PEFINDO Rating Criteria & Methodology

Automotive Industry - Key Success Factors

BUSINESS RISK ASSESSMENT

Market Position
The analysis covers deep risk assessments on the company's competitive advantages from its business and
market position. Given lack of information on the industry sales values, sales volumes are used as a proxy
to estimate the company’s market share. The examination is further broken down to the company's market
share in different segments, manufacturers, types of products, brands, and etc. Strong market share is
important to determine the company's capability in negotiating with its principal, suppliers, distributors,
and regulators. A company with the largest market share also often becomes the price leader, offering
more flexibility to adjust selling prices. In addition, strong market position could provide the company a
better resistance towards any unfavorable business development as compared to a company with smaller
and weaker business position. The analysis also reviews several other important factors that affect the
company's market share such as brand awareness, product quality, product mix strategy, pricing strategy,
reliability, after sale services, and principal supports and commitments.

Operating Management
The analysis includes careful reviews on the company's margin management in an effort to operate
businesses in the most efficient way. Examination on utilization of factory capacity is one of the main factors
to see the degree of efficiency, as production activities in automotive industry usually involve sizable fixed
costs. In addition, as revenues of automotive manufacturers are mainly in Rupiah, the analysis also includes
deep reviews on the company's capability to localize materials, reduce currency mismatch between revenue
and material costs, and pursue foreign currency revenue by exploring the export market. The principal's
global strategy, supports, policy as well as capability and flexibility to penetrate the export market are also
examined. Working capital management, including inventory management, receivable collection, and
payable management, is also analyzed to determine the degree of the company's efficiency and capability
to run businesses. The analysis on operating margins (EBIT and EBITDA) is also assessed by comparing
the company’s ratios with other players in the same industry or other industry with similar characteristics,
which is important in analyzing the company’s competitiveness. The analysis is helpful to measure
operating efficiency and the company’s flexibility in adjusting selling price.

Product Range and Development

The analysis covers the examinations on the company's ability to offer variety of products that enables the
company to capture wider market segments with different demand characteristics. Having strong position
in many market segments will offer more stable revenue stream than that of those who only focus on single
market segment. The company's capability to follow customers' rapidly changing preferences and needs is
also evaluated to see the degree of the company's ability in product development that is generally measured
by the company's facility, human resources and amount of the budget for research and development (R&D).

Marketing and Distribution

The analysis covers thorough examinations on the company's marketing and distribution networks that
enable the company reaching wider customer base. The company's ability, policy and commitment to
advertise and strengthen customers' awareness on the products, distribution network to ensure product
availability in targeted market place are also thoroughly analyzed. Extensive distribution networks should
offer better geographic diversity, which in turn is expected to lighten revenue instability from certain
marketing area/location. The company's strengths on marketing and distribution networks should be
reflected by number and distribution of branches, dealers, workshops, and supports from financing
companies as well as spare-part provider networks.

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 PEFINDO Rating Criteria & Methodology

FINANCIAL RISK ASSESSMENT

Financial Policy
The analysis includes a review of management's philosophy, strategy and policies toward financial risk
(historical, current and future). It also includes examination of management's financial targets (growth,
leverage, debt structure and dividend policy), hedging and other policies in an effort to reduce the
company's overall financial risk (historical vs. future). The company's track record on fulfilling its previous
financial obligations is also examined to determine the degree of its commitments and willingness and
consistency to pay obligations on a timely basis.

Capital Structure
The analysis covers careful examination of the company's historical, current and projected leverage (total
and net debt in relation to equity and EBITDA), debt structures and composition (rupiah vs. foreign
currencies, short-term debt vs. long-term debt, fixed rate vs. floating rate). Management of its liabilities is
also thoroughly reviewed.

Cash Flow Protection And Liquidity

The analysis covers thorough reviews of the company's cash flow generation and capability to meet its
short-term and long-term financial obligations. The degree of its debt-servicing capability level is measured
by the company's interest and debt coverage ratio. The degree of its liquidity in fulfilling its short-term
liabilities relative to its sources of cash is also thoroughly assessed. The sources of cash are assessed, which
include cash balance, estimated cash from operations, unused credit facilities, and other sources of cash.
The uses of cash other than short-term liabilities, such as capital expenditure, are also assessed.

Financial Flexibility
The analysis covers combined evaluations of all the financial measures above to arrive at an overall view
of the company's financial health. Analysis of other related factors or figures that are not specifically
examined above, such as insurance coverage, restrictive covenants in loan/bond agreements or parental
linkage and support, are also covered. Other analytical tasks covered are the evaluation of the company's
options under stress, including contingency plans and other capabilities and flexibility to deal with various
adverse scenarios. Shareholder support and commitment are also greatly considered.

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 PEFINDO Rating Criteria & Methodology

DISCLAIMER
The rating contained in this report or publication is the opinion of PT Pemeringkat Efek Indonesia (PEFINDO) given based on the
rating result on the date the rating was made. The rating is a forward-looking opinion regarding the rated party’s capability to meet
its financial obligations fully and on time, based on assumptions made at the time of rating. The rating is not a recommendation for
investors to make investment decisions (whether the decision is to buy, sell, or hold any debt securities based on or related to the
rating or other investment decisions) and/or an opinion on the fairness value of debt securities and/or the value of the entity assigned
a rating by PEFINDO. All the data and information needed in the rating process are obtained from the party requesting the rating,
which are considered reliable in conveying the accuracy and correctness of the data and information, as well as from other sources
deemed reliable. PEFINDO does not conduct audits, due diligence, or independent verifications of every information and data received
and used as basis in the rating process. PEFINDO does not take any responsibility for the truth, completeness, timeliness, and accuracy
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anticipated at the time they were first assigned. PEFINDO has the right to withdraw ratings if the data and information received are
determined to be inadequate and/or the rated company does not fulfill its obligations to PEFINDO. For ratings that received approval
for publication from the rated party, PEFINDO has the right to publish the ratings and analysis in its reports or publication, and publish
the results of the review of the published ratings, both periodically and specifically in case there are material facts or important events
that could affect the previous ratings. Reproduction of the contents of this publication, in full or in part, requires written approval
from PEFINDO. PEFINDO is not responsible for publications by other parties of contents related to the ratings given by PEFINDO.

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