Ciptadana Equity Market Outlook 2020 Final PDF

EQUITY MARKET OUTLOOK 2015
EQUITY MARKET OUTLOOK 2020 :

Expecting Better Performance
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1
Table of Content
Macro Economic ................................................................................... 45 Metal Mining Sector.............................................................................. 91
Strategy ................................................................................................ 13 Aneka Tambang (ANTM) .........................................................................95
Merdeka Cooper Gold (MDKA) ...............................................................97
Banking ................................................................................................. 20 Timah (TINS) ......................................................................................... 101
Bank Central Asia (BBCA) ..................................................................... 25 Vale Indonesia (INCO) .......................................................................... 103
Bank Rakyat Indonesia (BBRI) ............................................................. 27
Bank Mandiri (BMRI) .............................................................................. 29 Construction Sector............................................................................ 104
Bank Negara Indonesia (BBNI) ............................................................ 31 Adhi Karya (ADHI) ............................................................................... 108
Bank Tabungan Negara (BBTN) ........................................................... 33 PP (Persero) (PTPP) ............................................................................ 110
Bank CIMB Niaga (BNGA) ...................................................................... 34 Waskita Karya (WSKT) ........................................................................ 112
Bank Tabungan Pensiunan Nasional Syariah (BTPS) ..................... 36 Wijaya Karya (WIKA) ............................................................................. 114
Wika Beton (WTON) ............................................................................... 116
Consumer Sector .................................................................................. 40
Indofood CBP (ICBP) .............................................................................. 44 Plantations Sector ............................................................................. 119
Indofood Sukses Makmur (INDF) ......................................................... 46 Astra Agro Lestari (AALI) ................................................................... 122
Mayora Indah (MYOR) ............................................................................ 48 Dharma Satya Nusantara (DSNG) ..................................................... 124
Unilever Indonesia (UNVR) ................................................................... 50 London Sumatera Plantation (LSIP) ................................................. 126
Salim Ivomas Pratama (SIMP) ........................................................... 127
Cigarette Sector .................................................................................... 53 Tunas Baru Lampung (TBLA) ............................................................. 129
Gudang Garam (GGRM) ......................................................................... 60
H.M Sampoerna (HMSP) ....................................................................... 62 Property Sector .................................................................................. 133
Alam Sutera Realty (ASRI) ................................................................. 136
Bekasi Fajar Industrial Estate (BEST) .............................................. 138
Telco Sector........................................................................................... 65
Bumi Serpong Damai (BSDE) ............................................................ 140
XL Axiata (EXCL) ...................................................................................... 72
Intiland Development (DILD) .............................................................. 142
Indosat (ISAT) ......................................................................................... 74
Lippo Karawaci (LPKR)......................................................................... 144
Telekomunikasi Indonesia (Persero) (TLKM) .................................... 76
Pakuwon Jati (PWON) ......................................................................... 148
Surya Semesta Internusa (SSIA) ...................................................... 150
Tower Sector ......................................................................................... 79
Sarana Menara (TOWR) .......................................................................... 86
Tower Bersama (TBIG) ......................................................................... 88
2
Cement Sector ..................................................................................... 153 Oil and Gas Sector ............................................................................. 212
Indocement Tunggal Prakarsa (INTP) .............................................. 157 Medco Energi Internasional (MEDC).................................................. 215
Semen Indonesia (SMGR) ................................................................... 159 Perusahaan Gas Negara (PGAS) ....................................................... 217
Toll Road Sector .................................................................................. 162 Media Sector ...................................................................................... 220

Jasa Marga (JSMR) ............................................................................. 165 Media Nusantara Citra (MNCN) ......................................................... 225
Surya Citra Media (SCMA) .................................................................. 227
Retail Sector ........................................................................................ 168
Ace Hardware (ACES) ......................................................................... 172 Aviation Sector .................................................................................. 230
Erajaya Swasembada (ERAA) ............................................................ 174 Garuda Indonesia (GIAA) .................................................................... 233
Matahari Department Store (LPPF) .................................................. 176
Ramayana Lestari (RALS) .................................................................. 178 Poultry Sector..................................................................................... 236
Charoen Pokhpand Indonesia (CPIN) ............................................... 239
Healthcare Sector ............................................................................... 181 Japfa Comfeed Indonesia (JPFA) ...................................................... 241
Kalbe Farma (KLBF) ............................................................................ 184 Malindo Feedmill (MAIN) .................................................................... 243
Siloam Hospitals (SILO) ...................................................................... 186
Shipping Sector ................................................................................. 246
Automotive Sector ............................................................................. 189 Buana Lintas Lautan (BULL) .............................................................. 249
Astra International (ASII) .................................................................... 192
Others
Heavy Equipment ............................................................................... 195 Surya Pertiwi (SPTO) .......................................................................... 252
United Tractors (UNTR) ...................................................................... 197 Surya Toto (TOTO) ............................................................................... 254
Coal Sector........................................................................................... 200 Valuation Matrix ................................................................................. 257

Adaro Energy (ADRO) .......................................................................... 203
Harum Energy (HRUM) ....................................................................... 205 Technical Analysis ............................................................................ 262
Indo Tambangraya Megah (ITMG) ..................................................... 207
Tambang Batubara Bukit Asam (PTBA) ........................................... 209
3
MACROECONOMIC
AND
EQUITY STRATEGY
4
Economic Outlook Exhibit 1: Global Economic Growth Forecast

7 (%) 6.6
6.3 6.1
6
Global economy: sitting on the fence of uncertainty 5.2 5.2 5.2
As global economic events unfold in unexpected ways in 2019, global economic 5
4.5 4.4
4.8
downturn is inevitable. There are three major events triggering world’s
4 3.6 3.6
uncertainty: unfavorable major events in several countries, US – China trade 3.3
war, and wobbling Fed Fund Rate (FFR) movement. We predict uncertainty will 3 2.9
stay for the rest 2019, but there is a hope for the economic downturn to 2.3 2.2
2 1.9 1.8 1.8 1.7
recover in 2020. On Indonesia, in light of some relatively optimistic 1.3
1.5
macroeconomic data, constructive sentiment seems to stay stable in 2019 and 1 0.8 1.0
0.5
2020. Domestic demand will still be the main driver of growth in 2020.
Supported by our estimated stable inflation of 3.5%, increased investment rate 0
Global China US EU Japan Indonesia Developed Developing
to 6.1% and downward trend on unemployment among years, Indonesia’s
2018 2019F 2020F
economic growth is estimated to reach 5.1% in 2020, slightly lower compared Source: IMF
to IMF’s 5.2% on growth of Indonesia as figured in Exhibit 1.
 Unfavorable economic major events among countries Exhibit 2: US and China Export-Import Performance to Indonesia
European countries are in verge of recession like German and political
35.0 (USD mn)
instability like UK and Italy. Move to Latin America, Argentina is defaulted on its
28.8
sovereign debt in August meanwhile Brazil is heading to recession. On a flip 30.0 28.5
side, global demand to stay firm underpinned by easing monetary policies, low
25.0
unemployment rate in both major and emerging economies, high consumer 21.9
optimism in the US and China and moderate inflationary pressure. 19.5
20.0 16.6
15.9
11.7
 Breakthrough on trade war but better to batten down the hatches 15.0 11.4 12.7
11.5
10.2
There are some multilateral disputes that could harm the already-slowing 10.0 8.4
6.1
Indonesia trade performance. US-China trade war tension escalates 4.6 5.0 5.5
waveringly but it seems that both sides want to keep the trade talk on tracks.. 5.0
In Exhibit 2, from January to August 2019, China and US showed a 4.39% in
0.0
average of the decrease among export-import to Indonesia though both of US Export China Export US Import China Import
them are our 1st and 3rd top trading partners. 2016 2017 2018 2019
Source: Statistics Bureau (BPS)
5
 FFR cut for the first time in a decade Exhibit 3: FOMC Participants View on Future Monetary Policy
There were 2 times of FFR cut on Jul-19 and Sep-19 each from 2.25%-2.5% on
Jan-19 to current level 1.75%-2.0% on Sep-19. The cut was meant to support
domestic consumption amid the low inflation and disruptive US – China trade
war. The rate cut was done under Trump’s pressure on Powell, the Chairman
of the Fed, even Trump urged for negative FFR. Basically, Powell’s gesture
indicated that the rate cut was just “mid-cycle adjustment to policy” or there
would be no long series of rate cut in the near future. However, the Fed
released the dot plot projection that shows an upward trend of FFR until the
longer run as figured in Exhibit 3. In contrary, at end of 2019, most of
economists surveyed by Bloomberg were still dovish and predicted FFR will
have one more time cut until the YE 2019 as figured in Exhibit 4. From about 53
surveyed economists, 58% of them predicted FFR will be on 1.5%-1.75% until
YE 2020. From the survey, we can see there is a tendency to cut the FFR lower
since the number of surveyed economist from the ones who predicted FFR
lower than 1.0% is likely to grow over time. We expect the rate cut would not
be aggressive in 2020 or set lower by 50 bps to 1.25% - 1.5%.
Source: The Fed
Indonesia’s CAD to slightly lower but remains manageable
Exhibit 4: Bloomberg Economist Survey Estimate of 2019-2020 FFR
Since late 2011, Indonesia started to post a current account deficit (CAD) and it
has remained in deficit ever since. In 1H19, CAD was 2.82% or higher than 80 (%)
72 71
2.51% of CAD to GDP on 1H18. The widening CAD was driven by 2.96% increase 70 67
YoY on the 1H19 of payment side on primary income account. Higher 61
58
60
contribution of primary income account on CAD is understandable since the
government has to pay dividend and interest payment as the results of 50
investment inflows and raising debt. We predict the deficit in primary income 40
account will be posted higher on 2H19 since there was a huge jump by 271% 28
from USD5,280 mn in 1H18 to USD19,603 mn in 2H18 on financial account with 30
higher contribution from the portfolio investment inflows (66% of the financial 20 18 15 15 17
13 14 14
account) on 2H18 compared to the previous semester. In 2020, we see there 9 8 8
10 3 4
will be a big potential on the increase in primary account deficit since we see 0 0 2 2 2
the investment inflow will be much higher as what the government pursued all 0
Dec-19 Survey Jan-20 Survey Apr-20 Survey Jul-20 Survey Nov-20 Survey
of this time. Assuming no significant changes from secondary income account,
higher deficit on primary income account and better prospect ahead from the 2.5 - 2.75% 2.2 - 2.5% 1.5 - 1.75% 1.0 - 1.25% 0.25 - 0.75%
cooling trade war, we expect CAD at 2.5% of GDP 2020F, lower than 2019F at Source: Bloomberg
3.0% of GDP.
6
 Trade deficit lower but CAD to remain high at 3.0% of GDP Exhibit 5: Commodities Price Forecast (Annual Average)
As the commodity price downtrend, trade balance will sway into deficit in 2019 World Bloomberg Ciptadana
Commodities Year
Bank Consensus Estimates
and 2020 since Indonesia is net oil and gas importer but an overall net
commodity exporter. We expect trade balance to remain in deficit territory but
with lower magnitude from USD8.5 mn in 2019F to USD7.0 mn in 2020 of CPO 2019 600 2063* 2000*
trade deficit. Moreover, due to the global downturn, the trade deficit growth (Malaysian
2020 623 2100* 2300*
trend seemed increasing as we experienced USD110.0 bn export growth and Peninsula)
USD111.9 bn import growth, reaching USD1.9 bn of trade deficit as of Aug-19.
Lower oil price in 2019 (2019 avg: USD64.5/barrel (as of Sept) vs. 2018 avg: Coal 2019 94 78 81
USD71.6/barrel) gave another challenge to trade. Even though the trade (Australia) 2020 90 75 76.5
balance performance seemed better, it was due to the weaker import instead
of stronger export performance. We see that Indonesia trade deficit will
Oil 2019 66 65 63
achieve USD7.09 bn in YE 2019 and get narrower on USD5.24 bn in YE 2020.
(Brent) 2020 65 62 60
*: In MYR
 Broader relief for CPO ource: WB, Bloomberg, Ciptadana Estimates
Indonesian government will impose export levies for CPO products and its
derivatives starting January, 1st 2020, delaying the prior plan in imposing
levies on Nov-19. This sector got special attention from the government as it is Exhibit 6: Brent Oil, ICP and Pertamax Price
an important foreign exchange earner while it opens more than 16.2 mn job 90 11,000
creations. Since 2018, Indonesia implemented zero export levy for palm oil
products to protect the domestic industry from falling prices due to flagging 80 10,500
exports and oversupply. Also, the government mandated to shift to B30 in
10,000
attempt to reduce the oil import gap. The B30 implementation will increase the 70
consumption of domestic CPO. We believe implementing B30 policy and export 9,500
levies will bring better outcomes. Furthermore, we see that Rupiah 60
9,000
depreciation itself will help on reducing import next year. We expect real
50
import to grow -2.0% YoY in 2020F from -5.5% in 2019F. 8,500
40
8,000
 Limited boost from commodities price
We do not expect coal and oil price to become the main driver of export growth 30 7,500
in 2019 and forth. Asia-Pacific coal benchmark Newcastle prices is expected to
average USD76.5/ton in 2020, lower from USD81/ton this year average. 20 7,000
However we see there will be a pick up on CPO price as our analyst expect it Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19
will increase to MYR 2,300/ton. We expect real export to decline at slower pace Brent (USD/brl) ICP (USD/brl) Pertamax (IDR/ltr)
of 1.0% YoY in 2020F from -5.0% in 2019F. Source: Bloomberg
7
Inflation to remain stable at 3.3% Exhibit 7: YoY Inflation and Policy Rate
Thanks to political year that somehow correlated with the increase of 9
9% (%)
subsidies in some sectors (From 2018 to 2019, fuel and electricity subsidies 8%
increased 115% YoY from Rp46.9 tn to Rp100.9 tn and 24% YoY from Rp47.7 tn 7
7%
to Rp59.3 tn, respectively), Indonesia can keep its inflation manageable. We 6%
remain confidence in 2019 inflation will be 3.3% under BI’s 3.5±1% expectation 5
5%
of inflation even it is above the assumption of inflation on state budget at 3.1%. 4%
3
The government was all out on maintaining inflation in order to secure its 3%
position in 2019 election. As the election is over, based on budget draft 2020,
1
2%
subsidy spending will be reduced to Rp199.7 tn. All in all, price changes
1%
remained stable in 2019, though it almost hit 3.5% on Aug-19, we expect YE 0
0%
2019 inflation at 3.3% YoY. Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19
 Lower global oil price, lower subsidy on energy Core Inf lation Inf lation BI Rate BI 7DRRR
After the reduced subsidy to Rp137.5 mn in 2019, the impact will be upon main Source: CEIC, BI, Ciptadana Estimation
people’s consumption. The price cut on subsidized fuel, Solar, by Rp1,000 is
due to lower oil price as we expect it will decrease to USD 60/barrel (Brent Exhibit 8: Inflation Components Contributions
crude price) in 2020. Thus, current Solar price of Rp 5,150/liter could rise to
Transportation 0.32%
about Rp6,150/liter. Yet, the decrease on oil price may influence the decrease
of other fuel price, like Pertalite (1.9%) and Pertamax (3.4%). Education 7.64%
 Food still the main contributor of inflation Health 3.50%

In Exhibit 8 we have summarized the contribution of the main component
influencing inflation. Food is still the primary contribution of inflation, followed Clothing 9.24%
by the processed food. Due to the prolonged drought, Indonesia will face some
Housing 14.01%
delayed harvest season from the end of 2019 and 2020. Even in Oct-19 the
season would be back to rain season, the government needs to put more Processed
Food
18.79%
attention on this changing. This climate irregularity and the subsidy cuts make
us expect the inflation and core inflation to increase slightly at 3.5% and 2.9% Food 46.50%
YoY respectively in 2020 in line with the expected lower BI-7DRRR.
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Contribution to inflation
Source: BPS
8
Pressured, but rupiah is getting stronger
Combination of global pressure and widening CAD led to pressure on rupiah, Exhibit 9: Exchange Rate (IDR to USD) and Current Account Balance
but somehow it appreciated slightly by 1.34% YTD to about Rp14,197/USD in (%) 6
Oct-19. In response, BI-7DRRR cut disincentives people to save rupiah on the 14,000
bank or in other word money supply will increase; makes it loses its value. 4
However, the decrease of FFR may create USD less attractive so IDR will be 12,000
more attractive to hold even the impact is not that much since both rates fell 2
off as well. Exhibit 9 shows how current account balance affects rupiah 10,000
depreciation among years. By letting the CAD widening, it can reduce Indonesia 0
foreign reserves. In 2Q19, Indonesia recorded USD8.44 mn of CAD which 8,000
equals to 3.04% of GDP. Although in 1H19 Indonesia posted surplus on its -2
balance of payment (BoP) by USD443 mn, we see that Indonesia will face a
6,000 -4
pressure on the weakening trade balance amid the getting stronger rupiah.
4,000 -6
 External factors play bigger role on rupiah
1999 2002 2005 2008 2011 2014 2017
On the last days of President Joko Widodo’s first term presidency, Indonesia
was hit by massive demonstration erupted in response to a proposed criminal- IDR USD (LHS) CAB to GDP ratio (RHS)
code overhaul and other issues. Besides, Bank Indonesia has cut BI-7DRRR by Source: Bloomberg
75bps so far to 5.25% as of Sep-19 to keep up with the FFR cut. The
unconducive moment and the rate cut may weaken rupiah since the riot may
shape people’s disbelief to government and trigger the capital outflow. Exhibit 10: Rupiah and FFR Hike Expectation Shift
15,500
However, the global economic downturn makes relatively more stable country
like Indonesia to be more attractive for people to park their money. Especially, 15,000 FFR FFR cut
in 2020, the government has planned to attract investors more. Some powerful hike period
policies are super deduction tax and the on-the-making Omnibus Law which 14,500
will regulate several types of taxes under one law. To support, the government FFR FFR
will revise 72 Laws which hindered the investment to come. hike hike
14,000
 Stronger rupiah amid uncertainty 13,500

Above all, many believe that rupiah is mainly affected by external conditions
that happen such as the trade war and FFR cut, not to mention that Trump
13,000
impeachment issue may bring positive condition. Exhibit 10, shows that change
in FFR may affect rupiah. Since we predict there will be another Fed rate cut
until YE 2019 to 1.5% - 1.75%, we estimated that until the YE-2019, rupiah will
Source: Bloomberg
stand at Rp14,190 with the average at Rp14,260 against dollar for full-year.
9
Government budget for development Exhibit 11: Government Expenditure Budget by Sectors
Human capital development is fiscal mantra in carrying on into 2020. The draft 600
of government budget for 2020 is focused on five aspects: human resources (in trillion rupiah) 505.8
development, infrastructure acceleration, social protection programs, regional 500
autonomy and anticipation of global uncertainties. 419.2
400
 Everything increased except energy subsidy 385.3
Government expenditure is set to increase by 7.9% from state budget 2019 300
outlook to Rp2,528 tn, still on prioritizing education sector. For education, the
government allocated Rp505.8 tn with new allocation fund for college student 200
assistance program. For infrastructure, the government allocated Rp419.2 tn 137.5
especially to boost the connectivity as the government has focused on 4 super 100 132.2
priority tourism destinations, they are: Toba Lake, Mandalika, Labuan Bajo and
Borobudur. Social assistance spending was allocated to Rp385.3 tn which will 0
be used to sustain the Indonesian conditional cash transfer program (PKH), 2015 2016 2017 2018 2019 2020
non-cash food assistance (BNPT), and other assistances. On energy subsidy, Infrastructure Education Health
the government cut the allocation by 24% to Rp137.5 tn. The cut seemed Energy Subsidy Social Assistance
interesting because it was done right after the election year which from 2018 Source: MoF
to 2019, there were 69% of increase of energy subsidy to Rp160 tn. There is an
Exhibit 12: Government Budget for 2019 and 2020
increase on the allocation for health to Rp132.2 tn. The government still finds a
way to increase the fund by looking for new source of tax related to negative APBN 2019 Outlook RAPBN 2020
Revenue/Expenditure Post Growth (%)
(Rp tn) (Rp tn)
externalities.
Government Revenue 2,030.8 2,221.5 9.39
 Digging up potential in increasing revenue Tax income 1,643.1 1,861.8 13.31
Tax revenue improve in 2019, as of August 2019, tax revenue reached Income without tax 386.3 359.3 -6.99
Rp1,189.3 tn, reaching 54.9% of target. This figure is lower than August 2018 Grant 1.3 0.5 -61.54
performance when tax revenue reached 56.1% of 2018 target. The target of tax Government expenditure 2,341.6 2,528.8 7.99
revenue itself was set on Rp1,861.8 tn and Rp359.3 tn for nontax revenue Central government
1,527.2 1,670.0 9.35
target. We expect 2019 tax revenue can reach higher even amid the limit space expenditure
to move. In 2020, the government can optimize the super deduction tax Transfer to Regions and
814.4 858.3 5.39
Village funds
program targeting the labor-intensive industries and R&D investments to Primary Balance -34.7 -12.0 -65.42
accelerate economic growth. Alongside with the tax holiday, these measures Budget Surplus/Deficit -310.8 -307.2 -1.16
will be challenging as the government faces slow growth in tax collection. % GDP -1.93 -1.76
Government deficit should be around 1.8% of GDP in 2019 and any potential Financing 310.8 307.2 -1.16
shortfall of government revenue should be managed by reducing energy Source: MoF
subsidy and being more selective on allocate money on less-prioritized project.
10
Room for consumption and investment to grow Exhibit 13: Gross Fixed Capital Formation and FDI Correlation
Consumption still became the main driver of growth as it grew 5.10% YoY in 9 (%) (%) 40
1H19 with share to GDP by 54.3% This is followed by investment (GFCF) which
8
grew 5.02% YoY in 1H19 and share to GDP of 32.3%. Consumption also denoted 30
gradual recovery in 1H19 with 5.10% YoY growth after posting 5.05% growth 7
20
on 1H18 and even below 5.0% growth in 2017. However, since the effect of 6
election on consumption is over in 2H19 and amid the current weakening trade 5 10
performance, we expect 2019 GDP growth to reach 5.01%.
4 0
3
 Positive sentiment to investment -10
During 1Q18 to 3Q18 period, investment experienced significant plunge by 2
24.37% since in 2018 the Fed increased its rate by 100bps. However, the story -20
1
should be different in 2019 as i) rupiah showed appreciation by 1.34% YtD until 0 -30
Oct-19, ii) Fed rate cut series and iii) the election result announcement was on
May-19. Speaking of which, on 2014 election, the FDI rebounded after the
announcement and we predicted the same trend will happen after the 2019 Gross Fixed Capital Formation (LHS) FDI (RHS) DDI (RHS)
election year as well. The elected president seems to have clear stance in Source: BKPM
improving investment climate and this brings positive sentiment to market. It
was proved by the increase of FDI growth by 9.61% or as much as Rp104.9 tn Exhibit 14: Policy Rate and Investment Growth in GDP
in 2Q19, preceded by negative growth series over year. The capital inflow was (%)
lured by the Fed rate cut and the global uncertainty. On exhibit 13, we see that
domestic direct investment might help investment growth to increase when
FDI growth was on negative territory.
The lower BI-7DRRR decreases the cost of business financing. The lower credit
rate usually needs 6-12 months (which means the mid of 2020 in current case)
to feel impact from lower policy rate. In 2020, we predict the BI-7DRRR will go
lower by 50bps to 4.50% to cope up with Fed rate cut and in order to boost the
consumption and business expansion. However, we see there will be a room
for investment in 2020 to grow supported by the lower policy rate due to the
Fed rate cut that we expect will be cut again by 25 bps to 1.5% - 1.75% in 2020.
Historically, investment growth experienced slow down due to higher rate in
2014 to 2016 while rate cut in 2016 gave significant boost to 2017 investment
growth (see Exhibit 14). Based on our view above, we predict investment
growth in 2020 to be higher at 6.1% YoY from 5.1% in 2019. Source: Bank Indonesia, Bloomberg
11
 Challenges on consumption Exhibit 15: Investment Realization Growth and Labor Absorbed
1,200 30
1H19 became the major sign of strengthened consumption growth as its 27.3 (%)
growth reached 5.10% YoY after experiencing 5.05% growth in 1H18 and below 1,000 25
than 5% in 1H17. However, we do not think the higher purchasing power came
from “organic growth” or better labor profile. According to investment board, 800 20
17.8
labor absorption from investment in 1H19 was not that much compared to 16.2
1H18 from Exhibit 15. Although it is not reflected in higher unemployment rate, 600 12.4 13.1 15
lower absorption reduce the chance to get full time job. We view higher
400 10
government social spending, election year and higher salary (+5%) for civil
servants impact that played a significant role in raising consumption growth in 200
4.1 4.31
5
1H19. Entering 2020, consumption growth will still depend on government
988.3 611.0 686.2 681.9 539.5 491.1 490.7
spending although there is a chance for investment to grow at 6.1% YoY so it 0 0
may help labor absorption. 2013 2014 2015 2016 2017 2018 2019
Labor Absorbed (in '000 people) - LHS Investment Realization Growth - RHS
Government higher spending on social assistance by 4.4% YoY in 2020 will Source: BKPM
enable consumption to remain robust. However 2020 will be very challenging
for expecting consumption to grow a strong as in 2019 due to the Exhibit 16: Indonesia’s Macroeconomic Projection
discontinuance of electricity subsidy on 900 VA consumers for about 27 mn Year-end 31-Dec 15A 16A 17A 18A 19F 20F
households. In addition, there will be an increase on cigarette tax by 23% and Nominal GDP (Rp tn) 11,541 12,407 13,588 14,837 16,053 17,354
raise of its minimum price by an average of 35% in 2020. The raise on excise Nominal GDP (USD bn) 861 974 1,015 1,065 1,105 1,209
tax may generate Rp172 tn of contribution to tax revenue in 2020 as well. This GDP/capita (USD) - Nominal 3,377 3,605 3,877 3,927 4,138 4,529
Real GDP (%YoY) 4.8 5.0 5.1 5.2 5.0 5.1
may bring a shift of consumption pattern among 57 mn smokers
Private Consumption (%YoY) 5.0 5.0 4.9 5.0 5.0 4.9
approximately in Indonesia. But, we believe it is insufficient to drastically alter Government consumption (%YoY) 5.4 -0.1 2.1 4.8 5.2 2.5
the behavior. Given those conditions, we expect that consumption to face a Gross Fixed Capital Formation (%YoY) 5.1 4.5 6.1 6.7 5.1 6.1
slight contraction in 2020. We expect 5.0% consumption growth in 2019 and a Exports (%YoY) -2.0 -1.7 9.1 6.5 -5.0 -1.0
slight decrease to 4.9% in 2020. Imports (%YoY) -5.8 -2.3 8.1 12.0 -5.5 -2.0
Inflation rate (%YoY) - year end 3.4 3.0 3.6 3.1 3.3 3.5
Core inflation rate (%YoY) - year end 4.0 3.1 3.0 3.0 2.8 2.9
BI 7 Days Reverse Repo Rate - year end 4.75 4.25 6.00 5.00 4.50
Rupiah / US Dollar - average 13,398 13,473 13,380 14,246 14,250 14,100
Rupiah / US Dollar - year end 13,788 13,346 13,555 14,390 14,190 14,000
Current account as % of GDP -2.0 -1.8 -1.7 -2.9 -3.0 -2.5
Fiscal balance as % of GDP -2.8 -2.5 -2.5 -1.8 -1.8 -1.8
Source: BI, MoF, BPS, Ciptadana Estimates
Nicko Yosafat +62 21 2557 4800 ext. 820 yosafatnicko@ciptadana.com
12
Strategy
Equity market recap
 Underperformer market so far

Indonesia’s GDP slows to 5.05% YoY in 2Q19 from 1Q19 of 5.07% and 5.27% in
As of this writing , the JCI posted a loss of 0.8% Ytd to 6,146 (+1.2% in USD 2Q18 on slowing growth in investment and net export despite being cushioned
term) and underperformed the region (MSCI Asia ex-Japan gained by 7.3%). by higher government spending on election-related policies (+8.2% YoY).
This came on the back of risks arising from escalation of global trade war
while domestic macro environment is not supportive of equity market due Exhibit 18: CAD breakdown
mainly to i) slowdown in economic growth and ii) widening current account
deficit (CAD). Earnings are also not looking good either with the blended USD mn 2Q18 3Q18 4Q18 1Q19 2Q19
growth has been revising down since 1Q19 due to earnings underperformance
Current account -7,951 -8,683 -9,221 -6,966 -8,443
in commodities, retails, construction, poultry, property and cement sectors.
Goods 277 -454 -2,585 1,188 187
These together have led to net foreign outflow of USD1.1 bn in Indonesia equity
(including indexes rebalancing outflow). General merchandises 459 -157 -2,752 692 -162
Non-oil & gas 3,240 3,397 117 2907 3021
Exhibit 17: Indonesia’s GDP 2Q19 Oil & gas -2,781 -3,554 -2,869 -2,215 -3,183
Other merchandises -182 -298 167 496 348
10.0
(%) 8.23 Services -1,839 -2,014 -1,644 -1,869 -1,962
8.0 Primary income -8,020 -7,991 -7,031 -8,116 -8,725
6.0 5.07 5.05 5.03 5.17 5.24 5.03 5.01 Secondary income 1,632 1,777 2,039 1,831 2,058
4.0
CAD as % of GDP -3.01 -3.30 -3.59 -2.60 -3.04
2.0
0.0 Source: Bank Indonesia
-2.0 GDP Private cons Gov't cons GFCF (Inv) Export Import
-1.86
-1.80
2Q19 CAD widened to 3.0% of GDP from 2.6% of GDP in 1Q19 due mainly to 1)
-4.0 higher trade & service deficit of USD2 bn in 2Q19 (1Q19: USD1.9 bn), as oil &
-6.0 gas deficit widened to USD3.2 bn vs. USD2.2 bn in 1Q19, 2) seasonal pattern of
-8.0 -6.73 dividend repatriation and higher debt payments.
-7.35
-10.0
1Q19 2Q19
Source: Bloomberg
13
After lackluster 2Q19 earnings release, the aggregate FY19 and FY20 earnings Exhibit 20: Net foreign buy at Indonesia equity market
estimate of the JCI constituents under our coverage was lowered by 5.2% to 6,000
(USD mn)
Rp272 tn and 3.1% to Rp305 tn vis-à-vis our earlier estimate prior to the latest
5,000
reporting season. Hence, our FY19F and FY20F market EPS are now lower at
384 (+6.7% YoY) and 431 (+12.4% YoY). 4,000
Exhibit 19: Market EPS estimates 3,000
2,000
500
450 431.4
1,000
400 383.8
359.7 0
350 330.0
310.0 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19
300
250 Source: Bloomberg
200
Exhibit 21: Foreign ownership at Indonesia equity market
150
70%
100
50 65%
0
2016 2017 2018 2019F 2020F 60%
Source: Ciptadana 55%
50%
Due to the above unfavourable factors, coupled with massive student
demonstration at end of September, Indonesia has witnessed foreign investors
45%
consistently selling-off their equity to over USD1.4 bn from mid-July to end
September. This leaved year-to-date foreign net buy to USD3.6 bn from peak
40%
level of USD5.1 bn. Foreign net buying would have dropped to only USD0.1 bn
Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19
if we exclude cross trade when Japan’s MUFG bank purchased stocks at BDMN
and BBNP shares for a total of USD3.5 bn. Based on data from KSEI (Indonesia
Securities Depository), foreign ownership in equity also decreased from 45.1% Source: KSEI
in July to 43.0% in September (lowest level in 9M19).
14
 What were the top leaders & laggards stock?
We looked at various stocks in JCI that have contributed the most to the decline From sector perspective, miscellaneous industry posted the biggest decline of
to JCI year-to-date and have seen selling pressure. Among JCI constituents, 17.4% on 17.4% drop in ASII share price, followed by consumers of -14.3%
large-caps led the lagging movers. These include: i) cigarette makers HMSP (weighed by HMSP and GGRM) and mining stocks of -8.8% as PTBA dropped by
and GGRM , which dropped 34.6% and 34.0% and contributed to 129 and 48 41%. The biggest return was given by telecom sector (14.2%) as TLKM , EXCL
points decline, respectively. This resulted from a) declined weighting in LQ45 and TBIG gained by 19.8%, 68.9% and 72.5% respectively. Property and
and LQ30 indices after a series of free-float adjustment and b) higher-than- construction sector also posted handsome return of 10% supported by 18.4%
expected 23% increase in excise tax (consensus: 12%) for 2020 prompting and 7.5% gain in WIKA and BSDE share prices, respectively. Banking sector
street to downgrade earnings and target prices. ii) automaker ASII which reported 5.4% gain as 17.4% and 17.1% increase in BBCA and BBRI more than
dropped 17.4% YoY (contributing 51 points decline) on weak domestic auto offset 11.8% and 11.1% decline in BBNI and BBTN share prices.
sales (-13.5% YoY, despite ASII fared better at -8.1%) and prolonged weak coal
and CPO prices. iii) poultry producer CPIN which was down 26% on softer
outlook at broiler and DOC prices which does not justify its hefty valuation. Exhibit 23: Sectoral indices performance
BDMN was also among top laggards as the stock declined 38% negatively
affected by MSCI deletion announcement. 30.0%
20.0%
14.2%
10.0%
Exhibit 22: Year-to-date top movers stock 10.0% 5.4%
0.3% 1.4%
Top leaders Top laggards 0.0%
-0.8% 0.0%
Ticker Price % Chg Points Ticker Price % Chg Points
1 BBCA 30,250 17.4 95.4 HMSP 2,340 -34.6 -129.2 -10.0%
-8.8%
2 BBRI 4,140 17.1 63.1 ASII 6,650 -17.4 -51.0 -14.3%
-20.0% -17.4%
3 TLKM 4,310 19.8 39.4 GGRM 53,350 -34.0 -47.5
Banks
Trade & Svc
Mining
Prop & Constr

Agri
Basic Ind
Misc Ind
Consumer
JCI
Infra & telco

4 BRPT 995 108.2 30.7 CPIN 5,200 -26.3 -27.3
5 TPIA 8,175 38.5 29.6 BDMN 4,680 -37.5 -24.6
6 POLL 5,650 222.9 22.9 INKP 6,700 -41.3 -23.1
7 ICBP 11,900 15.5 22.4 UNTR 21,050 -20.7 -18.3
8 UNVR 46,775 4.9 19.7 BBNI 7,575 -11.9 -16.9
9 MIKA 2,600 66.6 18.5 PTBA 2,300 -41.3 -16.7 Source: Bloomberg
10 BNLI 1,160 85.6 14.8 INAF 1,520 -76.6 -13.8
Source: Bloomberg
15
Recovery seen next year for stocks after poor 2019
 Corporate earnings growth is estimated at 12.4%
We expect 2020F market EPS growth is expected to accelerate to 12.4% from
 Equity markets volatility seen to lessen
6.7% in 2019F (see table below). We use aggregate earnings of our stock
Progress in China-U.S. trade talks remains bumpy as both sides have
universe, comprising of 66 companies comprising of 72% of JCI’s market
increased tariffs on imports from the other. Prospects for a successful
capitalization as a proxy to forecast market earnings. The growth will be
agreement do not look promising in the short-term. However, we believe the
boosted largely by the banking sector with net profit growing by 16.3% led by
US-China trade war tension would ease in 2020 and provide better stability to
BBCA of 15.6%, BBRI of 15.6% and BBTN of 84.9% (after negative growth of
the financial market. US President Donald Trump is entering the 2020 election
40.5%). Other heavyweight sectors such as Automotive, Telco, and consumers
cycle, with pressure to stabilize the economic environment. Several indicators,
also are also forecast to post double-digit earnings growth.
including a rocky stock market, a briefly inverted yield curve, and fallout from
a trade war with China, has caused worrying a slowdown could be on the Exhibit 24: Aggregate net profit forecast
horizon. The state of the economy is, historically, one of the main things voters
consider when deciding whether to grant a president a second term. So if the Sector Net income (Rp bn) Earnings gr (%) PER (x)
US were to enter a recession, as some have speculated it soon might, this 2018A 2019F 2020F 2019F 2020F 2019F 2020F
should affect President Donald Trump’s re-election chances. We assume Banking 105,492 115,146 133,931 9.2 16.3 18.0 15.8
Trump will want the optimal conditions of rising equity markets and decent Automotive 21,760 19,894 23,256 -8.6 16.9 13.7 11.8
Cigarette 21,330 26,051 23,246 22.1 -10.8 13.7 15.2
economic activity going into the campaign proper, and a trade deal together
Telco 12,331 19,068 22,446 54.6 17.7 25.7 20.2
with lower interest rates can deliver that. Consumer staples 19,567 18,677 20,681 -4.5 10.7 36.9 33.8
Heavy equipment 11,126 11,432 11,534 2.8 0.9 11.6 10.5
 Lean towards monetary easing , better domestic macro outlook Coal 15,220 13,407 11,341 -11.9 -15.4 8.4 9.2
The positive market sentiment is expected to be further lifted by the optimism Construction 8,325 8,035 9,005 -3.5 12.1 8.3 7.5
of a wave of easing monetary policy by central bank (BI) given the subdued Property 6,641 7,027 7,172 5.8 2.1 12.7 8.7
Oil & gas 3,607 4,615 6,532 28.0 41.5 13.4 9.2
inflation and economic growth momentum. We also expect that government to
Metal 3,010 2,902 5,787 -3.6 99.5 38.0 15.9
accelerate reforms to help boost sentiment which should support the impact of Cement 4,225 3,257 4,563 -22.9 40.1 18.3 15.2
lower interest rates on investment growth. Moreover, we are of the view that Retail 3,508 3,606 4,408 2.8 22.2 20.6 16.6
domestic consumption remains supportive of the economy. Therefore, we Media 3,016 3,441 3,736 14.1 8.6 9.9 9.2
believe equity markets will remain upbeat in anticipation of a lower interest Tower 2,881 3,047 3,356 5.8 10.1 21.5 18.8
rate environment to sustain Indonesia economic growth, albeit on a more Healthcare 2,473 2,515 2,791 1.7 11.0 72.2 46.9
Toll-road 2,202 2,070 2,071 -6.0 0.0 20.2 20.2
moderate basis. We expect Indonesia GDP growth to improve from 5.0% in
Poultry 7,007 4,761 5,519 -32.1 15.9 25.5 21.4
2019 to 5.1% in 2020, driven mainly by improvement in GFCF which historically
Plantation 2,887 1,397 1,935 -51.6 38.5 56.5 20.5
increased during monetary policy easing. BI shifted its policy stance to one that Aviation -2,442 895 1,140 n/a 27.5 12.6 9.7
pre-emptively supports growth, suggesting a willingness to cut rates more Shipping 199 398 781 100.0 96.4 5.8 2.9
aggressively. However, BI’s ability to follow through is likely to hinge on risk Others 553 371 422 -32.9 13.7 15.2 13.4
appetite, which affects the currency and capital flow. We expect another 25 bps Total 254,917 272,011 305,654 6.7 12.4 16.0 14.2
rate cut in 4Q19, bringing the total reduction in the key rate to 75 bps this year
Source: Ciptadana
to 5.00% and forecast another 50 bps rate cut in 2020 to 4.50%.
16
 Potential earnings increase of 6.2% from lower corporate taxes  Year-end 2020 index (JCI) target of 7,190 – Overweight
The Indonesian government proposed amendments to income tax and VAT We reaffirm our year-end 2019 JCI target of 6,560 and introduce our year-end
regimes. The bill includes measures that would among others: 1) gradually 2020 JCI target of 7,190, which is premised on market 15.5x PE ratio (-0.5stdev
lower the corporate income tax rate from current 25% to 20% starting 2021 2) mean) and forward EPS of 464 which implies 9.6% YoY return, in line with
reduce corporate income taxes to 17% from 20% for companies that go public market EPS CAGR of 10.2% in 2019-21F. Market valuation have turned
for their first five years on an exchange; 3) require entities participating in the attractive (forward PER of 14.2x) much lower than sharp correction witnessed
digital economy to report and pay VAT; 4) eliminate the taxation of dividends during trade war turbulence in May-19. We see a further 8% correction from
reinvested in Indonesia or paid to domestic entities with an ownership share of current levels would retest previous 2015 GFC low, where we can be
more than 25%. We believe this tax reforms are intended to improve revenue reasonably confident equity markets will recover over a 6-12 month view. We
collection, increase compliance and attract investment. believe expected positive catalyst in terms of i) better macro conditions and ii)
a higher earnings growth coupled with iii) current underperformance to
We also believe lower tax burden could make Indo more attractive because regional peers and iv) light foreign investor positioning will support our
similar taxes in other ASEAN countries are lower at 24% Malaysia, 20% each in convictions to positive market outlook in 2020. We have not yet incorporated
Thai and Vietnam, and 17% in Spore, except Philippines of 30%. This should be potential 6.2% earnings increase from lower corporate tax that we mentioned
positive for equity market as it would lift corporate earnings, lowering the previously.
valuation. Some companies in particular industries may not enjoy lower tax
rate such as 1) contractor and property which are subject to final tax of 2.5-4% Exhibit 25: JCI forward PER band
of revenue 2) coal companies under CCOW which are subject to 35-45% income
tax 3) oil & gas companies which are subject to 42-44% total income tax. Based 22
(x)
on our on the back of an envelope, lower corporate tax rate of 20% would lift
our corporate universe earnings by around 6.2%. From an FDI/investment 20
+2 stdev
19.0x
perspective, it would also increase demand for industrial estate. +1 stdev
18 17.6x
mean 16.2x
16
-1 stdev
14.8x
14 -2 stdev
13.4x
12
10
2014 2015 2016 2017 2018 2019
Source: Bloomberg and Ciptadana
17
 Key investment themes

Looking forward, we have five investment themes for 2020. They are (i)
potential beneficiary of interest rate cut (our picks here are BBRI and BTPS), ii)
consumer staple (less elastic volume demand) and beneficiary of higher CPO
price: INDF, (iii) a defensive proposition for investors in uncertain times (TLKM
and TBIG), (iv) beneficiary of infra development (WIKA and SMGR) and (v)
commodity (gold) play in view more Fed rate cuts: MDKA.
Exhibit 26: Our stock picks
Bberg Mkt.Cap Last Target Upside PER EV/EBITDA* ROE Yield

20F 20F
Ticker Rating (Rp tn) Price Price pot.(%) 2019F 2020F 2019F 2020F
(%) (%)
BBRI Buy 475.0 3,930 5,100 29.8 13.6 11.9 2.4 2.1 18.8 3.7
BTPS Buy 26.0 3,260 4,080 25.2 19.7 16.0 4.8 3.9 27.5 1.5
INDF Buy 68.9 7,850 9,560 21.8 16.5 14.5 7.9 7.1 12.9 5.6
TLKM Buy 415.1 4,190 4,900 16.9 20.7 18.4 6.9 6.2 22.0 3.9
TBIG Buy 26.6 6,150 9,350 52.0 28.9 23.7 12.3 11.6 27.1 2.6
WIKA Buy 17.9 2,000 2,750 37.5 9.2 9.6 5.7 4.8 12.4 3.1
SMGR Buy 77.7 12,250 16,000 30.6 36.8 23.9 12.2 9.7 9.0 1.4
MDKA Buy 27.8 6,350 8,200 29.1 24.0 19.5 11.3 9.0 18.2 0.0
OW 939.4 13.2 11.5 6.2 5.5 18.1 4.2
*PBV for banks

Source: Bloomberg and Ciptadana estimates
Arief Budiman +62 21 2557 4800 ext. 819 budimanarief@ciptadana.com
18
BANKING SECTOR
19
 Expecting a modest loan growth in 2020F
Banking Loan growth were touching its strongest point in Oct-18 at 13.3% YoY but
slowing afterwards to 8.6% YoY in Aug-19. This is in-line with our early
Overweight year expectations that there should be pressure on loan growth driven by
high lending rates and tight liquidity. We expect the loan growth to arrive at
Sector Outlook 9-10% in 2019F. However we expect loan growth should have a modest
pickup in 2020F to 11% driven by lower lending rates and better liquidity
 Better operating environment in 2020F environment.
Banking industry was facing a slowing bottom line growth from 13% in
2018 to 9% in 2019F due to NIM pressure and certain deterioration in asset Exhibit 28: Banking system loan growth trends
quality. We are expecting a better operating environment for banking %
Total loan YoY Total deposits YoY
industry in 2020F mainly driven by: 1) strong environment of lower interest 30
rate and 2) better loan growth on improving liquidity on decreasing lending
rates and stronger economic growth. Banks were only generating single 25
digit NII growth in 2019 due to high interest rate and slowing loan growth.
For 2020F we expect NII growth to accelerate to 11%, up from 9% in 2019F 20
for banks under our coverage. The risk came in asset quality, which would
drag provision expense if the economic grew slower than estimates. 15
Overall, we expect the bottom line growth to rebound to 16% YoY in 2020F
from 9% in 2019F as better NII growth should be further boost by stable 10
cost of credit and opex efficiency.
5
Exhibit 27: Earnings growth for banks under our coverage
0
35%
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Feb-15
Feb-16
Feb-17
Feb-18
Feb-19
30%
30%
25% Source: OJK and Ciptadana Sekuritas Asia

21% 21%
20% 17% 16%  Better NIM helped by lower interest rate
15% 13%
We are on the view that banking industry in Indonesia shall enjoy NIM
9% 9% upside driven by the lower interest rate. The lending rates are relatively
10%
sticky and will decline very gradually while time deposit rate should closely
5% 2%
1% follow the movement of policy rates (exh. 29). We expect 100 bps rate cuts
0% in 2019F and 50 bps more in 2020F. Hence these multiple policy rate cuts
2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F
should open the room for lower cost of funding and NIM upside for banks.
Source: Companies and Ciptadana
20
 Liquidity remains the key challenge
Exhibit 29: Comparison between lending, TD, and policy rates The restraint to our expectation of lower cost of funding is liquidity.
17.00 Liquidity in the banking system, especially the one that came from
conventional deposit has continued to tighten over the time (exh 32). Loan-
15.00
to-deposit ratio in the banking system has trended up steadily up into this
13.00 time, from 75% ten years ago to 94% as of 1H19. Bank Indonesia (BI) had
11.00 tried to increase some liquidity by cutting the minimum reserve
requirement (GWM) by 50 bps in Jun-19. We expect a further 50 bps cut in
9.00
minimum reserve ratio to help boost some liquidity into the banking
7.00 system. We see that LDR should continue to climb higher next year as loan
5.00 growth would still outpace conventional funding growth.
3.00
Exhibit 31: The long term LDR trend is upward
Nov-11
Nov-16
Mar-15
Jan-11
Apr-12
Jan-16
Apr-17
Jun-11
Oct-14
Jun-16
May-14
May-19
Feb-13
Dec-13
Feb-18
Dec-18
Sep-12
Jul-13
Sep-17
Jul-18
Aug-15 100%
BI rate 7DRR rate Time deposit rate 95%
90%
Working capital loan Investment loan Consumer loan
85%
Source: OJK, BI and Ciptadana BMRI
80%
75% BBRI
Exhibit 30: Banking NIM trend
70%
8% BBNI
65%
60% BBCA
7% 55%
50%
5.9%
6% 5.7% 5.6% System NIM
5.5% 5.4% 5.4%
5.1% 5.1% BI rate
4.9% 4.9% Source: OJK and Ciptadana
5%
7DRR rate
4.2%
Among our coverage, BBCA and BTPS has the largest room of liquidity (exh.
4%
6). BBCA funding mainly came from the low-cost funding (CASA) from its
transactional banking which persistently grow over the time, hence
3%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F
granted them with ample LDR of 82.8% as of 7M19. Meanwhile BTPS has a
Source: OJK and Ciptadana
lot of liquid asset in their book, which also gives them plenty of liquidity to
boost loan.
21
Exhibit 32: LDR and Liquid Asset Ratio among banks rely more and more on CASA. Some risk will come if the in TD rate’s
% % declines came smaller than expectation due to continued TD competition.
115.0 111.5 45.0
40.0 Exhibit 33: Banking CASA ratio trend
110.0
35.0
105.0 CASA ratio (RHS) Saving deposit rate (LHS)
100.8 30.0
Time deposit rate (LHS)
100.0 96.9 25.0 % %
96.4 95.6 95.4 95.0 94.8 94.4 10.0 48.0
95.0 92.2 20.0
9.0 49.0
15.0
90.0 8.0 50.0
10.0 7.0 51.0
85.0 82.8
5.0 6.0 52.0
80.0 - 5.0 53.0
4.0 54.0
3.0 55.0
2.0 56.0
Loan-to-Deposit (LHS) Liquid Asset Ratio (RHS)
1.0 57.0
Source: OJK, companies and Ciptadana - 58.0
Nov-11
Nov-16
Mar-15
Jan-11
Apr-12
Jan-16
Apr-17
Jun-11
Oct-14
Jun-16
May-14
May-19
Feb-13
Dec-13
Feb-18
Dec-18
Sep-12
Jul-13
Sep-17
Jul-18
Aug-15
 Various relaxation by BI positive for banks
Besides the declining policy rates and minimum reserve relaxation, BI also
relaxed the liquidity ratio (LDR), as termed as Macroprudential Source: OJK, Ciptadana
Intermediation Ratio (MIR). The expansion of the LDR rule is to add
borrowing as funding component, hence would benefit smaller banks that  Selective concern on asset quality
typically have some borrowing in their balance sheet. Major banks such as Among many investors’ concern on banking sector for 2020F, worsening
BBTN with LDR above 100% would get benefit as they could use borrowing asset quality is one of the biggest concerns. The reason is that many
to help grow their balance sheet. Expansion of the LDR rule would also corporate big names have seen quality deterioration lately and those
ease deposit competition in our view, which would benefit banks with names have not been downgraded into Non-performing loan (NPL)
weaker funding franchises. category yet. Therefore, we need to take attention not only to the NPLs
figure, but also the Special Mention and the Restructured Loans. The sum
 Lower spread encourages shift from time deposits to CASA of NPL, Special Mention, and Restructured current loan could be combined
Given the declining TD rates trend, the spread between TD and CASA into Loan-at-risk (LAR). We see that the formation rate of Loan-at-risk for
should narrow. Therefore, we expect that bank’ deposit mix will continue to the Big four banks has seen a slight uptick in 1H19 at 3.5% of loan from
be better as growth and CASA should outpace time deposits going forward. 3.2% in 1H18 (exh. 34). This worsening LAR formation was mainly
Historical data also showed the same trends whereas CASA ratio contributed by BBNI, in which LAR formation worsening to 4.3% in 1H19
correlates negatively with TD rates (exh. 33). We believe an on-going shift from 1.5% in 1H18. Meanwhile on quarterly basis, BMRI also saw
of deposit mix from time deposits to CASA will lower cost of funds, as they
22
worsening LAR formation in 2Q19. Other banks mostly saw flat or declining ratio in micro loan segment tend to be more defensive in less favourable
LAR formation YoY. economic condition (exh. 35).
Both BBNI and BMRI have exposure to Krakatau Steel and Duniatex which Exhibit 35: Micro loan vs. business loan’s NPL ratio
unexpectedly saw asset quality deterioration in 1H19. BBNI has provided %
Business Loan Micro Loan
18/26% provision coverage for their exposure in Krakatau Steel and 4.0
Duniatex up until 8M19, while BMRI has achieved 27/15% coverage,
respectively. Those exposures would still drag the banks provision 3.5
expense in 2H19 as both banks still need to increase the provision cover.
3.0
Exhibit 34: Loan-at-risk formation on Big four banks
2.5
New LAR (Rp) - LHS New LAR (% of loan) - RHS
60,000 6.0%
5.3% 2.0
50,000 4.4% 5.0%

1.5
3.8%
Nov-14
Mar-13
Mar-18
Jan-14
Apr-15
Jan-19
Oct-12
Jun-14
Oct-17
Jun-19
May-12
May-17
Feb-11
Dec-11
Feb-16
Dec-16
Jul-11
Sep-15
Jul-16
Aug-13
Aug-18
40,000 3.5% 3.5% 4.0%
3.2%
30,000 3.0%
Source: OJK and Ciptadana Sekuritas Asia
20,000 2.0%
 Not excessive valuation.
10,000 1.0% Big four banks currently trade at 2.7x 2019F PBV or above the historical
average of 2.5x. We are positive on the banking sector as the banking
0 0.0% valuation historically re-rated in a decreasing interest rate trend (exh 10).
1H14 1H15 1H16 1H17 1H18 1H19 We maintain our Overweight stance on banking sector with BBRI as our top
Source: Companies and Ciptadana picks in the big four banks and BTPS in the non-big four space. We expect
BBRI and BTPS to benefit from the decreasing interest rate trends. BBRI
Going forward, risk to worsening NPL and worse-than-expected provision and BTPS have a relatively stickier lending rate considering its micro and
expense come from worsening macroeconomic data and further global ultra micro business, while cost of funding would trend down following
economic weaknesses. Among our coverage, we see that BBCA, BBRI and decreasing time deposit rates (TD exposure at 40% and 78% for BBRI and
BTPS are relatively more defensive against weaknesses in NPL. BBCA has BTPS, respectively). We also believe BBRI and BTPS to have larger benefit
significantly provided provision in 2019F and has the thickest loan loss from opex efficiency trends coming from their labour-intensive
coverage at the moment. Meanwhile for BBRI and BTPS, both banks is micro/ultra-micro business model.
focusing on domestic retail/mass market, hence we expect minimal impact
from the weaknesses in global economy. Historical trends shown that NPL
23
Exhibit 36: Big four banks valuations vs. monetary rates Exhibit 38: Banking stocks rating and valuation
x
Forward PBV BI rate 7DRR rate
3.1 9.00
Yield
Up PER (x) PBV (x) ROE (%) (%)
2.9 rate 8.00 Mkt.
rate Bberg Last Target
hike Cap. Pot
rate hike
7.00 Ticker (Rp tn)
Price Price 19F 20F 19F 20F 19F 20F 20F
2.7 cuts (%)
6.00
rising
2.5
NPL
5.00
2.3 BBCA 734 30,250 34,400 13.7 25.7 22.7 4.3 3.8 17.6 17.9 1.3
4.00
rate
2.1 cuts
3.00 BBRI 475 3,930 5,100 29.8 13.6 11.9 2.4 2.1 18.8 19.4 3.7
1.9
2.00 BMRI 294 6,525 8,800 34.9 11.0 9.8 1.5 1.4 14.7 15.3 3.7
1.7 1.00
BBNI 128 6,850 9,300 35.8 8.1 7.0 1.1 1.0 13.6 13.9 3.1
1.5 -
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
May-13
May-14
May-15
May-16
May-17
May-18
May-19
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Nov-18
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
BBTN 20 1,895 2,200 16.1 7.7 6.2 0.8 0.8 6.8 12.0 1.7
Source: Bloomberg, Bank Indonesia, Ciptadana BNGA 24 955 1,520 59.2 6.7 6.0 0.6 0.5 8.8 9.1 3.1
BTPS 26 3,260 4,080 25.2 19.7 16.0 4.8 3.9 27.5 26.8 1.5
Banking stock mapping shows that both of our picks, BBRI and BTPS, both
have relatively compelling valuation considering its ROE profile in 2020F. Sector 1,701 17.9 15.7 3.0 2.6 17.0 17.5 2.5
Exhibit 37: Banking stocks mapping Erni Marsella Siahaan, CFA +62 21 2557 4800 ext. 919 siahaanerni@ciptadana.com
ROE
2020F (%)
35.0
30.0
BTPS
25.0 BBRI
BBCA
20.0 BMRI
BBNI
15.0 BBTN
10.0 BNGA
5.0
(0.5) - 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
PBV 2020F (x)
Source: Bloomberg, Ciptadana
24
Bank Central Asia

Sector Banking
Bloomberg Ticker BBCA IJ
35,000 30%
BUY TP: Rp34,400 (+13.7%) Share Price Performance

Last Price (Rp) 30,250
30,000 25%
25,000 20%
Avg. daily T/O(Rpbn/USDmn) 379.1/26.8 20,000 15%
Company Profile
3m 6m 12m 15,000 10%
Bank Central Asia (BBCA) is the largest private bank in Indonesia, which
Absolute (%) 2.8 9.0 33.0 10,000 5%
offers ranging product with main strength in transactional banking. BBCA has
Relative to JCI (%) 7.4 15.5 26.7
expanded their platform of 1,246 branches, 23.6k ATMs, and >500k EDCs 5,000 0%
nationwide. The bank processed about Rp14k tn worth of transaction (ATM, 52w High/Low price (Rp) 31,450/22,175
0 -5%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
internet, and mobile banking) annually, far larger than other big four banks at
Outstanding shrs(mn) 24,655
less than Rp2k tn. BBCA is partly controlled by the Djarum Group.
Mkt. Cap (Rpbn/USDmn) 745,198/52,709 BBCA 1yr Rel. to JCI (RHS)
Estimated free float (%) 50.8
Key Points
 CASA increase steadily given the customer inertia. With its dominance Financial Highlights
in transaction banking, BBCA continue to benefit from the low cost 2017A 2018A 2019F 2020F 2021F
floating (CASA) gained from transaction activity. This provides them with Net Interest Income(Rpbn) 41,826 45,291 51,218 56,980 63,829
cheap cost of fund and ample room of liquidity, which also enables them Net Profit (Rpbn) 23,310 25,855 28,672 33,144 37,286
to manage risk tightly. There is no sign of disruption on their transaction EPS(Rp) 945.4 1,048.7 1,163.3 1,344.7 1,512.8
banking, as showed by strong volume data in their main digital channel EPS growth (%) 13.1 10.9 10.9 15.6 12.5
(mobile, internet, ATM banking). Despite having a solid loan growth of BVPS (Rp) 5,323.1 6,153.1 7,036.1 7,992.7 9,034.2
14% YoY, BBCA still maintain its much lower-than-industry LDR at 82.6% PER (x) 32.0 28.8 26.0 22.5 20.0
(vs. industry 94%). PBV (x) 5.7 4.9 4.3 3.8 3.3
 Aggressively provide provision in 2019F. Provision has been the most ROA (%) 3.3 3.3 3.3 3.5 3.6
aggressive in 2019 among major banks, thus provide an upside of ROE (%) 19.1 18.3 17.6 17.9 17.8
smaller provision expense in 2020F. In term of exposure to global Dividend Yield (%) 0.7 0.8 1.1 1.3 1.5
volatility, only 6.7% of the total BBCA loan was exposed to foreign
exchange loan (vs. 13% exposure on banking system). Hence we believe Assumptions
asset quality to remain solid even under global economy weaknesses. 2017A 2018A 2019F 2020F 2021F
 We have a Buy rating with TP of Rp34,400/share. BBCA’s superior Loan growth 12.4 15.1 11.1 12.6 10.9
fundamental will give them defensive performance under weakening Loan to deposit ratio (%) 79.8 84.7 86.7 89.1 91.4
global economy trend. However valuation is rather demanding at 3.7x Net interest margin (%) 6.9 6.7 7.0 7.1 7.2
2020F PBV, above its historical average. Non-performing loan (%) 1.5 1.4 1.5 1.4 1.3
Erni Marsella Siahaan, CFA +62 21 2557 4800 ext. 919 siahaanerni@ciptadana.com
25
Bank Central Asia
Income Statement Per Share Data
Year to 31 Dec (Rpbn) 2017A 2018A 2019F 2020F 2021F Year to 31 Dec(Rp) 2017A 2018A 2019F 2020F 2021F
Interest income 53,768 56,767 64,455 70,834 78,671 EPS 945.4 1,048.7 1,163.3 1,344.7 1,512.8
Interest expenses -11,941 -11,476 -13,237 -13,854 -14,841 BVPS 5,323.1 6,153.1 7,036.1 7,992.7 9,034.2
Net interest income 41,826 45,291 51,218 56,980 63,829 DPS 199.9 255.1 335.7 383.9 457.2
Other non-interest income 15,155 17,744 18,869 21,047 23,362 XXXXX xxx Xxx xxx xxx xxx
Key Ratios
Total operating income 56,982 63,034 70,088 78,027 87,191
Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Operating expenses -25,190 -27,652 -30,295 -33,192 -36,512
Ratios
PPoP 31,791 35,383 39,793 44,835 50,680
ROA (%) 3.3 3.3 3.3 3.5 3.6
Prov. expenses and others -2,633 -2,677 -3,958 -3,411 -4,078
ROE (%) 19.1 18.3 17.6 17.9 17.8
Operating profit 29,159 32,706 35,834 41,424 46,601
Net interest margin (%) 6.9 6.7 7.0 7.1 7.2
Non-operating income (exp.) 0 0 0 0 0
Yield on earnings asset (%) 8.8 8.5 8.8 8.8 8.8
Pre-tax profit 29,159 32,706 35,834 41,424 46,601
Average cost of fund (%) 2.1 1.9 2.0 1.9 1.9
Income tax -5,838 -6,854 -7,167 -8,285 -9,320
Cost to income ratio (%) 44.2 43.9 43.2 42.5 41.9
Minority interest -11 3 4 5 5
Cost of Credit (%) 0.4 0.4 0.5 0.4 0.5
Net profit 23,310 25,855 28,672 33,144 37,286
Non-performing loan (%) 1.5 1.4 1.5 1.4 1.3
Coverage ratio (%) 190.7 178.7 176.6 179.6 183.8
Balance Sheet
Loan to deposit ratio (%) 79.8 84.7 86.7 89.1 91.4
Year to 31 Dec (Rpbn) 2017A 2018A 2019F 2020F 2021F
CASA ratio (%) 75.8 76.1 75.8 75.8 75.4
Cash 16,754 21,691 21,691 21,691 21,691
Equity to asset (%) 17.5 18.4 19.2 19.9 20.7
Current acct, with BI 43,473 43,548 54,784 59,972 64,910
Capital adequacy ratio (%) 23.1 23.4 26.2 27.7 29.5
Interbank placement 28,063 40,181 40,181 40,181 40,181
Tier-1 CAR 22.1 22.4 24.9 26.4 28.2
Mkt, securities 75,744 65,820 68,651 71,622 74,743
Govt. bonds 70,621 58,315 61,203 64,235 67,418 PER (x) 32.0 28.8 26.0 22.5 20.0
PBV (x) 5.7 4.9 4.3 3.8 3.3
Loans 454,265 524,530 582,514 656,402 728,081
Dividend yield (%) 0.7 0.8 1.1 1.3 1.5
Fixed assets 16,869 19,337 19,917 20,515 21,130
Other assets 31,716 38,753 38,753 38,753 38,753 Growth (%)
Total asset 750,320 824,788 902,198 990,049 1,076,089 Total assets growth 10.9 9.9 9.4 9.7 8.7
Loan growth 12.4 15.1 11.1 12.6 10.9
Deposits from customer 585,571 635,029 690,018 754,862 816,594
Deposit growth 9.7 8.4 8.7 9.4 8.2
Borrowings 3,801 3,070 3,727 3,159 1,796
NPL growth 27.4 9.3 14.9 5.7 7.4
Other liabilities 23,787 28,441 28,441 28,441 28,441
SHE growth 16.8 15.5 14.4 13.6 13.0
Total liabilities 618,918 673,035 728,681 792,957 853,326
Net interest income growth 4.4 8.3 13.1 11.2 12.0
Shareholder equity 131,304 151,659 173,423 196,999 222,670
Non-interest income growth 10.6 17.1 6.3 11.5 11.0
Minority interest 98 94 94 94 94
Provision expense growth -42.3 1.7 47.9 -13.8 19.6
Total liab + SHE 750,320 824,788 902,198 990,049 1,076,089
Net profit growth 13.1 10.9 10.9 15.6 12.5
26
Bank Rakyat Indonesia

Sector Banking
Bloomberg Ticker BBRI IJ 5,000 45%
4,500 40%
4,000
3,500
35%
30%
3,000 25%
Avg. daily T/O(Rpbn/USDmn) 458.8/32.5
Company Profile 2,500 20%
2,000 15%
Bank Rakyat Indonesia (BBRI) is the second largest bank in Indonesia after 3m 6m 12m 1,500 10%
BMRI and the most dominant micro loan lender. The bank has the most Absolute (%) -10.2 -8.4 35.7 1,000 5%
extensive and largest network across every area of Indonesia with its 10.6k Relative to JCI (%) -5.7 -1.8 29.5 500
0
0%
-5%
outlets, 25k ATMs and nearly 200k branchless banking agents. BBRI has both
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
52w High/Low price (Rp) 4,730/2,870
non-subsidized micro (Kupedes) and subsidized micro (KUR) as its loan
growth driver. Micro lending is the main profit driver for BRI, accounting for Outstanding shrs(mn) 123,346 BBRI 1yr Rel. to JCI (RHS)
nearly 50% of consolidated revenue. Mkt. Cap (Rpbn/USDmn) 487,216/34,461
Key Points Financial Highlights

 Beneficiary of rate cuts. BBRI have a relatively stickier lending rate 2017A 2018A 2019F 2020F 2021F
considering its micro business, while cost of funding would trend down Net Interest Income(Rpbn) 73,018 77,666 84,900 95,566 106,866
following decreasing time deposit rates (TD exposure at 40% vs. 22-36% Net Profit (Rpbn) 28,997 32,351 36,248 41,888 48,269
on its big four bank peers). BBRI also has a relatively more ample EPS(Rp) 235.1 262.3 293.9 339.6 391.3
liquidity with LDR expected to linger at 88-91% in 2019-21F. EPS growth (%) 10.5 11.6 12.0 15.6 15.2
 Targeting single digit opex growth. In longterm the use of technology BVPS (Rp) 1,350.1 1,483.4 1,650.7 1,853.4 2,083.5
and automation would gain efficiency given the labor intensive business PER (x) 16.8 15.1 13.4 11.6 10.1
model. We believe BBRI will maintain its operational efficiency with cost-
PBV (x) 2.9 2.7 2.4 2.1 1.9
to-income ratio to stay below 42% in 2018-2019F (vs. 42-43% in last few
ROA (%) 2.7 2.7 2.7 2.8 2.9
years).
ROE (%) 18.5 18.5 18.8 19.4 19.9
 Stable asset quality on strong credit culture in micro. We believe the
Dividend Yield (%) 2.2 2.7 3.3 3.7 4.3
management to maintain the focus on micro as it core business, and the
proportion of micro to increase. Its commercial micro (Kupedes) would Assumptions
also take more traction compared to KUR, considering the government 2017A 2018A 2019F 2020F 2021F
budget limitation. Loan growth 11.7 14.1 12.1 12.0 12.1
 We maintain BBRI as our top pick among the big four banks. We like Loan to deposit ratio (%) 85.4 86.8 87.8 89.4 90.5
BBRI due to its solid fundamental all across the board, driven by a likely Net interest margin (%) 7.9 7.5 7.3 7.5 7.6
NIM expansion, solid loan growth, solid asset quality, and a beneficiary of Non-performing loan (%) 2.1 2.2 2.2 2.2 2.2
efficiency trend. Our target price for BBRI implies 2.75x 2020F PBV.
27
Bank Rakyat Indonesia
Interest income 102,912 111,583 126,334 139,257 154,644 EPS 235.1 262.3 293.9 339.6 391.3
Key Ratios
Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Ratios
PPoP 54,061 60,047 64,972 73,927 84,108
ROA (%) 2.7 2.7 2.7 2.8 2.9
ROE (%) 18.5 18.5 18.8 19.4 19.9
Pre-tax profit 37,023 41,754 46,773 54,037 62,255
Income tax -7,978 -9,335 -10,457 -12,081 -13,919
Minority interest -48 -67 -67 -67 -67
Cost of Credit (%) 1.9 1.8 1.6 1.6 1.5
Net profit 28,997 32,351 36,248 41,888 48,269
Coverage ratio (%) 194.3 198.1 191.2 190.2 190.4
Balance Sheet
CASA ratio (%) 59.0 60.1 59.7 59.7 59.3
Cash 24,798 27,422 30,340 33,375 36,981
Equity to asset (%) 14.8 14.1 14.3 14.5 14.8
Tier-1 CAR 22.0 20.1 18.7 19.0 0.0
Mkt, securities 204,930 193,681 201,950 210,632 219,749
Govt. bonds 3,318 1,505 1,505 1,505 1,505 PER (x) 16.8 15.1 13.4 11.6 10.1
PBV (x) 2.9 2.7 2.4 2.1 1.9
Loans 689,559 784,992 879,751 985,800 1,105,687
Dividend yield (%) 2.2 2.7 3.3 3.7 4.3
Fixed assets 24,746 26,915 30,952 35,595 40,934
Total asset 1,126,248 1,296,898 1,427,531 1,571,643 1,734,097 Total assets growth 12.2 15.2 10.1 10.1 10.3
Loan growth 11.7 14.1 12.1 12.0 12.1
Deposits from customer 841,657 944,269 1,046,224 1,150,846 1,275,206
Deposit growth 11.5 12.2 10.8 10.0 10.8
Borrowings 73,146 110,501 118,538 133,031 142,742
NPL growth 15.5 16.7 15.6 11.2 10.3
SHE growth 13.7 9.9 11.3 12.3 12.4
Total liabilities 958,901 1,111,623 1,221,616 1,340,731 1,474,802
Minority interest 816 2,308 2,308 2,308 2,308
Provision expense growth 25.0 6.2 -0.5 9.3 9.9
Total liab + SHE 1,126,248 1,296,898 1,427,531 1,571,643 1,734,097
28
Bank Mandiri Sector

Bloomberg Ticker
Banking
BMRI IJ 9,000 20%
BUY TP: Rp8,800 (+34.9%)

8,000
Share Price Performance 15%
7,000
Last Price (Rp) 6,525 6,000
10%
Company Profile Avg. daily T/O(Rpbn/USDmn) 330.4/23.4 5,000
4,000
Bank Mandiri (BMRI) is the largest bank in Indonesia in term of total assets. 3,000
5%
3m 6m 12m
The bank was formed in 1998 and the result of the merger of four Absolute (%) -18.7 -16.3 2.0
2,000 0%
government-owned banks as part of bank restructuring program. Bank Relative to JCI (%) -14.2 -9.8 -4.3
1,000
Mandiri is majority-owned by government of Indonesia and has the most 0 -5%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
diversified loan exposure among its peers on corporate (46%), middle (18%), 52w High/Low price (Rp) 8,175/6,175
MSME (23%), and consumer (12%) segment. Outstanding shrs(mn) 46,667 BMRI 1yr Rel. to JCI (RHS)
Mkt. Cap (Rpbn/USDmn) 298,667/21,125
Key Points Estimated free float (%) 40.0
 Better asset mix has mostly achieved. BMRI long term strategy to Financial Highlights
reduce exposure to commercial (middle) segment has been mostly done
2017A 2018A 2019F 2020F 2021F
with exposure to the segment decline from 28% in 2016 to 18% as of
Net Interest Income(Rpbn) 51,988 54,623 59,628 66,558 73,583
1H19. Lower exposure to commercial segment should contribute to
Net Profit (Rpbn) 20,640 25,015 27,997 31,963 36,275
better asset quality going forward.
EPS(Rp) 442.3 536.0 599.9 684.9 777.3
 Cost of credit bottomed in 2019F and likely flattens going forward. BMRI
EPS growth (%) 49.5 21.2 11.9 14.2 13.5
has the most dramatic improvement in both NPL ratio and CoC in the past
three years, driven by improvement in commercial segment. We expect BVPS (Rp) 3,572.6 3,882.9 4,257.4 4,720.7 5,249.4
the improvement has fully taken impact and CoC to be flat going forward. PER (x) 14.5 11.9 10.7 9.3 8.2
We expect a flat CoC in 2019-21F at 1.8% of average loan. We expect PBV (x) 1.8 1.6 1.5 1.4 1.2
some corporate big names will continue to be a drag to CoC despite a ROA (%) 1.9 2.2 2.2 2.3 2.4
better credit risk from increasing retail (micro and consumer) proportion. ROE (%) 13.0 14.4 14.7 15.3 15.6
 Tight liquidity reduces the room to lower CoF. BMRI has the highest LDR Dividend Yield (%) 2.1 3.1 3.8 3.7 4.3
among its peers, stood at 96% as of 1H19. Cost of fund should go lower
Assumptions
following the multiple rate cuts, but the impact should be limited
2017A 2018A 2019F 2020F 2021F
considering the tight liquidity.
Loan growth 9.7 12.3 10.6 12.3 12.5
 Maintain Buy with Rp8,800/share target price. BMRI has
underperformed JAKFIN by 11/9% in 2018 and 2019 Ytd, respectively.
The share currently trades at 1.5x 2020F PBV and 10.2x 2020F PER,
attractive valuation for 15-16% ROE. Non-performing loan (%) 3.5 2.8 2.5 2.3 2.2
29
Bank Mandiri
Key Ratios
Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Ratios
PPoP 43,122 48,091 51,800 59,109 66,799
ROA (%) 1.9 2.2 2.2 2.3 2.4
ROE (%) 13.0 14.4 14.7 15.3 15.6
Non-operating income (exp.) -13 38 38 38 38
Pre-tax profit 27,157 33,943 36,730 42,007 47,772
Income tax -5,714 -8,091 -7,728 -8,838 -10,051
Minority interest -803 -837 -1,004 -1,205 -1,446
Cost of Credit (%) 1.8 1.5 1.4 1.5 1.5
Net profit 20,640 25,015 27,997 31,963 36,275
Coverage ratio (%) 134.8 142.5 150.2 157.7 162.6
Balance Sheet
CASA ratio (%) 66.2 64.1 64.0 63.9 63.7
Cash 24,269 27,349 27,349 27,349 27,349
Equity to asset (%) 14.8 15.1 15.2 15.4 15.5
Tier-1 CAR 20.6 19.8 19.4 19.1 18.9
Mkt, securities 62,161 65,934 65,934 65,934 65,934
Govt. bonds 103,411 114,285 114,285 114,285 114,285 PER (x) 14.5 11.9 10.7 9.3 8.2
PBV (x) 1.8 1.6 1.5 1.4 1.2
Loans 678,293 767,761 851,765 958,212 1,079,021
Dividend yield (%) 2.1 3.1 3.8 3.7 4.3
Fixed assets 36,619 38,443 39,212 39,996 40,796
Total asset 1,124,701 1,202,252 1,305,109 1,432,748 1,577,415 Total assets growth 8.3 6.9 8.6 9.8 10.1
Loan growth 9.7 12.3 10.6 12.3 12.5
Deposits from customer 815,807 840,914 938,438 1,047,292 1,168,795
Deposit growth 7.0 3.1 11.6 11.6 11.6
Borrowings 0 0 0 0 1
NPL growth -4.4 -10.9 -1.8 3.0 6.9
SHE growth 10.8 8.7 9.6 10.9 11.2
Total liabilities 954,695 1,017,292 1,102,674 1,208,692 1,328,690
Minority interest 3,287 3,758 3,758 3,758 3,758
Provision expense growth -35.3 -11.1 6.5 13.4 11.2
Total liab + SHE 1,124,701 1,202,252 1,305,109 1,432,748 1,577,416
30
Bank Negara Indonesia Sector

