Indonesia Fixed Income Compendium 2018

Transcription

1 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 Indonesia Fixed Income Compendium 2018 Fixed Income Research 15 February 2018 Mandiri Sekuritas Analysts Handy Yunianto Country INDONESIA Country Rating as of 31Dec 2017 S&P BB+/Stable Moody s Baa3/Positive Fitch BBB/Stable Outstanding IDR Bond Market As of 31Dec17 Corporate Bonds: Rp405.1tn Government Bonds: Rp2,099.8tn Economic Data 31Dec F BI Rate (%), eop Inflation (YoY%) US$1=Rp, eop 13,588 13,600 GDP (YoY%) Yield 2 year (%) Yield 10 year (%) Yield 20 year (%) Indonesia Fixed Income Market Outlook: Just Earning the Yield Our persistently bullish view on the Indonesian rupiah government bond (INDOGB) market in the last two years has delivered very good result. In 2017, INDOGB kept posting positive gains by 17.7% (vs. +14% in 2016), also the second best yearly return in the past seven years. Our forecast for the 10yr INDOGB was at 6.36%, while the actual is 6.32% (vs. 7.97% upon entering 2017). Lowering bond yields made capital price appreciation become the biggest return contribution in The rally benefited from falling US Treasury yield and BI rate, lower Credit Default Swap on S&P rating, Fitch rating agency's upgrade, and relatively stable Indonesian rupiah currency against US Dollar. With this very good performance, the next question is: should investors look for more of the same in 2018? Or is the bond party nearly over? 10year INDOGB yield is projected at 6.36% YE As we expect the US Treasury yields will increase and that there will be no more BI rate cut this year, the risk for bond yields to increase tends to be higher. The 10yr INDOGB fair yields are projected at 6.36% (range: %) by YE 2018, assuming the 10yr US Treasury yield will increase to 2.6% due to pick up on global economic growth, expansive US fiscal, and the Fed's normalizing balance sheet; BI reference rate will be flat at 4.25%; 5yr Indonesia CDS will lower slightly to 80 on Moody s rating upgrade expectation; inflation projected stable at 3.6%, as we see the probability of a fuel price hike is smaller heading toward the presidential election in 2019; and a slight rupiah depreciation to 13,600 against US Dollar. Thus, we projected, return on investment in INDOGB is about 7.2% in 2018, mostly driven by coupon income rather than price appreciation. Gross bond issuances increased to Rp846.4tn (+19.4%yoy). To finance budget deficit of 2.2% of GDP (Rp325.9tn) this year, the Government is targeting to issue bonds totaling Rp846.4tngross or increasing 19.4% of the realization in The significantly higher issuance is mostly due to higher redemption, cash management as a consequence of the Government's strategy to issue more SPN/Tbill series in 2017, and maturing USD 3bn of global bonds. However, in terms of net bond issuances, the Government target is only Rp414.5tn in 2018 (vs. Rp433tn in 2017). Specific for INDOGB auction, we estimate net issuance is Rp209.8tn or increasing only less than 12% of nett issuances in We still view the bond issuances target is still manageable. Prefer Corporate over government bonds. With the entry level of bond yields being already low and the lower capital gain appreciation expectation for INDOGB, we expect corporate bonds will give better opportunity of returns in the fixed income asset class in IDR corporate bond issuances broke a new record high for two straight years in a row, reaching Rp158tn in We expect total issuances are still potentially high this year, credit risk will improve following higher GDP expectation, and liquidity risk premium in corporate bond is also potentially lower if participation from banks and foreign investors continue to increase. The successful issuance of the first rupiah global bond (Komodo bond) by PT Jasa Marga and the introduction of Financing Funding Ratio in the Banking industry might support demand from foreign investors and banks. The main risks are if Fed Fund Rate rose faster than expected (we forecast three hikes) and if the ECB reduced quantitative easing more than expected (we forecast ECB will still do quantitative easing until 3Q and maintain negative interest rate in 2018). Meanwhile, from domestic, the risks are coming from the increase in subsidized fuel price that could drive inflation higher and widening budget deficit. Please see important disclosure at the back of this report Page 1 of 160

2 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 Table of Contents Indonesia Fixed Income Compendium 2018 Review of 2017 INDOGB Performance: Impressive Return with Extremely Low Volatility... 3 Foreign fund inflows (still) behind the bond rally... 5 The government issued more SPN/SPNS to reduce duration liability and issued the first SEC registered global bond in Bullish market made trading volume in the secondary market continue to increase Outlook: Just Earning the Yield... 9 A very good start in 2018!... 9 Fair yield model the worst, base, best assumptions INDOGB Supply and Demand Outlook Who s buying? What to watch? IDR Corporate Bond Market Outlook: Lower Risk Premium Expectation The first komodo bonds issuances Credit Research Banking Sector: 2018: The Moment to Accelerate Growth Bank Negara Indonesia (Persero) Tbk Bank Pan Indonesia Tbk Bank OCBC NISP Tbk Bank Mandiri Taspen Pos BPD Maluku dan Maluku Utara Infrastructure Sector: Focus to Speed Up Infrastructure Development PT Adhi Karya (Persero) Tbk PT Waskita Karya (Persero) Tbk PT Hutama Karya (Persero) PT Wijaya Karya (Persero) Tbk PT Jasa Marga (Persero) Tbk Transporation Infra Sector: Industry Update: Massive Project Development PT Angkasa Pura I (Persero) PT Angkasa Pura II (Persero) PT Kereta Api Indonesia (Persero) Multi Finance Sector: 2018 Outlook: Database utilization Federal International Finance Adira Dinamika Multi Finance Astra Sedaya Finance Toyota Astra Financial Services Mandiri Tunas Finance Please see important disclosure at the back of this report Page 2 of 160

3 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 Review of 2017 INDOGB Performance: Impressive Return with Extremely Low Volatility 2017 is another good year for Indonesia's bond market. INDOGB kept posting positive gains by 17.7%. This is the best performance among Asian countries in two consecutive years, outperforming more than 10ppt against the average Asian local currency government bonds in 2017 after outperforming almost 16ppt in 2016, according to Bloomberg Index. The 2017 INDOGB performance also posted the second best yearly return in the past seven years. The biggest return contribution was from the capital bond price appreciation, since the 10yr INDOGB yield fell by 165bps to 6.32% compared to the end of last year. INDOGB benefited from falling US Treasury yield and BI rate, lower Credit Default Swap due to S&P and Fitch rating agencies' upgrade, and relatively stable Indonesian rupiah currency against US Dollar. This positive development factor has offset the negative factor from slightly higher inflation in 2017 due to increasing administered prices. Another interesting aspect about the 2017 bond performance is that it happened with extremely low volatility. On monthly basis performance, there s only one month with negative return for INDOGB, i.e. in October but it rebounded shortly a month after. The CBOE Volatility Index (VIX), which is widely the best proxy for fear in the market, was also trending lower in This has prompted some concerns that when market volatility returns, it will spike significantly. However, note that the correlation between 10yr INDOGB yield changes and VIX is relatively small, i.e. 13% based on historical data since Indonesia got investment grade in EXHIBIT 1. INDOGB TO RECORD THE SECOND BEST RETURN IN THE PAST SEVEN YEARS (13.3) Source: Bloomberg and Mandiri Sekuritas EXHIBIT 2. THERE S ONLY ONE MONTH OF NEGATIVE RETURN IN % 3.0% 2.0% 1.0% 0.0% 1.0% 2.0% Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 Dec17 Source: Bloomberg and Mandiri Sekuritas Bullish flattened yield curve made longer duration bond giving the best return performance in 2017 Looking at the yield curve shape, Indonesia's yield curve showed bullish flattened in 2017, as on average yield spread 10yrs/2yrs only 53bps (vs. 90bps average since 2010).. We see three factors supporting flattened yield curve in 2017: (1) Lowering BI rate by 50bps due to manageable inflation at BI s lower range target and rupiah currency's stability against US Dollar. The positive development from Bank Indonesia is also flattening the Open Market Operation rates. With Bank Indonesia having cut its benchmark interest rate by 50bps in 2017, the longest tenor OMO rate (12month) has fallen deeper by 73bps. Please see important disclosure at the back of this report Page 3 of 160

4 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 EXHIBIT 3. LOWERING BI RATE DUE TO MANAGEABLE INFLATION Inflation (YoY%) 10 9 BI's target, end of year Headline inflation (%, YoY) 8 Core inflation (%, YoY) Jan09 Aug10 Mar12 Oct13 May15 Dec16 Jul18 Feb20 Sep21 Source: CEIC and Mandiri Sekuritas EXHIBIT 4. FLATTENED OMO RATE ATTRACTED DEMAND FOR SHORTER TENORS Dec Dec Dec Overnight deposit facility Source: Bank Indonesia 2weeks SUN reverse repo 3months SUN reverse repo 9months BI Certificate (2) The Government's financing strategy that plans to reduce duration liability by issuing more SPN/Tbills makes the supply for longer tenor lessened. Note that in 2017, the Government issued Rp263.8tn SPN/SPNS compared to only Rp77.2tn in 2016 or 41% of total domestic bond issuances (vs. only 15% in 2016). As we mentioned in our previous strategy report, we view this strategy positively, as we believe demand for short end instrument will still be high following BI's plan to reduce SBI outstanding, and also due to relatively high rupiah liquidity (partly coming from Tax Amnesty program) and also due to there being a total of Rp195tn of money market funds that will mature in More SPN series also give room for Bank Indonesia to increase its government bonds holding via the primary market's non competitive auctions. This is also inline with the government target to reduce its duration liability to lower cost of fund. EXHIBIT 5. THE GOVERNMENT ISSUED MORE SPN/SPNS IN 2017 TO REDUCE DURATION LIABILITY Rp Trillion SPN/SPNS Issuances % of domestic gross issuancres Source: DMO and Mandiri Sekuritas 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% EXHIBIT 6. HIGHER ISSUANCES OF SPN ATTRACTED DEMAND FROM BANK INDONESIA Rp tn BI Ownership Source: DMO and Mandiri Sekuritas Net Buy/ (sell) (RHS) Rp tn (3) The US yield curve flattened, as Fed Fund Rate hiked three times totaling 75bps to 1.5%, but the longer 10yr notes' tenor yields actually fell slightly by 4bps to 2.4%. The lack of inflation and the narrowing term premium might be behind the flattened US yield curve. This made longer tenor INDOGB yields still attractive for foreign investors. Foreign investors have continued adding more on longer tenors of more than 10years totaling Rp309tn or 37% of net issuances in 2017 (vs. 36% in 2016). Please see important disclosure at the back of this report Page 4 of 160

5 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 EXHIBIT 7. CORRELATION BETWEEN UST YIELD CURVE AND RUPIAH YIELD CURVE % INDO 10YR (LHS) Jan14 Apr14 Jul14 Oct14 Jan15 Apr15 Jul15 Oct15 Jan16 Apr16 Jul16 Oct16 Jan17 Apr17 Jul17 Oct17 Source: Bloomberg and Mandiri Sekuritas UST 10YR (RHS) EXHIBIT 8. HISTORICAL RUPIAH YIELD CURVE SLOPE FOR 10/2YR YIELD SPREAD bps Jan10 Jun10 Nov10 Apr11 Sep11 Feb12 Jul12 Dec12 May13 Oct13 Mar14 Aug14 Jan15 Jun15 Nov15 Apr16 Sep16 Feb17 Jul17 Dec17 Source: Bloomberg and Mandiri Sekuritas Avg+1stDev Average Avg1stDev With the bullish flattened yield curve, longer duration bond gave the optimum return in The benchmark series 20yr FR0072 that has duration of 9.5yr reported total return of 18.4%, followed by 10yr FR0059, 15yr FR0074, and the shortest duration benchmark series, 5yrFR0061, that reported a total return of 17.9%, 16.5%, and 13.4%, respectively. EXHIBIT 9. IDR YIELD CURVE BULLISH FLATTENED IN 2017 EXHIBIT 10. LONG DURATION OUTPERFORMED IN GIDN10YR Index GIDN2YR Index Dec09 May10 Sep10 Feb11 Jun11 Oct11 Mar12 Jul12 Nov12 Apr13 Aug13 Jan14 May14 Sep14 Feb15 Jun15 Oct15 Mar16 Jul16 Dec16 Apr17 Aug17 Source: Bloomberg and Mandiri Sekuritas Source: Bloomberg and Mandiri Sekuritas Foreign fund inflows (still) behind the bond rally The easiest way to explain what drove the bond rally is by seeing the bond fund flows. Based on DMO data, clearly that the biggest buyer of INDOGB by institution type is coming from foreign investors. Foreign investors posted net buy of Rp170.3tn (USD12.5bn) this is the biggest foreign net buy on yearly basis. However, compared to net government bond issuances, it reflected 52.2% this is still lower compared to 64.1% which happened in Dec Meaning that in 2017 there was also some support from onshore investors, especially coming from onshore banks that reported net buy of Rp77.8tn the biggest yearly buyer FR61 FR59 FR74 FR72 5yr 10yr 15yr 20yr Please see important disclosure at the back of this report Page 5 of 160

6 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 From the government bond fund flows data in 2017, we also can see a significant decline in demand from insurances and pension funds compared to 2016 when the first POJK was applied. We believe they are switching to buy more SOE corporate bonds on infrastructure sectors to enhance their yields portfolio, as those also can replace the government bond portion to fulfill the POJK regulation. Based on the latest OJK data as of Nov2017, pension funds' and insurances' total investment has reached Rp1,186.3tn or has increased 15.7% (CAGR 5yr), with the portfolio portion in government bond and corporate bond reaching 40% of total investment (vs. 42% and 35% in 2016 and 2015, respectively). TABLE 1. FOREIGN STILL THE BIGGEST NET BUYER, WHILE PENSION FUNDS' AND INSURANCES' NET BUY DECLINED COMPARED TO 2016 Rp Trillion Dec14 Dec15 Dec16 Dec17 % of outs Net Buy/(Sell) Bank (excl. reverse repo) % Bank Indonesia % Mutual Fund % Insurance and Pension Fund % Foreign % Retail % Others % Total 1, , , , % Source: DMO and Mandiri Sekuritas Estimate EXHIBIT 11. TOTAL INVESTMENT OF PENSION FUND AND INSURANCE INDUSTRIES GROWING 15.7% CAGR 5YR Rp Trillion 1,400 1,200 1, Pension Fund Insurance Source: OJK and Mandiri Sekuritas Estimate Nov17 EXHIBIT 12. RELAXATION OF POJK ALLOWED CORPORATE BOND ON SOE INFRASTRUCTURE TO REPLACE GOVERNMENT BONDS % Life Insurance 48.6% Social Insurance Source: OJK and Mandiri Sekuritas Others Equity Corp Bond 23.8% 25.8% Pension Fund Mandatory Insurance Mutual Fund Deposit Govt Bond 13.2% General + reinsurance The government issued more SPN/SPNS to reduce duration liability and issued the first SEC registered global bond in 2017 The Government's strategy of financing in 2017 is still the same with previous year, i.e. optimizing the domestic market, which has reached 80.3% of the total gross issuances, while the rest through global bond issuances. The government also did front loading policy, as it has issued more than 55% of total target issuance in the first semester. The Government fulfilled bond issuances in 2017, as it has successfully issued Rp719tn gross or Rp436.7tn netto (vs. Rp400tn and Rp432tn target in the latest budget revision due to widening budget deficit from initial targets of Rp330.2tn and Rp397.2tn, respectively). The significant difference is that the Government has issued more SPN/SPNS series in 2017 totaling Rp236.8n or 31.5% of gross issuances (vs. only Rp73tn or 11.2% of gross issuances to reduce duration liability). Please see important disclosure at the back of this report Page 6 of 160

7 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 The Government also did the first SEC registered global bond this year to broaden investor base and reduce cost of fund. Total issuances for the first SEC registered reached USD4n with the lowest issuances yield ever. The Government issued 5yr, 10yr, and 30yr tenors yielding 3%, 3.55%, and 4.4%, respectively. The biggest issuance was for the longest 30 year tenor at USD1.75bn. United States' foreign investors were (still) the biggest buyer for Indonesia's global bond issuances, reported at USD2.14bn or 53% of total issuances. The next biggest buyer was coming from Asian investors (excluding Indonesian) that reported USD0.85bn or 21% of total issuances. Meanwhile, European and Indonesian investors only got USD0.74bn and Rp0.07bn or 18% and 7% of total issuances, respectively. From investor types, asset management is the biggest buyer, totaling USD2.16bn or 54% of total issuances. It is followed by Banks and Insurances/Pension Funds that reported buys of USD0.84bn and USD0.81bn or 51% and 20% of total issuances, respectively. TABLE 2. THE GOVERNMENT FULFILLED BOND ISSUANCES TARGET IN 2017 Budget 2017 Budget (Baseline) 2017 Realization 2017 Budget deficit % of GDP Budget deficit (Rp tn) Redemption, Cash Management & Buyback Government bond net issuances Government bond gross issuances Realized issuance as of 29Dec Government Securities Maturing and Buyback Total Net Issuances Total Gross Issuances Domestic bonds Auction Conventional FR/VR dan Tbills/ZC Retail bonds (ORI & Sukuk) 23.0 Domestic sukuk Private placement 13.9 Global bonds Source: DMO and Mandiri Sekuritas EXHIBIT 13. OPTIMIZING DOMESTIC MARKET BY ISSUING MORE RUPIAH BONDS Rp Trillion % % Source: DMO and Mandiri Sekuritas 22% % 20% Domestic Issuances % Global to Total Issuances (RHS) Global Issuances 25% 20% 15% 10% 5% 0% EXHIBIT 14. FRONT LOADING POLICY STILL CONTINUES % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q 2Q 3Q 4Q Source: DMO and Mandiri Sekuritas Please see important disclosure at the back of this report Page 7 of 160

8 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 EXHIBIT 15. UNITED STATES IS THE BIGGEST BUYER FOR THE FIRST SEC REGISTERED GLOBAL BOND EXHIBIT 16. ASSET MANAGEMENT IS THE BIGGEST BUYER THE FIRST SEC REGISTERED GLOBAL BOND United States 54% Asia (ex. Indonesia) 21% Europe 18% Indonesia 7% Bank 21% Asset Manager/ Fund Manager 54% Insurances /Pension Fund 20% Private banks 1% Sovereign wealth funds 4% Source: DMO and Mandiri Sekuritas Source: DMO and Mandiri Sekuritas Bullish market made trading volume in the secondary market continue to increase Although the primary market's government bonds continued to increase by 18.4% compared to 2016, but trading volume in the secondary market is still on an increasing trend. On average the trading volume per day in 2017 reached Rp15.1tn (+2% compared to 2016). The benchmark series the 10year FR0059 and 20year FR0072 were the most liquid bond series in We came up with the top ten liquidity index that ranked from three variables, i.e. total trading volume, total frequency, and continuity of trading in the last three months (Exhibit 18). EXHIBIT 17. AVERAGE TRADING VOLUME PER DAY Rp tn x 1, EXHIBIT 18. BENCHMARK SERIES STILL THE MOST LIQUID Rank Bond Series Coupon Maturity Liquidity index JanDec 2017 Sum of freq Sum of vol. Continuity Score 1 FR May FR May FR May FR Aug FR Sep FR Mar FR Jul FR Apr Avg. Volume per day Source: IDX and Mandiri Sekuritas Avg. Freq Per Day (RHS) 9 FR May FR Mar Source: IDX and Mandiri Sekuritas Please see important disclosure at the back of this report Page 8 of 160

9 Indonesia Fixed Income Compendium 2018 Debt Research 15 February Outlook: Just Earning the Yield It is more challenging for us to forecast bond market performance after gaining very good performance in the last two years. We are still comfortable using our Shapley value regression index to forecast fair yields on INDOGB this year, as it has proven to give robust results historically. We are also measuring the supply and demand of INDOGB to support our view. Our assessment, the bond market is likely to still give positive returns in However, with already low entry levels of bond yields, the chance of repeating doubledigit performance as in the last two years is likely to be small. We projected the return on investment for INDOGB will be about 7.2% in 2018, driven by coupon income rather than price appreciation. We are more bullish in 1Q2018, reasoning that the 10yr INDOGB might break 6% amid low inflation and expectation on Moody s upgrade rating before continuing to increase to our base scenario of 6.36% (ranging %) by YE We also see that the probability for INDOGB to crash (like in 2013, which reported losses 13.3%yoy after gaining 22% previously) is still small this year. The Government's action to reduce primary balance deficit this year is a very positive action. With lower capital gain appreciation expectation for INDOGB, we expect corporate bonds will give better opportunity for returns in fixed income asset class in The main risks from global factor are if Fed Fund Rate rose faster than expected (we forecast three hikes) and if the ECB reduced quantitative easing more than expected (we forecast ECB will still do quantitative easing until 3Q and maintain negative interest rate in 2018). Meanwhile, from domestic, the main risks are coming from the increase in subsidized fuel price (which could drive inflation and trigger a rise in Bank Indonesia's benchmark rate) and the increase in government bond supply if the budget deficit widened from 2.2% of GDP. A very good start in 2018! The first INDOGB auction this year on 3Jan attracted very strong demand, as it reported total bids of Rp86.2tn or more than five times the bids to target ratio the highest ever. According to DMO data, foreign investor bids reported Rp18.0tn or 21% of total bids; still lower than average foreign bids per auction last year that reached 24.6%. Meanwhile, total foreign awarded to total foreign bids reported only 32% (vs. 43.6% average per auction in 2017). Historically lower foreign bids absorption will push bond yield lower as foreigners will chase bonds in secondary. EXHIBIT 19. FOREIGN BIDS REPORTED LOWER THAN AVERAGE FOREIGN BIDS PER AUCTION LAST YEAR EXHIBIT YR FR64 SERIES WAS THE MOST ATTRACTIVE BOND SERIES DURING THE FIRST AUCTION 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Foreign Incoming Bids (RHS) Local Incoming Bids (RHS) Source: DMO and Mandiri Sekuritas Foreign Awarded to Total Foreign Bid (LHS) Foreign Incoming Bid to Total Bid (LHS) 3Jan17 17Jan17 31Jan17 14Feb17 28Feb17 14Mar17 27Mar17 11Apr17 25Apr17 9May17 23May17 6Jun17 20Jun17 11Jul17 25Jul17 8Aug17 22Aug17 5Sep17 19Sep17 3Oct17 31Oct17 14Nov17 Avg Jan Rp Trillion Total Bids Total Accepted Bid to cover ratio (RHS) mo SPN Source: DMO and Mandiri Sekuritas yr SPN 5yr FR yr FR yr FR Please see important disclosure at the back of this report Page 9 of 160

