Indonesia strategy! research

I N D O N E S I A

STRATEGY

August 2011

The Spending Boom

Refer to last page for important disclosures.

TOP CALLS

Share Target FY11Ticker Price Price PE

(Rp) (Rp) (x)

Top BUYs

Alam Sutera Realty ASRI IJ 390 500 13.6

Astra International ASII IJ 65,050 81,000 14.4

Bank Mandiri BMRI IJ 7,350 9,100 14.2

Indocement TP INTP IJ 14,500 19,600 15.0

Share Target FY11Ticker Price Price PE

(Rp) (Rp) (x)

Kalbe Farma KLBF IJ 3,175 4,075 19.1

Mitra Adiperkasa MAPI IJ 4,225 5,025 21.3

United Tractors UNTR IJ 23,950 32,000 17.4

Top SELLBakrie Sumatera UNSP IJ 385 340 14.8

Note: Closing prices as at 8 August 2011

Looking forward to 2012. Jakarta Composite Index (JCI) has reachedits historical high of 4,193 in Aug 11 on the back of strong 1H11corporate results and robust economic growth. Thus, we raise ouryear-end 2011 estimate to 4,500 and introduce year-end 2012 target at5,300, assuming the same forward PE of 15.0x. We foresee EPS of theIndonesian stock market growing 25% in 2011, 20% in 2012 and 17.5%in 2013, driven by strong consumer spending growth, turnaroundcompanies and accelerated infrastructure development.

On the verge of a spending boom. We pick the following investmentthemes for 2H11: a) riding the spending boom, b) benefitting fromturnaround companies, c) benefitting from a stronger rupiah, and d)acceleration of infrastructure development propelled by thegovernment's political will.

Spending acceleration supported by structural improvement ofeconomy. Indonesia is a domestic-driven economy but may developits export capabilities in the future. With growing confidence in thecountry, cheap labour and improved infrastructure, there areopportunities for Indonesia to develop as a production base formultinational companies, so exports will likely become an importantgrowth driver for the economy.

Top stock picks. Strong growth in consumer spending has made apositive impact on industries, so we have seen a turnaround incompanies from various sectors. Beneficiaries include Alam SuteraRealty, Astra International, Bank Mandiri, Indocement TunggalPrakarsa, Kalbe Farma, Mitra Adiperkasa and United Tractors.

This report uses the closing prices of 8 August 2011.

Contents

Executive Summary .................................................................................................. 1

The Spending Boom .................................................................................................. 3

Sector Review

- Automobile: OVERWEIGHT ............................................................................... 28

- Banking: OVERWEIGHT.................................................................................... 32

- Cement: OVERWEIGHT .................................................................................... 37

- Consumer: OVERWEIGHT ................................................................................ 41

- Metal Mining: MARKET WEIGHT .................................................................... 49

- Plantation: UNDERWEIGHT .............................................................................. 57

- Property: OVERWEIGHT ................................................................................... 63

Top Stock Picks

- Alam Sutera Realty .............................................................................................. 68

- Astra International ................................................................................................ 70

- Bank Mandiri ....................................................................................................... 72

- Indocement Tunggal Prakarsa ............................................................................. 74

- Kalbe Farma ........................................................................................................ 76

- Mitra Adiperkasa ................................................................................................. 78

- United Tractors .................................................................................................... 80

Corporate Statistics ................................................................................................. 82

Indonesia Strategy – The Spending Boom 1

EXECUTIVE SUMMARY

New high with greater speed. We raise our year-end 2011 JCI estimate to 4,500, or15.0x 2012F PE (+1.1 SD 5 years average), and we believe JCI should be trading at5,300 at year-end 2012, assuming the same valuation of 15.0x 2013F PE. We believerising optimism on economic fundamentals, faster earnings growth, a stable politicalclimate, and declining risk aversion have driven the re-rating of the JCI to a new high.We set our new estimate based on EPS growth of 25% for 2011, 20% for 2012, and17.5% for 2013.

The return of confidence. Indonesia’s GDP has surpassed the pre-Asian financialcrisis level in real terms, but spending only recovered last year as consumer confidencereturns. Consumer confidence has been low since the political turmoil in 1998-2002.Now, with smooth presidential and parliamentary elections in 2004 and 2009, confidencehas returned as shown by some AC Nielsen surveys. As a result, spending growth andcompanies’ strong revenue growth are likely to continue in the next 4-5 years. Weforecast 6.4% and 6.3% economic growth for 2011 and 2012 respectively. We believethe buoyant economy is driven by high optimism because the worst is over and Indonesiais moving into a new stage of economic development.

Earnings growth momentum. As we had predicted, Indonesian companies reportedstrong 1H11 earnings growth on the back of robust domestic demand, low interest ratesand stable inflation. Companies under our coverage posted strong aggregate earningsgrowth of 35% yoy in 1H11, while the whole JCI posted 42% yoy aggregate earningsgrowth in the same period. We expect earnings growth to remain strong in 2H11 drivenby robust consumer demand from the festive seasons and government project spending.In the longer term, earnings growth momentum will continue on the back of higherconsumer confidence given the economic well-being and a stable political climate.

Asset price reflation to continue. The return of consumer confidence, robust economicgrowth, and low interest rates have led to faster asset price reflation in the last twoyears, from land to stock prices. Rising land prices have created the wealth effect forproperty owners and new opportunities for developers as they can develop new suburbanareas in Greater Jakarta which have lower land prices (such as Serpong and Bekasi).Most importantly, we believe land prices are not bubbling at this level. If we compareland prices in strategic locations in Greater Jakarta that increased eightfold (1996-2011CAGR: 15%) with Big Mac prices that increased by 5.6 times (around 12% CAGR) in1996-2011, we think land prices have not been overvalued yet.

Less affected by global economic slowdown. Worries over how intensifying Europeandebt problems and US economic woes could tip the global economy into a double diprecession have caused a sell-off in global financial markets. Meanwhile, Indonesia’seconomy is domestic-driven and its fundamentals are less affected by a global economicslowdown. During the 2009 global recession, Indonesia still managed to post a 4.5% yoyGDP growth. We believe the situation in Indonesia is very different from that in the US.While the US has suffered a rating downgrade with a negative outlook, Indonesia isexpecting a rating upgrade to investment grade. Indonesia has a budget deficit of lessthan 2% and a debt-to-GDP ratio of 24%.

2 Indonesia Strategy – The Spending Boom

Structural improvement of economy. Indonesia has a domestic-driven economy.However, with growing confidence in the country, cheap labour and improvedinfrastructure, there are opportunities for Indonesia to develop as a production base formultinational companies, so exports will likely become an important growth factor for theeconomy. The high growth in fixed capital formation in 1H11 was supported by stronggrowth in foreign direct investment (FDI) and domestic direct investment (DDI) thatgrew 24% yoy and 39% yoy respectively in 1H11 (31% yoy and 11% yoy in 2Q11). Atthe same time, domestic spending will remain the main growth driver with the number ofmiddle-class households rising from 13m in 2010 to 27m in 2015, or from 22% to 45% oftotal households.

On the verge of a spending boom. Indonesia has fully recovered from the 1998 Asianfinancial crisis and survived the 2008 global financial crisis. Currently enjoying higherpurchasing power and confidence, Indonesia has become an attractive market. We pickthe following investment themes for 2H11: a) riding the spending boom as consumerpurchasing power will improve further, b) benefitting from turnaround companies thatare mostly under-covered and have shown strong earnings growth as demand for theirproducts has recovered and they have greater financial flexibility, c) benefitting from astronger rupiah, which has strengthened not only due to the weak US$ but also due to theimprovement in Indonesia’s economic structure, and d) acceleration of infrastructuredevelopment propelled by the government’s political will.

Top stock picks. Strong growth in consumer spending has made a positive impact onindustries, and we have seen a turnaround in companies from various sectors. We believeIndonesia is entering a consumer spending boom. Beneficiaries include Alam Sutera,Astra International, Bank Mandiri, Indocement Tunggal Prakarsa, Kalbe Farma, MitraAdiperkasa and United Tractors. We have a SELL call on Bakrie Sumatra Plantation onthe back of an expected decline in CPO prices.


THE SPENDING BOOM

Outlook

ECONOMY, GDP

Understated optimism. Indonesia’s economy has been growing rapidly in the last oneyear, driven by high optimism that the country’s economic growth is back on track in astable political climate. It is optimism, not only economic fundamentals, which determinesthe pace of Indonesia’s economic growth. Economy-wise, Indonesia fully recoveredfrom the 1998 Asian economic crisis in 2003 when real GDP surpassed the 1997 level.However, in terms of consumer optimism, Indonesia only fully recovered from the Asiancrisis in 2009 when the consumer index hovered consistently above the 100 level, whichwas after the parliamentary election and ahead of the presidential election. Politicalturmoil was the culprit behind Indonesia’s dented consumer confidence in 1998-2002, inour view.

We think the current situation is sustainable, as Indonesians have regained their confidence– Nielsen Indonesia’s surveys show that Indonesians are confident of financial well-being, backed by a stable political climate, smooth leadership transitions and freedom ofspeech.

Figure 1: Indonesia Fully Recovered From 1998 Crisis

Source: CEIC, Bloomberg

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Figure 3: Indonesians World's Third Most Confident People

Source: AC Nielsen

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Figure 4: Expect Sovereign Rating Upgrade

Country S&P Moody's Fitch

Indonesia BB+ Ba1 BB+Philippines BB+ Ba2 BBB-Thailand A- Baa1 A-

Number of upgrades required for investment grade

S&P Moody's FitchIndonesia 1 1 1Philippines 1 2 Inv.GradeThailand Inv.Grade Inv.Grade Inv.Grade

Source: Bloomberg, UOB Kay Hian

Figure 2: Consumer Confidence Sustainable Since 2009


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Burgeoning middle class. The huge proportion of the population with rising purchasingpower will become an engine for economic growth as we foresee acceleration in spendinggrowth, driven by the burgeoning middle-income population. The number of middle-classhouseholds (defined as those with annual income exceeding US$5,000) is expected tomore than double from 13m in 2010 to 27m in 2015, or from 22% to 45% of total households.Meanwhile, AC Nielsen estimates the middle-income population of about 18m with anannual income of US$15,000 in Indonesia is expected to double in numbers in the nextfive years to 36m, or about 14% of the total population.

Figure 5: Middle-class Households In Emerging Markets

Source: Boston Consulting Group

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Figure 6: Rising Retail Sales Index Implies Stronger Spending

Source: CEIC

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Asset price reflation to continue. The return of consumer confidence, robust economicgrowth and low interest rates have led to faster asset price reflation in the last two years,from land to stocks. Rising land prices have created the wealth effect for propertyowners and new opportunities for developers as they can develop new suburban areasin Greater Jakarta which have lower land prices (such as Serpong and Bekasi). Landprices in Jakarta increased around fourfold in eight years from 1996 to 2009, but doubledin 2009-10.

However, we believe land prices in Indonesia are far from bubbling yet. If we compareland prices in strategic locations in Greater Jakarta that increased eightfold (1996-2011CAGR: 15%) with Big Mac prices that increased by 5.6 times (around 12% CAGR) in1996-2011, we think land prices have not been overvalued yet. The larger increase inland prices was due to the unique characteristic of property assets, expectations ofcontinuing robust growth and high confidence. On the other hand, Big Mac price hikesresulted from stiffening competition. Meanwhile, the JCI index increased by 702% overthe same period.

Figure 7: Indonesia On The Verge Of A Spending Boom

Source: Mitra Adiperkasa, Ramayana Lestari Sentosa, UOB Kay Hian

Cashier queues at sports retail outletPlanet Sports in Jakarta

Promotional events held at middle-upDebenhams department store in Jakarta The situation inside Debenhams

Middle-low Ramayana department store inSamarinda, East Kalimantan


Figure 10: Land Prices In Strategic Location (Estimated)

(Rpm/m²) 1996 2011 15-year CAGR

ASRI 0.6 5.5 17%SMRA 0.5 4.0 15%BSDE 0.5 4.0 15%

Source: Respective companies

Figure 9: Big Mac Price vs JCI

Source: Bloomberg

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Figure 8: Low Interest Rate Environment

Source: CEIC

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Earnings growth momentum. As we have predicted, Indonesian companies reportedstrong 1H11 earnings growth on the back of strong domestic demand, low interest ratesand stable inflation. Companies under our coverage posted strong aggregate earningsgrowth of 35% yoy in 1H11, while the whole JCI posted 42% yoy aggregate earningsgrowth in the same period. Furthermore, some companies showed a turnaround as demandrecovered. Thus, they can enjoy improved economies of scale. We believe earningsgrowth momentum will continue on the back of higher consumer confidence given thecountry’s economic well-being and stable political climate.

Figure 11: Earnings Growth By Sector

UOB Coverage Sector Aggregate Earnings Growth2Q11 qoq (%) 2Q11 yoy (%) 1H11 yoy (%)

Automobile (0.4) 25.1 33.4Banking (0.1) 37.6 39.4Cement 8.5 13.4 11.0Consumer 32.2 26.1 25.7Heavy Equipment (4.2) 26.7 34.6Metal Mining 9.0 (16.6) 3.7Plantation 0.8 78.3 110.6Property 41.9 99.3 82.3Total UOB Coverage 2.3 29.8 34.9Total JCI Market 0.7 43.2 42.2

Notes: 2Q11 and 1H11 figures exclude companies that have not announced their resultsSource: Bloomberg, UOB Kay Hian

Structural improvement of economy. Indonesia has a domestic-driven economy, butexports reached a historical high in Jun 11 with 6M11 exports growing 33% yoy. Although38% of the exports are commodities (15% oil and gas, 13.1% soft commodities and9.6% rubber and its derivatives), industrial goods grew robustly by 33% yoy. We thinkexports will improve on the back of strong fixed capital formation growth such as in1H11 when it grew 8.3% yoy, higher than GDP growth of 6.5% yoy. The high growth infixed capital formation was supported by strong growth in FDI and DDI of 24% yoyand 39% yoy respectively in 1H11 (31% yoy and 11% yoy in 2Q11). Thus, we think FDIin Indonesia will not only target the domestic market, but will also use Indonesia as theproduction base.

Figure 12: GDP By Expenditure

-------------------- yoy % chg------------------ qoq % chgGDP Growth by Expenditure 2008 2009 2010 1H11 2Q11 2Q11

Private consumption 5.3 4.9 4.6 4.5 4.6 1.3Government consumption 10.4 15.7 0.3 3.9 4.6 25.7Gross domestic capital formation 11.9 3.3 8.5 8.3 9.2 3.9Exports 9.5 (9.7) 14.9 14.9 17.4 7.4Imports 10.0 (15.0) 17.3 15.8 16.0 6.0Total 6.0 4.6 6.1 6.5 6.5 2.9

Source: Central Statistics Agency, CEIC


Figure 14: One Of The Lowest Average Monthly Factory Wages (2010)

Source: Japan External Trade Organization (JETRO), Reuters

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Figure 15: FDI And DDI Growth Shows Rising Confidence In Indonesia

Source: Indonesia Investment Coordinating Board

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Figure 13: Robust Exports And Imports

Source:CEIC

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BI is right this time. Bank Indonesia (BI) is right to have increased BI rate by 25bp inFeb 11 and then maintain it until now. This dragged down inflation to 5.98%, 5.54% and4.61% yoy in May, Jun and Jul 11 respectively. Declines in oil and other commodityprices have eased inflationary pressures. This year, UOB Economic and TreasuryResearch (ETR) expects inflation to reach 5.7% in 2011 and 5.6% in 2012, as comparedwith BI’s and the government’s target of 6% in 2011. High oil and commodity prices,such as those seen in 1Q11, are detrimental to investors’ confidence, but Indonesia’scurrent economic fundamentals are more resilient and resistant to those factors.

Figure 16: New Investments In Indonesia

InvestmentCompany Industry (US$m) Stage Remarks

Anhui Conch Cement Cement 2,350 Planning 4 new plants in South Kalimantan, East(Preliminary) Kalimantan, West Kalimantan, and West Papua

BMW Indonesia Automobile 12 Committed Expansion in the next two years to increaseproduction capacity

Caterpillar Heavy Equipment 300-500 Planning To build new heavy machinery factory(Preliminary)

China Railway Engineering Corp Infrastructure 1,300 Planning To build and operate Sumatra Coal Railway(Preliminary)

China Triumph Cement 350 Committed To build cement factory in Grobogan, Central Java, with acapacity of 2m-3m tonnes per year, in cooperation withSemen Grobogan

Coca Cola Consumer 500 In-progressDaihatsu Automobile 200-300 In-progress To build factories with a capacity of 100,000 units per year

in East Karawang, West Java; expect to start operating byend-12

General Electric Various 1,200 In-progress To expand outside Java with a new office in BalikpapanHangzhou Cement Cement 700 Planning To relocate its factory with capacity of 2m tons from

(Preliminary) Zhejiang, China to BantenHankook Tires Automobile 353 In-progress To build tire plant in Bekasi with initial investment of

US$353m commencing in 3Q11; plans to join hands withlocal partner Banten Global Dvelopment

Indias Essar Group Mining 5,000 Planning To build power plants, steel factories and trains(Preliminary)

Indias GVK and GMR Infrastructure 5,000 Planning To invest in airports, power plants, railroads(Preliminary)

Lafarge Cement 350-550 Planning To build cement plant in Langkat, North Sumatera, with a(Preliminary) capacity of 1.5m tons per year

Loreal Consumer 100 In-progress To build new factoryLotte Consumer 5,000-6,000 Planning To expand its retail businesses and currently

(Preliminary) exploring other sectorsMetro AG Consumer 430 Planning To join forces with Sintesa Group to expand its wholesale

(Preliminary) centresNestle Consumer 200 In-progress To build new milk factory and to increase production at its

milk processing factory in Kejayan, East JavaNissan Automobile 313 In-progress To expand its existing factoryProcter & Gamble Consumer 100 Planning To build new factory

(Preliminary)Reliance ADA Group 5,000-10,000 Planning To invest in coal sector, power plants and infrastructure

(Preliminary)Siam Cement Cement 219 Planning To invest in ceramic and construction materials

(Preliminary)Unilever Consumer 300 In-progress To expand production capacity

Source: Various news, Indonesia Investment Coordinating Board


Low interest rate stimulates further spending growth. Given expectation of moderateinflation, BI has been able to maintain the BI rate at a low 6.75% after raising the policyrate by 25bp in Feb 11, in line with the central bank’s tendency to be dovish on economicgrowth and financial markets. The current situation spurs robust consumer, automobileand property sales. Meanwhile, despite strong domestic demand that may push inflationup next year, we think Indonesia’s economy still requires a low interest rate environmentto boost economic growth in order to lower unemployment further and elevate the low-income segment’s purchasing power.

Figure 17: Inflation, BI Rate And Oil Price

Source: Bloomberg

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Figure 18: GDP And Loan Growth

Source: Bank Indonesia

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Protect popularity first, increase subsidy later. With GDP per capita exceedingUS$3,000 and confidence level rising, we believe the improvements in spending patternswill continue even if the government increases fuel prices or phases out fuel subsidiesfor private car users. However, the government may not undertake either measure thisyear given its declining popularity (see our report released in Jun 11: Looks pricey butattractive). Furthermore, the government has just raised its oil price assumption to US$95/bbl from US$80/bbl under the revised state budget, which leads to a Rp30t (US$3.4b)increase in the 2011 subsidy budget. With this decision, the country’s deficit may reacharound 2.1% of the total GDP from the previous target of 1.8%.

Nevertheless, if the government gives the green light to the fuel subsidy phase-out forprivate car users, the savings will be less than the budget increase. According to theCentral Statistics Agency and Bank Indonesia, every Rp500 hike in fuel prices willcontribute 1% to headline inflation and the fuel subsidy phase-out will generate an evensmaller inflationary effect.

Figure 19: Government Macroeconomics Assumptions

2010 2010 2011 2011Budget Realisation Budget Revised Budget

Economic growth (%) 5.8 6.1 6.4 6.5Inflation (%) 5.3 7.0 5.3 6.03-month T-bill (%) 6.5 6.6 6.5 5.6Exchange rate (Rp/US$) 9,200 9,087 9,250 8,800Oil price (US$/bbl) 80 79 80 95Oil lifting ('000 bbl per day) 965 954 970 945

Source: Ministry of Finance

Figure 20: Satisfaction Survey On President SBY's Performance Post-09 Election

Source: Indo Barometer, Lembaga Survei Indonesia (LSI)

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Next election: Long way to go. The political climate in Indonesia may have heated upwith an impending battle between political parties. However, we believe the country’sdemocratic system and press freedom should smoothen the election process as seen inthe last two parliamentary and presidential elections. Similar to the situation back in2004, there has been no clear picture on the next presidential candidacy and coalitions.The incumbent Democrat Party has not announced its presidential candidate for the2014 election even though this term will be SBY’s last. No party candidate has beenannounced yet, as parties tend to wait and see to find the right coalition partnersopportunistically.


Investment Themes

Our investment themes are: a) riding the spending boom, b) benefitting from turnaroundcompanies, c) benefitting from a stronger rupiah, and d) acceleration in infrastructuredevelopment. Indonesia is at the early stage of long-term growth, and with GDP percapita exceeding US$3,000, it is entering a new stage of growth in which spending willaccelerate. At the same time, many companies will benefit from recovering demand andthus turn around.

Last year, one of our themes was companies with strong pricing power. For the currentperiod, although we believe the industry’s structure will remain oligopolistic, competitionwill intensify as companies are more concerned about market shares than defendingmargins, as seen in a low-demand situation. In our view, the oligopolistic structure willremain in place until Indonesia adopts a better approach to regulating competition, suchas with a strong competition watchdog, law enforcement or an anti-corruption committee.In this report, we highlight, expand on and update our themes.

Riding the spending boom. We believe rising consumer spending will remain on thelist of investment themes for Indonesia until the next five years. We should see not onlya larger consumer base, but also higher quality of spending in the future. With GDP percapita exceeding US$3,000, Indonesia is entering a new growth stage in which spendingwill accelerate toward higher value and quality products, and purchasing power will bemore resilient against economic volatility. Thus, we should see a growing consumermarket with 18m middle-income consumers earning US$15,000/year, which is expectedto double within the next five years.

Some companies are also preparing to tap the rising purchasing power by launchingproducts for the booming middle class. For instance, Daihatsu and Nissan launchedDaihatsu Xenia and Nissan March (priced around Rp130m) in a move to grab first carbuyers. The beneficiaries of this spending boom are the consumer, banking, automobileand property sectors.

