggregates. The company’s main plant

is located in Java, especially in West

Java area.


Sector Cement


Year end Dec 2014 2015 2016F 2017F 2018F

Revenues (Rpbn) 19,996 17,798 15,738 17,226 17,832

Net Profit (Rpbn) 5,494 4,505 3,971 3,672 4,098

EPS (Rp) 1,492 1,224 1,079 998 1,113

EPS Growth (%) 10 -18 -11.8 -7.5 12

DPS (Rp) 1,350 415 863 798 891

BVPS (Rp) 6,676 6,483 7,147 7,892 8,789

EV/EBITDA (x) 6.7 8.0 8.1 7.0 5.9

P/E (x) 10.3 12.5 14.2 15.4 13.8

Div Yield (%) 8.8 2.7 5.6 5.2 5.8

Indocement Tunggal Prakarsa The best still yet to come

Neutral Rp16,400

Billy Theodorus

([email protected])

Reuters Code INTP.JK

Bloomberg Code INTP.IJ



Avg. Value Daily

6 month (Rpm) 32.1

52-Wk range 22800 / 14275

Birchwood Omnia Limited, England 51.0%

PT Mekar Perkasa 13.0%

Public 36.0%

EPS 16F 17F


TRIM vs Cons. (%) -6.7% -6.6%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Companies Data

0.0

20.0

40.0

60.0

80.0

100.0

120.0

0

5000

10000

15000

20000

25000




Figure 92. Changes in INTP’s Forecast

(IDR bn) After Before Change

2017F 2018F 2017F 2018F 2017F 2018F

Revenue 17,226 17,832 19,088 19,836 -9.75% -10.10%

Gross profit 6,588 6,983 7,931 8,359 -16.93% -16.46%

Gross margin 38.24% 39.16% 41.55% 42.14%

Operating profit 4,130 4,472 5,207 5,566 -20.69% -19.66%

Op. profit margin 23.97% 25.08% 27.28% 28.06%

Pre-tax profit 4,896 5,464 6,016 6,634 -18.61% -17.63%

Pre-tax margin 28.42% 30.64% 31.52% 33.44%

Net profit 3,672 4,098 4,512 4,975 -18.61% -17.63%

Core margin 21.32% 22.98% 23.64% 25.08%

As can be seen in Figure 92, the change in revenue, and net profit forecast are substantial, with –9.8% and -

18.6% change in revenue and net profit, respectively. This major changes are largely due to a combination of

significant change in ASP estimate as well as upward revision of coal price assumptions. Gross profit also

changed shrank considerably due to lower revenue and higher COGS.




Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 19,996 17,798 15,738 17,226 17,832

Revenue Growth (%) 7 -11 -12 9 4

Gross Profit 9,106 7,909 6,249 6,588 6,983

Opr. Profit 5,880 5,029 3,749 4,130 4,472

EBITDA 6,758 5,975 5,667 6,174 6,796

EBITDA Growth (%) 0 -12 -5 9 10

Net Int Inc/(Exp) 993 710 580 680 897


Other Inc/(Exp) 146 53 84 87 95

Pre-tax Profit 7,018 5,792 4,413 4,896 5,464

Tax -1,521 -1,288 -441 -1,224 -1,366

Minority Int. -3 0 0 0 0



Core Net Profit 5,494 4,505 3,309 3,672 4,098

growth (%) 10 -18 -27 11 12

Dividend per share 1,350 415 863 798 891

growth (%) 50 -69 108 -8 12

Dividend payout ratio 90 34 80 80 80


Year end Dec 2014 2015 2016F 2017F 2018F

Cash and eq. 11,256 8,656 10,877 13,580 16,544

Other curr asset 4,831 4,478 3,820 4,236 4,405

Net fixed asset 12,144 13,814 14,335 14,553 14,799

Other asset 654 691 476 511 553

Total asset 28,885 27,638 29,508 32,881 36,301

ST debt 49 60 108 110 52

Other curr liab 3,211 2,628 2,116 2,659 2,817

LT debt 76 61 72 73 35

Other LT Liab 971 1,024 903 988 1,044



Shareholders Eq. 24,577 23,866 26,310 29,051 32,353

Net (debt) / cash -11,131 -8,534 -10,697 -13,397 -16,457



Debt 125 121 180 183 87

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Core Net Profit 5,494 4,505 3,971 3,672 4,098

Depr / Amort 878 946 1,860 1,982 2,253

Chg in Working Cap -41 -231 146 126 -10

CF's from oprs 6,331 5,220 5,977 5,781 6,342

Capex -3,770 -2,666 -2,347 -2,197 -2,509

Others -141 13 181 -38 -33


Net change in debt -35 -4 59 3 -96

Others -3,724 -5,163 -1,648 -846 -740

CF's from financing -3,759 -5,167 -1,589 -843 -836

Net cash flow -1,339 -2,601 2,221 2,703 2,964

Cash at BoY 12,595 11,256 8,656 10,877 13,580

Cash at EoY 11,256 8,656 10,877 13,580 16,544

Free Cashflow 2,561 2,553 3,630 3,584 3,833

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 45.5 44.4 39.7 38.2 39.2

Opr Margin (%) 29.4 28.3 23.8 24.0 25.1

EBITDA Margin (%) 33.8 33.6 36.0 35.8 38.1

Core Net Margin (%) 27.5 25.3 21.0 21.3 23.0

ROAE (%) 23.2 18.6 15.8 13.3 13.3

ROAA (%) 19.8 15.9 13.9 11.8 11.8






A/R (days) 46.7 52.6 47.1 48.0 48.5

Inventory (days) 51.9 58.0 56.4 55.0 54.8


Date

Dec-89 IPO @ Rp10,000

Aug-94 1:1 Bonus Issue

Aug-96 1:1 Stock Split

Mar-01 Rights Issue @ Rp1,200

May-03 Warrant Series-C Conversion

3Q15 4Q15 1Q16 2Q16 3Q16

Sales 4,011 4,912 3,929 3,813 3,605

Gross Profit 1,758 2,157 1,699 1,536 1,492

Opr. Profit 1,088 1,383 1,078 873 838

Net profit 909 1,138 958 1,471 719

Gross Margins (%) 43.8 43.9 43.2 40.3 41.4

Opr Margins (%) 27.1 28.2 27.4 22.9 23.3

Net Margins (%) 22.7 23.2 24.4 38.6 19.9


Coal Sector


Overweight; Top picks are PTBA, ADRO, and DOID We maintain our coal sector call with Overweight on the back of: 1) Healthier coal price level of USD75/72.5/70 per tonne in 2017/18/19, 2.) Strong 2017-18 earnings growth amid coal price recovery, low fuel cost,

abundant of net cash piling and relatively low overhead costs, 3.) Very cheap 2017-18 valuations. Our coal universe is trading at undemanding 2017-18 P/E of 9.1x/9.0x, -36/37% discount to industry’s 5 years histori-cal forward P/E*. Current EV/EBITDA is trading at a bargain with 2017-18 EV/EBITDA trading at both 3.9x/3.8x, -36%/37% discount to 5 years historical forward. Our top picks are PTBA, ADRO, and DOID.

Maintaining our coal price assumption We maintain our Newcastle coal price forecast of USD75/72.5 per ton in 2017-18 respectively and expect coal price to decline from 2018-21 with USD65/ton as our long-term price from 2021 onwards. China as the larg-est coal producer (~50% global) has the capability to maintain coal price

and China has strong intention to maintain coal price at profitable level.

Our forecast factors in China’s policy and Asia’s increasing demand (especially for high efficiency low emission supercritical power plants). We expect coal price may remain high until 1Q17 as most miners need more time to increase production amid China’s plan to ease working day until Mar’17 and higher demand due to colder upcoming winter. Entering the new healthy up-cycle era

Reasons of a new healthy up-cycle is shown from: 1.) UNTR heavy equip-ment (HE) orders are on 3 months waiting list, never happened since 5 years ago! (HE sales is an early indicator of where the coal cycle is head-ing), 2.) Better cost structure given lower fuel costs (~30% of mining cost), 3.) Healthier supply side: conservative production plans guidance

from major companies.

Investment metrics PTBA has the cheapest EV/reserve, 3rd cheapest P/E, largest ROAE, less susceptible towards coal and oil price movement. ADRO is most cost efficient coal miners and 2nd cheapest EV/EBITDA. UNTR has a dominant market share in the heavy equipment (~33%) and mining contracting business (~50%), a justified premium. ITMG offers attractive dividend

yield and has relatively cheap valuations despite its liquidity issue. DOID is a wise choice for investors seeking for unlocked value. Key risks to our call

1.) A swift change in China’s supply cut policy, 2) Higher than expected oil price

Coal Sector The Healthy Up-cycle Era of Coal

MARKET CAP

Companies Data

* excluding DOID and HRUM due to historical negative earnings

Rec.

TP Sh.Pr. Ups./ Earnings PE (x) EV/EBITDA (x) Div. yield ROAE PEG (x)

(Rp/sh) (Rp/sh) (%) CAGR('16-19) 2017 2018 2017 2018 2017 2018 2017 2018 2017

UNTR BUY 25,000 21,500 16% 16% 11.3 10.8 4.7 4.4 4.0% 4.4% 17.9% 17.0% 0.24

ADRO BUY 2,000 1,680 19% 21% 7.9 8.4 3.1 3.2 3.2% 6.3% 15.4% 13.2% 0.08

PTBA BUY 16,000 11,550 39% 29% 6.5 6.8 4.5 4.7 2.4% 5.4% 33.3% 25.7% 0.05

ITMG BUY 18,600 15,800 18% 22% 5.8 6.1 2.1 2.2 5.8% 12.0% 23.9% 20.4% 0.05

HRUM BUY 2,900 2,280 27% 33% 13.3 11.2 3.5 3.0 2.4% 4.5% 8.8% 10.0% 0.15

DOID BUY 800 515 55% 38% 4.4 3.5 3.6 3.2 0.0% 0.0% 45.3% 37.6% 0.04

Weighted avg. - total 9.1 9.0 3.9 3.8 3.6% 5.7% 20.2% 17.7%

Weighted avg. - mining contractors 10.9 10.4 4.7 4.3 3.8% 4.2% 19.2% 18.0%

Weighted avg. - coal miners 7.5 7.8 3.3 3.4 3.4% 6.9% 21.1% 17.5%

3 months ADTV

Willinoy Sitorus

([email protected])

Sandro Sirait

([email protected])

Overweight


Coal Price Outlook

Our coal price assumption

We recently increased our 2016-17 Newcastle coal price estimate by +15%/+21% from USD56/62 per ton to

USD64.6/75 per ton respectively. We expect coal price to decline –3.6% per year from 2018 to 2021 with

USD65/tonne as our long-term price from 2021 onwards. Our coal price assumption mainly factors in China’s

government intervention by coal supply cut and South East Asia’s increasing demand (especially from Indonesia).

Short-term coal price correction is plausible given the ~+37% 1 month-rally is additionally driven by seasonality

or temporary event factors such as China’s winter season and La-Nina weather disruption.

China government intervention plays a big role to the coal price rally...

The only concern about this coal’s spectacular rally this year is that China’s government intervention through

supply cut plays a significant role. The rally is not purely a natural market behaviour of supply and demand.

China as the largest coal producer and coal consumer in the world have a big influence in coal price.

The price increase is also driven by China’s decision to reduce coal mine operating days from 330 days a year to

276, decreasing production by 10% YoY. Given China’s domestic shortage, there has been a surge in coal im-

ports. China imported 21.6 million tonnes of coal in Oct’16, up >55% YoY according to official customs data.

Inventory levels at China’s major coal port Qinhuangdao reached 6.06mn tons in Nov’16, 65% higher than 2016

average, but it is still 9% lower than 2015 average. 10M16 China coal imports increased 18% YoY to 201.9 mil-

lion tonnes compared to 10M15 of 170.4 million tonnes.

… and other supply issue and demand factors which happens concurrently

Newcastle coal price have reached USD100/ton for the first time since Mar’ 12, taking the rally to ~+100% in-

crease on a YTD basis. We view that China is in a dilemma to normalize such coal price rally in the short-term (2-

3 months) by boosting production given that the supply cut event happens concurrently with China’s winter sea-

son.

Figure 93. Trimegah coal price forecast


Coal price to normal-

ize at USD75/tonne

in 2017 and will

gradually fall to

USD65/ton by 2021

and will be used as

o u r l o n g - t e r m

benchmark price


Coal price to remain high throughout this year despite China’s policy reversal

We present a monthly average coal price forecast throughout this year and next year. We expect coal price

should sustain at USD90-120/tonne throughout this year (Nov–Dec’ 16) and would gradually fall by next year to

USD83/tonne in Mar’ 17 and USD65/tonne by Jun’ 16 before gradually picking up to USD70/tonne in Sep’ 17 and

USD85/tonne by Dec’ 17. Our monthly projection accounts seasonality, stronger demand and China’s govern-

ment intervention program (assume to continue) factors.

China’s National Development and Reform Commission announced last month that coal mines that comply the

quality standards can operate for 330 days a year in Nov’16-Mar’17 from 276 days previously. Note that the new

limit will be effective until the end of the winter season and thus the long-term supply cut program will continue.