10 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 Based on the PLTE data, trading volume after the auction reached Rp28.3tn (vs. Rp15.1tn average per day in 2017) and the 10yr bond yields continued falling to 6.09% from the average yield awarded during the auction at 6.24%. Foreign investors are the biggest buyer, as they have bought INDOGB totaling Rp25.4tn mtd as of 10Jan2018. This is also the biggest foreign fund inflow in early January's record ever. The positive catalysts are coming from Fitch's rating upgrade in Dec 2017 and there being expectation on INDOGB to be included in the Bloomberg Global Aggregate Index in January Mirroring Indonesia's global bonds that are already included in the index and weighted 0.18% as of 3Jan2018 with AUM index of around USD22.5tn, then Indonesia s inclusion will attract foreign fund inflows into INDOGB of USD44.5bn. EXHIBIT 21. THE 10YR BOND YIELDS FELL IN EARLY 2018 INLINE WITH HISTORICAL PATTERN (10.0) (20.0) (30.0) (40.0) (50.0) (60.0) (70.0) Source: DMO and Mandiri Sekuritas EXHIBIT 22. HUGE FOREIGN FUND INFLOWS SUPPORT THE RALLY 45, , , , ,000 20,000 15,000 10,000 5,000 (5,000) Source: DMO and Mandiri Sekuritas EXHIBIT 23. COUNTRY WEIGHT ON LATEST GLOBAL AGGREGATE BOND INDEX (AS OF 3JAN2018) Weighted Weighted Currency Currency (%) (%) US Dollar Mexican Peso 0.26 Euro Polish Zloty 0.23 Japanese Yen Singapore Dollar 0.19 British Pound 5.23 Russian Ruble 0.14 Canadian Dollar 2.59 Israeli Shekel 0.13 Australian Dollar 1.39 New Zealand Dollar 0.13 South Korean Won 1.25 Norwegian Krone 0.12 Swiss Franc 0.61 Czech Koruna 0.10 Swedish Krona 0.44 Hungarian Forint 0.09 Danish Krone 0.29 Hong Kong Dollar 0.02 Malaysian Ringgit 0.29 S. African Rand 0.02 Thai Baht 0.27 Chilean Peso 0.01 Source: Bloomberg EXHIBIT 24. IF INDONESIA IS INCLUDED, IT WOULD BE RANK FOUR THE HIGHEST BOND YIELD IN GLOBAL AGGREGATE INDEX S. African Rand Mexican Peso Russian Ruble Indonesia Rupiah Malaysian Ringgit Chilean Peso US Dollar Australian Dollar Canadian Dollar Polish Zloty New Zealand Dollar Thai Baht South Korean Won Singapore Dollar Hong Kong Dollar British Pound Norwegian Krone Hungarian Forint Israeli Shekel Czech Koruna Euro Danish Krone Swedish Krona Japanese Yen Swiss Franc Source: Bloomberg and Mandiri Sekuritas Please see important disclosure at the back of this report Page 10 of 160

11 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 TABLE 3. FACT SHEET BLOOMBERG GLOBAL AGGREGATE BOND INDEX METHODOLOGY RULE OF INCLUSION Rules for Inclusion Eligible Currencies Principal and coupon must be dominated in one of the following eligible currencies: Americas: USD, CAD, CLP, MXN AMEA: EUR, GBP, CHF, CZK, DKK, ILS, NOK, PLN, RUB, SEK, TRY, ZAR AsianPacific: JPY, AUD, HKD, KRW, NZD, SGD, MYR, THB Eligible currencies will not be necessarily have debt included in the index if no securities satisfy the inclusion rules. New currency inclusion is reviewed annually through the index governance process. To be considered for inclusion, new currency candidates must be rated investment grade and sufficiently tradable, convertible and hedgeable for international investors. Quality Securities must be rated investment grade (Baa3/BBB/BBB or higher) using the middle rating of Moody's, S&P and Fitch; when a rating from only two agencies is available, the lower is used; when only one agency rates a bond, that rating is used. In cases where explicit bondlevel ratings may not be available. other sources may be used to classify securities by credit quality: Local currency treasury and hard currency sovereign issues are classified using the middle issuerlevel local currency and hard currency debt ratings from each agency for all outstanding bonds, even if bondlevel ratings are available Expected rating at issuance may be used to ensure timely index inclusion or to classify splitrated issuers properly. Unrated securities may use an issuer rating for index classification purposes, if available. Unrated subordinated securities are included if a subordinated issuer rating is available. German Pfandbriefe are assigned ratings that are one full rating category above the issuer's unsecured debt. Coupon Fixedrate coupon (including zero coupons). Callable fixedtofloating rate bonds are eligible during their fixedrate term only Bonds with a stepup coupon that changes according to a predetermined schedule are eligible. Maturity At least one year until final maturity, regardless of optionality. MBS must have a weighted average maturity of at least one year. CMBS and ABS must have a remaining average life of at least one year Bonds that convert from fixed to floating rate, including fixedtofloat perpetual, will exit the index one year prior to conversion o floating rate. Fixedrate perpetual are not included. Subindices based on maturity are inclusive of lower bounds. Intermediate maturity bands include bonds with maturities of 1 to 9,999 years. Long maturity bands include maturities of 10 years or greater. Market of Issue Publicly issued in the global and regional markets. Seniority of debt Senior and subordinated issues are included. Taxability Only fully taxable issues are eligible. Build America Bonds (BABs) with the tax credit to the issuer are eligible; those with tax credits issued to investors are considered tax exempt. Dividend Received Deduction (DRD) and Qualified Dividend Income (QDI) eligible securities are excluded. Source: Bloomberg However, we (still) don't expect yields to break low records this year as happened in 2012 Although INDOGB had a very good start early this year, we still don t expect the yields to break low records this year as happened in 2012 when 10yr INDOGB yield was 5.05%. The reason is that the global liquidity condition and the US Treasury yield outlook for this year are very different compared to Note that, in 2012 the average US Treasury yield was 1.78% (ranging %), but in 2017 the US Treasury yield ranged % and we expect it might go higher in Meanwhile from the global liquidity perspective, with the Fed starting to reduce its balance sheet in October 2017, this will also present a different situation compared to 2012 when the Fed still did quantitative easing (Exhibit 26). Our calculation suggests that the total rolloff amount will be USD 420bn, of which USD 252bn are US Treasuries and USD 168bn are MBS in Simultaneously, the European Central Bank (ECB) and the Bank of Japan (BoJ) have also hinted their plan to take back monetary stimulus and edge back to normality, although not as rapid as the US. Please see important disclosure at the back of this report Page 11 of 160

12 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 EXHIBIT YRUS TREASURY YIELD VS. 10YRINDOGB % INDO 10yr UST 10yr Jan11 Jan13 Jan15 Jan17 Source: Bloomberg EXHIBIT 26. THE FED BALANCE SHEET: THREE MONTH ROLLING CHANGE ($BN) 1,600 1,400 1,200 1, Jan08 Aug08 Mar09 Oct09 May10 Dec10 Jul11 Feb12 Sep12 Apr13 Nov13 Jun14 Jan15 Aug15 Mar16 Oct16 May17 Dec17 Source: Bloomberg and Mandiri Sekuritas What is the fair value for the 10yr INDOGB? We are still comfortable using our Shapley value regression index to forecast fair yields on INDOGB this year, as it has proven to give robust results historically. There are five key drivers explaining rupiah government bond yield, from the most important to the least important: UST yield, BI rate, 5yr CDS, Inflation, and rupiah currency. A regression model using those five variables gives us the Rsquare of 80% meaning that only 20% was coming from other variables in the model. We are also measuring the supply and demand of government bonds to support our view on the rupiah government bond market in US Treasury yield outlook 2018: (still) expecting only a mild net increase in yields The Fed s balance sheet expansion has played an important role in reducing US bond yields since Despite acceleration in the pace of monetary policy normalization in the US this year, we still expect the risk of a material rise in longterm interest rates to remain modest. As we mentioned in our previous strategy report last year, there are at least three factors to support our expectation that US Treasury yield might only have a mild net increase to 2.6% projection for this year (vs. implied forward at 2.63% and Bloomberg consensus expectation at 2.91% as of 16Jan2018). (1) Inflation might still be below 2% in In the last FOMC meeting in December, although US Economic growth was expected to be revised up to 2.5% in 2018 from previously 2.1% in September's projection and Unemployment rate was also projected to lower to 3.9% (vs. previous estimation of 4.1%), but the PCE inflation projection was still the same at 1.9% (still below the Fed s target of 2%). Relatively low inflation expectation also happened in Europe and Japan. Based on the latest Bloomberg consensus forecast, inflation in Europe and Japan was also still expected below 2% for this year, i.e. 1.5% and 0.8%, respectively. This gives us confidence that ECB and BoJ might not hurry on ending their QE program this year. This also raises expectation that Europe's and Japan's government bond yield might only increase slightly to 0.89% and 0.11% for 10years tenors (vs. 0.5% and 0.05% in 2017), respectively. TABLE 4. FOMC MEETING TARGET PROJECTION Variable FOMC Meeting Target Projection Longer Run Real GDP Growth (%) (vs. September projection) Unemployment Rate (%) (vs. September projection) PCE Inflation Rate (%) (vs. September projection) Federal Funds Rate (%) (vs. September projection) Source: Bloomberg Please see important disclosure at the back of this report Page 12 of 160

13 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 TABLE 5. BLOOMBERG ECONOMIST CONSENSUS FORECAST: ECB AND BOJ MIGHT NOT HURRY ON ENDING THEIR QE PROGRAM THIS YEAR F 2018F United States Real GDP (yoy %) CPI (yoy %) Central Bank Rates (%) month rate (%) yr Notes (%) implied forward 2.63 European Union Japan Real GDP (yoy %) (0.4) CPI (yoy %) Central Bank Rates (%) month rate (%) (0.12) (0.33) (0.29) 10yr Notes (%) (0.38) Real GDP (yoy %) CPI (yoy %) (0.1) Central Bank Rates (%) (0.10) 0.1 3month rate (%) (0.05) (0.02) yr Notes (%) Source: Bloomberg as of 16Jan (2) Foreign investor demand for UST might still be high. In terms of nominal and real yield, US Treasury yield also reported the highest compared to other developed market countries' bonds. We believe this will support demand for US Treasury, which would curb the US Treasury yield from increasing significantly, although there will be increasing Fed Fund Rate hike expectation in Another support factor, we believe the recent UST yield increase has already been pricedin in the Fed Fund Rate increase by 75bps to 2.25% by YE This is reconfirmed by the US Treasury holder s data, although the Fed did QE by buying US Treasury bonds but it was still not the dominant buyer of Treasuries since the financial crisis. Other market participants, including foreign (both private and official) and financial sectors, have absorbed an even larger share of the increase in outstanding Treasury debt over the same time period. EXHIBIT 27. US TREASURY YIELDS ARE STILL ATTRACTIVE COMPARED TO EURO AND JAPAN BONDS 3.0 UST 10YR EUR10YR JPY10YR 2.5 EXHIBIT 28. HOLDERS OF US TREASURYS: THE FED IS NOT A DOMINANT BUYER OF US TREASURYS Jan15 Mar15 May15 Jul15 Source: Bloomberg Sep15 Nov15 Jan16 Mar16 May16 Jul16 Sep16 Nov16 Jan17 Mar17 May17 Jul17 Sep17 Nov17 Source: Federal Reserve Please see important disclosure at the back of this report Page 13 of 160

14 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 EXHIBIT 29. ECB AND BOJ CONTINUED THEIR QE PROGRAM EXHIBIT 30. TOTAL ASSET OF GLOBAL CENTRAL BANKS STILL INCREASES USD Tn ECB FED BOJ Jan11 May11 Sep11 Jan12 May12 Sep12 Jan13 May13 Sep13 Jan14 May14 Sep14 Jan15 May15 Sep15 Jan16 May16 Sep16 Jan17 May17 Sep17 Source: Bloomberg Source: Bloomberg (3) The Fed s forward guidance, as it has committed to hold rates for a long period of time following very gradual Fed Fund Rate hike expectation this year it expects three rate hikes in From the reduction of balance sheet, it happens passively and not as a result of actively selling Treasuries or MBS into the market. The Fed has planned monthly caps total of USD 180 billion in maturing Treasuries in the first 12 months of runoff, while the total US Treasury bonds owned by the Fed that will mature this year has reached USD425bn meaning that the Fed will still be buying US Treasury this year, projected at USD200bn. EXHIBIT 31. THE FED IS STILL BUYING US TREASURY THIS YEAR AS UST BONDS THAT MATURED IN 2018 ARE STILL HIGHER THAN THE QE REDUCTION BALANCE SHEET PLAN EXHIBIT 32. FED DOT PLOT: THE FED EXPECTS THREE HIKES ON FFR THIS YEAR Source: Bloomberg Source: Bloomberg 2. Inflation and BI rate outlook 2018: inflation still manageable but Bank Indonesia might have done easing rates Inflation has been low in the last three years, far below the average inflation of 7% in There are two main factors that contribute the most to Indonesia s inflation, i.e. food and administered price. In 2017 Indonesia's inflation reached 3.61% (vs. 3.02% in 2016, 4.3% of Government's target in budget and 4% of BI s mid inflation target). There were different factors that triggered higher inflation in 2017 compared to 2016, mostly due to increasing administered prices from electricity tariff and vehicle registration certificate/stnk compared to 2016, in which higher inflation mostly came from volatile food prices, such as for red chili and onion. Thus, inflation has been below 4% for three consecutive years. Please see important disclosure at the back of this report Page 14 of 160

15 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 With core inflation also hitting a new low, as it fell to 2.95%yoy and as the Government will keep electricity tariff and the prices of RON88 gasoline and diesel fuels unchanged in 1Q2018 to support purchasing power, this will lessen inflation pressure this yearassuming volatile food inflation can be maintained low like in Our economist also sees that administered prices are unlikely to increase after March due to the political year. There are two indicators to support this view: 1) the allocation for energy subsidy has been increased by 5% for next year, which is the first energy subsidy increase during president Jokowi s term; and 2) the inflation assumption in 2018 budget is set at 3.5%, suggesting minor chance of a high increase in administered prices. Moreover, we see that next year s fiscal spending will focus on components that support purchasing power, especially to the low class income. Total subsidy and social spending will increase to Rp254tn in 2018 from Rp226tn in Thus we agree with the Government's assumption and Bank Indonesia's target inflation this year at around %. EXHIBIT 33. NO INCREASE IN ADMINISTERED PRICES AHEAD OF THE ELECTION AND INFRASTRUCTURE DEVELOPMENT WILL DRIVE INFLATION OUTLOOK TO REMAIN LOW INLINE WITH BI S TARGET Source: BI, CEIC and Mandiri Sekuritas Inflation (% YoY, year end) Average F 2018F 7.9 EXHIBIT 34. LOW INFLATION HAS BEEN DRIVEN BY LOW FOOD PRICES 10M Food Inflation (%) Source: CEIC Two main risks for inflation to be potentially higher than our estimation this year come from: 1) if the Government decides to raise the low retail fuel price (RON 88) due to higher oil price. Based on our calculation, the current economical price for RON 88 is 20% higher than the price sold by gas stations at Rp6,550/liter (assuming Brent Oil Price at USD 60/bbl and the exchange rate at Rp13,500/USD); 2) a sudden increase on food prices due to unstable weather condition. Our economist maintains the 7DRRR forecast at 4.25% until YE18. Bank Indonesia has highlighted the risks of policy normalization and it has taken into account three Fed Fund Rate hikes in 2018 (similar with the median projection in the dot plot). However, it reaffirmed its neutral stance, which implies that it would maintain its policy rate unless FFR rose above three times next year, in our opinion. We set our view that the impact of balance sheet reduction could be managed, as long as it stays on the initial gradual plan. Additionally, ECB and BoJ will also still implement QE, partly offsetting the Fed s balance sheet reduction. In order to boost banking intermediation, BI will set macro prudential measures as its policy forefront (the details of Financing to Funding Ratio (FFR) will be published in Jan18). 3. Lower CDS outlook 2018, as we expect Moody s rating agency will upgrade Indonesia's sovereign rating to Baa2 Based on our Ordered Logit Model that previously predicted accurately that Indonesia should be upgraded by S&P and Fitch rating agencies last year, the probability Indonesia's sovereign rating to be upgraded by Moodys is also higher this year. There are four independent variables that are statistically significant for all rating agencies, i.e. GDP per capita, Inflation, Government Debt per Government revenue, and Please see important disclosure at the back of this report Page 15 of 160

16 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 Government Fiscal Balance to GDP. There are also some specific macro variables that are monitored by rating agencies, such as Moody s is concerned more about current account balance data, Fitch also about Forex reserve and nominal GDP, while S&P on Gross Domestic Saving to GDP. With better current account balance data development and the Government's plan to reduce primary balance deficit this year, we see that the probability to be upgraded to Baa2 is higher. Moody s rating agency expected to announce Indonesia's sovereign rating on February 2018, note that Moody's has upgraded Indonesia's sovereign rating to positive outlook in Feb2017, rated Baa3 since We think the market has partly priced in this probability, as reflected by the low 5yr CDS, which traded at 79 as of 16 Jan or lower than theoretically countries rated Baa3 by Moody s rating agency, i.e Some Baa2 countries that have lower than Indonesia s 5yr CDS are Spain (46), Philippines (54), Panama (60) and India (64). EXHIBIT 35. LIST OF SOME SIGNIFICANT VARIABLES BASED ON SOVEREIGN ORDINAL LOGIT MODEL Order of Importance Moody's S&P Fitch Most important Current Acc. Balance Inflation (% yoy) Inflation (% yoy) Least important Source: Mandiri Sekuritas Estimate Inflation (% yoy) Gross Investment per GDP Govt Fiscal Balance to GDP Gross Investment per GDP Govt Fiscal Balance to GDP Govt Debt per Govt Revenue Govt Debt per Govt Revenue Gross Domestic Saving to GDP Forex Reserve Govt Primary Balance to GDP Govt Debt per Govt Revenue Nominal GDP Govt Fiscal Balance to GDP GDP per capita GDP per capita GDP per capita EXHIBIT 36. LOWER INDONESIA CDS TREND ON UPGRADE RATING STORY Indonesia Italy Colombia Philippines Portugal Bulgaria Dec12 Apr13 Aug13 Dec13 Apr14 Aug14 Dec14 Apr15 Aug15 Dec15 Apr16 Aug16 Dec16 Apr17 Aug17 Dec17 EXHIBIT 37. MARKET PARTLY PRICED IN INDONESIA TO BE UPGRADED BY MOODY S RATING THIS YEAR y = e x R² = Source: Bloomberg Source: Bloomberg Please see important disclosure at the back of this report Page 16 of 160

17 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 TABLE 6. COMPARISON OF KEY RATING METRICS BETWEEN INDONESIA AND SELECTED Baa2 RATED COUNTRIES INDONESIA Indonesia VS Avg. Economic Indicators F Baa2 rated countries Current Account (% of GDP) Lower Average Inflation (YoY%) Higher Gross Investment per GDP Higher Govt Debt per Govt Revenue Lower Govt Primary Balance to GDP Higher Govt Fiscal Balance to GDP Lower GDP per capita 3, , , Lower Improvement relative to previous year Deterioration relative to previous year Color key Country Bulgaria Colombia Italy Panama Philippines Spain Uruguay India Moody's Rating Baa2 Baa2 Baa2 Baa2 Baa2 Baa2 Baa2 Baa2 Average Economic Indicators Current Account (% of GDP) 5.3 (4.2) (2.7) (5.1) (0.4) (0.6) (0.7) Average Inflation (YoY%) Gross Investment per GDP Govt Debt per Govt Revenue Govt Primary Balance to GDP n.a. n.a. 1.1 n.a. n.a. (0.9) n.a. n.a. n.a. Govt Fiscal Balance to GDP (3.8) (2.5) (2.2) (3.4) (4.5) (2.0) (3.7) (2.8) GDP per capita 7,377 6,048 30,507 13,680 2,927 26,565 15,366 1,710 13,023 Source: Bloomberg, IMF, CEIC and Mandiri Sekuritas Estimate The Government's action to reduce primary balance deficit this year will be a very positive action. After the commodity price boom era declined since 2008, Indonesia got hit by problems on primary balance deficit. In 2017, the primary balance deficit realization reported Rp109tn (vs. Rp88.2tn in 2016 and Rp144tn initial target, as budget deficit was expected at 2.67% of GDP). The main reason of this increasing value was the continued lowerthanexpectation revenue that compelled the Government to increase budget deficit and increase government bond issuances. However, we believe the primary balance deficit this year is potentially lower, following two reasons: 1. There is improvement on tax progression revenue in 2017 following post tax amnesty and better compliances. Tax revenue realization in 2017 reached Rp1,340tn or grew by 4.3%yoy. Excluding the oneoff tax revenue, it grew higher by 11.3%yoy compared with flat/contraction in the past two years. From revenue side, there s also potential additional revenue due to higher oil prices than the government assumption. That made the Government set the APBN2018 deficit at only 2.2% of GDP or Rp325.9tn (vs. 2.9% of GDP target in 2017, but the realization was 2.57% of GDP). 2. Total government bonds that will mature this year are at Rp432tn (including rollover SPN series), with the weighted average coupon rate at 7.4% or higher than average yield government offering in secondary market currently at 6.23%. Since the Government plans to reduce its duration liability by issuing shorter tenor, we suspect it might also lower potential interest payment for this year. Please see important disclosure at the back of this report Page 17 of 160

18 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 EXHIBIT 38. PRIMARY BALANCE WIDENED SINCE 2013 AFTER COMMODITY BOOM PRICE ENDED EXHIBIT 39. % INTEREST PAYMENT TO EXPENDITURE CONTINUE TO INCREASE SINCE % 60.0 Interest payment (LHS) 18.0% % to expenditure (RHS) 16.0% 14.0% % (20.0) 10.0% (40.0).0 8.0% (60.0) 6.0% (80.0) % (.0) 2.0% (120.0) F % Source: MoF Source: MoF and Mandiri Sekuuritas TABLE 7. LIST OF GOVERNMENT BONDS THAT MATURED IN No Series Coupon (%) Curr Size (in Bn) No Series Coupon (%) Curr Size (in Bn) No Series Coupon (%) 1 FR IDR 9,086 1 FR IDR 12,707 1 FR IDR FR IDR 13,340 2 FR IDR 9,784 2 FR IDR 3,066 3 ORI IDR 20,205 3 IFR IDR 1,171 3 FR IDR 4,761 4 PBS IDR 19,630 4 ORI IDR 21,216 4 FR IDR 17,146 5 RI USD 1 5 RI USD 1 5 IFR IDR 1,985 6 SBR IDR 2,391 6 SDHI2017A 5.16 IDR 2,000 6 ORI IDR 27,439 7 SDHI2016A 5.03 IDR 1,000 7 SPN IDR 1,000 7 PBS IDR 6,725 8 SPN IDR SPN IDR 2,000 8 PBS IDR 37,890 9 SPN IDR SPN IDR 2,000 9 RI USD 2 10 SPN IDR 8, SPN IDR 6, 10 RIJPY JPY SPN IDR 5, SPN IDR 7, SBR IDR 3, SPN IDR 7, SPN IDR 4, SDHI2018A 6.06 IDR 2, SPN IDR 3, SPN IDR 6, SNI USD 1 14 SPN IDR 2, SPN IDR 2, SPN IDR 3, SPN IDR 2, SPN IDR 3, SPN IDR 2, SPN IDR 3, SPN IDR 2, SPN IDR 5, SPN IDR 2, SPN IDR 2, SPN IDR 20, SPN IDR 1, SPN IDR 3, SPN IDR 9, SPN IDR 1, SPN IDR 1, SPN IDR 8, SPN IDR SPN IDR SPN IDR 5, SPN IDR SPN IDR 1, SPN IDR 5, SPNNT IDR 1, SPN IDR SPN IDR 3, 23 SPNNT IDR 10, SPNS IDR 2, SPN IDR 8, SPNNT IDR 8, SPNS IDR 2, SPN IDR 3, SPNNT IDR 1, SPNS IDR 2, SPN12184 IDR 6, SPNNT IDR SPNS IDR 1, SPN IDR 3, SPNS IDR 3, SR IDR 19, SPNNT IDR 10, SPNS IDR USDFR USD 1 28 SPNS IDR 7, SPNS IDR 1, VR IDR 9, SPNS IDR 2, SPNS IDR 1, VR IDR 3, SPNS IDR 3, SPNS IDR 1, SPNS IDR 3, SPNSNT IDR 5, SR IDR 21,965 Curr Size (in Bn) Please see important disclosure at the back of this report Page 18 of 160