Figure 21: GDP Per Capita Exceeding US$3,000

Source: CEIC

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Benefitting from turnaround companies. We identify some companies that haveturned around and have started to grow faster on the back of recovering demand andhigher financial flexibility. Many companies that were hit by the 1998 Asian financialcrisis are now recovering from the long hibernation phase as either demand for theirproducts has shown robust growth, or they have started to refinance their restructureddebts. Thus, they are able to distribute dividends and expand capacities or reopenmothballed plants.

Sectors where there are many companies turning around include automobile, consumer,indusrial estate, manufacturing (such as tire, cable and petrochemical producers) andproperty. The impact of the turnaround is not only positive for the companies, but also forbanking, construction and, more importantly, the overall economy as it will also reduceunemployment.

Companies that are in the turnaround stage include Alam Sutera, Charoen Pokphand,Eterindo, Indomobil, Indorama, Intraco Penta, Jababeka, Japfa Comfeed, Lippo Cikarang,Malindo Feedmill, Polychem Indonesia and Surya Semesta.

Figure 22: Average Monthly Wage vs Inflation

Source: CEIC

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Figure 24: JCI's Declining Net Gearing SignallingTurnaroundFigure 23: JCI's Net Income Indicates Recovery

Source: Bloomberg

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Figure 29: Solid Retail Sales Growth

Source: CEIC

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Figure 25: JCI's Capex/Sales Shows ExpansionMode

Note: Exclude agri, cement, energy, financials, mining, property, telcosectorsSource: Bloomberg

PRESENTASIPIE

Figure 26: JCI's Rising Dividend Payout

Source: Bloomberg

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2002 2003 2004 2005 2006 2007 2008 2009 2010

(%)

10.0

15.0

20.0

25.0

30.0

35.0

2002 2003 2004 2005 2006 2007 2008 2009 2010

(%)

Figure 27: Strong Car Sales

Source: Astra International

PRESENTASIPIE

Figure 28: Robust Motorcyle Sales


010,00020,000

30,00040,00050,00060,000

70,00080,00090,000

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Figure 30: Under-covered Indonesian Companies That Are Turning Around

1H11 Net ProfitSector Companies Ticker yoy % Chg

AutomobileIndomobil Sukses Internasional IMAS 128.9Gajah Tunggal GJTL 1.7Multistrada Arah Sarana MASA 36.2Selamat Sempurna SMSM 35.3

PropertyKawasan Industri Jababeka KIJA 7.7Lippo Cikarang LPCK 194.3Surya Semesta Internusa SSIA n.a.*

ManufacturingEkadharma International EKAD 25.6Eterindo Wahanatama ETWA 2,731.1Colorpak Indonesia CLPI 69.6Indo-Rama Synthetics INDR 412.7Jembo Cable Company JECC 574.0Polychem Indonesia ADMG 449.7

ConsumerCharoen Pokphand Indonesia CPIN 33.0Japfa Comfeed Indonesia JPFA 58.1**Malindo Feedmill MAIN 59.2

OthersIntraco Penta INTA 136.8

* Has not released 1H11 results (posted losses in 1Q10, 1Q11's net profit Rp127.7b)** 1Q11 net profit change yoySource: Bloomberg


Go with stronger rupiah beneficiaries. A stronger rupiah benefits producers andconsumers in Indonesia as around 80% of input materials in Indonesia are imported. Atthe same, a stronger rupiah helps reduce the inflationary impact of high commodity andoil prices, as seen in 1Q11. The rupiah has appreciated by 5.0% ytd and 4.6% yoy. UOBETR predicts the rupiah will strengthen to Rp8,400 as at end-3Q11 and 8,350 as at end-4Q11, or a 2.4% appreciation for the next five months. We believe the strong rupiah isdriven by an expected upgrade of sovereign rating, robust economic growth and liquidityin the global financial sector, as M1 and M2 growth suggests. Nevertheless, we expectthe situation to continue for some time. Companies whose costs are strongly linked to theUS$ and those that have high US$ debts, such as telecommunications players, will benefit,while commodity and export-oriented sectors will not benefit.

Figure 31: Beneficiaries Of Stronger Rupiah Under Our Coverage

Source: Respective companies, UOB Kay Hian

Company Ticker Description

Bakrie Sumatra UNSP Has US$710m debtsHolcim Indonesia SMCB Has US$120m loan from its parentIndofood SM INDF Materials costs are denominated in US$, 29% of total debts

(Rp4.2t or US$488m) in US$Japfa Comfeed JPFA About 70% raw materials are denominated in US$Kalbe Farma KLBF About 90% of raw material denominated in US$Mitra Adi Perkasa MAPI Almost all materials are imported and bought in US$ from

the principal

Figure 32: M1 And M2 Growth


(10)-102030405060708090

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Accelerated infrastructure development. Regardless of the issuance of the landclearance bill, we believe the government should be able to speed up infrastructureprojects given its strong political will to improve the project tender to financing process.The government’s proposed land clearance bills that are expected to be approved by theHouse of Representatives should also accelerate infrastructure project development,particularly for toll roads. However, we believe there are problems not only with landclearance, but also project bidding, such as when projects are awarded to the wrongbidder, which was what happened with the monorail project. The beneficiaries ofaccelerating infrastructure development are the cement, cable and construction sectors.

Figure 33: Potential PPP Infrastructure Projects

Source: Ministry of National Development Planning/National Development Planning Agency

Sector Qty Project Qty Project Qty Project Cost (US$m) Cost (US$m) Cost (US$m)

Air Transport 1 214 - 7 1,973Land Transport 0 - 0 - 2 274Marine Transport 2 1,199 0 - 4 2,860Railways 0 - 0 - 3 4,385Toll Road 2 25,670 17 8,221 3 1,811Water Resources 0 - 0 - 0 -Water Supply 6 311 0 - 18 1,364Solid Waste and Sanitation 2 130 2 120 4 50Telecommunication 0 - 0 - 0 -Power 0 - 2 2,040 4 2,786Oil and Gas 0 - 0 - 0 -

13 27,524 21 10,381 45 15,503

Figure 34: Toll Road Investments In Indonesia

Source: Ministry of Public Works, Indonesian Toll Road Authority

Status No. of link Length (km) Investment (Rpb)

In Operation 28 741.9Concession Agreement Signed 20 735.7 63,504.5Concession Agreement Preparation 4 154.2 10,267.2Built by Government 4 78.0 8,068.1Tender Preparation 31 1,375.8 146,089.7

Total 87 3,085.7 227,929.4


Figure 36: Expansion Of PLN Capacity And Transmission Shows InfrastructureDevelopment

Source: PLN

-

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Transmission length (Kms) Installed Capacity (MW)

Figure 35: Ongoing Toll And Non-Toll Road Projects In Indonesia

Note: CA stands for Concession AgreementSource: Ministry of Public Works, Indonesian Toll Road Authority

Projects Length (km) Investment (Rp b) Progress

Toll Road Projects (CA Signed)Surabaya - Mojokerto 34.1 2,952.5 Land acquisition, constructionBogor Ring Road Section II&III 7.2 1,233.0 Land acquisition, constructionCinere - Cimanggis 14.7 1,867.1 Land acquisition, constructionKertosono - Mojokerto 41.7 2,211.7 Land acquisition, constructionSemarang - Solo 75.7 6,135.0 Land acquisition, constructionGempol - Pasuruan 33.8 1,800.0 Land acquisitionGempol - Pandaan 13.6 826.0 Land acquisitionDepok - Antasari 21.6 2,515.9 Land acquisitionBekasi - Cawang - Kampung Melayu 21.0 6,185.0 Land acquisitionCikampek - Palimanan 116.0 5,906.3 Land acquisitionCibitung - Cilincing 34.5 2,358.0 Detailed Engineering Design (DED), Land acquisition

preparationPejagan - Pemalang 57.5 3,235.8 DED, Land acquisitionPemalang - Batang 30.0 2,292.9 DED, Land acquisitionSemarang - Batang 75.0 3,634.6 DED, Land acquisitionJORR W2 North 7.0 1,411.0 Land acquisitionCiawi - Sukabumi 54.0 4,923.7 DED, Land acquisitionWaru Wonokromo - Tj. Perak 17.7 6,491.3 DED, Land acquisition preparationPasuruan Probolinggo 45.3 3,314.6 DED, Land acquisition preparationKunciran - Serpong 11.2 1,847.0 Land acquisitionCengkareng - Batu Ceper - Kunciran 15.2 2,363.0 DED, Land acquisition preparationToll Road Projects (CA Preparation)Cimanggis - Cibitung 25.4 3,131.8 CA PreparationSerpong - Cinere 10.1 1,717.5 CA PreparationSolo - Ngawi 69.2 3,216.8 CA PreparationNgawi - Kertosono 49.5 2,201.1 CA PreparationToll Road Projects (Built by Government)Serangan - Tanjung Benoa 7.5 1,489.4 Preparation for Bidding ProcessAkses Tanjung Priok 12.1 3,900.0 Construction Tender, Land acquisitionSolo - Ngawi 20.9 1,430.6 Land acquisition, constructionNgawi - Kertosono 37.5 1,248.1 Land acquisitionNon-Toll Road ProjectsAntasari - Blok M 5.0 1,280.0 Construction (Expected Completion in 2012-13)Kampung Melayu - Tanah Abang 5.0 739.0 Construction (Expected Completion in 2012-13)


Valuation

New high on stronger growth. We expect JCI to end 2011 at 4,500, or 15.0x 2012FPE (+1.1SD 5-year average), and believe JCI should be trading at 5,300 as at end-12,assuming the same valuation at 15.0x 2013F PE. We believe rising optimism on economicfundamentals, faster earnings growth, stable political climate and declining risk aversionhave driven the re-rating of the JCI to a new high. We set our new estimates for EPSgrowth at 25.0% yoy for 2011, 20.0% yoy for 2012, and 17.5% yoy for 2013.

Fund flow reversal will give an opportunity to add weighting on Indonesia. Thereis some anxiety about a sudden reversal in market liquidity, such as the recent correctiondue to Europe’s deepening debt crisis and US’s potential double dip recession and recentrating downgrade. We believe Indonesia’s solid economic growth should provideassurance that Indonesia’s financial market will remain attractive. Currently, foreignownership in the Indonesian equity market is about 50%. In our view, the high valuationof JCI is backed by the fact that Indonesian companies can deliver robust growth andshould be able to maintain strong growth in the next 2-3 years. This also explains whythe Indonesian market is so buoyant and liquidity is very high.

Figure 37: PE Band

Source: Bloomberg

-

500

1,000

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3,000

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Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 09 Aug 10 Aug 11

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2.5x


UPCOMING IPOs

Time for fund-raising, IPO and rights issue. The expected initial public offerings(IPO) in the pipeline will raise Rp8.7t (US$1.0b) as companies use the current opportunityto raise funds or do rights issues. One of the biggest IPOs this year was that of state-owned airline Garuda Indonesia (GIAA), which is not performing well due to companyproblems. Nevertheless, we remain optimistic on the remaining IPO activities.

Figure 38: Monthly Foreign Trading Flow

Source: Bloomberg

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Foreign Buy (LHS) Foreign Sell (LHS) Net Foreign Flow (RHS)

(Rpb) (Rpb)

Figure 39: Upcoming IPOs

Company Sector Time EstimatedEstimation Proceeds

Bank Nagari Banking 3Q11 Rp200bVisi Media Asia Media 3Q11 Rp640bMinna Padi Investama Securities Brokerage 3Q11 Rp100bBank Pembangunan Daerah Sulawesi Utara Banking 3Q/4Q11 Rp300bCipaganti Citra Graha Transport 3Q/4Q11 Rp500b-Rp1tAditec Cakrawiyasa Manufacturing (Stove) 3Q/4Q11 Rp500bMNC Sky Vision Media 3Q/4Q11 US$64mSupra Boga Lestari Retailer (Ranch Market) 3Q/4Q11 Rp200b-300bAirAsia Indonesia Airline 4Q11 US$150-200mBank Pembangunan Daerah Jawa Timur Banking 4Q11 Rp500b-Rp1tGolden Mines Energy Coal Mining 4Q11 Rp1tTelesindo Shop Cellphone Distributor 4Q11 Rp300bEka Sari Lorena Transport Transport 4Q11 Rp150bSemen Baturaja Cement 4Q11/1H12 Rp1tBakrie Toll Road Infrastructure 4Q11/2012 n.a.

Source: Various news media, UOB Kay Hian


Catalysts

Acceleration of government spending on projects in 2H11. This should be fullyreflected in 4Q11. The multiplier effect will have a positive impact on many sectors,from construction and cement to consumer. The government plans to spend Rp137t oninfrastructure projects in 2011. Our view is that most projects will likely take place in2H11, based on the revenues and orderbook patterns of state-owned constructioncompanies, with most of the targets to be achieved in 2H11.

Realisation of infrastructure development. We still think the realisation ofinfrastructure development is still the most important factor for boosting economic growthas Indonesia lacks the proper infrastructure for achieving optimal economic growth.Meanwhile, infrastructure development will speed up economic development. The long-awaited regulation on the land acquisition bill for infrastructure projects is expected to beapproved by parliament by end-11. Thus, by 2H11, we expect some toll road projects tocommence. The government is serious about developing infrastructure, as can be seenfrom the increased allocation of the government budget for infrastructure.

Sovereign rating upgrade. We believe Indonesia’s sovereign rating will be upgradedto investment grade soon and will draw more investments into the country in the form ofFDI and through the stock market. Despite solid economic fundamentals with a debt toGDP ratio of 24%, Indonesia is still one notch below sovereign grade level. With strongeconomic fundamentals, a healthy government budget and a stable political climate, arating upgrade is highly possible.


Figure 40: 1H11 Macro Review And 2011 Outlook

1H11 REVIEWGDP growth Indonesia posted 1H11 GDP growth of 6.5% yoy, with fixed capital formation and exports showing a

convincing growth of 8.3% yoy and 14.9% yoy respectively.Exports Exports reached a historical high in Jun 11 with 6M11 exports growing 33% yoy, where 38% of the exports

were commodities (15.0% oil and gas, 13.1% soft commodities and 9.6% are rubber and its derivatives).Private Consumption Rising consumer confidence has boosted consumer spending, with GDP per capita exceeding US$3,000.

Private consumption grew 4.5% yoy in 1H11.Private investment Robust economic fundamentals continued to draw more direct investments with FDI and DDI growing 24%

and 39% yoy respectively in 1H11.Sentiment and confidence Consumer confidence is recovering with the consumer confidence index rising 5.8% ytd.Interest rate With the expected moderate inflation, BI has been able to maintain BI rate at a low of 6.75% after raising BI

rate once by 25bp in Feb 11, in line with the central bank's tendency to be dovish on economic growth andfinancial markets.

Unemployment The unemployment rate is recovering from 7.9% in 2009 to 7.1% in 2010.Inflation Declines in oil and other commodity prices eased inflationary pressures to 5.98%, 5.54% and 4.61% yoy

in May, Jun and Jul 11 respectively.Foreign exchange The rupiah has appreciated by 5.9% ytd and 5.4% yoy to Rp8,478, which will benefit producers and

consumers in Indonesia as around 80% of input materials in Indonesia are imported materials.

2011 OUTLOOKGDP growth We believe growth momentum remains intact. With higher income and investment demand, we expect Indonesia's

GDP to grow 6.4% yoy in 2011 and 6.3% yoy in 2012.Exports Our economist expects Indonesia's exports to grow 9.7% and 7.5% yoy in 2011 and 2012 respectively.

Subtracting an 11.2% and 7.8% yoy growth in imports, we expect net exports to grow 4.6% and 6.4% yoy in2011 and 2012 respectively.

Private Consumption Acceleration in spending remains intact, in our view. Supported by rising confidence, we expect an accelerationin private consumption growth from 4.6% yoy in 2010 to 5.0% yoy in 2011 and 5.3% yoy in 2012.

Private investment Robust economic fundamentals continued to invite more direct investment with FDI growing 31% yoy in2Q11 and 17% yoy in 1Q11, while DDI grew 11% yoy in 2Q11 and 110% yoy in 1Q11.

Sentiment and confidence We believe consumer optimism will be sustainable going forward, supported by the robust economic outlook.Interest rate UOB ETR expects another 25bp rate hike in BI rate to 7.0% as at end-11. By end-12, the figure is expected

to reach 7.5%.Unemployment With a growing economy, unemployment rate is expected to decline further to 6.9% in 2011 and 6.8% in 2012.Inflation Inflation slowed down moderately to 4.6% yoy in Jul 11. Our economist expects the full-year headline

figure to arrive at 5.7% in 2011 and 5.6% in 2012.Foreign exchange UOB ETR expects Rp/US$ to strengthen to Rp8,400 as at end-3Q11, Rp8,350 as at end-4Q11 and Rp8,250

as at end-12. Appreciating Rupiah/US$ is another monetary tool for BI to control inflation.

Source: UOB Economic-Treasury Research, UOB Kay Hian


Risk Factors

Income gap disparity may create social tension if it is not addressed by the governmentby protecting workers’ rights and making companies improve the work environment.The main problem faced by Indonesia is the widening gap between the rich and the poorand this situation may worsen if the income of the middle-up income segment rises veryfast. The rising social tension may affect risk premium, slow down growth, and result ina less effective government administration such as that seen in year 2000.

Figure 41: Indonesia's Gini Index

Source: Bloomberg, Central Intelligence Agency

0.33

0.34

0.35

0.36

0.37

0.38

0.39

0.40

2005 2006 2007 2008 2009

Slow education quality reform may dampen sustainable economic growth. Thequality of Indonesian workers can be considered low due to their low education level.Based on data from UNICEF, the number of high school graduates fell behind that ofother ASEAN countries such as Thailand and Malaysia. According to research resultsof SCImago Journal and Country Ranking, Indonesia ranks 65, behind Thailand andMalaysia, and only better than the Philippines. This also explains why average monthlywages in Indonesia are lower than that of those countries, even the Philippines.

Rising inflation. This will pressurise purchasing power and drive BI to raise interestrate, which may depress the banking sector’s net interest margin (NIM) and dampenloan demand. In addition, it may drag down the strong automobile and mortgage loans.Nevertheless, we believe inflationary pressure arising from fuel price hikes will onlyhave a temporary impact on the economy.

Global economic crisis. The accumulated effects of the global economic crisis wouldcertainly take its toll on the Indonesian economy, which could affect exports and liquidityin the system, resulting in high interest rates. The slowdown in exports may have anegative impact on other sectors such as banking, commodity and consumer.


Strategy

Top stock picks. Strong growth in consumer spending has made a positive impact onindustries, leading to a turnaround in companies from various sectors. We believe Indonesiais entering a consumer spending boom. Companies under our coverage that will benefitfrom this situation include Alam Sutera, Astra International, Bank Mandiri, IndocementTunggal Prakarsa, Kalbe Farma, Mitra Adiperkasa and United Tractors Our SELL callis Bakrie Sumatra on the back of an expected decline in CPO prices.

Figure 42: Stock Picks


Company Rec 8 Aug 11 Target PE (x) P/B (x) Yield RemarksPrice (Rp) Price (Rp) 2011F 2011F (%)

Alam Sutera Realty BUY 390 500 13.6 2.6 1.5 Prominent developer in Serpong area with easyaccess to toll roads. Focuses on 250ha landbankin Serpong for commercial developmentsand another 300ha in Pasar Kemis for housingdevelopments.

Astra International BUY 65,050 81,000 14.4 4.2 2.0 Strong growth. Dominates automobile sector.Dominates almost all businesses it engages in.

Bank Mandiri BUY 7,350 9,100 14.2 2.8 1.9 Benefits from strong growth in consumer loansand recovery in corporate loans.

Indocement TP BUY 14,500 19,600 15.0 3.4 1.8 A market leader in most developed provinces (eg West Java, Jakarta and Banten). Clean

balance sheet.Capacity to be topped up to 23mt in 2014.

Kalbe Farma BUY 3,175 4,075 19.1 4.7 2.2 Largest pharmaceutical company. We expectstronger growth in 2012. Additional catalystmay come from M&A potential in 2H11.

Mitra Adiperkasa BUY 4,225 5,025 21.3 4.0 0.6 Largest lifestyle retailer with strong potentialearnings growth of 36.8% p.a. Has strongmiddle-class exposure.

United Tractors BUY 23,950 32,000 17.4 3.5 2.3 A subsidiary of Astra International with astrong presence in heavy equipment andmining contracting in Indonesia.

TOP SELLBakrie Sumatera Plantation SELL 385 340 14.8 0.6 1.0 A subsidiary of Bakrie Group with main business

in plantation and oleochemical. The acquisitionof Domba Mas Group may increase earnings volatility due to higher interest expenses.


Agus Pramono, CFA (6221) 2993 3845 [email protected]

OVERWEIGHT the consumer, retail, banking, cement, automobile, and property sectors.We believe these sectors are good proxies to the spending boom and acceleration ofinfrastructure development. We expect consumer spending to increase further in 2H11,driven by positive economic factors such as acceleration of infrastructure projects.

Maintain MARKET WEIGHT on the coal, metal mining, oil & gas and telecommunicationssectors. Metal commodity (nickel and tins) prices are expected to be weak in 2H11.

We UNDERWEIGHT plantation as our plantation analyst expects CPO prices tomoderate.


Why We Are Overweight

Production has recovered from impact of Japanearthquake.

Strong automobile demand to continue to be driven bygrowing per capita income.

Current low penetration rates.

Concentrated industry.

Outlook

Car sales have shown an earlier-than-expected recovery in production followingthe Japan earthquake. Domestic car sales in Apr 11 dropped by 26.0% mom (-6.9%yoy) because of disruption to the supply of some components imported from Japan.However, the supply problem has been resolved. Domestic car sales grew 11.3% mom(-3.4% yoy) in Jun 11, showing signs of an early recovery from the supply disruption.Meanwhile, Car Producer Association (Gaikindo) expects higher car sales in 2H11 withthe launch of new models at the Indonesian International Motor Show (IIMS) this month.

Very minimum impact from minimum down payment for auto loan. We expect carsales to grow faster in 2H11 on the back of: a) a recovery in car production in the wakeof the Japan earthquake, b) high liquidity in the financial system, and c) higher purchasingpower in Indonesia. Meanwhile, despite Bank Indonesia’s (BI) announcement of itsdecision to slow down growth in automobile loans by setting a minimum down paymentof 30% for auto loans, we think raising down payment by 10% will not significantlyaffect the growth of motorcycle and car sales as the rule will not affect multifinancecompanies.