We expect the coal price will remain high until 1Q17 despite the policy reversal as miners need more time to

boost its production and the demand would be higher as winter this year is expected to be colder, even to be the

coldest since 2012 which is affected by climate pattern of La Nina.

Figure 94. Trimegah monthly coal price forecast


We expect coal price

to hover at high level

throughout Nov-

Dec’16 before expe-

riencing gradual

correction in subse-

quent months

Figure 95. China coal production 9M16 declined by 11% YoY


Need more time for

China to re-balance its

production level in

order to normalize coal

p r i c e a t t h e

~USD75/tonne level

51 51 51 50 51 5463

6772

91100

120

110

95

85

75

6560 60 60

6570

7583

45

55

65

75

85

95

105

115

125

Jan' 16

Feb' 16

Mar' 1

6

Apr' 1

6

May' 16

Jun' 16

Jul' 1

6

Aug' 16

Sep' 16

Oct' 1

6

Nov' 16f

Dec' 16f

Jan' 17f

Feb' 17f

Mar' 1

7f

Apr' 1

7f

May' 17f

Jun' 17f

Jul' 1

7f

Aug' 17f

Sep' 17f

Oct' 1

7f

Nov' 17f

Dec' 17f

Monthly average coal price forecast

(USD/tonne) Peak level in Dec' 16

Bottom level mid-2017

Revive to peak level


Source: Bloomberg, various sources, Trimegah research

China’s inventory

level in Qinhuangdao

port is still below

2015’s average.

Figure 96. China inventory in October declined by 11% YoY

China coal import

10M16 surged by

18% YoY following

the production de-

cline since Apr’16.

Figure 97. China coal import


Source: Bloomberg, various sources, Trimegah research

We still expect coal

price rally may ex-

tend this year as

tight supply will

meet higher demand

in winter season..

Figure 98. China coal output seasonality


What coal price level is China comfortable with?

Early 2016, China issued a policy to eliminate polluted and inefficient coal producers. This policy intentionally

supports the large, relatively cleaner and cost efficient mines’ profitability in China of which some of them are

state-owned (SOEs). Note that even a giant coal mine in China such as Shenhua mine has an ROE of a mere

~5%, suggesting that small and inefficient coal miners are bleeding. We view that China intends to help selected

miners’ profitability level to avoid bank loans default at the expense of shutting down small miners that have less

visibility in debt repayments.

We highlight that the total debt of large China coal miners as of July’16 amounts to RMB3.7tn

(USD444bn—note that this amount is equivalent to ~50% if Indonesia’s GDP) with average debt to

equity of more than 2x according to Fitch press release. In other words, China has a strong economic

interest of keeping coal price at favorable level!

China’s government intervention policy plays a big part of the coal price rally. Back in Sept’ 16, China govern-

ment announced its comfortable coal price level at RMB450/ton (USD66.4/ton), which is equivalent with 6,000

CV quality of USD72/ton. In fact, Newcastle coal price has shoot up to USD109/tonne, a 51% increase to China’s

implied guidance of USD72/tonne. We expect average coal price to be USD75/tonne in 2017, a healthy price

level for the big coal mining players in China and Indonesia as well.

Many countries are building coal-fired power plants with better technology!

There have been prolonged issues on the future of coal given pollution, climate change concerns, and the in-

crease usage of renewable energy. We would like to set the tone. Many countries are still building power plants

regardless of those particular issues! Based on our data from Greenpeace as of July 2016, 350GW of coal power

capacity is currently under construction. Also note that the total number of coal power capacity that has been

announced + pre-permit + permitted as of July’16 are 932GW! This is 48% of current operating total coal power

capacity of 1,939GW. Despite the ratification of Paris global climate agreement, the world is still build-

ing more coal-fired power plants!!!

We have seen increase of demand for high efficiency low emission coal (HELE), a technology that tackles the

prolonged issue of coal in regards to pollution. High efficiency low emission coal (HELE) technology is a group of

technologies made to increase the efficiency of coal-fired power plants by reducing CO2 and other green house

gas emissions such as Nox, SO2, and PM.

According to Greenpeace data, majority (66%) of existing power plants uses subcritical power plants which cause

heavy pollution. Nowadays, we see a trend of higher usage of ultra-supercritical power plants which is a low

emission power plant. As of Jul’ 16, 88% of power plant projects under constructions are super critical and ultra-

supercritical. Even companies such as ADRO and UNTR venture to these low-emission type of power plants.

Figure 99. Proposed Coal Plants by Country (GW)

Source: Greenpeace *data as of July’16

Country Announced + Pre- permit

+ Permitted Construction Shelved Operating

China 406 205 113 895

India 178 65 111 206

Turkey 70 4 14 16

Indonesia 40 8 9 26

Vietnam 31 16 0 13

Japan 19 3 0 44

Pakistan 18 3 5 0

Other countries 170 46 64 739

Total Countries 932 350 317 1940


Adaro Energy The Most Cost-Discipline Player

Sandro Sirait

([email protected])

Maintain BUY on ADRO with TP IDR2,000

We increase our earning estimates and our SOP-based TP backed by: 1)

Higher coal price assumption, 2) Rise in free cash flow over the past 3

years. Our SOP valuation consists of DCF method for its coal mine seg-

ment (stretched to 2026 assuming reserves are depleted by that year)

with WACC assumption of 8.4% and ~10% of our TP include our BPI

and TPI power plants with power plants equity value of IDR~6trn. ADRO

is trading at 7.9x/8.4x 2017-18 P/E, which is a 45%/43% discount to 5-

years average historical forward P/E.

The most cost disciplined player among our coal universe

Amid coal price downturn from 2012 to 2015, ADRO is able to cut its

stripping ratio by –5% CAGR 2011-16F thanks to ADRO’s strong long-

term mine plan (ensuring low-hanging fruit reserves are not over ex-

ploited during coal boom). This enables ADRO to maintain cash margin

(ASP less cash cost) at a stable USD19-21/tonne level from 2014-

2016F. With the appropriate capex level over the past 5 years coupled

with excellent cost efficiency measures, we expect ADRO’s 2016 FCF

yield to be ~9% (the 2nd highest after ITMG).

Going into down-stream power plant—positive for the long-run

Following Batang 2x1,000MW power plant’s financial closing 3 months

ago, we expect the project to commence by 2020-21. We had a site visit

to Batang (Central Java) last month and we saw the project is at the

initial stage of construction. We project a conservative 6.6% IRR for the

project (higher than 2015’s ROAE of 5%). Given ADRO’s strong FCF, we

believe going into downstream projects is still a wise move albeit coal

price rally as it would enable ADRO to capture a captive domestic mar-

ket for its coal sales in the long-run.

Coal and oil price sensitivity analysis

Coal price sensitivity analysis suggests for every +/- 1% in coal price

will bring +/- 3.2% change in EPS and +/-2.5% in target price. Oil price

sensitivity analysis suggests for every +/- 1% in oil price will bring -/

+0.5% change in EPS and -/+0.4% in target price.

Companies Data

PT Adaro Energy Tbk is a coal mining

company. The Company and its subsidi-

aries currently deal in coal mining and

trade, coal infrastructure and logistics,

and mining contractor services.

Share Price Rp1,680

Sector Coal


BUY Rp2,000

Reuters Code ADRO.JK

Bloomberg Code ADRO.IJ



Avg. Value Daily 6

Month (Rpbn) 75.8

52-Wk range 1735 / 437

Adaro Strategic Investment 44%

Garibaldi Thohir 6.1%

Public 49.9%

Core EPS 16F 17F

Consensus (Rp) 108.8 149.6

TRIM vs. Cons. (%) -2% 41%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue (USDmn) 3,325 2,684 2,618 3,599 3,590

Net profit (USDmn) 178 152 251 495 466

Core profit (USDmn) 218 196 251 495 466

EPS Growth -15% -9% 73% 98% -6%

Core EPS Growth -11.2% -2.3% 29.6% 97.5% -5.9%

P/E (x) 24.6 27.2 15.7 7.9 8.4

Core P/E (x) 19.8 20.3 15.7 7.9 8.4

P/BV (x) 1.6 1.4 1.3 1.1 1.1

Div. Yield 1.7% 1.9% 1.9% 3.2% 6.3%

EBITDA growth 1.8% -15.8% 13.5% 53.9% -4.4%

EV/EBITDA 4.54 5.39 4.75 3.09 3.23


Income Statement (USDmn)

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 3,325 2,684 2,618 3,599 3,590

Revenue growth 1.2% -19.3% -2.5% 37.5% -0.2%

Cost of revenue 2,606 2,141 1,979 2,473 2,530

Gross profit 720 543 639 1,125 1,060

Opex 163 133 135 186 185

Op. Profit 557 410 504 940 875

Op. profit growth -2.4% -26.3% 22.9% 86.5% -6.9%

EBITDA 873 735 834 1,284 1,228

EBITDA growth 1.8% -15.8% 13.5% 53.9% -4.4%

Net int. inc./(exp) -164 -49 -48 -40 -28


Assoc. earnings 0 0 0 0 0

Other inc./(exp.) -57 -65 0 0 0

Pre-tax profit 322 280 456 900 847

Pre-tax growth -24.0% -13.0% 62.8% 97.5% -5.9%

Tax -138 -129 -205 -405 -381

Minority Int. -5 1 0 0 0

Net profit 178 152 251 495 466

Net profit growth -24.4% -14.3% 64.4% 97.5% -5.9%

Balance Sheet (USDmn)

Cash Flow (USDmn) Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability Gross Margin (%) 22% 20% 24% 31% 30%

Opr Margin (%) 17% 15% 19% 26% 24%

EBITDA Margin (%) 26% 27% 32% 36% 34%

Core Net Margin (%) 7% 7% 10% 14% 13%

ROAE (%) 7% 5% 8% 15% 13%

ROAA (%) 3% 2% 4% 8% 7%

Stability

Current ratio (x) 1.6 2.4 3.7 4.4 4.9

Net Debt to Equity (x) 0.42 0.30 0.19 0.01 (0.10)

Net Debt to EBITDA (x) 1.3 1.2 0.7 0.0 -0.3


Efficiency



A/P (days) 11 10 10 10 10

Interim Results (USDmn) Capital History

Date

16-Jul-2008 IPO@IDR1,100


Sales 713 572 586 589 602

Gross Profit 138 107 154 149 163

EBITDA 187 167 192 202 211

Opr. Profit 107 80 113 117 128

Net profit 61 -28 60 63 87

Gross Margins (%) 19% 19% 26% 25% 27%

EBITDA Margins (%) 26% 29% 33% 34% 35%

Opr Margins (%) 15% 14% 19% 20% 21%

Net Margins (%) 9% -5% 10% 11% 14%

Year end Dec 2014 2015 2016F 2017F 2018F

Cash 745 702 860 1,205 1,437

Receivables - net 286 196 225 309 308

Inventory 97 73 71 98 97

Other current asset 144 122 122 122 122

Current assets 1,272 1,093 1,277 1,734 1,964

Net fixed asset 3,715 3,494 3,389 3,180 3,012

Other non-cur asset 128 121 121 121 121

Non-current assets 5,142 4,866 4,741 4,532 4,364

Total asset 6,414 5,959 6,018 6,266 6,328

ST debt 208 123 0 0 0

Other curr liab 566 332 345 397 403

Current liabilities 775 454 345 397 403

LT debt 1,688 1,429 1,423 1,250 1,088

Other LT Liab 693 722 722 722 722

Non-curr. liabilities 2,381 2,151 2,146 1,972 1,810



Sh. equity 2,766 2,866 3,040 3,410 3,629

Net debt / (cash) 1,151 849 564 44 -349

Net Working capital 497 638 933 1,337 1,561

Year end Dec 2014 2015 2016F 2017F 2018F

EBIT 557 410 504 940 875

Dep. & amort. 317 325 330 344 353

Change In non-cash

working cap. 144 -98 -14 -59 7

Others -123 53 0 0 0

CF operations 592 512 567 781 826

Capex -113 -98 -225 -136 -185

Others 87 -20 20 0 0

CF investing -26 -118 -205 -136 -185

Net change in debt -325 -344 -128 -174 -162

Equity raised 0 0 0 0 0

Dividends -75 -75 -76 -125 -248

Others -172 -79 -76 -125 -248

CF financing -496 -423 -205 -299 -410

Net cash flow 70 -30 157 346 231

Others -5 -13 0 0 0

Cash at BoY 681 745 703 860 1,205

Cash at EoY 745 703 860 1,205 1,437

Free Cashflow 665 349 368 667 656


Maintain BUY with TP of IDR16,000

We increase our earning estimates and our SOP-based TP backed by: 1)

Higher coal price assumption (should be positive for domestic ASP), 2)

The highest long-term production growth among peers. Our SOP-based

TP consist of 1.) Primary business’ NAV of IDR14,644/share, 2.) Banjar-

sari power plant NAV of IDR1,133 and 3.) Banko Tengah power plant

NAV of IDR220/share. PTBA is trading at 6.5x/6.8x 2017-18 P/E, a

49%/47% discount to 5-years historical forward P/E.