Bloomberg Ticker
Banking
BBNI IJ 12,000 35%
BUY TP: Rp9,300 (+35.8%) Share Price Performance 10,000

30%
25%
Last Price (Rp) 6,850 8,000 20%
Company Profile 15%
Avg. daily T/O(Rpbn/USDmn) 192.4/13.6 6,000
Bank Negara Indonesia (BBNI) is the fourth largest bank in Indonesia. 10%
4,000 5%
Established in 1946, the bank is the first bank formed and owned by 3m 6m 12m 0%
2,000
Government of Indonesia with 60% of the stake is owned by government at Absolute (%) -23.4 -28.9 2.2 -5%
the moment. The bank has widely diversified asset mix with biggest Relative to JCI (%) -18.8 -22.4 -4.1 0 -10%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
contribution from corporate loan (49% of total loan) followed by small and 52w High/Low price (Rp) 10,250/6,675
medium segment loan (29% of total loan). BBNI 1yr Rel. to JCI (RHS)
Key Points Mkt. Cap (Rpbn/USDmn) 128,210/9,068
 NIM improvement is a key catalyst. BBNI has the strongest loan growth
(20% YoY as of 1H19) but slow NII growth due to significant NIM pressure Financial Highlights
in 1H19. NIM improvement on lower interest expense would become a 2017A 2018A 2019F 2020F 2021F
key catalyst for BBNI going forward. Net Interest Income(Rpbn) 31,938 35,446 37,002 41,619 46,537
Net Profit (Rpbn) 13,617 15,015 15,648 18,137 20,474
 Relatively ample liquidity provides better room for CoF efficiency. BBNI EPS(Rp) 730.2 805.2 839.1 972.6 1,097.9
has relatively ample liquidity with LDR stands at 92% as of 1H19, thanks EPS growth (%) 20.1 10.3 4.2 15.9 12.9
to its ample growth of demand deposit driven by cash management BVPS (Rp) 5,286.8 5,795.4 6,536.5 7,430.5 8,427.4
system. PER (x) 10.1 9.1 8.8 7.6 6.7
PBV (x) 1.4 1.3 1.1 1.0 0.9
 Remain cautious on asset quality. BBNI has the significant exposure to ROA (%) 2.1 2.0 1.8 1.9 2.0
corporate (52% of total loan) and medium segment (14% of loan). The ROE (%) 14.7 14.5 13.6 13.9 13.8
deterioration of asset quality in some big names in corporate would likely
Dividend Yield (%) 2.9 3.5 2.7 2.9 3.3
to become a drag to provision expense in 2H19 and 2020F.
Assumptions
 Buy with TP of Rp9,300/share. We like BBNI for its relatively attractive 2017A 2018A 2019F 2020F 2021F
valuation among the big four. BBNI has the deepest share correction for Loan growth 12.2 16.2 12.7 12.1 12.2
two years in a row, underperforming JAKFIN by 14/20% in 2018 and Loan to deposit ratio (%) 85.4 88.6 87.6 86.2 84.8
2019 Ytd, respectively. The share currently trades at 1.0x 2020F PBV and Net interest margin (%) 5.7 5.4 5.1 5.2 5.3
7.4x 2020F PER, attractive valuation for ~14% ROE. Non-performing loan (%) 2.3 2.0 1.9 1.9 1.9
31
Bank Negara Indonesia
Interest income 48,178 54,139 59,917 65,065 71,437 EPS 730.2 805.2 839.1 972.6 1,097.9
Key Ratios
Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Ratios
PPoP 24,349 26,988 28,866 31,924 36,018
ROA (%) 2.1 2.0 1.8 1.9 2.0
ROE (%) 14.7 14.5 13.6 13.9 13.8
Pre-tax profit 17,165 19,821 19,666 22,788 25,720
Income tax -3,395 -4,729 -3,933 -4,558 -5,144
Cost of Credit (%) 1.3 1.1 1.3 1.2 1.2
Net profit 13,617 15,015 15,648 18,137 20,474
Coverage ratio (%) 143.8 148.3 154.8 153.3 152.0
Balance Sheet
CASA ratio (%) 63.0 64.8 64.8 64.8 64.8
Cash 11,578 14,044 16,001 18,241 20,795
Equity to asset (%) 13.9 13.4 13.6 14.0 14.4
Tier-1 CAR 16.6 16.6 16.6 16.6 16.6
Mkt, securities 36,729 32,044 33,646 35,329 37,095
Govt. bonds 79,849 86,791 86,791 86,791 86,791 PER (x) 10.1 9.1 8.8 7.6 6.7
PBV (x) 1.4 1.3 1.1 1.0 0.9
Loans 426,790 497,887 560,960 628,971 705,731
Dividend yield (%) 2.9 3.5 2.7 2.9 3.3
Fixed assets 22,805 26,127 27,433 28,804 30,245
Total asset 709,330 808,572 898,259 988,041 1,089,810 Total assets growth 17.6 14.0 11.1 10.0 10.3
Loan growth 12.2 16.2 12.7 12.1 12.2
Deposit growth 18.6 12.0 13.9 14.0 14.0
Borrowings 50,099 76,636 77,552 58,343 36,274
NPL growth -13.3 -0.6 9.6 13.3 12.8
SHE growth 13.1 9.6 12.8 13.7 13.4
Provision expense growth -9.3 3.7 27.5 -0.7 12.4
Total liab + SHE 709,330 808,572 898,259 988,041 1,089,810
32
Bank Tabungan Negara Sector Banking

Bloomberg Ticker BBTN IJ 3,000 10%
HOLD TP: Rp2,200 (+16.1%) Share Price Performance 2,500
5%
0%
Last Price (Rp) 1,895 2,000 -5%
Company Profile -10%
Bank Tabungan Negara (BBTN) was established in 1897 under the name of -15%
“Postspaarbank” and is the only bank in Indonesia focusing on houses 3m 6m 12m 1,000 -20%
-25%
financing. The bank holds the biggest mortgage market share in Indonesia at Absolute (%) -24.4 -22.5 -20.4 500
-30%
39% as of 1H19, up from 27% four years ago, mainly due to its success in Relative to JCI (%) -19.8 -15.9 -26.7 0 -35%
Oct-18
Nov-18
Dec-18
middle-to-low segment house financing. Low cost housing is BBTN’s niche
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
market with >90% market share domination.
Outstanding shrs(mn) 10,590 BBTN 1yr Rel. to JCI (RHS)

 Loan growth to decelerate. Given the tight liquidity in the market, it is a
challenge to BBTN to maintain the net interest income growth. We expect Financial Highlights
BBTN to continue slowing down its loan growth to help generate a better 2017A 2018A 2019F 2020F 2021F
net interest income (NII) growth given the tight liquidity environment. Net Interest Income(Rpbn) 9,341 10,089 10,117 12,299 13,686
 Higher normal rate of Credit Cost. BBTN has a relatively low cost of Net Profit (Rpbn) 3,027 2,808 1,670 3,088 3,773
credit in the past due to its collateral-backed loan, ranging at 0.4-0.5% EPS(Rp) 285.9 265.0 157.6 291.4 356.1
annually (vs. peers at 1-2%). However due to the new implementation of EPS growth (%) 15.7 -7.3 -40.5 84.9 22.2
PSAK 71, the cost of credit on every new booking is likely to be higher BVPS (Rp) 2,045.7 2,250.0 2,351.7 2,508.0 2,780.1
following the forward-looking nature. PER (x) 6.9 7.4 12.4 6.7 5.5
 Limited budget for subsidy house program. BBTN had the strongest loan PBV (x) 1.0 0.9 0.8 0.8 0.7
growth in the past thanks to the government’s cheap housing program, ROA (%) 1.3 1.0 0.5 0.9 1.0
which come with very affordable rates (5% lending rates). However the ROE (%) 14.8 12.3 6.8 12.0 13.5
budget for this program is quite limited. The banks is likely to shift to
Dividend Yield (%) 2.5 2.9 2.7 1.6 3.0
World Bank’s subsidy scheme (down payment assistance), rather than
Government’s interest subsidy in the meantime, while waiting for the Assumptions
long term implementation of Tapera (Housing saving program). 2017A 2018A 2019F 2020F 2021F
 Capital is also tight. Given the direct charge to equity from Loan growth 21.0 19.5 14.0 13.1 12.7
implementation of IFRS 9, book value of equity is likely to decline in 1Q20. Loan to deposit ratio (%) 103.4 103.4 101.3 97.9 99.8
In addition, higher-than-industry leverages in the book add more risk to Net interest margin (%) 4.3 3.9 3.4 3.8 3.8
its tight capital condition. Non-performing loan (%) 2.7 2.8 2.8 2.9 2.8
33
Bank Tabungan Negara
Key Ratios
Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Ratios
PPoP 4,776 5,308 4,755 6,031 6,524
ROA (%) 1.3 1.0 0.5 0.9 1.0
Prov. expenses and others -884 -1,714 -2,608 -2,061 -1,673
ROE (%) 14.8 12.3 6.8 12.0 13.5
Pre-tax profit 3,862 3,610 2,147 3,970 4,851
Income tax -834 -802 -477 -882 -1,078
Cost of Credit (%) 0.4 0.7 0.9 0.6 0.5
Net profit 3,027 2,808 1,670 3,088 3,773
Coverage ratio (%) 44.6 49.2 62.4 109.2 107.4
Balance Sheet
CASA ratio (%) 49.7 43.5 43.7 43.7 43.9
Cash 1,028 1,244 1,448 1,694 1,872
Equity to asset (%) 8.3 7.8 7.3 7.1 7.1
Tier-1 CAR 16.0 16.0 12.7 12.2 12.0
Mkt, securities 7,706 5,848 5,848 5,848 5,848
Govt. bonds 8,184 9,393 9,393 9,393 9,393 PER (x) 6.9 7.4 12.4 6.7 5.5
PBV (x) 1.0 0.9 0.8 0.8 0.7
Loans 196,635 234,460 266,199 296,625 334,923
Dividend yield (%) 2.5 2.9 2.7 1.6 3.0
Fixed assets 4,837 5,018 5,168 5,323 5,483
Total asset 261,365 306,436 341,414 375,661 416,890 Total assets growth 22.0 17.2 11.4 10.0 11.0
Loan growth 21.0 19.5 14.0 13.1 12.7
Deposit growth 20.3 19.4 16.4 17.0 10.5
Borrowings 32,856 40,079 35,906 22,673 27,757
NPL growth 13.1 26.7 14.0 17.3 7.3
SHE growth 13.2 10.0 4.5 6.6 10.8
Provision expense growth 25.0 93.9 52.1 -21.0 -18.8
Total liab + SHE 261,365 306,436 341,414 375,661 416,892
Net profit growth 15.6 -7.3 -40.5 84.9 22.2
34
Bank CIMB Niaga Sector

Bloomberg Ticker
Banking
BNGA IJ 1,400 35%
BUY TP: Rp1,520 (+59.2%)

30%
1,200
1,000 20%
Last Price (Rp) 955
800 15%
Company Profile Avg. daily T/O(Rpbn/USDmn) 4.3/0.3 10%
600
Bank CIMB Niaga (BNGA) is the second biggest private bank after BBCA. The 5%
3m 6m 12m 400 0%
bank is a local subsidiary of Malaysia-based investment bank CIMB Group -5%
Absolute (%) -10.2 -8.2 11.0 200
Holdings Berhad, and has operated since 1955 under the name of Bank -10%
Relative to JCI (%) -9.3 -4.5 5.9 0 -15%
Niaga. CIMB Group is the majority shareholder with 91.48% ownership. BNGA
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
offers a range of product to both individual and business banking. Its loan 52w High/Low price (Rp) 1,290/805
book currently consists of corporate (37% of total loan), commercial (16%), Outstanding shrs(mn) 24,931 BNGA 1yr Rel. to JCI (RHS)
MSME (19%), and consumer (27%) as of 1H19. Mkt. Cap (Rpbn/USDmn) 25,180/1,792
Key Points
Financial Highlights
 Continuing the upward trend in NIM. BNGA is among a few banks that
2017A 2018A 2019F 2020F 2021F
able to raise NIM in 1H19. This is thanks to the lending rates
Net Interest Income(Rpbn) 12,403 12,012 12,163 13,378 14,344
improvement and manageable cost of funding. Going forward, we expect
BNGA to continue to benefit from benchmark rate cuts and NIM to Net Profit (Rpbn) 2,978 3,482 3,637 4,140 4,617
increase as we believe cost of fund has reached its peak in 2Q19. BNGA’s EPS(Rp) 118.5 139.7 145.9 166.1 185.2
NIM historically moves in opposite direction to the benchmark rates EPS growth (%) 43.1 17.9 4.4 13.9 11.5
 Loan growth still weak. Loan growth would mainly driven by consumer, BVPS (Rp) 1,470.5 1,587.6 1,738.1 1,909.5 2,076.8
especially mortgage and auto loan (calibration has been done in 1H19). PER (x) 8.5 7.2 6.9 6.1 5.5
However we expect total loan growth to remain weak as the bank still PBV (x) 0.7 0.6 0.6 0.5 0.5
likely to be cautious in commercial segment and would continue to focus ROA (%) 1.2 1.3 1.3 1.4 1.5
the expansion on tier-1 commercial names only. BNGA also has ROE (%) 8.4 9.1 8.8 9.1 9.3
unexpected asset quality deterioration from corporate names in 2019F, Dividend Yield (%) 0.0 2.4 2.8 2.9 3.3
namely from KRAS.
Assumptions
 The most compelling valuation among our universe. BNGA’s valuation is
2017A 2018A 2019F 2020F 2021F
compelling at 0.6-0.5x 2019-20F PBV, below its historical trading average
at 0.8x and among the cheapest in small/mid-sized banks. We expect Loan growth 4.5 2.7 6.6 7.7 7.8
BNGA’s ROE to improve to 9.1-9.3% in 2020/21F as we expect 14-12% Loan to deposit ratio (%) 95.8 97.6 95.5 94.2 93.2
earnings growth in 2020/21F, respectively. Net interest margin (%) 5.6 5.2 5.1 5.3 5.2
35
Bank CIMB Niaga
Key Ratios
Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Ratios
PPoP 8,186 7,824 7,953 9,049 10,023
ROA (%) 1.2 1.3 1.3 1.4 1.5
ROE (%) 8.4 9.1 8.8 9.1 9.3
Pre-tax profit 4,155 4,851 5,066 5,768 6,431
Income tax -1,177 -1,368 -1,429 -1,627 -1,814
Cost of Credit (%) 1.9 1.3 1.2 1.3 1.3
Net profit 2,978 3,482 3,637 4,140 4,617
Coverage ratio (%) 103.1 104.3 107.6 107.3 107.1
Balance Sheet
CASA ratio (%) 52.6 52.6 53.1 53.5 54.0
Cash 3,896 4,293 4,293 4,293 4,293
Equity to asset (%) 13.9 14.8 15.1 15.5 15.7
Tier-1 CAR 17.0 18.0 17.7 17.9 18.0
Mkt, securities 13,442 11,270 12,159 13,137 14,213
Govt. bonds 24,971 24,000 26,400 29,040 31,944 PER (x) 8.5 7.2 6.9 6.1 5.5
PBV (x) 0.7 0.6 0.6 0.5 0.5
Loans 174,421 180,311 192,530 207,293 223,558
Dividend yield (%) 0.0 2.4 2.8 2.9 3.3
Fixed assets 6,660 7,050 7,261 7,479 7,703
Loan growth 4.5 2.7 6.6 7.7 7.8
Deposit growth 4.8 0.8 9.1 9.1 9.1
Borrowings 22,189 21,149 20,329 17,126 14,286
NPL growth -0.2 -15.8 -1.9 7.6 7.6
SHE growth 8.0 7.1 9.5 9.9 8.8
Net interest income growth 2.6 -3.2 1.3 10.0 7.2
Provision expense growth -18.0 -25.7 -2.8 13.4 9.3
Total liab + SHE 266,305 266,781 286,983 306,901 328,811
36
BTPN Syariah Sector

Bloomberg Ticker
Banking
BTPS IJ 4,000 120%
BUY TP: Rp4,080 (+25.2%)

3,500
3,000
Last Price (Rp) 3,260 80%
2,500
Company Profile Avg. daily T/O(Rpbn/USDmn) 126.5/9.0
2,000 60%
Bank Tabungan Pensiunan Nasional Syariah (BTPS) is the only bank in 3m 6m 12m
1,500
40%
Indonesia that provides ultra-micro financing with only Rp2.2 mn average Absolute (%) 5.7 48.2 100.0
1,000
20%
financing size (much smaller than Retail KUR of Rp12-25 mn). The majority of Relative to JCI (%) 6.6 51.9 94.9
500
shares are owned by PT Bank Tabungan Pensiunan Nasional, Tbk (70%). 0 0%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
BTPS was inspired by the business model of Grameen Bank which has
sustainably served the same segment in Bangladesh since 1983. The bank Outstanding shrs(mn) 7,704
currently operates in 23 provinces in Indonesia. Mkt. Cap (Rpbn/USDmn) 25,576/1,820
BTPS 1yr Rel. to JCI (RHS)

 Standout ROA from unique business model. ROA recorded at 6.6-9.1% in 2017A 2018A 2019F 2020F 2021F
2016-18 (vs. banking industry of 2.2-2.6%) and continue to trending up Net Interest Income(Rpbn) 2,560 3,080 3,722 4,393 5,030
going forward. The business model is unique and no other bank enters
Net Profit (Rpbn) 670 965 1,278 1,563 1,815
the same market at the moment. The ultra micro business model gives
EPS(Rp) 96.7 125.3 165.9 202.9 235.6
thick asset yield and superior NIM as high as >30%, far higher than
EPS growth (%) 62.5 29.6 32.4 22.3 16.1
industry average of 5%.
BVPS (Rp) 325.2 518.9 681.1 826.1 992.3
 Loan growth not yet decelerated. BTPS asset base has grown very
PER (x) 34.3 26.5 20.0 16.4 14.1
significantly at CAGR of 32% in 2015-2018 and total financing at CAGR of
26%. There is still plenty of liquidity in their balance sheet in the form of PBV (x) 10.2 6.4 4.9 4.0 3.3
liquid assets; hence any stronger penetration in mass market could ROA (%) 8.1 9.1 9.4 9.6 9.5
easily translate to financing growth. The bank recorded 27% YoY ROE (%) 34.8 30.9 27.6 26.9 25.9
financing growth as of Aug-19, trended up from its bottom of 19% YoY in Dividend Yield (%) 0.0 0.0 0.0 1.5 1.8
Feb-18 (pre-IPO).
Assumptions
 Defensive against global economy weaknesses. BTPS relatively are 2017A 2018A 2019F 2020F 2021F
more defensive against weaknesses in NPL as it focuses on domestic
Loan growth 21.1 20.2 20.9 14.9 13.4
mass market. NPL solidly stands at 1.3% as of 1H19 and we expect it to
continue stable at 1.6% in 2019-21F.
 Tap into technology to increase efficiency. BTPS, along with BBRI,
should enjoy the significant impact from efficiency given its labour
intensive business model. Erni Marsella Siahaan, CFA +62 21 2557 4800 ext. 919 siahaanerni@ciptadana.com
37
Bank BTPN Syariah
Interest expenses -346 -368 -431 -505 -571 BVPS 325.2 518.9 681.1 826.1 992.3
Other non-interest income 7 13 14 19 27 XXXXX xxx Xxx xxx xxx xxx
Key Ratios
Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Ratios
PPoP 1,143 1,578 2,023 2,474 2,863
ROA (%) 8.1 9.1 9.4 9.6 9.5
Prov. expenses and others -235 -276 -300 -366 -418
ROE (%) 34.8 30.9 27.6 26.9 25.9
Operating profit 908 1,303 1,723 2,107 2,446
Non-operating income (exp.) 0 -4 -4 -4 -4
Pre-tax profit 909 1,299 1,720 2,104 2,442
Income tax -239 -334 -442 -540 -627
Cost of Credit (%) 3.3 2.9 2.5 2.5 2.5
Net profit 670 965 1,278 1,563 1,815
Coverage ratio (%) 156.4 214.0 168.8 168.4 167.2
Balance Sheet
CASA ratio (%) 21.3 22.8 23.6 24.4 25.7
Cash 229 416 501 583 659
Equity to asset (%) 24.6 33.2 34.9 36.0 37.5
Current acct, with BI 364 399 481 559 632
Tier-1 CAR 28.7 40.3 39.8 41.1 42.8
Mkt, securities 1,024 1,038 1,506 1,933 2,244
Govt. bonds 0 0 0 0 0 PER (x) 34.3 26.5 20.0 16.4 14.1
PBV (x) 10.2 6.4 4.9 4.0 3.3
Loans 5,895 7,061 8,566 9,841 11,152
Dividend yield (%) 0.0 0.0 0.0 1.5 1.8
Fixed assets 190 177 212 255 306
Other assets 315 361 434 520 624 Growth (%)
Loan growth 21.1 20.2 20.9 14.9 13.4
Deposit growth 21.5 16.3 20.6 16.3 13.0
Borrowings 0 0 163 194 236
NPL growth 32.0 0.1 36.8 16.4 15.3
Other liabilities 356 430 430 430 430
SHE growth 41.6 77.3 31.3 21.3 20.1
Provision expense growth 98.4 17.3 8.7 22.1 14.0
Total liab + SHE 9,157 12,039 15,024 17,672 20,386
38
CONSUMER SECTOR
39
Consumer
Overweight
Sector Outlook
 Potential tailwind for staples 4) Oil: Our oil analyst projects FY20F oil price to decline compare to FY19F
We like consumer staples next year due to potential tailwind from the key as he expects that Brent average oil price will decline by 4.8% at USD
raw materials prices which could uphold consumer staple companies’ 60/bbl next year (vs. average USD 63/bbl in FY19F), and WTI average
margin. We consider more manageable outlook of wheat, coffee, oil as well oil price to decline by 3.4% to USD 56/bbl (vs. average USD 58/bbl in
as CPO, in spite of sugar and dairy products’ prices potential rise. We list FY19F). We view this should be positive for staples margin.
out the outlook of each key raw material as follows:
 Potential headwind for staples
1) Wheat: in FY20F wheat price is expected to be manageable despite 1) Sugar: sugar price is expected to increase a little bit in 2020 despite
slightly increase in wheat prices due to weather issue in Europe and steady decline in FY19F. According to Food and Agriculture
central Asia which caused yield losses this year. However, FY19F USDA Organization (FAO), decline in sugar price is mainly driven by two
outlook on global output still expected to grow by 4.7% to 180.8 MT factors such as: 1). Increasing production in key sugar producing
while the usage only grows by 2.8% to 756.3 MT. countries such as India and Thailand, and 2). Rising production from
2) Coffee: coffee price is expected to decline due to oversupply issue with Indonesia. On their forecast, Crisil India ( a rating company) expects
surplus totaling of 4.96 mn bags. If we add the subsequent 2 season’s that sugar price could increase by 8-9% in 2020 due to the delayed
surplus, the total will be around 7 mn bags, in which translate to 2 rainfall in sugar producing area, and supply from India could shrink by
years of surplus according to International coffee organization (ICO). 9-10%. However, there is probability of minimal surge in sugar price
3.9% of global increase in production is almost twice higher than the since India intention on balancing its supply level by preparing 4 mn
demand which is estimated to grow by 2.1% YoY in FY20F. We foresee tons buffer stock. Looking at the global inventory on sugar Crisil also
that the coffee price will be in favour for staples’ counters that have note that there is huge carry stock of 12 mn tons (vs 7-8 tons average)
exposure to this commodity as we expect the production growth which should cap the upside on sugar price.
remains high. 2) Dairy: dairy price is expected to rise according to US Dairy Export
3) CPO: Our view on CPO price is positive for next year, as our plantation Council (USDEC) triggered by lower production yield to support export
analyst targets CPO price growth at 15% to RM2,300/ton. She notes skim milk powder (SMP) from bad weather, and government pressure
that the implementation of B20 in FY19F will help Indonesia’s CPO on low phosphate regulation in EU. Since November 2018 top 5
inventory to decrease to below 2.5mn tons level (vs. 4mn tons in FY18). suppliers (EU, US, New Zealand, Australia, and Argentina) experiencing
we projects soybean oil price to go up on depleting inventory. Another decline in output and in coupled with increasing china demand. With EU
positive tailwind for CPO price comes from Ex-Java consumption, production declined by 1.5% YTD, and New Zealand production cannot
whereas especially on the low end consumption as farmers will likely offset the decline, the global outlook on SMP price should be rosier
to have better purchasing power. and erode company margin with high milk production component.
40
500
1000
1500
2000
2500
3000
3500
0
-
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
1,000.0
Jan-11
Apr-11 Jan-11
Jul-11 Apr-11
Oct-11 Jul-11
Jan-12 Oct-11
Apr-12 Jan-12
Jul-12
Exhibit 39: Wheat Price
Apr-12
Oct-12 Jul-12

Jan-13 Oct-12
Apr-13 Jan-13
Jul-13 Apr-13
Oct-13 Jul-13
Jan-14 Oct-13
Apr-14 Jan-14
Exhibit 40: Skim Milk Powder (SMP) Price

Jul-14 Apr-14
Oct-14 Jul-14
Jan-15 Oct-14
Jan-15
SMP (EUR/MT)
Apr-15
Wheat (USD/bu)
Jul-15 Apr-15
Oct-15 Jul-15
Oct-15
Jan-16
Jan-16
Apr-16
Apr-16
Jul-16
Jul-16
Oct-16
Average
Oct-16
Average
Jan-17 Jan-17
Apr-17 Apr-17
Jul-17 Jul-17
Oct-17 Oct-17
Jan-18 Jan-18
Apr-18 Apr-18
Jul-18 Jul-18
Oct-18 Oct-18
Jan-19 Jan-19
Apr-19 Apr-19
Jul-19 Jul-19
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
500
1000
1500
2000
2500
3000
3500
4000
Jan-11
Jan-11
Apr-11
Apr-11
Jul-11
Jul-11
Oct-11
Oct-11
Jan-12
Jan-12
Apr-12
Apr-12
Exhibit 42: Sugar Price
Exhibit 41: Cocoa Price
Jul-12 Jul-12
Oct-12
Oct-12
Jan-13 Jan-13
Apr-13 Apr-13
Jul-13 Jul-13
Oct-13 Oct-13
Jan-14 Jan-14
Apr-14 Apr-14
Jul-14 Jul-14
Oct-14 Oct-14
Jan-15 Jan-15
Sugar (USD/lb)
Apr-15
COCOA (USD/MT)
Apr-15
Jul-15 Jul-15
Oct-15 Oct-15
Jan-16 Jan-16
Apr-16 Apr-16
Jul-16 Jul-16
Oct-16 Oct-16
Average
Average
Jan-17 Jan-17
Apr-17 Apr-17
Jul-17 Jul-17
Oct-17 Oct-17
Jan-18 Jan-18
Apr-18 Apr-18
Jul-18 Jul-18
Oct-18 Oct-18
Jan-19 Jan-19
Apr-19 Apr-19
41
Jul-19 Jul-19
 Mixed bag consumption signal from government budget Exhibit 43: Social Assistance Budget for 2020
We are receiving mixed signal from government budget which make us 2019
2020 Proposed Budget YoY
Outlook
more cautious on mid to low income purchasing power, and how it will
impact our staples counter. We think staples will face some pressure from Social assistance budget 369.1 385.1 4.3%
low purchasing power on the brink of energy subsidy cut. We note that PIP 11.2 11.1 -0.9%
based on 2015 and 2017 electricity cut we see contraction on staples sales Bidik Misi/KIP kuliah (Education) 4.7 7.5 59.6%
growth during the two periods. Hence we are cautious on the mid to low PKH 32.6 29.1 -10.7%
end purchasing power from the energy subsidy cut despite the increased in B. Pangan/Kartu sembako (food
social assistance program. 20.4 28.1 37.7%
security)
PBI JKN 26.7 48.8 82.8%
1) Social assistance program: social assistance program under PKH and
Energy and non-energy subsidy 200.7 187.5 -6.6%
Food security are increased by 7.9% from Rp53.0 tn in 2019 to Rp 57.2
tn in 2020. Digging into the detail PKH (family hope program) is down Electricity subsidy 52.3 62.2 18.9%
10.7% while food security is increased by 37.7%. Thus, we think this is Oil and LPG subsidy 90.3 75.3 -16.6%
still good for low income household to maintain its consumption for Others 58.1 50.0 -13.9%
basic necessities since government sending signal that inflation Dana desa (village fund) 69.8 72.0 3.2%
expected to be at 3.1% which means that government will be Pembiayaan ultra mikro 3.0 1.0 -66.7%
committed to maintain administered prices steady.
Source: 2020 RAPBN, Ciptadana
2) The energy and non energy subsidy: we saw the budget for energy and
non energy reduced by 6.6% with the combination of oil and energy Exhibit 44: Electricity subsidy cuts impacts to revenue in 2015 and 2017
subsidy slashed by 16.6%, mainly from two factors: 1). Government 40.0%
wants to control 3 Kg LPG subsidy and increase oversee effort with aim 35.0%
to make the subsidy more effective. 2). Diesel fuel subsidy is expected 30.0%
to be cut to Rp 1000/Litre from Rp 2000/Litre. However, our concern on 25.0%
the electricity subsidy despite 18.9% increase in total budget, since the 20.0%
15.0%
government wants to take out electricity subsidy for 900Va category
10.0%
which comprises of mid to low consumer and 23 mn household fall 5.0%
under capable household will be impacted by this subsidy cut. 0.0%
Meanwhile the other 6.9 mn household expected to keep receiving -5.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
subsidy. -10.0%
-15.0%
UNVR MYOR D ICBP Agregate Sales
Source: Company, Ciptadana
42
 Preferences pick MYOR, INDF and UNVR. Exhibit 45: Indonesia MSCI consumer Staples VS 10Y Government bond yield
We have BUY call on MYOR, INDF and MYOR with TP of Rp 2,890, Rp 9,560, 1200 16
and Rp 52,540, respectively. Considering the potential upside on the key 14
tailwind risk for staples margin from low soft commodity price we expect 1000
staples to outperform JCI next year. 12
800
10
The other drivers for staples to outperform next year from macroeconomic 600 8
side are 1). As a bond proxy, further cut on interest rate (we found strong
relationship with -0.8% correlation between MSCI Indonesia Consumer 6
400
Staples vs 10Y Indonesia Government bond yield) should support staples 4
valuation to re-rate, 2). Lacklustre on the consumption side especially from 200
2
low purchasing power consumers (post electricity, LPG, and BPJS
contribution hike) as government back to its reform agenda. 0 0
Feb-07
Feb-14
Dec-05
Jul-06
Dec-12
Jul-13
Mar-04
Mar-11
Mar-18
Sep-07
Sep-14
Apr-08
Jan-10
Aug-10
Apr-15
Jan-17
Aug-17
Oct-04
May-05
Nov-08
Oct-11
May-12
Jun-09
Nov-15
Jun-16
Oct-18
May-19
Therefore we like consumer names which fit with our 3 criteria’s: 1).
Limited concentration to domestic market and having successful foreign MSCI indonesia Consumer Staples (in Rp) - RHS Indonesia 10Y Govt Bond Yield (in %) - LHS
expansion. 2) Potential earnings surprise from both commodity prices 3).
and names that continue to innovate during intense competition. Our
pecking orders are MYOR, INDF, and UNVR. Key rationale as follows: Source: Bloomberg, Ciptadana Sekuritas
1) We prefer MYOR as our top pick on the back of continuation adding new Exhibit 46: Consumer stocks rating and valuation
market to its distribution which will help the company to sustain its
Bberg Mkt.Cap Last Target Upside PER EV/EBITDA ROE Yield
organic growth and hedges against the currency volatility. Currently 20F 20F
MYOR is traded at 2020F PER of 23.9x , which is near to its -1std of Ticker Rating (Rp tn) Price Price pot.(%) 2019F 2020F 2019F 2020F
(%) (%)
mean , hence we believed the risk and reward are attractive. UNVR BUY 346.6 45,425 52,540 15.7 46.1 42.6 31.5 29.3 106.6 2.3
2) INDF’s valuation is also attractive at 2020F of 14.5 which is below its 5 ICBP HOLD 142.6 12,225 13,330 9.0 28.0 25.3 16.5 15.3 22.2 2.9
year historical average (15.0x). Strong ICBP sales and potential INDF BUY 68.9 7,850 9,560 21.8 16.5 14.5 7.9 7.1 12.9 5.6
earnings surprise are from the agriculture division as we expect higher MYOR BUY 51.4 2,300 2,890 25.7 27.3 23.9 15.1 13.9 19.3 1.3
CPO price and ICBP deliver a decent growth. INDF is also still attractive Sector OW 609.6 36.9 33.8 23.9 22.2 68.9 2.7
in term of 40% discount to ICBP.
3) UNVR is currently trading at 2020F PER of 42.6x, still slightly below its
mean at 46.4x. We like the company as the firm keep adding new Muhammad Fariz +62 21 2557 4800 ext. 740 farizmuhammad@ciptadana.com
product which should fuelling its long term growth on the back of
innovation during intense competition.
43
Indofood CBP Sector Consumer
HOLD TP: Rp13,330 (+9.0%) Bloomberg Ticker ICBP IJ

Share Price Performance 14,000 40%
35%
Last Price 12,225 12,000
Company Profile (Rp)
30%
25%
10,000
Established in 2009 under Indofood Sukses Makmur, Indofood CBP (ICBP) is a Avg. daily T/O (Rpbn/USDmn) 62.3/4.4 20%
8,000
market-leading producer of consumer branded products. The business 15%
3m 6m 12m 6,000 10%
operation of ICBP comprises of noodles, dairy, snack foods, food seasoning, Absolute (%) 21.9 31.8 42.6 4,000
5%
0%
nutrition and special food as well as beverages. The major contributor for Relative to JCI (%) 26.5 38.3 36.3 2,000
-5%
ICBP’s revenue comes from noodles and dairy, as they made up to 85% of the 0
-10%
-15%
company’s total revenue. 52w High/Low price (Rp) 12,550/8,300
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
Outstanding shrs (mn) 11,662
Mkt. Cap (Rpbn/USDmn) 142,567/10,084 ICBP 1yr Rel. to JCI (RHS)

 Revenue expected to grow decently by 8.1% in FY20F, as Noodle Financial Highlights
remains the biggest growth contributors, we expected Noodle to deliver 2017A 2018A 2019F 2020F 2021F
strong growth by 9.2% YoY on the back of rising export and domestic
Revenue (Rpbn) 35,607 38,413 43,279 46,794 50,287
sales. Dairy expected to grow decently at 6.2% YoY from distribution
Operating profit (Rpbn) 5,378 5,772 7,292 7,800 8,357
improvement and new product launches.
Net profit (Rpbn) 3,797 4,576 5,096 5,629 6,046
 Potential pushback from Sugar and Milk price. We expect FY20F dairy
EPS (Rp) 325.6 392.4 437.0 482.7 518.5
margin to shrink by 3% due to potential rise in sugar price (8-9% rise
EPS growth (%) 5.4 20.5 11.4 10.4 7.4
expectation), and milk price which is still facing depleting inventory on
Skim Milk Powder (SMP) as a result of decreasing global output. EV/EBITDA (x) 22.4 21.1 16.5 15.3 14.1
PER (x) 37.6 31.2 28.0 25.3 23.6
 10.4% net profit growth from Wheat price, we still expect that Wheat
price remain favourable for ICBP despite of minor increase from bad PBV (x) 7.3 6.6 6.1 5.6 5.2
weather. We have met the company and they are positive on wheat price Dividend yield (%) 1.4 1.9 2.5 2.9 3.2
as Bogasari will lower its selling price later this year. Thus we expect ROE (%) 19.4 21.2 21.7 22.2 22.2
noodle EBIT margin to expand by 40bps to offset the decline in dairy
Assumptions
margin.
2017A 2018A 2019F 2020F 2021F
 We maintain our HOLD rating with TP of Rp 13,330/share. We derived
Noodle 22,680 24,732 27,788 30,345 32,821
our assumption using multiple based valuation at 27.6x PER target (+2
Dairy 7,085 7,541 8,026 8,527 9,060
STD) and use FY20F EPS at Rp 482.7. Since we expect the company to
Food seasonings 863 943 2,004 2,168 2,322
deliver strong earnings growth from noodle sales next year, we expect
Snack 2,545 2,528 2,527 2,525 2,524
noodles sales could achieve meaningful growth from export activity.
ICBP is currently trading at FY20F PER of 25.3x. Nutrition and special food 719 838 977 1,139 1,327
Beverages 1,716 1,832 1,957 2,090 2,232
Muhammad Fariz +62 21 2557 4800 ext. 740 farizmuhammad@ciptadana.com
44
Indofood CBP
Income Statement Cash Flow
Year to 31 Dec (Rpbn) 2017A 2018A 2019F 2020F 2021F Year to 31 Dec (Rpbn) 2017A 2018A 2019F 2020F 2021F
Revenue 35,607 38,413 43,279 46,794 50,287 Net income 3,797 4,576 5,096 5,629 6,046
COGS -24,548 -26,148 -28,656 -31,068 -33,412 Depreciation 676 841 1,042 1,121 1,208
Gross profit 11,059 12,266 14,623 15,726 16,875 Chg in working cap. 234 -2,780 -395 -246 -248
Oper. expenses -5,681 -6,494 -7,331 -7,926 -8,518 Other 84 -111 -438 -623 -802
Oper. profit 5,378 5,772 7,292 7,800 8,357 CF-Oper activities 4,790 2,525 5,306 5,880 6,204
EBITDA 6,053 6,613 8,334 8,922 9,565
Capital expenditure -2,195 -4,181 -1,161 -1,257 -1,350
Interest income 324 254 324 347 371
Others -148 -415 0 0 0
Interest expense -154 -226 -191 -60 69
CF-Investing activities -2,343 -4,597 -1,161 -1,257 -1,350
Other income (exp.) -341 647 57 171 71
Pre-tax profit 5,207 6,447 7,482 8,257 8,868 Net change in debt 34 83 -300 -1,137 -1,118
Income tax -1,663 -1,788 -2,080 -2,291 -2,459 Net change in equity -284 580 610 674 724
Minority interest 253 -83 -305 -337 -362 Dividend payment -1,943 -2,690 -3,537 -4,101 -4,529
Net profit 3,797 4,576 5,096 5,629 6,046 Other financing 0 0 0 0 0
CF-Financing activities -2,022 -1,999 -3,094 -4,277 -4,483
Balance Sheet Net cash flow 425 -4,070 1,050 347 371
Year to 31 Dec (Rpbn) 2017A 2018A 2019F 2020F 2021F Cash - begin of the year 8,372 8,797 4,727 5,777 6,124
Cash & cash equivalent 8,945 5,291 6,341 6,688 7,059 Cash - end of the year 8,797 4,727 5,777 6,124 6,495
Acct, receivables 4,126 4,271 4,812 5,203 5,592
Inventory 3,262 4,001 4,385 4,754 5,113 Key Ratios
Other curr, asset 246 558 629 680 731 2017A 2018A 2019F 2020F 2021F
Total current asset 16,579 14,122 16,167 17,325 18,494 Revenue gr. (%) 3.3 7.9 12.7 8.1 7.5
Fixed assets - net 8,120 10,742 10,861 10,997 11,139 Operating profit gr. (%) 8.9 7.3 26.3 7.0 7.1
Other non-curr.asset 1,021 2,886 2,886 2,886 2,886 Net profit gr. (%) 5.4 20.5 11.4 10.4 7.4
Total asset 31,620 34,367 36,533 37,826 39,137
Gross margin (%) 31.1 31.9 33.8 33.6 33.6
Operating margin (%) 15.1 15.0 16.8 16.7 16.6
ST debt + curr. maturity 921 1,107 0 0 0
EBITDA margin (%) 17.0 17.2 19.3 19.1 19.0
Acct, payable 3,519 3,706 4,061 4,403 4,735
Net margin (%) 10.7 11.9 11.8 12.0 12.0
Advances received 0 0 0 0 0
ROA (%) 12.0 13.3 14.0 14.9 15.4
Other curr. liab 2,387 2,422 2,668 2,891 3,108
ROE (%) 19.4 21.2 21.7 22.2 22.2
Long term debt 955 852 1,659 522 -596
Other non-curr, liab, 3,513 3,573 3,573 3,573 3,573 Current ratio (x) 2.4 2.0 2.4 2.4 2.4
Total liabilities 11,295 11,660 11,961 11,388 10,821 Quick ratio (x) 2.0 1.4 1.8 1.7 1.7
Shareholder equity 19,564 21,619 23,484 25,349 27,228 Interest cover (x) 39.3 29.3 43.6 148.5 -139.4
Minority interest 761 1,088 1,088 1,088 1,088 Debt to equity ratio (x) 0.1 0.1 0.1 0.0 0.0
Total liab + SHE 31,620 34,367 36,533 37,826 39,137 Net debt to equity (x) Net Cash Net Cash Net Cash Net Cash Net Cash
45
Indofood Sukses Makmur Sector

Bloomberg Ticker
Consumer
INDF IJ
BUY TP: Rp9,560 (+21.8%) Share Price Performance 9,000 35%
8,000 30%
7,000 25%
Avg. daily T/O (Rpbn/USDmn) 60.6/4.3
Company Profile 6,000
5,000
20%
15%
Founded in 1990, Indofood Sukses Makmur (INDF) is one of the largest food 3m 6m 12m 4,000 10%
companies in Indonesia that operates through four divisions namely, Absolute (%) 13.4 19.8 42.1
3,000
2,000
5%
0%
Consumer Branded Products (CBP), Bogasari (flour milling), Agribusiness Relative to JCI (%) 17.9 26.4 35.8 1,000 -5%
(Indofood Agri Resources) and Distribution. In 2016, INDF discontinued its 0 -10%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
Cultivation (Minzhong) operation.
INDF 1yr Rel. to JCI (RHS)
 Mid Single digit growth revenues next year. We expect INDF to deliver Financial Highlights
5.9% revenue growth, mainly driven by ICBP and Agriculture division. We 2017A 2018A 2019F 2020F 2021F
expect ICBP to deliver 7.4% revenue growth in FY20F, and Agriculture to Revenue (Rpbn) 70,187 73,395 77,531 82,106 85,367
deliver 15.0% revenue growth in FY20F as our CPO analyst expect 15% Operating profit (Rpbn) 8,463 7,928 7,746 8,793 9,317
upside on CPO price. However, the negative catalyst for INDF top line Net profit (Rpbn) 4,156 4,166 4,172 4,769 5,082
growth is potentially from Bogasari due to lower wheat price which will EPS (Rp) 473.4 474.5 475.1 543.2 578.8
push the company to lower its ASP, we estimated 3.1% decline in Bogasari
EPS growth (%) 0.3 0.2 0.1 14.3 6.6
revenue for FY20F.
EV/EBITDA (x) 7.1 7.9 7.9 7.1 6.6
 Expect 14.3% net profit growth in FY20F, driven by strong ICBP top line
PER (x) 16.6 16.5 16.5 14.5 13.6
growth and margin from lower wheat price that would help noodle to print
PBV (x) 2.2 2.1 2.0 1.9 1.8
7.9% EBIT growth. We expect agriculture segment EBIT margin expansion
Dividend yield (%) 4.0 5.1 4.9 5.6 6.0
by delivering 5.8% EBIT margin in FY20F (vs -0.07% in FY19F) supported by
higher CPO price (15% increase). ROE (%) 13.3 12.4 11.9 12.9 13.1
 BUY with TP of Rp 9,560/share. INDF is currently trading at FY20F PER of Assumptions

just 14.5x. We believe this is an attractive price to pay for INDF, as it’s PER Revenue Assumption 2017A 2018A 2019F 2020F 2021F
fell below 5 year historical PER of 15.0x. Currently INDF still attractive with ICBP 35,336 38,466 40,608 43,510 46,644
40% discount to ICBP. Bogasari 15,550 17,264 19,681 19,071 18,480
Distribution 13,667 12,169 11,195 12,874 13,261
Agribusiness 5,634 5,497 6,046 6,651 6,983
46
Indofood Sukses Makmur
COGS -50,417 -53,183 -56,180 -59,495 -61,858 Depreciation 2,521 2,806 3,076 3,336 3,612
Gross profit 19,770 20,212 21,351 22,611 23,509 Chg in working cap. -678 -9,017 -578 -639 -456
Oper. expenses -11,307 -12,284 -13,605 -13,818 -14,192 Other 1,927 2,397 2,330 2,456 2,497
Oper. profit 8,463 7,928 7,746 8,793 9,317 CF-Oper activities 7,926 352 9,000 9,922 10,735
EBITDA 10,984 10,734 10,822 12,129 12,929
Others 123 -1,221 0 0 0
Interest expense -1,486 -2,022 -2,054 -2,068 -2,052
Other income (exp.) 118 1,120 1,246 1,246 1,246
Pre-tax profit 7,595 7,447 7,458 8,494 9,037 Net change in debt 2,481 5,440 457 206 -233
Income tax -2,498 -2,485 -2,490 -2,814 -2,984 Net change in equity 771 1,631 797 911 971
Minority interest -941 -796 -797 -911 -971 Dividend payment -2,735 -3,485 -3,397 -3,883 -4,138
Net profit 4,156 4,166 4,172 4,769 5,082 Other financing -366 -293 -293 -293 -293
CF-Financing activities -835 1,691 -3,970 -4,605 -5,220
Balance Sheet Net cash flow 328 -4,881 50 50 50
Other curr, asset 3,625 3,298 3,455 3,628 3,752 2017A 2018A 2019F 2020F 2021F
Fixed assets - net 39,492 42,388 44,293 46,224 48,077 Operating profit gr. (%) 2.3 -6.3 -2.3 13.5 6.0
Total asset 88,401 96,538 99,610 102,827 105,610
Gross margin (%) 28.2 27.5 27.5 27.5 27.5
ST debt + curr. maturity 12,077 21,634 21,634 21,634 21,634
EBITDA margin (%) 15.6 14.6 14.0 14.8 15.1
Acct, payable 4,076 4,029 4,256 4,507 4,686
Net margin (%) 5.9 5.7 5.4 5.8 6.0
ROA (%) 4.7 4.3 4.2 4.6 4.8
Other curr. liab 4,849 4,935 5,214 5,521 5,741
ROE (%) 13.3 12.4 11.9 12.9 13.1
Long term debt 11,607 7,490 7,947 8,153 7,920
Shareholder equity 31,303 33,614 35,186 36,983 38,897 Interest cover (x) 7.4 5.3 5.3 5.9 6.3
Minority interest 15,800 16,303 16,806 17,423 18,101 Debt to equity ratio (x) 0.8 0.9 0.8 0.8 0.8
Total liab + SHE 88,401 96,538 99,610 102,827 105,610 Net debt to equity (x) 0.3 0.5 0.5 0.5 0.4
47
Mayora Indah Sector

Bloomberg Ticker
Consumer
MYOR IJ

-5%
-10%
Avg. daily T/O (Rpbn/USDmn) 7.3/0.5 2,000
Mayora Indah is well-know FMCG company in Indonesia with strong brands 3m 6m 12m
1,500
-20%
marketed in Indonesia and abroad. MYOR product portfolio is balanced Absolute (%) -3.4 -9.4 -10.9 1,000
-25%
between Food which includes Coffee & Cocoa processing deriving (53% of total Relative to JCI (%) 1.2 -2.9 -17.1 500 -30%
revenues) and the rest 47% in confectionaries, biscuits, wafer, candy (1H18). 0 -35%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
MYOR exports to ASEAN countries, China, Africa, Australia, Eastern Europe and
Middle East is accounting for 45% of total revenues. MYOR is characterized by Outstanding shrs (mn) 22,359
strong margins and ROE. Mkt. Cap (Rpbn/USDmn) 51,425/3,637 MYOR 1yr Rel. to JCI (RHS)
Key Points 2017A 2018A 2019F 2020F 2021F
 Revenue expected to grow decently at 12.3%, as we expect domestic Revenue (Rpbn) 20,817 24,061 26,736 30,033 34,101
sales to grow by 12.9% which outshine export growth which we believed to Operating profit (Rpbn) 2,461 2,628 3,013 3,238 3,752
print 11.6% growth in FY20F. The company planned to further monetization Net profit (Rpbn) 1,594 1,716 1,885 2,153 2,535
of Russia market from coffee export only to market its biscuits as well. On EPS (Rp) 71.3 76.8 84.3 96.3 113.4
the division side we expect package food processing to deliver 14.1% YoY
EPS growth (%) 17.7 7.6 9.8 14.2 17.7
growth in FY20F, and Beverages to grow decently at 10.4%.
EV/EBITDA (x) 17.9 17.3 15.1 13.9 12.1
 Expect further margin expansion, we expect the company to continue
PER (x) 32.3 30.0 27.3 23.9 20.3
expanding its net profit margin by 20bps in FY20F which enable the
PBV (x) 7.2 6.2 5.3 4.6 4.0
company to deliver 14.2% net profit growth from favorable commodity
Dividend yield (%) 1.2 0.9 1.1 1.3 1.5
price.
ROE (%) 22.2 20.6 19.5 19.3 19.6
 BUY recommendation with FY20F TP of Rp 2,890/share, we derived our
assumption using multiple based valuation at 30x PER target since we Assumptions
expect the company to deliver strong earnings growth next year. We expect Revenue Assumption 2017A 2018A 2019F 2020F 2021F
MYOR continuation on adding new export destinations and strong products Foods processing 11,024 12,432 13,815 15,767 18,074
portfolio will justify its long term growth potential to justify its premium Beverages processing 9,792 11,628 12,921 14,266 16,028
valuation. Currently MYOR is valued at 23.9x PER which still traded near to Domestic sales 11,266 12,952 14,891 16,810 19,326
its -1STD, hence we believe the company would offer attractive risk and
Export sales 9,511 11,109 11,845 13,223 14,776
reward.
48
Mayora Indah
COGS -15,842 -17,664 -18,995 -21,483 -24,659 Depreciation 539 549 603 670 746
Gross profit 4,975 6,397 7,741 8,549 9,443 Chg in working cap. -679 -2,178 -755 -991 -1,231
Oper. expenses -2,514 -3,769 -4,729 -5,312 -5,690 Other 266 282 434 289 278
Oper. profit 2,461 2,628 3,013 3,238 3,752 CF-Oper activities 1,721 370 2,167 2,121 2,327
EBITDA 3,000 3,177 3,616 3,908 4,498
Capital expenditure -669 -819 -906 -1,018 -1,156
Others 0 0 0 0 0
Interest expense -394 -493 -647 -503 -491
CF-Investing activities -669 -819 -906 -1,018 -1,156
Other income (exp.) -7 36 36 36 36
Pre-tax profit 2,187 2,382 2,615 2,985 3,511 Net change in debt 378 1,553 -258 -164 -128
Income tax -556 -622 -682 -777 -911 Net change in equity 0 0 0 0 0
Minority interest -37 -44 -48 -55 -65 Dividend payment -617 -481 -569 -650 -765
CF-Financing activities -394 743 -1,261 -1,103 -1,171
Balance Sheet Net cash flow 659 294 0 0 0
Other curr, asset 544 725 806 905 1,028 2017A 2018A 2019F 2020F 2021F
Other non-curr.asset 253 686 695 708 723 Net profit gr. (%) 17.7 7.6 9.8 14.2 17.7
Total asset 14,916 17,592 18,913 20,677 22,855
Gross margin (%) 23.9 26.6 29.0 28.5 27.7
ST debt + curr. maturity 2,228 2,630 0 0 0
EBITDA margin (%) 14.4 13.2 13.5 13.0 13.2
Acct, payable 1,829 1,625 1,748 1,977 2,269
Net margin (%) 7.7 7.1 7.0 7.2 7.4
ROA (%) 10.7 9.8 10.0 10.4 11.1
Other curr. liab 417 509 549 621 712
ROE (%) 22.2 20.6 19.5 19.3 19.6
Long term debt 2,226 3,377 5,749 5,585 5,456
Other non-curr, liab, 862 907 1,008 1,133 1,286 Current ratio (x) 2.4 2.7 5.9 5.8 5.6
Minority interest 168 200 200 200 200 Debt to equity ratio (x) 0.6 0.7 0.6 0.5 0.4
49
Unilever Indonesia Sector

Bloomberg Ticker
Consumer
UNVR IJ
-2%
Last Price (Rp) 45,425 50,000
Company Profile -4%
Unilever Indonesia (UNVR) was established in 1933 under the name Lever’s -6%
Zeepfabrieken N.V in Indonesia. UNVR has been one of the Indonesia’s largest 3m 6m 12m
30,000
-8%
consumer goods producers. The company’s portfolio of home & personal Absolute (%) 0.9 -7.3 3.0 20,000
-10%
care and food & refreshment products contains various well known brands, Relative to JCI (%) 5.5 -0.8 -3.3 10,000 -12%
such as Wall’s, Bango, Lifebuoy, Sunsilk, Pepsodent, Rinso, Ponds and Dove. 0 -14%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
Key Points Mkt. Cap (Rpbn/USDmn) 346,593/24,515 UNVR 1yr Rel. to JCI (RHS)
 Expect 6.8% top line growth with expectation of both Home Personal Estimated free float (%) 15.0
Care (HPC) & Food and Refreshments fuelling FY20F growth. The growth Financial Highlights
driver would come from the launches of two new HPC brands within the 2017A 2018A 2019F 2020F 2021F
category to cater the demand on halal skin care and earth friendly body Revenue (Rpbn) 41,205 41,802 43,964 46,955 51,994
care. 1). On halal skincare category the company launch new product Operating profit (Rpbn) 9,505 9,456 10,193 10,969 11,996
under Nameraa brand with 11 Skus to targeting woman who wears hijab. Net profit (Rpbn) 7,005 9,109 7,524 8,130 8,906
2). On the body care category Unilever launches Love and Beauty Planet
EPS (Rp) 918.0 1,193.9 986.2 1,065.6 1,167.2
to stay relevant to millennial which having high awareness on the usage
EPS growth (%) 9.6 30.1 -17.4 8.1 9.5
of environment friendly product. On top of those aforementioned brands
EV/EBITDA (x) 34.4 33.9 31.5 29.3 26.8
the company will launch another 2 brands in 2H19F which might be able
to help FY20F volumes. Hence we expect this segment to grow by 8.3% in PER (x) 49.5 38.0 46.1 42.6 38.9
FY20F. On the Food and Refreshment segment we expect UNVR to grow PBV (x) 67.0 45.7 45.6 45.4 45.3
by 3.1% next year driven by new strategy on: introduction of Seru Dividend yield (%) 1.9 2.0 2.2 2.3 2.6
(fighting brands under Walls) to West Java and Jakarta, Hellmans ROE (%) 135.4 120.2 99.0 106.6 116.3
Mayonaines, Sariwangi Milk tea and Bango bumbu nusantara.
Assumptions
 Earnings should improve by 8.1%, mainly from the sales of new product Revenue Assumption 2017A 2018A 2019F 2020F 2021F
under HPC and food & refreshment which should driving company
Home and Personal Care 28,127 28,723 30,775 33,338 36,916
volume.
Foods and Refreshment 13,007 13,079 13,189 13,617 15,078
 Our recommendation is BUY with TP of Rp 52,540. UNVR currently
trading at FY20F PER of 42.6x, which still slightly below its mean of 46.4X
PER. We like the company as the firm keep adding new product which Muhammad Fariz +62 21 2557 4800 ext. 740 farizmuhammad@ciptadana.com
should fuelling its long term growth on the back of innovation during
intense competition.
50
Unilever Indonesia
Gross profit 21,220 21,092 22,433 24,042 26,462 Chg in working cap. -446 606 47 156 372
EBITDA 10,159 10,233 11,015 11,853 12,944
Capital expenditure -1,547 -983 -1,111 -1,185 -1,309
Others -156 132 24 24 24
CF-Investing activities -1,703 -851 -1,086 -1,160 -1,285
Other income (exp.) -2 2,821 0 0 0
Pre-tax profit 9,372 12,186 10,066 10,876 11,913 Net change in debt 1,057 -2,990 141 74 -64
Income tax -2,367 -3,076 -2,541 -2,745 -3,007 Net change in equity 0 0 0 0 0
Minority interest 0 0 0 0 0 Dividend payment -6,638 -6,981 -7,500 -8,104 -8,877
Balance Sheet Net cash flow 31 -53 -50 -20 0
Year to 31 Dec (Rpbn) 2017A 2018A 2019F 2020F 2021F Cash - begin of the year 374 405 352 302 282
Cash & cash equivalent 405 352 302 282 282 Cash - end of the year 405 352 302 282 282
Fixed assets - net 10,422 10,627 10,915 11,217 11,577 Operating profit gr. (%) 9.2 -0.5 7.8 7.6 9.4
Other non-curr.asset 90 74 74 74 74 Net profit gr. (%) 9.6 30.1 -17.4 8.1 9.5
Total asset 18,906 19,523 20,113 20,925 22,241
Gross margin (%) 51.5 50.5 51.0 51.2 50.9
ST debt + curr. maturity 3,450 460 601 676 611
EBITDA margin (%) 24.7 24.5 25.1 25.2 24.9
Acct, payable 4,527 4,573 4,754 5,059 5,637
Net margin (%) 17.0 21.8 17.1 17.3 17.1
ROA (%) 37.0 46.7 37.4 38.9 40.0
Other curr. liab 4,555 6,102 6,344 6,751 7,523
ROE (%) 135.4 120.2 99.0 106.6 116.3
Long term debt 0 0 0 0 0
Other non-curr, liab, 1,201 810 810 810 810 Current ratio (x) 0.6 0.7 0.7 0.7 0.7
51
CIGARETTE SECTOR
52
Cigarettes
Neutral
Sector Outlook
 Case study from Thailand, higher tax = higher revenue: Thailand raised
We estimated that FY19F industry volume to grow by 2.1% on the back of its cigarette tax 11 times which bring tax portion from 55% - 87% per one
absence of excise hike. However, we think that FY20F volume will be at risk pack (20 stick) between the period of FY91-FY12 and the result are
due to higher than usual excise hike. Thus, we assume 3.8% - 4.0% volume positive as the cigarette tax revenue increased by 4-fold during that period
decline are rational to offset 1.5x minimum retail price hike at 35% vs. 15% and smoking prevalence drop from 32% to 21.4%. Whereas Thailand does
average. Historically, Indonesia tobacco demand is considered inelastic (- not stop there and further raised the tax rate to 90% in FY16 to achieve its
0.08 to -0.17 elasticity) which result only minor decline in volume at 1.4% - target of additional THB15 bn tax collection as a result Thailand
2.6% rate despite 10%-11% excise hike depending on the pass on rate hike government gained THB90 bn additional tax revenue.
at cigarette ASP. Thus, we think that FY20F will be a challenging year and
cigarette company valuation likely to de-rate to more reasonable level as Exhibit 47: Thailand Tobacco Control Impact
there is risk of margin erosion if cigarette companies do not properly pass 3,000 100
on the excise.
90
2,500
80
 23% excise hike as a sign of stricter cigarette control
2,000 70
Heading to FY20F government decides to increase excise by 23% as a sign
60
the government want to control cigarette consumption and driving up the
1,500 50
prices to lower the affordability. We think that there is probability of
consistent high excise hike as Indonesia is the only country that has not 40
1,000
ratified WHO Framework Convention of Tobacco Control (FCTC) as World 30
Health Organization (WHO) member. Once Indonesia ratifies FCTC, the long 500 20
term narrative on Indonesia cigarette will change as higher cigarette tax 10
regime likely to happen. We think higher cigarette tax will be in favour of - -
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
government budget for helping BPJS deficit, and also act as a measure to
reduce smoking prevalence level.
Excise rate (%of factory price) - LHS Tax revenue (USD mn) - RHS
Sale (mn Pack) - RHS Smoking prevalence (%) -LHS
Source: SEATCA, TH Excise Tax Dept., TH MOF
53
 Case study from Philippines, higher tax = improvement in healthcare: The Exhibit 49: Philippine Department of Health budget jump by 240% (PHP billion)
Philippines used to have 4 cigarette classifications and from FY12 to FY17 160.0
Philippines simplified the tax structure into unitary tax by cutting the 140.0
classification and raising the tax which gradually drove the structure into
one tax classification. The results are very positive since the country’s 120.0
incremental revenue is above what government targeted and helped 100.0
government to increased Department of health budget and the Philippines
80.0
health coverage budget significantly.
60.0
Exhibit 48: Philippine road to unitary tax (Tax/Pack of 20 stick, in PHP)
40.0
35.0
20.0
-
30.0 Premium 2010 2011 2012 2013 2014 2015 2016 2017
Departement of Health Budget

25.0
Source: SEATCA
20.0 Exhibit 50: Philippine Healthcare Budget (PHP billion)

60
53.2
15.0 Before implementation of stricter
High 50 Cigarette control 43.9
10.0 37.1
40 35.2
Medium 30
5.0
Low
20
12.5 12.6
-
2012 2013 2014 2015 2016 2017 10 5 5
4.5
2.9 3.5 3.5
Source: SEATCA 0.5 0.5 0.5 0.5 0.8
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: SEATCA
54
 Indonesia smoking prevalence among the highest in APAC  Indonesia Is the only growing market for cigarette smokers
We view FY20F-FY21F will be a challenging year for Cigarette sector since Based on BI and Euromonitor data, we compared cigarette consumption in
our Finance Minister Sri Mulyani explicitly aims to curb cigarette Indonesia vs. other leading markets which have consumption share >3% to
consumptions among female, Children, and low income consumers due to global cigarette consumptions. Our findings show that only Indonesia
unchanged smoking Prevalence. Indonesia Smoking Prevalence (BI, and registering sustainable cigarette consumption growth within period of
Euromonitor) stood at 36.4% in FY18 which increased by 1.2% compared to 2009-2018 with 18% growth (vs 11% decline in the world’s cigarette
35.2% in FY09. Indonesia smoking prevalence level is also stubbornly high consumption). We note that China Cigarette consumption is already
compared to China with 27.8% and APAC with 19.9% level. Thus, we view matured and showing clear declining consumption direction in line with
that going forward government will be focusing more to maximize its other major cigarette market. Hence, we think that it is reasonable that the
excise revenue from cigarette to fund government spending and narrowing Indonesia government is willing to increase excise by 23% which are
BPJS (national Health Care Program) deficit. We view this as rational as doubling the usual excise increase. Meanwhile, it is a clear precedence for
most of BPJS deficit are coming from Severe illness (Heart and Stroke government if they do not increase excise will result in higher cigarette
contribute 68.5% of BPJS deficit) which might result from smoking habits. consumption.
Exhibit 51: Indonesia Smoking Prevalence Level Exhibit 52: Global Cigarette Consumption Growth (in %) from 2009-2018
40.00
130
35.00 120
118.1
110
30.00
100 102.0
25.00
90 89.8
80
74.7
20.00 70
64.2
60 61.5
15.00
50
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Asia Pacific Indonesia China

World Total China Indonesia United States Russia Japan
Source: BI, Euromonitor, Ciptadana
55
 Are Indonesia tobacco stocks cheap now? be the safest bet for now but the share price can be volatile from low
We see Indonesia’s cigarette sector only partially priced in the tax increase earnings visibility and whether this high excise high is one off or not.
and should not be traded at premium relative to MSCI EM Tobacco. We are
heading to short term cost pressure from higher excise tax which will Exhibit 53: Average Indonesia Tobacco PER relative to MSCI EM Tobacco
require pricing discipline from cigarette companies to pass on the tariff to 1.50 2.5X - 3.5Xwage growth
1.4X wage growth
maintain its margin. Currently, we think that market are still pricing in 1.40
higher excise and is not yet incorporating potential electricity hike in 1.30
FY20F. 1.20
1.10
1.00
Indonesia’s cigarette sector has been trading at 8% discount relative to
0.90
MSCI EM Tobacco Index (vs. 20% premium historically). However, we think
0.80
Indonesia cigarette PER should be traded similar to EM cigarette and far
0.70
below its median level for some times similar to FY17 Period. Why we
Feb-17
Feb-18
Feb-19
Jul-17
Dec-17
Jul-18
Dec-18
Jul-19
Mar-17
Mar-18
Mar-19
Sep-17
Sep-18
Jan-17
Apr-17
Aug-17
Jan-18
Apr-18
Aug-18
Jan-19
Apr-19
Aug-19
May-17
May-18
Jun-17
Oct-17
Nov-17
Jun-18
Oct-18
May-19
Nov-18
Jun-19
believed Indonesia cigarette should be traded below median level:
1) Higher-than-expected excise growth in FY20F which is expected to
be around 2.5x-3.5x of wage increase vs. 1.4x in FY17. Indo Tobacco PE relative to MSCI EM Tobacco Median
2) Potential electricity hike might hamper purchasing power Source: Bloomberg, Ciptadana
3) Lower weight on several benchmark indices (LQ45 and IDX30) due
to change in methodology to gradually adjust to full free float base. Exhibit 54: Average Indonesia Tobacco PER relative to MSCI Indonesia Staples
This has reduced liquidity premium on HMSP and bring the 1.05
valuation to more rational level. As we noticed, first rebalance in
1.00
May-19, HMSP’s valuation premium diminished by 30% due to 5.9%
0.95
reduction in index weight from 7.4% to 1.6% index weight.
0.90
 How to play the sector? 0.85

We think Indonesia cigarette sector performance will be challenging in the 0.80
1H20F as the cigarette companies will likely to face margin erosion from
0.75
the impact of FY19F slow ASP hike and the company only have 3 month left
to start raising prices. 1H20F will be crucial period for company to 0.70
safeguard their full year margin by raising prices aggressively to 0.65

compensate higher excise cost to revenue in the 1H20F and bring the 0.60
excise to revenue portion for full year figure to more rational level. We are
Nov-17
Nov-18
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Jul-17
Oct-17
Jul-18
Oct-18
Jul-19
Feb-17
Apr-17
Sep-17
Feb-18
Apr-18
Sep-18
Feb-19
Apr-19
May-17
Aug-17
May-18
May-19
Jan-17
Mar-17
Jan-18
Mar-18
Aug-18
Aug-19
Jan-19
Mar-19
now cautious on how FY20F ASP hike and volume will unfold and we think
better stay on the sidelines for positioning into cigarette space and see
Indo Tobacco PE relative to MSCI Indonesia Staples Median
how discipline the company on their pricing strategy. We believe HMSP will
56
0.40
0.50
0.60
0.70
0.80
0.90
1.00
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Jan-17 Jan-17
Feb-17 Feb-17
Mar-17 Mar-17
Apr-17 Apr-17
May-17 May-17
Jun-17 Jun-17
Jul-17 Jul-17

Aug-17 Aug-17
Sep-17 Sep-17
Oct-17 Oct-17
Nov-17 Nov-17
Dec-17 Dec-17
Jan-18 Jan-18
Feb-18 Feb-18
Mar-18 Mar-18
Apr-18 Apr-18
Exhibit 55: HMSP PER relative to MSCI EM Tobacco
Exhibit 56: GGRM PER relative to MSCI EM Tobacco

May-18 May-18
Jun-18 Jun-18
Jul-18 Jul-18
Aug-18 HMSP PE relative to MSCI EM Tobacco Aug-18
GGRM PE relative to MSCI EM Tobacco

Sep-18 Sep-18
Oct-18 Oct-18
Nov-18 Nov-18
Dec-18 Dec-18
Jan-19 Jan-19
Feb-19 Feb-19
Median
Median
Mar-19 Mar-19
Apr-19 Apr-19
May-19 May-19
Jun-19 Jun-19
Jul-19 Jul-19
Aug-19 Aug-19
0.68
1.16
0.40
0.50
0.60
0.70
0.80
0.90
1.00
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Jan-17 Jan-17
Feb-17 Feb-17
Mar-17 Mar-17
Apr-17 Apr-17
May-17 May-17
Jun-17 Jun-17
Source: Bloomberg, Ciptadana Jul-17 Jul-17
Aug-17 Aug-17
Sep-17 Sep-17
Oct-17 Oct-17
Nov-17 Nov-17
Dec-17 Dec-17
Jan-18 Jan-18
Feb-18 Feb-18
Mar-18 Mar-18
Apr-18 Apr-18
May-18 May-18
Jun-18 Jun-18
Jul-18 Jul-18
Exhibit 57: HMSP PER relative to MSCI Indonesia Staples
Exhibit 58: GGRM PER relative to MSCI Indonesia Staples
Aug-18 Aug-18
HMSP PE relative to MSCI Indonesia Staples
GGRM PE relative to MSCI Indonesia Staples
Sep-18 Sep-18
Oct-18 Oct-18
Nov-18 Nov-18
Dec-18 Dec-18
Jan-19 Jan-19
Feb-19 Feb-19
Mar-19 Mar-19
Median
Median
Apr-19 Apr-19
May-19 May-19
Jun-19 Jun-19
Jul-19 Jul-19
57
Aug-19 Aug-19
Exhibit 59: SKM contribution to revenue Exhibit 61: Industry Volume Growth
100%
350,000 3.0%
90%
80% 300,000
2.0%
70%
250,000
60% 1.0%
50% 200,000
40% 0.0%
150,000
30%
-1.0%
20% 100,000
10%
-2.0%
50,000
0%
2014 2015 2016 2017 2018
- -3.0%
HMSP SKM GGRM SKM FY16 FY17 FY18 FY19F
Industry Volume (in Mn stick) Industry Volume growth (%)

Exhibit 60: Global Cigarette Consumption Share (in %)

Exhibit 62: Industry Shares
100%
90%
80%
70%
36.4
60%
43.8
50%
40%
30%
20%
2.2 10%
2.9
4.5 0%
4.5 5.8 FY15 FY16 FY17 FY18 FY19F
SKM SKT SPM

China Indonesia United States Russia Japan Turkey Others
58
 Stick to quality, pick HMSP over GGRM. Exhibit 64: HMSP PE relative to GGRM
Our pecking order change to HMSP over GGRM since we are remain 3.00
cautious on how FY20F ASP strategy on each company going to unfold 2.80
to adjust with 23% excise hike during potential weak purchasing power.
2.60
Our view, FY20F period of high excise growth should warrant a balance
between volume decline and ASP hike. Our preference lean towards 2.40
HMSP due to its proven track record on pricing discipline and 2.20
profitability maintenance, we believed HMSP has more pricing power 2.00
over its customers due to high exposure to middle up segment vs
1.80
GGRM high exposure to low end segment.
1) We have BUY rating on HMSP, Our TP implies FY20F PER of 18.6x, 1.60
still 20% premium (usually >50% Premium) to MSCI EM Tobacco 1.40
that is currently traded at 15.5x PER. 1.20
2) We have Hold rating on GGRM, our TP implies FY20F PER of 12.1x
1.00
or at 35% discount to HMSP (usually >50% discount).
Feb-17
Feb-18
Feb-19
Jul-17
Dec-17
Jul-18
Dec-18
Jul-19
Mar-17
Mar-18
Mar-19
Sep-17
Sep-18
Jan-17
Apr-17
Aug-17
Jan-18
Apr-18
Aug-18
Jan-19
Apr-19
Aug-19
May-17
May-18
May-19
Jun-17
Oct-17
Nov-17
Jun-18
Oct-18
Nov-18
Jun-19
Exhibit 63: Cigarettes stocks rating and valuation
Bberg Mkt.Cap Last Target Upside PER EV/EBITDA ROE Yield HMSP PE relative to GGRM P/E Median
20F 20F
(%) (%) Source: Bloomberg, Ciptadana
HMSP Buy 250.1 2,150 2,420 12.6 15.2 16.5 10.8 11.8 40.5 6.5
GGRM Hold 95.2 49,500 50,990 3.0 9.9 11.7 7.1 8.2 15.8 6.5
Sector N 345.3 13.7 15.2 9.8 10.8 33.7 6.5
59
Gudang Garam Sector

Bloomberg Ticker
Tobacco
GGRM IJ
HOLD TP: Rp50,990 (+3.0%) Share Price Performance 100,000 20%
90,000
GGRM is a leading producer of kretek cigarettes in Indonesia which operates Avg. daily T/O (Rpbn/USDmn) 130.7/9.2 70,000 0%
60,000
production facilities at two main sites in Kediri and Gempol. GGRM produces 3m 6m 12m
50,000 -10%
40,000
a wide range of kretek cigarettes including high-tar and low-tar variantes Absolute (%) -35.8 -37.6 -33.8 30,000 -20%
(full flavored and mild) as well as traditional hand-rolled kretek. GGRM is the Relative to JCI (%) -31.3 -31.1 -40.0
20,000
10,000
-30%
second-largest cigarettes player after HMSP. 0 -40%

Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
Outstanding shrs (mn) 1,924 GGRM 1yr Rel. to JCI (RHS)
 Excise passed on strategy are warranted. We expect the company to Estimated free float (%) 23.6
increase ASP by minimum 14.6% next year and start monetizing 25% Financial Highlights
volume lead over HMSP. We forecast company volume to decline by 3.8% 2017A 2018A 2019F 2020F 2021F
(vs. 4% in HMSP) as the company have more good strategy in addressing Revenue (Rpbn) 83,306 95,708 112,901 124,374 134,017
potential down trading from low end consumers. Thus, we think Surya
Coklat 12 nationalization will continue to success.
Net profit (Rpbn) 7,754 7,792 9,603 8,114 9,542
EPS (Rp) 4,029.8 4,049.6 4,991.1 4,216.9 4,959.3
 We expect GPM to shrink by 2.6% in FY20F due to 4.4% rise excise to
EPS growth (%) 16.1 0.5 23.2 -15.5 17.6
revenue portion. As the firm has to cope with sharp increase in excise
EV/EBITDA (x) 8.5 8.3 7.1 8.2 7.1
cost we think the company will have to raise prices more aggressively.
PER (x) 12.3 12.2 9.9 11.7 10.0
PBV (x) 2.3 2.1 2.0 1.9 1.7
 Hold rating with TP of Rp50,990/share. We have Hold rating on GGMR as
our TP offers only 3% upside potential. Our TP implies FY20F PER of Dividend yield (%) 5.3 6.5 5.5 6.5 7.6
12.1x, still at 35% discount to HMSP (usually >50% discount). Our two ROE (%) 18.4 17.3 19.8 15.8 17.4
cents on why we expect the company discount to narrow due to HMSP Assumptions
lower weight on index which reduces its scarcity premium. GGRM has 2017A 2018A 2019F 2020F 2021F
stronger volume in SKM with 25% margin over HMSP. However, we do
Blended ASP Hike 7.0% 4.0% 4.8% 14.6% 9.9%
not expect GGRM valuation to narrow further due to 1) high uncertainty on
Volume 2.1% 10.0% 12.9% -3.8% -1.9%
ASP strategy since the firm usually more conservative on ASP hike and 2)
Excise 10.0% 10.0% 0.0% 23.0% 10.0%
the firm has not monetized its strong market leader as reflected by its
lower margin and ROE vs. HMSP.
60
Gudang Garam
Gross profit 18,222 18,644 22,203 21,222 24,077 Chg in working cap. -1,827 1,387 -6,464 -6,181 -3,436
Oper. expenses -7,103 -7,551 -8,618 -9,475 -10,310 Other 999 846 872 1,079 1,202
EBITDA 13,363 13,358 16,021 14,386 16,615 Capital expenditure -3,604 -4,113 -3,241 -3,358 -3,350
Interest income 0 0 0 0 0 Others 451 498 94 101 109
Interest expense -801 -678 -699 -864 -963 CF-Investing activities -3,154 -3,615 -3,147 -3,257 -3,241
Other income (exp.) 133 29 29 29 29
Net change in debt 847 -3,278 4,464 4,791 728
Pre-tax profit 10,437 10,479 12,916 10,912 12,833
Net change in equity -80 171 3 3 3
Income tax -2,681 -2,686 -3,311 -2,797 -3,290
Dividend payment -5,049 -5,016 -6,212 -5,249 -6,173
Other financing 0 0 0 0 0
Net profit 7,754 7,792 9,603 8,114 9,542
Net cash flow 734 -295 682 858 270

Balance Sheet
Cash - begin of the year 1,595 2,329 2,034 2,716 3,574
Cash - end of the year 2,329 2,034 2,716 3,574 3,844
Cash & cash equivalent 2,329 2,034 2,716 3,574 3,844
Key Ratios
Inventory 37,920 38,560 45,229 51,621 55,077
2017A 2018A 2019F 2020F 2021F
Other curr, asset 1,286 2,965 3,497 3,853 4,151
Revenue gr. (%) 9.2 14.9 18.0 10.2 7.8
Total current asset 43,764 45,285 53,478 61,290 65,489
Operating profit gr. (%) 11.5 -0.2 22.5 -13.5 17.2
Fixed assets - net 21,409 22,759 23,470 24,088 24,482
Net profit gr. (%) 16.1 0.5 23.2 -15.5 17.6
Other non-curr.asset 1,587 1,054 1,243 1,370 1,476
Gross margin (%) 21.9 19.5 19.7 17.1 18.0
Total asset 66,760 69,097 78,191 86,748 91,446
EBITDA margin (%) 16.0 14.0 14.2 11.6 12.4
Acct, payable 1,214 1,130 1,496 1,505 1,538
Net margin (%) 9.3 8.1 8.5 6.5 7.1
ROA (%) 11.6 11.3 12.3 9.4 10.4
Other curr. liab 797 3,552 4,070 4,726 5,094
ROE (%) 18.4 17.3 19.8 15.8 17.4
61
HM Sampoerna
Sector Cigarette
Bloomberg Ticker HMSP IJ

4,000
3,500
-10%
Company Profile 2,500 -20%
HM Sampoerna (HMSP) is the biggest cigarette maker with highest market 3m 6m 12m 2,000 -30%
share in Indonesia. The majority stake is owned by Philip Morris, which is the Absolute (%) -32.4 -40.3 -44.4 1,500
-40%
1,000
biggest cigarettes company in the world. HMSP has an array of well known Relative to JCI (%) -27.8 -33.8 -50.7 500 -50%
brands such as A Mild, Dji Sam Soe and Marlboro. Historically, strong cash 0 -60%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
flow generation has made the company able to consistently deliver high
dividend payout ratio. Outstanding shrs (mn) 116,318
HMSP 1yr Rel. to JCI (RHS)
 FY20F ASP strategy is crucial during intense competition. We expect the
company to increase ASP by minimum 11.9% during intense competition
2017A 2018A 2019F 2020F 2021F
from GGRM which already have 25% volume lead. We see company sales
volume to decline by 4.0% with sharpest decline on SPM (-11% YoY) and Revenue (Rpbn) 99,091 106,742 110,152 118,236 125,460
SKT (-9% YoY) from down-trade consumption risk on potentially weak Operating profit (Rpbn) 16,111 16,882 20,338 18,602 20,882
purchasing power. HMSP products more are exposed to the high margin Net profit (Rpbn) 12,671 13,538 16,448 15,132 16,846
product, thus we are cautious on the how company pricing strategy to EPS (Rp) 108.9 116.4 141.4 130.1 144.8
maintain its margin going forward. EPS growth (%) -0.7 6.8 21.5 -8.0 11.3
 Expect 3.1% GPM contraction and -8.0% earnings growth in FY20F. This EV/EBITDA (x) 14.2 13.1 10.8 11.8 10.5
due to higher-than-expected excise hike by 23% which will bring excise to PER (x) 19.7 18.5 15.2 16.5 14.8
revenue portion to 53% of revenue (Similar to FY14-FY15 period of flat PBV (x) 7.3 7.1 6.5 6.7 6.4
earnings during weak consumption). We expect 1H20F will be bad for Dividend yield (%) 5.0 5.0 5.3 6.5 6.0
company’s margin as there is only 3 month left to adjust prices and most ROE (%) 37.1 38.3 42.8 40.5 42.8
of the price hike will happen in 1H20F and the impact of the pricing
strategy will be seen in 2H20F. Assumptions
 BUY with FY20F TP of Rp2,420 (12.6% upside). We derived our call 2017A 2018A 2019F 2020F 2021F
based on multiple based (PER) methodologies. Our TP implies FY20F PER Blended ASP Hike 8.0% 7.9% 5.4% 11.9% 9.3%
of 18.6x , still 20% premium (usually >50% premium) to MSCI EM Tobacco Volume -4.1% 0.1% -2.1 -4.0% -2.9%
that is currently traded at 15.5X PER. Our two cents on why we expect the Excise 10.0% 10.0% 0.0% 23.0% 10.0%
company premium to narrow due to decreasing scarcity premium from
lower index weight and our expectation of negative earnings growth Muhammad Fariz +62 21 2557 4800 ext. 740 farizmuhammad@ciptadana.com
which will demand HMSP premium to narrow.
62
HM Sampoerna
COGS -74,876 -81,251 -80,820 -90,504 -95,288 Depreciation 865 953 1,031 1,110 1,195
Gross profit 24,216 25,491 29,331 27,732 30,173 Chg in working cap. 3,175 5,988 236 -1,744 -746
Oper. expenses -8,104 -8,609 -8,994 -9,130 -9,291 Other -791 -973 -1,471 -1,499 -1,434
EBITDA 16,976 17,835 21,369 19,712 22,077 Capital expenditure -757 -1,336 -984 -1,055 -1,112
Interest income 817 1,004 1,502 1,529 1,465 Others -798 1,159 0 0 0
Interest expense -26 -30 -30 -30 -30 CF-Investing activities -1,555 -177 -984 -1,055 -1,112
Net change in debt 23 6 0 0 0
Pre-tax profit 16,895 17,961 21,908 20,200 22,415
Net change in equity 0 0 0 0 0
Income tax -4,224 -4,423 -5,459 -5,067 -5,569
Other financing -205 188 0 0 0
Net profit 12,671 13,538 16,448 15,132 16,846
Net cash flow 2,446 8,015 3,396 -2,759 1,277

Balance Sheet
Key Ratios
Inventory 18,023 15,183 15,103 16,912 17,806
2017A 2018A 2019F 2020F 2021F
Other curr, asset 2,625 2,350 2,393 2,609 2,760
Revenue gr. (%) 3.8 7.7 3.2 7.3 6.1
Operating profit gr. (%) 0.6 4.8 20.5 -8.5 12.3
Fixed assets - net 6,891 7,288 7,242 7,186 7,103
Net profit gr. (%) -0.7 6.8 21.5 -8.0 11.3
Other non-curr.asset 1,411 839 863 922 975
Gross margin (%) 24.4 23.9 26.6 23.5 24.0
Total asset 43,141 46,602 50,050 49,586 52,116
ST debt + curr. maturity 29 34 34 34 34
EBITDA margin (%) 17.1 16.7 19.4 16.7 17.6
Acct, payable 3,666 3,450 3,540 3,565 3,634
Net margin (%) 12.8 12.7 14.9 12.8 13.4
ROA (%) 29.4 29.1 32.9 30.5 32.3
Other curr. liab 2,788 5,310 5,479 5,881 6,241
ROE (%) 37.1 38.3 42.8 40.5 42.8
63
TELCO SECTOR
64
Telecommunication Exhibit 65:Top-3 telcos data traffic vs yield

Overweight 3,500 40
3,000 35
Sector Outlook
30
2,500
 It’s always darkest before the dawn; expecting brighter days ahead
25
The worst of telco industry is now behind us. We believe the competitive 2,000
landscape will not worsen and in fact, will keep improving going forward. 20
Migration from legacy services to data is set to carry on; therefore, capturing 1,500
15
data revenue growth is incrementally imperative. This was not achieved in
1,000
2018 as cut-throat competitions, exacerbated by the SIM registration, has 10
squeezed data yield significantly. To date, however, we have observed a better 500 5
playing field in the industry, in the sense that, although competition is still
intense, it has started to rationalize. With the right offering mix, healthier data 0 0
monetization is now viable. This is vital as telcos need to produce sufficient
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
data revenue growth to cover the relentless drop in legacy revenue. Costs
efficiency in turn befits into another measure worth monitoring because, along Data Traffic (Peta Bytes) Agg. Yield (Rp/MB)
with data pricing, it is the key determinant to margins which will subsequently
Source :Companies, Ciptadana
impact cash flow generation, a critical factor to sustain long-term capex.
 Main thesis predicating our OW: data yield starts to stabilize while data  Data consumption growth will not dissipate anytime soon
traffic continues to grow exponentially Albeit data traffic has recorded 19.5% of quarterly growth rate in 1Q16-2Q19,
Exhibit 1 depicts the cornerstone on why we are still bullish on telcos. The the growth will not dissipate anytime soon, we believe. Low unique
function of explosive data traffic growth with stabilizing data yield should smartphone penetration rate (compared to neighbouring countries) indicates
result in healthy data revenue growth. We expect the former to remain robust that the opportunity is still aplenty. Data consumption per subscriber figure
until at least in the medium term as Indonesia is still in the midst of digital also points to an underserved market as Indonesian average (from top-3
adoption. The former is a little bit tricky, but we do not see data tariffs to drop telcos) is currently at c.3.5GB, far lower than that of other South East Asian
from current level. countries (Malaysia at 10GB/subscriber/month, Thailand at
9GB/subscriber/month). Having a young demographic profile coupled with
increasing proliferation of affordable smartphone, we estimate data traffic
could still grow by 50% p.a in 2019-21F.
65
Exhibit 66: Smartphone penetration (in %)
 Data tariffs creeps-up slowly but surely
90% We have observed selective tariffs hikes from telcos. One recent positive sign
85%
84% is that in Aug-19 FREN raised its flagship unlimited package from Rp65 K to
82%
Rp70 K per month. This, we believe, may facilitate other operators to also lift
80% 78% their prices going forward. To date, major prices increases have been seen
from TSel as it lifted data tariffs by 3-14% during Lebaran holiday. However,
75%
71% some of the tariffs hikes were unwound, especially on the shorter validity
70% packages. Other operators are pursuing ARPU uplift through other measures.
66%
For instance EXCL introduced “XTra Combo VIP” (pricing at Rp10 K higher) and
65%
more add-on options while maintaining the old package available. ISAT erased
60% Youtube from its 1GB and 2GB “Unlimited” packages and Iflix away from all of
56%
the “Unlimited” series in a bid to push subscribers to switch to larger
55%
“Unlimited” packages or the costlier “Freedom Combo”. Previously, ISAT have
50% also lifted its aggressive “Paket Yellow” from Rp2 K to Rp2.5 K (1-day validity)
Singapore Thailand Malaysia Phillipines Vietnam Indonesia and from Rp4 K to Rp4.5 K (3-day validity). Data bonuses and free quotas on
Source : ASEANUP, Ciptadana select applications are consistently offered throughout the year. In the short to
medium term, ARPU growth will be driven by volume rather than yield.
Exhibit 67: Percentage of population under 29-year old by country (in %)
Exhibit 68: Data consumption per subscriber per month (in MB)
60% 54.6% 52.9%
52.4%
4,500
50%
4,000
39.6% 38.3% 37.8%
40% 36.2% 3,500
34.2% 34.2% 32.7%
27.3%
3,000
30%
2,500
20% 2,000
1,500
10%
1,000
0% 500
Finland
UK
China
India
Malaysia
USA
Indonesia
Thailand
Japan
Singapore
South Korea
0
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19
Telkomsel EXCL ISAT Aggregate
Source : The World Bank, Ciptadana Source: Companies, Ciptadana
66
Exhibit 69: Select data package tweaks in 2019  One common goal: data-driven revenue growth
The migration of legacy service to data is a structural change in the industry.
The trend has taken place and at this juncture it looks irreversible and sets to
Jan-19 •ISAT raised Paket Yellow from Rp2,000 to Rp2,500 (25%) continue. As a result, we continue to observe a relentless c.25% legacy
revenue drop p.a. We believe the impact will be less meaningful going forward
as data revenue growth will outpace legacy revenue decline in absolute term.
•EXCL introduced Xtra Combo VIP, Rp10K more expensive than Powered by the stabilized data yield, this shall support revenue growth in the
Mar-19
Xtra Combo regular industry.
•ISAT removed Youtube and Iflix from Unlimited+1GB and
Unlimited +2GB Exhibit 70: Legacy revenue proportion to total mobile services revenue (in %)
70% 66%
•TLKM lifted tariffs across the board, ranging from 3-14% before
Jun-19
Lebaran Holiday 60% 63%
•TLKM unwound the June hikes, especially on the short validity 50% 58%
Aug-19 ones. Select packages’ tariffs, primarily the monthly validity, are
40% 37%
retained
30%
•EXCL released Xtra Combo Zero, add-on bonus for Xtra Combo 19%
20%
subscribers, accesibleonly on MyXL apps; and VIP Club for Xtra
Combo VIP subs. 10% 17%
Sep-19 •TLKM introduced “Paket Keluarga” with the cheapest package
of Rp150 K for 60GB/month, shareable for 6 devices 0%
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
•Hutch 3 launched Kewl starter pack promo at Rp6 K for 1GB. To
date, availability is still limited.
Tsel EXCL ISAT
Source : Companies, Ciptadana

•TLKM introduced a new brand on 10/10 named by.U. It
Oct-19 embraces full end-to-end digital services. Will be available soon
in select cities in Jabo detabek and Java. Therefore, growing data revenue has become incrementally important for all
telcos. We believe igniting another round of price war will be damaging for the
industry, and therefore, is not the best interests of all players. With this
backdrop, we believe competition risks are unlikely to worsen. The impacts,
however, may not be uniform across telcos.
67
Tsel, despite still carrying the largest legacy revenue portion, commands an Exhibit 72: Data yield premium of each telcos (in %)
unparallel network that enables it to become the price leader in the industry. 130%
EXCL’s efforts to be the first data-centric operator have started to bear fruit,
110%
we believe. On the flip side, ISAT’s under investments on network has put it
under pressure. It now needs to play the catch-up games; else, its data 90%
revenue share will keep deteriorating. This creates a new issue as intensive 70%
network ramp-ups will impose higher costs in both D&A and opex. It also
50%
requires ISAT to raised more funds to fund the capex. ISAT’s data revenue
market share has deteriorated from the tune of 20% in 1Q16 to sub 17% in 30%
2Q19, largely taken by EXCL. 10%
-10%
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
We analyse the net impact of the revenue migration for each telcos (Exhibit 74-
76) and find out a clear evidence that recovery is taking place in the industry. -30%
Looking at the absolute amount of revenue changes YoY, data revenue growth -50%
has inflected from 2018 slowdown, outpacing the decline in legacy revenue,
Tsel to EXCL Tsel to ISAT EXCL to ISAT
thus resulting in net revenue growth. Of late, ARPU has recovered albeit more
of volume driven rather than yield. We expect this trend to continue throughout Source : Companies, Ciptadana
the year.
Exhibit 73: Data yield of each operator (in Rp/MB)
Exhibit 71: Data revenue market share (in %) 45

40.5
100% 40
34.7
90% 20% 23% 21% 20% 22% 22% 21% 21% 18% 17% 16% 16% 16% 17% 35
80% 30
70% 16% 15% 17% 18% 19% 20% 21% 19% 20% 20% 21%
19% 20% 20% 25
21.7
60%
20
50%
15
40%
30% 63% 62% 62% 62% 59% 58% 58% 59% 62% 62% 64% 64% 63% 63% 10 8.9
20% 5 5.8
5.1
10% 0
0%
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
Tsel EXCL ISAT

Tsel EXCL ISAT
68
Exhibit 74: Tsel YoY revenue change (in Rp bn) Exhibit 76: ISAT YoY revenue change (in Rp bn)
5,000 1,500
4,000 1,000
3,000
500
2,000
1,000 0
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
0 -500
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
-1,000 -1,000
-2,000
-1,500
-3,000
-4,000 -2,000
-5,000 -2,500
YoY data revenue change (in Rp bn) YoY legacy revenue change (in Rp bn) YoY data revenue change (in Rp bn) YoY legacy revenue change (in Rp bn)
Net change (in Rp bn) Net change (in Rp bn)
Source : Company, Ciptadana Source : Company, Ciptadana
Exhibit 75: EXCL YoY revenue change (in Rp bn) Exhibit 77: YoY data revenue growth (in %)
2,000 100%
1,500
80%
1,000
60%
500
40%
0
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
-500 20%
-1,000 0%
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
-1,500 -20%
YoY data revenue change (in Rp bn) YoY legacy revenue change (in Rp bn)
-40%
Net change (in Rp bn)
Tsel EXCL ISAT
Source: Company, Ciptadana Source: Company, Ciptadana
69
Exhibit 78: QoQ ARPU movement (in Rp K/month) Exhibit 79: EBITDA margin of telcos (in %)
50 55%
45
50%
40
35 45%
30
40%
25
20 35%
15
30%
10
5 25%
2015 2016 2017 2018 2019F 2020F 2021F
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
TLKM EXCL ISAT
Tsel EXCL ISAT
Exhibit 80: ISAT’s free cash flow (in Rp bn)
15,000
 Costs are generally well-contained
In addition to pushing top-line growth, telcos are embarking in cost efficiency 10,000
programs. Costs-saving opportunities arise largely from overhead expenses as
follow: 1) lower marketing expenses during the pre-registration period, 2) 5,000
reduced SIM card printing costs as telcos are less dependent on starter pack
revenue, 3) lower third-party commissions fees as telcos are pushing the 0
adoption of in-house apps for reloads and buying data packages, and 4) leaner 2015 2016 2017 2018 2019 2020 2021
headcounts and more efficient G&As. In addition to revenue growth, margin is -5,000
another important component in determining free-cash flow generation, which
in turn becomes imperative in sustaining capex. We see challenges in ISAT -10,000
whereas it will require to raise additional funds or sell its assets to finance its
capex requirements, while TLKM and EXCL will generate sufficient cash flow to -15,000
continue network expansions, we believe.
CFO CFI FCF
70
 M&A and tower assets monetization Exhibit 81: Telco stocks rating and valuation
These are the two issues that has been the central talking point recently. On Bberg Mkt.Cap Last Target Upside PER EV/EBITDA ROE Yield
20F 20F
M&A, Hutch CK has issued statement mentioning that it is looking for a Ticker Rating (Rptn) Price Price pot.(%) 2019F 2020F 2019F 2020F
(%) (%)
possible acquisition to combine with its operation in Indonesia. Separately, it is TLKM Buy 415.1 4,190 4,900 16.9 20.7 18.4 6.9 6.2 22.0 3.9
reported to be in discussion with Axiata on a possible combination. We EXCL Buy 35.8 3,350 3,925 17.2 83.2 40.9 6.2 5.4 4.7 0.4
generally believe consolidation would lead to a healthier overall industry. ISAT Hold 15.3 2,810 2,750 -2.1 n/m n/m 4.9 4.5 n/m 0.0
However, we believe merging two telcos is very complex. Regulation remains
OW 466.2 25.7 20.2 6.8 6.1 20.6 3.6
to be the key challenge as spectrum retention rule is the key bottleneck.
Therefore, we do not see any merger to happen anytime soon, perhaps, 2H20 Gani +62 21 2557 4800 ext. 734 gani@ciptadana.com
is the earliest. Disclosures are limited on Hutch 3 Indonesia, but based on its
1H19 release, revenue was at Rp6.8 tn (+5.1% YoY) with an EBITDA margin of
sub 20%. Therefore, if Hutch 3 Indonesia merges with EXCL or ISAT, despite
the positive sentiments and excitements that it may present, we see margins
compression, at least in the short term, for the merged entity, as we believe
synergy from cost cuttings may take time to be realized.
On tower sales, the scheme is generally structured as upfront cash payments

to telco with a leaseback provision. We believe if the proceeds flow to network
ramp-up, it could help overall revenue trajectory. ISAT has just sold 3,100
tower units on two packages of 1,000 and 2,100 units to Protelindo and
Mitratel, respectively with a total value of Rp6.39 tn which we believe is fair
given the high tenancy ratio. EXCL is next to monetize its tower assets, with the
Company is currently in the preparation to sell 4,500 tower units. We expect
this to materialize in 2H20 at the earliest.
 We are OVERWEIGHT on telcos with TLKM and EXCL as the BUYs

We are positive on Indonesian telcos as we still see a huge growth potential
from increasing data consumption. With a better playing field, we expect data
monetization to continue on a positive trajectory. Above and beyond, we see
telcos sector as one of a few sector that still offers a robust growth potential in
JCI. In the period of growth scarcity, we believe OVERWIGHT-ing on telcos is a
safer bet compared to others. We have BUY on TLKM and EXCL; the former due
to its unparallel network, market dominance, and defensive profile and the
latter due to its data-centric approach as the best proxy to increasing data
consumption in Indonesia.
71
XL Axiata Sector
Bloomberg Ticker
Telco
EXCL IJ
3,500
EXCL provides a wide range of mobile telecommunication services in 2,500
-10%
Indonesia. EXCL is owned by Axiata Group Berhad through Axiata 3m 6m 12m
2,000
-20%
1,500
Investments (Indonesia) Sdn Bhd (66.5%) and the public (33.5%). XL Axiata is Absolute (%) 17.1 31.9 21.8 1,000 -30%
the third largest cellular provider in Indonesia in terms of revenue with 54.5 Relative to JCI (%) 21.7 38.4 15.5 500 -40%
mn subscribers. It owns a nationwide cellular network covering all major 0 -50%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
cities in Java, Bali and Sumatra, as well as populated cities in Sulawesi and
Apr-19
Aug-19
Aug-19
Sep-19
Kalimantan Outstanding shrs (mn) 10,688
EXCL 1yr Rel. to JCI (RHS)
 No impact on Telenor and Axiata merger cancellation; reported to be in Financial Highlights

talk to merge with Hutch 3 Indonesia. Axiata Berhad, EXCL parent 2017A 2018A 2019F 2020F 2021F
company, has issued a formal statement, regarding the cessation of Revenue (Rpbn) 22,876 22,939 24,608 26,261 27,827
negotiation on potential merger with Telenor. We view this has no impact Operating profit (Rpbn) 1,370 -3,109 1,952 2,508 2,912
on the turnaround of the EXCL as EXCL’s operation in Indonesia is largely Net profit (Rpbn) 375 -3,297 450 915 1,258
independent. Separately, Axiata is reportedly approached by Hutchison
EPS (Rp) 35.1 -308.5 42.1 85.7 117.7
Ltd. to combine their Indonesia operation. While potential merger may be
EPS growth (%) -0.1 n/m n/m 103.6 37.4
positive in the long run and could cultivate a better competitive
EV/EBITDA (x) 7.2 7.5 6.2 5.4 4.9
landscape, we do not see any potential merger to happen soon.
PER (x) 99.7 -11.3 83.2 40.9 29.7
PBV (x) 1.7 2.0 2.0 1.9 1.8
 EXCL is considering to sell its tower assets. We are generally
constructive on the possible deal. As EXCL is unable to generate an Dividend yield (%) 0.0 0.0 0.0 0.4 0.7
optimal yield from its tower assets, monetizing them is a sound plan. ROE (%) 1.7 -18.0 2.4 4.7 6.1
Further, should the proceeds flow to network improvement, it will Assumptions
support overall revenue trajectory. Our initial analysis suggests a 2017A 2018A 2019F 2020F 2021F
potential 30.3% and 22.1% upside to our bottom line in 2020F and 2021F.
Mobile service (Rpbn) 20,260 20,086 21,583 23,586 25,356
Interconnect (Rpbn) 1,661 1,318 1,269 936 750
 Recommend BUY on EXCL. We believe EXCL is the best proxy among
Other revenue (Rpbn) 1,006 1,660 1,890 1,882 1,874
telcos to play on the rising data consumption in the country. EXCL
currently trades at 5.4x 2020F EV/EBITDA near to -1SD.
Gani +62 21 2557 4800 ext. 734 gani@ciptadana.com
72
XL Axiata
Revenue 22,876 22,939 24,608 26,261 27,827 Net income 375 -3,297 450 915 1,258
COGS 0 0 0 0 0 Depreciation 6,167 11,060 7,361 7,919 8,540
Gross profit 22,876 22,939 24,608 26,261 27,827 Chg in working cap. 1,197 849 840 705 312
Oper. profit 1,370 -3,109 1,952 2,508 2,912 CF-Oper activities 7,739 8,612 8,651 9,539 10,111
Interest income 244 487 405 415 415 Others 700 411 -206 103 -51
Interest expense -1,578 -1,746 -2,180 -2,126 -2,073 CF-Investing activities -5,365 -5,892 -7,728 -8,200 -9,240
Other income (exp.) 176 439 423 423 423
Net change in debt 1,031 3,673 1,154 -606 -590
Pre-tax profit 221 -4,396 600 1,221 1,677
Net change in equity 18 -8 0 0 0
Income tax 154 1,099 -150 -305 -419
Dividend payment 0 0 0 -135 -275
Other financing -2,368 -7,794 597 -91 -89
Net profit 375 -3,297 450 915 1,258
CF-Financing activities -1,319 -4,128 1,751 -832 -954
Net cash flow 1,055 -1,408 2,674 507 -84

Balance Sheet
Acct, receivables 565 569 534 583 627
Key Ratios
Inventory 143 189 179 195 210
2017A 2018A 2019F 2020F 2021F
Other curr, asset 4,017 5,253 5,161 5,248 5,670
Revenue gr. (%) 7.2 0.3 7.3 6.7 6.0
Operating profit gr. (%) 11,111.9 n/m n/m 28.5 16.1
Fixed assets - net 34,934 36,760 36,921 37,305 37,953
Net profit gr. (%) -0.1 n/m n/m 103.6 37.4
Gross margin (%) 100.0 100.0 100.0 100.0 100.0
Total asset 56,321 57,614 60,516 61,457 62,553
Operating margin (%) 6.0 -13.6 7.9 9.6 10.5
EBITDA margin (%) 32.9 34.7 37.8 39.7 41.2
Acct, payable 7,476 9,106 9,784 10,368 10,901
Net margin (%) 1.6 -14.4 1.8 3.5 4.5
ROA (%) 0.7 -5.7 0.7 1.5 2.0
Other curr. liab 3,544 4,050 4,073 4,347 4,606
ROE (%) 1.7 -18.0 2.4 4.7 6.1
Long term debt 15,191 20,493 21,518 20,980 20,455
73
Indosat Sector
Bloomberg Ticker
Telco
ISAT IJ
HOLD TP: Rp2,750 (-2.1%) Share Price Performance 4,000

3,500
30%
20%
3,000
Avg. daily T/O (Rpbn/USDmn) 24.2/1.7 0%
-10%
Indosat provides telecommunications networks, telecommunications 3m 6m 12m
2,000
-20%
1,500
services, as well as information technology (IT) and/or convergence Absolute (%) 6.8 8.1 2.6 1,000
-30%
-40%
technology services. The company operates through three segments: Relative to JCI (%) 11.4 14.6 -3.7 500 -50%
cellular, fixed telecommunications and Multimedia, Data Communication, 0 -60%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
Internet (MIDI). The company is the country's second largest cellular operator
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
by revenue. Outstanding shrs (mn) 5,434
Mkt. Cap (Rpbn/USDmn) 15,269/1,080 ISAT 1yr Rel. to JCI (RHS)
Key points Estimated free float (%) 15.3
 2019F will be robust thanks to a low base in 2018. However, we expect Financial Highlights
ISAT to book lower revenue growth in 2020-21F. Despite its efforts to 2017A 2018A 2019F 2020F 2021F
improve network and huge capex allocation (c.Rp10 tn p.a in 2019-21F) Revenue (Rpbn) 29,926 23,140 25,466 26,890 28,398
we believe ISAT’s product offerings and generally less productive Operating profit (Rpbn) 4,032 -1,749 -591 525 1,598
subscribers will impede it to outperform peers. Net profit (Rpbn) 1,136 -2,404 -2,027 -1,632 -824
EPS (Rp) 209.0 -442.4 -373.0 -300.3 -151.6
 Tower sales to fund capex. ISAT has sold its 3,100 units of tower, largely EPS growth (%) 2.8 n/m n/m n/m n/m
to fund for network investments to catch-up with peers. This is positive, EV/EBITDA (x) 2.8 6.0 4.9 4.5 4.1
we believe, as network upgrades are key to remain competitive in the
PER (x) 13.4 -6.4 -7.5 -9.4 -18.5
market.
PBV (x) 1.1 1.4 1.7 2.0 2.3
Dividend yield (%) 3.7 3.9 0.0 0.0 0.0
 Cost pressure in 4Q19F on A/R provisions. A/R quality continues to
ROE (%) 8.1 -21.5 -22.2 -21.7 -12.3
deteriorate as reflected in >12 months past due A/Rs which rose to Rp2.8
tn in 1H19 from Rp2.4 tn in 1Q19 and Rp2.3 tn in FY18. We also note some Assumptions
provision shortfalls, wherein by 1H19, the Company has only formed 2017A 2018A 2019F 2020F 2021F
Rp1.8 tn for the >12 months past due A/Rs. We expect an extra Rp500- 24,496 18,027 20,600 22,022 23,551
Cellular revenue (Rpbn)
700 bn provision charges to come by 4Q19F. 4,517 4,383 4,277 4,385 4,445
MIDI (Rpbn)
Fixed Telephony (Rpbn) 913 729 590 483 402
 Recommend HOLD. ISAT is our least-preferred pick on telco space. It
currently trades at 4.5x 2020F EV/EBITDA.
74
Indosat
Revenue 29,926 23,140 25,466 26,890 28,398 Net income 1,136 -2,404 -2,027 -1,632 -824
Gross profit 29,926 23,140 25,466 26,890 28,398 Chg in working cap. -1,120 2,252 1,338 947 848
Oper. expenses -25,894 -24,888 -26,057 -26,365 -26,800 Other 67 -87 0 0 0
Oper. profit 4,032 -1,749 -591 525 1,598 CF-Oper activities 8,813 8,010 8,197 8,224 9,145
Interest income 65 36 23 55 52 Others -1,438 -5,309 0 0 0
Other income (exp.) -39 1,324 837 389 463
Net change in debt -1,039 2,310 3,333 1,770 499
Pre-tax profit 1,940 -2,664 -2,247 -1,698 -597
Income tax -638 578 562 425 149
Dividend payment -560 -597 0 0 0
Net profit 1,136 -2,404 -2,027 -1,632 -824
CF-Financing activities -1,616 2,121 3,674 2,128 875
Net cash flow -72 -636 1,571 -148 -480

Balance Sheet
Key Ratios
Inventory 88 48 51 53 55
2017A 2018A 2019F 2020F 2021F
Other curr, asset 3,767 3,790 3,684 3,773 3,853
Revenue gr. (%) 2.5 -22.7 10.1 5.6 5.6
Operating profit gr. (%) 2.3 n/m n/m n/m 204.2
Fixed assets - net 35,892 36,899 38,437 40,152 41,654
Net profit gr. (%) 2.8 n/m n/m n/m n/m
Gross margin (%) 100.0 100.0 100.0 100.0 100.0
Total asset 50,661 53,140 56,421 58,221 59,463
Operating margin (%) 13.5 -7.6 -2.3 2.0 5.6
EBITDA margin (%) 42.6 28.1 32.6 35.1 37.7
Acct, payable 872 803 929 995 1,061
Net margin (%) 3.8 -10.4 -8.0 -6.1 -2.9
ROA (%) 2.2 -4.5 -3.6 -2.8 -1.4
Other curr. liab 10,150 13,178 14,265 15,226 16,278
ROE (%) 8.1 -21.5 -22.2 -21.7 -12.3
Long term debt 17,458 17,886 21,990 23,662 23,935
Minority interest 819 962 1,303 1,661 2,037 Debt to equity ratio (x) 1.6 2.2 3.1 4.0 4.6
75
Telkom Sector
Bloomberg Ticker
Telco
TLKM IJ

4,500
20%
Last Price (Rp) 4,190 4,000 15%

3,500
TLKM Indonesia is the largest telecommunication and network provider in 3m 6m 12m

2,500
2,000
5%
Indonesia. It offers local and domestic long distance telephone services. Absolute (%) -1.9 5.5 17.4 1,500 0%
TLKM operates the largest nationwide fixed-line telephony and broadband Relative to JCI (%) 2.7 12.1 11.1 1,000
500
-5%
internet services, as well as other telco-related services and certain valued- 0 -10%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
added services such as satellite, fixed broadband services either directly or
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
indirectly through its affiliates. Outstanding shrs (mn) 99,062
Mkt. Cap (Rpbn/USDmn) 415,071/29,359 TLKM 1yr Rel. to JCI (RHS)
 Integrated operation and network leadership to support competitive Financial Highlights

advantages. We believe TLKM has a structural competitive advantage 2017A 2018A 2019F 2020F 2021F
with its integrated operations, significant lead in mobile broadband, and Revenue (Rpbn) 128,256 130,784 139,992 150,532 162,366
more comprehensive fixed line network. We believe TLKM is also in a Operating profit (Rpbn) 44,163 37,775 42,468 47,747 52,492
relatively stronger position to monetize data traffic as TLKM can compete Net profit (Rpbn) 22,145 18,032 20,645 23,163 25,369
on network leadership amidst increased risks of price competition in EPS (Rp) 223.5 182.0 208.4 233.8 256.1
Indonesia.
EPS growth (%) 16.4 -18.6 14.5 12.2 9.5
EV/EBITDA (x) 6.7 7.6 6.9 6.2 5.6
 Strong balance sheet to support expansion and dividend. TLKM has the
PER (x) 19.3 23.7 20.7 18.4 16.8
strongest balance sheet with DER of only 0.5x and almost net cash while
PBV (x) 4.6 4.3 4.3 4.1 3.8
95% of debt is in Rupiah, This should lead to TLKM’s better flexibility for
Dividend yield (%) 3.2 3.9 3.8 3.9 4.1
network expansion and to acquire digital and other businesses. The
absolute amount of dividend will be roughly the same as last year as last ROE (%) 23.9 18.2 20.9 22.0 22.4
year saw a high payout ratio due to lower earnings. This should translate Assumptions
to 3.9% dividend yield. 2017A 2018A 2019F 2020F 2021F
Telephone revenue 43,911 36,319 28,880 26,187 24,218
 Reiterate BUY on TLKM. TLKM is one of our top pick in our universe as it Interconnection revenue 5,175 5,463 4,414 3,836 3,421
offers a superior growth profile among other large caps. We also see the Data, internet, & IT service 68,535 77,153 91,367 101,375 113,995
stock as a defensive counter given its dominance in telco space. TLKM
Network & other 10,635 11,849 15,331 19,134 20,732
currently trades at 6.2x 2020F EV/EBITDA, near to its average.
76
Telkom
Gross profit 128,256 130,784 139,992 150,532 162,366 Chg in working cap. -934 -5,369 6,336 2,117 1,727
Oper. expenses -84,093 -93,009 -97,524 -102,785 -109,874 Other 0 0 -4,676 0 0
Interest income 1,434 1,014 1,118 1,161 1,197 Others -3,340 1,072 -536 268 -134
Other income (exp.) -220 1,055 58 64 71
Net change in debt 3,673 8,615 2,496 2,975 500
Pre-tax profit 42,659 36,405 39,894 44,760 49,379
Net change in equity 0 -2,563 0 0 0
Income tax -9,958 -9,426 -9,973 -11,190 -12,345
Minority interest -10,556 -8,947 -9,275 -10,407 -11,666
Other financing 3,053 -2,483 5,131 2,246 4,142
Net profit 22,145 18,032 20,645 23,163 25,369
Net cash flow -4,622 -7,706 -1,398 -192 -209

Balance Sheet
Key Ratios
Inventory 631 727 663 713 769
2017A 2018A 2019F 2020F 2021F
Other curr, asset 10,390 12,384 10,407 11,191 12,071
Revenue gr. (%) 10.2 2.0 7.0 7.5 7.9
Operating profit gr. (%) 7.8 -14.5 12.4 12.4 9.9
Fixed assets - net 130,171 143,248 157,814 172,259 186,699
Net profit gr. (%) 14.4 -18.6 14.5 12.2 9.5
Gross margin (%) 100.0 100.0 100.0 100.0 100.0
Total asset 198,484 206,196 217,050 231,885 247,855
EBITDA margin (%) 50.4 45.3 46.9 49.1 50.4
Acct, payable 15,574 14,766 15,877 17,072 18,415
Net margin (%) 17.3 13.8 14.7 15.4 15.6
ROA (%) 11.2 8.7 9.5 10.0 10.2
Other curr. liab 22,304 21,156 23,531 25,302 27,291
ROE (%) 23.9 18.2 20.9 22.0 22.4
Long term debt 27,974 33,748 35,748 38,248 38,748
77
TOWER SECTOR
78
Exhibit 82: BTS count and data traffic per BTS of top-3 telcos
Telecommunication Tower 160,000 40
Overweight 140,000 35
120,000 30
100,000 25
Sector Outlook
80,000 20
 Positive long-term outlook on independent tower companies (towercos) 60,000 15
Align to our constructive outlook on digitalization and underpenetrated mobile
40,000 10
data services in Indonesia, we are positive on towercos long-term prospect. In
parallel with the data traffic growth, incremental number of BTS is needed to 20,000 5
maintain network performance. Telcos are also expanding their networks - 0
outside Java to cover their coverage deficit, which would result in new BTS
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
orders. As depicted below, coverage of Indonesian telcos is heavily
concentrated on Java, even for the largest operator, Tsel (Exhibit 84). Going 4G BTS Count (in unit, LHS)
forward, we believe telcos will continue to lay out new BTS for both network
densification and network expansion purposes. As some telcos have already Data payload per 4G BTS (in PB/4G BTS, RHS)
stopped adding new 2G/3G BTSs, we believe 4G BTS number will be a better Source : Companies, Ciptadana
proxy. Based on data from top-3 telcos, of late, data payload per 4G BTS unit
starts to stabilize at around 22 PB/BTS. Ceteris paribus, we expect the big-3 Exhibit 83: Tower population in Indonesia as of 1H19 (in unit)
telcos would need to add 245K 4G BTSs in 2019-21F (as of 1H19, net add of 4G Other telcos, 1,000
BTSs is 38.9K). This, in turn, would lead to healthy orders, both in built-to-suit
or co-location (colo) orders, for independent tower companies for the EXCL, 4,500 ISAT,
upcoming years. 8,500
TBIG, 15,344
 Large towercos sit at the advantageous position to reap the potential

Large towercos set to benefit from the aforementioned telcos' network Telkomsel, TOWR, 18,152
expansion. As operating scale is key to stay profitable in the business, we 18,000
believe large towercos command a competitive advantage against their
smaller counterparts. The industry landscape is quite consolidated with the
Mitratel,
top-2 towercos own c.56% of tower population. If we include towers held by 13,113
telcos, big towercos’ share is c.36%. Top-2 towercos have achieved the SUPR, 6,321
required scale, in our view; they are the only towercos who are consistently Other towercos,
IBST, 5,059
making profit, while the third biggest player, SUPR, is often in the red. 2,000
Source : Companies, Various, Ciptadana
79
Exhibit 84: Network coverage map of Tsel, EXCL, ISAT, H3I (from top to bottom)  TBIG is the winner for organic growth
Among other towercos, we believe TBIG has the edge in term of pursuing
organic tenancy growth. Firstly, TBIG is the best proxy to top-3 telcos’ network
expansions. As of 1H19, TBIG derived 84% of its revenue from top-3 telcos.
Tsel alone formed 45%, the highest contributor to TBIG’s top line. High
exposure to Tsel provides other incremental benefits, in our view. Not only is
more defensive in nature, exposure in Tsel also carries less potential risks
from consolidation. Further, Tsel is typically the first-mover to a new
area/region. As TBIG has historically established a proven track record with
Tsel, it is conceivable that TBIG will get the most of future built-to-suit orders
from Tsel. Going forward, when other telcos continue their expansions and
plan to open/improve services in the area, they are likely to put colo orders to
those towers. We believe this trend is apparent in TBIG’s revenue split from
EXCL; as EXCL started its ex-Java expansion, its revenue split grew from sub
15% in 1Q16 to the tune of 20% in 2Q19. Next opportunity should arise from
ISAT which has allocated huge capex of c.Rp30 tn for 2019-21F which we
believe should start to accelerate once it clears its funding bottleneck.
Historical data also revealed TBIG’s superiority in securing built-to-suit orders.

TBIG has built c.2,400 new tower units in the period of 2014-2018, while TOWR
only built 967 units and SUPR saw -239 units net reduction in the same period.
TBIG’s dominance is because most of the organic growth is coming from Tsel’s
network expansion. We believe organic growth commands the highest
profitability profile as it facilitates the towercos to cream the first mover
advantages in acquiring next colos orders from the smaller telcos. In general,
colos are more profitable, faster to install, and require lower capex. As a
result, we expect colo (tenancy) ratio of TBIG-TOWR to diverge going forward.
80
Exhibit 85: TBIG’s towers changes (in unit) Exhibit 87: SUPR’s towers changes (in unit)
16,000 15,091 7,000 6,651
859 0 6,412
2,412
14,000 6,000 -239
11,820
12,000
5,000
10,000
4,000
8,000
3,000
6,000
4,000 2,000
2,000 1,000
0 0
2014 organic adds. acquisitions 2018 2014 organic adds. acquisitions 2018
Source : Company, Ciptadana
Exhibit 86: TOWR’s towers changes (in unit) Exhibit 88: Colo (tenancy) ratio of TBIG and TOWR (in x)
20,000 1.9
18,000 4,875 17,437
16,000 1.8
14,000
967
12,000 11,595 1.7
10,000
8,000 1.6
6,000
4,000 1.5
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
2019F
2020F
2021F
2,000
0
2014 organic adds. acquisitions 2018
TBIG TOWR
81
 TOWR’s is at the driver seat for inorganic expansion Exhibit 90: TOWR’s net debt and net-debt-to-EBITDA ratio covenant
TOWR 2019F net-debt-to-EBITDA ratio is at 2.3x, providing ample headroom to 30,000
further leverage its balance sheet. Compared to TBIG, TOWR is at the better 5.0x
position to secure sizeable towers acquisition. TOWR has signed a deal to 25,000
purchase 1,000 units of ISAT’s towers which would strengthen the Company’s
position in the market. Aside from ISAT’s towers, we believe opportunities are
20,000
aplenty; EXCL is in the early stage to sell its 4,500 towers, while smaller
towercos also hold c.2,000 towers cumulatively, possible targets for
acquisition. Any possible deal is positive, subject to valuation, as large 15,000
2.3x
towercos have shown their capability in unlocking the acquired assets in past
acquisitions. 10,000
5,000
Exhibit 89: TBIG’s net debt and net-debt-to-EBITDA ratio covenant
25,500 6.25x 0
2019F ratio Covenant
25,000
24,500
 Sizeable long-term contracted revenues secure respectable medium-
24,000 term visibility and mitigate from consolidation risks
As of 1H19, towercos under over coverage have pocketed sizeable contracted
23,500 revenues which are sufficient to cover revenue until 2023-25F. For TOWR, the
5.7x
amount meaningfully jumped from 2018 position of Rp26.1 tn to Rp42.6 tn in
23,000 1H19. A big chunk of the increase comes from the premature contracts
renewal with some operators. We believe TOWR entered into early contracts
22,500 renewal to mitigate consolidation risks in the industry, an issue that has been
more prevalent lately. As in the case of EXCL-Axis merger, despite any
22,000
combination, tower-lease contracts are irrevocable and will run until maturity.
2019F ratio Covenant
On the other hand, TBIG stands on Rp22.9 tn revenue, equivalent to 4.5 years of
Source : Company, Ciptadana projected revenue.
Consolidation risks are higher on TOWR than TBIG as TOWR derived >65% of
revenue from EXCL, Hutch and ISAT combined, while TBIG is more sheltered
thanks to its 45% exposure to Tsel. Any potential merger will impair future
orders outlook as merged-entity will consolidate their tenancy to save costs. In
82
this regard, we believe Tsel is not interested in acquiring nor merging with Exhibit 92: TOWR’s revenue split by customer
other telcos. That said, at this juncture we do not see M&A will happen anytime 45%
soon. Spectrum regulation remains to be the key bottleneck. Further,
40%
commercial issue on how to unlock synergy from a combined operation is still
questionable as in EXCL-Axis merger case. Above and beyond, as mentioned 35%
above, TOWR still carries Rp42.6 tn unbreakable contracted revenue mitigating 30%
the risks at least until medium term. This is the key reason, we believe, that 25%
prompts TOWR to enter into early leases renewal negotiations 20%
15%
Exhibit 91: TBIG’s revenue split by customer

10%
5%
50%
0%
45%
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
40%
35%
Hutch 3 Telkomsel XL ISAT Others
30%
25% Source :Company, Ciptadana Note: ISAT was included in ‘others’ before 4Q18 disclosure
20%
15%  Fiberization is the new trend to help pricing and top-line growth
10% Apart from expanding their coverage, telcos are undergoing network
5% fiberization in a bid to improve their network quality. According to our checks
0% with telcos, EXCL’s towers are currently 30% fiberized and they aim to reach
60-70% by 2020F. ISAT is also fiberizing more aggressive lately, while Tsel’s
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
fiberization rate is the highest at around 60%. This new fiberization trend
Telkomsel EXCL ISAT Hutch FREN Others should present another growth avenue for towercos as they can offer fiber
service on top of tower rental leases. Further, as telcos’ towers are more
Source :Company, Ciptadana
fiberized, it presents additional challenges for telcos to switch towercos. This
should result in a stickier telcos which in turn would help towercos in pricing
negotiations upon renewal. Given this as the backdrop and improving
profitability in telcos, we believe pressure in pricing will ease, albeit we don’t
expect any new/renewal contracts could reach the range of Rp18+ mn/month,
the level that was not uncommon 10 years ago. In shorter term, TOWR will face
more pressures as a string of renewals with Hutch are set to take place in
2020-22F. TBIG will have a minor renewal on its contracts with Tsel (c.10% of
its contracts) by 2021.
83
Exhibit 93: Towercos rental rate per tenant per month (in Rpm n) Exhibit 94: TBIG’s cash return to shareholders (in Rp bn)
19 Year Dividend Share repurchase

18 2011 114 0
17 2012 0 0
16 2013 288 681
2014 288 1,153
15
2015 0 951
14
2016 592 919
13
2017 665 56
12
2018 761 523
11
1H19 600 43
10 Total 3,308 4,326
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
2019F
2020F
2021F
Source :Company, Ciptadana
TOWR TBIG
Exhibit 95: TOWR’s cash return to shareholders (in Rp bn)
Year Dividend Share repurchase
2010 0 0
 Actively returning cash to shareholders
2011 0 0
Both towercos are now consistently returning cash to shareholders. TBIG has
2012 0 0
started to do so since its IPO. TOWR followed suit in 2016 onwards after it
2013 0 0
revamped a new corporate strategy and coined the “buy, build, return” as the
headline. From 2010 to date, TBIG has returned a total amount of Rp7.6 tn back 2014 0 0
to shareholders in the combination of cash dividend and share repurchases. 2015 0 0
This equals to c.30% of current market cap and 86% of total earnings during 2016 0 0
the period. This is a positive trait for the Company as it enables investors to 2017 997 0
hold in a long-term position in the stock. TOWR is opting for a stable dividend 2018 1,206 127
policy with current amount is set at Rp1.2 tn with the possibility of higher 1H19 886 69
absolute amount subject to M&A and share buybacks acquisitions. We project Total 3,089 196
c.2.5% and c.4% dividend yield for TBIG and TOWR, respectively. This is a
positive gesture from the Companies, we believe, as it enables investors to
hold in a long-term position in the stocks.
84
 OVERWEIGHT on towercos with TBIG as our top pick
We are OVERWEIGHT on towercos owing to its long-term outlook whereas we
believe orders will sustain in the longer term to serve telcos network
expansion amid underpenetrated smartphones and internet in the population.
We also like towercos defensive attributes thanks to the sizeable locked-in
revenue which should present high visibility of earnings delivery. This, we
believe, is a merit in current market condition where uncertainty shadows the
broad-base earnings delivery. Additionally, with the decent dividend yield and
undemanding valuation, we believe the attractive upside potential lies within
the stocks. Our preference is on TBIG given its superior growth profile and
lower risks from leases renewal compared to TOWR. That said, we have a BUY
rating for both stocks.
Exhibit 96: Towercos stocks rating and valuation

20F 20F
Ticker Rating (Rptn) Price Price pot.(%) 2019F 2020F 2019F 2020F
(%) (%)
TBIG Buy 26.6 6,150 9,350 52.0 28.9 23.7 12.3 11.6 27.1 2.6
TOWR Buy 33.3 660 900 36.4 15.6 14.9 8.6 8.2 23.4 3.8
Average OW 59.9 21.5 18.8 10.2 9.7 25.0 3.3
85
Sarana Menara Sector

Bloomberg Ticker
Telecommunication Towers
TOWR IJ
BUY TP: Rp900 (+36.4%) Share Price Performance 900

800
70%
60%
Last Price (Rp) 660
700 50%
Avg. daily T/O (Rpbn/USDmn) 16.0/1.1 600
Company Profile 500
40%
Sarana Menara Nusantara (TOWR) in 2008 was managed by industry experts led by 3m 6m 12m 400
30%
20%
Gearon, a US entrepreneur & executive in American Tower, setting global tower Absolute (%) -6.4 -14.8 40.4 300
10%
industry standards. TOWR business grew by purchasing and leasing back to Hutch3 a Relative to JCI (%) -3.5 -10.5 32.8
200
0%
100
total of 5,060 towers from 2008 through to 2013. Until 1H19 its portfolio includes 0 -10%
18,152 towers with 29,153 tenants of which 33% are offered to Hutch3, 30% to EXCL 52w High/Low price (Rp) 880/464
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
and 18% to Tsel. TOWR has the most resilient financial profile among domestic peers
managing net debt/EBITDA of 2.3x, not long after having executed acquisitions, TOWR 1yr Rel. to JCI (RHS)
maintaining investment grade rating and deepening capacity for more corporate
actions. In 2015, TOWR promptly moved into microcell and fibre space by iForte
which owns ~600 microcell towers, has license to penetrate Jakarta’s densed areas, Financial Highlights
builds fiber rings around Java, and lastly intends to build data centers. 2017A 2018A 2019F 2020F 2021F
Revenue (Rpbn) 5,338 5,868 6,371 6,826 7,296
Key Points Operating profit (Rpbn) 3,709 3,817 3,972 4,167 4,366
 Sits on the largest contracted revenue on the industry partly mitigated
Net profit (Rpbn) 2,100 2,200 2,126 2,235 2,358
consolidation risks of telcos. As of 1H19, TOWR has locked-in Rp42.6 tn worth of
EPS (Rp) 41.7 43.7 42.2 44.3 46.8
contracts, sufficient to cover revenue until 2025F. The amount jumped
meaningfully compared to 2018 position of Rp26.1 tn. A big chunk of the increase EPS growth (%) -1.6 4.8 -3.4 5.1 5.5
comes from the premature contracts renewal with some operators. We believe EV/EBITDA (x) 8.7 8.9 8.6 8.2 7.8
the Company entered into early contracts renewal to mitigate consolidation risks PER (x) 15.8 15.1 15.6 14.9 14.1
in the industry, an issue that has been more prevalent lately. As in the case of PBV (x) 4.7 4.1 3.9 3.5 3.2
EXCL-Axis merger, despite any merger activity, tower-lease contracts are
Dividend yield (%) 3.0 3.6 4.0 3.8 4.0
irrevocable and will run until maturity.
ROE (%) 29.6 27.4 24.8 23.4 22.3
 Fiberization trend to help top-line growth. This new fiberization trend should
present another growth avenue for TOWR, albeit commanding lower margin. Assumptions
1H19 fibers revenue grew by more than two-fold to Rp177 bn, forming 7% of
2017A 2018A 2019F 2020F 2021F
total revenue. Non-tower business’ operating margin came at 23%, lower than
Net tower additions (unit) 292 1,128 1,200 1,100 1,000
that of its tower business of >60%.
 BUY rating with TP of Rp900/share. Although net profit growth may be Tenancy additions (unit) 867 3,308 2,500 2,000 1,500
somewhat muted at 2.3% CAGR in 2018-21F, we project a faster growth rate of Tenancy (colo) Ratio (x) 1.68 1.62 1.65 1.66 1.65
8.2% in 2021-24F after pressures abate post leases renewal. Trading at 8.2x Monthly rental rate (Rpmn) 17.0 16.7 16.0 15.5 15.2
2020F EV/EBITDA (-1SDev) with 4% dividend yield, we believe the stock warrants
rerating. This is also aligned to our constructive long-term view on tower sector. Gani +62 21 2557 4800 ext. 734 gani@ciptadana.com
86
Sarana Menara
COGS -1,172 -1,542 -1,829 -2,041 -2,261 Depreciation 895 1,114 1,302 1,455 1,612
Gross profit 4,166 4,326 4,543 4,786 5,035 Chg in working cap. -203 153 106 52 43
Oper. expenses -457 -509 -571 -619 -668 Other -485 -448 -670 -755 -852
EBITDA 4,604 4,932 5,274 5,622 5,978 Capital expenditure -871 -4,735 -2,854 -2,574 -2,280
Interest income 68 34 38 43 48 Others -61 -902 -55 -104 -7
Interest expense -687 -872 -938 -985 -1,016 CF-Investing activities -932 -5,637 -2,909 -2,678 -2,287
Other income (exp.) -287 -27 -214 -218 -222
Net change in debt -920 2,486 1,605 1,433 1,046
Pre-tax profit 2,803 2,952 2,857 3,007 3,176
Income tax -703 -752 -732 -772 -818
Other financing -6 -56 -147 119 131
Net profit 2,100 2,200 2,126 2,235 2,358
CF-Financing activities -1,933 1,231 138 277 -164
Net cash flow -557 -1,386 93 585 710

Balance Sheet
Cash - begin of the year 2,905 2,348 963 1,056 1,641
Cash - end of the year 2,348 963 1,056 1,641 2,352
Cash & cash equivalent 2,348 963 1,056 1,641 2,352
Acct, receivables 624 821 891 955 1,021
Key Ratios
Inventory 0 0 0 0 0
Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Other curr, asset 77 491 533 571 610
Revenue gr. (%) 5.6 9.9 8.6 7.1 6.9
Operating profit gr. (%) 15.1 2.9 4.0 4.9 4.8
Fixed assets - net 12,601 15,980 18,199 20,055 21,540
Net profit gr. (%) -1.6 4.8 -3.4 5.1 5.5
Other non-curr.asset 459 1,361 1,417 1,520 1,527
Gross margin (%) 78.0 73.7 71.3 70.1 69.0
Total asset 18,763 22,959 25,442 28,107 30,449
ST debt + curr. maturity 634 2,391 2,752 3,079 3,330
EBITDA margin (%) 86.2 84.0 82.8 82.4 81.9
Acct, payable 276 697 827 923 1,022
Net margin (%) 39.3 37.5 33.4 32.7 32.3
ROA (%) 11.2 9.6 8.4 8.0 7.7
Other curr. liab 1,320 1,663 1,753 1,810 1,859
ROE (%) 29.6 27.4 24.8 23.4 22.3
Long term debt 8,365 9,094 10,338 11,444 12,240
87
Tower Bersama Sector

Bloomberg Ticker
Towers
TBIG IJ
Last Price (Rp) 6,150 6,000 0%

5,000
Avg. daily T/O (Rpbn/USDmn) 32.3/2.3 -10%
PT Tower Bersama Infrastructure Tbk (TBIG) began to establish in 2004, and is now 3m 6m 12m 3,000
-20%
holding company of number of subsidiaries operating seamlessly under one Absolute (%) 59.7 55.3 16.0 2,000
-30%
management. It achieved scale with early acquisition and consolidation of Telenet Relative to JCI (%) 62.6 59.6 8.4 1,000 -40%
Internusa, Bali Telekom, Mobile-8 tower assets, Prima Media Selaras, PT Solu Sindo 0 -50%
SKP, Infratel and buying 2500 towers from ISAT in 2012. Predictable cash-flows are 52w High/Low price (Rp) 6,575/3,040
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
supported by usually 10-year lease contracts with investment grade telcos deriving
~45% of their total revenues from TSEL. In 2019 it completed the acquisitions of TBIG 1yr Rel. to JCI (RHS)
Gihon (GHON) and Visi Telekomunikasi (GOLD). It controls the 2nd largest tower
portfolio in Indonesia after TOWR but with better tenancy mix in our view. The
recurring CFs from owned assets has allowed TBIG to primarily widen their scale Financial Highlights
enabling it to raise debt for substantial organic build-to-suit tower orders. 2017A 2018A 2019F 2020F 2021F
Revenue (Rpbn) 4,023 4,318 4,671 5,057 5,491
Key Points Operating profit (Rpbn) 3,012 3,153 3,402 3,685 4,004
 At the sweet spot to capture the rapid network expansion. TBIG has a strong
Net profit (Rpbn) 2,316 681 921 1,121 1,347
relationship with Tsel as portrayed in its 45% revenue contribution. High
EPS (Rp) 535.4 157.3 212.9 259.1 311.4
exposure to Telkomsel carries incremental merits as Tsel is typically the first-
mover to a new area. Going forward, when other telcos continue their EPS growth (%) 224.5 -70.6 35.3 21.7 20.2
expansions, they are likely to put colo orders to Tsel-occupied towers. EV/EBITDA (x) 13.3 13.2 12.3 11.6 10.8
Furthermore, one of TBIG’s subsidiaries, PKP, excels in micro cells installation PER (x) 11.5 39.1 28.9 23.7 19.7
which is key in catering future demand that requires more small cells as PBV (x) 8.6 7.9 7.2 6.4 5.7
network getting denser. We estimate 2,500 new tenants p.a with tenancy rate to
Dividend yield (%) 2.5 2.8 2.6 2.6 3.2
increase to 1.74-1.83x in 2019-21F.
ROE (%) 75.0 20.2 24.8 27.1 29.0
 Reasonable leverage level; boons from rate cuts. TBIG’s net-debt-to-EBITDA
ratio stood at 5.7x. Given the debt covenant of 6.25x, the gearing level is still Assumptions
reasonable, we believe. If needed, the balance sheet could still accommodate
2017A 2018A 2019F 2020F 2022F
Rp2.5 tn additional debt, adequate to pursue organic growth and participate in
small-size M&A deal. Also, TBIG could reap benefits from the imminent rate cuts Net tower additions (unit) 899 1,582 1,000 1,000 1,000
as some of its debts are priced at floating rate. Based on our calculation, every Tenancy additions (unit) 2,555 2,489 2,500 2,500 2,500
25bps lower rate, earnings would go up by 2.9/2.3/1.9% in 2019-21F. Tenancy (colo) Ratio (x) 1.71 1.69 1.74 1.79 1.83
 Recommend BUY with DCF-based TP of Rp9,350/share. Our TP implies 14.7x Monthly rental rate (Rpmn) 15.4 14.8 14.5 14.4 14.4
EV/EBITDA (+0.5SD), justified by robust growth potential, sustainable cash return
and high earnings visibility thanks to Rp22.9 tn locked-in contracted revenue. Gani +62 21 2557 4800 ext. 734 gani@ciptadana.com
88
Tower Bersama
Revenue 4,023 4,318 4,671 5,057 5,491 Net income 2,316 681 921 1,121 1,347
COGS -668 -784 -879 -959 -1,050 Depreciation 483 535 637 692 750
Gross profit 3,355 3,534 3,792 4,098 4,441 Chg in working cap. 132 927 416 284 288
Interest income 7 8 8 8 8 Others -398 -1,382 -52 -53 -53
Other income (exp.) -309 -125 0 0 0
Net change in debt 1,472 1,857 1,334 1,296 1,243
Pre-tax profit 908 1,034 1,400 1,678 2,008
Income tax 1,431 -332 -449 -521 -618
Dividend payment -665 -750 -681 -691 -841
Other financing -1,248 560 -64 36 43
Net profit 2,316 681 921 1,121 1,347
CF-Financing activities -441 1,667 589 641 445
Net cash flow 42 -187 157 495 509

Balance Sheet
Cash - begin of the year 365 407 221 378 873
Cash - end of the year 407 221 378 873 1,382
Cash & cash equivalent 407 221 378 873 1,382
Key Ratios
Inventory 20 23 30 33 36
2017A 2018A 2019F 2020F 2021F
Other curr, asset 1,278 1,401 1,374 1,374 1,374
Revenue gr. (%) 8.4 7.3 8.2 8.3 8.6
Fixed assets - net 19,799 21,879 23,595 25,094 26,612
Net profit gr. (%) 224.5 -70.6 35.3 21.7 20.2
Gross margin (%) 83.4 81.8 81.2 81.0 80.9
Total asset 25,596 29,114 31,044 33,126 35,248
EBITDA margin (%) 86.9 85.4 86.5 86.5 86.6
Acct, payable 193 232 439 533 618
Net margin (%) 57.6 15.8 19.7 22.2 24.5
ROA (%) 9.0 2.3 3.0 3.4 3.8
Other curr. liab 1,792 2,923 3,135 3,362 3,605
ROE (%) 75.0 20.2 24.8 27.1 29.0
Long term debt 20,376 18,967 20,105 21,210 22,271
Other non-curr, liab, 46 43 43 43 43 Current ratio (x) 1.0 0.3 0.3 0.4 0.4
89
METAL MINING SECTOR
90
Metal Mining
Overweight
Sector Outlook
 Decreasing nickel price volatility  EV car sales key component to growth

LME nickel inventory has been steadily decreasing by 22% Ytd to 157,248 In our view, we still believe that that battery usage in EV could be the main
wmt at the end of September, partly due to fear of nickel shortage in the driver of growth for nickel consumption in the future. With an estimate of
market stemming from the imminent ban on ore shipments from Indonesia. 28.8k wmt of nickel consumption in 2019, it is estimated that nickel
As a result, nickel prices have steadily increased by 29% Ytd to its current consumption could rise to 20x to around 670k wmt in 2030 as more and
price of USD17,525/ton by the end of September. Furthermore, cooling more cars are becoming hybridized and or are already electric based
tensions between US and China trade talks could be a positive catalyst for vehicle according to Bloomberg New Energy Finance (NEF). Furthermore, as
nickel price, with supply and demand fundamentals returning to normal. In Tesla motors factory will start production in China in October 2019, this
response, we recently increased our FY19F-20F LME nickel price average would further boost nickel consumption.
estimates to USD14,500-15,500/ton, respectively.
Exhibit 98: EV demand estimate
Exhibit 97: LME Nickel price and Inventory
800 (K wmt)
25,000 500
USD/ton (K wmt)
450 700
20,000 400 600

350
500
15,000 300
400
250
10,000 200 300
150 200
5,000 100
100
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
0
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
LME Inventory (RHS) LME Price (LHS)
Source: Bloomberg
Source: Bloomberg
91
 Demand still strong from China  Gold shines brighter
ASChina contributing around 52% of the world total stainless steel Of late, gold prices has been trending up; it rose from USD1,280/oz in mid
production, the country still plays a key factor for the demand side. Despite May to USD1,509/oz last in September driven by market’s expectation of
lower 2019 production performance in month of January and February (1.7 Fed cuts, trade talks and weakening us dollar. As a result, this pushes
mn tons Jan19 and 1.5mn tons Feb19), production has picked up in March, investors to seek safe haven investment alternatives which in turn should
April and May at 2.0 mn, 2.0 mn and 2.1 mn tons respectively. Setting help drive gold price up. We maintained our FY19-20F gold forecast by 2%-
China’s stainless steel output growth at 3.9% YoY to an estimate of22.1 mn 4% to USD1,350-USD1,400/oz, respectively.
tons in 2019. Moreover, according to data from a global metal house, nickel
market is expected to face a deficit of 74k tons and 68k tons in 2019F and Exhibit 100: LME gold price
2020F, respectively 1600 USD/oz
Exhibit 99: Projected nickel deficit 1500

200 (K wmt)
1400
150 121
1300
100
1200
50
1100
0
2015 2016 2017 2018 2019F 2020F
-50 1000
-40
-100 -74 -68
-150 Source: Bloomberg

-141
-200 -168
 Copper Outlook
Source: Bloomberg
Recently, the London Metal Exchange copper price has decreased by 4.2%
to USD5,722/ton in September from July. Though prices should reflect the
metals' fundamentals such as the demand-supply equilibrium, short-term
prices are more influenced by investors' expectations of a warmer outcome
to the U.S.-China trade war and a cautiously optimistic outlook on the global
economy. While in the longer term, we believe weak supply and strong
demand for copper metal should create deficit in the market (0.25mn ton in
2019 and 0.07 mn ton in 2020) and affecting copper prices positively in the
long run.
92
 Weak copper supply and strong demand, causes bullish copper outlook  Tin Price volatility to persist during trade war
According to a global metal research, global copper demand is expected to Despite US-China agreeing to resume trade talks, demand outlook for the
increase to more than 25 mn tones by 2020. Copper plays an essential metal used in electronics fell and stockpiles rose, indicated by a steady
role in computers, smart phones, electronics appliances, construction and increase in LME from April at 890 k tons to 6.9 mn tons in September from
green innovation products (electronic vehicles). This increase in demand May 2019. In our view, so long as trade war is ongoing this will cause over
for EV vehicle alone is expected to boost copper demand for EV by almost supply and prices volatile. As such we recently lowered our LME tin
ten-fold from 0.18 mn tons in 2018 to 1.74 mn tons in 2027. Therefore, we benchmark prices to USD18,500 and 20,500 for FY19 and FY20F
expect steady growth in copper prices on the back of; 1) steady global
demand growth; 2) supply deficit in FY19F amounting to 0.25 mn tons and Exhibit 102: LME Tin price and inventory
a further 0.07 mn tons in FY20F 3) a more stable global macroeconomics 18.0 k ton 25000
USD/ton
backdrop. We forecast average copper price of USD6,300/ton in FY19F
16.0
and USD6,600/ton in FY20F respectively.
14.0
Exhibit 101: LME copper price and inventory 12.0 20000

6300
USD/ton (K wmt)
400 10.0
6200 350 8.0
6100
300 6.0 15000
6000
250
5900 4.0
5800 200
2.0
5700 150
5600 0.0 10000
100 May-13 May-14 May-15 May-16 May-17 May-18 May-19
5500
5400 50
LHS Inventory RHS Price
5300 -
Apr-18
Apr-19
Feb-18
Dec-18
Feb-19
Sep-18
Nov-18
Aug-18
Aug-19
Mar-18
Jul-18
Mar-19
Jul-19
Jan-18
Jan-19
May-18
May-19
Jun-18
Jun-19
Oct-18
Source: Bloomberg
LME Inventory (LHS) Last Price  Illegal mining in Indonesia still exist but controlled
Upon our visit on the mining site in Tanjong Gunung we learned the site to
Source: Bloomberg
be littered by illegal miners. Meanwhile, private smelters are still unable to
show a valid appraisal from a competent person showing the number of
reserves that they have. Therefore, those "local" miners have no choice but
to turn to TINS to process their tin ores, thus allowing the company to
control them to a certain extent.
93
 Maintain Overweight rating for metal sector
We maintain our overweight rating for metal sector on account of gold price
outlook, forecasted nickel deficit and increasing nickel price outlook. As
such we select MDKA and INCO as our top pick, we like MDKA not only as it
produces gold but its Tujuh Bukit porphyry project potential is simply too
large to ignore, while we remain optimistic on INCO given its attractive
industry and earnings outlook.
Exhibit 103: Our metal prices estimate

2019F 2020F 2021F 2022F 2023F 2024F 2025F
Nickel USD/t 14,500 15,500 16,500 18,000 18,500 19,000 19,500
Tin USD/t 18,500 20,500 21,500 22,000 23,000 23,500 24,000
Copper USD/t 6,300 6,600 6,800 7,000 7,200 7,400 7,500
Gold USD/oz 1,350 1,400 1,430 1,450 1,460 1,470 1,490
Source: Ciptadana estimates
Exhibit 104: Metal stock rating and valuation

Ticker Rating (Rp tn) Price Price pot.(%) 2019F 2020F 2019F 2020F 20F
(%) 20F (%)
MDKA Buy 27.8 6,350 8,200 29.1 24.0 19.5 11.3 9.0 18.2 0
INCO Buy 36.1 3,640 4,600 26.4 84.1 16.4 21.3 7.5 8.1 0
ANTM Buy 23.1 960 1,100 14.6 26.9 18.1 13.2 10.0 6.0 1.2
TINS Buy 5.1 1,005 1,320 31.3 17.1 9.5 9.1 6.8 10.8 2.2
Sector OW 92.1 38.0 15.9 13.7 8.3 10.8 0.9
Thomas Radityo +62 21 2557 4800 ext. 795 radityothomas@ciptadana.com
94
Sector Mining
Aneka Tambang Bloomberg Ticker ANTM IJ

1,200 40%
Share Price Performance
BUY TP: Rp1,100 (+14.6%) Last Price (Rp) 960 1,000
30%
20%
10%
Company Profile 600 0%
3m 6m 12m
The state-owned PT Aneka Tambang is one of the largest nickel miners in 400
-10%
Absolute (%) 16.4 6.7 22.3
Indonesia and it has an installed capacity of about 27,000 tons. Its business -20%
Relative to JCI (%) 20.9 13.2 16.0 200
segment is classified into nickel segment, gold and refinery segment and -30%
0 -40%
others operating segment. ANTM also has 25% equity interest in Nusa 52w High/Low price (Rp) 1,175/595
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
Halmahera Minerals, which currently operates Gosowong and Cibaliung Outstanding shrs (mn) 24,031
goldmines. Mkt. Cap (Rpbn/USDmn) 23,070/1,632 ANTM 1yr Rel. to JCI (RHS)
Key Points
 Nickel ore ban is slightly affecting earnings in light of recent Financial Highlights
announcement by the Indonesian government to completely ban nickel 2017A 2018A 2019F 2020F 2021F
ore exports starting next year. This will cause nickel ore to flood the Revenue (Rpbn) 12,654 25,241 30,328 32,906 34,866
domestic market and in turn lower local nickel ore price and thus denting Operating profit (Rpbn) 601 1,853 1,348 1,922 2,086
ANTM earnings slightly. Remembering that nickel ore contributed around Net profit (Rpbn) 136 874 859 1,276 1,265
(14%) in our FY19F revenue. With the nickel ban we forecast that in FY20- EPS (Rp) 5.7 36.4 35.7 53.1 52.6
21F nickel ore earning will lessen to around 11%, 9% respectively
EPS growth (%) 110.6 540.6 -1.8 48.6 -0.9
 Focusing on processed ore development ANTM will start to focus more
EV/EBITDA (x) 18.8 9.9 13.2 10.0 9.0
on developing its downstream business and targeting more output on its
PER (x) 169.0 26.4 26.9 18.1 18.2
ferronickel. Furthermore with East Halmahera Plant aiming to be
PBV (x) 1.2 1.1 1.1 1.1 1.0
commissioned in late 2019 which can bring ANTM’s total capacity to
Dividend yield (%) 0.0 0.2 1.1 1.2 1.3
40,500 ton of nickel per annum, we still have a conservative nickel
production forecast of 35,000 ton in 2020F and a further 37,800 ton in ROE (%) 0.7 4.3 4.2 6.0 5.7
2021F. Widening its FY19-21F revenue contribution to 18%, 25% and 29% Assumptions
respectively. 2017A 2018A 2019F 2020F 2021F
 Maintain BUY rating with TP of RP1,100/share. We maintain our BUY FeNi Sales (TNi) 21,762 24,868 26,730 35,000 37,800
rating on ANTM as it still offers an attractive upside potential of (+14.6%) Nickel ore sales (mn Wmt) 2.9 6.3 7.6 6.8 6.9
to our TP. Gold sales (kg) 13,200 27,894 28,173 28,511 28,796
Ferronickel ASP (USD/Mt) 10,872 13,636 14,646 15,657 16,667
95
Aneka Tambang
Revenue 12,654 25,241 30,328 32,906 34,866 Net income 136 874 859 1,276 1,265
COGS -11,010 -21,765 -26,690 -28,500 -30,339 Depreciation 831 1,004 895 982 1,079
Gross profit 1,644 3,476 3,638 4,406 4,527 Chg in working cap. 195 -169 -649 -86 -581
Oper. expenses -1,043 -1,624 -2,290 -2,484 -2,441 Other -1,507 -1 -2,051 -142 -75
Oper. profit 601 1,853 1,348 1,922 2,086 CF-Oper activities -345 1,708 -947 2,031 1,688
EBITDA 1,432 2,857 2,242 2,904 3,165 Capital expenditure -1,905 -6,035 -862 -1,184 -924
Interest income 260 164 455 494 523 Others -296 1,489 -52 -53 -76
Interest expense -608 -554 -546 -592 -628 CF-Investing activities -2,201 -4,546 -915 -1,238 -1,000
Other income (exp.) 202 -196 -30 0 -174
Net change in debt -509 2,057 -193 0 13
Pre-tax profit 454 1,266 1,227 1,823 1,807
Income tax -318 -391 -368 -547 -542
Dividend payment 0 -48 -244 -275 -291
Net profit 136 874 859 1,276 1,265
CF-Financing activities -509 2,010 -437 -275 -277
Net cash flow -3,056 -828 -2,299 518 410