Figure 43: Astra's Performance vs Market

Source: Bloomberg

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150

Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11

JCI Index ASII

(End Dec 10=100)

What To Watch Out For In 2H11

Fuel subsidy phase-out.

Changes in laws and regulations.

Availability of financing.

AUTOMOBILE OVERWEIGHT


Expect short-term impact from fuel price hike or subsidy phase-out. We thinkcar sales will see only a short-term impact from the government’s plan to curb fuelsubsidies for gasoline and diesel. The government has not given a clear signal when itwill exercise the plan, but it increased fuel subsidy in Jul 11. If the government exercisesfuel subsidy phase-out next year, the low-priced car segment, including players such asDaihatsu Xenia and Toyota Avanza, will be affected. Nevertheless, with rising purchasingpower and strong consumer confidence, the impact should be temporary.

Figure 44: Automobile Sales and Astra’s Market Share


5,00015,00025,00035,00045,00055,00065,00075,00085,00095,000

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Sep08

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(units)

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Automobile sales continue to grow. We are still upbeat on automobile sales in Indonesiaand expect car and motorcycle sales to reach 1m and 10m respectively in 2013, so moreautomobile producers are likely to relocate their production facilities to Indonesia. Thiswill benefit not only the existing automobile industry, but also the entire Indonesian economy.We foresee car and motorcycle sales volume to grow 12.5-15.0% in 2011-12 as financingshould still be in abundance and economic growth still robust.



Strategy

Maintain OVERWEIGHT. We remain OVERWEIGHT on the Indonesian automobilesector on expectations of: a) continued strong automobile demand, b) short-term impactfrom the fuel subsidy phase-out for private cars, c) huge domestic market potential, andd) robust automobile sales due to availability of financing and improving disposable income.We like Astra, but there is another option in the sector – Indomobil (IMAS) pulled off aturnaround with Nissan successully establishing a strong market position in Indonesia.IMAS’s net earnings and EBITDA achieved a CAGR of 360% and 13% respectively in2008-10.

Astra is sector leader and best reflection of Indonesia. We reiterate our BUY callon Astra with a target price of Rp81,000 based on sum-of-the-parts valuation, implying15.4x 2012F PE. We view Astra as a good proxy to Indonesia’s growth story on the backof its wide range of businesses, strong fundamentals, market dominance and goodcorporate governance. Furthermore, the market believes Astra boasts better corporategovernance than its peers. Moreover, with its consistently high dividend payouts of around40%, Astra should trade at least on a par with the JCI.


Sector At A Glance

Figure 45: Penetration Rates For Cars AndMotorcycles

Source: TGS Survey, UOB Kay Hian

R2 = 0.5934

0%10%20%

30%40%50%60%70%

80%90%

100%

- 10,000 20,000 30,000 40,000 50,000

Malays ia

Indo nes i

Aus tra lia

Ita ly

Rus s ia

Thailand

Turkey

USA

J ap

UK

Figure 50: Mining Contracting Sales By Company(2009)

Source: Delta Dunia Makmur

Delta Dunia16.7%Thiess

13.2%

SIS8.8%

CK5.3% Darma Henwa

3.1%

Others20.7%

PAMA32.2%

Figure 49: Heavy Equipment Sales By Brand (1H11)

Source: United Tractors

Kobelco9%

Hitachi14%

Caterpillar19%

Others7%

Komatsu51%

Figure 48: Motorcycle Sales By Brand (1H11)


Astra51.8%

Yamaha40.6%

Suzuki6.3%

Kawasaki1.2% Others

0.1%

Figure 47: Car Sales By Brand (1H11)


Isuzu3.1%

Nissan Diesel0.3%

Daihatsu14.9%

Toyota36.5%Honda

5.2%

Misubishi16.1%

Suzuki10.5%

Others13.4%


Figure 46: Car And Motorcycle Sales

20,00030,00040,00050,00060,00070,00080,00090,000

Jun08

Oct08

Feb09

Jun09

Oct09

Feb10

Jun10

Oct10

Feb11

Jun11

200,000300,000400,000500,000600,000700,000800,000

Total Car Sales (LHS) Total Motorcycle Sales (RHS)

(units) (units)


BANKING OVERWEIGHT


Strong loan growth from consumer and corporatesegment.

ROE to stabilise at a higher level.

Improving asset quality.


Potential global recession may affect sector NPL.

Tougher competition.

Unfavourable regulation.

Outlook

Supporting macro factors. We believe the banking sector will continue to enjoy strongperformance in 2H11 with robust growth in the consumer and corporate loan segments.Inflation rate continued to ease to 4.61% yoy in Jul 11, the lowest level since Jun 10. Thecentral bank has also maintained the Bank Indonesia (BI) rate at 6.75% since Feb 11,creating a favourable low interest rate environment for the banking industry. With inflationrate decreasing, we believe the interest rate hike will be modest in 2H11 and will notgreatly affect loan demand and liquidity in the banking system.

Figure 51: Banking Sector's Performance

Source: Bloomberg

70

80

90

100

110

120

130

Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11

JCI Index Banking Index

(End Dec 10=100)


Strong loan growth from consumer and corporate segments. BI targets a loangrowth of about 24% in 2011, supported by demand from the consumer and corporatesegments which is driven by faster economic growth. We are confident that the bankingsector can achieve or even surpass the target, as already indicated by the strong 1H11results. The banking sector’s loan grew 23.5% yoy, or 7.2% ytd, to Rp1,912t as at May11, and loan approvals surged 320% yoy in 5M11. Higher consumer spending, as reflectedby growing property and car sales, will help boost consumer loans. Benefitting from thehot property market, banking mortgage loan balance hiked by 8.0% ytd as at 5M11. Webelieve loan growth will continue to accelerate in 2H11 due to seasonally faster loangrowth in 2H11, ample liquidity, and rising consumer and corporate loan demands.

Figure 52: Inflation Rate And BI Rate

Source: UOB Kay Hian

Figure 53: Loan And GDP Growth


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BI Rate Inflation

Figure 54: Loan Approval Indicates Stronger Loan Growth Ahead


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Figure 55: Loan-to-GDP


Figure 56: Deposit-to-GDP


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Improved ROE. Some major Indonesian banks had done rights issue last year or earlythis year and the sector is enjoying strong loan growth with higher efficiency, highermargins and better asset quality. With the banking penetration in Indonesia still relativelylow (loan-to-GDP ratio of 28% and deposit-to-GDP ratio of 31%), there is still room forgrowth. Hence, we foresee the sector’s ROE will keep improving for the next twoyears. We forecast ROE to improve to 20.2% and 20.6% in 2011 and 2012 respectively.

Healthy CAR. The capital adequacy ratio (CAR) of Indonesian banks is still healthy at17%, higher than Thailand at 16% and Malaysia at 14%. We think Indonesian bankswould have no problem in meeting the Basel II and III requirements of CAR above 8%as Indonesian banks still have ample liquidity. Furthermore, a number of banks that wentthrough rights issues and IPOs have posted significant improvements in their CARs. Forexample, Bank Negara Indonesia’s (BBNI) CAR improved to 17.3% from 13.3% in1H10, while Bank Mandiri’s (BMRI) CAR improved to 16.7% from 14.5% last year,and Bank Jabar Banten’s (BJBR) improved to 19.2% from 15.8% last year.

Fundamentals remain intact. We expect loan growth to remain strong supported bystable economic fundamentals and higher consumer confidence as long as the politicalclimate remains stable and inflation is not out of control. As such, we believe demand forcorporate loans will recover, as seen from the growth in loan approvals. We also believedemand for consumer loans will rise, as seen from the growth in consumer spending.Loan growth reached 24% yoy in May 11, hence we believe that a loan growth of 22-23% will be achievable in 2011.

Risks of unfavourable government regulations. After several fraud and legal casesinvolving the banking industry, BI made a number of unofficial statements on regulationplans. One plan involves capping single majority ownership to limit investor ownership.Others include rules related to fraud management, wealth management, credit cardbusinesses, and outsourcing (such as debt collecting). Recently, BI also indicated thepossibility of regulating the minimum down payment for mortgage and automobile lending.The objectives of these rules are mainly to reduce risks of banks and improve governanceof the banking industry, but these rules may hurt some banks’ operations.


Strategy

Maintain OVERWEIGHT. The banking sector is a beneficiary of the consumerspending boom, investment cycle expansion, companies’ turnaround and infrastructuredevelopment. Although Indonesian banking stocks are trading at a premium over regionalpeers, they are still attractive due to high growth opportunities, margins and ROEs. Ourtop pick is BMRI as it is the largest bank in the corporate segment with strong consumerand transaction banking businesses.

BMRI (BUY/Target: Rp9,100). We pick BMRI as our top BUY in the banking sectorfor its growing presence in the consumer and retail banking segments while being thelargest bank in the corporate banking segment. BMRI is the main beneficiary of theinvestment cycle upswing as it is the largest bank in the segment and also benefits fromthe ongoing recovery in consumer spending. At the same time, the bank has a good trackrecord in executing its plans and improving its performance.


Rufina Tam (6221) 2993 3917 [email protected]


Sector At A Glance

Figure 60: Healthy Capitalisation

Source: Respective banks, UOB Kay Hian


Figure 62: Sector Statistics

Price Target ---------- Net Profit ---------- --------- BVPS -------- ---------- P/B --------- Market Book Price/Company Ticker Rec 8 Aug 11 Price 2010 2011F 2012F 2010 2011F 2012F 2010 2011F 2012F ROE Cap. NTA ps NTA ps

(Rp) (Rp) (Rpb) (Rpb) (Rpb) (Rp) (Rp) (Rp) (x) (x) (x) (%) (Rpb) (Rp) (x)

Bank Central Asia BBCA IJ H O L D 8,050 8,700 8,479.3 9,565.1 10,891.0 344 388 442 23.4 20.7 18.2 26.2 198,472.8 1,580 5.1Bank Danamon BDMN IJ B U Y 5,200 6,400 2,883.5 3,695.7 4,860.3 343 384 504 15.2 13.6 10.3 16.5 43,798.6 2,726 1.9Bank Jabar Banten BJBR IJ B U Y 1,090 1,650 890.2 1,054.3 1,300.4 106 109 134 10.3 10.0 8.1 19.9 10,569.0 578 1.9Bank Mandiri BMRI IJ B U Y 7,350 9,100 9,218.3 12,085.7 14,844.0 439 518 636 16.7 14.2 11.6 23.3 171,500.0 2,668 2.8Bank Negara Ind. BBNI IJ B U Y 4,100 4,800 4,101.7 5,688.6 7,513.0 220 305 403 18.6 13.4 10.2 16.3 76,459.5 1,971 2.1Bank Rakyat Ind. BBRI IJ B U Y 6,500 7,900 11,472.4 12,706.9 14,264.4 465 515 578 14.0 12.6 11.2 30.3 160,349.6 1,909 3.4Sector Average 37,045.4 44,796.2 53,673.1 319 370 450 16.4 14.1 11.6 22.1 661,149.4 1,905 2.9

Figure 58: NIM To Stabilise


Figure 61: Loan Growth


Figure 59: NPL


Figure 57: Ranking By Market Capitalisation


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The property sector is in an uptrend with strongdemand amid low interest rates.

Rising infrastructure activities would also boost demandfor cement.

Cement sales volume is expected to grow 10% yoy to43mt, but ASP should be flat due to stiffer competition.

Cement players are now speeding production capacityexpansion from 52.5mt in 2010 to 60.0mt in 2012, inanticipation of higher cement demand.


Risk of price war.

Risk of rising energy costs.

Uncertainty over infrastructure projects.

Outlook

Cement demand goes hand in hand with property sector. More than 80% of totaldomestic consumption is driven by retail bag sales, which mainly come from propertyprojects. During 1H11, total bag cement sales volume reached 18.5mt, up 13% yoychiefly due to the upbeat property sector. We believe cement demand would continue tobe strongly backed by the upbeat property sector because: a) when GDP expanded byan average of 5% in the past five years, annual housing property capitalisation grew25% on average in the same period, b) current low interest rates would boost propertydemand, c) there is a huge housing backlog of 13m, and d) banks are now aggressivelydisbursing mortgage loans by offering low mortgage rates.

Rising contributions from construction industry. As of 1H11, total cementconsumption from the construction sector (bulk cement sales) hit 4mt, an increase ofmore than 30% yoy. We believe this strong bulk cement demand is mainly driven bysignificant infrastructure development in the country. The Ministry of Finance reportedthat the government would spend about Rp126t on infrastructure developments, withabout 50% of the budget being set aside for toll road projects. As for specific toll roadprojects, there would be additional cement demand of about 1mt per year plus positivemultiplier effects for cement demand from toll road developments, such as more propertydevelopments alongside toll road projects in the future.

Sales volume is expected to hit 43mt (+10% yoy) but... In 1H11, total sales volume(domestic and exports) increased 11.5% yoy, far higher than our full-year initial estimateof 6%. This was attributable to: a) stronger economic activities with 1Q11 GDP growthof 6.5% yoy, b) a low interest rate environment (BI rate maintained at below 7% in thelast two years), c) more property products launched with bag cement sales improving to18mt (+13% yoy), and d) rising infrastructure development (eg double-decker roads inJakarta) as seen in the significant 30% yoy jump in bulk cement sales to 4mt. Hence, weenvisage cement sales by end-11 may have grown 10% yoy to 43mt, higher than the 6%growth in 2010.

CEMENT OVERWEIGHT


… ASP will be flat. ASP remained flattish after peaking at Rp54,975/bag (1 bag=50kg)in Feb 10, relatively unchanged from Rp54,119/bag in Jun 10. The flat ASP of aroundRp1.1m/tonne (US$127/tonne) was mainly due to rising competition. Smaller cementplayers are now very aggressive in expanding their market share through lower prices.For instance, Semen Gresik’s ASP in East Java is 10% higher than Semen Bosowa’s.Hence, our expectation of a 5-7% rise in ASP this year may not be achievable due totougher competition, especially from smaller cement players. As such, we expect ASPto increase only 2% this year.

Java and Sumatra still driving demand growth. As of 1H11, Java and Sumatracontributed 78% of total domestic demand as economic activities (property andinfrastructure development) are concentrated in these islands. Java and Sumatra alsohad the strongest sales growth in 1H11 of 18.7% yoy to 12.3mt and 14.1% to 5.3mtrespectively. Cement consumption in Kalimantan and Sulawesi also improved 11.2%yoy and 6.7% yoy respectively to about 1.6mt each. We also see cement demand graduallyshifting to outer Java island, especially in Kalimantan. Although cement demand inKalimantan was relatively small at about 3mt p.a., it enjoyed the highest demand growthof 17% last year. The high cement consumption in Kalimantan may be due to risingbusiness activities in the plantation and coal mining sectors.

Hence, we believe Indocement and Semen Gresik will enjoy higher demand growth inthe future. Indocement benefits from its domination of the most developed provinces inJava (Jakarta, Banten and West Java), while Semen Gresik dominates the market outsideJava, including Kalimantan.

Semen Gresik still a market leader. Despite dominating the domestic market, SemenGresik’s market share declined to 41% in 1H11 (1H10: 43%) due to capacity constraintand stiffer competition. Holcim’s market share improved to 15% in 1H11 (1H10: 14%)and Indocement’s remained at 31%.

More capacity to meet strong demand in 2012. Almost all cement producers inIndonesia are striving to increase their production capacity in anticipation of the potentialshortage of cement supply in 2012. In relation to this, domestic cement capacity is set toincrease 6% in 2011 to 55.8mt from 52.5mt in 2010 as big players are now improvingproduction efficiency and undertaking kiln expansion. In 2012, there would be atremendous increase in capacity especially from Semen Gresik (due to the completion ofits two new cement plants with additional 5mt p.a. capacity) and Indocement (aims toexpand its cement mills to add 2mt p.a. capacity by 2012).


Marwan Halim (6221) 2993 3805 [email protected]

Strategy

Maintain OVERWEIGHT on the sector, based on: a) stable Bank Indonesia (BI)rate of 6.75% which may trigger more cement demand from the property sector, b)rising infrastructure activities going forward (elevated road projects in Jakarta), and c)robust 1H11 sales growth of 11.5% yoy, which exceeded our 2011 forecast of 6%. Werevise our 2011 sales volume forecast growth to 10% due to this positive trend. However,the impact on earnings from higher sales volume may be limited due to stiffer competition,resulting in limited upside for ASP.

Stock pick: Indocement (INTP IJ/BUY/Target: Rp19,600) based on: a) INTP isthe market leader in the most developed provinces (Jakarta, West Java and Banten)which have less competition, so it managed to maintain its market share of 31%, b) thecompany is benefitting from increasing infrastructure developments, backed by itsdominance in those provinces, c) it also boasts operational excellence with the highestmargins in the sector, d) it is well positioned to meet higher demand as its current utilisationrate is still low at 73%, and e) it has a solid balance sheet.

Alternatively, we are also like Semen Gresik (SMGR IJ/BUY/Target: Rp10,800)despite it facing capacity and competition issues. SMGR is trying hard to optimise thetrade-off between ASP and market share in order to improve margins. We believe SMGRwould get back its market share after adding 5mt to capacity in 2012. Maintain BUY.


Sector At A Glance



Price Target -------- Net Profit --------- --------- EPS --------- ---------- PE --------- Market Book Price/Company Ticker Rec 8 Aug 11 Price 2010 2011F 2012F 2010 2011F 2012F 2010 2011F 2012F ROE Cap. NTA ps NTA ps


Holcim SMCB IJ H O L D 1,950 2,200 828.4 1,021.8 1,124.4 108 121 149 19.7 17.6 14.2 14.0 16,283.7 1,020 1.9Indocement INTP IJ B U Y 14,500 19,600 3,225.2 3,566.3 4,506.7 876 969 1,224 16.6 15.0 11.8 24.8 53,377.9 4,257 3.4Semen Gresik SMGR IJ B U Y 9,150 10,800 3,633.2 3,907.7 4,349.5 618 665 734 14.9 13.9 12.5 29.9 54,273.4 2,370 3.9Sector Average 6,858.4 7,474.0 8,856.2 15.6 14.3 12.1 107,174.0 2.9

Figure 63: GDP And Cement Consumption

Source: ASI, Bank Indonesia, UOB Kay Hian

Figure 66: Domestic Market Share


Figure 65: Cement Consumption And ProductionCapacity

Source: ASI, Respective companies, UOB Kay Hian

Figure 64: Cement Consumption Per Capita

Source: ASI, CIA, UOB Kay Hian

15,00020,00025,00030,00035,00040,00045,00050,000

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SMCB 16.0 13.9 14.6 14.4 14.1 13.2 14.0 15.0

INTP 30.7 28.4 30.9 30.9 31.6 30.2 31.0 31.0

SMGR 43.6 46.8 44.4 43.7 43.7 44.7 43.0 41.0

2004 2005 2006 2007 2008 2009 2010 1H11



Acceleration in spending will continue.

Opportunities remain attractive as per capitaconsumption is still low.

2H11 results will be robustly driven by festive seasonsand lower input costs.


Sudden increase in commodity prices.

Potential government plans to phase out fuel subsidiesfor private cars and/or raise subsidised fuel prices.

CONSUMER OVERWEIGHT

Outlook

Figure 68: JAKCONS Index Outperformed JCI In 1H11

Source: Bloomberg

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JAKCONS Index JCI Index

Outperformance to continue. Current valuation of our consumer stock universe seemsto be demanding at 14.2x 2012F PE compared with the JCI index at 12.8x. Nevertheless,our positive view is unchanged and we remain upbeat on the sector’s outlook in 2H11and believe the sector will continue to outperform the market. In our view, the keycatalysts for the consumer sector this year are: a) continued spending acceleration,and b) strong 2H11 results due to higher demand amid Hari Raya and year-end festivalssupported by strong margins resulting from upward adjustments of selling prices mainlyin 1H11 while commodity prices have gradually softened, ie crude palm oil (CPO) andwheat prices.

Spending acceleration will remain strong. Per capita GDP has doubled in the lastfive years and is now above US$3,000. We believe Indonesian consumers are entering anew stage of growth. Acceleration of spending will be seen not only in the food categories,but also the non-food categories. This acceleration can clearly be seen from the stronggrowth performance of the retail sector, particularly middle-up plays like Mapi Adiperkasa(MAPI) that posted a stunning 12% same-store sales (SSS) growth in Jun 11. We believespending acceleration will remain strong going forward, driven by the following factors:


a) Burgeoning middle class. The middle-income population with an annual income ofUS$15,000 has been growing and is expected to double to 36m in the next five years,or from 8% to 14% of the total population. In terms of households, it is estimated thatthe number of middle-class households, or those earning more than US$5,000 p.a.,will double from 13m to 27m in 2015, or from 22% to 45% of total households.

b) Big, growing proportion of productive population. About 131m people, or 55.0%of Indonesia’s total population, are 20-54 years old, falling into the productive agegroup.

c) Growing urban population is expected to reach 59% of the total population in 2015,up from 54% currently. This translates into 3.7m people moving into the cities annually.Per capita expenditure of the urban population, which tends to have more a lavishlifestyle, is 68.9% higher than that of the rural population.

Figure 70: Distribution Of Population By Per Capita Daily Spending

Source: Asian Development Bank

Distribution of population (%)Daily Spending/capita National Urban Rural(US$) 1999 2009 1999 2009 1999 2009

<1.25 42 25 23 12 54 341.25-2.00 33 32 32 26 33 382.00-4.00 20 31 33 40 12 244.00-6.00 4 7 8 13 1 36.00-10.00 1 3 3 7 0 110.00-20.00 0 1 1 2 0 0>20.00 0 0 0 0 0 0Total 100 100 100 100 100 100

Figure 69: Number Of Middle Class Households Will Double In 2015

Source: BCG

0 5 10 15 20 25 30

2010

201527m; 45% of total households

13m; 22% of total households


Figure 71: Growing Productive Population

Source: CEIC

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PRESENTASIPIE

Figure 72: Huge Proportion Of Productive Age

Source: CEIC

50-54 year51%

>20 year37%

>50 year12%

Figure 73: Growing Urban Population

Source: United Nations

Figure 74: Expenditure/capita Of Urban vs Rural

Source: CEIC

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Figure 75: Rising Capex Spending – Companies More Upbeat On Future Demand

Capex-to-sales (%)Ticker 2007 2008 2009 2010 2001-10

Average

INDF 4.2 6.0 8.3 6.7 4.9JPFA 3.5 3.0 2.2 4.4 3.2KLBF 3.2 3.9 3.1 4.6 4.3MAPI 6.9 9.4 4.6 9.1 7.6RALS 3.2 5.7 3.9 5.3 4.1Average 4.2 5.6 4.4 6.0 4.8

Rising competition but opportunities remain abundant. Aggressive expansion maysignal rising competitive pressures, but opportunities remain very attractive. With theexception of instant noodles, many consumer-related segments still enjoy low penetrationrates in terms of consumption per capita relative to other countries. As purchasing powerincreases, current low per capita consumption suggests potential upside going forward.The following industries are potential beneficiaries: a) household products, b) dairy/milkproducts, c) chicken, and d) modern retail channels.

