finding direction in an uncertainty

Finding Direction in an

UncertaintyEconomic and Equity Outlook for 2019

3

Table of Contents

Market Outlook 2019

Economic Focus

Modest growth amid external pressure

Trade Balance

Improving trade balance

Currency Outlook

Rupiah in search of equilibrium

Inflation Outlook

Lower price through the controllable volatile food inflation

Indonesia Equity Strategy

Equity Focus

Selective growth strategy amid the intensify risk aversion environment

Company Focus

Banking

Maintaining high coverage ratio as countercyclical strategy

Bank Central Asia

Bank Rakyat Indonesia

Bank Mandiri

Bank Negara Indonesia

Bank Tabungan Negara

Property

Expecting revenue growth recovery

Ciputra Development

Alam Sutera Realty

Summarecon Agung

Consumer

Remain upbeat on selected retail and consumer company

Indofood CBP Sukses Makmur

Campina Ice Cream Industry

Sarimelati Kencana

Telecommunication

Telekomunikasi Indonesia

Media

Surya Citra Media

MNC Studios International

5

5

10

12

14

16

16

18

18

18

21

24

28

31

34

37

39

44

49

54

58

62

66

70

73

77

4

Distributor & Retailer

Ramayana Lestari Sentosa

Ace Hardware Indonesia

Erajaya Swasembada

Surya Pertiwi

Unrated

Indonesia Kendaraan Terminal

81

85

89

93

97

5

Market Outlook 2019

Economic Focus

Modest growth amid external pressure

Indonesia's economic growth faces significant challenges both from

external and internal sides. Increased uncertainty in global economic

growth related to trade wars, normalization of interest rate policies in the US,

weakening of the rupiah and other regional currencies over the USD and a

rise in domestic interest rates related to macro-prudential policies amid

external turmoil.

However, on the other hand, we also see the government's ability to

manage inflation to be quite positive so that it can sustain purchasing

power and maintain a moderate level of consumption, which has an

impact on Indonesia's economy which is slightly better this year. We expect

GDP to reach 5.2% compared to the previous year at the level of 5.1% while

the low and long-lasting inflation rate is below 4% during the year or in the

range of 3.4% this year that would provide the room for consumption growth

in the range of 5%yoy.

Amid the stable consumption growth, the investment in the supply

side had experienced an attractive growth at the level of 7%yoy. The

growth rate was relatively high compared to 4% for the last 4 years.

Improvement of infrastructure in the form of toll and non-toll roads, ports,

bridges is expected to be able to reduce the logistic cost and at the same time

to increase investment productivity when balanced with fast and efficient

licensing services. The consumption level is estimated to be at around 5%

next year on the back of the modest income growth, stable inflation and the

selective fiscal intervention through the social spending.

Improve loan growth. Credit grew by 10.7%yoy vs 7.6%yoy last year.

Even though the 7DRepo rate has increased to 6%, the tightening of liquidity

is offseted by easing loan to value (LTV) as well as easing the calculation of

risk weighted assets for the sector property. This is expected to be a growth

space in the consumption sector and property credit on the other hand. The

growth of property loans for subsidized houses has increased quite high at the

level of 30%yoy this year while non-subsidized houses are at the level of

14%. This shows strong demand, especially for the mid to low class segment.

Thus we estimate that moderate growth will still be a credit projection for the

coming year in the range 11%yoy to 14%yoy.

Fiscal stimulus space is limited considering the government will still

prioritize aspects of stability by keeping the primary balance to GDP

in 2019 near zero or at -0.13% from the previous deficit -0.41% and at

the same time reducing the deficit ratio to GDP to -1.8% compared to the

previous two years in the level -2.1% and -2.5% respectively. However, the

budget allocation for consumption stimulus in 2019 is quite large.

This can be seen in the budget allocation for social assistance. The

budget allocation in the form of cash transfers and near cash

transfers is believed to have a greater multiplier impact than

infrastructure budget.

Helmi Therik

+6221 80869900

[email protected]

6

Considering that propensity to consume for this allocation can reach above

90%. We think that it can be a fiscal driving force even with a more

stringent APBN posture. On the other hand, the lower fiscal deficit posture is

expected to increase credibility of government bonds amid the outflow

turmoil in the bond market along with the default risk sentiment and

contagious effects in Argentina, Turkey and Italy which have an impact on

rupiah volatility. We thus assess that external challenges will continue and

with a leaner fiscal deficit posture. However with the higher budget

allocations to encourage consumption on the other hand, it can offset the

negative effects from the smaller budget deficit. This was done to respond to

the problems of stability as well as the growth on the other side. However,

the allocation for infrastructure is still quite large, IDR420tn but the growth

is not as high as the previous year.

Lower 2019 fiscal deficit to (-1.84%) Significant primary balance improvement to

nearly zero to gain the fiscal credibility

Source: Bloomberg, Shinhan Sekuritas Indonesia Source: Bloomberg, Shinhan Sekuritas Indonesia

Lower infrastructure spending growth while pushed up the consumption stimulus through poverty alleviation

program, health, education budget and village fund

Source: Bloomberg, Shinhan Sekuritas Indonesia

-1.86

-2.33 -2.25

-2.59-2.49 -2.51

-2.12-1.84

-153.3

-211.70-226.7

-298.5-308.3

-341-314.2

-297.2

-3

-2.5

-2

-1.5

-1

-0.5

0

-400

-350

-300

-250

-200

-150

-100

-50

0

Fiscl Deficit to GDP Fiscal Deficit

-0.64

-1.09

-0.92

-1.23

-1.01-0.92

-0.44

-0.13

-52.8

-98.6-93.3

-142.5-125.6

-124.4

-64.8

-21.7

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

-160

-140

-120

-100

-80

-60

-40

-20

0

Primary balance to GDP

Fiscal Primary Balance

9.50%

7%

12.30%

1.10%

16.20%13.60%

5.20% 5.20%

31.90%

4.50% 2.90%

9%

41%

8.20%

2.40%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2007 2008E 2019(RAPBN)

Education Budget

Health Budget

Poverty aleviation and protection budget

Transfer & Village fund

Infrastructure

7

Stable consumption growth with attractive investment growth. The

infrastructure development would reduce the sunk cost for investment.


Government has released some economic package and the policy response

to boost the economic growth. The government needs to invite more domestic

and foreign direct investment to push up the growth while at the same time provide

the incentive for the export base company to invest to strengthen the current

account profile. The relaxation of permit, the tax incentive, tax holidays and the

loosening of the negative investment list were the part of the effort to attract the

investment. This would have a positive result in the mid to long term. We highlight

the latest economic package (package 16th) which has a stressing point on the

revision of the country's negative investment list, an expansion of Indonesia's tax

holiday program, the provision of tax incentives for the newly mandated conversion

of export earnings to rupiah to strengthen the foreign reserve as the positive move to

stimulate the economy. Based on various media information, only 15-30% of export

earnings were converted into rupiah.

Improving loan growth amid the modest GDP growth


5,1% 5,1%5,0% 5,0% 5,0%

4,9%

5,0% 5,1%5,0%

5,0%4,9%

4,9%

4,9% 5,0%

4,9%

5,1%5,0%

4,4%4,1%

4,6%

4,0%

4,9%

6,4%

4,7%

4,2%4,2%

4,8%4,8%

5,3%

7,1%

7,3%

7,9%

5,9%

7,0%

3,0%

4,0%

5,0%

6,0%

7,0%

8,0%

9,0%

Sep 14

Nop 14

Jan 15

Mar 15

Mei 15

Jul 15

Sep 15

Nop 15

Jan 16

Mar 16

Mei 16

Jul 16

Sep 16

Nop 16

Jan 17

Mar 17

Mei 17

Jul 17

Sep 17

Nop 17

Jan 18

Mar 18

Mei 18

Jul 18

Sep 18

Houshold yoy Gross Fixed Capital Formation yoy

6,4

7,6

10,7

5,015,17

0

1

2

3

4

5

6

7

8

0

5

10

15

20

25

30

35

40

Jun-0

8

Oct-

08

Feb-0

9

Jun-0

9

Oct-

09

Feb-1

0

Jun-1

0

Oct-

10

Feb-1

1

Jun-1

1

Oct-

11

Feb-1

2

Jun-1

2

Oct-

12

Feb-1

3

Jun-1

3

Oct-

13

Feb-1

4

Jun-1

4

Oct-

14

Feb-1

5

Jun-1

5

Oct-

15

Feb-1

6

Jun-1

6

Oct-

16

Feb-1

7

Jun-1

7

Oct-

17

Feb-1

8

Jun-1

8

GD

P y

oy

Loan y

oy

loan yoy GDP yoy

8

Package Unveiled Main Points

1st 9 September 2015 • Boost industrial competitiveness through deregulation • Curtail red tape • Enhance law enforcement & business certainty

2nd 30 September 2015 • Interest rate tax cuts for exporters • Speed up investment licensing for investment in industrial estates • Relaxation import taxes on capital goods in industrial estates & aviation

3rd 7 October 2015 • Cut energy tariffs for labor-intensive industries

4th 15 October 2015 • Fixed formula to determine increases in labor wages • Soft micro loans for >30 small & medium, export-oriented, labor-intensive businesses

5th 22 October 2015 • Tax incentive for asset revaluation • Scrap double taxation on real estate investment trusts • Deregulation in Islamic banking

6th 5 November 2015 • Tax incentives for investment in special economic zones

7th 4 December 2015 • Waive income tax for workers in the nation's labor-intensive industries • Free leasehold certificates for street vendors operating in 34 state-owned designated areas

8th 21 December 2015 • Scrap income tax for 21 categories of airplane spare parts • Incentives for the development of oil refineries by the private sector • One-map policy to harmonize the utilization of land

9th 27 January 2016

• Single billing system for port services conducted by SOEs • Integrate National Single Window system with 'inaportnet' system • Mandatory use of Indonesian rupiah for payments related to transportation activities • Remove price difference between private commercial and state postal services

10th 11 February 2016 • Removing foreign ownership cap on 35 businesses • Protecting small & medium enterprises as well as cooperatives

11th 29 March 2016

• Lower tax rate on property acquired by local real estate investment trusts • Harmonization of customs checks at ports (to curtail dwell time) • Government subsidizes loans for export-oriented small & medium enterprises • Roadmap for the pharmaceutical industry

12th 28 April 2016 • Enhancing the ease of doing business in Indonesia by cutting procedures, permits and

costs 13th 24 August 2016 • Deregulation for residential property projects for low-income families

14th 10 November 2016

Creating a roadmap for the nation's e-commerce industry: Easing and widening access to funding, offer tax incentives, harmonize regulations and gradually develop a national payment gateway, promote e-commerce awareness campaigns and improve e-commerce education, accelerate the development of high-speed broadband network, improve the e-commerce logistics system

15th 15 June 2017

• Improving Indonesia's logistics: Enhance the role of transportation insurance, reduce costs for logistic service providers, strengthen the Indonesia National Single Window (INSW) authority, reduce the number of prohibited and restricted goods

16th 16 November 2018

• Improving Indonesia's investment climate: A revision of the country's Negative Investment List, an expansion of Indonesia's tax

holiday program, the provision of tax incentives for the newly mandated conversion of export earnings to rupiah.

Source: www.indonesia-investments.com

Monetary stance. Government has increased its policy rate (7D Repo Rate) for sixth

times during 2018 and would be data dependent for the next year to adjust the rate.

However, we also expect that the BI would maintain its 7D Repo Rate next year

unchanged at 6%. Consecutive hike rate has been ahead the curve to anticipate the

negative impact from the US hawkish tone. The US Fed Fund rate is estimated to be

peak at around 3.5% while the pace for the higher rate is estimated to be slower as

the consecutive rate hiked has gradually near the target. Thus the source of

uncertainty that come from the US Fed Fund trajectory has been reduced while the

volatility of the currency due to the Trade War still remains.

9

Higher rate while at the same time


Outlook. We think that the 2019 GDP growth would be somewhat at 5.2% to 5.3%

for 2019. The modest GDP would give the room for the corporate to continue its

business consolidative stance. The modest consumption and investment growth and

the gradual improvement from the export side would maintain the modest GDP

growth while on the other hand the US monetary normalization policy would be the

challenge for the rupiah. However we think that the market has been partially

anticipate this issue as shown on the rupiah weakening. The possibility of steeper

interest rate was lower for the 2019 due to the down side risk of slower GDP. This

could give the breath for the rupiah to move slightly stronger against the USD for

2019 compared to the last quarter of 2018. We expect the rupiah would be hovered

at around IDR 14,500/USD.

Indicator 2013 2014 2015 2016 2017 2018F 2019F

Economic Activity

Real GDP (YoY%) 5.6 5.0 4.9 5.0 5.1 5.2 5.2

CPI (YoY%) 6.4 6.4 6.4 3.5 3.8 3.3 3.8

Unemployment (%) 6 5.8 6 5.6

5.4 5.3

External Balance

Curr. Acct. (% of GDP) -3.3 -3.1 -2.1 -1.8 -1.7 -2.8 -2.6

Fiscal Balance

Budget (% of GDP) -2.2 -2.1 -2.6 -2.5 -2.9 -2.2 -1.8

Interest Rates

Central Bank Rate (%)

4.75 4.25 6.00 6.00

Exchange Rates

USDIDR 12,171 12,388 13,788 13,473 13,555 15,000 14,500 Source: Shinhan Sekuritas Indonesia estimation

-5

0

5

10

15

20

JIBOR 1W (Proxy for BI 7D Repo rate) BI Rate 7D Repo Rate Inflation (yoy)

10

Improving trade balance

The trade balance was surplus in September at IDR227mn or in line with our previous

thesis regarding the improvement of the trade surplus on the back of the higher export

than the import on the back of the rupiah depreciation. This would reduce the

sentiment regarding the CA deficit that has contributed to the rupiah weakening so far.

However, the volatility in the rupiah due to the US FFR trajectory and the trade

restriction would still overshadow the fluctuation of the rupiah despite it has partially

anticipated and has been priced in to the current level. We still believe that the export

growth this year and 2019 would be at around 10%yoy on the back of the US growth

expansion and the stable commodity price, while on the monetary side the hawkish

monetary tone will remains as the macro prudential reason to stabilize the currency.

The cumulative export (Jan to Sep) grew by 9.4%yoy to USD134.99bn while in

monthly basis the export increased by 1.7%yoy to USD14,83bn.The non-oil export

which contributed as 90% of the total export mounting by 9.29%yoy cumulatively from Jan.

to Sep. to USD122.3bn while the oil export expanded by 10.54%yoy for Jan to Sep period.

The export improvement was mainly driven by the higher volume rather than the higher

price as at the same time the aggregate average price of the export was down by 1.36%yoy

despite there was a higher aggregate average price for the oil export by 38%yoy. The

export growth was driven by the demand from CHN (15.1%), USA (10.79%), Japan

(10.23%). All of those top three represents 36.12% of the total export.

The cumulative import (Jan to Sep) mounted by 23.33% to USD138.7bn. The non-oil

import that represented 84.1% of the total import increased by 22.64%yoy, while the oil

and gas import accelerated by 27.14%. The slightly higher GDP in the 2H this year has

triggered the higher import especially for the capital goods that was up by 27.86%yoy

followed by 22%yoy of raw material goods and 26.4%yoy of consumer import. The capital

goods and raw material represented 90.8% of the total import. To reduce the negative

impact of the unnecessary import goods, the government has announced the new tariffs for

about 1,147 of luxury consumption goods items to hold the acceleration in import with the

new (VAT) of 7.5% from 2.5%. However the total impact on the import is not meaningful as

the consumer goods only 10% of the total import.

Export growth is expected to increase by 10%yoy on the back of higher US GDP

growth. The fiscal stimulus under Trump administration would increase the US economic

growth by 2.9%. This would support our export estimation that would grow by around

10%yoy this year. However we still monitor the impact of the trade war escalation that

would deteriorate the world GDP. This still the negative factor that would overshadow the

trade balance recovery.

Indonesia export (QoQ) & US GDP (QoQ)

Source: BPS, Bloomberg, Shinhan Sekuritas Indonesia

-10

-8

-6

-4

-2

0

2

4

6

-40

-30

-20

-10

0

10

20

30

40

50

US

GD

P (

Qo

Q)

Ind

on

esi

a Ex

po

rt (

Qo

Q)

Indonesia Export (QoQ) US GDP (QoQ)

Trade Balance

Economic Focus

Helmi Therik

+6221 80869900

[email protected]

mailto:[email protected]

11

Trade Balance (in USD, mn) Export and Import (in USD,mn)

Source: BPS, Bloomberg, Shinhan Sekuritas Indonesia Source: BPS, Bloomberg, Shinhan Sekuritas Indonesia

Import based on products category (Higher import mainly due

to the raw material and capital goods) Export and the portion of the commodity related goods

that at 50% of the total export.


Indonesia’s commodity related export Export & Crude oil Price (Higher crude oil price will

benefited the export growth)


(2,500)

(2,000)

(1,500)

(1,000)

(500)

-

500

1,000

1,500

2,000

in mn USD

13,398

12,616

14,719

13,270

14,334

11,661

13,611

15,188 14,580

15,253 14,865

14,133

15,587

14,537

16,209

12,974

16,243 15,818

11,974 11,359

13,283

11,951

13,773

9,992

13,509 12,788

14,249

15,309

17,663

11,268

18,273

16,840

7,000

9,000

11,000

13,000

15,000

17,000

19,000

Exports (Nominal/Value) (USD, Millions) Imports (Nominal/Value) (USD, Millions)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Total Import Consumer Goods

Capital Goods Raw Materials

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

0%

10%

20%

30%

40%

50%

60%

70%

in m

n U

SD

% o

f co

mm

od

ity

rela

ted

to

to

tal m

erc

he

nd

ise

exp

ort

Composition of commodity, mining and agriculture (USD, mn)

Commodity, mininig and agriculture export

Exports (F.O.B.) (USD, mn)

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Natural gas

Crude oil

Bauxite

Coal

Nickel Ore

Copper Ores

Liquefied petroleum gas

Oil Products

Processed Rubber

Base Metal Products

Palm oil

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

0

20

40

60

80

100

120

140

160

180

200Ex

po

rt (U

SD,

mn

)

WTI

/C

rud

e O

il P

rice

WTI (Crude Oil) Exports (Nominal/Value) (USD, Millions)

12

Rupiah in search of new equilibrium

The rupiah depreciation. The rupiah has been depreciated to above IDR 15,000/USD

before strengthened to around IDR 14,300/USD. This was in line with the dollar index

appreciation that has been strengthening by 1.8%yoy due to the combination of the

anticipation of the US FFR and the risk aversion regarding the trade war tension that has

triggered the capital shifting from emerging market. The CA deficit that currently at 3% of

GDP adds more solicitude regarding the rupiah weakening from the internal side. However,

the impact from the US FFR normalization policy has been partially anticipated as reflected

in the currency depreciation. The Indonesia central Bank has also adjusted the 7D reverse

repo rate for five times to 5.50% and the more interest rate hike is still possible depends

on the volatility ahead. We expect that the less steep of the FFR trajectory on 2019

would provide the room for the rupiah to appreciate against USD.

Long term perspective. We think that the normalization policy will bring the FFR back to

its level before the quantitative easing (QE) in 2008/2009 gradually while the equilibrium

for rupiah will be adjusted accordingly. The path toward the normalization is described

from the FFR trajectory that projected to remain at its hawkish tone for 2-3 times hikes.

This was depicted through the implied fed fund rate that expected at 3.5% as the peak of

the FFR at 2020 or about two years from now. By assuming the peak of the FFR at that

level, we think that the Indonesia official rate (7D Reverse Repo Rate) at somewhat 5.5% -

6% would have been reflected the US FFR trajectory. This can be interpreted as the

further room for the hawkish tone, is narrowing which should suggest the limited

depreciation ahead.

Rupiah and the dollar index. The dollar index as the measure of the demand for the

hedging amid the higher return of the USD recently to match the assets and liability of the

financial institution amid the rising uncertainty in the credit quality regarding the Turkey

and Argentina sovereign bond has triggered the additional pressure for the rupiah. The

improvement of the rupiah will depend on the market confidence or the improvement of

the risk appetite which will takes a time.

The Indonesia 5yr CDS as an indicator of the risk has been rose but still lower

than 2013 and 2008. The CDS was at 136.9 bps or slightly higher than the average at

114bps or paring the emerging market movement. Compared to 2008 at 1,248bps and

281.7bps at 2013 the current CDS is remained lower or points to the better milieu.

The trade war is a lose-lose game that would not last but the signaled for the end

of the trade war has not yet to come. The rising tariff for the export in one side and the

depreciation of the currency in the other side would neutralize the impact of the higher

tariffs for the emerging market. However the uncertainty in the trade war sentiment will

still overshadowed the prospect of the rupiah stability.

Government signaled a new measure to stabilize the rupiah by requiring 50% of

export proceed to be converted in rupiah. This would be a short term policy while the

real source of USD supply is expected to come from the Foreign Direct Investment (FDI)

and portfolio investment besides the trade surplus. If the US-CHN trade war protracted, we

think the relocation of the Industry would drive the higher FDI to Indonesia or South East

Asia on the back of the lower wages, while in the short term, rupiah is waiting for the relief

of the risk appetite in the global market as the sources of the portfolio investment. We

think that the rupiah would still fluctuated at IDR14,500/USD +/-1000 in the next

12month.

Currency Outlook

Economic Focus

Helmi Therik

+6221 80869900

[email protected]


13

USD IDR USD IDR and Dollar Index (mom%)


The commodity price contributes to the rupiah

movement Rupiah and Yield Spread (5yr Indonesia-US)


Foreign ownership in Indonesia Gov. Bond 5Yr CDS remains below the 2008 and 2013


12,000

12,500

13,000

13,500

14,000

14,500

15,000

-8

-6

-4

-2

0

2

4

6

USDIDR Dollar Index (DXY)

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

20

70

120

170

220

270

De

c-0

5

Au

g-0

6

Ap

r-0

7

De

c-0

7

Au

g-0

8

Ap

r-0

9

De

c-0

9

Au

g-1

0

Ap

r-1

1

De

c-1

1

Au

g-1

2

Ap

r-1

3

De

c-1

3

Au

g-1

4

Ap

r-1

5

De

c-1

5

Au

g-1

6

Ap

r-1

7

De

c-1

7

Au

g-1

8

USD

IDR

Blo

om

be

rg C

om

mo

dit

y P

rice

Ind

ex

Bloomberg Commodity Index USDIDR

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

0

2

4

6

8

10

12

14

16

18

USD

IDR

Yie

ld s

pre

ad (

5yr

In

do

ne

sia-

US)

0

100

200

300

400

500

600

700

800

900

1000

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Indonesia govt bond foreign ownership (IDR tn)

Foreign ownership (%)

US Tapper Tantrum

Trade War Sentiment

US Subprime

0

200

400

600

800

1000

1200

1400

Indonesia

Turkey

Thailand

Korea

Philiphine

Columbia

Brasil

14

Manageable price through the controllable

volatile food inflation

Indonesia recorded a manageable inflation in November or the two consecutive months

after its peak at July this year during the Eid feast. The inflation was 0.22%mom while

on yearly basis the headline inflation was at 3.23%yoy or 2.5%ytd. The ability to

manage the inflation at a low level was came from the government effort to control the

volatile food prices by maintaining the supply side and through the intervention on food

prices by open up the import to stabilize the prices. The cost pushed inflation remained

sluggish amid the stabiles commodity prices, despite of the rupiah was depreciated. We

didn’t saw a signal of the weaker purchasing power despite of the inflation as the

farmer exchange rate at the same time increased by 0.59% to 103.17 which pointed to

the better purchasing power of farmer. Despite the inflation is estimated to be at below

4% this year, while the inflation in 2019 is expected to move slightly higher due to the

possibility of the adjustment of administered price post-election in April 2019. We

think that the hawkish tone would remain as the part of the macro prudential policy

amid the external pressure with the lower probability of steeper trajectory

Volatile food prices slashed down due to the better food prices stability policy. The volatile food price was down by -1.83%mom to 3.75%yoy or 1.41%ytd. We think it’s due to the stabilization policy through the government intervention by manage the logistic and open the import to intervene the market if there was a slack of supply in the certain area.

Manageable core inflation amid the weaker rupiah currency. The core

inflation was slightly increased by 0.28%mom to 2.38%yoy or 2.82%ytd. We think that the benign core inflation did not pointed to the lower consumer purchasing power, as the farmer exchange rate at the same time expanded to 103.17. This indicated the better welfare in the farmer household which still substantial in Indonesia. However, the impact of the depreciation would be in the gradual path with a mild effect as the producers tend to absorbed the impact of the cost and only partially pass through to the customer.

Maintain hawkish monetary policy tone despite of the manageable inflation. The external factor pressure as reflected in the weaker rupiah would make the policy option for the monetary policy remains at the hawkish tone. The inflation is estimated at below 4%, however we think that the rupiah depreciation have partially reflect the higher US FFR trajectory which suggest the limited room for the further depreciation. The controllable inflation at the other side gave the opportunity for the government bond yield to stabilize on the back of the real yield.

