Anchor Report Indonesia Outlook 2013 - Coming Out From The

Equity Research
ANCHOR REPORT Indonesia outlook 2013: Coming out from the bunker
More focus on infrastructure and moving out from consumer to cyclical

As cost pressures and competition intensify, we foresee many parts of the Indonesian market facing peak margins: consumer and banking in the near term, and auto, cement, and infrastructure projects in the longer term. However, despite perceptions that nothing happened on infrastructure, we see many projects (eg, rail, air and seaport) are moving forward well and believe the land acquisition law should further aid future projects. We expect a 16% gain in JCI in 2013 to 5000, driven mainly by earnings growth. JCI currently trades near its three-year P/E average of 13.7x and its three-year P/B average of 4.1x, supported by ROE of 28% in FY13F. We overweight infrastructure and automotive, underweight consumers, and are neutral elsewhere. Our top picks focus on firms with strong market leadership, market share winners and stocks with solid earnings growth.
January 8, 2013
Research analysts Indonesia Strategy
Wilianto Ie - PTNI wilianto.ie@nomura.com +62 21 2991 3341 And the Indonesian Research Team
Key analysis in this anchor report includes:

Why we see margins peaking in many areas; which firms are affected Acceleration of infrastructure projects key timetables in the new law 5 stocks that should benefit most from the infrastructure acceleration 5 other top picks in Indonesia See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Indonesia outlook 2013

EQUITY STRATEGY
EQ U I T Y R E S E A R C H
Coming out from the bunker
January 8, 2013
More focus on infrastructure and moving out from consumer to cyclical

Peak margins likely due to cost pressure and competition We foresee peak margins in many sectors or subsectors in Indonesia as competition intensifies, thereby limiting companies ability to pass on rising cost pressures to consumers. In our view, the consumer and banking sectors are the most exposed to peak margins in the near term, while automotive, cement, and new infrastructure projects are likely to face margin pressure or lower IRR in the long term. Infrastructure projects are happening In contrast to investors' perception of "nothing happened" and doubt, many infrastructure projects (eg, railways, airports, and seaports) are progressing well and future projects should be further aided by the land acquisition law. Underinvestment in infrastructure in the last decade represents a significant future opportunity to infrastructure companies such as toll road operators, cement producers and contractors. Slower reform ahead of 2014 election We expect unpopular reform to slow significantly ahead of the 2014 election. The much-needed removal of fuel subsidies appears unlikely or will be marginal at best. The policy focus remains on acceleration of GDP growth, reducing systemic risk to external shocks, retaining value added processing of commodities and improving administration and control. Top picks and sector weightings We expect a 16% gain in JCI in 2013F to 5000, mainly on earnings growth. JCI currently trades near its 3-year P/E average of 13.7x and its 3-year P/B average of 4.1x, supported by ROE of 28% in FY13F. We overweight infrastructure and automotive sectors, underweight consumers, and are neutral on the rest. Our top picks list focuses on firms with strong market leadership, market share winners and firms with solid earnings growth.
Fig. 1: Indonesia top picks*
No 1 2 3 4 5 6 7 8 9 10 Company Astra Int'l Bank Mandiri BNI Indocement Indomobil Jasa Marga Kalbe Farma Semen Gresik United Tractors Wijaya Karya Price 7,500 8,250 3,725 21,900 5,300 5,550 1,040 14,800 20,950 1,530 Rec Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy PER PER 14F 13F (x) (x) 13.7 11.0 9.1 16.4 11.0 21.9 25.1 15.4 11.5 15.7 17.4 13.9 11.6 8.9 7.8 14.6 8.4 15.7 21.6 12.3 9.7 12.2 11.6 11.7 Net profit growth 13F (%) 16.4 25.3 17.4 10.7 38.3 10.1 20.0 30.9 12.0 34.5 26.7 16.4 Net profit DVD growth PB 13F ROE yield 14F (%) (x) 13F (%) 13F (%) 17.5 23.3 16.2 12.2 31.0 39.1 16.3 24.5 17.9 32.4 48.5 19.0 3.7 2.2 1.4 3.6 2.3 3.9 6.1 4.4 2.3 3.2 3.7 2.9 29.4 21.6 16.7 23.6 22.2 18.9 27.8 31.8 21.5 21.3 22.9 20.7 3.7 1.8 2.2 1.8 1.8 1.8 3.0 2.6 3.5 1.4 2.3 2.8 Ticker ASII IJ BMRI IJ BBNI IJ INTP IJ IMAS IJ JSMR IJ KLBF IJ SMGR IJ UNTR IJ WIKA IJ
Anchor themes Indonesia will benefit from the return of inflation, in our view. Cost pressure and competition are likely to intensify; thus, not all stocks will be winners despite strong top-line growth. Macroeconomic fundamentals, prudent monetary policy, and fiscal discipline should remain in place to sustain long-term growth.
Research analysts Indonesia Strategy Wilianto Ie - PTNI wilianto.ie@nomura.com +62 21 2991 3341 And the Indonesian Research Team
Market - Simple Average Market - Aggregate (Weighted)
Source: Bloomberg, Nomura estimates. *Note: Our top picks are reviewed quarterly. Pricing as of 2 January 2013
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Indonesia outlook 2013
January 8, 2013
Contents
4
Focus charts Margins are peaking

6
Costs pressure is returning
10
Sustaining profitability amid rising competition
12
Sectors with rising competition risk: consumer, banks, and automotive Stocks that are affected
15
16
Acceleration of infrastructure projects

17
Impact on new projects
17
Impact on existing projects
18
Stock implications
19
Reform likely to slow ahead of 2014 election

19
Looking back
20
Going forward
21
Wish list of what needs to be done
22
Politics ahead
24
Our top picks and market view

25
Key recent trends
27
Indonesia top picks
31
Indonesia economic outlook

31
Indonesia: Watch policies and politics
January 8, 2013
35
Sector outlooks
36
Banks
42
Coal
44
Consumer
51
Infrastructure
58
Plantations
63
Property
66
Telecoms / Towers
75
Company profiles
77
Astra International
83
Bank Mandiri
89
Bank Negara Indonesia
95
Indocement Tunggal Perkasa
99
Indomobil Sukses International
103
Jasa Marga
107
Kalbe Farma
111
Semen Indonesia
115
United Tractors
121
Wijaya Karya
126 Appendix A-1
January 8, 2013
Focus charts
The charts below show that domestic consumption remains strong, the banking system remains healthy and investment continues to rise. The current account deficit in 2012 was largely driven by capital goods imports and can still be fully funded by the capital account. FX reserves have ticked up again in the past months and the rupiah has been relatively stable compared to its historical volatility.
Fig. 2: Car sales hit record high

Monthly domestic car sales (units)
Fig. 3: Motorcycle sales are showing signs of recovery

Monthly domestic motorcycle sales (units)
('000 units) 120 100 80 60 40 20 0 05 06 07
Domestic car sales Year average
('000 units) 800 700 600 500 400 300 200 100 0
Domestic motorcycle sales Year average
08
09
10
11
12
13
05
06
07
08
09
10
11
12
13
Source: Gaikindo (The Association of Indonesia Automotive Industries)
Source: AISI (Indonesian Motorcycles Industry Association)
Fig. 4: Cement sales still grow at double digit rates

Monthly domestic cement sales (tons)
Fig. 5: FDI trend continues to rise

FDI trend by sector (USDmn)
('000 tones) 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 05 06 07
Domestic Year Average
(USDmn) 25,000 20,000 15,000 10,000 5,000 0
Inv Realization: Foreign: Tertiary Sector (TS) Inv Realization: Foreign: Secondary Sector (SS) Inv Realization: Foreign: Primary Sector (PS)
9M11
08
09
10
11
12
Source: Indonesian Investment Coordinating Board, Nomura research
Source: Indonesian Cement Association (ASI)
9M12
4
00
01
02
03
04
05
06
07
08
09
10
11
January 8, 2013
Fig. 6: Trade balance

(USDmn) 3,000 2,500 2,000 1,500 1,000 500 0 (500) (1,000) (1,500) Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Fig. 7: FX reserves
(USDbn) 140 120 100 80 60 40 20 0 Jan08
Jan09
Jan10
Jan11
Jan12
Jan13
Source: Bloomberg, Statistics Indonesia
Source: Bank Indonesia, Bloomberg
Fig. 8: Indonesias nominal GDP vs. CRB index 600 CRB CMDT GDP Nominal
500 400 300 200 100 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: CEIC, Bloomberg, Statistics Indonesia, Nomura research
Fig. 9: Farmers terms of trade

107 106 105 104 103 102 101 100 99 98 97 96 95 (Base year 2007 = 100)
Base year 2000 = 100
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Source: Statistics Indonesia
Fig. 10: Indonesia Terms of Trade

110 105 100 95 90 85 80 75 70 65 60 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Fig. 11: Lending growth by type of loan (% y-y)

60% 50% 40% 30% 20% 10% 0% -10% 05 06 07 08 09 10 11 12 13
Source: Bank Indonesia, CEIC, Nomura research
Working Capital Investment Consumption
Jan-13
5
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
January 8, 2013
Margins are peaking

The high margins and profitability enjoyed by many Indonesian companies are facing a credible threat from rising costs and intensifying competition. Companies ability and willingness to increase prices will be dwindled by competition and the already very high margins. The rising competition is increasingly visible in retailing, personal care, automotive, and banking. We also see signs of upcoming competition in cement and expect rising investor interest (post the land acquisition law) to reduce required IRRs in future infrastructure projects.
Costs pressure is returning

We expect cost pressure to return due to an expected pickup in global inflation and domestic-driven factors such as the large (22%) increase in minimum wages, 15% increase in electricity tariff, and weak currency. General inflation was low in 2012 at 4.3% despite the weak currency as falling commodity prices and good harvests helped to ease cost pressure. Commodity prices are unlikely to fall further in 2013, if not rise, as our economics team expects a modest recovery in the China and US economies Asia Special Report:2013 outlook: Asia's overheating risks. Some companies are likely to be more exposed to cost pressures than others. Although in general, Indonesian listed companies direct exposure to labour cost is not that high (10% of revenues; 63% of pretax profit in aggregate), the impact to profit could be large for those companies with low margins and those who have a significant part of their costs coming from labour and electricity, such as the retailers. In the three retailers under our coverage (aggregate), payroll accounted for 103% of pretax profit (9% of revenues) and electricity accounted for 25% of pretax profit (2% of revenues) in 9M12. Other sectors that have meaningful direct exposure to labour and/or electricity costs are contractors and cement. Further cost pressure should come from any recovery in raw material prices (commodity) as the rupiah depreciation in 2012 made input costs more expensive. Although many raw materials are sourced locally, most are priced at international prices times the prevailing exchange rate. Therefore, any recovery in international commodity price should directly impact raw material costs in Indonesia, whether sourced locally or imported. The large increase in minimum wages On 20 November 2012, Jakartas governor, Joko Widodo, signed a significant 44% increase to minimum wages in DKI Jakarta province to IDR2.2m per month in 2013 (vs. 15% in 2012 which was considered high). This was unexpected and sent a shock to employers and quickly set a benchmark in industrial areas of Greater Jakarta that demanded and received a similar hike in minimum wages (see figure on next page). Even if other provinces implement a lower minimum wage hike, the overall picture remains for a very high increase in labour costs in 2013 (the minimum wage increase is set every year in the fourth quarter and takes effect in January the following year). Although the high increase in minimum wages in 2013 is arguably a one-off adjustment to match the minimum required living standard (it was below the living standard in the past), there is no guarantee that a minimum wage hike in the future will normalise at a much lower level. This is especially true after President Susilo Bambang Yudhoyono (SBY) stated that the era of cheap labour in Indonesia is over. It is our moral obligation to fight for it. The era of cheap labour and injustice is now over, said Yudhoyono in a speech before governors, regents, mayors, police chiefs and regional military commanders. (Source: Jakarta Post, 1 December 2012). http://www2.thejakartapost.com/news/2012/12/01/no-more-cheap-labor-risby.html
January 8, 2013
The minimum wage variance in various provinces would ideally lead to reallocation of labour-intensive industry to the areas where minimum wages are still relatively low as minimum wages in some provinces are still half of those in greater Jakarta. However, the poor infrastructure and lack of skilled labour in some of those areas will make this unlikely to happen anytime soon, in our view.
Fig. 12: Provincial minimum wage increase in 2013
Province 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 East Kalimantan Banten (Tangerang) Jakarta Gorontalo East Java (Surabaya) Riau Islands Mollucas Bengkulu West Java (Bandung) Central Sulawesi North Sulawesi Bali Lampung Central Java (Semarang) North Mollucas South Sulawesi Jogjakarta West Papua West Kalimantan West Sumatra Central Kalimantan Bangka Belitung Jambi Riau South Sumatra Papua Aceh West Nusa Tenggara East Nusa Tenggara South Kalimantan South East Sulawesi North Sumatra West Sulawesi 2012 1,177,000 1,529,150 1,529,150 837,500 1,257,000 1,015,000 975,000 930,000 1,243,023 885,000 1,250,000 967,500 975,000 991,472 960,498 1,200,000 892,660 1,450,000 900,000 1,150,000 1,327,459 1,110,000 1,142,500 1,238,000 1,195,220 1,515,000 1,400,000 1,000,000 925,000 1,225,000 1,032,300 1,200,000 1,127,000 2013 1,752,073 2,203,000 2,200,000 1,175,000 1,740,000 1,365,087 1,275,000 1,200,000 1,583,703 1,125,207 1,550,000 1,190,000 1,195,000 1,209,100 1,152,598 1,440,000 1,065,247 1,720,000 1,060,000 1,350,000 1,553,127 1,265,000 1,300,000 1,400,000 1,350,000 1,710,000 1,550,000 1,100,000 1,010,000 1,337,500 1,125,207 1,305,000 1,200,000 Increase 49% 44% 44% 40% 38% 34% 31% 29% 27% 27% 24% 23% 23% 22% 20% 20% 19% 19% 18% 17% 17% 14% 14% 13% 13% 13% 11% 10% 9% 9% 9% 9% 6%
Source: Ministry of Manpower and Transmigration
Based on the data from Statistics Indonesia from August 2012, unemployment is 6.14% (7.24m people) and another 5.59% (6.6m people) are working less than 15 hours per week. The total work force in Indonesia is 118m, of which around 40% are working in the formal sector and 60% are working in the informal sector. (According to Statistics Indonesia, the formal sector comprises those with employment status as labor/employees and employers with permanent labor, and the informal sector comprises entrepreneurs, temporary employees, freelance workers, and those who work for their families.)
January 8, 2013
Fig. 13: Employment by sector (Aug 2012)

Social Services, 15% Finance, 2% Others, 2% Agriculture, 36%
Fig. 14: Unemployment rate (last = Aug 2012)

(%) 12 10 8 6.14
Transport and Telco, 4%
6 4 2
Construction, Constructio 6% 6% n,
Industrial, 14%
Implication of higher minimum wages Firms that operate in a labour-intensive industry, command lower margins, or have weak pricing power will be hurt by the high minimum wage increase in 2013. Sectors and subsectors under our coverage that have high exposure to rising minimum wages are retail, plantations, hand-rolled cigarettes, motorcycle financing, and building contractors. Implication to listed companies will vary depending on the labour intensity, profit margin, and their ability to pass on the costs increase. It will be negative for some companies with high labour costs, low margins, and/or limited pricing power, such as Mitra Adiperkasa (MAPI IJ, Neutral), Ace Hardware (ACES IJ, Neutral), and plantation companies. Contractors such as Wijaya Karya (WIKA IJ, Buy) might escape the negative impact of higher wages given cost escalation clause normally include labour cost. This will allow WIKA to pass on the labour cost increase to the property/projects owner which will be much less sensitive to the wage increases as their profit margin is relatively high. Companies that are likely to benefit include Ramayana (RALS IJ, Buy), a low-end retailer that should benefit from the increased purchasing power of workers (higher same-store growth) which is more than likely to offset the increase in labour costs, in our view. Other potential beneficiaries include cigarette producer Gudang Garam (GGRM IJ, Buy), which has a high proportion of machine-made cigarettes in its product mix and should benefit from higher spending power of industrial workers. The follow-through implications include higher inflation and slower FDI in 2H13. Foreign investors may postpone some projects in Indonesia until there is further clarity on future labour costs, especially those with meaningful exposure to labour costs. The figure below shows the exposure of company profitability to labour costs. The column Labour/Pretax profit shows the ratio of labour costs to pretax profit assuming all other factors remain unchanged. This table is intended to gauge companies exposure to higher wages instead of calculating the actual outcome, as we did not factor in other factors such as volume and pricing power, etc.
Aug-12
8
90
92
94
96
98
00
02
04
06
08
10
Trade, 21%
January 8, 2013
Fig. 15: List of selected companies with direct exposure to rising labour costs (IDRbn)
Total Labour costs 173 1,096 671 2,854 1,420 332 4,649 3,732 375 1,217 406 3,800 1,000 514 1,053 1,190 573 286 2,781 481 7,702 4,844 755 541 37 234 8,277 5,674 1,418 517 106 6,299 1,355 204 41 688 70 187 964 222 64 508 78 57 66 61 71 1,039 Pretax profit 28 501 394 1,683 1,277 348 5,011 4,093 483 1,672 667 6,277 1,657 865 1,791 2,321 1,164 589 5,792 1,011 16,466 10,401 1,622 1,277 91 583 21,098 14,603 3,924 1,447 302 18,820 4,057 661 177 2,965 331 906 4,902 1,195 537 4,359 808 609 784 838 1,922 -9 Labour/ Revenues (x) 0.04 0.17 0.12 0.27 0.22 0.14 0.12 0.28 0.06 0.14 0.05 0.25 0.10 0.04 0.06 0.07 0.17 0.02 0.06 0.13 0.25 0.24 0.13 0.08 0.13 0.11 0.06 0.20 0.12 0.10 0.14 0.11 0.08 0.09 0.19 0.04 0.04 0.05 0.05 0.08 0.06 0.04 0.04 0.02 0.02 0.04 0.01 0.07 Labour/ Pretax profit (x) 6.20 2.19 1.70 1.70 1.11 0.96 0.93 0.91 0.78 0.73 0.61 0.61 0.60 0.59 0.59 0.51 0.49 0.49 0.48 0.48 0.47 0.47 0.47 0.42 0.41 0.40 0.39 0.39 0.36 0.36 0.35 0.33 0.33 0.31 0.23 0.23 0.21 0.21 0.20 0.19 0.12 0.12 0.10 0.09 0.08 0.07 0.04 n.m.
Company Bumi Resources* Wijaya Karya Mitra Adiperkasa Salim Ivomas Pratama Semen Gresik Ace Hardware Indofood Sukses Makmur Bank Danamon Ramayana Astra Agro Lestari Mayora Bank Negara Indonesia Kalbe Farma Indomobil Indosat Indofood CBP PP London Sumatra AKR Corporindo United Tractors Lippo Karawaci Bank Rakyat Indonesia Bank Central Asia Jasa Marga Holcim Indonesia Gozco Plantations Summarecon Astra Intl Bank Mandiri TB Bukit Asam Indika Energy BW Plantation Telkom Gudang Garam Ciputra Development Bumi Resources Minerals XL Axiata SMN Agung Podomoro Unilever Bumi Serpong Damai Tower Bersama Indocement Perusahaan Gas Negara* Indo Tambangraya Megah* Adaro Energy* Alam Sutera Harum Energy Krakatau Steel
*In USD mn
Revenues 4,222 6,370 5,441 10,521 6,515 2,296 37,255 13,389 5,921 8,575 7,684 14,996 9,694 14,597 16,509 16,228 3,372 16,305 44,137 3,641 30,604 19,806 5,593 6,515 295 2,199 143,138 28,697 12,026 5,316 764 56,864 15,989 2,237 212 15,772 1,619 3,516 20,344 2,631 1,138 12,536 1,828 2,503 3,930 1,719 9,135 15,878
Note: Excludes indirect exposure to labour costs. Source: Company data, Nomura research
January 8, 2013
Sustaining profitability amid rising competition

The ability of companies to sustain the current high margin and high ROE will be put to test over the next few years as competition rises, in our view. The enlarged market size due to rising purchasing power, a young demographic, and urbanization (both from those moving from rural to urban areas as well as rural areas growing into urban areas due to economic development) have attracted new entrants to many sectors. Rising consumption and fast-rising demand for many discretionary products in Indonesia is a well-known story and has been ongoing for nearly a decade, excluding the 2008-09 global crisis period. This has attracted new investments, both foreign direct investment as well as domestic investments, which should lead to rising competition and dilution of pricing power. Rising competition is seen across sectors, from retailers, media, personal care and packaged food to automotive. Rising competition is often accompanied by large investments to convince customers and distributors alike about the strong commitment to be successful in Indonesia. As a result, competition for market share is likely to be on the rise, pricing power may weaken, and profitability should gradually adjust lower, in line with the falling cost of funds in the last three years.
Fig. 16: Investment - FDI and domestic investments
(USDbn) 30 25 20 15 10 5 0 90 92 94 96 98 00 02 04 06 08 10
Source: Indonesia Investment Coordinating Board, Bank Indonesia, Nomura research
Domestic Direct Investment Foreign Direct Investment
Rising competition will eventually dilute the pricing power of companies, especially those with weaker brand equity and distribution network, in our view. Therefore, profit growth in certain sectors is likely to slow if demand growth does not outpace competition growth or if entry barriers are too low. In addition, the expected rise in input cost, especially those of agricultural commodities (owing to the drought in the US, the upcoming El Nino weather phenomenon, global monetary easing, etc.) is likely to put pressure on the margins of companies with weak pricing power. Asia Special Report: Asia's inflation wildcard - 07 Aug 2012
10
January 8, 2013
Fig. 17: EBIT margins of select consumer companies

45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13
Source: Company data, Nomura research Note: GGRM EBIT excludes excise tax and VAT
Fig. 18: EBIT margins of select retailers

18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13
Source: Company data, Nomura research
UNVR GGRM
KLBF MYOR
ICBP
RALS
MAPI
ACES
Fig. 19: Profit per unit sales of motorcycles (AHM)

(IDRmn) 1.8 1.5 1.2 0.9 0.6 0.3 0.0 02 03 04 05 06 07 08 09 10 11 9M12
Fig. 20: Astra: distribution EBIT margin

6%
4%
2%
0% 00 01 02 03 04 05 06 07 08 09 10 11 9M12
Fig. 21: EBIT margins of cement companies

50% 40% 30% 20% 10% 0% 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13
Gresik Indocement Holcim
11
January 8, 2013
Select examples of rising competition in various sectors South Korean retail giant Lotte Shopping through its subsidiary in Indonesia, has signed an agreement with Ciputra Adigraha for a 20-year lease of the entire shopping mall in Ciputra World, Jakarta. Lotte Shopping Avenue in Ciputra World will be Lottes first shopping mall in Indonesia. Through this deal, Lotte Group has expanded its presence in the retail industry of Indonesia following its successful hyper-mart business, Lotte Mart, which has been well received by Indonesian customers. Nissan Motor Company Limited has announced that it will increase its production capacity from 100,000 units/year to 250,000 units/year by investing US$400mn in a production facility located in Karawang Industrial Estate, West Java. Apart from the new production facility, Nissan also plans to increase the number of its dealers to 100-150, from 71 operating dealers currently. Kompas TV, the subsidiary of Indonesian media giant Kompas Gramedia, has been expanding its broadcast across Indonesia through local TV networks channels, pay television networks and satellite broadcast. With this, Kompas TV is likely to be the pioneer of Indonesian TV broadcasting in high definition (HD) quality through Kompas HD, which is available through the pay television network. Currently, Kompas TV is proposing digital TV broadcasting, which is still under review by the government. Lippo Group, through its pay TV provider subsidiary First Media, will launch direct-tohome satellite TV and compete head-on with MNC Sky Vision of Global. L Oreal has increased its penetration in Indonesia by investing 100mn to build its biggest production facility globally in Cikarang, West Java. This plant will support the target of L Oreal to sustain net sales growth of 30% in the future. The facility will also produce to export in other ASEAN countries. South Korean tire maker Hankook, the seventh largest tire producer in the world, has opened its Indonesian tire production facility in November 2012, which will be its thirdlargest plant globally with total investment of US$1.1bn until 2018. The plant will have a production capacity of 16mn tires/year in 2018, according to management (as per media reports, see sources below). (Sources [for all information in this box]: company data, various local media including Bisnis Indonesia, Kompas, Investor Daily, Jakarta Post)
Sectors with rising competition risk: consumer, banks, and automotive

Consumer The consumer sector is facing the largest wave of rising competition in the past decade and compared to other sectors, attracting new entrants as well as inducing existing companies to try and grab more market share of the growing pie. This has yet to dampen investors appetite for consumer stocks, which have outperformed the market significantly since 2H11, pushing up the valuation to a 25% premium to the market based on the multiples of companies under our coverage. The consumer sectors strong performance was driven by a few factors, such as rising consumption and investors flight to defensive stocks and those perceived as safe haven stocks. Going forward, we foresee a risk of the consumer sector to underperform the Jakarta Composite index given the already-high market expectations. The modest recovery in China and the US is also likely to increase investors risk appetite and the wide valuation premium in consumer should induce bargain-hunting in other sectors, in our view. We recommend that investors underweight the consumer sector in 2013F.
12
January 8, 2013
Fig. 22: Relative performance of consumer sector vs market

Relative performance of Jakarta Consumer Index vs. Jakarta Composite Index
160 150 140 130 120 110 100 90
(1 Jan 2011 = 100)
JAKCONS Index Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
JCI Oct-12 Jan-13
80 Jan-11
Source: Bloomberg, Nomura research
Retail subsector Retail companies are probably facing the most intensive competition in decades. While the last decade has seen an orderly structure with Ramayana at the low end, Matahari in the middle, Mitra Adiperkasa at the high end, and Ace Hardware in the home improvement segment the future is likely to be very different with Lotte Shopping, Central Group and Parkson aggressively acquiring locations, in our view. Thus, competition is bound to heat up and, indeed, bargaining power in rental rates has started to shift from retailers back to property owners, as noted by Janni Asman in her report Indonesia retail - Space fight!. Similarly, in the home improvement segment, Ace Hardware is facing new competition from Pong, IKEA and Courts Asia, and we have also learned that Zara Home is looking to open in Indonesia. In addition, electricity costs (25% of pretax profit) will rise (as the tariff increase was passed by the government and implemented in Jan-13, and will be followed by a step-up increase every three months to a total of 15% increase for the year) and many of the staff at the stores are working at or near minimum wages pay, thus the cost pressure from payroll (0.8x - 1.7x of pretax profit) is high. Automotive The automotive sector is also seeing competition intensifying. Although most brands have had some presence in Indonesia for years, the market share is still concentrated in the Big Six that control 88% of the car market (source: Gaikindo), and even more so in the motorcycle market, which is almost a duopoly, with Honda and Yamaha together controlling 92% market share in 9M12 (source: AISI). Aside from good product line-up and strong distribution network, we believe the concentration of market share is partly due to the fact that until recently, many producers did not seriously focus on the Indonesia market. The rising competition in the automotive sector can be seen in the announcement of new investments in car production facilities, which we believe reflects both the need to satisfy growing demand as well as rising competition. In aggregate, automotive producers have announced total investments in excess of USD1bn either to expand production capacity or to deepen manufacturing capability. We have also witnessed an increasing number of new models being launched, especially in the higher end segment. However, despite the aggressive expansion, new entrants are still likely to find it difficult to win market share, in our view, as the automotive sector has a relatively high entry barrier. Producers are required to have high local content to benefit from lower tax. Under the Asean Free Trade Agreement, only products with 40% or more Asean content are allowed to be shipped to Indonesia with no import duty.
13
January 8, 2013
To further benefit from potential luxury tax exemption in the low-cost green car program, producers need to have 80% local contents. The requirements of high local content serve as the key barrier to entry for new players that do not have investments, or have not committed to invest in Indonesia or Asean. Cement Competition in the cement sector is looming on the horizon, but is unlikely to intensify in the next three years given the high entry barriers, in our view. The market continues to be dominated by the big three producers, which together controlled 88% market share in the domestic market in 9M12 (see below figure).
Fig. 23: Market share in the domestic market (9M12)
Others, 11.6%
Holcim, 15.7%
SGG, 40.4%
Indocement, 32.3%
Source: Indonesian Cement Association (ASI)
Over the past year, there have been a number of media reports (including in Kompas) quoting interest from foreign players, mainly Chinese cement companies planning to set up new cement capacity in the country. Anhui Conch was reported as having plans to build 15mn tons of new capacity mainly in Kalimantan and Papua. China National Building Materials (CNBM) was reported to have expressed interest in building 2.5mn tons of new capacity in Central Java, and Siam Cement (Thailand-based company) was also reported to have expressed interest in building 2mn tons of new capacity in West Java (Source: Kompas, 6 March 2012). Our view is that the entry of new foreign players is not an imminent risk in the near term and presents only a risk to the sentiment on the sector in the equity market. We believe that it will take time for other new players to set their operation to the scale of existing players and fully compete with them. Even Siam Cement, which gains capacity through brownfield acquisition, will only add 2m tons of new capacity or less than 4% of the industrys capacity. We also believe that new competition will have a relatively minimal impact on existing companies, given the significant demand potential. Assuming industry production to increase from 55mn tons currently to 95mn tons by 2016F, this represents cement consumption of only 395kg per capita, which is still less than the current per capita consumption of Thailand and Vietnam, and much less than that of Malaysia, Singapore or China. Competition in the banking sector will intensify among existing banks (instead of from new entrants), both on funding as well as on the lending side of the business, in our view. The rising loan to deposit ratio, which reached 86% in August 2012, and the strong loan growth that continues to outpace deposit growth, are increasingly leading to tighter liquidity in the banking sector. This benefits larger banks and puts pressure on smaller banks, which need to pay higher rates to attract depositors and have limited access to low-cost CASA funds.
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January 8, 2013
The lower cost of funds and margin pressure in mortgage and corporate lending have encouraged banks to look to lend more to higher-margin segments such as SME and consumer financing. The competition has managed to push net interest margin down in each of the segments, but overall margin compression remains absent in some of the banks due to change of product mix. Only banks with high concentration in high-margin businesses, such as Danamon and Bank Rakyat Indonesia, are experiencing a decline in their consolidated net interest margin. We note that two segments in lending motorcycle loans and rural micro financing will likely be the last segments to face rising competition due to higher entry barriers (being labour-intensive and involving a high degree of manual process). The property sector faces very little competition from the demand side, in our view. According to our estimates, marketing sales of listed property companies under our research coverage continued to grow strongly (30-40% y-y) in 9M12 and the biggest challenge has been competition to secure new land banks, in our view. Indonesian property companies generally own large undeveloped land banks but they have been conservative and reluctant to quickly sell them due to difficulties in securing new land banks and the expectation of further capital gains (Indonesian property companies do not mark-to-market the value of their landbanks due to capital gain tax on asset revaluation). Competition in the natural resources sector, as always, is focused more on licensing and availability of land or resources. Land availability is increasingly rare as the government is now very reluctant to release forestry land to be converted into plantations or for other commercial use.
Stocks that are affected

In our view, three stocks that are best positioned to navigate through the rising competition are Kalbe Farma, Astra International, and Ramayana. Kalbe Farma has been highly innovative in introducing new products and commands a strong distribution network. Astra International commands strong brand equity, offers top quality after-sales services, and has strong market leadership. Low-end retailer Ramayana operates in a segment with high entry barriers given the complexity in merchandising at the right price and securing location in low-income populated areas. In our view, three stocks that will face the strongest headwinds amid competition are Mitra Adiperkasa, Ace Hardware, and Bank Danamon. Mitra Adiperkasa and Ace Hardware operate in main cities and main shopping malls, where there are lower entry barriers for new competing entrants, and they are also facing rising cost pressure as bargaining power is shifting from retailers to property owners. Bank Danamon also faces intensifying competition as heavyweights such as Mandiri and BCA aim to grow their consumer financing and SME loans aggressively, which are the core business areas for Bank Danamon.
Fig. 24: Select stocks impacted by rising competition
Net Net PER PER profit profit 13F 14F growth growth (x) (x) 13F (%) 14F (%) 25.1 13.7 16.6 21.5 3.2 12.4 21.6 11.6 13.1 18.2 2.7 11.5 20.0 16.4 14.8 21.6 24.6 6.6 16.3 17.5 26.7 18.3 20.8 7.4 DVD PB ROE yield 13F 13F 13F (x) (%) (%) 6.1 3.7 2.5 4.2 0.7 1.7 27.8 29.4 15.6 21.3 25.5 14.3 3.0 3.7 3.3 0.7 4.6 2.4
No 1 2 3 4 5 6
Company Kalbe Farma Astra Int'l Ramayana Mitra Adiperkasa Ace Hardware Bank Danamon
Price (IDR) 1,040 7,500 1,170 6,550 820 5,550
Rec Buy Buy Buy Neutral Neutral Neutral
Source: Bloomberg, Nomura estimates Note: Pricing as of 2 January 2013
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January 8, 2013
Acceleration of infrastructure projects

Infrastructure projects are progressing, especially in areas that required a less complicated land acquisition process (such as railways, seaports, airports, and toll roads in Bali built on top of mangrove and sea). This was before the Land Acquisition Law was in effect and investors perception was that nothing was built. A better coordination among the state-owned enterprises and the governments strong push to accelerate the infrastructure sector is key to this new development. The land acquisition will further accelerate this process in the coming years, we believe. One key decision being made by the government is that if a project is deemed critically important, the government will fast-track it by appointing one or more state-owned companies to develop the infrastructure (as opposed to tendering it out, which takes time to execute). This should eventually force potential investors to jump in and take a strong view in participating in the Indonesian infrastructure programme or risk being left out. The Land Acquisition Law for Infrastructure Development should further accelerate the process as soon as the government proves that it can be effectively implemented on the ground. We continue to believe that the law will do more good than harm and will help to accelerate infrastructure projects, both existing as well as new projects. Under the legal umbrella of the Land Acquisition Law, the government will be able to complete the land acquisition without the risk of being held back by owners who refuse to sell. The law also provides certainty in the timing of the whole land acquisition process, from socialization of the project to the actual land acquisition. Pricing will also be relatively fair as valuation will be done by accredited appraisal. Key time tables as outlined in the Land Acquisition Law: Stage 1 Preparation (104-242 working days): The government should carry out socialization of the infrastructure projects in advance (transparency). This will happen in the first phase of the project. The process can be sped up if land owners have no objection, otherwise the provincial governors will decide either to use the proposed location or move the project to an alternate location. If people continue to refuse, they can challenge the governors decision in the administrative court with only one chance to appeal to the Supreme Court. The entire court process will take no more than 14+74 working days. The whole stage 1 process, if exhausted, will take a maximum of 242 days. Stage 2 Implementation (134-250 working days): Fair price of the land is determined through independent appraisal, followed by negotiation in the form of compensation (cash or re-settlement). Re-settlement is also an option to be offered to the landowner. Land owners who disagree with the compensation can take the case to court with only one chance to appeal to the Supreme Court. The entire court process will take a maximum of 30+74 working days. The entire stage 2 process, which includes revocation of land rights, will take no more than 250 working days. Stage 3 Handover (7 working days): After the implementation of land acquisition and stage 2 is completed, the land acquired will be handed over for the project development. The project will be tendered out after preparation (stage 1) is completed. Parliament passed The Land Acquisition Law in December 2011, allowing the government to force landowners to sell their land at market price if needed for public infrastructure projects (eminent domain). This was followed by the implementation of the regulation of the law that was issued in August 2012. The implementation of the regulation is a crucial part of the law as it regulates the detail procedure of the land acquisition process and sets the maximum time frame and structure (see box above). The law has appointed BPN (National Land Agency) as the only body responsible for land acquisition that is in the public interest. This differs from the past where the Ministry of Public Works was the champion for land acquisition (and the Ministry of Public Works still has to go through the National Land Agency to verify and change ownership title of the land). Thus, the process has been simplified from two steps into one.
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January 8, 2013
The law is effective immediately for new projects. Existing projects must still resort to normal negotiation processes until 31 December 2014, wherein if the negotiation stalled, the land acquisition law can be used to enforce compulsory purchase for the remaining land yet to be acquired.
Impact on new projects

The implication for new projects is clear. The new law allows for a speedy land acquisition process for new public infrastructure projects. Despite many lingering doubts from sceptics over the effectiveness of the Land Acquisition Law, we have given the Land Acquisition Law the benefit of doubt and expect it to accelerate new project developments. The maximum period of 583 days (from socialization to execution of the land purchase) mandated by the law is a very strong foundation for authorities (both in the technical department as well as the local governments) to execute the land acquisition and thus development of the infrastructure projects. It is worth noting that local government officials are generally keen to develop infrastructure in their areas, as that often has a positive multiplier impact on the local economy. The process has been slow in the past as authorities could not legally force landowners to sell their land (in the past, there were cases where landowners refused to sell, even if the offer price was near or above market price, due to various reasons). We also expect the Land Acquisition Law to attract more investors into infrastructure projects as it provides more certainty on the timing and, thus, return visibility of a project compared to the past decade.
Impact on existing projects

