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ROOKIE

PT ERAJAYA SWASEMBADA
TBK. (ERAA.JK)
PT. ERAJAYA SWASEMBADA, Tbk (ERAA.IJ)
Trade, Service and Investment - Indonesian Stock Exchange
Recommendation: STRONG BUY (Return 38.6%) Date: Dec 14th,2018
Target Price: IDR 3,035 Closing Price: IDR 2,190

Descriptions 2016A 2017A 2018F 2019F 2020F


Total Revenue (Rp) 20,547,128 24,229,915 31,506,158 40,967,458 53,269,985
Revenue Growth (%) 2.70% 17.92% 30.03% 30.03% 30.03%
EBITDA (Rp) 533,549 600,050 882,073 1,296,647 1,906,072
Net.Income (Rp) 261,721 347,150 521,380 677,951 881,539
ROA (%) 3.53% 3.91% 3.70% 3.89% 4.03%
ROE (%) 7.7% 9.4% 12.70% 16.52% 21.48%
GPM (%) 8.7% 8.9% 8.7% 8.7% 8.7%
OPM (%) 2.60% 2.48% 3.01% 3.01% 3.01%
NPM (%) 1.27% 1.43% 1.65% 1.65% 1.65%
Source: Team Analysis
FIGURE 1
ERAA’s KEY ASSUMPSTION
Rf
ERAA.JK : EPIC COMEBACK
8.6%
Rm-Rf 6.55% HIGHLIGHTS
Beta 1.74
Cost of Equity 8.49% We are committed to issue STRONG BUY
Net Debt to Capital 57.17% recommendation on PT Erajaya Swasembada Tbk. (ERAA)
Equity to Capital 42.83%
Tax Rate
with target price IDR 3,035. We are implied the discounted
25%
Cost of Debt free cash flow (DCF) to firm as valuation model, which is
7.5%
Weighted Average Cost of 7.92% showing increase by 38,6% from it’s closing price that is
Capital IDR 2,190 in December 14th, 2018. The reason for
Source: Team Analysis recommendation are :
FIGURE 2  Retail Sector is Recovering from Adversity
STOCK PRICE MOVEMENT
The retail sector had suffered a setback due to the
FIGURE 3 increasingly massive issue of online business competition.
Along with a stable consumer index and a large level of
political spending, this sector can recover from its slump.
The retail sector shows growth even slowly.

 Stable Level of Indonesian Purchasing Power

The increase in the average regional minimum wage


Source: RTI Business IS 8.71% from the previous year which had an impact on
FIGURE 3
the increasing people's purchasing power. With the
ERAA’S KEY STOCK DATA
inflation rate still relatively stable, people's purchasing
ERAA.JK KEY STOCK DATA power is also relatively well maintained.
52-week Price Range (IDR) 680-3,400
Shares Outstanding (In Mn) 3,190  High Growth of Internet Users in Indonesia
Market Capitalization (In Mn) 6,730,900
Dividend Yield 1.80 Indonesia is include to the top 3 internet users in the
Beta 1.74 Asia Pacific region after China and India as of January
EPS (IDR TTM) 257.4 2018, for 132.7 millions users which means it reach
Major Stakeholder PT. Eralink 54.68 % of the total population of Indonesia.By the
International increasing need of internet and population year to year,
Source: Reuters the mobile industry will accelerated rapidly going forward.
FIGURE 4
Business Model
Business Description
PT Erajaya Swasembada Tbk. (ERAA) was established on October 8, 1996 and
started its commercial activities since 2000. Erajaya oficially listed as issuer at the
Indoenesian Stock Exchange (IDX) on December 13, 2011 with “ERAA” as its
ticker code. As of 31 December 2017, PT Eralink International has a 59.97% stake
in ERAA and the rest are stake by public for 40.03%. By having 84 distribution
center, 775 retail outlets and around 53,000 3rd party billed outlet, PT Erajaya
Swasembada Tbk has now become more than the largest integrated
Source : Company Data telecommunication device importer importer, distributor and retail trading
company.
FIGURE 5
Operational Map
BUSINESS SEGMENT
Erajaya conducts the distributin business, retail business, E-commerce business
and Operator business. Meanwhile, ERAA’s management evaluate the performance
of each business segment and determine the allocation of resource is based on the
sales of :
 Cellular Phones and Tablets (Cl&T)
ERAA is the market leader of distribution and retail of cellular phones and
tablets in Indonesia. ERAA has build strategic partnerships with 14
telecommunication devices brand principals to distribute the products
officially, including Apple, Xiaomi, Samsung, ASUS, Lenovo, Huawei, etc.
Source : Company Data
ERAA's main corporate income was contributed by the sale of cellular phones
FIGURE 6 and tablets to external customer amounting to 81.3 % of total Erajaya’s net
Ownership Structure
sales by Rp 1.707,21 billion.
 Voucher (Vc)
Voucher segment sales contributed 12.1 % of total net sales by Rp 2.931,07
billion. Eraa’s voucher contains of electronic vouchers, physical vouchers, and
sparepart.
 Computer and Other Electronic Devices (Cp&Ed)
By selling pc desktop, notebook and another computer or other electornic
devices, ERAA reach Rp 705,03 billion (2.9%) from its total net sales.
 Accessories and Others (A&Ot)
ERAA distributing and retailing accessories products and others such as cell-
Source : Company Data
phone case, bluetooth hadset, charger, power bank, etc. ERAA also develops
FIGURE 7 m-commerce business to distribute the celllular products and content services
Revenue Breakdown
such as games, applications and music. Accessories and others are
contributed 3.7% of net sales by Rp 885,60 billion.