Inflation projection (yoy)

Source: BPS, Shinhan Sekuritas Indonesia estimation

0%

4%

8%

12%

16%

20%

20

01

;4

20

02

;4

20

03

;4

20

04

;4

20

05

;4

20

06

;4

20

07

;4

20

08

;4

20

09

;4

20

10

;4

20

11

;4

20

12

;4

20

13

;4

20

14

;4

20

15

;4

20

16

;4

20

17

;4

20

18

;4

Inflation Outlook

Economic Focus

Helmi Therik

+6221 80869900

[email protected]


15

Headline inflation (yoy) & (mom) Headline inflation, core and administrated

price(qoq)


Headline inflation, core and administrated price(yoy) USD IDR and Core Inflation (qoq)


Imported inflation accelerate Inflation by category (yoy)


-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

0

1

2

3

4

5

6

7

8

9

10

Mar

-10

Au

g-1

0

Jan

-11

Jun

-11

No

v-1

1

Ap

r-1

2

Sep

-12

Feb

-13

Jul-

13

De

c-1

3

May

-14

Oct

-14

Mar

-15

Au

g-1

5

Jan

-16

Jun

-16

No

v-1

6

Me

i-1

7

Oct

-17

Mar

-18

Au

g-1

8

Infl

atio

n (

mo

m)

He

adlin

e In

flat

ion

(yo

y)

mom yoy

-6

-4

-2

0

2

4

6

8

10

12

14

Jun

-10

Dec

-10

Jun

-11

De

c-1

1

Jun

-12

Dec

-12

Jun

-13

Dec

-13

Jun

-14

Dec

-14

Jun

-15

Dec

-15

Jun

-16

De

c-1

6

Juli

-17

Jan-

18

Jul-

18

Headline Inflation Core Adm. Price Volatile Good

02468

101214161820

Feb

-10

Jul-

10

De

c-1

0

May

-11

Oct

-11

Mar

-12

Au

g-1

2

Jan

-13

Jun

-13

No

v-1

3

Ap

r-1

4

Sep

-14

Feb

-15

Jul-

15

De

c-1

5

May

-16

Oct

-16

Mar

-17

Sep

-17

Feb

-18

Jul-

18

yoy (%)

Headline Inflation Core Volatile Good

0

0.5

1

1.5

2

2.5

3

-10

-5

0

5

10

15

20

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

De

c-1

2

May

-13

Oct

-13

Mar

-14

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

Feb

-17

Jul-

17

De

c-1

7

May

-18

USD IDR (qoq %) Core infl. (qoq %)

0

2

4

6

8

10

12

De

c-1

3

Mar

-14

Jun

-14

Sep

-14

De

c-1

4

Mar

-15

Jun

-15

Sep

-15

De

c-1

5

Mar

-16

Jun

-16

Sep

-16

De

c-1

6

Mar

-17

Jun

-17

Sep

-17

De

c-1

7

Mar

-18

Jun

-18

Headline Inflation (yoy) Import Price Index -non oil&Gas (yoy)

4.9

4.1

2.12

3.41

2.93

3.76

1.8

0 1 2 3 4 5 6

Unprocessed Food

Food, Beverages and Tobacco

Housing, Water, Electricity, Gas and Other Fuels

Clothing

Health

Education, Recreation and Sport

Transportation, Communication and Financial Services

16

Selective growth strategy amid the intensify

risk aversion environment

We think that the selective growth strategy amid the macro prudential policy

environment would be adopted amid the modest economic growth as a result of

the higher volatility which comes from the combination of external and internal

shock. We prefer the company that still have the room to growth while at the

same time have the strong position in the market or unique value proposition to

offer and have the healthy balance sheet structure to absorb the deterioration or

the shock in the market risk due to the currency volatility. We overweight

banking sector, consumer and retail, property, telecommunication and media for

2019. We also estimated that the 2019 PE at 16x still attractive which implying

the Index at 6,880. On the other side, the political event in April would be the

challenge that would make the market would move at the wait and see mode next

year until the 1Q.

Banking sector loan continues to accelerate. The higher GDP in the 1H18 (5.27% in

1H20118 vs 5.01% in 1H2017) and the improvement in the production index has supported

the loan expansion despite overshadowing with the tightening bias of the interest rate. The

loan expansion is mostly driven by the acceleration of the working capital and consumer

loan or the salary base loan while the investment loan increased with the slower pace. We

overweight the BBCA due to its high assets quality and BBRI due to its highest NIM. We

also overweight the BBNI and BMRI due to its higher exposure on the SOE and corporate

loan. BBTN is also well positioned in the mortgage loan that currently underpenetrated in

Indonesia.

Consumer sector: stable growth expansion. The higher social assistance government

budget and manageable inflation would be the catalyst for the consumer sector. We

overweight ICBP, due to its strong market position in the noodle market couples with its

ability to maintain the margin stability amid the pressure from the rupiah depreciation. We

also overweight small cap PZZA due its leading position as a chained pizza consumer

foodservice in terms of market share in Indonesia and also its outlet expansion. Another

choice is CAMP as the second largest ice cream brand in Indonesia and the low milk

consumption in Indonesia as the opportunity.

Retailers: selective growth. Despite the anemic economic growth we saw several

attractive acceleration growths in selective company. We overweight ACES due to its strong

SSSG growth on the back of the outlet penetration in the high and middle income segment.

We also overweight ERAA as the smart phone wholesaler company that recorded attractive

growth due to the rising of middle income. We overweight RALS, as the company is

transforming the business to target the middle income segment and still recorded a decent

growth. We also overweight SPTO as the company is the market leader in the sanitary

wares under TOTO brand. The company also recorded margin stability amid the rupiah

volatility.

Telecommunication and media. We overweight TLKM as the company is the largest and

the most integrative network in Indonesia. The strong demand in the data would be the

catalyst to grow further. We also overweight the media sector such as SCMA and MSIN due

to the strong free to air audience share and stable profitability.

Property. We overweight CTRA, SMRA and ASRI despite of the higher interest rate and

rupiah volatility. The relaxation of LTV policy and infrastructure development would unlock

the land value ahead.

Indonesia Equity Strategy

Equity Focus

Helmi Therik

+6221 80869900

[email protected]


17

Indonesia VS Regional PE


Indonesia VS Regional Matrix of Valuation – Higher PE is Justified by its higher ROE


Indonesia VS Regional PE


8.61

10.87

12.50

13.22

12.60

16.55

15.91

15.52

5.00 7.00 9.00 11.00 13.00 15.00 17.00 19.00

KOSPI Index

HSI Index

STI Index

Average

TWSE Index

FBMKLCI Index

JCI Index

NKY Index

Regional PE

S Korea ROE: 9.8%

Hongkong ROE

:12.8%

Singapore ROE:9.4%

Average ROE: 12.1%

Taiwan ROE:

14.6%

Malaysia ROE:10.5%

Indonesia ROE: 15.9%

Nikkei ROE: 10.4%

7.00

9.00

11.00

13.00

15.00

17.00

19.00

8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00

Regional ROE VS PE

10

11

12

13

14

15

16

17

18

19

20

Jul-10 Apr-11 Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 Jan-18 Oct-18

+1 stdev +2 stdev -1 stdev -2 stdev PE (Estimation) Average PE

18

Maintaining high coverage ratio as a

countercyclical strategy

Loan continued to accelerate. The higher GDP in the 1H18 (5.27% in 1H20118

vs 5.01% in 1H2017) and the improvement in the production index has supported

the loan expansion despite overshadowing with the tightening bias of the interest

rate. The loan expansion is mostly driven by the acceleration of the working capital

and consumer loan or the salary base loan while the investment loan increased

with the slower pace. The corporate loan was also increased modestly as the

business consolidation and the selective expansion strategy was applied by the

company. About 76% of the loan approval is a working capital loan, while 16% of

the loan portfolio is for consumer while the rest or 7% is for investment loan. We

highlight the SOE or state owned bank that still dominates the loan growth or

remains the leader due to its position as the state owned that expose to the

infrastructure projects or other government program through a subsidized interest

for mortgage and small commercial loan. Within our coverage, BBTN recorded the

highest pace growth in the 1H this year or picked up by 20%. The growth was

underpinned by the subsidized mortgage.

NIM has been consolidated at low level and seen started to stabilize. We

think that the NIM compression has been stabilize and consolidated at the low

range as the bank would consider to passing through the lower yield assets by

adjusting the deposits rate to the customer while in the other side would start to

adjust the interest rate after the 5th consecutive higher official rate to 5.50%.

Within our coverage, BBRI posted the highest NIM in the industry at (7.4% vs

5.1%) underpinned by its business model that focus on the consumer, micro and

small commercial loan that provided higher yield assets. The trend to allocate

higher exposure to consumer segment or to be more ‘retail-centric’ bank would be

adopted by another bank or become one of the options to mitigate the impact of

the margin compression. BBCA as the largest transaction bank also recorded a

stable NIM on the backed off its ability to manage the low cost fund and the

adjustment to its loan yield. The average margin for the overall industry has been

slightly recover since February this year as the lowest level at 5.0% and gradually

improved to 5.1% in the 1H this year.

NPL increased but remained at satisfactory level. The NPL has been managed

at the low level. However we saw an increasing trend in the NPL level to 2.32% in

1H this year than last year at 2.19%. This was due to the continuing consolidative

business amid the structural adjustment in economic environment. However the

better GDP and economic activity (GDP at 5.3% this year) would maintain the

asset quality at the manageable level. However, we expect the provisioning for the

credit loss expense to be higher in the second half to anticipate the risk caused by

the volatility in the rupiah currency despite the coverage ratio is also sizeable

enough to absorb the deterioration of the asset quality. Within our coverage the

average coverage ratio was at 133%.BBRI remains the highest loan quality

protection with the coverage ratio at 191% followed by BBCA at 187%.

Focus on big 5 banks. We overweight the BBCA due to its high assets quality and

BBRI due to its highest NIM. We also overweight the BBNI and BMRI on the back of

its higher exposure in the SOE and corporate loan. BBTN is also well positioned in

the mortgage loan that currently underpenetrated in Indonesia. Risk:

Deterioration of asset quality, higher interest rate and lower GDP.

Overweight

Jakarta Finance Index Performance


Helmi Therik

+6221 80869900

[email protected]

0

50

100

150

200

250

JAKFIN JCI Index

Banking Sector

Sector Focus

19

The loan is expected to increase by 10% State bank (SOE) leads the loan growth performance

Source: Bloomberg, Company, Shinhan Sekuritas Indonesia Source: Company, Shinhan Sekuritas Indonesia

NPL is slightly increased while the stabilize GDP would translated to

the manageable assets quality in the second round Consumer, commercial and SME dominates the loan

portfolio

Source: Company, Shinhan Sekuritas Indonesia Source: Company, Shinhan Sekuritas Indonesia

BBRI recorded the highest NIM Banking Valuation matrix

Source: Company, Shinhan Sekuritas Indonesia Estimates Source: Company, Shinhan Sekuritas Indonesia Estimates

0

1

2

3

4

5

6

7

8

0

5

10

15

20

25

30

35

40

Jun-0

8

Jun-0

9

Jun-1

0

Jun-1

1

Jun-1

2

Jun-1

3

Jun-1

4

Jun-1

5

Jun-1

6

Jun-1

7

Jun-1

8

GD

P y

oy

Loan y

oy

loan yoy GDP yoy

0

5

10

15

20

25

30

35

40

45

State Banks Regional Government Banks Commercial Banks and Islamic Banks

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Jun-0

8

Jun-0

9

Jun-1

0

Jun-1

1

Jun-1

2

Jun-1

3

Jun-1

4

Jun-1

5

Jun-1

6

Jun-1

7

Jun-1

8

GD

P y

oy

Loan y

oy

GDP yoy Gross NPL

37%

25%

49%58%

23%

35% 58%

29%

31%

28%

16%22%

11%

77%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BBCA BBRI BBNI BMRI BBTN

Consumer

Commercial & SME

Corporate

7%

8%

6% 6%

4%

6%

8%

6% 6%

4%

6%

7%

5% 5%

4%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%


NIM

2016 2017 2018F

BBCABBRI

BBNI

BMRI

BBTN

Average

12%

13%

14%

15%

16%

17%

18%

19%

0.3 0.8 1.3 1.8 2.3 2.8 3.3 3.8 4.3

RO

AE

PBV

20

Banking NPL within our coverage Assets yield (%)


CASA ratio (low cost funding composition) Loan to deposits ratio (LDR)


Well Capitalized as seen in the CAR ROAE


1% 1%

3%3%

3%

1%

2%

3%

4%

3%

1%

2%2%

3%

3%

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%


NPL

2016 2017 2018F

7%

8%

6% 6%

4%

6%

8%

6% 6%

4%

6%

7%

5% 5%

4%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%


Assets Yield

2016 2017 2018F

65%

49%

61%

66%

75%

67%

51%

65% 64%

71%72%

53%

63%66%

72%

0%

10%

20%

30%

40%

50%

60%

70%

80%


CASA

2016 2017 2018F

80%

87%

90%

89%

102%

0% 20% 40% 60% 80% 100% 120%

BBCA

BBRI

BBNI

BMRI

BBTN

LDR

26%

17% 17% 17%18%

28%

18% 19% 19%

17%

28%

25%

22%22%

20%

0%

5%

10%

15%

20%

25%

30%


CAR

2016 2017 2018F

13%

13%

15%

16%

18%

0% 5% 10% 15% 20%

BBNI

BMRI

BBTN

BBCA

BBRI

ROAE

21

Maintains sound asset quality

Back ground. Bank BCA is the prominent and positioning as the largest

transaction bank in Indonesia. The positioning is buoyed by it nearly 18mn

interconnected customer accounts which benefited by the multichannel

platform. The company is continuing to enhance the digital services platform to

complete the widespread of its ATM and branch network which will support its

ability to raise the low cost third party fund. The company has 12% share of

the total national deposit and 10% of the total national loan.

Stable and decent earning power. We overweight the company amid the

modest loan growth and slightly hawkish tone in the monetary policy. The loan

growth is moderate but slightly above the national average growth (10%yoy)

which will provide the decent ppop and earnings growth. Lower credit cost and

the improvement in the asset quality is expected would reduce the impact of

the margin compression.

Solid asset quality. The company recorded a sizeable provisioning for the risk

of the down grade assets quality as reflected in the loan loss reserve ratio at

187.8%. The company is also able to manage its loan risk at the low level as

reflected in its NPL at 1,4% or 10bps lower than last year at 1,5%. The NPL is

the lowest compares to its peers. Despite the higher policy rate, on the other

side the central bank also has relaxed the loan to value (LTV) to give a room

for the higher property loan. This could be a little bit a positive catalyst for the

property and consumer loan. The solid CAR (>22%) and low LFR (<80%)

would provide the capacity to increase the loan growth according to its risk

appetite framework despite have an ample room to absorb the deterioration of

the asset quality.

Expecting 14%yoy of loan expansion. The company recorded 14.2%yoy

growth of its loan in 1H to IDR433.2tn while we expect the loan could be

expanded by 14%yoy this year. The loan mix is balance as about 28% of the

loan came from consumer loan, 35% from commercial and small medium

enterprise while 37% is made up from corporate loan. The NIM is expected to

be contained at 6% for this year while in the 1H, the company posted the NIM

at 6.2%. The net profit has improved to IDR11.4tn or up by 8.4%yoy in the 1H

or represent 43% of our full year estimation at IDR26.3tn.

Risk. The higher interest rate, slower GDP and loan growth couples with the

unanticipated deterioration in the loan quality that could slash down the

earning estimation.

Valuation. We drive our TP at IDR26,500 based on GGM which implying the

PBV at 4.3 and 3.6 for 2018F and 2019F respectively.

Year to Dec. NII OP Pre-tax NP EPS Growth BVPS PER PBR ROAE CAR

(bn IDR) (bn IDR) (bn IDR) (bn IDR) (IDR) (%) (IDR) (x) (x) (%) (%)

2015 35,869 22,657 22,657 18,036 740 9% 3,678.4 19.4 3.6 22% 19%

2016 40,079 25,594 25,839 20,632 847 14% 4,626.1 18.0 3.4 20% 22%

2017 41,826 29,403 29,159 23,321 957 13% 5,393.0 18.3 3.5 19% 24%

2018F 46,218 33,054 32,906 26,319 1,080 13% 6,399.7 19.6 3.7 18% 24%

2019F 50,445 36,452 36,423 29,131 1,196 11% 7,372.8 22.1 3.2 17% 25%

Source: Company, Shinhan Sekuritas Indonesia

Overweight

Current Price (IDR) (31/7) 24.000

Target price (IDR) 26.500

Upside/Downside (%) 10,4%

52 Week High (IDR) 25.475

52 Week Low (IDR) 18.675

Major Shareholders:

PT Dwimuria Investama Andalan 54,94%

Stock Price Movement


Helmi Therik

+6221 80869900

[email protected]

0

50

100

150

200

250

BBCA JCI Index

Bank Central Asia Tbk

(BBCA)((BBCA(BBCA)

Company Focus


22

Loan expansion with satisfactory risk Well diversify of loan portfolio


Strong liquidity position Dominated by low cost of fund (CASA ratio at 72%)


Manageable NIM Well capitalized with the strong CAR


263,396

320,419 359,266

401,031 428,029

487,382 541,068

602,261

0.4%0.4%

0.6%

0.7%

1.3%1.5% 1.5%

1.5%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2012 2013 2014 2015 2016 FY2017 2018F 2019F

Gross Loan (IDR bn) NPL

Corporate, 37%

Commercial &

SME, 35%

Consumer, 28%

371,536 411,180

450,155 476,820

533,965

585,572 644,129

708,542

71%

78% 80%

84% 80%

83%

84%

78%

60%

65%

70%

75%

80%

85%

90%

150,000

250,000

350,000

450,000

550,000

650,000

750,000

2012 2013 2014 2015 2016 FY2017 2018F 2019F

Customer Deposits (IDR bn) LDR

105,802

138,666 156,562

179,778

209,543

249,009

297,258

322,894

56%

66% 64% 65% 65% 67%72%

72%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90,000

140,000

190,000

240,000

290,000

340,000

2012 2013 2014 2015 2016 FY2017 2018F 2019F

CASA (IDR bn) CASA Ratio

5%6%

6% 7% 7%6% 6%

6%

7% 7%8%

9% 9%8% 8%

8%

2% 2% 2%3%

2% 2%2%

2%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2012 2013 2014 2015 2016 FY2017 2018F 2019F

NIM Assets yield CoF

51,898 63,967

75,726

89,625 112,715

131,402

155,930

179,640

15%

16%17%

19%

22%24%

24%

25%

0%

5%

10%

15%

20%

25%

30%

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2012 2013 2014 2015 2016 FY2017 2018F 2019F

Equity (IDR bn) CAR

23

Balance Sheet

Key Ratio

Year-end 31 Dec (IDRbn) 2016 2017 2018F 2019F

Year-end 31 Dec (%) 2016 2017 2018F 2019F

Cash 60,367 60,227 73,522 84,843

Growth

Inter-banking Assets 50,377 37,322 51,289 50,962

Assets 14% 11% 12% 11%

Short-Term Investments 86,882 113,321 115,587 132,658

Loans 9% 17% 14% 14%

Loan gross 428,029 487,382 541,068 602,261

Customer Deposits 12% 10% 10% 10%

Allowance for Losses (12,850) (13,688) (14,029) (16,110)

Net Interest Income 12% 4% 10% 9%

Net Loans 415,179 473,694 527,040 586,150

PPOP 12% 6% 11% 9%

Net Fixed Assets 16,991 16,869 20,370 21,848

Net Income 14% 13% 13% 11%

Other Assets 46,943 48,887 50,913 55,295

Profitability

Total Assets 676,739 750,320 838,721 931,756

Asset Yield 8% 8% 8% 8%

Customer Deposits 533,965 585,572 644,129 708,542

Cost of Fund 2% 2% 2% 2%

ST Borrowings & Repos 9,215 8,967 10,760 12,912

Net Interest Margin 7% 6% 6% 6%

Long-Term Borrowings 1,064 593 1,563 1,499

ROAA 3% 3% 3% 3%

Other Liabilities 19,780 23,787 26,338 29,164

ROAE 20% 19% 18% 17%

Total Liabilities 564,024 618,918 682,791 752,117

Cost Efficiency Ratio 43% 44% 44% 44%

Minority Interest 282 98 3,571 3,975

Liquidity

Shareholders' Equity 112,715 131,402 155,930 179,640

LDR 80% 83% 84% 78%

Total Liabilities & Equity 676,739 750,320 838,721 931,756

CASA Ratio 65% 67% 72% 72%

Source: Company, Shinhan Sekuritas Indonesia Estimates

Capital

CAR - without market risk 26% 28% 28% 29%

Income Statement

CAR - considering market

risk 22% 24% 24% 25%


Assets Quality

Interest Income 50,426 53,768 59,366 64,926

NPL 1.3% 1.5% 1.5% 1.5%

Interest Expense (10,347) (11,941) (13,149) (14,481)

Coverage Ratio 229% 191% 175% 180%

Net Interest Income 40,079 41,826 46,218 50,445


Other Operating Income 13,704 14,960 16,629 18,221

Net Revenue 53,783 56,787 62,847 68,667

Dupont 2016 2017 2018F 2019F

Provision for loan loses (4,807) (2,191) (2,081) (1,731)


Net Revenue after provision 48,976 54,596 60,766 66,935

Net Revenue 8% 8% 8% 8%

Non-interest expense (23,383) (25,192) (27,712) (30,483)

Net Revenue after provision 8% 8% 8% 8%

Operating Income 25,594 29,403 33,054 36,452

Operating Income 4% 4% 4% 4%

Net Non-Operating Losses (Gains) (246) 244 (148) (30)

Net Income 3% 3% 3% 3%

Income before tax 25,839 29,159 32,906 36,423

ROAA 3% 3% 3% 3%

Tax (5,207) (5,838) (6,588) (7,292)

Multiplier 6 6 6 5

Net Income 20,632 23,321 26,319 29,131

ROAE 20% 19% 18% 17%



24

Strengthen the micro loan

Satisfactory result in 9M performance. BBRI posted the net profit in 9M

this year at IDR23.5tn which was in line with our full year estimation that set at

IDR30.8tn. The net profit increased by 14.6%yoy or reflecting 76% of our

estimation. This was due to the improvement in the net interest income and

noninterest income that grew by 6.5%yoy and 18.4%yoy respectively which

resulted in the PPOP that was up by8.4%yoy to IDR43.7tn. The lower

provisioning by11%yoy has contributed to the higher net profit and we

maintained our estimation unchanged that will grow by 14%yoy this year.

Loan grew across the segment except the medium segments. The total loan grew by 16.5%yoy to IDR808tn, while the fastest growth was posted in the consumer segment that accelerated by 17.6%yoy to IDR127tn, followed by 17% yoy of small commercial to IDR266.6tn, 16.3%yoy of micro loan to IDR266.6tn. The medium commercial loan was the slowest pace growth that up by only 1.9%yoy to IDR19.7tn due to the BBRI policy to reduce its exposure in this segment given its highest NPL so far. It was part of the strategy to manage the risk at the acceptable level. Micro loan would dominate the loan portfolio. The company guided its loan portfolio structure for the next 2 years that would push up the contribution from the micro loan segment above 35% of the portfolio from the current level at 34%, while at the same time would reduce the corporate and medium segment to below 20% from current level at 22% from total loan. This would maintain its NIM at the highest level in Indonesia as the micro loan provides the highest yield compare to the other segment.

Strengthening the digital platform to enhance the customer experience. The company has jus launched the lending platform through ‘BRISpot’ as one stop service for loan disbursement and ‘myBRI’ as mobile application for new customer borrower especially for mortgage loan. These add to the current BBRI’s digital platform such as ‘Kiosk’ for transaction payment and ‘MoCash’ as a transaction platform. This would be a positive contribution to the higher third party fund as well as to the CASA ahead. The third party fund has increased by 13.3%yoy to IDR872.7tn in 9M this year while the CASA composition improved to 56.4% from 55.4% last year.

Well maintained asset quality. The NPL gross was slightly up to 2.54% in

9M from 2.33% last year due to the deterioration of the loan at oil&gas sector,

water treatment and Agriculture Company. However the ability to absorbed the

quality downgrade remained strong as reflected in the coverage ratio at

181,9% in the 9M this year. The company also recorded a positive recovery to

write-off ratio at 52.9% from 39.8% last year.

Valuation. We reiterate our overweight call with the TP at IDR3,900 based on

GGM which implying the PBV at 2.6 and 2.5 for 2018F and 2019F respectively.



