Cim Medc@ij 062914 135625

Oil & Gas Exp & ProdnIndonesia
June 29, 2014

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Unleashing the gas potentials
We initiate MEDC with an Add rating, underpinned by the companys
improving growth outlook, on the back of earnings contributions from
the Senoro gas block, and further potential upside from promising key
assets like Block A gas and Libya oil. Its current EV/2P of US$5/bbl (at
a steep discount to regional E&P peers) implies that the market has yet
to factor in MEDCs strong potential for asset monetisation.

We project a solid 107% EPS growth
in 2015 and 24% in 2016, as we
forecast contributions from the
Senoro gas to start. Our target price is
based on DCF (WACC: 7.8% and 5%
LT growth). The completion of the
Senoro project, and positive news
from the Block A gas development
should act as catalysts.
Gas-fuelled growth
MEDC is refocusing its strategy on the
upstream business, having completed
the divestments of a few downstream
assets in 2013. We forecast a strong
jump in MEDCs gas production
(hence, earnings) in 2015, driven by
the contribution from the Senoro
block (reserve of 1.96tcf) by 2Q15.
Having completed its long-delayed
gas sales agreement (GSA) in 2009,
Senoros upstream and downstream
LNG projects are currently at more
than 80% and 98% completion,
translating into a low execution risk,
in our view. Senoro gas selling price
is linked to oil price, which at
US$100/bbl crude translates to a
favorable US$9.1/ mmBTU price.
Track record and pipelines
Having entered the E&P business in
1992, MEDCs track record was
cemented through the acquisition of
its key assets in Sumatra and
subsequent years of oil production
growth. After recent years
successful effort to arrest declining oil
production, typical of Indonesias
maturing oil fields, MEDCs
production outlook will turn around
in 2015. Key assets to potentially
sustain the growth momentum are the
Block A gas (which has signed GSA in
2007) and Area-47 oil block in Libya
(ample 352 mmboe gross 2P reserve).
Positive industry outlook
We expect the new government to
implement the long-awaited reforms
in Indonesias energy sector. The
development of gas infrastructure is
likely to be one of the governments
top priorities which will drive the
monetisation of the countrys gas
assets. There is also room for further
domestic gas price hikes, given the
huge gap between local and
international diesel and LNG prices.
Medco Energi Internasional
COMPANY NOTE
MEDC IJ / MEDC.JK

Current Rp3,460

Market Cap Avg Daily Turnover Free Float Target Rp4,330
US$961.3m US$0.39m 49.3%
Prev. Target N/A
Rp11,530,282m Rp4,517m 0.10 m shares
Up/Downside 25.1%
Conviction| |

Sources: CIMB. COMPANY REPORTS

Notes from the Field

Erindra KRISNAWAN, CFA

T (62) 21 3006 1732
E erindra.krisnawan@cimb.com
Maureen NATASHA
T (62) 21 3006 1726
E maureen.natasha@cimb.com

Company Visit Expert Opinion
Channel Check Customer Views

Show Style "ViewDoc Map"

I would best describe the
state of Medco Energis business
today and the near-future with
the remarks: gas, gas, oil and
more oil
Hilmi Panigoro, President Commisioner

89
117
145
173
201
229
1,400
1,900
2,400
2,900
3,400
3,900
Price Close Relative to JCI (RHS)
Source: Bloomberg
10
20
30
Jul-13 Oct-13 Jan-14 Apr-14
V
o
l
m

Financial Summary
Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F
Revenue (US$m) 909 889 803 940 1,046
Operating EBITDA (US$m) 341.5 349.1 370.8 474.8 556.3
Net Profit (US$m) 24.7 12.6 41.2 83.4 102.7
Core EPS (US$) 0.009 0.011 0.012 0.024 0.030
Core EPS Growth (48%) 24% 7% 107% 24%
FD Core P/E (x) 33.26 26.72 24.98 12.08 9.72
DPS (US$) 0.007 0.002 0.002 0.005 0.010
Dividend Yield 2.34% 0.77% 0.52% 1.72% 3.47%
EV/EBITDA (x) 5.26 4.99 4.57 3.71 3.24
P/FCFE (x) NA NA NA 29.92 21.22
Net Gearing 98.0% 85.6% 76.7% 77.7% 75.5%
P/BV (x) 1.15 1.09 1.04 0.97 0.91
ROE 3.44% 4.18% 4.26% 8.34% 9.67%
% Change In Core EPS Estimates
CIMB/consensus EPS (x) 2.06 0.96 1.19

3,460
4,330
1,610 3,480
Target
52-week share price range
Current

SOURCE: CIMB, COMPANY REPORTS

June 29, 2014

2

PEER COMPARISON

Research Coverage
Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside
Medco Energi Internasional MEDC IJ ID ADD 961 3,460 4,330 25.1%
Oil India OINL IN IN REDUCE 5,747 574 510 -11.2%
PTT Exploration & Production PTTEP TB TH ADD 20,181 165.0 183.0 10.9%
Senex Energy SXY AU AU ADD 766 0.71 1.15 61.6%

0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Rolling P/BV (x)
Medco Energi Internasional Oil India
PTT Exploration & Production Senex Energy

0
5
10
15
20
25
30
35
40
45
50
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
12-month Forward Rolling FD P/E (x)
Medco Energi Internasional Oil India
PTT Exploration & Production Senex Energy

0.0%
4.3%
8.6%
12.9%
17.1%
21.4%
25.7%
30.0%
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Peer Aggregate: P/BV vs ROE
Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)

-60%
-40%
-20%
0%
20%
40%
60%
80%
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Peer Aggregate: 12-mth Fwd FD P/E vs FD EPS Growth
12-mth Fwd FD P/E (x) (See Footnote) (lhs) FD EPS Growth (See Footnote) (rhs)

Valuation
FD P/E (x) (See Footnote) P/BV (x) EV/EBITDA (x)
Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15
Medco Energi Internasional 26.72 24.98 12.08 1.09 1.04 0.97 4.99 4.57 3.71
Oil India 10.94 11.06 11.27 1.69 1.58 1.49 5.35 5.09 4.79
PTT Exploration & Production 11.35 9.45 9.69 1.70 1.52 1.39 4.25 3.59 3.43
Senex Energy 15.76 12.82 13.00 1.72 1.50 1.34 8.38 7.05 6.98

Growth and Returns
FD EPS Growth (See Footnote) ROE (See Footnote) Dividend Yield
Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15
Medco Energi Internasional 24.5% 6.9% 106.9% 4.2% 4.3% 8.3% 0.77% 0.52% 1.72%
Oil India -11.6% -1.1% -1.9% 16.1% 14.8% 13.6% 4.11% 4.20% 4.34%
PTT Exploration & Production -13.7% 20.0% -2.4% 16.2% 17.0% 15.0% 3.64% 4.23% 4.13%
Senex Energy 101.8% 22.9% -1.4% 12.2% 12.5% 10.9% 0.00% 0.00% 0.00%

Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends.
NPAT/EPS values for calculations and valuations are based on recurring and normalised values for GAAP and IFRS accounting standard companies respectively.

June 29, 2014

3

The bulk of the Senoros
volume growth will begin to
kick in from 2015
and generate a strong
operating to support funding of
ongoing capex

Share price info
Share px perf. (%) 1M 3M 12M
Relative 12.9 26.3 102.4
Absolute 10.5 28.9 106
Major shareholders % held
Encore Energy 50.7

0.0%
1.8%
3.6%
5.4%
7.2%
9.0%
0.00
0.50
1.00
1.50
2.00
2.50
P/BV vs ROE
Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)

-200%
-78%
44%
167%
289%
411%
533%
656%
778%
900%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
12-mth Fwd FD Core P/E vs FD Core EPS
Growth
12-mth Fwd Rolling FD Core P/E (x) (lhs)
FD Core EPS Growth (rhs)

Profit & Loss
(US$m) Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F
Total Net Revenues 909 889 803 940 1,046
Gross Profit 399 367 389 496 578
Operating EBITDA 342 349 371 475 556
Depreciation And Amortisation (86) (103) (104) (112) (120)
Operating EBIT 256 246 267 363 437
Financial Income/(Expense) (74) (65) (63) (71) (74)
Pretax Income/(Loss) from Assoc. 0 0 0 0 0
Non-Operating Income/(Expense) 11 13 13 13 13
Profit Before Tax (pre-EI) 193 194 217 305 376
Exceptional Items (5) (24) 0 0 0
Pre-tax Profit 187 170 217 305 376
Taxation (156) (154) (172) (218) (269)
Exceptional Income - post-tax 0 0 0 0 0
Profit After Tax 31 16 45 87 107
Minority Interests (6) (3) (3) (3) (5)
Preferred Dividends 0 0 0 0 0
FX Gain/(Loss) - post tax 0 0 0 0 0
Other Adjustments - post-tax 0 0 0 0 0
Net Profit 25 13 41 83 103
Recurring Net Profit 29 36 38 80 99
Fully Diluted Recurring Net Profit 29 36 38 80 99