The key concern and push-back on the effectiveness of the law is that it does not allow existing projects to jump in and use the law until the end of 2014. However, even for the existing projects that cannot use the Land Acquisition Law immediately, it is just a matter of time (with maximum delay to 2015) when the law can be used for compulsory land purchase. As such, many existing projects will also be accelerated because developers and project winners will have much better certainty on the timing and process of land acquisition. For example, prior to the passing of the Land Acquisition Law, contractors/toll road operators tended to wait until land acquisition was ~90% completed before they would start the physical development of the project. This is part of the risk management in order to avoid working capital being locked in case some owners of the lands refuse to sell (the funds that are invested into project development will not generate any cash flow if the project cannot be completed and the toll road cannot be opened). Post land acquisition, contractors/toll road operators will be able to start the physical development of the toll road at a much lower threshold of land acquisition completion because there is certainty that they will get the remaining land in 2015 at the latest. The ability of the law to force the owner to sell the land will also help to speed up the land acquisition process as the landowner knows that he has to reach an agreement or the land acquisition law will take effect in 2015. The new land acquisition law itself helps provide process and timing certainty for land acquisition that will benefit infrastructure development. The new regulation provides that the entire process from socialization to the land rights transfer will be a maximum of 583 days or slightly more than 1.5 years (as compared to some land acquisition processes in the past that took up to 10 years).
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January 8, 2013
Fig. 25: Governments projection of infrastructure spending needed in Indonesia

(IDRtn) 1,000 800 600 Road 400 Others Airport & Seaport
Fig. 26: Infrastructure spending (capex) in government budget

(IDRtn) 250 200 Capital Expenditure (LHS) % of GDP (RHS) 2.0%
1.5%
Power
150 1.0% 100 50 0.5%
200 0 2010 - 2015

Source: Office of Coordinating Ministry for Economy
Rail 0 0.0%
2011A
2012P
2016 - 2030
Source: Office of Coordinating Ministry for Economy, Nomura estimates
Stock implications
In our view, the five stocks that will benefit the most from the acceleration of infrastructure development are toll operator Jasa Marga, contractor Wijaya Karya, and cement companies Semen Gresik, Indocement, and Holcim Indonesia. Aside from the five main beneficiaries, some companies that we think will indirectly benefit from the acceleration of infrastructure development are banks that provide funding to those projects, property developers that potentially gain better access and thus higher land price, and some consumer companies such as cigarette producer Gudang Garam, and Kalbe Farma which produce energy drinks.
Fig. 27: Five stocks that stand to benefit most from the acceleration of infrastructure development
Net Net profit profit growth growth PER PER 13F 14F PB Rec 13F (x) 14F (x) (%) (%) 13F (x) Buy Buy Buy Buy Buy 21.9 15.7 15.4 16.4 14.1 15.7 12.2 12.3 14.6 12.7 10.1 34.5 30.9 10.7 16.4 39.1 32.4 24.5 12.2 11.1 3.9 3.2 4.4 3.6 2.3 DVD yield 13F (%) 1.8 1.4 2.6 1.8 3.3
No 1 2 3 4 5
Company Jasa Marga Wijaya Karya Semen Gresik Indocement Holcim Indonesia
Price (IDR) 5,550 1,530 15,950 21,900 2,725
ROE 13F (%) 18.9 21.3 31.8 23.6 16.9
Source: Bloomberg, Nomura estimates Note: Pricing as of 2 January 2013
2013F
2005
2006
2007
2008
2009
2010
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January 8, 2013
Reform likely to slow ahead of 2014 election

We expect the governments reforms movement to slow in 2013, especially the unpopular reforms. The governments focus is on the implementation of policies to accelerate/sustain GDP growth, ring fencing financial sector from external shock, retain value-added processing of commodities, and improve administration/internal control. Our hope of a big step to remove fuel subsidies is increasingly unlikely based on our read into 2013 budget and latest political development. The budget of IDR194tn in fuel subsidies with the assumption of 46m kiloliter volume of subsidised fuel implied that government did not expect a demand shock from a large increase in subsidised domestic fuel price. Therefore, we do not expect the government to remove fuel subsidies and even if there is any effort to increase domestic subsidised fuel price, it will be a small increment. That being said, if there is one factor that will force the governments hand, we believe it will be a spike in oil prices that will threaten a budget deficit and thus put heavy pressure on the currency and investors confidence. In addition, there have been concerns that Indonesias policies will swing into more nationalistic and populist territory as the elections draw near. The stream of recently issued regulations certainly attracts attention and concern from equity investors. However, we see that the direct impact on equities has been limited and equity price movements have been driven primarily by company fundamentals and global economic conditions/market sentiment. We expect no significant major nationalistic economic policies to be issued in 2013. Instead, the government is likely to focus on a renegotiating royalty payment of mining companies and ensuring that the regulations that have been issued, such as a ban on the export of metal ore which can be implemented in 2014.
Looking back
The recent announcement of several policies is unsurprising, in our view, given that communication was done early during the process. Investors were made well aware by the government with regards to the regulations, given the government communicated those potential regulations early during the process. Indeed, some regulations, eg, the ban on the export of metal ore, were passed into law in 2009, and, thus, investors should already be well aware of them. Further, the regulations are still within our expectation over the frameworks targeted by the government: 1. To ring fence and manage risks in Indonesias banking sector. 2. To move up the value chain in the resources sector, from exporting raw materials to exporting processed or refined products. 3. To improve administrative and internal control such as export-imports reporting, tax reporting, centralised electronic ID system, etc. 4. To accelerate economic growth and promote investment. Regulations that fall under (1) are: The loan to value regulation (preventing a bubble in certain sectors) The export repatriation regulation (to increase the transaction volume of FX in the domestic market and better reporting/tax control) The regulation on the single shareholder limit in the banking sector The law and formation of the Financial Services Authority The move to the electronic ID (e-KTP) programme, which will integrate the population database of each Indonesian (see page 15 of Indonesia outlook 2012 - ANCHOR REPORT: Leaping to bigger things. )
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January 8, 2013
Regulations that fall under (2) are: The lowering of export tax on refined palm oil vs. crude palm oil (which should give cost benefits and incentives to build refinery and oleochemical plants in Indonesia). The ban on mineral ore export in 2014 (to force mining companies relocate their smelter/refinery plant in Indonesia), and potentially reduce exports of natural gas and divert it for domestic use to lower the cost of energy (and thus reduce the import of oil/fuel) which arguably is part of (3) as well. Note that Indonesia has no intention of defaulting on its natural gas contract obligation as the government is in discussions about not extending the expired export contract and not initiating a new export contract for natural gas until the domestic demand is fulfilled. Key regulations that fall under (3) are: The regulation that only a certain number of ports can be used to import or export a particular category of goods. General importer can only imports one category of goods per import license. Some of the regulation in #1 such as the electronic ID project and export repatriation regulation. Key regulations that fall under (4) are: The passing of the Land Acquisition Law for public infrastructure. Tax holiday for certain industry. The acceleration of infrastructure development.
Going forward
We still expect more regulations within the policy frameworks above to be issued in 2013, albeit at slower pace. Most of the key regulations have been issued in the last 18 months and the government is likely to focus more on the implementation and closing down any loophole. The efforts to accelerate economic growth, retain the value-added process, and to safeguard Indonesias systemic risk from internal and external shock will continue. Some new regulations might create a lot of noise and raise investors concern along the way, but we believe the essence and spirit of the upcoming laws and regulations will remain that of good intentions. In our view, the Indonesian regulatory environment has swung too far into the free market and open market mechanism following the Asia Financial Crisis in 1997; the government is now trying to get it back into the middle and to be more in line with global practices. This process is often seen as a negative by investors despite the fact that, after the swing, Indonesian regulations and government policies remain relatively progrowth and pro-market. One example is the regulation on single ownership limit in banks in which financial institutions can only own a maximum of 40% stake in an Indonesian bank. The limits for individuals and non-financial institutions are lower. Initially, investors feared that this regulation could be construed as being anti-foreigner, but it is not, as the regulation applies to both foreign and local shareholders. The single shareholder limit indeed aims to consolidate smaller banks and promote good corporate governance in the banking sector. Foreign shareholders can still own 99% of Indonesian banks so long as none of the shareholders breach the single shareholding limit. Any foreign investor who would like to own 99% of an Indonesian bank needs to obtain Bank Indonesias approval and meet the requirements as a healthy bank with good corporate governance based on Bank Indonesias assessment.
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January 8, 2013
Wish list of what needs to be done

Indonesian and foreign investors have a long wish list of what needs to be done in order for Indonesia to be deemed as a better place to live, to invest and move forward. We believe this is not unique to Indonesia. In our view, the top three wishes in the list are: Removal of fuel subsidies: Indonesia spent IDR89tn in fuel subsidies in 1H12 (14% of budget expenditure; 2.2% of GDP), which is a poor allocation of resources, in our view. It is not about affordability (the budget can afford it), but more about allocating the money for greater importance such as infrastructure development, education and healthcare. Legal reform to improve legal certainty is at the top of the wish list of many foreign investors in Indonesia. This reform, however, will be the toughest and the slowest, in our view. Note that Indonesias judicial system is separated from executive power (government) and is at an equal position with executive power. However, it has made a good start with the anti-corruption body, which has gained widespread public support and has started to show some results (see articles in the link below). Demonstration Begin as KPK-Police Standoff Takes a Fresh Turn - Tempointeractive Photo News - Media Indonesia "Where Are You Mr. President? ask Indonesian Twitter Users - Tempointeractive Nationwide protests in support of KPK Indonesian House Agrees to Terminate KPK Law Deliberations Debottlenecking infrastructure is one of the urgent tasks and is being addressed. The poor infrastructure has led to high logistic and operating costs, causing a rise in cost of doing business in Indonesia. Therefore, any improvement in infrastructure will benefit companies and consumers alike, bringing down operating costs (higher profit) and helping to reduce inflation.
Fig. 28: Ranking of infrastructure competitiveness by the World Economic Forum

Rank /144
Country US Brazil China India Russia Singapore Malaysia Thailand Vietnam Indonesia
Available Quality of Quality of Quality of Quality of air airline seat Quality of Overall Quality railroad port transport kms/week, electricity Infrastructure of roads infrastructure Infrastructure infrastructure millions supply 25 107 69 87 101 2 29 49 119 92 20 123 54 86 136 3 27 39 120 90 18 100 22 27 30 5 17 65 68 51 19 135 59 80 93 2 21 56 113 104 30 134 70 68 104 1 24 33 94 89 1 7 2 13 12 16 23 17 33 20 33 68 59 110 84 6 35 44 113 93
Mobile telephone subscriptions/ 100 pop 72 41 114 116 5 14 33 57 18 90
Fixed telephone lines/ 100 pop 15 55 58 118 41 30 85 95 86 78
Source: World Economic Forum: Global Competitiveness Report 2012-2013, Nomura Global Economics
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January 8, 2013
Politics ahead
Indonesia will hold its next elections on 9 April 2014 (parliament) and 9 July 2014 (presidential). President Susilo Bambang Yudhoyono, who has served two terms (2x five years), is no longer allowed to run based on the Indonesian election law that limits an individual to hold a maximum of two terms as president. Given the potentially tight race among the top five political parties and the falling popularity of the ruling Partai Demokrat, we expect the government to be reluctant to take any decisions on risky and unpopular policies that could cause them to lose even more votes and popularity. In the meantime, political parties will also try to undermine other parties popularity and one of the easiest ways is to find, prove, and unveil corruption cases done by other parties officials or financial supporters. Therefore, big cases such as investigation into corruption charges of certain political party officials will intensify and are likely to peak in 2013-early 2014, in our view. A positive aspect about the upcoming elections is that we are likely to see a further consolidation of political parties in parliament from 16 parties in 2004-09 and 9 parties in 2009-14. The consolidation will be aided by the election law (UU No.8/2012) that increases the election threshold to be represented in parliament to 3.5% in 2014 vs. 2.5% in 2009. This means that political parties that gain less than 3.5% of total votes at nationwide count will have to forfeit parliament seats won at regional as well as national levels. If the 2014 elections indeed lead to more consolidation in political parties represented in parliament, future negotiation and the ability to efficiently pass important laws will hopefully improve. The elections in 2014 The Indonesian elections are direct, where people can opt to directly vote for not only the political party, but also to choose a particular party representative. As such, an unpopular candidate might lose to his colleague in winning the parliament seat even if he is the top candidate of his party. This will force party candidates to realign their interests with the people as well as their political party. None of the political parties currently seem very confident about winning a complete majority in the parliament on its own; potential implications of this situation include: 1. The 2014-19 elections could again result in a coalition government but the number of political parties in coalition members might be less than the current coalition of seven political parties, in our view. Although the president is directly elected by the people, he/she will still need support in parliament to be able to govern effectively. 2. The next president should be a relatively good and well-accepted figure. None of the political parties are strong enough to push a presidential candidate that is not popular among the people (low electability). 3. Parliament and government are likely to be slower in proposing and passing new laws/bills that are not urgent. We expect more status quo till the elections rather than major new reform initiatives. It is worth noting that election for parliament members (DPR) is separate from the presidential election. Often the results of the two elections are completely different: the presidential candidate from the party that wins the most seats in parliament might not win the presidential election. When current President Susilo Bambang Yudhoyono won the presidential election in 2004, his Partai Demokrat only won 55 (10%) parliament (DPR) seats, standing fourth after Golkar, PDIP, and PPP.
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January 8, 2013
Fig. 29: Election results in 2004 and 2009

No Parties 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Partai Demokrat Partai Golongan Karya Partai Demokrasi Indonesia Perjuangan Partai Keadilan Sejahtera Partai Amanat Nasional Partai Persatuan Pembangunan Partai Kebangkitan Bangsa Partai Gerakan Indonesia Raya Partai Hati Nurani Rakyat Partai Bintang Reformasi Partai Damai Sejahtera Partai Bulan Bintang Partai Persatuan Demokrasi Kebangsaan Partai Pelopor Partai Karya Peduli Bangsa Partai Keadilan dan Persatuan Indonesia Partai Nasional Indonesia Marhaenisme Partai Penegak Demokrasi Indonesia 2009 148 106 94 57 46 38 28 26 17 560 % of seat 26.43% 18.93% 16.79% 10.18% 8.21% 6.79% 5.00% 4.64% 3.04% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100% 2004 55 128 109 45 53 58 52 14 13 11 4 3 2 1 1 1 550 % of seat 10.00% 23.27% 19.82% 8.18% 9.64% 10.55% 9.45% 0.00% 0.00% 2.55% 2.36% 2.00% 0.73% 0.55% 0.36% 0.18% 0.18% 0.18% 100%
Total
Source: General Election Commission, House Representative
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January 8, 2013
Our top picks and market view

We expect a 16% gain in JCI in 2013 to 5000, driven mainly by earnings growth instead of valuation multiple expansion. JCI currently trades near its three-year P/E average of 13.7x and its three-year P/B average of 4.1x, which we believe are justified by the strong balance sheet, resilient earnings growth, high ROE of 28% in FY13F, and falling interest rate/inflation environment. This, however, could face technical headwinds going forward as Indonesia is still a consensus Overweight market based on EPFR data. Resilient domestic consumption, manageable inflation and recovery in earnings growth should continue to support a higher JCI in coming years. Stabilisation, if not recovery, in commodity prices, should help to prevent a sharp deterioration in the trade balance in 2013F. Our economics team expects the trade balance to be only slightly negative (USD0.8bn) in 2013 and the current account deficit to remain manageable at -1.9% of GDP.
Fig. 30: P/E ratio of JCI Index and MSCI Asia
(x) 20 MSCI - 12mth Fwd PE x JCI - 12mth Fwd P/E x
Fig. 31: P/B ratio of JCI Index and MSCI Asia

(x) 7 6 JCI - P/B MSCI - P/B
15
5 4
10 3 5 2 1 0 01 02 03 04 05 06 07 08 09 10 11 12
Source: Thompson Reuters Datastream, Nomura International (Hong Kong) Quantitative Strategies
0 01 02 03 04 05 06 07 08 09 10 11 12
Source: Thompson Reuters Datastream, Nomura International (Hong Kong) Quantitative Strategies
Fig. 32: Indonesia: Consensus Weighting Relative to MSCI Asia ex-Japan Benchmark
2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5%
Fig. 33: Foreign net buy/sell in IDX (daily) from Jan 2010 Dec 2012
Foreign Net Buy (Sell) 25days Mov Avg 2.0 1.5 1.0 0.5 0.0 (0.5) (1.0) (1.5) (2.0)
Jan-10 Jan-11 Jan-12
(IDR tn)
Jan-01 Sep-01 May-02 Jan-03 Sep-03 May-04 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12
Note: Methodology: EPFRs AxJ Funds consensus Indonesia allocation % minus MSCI AxJ Index Indonesia country weight % Source: EPFR Global, MSCI
Source: CEIC, Bloomberg, Nomura research
Jan-13
24
Jul-10
Jul-11
Jul-12
January 8, 2013
We have shifted our top pick portfolio to be even more overweight on infrastructure to capture the acceleration of infrastructure projects. We reduce our weighting on the consumer sector to underweight due to high market expectation (valuation) and upcoming margin pressure on the back of rising costs and competition. The commodity sector, which underperformed in 2012, remains the wildcard, but increasingly looks interesting as the global economy is moving into a modest recovery mode. It will be still a stock-picking market in general in 2013, in our view. Our target valuation multiple is maintained at 15x forward P/E, which means most of the future upside potential will likely come from earnings growth. Our aggregate earnings growth estimate for Indonesian stocks under our coverage is 16.4% for 2013F and 19.0% for 2014F.
Fig. 34: Financials vs JCI
JAKFIN Index JCI
160 150 140 130 120 110 100 90 80 (1 Jan 2011 = 100)
Fig. 35: Consumer vs JCI

JAKCONS Index JCI
Fig. 36: Mining vs JCI

JAKMINE Index 140 130 120 110 100 90 80 70 60 50 40 JCI
160 150 140 130 120 110 100 90 80
Oct-11
Jan-11
Jan-12
Oct-12
JCI
Apr-11
Apr-12
Apr-11
Oct-11
Oct-11
Oct-12
Apr-12
Jan-11
Jan-12
Jan-13
Jan-11
Jan-12
Oct-12
Source: Bloomberg
Source: Bloomberg
Jan-13
Source: Bloomberg
Fig. 37: Automotive vs JCI

JAKMIND Index JCI
Fig. 38: Telecom vs JCI

JAKINFR Index 150 JCI
Fig. 39: Property vs JCI

JAKPROP Index 180 160
160 150 140 130 120 110 100 90 80
130 140 110 90 70 50 120 100 80 60
Oct-11
Jan-11
Jan-12
Oct-12
Oct-11
Oct-12
Oct-11
Jan-11
Jan-12
Jan-11
Jan-13
Jan-12
Oct-12
Source: Bloomberg
Source: Bloomberg
Jan-13
Source: Bloomberg
Key recent trends

1. The trade balance remains volatile and is turning back and forth between positive and negative territories. FX reserves ticked back up since September 2012 despite the weak currency which implies that Bank Indonesia intentionally allows the rupiah to weaken to help exports and curb imports. Thus, although the trade deficit is unlikely to reverse given the strong FDI and domestic consumption, the markets concern over a deteriorating trade balance and volatile rupiah should have somewhat reduced, in our view.
Jan-13
Jul-11
Jul-11
Jul-12
Jul-11
Jul-12
Apr-11
Apr-11
Apr-12
Apr-11
Apr-12
Apr-12
Jul-12
Jan-13
Jul-11
Jul-11
Jul-12
Apr-11
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January 8, 2013
Fig. 40: Trade balance (last Nov12)

(USDmn) 3,000 2,500 2,000 1,500 1,000 500 0 (500) (1,000) (1,500) Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Fig. 41: FX reserves (last Nov12)

(USDbn) 140 120 100 80 60 40 20 0 Jan08
Jan09
Jan10
Jan11
Jan12
Jan13
Source: Bloomberg, Statistics Indonesia
Source: Bank Indonesia, Bloomberg
2. Domestic consumption remains solid. Despite the lower commodity prices vs last year, the slowdown in domestic consumption is not evident yet. Car sales remain strong and motorcycle sales have recovered from the impact of LTV regulation faster than expected. Cement sales were still growing at 17% y-y in 11M12, reflecting a strong demand in property and infrastructure sectors. The muted impact from LTV regulation is partly due to the loophole in the LTV regulations that exclude sharia bank and sharia financing. Bank Indonesia has issued regulations that will include sharia banks in the LTV regulation and MoF will follow soon with regulations to include sharia financing companies into LTV regulations. We believe that the purchasing power has still held up relatively well despite falling commodity prices because GDP growth remained strong at 6.2% in 3Q12. Rural disposable incomes remain good as farmers should have paid off their motorcycle credit, bought their mobile phone and many have renovated their houses. Thus, the initial spending cycle is completed and farmers should have entered the investment or increased-savings up-cycle. In urban areas, workers are seeing more job creation from rising FDI and domestic investment plus will enjoy the benefit of the large increase in minimum wages.
Fig. 42: FDI trend (update 9M12)
(USDmn) 25,000 20,000 15,000 10,000 5,000 0
9M11 9M12 00 01 02 03 04 05 06 07 08 09 10 11
Fig. 43: Cement sales trend (last Nov 12)

('000 tones) 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 05 06 07 08 09 10 11 12
Source: Indonesia Cement Association (ASI)
Inv Realization: Foreign: Tertiary Sector (TS) Inv Realization: Foreign: Secondary Sector (SS) Inv Realization: Foreign: Primary Sector (PS)
Domestic Year Average
Source: CEIC
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January 8, 2013
Fig. 44: Car sales trend (last = Nov12)

('000 units) 120 100 80 60 40 20 0 05 06 07 08 09 10 11 12 13
Source: Gaikindo (The Association of Indonesia Automotive Industries)
Fig. 45: Motorcycle sales trend (last = Nov12)

('000 units) 800 700 600 500 400 300 200 100 0 05 06 07 08 09 10 11 12 13
Source: AISI (Indonesian Motorcycles Industry Association)
Domestic car sales Year average
Domestic motorcycle sales Year average
3. Since Bank Indonesia (BI) stated in early August 2012 that it might allow the rupiah to depreciate in an effort to curb imports/boost exports, the rupiah has weakened from 9,468/USD at 1 August 2012 to 9,793/USD at end-2012 based on data from Bank Indonesia. Despite the recent weakness in the rupiah, volatility is much muted than historical levels, which allows businesses to manage their production costs and price adjustments much better. Our FX team expects the rupiah to weaken slightly to 9800/USD at end-2013 before strengthening back to 9600/USD in 2014. If the capital inflows are strong and trade balance improves, BI will have room to abandon its weak rupiah policy once inflation starts to tick up. In 2011, BI adopted a strong rupiah policy to stem inflation (which hit a high of 7.02% in January 2011) and the rupiah strengthened from IDR8,988/USD at the start of 2011 to IDR8,579/USD at the end of 1H11. Inflation declined to 5.05% in Jun11 and to 3.79% in Dec11. 4. Risk of inflation is rising on the back of global monetary easing and global modest economic recovery. However, the key important factor for the mass population, food inflation, remain subdued as the feared El Nino weather phenomenon (often associated with drought) turned out to be much milder than initially feared. Prices of agricultural products might move up if the harvest fails. However, the good rice harvest earlier this year and last year plus ample rice inventories globally should provide some cushion to the price of rice, the most important agricultural product in the inflation basket. Rice is the main source of carbohydrates and palm oil is the main source of fats for many Indonesians.
Indonesia top picks

We position our top picks to benefit from a higher Jakarta Composite Index (JCI), which we believe will be driven by the infrastructure-related sector. Our top picks in Indonesia include Indocement, Semen Indonesia, Jasa Marga, and Wijaya Karya, which make the infrastructure-related stocks account for four of our 10 top picks. The progress in infrastructure development, the implementation of the land acquisition law, and the governments effort to accelerate infrastructure projects should continue to support financial performance of those stocks and draw investors interest to the sector, in our view. Our top picks also include two automotive stocks, Astra International and Indomobil, as we believe the automotive sector remain in early stages of growth and we expect car sales to double to 2m units in 2017F. Astra is a strong market leader with 54% market share that should continue to capture the largest pie of the strong growth and Indomobil is a market share gainer that will grow faster than the industry, in our view. Both are not
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January 8, 2013
directly exposed to the threat of margin pressure as they are largely auto distributors and only have minority stakes in the manufacturing. We also include Kalbe Farma, which has proven to excel in a highly fragmented and competitive pharmaceutical, consumer health, and nutritional products. The launch of the national healthcare program and the rising income will boost healthcare spending which is still very low at the moment. The banking sector is represented by Bank Mandiri and Bank Negara Indonesia, as we believe large banks will continue to be better positioned vis--vis smaller banks. We view Mandiri as having the strongest earnings growth prospects in the banking sector in the next two years, underpinned by its strong deposit franchise and ROAE upside from its potential productivity and cost efficiency improvements. Bank Negara Indonesia has shown early signs of accelerating core earnings growth. This represents an improvement in its earnings growth quality, which was driven by NPL writeback in the past few years. The recent court ruling that allow state banks to grant debt principals reduction to debtors will allow BNI to resolve its legacy NPL and near term sentiment will be aided by its effort to sell stakes in BNI Life to foreign strategic partner. The coal mining sector is only represented by United Tractors, which we believe to have lower earnings volatility as it is related to coal mining volume rather than coal price. We think that coal prices will be range-bound around the current levels and it may need a strong demand recovery to reach a level higher than USD100/ton (from current USD85-90/ton). (Indonesia coal - The sum of all fears) Even if coal prices remain range-bound at USD80-100/ton, we believe United Tractors should see heavy equipment sales volume recovering as the confidence returns. The sharp fall in equipment sales in the past three months is not solely due to economic factors, in our view, as many of Indonesian coal mines remain profitable. As well, the contract mining business is still growing with volume up 7.9% in coal delivered and 7.0% in overburden removal. (United Tractors (UNTR IJ, Buy) - Earnings less volatile than price suggests)
Fig. 46: Indonesia top picks
PER 13F Rec (x) Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy 13.7 11.0 9.1 16.4 11.0 21.9 25.1 15.4 11.5 15.7 17.4 13.9 Net Net PER profit profit 14F growth growth (x) 13F (%) 14F (%) 11.6 8.9 7.8 14.6 8.4 15.7 21.6 12.3 9.7 12.2 11.6 11.7 16.4 25.3 17.4 10.7 38.3 10.1 20.0 30.9 12.0 34.5 26.7 16.4 17.5 23.3 16.2 12.2 31.0 39.1 16.3 24.5 17.9 32.4 48.5 19.0 DVD PB ROE yield 13F 13F 13F (x) (%) (%) 3.7 2.2 1.4 3.6 2.3 3.9 6.1 4.4 2.3 3.2 3.7 2.9 29.4 21.6 16.7 23.6 22.2 18.9 27.8 31.8 21.5 21.3 22.9 20.7 3.7
No Company 1 2 3 4 5 6 7 8 9 Astra Int'l Bank Mandiri BNI Indocement Indomobil Jasa Marga Kalbe Farma Semen Gresik United Tractors
Price 7,500 8,250 3,725 21,900 5,300 5,550 1,040 14,800 20,950 1,530
Ticker ASII IJ
1.8 BMRI IJ 2.2 1.8 BBNI IJ INTP IJ
1.8 IMAS IJ 1.8 JSMR IJ 3.0 KLBF IJ 2.6 SMGR IJ 3.5 UNTR IJ 1.4 WIKA IJ 2.3 2.8
10 Wijaya Karya
Market - Simple Average Market - Aggregate (Weighted)
Source: Bloomberg, Nomura estimates. Note: Pricing as of 2 January 2013
Note: Our top picks portfolio is reviewed on a quarterly basis. Performance measure is based on equal weighting for each stocks and reset to 100 at the beginning of the quarter. Members of our top picks portfolio are stocks under our coverage with reasonable liquidity.
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January 8, 2013
Fig. 47: Valuation matrix of companies under our coverage

PER Net profit Net profit 14F growth growth (x) 13F (%) 14F (%) 9.6 13.4 7.8 7.8 11.5 8.9 18.8 21.0 17.4 15.3 6.6 25.3 19.5 22.2 16.2 18.1 7.4 23.3 PB ROE 13F 13F (x) (%) 2.3 3.7 1.4 2.2 1.7 2.2 20.1 24.2 16.7 26.6 14.3 21.6 DVD yield 13F (%) 1.7 1.2 2.2 2.2 2.4 1.8 BBCA IJ BBNI IJ BBRI IJ BDMN IJ BMRI IJ
Company Banking/Financial Services Bank Central Asia Bank Negara Indonesia Bank Rakyat Indonesia Bank Danamon Indonesia Bank Mandiri
Price
TP
Mkt Cap (USDmn)
PER Rec 13F (x) 11.5
Ticker
9,100 3,725 7,050 5,550 8,250
7,700 5,000 9,600 6,000 10,200
23,074 7,202 18,032 5,515 19,959
Reduce Buy Buy Neutral Buy
16.4 9.1 9.2 12.4 11.0
Metal & Mining Adaro Energy Bumi Resources Bumi Resources Minerals Harum Energy Indika Energy Indo Tambangraya Megah Tambang Batubara Bukit Asam 1,740 620 245 6,600 1,570 42,150 16,550 1,900 840 810 6,400 2,000 40,000 18,000 5,770 1,335 650 1,848 848 4,938 3,954 Buy Neutral Buy Neutral Neutral Neutral Neutral
15.1 16.0 49.3 86.8 11.4 7.1 14.7 14.6
8.5 10.1 3.7 21.8 8.6 4.4 8.9 11.1
-10.3 -9.8 88.5 31.2 6.3 -5.0 -21.4 -11.2
77.9 58.0 1226.5 298.7 33.3 62.0 66.0 31.9
2.3 2.2 1.6 0.4 4.5 0.9 4.8 3.6
15.2 14.2 3.3 0.5 33.8 13.8 32.9 26.0
3.2 2.1 0.1 0.0 2.2 3.7 6.5 3.9 ADRO IJ BUMI IJ BRMS IJ HRUM IJ INDY IJ ITMG IJ PTBA IJ
Plantation Astra Agro Lestari BW Plantation Gozco Plantations PP London Sumatra Salim Ivomas Pratama 20,050 1,390 205 2,425 1,230 29,000 2,100 230 3,300 1,900 3,274 582 128 1,715 2,017 Buy Buy Neutral Buy Buy
8.4 9.0 9.0 6.4 9.0 7.4
7.7 9.1 6.2 4.7 8.0 6.5
75.1 70.4 88.9 88.1 39.2 117.6
9.9 -1.7 45.4 34.8 12.0 13.6
1.9 2.8 2.5 0.7 2.1 1.2
22.7 35.0 31.6 11.5 25.8 17.9
3.0 4.0 1.1 1.7 3.2 2.5 AALI IJ BWPT IJ GZCO IJ LSIP IJ SIMP IJ
Consumer, Automotive Astra International Indomobil Sukses International Gudang Garam Indofood CBP Indofood Sukses Makmur Mayora Unilever Kalbe Farma Ace Hardware Mitra Adiperkasa Ramayana
Source: Nomura research.
16.9 7,500 5,300 55,500 8,000 5,800 19,750 21,850 1,040 820 6,550 1,170 9,500 8,500 67,500 9,500 6,050 27,000 17,200 1,200 620 7,000 1,800 31,480 3,039 11,072 4,836 5,280 1,570 17,285 5,476 146 1,127 861 Buy Buy Buy Buy Neutral Buy Reduce Buy Neutral Neutral Buy 13.7 11.0 16.8 19.3 13.6 17.8 31.3 25.1 3.2 21.5 16.6
14.7 11.6 8.4 15.3 17.0 12.5 13.7 28.6 21.6 2.7 18.2 13.1
18.6 16.4 38.3 45.8 6.1 9.6 22.7 9.9 20.0 24.6 21.6 14.8
15.3 17.5 31.0 9.8 13.7 8.3 29.5
4.3 3.7 2.3 3.5 3.5 2.1 4.1
25.5 29.4 22.2 22.0 19.4 16.5 25.7
2.9 3.7 1.8 2.4 2.1 2.9 1.1 3.2 3.0 4.6 0.7 3.3 ASII IJ IMAS IJ GGRM IJ ICBP IJ INDF IJ MYOR IJ UNVR IJ KLBF IJ ACES IJ MAPI IJ RALS IJ
9.6 36.3 119.0 16.3 20.8 18.3 26.7 6.1 0.7 4.2 2.5 27.8 25.5 21.3 15.6
Note: Pricing as of 2 January 2013. JCI Market Cap: USD387,778mn Nomura coverage: 70%.
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January 8, 2013
Fig. 48: Valuation matrix of companies under our coverage (continued)

DVD yield 13F (%)
3.5 3.6 1.9 5.2 0.3 0.0 EXCL IJ ISAT IJ TLKM IJ TBIG IJ TOWR IJ
Company
Telecom XL Axiata Indosat Telkom Indonesia Tower Bersama Infrastructure Sarana Menara Nusantara
Price
Mkt Cap TP (USDmn)
Rec
PER 13F (x)

14.9
PER Net profit Net profit 14F growth growth (x) 13F (%) 14F (%)
14.0 12.7 23.4 12.0 25.0 22.2 7.9 6.1 -10.8 6.9 47.2 47.3 7.0 8.3 12.2 4.7 16.1 23.0
PB ROE 13F 13F (x) (%)

2.6 2.7 1.9 2.3 6.5 8.3 17.4 21.1 -0.3 19.4 25.2 35.9
Ticker
5,700 6,450 8,950 5,450 23,000
6,750 7,500 8,600 4,300 35,000
5,028 3,634 18,326 2,639 2,433
Neutral Buy Neutral Neutral Buy
13.7 26.2 12.5 29.1 27.3
Property Agung Podomoro Alam Sutera Bumi Serpong Damai Ciputra Development Lippo Karawaci Summarecon Agung 380 610 1,110 800 1,000 1,860 330 490 1,620 1,025 1,070 1,320 808 1,130 2,014 1,258 2,242 1,325 Neutral Buy Buy Buy Buy Buy
14.9 9.4 11.4 15.0 13.4 18.4 23.0
20.5 0.0 0.0 11.8 11.1 15.9 0.0
34.1 11.8 20.4 27.2 96.3 36.6 42.6
-27.7 -100.0 -100.0 27.4 20.5 15.4 -100.0
2.2 1.4 2.5 2.2 2.0 2.2 4.1
15.0 15.7 24.6 15.8 15.5 12.4 19.1
1.0 2.9 0.0 1.3 1.3 0.8 0.9 APLN IJ ASRI IJ BSDE IJ CTRA IJ LPKR IJ SMRA IJ
Infrastructure, Cement, Logistics Indocement Tunggal Perkasa Holcim Indonesia Semen Gresik Wijaya Karya Krakatau Steel Jasa Marga AKR Corporindo United Tractors Perusahaan Gas Negara 21,900 2,725 15,950 1,530 640 5,550 4,125 20,950 4,600 26,900 4,275 17,900 1,800 870 6,875 4,250 33,000 5,000 8,359 2,165 9,809 984 1,047 3,913 1,634 8,102 11,562 Buy Buy Buy Buy Neutral Buy Buy Buy Neutral
14.6 16.4 14.1 15.4 15.7 9.0 21.9 17.4 11.5 14.3
12.2 14.6 12.7 12.3 12.2 0.0 15.7 13.4 9.7 13.1
14.5 10.7 16.4 30.9 34.5 -18.4 10.1 30.1 12.0 12.1
19.5 12.2 11.1 24.5 32.4 72.3 39.1 31.4 17.9 9.0
3.3 3.6 2.3 4.4 3.2 0.9 3.9 3.6 2.3 4.9
22.7 23.6 16.9 31.8 21.3 10.1 18.9 21.8 21.5 37.6
2.8 1.8 3.3 2.6 1.4 4.1 1.8 2.0 3.5 4.2 INTP IJ SMCB IJ SMGR IJ WIKA IJ KRAS IJ JSMR IJ AKRA IJ UNTR IJ PGAS IJ
Simple average Aggregate

Source: Nomura research
17.4 271,423 13.9
11.6 11.7
26.7 16.4
48.5 19.0
3.7 2.9
22.9 20.7
2.3 2.8
Note: Pricing as of 2 January 2013. JCI Market Cap: USD387,778mn Nomura coverage: 70%.
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January 8, 2013
Indonesia economic outlook

Paracuelles, Euben euben.paracuelles@nomura.com / +65 6433 6956 Venkateswaran, Lavanya lavanya.venkateswaran@nomura.com / +91 22 305 33053
Indonesia: Watch policies and politics

The policy environment is likely to be more uncertain ahead of the 2014 elections. Activity and external accounts: We expect GDP growth to remain stable at 6.1% in 2013, driven mainly by resilient domestic demand as was the case in 2012. We think growth in investment spending will likely moderate but that of private consumption should remain stable. Government expenditures should also contribute more positively ahead of the 2014 elections, as implementation of the budget improves, particularly on infrastructure (as opposed to this years under-spending). In terms of external demand, however, our assumptions remain subdued as our economics teams expect weak GDP growth in the US and Euro Area in H1 and in China in H2, which will be especially important for Indonesia. On the external front, we believe the current account deficit will likely narrow in 2013 but only marginally, supported by higher export growth to China in H1 and improving US and Euro Area growth in H2. That said, Indonesias import demand for oil is inelastic due to heavily subsidized local fuel prices, and so we expect large oil & gas imports to remain. This combined with still resilient domestic demand, which is further supported by policy announcements such as large minimum wage increases and an increase in the nontaxable income bracket, should continue to bolster strong import growth.
Fig. 49: GDP growth by expenditure
(pp) 10 8 6 4 2 0 -2 -4 -6 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 04 05 05 06 07 08 08 09 10 11 11 12
Source: CEIC; Nomura Global Economics
Fig. 50: Current account deficit