Rising demand led to capacity expansion. Given robust demand, we have noticedthat many consumer companies and retailers embarked on aggressive expansion in 2010.This can be seen from the increasing ratio of capex-to-sales in 2010, which is higherthan their 10-year average as shown in Figure 75. In 2010 alone, capex spending of ourstock universe increased 58.8% yoy vs a decline of 13.4% in 2009. Some companieshave also started to show a turnaround after being tied down by debt restructuringagreements following the 1998 crisis. A good example is Japfa Comfeed Indonesia (JPFA),which was finally able to start paying dividends and lay out aggressive expansion plansafter repaying down its restructured debt that has been restricting it from paying dividends.JPFA is expanding to capture the rising industry demand and catch up with its peers.


More festive seasons will drive 2H11 performance. We expect our stock universeto book aggregate net profit growth of 11.9% yoy this year. As of 1Q11, sector aggregatenet profit reached 25.1% yoy. In 1H11, earnings growth of companies that haveannounced their results was also strong at 25.7% yoy. This suggests potential upside toour current forecast as 2H11 revenue contribution should be seasonally higher due tomore festive seasons ahead, like Hari Raya festival in end-August and Christmas andNew Year at the end of the year. In our stock universe, key beneficiaries of the HariRaya festival are low-end retailer Ramayana Lestari Sentosa (RALS) and poultry feedproducer JPFA. For the year-end holidays, MAPI will benefit the most as it targets themiddle- and upper-income segments.

Source: Unilever Global

Figure 76: Consumption/capita In FMCG Categories

(US$) Detergents Shampoos Ice Cream Skin Care

India 1.9 0.5 0.4 0.6Indonesia 1.9 1.6 1.5 2.0China 3.9 2.3 3.3 6.6Brazil 15.7 9.8 12.2 21.3Germany 19.9 11.3 49.8 55.4USA 23.4 6.6 46.1 32.0

Figure 78: Consumption/capita In Other Sectors

Source: Various data, TGS Survey

Modern CarRetail Stores Usage

(per 1m population) (%)

Indonesia 52 7Singapore 281 n.a.Malaysia 156 70Thailand 124 13China 74 6Hongkong 261 n.a.

Figure 77: Consumption/capita In F&B Categories

Source: Kalbe Farma, World Instant Noodles Association

Milk Consumption Instant Noodles (kg/yr) (bags/yr)

Indonesia 2.6 61.4Vietnam 3.0 54.6Philliphines 1.5 28.7Thailand 15.6 42.4South Korea 32.7 69.7Malaysia 8.1 43.2


Figure 79: Earnings Growth Have Been Robust So Far

1H10 1H11 yoy 1Q11 2Q11 qoq 2Q10 2Q11 yoyNet Profit (Rpb) (Rpb) chg (%) (Rpb) (Rpb) chg (%) (Rpb) (Rpb) chg (%)

INDF 1,410.5 n.a. n.a. 735.6 n.a. n.a. 778.6 n.a. n.a.KLBF 572.3 675.2 18.0 315.9 359.3 13.7 316.0 359.3 13.7JPFA 264.9 n.a. n.a. 263.0 n.a. n.a. 98.5 n.a. n.a.RALS 48.9 73.7 50.6 30.5 43.2 41.5 23.4 43.2 84.2MAPI 99.7 157.1 57.5 43.8 113.4 159.0 69.6 113.4 62.9Total excl. INDF & JPFA 721.0 906.1 25.7 390.2 515.8 32.2 409.1 515.8 26.1Simple average excl. INDF & JPFA 42.1 71.4 53.6


Declining cost pressure will alleviate margin pressure. Apart from the strong2H11 results, we believe declining cost pressure will be another catalyst for consumercompanies, as mentioned in our previous report (“1Q11 round-up: Subsiding cost pressurecould be next catalyst” dated 9 May 11). Declining commodity prices coupled withappreciating Rp/US$ will result in higher margins, mostly benefitting F&B, poultry feedand pharmaceutical producers, which in this case are Indofood Sukses Makmur (INDF),JPFA and Kalbe Farma (KLBF). The return of Russia and Ukraine to the global wheatexport market has sent global wheat prices down by 25.9% from the peak in Feb 11.Our plantation analyst also expects rising CPO production to weigh on global prices.

Figure 80: Global Wheat Prices

Source: Bloomberg

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Aug 09 Dec 09 Apr 10 Aug 10 Dec 10 Apr 11 Aug 11

(US$/bushel)

PRESENTASIPIE

Figure 81: Rupiah/US$

Source: Bloomberg

PRESENTASIPIE

Figure 82: CPO Prices

Source: Bloomberg

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Strategy

Maintain OVERWEIGHT. We maintain our OVERWEIGHT rating on the Indonesianconsumer sector as we believe the sector would continue to outperform the market dueto the following reasons: a) purchasing power will continue to rise as per capita GDP willexceed US$3,000 this year, providing a solid foundation for growth, and b) strong 2H11results resulting from strong demand amid more festive seasons ahead and decliningcost pressure. At the same time, there is upside potential from our current full-year EPSgrowth forecast this year. Our consumer stock universe is now trading at 14.2x 2012FPE, with an average aggregate net profit growth of 15.9% p.a in 2011-13F. Our toppicks for 2H11 are MAPI and KLBF.

MAPI (BUY/Target: Rp5,025). Being well exposed to the burgeoning Indonesianmiddle class, this leading lifestyle retailer offers a staggering earnings growth potentialof about 36.8% p.a. in 2011-13. Key catalyst will be strong 2H11 results driven by strongChristmas and New Year spending. We expect ongoing improvement in operating marginto continue in 2012, driven by the F&B division. We recommend a BUY on this stockwith a target price of Rp5,025 based on 19.5x 2012F PE.

KLBF (BUY/Target: Rp4,075). We recently raised our call on KLBF from HOLD toBUY as we foresee stronger growth potential in 2012 stemming from: a) supply chainimprovement, b) more contributions from over 20 new products launched this year, andc) 50% capacity increase for generic drugs. Another positive catalyst could be possibleacquisitions in 2H12. Our Rp4,075 target price is based on 1.0x PEG, implying 20.0x2012F PE.

RALS (BUY/Target: Rp990). Despite disappointing SSS growth, we maintain BUYon RALS as we see near-term upside potential driven by the upcoming Idul Fitri inAugust whereby management expects sales to be three times higher than that in June.Fundamentally, its business has been suffering due to slow income growth in the low-endsegment. Our target price of Rp990 is derived from a 15.0x 2012F PE, in line with thelong-term mean.

INDF (BUY/Target: Rp6,300). We have a BUY call on INDF with a target price ofRp6,300 based on the SOTP method, implying 15.0x 2012F PE. Upside potential appearsto be limited at the current price, but we still like the company’s improving fundamentals.The group will announce its 2Q11 results this month.

Adrian Joezer (6221) 2993 3916 [email protected]


Sector At A Glance

Figure 84: Consumer Confidence Index






Indofood SM INDF IJ B U Y 6,200 6,300 2,952.9 3,198.2 3,692.4 336 364 421 18.4 17.0 14.7 15.7 54,438.6 2,324 2.7Japfa Comfeed Ind. JPFA IJ H O L D 5,100 4,600 959.2 926.9 1,073.2 463 447 518 11.0 11.4 9.8 22.4 10,565.8 1,997 2.6Kalbe Farma KLBF IJ B U Y 3,175 4,075 1,286.3 1,556.3 1,901.6 137 166 203 23.1 19.1 15.7 24.8 29,765.7 671 4.7Mitra Adiperkasa MAPI IJ B U Y 4,225 5,025 201.1 329.3 427.4 121 198 257 34.9 21.3 16.4 18.6 7,013.5 573 7.4Ramayana LS RALS IJ B U Y 790 990 354.8 427.3 466.4 50 60 66 15.8 13.1 12.0 15.3 5,580.6 573 1.4Sector Average 5,754.2 6,438.1 7,561.0 18.7 16.7 14.2 107,364.2 3.6

Figure 88: Retail Sales Index

Source: CEIC

Figure 83: GDP Breakdown

Source: Central Statistics Agency

Figure 85: GDP Per Capita

Source: CEIC

Figure 87: Crude Oil, CPO And Inflation Growth

Source: xx

Figure 86: Unemployment Rate

Source: CEIC

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(5)

-

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10

(%)

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-50

100150200250300

May05

Jan06

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May11

(%)

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Retail Sales Index (LHS) Growth, yoy (RHS)

Household consumption,

56%Government spending, 8%

Fixed capital formation,

32%

Net exports, 2% Others, 2%

-100-50

050

100150

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Crude Oil Price, yoy (LHS) Inflation, yoy (RHS)GDP, yoy (RHS)

(%) (%)

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100110120

Jun06

Dec06

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Dec07

Jun08

Dec08

Jun09

Dec09

Jun10

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Jun11

(30)(20)(10)-1020304050

CCI % YoY (RHS) % MoM (RHS)

(%)


METAL MINING

Why We Are Market Weight

More supply coming on stream following higher miningproduction from Brazil and Canada.

Higher LME nickel stock to limit further price hikes.


Supply expansion from large-scale nickel pig ironproduction to pressure prices.

Nickel price to ease as production growth outpacesconsumption growth in 2011 and 2012.

Potential US recession may hurt metal commoditysales.

MARKET WEIGHT

Outlook

NICKEL OUTLOOK

Expect nickel price to ease in the remaining 2011 and 2012. After LME nickelprices went up by 14% yoy to about US$25,573/tonne in 1H11 owing to sturdy demandfor stainless steel, mainly used for infrastructure development and consumer durablesmainly in developing countries, we expect nickel price to ease in the remaining 2011 and2012. This will be attributable to: a) more nickel production coming on stream, and b)higher LME nickel stock to limit further price hikes.

Figure 90: LME Nickel Prices vs Inventory Level


0

10,000

20,000

30,000

40,000

50,000

60,000

Jan06

Jul06

Jan07

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Jul11

020,00040,00060,00080,000100,000120,000140,000160,000180,000200,000

(tonnes)

Inventory (RHS) Market Price (LHS)

(US$/tonne)

Strong refined nickel supply boosted by higher mine production... We expectstrong refined nickel production in 2H11 and 2012. Global refined nickel supply is expectedto increase 9% yoy in 2011 and 8% yoy in 2012. This will be attributable to: a) strongmine production from Canada and Brazil, and b) more production of nickel pig iron fromChina. China is the largest global producer of refined nickel, accounting for 23% ofglobal refined nickel supply in 2010, followed by Russia (18%), Japan (12%), Canada(7%) and Australia (7%).


… on commencement of production in Brazil and resolution of labour disputesin Canada. Higher mine production from Brazil will be due to the commencement ofproduction at Vale Onça Puma’s new nickel project in Brazil in Mar 11, which willincrease nickel mine production in Brazil by 53% yoy in 2011 and another 11% yoy in2012. Furthermore, resolution of labour disputes in Canada in mid-10 at the two largestnickel mines, Vale’s Sudbury and Voisey’s Bay, in 2009 and beginning 2010 is expectedto improve nickel mine production from Canada further.

More nickel pig iron production in China to boost global refined nickel supply.Several Chinese producers are importing low-grade nickel ore due to declining availabilityof higher-grade nickel ores, an increase in low-grade nickel ore supplies from new mineoperations in the Asia Pacific region, as well as the integration of nickel pig iron into thestainless steel supply chain. As such, refined nickel supply from China is expected toincrease 9% yoy in 2011.

High LME nickel inventory to lower nickel prices. Although the LME nickelinventory level has declined since 4Q10 to the current level of about 107,000 tonnes,equivalent to 3.8 weeks of nickel consumption, we believe the LME nickel inventory isstill high at this level. This may exert more downward pressure on nickel prices.

Figure 91: Refined Nickel Production From Canada, Australia And China

Source: ABARE, UOB Kay Hian

0200400600800

1,000

1,2001,4001,6001,8002,000

2004 2005 2006 2007 2008 2009 2010 2011F

('000 tonnes)

China Russian Federation Japan Australia Canada Global


Moderate growth in nickel demand in 2011. Following strong demand for nickel in2010 (+18% yoy), we expect moderate demand growth in global nickel of only 8% yoyin 2011. Positive growth in global demand for refined nickel in 2011 will be due to higherstainless steel production, particularly from China, the world’s largest consumer of nickel.About two-thirds of refined nickel consumption in China is used to produce stainlesssteel. Government efforts to improve infrastructure such as road and railway networks,which use stainless steel in their construction and increasing usage of stainless steel-intensive consumer durables such as TV sets may increase demand for refined nickel.

Figure 92: LME Nickel Inventory

Source: Oil World

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

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1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

-30

-20

-10

0

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50

(% qoq chg)

Qoq Growth (RHS) Ending Inventory (LHS)

(tonne)

Figure 93: China The Largest Consumer Of Nickel


0

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1,200

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2008 2009 2010 2011F

('000 tonnes)

China EU-27 Japan United States Total


Supply growth to outpace demand growth. Although global refined nickel demand isexpected to remain strong with growth of 8% yoy in 2011 and 5% yoy in 2012, weexpect global refined nickel demand growth to be outpaced by supply growth of 9% yoyin 2011 and 8% yoy in 2012. The stronger growth in refined nickel supply is boosted by:a) higher mine production on commencement of production in Brazil, b) resolution oflabour disputes in Canada, and c) more nickel pig iron production from China.

Figure 94: Stainless Steel Production And Nickel Prices


4,0004,5005,0005,5006,0006,5007,0007,5008,0008,5009,000

1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11

0

10,000

20,000

30,000

40,000

50,000

60,000

(US$/tonne)

SS Production (LHS) ASP LME Nickel Price (RHS)

('000 tonnes)

Figure 95: Nickel Production And Consumption Growth


-10

-5

0

5

10

15

20

2004 2005 2006 2007 2008 2009 2010 2011F 2012F

(%)

0

50

100

150

200

250

Production Growth (LHS) Consumption Growth (LHS) Closing Stocks (RHS)

('000 tonnes)


Figure 96: LME Tin Prices vs Inventory Level


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11

0

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30,000

35,000

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45,000

(tonnes)


(US$/tonne)

Figure 97: Lower Monthly Refined Tin Export to Japan (Jun 11)

Source: WBMS, Bloomberg, UOB Kay Hian

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Jan10

Feb10

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Feb11

Mar11

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May11

Jun11

(tonne)

TIN OUTLOOK

Lower tin prices in 2Q11 due to price declines for other commodities and weakdemand. LME tin prices have declined by 19.2% from the peak of US$33,265/tonne inApr 11 as Indonesian tin production has been adversely affected by unfavourable weatherconditions and lower onshore mining production from small-scale miners to the currentlevel of about US$27,123/tonne. We think this was due to weak demand and lowerprices for other commodities.

Slowdown in refined tin exports to Japan after natural disaster. We attribute weakerdemand for refined tin mainly to low refined tin exports to Japan. Cumulative exports ofrefined tin to Japan declined 11% yoy to 15,141 tonnes in 1H11 in the wake of theearthquake which hit Japan in Mar 11. We expect Japan's refined tin imports to remainlow in 3Q11 since major electronics companies in Japan are believed to carry high stocksof finished products.


Figure 98: Monthly Global Production And Consumption Of Refined Tin

Source: WBMS, Bloomberg, UOB Kay Hian

20

22

24

26

28

30

32

34

36

Jan 10 Mar 10 May 10 Jul 10 Sep 10 Nov 10 Jan 11 Mar 11 May 11

('000 tonnes)

Production Consumption

Surplus of refined tin in 5M11. On the back of weaker demand for refined tin andhigher production of refined tin owing to better weather conditions in Indonesia, therewas a surplus of refined tin during 5M11. According to World Bureau of Metal Statistics(WBMS), there was a global tin surplus of about 600 tonnes in 5M11.

Expect LME tin prices to ease in 2012. We expect refined tin prices to ease slightlyin 2012 as favourable weather conditions in Indonesia may boost Indonesian miningproduction and China's tin production continues to grow. We expect LME tin prices toincrease 39.7% yoy to US$28,500/tonne in 2011 and to decline slightly by 3.5% yoy toUS$27,500/tonne in 2012.


Strategy

Maintain MARKET WEIGHT on the Indonesian metal mining sector as we expectnickel prices to ease in 2011 and 2012 due to more supply coming on stream from Braziland Canada and supply growth outpacing demand growth in the next two years. Our toppick for the sector is Aneka Tambang (ANTM). The company supplies products fromnickel to gold and bauxite. We also like Timah (TINS) in view of sturdy tin prices sinceIndonesia is the largest tin exporter in the world.

Aneka Tambang (BUY/Target: Rp2,900). ANTM is our top pick for its exposure tonickel and gold. Our target price of Rp2,900 is based on DCF valuation (WACC: 13.8%,long-term growth: 3%) and represents 16.7x 2011F PE. Following management’s decisionto limit gold trading activities due to the higher risk involved amid fluctuating gold prices,we expect the gold division’s margins to improve as gold trading activities provide only asmall margin of about 1% compared with 30-35% from gold production.

Timah (BUY/Target: Rp3,300). We remain positive on TINS with a target price ofRp3,300 based on DCF valuation (WACC: 13.2% and long-term growth of 0%) andwhich represents 12.2x 2012F PE. Though the company’s refined tin production is expectedto fall in 2011, we like TINS as we expect to see strong tin prices due to limited globalrefined tin supply and sturdy demand growth.

Stefanus Darmagiri (6221) 2993 3876 [email protected]


Sector At A Glance





Aneka Tambang ANTM IJ B U Y 1,870 2 ,900 1,683.4 1,824.6 1,983.6 1 7 6 1 9 1 2 0 8 10.6 9.8 9.0 18.0 17,836.9 1 ,115 1.7INCO INCO IJ H O L D 3,700 4 ,750 3,739.0 3,842.7 3,927.2 3 7 6 3 8 7 3 9 5 9.8 9.6 9.4 25.3 36,764.5 1 ,606 2.3Timah TINS IJ B U Y 2,075 3 ,300 947 .9 1,243.4 1,360.2 1 8 8 2 4 7 2 7 0 11.0 8.4 7.7 23.8 10,443.5 9 5 2 2.2Sector Average 6,370.4 6,910.6 7,271.0 10.2 9.4 8.9 65,044.9 2.1

Figure 99: LME Nickel Prices vs Inventory Level


010,00020,00030,00040,00050,00060,000

Jan06

Jul06

Jan07

Jul07

Jan08

Jul08

Jan09

Jul09

Jan10

Jul10

Jan11

Jul11

0

50,000

100,000

150,000

200,000(tonnes)


(US$/tonne)

Figure 100: Nickel Production And ConsumptionGrowth


-10-505

101520

2004 2006 2008 2010 2012F

(%)

0

50

100

150

200

250

Production Growth (LHS) Consumption Growth (LHS)Closing Stocks (RHS)

('000 tonnes)

Figure 101: LME Nickel Inventory

Source: Oil World

0

50,000

100,000

150,000

200,000

1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11

-40

-20

0

20

40

60(% qoq chg)

Qoq Growth (RHS) Ending Inventory (LHS)

(tonne)

2Q11

Figure 102: Stainless Steel Production And NickelPrices

Source: ISSF, Bloomberg, UOB Kay Hian

4,000

5,000

6,000

7,000

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9,000

1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11

0

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SS Production (LHS) ASP LME Nickel Price (RHS)

('000 tonnes)


PLANTATION

Why We Are Underweight

Prices to remain weak on sustained recovery in supply.

High inventory level.

Expect earnings growth to peak in 1H11.


Higher inventory level.

Direction of crude oil price.

Government policy.

UNDERWEIGHT

Outlook

Figure 104: Plantation Underperformed JCI

Source: Bloomberg

JCI

JAKAGRI

80

85

90

95

100

105

110

115

Jan Feb Mar Apr May Jun Jul

End Dec 10=100

As expected, CPO prices declined but maintained at above RM3,000/tonne.Due to expectations of higher production this year, crude palm oil (CPO) prices havedeclined by 21% from the high of RM3,927/tonne in Feb 11 to the current level of aboutRM3,111/tonne. However, CPO prices are still maintained at about RM3,000/tonne.Factors to watch are weather and positive outlook on soybean oil.

CPO prices to decline in 2H11. We expect CPO prices to weaken in 2H11 as moreCPO supply comes on stream. CPO production is expected to recover in 2H11 after theend of the tree stress period. Moreover, higher inventory levels of CPO and the impactof weaker-than-expected palm oil demand from China and India following demandrationing and better domestic harvesting in those countries may also drag down CPOprices.

Global inventory has bottomed and is set to rise in 2H11. Global palm oil stock hasrecovered from a decline of 8.8% qoq in 1Q11 to an increase of 7.3% qoq in 2Q11.Based on data from Oil World, global palm oil stock is expected to increase 10.2% qoqby end-3Q11. Inventory could increase further in 4Q11 when production peaks in Oct-Nov 11. As such, CPO is unlikely to manifest independent price strength for the next sixmonths given the current high inventory level and strong production outlook. We maintainour CPO price expectation of RM2,900/tonne for 2011 and RM2,700/tonne for 2012.


Higher global CPO production growth in 2011. We expect higher CPO productiongrowth of about 7.2% yoy in 2011, an increase from last year’s 1.3% yoy growth. Mostof the growth will come from two major producers, Indonesia and Malaysia with productiongrowth forecasts of 7.2% yoy to 23.8m tonnes and 7.7% yoy to 18.3m tonnes respectively.Higher production growth will come from:

a) Yield improvement. Global palm oil yield is expected to improve from 3.58 tonnes/ha in 2010 to 3.67 tonnes/ha in 2011, while Indonesia’s palm oil yield is set to increasefrom 3.87 tonnes/ha in 2010 to 3.92 tonnes/ha in 2011.

b) More mature area coming on stream, mainly from Indonesia. Based on data byOil World, there will be an additional 330,000ha of mature area this year in Indonesia,while global oil palm mature area is expected to increase by 574,000ha to 13.4m ha in2011.