Cash Flow
EBITDA 341.5 349.1 370.8 474.8 556.3
Cash Flow from Invt. & Assoc. (200.7) 337.5 266.4 231.7 (132.4)
Change In Working Capital 221.4 (301.1) (262.7) (233.9) 146.3
(Incr)/Decr in Total Provisions 0.0 0.0 0.0 0.0 0.0
Other Non-Cash (Income)/Expense 0.0 0.0 0.0 0.0 0.0
Other Operating Cashflow 0.0 0.0 0.0 0.0 0.0
Net Interest (Paid)/Received (74.4) (65.1) (63.2) (71.1) (73.6)
Tax Paid (149.1) (124.7) (172.2) (218.0) (269.1)
Cashflow From Operations 138.6 195.7 139.2 183.5 227.6
Capex (216.2) (162.1) (337.9) (231.4) (227.3)
Disposals Of FAs/subsidiaries (28.6) (40.9) 0.0 0.0 0.0
Acq. Of Subsidiaries/investments (120.9) (31.4) 253.4 0.0 0.0
Other Investing Cashflow (47.9) (67.0) 0.0 0.0 0.0
Cash Flow From Investing (413.6) (301.3) (84.5) (231.4) (227.3)
Debt Raised/(repaid) 33.4 (224.7) (69.4) 80.0 45.0
Proceeds From Issue Of Shares 0.0 0.0 0.0 0.0 0.0
Shares Repurchased 0.0 0.0 0.0 0.0 0.0
Dividends Paid (22.5) (3.3) (5.0) (16.5) (33.4)
Preferred Dividends 0.0 0.0 0.0 0.0 0.0
Other Financing Cashflow 70.7 79.2 0.0 0.0 0.0
Cash Flow From Financing 81.5 (148.8) (74.4) 63.5 11.6
Total Cash Generated (193.4) (254.4) (19.7) 15.6 11.9
Free Cashflow To Equity (241.6) (330.3) (14.7) 32.1 45.3
Free Cashflow To Firm (179.6) (28.5) 123.8 28.7 79.7

BY THE NUMBERS

June 29, 2014

4

as well as help improve the
companys net gearing
position to manageable levels
(below 80%)

Balance Sheet
Total Cash And Equivalents 524 264 244 260 272
Total Debtors 226 220 213 229 231
Inventories 37 37 27 30 30
Total Other Current Assets 358 301 47 47 47
Total Current Assets 1,145 821 531 566 580
Fixed Assets 970 988 1,222 1,341 1,449
Total Investments 231 350 350 350 350
Intangible Assets 0 0 0 0 0
Total Other Non-Current Assets 311 372 372 372 372
Total Non-current Assets 1,511 1,710 1,944 2,063 2,171
Short-term Debt 60 60 60 60 60
Current Portion of Long-Term Debt 103 82 81 346 211
Total Creditors 139 145 119 123 125
Other Current Liabilities 130 123 123 123 123
Total Current Liabilities 432 410 383 652 519
Total Long-term Debt 1,187 890 822 637 817
Hybrid Debt - Debt Component 0 0 0 0 0
Total Other Non-Current Liabilities 193 335 335 335 335
Total Non-current Liabilities 1,380 1,225 1,156 971 1,151
Total Provisions 0 0 0 0 0
Total Liabilities 1,813 1,635 1,539 1,623 1,670
Shareholders' Equity 835 885 921 988 1,058
Minority Interests 8 12 15 18 23
Total Equity 843 897 936 1,007 1,081

Key Drivers
Oil Price (US$/bbl) 111.7 107.7 107.0 105.0 105.0
Volume Growth (%) 10.9% -9.4% -9.2% 2.5% 18.9%
Ratio Of Up To Downstream (x) N/A N/A N/A N/A N/A
Operating Cash Cost (US$/bbl) N/A N/A N/A N/A N/A
Ratio Of High To Low Margin (x) N/A N/A N/A N/A N/A

BY THE NUMBERS

Key Ratios
Revenue Growth (20.5%) (2.2%) (9.6%) 17.1% 11.2%
Operating EBITDA Growth 1.0% 2.2% 6.2% 28.0% 17.2%
Operating EBITDA Margin 37.6% 39.3% 46.2% 50.5% 53.2%
Net Cash Per Share (US$) (0.25) (0.23) (0.22) (0.23) (0.24)
BVPS (US$) 0.25 0.27 0.28 0.30 0.32
Gross Interest Cover 2.68 3.19 3.86 4.74 5.50
Effective Tax Rate 83.5% 90.6% 79.4% 71.5% 71.5%
Net Dividend Payout Ratio 75.0% 20.3% 12.2% 19.8% 32.5%
Accounts Receivables Days 49.73 49.08 55.17 49.01 47.38
Inventory Days 28.77 25.77 28.14 23.33 23.36
Accounts Payables Days 74.67 66.25 71.32 57.26 56.95
ROIC (%) 3.34% 3.10% 3.33% 6.30% 7.01%
ROCE (%) 12.8% 12.5% 14.2% 18.7% 21.0%


June 29, 2014

5

Unleashing the gas potentials
1. COMPANY BACKGROUND

1.1 A brand name in Indonesian O&G

A medium-sized E&P company in the region
Medco Energi (MEDC) was founded in 1980 by the Panigoro family, who
currently still indirectly control 31% of the company. Following its inception,
the company has largely focused on upstream E&P operations. Its current
operations encompass assets in both the domestic (74% of total reserves) and
international (26%) markets.
MEDCs current reserves and production ranks the company as a medium-sized
oil & gas producer in Indonesia, and in the region. The companys small oil
production relative to total national production reflects the companys
declining production due to its maturing oil fields (though this is not unique to
MEDC as Indonesias national production is facing the same issue), and the fact
that the majority of the countrys production is currently still contributed by the
foreign oil and gas majors (e.g. Chevron, Total, ExxonMobil).
Typical of Indonesias national oil & gas industry profile, MEDCs reserves are
currently dominated by its gas assets (55% of total), while 46% of production is
also contributed by gas. MEDCs gas production is expected to increase in the
coming years (to around 60%), assuming a successful monetisation of its key
gas blocks. However, MEDCs oil production could potentially increase back in
the future given the potential development of its asset in Libya.

Figure 1: MEDC shareholding Structure

SOURCES: CIMB, COMPANY REPORTS

Table of Contents
1. COMPANY BACKGROUND p.5
2. KEY GROWTH ASSETS p.13
3. INDUSTRY OUTLOOK p.16
4. RISKS p.22
5. FINANCIALS p.23
6. VALUATION AND RECOMMENDATION p.26

I would best describe the
state of Medco Energis business
today and the near-future with
the remarks: gas, gas, oil and
more oil
Hilmi Panigoro, President Commisioner


June 29, 2014

6

Figure 2: MEDCs E&P Indonesian assets Figure 3: MEDCs E&P international assets

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

Figure 4: Listed regional E&P producers ranking - by reserves Figure 5: Listed regional E&P producers ranking by
production
Title:
Source:
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SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

Figure 6: Indonesia's oil production (2013) MEDCs oil
production accounts for 3% of Indonesias production
Figure 7: Indonesia's gas production (2013) MEDCs gas
production accounts for 2% of Indonesias production but will
rise to an estimated 5% by 2015-16
Title:
Source:
40%
14%
8%
5%
4%
4%
3%
3%
2%
2%
3%
12%
Chevron Pertamina Total E&P PHE - ONWJ
CNOOC SES ConocoPhilli ps CICO Mobil Cepu
PetroChina Jabung Vico Medco Energi (all) Others

Title:
Source:
21%
15%
13% 18%
5%
4%
4%
3%
2%
2%
13%
Total E&P BP Berau Pertamina
ConocoPhilli ps (all ) Vico ExxonMobil Oil
Kangean Energy PetroChina Jabung PHE - ONWJ
Medco Energi (all) Others

SOURCES: SKK MIGAS SOURCES: SKK MIGAS


June 29, 2014

7

Sufficient reserves to sustain growth
The companys 2P reserves currently amount to 267mmboe of oil and gas,
which, similar to the production profile, also ranks the company as a
medium-sized producer in the region. The companys current reserves translate
to 14 years of reserve life based on current production, suggesting a sustainable
growth outlook for the companys production in the medium term.
MEDCs current reserves within its Indonesian asset account for 74% of the
companys total reserves, of which 68% is contributed by its gas assets. On the
other hand, a majority (83%) of the companys international assets are made up
of oil reserves.
MEDCs contingent resource base of 177mmboe provides further potential for
upside in the future. The resource base is still slightly dominated by the
Indonesian Senoro gas asset. While the majority of these assets are technically
proven, the inclusion of these resources into MEDCs reserve base will hinge on
the commercialisation of the assets (i.e. gas sales agreement in the case of the
Senoro gas, government approval for development in the case of the Libya oil).