2015 58,280 30,491 32,494 25,411 206 5% 918 11.09 2.49 24% 17%

2016 67,576 33,964 33,974 26,228 214 3% 1,201 10.90 1.94 20% 18%

2017 73,005 36,802 37,022 29,044 237 11% 1,369 12.50 2.17 18% 21%

2018F 82,930 39,378 39,272 30,810 252 6% 1,475 12.48 2.13 18% 23%

2019F 92,974 41,808 42,814 33,588 274 9% 1,565 11.45 2.01 18% 23%


Overweight






Major Shareholders:

Indonesian Government 60.00%



Helmi Therik

+6221 80869900

[email protected]

0

50

100

150

200

250

BBRI JCI Index

Bank Rakyat Indonesia Tbk (BBRI)

(BBCA)

Company Focus


25

Rising digital services that contributed to the Fee Base Income growth by 160%yoy in BRILink


108.3

281.9

0

50

100

150

200

250

300

9M17 9M18Fee Base Income

160% YoY

IDR Billion 9M17 9M18 YoY 2Q18 3Q18 QoQ Interest Income 73,093 78,580 8% 26,142 27,422 5% Interest Expense (20,644) (22,680) 10% (7,186) (8,459) 18% Fee & Other Opr.Income 52,449 55,900 7% 4,953 5,813 17% Gross Operating Income 65,717 71,505 9% 23,908 24,776 4% Operating Expense (26,236) (29,144) 11% (9,819) (10,645) 8% Pre Provisioning Operating Profit (PPOP) 39,481 42,361 7% 14,089 14,131 0% Provision (15,361) (13,265) -14% (4,938) (3,008) -39% Non Operating Income (Net) 149 40 -73% 8 23 188% Profit before Tax 24,269 29,136 20% 9,159 11,146 22% Net Profit 20,119 22,914 14% 7,403 8,358 13%

IDR Billion 1H17 1H18 YoY 9M17 9M18 YoY Total Assets 983,176 1,097,368 12% 993,101 1,125,401 13% Gross loan 658,864 758,952 15% 664,510 772,725 16% Government Bond (Recap) 3,318 3,093 -7% 3,319 1,505 -55% Other Earning Assets 211,017 225,590 7% 233,966 249,256 7% Total Earning Assets 873,199 987,635 13% 901,796 1,023,487 13% Earning Assets Provision (28,860) (33,900) 17% (31,199) (34,550) 11% Total Earning Assets (net) 844,339 953,735 13% 870,597 988,937 14% Total Non Earning Assets 139,179 143,633 3% 122,504 136,464 11% Total Liability & S.E 983,518 1,097,368 12% 993,101 1,125,401 13% Total Customer Deposit 734,071 796,639 9% 735,147 829,539 13% Demand Deposits 128,716 137,832 7% 115,588 138,482 20% Savings 294,242 336,244 14% 303,328 343,882 13% Time Deposits 311,113 322,563 4% 316,231 347,175 10% Other Interest Bearing Liabilities 70,489 105,394 50% 71,046 85,957 21% Non Interest Bearing Liabilities 30,063 32,316 7% 30,393 38,495 27% Tier I Capital 139,489 149,672 7% 145,552 156,941 8% Total Shareholder's Equity 148,896 163,020 9% 156,515 171,410 10%


26

Loan expansion with acceptable risk Small commercial, consumer and micro dominates the loan portfolio


Improving customer deposit growth CASA was stable at 54%


Managed the NIM at above 7% Maintain CAR at 22%


356,693 434,316

495,097 564,481

645,541 727,095

833,240

916,564 1.8%

1.6%

1.7%

1.3%

2.1% 2.1% 2.2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

2012 2013 2014 2015 2016 2017 2018F 2019F


Micro, 34%

Consumer, 16%

Small Commercial, 20

%

Medium, 3%

Corporate & Non-SOE, 13%

SOE, 13%

450,166 504,281

622,322 668,995

754,526 841,656 925,822

1,018,404

79%

86%

80%

84%86%

86%

90% 90%

72%

74%

76%

78%

80%

82%

84%

86%

88%

90%

92%

300,000

500,000

700,000

900,000

1,100,000

1,300,000

1,500,000

2012 2013 2014 2015 2016 2017 2018F 2019F


230,912 264,440

292,334 326,447

386,838

445,817

496,876

546,564 51%

52%

47%

49%

51%

53%54% 54%

42%

44%

46%

48%

50%

52%

54%

56%

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2012 2013 2014 2015 2016 2017 2018F 2019F


7% 8%8% 8% 8% 7% 7%

8%

11%12% 12% 12% 12%

11% 11%11%

3% 3%4% 4% 3% 3% 3%

3%

0%

2%

4%

6%

8%

10%

12%

14%

2012 2013 2014 2015 2016 2017 2018F 2019F


64,882 79,327

97,706 113,127

146,813

167,347 180,317

191,275 17% 17%

18%

21%23% 23% 23%

22%

0%

5%

10%

15%

20%

25%

50,000

100,000

150,000

200,000

250,000

300,000

2012 2013 2014 2015 2016 2017 2018F 2019F

Equity (IDR bn) CAR

27

Balance Sheet

Key Ratio


Year-end 31 Dec (%) 2016 2017 2018F 2019F

Cash 90,193 82,953 89,699 82,002

Growth


Assets 14% 12% 10% 9%


Loans 14% 12% 14% 10%

Loan gross 645,541 727,095 833,240 916,564


Allowance for Losses 22,184 29,527 35,342 38,876


Net Loans 623,357 697,568 797,898 877,688

PPOP 13% 9% 19% 12%

Net Fixed Assets 24,515 24,746 26,517 28,465

Net Income 3% 11% 6% 9%

Other Assets 104,689 108,531 93,572 102,929

Profitability

Total Assets 1,003,644 1,126,248 1,241,380 1,348,148

Asset Yield 12% 11% 11% 11%

Customer Deposits 754,526 841,656 925,822 1,018,404




Long-Term Borrowings 41,272 42,341 42,341 42,341

ROAA 3% 3% 3% 3%


ROAE 20% 18% 18% 18%

Total Liabilities 856,832 958,901 1,061,063 1,156,873


Minority Interest 391 599 4,416 4,858

Liquidity


LDR 86% 86% 90% 90%

Total Liabilities & Equity 1,003,644 1,126,248 1,241,380 1,348,148

CASA Ratio 51% 53% 54% 54%


Capital


Income Statement

CAR - considering market risk 18% 21% 23% 23%


Assets Quality

Interest Income 94,788 102,899 116,764 130,124

NPL 2.1% 2.1% 2.2% 2.0%

Interest Expense 27,212 29,894 33,834 37,150

Coverage Ratio 162.9% 192.5% 184.2%

202.4

%




Net Revenue 80,083 87,441 104,000 116,151

Dupont 2016 2017 2018F 2019F

Provision for loan loses 9,203 11,943 18,331 18,331


Net Revenue after

provision 70,879 75,497 85,669 97,820


Non-interest expense 36,915 38,695 46,291 56,012




Net Non-Operating Losses

(Gains) 10 220 (105) 1,006



ROAA 3% 3% 3% 3%

Tax 7,746 7,978 8,463 9,226

Multiplier 7 7 7 7

Net Income 26,228 29,044 30,810 33,588

ROAE 20% 18% 18% 18%



28

Rebalancing the loan portfolio with the more retail-centric

Back ground. BMRI is the largest bank in Indonesia and become the

systematic and important financial institution in Indonesia with the total assets

reached IDR1,155tn. The company is a state owned company which plays

important rules in Indonesia through its synergetic between government and

other SOE business that support the government related projects. The bank is

positioned as a corporate bank with the total loan shares in Indonesia at 15.2%

while the shares of its customer deposit is about 15.3% of the national saving.

Balancing the corporate exposure to be more retail centric. Bank

Mandiri is benefiting by its position as the largest state bank that have higher a

business exposure in the corporate and SOE. However, on the other side the

portfolio mix with higher exposure in corporate loan is a disadvantageous due

to its lower yield compares to the consumer segment. The stiffer competition in

the corporate loan also limits the margin expansion. To mitigate this situation,

the company aims to raise its exposure in the consumer segments that could

provide better yield than the corporate segments. The corporate segment

contributes 66% of its total assets portfolio in 1H’18 while the small-medium-

micro and consumer segment contributes 34%. The company is aiming to re-

profiling its business exposure by expanding the consumer and small medium

segment to 40% while at the same time reducing the corporate portion to 60%

by 2020. This would maintain the NIM at above 5.4%. The company is well

capitalized with its CAR stood at 20% and sound assets quality as shown in NPL

at 2.5%.

Satisfactory growth with improving assets quality. The company booked

the loan growth at 11.8%yoy in 1H to IDR762.5tn. However the NIM was

slightly declined by 14bps to 5.74% mainly due to the lower assets yield to

7.8% from 8.2% last year. The expectation of higher economic growth this

year and stabilize provisioning due to the better asset quality improvement is

expected would reduce the impact from the margin compression. We estimate

the net profit would accelerate by 24%yoy to IDR 26.6tn while the NIM is

expected to hover at 5.6% and the loan growth would be maintained at

10%yoy to IDR828tn.

Risk. The unanticipated downward credit quality, stiffer interest rate

competition, slower GDP that could slash down the earning outlook.

Valuation.Our TP at IDR8,500 is calculated from the GGM approach which

implying the PBV at 1.11 and 1.06 for 2018F and 2019F respectively. The CoE

and the ROAE is set at 14.7 % and 15% respectively.



2015 45,363 26,339 26,369 21,152 871 2% 2,561 10.6 1.8 19% 17%

2016 51,825 18,480 18,573 14,650 592 -31% 3,286 19.6 1.8 11% 19%

2017 52,327 27,170 27,112 21,443 885 46% 3,643 13.1 1.6 13% 22%

2018F 62,230 33,658 33,676 26,635 1,099 24% 3,825 11.8 1.7 15% 25%

2019F 67,417 35,843 35,823 28,333 1,169 6% 4,013 11.1 1.6 15% 25%


Overweight






Major Shareholders:

Government of Indonesia 60%



Helmi Therik

+6221 80869900

[email protected]

0

50

100

150

200

250

BBNI JCI Index

Bank Mandiri Tbk (BMRI)

(BBRI)

(BBCA)

Company Focus


29

Loan expansion improving credit risk Dominated by corporate loan - 58%


Decent liquidity position Dominated by low cost of fund (CASA ratio at 65%)


NIM is slightly lower and expected to stabilize Well capitalized with the strong CAR


479,339 541,625

608,642 676,180

753,638

828,207 884,948

1.9%2.1%

2.6%

3.9%

3.3%

2.5%

2.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2013 2014 2015 2016 2017 2018F 2019F


Corporate, 58%

Commercial & SME, 7%

Consumer, 11%

Micro, 12%

Subsidiary, 12%

556,342

636,382 676,387

762,501 815,807

881,071

951,557

86%85%

90%

89%

92%

94%93%

80%

82%

84%

86%

88%

90%

92%

94%

96%

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2013 2014 2015 2016 2017 2018F 2019F


359,956 380,512

443,874

489,380

540,303 569,076

614,602

65%

60%

66%

64%

66%

65%65%

56%

58%

60%

62%

64%

66%

68%

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2013 2014 2015 2016 2017 2018F 2019FCASA (IDR bn) CASA Ratio

5% 5% 5% 6% 6% 5% 6% 6%

8% 8%9% 9%

9%8% 9%

9%

3% 3%3% 3%

3% 3% 3%3%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2012 2013 2014 2015 2016 2017 2018F 2019F


88,791

104,845

119,492

153,370

170,006 178,483

187,258

17%

19%

22%

25%

25% 25% 24%

0%

5%

10%

15%

20%

25%

30%

50,000

70,000

90,000

110,000

130,000

150,000

170,000

190,000

210,000

2013 2014 2015 2016 2017 2018F 2019F

Equity (IDR bn) CAR

30

Balance Sheet

Key Ratio


Year-end 31 Dec (%) 2016 2017 2018F 2019F

Cash 75,392 74,457 70,011 71,842

Growth


Assets 14% 8% 8% 7%


Loans 10% 12% 10% 7%

Loan gross 676,180 753,638 828,207 884,948




Net Loans 643,235 719,522 790,715 847,413

PPOP 11% 5% 8% 8%

Net Fixed Assets 35,663 36,619 28,180 30,168

Net Income -31% 46% 24% 6%

Other Assets 44,905 32,777 39,548 42,712

Profitability

Total Assets 1,038,706 1,124,701 1,210,687 1,296,946





Net Interest Margin 6% 5% 5.6% 5.6%


ROAA 2% 2% 2% 2%


ROAE 11% 13% 15% 15%

Total Liabilities 885,336 954,695 1,032,204 1,109,688


Minority Interest 2,916 3,287 4,389 4,690

Liquidity


LDR 89% 92% 94% 93%

Total Liabilities & Equity 1,038,706 1,124,701 1,210,687 1,296,946

CASA Ratio 64% 66% 65% 65%


Capital

CAR - without market

risk 19% 22% 25% 26%

Income Statement

CAR - considering

market risk 19% 22% 25% 25%


Assets Quality

Interest Income 76,710 79,502 91,796 99,352

NPL 3.9% 3.3% 2.5% 2.5%


Coverage Ratio 125.8% 136.2% 172.0% 166.1%




Net Revenue 74,526 78,181 84,759 91,749

Dupont 2016 2017 2018F 2019F






Net Revenue after

provision 5% 6% 6% 6%



Net Non-Operating Losses

(Gains) 93 (58) 18 (20)



ROAA 2% 2% 2% 2%

Tax 3,923 5,669 7,042 7,491

Multiplier 7 7 7 7

Net Income 14,650 21,443 26,635 28,333

ROAE 11% 13% 15% 15%



31

Capitalizing the synergetic between SOE & corporate growth

Back ground. BBNI is a state owned company which plays an important role in

Indonesia through its synergetic between government and other SOE business

that support the government related projects. The bank is positioned as a

corporate bank with the total loan shares in Indonesia reached 9.1% while the

shares of its customer deposit is about 10% of the national saving.

Riding the infrastructure and corporate loan growth. We overweigh this

counter due to its well positioned to gain the SOE and infrastructure theme.

The company drives the loan from the corporate loan and SOE segments. The

acceleration of the government infrastructure program as shown in the higher

infrastructure spending would triggered the loan demand. About 49% came

from corporate and SOE loan while 15% from medium scale, 16% from

consumer and the rest from small commercial segment. The asset quality is

remains at the manageable level as indicated in the NPL at 2.1% while the

ability to absorb the deterioration of the loan quality is solid. The loan coverage

ratio at 150.2% is believed would be the cushion to anticipate the risk from the

unfavourable economic condition. The widespread of its distribution network

couples with its status as government has made the capacity to collect the

third party fund grew steadily at 13.5% to IDR526tn while the LDR at 87.3%.

The liquidity is satisfactory enough to meet the short term needs as reflected in

the LCR and NSFR at 239% and 140% respectively.

Sound earning profile with the stabilizing NIM. The company books a

decent loan growth that remains above the national growth (11% vs 9%). The

company expects to book the same loan growth this year and the corporate-

SOE would become one of the engines especially from manufacture and

infrastructure sector. The big three subsector in manufacture in the portfolio

are pulp and paper, palm oil company and chemical manufacture while in

infrastructure the company remains focuses in toll road, power plant, gas and

water. We expect the PPOP could grow by 11% while the net profit would reach

IDR15.9tn or up by 15% on the back of the stable NIM and stable provision

charges. The NIM is estimated to be contained at 5%.

Risk. The unanticipated downward credit quality, stiffer interest rate


Valuation. We drive our TP at IDR9200 based on GGM which implying the PBV

at 1.5X and 1.3 for 2018F and 2019F respectively. The CoE and the ROAE is

calculated at 12.7% and 15% respectively.



2015 25,560 11,412 11,466 9,141 487 -16% 4,212 10.2 1.2 13% 17%

2016 29,995 14,229 14,303 11,410 610 25% 4,802 9.1 1.2 14% 19%

2017 31,938 17,220 17,165 13,771 733 21% 5,428 10.1 1.4 14% 22%

2018F 36,086 19,820 19,820 15,901 846 15% 6,036 8.7 1.2 15% 22%

2019F 41,217 23,150 23,150 18,571 988 17% 6,728 7.5 1.1 16% 21%


Overweight






Major Shareholders:




Helmi Therik

+6221 80869900

[email protected]

0

50

100

150

200

250

BBNI JCI Index

Bank Negara Indonesia Tbk (BBNI)

(BBRI)

(BBCA)

Company Focus


32

Loan expansion with decent risk Well diversify of loan portfolio


Solid liquidity position Dominated by low cost of fund (CASA ratio at 65%)


Stabilise NIM Well capitalized with the strong CAR


203,582

254,055 279,924

334,937

393,275

457,014

517,749

590,234

2.8%

2.2%

2.0%

2.7%

3.0%

2.3%

2.9% 2.7%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2012 2013 2014 2015 2016 FY2017 2018F 2019F


Corporate, 30%

SOE, 19%Medium, 15%

Small, 13%

Consumer, 16%

Other, 6%

257,661 291,890 313,893

370,421

435,545

516,098

588,352

670,721

79%

87%89% 90% 90% 89% 88%

88%

1%

11%

21%

31%

41%

51%

61%

71%

81%

91%

101%

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2012 2013 2014 2015 2016 FY2017 2018F 2019F


173,449 199,983

202,522 226,259

281,315

325,457

380,011

433,213

67%69%

65%61%

65% 63%

65%65%

1%

11%

21%

31%

41%

51%

61%

71%

81%

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2012 2013 2014 2015 2016 FY2017 2018F 2019F


5% 5%6%

6% 6% 6%5% 5%

5%

9%8%

8%

10%9% 9%

8% 8% 8%

3%3%

2%

3% 3% 3% 3% 3% 3%

0%

2%

4%

6%

8%

10%

12%

2011 2012 2013 2014 2015 2016 FY2017 2018F 2019F


43,525 47,684

61,021

78,438 89,254

100,903 112,195

125,056

19%17%

19%

22% 22%21% 21%

21%

1%

6%

11%

16%

21%

26%

10,000

30,000

50,000

70,000

90,000

110,000

130,000

150,000

2012 2013 2014 2015 2016 FY2017 2018F 2019F

Equity (IDR bn) CAR

33

Balance Sheet

Key Ratio


Year-end 31 Dec (%) 2016 2017 2018F 2019F

Cash 47,613 44,278 64,555 62,304

Growth


Assets 19% 18% 13% 13%


Loans 17% 17% 12% 14%

Loan gross 393,275 457,014 517,749 590,234




Net Loans 376,595 442,491 495,789 565,199

PPOP 13% 9% 11% 14%

Net Fixed Assets 21,972 22,805 25,954 29,544

Net Income 25% 21% 15% 17%

Other Assets 99,728 54,741 52,573 59,933

Profitability

Total Assets 603,032 709,330 804,189 905,443







ROAA 2% 2% 2% 2%


ROAE 14% 14% 15% 16%



Minority Interest 2,097 2,311 2,744 3,128

Liquidity


LDR 90% 89% 88% 88%


CASA Ratio 65% 63% 65% 65%


Capital

CAR - without market

risk 19% 22% 22% 21%

Income Statement

CAR - considering

market risk 19% 22% 22% 21%


Assets Quality

Interest Income 43,768 48,178 56,729 64,530

NPL 3.0% 2.3% 2.9% 2.7%


Coverage Ratio 141.4% 138.8% 106.7% 109.3%




Net Revenue 39,921 43,480 48,316 55,159

Dupont 2016 2017 2018F 2019F






Net Revenue after

provision 6% 6% 6% 6%



Net Non-Operating Losses (Gains) 74 (54) - -



ROAA 2% 2% 2% 2%

Tax 2,893 3,395 3,920 4,578

Multiplier 7 7 7 7

Net Income 11,410 13,771 15,901 18,571

ROAE 14% 14% 15% 16%



34

Strengthen the leadership in subsidized

mortgage loan

Back ground. BBTN is a state owned company that focuses in the mortgage

loan. The underpenetrated mortgage loan in Indonesia at 2.9% of GDP

compares to Asia (>20%) is the backdrop of the industry that provide the

opportunity for BBTN to grow further. Total BBTN market shares in mortgage

loan is about 37.7%, while in term of government subsidized mortgage loan,

the company is the leader with the shares of 94%. The total deposit share is

about 3.6% of the national deposit while in the loan, the shares is at 4% of the

total national loan.

Strategic position to support government program. We overweight the

company given its position as a strategic in the mortgage loan that get the

support from the government program in housing program. The government

has budgeted IDR6tn for housing subsidies. The demand for the mid to low

market is ample given the large housing backlog in Indonesia at 11.6mn unit.

However in the other side the slightly hawkish tone in monetary policy as

shown in the higher policy rate due to the macro prudential reason would be

the challenge for the mortgage. However, we see the positive side from the

relaxation in the LTV which would counter the negative side that could increase

the accessibility for the mid to low income segment and the first buyer. The

mortgage loan requires the availability of the stable and long term funding.

With the current LDR at above 100%, the company will relies on the whole sale

funding such as bond issuance or mortgage securitization with the higher cost

and the increasing of the third party fund with the lower cost to match the

assets liability. This has made the NIM of the BBTN is slightly lower (4%) than

the other SOE bank (>5%). The assets quality remains sound as the ratio of

the NPL to collateralize value was at 274.9%.

Solid loan growth. The company posted a satisfactory loan growth in the 1H

at 19.14%yoy to IDR211.35tn on the back of the acceleration of the mortgage

that contributes 56% of the total loan while the non-housing loan increased by

14.9%yoy. The acceleration of the third party fund especially from the CASA

that picked up by 19.17% has supported the growth. We expect the company

would be able to book a loan growth at 19% while the NIM and cost of fund is

estimated 4% and 4.2% respectively this year.

Risk. The unanticipated of the downward in credit quality, stiffer interest rate


Valuation. We drive our TP 3800 based on GGM which implying the PBV at

1.6x and 1.4x for 2018F and 2019F respectively. The CoE and the ROAE is

calculated at 15% and 13.3%.



2015 6,811 2,534 2,542 1,851 175 62% 1,311 7.4 1.0 14% 15%

2016 8,164 3,352 3,330 2,619 247 41% 1,807 7.0 1.0 16% 15%

2017 9,341 3,892 3,862 3,027 286 16% 2,046 11.0 1.5 15% 17%

2018F 11,286 4,424 4,394 3,445 325 14% 2,281 7.8 1.1 15% 20%

2019F 13,578 5,032 5,002 3,922 370 14% 2,554 6.9 1.0 15% 20%


Overweight






Major Shareholders:



Source: Bloomberg, ShinhanSekuritas Indonesia

Helmi Therik

+6221 80869900

[email protected]

0

50

100

150

200

250

300

350

BBTN JCI Index

Bank Tabungan Negara Tbk (BBTN)

Company Focus


35

Loan expansion with satisfactory risk Well diversify of loan portfolio


Strong liquidity position Dominated by low cost of fund (CASA ratio at 72%)


Manageable NIM Well capitalized with the strong CAR


81,411 100,467

115,916

138,956

164,446

198,991

237,898

275,776 4.1%4.0%

4.0%

3.4%

2.8%

2.7%

2.7%2.7%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

10,000

60,000

110,000

160,000

210,000

260,000

310,000

2012 2013 2014 2015 2016 2017 2018F 2019F


Subdidized-Mortgage, 30%

NonSubsidized-Mortgage, 23%

Other Mortgage, 2%

Construction loan, 21%

Non Mortgage, 23%

80,668 96,208

106,471 127,709

159,988

192,474

230,969

277,162

101%

104%

109%109%

103%

103%103%

100%

94%

96%

98%

100%

102%

104%

106%

108%

110%

10,000

60,000

110,000

160,000

210,000

260,000

310,000

2012 2013 2014 2015 2016 2017 2018F 2019F


27,966 34,812

43,354 49,591

62,126

80,672

95,602

45%

43%

45%

47%

49% 50% 50%

38%

40%

42%

44%

46%

48%

50%

52%

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2012 2013 2014 2015 2016 2017 2018FCASA (IDR bn) CASA Ratio

4%5%

4% 4% 4% 4% 4%4%

9% 9%10%

10% 9%

8%8% 8%

4% 5%

6%6%

5% 5%

4% 4%

0%

2%

4%

6%

8%

10%

12%

2012 2013 2014 2015 2016 2017 2018F 2019F


10,279 11,557

12,253 13,860

19,131

21,663

24,160

27,046

18%

15%15%

17%

20% 20%

17% 17%

0%

5%

10%

15%

20%

25%

5,000

10,000

15,000

20,000

25,000

30,000

2012 2013 2014 2015 2016 2017 2018F 2019F

Equity (IDR bn) CAR

36

Balance Sheet

Key Ratio


Year-end 31 Dec (%) 2016 2017 2018F 2019F

Cash 12,025 13,582 (8,126) (5,539)

Growth


Assets 25% 22% 9% 19%


Loans 19% 21% 20% 16%

Loan gross 164,446 198,991 237,898 275,776




Net Loans 162,330 196,635 235,081 272,511

PPOP 19% 16% 26% 20%

Net Fixed Assets 4,659 4,837 4,620 7,104

Net Income 41% 16% 14% 14%

Other Assets 13,684 9,503 10,287 12,345

Profitability

Total Assets 214,168 261,365 286,032 339,425







ROAA 1% 1% 1% 1%


ROAE 16% 15% 15% 15%



Minority Interest 0 0 0 0

Liquidity


LDR 103% 103% 103% 100%


CASA Ratio 71% 72% 71% 71%


Capital


Income Statement

CAR - considering market

risk 15% 17% 20% 20%


Assets Quality

Interest Income 17,139 19,272 21,786 25,711

NPL 2.8% 2.7% 2.7% 2.7%


Coverage Ratio 45.3% 44.6% 44.6% 44.6%




Net Revenue 9,444 10,946 13,777 16,567

Dupont 2016 2017 2018F 2019F

Provision for loan loses 705 884 461 448








Net Non-Operating Losses (Gains) (22) (30) (30) (30)



ROAA 1% 1% 1% 1%

Tax 711 834 949 1,080

Multiplier 12 12 12 12

Net Income 2,619 3,027 3,445 3,922

ROAE 16% 15% 15% 15%



37

Expecting revenue growth recovery

Our consolidated pre-sales marketing has improved. This was in line with

the better GDP growth this year compared to the last year performance

(5.27% vs 5.1%) which was translated into the better consumer

confidence. The back log in the property was sizeable or at 11mn described

the huge demand for the housing ahead. The demand for the mid to low

segment is believed sizeable, while the prospect of the mid to high

segment would depend on the improvement of the consumer confidence.