Figure 105: CPO Prices vs Global CPO Inventory Levels

Source: Bloomberg, Oil World

4

5

6

7

8

1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11

(m tonnes)

1000

1500

2000

2500

3000

3500

4000

(RM/tonne)

CPO Stocks (LHS) CPO Prices (RHS)

Figure 106: Strong Production Growth Recovery In 2011

Source: Oil World

(5.0)

0.0

5.0

10.0

15.0

20.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F

(%)

Indonesia Malaysia


Exports lag production growth. Strong exports are needed to catch up with productionin 2H11. Based on the latest available export data from Indonesia and Malaysia, exportshave actually contracted and it is a bit worrisome that exports might not meet our expectationof 3.3% growth for 2011. The peak season for palm oil exports is usually April to Augustdue to festive demand, but Apr-May 11 exports did not display the usual high demandpattern. This could mean weaker-than-expected demand as we are soon entering the tailend of the festive months. This is attributable to softer demand from China (possibly dueto high domestic supplies), lower demand from price-sensitive countries – India andPakistan – and the absence of demand from the energy sector as palm oil prices havesurged much more strongly then crude oil prices over the last one year.

Lower CPO export volume from Indonesia on higher CPO export tax and…We believe the rise in Indonesia’s applicable palm oil export tax to the current level ofabout 20% has lowered palm oil exports since Dec 10. Indonesia’s palm oil exportsdeclined 11% yoy to 3.2m tonnes in 1Q11 when applicable palm oil export tax rangedfrom 20-25%, down from 3.6m tonnes a year ago. In 1Q10, palm oil export tax wasabout 3%.

Figure 107: Indonesia Oil Palm Mature Area And Yield

Source: Oil World

2.5 2.8 3.0 3.33.7

4.14.5

5.05.4

5.7 6.1

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3.5

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F

(m ha)

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(tonnes/ha)

Indonesia Matured Area (LHS)Indonesia Yield (RHS)

Figure 108: Higher CPO Export Tax Reduces Exports From Indonesia

Source: Indonesian Palm Oil Association (IPOA), Bloomberg, Ministry of Trade

0%

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15%

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30%

Jan10

Feb10

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('000 tonnes)

CPO Export Volume (RHS)

CPO Export Tax (LHS)


… strong biodiesel production in Indonesia. Moreover, lower CPO export volumefrom Indonesia was attributable to strong domestic palm oil consumption on the back ofrising biodiesel production. We think a sizeable decline in EU rapeseed supplies, whichdrags down crop and crushing volume, has increased biodiesel production in Indonesiaand Singapore, which will be largely exported to EU countries.

Sturdy palm oil consumption growth in Indonesia this season. As a result ofsubstantial increases in biodiesel production and exports, leading to higher domesticconsumption of palm oil from Indonesia, domestic consumption of palm oil in Indonesia isexpected to post higher growth of about 16.0% for Oct 10-Sep 11 vs only 9.7% yoy ayear ago. However, global consumption of palm oil is expected to post lower growth ofonly 3.2% yoy this season vs global production growth of 4.2% yoy.

However, several factors will limit further decline in CPO prices. A lack of growthdrivers in several important CPO-producing countries may result in lower-than-expectedpalm oil production in the future. This may limit further declines in CPO prices. Twofactors that may lower CPO production:

a) Slowdown in oil palm planting expansion. Slowdown in oil palm planting occurredin Malaysia due to a scarcity of unused land suitable for planting oil palm trees. Oilpalm planting also slowed down in Indonesia owing to the implementation of amoratorium on clearing primary forest and peatlands.

b) Lower productivity due to stressful climate conditions. The two largest globalCPO producers, Indonesia and Malaysia, have experienced lower oil extraction rates(OER) and yields due to: a) stressful climate conditions, and b) poor performanceresulting from insufficient application of fertilisers and labour shortage.

New regulation to slow down new planting. Effective 20 May 11, the Indonesiangovernment put into law a two-year moratorium on new permits for clearing primaryforest and peatlands. This will limit new expansion in Indonesia. However, new plantingareas have declined from the previous high of 400,000-500,000ha per year to 300,000haand the moratorium is likely to reduce the areas to 200,000-250,000ha. The moratoriumis unlikely to significantly dampen growth prospects as most of the bigger players havesecured unplanted landbank in Indonesia before the moratorium came into effect.

Figure 109: Global CPO Production And Production Demand Growth

Source: Oil World, UOB Kay Hian

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F

(%)

Production Growth Consumption Growth


Strategy

UNDERWEIGHT Indonesian plantation sector. As we expect CPO prices to trenddown in 2H11 owing to expectations of strong production and higher CPO inventorylevels, we maintain UNDERWEIGHT on Indonesia’s plantation sector. However, CPOprices may stay above RM3,000/tonne under the assumptions of unfavourable weatherconditions and positive outlook for soybean oil and rapeseed oil, both substitutes for palmoil. Our top SELLs are:

Astra Agro Lestari (SELL/Target: Rp22,500) due to expectations of single-digitCPO production growth and landbank availability.

Bakrie Sumatra Plantations (SELL/Target Rp370) on earnings volatility due to highexposure to high foreign debt.

Stefanus Darmagiri (6221) 2993 3876 [email protected]


Sector At A Glance





Astra Agro Lestari AALI IJ SELL 22 ,300 22 ,500 2,016.8 2,467.2 2,707.3 1 ,281 1 ,567 1 ,719 17.4 14.2 13.0 31.5 35,116.8 5 ,348 4.2Bakrie Sumatera UNSP IJ SELL 3 8 5 3 4 0 805 .6 344 .6 377 .6 5 9 2 5 2 8 6.5 15.1 13.8 4.1 5,218.2 4 5 6 0.8BW Plantation BWPT IJ H O L D 1,180 1 ,300 243 .6 337 .8 399 .9 6 0 8 4 9 9 19.6 14.1 11.9 26.4 4,763.8 3 5 4 3.3London Sumatra LSIP IJ B U Y 2,275 2 ,900 1,033.3 1,355.8 1,518.8 1 5 1 1 9 9 2 2 3 15.0 11.4 10.2 27.0 15,522.0 7 8 3 2.9Sampoerna Agro SGRO IJ H O L D 3,375 4 ,000 451 .7 615 .6 682 .8 2 3 9 3 2 6 3 6 1 14.1 10.4 9.3 25.9 6,378.8 1 ,386 2.4Sector Average 4,551.0 5,121.0 5,686.3 14.7 13.1 11.8 66,999.5 2.8

Figure 110: CPO Prices

Source: Bloomberg

5001,0001,5002,0002,5003,0003,5004,0004,500

Jul01

Jul02

Jul03

Jul04

Jul05

Jul06

Jul07

Jul08

Jul09

Jul10

Jul11

CPO Prices (FOB Malaysia)200-day MA100-day MA

(RM/tonne)

Figure 111: CPO Vs Crude Oil Price


20

70

120

170

220

Aug05

May06

Feb07

Nov07

Aug08

May09

Feb10

Nov10

Aug11

CPO

Crude Oil

(US$/barrel)

Figure 112: CPO Vs Soybean Oil Prices

Source: Oil World, Bloomberg, UOB Kay Hian

0

500

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1,500

2,000

98 99 00 01 02 03 04 05 06 07 08 09 10 11

-50

-40

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0

10

20CPO (LHS) Soybean Oil (LHS)

(US$/tonne)

% Premium/(Discount) to Soybean Oil Price (RHS)

(%)

Figure 113: CPO Vs Rapeseed Oil Price


0

500

1,000

1,500

2,000

98 99 00 01 02 03 04 05 06 07 08 09 10 11

-60-50-40-30-20-100102030

CPO (LHS) Rapeseed Oil (LHS)

(US$/tonne)

% Premium/(Discount) to Rapeseed Oil Price (RHS)

(%)

Figure 115: Strong Supply Growth


(5.0)

0.0

5.0

10.0

15.0

20.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F

(%)

Indonesia Malaysia

Figure 114: Palm Oil Stock-to-Usage Ratio


-1,000

-500

0

500

1,000

1,500

2,000

2005 2006 2007 2008 2009 2010F 2011F

14

15

16

17

18

19

20

(%)

Surplus/Deficit (LHS) Stock/Usage Ratio (RHS)

Year ended 30 Sep('000 tonnes)

2012F


PROPERTY OVERWEIGHT


We believe robust property demand may continue overthe next two years mainly due to a strong economyand low interest rate expected to last till 2012.

Mortgage rates are now becoming more affordablewith expansion of mortgage loans from banks.

The new property law that provides more flexibilityfor foreign ownership as well as deregulation of thenew land law would add more catalysts to the sector.

National property demand is 800,000 units per yearwith national housing backlog of around 13m units asof 1H11.

ASP to increase every year due to higher population,rising urbanisation and the scarcity of strategically-located landbank.

We believe the sector is not seeing a bubble yet as itonly accounts for 4% of GDP. Prices are still low withhigher yields vs peers in the region.


Economic uncertainties with higher-than-expectedinflation.

Volatility of exchange rates.

Changes in laws and regulations.

Outlook

Low interest rate environment helps boost property sector. After maintaining alow Bank Indonesia (BI) rate of 6.5% in 18 months, the central bank raised the BI rateslightly to 6.75% since Feb 11. Although the central bank is expected to raise the BI rateagain in 2H11 (in response to higher inflation driven by the lifting of fuel subsidy, whichwould be eased by a stronger rupiah), we believe the BI rate may only increase byanother 25bp to 7.0% as at end-11 and another 50bp to 7.5% in 2012, which may notsignificantly impact the economy in general, especially the property sector. Moreover,about 50% of property buyers are taking mortgage loans, thus the negative impact fromthe rising interest rate would be limited.

Mortgage rate becomes more affordable. The low interest rate environment (below7% in the past two years) has caused current mortgage rates to decline to around 9-11%from last year’s 12-14%. Property developers believe that as long as the BI rate isbelow the double digits, rising mortgage rates may not negatively impact property sales.As about 50% of property buyers of listed property companies purchase properties withhard cash and take up installment loans provided by property companies, the impact ofincreasing mortgage rates would be limited.


Demand for property would remain strong. This is because: a) Indonesia has a hugeproperty market, backed by a large population of 219m (with population growth of 1.4%p.a.) spread across 2.0m sqm, b) limited housing supply of 200,000 units p.a. whilenational housing demand is expected to reach at least 800,000 units p.a, which added upto a backlog of about 13m units as of 1H11; Indonesia needs more than 1.5m newhousing units p.a. if the backlog is to be cleared by 2020, c) potential demand from thegrowing middle-class segment with income of about US$15,000 p.a. with segmentalpopulation size of 18m, and d) low interest rate environment with affordable mortgagerates.

Additional catalyst from new foreign ownership law if implemented. We are positiveon the new property law that may scrap the existing “25-25-20” programme (a leaseholdtitle for 25 years which can be renewed for another 25 years and a further 20 years) andchange it to a straight “70-90” years of ownership without any renewal requirement.Besides, foreigners are only allowed to buy condominiums priced above US$250,000. Ifthese foreign ownership schemes come through, we believe this new law could addmore catalysts to the sector.

Greater Jakarta will still be the epicentre of property development. Reasonsinclude: a) Greater Jakarta is home to 9.6m residents, b) current income per capita inJakarta is more than US$10,500, higher than the national per capita of US$3,000, c)GDP of Jakarta (Rp862.2t) accounted for 13.4% of Indonesia’s total GDP of Rp6,422t,and d) rising urbanisation.

Landed residential would still be the locomotive of property demand. Accordingto the Central Statistics Agency (BPS), annual housing demand in Greater Jakarta isabout 70,000 units p.a. but only 20% of the demand has been met, with a current nationalhousing backlog of 800,000 units. Thus, the future looks rosy for housing developers,especially those with huge and strategically-located landbank, such as BSD City, Ciputraand Summarecon Agung. Procon Indah, a prominent local property consultant, alsoreported housing demand in Greater Jakarta is still in an uptrend, and is expected togrow 4% yoy in the next two years, with about 40% of the total housing demand inGreater Jakarta coming from the Tangerang region.

Super-block developments are the trend now. Big developers are now keen todevelop super-blocks (eg mix-developments comprising residential apartments,commercial centres and malls) as part of their development portfolios: a) to add amenitiesand values to their existing residential developments, b) to diversify sales mix that wouldenhance recurring income, and c) to tap changes in lifestyle as more people prefer tobuy a property that is near commercial and entertainment centres. Considering all ofthese factors, almost all property giants are now developing super-block developments,namely: a) Ciputra Property’s Ciputra World-Jakarta, b) Ciputra Surya’s Ciputra World-Surabaya, c) Alam Sutera Realty’s Mall@Alam Sutera in Serpong, and d) AgungPodomoro Group’s Central Park super-block.


Selling prices continue to rise but... Average land prices in Greater Jakarta areexpected to increase by another 20% this year after improving by 15-20% last year. Forinstance, Alam Sutera’s ASP in Serpong is about Rp5m psm (+25% ytd), while Ciputraproperty’s ASP for apartments in CBD is Rp23m psm (+18% ytd). Increasing sellingprices are mainly attributable to: a) scarcity of strategically-located areas with goodinfrastructure while population is increasing, b) limited housing supply and increasingdemand have pushed the current housing backlog to 13m units, c) increase in constructioncosts (eg cement, steel and tiles) can be passed on to customers, d) domestic investorsregard property as one of their investment instruments for hedging against inflation asland prices increase every year, and e) low interest rate environment means it is lessattractive to deposit money in banks and more affordable for customers to buy propertiesusing mortgage loans.

… the sector is not seeing a bubble yet, in our view. There are rising concerns onwhether BI would implement some policies to tighten consumer credit (including mortgageloans) that has been growing significantly in the past two years since the sub-primecrisis. This is also related to the recent jump in property prices that may trigger thebursting of a potential property bubble in the near future. We, however, believe thesector is not seeing a bubble yet as: a) the property sector’s contribution to GDP is only4% (vs Malaysia’s 23%), b) mortgage loans account for only 13% of total credit, whichis far lower than the 48% seen during the 1997/98 crisis, c) investment yield on propertyhere is still high at 11.4% (vs 4.5% for peers in the region), d) the recent sharp land priceincreases are seen only in strategically-located areas mainly in Greater Jakarta. Otherareas outside Jakarta and Java have moderate land price increases, e) banks are nowmore prudent in disbursing credit after learning from the 1997 crisis, and f) the propertysector here is less speculative as almost all customers are local property buyers who buyproperties mainly for their own use and investment.


Strategy

Maintain OVERWEIGHT based on: a) positive macroeconomic conditions with highereconomic growth of 6.4% this year, b) affordable mortgage rates amid low interest ratesas we foresee inflationary level would be low at around 6% in end-11, c) deregulation offoreign property ownership and land bill would become bonus catalysts to the sector, d)strong demand backed by a huge population and urbanisation, and e) higher ASP supportedby land scarcity while demand is heating up. As such, the majority of the listed propertycompanies are optimistic they could register an increase in revenue of at least 40% as atend-11 from a high base of a 50% increase in revenue as at end-10 as concern overhigher interest rates subsides along with even greater demand for property products.Our stock picks are Alam Sutera Realty (ASRI) and Ciputra Surya (CTRS).

ASRI (BUY/Target: Rp500). We continue to like ASRI as it is focusing on residentialprojects in the Serpong area (one of the areas in Greater Jakarta showing the strongestuptrends in development) with easy access to toll roads. ASRI will also start developingresidential projects in Pasar Kemis this year and is venturing into property investments(eg malls, offices and convention centres). ASRI will operate a mall in Serpong, whichwill start contributing revenues in 2012. ASRI is now trading at a 45% discount to ourRNAV of Rp705/share. Our target price is Rp500 based on 30% discount to RNAV.

CTRS (BUY/Target: Rp1,260). CTRS has the biggest landbank in Surabaya (thesecond-largest city in the country) with a wide range of property developments, includingresidential housing, shophouses, condominiums and a mall). CTRS has also diversified itsresidential developments to Sumatra, Bali and Sulawesi. Near-term catalysts would becommencement of operations at Ciputra World Mall in end-Jul 11 and some apartmenttowers in Surabaya this year. Our target price for this counter is Rp1,260, based on a30% discount to our RNAV valuation of Rp1,805/share.

Marwan Halim (6221) 2993 3805 [email protected]


Sector At A Glance

Figure 117: GDP And Property CapitalisationGrowths

Source: Bank Indonesia, UOB Kay Hian

Figure 118: Mortgage Loan Growth

Source: Bank Indonesia, UOB Kay Hian

Figure 119: Landbank


Figure 120: Landed Property Price Trend (UsingAlam Sutera's ASP As Proxy)

Source: ASRI, UOB Kay Hian





Alam Sutera Realty ASRI IJ B U Y 390 500 290.5 511.1 733.4 16 29 41 24.0 13.6 9.5 20.8 6,966.6 152 2.6Bumi Serpong BSDE IJ B U Y 920 1,050 394.4 712.5 904.3 23 41 52 40.8 22.6 17.8 11.1 16,097.2 384 2.4Ciputra DevelopmentCTRA IJ B U Y 530 600 258.0 328.2 392.7 17 22 26 31.2 24.5 20.5 6.5 8,037.9 345 1.5Ciputra Property CTRP IJ B U Y 480 600 155.4 169.8 166.7 25 28 27 19.0 17.4 17.7 4.8 2,952.0 584 0.8Ciputra Surya CTRS IJ B U Y 870 1,260 87.2 152.5 173.5 44 77 88 19.7 11.3 9.9 9.4 1,721.6 858 1.0Summarecon Agung SMRA IJ H O L D 1,150 1,180 233.5 291.6 372.9 34 42 54 33.9 27.1 21.2 12.9 7,904.1 347 3.3Sector Average 1,418.9 2,165.7 2,743.6 30.8 20.2 15.9 43,679 2.0

4.0

4.5

5.0

5.5

6.0

6.5

2006 2007 2008 2009 2010 2011F

0.05.010.015.0

20.025.030.0

GDP growth (LHS) Capitalisation Growth (RHS)

(%) (%)

-

50,000

100,000

150,000

200,000

2005 2005 2006 2008 2009 2010 2011F

(Rpb)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

(%)

Cumulative Mortgage Loan (LHS) Growth (RHS)

907 937 1,137 1,216 2,1304,800

13,192

02,0004,0006,0008,000

10,00012,00014,000

Sum

mar

econ

Agu

ng

Lip

poK

araw

aci

Cip

utra

Dev

elop

men

t

Ala

m S

uter

a

Initi

land

Dev

elop

men

t

Bum

i Ser

pong

Dam

ai

Bak

riel

and

Dev

elop

men

t

(ha)

1.32.5

3.3 3.84.6

1.73

4.4

6.57.8

0

2

4

6

8

10

2007 2008 2009 2010 2011F

(Rpm/sqm)

Residential Commercial


BACKGROUND

Alam Sutera Realty (ASRI) currently has a landbank of about 1,200ha and mainly develops residential and commercial properties in Serpong-Tangerang. The company is now strengthening its property investment portfolio, ranging from malls, offices, apartments to exhibition halls. ASRI is also expanding its new housing projects in Pasar Kemis, which will kick off in 2H11.

OUTLOOK/RECOMMENDATION

Making headway. 1H11 net profit of Rp290b has already accounted for about 57% of our 2011 net profit forecast of Rp511b. Considering that the company typically registers a stronger 2H than 1H, we believe the actual 2011 net profit could exceed our expectation. Meanwhile, 1H11 total marketing sales reached Rp1t (57% of our 2011 forecast of Rp1.8t). The biggest contribution came from the residential segment (45%), followed by commercial (45%), apartments (5%) and land plots (5%).

ASP continues to climb. Average selling prices (ASP) of residential property in Greater Jakarta increased 15% in 1H11 backed by positive economic outlook and a low interest rate environment. ASRI is benefitting from this as it managed to increase ASP by above 30% ytd to Rp5.5m psm, which would impact margin expansion.

2011 earnings to expand 80% yoy to Rp511b because: a) a greater portion of robust marketing sales in 2010 (about 57% yoy of Rp1.6t) will be booked this year. We project marketing sales to grow by another 15% yoy to Rp1.8t in 2011, driven by additional sales from the launch of residential developments in Pasar Kemis in 2H11 and additional units sold at Silkwood Residences Apartment and b) ASP in Serpong may increase by about 40% yoy to Rp6m psm by end-11.

Balance sheet remained solid. As of Jun 11, the company is still in a net cash position. Total debt declined by 14% yoy to Rp577b, which is still lower than total cash of Rp663b. Total cash declined by 27% yoy as more cash was needed to build a mall in Serpong and for landbank acquisitions. Meanwhile, customer advances also improved 2.3% yoy to Rp1.5t backed by robust marketing sales during the period.

Maintain BUY with target price of Rp500. The stock is trading at 2.6x 2011F P/B, higher than peers’ average of 2.2x. ASRI is still compelling on the back of: a) strong earnings outlook, b) low 2011F PE of 13.6x, vs sector’s 16x, and c) share price is at a 45% discount to our RNAV estimate of Rp705/share.