Figure 8: MEDC's reserves breakdown by assets
Oil Gas Total Total Oil portion Gas portion
mmbo bcf mmboe as % of total reserve as % of total reserve as % of total reserve
2P Reserves
INDONESIA 62.1 785.8 196.5 74% 32% 68%
A. Production Assets
Rimau, South Sumatra 33.8 - 33.8 13% 100% 0%
South & Central Sumatra 8.0 245.2 49.9 19% 16% 84%
Tarakan, North Kalimantan 2.5 3.4 3.1 1% 81% 19%
Senoro-Toili, Central Sulawesi 2.4 - 2.4 1% 100% 0%
Bawean, East Java 7.0 - 7.0 3% 100% 0%
Lematang, South Sumatra - 39.9 6.8 3% 0% 100%
B. Development Assets
Block A, Aceh 1.3 121.7 22.1 8% 6% 94%
Senoro-Toili, Central Sulawesi 7.1 375.6 71.3 27% 10% 90%
INTERNATIONAL 59.0 70.9 70.8 26% 83% 17%
United States 4.9 25.4 9.1 3% 53% 48%
Libya 47 44.4 45.5 52.0 19% 85% 15%
Yemen 9 9.7 - 9.7 4% 100% 0%
Total 2P Oil & Gas Reserves 121.1 856.7 267.3 100% 45% 55%
Contingent Resources
INDONESIA 10.7 478.9 92.6 52% 12% 88%
Senoro-Toili, Central Sulawesi 10.7 386.1 76.7 43% 14% 86%
Simenggaris, North Kalimantan 92.8 15.9 9% 0% 100%
INTERNATIONAL 62.7 131.9 84.6 48% 74% 27%
Libya 47 60.3 115.0 79.4 45% 76% 25%
Yemen 9 2.4 16.8 5.2 3% 46% 55%
Total Contingent Resources 73.4 610.8 177.2 100% 41% 59%



June 29, 2014

8

Figure 9: MEDC reserve movement 1P, 2P, 2P+C (oil and gas)
Title:
Source:
201
178
277
202
236
228
294
267
453
445
465
445
-
50
100
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200
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300
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400
450
500
2010 2011 2012 2013
Proved (P1) Probable (P2) Contingent (2C)
mmboe


Strong E&P track record
Medcos track record in the oil and gas business was spearheaded by Mr. Arifin
Panigoro, an entrepreneur with a background in electrical engineering. Mr.
Panigoro teamed up with his confidant to first set up an oil & gas drilling
company in 1980. However, it was not until 1992 that the company embarked
on acquiring several oil & gas assets, with the purchase of a 100% stake in
Stanvac Oil and its operations in Indonesia being a landmark acquisition for the
company since 1995.
Medcos key oil & gas discovery was the giant oil field of Kaji and Semoga in
Rimau Block, South Sumatra back in 1996 reserve of 304 mmboe at the time.
During the period of 2000-2002, the company successfully grew production
and reserves from its key assets. This was followed by successful acquisitions of
interests in other assets such as Senoro-Toili and oil discoveries.
The declining production from the key assets in recent years has been
inevitable due to the maturing age of the oil fields in Indonesia, and is not
unique to MEDC. The managements key objective for the upstream operations
in recent years has been centered on sustaining production and arresting the
production decline due to the maturing fields. Such efforts have resulted in a
5% average oil production decline over the past five years, although the
company delivered a better outcome in 2013 with 27 mbopd production.
At present, MEDCs production is still contributed by its key existing assets
namely Rimau, SCS and Tarakan assets which in total contributed 83% of total
production. Thus, the declining production has also been a function of the lack
of new assets contribution. This, however, is going to change soon given the
expected contribution from the Senoro-Toili block starting in 2015 (based on
our projection).
MEDCs operating costs (total cost per barrel) have been rising in recent years,
driven mainly by the increase in lifting cost. This trend is not unique to MEDC
given the declining production profile. MEDCs lifting and cash cost of around
US$14/bbl and US$18/bbl respectively are within the range of costs of other
regional oil producers such as PTTEP (lifting cost of US$15 and cash cost of
around US$19/bbl in 2013). Similarly, MEDCs finding and development cost,
which has averaged at US$4.5/bbl over the past 5 years, are comparable to
regional F&D players costs of US$4-6/bbl although MEDCs 2013 cost of
U$7.3/bbl was above peers and reflect the lack of additional reserves during the
year.


June 29, 2014

9

Figure 10: MEDCs oil and gas production recent years decline was largely due to
maturing fields, but a turnaround is coming
Title:
Source:
0
10
20
30
40
50
60
70
2007 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F
Rimau SCS Tarakan Senoro Other PSCs
mboepd


Figure 11: MEDCs oil and gas costs trend
Title:
Source:
0
10
20
30
40
50
60
2010 2011 2012 2013 1Q14
Lifting cost/bbl Cash cost/bbl Total cost/bbl
US$


1.2 Upstream refocusing strategy
Throughout its development, MEDC has ventured into downstream assets such
as power, ethanol, fuel distribution and storage business. This strategy was
driven more by a vertical integration rationale, to leverage off the companys
core expertise in the E&P and available upstream assets. Nonetheless, such past
efforts have been largely unsuccessful, resulting in the past divestments of the
downstream assets.
1) Asset monetisation
MEDC is currently embarking on the strategy to refocus on its upstream assets,
having completed some key asset divestments in 2013. In addition to the
downstream assets unprofitable operations, the upstream refocusing strategy
has also been driven by the need to reallocate capital to support the
monetisation of major upstream assets under current and future development.
Figure 12: Asset divestments in recent years
Year Divestment Company Value (US$ mn) Description
2012 51% ownership PT Medco Power Indonesia (MPI) 112 sold to Saratoga Power 51%, Medco Energy has 49% stakes
2013 Discontinued PT Medco Ethanol Lampung na closed down its ethanol plant due to insufficient sustainable feedstock supply
2014 35.28% ownership PT Medco Sarana Kalibaru 18 selling its remaining ownership in its fuel distribution and storage unit



June 29, 2014

10

The companys upstream capex rose to US$220m in 2013 and is expected to
rise further to US$340m, driven by the funding for assets under development,
namely Senoro-Toili (which also includes MEDCs 11% stake in the LNG
liquefaction plant), the Block A gas block, and Libya oil block.
Among these development assets, we expect the Senoro-Toili asset (based in
Central Sulawesi, with a predominant 90% gas production) as the one with the
most immediate and biggest contribution to MEDCs production and earnings.
With current construction progress of around 98% (based on the managements
comments), the project is expected to be completed in 3Q14 and start
contributing by 2015 (we assume a 2Q15 contribution in our projection).
After the Senoro asset, the Block A gas asset is potentially the next asset to
come onstream. However, the asset is currently not yet in the development
stage and therefore, the timing of the contribution is still uncertain. Assuming
development starts in 2015, it is only by 2017 that the asset will make a
contribution. We have not yet taken into consideration the potential
contribution from this asset, while also keeping our capex forecast limited to
exploration spending.
The companys 25% interest in Libyas Area-47 oil block represents the biggest
potential upside from oil operations. MEDC has thus far spent US$200m on
this venture. Despite the potential upside from the oil production from this
field, the biggest obstacle for the asset is the visibility of the political situation
and industry policy in Libya. As such, we have not yet taken into consideration
the potential contribution from this asset, while also keeping our capex forecast
limited to exploration.

Figure 13: Key prospective assets
Projects Descriptions % Interest Partners
Estimated time of
contribution
Senoro (upstream) Gas plant of 310 mmscfd 30.0% Pertamina (50%), Mitsubishi & Kogas (20%) 2015
Senoro DSLNG (downstream LNG) LNG plant, single train of 2 mtpa capacity 11.1% Pertamina (29%), Mitsubishi & Kogas (59.9%) 2015
Libya Area 47 Oil production capacity: 50,000 bopd 25.0%
National Oil Company (NOC), Libyan Investment
Authority (LIA)
2018
Block A Gas plant capacity of 60mmscfd 41.7% Premier Oil (42%), Japex (16%) 2017
Rimau OER Oil field - Enhanced Oil Recovery 95.0% PD-PDE 2017


Figure 14: MEDCs rising capex plan highlights continued development of its key
assets (Senoro, Block A, Libya)
Title:
Source:
-
50
100
150
200
250
300
350
400
2011 2012 2013 2014F 2015F 2016F
US$ mn



June 29, 2014

11

2) Exploration and acquisitions
In addition to the development of its key potential upstream assets, MEDCs
upstream strategy also aims to further lift the companys reserves (despite what
we see as an already sufficient life at present).
We do not yet include potential development from the companys exploration
assets in recent years. Nonetheless, the company average 5-years reserve
replacement ratio of 2.1x should reflect well on the companys exploration
programme admittedly, 2013s lack of reserve replacement could become a
concern, but we expect potential reserve additions from current resources such
as in Libya and Yemen to make up for the absence in the coming years.