Locking reserves value from improving infrastructure

PTBA has been booking stellar production growth trend over the past 5

years. (PTBA booked 10% 2011-2015 production growth CAGR vs

ADRO’s 2%, ITMG’s 3%). With PTBA’s improved infrastructure (eg;

increase railway capacity to 45m tonnes by 2019 from 15m tonnes in

2015), we expect coal extraction trend to linger in the next 5 years

catering Indonesia’s 35,000MW power plant needs in the long-run. PTBA

has the largest reserves compared to its peers amounting to 3.3bn

tonnes (vs ITMG 220m tonnes, ADRO 1.1bn tonnes), translating to the

cheapest EV/reserves of USD0.62/ton among peers (vs ADRO’s USD4.1/

ton, ITMG’s USD 4.8/ton).

Upside risks

We attended PTBA analyst meeting recently. Several positive takeaways

that we have not included in our earnings are: 1) Railway capacity

ramp up, 2) Usage of electric heavy equipment which would reduce fuel

usage, 3.) Favorable pricing of 2017 domestic coal ASP (they said they

are finalizing its agreement with PLN to use such favorable 3 months

average of Indonesia Coal Price from Oct’ 16—Dec’ 16 to be used for

next year’s domestic selling price). The company expects the double

track railway expansion to be finished by 2019. PTBA just bought 4

fleets of electrical mining heavy equipment from Belarusia.


Coal price sensitivity analysis suggests for every +/-1% in coal price will

bring +/-2.8% change in EPS and +/-2.0% in Target price. Oil price

sensitivity analysis suggests for every +/-1% in oil price will bring

-/+0.2% change in EPS and -/+0.4% in Target price.

Tambang Batubara Bukit Asam The Highest Production Growth & Cheapest EV/reserve

Sandro Sirait

[email protected]

Companies Data

PT Tambang Batubara Bukit Asam Tbk

provides coal mining activities. The Com-

pany offers services including general

surveying, exploration, exploitation, pro-

duction, transportation, and marketing of

coal.


Sector Coal


BUY 16,000

Reuters Code PTBA.JK

Bloomberg Code PTBA.IJ

Issued Shares 2,304


Avg. Value Daily 6

Month (Rpbn) 44.1

52-Wk range 13775 / 4150

Republic of Indonesia 65%

Public 26.5%

Treasury Stock 8.5%

Core EPS 16F 17F

Consensus (Rp) 791 1,142

TRIM vs. Cons. (%) -1% 55%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue (IDRbn) 13,078 13,734 14,107 19,530 20,278

Net profit (IDRbn) 1,861 2,036 1,812 4,079 3,912


EPS Growth 1.9% 9.4% -11.0% 125.2% -4.1%

Core EPS Growth 1.9% 9.4% -11.0% 125.2% -4.1%

P/E (x) 14.3 13.1 14.7 6.5 6.8

Core P/E (x) 14.3 13.1 14.7 6.5 6.8

P/BV (x) 3.17 2.90 2.53 1.90 1.62

Div. Yield 3.8% 2.7% 2.5% 2.4% 5.4%

EBITDA growth -2% 21% -1% 118% -3%

EV/EBITDA 11.83 9.77 9.88 4.54 4.69



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 13,078 13,734 14,107 19,530 20,278

Revenue growth 16.7% 5.0% 2.7% 38.4% 3.8%

Cost of revenue 9,156 9,594 9,889 11,540 12,472

Gross profit 3,922 4,140 4,218 7,990 7,807

Opex 1,873 1,725 1,878 2,599 2,699

Op. Profit 2,049 2,414 2,339 5,391 5,108

Op. profit growth -40.1% -4.8% 17.8% -3.1% 130.4%

EBITDA 2,225 2,693 2,663 5,801 5,613

EBITDA growth -1.8% 21.0% -1.1% 117.8% -3.2%

Net int. inc./(exp) 219 115 27 -32 10


Assoc. earnings 146 134 55 85 103

Other inc./(exp.) 365 249 81 53 113

Pre-tax profit 2,414 2,664 2,421 5,444 5,221

Pre-tax growth -1.9% 10.3% -9.1% 124.9% -4.1%

Tax -550 -627 -605 -1,361 -1,305


Net profit 1,861 2,036 1,812 4,079 3,912

Net profit growth 1.9% 9.4% -11.0% 125.2% -4.1%


Year end Dec 2014 2015 2016F 2017F 2018F

Cash 4,039 3,115 936 2,726 3,868

Receivables - net 1,439 1,596 1,663 2,240 2,357

Inventory 1,033 1,233 1,172 1,640 1,736

Other curr asset 905 1,654 1,656 1,657 1,658

Current assets 7,417 7,598 5,426 8,263 9,619

Net fixed asset 3,988 5,579 7,230 8,968 10,694

Other non curr. asset 2,460 2,430 2,430 2,430 2,430

Non-cur assets 7,444 9,296 10,907 12,645 14,370

Total asset 14,861 16,894 16,333 20,908 23,990

ST debt 1,294 1,352 0 0 0

Other curr liab 1,793 2,014 2,014 2,014 2,014


LT debt 962 670 637 1,285 1,470

Other LT Liab 1,793 2,014 2,014 2,014 2,014

Non-curr. liab 2,755 2,684 2,651 3,298 3,484



Sh. equity 8,408 9,175 10,538 13,983 16,467

Net debt / (cash) -1,784 -1,093 -299 -1,442 -2,398


Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

EBIT 2,049 2,414 2,339 5,391 5,108

Depr / Amort 176 279 324 411 505

Chg in Working Cap 104 -178 550 567 -195

Others 186 -462 -1 -1 -1

CF's from oprs 1,976 1,898 1,534 3,840 4,511

Capex -1,398 -1,975 -1,975 -2,148 -2,231

Others -638 862 314 85 103


Net change in debt 2,178 -233 -1,385 648 185


Dividends -1,004 -706 -668 -634 -1,428

Others -436 -856 0 0 0

CF's from financing 737 -1,795 -2,053 14 -1,242

Net cash flow 678 -1,011 -2,180 1,791 1,142

Others 17,652 86,647 0 0 0

Cash at BoY 3,344 4,039 3,115 936 2,726

Cash at EoY 4,039 3,115 936 2,726 3,868

Free Cashflow 256 328 -447 538 1,100

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 30% 30% 30% 41% 38%

Opr Margin (%) 16% 18% 17% 28% 25%

EBITDA Margin (%) 17% 20% 19% 30% 28%

Net Margin (%) 14% 15% 13% 21% 19%

ROAE (%) 23% 23% 18% 33% 26%

ROAA (%) 14% 13% 11% 22% 17%

Stability

Current ratio (x) 2.1 1.5 1.8 2.4 2.5



Interest Coverage (x) -42.1 -15.3 -23.9 -77.9 -51.5

Efficiency



A/P (days) 70 106 83 86 92


Date

12-Mar-02 IPO @ Rp. 575

28-Dec-05 Warrant Conversion


Sales 3,990 3,232 3,545 3,214 3,283

Gross Profit 1,250 1,176 814 836 795

EBITDA 1,002 766 485 609 604

Opr. Profit 905 616 461 456 417

Net profit 710 530 333 379 340

Gross Margins (%) 31% 36% 23% 26% 24%

EBITDA Margins (%) 25% 24% 14% 19% 18%

Opr Margins (%) 23% 19% 13% 14% 13%

Net Margins (%) 18% 16% 9% 12% 10%


Maintain BUY call with TP of IDR18,600

We derive our DCF-based TP using 8.9% WACC assumption and assume

coal production to end at 2023. We feel ITMG has been under looked

over the past 1 year due to its disability to lower strip ratio over the

past 6 years and limited reserves as well (only ~8 years of mine life).

ITMG offers the most attractive dividend yield. ITMG is currently trading

at 5.8x/6.1x 2017-18 P/E, a 57%/55% discount to its 5-years historical

forward P/E.

Reserves may be limited, but the asset is high quality

Using ITMG’s 2015 production, ITMG only has 8 years of mine life re-

serves left. Yet, ITMG has relatively high coal CV (calorific value) which

tends to relatively deviate higher towards coal benchmark price when

coal price rallies. ITMG still has low-hanging fruit strategy to boost its

Bharinto production (96m tonnes worth of reserves) by smoothening its

60km road connectivity. We expect overall production growth to be

relatively flat for the next 5 years.

Strong balance sheet=Highest FCF yield=Highest Dividend yield

We like ITMG as it consistently offers high dividend payout (5-years

historical ranges at 60%-100% dividend payout). Its attractive dividend

yield of ~6% (assuming ~70% dividend payout ratio based on 2016

earnings) is the highest among other coal mining companies. Given its

strong balance sheet (1H16 cash of USD270mn with zero debt), we see

the company has flexibility to opt for inorganic growth by acquiring coal

mines in order to boost production.






Indo Tambangraya Megah The Perfect Cash Cow To Your Coal Portfolio Mix

Sandro Sirait

[email protected]

Companies Data

PT Indo Tambangraya Megah Tbk pro-

vides integrated coal mining, coal pro-

cessing and operational logistics. Its

mines are located in the provinces of

East, Central and South Kalimantan.


Sector Coal Mining


BUY Rp18,600

Reuters Code ITMG.JK

Bloomberg Code ITMG.IJ

Issued Shares 1,130


Avg. Value Daily 6

Month (Rpbn) 22.0

52-Wk range 18350 / 4675

Republic of Indonesia 65%

Government of Singapore 6%

Public 29%

Core EPS 16F 17F


TRIM vs. Cons. (%) 14% 84%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue (USDm) 1,943 1,589 1,376 1,850 1,888

Net profit (USDm) 201 63 109 226 214

Core profit (USDm) 180 121 110 226 214

EPS Growth -12.8% -68.6% 72.9% 107.0% -5.3%

Core EPS Growth -29.3% -33.1% -9.1% 106.1% -5.2%

P/E (x) 7.2 21.8 12.0 5.8 6.1

Core P/E (x) 8.1 11.4 11.9 5.8 6.1

P/BV (x) 1.6 1.6 1.5 1.3 1.2

Div. Yield 13.3% 9.0% 5.5% 5.8% 12.0%

EBITDA growth -26% -14% -18% 74% -4%

EV/EBITDA 2.57 2.99 3.63 2.09 2.18


Income Statement (USDmn) Balance Sheet (USDmn)

Year end Dec 2014 2015 2016F 2017F 2018F


Receivables - net 186 119 117 148 156

Inventory 150 117 104 138 142


Current assets 570 512 613 828 929

Net fixed asset 286 255 247 219 192

Other non curr. asset 145 147 147 147 147

Non-current assets 741 666 618 579 541

Total asset 1,310 1,178 1,232 1,406 1,470

ST debt 0 0 0 0 0

Other curr liab 364 284 276 301 308


LT debt 0 0 0 0 0

Other LT Liab 62 59 84 84 84

Non-curr. liabili- 62 59 84 84 84



Shareholders Equi-

ty

885 835 871 1,021 1,078

Net debt / (cash) -226 -268 -384 -533 -623


Cash Flow (USDmn)

Year end Dec 2014 2015 2016F 2017F 2018F

EBIT 237 194 142 295 276

Depr / Amort 63 64 70 73 77

Chg in Working Cap 104 19 7 -40 -5

Others -5 -46 39 10 9

CF's from oprs 191 193 227 270 297

Capex -35 -25 -38 -45 -50

Others -17 -10 0 0 0




Dividends -200 -115 -73 -76 -157

Others -200 -115 -73 -76 -157

CF's from financing -200 -115 -73 -76 -157

Net cash flow -61 43 116 149 90

Others -1 -2 0 0 0

Cash at BoY 289 226 268 384 533

Cash at EoY 226 268 384 533 623

Free Cashflow 339 229 166 236 258

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F


Opr Margin (%) 12% 12% 10% 16% 15%

EBITDA Margin (%) 15% 16% 15% 20% 19%

Net Margin (%) 10% 4% 8% 12% 11%

ROAE (%) 22% 7% 13% 24% 20%

ROAA (%) 15% 5% 9% 17% 15%

Stability

Current ratio (x) 1.6 1.8 2.2 2.7 3.0



Interest Coverage (x) na na na na na

Efficiency



A/P (days) 39 36 37 36 37

Interim Result (USDmn) Capital History

Date

18-Dec-07 IPO @ Rp. 14,000


Sales 382 383 331 278 349


Opr. Profit 49 47 38 20 47

Net profit 25 -20 23 13 33

Gross Margins (%) 22.4% 23.6% 21.0% 16.8% 22.1%

Opr. Margins (%) 12.9% 12.3% 11.6% 7.2% 13.3%

Net Margins (%) 6.5% -5.2% 7.0% 4.8% 9.5%

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 1943 1589 1376 1850 1888

Revenue growth -11% -18% -13% 34% 2%

Cost of revenue 1534 1239 1100 1375 1428

Gross profit 409 350 276 475 460

Opex 172 157 134 180 184

Op. Profit 237 194 142 295 276

Op. profit growth -30% -18% -27% 108% -6%

EBITDA 299 258 212 368 353

EBITDA growth -26% -14% -18% 74% -4%

Net int. inc./(exp) 6 4 5 7 10



Other inc./(exp.) 17 -34 0 0 0

Pre-tax profit 263 139 145 301 285

Pre-tax growth -18% -47% 4% 107% -5%

Tax -62 -76 -36 -75 -71


Net profit 201 63 109 226 214

Net profit growth -13% -69% 73% 107% -5%


Maintain BUY with TP IDR2,900

We derive our DCF-based TP (forecast to 2024) using 7.9% WACC & net

cash position of USD245mn in 2017. Although HRUM has only 9 years of

mine reserve life, HRUM offers cheap EV/reserve of USD4.85/ton (its 5-

year average EV/reserve is USD7.1/ton) given its large cash pile of

USD202m (IDR2.6trn) in 9M16 coupled with zero debt. Its cash position

itself equals to ~42% of its market cap.