The property sector demand in the previous years were weak, however the

upbeat tone in the first semester this year is expected to continue,

underpinned of the relaxation policy for LTV (loan to value).

Higher commercial and retail sales demand. Based on the BI survey on

commercial property, the recovery has been started since the second relaxation of

LTV. The retail property survey also moved at the same path when the modest GDP

and stable domestic inflation has triggered the better demand in the retail property.

Amid the higher interest rate outlook, we still believe that the huge housing backlog

at 11mn would provide the future demand in property. When the GDP continue to

pick up at above 5%, the people would consider graduating from renter and start to

be the housing owner.

Loosening policy in property through, lowering tax, relaxation of the LTV

and financing to value (FTV) as the policy mix to support the property

sector. The relaxation of LTV to 100% from 90% is believed would provide the

incentive for the new buyer as well as to the developer through the loan to finance

measure. The mild recovery has been seen since the second LTV relaxation in

September 2016 as reflected in the property loan growth, property demand index

and company property’s pre-sales. The property loan is expected to grow by

14%yoy this year after the third LTV relaxation started on August 2018, while the

challenge is the higher interest rate due to the hawkish monetary policy stance.

However, we think that the probability of steeper interest rate would diminish as the

adjustment of the interest rate has near the targeted level of the central bank. The

government has also reduced the tax from 5% to 1% for the property. This would

stimulate the property transaction in the mid-term.

Expansive infrastructure, new access and potential rising of ASP in the

medium-term. The demand index has gradually improved in line with the supply

index in retail and commercial property segment. This suggests the incremental of

the ASP would be at the modest path. However, the adjustment in the several areas

that would be connected with the new access would be meaningful. The massive

infrastructure development would benefit the company that own strategic location

especially in Java.

Our call. We overweight CTRA, given its ample land bank, diverse location and its

improving recurring income portion which provide the earning stability. We also

overweight ASRI due to its improving revenue and the prospect of the Pasar Kemis

area on the back of the toll road connection with Serpong. We overweight SMRA on

the back of its strategic location that would be benefited by the massive

infrastructure at greater Jakarta.

Overweight

Jakarta Property Index Performance


Helmi Therik

+6221 80869900

[email protected]

70

80

90

100

110

120

Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18

JAKPROP JCI Index

Property Sector

Sector Focus


38

Accumulated developer & property company’s revenue GDP growth & pre-sales growth of select developer company


Recurring income portion of total revenue Relaxation of LTV would gave a support for the retail houses

Source: Company, Shinhan Sekuritas Indonesia Source: Bank Indonesia, Shinhan Sekuritas Indonesia

Impact of relaxation of LTV would gradually increase the property loan at around 14%

The series of relaxation of LTV would be a positive for the demand as well as the supply in commercial property

Source: Bank Indonesia, Shinhan Sekuritas Indonesia Source: Bank Indonesia, Shinhan Sekuritas Indonesia

1,9263,385

2,2134,000

9,1797,186

7,640

7,722

4,300

3,000 3,600

4,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2015 2016 2017 2018F

SMRA

CTRA

ASRI

5.15

4.94

5.19

5.2315,405

13,571

13,453

15,722

12,000

12,500

13,000

13,500

14,000

14,500

15,000

15,500

16,000

4.75

4.8

4.85

4.9

4.95

5

5.05

5.1

5.15

5.2

5.25

5.3

2015 2016 2017 2018F

GDP (YOY %)

Pre-Sales (IDR tn)

11%

24%

9%8%

27%

11%

0%

5%

10%

15%

20%

25%

30%

ASRI CTRA SMRA

2016

2017

0

2

4

6

8

10

12

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Mar

08

Sep

08

Mar

09

Sep

09

Mar

10

Sep

10

Mar

11

Sep

11

Mar

12

Sep

12

Mar

13

Sep

13

Mar

14

Sep

14

Mar

15

Sep

15

Mar

16

Sep

16

Mar

17

Sep

17

Mar

18

Sep

18

JIB

OR

(1

W)%

Pro

pe

rty

ind

ex(

yoy)

by

size

Less Than 36 Square Meters

Between 36 and 70 Square Meters

Larger Than 70 Square Meters

Lower LTV Policy /

Stricker LTV limits Higher LTV/

Relaxation of LTV

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

Jan

20

13

Ap

r 2

01

3

Jul 2

01

3

Oct

20

13

Jan

20

14

Ap

r 2

01

4

Jul 2

01

4

Oct

20

14

Jan

20

15

Ap

r 2

01

5

Jul 2

01

5

Oct

20

15

Jan

20

16

Ap

r 2

01

6

Jul 2

01

6

Oct

20

16

Jan

20

17

Ap

r 2

01

7

Jul 2

01

7

Oct

20

17

Jan

20

18

Ap

r 2

01

8

Jul 2

01

8

Total Property loan House and Apartment Ownership Credits

Lower LTV Policy / Stricker LTV limits

Higher LTV/ Relaxation of

LTV

Higher LTV/ Relaxation of LTV

Higher LTV/

Relaxation of LTV

-1%

-1%

0%

1%

1%

2%

2%

3%

3%

4%

4%

Commercial Property Price Index

Demand Index

Supply Index

Higher LTV/

Relaxation of LTV

Higher LTV/ Relaxation of

LTV

39

Sound marketing sales this year on the back of

new projects Back ground. CTRA is a property development company which owned 2,521ha land

that scattered widespread across the country (33 cities). This would sustain the

business for the next 15 years. About 29% of the revenue was derived from the

recurring income while the rest was from the development revenue. This would

partially protect the revenue from the property cyclicality. Several towers or high

rise building that located at central district area are: Ciputra World I & II and

Tokopedia Tower. The company has 566,961 (sqm) sealable area for the apartment

and office-strata title and also owned 200,000 (sqm) of net leasable area (NLA) for

the mall that produced a stable recurring income ahead.

Benefited from the mid to low income demand. The potential demand for the

housing and apartment in the long term is believed would remain strong, especially

for the mid to low income class due to housing backlog at 11mn. About 41% of the

presales marketing is coming from the below IDR1bn ticket size in the 1H18. The

mid to low class segment’s (<IDR1bn @house price) composition is higher than last

year that only at 36%. The ticket size at above IDR1bn and below IDR2bn

contributed 23% of the total pre-sales. These signifying the end users (not

speculators) as the target market for the company especially for the mid to low

segments. The company also has a healthy balance sheet to support its expansion

plan as reflected in its net debt to EBITDA at 2.3x. The cyclicality in the property

that triggered by the slightly higher interest rate would be the challenge for the

company, however with the relaxation of the LTV and more loosening banking

measure through the lowering risk weighted assets (RWA) in property sector to

calculate the banking capital requirement that started to apply in 2H this year would

be a positive catalyst for the company. This was due to the sizeable payment

method through mortgage payment that amounting to 51%, while 37% was through

the installment method.

Strong revenue growth expectation on the back of the new projects. The

revenue was relatively flat in the 1H at IDR2.8tn, however the company believed to

book a solid revenue growth in 2nd semester that would spur the revenue by 20%

yoy to IDR7.7tn on the back of the new projects. The pre marketing sales target this

year is set at IDR7.7tn which would come from the several projects such as Citra

Sirkuit Residence at Sentul, Citra Maja Tanggerang, etc. The pre-sales in 1H was

about IDR3.3tn or representing 42% of the company’s target this year.

Valuation. We derived our TP at IDR1,350 based on the 69% discount to our RNAV

calculation which implies the 2018 and 2019 PE at 20x and 22x respectively or in

line with its historical average. Risk to our call: Deteriorated of the GDP, more than

expected higher interest rate.

Year to Dec. GP OP Pre-tax NP EPS Growth BVPS PER PBR ROAE ROAA


2015 3,290 1,960 2,165 1,740 83 -3% 846 17 1.7 14% 7%

2016 3,019 1,989 1,500 1,171 55 -33% 771 26 1.9 9% 4%

2017 3,648 2,018 1,297 1,019 48 -13% 834 25 1.4 7% 3%

2018F 3,701 2,047 1,149 1,396 66 37% 776 18 1.5 9% 4%

2019F 3,755 2,077 1,043 1,266 60 -9% 824 20 1.4 9% 3%


Overweight

Current Price (IDR) (10/10) 800

Target price (IDR) 1,350

Upside/Downside (%) 68.9%

52 Week High (IDR) 1,430

52 Week Low (IDR) 730

Major Shareholders:

PT Sang Pelopor 46.96%



Helmi Therik

+6221 80869900

[email protected]

0

50

100

150

200

250

Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18

CTRA JCI Index

Ciputra Development Tbk (CTRA)

Company Focus


40

CTRA’s projects that scattered across cities (Well diversify)

Source: Company

CTRA’s projects portfolio at Greater Jakarta – New Infrastructure would increase the land price gradually

Source: Company

41

CTRA’s 2018 key projects at Makassar

Source: Company

CTRA’s 2018 key projects at Tanggerang (Greater Jakarta)

Source: Company

CitraMaja Raya Banten

CitraLand City Losari Makasar

42

Revenue increase on the back of the new projects Revenue by business segment


Revenue by payment method 41% Revenue come from below IDR1bn ticket size


Stable profitability margin Debt to EBITDA (x) and EBITDA (bn IDR)


2,178

3,323

5,077

6,340

7,514

6,739 6,443

7,783 7,896

1,043 1,667

2,546

3,330 3,729

3,290 3,019 3,648 3,701

535 971

1,609 2,248 2,416

1,851 1,623 1,960 1,989

325 589 977

1,325 1,284 1,021 894 1,226 1,112

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2011 2012 2013 2014 2015 2016 2017 2018F 2019F

Revenue Gross Profit Operating profit Net Profit

4,240

3,463

4,369

5,143 4,734

837 7641,006

1,597 1,709

5,077

4,227

5,374

6,7396,443

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2013 2014 2015 2016 2017

Development Revenue Recurring Revenue Total Revenue

33% 32%

49% 48% 51%

57% 57%36% 40% 37%

10% 11% 15% 12% 12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017 6M2018

Cash

Installments

Mortgage

33% 34%40% 36% 41%

32%24%

30%24%

23%

27%

26%

24%30%

28%

8%16%

6% 10% 8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017 6M2018

IDR>5bn

IDR 2-5bn

IDR 1-2bn

<IDR 1bn

48% 50%50%

53%

50%

49%47% 47%

47%

25%29%

32%

35%32%

27% 25% 25%25%

15%18%

19%21%

17%15%

14% 16%14%

0%

10%

20%

30%

40%

50%

60%

2011 2012 2013 2014 2015 2016 2017 2018F 2019F

Gross Margin Operating Margin Net Margin

612

1,085

1,814

2,449 2,656

1,994 1,798

2,244 2,293

2.73

1.88

1.77

1.68

1.96

3.74

4.71

5.44 5.48

-

500

1,000

1,500

2,000

2,500

3,000

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2011 2012 2013 2014 2015 2016 2017 2018F 2019F

EBIT

DA

(in

Bn

IDR

)

De

bt t

o E

BIT

DA

(x)

EBITDA Debt to EBITDA

43

Income Statement

Cashflow Analysis



Sales 6,739 6,443 7,783 7,896

CFs from operation

COGS (3,450) (3,423) (4,136) (4,196)

Net profit 1,021 894 1,226 1,112

Gross profit 3,019 3,648 3,701 3,755

Change in working capitals (2,947) (2,149) (2,090) (1,185)

EBITDA 1,994 1,798 2,244 2,293

CFs from operation (1,926) (1,255) (864) (73)

Operating expense (1,439) (1,397) (1,687) (1,712)

Operating profit 1,989 2,018 2,047 2,077

CFs from investments (1,157) (1,146) (1,135) (1,125)

Pre-tax profit 1,500 1,297 1,149 1,043

Income tax - net 329 278 247 224

CFs from financing activities (558) 5,675 (3,774) 2,726

Net profit 1,171 1,019 1,396 1,266

Net inc/(dec) in cash 433 (239) (4,794) 2,417

EPS (IDR) 55 48 66 60

Cash at end period 3,468 3,229 3,900 3,957



Balance Sheet

Key Ratio Analysis



Assets

Profitability

Cash and equiv 3,468 3,229 3,900 3,957

Gross margin 48.8% 46.9% 46.9% 46.9%

Receivables 938 958 1,157 1,174

Operating margin 27.5% 25.2% 25.2% 25.2%

Inventories 7,914 9,480 11,452 11,618

EBITDA margin 29.6% 27.9% 28.8% 29.0%

Others 1,360 1,501 1,813 1,840

Net profit margin 17.4% 15.8% 17.9% 16.0%

Total current assets 13,679 15,167 18,323 18,589

ROAA 4.2% 3.4% 4.1% 3.5%

Net fixed assets 12,774 13,756 14,717 15,656

ROAE 8.6% 6.8% 9.4% 8.5%

Other assets 2,619 2,783 2,958 3,144

Total assets 29,072 31,706 35,997 37,389

Growth

Revenue -10.3% -4.4% 20.8% 1.5%

Liabilities and equities

Operating Profit -23.4% -12.3% 20.8% 1.5%

Payables 1,746 1,743 2,106 2,137

EBITDA -24.9% -9.8% 24.8% 2.2%

Other Short-Term Liabilities 5,565 6,040 7,296 7,402

Net Income -32.7% -13.0% 37.1% -9.3%

Total Current Liabilities 7,311 7,783 9,402 9,539

LT. debt 4,976 6,388 10,125 10,490

Solvability

Other long term liabilities 2,487 2,085 2,085 2,085

Current ratio (x) 1.9 1.9 1.9 1.9


Quick ratio (x) 0.8 0.7 0.7 0.7

Debt to equity (x) 1.0 1.1 1.5 1.4

Minority Interest 1,654 2,073 27 27

Interest cov. (x) 0.5 0.5 0.6 0.6

Shareholders' equity 14,298 15,451 14,385 15,275


BVPS (IDR) 771 834 776 824


Valuation


PER (x) 26.4 24.7 17.9 19.8

PBV (x) 1.9 1.4 1.5 1.4

EV/EBITDA (x) 13.5 12.2 9.8 9.6

EV/Sales (x) 4.0 3.4 2.8 2.8

Dividend yield (%) -11% 20% 1.1% 1.0%


44

Expecting revenue growth recovery Background. ASRI is a property developer company that owned 2,200ha land bank. Most

of the land bank (70% or 1,555ha) is located at Pasar Kemis (Tanggerang) followed by

262ha in North Serpong. The company also has 67,369 sqm leasable area at Mall Alam

Sutra and 107,373 sqm of office tower while in the apartment business, the company has

171,037sqm (semi gross) that ready to be monetized. The company also has contractual

land bank sales with CLFD for the projects at Pasar Kemis for 1mn (sqm) each year for the

next 3 years. This would support the revenue from the land plot sales going forward.

Land bank and the prospect of the Pasar Kemis area. The average sales price for the

land bank in Pasar Kemis is lower than the Serpong area (IDR 4mn/m2 vs IDR15mn/m2).

This would make the attraction point that could be offered to the customer. We think that

the prospect of the rising in the ASP especially at Pasar Kamis would come from the

development of the toll road that will connect the Serpong-Balaraja and the toll road from

Balaraja to the Airport. This would reduce the pricing gap at Tanggerang especially between

Serpong and Pasar Kamis. The toll road is expected to commercially operating next year.

Managable debt level. Debt level is at manageable level due to its Debt to EBITDA ratio

at IDR4.2x while the EBITDA is estimated to grow by 9% to IDR2.2tn this year. However

the risk would come from the forex loss due to its USD bond at USD245mn matured at

2020 and USD235mn matured at 2022. With the rupiah that depreciated by 7.4%yoy

would cause the forex loss at IDR235bn and the net profit margin would be lower to 20%

this year from 35.4% last year. The refinancing of the Debt is likely as the company still

have a decent Debt to EBITDA and the total estimated land bank value at IDR29tn.

Strong revenue growth. The company derived 40% revenue from the land plot sales,

followed by 33% from the house and shop houses. The company is targeting to sell

another IDR2tn land this year to CLFD (China Property Developer) that owned the projects

at Pasar Kemis named “Lavon City”. We expect the company would post the revenue

growth this year by 22%yoy to IDR4.6tn, while at the 1H, the revenue represented 47% of

our target at IDR2,2tn or up by 30%yoy. The pre marketing sales in 1H was IDR2.9tn or

representing 72% of the full year target, which indicates that the revenue target is

attainable. The positive factor that would support the property sector in the 2H would

come from the relaxation in the banking policy regarding the LTV, the risk weighted assets

to calculate the banking capital adequacy and the launching of the new projects as about

40% sales is done through mortgage loan. The marketing sales in the 2H are estimated to

come from the “Loyd” low base apartment and the residential at Pasar Kemis that targets

the mid to high segment.

Valuation. The negative factor regarding the solvability amid the weaker rupiah has

depressed the price to its lower PE band. However we see an upbeat on the 1H

performance while the negative factored has factorized on its low ‘18PE at 7x and ‘19PE at

5x. We set our TP at IDR 440 which reflects 70% discount to our RNAV calculation.



2015 1,465 2,278 759 684 30.4 -42% 336 11.3 1.0 11% 4%

2016 2,376 2,390 591 510 25.9 -25% 366 13.6 1.0 7% 3%

2017 2,783 2,508 1,445 1,385 70.2 171% 436 5.1 0.8 18% 7%

2018F 2,920 2,633 884 920 46.7 -34% 470 6.2 0.6 10% 4%

2019F 3,064 2,764 1,231 1,282 65.0 39% 522 4.5 0.6 13% 6%


Overweight


Target price (IDR) 440


52 Week High (IDR) 420


Major Shareholders:

PT Tanggerang Fajar Industrial 25.21%



Helmi Therik

+6221 80869900

[email protected]

0

50

100

150

200

250

ASRI IJ JCI Index

Alam Sutera Realty Tbk (ASRI)

Company Focus


45

ASRI Ownership Structure.

Source: Company

ASRI main land bank location at Pasar Kemis Tanggerang

Source: Company

46

Lloyd Apartment – A low base apartment concept Lloyd Apartment – Combines landed style living and convenience apartment facilities

Source: Company Source: Company

Suvarna Sutra Township Land price at Suvarna Sutra gradually increases

Source: Company Source: BPS, Shinhan Sekuritas Indonesia

Prominence office tower Land price for commercial area per sqm in IDR mn


2.8

4

55.2 5.2 5.5

2.7

3.3

4.14.2

4.7

0

1

2

3

4

5

6

2012 2013 2014 2015 2016 2017

Residential (Suvarna Padi)

Residential (Suvarna Sutra)

8.4

12.5

17.3

23.1 2225

0

5

10

15

20

25

30

2012 2013 2014 2015 2016 2017

Commercial

47

Revenue increase on the back of the new projects Revenue by payment method


Revenue by segment (in IDR bn) Revenue composition in (%)


Decent profitability margin Debt to EBITDA (x) and EBITDA (bn IDR)


3,631

2,784 2,716

3,917

4,5884,813

0

1,000

2,000

3,000

4,000

5,000

6,000

2014 2015 2016 2017 2018F 2019F

Total Revenue

4%

56%

40%

0%

10%

20%

30%

40%

50%

60%

Hard Cash CashInstallment

Mortgage loan

3,312

2,420 2,340

3,543

1,999

302 302 302 305 164

3,631

2,784 2,716

3,917

2,197

- 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

2014 2015 2016 2017 20181H

Property Development (Real estate)Recurring Revenue (Hospitality & Infrastructure)Tourism & Others

91%87% 86%

90% 91%

8%11% 11%

8% 7%

0% 2% 3% 2% 2%

75%

80%

85%

90%

95%

100%

Others

RecurringRevenue

PropertyDevelopment

59.0% 60.0%49.9%

63.5%73.9%

53.9%

60.7% 60.7%60.7%

50% 51%

42%

53%58%

40%51% 50%

50%44%

50%

24%30%

21%19%

35%

20%

27%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2011 2012 2013 2014 2015 2016 2017 2018F 2019F

Gross Margin Operating Margin Profit Margin

697

1,263

1,562

1,970

1,706

1,142

2,071

2,372 2,493

1.21.5

2.73.3

4.7

7.8

4.53.9 3.8

-

500

1,000

1,500

2,000

2,500

3,000

-

1

2

3

4

5

6

7

8

9

2011 2012 2013 2014 2015 2016 2017 2018F 2019F

in b

n I

DR

De

bt

to E

BIT

DA


48

Income Statement

Cashflow Analysis



Sales 2,716 3,917 4,588 4,813

CFs from operation

COGS (1,251) (1,541) (1,805) (1,894)

Net profit 509 1,380 917 1,277

Gross profit 2,376 2,783 2,920 3,064

Change in working capitals (659) (1,378) (612) (1,175)

EBITDA 1,142 2,071 2,372 2,493

CFs from operation (151) 2 305 102

Operating expense (368) (390) (505) (529)



Pre-tax profit 591 1,445 884 1,231

Income tax - net 81 60 37 51

CFs from financing activities 1,211 (510) (2,027) 317

Net profit 510 1,385 920 1,282

Net inc/(dec) in cash 551 (471) (2,259) 180

EPS (IDR) 26 70 47 65

Cash at end period 1,189 718 841 882



Balance Sheet

Key Ratio Analysis



Assets

Profitability

Cash and equiv 1,189 718 841 882

Gross margin 53.9% 60.7% 60.7% 60.7%

Receivables 178 210 246 258


Inventories 1,208 961 1,125 1,181

EBITDA margin 42.0% 52.9% 51.7% 51.8%

Others 506 429 462 473



ROAA 2.6% 6.8% 4.3% 5.6%

Net fixed assets 11,326 12,678 14,021 15,355

ROAE 7.4% 17.6% 10.3% 13.2%

Other assets 5,778 5,732 5,659 5,587

Total assets 20,186 20,728 22,355 23,737

Growth

Revenue -2.4% 44.2% 17.1% 4.9%


Operating Profit -32.6% 81.1% 14.7% 4.9%

Payables 903 772 904 948

EBITDA -33.1% 81.4% 14.5% 5.1%


Net Income -25.4% 171.5% -33.6% 39.3%


LT. debt 7,511 7,194 7,629 7,808

Solvability


Current ratio (x) 0.9 0.7 0.7 0.7


Quick ratio (x) 0.5 0.4 0.4 0.4

Debt to equity (x) 1.8 1.4 1.4 1.3


Interest cov. (x) 6.4 7.3 9.1 9.6



BVPS (IDR) 366 436 470 522


Valuation


PER (x) 13.6 5.1 6.2 4.5

PBV (x) 1.0 0.8 0.6 0.6

EV/EBITDA (x) 16.3 8.8 7.6 7.3

EV/Sales (x) 6.9 4.7 3.9 3.8

Dividend yield (%) -1% 1% 3.2% 4.5%


49

Innovate with living concept to enhance the

growth

Background. SMRA is a property development company with the total land

bank of 2,233ha and 283k m2 of NLA (net leasable area). SMRA has several

well-known projects brands such as Kelapa Gading Mall, Summarecon Mall

Serpong and Summarecon Mall Bekasi. The company derived 64% of the

revenue from development revenue while 25% is generated from recurring

income. About 22% of its land bank is located at the prime area at Serpong

which provided a higher ASP, followed by 18% at Bekasi and 19% at Bogor as

the second and third dynamic sub urban area. The new accessibility on the

backed off the toll road and LRT would be a beneficiary for the company in

term of the prospects of the rising ASP.

Penetrate to the lower income class. Amid the slower property growth, the

company launched the new projects with the smaller ticket size (below IDR1bn)

while waiting for the better momentum for the middle up class segments. The

prospect of the mid to upper class relates with the level of the confidence

regarding the stability of the economic growth. During the political year, the

growth pace would remain slower, but the prospects of the incremental ASP is

wide open due to the massive infrastructure that has been developed by the

government. The company guides the conservatives tone on its CAPEX to relax

its balance sheet amid the slightly higher interest rate policy outlook. The

company’s Debt to EBITDA is slightly above 4x which suggests an opportunity

for refinancing through the external financing, however the higher interest rate

would burdened its margin amid the flattish ASP in the short term. We think

that the opportunity for the better property outlook would come from the

relaxation of the LTV especially for the first buyer.

Improving pre-marketing. The company expects to record the pre sales

marketing this year at IDR4tn while in November, the pre marketing sales was

at IDR1.5tn or 28.7% of the target. However, the company believes that the

target is achievable due to the upcoming projects in 2H such as from Srimaya

residence at Bekasi, Summarecon Mutiara at Makassar and new projects at its

existing land bank at Serpong. The marketing sales in 1Q at 2019 is estimated

at the modest path while at Q2, we expect the marketing sales would be more

upbeat due to the political election at April 2019.