CORPORATE GOVERNANCE
ERAA is always implements Good Corporate Governance (GCG) principles trough
the compliance to the twenty five recommendation of good corporate Governance
according to Circular Letter Number 32/SEOJK.04/2015 which issued by OJK on
2015. Throughout 2017, there was no change in ERAA’S BOC and BOD
composition, ERAA’S BOC is comprised of 3 people, one of them are the
independent comissioners. While, WIKA’S BOD is comprised of 7 people which one
of them is the independent director. ERAA issued its 2.9 Trillion shares which the
Source : Company Data
majority is held by PT Eralink International, to secure the control over the
FIGURE 8
Sales Growth company’s decision regarding BOC and BOD composition, salaries and performance
. At present, composition of shareholders come to PT Eralink International
(59.97%), BOC (0.08%), BOD (0.21%) and Public (39.74%).

RECENTLY COMPANY AWARDS :


 Indonesian Best Company in Creating Leaders From Within 2017, SWA
Magazine and NBO Group
 Retail Asia Pacific Top 500, Erajaya Top 10 Retailers in 2016

Source : Company Data


FIGURE 9
Retail Sector Contributin to GDP (%)
 Association of Indonesia Securities Analyst, Top 40 Issuer of 2016
 HR Excellence Award 2016, 3rd Winner in HR Transformation Category
RETAIL …  PT. Teletama Artha Mandiri ISO 9001 : 2008 Certification

14 Industry Analysis
13
12
20 1 3 2 0:1 Company
4 2 0 1 5 2Data
016 2017
INDUSTRY OUTLOOK 2018-2021
Source
Despite national retail sector did not record any significant growth to the
Source : Indonesia Statistics Bureau economic growth, but Indonesia remains in the list of the top 10 most
FIGURE 10
Economic Growth of Asean attractive countries in the retail sector for developing countries on GRDI
Countries (%) 2017 with the attractiveness for 49,3 % ( source : Bisnis.com ) as shown on
Appendix 1. The contribution of retail sector in Indonesia to the GDP is
pretty shows a stability.

a. Indonesia, Promising Place for Investment

Indonesia´s GDP rate has been showing a healthy increasing trend over
years. So far Indonesia has the biggest population in Southeast Asia which
also a regional economic efficacies, that is why Indonesia has the largest
total GDP and fast-growing GDP per capita that precedes most of the
Source : Indonesia Statistics Bureau
Southeast Asia region. During this case Indonesian economic process of
FIGURE 11 concerning 5.7 %. Afterwards, since 2015, Indonesian inflation has been
Indonesia Inflation and GDP Growth under control. Indonesia had inflation rates of between three and five
2015-2017(%) percent, per year which categorizes as low and stable inflation rate. In
addition, The World Bank reports that Indonesia recorded an EoDB score of
Inflation Rate Real GDP Growth 67.96. This figure is up 1.42 percent compared to last year's 66.54.
Therefore, With a population of 261.1 million, total GDP of USD 932.3 billion,
8
and economic growth of 5%. US NEWS reports that Indonesia is ranked
6
second best in the 2018 best countries for investment.
4
2 b. The stable level of Indonesia Purchasing Power
0 The increase in the average regional minimum wage IS 8.71% from the
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 previous year which had an impact on the increasing people's purchasing
Source : Indonesia Statistics Bureau, Bank of power. With the inflation rate still relatively stable, people's purchasing
Indonesia power is also relatively well maintained. BPS reports that the purchasing
FIGURE 12 power of Indonesian people in 2017 tends to be stable. The condition was
Indonesia Purchasing Power (%)
followed by expenditure shifting from non-leisure consumption to leisure
activities consumption.
Indonesian Purchasing
Power 2015-2017 c. Lower Impact of the import tariff regulation
5.2 Regarding to the issue of the import tax up to 7.5% is stipulated in the
5 2015 2016 2017 Minister of Finance Regulation number PMK 110 / PMK.010 / 2018. ERAA
4.8
considers this policy will not have a significant impact on its financial
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4 performance. If the increase should be allocated to product prices, ERAA
estimates that it will not exceed 1% so it does not shake its market share
Source : Indonesia Statistics Bureau too much.
FIGURE 13
Internet Users Growth - Indonesia
d. The High Growth Rate of Internet Users
According to Statista research ( Appendix 4 ), Indonesia is include to the top
3 internet users in the Asia Pacific region after China and India as of January
2018, for 132.7 millions users which means it reach 54.68 % of the total
population of Indonesia. The internet users is go fast this last five years in
line with the growth in the number of fast-growing smartphone users as