GCE GFCF (USD bn) 15 10 5 0 -5 -10 -15 2005 2006 2007 2008 2009 2010 2011 2012
Net Exports PCE GDP growth
Income oil & gas Current account balance
services non-oil & gas
In addition, we expect the political environment to heat up ahead of the 2014 elections, and we see a risk of a policy impasse, or worse, more nationalist/populist regulations that could damp the investment climate (see Asia Special Report: Indonesia: Policy swings). Evidence supporting this is a string of recent policy announcements including large minimum wage increases and the implementation of more import substitution policies. This is likely to add pressure to Indonesias already weakening external position the current account deficit has remained substantial, causing a noticeable decline in its basic balance, which could deteriorate further if FDI inflows start to slow.
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Fig. 51: Basic balance
Net FDI Current Account (CA) USDbn Basic balance 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 -8.0 -10.0 Mar-10Jun-10Sep-10Dec-10Mar-11Jun-11Sep-11Dec-11Mar-12Jun-12Sep-12
Inflation and monetary policy: Last year, the inflation picture was remarkably benign, with headline inflation closing the year at a stable 4.3% y-o-y in December, well within Bank Indonesias target. This is unlikely to be the case in 2013, in our opinion. We expect both supply- and demand-side inflation pressures to build, and forecast headline inflation to approach the upper end of the 3.5-5.5% target range. In fact, we see the risks to the inflation forecast as significantly tilted to the upside given the upward adjustment of electricity tariffs this year (by 15% in total) and possibly, a reduction in fuel subsidies. Given the strength in domestic demand, the ability of firms to pass on the associated increase in production costs is likely to be strong. We see this being exacerbated by sharp increases in minimum wages and higher disposable incomes (see Asia Insights: Thoughts from Bank Indonesia's post-meeting call, 12 December 2012). We continue to forecast policy rates to remain at 5.75% through H1 2013, before a total of 50bp of hikes in H2 to address inflation risks and rein in excess domestic demand, which should otherwise keep current account deficits substantial. The main risk to our view is the prospect of fuel subsidy cuts which we have not factored into our baseline forecasts given the uncertainty of the timing and the political obstacles. But clearly, policy rate hikes would come sooner, and likely be much larger, if the government decides to cut fuel subsidies in H1. Fiscal policy: We expect the 2013 fiscal deficit to overshoot the budgeted 1.65% of GDP. While the approved 2013 budget allows the government to raise fuel prices if deviations from macroeconomic assumptions occur, this does not guarantee an actual decision to change fuel subsidy policy. Political considerations will be important, and we believe the window for this to happen will close as we get into the second half of the year. More positively, we expect the government to improve execution of capital expenditures, particularly on infrastructure, this year given the strong focus. All told, we expect increased operating costs and subsidies to cause fiscal slippage of close to 0.3pp, resulting in a 2013 deficit of 2% of GDP.
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January 8, 2013
Fig. 52: CPI inflation versus target

(%) 20 18 16 14 12 10 8 6 4 2 Dec-02 inflation target range CPI inflation, %y-o-y
Fig. 53: Key components of the budget

(IDR tn) 350 300 250 200 150 100 50 0 Energy subsidies Capital spending
Dec-04
Dec-06
Dec-08
Dec-10
Dec-12
2009
2010
2011
2012p
2013f
Source: Nomura Global Economics
Source: CEIC, Nomura Global Economics
Risks: Downside risks stem from external shocks: a deeper recession in the euro area, a hard landing in China and large capital outflows. In addition, more protectionist policy announcements could further generate negative sentiment on investment.
Fig. 54: Details of the forecast
% y-o-y growth unless otherwise stated Real GDP Private consumption Government consumption Gross fixed capital formation Exports (goods & services) Imports (goods & services) Contributions to GDP: Domestic final sales Inventories Net trade (goods & services) Consumer prices index Exports Imports Merchandise trade balance (US$bn) Current account balance (% of GDP) Fiscal Balance (% of GDP) Bank Indonesia rate (%) Exchange rate (IDR/USD) 5.75 9146 5.75 9433 5.75 9591 5.75 9793 5.75 9660 5.75 9680 6.25 9730 6.25 9800 5.5 2.0 0.7 3.7 5.3 21.6 1.7 -1.4 6.4 2.3 -3.1 4.5 -8.2 9.7 -2.1 -3.5 5.3 -0.1 -1.2 4.5 -13.0 -0.3 0.6 -2.4 6.3 -1.0 0.4 4.4 2.8 6.2 -1.1 -1.7 5.7 0.0 0.4 4.6 6.0 7.0 1.6 -1.3 5.8 0.0 0.0 5.1 9.0 7.0 -1.1 -2.2 6.0 0.0 1.3 5.4 8.0 8.0 2.7 -1.8 6.1 0.2 -1.5 5.5 9.0 10.5 -3.5 -2.4 6.2 0.8 -0.8 4.3 -3.6 8.8 -0.8 -2.2 -2.4 5.75 9620 6.0 0.0 0.1 5.2 8.0 8.1 -0.3 -1.9 -2.0 6.25 9800 6.0 -0.3 0.2 5.1 8.0 14.4 -0.9 -1.6 -2.2 6.75 9600 1Q12 6.3 4.9 5.9 10.0 7.9 8.0 2Q12 6.4 5.2 7.4 12.3 2.2 10.9 3Q12 6.2 5.7 -3.2 10.0 -2.8 -0.5 4Q12 5.7 5.6 5.0 9.9 5.5 6.0 1Q13 6.1 5.5 7.0 9.8 6.0 6.5 2Q13 6.2 5.5 8.0 8.9 6.0 7.0 3Q13 6.0 5.6 10.0 8.8 7.0 5.5 4Q13 6.0 5.5 10.0 7.1 8.0 14.0 2012 6.1 5.4 3.6 10.5 3.1 6.0 2013 6.1 5.5 9.0 8.4 6.8 8.4 2014 6.2 5.6 7.0 9.0 10.0 11.9
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal (i.e., the single most likely outcome). Table reflects data available as of 3 January 2012. Source: CEIC and Nomura Global Economics
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Sector outlooks
35
Banks
BANKS
EQUITY RESEARCH
Outlook 2013
January 8, 2013
Still bullish on sector; earnings growth likely to accelerate on stable NIMs and lower costs
Action: Buy Bank Mandiri - our top sector pick We are bullish on Indonesia banks - we forecast earnings growth for the five banks in our coverage to accelerate to 17-20% in FY13-14F, from 11.7% in FY12F on robust loan growth, stable NIMs, better cost ratios and low credit costs. Mandiri remains our top pick for the sector, but we also like BNI for its NPL recovery upside potential. Catalysts: Improving macro outlook; NPL recovery upside potential Macro uncertainties, due to Indonesias worsening current account (CA) balance, have been a key overhang on the sector. However, we believe CA deficit is under control and unlikely to lead to significant monetary tightening. We also see potential earnings upside for Mandiri and BNI from rising NPL recoveries on the back of recent constitutional court ruling. Stable NIMs, better cost ratios While NIMs have been on a downtrend in the past two years, due to a steep fall in interest rates and rising competition, we see scope for a slight uptick in coming years due to rising LDRs, better loan mix, and an uptrend in rates. We expect growth of operating cost to slow, after growing strongly in 2010-11, as the pace of network expansions slows. Sustained low credit costs Improving credit underwriting standards and sustained economic growth in Indonesia should underpin a stable asset quality, in our view. We expect current low credit costs to be sustained, even before taking into account NPL recovery upside at Mandiri and BNI. Valuation: Still inexpensive; below six-year mean Based on Bloomberg consensus, the five banks in our coverage traded at an average 12-month forward P/E of 11.3x this is still below historical average P/E of 13x over 2006-2012 despite declining cost of capital.
Fig. 55: Stock ratings and valuation
Net profit growth 13F (%) 18.8 21.0 17.4 15.3 6.6 25.3 Net profit PB growth 12F 14F (%) (x) 19.5 22.2 16.2 18.1 7.4 23.3 2.3 3.7 1.4 2.2 1.7 2.2 DVD yield 12F (%) 1.7 1.2 2.2 2.2 2.4 1.8
Anchor themes We believe Indonesian banks can sustain their strong earnings outlook in the face of headwinds from global economic uncertainties in light of the pro-growth fiscal and monetary policies and prudent macroeconomic management in the country. Nomura vs consensus Nomura's FY13F forecasts for aggregate sector earnings are on average in line with consensus.
Research analysts Indonesia Banks Stephan Hasjim - PTNI stephan.hasjim@nomura.com +62 21 2991 3347
Company Banking/Financial Services Bank Central Asia Bank Negara Indonesia Bank Rakyat Indonesia Bank Danamon Indonesia Bank Mandiri
Price
Rec
PER 13F (x) 11.5 16.4 9.1 9.2 12.4 11.0
PER 14F (x) 9.6 13.4 7.8 7.8 11.5 8.9
ROE 12F (%) 20.1 24.2 16.7 26.6 14.3 21.6
9,100 Reduce 3,725 7,050 Buy Buy
5,550 Neutral 8,250 Buy
Source: Bloomberg, Nomura research; Note: Pricing as of 2 January 2013
Nomura | Banks
January 8, 2013
Banks: Still bullish; earnings growth to accelerate on stable NIMs, lower cost ratios and sustained low credit costs
Earnings growth likely to accelerate in next two years
We expect stronger earnings growth for the five major banks in our coverage (Mandiri, BCA, BRI, BNI and Danamon) in the next two years. We forecast aggregate earnings of the five banks to grow by 17.1% in FY13F and 19.5% in FY14F vs. 11.7% in FY12F. Earnings growth for the five banks was unusually strong in FY11 (+31% y-y) and FY10 (+43% y-y) this can be attributed to the impacts of accounting change on revenue recognition and loan provisioning and corporate tax rate cuts to 20% (from 30%). We forecast underlying earnings of the five banks to grow at 18.5% in FY13F and 19.7% in FY14F, stronger than in the prior years (FY12F: 13.4%; FY11: 15.0%; FY10: 13.0%). This is due to our expectations of stable NIMs and slowing operating expense growth in the next two years vs. declining NIMs and strong cost growth in the past three years.
Fig. 56: Top-5 banks: Aggregate earnings growth
(% y-y)
We expect stronger underlying earnings growth in the next two years due to stable NIMs and slower operating cost growth
Fig. 57: Top-5 banks: Growth of underlying earnings

(% y-y)
60 40 20 0
48.9 43.0 24.0 18.1 18.2 11.7 30.8 27.7 17.1 19.5
60 45.8 40 28.8 20 14.3 30.7 21.5 13.0 15.0 13.4 18.5 19.7
Reported Net Profit (20) Normalized Net Profit (40) (35.2) 04 05 06
(20) 07 08 09 10 11 12F 13F 14F 04
(12.4) 05 06 07 08 09 10 11 12F 13F 14F
The following table shows ROAE decomposition (DuPont) analysis for the aggregate five banks in our coverage as implied by our earnings forecasts and assumptions. In the next two years, we assume a slight uptick in NIMs, improving cost income ratio as operating expense growth slows and sustained low credit costs.
Fig. 58: Top-5 banks: DuPont Analysis
(% of average assets)
We assume stable NIMs and asset quality and lower cost ratios in next two years
Year end Dec Net Interest Income Other Income (% gross income) Gross Income Cost Income Ratio Pre-Provision Profit Provisions Profit Before Tax Tax Rate (% pre-tax profit) Normalised ROAA Equity/Assets (%) Normalised ROAE Reported ROAA Reported ROAE
2006 5.97 20 7.48 52 3.62 -1.07 2.55 28 1.83 10 18.28 1.83 18.28
2007 5.86 22 7.50 52 3.60 -0.86 2.79 33 1.84 10 18.06 1.89 18.54
2008 6.29 21 7.97 49 4.09 -1.30 2.85 31 1.93 9 20.36 1.93 20.36
2009 6.24 22 7.98 47 4.26 -1.42 2.97 28 2.12 10 22.11 2.12 22.11
2010 6.24 23 8.08 48 4.24 -0.87 3.39 26 2.50 10 24.37 2.67 26.03
2011 6.05 25 8.01 49 4.11 -0.48 3.71 21 2.88 12 24.12 2.95 24.67
2012F 5.77 24 7.57 49 3.83 -0.44 3.44 20 2.70 12 22.22 2.70 22.22
2013F 5.81 24 7.66 48 3.95 -0.52 3.49 20 2.76 13 21.76 2.76 21.76
2014F 5.82 24 7.68 47 4.09 -0.56 3.58 19 2.85 13 21.78 2.85 21.78
37
Nomura | Banks
January 8, 2013
Steady asset growth

We expect aggregate loans of the five major banks in Indonesia to grow by 20% p.a. in FY13-14F (same as in FY12F) or slightly slower vs. 22.5% CAGR achieved in 2001-11. Although banking system loans grew by 22.8% y-y as of October 2012, we expect loan growth to moderate towards year-end given the high base in 2H11 and slowing growth of consumer auto loans. The October loan growth has decelerated in comparison to 26.1% y-y in May. Corporate loans, particularly investment loans, and home mortgage loans, remain the fastest growing loan segments this year with growth of 30% y-y and 22% y-y, respectively, as of October 2012. In comparison, micro-credit and SME loans grew by only 11% y-y and 14% y-y, respectively. We assume aggregate deposits of the five banks to grow by 14% p.a. in FY12-14F this is more or less in line with Indonesias expected nominal GDP growth. We believe this is a conservative assumption given that deposits in the banking system grew at 20% y-y during most of the past two years (October 2012: +18.9% y-y), hence potential upside to our earnings forecasts should deposit growth remain strong in the next two years.
Fig. 59: Top-5 banks: Loan growth and LDR
(% y-y)
We assume loan growth of 20% p.a. for the five major banks in FY13-14F vs. 21% in FY12F
Our deposit growth assumption of 14% appears conservative given 20% growth sustained in the past two years
Fig. 60: Top-5 banks: Deposit vs. nominal GDP growth

(% y-y)
40 35 30 25 20 15 10 5 0
3Q01 3Q02
Loan growth (LHS) LDR (RHS)
100 90 80 70 60 50 40 30 20 10 0
30 25 20 15 10 5 0
3Q01 3Q02 3Q03 3Q04 3Q05 3Q06 3Q07 3Q08 3Q09 3Q10 3Q11 3Q12
38
Deposit growth Nominal GDP
3Q03
3Q04
3Q05
3Q06
3Q07
3Q08
3Q09
3Q10
3Q11
3Q12
Potential NIMs recovery

We forecast a slight recovery in aggregate NIMs of the five major banks in FY13-14F on the back of higher interest rates, rising LDRs and improving loan mix as banks strive to grow retail loans at a faster pace than corporate loans. In the past three years, NIMs in the sector has been trending down due to declining interest rates and sovereign yields and rising competition in SME and micro lending, which has pressured NIMs of high margin mass-market lenders such as BRI and Danamon.
Nomura | Banks
January 8, 2013
Fig. 61: Top-5 banks: Trend of quarterly NIMs

(% pa)
Fig. 62: Top-5 banks: Trend of quarterly ROAA and ROAE

(% pa)
14 12 10 8 6 4 2 0
3Q01 3Q02 3Q03
3.5 3.0 2.5 2.0 1.5 1.0 Mandiri BNI

3Q04 3Q05 3Q06
ROAA (LHS) ROAE (RHS)
40 35 30 25 20 15 10 5 0
BCA Danamon
3Q07 3Q08 3Q09 3Q10
BRI
3Q11 3Q12
0.5 0.0
3Q01 3Q02 3Q03 3Q04 3Q05 3Q06 3Q07 3Q08 3Q09 3Q10 3Q11 3Q12
We expect a trend reversal in interest rates, due to monetary policy tightening, as evident in rising interbank rates in recent months, to benefit corporate lenders with strong deposit franchise such as BCA, Mandiri and BNI. This, coupled with their loan mix shift towards more retail loans, should give scope for these banks to slightly improve NIMs in the next two years. Meanwhile, we expect NIMs for mass-market lenders such as BRI and Danamon, which has been under pressure due to rising competition, to be relatively more stable in the coming years.
Scope for corporate lenders to improve NIMs given rising rates and stronger growth of retail loans
Slowing operating expense growth

We forecast operating expense growth for the five banks to slow in the next two years, following strong growth in FY11 (+20.1%) and FY10 (+17.7%) on the back of rising investments in network infrastructure and human resources by some banks in recent years, most notably Mandiri, BNI and BRI. While we expect these banks to continue making significant investments in the coming years, we expect the pace of growth to be decelerating. For example, Mandiri expanded its branch network and micro outlets to 1,537 and 1,941 units, respectively, as of December 2011, from 1,095 and 800 units, respectively, at the end of 2009. Although the bank plans to add 200 new micro outlets p.a. in 2012-14, we believe its network growth will be slower vs. the previous two years. BRI expanded its micro outlets from 4,755 to 6,153 units during the same period and have plans to maintain the pace of expansions in the next few years. Our earnings forecasts imply aggregate cost/asset ratios of the five banks to improve to 3.6% in FY14F, from 3.9% in FY11, and cost/income ratios to 46.7%, from 48.7%, during the same period. The improved cost ratios are expected on the back of higher economies of scale and a slight uptick in NIMs for the five banks in our coverage.
We forecast slower growth of operating expenses in next two years after strong growth in prior years
39
Nomura | Banks
January 8, 2013
Fig. 63: Top-5 banks: Operating expense growth

(% y-y)
Fig. 64: Top-5 banks: Operating cost ratios

(% of average assets)
30 25.1 25 21.0 20 15.8 15 9.8 10 5 0 02 03 04 05 06 07 08 09 10 11 12F 13F 14F

5.0 4.5 20.1 17.2 17.7 15.9 14.7 11.5 16.7 13.9 11.8 4.0 3.5
Cost/Assets (LHS) Cost/Income (RHS)
56 54 52 50
3.0 48 2.5 2.0 1.5 1.0 02 03 04 05 06 07 08 09 10 11 12F 13F 14F

46 44 42
Sustained strong asset quality

We expect the five major banks to maintain asset quality in the coming years, following significant improvement seen in recent years. We forecast aggregate overall provisions, net of recoveries, to increase marginally to 52bps in FY13F and 56bps in FY14F, from 44-48bps in FY11-12F, on the back of improvements in credit underwriting standards and still robust economic growth in the country and still significant loan recovery potential. Asset quality improvements and adoption of IFRS international accounting standards had led to a steep decline in aggregate provisions for the five banks by 30% and 35% in FY10 and FY11, respectively. This, coupled with lower corporate tax rates, has been the key drivers for the sectors strong earnings growth of 43% and 31%, respectively, during this period. As shown in the chart below, aggregate net provisions (after recoveries) for the five banks declined to 70bps (annualized) in 3Q12, from over 200bps in the years prior to 2010. We believe this is a normalized provisioning level for the aggregate five banks in our coverage under the new IFRS accounting standards, which we expect to be largely sustained in the coming years assuming stable asset quality, which is reflected in the decelerating pace of new NPL formation in the past two years. NPL recovery upside potential due to recent constitutional court ruling Aggregate loan recoveries for the five major banks was 67bps (annualized) in 3Q12 and averaged 82bps in the past four quarters, as shown in the following chart. However, we expect there is scope for increased loan recoveries in the coming years in light of recent constitutional court ruling, which supported loan recovery efforts at state-owned banks by allowing debt principal reductions (which are normal practice at private banks). We believe Mandiri and BNI are the two key beneficiaries of this ruling given their significant exposures to written-off NPLs, which amounted to IDR32tn and IDR24tn, respectively, as of September 2012 or equivalent to 46% and 58%, respectively, of reported equity capital of these two banks as of September 2012. Not all of these writtenoff NPLs are backed by significant collateral. We estimate Mandiri and BNI may be able to get some recoveries from only IDR22tn and IDR15tn of their total written-off NPLs, respectively, with a recovery rate of perhaps around 20-30%.
We expect stable asset quality and credit costs to remain low in coming years
Net provisions declined to 70bps in 3Q12, from >200bps prior to 2010
NPL recovery upside potential due to recent constitutional court ruling
Mandiri and BNI are the two key beneficiaries from recoveries of legacy NPLs, in our view
40
Nomura | Banks
January 8, 2013
Fig. 65: Top-5 banks: Trend of provisions, net of recoveries

(% of average loans)
Fig. 66: Top-5 banks: New NPLs vs. loan recoveries

(% of average loans)
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 (0.5)
18 16 14 12 10 8 6 4 2 0
New NPLs
Recoveries
3Q03
3Q04
3Q05
3Q06
3Q07
3Q08
3Q09
3Q10
3Q11
3Q03
3Q04
3Q05
3Q06
3Q07
3Q08
3Q09
3Q10
3Q11
3Q12
3Q12
41
Coal
COAL
EQUITY RESEARCH
Outlook 2013
January 8, 2013
Our sector focus on quality remains

Some light at the end of the tunnel Two major indicators, in our view, suggest that the worst in the coal market is already over: 1) coal inventory in Chinas power sector is now 22 days, down from the highest level of 31 days in October 2012; and 2) the coal price is now back to USD90-95/ton after falling to as low as below USD80/ton in October 2012. We think that the pickup in some economic activities in China and supply cuts by small mines have helped the coal market recovery. Supply disciplines remain the central theme in 1H13 We are of the view that supply disciplines remain the main driver for stabilizing coal prices at USD90-95/ton in 1H13 given no expected strong global economic activity. We forecast coal prices to start moving up to ~USD100/ton in 2H13 on better demand. Declining earnings in 2013F: priced in We think the sector (ex-BUMI) average EPS growth of -7.9% in 2013F is priced in. The focus should be on: 1) potential cost reductions, which we have not fully factored in; and 2) potential coal price recovery. Focus on quality remains ADRO remains our top pick in the sector due to its operational track record, growth and management. ITMG potentially offers high dividend yield and good corporate governance, despite production growth limitation. Meanwhile, PTBAs mid-to-long term production growth looks attractive. Anchor themes We expect coal prices to stabilize at USD90-95/ton in 1H12, and start picking up in 2H13 Nomura vs consensus Nomura 2013F earnings forecasts are ~22% lower than consensus
Research analysts Indonesia Metals & Mining Isnaputra Iskandar, CFA - PTNI isnaputra.iskandar@nomura.com +62 21 2991 3346
Fig. 67: Valuations and recommendations of Indonesian coal stocks

Price* Stock ADRO BUMI HRUM** INDY ITMG PTBA Rating Buy Neutral Neutral Neutral Neutral Neutral (IDR) 1,740 620 6,600 1,570 42,150 16,550 TP (IDR) 1,900# 840# 6,400 2,000# 40,000 18,000 PER (x) 16.0 49.3 11.4 7.1 14.7 14.6 12.8 EV/EBITDA (x) 7.0 6.9 7.3 2.9 8.7 9.9 7.2 2013F PBV (x) 2.2 1.6 4.5 0.9 4.8 3.6 3.2 Yield 2.1% 0.1% 2.2% 0.9% 6.5% 3.9% 3.1% ROE 14.2% 3.3% 33.8% 13.8% 32.9% 26.0% 24.1%
Average (ex-BUMI)
* closing prices as of Jan 2; ** normalized PER for HRUM. Note: our TP for ADRO is under review; # TP under review Source: Bloomberg and Nomura research
Nomura | Coal
January 8, 2013
Fig. 68: China inventory days in declining trend

(Inventory days) 30 28 26 24 22 20 18 16 14 12 10
Fig. 69: Coal price stabilizing at USD90-95/ton

(USD/ton) 95 93 91 89 87 85 83 81 79 77 75
Actual
Average
16-Nov
30-Nov
15-Jun
Oct-12
Apr-12
29-Jun
19-Oct
13-Jul
27-Jul
2-Nov
1-Jun
5-Oct
14-Dec
Aug-12
Sep-12
Nov-12
Dec-12
10-Aug
Source: SXCOAL and Nomura research
May-12
Mar-12
Feb-12
Source: Platts, Nomura research
Fig. 70: Flat export from Indonesia should support coal price
(mn tons) 500 450 400 350 300 250 200 150 100 50 0 2012F 2013F 2014F 2015F
Source: Ministry of Energy and Mineral Resources, Indonesia Coal Mining Association and Nomura research
Fig. 71: Loss-making operations to support coal price

(USD/ton) 80 60 40 20
Domestic
Export
308 307 300
325 0 (20) (40)
67
74
100
107
(60) (80)
Source: WoodMackenzie and Nomura research
Fig. 72: Nomura coal price assumptions

(USD/ton) 106 104 102 100 98 96 94 92 90 88 2012
Fig. 73: Net gearing as of 30 September 2012

2000% 105 1500% 1881%
1000% 94 95 500% 21% 0% ITMG -67% -500%

Source: Company data and Nomura research
2013F
2014F
1 8 92 116 137 168 199 220 291 344 377 400 451 483 500 532 555 588 659 678 699 718 746 766
Accumulated volume, mn tons 73% ADRO BUMI PTBA -62% HRUM -56% INDY
43
21-Sep
24-Aug
28-Dec
Jan-12
Jun-12
Jul-12
7-Sep
Consumer
CONSUMER RELATED
EQUITY RESEARCH
Outlook 2013
January 8, 2013
Signs of rising competition are increasingly visible; prefer strong brands

Action: Still prefer the double B Branding and Barriers to entry While we expect the overall Indonesia consumer sector to continue to grow strongly, we anticipate rising competition to cap margins, especially in discretionary. Hence, we like companies with strong branding/ positioning for better pricing power and those in industries that have high barriers to entry, which could help cushion the impacts of intensifying competition. Competition in Indonesias consumer sector is emerging Competition in Indonesias consumer sector is heating up as, we believe, many players lured by market size (we expect 150mn people to enter the middle class by 2014F) and growth (GDP growth of 6.3% in 1H12) are poised to enter the sector in the next 1-2 years. Existing players are also aggressively expanding to capture growth and strengthen their foothold. Catalyst: Demand for higher living standards by the middle class Considering Indonesias rising middle class and increased focus on improving living standards, we expect education and healthcare to continue to improve in Indonesia. We believe demand for convenience in everyday consumption and purchasing will also increase. Top Picks: Astra Intl, Indomobil, Gudang Garam and Kalbe Our top picks are Astra Intl (TP based on 17x FY13F P/E), Indomobil (18x FY13F P/E), G. Garam (20x FY13F P/E), and Kalbe (27x FY13F PE). Anchor themes We remain positive on Indonesia's long-term consumption growth, but are wary that rising competition may affect earnings performance. We note, however, the intensity of competition varies across subsectors and prefer companies with strong branding or effective product placements. Nomura vs consensus We are more bullish than consensus on our Top Picks, while more cautious on the impact from competition.
Research analysts Indonesia Consumer Related Janni Asman - PTNI Janni.Asman@nomura.com +62 21 2991 3345 Wilianto Ie - PTNI wilianto.ie@nomura.com +62 21 2991 3341
PER 13F (x) 13.7 11.0 16.8 19.3 13.6 17.8 31.3 25.1 3.2 21.5 16.6 PER Net profit Net profit 14F growth growth (x) 13F (%) 14F (%) 11.6 8.4 15.3 17.0 12.5 13.7 28.6 21.6 2.7 18.2 13.1 16.4 38.3 45.8 6.1 9.6 22.7 9.9 20.0 24.6 21.6 14.8 17.5 31.0 9.8 13.7 8.3 29.5 9.6 16.3 20.8 18.3 26.7 PB 13F (x) 3.7 2.3 3.5 3.5 2.1 4.1 ROE EV/ DVD 13F EBITD yield (%) A 13F 13F (%) 29.4 22.2 22.0 19.4 16.5 25.7 9.7 11.1 11.3 11.3 4.6 11.0 22.0 2.8 1.3 7.4 8.8 3.7 1.8 2.4 2.1 2.9 1.1 3.2 3.0 4.6 0.7 3.3
Fig. 74: Stocks for action
Stock Astra Int'l Indomobil G.Garam ICBP Indofood Mayora Unilever Kalbe Ace MAP Ramayana
Price 7,500 5,300 55,500 8,000 5,800 19,750 21,850 1,040 820 6,550 1,170
Rec Buy Buy Buy Buy Neutral Buy Reduce Buy Neutral Neutral Buy
TP 9,500 8,500
Ticker ASII IJ IMAS IJ
67,500 GGRM IJ 9,500 6,050 ICBP IJ INDF IJ
27,000 MYOR IJ 17,200 UNVR IJ 1,200 KLBF IJ
36.3 119.0 6.1 0.7 4.2 2.5 27.8 25.5 21.3 15.6
620 ACES IJ 7,000 MAPI IJ
1,800 RALS IJ
Source: Nomura research. Note: As per closing of 2 Jan 2012
Nomura | Consumer
January 8, 2013
Its getting hot here

We expect rising competition to put a cap on companies margins; hence, we prefer companies with good branding and those in segments that have high entry barriers for better margin resilience.
Competition shows early signs of intensifying

Recent robust economic growth (GDP growth of 6.4% in 1H12 as per Indonesia Statistics data) in Indonesia, the fourth most populous country in the world (~237mn as per the 2010 National Census) has lured many new players to the consumer sector and, we understand, many new players have taken early steps to prepare for an entry in the next one to two years, while existing players are expanding to capture growth and strengthen their foothold. In the retail segment, we believe rising competition has also led to a shift in pricing power to landlords. Thus, we expect some pressure on middle- to upper-middle retailers, given their high dependence on malls and growing demand for locations suitable for their targeted customers. Although we expect strong growth in consumption to continue, we note that increased competition may put a cap on companies margins. Hence, we prefer companies with a strong branding/ good positioning for pricing power as well as those in segments that have high entry barriers.
Fig. 75: Consumer companies competitive edge in facing rising competition

Company Astra Int'l Indomobil G. Garam ICBP Indofood Mayora Unilever Kalbe Ace MAP Ramayana Pricing power High Medium High High Medium Low High High High High Medium Cost pressure Low Low Medium High Medium High High Medium Medium High Low Competition High High Low Low Medium High High Medium Medium Medium Low Demand escalation High High Low Low Medium High Medium High High High Medium Regulatory risk Low Low High Low Low Low Low High Low Low Low Ticker ASII IJ IMAS IJ GGRM IJ ICBP IJ INDF IJ MYOR IJ UNVR IJ KLBF IJ ACES IJ MAPI IJ RALS IJ
45
Nomura | Consumer
January 8, 2013
Fig. 76: Jabodebek* leased retail supply and occupancy

(%) 100 98 96 94 92 90 88 86 84 Mar07 Mar08 Mar09 Mar10 Mar11 Mar12 Jabodebek leased retail area (supply) (LHS) Jabodebek leased retail occupancy rate (RHS) (th sqm) 3,600 3,400 3,200 3,000 2,800 2,600 2,400 2,200 2,000
Fig. 77: Banten* leased retail supply and occupancy

(%) 100 96 92 88 84 80 Mar07 Banten leased retail area (supply) (LHS) Banten leased retail occupancy rate (RHS) (th sqm) 500 420 340 260 180 100 Mar08 Mar09 Mar10 Mar11 Mar12
Source: Bank Indonesia, Nomura research * Jabodebek covers Jakarta, Bogor, Depok, and Bekasi (parts of Greater Jakarta).
Source: Bank Indonesia, Nomura research * Banten covers Tangerang, Serang, and Cilegon.
Still upgrading
We expect Indonesias booming economy to continue to raise the number of middle class households, and estimate Indonesias middle class population to reach 150mn by 2014F. Growing disposable incomes and improvement in education should also lead to further growth in discretionary consumption, including healthcare, in our view. The launch of National Social Security in 2014 is aimed to widen the access to healthcare services and products to a larger population, as currently some have no access to healthcare. According to data from the Ministry of Health, Indonesias bed-topopulation ratio is 51 beds for every 100,000 people, which is relatively low, compared with the world average of 294 beds, as per World Bank data. We expect stronger demand for convenience in everyday consumption and purchasing to lead to further growth in modern trade. In fact, the trend is already visible, with the share of modern trade in the past decade having increased from 25% in 2002 to 42% in 2011. We expect more rapid growth in mini-market formats, as they are located closer to customers. The share of mini-market formats in modern trade has grown from 27% in 2004 to 51% in 2010 (as shown in the chart overleaf).
Fig. 78: Indonesia HDI growth vs. other emerging countries

2005 0.80 0.75 0.70 2011
Fig. 79: Indonesia Revenue of top-five consumer companies

(IDRtn) 120 100 80
0.65 0.60 0.55 60 40 20
Malaysia
Thailand
China
Philippines
Indonesia
0.50
Mexico
Brazil
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: United Nations Development Programme, Nomura research Notes: HDI is a composite index measuring the average achievement in three basic dimensions of human developmenta long and healthy life, knowledge and a decent standard of living. The countries are all in the medium human development category except for Mexico, Malaysia and Brazil.
Source: Company data, Nomura research Note: The figures reflect aggregated revenue from Top-5 consumer companies. Companies are Unilever, Gudang Garam, ICBP, Kalbe Farma, and Mayora. For ICBP financials prior to 2007, CBP segment revenues from Indofood were used instead.
2011
46
Nomura | Consumer
January 8, 2013
Fig. 80: Indonesia modern trade contribution trend

50% 45% 40% 35% 30% 25% 20% 02 03 04 05 06 07 08 09 10 11
Source: Nielsen Retail and Shoppers Trend AsiaPac, Company data, Nomura research
Fig. 81: Indonesia modern markets market share (by type)

Hyper/Supermarket 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2004 2005 2006 2007 2008 2009 2010* 73% 69% 66% 61% 27% 31% 34% 39% Mini-market
42%
45%
51%
58%
55%
49%
Source: Nielsen Retail and Shoppers Trend AsiaPac, company data, Nomura research Note: *Preliminary number for 2010
Our Top Picks

We like Astra Intl and Indomobil in the Indonesia consumer space, and expect both to continue to benefit from the continued increase in discretionary consumption, including automotive. We also have Gudang Garam as a top pick. Gudang Garams possible margin improvement on likely easing cost pressure in 2H12F and 2013F are potential positive catalysts.
Fig. 82: Indonesia consumer companies valuation

PER 13F (x) 16.9 7,500 5,300 55,500 8,000 5,800 19,750 21,850 1,040 820 6,550 1,170 Buy Buy Buy Buy Neutral Buy Reduce Buy Neutral Neutral Buy 13.7 11.0 16.8 19.3 13.6 17.8 31.3 25.1 3.2 21.5 16.6 PER 14F (x) 14.7 11.6 8.4 15.3 17.0 12.5 13.7 28.6 21.6 2.7 18.2 13.1 Net profit growth 13F (%) 18.6 16.4 38.3 45.8 6.1 9.6 22.7 9.9 20.0 24.6 21.6 14.8 Net profit growth 14F (%) 15.3 17.5 31.0 9.8 13.7 8.3 29.5 9.6 16.3 20.8 18.3 26.7 PB 13F (x) 4.3 3.7 2.3 3.5 3.5 2.1 4.1 36.3 6.1 0.7 4.2 2.5 ROE EV/ DVD 13F EBITDA yield (%) 13F 13F (%) 25.5 29.4 22.2 22.0 19.4 16.5 25.7 119.0 27.8 25.5 21.3 15.6 9.7 11.1 11.3 11.3 4.6 11.0 22.0 2.8 1.3 7.4 8.8 2.9 3.7 1.8 2.4 2.1 2.9 1.1 3.2 3.0 4.6 0.7 3.3 9,500 8,500 67,500 9,500 6,050 27,000 17,200 1,200 620 7,000 1,800 43 64 12 net cash net cash 98 9 net cash net cash 70 net cash ASII IJ IMAS IJ GGRM IJ ICBP IJ INDF IJ MYOR IJ UNVR IJ KLBF IJ ACES IJ MAPI IJ RALS IJ
Company
Price
Rec
TP
Net DTE 13F (%)
Ticker
Consumer Astra International Indomobil Gudang Garam Indofood CBP Indofood Mayora Unilever Kalbe Farma Ace Hardware Mitra Adiperkasa Ramayana
Source: Nomura research Note: As per 2 Jan 2012 closing
47
Nomura | Consumer
January 8, 2013
Automotive
While competition is likely to intensify on expanded market size, we remain bullish on the sector and prefer names with market-leading positions and those that are able to gain market share. Wilianto Ie - PTNI wilianto.Ie@nomura.com +62 21 2991 3341
Low penetration likely to set base for long-term growth

Car sales in Indonesia continue to hit new highs, despite the governments efforts to tighten underwriting standards for car loans through higher down-payment requirements (ie, loan-tovalue [LTV] regulation). We believe car sales in Indonesia are poised for sustainable strong growth in the long term, driven by the countrys low car ownership rate, rising affordability and a young population. In our view, the best-positioned players in this market are those companies with a strong commitment to invest and develop products that suit Indonesian consumer lifestyles. Despite strong car sales growth in the last few years (2006-11 CAGR: 23%), car ownership in Indonesia is still low at 3.5% (35 cars/1,000 people), thus implying potential for continuous growth ahead. Rising incomes, strong economic growth (GDP growth of 6.4% in 1H12), a relatively low interest rate environment (the current Bank Indonesia rate of 5.75% is near a 10-year low), and high availability of consumer financing facilities have been the key demand drivers.
Fig. 83: Indonesia domestic car sales (monthly)