Balance Sheet
Acct, receivables 971 924 1,727 1,874 1,985
Key Ratios
Inventory 1,258 2,028 2,320 2,398 2,974
2017A 2018A 2019F 2020F 2021F
Other curr, asset 1,222 1,248 1,958 2,078 2,185
Revenue gr. (%) 39.0 99.5 20.2 8.5 6.0
Operating profit gr. (%) 7,263.9 208.5 -27.2 42.6 8.6
Fixed assets - net 14,093 20,128 20,130 20,368 20,250
Net profit gr. (%) 110.6 540.6 -1.8 48.6 -0.9
Gross margin (%) 13.0 13.8 12.0 13.4 13.0
Total asset 30,014 33,730 32,978 34,147 35,324
EBITDA margin (%) 11.3 11.3 7.4 8.8 9.1
Acct, payable 806 1,158 1,601 1,737 1,840
Net margin (%) 1.1 3.5 2.8 3.9 3.6
ROA (%) 0.5 2.6 2.6 3.7 3.6
Other curr. liab 512 1,437 1,136 1,156 1,175
ROE (%) 0.7 4.3 4.2 6.0 5.7
Long term debt 5,298 7,348 6,446 6,446 6,503
96
Merdeka Cooper Gold Sector

Bloomberg Ticker
Metal
MDKA IJ

6,000
140%
120%
5,000 100%
80%
Founded in 2012, Merdeka Copper Gold (MDKA) is a holding company with 3m 6m 12m 3,000
60%
40%
operating subsidiaries that are engaged in the mining business, Absolute (%) 41.1 84.1 131.8 2,000 20%
encompassing the exploration and future production of gold, silver, Relative to JCI (%) 42.0 87.7 126.7 1,000 0%
copper and other related minerals. It currently runs two producing assets, 0 -20%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
yielding copper, gold and silver.
Key Points Mkt. Cap (Rpbn/USDmn) 27,813/1,979 MDKA 1yr Rel. to JCI (RHS)

 Porphyry potential too good to ignore The TB porphyry copper project
potentially holds one of the largest undeveloped copper and gold deposits Financial Highlights
in the world. According to a JORC reserve statement which is expected to 2017A 2018A 2019F 2020F 2021F
be finalized in early 2020, the project holds a total of 1.9 bn tones of Revenue (USDmn) 129 294 420 466 476
copper ore and around 31mn oz of gold ores. Operating profit (USDmn) 75 123 165 196 199
Net profit (USDmn) 43 52 80 97 101
 Increased gold production Tujuh Bukit Oxide operational figures EPS (US$Cents) 1.0 1.3 1.9 2.3 2.4
recorded strong performance. Production in 1H19 increased by 47.4%
EPS growth (%) n/m 21.8 52.8 21.3 3.8
YoY to around 110 k oz as a result of successful Oxide Expansion Project.
EV/EBITDA (x) 20.5 9.5 11.3 9.0 7.5
As a result we are optimistic in MDKA achieving its FY19 production
PER (x) 45.3 35.0 24.0 19.5 18.5
guidance at around 200 k oz (vs. our estimates of 197 k oz).
PBV (x) 10.3 5.2 4.4 3.6 2.9
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
 Benefitting from rising gold prices Recently gold prices has enjoyed a
ROE (%) 22.8 14.8 18.4 18.2 15.9
steady increase in price (Ytd 15%), in conjunction MDKA should benefit
greatly from this increase in gold price, with every USD1/oz increase in Assumptions
gold price, contributing around USD60 k in MDKA’s earning. 2017A 2018A 2019F 2020F 2021F
Gold sales volume (k oz) 141.5 167.5 197.7 180.0 142.9
 BUY rating with TP of Rp8,200/share. We maintain MDKA as our top pick Gold ASP (USD/oz) 940 1,403 1,305 1,478 1,469
for metal sector. Furthermore, we see higher share trading liquidity Copper sales volume (k tn) 23.2 17.1 26.9 31.1 30.6
going forward as MDKA shareholder has approved the 5-for-1 stock split
Copper ASP (USD/t) 6,632 6,578 5,904 6,325 6,800
in its 25 September EGM. We maintain our rating at BUY for MDKA with a
Thomas Radityo +62 21 2557 4800 Ext.795 radityothomas@ciptadana.com
29.1% upside potential to our TP
97
Merdeka Cooper Gold
Year to 31 Dec (USDmn) 2017A 2018A 2019F 2020F 2021F Year to 31 Dec (USDmn) 2017A 2018A 2019F 2020F 2021F
Revenue 129 294 420 466 476 Net income 43 52 80 97 101
COGS -48 -155 -206 -229 -237 Depreciation 25 94 27 43 60
Gross profit 82 139 214 237 239 Chg in working cap. -39 -26 12 -10 -1
Oper. expenses -7 -16 -49 -42 -40 Other 0 0 0 0 0
Oper. profit 75 123 165 196 199 CF-Oper activities 29 121 119 130 159
EBITDA 99 217 192 239 258 Capital expenditure -53 -420 -153 -146 -4
Interest income 0 0 0 0 0 Others 22 -52 0 3 0
Interest expense -9 -17 -17 -20 -15 CF-Investing activities -31 -471 -153 -143 -4
Other income (exp.) -3 -20 -8 -9 -10
Net change in debt 3 124 31 35 -72
Pre-tax profit 63 87 140 167 174
Income tax -20 -29 -47 -56 -58
Dividend payment 0 0 0 0 0
Minority interest 0 -5 -13 -14 -15
Net profit 43 52 80 97 101
CF-Financing activities -6 330 47 53 -53
Net cash flow -8 -21 13 40 102

Balance Sheet
Year to 31 Dec (USDmn) 2017A 2018A 2019F 2020F 2021F
Cash - end of the year 35 14 27 67 169
Cash & cash equivalent 46 24 37 77 179
Key Ratios
Inventory 31 87 82 91 95
Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Other curr, asset 17 38 38 38 38
Revenue gr. (%) n/m 127.1 42.8 11.1 2.1
Total current asset 94 155 164 215 320
Operating profit gr. (%) n/m 65.4 34.1 18.3 1.6
Fixed assets - net 268 593 720 823 767
Net profit gr. (%) n/m 21.8 52.8 21.3 3.8
Other non-curr.asset 9 38 38 38 38
Gross margin (%) 63.1 47.2 51.0 50.9 50.2
Total asset 371 798 934 1,087 1,138
EBITDA margin (%) 76.8 73.9 45.8 51.2 54.3
Acct, payable 6 42 51 57 59
Net margin (%) 33.3 17.9 19.1 20.9 21.2
ROA (%) 11.6 6.6 8.6 8.9 8.9
Other curr. liab 31 46 46 43 43
ROE (%) 22.8 14.8 18.4 18.2 15.9
Long term debt 64 159 191 249 184
Total liabilities 181 376 416 454 384 Quick ratio (x) 0.6 0.4 0.4 0.7 1.4
Shareholder equity 189 355 436 533 634 Interest cover (x) 11.1 12.9 11.0 12.2 17.0
Total liab + SHE 371 798 934 1,087 1,138 Net debt to equity (x) 0.4 0.6 0.6 0.5 0.1
98
Timah Sector
Bloomberg Ticker
Metals
TINS IJ

1,600
120%
100%
Last Price (Rp) 965 1,400 80%
60%
Timah became a listed company in 1995 with the government of Indonesia 3m 6m 12m 800
40%
20%
owning a 65.0% share. Timah is the second largest tin producer in the world Absolute (%) -8.5 -30.3 32.2 600
0%
400
after Yunnan Tin from China. Its mining sites are located in Bangka and Relative to JCI (%) -5.3 -25.6 25.1
200 -20%
Belitung islands, West Indonesia. TINS operates as a holding company, 0 -40%
52w High/Low price (Rp) 1,645/605
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
through its subsidiaries, it also diversifies into property, shipping dockyard
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
and R&D services. Outstanding shrs (mn) 5,033
Mkt. Cap (Rpbn/USDmn) 4,857/342 TINS 1yr Rel. to JCI (RHS)
 Promising production levels ahead with the new export regulations Financial Highlights
surprisingly holding up, TINS are currently the only tin producer in 2017A 2018A 2019F 2020F 2021F
Indonesia. As such, TIN is now able to produce more refined tin, Revenue (Rpbn) 9,217 11,050 18,807 21,154 22,424
somewhat with 1H19 production numbers already reaching 37,717 mt. Operating profit (Rpbn) 731 747 869 1,376 1,840
The company is more than capable in fulfilling their production guidance Net profit (Rpbn) 509 531 438 791 1,076
for FY19 at 62,000-64,000 mt of refined tin, while maintaining the same EPS (Rp) 68.3 71.3 58.8 106.2 144.5
for FY20F.
EPS growth (%) 102.0 4.4 -17.6 80.7 36.1
 Tin price recovery seen. This is despite tin price continuing to slide from
EV/EBITDA (x) 11.1 9.5 9.1 6.8 5.4
July falling below USD17,000/ton for the first time in 3 years, with
PER (x) 14.7 14.1 17.1 9.5 7.0
demand for electronic goods still low because of trade war, Tin
PBV (x) 1.2 1.1 1.1 1.0 0.9
oversupply remains a problem for this year. However, we are optimistic
Dividend yield (%) 1.7 2.3 3.5 2.2 4.0
that trade talks will see its conclusion soon and electronic goods demand
will soon recover, in effect this should also push tin prices. We estimate ROE (%) 8.4 8.1 6.5 10.8 13.3
tin benchmark to reach USD20,500/ton in FY20 (+10.8% YoY). Assumptions

 Maintain BUY rating with TP of Rp1,320. We maintain our BUY rating 2017A 2018A 2019F 2020F 2021F
given the still attractive upside potential (+36.8%). Currently, TINS is LME tin price (USD/ton) 20,400 21,000 18,500 20,500 21,500
trading at 1.0x 2020 PBV value slightly lower than its historical average Production vol (mt) 30,249 32,381 62,884 63,859 64,498
valuation at 1.22x. Risks to our call include 1) changes in regulations Sales volume (mt) 29,914 32,057 62,884 63,859 64.498
pertaining tin mining 2) increased price volatility due to trade talks failing
ASP (USD/ton) 20,200 21,420 19,425 21,525 22,575
to reach a conclusion and 3) lower than projected sales and production
volume. Thomas Radityo +62 21 2557 4800 ext. 795 radityothomas@ciptadana.com
99
Timah
Revenue 9,217 11,050 18,807 21,154 22,424 Net income 509 531 438 791 1,076
Oper. profit 731 747 869 1,376 1,840 CF-Oper activities -420 -1,320 954 593 1,030
EBITDA 885 1,354 1,417 1,934 2,437 Capital expenditure -399 -1,306 -611 -608 -680
Interest expense -200 -305 -364 -364 -364 CF-Investing activities -722 -1,641 -786 -653 -727
Other income (exp.) 161 242 100 100 50
Net change in debt 1,959 2,452 -10 -10 -10
Pre-tax profit 716 723 625 1,130 1,538
Income tax -207 -192 -188 -339 -461
Net profit 509 531 438 791 1,076
CF-Financing activities 1,936 2,389 -271 -172 -306
Net cash flow 794 -573 -103 -231 -3

Balance Sheet
Cash - begin of the year 564 1,357 785 682 450
Cash - end of the year 1,357 785 682 450 448
Cash & cash equivalent 1,359 786 684 452 450
Key Ratios
Inventory 2,509 4,262 4,670 5,160 5,640
2017A 2018A 2019F 2020F 2021F
Other curr, asset 1,650 2,182 2,419 2,625 2,736
Revenue gr. (%) 32.3 19.9 70.2 12.5 6.0
Fixed assets - net 2,462 3,085 3,147 3,166 3,218
Net profit gr. (%) 102.0 4.4 -17.6 80.7 36.1
Gross margin (%) 16.6 15.2 9.4 11.0 12.6
Total asset 11,876 15,118 15,985 16,803 17,661
EBITDA margin (%) 9.6 12.3 7.5 9.1 10.9
Acct, payable 733 975 1,448 1,600 1,665
Net margin (%) 5.5 4.8 2.3 3.7 4.8
ROA (%) 4.3 3.5 2.7 4.7 6.1
Other curr. liab 477 557 785 832 853
ROE (%) 8.4 8.1 6.5 10.8 13.3
Long term debt 1,500 1,500 1,500 1,500 1,500
100
Vale Indonesia Sector

Bloomberg Ticker
Metal
INCO IJ

4,000
5%
0%
Last Price (Rp) 3,640 3,500 -5%
-10%
INCO is engaged in nickel mining and production. It has nickel mining 3m 6m 12m 2,000
-15%
-20%
concessions in several areas in Sulawesi and produces nickel in matte from Absolute (%) 16.7 7.4 1.1 1,500
-25%
1,000
lateritic ores at its integrated mining and processing facilities near Relative to JCI (%) 20.1 12.5 -2.1
500 -30%
Sorowako, Indonesia. INCO is an integral part of its parent’s operations and 0 -35%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
sells all of its production to its largest shareholders, Vale Canada (80% of
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
output) and Sumitomo Metal Mining (20%) under long-term contracts. Outstanding shrs (mn) 9,936
Mkt. Cap (Rpbn/USDmn) 36,168/2,563 INCO 1yr Rel. to JCI (RHS)
 Taking advantage of strong nickel price resurgence. Despite recording a Financial Highlights
net-loss of USD26.2 mn in 1H19, we expect INCO to see a strong 2017A 2018A 2019F 2020F 2021F
earnings turnaround bringing FY19F earnings to USD 33mn on the back Revenue (USDmn) 629 777 784 940 1,011
of strong resurgence in nickel price 62% Ytd to USD18,045/ton and Operating profit (USDmn) -15 85 47 239 284
production level returning to normal. Furthermore, provided that Net profit (USDmn) -15 61 33 165 196
production level remains the same and nickel prices continues its steady EPS (US$Cents) -0.2 0.6 0.3 1.7 2.0
growth this will continue with a 400% net profit growth to USD 165 mn in
EPS growth (%) n/m n/m -45.8 402.1 19.1
FY20F.
EV/EBITDA (x) 23.8 13.1 21.3 7.5 6.2
 Pomalaa smelter experiences delay but good news is abound
PER (x) -182.9 43.5 84.1 16.4 13.6
Meanwhile, Sumitomo Metal Mining (SMM) and INCO have finally taken
PBV (x) 1.5 1.4 1.5 1.3 1.2
strides in their HPAL smelter technology in Pomalaa in which
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
construction is finally slated to begin in mid 2020, according to
management. With this, INCO will finally be able to process nickel grade ROE (%) -0.8 3.2 1.7 8.1 9.2
material suitable for EV batteries. Assumptions

 INCO remains one of our top pick. We remain optimistic on INCO given its 2017A 2018A 2019F 2020F 2021F
attractive industry and earnings outlook. We currently have Buy rating on Production vol (wmt) 76,807 74,806 72,059 75,810 76,608
INCO with DCF-based TP of Rp4,600. Risk to our call include: 1) more Sales volume (wmt) 77,643 75,631 72,059 75,810 76,608
unplanned maintenances, disrupting FeNi production 2) nickel price ASP (USD/ton) 8,105 10,272 12,400 13,200 14,400
volatility 3) lower nickel based stainless steel demand from China.
101
Vale Indonesia
Revenue 629 777 784 940 1,011 Net income -15 61 33 165 196
Gross profit 7 104 69 265 313 Chg in working cap. -10 58 0 -3 2
Oper. expenses -22 -19 -22 -26 -28 Other 24 38 12 -17 -4
Oper. profit -15 85 47 239 284 CF-Oper activities 124 250 114 215 266
Interest income 0 0 0 0 0 Others 22 -43 17 -8 -10
Interest expense -8 -2 -2 0 0 CF-Investing activities -65 -78 -30 -145 -127
Net change in debt -37 -37 -37 0 0
Pre-tax profit -23 83 48 239 284
Income tax 8 -22 -15 -74 -88
Dividend payment 0 0 -30 -23 -82
Other financing 14 -56 -68 92 22
Net profit -15 61 33 165 196
CF-Financing activities -23 -93 -135 69 -60
Net cash flow 36 79 -50 139 79

Balance Sheet
Key Ratios
Inventory 118 132 129 120 125
2017A 2018A 2019F 2020F 2021F
Revenue gr. (%) 7.7 23.4 0.9 20.0 7.6
Operating profit gr. (%) n/m n/m -44.1 403.4 19.1
Fixed assets - net 1,494 1,435 1,412 1,479 1,525
Net profit gr. (%) n/m n/m -45.8 402.1 19.1
Gross margin (%) 1.0 13.4 8.9 28.2 30.9
Total asset 2,185 2,202 2,070 2,298 2,437
Operating margin (%) -2.4 10.9 6.1 25.4 28.1
EBITDA margin (%) 17.5 23.1 14.9 32.9 35.2
Acct, payable 61 91 72 68 70
Net margin (%) -2.4 7.8 4.2 17.5 19.4
ROA (%) -0.7 2.7 1.6 7.2 8.1
ROE (%) -0.8 3.2 1.7 8.1 9.2
Shareholder equity 1,819 1,884 1,886 2,028 2,142 Interest cover (x) 14.1 80.2 62.4 n.m n.m
102
CONSTRUCTION SECTOR
103
Construction
Overweight
Sector Outlook
 Infrastructure remains Jokowi’s focus in his second-term Exhibit 105: Major National Medium-Term Infrastructure projects
President Jokowi set the goal of improving Indonesia’s human quality, making
a productive, independent and competitive economic structure and more Project Timeline Est. cost Source of Project
(Rp tn) Fund Owner
equitable development for his second-term. We believe this will be done via
1 Oil refineries development 2020-26 643.0 Pertamina SOEs and Pertamina
bigger infrastructure projects and more spending on education to create 2 Water grid for 10 mn house 2020-24 244.6 ABPN/D, PPP, CSR Ministry PUPR, PDAM
sizable number jobs in the next five years. Better infrastructure would also 3 Trans Sumatera 2020-24 211.9 SOE, PINA,PPP Ministry PUPR
4 Multipurpose dam 2020-24 210.0 APBN, PPP, PINA Ministry PUPR
complement the government’s efforts to attract more tourists to help narrow
5 Nort Java beach sea wall 2020-24 132.0 APBN, SOE, PINA Ministry PUPR
the current-account deficit. This development is also expected to spur new 6 Jakarta-Surabaya HST 2020-24 107.0 PPP Ministry Transportation
economic centres. All these infrastructure developments are expected to 7 35 GW completion and intercon. 2020-24 100.0 PLN, APBN, Pvt PLN (SOE electric co)
8 Jakarta-Bandung HST 2020-24 81.9 PPP Ministry Transportation
significantly reduce the cost of logistics by up to 20%.
9 City gas infrastructure 2020-25 50.0 ABPN, PPP, SOE Ministry Energy
10 Digital transformation 2020-24 50.0 APBN/D, SOE, PPP Various ministers
National Development Planning Minister (Bappenas) mentioned that 11 Clean water distr. extension 2020-24 42.8 APBN, SOE, Pvt Ministry PUPR
12 Water sanitation 2020-24 38.8 PPP, APBN, APBD Ministry PUPR, local govt
connectivity to become one of the crucial themes for infrastructure
13 Railway Makasar-Pare pare 2020-24 18.0 PPP, SBSN Ministry PUPR
development in the 2020-2024 National Medium-Term Development Plan 14 Integrated port development 2020-24 14.0 SOE Ministry Transportation
(RPJMN). In RPJMN, a strategy will be arranged to connect built infrastructures 15 Citarum river management 2020-24 13.4 APBN/D, SOE, Pvt Various ministers
16 Trans Papua road 2020-24 3.8 APBN Ministry PUPR
with under-development industrial estates. This strategy will improve the
17 Trans Nias, Morotai, Sumba 2020-24 2.9 APBN Ministry PUPR
effectiveness of infrastructures while increasing the potential for an integrated 18 Papua air bridge 2020-24 2.8 ABPN, PPP Ministry Transportation
industrial area.
Source: Bappenas
The government is currently drafting ambitious plans for USD412 bn (Rp5,768
tn) in building projects, from constructing airports, toll roads, sea ports, oil
refinery, power plants. As much as 40% of the total will be funded directly by
the government, 25% through state-owned enterprises and the rest through
the corporation with private sector. There is also project opportunity from the
capital city relocation to Kalimantan. The government wants more contribution
from SOE or private firms to develop the new capital city. However, this also
poses risk as it could burden the balance sheets of SOE contactors
104
 Infra budget in 2020 on-way to record high
Exhibit 106: Infra spending as % of total spending
Infra spending in 2020 draft APBN is set to increase by 4.9% YoY to a record
high of Rp419 tn. The Ministry of PUPR’s budget increased to Rp120 tn (+19% 450 25.0%
(Rp tn)
YoY), while the Ministry of Transportation’s grew to Rp39 tn (8% YoY). In spite 400
18.8%
of a mere 4.9 YoY increase in infrastructure spending in the 2020 State Budget, 350
18.5%
17.1%
20.0%
16.6%
this implies a CAGR of 18% since Jokowi’s administration began in 2014. The 300 14.4%
14.2%
infrastructure budget that skyrocketed was road construction with the planned 250
15.0%
837 (km) of roads built are double of this year’s road construction target, which 200 410 400 419
8.7% 379
is 406 km. Most of the construction of those roads is intended for connectivity 10.0%
150
improvement. 226
269
100 5.0%
155
50
The government is also planning to build bridges spanning 6.9 km in total.
0 0.0%
Then, the government will continue with railway tracks construction spanning
2014 2015 2016 2017 2018 2019F 2020F
238.8 km in total. The railway tracks construction is recorded to be shorter
compared to the railway tracks construction in 2019, which is set to be 269.45 Infra spending % to total spending
km. Other infrastructures that will be built are three new airports, 49 dams, as Source: Ministry of Finance
well as 5.224 low-cost apartment units and 2,000 houses for low-income
citizens. Exhibit 107: Infra spending as % of GDP
Infrastructure development improvement through a creative financing 450 3.5%

(Rp tn)
breakthrough for infrastructure completion acceleration by cooperating with 400
3.0% 3.0%
private companies and SOEs will be implemented to fulfill the development 350
2.8%
2.6%
financing requirement. The government also optimise Public-Private 300 2.4%
2.5%
Partnership (PPP) options for long-term financing policies outside of the state 2.2% 2.2%
250 2.0%
budget (APBN)
200 410 400 419
1.5% 379 1.5%
This PPP scheme is set to build 11 projects with a potential project value of 150
269 1.0%
226
Rp19.7 tn in 2020. Besides that, the government has four focuses for its 100
155 0.5%
budget, namely education, healthcare, social protection, and infrastructure. 50
Furthermore, the Assessment of the Strategic Plan and Budget for Ministries 0 0.0%
and Non-Ministries (RKAK/L) for fiscal year 2020 mentioned that the PUPR 2014 2015 2016 2017 2018 2019F 2020F
(Public Works and People’s Housing) Ministry received a budget ceiling of
Rp120.22 tn which derived from 83.1% from pure rupiah, 12.6% from State Infra spending % to total spending
Syariah Securities (SBSN), and 4.2% from foreign loans.
Source: Ministry of Finance
105
 New contracts decelerates but order book remains solid Exhibit 108: SOE contractors contracts achievement and orderbooks
Most of SOEs contractors saw declining new contract growth this year which
New contract YoY 2019 Achv. Carry Total Ann contract/
we believe attributable to lower new contract booking to as election volatility
led to slowdown/delay in construction projects. Despite weaker 8M19 new Rp (tn) 8M19 (%) target (%) Over Contract revenue (x)
contracts growth in YoY basis due to tender/project postponement on election WIKA 20.3 -13.4 56.6 35.9 97.5 117.8 3.8
in 1H19, contractors’ total orderbook reached Rp362.9 tn at 8M19, which is PTPP 23.0 -17.1 44.3 52.0 90.0 113.0 3.5
equivalent to three years of revenue. Thus, it should still be resilient enough to ADHI 6.8 -19.9 26.4 25.8 40.0 46.8 3.0
cope with risk if any further delay in the country’s infrastructure spending. WSKT 9.4 2.2 45.5 20.7 75.9 85.3 2.0
Avg/totl 59.5 -12.1 172.8 34.4 303.4 362.9 3.1
The aggregate new contracts of SOE contractors under our coverage was WTON 4.5 0.0 8.3 54.5 4.2 9.3 1.3
down 12.1 YoY in 8M19 with ADHI reporting the largest decline of 19.9% YoY to
Rp6.8 tn, while WSKT was the only company booking positive growth of 2.2% Source: Companies and Ciptadana Sekuritas
YoY to Rp9.4 tn. WIKA and PTPP also registered negative growth in new
contracts of -13.4% and -17.1% YoY. Comparing to their respective full-year
target, PTPP was the best performer achieving 52% of 2019 target, followed by Exhibit 109: SOE contractors new contracts and orderbook
WIKA of 35.9% and ADHI of 25% while WSKT only achieved 21% of target.
600.0
(Rp tn) 529.8
We anticipate higher new contract in 2H19 and onwards on better business 475.5
500.0
environment and the contractor has seen new contract acceleration in July- 423.4
August 2019. New contracts could improve in 2H19 as the acceleration in 396.0
400.0
infrastructure project will be faster in 2H due to the backend loading of infra-
spending. We expect total new contracts and orderbooks of SOE contractor to 298.5
300.0
increase by 14% to Rp196.6 tn and 11% to Rp529.8 tn, respectively, in 2020.
192.6 196.6
Most contractors, except WKST, have also relatively good balance sheets to 200.0 172.8
support new contracts growth and investment. The companies diversifying 173.8 177.4
business to infrastructure such as power plant, toll road, TOD or townhouse to 98.3 145.5
100.0
enlarge orderbook . As at end of June 2019, PTPP has the least leverage
balance-sheet with DER of 0.9x (NDER: 0.6x) followed by WIKA with DER 1.1x 0.0
and NDER of 0.8x. WSKT has more leverage balance sheet with DER of 2.6x 2015 2016 2017 2018 2019F 2020F
(NDER of 2.5x). The leverage are so far below their debt covenant level of
around 3.0-3.5x Orderbooks New contracts
Source: Companies and Ciptadana
106
 The sector saw a correction so far , trading at depressed valuations  WIKA is our top pick
The construction sector declined about 5% Ytd as of 18-Sep, underperforming We do not expect to see the glamour part of the construction sector where it
the JCI by 7%. The investor’s concern on lower-than-expected new contract has been trading at significant premium to market valuation in the past given
growth and sluggish 1H19 results has taken a toll on the construction sector that the sector faces decelerating new contract growth. However, we still
this year. On average, 1H19 earnings down by 41% YoY led by the 67% WSKT’s expect a rebound in construction sector next year on better earnings and
and PTPP’s 24% earnings decline although it was partly offset by 72% increase sector rotation. Moreover, we believe Indonesia infra still has the most
in WIKA’s earnings (on gain from asset divestment). The sector valuation has promising long-term outlook given its need for massive upgrade. We have buy
seen severe de-rating to only 7.5x forward PER or already below -1stdev rating for all contractors under our coverage (except WSKT) given their
historical mean (9.9x). It is also far below the sector historical mean from the attractive valuation and we believe current low valuation creates buying
pre-Jokowi era 20.1x. opportunity. We select WIKA our top pick due to the company’s 1) strongest
orderbook and earnings visibility, 2) solid balance sheet will help it to tackle
future funding problems, and 3) more conservative approach to win the
Exhibit 110: Construction sector valuation (forward PER) contract reflected in its diversified contracts and investment. The table below
shows our pecking order in construction sector as well as their rating and
35 (x) valuation.
30 29.7x
25 Exhibit 111: Construction stocks rating and valuation

22.8x
20 Bberg Mkt.Cap Last Target Upside PER EV/EBITDA ROE Yield
20F 20F
15 16.0x Ticker Rating (Rptn) Price Price pot.(%) 2019F 2020F 2019F 2020F
(%) (%)
10 WIKA Buy 17.9 2,000 2,750 37.5 9.2 9.6 5.7 4.8 12.4 3.1
9.9x
PTPP Buy 11.1 1,790 2,570 43.6 7.3 5.9 3.8 3.7 12.8 4.1
5
ADHI Buy 4.8 1,340 2,120 58.2 7.6 6.4 5.0 4.0 11.6 3.9
2.4x
0 WTON Buy 4.2 482 710 47.3 10.0 7.8 5.6 4.8 19.5 2.8
2013 2014 2015 2016 2017 2018 2019 WSKT Hold 22.3 1,665 1,950 17.1 10.0 8.8 9.5 8.4 14.5 3.5
Sector OW 50.1 8.3 7.5 6.0 5.2 12.8 3.7
Source:Bloomberg and Ciptadana Arief Budiman +62 21 2557 4800 ext. 819 budimanarief@ciptadana.com
107
Adhi Karya Sector

Bloomberg Ticker
Construction
ADHI IJ

1,800
25%
20%
15%
1,400
Adhi Karya (ADHI) is one of the largest state-owned contractors, providing 3m 6m 12m
1,000
800
5%
0%
construction services for civil works and EPC for power plants. The company Absolute (%) -20.7 -13.3 -3.6 600
-5%
also runs property unit including its own hotel, and investment (precast Relative to JCI (%) -20.0 -9.8 -8.9
400
200 -10%
concrete). In early 2017, ADHI signed the contract of Jabodetabek LRT project 0 -15%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
phase 1 of Rp23.3 tn with the Transportation Ministry but the completion is
running behind schedule on land acquisition and funding issues. Outstanding shrs(mn) 3,561
ADHI 1yr Rel. to JCI (RHS)
Mkt. Cap (Rpbn/USDmn) 4,772/339
 TOD to support long-term growth Financial Highlights

The company has stepped up its efforts in the construction of transit- 2017A 2018A 2019F 2020F 2021F
oriented development (TOD). The construction of the LRT project will Revenue (Rpbn) 15,156 15,655 16,852 19,710 22,579
provide new centers of economic activity around the stations. The Operating profit (Rpbn) 1,708 1,934 2,148 2,445 2,698
company was focusing on TOD in four areas, namely Sentul in Bogor, Net profit (Rpbn) 515 644 771 914 1,099
Ciracas in East Jakarta; East Bekasi and Jaticempaka in Bekasi. It hoped EPS (Rp) 144.7 180.9 216.4 256.7 308.5
to generate up to Rp55 tn over the next five to ten years time.
EPS growth (%) 64.4 25.0 19.6 18.6 20.2
 Expecting total payment from LRT of Rp10.2 tn. For this year, ADHI
EV/EBITDA (x) 5.9 5.3 5.0 4.0 3.1
expects to receive in total of Rp3.1tn of the payment from Jakarta LRT
PER (x) 11.4 9.1 7.6 6.4 5.3
Stage 1 from KAI. ADHI has spent around Rp14.0 tn on the project, while
PBV (x) 1.0 0.9 0.8 0.7 0.7
the payment received has reached Rp7.1tn since Jul-2018.
Dividend yield (%) 1.6 1.8 3.3 3.9 4.7
 Buy rating maintained with TP of Rp2,120. We still like ADHI due mainly
ROE (%) 8.8 10.3 11.0 11.6 12.3
to its improved profitability and the only counter posting stronger QoQ
growth in 2Q19 . EPC segment margin turned positive the first time since Assumptions
2015 as we believe the negative impact from old loss-making EPC 2017A 2018A 2019F 2020F 2021F
projects had been fully booked. ADHI is trading at only 2020F PER of 6.4x. 40,000 24,000 26,400 29,040 31,944
New Orderbook (Rpbn)
Carry Over OB (Rpbn) 37,120 42,253 50,597 60,145 69,475
Total Orderbook (Rpbn) 57,409 66,253 76,997 89,185 101,419
108
Adhi Karya
Revenue 15,156 15,655 16,852 19,710 22,579 Net income 515 644 771 914 1,099
Gross profit 2,289 2,641 2,825 3,203 3,542 Chg in working cap. -5,238 -235 1,310 1,432 -474
Oper. expenses -581 -707 -676 -758 -844 Other 1,463 -518 -1,979 -561 1,579
Oper. profit 1,708 1,934 2,148 2,445 2,698 CF-Oper activities -3,227 71 299 2,002 2,443
EBITDA 1,740 2,113 2,346 2,662 2,937 Capital expenditure -87 -599 -439 -451 -464
Interest income 104 61 82 79 107 Others 1 -338 -333 -174 -174
Other income (exp.) -416 -306 -327 -356 -408
Net change in debt 4,172 166 574 -42 -2,571
Pre-tax profit 957 1,167 1,328 1,577 1,893
Income tax -440 -522 -555 -660 -792
Other financing 1 -65 9 3 3
Net profit 515 644 771 914 1,099
CF-Financing activities 4,079 -2 390 -270 -2,842
Net cash flow 766 -868 -84 1,108 -1,038

Balance Sheet
Key Ratios
Inventory 3,683 4,351 4,257 5,010 5,739
2017A 2018A 2019F 2020F 2021F
Other curr, asset 14,081 14,461 13,870 14,043 13,925
Revenue gr. (%) 37.0 3.3 7.6 17.0 14.6
Fixed assets - net 1,521 1,573 1,973 2,375 2,784
Net profit gr. (%) 64.4 25.0 19.6 18.6 20.2
Gross margin (%) 15.1 16.9 16.8 16.2 15.7
Total asset 28,333 30,119 30,011 33,164 33,867
EBITDA margin (%) 11.5 13.5 13.9 13.5 13.0
Acct, payable 11,611 12,160 10,960 12,835 14,633
Net margin (%) 3.4 4.1 4.6 4.6 4.9
Advances received 666 842 1,348 1,577 1,806
ROA (%) 1.8 2.1 2.6 2.8 3.2
Other curr. liab 1,569 2,048 1,307 1,532 1,755
ROE (%) 8.8 10.3 11.0 11.6 12.3
Long term debt 4,665 4,640 4,992 5,139 2,521
109
Sector Construction
PT PP Bloomberg Ticker
PTPP IJ
3,000 60%
BUY TP: Rp2,570 (+43.6%) Last Price (Rp) 1,790 2,500

50%
40%
30%
1,500 20%
Company Profile 3m 6m 12m
10%
PTPP is the second largest state-owned contractors by orderbook after Absolute (%) -20.8 -10.3 17.4 1,000
0%
WIKA. It offers construction services in civil works (including ports, roads, Relative to JCI (%) -19.7 -7.7 11.1 500
-10%
and bridges) as well as EPC segments. The company also runs property, 52w High/Low price (Rp) 2,550/1,330
0 -20%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
realty, precast manufacturing and investment business. PTPP could benefit
from its expertise in maritime construction as we believe PTPP has an edge Outstanding shrs (mn) 6,200
PTPP 1yr Rel. to JCI (RHS)
over its peers in securing future seaport projects given that it has won the Mkt. Cap (Rpbn/USDmn) 11,098/789
major port project in Indonesia.
Key Points 2017A 2018A 2019F 2020F 2021F
 Outperforming peers in new contract book. PT PP (PTPP) posted Rp23 tn Revenue (Rpbn) 21,502 25,120 32,297 37,475 42,424
new contracts in 8M19, which was the highest in the sector. We see Operating profit (Rpbn) 2,886 3,047 3,685 4,214 4,748
higher new contract in 2H19 as the company obtained sizable new Net profit (Rpbn) 1,453 1,502 1,594 1,968 2,250
contracts recently such as : 1) PTPP and its consortium has won a tender EPS (Rp) 234.4 242.3 257.0 317.5 362.8
of the 27-km Semarang – Demak toll road in Central Jaya with estimated EPS growth (%) 42.0 3.4 6.1 23.5 14.3
investment cost of Rp15.3 tn and 2) PTPP is appointed as contractor of
EV/EBITDA (x) 3.5 4.0 3.8 3.7 3.5
ferronickel smelter in Kolaka regency and Konawe Selatan regency ,
PER (x) 8.0 7.8 7.3 5.9 5.2
Sulawesi with total investment of Rp20.3 tn. The company is potentially to
PBV (x) 1.0 0.9 0.8 0.8 0.7
secure more projects from Pertamina’s 2020-26 oil refinery development
Dividend yield (%) 2.6 2.5 3.9 4.1 5.1
worth Rp634 tn as it was previously appointed to work on Balikpapan
RDPM. ROE (%) 12.7 11.8 11.5 12.8 13.2
 Second selected stock in construction space. We like PTPP (after WIKA) Assumptions
due to its 1) positive new contract growth, 2) attractive valuation 2017A 2018A 2019F 2020F 2021F
supported by double digit earnings growth in 2020F , 3) strongest
New Orderbook (Rp bn) 39,120 43,814 44,253 55,340 63,018
balance sheet (lowest gearing) translates to more room to use debt
Carry Over OB (Rp bn) 55,141 72,759 91,454 90,289 101,275
funding.
Total Orderbook (Rp bn) 94,261 116,573 135,706 145,629 164,294
110
PT PP
Gross profit 3,613 3,964 4,642 5,384 6,072 Chg in working cap. -571 -3,089 -694 -1,516 -1,547
Oper. expenses -726 -918 -957 -1,171 -1,324 Other 286 1,805 -97 75 129
Oper. profit 2,886 3,047 3,685 4,214 4,748 CF-Oper activities 1,463 716 1,184 951 1,339
Other income (exp.) -30 255 -86 -83 -94
Net change in debt 159 -233 390 1,582 586
Pre-tax profit 2,436 2,813 3,001 3,523 4,009
Income tax -712 -854 -923 -992 -1,124
Other financing 2,847 3,110 -822 646 601
Net profit 1,453 1,502 1,594 1,968 2,250
CF-Financing activities 2,699 2,587 -882 1,750 596
Net cash flow 258 -736 -2,026 141 -882

Balance Sheet
Key Ratios
Inventory 2,421 4,659 4,732 5,812 6,579
2017A 2018A 2019F 2020F 2021F
Other curr, asset 11,390 13,554 12,984 11,780 13,336
Revenue gr. (%) 30.6 16.8 28.6 16.0 13.2
Fixed assets - net 5,790 6,605 8,352 10,270 12,341
Net profit gr. (%) 42.0 3.4 6.1 23.5 14.3
Gross margin (%) 16.8 15.8 14.4 14.4 14.3
Total asset 41,783 52,549 52,306 55,647 60,956
EBITDA margin (%) 14.8 14.1 12.6 12.4 12.4
Acct, payable 14,506 19,571 18,427 17,658 19,690
Net margin (%) 6.8 6.0 4.9 5.3 5.3
ROA (%) 3.5 2.9 3.0 3.5 3.7
Other curr. liab 2,122 3,326 2,943 3,132 3,312
ROE (%) 12.7 11.8 11.5 12.8 13.2
Long term debt 5,144 7,903 6,335 6,219 5,993
Total liab + SHE 41,783 52,549 52,306 55,647 60,956 Net debt to equity (x) Net Cash 0.2 0.3 0.4 0.4
111
Sector Construction
Waskita Karya Bloomberg Ticker

WSKT IJ
2,500 20%
HOLD TP: Rp1,950 (+17.1%) Last Price (Rp) 1,665 2,000

15%
10%
1,500 5%
Company Profile 3m 6m 12m 1,000 0%
Waskita Karya (WSKT) is largest contractor by market cap. Its business Absolute (%) -15.9 -12.6 -1.8 -5%
500
segments include construction services, precast, realty and investment. Relative to JCI (%) -15.2 -9.1 -7.1 -10%
Company’s projects are majorly toll road with investments in toll road 52w High/Low price (Rp) 2,230/1,415
0 -15%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
sections. WSKT will continue its plan to divest its 10 toll roads.
Mkt. Cap (Rpbn/USDmn) 22,279/1,585 WSKT 1yr Rel. to JCI (RHS)
Key Points
 Lowering new contract target due to low achievement Financial Highlights
Waskita Karya (WSKT) revised down its new contract target for this year 2017A 2018A 2019F 2020F 2021F
from Rp56 tn to Rp45-50tn (vs. Rp27 tn in 2018) as the company only Revenue (Rpbn) 45,213 48,789 44,156 47,328 50,992
secured Rp9.4 tn new contract in 8M19. However, management is yet to Operating profit (Rpbn) 7,387 7,224 6,488 7,019 8,197
disclose earnings target this year while the company saw 67% YoY Net profit (Rpbn) 3,882 3,963 2,895 3,287 4,136
decline in net profit in 1H19. EPS (Rp) 290.1 296.2 216.4 245.6 309.1
 The success of toll road divestment is crucial. WSKT will continue its EPS growth (%) 114.1 2.1 -26.9 13.5 25.8
plan to divest its 3 toll roads in 2020 after selling its stake at Solo-Ngawi EV/EBITDA (x) 9.6 11.1 9.5 8.4 7.1
and Ngawi Kertosono in 2019 at 1.2-1.7x BV. This divestment would be a PER (x) 7.5 7.3 10.0 8.8 7.0
significant milestone because it provides affirmation its business model PBV (x) 2.1 1.6 1.5 1.3 1.1
is working, easing investors’ concerns on the company future cash flow
Dividend yield (%) 1.8 4.3 4.8 3.5 4.0
and balance sheet as well as ability to take up big projects.
ROE (%) 27.7 22.0 14.6 14.5 15.7
 Potential improvement in cash flow. WSKT expects to receive Rp50-60
tn cash inflow from 1) expected completion of turnkey projects in 2019 of Assumptions
Rp25 tn , 2) Rp7 tn payment from LMAN for reimbursement of toll-road 2017A 2018A 2019F 2020F 2021F
bridging fund and 3) cash flow from conventional projects. New Orderbook (Rpbn) 55,830 27,080 45,557 44,191 48,610
 Toll road divestment as the only catalyst. We still rate WSKT as a Hold Carry Over OB (Rpbn) 81,872 89,990 68,281 69,682 66,544
due to continued decline in order book while we see earnings upside Total Orderbook (Rpbn) 137,702 117,070 113,838 113,873 115,154
risks only from toll road divestment.
112
Waskita Karya
Gross profit 9,490 8,892 8,033 8,675 9,981 Chg in working cap. -13,835 2,004 2,458 804 -2,569
Oper. expenses -2,104 -1,668 -1,545 -1,656 -1,785 Other 3,945 -3,212 -1,617 -1,435 572
Oper. profit 7,387 7,224 6,488 7,019 8,197 CF-Oper activities -5,970 3,035 4,110 3,128 2,714
Interest income 334 684 542 347 266 Others -2,520 -3,586 -186 2,277 4,233
Other income (exp.) 267 608 700 700 700
Net change in debt 18,502 16,964 -2,251 3,257 2,511
Pre-tax profit 6,055 7,026 5,078 5,654 6,781
Income tax -1,854 -2,406 -1,704 -1,823 -1,961
Dividend payment -514 -1,260 -1,386 -1,012 -1,149
Other financing 2,643 5,189 2,058 -1,076 -150
Net profit 3,882 3,963 2,895 3,287 4,136
CF-Financing activities 20,643 20,490 -1,579 1,169 1,212
Net cash flow -4,565 4,757 -3,905 -1,630 -454

Balance Sheet
Key Ratios
Inventory 1,871 3,768 3,629 3,890 4,191
2017A 2018A 2019F 2020F 2021F
Other curr, asset 40,213 47,278 33,918 36,032 38,533
Revenue gr. (%) 90.1 7.9 -9.5 7.2 7.7
Operating profit gr. (%) 132.9 -2.2 -10.2 8.2 16.8
Fixed assets - net 4,742 7,091 10,830 13,639 16,509
Net profit gr. (%) 114.1 2.1 -26.9 13.5 25.8
Gross margin (%) 21.0 18.2 18.2 18.3 19.6
Total asset 97,896 124,392 108,610 112,373 117,787
EBITDA margin (%) 16.4 15.4 15.5 15.8 17.2
Acct, payable 15,037 14,905 8,854 9,285 9,858
Net margin (%) 8.6 8.1 6.6 6.9 8.1
ROA (%) 4.0 3.2 2.7 2.9 3.5
Other curr. liab 11,159 12,551 21,641 24,433 23,958
ROE (%) 27.7 22.0 14.6 14.5 15.7
Long term debt 22,285 36,162 19,819 18,792 18,292
Other non-curr, liab, 547 2,542 2,542 2,542 2,542 Current ratio (x) 1.0 1.2 0.9 0.9 0.9
113
Wijaya Karya Sector

Bloomberg Ticker
Construction
WIKA IJ

Last Price
3,000 70%
60%
2,000 2,500
50%
(Rp)
Avg. daily T/O(Rpbn/USDmn) 54.0/3.8 2,000 40%
Company Profile 30%
Wijaya Karya (WIKA) is the most diversified and second largest contractor by 3m 6m 12m
1,500
20%
market-cap and order book in Indonesia. Its business segments are Absolute (%) -14.9 1.5 47.1 1,000 10%
0%
infrastructure & building, energy and industrial plant, industrial (precast and Relative to JCI (%) -14.2 5.0 41.7 500
-10%
asphalt producer), realty and property as well as investment. WIKA was 0 -20%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
awarded the civil work contract of the Jakarta-Bandung high-speed railway
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
(HSR) worth ~ Rp17 tn and the company is also developing TOD’s along Outstanding shrs(mn) 8,970
Jakarta-Bandung HSR railway. Mkt. Cap (Rpbn/USDmn) 17,940/1,276 WIKA 1yr Rel. to JCI (RHS)

 Better visibility of HSR project, additional sizable projects also seen. 2017A 2018A 2019F 2020F 2021F
WIKA plans to accelerate the construction of the Jakarta-Bandung high Revenue (Rpbn) 26,176 31,158 35,949 40,687 44,245
speed railway (HSR). We believe there are no financing issues on HSR Operating profit (Rpbn) 2,772 3,352 3,675 4,357 5,145
construction as China Development Bank has disbursed USD1.1 bn loan Net profit (Rpbn) 1,202 1,730 2,270 2,184 2,649
(out of the planned USD4.5 bn) while land clearance progress has EPS (Rp) 134.0 192.9 253.0 243.5 295.3
reached 95% so far. We expect new contract to gradually improve in
EPS growth (%) 18.8 43.9 31.2 -3.8 21.3
2H19 and going forward supported by sizable contract like the 27-
EV/EBITDA (x) 6.1 5.5 5.7 4.8 4.0
kilometer Semarang-Demak toll road, MRT phase 2, toll roads, power
PER (x) 17.5 12.1 9.2 9.6 7.9
plant, and smelters. WIKA targets the development of the HSR to reach
49-51% by end-2019 with budget disbursement reaching Rp40.0 tn from PBV (x) 1.5 1.4 1.3 1.2 1.1
the Rp80.0tn allocated. Dividend yield (%) 1.4 1.1 2.5 3.2 3.1
 Investment has borne fruit. WIKA sold its 20.3% stake in Surabaya- ROE (%) 8.9 11.7 14.1 12.4 13.5
Mojokerto toll road in 1H19 and booked sizable additional income of Assumptions
Rp725 bn, implying to 2.3x PBV of transaction. WIKA still has more toll 2017A 2018A 2019F 2020F 2021F
road portfolios to be divested in the future.
New Orderbook (Rpbn) 42,402 50,560 56,601 68,059 81,891
 Top pick in the sector. We like the company’s 1) strongest orderbook
Carry Over OB (Rpbn) 67,948 72,953 92,355 113,007 140,379
and earnings visibility, 2) solid balance sheet will help it to tackle future
funding problems, and 3) more conservative approach to win the contract
reflected in its diversified contracts and investment
114
Wijaya Karya
Gross profit 3,449 4,138 4,464 5,222 6,052 Chg in working cap. -648 478 -1,603 -291 -276
Oper. expenses -677 -786 -789 -865 -907 Other 1,040 -32 2,114 -413 -310
EBITDA 3,064 3,899 4,237 4,982 5,831 Capital expenditure -997 -1,248 -2,514 -1,576 -1,272
Interest income 242 624 379 270 259 Others -1,641 -3,670 -1,707 -571 -463
Other income (exp.) -244 82 668 -28 -82
Net change in debt 2,401 2,565 -1,458 -281 -2,123
Pre-tax profit 2,092 3,086 3,806 3,759 4,519
Income tax -736 -1,012 -1,038 -1,127 -1,327
Other financing 638 2,611 -1,170 597 526
Net profit 1,202 1,730 2,270 2,184 2,649
CF-Financing activities 2,736 4,935 -3,148 -365 -2,252
Net cash flow 1,984 2,740 -4,025 -406 -1,238

Balance Sheet
Key Ratios
Inventory 3,840 5,979 4,690 5,300 5,714
2017A 2018A 2019F 2020F 2021F
Other curr, asset 14,971 18,264 14,827 16,782 18,249
Revenue gr. (%) 67.1 19.0 15.4 13.2 8.7
Fixed assets - net 3,907 4,676 4,454 4,571 4,591
Net profit gr. (%) 18.8 43.9 31.2 -3.8 21.3
Gross margin (%) 13.2 13.3 12.4 12.8 13.7
Total asset 45,684 59,230 53,095 57,396 59,556
EBITDA margin (%) 11.7 12.5 11.8 12.2 13.2
Acct, payable 8,925 13,183 10,634 12,017 12,956
Net margin (%) 4.6 5.6 6.3 5.4 6.0
Advances received 1,442 1,234 965 1,093 1,188
ROA (%) 2.6 2.9 4.3 3.8 4.4
Other curr. liab 8,890 9,375 7,376 8,348 9,076
ROE (%) 8.9 11.7 14.1 12.4 13.5
Long term debt 2,262 9,940 8,712 6,798 4,969
Total liab + SHE 45,684 59,230 53,095 57,396 59,556 Net debt to equity (x) Net Cash 0.0 0.2 0.2 0.1
115
Sector Construction
Wika Beton Bloomberg Ticker

WTON IJ
700 80%
70%
BUY TP: Rp710 (+47.3%) Last Price (Rp) 482
600
500
60%
50%
400 40%
30%
Company Profile 3m 6m 12m 300 20%
Wijaya Karya Beton (WTON) has a solid track record in the precast concrete Absolute (%) -16.2 -16.9 34.6 200 10%
operation with around 39 years of experience, supported by its 14 production Relative to JCI (%) -15.3 -13.2 29.5 100
0%
-10%
facilities across Indonesia. WTON distinctively dominates the precast 52w High/Low price (Rp) 680/29 0 -20%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
concrete market as the company 1) is largest precast concrete producer in 8
Indonesia with a capacity market share of 3.7mn tons or 25% share, 2) has Outstanding shrs(mn) 8,715
also wider range of product with geographically distributed plant locations Mkt. Cap (Rpbn/USDmn) 4,201/299 WTON 1yr Rel. to JCI (RHS)
(in all Indonesia’s major islands) including 26 ha area in East Kalimantan to
anticipate capital city relocation. Financial Highlights
2017A 2018A 2019F 2020F 2021F
Key Points Revenue (Rpbn) 5,362 6,931 7,263 8,716 10,459
 Strong new contract growth. Unlike contractors companies which saw Operating profit (Rpbn) 530 733 785 942 1,131
decelerating new contracts growth, WTON new contract was relatively Net profit (Rpbn) 337 486 505 652 806
flattish YoY at Rp4.5 tn in 8M19. This already achieved 55% FY19F of EPS (Rp) 38.7 55.8 57.9 74.8 92.5
Rp8.3 tn. Among big projects the company is currently works at Pekan EPS growth (%) 23.5 44.3 3.8 29.1 23.7
Baru – Padang toll road of Rp691 bn, Bogor Outer Ring Road (BORR) of
EV/EBITDA (x) 8.3 6.4 5.6 4.8 3.7
Rp220 bn, and Kulon Progo new airport infrastructure of Rp136 bn. We
PER (x) 15.0 10.4 10.0 7.8 6.3
also saw revenue contribution from parent company (WIKA) declined
PBV (x) 1.9 1.6 1.7 1.5 1.4
from 32% in 1H18 to 24% in 1H19.
Dividend yield (%) 1.4 1.9 2.6 2.8 3.6
 Balance sheet remains solid. The company’s DER stood at 0.6x as at end
ROE (%) 12.6 15.9 16.7 19.5 21.8
of Jun-19, which enable company to raise more financing if needed to
support higher contract and business expansion. Assumptions
 Trading at single digit PER. WTON is currently trading at only 7.8x 2020F 2017A 2018A 2019F 2020F 2021F
PER vs. historical average of 18.2x. This is due to overall de-rating New Orderbook (Rpbn) 7,230 7,664 8,250 9,900 11,880
valuation at construction sector which we believe is not justifiable given Carry Over OB (Rpbn) 3,563 5,120 5,854 6,840 8,025
that WTON is a precast manufacture which has better cash flow, balance
sheet and ROE than contractors. We have Buy rating with TP of Rp710 for
WTON.
116
Wika Beton
Revenue 5,362 6,931 7,263 8,716 10,459 Net income 337 486 505 652 806
Gross profit 667 882 944 1,133 1,360 Chg in working cap. -225 86 172 -386 239
Oper. expenses -136 -150 -159 -191 -229 Other 267 -23 40 33 0
Oper. profit 530 733 785 942 1,131 CF-Oper activities 556 773 963 571 1,349
EBITDA 707 956 1,032 1,214 1,433 Capital expenditure -501 -440 -443 -523 -628
Interest income 4 5 7 5 4 Others -31 0 0 0 0
Other income (exp.) -9 -23 -18 -15 -12
Net change in debt 353 34 -577 18 -387
Pre-tax profit 435 619 647 833 1,023
Income tax -95 -133 -142 -181 -216
Minority interest -3 0 0 0 0
Net profit 337 486 505 652 806
CF-Financing activities 271 -106 -732 -143 -595
Net cash flow 296 227 -212 -95 126

Balance Sheet
Key Ratios
Inventory 1,034 1,206 1,043 1,082 1,046
2017A 2018A 2019F 2020F 2021F
Other curr, asset 1,463 2,587 895 928 732
Revenue gr. (%) 54.0 29.2 4.8 20.0 20.0
Fixed assets - net 2,679 2,948 3,258 3,624 4,063
Net profit gr. (%) 23.5 44.3 3.8 29.1 23.7
Gross margin (%) 12.4 12.7 13.0 13.0 13.0
Total asset 7,068 8,882 7,204 7,595 7,772
ST debt + curr. maturity 1,445 1,569 1,132 1,234 898
EBITDA margin (%) 13.2 13.8 14.2 13.9 13.7
Acct, payable 1,223 1,068 1,264 1,167 1,213
Net margin (%) 6.3 7.0 6.9 7.5 7.7
ROA (%) 4.8 5.5 7.0 8.6 10.4
Other curr. liab 1,243 2,056 1,067 1,172 1,306
ROE (%) 12.6 15.9 16.7 19.5 21.8
Long term debt 0 350 210 126 76
117
PLANTATION SECTOR
118
Plantation  Positive note on CPO price next year

We see potential for CPO price to improve by next year supported by
Overweight decreasing inventory level in both Indonesia and Malaysia while exports and
domestic demands remain healthy. Though threat from EU countries’
Sector Outlook resistance towards PO remained a challenge, we believe China and India could
take over EU market share as both countries experiencing rapid demand
 Tailwind from B30 initiative growth in recent years.
We believe Indonesian government’s plan to accelerate the use of fuel with
30% biodiesel content (B30) in the transportation sector from the initial plan of Exhibit 113: Malaysia palm oil statistics
2020 could boost demand for palm oil (PO). Throughout 2019, we have seen (mn tons) (USD/ton)
significant pick up in domestic demand after B20 came in full swing starting
3.20 850
Sep 18. According to Indonesian Palm Oil Association (GAPKI), the monthly 3.00 Wide gap between last
800
average of PO inventory within 1H19 drop to 3.26 mn tons, or 19% below than 2.80
price and the 5-yr avg.
750
similar period last year. 2.60 700
2.40
Exhibit 112: Indonesia palm oil statistics 650
2.20
2.00 5-yr avg: USD645/ton 600
ID PO stocks ('000 tons) Consumption to stock (x) 550
1.80
5,000 2.1 1.60 500
starting B20 1.9 1.40 450
4,500
Sep-14 Sep-15 Sep-16 Sep-17 Sep-18
1.7
4,000 MY palm oil stock FOB CPO price
1.5
3,500 1.3 Source : MPOB, Oil World, Ciptadana Estimates
1.1
3,000
0.9 In exhibit 2 we see that as Malaysian monthly stock climbed, CPO price dove to
2,500
0.7
USD500/ton level, deep below the last five years average of USD645/ton. We
moderately projected a 15% increase in global CPO price for 2020 with the
2,000 0.5
Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19
assumption of: (1) successful B30 initiatives, (2) stable production of palm oil,
and (3) healthy exports (modest change of India PO import tax).
Source : GAPKI, Ciptadana Estimates
 Soybean: growing demand, lower stocks
Evidence from exhibit 1 showed that post B20 regulation, Indonesian monthly We keep track on soybean oil trade, the closest substitute of palm oil.
PO stocks dropped to below 2.5 mn tons level. We expect with stable According to USDA reports, the decline of soybean stocks in China, US, India,
production and growing demand ahead will drive CPO price back to average and the EU are partially offset by higher stocks from Argentina. However, trade
RM2,300/ton or equal to USD549/ton in 2020. of soybean oil in 2020 is forecasted up on growing global demand.
119
 Support for better prices in 2020 Exhibit 115: Historical price of soybean oil, CPO, and Brent oil
We see diminishing US soybean stock on the beginning of 2H19, after peaked
to 1.04 bn bushels in month of Jun 19. We expect price to move upward in 2020 Soybean oil FOB CPO price
following the lower inventory level. Demand increases were seen throughout (USD/ton) Brent oil Linear (Soybean oil)
2018-19 and we expect the situation to continue in 2020. Looking into Exhibit 1,000
Linear (FOB CPO price ) Linear (Brent oil)
3., it is evidenced that the soybean ending stock has decreased significantly on
annual basis. 800
Exhibit 114: US soybean ending stock

600
US soybean stock (mn bushels)
400
1,045
970 200
955 955 955
Sep-14 May-15 Jan-16 Sep-16 May-17 Jan-18 Sep-18 May-19
910 900
885 895
Source : Bloomberg, MPOB
845
795
 Pushing 30% biodiesel blending
755
The B30 biodiesel program is likely to be the highest point of biodiesel
blending because anything higher than 30% fatty methyl content would require
Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 technological modifications to machinery. The B20 biodiesel program already
resulted in various complaints from consumers as they believe the biodiesel
Source : USDA, Bloomberg
has caused damage to their engines.
 Expect narrower premium gap between CPO vs. soybean oil
Meanwhile, Indonesian government also wants to expand the B15 biodiesel
The price of soybean oil had been relatively stable in the last five years, while
program to the mining sector. This move could boost domestic biodiesel
CPO experienced a downtrend. As a result, by Aug 19 the CPO price’s discount
consumption from 3.8 mn tones in 2018. Government move to increase
to soybean oil widened to USD233/ton which is significantly higher compared
biodiesel blending is one of the key factors for palm oil industry to thrive.
to the five-year average of USD150/ton.
Meanwhile, CPO price premium to Brent oil narrowed to USD99/ton in August

or USD110/ton cheaper than its historical 5-yr average of USD209/ton. As we
placed soybean oil as ceiling for the CPO price band and put Brent oil as the
floor price, we believe the current condition justified strong expectation of
strengthened CPO price in 2020.
120
 Markets for Indonesian palm oil exports  Top picks

Indonesian palm oil exports climbed as much as 4.7% YoY within 1H19 to
14.83 mn tons with China surpassed EU countries and India as the largest We have Overweight rating on plantation sector with our top picks include
export destination. Palm oil export volume to China grew significantly by 39.3% SIMP and TBLA. SIMP has shown historically stable margins compared to
YoY to 2.54 mn tons as China decreased soybean import from the US following peers and we also believe TBLA as one of FAME producers will be benefited
the trade war between the two countries. In previous year, China placed third from the latest B30 expansion.
as Indonesian largest export destination for palm oil. As of Jun 19, palm oil
export to China contributed to 17% of total export volume. Exhibit 117: Plantation stock rating and valuation
20F 20F
Meanwhile, export to EU within 1H19 inched 0.7% YoY as the price of palm oil Ticker Rating (Rp tn) Price Price pot.(%) 2019F 2020F 2019F 2020F
(%) (%)
in the period was at an attractive USD218/ton discount compared to its closest AALI Buy 20.6 10,750 10,800 0 209.7 118.3 13.5 14.5 0.9 0.1
substitute, soybean oil, far wider than the 5-year average discount of DSNG Buy 3.5 328 400 22 11.7 8.3 6.7 5.7 9.9 1.5
USD140/ton. India slid from historically the top destination as export to India
LSIP Hold 8.4 1,215 1,120 (8) 112.6 31.5 20.1 11.3 3.0 0.4
decreased by 16.5% in the period, reason being the current Indian tax
SIMP Buy 5.2 336 410 22 19.8 19.4 3.9 3.6 1.8 1.5
regulations for import of palm oil products are more beneficial to Malaysian
TBLA Buy 5.0 885 1,040 18 7.3 7.2 7.3 8.4 17.1 6.7
counterpart instead of Indonesian palm oil exporters.
O.W 72.2 36.9 10.3 8.7 6.5 2.0
Exhibit 116: Indonesia’s palm oil export destination Yasmin Soulisa +62 21 2557 4800 ext. 799 soulisayasmin@ciptadana.com
('000 tons) India EU China
900.0
800.0
700.0
600.0
500.0
400.0
300.0
200.0
100.0
-
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19
Source : GAPKI
121
Astra Agro Lestari Sector

Bloomberg Ticker
Plantation
AALI IJ
Hold TP: Rp10,800 (+0.5%) Share Price Performance 16,000

14,000
10%
5%
12,000 0%
Astra Agro Lestari (AALI) is one of the largest oil palm plantations in 3m 6m 12m
8,000 -10%
6,000 -15%
Indonesia and operated a total 285,025 ha plantation area in Sumatra, Absolute (%) 5.9 -12.6 -2.5 4,000 -20%
Kalimantan, and Sulawesi as of 2019. It is currently also operating a palm oil Relative to JCI (%) 11.1 -6.9 -6.6 2,000 -25%
refinery in the Mamuju Utara Regency in West Sulawesi Province, and in 0 -30%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
Dumai, Riau Province.
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
Key Points Mkt. Cap (Rpbn/USDmn) 20,690/1,461 AALI 1yr Rel. to JCI (RHS)
 CPO production on track to meet our FY19 target. We maintain our
assumption of FY2019 CPO production of 1.92 mn tons as we view the Financial Highlights
43% achievement in 1H19 was relatively in line. We forecast flat 2017A 2018A 2019F 2020F 2021F
production growth in 2020 as we see limited oil yield improvement due to Revenue (Rpbn) 17,306 19,084 18,780 19,893 18,799
AALI’s aging plantation. Production growth next year is also limited due Operating profit (Rpbn) 3,051 2,326 304 398 534
to replanting, as new trees take around 3-4 years before producing palm Net profit (Rpbn) 2,052 1,454 99 175 254
oil. EPS (Rp) 1,066.0 755.2 51.3 90.8 131.9
EPS growth (%) -6.7 -29.2 -93.2 77.2 45.2
 Expect 8,000 ha of replanting annually. The company replanted 5,576 ha
EV/EBITDA (x) 5.9 8.2 13.5 14.5 13.0
of palm oil in 8M19, a significant increase from 1,839 ha in 8M18. We
PER (x) 10.1 14.2 209.7 118.3 81.5
expected a total of around 8,000 ha area to be replanted in 2019 and
PBV (x) 1.1 1.1 1.1 1.1 1.1
approximately similar figure in 2020. As of Aug 19, around 45% of AALI’s
Dividend yield (%) 2.5 2.1 1.5 0.1 0.2
palm oil trees are older than 16 years with age profile of 15.3 year.
Through replanting strategy, we expect the age profile will improve in the ROE (%) 11.3 7.7 0.5 0.9 1.4
long term. Assumptions

2017A 2018A 2019F 2020F 2021F
 Downside potential to our TP, maintain HOLD rating. We applied -1SD CPO Price (RM/ton) 2,791 2,235 2,000 2,300 2,300
last 5-year average PBV of 1.13x, our 2020F target price was set at CPO Sales Volume (k ton) 1,260 1,634 1,623 1,540 1,438
Rp10,800/sh. Our TP offers less than 10% upside from current market Olein Sales Volume (k ton) 263 338 338 338 338
price hence we maintain HOLD rating. However, the government's
CPO Production (k ton) 1,634 1,936 1,924 1,825 1,705
commitment to the B30 program, may offer positive sentiment to AALI’s
PK Production (k ton) 357 421 418 397 371
share price.
Yasmin Soulisa +62 21 2557 4800 ext. 7999 soulisayasmin@ciptadana.com
122
Astra Agro Lestari
Revenue 17,306 19,084 18,780 19,893 18,799 Net income 2,052 1,454 99 175 254
COGS -13,160 -15,545 -17,281 -18,230 -17,069 Depreciation 1,081 781 1,570 1,396 1,463
Gross profit 4,145 3,540 1,499 1,663 1,730 Chg in working cap. -207 -174 874 -361 89
Oper. profit 3,051 2,326 304 398 534 CF-Oper activities 2,925 2,060 2,543 1,210 1,805
EBITDA 4,131 3,107 1,875 1,794 1,997
Capital expenditure -953 -594 -1,335 -969 -868
Others -800 -575 -661 -886 -779
Pre-tax profit 2,964 2,222 151 268 389 Net change in debt -132 762 607 417 -216
Income tax -810 -686 -47 -83 -121 Net change in equity -33 0 33 0 0
Net profit 2,052 1,454 99 175 254 Other financing -199 -536 0 0 0
CF-Financing activities -1,441 -1,105 30 375 -290
Balance Sheet Net cash flow -269 -213 577 -270 -132
Other curr, asset 1,677 1,467 386 469 517 2017A 2018A 2019F 2020F 2021F
Total current asset 4,480 4,501 4,304 4,463 4,143 Revenue gr. (%) 22.5 10.3 -1.6 5.9 -5.5
Fixed assets - net 16,899 17,268 17,693 18,152 18,336 Operating profit gr. (%) 14.8 -23.8 -86.9 30.6 34.3
Other non-curr.asset 3,552 4,916 4,598 4,625 4,644 Net profit gr. (%) 1.6 -29.2 -93.2 77.2 45.2
Total asset 25,120 26,857 26,769 27,413 27,296
Gross margin (%) 24.0 18.5 8.0 8.4 9.2
EBITDA margin (%) 23.9 16.3 10.0 9.0 10.6
Acct, payable 833 1,089 1,068 1,127 1,055
Net margin (%) 11.9 7.6 0.5 0.9 1.4
ROA (%) 8.2 5.4 0.4 0.6 0.9
Other curr. liab 624 506 282 298 297
ROE (%) 11.3 7.7 0.5 0.9 1.4
Long term debt 3,369 3,606 4,213 4,630 4,415
123
Dharma Satya Nusantara Sector

Bloomberg Ticker
Plantation
DSNG IJ

400
5%
0%
Last Price (Rp) 328 350
-5%
Avg. daily T/O(Rpbn/USDmn) 0.3/0.0 300
Company Profile 250 -10%
Dharma Satya Nusantara (DSNG) currently has two main businesses, 3m 6m 12m 200 -15%
plantation and wood products. Currently, DSNG manages palm oil plantation Absolute (%) -10.7 -18.5 -13.6 150
-20%
100
in East Kalimantan. As of June 2019, the company’s total planted area, Relative to JCI (%) -5.4 -12.7 -17.7 50 -25%
including nucleus and plasma, reached 108,411 hectares, with an average 0 -30%
52w High/Low price (Rp) 440/308
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
age of 10.3 years.
Key Points Mkt. Cap (Rpbn/USDmn) 3,371/238 DSNG 1yr Rel. to JCI (RHS)

 More than 100k ha of palm oil estates. DSNG added around 17,000 ha of
palm plantation and two palm oil mills (PKS) in East Kalimantan from the Financial Highlights
acquisition of PT Bima Palma Nugraha and PT Bima Agri Sawit. The newly 2017A 2018A 2019F 2020F 2021F
acquired estates brought a total company’s planted area (including Revenue (Rpmn) 5,160 4,762 5,409 5,806 5,731
nucleus and plasma) to 108,411 ha as of Jun 19, with an average age of Operating profit (Rpmn) 1,156 924 919 1,076 919
10.3 year old, along with 9 palm oil mills. Net profit (Rpmn) 576 421 287 408 298
EPS (Rp) 54.3 39.7 27.1 38.5 28.1
 The age profile is within the premium band (8 to 15 year old) hence we EPS growth (%) 129.6 -26.9 -31.7 42.0 -26.9
believe the company has more flexibility for limited expansion in the EV/EBITDA (x) 4.7 7.7 6.7 5.7 6.2
future, compared to most of its peers, e.g. AALI, LSIP, and SIMP. The three
PER (x) 5.9 8.0 11.7 8.3 11.3
latter mentioned companies boast age profile of 14 to 15 year old, or tend
PBV (x) 1.0 0.9 0.9 0.8 0.8
toward ‘old premium’ band hence continue to do replanting in order to
Dividend yield (%) 1.6 3.1 2.3 1.5 2.2
maintain premium yield. Attractively, the company’s young estates
produced 25.2 ton FFB/ha in 2019, well above average industry of 20.0 ROE (%) 17.8 11.8 7.6 9.9 6.8
ton FFB/ha. Assumptions

(tons) 2017A 2018A 2019F 2020F 2021F
 Undemanding valuation, maintain BUY. Our TP of Rp400 implying FY20F FFB production 1,382 1,475 1,774 1,863 1,822
PER of 10.4x to reflect better outlook on 2020’s production. We continue to CPO production 404 469 557 584 569
like DSNG for its efficient processing capabilities given its strategically CPO sales volume 458 469 557 584 569
located estates which consistently produce good-quality CPO with FFA
level below 3%.
124
Dharma Satya Nusantara
Year to 31 Dec (Rpmn) 2017A 2018A 2019F 2020F 2021F Year to 31 Dec (Rpmn) 2017A 2018A 2019F 2020F 2021F
Gross profit 1,724 1,543 1,625 1,818 1,667 Chg in working cap. 25 143 -308 -41 -18
Oper. profit 1,156 924 919 1,076 919 CF-Oper activities 928 842 454 856 775
EBITDA 1,484 1,203 1,394 1,565 1,413 Capital expenditure -373 -2,733 -436 -437 -471
Interest expense -272 -359 -477 -532 -635 CF-Investing activities -414 -3,056 -448 -449 -484
Other income (exp.) 5 -19 0 0 0
Net change in debt -336 2,453 696 939 1,370
Pre-tax profit 935 611 473 615 458
Income tax -274 -179 -180 -198 -152
Net profit 576 421 287 408 298
CF-Financing activities -385 2,356 635 896 1,304
Net cash flow 130 143 641 1,303 1,595

Balance Sheet
Cash - begin of the year 251 381 524 1,165 2,468
Year to 31 Dec (Rpmn) 2017A 2018A 2019F 2020F 2021F
Cash - end of the year 381 524 1,165 2,468 4,063
Cash & cash equivalent 404 594 1,235 2,538 4,133
Key Ratios
Inventory 588 871 859 900 919
2017A 2018A 2019F 2020F 2021F
Other curr, asset 520 534 658 679 689
Revenue gr. (%) 33.0 -7.7 13.6 7.4 -1.3
Operating profit gr. (%) 163.9 -20.1 -0.4 17.0 -14.6
Fixed assets - net 4,819 7,272 7,233 7,181 7,157
Net profit gr. (%) 129.6 -26.9 -31.7 42.0 -26.9
Gross margin (%) 33.4 32.4 30.0 31.3 29.1
Total asset 8,452 11,739 12,387 13,717 15,335
EBITDA margin (%) 28.8 25.3 25.8 26.9 24.7
Acct, payable 412 570 499 511 522
Net margin (%) 11.2 8.8 5.3 7.0 5.2
ROA (%) 6.8 3.6 2.3 3.0 1.9
Other curr. liab 352 448 422 430 434
ROE (%) 17.8 11.8 7.6 9.9 6.8
Long term debt 3,100 5,211 5,850 6,745 7,963
125
PP London Sumatra Indonesia Sector