Source : APJII
explained on figure 14. From 1998-2017 the growth rate of internet users
has 34.7 % CAGR. By the increasing need of internet and population year to
FIGURE 14 year, the mobile industry will accelerated rapidly going forward.
Smartphone Users in Indonesia e. Indonesia Government Blocked The “Black Market” Cellphones
Blackmarket cellphones are the cellphones sold illegally, which means that
those phones are sold without tariffs and somehow it doesn’t have
permission to be sent or used in a country, so that’s why this phones has a
cheaper price and attract many people nowadays. Meanwhile, since April
2018, Indonesia Government through the Ministry of Industry (Kemenperin)
and the Ministry of Communication and Informatics (Kemenkominfo) has
developed a system of International Mobile Equipment Identity (IMEI) in
order to combat the circulation of the illegal cellphones or the BM phones in
Indonesia. IMEI is attached to each cellphones as a unique identity number
for each device. IMEI validation system allows tracking the status of the
Source : Databooks cellphones in Indonesia, wheter it is sold officially or not. If it is not
registered in the validation system, it is ensured that the device is illegal.
Black market is one of the threats for the retailers and official distributors of
cellular telecommunication device so with this policy, of course it has a
positive impact on ERAA as an official distributor of telecommunications in
Indonesia.

f. Emerging Market In Term of Facing The Sentiment Global


The policy of The Fed which raised its benchmark interest rates (FFR) for 25
bps on this september 2018, then the crisis of several countries such as
Turkey and Argentina, and the arrest of supplier companies’CFOs the largest
telecommunications and communication network device in China and the
FIGURE 15
World (Huawei) on this December 1st by the US Government on the
USD IDR Historical Charts 2018
accusation of national security threats because the technology can be used
for spies which indicates that US vs. China trade war still continues are the
symbolize of the economic world condition is indeed turbid and on
uncertainty squared. Those global sentiment drive global economic slowly
and enervating the emerging market economics. The most significant and
huge impact of that things is the weakening value of emerging market
currencies, so as IDR. The performance of IDR toward USD is still volatile
and fluctuated, sometimes strengthens and sometime weaken again. As of
9th December 2018, IDR exchange rate reached 14,480.00 rupiah which
decreased by approximately 0.28% caused of CAD. The impact of the
weakening of IDR exchange rate was felt directly by industries whose
Source : Exchange Rate UK activities that directly related to Forex, imports and exports. ERAA as one of
the importer companies in Indonesia certainly feels the direct impact of this
global sentiment, the exchange rate has an impact on the selling price of
ERAA and moreover there are some brands that purchased by using USD.

FIGURE 16 g. Retail Sector is Recovering from Adversity


Retail Sales YoY The retail sector had suffered a setback due to the increasingly massive
issue of online business competition. Digitalization is basically a world trend,
so it's not surprising that this is a threat to the retail sector in any country.
The swift flow of digitalization, requires offline stores to survive and always
innovate. Along with a stable consumer index and a large level of political

Source : Trading Economics


spending, this sector can recover from its slump. The retail sector shows
growth even slowly.
FIGURE 17
h. Low Threat of New Entrants
There are many barriers for new entrants in this industry. One of
them is cost of capital, this kind of industry requires huge amount of
investment to start doing business, beside that the existing company has
many advantages such as having the best supplier and often than not the
supplier that has contract with this company makes the new entrants
difficult to form relation with, the existing company may have better
information and technology and also they have customer basis already.
Because of this barrier the threats of new entrants position is low.

i. Challenging Rivalry from Competitor


Source : Team Analysis PT. Erajaya Swasembada, Tbk Are retail and distribution company, in
other words, the products that they sell and their market segment tend to
be the same with the competitor in same industry. And because they are no
switching cost for the customer that wants to start purchasing from other
company, the competition is more competitive However PT. Erajaya
Swasembada, Tbk has approximately 32%-33% market share in 2017 and
supported by their strong brand image, lead them to become the leading
telecommunication retail and distribution company in Indonesia. In
conclusion the rivalry among competitor position is moderate.
Financial Analysis
FIGURE 18
SALES GROWTH SALES GROWTH OF THE BUSINESS

40.00% The condition of increasing demand of smartphone and the


accessories between the customer make ERAA could gain
30.00%
more revenue. And we expect that the sales growth of
20.00% ERAA as we forecasted could be 30.03% CAGR from 2014-
10.00% 2020. This CAGR will be applied from the sales that gain by
ERAA as a whole. And this is could be more supported by
0.00% the lower of the import tariff that makes the price that offer
2016 2017 2018F by ERAA more lower.
Source: Team Analysis
Debt to Equity Ratio
FIGURE 19
DEBT TO EQUITY RATIO The condition of Debt to Equity of ERAA we forecasted will
be increase significantly. In 2017, DER in 2017 only 1.34,
3.00 when in 2018 we predict that ERAA has more DER because
of the loan that ERAA get from the Bank. The increasing
2.00 until 1.03, that made ERAA forecasted DER in 2018 is 2.37.
Although the condition of DER that ERAA has reach 2 times.
1.00 It doesn’t mean that ERAA has bad performance, but ERAA
in develop their business. So, they need more money, and
- the Bank that has cooperation with ERAA could give ERAA
2015 2016 2017 2018F more loans to develop their money.