Spot price play: main beneficiary of coal price rally

HRUM is the main beneficiary of the coal price rally as most of the coal

sales is based on spot price (95% of coal sales). Hence, it makes sense

for HRUM to boost sales in 3Q16 (3Q16 sales volume and ASP up

+14%/+8% YoY to take enjoy the coal price rally momentum).

Stripping to increase next year but cash cost to be stable

We expect cash cost/tonne to drop significantly this year to USD33.8/

tonne, -28.5% lower vs 2015’s USD47.3/tonne due to lower stripping

ratio and lower fuel cost. We expect HRUM would increase its stripping

ratio to 7.3x in 2017 (+26% YoY) amid coal price boom. Yet, we expect

cash cost to only increase by +6% in 2017 thanks to lower fuel cost.

Strong upside risk is short-term production volume boost

With HRUM’s almost 100% coal spot exposure amid high coal price,

there is upside potential that HRUM may significantly boost production

growth compared to our existing 2017 production volume forecast. Note

that during high coal price condition back in 2011-12, HRUM sales vol-

ume was 9-12m tonnes/year which is significantly higher compared to

our 2016-17’s target of only 3.0m/4.2m tonnes.






Year end Dec 2014 2015 2016 2017F 2018F

Revenue (USDm) 478 249 188 299 375

Net profit (USDm) 0 (19) 18 34 40

Core profit (USDm) 0 (19) 18 34 40

EPS Growth na na na 86% 19%

Core EPS Growth na na na 86% 19%

P/E (x) 1,085.7 na 24.9 13.3 11.2

Core P/E (x) 1,085.7 na 24.9 13.3 11.2

P/BV (x) 1.3 1.3 1.3 1.2 1.1

Div. Yield 5.4% 0.0% 0.0% 2.4% 4.5%

EBITDA growth -62% -67% 233% 67% 18%

EV/EBITDA 6.58 19.78 5.93 3.54 3.01

Harum Energy The Most Beneficial of Coal Rally, almost 100% Spot!

Sandro Sirait

[email protected]

Companies Data

PT. Harum Energy Tbk. (HRUM) operates

in coal mining and logistics activities in

East Kalimantan which produces thermal

coal with bituminous characteristics

which are mostly exported to overseas

markets.

Share Price Rp2,280

Sector Coal


BUY Rp2,900

Reuters Code HRUM.JK

Bloomberg Code HRUM.IJ

Issued Shares 2,704


Avg. Value Daily 6

Month (Rpbn) 22.1

52-Wk range 2700 / 585

PT Karunia Bara Perkasa 71%

Public 29%

Core EPS 16F 17F


TRIM vs. Cons. (%) 33% 57%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price


Income Statement (USDmn) Balance Sheet (USDmn)



Date

06-Okt-10 IPO @5200


Sales 53 45 44 36 49


Opr. Profit -1 -4 1 5 10

Net profit -2 -20 1 3 6

Gross Margins (%) 15 17 24 30 37

Opr. Margins (%) -2 -10 3 15 21

Net Margins (%) -3 -45 3 8 13

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 478 249 188 299 375

Revenue growth -43% -48% -25% 59% 25%

Cost of revenue 391 203 140 215 272

Gross profit 87 46 48 84 103

Opex 66 45 24 38 48

Op. Profit 21 1 24 46 55

Op. profit growth -69% -97% 4050% 94% 20%

EBITDA 31 10 34 58 68

EBITDA growth -62% -67% 233% 67% 18%

Net int. inc./(exp) 3 1 2 3 3


Assoc. earnings -4 -4 2 5 5

Other inc./(exp.) 1 -2 0 -1 -1

Pre-tax profit 7 -18 28 53 63

Pre-tax growth -88% na na 86% 19%

Tax 5 1 7 13 15

Minority Int. -2 0 -3 -6 -7

Net profit 0 -19 18 34 40

Net profit growth 86% 19% 7% 6% 4%

Year end Dec 2014 2015 2016F 2017F 2018F

Cash 201 196 236 245 254

Receivables - net 32 10 13 21 26

Inventory 17 8 13 20 25


Current assets 281 225 267 294 315

Net fixed asset 107 98 104 111 117



Total asset 444 381 393 432 464

ST debt 0 0 0 0 0



LT debt 4 5 5 5 5

Other LT Liab 4 5 5 5 5

Non-curr. liabilities 4 5 5 5 5

Total liabilities 83 37 31 46 57


Sh. equity 362 343 362 385 405

Net debt / (cash) -201 -196 -236 -245 -254

Net Working capital -20 -4 7 3 2

Year end Dec 2014 2015 2016F 2017F 2018F

EBIT 21 1 24 46 55

Dep. & amort. 10 10 11 12 13

Change In non-cash

working cap. -20 -4 7 3 2

Others -1 -2 -1 -29 -31

CF operations 50 12 41 31 39

Capex 1 -1 -6 -6 -7

Others 0 -12 1 -1 -1

CF investing 1 -13 -5 -7 -7



Dividends -25 0 0 -11 -20

Others -32 -5 5 -15 -23

CF's from financing -32 -5 5 -15 -23

Net cash flow 20 -6 41 9 9

Others 0 0 0 0 0

Cash at BoY 181 201 196 236 245

Cash at EoY 201 196 236 245 254

Free Cashflow 52 13 21 49 60

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margins (%) 18% 18% 25% 28% 28%

Op Margins (%) 4% 0% 13% 15% 15%

EBITDA Margins (%) 7% 4% 18% 19% 18%

Net Margins (%) 0% -8% 10% 11% 11%

ROE (%) 0% -6% 5% 9% 10%

ROA (%) 0% -5% 5% 8% 9%

Stability

Current ratio (x) 3.6 6.9 10.0 7.1 6.0

Net Debt/Equity (x) -0.6 -0.6 -0.7 -0.6 -0.6

Net Debt to EBITDA

(x)

Int Coverage (x) 20.5 6.8 0.3 10.4 20.2

Efficiency

A/P days 43 43 50 50 50

A/R days 23 23 25 25 25

Inventory days 34 34 34 34 34


Reiterate our BUY call with TP of IDR25,000

We slightly lower our TP to IDR25,000 (from (IDR26,000) as we in-

crease our RFR assumption to 8% (from 6.8%). Our SOP based TP uses

13-years DCF forecast before terminal value using 13.1% WACC and 2%

long-term growth rate. UNTR is currently trading at 11.3x/10.8x 2017-

18 P/E, a 18%/21% discount to its 5-years historical forward P/E.

Why we like the company

We reiterate the facts that UNTR is much of a better position to enjoy

the coal up-cycle compared to 5-6 years ago amidst coal boom given:

1.) Better cost efficiencies (lower overhead costs), 2.) Able to stretch

useful life of heavy equipment given its technology to maintain fleets at

healthy condition for a longer period, 3.) Strong FCF of IDR8.97trn in

2015, 53% CAGR FCF from 2010 to 2015!, 4.) Strong balance sheet

with 9M16 net cash position of IDR17.3trn, equivalent to 21% of market

cap. Amid coal price rally, we expect volume and ASP growth from all

cylinders (mining service, heavy equipment sales and coal mining).

Heavy equipment sales to grow next year

We expect UNTR’s 2017 heavy equipment (HE) sales to grow by +10%

YoY. A testament to our HE growth is our channel-check that suggests

large orders for Komatsu HEs with 3 months waiting list (the first time

since 5 years ago!). We believe that heavy equipment sales is the early

signal of particular upward/downward cycle in the coal mining industry.

Mining contracting tariff to recover next year

We expect mining contracting tariff to conservatively increase by ~+3%

YoY to USD2.5/bcm. Our sensitivity analysis suggests that a change in

our 2017 mining tariff by +/-10% would impact earnings by +/-30%.

Its coal mine segment should benefit from coal price rally too

UNTR also has a coal mining segment (under TTA) with 9 mines in pos-

session (total reserves of 395m tonnes). Currently only 1 mine is oper-

ating (ABB mine) which was acquired back in 2011. ~80% of its coal

production is exported with majority using spot price. Its coal mining

segment contributes 8%-12% of revenue. A +/-10% 2017 coal price

change would impact UNTR’s earnings by +/-1%.

United Tractors

The Most Dominant Coal Service Player

Willinoy Sitorus

([email protected])

Companies Data

PT United Tractors has 4 major business

units: constructing machinery, mining

contracting (PAMA), coal mining, and

construction industry (Acset)


Sector Machinery-Constr & Mining


BUY Rp25,000

Reuters Code UNTR.JK

Bloomberg Code UNTR.IJ

Issued Shares 3,730


Avg. Value Daily 6

Month (Rpbn) 88.9

52-Wk range 23975 / 12550

PT. Astra International Tbk 59.50%

Public 40.50%

Core EPS 16F 17F


TRIM vs. Cons. (%) 5.4% 30.3%

Company Update

Stock Data

Major Shareholders

Consensus


Revenue (IDRbn) 53,142 49,347 49,063 56,651 60,877

Net profit (IDRbn) 5,372 3,853 4,836 7,117 7,454


EPS Growth 11.1% -28.3% 25.5% 47.2% 4.7%

Core EPS Growth 47.7% -1.8% -27.2% 37.2% 4.7%

P/E (x) 14.9 20.8 16.6 11.3 10.8

Core P/E (x) 11.1 11.3 15.5 11.3 10.8

P/BV (x) 2.2 2.1 2.1 1.9 1.8

Div. Yield 2.5% 3.7% 3.2% 4.0% 4.4%

EV/EBITDA 5.7 5.4 6.3 4.7 4.4



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 53,142 49,347 49,063 56,651 60,877

Revenue growth 4.2% -7.1% -0.6% 15.5% 7.5%

Cost of revenue 41,071 37,645 39,077 43,182 46,934

Gross profit 12,070 11,702 9,986 13,469 13,943

Opex 3,204 3,116 2,991 3,462 3,716

Op. Profit 8,866 8,586 6,995 10,007 10,227

Op. profit growth 31.5% -3.2% -18.5% 43.1% 2.2%

EBITDA 12,784 12,314 10,965 14,028 14,559

EBITDA growth 14.6% -3.7% -11.0% 27.9% 3.8%

Net int. inc./(exp) 154 72 317 320 437

Gain/(loss) Forex 5 239 -498 0 0


Other inc./(exp.) -2,563 -4,793 0 0 0

Pre-tax profit 6,517 4,193 6,865 10,385 10,727

Pre-tax growth -1.1% -35.7% 63.7% 51.3% 3.3%

Tax 1,675 1,400 2,028 3,269 3,273

Minority Int. -530 -1,061 0 0 0

Net profit 5,372 3,853 4,836 7,117 7,454

Net profit growth 12.8% -28.3% 25.5% 47.2% 4.7%


Year end Dec 2014 2015 2016F 2017F 2018F

Cash 10,060 15,413 12,692 14,837 16,984

Receivables - net 13,587 12,170 12,099 13,971 15,013

Inventory 7,770 8,328 8,019 9,207 9,819

Other curr asset 2,163 3,349 4,346 5,001 6,966

Current assets 33,580 39,260 37,157 43,016 48,783

Net fixed asset 22,774 17,519 16,674 16,069 15,154

Other non curr. asset 3,953 4,937 4,937 4,937 4,937

Non-current assets 26,727 22,456 21,611 21,006 20,091

Total asset 60,307 61,715 58,768 64,023 68,874

ST debt 1,320 1,169 468 234 234

Other curr liab 14,978 17,111 16,438 18,490 19,455


LT debt 1,319 1,147 918 459 449

Other LT Liab 4,161 3,037 3,037 3,037 3,037

Non-curr. liabilities 5,479 4,185 3,955 3,496 3,486


Minority interest 1,917 1,331 0 0 0

Sh. equity 36,613 37,920 37,907 41,803 45,699


Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

EBIT 8,866 8,586 6,995 10,007 10,227

Dep. & amort. 3,918 3,728 3,970 4,021 4,332

Chg. in working cap. -1,303 2,121 -294 -1,008 -689

Others -2,117 -2,396 -2,709 -3,604 -4,801

CF operations 9,364 12,039 7,963 9,417 9,070

Capex -2,939 -2,597 -3,126 -3,417 -3,417

Others -543 -1,210 0 0 0

CF investing -3,482 -3,807 -3,126 -3,417 -3,417

Net change in debt -1,501 -322 -931 -693 -10


Dividends -1,995 -2,988 -2,566 -3,221 -3,558

Others -268 -479 -1,280 59 63

CF financing -3,764 -3,789 -4,777 -3,855 -3,505

Net cash flow 2,117 4,443 60 2,145 2,147

Others 7 910 -2,781 0 0

Cash at BoY 7,936 10,060 15,413 12,692 14,837

Cash at EoY 10,060 15,413 12,692 14,837 16,984

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F


Opr Margin (%) 17% 17% 14% 18% 17%

EBITDA Margin (%) 24% 25% 22% 25% 24%

Net Margin (%) 10% 8% 10% 13% 12%

ROAE (%) 15% 10% 13% 18% 17%

ROAA (%) 9% 6% 8% 12% 11%

Stability

Current ratio (x) 2.1 2.1 2.2 2.3 2.5

Net Debt to Equity (x) net net cash net cash net cash net

Net Debt to EBITDA

(x)