19 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 No Series Coupon (%) Curr Size (in Bn) No Series Coupon (%) Curr Size (in Bn) No Series Coupon (%) 33 SR IDR 14, ST IDR 2, VR IDR 9, VR IDR 5, VR IDR 8, VR IDR 5,442 Source: MoF and Mandiri Sekuritas Estimate Curr Size (in Bn) 36 VR IDR 7, Rupiah outlook 2018: Rp13,600/USD in YE18, slightly depreciated from our YE17 at Rp13,550/USD. Our economist expect that rupiah currency will slightly depreciate to Rp13,598/USD in YE18 (vs. Rp13,548/USD), due to widening the current account deficit to 2.0% of GDP from 1.7% of GDP in Import projected to increase on the back of higher domestic demand and the possibility of higher oil imports. We are more cautious about the pass through of financial account volatility to the rupiah as a consequence of policy normalization of advanced economies. However, we still don t expect rupiah this year will depreciate more than 14,000 against US dollar the breakeven level that might trigger bond fund flows as Fed Fund Rate is still expected to increase gradually, government bond yields in terms of nominal and real yields are still attractive compared with other emerging markets', and foreign exchange reserve buffers by Bank Indonesia are comfortable TABLE 8. RP14,000 IS THE BREAKEVEN LEVEL THAT MIGHT TRIGGER FOREIGN FUND OUTFLOWS IN BOND MARKET Foreign Avg YTM Avg IDR Breakeven Inflow/(Outflow) (%) Jan16 19, ,860 15,010 Feb16 9, ,512 14,641 Mar16 18, ,143 14,168 Apr16 20, ,173 14,179 May16 (4,205) ,441 Jun16 22, ,333 14,333 Jul16 15, ,120 14,036 Aug16 9, ,157 14,091 Sep16 16, ,123 14,076 Oct16 (9,347) ,024 Nov16 (19,577) ,318 Dec16 9, ,415 14,509 Jan17 19, ,352 14,388 Feb17 6, ,360 14,390 Mar17 31, ,337 14,310 Apr17 22, ,306 14,269 May17 10, ,319 14,276 Jun17 14, ,306 14,251 Jul17 4, ,340 14,274 Aug17 9, ,339 14,228 Sep17 34, ,309 14,171 Oct17 (23,172) ,525 Nov17 34, ,518 14,384 Dec17 5, ,558 14,406 Source: DMO, Bloomberg, and Mandiri Sekuritas Estimate Please see important disclosure at the back of this report Page 19 of 160

20 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 Fair yield model the worst, base, best assumptions Base scenario for 10year INDOGB yield is projected at 6.36% by yearend Given that we expect US Treasury yields will increase and no more BI cut rate this year, the risk for bond yields to increase is higher. We are still comfortable using our Shapley value regression index to forecast fair yields for INDOGB this year, as it has proven to give robust results historically. The 10yr INDOGB fair yields are projected at 6.36% (range: %) by YE 2017, assuming 10yr US Treasury yield to increase to 2.6% due to pick up on global economic growth, expansive US fiscal, and the Fed's normalizing balance sheet; BI reference rate will be flat at 4.25%; 5yr Indonesia CDS will lower slightly to 80 on Moody s rating upgrade expectation; inflation projected stable at 3.6%, as we see the probability of a fuel price hike is smaller heading toward the presidential election in 2019; and slight rupiah depreciation to 13,600 against US dollar. Thus, we project the return on investment in INDOGB is about 7.2% in 2018, mostly driven by coupon income rather than price appreciation. However, we also see that the probability of INDOGB to crash (as happened in 2013; reported losses of 13.3%yoy after gaining 22% previously) is still small this year. We also derived the best and worst projections for 10yr INDOGB yields, projected at 5.65% and 7.62%, respectively. Our bullish scenario assumes that S&P also upgrades Indonesia to be investment grade that would push the 5yr CDS lower to 70, push the 10yr US Treasury yield lower to 2.3%, and also strengthen rupiah to Rp13,300 against USD, which will give Bank Indonesia room to cut interest rate by 25bps to 4%. Meanwhile, the assumption for bearish scenario is that rupiah will hit Rp14,000, bank Indonesia has to increase interest rate by 75bps, the 10yr US Treasury yield will increase to 3.25%, and Indonesia's 5yr CDS will also increase to 125. EXHIBIT YR FAIR YIELD MODEL FOR THE BEST, BASE, AND WORST SCENARIOS EXHIBIT 41. THE 10YR BOND YIELD ACTUAL VS. MODEL Model Input Coefficients Pvalue Intercept (1.10) BIRate (%) % Change IDR (0.02) CDS5yr US 10Y Regression Statistics Multiple R 0.87 R Square 0.76 Adjusted R Square 0.75 Standard Error 0.57 Observations Forecast 2018 BIRate (12mo) (%) IDR US 10Y 5yr CDS Fair Yield Optimist , Pessimist , Base , Source: Bloomberg and Mandiri Sekuritas yr INDOGB_Act yr INDOGB_Fit Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13 Jul13 Jan14 Jul14 Source: Bloomberg and Mandiri Sekuritas Jan15 Jul15 Jan16 Jul16 Jan17 Jul17 Please see important disclosure at the back of this report Page 20 of 160

21 Indonesia Fixed Income Compendium 2018 Debt Research 15 February INDOGB Supply and Demand Outlook The Government's plan for gross bond issuances of Rp846.4tn for next year (+19.4% from 2017). The Government has announced targeting to issue bonds totaling Rp846.4tngross in 2018 or increasing 19.4% of the realization in The significantly higher issuance is mostly due to higher redemption, cash management, and buyback as a consequence of the Government's strategy to issue more SPN/Tbill series in 2017 and some global bonds that will mature in 2018 totaling USD3bn. As a comparison, the total SPN/SPNS issued in 2017 reached Rp226.8tn (vs. only Rp73tn in 2016). The Government has also targeted to issue Rp145.3tn (USD10.8bn) in global bonds (denominated in USD, euro, and Japanese yen) that will all be targeted to be issued in 1H 2018 note that the Government has already issued Rp54tn (USD4bn) pre funding in Dec However, nett bond issuances for next year are lower by Rp18.5tn than in In terms of net bond issuances, the Government's target is only Rp414.5tn in It is actually lower than the net issuances in 2017, which reached Rp433tn. Specific for INDOGB auction, the net issuances projected for next year are at Rp209.8tn or increasing only less than 12% of nett issuances in Thus the key factor of financing in 2018 is the refinancing risk. If the bondholders continue to reinvest their SPN/bonds that mature in 2018, then the gross issuances of bonds in 2018 which are aimed to increase more than 19% from 2017 is still manageable. The bond issuances would be potentially higher if budget deficit widened to more than 2.2% of GDP next year. Maintaining front loading policy. The Government still maintains its front loading policy for next year, issuing more on domestic bonds (targeted global bonds outstanding portion to total outstanding bonds continued to lower to 38.6% in 2018 from 40.4% in 2017) and shortening the average maturity for its debt portfolio to 8.2yrs from 8.5yr in Some new initiatives in debt management policy in 2018 include the first USD denominated green sukuk in 1Q 2018 and retail bonds online in 2Q2018. TABLE 9. GOVERNMENT BOND ISSUANCE TARGETS FOR 2018 AND THEIR REALIZATION IN (Est) 2017 (Act) Budget Deficit % of GDP (2.2) (2.57) Netto Redemption, cash management and buyback Gross Issuances Domestic Global Source: DMO and Mandiri Sekuritas EXHIBIT 42. COMPARISON OF SPN HOLDERS BETWEEN 2016 AND 2017 SPN (Rp tn) Changes Bank Foreign Bank Indonesia Insurance Others (2.5) Pension Fund (0.0) Retail Mutual Fund Total Source: DMO Please see important disclosure at the back of this report Page 21 of 160

22 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 TABLE 10. ESTIMATION OF BOND ISSUANCES BY TYPE OF BONDS IN (Est) Total Gross Issuances (Act) Conventional Matured Gross Issuances *) Netto Global bond (28.4) SPN (195.2) *** INDOGB (44.4) ** Private Retail (27.4) 20.0 (7.4) Sukuk Global Sukuk (13.5) SPNS (45.6) *** PBS (49.1) Retail (28.3) 20.0 (8.3) Total (431.9) *) Assumption calculation: Global bond issuances portion is 17% of total gross issuances (vs. government target is maximum 20%) SPN/SPNS issuances portion is 33% of total gross issuances (vs. government target is 33%38%) INDOGB issuances portion is 30% of total gross issuances (vs. government target is 25%30%) Sukuk (PBS) issuances portion is 15% of total gross issuances (vs. government target is 15%20%) Retail issuances portion is 4.7% of total gross issuances (vs. government target is maximum 5%) **) Includes VR bonds ***) Includes SPN/SPNS that will be issued and also mature in 2018 Source: DMO and Mandiri Sekuritas TABLE 11. NEW GOVERNMENT BENCHMARK BOND SERIES 2018 Benchmark Series (2018) Tenor Series Coupon Maturity Size (Rp billion) 5yrs FR % 15May23 39, yrs FR % 15May28 36, yrs FR % 15May33 48, yrs FR % 15May38 30, Source: DMO and Mandiri Sekuritas EXHIBIT 43. DEBT INDICATOR TARGET 2018 Realisasi Tahun 2015 Realisasi Tahun 2016 Outlook Akhir Tahun 2017 Proyeksi Akhir Tahun 2018 EXHIBIT 44. GOVT SHORTENING THE AVERAGE MATURITY FOR DEBT PORTFOLIO TO 8.2YRS FROM 8.5YR IN 2017 Average Time to Maturity (Yrs) 86.3% 87.9% 88.7% 89.6% Proyeksi Akhir Tahun Outlook Akhir Tahun % 42.6% 40.4% 38.6% 21.4% 22.7% 24.6% 26.5% Realisasi Tahun Rasio Utang Valas terhadap Total Utang turun Rasio Utang Tingkat Bunga Tetap terhadap Total Utang meningkat Rasio Utang Jatuh Tempo 3 Tahun terhadap Total Utang meningkat Realisasi Tahun Source: DMO Source: DMO Please see important disclosure at the back of this report Page 22 of 160

23 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 EXHIBIT 45. TIME TABLE OF BOND ISSUANCE TARGETS FOR 2018: ISSUING MORE ON DOMESTIC BONDS Source: DMO Please see important disclosure at the back of this report Page 23 of 160

24 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 Who s buying? Demand outlook 2018: (still) excess supply, need at least Rptn of foreign fund inflows to INDOGB. As we estimate that the Government might issue Rp311.1tn nett in local currency denomination, then we suspect it will still need at least Rp.1tn of foreign fund inflows, because we calculate the potential demand from onshore investors might only reach Rp211tn. We suspect banking will still the biggest potential buyer for INDOGB this year, totaling Rp60tn although it would still be below last year's realization at +Rp87.4tn. EXHIBIT 46. PROJECTION DEMAND OF GOVERNMENT BONDS 2018 Total Ownership Rp Trillion Dec13 Dec14 Dec15 Dec Bank (excl reverse repo) Central Bank Mutual Fund Insurance and Pension Fund Foreign Others IDR government bonds outstanding , , , ,099.8 Net Buy/(sell) Rp Trillion Dec13 Dec14 Dec15 Dec16 Dec F Bank (excl reverse repo) Central Bank Mutual Fund (0.7) Insurance and Pension Fund Foreign Others Total Net Issuances IDR government bonds Source: DMO and Mandiri Sekuritas This is our methodology, calculating potential demand for INDOGB from onshore investors. 1. Onshore banks demand for government bonds projected at Rp60tn (vs. Rp77.8tn in 2017) The biggest net buyer among local investors in 2017 was commercial banks. Their portfolio in government bonds rose from Rp375.8tn in 2016 to Rp453.6tn in 2017 this is also the biggest yearly net buy from onshore banks. The government bond yields are still attractive, considering that the banks' trend of lowering cost of fund, the moderating credit growth, and BI's concern on high Loan to Deposit Ratio (LDR) will likely push banks to continue holding government bonds as secondary reserves. The latest data from BI, the LDR number has reached 88.7% as of Oct2017(vs. 90.7% last year), while total outstanding deposit was Rp4,932tn (+10.8%yoy) and total credit was Rp4,374tn (+8.2%yoy). Please see important disclosure at the back of this report Page 24 of 160

25 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 EXHIBIT 47. BANKS' COST OF FUND STILL LOW 9.0% EXHIBIT 48. AVERAGE YTM GOVERNMENT BOND STILL ATTRACTIVE FOR ONSHORE BANKS 700 Rp tn % 7.0% 6.0% 5.95% % 4.0% 3.0% 2.0% 1.0% 0.0% Source: Bank Indonesia Average Current Account and Savings BI rate 7RRR TD1M 4.25% 3.49% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q YoY Changes Credit YoY Changes Govt Ownership Avg. 10yr yield (RHS) Source: Bank Indonesia, Bloomberg, and Mandiri Sekuritas YTD2017 YoY Changes Deposit ATD1MO (RHS) Going forward, with a much better economic growth the NPL ratio should be coming down in The indication for subdued NPL is from 12 banks NPL that has reached 2.98% (ytd, as per September 2017) or dropped from 3.1% at the same period last year. A combination of economic recovery path and subdued NPL will shift banks' focus to a higher lending target. Our demand projection based on assumptions for this year is that LDR will increase to 90 and that credit growth and deposit growth will also rise 13% and 9%, respectively. 2. Bank Indonesia's demand for government bonds projected at Rp50tn (vs. Rp22tn in 2017) In 2017, Bank Indonesia reported net buy of government bonds totaling Rp22tn this is much higher than in 2016 that reported only Rp7.8tn. This is as expected, considering that Bank Indonesia has been buying more on the primary market since the Government has issued more SPN/SPNS series in 2017 totaling Rp236.8tn (vs. Rp73tn in 2016). Bank Indonesia's plan to replace SBI has been successful, as now the total outstanding SBI reported is only at Rp10tn all from syariah as of 5Jan. However, the total outstanding government bonds owned by Bank Indonesia to total Open Market Operation instrument is still relatively low at 36%. Assuming the ratio projected will increase slightly to 46%, then demand from Bank Indonesia for government bonds can potentially increase to Rp50tn this year. EXHIBIT 49. SUCCESSFULLY REPLACING SBI WITH GOVERNMENT BONDS Rp tn SBI Outstanding 300 BI's Reverse repo Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13 Jul13 Jan14 Jul14 Jan15 Jul15 Jan16 Jul16 Jan17 Jul17 Source: Bloomberg and Mandiri Sekuritas EXHIBIT 50. HOWEVER, TOTAL GOVERNMENT BONDS OWNED BY BI TO TOTAL OMO IS STILL BELOW 50% IDR Trilion Source: Bank Indonesia SBI Outs Government bonds owned by BI BI's SUN % of OMO Jan10 Apr10 Jul10 Oct10 Jan11 Apr11 Jul11 Oct11 Jan12 Apr12 Jul12 Oct12 Jan13 Apr13 Jul13 Oct13 Jan14 Apr14 Jul14 Oct14 Jan15 Apr15 Jul15 Oct15 Jan16 Apr16 Jul16 Oct16 Jan17 Apr17 Jul17 Oct17 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Please see important disclosure at the back of this report Page 25 of 160

26 Indonesia Fixed Income Compendium 2018 Debt Research 15 February Pension Funds' and Insurance Companies' demand for government bonds projected at Rp55tn (vs. Rp23.3tn in 2017) Although we believe insurance and pension fund have already fulfilled the OJK regulation in 2017, we still see that their demand can potentially increase to Rp55tn this year. This calculation is based on the assumption that the total investment of pension fund and insurance company will increase by 18%yoy (reaching Rp1,400tn) this year and the Government's portion to total investment will be maintained at 26%. EXHIBIT 51. TOTAL INVESTMENT OF PENSION FUND AND INSURANCE COMPANIES PROJECTED TO INCREASE 18%YOY TO RP1,400TN IN ,600 1,400 1,200 1, EXHIBIT 52. WITH GOVERNMENT BONDS' PORTION EXPECTED AT 26% IN % 27% 25% 23% 21% 19% 17% Nov F 15% Nov17 Source: OJK Source: OJK and Mandiri Sekuritas 4. Mutual fund demand for government bonds projected at Rp20tn (vs. Rp18.3tn in 2017) Assets under the management of mutual funds continue to increase to Rp450tn as of Dec2017. Historically, the government bond portion to total asset under management is 5% on average in the last three years (vs. 4.1% in 2017). We assumed the total asset of mutual funds will continue to increase to Rp516.4tn (+15%yoy) and that the Government's portion will be maintained at 4% this year, thus demand for government bonds from the mutual fund industry is projected at Rp20tn this year. Still needing Rptn from foreign investors. With all potential demand from onshore calculation, we still see that the Government still needs foreign fund inflows of at least Rp110tn to fulfill the government bond issuance target in Compared to historical pattern, on average the foreign net buying for government bond has reached Rp125tn in the last three years. Considering the expectation for rupiah to remain stable, the lower risk premium due to rerating upgrade story, and the prudent fiscal this year, therefore we expect foreign inflows will still be robust. Note that early this year foreign investors have already reported net buy of Rp25.4tn for government bonds as of 10Jan2018. Please see important disclosure at the back of this report Page 26 of 160

27 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 EXHIBIT 53. CUMMULATIVE FOREIGN FUND INFLOWS PER YEAR USD Billion Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (2.0) Source: DMO and Mandiri Sekuritas EXHIBIT 54. FOREIGN INVESTORS ADDING MORE ON LONGER TENORS INDICATE THEY STILL VIEW INDONESIA POSITIVELY >20 >15 20 >10 15 >5 10 >2 5 > Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Source: DMO and Mandiri Sekuritas TABLE 12. MAPPING OF INDONESIA'S REAL YIELD AND LOCAL CURRENCY RISK COMPARED TO OTHER EMERGING MARKET COUNTRIES FOREX Inflation (%) 10Y YTM FY17 Spot Expected FY17 Current Curr. 10 Country S&P Rating yr Real 16Jan18 F Cast (appreciation)/ F Cast Inflation depreciation (yoy) Yield (%) Real Yield (Nominal yield exp. Inflation) (%) Hungary BBB (0.12) (0.82) Czech Repub. AA (0.47) (0.37) S. Korea AA , , Thailand BBB Poland BBB Malaysia A Peru BBB Philippines BBB Indonesia BBB ,500 13, Turkey BB Colombia BBB ,000 2, Mexico BBB South Africa BB Russia BB India BBB Brazil BB Source: Bloomberg and Mandiri Sekuritas What to watch? The risks of our fair yield forecast missing for this year might coming from global factors, i.e. if Fed Fund Rate rose faster than expected (we forecast three hikes) and if the ECB reduced quantitative easing more than expected (we forecast ECB will still do quantitative easing until 3Q and maintain negative interest rate in 2018). Meanwhile, from domestic, the main risks are coming from the increase in subsidized fuel price that could drive inflation and thus trigger a rise in Bank Indonesia's benchmark rate and increase the government bond supply if the budget deficit widened from 2.2% of GDP. Please see important disclosure at the back of this report Page 27 of 160

28 Indonesia Fixed Income Compendium 2018 Debt Research 15 February IDR Corporate Bond Market Outlook: Lower Risk Premium Expectation The IDR Corporate rupiah bond market continues to improve as new issuances reported Rp163tn breaking new record high for two straight years in a row. There are at least four factors behind the significant rupiah corporate bond issuances in 2017: (1) Lower riskfree yields that make the cost of borrowing in the bond market to continue declining. Bank Indonesia s monetary loosening seems to have faster transmission to bond market than banking sectors. For example, the average 5yr IDR corporate bonds with AAA rated from local rating agency is at 7.98% in 2017 or lower by 194bps compared to the average in This is also similar to what is happening with bonds with lower credit rating. The average government bond yield reported falling 139bps since 2015 in line with lowering BI7drr rate to 4.25% (200bps since 2015). Meanwhile, the average credit rate of banks for working capital in 2017 reported 11.1% (vs. 12.7% in 2015). TABLE 13. THE AVERAGE COUPON CORPORATE BOND CONTINUED TO DECREASE INLINE WITH LOWERING GOVERNMENT BOND YIELDS Issuance Corp Interest Rate (%) Size Issuances (Rp bn) (5yr) AAA ,050 16,323 25,419 AA ,400 2,403 6,573 AA , AA ,005 1,024 A ,051 2,363 Average Credit Rate (%) Average SUN 5year Source: IDX, CEIC and Mandiri Sekuritas Estimate (2) Rebounding domestic economic growth triggered companies to expand their business, while refinancing motives are also higher, as there are Rp71.7tn of bonds that matured in 2017 (vs. Rp47.8tn in 2016). Economic growth has continued to increase to 5.03%yoy as of 3Q2017 (vs. 4.88% in 2015 and 4.94% in 2016), supported by investment that accelerate 7.11%yoy and solid export that also accelerated 17.3%. Thus, net total issuances continue to be higher to Rp91tn in 2017). The only amount of issuance which is less than the matured one happened in 2008, as the government bond yield rose significantly amid soaring subprime mortgage crisis in US. Please see important disclosure at the back of this report Page 28 of 160

29 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 EXHIBIT 55. IDR CORPORATE BOND NEW ISSUANCES REPORTED RP163TN BROKE NEW RECORD HIGH FOR TWO STRAIGHT YEARS IN A ROW EXHIBIT 56. WEIGHTED AVERAGE RATING FOR IDR CORPORATE BOND IS IMPROVING INLINE WITH REBOUNDING GDP GROWTH New Issuances Maturite Total Outstanding (RHS) F 2018F 2019F 2020F 2021F 2022F 2023F 1, % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Upgrade Stable Downgrade Weighted Average Rating Nov17 Source: IDX and Mandiri Sekuritas Source: IDX, Bloomberg and Mandiri Sekuritas (3) Regulation by OJK on Shelf Registration program (Penerbitan Umum Berkelanjutan/PUB) which allows companies for easier bond issuance, as it only requires one effective statement for a period of two years. Note there are 50 companies using this new regulation, totaling Rp140.4tn of issuances in 2017 or more than 86% of total issuances in EXHIBIT 57. SHELF REGISTRATION PROGRAM DOMINATED THE BOND ISSUANCES EXHIBIT 58. FINANCIAL SECTOR STILL DOMINATING BOND ISSUANCES Senior Bonds 7.3% Electricity 8.0% Fin. Institution 15.5% F & B 1.9% Fertilizer 5.0% Mining, Oil & Gas 2.9% Shelf Registration (PUB) 89.0% KIK EBA 3.5% Subordinate d 0.2% Multi Finance 15.5% Bank 27.5% Telco 6.9% Infra 13.4% Others 1.7% Property 0.5% Retail Trade 1.1% Source: IDX and Mandiri Sekuritas Source: IDX, Bloomberg and Mandiri Sekuritas For 2018, we believe all those factors will still be positive. As we expect that riskfree yields would remain stable this year, we believe appetite for corporate bond issuance is also still high. However, we don t expect the total IDR bond issuances will continue to break new records this year, as total bonds maturing in 2018 and 2019 are expected slightly lower compared to 2017, i.e. Rp70tn and Rp68tn respectively. Another factor that might affect to lower bond issuances is seasonal factor before general election in We expect total issuances of corporate bonds will range Rp5060tn this year. Multi finances and banking are still the most dominant sector that issued bonds. However, the trend is declining, as some new sectors are starting to come to the market, especially infrastructure sectors. Please see important disclosure at the back of this report Page 29 of 160