Bloomberg Ticker
Plantation
LSIP IJ

1,400
10%
5%
1,200 0%
PP London Sumatra Indonesia (LSIP) is managing 114,461 ha of nucleus 3m 6m 12m

800 -10%
600 -15%
plantation estates in Sumatra, Java, Kalimantan and Sulawesi. Currently the Absolute (%) 7.1 8.1 4.8 400 -20%
company operates 11 palm oil mills facilities in Sumatra and Kalimantan, Relative to JCI (%) 12.4 13.8 0.7 200 -25%
with a combined annual FFB processing capacity of up to 2.4 mn tons. 0 -30%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
Key Points Outstanding shrs (mn) 6,820
Mkt. Cap (Rpbn/USDmn) 8/1635 LSIP 1yr Rel. to JCI (RHS)
 Expect slower operating expenses growth in 2020. The company
reported increase in opex in 1H19, largely came remuneration &
employee benefits. We believe the remuneration hike will not be Financial Highlights
recurring next year, hence we calculated a more moderate increase in 2017A 2018A 2019F 2020F 2021F
G&A expenses for 2020. Revenue (Rpbn) 4,738 4,020 3,936 4,505 4,488
Operating profit (Rpbn) 939 310 -10 219 164
 In-line production; FY19F-20F. We believe from production point of view, Net profit (Rpbn) 733 331 72 257 225
LSIP will perform well, supported by improving yield and stable OER. EPS (Rp) 107.5 48.6 10.6 37.7 33.0
However, sluggish CPO price dragged earnings in 2019. We slashed our EPS growth (%) 9.8 -54.8 -78.2 257.1 -12.7
FY19 CPO price assumption to RM2,000/ton (from previously EV/EBITDA (x) 4.9 9.3 20.1 11.3 12.2
RM2,300/ton) as we did not see sufficient catalysts to boost up the
PER (x) 11.1 24.5 112.6 31.5 36.1
commodity price to our previous estimate.
PBV (x) 1.0 1.0 1.0 1.0 0.9
Dividend yield (%) 2.9 3.8 1.7 0.4 1.3
 We maintain our CPO ASP assumption for 2020 at RM2,300/ton as we
ROE (%) 8.9 4.0 0.9 3.0 2.6
projected slower production growth combined with stable demand
(especially from biodiesel initiatives) could support better ASP. Assumptions
2017A 2018A 2019F 2020F 2021F
 Limited upside, maintain HOLD. We see limited upside as our 2020F TP CPO Price (RM/ton) 2,791 2,235 2,000 2,300 2,300
set at Rp1,120/sh incorporating PER multiple of 28.1x based on 5 year CPO Sales Volume (k ton) 423 436 462 464 463
average PER. On the bright side, we believe as LSIP maintained solid PK Sales Volume (k ton) 110 113 115 116 115
financial position with net cash position and no funded debt, the downside CPO Production (k ton) 389 453 462 464 463
risk should be limited.
PK Production (k ton) 93 107 110 110 110
126
PP London Sumatra Indonesia
Gross profit 1,294 683 355 637 580 Chg in working cap. 97 -40 -19 -28 -10
Oper. expenses -356 -373 -365 -418 -417 Other 45 -23 -191 586 601
Oper. profit 939 310 -10 219 164 CF-Oper activities 1,262 653 192 1,138 1,129
EBITDA 1,324 694 320 541 477 Capital expenditure -503 -862 -20 -777 -751
Interest income 57 71 72 73 88 Others -22 518 -2 -2 -2
Interest expense -1 0 0 0 0 CF-Investing activities -525 -344 -21 -779 -753
Pre-tax profit 963 417 91 325 284
Net change in equity -9 -2 -12 0 0
Income tax -229 -88 -19 -68 -60
Net profit 733 331 72 257 225
CF-Financing activities -244 -280 -151 -30 -108
Net cash flow 493 29 20 329 268

Balance Sheet
Key Ratios
Inventory 334 489 524 567 572
2017A 2018A 2019F 2020F 2021F
Other curr, asset 276 223 87 101 100
Revenue gr. (%) 23.1 -15.2 -2.1 14.5 -0.4
Operating profit gr. (%) 8.7 -67.0 n/m n/m -25.3
Fixed assets - net 6,229 6,235 6,254 6,130 5,975
Net profit gr. (%) 9.8 -54.8 -78.2 257.1 -12.7
Gross margin (%) 27.3 17.0 9.0 14.1 12.9
Total asset 9,853 10,037 9,977 10,249 10,369
Operating margin (%) 19.8 7.7 -0.3 4.9 3.6
EBITDA margin (%) 28.0 17.3 8.1 12.0 10.6
Acct, payable 213 312 334 361 365
Net margin (%) 15.5 8.2 1.8 5.7 5.0
ROA (%) 7.4 3.3 0.7 2.5 2.2
Other curr. liab 183 122 120 125 125
ROE (%) 8.9 4.0 0.9 3.0 2.6
Shareholder equity 8,225 8,328 8,250 8,477 8,594 Interest cover (x) 2,457.1 1,634.1 753.3 1,273.8 1,121.8
127
Salim Ivomas Pratama Sector

Bloomberg Ticker
Plantation
SIMP IJ
BUY TP: Rp410 (+22.0%) Share Price Performance 600 0%

-5%
Last Price (Rp) 336 500 -10%
-15%
300 -25%
3m 6m 12m
Salim Ivomas Pratama (SIMP) is one of the largest vertically integrated Absolute (%) -1.2 -21.1 -29.4 200
-30%
-35%
plantation companies in Indonesia with more than 300k ha of planted area. Relative to JCI (%) 4.1 -15.4 -33.5 100 -40%
The company also engages in the cultivation of other crops such as rubber, -45%
0 -50%
sugarcane, cocoa, and tea. SIMP owns 26 palm oil mills (6.8 mn ton 52w High/Low price (Rp) 540/308
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
FFB/year), 5 palm oil refineries (1.7 mn ton CPO/year), and 2 sugar mills (2.2 Outstanding shrs(mn) 15,501
mn TC/year). Mkt. Cap (Rpbn/USDmn) 5,208/368 SIMP 1yr Rel. to JCI (RHS)
Key Points
 Leading branded cooking oils. SIMP Group’s consumer branded cooking
2017A 2018A 2019F 2020F 2021F
oils are marketed under the leading brands of Bimoli, Bimoli Spesial,
Revenue (Rpbn) 15,827 14,190 15,503 15,691 15,824
Delima and Happy, while consumer branded margarine and shortening
Operating profit (Rpbn) 1,783 956 1,078 1,102 1,022
are packed and sold under the Palmia and Amanda brands.
Net profit (Rpbn) 486 -77 263 269 238
EPS (Rp) 31.4 -4.9 17.0 17.3 15.4
 Focus on organic growth. SIMP’s short-term strategy continues to focus
on organic growth by utilizing its available land bank to maximize planted EPS growth (%) -9.7 n/m n/m 2.1 -11.4
area. A move that we think would be positive for the company as net EV/EBITDA (x) 3.6 5.8 3.9 3.6 3.6
gearing ratio would be maintained at healthy levels (currently 0.6x). PER (x) 10.7 -68.0 19.8 19.4 21.9
PBV (x) 0.3 0.4 0.3 0.3 0.3
 Single digit growth revenues next year. We expect SIMP to experience Dividend yield (%) 3.0 3.0 3.0 1.5 1.5
flat sales in 2020 mainly due to sluggish ASP of palm products which ROE (%) 3.2 -0.5 1.8 1.8 1.6
cannot be fully offset by high sales volume from palm products and Edible
Assumptions
Oils & Fats (EOF) Division. In term of production, we view that SIMP’s
2017A 2018A 2019F 2020F 2021F
growth remain solid backed by improving yield.
CPO Price (RM/ton) 2,791 2,400 2,000 2,300 2,300
CPO Sales Volume (k ton) 425 414 433 445 452
 Upgrade to BUY rating with TP of Rp410. Our TP for SIMP of Rp410 is
CPO Production (k ton) 842 921 962 990 1,006
based on 2020F PER of 23.5x. We upgrade SIMP from HOLD to BUY as our
TP offers more than 15% upside, following the recent downtrend in the PK Production (k ton) 205 208 218 224 227
share price. Yasmin Soulisa +62 21 2557 4800 ext. 799 soulisayasmin@ciptadana.com
128
Salim Ivomas Pratama
Revenue 15,827 14,190 15,503 15,691 15,824 Net income 486 -77 263 269 238
Gross profit 3,293 2,458 2,612 2,654 2,587 Chg in working cap. -505 -276 687 -203 1
Oper. profit 1,783 956 1,078 1,102 1,022 CF-Oper activities 1,985 1,155 3,186 2,407 2,556
Pre-tax profit 1,130 207 593 626 547
Income tax -483 -385 -267 -281 -246
Minority interest -162 102 -63 -75 -63
Net profit 486 -77 263 269 238
CF-Financing activities 271 776 26 153 143
Net cash flow 393 -189 1,066 315 399

Balance Sheet
Acct, receivables 1,074 1,283 876 881 895
Key Ratios
Inventory 2,205 2,428 2,273 2,498 2,526
2017A 2018A 2019F 2020F 2021F
Other curr, asset 1,184 1,206 1,253 1,258 1,229
Revenue gr. (%) 8.9 -10.3 9.3 1.2 0.8
Operating profit gr. (%) -9.0 -46.4 12.8 2.2 -7.3
Fixed assets - net 19,966 20,066 20,073 20,126 20,157
Net profit gr. (%) -9.7 n/m n/m 2.1 -11.4
Gross margin (%) 20.8 17.3 16.8 16.9 16.3
Total asset 33,859 34,667 34,713 35,198 35,609
EBITDA margin (%) 21.9 16.0 20.1 21.5 21.0
Acct, payable 622 882 961 979 990
Net margin (%) 3.1 -0.5 1.7 1.7 1.5
ROA (%) 1.4 -0.2 0.8 0.8 0.7
Other curr. liab 961 842 929 941 941
ROE (%) 3.2 -0.5 1.8 1.8 1.6
Long term debt 5,054 4,218 4,639 4,592 4,708
129
Tunas Baru Lampung Sector

Bloomberg Ticker
Consumer
TBLA IJJ

-5%
Last Price (Rp) 885 1,000
-10%
600
3m 6m 12m -20%
Tunas Baru Lampung (TBLA) manages 56.25k ha of palm oil estates and Absolute (%) 15.6 12.9 7.2 400
-25%
11.4k ha of sugar cane estates as of 1H19. The company has rapidly Relative to JCI (%) 20.8 18.6 3.1 200 -30%
converted its aging palm oil plantation into sugarcane estates in the recent 0 -35%
years. At present, the company’s mills have annual production capacities of 52w High/Low price (Rp) 1,015/725
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
1.35 mn tons for CPO and 216k tons for sugar. Outstanding shrs (mn) 5,342
Mkt. Cap (Rpbn/USDmn) 5,155/364 TBLA 1yr Rel. to JCI (RHS)

 Deficit in domestic sugar market. Sugar industry in Indonesia remains Financial Highlights
attractive with gap between sugar domestic consumption and production
2017A 2018A 2019F 2020F 2021F
continues to widen and currently demand for sugar in Indonesia is more
Revenue (Rpbn) 8,975 8,615 8,186 8,251 8,337
than twice of domestic sugar production.
Net profit (Rpbn) 949 758 676 687 647
 Stable margins from vertically integrated palm oil business. TBLA’s
EPS (Rp) 177.6 141.8 126.6 128.6 121.1
presence in downstream palm oil business can essentially provide a
higher ASP as compared to upstream-focus peers. TBLA also actively EPS growth (%) 54.2 -20.2 -10.8 1.6 -5.9
participates in biodiesel tender and has been appointed to supply 217kl EV/EBITDA (x) 6.0 6.8 7.3 8.4 8.3
for Jan – Dec 19 period. PER (x) 5.2 6.5 7.3 7.2 7.6
PBV (x) 1.2 1.0 1.1 1.2 1.3
 Expect strong earnings from sugar business. We expect revenues from Dividend yield (%) 6.5 4.9 8.1 6.7 7.4
sugar business to have moderate growth in 2020, following a surge in ROE (%) 22.4 15.9 15.5 17.1 17.7
2018 due to completion of a new sugar mill. The sugar segment is
Assumptions
supported by both stronger sales volume and lucrative margin (more
2017A 2018A 2019F 2020F 2021F
than 40% of gross margin with ASP of refined sugar at Rp12,500/kg).
CPO Price (RM/ton) 2,791 2,235 2,000 2,300 2,300
CPO Sales Volume (k ton) 57 60 62 66 69
 Maintain BUY, undemanding valuation. As one of the suppliers of
Olein Sales Volume (k ton) 268 268 268 268 268
national biodiesel, TBLA has been allotted to supply 217kL of FAME for
biodiesel blending in 2019. TBLA is benefited by the expansion of B20 to Sugar Sales Volume (k ton) 311 311 311 311 311
B30 next year. We applied multiple PE of 8.0x based on last 5 year mean CPO Production (k ton) 282 375 390 404 433
PE. Yasmin Soulisa +62 21 2557 4800 ext. 799 soulisayasmin@ciptadana.com
130
Tunas Baru Lampung
Gross profit 2,266 2,303 1,837 1,910 2,010 Chg in working cap. 2,054 -847 1,519 -302 -394
Oper. profit 1,670 1,694 1,383 1,333 1,437 CF-Oper activities 3,087 2 2,391 592 460
EBITDA 1,754 1,780 1,579 1,540 1,644 Capital expenditure -947 -570 -1,009 -1,073 -100
Interest expense -433 -677 -523 -467 -606 CF-Investing activities -1,909 -1,181 -1,326 -1,286 -564
Net change in debt 976 1,713 327 574 791
Pre-tax profit 1,245 1,043 905 921 872
Income tax -290 -279 -218 -223 -214
Other financing -1,834 -196 -5 -475 -182
Net profit 949 758 676 687 647
CF-Financing activities -1,178 1,277 -76 -233 244
Net cash flow 0 98 989 -927 140

Balance Sheet
Cash - begin of the year 126 126 224 1,213 286
Cash - end of the year 126 224 1,213 286 426
Cash & cash equivalent 126 224 1,213 286 426
Key Ratios
Inventory 1,690 2,273 2,243 2,063 2,240
2017A 2018A 2019F 2020F 2021F
Other curr, asset 1,425 1,683 1,049 1,215 1,412
Revenue gr. (%) 37.8 -4.0 -5.0 0.8 1.0
Operating profit gr. (%) 51.2 1.5 -18.4 -3.6 7.8
Fixed assets - net 9,243 9,835 10,284 11,151 11,044
Net profit gr. (%) 54.2 -20.2 -10.8 1.6 -5.9
Gross margin (%) 25.2 26.7 22.4 23.1 24.1
Total asset 14,354 16,340 16,636 16,659 17,159
ST debt + curr. maturity 1,828 900 882 1,062 1,353
EBITDA margin (%) 19.5 20.7 19.3 18.7 19.7
Acct, payable 1,950 1,635 1,976 1,820 1,808
Net margin (%) 10.6 8.8 8.3 8.3 7.8
ROA (%) 6.6 4.6 4.1 4.1 3.8
Other curr. liab 860 766 778 721 753
ROE (%) 22.4 15.9 15.5 17.1 17.7
Long term debt 3,887 6,556 6,901 7,294 7,794
131
PROPERTY SECTOR
132
Property  Property luxury tax threshold move up to Rp30 bn/unit

Starting Jun-19, Finance Minister Sri Mulyani decided to lift the minimum
Overweight threshold for luxury properties such as luxurious houses, apartments,
condominiums, and townhouses. According to the new regulation, the luxury
Sector Outlook tax (PPnBM) of 20% only applicable to properties with selling price from Rp30
bn and up.
 Soft rebound in 2020 marketing sales
We have not seen pick up in property demand throughout 2019 as overall Previously, PPnBM applied to (1) non strata title town houses and landed
marketing sales remain challenging. Most of residential and commercial houses which valued Rp20 bn or higher and (2) strata title apartments,
developers booked significant slower year-on-year growth marketing sales in condominiums, town houses with selling price starting Rp10 bn. We are
the first half this year with the exception for SMRA which recorded bullish optimistic the new regulation will bring positive impact to property industry
achievement. Property developers mostly set flat marketing sales target in especially on high-end residential segment and simultaneously serve as
2019 following a soft achievement in previous year. positive catalyst for property companies with exposure to mid to high-end
segment such as BSDE, DILD, and PWON.
Exhibit 118 : Total annual marketing sales (Rp bn)
Total marketing sales (Rp bn) Exhibit 119 : Residential property price index growth based on size (% YoY)
22,000 Type < 21 sqm Type 22 - 70 sqm Type > 70 sqm
21,000 9
8
20,000
7
19,000 6
18,000 5
4
17,000
3
16,000
2
15,000 1
2012 2013 2014 2015 2016 2017 2018 2019F 2020F
-
*ASRI, BSDE, DILD, PWON, SMRA 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19
Source : Companies, Ciptadana Estimates Source : BI, Ciptadana Estimates
We expect the 2020F marketing sales will rebound to at least 2018 level or  Lower interest rate increases appetite for property investment
improved by 5% YoY on the back of a string of supportive government’s BI lowered its benchmark interest rate to 5.25% as of Sep 19. The expected
regulations. move boosted the long undervalued property stock by mid-year. We believe
softer mortgage rate will increase attractiveness of property investment, as it
will become more affordable for the customers to purchase.
133
Exhibit 121 : New LTV/RTV ratio
 Apartments more sensitive to changes in BI rate Old New
Over the years, we have seen resilience demand especially on landed house Category (sqm) 1st 2nd 1st 2nd
segment which less affected by changes in mortgage rates. However, bank mortgage mortgage mortgage mortgage
loan for apartment purchases were greatly influenced by lower/higher rates. Landed House
We concluded that the expected lower interest rate will affect companies with Type > 70 - 80% - 85%
large exposure to high-rise residential, such as SMRA, PWON, and DILD Type 22 - 70 - 85% - 90%
Type <= 21 - . - -
Exhibit 120 : Residential price index growth in Greater Jakarta and Surabaya
Apartment
Greater Jakarta Surabaya
Type > 70 - 80% - 85%
(YoY, %) Type 22 - 70 - 85% - 90%
9%
8% Type <= 21 - 85% - 90%
7%
6% Shophouse - 85% - 90%
Source : BI
5%
4%
As of Sep-19, the 7 days RR stood at 5.25% which meant the benchmark has
3% decreased by 75bps since the beginning of 2019. In Exhibit 122 we can see
2% how JAKPROP Index has an inverse effect against interest rate.
1%
0% Exhibit 122 : JAKPROP index vs. 7-day RR
4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19*
Source : BI, BPS JAKPROP Index (LHS) Interest Rate (RHS)
 Further LTV relaxation 600 6.5

In Aug-19, Indonesian Central Bank (BI) loosened up the Loan to Value (LTV)
ratio for mortgage and Financing to Value (FTV) for property financing by 5% 6
550
from previous regulation. BI gave additional 5-10% relaxation LTV ratio for
5.5
mortgage and FTV ratio for financing property which is deemed
500
environmentally friendly. The condition for environmentally friendly property
5
that will be benefited from the LTV and FTV relaxation is must be green
building certified by recognized institutions. 450
4.5
We believe further relaxation of LTV will benefit property developer as we have 400 4
seen pick up in payment by mortgage following the previous LTV relaxation on Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 Jun-18 Oct-18 Feb-19 Jun-19
Aug 18. Our top picks include SMRA, ASRI, BKSL, LPKR, and PWON. Source : Bloomberg
134
 Commercial property prospects mixed Exhibit 124 : Indonesia FDI real estate and total FDI
We expect slower rate of new commercial spaces in Jakarta as the last two Real estate, renting & business activities Total
years supply has been abundant. According to Colliers International, there will
be a total of 265k sqm of newly available office space in 2020, around 30% less 14,000
(USD mn) 11,945
than new office space scheduled to complete in 2019. The new office space will 12,000 11,230
be coming in from three towers within Jakarta CBD and four towers on outside 10,000
CBD.
8,000 6,693
6,076 6,162 5,783
Exhibit 123 : New office space supply in 2020 6,000 5,154
Office Building Project Location SGA (sqm) Scheme 3,551
Jakarta CBD 4,000
Thamrin Nine Thamrin 97,500 For Lease 2,000
242 252 530 399 356 189 494 545
Social Security Tower Rasuna Said 23,500 For Lease
Graha Binakarsa (redevelopment) Rasuna Said 20,000 For Lease
-
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 1H18 1H19
Subtotal Jakarta CBD 141,000
Outside CBD
Jakarta Box Tower Kebon Sirih - Central Jakarta 36,000 For Lease Source: BPKM, Ciptadana Estimate
Citra Tower 1 Kemayoran - Central Jakarta 40,000 For Sale
One Tower Kemayoran - Central Jakarta 21,400 For Sale  Top picks
Menara Tendean Tendean - South Jakarta 26,599 For Lease We see several positive catalysts for property hence OVERWEIGHT view with
Subtotal Outside CBD 123,999
LPKR, BSDE, ASRI, and SMRA as our top picks based on potential upside.
Total Jakarta 264,999
Source : Colliers International Exhibit 125 : Property stock rating and valuation
 Indonesian real estate draws more foreign investment Ticker Rating (Rp tn) Price Price pot.(%) 2019F 2020F 2019F 2020F 20F (%) 20F (%)
Indonesian property is set on an uptrend with Foreign Direct Investment (FDI) ASRI Buy 5.7 290 390 34.5 17.4 7.0 13.0 7.8 5.4 -
in real estate sector rose to USD545 mn in 1H19 or increased by 10.3% YoY. BEST Buy 2.5 238 330 38.7 5.2 4.9 5.1 4.8 10.5 3.8
The surged in real estate FDI this year is parallel to total FDI growth which
BSDE Buy 26.8 1,325 1,900 43.4 9.8 12.1 8.4 8.9 6.9 0.2
improving 6.4% YoY to USD11.94 bn. Up to 1H19, the contribution of real estate
DILD Hold 4.1 398 430 8.0 209.8 56.8 22.6 21.6 1.2 -
FDI to total FDI slightly expanded by 16 bps to 4.56% from similar period in
LPKR Buy 16.7 230 370 60.9 71.3 50.5 31.7 51.0 1.1 0.1
2018.
PWON Buy 32.0 610 800 31.1 10.5 10.7 7.6 7.6 16.6 1.5
SMRA Buy 16.7 1,155 1,500 29.9 60.3 54.4 14.5 12.8 4.0 0.3
SSIA Buy 3.4 795 920 15.7 146.8 75.0 11.3 9.8 1.2 0.1
Sector OW 107.9 66.4 33.9 14.3 15.5 5.9 0.8
135
Sector Property
Alam Sutera Realty Bloomberg Ticker ASRI IJ

400 25%
BUY TP: Rp390 (+34.5%) Last Price (Rp) 290
350
300
20%

15%

3m 6m 12m
Alam Sutera Realty (ASRI) is a developer of an integrated area Alam Sutera 150
5%
Absolute (%) -20.2 -17.9 1.5
located in Greater Jakarta. Development of the 1st phase has been completed, 100
Relative to JCI (%) -15.0 -12.1 -2.6 0%
and along with the development of the 2nd phase, in 2012 ASRI began to 50
0 -5%
market a new cluster Suvarna Padi Golf Estate, Pasar Kemis, Tangerang and 52w High/Low price (Rp) 376/260
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
acquisition of several assets in Bali and office tower in Jakarta. Outstanding shrs (mn) 19,649
Mkt. Cap (Rpbn/USDmn) 5,423/383 ASRI 1yr Rel. to JCI (RHS)
 Recurring revenues continue to provide a steady annual growth, with
Garuda Wisnu Kencana (GWK) project in Bali shows an increasing Financial Highlights
contribution to total revenues and we expect the figures continue to 2017A 2018A 2019F 2020F 2021F
increase in line with project expansion, Revenue (Rpbn) 3,917 3,975 2,715 4,595 3,917
Operating profit (Rpbn) 1,986 1,978 964 1,631 1,391
 Expect Rp500 bn of marketing sales from CFLD in 2H19. ASRI revised Net profit (Rpbn) 1,380 970 330 821 591
down its FY19 marketing sales target from Rp5 tn to Rp4 tn given a more EPS (Rp) 70.2 49.4 16.8 41.8 30.1
challenging property market condition. Meanwhile, we maintain our initial EPS growth (%) 171.2 -29.7 -65.9 148.5 -28.0
target of Rp3.5 tn and Rp4.0 tn in 2020. ASRI only booked Rp1.34 tn of EV/EBITDA (x) 6.1 6.3 13.0 7.8 9.1
marketing sales in 1H19, a 55% drop from similar period last year and
PER (x) 4.2 5.9 17.4 7.0 9.7
accounted for 38% of our FY19 marketing sales estimate.
PBV (x) 0.7 0.6 0.5 0.4 0.4
Dividend yield (%) 0.5 0.0 0.0 0.0 0.0
 Well-managed debt maturity profile. ASRI has USD175 mn of bond that
ROE (%) 16.3 10.3 2.9 5.4 3.9
will mature in 2021. On 8 May 2019, the Company tapped its 2022 bonds
(comprised of USD125 mn bond and USD245 bn bond) in which the use of Assumptions
proceed is to refinance the remaining of 2020 bonds. (Rpbn) 2017A 2018A 2019F 2020F 2021F
Marketing sales 2,213 4,300 3,500 4,000 4,000
 Maintain BUY, with TP Rp390. We expect more marketing sales coming in Recurring income 374 333 333 350 367
land sales agreement with CFLD in addition from its high rise projects. We Yasmin Soulisa +62 21 2557 4800 ext. 799 soulisayasmin@ciptadana.com
maintain BUY with our TP Rp390 is based on 70% discount to our RNAV.
136
Alam Sutera Realty
Revenue 3,917 3,975 2,715 4,595 3,917 Net income 1,380 970 330 821 591
Gross profit 2,376 2,444 1,357 2,297 1,959 Chg in working cap. -161 -335 -232 152 -33
Oper. expenses -390 -466 -394 -666 -568 Other 560 687 -27 40 -14
Oper. profit 1,986 1,978 964 1,631 1,391 CF-Oper activities 1,826 1,370 99 1,043 577
EBITDA 2,032 2,026 992 1,662 1,424 Capital expenditure -1,369 -718 -1,163 -1,035 -1,079
Interest income 43 19 31 30 30 Others -113 22 -261 -1,459 -852
Interest expense -314 -442 -449 -456 -456 CF-Investing activities -1,482 -697 -1,424 -2,495 -1,931
Other income (exp.) -107 -83 -88 -89 -87 Net change in debt 1,418 1,297 1,422 1,379 1,366
Pre-tax profit 1,576 1,155 394 979 705 Net change in equity 39 0 -13 9 -1
Income tax -190 -184 -63 -156 -112 Dividend payment -29 0 0 0 0
Minority interest -5 0 -1 -2 -1 Other financing -2,244 -2,235 -34 51 -18
Net profit 1,380 970 330 821 591 CF-Financing activities -815 -932 1,375 1,439 1,346
Net cash flow -471 -259 50 -13 -8

Balance Sheet Cash - begin of the year 1,189 718 459 509 497
Year to 31 Dec (Rpbn) 2017A 2018A 2019F 2020F 2021F Cash - end of the year 718 459 509 497 488
Acct, receivables 210 212 156 252 216 Key Ratios
Inventory 961 415 368 622 530 2017A 2018A 2019F 2020F 2021F
Other curr, asset 194 158 202 195 186 Revenue gr. (%) 44.2 1.5 -31.7 69.2 -14.7
Total current asset 2,318 1,450 1,464 1,789 1,641 Operating profit gr. (%) 81.1 -0.4 -51.3 69.2 -14.7
Fixed assets - net 1,225 1,329 1,437 1,559 1,675 Net profit gr. (%) 171.2 -29.7 -65.9 148.5 -28.0
Gross margin (%) 60.7 61.5 50.0 50.0 50.0
Total asset 20,728 20,891 21,407 25,796 25,601
EBITDA margin (%) 51.9 51.0 36.5 36.2 36.4
Acct, payable 201 226 200 339 289
Net margin (%) 35.2 24.4 12.2 17.9 15.1
Advances received 1,759 760 519 879 749
ROA (%) 6.7 4.6 1.5 3.2 2.3
Other curr. liab 749 813 771 777 787
ROE (%) 16.3 10.3 2.9 5.4 3.9
Long term debt 7,194 7,309 7,315 7,249 7,268
Other non-curr, liab, 1,818 1,806 679 699 711 Current ratio (x) 0.7 0.7 0.7 0.7 0.7
137
Bekasi Fajar Industrial Estate Sector

Bloomberg Ticker
Property
BEST IJ

300
100%
80%
Last Price (Rp) 238
250 60%
3m 6m 12m 150 20%
Bekasi Fajar Industrial Estate (BEST) is located next to Jakarta-Cikampek toll Absolute (%) -26.1 -14.4 48.8 100 0%
with direct access to exit at KM 24. The company operates and manages Relative to JCI (%) -20.9 -8.7 44.6 50 -20%
industrial and residential estates, acting as developer, selling properties as 0 -40%
well as managing and leasing shopping centres and offices. As of end of Jun
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
19, the Company’s land bank amounted to 1,043 ha (gross) or 705 ha (net). Outstanding shrs(mn) 9,647
Mkt. Cap (Rpbn/USDmn) 2,296/162 BEST 1yr Rel. to JCI (RHS)
 Industrial land sales remain healthy. Land sales contribution reached Financial Highlights
81% of 1H19 revenues while the rest made from commercial businesses. 2017A 2018A 2019F 2020F 2021F
Gross margins from land sales and maintenance services were improved Revenue (Rpbn) 1,006 963 1,100 1,118 1,148
in the period while margins from commercials were stable. Operating profit (Rpbn) 599 570 647 633 622
Net profit (Rpbn) 483 423 490 524 522
 Tough 1H19 marketing sales. BEST booked only 6.0 ha of pre-sales in
EPS (Rp) 50.1 43.8 50.8 54.3 54.1
1H19, which only represented 15% of our full year estimate of 40 ha.
However, historically land sales were weaker in the first half and going EPS growth (%) 43.9 -12.6 15.9 7.1 -0.5
forward we expect the company will meet its target. We maintain 2020F EV/EBITDA (x) 5.9 5.8 5.1 4.8 4.6
pre-sales expectation at 40 ha, in line with company’s target of 35-45 ha PER (x) 5.3 6.1 5.2 4.9 4.9
annually. The ASP in 2020 should be flat at average Rp3.0 mn/sqm, PBV (x) 0.7 0.6 0.6 0.5 0.5
therefore we expect flat revenue growth in the period. Dividend yield (%) 1.3 3.8 3.3 3.8 4.1
ROE (%) 12.6 10.1 10.7 10.5 9.6
 Improving recurring income brings added value to. Recurring income
Assumptions
segment comprised of maintenance fee in the MM2100 Industrial Town,
2017A 2018A 2019F 2020F 2021F
warehouse rentals, hotel, and others. The Company remained focus on
Land sales(ha) 42.2 45.0 40.0 40.0 40.0
land sales segment while developing the recurring income segment.
ASP (US$/sqm) 193 216 209 209 209
2014A 2015A 2016F 2017F 2018F
 Maintain BUY with TP of Rp330/share. We expect flat industrial land
sales growth in 2019 and our TP is based on 5 year mean 75% discount to
our RNAV/sh. Yasmin Soulisa +62 21 2557 4800 ext. 799 soulisayasmin@ciptadana.com
138
Bekasi Fajar Industrial Estate
Revenue 1,006 963 1,100 1,118 1,148 Net income 483 423 490 524 522
Gross profit 721 691 786 774 767 Chg in working cap. -255 -128 -121 -126 -87
Oper. expenses -121 -121 -139 -141 -145 Other 323 -88 -295 -14 -20
EBITDA 606 576 654 641 630 Capital expenditure 4 -24 21 -8 -8
Interest expense -140 -141 -62 -22 -2 CF-Investing activities -325 133 5 -26 -102
Other income (exp.) 48 38 9 22 16 Net change in debt -152 379 24 -129 -63
Pre-tax profit 509 447 571 610 615 Net change in equity 9 2 0 0 0
Income tax -26 -25 -81 -86 -93 Dividend payment -33 -96 -84 -98 -105
Minority interest 0 0 0 0 0 Other financing 2 -6 0 1 1
Net profit 483 423 490 524 522 CF-Financing activities -174 278 -60 -225 -166
Net cash flow 60 624 25 140 154

Balance Sheet Cash - begin of the year 442 502 1,129 1,147 1,287
Year to 31 Dec (Rpbn) 2017A 2018A 2019F 2020F 2021F Cash - end of the year 502 1,127 1,154 1,287 1,441
Cash & cash equivalent 502 1,129 1,147 1,287 1,440
Inventory 927 1,248 1,362 1,495 1,589 2017A 2018A 2019F 2020F 2021F
Other curr, asset 267 314 622 642 664 Revenue gr. (%) 22.0 -4.3 14.2 1.6 2.7
Total current asset 2,045 2,755 3,204 3,498 3,769 Operating profit gr. (%) 15.1 -4.9 13.6 -2.1 -1.8
Fixed assets - net 163 181 161 169 176 Net profit gr. (%) 43.9 -12.6 15.9 7.1 -0.5
Gross margin (%) 71.6 71.8 71.5 69.3 66.8
Total asset 5,719 6,290 6,726 7,039 7,405
EBITDA margin (%) 60.3 59.8 59.5 57.3 54.8
Acct, payable 48 31 36 40 44
Net margin (%) 48.0 43.9 44.5 46.9 45.4
ROA (%) 8.5 6.7 7.3 7.4 7.0
Other curr. liab 245 130 139 149 156
ROE (%) 12.6 10.1 10.7 10.5 9.6
Long term debt 1,091 1,724 1,734 1,738 1,745
139
Bumi Serpong Damai Sector

Bloomberg Ticker
Property
BSDE IJ

40%
1,400 35%
1,000
25%
BSDE is one of the largest developers in Indonesia with a total license area 3m 6m 12m 800
20%
15%
of 5,950 ha. The company’s main portfolio is situated in Greater Jakarta, Absolute (%) -11.7 -7.0 29.3
600
400
10%
5%
Jakarta CBD and East Jakarta. BSDE has diversified its portfolio into other Relative to JCI (%) -6.4 -1.3 25.2 200 0%
major cities throughout Indonesia such as: Surabaya, Kalimantan, Manado, 0 -5%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
Palembang, and Semarang.
Outstanding shrs (mn) 19,247 BSDE 1yr Rel. to JCI (RHS)
 Stable marketing sales amidst slow down. We expect the company will Estimated free float (%) 40.1
meet its FY19 marketing sales target as within 1H19, BSDE booked Financial Highlights
marketing sales of Rp2.73 tn, reaching 44% of the company’s initial 2017A 2018A 2019F 2020F 2021F
target. The company booked marketing sales from housing (45% of Revenue (Rpbn) 10,347 6,629 6,624 6,310 6,283
total), land plots (20%) apartment (27%), and the rest 8% came from shop Operating profit (Rpbn) 5,475 2,438 3,125 2,854 2,823
houses. In 2020, we forecasted flat growth due to Net profit (Rpbn) 4,920 1,294 2,682 2,155 2,155
EPS (Rp) 255.6 67.2 139.4 112.0 112.0
 Improving operating margin. We expect margins to improve by 2019
onwards mainly due to profitability increase from core activities of BSDE EPS growth (%) 173.9 -73.7 107.3 -19.7 0.0
including selling land plots in BSD City. EV/EBITDA (x) 4.7 10.9 8.4 8.9 8.7
PER (x) 5.3 20.2 9.8 12.1 12.1
 Changes in product mix, more recurring income targeted. We expect PBV (x) 1.0 1.0 0.9 0.8 0.8
BSDE gross margin from recurring income to be contracted due to new Dividend yield (%) 0.4 0.0 0.3 0.2 0.2
investment properties started to operate and depreciate since the ROE (%) 19.4 5.0 9.2 6.9 6.4
beginning of 2017, i.e. Q-BIG BSD City Mall and BSD Green Office Park
(GOP) 9 in Greater Jakarta as well as GS Retail in Legenda Wisata located Assumptions
in East Jakarta. 2017A 2018A 2019F 2020F 2021F
Marketing sales 7,233 6,219 6,200 6,172 6,091
 Undemanding valuation and reiterate BUY. Based on 5-year mean Recurring income 1,386 1,516 1,970 1,970 1,970
discount of 77% to our RNAV/sh, our calculation leads to TP of Rp1,900,
offering 40% upside potential from current share price.
140
Bumi Serpong Damai
Gross profit 7,590 4,755 4,968 4,623 4,584 Chg in working cap. 1,887 -666 -476 -190 45
Oper. Expenses -2,115 -2,317 -1,843 -1,769 -1,761 Other -2,464 604 214 -1,903 -2,025
Oper. profit 5,475 2,438 3,125 2,854 2,823 CF-Oper activities 4,647 1,617 2,814 460 579
Interest income 266 387 651 694 665 Others 1,649 -859 162 -51 -20
Other income (exp.) 474 120 1,020 451 449 Net change in debt 692 3,363 634 991 1,245
Pre-tax profit 5,619 2,033 3,859 3,150 3,148 Net change in equity 0 0 0 0 0
Income tax -452 -331 -331 -315 -314 Dividend payment -96 0 -69 -56 -56
Minority interest -246 -408 -846 -679 -679 Other financing -29 19 0 0 0
Net profit 4,920 1,294 2,682 2,155 2,155 CF-Financing activities 566 3,381 564 936 1,189
Net cash flow 2,215 2,346 1,779 -413 -11

Balance Sheet Cash - begin of the year 3,578 5,793 8,139 9,918 9,505
Year to 31 Dec (Rpbn) 2017A 2018A 2019F 2020F 2021F Cash - end of the year 5,793 8,139 9,918 9,505 9,494
Inventory 7,910 9,044 9,589 9,773 9,835 2017A 2018A 2019F 2020F 2021F
Other curr, asset 141 310 310 310 310 Revenue gr. (%) 56.7 -35.9 -0.1 -4.7 -0.4
Total current asset 17,965 20,949 23,152 22,933 22,956 Operating profit gr. (%) 94.9 -55.5 28.2 -8.7 -1.1
Fixed assets - net 781 686 612 527 448 Net profit gr. (%) 173.9 -73.7 107.3 -19.7 0.0
Gross margin (%) 73.4 71.7 75.0 73.3 73.0
Total asset 45,951 52,101 55,672 56,813 58,190
EBITDA margin (%) 55.9 42.6 53.1 51.5 51.4
Acct, payable 1,880 1,288 1,398 1,433 1,442
Net margin (%) 47.6 19.5 40.5 34.1 34.3
Advances received 3,149 3,294 3,323 3,213 3,231
ROA (%) 10.7 2.5 4.8 3.8 3.7
Other curr. liab 489 815 617 680 744
ROE (%) 19.4 5.0 9.2 6.9 6.4
Long term debt 8,556 14,993 15,613 14,687 13,891
141
Intiland Development Sector

Bloomberg Ticker
Property
DILD IJ
HOLD TP: Rp430 (+8.0%) Share Price Performance 500

450
45%
40%
Last Price (Rp) 398 400 35%
30%
20%
Intiland Development (DILD) primary focus on developing mixed use and high 3m 6m 12m
250
200
15%
10%
rise projects as well as premium residential projects located in Jakarta and Absolute (%) -11.1 13.5 22.2 150 5%
Surabaya, catering to middle to middle-up segments. Its projects in Jakarta Relative to JCI (%) -5.8 19.2 18.0
100
50
0%
-5%
are well located within developed areas of the city and are positioned to 0 -10%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
benefit from infrastructure developments within the city.
DILD 1yr Rel. to JCI (RHS)
 Flat FY20F revenue as landed house segment weakened. Landed Financial Highlights
residential segment primarily came from the delivery of housing units in 2017A 2018A 2019F 2020F 2021F
Graha Natura, Serenia Hills, Graha Family Estate, Magnolia Residence
Revenue (Rpbn) 2,203 2,553 2,630 2,510 2,740
and Talaga Bestari. We slashed our 2019F revenues recognition from
Operating profit (Rpbn) 433 419 365 372 345
landed house segment by 40% due to poor delivery in 1H19, while
Net profit (Rpbn) 297 204 20 73 102
maintain previous assumption on other segments.
EPS (Rp) 28.7 19.6 1.9 7.0 9.8
EPS growth (%) -0.5 -31.5 -90.3 269.3 39.2
 We projected a moderate 20% YoY growth in recurring income (lower
than COGS 2014-18 of 35%) in line with company’s expansion on the EV/EBITDA (x) 16.6 17.7 22.6 21.6 24.7
segment. In 2Q19 the Company sold 75,000 shares of PT Putra Sinar PER (x) 13.9 20.4 209.8 56.8 40.8
Permaja, a subsidiary that operates South Quarter project, owned by PT PBV (x) 0.7 0.7 0.7 0.7 0.7
Taman Harapan Indah to Reco Kris Private Ltd, a subsidiary of GIC. The Dividend yield (%) 1.3 0.0 0.0 0.0 0.0
total proceed from divestment of 9% stake was Rp244 bn, with gain from ROE (%) 5.3 3.5 0.3 1.2 1.7
sale amounting Rp106 bn was recorded in the equity of the Company.
Assumptions
(Rpbn) 2017A 2018A 2019F 2020F 2021F
 Downgrade to HOLD rating with TP of Rp430/share. We rollover our
Marketing sales 2,936 2,284 2,172 2,426 2,512
valuation to 2020 resulted to TP Rp430 (previously Rp400) based on 67%
Houses and land 483 569 494 518 544
(from previously 69%) discount to our NAV. Due to poor performances in
1H19. Though TP is higher, we downgrade DILD to HOLD from previous Mixed-use & high rise 1,922 1,210 1,518 1,594 1,674
BUY as our TP now offers less than 10% upside from current price. Industrial estates 531 505 160 313 294
Recurring income 432 596 715 751 788
142
Intiland Development
Gross profit 956 1,006 918 862 947 Chg in working cap. 100 650 17 -84 137
Oper. profit 433 419 365 372 345 CF-Operating activities -526 -17 -407 -252 -718
Interest income 23 25 37 21 25 Others 56 -87 -133 129 167
Interest expense -240 -290 -401 -304 -331 CF-Investing activities -42 -155 -195 73 107
Other income (exp.) 44 28 16 -27 49 Net change in debt 139 504 350 350 350
Income tax 10 12 1 4 6 Dividend payment -52 0 0 0 0
Minority interest 26 10 2 6 9 Other financing 375 61 -286 -69 -60
Net profit 297 204 20 73 102 CF-Financing activities 845 546 45 260 266
Net cash flow 276 375 -557 80 -344

Balance Sheet Cash - begin of the year 473 750 1,124 567 647
Year to 31 Dec (Rpbn) 2017A 2018A 2019F 2020F 2021F Cash - end of the year 750 1,124 567 647 303
Cash & cash equivalent 750 1,124 567 647 303
Inventory 2,371 2,817 3,105 2,947 3,223 2017A 2018A 2019F 2020F 2021F
Other curr, asset 314 387 439 425 457 Revenue gr. (%) -3.2 15.9 3.0 -4.6 9.2
Total current asset 3,607 4,816 4,316 4,215 4,197 Operating profit gr. (%) -15.3 -3.4 -12.7 1.9 -7.4
Fixed assets - net 1,843 1,802 1,783 1,754 1,720 Net profit gr. (%) -0.5 -31.5 -90.3 269.3 39.2
Gross margin (%) 43.4 39.4 34.9 34.3 34.6
Total asset 13,097 14,216 13,866 13,658 14,148
EBITDA margin (%) 21.2 17.8 14.3 15.4 13.2
Acct, payable 194 214 237 228 248
Net margin (%) 13.5 8.0 0.8 2.9 3.7
ROA (%) 2.3 1.4 0.1 0.5 0.7
Other curr. liab 298 426 437 406 464
ROE (%) 5.3 3.5 0.3 1.2 1.7
Long term debt 1,940 2,108 1,808 1,508 1,408
143
Lippo Karawaci Sector

Bloomberg Ticker
Property
LPKR IJ

300
5%
0%
Last Price (Rp) 230
250 -5%
Company Profile 200
-10%
Lippo Karawaci (LPKR) is Indonesia’s largest listed property company by 3m 6m 12m 150
-15%
-20%
total assets and revenue. It operates a hospital group and a retail property Absolute (%) -20.7 -5.7 6.0 100 -25%
developer. LPKR’s portfolio comprises Residential and Urban Development, Relative to JCI (%) -15.5 0.0 1.9 50 -30%
Hospitals, Malls, Hotels & Leisure and Asset Management. 0 -35%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
 Following Company’s strategy of focusing on the property segment, the LPKR 1yr Rel. to JCI (RHS)
contribution of property sales is expected to increase to be around 50% in
the coming years, which is doubled from 2019’s first quarter of 23% of Financial Highlights
total revenues. 2017A 2018A 2019F 2020F 2021F
Revenue (Rpbn) 10,071 11,057 14,017 14,106 16,268
 Strong support from sales in Lippo Cikarang. About 54.0% of total 1H19 Operating profit (Rpbn) -51 1,665 386 266 381
marketing sales generated by Lippo Cikarang township, while Lippo Net profit (Rpbn) -377 720 233 328 451
Village Tangerang and Jakarta projects each contributed by 14.1%. The
EPS (Rp) -5.3 10.2 3.3 4.6 6.4
rest was generated by Company’s projects in Makassar (9.6%), Karawang
EPS growth (%) n/m n/m -67.7 41.1 37.3
(6.9%), and Menado (1.3%). In 1H19,
EV/EBITDA (x) 50.3 14.0 31.7 51.0 25.6
 Meikarta projects to deliver more sales in the coming years. The PER (x) -44.0 23.0 71.3 50.5 36.8
company targeted around 56 apartment towers to be completed in 2020, PBV (x) 0.7 0.9 0.6 0.5 0.5
comprised of around 22,500 apartment units. Through several company Dividend yield (%) 0.3 0.4 0.4 0.1 0.1
actions this year, LPKR has generated sufficient fund to complete the ROE (%) -1.7 3.8 0.8 1.1 1.5
mega projects.
Assumptions
2017A 2018A 2019F 2020F 2021F
 Maintain BUY, lower TP Rp370/share. We applied 5-year mean PBV of
0.85x resulted to 2019F TP of Rp370 (previously Rp520) or implies 54% Marketing sales 1,811 1,638 1,802 3,243 5,514
discount to our RNAV of Rp812/share as we also incorporate higher Retail 397 368 386 541 646
equity base after rights issue. We believe currently the LPKR share price Healthcare 5,306 5,965 6,561 8,530 9,891
is trading undervalued at 0.6x forward PBV.
144
Lippo Karawaci
Revenue 10,071 11,057 14,017 14,106 16,268 Net income -377 720 233 328 451
Gross profit 4,277 5,252 6,330 6,215 7,016 Chg in working cap. -6,008 2,386 -946 -3,479 -5,468
Oper. expenses -4,328 -3,587 -5,944 -5,949 -6,635 Other -831 4,427 2,294 342 1,956
Oper. profit -51 1,665 386 266 381 CF-Oper activities -6,614 7,974 2,014 -2,562 -2,430
EBITDA 552 2,105 819 513 1,013 Capital expenditure -1,198 -1,972 -444 -1,803 -2,211
Interest income 83 108 137 138 160 Others -3,105 756 -12,992 3,465 4,126
Interest expense -396 -694 -435 -347 -354 CF-Investing activities -4,303 -1,216 -13,436 1,661 1,915
Other income (exp.) 159 1,159 780 893 899 Net change in debt 133 1,049 -3,089 221 97
Pre-tax profit -206 2,238 868 950 1,085 Net change in equity 3,710 -4,713 11,200 0 0
Minority interest 300 -943 -412 -378 -356 Other financing 6,406 -3,752 3,861 706 784
Net profit -377 720 233 328 451 CF-Financing activities 10,205 -7,478 11,909 915 870
Net cash flow -712 -720 487 15 356

Acct, receivables 2,262 2,402 2,379 2,644 3,138 Key Ratios
Inventory 29,232 26,969 27,782 31,177 36,417 2017A 2018A 2019F 2020F 2021F
Other curr, asset 10,889 5,993 5,946 5,751 5,601 Revenue gr. (%) -8.1 9.8 26.8 0.6 15.3
Total current asset 44,922 37,181 38,412 41,891 47,832 Operating profit gr. (%) n/m n/m -76.8 -31.0 43.1
Fixed assets - net 4,308 5,830 5,939 7,518 9,172 Net profit gr. (%) n/m n/m -67.7 41.1 37.3
Gross margin (%) 42.5 47.5 45.2 44.1 43.1
Total asset 56,772 49,806 64,040 65,611 69,005
Operating margin (%) -0.5 15.1 2.8 1.9 2.3
EBITDA margin (%) 5.5 19.0 5.8 3.6 6.2
Acct, payable 1,112 1,373 1,218 1,399 1,666
Net margin (%) -3.7 6.5 1.7 2.3 2.8
ROA (%) -0.7 1.4 0.4 0.5 0.7
Other curr. liab 2,823 2,927 4,666 4,842 5,901
ROE (%) -1.7 3.8 0.8 1.1 1.5
Long term debt 11,744 13,126 10,161 10,345 10,409
145
Pakuwon Jati Sector

Bloomberg Ticker
Property
PWON IJ

800
60%
50%
Last Price (Rp) 610
700 40%
Avg. daily T/O (Rpbn/USDmn) 600
Company Profile 500
30%
Pakuwon (PWON) targets 50/50 recurring/development revenue mix over the 3m 6m 12m 400
20%
10%
long term with growth strategies including: a) Leveraging its strength in Absolute (%) -15.3 -16.4 35.6
300
0%
200
retail malls and superblock developments; b) Continue to dominate Surabaya Relative to JCI (%) -10.0 -10.7 31.4 100 -10%
property sales while expand Jakarta portfolio; and c) 444.5 ha of land bank to 0 -20%
52w High/Low price (Rp)
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
sustain growth and high margins.
PWON 1yr Rel. to JCI (RHS)
 Kota Kasablanka projects generated 25% of total revenue. Kota Estimated free float (%) 30.2
Kasablanka is a 6.5 ha mixed use development located next to Jakarta Financial Highlights
CBD. The pre-sales are generated from 3 condominiums and 1 office 2017A 2018A 2019F 2020F 2021F
tower currently under development: Angelo, Bella, Chianti and Pakuwon Revenue (Rpbn) 5,749 7,081 7,011 6,659 6,454
Tower which up to 1H19 are 80% sold, including the new Pakuwon Tower Operating profit (Rpbn) 2,795 3,459 3,591 3,405 3,285
project. Net profit (Rpbn) 1,873 2,543 2,970 2,917 2,917
EPS (Rp) 38.9 52.8 61.7 60.6 60.6
 Relatively low net gearing of 0.3x in 2020F. We consider PWON’s has
EPS growth (%) 12.1 35.8 16.8 -1.8 0.0
healthy debt profile. We expect PWON current ratio to improve to 3.9x by
EV/EBITDA (x) 10.5 8.2 7.6 7.6 7.5
20F from 3.2x in 19F.
PER (x) 16.6 12.2 10.5 10.7 10.6
PBV (x) 3.0 2.5 2.0 1.8 1.5
 Revenues declined amidst slower marketing sales. We expect negative
Dividend yield (%) 0.7 0.9 1.3 1.5 1.4
growth in revenues for 2019F-20F as marketing sales decelerated in the
ROE (%) 18.1 20.2 19.6 16.6 14.5
past three years due to soft demand. However, due to recent several
positive catalysts, we see potential for demand to pick up in the coming Assumptions
years. 2017A 2018A 2019F 2020F 2020F
Marketing sales 2,505 2,200 2,200 2,310 2,426
 We maintain our BUY rating on PWON with TP of Rp800/share. Valuation Recurring income 2,986 3,468 3,641 3,823 4,015
remains attractive though we expect the company’s earnings to stagnant
in 2019-20F on the back of soft marketing sales in 2019 and stable
addition from investment properties. Our target price is based on 67%
discount to our RNAV/share.
146
Pakuwon Jati
Gross profit 3,362 4,050 4,177 3,961 3,824 Chg in working cap. -975 111 -497 -467 -469
Oper. expenses -567 -591 -586 -556 -539 Other 73 -1,649 -336 -350 -151
EBITDA 3,160 3,903 4,054 3,882 3,776 Capital expenditure -662 -905 -1,044 -1,030 -977
Interest expense -336 -273 -204 -174 -141 CF-Investing activities -883 -788 -1,073 -1,071 -1,034
Other income (exp.) -500 -380 -380 -361 -349 Net change in debt 63 -180 -425 24 -118
Pre-tax profit 2,072 2,854 3,328 3,269 3,270 Net change in equity -20 23 -11 0 0
Minority interest -152 -284 -332 -326 -326 Other financing -232 -380 -155 -220 -252
Net profit 1,873 2,543 2,970 2,917 2,917 CF-Financing activities 520 393 -367 -111 -404
Net cash flow 974 1,054 1,161 1,395 1,350

Inventory 3,741 3,576 4,048 4,521 4,995 2017A 2018A 2019F 2020F 2021F
Other curr, asset 757 904 965 1,055 1,180 Revenue gr. (%) 18.8 23.2 -1.0 -5.0 -3.1
Total current asset 8,428 9,473 11,174 13,079 15,010 Operating profit gr. (%) 23.7 23.8 3.8 -5.2 -3.5
Fixed assets - net 12,461 12,922 13,493 14,018 14,460 Net profit gr. (%) 12.1 35.8 16.8 -1.8 0.0
Gross margin (%) 58.5 57.2 59.6 59.5 59.3
Total asset 23,359 25,018 27,437 30,157 32,847
EBITDA margin (%) 55.0 55.1 57.8 58.3 58.5
Acct, payable 364 296 277 263 257
Net margin (%) 32.6 35.9 42.4 43.8 45.2
ROA (%) 8.0 10.2 10.8 9.7 8.9
Other curr. liab 1,338 1,465 1,440 1,368 1,326
ROE (%) 18.1 20.2 19.6 16.6 14.5
Long term debt 5,029 4,937 5,121 5,338 5,442
Total liab + SHE 23,359 25,018 27,437 30,157 32,847 Net debt to equity (x) 0.2 0.1 Net Cash Net Cash Net Cash
147
Summarecon Agung Sector

Bloomberg Ticker
Property
SMRA IJ

1,200
140%
120%
1,000 100%
Summarecon Agung (SMRA) is the developer of one of the first and 3m 6m 12m 600 60%
successful integrated residential townships in Jakarta, Summarecon Kelapa Absolute (%) -10.6 -4.2 100.0 400 40%
Gading. Company’s portfolio comprised of townships located at Greater Relative to JCI (%) -5.4 1.5 95.9 200 20%
Jakarta, West Java and outside Java, such as Bali and Makassar. 0 0%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
SMRA 1yr Rel. to JCI (RHS)
 Bullish marketing sales in 2019. SMRA 9M19 marketing sales figure
accounted for 84% of the FY19 marketing sales target of Rp4.0 tn. The
stellar achievement has been one of the main catalysts that boosted the Financial Highlights
shares throughout this year, with SMRA shares price escalated more 2017A 2018A 2019F 2020F 2021F
than 60% YTD. We expect pre-sales moderate growth of 5% in 2020 Revenue (Rpbn) 5,641 5,661 5,066 5,560 6,085
following this year’s robust achievement. Operating profit (Rpbn) 1,339 1,540 1,192 1,418 1,555
Net profit (Rpbn) 362 449 278 308 355
 Affordable homes launch well received. Serpong township remains the EPS (Rp) 25.1 31.1 19.2 21.3 24.6
breadwinner, generated 60% of 1H19 total pre-sales supported by the EPS growth (%) 16.2 23.9 -38.1 10.9 15.3
launching of landed house project: Verdi Cluster on May 19 with selling EV/EBITDA (x) 13.4 12.3 14.5 12.8 12.0
price per unit starting Rp1.2 bn. Bekasi township came second,
PER (x) 46.2 37.3 60.3 54.4 47.1
contributing around 16% of 1H19 total marketing sales. Bekasi township
PBV (x) 2.6 2.4 2.2 2.2 2.2
launched Candani Cluster in Apr 19 which offered more affordable
Dividend yield (%) 0.4 0.4 0.5 0.3 0.4
housing with selling price per unit starting from Rp400 mn and was well
received, signaling a continuing strong demand in low segment property ROE (%) 5.6 6.5 3.6 4.0 4.7
market. Assumptions
Marketing Sales 2017A 2018A 2019F 2020F 2021F
 Maintain BUY with higher TP Rp1,500. We incorporated lower discounts Summarecon Karawang 386 123 150 158 165
to several company projects, in line with progress development of the Summarecon Bandung 631 530 600 630 662
areas, resulted to higher RNAV/share which now stands at Rp3,495 from Summarecon Serpong 1,812 1,576 1,600 1,680 1,764
previously Rp3,020). We applied 58% (5-year mean) discount to our RNAV
Summarecon Bekasi 450 742 700 735 772
resulted to higher TP of Rp1,500 (previously Rp1,300). We believe the
Summarecon Klp. Gading 281 266 250 263 276
stock is currently trading undervalued at 65% discount to our RNAV.
148
Summarecon Agung
Gross profit 2,566 2,739 2,433 2,638 2,910 Chg in working cap. 1,050 1,144 -1,332 749 664
Oper. expenses -1,227 -1,199 -1,241 -1,220 -1,356 Other -2,127 -2,014 2,388 -1,382 -1,268
Oper. profit 1,339 1,540 1,192 1,418 1,555 CF-Oper activities -379 -119 1,651 4 93
Other income (exp.) 2 18 0 0 0 Net change in debt 534 1,533 686 691 543
Minority interest -170 -242 -261 -290 -334 Other financing -205 -941 0 0 0
Net profit 362 449 278 308 355 CF-Financing activities 256 520 597 636 481
Net cash flow -566 60 1,539 140 94

Inventory 6,498 7,890 6,482 7,193 7,815 2017A 2018A 2019F 2020F 2021F
Other curr, asset 570 690 600 645 685 Revenue gr. (%) 4.5 0.4 -10.5 9.8 9.4
Total current asset 9,188 10,508 10,620 11,561 12,367 Operating profit gr. (%) -5.0 15.0 -22.6 19.0 9.6
Fixed assets - net 422 377 374 350 313 Net profit gr. (%) 16.2 23.9 -38.1 10.9 15.3
Gross margin (%) 45.5 48.4 48.0 47.4 47.8
Total asset 21,663 23,299 23,336 24,555 25,617
EBITDA margin (%) 29.7 32.5 29.8 31.4 31.2
Acct, payable 81 77 71 79 86
Net margin (%) 6.4 7.9 5.5 5.5 5.8
ROA (%) 1.7 1.9 1.2 1.3 1.4
Other curr. liab 2,878 2,902 2,054 2,284 2,528
ROE (%) 5.6 6.5 3.6 4.0 4.7
Long term debt 5,589 4,893 5,141 5,317 5,335
149
Surya Semesta Internusa Sector

Bloomberg Ticker
Property
SSIA IJ

800
70%
60%
Last Price (Rp) 795 700 50%
Avg. daily T/O(Rpbn/USDmn) 23.7/1.7 600 40%
Surya Semesta Internusa (SSIA) established and commenced operations in 3m 6m 12m 400 20%
1971, primary businesses are in construction, property and hospitality Absolute (%) 0.6 42.0 69.1 300 10%
200 0%
sectors. The Suryacipta City of Industry is the SSIA’s largest project with total Relative to JCI (%) 5.9 47.7 65.0
100 -10%
location permit of 1,400 ha. The company obtained location permit for 2k ha 0 -20%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
land bank in Subang, West Java.
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
Key Points Mkt. Cap (Rpbn/USDmn) 3,740/264 SSIA 1yr Rel. to JCI (RHS)
 Stable growth from construction segment. Construction services
segment remained the backbone of company revenues, followed by Financial Highlights
income from hotel and rental & utility services. Meanwhile, industrial 2017A 2018A 2019F 2020F 2021F
estate contributed less than 1% of total revenues up to Jun 19. Revenue (Rpbn) 3,274 3,682 4,125 4,361 4,681
 Monetizing the industrial estates. SSIA sold 8 ha of marketing sales in Net profit (Rpbn) 1,178 38 24 46 90
2Q19 with ASP of USD120/sqm at Suryacipta Karawang which will bring EPS (Rp) 250.4 8.0 5.0 9.8 19.2
additional revenue of around Rp135 bn. In May 19, the company also EPS growth (%) 1,786.4 -96.8 -37.5 95.6 96.2
successfully divested its real estate assets of 100 ha land in Suryacipta EV/EBITDA (x) 11.7 7.0 11.3 9.8 7.6
Karawang phase 4 with potential revenues of around Rp325 bn.
PER (x) 2.9 91.8 146.8 75.0 38.2
PBV (x) 0.9 0.9 0.9 0.9 0.8
 Subang City starts to contribute by 2020. We believe Company’s
Dividend yield (%) 1.5 2.7 0.1 0.1 0.1
divestment will strengthen SSIA’s position to focus on Subang Industrial
ROE (%) 29.4 1.0 0.6 1.2 2.2
Township development which expected to generate sales by 2020.
Assumptions
 Fine tuning our NAV, raise TP to Rp920. We fine tuned our 2020F NAV 2017A 2018A 2019F 2020F 2021F
incorporating NAV increase of several company projects including Subang Industrial Estates
land bank). Our calculation led to new NAV/share of Rp2,302 (from Land sales (ha) 11.1 8.6 6.7 5.2 4.0
previously Rp1,677) and higher TP of Rp920 (previously Rp670) based on ASP (USD/sqm) 120 120 119 118 118
60% (5-year mean) discount to NAV. Our TP offers more than 15% upside
from current market price hence BUY rating.
150
Surya Semesta Internusa
Revenue 3,274 3,682 4,125 4,361 4,681 Net income 1,178 38 24 46 90
Gross profit 864 981 920 967 1,127 Chg in working cap. -1,886 1,788 259 23 -40
Oper. profit 234 277 137 182 285 CF-Oper activities -549 1,987 412 210 202
Other income (exp.) 1,735 34 29 0 0 Net change in debt 340 -1,284 -35 159 -91
Pre-tax profit 1,782 214 162 180 269 Net change in equity -9 3 -13 12 -1
Minority interest -63 -52 11 25 -6 Other financing 4 -45 21 3 34
Net profit 1,178 38 24 46 90 CF-Financing activities 284 -1,419 -30 173 -61
Net cash flow -375 227 32 16 -253

Inventory 415 463 325 323 322 2017A 2018A 2019F 2020F 2021F
Other curr, asset 3,206 1,281 1,435 1,517 1,629 Revenue gr. (%) -13.8 12.5 12.0 5.7 7.3
Total current asset 5,085 3,459 3,504 3,623 3,517 Operating profit gr. (%) -45.8 18.3 -50.7 33.2 56.3
Fixed assets - net 3,315 3,551 3,820 4,097 4,377 Net profit gr. (%) 1,786.4 -96.8 -37.5 95.6 96.2
Gross margin (%) 26.4 26.6 22.3 22.2 24.1
Total asset 8,851 7,404 7,670 8,015 8,151
EBITDA margin (%) 12.0 11.9 6.5 7.4 9.3
Acct, payable 456 463 487 521 549
Net margin (%) 36.0 1.0 0.6 1.1 1.9
ROA (%) 13.3 0.5 0.3 0.6 1.1
Other curr. liab 1,408 1,324 1,571 1,663 1,742
ROE (%) 29.4 1.0 0.6 1.2 2.2
Long term debt 1,494 752 536 298 60
Total liab + SHE 8,851 7,404 7,670 8,015 8,151 Net debt to equity (x) 0.3 Net Cash Net Cash Net Cash Net Cash
151
CEMENT SECTOR
152
 Sales volume growth to revert back to positive in 2020F
Cement Up until August-19, 8M19 Indonesia domestic sales volume slipped 2.2%
YoY to 42.1 mn tons. Using the last 9-year historical data, this year is the
Overweight first time for domestic sales volume witnessed negative growth. We are
aware of seasonally weak cement demand during election year where
Sector Outlook infrastructure’s work commonly less accelerated, but heavy rainy season
along with long holiday period further worsened cement absorption in
 Infrastructure remains the backbone of national cement growth FY19F. However, without the presence of election for next year,
Post the property market boom in 2012; Indonesian cement sector has government will be able to expedite their infrastructure enhancement plan.
been driven by infrastructure projects. Evidently, bulk cement volumes There were couple of incentives for the property sector such as 5%
grew by +8.5% CAGR over FY13-18, and bag cement rose with a slower reduction of LTV and low interest rate environment. One of another positive
pace at 2.2%. Eventually, in FY18 bag cement proportion over total sales sentiment comes from capital city relocation to East Kalimantan, whilst we
volume narrowed to 73.2% (vs. 80.3% in FY12), while bulk cement portion believe the development will drive the demand for cement. Therefore, we
expanded to 26.8% (vs. 19. 7% in FY12). We project in FY20F bulk cement expect the story in 2020F tends to be more compelling.
demand growth will keep outperforming the bag cement as infrastructure
development is still becoming the top priority. Note that, despite of high Exhibit 127: Cummulative 8-month domestic and exports sales volume
base, FY20F infrastructure budget is expected to increase to Rp419.2 tn or 8M11 8M12 8M13 8M14 8M15 8M16 8M17 8M18 8M19
translating to 4.9% YoY growth.
Domestic (in mn tons) 30.5 34.3 36.3 37.4 37.9 39.0 41.2 43.0 42.1
Exhibit 126: Increasing bulk cement portion relative to bag portion YoY growth 12.6% 5.7% 3.0% 1.4% 3.0% 5.5% 4.5% -2.2%
100.00% 40% export (in mn tons) 0.8 0.2 0.4 0.2 0.7 1.0 1.9 3.6 3.9
90.00% YoY growth -79.3% 124.8% -40.5% 209.9% 52.8% 81.4% 95.8% 7.7%
30%
80.00%
70.00% Source: CEIC, Indonesian Cement Association and Ciptadana
20%
60.00%
Exhibit 128: Location of new capital city
50.00% 10%
40.00%
0%
30.00%
20.00%
-10%
10.00%
0.00% -20%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Bag contribution Bulk contribution
Bag Cement Growth Bulk Cement Growth
Source: CEIC. Indonesian Cement Association, Ciptadana Source: Google map and Ciptadana
153
 Supply-demand imbalance is an old story, the gap in narrowing down  Concrete benefits of bolder oligopoly market
The issue of supply-demand imbalance of Indonesian cement sector In 2019F, consolidation on cement sector was occurred, where SMGR
definitely has been an old story for the investors. On the brink of inability of acquired the 3rd biggest cement player (SMCB: Solusi Bangun Indonesia).
cement consumption to keep up with capacity growth, starting FY15 Inorganically, SMGR domestic market share amplified to 52% in (vs. 39.6%
industry utilization rate fell below 80% and continued declining to less than in 4Q18). Therefore, this lead the state owned cement producer having
70% in FY17. Furthermore, weak cement sales volume in FY19F definitely more pricing power in our view. If we combine both of SMGR and INTP,
will hamper the utilization rate to go northward. However, in 2020F we currently the incumbents dominate the industry with approximately 80%
estimate sales volume growth will be around 4-5% YoY. With government’s share of market. We believe the oligopoly market structure has been
help in managing the idle capacity; supply-demand gap is likely to becoming bolder since then. Through M&A in the industry, we see the
narrowing down, hence may elevate industry utilization rate to 70%. Noting impact is positive as the better pricing discipline will be emerged, hence
that, by looking at case studies in India, we noticed that the cement resulted to recovery of cement players’ ASP.
industry can be categorized as healthy if utilization rate reach 70-80%.
Exhibit 130: Quarterly market share
Exhibit 129: Utilization rate
INTP SMGR Others
100 100.0% others,
Million ton
21.0%
90 95.0%
55.0%
80 90.0%
50.0% SMGR,
70 85.0% 52.8%
60 80.0% 45.0% INTP,

26.21%
50 75.0%
40.0%
40 70.0%
35.0%
30 65.0%
20 60.0% 30.0%
10 55.0%
25.0%
0 50.0%
2006 2008 2010 2012 2014 2016 2018 2020F 20.0%
Cement: Designed Capacity Consumption Utilization rate (%) 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19
Source: CEIC. Indonesian Cement Association, Ciptadana Source: Company and Ciptadana
154
 ASP bottomed out since 2Q18 and will not go any lower  Coal price less likely to give pressure on margins next year
Since 2Q18 both SMGR and INTP have been able to improve their ASP. According to our coal analyst, thermal coal price in FY20-21F will be even
More specifically, from 2Q18-2Q19 timeframe, ASP of SMGR and INTP lower compare FY19F. This assumption is based on abnormal China’s port
amplified by 13.6% and 12.0%, respectively. This was the apparent of and power plant inventory. Given high reliability on China’s demand, the
healthier competition among the players. We expect if the utilization rate price of our domestic coal most likely will go down. Having said that, for
can improve next year and the smaller players (Conch, Merah Putih, Jui cement producer this can be tailwind for them as coal is one of key raw
Shin) can act accordingly (not aggressively cater market share by lowering materials. Therefore, we see limited downside risk from production cost.
its price in the market); ASP of incumbent may increase moderately. In Thus, this indicates low possibility of margins pressure from fuel and
addition, with efficiency strategy and manageable cost, we expect SMGR power cost. Please note that, fuel and power contribute around 40% of the
and INTP’s profitability to improve in 2020F. total COGS.
Exhibit 131: SMGR and INTP ASP Exhibit 133: SMGR cost structure (2018)
950,000.00 SMGR ASP (Rp/ton) INTP ASP (Rp/ton) 850,000.0 Fuel Electricity Transportation packaging others
900,000.00
800,000.0 21.7%
850,000.00
750,000.0 38.4%
800,000.00
700,000.0
750,000.00
18.3%
700,000.00 650,000.0
3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19
Source: Company and Ciptadana 10.3% 11.3%
Source: Company and Ciptadana

Exhibit 132: ROE and EBITDA margin of SMGR and INTP
INTP ROE SMGR ROE INTP ebitda margin SMGR ebitda margin Exhibit 134: INTP cost structure
40%
Raw materials Direct labor Fuel and power Manufacturing overhead
35% 19%
23%
30%
25%
20%
15%
10%
10%
5%
0% 48%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F
Source: Company and Ciptadana Source: Company and Ciptadana
155
Exhibit 135: Exports volume and contribution  Prefer SMGR over INTP for the top pick of Indonesian cement sector
We view the prospect of cement sector will be more favourable for next
6 10.5% 12%
year. There will be no event which drags down the pace of construction
Million ton
5 10% works like presidential election. ASP of cement producers potentially goes
up, while the pressure supposedly limited. Second tier players seem not to
7.5%
4 7.1% 8% be aggressive as they need to monetize their business as well or shut
down their operation and ask bigger players to acquire them. Therefore,
3 4.4% 6% the business climate tends to be healthier. In addition, despite the declining
coal price can affect consumption, at least investors are least concern with
2 4%
2.5% 2.6% margins pressure.
1.6%
1 1.0% 2%
0.4% 0.4% We reiterate OVERWEIGHT rating for Indonesia cement sector. We believe
- 0% sales volume to resume positive growth, even though it is merely mid
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 single digit growth. Between incumbent, we prefer SMGR as our top pick
over INTP. We foresee SMGR will generate greater earnings growth,
Export Volume Export Contribution
Source: CEIC. Indonesian Cement Association, Ciptadana
relative to its peer after SBI will no longer bear the royalty fees. Hence this
will ease SMGR COGS. Valuation wise, SMGR trades at 9.7x 2020
EV/EBITDA, at significant discount compare to INTP. Risk to our call: 1)
Exhibit 136: Increasing bulk cement portion relative to bag portion intensifying competition or price war 2) government intervention to cut
80,000.0
cement price 3) weakening rupiah.
70,000.0 Exhibit 137: Cement stocks rating and valuation
60,000.0 Bberg Mkt.Cap Last Target Upside PER EV/EBITDA ROE Yield
20F 20F
50,000.0 (%) (%)
INTP HOLD 69.7 18,925 20,000 5.7 55.1 46.2 25.7 21.9 5.7 1.5
40,000.0
SMGR BUY 77.7 12,250 16,000 30.6 36.8 23.9 12.2 9.7 9.0 1.4
30,000.0 SMCB U.R 10.3 1,340.0 U.R n/a n/a n/a 13.8 11.4 n/a -
20,000.0 Weighted Avg. O.W 18.3 15.2 1.4
10,000.0
-
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Fahressi Fahalmesta +62 21 2557 4800 ext. 735 fahalmestafahressi@ciptadana.com
Java Sumatra Maluku and Irian Jaya Nusa Tenggara Sulawesi Kalimantan
Source: CEIC. Indonesian Cement Association, Ciptadana
156
Indocement TP Sector
Bloomberg Ticker
Cement
INTP IJ