-0.6 -1.1 -1.0 -1.0 -1.1


Efficiency



A/P (days) 112 135 123 129 126


Date

19-Sep-1989 IPO @ Rp 7,250

27-May-1991 Right issue @ Rp 10,000

30-Jun-2004 Right issue @ Rp 525

04-Sep-2008 Right issue @ Rp 7,500

06-Jun-2011 Right issue @ Rp 15,050


Sales 13,345 11,053 10,696 11,868 11,333

Gross Profit 3,273 2,771 1,886 2,265 2,429

Opr. Profit 2,525 2,316 910 1,931 1,102

Net profit 2,166 -1,719 731 1,123 1,274

Gross Margins (%) 24.5% 25.1% 17.6% 19.1% 21.4%

Opr. Margins (%) 18.9% 21.0% 8.5% 16.3% 9.7%

Net Margins (%) 16.2% -15.6% 6.8% 9.5% 11.2%


Maintain BUY with TP of IDR800

Our DCF-based TP forecast is stretched to 2027 using 6.7% WACC as-

sumption. DOID offers attractive upside on the back of: 1) Stronger

tariff rebound as stronger coal price should also improve coal miners'

profitability, 2) Higher earnings predictability coming from longer term

overburden removal contract until 2025, 3) Undemanding valuation as

DOID is trading at 3.6x EV/EBITDA 2017F, a 34% discount to UNTR’s

EV/EBITDA. DOID’s overburden removal is 40% the size of UNTR’s over-

burden, yet DOID’s EV is only ~15% of UNTR’s enterprise value. With

stronger cash flow and improving balance sheet, it is only a matter of

time for its true value to be unlocked.

We increase our TP by 14% from IDR700 to IDR800

We derive a higher TP as we take into account the newly signed long-

term contracts from Berau (from 2020 to 2025) and Tadjahan Antang

Mineral (from 2018 to 2024). We adjust our 2016/17/18F core profit

estimate by +34%/+44%/+59% to USD36/71/89mn respectively sup-

ported by higher overburden volumes.

Higher earnings predictability

DOID managed to secure a big long-term contract with Berau Coal

worth USD3bn recently which extends its life of mine contract from 2020

to 2025. DOID also signed contract with Tadjahan Antang Mineral worth

USD281mn, extending its contract from 2018 to 2020. By those two

contracts, DOID has secured USD1bn of EBITDA (vs DOID’s market cap

is only ~USD300mn). DOID’s total order book is 2.4bn bcm. Total con-

tracted revenue for the next ten years now for DOID is USD4.8bn vs

previously USD2.5bn.

Further potential upside and downside risk

Upside risk for DOID are: 1.) Upcoming new contracts from mining and

non-mining customers (note that DOID just received a USD4mn non-

mining contract from a power plant infrastructure project), 2.) DOID’s

ample room to upwardly adjust mining tariff (~25% cheaper than Pama)

would be a competitive advantage to gain new contracts. Its key down-

side risk is lower than expected coal price (our 2017 average coal price

assumption is USD75/tonne).

Delta Dunia Makmur Emerging True Value

Sandro Sirait

([email protected])

Companies Data

PT Delta Dunia Makmur Tbk is the hold-

ing company of PT Bukit Makmur Mandiri

Utama (BUMA), which is the second larg-

est coal mining contractor in Indonesia.

Share Price Rp515

Sector Mining


BUY Rp800

Reuters Code DOID.JK

Bloomberg Code DOID.IJ

Issued Shares 8,311


Avg. Value Daily 6

Month (Rpbn) 34.0

52-Wk range 585 / 50

Northstar Tambang Persada 39.4%

Public 60.6%

EPS 16F 17F

Consensus (Rp) NA NA

TRIM vs Cons. (%) NA NA

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue (USDmn) 607 566 565 703 797

Net profit (USDmn) 15 (8) 36 71 89

Core profit (USDmn) 16 25 36 71 89

EPS Growth na na na 98.6% 25.2%

Core EPS Growth 426.4% 54.3% 41.6% 98.6% 25.2%

P/E (x) 22.6 -39.7 8.8 4.4 3.5

Core P/E (x) 21.4 13.1 8.8 4.4 3.5

P/BV (x) 3.7 3.7 2.6 1.6 1.1

Div. Yield 0.0% 0.0% 0.0% 0.0% 0.0%

EBITDA growth -1% 1% 2% 26% 14%

EV/EBITDA 4.68 4.65 4.55 3.60 3.16



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 607 566 565 703 797

Revenue growth -13% -7% 0% 24% 13%

Cost of revenue -485 -440 -440 -523 -587

Gross profit 123 126 125 180 210

Opex -43 -38 -35 -45 -51

Op. Profit 79 88 90 134 159

Op. profit growth 24% 10% 3% 49% 18%

EBITDA 185 186 190 241 274

EBITDA growth -1% 1% 2% 26% 14%

Net int. inc./(exp) 45 48 47 48 48



Other inc./(exp.) -13 -16 0 0 0

Pre-tax profit 27 -6 47 94 118

Pre-tax growth -196% na na 99% 25%

Tax -12 -3 -12 -24 -30


Net profit 15 -8 36 71 89

Net profit growth -153% na na 99% 25%


Year end Dec 2014 2015 2016F 2017F 2018F

Cash 75 71 130 109 174

Receivables - net 145 139 139 173 196

Inventory 24 20 20 24 26


Current assets 302 308 367 384 475

Net fixed asset 427 379 359 373 378



Total asset 905 832 871 902 997

ST debt 57 47 47 47 47



LT debt 661 614 618 573 576

Other LT Liab 24 30 30 30 30

Non-curr. liabilities 686 644 648 603 606

Total liabilities 813 747 750 710 717


Sh. equity 92 85 121 191 280

Net debt / (cash) 643 591 535 511 449




Date

15-Jun-01 IPO@Rp150

14-Jul-04 Right issue@Rp110

13-Jul-11 Right issue@Rp900

Year end Dec 2014 2015 2016F 2017F 2018F

EBIT 185 186 190 241 274

Dep. & amort. 106 98 100 106 115

Change In non-cash

working cap. -31 8 0 -33 -22

Others 4 -37 0 0 0

CF operations 77 119 136 144 182

Capex -40 -46 -80 -120 -120

Others -17 3 0 0 0

CF investing -58 -44 -80 -120 -120

Net change in debt -160 -77 3 -45 3


Dividends 0 0 0 0 0

Others 0 0 0 0 0

CF financing -160 -77 3 -45 3

Net cash flow -140 -2 59 -21 65

Others 0 -3 0 0 0

Cash at BoY 215 75 71 130 109

Cash at EoY 75 71 130 109 174

Free Cashflow 80 185 88 54 92

3Q15 4Q15 1Q16 2Q16 3Q16

Sales 152 147 127 132 159


EBITDA 57 47 38 43 58

Opr. Profit 33 23 15 19 35

Net profit 7 -5 -2 5 22

Gross Margins 28% 22% 17% 22% 30%

EBITDA Margin 38% 32% 30% 32% 37%

Opr. Margins 22% 16% 11% 14% 22%

Net Margins 4% -3% -1% 4% 14%

Year end Dec 2014 2015 2016F 2017F 2018F


Opr Margin (%) 13.1% 15.5% 15.9% 19.1% 19.9%

EBITDA Margin (%) 30.4% 32.9% 33.7% 34.2% 34.4%

Net Margin (%) 2.5% -1.5% 6.3% 10.1% 11.1%

ROAE (%) 19.3% -9.4% 34.6% 45.3% 37.6%

ROAA (%) 1.6% -1.0% 4.2% 8.0% 9.3%

ROIC (%) 2.1% -1.2% 5.4% 10.1% 12.1%

Stability

Current ratio (x) 9.8 11.9 14.1 14.8 18.3




Efficiency



A/P (days) 22 22 22 22 22


Others


Reiterate BUY on JPFA with TP of IDR2,500

We continue to like JPFA as our top pick in poultry industry. The busi-

ness continues to exhibit a turnaround story as we expect a higher DOC

price in 4Q16 following another festive season. In Oct’16, we recorded

DOC price at IDR6,100 (+8% MoM), according to Arboge. Broiler price

might be slightly lower QoQ, but we view the price will remain stable at

above IDR17,000 (compared to COGS level at around IDR15,500-

16,000). Hence, we believe JPFA’s 2016F segment will post a good

margin, even comparable to the golden year of poultry (before the over-

supply condition). We expect the turnaround story to continue next

year, as Govt has control current supply (as reflected through the stable

market price) and the upcoming ones (through limitation of imported

GPS or Grand Parent Stock). JPFA currently trades at an undemanding

valuation of 7.8x 2017F PE (vs CPIN at 15.0x and MAIN at 8.6x). Our

new TP of IDR2,500 implies 11.1x 2017F PE, a discount of 32% (based

on avg. 5-years historical discount) to CPIN’s valuation.

Re-financing plan with another bond issuance

JPFA will issue a 3-years bond by end of 2016F of IDR1trn with coupon

rate of 9-9.5%. The proceeds will then be used for: 1) refinancing JPFA

bond stage I of IDR1.5trn that will mature by Jan/Feb 2017, 2) bank

loan repayment, and 3) working capital. In 2018F, JPFA will issue anoth-

er 5-years bond of IDR2trn with coupon rate of 9.5-10.0% to re-finance

its USD bond that will mature by May 2018F. Thanks to a lower bank

loan and higher equity level, JPFA’s net debt to equity will be down to

0.5/0.2x in 2016/17F (vs 1.1x in 2015).

Cartel accusation from KPPU: Impact to 2016F earnings <1%

Following court decision on cartel issue towards poultry companies, JPFA

is required to pay fine of IDR25bn (which will be recorded in 4Q16).

CPIN will also required to pay fine of IDR25bn, but MAIN of IDR10.8bn.

The fine is fortunately give less impact towards JPFA as it reduces our

2016F earnings by merely 0.79% (vs CPIN and MAIN by 0.68% and

5.12% respectively).

Year end Dec 2014 2015 2016F 2017F 2018F

Sales (Rpbn) 24,459 25,023 27,012 28,353 31,073

EBITDA (Rpbn) 1,688 1,921 4,204 4,498 5,003

Net Profit (Rpbn) 332 468 2,324 2,549 2,860

EPS (Rp) 29 41 205 225 252

EPS Growth (%) -44% 41% 396% 10% 12%

DPS (Rp) 9 15 45 45 50

BVPS (Rp) 419 495 781 866 1,068

EV/EBITDA (x) 12.0 10.2 4.4 3.6 3.0

P/E (x) 54.1 38.4 7.7 7.1 6.3

Div Yield (%) 0.6% 0.9% 2.8% 2.8% 3.2%

Japfa Comfeed Indonesia A surprise from the chicken business

Companies Data

Japfa is currently the second largest ani-

mal feed producer in Indonesia with

market share of ~22%. Its business in-

clude upstream, midstream, and down-

stream of poultry, beef, and aquaculture.

Share Price Rp1,585

Sector Poultry


BUY Rp2,500

Reuters Code JPFA.JK

Bloomberg Code JPFA.IJ



Avg. Value Daily 6

Month (Rpbn) 12.8

52-Wk range 1975 / 430

Japfa Ltd. 51.0%

KKR Jade Investments Pte Ltd 12.0%

Public (<5%) 36.8%

Treasury stock 0.2%

EPS 16F 17F


TRIM vs Cons. (%) 33.2% 38.1%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Patricia Gabriela

([email protected])

0.0

5.0

10.0

15.0

20.0

25.0

30.0

0

500

1000

1500

2000

2500




Forecast changes

JPFA has posted a remarkable 9M16 result, hence we tweaked up our number on JPFA. Volume wise, we reduced

animal feeds and aquaculture as we see a softer demand up to 9M16. However, we expect a higher margin on all

of its segment (animal feeds, DOC, broiler, and cattle), except in aquaculture as the price came lower than ex-

pected. All in all, our JPFA’s revenue forecast down by 1/4% in 2016/17F on the back of slower volume.