('000 units) 120 100 80 60 40 20 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Domestic car sales Year average
Source: The Association of Indonesia Automotive Industries, Nomura research
Competition to intensify as market size expands

The fast-growing Indonesia automotive market is attracting competition. While many brands are trying to increase their presence in Indonesia and have launched new products, opened new dealerships and are investing to ramp-up production capacity, competition in the automotive sector continues to intensify as market size expands. With intensifying marketing campaigns and the introduction of new products to complete product line-ups, especially in the high-volume segment, we believe automakers commitment to this market is also on the rise with several car producers announcing new investments to either expand production capacity or increase local content.
48
Nomura | Consumer
January 8, 2013
The upcoming Low-Cost Green Car (LCGC)

LCGC refers to small-engine cars (700-1,200cc) that will be priced at less than IDR100mn per unit (USD10,000). For comparison, the price of Indonesias current best-selling car is around USD16,000 per unit. The LCGC is required to have high fuel efficiency of 2022km/litre, while the current average of best-selling cars is around 12km/litre. Four automakers Nissan, Toyota/Daihatsu, Suzuki and Honda have obtained the required licenses/approvals to produce LCGCs, but the actual launch of LCGCs is still pending the issuance of government regulations that will waive or reduce the luxury tax imposed on LCGCs to bring selling prices down. To participate in the LCGC business, automakers need to have a strong investment commitment in Indonesia. We believe the high local-content requirement should serve as a barrier to entry for new competitors that do not have a strong manufacturing base in Indonesia. The introduction of LCGCs in Indonesia should change the market share outlook, in our view, as we estimate Toyota/Daihatsu is likely to lose some market share [38% (Toyota) and 15% (Daihatsu) in 1H12]. We believe it is unlikely for Toyota/Daihatsu to be able to maintain their strong dominance in the LCGC market, given that the four producers are slated to launch their products within 12 months in the new market segment. We note that Toyota/Daihatsu required very long (ie, more than five years) lead times when they launched their two best-selling products (Toyota Kijang and Toyota Avanza/Daihatsu Xenia) that have allowed them to dominate the Indonesian automotive market.
Motorcycles dominated by Honda and Yamaha

Motorcycles remain one of the cheapest and most efficient modes of transportation in Indonesia. Poor public transportation infrastructure has led to continued robust demand for motorcycles as it pushes commuters to buy motorcycles as soon as one can afford a down payment (monthly installments are less of a concern, since the cost of taking a bus/taxi to work would make up for it, in our view). However, the recently implemented LTV regulation has had a negative impact on motorcycle sales, which declined ~22% y-y (+7% m-m) in Jul12, a step down from the already weakening motorcycle sales trend of the past few months. The impact of the LTV regulation is fully reflected in the motorcycle market because of the weaker purchasing/saving power of customers in this segment, in our view. We estimate sales volumes to have bottomed in Aug/Sep 2012 before bouncing back to 10-15% below the original trend line. This shift to lower potential volume is structural, in our view. Competition is tight in the motorcycles business but remains relatively consolidated, with Honda and Yamaha comprising ~90% of the market. Going forward, we expect limited change in market share distribution, with the two names likely to remain major players in Indonesias motorcycle market.
49
Nomura | Consumer
January 8, 2013
Fig. 84: Indonesia domestic motorcycle sales (monthly)

('000 units) 800 700 600 500 400 300 200 100 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: Indonesian Motorcycle Industry Association; Nomura research
Domestic motorcycle sales
Year average
We like Astra International and Indomobil Astra International is the best proxy for the Indonesia automotive market, in our view, with a 56% market share in 1H12, based on The Association of Indonesia Automotive Industries data. Astra is the sole distributor of Toyota, Daihatsu, Isuzu, UD Trucks and Peugeot brands. It is also an authorised dealer for BMW in the country. Indonesias other listed automotive company, Indomobil, distributes Nissans in the country. Our target price of IDR9,500 is based on a P/E of 15x our FY14F EPS of IDR644, which implies 4.1x P/B in 2014F and is in line with our forward NAV per share estimate of IDR9,400. Risks that may impede the achievement of our target price include a negative impact from competition, government regulatory intervention and a major slowdown in Indonesias GDP growth (includes any potential impact from global macro economic shocks). In our view, Indomobil is an attractive stock for investors looking for a high growth profile and a challenger to the dominance of Astra Intl. Nissans market share in Indonesia has risen from 1.3% in 2006 to 6.4% in 1H12; it is investing USD400mn in Indonesia to expand its production capacity and increase local content, as per the company. Our TP of IDR8,500 is based on a P/E multiple of 17.7x FY13F, a slight premium to peer Astra International (15x FY13F), which we view as justified by Indomobil's stronger earnings CAGR of 29% in 2011-2014F (vs. 16% of Astra International). Risks that may impede the achievement of the target price: a deep economic recession globally or a collapse in commodity prices could slow Indonesias GDP growth and rural income, thus representing a potential downside risk to Indomobil's sales. Regulatory changes and natural disasters could also work against the interest of Indomobil.
50
Infrastructure
CONSTRUCTION MATERIALS
EQUITY RESEARCH
Outlook 2013
January 8, 2013
Projects start getting realized, leading to growth and improved profitability

Maintain positive view on infrastructure sector We continue to favour infrastructure stocks as we think infra spending growth will sustain and corporate earnings growth would also benefit from improved profitability. We are of the view that infra spending in the country will continue to grow in the run-up to the election year, supported by (i) implementation of land acquisition regulation; (ii) higher budget for infra spending and, more importantly, improving realisation rates; and (iii) low interest rates and a favorable lending environment. Sector implications We expect more commencement of new project developments that should benefit the construction sector. Demand for cement should remain robust, and companies with new capacity will likely benefit from higher capacity and better profitability. Toll road operators stand to benefit from higher tariffs and traffic, while Jasa Marga may start to enjoy additional revenue contribution from new project completion. Our stock selections: JSMR, SMGR and INTP We retain our top sector picks: Jasa Marga, Semen Gresik and Indocement. Despite Jasa Margas high valuation relative to regional peers, we think completion of new toll roads should help investors appreciate the companys growth prospects. We also expect Gresik to continue to enjoy market share gains as a result of the completion of its capacity expansion programme. We look for INTPs relatively sustained profitability given price increases that negates cost increases. Risks Key downside risks for the infra sector include macro risks such as economic slowdown, higher interest rates, exchange rate volatility and budget shortfall.
Fig. 85: Summary of valuations
Net profit Net profit growth growth 12F (%) 13F (%) 10.8 23.8 19.9 19.9 24.2 159.4 16.9 -69.4 10.1 5.1 16.6 10.7 16.4 30.9 34.5 -18.4 10.1 30.1 25.9 16.7 EV/ PB ROE EBIT DA 12F 12F (%) 12F (x) 3.8 4.2 2.5 5.5 3.6 0.9 4.4 4.1 4.2 3.3 20.7 25.6 16.1 29.7 19.0 13.6 18.6 19.3 22.1 20.2 11.4 8.3 13.9 9.5 7.0 13.2 14.6 DVD yield 12F (%) 1.7 1.7 2.8 2.0 1.1 1.6 1.7 1.5 2.1 2.5
Anchor themes The infrastructure sector is one of the main growth engines for Indonesia's economy, driven by higher government infra spending and supported by recent passage of land acquisition regulation and a favourable lending environment. Nomura vs consensus Infrastructure is one of our favoured sectors in Indonesia. Our forecasts/TPs for stocks under coverage in the sector are 5% higher than Bloomberg consensus, on average.
Research analysts Indonesia Basic Materials Andy Lesmana, CFA - PTNI andy.lesmana@nomura.com +62 21 2991 3344
Indonesia Transport Andy Lesmana, CFA - PTNI andy.lesmana@nomura.com +62 21 2991 3344
Indonesia engineering and construction Andy Lesmana, CFA - PTNI andy.lesmana@nomura.com +62 21 2991 3344
Company Infrastructure Indocement Tunggal Perkasa Holcim Indonesia Semen Gresik Wijaya Karya Krakatau Steel Jasa Marga AKR Corporindo Simple average Aggregate
Mkt Cap Avg 3M Price (USD mn) (USD mn)
PER PER Rec 12F (x) 13F (x) 18.5 15.9 16.4 14.1 15.4 15.7 9.0 21.9 17.4 17.4 14.0
21,900 2,725 15,950 1,530 640 5,550 4,125
8,359 2,165 9,809 984 1,047 3,913 1,634
5.9 2.2 10.1 3.0 0.7 4.3 4.4
Buy Buy Buy Buy Neutral Buy Buy
18.1 16.4 20.1 21.7 7.3 24.1 22.5 22.4
271,423
254
16.4
Source: Bloomberg, Nomura estimates. Note: Share prices are as of 2 January 2012.
Nomura | Infrastructure
January 8, 2013
Ready to execute
We remain bullish on the infrastructure sector despite the strong share price performance throughout 2012 YTD. We think that momentum for infrastructure development will build leading up to the elections in 2014, given passage of implementation regulation for land acquisition and higher budget allocation for infrastructure spending in 2013F.
Momentum continuing well into upcoming election year 2014

We expect infrastructure spending momentum will continue ahead of the elections in 2014. Historical data suggest that budgeted capital spending continues to increase despite upcoming elections the capital spending budget in 2008 and 2009 was higher than in previous years, despite the 2009 election year. Some slowdown in revenue growth was seen in 2010, which was primarily due to change in the government cabinet members that had affected revenue recognition of the construction companies.
Fig. 86: Revenue trend of state-owned construction cos
Revenues continued to rise in the years preceding and during the 2009 election year
Fig. 87: Trend of WIKAs order book

Order book also continued to flow before, during and after election year 2009
(IDR bn) 16,000 14,000 12,000 10,000 8,000
PTPP
WIKA
ADHI
AGGREGATE
(IDR bn) 35,000 30,000 25,000 20,000 15,000
6,000 4,000 2,000 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 10,000 5,000 0 2006 2007 2008 2009 2010 2011 2012F
Source: Company data, Nomura estimates
Rising infrastructure spending was apparent in increases in revenues of state-owned construction companies ahead of previous election run-ups (which we see as an indicator of real infrastructure construction works). Revenues of Wijaya Karya, PT Pembangunan Perumahan (PTPP IJ, not rated) and Adhi Karya (ADHI IJ, not rated) the three listed state-owned construction companies increased by 26% and 43% in 2007 and 2008, respectively, followed by another 9.1% increase in 2009. Evidence of such rising momentum is already starting to show, indicated by: (i) recent completion of a tender for expansion of the Jakarta seaport (PTPP was appointed as the main contractor); (ii) development of a dual-track railway to the Jakarta airport that is spearheaded by the Ministry of Transport and state-owned company, PT Sarana Multi Infrastruktur as showcase for a public private partnership program and will receive government support; (iii) the upcoming tender for the Jakarta monorail and/or MRT; and (iv) ongoing development of a new toll road going to Bali international airport for the APEC meeting hosted by Indonesia in 2013. These are just a few major infrastructure projects that we think will commence construction works starting 2013. Passage of land acquisition regulation and its implementation should boost infra development and construction We also expect recent passage of the implementation regulation for land acquisition will become effective and be in full implementation on the ground by 2013, which should help amplify infrastructure development and construction works. Recall that the land acquisition law itself was approved by parliament at the end of last year, and the implementation regulation was passed by the government in August this year. This was
52
January 8, 2013
followed up by the national land agency (Badan Pertanahan Nasional or BPN) recently issuing the rules and mechanics of land acquisition for public use. The new land acquisition law helps provide process and timing certainty for land acquisition that we believe should benefit infrastructure development. The land acquisition law provides that the whole process from socialization to the land rights transfer will be a maximum of 583 days or slightly more than 1.5 years (as compared to some former land acquisition processes that took up to 10 years). In the implementation regulation, the government further allows some transition period, whereby infrastructure projects that have commenced the land acquisition process would continue to use old law/regulation until 2014, and only then would it be able to use the new law / regulation.
Fig. 88: Summary of key process and timeline for land acquisition process as referred to by the land acquisition bill
The law helps provide certainty over process, cost and timing for land acquisition processes intended for development of public facilities including infrastructure
104workdays 108workdays 118workdays
REVIEW TEAM 90workdays

PUBLIC CONSULTATION REPEATED
APPEALTO SUPREME OURT 74workdays

STATE ADMINISTRATIVE COURT
72workdays
APPEALTO SUPREME COURT 74workdays DISTRICT COURT 30workdays 60workdays 7workdays
VERIFICATION &REVISION
7workdays
30workdays
60workdays
14workdays
44workdays
INVENTORY, IDENTIFICATION, APPRAISAL ANNOUNCEMENT
INITIALDATA COLLECTION
PUBLIC CONSULTATION
LOCATION SETTLEMENT
NEGOTIATIONON FORMOF COMPENSATION
REVOCATION OFRIGHT
HANDOVER
9working days APPRAISER APPOINTMENT ANDAPPRAISAL
PLANNING
Source: Jasa Marga, Nomura research
PREPARATION
104 242workingdays
IMPLEMENTATION
134 250workingdays
HANDOVER
2013 budget: more room for infrastructure despite higher subsidy The government is currently in discussions with Parliament on the state draft 2013 budget that was submitted mid-August. The 2013 budget is expected to be approved as a law by the Parliament by November this year. While our economics team thinks that the draft budget could have been more encouraging, given the proposed higher spending allocation on subsidies compared with capital spending, we still see some silver lining in the budget: Higher amount of fuel subsidies in 2013 compared to 2012 should reduce risk of overspending in subsidies (which if it happens, may need to be compensated with a lower budget for infrastructure). Total fuel subsidies allocated for the 2013 budget are set at IDR194bn, which is 26.5% higher than the 2012 allocation. Total proposed subsidized fuel volume allocation for 2013 is 46mn kl, which is 4.5% higher than in 2012. Despite higher subsidies, the proposed budget allocation for capital spending and infrastructure spending continued to increase in 2013. As part of the effort to compensate higher fuel subsidy spending, Parliament has also approved the governments proposal to increase electricity tariffs by 15% in 2013.
53
January 8, 2013
Fig. 89: Trend of subsidies

Allowing more subsidies in the 2013 budget
Fig. 90: Trend of infrastructure and capital spending

Continues to push for infrastructure spending
(IDR tn) 250 200 150 100 50 0
Fuel Electricity Others Subsidized fuel volume
('000 kl) 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
(IDR tn) 250 200 150 100 50 0 2007 2008 2009 2010 2011 2012F 2013F Capital Spending Infrastructure
2007 2008 2009 2010 2011 2012F 2013F

Source: Ministry of Finance Government 2013 draft budget; Nomura research
Source: Ministry of Finance Government 2013 draft budget; Nomura research
Favourable lending environment We also believe that the growth in infrastructure spending will be supported by the current favourable lending environment, marked by the low interest rate environment (the current BI policy rate is at an historical low) and banks growing appetite for increasing investment loans.
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January 8, 2013
Sector reviews
Within the infrastructure sector, we favour the cement and toll road sector most. Our top picks within the infra sector remain Semen Gresik (SMGR IJ, Buy) and Jasa Marga (JSMR IJ, Buy). We expect Gresik will continue to gain market share on the back of its new capacity, and this should not only help to drive future growth, but also enhance margins due to economic scale efficiency. We expect Jasa Margas growth will pick up in 2013F and 2014F on the back of completion of new toll road projects.
Construction materials
Cement We have a positive view on the cement sector and have Buy ratings for all 3 listed cement companies under our coverage, with our top pick being Semen Gresik. We expect that rising infrastructure spending will aid sustained growth in cement demand not only for infrastructure development but also the multiplier effect into property development (which has traditionally been the main purpose of cement consumption). Up to 9M12, domestic cement consumption has increased by 15% y-y, higher than last years only 12.5%, largely due to companies ramping up utilization rates and some additional production capacity mainly from Semen Gresik, coming on stream. However, based on data from Semen Gresik, no other cement players are adding new capacity this year, except Semen Gresik. As a result, given strong demand and limited supply capacity, cement prices have been steadily increasing by an average of 5% over the year. The cement companies will also likely benefit from lower coal prices, in our view, which represent 25-30% of their production costs, although this will likely be partially offset by the impact of higher fuel cost (that affects transportation and distribution costs, representing 15% of operating costs) for some cement companies. Specific to Semen Gresik, the company has been gaining market share in the last two months as a result of the contribution from some 2.5mn tons of new capacity that commenced full operation mid-year. Another 2.5mn tons of new capacity is also expected to come on stream in 4Q12 and that should help provide a further boost to sales volume and market share gains, in our view.
Fig. 91: Trend of domestic cement sales
Domestic cement sales continues to grow
Fig. 92: Trend of domestic market share

Gresik sustained its trend of gaining market share in 2H12
('000 tons) 60,000 50,000 40,000
FY Volume (LHS) Nov. YTD Volume (LHS) % y-o-y growth (RHS)
20% 15% 10%
50% 40% 30% 20% 10% 0%
Gresik Holcim
Indocement Others
30,000 5% 20,000 10,000 0 0% -5%
2004
2005
2006
2007
2008
2009
2010
2011
Source: Indonesia cement association, Nomura research
2012
Source: Indonesia cement association, Nomura research
1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
55
January 8, 2013
Steel Contrary to the cement sector, although the steel sector has benefited from rising domestic demand due to strength in the automotive and property sector, we expect local upstream players such as Krakatau Steel (KRAS IJ, Neutral) will likely continue to suffer from import competition and the resulting decline in selling price. In particular, for Krakatau Steel, although iron ore prices have started to fall, hot-rolled coil (HRC) and cold-rolled coil (CRC) selling prices have also declined at a faster rate; thus, the operational challenges continue to add up with limited supply of gas (both for KRAS power plant and steel plant) and higher gas prices. Nonetheless, expansion and operation revitalization programs continue to progress. KRASs iron-making project (in a JV with Aneka Tambang (ANTM IJ, not rated)), along with its steel slab plant and hot strip mill expansion that will increase capacity by 15-20%, are expected to be completed at the end of this year. Toll road Toll road is one of our favoured sectors within the infrastructure space. Growth for toll road companies in our view will likely come not only from inflation-based tariff adjustments that are regularly done every two years, but also from car sales growth, which continues to reach new highs month by month. We think toll traffic growth could give the sector potential upside surprise. In particular for Jasa Marga, while growth in 2012F will likely remain driven by tariff adjustments (most of Jasa Margas toll roads had tariff adjustments at end of 2011) and traffic growth, 2013F growth will also likely be driven by completion of new toll roads.
Fig. 93: Trend of monthly toll traffic and car sales
Traffic growth has moved in tandem with car sales volume
Fig. 94: Length of toll roads managed by JSMR

Some 190 km of new toll roads to be added in the next three years
Traffic (mm tx) 120 110 100 90 80 70
Monthly Traffic (LHS) Monthly car sales (RHS))
Monthly car sales ('000) 120 100 80 60 40 20
800 750 700 650 600 550 500 450 400 350 300 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F
56
Toll road length (km)
Sep-10
Sep-11
Sep-08
Sep-09
Jan-08
Jan-11
Jan-09
May-08
May-09
Jan-10
May-10
May-11
Jan-12
60
May-12
Source: Jasa Marga; Indonesia auto sales / dealer association (Gaikindo); Nomura research
Source: Company data; Nomura estimates
Jasa Margas toll road length is expected to increase by 10% in 2013F, but equally important is the higher tariff per km of these new toll roads that should contribute to growth. Construction We believe the growth prospects of the construction sector will become more attractive in 2013F, driven primarily by rising infrastructure development. The construction companies are likely to be early beneficiaries when infrastructure project construction commences, which we expect to pick up in 2013 given proposed budget spending. Within the sector, Wijaya Karya (WIKA IJ, Buy) is our favoured play. Infrastructure development should benefit companys construction business and concrete manufacturing operation, which controls 60% of local market share. In addition, we believe future earnings will also be supported by increasing revenue contribution from power plants (which is more stable compared to construction revenue) and the property business, which commands higher margins than the construction business. As a result,
January 8, 2013
we expect WIKAs gross margin to improve from its historical average of 10% to 13% in 2012F. Fuel distribution We also think that Indonesias energy infrastructure business, primarily the fuel distribution business conducted by AKR Corporindo (AKRA IJ, Buy), will also be an attractive long-term play in the infrastructure sector. We expect the company to benefit from ongoing deregulation of the fuel distribution business that will allow: (i) an increasing role of private players, including foreign companies, in domestic fuel distribution (particularly non-subsidized fuel); and (ii) government adjustments to subsidized fuel prices, which would close the gap with non-subsidized fuel prices.
57
Plantations
AGRI-RELATED
EQUITY RESEARCH
Outlook 2013
January 8, 2013
Supply/demand still in favour, stock prices look interesting

Eyes on the S/U The latest supply and demand estimates for various vegetable oils by USDA still point towards a sharp move upwards for palm oil from current levels, although in our view, they do deflate the case for very high palm oil prices (~RM4,000/mt). We expect seasonal variance for palm and soy production, along with the already existing tightness in oilseed supply, to be constructive for palm prices and plantation stocks in the next five months. Changes likely in 2013F Whilst the minimum wage increase is substantial, our analysis suggests the incremental impact on plantations cost of production vs our previous expectations is actually quite minimal. Fertiliser cost pressure is unlikely to increase, and may even ease. Changes in regulations related to foreign ownership and maximum acreage may increase the value of existing plantation assets. Interesting stock prices Under the very pessimistic scenario of CPO prices remaining where they are (~RM2,100/mt) in perpetuity, there seems to be real value in LSIP. A more reasonable and realistic scenario with a mid-cycle CPO price of ~RM2,800/mt also points to value in AALI, LSIP and SIMP which are offering FCFE yields of 2%-4% above the RFR.
Fig. 95: Valuations
Net Net DVD EV/ profit profit ROE EBITDA yield PER PER growth growth PB 13F 13F 13F (%) (x) 13F (%) Rec 13F (x) 14F (x) 13F (%) 14F (%) 8.4 20,050 1,390 205 2,425 1,230 3,274 582 128 1,715 2,017 1.8 2.1 Buy Buy 9.0 9.0 6.4 9.0 7.4 7.7 9.1 6.2 4.7 8.0 6.5 75.1 70.4 88.9 88.1 39.2 117.6 9.9 -1.7 45.4 34.8 12.0 13.6 1.9 2.8 2.5 0.7 2.1 1.2 22.7 35.0 31.6 11.5 25.8 17.9 5.5 8.0 6.6 5.1 3.6 3.0 4.0 1.1 1.7 3.2 2.5
Anchor themes We expect a tightening vegetable oil supply/demand balance to help push CPO prices to an average of MYR3,600/mt for 2013F. Nomura vs consensus Our 2013F CPO price estimate is 20% ahead of consensus.
Research analysts ASEAN Agri-Related Muzhafar Mukhtar, CFA - NSM muzhafar.mukhtar@nomura.com +60 3 2027 6891 Archit Singhal - NSFSPL archit.singhal.1@nomura.com +91 22 672 35537
Company Plantation Astra Agro Lestari BW Plantation Gozco Plantations PP London Sumatra Salim Ivomas Pratama
Mkt Cap (USD Avg 3M mn) (USD mn) Price
0.1 Neutral 3.5 0.9 Buy Buy
Simple average Aggregate 271,423 254
17.4 13.9
11.6 11.7
26.7 16.4
48.5 19.0
3.7 2.9
22.9 20.7
2.3 2.8
Source: Bloomberg; Pricing as on 2 January, 2013
Nomura | Plantations
January 8, 2013
Plantations outlook: 2013F

Supply-demand outlook
Whats changed? In its latest production estimates revisions, the USDA raised its implied vegetable oils stock/usage ratios for 2013F substantially to 10.3%, from the 7.5% initially expected in Sept12; this was driven not by lower expectations of consumption or higher production expectations, but adjustments to estimates of existing stocks. The S/U estimate for oilseeds was also raised, but only slightly; the existing tight supply situation for oilseeds (caused by three successive poor soybean harvests in the Americas within ~1.5yrs) is expected to remain, despite record output from South America in 1H13 already being pencilled in. So what does that mean for the palm oil price outlook? The much higher S/U estimate definitely deflates the case for very high palm prices, in our view, (~RM4,000/mt), which fell within the range implied by previous estimates. However, the change in S/U from 2012 to 2013 is still expected by the USDA to be quite steep, which implies the swing in prices from current levels will still be relatively big.
Fig. 96: USDA revises its SUR estimate for veg oils upwards
USDA's historical 2013F S/U estimates for veg oils & oilseeds indicate a sharp increase in SUR for veg oils esp. during Sep-Dec which is a result of higher estimates of beginning stocks for veg oils 2013F
Month Veg oils Beg stocks Production Consumption Ending stocks Stock usage ratio 13.5 157.6 155.9 12.7 8.1% 13.4 156.8 155.6 11.7 7.5% 13.5 155.3 154.9 11.4 7.4% 14.2 154.3 154.7 11.5 7.5% 15.6 154.2 155.1 12.8 8.3% 17.0 156.2 155.8 15.3 9.8% 17.3 156.7 155.8 16.0 10.3% Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12
Fig. 97: Though 2013F still points to a sharp reduction in veg oil stock usage ratio (SUR) resulting in supply tightness
Veg oil SUR to fall sharply in 2013F
12% 12% 11% 11% 10% 10% 9%
Vegetable oils (LHS) Palm oil (RHS)
Oilseed (RHS)
20% 19% 18% 17% 16% 15% 14% 13% 12% 11% 10%
Oilseeds Beg stocks Production Consumption Ending stocks Stock usage ratio 62.9 470.8 466.0 65.8 14.1% 61.9 465.8 463.0 63.1 13.6% 61.5 457.3 455.3 60.9 13.4% 62.7 453.1 453.1 60.4 13.3% 63.6 457.7 454.2 64.0 14.1% 65.4 462.1 457.9 66.5 14.5% 66.2 463.0
9% 8%
2005
2006
2007
2008
2009
2010
2011
2012
66.9 14.6%
Source: USDA FAS, Nomura research Note: All estimates for 2012/13 MY
Source: USDA FAS, Nomura research.
2013F
459.2
59
January 8, 2013
Fig. 98: The sharp fall in veg oil S/U in 2013F; even factoring in forecasting errors and scatter, can result in a large upswing in CPO prices from current MYR2,100/mt
Our CPO price forecast framework
Fig. 99: Large discount of palm to soy oil should further incentivise switching to palm oil
Palm-soy oil discount has risen sharply in recent past
Real ave CPO price (MYR/mt) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 7% 8% 9%
(%) 2013F 2012E 10 0 Post biodiesel impact -10 -20 -30 -40 Pre biodiesel impact -50
Palm-soy oil discount (RHS) Palm oil discount to sybean oil (LHS) 10 year average = -18.9%
(USD/mt) 600 500 400 300 200 100 0
10%
11%
12%
13% 14% Veg oil S/U
Source: MPOB, IMF, DOSM, USDA, Nomura estimates Note: Vegetable oil S/U based on FYE Sep. Ave CPO price for FYE Dec
Other changes likely in store

Wages Minimum wage in Indonesia in 2013 has been raised 8-49%, depending on the province. Whilst this may seem incredibly concerning at first glance, our analysis suggests that: (1) the net impact on the plantation sector will be much less than the headline numbers suggest, (2) the incremental impact on our profit forecasts are very low, due to the relatively high increase in labour costs per ha we have already built in to account for the existing trend of strong wage inflation in Indonesia. http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=579608&appn ame=GRP&cid=cDZkVXQ2YitsSzQ90 Export taxes & regulations Malaysias export tax structure will be altered substantially from 1 Jan 2013; from a situation of effectively zero tax on CPO exports, due to the presence of export-tax-free quotas, the new rules will see crude exports being lightly taxed at 4.5-8.5%, which will basically enable domestic downstream players to procure CPO feedstock at a lower price than their external competitors. Granted this advantage is not permanent as consumer countries can raise the tariffs on refined CPO products to restore the cost competitiveness of their own refiners, but any such moves will effectively raise costs for end consumers, helping to stoke inflation. Based on recent press releases, the Indonesian government is unlikely to respond to this move, which we see as being more aggressive against refineries in end consumer markets, rather than Indonesian refiners, who will still enjoy a feedstock cost advantage vs Malaysian counterparts on account of the higher export taxes on Indonesian CPO (plus Indonesia never relied on CPO imports from Malaysia in the first place). China has also tightened its oversight on food safety, including imports of palm oil; we understand from industry sources that this does not involve changes in the current regulations, simply a stricter implementation of existing standards (eg, free fatty acid content).
Apr-00 Oct-00 Apr-01 Oct-01 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12
-60
-100
60
January 8, 2013
Fertiliser After plantations reported seeing fertiliser costs per ha rise 20-25% in 2012, they may see a more beneficial outlook on this front in 2013, especially if natural gas prices in the US fall further on increased shale gas output. Our European Chemicals team expects fertiliser prices to come off ~6% on average in 2013F. http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=567720&appn ame=GRP&cid=WXNmUnhJL1BJbGs90 Foreign ownership and maximum acreage There have been some political rumblings in media articles (Jakarta Globe) about the foreign ownership of plantations in Indonesia, with some officials expressing their opinion that the Indonesian government should restrict foreign ownership in plantation companies and encourage domestic production. It has also been pointed out in media articles (Jakarta Globe) that contradicting laws and decrees need to be reconciled (particularly regarding foreign ownership in and maximum acreage allowed to be held by a plantation). Debate in the DPR has been scheduled for April 2013. We doubt retrospective action will be taken; if anything, the greater bias towards domestic participation and prevention of monopoly is likely to increase barriers of entry in palm oil, increasing the value of existing plantation assets and making it harder for veg oil supply to grow in the long run. Infrastructure We expect the government to continue pushing for the acceleration of infrastructure development, and the seaport at Tanjong Priok will not be left behind. The port is embarking on a significant expansion project, costing ~USD2.5bn for the first phase, which will include a deeper draft, allowing ships of larger capacity to call on the port. Tanjung Priok is currently one of four main ports in Indonesia (others: Belawan, Tanjung Perak, Ujung Pandang), handling ~70% of total international cargo, with container traffic growing 23% y/y in 2011. The congested port is currently a key bottleneck in the palm oil supply chain; the expansion will thus likely help to ensure supply security.
Plantation stock prices look interesting

If we were to assume current low prices of ~RM2,100/mt were to be sustained, and only zero-growth capex (ie, replanting and replacement of depreciated equipment) was spent going forward, several names offer substantial FCFE yields above the risk free rate, specifically LSIP in Indonesia and FR and SIME among other regional plantation stocks. Even with a much more reasonable mid-cycle assumption of ~RM2,800/mt, prices still look attractive for AALI, LSIP and SIMP in Indonesia and FR, IFAR, and SIME among other regional stocks which offer FCFE yields of 2%-5% above the RFR.
Fig. 100: CPO: 2800, no growth capex scenario
CPO assumption 2800 2800 2800 2800 2800 2800 2800 2800 2800 2800 2800 2800 2800 2800 Ticker AALI IJ BWPT IJ GZCO IJ LSIP IJ SIMP IJ GENP MK IOI MK KLK MK SIME MK FGV MK FR SP BAL SP IFAR SP GGR SP Market cap (USD mn) 3219 580 125 1629 1888 2206 10480 7649 18625 5492 2589 1530 1571 6872 FCFE/market cap 7.6% 4.3% 0.0% 8.8% 8.3% 3.9% 3.8% 4.3% 7.5% 4.7% 9.6% 3.5% 9.4% 7.1% FCFE yield minus RFR 2.4% -0.9% -5.2% 3.6% 3.1% 0.4% 0.3% 0.8% 4.0% 1.2% 4.4% -1.7% 4.2% 1.9%
Source: Bloomberg, Company data, Nomura estimates
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January 8, 2013
Fig. 101: CPO: 2100, no growth capex scenario

CPO assumption 2100 2100 2100 2100 2100 2100 2100 2100 2100 2100 2100 2100 2100 2100 Ticker AALI IJ BWPT IJ GZCO IJ LSIP IJ SIMP IJ GENP MK IOI MK KLK MK SIME MK FGV MK FR SP BAL SP IFAR SP GGR SP Market cap (USD mn) 3219 580 125 1629 1888 2206 10480 7649 18625 5492 2589 1530 1571 6872 FCFE/market cap 4.9% 1.7% -2.8% 6.9% 5.4% 2.2% 3.2% 2.9% 7.2% 2.9% 7.3% -0.5% 6.3% 5.6% FCFE yield minus RFR -0.3% -3.5% -8.0% 1.7% 0.2% -1.3% -0.3% -0.6% 3.7% -0.6% 2.1% -5.7% 1.1% 0.4%
Source: Bloomberg, Company data, Nomura estimates
Fig. 102: Valuation comparison

Price Company Sime Darby IOI Corporation Kuala Lumpur Kepong Felda Global Ventures Genting Plantations Kulim Malaysia United Plantations Sarawak Oil Palms IJM Plantations Tradewinds Plantation Average (Malaysia) Median (Malaysia) Golden Agri-Resources First Resources Indofood Agri Resources Bumitama Agri Kencana Agri Average (Singapore) Median (Singapore) Astra Agro Lestari Salim Ivomas Pratama London Sumatera BW Plantation Sampoerna Agro Bakrie Sumatera Plantation Gozco Plantations JA Wattie Average (Indonesia) Median (Indonesia) AALI IJ SIMP IJ LSIP IJ BWPT IJ SGRO IJ UNSP IJ GZCO IJ JAWA IJ Buy Buy Buy Buy Not rated Not rated Neutral Not rated 20050 1230 2425 1390 2700 97 205 375 29,000 1,900 3,300 2,100 230 45 54 36 51 12 3,272 2,016 1,715 584 529 138 127 147 GGR SP FR SP IFAR SP BAL SP Buy Buy Buy Buy 0.68 2.07 1.38 1.06 0.345 0.95 3.80 1.70 1.40 41 84 23 32 7,099 2,686 1,621 1,526 324 Ticker Rating LC 9.46 5.07 22.68 4.61 8.97 4.95 25 5.78 2.97 4.06 TP LC 12.80 5.40 29.00 5.30 10.00 Upside (%) 35 7 28 15 11 Mcap (USDmn) 18,731 10,742 7,977 5,541 2,243 2,092 1,714 831 785 708 P/B CY12F 1.9 2.2 3.2 2.6 2.0 1.4 2.4 2.1 1.6 1.1 2.0 2.0 0.8 2.4 1.1 3.0 1.2 1.7 1.2 3.5 1.4 2.6 3.3 1.9 0.1 0.8 1.1 1.8 1.7 CY13F 1.6 2.0 3.0 2.3 1.8 1.4 2.2 1.9 1.5 1.0 1.8 1.8 0.8 1.9 1.0 2.4 1.1 1.4 1.1 2.8 1.2 2.1 2.5 1.7 0.1 0.7 1.0 1.5 1.5 P/E CY12F 10.6 13.1 22.0 13.5 24.3 21.2 15.8 11.9 16.5 14.0 16.2 15.1 13.2 13.3 15.5 20.0 17.7 15.9 15.5 15.3 17.1 12.5 16.9 13.5 3.6 12.0 8.7 12.4 13.0 CY13F 8.9 11.2 16.8 10.5 14.9 17.7 13.8 12.0 15.3 10.0 13.0 12.0 9.3 7.7 7.9 11.3 10.9 9.4 9.3 9.0 7.7 9.0 9.0 10.2 3.4 6.4 8.3 7.9 8.6 2-yr EPS CAGR (1.0) (11.0) 16.3 17.9 26.2 16.6 8.9 9.8 (7.1) 23.2 10.7 16.3 20.6 42.6 47.7 57.5 n.a. 42.1 45.1 29.4 59.1 24.8 65.7 17.3 49.1 59.3 11.5 39.5 39.3 PEG CY12F n.a n.a 1.0 0.6 0.6 1.1 1.5 1.2 n.a 0.4 0.9 0.9 0.5 0.2 0.2 0.2 n.a 0.2 0.2 0.3 0.1 0.4 0.1 0.6 0.1 0.1 0.7 0.3 0.2 Div yield CY12F 3.4 3.8 3.4 1.1 1.5 1.2 4.8 0.8 3.1 3.1 2.8 3.1 2.4 1.6 0.4 0.7 1.0 0.7 4.0 1.7 4.1 1.0 2.9 3.6 0.4 3.2 2.6 3.0 CY13F 2.3 4.6 3.6 3.6 1.6 1.3 4.8 0.6 3.1 4.4 3.3 3.6 2.8 2.4 0.8 0.7 1.8 1.7 1.8 4.0 2.3 3.2 1.1 2.7 1.0 1.7 2.7 2.3 2.5
SIME MK Buy IOI MK KLK MK FGV MK KUL MK UPL MK SOP MK IJMP MK Neutral Buy Neutral Not rated Not rated Not rated Not rated
GENP MK Neutral
TWPB MK Not rated
KAGR SP Not rated
Source: Bloomberg estimates for Not rated companies, Nomura estimates for covered companies Note: Pricing as on 2 Jan, 2013
62
Property
PROPERTY
EQUITY RESEARCH
Outlook 2013
January 8, 2013
Resilient demand and attractive valuation