Valuation. We set our TP at IDR 1,100 which reflecting 50% discount to our

RNAV calculation. The price is traded at the attractive level or fluctuated at 24x

2019 PE or below its historical level at 37x.

Year to Dec. GP OP Pre-tax NP EPS Growth BVPS PER ROAE ROAA

(bn IDR) (bn IDR) (bn IDR) (bn IDR) (IDR) (%) (IDR) (x) (%) (%)

2015 2,601 1,515 1,064 1,064 59 -38% 522 28 15% 6%

2016 2,567 1,581 616 605 22 -64% 566 61 8% 3%

2017 2,901 1,673 540 532 25 16% 579 38 6% 3%

2018F 3,046 1,772 619 628 30 18% 477 28 8% 3%

2019F 3,223 1,879 684 694 33 11% 503 25 10% 3%


Overweight






Major Shareholders:

PT Semarop Agung 33.52%



Helmi Therik

+6221 80869900

[email protected]

50

70

90

110

130

150


SMRA JCI Index

Summarecon Agung Tbk (SMRA)

Company Focus


50

SMRA’s location at Jakarta, Bekasi, Serpong, Karawang and Bogor.

Source: Company

SMRA’s location that would be benefited through the planned of Jakarta-Bandung high speed Train, elevated toll road Jakarta-Cikampek, and elevated LRT Jakarta-Bekasi. This would be the attractive point for the projects location

Source: Company

51

Shopping Mall at every residential project would accelerate the incremental of average sales price

(ASP) of its land bank

Summarecon Kelapa Gading Mall Plaza Summarecon Serpong


Summarecon Mall Bekasi Summarecon Bekasi Mall


52

Revenue increase due to the new concept housing Revenue by business segment : Recurring contributes 26%.

Source: Company, Shinhan Sekuritas Indonesia Estimates Source: Company, Shinhan Sekuritas Indonesia

Marketing contribution by project location. Mostly driven by Serpong and Bekasi

Gross Margin by product type. Landplot sales and housing provides the highest margin


Manageable profitability margin Debt to EBITDA (x) and EBITDA (bn IDR)


2,359

3,463 4,094

5,757 5,624 5,398 5,641

6,375 6,738

1,312 1,871 1,955

2,700 2,717 2,797 3,074

3,474 3,693

572 1,011

1,347

2,095 1,790

1,410 1,341 1,515 1,581

392 798

1,102 1,385

855 312 362 427 472

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2011 2012 2013 2014 2015 2016 2017 2018F 2019F

Revenue Gross Profit Operating profit Net Profit

60%

26%

13%

Property Development

Investment Properties

Others

6%

7%

21%

34%

23%

10%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Makasar

Karawang

Bandung

Serpong

Bekasi

Kelapa Gading

57%

55%

76%

32%

0% 10% 20% 30% 40% 50% 60% 70% 80%

House

Shop

Landplot

Apartment

54%48% 47%

48%52%

54% 54%55%

29%33% 36%

32%

26% 24% 24%23%

23%

27%24%

15%

6% 6% 7% 7%

0%

10%

20%

30%

40%

50%

60%

2012 2013 2014 2015 2016 2017 2018F 2019F

Gross Margin Operating Margin Net Margin

612

1,085

1,814

2,449 2,656

1,994 1,798

2,244 2,293

2.73

1.88

1.77

1.68

1.96

3.74

4.71

5.44 5.48

-

500

1,000

1,500

2,000

2,500

3,000

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2011 2012 2013 2014 2015 2016 2017 2018F 2019F

EBIT

DA

(in

Bn

IDR

)

De

bt t

o E

BIT

DA

(x)


53

Income Statement

Cashflow Analysis



Sales 5,398 5,641 6,375 6,738

CFs from operation

COGS (2,797) (3,074) (3,474) (3,693)

Net profit 312 362 427 472

Gross profit 2,567 2,901 3,046 3,223

Change in working capitals (1,343) 645 (609) (606)

EBITDA 1,680 1,679 1,849 1,924

CFs from operation (1,031) 1,007 (182) (134)



CFs from investments (678) (358) (423) (507)

Pre-tax profit 616 540 619 684


CFs from financing activities 2,014 (1,473) (3,329) 1,658

Net profit 605 532 628 694

Net inc/(dec) in cash 536 (557) (3,593) 1,394

EPS (IDR) 22 25 30 33




Balance Sheet

Key Ratio Analysis



Assets

Profitability

Cash and equiv 2,039 1,482 1,675 1,771

Gross margin 48.2% 45.5% 45.5% 45.2%



Inventories 5,531 6,498 7,345 7,807

EBITDA margin 31.1% 29.8% 29.0% 28.6%

Others 555 532 601 636



ROAA 3.1% 2.5% 2.8% 2.9%

Net fixed assets 11,096 11,179 11,252 11,316

ROAE 7.7% 6.4% 8.2% 9.8%

Other assets 1,051 1,325 1,675 2,119

Total assets 20,810 21,663 23,278 24,419

Growth

Revenue -4.0% 4.5% 13.0% 5.7%


Operating Profit -21.3% -4.9% 13.0% 4.3%

Payables 1,930 1,686 1,905 2,014

EBITDA -10.6% -0.1% 10.1% 4.1%


Net Income -43.1% -12.0% 17.9% 10.6%


LT. debt 6,024 5,589 7,862 8,222

Solvability


Current ratio (x) 2.1 1.5 1.5 1.5

Total Long-Term Liabilities 8,427 7,033 9,306 9,666

Quick ratio (x) 0.7 0.4 0.4 0.4

Debt to equity (x) 1.5 1.6 2.4 2.4

Minority Interest 1,923 1,844 27 27

Interest cov. (x) 0.6 0.6 0.7 0.7



BVPS (IDR) 566 579 477 503


Valuation


PER (x) 61.3 37.6 27.5 24.9

EV/EBITDA (x) 11.4 8.1 6.4 6.1

EV/Sales (x) 3.5 2.4 1.8 1.7

Dividend yield (%) 0.4% 0.7% 0.7% 0.8%


54

Remain Upbeat on Selected Retail and

Consumer Company

Fiscal stimulus to spur consumption. Indonesia minimum wage will be increased by

8.03% YoY in 2019. The government also raises the social protection budget by

32.8% YoY to IDR 381Tn next year. These fiscal policies expected to lead to

purchasing power recovery, which then translate to increase aggregate demand. We

expect private consumption to accelerate and become the growth driver for

consumers and retailers.

Consumer spending started to pick up. Household consumption grew by 5.01% YoY in

3Q18, higher compared to 4.93% YoY in 3Q17. Food and beverage segment became the

highest contributor with 36.69% of total household consumption. Purchasing intention

increased thanks to controlled CPI inflation at 2.5% YtD until November 2018. Stable fuel price

and electricity tariffs help to maintain the purchasing power of the middle-low class segment,

while the government energy subsidies was increased in October 2018 by 56.2% YoY to IDR

160.36Tn. Improving consumer spending reflected in the performance of consumer staples

under our coverage, which revenue was increased by 7.2% YoY in 9M18. ICBP has enjoying

Indonesian appetite for instant noodles, with average consumption per capita 15-19F CAGR of

9.1%. To secure future growth, the company also continues its penetration in the dairy market,

which consumption 15-19F CAGR of 16.8% surpassed instant noodles market. This is in line

with CAMP efforts to capture the growth of ice cream market in Indonesia, with consumption

15-19F CAGR of 9.3%.

Ease cost pressure from foreign exchange rate. The currency has strengthened by 6.5%

from its lowest this year at IDR 15,235 per USD to IDR 14,302 per USD by the end of

November 2018. The recent gain of Rupiah was on the back of declining oil price which

expected to support Indonesia’s current account deficit. Easing cost pressures will benefit

consumer staples and retailers, which import most of its raw material needs. Profitability was

stable for market leader such as SPTO, which gives room for ASP adjustment. EBIT margin of

consumers under our coverage recorded at 16.7% in 9M18 (15.1% in 9M17), while retailer’s

EBIT margin recorded at 7.4% (6.1% in 9M17).

Accelerated retail sales growth. Retail sales growth in September 2018 recorded at 4.8%

YoY, higher compared to 1.8% YoY in the same period last year. In terms of commodity group,

Clothing were the main driver of retail sales, achieving growth of 28.1% YoY (-1.6% YoY in

September 2017). Robust sales growth of retailer under our coverage was attributed to

aggressive expansion, as total outlet of retailer under our coverage increased by 12.6% YoY in

9M18. Among our coverage, ERAA has expanded the most with 121 new stores in 9M18.

Additional outlet not only focused in Greater Jakarta, but retailer also undertook market

penetration to tier-2 and tier 3 cities, in order to reach potential demand from Indonesia

smartphone users which expected to reach 70.2 million in FY18F. Along with the resilience

spending of the middle-up class segment and improving macroeconomic condition, we expect

the average SSSG of retailer under our coverage to improve in FY18F to 7.1% YoY (5.5% YoY

in FY17). ACES’s SSSG expected to be the highest at 13.2% YoY, and followed by PZZA at

5.2% YoY and RALS at 4.9% YoY.

Our call. We overweight ICBP due to its leading position and steady growth. CAMP is on the

right track to capture an ample room of growth in ice cream market. We also overweight ERAA

and ACES on the back of its stellar earnings performance, supported by outlet expansion. RALS

improving operating margin after closing unprofitable supermarket. PZZA due to its increasing

SSSG along with PHD expansion, which better suit with current lifestyle. We overweight SPTO

on the back of its dominance in sanitary wares and stable margin.

Overweight

Avg. SSI Consumer Performance


Billy Ibrahim

+6221 80869900

[email protected]

90

95

100

105

110

115

May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18

JCI Index Avg. SSI Consumers and Retailers

Consumer Sector

Sector Focus


55

Consumer remain upbeat reflected in CCI above the historical

mean Retailers still optimistic with 4.8% YoY growth in September

Source: Trading Economics, Shinhan Sekuritas Indonesia Source: Trading Economics, Shinhan Sekuritas Indonesia

Consumer revenue and EBIT margin trend Retailer revenue and EBIT margin trend

Source: Company, ShinhanSekuritas Indonesia Source: Company, Shinhan Sekuritas Indonesia

Consumer valuation matrix Retailer valuation matrix


70

85

100

115

130

145

Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18

Indonesia Consumer Confidence Index Avg. CCI 2000-2018(P)

-3

0

3

6

9

150

175

200

225

250

Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18

Indonesia Retail Sales Index (RHS)

Retail Sales Growth YoY (LHS)

Avg. Retail Sales Growth TTM

(P) (%)

10

12

13

15

16

25,000

30,000

35,000

40,000

45,000

15 16 17 18F 19F

Consumer Revenue Consumer EBIT Margin(Bn IDR) (%)

3

4

5

6

7

8

20,000

30,000

40,000

50,000

60,000

70,000

15 16 17 18F 19F

Retailer Revenue Retailer EBIT Margin(Bn IDR) (%)

ICBP

CAMP

Average

0

5

10

15

20

25

0 10 20 30 40 50

RO

AE

PER

PZZA

RALS

ACESERAA

SPTO

Average

0

6

12

18

24

30

0 5 10 15 20 25

RO

AE

PER

56

Noodles consumption (15-19F CAGR: 9.1%) and Dairy

consumption (15-19F CAGR: 16.8%) Ice cream consumption (15-19F CAGR: 9.3%)

Source: Statista, Shinhan Sekuritas Indonesia Source: Statista, Shinhan Sekuritas Indonesia Estimates

Retailer numbers of outlet Retailer annual SSSG


Smartphone users and penetration Sanitary Wares and Fittings sales volume

Source: Statista, Shinhan Sekuritas Indonesia Source: Euromonitor, Shinhan Sekuritas Indonesia

0

6

12

18

24

30

15 16 17 18F 19F

(Kg) Noodles Consumption Per Capita

Dairy Consumption Per Capita

0.3

0.4

0.5

0.6

0.7

0.8

15 16 17 18F 19F

(Kg)

0 500 1,000 1,500 2,000

15

16

17

9M18

(Unit)

PZZA ACES RALS ERAA

-4

0

4

8

12

16

15 16 17 18F 19F

(%) PZZA ACES RALS

12

18

24

30

30

50

70

90

15 16 17 18F 19F

Smartphone Users (LHS)

Smartphone Penetration (RHS)

(Millions) (%)

0

90

180

270

360

450

12 16 19F

Sanitary Wares Fittings(Mn USD)

57

Gradual increase of private consumption Ease cost pressure from Rupiah exchange rate

Source: Statistics Indonesia, Company, Shinhan Sekuritas Indonesia Source: Bloomberg, Shinhan Sekuritas Indonesia

Social protection budget surge in State Budget 2019 Energy subsidy spending to controlled electricity and fuel price

Source: Finance Ministry, Shinhan Sekuritas Indonesia Source: Finance Ministry, Shinhan Sekuritas Indonesia Estimates

Indonesia total population and minimum monthly wages Stock price performance

Source: Statista, Trading Economics, Shinhan Sekuritas Indonesia Source: Bloomberg, Shinhan Sekuritas Indonesia

0.0

1.3

2.5

3.8

5.0

1,500

1,700

1,900

2,100

2,300

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

(Tn IDR)Private Consumption Growth, QoQ (RHS)

Private Consumption (LHS)(%)

2.2

2.4

2.6

2.8

3.0

3.2

13,000

13,500

14,000

14,500

15,000

15,500

Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18

CPI (RHS) USDIDR (LHS)(IDR) (%)

0

10

20

30

40

0

750

1,500

2,250

3,000

Government

Revenue

Government

Spending

Village Funds Health

Budget

Education

Budget

Social

Protection

Budget

State Budget 2018 (LHS)

State Buget 2019 (LHS)

Growth (RHS)

(Tn IDR) (%)

10

20

30

40

50

60

0

30

60

90

120

150

15 16 17 18F

(Tn IDR)

Fuel & LNG (LHS)

Electricity (LHS)

Indonesia Crude Price (RHS)

(USD/Barrel)

0

1

2

3

4

230

240

250

260

270

12 13 14 15 16 17 18

Indonesia Total Population (LHS)

Indonesia Minimum Monthly Wages (RHS)

(Million) (Mn IDR)

40

60

80

100

120

140

160

May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18

CAMP ICBP PZZA ACES RALS ERAA SPTO

(22/05/2018 = 100)

58

Maintain leading position and solid

profitability

Background. PT Indofood CBP Sukses Makmur Tbk (ICBP) has become one

of the leaders in consumer branded product with around 40 leading product

brands. Its business operation is supported by more than 50 factories

located in key area across Indonesia. Besides in Indonesia, ICBP products

are also present in more than 60 countries around the world.

Maintain market share in noodles. ICBP through its so-called ‘Indomie’

products managed to be a top brand in Asia and Africa, as ranked 8th in the

global FMCG brand ranking according to Kantar Worldpanel. Moreover,

Indomie market share in the Asia Pacific region ranked at 6th, above Mie

Sedaap by Wings Group which ranked at 10th. In 2018, ICBP expected to

maintain its market share, especially in Indonesia noodles market,

supported by effective advertising and promotions. The company has spent

USD 10mn to become the official partner in the event of 2018 Asian Games

held in Jakarta and Palembang.

Resilient to the depreciation of Rupiah. In the midst of Rupiah

deterioration, we expect ICBP’s EBIT margin to remain stable at double

digits. ICBP impacted by the exchange rate fluctuation as the company

obtained its raw material such as wheat, from imports. Nevertheless, ICBP

is exceptionally resilient company which able to keep its profitability stable

amid the high volatility of the Rupiah. It was reflected in 2013, when the

Rupiah was depreciate by 26.1% in 2013, from IDR 9,650 per USD to IDR

12,170 per USD. In that period, ICBP kept its EBIT margin steady and only

down by 2% from 13.1% in 2012, to 11.0% in 2013. While in 2014, the

EBIT margin was recorded at 10.7%, and started to pick up again to 12.5%

in 2015. ICBP able to adjust it ASP during unfavorable economic condition

given its strong market position.

Rising social assistance program to spur consumption. The Indonesia

government plans to increase the social assistance program from IDR

41.3Tn in 2018 to IDR 59.43Tn in 2019 State Budget. We expect household

consumption to improve and ICBP would be benefited along with the

expansion of the social spending under the so-called ‘Family Hope Program’.

Cash transfer to the poorest household will spur consumption and increase

the company’s sales volume growth.

Valuation. We apply the blended DCF method to obtain the target price of

IDR 10,200 (15.5% Upside). The target price implies a 2019F P/E of 25x,

justified by improvement in operating margin and double digit net profit

growth.

Year to Dec. Sales OP Pre-tax NP EPS BPS PER EV/EBITDA PBV ROAE

(Bn IDR) (Bn IDR) (Bn IDR) (Bn IDR) (IDR) (IDR) (x) (x) (x) (%)

2016 34,375 4,864 4,989 3,600 309 1,586 27.8 18.4 5.4 20.6

2017 35,607 5,222 5,207 3,797 326 1,743 27.3 18.0 5.1 19.6

2018F 38,652 5,816 5,864 4,244 364 1,925 24.5 16.1 4.6 19.8

2019F 42,235 6,529 6,591 4,770 409 2,129 21.8 14.4 4.2 20.2

2020F 45,893 7,025 7,060 5,108 438 2,348 20.3 13.2 3.8 19.6


Overweight

Current Price (IDR) (31/8) 8,850




52 Week Low (IDR) 7,900

Major Shareholders:

First Pacific 80.53%

Matthews International 1.8%



Billy Ibrahim

+6221 80869900

[email protected]

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Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18

ICBP JCI Index

PT Indofood CBP Sukses Makmur Tbk (ICBP)

Company Focus


59

The increase in household consumption to boost revenue

growth USDIDR exchange rate and noodles EBIT growth

Source: Bloomberg, Company, Shinhan Sekuritas Indonesia Source: Company, Shinhan Sekuritas Indonesia

Sales contribution mainly comes from noodles segment with

64% of total sales (1H18) EBIT margin of noodles segment remain the highest at 20%

(1H18)


Revenue expected to grow by 8.5% YoY in 2018F Expecting double digit bottom line growth of 11.8% YoY in

2018F


4.5

4.7

4.9

5.1

5.3

5.5

1.0

4.0

7.0

10.0

13.0

16.0

13 14 15 16 17 18F

(%) Noodles Revenue Growth (LHS)

Household Consumption Growth (RHS)

(%)

-30

-15

0

15

30

45

13 14 15 16 17 1H18

(%) USDIDR Exchange Rate Noodles EBIT Growth

Noodles, 64%Dairy, 19%

Snack Foods, 7%

Beverages, 5%

Food Seasoning, 2% Nutrition and Special Foods, 2%

-17%

-1%

5%

8%

12%

20%

-20% -10% 0% 10% 20% 30%

Beverages

Snack Foods

Nutrition and Special Foods

Food Seasoning

Dairy

Noodles

0

3

6

9

12

25,000

30,000

35,000

40,000

45,000

15 16 17 18F 19F

(Bn IDR)Sales (LHS) Sales Growth (RHS) (%)

6

9

12

15

18

2,000

3,500

5,000

6,500

8,000

15 16 17 18F 19F

(Bn IDR) Operating Profit (LHS) Net Profit (LHS)

Operating Profit Margin (RHS) Net Profit Margin (RHS)

(%)

60

Noodles Brands Dairy Brands


Snack Foods Brands Food Seasonings Brands


Nutrition & Special Foods Brands Beverages Brands


61

Income Statement Cashflow Analysis

Year-end 31 Dec (Bn IDR) 2016 2017 2018F 2019F


Sales 34,375 35,607 38,652 42,235

CFs from Operation

COGS (23,607) (24,548) (26,536) (28,686)

Net Profit 3,600 3,797 4,244 4,770

Gross Profit 10,768 11,059 12,116 13,549

Change in NWC (4,028) (4,022) (4,299) (4,158)

EBITDA 5,497 5,857 6,500 7,158

CFs from Operation (428) (225) (54) 611

Operating Expense (5,904) (5,837) (6,300) (7,021)

Operating Profit 4,864 5,222 5,816 6,529

CFs from Investments (731) (1,710) (621) (705)

Pre-Tax Profit 4,989 5,207 5,864 6,591

Income Tax - Net (1,358) (1,663) (1,583) (1,780)

CFs from Financing (235) 360 (465) (123)

Net Profit 3,600 3,797 4,244 4,770

Net Inc./(Dec.) in Cash 714 425 983 2,169

EPS (IDR) 309 326 364 409

Cash at End Period 8,372 8,797 9,779 11,948



Balance Sheet

Key Ratio Analysis



Assets Profitability

Cash and Equivalent 8,372 8,797 9,779 11,948 Gross Margin 31% 31% 31% 32%

Receivables 3,721 3,871 4,202 4,223 Operating Margin 14% 15% 15% 15%

Inventories 3,110 3,262 3,526 3,442 EBITDA Margin 16% 16% 17% 17%

Others 368 650 693 571 Net Income Margin 10% 11% 11% 11%

Total Current Assets 15,571 16,579 18,200 20,184 ROAA 13% 13% 13% 14%

Net Fixed Assets 7,114 8,120 8,741 9,446 ROAE 21% 20% 20% 20%

Total Assets 28,902 31,620 33,861 36,550

Growth

Liabilities and Equities Revenue 8% 4% 9% 9%

Payables 5,103 5,204 5,649 5,913 Operating Profit 22% 7% 11% 12%

Other Short-Term Liabilities 1,366 1,624 1,762 1,926 EBITDA 22% 7% 11% 10%

Total Current Liabilities 6,470 6,828 7,412 7,839 Net Income 20% 5% 12% 12%

LT. Debt 872 955 490 367

Other Long Term Liabilities 3,059 3,513 3,513 3,513 Solvability

Total Long-Term Liabilities 3,931 4,468 4,003 3,880 Current Ratio (x) 2.4 2.4 2.5 2.6

Total Liabilities 10,401 11,295 11,415 11,719 Quick Ratio (x) 1.9 2.0 2.0 2.1

Minority Interest 937 761 761 761 Debt to Equity (x) 0.6 0.6 0.5 0.5

Shareholders' Equity 18,501 20,324 22,446 24,831 Interest Coverage (x) 27.2 33.9 23.2 29.0

BVPS (Rp) 1,586 1,743 1,925 2,129 Source: Company, Shinhan Sekuritas Indonesia Estimates


Valuation

Year-end 31 Dec 2016 2017 2018F 2019F

PER (x) 27.8 27.3 24.5 21.8

PBV (x) 5.4 5.1 4.6 4.2

EV/EBITDA (x) 18.4 18.0 16.1 14.4

EV/Sales (x) 2.9 3.0 2.7 2.4


62

The prominent ice cream producer

One of the largest Indonesian ice cream producers. PT Campina Ice

Cream Industry Tbk (CAMP) established in 1972 and succeeds to become one

of the largest Indonesian ice cream producers. According to Nielsen, CAMP’s

market share reached 20.7% in 2017. The company produced various types

and flavors of ice cream through its brands such as Concerto and Hula-Hula.

The company owned an ice cream factory in Surabaya, which in the last three

years the average production capacity reached 23 million liters per year.

Capturing potential growth through vast distribution points. Indonesia

ice cream consumption per capita was 0.6 kilograms in 2017, based on the

data from Statista. Furthermore, ice cream volume growth was expected to

grow by 8.7% 2013-2018 CAGR according to Euromonitor. Indonesia with its

relatively young population pyramid, increasing trend of GDP per capita, and

almost entirely tropical climate, is an attractive market for the ice cream

business. CAMP expects to capture this opportunity through its 60 distribution

points that spread across the archipelago of Indonesia to penetrate

undeveloped markets. The company’s sales channel is dominated by general

trade that contributes 40% of the total sales. This will be the company’s

competitive advantage as new players and small competitors having difficulties

to make extensive distribution points through this channel.

Expecting 8% YoY of revenue growth. The company revenue recorded at

IDR 488bn in 1H18, slightly grew by 1.6% YoY, supported by the increase of

sales volume in the midst of tight competition. This figure is still on track or

representing 47.9% of our revenue target this year. Moreover, the company

managed to create efficiency by implementing clustering product distribution

which leads operating expense to decline by 10.0% YoY. As a result, operating

income jumped by 51.1% YoY to IDR 52bn, or representing 43.4% of our

estimate for FY18F. Net profit also rose by 225.3% YoY to IDR 32bn,

accounting for 52.0% of our net profit target in FY18F. Going forward, the

company will introduce three new products in 2H18 to boost top line growth.

One of which, CAMP will optimize its license obtained from PT Walt Disney

Indonesia, by launching new ice cream with Captain America character. This

product development expected to create new excitement for customers and

also help CAMP to differentiate with the competitors, especially for the teens

and kids segments.

Valuation. We overweight on CAMP with TP of IDR 448 (16.6% Upside)

derived using blended DCF methods based on WACC of 11% and risk free rate

of 8.40%. Our target price represents 2019F target multiple of 27.9x P/E, still

below Consumer Goods Industry sector of 30.4x. The risk to our call includes

increasing competition, depreciation of Rupiah, and slower consumer spending.