30 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 Banks and foreign holders in IDR corporate bond are increasing According to KSEI data, the biggest buyer of IDR corporate bond is mutual funds that have 28% of total outstanding as of Oct2017 (vs. 23% in 2011). The interesting point, foreign and banking institutional investors have also increased their portfolio in corporate bonds to 18% and 8%, respectively, of total outstanding (vs. 16% and 5% in 2011). We view this development positively, as we believe it will potentially improve liquidity in the secondary market. Mutual fund investors are mostly coming for capital protected instrument demand and they mostly hold to maturity. While for pension fund and insurances investors, we also believe that they booked corporate bonds at hold to maturity account, as almost all pension fund and insurance companies have net inflows meaning that they need more to invest rather than to sell their portfolio. The successful issuance of the first rupiah global bond (Komodo bond) by PT Jasa Marga and the introduction of Financing Funding Ratio in the Banking industry might support demand from foreign investors and banks for IDR corporate bonds. EXHIBIT 59. BANKS AND FOREIGN HOLDERS IN IDR CORPORATE BOND ARE INCREASING IN 2017 EXHIBIT 60. THE BIGGEST BUYER OF IDR CORPORATE BOND IS INSURANCES Pension Fund 21% Bank 18% Mutual Fund 28% Insurance 18% Foreign 8% Securities Company 0% Foundation 1% Corporate 2% Others 4% Pension Fund 23% Bank 16% Mutual Fund 23% Insurance 25% Securities Company 0% Foundation 1% Corporate 5% Foreign 5% Others 2% Source: KSEI and Mandiri Sekuritas as of Dec2017 Source: KSEI and Mandiri Sekuritas as of Dec2013 The first komodo bonds issuances PT Jasa Marga persero was the first issuer of Indonesia s global IDR bond (Komodo Bond), priced at 7.5% coupon and with three year tenor in early December The bonds attracted Rp15tn of bids or were oversubscribed 3.75 times; the final coupon was lower than initial guidance of 7.875%. The benefit from komodo bond issuances against rupiah domestic corporate bond issuances from the issuer's perspective is wider investor base (especially from offshore investors) that might attract bigger issuances. Komodo bond basics Issuer: Besides Jasa Marga, WIKA (stateowned construction company) and PLN (stateowned electricity utility company) have indicated interests to issue Komodo bonds. Tax treatment: Komodo bonds would be settled via Euroclear and therefore would not be subjected to withholding taxes (at 1015% for onshore bonds, depending on the applicable tax treaty rate). FX settlement: Komodo bonds would be settled in USD, according to the onshore JISDOR fix. Please see important disclosure at the back of this report Page 30 of 160

31 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 TABLE 14. DETAILS OF THE FIRST KOMODO BOND ISSUANCES Issuer PT Jasa Marga (persero), tbk Rating Baa3 (positive outlook) by Moody s BB+ (stable outlook) by S&P rating agency Currency IDR, but payment of coupon principal in USD using JISDOR (T2) as a reference Format 144A/Reg S Tenor: 3yrs (Maturity date 11Dec2020) Settlement date 11Dec2017 (based on JISDOR 4Dec 10am) Coupon 7.5%p.a. Fixed semi annual Size IDR4trillion Listing LSE(ISM) & SGX Joint Global Coordinator HSBC and Mandiri Securities Join Lead Managers and Deutsche Bank, HSBC, Mandiri Securities, Standard Chartered Bank. Book Runners Source: IDX, CEIC and Mandiri Sekuritas Estimate EXHIBIT 61. OUTSTANDING CORORATE BONDS BY SECTOR Retail Trade 1% Property 3% Oil & Gas 5% Transport 3% Multi Finance 15% Telco 8% Infra 11% Others 2% F & B 3% Source: IDX and Mandiri Sekuritas as of Jan2018 Bank 29% Fertilizer 2% Fin. Institution 18% EXHIBIT 62. TOP 10 OUTSTANDING CORPORATE BOND Emiten LEMBAGA PEMBIAYAAN EKSPOR INDONESIA Rating Outstanding (Rp tn) % of total outs idaaa BANK RAKYAT INDONESIA idaaa BANK TABUNGAN NEGARA idaa INDOSAT idaaa FEDERAL INTERNATIONAL FINANCE idaaa BANK PAN INDONESIA idaa BANK MANDIRI idaaa PERUSAHAAN LISTRIK NEGARA idaaa ADIRA DINAMIKA MULTI FINANCE idaaa WASKITA KARYA ida Source: IDX, Bloomberg and Mandiri Sekuritas as of Jan2018 EXHIBIT 63. DESPITE THE SIGNFICANT GROWTH, THE RATIO TOTAL OUTSTANDING RUPIAH BONDS IS STILL LOW COMPARED TO OTHER ASIAN COUNTRIES EXHIBIT 64. IMPROVING AVERAGE TRADING VOLUME IN SECONDARY MARKET Japan Avg. Volume per day (Rp bn) Avg. Freq Per Day (RHS) Korea , Malaysia , Spore ,000.0 Thailand China Philippines Vietnam Indonesia Government (in %GDP) Corporate (in %GDP) Jan17Jan18 Source: ADB and Mandiri Sekuritas Source: IDX and Mandiri Sekuritas as of Jan2018 Please see important disclosure at the back of this report Page 31 of 160

32 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 TABLE 15. THEORETICAL RISK PREMIUM BY RATING (BPS) Rating Dec16 Mar17 Jun17 Sep17 Oct17 Nov17 Dec17 Jan YTD Average AAA AA AA AA A A A BBB BBB Source: IDX and Mandiri Sekuritas St. Dev TABLE 16. MIGRATION RATING AND THE PROBABILILITY OF DEFAULT IN ONE YEAR ( ) Source: Pefindo and Mandiri Sekuritas TABLE 17. IDR CORPORATE BONDS MATURE BY SECTOR 2018 Sector Company Rating Size Sisa PUB Bank BANK CIMB NIAGA Tbk, PT idaaa 1,652 (Rp15,910) BANK OCBC NISP Tbk, PT idaaa 2,863 6,000 BANK RAKYAT INDONESIA (PERSERO) Tbk, PT idaaa 2,056 5,185 BANK UOB INDONESIA, PT AAA(idn) 600 1,000 BANK TABUNGAN PENSIUNAN NASIONAL Tbk, PT AAA(idn) 1,350 3,000 BANK MAYBANK INDONESIA Tbk, PT idaa+ 2,000 3,500 BANK PERMATA Tbk, PT idaa+ 1,750 BANK TABUNGAN NEGARA (PERSERO) Tbk, PT idaa ,000 BANK BNI SYARIAH, PT idaa+(sy) 500 BANK JABAR, PT idaa 1,123 BANK DKI, PT ida 300 1,500 BANK PEMBANGUNAN DAERAH NUSA TENGGARA TIMUR, PT ida 135 BANK PEMBANGUNAN DAERAH SUMATERA BARAT ida 81 BANK PEMBANGUNAN DAERAH SUMATERA UTARA, PT ida 400 BANK VICTORIA INTERNATIONAL Tbk, PT ida Financial Institution SARANA MULTIGRIYA FINANSIAL (PERSERO). PT idaaa 2,522 11,000 (Rp12,735) LEMBAGA PEMBIAYAAN EKSPOR INDONESIA (INDONESIA EXIMBANK) idaaa 6,073 10,500 PEGADAIAN, PT idaaa 2,541 2,500 PERMODALAN NASIONAL MADANI (PERSERO), PT ida 1,000 DANAREKSA (PERSERO), PT ida 375 MNC KAPITAL INDONESIA Tbk, PT idbbb 225 Food & Beverages NIPPON INDOSARI CORPINDO, PT idaa 500 (RP1,400) TIGA PILAR SEJAHTERA FOOD Tbk, PT ida 900 Please see important disclosure at the back of this report Page 32 of 160

33 Indonesia Fixed Income Compendium 2018 Debt Research 15 February 2018 Sector Company Rating Size Sisa PUB Infrastructure PERUSAHAAN LISTRIK NEGARA (PERSERO), PT idaaa 914 8,000 (Rp3,104) JASA MARGA ( PERSERO) Tbk, PT idaa 1,000 9,000 ADHI KARYA (PERSERO) Tbk, PT ida 250 1,500 HUTAMA KARYA (PERSERO), PT ida 290 1,500 WASKITA KARYA (PERSERO) Tbk, PT ida BRANTAS ABIPRAYA (PERSERO), PT idbbb+ 300 Multi Finance ADIRA DINAMIKA MULTI FINANCE Tbk, PT idaaa 4,247 (Rp23,345) BCA FINANCE, PT idaaa 422 1,750 FEDERAL INTERNATIONAL FINANCE, PT idaaa 5,751 11,500 ASTRA SEDAYA FINANCE, PT AAA(idn) 1,900 1,800 TOYOTA ASTRA FINANCIAL SERVICES, PT AAA(idn) 3,109 1,945 MANDIRI TUNAS FINANCE, PT idaa ,650 OTO MULTIARTHA, PT idaa+ 200 MAYBANK INDONESIA FINANCE, PT AA+(idn) 825 3,400 SURYA ARTHA NUSANTARA FINANCE, PT idaa 1,301 1,000 WAHANA OTTOMITRA MULTIARTHA Tbk, PT AA(idn) 1,657 3,700 BFI FINANCE INDONESIA Tbk, PT AA(idn) 1,232 CHANDRA SAKTI UTAMA LEASING, PT ida 209 INDOMOBIL FINANCE INDONESIA, PT ida 872 3,500 MANDALA MULTIFINANCE Tbk, PT ida SINAR MAS MULTIFINANCE, PT (Idr)A 500 BATAVIA PROSPERINDO FINANCE Tbk. idbbb 170 Oil, Mining and Gas ANEKA TAMBANG Tbk, PT idbbb+ 900 (Rp1,657) MEDCO ENERGI INTERNASIONAL Tbk, PT ida 1, LAUTAN LUAS Tbk, PT ida Plantation PERKEBUNAN NUSANTARA X, PT idbbb 700 Property and Real Estate AGUNG PODOMORO LAND Tbk, PT ida 1,200 (Rp5,304) BUMI SERPONG DAMAI, PT idaa 1,750 2,350 INTILAND DEVELOPMENT Tbk, PT ida 154 MODERNLAND REALTY Tbk, PT ida 600 1,250 PEMBANGUNAN PERUMAHAN (PERSERO), PT ida+ 700 SUMMARECON AGUNG Tbk, PT ida ,500 Retail Trade SUMBER ALFARIA TRIJAYA Tbk, PT AA(idn) 600 2,000 Telecommunication INDOSAT Tbk, PT idaaa 1,920 7,000 (Rp4,233) PT Tiphone Mobile Indonesia Tbk ida 1,015 XL Axiata Tbk, PT AAA(idn) 1,298 1,320 Tourism PANORAMA SENTRAWISATA Tbk, PT ida 440 Source: IDX and Mandiri Sekuritas Please see important disclosure at the back of this report Page 33 of 160

34 Research Banking Credit research Banking Mandiri Sekuritas Analyst Teddy Hariyanto SECTOR: BANKING 2018: The Moment to Accelerate Growth During the last three years Indonesia's banking industry has had a challenging period due to slow economy growth, slow loan demand, as well as pressure on asset quality and on net interest margin. However, the banking industry has still managed strong profitability and capitalization as a lossabsorption buffer during the challenging period. We view 2018 as the moment for higher business growth for Indonesian banks on the back of improving global economic condition, improving investor perspective on Indonesia, higher economic growth, higher infrastructure spending, and higher consumer spending. Accelerating Loan Growth. Indonesia's banking business has been under pressure amid the country's slowing economic growth in the last two years. Indonesia's banking industry recorded loan growth of 7.9% in 2016 and 4.18% in the last 10 months of Credit growth in 2017 is also expected to remain low at 9.5%. The weak bank loan growth in 2017 was due to low demand for loans amid a cautious banking strategy owing to asset quality pressure. The condition was coupled with the downward trend in government bond yields, thus large corporations had good opportunities to obtain cheaper sources of fund through the bond market. On the back of the low interest rate environment, higher GDP growth expectation, higher government spending to accelerate infrastructure development, and improving commodities, therefore the banking industry s growth will accelerate its loan expansion. We project that banking loans will grow by around 1012% in 2018 and loans to the infrastructure sector; agriculture, plantation, and fisheries sector; retail trading, hotel, and restaurant sector; as well as communication and transportation sector still become the growth engines. Banks are now operating in a more challenging environment is another challenging year for Indonesian banks. Our Economist projects the economic growth to moderate to around 5.3% this year. The rupiah is also expected to slightly weaken to Rp13.600/USD. Inflation is expected to be around of 3.5%, which may lead Bank Indonesia to maintain its reference interest rate at 4.25% in Some other key risks which Indonesia's Banking Industry might face in 2018 include the political year in some regions and business disruption from fintech boom. However, we are optimistic that Indonesian banks and the OJK will continue to provide a great focus in asset quality. By continuing to implement strategies such as (i) being more selective in setting their target market, (ii) strengthening credit process, monitoring, and collection systems, as well as (iii) conducting loan restructuring and writeoffs, we expect Indonesia's banking asset quality will be maintained around of %. The industry has strong lossabsorption buffer, in our view, as it is supported by favorable profitability, strong capitalization, and well covered NPL. The strong profitability provides strong buffer against costs of credit (provisioning expenses divided by average loans). Meanwhile, the strong CAR and wellcovered NPL should provide sufficient cushion to absorb potential loss from increasing credit risk. Please see important disclosure at the back of this report Page 34 of 160

35 Credit Research Banking 2018: Moment to Accelerate Loan Expansion In , Indonesia s banking business was under pressure amid the country's slowing economic growth. As shown in the Figure below, Indonesia s banking industry recorded loan growth of 10.4% in 2015 and it fell to 7.9% in As of October 2017, Indonesia s banking still faced difficulties in boosting credit growth. Based on OJK data, year to date (2016October 2017) loan growth was only 4.1%. Credit growth in the full year of 2017 is also expected to remain low at 9.5%. The weak banking loan growth in 2017 was due to low demand for loans and a cautious banking strategy owing to asset quality pressure. The pressure is coupled with downward trend in government bond yields. As SNP has upgraded Indonesia's sovereign rating from BB+ to BBB in May 2017, then Fitch also upgraded its rating for Indonesia to BBB from BBB (with Stable outlook) in December This may attract more global investors to invest in Indonesia and lower the Indonesian government bond yield. We estimate the 10 year bond yield will be at 6.46% in This low bond market interest rate condition will attract large Indonesian corporations with investment grade ratings to refinance their bank loans with bonds or MTNs and obtain cheaper sources of fund. This condition can be seen as another pressure for banking sector's loan growth in 2018, as banks now have to compete with the bond market. However, the Central Bank plans to implement Financing to Funding Ratio (FFR) regulation, wherein the banking intermediary is not only seen from the loan expansion but also the corporate bonds held by banks. We view this is an opportunity for banks to increase their corporate bond portfolio to offset the slowdown in lending. In the low interest rate environment this should also benefit the lower segments, such as commercial and retail and consumer banking businesses. This business environment should be conducive for medium and small enterprises as well as retail businesses to expand. EXHIBIT 65. GDP, LOAN, AND DEPOSIT GROWTH 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 24.6% 23.1% 22.8% 21.6% 18.5% 19.1% 15.8% 13.6% 12.3% 7.9% 10.0% 11.6% 10.4% 9.6% 9.5% 6.40% 6.20% 6.00% 5.60% 5.60% 5.10% 4.79% 7.3% 5.02% 5.03% 4.15% 4.18% 12.0% 13% 11.0% 12% 5.30% 5.50% Oct F 2018F 2019F GDP Growth Loan Growth 3rd Party Deposit Growth Source: Bank Indonesia, Indonesia Banking Statistic OJK and Mandiri Sekuritas estimates As per the end of 2017, Indonesia's bank loan yearonyear growth is estimated to be around 910%. In 2018, the banking industry s growth is expected to be around 1012%. Low interest rates, higher GDP growth expectation, higher government spending to accelerate infrastructure development, and improving commodities sector will push demand for loan. In line with the loan growth slowdown, third party deposits' growth in Indonesia s banking industry has also slowed down. The slowdown was caused by the decreasing trend of deposit interest rates, in line with the declining trend of the Central Bank s reference rate (4.25% as of December 2017). The low interest rates on third party deposits triggered banks customers to switch some of their investments to higher yield instruments, such as stocks, mutual funds, and bonds. We expect the third party deposit growth in 2018 will be around 1113%. Please see important disclosure at the back of this report Page 35 of 160

36 Credit Research Banking EXHIBIT 66. BANKING INDUSTRY S AVERAGE INTEREST RATE AND 7DRRR RATE TREND (%) Investment Loan Rate Consumption Loan Rate Saving Account Rate Time Deposit Rate (3month) BI Rate, 6.5 BI Rate DRRR, DRRR Oct 2017 Source: Bank Indonesia, Indonesia Banking Statistic OJK and Mandiri Sekuritas estimates Loan to the Infrastructure Sector Becomes the growth engine Given the macroeconomic slowed down, slowing loan demand, and asset quality pressure, thus banks have been more cautious in disbursing loans during the last two years. Based on economic sector, three market segments (Processing Industry, Wholesale and Retail Trade, and Personal Loans) received 64.6% of financing as of October However, the loan growths (year to date growth) to the Processing Industry and Wholesale and Retail Trade were very low at 0.9% and 2.8%, respectively. Banks are also still cautious to finance the Mining and Quarrying sector as reflected from its negative loan growth of 12.6% as of October 2017 despite the mining commodity price having improved and being relatively stable in We expect in 2018 Indonesia's export performance should also improve, along with the improvement in advanced countries' economy, and this would be positive for the Manufacturing sectors as well as the Agriculture, Plantation, and Fisheries sectors. Meanwhile, the tourism boom in Indonesia will also drive loan expansion to Retail Trading, Hotel, and Restaurant as well as to Transportation and Communication. The online shopping boom will also drive business growth in Transportation and Communication and Warehousing. Furthermore, year 2018 dubbed the political year is also predicted to contribute to the baking loan growth in consumer banking segment. The aggressive infrastructure development in Indonesia has also encouraged large banks to participate, while at the same time accelerate their loan growth in 2018 and in the next few years. In 2015 October 2017, loan growth to sectors related to infrastructure development (such as construction, electricity, water and gas; and transportation, warehousing and communications) became the most growing loan segment. These sectors grew from Rp449tn in 2015 to Rp557.7tn in Oct Please see important disclosure at the back of this report Page 36 of 160

37 Credit Research Banking EXHIBIT 67. BANKING INDUSTRY S LOAN BY ECONOMIC SECTOR Oct17 Agricultures, Hunting and Forestry 109, , , , , , ,603 Fisheries 4,935 5,492 6,391 7,698 8,843 9,479 10,578 Mining and Quarrying 87, , , , , , ,407 Procesing Industry 344, , , , , , ,638 Electricity, Gas and Water 45,841 59,073 79,493 81,130 99, , ,228 Construction 75,395 95, , , , , ,137 Wholesale and Retail Trade 375, , , , , , ,933 Provision of accomodation and the provision of eating and drinking 30,425 44,640 59,306 73,583 85,861 93,390 96,095 Transportation, Warehousing and Communications 97, , , , , , ,348 Financial intermediaries 105, , , , , , ,462 Real Estate, Business, Ownership, and Business Services 116, , , , , , ,241 other services 139, ,690 81, , , , ,757 Loan for household (KPR, KPA, consumer finance and others) 667, , ,119 1,013,660 1,105,760 1,202,644 1,292,737 Total 2,200,093 2,707,862 3,286,897 3,674,308 4,057,904 4,377,195 4,560,166 Source: Indonesia Banking Statistic OJK EXHIBIT 68. LOANS RELATED TO INFRASTRUCTURE (RP BN) 600, , , , , , , ,000, , , , , , , , ,228 99,447 konstruksi Electricity, Gas and Water Transportation, Warehousing and Communications Total Oct 17 Source: Indonesia Banking Statistic OJK Overcoming the asset quality pressure In 2017 the slowdown in loan growth experienced by banks was also accompanied by the increasing credit risk. This asset quality pressure was due to the impact of the previous commodity price drop, export slow down, and consumer spending slow down. Some companies operating in economic sectors that are very sensitive to those various factors, including those related to their supply chain, suffered financial difficulties. Amid these conditions, banks have implemented various strategies to improve credit quality, such as resetting their target market, strengthening monitoring and collection systems, as well as conducting loan restructuring. At the end of December 2016, the banking sector s NPL reached Rp128.13tn or a ratio of 2.9%. As of Oct 2017, banking sector's NPL still increased by 5% to Rp135.04tn or an NPL ratio of 3.0%. Please see important disclosure at the back of this report Page 37 of 160

38 Credit Research Banking EXHIBIT 69. ASSET QUALITY 250, , % 200, , , % Rp bn 2.2% 152, % 150, , , , % 1.9%,933 84, , %,000 79,388 47,695 50,595 58,279 50, Oct17 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Source: Indonesia Banking Statistic OJK Total NPL special mention loan NPL ratio In August 2017 the OJK also decided to revoke the relaxation of the credit restructuring policy stated in POJK No. 11 of 2015, from 1 pillar only to return to the 3 pillars. With the tightening of the credit restructuring regulation, banks again had to comply with the old rules in loan restructuring. Banks should consider the three pillars, which are: a debtor's repayment capacity, industry prospects, and a debtor's prospects. In addition, we estimate banks will report an increase in provision in the second half of Improvement in credit quality ratio will occur if the banking industry accelerates its loan growth, while loans in special attention do not experience further quality deterioration. As of Oct 2017 the credit in the special attention of Indonesian banks has reached Rp235.93tn, up 19% from Rp197.59tn at the end of Along with greater focus on asset quality, we project at the end of 2017 the NPL ratio would be around %. In 2018 we view that banking will continue to face a number of challenges both from the global and domestic economies. A number of these challenges will cause banks to remain cautious in selecting new debtors or in adding more credit facilities to existing debtors as well as in improving their hidden asset quality issues. Therefore, we also believe Indonesian banks and the OJK will continue to provide a great focus in asset quality. By continuing to implement strategies such as (i) being more selective in setting their target market; (ii) strengthening credit process, monitoring, and collection systems, as well as (iii) conducting loan restructuring and writeoffs, we expect Indonesia's banking asset quality will be maintained around of %. Ample Liquidity Indonesia's banking liquidity remains at a sound level, indicated by liquid asset ratio of 17.5% at the end of 2016 and 18.27% at the end of Oct The ratio of total loans to total third party funds (LDR) was also at a sound level of 90.7% in 2016 and slightly declined to 88.68% in Oct The decline in LDR was due to the soft loan growth. Until the end of 2017 and in 2018 Indonesian banks are projected to have sound liquidity at the current level. Please see important disclosure at the back of this report Page 38 of 160