25%
Last Price (Rp) 18,925 20,000
20%
Indocement Tunggal Prakarsa (INTP) is the 2nd largest cement player in 3m 6m 12m 10,000 10%
Indonesia with 26.2% market share (as of 2Q19). The company sale its cement Absolute (%) -5.4 -14.8 13.8 5%
5,000
product under the well-known brand namely “Tiga Roda” and newly Relative to JCI (%) -3.4 -11.3 7.7 0%
introduced brand “Rajawali”. Currently, total installed capacity owned by INTP 52w High/Low price (Rp) 22,875/15,475
0 -5%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
reached 24.9 mtons. In cement industry, the Company has the strongest
profitability, which substantially driven by proximity; however centralized Outstanding shrs (mn) 3,681
operation in West Java has badly impacted INTP during the oversupply in that INTP 1yr Rel. to JCI (RHS)
area.
2017A 2018A 2019F 2020F 2021F
 INTP indirectly poised to benefit from the SMGR-SMCB merger. Without
Revenue (Rpbn) 14,431 15,190 15,271 16,584 18,171
adding debt to its book, which is definitely bear interest expenses; INTP
has been able to increase their ASP. We captured that since 2Q18, the Operating profit (Rpbn) 1,928 1,046 1,207 1,568 2,079
company’s ASP has been elevated until 2Q19. Since we view in FY20F, the Net profit (Rpbn) 1,860 1,146 1,285 1,533 1,919
competition is less intense and pricing discipline has turned to be better, EPS (Rp) 505.2 311.2 349.0 416.5 521.4
we estimate INTP will book Rp1.5 tn of net profit, or translating to 19.3% EPS growth (%) -51.9 -38.4 12.1 19.3 25.2
YoY growth. EV/EBITDA (x) 20.2 27.4 25.7 21.9 18.3
PER (x) 38.1 61.8 55.1 46.2 36.9
 Small chance of erosion in share of market going forward. Back in 3Q18, PBV (x) 2.9 3.0 3.1 3.0 3.0
INTP market share hit the bottom at 24.3%, but since then the company Dividend yield (%) 4.8 3.6 2.9 1.5 1.7
was able to expand its market share until 26.2% in 2Q19. We see small ROE (%) 7.6 4.9 5.7 6.6 8.0
likelihood of INTP to embrace lower market share compare to the current
level. Assumptions
2017A 2018A 2019F 2020F 2021F
Domestic Cement ASP
 After we roll forward our valuation to 2020F and fine tuned our (‘000)
751.7 748.2 770.6 801.4 841.0
numbers, we end up with HOLD recommendation on INTP with TP of Dom. Sales Volume (in
16.7 17.7 17.5 18.4 19.3
Rp20,000 (+5.7% upside). Currently the stock trades at 21.9x 2020F mn tons)
EV/EBITDA, in which seems fully valued. COGS/Ton 690.1 735.0 736.8 750.2 766.6
Fahressi Fahalmesta +62 21 2557 4800 ext. 735 fahalmestafahressi@ciptadana.com
157
Indocement TP
Gross profit 5,008 4,369 4,457 5,062 5,842 Chg in working cap. 446 195 222 -150 -317
Oper. expenses -3,080 -3,323 -3,250 -3,494 -3,763 Other 54 -118 -86 27 152
EBITDA 3,106 2,326 2,530 2,986 3,596 Capital expenditure -1,514 -937 -2,242 -2,389 -2,539
Interest expense -14 -19 -8 -7 -7 CF-Investing activities -1,496 -927 -2,240 -2,381 -2,530
Net change in debt 1 8 13 -4 -3
Pre-tax profit 2,288 1,401 1,606 1,916 2,399
Income tax -428 -255 -321 -383 -480
Other financing -1 -76 288 46 52
Net profit 1,860 1,146 1,285 1,533 1,919
CF-Financing activities -3,420 -2,645 -1,724 -986 -1,177
Net cash flow -1,379 -1,069 -1,220 -538 -435
Acct, receivables 2,485 2,966 2,845 2,999 3,186 Key Ratios
Inventory 1,769 1,838 1,848 2,007 2,199 2017A 2018A 2019F 2020F 2021F
Other curr, asset 335 286 305 332 363 Revenue gr. (%) -6.1 5.3 0.5 8.6 9.6
Total current asset 12,883 12,316 11,004 10,805 10,780 Operating profit gr. (%) -46.7 -45.7 15.3 29.9 32.6
Fixed assets - net 14,979 14,637 15,556 16,528 17,549 Net profit gr. (%) -51.9 -38.4 12.1 19.3 25.2
Gross margin (%) 34.7 28.8 29.2 30.5 32.2
Total asset 28,864 27,789 27,389 28,190 29,222
EBITDA margin (%) 21.5 15.3 16.6 18.0 19.8
Acct, payable 1,549 1,760 1,778 1,894 2,027
Net margin (%) 12.9 7.5 8.4 9.2 10.6
ROA (%) 6.4 4.1 4.7 5.4 6.6
Other curr. liab 1,842 2,055 2,077 2,215 2,372
ROE (%) 7.6 4.9 5.7 6.6 8.0
158
Semen Indonesia Sector

Bloomberg Ticker
Cement
SMGR IJ

14,000
45%
40%
12,000
30%
Semen Indonesia is a state-controlled and the biggest cement producer in 3m 6m 12m

8,000 20%
15%
6,000
Indonesia with around 50 mn tons total domestic installed capacity. Currently, Absolute (%) 5.8 -11.2 33.9 4,000
10%
the company has 3 wholly-owned subsidiaries comprise of Semen Padang, Relative to JCI (%) 7.8 -7.8 27.7 2,000
5%
0%
Semen Tonasa and Solusi Bangun Indonesia (formerly Holcim). Presence of 0 -5%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
Semen Indonesia in regional market has quite sound after successful
acquisition of Vietnam based cement producer namely Thang-Long (2.3 mn Outstanding shrs (mn) 5,932
SMGR 1yr Rel. to JCI (RHS)
tons capacity) in 2012. Plants and Terminals location of the company are well Mkt. Cap (Rpbn/USDmn) 72,661/5,130
spanning across the country, which lead them to witness less intensive Estimated free float (%) 49.0
competition amid current severe condition. Financial Highlights

2017A 2018A 2019F 2020F 2021F
 We expect SMGR to post 53.6% earnings growth in FY20F. The company Operating profit (Rpbn) 2,633 4,773 5,195 6,314 6,924
witnessed negative bottom line growth in FY19F due to significant Net profit (Rpbn) 1,621 3,079 1,972 3,030 3,647
increased in interest expenses on acquiring SMCB. However, given our EPS (Rp) 273.3 519.1 332.5 510.8 614.9
expectation of transition that take 1 year, in FY20F on the back of debt
EPS growth (%) -64.1 90.0 -35.9 53.6 20.4
refinancing and disappearance of royalty fees; this enable SMGR to
EV/EBITDA (x) 16.9 11.8 12.2 9.7 8.8
generate solid bottom line growth.
PER (x) 44.7 23.5 36.8 23.9 19.9
PBV (x) 2.5 2.3 2.3 2.2 2.0
 We project EBITDA margin of SMGR in 2020F to expand to 23.1% (vs.
Dividend yield (%) 2.5 1.1 2.1 1.4 2.1
19.9% in FY19F). We believe after the company come up with the new
strategy of least cost to serve, this will give room for improving efficiency. ROE (%) 5.7 9.9 6.3 9.0 10.2
Assumptions
 We prefer SMGR as our top pick for cement sector. We think the growth 2017A 2018A 2019F 2020F 2021F
prospect of the company is still attractive for next year. Despite of Domestic Cement ASP
868.1 930.1 872.5 902.2 921.4
inorganic growth, 50% YoY growth is rarely happened of late. We have a (‘000)
BUY call on SMGR with TP of Rp16,000 (+30.6% upside potential. The Dom. Sales Volume (in
27..0 27.4 37.2 38.2 39.5
mn tons)
counter trades at 9.7x EV/EBITDA FY20F, or at significant discount
COGS/Ton 634.3 645.5 677.7 678.4 698.9
relative to the other incumbent.
159
Semen Indonesia
Gross profit 7,960 9,331 11,200 12,692 13,788 Chg in working cap. -863 -1,330 1,315 -1,092 -1,122
EBITDA 4,586 6,399 8,056 9,823 10,571
Others 269 261 -9,309 504 566
Interest expense -756 -959 -2,894 -2,679 -2,510
Other income (exp.) 208 109 91 103 97
Net change in debt 3,456 -360 24,157 -640 -1,984
Pre-tax profit 2,254 4,105 2,639 4,049 4,872
Income tax -604 -1,019 -660 -1,012 -1,218
Dividend payment -1,809 -806 -1,540 -986 -1,515
Other financing -115 -140 -246 42 43
Net profit 1,621 3,079 1,972 3,030 3,647
CF-Financing activities 1,207 -909 22,127 -1,485 -3,504
Balance Sheet Net cash flow 813 1,611 1,462 1,806 670
Key Ratios
Inventory 3,686 3,544 4,406 4,535 4,816
Fixed assets - net 32,523 32,749 47,720 47,476 47,161 Operating profit gr. (%) -47.1 81.3 8.8 21.5 9.7
Other non-curr.asset 2,660 2,314 11,868 11,694 11,518 Net profit gr. (%) -64.1 90.0 -35.9 53.6 20.4
Total asset 49,069 51,156 79,138 81,104 82,168 Gross margin (%) 28.6 30.4 27.7 29.8 30.3
ST debt + curr. maturity 727 172 1,941 4,476 4,248 Operating margin (%) 9.5 15.6 12.9 14.8 15.2
Acct, payable 6,120 6,028 7,484 7,719 8,199 EBITDA margin (%) 16.5 20.9 19.9 23.1 23.2
Advances received 0 0 0 0 0 Net margin (%) 5.8 10.0 4.9 7.1 8.0
Other curr. liab 1,956 2,003 3,382 3,411 3,630 ROA (%) 3.3 6.0 2.5 3.7 4.4
Long term debt 8,099 8,140 30,217 27,042 25,286 ROE (%) 5.7 9.9 6.3 9.0 10.2
Other non-curr, liab, 2,120 2,076 3,116 3,267 3,483
Current ratio (x) 1.6 2.0 1.5 1.4 1.5
Quick ratio (x) 1.1 1.5 1.2 1.1 1.2
Interest cover (x) 6.1 6.7 2.8 3.7 4.2
Debt to equity ratio (x) 0.3 0.3 1.0 0.9 0.8
Total liab + SHE 49,069 51,156 79,138 81,104 82,168
Net debt to equity (x) 0.2 0.1 0.8 0.7 0.6
160
TOLL ROAD
161
Toll road Exhibit 138: Additional toll road length
Neutral Indonesian toll road in operation (in km) Additional length (in km)
Sector Outlook
 Indonesia President plans to extend toll road development 432.7
Based on our calculation, from 2015-2018, Jokowi has constructed 782 km

308.5
of toll road, and bringing the total highway in operation as of FY18 reached
1,560 km. The numbers doubled from 777.8 km back in FY14. Despite the 156
44
new lengths of toll road completed is still below the target, we still see this 132.35
44.8514.85 3.5 10 36.18
as a good achievement if we compare to the growth over 1978-2014. 73 20.7 14.2532.35 5.55
58.5 31.12
24.4 5.4
66.4
336.8
Furthermore, it seems within FY19-24F (Jokowi’s 2nd term), toll road
development remains becoming one of the government’s top priority.
However, even though Trans Java is almost fully connected, government
Source: Various and Ciptadana
still has big plan to expand the toll road network.
Exhibit 139: Trans Sumatera toll road
Due to the relocation of capital city plan to East Kalimantan, definitely the
infrastructure needs to be well prepared first. One of the focuses of
government currently is finalizing the Balikpapan – Samarinda toll road. It
is expected to complete soon this year. In addition, Jasamarga has 55% of
ownership and will be the operator of Balikpapan – Samarinda
Moreover, at the moment, we captured the clear plan of government to

connect Aceh – Bakaheuni; in which expected to have 2,700 km length of
toll road and to fully operate at the end of FY24F. Please note that,
estimated total investment for stitching the Sumatera network is
approximately Rp476 tn.
We think in the next couple years, Indonesia is still facing rapid growth of
toll road expansion. In other words, for the toll developer, they are not at
the end of the capex cycle. Yet, we believe the multiplier effect of better
infrastructure quality will translate to more favourable economy, hence
may spur the traffic. Source: Wikipedia and Ciptadana
162
 Java will have more toll road sections until 2024F  Low interest rate environment to bring benefit for JSMR
Government is still developing toll road network in Java. Yet, the focus will Recently, Bank Indonesia has cut its key policy rate by 25 bps to 5.5%. The
be on the north and south Java. Refers to the list of toll road development reason behind policy easing is primarily to support growth. According to
plan in Java issued by Directorate General of Highways, there are 30 more our economist in which in line with Indonesia’s central bank government,
sections to be constructed until FY24F. The total length will span around Indonesia still has room to cut interest rate. Hence, on the back of lower
1,966 km, while the total required investment cost is approximately Rp398 interest rate environment, this will help the business to have a lower cost
tn. The huge amount of investment needed can reflect the ambitious of capital and encourage consumer spending.
government plan
JSMR as a toll road developer and operator is undeniably in a high capex
Exhibit 140: Toll road development plan in Java (excluding Jabodetabek) period. We believe given higher level of leverage ratio (around 1.9x) to
No. toll road section Length (km) Investment cost (Rp tn) support its projects, interest rate cut will benefit them to have lower
1 Serang - Panimbang 74.0 5.3 interest expenses or even when they about to raise debt financing. Aside of
2 Probolinggo - Banyuwangi 172.9 23.4 it, apparently JSMR can be categorized as a so-called bond proxy as we
3 Ciawi - Sukabumi 5.4 7.8 found relatively strong negative correlation of -0.74, between the share
4 Cileunyi - Sumedang - Dawuan (Section 1,4,5 and 6) 39.4 8.4
5 Kriyan - Legundi - Bunder - Manyar 38.4 12.2 price and 10-year government bond yield. However, with more
6 Semarang - Demak 27.0 15.3 accommodative monetary policy, this can stand as a catalyst for JSMR, but
7 Kertosono - Kediri 24.0 3.7 the impact we think will be merely temporary.
8 Sukabumi - Ciranjang 28.0 5.5
9 Ciranjang - Padalarang 33.0 3.2
10 Yogyakarta - Bawen 71.0 13.0 Exhibit 141: Correlation ofJSMR share price and 10-year government bond yield
11 Gedebage - Tasikmalaya - Cilacap 184.0 53.6
12 Solo - Yogyakarta - Kulon Progo 91.9 22.6 JSMR share price 10-YEAR GOV YIELD
13 Access of Port Patimban 37.7 6.4
14 Harbour Road Semarang 26.2 11.2 8000 25
Corr.: -0.74
15 Lingkar Utara Bandung 27.0 6.3
7000
16 Lingkar Selatan Bandung 53.0 8.0
20
17 Lingkar Selatan Semarang 66.2 9.9 6000
18 Probolinggo - Lumajang 27.4 4.1
19 Malang - Kepanjen 24.0 3.6 5000 15
20 Sukorejo - Batu - Kediri 110.0 21.1
4000
21 Cirebon - Kuningan 19.3 2.9
22 Sukabumi - Pelabuhan Ratu 43.4 6.5 3000 10
23 Pandeglang - Rangkasbitung 9.4 1.4
24 Cilacap - Yogyakarta 167.1 25.1 2000
5
25 Tegal - Cilacap 94.3 14.1
1000
26 Demak - Tuban - Gresik 236.0 68.0
27 Access of Yogyakarta new international airport 30.6 4.6 0 0
28 Acess of Wonosobo 81.6 12.2
29 Lumajang - Jember 53.4 8.0
30 Situbondo - Jember 70.5 10.6
Total 1966.1 398.0 Source: Bloomberg and Ciptadana
Source: Directorate General of Highways, BPJT and Ciptadana
163
Exhibit 143: Toll road stock rating and valuation
 Reiterate NEUTRAL stance for Indonesian toll road sector Bberg Mkt.Cap Last Target Upside PER EV/EBITDA ROE Yield
Indonesian toll road lengths have been doubled in the last 5 years. Thanks 20F 20F
to Jokowi who ambitiously want to improve infrastructure quality. This is (%) (%)
not wrong in a way, as infrastructure is at the core of economic growth. JSMR Hold 41.4 5,775.0 6,000.0 3.9 20.2 20.2 11.5 10.9 10 1.0
Sector Neutral 20.2 20.2 11.5 10.9 10.0 1.0
We are positive about the potential future revenue on the back of newly
operating toll road which by nature will generate greater growth compare Fahressi Fahalmesta +62 21 2557 4800 ext. 735 fahalmestafahressi@ciptadana.com
to matured sections. Nevertheless, it is normal that new operating toll road
will embrace operating loss, hence this will create pressure on profit and
loss statement of toll road operator. Apart of it, obviously amplifying
interest expenses and how the company cope with the massive amount of
investment are the issues amid high capex period.
By and large, we reiterate NEUTRAL stance on Indonesian toll road.

Undoubtedly JSMR is the most beneficial agent underpin by longer lengths
under management in spite of risks that associated. We recommend HOLD
on JSMR with 2020F TP of Rp6,000, offering limited upside potential of
3.9%.
Exhibit 142: JSMR P/E band

34.00
29.00
24.00
19.00
14.00
9.00
1/2/2014 1/2/2015 1/2/2016 1/2/2017 1/2/2018 1/2/2019
Source: Bloomberg and Ciptadana
164
Jasa Marga Sector

Bloomberg Ticker
Utilities
JSMR IJ

6,000
35%
30%
5,000 20%
JSMR was established in 1978 by Indonesian government to spur economic 3m 6m 12m 3,000
10%
5%
growth. The Company major tasks consist of plan, build, operate, maintain Absolute (%) -2.1 -3.8 33.4 2,000 0%
and become supporting facilities to create distinction between toll and non- Relative to JCI (%) 0.7 0.6 25.7 1,000
-5%
-10%
toll road users. As per 1H19, JSMR has 1,041 km operating toll road and 0 -15%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
1,527 concession rights. The company also holds 60% of total toll road in
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
operation. Outstanding shrs (mn) 7,258
Mkt. Cap (Rpbn/USDmn) 41,914/2,957 JSMR 1yr Rel. to JCI (RHS)

 We expect flattish earnings in 2020F. In terms of top line, on the back of 2017A 2018A 2019F 2020F 2021F
longer toll in operation and subsidiary contribution, we estimate JSMR Revenue (Rpbn) 9,080 9,970 10,959 12,289 13,485
will post 12.1% YoY net revenue (including net construction) growth to Operating profit (Rpbn) 4,155 4,592 5,085 5,653 6,203
Rp12.3 tn. However, due to moderately lower operating margins and Net profit (Rpbn) 2,200 2,202 2,070 2,071 2,191
increasing interest expenses, this give pressure to EBT. As such, we EPS (Rp) 303.2 303.4 285.2 285.3 301.9
project net profit to stand at Rp2.1 tn.
EPS growth (%) 9.5 0.1 -6.0 0.0 5.8
EV/EBITDA (x) 13.0 12.0 11.5 10.9 9.9
 Keep focusing on leverage ratio management. We believe JSMR
PER (x) 19.0 19.0 20.2 20.2 19.0
maintain their DER to not go significantly higher. We view if there is an
opportunity to utilize other than conservative debt financing; JSMR tends PBV (x) 2.8 2.5 2.2 2.0 1.9
to choose that way. More specifically, we see divestment in their majority Dividend yield (%) 1.4 1.1 1.1 1.0 1.0
toll road will be beneficial for them as the main purpose of JSMR is to ROE (%) 14.6 13.0 10.8 10.0 9.7
become the operator. We forecast DER of the company to stand at 1.9x in
Assumptions
FY20F.
2017A 2018A 2019F 2020F 2021F
Toll Revenue (in Rp bn) 8,281 9,036 9,876 11,026 12,007
 Reiterate a HOLD call with TP of Rp6,000 (+3.9% upside potential).
Revenue per km 12.2 9.2 8.0 8.3 9.1
Although we found a strong correlation with interest rate, we think with
Toll road in operation 680 978 1,236 1,323 1,324
only 1% dividend yield investors will not really convinced, unless for long
term horizon investment. Currently the counter trades at 10.9x FY20F
EV/EBITDA and 20.2x FY20F P/E. Fahressi Fahalmesta +62 21 2557 4800 ext. 735 fahalmestafahressi@ciptadana.com
165
Jasa Marga
Gross profit 5,308 5,918 6,510 7,251 7,956 Chg in working cap. 13,306 6,196 1,662 1,463 657
Oper. expenses -1,152 -1,325 -1,425 -1,598 -1,753 Other 96 141 743 1,222 1,522
Interest income 0 0 0 0 0 Others 2,403 -2,222 422 -273 -282
Other income (exp.) 364 458 -142 -554 -548
Net change in debt 7,430 490 2,033 3,401 -527
Pre-tax profit 3,250 3,210 3,075 3,076 3,255
Income tax -1,157 -1,174 -1,123 -1,123 -1,188
Other financing -1,131 -1,742 -1,842 -1,607 -1,923
Net profit 2,200 2,202 2,070 2,071 2,191
CF-Financing activities 6,298 -1,252 191 1,794 -2,450
Net cash flow 2,898 -944 -2,900 -233 -169

Balance Sheet
Key Ratios
Inventory 134 41 49 56 61
2017A 2018A 2019F 2020F 2021F
Other curr, asset 11,822 5,686 4,744 3,615 3,218
Revenue gr. (%) 2.3 9.8 9.9 12.1 9.7
Fixed assets - net 1,036 755 1,078 1,420 1,773
Net profit gr. (%) 16.5 0.1 -6.0 0.0 5.8
Gross margin (%) 58.5 59.4 59.4 59.0 59.0
Total asset 79,193 82,419 86,610 92,525 94,516
EBITDA margin (%) 56.8 57.4 58.2 57.8 57.4
Acct, payable 351 322 358 406 445
Net margin (%) 24.2 22.1 18.9 16.8 16.2
ROA (%) 2.8 2.7 2.4 2.2 2.3
Other curr. liab 20,936 23,930 24,478 24,976 25,361
ROE (%) 14.6 13.0 10.8 10.0 9.7
Long term debt 29,113 26,524 28,492 28,643 34,475
166
RETAIL SECTOR
167
Retail Exhibit 145: Private Consumption growth
Private cons to GDP

Overweight 5.30
5.20
Sector Outlook 5.10
 Overview of BI retail sales index 5.00
BI retail sales index remained solid at 221.2 (.vs 216 in July 2018), despite 4.90
lower growth of 2.4% YoY (.vs 2.9% YoY in July 2018), as sales were still
normalizing post Ramadan festive. Retail sales growth shows an uptrend 4.80
since June 2017, as a result of consumption recovery. From a bigger point 4.70
of view, retail sales index is still on a gradual uptrend since 2014 (Exhibit
Sep-2014
Sep-2015
Sep-2016
Sep-2017
Sep-2018
Mar-2014
Mar-2015
Mar-2016
Mar-2017
Mar-2018
Mar-2019
Jun-2014
Jun-2015
Jun-2016
Jun-2017
Jun-2018
Jun-2019
Dec-2014
Dec-2015
Dec-2016
Dec-2017
Dec-2018
144), in line with CCI that remains above 100, which indicates manageable
spending intention and positive outlook towards economic stability. In
addition, Indonesia private consumption growth remained stable at 5.17%
Source: Bloomberg
YoY in 2Q19 (.vs 5.16% YoY in 2Q18), the trend is on the rise since
September 2017 (Exhibit 146). Apparel, footwear, and maintenance
Exhibit 146: Apparel, footwear, and maintenance growth
services, which represent discretionary spending, grew by 5.09% YoY in
2Q19 (.vs 3.4% YoY in 2Q18). We expect retail sales to improve gradually, Apparel, footwear, and maintenance growth
6.00
on the back of higher GDP growth and benign inflation rate. We forecast
5.1% GDP growth and 3% inflation rate in 2020. 5.00
Exhibit 144: BI retail sales index 4.00
260.0 140.0 3.00

240.0 130.0
220.0 2.00
200.0 120.0
180.0 110.0 1.00
160.0 100.0
140.0 0.00
90.0
Dec-2014
Dec-2015
Dec-2016
Dec-2017
Dec-2018
Sep-2014
Sep-2015
Sep-2016
Sep-2017
Sep-2018
Mar-2014
Mar-2015
Mar-2016
Mar-2017
Mar-2018
Mar-2019
Jun-2014
Jun-2015
Jun-2016
Jun-2017
Jun-2018
Jun-2019
120.0
100.0 80.0
Jul-17
Jul-18
Okt-14
Okt-15
Okt-16
Jan-14
Apr-14
Jan-15
Jan-17
Jan-18
Jan-19
Juli-14
Apr-15
Jan-16
Juli-15
Apr-16
Juli-16
Apr-17
Apr-18
Apr-19
Juli-19
Oct-17
Oct-18
Retail Sales Index (LHS) CCI (RHS) Source: Bloomberg

Source: BI
168
 Remains solid aggregate top line growth

Exhibit 148: YoY aggregate sales growth (ACES, LPPF, RALS, ERAA)
Judging from the retailers under our coverage (ACES, LPPF, RALS, ERAA),
we see that retail sales remains solid as shown by aggregate top line YoY aggregate sales growth (ACES, LPPF, RALS, ERAA)
growth of 12% CAGR from 2012 – 2018. It indicates that demand for
40.0%
discretionary products in Indonesia is still growing, supported by
government social spending, higher mid-up segment’s disposable income, 30.0%
and increase in number of stores.
20.0%
Exhibit 147: Revenue & aggregate revenue growth (YoY)
(Rp bn) 10.0%
40,000 40% 0.0%
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
35,000 35%
30% -10.0%
30,000
25%
25,000 20% -20.0%
20,000 15%
15,000 10% Source: Company, Ciptadana
5%
10,000
0% Exhibit 149: Retailers sales growth (YoY)
5,000 -5%
- -10% ACES RALS LPPF ERAA
2012 2013 2014 2015 2016 2017 2018 2019F 2020F 80.0%
LPPF ACES ERAA RALS Growth (%) (RHS)
60.0%
40.0%
Retailer’s aggregate sales growth showed a mixed trend due to seasonality 20.0%
(Exhibit 148), the growth declined since 1Q18, mostly driven by decline on
0.0%
ERAA sales growth. In 2020, we deemed to see a recovery on retailer’s
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
aggregate sales growth, supported by ACES and ERAA as the mid-up -20.0%
segment retailers. ERAA will gain higher sales volume on IMEI control
implementation that we expect to happen by late in early 2020. For ACES, -40.0%
we are still positive towards home improvement segment which is more
resilient against e-commerce penetration and business competitions. -60.0%
169
 Declining SSSG trend up segment is more resilient towards economic condition and less price
Retailers under our coverage (ACES, LPPF, and RALS) are witnessing a sensitive. Mid-up retailers also have more ability to increase selling price,
decline trend of SSSG, LPPF and RALS SSSG started to decline since early hence, there will be more room for margin expansion.
2018, LPPF and RALS relatively have similar SSSG trend, due to similar
target market. These indicate slowing sales performance from the existing  Modest growth for low-end fashion retailers
stores. We believe, this was due to higher e-commerce penetration that As LPPF and RALS have similar SSSG trend (Exhibit 150), we use them as
has shifted consumer’s shopping preference, and also tight competitions proxy to represent low-end fashion retailers. We put Apparel, footwear,
with other specialty stores. However, mid-up retailer (ACES) shows and maintenance growth, one of the components of private consumption
relatively more stable and higher SSSG compared to low-end retailers (Exhibit 146), as a demand indicator.
(LPPF and RALS).
Exhibit 151: LPPF and RALS sales growth
Exhibit 150: SSSG Apparel, footwear, and maintenance growth (LHS) LPPF RALS
6.0% 60.0%
ACES LPPF RALS
50.0%
50.0%
5.0% 40.0%
40.0% 30.0%
4.0%
30.0% 20.0%
10.0%
20.0% 3.0%
0.0%
10.0% -10.0%
2.0%
-20.0%
0.0%
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 1.0% -30.0%
-10.0% -40.0%
0.0% -50.0%
-20.0%
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
-30.0%
 Mid-up over Low-end

We see that 2020 will be a challenging year for the low-end segment, as in We see that, the growth trend for Apparel, footwear, and maintenance was
2020, government will cut energy and non energy subsidy by 6.6% Rp187.5 going-up since 4Q17, while both LPPF and RALS showed modest growth trend
tn. Oil and LPG subsidy also decreased by 16.6% YoY to Rp75.3 tn. Budget (Exhibit 151) until 2Q19. We expect, this was due to shift in customers shopping
for Family Hope Programme (PKH) was also cut by 10.7% YoY. We are trend to e-commerce or other fashion retailers, as Apparel, footwear, and
concerned on electricity subsidy despite 18.9% higher in total budget, as maintenance growth is still on the rise. We also compare the sales growth
the government plans to take out the 900Va category which represents from every lebaran period from 2014-2019, we use lebaran season as a proxy
mid-low segment or around 23mn households. Moreover, these may to the low-end fashion retailers, as lebaran sales contributed around 35%-40%
impact on purchasing power of low-end segment. Therefore, we expect to total revenue. Again, it can be seen that sales growth trend was declining
mid-up retailers to perform better than low-end retailers in 2020, as mid-
170
since 2017. We expect low-end retailer’s top-line growth trend to remain at market segment. We also like ACES on its ability to pass on the cost to
low single digit in 2020, as we have not seen any significant catalyst to support customer during rupiah depreciation to maintain margins. We have a BUY call
low-end segment. for ACES with 2020F DCF-based TP of Rp1,990/share, ACES is currently traded
at 2020F PER of 22.8x.
Exhibit 152: LPPF and RALS sales growth during lebaran period
Exhibit 153: Retail stocks rating and valuation
RALS LPPF
30.0%
Bberg Mkt.Cap Last Target Upside PER PBV ROE Yield
20.0% 20F
Ticker Rating (Rp tn) Price Price pot.(%) 2019F 2020F 2019F 2020F 20F (%)
(%)
10.0% ACES Buy 30.4 1,770 1,990 12.4 26.0 22.8 6.2 5.3 23.2 1.7
ERAA Buy 5.3 1,825 2,130 16.7 24.3 6.8 1.1 1.0 15.2 2.0
0.0%
LPPF Buy 9.5 3,240 4,180 29.0 6.0 6.0 3.4 2.6 44.3 8.3
3Q14 3Q15 2Q16 2Q17 2Q18 2Q19
RALS Buy 8.1 1,200 1,900 58.3 13.4 12.7 1.9 1.7 13.8 3.6
-10.0%
Sector OW 53.3 20.4 16.7 4.5 3.8 24.7 3.2
-20.0%
-30.0%
Robert Sebastian +62 21 2557 4800 ext.760 sebastianrobert@ciptadana.com
-40.0%
-50.0%
Source: Company, Ciptadana Sekuritas Asia
 Valuation and recommendation

Overall, we still believe on the retailers under our coverage to meet our
conservative forecast in 2020F, due to conducive macro environment (higher
GDP growth, tame inflation rate, and private consumption growth to GDP is still
on an uptrend). However, we see mid-up segment to gain more traction in
2020, as we have not seen any surprise from government social spending to
support the low-end segment. We expect low end retailers (RALS and LPPF) to
book low single digit top line growth. We still have BUY rating for RALS due to
its gross and operating margin expansion, as results of new store manager’s
KPI that more focus on margins rather than volume, also the roll-out strategy
of unprofitable supermarket to fashion segment, which may enhance the
productivity/sqm. For LPPF, we see this attractively on its high dividend yield
of 8%, we still believe LPPF to meet our and consensus estimate which already
very conservative. Our top pick is ACES, as the mid-up segment retailers, we
like ACES due to its stable double-digit sales growth, and more resilient
171
Ace Hardware Indonesia Sector

Bloomberg Ticker
Retail
ACES IJ

1,800
25%
Last Price (Rp) 1,770 1,600 20%

1,400
Established in 1995, Ace Hardware Indonesia (ACES) is a subsidiary company 3m 6m 12m

1,000
800
10%
of PT Kawan Lama Sejahtera, a commercial and industrial supplies company Absolute (%) -3.5 0.6 31.1 600 5%
in Indonesia. Ace Hardware is presently the market leader in home Relative to JCI (%) -0.7 4.9 23.5 400
200
0%
improvement retailing, where it operates through three divisions namely, 0 -5%

Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
home improvement, lifestyle and toys.
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
Key Points Mkt. Cap (Rpbn/USDmn) 30,356/2,142 ACES 1yr Rel. to JCI (RHS)
 Lower price gap due to import tariffs. The import policy which imposes
higher tax to e-commerce is reducing the price gap of ACES with the online Financial Highlights
players, we see this as a positive thing for the company, as ACES becomes 2017A 2018A 2019F 2020F 2021F
more resilient towards e-commerce market. Revenue (Rpbn) 5,939 7,240 8,647 9,994 11,259
 Pass on policy to mitigate currency fluctuations. ACES adopt “pass on Operating profit (Rpbn) 869 1,072 1,303 1,523 1,715
cost” policy strategy to maintain margins. We see that the middle to high- Net profit (Rpbn) 780 976 1,166 1,332 1,510
end segment is relatively less sensitive to price changes, we believe mid- EPS (Rp) 45.5 56.9 68.0 77.7 88.1
up segment still willing to spend, and hence, the impact to sales volume EPS growth (%) 10.6 25.0 19.5 14.2 13.4
should be minimal. As we cans see, during 2018 and 2019, ACES relatively EV/EBITDA (x) 31.2 25.4 20.8 17.8 15.5
book double digit monthly top line growth. PER (x) 38.9 31.1 26.0 22.8 20.1
 Store cannibalization occurs, but still limited impact. Management views, PBV (x) 8.6 7.2 6.2 5.3 4.6
there is a cannibalization between ACE express and regular ACE store, but Dividend yield (%) 0.9 1.3 1.5 1.7 1.9
the impact is yet to be material so far. ROE (%) 22.2 23.1 23.7 23.2 22.7
 We have Buy rating on ACES with 2020F DCF-based TP of Rp1,990.
We continue to like ACES, due to stable double digit top line growth, and Assumptions
less price sensitive costumer target. ACES inventory also remain save at 2017A 2018A 2019F 2020F 2021F
222 days in 1H19 (.vs 239 days in FY18). At the moment, ACES trades at Gross store space (sqm) 392,100 453,000 509,600 527,500 541,450
22.8x 2020F PER. Net store addition 15 32 20 15 10
Sales per sqm 14.5 15.2 17.8 19.9 21.9
172
Ace Hardware Indonesia
Revenue 5,939 7,240 8,647 9,994 11,259 Net income 780 976 1,166 1,332 1,510
Gross profit 2,835 3,443 4,113 4,753 5,354 Chg in working cap. -176 -859 -297 -590 -190
Oper. expenses -1,966 -2,371 -2,810 -3,230 -3,639 Other -33 -29 -26 -32 -43
Oper. profit 869 1,072 1,303 1,523 1,715 CF-Oper activities 646 184 951 834 1,418
EBITDA 944 1,167 1,411 1,647 1,855 Capital expenditure -157 -180 -216 -250 -281
Other income (exp.) 96 148 166 192 216
Net change in debt -5 115 -46 11 -80
Pre-tax profit 960 1,202 1,450 1,697 1,922
Income tax -179 -226 -284 -365 -412
Other financing -38 138 -24 -16 -18
Net profit 780 976 1,166 1,332 1,510
Net cash flow 198 -104 242 98 499

Balance Sheet
Cash - begin of the year 704 902 799 1,040 1,138
Cash - end of the year 902 798 1,040 1,138 1,637
Cash & cash equivalent 902 799 1,040 1,138 1,637
Key Ratios
Inventory 1,849 2,520 2,708 3,130 3,362
2017A 2018A 2019F 2020F 2021F
Other curr, asset 517 741 865 999 1,126
Revenue gr. (%) 20.3 21.9 19.4 15.6 12.7
Fixed assets - net 359 444 552 678 819
Net profit gr. (%) 10.6 25.0 19.5 14.2 13.4
Other non-curr.asset 711 781 911 1,035 1,014
Gross margin (%) 47.7 47.6 47.6 47.6 47.6
Total asset 4,429 5,321 6,120 7,031 8,015
EBITDA margin (%) 15.9 16.1 16.3 16.5 16.5
Acct, payable 169 198 239 277 312
Net margin (%) 13.1 13.5 13.5 13.3 13.4
ROA (%) 17.6 18.3 19.1 18.9 18.8
Other curr. liab 309 318 379 438 494
ROE (%) 22.2 23.1 23.7 23.2 22.7
Total liabilities 918 1,086 1,191 1,299 1,374 Quick ratio (x) 3.2 2.5 2.8 2.8 3.5
Minority interest -2 10 0 0 0 Debt to equity ratio (x) 0.0 0.0 0.0 0.0 0.0
173
Erajaya Swasembada Sector

Bloomberg Ticker
Consumer Electronics
ERAA IJ

-10%
-20%
Established in 1996, PT Erajaya Swasembada Tbk. (“Erajaya”) has grown 3m 6m 12m
1,500
-40%
beyond an integrated mobile telecommunication device importer, distributor Absolute (%) -13.1 5.2 -15.9 1,000
-50%
and retailer, where the Company is also acknowledged as the largest and Relative to JCI (%) -9.9 9.9 -23.0 500 -60%
most trusted companies in its business in Indonesia. 0 -70%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
 Rely on IMEI control implementation. Indonesia government aim to ERAA 1yr Rel. to JCI (RHS)
diminish black market phones, as black market phones account for
roughly 20% of total Smartphone market in Indonesia, or around 7.68 mn Financial Highlights
units. We expect IMEI control to be implemented by the end of 2019 or by 2017A 2018A 2019F 2020F 2021F
late on early 2020. As government already prepared the tools and device Revenue (Rpbn) 24,230 34,744 29,526 34,795 38,526
to support this regulation, and to minimize the tax losses due to black Operating profit (Rpbn) 520 1,315 647 1,275 1,429
market phones and imported phones. This will be a positive catalyst for Net profit (Rpbn) 336 848 233 827 957
ERAA in 2020, due to higher sales volume. EPS (Rp) 115.9 273.6 75.2 267.0 309.0
EPS growth (%) 30.9 136.2 -72.5 254.9 15.7
 Near term catalyst. In our opinion, black market players are getting
EV/EBITDA (x) 11.2 6.6 8.8 4.5 4.0
aware on the IMEI regulation which soon to be implemented. From now
PER (x) 15.8 6.7 24.3 6.8 5.9
points onwards, we should see a decline in black market phones.
PBV (x) 1.5 1.1 1.1 1.0 0.8
Dividend yield (%) 1.1 2.1 0.6 2.0 2.3
 JUUL may gain more traction. ERAA is the official distributor for JUUL,
ROE (%) 9.3 18.1 4.9 15.2 15.2
we expect JUUL to gain more traction, due to higher cigarette excise.
JUUL contribution is still below 3% to revenue. Assumptions
2017A 2018A 2019F 2020F 2021F
 Maintain BUY with 2020F TP of Rp2,130/sh. We expect ERAA Volume (mn units) 12.5 16.0 13.1 15.7 17.5
Smartphone sales volume to improve in 2020, due to possible IMEI Volume growth -1% 28% -18% 20% 11%
implementation. At the moment, the stock trades at 6.8x 2020F PER. ASP 1.6 1.8 1.9 1.9 2.0
ASP growth 14.5% 14.4% 2.5% 5% 5%
174
Erajaya Swasembada
Gross profit 2,159 3,169 2,598 3,132 3,506 Chg in working cap. -1,368 -3,675 2,607 71 -488
Oper. profit 520 1,315 647 1,275 1,429 CF-Oper activities -951 -2,715 3,107 1,117 682
EBITDA 596 1,407 764 1,378 1,541 Capital expenditure -105 -159 -276 -295 -323
Interest income 3 5 1 6 9 Others 63 224 265 -84 -45
Interest expense -143 -349 -409 -215 -204 CF-Investing activities -42 65 -11 -378 -368
Other income (exp.) 97 230 148 35 39
Net change in debt 848 2,533 -2,720 61 -232
Pre-tax profit 476 1,201 386 1,101 1,274
Income tax -133 -314 -121 -274 -316
Minority interest -8 -39 -32 0 0
Other financing 56 383 -153 17 39
Net profit 336 848 233 827 957
CF-Financing activities 745 2,556 -3,202 -181 -457
Net cash flow -248 -94 -106 558 -143

Balance Sheet
Key Ratios
Inventory 3,388 6,795 4,114 4,310 4,767
2017A 2018A 2019F 2020F 2021F
Other curr, asset 1,359 1,570 1,366 1,610 1,782
Revenue gr. (%) 17.9 43.4 -15.0 17.8 10.7
Operating profit gr. (%) 8.6 153.2 -50.8 97.0 12.1
Fixed assets - net 486 554 713 905 1,116
Net profit gr. (%) 30.9 152.4 -72.5 254.9 15.7
Gross margin (%) 8.9 9.1 8.8 9.0 9.1
Total asset 8,874 12,683 9,516 11,079 12,215
EBITDA margin (%) 2.5 4.0 2.6 4.0 4.0
Acct, payable 2,619 2,807 2,394 3,078 3,502
Net margin (%) 1.4 2.4 0.8 2.4 2.5
ROA (%) 3.8 6.7 2.4 7.5 7.8
Other curr. liab 681 648 566 644 717
ROE (%) 9.3 18.1 4.9 15.2 15.2
175
Matahari Department Store Sector

Bloomberg Ticker
Retail
LPPF IJ

7,000
0%
-10%
6,000 -20%
-30%
Matahari Department Store (LPPF) is considered as one of the best retailers 3m 6m 12m
4,000
-40%
3,000
in Indonesia which focuses on apparels, accessories, beauty product and Absolute (%) -5.8 -19.2 -50.5 2,000 -50%
home-ware. The company was established in 1958 as a children’s fashion Relative to JCI (%) -2.9 -14.9 -58.2 1,000 -60%
store and launched its first modern department store in 1972. 0 -70%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
 Weak Top line growth. We expect LPPF top line will only at low single LPPF 1yr Rel. to JCI (RHS)
digit, of 2.2% and 2.6% in 2020F and 2021F respectively. LPPF business
model of department store is exposed heavily to online retailers, either Financial Highlights
the market place, online fashion retailers, and social media online shop, 2017A 2018A 2019F 2020F 2021F
that use Instagram or Facebook. LPPF need to compete using Revenue (Rpbn) 10,024 10,245 10,444 10,673 10,954
matahari.com as their online platform, management expect the online Operating profit (Rpbn) 2,409 2,330 2,141 2,154 2,175
sales to book 8-10% of total sales in the next 3-5 years, from currently of Net profit (Rpbn) 1,907 1,097 1,572 1,581 1,596
only 1-2%. Moreover, LPPF also facing tight competitions with other brick EPS (Rp) 653.6 376.1 538.7 541.9 546.9
and mortar stores, such as HnM, Uniqlo, Zara, etc.
EPS growth (%) -5.6 -42.5 43.3 0.6 0.9
EV/EBITDA (x) 3.0 3.2 3.3 3.3 3.0
 Margins may still contracted. Inventory days were recorded at 144 days
PER (x) 5.0 8.6 6.0 6.0 5.9
in 1H19 (.vs 123 days in 1H18), According to the Management there will
PBV (x) 4.1 5.2 3.4 2.6 2.2
be discounts and promotions in 2H19, in order to reduce the inventory
Dividend yield (%) 15.2 13.6 9.9 8.3 8.4
level. This may impact on lower gross margins.
ROE (%) 81.9 60.4 56.6 44.3 36.5
 Maintain BUY with 2020 DCF-based TP of Rp4,180/sh. We believe, both Assumptions

of our and consensus estimate for LPPF is already conservative, hence 2017A 2018A 2019F 2020F 2021F
the downside is limited. The stock offers attractive 2020F dividend yield New space added (sqm) -9,301 12,074 7000 6500 6000
of 8.3%. At the moment, the stock trades at 6x 2020F PER, which is Net stores open (unit) +4 +4 +1 +1 +1
undemanding in our view. On top of that, LPPF is still the retailer under SSSG -1.2% 3.5% 1% 1.5% 2%
our coverage with highest ROE, and profitability margins.
176
Matahari Department Store
Gross profit 6,262 6,378 6,402 6,508 6,633 Chg in working cap. -1 -160 -185 43 45
Oper. expenses -3,853 -4,048 -4,261 -4,354 -4,458 Other -608 549 11 -17 1
Other income (exp.) -32 -763 -34 -35 -36
Net change in debt 0 0 400 -400 0
Pre-tax profit 2,396 1,575 2,096 2,108 2,128
Income tax -489 -478 -524 -527 -532
Dividend payment -1,434 -1,286 -934 -786 -791
Net profit 1,907 1,097 1,572 1,581 1,596
CF-Financing activities -1,434 -1,609 -210 -1,186 -791
Net cash flow -130 -399 869 6 438

Balance Sheet
Key Ratios
Inventory 1,005 1,291 1,539 1,563 1,598
2017A 2018A 2019F 2020F 2021F
Other curr, asset 251 410 449 446 461
Revenue gr. (%) 1.3 2.2 1.9 2.2 2.6
Operating profit gr. (%) -4.7 -3.3 -8.1 0.6 1.0
Fixed assets - net 974 1,249 1,568 1,984 2,398
Net profit gr. (%) -5.6 -42.5 43.3 0.6 0.9
Other non-curr.asset 1,480 773 776 810 823
Gross margin (%) 62.5 62.3 61.3 61.0 60.6
Total asset 5,427 5,036 6,507 6,993 7,907
EBITDA margin (%) 26.6 25.0 22.4 21.3 21.1
Acct, payable 1,645 1,698 1,771 1,827 1,894
Net margin (%) 19.0 10.7 15.1 14.8 14.6
ROA (%) 35.1 21.8 24.2 22.6 20.2
Other curr. liab 966 1,042 1,058 1,087 1,113
ROE (%) 81.9 60.4 56.6 44.3 36.5
177
Ramayana Lestari Sentosa Sector

Bloomberg Ticker
Consumer Discretionary
RALS IJ

1,800
40%
Last Price (Rp) 1,200 1,600 30%
Avg. daily T/O (Rpbn/USDmn) 10.5/0.7 1,400 20%

By 1989 Ramayana has become a retail chain, consisting of 13 outlets and 3m 6m 12m
1,000
800
10%
employing a total of 2,500 workers. They variety of products sold has also Absolute (%) -14.6 -33.3 -5.9 600 0%
became more extensive to include household necessities, toys and Relative to JCI (%) -11.7 -29.0 -13.5
400
200
-10%
stationeries. In addition to department stores that sell clothing products 0 -20%

Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
such as clothes and shoes, Ramayana also has a supermarket sells food
and daily necessities. Outstanding shrs (mn) 6,723
RALS 1yr Rel. to JCI (RHS)
 Margins expansion. We like RALS on its margins expansion through Financial Highlights
store KPI that more focus on margins rather than volume, cost 2017A 2018A 2019F 2020F 2021F
efficiency, and selective strategy on providing discounts. Revenue (Rpbn) 5,623 5,740 6,043 6,261 6,486
 Store transformation, RALS will continue to do store transformation by Operating profit (Rpbn) 356 608 658 671 695
using space in more efficient and effective way, in order to increase Net profit (Rpbn) 406 587 635 668 707
productivity/sqm, such as, taking-out unperforming brand and rent the EPS (Rp) 57.5 83.0 89.8 94.5 100.0
space to other tenants. EPS growth (%) -0.5 44.4 8.2 5.2 5.8
 Lifestyle mall concept. RALS will continue to expand Ramayana Prime, EV/EBITDA (x) 12.0 7.7 6.6 5.9 5.2
we see this as a good strategy to increase customer traffic, which PER (x) 20.9 14.5 13.4 12.7 12.0
supported by other tenants such as XXI, and F&B tenants.
PBV (x) 2.4 2.2 1.9 1.7 1.6
 Collaboration with e-wallet. We believe, the trend of cash less Dividend yield (%) 2.9 3.2 3.4 3.6 3.8
transaction will keep growing in 2020, and this will increase customers’
ROE (%) 11.6 15.3 14.3 13.8 13.5
appetite to shop, due to more convenience payment method.
 Maintain BUY with 2020F DCF-based TP of Rp1,900/sh. Despite we are Assumptions
concern on low-end segment’s purchasing power in 2020F, We still like 2017A 2018A 2019F 2020F 2021F
RALS on its margin expansion, cost efficiency, and store transformation Gross store space (sqm) 983,755 994,441 1,026,208 1,043,887 1,061,565
to enhance productivity/sqm. Currently, RALS trades at 12.7x 2020F Net store addition 3 3 2 2 2
PER. Sales/sqm 5.8 5.8 6 6 6.2
178
Ramayana Lestari Sentosa
Interest expense 0 0 0 0 0 CF-Investing activities -140 -104 -96 -100 -103
Other income (exp.) 1 -25 -28 -33 -38
Pre-tax profit 466 717 780 818 861
Income tax -60 -130 -145 -150 -155
Net profit 406 587 635 668 707
CF-Financing activities -140 -119 139 -87 -120
Net cash flow 270 385 624 464 398

Balance Sheet
Key Ratios
Inventory 741 860 917 953 987
2017A 2018A 2019F 2020F 2021F
Other curr, asset 264 245 257 267 276
Revenue gr. (%) -4.0 2.1 5.3 3.6 3.6
Operating profit gr. (%) -0.3 70.6 8.3 2.0 3.6
Fixed assets - net 1,235 1,164 1,092 1,019 943
Net profit gr. (%) -0.5 44.4 8.2 5.2 5.8
Gross margin (%) 39.3 43.7 43.7 43.5 43.5
Total asset 4,892 5,243 5,894 6,350 6,735
EBITDA margin (%) 9.6 13.6 13.7 13.5 13.5
Acct, payable 956 941 945 983 967
Net margin (%) 7.2 10.2 10.5 10.7 10.9
ROA (%) 8.3 11.2 10.8 10.5 10.5
Other curr. liab 92 152 160 166 172
ROE (%) 11.6 15.3 14.3 13.8 13.5
Shareholder equity 3,494 3,827 4,452 4,853 5,235 Interest cover (x) n.m n.m n.m n.m n.m
179
HEALTHCARE SECTOR
180
Healthcare
Overweight
 Higher budget allocation for healthcare in 2020
Indonesian government sets Rp132.2 tn of healthcare budget allocation in employees of SOE (BUMN), the premium will be 5% from take home pay, not
2020 (+13% YoY), representing 5.2% of government spending in 2020 (.vs 5% in from monthly salary and family benefits. On the other hand, Sri Mulyani
2019). This amount is almost double relative to 2015 allocation of Rp69.3 tn. ,Indonesia Finance Ministry, purposes 100% increased on class 1 self paying
Government spending for healthcare budget booked solid growth of 14% CAGR members to Rp160 th/month, and 116% increased in class 2 to Rp110
from 2015 – 2019, it indicates that the demand for healthcare service in th/month.
Indonesia keeps increasing, which will benefit hospital and pharmaceutical
companies. We expect higher healthcare budget allocation would lead to Exhibit 154: JKN coverage (in mn people)
higher demand for unbranded generic products, under prescription 300
pharmaceuticals division. JKN coverage was targeted to reach 95% coverage 250
or 260 mn people in 2019. As of June 2019, JKN coverage reached around 222
200
mn people. In 2020, we expect JKN coverage to reach 100% given higher
healthcare budget allocation. Indonesian government also plans to enhance 150
JKN efficiency by accelerating non PBI (other than recipients of government 100
allowance for Indonesian poor society) membership (employees, independent,
etc.), and reviewing the amount of payment from PBI and non PBI. We expect 50
this to improve JKN payment scheme, which will benefit pharmaceuticals and 0
hospital players including KLBF and SILO in-term of lower receivable days. 2014 2015 2016 2017 2018 2019 2020F
Source: BPJS Kesehatan, Ciptadana

 Hike in JKN premium to reduce deficit
Government is finding solution to handle the deficit on Healthcare Social Exhibit 155: Proposed JKN premium
Insurance Administration Organization (BPJS), one of the solutions is to raise The National Security Concuil (DJSN) Finance Ministry
Current scheme proposed's scheme proposed's scheme
the premium tariff for the Premium Assistance Beneficiaries (PBI), private Premium Assistance Beneficiaries (PBI), Rp 23,000 42,000
employees, civil servants (ASN)/ national army/ police/ employees of SOE % YoY +83%
(BUMN) or regional owned enterprises (BUMD), and self paying members (class Class 1, Rp 80,000 120,000 160,000
1, 2, & 3). The National Security Concuil (DJSN) proposed the tariff hikes of % YoY +50% +100%
Class 2, Rp 51,000 75,000 110,000
47% to Rp75 th/member for class 2 self paying members, and 50% increased
% YoY +47% +115%
for class 1 premium to Rp120 th/member. For PBI, the raise was proposed at Class 3, Rp 25,500 42,000 42,000
83%, to Rp42 th/member. Private employees’ premium ceiling is suggested to % YoY +65% +65%
rise from Rp8 mn/month to Rp12mn/month, hence it becomes 5% of
Rp12mn/month. For state civil apparatus (ASN)/ national army/ police/ Source: BPJS Kesehatan, Ciptadana
181
 Strong growth from corporate insurance segment Exhibit 157: Private medical insurance value (USD bn)
2.5
Even though, JKN is keep on deficit every year, Our hospital company under
our coverage, SILO is less worry, as BPJS only contributed 27% to revenue. 2
SILO still heavily relies on the contribution from corporate insurance segment
which delivers better growth and margins compared to BPJS segment. SILO’s 1.5
management also less worry regarding this issue, as they believe that
1
government will always pay the overdue, eventhough it is late. Coorporate
insurance segment posted remain strong growth in 1H19 (+26% YoY), 0.5
contributing 38% to total revenue in 1H19. In addition, MIKA’s revenue also
mostly contributed by corporate insurance with 45% portion to revenue in 0
1H19. We expect this trend to continue in 2020F, due to higher private medical 2007 2012 2020
Source: McKinsey Report
insurance’s value, and higher number of insured people by private medical
insurance.
Exhibit 158: Number of insured people by private insurance
Exhibit 156: SILO’s Corporate Insurance segment (Rp bn)
7000
1400 +26% YoY +33% YoY
6000
1200 +17% YoY 5000
+1.1% YoY 4000
1000
3000
800 2000
1000
600
0
400 2016 2017
Source: OJK Insurance Statistics 2017

200
0
1H16 1H17 1H18 1H19
 Possible tax deduction for R&D
Government will impose up to 300% possible tax deduction for companies
Source: Company, Ciptadana which spend on R&D, we expect this effect will be for 2020. This can be a
positive catalys for pharmaceuticals company who spend on R&D, such as,
KLBF, R&D expense was 8% of operating profit. This will increased KLBF
earnings by around 4-6%, based on our estimate. However, KLBF are still
waiting for further details on which R&D cost that can be included and further
official updates from the ministry of finance.
182
 Better Rupiah outlook in 2020F

Rupiah volatility is crucial to pharmaceutical company that relies heavily on
imported raw materials such as KLBF. We believe that the rupiah exchange
rate against the US dollar affects the company as raw materials take up 70%-
95% of the total cost of goods sold. We expect year-end 2020F rupiah will be
on the level of Rp14,000/USD (.vs Rp14,190/USD in 2019F), or at
Rp14,100/USD on average (.vs Rp14,250/USD in 2019F). We see this as a
favourable situation for KLBF, as they can manage to maintain gross margins.
 Valuation and recommendation

Our top pick for healthcare sector is SILO, on the back of growing corporate
insurance segment, cost efficiency, company’s focus on existing hospitals, end
of capex cycle, and attractive EV/EBITDA valuations relative to peers. We like
SILO as the company aims to accelerate the profitability of the new hospitals,
as the new hospital getting profitable, SILO will get tax benefit for 5 years (the
tax benefit that the company should received during the loss making period,
can be carried forward for up to 5 years), as of now, the loss making (new)
hospital cannot be used to offset the tax liability of SILO’s profitable hospitals.
Hence, the tax rate should decline gradually, as the loss making hospitals
(new) turn into profitable. We have a BUY call for SILO with TP of Rp7,980,
based on 2020F EV/EBITDA multiple of 12x. Currently, the stocks trades at
undemanding valuation of 7.4x 2020F EV/EBITDA, vs MIKA’s of 33.8x and
HEAL’s of 12.9x based on consensus estimates. Risk to our call: lower patient
volume, and occupancy rate.
Exhibit 159: Healthcare stocks rating and valuation

20F 20F
(%) (%)
KLBF Hold 78.5 1,675 1,790 6.9 31.5 28.6 19.8 17.9 15.9 1.7
SILO Buy 8.2 7,100 7,980 12.4 357.0 175.2 8.5 7.4 0.7 0.0
Sector OW 86.9 61.9 42.3 18.7 16.8 14.3 1.4
183
Kalbe Farma Sector

Bloomberg Ticker
Consumer
KLBF IJ

1,600
20%

1,400
Kalbe Farma (KLBF) is one of the largest listed pharmaceuticals in SE Asia. It 3m 6m 12m 800
5%
operates four divisions namely Prescription Pharma (licensed, unbranded and Absolute (%) 16.3 10.2 29.8 600 0%
400
branded generic drugs), Consumer Health (OTC drugs and Energy drinks), Relative to JCI (%) 19.5 14.9 22.8 200
-5%
Nutritionals-based on powder milk and Distribution and Logistics divisions. 0 -10%

Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
KLBF 1yr Rel. to JCI (RHS)
 Focus on specialty products to improve margins. Margins contraction on
prescription pharmaceutical segment is our main concern, due to higher
contribution from unbranded generics. We believe pharmaceutical division Financial Highlights
margin will improve in 2020 due to contribution from bio similar and 2017A 2018A 2019F 2020F 2021F
oncology products, which currently contributes around 7% - 8% to Revenue (Rpbn) 20,182 21,074 22,760 24,695 26,794
prescription pharmaceuticals sales. KLBF expect, in the next 2-3 years, bio Operating profit (Rpbn) 3,214 3,314 3,359 3,703 4,176
similar and oncology products will contribute by 10% to prescription Net profit (Rpbn) 2,404 2,457 2,492 2,744 3,129
pharmaceuticals sales. EPS (Rp) 51.3 52.4 53.2 58.5 66.8
EPS growth (%) 4.5 2.2 1.4 10.1 14.0
 Possible tax deduction for R&D. Government will impose up to 300%
EV/EBITDA (x) 21.3 20.7 19.8 17.9 15.8
possible tax deduction for companies who spend on R&D. This may
PER (x) 32.7 32.0 31.5 28.6 25.1
increase KLBF earnings by 4-6%, based on our estimate. However,
PBV (x) 5.9 5.4 4.9 4.6 4.2
company are still waiting for further details on which R&D cost that can be
Dividend yield (%) 1.3 1.5 1.6 1.7 2.0
included and further updates from the ministry of finance.
ROE (%) 18.1 16.8 15.7 15.9 16.6
 We have a HOLD rating for KLBF with 2020F DCF-based TP of Rp1,790. Assumptions
We believe that our 2020F forecast has almost priced – in at the current 2017A 2018A 2019F 2020F 2021F
price. At the moment, the stock is fairly valued at 28.6x 2020F PER, slightly
Prescription pharma 4,264 4,376 4,747 5,163 5,615
below its mean of 5 year historical average. The stock offers limited upside
potential of 6.9% from current price. Risk to our call; Rupiah depreciation Consumer health 2,957 3,100 3,301 3,504 3,693
against USD. Nutritionals 5,910 6,024 6,581 7,195 7,892
Distribution and logistics 5,969 6,375 6,948 7,499 8,094
184
Kalbe Farma
Gross profit 9,812 9,848 10,748 11,758 12,822 Chg in working cap. -696 -102 12 -263 -405
Other income (exp.) -71 -103 -104 -107 0
Net change in debt 37 40 173 -202 28
Pre-tax profit 3,241 3,306 3,354 3,696 4,213
Income tax -788 -809 -813 -900 -1,026
Net profit 2,404 2,457 2,492 2,744 3,129
Net cash flow -110 369 387 -126 195

Balance Sheet
Key Ratios
Inventory 3,557 3,475 4,211 4,380 4,707
2017A 2018A 2019F 2020F 2021F
Other curr, asset 824 765 682 741 803
Revenue gr. (%) 4.2 4.4 8.0 8.5 8.5
Fixed assets - net 5,343 6,253 7,295 8,320 9,316
Net profit gr. (%) 4.5 2.2 1.4 10.1 14.0
Gross margin (%) 48.6 46.7 47.2 47.6 47.9
Total asset 16,616 18,146 20,119 21,619 23,566
EBITDA margin (%) 17.7 17.3 16.8 17.1 17.8
Acct, payable 1,109 1,290 1,388 1,497 1,623
Net margin (%) 11.9 11.7 10.9 11.1 11.7
ROA (%) 14.5 13.5 12.4 12.7 13.3
Other curr. liab 945 899 1,259 1,388 1,521
ROE (%) 18.1 16.8 15.7 15.9 16.6
Long term debt 144 260 455 247 268
185
Siloam International Hospital Sector

Bloomberg Ticker
Healthcare
SILO IJ

7,000
160%
140%
6,000
100%
Established in 1996, Siloam Hospitals (SILO), which is subsidiary of LPKR 3m 6m 12m

4,000 60%
40%
3,000
property developers in Indonesia, offers valuable service for coverage Absolute (%) 43.7 79.7 152.7 2,000
20%
expansion from the onset of JKN. SILO operates 34 hospitals of varying degree Relative to JCI (%) 46.9 84.5 145.6 1,000
0%
-20%
of profitability in 24 cities throughout the country, and 6,800 bed capacity 0 -40%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
supported by~2,700 specialists and general practitioners and >10,000 nurses
and support staff. Outstanding shrs (mn) 1,156
Mkt. Cap (Rpbn/USDmn) 8,208/578 SILO 1yr Rel. to JCI (RHS)
 Future Expansion plan. Going forward, SILO will only open 1-2 new Financial Highlights
hospitals per year, there is possibility to acquire matured hospitals, hence 2017A 2018A 2019F 2020F 2021F
SILO do not need to wait for the hospital to reach EBITDA and NPAT Revenue (Rpbn) 5,306 5,965 7,020 8,440 10,049
neutral, the financing will be using bank loans. Operating profit (Rpbn) 297 299 402 490 595
 Focus on accelerating profitability of new hospitals. In FY18, SILO’s Net profit (Rpbn) 94 16 23 47 92
effective tax rate reached 84%, as the loss making hospitals cannot be EPS (Rp) 81.0 14.3 19.9 40.5 79.8
used to offset the tax liability of SILO’s profitable hospitals. When the new EPS growth (%) 8.9 -82.4 39.4 103.8 96.9
hospital getting profitable, the effective tax rate may go down. Thus, there EV/EBITDA (x) 10.3 10.7 8.5 7.4 6.5
are still possibilities for bottom line improvement.
PER (x) 87.6 497.7 357.0 175.2 89.0
 Remain strong corporate insurance segment. Corporate Insurance
PBV (x) 1.3 1.3 1.3 1.3 1.3
segment contributed the most to SILO’s gross revenue in 1H19 by 38% (vs.
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
36% in 1H18), grew by 26% YoY in 1H19. We expect that Corporate
ROE (%) 1.5 0.3 0.4 0.7 1.4
Insurance segment will be the future growth driver for SILO’s revenue, due
to higher private medical insurance’s value, and higher number of insured Assumptions
people by private medical insurance. 2017A 2018A 2019F 2020F 2021F
 Attractive valuation relative to peers. We have a BUY call for SILO with TP No. of in-patient admissions 185,768 205,828 235,750 275,828 317,202
of Rp7,980, based on 2020F EV/EBITDA multiple of 12x. Currently, the %YoY growth 7.7% 11% 15% 17% 15%
stocks trades at undemanding valuation of 7.4x 2020F EV/EBITDA, vs Avg rev / inpatient (Rp mn) 17.0 17.1 17.7 18.3 19.2
MIKA’s of 33.8x and HEAL’s of 12.9x based on consensus estimates. %YoY growth -7.4% 0.4% 3.7% 3.6% 5.0%
186
Siloam International Hospital
EBITDA 705 764 964 1,107 1,263 Capital expenditure -1,365 -1,861 -757 -632 -653
Interest income 20 16 14 17 20 Others -2,205 835 182 6 -138
Interest expense -21 -22 -35 -42 -50 CF-Investing activities -3,569 -1,026 -575 -626 -792
Other income (exp.) -96 -126 -165 -198 -236
Net change in debt -7 -9 32 42 48
Pre-tax profit 200 166 216 266 328
Net change in equity 3,071 -13 0 0 0
Income tax -97 -140 -184 -200 -197
Net profit 94 16 23 47 92
CF-Financing activities 3,147 -9 85 119 138
Net cash flow 190 -714 26 36 -36

Balance Sheet
Acct, receivables 924 1,209 1,434 1,724 2,052
Key Ratios
Inventory 197 189 230 277 353
2017A 2018A 2019F 2020F 2021F
Other curr, asset 346 152 182 231 275
Revenue gr. (%) 2.7 12.4 17.7 20.2 19.1
Fixed assets - net 2,631 4,080 4,237 4,252 4,236
Net profit gr. (%) 8.9 -82.4 39.4 103.8 96.9
Gross margin (%) 31.1 32.3 32.3 32.8 32.6
Total asset 7,596 7,695 7,970 8,336 8,804
EBITDA margin (%) 13.3 12.8 13.7 13.1 12.6
Acct, payable 373 336 355 384 440
Net margin (%) 1.8 0.3 0.3 0.6 0.9
ROA (%) 1.2 0.2 0.3 0.6 1.0
Other curr. liab 474 570 714 880 1,056
ROE (%) 1.5 0.3 0.4 0.7 1.4
Long term debt 1 124 147 177 211
Total liab + SHE 7,596 7,695 7,970 8,336 8,804 Net debt to equity (x) Net Cash Net Cash Net Cash Net Cash 0.0
187
AUTOMOTIVE SECTOR
188
Automotive
Neutral  Competitive pressure remains with Astra’s shares improving
The Indonesia’s automobile market is more competitive compared to
Sector Outlook motorbike market, which is dominated by Honda and Yamaha that hold a
combined 98% share. Astra sold 344.2 k units of car in 8M19 (-8.1% YoY), while
 Weak car demand in 1H19, recovery seen going into 2H19 non-Astra car declined at faster rate of 18.7% to 316.0 k units. Hence, Astra’s
Domestic car sales have dropped 13.1% YoY in 1H19 to 481 k units. Uncertainty market share improved from 49.0% in 8M18 to 52.1% in 8M19. Overall industry
surrounding April's elections scared off retail and corporate consumers still saw a 13.5% YoY decline in volume to 660.3 k units. Toyota remained the
enough to delay purchases while weak commodity prices also have put the best-selling car in August with 29.1 k units volume and 32.2% market share.
brakes on commercial car. However, we saw an improvement in domestic car This is followed by Daihatsu (15.4 k units and 17.1% share), Mitsubishi (14.2 k
sales with July and Aug registering 89 k and 90 k units, respectively, a sign of units and 15.8% share) and Honda (11.9 k units and 13.2% share). Comparing
recovery from 1H19’s average volume of 80 k units. Astra sold 344.2 k units of to Jul-19 numbers, Daihatsu share gained the most (245 bps) at the expenses
car in 8M19 while non-Astra car was at 316.0 k units, implying total domestic of Honda (-242 bps) and Mitsubishi (-63bps). On LCGC segment which
car sales of 660 k units. Therefore, we are comfortable with our thesis of accounted for 18.7% of total domestic car volume in Aug-19, Astra controls
volume rebound in 2H19 supported by more conducive business environment 69.1% market share.
post election, rate cut cycle in Indonesia and stable Rupiah. We have car sales
forecast for Astra and domestic at 568 k units (-2.4% YoY) and 1.07 mn units Exhibit 161: Indonesian car market share by brand
(-7.0% YoY), respectively.
40
(%)
Exhibit 160: Domestic car sales tend to be higher in 2H
35
700
(k units)
597 589 30
600 546 554
532 530 534
25
481
500
20
400
15
300
10
200
5
100
0
0 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19
1H16 2H16 1H17 2H17 1H18 2H18 1H19 2H19F
Source :Gaikindo Toyota Daihatsu Mitsubishi Honda Suzuki

Source: ASII and Gaikindo
189
 Expecting growth for both car and motorbike in 2020  Favourable long-term growth outlook
We see car and motorbike sales to post positive growth in 2020 on 1) higher Indonesia’s auto industry’s long-term growth potential is high, in our view, as
economic growth of 5.1% (vs 5.0% this year) 2) the lagged impact of stable this is one of the largest and least-penetrated markets especially for car
currency and lower interest rate will be felt next year and 3) Commodity compared to regional countries. Indonesia’s 4W penetration rates stood at only
prices, especially CPO, will rebound after weakening for last three years. Our 7% versus 26% in Thailand and 25% in Malaysia. In addition to low penetration
economist sees lower benchmark rate of 4.5% next year from 5.0% this year rate, our positive view is also supported by 1) rising GDP, 2) relatively poor and
while USD/Rupiah will average 14,100 in 2020F vs. 14,250 in 2019F. Based on expensive public transportation, 3) rising middle income class implying
our observation, around 65% of car purchases are made using financing. consumers' affordability to purchase cars will improve further in the coming
Learning from 2015-2016 events where BI lowered its benchmark rate by years as households shift to higher-income bracket and 4) favourable
75bps , it led to domestic car sales growing by 6% in 2016 after dropping 17% demographics structure.
in 2015. We see domestic car sales to rebound by the same pace of growth as
our economist penciled in1005bps rate cut this year, we apply the same
growth pace of 6% in car sales for 2020F to 1.13 mn units, still below 2013 Exhibit 163: Car penetration vs. GDP per capita
level of 1.22 mn units. On motorbike sales, we expect a 8% YoY growth to 7.6
mn units as our plantation analyst expect CPO price to increase by 15% to 12000
MYR2,300/ton in 2020F which will support demand from plantation-rich (GDP/Cap USD)
islands such as Sumatera and Kalimantan. 10000

Malaysia
Exhibit 162: Indonesian annual car and motorbike sales volume

8000
China
1300 8500
(k units) (k units) 6000 Thailand
1250
8000
1200 4000
7500 Indonesia
1150
1100 7000 2000

India Car Penetration
1050 rate (%)
6500
0
1000
6000 0 5 10 15 20 25 30
950
5500
900
Source: IMF, ADB, Gaikindo
850 5000
2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F
Car (LHS) Motorbike (RHS)
Source: ASII and Gaikindo
190
 We have Buy rating for ASII with TP of Rp7,900.