2016 931 125 75 53 - - - - - 10.0

2017 945 101 58 43 7.4 142.4 160.6 40.7 8.3 6.2

2018F 1,020 119 84 62 10.6 230.9 38.6 9.3 1.8 5.7

2019F 1,112 140 116 86 14.7 239.6 27.9 7.7 1.7 6.2

2020F 1,207 164 144 107 18.2 250.3 22.5 6.4 1.6 7.4


Overweight






Major Shareholders:

Prawirawidjadja Sabana 83.8%

Hadipranoto Darmo 3.8%



Billy Ibrahim

+6221 80869900

[email protected]

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Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18

CAMP JCI Index

PT Campina Ice Cream Industry Tbk (CAMP)

Company Focus


63

Local ice cream producer with the largest market share in 2017 Vast distribution sales channel dominated by general trade

Source: Nielsen, Shinhan Sekuritas Indonesia Source: Company, Shinhan Sekuritas Indonesia

Underpenetrated (0.6 kg/cap) with the highest 13-18F CAGR Expanding target market to support demand (GDP & demographic by aging profile)

Source: Statista, Euromonitor, Shinhan Sekuritas Indonesia Source: Bloomberg, Shinhan Sekuritas Indonesia

Expecting higher revenue growth Profit margin expected to improve on the back of efficiency


Unilever; 70,5%

Campina; 21,1%

Glico Wings; 4,6%

Others; 2,2%Indoeskrim;

1,6%

General Trade; 40%

Modern Trade; 30%

Others (Mobile Unit,

Home Delivery, etc);

30%

2.4 2.3

1.7

0.70.6

4.8

3.1

2.02.4

8.8

0

2

4

6

8

10

0.0

0.5

1.0

1.5

2.0

2.5

Thailand Malaysia Singapore Philippines Indonesia

(Kg)

2017 Average Ice Cream Consumption Per Capita

Ice Cream Volume 13-18F CAGR (%)

3,000

3,250

3,500

3,750

4,000

4,250

0

75

150

225

300

12 13 14 15 16 17 18F

(Millions)

0-19 20-39 40-59 60-79 80-99 GDP Per Capita

(USD)

0

3

6

9

12

600

750

900

1,050

1,200

15 16 17 18F 19F

(Bn IDR)Sales (LHS) Sales Growth (RHS)

(%)

0

4

7

11

14

18

30

60

90

120

150

15 16 17 18F 19F



(%)

64

Products Portfolio for Kids Segment

Source: Company

Products Portfolio for Teens Segment Products Portfolio for Adults Segment


65




Sales 931 945 1,020 1,112

CFs from Operation

COGS (364) (363) (388) (412)

Net Profit 53 43 62 86

Gross Profit 567 582 633 701

Change in NWC (38) (197) (60) (71)

EBITDA 184 168 189 224

CFs from Operation 15 (154) 2 15

Operating Expense (441) (480) (513) (560)

Operating Profit 125 101 119 140

CFs from Investments (42) 14 (4) (7)

Pre-Tax Profit 75 58 84 116

Income Tax - Net (23) (15) (22) (30)

CFs from Financing 10 753 (124) (38)

Net Profit 53 43 62 86

Net Inc./(Dec.) in Cash 33 639 (90) 22

EPS (IDR) - 7 11 15

Cash at End Period 365 520 915 936



Balance Sheet

Key Ratio Analysis




Cash and Equivalent 365 520 915 936 Gross Margin 61% 62% 62% 63%

Receivables 162 170 173 178 Operating Margin 13% 11% 12% 13%

Inventories 127 152 162 169 EBITDA Margin 20% 18% 19% 20%

Others 16 22 20 11 Net Income Margin 6% 5% 6% 8%

Total Current Assets 670 865 1,271 1,294 ROAA 5% 4% 4% 5%

Net Fixed Assets 217 220 200 177 ROAE 10% 6% 6% 6%

Other Assets 143 127 151 181

Total Assets 1,031 1,211 1,622 1,652 Growth

Revenue 3% 2% 8% 9%

Liabilities and Equities Operating Profit -4% -19% 18% 18%

Payables 62 48 61 78 EBITDA 4% -9% 13% 18%

Other Short-Term Liabilities 107 7 7 8 Net Income -29% -17% 44% 38%

Total Current Liabilities 169 55 68 86

LT. Debt 260 260 136 98 Solvability

Other Long Term Liabilities 49 59 59 59 Current Ratio (x) 4.0 15.8 18.6 15.1

Total Liabilities 478 373 263 242 Quick Ratio (x) 3.2 13.0 16.2 13.2

Minority Interest - - - - Debt to Equity (x) 0.9 0.4 0.2 0.2

Shareholders' Equity 553 838 1,359 1,410 Interest Coverage (x) 2.4 2.4 3.5 5.9

BVPS (IDR) - 142 231 240 Source: Company, Shinhan Sekuritas Indonesia Estimates


Valuation

Year-end 31 Dec 2016 2017 2018F 2019F

PER (x) - 160.6 38.6 26.6

PBV (x) - 8.3 1.8 1.6

EV/EBITDA (x) - 40.7 9.3 7.2

EV/Sales (x) - 7.2 1.7 1.4


66

New Store Expansion Drives Top Line

Growth

9M18 results are still on track. PT Sarimelati Kencana Tbk (PZZA) net sales in

3Q18 came in at IDR 854Bn (+14.5% YoY, -6.9% QoQ), bringing cumulative 9M18

net sales to IDR 2,575Bn (+17.9% YoY). PZZA’s 9M18 net sales are still on track

with our estimates by achieving 74.5% of the full year target. The company

managed to maintain double digit top line growth through aggressive expansion, as

until 9M18 PZZA has open 39 new outlets. The slowdown in 3Q18 was due to

seasonality as the company benefited from the peak season of Ramadhan in the

previous quarter. Sales contribution from Food segment reached IDR 2,233Bn

(+18.9% YoY) in 9M18, or 86.7% of total net sales. Meanwhile, beverage segment

reached IDR 344Bn (+9.8% YoY), or contributing 13.3% of total net sales.

Profitability remains steady. Gross profit recorded at IDR 1,728Bn (+18.1% YoY)

in 9M18, while the gross margin relatively unchanged and maintained at 67.1%, in

the midst of increasing number of outlets and the weakening of the Rupiah. The

company directly imports some of its raw materials, including cheese, meat, and

flour that are influenced by foreign currency fluctuations. Operating profit reached

IDR 159Bn (+17.7% YoY), representing an operating margin of 6.2%. Net profit

margin also stable at 3.9%, with a value of IDR 102Tn (+20.5%). We estimated

PZZA will be able to achieve our net profit target for FY18F of IDR 160Bn, along with

the festive season of Christmas and New Year Holiday in 4Q18.

Addition of new outlets to fuel growth. PZZA has opened 42 new outlets since

the beginning of 2018, bring a total of 434 outlets as of early November. In 4Q

alone, the company opened a standalone outlet in the Jakarta Garden City and

Basuki Rahmat Surabaya. Besides that, there’s also new outlets that opened in

shopping malls located in Gresik Icon Mall. Standalone outlet will create cost

efficiency through lower rental rate compared to shopping malls, while its also offer

more flexible operating hours which will increase productivity.

More focused on PHD. The company has an agreement with Yum! Pizza Hut Asia

to open 175 new outlets in 2017-2019. The composition will be focused on Pizza Hut

Delivery (PHD) with 75% and Pizza Hut Restaurant (PHR) with 25%. The investment

cost for PHD is lower than PHR as it requires a smaller area with an average of

100sqm compared to 250sqm. Moreover, PHD has a wider range of market segment

with its fast food delivery service which suitable for the current lifestyle, where the

number of working women and people working overtime are rising, coupled with bad

traffic in big cities. PHD also has better SSSG compared to PHR, as reflected in 2017

where PHR’s SSSG recorded at 5.5%, while PHD’s SSSG was higher at 8.7%.

Valuation. PZZA as the leading chained pizza consumer foodservice in terms of

market share in Indonesia, should continue its dominance on the back of outlet

expansion and market penetration to potential tier-2 and tier-3 cities. We maintain

Overweight on PZZA and maintain our TP at IDR 1,170 (36.0% Upside), based on

the blended DCF method with 17x 2019F P/E.



2016 2,695 207 176 130 - - - - - 41.7

2017 3,027 223 189 141 - - - - - 39.9

2018F 3,458 252 215 160 66 452 13.2 7.5 1.9 21.9

2019F 3,962 265 222 166 69 486 12.8 7.4 1.8 14.6

2020F 4,543 323 274 204 85 528 10.4 6.6 1.7 16.7


Overweight



Upside/Downside (%) 36%



Major Shareholders:

Sriboga Raturaya 64.79%



Billy Ibrahim

+6221 80869900

[email protected]

70

85

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130

May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18

PZZA JCI Index

PT Sarimelati Kencana Tbk (PZZA)

Company Focus


67

PZZA Latest Financial Highlight

Bn IDR 6M18 6M17 YoY 9M18 9M17 YoY

Net Sales 1,721 1,438 19.6% 2,575 2,185 17.9% Gross Profit 1,163 964 20.6% 1,728 1,463 18.1% Operating Expense (1,034) (885) 16.9% (1,569) (1,328) 18.1% Operating Income 128 79 61.6% 159 135 17.7% Income Before Tax 108 66 64.6% 137 113 20.6% Net Income 82 49 65.5% 102 84 20.5%

(%) 6M18 6M17 YoY 9m18 9M17 YoY

Gross Margin 67.6 67.0 67.1 67.0 Operating Margin 7.5 5.5 6.2 6.2 Net Margin 4.8 3.4 3.9 3.9


Continuing innovation by introducing new menu in 4Q18 Promotional campaign buy 1 get 1 free on weekdays


PHR new outlet in Jakarta Garden City PHD official mobile apps to support delivery services


68

The ongoing expansion through outlet addition will be the main

revenue driver for PZZA PHD’s SSSG exceeded PHR in 2017

Source: Company, Shinhan Sekuritas Indonesia Source: Company, Bloomberg, Shinhan Sekuritas Indonesia

Foods segment managed to grow by 18.9% YoY in 9M18, while

beverages increased by 9.8% YoY Jakarta with Java and Bali represents 73.1% of 9M18

total sales


Sales expected to grow by 14.2% YoY to IDR 3,458Bn in 18F Operating and profit margin remain steady at 7.3% and

4.6% in 18F

Source: Company, Shinhan Sekuritas Indonesia Company, Shinhan Sekuritas Indonesia

2,000

2,400

2,800

3,200

3,600

4,000

250

300

350

400

450

500

15 16 17 9M18 18F

(Unit)

Sales (RHS) Total Outlets (LHS)

(Bn IDR)

-15

-11

-7

-3

1

5

0

2

4

6

8

10

15 16 17 18F 19F

(%) SSSG (LHS) PHR SSGS (LHS)

PHD SSSG (LHS) USD to IDR Exchange Rate (RHS)

(%)

0

800

1,600

2,400

3,200

4,000

15 16 17 9M18 18F

(Bn IDR)Beverages Foods Gross Sales

Jakarta, 43.4%

Java and Bali, 29.7%

Sumatera, 12.9%

Sulawesi, 6.7%

Kalimantan, 5.6%Eastern Indonesia, 1.7%

4

7

10

13

16

2,000

2,600

3,200

3,800

4,400

16 17 18F 19F


(%)

0

2

4

6

8

10

0

70

140

210

280

15 16 17 18F 19F



(%)

69




Sales 2,695 3,027 3,458 3,962

CFs from Operation

COGS (873) (1,002) (1,145) (1,323)

Net Profit 130 141 160 166

Gross Profit 1,823 2,025 2,314 2,638

Change in NWC (51) (209) (136) (141)

EBITDA 318 343 365 392

CFs from Operation 79 (68) 24 25



CFs from Investments (80) (225) (218) (176)


Income Tax - Net (46) (48) (55) (57)

CFs from Financing (1) 461 457 (11)

Net Profit 130 141 160 166

Net Inc./(Dec.) in Cash 50 (37) 343 (79)

EPS (IDR) - - 66 69

Cash at End Period 113 75 419 396



Balance Sheet

Key Ratio Analysis




Cash and Equivalent 113 75 419 396 Gross Margin 67.6% 66.9% 66.9% 66.6%

Receivables 12 15 17 19 Operating Margin 7.7% 7.4% 7.3% 6.7%

Inventories 148 269 307 355 EBITDA Margin 11.8% 11.3% 10.6% 9.9%

Others 125 157 179 205 Net Income Margin 4.8% 4.7% 4.6% 4.2%

Total Current Assets 398 515 921 975 ROAA 11.9% 10.7% 8.9% 7.4%

Net Fixed Assets 499 671 808 881 ROAE 41.7% 39.9% 21.9% 14.6%

Other Assets 255 308 389 492


Liabilities and Equities Revenue 8.1% 12.3% 14.2% 14.6%

Payables 322 378 432 495 Operating Profit 69.3% 7.6% 13.5% 5.1%

Other Short-Term Liabilities 201 231 264 303 EBITDA 41.2% 8.0% 6.6% 7.4%

Total Current Liabilities 523 609 696 797 Net Income 112.5% 8.4% 13.5% 3.5%

LT. Debt 79 226 42 87

Other Long Term Liabilities 211 289 289 289 Solvability

Total Long-Term Liabilities 290 515 331 376 Current Ratio (x) 0.8 0.8 1.3 1.2

Total Liabilities 813 1,124 1,027 1,173 Quick Ratio (x) 0.5 0.4 0.9 0.8

Shareholders' Equity 339 370 1,092 1,175 Debt to Equity (x) 2.4 3.0 0.9 1.0

BVPS (Rp) - - 452 486 Interest Coverage (x) 6.4 6.6 6.6 6.1


Valuation

Year-end 31 Dec 2016 2017 2018F 2019F

PER (x) - - 13.2 12.8

PBV (x) - - 1.9 1.8

EV/EBITDA (x) - - 7.5 7.4

EV/Sales (x)

- - 0.8 0.7


70

Data Revenue is Still the Main Catalyst

9M2018 Performance Relatively In-Line. TLKM’s revenue growth in

9M2018 seen slightly better than in 1H2018 as the company managed to

record revenue growth of +2.2% YoY to IDR 99.2trn, better than +0.5% YoY

growth in 1H2018. The result was also equal to 74.6% of consensus. The better

growth in 9M2018 period was driven by 10.1% QoQ revenue growth in 3Q2018

supported by its digital business which grew by 16.2% QoQ.

Increasing Operation & Maintenance Expenses Resulting Lower EBITDA

Margin. TLKM’s Operation & Maintenance (O&M) Expenses continue to increase

by 23.3% YoY in 9M2018 due to company’s aggressive effort to grow digital

business both in cellular and fixed-line services. This condition resulted a

decrease in TLKM’s EBITDA Margin to go below 50% in 9M2018. With TLKM’s

EBITDA Margin persistently below 50% throughout this year, we decided to

lower our EBITDA margin forecast in 2018F and 2019F from 50.1% and 49.4%

to 47.2% and 48.2%.

However, Data, Internet & IT Services Revenues continue to show

strong growth. Meanwhile, Data revenue continue to improve in 3Q2018 as it

grew by 11.3% QoQ after Telkomsel decided to raise data price nationwide by

4% - 11% last early July. Despite the increase of the pricing from Telkomsel,

TLKM’s data traffic still able to increase significantly by +116.3% YoY to 3.01

PB. Based on this condition, we eventually decided to upgrade our TLKM’s data

payload forecast in 2018F and 2019F from 4.55 PB and 9.56 PB to 5.20 PB and

10.41 PB.

Legacy Business still in Slow-Down Mode. TLKM’s legacy business revenue

still seen lower in 9M2018 with -21.3% YoY lower in the period as a result from

traffic decline in both voice and SMS services. Meanwhile, TLKM’s total prepaid

subscribers continue to decline by -12.7% YoY in 9M2018 period influenced by

the effect of implementation of prepaid SIM card registration. However, TLKM’s

total postpaid subscribers remain strong in the same period with +21.6% YoY

growth. Based on this condition, we also decided to adjust our total subscribers

forecast both in Postpaid and prepaid for 2018F and 2019F.

Valuation. On the back of strong and consistent TLKM’s data revenue growth

and TLKM’s pricing recovery since 2H2018, we maintain our overweight

recommendation in TLKM with higher TP of IDR 4,550 (12.9% higher than our

previous TP at IDR 4,030) based on 23.6x FY2019F P/E (+2.5 Standard

Deviation P/E).

Year to Revenues OP Pre-tax NP EPS BVPS PER EV/EBITDA PBV ROAE

Dec. (bn IDR) (bn IDR) (bn IDR) (bn IDR) (IDR) (IDR) (x) (x) (x) (%)

2016 116,333 39,195 38,189 19,352 196 1,070 20.3 7.2 3.7 19.5

2017 128,256 43,933 42,659 22,145 224 1,132 19.9 7.6 3.9 20.3

2018F 134,585 38,792 36,327 18,792 190 1,277 19.3 6.5 2.9 15.7

2019F 142,748 39,655 36,980 19,130 193 1,447 19.0 5.9 2.5 14.2


Overweight






Major Shareholders:

Republic of Indonesia 52.09%

Bank of New York Mellon Corp 5.49%



Teuku Hendry Andrean

+62 21 80869900

[email protected]

70

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TLKM JCI Index

PT Telekomunikasi Indonesia Tbk (TLKM)

Company Focus


71

TLKM Forward P/E Band

Source: Shinhan Sekuritas Indonesia

Forecast Changes Lower EBITDA Margin due to high O&M Expenses


Rapid Growth of Data Traffic Continues Postpaid subs growth is still positive

Source: Company, Shinhan Sekuritas Indonesia Estimates Source: Company

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l-13

2-Oc

t-13

2-Ja

n-14

2-Ap

r-14

2-Ju

l-14

2-Oc

t-14

2-Ja

n-15

2-Ap

r-15

2-Ju

l-15

2-Oc

t-15

2-Ja

n-16

2-Ap

r-16

2-Ju

l-16

2-Oc

t-16

2-Ja

n-17

2-Ap

r-17

2-Ju

l-17

2-Oc

t-17

2-Ja

n-18

2-Ap

r-18

2-Ju

l-18

2-Oc

t-18

TLKM Forward P/E Band

Forward P/E Mean +1sd -1sd +2.5sd -2.5sd

2018F 2019F 2018F 2019F 2018F 2019F

Postpaid Subs (Mn Subs) 5.37 6.25 5.81 6.85 8.1% 9.6%

Prepaid Subs (Mn Subs) 216.24 245.09 190.63 216.06 -11.8% -11.8%

MoU (in Bn Minutes) 203.33 195.19 201.21 191.15 -1.0% -2.1%

Data payload (TB) 4,553,315 9,561,960 5,203,788 10,407,576 14.3% 8.8%

Revenue (IDR, bn) 128,965 139,140 134,585 142,748 4.4% 2.6%

EBITDA (IDR, bn) 64,598 68,786 63,512 68,786 -1.7% 0.0%

Net Profit (IDR, bn) 20,022 20,432 18,792 19,130 -6.1% -6.4%

EBITDA margin (%) 50.1% 49.4% 47.2% 48.2%

Net margin (%) 15.5% 14.7% 14.0% 13.4%

Previous Current Changes

45.0%

46.0%

47.0%

48.0%

49.0%

50.0%

51.0%

52.0%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2015 2016 2017 2018F 2019F

EBITDA (In IDR Bn) EBITDA Margin %

492.2 958.7

2,168.2

5,203.8

10,407.6

-

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

2015 2016 2017 2018F 2019F

Data Payload (In PB)

145,000

150,000

155,000

160,000

165,000

170,000

175,000

180,000

185,000

190,000

195,000

-

1,000

2,000

3,000

4,000

5,000

6,000

1Q17 1H17 9M17 FY17 1Q18 1H18 9M18

Postpaid Subscribers (000) Prepaid Subscribers (000)

72




Revenues 116,333 128,256 134,585 142,748

CFs from operation

EBITDA 59,498 64,609 63,512 68,786

Net profit 19,352 22,145 18,792 19,130

Expenses (77,138) (84,323) (95,793) (103,092)

Change in working capitals (473) (3,742) 9,028 (11,151)


CFs from operation 47,231 49,405 61,241 45,962

Pre-tax profit 38,189 42,659 36,327 36,980

Income tax - net (9,017) (9,958) (8,577) (8,732)


Net profit 19,352 22,145 18,792 19,130

EPS (Rp) 196 224 190 193

CFs from financing (17,905) (21,052) (2,796) (745)


Net inc/(dec) in cash 1,769 (4,654) 22,107 6,675



Balance Sheet

Key Ratio Analysis




Cash and equiv 29,767 25,145 47,252 53,927 Operating margin 33.7% 34.3% 28.8% 27.8%

Receivables 7,900 9,564 9,163 9,931 EBITDA margin 51.1% 50.4% 47.2% 48.2%

Inventories 584 631 536 537 Net Income margin 16.6% 17.3% 14.0% 13.4%

Others 9,450 12,221 12,620 12,620 ROAA 11.2% 11.7% 8.8% 8.0%

Total current assets 47,701 47,561 69,571 77,016 ROAE 19.5% 20.3% 15.7% 14.2%

Net fixed assets 114,498 130,171 141,101 150,502

Other assets 17,412 20,752 19,175 19,452 Growth

Total assets 179,611 198,484 229,847 246,970 Revenue 13.5% 10.2% 4.9% 6.1%

Operating Profit 20.9% 12.1% -11.7% 2.2%

Liabilities and equities EBITDA 15.7% 8.6% -1.7% 8.3%

Payables 13,690 15,791 16,439 16,809 Net Income 24.9% 14.4% -15.1% 1.8%


Total Current Liabilities 39,762 45,376 55,244 55,614 Solvability

LT. debt 26,367 27,974 35,041 35,041 Current ratio (x) 1.2 1.0 1.3 1.4

Other long term liabilities 47,700 58,380 68,259 68,629 Quick ratio (x) 1.2 1.0 1.2 1.4

Total Liabilities 74,067 86,354 103,300 103,670 Debt to equity (x) 0.7 0.8 0.8 0.7

Minority Interest 21,160 19,417 28,375 37,493 Interest cov. (x) 0.1 0.1 0.1 0.1

Shareholders' equity 105,544 112,130 126,547 143,300 Source: Company, Shinhan Sekuritas Indonesia Estimates

BVPS (Rp) 1,070 1,132 1,277 1,447


Valuation

Year-end 31 Dec 2016 2017 2018F 2019F

PER (x) 20.3 19.9 19.3 19.0

PBV (x) 3.7 3.9 2.9 2.5

EV/EBITDA (x) 7.2 7.6 6.5 5.9

EV/Sales (x) 3.7 3.8 3.1 2.8


73

Boosted by Strong Growth of Audience

Share

Background. PT Surya Citra Media Tbk (SCMA) started its journey from 1999 by

establishing the second private national TV station in Indonesia (SCTV). In 2013,

SCMA committed a merger with PT Indosiar Karya Mandiri Tbk (IDKM) which owns

another FTA (Free-To-Air) TV in Indonesia, Indosiar. Since then, SCMA controls

32.8% audience share in Indonesia which is top 2 in total audience share in

Indonesia.

TV remains the highest reach in Indonesia. According to Nielsen, TV is still the

media with the highest reach in Indonesia with 96% penetration in 2017. Meanwhile,

according to Media Partners Asia, FTA TV Advertising-Expense (adex) is still leading

by far, aligning well with the aggressive growth of digital media. Media Partners Asia

is expecting gross adex in FTA TV to reach IDR 25.2 trn in year 2022F, while gross

adex in Digital Media to reach IDR 10.4trn in year 2022F.

Increasing audience share for both FTA TV in 9M2018. SCMA managed to

increase its average audience shares in 9M2018 with SCTV recorded 16.3% YoY

increase to 17.1% all time audience share, while Indosiar (IVM) recorded 26.4% YoY

increase to 15.8% all time audience share. The increase of audience share for SCTV

was boosted by the good improvement of prime time audience share from 17.6% in

July 2018 to 18.2% in August 2018 following good rating of its leading drama series,

Cinta Suci. Meanwhile, the increase of audience share for IVM was boosted by

significant improvement of prime time audience share from 17.6% in July 2018 to

21.6% in August 2018 following good improvement from various programs ranging

from live variety, entertainment shows, sports and its new prime time slot FTV Azab.

The increase eventually leads to a better performance in 9M2018. SCMA’s

success in increasing its prime time audience shares led by IVM’s 4 points increase

in July-August 2018 period eventually made SCMA’s 9M2018 YoY revenue growth

seen better with 10.8% YoY growth. The growth was an improvement from only

2.6% YoY growth in 1H2018 period. We expect SCMA to have another improvement

in 4Q2018 period mainly from the successful 2018 Asian Games where PT Elang

Mahkota Teknologi (EMTK), the holding company of SCMA, secured the broadcast

right of the event.

Valuation. On the back of FTA TV position which is still the strongest media

penetration in Indonesia and a potential better financial performance in 2H2018

onward for SCMA, we recommend overweight in SCMA. We derived our TP at IDR

1,940 as we use one year forward P/E Band methodology based on 5 year historical

data. We apply -2 standard deviation for the TP which is equal to 19.9x forward P/E

average.