Source: Team Analysis Profitability Performance

FIGURE 20 The condition of ROA shows that the increasing assets of


PROFITABILITY the company have the positive correlation with the
increasing of the net income of ERAA. And also, the return
15.00% of assets that ERAA have always increased year-by-year, it
means that the increasing of total assets of ERAA could
10.00% increase the total of net income that ERAA generated that
year. So, based on these ROA and ROE, it represents that
5.00%
ERAA could increase their profit with did same expand in
adding the amount of stores.
0.00%
2015 2016 2017 2018

ROA ROE

Source: Team Analysis


Valuation
FIGURE 21 Target Price: IDR 3,035/share
VALUATION
Recommendation: BUY
Price
We use only Discounted Free Cash Flow as our tool for
Target Price 3,035
determining the target price for ERAA. Using Discounted Free
Closing Price 2,190
Cash Flow, we get the target for ERAA as much as IDR 3,035
Potential Upside 38.6%
with the increasing as 38.6% from the closing price 2,190 in
Source: Team Analysis December 14th, 2018.
FIGURE 22
WACC The condition of Equity and Debt that ERAA brings, with the
ratio 43:57 respectively. It represents that ERAA still has the
Rf 8.6% capacity to adding their debt. Because the condition of this,
Rm-Rf 6.55% still in the safe level.
Beta 1.74
Cost of Equity 8.49% Revenue Forecast (In Bn)
Net Debt to Capital 57.17%
The revenue that ERAA gain in 2017 until 2018 Q3, make us
Equity to Capital 42.83%
believed that the CAGR that ERAA could achieve in 2018-2020
Tax Rate 25%
will increase more high that the 2017. Higher demand that
Cost of Debt 7.5%
ERAA get from the market, make we trust that the forecasted
Weighted Average
CAGR of ERAA with 23.94% could be achieved.
Cost of Capital 7.92%
Source: Team Analysis CAPEX (In Bn)
FIGURE 23 ERAA still in develop their business by increasing the number
Sales Forecast (IDR Bn) of their store until the cities in Indonesia. And this develop
need more capital expenditure from 2017, and we expect in
60,000 the next year, ERAA still develop their business. Also, this
CAGR 23.94%
capex could be support the company in increasing their sales
40,000 growth this and next year.

20,000 Price to Earning Ratio

0 The condition of P/E Multiple ERAA decline year by year. It


2017 2018F 2019F 2020F means that the investor have faster time in get their money
back when they invested in ERAA. And this is still lower form
Source: Team Analysis the industry, when the industry have 19.24 (reuters.com).
FIGURE 24
Capital Expenditure (IDR Bn) FIGURE 25
255 P/E Multiple

250 CAGR -0.89% 15

245 10

240 5
2017 2018F 2019F 2020F
0
Source: Team Analysis 2015 2016 2017

Source: Company Data


FIGURE 26
Exchange Rates on Investment Risk
Transaction
Operational risk
 Liquidity risk (R1)
Liquidity risk is the risk that happen when a company may be unable to meet short
term financial demands. It means they don’t have enough liquid asset to pay their
debt because their financial asset cannot traded quickly or receivable turn over is
low. Seeing ERAA cashflows this recent years shows that the liquidity risk is quite
high from the negative cashflows.

Market risk
 Competition risk (R2)
ERAA has many competitor in the telecommunication retail and distribution industry,
Source: Bank Indonesia
it means the competition is quite tight, so ERAA need extra efforts to attract more
customers than it’s competitor, right now ERAA try to improve their expansion
FIGURE 27 aggressively by build more stores in second semester of 2018 to reach for more
BI 7-DAY (REVERSE) REPO customers.
RATE  Exchange rate risk (R3)
The rupiah exchange rate is still depreciating but volatility is still maintained. The
rupiah weakened by an average of 2.07% in September 2018. With this
development, year to date up to October 22, 2018, the Rupiah depreciated 10.65%
or still lower than weakening that occurred in Brazil, India, South Africa and Turkey.
Because the rupiah is weakening it can affect ERAA’s profitability by decreasing the
return from their investment in foreign country.
 The US-China trade war (R4)
Because the disputes between US and China regarding their exports and imports, it
may bring implications to the economic condition around the world included Asia.
Both country imposed tarrifs on each other imports. The tariffs themselves is not the
main problem. Concern about trade war will likely reduce investor for investing in
risky asset.

Financial risk
 Upward trend in BI 7-day (reverse) repo rate (R5)
Interest rate related to the company’s liability to obtain capital for their business.
The rate affecting the amount of liability that the company should pay. The table of
BI 7-day (reverse) repo rate shows that the rate is increasing over time. It means
Source: Bank Indonesia the amount of liability that the company should pay is increasing too.
 Inflation (R6)
FIGURE 28 Inflation is still under control at a low and stable level. The Consumer Price Index
RISK ASSESSMENT MARTIX experienced a deflation of 0.18% in September 2018, deeper than last month's
deflation of 0.05% . This deflation was mainly due to deflation in the volatile food
I category, while core inflation slowed and inflation in administered prices was stable.
With these developments, annual inflation reached 2.88% , down from 3.20% in the
m R7 previous month. Increase in inflation can reduce the customer purchasing power in
the future and increase in cost of business, however since the inflation currently at
stable level, it means it’s at the right condition to encourage the customer doing
p R6 R2 consumption.

a R4 Political risk
 2019 general election after effect (R7)
Because the uncertainty condition after the general election 2019, it makes people
c R1 R3 R5 becomes more careful in spending their money because they don’t know what will
futures bring, so ERAA should think a strategy to attract customer more and be
t ready in case if new laws regarding retail and distribution company will be
established in future.