Figure 15: MEDCs reserve addition track record
Production Track record 2009 2010 2011 2012 2013
Oil and gas capex, US$mn 198.61 126.94 143.14 189.21 219.5
2P reserve addition, mmboe 113.2 46.77 -3.66 87.02 -7.34
Actual 3 year average F&D, US$/boe 5.66 3.3 3 3.53 7.26
Actual 3 year average RRR 2.01 2.88 2.53 2.04 1.22
2P Reserves Life Index, years 14.32 12.13 10.52 13.92 13.82


Figure 16: MEDCs exploration activities (domestic)



June 29, 2014

12

Figure 17: MEDCs exploration activities (international)


MEDC has spent around US$214m for three acquisitions in recent years. These
have contributed around 8% (21mmboe) of the existing reserves. Recent
acquisitions have been focused on overseas assets (i.e. Tunisia, Yemen and PNG
reflecting the lack of available potential assets in Indonesia, and have averaged
at around US$10/boe (for the producing oil blocks in Yemen and Tunisia),
in-line with the markets current asset valuations.
We have yet to include the recently acquired assets into our forecast. Looking at
the producing assets which are recently acquired, their future production
upside should lift MEDCs oil contribution. Similar to the Libya oil operation,
the key challenge to develop these assets lie in the political situation of the
respective countries, although the conditions for the Tunisia asset appears to be
more stable compared to Yemen and Libya.

Figure 18: MEDC recent acquisitions
Year Asset Status Value Reserve (net) Current production Est. peak production
(US$ mn) (mmboe) (bopd) (bopd)
Aug 2012 21.2% interest in Block 9 (Malik), Yemen Producing 99.0 9.7 390 4200
Feb 2014 Exploration interests in Juha Extension, P&G Exploration 3.5 na na na
Jun 2014 Interests in exploration, development and producing blocks in Tunisia Producing 114.0 12.3 1800 16000



June 29, 2014

13

2. KEY GROWTH ASSETS
2.1 Senoro-Toili Block (Senoro gas) a main growth driver
We forecast a strong jump in MEDCs oil & gas production in 2015, driven by
the expected contribution from the gas production at the Senoro block. We
expect the production from the Senoro asset to come onstream in 2015 (at 188
mmscfd), before ramping up to 250 mmscfd starting in 2016. This is expected
to lift MEDCs overall production to 349 mmscfd and 407 mmscfd in 2015 and
2016 respectively, translating to a 64% average production growth.
MEDC currently holds a 30% interest in the Senoro block, while Pertamina
holds a 50% interest. Mitsubishi is the holder of the remaining 20% interest in
the block, having acquired the stake from MEDC which divested the stake in
2011 given the companys limited balance sheet capacity to fund the assets
development.

Figure 19: Map of Senoro Block


Gas sales
Once completed (expected by 3Q14 under our projection), the Senoro upstream
gas facility will have a total capacity of 310mmscfd. Of this total capacity,
250mmscfd of production will be sold to the gas liquefaction (LNG) facility of
Donggi-Senoro LNG (DSLNG) under a 15-year gas sales agreement (GSA),
signed in 2009. Additionally, MEDC will also sell another 55mmscfd of gas to
PT. Panca Amara Utama (PAU), a domestic ammonia producer. The latter deal
has been finalised into a GSA in March 2014.
The conclusion of the GSA with DSLNG in 2009 came as a relief after a long
debate regarding the governments policy to allocate the domestic portion of the
gas from the field. While the actual terms in gas PSC scheme does not require
allocation for domestic market obligations (as in the case of oil PSC), the
government then was under the pressure to allocate more gas into the domestic
market. The signing of first GSA in 2009 facilitated the project to move into the
development phase, with the construction for an upstream asset commencing
in 2Q15 and is now at a 71% completion rate (for the upstream facility) and 98%
completion (for DSLNG plant). Thus, we think the current progress should
translate to lower execution risk for the project.
The gas selling price from the Senoro upstream block will follow the following
gas formula:
Sales to DSLNG will be tied to the Japanese Crude Cocktail (JCC) oil index
with a 15% slope. This should translate to US$9.1/mmBTU of gas selling
price if crude price is at US$100/ bbl.

June 29, 2014

14

Sales to PAU will be tied to the ammonia price, with floor selling price of
US$5/mmBTU if ammonia price hits US$500/mt or below. At the current
ammonia price of US$600/mt, the gas selling price will be US$6.0/
mmBTU, hence lower than the selling price to DSLNG.
We detail our assumptions for the Senoro gas in the table below.

Figure 20: Senoro gas key assumptions
2015F 2016F 2017F 2018F
Volume (mmscfd) 187.5 250.0 310.0 310
Price (US$/mmbtu) 9.9 9.7 9.7 9.7


Figure 21: Senoro-Toili block key milestones
Year Development
2000 MEDC acquired 50% participating interest in the Senoro-Toili PSC JOB Block through the
acquisition of 100% shares of Atlantic Richfield Corporation (ARCO)
2001-2002 JOB Pertamina-Medco Tomori drilled two appraisal wells Senoro-2 and Senoro-3, which proved
that the Senoro structure is a giant gas field with a total estimated reserve of 3.7 TCF gas and
65 MM Barrels condensate
2005 The field began production of crude oil
2006 Pertamina decided to build an LNG terminal for the Matindok and Senoro blocks
2007 Pertamina-Medco And Mitsubishi Agree On Senoro Gas Price
2009 MEDC signed GSA with PT Donggi Senoro LNG (DSLNG) to supply 250 MMSCFD of gas for 15
years with the price being tied to Japan Crude Cocktail (JCC)
2010 MEDC sold a 20% participating interest in the Senoro-Toili PSC JOB Block to Mitsubishi
Corporation for USD 260 million
2011 Construction for upstream and downstream project start
2014 MEDC signed GSA with PT Panca Amara Utama to supply 55 MMSCFD of gas for 15 years
with the price being tied to ammonia price


Future upside
The current gas sales of 305mmscfd (250mmscfd to DSLNG and 55mmscfd to
PAU), combined with the 5mmscfd allocated to the facilitys internal power
generation, should cover the Senoro-Toili blocks current 2P reserve (of
71.3mmboe), assuming production until the expiration of the contract. MEDCs
financial statement reveals that there exists another 76mmboe of gas
contingent resources in the block.
This translates to further monetisation opportunity for the block in the future,
which may come in form of further expansion of the LNG facility, or potential
sales to power plants in the vicinity.

2.2 Future growth drivers Block A and Libya

Block A gas
MEDC holds a 42% interest in the Block A gas asset, located in Aceh, with
Premier Oil and Japex holding the remaining 42% and 16% interests in the
block. MEDC is the operator of the asset.
The block is designed to have a capacity of 60mmscfd. The key problem in the
monetisation of the Block A asset lies on the lack of a pipeline to transport the
gas to the buyer. Nonetheless, MEDC had in 2007 signed a gas sales agreement
with the state-owned fertiliser company Pupuk Iskandar Muda (PIM) for
55mmscfd of annual gas supply. According to the GSA, the gas will be sold at a
price of US$6.5/mmBTU, which makes it comparable to the current gas prices
from the upstream suppliers.
However, MEDC claimed that the cost of production for the block will be above
the average cost of production of other gas blocks due to Block A gass higher
H2S content. Thus, the management sees that the contracted gas supply will

June 29, 2014

15

need to be increased before the company looks to do any development in the
block.
To resolve the lack of pipeline infrastructure, MEDC is currently also in
discussion with Pertamina to negotiate a potential swap between Block As
output with that of Pertaminas located in Block B. The potential swap appears
logical since Pertaminas Block B asset is located in closer proximity to PIM (the
buyer for MEDCs Block A gas), while MEDCs Block A asset is also located
closer to PLNs operation (the buyer for Pertaminas Block B gas).
MEDCs management expects the proposed swap deal to be completed by the
end of 2014. A successful resolution of the deal will drive the project onto the
next critical stage, namely completion of the final investment decision (FID),
which will then be followed by project construction. Thus, positive newsflow
from Block A will be the next potential catalyst for the stock.

Libya Area-47 (Oil)
MEDC has been acquiring interests in overseas oil and gas blocks since 2005
and entered into the Libyan venture in 2009. At present, the overseas assets
account for 26% and 17% of MEDCs reserve and production.
The Libyan asset is particularly attractive given its sheer size of potential
reserve (certified 2P of 352mmboe and 588 mmboe based on contingency
reserve valuation done by in-house survey both on gross basis). MEDC has
included 52mboe (according to its 25% interest) of net reserve from Area 47s
blocks (block A, D and F) which has been approved for commercialisation by
the Libyan government. MEDCs initial estimation for the asset looks for
potential production of 50 mbopd.
The development of the asset currently is still pending further
commercialisation approval for the remaining three blocks (block B, C, and J),
upon which the assets plan of development could progress and construction
should start in 2016. Assuming everything proceeds smoothly, then the
production could start by 2018 at the earliest.
Given the substantial risks still surrounding the potential development of the
asset, we have not included potential contribution from the Libya oil into our
forecast. Likewise, we do not include potential capex for the asset which,
according to the management could amount to US$800m (MEDCs portion will
be US$200m for its 25% interest since under the project agreement, the Libya
National Oil Company will take part of the investment capex).