2016 4,524 2,003 2,024 1,501 103 253 27.3 19.4 11.0 42.2

2017 4,454 1,772 1,772 1,331 91 301 27.2 19.3 8.2 32.8

2018F 4,888 1,953 1,953 1,476 101 329 19.2 13.3 5.9 32.0

2019F 5,366 2,212 2,212 1,669 114 368 17.0 11.7 5.3 32.7


Overweight






Major Shareholders:

Elang Mahkota (EMTK) 60.84%

Matthews Intl Capital 2.88%




+62 21 80869900

[email protected]

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SCMA JCI Index

PT Surya Citra Media Tbk (SCMA)

Company Focus


74

SCMA Forward P/E Band


Indonesia Media Penetration (2017) Indonesian Advertising – by Media

Source: Company, Nielsen Source: Company, Media Partners Asia

FTA TV All Time Audience Share Strong Audience Share Growth Especially IVM


20.4 20.5 20.221.0

17.918.8

17.618.2

15.615.0

14.1 14.215.1

12.1

17.6

21.6

0.0

5.0

10.0

15.0

20.0

25.0

Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18

SCTV RCTI IVM (Indosiar) TRANS MNCTV ANTV TRANS7 TVONE GTV METRO TVRI1 LOKAL TV

96%

53% 51%

37%

7% 3%

Television OOH (Out-Of-Home Advertising)

Internet Radio

Newspaper Tabloid Magazine

10.3 14.1

17.0 17.9 19.2 22.9 25.2 4.1

5.2

6.0 5.4 5.4

5.0 4.6

0.3

0.9

1.9 3.7

4.9

8.7 10.4

2010 2012 2014 2016 2017F 2020F 2022F

FTA TV Pay TV Print Digital Others

Gross Adex, In Trillion IDR

15.00

20.00

25.00

30.00

35.00

40.00

45.00

SCMA Forward P/E Band

Forward P/E Mean -2sd +2sd +1sd -1sd

75

Revenue & Gross Profit Margin Net Profit & Net Profit Margin


EBITDA & EBITDA Margin SCTV Programs

Source: Company, Shinhan Sekuritas Indonesia Estimates Source: Company

Indosiar (IVM) Programs SCMA Line of Business


56.5%

57.0%

57.5%

58.0%

58.5%

59.0%

59.5%

60.0%

60.5%

61.0%

-

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

2016 2017 2018F 2019F 2020F

Revenue (IDR bn) Gross Profit Margin (%)

41.0%

42.0%

43.0%

44.0%

45.0%

46.0%

47.0%

48.0%

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

2016 2017 2018F 2019F 2020F

EBITDA (IDR bn) EBITDA Margin (%)

28.0%

29.0%

30.0%

31.0%

32.0%

33.0%

34.0%

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

1,600.00

1,800.00

2,000.00

2016 2017 2018F 2019F 2020F

Net Profit (IDR bn) Net Profit Margin (%)

76




Revenues 4,524 4,454 4,888 5,366

CFs from operation

Program & Broadcasting Exp. (1,782) (1,835) (2,047) (2,248)

Net profit 1,501 1,331 1,476 1,669

Gross profit 2,742 2,619 2,840 3,118

Change in working capitals (253) (231) 605 (142)

EBITDA 2,140 1,922 2,117 2,392

CFs from operation 1,385 1,251 2,246 1,707

Expenses (738) (847) (888) (906)



Pre-tax profit 2,024 1,782 1,977 2,238

Income tax - net (510) (464) (515) (583)

CFs from financing (1,368) (1,000) (1,067) (1,097)

Net profit 1,501 1,331 1,476 1,669

Net inc/(dec) in cash (233) (276) 878 310

EPS (Rp) 103 91 101 114

Cash at end period 455 234 1,167 1,532



Balance Sheet

Key Ratio Analysis




Cash and equiv 455 234 1,167 1,532 Gross margin 60.6% 58.8% 58.1% 58.1%

Receivables 1,534 1,556 1,695 1,785 Operating margin 44.3% 39.8% 40.0% 41.2%

Inventories 689 766 813 867 EBITDA margin 47.3% 43.1% 43.3% 44.6%

Others 275 153 153 153 Net Income margin 33.2% 29.9% 30.2% 31.1%

Total current assets 2,952 2,709 3,828 4,336 ROAA 32.0% 26.1% 26.3% 26.9%

Net fixed assets 967 1,029 1,165 1,285 ROAE 42.2% 32.8% 32.0% 32.7%

Other assets 902 1,648 865 913

Total assets 4,821 5,386 5,858 6,534 Growth

Revenue 6.8% -1.6% 9.7% 9.8%

Liabilities and equities Operating Profit -0.6% -11.5% 10.2% 13.3%

Payables 385 437 440 470 EBITDA -0.1% -10.2% 10.2% 13.0%

Other Short-Term Liabilities 605 306 306 306 Net Income -1.5% -11.3% 10.8% 13.1%


LT. debt 0 2 2 2 Solvability

Other long term liabilities 1,115 978 1,042 1,146 Current ratio (x) 3.0 3.6 5.1 5.6

Total Liabilities 1,115 980 1,044 1,148 Quick ratio (x) 2.3 2.6 4.0 4.5

Minority Interest 279 504 504 504 Debt to equity (x) 0.3 0.2 0.2 0.2

Shareholders' equity 3,705 4,405 4,814 5,386 Interest cov. (x) 0.0 0.0 0.0 0.0

BVPS (Rp) 253 301 329 368 Source: Company, Shinhan Sekuritas Indonesia Estimates


Valuation

Year-end 31 Dec 2016 2017 2018F 2019F

PER (x) 27.3 27.2 19.2 17.0

PBV (x) 11.0 8.2 5.9 5.3

EV/EBITDA (x) 19.4 19.3 13.3 11.7

EV/Sales (x) 9.2 8.3 5.8 5.2


77

Stellar Growth Maintained

9M2018 performance still strong. PT MNC Studios International Tbk

(MSIN) managed to record 40.4% YoY growth in its 9M2018 revenue to IDR

1.1trn from IDR 800 bn in 9M2017. The achievement was also in-line with

ours and company’s forecast (70.2% of SSIe – Shinhan Sekuritas Indonesia

estimates). Meanwhile, MSIN also managed to keep direct cost to grow

below the growth of the revenue with 30.5% YoY growth to IDR 781.8bn.

This condition eventually resulted MSIN’s 9M2018 Gross Profit to grow by

65.3% YoY to IDR 323.1bn. On the bottom line MSIN also showed

significant growth with the company’s net profit in 9M2018 managed to

grow by 49% YoY to IDR 168.1bn.

Drama series still garnered strong ratings. MSIN’s success in

maintaining strong performance in 9M2018 is propelled by its drama series

performance which still stays in top 10 drama series. Based on the

company’s calculation, per 3Q2018 MSIN’s hit drama series “Cinta yang

Hilang” and “Dunia Terbalik” still seen at no. 1 and 2 spot, while “TOP –

Tukang Ojek Pengkolan” still seen at no. 6 spot in the list. The success of

MSIN to maintain its drama series performance eventually lead to a stellar

39.7% YoY growth in its 9M2018 Advertising, Television and Movie Program

Revenue to IDR 1.1trn.

Additional drama series and sequel to a hit Indonesian Box Office

Cinema to roll out in 4Q2018.In order to strengthen MSIN’s drama series

production performance MSIN has also launched new FTV series “Cahaya

Hikmah” aired on MNC TV during non-prime time slots. MSIN expects the

new FTV series will be another revenue growth driver as it will provide the

company with 2 additional titles supplied on a daily basis. In 4Q2018, MSIN

also plans to add another new drama series in Prime Time slot. The new

drama series is expected to strengthen MSIN’s good performance in prime-

time slot. Meanwhile, MSIN is also ready to roll out a sequel to a 2015

Indonesian Box Office Cinema, “3 Dara” in October 25, 2018. “3 Dara 2” is

expected to score another box office and keep MSIN’s stellar growth

condition until the end of 2018.

Valuation. On the back of continuous good performance from MSIN’s

drama series which resulted another stellar revenue growth in 9M2018, we

maintain our Overweight recommendation in MSIN and maintain our TP at

IDR 428 (25.9% upside) based on blended DCF by using 10% WACC and

5% Terminal Growth.



2016 698 71 72 53 - - - 1.2 - 22.3

2017 1,112 157 162 121 - - - 2.2 - 34.7

2018F 1,600 290 291 214 67 223 5.2 4.8 1.6 38.3

2019F 1,963 330 329 242 76 295 4.6 4.4 1.2 29.4


Overweight



Upside/Downside (%) 22.3

52 Week High (IDR) 550


Major Shareholders:

Media Nusantara Citra 70.01%

HSBC Fund Service 7.66%




+62 21 80869900

[email protected]

60

72

84

96

108

120

Jun-18 Jun-18 Jul-18 Aug-18 Aug-18 Sep-18 Oct-18 Nov-18

MSIN JCI Index

PT MNC Studios International Tbk (MSIN)

Company Focus


78

MSIN Latest Financial Highlight


Strong Top Line Performance Maintained Prime Time Audience Shares still the Highest

Source: Company, Shinhan Sekuritas Indonesia Source: Company, Nielsen

EBITDA & EBITDA Margin still On Track Q3-2018 Top 10 Drama Series

Source: Company, Shinhan Sekuritas Indonesia Source: Company, Nielsen

Financial Highlights 2015 2016 2017 9M2017 9M2018

Revenues (In Rp bn) 523 698 510 800 1,123

Gross Profit (In Rp bn) 74 121 220 195 323

Gross Profit Margin 14.1% 17.4% 43.2% 24.4% 28.8%

Operating Profit (In Rp bn) 27 71 157 149 246

Operating Profit Margin 5.2% 10.2% 30.7% 18.6% 21.9%

EBITDA (In Rp bn) 35 80 168 157 269

EBITDA Margin 6.6% 11.5% 33.0% 19.6% 24.0%

Net Profit (In Rp bn) 21 53 121 113 168

Net Profit Margin 4.0% 7.6% 23.8% 14.1% 15.0%

EPS 0 0 0

ROAE 11.3% 22.3% 34.7%

ROAA 5.3% 12.1% 17.8%

523

698

1,112

800

1,123

-

200

400

600

800

1,000

1,200

2015 2016 2017 9M2017 9M2018

Revenues

40.4%

(In Rp bn)

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

-

50

100

150

200

250

300

2015 2016 2017 9M2017 9M2018

EBITDA & EBITDA Margin

EBITDA EBITDA Margin

(In Rp bn)

79

Strong Revenue Growth Potential Profit Margin Remains Above 10%


Steady Growth of EBITDA Content is still MSIN’s Primary Revenue Driver

Source: Company, Shinhan Sekuritas Indonesia Estimates Source: Company, Shinhan Sekuritas Indonesia

94.5%

5.5%

Revenues Portion

Advertising, Television &Movie Programs

Talent Management

0%

5%

10%

15%

20%

25%

0

50

100

150

200

250

300

350

400

16 17 18F 19F

(Rp Bn) EBITDA (LHS) EBITDA Margin (RHS) (%)

698

1,112

1,600

1,963

0

500

1,000

1,500

2,000

2,500

16 17 18F 19F

(Bn IDR)

0.0%

5.0%

10.0%

15.0%

20.0%

0

50

100

150

200

250

300

350

16 17 18F 19F



(%)

80




Revenues 698 1,112 1,600 1,963

CFs from operation

COGS (577) (892) (1,219) (1,521)

Net profit 53 121 214 242

Gross profit 121 220 381 442

Change in working capitals (58) (183) (344) (315)

EBITDA 80 168 304 361

CFs from operation (5) (62) (131) (73)


Operating profit 71 157 290 330



Income tax - net (19) (41) (77) (87)

CFs from financing 202 4 298 -

Net profit 53 121 214 242

Net inc/(dec) in cash 21 1 246 (128)

EPS (Rp) - - 67 76

Cash at end period 96 98 237 221



Balance Sheet

Key Ratio Analysis




Cash and equiv 96 98 237 221 Gross margin 17.4% 19.8% 27.6% 28.3%

Receivables 215 252 362 444 Operating margin 10.2% 14.1% 18.1% 16.8%

Inventories 24 299 408 509 EBITDA margin 11.5% 15.1% 19.0% 18.4%

Others 38 58 84 103 Net Income margin 7.6% 10.9% 13.4% 12.3%

Total current assets 374 706 1,090 1,278 ROAA 12.1% 17.8% 19.7% 16.4%

Net fixed assets 25 69 85 249 ROAE 22.3% 34.7% 38.3% 29.4%

Other assets 85 101 112 125

Total assets 484 876 1,288 1,652 Growth

Revenue 33.4% 59.3% 43.8% 22.7%

Liabilities and equities Operating Profit 162.2% 119.8% 84.9% 13.7%

Payables 181 441 554 680 EBITDA 131.2% 110.4% 80.4% 19.0%

Other Short-Term Liabilities 6 14 16 20 Net Income 154.0% 129.2% 76.1% 13.1%


LT. debt - - - 6 Solvability

Other long term liabilities 7 11 11 11 Current ratio (x) 2.0 1.5 1.9 1.8

Total Liabilities 194 467 581 717 Quick ratio (x) 1.9 0.9 1.2 1.1


Shareholders' equity 289 409 707 935 Interest cov. (x) 0.4 0.5 0.5 0.4

BVPS (Rp) - - 223 295 Source: Company, Shinhan Sekuritas Indonesia Estimates


Valuation

Year-end 31 Dec 2016 2017 2018F 2019F

PER (x) 0.0 0.0 5.2 4.6

PBV (x) 0.0 0.0 1.6 1.2

EV/EBITDA (x) 1.2 2.2 4.8 4.4

EV/Sales (x) 0.1 0.3 0.9 0.8


81

Transformation Leads to Solid Operating

Performance

Background. PT Ramayana Lestari SentosaTbk (RALS) has been established since

1978 as a department store which offers a full range of clothing, shoes, bags,

accessories, special buy, toys & stationery, housewares, and supermarket. RALS is

the market leader, especially in middle-low retail segment and operates 118 stores

in 54 major cities. Currently, RALS is going through a major transformation by

introducing “Ramayana Prime” outlet to attract Indonesia massive young population

and large middle class with rising levels of disposable income.

Supermarket business swings back to positive. RALS has closed down 18 loss

making Supermarket outlet since last year. As a result, Supermarket net sales

decline by -16.6% YoY in 9M18. Nevertheless, Supermarket operating profit

managed to swing back to positive at IDR 43.4Bn in 9M18.Previously, Supermarket

recorded operating loss of IDR 37.2Bn in FY17 and weighed down overall operating

margin to 6.7%. The loss was attributable to increased competition from mini

markets such as Indomaret and Alfamart. The company will be focusing on Fashion

and Accessories business as it provides more sustainable growth that grew by

11.6% YoY to IDR 3.3Tn or contributed 72.9% of total net sales in 9M18.

Consignment sales contribution to total gross sales gradually increased. The

contribution of consignment sales reached 44.9% in 3Q18, compared to 38.2% in

FY16. More consignment means reducing operational costs, as the direct purchase

come along with full operational costs, including payroll, capital costs, carrying, and

the damage goods among others. The growth of consignment by 11.7% YoY also

offset the declining direct purchase of 0.6% YoY in 9M18. This is in line with the

company’s strategy to utilize additional retailing space, after the closure of several

Supermarket outlets, by re-assigning the space to potentially more profitable

divisions.

Major transformation through Ramayana Prime.RALS have been known for its

retail philosophy as “cheap but good” which appeal to the middle-low segment. The

company intended to change the philosophy to “lifestyle experience” by introducing

Ramayana Prime store, which the first one is located in City Plaza Jatinegara, East

Jakarta. Ramayana Prime offered various shopping experience by lease its retail

space to well-known tenants, such as Starbucks, Ace Hardware, KFC, and Cinema

XXI to increase the customer traffic of its department store.

Valuation. RALS solid 9M18 earnings performance is in line with our expectation, as

net sales grew by 2.2% YoY and represents 74.6% of our full-year estimates.

Operating and net profit also recorded robust growth by 56.3% YoY and 43.4% YoY,

respectively. Going forward, we believe RALS will continue to reap the benefits from

the closed down of unprofitable Supermarket and encouraging consignment sales

growth performance. Therefore, we overweight on RALS with TP of IDR 1,425

derived from blended DCF method and implying 15x 2019F P/E.



2016 5,857 368 465 408 60 490 19.9 15.9 2.4 12.2

2017 5,623 377 467 407 60 520 19.8 15.6 2.3 11.9

2018F 6,053 586 686 598 89 554 12.9 10.7 2.1 16.6

2019F 6,612 625 741 645 96 591 12.0 10.0 1.9 16.8

2020F 7,204 646 779 679 101 630 11.4 9.5 1.8 16.5


Overweight






Major Shareholders:

Ramayana Makmursentosa 55.88%



Billy Ibrahim

+6221 80869900

[email protected]

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RALS JCI Index

PT Ramayana Lestari Sentosa Tbk (RALS)

Company Focus


82

SSSG in 9M18 reached 2.4%, improved from -0.7% in the same

period last year The peak season of Ramadhan period has been shifted

to Q2


Major transformation through Ramayana Prime 18 unprofitable supermarkets have been shut down

since 2017


RALS shut down 1 outlet, while opening 3 new outlets this year, which bring a total of 118 outlets in 9M18

Source: Company

-5.0

-1.3

2.5

6.3

10.0

6,000

7,000

8,000

9,000

10,000

14 15 16 17 9M18

(IDR Bn)Gross Sales (LHS) SSSG (RHS)

(%)

20.2 20.2 18.5 19.2 23.3

25.1 25.435.3

42.4

54.1

33.6 31.424.0

17.0

22.621.1 22.9 22.1 21.4

0%

20%

40%

60%

80%

100%

2014 2015 2016 2017 9M18

Q1 Q2 Q3 Q4

83

Consignment Sales growth recorded at double digit 11.7% YoY,

offset Direct Purchase decline of 0.6% YoY in 9M18 Consignment sales contribution to total gross sales

increased gradually and reached 44.9% in 3Q18


Sales Breakdown based on region dominated by Jawa, Bali, and

Nusa Tenggara with 67.2% of total net sales in 9M18 Supermarket sales decline due to the closing of

unprofitable outlet, while operating profitable to improve


Net Sales expected to reach IDR 6,053Bn (+7.6% YoY) in FY18F driven by consignment sales Profit margin to increase on the back of ease pressure

from supermarket loss


-10

-5

0

5

10

15

2,000

2,750

3,500

4,250

5,000

5,750

14 15 16 17 9M18

(Bn IDR) DP (LHS)

Consignment Sales (LHS)

DP Growth (RHS)

Consignment Sales Growth (RHS)

(%)

61.8 58.8 58.8 55.1 55.1

38.2 41.2 41.2 44.9 44.9

0%

20%

40%

60%

80%

100%

16 17 1Q18 2Q18 3Q18

Direct Purchase Consignment Sales

Sumatera, 17.0%

Jawa, Bali, and Nusa Tenggara,

67.2%

Kalimantan, 7.6%

Sulawesi and Papua, 8.1%

-120

-80

-40

0

40

80

500

1,000

1,500

2,000

2,500

3,000

14 15 16 17 9M18

(Bn IDR)Supermarket Sales

Supermarket Operating Profit

(Bn IDR)

-8

-4

0

4

8

12

-2,000

0

2,000

4,000

6,000

8,000

15 16 17 18F 19F


(%)

3

5

6

8

9

11

200

300

400

500

600

700

15 16 17 18F 19F



(%)

84




Sales 5,857 5,623 6,053 6,612

CFs from Operation

COGS (3,655) (3,410) (3,584) (3,815)

Net Profit 408 407 598 645

Gross Profit 2,202 2,212 2,469 2,796

Change in NWC (601) (481) (524) (589)

EBITDA 555 558 773 820

CFs from Operation (192) (75) 73 57

Operating Expense 1,834 1,836 1,883 2,171


CFs from Investments (72) 18 (42) (61)


Income Tax - Net (57) (60) (88) (95)

CFs from Financing 35 48 30 41

Net Profit 408 407 598 645

Net Inc./(Dec.) in Cash (241) 148 293 285

EPS (IDR) 60 60 89 96

Cash at End Period 604 752 1,045 1,330



Balance Sheet

Key Ratio Analysis




Cash and Equivalent 604 752 1,045 1,330 Gross Margin 37.6% 39.3% 40.8% 42.3%


Inventories 834 741 707 676 EBITDA Margin 9.5% 9.9% 12.8% 12.4%

Others 1,341 1,543 1,652 1,793 Net Income Margin 7.0% 7.2% 9.9% 9.8%

Total Current Assets 2,831 3,093 3,454 3,859 ROAA 8.9% 8.5% 11.7% 11.7%

Net Fixed Assets 1,279 1,235 1,208 1,168 ROAE 12.2% 11.9% 16.6% 16.8%

Other Assets 537 563 632 733


Liabilities and Equities Revenue 5.9% -4.0% 7.6% 9.2%

Payables 1,009 1,049 1,190 1,366 Operating Profit 46.9% 2.3% 55.5% 6.7%

Other Short-Term Liabilities - - - - EBITDA 36.9% 0.6% 38.5% 6.1%

Total Current Liabilities 1,009 1,049 1,190 1,366 Net Income 21.6% -0.5% 47.0% 8.0%

LT. Debt - - - -



Total Liabilities 1,310 1,398 1,569 1,786 Quick Ratio (x) 2.0 2.2 2.3 2.3

Shareholders' Equity 3,337 3,494 3,725 3,974 Debt to Equity (x) 0.4 0.4 0.4 0.4

BVPS (Rp) 490 520 554 591 Interest Coverage (x) -16.1 -19.1 -27.6 -27.0


Valuation

Year-end 31 Dec 2016 2017 2018F 2019F

PER (x) 19.9 19.8 12.9 12.0

PBV (x) 2.4 2.3 2.1 1.9

EV/EBITDA (x) 15.9 15.6 10.7 10.0

EV/Sales (x) 1.5 1.5 1.4 1.2


85

Leading home improvement and lifestyle retailer

Background. PT Ace Hardware Indonesia Tbk (ACES) engages in the retail of

quality home improvement and lifestyle products. The company has been

established since 1995 as a subsidiary of PT Kawan Lama Sejahtera. It offers around

68,000 stock keeping units (SKU), through 144 Ace Hardware stores and 30 Toys

Kingdom store, spread in 36 cities in Indonesia.

Expecting double digit top line growth. We believe ACES would be able to

surpass the company’s 10% YoY target, and book revenue growth of 17.3% YoY on

the back of higher same store sales growth (SSSG) which has been improving since

2016. SSSG expected to be at 13.2% YoY in 2018F, supported by the resiliency of

middle and upper class segment to economic turbulence. ACES sales in 1H18

increase by 22.6% YoY to IDR 3.33Tn, or represent 48.6% of our sales target for

2018F. In the past five years, the average sales contribution in 1H accounted for

46.9% of total sales. This showed that ACES revenue usually peaked in 2H along

with Christmas and New Year holiday.

Minimum impact from import tariff policy. The impact of rising import tax,

which refer to import income tax (PPh impor) or PPh 22 regulation, will be minimum

due to high inventory level worth IDR 2.03Tn in 1H18, with expected of 202

inventory days in 2018F. ACES also has a healthy balance sheet with a huge

amount of cash to compensate the cost increase from new import tariffs. Moreover,

ACES imports ~80% of its products, which makes earnings performance is subject to

the currency fluctuation. However, we think that the company would be able to pass

through the cost pressure to the customer, even though selling price is still stable

until 9M18. Operating and profit margin remains steady as spending intention

expected to improve in 2H18, reflected by the increase in CCI to 122.4 in September

and higher retail sales in August to 6.1% YoY. The resiliency of the margin amid

Rupiah depreciation could be seen at 2013-2015 when the net margin decreased

less than 1%.

Store expansion exceeds the initial target. Up until the beginning of October

2018, the company has opened 20 new stores, already exceeds the initial target of

15 new stores until the end of 2018. This October, the company also plans to open

two new Ace Hardware store in Bekasi with an area of 3,900 sqm and in North

Sumatera with an area of 2,670 sqm. We expect that further expansion will

strengthen the company’s sales performance not only in Greater Jakarta, but also

ex-Java Island.

Valuation. Based on a strong position in the retail of home improvement and

lifestyle market with no significant competitor, we recommend overweight in ACES.

We derived our TP at IDR 1,680 (20.9%), which implies 2019F P/E at 27x. Our TP

justified by improving and double digit SSSG, also with solid fundamentals.