Gross profit improved by 260/310bps in 2016/17F thanks to a higher than expected market price; primarily a

jump in cattle price that reach above IDR90,000 in 3Q16. Nevertheless, we view the price will be back to its nor-

mal level at around IDR40,000 in 2017F. We also forecast a lower 2016/17F interest expense as company has

paid off its bank loan amounted to IDR1.7trn. Our new forecast has upped JPFA’s 2016/17F earnings by 68/56%,

mainly thanks to margin expansion.



Old New Change (%)

2016F 2017F 2018F 2016F 2017F 2018F 2016F 2017F 2018F

Volume

Animal feeds (mn tons) 2.8 2.9 3.1 2.7 2.8 2.9 -5% -4% -7%

DOC (mn birds) 573 595 663 589 623 663 3% 5% 0%

Live bird (‘000 tons) 570 600 638 581 600 638 2% 0% 0%

Aquaculture (‘000 tons) 239 254 270 226 239 254 -5% -6% -6%

Live cattle (‘000 tons) 30 31 31 30 31 31 0% 0% 0%

Revenue 27,164 29,464 33,204 27,012 28,353 31,073 -1% -4% -6%

Animal feeds 16,421 17,221 19,278 15,729 16,650 18,139 -4% -3% -6%

DOC 3,870 4,403 5,304 3,976 4,548 5,238 3% 3% -1%

Live bird 10,384 11,160 12,100 10,571 11,160 12,100 2% 0% 0%

Aquaculture 2,695 3,078 3,514 2,303 2,504 2,748 -15% -19% -22%

Live cattle 1,225 1,343 1,492 1,856 1,282 1,411 52% -5% -5%

Trading and others 1,625 1,820 2,002 1,342 1,409 1,522 -17% -23% -24%

Elimination (9,055) (9,561) (10,486) (8,766) (9,201) (10,083) -3% -4% -4%

Gross profit 5,152 5,666 6,670 5,840 6,318 6,976 13% 11% 5%

EBIT 2,648 2,935 3,428 3,580 3,824 4,274 35% 30% 25%

Net profit 1,381 1,638 1,979 2,324 2,549 2,860 68% 56% 45%

EPS 122 144 175 205 225 252 68% 56% 45%

Margin (%)

Gross 19.0% 19.2% 20.1% 21.6% 22.3% 22.4%

EBIT 9.7% 10.0% 10.3% 13.3% 13.5% 13.8%

Net 5.1% 5.6% 6.0% 8.6% 9.0% 9.2%



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 24,459 25,023 27,012 28,353 31,073

Revenue Growth (%) 14.2% 2.3% 8.0% 5.0% 9.6%

Gross Profit 3,426 3,993 5,840 6,318 6,976

Opr. Profit 1,276 1,728 3,324 3,639 4,080

EBITDA 1,688 1,921 4,204 4,498 5,003

EBITDA Growth (%) -4.2% 13.8% 118.8% 7.0% 11.2%

Net Int Inc/(Exp) (678) (663) (414) (358) (394)

Gain/(loss) Forex (78) (479) 200 100 100

Other Inc/(Exp) 22 112 56 85 93

Pre-tax Profit 543 698 3,167 3,466 3,879

Tax (158) (173) (786) (860) (963)

Minority Int. 52 56 56 56 56


Reported Net Profit 332 468 2,324 2,549 2,860

Core Net Profit 410 947 2,124 2,449 2,760

growth (%) -44.2% 40.9% 396.4% 9.7% 12.2%


growth (%) -50.0% 50.0% 200.6% -0.3% 12.2%



Year end Dec 2014 2015 2016F 2017F 2018F

Cash and eq. 768 901 769 2,754 4,031

Other curr asset 7,941 8,703 8,753 9,310 10,161

Net fixed asset 6,362 6,809 7,002 7,226 7,484

Other asset 688 746 818 657 676

Total asset 15,759 17,159 17,343 19,957 22,352

ST debt 2,491 2,064 709 432 442

Other curr liab 2,425 3,288 2,857 2,958 3,200

LT debt 4,742 4,757 2,941 4,204 3,510

Other LT Liab 921 940 940 940 940

Minority interest 425 498 1,037 1,596 2,145


Shareholders Eq. 4,755 5,612 8,858 9,826 12,114

Net (debt) / cash 6,465 5,920 2,881 1,872 (79)



Debt 7,233 6,821 3,650 4,637 3,952

Cash Flow (Rpbn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 332 468 2,324 2,549 2,860

Depr / Amort 468 561 624 674 730

Chg in Working Cap 341 102 (482) (455) (609)

CF's from oprs 1,141 1,131 2,466 2,768 2,981

Capex (1,557) (1,008) (817) (898) (988)

Others (29) (58) (72) 161 (19)

CF's from investing (1,586) (1,066) (889) (737) (1,007)

Dividend (106) (160) (511) (510) (572)

Others (430) 199 (1,198) 474 (135)

CF's from financing (537) 39 (1,710) (36) (707)

Net cash flow (982) 104 (132) 1,995 1,267

Cash at BoY 1,746 769 901 769 2,764

Cash at EoY 769 901 769 2,764 4,031

Free Cashflow (416) 123 1,650 1,870 1,993

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability

Gross Margin (%) 14.0 16.0 21.6 22.3 22.4

Opr Margin (%) 5.2 6.9 12.3 12.8 13.1

EBITDA Margin (%) 6.9 7.7 15.6 15.9 16.1

Core Net Margin (%) 1.7 3.8 7.9 8.6 8.9

ROAE (%) 7.0 9.0 32.1 27.3 26.1

ROAA (%) 2.2 2.8 13.5 13.7 13.5


Net Debt to Equity (x) 1.4 1.1 0.3 0.2 (0.0)

Net Debt to EBITDA (x) 3.8 3.1 0.7 0.4 (0.0)



A/R (days) 19 19 18 18 18



Date

23-Oct-89 IPO@Rp1,000

19-Apr-13 Stock split

3Q15 4Q15 1Q16 2Q16 3Q16

Net Sales 6,587 6,287 6,434 7,108 7,059

Gross Profit 1.205 1,285 1,117 1,596 1,685

EBITDA 550 999 712 1,173 1,364

Opr. Profit 407 853 570 989 1,190

Net Profit 125 616 277 687 761

Core Profit 471 481 150 697 716

Gross Margins (%) 18.3% 20.4% 17.4% 22.5% 23.9%

EBITDA Margins (%) 8.4% 15.9% 11.1% 16.5% 19.3%

Opr Margins (%) 6.2% 13.6% 8.9% 13.9% 16.9%

Net Margins (%) 1.9% 9.8% 4.3% 9.7% 10.8%

Core Margins (%) 7.2% 7.6% 2.3% 9.8% 10.1%


Beneficiary of coal price rally and low oil price condition

AKRA is a beneficiary of coal industry new up-cycle as 30% of AKRA’s

distribution volume is derived from coal mining companies. Note that coal

price has rallied ~100% YTD 2016. Not only big coal miners are benefit-

ing from coal price rally, but several small players are getting ready to

get back in to the coal game witnessed from UNTR’s heavy equipment 3

months waiting list (first ever since 5 years!). We expect 2017 petroleum

distribution volume to grow by +12.5% YoY amounting to 2.3m kl mainly

driven by the mining industry’s rise in production. This should offset any

potential margin squeeze should oil price bounce significantly. It is worth

noting that AKRA’s share price de-correlates against oil price by –0.77.

With growth on volumes from the mining industry coupled with visibility

on sustainable margin spread above IDR1,000/litre due to low oil price,

we believe AKRA holds solid footing for next year’s outlook.

JIIPE is a long-term positive

Although execution risk on JIIPE land sales remain, we are still bullish on

the project in the long-run given strong government focus on infrastruc-

ture investments. We expect AKRA to book marketing sales of 39ha in

2017 with ASP price of IDR2m/m2 (a justified premium). AKRA’s IDR627

worth of bonds will mature in Dec’ 17 (id AA-, 8.4% rate). However,

given AKRA’s strong balance sheet with 9M16 cash position of IDR903bn

and net gearing of 46.5%, we believe AKRA has the bargaining power for

a potential re-financing at lower rate or settle its face value with a rela-

tively mild disruption on its balance sheet.

Valuation

AKRA is currently trading at 2017-18 P/E of 20.1x/16.4x 2017-18 P/E,

+11.9% premium to 3-years historical forward P/E but –8.4% discount to

its 3-years historical forward P/E. Given its healthier balance sheet and

higher visibility on long-term recurring income coming from JIIPE cus-

tomers, we believe a re-rating is justified. We have a BUY call with SOP

based TP of IDR7,300 with JIIPE contributing ~IDR1.5trn (~5%) of total

SOP value.

AKR Corporindo Time To Outperform in 2017

BUY Rp7,300

PT Arthakencana Rayatama 59.2%

Public 40.8%

Company Update

Stock Data

Major Shareholders

Stock Price Companies Data

Willinoy Sitorus

([email protected])

PT AKR Corporindo Tbk distributes chemical

products such as caustic soda, Polyvinyl

Chloride (PVC) resin, sorbitol, soda ash, and

sodium sulfate. Through its subsidiaries, the Company also manufactures chemicals,

operates storage tanks and warehouses, a

storage tanks and warehouses, and provides

logistic services.

Share Price Rp6,450

Sector Logistics & Distribution


Reuters Code AKRA.JK

Bloomberg Code AKRA.IJ

Issued Shares 3,992


Avg. Value Daily 6

Month (Rpbn)

33.0

52-Wk range 8450 / 5725

Year end Dec 2014 2015 2016E 2017E 2018E

Revenue (Rp bn) 22,468 19,765 15,328 19,113 23,791

Net profit (Rp bn) 810 1,034 1,105 1,282 1,570

EPS (Rp bn) 209 262 277 321 393

EPS growth (%) 24.9 27.6 6.9 16.0 22.4

P/E (x) 30.9 24.6 23.3 20.1 16.4

P/B (x) 4.6 4.2 3.8 3.4 3.0

EV/EBITDA (x) 20.9 15.4 15.0 11.8 10.0

Div yield (%) 1.0 2.0 1.8 1.7 2.0

Consensus

EPS 16E 17E


TRIM vs Cons. (%) -1.7% -0.3%

0.0

50.0

100.0

150.0

200.0

250.0

0

1000

2000

3000

4000

5000

6000

7000

8000

9000




Figure 105. Historical forward P/E

Source: Company, Trimegah research, Bloomberg

Source: Company

Figure 101. Quarterly revenue & op. profit Figure 102. Quarterly Net profit

Source: Company

5,7315,4794,801

5,4724,7614,731

3,5723,7963,584

282 273 403 375 309 358 272 404 307

4.9% 5.0%

8.4%

6.8% 6.5%

7.6% 7.6%

10.6%

8.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0

2,000

4,000

6,000

8,000

10,000

12,000

3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16

Revenue Op. profit Op. margin (RHS)

(IDR bn)

203231

295 310

213 221255

331

208

3.5%4.2%

6.1%5.7%

4.5% 4.7%

7.1%

8.7%

5.8%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

0

50

100

150

200

250

300

350

400

450

500

550

3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16

Net profit Net margin (RHS)

(IDR bn)

Source: Company

Figure 103. Revenue breakdown, 9M16 Figure 104. Revenue breakdown, 9M15

Source: Company

Petroleum

67%

Chemical

22%

Manufacturing

4%

Logistics

5%Industrial

estate land2%

Others0%

Petroleum

74%

Chemical17%

Manufacturing

4%

Logistics

4%Industrial

estate land

1%

Others

0%

15.0

18.0

21.0

24.0

27.0

30.0

Historical forward P/E Average

(x)



Cash Flow (IDRbn)

Interim results

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 22,468 19,765 15,328 19,113 23,791