Figure 22: Block A gas map Figure 23: Libya oil block map

SOURCES: COMPANY REPORTS SOURCES: COMPANY REPORTS


June 29, 2014

16

Figure 24: MEDC SWOT Analysis
Strengths Opportunities
* Experience and track record in domestic and overseas O&G market * Monetization of key development assets (ie, Senoro gas) to support growth and cash flow
* Relationships with domestic and overseas government and counterparts * Development of prospective assets (ie, Libya, Block A gas) to provide future production growth
Weakness Threats
* Declining oil production and total reserves * Rising production cost
* Current limited balance sheet capacity to gear up * Uncertain political situation in location of assets recently acquired (eg, Libya, Yemen)


3. INDUSTRY OUTLOOK : INDONESIA OIL & GAS
3.1 Drying wells an industry at its lowest point
Maturing fields, declining oil production, insufficient exploration
Having started its first commercial oil production in 1885 in North Sumatra,
Indonesia has been among the worlds top producers of oil and gas. However,
maturing oil fields and stagnant exploration activities over the past 10 years has
resulted in a further decline in oil production and turned Indonesia from a net
exporter to a net importer of oil since 2003. Indonesias state budget for 2014
has set an oil output target of 818,000 barrels per day, the lowest since 1969.
Indonesias oil output has declined at an average annual rate of 3.3% in the past
10 years.

Figure 25: A continuous drop in oil production Figure 26: drove Indonesia to become a net importer since
2003
Title:
Source:
0
200
400
600
800
1000
1200
1400
1600
1800
1
9
6
6
1
9
6
8
1
9
7
0
1
9
7
2
1
9
7
4
1
9
7
6
1
9
7
8
1
9
8
0
1
9
8
2
1
9
8
4
1
9
8
6
1
9
8
8
1
9
9
0
1
9
9
2
1
9
9
4
1
9
9
6
1
9
9
8
2
0
0
0
2
0
0
2
2
0
0
4
2
0
0
6
2
0
0
8
2
0
1
0
2
0
1
2
2
0
1
4
2
0
1
6
Oil Gas
mbopd

Title:
Source:
0
200
400
600
800
1000
1200
1400
1600
1800
1
9
6
6
1
9
6
8
1
9
7
0
1
9
7
2
1
9
7
4
1
9
7
6
1
9
7
8
1
9
8
0
1
9
8
2
1
9
8
4
1
9
8
6
1
9
8
8
1
9
9
0
1
9
9
2
1
9
9
4
1
9
9
6
1
9
9
8
2
0
0
0
2
0
0
2
2
0
0
4
2
0
0
6
2
0
0
8
2
0
1
0
2
0
1
2
Production Consumption
mbopd

SOURCES: MINISTRY OF ENERGY AND MINERAL RESOURCES SOURCES: BP STATISTICAL REVIEW 2014

Unattractive production sharing scheme drove stagnant exploration
capex
Indonesias maturing oil basins means that more investments for exploration
are required in the offshore and frontier areas such as the Eastern part of
Indonesia, where the country still has more unexplored basins.
Unfortunately, Indonesias latest PSC regime (post the 2008 and 2010 revisions)
has failed to accommodate investors needs which, in turn, resulted in the lack
of growth in the much-needed exploration activities. While the numbers of
exploration wells and capex over the past three years showed a steady trend,
most of the activities were reportedly still focused on onshore areas of the
producing basins in Sumatra, Java, and Kalimantan.
The situation is little changed in 2014. The Indonesian Petroleum Association
(IPA) recently estimated that the realized exploration drilling investment still
made up only 11% of the governments full-years target (of 206 wells) by April

June 29, 2014

17

2014. This suggests a possibility of another stagnant year for exploration
investment in 2014.

Figure 27: Number of exploration wells in Indonesia Figure 28: Indonesias upstream oil and gas investment
lacking sufficient growth for exploration and development (2014
number is still based on governments budget which in the past
years have failed to materialize)
Title:
Source:
0
10
20
30
40
50
60
70
80
90
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

Title:
Source:
-5%
0%
5%
10%
15%
20%
25%
30%
35%
-
5,000
10,000
15,000
20,000
25,000
30,000
2007 2008 2009 2010 2011 2012 2013 2014*
Administration Exploration Development
Poduction Growth - RHS
US$ bn


Industry players and observers have cited the problem with the current PSC
regime as failing to compensate for the higher costs and risks associated with
exploration in the frontier areas. This is despite the governments efforts to
provide incentive packages for developments in deepwater and frontier areas
(as well as marginal fields) since 1989. Existing investors have also cited the
need for a better incentive to conduct the costly enhanced oil recovery (EOR)
methods to arrest the production decline, while new investors are also looking
for a more favourable bidding process.
Among the key issues highlighted by investors on recent PSC were changes in
the cost recovery scheme. In particular, this involved the 2008 change which
included the ring-fencing of cost recovery within a block to only include certain
pre-selected fields (i.e. unlike the previous PSC term whereby costs from other
fields within the block are recoverable against any remaining revenue produced
from the asset/ block). Another change is the exclusion of some costs from the
list of recoverable items.

Figure 29: Evolution of Indonesia oil & gas PSC scheme turning less attractive despite higher industry risk
Differences 1st PSC Generation (1965-1976) 2nd PSC Generation (1976-1988) 3rd PSC Generation (since 1988)
FTP None None 20%
Cost Recovery Ceiling 40% 100% (no ceiling) 80% (due to FTP)
Investment Credit 20% 17% to 20%
DMO DMO was defined as 25% of equity oil 25% of equity oil, full price for the first 25% of equity oil, full price for the first
at 0.2 $/barel 60 months and 0.2 $/barel there after 60 months and 10% of export price there after
Equity to be split
Government:Contractor 65%:35% 85%:15% 85%:15%


In 2013, President Susilo Bambang Yudhoyono issued a decree to establish a
new regulatory body, Special Task Force SKK Migas to replace the previous
body, BP Migas. Under the transition, most of international companies have
postponed their investment as they wait for greater certainty in the sector. The
arrest of chief of SKK Migas by the Corruption Eradication Commission (KPK)

June 29, 2014

18

for allegedly accepting a bribe had further worsened the situation given delays
in approvals of several oil and gas projects.

Widening net import of oil (hence, subsidies) due to strong
consumption growth
Indonesias declining oil production since 1990s bodes ill with the growing
domestic energy consumption (3% CAGR over the past 10 year). As Indonesia
dropped out of OPEC at the end of 2008 as its production has run below 1
million bpd, consumption growth has driven an increase in imports of refined
products. Indonesias net oil imports have run about 680,000 bpd over the past
three years. Wood Mackenzie has projected that Indonesia is set to become the
largest gasoline importer by 2018.

Figure 30: Indonesias falling oil production and rising domestic demand resulted in
increasing oil imports
Title:
Source:
-1000
-500
0
500
1000
1500
1
9
6
6
1
9
6
7
1
9
6
8
1
9
6
9
1
9
7
0
1
9
7
1
1
9
7
2
1
9
7
3
1
9
7
4
1
9
7
5
1
9
7
6
1
9
7
7
1
9
7
8
1
9
7
9
1
9
8
0
1
9
8
1
1
9
8
2
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
mbopd

SOURCES: BP STATISTICAL REVIEW 2014

Rising gas production, but lacking infrastructure
As Indonesias oil production has been declining, Indonesia has attempted to
shift towards natural gas to meet its energy needs. Contrary to its declining oil
reserves, Indonesias gas reserves have been growing and is currently at 9,656
mmboe, translating to 8.8 years of reserve life. The shift of energy supply
toward natural gas has also been supported by higher gas allocation to the
domestic market which now accounts for 54% of total allocation.
The domestic gas consumption has grown at 11% CAGR over the past 10 years,
driven by the better availability of gas to the domestic market. In 2013,
industrial users are the biggest consumers of gas (19% of total consumption),
followed by electricity (16%) and fertiliser (10%). The availability of gas on a
nationwide basis, however, is constrained by the limited availability of
transportation infrastructure. Despite the better prospects for gas discovery, as
reflected in the increasing number of gas wells, more investment in pipeline
and gas processing facilities are still required to support further resource
monetisation.