Key Financials Year to 31 Dec (Rpb) 2009 2010 2011F 2012F 2013F Net turnover 403.6 765.2 1,369.0 1,931.7 2,346.9 EBITDA 128.7 360.8 641.0 896.4 1,085.6 Operating profit 110.6 343.1 623.1 878.6 1,067.8 Net profit (rep./act.) 94.0 290.5 511.1 733.4 935.3 Net profit (adj.) 94.0 290.5 511.1 733.4 935.3 EPS (Rp) 5.3 16.3 28.6 41.1 52.4 PE (x) 74.1 24.0 13.6 9.5 7.4 P/B (x) 3.6 3.2 2.6 2.0 1.6 EV/EBITDA (x) 54.1 19.3 10.9 7.8 6.4 Dividend yield (%) 0.3 0.8 1.5 2.1 2.7 Net margin (%) 23.3 38.0 37.3 38.0 39.9 Net debt/(cash) to equity (%) 19.4 (2.9) (0.4) (18.7) (37.8) Interest cover (x) n.a. 92.1 45.4 198.1 n.a. ROE (%) 5.1 14.0 20.8 23.9 26.6 Consensus net profit - - 523.8 681.5 838.1 UOBKH/Consensus (x) - - 0.98 1.08 1.12

Source: ASRI, Bloomberg, UOB Kay Hian

Alam Sutera Realty

BUY Share Price Rp390 Target Price Rp500 Upside +28.2% Company Description Develops residential and commercial properties in Serpong-Tangerang. The company is expanding its property business in Pasar Kemis. Stock Data GICS sector Property Bloomberg ticker: ASRI IJ Shares issued (m): 17,863.1 Market cap (Rpb): 6,966.6 Market cap (US$m): 815.0 3-mth avg t'over (US$m): 3.3 Price Performance (%) 52-week high/low Rp440/Rp178 1mth 3mth 6mth 1yr YTD

18.2 34.5 62.5 95.0 32.2 Major Shareholders % PT Tangerang Fajar Industri PT Selaras Ciptamanunggal PT Manunggal Prime Development PT Bukit Asri Padang Golf

16.7 11.9 10.2

5.9 FY11 NAV/Share (Rp) 152 FY11 Net Cash/Share (Rp) 1 Price Chart

150

200

250

300

350

400

450

(lcy)

70

90

110

130

150

170

190

210

(%)ALAM SUTERA REALTY TBK PT

Alam Sutera Realty Tbk Pt/JCI Index

Volume

0

200

400

600

Aug 10 Oct 10 Dec 10 Feb 11 Apr 11 Jun 11 Aug 11

Source: Bloomberg

Analyst Marwan Halim +6221 2993 3805 [email protected]


Profit & Loss Balance Sheet Year to 31 Dec (Rpb) 2010 2011F 2012F 2013F Year to 31 Dec (Rpb) 2010 2011F 2012F 2013F

Net turnover 765.2 1,369.0 1,931.7 2,346.9 Fixed assets 148.1 442.9 882.8 1,250.2

EBITDA 360.8 641.0 896.4 1,085.6 Other LT assets 1,303.7 1,148.6 1,174.3 1,185.7

Deprec. & amort. 17.7 17.9 17.8 17.9 Cash/ST investment 732.4 566.3 1,057.1 1,906.0

EBIT 343.1 623.1 878.6 1,067.8 Other current assets 2,403.9 3,206.4 4,020.9 4,278.8

Total other non-operating income (9.0) 0.4 0.2 (2.3) Total assets 4,588.0 5,364.2 7,135.1 8,620.7

Net interest income/(expense) (3.9) (14.1) (4.5) 31.7 ST debt 0.0 0.0 0.0 0.0

Pre-tax profit 330.2 609.3 874.3 1,097.1 Other current liabilities 109.8 92.8 116.1 140.0

Tax (39.3) (97.5) (139.8) (160.5) LT debt 669.2 555.0 416.3 265.7

Minorities (0.4) (0.7) (1.1) (1.4) Other LT liabilities 1,592.5 1,987.6 3,150.0 3,845.8

Net profit 290.5 511.1 733.4 935.3 Shareholders' equity 2,208.3 2,707.4 3,423.6 4,336.8

Net profit (adj.) 290.5 511.1 733.4 935.3 Minority interest 8.1 21.5 29.2 32.4

Total liabilities & equity 4,588.0 5,364.2 7,135.1 8,620.7

Cash Flow Key Metrics Year to 31 Dec (Rpb) 2010 2011F 2012F 2013F Year to 31 Dec (%) 2010 2011F 2012F 2013F

Operating 800.9 35.5 1,123.6 1,417.9 Profitability

Pre-tax profit 329.8 608.6 873.2 1,095.7 EBITDA margin 47.2 46.8 46.4 46.3

Tax (39.3) (97.5) (139.8) (160.5) Pre-tax margin 43.1 44.5 45.3 46.7

Deprec. & amort. 2.2 4.6 9.6 7.1 Net margin 38.0 37.3 38.0 39.9

Working capital changes 508.2 (480.3) 380.6 475.6 ROA 7.1 10.3 11.7 13.4

Investing (355.1) (88.7) (484.6) (399.7) ROE 14.0 20.8 23.9 26.6

Capex (growth) 0.0 0.0 0.0 0.0

Capex (maintenance) (99.4) (299.5) (449.5) (374.5) Growth

Investments (57.0) 84.6 (9.4) (13.8) Turnover 89.6 78.9 41.1 21.5

Proceeds from sale of assets 51.2 (64.4) 18.1 23.0 EBITDA 180.4 77.6 39.8 21.1

Others (250.0) 190.6 (43.7) (34.4) Pre-tax profit 180.3 84.5 43.5 25.5

Financing (144.0) (112.9) (148.2) (169.4) Net profit 209.0 76.0 43.5 27.5

Dividend payments (9.6) (12.0) (17.3) (22.0) Net profit (adj.) 209.0 76.0 43.5 27.5

Issue of shares 0.0 0.0 0.0 0.0 EPS 209.0 76.0 43.5 27.5

Proceeds from borrowings (134.8) (114.2) (138.7) (150.6)

Loan repayment 0.0 0.0 0.0 0.0 Leverage

Others/interest paid 0.4 13.3 7.8 3.2 Debt to total capital 23.2 16.9 10.8 5.7

Net cash inflow (outflow) 301.8 (166.1) 490.8 848.9 Debt to equity 30.3 20.5 12.2 6.1

Beginning cash & cash equivalent 430.6 732.4 566.3 1,057.1 Net debt/(cash) to equity (2.9) (0.4) (18.7) (37.8)

Ending cash & cash equivalent 732.4 566.3 1,057.1 1,906.0

Interest cover (x) 92.1 45.4 198.1 n.a.

Price Range 2008 2009 2010 2011*

Price (Rp) High 235 130 320 440 Low 50 50 102 230 PE (x) High 71.2 24.5 19.6 15.4 Low 15.2 9.4 6.3 8.0

* Forecast PE


BACKGROUND

Astra International (Astra) is an automobile conglomerate that dominates Indonesia's automobile industry and every business it is engaged in. With its sustainable competitive advantage, Astra is always a long-term winner.


Still the star. We re-iterate our BUY call on Astra with a target price of Rp81,000 based on SOTP valuation, implying 15.4x 2012F PE. We believe Astra will continue to post one of the strongest earnings growth rates in the market on the back of strong automobile sales and its dominance in the huge domestic automobile market. Astra normally trades at a discount to the JCI, but with its attractive growth, strong fundamentals, good corporate governance and consistent dividend payouts of around 40%, it should trade at least on a par with the JCI.

Improvement in motorcycle market share. Astra’s share of the motorcycle market improved to 52% in 1H11 from 46% in 2010. A combination of the right product launches, strong distribution capabilities, solid after-sales service network and strong brand equity (ie higher second-hand prices) is behind Astra’s success in regaining market share from Yamaha. Astra has weathered tough competition from Yamaha since 2006 with the launch of the right products in the light motor and scooter segments.

But competition may intensify in car market. The plan by Nissan Motor to offer low-cost MPVs next year to compete head to head with Daihatsu Xenia and Toyota Avanza may erode Astra’s market share. Avanza and Xenia are the top-selling products of Astra while Nissan has had success in penetrating the Indonesian market with its innovative products. We think Astra, through its Toyota and Daihatsu brands, have to be more innovative and provide its consumers with more competitive products to defend its market share so that it will not suffer the same fate as Honda motorcycles when it faced competition with Yamaha.

Car sales have recovered following supply problem. Astra’s sales grew 35% mom (+8.2% yoy) in June. Toyota’s sales rose 39.3% mom (+4.7% yoy) while Daihatsu’s grew 30.1% mom (+14.5% yoy), showing a recovery from production woes. This also shows the high credibility of Astra’s management as it was able to give appropriate guidance to investors on the expected impact of the earthquake.

Key Financials Year to 31 Dec (Rpb) 2009 2010 2011F 2012F 2013F Net turnover 98,526.0 129,991.0 168,267.2 189,718.8 213,228.7 EBITDA 15,460.0 16,781.0 22,578.2 24,889.0 27,670.2 Operating profit 12,756.0 14,725.0 18,769.7 21,144.0 23,577.3 Net profit (rep./act.) 10,040.0 14,366.0 18,226.9 21,143.0 24,532.1 Net profit (adj.) 10,040.0 14,366.0 18,226.9 21,143.0 24,532.1 EPS (Rp) 2,480.0 3,548.6 4,502.3 5,222.6 6,059.8 PE (x) 26.2 18.3 14.4 12.5 10.7 P/B (x) 6.6 5.3 4.2 3.4 2.8 EV/EBITDA (x) 17.0 15.7 11.7 10.6 9.5 Dividend yield (%) 1.2 1.3 2.0 2.1 2.5 Net margin (%) 10.2 11.1 10.8 11.1 11.5 Net debt/(cash) to equity (%) 33.1 50.2 38.6 28.5 21.1 Interest cover (x) n.a. n.a. 34.6 35.9 42.0 ROE (%) 27.5 32.2 32.7 30.5 31.6 Consensus net profit - - 16,759.6 18,948.7 21,798.3 UOBKH/Consensus (x) - - 1.09 1.12 1.13

Source: Astra, Bloomberg, UOB Kay Hian

Astra International

BUY Share Price Rp65,050 Target Price Rp81,000 Upside +24.5% Company Description Distributes and assembles automobiles, motorcycles and related spare parts. Through its subsidiaries, the company is also involved in mining, plantation, financial and information technology. Stock Data GICS sector Automobile Bloomberg ticker: ASII IJ Shares issued (m): 4,048.4 Market cap (Rpb): 263,345.5 Market cap (US$m): 30,807.8 3-mth avg t'over (US$m): 25.3 Price Performance (%) 52-week high/low Rp75,000/Rp46,800 1mth 3mth 6mth 1yr YTD

(4.1) 15.1 33.2 33.3 19.2 Major Shareholders % Jardine Cycle & Carriage 50.1 FY11 NAV/Share (Rp) 15,345 FY11 Net Debt/Share (Rp) 5,917 Price Chart

30000

40000

50000

60000

70000

80000

(lcy)

60

70

80

90

100

110

120

130

140

150

160

(%)ASTRA INTERNATIONAL TBK PT

Astra International Tbk Pt/JCI Index

Volume

05

10152025


Source: Bloomberg

Analyst Agus Pramono, CFA +6221 2993 3845 [email protected]



Net turnover 129,991.0 168,267.2 189,718.8 213,228.7 Fixed assets 28,888.0 32,713.4 36,089.0 38,104.6

EBITDA 16,781.0 22,578.2 24,889.0 27,670.2 Other LT assets 52,081.0 64,495.8 76,645.3 91,123.0

Deprec. & amort. 2,056.0 3,808.5 3,744.9 4,092.9 Cash/ST investment 7,005.0 5,862.9 7,037.2 8,506.9

EBIT 14,725.0 18,769.7 21,144.0 23,577.3 Other current assets 24,883.0 30,677.4 32,938.9 36,767.5

Total other non-operating income 1,392.0 1,288.0 1,430.4 1,587.7 Total assets 112,857.0 133,749.4 152,710.4 174,502.0

Associate contributions 4,896.0 6,714.0 8,250.2 10,179.6 ST debt 17,803.0 13,689.0 14,500.0 13,000.0

Net interest income/(expense) 18.0 (652.6) (692.4) (658.5) Other current liabilities 19,321.0 22,793.7 25,335.4 27,941.8

Pre-tax profit 21,031.0 26,119.1 30,132.2 34,686.2 LT debt 13,935.0 16,127.6 14,399.4 15,184.8

Tax (4,027.0) (5,223.8) (6,026.4) (6,937.2) Other LT liabilities 3,109.0 2,316.5 2,381.2 2,447.9

Minorities (2,638.0) (2,668.4) (2,962.8) (3,216.9) Shareholders' equity 49,310.0 62,122.7 76,594.7 93,387.8

Net profit 14,366.0 18,226.9 21,143.0 24,532.1 Minority interest 9,379.0 16,700.0 19,499.8 22,539.8

Net profit (adj.) 14,366.0 18,226.9 21,143.0 24,532.1



Operating 1,542.7 13,945.6 16,655.2 16,481.7 Profitability

Pre-tax profit 21,031.0 26,119.1 30,132.2 34,686.2 EBITDA margin 12.9 13.4 13.1 13.0

Tax (4,027.0) (5,223.8) (6,026.4) (6,937.2) Pre-tax margin 16.2 15.5 15.9 16.3

Deprec. & amort. 2,056.0 3,808.5 3,744.9 4,092.9 Net margin 11.1 10.8 11.1 11.5

Associates 4.0 5.0 6.0 6.0 ROA 14.2 14.8 14.8 15.9

Working capital changes (11,758.0) (13,037.1) (7,617.2) (10,778.3) ROE 32.2 32.7 30.5 31.6

Non-cash items 312.7 0.0 0.0 0.0

Other operating cashflows (6,076.0) 2,274.0 (3,584.3) (4,587.8) Growth

Investing (7,340.0) (6,548.7) (6,749.9) (5,448.4) Turnover 31.9 29.4 12.7 12.4

Capex (growth) (7,007.0) (7,500.0) (7,000.0) (6,000.0) EBITDA 8.5 34.5 10.2 11.2

Investments (835.0) 400.5 (200.3) 100.1 Pre-tax profit 28.2 24.2 15.4 15.1

Others 502.0 550.8 450.4 451.5 Net profit 43.1 26.9 16.0 16.0

Financing 4,070.0 (8,539.0) (8,731.0) (9,563.6) Net profit (adj.) 43.1 26.9 16.0 16.0

Dividend payments (5,263.0) (5,414.2) (6,671.0) (7,739.0) EPS 43.1 26.9 16.0 16.0

Issue of shares 0.0 0.0 0.0 0.0

Proceeds from borrowings 9,817.0 0.0 (917.2) (714.6) Leverage

Loan repayment 0.0 (1,921.4) 0.0 0.0 Debt to total capital 35.1 27.4 23.1 19.6

Others/interest paid (484.0) (1,203.4) (1,142.8) (1,110.0) Debt to equity 64.4 48.0 37.7 30.2

Net cash inflow (outflow) (1,727.3) (1,142.1) 1,174.3 1,469.7 Net debt/(cash) to equity 50.2 38.6 28.5 21.1

Beginning cash & cash equivalent

8,732.3 7,005.0 5,862.9 7,037.2 Interest cover (x) n.a. 34.6 35.9 42.0

Ending cash & cash equivalent 7,005.0 5,862.9 7,037.2 8,506.9

Price Range 2008 2009 2010 2011*

Price (Rp) High 29,600 35,000 60,000 75,000 Low 7,100 10,800 33,400 46,800 PE (x) High 13.0 14.1 16.9 16.7 Low 3.1 4.4 9.4 10.4

* Forecast PE


BACKGROUND

Bank Mandiri (BMRI) is the largest bank in Indonesia in terms of assets with 1,442 branches and 26,327 employees. Since 2005, the bank has shown a turnaround in its non-performing loans (NPL) and performance with a new management team and better corporate governance. BMRI has a strong presence in the corporate segment while growing its presence in the retail and consumer segments.

OUTLOOK/RECOMMENDATION Growing its transaction capabilities. BMRI’s strategy is to develop high

yield businesses from the retail, consumer and micro segments. We believe that the bank has a lot of room for improvement as the lag behind the market leader Bank Central Asia (BBCA) is still significant. So far, the bank has installed more than 61,000 electronic data capture (EDC) units up to date, or installed 7,500 units in 2Q11 alone.

• Building franchise in high-yield segments. BMRI continued to post strong loan growth of 27% yoy in 1H11 (+10% qoq), higher than the banking industry growth. In 1H11, the largest contributor to loan growth were the small and micro (+36% yoy), commercial (+32% yoy), and consumer (29% yoy) segments. The strong loan growth showed the management capabilities to execute the bank’s strategy particularly to strengthen its consumer and retail banking segments. Despite the aggressive loan expansion, BMRI maintained the quality of its loan portfolio with gross NPL improving to 2.3% (vs 2.4% in 1H10). At the same time, the cost of funds decreased by 20bp yoy which helped to improve NIM to 5.2% in 1H11.

• Main beneficiary of investment cycle expansion. BMRI is the main beneficiary of the current investment cycle as the market leader in the corporate banking segment. We believe BMRI will continue to perform well, driven by its strong loan growth and increasing contributions from the high yield business. We believe that BMRI will benefit from the strong loan growth in 2011-13 during the investment cycle expansion. At the same time, BMRI should be able to strengthen its position in the consumer, micro and retail banking business.

• Top pick in the sector. BMRI is our top pick in the banking sector. Our target price is Rp9,100, or 3.2x mid-12F P/B, based on our assumptions for sustainable growth of 12%, ROE of 21.5%, and cost of equity of 15%. We like BMRI as it is the largest bank in the corporate segment and has a strong franchise in transaction banking, strong growth opportunities from high-yield businesses, and good corporate governance. Maintain BUY.

Key Financials Year to 31 Dec (Rpb) 2009 2010 2011F 2012F 2013F Net interest income 17,358.1 20,169.7 21,511.5 26,531.0 30,989.9 Non-interest income 5,307.8 8,829.2 11,848.6 11,425.8 11,836.4 Net profit (rep./act.) 7,155.5 9,218.3 12,085.7 14,844.0 18,095.9 Net profit (adj.) 7,155.5 9,218.3 12,085.7 14,844.0 18,095.9 EPS (Rp) 344.7 439.0 518.0 636.2 775.6 PE (x) 21.3 16.7 14.2 11.6 9.5 P/B (x) 4.3 3.7 2.8 2.4 2.0 Dividend yield (%) 1.5 1.5 1.9 2.8 3.9 Net int margin (%) 5.3 5.6 5.3 5.8 6.1 Cost/income (%) 43.7 41.1 38.6 37.3 36.3 Loan loss cover (%) 200.8 192.4 241.7 198.1 180.4 Consensus net profit - - 11,942.2 14,025.3 17,115.8 UOBKH/Consensus (x) - - 1.01 1.06 1.06

Source: BMRI, Bloomberg, UOB Kay Hian

Bank Mandiri

BUY Share Price Rp7,350 Target Price Rp9,100 Upside +23.8% Company Description State-owned bank with the largest market share in the corporate segment. Stock Data GICS sector Banking Bloomberg ticker: BMRI IJ Shares issued (m): 23,333.3 Market cap (Rpb): 171,500.0 Market cap (US$m): 20,063.2 3-mth avg t'over (US$m): 25.2 Price Performance (%) 52-week high/low Rp8,050/Rp5,400 1mth 3mth 6mth 1yr YTD

(3.3) 5.0 23.5 24.6 15.0 Major Shareholders % Republic of Indonesia 60.0 FY11 NAV/Share (Rp) 2,668 FY11 CAR Tier-1 (%) 16.7 Price Chart

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6000

7000

8000

9000

(lcy)

70

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90

100

110

120

130

140

150

(%)BANK MANDIRI TBK PTBank Mandiri Tbk Pt/JCI Index

Volume

0

50

100

150


Source: Bloomberg

Analysts Agus Pramono, CFA +6221 2993 3845 [email protected] Rufina Tam + 6221 2993 3917 [email protected]



Interest income 33,931.7 37,941.1 44,561.4 50,758.0 Cash with central bank 59,796.3 70,064.8 71,264.7 72,427.2

Interest expense (13,762.0) (16,429.6) (18,030.5) (19,768.1) Govt treasury bills & securities 78,092.6 68,543.0 60,223.4 54,923.9

Net interest income 20,169.7 21,511.5 26,531.0 30,989.9 Interbank loans 21,311.4 23,296.0 22,131.2 17,704.9

Fees & commissions 5,238.1 5,733.2 6,516.2 7,312.3 Customer loans 234,678.1 289,769.2 349,220.1 407,014.6

Other income 3,591.1 6,115.4 4,909.7 4,524.1 Investment securities 8,470.6 8,912.0 9,364.5 9,828.3

Non-interest income 8,829.2 11,848.6 11,425.8 11,836.4 Derivative receivables 37.1 39.0 40.9 42.9

Total income 28,998.9 33,360.1 37,956.8 42,826.3 Fixed assets (incl. prop.) 10,827.1 11,377.1 11,927.1 12,477.1

Staff costs (5,484.2) (6,672.5) (7,339.7) (8,073.7) Other assets 36,562.4 29,218.3 26,829.8 24,690.4

Other operating expense (6,440.2) (6,191.9) (6,810.0) (7,485.5) Total assets 449,775.6 501,219.4 551,001.7 599,109.4

Pre-provision profit 17,074.5 20,495.7 23,807.1 27,267.1 Interbank deposits 7,657.0 9,289.7 8,473.3 8,881.5

Loan loss provision (3,485.1) (3,500.0) (3,250.0) (2,750.0) Customer deposits 362,212.2 395,390.6 434,410.1 471,762.0

Other provisions 147.2 (1,106.5) (1,049.5) (725.5) Derivative payables 37.8 40.3 39.1 39.7

Other non-operating income 235.6 251.3 309.9 362.0 Debt equivalents 6,632.0 6,249.2 5,890.6 5,554.6

Pre-tax profit 13,972.2 16,140.5 19,817.5 24,153.6 Other liabilities 31,165.6 27,279.7 28,991.5 27,997.7

Tax (4,602.9) (3,873.7) (4,756.2) (5,796.9) Total liabilities 407,704.5 438,249.5 477,804.7 514,235.5

Minorities (150.9) (181.1) (217.3) (260.8) Shareholders' funds 41,542.8 62,261.6 72,271.3 83,687.4

Net profit 9,218.3 12,085.7 14,844.0 18,095.9 Minority interest - accumulated

527.2 708.3 925.7 1,186.5

Net profit (adj.) 9,218.3 12,085.7 14,844.0 18,095.9

Total equity & liabilities 449,774.6 501,219.4 551,001.7 599,109.4

Operating Ratios Key Metrics Year to 31 Dec (Rpb) 2010 2011F 2012F 2013F Year to 31 Dec (%) 2010 2011F 2012F 2013F

Capital Adequacy Growth

Tier-1 CAR 13.1 16.7 16.2 16.2 Net interest income, yoy chg 16.2 6.7 23.3 23.3

Total CAR 14.6 18.1 17.5 17.6 Fees & commissions, yoy chg 18.1 9.5 13.7 13.7

Total assets/equity (x) 10.8 8.1 7.6 7.2 Pre-provision profit, yoy chg 33.9 20.0 16.2 16.2

Tangible assets/tangible common equity (x)

10.8 8.1 7.6 7.2 Net profit, yoy chg 28.8 31.1 22.8 22.8

Net profit (adj.), yoy chg 28.8 31.1 22.8 21.9

Asset Quality Customer loans, yoy chg * 24.0 24.9 19.9 16.0

NPL ratio 2.4 2.4 2.7 2.7 Customer deposits, yoy chg 13.4 9.2 9.9 9.9

Loan loss coverage 192.4 241.7 198.1 180.4 Profitability

Loan loss reserve/gross loans 4.7 5.8 5.3 4.9 Net interest margin 5.6 5.3 5.8 6.1

Increase in NPLs (3.4) 22.8 35.0 16.0 Cost/income ratio 41.1 38.6 37.3 36.3

Adjusted ROA 2.2 2.5 2.8 3.3

Liquidity Reported ROE 24.1 23.3 22.1 24.8

Loan/deposit ratio * 68.0 77.8 84.9 90.7 Adjusted ROE 24.1 23.3 22.1 24.8

Liquid assets/short-term liabilities 43.0 40.0 34.7 30.2 Valuation

Liquid assets/total assets 35.4 32.3 27.9 24.2 P/BV (x) 3.7 2.8 2.4 2.0

P/NTA (x) 3.7 2.8 2.4 2.0

Adjusted P/E (x) 16.7 14.2 11.6 9.5

Dividend Yield 1.5 1.9 2.8 3.9

*based on gross loans

Payout ratio 24.5 26.7 32.6 36.9

Price Range 2008 2009 2010 2011*


* Forecast PE


BACKGROUND

Indocement Tunggal Prakarsa (INTP), the second-largest cement manufacturer in Indonesia, has a capacity of 18.6mt and currently holds about 30% of the domestic market share. INTP was established in 1985 and went public in 1989.