Growth (%) 0.6% -12.0% -22.4% 24.7% 24.5%

Gross profit 1,732 2,216 2,130 2,724 3,229

Op. profit 1,036 1,408 1,471 1,921 2,277

EBITDA 1,352 1,820 1,908 2,390 2,776

Growth (%) 4.4% 34.6% 4.9% 25.2% 16.2%

Net int. inc./(exp) -77 -25 -57 -74 -58

Gain/(loss) forex 16 -63 70 0 0

Other inc./(exp.) 18 7 5 3 3

Pre-tax profit 993 1,327 1,489 1,850 2,222

Tax 203 268 314 390 465

Minority int. 20 -25 -70 -179 -188

Net profit 810 1,034 1,105 1,282 1,570

Growth (%) 24.9% 27.6% 6.9% 16.0% 22.4%

Year end Dec 2014 2015 2016F 2017F 2018F

Cash and equivalents 897 1,290 1,182 762 943

Other current assets 5,804 5,996 5,836 6,928 8,401

Net fixed asset 4,390 4,469 4,560 4,620 4,726

Other asset 3,699 3,448 3,598 3,498 3,398

Total asset 14,790 15,203 15,177 15,808 17,468

ST debt 1,612 946 1,144 1,009 809

Other curr. liab . 4,572 3,926 3,047 3,661 4,464

LT debt 2,515 2,911 2,852 2,164 2,164

Other LT liab. 132 135 135 135 135

Minority interest 571 1,196 1,196 1,196 1,196



Net debt/(cash) 3,230 2,566 2,814 2,411 2,030

Debt 4,126 3,856 3,996 3,173 2,973

Year end Dec 2014 2015 2016F 2017F 2018F

Net profit 810 1,034 1,105 1,282 1,570

Depr. / amort. 316 411 437 468 499

Chg in working

cap. 1,204 661 -354 -85 -101

Others 453 748 -29 -38 -38

CF operations 2,783 2,854 1,159 1,627 1,930

Capex -480 -491 -528 -528 -605

Others -1,016 -1,368 -487 -254 -431

CF investing -1,495 -1,858 -1,015 -782 -1,036

Net change in debt -1,019 -270 140 -823 -200

Dividend -254 -512 -473 -442 -513

Others 62 172 82 0 0

CF financing -1,211 -611 -252 -1,265 -713

Net cash flow 76 385 -107 -420 181

Cash at BoY 820 897 1,290 1,182 762

Cash at EoY 897 1,290 1,182 762 943


Sales 4,761 4,731 3,572 3,796 3,584

Gross profit 490 576 442 567 465

Opr. profit 324 307 276 399 307

Net profit 240 188 255 330 209

Gross margin (%) 10.3% 12.2% 12.4% 14.9% 13.0%

Opr. margin (%) 6.8% 6.5% 7.7% 10.5% 8.6%

Net margin (%) 5.0% 4.0% 7.1% 8.7% 5.8%

Year end Dec 2014 2015 2016F 2017F 2018F


Opr Margin (%) 4.6% 7.1% 9.6% 10.1% 9.6%

EBITDA Margin (%) 6.0% 9.2% 12.4% 12.5% 11.7%

Core Net Margin (%) 3.5% 5.5% 6.7% 6.7% 6.6%

ROAE (%) 15.9% 18.0% 17.1% 17.7% 19.2%

ROAA (%) 5.5% 6.9% 7.3% 8.3% 9.4%

Stability

Current ratio (x) 1.1 1.5 1.7 1.6 1.8


Net Debt to EBITDA

(x) 2.4 1.4 1.5 1.0 0.7


Efficiency

A/P (days) 70 71 69 69 69

A/R (days) 70 56 63 60 58


Key Ratio Analysis

Capital History

Date

Equity offering amounting to

IDR443bn (02/02/10)

Placing price - IDR1,055


Gas price cut issue well priced in, only upside on the cards

We have a BUY with EV/IC based TP of IDR3,300 (from IDR2,650) as we

upgrade 2017-18 earnings by +10.7%/+15.0% respectively on higher

volumes (+2.8%/+11.6% to 830mmscfd/901mmscfd in 2017-18 re-

spectively) and higher oil price (we expect 2017 oil price of USD60/

barrel, up 28% YoY). Our EV/IC TP methodology uses 7.1% WACC,

2023 terminal ROIC of 12% and LT growth of 2%. Our BUY call is prem-

ised on: 1.) Higher certainty on the net effect of gas price cut going

forward (most likely neutral impact to PGAS in our view), 2.) The visible

PGAS & Pertagas M&A would provide a long-term positive synergy in

booking gas volume growth (would transform to a dominant player in

upstream & mid-stream). PGAS is trading at 10.2x/9.1x 2016-17 core P/

E, 40%/46% discount to 3-years historical forward P/E.

PGAS-Pertamina M&A is a positive catalyst rather than negative

PGAS upstream gas supply is heavily dependent on Conoco Phillip’s gas

supply in Grissik (~80% of PGAS’ gas supply from distribution & trans-

mission) and reserves life is questionable over the long-run. Hence, it

would be better for PGAS to be acquired by Pertamina as Pertamina has

the largest O&G 2P reserves in Indonesia and its assets are well spread

across Indonesia. Also, ~15% of PGAS gas supply comes from Pertami-

na. Hence when its long-term contract expires by ~2019, there is a high

probability that Pertamina may refuse to extend its contract with PGAS.

Thus, we safely say that PGAS would not be in a better position anyway

should this M&A deal is called-off. With this M&A, the structure will cre-

ate a monopoly or if not, a very dominant integrated SOE giant in the

O&G upstream and distribution sector. This would ensure strong gas

infrastructure acceleration as a back bone to economic growth. The M&A

deal will likely take effect by end of this year.

We expect gas price cut would mildly affect distribution spread

The govt plans to cut gas price for fertilizer, steel and petrochemical

industries to USD6/mmbtu which will be effective by 1 Jan’ 17. These

industries contributes around ~17% of PGAS’ distribution volumes. We

expect the gas price cuts would only apply for companies that have

direct access to gas well head and if PGAS gas price is affected, most

likely a gas price cut from the upstream well-head would follow suit

ensuring margins would remain intact in our view.

PGAS is a state owned company which

distributed 802mmscfd of gas in FY15. It

holds a market share of more than 75%

in the gas distribution business.

Share Price Rp2,620

Sector Gas


Year end Dec 2014 2015 2016E 2017E 2018E

Revenue (USDm) 3,253 3,069 2,970 3,210 3,521

Core profit (USDm) 668 474 455 508 582

Core profit growth -14.0% -29.1% -3.9% 11.7% 14.5%

Core EPS (IDR) 338 253 257 288 329

BVPS (IDR) 1,475 1,682 1,831 2,037 2,248

Core P/E (x) 7.8 10.3 10.2 9.1 8.0

P/B (x) 1.8 1.6 1.4 1.3 1.2

EV/EBITDA (x) 5.5 7.6 7.0 6.0 5.1

Div. yield (%) 8.7 5.7 3.4 3.5 4.3

Perusahaan Gas Negara The Inflection Point Of Earnings Recovery

BUY Rp3,300

Willinoy Sitorus

([email protected])

Reuters Code PGAS.JK

Bloomberg Code PGAS.IJ



Avg. Value Daily 6

Month (Rpbn) 145.2

52-Wk range 3520 / 2170

Republic of Indonesia 57.0%

Public 43.0%

EPS 16F 17F


TRIM vs Cons. (%) 10.8% 18.3%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Companies Data

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0

0

500

1000

1500

2000

2500

3000

3500

4000




Figure 106. Earnings and operational figures revision


Figure 107. Gas margin spread sensitivity analysis


(USDm) New Old Change

2017F 2018F 2017F 2018F 2017F 2018F

Revenue 3,210 3,521 3,204 3,490 0.2% 0.9%

Gross profit 1,067 1,185 1,076 1,163 -0.9% 1.8%

Gross margin 33.2% 33.6% 33.6% 33.3%

Operating profit 653 733 613 661 6.5% 11.0%

Op. profit margin 20.3% 20.8% 19.1% 18.9%

Pre-tax profit 631 723 578 637 9.1% 13.5%

Pre-tax margin 19.7% 20.5% 18.1% 18.2%

Core profit 508 582 459 506 10.7% 15.0%

Net margin 15.8% 16.5% 14.3% 14.5%

Distribution volume (mmscfd) 830 901 815 808 1.8% 11.6%

Distribution ASP (USD/mmbtu) 9.1 9.2 9.2 9.1 -1.2% 0.8%

Gas purchase (USD/mmbtu) 6.1 6.2 6.2 6.3 -1.4% -1.3%

Margin spread (USD/mmbtu) 3.0 3.0 3.0 2.8 -0.8% 5.4%

Margin spread Trimegah Earnings revision Target* Chg. In

(USD/mmbtu) Core profit (USDm) price target price

2017F 2018F 2017F 2018F 2017F 2018F (IDR) (IDR)

15.0% 3.5 3.4 602 685 18.5% 17.7% 3,330 11%

10.0% 3.3 3.3 569 648 11.9% 11.4% 3,220 7%

5.0% 3.2 3.1 542 619 6.6% 6.3% 3,110 4%

Base case 3.0 3.0 508 582 0.0% 0.0% 3,000 0.0%

-5.0% 2.9 2.8 475 545 -6.6% -6.3% 2,880 -4%

-10.0% 2.7 2.7 441 509 -13.2% -12.6% 2,770 -8%

-15.0% 2.6 2.5 408 472 -19.8% -18.9% 2,660 -11%


Income Statement (USDm)

Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 3,253 3,069 2,970 3,210 3,521

Revenue growth (%) 8.4% -5.7% -3.2% 8.1% 9.7%

Gross Profit 1,285 963 963 1,067 1,185

Opr. profit 854 574 595 653 733

EBITDA 1,073 850 887 974 1,057

EBITDA growth (%) -3% -21% 4% 10% 8%

Net int. inc/(exp.) -42 -101 -92 -84 -73

Gain/(loss) forex 49 -14 -56 0 0

Other inc./(exp) 73 -14 62 63 63

Pre-tax Profit 935 445 509 631 723

Tax 224 43 102 126 145


Extra. items 0 0 0 0 0

Core profit 668 474 455 508 582

Core profit growth

(%)

-14% -29% -4% 12% 14%

Balance Sheet (USDm)

Year end Dec 2014 2015 2016F 2017F 2018F


Trade receivables 295 287 277 300 329

Inventory 63 43 41 44 48

Other curr. assets 247 257 257 258 259

PPE 1,826 1,929 2,245 2,338 2,337

O&G properties 1,417 1,636 1,502 1,346 1,199

Other assets 712 1,207 1,261 1,313 1,365

Total assets 5,690 6,495 6,826 6,976 7,065

ST debt 48 122 88 88 88

Other curr. liab. 621 546 540 548 558

LT debt/bonds 1,805 2,587 2,710 2,510 2,210

Other LT liab. 340 218 218 218 218



Total equity 2,875 3,020 3,264 3,603 3,978


Cash Flow (USDm)

Year end Dec 2014 2015 2016F 2017F 2018F

Core net profit 668 474 455 508 582

Depr. / amort. 111 428 319 345 349

Chg. in working cap. -113 6 6 -18 -22

Others 122 -379 -51 -8 -8

CF's from oprs 787 528 729 828 900

Capex -1,434 -751 -501 -281 -201

ST investments -7 28 0 0 0

Others 122 -399 -54 -52 -52

CF's from investing -1,318 -1,122 -555 -333 -253

Net change in debt 1,219 856 89 -200 -300

Others -686 -261 -157 -158 -197

CF's from financing 533 595 -68 -358 -497

Net cash flow 2 1 106 136 150

Forex/others -105 3 0 0 0

Cash at BoY 1,234 1,131 1,136 1,242 1,378

Cash at EoY 1,131 1,136 1,242 1,378 1,528

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F

Profitability Gross margin (%) 39.5% 31.4% 32.4% 33.2% 33.6%

Op. margin (%) 26.2% 18.7% 20.0% 20.3% 20.8%

EBITDA margin (%) 33.0% 27.7% 29.9% 30.3% 30.0%

Core net margin (%) 20.5% 15.4% 15.3% 15.8% 16.5%

ROAE (%) 25.9% 13.6% 12.8% 14.6% 15.2%

ROAA (%) 14.5% 6.6% 6.1% 7.3% 8.2%

Stability

Current ratio (x) 2.6 2.6 2.9 3.1 3.3

Net debt to equity (x) 0.3 0.5 0.5 0.3 0.2

Net debt to EBITDA (x) 0.8 2.0 1.9 1.4 0.9


Efficiency

A/R (days) 31 35 35 33 33


A/P (days) 137 116 118 108 100

Capital History

Date

IPO date - 15/12/03 IPO @ Rp. 1,500

Interim Results (USDm)


Sales 722 931 720 719 716

Gross profit 224 260 224 223 219

Op. profit 133 143 158 104 132

Pre-tax profit 100 59 133 45 117

Net profit 79 95 101 52 90

Gross margin (%) 31.0% 28.0% 31.0% 31.0% 30.5%

Op. margin (%) 18.3% 15.4% 21.9% 14.5% 18.5%

Net margin (%) 10.9% 10.2% 14.0% 7.2% 12.5%


J Resources Asia Pacific Hedge against uncertainty

Sandro Sirait

([email protected])

Maintain BUY with TP of IDR400 (52% ups)

We derive our TP from DCF-based valuation method, with WACC of

6.0%, assuming its life of mine until 2029 with 0% long term growth

afterwards. Our TP implies 10.8x/8.3x PE and 4.9x/4.5x EV/EBITDA

2017/18F. We recommend this stock as a hedge against uncertainty

backed by: 1) The only pure-gold player in Indonesia, 2) High exposure

to gold price with 100% spot transaction, 3) Higher global gold price

amid upcoming global uncertainty. PSAB currently trades at 9.2x/7.2x

PE and 4.9x/4.4x EV/EBITDA 2017/18F.

Expect higher gold price amid global uncertainty

Global political and economic uncertainty has increased significantly

over the past year. The win of Donald Trump as the president of the

United States of America is part of the reason. The new-elect president

is well known for its controversial promise about USA’s protectionism,

fight climate change, dump global free trades, and so on. But, Trump’s

policy execution remains unclear and may build more uncertainty. This

would cause a shift into safe-haven investments such as cash and gold.