2016 4,936 881 863 711 42 179 20.0 16.3 4.7 25.0

2017 5,939 968 960 778 46 206 25.3 19.0 5.6 23.7

2018F 6,966 1,128 1,118 926 54 238 25.2 19.3 5.8 24.5

2019F 7,918 1,290 1,278 1,059 62 275 22.1 16.6 5.0 24.2

2020F 8,885 1,457 1,443 1,195 70 316 19.5 14.5 4.3 23.8


Overweight






Major Shareholders:

Kawan Lama Sejahtera 59.97%

Capital Group Cos Inc 4.99%



Billy Ibrahim

+6221 80869900

[email protected]

0

50

100

150

200

250


ACES JCI Index

PT Ace Hardware Indonesia Tbk (ACES)

Company Focus


86

PT Kawan Lama Sejahtera owns 59.97% of ACES shares 144 Ace Hardware and 30 Toys Kingdom outlet in 2017

Source: Company Source: Company, Shinhan Sekuritas Indonesia

Indonesia retail sales increased 6.1% YoY in August 2018 Indonesia consumer confidence index recorded at

122.6 in September 2018

Source: Trading Economics, Shinhan Sekuritas Indonesia Source: Trading Economics, Shinhan Sekuritas Indonesia

Stores network spread in 36 cities in Indonesia, with a total area of more than 371,600 sqm

Source: Company

116

120

124

128

132

Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18

(P)

30

70

110

150

190

230

11 12 13 14 15 16 17 18F

Ace Hardware Outlet

Toys Kingdom Outlet

(Number of Stores)

-4

-1

2

5

8

11

Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18

(%)

87

Revenue in the last 5 years peaked in Q4 High level of inventory with expected 202 inventory days

in 18F


Revenue contribution still dominated by home improvement

products SSSG has been improving since 2016


Sales expected to grow by 14.2% YoY to IDR 3,458Bn in 18F Operating and profit margin steady at 7% and 5% in 18F


22,8 23,7 23,4 23,5 21,8

23,1 24,2 23,5 23,8 24,7

25,7 26,0 26,0 24,6 24,6

28,4 26,2 27,1 28,1 28,9

0%

25%

50%

75%

100%

13 14 15 16 17

Q1 Q2 Q3 Q4

1,000

1,300

1,600

1,900

2,200

2,500

180

190

200

210

220

230

15 16 17 18F 19F

(%) Inventories (RHS)

Inventory Days (LHS)

(Bn IDR)

0

900

1.800

2.700

3.600

4.500

11 12 13 14 15 16 17 18F

Home Improvement Lifestyle Toys

(Bn IDR)

4,0

4,5

5,0

5,5

6,0

6,5

0

5

10

15

20

25

11 12 13 14 15 16 17 18F

Annual SSSG (LHS)

Indonesia Annual GDP Growth (RHS)

(%) (%)

0

6

12

18

24

3,000

4,500

6,000

7,500

9,000

15 16 17 18F 19F


(%)

10

12

14

16

18

20

400

600

800

1,000

1,200

1,400

15 16 17 18F 19F



(%)

88




Sales 4,936 5,939 6,966 7,918

CFs from Operation

COGS (2,584) (3,104) (3,650) (4,141)

Net Profit 711 778 926 1,059

Gross Profit 2,352 2,835 3,316 3,777

Change in NWC (1,007) (1,026) (1,010) (919)

EBITDA 874 1,036 1,221 1,405

CFs from Operation (296) (248) (85) 140


Operating Profit 881 968 1,128 1,290

CFs from Investments (109) (162) (351) (240)

Pre-Tax Profit 863 960 1,118 1,278

Income Tax - Net (157) (179) (201) (230)

CFs from Financing 62 150 22 42

Net Profit 711 778 926 1,059

Net Inc./(Dec.) in Cash 82 198 131 566

EPS (IDR) 42 46 54 62

Cash at End Period 704 902 1,058 1,599



Balance Sheet

Key Ratio Analysis




Cash and Equivalent 704 902 1,058 1,599 Gross Margin 47.6% 47.7% 47.6% 47.7%


Inventories 1,590 1,849 2,117 2,319 EBITDA Margin 17.7% 17.5% 17.5% 17.7%

Others 500 517 606 633 Net Income Margin 14.4% 13.1% 13.3% 13.4%

Total Current Assets 2,822 3,358 3,887 4,631 ROAA 20.3% 19.1% 19.0% 18.3%

Net Fixed Assets 277 359 666 851 ROAE 25.0% 23.7% 24.5% 24.2%

Other Assets 632 711 756 810


Liabilities and Equities Revenue 4.1% 20.3% 17.3% 13.7%

Payables 161 258 348 475 Operating Profit 14.5% 10.0% 16.5% 14.4%

Other Short-Term Liabilities 227 220 418 633 EBITDA 4.7% 18.6% 17.9% 15.0%

Total Current Liabilities 389 478 766 1,109 Net Income 20.8% 9.4% 19.0% 14.4%

LT. Debt 0 0 25 19



Total Liabilities 682 918 1,253 1,613 Quick Ratio (x) 3.2 3.2 2.3 2.1

Shareholders' Equity 2,329 2,629 3,049 3,510 Debt to Equity (x) 0.2 0.3 0.3 0.3

BVPS (Rp) 3,049 3,510 4,056 4,679 Interest Coverage (x) 60.4 193.6 323.9 325.9


Valuation

Year-end 31 Dec 2016 2017 2018F 2019F

PER (x) 20.0 25.3 25.2 22.1

PBV (x) 4.7 5.6 5.8 5.0

EV/EBITDA (x) 16.3 19.0 19.3 16.6

EV/Sales (x) 2.9 3.3 3.4 3.0


89

Indonesia’s Leading Retailer of Mobile Communication Device

Background. PT Erajaya Swasembada Tbk (ERAA) has established itself to

become the leading retailer & distributor of mobile communication device, IOT

(Internet-Of-Things) and gadgets. ERAA was firstly established in 1996 and

successfully grew to become the no. 1 handset retailer and distributor in

Indonesia with 35% market share.

Benefitting from continuous growth of Smartphone User Penetration in

Indonesia. According to Statista, Smartphone penetration rate in Indonesia is

expected to reach 32.1% of the total population in year 2022 from only 17.1%

of the total population in year 2015. We view that ERAA will enjoy the benefit

from the continuous growth of smartphone penetration in Indonesia as ERAA

distributes renowned phone brands such as Samsung, Apple (exclusive right),

Motorola, Nokia, Sony, Xiaomi (exclusive right), Oppo, Huawei, Vivo, etc. ERAA

can also reach nationwide as the company owns Nationwide Omnichannel

Network with 855 retail outlets, 84 distribution centers and ~51,000 third party

outlets.

Continuous aggressive retail expansion to maintain the company’s

stellar growth momentum. ERAA continue its aggressive retail expansion

with 26% YoY growth of store opening, from 96 store opening in 9M2017 to

121 store opening in 9M2018. ERAA is going to keep doing store expansion

with major focus in tier 2 and tier 3 cities. Majority of new stores are going to

be ERAA’s multi-brand format : Erafone, with several Mi-Stores and Samsung

Experience Stores to complement the expansion.

Stellar growth maintained in 9M2018. In 9M2018 period, ERAA managed to

keep its stellar growth momentum by recording 52.1% YoY growth in its

Revenue from IDR 16.7trn in 9M2017 to IDR 25.3trn in 9M2018. ERAA’s

9M2018 revenue growth was boosted by the company’s ASP growth by 14.5%

YoY along with the company’s sales volume growth by 37.4% YoY in the period.

The stellar growth eventually lead to impressive 9M2018 Net Profit growth by

185.8% YoY from IDR 223bn in 9M2017 to IDR 637bn in 9M2018.

Valuation. On the back of ERAA’s opportunity to become a major beneficiary

from continuous growth of Smartphone Penetration in Indonesia and

impressive 9M2018 financial performance, we recommend overweight in

ERAA. We derived our TP at IDR 2,670 as we use one year forward P/E Band

methodology based on 4 year historical data. We apply Mean P/E for the TP

which is equal to 9.3x forward P/E average.



2016 20,547 484 384 339 91 1,176 6.6 8.5 0.5 7.9

2017 24,230 523 480 837 117 1,278 6.3 10.1 0.6 9.8

2018F 32,559 1,228 1,185 931 288 1,278 6.0 9.1 1.4 23.1

2019F 43,715 1,362 1,319 966 321 1,582 5.4 9.7 1.1 23.0


Overweight






Major Shareholders:

PT Eralink International 54.51%

Norges Bank 1.88%




+62 21 80869900

[email protected]

0

50

100

150

200

250

300

350

Jan-1

5

Mar-

15

May-1

5

Jul-

15

Sep-1

5

Nov-1

5

Jan-1

6

Mar-

16

May-1

6

Jul-

16

Sep-1

6

Nov-1

6

Jan-1

7

Mar-

17

May-1

7

Jul-

17

Sep-1

7

Nov-1

7

Jan-1

8

Mar-

18

May-1

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Jul-

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Sep-1

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Nov-1

8

ERAA JCI Index

PT Erajaya Swasembada Tbk (ERAA)

Company Focus


90

ERAA Forward P/E Band


Smartphone Penetration Rate in Indonesia 2015 - 2022 ERAA’s Business Structure

Source: Statista Source: Company

Aggressive Retail Expansion

Source: Company

17.1%

20.6%

23.7%

26.3%28.3%

29.9%31.2%

32.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2015 2016 2017 2018 2019 2020 2021 2022

-

5.00

10.00

15.00

20.00

25.00

ERAA Forward P/E Band

Forward P/E Mean +0.5sd -0.5sd +1sd -1sd

91

Stellar Revenue Growth Maintained On The Back of Higher ASP


And Strong Sales Volume Growth Therefore, we expect the positive trend to continue

Source: Company Source: Company, Shinhan Sekuritas Indonesia Estimates

ERAA’s Nationwide Omni channel Network

Source: Company

20,54724,230

32,559

43,715

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

16 17 18F 19F

(Bn IDR)

92

Income Statement

Cashflow Analysis



Revenues 20,547 24,230 32,559 43,715

CFs from operation

COGS (18,755) (22,071) (29,303) (39,861)

Net profit 264 339 837 931

Gross profit 1,792 2,159 3,256 3,854

Change in working capitals 57 (990) (1,383) (1,633)

EBITDA 600 677 1,314 1,474

CFs from operation 321 (651) (546) (701)


Operating profit 484 523 1,228 1,362

CFs from investments 78 67 (174) (152)

Pre-tax profit 384 480 1,185 1,319

Income tax - net 122 133 329 366

CFs from financing (115) 57 (2) -

Net profit 264 339 837 931

Net inc/(dec) in cash 488 (248) (303) (388)

EPS (Rp) 91 117 288 321




Balance Sheet

Key Ratio Analysis




Cash and equiv 615 366 733 984 Gross margin 8.7% 8.9% 11.8% 11.1%

Receivables 1,442 1,571 2,111 2,834 Operating margin 2.4% 2.2% 3.8% 3.1%

Inventories 2,203 3,388 4,498 6,119 EBITDA margin 2.9% 2.8% 4.0% 3.4%

Others 909 1,359 1,827 2,453 Net Income margin 1.3% 1.4% 2.6% 2.2%

Total current assets 5,168 6,685 9,169 12,390 ROAA 3.4% 4.3% 8.4% 7.2%

Net fixed assets 457 486 750 988 ROAE 7.9% 9.8% 23.1% 23.0%

Other assets 1,799 1,703 1,613 1,527

Total assets 7,425 8,874 11,532 14,905 Growth

Revenue 2.7% 17.9% 34.4% 34.3%

Liabilities and equities Operating Profit 23.1% 8.2% 134.8% 10.9%

Payables 2,614 2,619 3,946 5,298 EBITDA 13.3% 12.9% 93.9% 12.2%

Other Short-Term Liabilities 1,322 2,429 2,674 3,591 Net Income 13.9% 32.6% 146.5% 11.3%


LT. debt 3 4 1,091 1,311 Solvability

Other long term liabilities 78 114 114 114 Current ratio (x) 1.3 1.3 1.4 1.4

Total Liabilities 4,015 5,167 7,825 10,314 Quick ratio (x) 0.8 0.7 0.7 0.7


Shareholders' equity 3,409 3,707 3,707 4,591 Interest cov. (x) 0.5 0.6 0.7 0.7

BVPS (Rp) 1,176 1,278 1,278 1,582 Source: Company, Shinhan Sekuritas Indonesia Estimates


Valuation

Year-end 31 Dec 2016 2017 2018F 2019F

PER (x) 6.6 6.3 6.0 5.4

PBV (x) 0.5 0.6 1.4 1.1

EV/EBITDA (x) 8.5 10.1 9.1 9.7

EV/Sales (x) 0.2 0.3 0.4 0.3


93

Strengthening the leadership in sanitary wares

In line revenue growth in 9M. The company recorded a modest revenue growth

in 9M this year by 6%yoy to IDR1.6tn or representing 73% of our full year

estimation at IDR2.2tn. About 89% of the revenue growth came from the local

goods product under ‘Toto’ brand while 11% from imported goods product or the

premium product items. The imported goods posted a satisfactory result that up by

11%yoy to IDR180bn while the local goods increased with the modest pace by

5%yoy to IDR1.4tn.

Stable margin. The company was able to maintain the margin at the stable path as

reflected in the gross margin and operating margin that unchanged at 24% and 13%

in 9M this year compared to the last year amid the rupiah weakening. This was due

to the strong brand position in the market that could pass through the cost pressure

to the customer despite about 80% of the raw materials were imported. The rupiah

depreciation has a minimum impact on the net profit margin that slashed down by

only 1% to 8% from last year at 9% due to the forex losses. We maintained our net

profit estimation this year at IDR217bn.

New gallery, new tower. The company has just inaugurated the new gallery on its

new tower in third quarter this year. The new gallery at the prime road was believed

would leverage its brand equity to maintain its leadership in the market. The new

gallery would enhance the user experience while at the same time educate the

market regarding its new product. The company believes that the strong brand

equity would protect the deterioration of the profitability from the unfavorable price

competition.

Production line development to anticipate the demand. The company

continued to add the new production line gradually to anticipate the demand from

China as well as from the domestic market. The underpenetrated of the sanitary

ware in Indonesia was the positive backdrop for the company to grow further while

at the same time the environmental issue in China have caused on the factory

shutdown which would be the positive catalyst for Indonesia factory due to the

production reallocation. About 67.89% of the households (68mn) in Indonesia have

an access for improved sanitary and approximately 50% of the toilet in Indonesia is

dominated by the squat toilet. This point to the ample room for the company to grow

further. The new production line under the SPN is estimated at 1mn pcs/annum after

the completion of the second line production in the 1Q next year.

Valuation. We reiterate our overweight call with the TP at IDR 1,250 based on the

blended DCF which implies the PE 2018 and 2019 PE at 13.8 and 12.8 respectively

or at attractive level compares to the peer that trades above 20x PE.



2015 491 282 276 205 na na na na na 82% 19%

2016 511 296 292 218 na 6% na na na 65% 18%

2017 517 311 286 222 na 2% na na na 37% 13%

2018F 543 327 281 218 82.1 -2% 622 12.3 1.62 18% 9%

2019F 570 343 295 229 86.2 5% 669 11.7 1.51 13% 8%


Overweight






Major Shareholders:

PT Multifortuna Asindo 30%

PT Suryaparamitra Abadi 30%

Public 40%



Helmi Therik

+6221 80869900

[email protected]

30

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70

80

90

100

110

May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18

spto JCI Index

PT Surya Pertiwi Tbk (SPTO)

Company Focus


94

IDR Billion 6M18 6M17 YoY 9m18 9M17 YoY

Net Sales 1,084 1,043 4% 1,641 1,552 6% Gross Profit 259 259 0% 400 376 6% Operating Expense (117) (122) -4% (192) (175) 10% Operating Income 143 137 5% 208 201 3% Income Before Tax 117 137 -14% 179 196 -9% Net Income 90 98 -9% 136 138 -2%

(%) 6M18 6M17 YoY 9m18 9M17 YoY

Gross Margin 24% 25% 24% 24% Operating Margin 13% 13% 13% 13% Net Margin 8% 9% 8% 9% 6M18 6M17 YoY 9m18 9M17 YoY Net Sales 1,084 1,043 4% 1,641 1,552 6% Gross Profit 259 259 0% 400 376 6% Operating Expense (117) (122) -4% (192) (175) 10% Operating Income 143 137 5% 208 201 3% Income Before Tax 117 137 -14% 179 196 -9%


Surya Pertiwi Nusantara (SPN) with estimated capacity for 1,000,000pcs/annum)

First line capacity 1 line = 500,000 pcs/annum. First production line commenced operations in end –April 2018. The second line installation is targeted at 1Q19. The second line is dedicated to anticipate the order from Toto China that estimated at 700,000pcs or up from currently at 70,000 pcs.

Source: Company

SPTO New Gallery at Toto Tower

Source: Shinhan Sekuritas Indonesia

95

Improving market size Potential demand on the back of demographic & improving per capita income

Source: Company, Euromonitor Source: BPS, Shinhan Sekuritas Indonesia Estimates

Revenue growth Sales break down


Stable profitability margin Operation cost structure


128138 154

167

198217

237

259

120130

144156

185206

229

256

0

50

100

150

200

250

300

2012 2013 2014 2015 2016 2017 2018F 2019F

Sanitary ware market size (USD mn) Fittings market size (USD mn)

30

35

40

45

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0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

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F

Numb. of Household (in mn) Per Capita Income (in USD)-Current Price

1,775

2,039

2,171 2,072

2,142 2,249

2,361

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2013 2014 2015 2016 2017 2018F 2019F

Projects, 31%

Retail (Distributors & Dealers)

69%

21%19%

21%

24% 24% 24% 24%

9%

13%

9.5%10.5% 10.3% 10.3% 10.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2013 2014 2015 2016 2017 2018F 2019F

Gross margin Net profit margin

Freight, 26%

Promotion, 8%

Salaries and allowances, 32

%

Rent, 13%

Employee benefits, 3%

Others, 17%

96

Income Statement

Cashflow Analysis



Sales 2,072 2,142 2,249 2,361

CFs from operation

COGS (1,581) (1,631) (1,732) (1,818)

Net profit 222 225 222 233

Gross profit 511 517 543 570

Change in working capitals (248) (108) (172) (221)

EBITDA 293 289 284 299

CFs from operation (26) 117 50 12


Operating profit 296 311 327 343




CFs from financing activities 180 551 763 (19)

Net profit 218 222 218 229

Net inc/(dec) in cash (55) 16 737 (76)

EPS (IDR) - - 82 86




Balance Sheet

Key Ratio Analysis



Assets

Profitability

Cash and equiv 139 160 893 817

Gross margin 23.7% 23.9% 23.0% 23.0%



Inventories 261 328 348 366

EBITDA margin 14.1% 13.5% 12.6% 12.6%

Others 52 93 98 103


Total current assets 827 1,011 1,745 1,712

ROAA 17.7% 13.1% 8.8% 7.5%

Net fixed assets 276 769 967 1,164

ROAE 65.5% 37.2% 17.8% 13.1%

Other assets 253 240 240 239

Total assets 1,356 2,020 2,951 3,115

Growth

Revenue -4.6% 3.4% 5.0% 5.0%


Operating Profit 5.8% -0.1% -1.7% 5.0%

Payables 456 497 522 548

EBITDA 6.1% -1.4% -1.7% 5.1%

Other Short-Term Liabilities 302 542 569 597

Net Income 6.2% 1.6% -1.7% 5.0%

Total Current Liabilities 759 1,038 1,090 1,145

LT. debt 2 96 70 51

Solvability

Other long term liabilities 179 112 112 112

Current ratio (x) 1.1 1.0 1.6 1.5

Total Liabilities 181 208 182 164

Quick ratio (x) 0.7 0.7 1.3 1.2


Debt to equity (x) 2.3 1.6 0.8 0.7

Shareholders' equity 417 773 1,679 1,807


BVPS (IDR) na na 622 669


Valuation


PER (x) na na 12.3 11.7

PBV (x) na na 1.6 1.5

EV/EBITDA (x) na na 9.2 9.2

EV/Sales (x) na na 1.2 1.2

Dividend yield (%) na na 3.7% 3.8%


97

Shining performance through dedicated car terminal services

Background. IPCC focuses in the vehicle terminal services such as stevedoring,

cargodoring, receiving and delivery. Besides that the company has also cater other

services such as vehicle processing center (VPC), equipment processing center

(EPC), port stock and transshipment roro services. IPCC is a subsidiary of PT

Pelabuhan Indonesia II (Persero) or Indonesia Port Corporation (IPC). The strong

support from its parent company provides the protection on its business

sustainability through 2,806ha of total concession area in Java, Sumatra &

Kalimantan in the port terminal area. About 627ha of land concession is located in

Tanjung Periok Jakarta-the busiest port in Indonesia that handled 30% of non-oil

and gas cargo and around 50% of the entire flows of goods into and out of

Indonesia. IPCC managed 31ha of the total area. This makes the IPCC as the third

largest port operator in Asean behind PSA Singapore and Namyong Terminal

Thailand. The improving export-import and interregional trading especially for

vehicle would benefit the company’s performance ahead.

Car terminal services as the main business. IPCC, drives its revenue mainly

from car cargo which contributed 62% of the total revenue in 1H this year at

IDR155bn, followed by 34% or IDR84.8bn of heavy equipment and the rest was

spare parts and miscellaneous. The company expects the revenue this year to reach

IDR585bn or 38%yoy on the back of the car trading and heavy equipment

movement which triggered by the infrastructure development. It seen attainable due

to its 1H revenue at IDR250bn was 43% of the target. The higher revenue in the

second half is expected to come from the transfer of the throughput business from

its affiliates business for the zoning and specialization strategy under its parents-

Pelindo II. The throughput business previously was managed by Port of Tanjung

Priok (IPCC’s affiliates). The company also expects to record the net profit growth by

69%yoy to IDR220bn.

Solid profit margin. The company recorded a solid profitability with the EBITDA

margin at 37.4% in 2015, 42.4% in 2016 and 41.5 in 2017. The cost of revenue is

mainly consisting of 28.5% from salary, 25% from rental, 26.6% from rental. The

margin stability is determined by the rate tariff through the agreement with the

association. With its geographical position (secured land concession) and thus

monopoly by its nature, the company would have a strong position to negotiate the

tariff. However, the tariff adjustment would be linked to the cost escalation or the

inflation in general.

Expansion plan by increasing the yard area. The company plans to expand its

yard from 31ha to 89,5ha or almost triple with the total 2,1mn vehicle from the

current capacity at 700k vehicle. This would make the IPCC 5 largest car terminal

operator in the world that would be realized gradually until 2022. The company is

also eying to capture the transshipment opportunity from PSA Singapore on the back

of the geographical advantage that would facilitate the penetration of the Japan’s car

that located at Indonesia and Thailand as the production bases to Australia as the

market destination.

Valuation. Before IPO the company distributed around 80% for dividend while the

dividend policy ahead is estimated at above 30%. The company is traded at 13.4x of

2018 PE based on the expected net profit growth. This was lower compares to the

Namyong Terminal as the closed peer that trades at 14.8x.

Unrated


Target price (IDR) NA

Upside/Downside (%) NA



Major Shareholders:

PT Pelabuhan Indonesia II 71.28%



Helmi Therik

+6221 80869900

[email protected]

0

20

40

60

80

100

120

IPCC JCI Index

Indonesia Kendaraan Terminal Tbk (IPCC)

Company Focus


98

IPCC Ownership Structure. Dedicated Port facility for vehicles


IPCC’ s yard area expansion

Source: Company

99

Operation activity at IPCC terminal

Source: Company

Illustration of IPCC’s business model : Stevedoring (Loading)

Source: Company

Illustration of IPCC’s business model : Stevedoring (Unloading)

Source: Company

100

Monthly Car Sales Revenue and profitability profile

Source: Bloomberg, Gaikindo, Shinhan Sekuritas Indonesia Source: BPS, Shinhan Sekuritas Indonesia Estimates

Revenue composition by activity Revenue break down


Improving profitability margin Equity and liability to equity ratio


-30%

-20%

-10%

0%

10%

20%

30%

40%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Cars

Car Sales (SAAR)

Car Sales-SAAR (yoy)

247

117.692.3

68.6

314.3

164.5133.4

98.4

422.1

208.6175.4

130.1

250.3

105.994.9

0

100

200

300

400

500

Revenue GrossProfit

EBITDA NetProfit

In IDR bn

2015

2016

2017

1H2018

Terminal services, 93%

Cargo services, 6%

Miscellaneous services, 1%

Land, building,water and

electricity, 0.2

%

93%

7%

International (Exim)

Domestic

48%

52%49%

42%

37%

42% 42%

50%

28%31% 31%

38%

0%

10%

20%

30%

40%

50%

60%

2015 2016 2017 1H2018

Gross Margin

EBITDA Margin

Net profit margin

155.8

185.6

237.0227.8

46%

43%

42%57%

0

50

100

150

200

250

0%

10%

20%

30%

40%

50%

60%

2015 2016 2017 1H2018

Equity Liability to Equity (%)

101

Research Team

Helmi Therik Head of Research [email protected]

Teuku Hendry Andrean Research Manager [email protected]

Billy Ibrahim Djaya Research Analyst [email protected]

Disclaimer : All opinions and estimates included in this report constitute our judgments as of the date of this report and are subject

to changes without notice. This information has been compiled from sources we believe to be reliable, but we do not hold ourselves

responsible for its completeness or accuracy. It is not an offer to sell or solicitation of an offer to buy any securities. Clients should

consider whether it is suitable for their particular circumstances before acting on any opinions and recommendations in this report.

This report is distributed to our clients only, and any unauthorized use, duplication, or redistribution of this report is prohibited.

Office

PT. Shinhan Sekuritas Indonesia

Member of Indonesia Stock Exchange

Head Office :

International Finance Center 2 Floor. 30

Jl. Jendral Sudirman Kav. 22-23

Karet

Jakarta 12920 Indonesia

Telp.: (+62-21) 80869900

Fax : (+62-21) 22057925

PT Shinhan Sekuritas Indonesia

International Finance Center 2 , 30th floor

Jl. Jend. Sudirman Kav. 22-23

Jakarta 12920 - Indonesia

Phone (62 21) 8086 9900

Fax. (62 21) 2205 7925

Website www.shinhansekuritas.co.id

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