June 29, 2014

19

Figure 31: Indonesias domestic gas consumption now
accounts for 54% of total (11% CAGR since 2003)
Figure 32: Number of exploration well discovery in Indonesia
over the past decade has favoured gas
Title:
Source:
75 75
74
63
60 56 53
56
56
51
49 46
25 25
26
37
40
44
47
44
44
49
51
54
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Export Domestic

Title:
Source:
0
5
10
15
20
25
30
35
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Oil Gas Oil & Gas


Figure 33: Indonesias gas reserves are in surplus, but require infrastructure development


3.2 Hope for industry reforms
Having hit its lowest point in history, we think the sectors landscape should
change in the coming years, unless the country wants to risk further widening
of its budget deficit which clearly is unsustainable.
The government has set a clear target of raising crude oil production back to 1m
bopd per day and increasing gas allocation to the domestic market. We think
the strongest catalyst for a change in sectors landscape should come from the
upcoming change in government, as any new government is expected to
address the problems in energy sector.
In view of the potential change in industry landscape, we expect the following
themes to drive positive interests into the Indonesian oil & gas stocks:
1) New governments focus on improving energy sovereignty
In order to revive oil production and reserves, Indonesia needs to attract
investment for E&P, especially in deepwater offshore and frontier areas. In our
view, the problems for the sector are well understood namely the need to revise

June 29, 2014

20

current PSC terms so that they will offer better incentives for exploration
investments, and production through EOR.
The current running presidential candidates have both mentioned energy
sovereignty as a key priority among their programmes. Overall, the proposals
from Jokowi-Jusuf Kalla presidential candidate appears to address the issues in
the sector in greater detail than that of Prabowo-Hatta (although this is not
unique for just the energy sector). Interestingly, both candidates have proposed
for the revision of the 2001 Oil & Gas Law as a means to improve investment
incentive to the sector. Thus, we think both candidates clearly understand the
need for industry reform.

Figure 34: Presidential candidates proposed policies in the energy sector
Jokowi-Kalla Prabowo-Hatta
1) Increasing oil field production 1) Revision of the existing oil & gas law to re-align with the Constitution of Republic of
Indonesia 1945.
2) Extension of life of oil/ gas fields with proper technologies 2) Development of oil refineries
3) Creation of a flexible fiscal system to promote investments in oil/ gas sector 3) Extension of energy conversion to include gas and renewables
4) Creation of an effective and efficient oil/ gas regulation 4) Development of 10,000MW of geothermal power generation
5) Issuance of government regulation in the short-term; revision of Oil & Gas Law no
2001 in the medium term
6) Reduction of subsidy and providing cheap energy. Conversion of 30% of fuel for
transportation to gas with the goal to reduce fuel subsidy by Rp60tn and lower energy
prices by 20%
7) Promoting renewable energies such as geothermal, hydro, biofuel, biomass and
improving procurement system
8) Increasing electrification ratio to 100%
9) Development of oil/gas infrastructure and oil refineries

SOURCES: THE GENERAL ELECTIONS COMMISSION

Given the above, we think the sector could see more catalyst if Jokowi-Kalla
wins the presidency. A win for Prabowo-Hatta should also be positive for the
upstream sector, although the risk is an extreme policy of a review of the
existing PSC terms given the statement on re-allocating the resources for the
welfare of the people.

2) Rising gas volume and price
Having risen in proportion in the recent years, we think both gas production
and allocation to the domestic market will continue to increase in the coming
years. Indonesias abundant gas reserves offer a logical option for the
government to fill in the void left by declining oil production amid rising energy
consumption.
Gas pipeline infrastructure and LNG plant development are potential drivers
for a further increase in Indonesias gas reserve monetisation. We expect rising
gas volume from the projects coming onstream to benefit project owners (eg,
MEDC), while additional gas supplies into the domestic market should benefit
PGAS as the dominant player in the gas distribution business.


June 29, 2014

21

Figure 35: MEDCs gas production volume
Title:
Source:
-
50
100
150
200
250
300
350
400
450
500
2012 2013 2014F 2015F 2016F 2017F
mmscf d


Concurrent with the rising gas supply, a combination of pent-up demand and
domestic gas prices big discount to diesel price translate to room for gas prices
to rise. Domestic gas prices have risen by 15% over the past five years, and we
think there is room for prices to increase further given gas prices still big
discount to diesel prices.

Figure 36: MEDCs and PGASs average domestic gas selling prices have been rising
in recent years
Title:
Source:
0
2
4
6
8
10
12
2009 2010 2011 2012 2013 2014F
MEDC PGAS
US$/mmbtu


3) Industry capex recovery
Despite the overall falling production and discovery prospects, industry players
are looking to maintain capex for assets under development and production
stages. The upside in production should also come from assets which may be
recovered through the EOR method, which at present remains held up by the
lack of favourable PSC terms for such operations.
Combined with the potential improvement in the regulation and PSC regime,
the above should translate into a potential recovery in the overall industry
capex. Drilling and services companies should benefit from this trend, although
we think competition, especially from foreign operators, could limit margin and
market share upside for local companies with limited expertise.

June 29, 2014

22

Figure 37: Indonesias oil & gas industry capex
Title:
Source:
-5%
0%
5%
10%
15%
20%
25%
30%
35%
-
5,000
10,000
15,000
20,000
25,000
30,000
2007 2008 2009 2010 2011 2012 2013 2014*
Administration Exploration Development Poduction Growth - RHS
US$ bn

SOURCES: SKK MIGAS

Acquisition of assets in the domestic market has thus far only offered a limited
upside for the Indonesian E&P players to add reserves. This is generally driven
by the lack of available assets with good prospects. The recent acquisitions in
the Indonesian oil & gas space have been dominated by assets still in the
exploration stages and assets which are divested by foreign operators, mainly
given the lack of certainty on the contract extension and declining reserves and
production. This opens opportunities for local operators to gain entry into the
industry.
PGAS has been quite active in the acquisition market (both domestic and
overseas), as part of its efforts to improve its industry positioning. The
company has spent US$1.1bn for acquisitions and is looking to spend another
US$200m-400m to buy more assets.

Figure 38: Recent acquisitions in Indonesias O&G market by PGAS
Asset Stake Location Status Operator Acquisition (US$ m) 2P (mm boe) - nt Acquisition (US$/boe)
Bangkanai PSC 30% Central Kalimantan Development Salamander 27 7.0 3.9
Ketapang PSC 20% East Java Production Petronas Carigali 71 16.7 4.3
Pangkah PSC 100% East Java Production TBA 915 61.7 14.8
Total acquisition 1,013 85.4 11.9


4. RISKS
We think that the key risks to MEDCs outlook are:
4.1 Project execution risks
We have factored in the Senoro blocks gas production and sales contribution to
downstream LNG facilitys (DSLNG) output starting in 2Q15 (2015
time-weighted sales volume of 188mmscfd). Our estimates assume a full-year
sales contribution from 250mmscfd of production by 2016 and an additional
55mmscfd to PAU by 2017. Our assumptions are based on the expectation that
the construction of both the upstream project and DSLNG is completed by
end-3Q14.
According to management, the upstream project is more than 80% completed,
while the downstream LNG project is 98% completed. Thus, we think that the
execution risks are manageable at this juncture. However, any delays to the
projects completion or commencement of operations (scheduled six months
after construction is completed) will have a negative impact on our earnings
and valuation forecasts. We estimate that a three-month delay in the

June 29, 2014

23

monetisation of Senoros gas assets would lower our projected 2015 core net
profit by 14% and DCF value by 1%.
We have not included any earnings contribution from MEDCs other growth
assets (Block A gas and Libya oil) but we expect these assets to serve as future
growth contributors once the supply from Senoro reaches plateau (in 2018).
Thus, any delays in the development plans for Block A and the Libya oil blocks
could result in MEDCs earnings trend declining, especially since the companys
oil production from its existing assets will continue to decrease as the fields
mature.
4.2 Oil price risks
We estimate that around 56% of MEDCs total oil and gas production in 2015
will be linked to oil price. This is higher than its oil exposure in 2013 (only
around 51% of MEDCs total oil and gas production volume) since the
additional gas production from the Senoro block will be sold at gas prices that
are linked to oil prices.
Our base-case forecast assumes Brent crude oil price of US$105-107/bbl in
2014-16 and long-term price of US$105/bbl. We estimate that a 10% drop in
our oil price assumption would lower our 2015 net profit projection by around
23% and DCF value by 16%.
4.3 Regulatory risks
MEDCs operations, which involve both domestic and overseas assets, expose
the company to regulatory risks in Indonesia and other foreign countries.
Although Indonesias latest production sharing contract (PSC) scheme lacks
incentives for new investors, the contracts provide strong legal certainty for the
existing projects. MEDC has demonstrated its ability to obtain extensions for
expiring oil & gas PSC contracts in the past. Despite the proposal by one of the
presidential candidates to review the oil & gas regulations, we think that there
is low risk of PSC contracts being annulled by the new government at this
juncture.
On the contrary, we think that MEDC faces high regulatory risks in certain
foreign countries with unstable political situations such as Libya and Yemen. In
particular, the future monetisation of the Libya Area 47 oil block (which
currently accounts for 19% of MEDCs 2P reserves and 45% of contingent
resources) hinges on the governments approval for the commercialisation of
the total area of operations. Any changes in the government or its plan for the
oil industry could severely affect MEDCs reserves, future production and
earnings growth from the project.