Action: Maintain our positive view on the sector Total 2Q12 marketing sales of property companies under our coverage grew by 50% y-y. We believe the trend is sustainable, although we also think that it will continue at a more moderate level, supported by Indonesias continued robust economic growth and low interest rates. Expect minimal impact from recent regulations Our discussions with the property companies indicate that impacts of the new LTV regulations are likely to be minimal, partly due to property companies and banks restructuring the down-payment requirement into instalments, and partly because of the ability of customers to meet the 30% down-payment requirement (given most property companies are targeting the higher end of the market). Catalyst: Development of infrastructure More aggressive development of infrastructure such as toll roads is a potential upside catalyst for the property sector, as it should enhance value and attract demand. Valuation: Our selections remain CTRA and BSDE We think that future growth will be driven more by volume rather than price increases. As such, we prefer names that are able to drive growth with less dependence on prices increases. We like Ciputra for its strong positioning in the market, reputation, strategy, and growth profile. We also like Bumi Serpong Damai for its attractive valuation; its share price fell recently on market belief of M&A. Anchor themes We have a positive view on the Indonesian property sector. We believe demand will remain robust given sustained economic growth and the low interest rates environment. Developments of new infrastructure such as toll roads should help sustain property demand growth and raise value, in our view. Nomura vs consensus Our forecasts are largely in line with bloomberg consensus estimates.
Research analysts Indonesia Property Andy Lesmana, CFA - PTNI andy.lesmana@nomura.com +62 21 2991 3344
Fig. 103: Stocks ratings and valuation

EV/ PB ROE EBIT 12F 12F DA (x) (%) 12F 2.5 1.6 3.2 2.5 2.2 2.4 4.8 4.2 3.3 12.8 15.8 25.8 14.0 8.7 10.0 15.3 22.1 20.2 6.0 10.4 11.6 10.7 15.6 17.4 DVD yield 12F (%) 0.8 2.1 0.0 1.1 0.9 0.6 0.8 2.1 2.5
Company Property Agung Podomoro Alam Sutera Bumi Serpong Damai Ciputra Development Lippo Karawaci Summarecon Agung Simple average Aggregate
Mkt Cap Avg 3M Price (USD mn) (USD mn)
Net profit Net profit PER PER growth 12F growth 13F Rec 12F (x) 13F (x) (%) (%) 19.9 14.9 9.4 11.4 15.0 13.4 18.4 23.0 17.4 14.0 32.4 38.3 51.0 21.2 41.5 29.9 18.3 10.1 5.1 34.1 11.8 20.4 27.2 96.3 36.6 42.6 25.9 16.7
380 610 1,110 800 1,000 1,860
808 1,130 2,014 1,258 2,242 1,325
0.6 Neutral 4.5 4.0 1.0 5.6 1.3 Buy Buy Buy Buy Buy
10.5 13.7 19.1 26.4 25.1 32.9 22.4
271,423
254
16.4
Source: Nomura research. All prices as of 2 January 2013;
Nomura | Property
January 8, 2013
Volume-driven growth
Although Indonesias property sector is currently in its third boom year, we argue that it is still in its midway of an up-cycle. Growth continues to be driven by fundamental factors including demographics, economic growth (well across the country), and low interest rates that we expect to continue in the near term. However, we also think that future growth will be more volume-driven than price-driven. As such, we prefer property names with capacity to grow volume such as Ciputra (CTRA IJ, Buy), Bumi Serpong Damai (BSDE IJ, Buy) and Summarecon (SMRA IJ, Buy).
Strong demand throughout the year

Throughout 9M12, demand for property had remained strong. Total quarterly marketing sales of property companies under our coverage on average grew by 60% y-y in the past 2.5 years. With the exception of Ciputra Development, which has benefited from rising property demand from geographically expanding its projects and which has driven its growth mostly by volume, growth for most property companies under our coverage has been driven by price increases.
Fig. 104: Trend of combined quarterly marketing sales
3Q12 marketing sales stagnated largely due to August holiday season
Fig. 105: Trend of companies quarterly marketing sales

Most companies' marketing sales are on uptrend
(IDR bn) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
CTRA SMRA
BSDE ASRI
LPKR
(IDR bn) 2,250 2,000 1,750 1,500 1,250 1,000 750 500 250 0
CTRA LPKR ASRI
BSDE SMRA APLN
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
In our view, this strong marketing sales trend has been driven by fundamental factors such as sustained economic growth, as well as demographic factors, further supported by a favourable interest rate environment. A favourable lending environment has also been supportive of strong property demand, in our view, marked by multi-year low interest rates and extended mortgage loan tenure (from an average of 10 years in 2010 to recently as long as 20 years). This has resulted in all-time high outstanding mortgage loans, although such loans only represent 9% of total outstanding loans in the countrys banking sector, according to data from Bank Indonesia. Expect minimal impact from regulatory changes Mid last year, the government issued new Loan to Value (LTV) regulations aimed at preventing a housing bubble. The LTV ratio is being lowered from 80% to 70% as a precautionary measure to prevent overheating in the property market. Our discussions with the property companies indicate that impacts of the new LTV regulations are likely to be minimal. As the above charts indicate, subsequent to the passage of LTV regulation, property demand remained stable in 3Q12, and for some companies, marketing sales continued to grow in 3Q12. This is partly due to property companies and banks restructuring the down-payment requirement into instalments, and partly because of the ability of customers to meet the 30% down-payment requirement (given most property companies are targeting the higher end of the market), in our view.
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12
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Nomura | Property
January 8, 2013
Furthermore, based on our discussions with the central bank, we think that the central bank may pause a while from issuing further countercyclical regulation, at least in the short term. The central bank noted that property lending growth has recently slowed from the average of 40% y-y prior to the issue of the new LTV regulation to 25% y-y, which is in line with general loan growth. We would expect that if the central bank were to issue further countercyclical regulation targeted on the property sector, it would be to target potential speculative property purchases, such as a limit on LTV on second home purchases.
Our preferences within the sector

We maintain our positive view on the sector. We are of the view that Indonesias economic growth is sustainable, with interest rates likely to remain at low levels, providing support for property demand. More aggressive development of infrastructure such as toll roads is a potential upside catalyst for the property sector, as it should enhance value and attract demand, in our view. However, we think that future growth will be driven more by volume rather than price increases. As such, we prefer names that are able to drive growth with less dependence on prices increases. We like Ciputra for its strong positioning in the market, reputation, strategy, and growth profile. We also like Bumi Serpong Damai for its attractive valuation and significant landbank.
65
Telecoms / Towers
TELECOMS
EQUITY RESEARCH
Outlook 2013
January 8, 2013
No easy gains
Action/ valuation: Expect continued volatility in 2013F Comparing across the region, Indonesian telcos still appear attractive on various metrics appealing consumer/ telephony demographics, growth driven by current low data penetration, and rising FCF yields. This should continue to bode well on a medium-term view, but as has been the case for many years now, the stocks tend to react a lot more to quarterly trends, which are likely to remain choppy in 2013F. Capex should remain high we estimate total spend of USD3.5bn in FY13F. Operationally in 1H, data competition will be the main focus and this is where we expect more intensity from Hutch and the incumbents. 2H should be more stable, but both XL and Indosat could look to exploit/ regain share post high investment phase. Overall, we are more cautious on Indonesian telcos in 2013F due to competition, capex, data economics (margins) and valuation concerns. Current FY13F P/E is 13-26x. Action: Buy Indosat, Neutral Telkom and XL We see relatively higher operational leverage at Indosat given: 1) stableto-improving operating trends; 2) new management appears to have an articulated mandate/ clear roles; 3) being able to offer 3G on 900Mhz should benefit data growth and 4) USD debt reduction should reduce FX volatility. For Telkom, operating trends should remain resilient, and its valuation of 13x FY13F earnings with 5% dividend yield looks appealing in a regional context. However, there are still uncertainties around execution and on its surplus cash deployment options. XL is in a data transition phase this is likely to keep capex levels high. As well, it has been more difficult to differentiate on data vs voice, but XLs execution remains its key strength, which should drive gradual return improvement. Action: Towercos some caution is warranted. We remain structurally bullish on Indonesian towers, but following a 130140% increase in share prices in 2012, we recommend some caution. Some concerns to note: 1) downward rental pressure Indonesian tower rents of ~USD1,500 remain high vs the Indians at USD800; 2) potential listing of tower assets by top three telcos and 3) forex volatility. Protelindo is our relative preference, given its valuation/ growth differential to TBIG, but its low liquidity makes it a difficult investment, in our view.
Fig. 106: Stocks for action
Mkt Cap Avg 3M (USD (USD Price m n) m n) 5,700 6,450 8,950 5,450 5,028 3,634 18,326 2,639 2,433 PER PER Rec 13F (x) 14F (x) 14.9 14.0 3.9 Neutral 13.7 12.7 1.4 Buy 26.2 12.5 29.1 27.3 23.4 12.0 25.0 22.2 Net profit Net profit grow th grow th 13F (%) 14F (%) 7.9 7.0 6.1 8.3 -10.8 6.9 47.2 47.3 12.2 4.7 16.1 23.0 PB 13F (x) 2.6 2.7 1.9 2.3 6.5 8.3 ROE EV/ DVD 13F EBITDA yield (%) 13F 13F (%) 17.4 3.5 21.1 5.5 3.6 -0.3 19.4 25.2 35.9 4.7 4.2 18.6 12.9 1.9 5.2 0.3 Net DTE TP 13F (%) Ticker 6,750 7,500 4,300 56 EXCL IJ 78 166 ISAT IJ TBIG IJ
Anchor themes Macro trends are positive in Indonesia, but competition, regulation and coverage challenges remain. Nomura vs consensus In comparison to consensus, our target price for Indosat is 10% ahead, 4% below for XL, and 18% below for PT Telkom.
Research analysts ASEAN Telecoms Sachin Gupta, CFA - NSL sachin.gupta@nomura.com +65 6433 6968 Pankaj Suri - NSFSPL pankaj.suri@nomura.com +91 22 4053 3724 Neeraja Natarajan - NSL neeraja.natarajan@nomura.com +65 6433 6961 Gopakumar Pullaikodi - NSFSPL gopakumar.pullaikodi@nomura.com +91 22 4053 3733 Shweta Dixit - NSFSPL shweta.dixit@nomura.com +91 22 672 35457
Com pany Telco & Tow er XL Axiata Indosat PT Telkom TBIG
18.8 Neutral 1.9 Neutral 0.0 Buy
8,600 net cash TLKM IJ 212 TOWR IJ
SMN (Protelindo) 23,000
0.0 35,000
Source: Bloomberg, Nomura estimates. Prices as of Jan 2. TBIGs target price is under review.
Nomura | Telecoms / Towers
January 8, 2013
2013 More cautious

We are relatively more cautious on Indonesian telcos in 2013 than last year as: 1) we don't see competition moderating this year; in fact, we see potential upside risks in the data segment Hutch is leading this already; 2) we think capex levels will remain high our estimate for capex-to-sales this year is 30%; 3) in our view, data economics will still not be compelling enough; and 4) valuations arent inexpensive at FY13F P/E of 13-26x. However, two key drivers that could keep Indonesian telcos in favour are: 1) continued operating momentum: we estimate 7% average revenue growth and 6% EBITDA growth and 6% NPAT growth (ex-Indosat) in 2013F; 2) macro, as usual, should also be a key driver, particularly for PT Telkom given its FCF yield of 9% and dividend yield of 5%.
Fig. 107: Indonesia still early on the data S curve Fig. 108: Indonesian telcos capex trends
(IDRbn) 25,000 20,000 15,000 10,000 5,000 0
2012F 2013F 2014F 2008 2009 2010 2011
PT Telkom Indosat
Telkomsel XL
Source: XL, Nomura research Note: XL provided this chart as the S curve of its data trajectory. However, we think that this reflects data growth for the overall market as well.
Fig. 109: Indonesian telcos revenue growth trends

30% 25% 20% 15% 10% 5% 0% PT Telkom Telkomsel Indosat XL
Fig. 110: Indonesian telcos FCF yields, dividend yields

14% 12% 10% 8% 6% 4% 2% 0% Telkom : FCF yield Indosat : FCF yield XL : FCF yield Telkom : div yield Indosat : div yield XL : div yield
2010
2009
2010
2011
2011
2012F
2013F
2012F
2013F
2014F
2014F
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January 8, 2013
Decent stock performances in 2012

In Indonesia, the MSCI telcos index was up 27% in 2012, vs a 9% increase for the MSCI market index, making telcos the third-best performing sector. This was driven by: 1) strong operating trends: we estimate 9% average revenue growth for top three telcos in 2012F, vs 5% in 2011; 2) management changes at Telkom, Telkomsel and Indosat; and 3) successful tower monetization for Indosat in August. XL and PT Telkom were up 26-28%, and outperformed the JCI index by 13-15%. As a result, both XL and Telkom are amongst the top ten AEJ telcos. Indosat has gained 14% during the year 1H12 had been disappointing for Indosat with a 25% drop; nonetheless it still managed to outpace the JCI index by 1% in 2012. Amongst towercos, both SMN and TBIG were up 130-140% (outperforming the local market by an average of 120%), which compares with the 22% average rise across their global peers. Inti Bangun Sejahtera is up 500% since listing in Aug12. This was driven by the strong growth outlook for towercos, which in turn is driven by structural shifts by the operators to lease rather than build.
Fig. 111: MSCI Indonesia sector indices performances in 2012 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40%
Financials Consumer Discretionary Market Index Consumer Staples Utilities Energy Telecom Services Health Care Industrials Materials
Fig. 112: AEJ telcos performances in 2012 (absolute)

80% 60% 40% 20% 0% -20% -40%
ZTE China Unicom NTT DoCoMo NTT Bharti Chunghwa China Tel Globe PLDT KT RCOM SmarTone LGU+ SingTel SK Tel M1 MXAP0TC TWM Indosat China Mobile TM Maxis KDDI XL Idea DTAC TLKM StarHub FET Axiata Telstra DiGi JCOM Softbank AIS True
Wireless Wirele
Integrated Integr
Equip Equipment
Sector
-60%
Source: Bloomberg
Source: Bloomberg, Nomura Research
Fig. 113: AEJ telcos performances in 2012 (relative to local markets)

60% 40% 20% 0% -20% -40% -60%
ZTE China Unicom Globe PLDT Bharti NTT DoCoMo NTT RCOM China Tel SmarTone Chunghwa SingTel M1 KT DTAC China Mobile LGU+ SK Tel Idea Indosat TWM KDDI StarHub TM Maxis AIS XL TLKM Telstra JCOM Softbank Axiata FET DiGi True
Fig. 114: Global towercos stock performances in 2012

200% 150% 100% 50% 0% -50% -100% GTLI STP AMT CCI SBAC SMN TBIG
Wireless
Integrated
Equipment/Infra
Absolute performances Performances relative to local market
-80%
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January 8, 2013
Fig. 115: PT Telkom P/E band charts

(IDR) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
Fig. 116: Indosat P/E band charts

(IDR) 14,000
Fig. 117: XL P/E band charts

(IDR) 12,000 10,000 8,000
30x 27x 24x 22x 18x 15x 10x 6x
21x 18x 15x 12x 9x 6x
12,000 10,000 8,000 6,000 4,000 2,000
27x 24x 18x 15x 12x 9x 6x
6,000 4,000 2,000 0

Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12
Source: Bloomberg, Nomura estimates
Apr-06 Nov-06 Jun-07 Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Sep-12
Nov-07
Oct-10
May-11
Dec-11
Jun-08
Jan-09
Sep-06
Fig. 118: SMN P/E band charts

(IDR) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 45x 40x 35x 30x 25x 20x 15x 10x
Aug-09
Fig. 119: TBIG P/E band charts

(IDR) 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500
Mar-10
Apr-07
Jul-12
30x 28x 26x 23x 21x 19x 18x 17x
Jun-11
Feb-11
Feb-12
Jun-12
Oct-11
Oct-10
Aug-11
Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12
Dec-10
Dec-11
Aug-12
Oct-12
69
Apr-11
Apr-12
January 8, 2013
Other key themes

Growing data while mitigating decline in voice/ SMS
While Indonesian telcos remain focused on promoting data, they have also been trying to contain the structural decline in traditional telco services of voice and SMS, for which they have launched bucket plans and bundled plans. This should alleviate some pressure on margins from rising contribution of the low-margin data business over the near term, we believe. At the same time, telcos are trying to improve data economics by competing along with collaboration. XL has been vocal about network sharing, and has already started network sharing with its closest competitor Indosat. Apart from these, we have also seen sharing of passive networks most of the operators, especially the smaller ones, appear inclined towards leasing towers instead of self-build. Indosats recent sale and leaseback arrangement of 2.5k towers to TBIG is a notable step in this direction. Some key ongoing telcos initiatives in the market that should aid in data growth include: (1) proliferation of smart-devices, especially the low-end ones; (2) sale of customised devices for quick access to social networking sites; and (3) carriers venturing further into eCommerce / mCommerce and media portals.
Fig. 120: Indonesian telcos sequential segment growth
Voice Data SMS
Fig. 121: Indonesian telcos m-banking portals

PT XL Axiata Name of the mobile payment program Number of users by June'12 Target user Pilot Project (launched in) Operations Commenced PT Telkom sel Name of the mobile payment program Target user Number of users by 2011 Pilot Project (launched in) Operations Commenced PT Indosat Name of the mobile payment program Number of merchants target 2011 Target user Number of users by 2010 Pilot Project (launched in) Operations Commenced
Source: digitalkreatif.com, Nomura research
30% 25% 20% 15% 10% 5% 0% -5% -10% -15%
XL Tunai (XL-Cash) 70k 42 million users of XL Yogyakarta 2012
T-cash 121 million users of Telkomsel 8.2 million Jakarta, Bandung, Yogyakarta, Medan 2007
2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12
Dompetku (Purse) 260 merchants at 7800 service points 55 million users of Indosat 150 Thousand Jakarta, Bandung, Surabaya 2009
Competition: will Hutch be the next XL?

Based on our recent discussions with companies, we note that Hutch is looking aggressive on data pricing. As well, it remains focused on ramping up its network capacity retaliation from the top three telcos cannot be ruled out, in our view. Nonetheless, the following factors should continue to ensure that sanity prevails on pricing to some extent: (i) current network utilizations of 75-80% for the top three players; (ii) operators being relatively well placed to match competition; and (iii) low degree of price elasticity on voice/ SMS.
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January 8, 2013
Fig. 122: Revenue shares

70% 60% 50% 40% 30% 20% 10% 0%
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12
Fig. 123: EBITDA shares

70% 60%
Fig. 124: Subscriber shares

70% 60%
Telkomsel Indosat XL
50% 40% 30% 20% 10% 0%
50% 40% 30% 20% 10%
0%
Spectrum issues: some respite on the way

Spectrum issues are back in the spotlight, given the upcoming 3G spectrum auctions and the recent government decree that allows telcos to roll out 3G networks (and offer 3G services) on 900Mhz. Spectrum auctions Two more carriers in 2.1GHz (carrier number 11 and 12, each of 5MHz) are likely to be allocated over the next few months. Given XLs spectrum limitations (owns 15MHz vs 30MHz for Telkomsel and Indosat in 900-1800 MHz), we expect it to be a key contender for this, along with Telkomsel. Based on our recent meeting with the regulator, the process of allocation will most likely be via a beauty-contest, which would cover market considerations, contenders strategic plans, and past performance amongst others. For more details, please refer to our note Insights from regulators and smaller players, October 18, 2012).
Indonesia Telecoms - Insights from across the value chain

As per TeleGeography (Indonesias MoCI gets 3G spectrum sale process moving, 21 Dec 2012), the ministry is expected to set a minimum reserve fee of IDR200 billion for blocks of spectrum. Spectrum neutrality Recent introduction of spectrum neutrality is a relative positive for Indosat, we believe, as: a) on 900Mhz, Indosat has 10Mhz, which is 2.5Mhz more than both Telkomsel and XL; and b) on 1800Mhz, it has significantly more spectrum than XL (but slightly less than Telkomsel). This should also allow Indosat to re-farm some of its voice services to higher frequencies and use data on lower frequencies as data economics are relatively better on lower frequencies. Closing the coverage gap. Indosats BTS count at 21.6k is lower than 36-51k for peers. As well, Indosat is targeting to spend IDR6trn this year vs IDR9-10trn for peers. With 3G on 900Mhz now, Indosat should be able to close any potential coverage gaps at relatively lower costs given its spectrum advantages.
Fig. 125: GSM telcos spectrum ownership Fig. 126: CDMA telcos spectrum ownership
Source: Presentation on Digital Dividend by Mr Denny Setiawan, Directorate of Spectrum Policy and Planning, July 2012; Nomura research
Source: Presentation on Digital Dividend by Mr Denny Setiawan, Directorate of Spectrum Policy and Planning, July 2012; Nomura research
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January 8, 2013
Towers: we recommend to tread with some caution

While we dont dismiss the structural appeal of towers in Indonesia, following 130-140% share price increases in 2012, we recommend some caution. We are also mindful of the following risks. Downward rental pressure. Indonesian tower rents of ~USD1,500 remain high vs the Indians at USD800 Indonesian telcos could look to renegotiate to get the rents reduced. Growth vs cost of investment organic growth for independent towercos means 500 to 1.5k tower addition pa. Acquisitions will provide the big step-up, which could be either equity or debt funded. For debt, local debt (IDR denominated) is expensive (current 10-year bond rate is 6%), whereas vs USD debt (current 10-year bond rate of 2%), but USD debt could expose either the towercos and/or operators to forex risks given most of the revenues are IDR denominated. Telcos may look to list their own towers, especially if +10x EV/EBITDA valuations can be sustained vs core telco business at 5-6x. This may adversely impact the appeal of existing players. Mitratel is good example of this, in our view and for the past two to three years, Telkom has stated of its intentions to list this asset. However, we understand there are still some shareholder issues in terms of transfer of Telkomsels tower portfolio into Mitratel. Ad-hoc issues, eg, rent payment default by CDMA telcos recent press around Bakries financial troubles could be a concern for tower companies in the event it defaults on rental payments. Bakrie accounts for 6-7% of TBIGs and Protelindos revenues. Normally, rental payments can range from quarterly to annual payments upfront. As well, normally it would be rare for a telecom operator like Bakrie to shutdown altogether, where it has 12mn total subs. It is more likely, in our opinion, that it could become a potential M&A target, in which case a lot of the leases could rollover.
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January 8, 2013
Fig. 127: Sector Valuation

Bloomberg Rating Currency ticker Wireless AIS Axiata Group Bharti Airtel China Mobile Digi.com Far EasTone Globe Telecom Idea Cellular Maxis MobileOne NTT DoCoMo XL RCOM SK Telecom Taiwan Mobile DTAC Average Median Integrated China Telecom China Unicom Chunghwa eAccess Jupiter Telecom KDDI KT Corp LG Uplus NTT PLDT PT Indosat PT Telkom SingTel Softbank StarHub TM Telstra True Average Median Towers SMN TBIG Average Median ADVANC TB AXIATA MK BHARTI IN 941 HK Digi MK 4904 TT GLO PM IDEA IN Maxis MK M1 SP 9437 JP EXCL IJ RCOM IN 017670 KS 3045 TT DTAC TB Buy Buy Reduce Neutral Neutral Neutral Neutral Reduce Reduce Buy Neutral Neutral Neutral Buy Buy Buy Local price Mkt Cap (USDmn) 20,450 18,310 22,318 258,922 13,322 8,311 3,528 6,362 16,335 2,006 59,045 5,026 2,857 11,425 13,756 6,819 11 23.4 22.1 25.4 12.8 27.9 27.2 14.5 45.8 22.6 14.9 10.1 15.0 33.4 6.6 21.2 17.3 19.6 19.6 17.4 62.4 15.5 31.5 19.8 9.8 6.5 11.1 8.4 12.7 21.9 14.9 14.4 13.9 21.5 34.6 15.7 n/m 16.8 15.3 73.3 50.9 62.1 62.1 PE (x) 12E 17.4 19.5 30.5 12.5 25.3 21.0 14.0 27.9 22.8 16.9 10.3 14.5 23.5 10.5 18.6 18.0 19.0 18.8 16.1 30.7 16.3 29.5 19.8 8.6 7.3 57.3 8.2 15.0 23.4 13.4 14.9 10.7 19.0 24.1 14.5 n/m 18.6 16.8 40.2 41.8 41.0 41.0 13E 15.2 18.3 22.3 11.9 23.9 17.9 13.4 21.6 22.8 15.7 10.4 13.7 17.0 9.3 17.1 19.2 16.9 17.0 13.9 17.0 16.4 26.6 18.4 7.3 7.9 10.7 7.8 14.3 26.2 12.5 13.8 9.4 19.2 22.9 14.7 n/m 15.1 14.5 27.3 29.1 28.2 28.2 EV/EBITDA (x) 11 12E 13E 10.8 8.5 7.9 5.0 14.5 11.4 5.7 9.2 12.5 8.9 2.8 6.3 8.4 3.9 15.0 8.2 8.3 8.4 4.1 6.1 7.6 6.1 5.4 3.5 3.7 5.4 2.9 7.8 5.5 5.1 8.3 5.1 10.3 7.6 6.7 8.6 6.1 6.1 20.7 36.4 28.6 28.6 9.9 7.9 7.5 4.9 13.6 10.0 5.6 7.7 12.8 9.4 3.0 5.9 7.9 4.4 14.0 8.3 7.9 7.9 4.0 5.0 7.6 6.0 5.3 3.3 3.6 5.4 2.9 7.8 4.7 4.7 8.1 4.9 9.8 7.5 6.4 8.7 5.9 5.6 16.1 26.9 21.5 21.5 9.1 7.5 6.6 4.7 13.0 9.3 5.4 6.8 12.6 8.9 3.0 5.5 7.4 4.1 13.4 8.2 7.5 7.4 3.7 4.1 7.6 5.9 5.1 2.9 3.5 4.0 3.0 7.2 5.7 4.5 7.8 4.6 9.8 6.7 6.5 6.7 5.5 5.6 12.9 19.0 15.9 15.9 Div Yield (%) 11 12E 13E 4.0% 2.9% 0.3% 3.4% 3.4% 3.3% 5.8% 0.0% 6.1% 5.4% 4.5% 2.3% 0.7% 6.2% 4.2% 20.4% 4.6% 3.7% 2.0% 0.9% 5.8% 1.3% 1.7% 2.6% 5.6% 2.0% 3.9% 7.4% 1.2% 3.5% 4.7% 1.3% 5.2% 8.3% 6.3% n/m 3.7% 3.5% 0.0% 0.0% 0.0% 0.0% 5.7% 3.6% 0.3% 3.4% 4.2% 4.3% 6.1% 0.0% 6.1% 5.6% 4.8% 2.8% 0.5% 6.2% 4.9% 5.6% 4.0% 4.6% 2.1% 1.0% 5.5% 1.0% 2.3% 2.8% 5.6% 1.3% 4.4% 6.7% 0.7% 4.7% 5.1% 1.3% 5.2% 3.7% 6.3% n/m 3.6% 3.7% 0.0% 0.0% 0.0% 0.0% FCF Yield (%) 11 12E 13E 4.9% 4.1% 1.7% 5.8% 4.3% 6.2% -1.1% 2.5% 5.0% 5.0% 2.7% 1.1% n/a 17.7% 5.2% 4.7% 4.6% 4.7% 6.0% 6.1% 4.7% 6.8% 4.3% 6.7% 10.1% 2.5% 5.3% 5.7% 5.5% 3.3% n/a 11.4% 5.2% 2.7% 5.8% 5.5%
THB 209 MYR 6.6 INR 320 HK$ 91 MYR 5.20 NT$ 74 PHP 1,089 INR 105 MYR 6.6 S$ 2.7 JPY 124,000 IDR 5,700 INR 75 KRW 150,500 NT$ 105 THB 88
6.6% 7.0% 4.1% 2.0% 0.7% 0.8% 3.6% 5.1% 5.4% 4.3% 5.0% 4.8% 6.3% 4.5% 0.0% -4.2% 6.1% 5.0% 5.6% 6.6% 4.8% 2.6% 3.6% 3.6% 0.6% n/a 6.2% 33.2% 5.3% 4.2% 5.2% 10.0% 4.3% 6.0% 5.1% 4.5% 2.1% 1.8% 5.5% 0.0% 2.4% 3.1% 5.6% 3.3% 4.7% 4.9% 1.9% 5.2% 5.4% 1.6% 5.2% 3.9% 6.3% n/m 3.7% 3.9% 0.4% 0.3% 0.4% 0.4%
728 HK 762 HK 2412 TT 9427 JP 4817 JP 9433 JP 030200 KS 032640 KS 9432 JP TEL PM ISAT IJ TLKM IJ ST SP 9984 JP STH SP T MK TLS AU TRUE TB
Neutral Buy Neutral Neutral Neutral Buy Neutral Buy Neutral Neutral Buy Neutral Buy Buy Reduce Neutral Neutral Neutral
HK$ HK$ NT$ JPY JPY JPY KRW KRW JPY PHP IDR IDR S$ JPY S$ MYR A$ THB
4.0 13 94 62,100 107,900 6,090 35,400 7,650 3,630 2,560 6,450 8,950 3.3 3,140 3.8 6.0 4.4 5.4
45,836 42,312 25,134 2,471 8,500 26,727 8,691 3,703 49,353 13,409 3,632 18,316 43,563 39,850 5,351 6,984 58,046 2,577
9.7% 6.9% 10.8% -3.5% -10.1% 1.1% 3.7% 6.4% 6.4% 10.3% -0.6% -2.8% 6.0% 6.2% 6.5% 10.4% 5.1% 10.7% 9.4% 6.2% 11.8% -32.8% -7.4% 3.9% 11.0% 6.2% 6.6% 8.1% 6.2% 7.5% 3.6% 4.7% 7.5% 9.8% 8.1% 9.3% 6.5% 5.7% 6.1% 9.0% 7.5% -0.9% 6.6% 6.1% 5.8% 8.0% 2.7% 4.6% 9.5% 9.4% 9.3% -25.9% -4.6% -18.0% 2.9% 3.5% 4.5% 8.0% 6.1% 6.5% -0.6% -2.8% -3.4% -13.6% -2.0% -8.2% -2.0% -8.2% -0.4% -1.1% -0.7% -0.7%
TOWR IJ TBIG IJ
Buy Neutral
IDR IDR
23,000 5,450
2,432 2,573
Note: Prices as on 2 Jan 2013. Ratings are as of the date of the most recently published report (http://www.Nomura.com ) rather than the date of this document. Source: Bloomberg, Nomura Research
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January 8, 2013
Company profiles
75
January 8, 2013
76
Astra International
AUTOS & AUTO PARTS
ASII.JK ASII IJ
EQUITY RESEARCH
Rising affordability boosts car sales
January 8, 2013 Rating Remains Target price Remains Closing price January 2, 2013 Potential upside
Earnings growth is set to accelerate as non-automotive divisions bottom out

Action: Earnings growth will accelerate In our view, the share price of Astra International will move higher in 2013, driven by acceleration of earnings growth. Astras earnings growth is set to accelerate in 2013, after having slowed in 2012, in our view. We expect strong car sales, recovery in motorcycle sales, and stabilising coal and palm oil prices to boost earnings in 2013F. Catalyst: Low-cost green car (LCGC) to increase affordability The introduction of LCGC and rising income will increase affordability that will allow car sales to double to at least 2 million units in 2017, in our view. Astra will command first-mover advantage in LCGC and we believe that the high barrier to entry will keep many of its competitors at bay for a few years. Only four producers plan to produce LCGC in the next few years due to requirement of high fuel efficiency (20km/lt) and high local content (80%) to qualify for upcoming tax incentives, we believe. Risks to our view The inclusion of sariah financing to LTV (loan-to-value) regulation might pose a threat to automotive sales in 2013, but we expect any impact to be short lived and manageable. We see greater risks from a further collapse in agricultural prices, rapid depreciation of the rupiah, and diminishing credit availability, which would likely affect affordability and GDP growth. Valuation: Maintain Buy and TP of IDR9,500 Our TP of IDR9,500 is based on a target P/E multiple of 15x, in line with our target multiple for the JCI, and our 2014F EPS forecast of IDR644.
Buy
IDR 9,500 IDR 7,500 +26.7%
Anchor themes Astra's long-term growth potential remains strong, in our view. It benefits from a growing middle class and rising affordability. Car ownership remains low at less than 4% in Indonesia, vs 46% for G7 countries in 2011, on our estimates. Nomura vs consensus Our 2013-14F earnings forecasts are around 5% above consensus, as we are more optimistic on the car sales outlook.
Research analysts Indonesia Autos & Auto Parts Wilianto Ie - PTNI wilianto.ie@nomura.com +62 21 2991 3341
31 Dec Currency (IDR)
FY11 Actual Old
FY12F New Old
FY13F New Old
FY14F New
Revenue (bn) Reported net profit (bn) Normalised net profit (bn) FD normalised EPS FD norm. EPS growth (%) FD normalised P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)
162,564 179,570 179,570 206,062 206,053 243,291 243,291 17,785 17,785 439.31 23.0 17.1 11.8 5.0 2.6 32.4 52.6 19,066 19,066 470.95 7.2 N/A N/A N/A N/A 29.2 46.9 19,066 19,066 470.95 7.2 15.9 10.9 4.3 3.1 29.2 46.9 22,195 22,195 548.25 16.4 N/A N/A N/A N/A 29.4 42.9 22,195 22,195 548.24 16.4 13.7 9.7 3.7 3.7 29.4 42.9 26,088 26,088 644.40 17.5 N/A N/A N/A N/A 29.8 40.0 26,088 26,088 644.40 17.5 11.6 8.5 3.2 4.3 29.8 40.0
Key company data: See page 2 for company data and detailed price/index chart.
Nomura | Astra International
January 8, 2013
Key data on Astra International

Incomestatement(IDRbn)
Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis Reported P/E (x) Normalised P/E (x) FD normalised P/E (x) FD normalised P/E at price target (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (IDR) Norm EPS (IDR) Fully diluted norm EPS (IDR) Book value per share (IDR) DPS (IDR)
Relative performance chart (one year)

FY10 129,991 -103,117 26,874 -12,149 14,725 20,038 -5,298 -15 14,725 18 4,896 1,485 21,124 -4,027 17,097 -2,638 FY11 162,564 -130,530 32,034 -14,202 17,832 22,606 -4,774 0 17,832 -14 5,760 2,194 25,772 -4,695 21,077 -3,292 FY12F 179,570 -144,985 34,585 -15,266 19,320 25,120 -5,800 0 19,320 -112 5,877 2,387 27,473 -5,058 22,415 -3,349 FY13F 206,053 -166,804 39,249 -17,600 21,650 27,850 -6,200 0 21,650 -5 6,931 2,984 31,559 -5,653 25,907 -3,712 FY14F 243,291 -197,332 45,959 -20,626 25,333 31,833 -6,500 0 25,333 -44 8,297 3,432 37,018 -6,594 30,424 -4,336
Source: ThomsonReuters, Nomura research

(%) Absolute (IDR) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (IDR) 3-mth avg daily turnover (USDmn) Major shareholders (%) Jardine C&C 1M 3.4 2.8 0.8 31,480.2 49.0 8300/6120 29.51 3M 12M 1.4 0.6 -1.0 1.8 -4.2 -8.1
50.1
14,459 -93 14,366 -6,477 7,889
17,785 0 17,785 -8,016 9,769
19,066 0 19,066 -9,533 9,533
22,195 0 22,195 -11,097 11,097
26,088 0 26,088 -13,044 13,044
Source: Thomson Reuters, Nomura research
Notes
21.1 21.0 21.0 26.6 2.1 18.0 6.2 13.2 16.7 20.7 15.4 11.3 11.1 19.1 45.1 6.4 1.6 32.2 21.1
17.1 17.1 17.1 21.6 2.6 12.7 5.0 11.8 14.2 19.7 13.9 11.0 10.9 18.2 45.1 11.7 4.0 32.4 19.2
15.9 15.9 15.9 20.2 3.1 12.4 4.3 10.9 13.4 19.3 14.0 10.8 10.6 18.4 50.0 8.0 2.5 29.2 17.0
13.7 13.7 13.7 17.3 3.7 10.9 3.7 9.7 11.8 19.0 13.5 10.5 10.8 17.9 50.0 7.3 2.4 29.4 17.2
11.6 11.6 11.6 14.7 4.3 11.3 3.2 8.5 10.1 18.9 13.1 10.4 10.7 17.8 50.0 6.5 2.4 29.8 17.7
31.9 23.8 15.4 45.6 45.6
25.1 12.8 21.1 23.0 23.0
10.5 11.1 8.3 7.2 7.2
14.7 10.9 12.1 16.4 16.4
18.1 14.3 17.0 17.5 17.5
354.86 357.16 357.16 1,218.03 159.99
439.31 439.31 439.31 1,493.18 198.00
470.95 470.95 470.95 1,728.66 235.48
548.24 548.24 548.24 2,002.78 274.12
644.40 644.40 644.40 2,324.98 322.20
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January 8, 2013
Cashflow(IDRbn)
Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
FY10 20,038 -2,827 -359 16,852 -8,371 8,481 0 0 81 0 -15,968 -7,406 -6,477 1,527 9,817 0 846 5,713 -1,693 8,771 7,078 24,660 FY11 22,606 1,405 -47 23,964 -18,992 4,972 0 0 15 0 -13,744 -8,757 -8,016 1,370 13,252 0 8,263 14,869 6,112 7,078 13,190 31,800 FY12F 25,120 -306 -254 24,560 -14,420 10,140 0 0 0 0 -4,037 6,102 -9,533 0 -5,854 0 2,410 -12,977 -6,875 13,190 6,315 32,820 FY13F 27,850 -496 545 27,899 -15,141 12,759 0 0 0 0 -6,740 6,019 -11,097 0 2,814 0 3,085 -5,199 820 6,316 7,136 34,814 FY14F 31,833 -701 -4,144 26,988 -15,898 11,090 0 0 0 0 -2,142 8,949 -13,044 0 1,814 0 1,228 -10,002 -1,053 7,136 6,082 37,681 Notes
Balancesheet(IDRbn)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
FY10 7,078 0 9,391 10,842 3,628 30,939 15,053 27,547 0 0 39,318 112,857 17,803 9,275 10,046 37,124 13,935 0 3,109 54,168 9,379 0 3,130 44,731 0 1,449 49,310 112,857
FY11 13,190 0 14,526 11,990 3,950 43,656 16,997 41,750 0 0 51,118 153,521 21,040 15,542 11,789 48,371 23,950 0 5,362 77,683 15,389 0 3,130 55,628 0 1,691 60,449 153,521
FY12F 6,316 0 16,046 13,318 4,363 40,042 20,523 50,370 0 0 51,629 162,564 18,302 17,263 13,022 48,588 20,834 0 5,923 75,344 17,238 0 3,130 65,161 0 1,691 69,982 162,564
FY13F 7,136 0 18,412 15,322 5,007 45,876 24,682 59,310 0 0 54,211 184,079 19,618 19,861 14,943 54,422 22,331 0 6,796 83,550 19,450 0 3,130 76,258 0 1,691 81,080 184,079
FY14F 6,082 0 21,739 18,126 5,912 51,859 29,660 68,708 0 0 59,109 209,336 20,466 23,496 17,643 61,606 23,297 0 8,025 92,927 22,286 0 3,130 89,302 0 1,691 94,123 209,336
Notes
0.83 na
0.90 1,273.7
0.82 173.2
0.84 3,988.5
0.84 581.5
1.23 50.0
1.41 52.6
1.31 46.9
1.25 42.9
1.18 40.0
23.8 32.1 29.3 26.6
26.9 31.9 34.7 24.1
31.2 31.9 41.4 21.7
30.5 31.3 40.6 21.2
30.1 30.9 40.1 21.0
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January 8, 2013
Astra International: Focus charts