• Market share maintained at 31%. INTP managed to maintain its market share in 1H11 at 31% as it has more spare capacity than its peers. Sales volume increased by 12% yoy (higher than Semen Gresik’s (SMGR) 10.5% and Holcim Indonesia’s (SMCB) 6%) to 7.3mt during 1H11 as the company has more spare capacity (added 9% in 2010 to 18.6mt p.a.) to anticipate higher demand with utilisation rate declining to 73%, the lowest in the sector. SMGR is currently running at almost full capacity, while SMCB has an 82% utilisation rate. INTP dominates in most developed provinces - Jakarta, West Java and Banten – which accounted for 30-35% of total domestic cement demand.

• ASP would be flat till the end of this year but ... In 1H11, ASP was flat at about Rp867,000/tonne or a slight increase from Rp865,000/tonne in 1Q11. INTP cannot increase ASP due to stiff competition from smaller players amid strong demand for cement. We expect ASP to be flattish this year due to: a) stiffer competition, b) increasing spare capacity from peers (SMGR would add 5mt capacity in 2012), and c) more players (eg Anhui Conch, LaFarge, China Triumph International Engineering Company) entering Indonesia’s cement market. All these would add pressure on ASP. However, INTP still has the highest net margin at the moment of 27% in 1H11, vs SMGR’s 25% and SMCB’s 17%.

• … demand would still be robust in the long term. Despite tougher competition, the company expects robust cement demand in the long term. As such it has added two cement mills in Cirebon with a total annual capacity of 1.5mt, which have started operations by end-Aug 10, bringing total current capacity to 18.6mt. The company also plans to add one cement mill with a capacity of 1.9mt p.a. by 2012/13. If domestic demand remains high from 2012 onwards, INTP plans to build a cement plant with an annual capacity of 2-3mt.

Re-iterate BUY with lower target price of Rp19,600, based on 2011F DCF valuation assuming WACC of 13%, risk-free rate of 9% and long-term growth of 5%. This target price also translates into 16x 2012F PE, which is on a par with its average historical three-year PE of 16.8x.

Key Financials Year to 31 Dec (Rpb) 2009 2010 2011F 2012F 2013F Net turnover 10,576.5 11,137.8 13,550.8 15,145.1 16,952.3 EBITDA 4,273.7 4,698.2 5,403.6 6,559.2 7,679.4 Operating profit 3,693.3 4,020.0 4,644.1 5,768.3 6,857.0 Net profit (rep./act.) 2,744.7 3,225.2 3,566.3 4,506.7 5,443.5 Net profit (adj.) 2,744.7 3,225.2 3,566.3 4,506.7 5,443.5 EPS (Rp) 745.6 876.2 968.8 1,224.3 1,478.4 PE (x) 19.4 16.5 15.0 11.8 9.8 P/B (x) 5.0 4.1 3.4 2.8 2.3 EV/EBITDA (x) 12.5 11.4 9.9 8.1 6.9 Dividend yield (%) 1.0 1.6 1.8 2.0 2.5 Net margin (%) 26.0 29.0 26.3 29.8 32.1 Net debt/(cash) to equity (%) (22.0) (33.2) (44.2) (54.0) (61.8) Interest cover (x) n.a. n.a. n.a. n.a. n.a. ROE (%) 28.6 27.2 24.8 25.9 28.0 Consensus net profit - - 3,634.7 4,281.0 4,890.5 UOBKH/Consensus (x) - - 0.98 1.05 1.11

Source: INTP, Bloomberg, UOB Kay Hian

Indocement Tunggal Prakarsa

BUY Share Price Rp14,500 Target Price Rp19,600 Upside +35.2% Company Description Building materials company. Stock Data GICS sector Materials Bloomberg ticker: INTP IJ Shares issued (m): 3,681.2 Market cap (Rpb): 53,377.9 Market cap (US$m): 6,244.5 3-mth avg t'over (US$m): 6.2 Price Performance (%) 52-week high/low Rp19,300/Rp13,500 1mth 3mth 6mth 1yr YTD

(13.9) (14.7) (2.0) (11.6) (9.1) Major Shareholders % Birchwood Omnia 51.0 FY11 NAV/Share (Rp) 4,257 FY11 Net Cash/Share (Rp) 1,880 Price Chart

10000

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20000

(lcy)

60

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80

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120

(%)INDOCEMENT TUNGGAL PRAKARSA

Indocement Tunggal Prakarsa/JCI Index

Volume

05

101520


Source: Bloomberg

Analyst Marwan Halim +6221 2993 3805 [email protected]




EBITDA 4,698.2 5,403.6 6,559.2 7,679.4 Other LT assets 158.6 158.6 158.6 158.6

Deprec. & amort. 678.2 759.5 791.0 822.4 Cash/ST investment 4,684.9 7,256.9 10,652.6 14,677.4


Total other non-operating income 54.9 0.0 0.0 0.0 Total assets 15,346.1 17,995.5 21,443.9 25,560.8

Associate contributions 6.6 0.0 0.0 0.0 ST debt 224.8 224.8 224.8 224.8

Net interest income/(expense) 166.9 309.1 491.0 703.4 Other current liabilities 1,122.9 1,178.1 1,194.9 1,226.7

Pre-tax profit 4,248.5 4,953.2 6,259.3 7,560.4 LT debt 112.5 112.5 112.5 112.5

Tax (1,023.8) (1,386.9) (1,752.6) (2,116.9) Other LT liabilities 785.3 785.3 785.3 785.3

Minorities 0.3 0.0 0.0 0.0 Shareholders' equity 13,077.4 15,671.5 19,103.2 23,188.2

Net profit 3,225.2 3,566.3 4,506.7 5,443.5 Minority interest 23.2 23.2 23.2 23.2

Net profit (adj.) 3,225.2 3,566.3 4,506.7 5,443.5







Working capital changes (302.2) (146.9) (197.5) (253.3) ROA 22.5 21.4 22.9 25.0

Other operating cashflows 3.9 309.1 491.0 703.4 ROE 27.2 24.8 25.9 28.0

Investing (435.8) (629.4) (629.4) (629.4)

Capex (growth) (436.0) (629.4) (629.4) (629.4) Growth

Investments 0.1 0.0 0.0 0.0 Turnover 5.3 21.7 11.8 11.9

Others 0.0 0.0 0.0 0.0 EBITDA 9.9 15.0 21.4 17.1

Financing (883.9) (977.5) (1,075.0) (1,358.5) Pre-tax profit 11.9 16.6 26.4 20.8

Dividend payments (827.9) (972.1) (1,075.0) (1,358.5) Net profit 17.5 10.6 26.4 20.8

Proceeds from borrowings 0.0 0.0 0.0 0.0 Net profit (adj.) 17.5 10.6 26.4 20.8

Loan repayment (55.9) 0.0 0.0 0.0 EPS 17.5 10.6 26.4 20.8

Others/interest paid 0.0 (5.4) 0.0 0.0

Net cash inflow (outflow) 2,056.4 2,572.0 3,395.7 4,024.8 Leverage

Beginning cash & cash equivalent 2,623.5 4,684.9 7,256.9 10,652.6 Debt to total capital 2.5 2.1 1.7 1.4

Changes due to forex impact 5.0 0.0 0.0 0.0 Debt to equity 2.6 2.2 1.8 1.5

Ending cash & cash equivalent 4,684.9 7,256.9 10,652.6 14,677.4 Net debt/(cash) to equity (33.2) (44.2) (54.0) (61.8)

Interest cover (x) n.a. n.a. n.a. n.a.

Price Range 2008 2009 2010 2011*


* Forecast PE


BACKGROUND

Kalbe Farma (KLBF), the largest listed pharmaceutical company in Indonesia, markets and sells its products in six major markets in Southeast Asia. The company has an extensive distribution network and it is the market leader in prescription pharmaceuticals, over-the-counter drugs and energy drinks.


Stronger growth outlook in 2012. We recently revised our revenue growth forecasts for 2012 from 14.2% to 16.8% yoy as we expect further upside potential from: a) supply chain system improvement, b) contribution from new product launches in 2011 (>20 products), c) aggressive marketing strategies, and d) 50% increase in generic drugs production capacity after the expected commercialisation in Sep/Oct 11. Management expects to grow its revenue by at least 17% next year.

• Potential acquisition in 2H11. The long awaited desire for inorganic growth could take place in 2H11, as management recently highlighted that it is now at the bidding process for one potential acquisition out of the two ongoing serious discussions. While details remain undisclosed, there is a likelihood for brand acquisition of complementary products that could enhance margins. Apart from the domestic market, KLBF also welcomes potential M&A in the Philippines, Vietnam and Thailand. Subject to the company’s size, the acquisition could lead to upside risks to our earnings forecasts. Meanwhile, financing would not be a problem given the strong cash balance at Rp2.4t in 2Q11 and Rp2.7t worth of 781.0m treasury stocks at current price.

Strong Indonesian rupiah/US dollar will sustain profitability. Despite the limitation on generic drugs price increases this year and rising raw materials prices, we remain confident that 2011 gross margin will be higher than 2010 as the strong Indonesian rupiah/US dollar will lower domestic cost as 90% of raw materials are imported. In 1H11, the strong Indonesian rupiah/US dollar has also helped to increase gross margin to 52.1% (+1.5ppt yoy) despite the minimal price increases and rising crude oil prices.

Maintain BUY and Rp4,075 target price. We set our target price for KLBF at 1.0x PEG that implies 20.0x 2012F PE. At current price, the stock is trading at 0.8x PEG or 15.7x 2012F PE.

Key Financials Year to 31 Dec (Rpb) 2009 2010 2011F 2012F 2013F Net turnover 9,087.3 10,226.8 11,742.6 13,711.5 15,822.9 EBITDA 1,762.2 1,988.0 2,319.3 2,729.3 3,373.6 Operating profit 1,565.9 1,790.9 2,103.3 2,494.5 3,120.4 Net profit (rep./act.) 929.0 1,286.3 1,556.3 1,901.6 2,392.9 Net profit (adj.) 929.0 1,286.3 1,556.3 1,901.6 2,392.9 EPS (Rp) 99.1 137.2 166.0 202.8 255.2 PE (x) 32.0 23.1 19.1 15.7 12.4 P/B (x) 6.9 5.5 4.7 4.0 3.4 EV/EBITDA (x) 18.3 16.2 13.9 11.8 9.6 Dividend yield (%) 0.4 0.9 2.2 2.6 3.2 Net margin (%) 10.2 12.6 13.3 13.9 15.1 Net debt/(cash) to equity (%) (28.3) (34.9) (38.2) (41.4) (46.2) ROE (%) 23.4 26.6 26.7 27.8 29.4 Consensus net profit - - 1,513.5 1,777.0 2,049.7 UOBKH/Consensus (x) - - 1.03 1.07 1.17

Source: KLBF, Bloomberg, UOB Kay Hian

Kalbe Farma

BUY Share Price Rp3,175 Target Price Rp4,075 Upside +28.3% Company Description The largest listed pharmaceutical and consumer health product manufacturer and distributor in Indonesia. Stock Data GICS sector Health Care Bloomberg ticker: KLBF IJ Shares issued (m): 10,156.0 Market cap (Rpb): 32,245.3 Market cap (US$m): 3,772.3 3-mth avg t'over (US$m): 5.2 Price Performance (%) 52-week high/low Rp3,775/Rp2,250 1mth 3mth 6mth 1yr YTD

(12.4) (8.6) 9.5 35.1 (2.3) Major Shareholders % Gira Sole Prima 8.6 Santa Seha Sanadi 8.6 Diptanala Bahana 8.6 FY11 NAV/Share (Rp) 671 FY11 Net Cash/Share (Rp) 256 Price Chart

2000

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(lcy)

80

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100

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150

160

170

(%)KALBE FARMA TBK PT Kalbe Farma Tbk Pt/JCI Index

Volume

050

100150200


Source: Bloomberg Analyst Adrian Joezer + 6221 2993 3916 [email protected]




EBITDA 1,988.0 2,319.3 2,729.3 3,373.6 Other LT assets 390.0 415.3 441.1 467.5

Deprec. & amort. 197.1 216.0 234.8 253.2 Cash/ST investment 1,901.9 2,423.5 3,095.6 4,116.2


Total other non-operating income (54.7) (52.3) 0.0 0.0 Total assets 7,032.5 8,065.0 9,321.4 10,887.0


Net interest income/(expense) 34.3 112.0 143.7 188.6 Other current liabilities 1,121.9 1,235.0 1,360.5 1,476.4

Pre-tax profit 1,770.4 2,163.0 2,638.2 3,309.1 LT debt 0.7 0.0 0.0 0.0

Tax (426.6) (540.8) (659.5) (827.3) Other LT liabilities 113.1 120.5 128.0 135.6

Minorities (57.5) (66.0) (77.1) (88.9) Shareholders' equity 5,373.8 6,286.9 7,410.3 8,852.4


Net profit (adj.) 1,286.3 1,556.3 1,901.6 2,392.9


Cash Flow Key Metricss Year to 31 Dec (Rpb) 2010 2011F 2012F 2013F Year to 31 Dec (%) 2010 2011F 2012F 2013F





Working capital changes (41.5) (343.7) (425.0) (419.3) ROA 19.0 20.6 21.9 23.7

Other operating cashflows (245.5) (86.6) (98.0) (110.4) ROE 26.6 26.7 27.8 29.4

Investing (232.1) (290.7) (289.5) (284.4)


Investments 47.3 0.0 0.0 0.0 Turnover 12.5 14.8 16.8 15.4

Others 190.4 (25.3) (25.7) (26.5) EBITDA 12.8 16.7 17.7 23.6

Financing (574.7) (595.7) (728.8) (900.1) Pre-tax profit 20.3 22.2 22.0 25.4

Dividend payments (234.4) (643.2) (778.1) (950.8) Net profit 38.5 21.0 22.2 25.8

Issue of shares 0.0 0.0 0.0 0.0 Net profit (adj.) 38.5 21.0 22.2 25.8

Proceeds from borrowings 0.0 0.0 0.0 0.0 EPS 38.4 21.0 22.2 25.8

Loan repayment (314.5) (1.1) 0.0 0.0

Others/interest paid (25.7) 48.5 49.3 50.7 Leverage

Net cash inflow (outflow) 447.1 521.6 672.1 1,020.7 Debt to total capital 0.4 0.4 0.3 0.3

Beginning cash & cash equivalent

1,562.7 1,901.9 2,423.5 3,095.6 Debt to equity 0.5 0.4 0.3 0.3

Changes due to forex impact (107.9) 0.0 0.0 0.0 Net debt/(cash) to equity (34.9) (38.2) (41.4) (46.2)

Ending cash & cash equivalent 1,901.9 2,423.5 3,095.6 4,116.2

Price Range 2008 2009 2010 2011*

Price (Rp) High 1,270 1,380 3,775 3,725 Low 355 405 1,320 2,650 PE (x) High 17.2 13.9 27.5 22.4 Low 4.8 4.1 9.6 16.0

* Forecast PE


BACKGROUND

Mitra Adiperkasa (MAPI) is a leading lifestyle retailer and distributor targeting the middle- and upper-income segments. Besides offering a diversified range of goods including sportswear, fashion, food & beverage (F&B) and lifestyle products, it also operates department stores.


Festive seasons will drive 2H11 results. We believe the strong 1H11 earnings growth of 57.5% yoy will continue into 2H11, bringing 2011 full-year growth to 63.8% yoy. The growth is stronger as we expect 2H11 earnings contribution to be higher at 51.4% driven by higher spending in December during Christmas and the New Year’s holiday. In 2008-10, MAPI’s average sales in December were 37.7% higher compared to the average monthly sales.

• Margin improvement will continue. Operational efficiency has led to an improvement in MAPI’s operating margin since 2010. While there could be some margin pressure in 3Q11 amid the discount season, we expect it to normalise in 4Q11 before improving further from 2012 onwards. This will be driven mainly by the F&B division, such as Burger King and Dominos Pizza that have only started to breakeven at the company level this year. With more store openings, MAPI will reap higher economies of scale and hence, better profitability.

Two new exciting brands could be introduced next year. MAPI could introduce two new fashion brands for next year: Uniqlo and Cotton On – both of which offer casual clothing suitable for the urban middle class. If MAPI could secure the deal, we believe these two brands will have strong potential with their affordable pricing points. Uniqlo is a Japanese leading clothing retail chain, while Cotton On originated from Australia.

Re-iterate BUY with Rp5,025 target price based on 20.0x 2012F PE implying 1.0x PEG. At current price, the stock is trading at 16.4x 2012F PE or 0.9x PEG. MAPI offers the strongest growth potential within our consumer and retail universe, at an average net profit growth of 36.8% p.a. in 2011-13F.

Key Financials Year to 31 Dec (Rpb) 2009 2010 2011F 2012F 2013F Net turnover 4,112.2 4,712.5 5,721.8 6,738.0 7,345.9 EBITDA 540.4 652.3 826.4 979.6 1,054.0 Operating profit 307.7 449.1 535.7 679.9 747.0 Net profit (rep./act.) 164.0 201.1 329.3 427.4 499.6 Net profit (adj.) 164.0 201.1 329.3 427.4 499.6 EPS (Rp) 98.8 121.1 198.4 257.4 301.0 PE (x) 42.8 34.9 21.3 16.4 14.0 P/B (x) 5.4 4.8 4.0 3.3 2.8 EV/EBITDA (x) 13.0 10.8 8.5 7.2 6.7 Dividend yield (%) 0.0 0.4 0.6 0.9 1.2 Net margin (%) 4.0 4.3 5.8 6.3 6.8 Net debt/(cash) to equity (%) 71.4 49.1 29.5 13.1 (1.9) Interest cover (x) 5.0 5.5 10.1 15.0 24.4 ROE (%) 13.6 14.6 20.4 22.0 21.4 Consensus net profit - - 309.4 398.3 504.4 UOBKH/Consensus (x) - - 1.06 1.07 0.99

Source: MAPI, Bloomberg, UOB Kay Hian

Mitra Adiperkasa

BUY Share Price Rp4,225 Target Price Rp5,025 Upside +18.9% Company Description Operates high-end department stores, specialty stores and F&B outlets in Indonesia. Stock Data GICS sector Consumer Bloomberg ticker: MAPI IJ Shares issued (m): 1,660.0 Market cap (Rpb): 7,013.5 Market cap (US$m): 820.5 3-mth avg t'over (US$m): 1.7 Price Performance (%) 52-week high/low Rp4,775/Rp800 1mth 3mth 6mth 1yr YTD

(0.6) 22.5 72.4 463.3 57.9 Major Shareholders % Satya Mulia Gema Gemilang 58.8 FY11 NAV/Share (Rp) 1,064 FY11 Net Debt/Share (Rp) 313 Price Chart

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270

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540

(%)MITRA ADIPERKASA TBK PT Mitra Adiperkasa Tbk Pt/JCI Index

Volume

01020304050


Source: Bloomberg Analyst Adrian Joezer + 6221 2993 3916 [email protected]




EBITDA 652.3 826.4 979.6 1,054.0 Other LT assets 491.6 464.6 466.3 466.0

Deprec. & amort. 203.2 290.7 299.7 307.0 Cash/ST investment 224.3 266.6 310.9 636.2

EBIT 449.1 535.7 679.9 747.0 Other current assets 1,641.0 1,969.3 2,362.7 2,603.2

Total other non-operating income (59.6) (6.3) (32.7) (22.6) Total assets 3,670.5 4,039.3 4,428.3 4,936.0


Net interest income/(expense) (117.9) (81.8) (65.1) (43.2) Other current liabilities 1,023.2 1,241.8 1,457.0 1,548.7

Pre-tax profit 275.8 451.7 586.3 685.4 LT debt 499.2 142.1 338.6 269.6

Tax (74.7) (122.4) (159.0) (185.8) Other LT liabilities 233.1 244.5 253.1 257.4

Minorities 0.0 0.0 0.0 0.0 Shareholders' equity 1,469.1 1,766.2 2,127.7 2,541.8

Net profit 201.1 329.3 427.4 499.6 Minority interest 0.0 0.0 0.0 0.0

Net profit (adj.) 201.1 329.3 427.4 499.6


Cash Flow Key Metricss Year to 31 Dec (Rpb) 2010 2011F 2012F 2013F Year to 31 Dec (%) 2010 2011F 2012F 2013F

Operating 770.0 629.9 711.2 842.0 Profitability

Pre-tax profit 275.8 451.7 586.3 685.4 EBITDA margin 13.8 14.4 14.5 14.3



Working capital changes 203.5 (174.8) (198.6) (149.9) ROA 5.7 8.5 10.1 10.7

Other operating cashflows 162.2 184.7 182.8 185.2 ROE 14.6 20.4 22.0 21.4

Investing (482.9) (281.8) (254.5) (247.2)


Investments (26.5) 11.6 (5.0) 0.2 Turnover 14.6 21.4 17.8 9.0

Proceeds from sale of assets 0.0 0.0 0.0 0.0 EBITDA 20.7 26.7 18.5 7.6

Others (61.3) 17.4 (5.3) (3.2) Pre-tax profit (2.1) 63.8 29.8 16.9

Financing (252.4) (305.8) (412.4) (269.5) Net profit 22.6 63.8 29.8 16.9

Dividend payments (24.9) (40.2) (65.9) (85.5) Net profit (adj.) 22.6 63.8 29.8 16.9

Issue of shares 4.9 7.9 0.0 0.0 EPS 22.6 63.8 29.8 16.9

Proceeds from borrowings 0.0 0.0 0.0 0.0

Loan repayment (164.3) (162.5) (196.2) (2.5) Leverage

Others/interest paid (68.1) (111.0) (150.3) (181.6) Debt to total capital 39.1 30.8 21.7 18.8

Net cash inflow (outflow) 34.6 42.3 44.3 325.3 Debt to equity 64.3 44.5 27.8 23.1

Beginning cash & cash equivalent 189.7 224.3 266.6 310.9 Net debt/(cash) to equity 49.1 29.5 13.1 (1.9)

Ending cash & cash equivalent 224.3 266.6 310.9 636.2

Interest cover (x) 5.5 10.1 15.0 24.4

Price Range 2008 2009 2010 2011*

Price (Rp) High 680 640 2,875 4,775 Low 360 250 600 2,150 PE (x) High n.a. 6.5 23.7 24.1 Low n.a. 2.5 5.0 10.8

* Forecast PE


BACKGROUND

United Tractors (UNTR) has a strong presence in the heavy equipment market in Indonesia, with its flagship Komatsu brand capturing a 51% market share as of 1H11. It also has two other businesses: coal mining and mining contracting through wholly owned subsidiary Pamapersada Nusantara (PAMA). The heavy equipment business accounted for 46.3% of group revenue in 2010 while mining contracting (MC) and coal mining contributed 45.3% and 8.4% respectively.