Like hood

Source: Team Analysis


Investment Summary

Dividend New Features


payment IDR Announcement
Sales
58 B of Apple
decreasing
due to flood Morgan Stanley
Become new
distributor for reduce his shares
Lenovo in ERAA Launching of new
smartphone by
Signed contract with Samsung,Xiaomi, &
Indosat Ooredo Apple

We are committed to issue BUY recommendation on PT Erajaya Swasembada


Tbk. (ERAA) with target price IDR 3,035. We are implied the discounted free cash
flow (DCF) to firm as valuation model, which is showing increase by 38,6% from it’s
closing price that is IDR 2,190 in December 14th, 2018. It shows ERAA good
performance as a market leader of distribution and retail of tellecommunication
goods. ERAA secure their control over their company’s decision through a good
corporate governance and provide their customer with variety of high quality of
product from many brands that already well known. Their business grow along the
increasing amount of internet users in Indonesia that never seems to be decreasing,
that is the very opportunity to ERAA to increase their sales more. Eventhough there
are some risk in their business that we have been identified before such as;
Operational risk, Market risk, Financial risk, and Political risk , but seeing the
development of ERAA business and the market condition with the stable level of
Indonesia purchasing power, low impact import tariff and support done by
goverment by blocking ‘Black Market’ of cellphone, ERAA will get through all of the
risk, and strenghten their business even more.
Appendix
Appendix 2
Appendix 1 National Retail Sales 2017 for Emerging Appendix 3
GRDI Rank 2017 Markets Top 5 Promising FDI Destination 2017-2019

Source : A.T. Kearney’s GRDI 2017 Source : A.T. Kearney’s GRDI 2017 Source : UNCTAD, Chinadaily.com

Appendix 4 Appendix 5
Internet Users in the Asia Pacific Indonesia EoDB Point & Ranking
Region 2018

Source : Statista Source : World Bank, Team Analysis

Appendix 6 Appendix 7
ERAA Billed Outlets 2014-2017 ERAA’s Distribution Center and
Owned Retails Outlet 2014-2017

Source : Company Data


Source : Company Data
APPENDIX 8. PORTER’S FIVE FORCES

0 = NO THREAT

10 = LOW THREAT

20 = MODERATE THREAT

30 = HIGH THREAT

1.Bargaining power of customer : Low

The number of buyer for mobile telecommunications product are high so it is less concentrated,
almost everyone in this world using mobile phone no matter how old they are or what job they have they
have at least one phone each. because of that, the producer percentage of sales from one buyer is not
that significant. It means that the pressure that the customer has to the producer is low, its different if
the number of buyer is low, in that case, even one demand of customer is significant and producer can’t
ignore it, but because the buyer are high, the demand of one customer is immaterial. In conclusion, the
bargaining power of customer is low.

2. Threats of substitutes : Low

Until now the substitute goods for telecommunication and information technology is hardly exist, this
market completely dominated by smartphones and tablets and substitute goods for that is hard to be
found. So, the position of substitute products can be categorized as low.

3. Bargaining power Supplier : High

PT. Erajaya Swasembada, Tbk. Is a retail and distribution company, so their supplier were
manufacturing company and their business relies on their supplier’s product. Compared to the buyer, the
supplier is more concentrated since their number is lower. Also each supplier has their own specific
expertise or technology to manufacture goods. Because of that, each of them has a big customer basis
already. In conclusion, the position of bargaining power by the supplier is high.

4. Threats of new entrants : Low

There are many barriers for new entrants in this industry. One of them is cost of capital, this kind of
industry requires huge amount of investment to start doing business, beside that the existing company
has many advantages such as having the best supplier and often than not the supplier that has contract
with this company makes the new entrants difficult to form relation with, the existing company may have
better information and technology and also they have customer basis already. Because of this barrier the
threats of new entrants position is low.

5. Rivalry among competitor : Moderate

PT. Erajaya Swasembada, Tbk Are retail and distribution company, in other words, the products that
they sell and their market segment tend to be the same with the competitor in same industry. And
because they are no switching cost for the customer that wants to start purchasing from other company,
the competition is more competitive However PT. Erajaya Swasembada, Tbk has approximately
32%-33% market share in 2017 and supported by their strong brand image, lead them to become the
leading telecommunication retail and distribution company in Indonesia. In conclusion the rivalry among
competitor position is moderate.
APPENDIX 9. ERAA Income Statement (In Mn)