39 Credit Research Banking EXHIBIT 70. LDR AND LIQUID ASSET RATIO Liquid Asset Ratio (%) Jul LDR (%) Source: Indonesia Banking Statistic OJK Liquid Assets Ratio (%) Loan to Deposits Ratio (%) Profitability Amid the slowdown in economic growth, lower interest rates, and rising credit risk, Indonesia's banking industry still posted favorable profitability indicators. At the end of 2016 the banking industry s operating profit before tax reached Rp136.05tn or grew by 3% from 2015 s figure. As of end of Oct 2017 the banking industry s profit before taxes was Rp166.14tn. Return on Average Assets (ROAA) was at 2.23% in 2016, relatively stable compared to ROAA in Meanwhile, Net Interest Margin (NIM) increased to 5.63% in 2016 from 5.39% in The increase in NIM in 2016 was due to a decrease in Bank Indonesia's reference rates. As at end of Oct 2017, the banking industry s ROAA was at 2.49% while NIM slightly lowered to 5.32% due to the impact of declining Central Bank reference rates (7DRRR) to 4.25% and slower loan demand. Despite the lowering trend the current level of NIM was still favorable. The banks implemented strategies to decrease the deposit interest rate faster than loan interest rate. EXHIBIT 71. PROFITABILITY INDICATORS Profitability Ratios (%) , , , , , , Oct17 200, ,000,000 50,000 Profit Before Tax (Rp bn) Profit Before Tax Net Interest Margin (%) Return on Average Asset (%) Source: Indonesia Banking Statistic OJK In 2018, we project banking s NIM to slightly weaken to around 5.0%, while ROAA is forecast to be stable at the current level. The increasing competition in the industry, stable low inflation rate, Indonesia's better sovereign ratings that lead to lower bond yield, as well as business disruption from Fintechs, may drive the banks NIM in a decreasing trend. Please see important disclosure at the back of this report Page 39 of 160

40 Credit Research Banking Strong capitalization Indonesia's banking industry has a strong capitalization, as indicated by a favorable Capital Adequacy Ratio (CAR) of 23.42% (Tier1 CAR: 21.68%) at the end of Oct 2017, higher than last year s 22.93% (Tier1 CAR: 21.19%). Banking s capitalization and CAR have been increasing since 2012, supported by additional paidin capital by the shareholders and the accumulation of bank earnings. Going forward, we believe banks will continue to increase their capital, including issuing subordinated debt, to anticipate the implementation of IFRS 9 and Basel III. With an increasingly strong capitalization rate, Indonesian banks will have ample room to anticipate future business growth and sufficient capacity to absorb losses due to credit risk and other bank business risks. EXHIBIT 72. CAPITALIZATION INDICATORS Rp bn 1,400,000 1,200,000 1,000, , , , , ,146,983 1,052, , , , , July17 Core Capital (Tier I) Capital CAR (%) Percentage (%) Indonesia Banking Statistic OJK 2018: Still a challenging operating environment 2018 is another challenging year for Indonesian banks. Our Economist projects the economic growth to moderate to around 5.3% this year. The rupiah is also expected to slightly weaken to Rp /USD. Inflation is expected to be around of 3.5%, which may lead Bank Indonesia to maintain its reference interest rate at 4.25% in Some key risks which Indonesia's banking industry might face in 2018: Weakening rupiah to USD. In 2018, the rupiah exchange rate is exposed to higher volatility stemming from the external factors such as the Fed s balance sheet reduction amounting to USD 420bn, the fed's two rate hikes during the year, the European Central Bank's short tapering off plans in the second half of 2018, as well as geopolitical risks in the Korean peninsula and the Middle East. We expect Bank Indonesia will manage rupiah to be at an average level of below Rp14.000/USD. Higher volatility and weakening rupiah exceeding the psychological level of Rp14.500/USD may lead to weaken borrowers debt servicing capability. Political risks. Simultaneous regional elections in some big provinces in Indonesia will carry political risks and uncertainty for investment in those provinces. Political friction becomes a distraction, especially with the upcoming regional elections in 2018 and the presidential election in 2019, and may dampen property sector's growth and corporate business expansion. Business disruption from fintech. With a population of over 250 million, consistent economic growth, and high mobile phone penetration, Indonesia has emerged as one of Southeast Asia s most promising markets for fintech disruption. The fintech boom in the last three years has disrupted the retail banking business, particularly for payments and settlement, deposits, lending and capital raising (i.e. crowdfunding), market support, investment management service (i.e. Robo adviser), and the insurance segment. To answer this business challenge, Indonesian banks should improve their business efficiency and put a huge concern in developing the digital banking business. Banks also continue to synergize with the fintechs in developing various digital banking products. Please see important disclosure at the back of this report Page 40 of 160

41 Credit Research Banking EXHIBIT 73. INDONESIA'S TOP TEN BANKS' ASSETS, LOANS, AND 3 RD PARTY DEPOSITS (AS OF SEPT 2017) EXHIBIT 74. TOP TEN BANKS' NPL RATIO (AS OF SEPT 2017) 1,078,703 1,038, , , % 2.33% 4.70% 3.95% 3.87% 3.30% 3.07% 2.94% 2.75% 252, , , , , , % Total Assets Total Loans (gross) Total Deposits Source: Banks Financial Report Source: Banks Financial Report EXHIBIT 75. TOP TEN BANKS' PROFITABILITY INDICATORS (AS OF SEPT 2017) 25, % 9.00% 20, % 8.00% 16, % 5.50% 5.74% 6.60% 20, % 5.18% 6.00% 15, % 4.50% 5.00% 10, % 10,000 5,000 5,606 2,197 2,005 2,098 3,034 1, % 3.00% 2.00% 1.00% EXHIBIT 76. TOP TEN BANKS CAR (AS OF SEPT 2017) 22% 22.11% 23.60% 19% 18.96% 16.97% 23.57% 22.30% 17.59% 18.84% 0.00% Net Income NIM Source: Banks Financial Report, Source: Banks Financial Report Please see important disclosure at the back of this report Page 41 of 160

42 Compendium Credit Research Banking Banking Bank Negara Indonesia (Persero) Tbk Key credit considerations: Company rating Pefindo Fitch Rating SnP Moody s idaaa/stable AA+(idn)/Stable BB+/Stable Baa3/Positive Shareholders Government of Indonesia 60% Public 40% Outstanding bonds Bond ID Size (Rp bn) Maturity Coupon BBNI01CN1 3,000 11Jul Trading summary Bond ID Last trade Last price Yield (%) BBNI01CN1 24Jan Solid Performance in FY17. The Bank has shown a solid profitability in The Bank booked net interest income of Rp48.18tn in FY2017 or increasing by 10% yoy compared to the previous year. This strong interest income revenue was supported by a 12.2% yoy credit expansion to Rp441.3tn in FY2017. BBNI s NIM decreased to 5.5% as of Dec 2017 from 6.2% in This was due to the low interest market environment and the slow loan demand amid strong competition in the industry. Supported by improving asset quality and manageable operating cost, BBNI recorded a net income of Rp13.6tn in FY2017 (in line with our estimation in last June 2017 of Rp 13.2tn). In 2018, we believe BBNI should be able to maintain its solid profitability performance, supported by prudent business strategy in asset quality management, accelerating business expansion that focuses on prospective economic sectors, and increasing fee based income. Improving asset quality. The Bank s NPL ratio declined to 2.3% at end of 2017 from 3.0% at end of December Improving NPL ratio in 2017 was the result of writeoffs and successful restructuring strategy. In terms of business segment, corporate loans recorded NPL ratio of 1.9% at end of Dec 2017, while the medium segment, small segment, and consumer segment posted NPLs of 2.8%, 2.7%, and 2.5%, respectively. We expect the Bank should continue to maintain its asset quality management strategy to keep its favorable NPL ratio in the future. Continue to focus on corporate segment and infrastructure financing. Loans disbursed to the corporate segment grew by 12% and contributed around 50% of the total loan portfolio in Especially in terms of loans for infrastructure projects, this loan segment grew by 15.3% YoY in 2017, while the loans of State Owned Enterprises (SOE) by 7.7% YoY in BBNI has also succeeded to accelerate loan growths for the medium and small segments to 14.6% and 11.4%, respectively, in In the medium term, BBNI will continue its focus on SOE and infrastructure financing strategy while at the same time also increase its business growth in private corporate companies and the medium & small segment through optimizing on value chain financing and closed loop transaction. Favorable capitalization. BBNI is well capitalized. The Bank s CAR stood favorably at 18.5% at end of With favorable CAR level, the Bank has ample room to support credit expansion in the future, while at the same time it provides enough cushion to absorb potential losses from its NPLs. EXHIBIT 77. FINANCIAL SUMMARY YE Dec (Rp bn) F 2019F Net profit 9,141 11,410 13,771 16,515 19,958 Total assets 326, , , , ,787 Total deposits 370, , , , ,870 Total equity 508, , , , ,498 NIM (%) 6.32% 6.18% 5.57% 5.06% 4.94% NPL (%) 2.67% 2.96% 2.29% 1.96% 2.06% LDR (%) 88.04% 90.30% 85.51% 84.99% 85.21% CAR (%) 19.50% 19.40% 18.50% 19.15% 19.17% Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 42 of 160

43 Credit Research Banking EXHIBIT 78. PROFITABILITY INDICATORS EXHIBIT 79. LDR AND LIQUID ASSET RATIO 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% % 6.18% 5.57% 5.06% 4.94% % 2.80% 2.79% 2.48% 2.45% F 2019F.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 88.0% 90.3% 85.5% 85.0% 85.2% 23.6% 23.0% 24.2% 24.8% 25.6% F 2019F Net profit (IDR tn) NIM ROAA LDR (%) Liquid Asset Ratio (%) Source: Company, Mandiri Sekuritas Source: Company, Mandiri Sekuritas EXHIBIT 80. LOAN BREAKDOWN (RP TN AS OF DEC 2017) Consumer, 71.4, 16% EXHIBIT 81. DEPOSIT BREAKDOWN (RP TN) Corporate and SOE, 218.8, 50% Medium and Small, 151.1, 34% Demand deposit Saving deposit Time deposit Source: Company, Mandiri Sekuritas Source: Company, Mandiri Sekuritas EXHIBIT 82. CAPITALIZATION 22.0% 21.0% 20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 19.5% 19.4% 18.5% 19.2% 19.2% F 2019F EXHIBIT 83. NPL AND COVERAGE RATIO 3.50% 189% 183% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2.96% 2.67% 144% 143% 138% 2.29% 2.06% 1.96% F 2019F 200% 180% 160% 140% 120% % 80% 60% 40% 20% 0% Coverage ratio Gross NPL Source: Company, Mandiri Sekuritas Source: Company, Mandiri Sekuritas Please see important disclosure at the back of this report Page 43 of 160

44 Credit Research Banking Company profile Bank Negara Indonesia (BBNI) was established on July 5, BBNI is the fourth largest bank in Indonesia based on total assets and has a reputation as a bank that focuses on corporate and infrastructure financing. BBNI provides a wide range of integrated financial services, such as business banking, consumer banking, and other banking services (e.g. treasury, custody, asset management, pension fund, transaction banking service, digital banking, and other banking services). BBNI also provides other financial services such as sharia banking services, insurance, multifinance, and securities investments through its subsidiaries, namely BNI Syariah Bank, BNI Life Insurance, BNI Multi Finance, and BNI Securities. As of Sept 2017, the largest shareholder of BBNI is the Government of the Republic of Indonesia with 60% ownership and the rest is owned by the public at 40%. EXHIBIT 84. OUTSTANDING BONDS Bond ID Size (Rp bn) Issued date Maturity Coupon (%) Last trade Last price Yield (%) Risk premium (bps) BBNI01CN1 3,000 12Jul17 11Jul Jan Source: IDX, Mandiri Sekuritas estimate EXHIBIT 85. YIELD AND RISK PREMIUM BBNI01CN1 Risk Premium (RHS) % Source: IDX, Mandiri Sekuritas estimate Yield (LHS) 21Jul17 26Jul17 1Aug17 7Aug17 10Aug17 16Aug17 29Aug17 5Sep17 11Sep17 14Sep17 19Sep17 29Sep17 4Oct17 17Oct17 20Oct17 30Oct17 9Nov17 29Nov17 19Dec17 22Dec17 4Jan18 12Jan18 18Jan18 bps Please see important disclosure at the back of this report Page 44 of 160

45 Credit Research Banking PT BANK NEGARA INDONESIA (PERSERO) TBK Profit and loss YE 31 December (Rp billion) F 2019F Net interest income 25, , , , ,413.4 Other operating income 9, , , , ,555.6 Operating expenses Personel expenses (7,365.8) (8,834.0) (9,277.2) (11,132.6) (13,359.2) G&A (5,758.3) (6,211.9) (6,922.6) (8,999.3) (10,799.2) Others (3,385.7) (4,171.0) (4,663.6) (2,352.8) (1,463.3) Pre provision profit 18, , , , ,347.3 Provision expense (7,336.3) (7,853.1) (7,126.3) (6,500.0) (6,500.0) Other operating income/(expens (57.3).0.0 Pretax income 11, , , , ,947.3 Tax expenses (2,325.6) (2,892.7) (3,394.8) (4,128.8) (4,989.5) Net profit after tax and minority 9, , , , ,957.9 Key Ratios YE 31 December (Rp billion) F 2019F Profitability Net interest margin (NIM) 6.3% 6.2% 5.6% 5.1% 4.9% Average yield on earning assets 9.6% 9.4% 8.1% 8.1% 7.5% Average Cost of Funds 3.2% 3.2% 3.0% 3.2% 3.2% ROAE 18.0% 18.6% 19.2% 17.5% 17.2% ROAA 2.7% 2.8% 2.8% 2.5% 2.5% Cost to income ratio 46.8% 46.5% 46.1% 45.4% 45.0% Capitalization CAR 19.5% 19.4% 18.5% 19.2% 19.2% Liqudity Loan to Deposit Ratio 88.0% 90.3% 85.5% 85.0% 85.2% Liquid asset/total deposit 23.6% 23.0% 24.2% 24.8% 25.6% Asset quality Gross NPL 2.7% 3.0% 2.3% 2.0% 2.1% Coverage ratio 138.2% 143.3% 143.8% 189.2% 183.4% Balance Sheet YE 31 December (Rp billion) F 2019F Assets Cash 12, , , , ,764.4 Due to BI (Net) 30, , , , ,311.2 Dem. Deposits W. other Bank (Net) 8, , , , ,952.5 Interbank placement (Net) 33, , , , ,806.8 Securitiesnet 10, , , , ,172.0 Gross loans 326, , , , ,787.4 Loan loss provision (12,038.6) (16,680.9) (14,523.6) (18,798.6) (22,454.6) Fixed assets 26, , , , ,548.3 Other assets 4, , , , ,759.2 Total assets 508, , , , ,497.8 Liabilities and equity Liabilities Demand deposits 90, , , , ,627.3 Saving deposits 129, , , , ,065.1 Time deposits 133, , , , ,065.1 Total third party funds 353, , , , ,757.5 Deposits from other banks 4, , , , ,855.9 Securities issued 6, , , , ,000.0 Borrowings 22, , , , ,986.2 Other liabilities 7, , , , ,014.0 Total liabilities 412, , , , ,885.2 Total Temporary Shirkah Funds 17, , , , ,112.7 Shareholder's equity 78, ,254.0, , ,500.1 Total liabilities and equity 508, , , , ,497.9 Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 45 of 160

46 Compendium Credit Research Banking Banking Bank Pan Indonesia Tbk Key credit considerations: Company rating Pefindo AA/Stable Shareholders PT Panin Financial Tbk 46.04% Votraint No Pty Ltd 38.82% Public (below 5%) 15.41% Outstanding bonds Bond ID Size (bn) Maturity Coupon PNBN02CN1 2,000 28Jun PNBN02CN2 2,125 27Oct PNBN01SBCN1 2,000 20Dec PNBN02SBCN1 28Jun PNBN02SBCN2 2,400 17Mar Trading summary Bond ID Last Trade Last Price Yield (%) PNBN02CN1 27Dec PNBN02CN2 22Dec PNBN01SBCN1 21Dec Slow Loan Growth. PNBN is the 7 th largest bank in Indonesia with strong franchise value in commercial and retail segment. Amid the challenging economic condition and slowing demand for loans, the bank was only able to record 2.2% loan growth YtD or 5% YoY as of Sept For full year, we projected the bank s loan growth will be around 8%. In 2018, we view the Bank s management will continue to set conservative growth of around 10%. Increasing NPL Ratio. The Bank s NPL increased to 3% at end of September 2017 from 2.8 as of end of 2016 due to sluggish loan expansion, while at the same time credit risk increased due to the challenging economic condition. Although increasing we consider this NPL ratio is still at a sound level. We are also confident that the Bank should be able to maintain its sound asset quality, since the majority of its loan portfolio consists of loans to the SME and commercial segments that are fully collateralized. Strong earnings. PNBN exhibited strong earnings in 3Q2017, supported by its business focus on SME segment and well sustained NIM. As of Sept 2017 PNBN s NIM was 4.7%, flat compared to 2016's figure. In addition to that, improving efficiency as reflected from cost to income ratio of 45.7% (vs. 46.5% in 2016) has also contributed 23% to the net income YoY growth in 3Q2017. In 2018 we view the Bank should be able to maintain its profitability, supported by prudent business strategy. Favorable capitalization. The Bank s capitalization has been strong due to its conservative growth and sound asset quality, as well as its strong capital boost from retained earnings due to its zero dividend payout policy. Accordingly, CAR stood favorably at 19.7% at end of Sept2017. PNBN02SBCN1 27Dec EXHIBIT 86. FINANCIAL SUMMARY YE Dec (Rp bn) Sept F 2018F Net profit 2,367 1,407 2,405 2,098 2,653 3,391 Total assets 172, , , , , ,314 Total deposits 126, , , , , ,114 Total equity 20,802 28,351 31,615 33,691 33,819 37,425 NIM (%) NPL (%) LDR (%) CAR (%) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 46 of 160

47 Credit Research Banking EXHIBIT 87. PROFITABILITY INDICATORS % EXHIBIT 88. LDR AND LIQUID ASSET RATIO % Sept Sept 17 NIM Yield on earning assets Cost of Funds LDR Liquid asset/total deposit Source: Company, Mandiri Sekuritas Source: Company, Mandiri Sekuritas EXHIBIT 89. LOAN BREAKDOWN EXHIBIT 90. DEPOSIT BREAKDOWN Services 24% Sept 17 Trading 20% % 80% 60% 48% 60% 61% 62% Others 18% Industry 19% 40% 20% 0% 45% 32% 31% 31% 7% 7% 8% 7% Sept 2017 Construction 19% Demand Deposits Saving Deposits Time Deposits Source: Company, Mandiri Sekuritas S Source: Company, Mandiri Sekuritas EXHIBIT 91. CAPITALIZATION Rp % tn Sept 17 Total equity (RHS) Equity/assets (LHS) CAR (LHS) Source: Company, Mandiri Sekuritas EXHIBIT 92. NPL AND COVERAGE RATIO 5.00 %.0 % Sept 17 Gross NPL (LHS) Coverage ratio (RHS) Source: Company, Mandiri Sekuritas Please see important disclosure at the back of this report Page 47 of 160

48 Credit Research Banking Company Profile PT Bank Pan Indonesia Tbk (PNBN or the Bank) was incorporated on 17 August 1971 through a merger of PT Bank Industri & Dagang Indonesia, PT Bank Kemakmuran, and PT Bank Industri Djaja Indonesia. PNBN obtained the license to operate as a foreign exchange bank in 1972 and then became the first bank listed in the Indonesia Stock Exchange (previously Jakarta Stock Exchange). PNBN also successfully endured the Asian financial crisis in the 90s without the government support through recapitalization program, given the Bank's strong capitalization at that time. After the crisis, the Bank transformed its corporate focus business into the commercial and retail banking, considering the growing SME market in the country. As of 30 September 2017, PNBN's shares are owned by PT Panin Financial Tbk (46.04%), Votraint No Pty Ltd (38.82%), and Public ownership below 5% (15.14%). EXHIBIT 93. OUTSTANDING BONDS Bond ID Size Rp bn Issued date Maturity Coupon Last trade Last price Yield Risk premium bps PNBN02CN1 2,000 29Jun16 28Jun Dec PNBN02CN2 2,125 28Oct16 27Oct Dec PNBN01SBCN1 2,000 21Dec12 20Dec Dec PNBN02SBCN1 29Jun16 28Jun Dec PNBN02SBCN2 2,400 20Mar17 17Mar Jan Source: IDX, Mandiri Sekuritas estimate EXHIBIT 94. YIELD AND RISK PREMIUM PNBN02CN1 % Risk Premium (RHS) Yield (LHS) Bps Jun16 26Jul16 27Jul16 28Jul16 29Jul16 03Aug16 29Aug16 20Sep16 05Oct16 19Dec16 22Dec16 21Mar17 13Oct17 24Oct17 25Oct17 27Oct17 30Oct17 05Dec17 07Dec17 27Dec17 Source: IDX, Mandiri Sekuritas estimate EXHIBIT 95. YIELD AND RISK PREMIUM PNBN02CN2 % Risk Premium (RHS) Yield (LHS) Bps Oct16 15Dec16 29Dec16 09Jan17 27Jan17 13Feb17 17Feb17 13Apr17 27Apr17 16May17 06Jun17 28Aug17 03Oct17 05Oct17 17Oct17 31Oct17 10Nov17 14Nov17 18Dec17 Source: IDX, Mandiri Sekuritas estimate EXHIBIT 96. YIELD AND RISK PREMIUM PNBN01SBCN1 % Risk Premium (RHS) Yield (LHS) Bps Dec16 07Feb17 17Feb17 22Feb17 28Feb17 13Mar17 23Mar17 27Apr17 18May17 31May17 13Jun17 17Jul17 23Aug17 25Sep17 17Oct17 27Oct17 15Nov17 21Nov17 30Nov17 21Dec17 Source: IDX, Mandiri Sekuritas estimate EXHIBIT 97. YIELD AND RISK PREMIUM PNBN01SBCN2 % Risk Premium (RHS) Yield (LHS) Bps Sep16 03Feb17 06Feb17 09Feb17 10Feb17 23Oct17 27Dec17 Source: IDX, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 48 of 160

49 Credit Research Banking PT BANK PAN INDONESIA TBK Profit and loss YE Dec (Rp bn) 2015A 2016A Sept F 201 Interest income 16,915 17,447 13,074 17,728 18,8 Interest expense (9,714) (9,004) (6,648) (9,054) (9,4 Net interest income 7,201 8,443 6,426 8,674 9,3 Other operating income 1,018 1,295 1,227 1,522 1,6 Operating expenses (4,431) (4,524) (3,495) (4,862) (5,3 Personel expenses (1,848) (1,771) (1,281) (1,831) (1,9 G&A (1,736) (1,827) (1,509) (1,994) (8 Others (847) (925) (704) (1,038) (2,5 Pre provision profit 3,788 5,214 4,158 5,333 5,7 Provision expense (1,362) (2,007) (1,333) (1,560) (9 Operating income 2,425 3,207 2,826 3,774 4,7 Pretax income 2,458 3,306 2,887 3,774 4,7 Tax expenses (890) (788) (700) (943) (1,1 Minority interest (161) (113) (89) (177) (1 Net profit after tax and minority interest 1,407 2,405 2,098 2,653 3,3 Key ratios (%) YE Dec 2015A 2016 Sept P 2018P Profitability Net interest margin (NIM) Average yield on earning asse Average Cost of Funds ROAE ROAA Cost to income ratio Capitalization Equity/assets Tier I/RWA Balance sheet YE Dec (Rp bn) 2015A 2016 Sept P 2018P Assets Cash 1,373 1,434 1,075 1,128 2,590 Due to BI 10,800 10,249 10,378 13,588 15,490 Interbank placement 9,597 13,864 6,452 12,912 14,963 Securitiesnet 19,079 21,372 23,998 25,642 29,745 Gross loans 120, , , , ,785 Loan loss provision (2,660) (3,060) (3,303) (3,838) (4,147) Other financingnet 8,161 8,002 10,027 9,533 10,486 Fixed assets 9,134 9,852 9,720 8,944 9,838 Other assets 7,232 9,353 23,892 7,786 8,563 Total assets 183, , , , ,314 Liabilities and equity Liabilities Demand deposits 9,623 10,413 10,603 15,098 17,211 Saving deposits 41,604 43,714 41,928 52,842 60,240 Time deposits 77,090 88,527 91,892 83,037 94,663 Total third party funds 128, , , , ,114 Deposits from other banks 5,495 1,718 6,138 6,058 6,361 Securities issued 6,443 10,456 12,744 4,900 4,200 Borrowings 3,309 3,269 4,389 4,186 4,814 Other liabilities 8,751 6,877 8,937 10,303 10,833 Total liabilities 152, , , , ,322 Minority interest 2,455 2,586 2,790 2,529 2,567 Shareholder's equity 28,351 31,615 33,691 33,819 37,425 Total liabilities and equity 183, , , , ,314 CAR Liqudity LDR bank only Liquid asset/total deposit Asset quality Gross NPL Coverage ratio Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 49 of 160