Fig. 128: Astra: car sales (last Nov-12)
('000 units) 60 50 40 30 20 10 0 03 04 05 06 07 08 09 10 11 12
Source: Gaikindo (The Association of Indonesia Automotive Industries), Nomura research
Fig. 129: Astra: car market share (last Nov-12)

70%
Astra's car sales Year average 60%
50%
40%
Astra mkt share (monthly) Astra mkt share (12m rolling)
30% 03 04 05 06 07 08 09 10 11 12
Source: Gaikindo (The Association of Indonesia Automotive Industries), Nomura research
Fig. 130: Astra Honda: motorcycle sales (last Nov-12)

('000 units) 450 400 350 300 250 200 150 100 50 0 03 04 05 06 07 08 09 10 11 12
Source: AISI (Indonesian Motorcycles Industry Association), Nomura research
Fig. 131: Astra Honda: motorcycle market share (last Nov-12)

70% Astra Honda mkt share (monthly) Astra Honda mkt share (12m rolling)
Astra Honda's motorcycle sales Year average
60%
50%
40%
30% 03 04 05 06 07 08 09 10 11 12
Source: AISI (Indonesian Motorcycles Industry Association), Nomura research
Fig. 132: Pama (contract mining): coal delivered

(m tons) 9 8 7 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012
Source: United Tractors, Nomura research
Fig. 133: Pama (contract mining): overburden removal

(m bcm) 90 80 70 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012
Pama's coal extraction Year average (coal)
Overburden Year average (coal)
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January 8, 2013
Fig. 134: Komatsu equipment sales volume (last Nov-12

(Units) 900 800 700 600 500 400 300 200 100 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Fig. 135: Astra Agro: FFB production (nucleus estate)

(m tons) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 03 04 05 06 07 08 09 10 11 12F
Source: Astra Agro Lestari, Nomura estimate
UT' Komatsu monthly sales Year average
Fig. 136: Astra: earnings breakdown (9M12)

4-wheelers 30.1%
2-wheelers 14.3%
Others 3.8% Agribusiness 9.1%
Auto components 5.0%
Heavy equipments 18.4%

Financial services 19.3%
Fig. 137: Astra: key assumptions

Key assumptions Car sales (units) +/- y-o-y Motorcycle sales (m units) +/- y-o-y Heavy equipments sales (units) +/- y-o-y Coal extraction by Pama (m tons) +/- y-o-y FFB nucleus harvested (m tons) +/- y-o-y
Source: Nomura estimates
2010A 426,467 52% 3.42 27% 5,404 74% 78 15% 3.26 0%
2011A 482,659 13% 4.27 25% 8,467 57% 87 12% 3.50 7%
2012F 599,000 24% 3.70 -13% 6,983 -18% 93 7% 3.58 2%
2013F 698,950 17% 3.96 7% 7,826 12% 100 8% 3.71 4%
2014F 789,109 13% 4.55 15% 9,824 26% 107 7% 3.71 0%
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82
Bank Mandiri
BANKS
BMRI.JK BMRI IJ
EQUITY RESEARCH
Our preferred bank sector pick
A key beneficiary of forthcoming bank regulations; resolution of legacy NPLs

Action: Reaffirm Buy and TP of IDR10,200 We view Mandiri as one of the key beneficiaries from forthcoming regulation on the multi-licensing regime in Indonesia, which will regulate bank activities and network expansion on the basis of capital, and one of the least impacted banks by Bank Indonesias plans to set minimum credit-mix thresholds for small business and productive loans. Catalyst: Eventual resolution of legacy NPLs Mandiri is also a key beneficiary from a constitutional court ruling that allows state banks to grant debt principal reductions to debtors. It has IDR32tn of outstanding written-off NPLs (equivalent to 46% of capital) resolution of these legacy NPLs would boost its NPL recovery incomes, in our view. Diminishing risk from the variable-rate bond portfolio The steep fall in treasury yield to 1.95%, if sustained, could be negative for Mandiris earnings as it affects coupons on its variable-rate bond holdings. However, income from these bonds had declined to 13.8% of its pre-tax profit in 3Q12 and the contribution may diminish further given our forecast of sustained growth of its loan portfolio and non-interest incomes. Valuation: Still inexpensive, below six-year mean Our GGM-derived TP of IDR10,200 is based on 2.7x FY13F BVPS of IDR3,777, implying a target FY13F P/E of 13.6x. The current P/E of 10.9x is still well below its mean 12-month forward consensus P/E of 13x over 2006-12 despite much lower cost of capital at present. We reaffirm our Buy recommendation.
Buy
IDR 10,200 IDR 8,250 +23.6%
Anchor themes We think Indonesian banks can sustain a strong earnings outlook despite headwinds from global economic uncertainties, owing to pro-growth fiscal and monetary policies and prudent macroeconomic management in the country. Nomura vs consensus Nomura's earnings forecasts for FY13-14F are 2-7% above consensus estimates.
FY11 Actual Old
FY12F New Old
FY13F New Old
FY14F New
PPOP (bn) Reported net profit (bn) Normalised net profit (bn) FD normalised EPS FD norm. EPS growth (%) FD normalised P/E (x) Price/adj. book (x) Price/book (x) Dividend yield (%) ROE (%) ROA (%)
16,237 12,246 11,181 483.31 10.0 17.0 3.1 3.1 1.3 21.9 2.5
20,456 13,958 13,958 598.22 23.8 N/A N/A N/A N/A 20.6 2.4
20,456 13,958 13,958 598.22 23.8 13.7 2.6 2.6 1.5 20.6 2.4
25,828 17,485 17,485 749.38 25.3 N/A N/A N/A N/A 21.6 2.6
25,828 17,485 17,485 749.38 25.3 10.9 2.2 2.2 1.8 21.6 2.6
31,912 21,552 21,552 923.66 23.3 N/A N/A N/A N/A 22.2 2.8
31,912 21,552 21,552 923.66 23.3 8.9 1.8 1.8 2.3 22.2 2.8
Nomura | Bank Mandiri
January 8, 2013
Key data on Bank Mandiri

ProfitandLoss(IDRbn)
Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis Reported P/E (x) Normalised P/E (x) FD normalised P/E (x) FD normalised P/E at price target (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS

FY10 33,932 -14,413 19,519 5,102 859 1,454 7,415 26,934 FY11 37,730 -15,954 21,776 6,543 1,000 3,230 10,773 32,549 FY12F 41,775 -15,574 26,200 7,852 1,146 4,017 13,014 39,215 FY13F 50,228 -18,500 31,728 9,422 1,203 4,603 15,228 46,956 FY14F 59,844 -22,545 37,300 11,306 1,263 5,284 17,853 55,153

-12,075 14,859 -616 -501 13,742 230 13,972 -4,603 9,369 -151 -16,312 16,237 -1,811 522 14,948 163 15,111 -3,480 11,631 -450 -18,759 20,456 -2,198 -400 17,858 321 18,179 -3,636 14,543 -585 -21,128 25,828 -3,006 -400 22,422 312 22,734 -4,547 18,187 -702 -23,241 31,912 -3,819 -400 27,693 300 27,993 -5,599 22,394 -842
(%) Absolute (IDR) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (IDR) 3-mth avg daily turnover (USDmn) Major shareholders (%) Republic of Indonesia 1M 3M 12M
3.1 15.5 24.2 2.3 13.9 14.8 0.8 19,972.2 40.0 8600/6000 17.37 5.8 9.6
60.0
9,218 9,218 -3,226 5,992
11,181 1,065 12,246 -2,449 9,797
13,958 13,958 -2,792 11,167
17,485 17,485 -3,497 13,988
21,552 21,552 -4,310 17,242
Notes
18.7 18.7 18.7 23.2 1.9 4.1 4.1 5.32 9.25 4.05 5.20 27.5 44.8 32.9 35.0 24.5 2.26 36.5 3.37
15.5 17.0 17.0 21.1 1.3 3.1 3.1 5.04 8.73 4.00 4.73 33.1 50.1 23.0 20.0 21.9 2.52 26.8 3.08
13.7 13.7 13.7 17.1 1.5 2.6 2.6 5.14 8.20 3.19 5.01 33.2 47.8 20.0 20.0 20.6 2.35 26.4 3.01
10.9 10.9 10.9 13.6 1.8 2.2 2.2 5.28 8.35 3.32 5.03 32.4 45.0 20.0 20.0 21.6 2.58 27.8 3.31
8.9 8.9 8.9 11.0 2.3 1.8 1.8 5.30 8.50 3.56 4.94 32.4 42.1 20.0 20.0 22.2 2.79 28.5 3.58
16.3 30.9 20.6 19.5 28.8 28.6 28.8
11.6 45.3 35.1 9.3 21.3 10.0 10.0
20.3 20.8 15.0 26.0 24.8 23.8 23.8
21.1 17.0 12.6 26.3 25.3 25.3 25.3
17.6 17.2 10.0 23.6 23.3 23.3 23.3
84
January 8, 2013
BalanceSheet(IDRbn)
As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Reserves for credit losses Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (IDR) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (IDR) Norm EPS (IDR) Fully diluted norm EPS (IDR) DPS (IDR) PPOP PS (IDR) BVPS (IDR) ABVPS (IDR) NTAPS (IDR)
FY10 9,522 37,474 24,857 114,321 246,201 -11,522 234,678 6 5,527 FY11 11,358 61,210 36,153 102,832 314,342 -12,168 302,174 6 6,590 FY12F 13,048 62,431 39,548 102,832 383,497 -13,503 369,994 6 7,908 FY13F 14,869 65,553 44,798 103,982 457,637 -15,709 441,928 6 9,094 FY14F 16,961 68,830 50,821 103,982 546,220 -18,728 527,492 6 10,458 Notes
23,390 449,775 362,212 7,630 13,183 383,025 24,680 407,705 527 17,459 24,442
31,569 551,892 422,250 12,654 19,767 454,671 34,566 489,237 861 28,862 33,506
37,883 633,650 477,632 21,675 22,189 521,495 37,420 558,915 1,300 28,862 45,015
41,672 721,901 543,265 24,137 24,919 592,320 39,763 632,083 1,690 28,862 59,709
45,839 824,390 618,545 26,903 28,000 673,448 42,731 716,178 2,028 28,862 77,763
-358 41,543 449,775 6,019
-575 61,793 551,892 7,010
-443 73,435 633,650 8,045
-443 88,128 721,901 9,726
-443 106,183 824,390 12,362
68.0 9.2
74.4 11.2
80.3 11.6
84.2 12.2
88.3 12.9
2.4 0.25 2.56 191.4 10.1 13.4
2.2 0.58 2.20 173.6 12.4 15.0
2.1 0.57 2.13 167.8 13.8 16.1
2.1 0.66 2.18 161.5 14.5 16.4
2.3 0.70 2.27 151.5 15.1 16.8
26.1 13.3 11.8 14.0 13.4
28.8 22.1 18.7 22.7 16.6
22.4 14.4 14.7 14.8 13.1
19.4 14.2 13.6 13.9 13.7
19.4 14.5 13.7 14.2 13.9
439.40 439.40 439.40 153.66 708.25 1,978.56 1,978.56 1,978.56
529.33 483.31 483.31 104.97 701.82 2,648.28 2,648.28 2,648.28
598.22 598.22 598.22 119.64 876.68 3,147.20 3,147.20 3,147.20
749.38 749.38 749.38 149.88 1,106.90 3,776.93 3,776.93 3,776.93
923.66 923.66 923.66 184.73 1,367.65 4,550.72 4,550.72 4,550.72
85
January 8, 2013
One of the key beneficiaries of forthcoming regulations

Bank Indonesia (BI) plans to regulate bank activities and network expansions on the basis of capital by grouping banks into four buckets based on Tier-1 capital. Banks with Tier-1 capital of >IDR30tn (Mandiri, BRI, BCA and BNI) will be permitted to have wider scope of activities and network outreach than banks in lower buckets. Most of the remaining Top-15 banks in Indonesia will fall under the second bucket (Tier-1 capital: IDR5tn to IDR30tn) with lesser scope of activities. BI also plans to base its licensing for network expansion in high banking density zones on the cost efficiency of the bank. Such a ruling may also benefit Indonesias four largest banks given their generally higher cost efficiency, with their ratios of operating cost/operating revenue of below the 70% possible threshold, except for BNI (a ratio of 72% in 9M12), in our view. However, BIs plans to set a minimum threshold of 20% contribution of small business loans (Micro/SMEs or UMKM) may be a potential impediment to the loan growth of some major banks, particularly corporate lenders with low risk appetite and/or lacking infrastructure to lend to this segment such as BCA (which has exposure of only 10% to this segment). Even with a long transition period of six years, we view this regulation as potentially impeding the credit growth prospects of such banks. We believe Mandiri should have little problem in meeting this regulation as it is rapidly expanding its micro and retail loans (which accounted for 15.8% of its loan portfolio as of September 2012). Meanwhile, we view BIs plan to set a target for productive loans to be at least twice the contribution of consumption loans in the portfolio might also be a potential impediment for some banks, but not for Mandiri. It remains unclear at this stage if such a ruling (if any) would be applied uniformly across the industry or differentiated for the four groups of banks and if niche banks (such as BTN, a mortgage specialist bank) or banks with large consumer loans (such as BTPN and Danamon) would be exempted. With consumption loans only contributing 14.4% of Mandiris loan portfolio as of September 2012, such a ruling, in our view, would not have any impact on the bank.
Fig. 138: Ratio of operating cost/operating revenue in 9M12
(%)
BI plans to regulate bank activities & network expansions on the basis of capital and may set minimum thresholds for SME and productive loans
We view Mandiri as a key beneficiary from forthcoming regulations
Fig. 139: Mix of small business loans (UMKM) as of Sept 2012

(% of loan portfolio)
100 90 80 71.8 72.0 70 61.8 60 50 63.6 64.2 78.1 80.3 83.0 87.0
50 43.1 40 32.1 30 20 10 0 19.7 18.7 16.6 15.8 14.3 12.8
74.0 75.4
10.7 10.3
Mandiri
Rakyat
Niaga
Danamon
Permata
BTPN
BII
Mandiri
Niaga
Rakyat
Panin
BCA
BTN
Danamo n
Permata
BTPN
Diminishing risk from the variable rate bond portfolio

The yield on three-month treasuries fell sharply to 1.95% during a bond auction earlier this month, from 3.72% in November (c.4% in Jun-Oct). The steep fall in treasury yield, which is out of line with the term structure of interest rates in Indonesia (three-month interbank rate at 4.9%), was a repeat of February 2012, when the yield briefly declined to below 2%. The decline was driven by a strong demand for short-term papers by foreign portfolio investors as evident from the strong inflows into the bond market in Indonesia in recent months. If the low yield is sustained in coming months, this would negatively impact Mandiris earnings given its large holding of variable rate government bonds
The contribution of income from variable rate bonds declined to 13.8% of Mandiris pre-tax profit in 3Q12
BCA
86
BTN
BNI
BNI
BII
January 8, 2013
(IDR70tn as of Sept 2012, accounting for 13.5% of its total earning assets), whose coupons are linked to the treasury yields. With these bonds yielding around 4% in 3Q12, they contributed income equivalent to 13.8% of Mandiris pre-tax earnings during the quarter. Despite its significant earnings contribution, we view the risk from Mandiris large portfolio of variable rate bonds as diminishing given: 1) our view that such low yields are not sustainable in the longer term; 2) we expect Mandiris loan portfolio and non-interest income growth to be sustained; and 3) the bank will likely continue reducing its bond holdings through participation in debt-switch auctions with the government and/or private sale of its bonds, as demonstrated earlier this year.
Fig. 140: Trend of three-month treasury yield
(% pa)
We view the risk from bond holdings as diminishing as the low yields are not sustainable in the longer term, while Mandiris other income sources will continue to grow
Fig. 141: Mandiris income from variable rate bonds

(IDR tn)
8 7 6 5 4 3 2
Jun-11
3mth T-Bill rate
3mth JIBOR
BI Rate
(IDR tn) 3.0 2.5 2.0 1.5 1.0 0.5
VR Bond Income (LHS) % of Pre-Tax Profit (RHS)
120 100 80 60 40 20 0
Feb-12
Jun-12
Oct-11
Apr-11
Aug-11
Apr-12
Aug-12
Dec-11
Oct-12
Dec-12
0.0
3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Source: Ministry of Finance, Bank Indonesia, Nomura research
Valuation still inexpensive, well below the six-year mean

We reiterate our Buy rating for Mandiri, and maintain our Gordon Growth-derived target price of IDR10,200, which assumes 22% sustainable ROAE, 8.5% nominal long-term growth and 13.5% cost of capital to arrive at our FY13F target P/B of 2.7x on our BVPS forecast of IDR3,777. Our target price of IDR10,200 implies a target FY13F P/E of 13.6x. The stock trades at FY13F P/E of 10.9x this is still well below its mean 12-month forward consensus P/E of 13x over 2006- 2012 despite 400bps lower sovereign yields at present in comparison to the average yields over the past six years. Mandiris still attractive valuation is despite the stocks significant share price gains of 18.5% YTD, which outperformed the overall market index (JCI: +11.2%) and the financial sector index (JAKFIN: +10.3%). The bank remains as our preferred stock in Indonesias banking sector given its strong management, its improving banking franchise, and our forecast of its strong earnings growth in the next two years.
The stock currently trades at FY13F P/E of 10.9x, still well below its mean 12-month forward consensus P/E over 2006 to 2012
87
January 8, 2013
Fig. 142: Relative share price performance in the past 2 years

(end 2010=100)
Fig. 143: Mandiris 12m forward consensus P/E

(x)
150 140 130 120 110
Jakarta Financial Index
Bank Mandiri
12m fwd PE (LHS) 25 20 15 10 Relative P/E vs Top-5 (RHS)
(%) 140 130 120 110 100 90
100 90
Sep-11 Sep-12 Dec-10 Dec-11 Dec-12 Jun-11 Mar-11 Mar-12 Jun-12
5 0
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
80 70
80
Source: Bloomberg consensus, Nomura research
88
Bank Negara Indonesia

FINANCIALS
BBNI.JK BBNI IJ
EQUITY RESEARCH
Investing for franchise improvement
Improving core profitability and resolution of legacy NPLs may boost earnings growth
Action: Maintain Buy We reaffirm our Buy rating on BNI as we forecast stronger core earnings growth despite the banks investments in network and human resources. We maintain our TP of IDR5,000 and view the stock valuation as attractive, having underperformed peers in the past two years. Catalyst: Resolution of legacy NPLs; sale of BNI Life BNI is a key beneficiary of the constitutional court ruling allowing state banks to grant debt principal reductions to debtors. With outstanding written-off NPLs of IDR24tn (equivalent to 58% of capital), resolution of legacy NPLs could boost its NPL recovery income in coming years, in our view. Meanwhile, we believe that the plan to sell stakes in BNI Life to a foreign strategic partner might also be another catalyst for the stock to reverse its underperformance. We forecast stronger earnings growth in next two years We forecast BNIs earnings growth to accelerate to 17.4% in FY13F and 16.2% in FY14F, from 11.8% in FY12F, driven by stronger underlying profit (PPOP) growth in the next two years on the back of the banks stable NIMs, strong loan growth and improving cost ratios. Our current forecasts exclude potential earnings upside from resolution of legacy NPLs. Valuation: A laggard stock with low valuation Our GGM-derived TP of IDR5,000 is based on 1.9x FY13F book, implying a P/E of 12.1x. The stock trades at an FY13F P/E of 9.1x, significantly below its five-year mean of 10.7x, which is undemanding, in our view.
31 Dec Currency (IDR) FY11 Actual Old FY12F New Old FY13F New Old FY14F New
Buy
IDR 5,000 IDR 3,725 +34.2%
Anchor themes We believe Indonesian banks can sustain a strong earnings outlook despite headwinds from global economic uncertainties in light of pro-growth fiscal and monetary policies and prudent macroeconomic management in the country. Nomura vs consensus Nomura's earnings forecast for FY13F is in line with consensus estimate.
PPOP (bn) Reported net profit (bn) Normalised net profit (bn) FD normalised EPS FD norm. EPS growth (%) FD normalised P/E (x) Price/adj. book (x) Price/book (x) Dividend yield (%) ROE (%) ROA (%)
7,952 5,826 5,826 312.40 29.2 12.0 1.9 1.9 1.7 16.7 2.2
9,042 6,514 6,514 349.32 11.8 N/A N/A N/A N/A 16.2 2.0
9,042 6,514 6,514 349.32 11.8 10.7 1.6 1.6 1.9 16.2 2.0
11,041 7,651 7,651 410.27 17.4 N/A N/A N/A N/A 16.7 2.1
11,041 7,651 7,651 410.27 17.4 9.1 1.4 1.4 2.2 16.7 2.1
13,546 8,892 8,892 476.79 16.2 N/A N/A N/A N/A 17.0 2.1
13,546 8,892 8,892 476.79 16.2 7.9 1.2 1.2 2.5 17.0 2.1
Nomura | Bank Negara Indonesia
January 8, 2013
Key data on Bank Negara Indonesia

ProfitandLoss(IDRbn)
Year-end 31 Dec Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis Reported P/E (x) Normalised P/E (x) FD normalised P/E (x) FD normalised P/E at price target (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%) Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS

FY10 18,837 -7,117 11,721 2,386 1,138 372 3,897 15,617 FY11 20,692 -7,496 13,196 2,657 1,601 722 4,980 18,176 FY12F 22,852 -7,331 15,522 3,055 1,376 874 5,305 20,827 FY13F 26,836 -8,673 18,163 3,514 1,653 949 6,116 24,279 FY14F 31,504 -10,122 21,382 4,041 1,794 1,159 6,993 28,375

-8,300 7,317 -2,063 254 5,509 -24 5,485 -1,382 4,103 -1 -10,224 7,952 -655 -54 7,243 219 7,461 -1,653 5,808 18 -11,785 9,042 -1,327 81 7,796 347 8,143 -1,629 6,514 0 -13,239 11,041 -1,827 -50 9,164 416 9,580 -1,916 7,664 -13 -14,829 13,546 -2,562 -50 10,934 200 11,134 -2,227 8,907 -16
(%) Absolute (IDR) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (IDR) 3-mth avg daily turnover (USDmn) Major shareholders (%) Republic of Indonesia 4225/3325 7.17 1M 4.2 3.5 5.5 7,243.1 3M 12M -5.1 -5.9 -2.6 -7.5
-6.6 -10.8
60.0
4,102 4,102 -1,231 2,871
5,826 5,826 -1,165 4,661
6,514 6,514 -1,303 5,212
7,651 7,651 -1,530 6,121
8,892 8,892 -1,778 7,113
Notes
15.5 15.5 15.5 20.7 1.8 2.1 2.1 5.73 9.20 3.65 5.56 25.0 53.1 25.2 30.0 18.8 1.81 25.2 2.44
12.0 12.0 12.0 16.0 1.7 1.9 1.9 5.63 8.83 3.46 5.36 27.4 56.2 22.2 20.0 16.7 2.23 20.8 2.77
10.7 10.7 10.7 14.3 1.9 1.6 1.6 5.57 8.19 2.81 5.38 25.5 56.6 20.0 20.0 16.2 2.03 19.4 2.43
9.1 9.1 9.1 12.2 2.2 1.4 1.4 5.51 8.14 2.85 5.29 25.2 54.5 20.0 20.0 16.7 2.08 20.1 2.49
7.9 7.9 7.9 10.5 2.5 1.2 1.2 5.51 8.12 2.89 5.22 24.6 52.3 20.0 20.0 17.0 2.11 20.9 2.60
5.3 19.1 19.1 -1.6 65.1 48.7 48.7
12.6 27.8 23.2 8.7 42.0 29.2 29.2
17.6 6.5 15.3 13.7 11.8 11.8 11.8
17.0 15.3 12.3 22.1 17.4 17.4 17.4
17.7 14.3 12.0 22.7 16.2 16.2 16.2
90
January 8, 2013
BalanceSheet(IDRbn)
As at 31 Dec Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Reserves for credit losses Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (IDR) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (IDR) Norm EPS (IDR) Fully diluted norm EPS (IDR) DPS (IDR) PPOP PS (IDR) BVPS (IDR) ABVPS (IDR) NTAPS (IDR)
FY10 5,481 39,730 13,564 45,738 136,357 -6,957 129,400 24 3,838 FY11 6,198 51,458 18,895 46,875 163,533 -7,029 156,505 24 4,053 FY12F 7,031 55,848 21,601 51,580 192,531 -7,655 184,876 27 4,458 FY13F 8,087 61,433 24,772 52,671 231,037 -8,432 222,605 29 4,904 FY14F 9,303 64,687 28,523 53,871 277,245 -9,844 267,401 32 5,394 Notes
10,806 248,581 194,375 3,326 6,901 204,601 10,830 215,431 30 23,623 9,990
15,050 299,058 231,296 7,019 8,990 247,305 13,910 261,215 110 23,623 14,422
16,555 341,977 266,503 5,724 11,329 283,556 15,577 299,133 31 23,507 19,771
18,211 392,713 306,748 6,297 12,462 325,506 18,585 344,091 31 23,623 26,119
20,032 449,242 353,171 6,926 13,708 373,805 19,369 393,174 115 23,624 33,481
-494 33,120 248,581 1,692
-312 37,733 299,058 2,562
-466 42,812 341,977 5,731
-1,152 48,591 392,713 5,907
-1,152 55,953 449,242 6,719
70.2 13.3
70.7 12.6
72.2 12.5
75.3 12.4
78.5 12.5
1.2 1.51 2.80 411.2 16.3 18.7
1.6 0.40 2.35 274.3 15.8 17.9
3.0 0.69 2.24 133.6 15.4 17.1
2.6 0.79 2.15 142.7 13.2 14.7
2.4 0.92 2.19 146.5 11.4 12.7
13.6 9.2 2.8 9.3 3.1
20.9 19.8 20.9 20.3 19.0
18.1 14.7 14.7 14.4 15.2
20.4 15.2 14.8 14.8 15.1
20.1 14.7 14.8 14.4 15.1
241.83 241.83 241.83 65.98 431.41 1,775.98 1,775.98 1,775.98
312.40 312.40 312.40 62.48 426.44 2,023.37 2,023.37 2,023.37
349.32 349.32 349.32 69.86 484.84 2,295.71 2,295.71 2,295.71
410.27 410.27 410.27 82.05 592.03 2,605.59 2,605.59 2,605.59
476.79 476.79 476.79 95.36 726.38 3,000.38 3,000.38 3,000.38
91
January 8, 2013
Resilient NIMs in the face of falling asset yields

We forecast BNIs earnings growth to accelerate to 17.4% in FY13F and 16.2% in FY14F, from 11.8% in FY12F, on the back of stronger growth of underlying profit (PPOP) despite our assumption of its declining NPL recovery income to IDR1.35tn in FY13F and IDR1.25tn in FY14F (versus IDR1.7tn for both FY11 and FY12F). However, please note that our earnings forecasts exclude earnings upside from the potential resolution of the banks legacy NPLs arising from the constitutional court ruling (that allows state banks to grant debt principal reductions to debtors) such resolution of BNIs legacy NPLs (if any) could boost the banks NPL recovery income in coming years. BNI has outstanding written-off NPLs of IDR24tn these were equivalent to 58% of its equity capital as in September 2012. Meanwhile, BNIs NIM has recovered to 5.72% in 3Q12 vs 5.53% in 2Q12 and 5.32% in 1Q12. As such, the bank was able to maintain its NIM stable at 5.52% in 9M12 (same as last year) despite a steep fall in sovereign yields in Indonesia. We expect the bank to be able to maintain its NIMs in the next two years, despite rising competition, as we see scope for BNI to increase its LDR further and improve its loan portfolio mix towards higher-margin retail loans.
Fig. 144: Trend of BNIs annual NIMs and LDRs
(% pa)
We forecast stronger earnings growth in next two years driven by underlying profits (PPOP).
BNI has maintained stable NIMs despite falling asset yields in the past two years
Fig. 145: Trend of BNIs quarterly NIMs

(% pa)
NIM 8 7 6 5 4 3 2 1 0 3.7 4.5 6.0
LDR (RHS) 80 6.1 5.9 5.7 5.6 5.6 5.5 5.6 70 60 50 40 30 20 10
12 10 8 6 4 2 0
NIM
Asset yield
Cost of funds
5.7 5.5 4.8
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12 3Q11 1Q12
02 03 04 05 06 07 08 09 10 11 12F 13F 14F

We forecast BNIs pre-provision operating profit to grow by 22-23% in FY13-14F vs. only 13.7% y-y in FY12F, driven by stable NIMs, strong loan growth (20% pa) and improving cost/income ratios.
Fig. 146: Trend of BNIs earnings growth
(% y-y)
Fig. 147: Trend of underlying profits (4-quarter rolling sums)

(IDR bn)
100 80 60 40 20 0 (20) (40) (60) (23.4) 05 06 (0.1) 07 08 11.8 57.0
19.3
Revenue PPOP Net Profit 8.7 13.7 22.1 22.7
12,000 10,000 8,000 6,000 4,000 2,000 0
PPOP PPOP + NPL Recovery Oper. Profit Net Profit
(1.6)
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
09
10
11
12F 13F 14F
3Q12
3Q12
92
January 8, 2013
As shown in the figure below, BNI has greater dependence of earnings from NPL recovery income in comparison to peer major banks such as Mandiri and BRI. NPL recovery income (from written-off NPLs) at BNI contributed 21.4% of its pre-tax profit in 9M12, higher than peers such as Mandiri (10.2% contribution) and BRI (9.3% contribution). However, BNIs dependence on NPL recovery income to sustain its earnings growth has declined from as high as 33.2% in FY10. BNIs much greater reliance on NPL recovery income (in comparison to peers) has led to its lower earnings visibility as we expect the contribution of such income would normally diminish over time in line with the banks improving asset quality (excluding the impact from the resolution of legacy NPLs). BNI has lower underlying profitability in comparison to peer corporate lenders such as Mandiri and BCA (see figure below). We forecast BNIs pre-provision ROAA at 2.82% in FY12F, lower than 3.04% in FY11 and 3.24% in FY10 due to strong operating expense growth arising from the banks investments in network and human resources to improve its banking franchise. In comparison, we forecast higher pre-provision ROAAs for Mandiri (3.57%) and BCA (3.44%) in FY12F.
Fig. 148: NPL recovery income contribution to pre-tax profit
(% of total)
NPL recovery income at BNI contributed 21.4% to its pre-tax profit in 9M12 vs 9-10% at peers BRI and Mandiri
BNI has lower core profitability in comparison to peer corporate lenders such as Mandiri and BCA
Fig. 149: Comparison of pre-provision profit/average assets

(% pa)
40 35 30 25 20 15 10 5 0 FY10 FY11 9M12 13.1 10.2 9.7 9.6 10.2 9.3 22.9 21.4 33.2 BNI Mandiri BRI
BNI
BCA
Mandiri
4 3.24 3
3.59 3.64 3.04
3.80 3.34 2.82 3.44 3.57
1 FY10 FY11 FY12F
We view BNIs lower core profitability is attributable to its higher cost structure. In the figure below, we show that BNIs operating revenue/average asset ratio is on par with peer corporate lenders Mandiri and BCA, indicating similar productivity ratios. However, BNIs operating cost/average asset ratio is well above its peers this led to its significantly lower ROAAs. We believe that this gives better scope for BNI to improve its ROAAs and ROAEs in the longer run once the bank starts slowing growth of its network expansion and human resources and instead focuses on improving productivity.
Fig. 150: Trend of operating revenue/average assets
(% pa)
We believe BNIs higher cost structure gives scope for an improvement in its ROAA and ROAE in the longer run
Fig. 151: Trend of operating cost/average assets

(% pa)
9 8
BNI
BCA
Mandiri
5 4
BNI
BCA
Mandiri
7 6 5 4 3 2 02 03 04 05 06 07 08 09 10 11 12F 13F 14F

3 2 1 0 02 03 04 05 06 07 08 09 10 11 12F 13F 14F

93
January 8, 2013
Strong NPL recoveries have reduced credit cost

BNIs overall loan provisioning, net of recoveries, has declined dramatically in the past three years (see figure below), albeit this was largely due to the banks large NPL recovery income since 2010 arising from BNIs operational turnaround strategy under a new management. Under our current earnings forecast assumptions (which exclude potential resolution of legacy NPLs), we expect BNIs credit cost (net of recoveries) to rise slightly to 89bp in FY13F and 103bp in FY14F, from 70bps in FY12F (FY11: 47bps). Meanwhile, BNIs asset quality was relatively stable we assume a slight downtrend in its new NPL formation (as a percentage of average loans) to 150bp in FY13-14F, from 170bp in FY12F (FY11: 272bp; FY10: 330bp).
Fig. 152: Trend of BNIs credit cost (net of recoveries)
(IDR bn)
BNIs credit cost has declined sharply owing to NPL recoveries aside from a slight downtrend in the pace of new NPL formation
Fig. 153: Trend of BNIs new NPL formation

(IDR bn)
Net Provisions (LHS) 5,000 4,000 3,000 2,000 1,000 0 Credit Cost (RHS)
(bps) 800 700 600 500 400 300 200 100
New NPLs (LHS) 10,000 8,000 6,000 New NPLs/Loans (RHS)
(bps) 1,200 1,000 800 600
4,000 400 2,000 0

12F 13F 14F 02 03 04 05 06 07 08 09 10 11
200 0
0 02 03 04 05 06 07 08 09 10 11 12F13F14F
Valuation: A laggard stock with low valuation

Our GGM-derived TP of IDR5,000 (unchanged) is based on 1.9x FY13F book, implying a P/E of 12.1x, using the following key assumptions: 19% sustainable ROE, 8.5% nominal long-term growth, and 14% cost of equity capital. BNIs share price has underperformed peer major banks substantially in the past two years. The stock trades at an FY13F P/E of 9.1x this is below its five-year mean of 10.7x. BNIs relative P/E versus the average for Top-5 Indonesian banks in our coverage has also declined to 80%, from 100% two years ago.
Fig. 154: BNIs relative share price performance vs. peers
(end 2010=100)
Stock trades at FY13F P/E of 9.1x, below its five-year mean of 10.7x, and at 20% discount to average multiple of Top-5 banks in our coverage
Fig. 155: BNIs 12-mth forward consensus P/E

(x)
140 130 120 110 100 90 80

Jun-11 Mar-11
Jakarta Financial Index 25 BNI 20 15 10 5 0

Dec-05
12m fwd PE (LHS) Relative P/E vs Top-5 (RHS)
(%) 120 110 100 90 80 70 60 50
Sep-11
Mar-12
Jun-12
70
Dec-10
Sep-12
Dec-11
Dec-12
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Source: Bloomberg
Source: Bloomberg consensus
Dec-12
94
Indocement Tunggal Perkasa