ERAA.IJ INCOME STATEMENT 2013A 2014A 2015A 2016A 2017A


NET SALES 12,727,248 14,451,413 20,007,598 20,547,128 24,229,915
COST OF GOOD SOLD 11,558,085 13,162,173 18,502,000 18,754,820 22,071,008
GROSS PROFIT 1,169,162 1,289,240 1,505,598 1,792,309 2,158,907
Selling and distributing expenses -316,019 -420,148 -601,366 -738,655 -955,375
General and administrative expenses -362,920 -459,389 -511,543 -570,071 -680,469
Other operating income 56,954 73,788 100,346 65,492 111,357
Other operating expenses -823 -5,257 -15,489 -15,526 -34,370
INCOME FORM OPERATIONS 546,355 478,234 477,546 533,549 600,050
Finance Income 5,182 1,680 1,216 4,391 2,634
Finance costs -94,319 -182,423 -155,270 -154,404 -142,827
Share in income (loss) of associated companies -371 -545 -3,090 0 19,800
INCOME BEFORE INCOME TAX 456,847 296,946 320,401 383,537 479,656
Income tax expenses - net -108,232 -81,745 -90,590 -121,816 -132,507
INCOME FOR THE YEAR 348,615 215,201 229,812 261,721 347,150
Source: Company Data

APPENDIX 10. ERAA Income Statement (In Mn)

ERAA.IJ FORECASTED INCOME STATEMENT 2018F 2019F 2020F


NET SALES 31,506,158 40,967,458 53,269,985
COST OF GOOD SOLD 28,779,891 37,422,492 48,660,467
GROSS PROFIT 2,726,268 3,544,966 4,609,519
Selling and distributing expenses -1,004,032 -1,305,543 -1,697,597
General and administrative expenses -892,882 -1,161,014 -1,509,667
Other operating income 141,019 183,367 238,432
Other operating expenses -21,277 -27,666 -35,975
INCOME FORM OPERATIONS 949,096 1,234,109 1,604,712
Finance Income 5,713 7,428 9,659
Finance costs -259,635 -337,603 -438,985
Share in income (loss) of associated companies 0 0 0
INCOME BEFORE INCOME TAX 695,174 903,934 1,175,386
Income tax expenses - net -173,793 -225,984 -293,846
INCOME FOR THE YEAR 521,380 677,951 881,539
Source: Team Analysis
APPENDIX 11. ERAA BALANCE SHEET
ERAA.IJ BALANCE SHEET 2013 2014 2015 2016 2017
ASSETS
CURRENT ASSETS
Cash and cash equivalent 80,460 169,857 126,820 614,544 366,396
Trade receivable
Third parties – net 900,558 1,255,111 1,888,819 1,441,764 1,570,717
Related parties – net 26 24 0 0 0
Other receivable
Third parties – net 289,841 491,122 495,068 434,468 324,020
Related parties 29 1 3,329 1 7,810
Inventories – net 1,841,760 1,999,824 2,552,505 2,202,800 3,388,147
Advances 453,289 123,026 168,949 217,902 762,954
Current portion of prepaid expenses 54,526 64,543 70,814 95,289 111,100
Prepaid value added tax 122,943 172,623 141,104 148,641 135,189
Other current financial assets 34,340 18,959 18,134 12,002 14,969
Estimated claim for tax refund 0 131 21 810 3,316
TOTAL CURRENT ASSETS 3,777,773 4,295,220 5,465,564 5,168,223 6,684,618
NON-CURRENT ASSETS
Advance for purchase of fixed assets 62,033 88,277 107,013 117,064 135,529
Investment in associated companies 2,620 0 0 1,020 5,304
Fixed assets – net 216,270 402,453 436,642 457,248 485,805
Intangible assets – net 678,190 696,001 690,751 685,305 703,059
Prepaid expenses - net of current portion 25,223 35,018 40,358 30,767 49,703
Deferred tax assets – net 26,951 43,282 46,921 55,037 71,342
Estimated claims for tax refund 173,892 522,916 968,012 869,505 701,851
Other non-current financial assets 37,764 38,425 44,880 38,626 35,670
Other non-current assets 919 199 158 1,811 995
TOTAL NON-CURRENT ASSETS 1,223,861 1,826,570 2,334,736 2,256,382 2,189,257
5,001,63 6,121,79 7,800,30 7,424,60 8,873,87
TOTAL ASSETS 5 0 0 4 5