50 Compendium Credit Research Banking Banking Bank OCBC NISP Tbk. Key credit considerations: Company rating Fitch Pefindo Shareholders AAA (Idn)/Stable AAA/Stable OCBC Overseas Investment Pte. Ltd 85.08% Board of Comminisoners & Board of Directors 0.01% Public 14.91% Outstanding bonds Bond ID Size Maturity Coupon Rp bn % NISP01CCN2 1,235 10Feb NISP02ACN2 1,148 2Sep NISP02BCN May NISP02CCN May NISP02CCN Aug NISP02CCN Dec NISP02ACN Dec NISP02BCN Aug NISP02BCN Dec Trading summary Bond ID Last trade Last price Yield % NISP01CCN2 28Dec NISP02ACN2 28Dec NISP02BCN1 1Nov NISP02CCN1 30Oct NISP02CCN2 18Dec NISP02CCN3 10Jan NISP02ACN3 10Jan NISP02BCN2 6Dec NISP02BCN3 n.a n.a n.a Loan growth spurred. NISP has posted strong loan growth in the last nine months of 2017 amid challenging economic condition and slowing loan demand. In 2016 the total loan growth was only 9%. As of end of Sept 2017 the Bank recorded 17% YoY loan growth compared to the industry's 8% YoY in 3Q2017. NISP s strong loan growth was driven by loan disburseds to the Trading sector, Business Services sector, and consumer loans (housing and personal loans). In FY2017 we projected NISP s loan growth of around 17%, while the Bank has set a lower loan growth of 10%12% for Strong earnings performance in 9M17. The Bank s net income revenue grew by 12% yoy in 3Q17, mainly driven by increasing income from marketable securities and government bonds (+23% yoy) and loans (+5% yoy). However, NIM was relatively flat at 4.5% in 3Q2017. In the last 9 months of 2017, NISP was able to manage its business efficiency and asset quality at a favorable level, thus the Bank recorded net income of Rp1.7tn in 3Q2017, a 22.9% increase compared to the net income in 3Q2016. We expect the Bank should be able to maintain its profitability performance in 2018, supported by its strong loan growth, improving operational efficiency, and favorable asset quality. Favorable asset quality. Despite increasing to 1.9% in 3Q2017 from 1.5% in 3Q2016, the bank s NPL was still considered as favorable. The special mention loan ratio as the indicator for the future NPL was also at a favorable level of 0.4%. The loan provision coverage also stood favorably at 192.1% in 3Q2017. We believe with conservative credit risk management the Bank should be able to maintain its favorable asset quality profile in Strong capitalization. The Bank s CAR was strong at 17.71% at the end of September 2017, while Tier1 CAR stood favorably at 16.8%. The Bank s current capital as well as the very strong support from OCBC should provide huge flexibility for business expansion in the medium term and sufficient cushions to absorb losses. EXHIBIT 98. FINANCIAL SUMMARY YE Dec (Rp bn) 2014A 2015A 2016A 2017F 2018F Net profit 1,332 1,501 1,790 2,126 2,530 Total assets 103, , , , ,241 Total deposits 72,805 87, , , ,419 Total equity 14,943 16,411 19,507 21,631 24,160 NIM (%) NPL (%) LDR (%) CAR (%) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 50 of 160

51 Credit Research Banking EXHIBIT 99. NET PROFIT, NIM, AND ROAA % 1, , Source: Company, Mandiri Sekuritas 1, , Sept17 NET PROFIT NIM ROAA 2, , , , , , EXHIBIT. LDR AND LIQUID ASSET RATIO % Sept 17 LDR Liquid asset/total deposit Source: Company, Mandiri Sekuritas EXHIBIT 101. LOAN BREAKDOWN EXHIBIT 102. DEPOSIT BREAKDOWN Sept17 % Manufacturing 27% Trading 24% 80% 60% 65% 59% 61% 60% Others 14% Services 18% 40% 20% 0% 15% 16% 16% 16% 19% 26% 24% 24% M17 Construction 3% Source: Company, Mandiri Sekuritas Agricultural & Mining 14% Demand Deposits Saving Deposits Time Deposits Source: Company, Mandiri Sekuritas EXHIBIT 103. CAPITALIZATION % Sept 17 Equity/assets CAR Tier I/RWA Source: Company, Mandiri Sekuritas EXHIBIT 104. NPL AND COVERAGE RATIO % % Sept 17 Gross NPL (LHS) Coverage ratio (RHS) Source: Company, Mandiri Sekuritas Please see important disclosure at the back of this report Page 51 of 160

52 Credit Research Banking Company Profile Bank OCBC NISP (NISP) is one of the oldest banks in Indonesia, established on April 4, 1941, in Bandung. The Bank officially became a commercial bank in 1967 and a publicly listed bank on the Indonesian Stock Exchange in The bank also had successfully withered the financial crisis in the 90s without the government support through recapitalization program. The Bank is majority owned by OCBC Bank Corporation Ltd. (rated AA/stable by S&P), the second largest commercial bank in Singapore, through its subsidiary OCBC Overseas Investment Pte. Ltd. NISP has consistently maintained its business focus to the SME segment, which contributed 57% of the Bank s total loans, followed by consumer (21%) and large corporation (22%). EXHIBIT 105. OUTSTANDING BONDS Bond ID Size Rp bn Issued date Maturity Coupon % Last trade Last price Yield % Risk premium bps NISP01CCN2 1,235 11Feb15 10Feb Dec n.a NISP02ACN2 1,148 23Aug17 2Sep Dec n.a NISP02BCN May16 11May Nov NISP02CCN May16 11May Oct NISP02CCN Aug17 22Aug Dec NISP02CCN Dec17 12Dec Jan NISP02ACN Dec17 22Dec Jan n.a NISP02BCN Aug17 22Aug Dec NISP02BCN Dec17 12Dec n.a n.a n.a n.a Source: IDX Mandiri Sekuritas estimate EXHIBIT 106. YIELD AND RISK PREMIUM NISP02CCN1 EXHIBIT 107. YIELD AND RISK PREMIUM NISP02CCN2 Risk Premium (RHS) Yield (LHS) Risk Premium (RHS) Yield (LHS) Jun16 6Jun16 22Jun16 29Jun16 30Jun16 20Jul16 22Jul16 25Jul16 28Jul16 29Jul16 1Aug16 2Aug16 11Aug16 22Aug16 25Aug16 10Oct16 20Dec16 28Feb17 20Sep17 30Oct Source: IDX, Mandiri Sekuritas estimate Source: IDX, Mandiri Sekuritas estimate EXHIBIT 108. YIELD AND RISK PREMIUM NISP02CCN3 Risk Premium (RHS) Yield (LHS) Source: IDX, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 52 of 160

53 Credit Research Banking Bank OCBC NISP Profit and loss YE Dec (Rp bn) 2015A 2016A Sept F 2018F 2019F nterest income 9,221 10,204 8,174 11,518 12,944 14,781 nterest expense (4,802) (4,811) (3,709) (5,322) (6,123) (7,229) Net interest income 4,419 5,393 4,465 6,196 6,821 7,552 Other operating income 854 1,421 1,146 1,115 1,364 1,661 Operating expenses (2,818) (3,156) (2,477) (3,630) (4,174) (4,801) Personel expenses (1,706) (1,830) (1,535) (2,104) (2,420) (2,783) G&A (981) (98) (827) (113) (130) (150) Others (131) (1,228) (116) (1,412) (1,624) (1,868) Pre provision profit 2,455 3,658 3,134 3,681 4,011 4,412 Provision expense (454) (1,316) (925) (853) (645) (731) Operating income 2,001 2,342 2,209 2,829 3,366 3,681 Pretax income 2,001 2,351 2,209 2,835 3,373 3,687 Tax expenses (501) (561) (541) (709) (843) (922) Net profit 1,501 1,790 1,669 2,126 2,530 2,766 Key ratios (%) YE Dec 2015A 2016A Sept F 2018F 2019F Profitability Net interest margin (NIM) Average yield on earning assets Average Cost of Funds ROAE ROAA Cost to income ratio Balance sheet YE Dec (Rp bn) 2015A 2016A Sept F 2018F 2019F Assets Cash , ,116 Due to BI 7,801 8,019 8,738 12,324 11,634 13,728 Interbank placement 9,957 3,928 5,234 4,124 4,330 4,547 Securitiesnet 11,999 26,720 26,288 29,391 35,270 39,502 Gross loans 85,879 93, , , , ,498 Loan loss provision (1,838) (3,115) (3,772) (3,860) (4,378) (4,960) Fixed assets 1,077 2,414 2,420 1,011 1,069 1,133 Other assets 4,667 5,987 6,697 5,687 5,759 5,832 Total assets 120, , , , , ,394 Liabilities and equity Liabilities Demand deposits 22,506 24,512 27,474 29,132 34,376 40,563 Saving deposits 13,646 16,289 18,145 21,914 25,858 30,513 Time deposits 51,128 62,759 69,138 72,191 85,185,518 Total third party funds 87, , , , , ,594 Deposits from other banks 1,479 2,507 1,032 2,983 3,520 4,154 Subordinated loan Borrowings Securities issued 5,392 3,899 4,392 2, Other liabilities 6,283 7,844 8,248 7,037 7,369 7,720 Total liabilities 104, , , , , ,469 Shareholder's equity 16,411 19,507 21,333 21,631 24,160 26,926 Capitalization Equity/assets Tier I/RWA CAR Total liabilities and equ 120, , , , , ,394 Liqudity LDR Liquid asset/total deposit Asset quality Gross NPL Coverage ratio Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 53 of 160

54 Compendium Credit Research Banking Banking Bank Mandiri Taspen Pos Key credit considerations: Company rating Fitch Shareholders AA (Idn)/Stable PT Bank Mandiri Tbk 59.44% PT Taspen 40.00% I.B. Made Putra Jandhana 0.56% Outstanding bonds Bond ID Size Maturity Coupon Rp bn % BMTP01A 1,500 11Jul BMTP01B Jul Trading summary Bond ID Last Trade Last Price Yiled (%) BMTP01A 3Jan BMTP01B 13Dec Strong earnings performance in 9M17. The Bank s net profit significantly grew by 173%yoy in 9M17, mainly driven by rising interest income to Rp899bn (+146%YoY). Preprovision profit grew by +197%yoy to Rp185bn, supported by increase in loan disbursed from Rp3,566bn in 9M16 to Rp9,153bn in 9M17 (+157%YoY). All in all, net interest income still grew by 108%yoy in 9M17, though NIM declined to 6.6% from 8.14% in 9M16. Slight increase on NPL. The Bank s NPL slightly increased from 0.43% in FY2016 to 0.63% in 9M17, while it has not made any write offs in the last two years. It is also still far below the industry average NPL of 3.48 (OJK monthly data). Based on loan classification stated in the Bank s financial statement, the social service segment, which account for 56% of total loans, recorded an NPL of 0.15% at the end of Sept17 (vs. 0.02% in FY16) and contributed around 24% of total outstanding NPL. In the same period, loan to the trading, hotel, and restaurant segment posted the highest NPL of 0.34% (vs. 0.29% in FY16), which accounts for 17.2% of the total outstanding loan in 9M17. Given the low NPL, cost of credit (provisioning expense divided by average total loans) has been kept low at 0.2%. In addition to that, the Bank also has good loan loss coverage ratio at 87.2% in 9M17. Manageable liquidity despite strict LDR. The Bank s LDR jumped to 105% in Sept17 compared to 87% in FY16, in line with credit expansion as deposit grew by +54% in FY16 to YTD. However, liquid assets still cover around 35.4% of its third party deposits, almost all of them were placed in riskfree assets, which consist of placement at Bank Indonesia and stateowned banks as well as in SBI. Good capitalization. The Bank s CAR stood at 20.7% in Sept17, far above BI s minimum requirement of 8%. With favorable CAR level, the Bank still has ample room to support credit expansion in the future, while at the same time it provides enough cushion to absorb potential losses from its NPLs. Given the financially stronger parents, Bank Mantap should receive the necessary capital support to expand its business. EXHIBIT 109. FINANCIAL SUMMARY YE Dec (Rp bn) 2014A 2015A 2016A 2017F 2018F Net profit Total assets 1,756 2,578 7,391 13,831 19,607 Total deposits 1,051 1,833 5,652 8,838 13,787 Total equity ,149 1,708 2,483 NIM (%) NPL (%) LDR (%) CAR (%) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 54 of 160

55 Credit Research Banking EXHIBIT 110. PROFITIBILITY INDICATORS % M17 Net interest margin (NIM) Yield on earning assets Cost of funds Source: Company, Mandiri Sekuritas EXHIBIT 111. LDR AND LIQUID ASSET RATIO % Sept17 LDR Liquid asset/total deposit Source: Company, Mandiri Sekuritas EXHIBIT 112. LOAN BREAKDOWN EXHIBIT 113. DEPOSIT BREAKDOWN Trading, restaurant and hotel 17% Others 26% Sept17 Social services 56% Business Agriculture services 1% 0% % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 58% 34% 69% 29% 77% 21% 85% 82% 14% 17% M17 Demand deposit Saving deposit Time deposit Source: Company, Mandiri Sekuritas Source: Company, Mandiri Sekuritas EXHIBIT 114. CAPITALIZATION % Total equity (RHS) Equity/Assets (LHS) CAR (LHS) Rp bn 50 1, Sept17 Source: Company, Mandiri Sekuritas 1,200 1, EXHIBIT 115. NPL AND COVERAGE RATIO 4% NPL Loan loss coverage ratio 4% 109% 3% 99% 3% 79% 87% 87% 2% 2% 2% 1% 1% 1% 0% 1% 1% 0% M17 Source: Company, Mandiri Sekuritas 120% % 80% 60% 40% 20% 0% Please see important disclosure at the back of this report Page 55 of 160

56 Credit Research Banking Company Profile Bank Mandiri Taspen Pos (Bank Mantap/the Bank) is one of the leading players in the micro and SME banking segment in Bali province. In the past two years, BMTP has been expanding its business to the pensioner segment (credit to pensioner), which currently contributes the largest portion to BMTP's loan portfolio at 55.6% at end of The strategic alliances of the shareholders, i.e. Bank Mandiri, PT Taspen, and PT Pos Indonesia, have enabled the Bank to gain good positioning in the niche market of pensioners. Pension loan bears low credit risk, as the monthly installment of the loan is automatically deducted from the monthly pension fund, which is paid through Bank Mantap as the payment Bank. As a result of network expansion, especially outside Bali province, Bank Mantap now owns 126 distribution channels across 21 provinces. EXHIBIT 116. OUTSTANDING BONDS Bond ID Size Issued date Maturity Coupon Last trade Last price Yield Risk premium Rp bn % % bps BMTP01A 1,500 12Jul17 11Jul Jan BMTP01B Jul17 11Jul Dec Source: IDX Mandiri Sekuritas estimate EXHIBIT 117. YIELD AND RISK PREMIUM NISP02CCN1 % Risk premium (RHS) Yield (LHS) Bps Jul17 11Aug17 31Aug17 4Sep17 28Sep17 29Sep17 9Oct17 10Oct17 11Oct17 16Oct17 27Oct17 9Nov17 28Nov17 29Nov17 5Dec17 18Dec17 20Dec17 25Jan18 Source: IDX, Mandiri Sekuritas estimate EXHIBIT 118. YIELD AND RISK PREMIUM NISP02CCN2 % Risk premium (RHS) Yield (LHS) Bps Jul17 5Oct17 16Oct17 8Nov17 13Dec17 Source: IDX, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 56 of 160

57 Credit Research Banking Bank Mandiri Taspen Pos Profit and loss YE Dec (Rp bn) 2014A 2015A 2016A 2017F 2018F 2019F nterest income ,286 2,089 2,760 nterest expense (68) (98) (268) (637) (993) (1,255) Net interest income ,096 1,505 Other operating income Operating expenses (93) (139) (258) (464) (695) (904) Personel expenses (63) (96) (152) (274) (411) (534) G&A (31) (43) (105) (190) (284) (370) Others Pre provision profit Provision expense (6) (4) (7) (22) (26) (44) Other operating income/(expense) 0 (1) (1) Pretax income Tax expenses (8) (9) (21) (67) (139) (207) Net profit after tax and minority interest Key ratios (%) YE Dec 2014A 2015A 2016A 2017F 2018F 2019F Profitability Net interest margin (NIM) Average yield on earning assets Average Cost of Funds ROAE ROAA Cost to income ratio Balance sheet YE Dec (Rp bn) 2014A 2015A 2016A 2017F 2018F 2019F Assets Cash Due to BI ,075 1,572 Interbank placement ,188 2,041 2,167 2,295 Securitiesnet ,212 2,243 2,198 Gross loans 920 1,585 4,929 8,559 13,694 19,172 Loan loss provision (10) (14) (21) (43) (68) (96) Fixed assets Other assets Total assets 1,756 2,578 7,391 13,831 19,607 25,705 Liabilities and equity Liabilities Demand deposits Saving deposits ,115 3,171 4,343 Time deposits 728 1,413 4,826 7,547 10,340 14,477 Total third party funds 1,051 1,833 5,652 8,838 13,787 19,302 Deposits from other banks Securities issued 349 3,000 3,000 3,000 Borrowings Other liabilities Total liabilities 1,554 1,879 6,242 12,122 17,124 22,739 Shareholder's equity Total liabilities and equity ,149 1,708 2,483 2,966 1,756 2,578 7,391 13,831 19,607 25,705 Capitalization Equity/assets CAR Liqudity LDR bank only Liquid asset/total deposit Asset quality Gross NPL Coverage ratio Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 57 of 160

58 Compendium Credit Research Banking Banking BPD Maluku dan Maluku Utara Key credit considerations: Company rating PT Fitch Ratings Indonesia A(idn)/Stable Shareholders Shareholders Ownership (%) Provincial Government of Maluku Provincial Government of North Maluku Municipalities and Regencies in Maluku and North Maluku Outstanding bonds Bond ID Size Maturity Coupon Rp bn % BMLK02A 50 18Dec BMLK02B 150 8Dec BMLK02C 300 8Dec Trading summary Bond ID Last Trade Last Price Yield (%) BMLK02A 21Dec BMLK02B 15Jan BMLK02C 17Jan Strong support from the shareholders. As the regional bank for Maluku Province and North Maluku Province, Bank Maluku Malut (or the Bank) receives full support from the shareholders in terms of financial support as well as business opportunity. In 2012 June 2017, the total paidup capital of BPD Maluku has continued to increase from Rp166.1bn in 2012 to Rp332.03bn in December In June 2017, the total paidin capital increased to Rp347.78bn. In our view, Regional Government (Pemda) Maluku and North Maluku have shown the capacity and willingness to give financial support to the Bank. Going forward, we expect the Bank to continue receiving strong support from its shareholders given its strategic position as the regional government treasurer and agent of development. Favorable capitalization. Supported by positive profitability, the Bank's core capital also increased to Rp760.4bn in June In the next few years, BPD Maluku Malut will continue to increase its core capital to reach the Bank Buku II category. In line with the increase in the Bank s capital, its Capital Adequacy Ratio (CAR) was also at a very favorable level. In 2013, the Bank's CAR was at 15.7%, increasing to 17.3% in 2014, 18.7% in 2015, 19.5% in 2016, and 22.2% in June In the next three years, the Bank will maintain a high CAR rate of 2028%. Sound asset quality. In 2013 June 2017, BPD Maluku Malut has a manageable NPL at a level of 1.46% in 2013, 2.38% in 2014, 2.37% in 2015, 1.95% in 2016, and 2.00 in June Although BPD Maluku s NPL increased and reached its peak in 2014, the Bank was able to reduce its NPL ratio to 2% level in June The NPL increase was related to the impact of macroeconomic growth slowdown that affected the debtors performance. In the future BPD Maluku will continue to focus on consumer loans and also capture business opportunities in the productive segments that are suitable with the Bank's risk appetite and risk tolerance. The management of BPD Maluku Malut is targeting to maintain NPL below 2.00%. High Net Interest Margin. Having a loan portfolio concentrated in the consumer segment, the Bank has enjoyed a lucrative margin. BPD Maluku Malut s Net Interest Margin was very high compared to the banking industry's due to the business focus on consumer credit. The Bank s NIM reached 11.5% in 2014, down to 10.9% in 2015 and 9.3% in 2016 due to a combination of high cost of funds, business competition, and the trend of declining loan interest rates. Going forward, the management is targeting to maintain NIM around %. EXHIBIT 119. FINANCIAL SUMMARY YE Dec (Rp bn) F 2018F Net profit (2) Total assets 4,543 5,128 5,644 6,146 6,585 Total deposits 3, , , , ,654.0 Total equity ,081 NIM (%) 11.10% 10.44% 8.92% 9.28% 9.28% NPL (%) 2.39% 2.37% 1.95% 1.95% 1.98% LDR (%) 92.36% 85.39% 86.94% 85.75% 85.75% CAR (%) 17.34% 18.66% 19.53% 19.02% 24.37% Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 58 of 160

59 Credit Research Banking EXHIBIT 120. NET PROFIT, NIM, AND ROAA % % % % % % 8.1% 8.00% % % 4.00% % 2.7% 2.9% % (20) 2014 (2) Jun F 0.00% 0.3% Net profit NIM (%) ROAA Source: Company, Mandiri Sekuritas EXHIBIT 121. LDR AND LIQUID ASSET RATIO.00% 90.00% 92.36% 80.00% 85.39% 86.94% 85.75% 70.00% 60.00% 56.17% 50.00% 47.9% 49.6% 40.00% 38.3% 42.4% 30.00% 28.3% 20.00% 10.00% 0.00% June F LDR (%) Liquid asset/total deposit (%) Source: Company, Mandiri Sekuritas EXHIBIT 122. LOAN BREAKDOWN Syndicated 4% Consumer 88% Source: Company, Mandiri Sekuritas Working capital 7% Investment 1% EXHIBIT 123. DEPOSIT BREAKDOWN (RP BILLION) 7,000 6,000 5,000 2,330 4,000 3, ,155 1,457 1,097 2,000 1,017 1,085 1,150 2,554 1,000 1,434 1,554 1, Jun17 Demand deposit Saving deposit Time deposit Source: Company, Mandiri Sekuritas EXHIBIT 124. CAPITALIZATION EXHIBIT 125. NPL AND COVERAGE RATIO 25.00% 20.00% 15.00% 10.00% 17.34% 16% 11.0% 22.21% 19.53% 21% 18.66% 18% 19% 12.7% 13.0% 11.9% 78.0% 76.0% 74.0% 72.0% 70.0% 68.0% 2.39% 68.5% 2.37% 74.7% 75.3% 1.95% 76.8% 2.0% 3.00% 2.50% 2.00% 1.50% 1.00% 5.00% 66.0% 0.50% 0.00% Jun % Jun % CAR Tier I/RWA Equity to Total Assets COVERAGE RATIO (%) NPL (%) Source: Company, Mandiri Sekuritas Source: Company, Mandiri Sekuritas Please see important disclosure at the back of this report Page 59 of 160