Expect a 39% yoy rise in Komatsu’s 2011 sales volume to 7,500 units. This will be attributable to a) strong heavy equipment demand for major commodities, b) favourable economic condition, and c) faster-than-expected recovery of Komatsu supply from Japan after the earthquake disaster.

Coal mining acquisitions to boost coal sales volume and… To further expand its mining business and with the company expecting coal sales volume to reach 10m tonnes by 2015, UNTR, through subsidiaries, plans to acquire more coal mining concessions. Recently, the company carried out several acquisitions, such as buying a 20% stake in Bukit Enim Energi (BEE) at South Sumatra. Moreover, the company signed a conditional sales and purchase agreement (CSPA) agreement to acquire a 60% stake of Duta Sejahtera (DS) located at Central Kalimantan.

… to enhance mining contracting business. The company’s recent acquisition of a 20% stake in BEE will enhance PAMA’s mining contracting business as it will help PAMA to become the mining contractor of BEE. With coal production of 40m tonnes as of 1H11 and favourable weather condition, we expect MC to boost coal production by 10.8% yoy to 86m tonnes in 2011.

Maintain BUY with target price of Rp32,000 based on DCF valuation (WACC: 13.7%, long-term growth 3%). The target price represents 19.0x 2012F PE. We like UNTR due to sturdy demand for heavy equipment and more coal mining acquisitions to boost coal sales volume. As a subsidiary of Astra International, UNTR is also a well-managed company.

Key Financials Year to 31 Dec (Rpb) 2009 2010 2011F 2012F 2013F Net turnover 29,241.9 37,323.9 50,153.7 57,991.7 66,222.6 EBITDA 7,123.9 7,797.3 10,438.0 12,529.3 14,784.4 Operating profit 5,266.5 5,162.5 7,381.6 8,954.4 10,531.8 Net profit (rep./act.) 3,817.5 3,872.9 5,131.2 6,236.6 7,423.0 Net profit (adj.) 3,817.5 3,872.9 5,131.2 6,236.6 7,423.0 EPS (Rp) 1,147.5 1,164.1 1,375.6 1,671.9 1,990.0 PE (x) 20.9 20.6 17.4 14.3 12.0 P/B (x) 5.8 4.9 3.5 3.0 2.6 EV/EBITDA (x) 12.5 11.5 8.6 7.1 6.0 Dividend yield (%) 1.9 1.9 2.3 2.8 3.3 Net margin (%) 13.1 10.4 10.2 10.8 11.2 Net debt/(cash) to equity (%) (3.1) 17.5 (4.0) 0.3 (3.9) Interest cover (x) 80.3 55.6 120.7 146.6 991.0 ROE (%) 30.6 25.8 24.7 22.7 23.3 Consensus net profit - - 4,861.1 6,216.7 7,285.9 UOBKH/Consensus (x) - - 1.06 1.00 1.02

Source: UNTR, Bloomberg, UOB Kay Hian

United Tractors

BUY Share Price Rp23,950 Target Price Rp32,000 Upside +33.6% Company Description A distributor of Komatsu heavy machinery and a mine contractor. Stock Data GICS sector Heavy Equipment Bloomberg ticker: UNTR IJ Shares issued (m): 3,730.1 Market cap (Rpb): 89,336.7 Market cap (US$m): 10,451.2 3-mth avg t'over (US$m): 12.7 Price Performance (%) 52-week high/low Rp27,700/Rp17,690 1mth 3mth 6mth 1yr YTD

(6.1) 5.1 9.0 27.1 4.7 Major Shareholders % Astra International 59.5 FY11 NAV/Share (Rp) 6,831 FY11 Net Cash/Share (Rp) 275 Price Chart

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(%)UNITED TRACTORS TBK PT United Tractors Tbk Pt/JCI Index

Volume

010203040


Source: Bloomberg

Analyst Stefanus Darmagiri +6221 2993 3876 [email protected]




EBITDA 7,797.3 10,438.0 12,529.3 14,784.4 Other LT assets 906.8 1,212.3 1,419.1 1,621.2

Deprec. & amort. 2,634.7 3,056.4 3,574.9 4,252.6 Cash/ST investment 1,343.2 4,224.0 1,777.7 2,181.1


Total other non-operating income 16.3 43.6 48.0 94.0 Total assets 29,700.9 38,547.9 40,924.0 45,513.0

Associate contributions 22.6 0.0 0.0 0.0 ST debt 2,202.2 1,398.0 575.8 575.8

Net interest income/(expense) (140.2) (86.5) (85.5) (14.9) Other current liabilities 7,717.0 8,253.2 8,435.0 9,034.9

Pre-tax profit 5,061.3 7,338.7 8,916.9 10,610.8 LT debt 1,966.4 1,802.0 1,281.2 260.4

Tax (1,186.7) (2,201.6) (2,675.1) (3,183.3) Other LT liabilities 1,215.7 1,010.2 831.3 963.8

Minorities (1.6) (5.9) (5.3) (4.6) Shareholders' equity 16,136.3 25,479.5 29,467.6 34,314.6


Net profit (adj.) 3,872.9 5,131.2 6,236.6 7,423.0






Deprec. & amort. 2,634.7 3,056.4 3,574.9 4,252.6 Net margin 10.4 10.2 10.8 11.2

Working capital changes (3,920.4) (1,754.8) (2,067.0) (1,179.0) ROA 14.3 15.0 15.7 17.2

Non-cash items (44.7) 321.7 (542.5) 60.1 ROE 25.8 24.7 22.7 23.3

Investing (4,297.1) (6,219.3) (6,152.4) (6,653.1)

Capex (growth) (4,395.9) (6,000.0) (6,000.0) (6,500.0) Growth

Investments (136.7) (100.4) (99.1) (94.1) Turnover 27.6 34.4 15.6 14.2

Others 235.6 (118.9) (53.3) (59.1) EBITDA 9.5 33.9 20.0 18.0

Financing 328.5 2,345.6 (3,495.9) (3,500.3) Pre-tax profit (7.0) 45.0 21.5 19.0

Dividend payments (1,630.2) (1,702.3) (2,170.5) (2,640.4) Net profit 1.5 32.5 21.5 19.0

Issue of shares 0.0 5,887.0 0.0 0.0 Net profit (adj.) 1.5 32.5 21.5 19.0

Proceeds from borrowings 1,775.5 0.0 0.0 0.0 EPS 1.5 18.2 21.5 19.0

Loan repayment 0.0 (1,717.1) (1,329.4) (1,011.3)

Others/interest paid 183.2 (122.0) 4.0 151.4 Leverage

Net cash inflow (outflow) (1,426.0) 2,880.8 (2,446.3) 403.3 Debt to total capital 20.5 11.1 5.9 2.4

Beginning cash & cash equivalent 2,769.2 1,343.2 4,224.0 1,777.7 Debt to equity 25.8 12.6 6.3 2.4

Ending cash & cash equivalent 1,343.2 4,224.0 1,777.7 2,181.1 Net debt/(cash) to equity 17.5 (4.0) 0.3 (3.9)

Interest cover (x) 55.6 120.7 146.6 991.0

Price Range 2008 2009 2010 2011*


* Forecast PE


CORPORATE STATISTICSBook Price/ Net Cash(Debt) to 52-wk Avg Daily

Price Net Profit EPS PE DPS Yield CFPS Net No. of Market NTA NTA Mkt Price T/over Ticker Rec 8 Aug 11 Year 2010 2011F 2012F 2010 2011F 2012F 2010 2011F 2012F 2011F 2012F 2011F 2012F Margin ROA ROE Shares Cap. ps ps Cap Equity High Low 52-wk

(Rp) End (Rpb) (Rpb) (Rpb) (Rp) (Rp) (Rp) (x) (x) (x) (Rp) (Rp) (%) (%) (Rp) (%) (%) (%) (m) (Rpb) (Rp) (x) (%) (%) (Rp) (Rp) ('000)

AUTOMOBILEAstra International B U Y 81,000 65,050 12/10 14,366.0 18,226.9 21,143.0 3,549 4,502 5,223 18.3 14.4 12.5 1,300 1,337 2.0 2.1 1,269 11.1 14.2 32.2 4,048.4 263,345.5 12,793 5.1 0.1 37.2 75,950 45,250 4,198Sector 14,366.0 18,226.9 21,143.0 18.3 14.4 12.5 2.0 2.1 263,345.5 5.1

B A N K I N GBank Central Asia H O L D 8,700 8,050 12/10 8,479.3 9,565.1 10,891.0 3 4 4 3 8 8 4 4 2 23.4 20.7 18.2 1 9 4 2 2 1 2.4 2.7 5 2 8 41.7 2.8 27.4 24,655.0 198,472.8 1,480 5.4 (0.5) (258.8) 8,850 5,300 11,830Bank Danamon B U Y 6,400 5,200 12/10 2,883.5 3,695.7 4,860.3 3 4 2 4 3 9 5 7 7 15.2 11.9 9.0 1 3 4 1 7 7 2.6 3.4 4 8 6 20.8 2.7 16.8 8,422.8 43,798.6 1,971 2.6 (0.1) (14.1) 7,100 4,650 7,728Bank Jabar Banten B U Y 1,650 1,090 12/10 890.2 1,054.3 1,300.4 9 2 1 0 9 1 3 4 11.9 10.0 8.1 4 6 5 4 4.2 5.0 2 1 4 30.5 2.3 22.0 9,696.3 10,569.0 482 2.3 (1.3) (297.9) 1,780 9 7 0 31,893Bank Mandiri B U Y 9,100 7,350 12/10 9,218.3 12,085.7 14,844.0 3 9 5 5 1 8 6 3 6 18.6 14.2 11.6 1 3 8 2 0 7 1.9 2.8 3 6 5 32.2 2.2 24.1 23,333.3 171,500.0 2,439 3.0 (0.4) (107.0) 8,150 5,261 31,893Bank Negara Ind. B U Y 4,800 4,100 12/10 4,101.7 5,688.6 7,513.0 2 2 0 3 0 5 4 0 3 18.6 13.4 10.2 1 1 0 1 5 3 2.7 3.7 3 8 4 21.8 1.7 15.7 18,648.7 76,459.5 1,826 2.2 (0.5) (121.2) 5,100 2,797 28,100Bank Rakyat Ind. B U Y 7,900 6,500 12/10 11,472.4 12,706.9 14,264.4 4 6 5 5 1 5 5 7 8 14.0 12.6 11.2 9 3 1 0 3 1.4 1.6 4 3 7 29.9 3.2 35.9 24,669.2 160,349.5 1,631 4.0 (0.4) (149.0) 7,250 4,525 34,777Sector 37,045.3 44,796.3 53,673.2 17.8 14.8 12.3 2.1 2.7 661,149.4 3.5

CEMENTHolcim Indonesia H O L D 2,200 1,950 12/10 828.4 1,021.8 1,124.4 1 0 8 1 3 3 1 4 7 18.0 14.6 13.3 0 0 - - 1 3 9 13.9 9.4 16.3 7,662.9 14,942.7 917 2.1 0.0 9.5 2,575 1,770 8,651Indocement TP B U Y 19,600 14,500 12/10 3,224.9 3,566.3 4,506.7 8 7 6 9 6 9 1,224 16.6 15.0 11.8 2 6 4 2 9 2 1.8 2.0 9 1 7 29.0 22.5 27.1 3,681.2 53,377.9 3,788 3.8 (0.1) (34.7) 19,400 12,750 3,866Semen Gresik B U Y 10,800 9,150 12/10 3,633.2 3,907.7 4,349.5 6 1 3 6 5 9 7 3 3 14.9 13.9 12.5 3 0 6 3 2 6 3.3 3.6 5 8 2 25.3 25.5 32.7 5,931.5 54,273.4 2,171 4.2 (0.1) (23.9) 10,350 7,250 7,489Sector 7,686.6 8,495.8 9,980.6 15.9 14.4 12.3 2.3 2.5 122,593.9 3.6

CONSUMERIndofood SM B U Y 6,300 6,200 12/10 2,952.9 3,198.2 3,692.4 3 3 6 3 6 4 4 2 1 18.4 17.0 14.7 1 3 2 1 4 3 2.1 2.3 7 8 7 7.7 6.7 21.9 8,780.4 54,438.6 1,286 4.8 0.0 4.9 6,700 4,100 17,229Japfa Comfeed Ind. H O L D 4,600 5,100 12/10 959.2 926.9 1,073.2 4 6 3 4 4 7 5 1 8 11.0 11.4 9.8 3 6 5 8 2 7.2 1.6 5 3 8 6.9 14.7 37.1 2,071.7 29,755.7 1,598 3.2 0.2 48.6 5,800 2,150 5,692Kalbe Farma B U Y 4,075 3,175 12/10 1,286.3 1,556.3 1,901.6 1 3 7 1 6 6 2 0 3 23.1 19.1 15.7 6 9 8 3 2.2 2.6 1 3 4 12.6 19.0 26.6 10,156.0 32,245.3 584 5.4 (0.1) (34.5) 4,100 2,225 19,053Sector 5,198.3 5,681.5 6,667.2 18.2 16.7 14.2 0.8 0.7 94,770.2 6.6

HEAVY EQUIPMENTUnited Tractors B U Y 32,000 23,950 12/10 3,872.9 5,131.2 6,236.6 1,038 1,376 1,672 23.1 17.4 14.3 5 5 0 6 6 9 2.3 2.8 7 0 7 10.4 14.3 25.8 3,730.1 89,336.7 5,030 4.8 0.0 16.7 27,750 17,546 4,666Sector 3,872.9 5,131.2 6,236.6 23.1 17.4 14.3 2.3 2.8 89,336.7 4.8

METAL MININGAneka Tambang B U Y 2,900 1,870 12/10 1,683.4 1,824.6 1,983.6 1 7 6 1 9 1 2 0 8 10.6 9.8 9.0 7 7 8 3 4.1 4.5 2 4 4 19.3 15.1 19.0 9,538.5 17,836.9 1,025 1.8 (0.2) (30.1) 2,775 1,720 19,040INCO H O L D 4,750 3,700 12/10 3,739.0 3,842.8 3,927.4 3 7 6 3 8 7 3 9 5 9.8 9.6 9.4 2 2 6 2 3 2 6.1 6.3 0 34.3 20.7 26.8 9,936.3 36,764.5 1,570 2.4 (0.0) (11.4) 5,200 3,275 10,768Timah B U Y 3,300 2,075 12/10 947.9 1,243.4 1,360.2 1 8 8 2 4 7 2 7 0 11.0 8.4 7.7 1 2 4 1 3 5 6.0 6.5 1 5 3 11.4 17.7 24.8 5,033.0 10,443.5 905 2.3 (0.1) (15.5) 3,475 1,870 20,850Sector 6,370.4 6,910.7 7,271.2 10.2 9.4 8.9 5.5 5.8 65,044.9 2.2

PLANTATIONAstra Agro Lestari SELL 22,500 22,300 12/10 2,016.8 2,467.2 2,707.3 1,281 1,567 1,719 17.4 14.2 13.0 7 8 3 8 6 0 3.5 3.9 1,864 22.8 24.7 30.0 1,574.7 35,116.8 4,961 4.5 (0.1) (24.3) 27,650 19,000 1,389Bakrie Sumatera SELL 3 4 0 3 8 5 12/10 805.6 344.6 377.6 5 9 2 5 2 8 6.5 15.2 13.9 4 4 1.0 1.1 8 0 26.8 6.8 14.7 13,591.3 5,232.7 409 0.9 1.4 89.5 4 9 0 2 3 0 101,658BW Plantation H O L D 1,300 1,180 12/10 243.6 337.8 399.9 6 0 8 4 9 9 19.6 14.1 11.9 9 1 3 0.8 1.1 9 3 34.2 11.4 23.9 4,037.1 4,763.8 279 4.2 0.2 68.5 1,470 8 0 0 13,495London Sumatra B U Y 2,900 2,275 12/10 1,033.3 1,355.8 1,518.8 1 5 1 1 9 9 2 2 3 15.0 11.4 10.2 6 1 7 9 2.7 3.5 2 0 2 28.8 19.9 24.7 6,822.9 15,522.0 725 3.1 (0.1) (32.2) 2,600 1,800 14,941Sampoerna Agro H O L D 4,000 3,375 12/10 451.7 615.6 682.8 2 3 9 3 2 6 3 6 1 14.1 10.4 9.3 5 4 5 9 1.6 1.8 2 7 3 19.5 17.6 23.2 1,890.0 6,378.8 1,225 2.8 (0.0) (11.8) 3,775 2,500 4,981Sector 4,551.0 5,121.0 5,686.4 14.7 13.1 11.8 2.7 3.2 67,014.0 3.1


CORPORATE STATISTICSBook Price/ Net Cash(Debt) to 52-wk Avg Daily

Price Net Profit EPS PE DPS Yield CFPS Net No. of Market NTA NTA Mkt Price T/over Ticker Rec 8 Aug 11 Year 2010 2011F 2012F 2010 2011F 2012F 2010 2011F 2012F 2011F 2012F 2011F 2012F Margin ROA ROE Shares Cap. ps ps Cap Equity High Low 52-wk

(Rp) End (Rpb) (Rpb) (Rpb) (Rp) (Rp) (Rp) (x) (x) (x) (Rp) (Rp) (%) (%) (Rp) (%) (%) (%) (m) (Rpb) (Rp) (x) (%) (%) (Rp) (Rp) ('000)

PROPERTYAlam Sutera Realty B U Y 5 0 0 3 9 0 12/10 290.5 511.1 733.4 1 6 2 9 4 1 24.0 13.6 9.5 6 8 1.5 2.1 4 5 38.0 7.1 14.0 17,863.1 6,966.6 132 2.9 (0.0) (2.0) 4 5 0 1 7 7 77,315Bumi Serpong B U Y 1,050 9 2 0 12/10 394.4 712.5 904.3 2 3 4 1 5 2 40.8 22.6 17.8 8 1 0 0.9 1.1 4 1 15.9 3.8 7.4 17,497.0 16,097.2 359 2.6 (0.2) (32.2) 1,080 6 3 0 16,793Ciputra DevelopmentBUY 6 0 0 5 3 0 12/10 258.0 328.2 392.7 1 7 2 2 2 6 31.2 24.5 20.5 0 0 - - 3 9 15.2 2.9 5.4 15,165.8 8,037.9 326 1.6 (0.2) (24.0) 6 0 0 2 9 0 14,783Ciputra Property B U Y 6 0 0 4 8 0 12/10 155.4 169.8 166.7 2 5 2 8 2 7 19.0 17.4 17.7 4 7 0.9 1.5 2 7 43.7 4.2 4.6 6,150.0 2,952.0 566 0.8 (0.4) (34.2) 5 4 0 3 0 0 15,895Ciputra Surya B U Y 1,260 8 7 0 12/10 87.2 152.5 173.5 4 4 7 7 8 8 19.7 11.3 9.9 0 0 - - 4 1 14.7 3.6 5.8 1,978.9 1,721.6 795 1.1 0.0 3.6 9 9 0 5 2 0 2,431Summarecon AgungH O L D 1,180 1,150 12/10 233.5 291.6 372.9 3 4 4 2 5 4 33.9 27.1 21.2 1 4 1 8 1.2 1.6 9 7 13.8 4.4 12.1 6,873.1 7,904.1 320 3.6 (0.0) (2.5) 1,320 8 4 0 8,997Sector 1,418.9 2,165.7 2,743.5 30.8 20.2 15.9 0.8 1.1 43,679.5 2.1

RETAILMitra Adiperkasa B U Y 5,025 4,225 12/10 201.1 329.3 427.4 1 2 1 1 9 8 2 5 7 34.9 21.3 16.4 2 4 4 0 0.6 0.9 4 6 8 4.3 5.7 14.6 1,660.0 7,013.5 870 4.9 0.1 54.0 4,800 7 5 0 5,713Ramayana LS B U Y 9 9 0 7 9 0 12/10 354.8 427.3 466.4 5 0 6 0 6 6 15.8 13.1 12.0 3 0 3 6 3.8 4.6 7 9 7.4 10.6 13.8 7,096.0 5,605.8 382 2.1 (0.2) (35.9) 1,130 7 0 0 5,221Sector 555.8 756.6 893.8 22.7 16.7 14.1 2.0 2.6 12,619.3 3.0

OVERALL 109,669.8 98,058.3 114,295.5 19.4 21.7 18.6 65.2 56.7 2,131,423.5 4.0

As of 8 August 2011, the analysts and their immediate families do not hold positions in the securities recommended in thisreport.

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