LIABILITIES AND EQUITY


LIABILITIES
CURRENT LIABILITIES
Short-term bank loans 1,161,846 1,438,825 1,450,084 801,072 1,747,242
Trade payable
Third parties 826,202 1,182,809 2,566,440 2,604,384 2,607,357
Related party 0 0 9,307 11,974
Other payable
Third parties 73,999 168,448 306,754 306,549 521,604
Related party 0 0 7 1,019 8,500
Accrued expenses 22,408 31,315 30,949 35,484 98,491
Taxes payable 104,104 87,546 29,861 72,688 47,369
Short-term employee benefits liabilities 293 50 3,212 4,066 4,941
Advances from customers 6,103 0 0 0 0
Current maturities of long-term debt: 3,532 0
Long-term bank loans 0 903 9,287 99,231 128
Consumer financing payable 0 3,370 2,469 1,246 595
Financing lease payable 0 339 273 171 518
TOTAL CURRENT LIABILITIES 2,198,489 2,913,604 4,399,336 3,935,217 5,048,720
NON-CURRENT LIABILITIES
Deferred tax liabilities – net 0 2,677 0 0 1,146
Long-term debt - net of current maturities:
Long-term bank loans 0 123,066 135,757 2,535 2,690
Consumer financing payables 7,256 3,588 2,106 1,410 1,406
Finance lease payable 0 477 111 175 1,381
Long-term employee benefits liabilities 42,546 69,006 57,584 76,106 111,877
TOTAL NON-CURRENT LIABILITIES 49,802 198,815 195,557 80,226 118,501
TOTAL LIABILITIES 2,248,291 3,112,419 4,594,894 4,015,443 5,167,221
EQUITY
EQUITY ATTRIBUTABLE TO
OWNER OF PARENT COMPANY
Share capital 1,450,000 1,450,000 1,450,000 1,450,000 1,450,000
Additional paid in capital – net 427,044 427,044 427,044 433,674 433,716
Differene in value from transactions with
non-controlling interest -2,069 1,532 295 -170 502
Retained earnings
Appropriateed 3,000 4,000 5,000 6,000 7,000
Unappropriated 869,735 1,085,201 1,252,224 1,456,980 1,737,438
Other comprehensive loss -339 -11,480 3,709 2,040 -1,345
TOTAL 2,747,372 2,956,297 3,138,272 3,348,523 3,627,311
Non-Controlling Interests 5,972 53,074 67,134 60,638 79,344
TOTAL EQUITY 2,753,343 3,009,371 3,205,406 3,409,161 3,706,655
TOTAL LIABILITIES AND EQUITY 5,001,635 6,121,790 7,800,300 7,424,604 8,873,875
Source: Company Data
APPENDIX 12. ERAA FORECASTED BALANCE SHEET
ERAA.IJ Forecasted Balance Sheet 2018F 2019F 2020F
ASSETS
CURRENT ASSETS
Cash and cash equivalent 350,354 385,389 423,928
Trade receivable 3,025,635 3,934,233 5,115,683
Third parties - net 2,336,074 3,037,598 3,949,788
Related parties - net 0 0 0
Other receivable
Third parties - net 686,195 892,260 1,160,205
Related parties 3,365 4,375 5,689
Inventories - net 3,924,065 5,102,462 6,634,732
Advances 6,358 0 0
Current portion of prepaid expenses 413,109 494,948 593,001
Prepaid value added tax 3,150,616 4,096,746 5,326,999
Other current financial assets 37,148 42,557 48,753
Estimated claim for tax refund 73,012 81,935 106,540
TOTAL CURRENT ASSETS 10,980,298 14,138,270 18,249,635
NON-CURRENT ASSETS
Advance for purchase of fixed assets 249,082 273,991 301,390
Investment in associated companies 16,435 16,435 16,435
Fixed assets - net 604,014 573,814 545,123
Intangible assets - net 704,059 704,059 704,059
Prepaid expenses - net of current portion 269,584 323,501 388,201
Deferred tax assets - net 71,342 71,342 71,342
Estimated claims for tax refund 942,221 942,221 942,221
Other non-current financial assets 135,399 134,371 133,350
Other non current assets 102,236 229,789 516,479
TOTAL NON-CURRENT ASSETS 3,094,373 3,269,521 3,618,600
TOTAL ASSETS 14,074,670 17,407,791 21,868,235
LIABILITIES AND EQUITY
LIABILITIES
CURRENT LIABILITIES
Short-term bank loans 4,896,092 4,994,014 5,093,894
Trade payable 3,278,492 4,263,023 5,543,209
Third parties 2,185,661 2,842,016 3,695,473
Related party 109,283 142,101 184,774
Other payable 983,548 1,278,907 1,662,963
Third parties 688,483 895,235 1,164,074
Related party 295,064 383,672 498,889
Accrued expenses 100,461 302,470 308,520
Taxes payable 98,847 298,847 298,847
Short-term employee benefits liabilities 6,129 27,600 34,224
Advances from customers 0 0 0
Current maturities of long-term debt: 0 0 0
Long-term bank loans 128 1,128 1,128
Consumber financing payable 595 200,595 200,595
Financing lease payable 518 200,518 200,518
TOTAL CURRENT LIABILITIES 8,381,262 10,288,195 11,680,934
NON-CURRENT LIABILITIES
Deferred tax liabilities - net 1,146 2,146 32,146
Long-term debt - net of current maturities: 0 2,570 8,570
Long-term bank loans 1,472,690 2,592,307 5,424,010
Consumer financing payables 1,406 101,406 301,406
Finance lease payable 1,381 4,382 4,382
Long-term employee benefits liabilities 111,877 311,877 311,877
TOTAL NON-CURRENT LIABILITIES 1,588,501 3,014,689 6,082,392
TOTAL LIABILITIES 9,969,763 13,302,884 17,763,326
EQUITY
EQUITY ATTRIBUTABLE TO
OWNER OF PARENT COMPANY
Share capital 1,595,000 1,595,000 1,595,000
Additional paid in capital - net 160,660 160,660 160,660
Differene in value from transactions with
non-controlling interest 502 502 502
Retained earnings
Appropriateed 8,000 8,000 8,000
Unappropriated 2,262,747 2,262,747 2,262,747
Other comprehensive loss -1,345 -1,345 -1,345
TOTAL 4,025,564 4,025,564 4,025,564
Non-Controlling Interests 79,344 79,344 79,344
TOTAL EQUITY 4,104,908 4,104,908 4,104,908
TOTAL LIABILITIES AND EQUITY 14,074,670 17,407,792 21,868,234
Source: Team Analysis
APPENDIX 13. ERAA COST OF CAPITAL ANALYSIS