Given that about 90% of cars manufactured in Indonesia are sold domestically,
domestic car demand has a decisive impact on production figures. The
industry’s current weak demand and capacity utilization rate of only 50% could
pose the risk of a price war to continue in mid-term. Therefore, we maintain
our Neutral rating on automotive sector. We only cover Astra International
(ASII) in automotive sector. We like Astra’s ability to maintain its market share
at above 50% while the company’s sales volume decline fared better than
industry. We currently have Buy rating on Astra with TP of Rp7,900. Given its
position among heavyweight stocks, we also believe Astra is potential
beneficiary of money to be relocated from investors reducing position in
cigarette sector.
Exhibit 164: Automotive stock rating and valuation

20F 20F
(%) (%)
ASII Buy 266.1 6,575 7,900 20.2 13.4 11.4 8.7 7.4 14.6 3.7
191
Astra International Sector

Bloomberg Ticker
Automotive
ASII IJ

8,000
20%
15%
Last Price (Rp) 6,575 7,000 10%
5%
Listed since 1990, Astra is the six largest company on the Jakarta Stock 3m 6m 12m 4,000
0%
-5%
Exchange in terms of market capitalization. The company is the largest auto Absolute (%) -10.5 -8.0 -10.8 3,000
-10%
2,000
distributor in Indonesia, commanding ~ 50% market share in automobile and Relative to JCI (%) -9.6 -4.4 -15.9 1,000 -15%
~ 75% market share in motorcycle segments. ASII is structured as a 0 -20%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
conglomerate with the group’s activities are focused on six business
segments – automotive, financial services, heavy equipment and mining, Outstanding shrs(mn) 40,484
agribusiness, infrastructure, logistics and others and information technology. Mkt. Cap (Rpbn/USDmn) 266,179/18,938 ASII 1yr Rel. to JCI (RHS)

 Tight competition remains, Astra fares better. We believe intensifying 2017A 2018A 2019F 2020F 2021F
competition in Indonesia car market to stay as Mitsubishi (16.6% share in Revenue (Rpbn) 206,057 239,205 238,866 247,953 266,766
8M19) and Honda (12.9%) continued to expand capacity and steal market Operating profit (Rpbn) 20,326 26,868 26,951 29,994 31,506
share from Toyota (32.3%) and Daihatsu (17.5%). Astra’s market share Net profit (Rpbn) 18,881 21,760 19,894 23,256 26,261
improved from 49.0% in 8M18 to 52.1% in 8M19 as it car sales volume EPS (Rp) 466.4 537.5 491.4 574.5 648.7
declined at slower rate (8.1% YoY) vs. industry (13.5%).
EPS growth (%) 24.6 15.2 -8.6 16.9 12.9
 Strong balance sheets. Astra remains having strong financial position EV/EBITDA (x) 11.0 9.0 8.7 7.4 6.8
with net gearing of 0.4x and abundant cash, which should reduce PER (x) 14.1 12.2 13.4 11.4 10.1
company’s financial risk profile, and capitalise on any emergent PBV (x) 2.2 1.9 1.8 1.7 1.5
investment opportunities. As an example Astra Infrastructure Dividend yield (%) 2.8 3.5 4.1 3.7 4.4
(infrastructure unit) teamed up with the Canada Pension Plan Investment ROE (%) 15.3 15.9 13.6 14.6 15.1
Board recently acquires Khazanah Nasional Bhd’s 55% stake at toll
concession holder PT Lintas Marga Sedaya (LMS) Assumptions
2017A 2018A 2019F 2020F 2021F
 Buy rating maintained. We still expect better 2H19 performance as we
4W sales (k unit) 579 582 568 591 620
believe auto sales volume will rebound on consumer big ticket items
purchase after election supported by lower interest rate environment. 2W sales (k unit) 4,385 4,800 5,300 5,671 6,011
Given its heavyweight position, we also believe Astra is potential 4W market shr (%) 53.6 50.6 53.1 52.0 52.0
beneficiary of money to be relocated from investors reducing position in 2W market shr (%) 74.5 75.2 75.7 74.5 74.5
cigarette sector. Arief Budiman +62 21 2557 4800 ext. 819 budimanarief@ciptadana.com
192
Astra International
Gross profit 42,368 50,769 50,776 53,392 56,016 Chg in working cap. -1,159 -75 -6,507 -849 -1,703
Oper. expenses -22,042 -23,901 -23,825 -23,398 -24,510 Other 4,254 -3,328 -8,832 -460 -2,727
Interest income 1,982 1,859 1,889 905 1,720 Others -16,442 990 -383 -6,828 -6,854
Other income (exp.) 8,939 9,460 8,028 9,828 10,974
Net change in debt 4,068 1,415 -5,016 302 -22,078
Pre-tax profit 29,196 35,082 32,902 36,795 41,012 0 0
Net change in equity 0 0 0
Income tax -6,031 -7,623 -7,149 -7,995 -8,912
Minority interest -4,112 -5,699 -5,859 -5,544 -5,840
Other financing 6,150 4,732 2,061 4,980 5,602
Net profit 18,881 21,760 19,894 23,256 26,261
CF-Financing activities 2,548 -4,342 -13,791 -4,665 -28,104
Net cash flow 2,217 -6,294 -7,099 16,307 -10,729

Balance Sheet
Key Ratios
Inventory 19,504 26,505 30,919 31,983 34,644
2017A 2018A 2019F 2020F 2021F
Other curr, asset 44,559 50,100 53,792 55,275 57,919
Revenue gr. (%) 13.8 16.1 -0.1 3.8 7.6
Fixed assets - net 48,402 57,733 64,677 66,947 65,953
Net profit gr. (%) 24.6 15.2 -8.6 16.9 12.9
Gross margin (%) 20.6 21.2 21.3 21.5 21.0
Total asset 295,646 344,711 338,011 358,815 359,867
EBITDA margin (%) 13.7 15.2 15.8 16.9 16.7
Acct, payable 29,468 42,263 34,600 35,791 38,769
Net margin (%) 9.2 9.1 8.3 9.4 9.8
ROA (%) 6.4 6.3 5.9 6.5 7.3
Other curr. liab 21,205 23,624 19,985 20,873 20,511
ROE (%) 15.3 15.9 13.6 14.6 15.1
Long term debt 31,394 40,385 39,794 39,448 18,718
193
HEAVY EQUIPMENT
194
Heavy Equipment
Neutral
Sector Outlook
 Continued weak heavy equipment demand as coal prices stay low Exhibit 165: Indonesia’s heavy equipment sales by sector as of 8M19
After seeing a 27% growth in 2018 to 13,550 units, Indonesia’s heavy 6,000
equipment sales is expected to decline by 25%-7% in 2019-20F to 10,163- (units) 5,271
9,451 units amidst a downtrend in coal prices . As of 8M19 heavy equipment 5,000
market saw a 24% YoY decline to 7,372 units in sales volume. Sales to mining
sector saw the highest decline in term of unit volume and share. Mining 4,000
machinery sales volume was at 3,244 units in 8M19 or dropping by 38% YoY as 3,244
sharp decline in average coal prices (38% YoY to USD84/ton) and 29% decline 3,000
in nickel prices have weighed on demand for mining machinery. Mining 2,1382,050
machinery market share also contracted significantly from 54% in 8M18 to 2,000 1,464
44% in 8M19, despite maintaining its largest position. Chinese coal demand 958 1,032 976
remained subdued in 8M19 amid import policy uncertainty as the country 1,000
reined in its import volumes. In addition, the mild summer weather and
increased electricity delivery from within China have also reduced the need to 0
import thermal coal, which is mainly used to generate energy Agro Construction Forestry Mining
8M19 8M18
The second largest volume was sold to construction sector of 2,138 units (21%
Source: AEMR
share) and rose by 4% YoY despite construction activity slowed down in 1H19
due postponement in project tender during election. Heavy equipment sales to
 Komatsu remains the top popular brand
forestry sector was strengthening , up by 5% YoY to 1,032 units, which we
Pertaining to market share, we see Komatsu market share inching down by
believe it was mostly driven by slightly higher in pulp price. Due mainly to 11%
1.6% to 34.2% (vs. 35.8% in 8M18) which we believe was dented by
YoY to MYR1,998/ton in 8M19, heavy equipment sales to Agro sector dropped
significantly lower mining machinery sales which has been its dominant
significantly (-35% YoY) despite two largest CPO companies under our
product. Hitachi held second position with market share of 16.2% (overtaking
coverage still registered 5% volume growth.
from Caterpillar) which was supported by strong sales of forestry machinery
(43% of total sales volume). Caterpillar was ranked third and saw a gain in
market share from 16.2% in 8M18 to 17.3% in 8M19 . Kobelco enjoys a strong
demand from construction sector which has been its main product . Kobelco is
more aggressive in term of pricing and payment terms. Kobelco maintained its
ranking 4th in Indonesia’s heavy equipment sales with 16.1% share in 8M19
195
(vs.14.2% in 8M18). We also witness Korean-made excavator makers benefit Exhibit 167: Correlation between heavy equipment sales and average benchmark coal price
from strong demand in construction sector . Doosan and Hyundai ranked no 130
(USD/ton)
19,000
(units)
five and six with respective market share of 3.9% and 3.4%. The remaining 120 122
17,000
volume were shared by other brands (Volvo, JCB, Terex, Liugong , Liebherr and
110
others) 15,000
100 99
96 97 13,000
Exhibit 166: Heavy equipment sales by brand 90
40 (%) 84 11,000
35.8 80 80 81
34.2 76
35 71 9,000
70
66
30 60 7,000
58
12,72318,26814,76710,776 9,008 6,069 6,554 10,63713,55010,163 9,451
25 50 5,000
20 17.6 17.3 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F2020F
15.8 16.2 16.1
14.2
15 Heavy equipment sales (RHS) Coal price (LHS)
10 8.1
4.7 Source: Bloomberg, AEMR and Ciptdana
3.9 3.8 3.4 3.2
5 2.8 2.9
0 Given the above reasons, we are Neutral for heavy equipment sector .
However, we maintain our Buy rating on UNTR (the only stock we cover in the
Kobelco
Caterpillar
Hyundai
Others
Doosan
Hitachi
Komatsu
Volvo sector) as we believe solid earnings from gold unit and relatively stable mining
contracting outlook should help the company mitigate declined earnings from
heavy equipment unit.
Source: Ciptadana and AEMR Exhibit 168: Heavy equipment stocks rating and valuation
 Expecting weak heavy equipment sales to continue in 2020 Bberg Mkt.Cap Last Target Upside PER EV/EBITDA ROE Yield
We are expecting a downtrend in domestic sales of heavy equipment to 20F 20F
continue in 2020. We now turn negative on the sector given sluggish coal price (%) (%)
outlook (mentioned above) should weigh on equipment demand. Due to UNTR Buy 79.1 21,200 25,000 17.9 11.6 10.5 3.4 3.3 16.6 6.0
17.9 11.6 10.5 3.4 3.3 16.6 6.0
prolonged weak spot coal prices, our coal analyst just lowered its benchmark Sector Neutral 79.1
assumptions for FY19-20F by 5-10% to USD81-76/ton. Heavy equipment

demand has strong correlation with coal price (exhibit. 3). Arief Budiman +62 21 2557 4800 ext. 819 budimanarief@ciptadana.com
196
United Tractors Sector

Bloomberg Ticker
Heavy equipment
UNTR IJ

35,000
10%

30,000
United Tractor is involved in the distribution of heavy machinery, mining 3m 6m 12m

20,000 -20%
15,000
contracting and mining operation. It is the sole distributor of Komatsu heavy Absolute (%) -24.8 -21.6 -35.3 10,000
-30%
equipment and carries other heavy machinery brands such as Nissan Diesel Relative to JCI (%) -21.3 -16.5 -38.6 5,000
-40%
and Scania heavy duty trucks etc. For mining contracting activities, it 0 -50%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
operates through its 100%-subsidiary, PT Pamapersada Nusantara. UNTR
also run gold mine and construction businesses. Outstanding shrs (mn) 3,730
UNTR 1yr Rel. to JCI (RHS)
 Soft heavy equipment demand remains despite a slight recovery. United Financial Highlights
Tractors (UNTR) saw its monthly heavy equipment sales rebounding by 2017A 2018A 2019F 2020F 2021F
15.6% MoM to 237 units in Aug-19 (but - 48% YoY). This brings 8M19 Revenue (Rpbn) 64,559 84,625 88,350 90,178 97,630
sales volume to 2,359 units (-26.7% YoY). On overburden removal, Pama’s Operating profit (Rpbn) 10,756 16,770 17,166 17,296 18,625
volume still increased by 6% to 655.3 mn bcm and met 72% of our FY19F Net profit (Rpbn) 7,403 11,126 11,432 11,534 12,520
of 907 mn bcm. From its own mining, UNTR produced 6.1 mn tons of coal EPS (Rp) 1,984.6 2,982.6 3,064.8 3,092.1 3,356.5
(+9% YoY) and achieved 69% of our FY19F. As for gold operation, UNTR
EPS growth (%) 48.0 50.3 2.8 0.9 8.6
reported 268 k oz gold production.
EV/EBITDA (x) 4.2 3.4 3.4 3.3 2.9
PER (x) 10.4 6.9 6.7 6.6 6.1
 High gold prices have a gold lining. We believe earnings from gold unit
PBV (x) 1.7 1.4 1.2 1.1 1.0
could mitigate potential earnings decline in heavy equipment unit given
Dividend yield (%) 3.3 4.7 5.9 6.0 6.2
its tick margin and solid gold prices. The company has hedged 80% its
gold sales volume target until Jan-21 in a combination of forward, put ROE (%) 16.3 20.7 18.3 16.6 16.2
option, and zero collar schemes at USD1,350-1,400/oz. Assumptions

2017A 2018A 2019F 2020F 2021F
 We have Buy rating on UNTR with TP of Rp25,000. We continue to like Komatsu sales vol (units) 3,788 4,878 3,650 3,380 3,718
UNTR on its solid balance sheets (net cash), strong cash flow generation , Pama coal prod (mn tons) 112.6 125.1 131.4 137.9 144.8
solid management as well as attractive valuation. The stock is now Pama OB (mnbcm) 800.8 880.9 907.3 925.5 971.7
trading near 6.6x 2020F PER (near -2stdev) vs. historical average of
Coal sales (k tons) 7,949 7,666 8,913 10,309 10,724
12.6x.
197
United Tractors
Gross profit 14,484 21,110 21,697 21,920 23,632 Chg in working cap. -141 1,134 -9,199 -238 -1,250
Oper. expenses -3,727 -4,340 -4,531 -4,624 -5,006 Other 1,185 2,075 8,466 -4,200 -322
Interest income 1,016 764 337 260 235 Others -4,155 -17,940 7,340 -162 -624
Interest expense -874 -1,438 -1,235 -1,512 -1,549 CF-Investing activities -10,951 -27,730 -11,361 -9,642 -10,318
Other income (exp.) -372 -388 -373 43 160
Net change in debt 3,664 5,301 -2,133 188 671
Pre-tax profit 10,523 15,709 15,896 16,087 17,472
Income tax -2,849 -4,210 -4,053 -4,102 -4,455
Other financing -777 -240 -655 428 413
Net profit 7,403 11,126 11,432 11,534 12,520
CF-Financing activities 371 1,422 -7,275 -3,970 -3,647
Net cash flow 1,371 -7,348 -3,091 -972 3,114

Balance Sheet
Key Ratios
Inventory 7,855 13,618 15,191 15,578 17,123
2017A 2018A 2019F 2020F 2021F
Other curr, asset 5,961 6,458 8,646 8,796 9,410
Revenue gr. (%) 41.8 31.1 4.4 2.1 8.3
Fixed assets - net 16,375 24,585 27,919 31,169 33,984
Net profit gr. (%) 48.0 50.3 2.8 0.9 8.6
Gross margin (%) 22.4 24.9 24.6 24.3 24.2
Total asset 82,262 116,281 112,516 121,148 132,554
EBITDA margin (%) 22.1 25.3 24.9 25.3 25.4
Acct, payable 20,239 32,673 26,020 26,647 28,888
Net margin (%) 11.5 13.1 12.9 12.8 12.8
ROA (%) 9.0 9.6 10.2 9.5 9.4
Other curr. liab 5,452 8,614 5,497 5,924 6,161
ROE (%) 16.3 20.7 18.3 16.6 16.2
Long term debt 2,748 2,959 1,962 2,009 2,178
198
COAL SECTOR
199
Coal
Neutral
Sector Outlook
 Tepid demand from China Exhibit 170: 9M19 China power plant inventory
China coal port inventory inched lower by 0.5% MoM to 21.8 mn tons in
September, a sign of a tepid demand for thermal coal as oversupply
20
remains a problem. Though, there are some encouraging sign as inventory
level in China coal power plant inventory inched lower by 4% to 15.7mn 18
tons, caused by a number of small to medium power plant restocking in
this brief period. In reality inventory still remains alarmingly high with 16
China’s port coal inventory never dropping below 19 mn ton this year.
Uncharacteristic high level of inventory during this winter season spells 14
trouble for seaborne thermal coal.
12
Exhibit 169: 9M19 China port coal inventory
10
24
8
22
Sep-16
Sep-17
Sep-18
Nov-16
Nov-17
Nov-18
Jul-16
Jul-17
Jul-18
Jul-19
Mar-16
Mar-17
Mar-18
Mar-19
Jan-16
Jan-17
Jan-18
Jan-19
May-16
May-17
May-18
May-19
20
18
Source: Bloomberg
16  China coal output slowed but is expected to pick up again
14
Recently, mines in inner Shanxi Mongolia was hit by some Inspection which
resulted in production inching lower by 3.6% YoY to 50.2 mn tons in August.
12 However, between the month of May and September 2019 China’s coal spot
price in the Qinhuangdao port averaged 592 Yuan/ton, compared to a
10
government favored price of below 570 Yuan/ton. In our view, with the
Sep-16
Sep-17
Sep-18
Nov-16
Nov-17
Nov-18
Mar-16
Jul-16
Mar-17
Jul-17
Mar-18
Jul-18
Mar-19
Jul-19
Jan-16
Jan-17
Jan-18
Jan-19
May-16
May-17
May-18
May-19
completion of mine inspections in Shanxi, china coal miners will still seek
to take advantage of the high prices thus pushing its production levels in
2H19.
Source: Bloomberg
200
Exhibit 174: Coal Miner production output
Exhibit 173: Qinhuangdao coal port price
Production Output (Mn Tons) 2018A 2019F YoY 2020F YoY
1100 Yuan/ton 140 ADRO 54.0 55.6 3% 57.5 3%
130 PTBA 26.4 28.0 6% 29.1 4%
1000
ITMG 22.1 24.8 12% 26.6 7%
120
900 HRUM 4.1 4.8 17% 5.4 13%
110
Average 10% 7%
800 100
Source: Ciptadana estimates and company data
700 90
80  Coal price outlook
600 Benchmark coal price has recently slumped to USD65.3/ton, the lowest
70 level since 2016, in light of rising China onshore production, decelerating
500
60 thermal power output due to tame summer and expected tamer winter
400 weather. Furthermore, the recent Chinese Yuan depreciation,
50
uncharacteristically high inventory levels in China’s port and power plants
300 40 is incremental disincentives for China coal imports. As such we maintain
our coal price forecast at USD81,0 and 76,5/ton in FY19 and FY20.
Exhibit 175: Coal Benchmark price

Qinhuangdao spot price (LHS) Newcastle Coal Spot Price (RHS) 120 USD/ton
101
Source: Bloomberg 100
88
81
 Indonesian coal production shows no sign of slowing down 80 76.5 75
71
Recently, the Ministry of Energy and Mineral Resources (ESDM) has upped 65
59
its allocated coal production level at 530 mn ton. So far in 1Q19 according to 60
ESDM Indonesia has produced 118mn ton or 22.3% of its yearly target. With
coal miners in our coverage have all reported an improved 2Q19 production 40
despite unfavorable weather and the ramadhan holidays, further flooding
the market with seaborne thermal coal. Furthermore, in our view coal 20
miners under our coverage will increase their production level by an
average of 7% in FY20F.
0
2014 2015 2016 2017 2018 2019F 2020F 2021F
Source: Bloomberg and Ciptadana estimates
201
 Maintain neutral rating with ADRO our top pick
We maintain our Neutral rating for coal sector, despite recent slight
marginal price recovery in benchmark prices with the incoming winter
season in China. We see coal prices will still be under pressure as China is
most likely to maintain its import limitation policy and oversupply remains
rampant. As such, miners under our coverage has begun taking a
defensive stance by improving cost efficiency to maintain a healthy bottom-
line. Our top pick for this sector is ADRO because of its integrated mining
system, strong production outlook and diverse portfolio, with recent 1H 19
results highlighting their ability to maintain efficiency and cost cutting
despite a boost in production output.
Exhibit 176: Coal stocks rating and valuation

Ticker Rating (Rp tn) Price Price pot.(%) 2019F 2020F 2019F 2020F 20F
(%) 20F (%)
ADRO Hold 41.1 1,285 1,350 5.1 5.6 6.5 3.2 3.1 10.2 4.5
PTBA Hold 28.6 2,490 2,550 2.4 7.4 8.6 4.2 4.8 21.1 10.8
ITMG Hold 28.5 12,800 13,650 6.6 10.1 12.0 4.8 5.2 10.8 9.8
HRUM Hold 6.4 1,350 1,340 -0.7 10.3 9.8 1.4 1.3 7.8 3.0
Sector Neutral 104.6 8.4 9.2 3.4 3.6 12.5 7.0
202
Adaro Sector
Bloomberg Ticker
Coal
ADRO IJ

1,800
10%
1,600
-10%
1,000
ADRO is one of Indonesian largest integrated coal mining through its 3m 6m 12m 800 -30%
subsidiaries. Its business activities include mining, barging, shiploading, Absolute (%) -5.5 -4.1 -31.1 600 -40%
400
dredging, port services, marketing and power generation The company’s Relative to JCI (%) -3.5 -0.7 -37.3 200
-50%
0 -60%
major mine site is located at Tabalong district, South Kalimantan province, 52w High/Low price (Rp) 1,900/1,010
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
where it mostly produces Envirocoal, a sub-bituminous, moderate heat-
value, low-pollutant coal. The company also produces coking coal, an ADRO 1yr Rel. to JCI (RHS)
irreplaceable inputs for the production of steel.

 ADRO’s integrated mining business key in maintaining efficiency 2017A 2018A 2019F 2020F 2021F
Judging from ADRO’s 1H19 results, ADRO was able to maintain lower its Revenue (USDmn) 3,258 3,620 3,508 3,297 3,382
strip ratio to 4.46x despite a 7% QoQ increase in overburden volume and Operating profit (USDmn) 952 1,016 807 658 606
a 7.1% QoQ production volume. This is a testament to ADARO’s ability in Net profit (USDmn) 483 418 534 451 468
maintaining stringent cost control and key to maintaining a healthy EPS (US$Cents) 1.5 1.3 1.7 1.4 1.5
bottom line. EPS growth (%) 44.4 -13.6 27.9 -15.6 3.8
EV/EBITDA (x) 2.3 2.5 3.2 3.1 2.9
 Diverse portfolio helped in contributing a healthy bottom-line. Despite PER (x) 6.3 6.8 5.6 6.5 6.2
Hard coking coal price falling by 36% Ytd to USD146/ton in mid
PBV (x) 0.9 0.8 0.7 0.7 0.6
September; in our view, Kestrel mine will still contribute favourably
Dividend yield (%) 3.4 7.8 3.5 4.5 3.9
towards ADRO’s earnings at USD91.9 mn – USD85.9 mn (17%-19% of our
ROE (%) 13.9 11.4 13.1 10.2 9.8
FY19-20F earnings). Furthermore, ADRO’s power business will also be
able to contribute more this year adding another 1% towards ADRO’s Assumptions
FY19-20F bottom-line. 2017A 2018A 2019F 2020F 2021F
Newcastle (USD/ton) - avg 88.0 101.0 81.0 76.5 75.0
 HOLD rating with TP of Rp1,350/share We maintain ADRO as our top pick
ASP (USD/ton) 58.7 61.6 59.1 53.6 52.5
among the coal miner. We like ADRO because of its integrated mining
Cash cost (USD/ton) 26.8 30.5 28.4 27.9 27.9
system, strong production outlook and diverse portfolio. Furthermore, we
Sales volume (mn ton) 51.8 54.4 55.6 57.5 60.1
maintain our rating at HOLD on ADRO on a 5.1% upside potential to our
TP. Thomas Radityo +62 21 2557 4800 Ext.795 radityothomas@ciptadana.com
203
Adaro
Gross profit 1,142 1,210 1,091 942 890 Chg in working cap. -210 154 -83 161 -8
Oper. expenses -190 -194 -284 -285 -284 Other -47 -97 63 54 52
Oper. profit 952 1,016 807 658 606 CF-Oper activities 551 783 768 971 843
EBITDA 1,276 1,325 1,061 962 936 Capital expenditure -206 -354 -642 -484 -498
Other income (exp.) 12 -141 23 23 23
Net change in debt -57 61 719 -35 -427
Pre-tax profit 930 821 791 668 693
Income tax -393 -343 -198 -167 -173
Other financing -17 -15 0 0 0
Net profit 483 418 534 451 468
CF-Financing activities -176 -177 615 -169 -540
Net cash flow 130 -279 736 313 -201

Balance Sheet
Cash - begin of the year 1,077 1,207 928 1,664 1,976
Cash - end of the year 1,207 928 1,664 1,976 1,775
Key Ratios
Inventory 85 112 115 108 139
2017A 2018A 2019F 2020F 2021F
Revenue gr. (%) 29.1 11.1 -3.1 -6.0 2.6
Operating profit gr. (%) 62.0 6.8 -20.6 -18.5 -7.9
Fixed assets - net 3,862 3,907 4,295 4,474 4,642
Net profit gr. (%) 44.4 -13.6 27.9 -15.6 3.8
Gross margin (%) 35.0 33.4 31.1 28.6 26.3
Total asset 6,815 7,062 8,235 8,687 8,704
EBITDA margin (%) 39.2 36.6 30.2 29.2 27.7
Acct, payable 279 342 323 314 341
Net margin (%) 14.8 11.5 15.2 13.7 13.8
ROA (%) 7.1 5.9 6.5 5.2 5.4
Other curr. liab 258 255 219 347 355
ROE (%) 13.9 11.4 13.1 10.2 9.8
Long term debt 1,156 1,214 1,962 2,030 1,691
Total liab + SHE 6,815 7,062 8,235 8,687 8,704 Net debt to equity (x) Net Cash 0.1 0.1 0.0 Net Cash
204
Harum Energy Sector

Bloomberg Ticker
Coal
HRUM IJ
HOLD TP: Rp1,340 (-0.7%) Share Price Performance

Last Price
3,000 10%
0%
1,350 2,500
(Rp) -10%
Harum Energy is an Indonesia-based holding company which owns several 3m 6m 12m
1,500
-30%
subsidiaries engaged in coal mining and logistic activities in East Kalimantan. Absolute (%) -9.4 -4.3 -45.1 1,000
-40%
It operates a vertically integrated supply chain linking from its mine-sites to Relative to JCI (%) -7.4 -0.8 -51.3 500 -50%
the offshore ship loading. The company owns its infrastructure, such as 0 -60%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
hauling roads, ports, coal processing plants, fleet of tugboats and barges and
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
has preferential access to floating cranes. Outstanding shrs (mn) 2,704
Mkt. Cap (Rpbn/USDmn) 3,650/258 HRUM 1yr Rel. to JCI (RHS)
 Steady production growth ahead. Due to pre-striping activities in 1Q19, Financial Highlights
we expect the company to increase its coal productivity and waste 2017A 2018A 2019F 2020F 2021F
removal in 3Q19. Management stated that coal productivity in Mahakam Revenue (USDmn) 326 337 338 364 358
Sumber Jaya (MSJ) is predicted to double in 2H19 compared to 1H19 due Operating profit (USDmn) 72 51 38 40 30
to equipment availability and new working areas. Furthermore, with Net profit (USDmn) 45 32 26 27 20
Karya Usaha Pertiwi (KUP) started its production in 3Q19 should help EPS (US$Cents) 1.7 1.2 1.0 1.0 0.7
boost coal output for HRUM. As such, we can expect further improvement
EPS growth (%) 239.1 -29.7 -19.1 3.2 -24.9
in production volumes in 2H19 and maintain our production target
EV/EBITDA (x) 0.0 0.6 1.4 1.3 1.5
estimate at 4.8mn ton for FY19 (vs. company guidance at 5.0mn ton).
PER (x) 5.9 8.0 10.3 9.8 12.9
PBV (x) 0.9 0.8 0.8 0.8 0.7
 Company aiming to lower its strip ratio going forward in order to
Dividend yield (%) 8.9 17.9 2.9 3.0 2.3
maintain efficiency and cash cost, HRUM will focus on more easily
accessible mining area in order to both boost production numbers, ROE (%) 14.4 10.5 8.0 7.8 5.7
maintaining efficiency and lower strip ratio. The company currently Assumptions
recorded 1H19 strip ratio of 10.9x and is expected to lower it further to 2017A 2018A 2019F 2020F 2021F
10.5x in 2H19. Newcastle (USD/ton) - avg 88.0 101.0 81.0 76.5 75.0
ASP (USD/ton) 65.7 71.2 60.7 58.1 57.0
 HOLD rating with TP of Rp1,340/share. We have hold rating on HRUM Cash cost (Rp k/ton) 55.6 59.7 46.8 45.2 45.9
on a 0.7% downside potential to our DCF-based TP of Rp1,340/share.
Sales volume (mn ton) 4.8 5.2 5.3 6.0 6.0
205
Harum Energy
Gross profit 112 101 89 96 86 Chg in working cap. -11 -39 7 -10 2
Oper. expenses -40 -50 -51 -55 -56 Other 1 15 -26 2 1
Other income (exp.) -1 -6 -3 -3 -3
Pre-tax profit 73 48 40 41 31
Income tax -17 -8 -10 -10 -8
Net profit 45 32 26 27 20
Net cash flow 36 -50 -17 -6 0

Balance Sheet
Key Ratios
Inventory 12 35 27 30 30
2017A 2018A 2019F 2020F 2021F
Revenue gr. (%) 50.0 3.4 0.4 7.7 -1.8
Operating profit gr. (%) 123.4 -29.2 -25.0 4.9 -24.8
Fixed assets - net 81 82 97 109 120
Net profit gr. (%) 239.1 -29.7 -19.1 3.2 -24.9
Gross margin (%) 34.4 30.1 26.4 26.2 24.2
Total asset 459 468 467 493 511
EBITDA margin (%) 24.7 19.4 14.1 14.3 12.1
Acct, payable 31 42 28 31 31
Net margin (%) 13.9 9.4 7.6 7.3 5.6
ROA (%) 9.9 6.8 5.5 5.4 3.9
ROE (%) 14.4 10.5 8.0 7.8 5.7
Total liab + SHE 459 468 467 493 511 Net debt to equity (x) Net Cash Net Cash Net Cash Net Cash Net Cash
206
Indo Tambangraya Sector

Bloomberg Ticker
Coal
ITMG IJ
Last Price (Rp) 12,800 25,000

0%
-10%
-20%
ITMG is one of leading coal mining companies in Indonesia. The company 3m 6m 12m
15,000 -30%
-40%
operates several mining concessions in Kalimantan island. Through its Absolute (%) -27.1 -46.2 -50.8
10,000
-50%
subsidiary, the company also operates a coal terminal and power plant in Relative to JCI (%) -25.0 -42.7 -56.9 5,000
-60%
East Kalimantan. ITMG is majority owned by Thailand-based company, 0 -70%

Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
Banpu.
ITMG 1yr Rel. to JCI (RHS)
 Hard times ahead. With coal price expected to remain bearish for the
foreseeable future. In response, we estimate FY20F earnings to fall Financial Highlights
further by 17% to USD87 mn despite an increase in sales volume. 2017A 2018A 2019F 2020F 2021F
Revenue (USDmn) 1,690 2,008 1,809 1,777 1,811
 Low oil price is an unexpected boon for ITMG. We currently believe that Operating profit (USDmn) 388 436 142 120 129
ITMG may not be able to reduce its strip ratio significantly (10x at
Net profit (USDmn) 243 268 105 87 93
average), given its relatively low mining life (13-15 years). However,
EPS (US$Cents) 21.5 23.8 9.3 7.7 8.2
recent drop in oil price will give the company an unexpected boon as it
EPS growth (%) 85.9 10.5 -61.0 -17.3 7.5
will help lower the company cash costs. Recall that fuel costs account for
EV/EBITDA (x) 1.6 1.3 4.8 5.2 4.6
30% of ITMG’s cash costs.
PER (x) 4.4 3.7 10.1 12.0 10.9
 The 100% dividend payout policy to remain. We do believe ITMG’s 100% PBV (x) 1.1 1.0 1.3 1.3 1.3
dividend payout policy is likely to sustain given Banpu’s cash needs. Dividend yield (%) 18.7 24.5 24.2 9.8 8.3
However it will not be able to sustain its previous years high yield due to ROE (%) 25.4 27.7 12.8 10.8 11.5
lower estimated earnings. Thus, we estimate ITMG’s FY20F dividend yield
Assumptions
at 9.8%.
2017A 2018A 2019F 2020F 2021F
 HOLD rating with TP of Rp13,650. Despite ITMG’s attempt to maintain Newcastle (USD/ton) - avg 88.0 101.0 81.0 76.5 75.0
and lower their cash cost, we believe ITMG’s earnings may be under risk ASP (USD/ton) 73.0 81.0 70.5 66.6 65.3
in a weak coal-price environment. Furthermore, we maintain our rating to Cash cost (Rp k/ton) 55.6 59.7 46.8 45.2 45.9
HOLD on ITMG on a 6.6% upside potential to our TP. Sales volume (mn ton) 23.1 23.5 25.5 26.6 27.6
207
Indo Tambangraya
Gross profit 505 584 290 264 279 Chg in working cap. -23 -35 6 13 18
Interest income 3 1 8 4 4 Others -17 -6 0 0 0
Interest expense -1 0 0 0 0 CF-Investing activities -64 -55 -81 -62 -63
Pre-tax profit 352 377 150 124 133
Net change in equity 0 -5 0 0 0
Income tax -109 -109 -45 -37 -40
Net profit 243 268 105 87 93
Net cash flow 46 -6 -182 -12 19

Balance Sheet
Key Ratios
Inventory 109 108 116 116 118
2017A 2018A 2019F 2020F 2021F
Revenue gr. (%) 23.5 18.8 -9.9 -1.7 1.9
Operating profit gr. (%) 86.1 12.2 -67.4 -15.4 8.0
Fixed assets - net 239 243 286 302 316
Net profit gr. (%) 85.9 10.5 -61.0 -17.3 7.5
Gross margin (%) 29.9 29.1 16.0 14.8 15.4
Total asset 1,359 1,443 1,260 1,242 1,267
EBITDA margin (%) 25.9 24.0 9.9 9.4 9.9
Acct, payable 153 194 158 158 160
Net margin (%) 14.4 13.4 5.8 4.9 5.1
ROA (%) 17.9 18.6 8.3 7.0 7.3
Other curr. liab 175 196 193 185 192
ROE (%) 25.4 27.7 12.8 10.8 11.5
Shareholder equity 958 970 819 804 813 Interest cover (x) 550.9 n.m n.m n.m n.m
208
Bukit Asam Sector

Bloomberg Ticker
Coal
PTBA IJ
HOLD TP: Rp2,550 (+2.4%) Share Price Performance 5.000

4.500
30%
20%
Last Price (Rp) 2,490 4.000
10%
3.500
Company Profile 3.000 0%
PTBA is a state-owned coal mining company with 1.99 bn tons of reserves. Its 3m 6m 12m
2.500
2.000
-10%
-20%
business activities include conducting coal mining operation, coal trading, Absolute (%) -14.1 -40.0 -39.4 1.500
-30%
coal-based power generation, and investment business. Its main coal-mining Relative to JCI (%) -13.1 -37.5 -45.8
1.000
500 -40%
concession is located in Tanjung Enim, South Sumatra. It is a state-owned 0 -50%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
company, with the government as its major shareholder.
PTBA 1yr Rel. to JCI (RHS)
 Increased coal hauling capacity in 2020 expected Kertapati and Tarahan
railways is expected to start full operational activities by 2020 with Financial Highlights
capacity of 5 mtpa and 20.3 mtpa. These projects are expected to reduce 2017A 2018A 2019F 2020F 2021F
an estimated of Rp100k/ton of the transport cost according to Revenue (Rpbn) 19,471 21,167 20,604 20,573 21,178
management. Operating profit (Rpbn) 5,899 6,283 5,211 4,464 4,010
Net profit (Rpbn) 4,476 5,024 3,964 3,418 3,112
 Diversification to limit impact of coal volatility Currently the coal EPS (Rp) 388.6 436.1 344.1 296.7 270.2
gasification project is entering the bankable feasibility study phase and is EPS growth (%) 123.1 12.2 -21.1 -13.8 -9.0
on the process of land acquisition stage. Furthermore, the companies EV/EBITDA (x) 4.1 3.4 4.2 4.8 5.3
Sumsel 8 2x620 MW coal power plant project is expected to finish its 1st
PER (x) 6.6 5.8 7.4 8.6 9.4
phase in 2021 and 2nd phase in 2022.
PBV (x) 2.2 1.8 1.8 1.8 1.8
Dividend yield (%) 2.8 9.4 13.7 10.8 9.3
 Ready to export high calorie coal. PTBA expects to produce around 3.8
ROE (%) 32.9 31.4 24.8 21.1 18.8
mn tons of high-calorie coal (6,400 kcal) in FY19F, with strong indication
from the management to produce more in 2020. Assumptions
2017A 2018A 2019F 2020F 2021F
 HOLD rating at TP of Rp2,550/share Despite unexciting coal price outlook, Newcastle (USD/ton) - avg 88.0 101.0 81.0 76.5 75.0
PTBA still holds some advantage over its peers due to its i) steady ASP (Rp k/ton) 769 835 700 687 693
production growth. ii) Steady rail development to increase cost efficiency. Cash cost (Rp k/ton) 536 456 451 454
497
iii) DMO quota sales will begin earlier compared to last year providing extra Sales volume (mn ton) 23.6 24.7 26.4 28.0 29.4
income. As such we have HOLD rating for PTBA on a 2.4% upside potential
to our TP.
209
Bukit Asam
Gross profit 8,507 8,546 7,650 7,035 6,776 Chg in working cap. -3,295 2,793 -124 -17 -58
EBITDA 6,379 6,829 5,617 5,160 4,833 Capital expenditure -763 -894 -523 -2,123 -2,184
Interest income 185 326 163 179 197 Others 135 -413 145 -119 -107
Interest expense -104 -104 -101 -101 -104 CF-Investing activities -629 -1,307 -378 -2,243 -2,291
Other income (exp.) 122 352 286 285 292
Net change in debt -1,271 -16 -2 -2 -2
Pre-tax profit 6,102 6,858 5,559 4,828 4,396
Income tax -1,554 -1,737 -1,584 -1,400 -1,275
Dividend payment -823 -2,774 -4,019 -3,171 -2,735
Net profit 4,476 5,024 3,964 3,418 3,112
Net cash flow -119 2,746 -110 -1,232 -1,061

Balance Sheet
Key Ratios
Inventory 1,156 1,551 1,491 1,558 1,657
2017A 2018A 2019F 2020F 2021F
Other curr, asset 1,338 1,379 1,379 1,379 1,379
Revenue gr. (%) 38.5 8.7 -2.7 -0.2 2.9
Operating profit gr. (%) 133.1 6.5 -17.1 -14.3 -10.2
Fixed assets - net 6,199 6,548 6,665 8,092 9,453
Net profit gr. (%) 123.1 12.2 -21.1 -13.8 -9.0
Gross margin (%) 43.7 40.4 37.1 34.2 32.0
Total asset 21,987 24,173 24,137 24,514 25,107
EBITDA margin (%) 32.8 32.3 27.3 25.1 22.8
Acct, payable 886 1,048 864 902 960
Net margin (%) 23.0 23.7 19.2 16.6 14.7
Advances received 971 1,274 1,455 1,534 1,650
ROA (%) 20.4 20.8 16.4 13.9 12.4
Other curr. liab 2,357 2,528 2,526 2,476 2,453
ROE (%) 32.9 31.4 24.8 21.1 18.8
Long term debt 36 233 232 230 229
210
OIL AND GAS
211
Oil and gas

Overweight
Sector Outlook
 Anticipating slower growth of global oil demand Due to a global economic slowdown, EIA forecasts global crude oil
consumption will only increase by 0.89 mn b/d to 100.82 mn b/d in 2019
Global economic indicators continued to decline, contributing to oil price and by 1.4 mn b/d to 100.22 mn b/d in 2020. Meanwhile, Chinese imports
declines and volatility. Manufacturing Purchasing Managers’ Indices (PMIs), of U.S. crude oil have decreased significantly by 56% in 1H19 to 36.1 mn
which can serve as a leading indicator for economic growth, from several barrel due to trade dispute, and China has imported more from other
countries for August showed a contraction in manufacturing activity. At countries.
49.5 in Aug-19 it was only improved slightly from 49.3 in Jul-19, which is
the lowest level since Oct-12. China, Japan, Germany, South Korea, Taiwan,
France, the UK, Italy and Brazil were among the countries seeing Exhibit 178: U.S. Exports to China of crude oil (mn barrel)
contractions.
180
Exhibit 177: Global PMI 163.2
160
136.7
55 140
120
54
100
81.6
53 80 69.9 74.2
60
52 36.1
40
51 20
0
50
2015 2016 2017 2018 1H18 1H19
49
Source: EIA
48
Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19
Source: Bloomberg
212
 Increasing supply add to glut concern  Lower oil price forecasts for next year
The IEA predicts non-OPEC supply to expand by 2.1 mn barrels per day this Weak consensus macro-economic growth forecasts have implications of
year and by another 2.2 mb/d in 2020, with demand growth figures running weaker global oil demand growth. Although we don’t expect oil prices to
at about half those levels. The oil surpluses is largely predicated on trade significantly lower for a long period of time, we do see these events
deterioration in demand at a time when supply continues to grow. Most of as a reason to tone down our oil price forecasts. We maintain our average
the global supply growth is coming from U.S. shale, which makes the pace FY19F Brent oil price of USD 63/bbl and WTI oil price of USD58/bbl,
of shale growth highly important to the forecast. The IEA prediction of a respectively. However, as for FY20F, we have lower average Brent oil price
well-supplied oil market in 2020 depends on its forecast for faster non- at USD 60/bbl and WTI of USD 56/bbl. Brent crude oil spot prices averaged
OPEC supply growth outside North America. The IEA report expects this to USD64.7/bbl in 9M19, down by 10% from the average 9M18 of
rise from 0.21 mn b/d in 2019 to 0.85 mn b/d in 2020, largely driven by USD72.2/bbl.
soaring U.S. production. EIA also expected fall in OPEC crude supply by 1.91
mn b/d to 35.38 mn b/d in 2019 and by 0.70 mn b/d in 2020. An expected The price difference between Brent and WTI has been swing between
fall in OPEC demand highlights the sustained boost its policy of supply cuts USD3-11/bbl in the last two years. Global economic trends as well as the
is giving to U.S. shale and other rivals. tensions in the Middle East are better reflected on Brent than in WTI price,
which are mainly driven by developments in the US.
Exhibit 179: Global crude oil supply and demand Exhibit 180: Brent and WTI crude oil price
Supply & Consumption (mn b/d) 2017 2018 2019 2020
Non-OPEC Production 60.75 63.5 65.68 67.89 90
(USD/bbl)
85
OPEC Production 37.37 37.29 35.38 34.68
80
Total World Production 98.11 100.79 101.06 102.57
75
OECD Commercial Inventory 2,844 2,861 2,911 2,978 70
Total OPEC surplus crude oil production 2.03 1.49 2.06 2.01 65
capacity 60
OECD Consumption 47.35 47.52 47.47 47.76 55
Non-OECD Consumption 51.24 52.41 53.35 54.45 50
Total World Consumption 98.59 99.93 100.82 102.22 45
40
Source: EIA Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19
WTI Brent
Source: Bloomberg
213
 Upside risks to oil price assumption  Our stock picks and stock ratings
We believe there are still several upside risks which could affect our Medco is our top pick in oil & gas space as around 66% oil Medco’s oil and
unconvincing assumptions. Oil price could go higher than our forecast if : gas revenue are linked to oil price movements Ophir acquisition will bring
1) The US and China could come reach trade agreement which would significant potential volume increase going forward. We also continue to
trigger a positive impulse to market sentiment as well as expectations for like PGAS as we believe it has a strong monopoly on downstream gas
future oil demand, driving an significant recovery in oil prices. 2) business in Indonesia post Pertagas acquisition last year with the
Escalation tensions in the Middle East could disturb transportation of oil rationale for the transaction is to eliminate the potential for intense
through the Strait of Hormuz which could trigger a strong oil price rally. 3) competition or even one of the gas distributors to gain monopolistic power,
Arab Saudi could cut its production deeper production or to increase allowing the country to achieve better natural gas pricing.
tensions in the region to push oil prices higher. 4) Fed cut interest rates
lower than our 50bps assumption in 2020, which should support
commodity prices, including oil.
 Pipeline gas distribution outlook remains steady Exhibit 181: Oil and gas sector rating and valuation
Natural gas is among the most environmentally-friendly and economical
source of energy compared with other fossil fuels. As Indonesia’s 20F 20F
population continues to grow and standard of living continues to improve, (%) (%)
so will demand for natural gas. We expect Indonesia pipeline gas demand MEDC Buy 13.0 730 1,150 57.5 10.4 6.7 5.3 4.7 9.6 0.0
growth to steadily increase by 2.0% CAGR in 2019-21 from 772 mmscfd to PGAS Buy 52.3 2,160 2,410 11.6 16.3 11.7 4.7 4.1 11.3 3.4
1,016 mmsfcd, respectively, as electricity demand picks up and industrial Sector OW 65.3 13.4 9.2 5.0 4.4 10.5 1.7
customer intensity rises. We believe chemicals, food, ceramics and power
will support our expectation.
Meanwhile, the government of Indonesia capped natural gas trader profit

margins at 7% in rules released in 2018 by the Ministry of Energy and Despite the reduced investment and activity, SKK Migas estimated that
Mineral Resources. Internal rate of return (IRR) for conventional gas Indonesia total oil production would touch 828,000 bopd, higher than the
infrastructure management capped at 11% per year, companies operating 825,000 bopd projected in the state budget. Additional production from Banyu
in areas without other infrastructure can propose IRR of up to 12%. We Urip
believe this “7/11” regulation reduce overhang of potential lower margin if Despite the reduced investment and activity, SKK Migas estimated that
users ask for lower gas price going forward. Indonesia
214
Medco Sector
Bloomberg Ticker
Oil and gas
MEDC IJ

25%
Last Price (Rp) 730 1,000 20%
15%
Company Profile 10%
5%
Medco Energi Internasional primarily engages in oil and gas exploration, 3m 6m 12m
600
0%
-5%
development and production. Through its subsidiaries and associates, it is Absolute (%) -9.9 -18.9 -28.8 400
-10%
also engaged in gas distribution, power plants operation and building leasing. Relative to JCI (%) -7.9 -15.4 -35.0 200 -15%
-20%
Its coal concession area is located in Nunukan, Indonesia. MEDC officially 0 -25%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
acquired a 50 % stake owned by PT Amman Mineral Investama (AMI), which
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
controls an 82.2% stake of PT Newmont Nusa Tenggara (NNT) in 2016 which Outstanding shrs(mn) 17,839
operate second largest copper and gold mine in Indonesia. The company also Mkt. Cap (Rpbn/USDmn) 13,022/919 MEDC 1yr Rel. to JCI (RHS)
successfully acquired Ophir Energy Plc in May-19. Estimated free float (%) 63.4
Key Points 2017A 2018A 2019F 2020F 2021F
 Ophir acquisition boosted volume significantly. Oil and gas production Revenue (USDmn) 926 1,218 1,365 1,567 1,826
will increase from 96 mboepd, to 120 mboepd after Ophir full Operating profit (USDmn) 269 472 528 574 688
consolidation. MEDC will integrate Ophir’s SEA operations efficiently and Net profit (USDmn) 127 -51 91 140 182
safely and execute Bualuang & Meliwis development projects which EPS (US$Cents) 1.0 -0.3 0.5 0.8 1.0
should offer additional volume.
EPS growth (%) -32.1 n/m n/m 53.4 30.4
 Higher gas volume and price from Blok A. New production from Blok A,
EV/EBITDA (x) 6.3 5.2 5.3 4.7 4.3
Aceh, which is stable at 53 BBTUD and sold at USD9.5/mmscfd has lifted
PER (x) 5.5 -17.6 10.4 6.7 5.0
gas volume and ASP by 21% and 15% , respectively.
PBV (x) 0.6 0.9 0.7 0.6 0.6
 MEDC has also shown solid cash cost reductions. MEDC has seen its
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
cash cost fall by 48% since 2013 to USD9/bbl in 1H19 due to economies
ROE (%) 10.1 -4.9 7.1 9.6 11.0
of scale and cost control.
 Buy rating maintained with TP of Rp1,150. MEDC is currently trading at Assumptions
2020F 4.7x EV/EBITDA, far below historical average of 6.3x. We continue 2017A 2018A 2019F 2020F 2021F
to like MEDC on its strong cash flow generation while we see continued Oil lifting (mbopd) 35.1 34.8 36.1 37.0 38.3
deleveraging process supported by several asset divestment plans such Gas sales (bbtupd) 278.0 262.1 429.1 451.2 488.3
as 51% Api Metra Graha, 35% Rimau and 35% South Sumatra, as well as Avg oil price (USD/bbl) 51.5 68.8 62.9 58.1 62.1
fund raising from warrant exercise and pre-emptive rights issue. Avg gas prc (USD/mmbtu) 5.5 6.0 6.8 6.7 6.7
215
Medco
Revenue 926 1,218 1,365 1,567 1,826 Net income 127 -51 91 140 182
Gross profit 421 632 701 773 920 Chg in working cap. 3 39 2 -2 -57
Oper. expenses -151 -161 -173 -199 -232 Other 24 214 78 -181 -79
EBITDA 433 631 731 840 962
Capital expenditure -284 -61 -1,247 -355 -165
Interest income 32 13 -21 -28 -24
Others 40 -206 46 -273 -366
CF-Investing activities -244 -267 -1,201 -628 -530
Other income (exp.) 135 -96 9 53 93
Pre-tax profit 295 199 307 411 491 Net change in debt 161 257 690 61 155
Minority interest 5 -23 3 5 6 Dividend payment 0 0 0 0 0
Net profit 127 -51 91 140 182 Other financing -103 -423 273 272 70
CF-Financing activities 250 -166 963 333 225
Balance Sheet Net cash flow 324 -71 136 -72 16
Year to 31 Dec (USDmn) 2017A 2018A 2019F 2020F 2021F Cash - begin of the year 165 489 418 554 481
Inventory 89 62 82 98 112 Key Ratios
Fixed assets - net 68 43 88 84 78 Operating profit gr. (%) 76.3 75.1 12.0 8.8 19.8
Other non-curr.asset 3,118 3,199 4,132 4,278 4,242 Net profit gr. (%) -32.1 n/m n/m 53.4 30.4
Total asset 5,161 5,071 6,114 6,544 6,999
Gross margin (%) 45.5 51.9 51.4 49.4 50.4
EBITDA margin (%) 46.8 51.8 53.6 53.6 52.7
Acct, payable 140 122 145 163 174
Net margin (%) 13.7 -4.2 6.7 8.9 10.0
ROA (%) 2.5 -1.0 1.5 2.1 2.6
Other curr. liab 594 489 340 406 464
ROE (%) 10.1 -4.9 7.1 9.6 11.0
Long term debt 2,155 2,394 2,969 2,925 2,870
216
Gas Negara Sector

Bloomberg Ticker
Utilities
PGAS IJ

20%
15%
Company Profile 5%
PGAS is a natural-gas utility company, which run natural gas distribution 3m 6m 12m
1,500
0%
networks in Indonesia's major cities with 95% market share. PGAS also Absolute (%) 2.4 -8.1 -6.1 1,000 -5%
-10%
operates a gas transmission business (87% market share) and earns some Relative to JCI (%) 4.4 -4.6 -12.3 500
-15%
toll fees. PGAS owns and operates natural gas pipelines in excess of more 0 -20%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
than 10,000 km in total length, covering ~ 96% of the national natural gas
pipeline network which is also the longest pipeline network in South-East Outstanding shrs (mn) 24,242
PGAS 1yr Rel. to JCI (RHS)
Asia. PGAS has also upstream portfolio consist of 11 oil and gas in Indonesia. Mkt. Cap (Rpbn/USDmn) 52,362/3,697

 Pertagas acquisition brings a positive impact on volume and 2017A 2018A 2019F 2020F 2021F
profitability. PGAS completed the acquisition of Pertagas in late 2018. We Revenue (USDmn) 3,571 3,870 3,752 3,961 4,337
saw the combined entity generated higher volume and profitability. This Operating profit (USDmn) 480 620 539 612 687
also strengthens PGAS position as market leader with pipeline networks Net profit (USDmn) 197 305 234 320 367
complementing each other. Other potential synergies include securing EPS (US$Cents) 0.8 1.3 1.0 1.3 1.5
higher gas volume from Pertamina which has taken over Indonesia’s
EPS growth (%) -35.3 54.9 -23.4 37.2 14.6
largest gas block Mahakam actively taken offer several oil field from
EV/EBITDA (x) 5.0 4.8 4.7 4.1 3.0
foreign operator such as Mahakam and Rokan fields.
PER (x) 19.6 11.9 16.3 11.7 10.0
 PGAS distribution volume continues trending up. The consolidated
PBV (x) 1.0 1.4 1.4 1.3 1.2
distribution volume grew by 8% MoM from 999 BBTUD. The growth was
Dividend yield (%) 5.7 3.0 4.4 3.4 4.8
mainly contributed from the power sector. As a results, 8M19 distribution
volume increase to 960 BBTUD vs. 953 BBTUD in 8M18. We believe power ROE (%) 5.3 11.8 8.8 11.3 12.1
sector will help boost demand going forward as it posted the highest Assumptions
growth of about 13% so far. 2017A 2018A 2019F 2020F 2021F
 Earnings downside risks from Kepodang field. The company reported
Distribution vol (mmscfd) 755 962 980 998 1,016
supply stop from Kepodang oil field starting on 22 September 2019,
ASP (USD/mmbtu) 8.6 7.9 8.0 8.1 8.2
which is operated by Petronas Carigali Muriah Ltd. Potential earnings
Dist margin (USD/mmbtu) 2.8 2.4 2.3 2.4 2.4
decline imply downside risk of 4-5% to our FY19-20F earnings forecast of
USD234-320 mn
217
Gas Negara
Gross profit 1,182 1,310 1,233 1,321 1,444 Chg in working cap. 71 64 -264 -5 -60
Oper. expenses -702 -689 -694 -708 -756 Other -142 -31 -70 17 -14
EBITDA 1,083 1,201 1,138 1,126 1,321
Capital expenditure 158 -233 138 -167 -167
Others 161 -491 68 -10 -19
CF-Investing activities 319 -724 206 -178 -186
Other income (exp.) 94 103 102 106 103
Pre-tax profit 418 585 458 594 667 Net change in debt -95 755 -1,234 -499 -678
Income tax -165 -220 -165 -214 -240 Net change in equity 0 -752 0 0 0
Net profit 197 305 234 320 367 Other financing -956 31 142 28 41
CF-Financing activities -1,211 -20 -1,260 -600 -813
Balance Sheet Net cash flow -164 175 -556 68 -72
Year to 31 Dec (USDmn) 2017A 2018A 2019F 2020F 2021F Cash - begin of the year 1,304 1,140 1,315 759 827
Cash & cash equivalent 1,241 1,401 845 914 841 Cash - end of the year 1,140 1,315 759 827 755
Total current asset 2,236 2,474 1,673 1,754 1,758 Revenue gr. (%) 21.7 8.4 -3.1 5.6 9.5
Fixed assets - net 2,897 2,961 3,021 2,776 2,410 Operating profit gr. (%) 10.9 29.2 -13.0 13.5 12.3
Total asset 8,183 7,939 6,666 6,410 6,014
Gross margin (%) 33.1 33.8 32.9 33.3 33.3
EBITDA margin (%) 30.3 31.0 30.3 28.4 30.5
Acct, payable 360 449 141 147 162
Net margin (%) 5.5 7.9 6.2 8.1 8.5
ROA (%) 2.4 3.8 3.5 5.0 6.1
Other curr. liab 382 356 543 569 623
ROE (%) 5.3 11.8 8.8 11.3 12.1
Long term debt 2,708 2,763 2,315 1,817 1,152
218
MEDIA SECTOR
219
Exhibit 182: Media firms’ revenue and YoY growth
Media 16,000
CAGR09-14: 13.0%
CAGR14-18: 3.4% 30%
Overweight 14,000
23.8%
25%
12,000 19.3% 20%
10,000 13.3% 6.4%
Sector Outlook 15%
8,000
 Gone are the days of awe 10%
9.0%
Free to air (FTA) TV was once dubbed as the proxy to consumer play in the 6,000
5.2%
4.2% 5%
country, riding on the flourishing middle income amid improving purchasing 4,000
power in Indonesia. Back in the early 2010s, double digit top-line growth was 4.7%
2.4% 0%
2,000
almost a given for the industry (based on numbers from SCMA, MNCN, and -1.7%
VIVA) as CAGR of revenue was recorded at 13.0% in 2009-14. However, those 0 -5%
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H18 1H19
glory days are now gone. Moving along, the story seemed to turn upside down.
Industry’s top-line CAGR decelerated significantly to 3.4% in 2014-18 with Media Revenues (in Rp bn, LHS) YoY growth (RHS)
growth plummeted to negative territory in 2015.
Source: Companies, Ciptadana
We attributed the slowdown to two reasons. Firstly, we believe the economy

slowdown has dented FMCG companies’ sales which in turn lowered their Exhibit 183: FMCG firms’ A&P spending and YoY growth
advertising and promotion (A&P) budget. FMCG companies, ranging from home 14,000 32.7% CAGR CAGR14-18: 5.1% 35%
09-14: 15.8%
& personal care, Food & Beverage and cigarette, are the c.80% of ads buyers in
Indonesia; therefore ads revenues should be linked with their performances. 30%
12,000
We collected data from FMCG companies under our coverage (UNVR, ICBP, 25%
MYOR, KLBF, HMSP, and GGRM) and find that in the period when the sales 10,000
20%
growth is trending down (2013-17), A&P growth tends to be muted which 12.8% 15.6%
14.6% 3.4%
8,000 15%
ultimately affecting media companies’ revenue. As a ratio, the percentage of
A&P expenses to sales ratio was also on a down trend from a high 4.9% in 6,000 10.7% 5.9%
10%
2010 to 3.9% in 2018. 8.7% 4.2% 5%
4,000
0%
2,000
-3.4% -5%
- -10%
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H18 1H19
FMCG A&P Expenses (LHS) Growth (RHS)
220
Exhibit 184: FMCG firms’ sales and YoY growth The second reason is the way the society consumes media. It is no secret that
350,000 CAGR14-18: 7.9% 25% digitalization is disrupting almost every aspects including media consumption
CAGR09-14: 15.0% pattern. Accordingly, advertisers are now incrementally allocating more
300,000 budgets on digital advertisings. Media Partners Asia estimates that FTA TV
20%
250,000
19.6% portion to the ads pie will shrink to 52.7% in 2022 from 56.9% in 2018 with a
16.0% CAGR of only 3% vs. digital ads of 16% in the period. Although we believe that
13.5% 8.9%
200,000 13.1% 15% FTA-TV will remain relevant for at least the medium term, it is clear that the
12.9%
industry is maturing.
150,000 9.2% 10%
9.0%
100,000 In that regards, we have observed steps taken by the media companies to tap
7.6%
5.7% 5% into digital media spheres. SCMA pursue digital diversification via stakes
50,000 acquisition of some companies back in May-19, while MNCN prefers to develop
- 0%
its own digital channels and has announced its plan to form a JV with iQiyi for
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H18 1H19 Over-The-Top (OTT) video service.
FMCG Revenues (LHS) Growth (RHS)

Exhibit 186: Advertising pie share by type
100% 4.7% 3.8% 3.3% 3.3% 3.0% 3.0%
6.5%
90% 13.4%
Exhibit 185: FMCG firms A&P to sales ratio 21.1% 26.2%
80% 24.6% 30.8%
23.0%
5.1% 19.6%
70% 17.1%
14.6%
4.9% 60% 12.2%
4.9%
50%
4.7%
4.6% 4.6% 40%
4.5% 4.5% 66.8% 65.1%
4.4% 30% 62.0% 56.9% 54.8% 52.7%
4.3% 20%
4.4% 4.3%
4.2% 10%
4.1% 0%
4.1%
2012 2014 2016 2018 2020F 2022F
3.9%
4.0%
3.9% FTA-TV Pay-TV Print Digital Others
3.7%
Source: Media Partners Asia, Ciptadana
3.5%
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H18 1H19
221
Exhibit 188: Digital revenue streams: SCMA (left), MNCN (right)
 Drawing fortes from in-house production to support digital revenue
We believe SCMA and MNCN are well-positioned in tapping digital
opportunities. In a nutshell, digital revenue stream is coming from: 1) digital
broadcasts from digital platforms and mobile apps web portals (MNCN: RCTI
Mobile and RCTI+ (launched in Aug-19), SCMA: Vidio.com (basic), 2) Youtube
ads revenue, and 3) web portal (eg. Okezone.com for MNCN, and Liputan6.com
for SCMA). So far, we believe SCMA and MNCN have done well in tapping into
these digital revenue streams. We believe the key competitive advantage lies in
the synergy as part of integrated media companies which are also backed by
strong content production capability. With this strength, SCMA and MNCN could
derive contents from their in-house production houses and the new digital
platforms serve as a new broadcasting avenue for cross-selling their contents.
Exhibit 187: Advertising pie share by type

Rank Site Affiliated group
1 Okezone.com MNCN
2 Google.com Google
3 Tribunnews.com Kompas
4 Youtube.com Google
5 Detik.com Trans
6 Kompas.com Kompas
7 Liputan6.com SCMA
8 Sindonews.com MNCN
9 Grid.id Kompas
10 Blogspot.com Google
11 Google.co.id Google
12 Idntimes.com IDN Media
13 Kumparan.com Net
14 Yahoo.com Yahoo
15 Suara.com Arkadia Media
Source: Alexa, Ciptadana
Source: Company, Various, Ciptadana
222
 Pursuing the “high risk-high reward” Subscription Video on Demand  Vidio.com has its own niche
(SVOD) business model Vidio.com was incorporated in 2014 as a video OTT platform offering FTA-TV
The aforementioned revenue streams are ads-based business model which live-stream and video package stream. Revenue model was ads-base where
typically carries lower risks, especially for an integrated media company that viewers need to watch ads before the content plays. Vidio.com enjoyed a lot of
produces and cross-sells its own contents. However, we believe the pie size attractions during the Asian Games as it is the only legal streaming platform of
for such type of digital ads is not large enough. As per Media Partners Asia, the event. It is now the second most popular online video platform after
total digital/internet ads spending is estimated at Rp8.4 tn in 2019F. A big Youtube with 33mn monthly active user (MAU) in 1H19. SCMA expects
chunk (65-70%) of the share, however, goes to Google and Facebook. The Vidio.com to generate Rp8 bn revenue per month from ads.
balance of 30-35% or c.Rp2.5 tn is shared by a lot of other players in several
formats, including: search engine (other than Google), social media (Twitter, In late-2018, Vidio.com launched premier service, a subscription-base model
LinkedIn, Pinterest, etc), online portal, video streaming (eg. uSee TV, Oona TV, that offers higher quality contents. Key points of difference from other
indoxxi) and other forms of digital ads. platforms are in the exclusive live sports (currently it has already secured
license in Shopee Liga 1, NBA, and MotoGP) and original drama series. It now
Ergo, to expand its revenue base, media companies pursue subscription-based owns 60 K paying subscribers, climbing quickly from 5 K after it secured
revenue model to complement their ads-based model. In this regard, SCMA “Shopee Liga 1” broadcasting right. With a low pricing point (current ARPU of
introduced “premier service” for Vidio.com and MNCN expects to launch an OTT Rp15 K), we see a clear different value proposition of Vidio.com with other
streaming platform (JV with iQiYi) in April 2020. library-heavy platforms such as Netflix or Iflix. In the early phase of
development, we expect Vidio.com to focus on growing the number of paying
Exhibit 189: Digital ads share subscriber by releasing more contents. The Company has mentioned that it
will control content costs stringently. Currently the Company has allocated
c.USD28 bn for content acquisitions which will be reflected in the higher
inventory. SCMA is currently in-talk with some foreign media firms to inject
cash as minority shareholders in Vidio.com. The deal is positive in many fronts;
not only shall it raise fresh funds but it will also bring technical expertise
and/or access to contents to Vidio. SCMA expects to raise c.USD100 mn in the
Others, Rp2.5 transaction for selling up to 50% of its stake.
tn
Google and
Facebook,
Rp5.9 tn
Source: Various, Ciptadana
223
 FTA-TV will stay relevant to Indonesians and remains to be the cash cow  OVERWEIGHT on media; MNCN as top pick
for media companies We are OVERWEIGHT on media sector after the multi-year deratings in the
FTA-TV still forms more than 85% of revenue to both SCMA and MNCN (after industry have hammered valuation to a record low. We believe downsides are
elimination), therefore, having the right contents to maintaining strong limited as current prices have already captured all of the risks but overlooked
audience remains to be the cornerstone of the business. In Sep-19, both the potential rewards of the digital transformation. That said, execution in the
companies retain their dominance in FTA-TV landscape with >30% share, digital business will remain the key to rerating; while at the same, retaining
respectively. Soap operas from RCTI and SCTV remain in the top-rating chart dominance in FTA-TV is also vital for maintaining solid cash flow. We see a
for both companies. mid-single digit FTA-TV ads revenue growth for the industry in next year as we
expect digital companies will continue to be aggressive in increasing coverage
We still see mid to high single digit revenue growth from FTA TV ads driven by through FTA-TV ads. We rated both companies BUY, but prefer MNCN due to
aggressive ads placements from digital companies (Lazada, Tokopedia, stronger earnings momentum and low valuation. On SCMA, short-term
Bukalapak, and Traveloka) and non-time consuming ads. Of late, digital catalysts will be deal closure for Vidio.com.
companies have increasing their ads on FTA TV; according to SCMA, digital
companies contribution reached c.20% in 1H19 from a very marginal number
back in 2015. Recent trend shows that digital companies are scaling up their
ads-spree to the next level; ordering their own two-hour shows and screening
them in prime-time slot. Integrated media companies that own strong Exhibit 191: Media stocks rating and valuation
production capability such as SCMA and MNCN are poised to benefit from this.
Exhibit 190: All-time audience share movement of FTA-TV Ticker Rating (Rptn) Price Price pot.(%) 2019F 2020F 2019F 2020F
20F 20F
(%) (%)
MNCN Buy 15.3 1,235 1,750 41.7 7.7 7.1 5.5 5.2 16.2 2.8
35.0 33.1
SCMA Buy 17.4 1,190 1,500 26.0 11.9 11.1 7.8 7.2 25.7 5.4
30.0 Media OW 32.7 9.9 9.2 6.7 6.3 21.3 4.2
30.3
25.0 Gani +62 21 2557 4800 ext. 734 gani@ciptadana.com
20.0 18.5
15.0
14.0
10.0
5.0 4.1
0.0
SCMA MNCN VIVA Trans Others
224
Media Nusantara Citra Sector

Bloomberg Ticker
Media
MNCN IJ

1,400
80%
70%
1,200 50%
30%
Founded in 1997, PT Media Nusantara Citra Tbk (MNCN) has now set out itself 3m 6m 12m
800
20%
600 10%
as a well-established media group in Indonesia. The company’s wide range of Absolute (%) 2.5 53.4 66.9 400 0%
products and services includes FTA TV stations, regional TV network, in- Relative to JCI (%) 7.1 59.9 60.6 200
-10%
-20%
house production company, national and regional newspapers, radio stations, 0 -30%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
magazines and advertising agency. MNCN currently operates 4 FTA-TV
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
stations, namely: RCTI, GTV, MNCTV, and iNews. Outstanding shrs (mn) 12,404
Mkt. Cap (Rpbn/USDmn) 15,319/1,084 MNCN 1yr Rel. to JCI (RHS)
Key Points
 MNCN to launch OTT streaming service in Apr-20. MNCN has announced Financial Highlights
to set up a JV with Chinese largest OTT streaming player, iQiYi. The 2017A 2018A 2019F 2020F 2021F
service will launch by April next year. MNCN owns 51% of the stake, Revenue (Rpbn) 7,053 7,444 8,385 8,922 9,394
hence full consolidation. Forming a JV is commendable, we believe; not Operating profit (Rpbn) 2,666 2,740 3,081 3,268 3,432
only does it split the risks, but also it could benefit from iQiYi’s know-how. Net profit (Rpbn) 1,453 1,531 1,983 2,169 2,279
EPS (Rp) 111.4 122.6 159.9 174.9 183.7
 As of 9M19, MNCN has extended its dominance in FTA audience share. EPS growth (%) 16.2 10.0 30.5 9.4 5.0
MNCN recorded an average of 34.0% of all-time audience share in 9M19. EV/EBITDA (x) 6.3 6.2 5.5 5.2 4.9
This is higher than 9M18’s position of 31.6% and FY18’s achievement of PER (x) 11.1 10.1 7.7 7.1 6.7
31.8%. We believe this will support revenue growth. 1H19 saw 7% YoY PBV (x) 1.8 1.6 1.3 1.1 1.0
ads revenue growth, higher than that of the industry.
Dividend yield (%) 3.7 1.4 1.2 2.8 3.7
ROE (%) 16.1 15.5 17.0 16.2 15.1
 Eyes on digital. Digital business will be the main growth driver for years
to come. In 1H19, digital ads revenue grew by three-fold, forming 7.6% of Assumptions
total revenue. We expect digital ads will continue to outpace the growth of 2017A 2018A 2019F 2020F 2021F
other business segments and reach 13% of total revenue by 2021F. AT audience share (%) 33.5 31.8 34.0 34.0 34.0
Ads revenue (Rpbn) 6,645 6,981 7,570 7,798 8,032
 MNCN is our preferred pick in media space. This is owing to MNCN’s Digital ads revenue (Rpbn) 89 261 653 979 1,224
stronger earnings momentum and attractive valuation of 7.1x 2020F PER Other & elim., net (Rpbn) 319 202 162 145 138
(below -2SD). We expect EPS growth to normalize to 9.4% in 2020F as Gani +62 21 2557 4800 ext. 734 gani@ciptadana.com
2019F EPS was helped by other income, especially forex gains.
225
Media Nusantara Citra
Oper. expenses -1,716 -1,879 -2,125 -2,270 -2,400 Other -3 29 0 0 0
EBITDA 3,098 3,126 3,495 3,710 3,906
Capital expenditure -915 -621 -610 -653 -699
Others -254 -429 -794 -815 -851
Other income (exp.) -10 -312 24 7 -25
Pre-tax profit 2,416 2,104 2,722 2,952 3,102 Net change in debt 99 813 368 -29 -3
Net profit 1,453 1,531 1,983 2,169 2,279 Other financing -544 -510 3 -1 1
CF-Financing activities -1,037 94 185 -464 -572
Balance Sheet Net cash flow -30 251 505 -126 53
Year to 31 Dec (Rpbn) 2017A 2018A 2019F 2020F 2021F Cash - begin of the year 499 469 720 1,225 1,098
Cash & cash equivalent 469 720 1,225 1,098 1,151 Cash - end of the year 469 720 1,225 1,098 1,151
Total asset 15,057 16,340 18,776 20,527 22,290
Gross margin (%) 62.1 62.0 62.1 62.1 62.1
EBITDA margin (%) 43.9 42.0 41.7 41.6 41.6
Acct, payable 586 312 512 546 574
Net margin (%) 20.6 20.6 23.7 24.3 24.3
ROA (%) 9.7 9.4 10.6 10.6 10.2
Other curr. liab 553 455 522 535 564
ROE (%) 16.1 15.5 17.0 16.2 15.1
Long term debt 3,498 3,241 3,423 3,578 3,759
226
Surya Citra Media Sector

Bloomberg Ticker
Media
SCMA IJ
BUY TP: Rp1,500 (+26.0%)

2,500 10%
0%

-20%
Surya Citra Media (SCMA), through its subsidiaries, provides a variety of 3m 6m 12m 1,000
multimedia services in Indonesia. The company owns SCTV and Indosiar, Absolute (%) -24.7 -29.6 -31.2 -30%
nationwide television network; and acts as a distribution agent for the media Relative to JCI (%) -20.1 -23.1 -37.5 500 -40%
content developed by SCTV. As a subsidiary of PT Elang Mahkota Teknologi
52w High/Low price (Rp) 2,030/1,135 0 -50%
(EMTK), SCMA also provides media consulting and communication services to
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Aug-19
Aug-19
Sep-19
other companies and independent businesses. SMCA has recently acquired Outstanding shrs (mn) 14,631
some companies from its parent to embark into digital sphere. Mkt. Cap (Rpbn/USDmn) 17,411/1,231
SCMA 1yr Rel. to JCI (RHS)

 The beginning of an era. 2Q19 marked an important milestone for Surya 2017A 2018A 2019F 2020F 2021F
Citra Media (SCMA) as it is the first quarter where SCMA started to Revenue (Rpbn) 4,454 5,002 5,275 5,738 6,304
consolidate its digital assets. Digital and Out-of-home (OOH) segment Operating profit (Rpbn) 1,772 1,938 1,900 2,043 2,220
produced Rp190 bn revenue in 1H19, up 69.3% YoY, contributing 7% to Net profit (Rpbn) 1,331 1,485 1,458 1,567 1,701
total revenue, however, since digital and OOH business is in the EPS (Rp) 91.1 101.5 99.6 107.1 116.3
expansion mode, it still commanded a negative operating margin in 1H19.
EPS growth (%) -11.3 11.5 -1.9 7.5 8.6
The segment loss is attributed to Vidio.com as other digital businesses
EV/EBITDA (x) 8.8 7.8 7.8 7.2 6.5
were already profit making.
PER (x) 13.1 11.7 11.9 11.1 10.2
PBV (x) 4.5 3.8 3.2 2.9 2.6
 Eyes on Vidio.com. Vidio.com is currently in expansion mode as SCMA is
Dividend yield (%) 4.9 4.6 4.2 5.4 5.9
still eyeing for more paying subscribers. The Company will release more
dramas and exclusive live sport events going forward. That said, the ROE (%) 34.1 32.5 26.7 25.7 25.1
Company realizes that content acquisitions cost control will be key. It has Assumptions
allocated USD28 mn for contents. SCMA is currently on talk with some 2017A 2018A 2019F 2020F 2021F
foreign media companies to inject cash on Vidio.com. SCMA expects to AT audience share (%) 27.9 32.9 31.5 31.5 31.5
raise c.USD100 mn in the transaction for selling up to 50% of its stake.
 BUY on valuation. Being a consumer-linked company at 11.1x 2020F PER

with a 5.4% dividend yield, we believe SCMA is currently undervalued and
warrants a higher multiple.
227
Surya Citra Media
Oper. expenses -847 -907 -1,056 -1,143 -1,249 Other -208 -55 -59 -64 -70
Oper. profit 1,772 1,938 1,900 2,043 2,220 CF-Oper activities 1,300 1,577 882 1,290 1,426
EBITDA 1,957 2,131 2,109 2,270 2,466
Others -746 -14 -69 -22 -26
CF-Investing activities -786 -172 -297 -269 -294
Pre-tax profit 1,782 1,969 1,932 2,077 2,255 Net change in debt -104 -21 29 20 24
Minority interest 14 10 12 13 14 Dividend payment -848 -804 -729 -940 -1,021
Balance Sheet Net cash flow -221 596 104 161 202
Year to 31 Dec (Rpbn) 2017A 2018A 2019F 2020F 2021F Cash - begin of the year 455 234 830 934 1,094
Cash & cash equivalent 234 830 934 1,094 1,296 Cash - end of the year 234 830 934 1,094 1,296
Inventory 766 943 1,351 1,691 2,043 Key Ratios
Total current asset 2,709 3,427 4,267 4,941 5,691 Revenue gr. (%) -1.6 12.3 5.5 8.8 9.9
Fixed assets - net 1,029 1,050 1,127 1,211 1,303 Operating profit gr. (%) -11.5 9.3 -2.0 7.6 8.6
Total asset 5,386 6,138 7,125 7,906 8,773
Gross margin (%) 58.8 56.9 56.0 55.5 55.0
EBITDA margin (%) 43.9 42.6 40.0 39.6 39.1
Acct, payable 298 369 295 325 361
Net margin (%) 29.9 29.7 27.6 27.3 27.0
ROA (%) 24.7 24.2 20.5 19.8 19.4
Other curr. liab 381 460 544 588 648
ROE (%) 34.1 32.5 26.7 25.7 25.1
Total liabilities 980 1,035 1,075 1,169 1,290 Quick ratio (x) 2.6 2.9 3.4 3.5 3.6
228
AVIATION SECTOR
229
Aviation Exhibit 193: International tourist visit via air transportation

Airport 1H18 1H19 YoY growth
Neutral Ngurah Rai (Bali) 2,856,728 2,841,676 -0.5%
Sector Outlook Soekarno-Hatta (Banten) 1,256,438 1,137,187 -9.5%
Juanda (East Java) 145,599 109,759 -24.6%