5. FINANCIALS
Following a declining earnings trend in recent years, we expect the contribution
of earnings and cash flow stream from the Senoro gas asset (which we project
to start in 2015) to drive a strong improvement in MEDCs growth outlook and
balance sheet.
5.1 Earnings outlook
Over the past three years, MEDCs core earnings have been on the declining
trend, largely reflecting the drop in revenue (due to falling oil production) and
rising costs (lifting and interest costs). We expect the contribution from Senoro
asset should drive a 107% growth in core earnings to US$80m in 2015.
We assume revenue contribution from the Senoro asset to start in 2Q15, with
construction completion by end of 3Q14 (for both the upstream operations and
LNG facility) and successful commissioning period (6 months).
MEDCs revenue in the recent years comprised of contributions from oil (73%)
and gas (20%) operations. Over the past years, MEDCs earnings have been
partly supported by the increase in gas prices (21% CAGR in 2010-13), as a
result of gas contract re-pricing. The revenue contribution from gas will

June 29, 2014

24

increase to 38%, following Senoros contribution in 2015. Given that the pricing
of 81% of Senoros gas output (250mmscfd sold to DSLNG) will be linked to oil
prices, MEDCs future earnings will also be more sensitive to movements in oil
prices.
Our earnings forecast assume crude oil prices of US$107, US$105 and US$105/
bbl in 2014-16 and LT assumption of US$105/bbl. We estimate around 23%
change in our 2015 profit for every 10% change in crude oil price.

Figure 39: MEDCs core earnings projection
Title:
Source:
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
-
20
40
60
80
100
120
2012 2013 2014F 2015F 2016F
Core profit growth - RHS
US$ mn


Figure 40: MEDCs key earnings assumptions
2011 2012 2013 2014F 2015F 2016F
Rimau
Oil (mbopd) 30.2 30.1 26.9 23.6 22.1 21.9
Gas (bbtupd) 157.9 150.5 147.4 143.8 192.8 206.7
Total Oil & Gas (mboepd) 56.5 56.7 53.3 47.6 54.2 56.3
Average Selling Price
Oil (US$/barrel) 112 113 109 107 105 105
Gas (US$/mmbtu) 3.0 3.2 5.7 6.3 8.1 8.4


5.2 Cash flow outlook
MEDC had been in negative free cash flow in recent years on the back of the
high capex (US$127m-220m per annum) spent on the projects (both on
exploration and development). This has driven the increase in debt financing,
totalling US$1.04bn over the past three years.
Similar to the projected earnings growth in 21015-16, we expect MEDCs
operating cash flow to see a strong contribution from the Senoro gas asset. On
the other hand, we have assumed that the companys capex will continue to
remain high (US$230m-340m), as we expect the company to continue
investing in its key producing and development assets.
In our capex assumption, we include capex from the Senoro upstream, DSLNG
downstream as well as development capex for the producing assets. This is still
below the companys full capex projection of US$1.4bn for the next three years.
Thus, free cash flow may turn in a bigger negative if MEDCs capex spending
rises beyond our forecast level, assuming that the company ramps up the capex
for the development and exploration in the other projects.

June 29, 2014

25

Figure 41: MEDCs rising operating cash flow generation following Senoros
contribution
Title:
Source:
-
50
100
150
200
250
2012 2013 2014F 2015F 2016F
US$ mn


5.3 Balance sheet outlook
MEDCs net gearing was around 87% in 2013, reflecting the increase in debt
financing in recent years to fund capex needs. Despite our projection for a
continued rise in capex, we expect the strong cash flow contribution to help the
company improve its net gearing position to below 80% by 2016.

Figure 42: Strong OCF improves companys net gearing
Title:
Source:
60%
70%
80%
90%
100%
110%
120%
-
200
400
600
800
1,000
1,200
2012 2013 2014F 2015F 2016F
Equity Net cash (net debt) Net gearing
US$ mn



June 29, 2014

26

6. VALUATION AND RECOMMENDATION
6.1 Initiate with Add rating; 26% potential upside to our
DCF-based target price
We initiate MEDC with an Add rating with target price of Rp4,330, which we
derive using a DCF valuation method.
Our positive view on MEDC is underpinned by the companys improving
earnings outlook, with further potential upside from assets under its pipeline.
The stock is trading at 12.1x CY15 P/E ratio, in-line with the regional peers,
which we think is attractive given MEDCs strong earnings growth outlook and
improving returns.
Comparing MEDC with its regional E&P peers on reserve-based valuation, the
stocks current EV/2P of US$5.3/bbl reflects a huge 67% discount to the
regional average of US$16/bbl. Similarly, MEDCs EV/ (2P+2C) of US$3.2/bbl
is still a 36% discount to the regional average. We think these imply that the
market has not yet taken into consideration the companys potential for asset
monetisation in the coming years. Thus, the completion of the Senoro asset
should act as strong catalysts for the stock.
Our target price of Rp4,330 implies an EV/2P of around US$7.2/bbl for MEDC
which we think still conservatively implies some risk for the monetisation of its
future assets.

Figure 43: Sector Comparisons regional E&P companies
Price Target Price
(local curr) (local curr) CY14 CY15 CY14 CY15 CY14 CY15 CY14 CY15 CY14 CY15
Integrated
Petrochina co ltd 857 HK ADD 9.75 10.00 222,618 10.9 9.9 -2.2% 1.19 1.11 11.4% 11.6% 5.1 4.6 4.1% 4.5%
Sinopec Corp 386 HK ADD 7.43 8.40 101,377 9.5 8.8 6.2% 1.13 1.05 12.6% 12.4% 5.2 5.0 4.2% 4.6%
Reliance Industries RIL IN REDUCE 1,012 850.0 54,453 13.3 12.9 8.4% 1.53 1.39 12.1% 11.3% 8.0 7.5 1.0% 1.1%
PTT PTT TB HOLD 312.0 321.0 27,455 8.4 8.0 5.0% 1.19 1.09 14.7% 14.1% 4.8 4.4 4.7% 5.0%
Oil & Natural Gas ONGC IN REDUCE 411.2 310.0 58,551 12.1 11.7 5.1% 1.94 1.76 16.9% 15.7% 5.6 5.1 2.8% 2.9%
Average - simple 11.3 10.9 6.2% 1.55 1.41 14.6% 13.7% 6.1 5.7 2.8% 3.0%
E&P
CNOOC Limited 883 HK HOLD 13.86 13.60 79,833 8.1 7.3 4.4% 1.28 1.14 17.1% 16.5% 3.7 3.3 3.3% 3.7%
Kunlun Energy 135 HK REDUCE 12.74 11.34 13,268 15.0 12.2 14.0% 1.85 1.65 12.9% 14.4% 7.4 6.3 2.7% 3.4%
PTT Exploration & Production PTTEPTB ADD 165.0 183.0 20,181 9.5 9.7 2.9% 1.52 1.39 16.9% 15.0% 3.6 3.4 4.2% 4.1%
Horizon Oil HZN AU ADD 0.36 0.47 435 13.1 10.9 26.4% 1.45 1.28 12.4% 12.5% 4.2 3.6 0.0% 0.0%
Maverick Drilling & Exploration MAD AU ADD 0.23 0.60 116 15.3 6.7 103.8% 0.75 0.64 5.3% 10.4% 4.1 2.2 0.0% 0.0%
Oil Search OSH AU NOT RATED 9.75 9.10 13,947 37.0 13.0 86.2% 3.33 2.84 9.3% 23.5% 23.7 10.1 1.1% 3.8%
Santos STO AU NOT RATED 14.35 13.70 13,205 22.5 17.4 23.3% 1.35 1.31 6.0% 7.6% 8.2 6.0 2.1% 2.9%
Senex Energy SXY AU ADD 0.71 1.15 766 12.8 13.0 3.1% 1.50 1.34 12.5% 10.9% 6.6 6.5 0.0% 0.0%
Sundance Energy SEA AU ADD 1.19 1.38 612 11.4 10.9 76.2% 1.31 1.17 12.2% 11.3% 4.3 3.9 0.0% 0.0%
Tlou Energy TOU AU ADD 0.30 0.62 42 na 17.8 na 0.61 0.42 -5.4% 2.8% na -3.4 0.0% 0.0%
Woodside Petroleum WPL AU NOT RATED 41.30 29.50 32,044 16.0 16.1 -2.9% 2.07 2.02 13.1% 12.7% 8.4 8.2 5.0% 5.0%
Cairn India CAIR IN ADD 361.5 400.0 11,476 6.8 6.9 -12.3% 1.10 0.98 17.5% 15.1% 3.8 3.3 2.9% 2.9%
Oil India OINL IN REDUCE 574.4 510.0 5,747 11.1 11.3 -1.8% 1.58 1.49 14.8% 13.6% 4.3 4.0 4.2% 4.3%
Medco Energi Internasional MEDC IJ ADD 3,460 4,330 961 25.0 12.1 34.7% 1.04 0.97 4.3% 8.3% 2.9 2.4 0.5% 1.7%
Average - simple 15.7 11.8 27.5% 1.48 1.33 10.6% 12.5% 6.6 4.3 1.9% 2.3%
P/BV (x) ROE(%) EV/EBITDA (x) Div. Yield (%)
Company
Bloomberg
Ticker
Recom.
Market Cap
(US$ m)
Core P/E(x)
3-year EPS
CAGR (%)

SOURCES: CIMB, BLOOMBERG


June 29, 2014

27

Figure 44: Regional E&P companies EV/ 2P (US$/ bbl)
Title:
Source:
3.9
5.3
5.9
9.3
9.9
12.6 12.8
13.3
15.8
16.8 16.8 16.9
20.8
21.5
29.1
31.6
32.9
Average of US$ 16.2/ bbl
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
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Figure 45: Regional E&Pcompanies EV/ 2P+2C (US$/ bbl)
Title:
Source:
1.2
2.1
3.2 3.3
4.1 4.2
4.7 4.8 4.9
5.4 5.5 5.5
6.3
9.1
9.9
Average of US$ 4.9/ bbl
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6.2 Target price derivation
We derive the target price of Rp4,330 using a DCF valuation method (WACC:
7.8%, LT growth of 5%). The companys low WACC is attributed to its high tax
rate, combined with our conservative assumption of 7.5% cost of debt (above
the companys actual debt cost of 6%). Our 5% LT growth rate is admittedly
high, but we think this should reflect the future cash flow and value of MEDCs
assets which have currently yet to be monetised.
Our DCF-based target price implies a valuation of 14.7x CY15 P/E, which we
think is fair given MEDCs strong potential earnings growth.