ERAA.IJ DEBT LIST 2017 WACC Calculation

SHORT TERM BANK LOAN Target Capital Structure (1)

Principal Debt to Total Capitalization 57.17%

Time revolving loan Equity to Total Capitalization 42.83%

Company Debt to Equity Ratio 133.46%

PT Bank Central Asia Tbk 434,000,000


Subsidiaries Cost of Equity

PT Bank CTBC Indonesia 229,958,519 Risk-free rate (2) 8.60%

PT Bank Central Asia Tbk 210,330,208 Market risk Premium (3) 2.05%

CIMB Bank Bhd 6,670,620 Beta (4) 1.74%

CTBC Bank Co.Ltd 0


Unamortized transaction costs -1,226,667 Cost of Equity 8.49%
Sub-total 879,732,680
Overdrafts Cost of Debt

Company Cost of Debt 10.00%

PT Bank Central Asia Tbk 347,833,203 Taxes 25.00%

Subsidiaries After Tax Cost of Debt 7.50%

PT Bank Central Asia Tbk 499,406,707


PT Bank CTBC Indonesia 10,575,956 WACC 7.92%

CIMB Bank Bhd 9,558,098


(1) Statement of financial position data
UOB (Malaysia) Bhd 1,937,999
(2) market-risk-premia.com/ Interpolated Yield on 10-year Treasury bond
Unamortized transaction costs -1,802,459
(3) market-risk-premia.com
Subtotal 867,509,503
(4) reuters.com
Total short term bank loans 1,747,242,183
LONG TERM BANK LOAN Source: Team Analysis
Principal - subsidiaries
UOB (Malaysia) Bhd 2,817,810
PT Bank Central Asia Tbk 0
Sub-total 2,817,810
Current maturity long-term bank loan 127,806
Unamortized transaction costs 0
Total current maturities-net 127,806

Long-term bank loans-net of current


maturities 2,690,004
Total of bank loan 1,749,932,187
Source: Team Analysis
APPENDIX 14. ERAA Valuation
(2014
2013 2014 2015 2016 2017 -
2017) 2018 2019 2020
Revenue 12,727,248 14,451,413 20,007,598 20,547,128 24,229,915 31,506,158 40,967,458 53,269,985
-11,558,08 -13,162,17 -18,754,82 -22,071,00 -37,422,49 -48,660,46
Total costs -18,502,000 -28,779,891
5 3 0 8 2 7
EBITDA 546,355 478,234 477,546 533,549 600,050 882,073 1,296,647 1,906,072
Depreciation &
-75,252 -126,175 -164,147 -214,507 -272,682
Amortization: -31,790 -30,201 -28,691
EBIT 456,847 296,946 320,401 383,537 479,656 1.64% 695,174 903,934 1,175,386
Taxes Benefits
-108,232 -81,745 -90,590 -121,816 -132,507 -173,793 -225,984 -293,846
(expense)
Capex -98,000 -210,000 -140,000 -100,000 -250,000 -247,779 -245,578 -243,397
Increase/Decrease in
-18,562 280,480 381,685 -132,904 -533,528 -281,172 -365,608
NWC
Unlevered Free
167,927 527,436 693,418 84,639 -73,027 543,913 1,003,220
Cash Flow
WACC 7.92%
Discount Period
1.50 2.50 3.50
Discount Factor
0.89 0.83 0.77
Present value of
-65,136 449,522 768,256
free cash flow
Terminal Value
Terminal Year Free
1,003,220
Cash Flow
Terminal/Perpetuity
0.25%
Growth Rate
Terminal Year EBITDA 1,906,072
Terminal Value 13,108,450
Implied Exit
7.1x
Multiple
Discount Period 4.0
Discount Factor 0.74
Present Value of
9,662,857
Terminal Value
The higher
% of
Enterprise
value, The
better
% of Enterprise Value 67.8%
financial
performance
based on
forcasting
result.
Source: Team Analysis
APPENDIX 15. ERAA Enterprise Value

Enterprise value

Present value of Free Cash Flow 1,152,642,356,173

Terminal Value 13,108,449,709,483

Discount Factor 0.74

Present Value of Terminal Value 9,662,856,914,878

% of Enterprise Value 67.8%

Enterprise value 14,261,092,065,656

Less: Total debt 4,946,736,919,565

Plus: Cash and Cash Equi. 366,395,661,376

Net Debt 4,580,341,258,189

Implied Equity Value IDR 9,680,750,807,467

Outstanding shares 3,190,000,000

Implied share price IDR 3,035

Close price as of 14 December 2018 2,190

% increasing (decreasing) 38.6%

Source: Team Analysis


Disclosures

Ownership and material conflicts of interest:

The author(s), or a member of their household, of this report [holds/does not


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member of their household, of this report [knows/does not know] of the
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The author(s), or a member of their household, does [not] serves as an


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Ratings guide:

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when the security is expected to deliver absolute returns of 15% or greater
over the next twelve month period, and recommends that investors take a
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over the next twelve months.

Disclaimer:

The information set forth herein has been obtained or derived from sources
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the author(s) does not make any representation or warranty, express or
implied, as to its accuracy or completeness. The information is not intended to
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