INTP.JK INTP IJ CONSTRUCTION MATERIALS
EQUITY RESEARCH
Price leader in the industry
Still attractive, higher selling prices help to mitigate potential rising costs
Action: Reiterating Buy recommendation Despite recent outperformance of the cement sector and INTPs share price, we still favour the sector, as in our view the sector and INTP will continue to benefit from rising infrastructure spending and a strong property market. INTPs cement selling prices have increased by 6.4% year to date to September 2012 (fastest in the past three years) due to strong demand and tight supply, and this has helped improve INTPs operating margins, and mitigate potential rising operating costs, in our view. Catalysts: Progress of new plants and further rise in selling prices Given high demand and tight supply conditions, we would expect cement companies, including INTP, to increase cement selling prices, partly to pass on the impact of potentially higher operating costs. We also expect that additional volume from INTPs new plant, which INTP expects to complete in 4Q13, to be a catalyst for the share price. Valuation and risks We derive our target price for INTP based on DCF. Despite our assumption of lower margin, we recently raised our TP due to higher production volume assumptions (as we assume higher new capacity in 2015F), and a higher EV/EBITDA multiple for our DCF terminal value (from 8x to 9x) to reflect peers and more recent INTP EV/EBITDA trading range. Downside risks include macro risks (that may affect demand), competition (leading to inability to increase selling prices), rising costs faster than expected, and delayed expansion.
Buy
IDR 26,900 IDR 21,900 +22.8%
Anchor themes As the second-largest cement producer, Indocement will continue to benefit from rising domestic cement consumption, in our view. Earnings growth will be more volume growth, as higher selling prices will offset any potential rise in operating costs. Nomura vs consensus Nomura's earnings forecasts are approximately 5% lower than consensus for FY13/14F, as we assume lower margins than consensus.
FY11 Actual Old
FY12F New Old
FY13F New Old
FY14F New
13,888 3,596 3,596
16,809 4,452 4,452
16,809 4,452 4,452
18,548 4,929 4,929
18,548 4,929 4,929
20,740 5,532 5,532
20,740 5,532 5,532
976.96 1,209.29 1,209.29 1,338.94 1,338.94 1,502.75 1,502.75 11.5 22.4 14.5 5.1 1.3 25.0 23.8 N/A N/A N/A N/A 25.6 23.8 18.1 11.4 4.2 1.7 25.6 10.7 N/A N/A N/A N/A 23.6 10.7 16.4 10.1 3.6 1.8 23.6 12.2 N/A N/A N/A N/A 22.4 12.2 14.6 8.7 3.0 2.1 22.4
net cash net cash net cash net cash net cash net cash net cash
Nomura | Indocement Tunggal Perkasa
January 8, 2013
Key data on Indocement Tunggal Perkasa


FY10 11,138 -5,597 5,540 -1,521 4,020 4,641 -621 4,020 167 62 4,248 -1,024 3,224 0 FY11 13,888 -7,474 6,414 -1,996 4,418 5,082 -664 4,418 282 8 4,708 -1,107 3,601 -5 FY12F 16,809 -8,915 7,894 -2,297 5,597 6,248 -652 5,597 188 37 5,821 -1,368 4,453 -2 FY13F 18,548 -9,903 8,645 -2,507 6,138 6,843 -705 6,138 268 39 6,446 -1,515 4,931 -2 FY14F 20,740 -11,078 9,662 -2,795 6,867 7,586 -719 6,867 328 39 7,234 -1,700 5,534 -2

(%) Absolute (IDR) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (IDR) 3-mth avg daily turnover (USDmn) Major shareholders (%) Birchwood (Heidelberg) Mekar Perkasa 23250/15800 5.95 1M -5.8 -6.4 -8.5 8,358.6 3M 12M 7.6 27.7 6.8 20.2 5.2 17.8
51.0 13.0
3,225 3,225 -967 2,257
3,596 3,596 -1,079 2,517
4,452 4,452 -1,335 3,116
4,929 4,929 -1,479 3,450
5,532 5,532 -1,660 3,872
Notes
25.0 25.0 25.0 30.7 1.2 25.8 6.2 16.4 19.0 49.7 41.7 36.1 29.0 24.1 30.0 4.9 0.9 27.1 37.7
22.4 22.4 22.4 27.5 1.3 22.1 5.1 14.5 16.7 46.2 36.6 31.8 25.9 23.5 30.0 4.3 0.9 25.0 40.3
18.1 18.1 18.1 22.2 1.7 18.8 4.2 11.4 12.7 47.0 37.2 33.3 26.5 23.5 30.0 3.2 0.8 25.6 48.3
16.4 16.4 16.4 20.1 1.8 16.0 3.6 10.1 11.2 46.6 36.9 33.1 26.6 23.5 30.0 9.9 2.6 23.6 48.3
14.6 14.6 14.6 17.9 2.1 14.5 3.0 8.7 9.7 46.6 36.6 33.1 26.7 23.5 30.0 9.5 2.8 22.4 47.7
Earnings growth to slow down in 2013F due to our assumption of lower margins, and growth will only pick up in 2014F due to fullyear earnings contribution from new plant.
5.3 8.9 8.8 17.1 17.1
24.7 9.5 9.9 11.5 11.5
21.0 22.9 26.7 23.8 23.8
10.3 9.5 9.7 10.7 10.7
11.8 10.9 11.9 12.2 12.2
875.95 875.95 875.95 3,552.35 262.79
976.96 976.96 976.96 4,266.52 293.09
1,209.29 1,209.29 1,209.29 5,182.73 362.79
1,338.94 1,338.94 1,338.94 6,158.88 401.68
1,502.75 1,502.75 1,502.75 7,259.95 450.83
96
January 8, 2013
Cashflow(IDRbn)
FY10 4,641 -477 -1,040 3,124 -551 2,573 1 0 20 22 224 2,841 -828 0 49 0 -780 2,061 2,623 4,685 -4,315 FY11 5,082 -309 -1,131 3,643 -600 3,043 -7 0 -34 25 314 3,341 -967 0 -194 0 -1,161 2,180 4,685 6,864 -6,688 FY12F 6,248 -582 -1,368 4,298 -536 3,762 0 0 14 32 225 4,032 -1,079 0 -23 0 -1,102 2,931 6,864 9,795 -9,642 FY13F 6,843 -275 -1,515 5,053 -1,839 3,214 0 0 -8 24 308 3,538 -1,335 0 -27 0 -1,363 2,175 9,795 11,970 -11,844 FY14F 7,586 -332 -1,700 5,554 -1,977 3,577 0 0 -11 18 367 3,951 -1,479 0 -33 0 -1,512 2,440 11,970 14,410 -14,317 Notes
Strong internally generated cashflows should allow the company to undertake aggressive capex plan without requiring additional external funding.
Balancesheet(IDRbn)
FY10 4,685 0 1,355 1,300 145 7,484 31 7,703
FY11 6,864 0 1,935 1,328 186 10,313 38 7,639
FY12F 9,795 0 1,842 2,198 157 13,993 38 7,524
FY13F 11,970 0 2,033 2,442 174 16,619 38 8,658
FY14F 14,410 0 2,273 2,732 188 19,602 38 9,916
Notes
Strong balance sheet position
127 15,346 257 399 691 1,348 113 785 2,246 23 0 3,035 10,042
161 18,151 45 596 835 1,476 131 810 2,417 28 0 3,035 12,671
147 21,702 153 611 987 1,751 0 842 2,593 30 0 3,035 16,044
156 25,470 126 678 1,095 1,899 0 867 2,766 32 0 3,035 19,637
166 29,722 93 759 1,226 2,078 0 885 2,963 34 0 3,035 23,691
13,077 15,346
15,706 18,151
19,079 21,702
22,672 25,470
26,726 29,722
5.55 na
6.99 na
7.99 na
8.75 na
9.43 na
net cash net cash
net cash net cash
net cash net cash
net cash net cash
net cash net cash
44.3 83.8 29.0 99.0
43.2 64.2 24.3 83.1
41.1 72.4 24.8 88.7
38.1 85.5 23.8 99.9
37.9 85.2 23.7 99.4
97
January 8, 2013
2013: some challenges, but still positive

We expect cement demand to continue to be robust in 2013 given rising government infrastructure spending and property building activities. However, challenges remain, as cost pressure is likely to emerge as a result of higher labour costs, electricity costs, and potentially higher fuel prices. This risk is likely, in our view, to be mitigated by higher cement selling prices, which we see to continuing its uptrend into 2013F, though at more moderate pace. As a price leader, and with better cost efficiency, we believe INTP is in a better position to weather rising cost risks than other players.
Better stand on rising costs

Favourable demand environment continues We expect that domestic demand growth will remain high in 2013F, driven by rising infrastructure spending and property development that activities. As a result, given the supply and demand situation, we think there is some room for the cement players to further increase its selling price by some 4-5% next year, which would be used partly to offset the potential cost increases. Notwithstanding, we do not expect that the selling price increase will be aggressive and will be less than the 4-5% rate, as they continue to be cautious of potential foreign and import competition. Rising costs threat We also expect that in 2013 cement players with face some rising cost challenges resulting from higher minimum wages, higher electricity tariff (15% increase in electricity tariff to be implemented in stages next year), and potentially higher fuel prices. We believe the impact of these cost increases, however, will be partly offset by selling price increases, which INTP has proven to be able to do this year, despite rising competition from a new player in West Java. Recent upgrades We recently upgraded our target price (to IDR26,900 from IDR23,400) for INTP, based on the following adjustments to our assumptions: We increased our sales volume assumptions for INTP, given its ability to optimize its utilization rates which it had proven in 2012 (we estimate that INTP capacity utilization rates has exceeded 90% in 2012 compared to approximately 85% utilization rate in 2011). We also increased our sales volume forecasts for 2015F, as we assume higher additional capacity that will be completed in 2015F by 4.4mn tons (we have previously only assumed 2.5mn tons additional to come in 2015F). We also assume higher cement selling price throughout our DCF forecast year given stronger-than-expected price increases in 2012. Although we expect that INTP would benefit from the lower coal prices environment and be able to secure coal supply contracts at lower price than last year, we also note there is a potential increase in other cost components; as such, we lowered our margins assumptions. We also adjusted our terminal value EV/EBITDA multiple from 8x to 9x, which is where INTP and its cement peers have recently traded, which we view as a reflection of positive market sentiment on cement and other infrastructure-related stocks.
98
Indomobil Sukses International

IMAS.JK IMAS IJ AUTOS & AUTO PARTS
EQUITY RESEARCH
A market-share gainer
Indomobil likely to double its market share in five years despite short-term hiccups
Indomobil likely to win market share Our strong conviction is based on our view that Nissan (and in later stage Volkswagen) will be successful in Indonesia. Nissans plan to introduce two new models each year, to design for the local market, and to localise production are the right ingredients to gain market share, in our view. Beside Nissan, Indomobil is also an exclusive distributor of Volkswagen, which seems to expand its presence in Indonesia. Short term hiccup does not change our view We are not overly concerned by the recent hiccups in Nissan sales. Nissan continues to complete its product offering at different price range and models. This is complimented by Indomobils effort to expand Nissan distribution network from 65 outlets in 2011 to 85 in 2012 (+31% y-y) to support future growth. For comparison, Toyota has 214 outlets, Daihatsu has 181 outlets, and Suzuki has 202 outlets in 2011. Catalyst: Product improvement and more new models Indomobil/Nissan will step up its marketing campaign to boost its brand image and refine its Nissan Evalia to address consumers complains in 1H13, according to the company. It also aims to aggressively increase its market share in car financing for Nissan, which was still less than 15% of Nissan credit sales in 9M12. Beyond 2013F, we believe the launch of Low-Cost Green Car (LCGC) in 2014 will continue to support growth. Reiterate Buy rating and TP of IDR8,500 We reiterate Buy. Our TP of IDR8,500 is based on 18x FY13F P/E, at a slight premium to peer Astra International (ASII IJ, Buy) (15x FY13F), which is justified by its stronger earnings growth of 29%, in our view.
Buy
IDR 8,500 IDR 5,300 +60.4%
Anchor themes We expect Indomobil to double its market share in the next five years, with Nissan adding highvolume models to its product line-up. In the longer-term, Indomobil should benefit further as exclusive distributor of Volkswagens that plans to step up its presence. Nomura vs consensus We are more optimistic than consensus on the medium-term outlook; our FY14F earnings are 17% higher than consensus estimates.
Research analysts Indonesia Autos & Auto Parts Wilianto Ie - PTNI wilianto.ie@nomura.com +62 21 2991 3341
15,777 813 813 439.17 89.4 12.1 17.2 3.1 1.1 27.3 66.0
21,594 961 961 347.56 -20.9 N/A N/A N/A N/A 19.0 63.6
21,594 961 961 347.56 -20.9 15.2 15.4 2.7 1.3 19.0 63.6
27,508 1,329 1,329 480.63 38.3 N/A N/A N/A N/A 22.2 63.6
27,508 1,329 1,329 480.63 38.3 11.0 11.1 2.3 1.8 22.2 63.6
34,924 1,741 1,741 629.53 31.0 N/A N/A N/A N/A 24.3 59.1
34,924 1,741 1,741 629.53 31.0 8.4 8.5 1.9 3.0 24.3 59.1
Nomura | Indomobil Sukses International
January 8, 2013
Key data on Indomobil Sukses International


FY10 10,935 -9,530 1,405 -1,076 0 329 404 -75 0 329 -152 271 194 642 -99 542 -98 0 0 444 4 449 0 449 FY11 15,777 -13,787 1,989 -1,384 0 605 715 -110 0 605 -152 315 420 1,188 -217 971 -158 0 0 813 0 813 -163 650 FY12F 21,594 -19,061 2,534 -1,877 0 657 817 -160 0 657 -174 362 490 1,334 -240 1,094 -133 0 0 961 0 961 -192 769 FY13F 27,508 -24,311 3,197 -2,159 0 1,039 1,254 -215 0 1,039 -190 435 588 1,872 -356 1,516 -187 0 0 1,329 0 1,329 -266 1,063 FY14F 34,924 -30,906 4,019 -2,482 0 1,537 1,797 -260 0 1,537 -215 465 706 2,492 -503 1,989 -248 0 0 1,741 0 1,741 -435 1,306

(%) Absolute (IDR) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (IDR) 3-mth avg daily turnover (USDmn) Major shareholders (%) Salim Group 1M 1.0 0.4 -1.7 1,519.5 29.6 9325/4900 2.99 3M 12M -3.6 -19.1 -4.3 -23.8 -6.0 -28.9
70.4
Notes
24.1 24.4 22.9 36.7 na na 8.8 27.3 30.8 12.8 3.7 3.0 4.1 15.5 0.0 2.0 3.0 52.3 9.9
15.5 15.5 12.1 19.4 1.1 69.1 3.1 17.2 19.3 12.6 4.5 3.8 5.2 18.3 20.1 7.9 11.3 27.3 9.8
15.2 15.2 15.2 24.5 1.3 10.5 2.7 15.4 17.8 11.7 3.8 3.0 4.5 18.0 20.0 3.0 4.0 19.0 8.1
11.0 11.0 11.0 17.7 1.8 12.1 2.3 11.1 12.8 11.6 4.6 3.8 4.8 19.0 20.0 2.3 3.0 22.2 9.5
8.4 8.4 8.4 13.5 3.0 8.4 1.9 8.5 9.6 11.5 5.1 4.4 5.0 20.2 25.0 1.9 2.5 24.3 10.6
57.6 107.1 152.5 210.4 231.2
44.3 76.8 84.0 57.8 89.4
36.9 14.2 8.5 1.3 -20.9
27.4 53.5 58.2 38.3 38.3
27.0 43.3 47.9 31.0 31.0
219.49 217.37 231.90 601.89 0.00
342.94 342.94 439.17 1,691.59 59.00
347.56 347.56 347.56 1,969.64 69.51
480.63 480.63 480.63 2,354.14 96.13
629.53 629.53 629.53 2,826.29 157.38
100
January 8, 2013
Cashflow(IDRbn)
FY10 404 -762 120 -238 -223 -461 0 -441 -619 -353 0 -1,874 0 391 1,457 0 117 1,965 91 446 537 3,790
FY11 715 -741 208 182 -1,241 -1,059 0 -465 -469 31 0 -1,961 -163 2,751 385 0 76 3,049 1,087 537 1,624 3,089
FY12F 817 280 305 1,401 -640 761 0 -362 -753 37 0 -317 -192 0 194 0 133 135 -182 1,624 1,442 3,465
FY13F 1,254 -335 290 1,209 -645 564 0 -435 -765 38 0 -598 -266 0 953 0 187 874 276 1,442 1,718 4,142
FY14F 1,797 -256 204 1,744 -655 1,089 0 -465 -960 47 0 -288 -435 0 953 0 248 767 478 1,718 2,196 4,617
Notes
Balancesheet(IDRbn)
FY10 537 0 895 1,543 1,582 4,556 1,110 746 0 0 1,573 7,985 2,236 1,403 578 4,217 2,091 0 69 6,377 331 0 995 212 0 70 1,277 7,985
FY11 1,624 0 1,223 2,428 2,146 7,420 1,575 1,877 0 0 2,042 12,914 2,398 2,090 926 5,414 2,315 0 100 7,830 406 0 3,685 1,041 0 -48 4,678 12,914
FY12F 1,442 0 1,538 3,133 2,230 8,343 1,937 2,357 0 0 2,795 15,431 981 3,133 1,268 5,383 3,925 0 137 9,445 539 0 3,685 1,810 0 -48 5,447 15,431
FY13F 1,718 0 1,809 3,996 2,641 10,164 2,372 2,787 0 0 3,560 18,883 1,172 3,996 1,615 6,784 4,688 0 175 11,647 726 0 3,685 2,873 0 -48 6,510 18,883
FY14F 2,196 0 2,009 5,080 3,133 12,419 2,837 3,182 0 0 4,520 22,957 1,363 5,080 2,051 8,494 5,451 0 222 14,167 974 0 3,685 4,179 0 -48 7,815 22,957
Notes
1.08 2.2
1.37 4.0
1.55 3.8
1.50 5.5
1.46 7.2
9.38 296.7
4.32 66.0
4.24 63.6
3.30 63.6
2.57 59.1
21.8 44.2 43.0 23.1
24.5 52.6 46.2 30.8
23.4 53.4 50.2 26.6
22.2 53.5 53.5 22.2
20.0 53.6 53.6 20.0
101
January 8, 2013
Indomobil: Focus charts

Fig. 156: Nissan sales volumes in Indonesia (last Nov-12)
(units) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 03
Source: Gaikindo
Fig. 157: Nissan market share in Indonesia (last Nov-12)

10% Nissan market share Nissan market share (12m moving average)
Nissan
Year average
9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
04
05
06
07
08
09
10
11
12
03
04
05
06
07
08
09
10
11
12
Source: Gaikindo, Nomura Research
Fig. 158: Market share of Indonesia automobile sales, 9M12

Nissan 6.0% Honda 6.2% Others 9.0%
Fig. 159: Gross profit breakdown (9M12)

Others 25.3%
Toyota 36.2%
Suzuki 11.5%
Rental 6.6%
Automotive 54.3%
Mitsubishi 13.5%
Isuzu 3.0%
Daihatsu 14.6%
Financial services 13.8%

Source: Company info
Source: Gaikindo, Nomura research
Fig. 160: Indomobil volume assumptions

(units) Nissan (exclusive) +/- yoy Hino (non-exclusive) +/- yoy Volkswagen, Audi, Volvo, others +/- yoy
Source: Nomura estimates
2011 56,137 5,800 2,500
2012F 65,800 17.2% 5,800 0.0% 1,200 -52%
2013F 88,015 33.8% 6,090 5.0% 1,200 0%
2014F 139,981 59.0% 7,004 15.0% 1,260 5%
102
Jasa Marga
TRANSPORT/LOGISTICS
JSMR.JK JSMR IJ
EQUITY RESEARCH
More than just tariff and volume
Future growth to accelerate on higher tariff, more volumes, and contribution of new projects
One of our top picks in the infrastructure sector We think that Jasa Margas growth is about to get more exciting next year as prospects of accelerating earnings growth start to crystallize, supported not only by tariff adjustments and traffic growth, but also completion of new projects. We expect some 190km of new toll road projects will be completed over the next three years, starting with some 60km in 2013F. Key growth drivers: tariff, traffic and project completions Earnings growth for Jasa Marga in the near to medium term would include not only that from the impact of tariff adjustments and traffic growth, but also revenue contribution from completion of new toll road projects. In 2013F, 11 of a total of 13 JSMR toll roads will have tariff adjustments to be implemented in the fourth quarter. These tariff adjustments will have a fullyear impact in 2014F, when new toll roads completed in 2013F will also make full-year earnings contributions. Valuation and risks We use DCF to derive our target price of IDR6,875 for JSMR, with a 9.9% discount rate (Rm premium of 6%, Rf 6% and Beta of 1 to derive CoE of 12%). Cashflows are discounted back to 2013F. Key downside risks include macro risks, higher operating costs, project delays and regulatory risks.
Buy
IDR 6,875 IDR 5,550 +23.9%
Anchor themes Jasa Marga is the largest toll operator and should benefit most from toll road development in Indonesia. The development of 40% more new toll roads by the company over the next three years enhances visibility of earnings growth prospects. Nomura vs consensus Our TP is 2.6% higher than Bloomberg consensus, reflecting our aggressive longterm view (our forecast FY14EBITDA is 9% higher than consensus).
Research analysts Indonesia Transport Andy Lesmana, CFA - PTNI andy.lesmana@nomura.com +62 21 2991 3344
FY11 Actual Old
FY12F New Old
FY13F New Old
FY14F New
4,960 1,340 1,340 197.06 12.3 28.2 14.5 4.5 1.4 16.7 60.3
5,810 1,566 1,566 230.30 16.9 N/A N/A N/A N/A 18.6 76.9
5,810 1,566 1,566 230.35 16.9 24.1 13.2 4.4 1.7 18.6 76.9
6,634 1,724 1,724 253.47 10.1 N/A N/A N/A N/A 18.9 98.9
6,634 1,724 1,724 253.52 10.1 21.9 11.9 3.9 1.8 18.9 98.9
8,491 2,398 2,398 352.58 39.1 N/A N/A N/A N/A 22.8 98.1
8,491 2,398 2,398 352.65 39.1 15.7 9.3 3.3 2.5 22.8 98.1
Nomura | Jasa Marga
January 8, 2013
Key data on Jasa Marga


FY10 4,380 -1,646 2,734 -745 1,989 2,521 -532 1,989 -533 20 1,476 -292 1,184 9 FY11 4,960 -1,801 3,159 -878 2,281 2,958 -677 2,281 -509 -45 1,727 -408 1,319 21 FY12F 5,810 -2,118 3,692 -1,019 2,673 3,360 -688 2,673 -522 -45 2,105 -526 1,579 -13 FY13F 6,634 -2,349 4,284 -1,184 3,101 3,965 -864 3,101 -738 -45 2,317 -579 1,738 -14 FY14F 8,491 -2,814 5,678 -1,422 4,255 5,258 -1,003 4,255 -991 -45 3,219 -805 2,414 -16

(%) Absolute (IDR) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (IDR) 3-mth avg daily turnover (USDmn) Major shareholders (%) Government of Indonesia Public 1M -2.6 -3.2 -5.3 3,912.9 30.0 5950/4150 4.32 3M 12M -3.5 32.1 -4.2 24.4 -5.8 22.3
70.0 30.0
1,193 1,193 -716 477
1,340 1,340 -536 804
1,566 1,566 -627 940
1,724 1,724 -690 1,034
2,398 2,398 -959 1,439
Notes
31.6 31.6 31.6 39.2 1.9 21.4 4.9 16.6 21.1 62.4 57.6 45.4 27.2 19.8 60.0 64.7 5.3 16.0 14.3
28.2 28.2 28.2 34.9 1.4 13.5 4.5 14.5 18.7 63.7 59.6 46.0 27.0 23.6 40.0 62.0 4.5 16.7 14.0
24.1 24.1 24.1 29.9 1.7 19.3 4.4 13.2 16.6 63.5 57.8 46.0 27.0 25.0 40.0 53.2 4.5 18.6 14.2
21.9 21.9 21.9 27.1 1.8 13.5 3.9 11.9 15.2 64.6 59.8 46.7 26.0 25.0 40.0 79.3 6.1 18.9 14.0
15.7 15.7 15.7 19.5 2.5 10.2 3.3 9.3 11.5 66.9 61.9 50.1 28.2 25.0 40.0 57.9 4.9 22.8 16.1
Growth in 2012F will mostly be driven by full year impact of 2011 tariff adjustments, while 2013F and 14F growth will be mostly driven by completion of new toll road projects (130km by 2014F)
18.6 25.0 31.2 37.4 37.4
13.2 17.3 14.7 12.3 12.3
17.1 13.6 17.2 16.9 16.9
14.2 18.0 16.0 10.1 10.1
28.0 32.6 37.2 39.1 39.1
175.44 175.44 175.44 1,138.38 105.29
197.06 197.06 197.06 1,224.85 78.82
230.35 230.35 230.35 1,257.70 92.14
253.52 253.52 253.52 1,419.09 101.41
352.65 352.65 352.65 1,670.33 141.06
104
Nomura | Jasa Marga
January 8, 2013
Cashflow(IDRbn)
FY10 2,521 53 -810 1,764 -2,835 -1,071 70 0 134 436 -431 -596 -1 1,699 0 26 1,128 697 3,314 4,011 4,138 FY11 2,958 809 -961 2,806 -3,074 -268 -7 0 -181 13 -443 -716 0 635 0 277 196 -247 4,011 3,764 5,020 FY12F 3,360 -320 -1,089 1,951 -3,091 -1,140 36 0 -27 995 -136 -536 -2 297 0 -883 -1,124 -1,260 3,764 2,504 6,577 FY13F 3,965 179 -1,359 2,785 -5,261 -2,476 -3 0 -29 91 -2,416 -627 0 2,220 0 78 1,672 -744 2,504 1,759 9,542 FY14F 5,258 293 -1,838 3,714 -4,914 -1,200 -3 0 -26 170 -1,058 -690 0 1,988 0 144 1,442 384 1,759 2,144 11,145 Notes
Capital expenditure will increase as Jasa Marga completes development of some 190km new toll roads up to 2015F
Balancesheet(IDRbn)
FY10 4,011 27 0 0 52 4,090 366 14,195 42 259 18,952 1,317 514 647 2,478 6,832 1,282 10,592 619 0 5,735 2,006
FY11 3,764 39 0 0 194 3,997 361 16,592 41 440 21,431 1,656 636 1,476 3,768 7,128 1,295 12,191 911 0 5,735 2,594
FY12F 2,504 0 0 0 102 2,606 364 18,995 37 467 22,469 2,289 592 1,109 3,990 6,792 2,290 13,071 845 0 5,735 2,817
FY13F 1,759 0 0 0 116 1,875 367 23,392 33 496 26,163 2,012 714 1,180 3,906 9,289 2,381 15,576 938 0 5,735 3,915
FY14F 2,144 0 0 0 146 2,289 369 27,303 30 521 30,513 1,012 854 1,363 3,229 12,277 2,551 18,056 1,098 0 5,735 5,623
Notes
We expect leverage to rise but remain manageable with debt to equity ratio reaching slightly below 100% by 2013F
7,741 18,952
8,329 21,431
8,552 22,469
9,650 26,163
11,358 30,513
1.65 3.7
1.06 4.5
0.65 5.1
0.48 4.2
0.71 4.3
1.64 53.5
1.70 60.3
1.96 76.9
2.41 98.9
2.12 98.1
0.0 0.0 99.1 -99.1
0.0 0.0 116.5 -116.5
0.0 0.0 106.0 -106.0
0.0 0.0 101.4 -101.4
0.0 0.0 101.7 -101.7
105
Nomura | Jasa Marga
January 8, 2013
A lot more new roads coming up

Jasa Marga is one of our top picks in the infrastructure sector. Future earnings growth would be supported by completion of new toll roads that we estimate total approximately 190km in length of additional roads over the next three years. The company should also be a key beneficiary of recent passage of land acquisition bill, in our view.
Existing toll roads continue to support basic growth

In the near term, until 2013F, Jasa Margas earnings growth will continue to be driven by traffic growth and the full-year impact of toll road tariff adjustments that were implemented in 2012 on 2 of its 13 toll roads. However, the remaining 11 of the 13 toll roads currently operated by Jasa Marga will have their tariffs adjusted in 2H13, that will have full-year impact in 2014F. This, coupled with continued traffic growth and full-year contribution of new toll road to be completed in 2013F (the company has scheduled development completion of some 45km of toll roads in 2013F), will be the key earnings driver in 2014F. We would expect that this 2014F earnings growth prospect will gain better visibility by mid 2013F.
Contribution of new toll roads projects

Currently Jasa Marga is in the process of developing nine new toll roads with total additional toll road length of 190km, with target completion in 2014, and full-year contribution starting 2015. Completion of these new toll roads will help enhance Jasa Margas earnings growth prospects because not only will these new toll roads mean more traffic, but revenue per km per unit of traffic from these new toll roads will also be much higher than existing toll roads operated by Jasa Marga, we believe. The new toll roads represent an increase of 35% in total toll road length operated by Jasa Marga by 2015F, while at the same time we forecast Jasa Margas revenue to increase by 67% from 2012F to 2015F.
Fig. 161: Trend of monthly toll traffic and car sales
Traffic growth has moved in line with car sales volume
Fig. 162: Length of toll roads managed by JSMR

Some 190km of new toll roads to be added in the next 3 years
Traffic (mm tx) 120 110 100 90 80 70
Monthly Traffic (LHS) Monthly car sales (RHS)
('000) 120 100 80 60 40 20
800 750 700 650 600 550 500 450 400 350 300 2008 2009 2010 2011 2012 2013F 2014F 2015F
Source: Jasa Marga; Nomura research
Toll road length (km)
Jan-08
Jan-09
Jan-10
Jan-11
May-09
May-10
May-11
Jan-12
May-12
May-08
60
Sep-08
Sep-09
Sep-10
Source: Jasa Marga, Indonesia auto sales / dealer association (Gaikindo); Nomura research
Subsiding execution risks Beyond the revenue growth that these new toll roads will contribute to Jasa Margas earnings, we also think that the completion of the new toll road will help to reduce any perceived execution risk, particularly on the general development of toll roads in Indonesia, which will help alleviate valuation of Jasa Marga.
Sep-12
Sep-11
106
Kalbe Farma
KLBF.JK KLBF IJ
HEALTH CARE & PHARMACEUTICALS
EQUITY RESEARCH
More to offer from here
Strong growth in prescription business likely to continue in the long term

Absolute growth for pharmaceuticals, margin is less a concern With the launch of National Social Security scheme in 2014, pharma spending by the government could reach up to ~40% of last years ethical pharma sales, in our view. We believe this should benefit Kalbe as a leading name in Indonesias pharma sector. The company targets to raise the contribution of unbranded generics to 18% revenue (vs. 9% in 1H12) by 2019F. The margin effect from the change in the business mix is less of a concern for us as Kalbe has maintained the profitability of each segment. Better health awareness due to rising middle-class income We believe improved purchasing power, which encourages Indonesian consumers to upgrade their standard of living, should lead to better health awareness. As the education level in Indonesia has also risen in the past decade (secondary school enrolment was at 77% in 2010 vs. 53% in 2000), we believe the next stage of growth will be focused more on consumption vs. consumer health well-being earlier. Maintain Buy We maintain our Buy rating with a TP of IDR1,200. Our TP implies FY14F P/E of 24x, which is still at a discount to JCI Consumers 25x P/E. Our TP is at an 18% discount to our DDM valuation, with 11% WACC and 7% growth assumption. We forecast an 18% earnings CAGR over FY11-16F. The cash holdings of ~USD200mn (as in 1H12) should give Kalbe the ability to expand inorganically through M&As, which is not incorporated into our earnings growth assumptions. Potential catalysts include the likely launch of the National Social Security scheme in 2014 and the rising middle-class population that we expect to drive further growth in the healthcare sector.
Buy
IDR 1,200 IDR 1,040 +15.4%
Anchor themes We remain positive on longterm growth in Indonesia's consumption, but rising competition may affect companies' earnings performance going forward. We note, however, the intensity of competition varies across subsectors, and we prefer companies with strong branding or effective product placements. Nomura vs consensus Our FY13F earnings estimate is in line with consensus.
Research analysts Indonesia Consumer Related Janni Asman - PTNI Janni.Asman@nomura.com +62 21 2991 3345 Wilianto Ie - PTNI wilianto.ie@nomura.com +62 21 2991 3341
10,912 1,482 1,482 29.19 15.2 38.4 25.1 8.4 1.7 25.6
14,011 1,752 1,752 34.51 18.2 N/A N/A N/A N/A 26.4
14,011 1,752 1,752 34.51 18.2 32.5 21.4 7.4 2.2 26.4
16,446 2,102 2,102 41.40 20.0 N/A N/A N/A N/A 27.8
16,446 2,102 2,102 41.40 20.0 27.1 17.9 6.5 2.8 27.8
19,417 2,445 2,445 48.15 16.3 N/A N/A N/A N/A 28.7
19,417 2,374 2,374 46.75 12.9 24.0 15.8 5.9 3.4 28.0
Nomura | Kalbe Farma
January 8, 2013
Key data on Kalbe Farma


FY10 10,227 -5,060 5,166 -3,375 1,791 2,014 -197 -26 1,791 34 0 -55 1,770 -427 1,344 -57 FY11 10,912 -5,361 5,551 -3,583 1,968 2,176 -197 -11 1,968 84 0 -64 1,987 -464 1,523 -41 FY12F 14,011 -7,288 6,723 -4,401 2,322 2,562 -230 -10 2,322 80 0 0 2,402 -601 1,802 -49 FY13F 16,446 -8,624 7,822 -5,030 2,791 3,071 -270 -10 2,791 90 0 0 2,881 -720 2,161 -59 FY14F 19,417 -10,382 9,035 -5,866 3,169 3,489 -310 -10 3,169 85 0 0 3,254 -814 2,441 -67

(%) Absolute (IDR) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (IDR) 3-mth avg daily turnover (USDmn) Major shareholders (%) PT Gira Sole Prima PT Santa Seha Sanadi 1M 3M 12M
14.3 28.0 63.5 14.2 26.3 55.7 16.0 27.1 52.9 5,905.9 43.4 1150/660 5.88
10.2 9.6
1,286 1,286 -711 575
1,482 1,482 -891 591
1,752 1,752 -1,139 613
2,102 2,102 -1,471 631
2,374 2,374 -1,781 594
Notes
40.8 40.8 44.2 47.4 1.4 43.5 9.8 27.3 30.7 50.5 19.7 17.5 12.6 24.1 55.3 4.0 2.1 na 35.6
35.4 35.4 38.4 41.1 1.7 40.1 8.4 25.1 27.8 50.9 19.9 18.0 13.6 23.4 60.1 4.3 2.4 25.6 35.4
30.0 30.0 32.5 34.8 2.2 39.6 7.4 21.4 23.7 48.0 18.3 16.6 12.5 25.0 65.0 5.0 3.0 26.4 34.1
25.0 25.0 27.1 29.0 2.8 29.7 6.5 17.9 19.7 47.6 18.7 17.0 12.8 25.0 70.0 4.3 2.6 27.8 33.6
22.1 22.1 24.0 25.7 3.4 27.0 5.9 15.8 17.3 46.5 18.0 16.3 12.2 25.0 75.0 3.6 2.3 28.0 32.5
12.5 13.1 14.4 41.5 41.3
6.7 8.1 9.9 15.2 15.2
28.4 17.7 18.0 18.2 18.2
17.4 19.9 20.2 20.0 20.0
18.1 13.6 13.5 12.9 12.9
27.45 27.45 25.34 114.64 15.17
31.62 31.62 29.19 132.58 19.01
37.38 37.38 34.51 150.96 24.30
44.84 44.84 41.40 171.50 31.39
50.65 50.65 46.75 190.76 37.98
108
January 8, 2013
Cashflow(IDRbn)
FY10 2,014 -103 -602 1,308 -411 897 -48 35 -4 881 -254 31 -315 -4 -541 339 1,563 1,902 -1,878 FY11 2,176 -167 -591 1,418 -469 949 -5 -57 14 901 -711 70 116 14 -511 389 1,902 2,291 -2,151 FY12F 2,562 -560 -567 1,435 -700 735 0 -115 36 656 -891 0 -140 36 -995 -338 2,291 1,953 -1,953 FY13F 3,071 -485 -669 1,918 -700 1,218 0 -90 29 1,156 -1,139 0 0 29 -1,110 45 1,953 1,998 -1,998 FY14F 3,489 -610 -773 2,106 -700 1,406 0 -110 35 1,330 -1,471 0 0 35 -1,437 -106 1,998 1,892 -1,892 Notes
Balancesheet(IDRbn)
FY10 1,902 1,263 1,551 316 5,032 48 1,605
FY11 2,291 1,530 1,705 430 5,956 54 1,860
FY12F 1,953 1,965 2,197 552 6,666 54 2,330
FY13F 1,998 2,306 2,599 647 7,551 54 2,760
FY14F 1,892 2,723 3,129 764 8,508 54 3,150
Notes
347 7,032 24 488 634 1,146 0 0 114 1,261 398 512 5,581 -720 5,374 7,032
404 8,275 140 850 640 1,631 0 0 128 1,759 301 512 6,407 -705 6,215 8,275
519 9,569 0 1,156 822 1,978 0 0 164 2,143 350 512 7,269 -705 7,076 9,569
610 10,974 0 1,368 965 2,333 0 0 193 2,526 409 512 8,232 -705 8,039 10,974
720 12,432 0 1,647 1,139 2,786 0 0 228 3,014 476 512 9,134 -705 8,942 12,432
4.39 na
3.65 na
3.37 na
3.24 na
3.05 na
net cash net cash
net cash net cash
net cash net cash
net cash net cash
net cash net cash
44.0 112.2 35.0 121.3
46.7 110.8 45.6 112.0
45.6 98.0 50.4 93.2
47.4 101.5 53.4 95.5
47.3 100.7 53.0 94.9
109
January 8, 2013
Kalbe Farma focus charts