June 29, 2014

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Figure 16: DCF Valuation
2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F
EBITDA US$ mn 475 556 455 317 246 230 224 308 302 282 273
-Income tax US$ mn (218) (269) (192) (90) (36) (100) (95) (154) (150) (136) (129)
NOPAT US$ mn 257 287 263 227 210 130 129 154 153 146 144
-Working capital adjustment US$ mn (16) 1 (17) 23 (14) (12) 1 (1) 65 13 3
-Less Capex US$ mn (231) (227) (146) (132) (91) (77) (76) (74) (73) (71) (67)
Total US$ mn (247) (227) (164) (110) (105) (90) (75) (75) (7) (58) (65)
FCF US$ mn 10 61 100 117 105 40 54 79 145 88 79
WACC % 8%
Terminal growth % 5%
PV of FCF US$ mn 572
PV of TV US$ mn 1,342
NPV US$ mn 1,914
-Net cash (net debt) US$ mn (722)
-Minority US$ mn (18)
Net Firm Value US$ mn 1,173
No. of shares mn shares 3,332
FV/share US$/share 0.35
FV/share Rp/share 4,329



June 29, 2014

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Australia CIMB Securities (Australia) Limited Australian Securities & Investments Commission
Hong Kong CIMB Securities Limited Securities and Futures Commission Hong Kong
Indonesia PT CIMB Securities Indonesia Financial Services Authority of Indonesia
India CIMB Securities (India) Private Limited Securities and Exchange Board of India (SEBI)
Malaysia CIMB Investment Bank Berhad Securities Commission Malaysia
Singapore CIMB Research Pte. Ltd. Monetary Authority of Singapore
South Korea CIMB Securities Limited, Korea Branch Financial Services Commission and Financial Supervisory Service
Taiwan CIMB Securities Limited, Taiwan Branch Financial Supervisory Commission
Thailand CIMB Securities (Thailand) Co. Ltd. Securities and Exchange Commission Thailand

(i) As of June 27, 2014 CIMB has a proprietary position in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the
following company or companies covered or recommended in this report:
(a) PTT Exploration & Production

(ii) As of June 29, 2014, the analyst(s) who prepared this report, has / have an interest in the securities (which may include but not limited to shares, warrants, call warrants and/or any
other derivatives) in the following company or companies covered or recommended in this report:
(a) -

The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. CIMB may or may not issue regular reports
on the subject matter of this report at any frequency and may cease to do so or change the periodicity of reports at any time. CIMB is under no obligation to update this report in the
event of a material change to the information contained in this report. This report does not purport to contain all the information that a prospective investor may require. CIMB or any of
its affiliates does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and
opinion contained in this report. Neither CIMB nor any of its affiliates nor its related persons shall be liable in any manner whatsoever for any consequences (including but not limited
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not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments thereof.
Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial
situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial , tax and other aspects before participating in any transaction
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Australia: Despite anything in this report to the contrary, this research is provided in Australia by CIMB Securities (Australia) Limited (CSAL) (ABN 84 002 768 701, AFS Licence
number 240 530). CSAL is a Market Participant of ASX Ltd, a Clearing Participant of ASX Clear Pty Ltd, a Settlement Participant of ASX Settlement Pty Ltd, and, a participant of Chi X
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instrument.

June 29, 2014

30

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The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from the other activities of CIMB India and they have
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in whole or in part, for any purpose without the prior written consent of CIMB.
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Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBR has no obligation to
update its opinion or the information in this research report.
This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert investor or institutional investor,
CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication is being supplied to you
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or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBR..
As of June 27, 2014, CIMBR does not have a proprietary position in the recommended securities in this report.
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by the Financial Services Commission and Financial Supervisory Service of Korea.
The views and opinions in this research report are our own as of the date hereof and are subject to change, and this report shall not be considered as an offer to subscribe to, or used
in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial investment instruments and it is not intended as a solicitation for the
purchase of any financial investment instrument.
This publication is strictly confidential and is for private circulation only, and no part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any
means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB Korea.
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to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden.
Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with
the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through
a public offering or in circumstances which constitutes an offer or a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a
registration or approval of the Financial Supervisory Commission of the Republic of China.
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hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations
owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report.
This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain confidential. No
in whole or in part, for any purpose without the prior written consent of CIMBS.
Corporate Governance Report:
The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and
Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed
to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on
inside information.
The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does
not confirm nor certify the accuracy of such survey result.
Score Range: 90 100 80 89 70 79 Below 70 or No Survey Result
Description: Excellent Very Good Good N/A

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to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.
United Kingdom and Europe: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (CIMB UK). CIMB UK is

June 29, 2014

31

authorised and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X 7YB. This report is for distribution only to, and is solely
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United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S. -registered broker-dealer and a related company of CIMB
Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (Australia) Limited,
CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as "U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act
of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities
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Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for dist ribution to professional, institutional or sophisticated
investors as defined in the laws and regulations of such jurisdictions.

Rating Distribution (%) Investment Banking clients (%)
Outperform/Buy/Trading Buy/Add 56.2% 4.6%
Neutral/Hold 28.0% 2.7%
Underperform/Sell/Trading Sell/Reduce 15.8% 1.0%
Distribution of stock ratings and investment banking clients for quarter ended on 31 March 2014
1416 companies under coverage for quarter ended on 31 March 2014

Spitzer Chart for stock being researched ( 2 year data )
Medco Energi Internasional (MEDC IJ)
1,200
1,700
2,200
2,700
3,200
3,700
Jun-12 Oct-12 Mar-13 Jul-13 Nov-13 Mar-14
Price Close

As at the time of publishing this report CIMB is phasing in an absolute recommendation structure for stocks (Framework #1). Please refer to all frameworks for a definition of any
recommendations stated in this report.
CIMB Recommendation Framework #1
Stock Ratings Definition
Add The stocks total return is expected to exceed 10% over the next 12 months.
Hold The stocks total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce The stocks total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the
stock.
Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition
Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition
Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

CIMB Stock Recommendation Framework #2 *
Outperform The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months.
Neutral The stock's total return is expected to be within +/-5% of a relevant benchmark's total return.
Underperform The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months.
Trading Buy The stock's total return is expected to exceed a relevant benchmark's total return by 3% or more over the next 3 months.
Trading Sell The stock's total return is expected to be below a relevant benchmark's total return by 3% or more over the next 3 months.


June 29, 2014

32

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities
Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily
outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

CIMB Stock Recommendation Framework #3 **
Outperform Expected positive total returns of 10% or more over the next 12 months.
Neutral Expected total returns of between -10% and +10% over the next 12 months.
Underperform Expected negative total returns of 10% or more over the next 12 months.
Trading Buy Expected positive total returns of 10% or more over the next 3 months.
Trading Sell Expected negative total returns of 10% or more over the next 3 months.

** This framework only applies to stocks listed on the Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is
permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013.
AAV Good, ADVANC - Excellent, AMATA - Very Good, ANAN Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH Good,
BCP - Excellent, BEC - Very Good, BGH - not available, BJC Very Good, BH - Very Good, BIGC - Very Good, BTS - Excellent, CCET Very Good, CENTEL Very Good, CK -
Excellent, CPALL - Very Good, CPF Excellent, CPN - Excellent, DELTA - Very Good, DTAC - Excellent, EGCO Excellent, GLOBAL - Good, GLOW - Very Good, GRAMMY
Excellent, HANA - Excellent, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH Excellent, ITD Very Good, IVL - Excellent, JAS Very Good, KAMART not available,
KBANK - Excellent, KKP Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR Very Good, MAKRO Very Good, MCOT - Excellent, MEGA not available,
MINT - Excellent, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS Excellent,
SAMART Excellent, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI Very Good, SPALI - Excellent, STA - Good, STEC - Very Good, TCAP -
Excellent, THAI - Excellent, THCOM Excellent, TICON Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Excellent, TTW Excellent, TUF - Very Good,
VGI Excellent, WORK Good.

Cim Medc@ij 062914 135625

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