60 Credit Research Banking Company Profile PT Regional Development Bank of Maluku and North Maluku (BPD Maluku Malut or the Bank) was established on October 25, 1961, under the name of PT Bank Pembangunan Daerah Maluku. In its development, the Bank was able to surf through various economic crises in Indonesia, especially during the economic and political crisis in At that time, the Bank participated in the recapitalization program and received Rp139.5bn from the Government. In 2003, the Bank exited from the Recapitalization Program. In the period of global crisis in 2008 the Bank was able to maintain its sound business and financial performance, as it applied a very conservative business model. To date the business model applied is: (i) The Bank functions as treasurer for the Local Government; (ii) The Bank functions as a funding channel for local budget and financing for government projects in Maluku and North Maluku regions; (iii) The Bank focuses on providing consumer credit to Civil Servants and individuals with fixed income whose salaries or pension funds are paid through the Bank. EXHIBIT 126. OUTSTANDING BONDS 0 Bond ID Size Rp bn Issued date Maturity Coupon (%) Last trade Last price Yield (%) Risk premium (bps) BMLK02A 50 11Dec17 18Dec Dec N.A BMLK02B Dec17 08Dec Jan BMLK02C Dec17 08Dec Jan Source: IDX, Mandiri Sekuritas estimate EXHIBIT 127. YIELD AND RISK PREMIUM BMLK02C EXHIBIT 128. YIELD AND RISK PREMIUM BMLK02B Dec17 2Jan18 3Jan18 Risk Premium (RHS) 4Jan18 5Jan18 8Jan18 9Jan18 Source: IDX, Mandiri Sekuritas estimate 10Jan18 Yield (LHS) 11Jan18 12Jan18 15Jan18 16Jan18 17Jan % Dec17 21Dec17 2Jan18 Risk Premium (RHS) 3Jan18 4Jan18 5Jan18 Source: IDX, Mandiri Sekuritas estimate 8Jan18 Yield (LHS) 9Jan18 10Jan18 11Jan18 12Jan18 15Jan18 bps EXHIBIT 129. YIELD AND RISK PREMIUM BMLK02A Risk Premium (RHS) Yield (LHS) % Dec17 14Dec17 18Dec17 Source: IDX, Mandiri Sekuritas estimate bps Please see important disclosure at the back of this report Page 60 of 160

61 Credit Research Banking BPD Maluku Malut Profit and loss YE 31 December (Rp billion) F 2018F 2019F Net interest income Other operating income Operating expenses Personel expenses (178) (175) (189) (208) (239) G&A (86) (90) (97) (106) (122) Others (15) (15) (16) (18) (21) Pre provision profit Provision expense (9) 8 (40) (40) (45) Other operating income/(expense) (6) (18) Pretax income Tax expenses (69) (59) (51) (55) (59) Net profit after tax and minority intere Key Ratios YE 31 December (Rp billion) F 2018F 2019F Profitability Net interest margin (NIM) 10.4% 8.9% 9.3% 9.3% 9.5% Average yield on earning assets 15.5% 13.5% 13.8% 13.8% 13.8% Average Cost of Funds 5.6% 5.2% 5.2% 5.2% 5.0% ROAE 27.8% 22.5% 20.6% 18.4% 16.5% ROAA 3.3% 2.9% 2.9% 2.9% 2.9% Cost to income ratio 54.9% 57.1% 55.2% 56.1% 57.7% Capitalization CAR 18.7% 19.5% 19.0% 24.4% 26.8% Liqudity LDR 85.4% 86.9% 85.8% 85.8% 86.5% Liquid asset/total deposit 38.3% 47.9% 47.5% 42.4% 38.7% Asset quality Gross NPL 2.37% 1.95% 1.95% 1.98% 1.84% Coverage ratio 74.7% 75.3% 74.1% 82.2% 90.4% Balance Sheet YE 31 December (Rp billion) F 2018F 2019F Assets Cash Due to BI (Net) Demand Deposits With other Bank (Net) Interbank placement (Net) 710 1,308 1,432 1,339 1,241 Securitiesnet Gross loans 3,240 3,359 3,628 3,991 4,390 Loan loss provision (57) (49) (52) (65) (73) Fixed assets Other assets Total assets 5,128 5,644 6,146 6,585 7,065 Liabilities and equity Liabilities Demand deposits 1,554 1,257 1,269 1,396 1,522 Saving deposits 1,085 1,150 1,366 1,536 1,725 Time deposits 1,155 1,457 1,595 1,722 1,826 Total third party funds 3,794 3,864 4,231 4,654 5,073 Deposits from other banks Securities issued Borrowings Other liabilities Total liabilities 4,475 4,913 5,231 5,504 5,759 Total Temporary Shirkah Funds Shareholder's equity ,081 1,306 Total liabilities and equity 5,128 5,644 6,146 6,585 7,065 Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 61 of 160

62 Credit Research research Banking Infrastructure Mandiri Sekuritas Analyst Teddy Hariyanto SECTOR: INFRASTRUCTURE Focus to Speed Up Infrastructure Development We view infrastructure construction growth to remain high in For 2018 the Government will still focus on accelerating infrastructure development and try to finish what it has started on schedule. The Government will increase the State Owned Enterprises' (SOE) participation as the main engine for infrastructure development and encourage more private sector participation in infrastructure investment through PPP scheme. In 2018 we also expect the SOE contractors order book to increase, and financial performance should also improve. Government budget for infrastructure development has increased. In , from the KPPIP website, we saw the solid progress on infrastructure development in Indonesia, and the Government will continue to accelerate infrastructure development to finish what it has started on target. The Government has also increased the budget allocation for infrastructure spending to Rp410.4tn in 2018 (+ 6%) from Rp387tn in In 2018 the Government also plans to inaugurate 33 toll roads. SOE as the main engine for infrastructure development. The Government has utilized stateowned companies as the main engine to support infrastructure development acceleration. Therefore, government interventions in SOEs (including construction SOEs, bank SOEs, SMI, Jasamarga, Angkasa Pura III, PT KAI, Telkom, PLN, and Pelindo IIV) to participate in infrastructure development will remain strong. The Government has seen immense potential due to their proven trackrecords in infrastructure development. As Indonesian companies are normally able to borrow up to 7075% of total cost of projects, the Government believes the stateowned companies could take more projects by leveraging their position by 3x. Contractor SOEs' financial performance remained sound. We view that four state owned enterprise construction companies (WIKA, WSKT, Hutama Karya, and ADHI) have continued to book strong performance. Their order book and net profit continued to increase. SOE construction companies have also continued to speed up construction of the government infraprojects to meet their target before the national election in Meanwhile, they were also able to manage their leverage at favorable level. In terms of negative cash flow, we view that negative cash flow accompanied by significant increase in order book is a normal condition during infrastructure boom. Worsening operating cash flow position was mainly due to turnkey projects that resulted in higher receivable days and direct investment to secure contracts. However, we also believe that SOE construction companies have strong risk management to run their major turnkey projects. Please see important disclosure at the back of this report Page 62 of 160

63 Credit Research Infrastructure Infrastructure as the economic growth theme Year 2018 started with optimism that Indonesia's economic condition should be better than in The Government of Indonesia projected that the country's economy will grow at a level of 5.4% in 2018 with infrastructure investment remaining as the growth theme. Infrastructure development should be the main driver to increase national economic activity as well as efficiency, and furthermore lead to higher economic growth and balance in all regions. Based on the Central Statistic Bureau, infrastructure development has created a huge multiplier output in the economy. The multiplier output of road, bridge, and port developments is 1.73, meaning that an infrastructure investment of Rp1bn would increase the economy's total output by Rp1.73bn and absorb 18% of workforce. Higher government budget for infrastructure spending The Government's focus on infrastructure development is reflected from the higher budget for infrastructure spending and structural reform, including policy packages and regulation launching to ease and accelerate infrastructure investment. In , from KPPIP website, we also saw the solid progress on infrastructure development in Indonesia, and the Government will continue to accelerate infrastructure development to finish what it has started on target. The Government has also increased the budget allocation for infrastructure spending to Rp410.4tn in 2018 (+ 6%) from Rp387tn in EXHIBIT 130. GDP AND GOVERMENT BUDGET FOR INFRASTRUCTURE EXHIBIT 131. INFRASTRUCTURE PROJECTS TARGET IN Source: Ministry of Finance F Infrastructure Budget (Rp trillion) GDP (%) Details 2014 Target 2019 C onnec tivity National road worthiness rate 94% 99% New road construction (in 5 years) 1,028km 2,650km new toll road construction (in 5 years) 260km 0km S eaport development Number of airports Logistic cost 23.50% 19.20% public transport rate 23% 32% Basic Infrastructure E lectrification rate 81.50% % Household gas network 102,000 (S R) 192,000 (S R) Drink water access 70% % S anitation access 60.50% % Home ownership backlog 13.5mn 6.8mn W ater S upply Basic water capacity 51.4m3/sec 118.6m3/sec S torage per capita 62.3m m3 Dam construction (5years) 21 dams 49 dams Irigation from dam 11% 20% S urface irigation network mn ha mn ha Source: Bappenas Key risks and funding strategy for infrastructure development The Government has set a very high target in developing infrastructure in Indonesia, and most of projects are expected to be completed by In fulfilling the infrastructure development target, the Government of Indonesia faces key risks and challenges such as land procurement, construction risks (delay and cost overruns), and limited funding availability. For land acquisition, the Government has issued Law No. 2/2012 on Land Procurement for Public Interest, which states that the source of funds for land acquisition derives from the Government Budget and/or the Regional Government budget. Meanwhile, in the case of StateOwned Enterprises obtaining a special assignment, funding for land procurement may be sourced from the SOE's internal or other sources. The Government has also appointed the State Asset Management Agency (BLU LMAN) through the Regulation of the Minister of Finance number 54 / PMK.01 / 2017 to conduct funding and landuse planning as well as compensation payments for land acquisition for national strategic projects. The Government has allocated land procurement funds for national strategic project development worth Rp16tn in APBNP 2016 and Rp20tn in APBN 2017, of which Rp13tn from the latter amount is for land acquisition of Toll Road projects. Please see important disclosure at the back of this report Page 63 of 160

64 Credit Research Infrastructure In the case of limited funding availability for infrastructure development, various alternative financing schemes have been offered by the Government. As shown in Figure 3, Public Private Partnership (PPP) schemes and State Owned Enterprises (SOE) Private Partnership are the types of schemes that are highly encouraged by the Government. However, to join the PPP and State Owned Enterprises (SOE) Private Partnership schemes, the lenders and investors have big concerns on clarity and completeness of project information, reliability and accuracy of feasibility study, land acquisition process, social and environmental issues, robust construction risk management, reliable management during operations, assurance of future earnings, government support, as well as the regulatory and legal certainty. In the PPP Book 2017 there are 22 infrastructure project plans worth Rp133.24tn. By promoting Public Private Partnership (PPP) and SOE Private partnership, the Government expects infrastructure development financing sources will be less dependent on government budget but more dependent on other sources, such as direct investment, mutual funds, banking and other financial institutions, equity and bond markets, pension funds and insurances, as well as alternative schemes such as NonGovernment Investment Financing (PINA). Various types of financial instruments for infrastructure financing have also been offered to investors. The issuance of bonds for infrastructure projects has reached Rp24.9tn as of September While alternative financial instruments, such as asset securitization (KIK EBA), have also been issued by two issuers, namely Jasamarga and PLN. Jasamarga has issued KIK EBA amounting to Rp1.6tn and PLN amounting to Rp4.0tn. The latest financial instrument issued for infrastructure financing was the Komodo Bond. This bond was issued by Jasamarga in December 2017 with total issuance of Rp4.0tn (approx. USD 298mn) with carrying coupon of 7.5% and tenor of 3 years. In January 2018, Wijaya Karya also issued Komodo Bonds for amounting to Rp5.4tn (approx. USD 403mn) with carrying coupon of 7.7% and tenor of 3 years. EXHIBIT 132. INDONESIA S INFRASTRUCTURE PROJECTS AND FINANCING SCHEME Source: Ministry of Finance, Bappenas Please see important disclosure at the back of this report Page 64 of 160

65 Credit Research Infrastructure EXHIBIT 133. INFRASTRUCTURE BONDS AND ASSET SECURITIZATION ISSUED Source: Mandiri Sekuritas EXHIBIT 134. PENSION FUND AND INSURANCE INDUSTRIES' INVESTMENT PORTFOLIO ALLOCATION FOR GOVERNMENT BONDS % 48.6% 23.8% 25.8% Life Insurance Social Insurance Pension Fund Mandatory Insurance 13.2% Others Mutual Fund Equity Deposit Corp Bond Govt Bond General + reinsurance POJK No 1/ % 50% 20% 10% 10% % 50% 30% 20% 20% Source: OJK, Mandiri Sekuritas Calculation The Government also encourages the participation of pensions and insurance funds to contribute to the provision of longterm financing for infrastructure financing through POJK no 1/2016. In the POJK, pension funds and insurances are required to enlarge their investment portfolio in government bonds to 30% of total investment before December 31, To comply with the regulation, OJK provides relaxation through POJK no 36 / POJK.05 /2016, in which to comply with the minimum limit of the government bond investment portfolio, a nonbank financial service institution may increase its investment portfolio in bonds and/or sukuk issued by SOEs, regionalowned enterprises (BUMD), and/or subsidiaries of SOEs for infrastructure financing. As of July 2017 the total investment of pension funds has reached Rp247.1tn, while for insurance industry it has reached Rp873.4tn. The achievement of the investment portfolio regulation as of July 2017 is presented in Figure 6. In the future, assuming pension fund's and insurance's investment growth of 15%, then the potential for longterm fund availability should also continue to increase. EXHIBIT 135. PENSION FUND AND INSURANCE INDUSTRIES' INVESTMENT PORTFOLIO Pension Fund (in Rp trillion) Dec15 Dec16 Dec17 YoY Bond % Government Bond % Corporate Bond % Deposit % Equity % Mutual Fund % Others % Total Investment Portfolio % Insurance (in Rp trillion) Dec15 Dec16 Dec17 YoY Bond % Government Bond % Corporate Bond % Deposit % Equity % Mutual Fund % Others % Total Investment Portfolio % Source: Mandiri Sekuritas EXHIBIT 136. BANKING LOAN PORTFOLIO TO INFRASTRUCTURE AND INFRASTRUCTURE RELATED SECTOR Juni 2017 Listrik, gas dan air Transportasi, pergudangan dan komunikasi LDR (%) Konstruksi Total Source: OJK, Mandiri Sekuritas Calculation Please see important disclosure at the back of this report Page 65 of 160

66 Credit Research Infrastructure Huge business potential Indonesia targets Rp5,519tn (USD 409bn) of strategic infrastructure investment in , which includes 15 new airports, 24 seaports, 2,650 km of roads, 3,258 km of railway tracks, and Bus Rapid Transit (BRT) developments in 29 cities. The target translates to around an USD 82bn requirement for infrastructure investment per annum (910% of nominal GDP) over five years. SOEs and private sector are expected to fund 59% of the infrastructure investments. The key concern for investors is still regarding land acquisition, despite measures to provide certainty, including the Land Acquisition Law in 2012, which sets a maximum time frame to complete land acquisition. In 2017 the Government has set 30 projects as priority with total investment of Rp851tn. These projects mostly have not commenced, thus have created plenty of opportunities for national scale construction companies to participate in them. EXHIBIT 137. NUMBER OF PROJECT BY SEGMENT Segment No of Projects Segment No of Projects Toll roads 47 Infrastructure for drinking water supply 8 Non toll roads 5 Communal wastewater system 1 Inter City railroad facilities 12 Flood embankment construction 1 Inner City railroad facilities 7 Satte border crossing construction 7 Airport revitalization 11 Dams 60 New airport development 4 Broadband coverage enhancement 2 Other strategic airport 2 Science and Technology Infrastructure 1 New port and capacity expansion 13 Special Economic Zone 24 One million houses program 3 Tourism 1 Oil refinery development 3 Smelter 6 Gas pipe and LPG terminal 3 Agriculture and Fisheries 3 Wastefired power plant 1 Total 225 Source: Bank Indonesia, Mandiri Sekuritas EXHIBIT 138. LIST OF 30 PRIORITY PROJECTS Source: Bank Indonesia, Mandiri Sekuritas Please see important disclosure at the back of this report Page 66 of 160

67 Credit Research Infrastructure Progress on Toll Road Development In order to improve interregional connectivity and logistic efficiency, the toll road development in Indonesia has become the Government s high priority. The Government plans to complete the construction of toll roads of 1,060 km throughout Indonesia by Based on Mandiri Sekuritas, there are still 1,650 km of toll roads which are currently under construction and another 1,461 km under land clearing and tender process. This should create plenty of opportunities not only for stateowned contractors but also for private contractors. However, the Government is facing very big challenges in developing 1,060 km of toll roads. Many toll roads (particularly outside java) to be built have low project feasibility, thus requiring bigger intervention from the Government to improve the feasibility of the project to attract investors. The bigger form of intervention is the implementation of the Viability Gap Fund (VGF) scheme. In this scheme, some parts of the toll road sections are built using APBN and/or bilateral funds. Some examples of toll roads built using the VGF scheme include Medan Kualanamu Tebing Tinggi, Solo Ngawi, Ngawi Kertosono, Manado Bitung, Balikpapan Samarinda, and Cileunyi Sumedang Dawuan. EXHIBIT 139. TOLL ROAD PROGRESS IN INDONESIA Greater Jakarta Trans Java Non Trans Java Bali, Trans kalimantan, Sumatera Sulawesi Total Full Operation Construction Land Clearing Tender Process Planned Total EXHIBIT 140. TOLL ROAD OWNERSHIP BASED ON LENGTH (KM) Plus Berhad, 117 Other, CMNP, Astra Infra, 87 WSKT, 449 Hutama Karya, 723 JSMR, 1515 Source: BPJT, Mandiri Sekuritas Source: BPJT, Mandiri Sekuritas Trans Java and Jabodetabek Toll Road Project The Government has set 9 priority sections: 1) Cikampek Palimanan (117km); 2) Pejagan Pemalang (58 km); 3) Pemalang Batang (39 km); 4) Batang Semarang (75 km); 5) Semarang Solo (72 km); 6) Solo Ngawi (90 km); 7) Ngawi Kertosono (87 km); 8) Mojokerto Kertosono (41 km); and 9) Surabaya Mojokerto (36 km) with total length of 617 km. As of September 2017, the progress of the Trans Java toll is presented in the Figure below. EXHIBIT 141. TRANS JAVA TOLL ROAD DEVELOPMENT PROGRESS Section Length (Km) Progress Update Target Pejagan Pemalang 84.25% (section 1 & fully operated Mar 18 Pemalang batang % Jun 18 Batang Semarang % Jun 18 Semarang Solo % (Section 1 3 fully operated) Sep 18 Solo Ngawi % Feb 18 Ngawi Kertosono % Dec 18 Mojokerto Jombang kertosono 41 Fully Operated Mojokerto Surabaya 36 Fully Operated Gempol Pasuruan % Jan 19 Pasuruan Probolinggo % Jul 05 Source: BPJT EXHIBIT 142. JABODETABEK TOLL ROAD DEVELOPMENT PROGRESS Section Length (Km) Progress Update Target Bekasi Cawang Kp melayu % 2021 Cinere Jagorawi % Jun 19 Depok Antasari % Dec 18 Cimanggis Cibitung % Apr 19 Cibitung Cilincing % Sep 19 Serpong Balaraja % Apr 19 Bogor Ring Road % Jul 19 Cengkareng Batu Ceper Kunciran % Sep 19 Tol Dalam Kota Jakarta % Apr 19 Jakarta Cikampek II Elevated % Apr 19 Serpong Cinere % Apr 19 Kunciran Serpong % Jun 19 Source: BPJT Please see important disclosure at the back of this report Page 67 of 160

68 Credit Research Infrastructure EXHIBIT 143. TRANS JAVA TOLL MAP Source: Bank Indonesia, Mandiri Sekuritas In Greater Jakarta, toll road construction is also widely implemented. Some of the major projects developed by Jasa Marga include: (1) Jakarta Cikampek II elevated with total length of 36.4 km and investment value of Rp16.23tn; (2) Cengkareng Kunciran (14.19 km Rp4.98tn); (3) Kunciran Serpong (11.19 km Rp2.86tn); (4) Cinere Serpong (10.14 km Rp2.57tn); and (5) Bogor Outer Ring Road (11 km Rp4.00tn). EXHIBIT 144. TOLL ROAD DEVELOPMENT IN GREATER JAKARTA EXHIBIT 145. JAKARTA CIKAMPEK II SOUTH TOLL ROAD PROJECT Source: Mandiri Sekuritas Source: OJK, Mandiri Sekuritas Calculation In addition the Government is also preparing to build the Jakarta Cikampek II South toll road with total length of 64 km and estimated investment cost of Rp17.7tn. The road construction is intended to reduce congestion on the Jakarta Cikampek toll road and provide an alternative route to Bandung. The construction of this toll road has started in 2017 and is expected to be fully operational by EXHIBIT 146. NONTRANS JAVA TOLL ROAD DEVELOPMENT PROGRESS EXHIBIT 147. TRANS SUMATERA TOLL ROAD DEVELOPMENT PROGRESS Section Length (Km) Progress Update Target Section Length (Km) Progress Update Target Ciawi Sukabumi % Oct 19 Bakauheni Terbanggi Besar % Jul 18 Terbanggi Besar Pematang Cileunyi Sumedang % Jun Panggang Kayu Agung 32.3% Jul 18 Sumedang Dawuan % Dec 19 Kayu Agung Palembang Betung % 2019 Krian Legundi Bunder Manyar % Dec 18 Palembang Indralaya % Jan 18 Pandaan Malang % Jul 19 Pekanbaru Kandis Dumai % Dec 19 Balikpapan Samarinda % Jun 19 Medan Kualanamu Tebing Tinggi % Oct 18 Manado Bitung % Dec 19 Medan Binjai % Oct 18 Serang Panimbang % na Source: BPJT Source: BPJT Please see important disclosure at the back of this report Page 68 of 160