Fig. 163: Kalbes revenue breakdown (1H12)
Prescription 25% Distribution 37%
Fig. 164: Kalbes pharmaceutical sales breakdown (1H12)

Unbranded generics 10% Licensed drugs 32%
Consumer health 16% Nutritional 22%

Source: Company data, Nomura research Source: Company data, Nomura research
Branded generic 58%
Fig. 165: Indonesia pharmaceutical industry sales

(IDR tn) 50 45 40 35 30 25 20 15 10 5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Fig. 166: Indonesia pharmaceutical sales breakdown
OTC 42%
Prescription 58%
Fig. 167: Indonesia workforce education* 60% Up to primary education Above primary education
55%
Fig. 168: Secondary school enrolment* (% of age group)

(%) 90 80 70 60 2/3 of age group enrolled to secondary education
50%
50 40 30
45%
20 10
40% Aug07
Aug08
Aug09
Aug10
Aug11
70
74
78
82
86
90
94
98
02
06
10
* Note: From Feb 2011, the data show that workforce with education above primary school is larger than those with an education level up to the primary level Source: Indonesia Statistics, Nomura research
* Note: Number school applicants in secondary school from total population in the age group intended for the level of education Source: CEIC, United Nations Educational, Scientific, and Cultural Organization (UNESCO) Institute for Statistics, Nomura research
110
Semen Indonesia
CONSTRUCTION MATERIALS
SMGR.JK SMGR IJ
EQUITY RESEARCH
Volume growth kicking in
Most favoured play in the cement sector with growth driven by capacity expansion
Largest cement company in Indonesia Semen Gresik recently changed its name to Semen Indonesia (SI). We view SI as the best play for investors to gain exposure in Indonesias fastgrowing cement sector. SI is the largest cement company in the country with more than 40% share of industry capacity, and geographically well diversified with facilities located across 3 main Indonesian islands. With most aggressive but well executed growth plans SI will be the only major cement producer in Indonesia adding new capacity until 1H13. This year alone, the company will add 6mn tons of new capacity. 3mn tons have been recently completed, thereby increasing SIs total capacity to 23mn tons, which has allowed SI to increase its market share from below 40% in 1H12 to 41.7% in 3Q12. Another 2.5mn tons and 2mn tons would be completed by 4Q12 and 1Q13, respectively, that will bring total capacity to 28mn tons by 1Q13, which we expect would help SI to gain market share further, given strong demand. We would also expect that the company would benefit from economic scale efficiency and hence margin improvement. Valuation We use DCF to derive our TP of IDR17,900 for SI to reflect its growth profile driven by new capacity expansion. Our DCF uses WACC of 10.1% (Rm premium of 6%, Rf of 6%, and Beta 1.1 to derive CoE of 12.6%). Recent completion of the initial phase of capacity expansion has helped alleviate some execution risk. The key downside risks would include macro risks, higher energy costs, and more intense competition. We are currently reviewing our numbers.
Buy
IDR 17,900 IDR 15,950 +12.2%
Anchor themes We believe Indonesia's economy is set to take on a new growth trajectory. The robust macro story, coupled with fiscal budget deployment, should help to propel infrastructure investment spending and further unlock full growth potential, in our view. Nomura vs consensus Our DCF-based TP is 15% higher than consensus, reflecting our confidence in the company's expansion plans and longer-term prospects.
16,379 3,925 3,925 661.68 8.0 24.1 17.2 6.5 2.1 29.7 net cash
19,612 4,705 4,705 793.27 19.9 N/A N/A N/A N/A 29.7 1.6
19,612 4,705 4,705
24,071 6,159 6,159
24,071 6,159 6,159
27,781 7,666 7,666
27,781 7,666 7,666
793.27 1,038.36 1,038.36 1,292.41 1,292.41 19.9 20.1 13.9 5.5 2.0 29.7 30.9 N/A N/A N/A N/A 31.8 30.9 15.4 10.5 4.4 2.6 31.8 24.5 N/A N/A N/A N/A 31.8 24.5 12.3 8.2 3.5 3.2 31.8
1.6 net cash net cash net cash net cash
Nomura | Semen Indonesia
January 8, 2013
Key data on Semen Indonesia


FY10 14,344 -7,534 6,810 -2,321 4,489 4,964 -475 4,489 203 30 4,723 -1,064 3,659 -26 FY11 16,379 -8,892 7,487 -2,649 4,838 5,399 -561 4,838 182 70 5,090 -1,135 3,955 -30 FY12F 19,612 -10,761 8,851 -3,048 5,803 6,820 -1,017 5,803 49 73 5,925 -1,185 4,740 -35 FY13F 24,071 -13,011 11,060 -3,486 7,574 8,626 -1,052 7,574 100 74 7,748 -1,550 6,198 -39 FY14F 27,781 -14,760 13,021 -3,867 9,154 10,377 -1,223 9,154 410 75 9,639 -1,928 7,711 -45

(%) Absolute (IDR) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (IDR) 3-mth avg daily turnover (USDmn) Major shareholders (%) Government Public 16950/9900 10.06 1M 3M 12M
7.8 12.3 42.4 7.1 11.5 34.1 5.1 10.0 32.5 9,809.0
51.0 49.0
3,633 3,633 -1,473 2,160
3,925 3,925 -1,962 1,963
4,705 4,705 -1,882 2,823
6,159 6,159 -2,464 3,695
7,666 7,666 -3,066 4,600
Notes
26.0 26.0 26.0 29.2 1.6 24.6 7.9 18.4 20.4 47.5 34.6 31.3 25.3 22.5 40.5 28.7 8.7 32.7 43.8
24.1 24.1 24.1 27.1 2.1 21.6 6.5 17.2 19.2 45.7 33.0 29.5 24.0 22.3 50.0 27.7 8.1 29.7 34.5
20.1 20.1 20.1 22.6 2.0 19.9 5.5 13.9 16.3 45.1 34.8 29.6 24.0 20.0 40.0 24.2 4.7 29.7 31.4
15.4 15.4 15.4 17.2 2.6 14.0 4.4 10.5 11.9 45.9 35.8 31.5 25.6 20.0 40.0 2.0 0.5 31.8 36.2
12.3 12.3 12.3 13.9 3.2 11.1 3.5 8.2 9.3 46.9 37.4 32.9 27.6 20.0 40.0 1.9 0.4 31.8 43.0
Revenue growth to pick up in 2013F given full-year operation of new production capacity and contribution of a new cement mill in 1Q13F. Margins expected to improve in 2014F on the back of economies of scale efficiencies.
-0.3 4.1 3.4 9.2 9.2
14.2 8.8 7.8 8.0 8.0
19.7 26.3 20.0 19.9 19.9
22.7 26.5 30.5 30.9 30.9
15.4 20.3 20.9 24.5 24.5
612.53 612.53 612.53 2,024.18 248.33
661.68 661.68 661.68 2,438.56 330.78
793.27 793.27 793.27 2,901.05 317.31
1,038.36 1,038.36 1,038.36 3,622.10 415.34
1,292.41 1,292.41 1,292.41 4,499.17 516.97
112
January 8, 2013
Cashflow(IDRbn)
FY10 4,964 -284 -828 3,853 -4,123 -271 1,077 0 25 75 0 907 -1,822 0 485 -15 -1,352 -446 4,235 3,789 -3,103 FY11 5,399 -149 -873 4,377 -4,539 -163 55 0 -7 37 0 -77 -1,473 0 1,196 -6 -283 -361 3,789 3,428 -1,536 FY12F 6,820 -1,011 -1,063 4,746 -4,754 -8 110 0 8 65 0 175 -1,962 0 2,960 -17 981 1,156 3,428 4,584 268 FY13F 8,626 -470 -1,376 6,781 -489 6,292 -13 0 -2 88 0 6,364 -1,882 0 -20 -20 -1,922 4,442 4,584 9,026 -4,194 FY14F 10,377 -373 -1,443 8,561 -518 8,043 -15 0 -3 69 0 8,094 -2,464 0 -56 -23 -2,542 5,552 9,026 14,578 -9,802 Notes
Our estimated capex spending does not yet include the planned capex to further expand capacity by 3mn tons each in 2015F and 2016F, or the Vietnam acquisition, which we believe SI would be able to comfortably meet.
Balancesheet(IDRbn)
FY10 3,789 113 1,717 1,624 94 7,338 423 7,663
FY11 3,428 253 1,829 2,006 129 7,645 228 11,641
FY12F 4,584 253 2,418 2,211 177 9,643 118 15,378
FY13F 9,026 253 2,968 2,674 218 15,139 131 14,815
FY14F 14,578 253 3,425 3,033 253 21,542 146 14,111
Notes
High cash balance indicates SI would be able to comfortably meet its capex spending for Vietnam acquisition and further capacity expansion.
140 15,563 87 892 1,539 2,518 600 306 3,423 133 0 2,051 9,955
147 19,661 78 1,183 1,628 2,889 1,814 343 5,046 151 0 2,051 12,413
139 25,278 58 1,179 1,463 2,701 4,794 408 7,902 168 0 2,051 15,156
141 30,226 94 1,426 1,800 3,320 4,738 496 8,554 188 0 2,051 19,433
144 35,942 38 1,618 2,086 3,742 4,738 565 9,045 210 0 2,051 24,636
12,006 15,563
14,464 19,661
17,208 25,278
21,485 30,226
26,687 35,942
2.91 na
2.65 na
3.57 na
4.56 na
5.76 na
net cash net cash
net cash net cash
0.04 1.6
net cash net cash
net cash net cash
40.0 73.4 40.4 73.0
39.5 74.5 42.6 71.4
39.6 71.7 40.2 71.2
40.8 68.5 36.5 72.8
42.0 70.6 37.6 74.9
113
January 8, 2013
Becoming a more dominant player

SI continues to be our top pick within the cement sector. Rising infra spending and property demand continues to be the main drivers for demand growth, and new capacity will help SI to benefit from the trend and market share. Reaping benefits from new plants SIs new cement plant in Tuban commenced its full commercial operation in July, and as a result, the companys monthly cement sales volume in July reached a record high, and it has been gaining more domestic market share.
Fig. 169: All cement producers have been ramping up volume
All producers set record high monthly sales during 2012
Fig. 170: Cement domestic sales market share

SI's new cement plant has helped it gain market share
('000 tons) 2,500 2,000
Gresik Holcim
Indocement Others
60% 50% 40%
Gresik Holcim
Indocement Others
1,500 1,000 500 0
30% 20% 10%
Nov-06
May-09
Nov-11
Jan-06
Jun-06
Jan-11
Feb-08
Mar-10
Jun-11
Jul-08
Oct-09
Apr-07
Sep-07
Aug-10
Apr-12
0%
Source: Indonesia cement association; Nomura Research; Note:
Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
Source: Indonesia cement association; Nomura Research
This trend of gains in market share is likely to continue as SI continues to ramp up its capacity, with another 3mn tons in Tonasa by 4Q12 and another 2mn tons of cement milling plant in 1Q13. As a result, by mid 2013F SI would have effective new capacity of 28mn tons compared to just 20mn tons in 2011. Semen Indonesia The company recently attained shareholders approval to change its name into Semen Indonesia, which will subsequently become a holding company for future expansions. The Semen Gresik brand, however, will continue to exist and will be the main companys brand to sell its product in Java. With the formation of a strategic holding company, development of new plants in new locations in future would be done through a separate subsidiary entity, wholly owned by SI. Management believes that this consolidation exercise would benefit the company in the long term, as it helps integrate the business of different entities in different regions, and helps provide a better foundation to grow further without many regional issues. Acquisition of a Vietnamese cement producer The company has also recently announced that it has successfully completed the acquisition of 70% stake in Thang Long Cement, a Vietnam based cement producer with total production capacity of 2.3mn tons. The companys management was quoted in the local media (Bisnis Indonesia and Investor Daily, December 19, 2012) as stating that the acquisition cost of the 70% equity stake in Thang Long was USD150mn with implied companys valuation of USD335mn or USD145/ton enterprise value, lower than the companys current valuation. This is lower than SIs current trading EV/ton multiple of USD365/ton and just slightly higher than SIs recent brownfield 5mn tons expansion of USD140/ton, presumably due to lower profitability of its Vietnamese cement operation (USD65-70/ton cement selling price in Vietnam, according to management of SI). We view this acquisition positively. Not only it would diversify SIs revenue stream, but Vietnams capacity will serve as a potential alternative source of supply to meet growing domestic demand.
Sep-12
114
Dec-08
United Tractors
ENGINEERING & CONSTRUCTION
UNTR.JK UNTR IJ
EQUITY RESEARCH
Recovery ahead
Modest economic recovery in China and US in 2013 will boost sentiment and help sales
Key earnings drivers are more stable than share price suggests We believe the 41% decline in UTs share price from the peak in Apr-12 is excessive relative to the level of volatility in UTs earnings. It generates two-third of its earnings from stable business of contract mining and aftersales services, which are still doing well despite the weak sentiment in the coal mining sector. Demand for coal will continue to grow The medium-term coal production outlook remains promising with the International Energy Agency (IEA) expecting the world to burn 1.2m more tons of coal per annum in 2017, led by India and China. This will support coal price, in our view, and UT should perform well so long as coal price is high enough to encourage coal mining expansion. UT commands a strong market leadership; it was responsible for about one-third of coal production and 44% of heavy equipment sales in Indonesia in 9M12. Catalyst: Sales volume might have bottomed We believe the knee-jerk reaction to a falling coal price has passed and the sales volume of Komatsu equipment should soon bottom and recover. A forecast pick-up in demand from the construction sector should also help volume recover in 2013-14F; thus, we see positive sentiment ahead. Valuation: retain Buy We expect earnings growth to slow to 4% in 2012F before accelerating to 12% in 2013F and 18% in 2014F. The share price trades at attractive valuation of 11.5x 2013F and 9.7x 2014F P/Es, and we retain our Buy rating. Our TP of IDR33,000 provides 57.5% upside and is based on a target 2014F P/E of 15x, in line with our target market multiple.
Buy
IDR 33,000 IDR 20,950 +57.5%
Anchor themes As a sole distributor of Komatsu equipment and a contractor to coal-mining companies, UT's earnings are driven by coal production growth instead of coal price. An acceleration in infrastructure development also bodes well for heavy-equipment demand. Nomura vs consensus Our earnings forecast is 10% above consensus in FY13F, largely because we expect the coal price to at least start to stablise, if not recover.
Research analysts Indonesia Research Team Wilianto Ie - PTNI wilianto.ie@nomura.com +62 21 2991 3341
FY11 Actual Old
FY12F New Old
FY13F New Old
FY14F New
55,053 5,901 5,851
58,214 6,158 6,083
58,214 6,158 6,083
62,715 6,890 6,815
62,715 6,890 6,815
72,497 8,113 8,038
72,497 8,113 8,038
1,885.07 1,691.91 1,691.91 1,827.06 1,827.06 2,155.00 2,155.00 64.8 11.1 6.8 3.0 3.0 27.8 -10.2 N/A N/A N/A N/A 21.9 -10.2 12.4 6.1 2.6 3.2 21.9 8.0 N/A N/A N/A N/A 21.5 8.0 11.5 5.5 2.3 3.5 21.5 17.9 N/A N/A N/A N/A 22.2 17.9 9.7 4.8 2.0 4.2 22.2
Nomura | United Tractors
January 8, 2013
Key data on United Tractors


FY10 37,324 -30,528 6,796 -1,633 0 5,163 8,019 -2,857 0 5,163 -140 23 -51 4,994 -1,187 3,808 -2 0 0 3,806 67 3,873 -1,539 2,334 FY11 55,053 -44,859 10,194 -2,578 0 7,615 11,041 -3,426 0 7,615 -39 28 131 7,735 -1,885 5,850 1 0 0 5,851 50 5,901 -2,360 3,541 FY12F 58,214 -47,435 10,779 -2,731 0 8,048 12,248 -4,200 0 8,048 14 32 19 8,113 -2,031 6,081 2 0 0 6,083 75 6,158 -2,463 3,695 FY13F 62,715 -50,717 11,998 -3,136 0 8,862 13,462 -4,600 0 8,862 163 36 19 9,080 -2,267 6,813 2 0 0 6,815 75 6,890 -2,756 4,134 FY14F 72,497 -58,342 14,155 -3,667 0 10,489 15,289 -4,800 0 10,489 159 42 19 10,709 -2,673 8,036 2 0 0 8,038 75 8,113 -3,245 4,868

(%) Absolute (IDR) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (IDR) 3-mth avg daily turnover (USDmn) Major shareholders (%) Astra International 1M 22.9 22.1 20.2 8,102.3 40.5 33400/16600 12.68 3M 12M 1.7 -19.4 1.0 -24.1 -0.7 -29.3
59.5
Notes
Earnings will be relatively resilient in our view.
18.0 18.3 18.3 28.8 2.2 24.7 4.3 10.3 15.9 18.2 21.5 13.8 10.4 23.8 39.7 11.5 1.5 25.8 20.8
12.0 12.2 11.1 17.5 3.0 6.8 3.0 6.8 9.9 18.5 20.1 13.8 10.7 24.4 40.0 17.4 2.8 27.8 22.6
12.2 12.4 12.4 19.5 3.2 5.9 2.6 6.1 9.2 18.5 21.0 13.8 10.6 25.0 40.0 15.9 2.2 21.9 19.7
11.3 11.5 11.5 18.1 3.5 7.0 2.3 5.5 8.3 19.1 21.5 14.1 11.0 25.0 40.0 13.2 1.8 21.5 19.7
9.6 9.7 9.7 15.3 4.2 6.4 2.0 4.8 7.0 19.5 21.1 14.5 11.2 25.0 40.0 11.4 1.7 22.2 20.7
27.6 8.8 -0.1 0.6 0.6
47.5 37.7 47.5 50.7 64.8
5.7 10.9 5.7 -1.9 -10.2
7.7 9.9 10.1 8.0 8.0
15.6 13.6 18.4 17.9 17.9
1,164.13 1,144.00 1,144.00 4,850.30 462.60
1,738.85 1,724.12 1,885.07 7,056.16 632.79
1,712.77 1,691.91 1,691.91 8,046.66 660.33
1,847.17 1,827.06 1,827.06 9,154.96 738.87
2,175.11 2,155.00 2,155.00 10,460.03 870.04
116
January 8, 2013
Cashflow(IDRbn)
FY10 8,019 -3,909 -1,290 2,820 -4,291 -1,471 33 -160 -162 90 0 -1,671 -1,539 -41 1,912 0 -78 253 -1,418 2,776 1,358 4,322 FY11 11,041 1,104 -1,714 10,431 -9,565 866 5 -173 -336 973 0 1,334 -2,360 6,644 -977 0 1,154 4,461 5,795 1,358 7,153 -2,449 FY12F 12,248 2,313 -1,890 12,671 -9,250 3,421 103 -32 -45 109 0 3,556 -2,463 0 -1,983 0 -2 -4,448 -892 7,153 6,261 -3,540 FY13F 13,462 -332 -1,972 11,158 -8,250 2,908 103 -36 -64 155 0 3,065 -2,756 0 -453 0 -2 -3,211 -147 6,261 6,114 -3,847 FY14F 15,289 -676 -2,375 12,237 -8,250 3,987 103 -42 -140 336 0 4,244 -3,245 0 0 0 -2 -3,248 997 6,114 7,111 -4,844 Notes
Cash flow can sustain dividends. Capex is likely to decline if growth in contract mining decelerates
Balancesheet(IDRbn)
FY10 1,358 0 5,215 6,932 2,043 15,548 443 13,261 0 0 449 29,701 2,982 5,531 1,406 9,919 2,699 0 917 13,536 29 0 4,613 11,139 0 384 16,136 29,701
FY11 7,153 0 9,833 7,129 1,528 25,643 616 19,396 0 0 785 46,440 2,587 10,303 2,039 14,930 2,116 0 1,890 18,936 1,183 0 10,636 15,343 0 341 26,320 46,440
FY12F 6,261 0 8,772 6,498 1,616 23,146 645 24,346 0 0 830 48,967 544 10,895 2,156 13,595 2,176 0 1,999 17,770 1,182 0 10,636 19,037 0 341 30,015 48,967
FY13F 6,114 0 9,450 6,948 1,741 24,253 678 27,896 0 0 894 53,721 453 11,649 2,323 14,425 1,814 0 2,153 18,392 1,180 0 10,636 23,172 0 341 34,149 53,721
FY14F 7,111 0 10,924 7,992 2,012 28,039 717 31,246 0 0 1,034 61,036 453 13,400 2,685 16,539 1,814 0 2,489 20,842 1,177 0 10,636 28,040 0 341 39,017 61,036
Notes
UT balance sheet is strong and is relatively unleveraged
1.57 36.8
1.72 196.3
1.70 na
1.68 na
1.70 na
0.54 26.8
net cash net cash
net cash net cash
net cash net cash
net cash net cash
47.3 65.1 58.0 54.5
49.9 57.2 64.4 42.7
58.5 52.6 81.8 29.3
53.0 48.4 81.1 20.3
51.3 46.7 78.4 19.7
117
January 8, 2013
United Tractors: Focus charts

Fig. 171: Revenues breakdown (9M12)
Mining 10%
Fig. 172: EBIT breakdown (9M12)

Mining 5%
Contract mining 40%
Heavy equipment 50%
Contract mining 47%
Heavy equipment 48%
Fig. 173: Pamas coal delivered (contract mining), last Nov-12

(mn tons) 10 9 8 7 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012
Source: Company data
Fig. 174: Pamas overburden removal, last Nov-12

(mn bcm) 90 80 70 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 Overburden Year average (coal)
Pama's coal extraction Year average (coal)
Fig. 175: Komatsu equipment sales, last Nov-12

(Units) 900 800 700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 2010 2011 2012
Fig. 176: Sales volume of UTs own coal mines, last Nov-12
('000 tons) 700 600 500 400 300 200 100 0 2007 UT's coal sales volume Year average (coal sales volume)
UT' Komatsu monthly sales Year average
2008
2009
2010
2011
2012
118
January 8, 2013
Fig. 177: Key assumptions

2010A Komatsu machinery +/- yoy Pama coal extraction (m ton) +/- yoy Pama over burden (m bcm) +/- yoy UT's coal sales volume (m ton) +/- yoy Average UT's coal price (US$/ton) +/- yoy
Source: Company date, Nomura estimates
2011A 8,467 57%
2012F 6,983 -18% 93 7% 860 9% 6.1 36% 86 -2%
2013F 6,000 -14% 100 8% 860 0% 6.5 7% 90 5%
2014F 7,536 26% 107 7% 946 10% 7.0 8% 94 5%
5,404
78
87 11%
652
792 22%
3.1
4.5 47%
111
88 -21%
Valuation methodology and risks Our target price of IDR33,000 translates to a FY14F P/E of 15x (FY14F EPS: IDR2,175), which is in line with our target P/E for the market (JCI). Risks to our target price come from potential deteriorating business due to falling coal prices or a liquidity squeeze.
119
January 8, 2013
120
Wijaya Karya
ENGINEERING & CONSTRUCTION
WIKA.JK WIKA IJ
EQUITY RESEARCH
Looking into 2013 with optimism
Better confidence, supportive regulatory environment and new projects visibility

Action: Reiterate our Buy recommendation Wijaya Karya is part of our infrastructure theme for Indonesia. The contractors are the early beneficiaries of rising infrastructure spending, and WIKA, being one of the largest state-owned contractors in the country with a well-established track record, is well positioned to capture the opportunity, in our view. We remain positive on WIKA and recently upgraded our TP by +33%, retaining our Buy recommendation. Catalyst: better market confidence and new projects The markets favourable stance towards the construction sector is very apparent from the recent IPO of another state-owned contractor company, Waskita Karya (WSKT IJ, not rated), that reportedly attracted 9x oversubscription (Bisnis Indonesia, 14 December 2012). This reflects a strong investor interest in the infrastructure sector and increased confidence in the governments ability to accelerate infrastructure development, in our view. We also expect new major project tenders won by WIKA to be the other catalysts. Valuation and risks Our 12-month target price of IDR1,800 is based on a blended SOTP and DCF valuation. Our DCF extends to 2020F at WACC of 10.8%. For SOTP, we have used 7x EV/EBITDA multiples for construction business, DCF for power plants, NAV (with 30% discount) for real estate business, and book value for WIKA's other investments. Risks to our view include: macro risks, lower margins (from competition or rising costs), higher capex, and regulatory risks.
Buy
IDR 1,800 IDR 1,530 +17.6%
Anchor themes WIKA stands to benefit from rising infrastructure spending and construction works, in addition to an improving business mix with the contribution of more stable investment income. Nomura vs consensus Our FY13F/FY14F earnings forecasts are 2%/3% higher than consensus, largely reflecting our higher margin assumptions, but are in line with company guidance.
FY11 Actual Old
FY12F New Old
FY13F New Old
FY14F New
7,841 352 352 58.59 23.4 26.1 11.4 4.5 1.1 18.2
9,414 437 437 70.46 20.3 N/A N/A N/A N/A 19.0
9,414 437 437 70.46 20.3 21.7 9.5 3.6 1.1 19.0
11,644 588 588 97.52 38.4 N/A N/A N/A N/A 21.3
11,644 588 588 97.52 38.4 15.7 7.4 3.2 1.4 21.3
13,272 778 778 125.39 28.6 N/A N/A N/A N/A 23.7
13,272 778 778 125.39 28.6 12.2 6.0 2.6 1.9 23.7
Nomura | Wijaya Karya
January 8, 2013
Key data on Wijaya Karya


FY10 6,062 -5,389 673 -196 477 571 -51 -43 477 19 -23 473 -162 311 -26 FY11 7,841 -6,979 862 -211 651 763 -68 -44 651 19 -43 627 -239 388 -36 FY12F 9,414 -8,273 1,140 -287 853 966 -73 -40 853 -17 -38 799 -315 483 -46 FY13F 11,644 -10,210 1,434 -354 1,079 1,216 -88 -49 1,079 -11 -36 1,032 -399 633 -45 FY14F 13,272 -11,657 1,616 -403 1,212 1,383 -103 -68 1,212 -6 66 1,272 -447 825 -47

(%) Absolute (IDR) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (IDR) 3-mth avg daily turnover (USDmn) Major shareholders (%) Government of Indonesia Public 1M 3M 12M
-6.1 18.6 150.8 -6.7 17.7 136.1 -8.8 16.2 141.0 984.1 33.6 1650/600 3.03
66.4 33.6
285 285 -57 228
352 352 -100 252
437 437 -106 332
588 588 -131 457
778 778 -176 602
Notes
32.2 32.2 32.2 37.7 0.6 18.3 5.1 15.1 18.1 11.1 9.4 7.9 4.7 34.2 20.0 2.8 3.3 17.1 10.0
26.1 26.1 26.1 30.6 1.1 9.4 4.5 11.4 13.4 11.0 9.7 8.3 4.5 38.1 28.4 5.8 6.7 18.2 10.7
21.1 21.1 21.7 25.4 1.1 26.5 3.6 9.5 10.7 12.1 10.3 9.1 4.6 39.5 24.2 1.9 2.5 19.0 10.8
15.7 15.7 15.7 18.4 1.4 12.1 3.2 7.4 8.3 12.3 10.4 9.3 5.0 38.7 22.3 1.7 2.3 21.3 11.2
12.2 12.2 12.2 14.3 1.9 9.1 2.6 6.0 6.8 12.2 10.4 9.1 5.9 35.1 22.7 1.6 2.1 23.7 11.0
We expect margins to continue to improve due to increasing contribution from the higher-margin recurring income business. However, we have also lowered our margin assumptions as we expect cost pressure to rise.
-8.3 -7.8 -1.9 46.9 46.9
29.3 33.6 36.5 23.4 23.4
20.1 26.6 31.1 23.8 20.3
23.7 25.9 26.5 34.5 38.4
14.0 13.7 12.3 28.6 28.6
47.49 47.49 47.49 300.26 9.50
58.59 58.59 58.59 343.26 16.59
72.53 72.53 70.46 419.50 17.52
97.52 97.52 97.52 481.15 21.14
125.39 125.39 125.39 578.12 28.42
122
January 8, 2013
Cashflow(IDRbn)
FY10 571 93 -162 502 -168 334 -28 0 -324 -178 0 -196 -57 53 242 0 -25 213 17 1,210 1,227 -864 FY11 763 505 -286 982 -457 525 -15 0 -798 275 0 -13 -100 13 118 0 -1 30 17 1,227 1,244 -786 FY12F 966 -242 -366 358 -180 178 -168 -35 -574 139 0 -460 -106 132 538 0 10 574 114 1,244 1,358 -358 FY13F 1,216 -6 -449 762 -199 563 -718 0 208 200 0 254 -131 0 2 0 0 -129 125 1,358 1,482 -482 FY14F 1,383 40 -383 1,040 -218 822 -203 0 187 147 0 952 -176 0 -4 0 0 -180 772 1,482 2,254 -1,254 Notes
The company sold back some of its treasury shares to the market in early 2012 which helped sustain its cash levels
Balancesheet(IDRbn)
FY10 1,227 0 2,476 681 565 4,949 150 406 8 773 6,286 87 1,220 2,335 3,642 276 451 4,369 115 0 1,184 618
FY11 1,244 0 2,942 873 768 5,827 165 751 5 1,574 8,322 207 2,119 2,802 5,128 251 726 6,105 148 0 1,197 872
FY12F 1,358 0 3,358 1,161 825 6,701 368 819 5 2,149 10,041 250 2,040 3,400 5,690 750 865 7,305 208 0 1,329 1,200
FY13F 1,482 0 4,166 1,436 1,021 8,105 1,086 881 5 1,941 12,017 250 2,518 4,196 6,964 750 1,065 8,779 253 0 1,329 1,656
FY14F 2,254 0 4,734 1,636 1,164 9,788 1,289 928 5 1,754 13,764 250 2,874 4,790 7,915 750 1,212 9,877 300 0 1,329 2,258
Notes
We expect the company to be able to manage its working capital requirement and increase its long term investments to remain in net cash position.
1,802 6,286
2,069 8,322
2,529 10,041
2,985 12,017
3,587 13,764
1.36 na
1.14 na
1.18 50.0
1.16 100.9
1.24 204.5
net cash net cash
net cash net cash
net cash net cash
net cash net cash
net cash net cash
138.4 52.6 82.1 108.9
126.1 40.6 87.3 79.4
122.5 45.0 92.0 75.5
117.9 46.4 81.5 82.9
122.4 48.1 84.4 86.1
123
January 8, 2013
Remain positive into 2013F

We think infrastructure will remain the main theme for Indonesia in 2013F. We not only expect more projects to be rolled out in 2013F, but also believe that realization of some projects in 2013F, such as toll roads and airports, will help reduce execution risks in the infrastructure sector.
More projects, more completion, all positive

We think that the volume of infrastructure development in Indonesia will continue to pick up in 2013F. As we highlighted in our infrastructure note on 26 October 2012, this development goes beyond just toll road development that has gained more publicity than other infrastructure projects such as airports, seaports and railway. In addition to completion of the new Bali airport toll road in mid 2013, the Ministry of Transportation expects completion of Indonesias second largest airport development in Medan in 1Q13 and development of the dual track railway that links West and East Java. The infrastructure development momentum continues to build up as Jakarta gets ready for development of monorail and MRT (for the MRT project, WIKAs consortium is one of two short-listed contractors), and several sections of toll roads that get developed not only by state-owned entities, but also the private sector (such as Serpong-Balaraja, and Cikampek-Palimanan toll roads), which help ensure project line-up for construction companies, particularly state-owned ones such as WIKA. Supportive regulatory environment The rising momentum for infrastructure development was also partly a function of recent passage of land acquisition law last August, in our view. This law was subsequently followed by respective government constituents including the national land agency (Badan Pertanahan Nasional or BPN) which has been appointed by the law as the land acquirer on behalf of the government and the Ministry of Finance as well as the Ministry of Internal Affairs, who hold the responsibility of ensuring the fund required to acquire the land. Local media, Kontan, on December 18, reported that BPN has recently issued its decree for the land acquisition. We would expect that the new land acquisition law would be in full implementation for new projects starting next year. Meanwhile, although existing projects can only use the new land acquisition law starting 2015F, the government through the Ministry of Public Works is preparing regulation for transition periods. This regulation for transition periods While existing projects will have to wait until 2015F before they can use this law to secure land, we would expect that the law would be in full implementation for new projects starting next year. Meanwhile, the government through the Ministry of Public Works, is preparing the regulation for the transition period for implementation in 2013F14F. This regulation will allow some initial preparation process for existing toll roads to take place in 2013F/14F such that these existing projects are ready for implementation of the land acquisition law by 2015F. Company specific update Operationally, WIKA will also benefit from increasing contribution from its investments such as real estate, power plants and toll roads. In 2011, there was only 1 power plant that contributing to companys business. However, 3 new power plants contributed to WIKAs revenue starting 2H12, and another one is coming on stream starting 2Q13, adding contribution of recurring income to the companys. On the other hand, local media (Bisnis Indonesia, December 21) reported that the governor of Jakarta has included development cost of Jakarta MRT into the 2013 budget and classified the project as a priority in 2013F. WIKA is one of two contractor consortiums short-listed for the MRT project and, as such, this recent update is a positive development for WIKA, in our view.
124
January 8, 2013
125
January 8, 2013
Appendix A-1
Analyst Certification
I, Wilianto Ie, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures

The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more Nomura Group companies.
Materially mentioned issuers

Issuer Astra International Bank Negara Indonesia Bank Mandiri Indomobil Sukses International Indocement Tunggal Perkasa Jasa Marga Kalbe Farma Semen Indonesia United Tractors Wijaya Karya Ticker ASII IJ BBNI IJ BMRI IJ IMAS IJ INTP IJ JSMR IJ KLBF IJ SMGR IJ UNTR IJ WIKA IJ Price IDR 7,850 IDR 3,800 IDR 8,250 IDR 5,350 IDR 22,050 IDR 5,600 IDR 1,040 IDR 15,750 IDR 21,400 IDR 1,530 Price date 04-Jan-2013 04-Jan-2013 04-Jan-2013 Stock rating Buy Buy Buy Sector rating Not rated Not rated Not rated Not rated Not rated Not rated Not rated Not rated Not rated Not rated Previous rating Neutral Not Rated Neutral Not Rated Neutral Not Rated Not Rated Not Rated Not Rated Neutral Date of change 13-Jun-2012 30-Sep-2010 15-Jun-2010 30-Jan-2012 23-Aug-2011 02-May-2011 30-Jan-2012 02-May-2011 09-Nov-2011 22-Dec-2011
04-Jan-2013 Buy 04-Jan-2013 04-Jan-2013 04-Jan-2013 04-Jan-2013 04-Jan-2013 04-Jan-2013 Buy Buy Buy Buy Buy Buy
126
January 8, 2013
Important Disclosures
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Anchor Report Indonesia Outlook 2013 - Coming Out From The

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Anchor Report Indonesia Outlook 2013 - Coming Out From The

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More focus on infrastructure and moving out from consumer to cyclical

Key analysis in this anchor report includes:

Indonesia outlook 2013

Coming out from the bunker

More focus on infrastructure and moving out from consumer to cyclical

Market - Simple Average Market - Aggregate (Weighted)

Nomura | Indonesia outlook 2013

Focus charts Margins are peaking

Costs pressure is returning

Sustaining profitability amid rising competition

Acceleration of infrastructure projects

Impact on new projects

Impact on existing projects

Reform likely to slow ahead of 2014 election

Wish list of what needs to be done

Our top picks and market view

Key recent trends

Indonesia top picks

Indonesia economic outlook

Indonesia: Watch policies and politics

Nomura | Indonesia outlook 2013

Bank Negara Indonesia

Indocement Tunggal Perkasa

Indomobil Sukses International

126 Appendix A-1

Nomura | Indonesia outlook 2013

Fig. 2: Car sales hit record high

Fig. 3: Motorcycle sales are showing signs of recovery

('000 units) 120 100 80 60 40 20 0 05 06 07

Domestic car sales Year average

Domestic motorcycle sales Year average

Source: Gaikindo (The Association of Indonesia Automotive Industries)

Source: AISI (Indonesian Motorcycles Industry Association)

Fig. 4: Cement sales still grow at double digit rates

Fig. 5: FDI trend continues to rise

Domestic Year Average

(USDmn) 25,000 20,000 15,000 10,000 5,000 0

Source: Indonesian Cement Association (ASI)

Nomura | Indonesia outlook 2013

Fig. 6: Trade balance

Source: Bloomberg, Statistics Indonesia

Source: Bank Indonesia, Bloomberg

Fig. 9: Farmers terms of trade

Base year 2000 = 100

Source: Statistics Indonesia

Fig. 10: Indonesia Terms of Trade

Fig. 11: Lending growth by type of loan (% y-y)

Working Capital Investment Consumption

Nomura | Indonesia outlook 2013

Margins are peaking

Costs pressure is returning

Nomura | Indonesia outlook 2013

Source: Ministry of Manpower and Transmigration

Nomura | Indonesia outlook 2013

Fig. 13: Employment by sector (Aug 2012)

Fig. 14: Unemployment rate (last = Aug 2012)

Transport and Telco, 4%

Nomura | Indonesia outlook 2013

Nomura | Indonesia outlook 2013

Sustaining profitability amid rising competition

Domestic Direct Investment Foreign Direct Investment