 Limited downside on passenger volume in 2020F
Back in 4Q18, airline customers along with tourism players were Kualanamu (North Sumatera) 106,404 116,418 9.4%
complaining about exorbitant air fares, albeit from the perspective of air
carriers the ticket price was still within the range of tariff capped by the Adi Sucipto (DIY) 66,072 51,699 -21.8%
government. Eventually, in mid May-19 through the newly issued decree by
the Minister of Transportation (MoT), ceiling price of LCC (Low Cost Carrier) Source: Directorate General of Immigration and BPS
and FSC (Full Service Carrier) air fares was cut by 12-16%, respectively.
Nonetheless, after the regulation was taken effect, airline customers Actually, the point that we want to address here is the evidence that the typical
apparently remained unsatisfied as they felt the air fares still high. Again, of Indonesian airline customers are price-sensitive. On the brink of relatively
in July-19, the government reduced LCC domestic fares but only on 3 days more expensive air fares, the number of passenger’s departure from 3 major
every week for the operating flights between 10 a.m. to 2 p.m. However, airports comprise of Soekarno-Hatta (Banten), Juanda (East Java) and Ngurah
please note that despite ticket prices for LCC were further reduced; this did Rai (Bali) dropped by 20.9% YoY, 24.9% YoY and 14.7%, respectively. However,
not adversely impact the air carriers in our view, as jet fuel provider we think the negative passengers volume growth will not be prolonged to next
(Pertamina), Airport Company and air navigation will bear the deficit. year as we believe the consumers will get used to buying the current level of
air fares. Hence, given the downside on passenger carried has been limited;
Exhibit 192: Domestic and International passengers’ traffic we expect the positive growth to resume in 2020F.
Soekarno Hatta Juanda Ngurah Rai
Exhibit 194: Market share
12.00 Pre KSO Post KSO with Sriwijaya Group
10.00
8.00
41%
6.00 Garuda Group 49% 51%
Others
4.00 59%
2.00
-
1H09 1H10 1H11 1H12 1H13 1H14 1H15 1H16 1H17 1H18 1H19 Source: Company and Ciptadana
Source: BPS and Ciptadana
230
 Focus on improving passenger yield is a key to generate earnings  Air cargo business has ample room for growth
In late 2018, GIAA took over the operational management of Sriwijaya Based on data from Statista, number of online shoppers in Indonesia is
Group, and making the state-owned carrier ended up with higher market expected to grow at 8.6% CAGR over 2018-2022F to 43.9 mn. Since
share of slightly higher than 50% (from approximately 41% previously). On Indonesia is famously known as an archipelagic country; we view when e-
the back of greater pricing power, eventually GIAA could improve its commerce has a bright outlook going forward, the demand from online
passenger yield. We note that in 6M19, FSC and LCC of Garuda Group shoppers most likely will come from everywhere across the country. We
surged remarkably by 17.4% YoY and 61.7% YoY, respectively. Likewise, know that the packages that consumers buy through e-commerce are not
passenger yield of Sriwijaya Air and Nam air rose by 70.8% YoY and 59.2% only shipped using air cargo. Yet, we still believe this will give more room
YoY, respectively. In our view, the focus on lifting the passenger yield or in for air cargo demand to surge as well.
other words prioritizing the margins is the right way to generate earnings
in Indonesian aviation industry instead of only think about having positive Exhibit 196: Online shoppers in Indonesia (2018-2022F)
passenger carried. Online shoppers in Indonesia (in mn)
45 43.9
Exhibit 195: 1H19 passengers yield of Garuda Group and Sriwijaya Group
42.1
43
Garuda Main Brand (Usc) Citilink (Usc)
41 39.2
Garuda Main Brand (Usc) YTD June-18 YTD June-19
9.0 8.0
8.5 8.0 +61.7% YoY 39
8.0 7.0
8.0 +17.4% YoY
6.0
5.0
37 35.5
7.5 5.0
4.0 35
7.0 6.8
3.0
6.5 2.0 33 31.6

1.0
6.0 0.0
YTD June-18 YTD June-19
31
Sriwijaya Air (Rp) Nam Air (Rp) 29
Sriwijaya Air (Rp) Nam Air (Rp) 27

1200.0
1043.9
1600.0
1366.6
2018 2019F 2020F 2021F 2022F
+70.8% YoY +59.2% YoY
1400.0
1000.0
1200.0 Source: Statista and Ciptadana
800.0 1000.0 858.3
611.2
600.0 800.0
400.0
600.0 Aside of the perks of cargo businesses, we view there are some challenges
400.0
200.0 200.0 that need to be considered. With the rising air cargo rates, definitely
0.0
0.0
YTD June-18 YTD June-19 several business owners may switch to ship the purchased goods to other
alternatives shipment like using train. Decelerating global trade is also one
Source: Company presentation and Ciptadana
of the obstacle whilst can hamper the cargo business growth in the near
future.
231
 Garuda Indonesia to get ready in anticipating future cargo demand Exhibit 198: GIAA cargo freighter expansion plan
After unfavourable year of cargo businesses in 2015 for GIAA, yet cargo Number and type of
No Description Operation date
fleets
carried and cargo revenue has been soared at 8.9% and 11.2% CAGR over
1 3 fleets of 733 classic Cooperation with MY indo airlines in 1 fleet has been
2015-2018. Moreover, as per 1H19, we captured different story on GIAA freighter providing cargo capacity operating since Jan-
whereas despite cargo volumes declined by 20.4% YoY, it turned out that 19, and the other 2
cargo revenue grew by 29.8% YoY. This was mostly buoyed by skyrocketing will start the
cargo yield by triple-digit growth or 163.3% YoY. Nothing that, commonly operation in
September-19
the direction between cargo carried and cargo revenue is positively in line.
2 2 fleets of 737-800 Dry operating lease June-20
freighter
Exhibit 197: Cargo carried and cargo revenue of GIAA 3 1 fleet of A330 freighter Passenger to Freighter Conversion/ 4Q20
Sale and lease back
Cargo Carried (tons) Cargo Revenue (USD mn)
4 2 fleets of 733 classic Cooperation with Citilink in providing January-20
in 2015, both cargo carried and cargo reevenue dropped due to
freighter cargo capacity
focus on passengers volume and depreciation in rupiah.
Source: Company and Ciptadana
500,000 300.0
450,000
250.0  Maintain NEUTRAL view in spite healthier condition
400,000
Indonesia aviation sector has been enjoying a healthier condition in 2019F
350,000
200.0 as most of the Air Carriers were able to boost their passenger yield on the
300,000
back of better pricing discipline. In 2020F, we see Indonesian consumers
250,000 150.0 will get used to high air fares environment. However, there are several
200,000 risks that worth to watch such as 1) fuel cost volatility 2) depreciation of
100.0
150,000 rupiah due to rising uncertainty of global macroeconomic situation 3)
100,000
50.0
natural disaster 4) competition between aviation players. Therefore, even
50,000 though the situation seems becoming better, we remain cautious whether
- 0.0 the air carriers able to maintain the solid earnings going forward.
2012 2013 2014 2015 2016 2017 2018 1H18 1H19 Yet, at this juncture, we still recommend BUY on GIAA with TP of Rp650.
Source: Company presentation and Ciptadana Starting 2019F, we expect the company to hit positive bottom line and
potentially beat estimates. Our assumptions are relatively more
In terms of readiness in anticipating future air cargo demand, we noticed conservative compare to guidance. Hence, we still believe GIAA multiple
GIAA’s initiatives to expand their cargo capacity. The state owned airline will be able to re-rate.
has been operating 1 cargo freighter since January-19. There will be 7 Exhibit 199: Aviation stock rating and valuation
more to come, specifically 2 freighters in Septermber-19 and 5 freighters Bberg Mkt.Cap Last Target Upside PER EV/EBITDA ROE Yield
in 2020F. Ticker Rating (Rp tn) Price Price pot.(%) 2019F 2020F 2019F 2020F
20F 20F
(%) (%)
GIAA BUY 12.84 496 650 31.0 12.9 9.9 8.2 6.7 9.4 0.0
Fahressi Fahalmesta +62 21 2557 4800 ext. 735 fahalmestafahressi@Ciptadana.com
232
Sector Aviation
Garuda Indonesia Bloomberg Ticker

GIAA IJ 700
600
200%
180%
160%
BUY TP: Rp650 (+34.3%) Last Price (Rp) 484 500 140%
120%
Avg. daily T/O (Rpbn/USDmn) 18.4/1.3 400 100%
80%
Company Profile 3m 6m 12m
300
60%
Garuda Indonesia (GIAA) is a state owned flag carrier. At the end of 2018, the Absolute (%) 19.2 -12.8 137.3
200 40%
20%
company has 69 domestic destinations and 22 international destinations. Relative to JCI (%) 19.2 -9.9 130.9 100
0%
Garuda as a full service premium segment has been focusing to its domestic 0 -20%
low cost carrier as well through “Citilink”. One subsidiary namely Garuda
Dec-18
Feb-19
Oct-18
Sep-18
Sep-19
Nov-18
Aug-19
Mar-19
Jul-19
May-19
Jan-19
Apr-19
Jun-19
Maintenance Facility Aero Asia has also listed in 2017 with “GMFI” ticker. Outstanding shrs (mn) 25,887
Key Points Mkt. Cap (Rpbn/USDmn) 12,529/89
6
 We expect GIAA to book positive bottom line in FY20F. We view GIAA will Estimated free float (%) 13.8 GIAA 1yr Rel. to JCI (RHS)
continue to generate positive net profit in 2020F at USD81 mn or Financial Highlights

represent 27.4% growth from our FY19 estimate. In 2019F, we found the 2017A 2018A 2019F 2020F 2021F
company’s ability to elevate their passenger yield on the back of rising air Revenue (USDmn) 4,177 4,373 5,153 5,597 6,094
fares. Despite of weakening passengers carried, we foresee GIAA can Operating profit
-60 -206 161 230 293
reverse the earnings to positive starting FY19F. (USDmn)
Net profit (USDmn) -217 -179 63 81 124
 Focus on expanding cargo revenue. Instead of dependency on belly EPS (US$Cents) -1.0 -0.8 0.3 0.4 0.5
cargo which really sensitive with frequencies or number of flights, GIAA EPS growth (%) n/m n/m n/m 27.4 53.6
has been operating 1 cargo freighter since January-19. There will be EV/EBITDA (x) -351.9 -19.5 8.2 6.6 5.6
another 2 freighters to commercially operate in September-19 and 5 PER (x) -3.7 -4.2 12.6 9.7 6.2
freighters to be operating in 2020F. We believe this is the effort of the
PBV (x) 1.0 1.3 1.2 1.0 0.9
company to improve the cargo capacity amid growing cargo demand.
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
ROE (%) -24.2 -26.2 8.1 9.4 12.5
 Resume passenger carried growth in FY20F. As passengers are less
willing to travel by plane due to exorbitant air fares, eventually Assumptions
passengers carried up until 8M19 seemed weak (-19% YoY). However, we 2017A 2018A 2019F 2020F 2021F
have a conviction that customers will get used to buying at the current ASK (In mn km) 62,025 64,458 68,335 72,678 77,561
level of ticket prices. Hence, we project GIAA to resume positive growth RPK (in mn km) 46,300 48,512 50,904 54,501 58,295
on its passengers in 2020F. SLF (%) 74.6 75.3 74.5 75.0 75.2
Passenger yield (in USc) 6.5 6.5 7.2 7.2 7.2
 Reiterate BUY on GIAA with TP of Rp650/share. Currently the stock Fahressi Fahalmesta +62 21 2557 4800 ext. 735 fahalmestafahressi@ciptadana.com
trades at 6.6x 2020 EV/EBITDA.
233
Garuda Indonesia
Revenue 4,177 4,373 5,153 5,597 6,094 Net income -217 -179 63 81 124
COGS 0 0 0 0 0 Depreciation 55 77 108 116 125
Gross profit 4,177 4,373 5,153 5,597 6,094 Chg in working cap. -95 122 -92 -16 -17
Oper. profit -60 -206 161 230 293 CF-Oper activities -401 -63 -35 58 96
EBITDA -6 -129 269 346 418
Others -13 -13 -51 -26 -29
Other income (exp.) -30 39 29 -11 -11
Pre-tax profit -158 -221 91 115 173 Net change in debt 41 153 124 173 180
Income tax -55 46 -24 -30 -45 Net change in equity 76 -65 0 0 0
Minority interest -3 -4 -4 -4 -4 Dividend payment 0 0 0 0 0
Net profit -217 -179 63 81 124 Other financing 54 54 37 17 16
CF-Financing activities 171 142 161 191 195
Balance Sheet Net cash flow -272 -55 -54 82 110
Total current asset 987 1,093 1,153 1,316 1,516 Revenue gr. (%) 8.1 4.7 17.8 8.6 8.9
Fixed assets - net 901 944 965 989 1,016 Operating profit gr. (%) n/m n/m n/m 42.6 27.5
Other non-curr.asset 1,875 2,130 2,371 2,576 2,804 Net profit gr. (%) n/m n/m n/m 27.4 53.6
Total asset 3,763 4,168 4,490 4,881 5,336
Gross margin (%) 100.0 100.0 100.0 100.0 100.0
Operating margin (%) -1.4 -4.7 3.1 4.1 4.8
EBITDA margin (%) -0.1 -3.0 5.2 6.2 6.9
Acct, payable 224 402 410 441 477
Net margin (%) -5.2 -4.1 1.2 1.4 2.0
ROA (%) -5.8 -4.3 1.4 1.7 2.3
Other curr. liab 549 817 765 827 896
ROE (%) -24.2 -26.2 8.1 9.4 12.5
Long term debt 229 203 292 372 447
Shareholder equity 895 683 778 861 990 Interest cover (x) -0.1 -1.5 2.6 3.1 3.6
234
POULTRY SECTOR
235
 Broiler price is still below the reference price
Poultry Since Ministry of Trade revised up the floor and ceiling broiler price in
January-19 to Rp20,000-22,000/kg from Rp18,000-20,000/kg, we noticed
Neutral that broiler prices have always been traded below the range. Despite
government has encouraged the retailers to buy from poultry farmers at
Sector Outlook given reference price, apparently it is not enough to boost the price at the
farm gate. Aside of it, in 2019F DOC price is no longer as solid as in 2018.
 Poultry integrators post consistent growth for years In 2020F, we project the DOC price will hover above Rp4,000/kg, but will
Using 3 biggest poultry players (CPIN, JPFA and MAIN) by capacity in not exceed Rp6,000/kg as the supply will not be tight anymore following
Indonesia as proxy; it seemed poultry demand remains solid as shown by the higher GPS import in 2018.
aggregate top line growth which stood at +14.9% CAGR over 2011-2018.
We deem the outlook of chicken meat consumption in Indonesia is still Exhibit 201: Monthly broiler price and reference price set by government
bright going forward underpin by affordability compare to other animal Broiler price (Rp/kg)
protein. Moreover, since Indonesia is Muslim majority country, strict 25000 New floor and reference price for
broiler applied at the end of January'19
dietary rules have also been becoming reason behind why chicken is more 23000
22,000
preferable. 21000 20,000 20,000
19,000
19000 18,000.0 18,000
Exhibit 200: Revenue of 3 biggest players and aggregate revenue growth 17,000
17000
CPIN JPFA MAIN Agg. Growth (RHS) 15000
(In Rp bn)
25.0% 13000
+14.9% CAGR over 2011-
Feb-18
Feb-19
Jul-17
Dec-17
Jul-18
Dec-18
Jul-19
Mar-18
Mar-19
Sep-17
Sep-18
Aug-17
Jan-18
Apr-18
Aug-18
Jan-19
Apr-19
Aug-19
May-17
Jun-17
Oct-17
May-18
Nov-17
Jun-18
Oct-18
May-19
Nov-18
Jun-19
60,000.0 2018
20.0%
50,000.0
Source : West Java and Ciptadana
40,000.0 15.0%
Exhibit 202: Quarterly DOC price in West java
30,000.0
8,000.0 DOC (West Java)
10.0%
20,000.0 6,000.0
5.0% 4,000.0
10,000.0
2,000.0
- 0.0% -
2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F
Source : Company and Ciptadana

Source : West java and Ciptadana
236
 Series of culling program will resist further downside in broiler price  No presence of incentives for cost side
After sharp declined in broiler price in early 2019F, we see investors In 2017, through self-sufficiency in food program, one of the instructions
became less confident with earnings growth prospect of Indonesian poultry stated about the restriction of corn imports. The main purpose of the
sector. There are 2 major issues that dragged down the broiler price program is basically to encourage the productivity of local farmers.
comprise of 1) rising broiler supply 2) bargaining powers of middle-man However, due to plant location of corn which spread across Indonesia
(between farmers and consumer) which can force down the price. (need logistic cost) and unfavourable harvest season, domestic corn price
has been less competitive compare to corn imports. More specifically,
Exhibit 203: Government mandates to adjust supply in 2019 despite government capped the reference price of corn at Rp4,000/kg and
Culling Period Mandate also pushed the productivity; since April-18 the corn price has not been
closed to that figure. In addition, even though we do not think the domestic
1st culling 21 March - 8 April 2019 Reduce FS DOC broiler production by 10%
corn production will meet the demand next year, we have captured the
effort of feed millers (CPIN, JPFA and MAIN) to keep expanding their corn
Cull PS broiler aged over 68 weeks (chick in before 12
2nd culling 26 June - 9 July 2019
March 2018)
silo.
Exhibit 204: Average domestic corn price

Reduce FS DOC broiler by withdrawing hatching eggs
aged 19 days by 30% fertile eggs from hatchery (this Average corn price (Rp/kg)
3rd culling 28 June - 12 July 2019
applied for PS broiler breeding company that produces
FS DOC to Central Java region) 6,500
6,000
Reduce aged 19 days fertilized HE with a total of 10
4th culling 2 - 20 September 2019
mn/week
5,500
2- 7 September 2019 Distribute 10 mn HE through CSR program
5,000
Reduce aged 19 days fertilized HE with a total 10
23 – 29 September
mn/week (extension) 4,500
Reduce aged 19 days fertilized HE with a total 5
30 September – 6 October
mn/week (extension) 4,000
23 September – 22 October Cull PS broiler aged over 60 weeks. Total: 3,039,927
3,500
Jul-13
Oct-13
Jul-14
Oct-14
Jul-15
Oct-15
Jul-16
Oct-16
Jul-17
Oct-17
Jul-18
Oct-18
Jul-19
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Source : Directorate General of Livestock and Health, Ministry of Agriculture and Ciptadana
Seeing such a bleak domestic poultry sector condition, government has Source : CEIC and Ciptadana
responded by mandating 4 culling programs between March-19 to
September-19 to stabilize supply. Reductions of supply are not only on the Meanwhile, another key raw material to produce feed is soybean meal. We
level of PS (Parent Stock), but also adjust down the FS DOC (Final Stock). view the global soybean meal price will be flattish to slightly go down in
We are positive with government’s initiatives amid persisting pressure on 2020-2021F on escalating trade war and rising production. As such, we
broiler price; as historically the culling program has most effective impact think the corn and soybean meal price will not give substantial pressure to
on increasing the broiler prices. the margins, but we also do not see any potential decline in both prices.
237
Exhibit 205: Gross profit margins of 3 feed millers  Limited impact from possible incoming Brazilian chicken
CPIN JPFA MAIN
In 2019, the news related possible incoming Brazilian chicken back to hit
the headline. This came up after the decision of World Trade Organization
30.0% (WTO) about the favour of Brazilian chicken imports. Obviously during
gpm to go down in 2019F as domestic oversupply issue of broiler, the news of another potential supply
25.0% supply expected to normalize. In from abroad becomes the attention of investors. Nonetheless, we think
FY20F, we expect flattish gpm. Indonesian government still has applied policies to hold back the adverse
20.0% impact such as halal certification obligation. In terms of distribution
network and cold storage, chicken from Brazil most likely requires both of
15.0% them to be able selling their products. Fortunately, vast majority of
Indonesian consumers prefer the livebird rather than frozen chicken.
10.0% Hence, we expect the impact will not be significant.
5.0%  Maintain NEUTRAL stance on the sector

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F After the series of culling programs mandated by government during
Source : Company and Ciptadana
2019F, we are of the view that the pressure on broiler and DOC prices will
be limited in 2020F, with the rationale of more balanced supply and
Exhibit 206: GPS import quota demand. Nonetheless, we remain cautious with the demand growth next
year due to some factors comprise of 1) Electricity tariff hikes 2) Significant
GPS (Grand Parent Stock) import quota Expected PS (mn)*
national health insurance (BPJS Kesehatan) premium increase in January-
800,000 35.0 20. Hence, we believe the government’s policy will less likely boost the
consumption. Given the soft growth, we retain our neutral stance for
700,000 30.0 Indonesian feed millers. We reiterate HOLD recommendation for 3 poultry
600,000 stocks under our coverage.
25.0
500,000 Exhibit 207: Poultry stock rating and valuation
20.0
400,000
20F 20F
15.0 Ticker Rating (Rp tn) Price Price pot.(%) 2019F 2020F 2019F 2020F
(%) (%)
300,000
CPIN Hold 85.7 5,225 5,000 (4.3) 28.6 23.7 17.3 14.5 15.6 1.7
10.0
200,000 JPFA Hold 16.9 1,585 1,750 10.4 12.2 11.4 6.9 6.4 14.0 2.5
5.0 MAIN Hold 2.1 940 950 1.1 8.5 7.8 5.9 5.3 10.8 2.2
100,000
Avg. Neutral 25.5 21.4 15.4 13.0 15.2 1.8
- -
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F
Source : Various and Ciptadana
238
Charoen Pokphand Sector

Bloomberg Ticker
Poultry
CPIN IJ

8,000
60%
50%
7,000 40%
Established in 1972, Charoen Pokphand (CPIN) is the largest fully-integrated 3m 6m 12m 4,000 10%
domestic poultry producer in Indonesia. Its operations comprise feed mill, Absolute (%) 18.2 -33.9 4.5 3,000 0%
2,000 -10%
day-old chicken (DOC) farming, and processed food manufacturing. The Relative to JCI (%) 19.1 -30.2 -0.6 1,000 -20%
company has approximately 31% and 41% market share based on feed and 0 -30%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
DOC production capacity, respectively. In 2018, feed constitutes 47.8% over
total revenue, and followed by broiler with 29.3%. Broiler division was Outstanding shrs (mn) 16,398
CPIN 1yr Rel. to JCI (RHS)
expanded starting in 2016 after CPIN acquired a commercial poultry Mkt. Cap (Rpbn/USDmn) 85,680/6,096
operation. Estimated free float (%) 10.8

 Positive earnings growth to resume in 2020F. We view the condition 2017A 2018A 2019F 2020F 2021F
next year will be more pleasant relative to 2019F. On the back of limited Revenue (Rpbn) 49,367 53,958 57,630 63,923 70,468
downside on DOC and broiler price, we expect operating profit and net Operating profit (Rpbn) 3,652 6,394 4,132 4,973 5,994
profit to grow by 20.0% and 20.9% YoY in 2020F. However, we do not Net profit (Rpbn) 2,501 4,554 2,992 3,619 4,365
believe nominal earnings next year to beat the cherries figure in 2018. EPS (Rp) 152.5 277.7 182.5 220.7 266.2
EPS growth (%) 12.6 82.1 -34.3 20.9 20.6
 CPIN’s way in managing broiler division seems less efficient relative to
EV/EBITDA (x) 20.2 12.1 17.3 14.5 12.1
second biggest poultry integrators. In 2018, when broiler price
PER (x) 34.3 18.8 28.6 23.7 19.6
remarkably solid, its OPM was only 5.1% (vs. JPFA OPM of 7.3%).
PBV (x) 5.5 4.4 4.1 3.7 3.3
Meanwhile in 1H19, broiler’s OPM of CPIN stood at -11.8% (vs. JPFA OPM
Dividend yield (%) 0.9 1.6 1.4 1.7 2.0
of -5.6%). Hence, if the volatility of broiler price escalates, CPIN witness
greater margins pressure. ROE (%) 15.9 23.5 14.4 15.6 16.7
Assumptions
 We recommend HOLD on CPIN with DCF based TP of Rp5,000 (4.3% Volume growth (%) 2017A 2018A 2019F 2020F 2021F
downside). The stock currently trades at 23.7x forward 2020 P/E, 11% Poultry feed 8.0 2.0 5.0 8.0 8.0
premium compare to its peers average. We think the premium is justified DOC 13.0 1.0 8.0 8.0 8.0
given the size of the company, the highest market share by capacity and Broiler chicken 144.5 3.0 10.0 8.0 5.0
the most profitable feed business.
239
Charoen Pokphand
Year to 31 Jan (Rpbn) 2017A 2018A 2019F 2020F 2021F Year to 31 Jan (Rpbn) 2017A 2018A 2019F 2020F 2021F
COGS -43,118 -44,823 -50,502 -55,595 -60,775 Depreciation 781 828 895 961 1,035
Gross profit 6,249 9,135 7,128 8,328 9,693 Chg in working cap. -1,837 -542 -549 -1,397 -1,150
EBITDA 4,434 7,222 5,027 5,934 7,028
Capital expenditure -557 -1,504 -1,327 -1,483 -1,639
Others 0 0 0 0 0
CF-Investing activities -557 -1,504 -1,327 -1,483 -1,639
Pre-tax profit 3,260 5,907 3,738 4,521 5,452 Net change in debt -724 -1,436 1,169 614 638
Income tax -760 -1,356 -748 -904 -1,090 Net change in equity 0 0 0 0 0
Minority interest 1 3 2 2 3 Dividend payment -947 -871 -1,642 -1,149 -1,400
Net profit 2,501 4,554 2,992 3,619 4,365 Other financing 73 -22 69 63 63
CF-Financing activities -1,598 -2,329 -403 -472 -698
Balance Sheet Net cash flow -709 1,008 1,608 1,228 1,912
Year to 31 Jan (Rpbn) 2017A 2018A 2019F 2020F 2021F Cash - begin of the year 2,504 1,795 2,803 4,411 5,639
Other non-curr.asset 1,793 1,862 1,654 1,835 2,023 Net profit gr. (%) 12.6 82.1 -34.3 20.9 20.6
Total asset 24,532 27,645 30,595 33,806 37,822
Gross margin (%) 12.7 16.9 12.4 13.0 13.8
EBITDA margin (%) 9.0 13.4 8.7 9.3 10.0
Acct, payable 1,791 2,195 2,468 2,413 2,637
Net margin (%) 5.1 8.4 5.2 5.7 6.2
ROA (%) 10.2 16.5 9.8 10.7 11.5
Other curr. liab 387 838 905 1,002 1,103
ROE (%) 15.9 23.5 14.4 15.6 16.7
Long term debt 3,005 2,750 2,939 3,260 3,594
Other non-curr, liab, 757 771 862 951 1,041 Current ratio (x) 2.3 3.0 2.8 3.0 3.2
Total liab + SHE 24,532 27,645 30,595 33,806 37,822 Net debt to equity (x) 0.3 0.1 0.1 0.0 Net Cash
240
Japfa Comfeed
Sector Poultry
Bloomberg Ticker JPFA IJ

3,000 20%
2,500 10%
-10%
Japfa Comfeed (JPFA) is the second largest vertically integrated poultry 3m 6m 12m 1,500
-20%
Absolute (%) 6.0 -26.3 -21.9
player in Indonesia, involving in beef and aquaculture offering diversification 1,000 -30%
Relative to JCI (%) 6.9 -22.6 -27.0
of revenues. The company has 16 feed mills, 66 breeding farms and 24 500 -40%
hatcheries spanning across Indonesia. Currently JPFA’s market share based 52w High/Low price (Rp) 3,100/1,280
0 -50%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
on capacity and DOC production stand at 22% and 25%, respectively. In 2016,
a leading global investment firm, Kohlberg Kravis Roberts (KKR) acquired
Mkt. Cap (Rpbn/USDmn) 16,897/1,202 JPFA 1yr Rel. to JCI (RHS)
12% stakes in JPFA, in which believed to bring value-added. However KKR Estimated free float (%) 5.5
has reduced its position in JPFA, and leaving below 5% of ownership at the
moment. Financial Highlights
2017A 2018A 2019F 2020F 2021F
 JPFA has received tax incentives after KKR partially divested its Operating profit (Rpbn) 2,155 3,724 2,654 2,845 3,140
ownership to less than 5%. In 2020F, the impact of lower tax rate to Net profit (Rpbn) 933 2,168 1,522 1,629 1,868
around 20% from 25% will be taken effect. Actually, the company will EPS (Rp) 81.8 184.9 129.8 138.9 159.3
enjoy lower tax rate starting 2019F, but it will not be fully reflected. We EPS growth (%) -57.8 126.1 -29.8 7.0 14.7
expect JPFA to post 7% and 14.7% earnings growth in 2020-2021F. EV/EBITDA (x) 8.0 5.5 6.9 6.4 5.8
PER (x) 19.4 8.6 12.2 11.4 10.0
 In 2Q19, JPFA displayed a strong feed operating margin of 14.9%. PBV (x) 2.2 1.9 1.8 1.6 1.4
However, it was just a one-time event. In the subsequent quarters,
Dividend yield (%) 3.2 3.2 3.5 2.5 2.6
supposedly the feed margins will normalize. As we have taken into
ROE (%) 11.5 22.6 14.5 14.0 14.3
account the uplifted feed margin, we estimate consolidated operating
margin of JPFA in 2020F will somewhat lower than FY19F to 6.8%. Assumptions
Volume growth (%) 2017A 2018A 2019F 2020F 2021F
 We reiterate HOLD call on JPFA with TP of Rp1,750, offering 10.4% Poultry feed 13.6 9.3 15.5 7.0 7.0
upside potential. Currently the counterpart trades at 11.4 x 2020F P/E DOC 25.6 15.0 5.0 10.0 10.0
and 6.4x 2020 EV/EBITDA or at half discount relative to CPIN’s multiple. Broiler chicken 13.2 -3.1 15.0 10.0 10.0
Yet, we think share price of JPFA has fully valued.
241
Japfa Comfeed
Revenue 29,603 34,013 37,838 41,593 45,979 Net income 933 2,168 1,522 1,629 1,868
COGS -24,586 -26,805 -31,514 -34,713 -38,379 Depreciation 664 694 896 996 1,106
Oper. expenses -2,862 -3,484 -3,670 -4,034 -4,460 Other 42 503 -338 -7 -11
EBITDA 2,819 4,418 3,550 3,841 4,246
Others -445 -487 11 -29 -34
Other income (exp.) 90 120 100 100 100
Pre-tax profit 1,710 3,090 2,081 2,227 2,553 Net change in debt 201 868 228 629 151
Net profit 933 2,168 1,522 1,629 1,868 Other financing 105 -534 307 186 217
CF-Financing activities -259 51 -115 359 -120
Balance Sheet Net cash flow -1,059 -555 200 539 113
Total asset 19,960 23,038 24,713 27,191 29,502
Gross margin (%) 16.9 21.2 16.7 16.5 16.5
EBITDA margin (%) 9.5 13.0 9.4 9.2 9.2
Acct, payable 3,498 3,776 4,200 4,626 5,115
Net margin (%) 3.2 6.4 4.0 3.9 4.1
ROA (%) 4.7 9.4 6.2 6.0 6.3
Other curr. liab 473 1,056 979 1,042 1,115
ROE (%) 11.5 22.6 14.5 14.0 14.3
Long term debt 5,272 4,867 5,873 6,374 6,225
242
Malindo Feedmill Sector

Bloomberg Ticker
Poultry
MAIN IJ
HOLD TP: Rp950 (+1.1%) Share Price Performance 2,000

1,800
30%
20%
10%
1,400
Malindo Feedmill (MAIN) is among the top 3 fully integrated poultry producers 3m 6m 12m
1,000
800
-10%
-20%
in Indonesia which has been established since 1997, with 7-8% market share Absolute (%) -13.0 -44.4 -25.7 600
-30%
in DOC and feed mill segments. In 2016, the company aimed to grab the Relative to JCI (%) -12.1 -40.7 -30.8 400
200 -40%
demand of processed food products and decided to launch 2 brands such as 0 -50%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
“SunnyGold” and “Ciki Wiki”. Company source of revenue still dominantly
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
come from feed division with around 70% contribution. Outstanding shrs (mn) 2,239
Key Points Mkt. Cap (Rpbn/USDmn) 2,104/150 MAIN 1yr Rel. to JCI (RHS)
 MAIN keep expanding the capacity of corn silos. In order to improve cost
management, every year MAIN allocates capex for building corn silos. The Financial Highlights
company also puts it close to the harvest area. We think MAIN has been 2017A 2018A 2019F 2020F 2021F
showing a proper attitude to anticipate demand growth. Revenue (Rpbn) 5,441 6,706 7,002 7,610 8,280
 Broiler division only contribute around 15% of the revenue. This lead Net profit (Rpbn) 43 285 247 271 305
MAIN more immune when broiler price goes down. However, its operation EPS (Rp) 19.2 127.2 110.1 120.9 136.2
still cannot catch up with JPFA and MAIN. EPS growth (%) -79.7 562.5 -13.4 9.8 12.6
EV/EBITDA (x) 10.8 5.7 5.9 5.3 4.6
 We project high single digit earnings growth on MAIN in 2020F. In terms PER (x) 49.0 7.4 8.5 7.8 6.9
of top line, we foresee the company will be able to post positive growth of
PBV (x) 1.3 1.1 1.0 0.8 0.7
8.7% YoY in 2020F on the back of feed division. Noting that, feed division
Dividend yield (%) 4.0 1.7 2.3 2.2 2.5
accounts more than 60% over the total revenue. Moreover, as we believe
ROE (%) 2.6 15.0 11.2 10.8 10.6
the condition next year will be slightly better than 2019F, MAIN will be
able to generate Rp271 bn of net profit or translating to 9.8% growth YoY. Assumptions
Volume growth (%) 2017A 2018A 2019F 2020F 2021F
 We maintain our HOLD rating on MAIN with DCF based TP of Rp950 Poultry feed 6.0 5.0 10.0 5.0 5.0
(+1.1% upside potential). Currently the company trades at 7.8x 2020F P/E DOC 6.0 6.0 10.0 5.0 5.0
and 5.3x 2020F EV/EBITDA. Broiler chicken 6.0 30.0 12.0 6.0 6.0
243
Malindo Feedmill
Gross profit 560 942 904 975 1,068 Chg in working cap. -56 -186 -185 -151 -166
EBITDA 350 637 615 661 724
Others 0 0 0 0 0
Other income (exp.) -21 115 80 80 80
Pre-tax profit -1 398 316 347 391 Net change in debt 191 -50 -129 -125 -73
Income tax 44 -114 -70 -76 -86 Net change in equity 0 0 0 0 0
Minority interest 0 1 0 0 0 Dividend payment -85 -36 -49 -47 -53
Net profit 43 285 247 271 305 Other financing -74 -85 12 13 28
Balance Sheet Net cash flow 29 -32 -71 -1 87
Inventory 621 801 852 927 1,008 Key Ratios
Other non-curr.asset 354 361 420 457 497 Net profit gr. (%) -79.7 562.5 -13.4 9.8 12.6
Total asset 4,009 4,336 4,549 4,798 5,145
Gross margin (%) 10.3 14.1 12.9 12.8 12.9
EBITDA margin (%) 6.4 9.5 8.8 8.7 8.7
Acct, payable 253 260 284 309 336
Net margin (%) 0.8 4.2 3.5 3.6 3.7
ROA (%) 1.1 6.6 5.4 5.6 5.9
Other curr. liab 157 269 304 329 356
ROE (%) 2.6 15.0 11.2 10.8 10.6
Long term debt 388 1,077 877 727 627
Minority interest -1 -2 -2 -2 -2 Debt to equity ratio (x) 1.1 0.9 0.7 0.6 0.5
244
SHIPPING SECTOR
245
Shipping
Overweight
Sector Outlook
 Positive indicators from supply side to support rates Moreover, from 1-Jan-20, in accordance with MARPOL Annex VI1, the
After a couple of years of strong fleet growth driven by the high pace of sulphur content of fuel oil used on board commercial ships trading outside
newbuilds deliveries and limited scrapping, we have finally started to see sulphur Emission Control Areas must not exceed 0.50% m/m. The 0.50%
some supportive indicators on the tanker supply side. The depressed rate sulphur limit is a significant reduction from the current global limit of
environment seen in 2017 and 2018 has induced an uptick in scrapping, 3.50% m/m which has been in place since 2012. The worldwide
particularly in the crude segment, where YTD demolition has totaled implementation of this important new IMO requirement .referred to in this
14.5mn dwt. This represents 5.0% of the fleet on an annual basis. As such, guidance as the ‘’Global Sulphur Cap”, therefore represents a regulatory
there could be considerable upside to these numbers. Hence, expect a game changer as inefficient tonnage throw in the towel as we are getting
lower amount of dwt demolished next year. The orderbooks are looking closer to 2020. The regulation is expected to raise fuel costs, lower
increasingly attractive, with crude, product and chemical currently at ~6- average ship speed, reduce effective vessel supply and increase tanker
10% from historical average of ~25-38%. demand, all else being equal. This implies potential for near-to-mid-term
strength in tanker rates.
Exhibit 208: Global tanker orderbook as % of fleet
Exhibit 209: Global sulphur cap rule to slowdown tanker speed = reduces supply
Source: Clarkson Research
Source: BULL’s presentation material
246
 Demand drivers: OPEC cuts and politics A combination of reducing tanker supply and rising demand is expected
Given production cuts by OPEC and non-OPEC partners (OPEC +), the drive utilization rates to 95% by 2020 from 87% in 2018 and further
obvious place to fill the net deficit is the U.S. Plenty of new pipeline capacity increase rate.
to the U.S. Gulf is expected to come online in 2H19, enabling further growth
in exports. Incremental volumes are likely to flow to Europe and long-haul Exhibit 211: Global tanker utilization rate
to Asia, more than offsetting ongoing restraint out of the Middle East. If that
is the case, then OPEC+ production cuts could actually be good for the
tanker business. We believe OPEC+ cuts merely subsidize U.S. exports,
which travel two to three times the distance as Middle East exports and
soak up two to three times the ship capacity, implying more tankers needed
to ship volume on longer distance and delivery time.
Exhibit 210: Greater distance will increase tanker ton-miles demand
Source: BULL’s presentation material
Exhibit 212: Forecast rate of based on tanker type
Source: Worldyard
Source: Drewry Maritime Research
247
 Indonesia’s Declining production and rising consumption to support  Our stock picks and stock ratings
demand We only cover Buana Lintas Lautan (BULL) in shipping sector. We are
We see continued increase in oil and gas imports to meet oil and gas convinced that the stock will continue to enjoy higher rating as investors
consumption needs will support Indonesia’s tanker demand as it implies will price in what we perceive as solid business profile , underpinned by
longer distance to ship oil & gas compared the ones originates from time charter contracts and high utilization rate which provide good revenue
Indonesia. Meanwhile, we believe that the continued economic growth and visibility and strong profitability. We believe there is scope for BULL’ share
rising per capita income in Indonesia will drive energy consumption price to rise further as a combination higher revenue and margin
growth, which will be partly fulfilled by domestic resource production. In expansion should underpin 2019-21F strong 60% CAGR in net profit
order to optimize the use of petroleum for domestic needs and improve
national energy security, the Government issued a regulation in the form
of Regulation of the Minister of Energy and Mineral Resources (MEMR) No
Exhibit 214: Shipping sector rating and valuation
42 of 2018 concerning Priority of the Use of Petroleum for meeting
domestic needs. The regulation also states that the Cooperation Contract Bberg Mkt.Cap Last Target Upside PER EV/EBITDA ROE Yield
Contractors (KKKS) are obliged to offer their production to Pertamina at a 20F 20F
(%) (%)
price that is in line with business or business to business. These should
BULL Buy 2.2 196 378 92.8 5.8 2.9 4.3 2.9 18.4 0.0
help to fuel tanker demand in domestic routes.
Sector OW 2.2 5.8 2.9 4.3 2.9 18.4 0.0
Exhibit 213: Indonesia’s oil production vs. consumption Arief Budiman +62 21 2557 4800 ext. 819 budimanarief@ciptadana.com
1,900 1,050
1,700 1,000
Despite the reduced investment and activity, SKK Migas estimated that
950 Indonesia total oil production would touch 828,000 bopd, higher than the
1,500
900 825,000 bopd projected in the state budget. Additional production from Banyu
1,300 Urip
850 Despite the reduced investment and activity, SKK Migas estimated that
1,100
800
Indonesia
900 750
700 700
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Consumption (BPD) Production (BPD)

Source: BPS and British Petroleum
248
Buana Lintas Lautan Sector

Bloomberg Ticker
Shipping
BULL IJ
BUY TP: Rp378 (+92.8%) Share Price Performance 250 50%

40%
30%
Buana Lintas Lautan (BULL) is a tanker owner and operator with a fleet of 21 3m 6m 12m 100
10%
0%
vessels with total capacity of 1.15 mn DWT at end of June-19. This makes it Absolute (%) -1.0 14.5 25.3 -10%
the Indonesia’s second largest tanker operator in term of capacity. BULL is Relative to JCI (%) 1.0 17.9 19.1 50
-20%
potentially becoming Indonesian largest tanker operator as we estimate the 0 -30%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
company to add up to 20 more tankers by 2021. The company was listed on
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
the IDX in 2011, and has since inception in 2005 had a focus on low risk Outstanding shrs (mn) 11,353
business in Indonesian market protected by contract based income and Mkt. Cap (Rpbn/USDmn) 2,248/159 BULL 1yr Rel. to JCI (RHS)
expansion of second-hand vessels. Estimated free float (%) 40.4
Key Points 2017A 2018A 2019F 2020F 2021F
 High tanker utilisation rate. Currently, around 90% of BULL's fleet by Revenue (USDmn) 65 85 106 153 173
DWT capacity were on time charter contracts with Pertamina and the Operating profit (USDmn) 21 27 49 81 96
remaining capacity is contracted by other clients such as Petrochina, Net profit (USDmn) 9 14 28 55 71
Chandra Asri, Petronas and ExxonMobile. This translates to tanker’s EPS (US$Cents) 0.1 0.1 0.2 0.5 0.6
utilisation rate of 97% (excluding docking and maintenance).
EPS growth (%) 1,660.1 58.2 106.3 95.9 30.7
EV/EBITDA (x) 8.4 6.0 4.3 2.9 2.0
 Earnings growth of 60% CAGR seen in 2019-21F. Based on our fleet
PER (x) 19.4 11.6 5.9 2.9 2.2
expansions estimates, we model significant growth of 60% CAGR in
PBV (x) 1.1 0.9 0.7 0.5 0.4
BULL’s earnings in 2019-21F. Our earnings projections are based on the
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
assumption that BULL will acquire 20 additional vessel over 2019-2021F
which should boost revenue and margin (larger-sized tanker will ROE (%) 5.9 7.4 11.5 18.4 19.3
generate 75% GPM vs. 39% blended GPM in 2018). Assumptions

No. of tankers (unit) 2017A 2018A 2019F 2020F 2021F
 Strong balance-sheet despite expansion. We estimate debt to equity Beginning of year 13 17 17 25 35
ratio to slightly rise from 0.6x in 2018 to 0.7x in 2019F and gradually Additional 4 0 8 10 2
decrease to 0.3x in 2021F on a combination of additional loan, proceeds End of year 17 17 25 35 37
from rights issue and stronger future operating cash from generation.
249
Buana Lintas Lautan
Gross profit 28 34 58 89 104 Chg in working cap. -3 -10 -20 26 -7
EBITDA 34 44 69 105 122
Others 8 -19 -16 8 19
Other income (exp.) 0 0 -5 -5 -6
Pre-tax profit 11 15 32 62 80 Net change in debt 14 -19 57 14 -57
Income tax 0 0 -1 -2 -2 Net change in equity 17 24 61 0 0
Minority interest -3 -1 -3 -5 -7 Dividend payment 0 -3 -4 -9 -18
Net profit 9 14 28 55 71 Other financing 0 0 0 0 0
CF-Financing activities 31 2 114 5 -75
Balance Sheet Net cash flow 2 -2 28 3 11
Total current asset 59 85 138 117 135 Revenue gr. (%) 27.0 31.3 24.1 44.1 13.4
Fixed assets - net 230 223 310 401 399 Operating profit gr. (%) 147.5 27.0 85.9 63.0 19.1
Other non-curr.asset 22 22 22 22 22 Net profit gr. (%) 1,660.1 58.2 106.3 95.9 30.7
Total asset 311 330 470 541 557
Gross margin (%) 43.4 39.3 54.3 58.2 60.2
EBITDA margin (%) 52.8 51.2 65.2 68.8 70.3
Acct, payable 12 11 14 17 17
Net margin (%) 13.1 15.8 26.3 35.7 41.2
ROA (%) 2.7 4.1 5.9 10.1 12.8
ROE (%) 5.9 7.4 11.5 18.4 19.3
Long term debt 92 69 111 131 96
Total liab + SHE 311 330 470 541 557 Net debt to equity (x) 0.9 0.6 0.6 0.5 0.2
250
OTHERS
251
Surya Pertiwi Sector

Bloomberg Ticker
Trade
SPTO IJ

5%
0%
Avg. daily T/O (Rpbn/USDmn) 8.1/0.6 800 -5%
600
Surya Pertiwi (SPTO) is the largest distributor of sanitary wares and 3m 6m 12m -15%
400 -20%
bathroom fittings in Indonesia and the sole distributor of TOTO. The company Absolute (%) -9.3 2.1 -1.5
-25%
has 2 subsidiaries namely Surya Pertiwi Nusantara (SPN) and Surya Graha Relative to JCI (%) -6.4 6.4 -9.2 200
-30%
Pertiwi (SGP) which focus on manufacturing and building management, 52w High/Low price (Rp) 1,140/765
0 -35%
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
respectively.
Mkt. Cap (Rpbn/USDmn) 2,646/187 SPTO 1yr Rel. to JCI (RHS)
 Resume positive growth in FY20F. After been through an unfavourable Financial Highlights
year due to slowing sales volumes from project customers, we believe 2017A 2018A 2019F 2020F 2021F
the condition next year will be better. We expect the company to post 6% Revenue (Rpbn) 2,142 2,268 2,174 2,305 2,465
top line growth to Rp2.3 tn on the back of recovery from project Operating profit (Rpbn) 287 293 266 287 314
customers demand. Given more stable political issue, and clearer path in Net profit (Rpbn) 225 206 229 249 274
construction works, hence this will lead to a higher sales volume.
EPS (Rp) 112.7 76.3 84.8 92.3 101.6
EPS growth (%) 1.5 -32.3 11.1 8.8 10.1
 Quick respond by SPTO in anticipating demand. Recall the story of
demand from China which was taken care by TOTO. Since more domestic EV/EBITDA (x) 7.8 8.1 8.6 8.0 7.3
order to come going forward, while the capacity of TOTO is optimally PER (x) 8.7 12.8 11.6 10.6 9.6
utilized; thorough its subsidiary (SPN), SPTO has disbursed capex to add PBV (x) 6.7 2.4 2.3 2.2 2.0
500,000 pcs of its manufacturing capacity. Therefore, at the end of this Dividend yield (%) 19.9 6.7 6.1 6.8 7.4
year, we forecast SPN’s sanitary wares capacity will reach 100,000 pcs. ROE (%) 77.4 18.8 19.7 20.3 21.0
As such, with the bigger capacity, SPTO manufacturing segment will be
Assumptions
closer to achieve economies of scale, whilst will bring benefits to their
2017A 2018A 2019F 2020F 2021F
margins ahead.
Sanitary wares volume
1,804.0 1,852.0 1,759.4 1,803.4 1,861.2
(‘000)
 We maintain our BUY rating on SPTO with DCF based TP of Rp1,220, or Fittings volume(‘000) 3,460.0 3,585.2 3,405.9 3,508.1 3,620.4
offering 24.5% upside potential. Currently the stock trades at 10.6x Sanitary wares ASP (‘000) 587.4 579.1 584.9 602.4 623.5
FY20F P/E and 8.0x FY20F EV/EBITDA. Fittings ASP (‘000) 291.2 306.5 309.6 318.8 330.0
252
Surya Pertiwi
Gross profit 511 560 549 587 634 Chg in working cap. -104 -292 145 -18 -22
Oper. profit 287 293 266 287 314 CF-Oper activities 132 -48 426 299 340
EBITDA 289 324 300 335 375
Others 22 -320 22 -31 -38
Pre-tax profit 297 267 266 287 312 Net change in debt 222 -290 4 4 24
Net profit 225 206 229 249 274 Other financing 535 120 -63 65 70
CF-Financing activities 364 352 -221 -111 -103
Balance Sheet Net cash flow 21 -68 42 -28 14
Total current asset 1,011 1,128 998 1,021 1,097 Revenue gr. (%) 3.4 5.9 -4.1 6.0 7.0
Fixed assets - net 769 789 939 1,076 1,200 Operating profit gr. (%) -0.1 2.0 -9.0 7.8 9.3
Other non-curr.asset 54 91 88 93 99 Net profit gr. (%) 1.5 -8.6 11.1 8.8 10.1
Total asset 2,020 2,480 2,477 2,670 2,909
Gross margin (%) 23.9 24.7 25.3 25.5 25.7
EBITDA margin (%) 13.5 14.3 13.8 14.5 15.2
Acct, payable 436 360 343 363 386
Net margin (%) 10.5 9.1 10.5 10.8 11.1
ROA (%) 11.2 8.3 9.2 9.3 9.4
ROE (%) 77.4 18.8 19.7 20.3 21.0
Total liabilities 1,247 903 799 902 1,039 Quick ratio (x) 0.7 1.1 1.1 1.0 1.0
Shareholder equity 291 1,097 1,161 1,230 1,307 Interest cover (x) 31.9 17.0 30.0 33.6 34.1
Total liab + SHE 2,020 2,480 2,477 2,670 2,909 Net debt to equity (x) 1.0 Net Cash Net Cash 0.0 0.1
253
TOTO Sector
Bloomberg Ticker
Building products
TOTO IJ

400
25%
20%
15%
PT Surya Toto Indonesia (TOTO) was formerly known as CV Surya. Initially, 3m 6m 12m 200 5%
the company became the official sales agent of TOTO Ltd, Japan, a strong Absolute (%) -13.3 -21.5 -2.5 150
0%
100
brand name of sanitary products in 1968. Established a joint venture with Relative to JCI (%) -10.4 -17.2 -10.1
50 -5%
TOTO Ltd, Japan in 1977, was a significant milestone for the Company. In 450/29 0 -10%
52w High/Low price (Rp)
Oct-18
Nov-18
Dec-18
Jan-19
Jun-19
1985, the Company ramped up sanitary (fitting) devices factory to support
May-19
Jul-19
Feb-19
Mar-19
Apr-19
Sep-18
Aug-19
Sep-19
2
operation, while at the moment the installed facilities have been improving. Outstanding shrs (mn) 10,320
Strong presence of TOTO in Indonesia proven with approximately 65-70% Mkt. Cap (Rpbn/USDmn) 3,240/229 TOTO 1yr Rel. to JCI (RHS)
domestic shares of market. Estimated free float (%) 7.6

 FY20F will not be as dark as FY19. We think FY19F was a very dark 2017A 2018A 2019F 2020F 2021F
year for TOTO, given the significant deterioration in their margins. Revenue (Rpbn) 2,176 2,228 1,942 2,005 2,071
However, we believe FY20F the company can post positive single digit Operating profit (Rpbn) 374 449 169 206 239
revenue growth to Rp2 tn (+3% YoY). We do not think the demand for Net profit (Rpbn) 279 347 142 173 203
sanitary wares and fittings will sharply increase; yet on the back of EPS (Rp) 27.0 33.6 13.8 16.7 19.6
higher infrastructure spending and lower interest rate, the demand may EPS growth (%) 65.5 24.3 -59.0 21.7 17.2
pick up. Thus, we expect TOTO to generate Rp173 bn of net profit or EV/EBITDA (x) 7.2 6.2 12.3 10.4 9.1
translate to 21.7% growth. PER (x) 11.6 9.3 22.8 18.7 16.0
PBV (x) 1.9 1.7 1.6 1.6 1.5
 Continue to supply for China market. Until FY23F, exports to China from Dividend yield (%) 2.5 5.7 2.2 2.7 3.1
TOTO will be around 58,000 pcs per month. Usually, the exports volume ROE (%) 16.5 18.0 7.1 8.3 9.3
to China was only 30,000 pcs per month. Please note, commonly sanitary
wares exports will yield higher margins. Assumptions
Revenue (in Rp bn) 2017A 2018A 2019F 2020F 2021F
 Maintain BUY rating with TP of Rp360, or offering limited upside Sanitary 966 946 814 842 872
potential of 14.6%. We are not convinced whether the company has big Fitting 1,112 1,157 1,007 1,037 1,068
room for growth as the middle class income growth will just minimum as Kitchen System 88 115 112 117 121
well.
. Fahressi Fahalmesta +62 21 2557 4800 ext. 735 fahalmestafahressi@ciptadana.com
254
TOTO
Gross profit 535 588 349 381 428 Chg in working cap. -45 -127 -87 -26 -26
EBITDA 458 516 242 275 305
Capital expenditure -9 6 -33 -34 -35
Others -294 -122 165 -22 -22
CF-Investing activities -303 -116 132 -55 -57
Pre-tax profit 378 452 187 227 267 Net change in debt 91 -45 26 27 28
Net profit 279 347 142 173 203 Other financing -26 75 -1 -1 -1
Balance Sheet Net cash flow -3 15 215 101 111
Total current asset 1,317 1,339 1,596 1,736 1,889 Revenue gr. (%) 5.2 2.4 -12.9 3.3 3.3
Fixed assets - net 806 732 692 657 626 Operating profit gr. (%) 36.1 20.0 -62.3 21.9 16.0
Other non-curr.asset 703 826 660 682 704 Net profit gr. (%) 65.5 24.3 -59.0 21.7 17.2
Total asset 2,826 2,897 2,948 3,075 3,219
Gross margin (%) 24.6 26.4 18.0 19.0 20.7
EBITDA margin (%) 21.1 23.2 12.5 13.7 14.7
Acct, payable 178 161 145 150 155
Net margin (%) 12.8 15.6 7.3 8.6 9.8
ROA (%) 9.9 12.0 4.8 5.6 6.3
Other curr. liab 204 172 159 165 171
ROE (%) 16.5 18.0 7.1 8.3 9.3
Total liabilities 1,133 968 948 990 1,033 Quick ratio (x) 1.2 1.4 2.0 2.2 2.4
Total liab + SHE 2,826 2,897 2,948 3,075 3,219 Net debt to equity (x) 0.0 Net Cash Net Cash Net Cash Net Cash
255
VALUATION MATRIX
256
2020
Target Price Upside / Market Cap
No. Name Ticker Recommendation Price (Rp) Dividend
(Rp) Downside (Rp tn) P/E P/B EV/EBITDA
Yield (%)
Banking Overweight
1 Bank Central Asia BBCA Buy 30,250 34,400 13.7% 745.2 22.5 3.8 - 1.3
2 Bank CIMB Niaga BNGA Buy 955 1,520 59.2% 25,2 6.1 0.5 - 2.9
3 Bank Mandiri BMRI Buy 6,525 8,800 34.9% 298.7 9.3 1.4 - 3.7
4 Bank Negara Indonesia BBNI Buy 6,850 9,300 35.8% 128.2 7.4 1.0 - 2.9
5 Bank Rakyat Indonesia BBRI Buy 3,930 5,100 29.8% 487.2 11.4 2.1 - 3.7
6 Bank Tabungan Negara BBTN Hold 1,895 2,200 16.1% 20.1 6.7 0.8 - 1.6
7 Bank BTPN Syariah BTPS Buy 3,260 4,080 25.2% 25.6 16.4 4.0 - 1.5
Consumer Overweight
8 sIndofood CBP ICBP Hold 12,225 13,330 9.0% 142.6 25.3 5.6 15.3 2.9
9 Indofood Sukses Makmur INDF Buy 7,850 9,560 21.8% 68.9 14.5 1.9 7.1 5.6
10 Mayora Indonesia MYOR Buy 2,300 2,890 25.7% 51.6 23.9 4.6 13.9 1.3
11 Unilever Indonesia UNVR Buy 45,425 52,540 15.7% 346.6 42.6 45.4 29.3 2.3
Cigarette Neutral
12 Gudang Garam GGRM Hold 49,500 50,990 3.0% 95.2 11.7 1.9 8.2 6.5
13 HM Sampoerna HMSP Buy 2,150 2,420 12.6% 250.1 16.5 6.7 11.8 6.5
Telecommunication Overweight
14 sIndosat ISAT Hold 2,810 2,750 -2.1% 15.3 -9.4 2.0 4.5 0.0
15 XL Axiata EXCL Buy 3,250 3,925 17.2% 35.8 40.9 1.9 5.4 0.4
16 Telekomunikasi Indonesia TLKM Buy 4,190 4,900 16.9% 415.1 18.4 4.1 6.2 3.9
Tower Overweight
17 Sarana Menara TOWR Buy 660 900 36.4% 33.3 14.9 3.5 8.2 3.8
18 Tower Bersama TBIG Buy 6,150 9,350 52.0% 24.6 23.7 6.4 11.6 2.6
257
2020
Yield (%)
Metal Mining Overweight
19 Aneka Tambang ANTM Buy 960 1,100 14.6% 23.1 18.1 1.1 10.0 1.2
20 Merdeka Cooper Gold MDKA Buy 6,350 8,200 29.1% 27.8 19.5 3.6 9.0 0.0
21 Timah TINS Buy 965 1,320 36.7% 4.9 9.5 1.0 6.8 2.2
22 Vale Indonesia INCO Buy 3,640 4,600 26.4% 36.2 16.4 1.3 7.5 0.0
Construction Overweight
23 Adhi Karya ADHI Buy 1,340 2,120 58.2% 4.8 4.4 0.7 4.0 3.9
24 PT PP PTPP Buy 1,790 2,570 43.6% 11.1 5.9 0.8 3.7 4.1
25 Waskita Karya WSKT Hold 1,665 1,950 17.1% 22.3 8.8 1.3 8.4 3.5
26 Wijaya Karya WIKA Buy 2,000 2,750 37.5% 17.9 9.6 1.2 4.8 3.2
27 Wika Beton WTON Buy 482 710 47.3% 4.2 7.8 1.5 4.8 2.8
Plantations Overweight
28 Astra Agro Lestari AALI Hold 10,750 10,800 0.5% 20.7 118.3 1.1 14.5 0.1
29 Dharma Satya Nusantara DSNG Buy 328 400 22.0% 3.4 8.3 0.8 5.7 1.5
30 PP London Sumatra LSIP Hold 1,215 1,120 -7.8% 8.0 31.5 1.0 11.3 0.4
31 Salim Ivomas SIMP Buy 336 410 22.0% 5.2 19.4 0.3 3.6 1.5
32 Tunas Baru Lampung TBLA Buy 885 1,040 7.8% 5.2 7.2 1.2 8.4 6.7
Property Overweight
33 Alam Sutera Lestari ASRI Buy 290 390 34.5% 5.4 7.0 0.4 7.8 0.0
34 Bekasi Fajar Industrial BEST Buy 238 330 38.7% 2.3 4.9 0.5 4.8 3.8
35 Estate
Bumi Serpong Damai BSDE Buy 1,325 1,900 43.4% 25.5 12.1 0.8 8.9 0.2
36 Intiland Development DILD Hold 398 430 8.0% 4.0 56.8 0.7 21.6 0.0
37 Lippo Karawaci LPKR Buy 230 370 60.9% 16.3 50.5 0.5 51.0 0.1
38 Pakuwon Jati PWON Buy 410 800 31.1% 29.4 10.7 1.8 7.6 1.5
39 Summarecon Agung SMRA Buy 1,155 1,500 29.9% 16.5 54.4 2.2 12.8 0.3
40 Surya Semesta Internusa SSIA Buy 795 920 15.7% 3.7 75.0 0.9 9.8 0.1
258
2020
Yield (%)
Cement Overweight
41 Indocement TP INTP Hold 18,925 20,000 5.7% 69.7 46.2 3.0 21.9 1.5
42 Semen Indonesia SMGR Buy 12,250 16,000 30.6% 72.7 23.9 2.2 9.7 1.4
Toll Road Neutral

43 Jasa Marga JSMR Hold 5,775 6,000 3.9% 41.9 20.2 2.0 10.9 1.0
Retail Overweight
44 sAce Hardware ACES Buy 1,770 1,990 12.4% 30.4 22.8 5.3 17.8 1.7
45 Erajaya Swasembada ERAA Buy 1,825 2,130 16.7% 5.3 6.8 1.0 4.5 2.0
46 Matahari Dept Store LPPF Buy 3,240 4,180 29.0% 9.5 6.0 2.6 3.3 8.3
47 Ramayana Lestari RALS Buy 1,200 1,900 58.3% 8.1 12.7 1.7 5.9 3.6
Healthcare Overweight
48 Kalbe Farma KLBF Hold 1,675 1,790 6.9% 78.5 28.6 4.6 17.9 1.7
49 Siloam Hospitals SILO Buy 7,100 7,980 12.4% 8.2 175.2 1.3 7.4 0.0
Automotive Neutral
50 Astra International ASII Buy 6,575 7,900 20.2% 266.2 11.4 1.7 7.4 3.7
Heavy Equipment Neutral

51 United Tractors UNTR Buy 21,200 25,000 17.9% 79.1 6.6 1.1 3.3 6.0
Oil and Gas Overweight

52 Medco MEDC Buy 730 1,150 57.5% 13.0 6.7 0.6 4.7 0.0
53 Gas Negara PGAS Buy 2,160 2,410 11.6% 52.4 11.7 1.3 4.1 3.4
259
2020
Yield (%)
Coal Neutral
54 Adaro Energy ADRO Hold 1,285 1,350 5.1% 41.1 6.5 0.7 3.1 4.5
55 Harum Energy HRUM Hold 1,350 1,340 -0.7% 3.7 9.8 0.8 1.3 3.0
56 Indo Tambangraya ITMG Hold 12,800 13,650 6.6% 14.5 12.0 1.3 5.2 9.8
57 Bukit Asam PTBA Hold 2,490 2,550 2.4% 28.7 8.6 1.8 4.8 10.8
Media Overweight
58 Media Nusantara Citra MNCN Buy 1,235 1,750 41.7% 15.3 7.1 1.1 5.2 2.8
59 Surya Citra Media SCMA Buy 1,190 1,500 26.0% 17.4 11.1 2.9 7.2 5.4
Aviation Neutral
60 Garuda Indonesia GIAA Buy 484 650 34.3% 12.5 9.7 1.0 6.6 0.0
Poultry Neutral
61 Charoen Pokphand CPIN Hold 5,225 5,000 -4.3% 85.7 23.7 3.7 14.5 1.7
62 Japfa Comfeed JPFA Hold 1,585 1,750 10.4% 16.9 11.4 1.6 6.4 2.5
63 Malindo Feedmill MAIN Hold 940 950 1.1% 2.1 7.8 0.8 5.3 2.2
Shipping Overweight
64 Buana Lintas Lautan BULL Buy 198 378 92.8% 2.2 2.9 0.5 2.9 0.0
Others Overweight
65 Surya Pertiwi SPTO Buy 980 1,220 24.5% 2.6 10.6 2.2 8.0 6.8
66 Surya Toto TOTO Buy 314 360 14.6% 3.2 18.7 1.6 10.4 2.7
260
TECHNICAL ANALYSIS
261
Technical Analysis
IHSG : Forming Wave C

JCI bounced from the lowest level of 5,767. Resistance level at 6,395. Next support and resistance level at 5,557-6,636. Based on Elliot wave
approach, as we discussed before, JCI is forming corrective wave ABC.
We noted that the lowest level of 5,557 as the bottom of wave A. The peaks of wave X likely at the level of 6,117 which occurred on August 8,
2018. The lowest level of 5,623 which occurred on October 25, 2018 noted as the bottom of sub wave Y and the highest level of 6,636 which
occurred on April 18, 2019 as the peaks of wave Z of the peaks of wave minor B.
Based on this wave counting, the index now is forming wave down minor C. The lowest level 5,767 which occurred on May 20,2019, noted as
the bottom of wave minor (1) of wave C. The penetration of support level of 5,767 will indicate that the peaks of wave minor (2) has already
founded and the index will form wave down minor (3).
Meanwhile, alternate bullish wave counting that might occur is that the index is forming corrective wave triangle type and will form wave down
E which is the last wave of the corrective wave cycle before continuing the bullish trend (see chart below). This counting wave automatically
false if the index moves below the level of 5,767.
262
Technical Analysis
First Scenario : The peaks of wave B around the level of 6,636 then the index start to form wave down C which is the last wave of the mid-term
corrective wave cycle. The lowest level of 5,767 which occured on May 17, 2019 noted as the bottom of wave (1) of C, then the highest level of
6,468 which occured on July 22, 2019 noted as the peaks of wave (2) of C. Because the wave (3) usually the longest wave, then wave (3) likely
will form an extended wave. Based on this assumption, the lowest level of 6,022 which occured on August 6, 2019 as the bottom of wave 1 of
wave (3) of C then the highest level of 6,414 which occured on September 12, 2019 as the peaks of wave 2 of wave (3) of C. Based on this wave
counting, now the index is forming wave 3 of (3) of C. Theoretically wave 3 could reach 216.8% fibonacci projection ( around the level of 5,250).
Wave 4 will retrace around 38.2% fibonacci retracement ( around the level of 5,660). Finally wave 5 of (3) could reach the level of 4,900. This
wave counting will false if the index moves above the level of 6,636
.
^JKSE (6,121.49, 6,146.40, 6,086.00, 6,146.40, +8.79590)
6850
(5) B
6800
6750
-z-
6700
6650
6600
(2)
6550
ii 6500
6450
6400
6350
6300
-x- 6250
6200
6150
6100
6050
6000
i 5950
5900
5850
iv 5800
(1) 5750
5700
5650
5600
-y- 5550
A (4) 5500
5450
5400
5350
5300
5250
5200
iii 5150
5100
5050
5000
4950
4900
4850
v 4800
4750
(3) 4700
4650
4600
4550
4500
4450
4400
4350
4300
4250
2016 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2017 Mar Apr May Jun Aug Sep Oct Nov Dec 2018 Mar Apr May Jun Aug Sep Oct Nov Dec 2019 Mar Apr May Jun Aug Sep Oct Nov Dec 2020 Mar Apr May Jun Jul Aug Sep Oct Nov
C
4
Assumption : C=4
263
Technical Analysis (continued)
Bullish count : Alternate bullish wave counting that might occur is that the index is forming corrective wave intermediate (4) triangle type and
now is forming wave down E which is the last wave of the corrective wave cycle before continuing the bullish trend (see chart below). Based
on this wave counting the peaks of the bullish wave could reach the level of 7,550. This counting wave automatically false if the index moves
below the level of 5,767
.
^JKSE (6,121.49, 6,146.40, 6,086.00, 6,146.40, +8.79590)
7900
5 7800
7700
7600
7500
3 7400
7300
7200
7100
7000
(3) 1 6900
4 6800
B
6700
6600
D
6500
6400
6300
2
-x- 6200
6100
6000
5900
E
5800
(4)
C 5700
5600
A 5500
5400
5300
5200
5100
5000
4900
4800
4700
4600
4500
4400
4300
4200
4100
C 4000
4 Nov Dec 2016 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2017 Mar Apr May Jun Aug Sep Nov Dec 2018 Mar Apr May Jun Aug Sep Nov Dec 2019 Mar Apr May Jun Aug Sep Oct Nov Dec 2020 Mar Apr May Jun Jul Aug Sep Oct Nov
Assumption : C=4
264
Big picture : The Mid term bullish cycle which started from September 1998 has likely completed and JCI is forming intermediate correctivce wave
cycle ABC. This wave counting will confirm if the index moves below the peaks of wave 3 ( below the level of 5,525)
^JKSE (6,168.67, 6,230.33, 6,165.93, 6,230.33, +83.9302)
(5) B 7000
6500
(3)
6000
3 5500
A
5000
4500
C? 4000
(4)
4
3500
1
3000
2500
2000
1500
(1) 2 1000
500
(2)
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
265
Consumer sector : Consumer sector likely formed a reversal bearish Head and shoulder pattern.
^CONSUMER (2,170.86, 2,174.44, 2,141.85, 2,152.82, -19.1689)

3150
3100
3050
3000
Bearish Head and SHoulder pattern Head
2950
2900
Shoulder 2850
2800
Shouder 2750
2700
2650
2600
2550
2500
2450
2400
2350
2300
2250
2200
2150
Broke support of H&S patttern
2100
2050
2000
1950
1900
1850
1800
1750
Theoretical target 1700
1650
1600
1550
1500
1450
1400
1350
1300
1250
1200
1150
M A M J J A S O N D 2013 M A M J J A S O N D 2014 M A M J J A S O N D 2015 M A M J J A S O N D 2016 M A M J J A S O N D 2017 M A M J J A S O N D 2018 M A M J J A S O N D 2019 M A M J J A S O
266
Finance sector : Finance sector moved below minor support level of 1,227. The short-term trend turns into negative.
^FINANCE (1,209.07, 1,221.10, 1,208.36, 1,219.23, +12.1029)

1380
1370
1360
1350
1340
1330
1320
1310
1300
1290
1280
1270
1260
1250
1240
1230
1220
1210
1200
1190
1180
1170
1160
1150
1140
1130
1120
1110
1100
1090
1080
1070
1060
1050
1040
1030
1020
1010
1000
990
980
970
960
950
March April May June July August September October November December 2019 February March April May June July August September October
267
RESEARCH
Head of Research
Arief Budiman ANALYST ANALYST
Strategy, Automotive, Construction Erni Marsella Siahaan, CFA Yasmin Soulisa
Heavy Equipment, Oil and Gas, Banking Property, Plantations
Shipping T +62 21 2557 4800 ext 919 T +62 21 2557 4800 ext 799
T +62 21 2557 4800 ext 819 E siahaanerni@ciptadana.com E soulisayasmin@ciptadana.com
E budimanarief@ciptadana.com
ECONOMIST ANALYST ANALYST

Nicko Yosafat Fahressi Fahalmesta Robert Sebastian
Macro Economy Cement, Toll Road, Aviation, Poultry Retail, Healthcare
T +62 21 2557 4800 ext 820 T +62 21 2557 4800 ext 735 T+62 21 2557 4800 ext 760
E yosafatnicko@ciptadana.com E fahalmestafahressi@ciptadana.com E sebastianrobert@ciptadana.com
ANALYST
ANALYST ANALYST
Muhammad Fariz
Gani Thomas Radityo
Consumer, Cigarette
Telco, Tower, Media Coal, Metal mining
T +2 21 2557 4800 ext 740
T +62 21 2557 4800 ext 734 T +62 21 2557 4800 ext 795
E farizmuhammad@ciptadana.com
E gani@ciptadana.com E radityothomas@ciptadana.com
TECHNICAL ANALYST RESEARCH ASSISTANT

Trevor Gasman Sumarni
T +2 21 2557 4800 ext 934 T +2 21 2557 4800 ext 920
E gasmantrevor @ciptadana.com E sumarni@ciptadana.com
PT CIPTADANA SEKURITAS ASIA

Plaza ASIA Office Park unit 2
Jl. Jend. Sudirman kav. 59
Jakarta 12190
T +62 21 2557 4800
F +62 21 2557 4900
E research@ciptadana.com
www.ciptadana.com
269

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EQUITY MARKET OUTLOOK 2015

EQUITY MARKET OUTLOOK 2020 :

Toll Road Sector .................................................................................. 162 Media Sector ...................................................................................... 220

Coal Sector........................................................................................... 200 Valuation Matrix ................................................................................. 257

Economic Outlook Exhibit 1: Global Economic Growth Forecast

 Food still the main contributor of inflation Health 3.50%

 Stronger rupiah amid uncertainty 13,500

Nicko Yosafat +62 21 2557 4800 ext. 820 yosafatnicko@ciptadana.com

 Underperformer market so far

Exhibit 19: Market EPS estimates 3,000

Source: Ciptadana 55%

Prop & Constr

Infra & telco

10 BNLI 1,160 85.6 14.8 INAF 1,520 -76.6 -13.8

Source: Bloomberg and Ciptadana

 Key investment themes

Exhibit 26: Our stock picks

Bberg Mkt.Cap Last Target Upside PER EV/EBITDA* ROE Yield

*PBV for banks

Arief Budiman +62 21 2557 4800 ext. 819 budimanarief@ciptadana.com

25% Source: OJK and Ciptadana Sekuritas Asia

50,000 4.4% 5.0%

Source: Bloomberg, Ciptadana

Bank Central Asia

BUY TP: Rp34,400 (+13.7%) Share Price Performance

Bank Rakyat Indonesia

Key Points Financial Highlights

Bank Mandiri Sector

BUY TP: Rp8,800 (+34.9%)

Mandiri is majority-owned by government of Indonesia and has the most 0 -5%

Bank Negara Indonesia Sector

BUY TP: Rp9,300 (+35.8%) Share Price Performance 10,000

Bank Tabungan Negara Sector Banking

Key Points Mkt. Cap (Rpbn/USDmn) 20,068/1,419

Bank CIMB Niaga Sector

BUY TP: Rp1,520 (+59.2%)

BTPN Syariah Sector

BUY TP: Rp4,080 (+25.2%)

shares are owned by PT Bank Tabungan Pensiunan Nasional, Tbk (70%). 0 0%

Estimated free float (%) 30.0

Source: Bloomberg, Ciptadana

Exhibit 40: Skim Milk Powder (SMP) Price

UNVR MYOR D ICBP Agregate Sales

Source: Company, Ciptadana

HOLD TP: Rp13,330 (+9.0%) Bloomberg Ticker ICBP IJ

Key Points Estimated free float (%) 19.5

Indofood Sukses Makmur Sector

 BUY with TP of Rp 9,560/share. INDF is currently trading at FY20F PER of Assumptions

Mayora Indah Sector

BUY TP: Rp2,890 (+25.7%) Share Price Performance 3,000 0%

Estimated free float (%) 15.7

Unilever Indonesia Sector

Source: SEATCA, TH Excise Tax Dept., TH MOF

Departement of Health Budget

20.0 Exhibit 50: Philippine Healthcare Budget (PHP billion)

Asia Pacific Indonesia China

 How to play the sector? 0.85

safeguard their full year margin by raising prices aggressively to 0.65

Source: Bloomberg, Ciptadana