Our key assumption

We assume gold price will be USD1,250 per oz in 2016 and as the long-

term gold price assumption. We expect gold sales volume will be 200K

oz in 2016F, 18% lower than 2015, and will increase by 20%/13% to

240/270K oz in 2017/18F respectively. Net profit will reach

USD46/61mn by 2017-18 with solid EBITDA margin of 53%/52%. PSA-

B’s increasing free cash flow will increase company’s ability to repay its

debt and further lower its interest expense. Net debt to equity ratio

would go down from 1.2x in 2014 to 0.9x in 2016. We also assume that

PSAB will get additional 1,700K oz in its reserve supported by continu-

ous exploration effort. This extends its life of mine until 2029.

Potential risk for PSAB

We see that the upside and downside risk will be from the volatility of

gold price and the lower/higher than expected gold sales volume.

PT J Resources Asia Pasifik Tbk is an In-

donesia-based company engaged in gold

mining.

Share Price Rp262

Sector Mining


Year end Dec 2014 2015F 2016F 2017F 2018F

Sales 280 287 250 300 338

EBITDA 119 143 120 160 174

Net Profit 26 31 26 47 62

EPS (Rp) 13.3 16.1 13.2 24.2 31.7

Core Profit 26 31 26 47 62

Core EPS (Rp) 13.3 16.1 13.2 24.2 31.7

Core EPS Growth (%) NA 20.8% -17.9% 83.3% 30.9%

EV/EBITDA (x) 6.5 5.5 6.5 4.9 4.5

P/BV (x) 2.1 1.9 1.7 1.5 1.3

Core P/E (x) 19.7 16.3 19.9 10.8 8.3

DPS (Rp) 0.0 0.0 0.0 0.0 0.0

Div Yield (%) 0.0 0.0 0.0 0.0 0.0

BUY Rp400

Reuters Code PSAB.JK

Bloomberg Code PSAB.IJ



Avg. Value Daily 6

Month (Rpbn) 6.9

52-Wk range 414 / 173

Adaro Strategic Investment 43.9%

Garibaldi Thohir 6.2%

Public 35.2%

Core EPS 16F 17F

Consensus (Rp) na Na

TRIM vs Cons. (%) na Na

Company Update

Stock Data

Major Shareholders

Consensus

Companies Data (USDmn)

Share Price



Year end Dec 2014 2015 2016F 2017F 2018F

Revenue 280 287 250 300 338

Revenue Growth

(%)

259.8

%

2.3% -12.8% 20.0% 12.5%

Gross Profit 129 149 124 168 187

Opr. Profit 85 101 82 118 131

EBITDA 119 143 120 160 174

EBITDA Growth (%) NA 20.0% -15.7% 33.1% 9.1%

Net Int Inc/(Exp) -28 -28 -28 -28 -25


Other Inc/(Exp) -40 -43 -40 -40 -36

Pre-tax Profit 46 58 43 78 95

Tax -20 -26 -17 -31 -33


Extra. Items

Net Profit 26 31 26 47 62


Growth (%) na 20.8% -17.9% 83.3% 30.9%

Dividend per share 0.00 0.00 0.00 0.00 0.00

growth (%) NA NA NA NA NA

Dividend payout

ratio

0.00 0.00 0.00 0.00 0.00


Year end Dec 2014 2015 2016F 2017F 2018F



Net fixed asset 279 266 313 317 318

Other asset 509 495 490 499 510

Total asset 857 829 913 923 929

ST debt 100 150 30 30 30


LT debt 219 105 290 260 210

Other LT Liab 174 174 174 174 174




Net debt / (cash) 308 249 268 248 210


Net Working capital -110 -165 -1 -5 -15

Debt 319 255 320 290 240

Cash Flow (USDmn)

Year end Dec 2014 2015 2016F 2017F 2018F

Net Profit 85 101 82 118 131

Depr / Amort 33 41 38 42 44

Chg in Working Cap 30 0 3 -7 -2

Others -41 -28 -57 -71 -69

CF's from oprs 108 114 67 82 103

Capex -83 -31 -70 -30 -30

Others -5 2 -10 -11 -12


Net change in debt 26 -64 65 -30 -50

Others -61 -26 -6 -8 -9

CF's from financing -34 -90 60 -38 -59

Net cash flow -15 -5 47 -11 -12

Cash at BoY 27 11 6 27 46

Cash at EoY 11 6 53 42 31

Free Cashflow -26 87 21 76 96

Key Ratio Analysis

Year end Dec 2014 2015 2016F 2017F 2018F


Opr Margin (%) 30% 35% 33% 39% 39%

EBITDA Margin (%) 42% 50% 48% 53% 52%

Core Net Margin (%) 9.2% 10.9% 10.3% 15.7% 18.2%

ROAE (%) 11.0% 12.1% 9.1% 15.1% 17.3%

ROAA (%) 3.1% 3.7% 2.9% 5.1% 6.7%






A/R (days) 3.0 2.4 2.4 2.4 2.4

Inventory (days) 60.1 53.7 53.7 53.7 53.7

Interim Result (USDmn)

3Q15 4Q15 1Q16 2Q16 3Q16

Sales 81 56 65 56 59


EBITDA 45 13 31 26 27

Opr. Profit 38 7 25 21 20

Net profit 11 -5 4 5 8

Gross Margins (%) 64% 37% 55% 61% 58%

EBITDA Margins (%) 55% 24% 48% 47% 45%

Opr Margins (%) 47% 12% 39% 38% 34%

Net Margins (%) 13% -9% 6% 9% 13%

Capital History

Date

IPO @250 22-Apr-03

Additional Share HMETD 27-Jan-12

Bonus Warrant 26-Sep-14

Stock Split 1:5 16-Jun-16


Re-initiate with a Neutral call

Although we expect 2017 average LME nickel price to increase by

+36.8% YoY to USD13k/tonne, our earnings still suggests lofty 2017-

18 P/E of 15.9x/11.5x. We have a NEUTRAL call with TP of IDR3,600

despite nickel price have rallied by +31% YTD. Our TP uses DCF-based

method with 8.6% WACC. Our forecast is stretched to 2025 until its

contract of work (CoW) expires.

Nickel price assumption

We assume 2017-18 nickel price of USD13k/tonne (+36.8% YoY) and

USD14k/tonne (+7.7% YoY) with long-term benchmark price of

USD16k/tonne (2020—2025). Our sensitivity analysis suggests +/- 1%

change in nickel price would impact earnings by +/- 4%. INCO is a

~100% pure nickel play with large component component of overhead

cost, hence the share price is heavily correlated to nickel price (~0.9x).

Nickel in matte production to increase

We expect 2017-18 nickel in matte production to reach 80k tonnes (-

1.4% YoY) and 85k tonnes (+6.3% YoY) before ramping up to its peak

of 120k tonnes by 2022. This is under the consideration that nickel price

would furtherly increase compared to current level of USD11.5k/tonne.

Margins recovery

We expect our 2017 operating margin of 27.6% to be relatively similar

vs 2014’s 28.1% despite 2017 nickel price average is –22% lower com-

pared to 2014’s USD16.7k/tonne average. This is due to enhanced cost

optimization and synergies.

Share Price Rp3,500

Sector Mining


Year end Dec 2014 2015 2016E 2017E 2018E

Revenue (USDm) 1,038 790 593 862 983

Net profit (USDm) 172 51 4 159 221

EPS (Rp) 213 66 6 220 305

Core EPS growth (%) 424.4 -69.0 -91.6 3,867.8 38.8

BVPS (Rp) 2,234 2,492 2,516 2,754 3,058

P/E (x) 16.5 53.1 631.8 15.9 11.5

P/B (x) 1.6 1.4 1.4 1.3 1.1

EV/EBITDA (x) 7.5 11.6 18.5 7.5 6.4

Div. yield (%) 3.4 0.0 0.0 0.0 0.0

Vale Indonesia Lofty Valuation

NEUTRAL Rp3,600

Willinoy Sitorus

([email protected])

Reuters Code INCO.JK

Bloomberg Code INCO.IJ

Issued Shares 9,936


Avg. Value Daily 6

Month (Rpbn) 39.7

52-Wk range 3550 / 1340

Vale SA 59.0%

Sumitomo Metal Mining Co Ltd 20.0%

Public 29.0%

EPS 16F 17F

Consensus (IDR) -4 75

TRIM vs Cons. (%) N/A 192.6%

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Companies Data

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

0

500

1000

1500

2000

2500

3000

3500

4000



PT Vale Indonesia Tbk produces nickel in

matte, an intermediate product, from lat-

eritic ores at its integrated mining and

processing facilities near Soroako, Sulawe-

si


Income Statement (USDm)

Year end Dec 2014 2015F 2016F 2017F 2018F

Revenue 1,038 790 593 862 983

Growth (%) 13% -24% -25% 45% 14%

Gross Profit 307 118 39 250 335

Opr. Profit 292 107 31 238 321

EBITDA 372 226 153 364 450

Growth (%) 75% -45% -32% 137% 24%

Net Int Inc/(Exp) (12) (9) (5) (5) (6)

Gain/(loss) Forex

0

-

(1)

(0)

-

Other Inc/(Exp) (44) (28) (20) (20) (20)

Pre-tax Profit 237 70 5 212 295

Tax 65 19 1 53 74

Minority Int.

-

-

-

-

-

Extra. Items

-

-

-

-

-

Net Profit 172 51 4 159 221

Growth (%) 346% -71% -92% 3855% 39%

Balance Sheet (USDm)

Year end Dec 2013 2014 2015F 2016F 2017F


Other curr asset 357 319 405 175 457

Net fixed asset 1,652 1,609 1,603 1,580 1,554

Other asset 72 104 86 86 86

Total asset 2,281 2,334 2,289 2,283 2,493

ST debt 36 36 36 22 27

Other curr liab 133 172 112 87 101

LT debt 183 147 110 140 170

Other LT Liab 215 194 197 197 197

Minority interest

-

-

-

-

-



Net debt / (cash) 19 0 -49 -280 -198



Debt 219 183 146 162 197

Cash Flow (USDm)

Year end Dec 2014 2015F 2016F 2017F 2018F

Net profit 172 51 4 159 221

Depr / amort. 120 119 123 126 129

Chg in work. Cap. -16 61 3 -30 -14

Others 73 -204 186 -233 -90

CF's from oprs 349 27 315 22 247

Capex -76 -114 -100 -100 -90

Others -32 18 0 0 0


Net change in debt 0 -0 69 -1 -3

Others -138 -39 -37 32 31

CF's from financing -138 -39 32 31 28

Net cash flow 102 -108 247 -47 185

Cash at BoY 200 302 195 442 395

Cash at EoY 302 195 442 395 580

Free Cashflow 199 54 -67 107 217

Key Ratio Analysis

Year end Dec 2013 2014 2015F 2016F 2017F


Opr Margin (%) 13.8% 28.1% 13.5% 5.1% 27.6%

EBITDA Margin (%) 25.6% 39.7% 28.6% 25.9% 42.2%

Net Margin (%) 4.2% 16.6% 6.4% 0.7% 18.5%

ROAE (%) 2.3% 9.8% 2.8% 0.2% 8.3%

ROAA (%) 1.7% 7.5% 2.2% 0.2% 6.7%

Stability

Current ratio (x) 3.3 3.0 4.0 5.7 6.6

Net debt to equity (x) 0.0 net

cash

net cash net

cash

net

cash

Net debt to EBITDA (x) 0.1 -0.3 -0.2 -1.8 -0.5


Efficiency

A/P (days) 35 37 47 47 47

A/R (days) 26 33 36 36 36


Capital History

Date

Placement (8/26/09) Price @ Rp. 4,500

Interim Results (USDm)


Revenue 203 177 109 138 159

Gross profit 36 2 -14 1 24

Opr. profit 33 -0 -17 -2 21

Net profit 10 -1 -15 -5 13

Gross margin (%) 17.5% 1.1% -13.0% 0.6% 15.0%

Opr. margin (%) 16.0% 0.0% -15.9% -1.5% 13.3%

Net margin (%) 4.9% -0.8% -14.2% -3.3% 8.2%

PT Trimegah Securities Tbk

Gedung Artha Graha 18th Floor

Jl. Jend. Sudirman Kav. 52-53

Jakarta 12190, Indonesia

t. +62-21 2924 9088

f. +62-21 2924 9150

www.trimegah.com

DISCLAIMER

This report has been prepared by PT Trimegah Securities Tbk on behalf of itself and its affiliated companies and is provided for information

purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. This report has

been produced independently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Securities.

While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication,

Trimegah Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report is

provided solely for the information of clients of Trimegah Securities who are expected to make their own investment decisions without reliance

on this report. Neither Trimegah Securities nor any officer or employee of Trimegah Securities accept any liability whatsoever for any direct or

consequential loss arising from any use of this report or its contents. Trimegah Securities and/or persons connected with it may have acted

upon or used the information herein contained, or the research or analysis on which it is based, before publication. Trimegah Securities may in

future participate in an offering of the company’s equity securities.

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