69 Credit Research Infrastructure Trans Sumatera The Trans Sumatera toll road is developed to span more than 2,800 km with total estimated investment of Rp331tn and aimed to increase connectivity from Lampung to Aceh. Meanwhile, due to unattractive returns, the Government has given mandate to PT Hutama Karya (persero) to become the main developer and operator in the TransSumatra toll road with concession period of 40 years. In total Hutama Karya will develop 11 toll road sections in Sumatra. To support this project realization the Government has conducted capital injections of Rp3tn in 2015 and Rp2tn in 2016 to Hutama Karya. EXHIBIT 148. NUMBER OF PROJECTS BY SEGMENT Source: BPJT, Hutama karya 8 Toll Sections (Target: Fully operated at end of 2019) Additional 3 Toll Sections Toll Section Length (km) Medan Binjai 17 Palembang Indralaya 22 Bakauheni T Besar 140 Pekanbaru Dumai 131 Terbanggi Besar pematang Panggang Pematang Panggang Kayu Agung 85 Palembang Tanjung Api Api 90 Kisaran Tebing Tinggi 60 Sub Total 645 Medan banda Aceh 470 Pekanbaru Padang 240 Tebing Tinggi Prapat 60 Sub Total 770 Total 1415 Perpres 10/2014 Perpres 117/2015 MPUPR 2016 Progress on Railway Development The railway sector in Indonesia is still underdeveloped. Currently the rail network only operates on two islands, Java and Sumatera. To date, almost all railway networks (including those being developed) are managed and operated by PT Kereta Api Indonesia (PT KAI). From the private side, PT Railink (a joint venture between PT KAI and PT Angkasa Pura II) is the first Indonesian airport rail operator in Kualanamu, but it is very small compared to the existing railway market share in Indonesia. In line with population growth and density in major cities of Indonesia, the need of rapid mass transportation network is becoming a high priority. As of today the total length of railway tracks available is around 6,790 km, with around 2,122 km or a third of the total not functional. According to the Ministry of Transportation's outlook, the Government will increase passenger trains to 2,840 units for locomotive, 28,335 for intracity railways, and 6,020 units for intercity railways by The same goes to freight transportation with increase in railways to 1,985 units for locomotive and the other 39,645 unit for carriages. The national networks will also be 12, km, including 3,800 km of intercity railways. With this strategy, the Government hopes KAI will be able to serve million people per year in 15 cities and million tons cargo annually. Please see important disclosure at the back of this report Page 69 of 160

70 Credit Research Infrastructure EXHIBIT 149. PT KAI UPCOMING PROJECTS On Going Project Committed project Pipeline project Pengembangan Angkutan Penumpang Jarak Jauh dan Menengah KA Trans Sumatera Stasiun Kota Bandung Commuter Train Jabodetabek LRT Sumatera Selatan KA Bandara Internasional Adisumarmo KA Pelabuhan Tanjung Priok (JICT dan Dermaga 208) LRT Jabodebek KA Trans Sulawesi Pengembangan Angkutan KA Barang LRT Palembang KA Trans Kalimantan Angkutan Bandara Soekarno Hatta KA Bandara Internasional Minangkabau KA Ekspres Basoetta Source: PT KAI, Mandiri Sekuritas High Speed Train Jakarta Bandung Angkutan Bandara Kulon Progo Tram Kota Surabaya (UtaraSelatan) Pengembangan stasiun Tugu Stasiun Kota Bandung SoekarnoHatta Airport Train PT KAI has been entrusted by the Government to conduct a passenger transportation program for Soekarno Hatta Airport, according to Presidential Regulation No.83/2011. Operational activities are planned to start in early This project requires the construction of a 12.3 km long railway (Batu Ceper Soekarno Hatta airport Station). The Company has also built the City Air Terminal (CAT) facility at Sudirman Station and procured 10 trainsets, each of which consists of 6 units by Railink. The investment value is around Rp3.6tn. Palembang Light Rail Transit (LRT) PT KAI has been entrusted by the Government for the procurement of facilities under Presidential Regulation No. 116/2015 and No. 55/2016. The assignment of infrastructure development has been entrusted to PT Waskita Karya (Persero) Tbk. The South Sumatra LRT will connect Sultan Mahmud Badaruddin II Airport (SMB II) and Ogan Permata Indah (OPI) Mall. A total of 13 stations have been proposed with a total route length of ± 23.5 km from northwest to southeast of Palembang. There will be 8 train sets and each set will consist of 3 train formations. The capacity of each train set (crush capacity) is 8 passenger/m2, therefore the total capacities by formation are: 736 passengers (3train formation), 478 passengers (2train formation), and 239 passengers (1train formation). Their investment value is Rp710bn. Jabodebek Light Rail Transit Through Presidential Regulation (Perpres) No. 49/2017 concerning Accelerated Implementation of the Integrated Light Rail Transit in Jakarta, Bogor, Depok, and Bekasi, in 2017 the Government has assigned PT KAI to operate, maintain, and manage (including the funding of the construction) of the integrated Light Rail Transit infrastructure, which is constructed by the contractor, PT Adhi Karya (Persero) Tbk. Jakarta MRT by PT Mass Rapid Transit Jakarta At the end of January 2018 the construction progress of the Jakarta MRT phase I (Lebak BulusBundaran HI) as a whole has reached 90.96%. In addition, the installation of track railway is also in progress. As per end of January, 2018, the rail that has been installed was 9.6 km from the total length of km. PT MRT Jakarta expects the rail installation to be completed by end of March PT MRT Jakarta is a DKI Jakarta regional owned company that was established on June 17, This Company is % owned by the DKI Jakarta Provincial Government. Total Investment for the phase I was USD 1.5bn. The Jakarta MRT Please see important disclosure at the back of this report Page 70 of 160

71 Credit Research Infrastructure Phase I will connect Lebak Bulus in South Jakarta to Bunderan Hotel Indonesia in Central Jakarta, passing 13 stations. Seven of these stations are elevated, while six are positioned below the ground. This phase is scheduled to be completed by Meanwhile, the second phase of the NorthSouth line involves an 8.1 kilometerlong rail between Bunderan HI in Central Jakarta to Kampung Bandan, located on the border of North Jakarta and Central Jakarta. This line involves seven underground stations and one at ground level. The feasibility study of this phase has been completed, while the line is targeted to be completed by Progress on the 35,000 MW electricity development program As of January 2018, power plants with a combined capacity of 1,358 megawatts (MW) have been in operation. According to the Ministry of Energy and Mineral Resources, PLN built the power plants with a combined capacity of 466 MW, while the remaining 892 MW by Independent Power Producers (IPP). Of the Government s 35,000 MW program, 17,096 MW or about 48% of the program are under construction. Meanwhile, the other 12,724 MW have been in contract but not yet constructed. Therefore, the Government only needs 4,682 MW more to complete the entire program, which is intended to be completed by In addition to power generation development, PLN must also develop electricity grids for transmission with a total length of 46,000 km. SOE as the main engine for infrastructure development The Government has utilized stateowned companies as the main engine to support infrastructure development acceleration. Therefore, government interventions in SOEs (including construction SOEs, bank SOEs, SMI, Jasamarga, Angkasa Pura III, PT KAI, Telkom, PLN, and Pelindo IIV) to participate in infrastructure development will remain strong. Given the limited budget for infrastructure development, we also view that continued pressure on construction SOEs will remain high. The Government has seen immense potential due to their proven trackrecords in infrastructure development. As Indonesian companies are normally able to borrow up to 7075% of total cost of projects, the Government believes the stateowned companies could take more projects by leveraging their position by 3x. However, we believe it is more prudent for construction SOEs to limit their debttoequity ratio under 1.5x given their low margin nature. In 2015, the Government was able to inject equity to two state owned construction companies, WSKT (Rp3.5tn) and ADHI (Rp1.4tn), which enabled both to increase their capacity to commence the construction of infrastructure megaprojects. In the 2016 State Budget, the Government has earmarked Rp6.25tn through government capital injection (PMN) to two listed construction SOEs (WIKA Rp4tn and PTPP Rp2.25tn). Although the plan was suspended by the parliament due to budgetary concerns, we expect the planned PMN could still proceed, albeit with lower amount. Several stateowned companies have also utilized the Government s ruling on income tax discount for assets revaluation. PLN, the stateowned electricity company, stated that it was able to raise its total asset to Rp1,tn from Rp600tn previously on the back of the asset revaluation program. Meanwhile, three listed construction companies, PTPP, WSKT, and ADHI, have also utilized this program, raising their total equity by Rp2.1tn. The asset revaluations were conducted to increase those companies balance sheet capabilities to take additional loans, enabling them to participate in more infrastructure projects. Please see important disclosure at the back of this report Page 71 of 160

72 Credit Research Infrastructure EXHIBIT 150. LISTED CONSTRUCTION COMPANIES BY TOTAL REVENUE Rp tn EXHIBIT 151. SOE CONTRACTORS ORDERBOOK GROWTH WIKA WSKT Hutama Karya ADHI Sep17 Revenue 2016 Source: Bank Indonesia, Mandiri Sekuritas *Hutama Karya : figure as of June 2017 Source: Bank Indonesia, Mandiri Sekuritas EXHIBIT 152. SOE CONTRACTORS DER AND INTEREST COVERAGE EXHIBIT 153. SOE CONTRACTORS NET INCOME WIKA WSKT Hutama Karya* ADHI DER 2016 DER Sep17 3,000 2,500 2,000 1,500 1, ,591 1,713 1,048 1, Sep17 Interest Coverage 2016 Interest Coverage Sep17 WIKA WSKT Hutama Karya* ADHI *Hutama Karya : figure as of June 2017 *Hutama Karya : figure as of June 2017 Source: Bank Indonesia, OJK, Mandiri Sekuritas Source: Bank Indonesia, OJK, Mandiri Sekuritas From the Figures above, we view that four state owned enterprise construction companies (WIKA, WSKT, Hutama Karya, and ADHI) have continued to book strong performance. Their order book and net profit have continued to increase. SOE construction companies have also continued to speed up construction of the government infraprojects to meet their target before the national election in Meanwhile they were also able to manage their leverage at favorable level. In terms of negative cash flow, we view negative cash flow accompanied by significant increase in order book is a normal condition during infrastructure boom. Worsening operating cash flow position was mainly due to turnkey projects that resulted in higher receivable days and direct investment to secure contracts. However, we also believe construction SOE companies have strong risk management to run their major turnkey projects. Going forward, we believe the construction SOE companies revenue will continue to increase, supported by sizeable order books, particularly from the government infraproject pipeline and cash flow improvement from the completion of their major turnkey projects. On the other side, we also view construction SOE companies leverage will remain elevated to support working capital needs, capital expenditure investment, and future turnkey projects along with the government program to accelerate infra construction. Please see important disclosure at the back of this report Page 72 of 160

73 Credit Research Infrastructure EXHIBIT 154. VARIOUS GOVERNMENT FINANCIAL FACILITY AND SUPPORT Reducing infrastructure construction business risks Large public works projects in Indonesia have historically faced challenges from the country's lack of institutional capacity, its bureaucratic burden, and its limited government financing. Slow land acquisition and bureaucratic permit system have led to project delays and cost overruns in the past. A potential upside is the Government's amendment of a land acquisition bill in 2015, the Presidential Decree No. 30 of The new legislation, which builds on the previous Government Law No. 2/2012 on Land Procurement, aims to simplify and accelerate the process by granting the power to force landowners to sell with fair compensation based on market value and the social impact from relocation for public projects, allowing private financers to pay for land, enabling projects to begin construction before having acquired all of the land, and placing a time limit on delays. The Government has also continued to attract private participation and to increase SOEs capacity in infrastructure development by providing various financial facilities or support, such as Project Development Facility, Viability Gap Funding Scheme, Guarantee Fund, tax facilities, Availability Payment, and Land Acquisition support. Source: Bank Indonesia, Mandiri Sekuritas Please see important disclosure at the back of this report Page 73 of 160

74 Compendium Credit Research Infrastructure Infrastructure PT Adhi Karya (Persero) Tbk Key credit considerations: Company rating Pefindo Shareholders ida/stable Govt. of the Republic of Indonesia 51% Public 49% Outstanding bonds Bond ID Size Maturity Coupon Rp bn % ADHI01ACN Mar ADHI01BCN Jul ADHI01BCN Mar ADHI02CN1 2,997 22Jun ADHISM1CN Mar Trading summary Bond ID Last Last Yield Trade Price % ADHI01ACN2 25Jan ADHI01BCN1 23Jan ADHI01BCN2 8Jan ADHI02CN1 26Jan ADHISM1CN2 8Jan18.0 Improving profitability in 9M17. ADHI booked strong earnings of RP205bn (+78%yoy) supported by new contracts, which doubled to Rp30tn in 9M17 from Rp16.5tn in FY16 (+82% FY16YTD). Construction services, which accounted for 89% of total revenue, grew by +66%yoy to Rp7,793bn, therefore covering EPC service, which fell by 48%yoy to Rp337bn in 9M17. Gross profit margin and operating margin were maintained sound at 11.6% and 8.8%, respectively. In the next two years, ADHI's sales are projected to jump significantly as a result of sales recognition of the LRT construction project (Rp10tn). Favorable financial leverage. The total debt (interest bearing) to equity ratio (DER) went up from 0.8x in Fy16 to 1.4 in 9M17 due to additional bonds issued last May 2017, however it is still in a secure level, below its bond covenant's maximum level of 3.5x. EBITDA interest coverage was also at an adequate level of 2.9x in 9M17, improving from 2.0x in 9M16. Meanwhile, the Company s debt coverage has strengthened as reflected from the Debt to EBITDA that lowered from 14.62x in 9M16 to 9.25x in 9M17. In the next two years ADHI s debt coverage is projected to be around 5%, but it will increase as the Company needs more funds to support business expansion. Greater Jakarta LRT project development. The Jabodetabek LRT project is ADHI s largest project. The total LRT project amounts to Rp.29.9tn, consisting of facilities, infrastructure, and IDC (interest during construction). The Jabodebek LRT should be completed by early 2019 and in operation by mid The project will be financed by government supports in the form of State Capital Participation (PMN) of Rp1.4tn to PT Adhi Karya and Rp7.6tn to PT KAI (Persero) as well as bank syndication with a total of Rp19.9tn with tenor of 3 years and interest of 8.25%. The Government has also decided that PT KAI will be the % owner of the LRT project. To date ADHI has been able to complete all requirements, and the company is expecting the first payment of Rp3.8tn in February For the second payment, the management forecasts Rp34tn of payment to be made in March or April Transit Oriented Development (TOD) as a potential income. The total land area under the TOD business, which is located in 6 different areas near LRT stations, is 50ha. In 2017 Adhi Karya has worked on four TODbased projects with an investment value of Rp12.5tn. The four projects include City Sentul Royal Sentul Park LRT (Bogor), City CiracasUrban Signature LRT (Jakarta), and City Bekasi TimurEastern Green LRT (East Bekasi). LRT City brings the concept of a mixed use building that includes apartments, offices, and commercial. According to the management, ADHI plans to spend Capex of around Rp2tn for TOD business and spin off this TOD department in ADHI expects total marketing sales from TOD business of around Rp3.3tn in EXHIBIT 155. FINANCIAL SUMMARY YE Dec (Rp bn) F 2018F 2019F Revenues 9,390 11,064 15,484 21,434 23,443 Total Assets 16,761 20,095 25,109 34,063 43,592 Total Debt 2,269 3,119 4,272 6,150 17,000 EBITDA interest coverage (X) Current ratio (X) Debt to Equity (X) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 74 of 160

75 Credit Research Infrastructure EXHIBIT 156. TOTAL ASSET AND EQUITY GROWTH in Rp bn % 30, , , , ,000 5,162 5,443 5,550 5, , Sept17 Total Asset Asset growth (RHS) Source: Company, Mandiri sekuritas estimate Total Equity Equity growth (RHS) EXHIBIT 157. COMPANY S REVENUE MIX % % % % 60% 50% 40% 6,767 7,994 9,202 7,793 30% 20% 10% 0% Sept17 Construction (in Rp bn) EPC (in Rp bn) Property and real Estate (in Rp bn) Infra investment (in Rp bn) Source: Company, Mandiri sekuritas estimate EXHIBIT 158. ADHI S NEW CONTRACT GROWTH in Rp bn 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 9,218 13,962 8,745 9,041 Source: Company, Mandiri Sekuritas estimate 16,500 30,000 13,045 6, Sept17 Carry over contracts New contracts EXHIBIT 159. IMPROVING FINANCIAL PERFORMANCE in Rp bn % 500 Net Profit Operating margin Sept16 Sept17 Source: Company, Mandiri Sekuritas estimate EXHIBIT 160. DER STILL BELOW COVENANT S LEVEL in Rp bn 9,000 8,000 7,852 7, ,000 5, , ,000 3,119 3,000 2,269 2, , Sept17 Total Debt DER DER covenant EBITDA Interest Coverage Source: Company, Mandiri Sekuritas estimate (x) EXHIBIT 161. NUMBER OF DAYS RECEIVABLES AND PAYABLES Sept17 Days Receivables Days Payable Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 75 of 160

76 Credit Research Infrastructure Company Profile ADHI is a leading construction state owned company and is majority owned by the Indonesian Government (51%). The Company has a strong position in the market by recording the 4 th largest construction revenue of listed SOE construction companies (in IDX stocks and bonds) with market share maintained around 11% in the peer group. ADHI divides its business lines into five categories: Construction Services, Infrastructure Investment, Property, Energy, and Precast Industry. The construction business was the largest revenue contributor with a share of around 83%. EXHIBIT 162. ADHI S OUTSTANDING BONDS Bond ID Size Maturity Coupon Last trade Last price Yield Risk premium Rp bn % % bps ADHI01ACN Mar Jan n.a. ADHI01BCN Jul Jan ADHI01BCN Mar Jan ADHI02CN1 2,997 22Jun Jan ADHISM1CN Mar Jan18.0 n.a Source: IDX, Mandiri Sekuritas estimate EXHIBIT 163. YIELD AND RISK PREMIUM ADHI01BCN1 Bps Risk premium (LHS) Yield (RHS) % Source: IDX, Mandiri Sekuritas estimate EXHIBIT 164. YIELD AND RISK PREMIUM ADHI01BCN2 Bps Risk premium (LHS) Yield (LHS) % Feb15 Mar15 May15 Sep15 Feb16 Mar16 Apr16 Jun16 Jun16 Jul16 Jul16 Aug16 Sep16 Oct16 Oct16 Dec16 Mar17 Jun17 Aug17 Oct17 Oct17 Nov17 Source: IDX, Mandiri Sekuritas estimate EXHIBIT 165. YIELD AND RISK PREMIUM ADHI02CN1 Bps Risk premium (LHS) Yield (LHS) % Source: IDX, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 76 of 160

77 Credit Research Infrastructure PT ADHI Karya (Persero) Tbk. Profit and Loss YE Dec (Rp Bn) 2015A 2016A 2017F 2018F 2019F Revenue 9,390 11,064 15,484 21,434 23,443 Cost of goods sold (8,415) (9,949) (13,827) (19,009) (20,709) Gross profit 975 1,115 1,657 2,426 2,733 Selling expenses (20) (22) (25) (31) (40) General and administrative expe (376) (434) (489) (621) (715) Operating profit ,143 1,774 1,978 Depreciation and Amortization EBITDA ,205 1,848 2,064 Interest expense (137) (258) (320) (557) (554) Interest income Forex losses/gains Net Other 88 (15) Pretax profit ,384 1,577 Income tax (281) (298) (465) (643) (703) Minority interests (1) (2) (2) (2) (2) Net Profit Balance Sheet YE Dec (Rp Bn) 2015A 2016A 2017F 2018F 2019F Cash and ST Investment (incl. cash e 4,317 3,365 3,916 2,397 1,934 Trade Receivables 2,232 2,907 3,206 3,496 4,327 Inventory Other Curr Assets 7,979 10,432 13,640 23,072 31,543 Current Assets 14,691 16,835 20,926 29,168 38,002 Investments Fixed Assets 1,099 1,460 1,798 2,124 2,438 Total Other Asset 273 1,109 1,635 1,963 2,286 Total Assets 16,761 20,095 25,108 34,063 43,592 Key Ratios YE Dec 2015A 2016A 2017F 2018F 2019F Growth (% YoY) Sales 9% 18% 40% 38% 9% Operating Profit 10% 14% 73% 55% 12% EBITDA 1% 17% 69% 53% 12% Net Profit 41% 32% 62% 46% 18% Profitability Gross profit margin (%) 10% 10% 11% 11% 12% Operating margin (%) 6% 6% 7% 8% 8% EBITDA margin (%) 6% 6% 8% 9% 9% Net margin (%) 5% 3% 3% 3% 4% Opex to sales (%) 4% 4% 3% 3% 3% ROAA(%) 3% 2% 2% 2% 2% ROAE (%) 14% 6% 9% 12% 13% Coverage Operating profit to interest EBITDA interest coverage (X Debt to EBITDA (X) Net debt to EBITDA (X) (1.96) Liquidity Current ratio (X) Cash ratio (X) Days receivable Days payable Capitalization Debt to equity (X) 60% 78% 105% 150% 235% Net debt to equity (X) 23% 17% 38% 113% 208% Debt to assets (X) 19% 21% 24% 29% 39% ShortTerm Borrowing 1,115 2,844 1,500 5,000 5,000 Trade payable 6,489 8,373 10,796 15,103 16,454 Other current liabilities 1,810 1,828 2,096 2,476 2,672 Current liabilities 9,414 13,044 14,392 22,579 24,126 LT debt (Net Current Maturities) 2,003 1,428 4,650 4,750 12,000 Other LT Liability Total liabilities 11,599 14,653 19,221 27,537 36,342 Common stock Additional paidin capital 2,588 2,589 2,589 2,589 2,589 Retained earnings 1,790 2,024 2,469 3,106 3,830 Other Equity Adjustment Shareholders' equity (Excl Min) 5,154 5,433 5,878 6,515 7,239 Minority Interests Shareholders' equity (Incl Min.) 5,162 5,443 5,888 6,526 7,250 Total Liabilities + SHE 16,761 20,095 25,108 34,063 43,592 Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 77 of 160

78 Compendium Credit Research Infrastructure Infrastructure PT Waskita Karya (Persero) Tbk Key credit considerations: Company rating Pefindo Shareholders (%) ida/positive Govt. of the Republic of Indonesia Public Outstanding bonds Bond ID Size Maturity Coupon Rp bn % WSKT01BCN2 1,150 16Oct WSKT01ACN Oct WSKT02CN1 2,000 10Jun WSKT02ACN Feb WSKT02BCN Feb WSKT02CN Sep WSKT03ACN1 1,369 6Oct WSKT03BCN1 1,631 6Oct Trading summary Bond ID Last Last Yield trade price % WSKT01BCN2 17Jan WSKT01ACN2 2Jan WSKT02CN1 26Jan WSKT02ACN3 25Jan WSKT02BCN3 22Jan WSKT02CN2 25Jan WSKT03ACN1 19Jan WSKT03BCN1 24Jan Toll road construction business as the strong growth catalyst. Waskita Karya (WSKT) is the largest state owned construction company in Indonesia. WSKT has five business pillars, i.e. general construction, toll road construction, precast, property, and energy. Despite the company having a complete construction business range, its business focus has been heavier on toll road construction in the last three years. Currently, WSKT has 18 toll roads with a total length of 912 km and an investment value of more than Rp110tn. These toll roads were developed by its subsidiary, Waskita Toll Road (WTR), and are mostly in Java, thus they are expected to have good daily traffic prospects. Strong new contract growth. As of mid December 2017 WSKT has recorded new contracts of Rp44.5tn (vs. target of Rp60tn). Total order book in 3Q2017 increased to Rp131tn (vs. Rp104tn in FY2016). Based on the management guidance, ADHI set new contract target at Rp72tn in 2018 and total orderbook is expected at Rp170tn. Negative operating cash flow remains. As of 3Q2017 WSKT still recorded negative cashflow at Rp5.0tn. However, this is normal as the Company s projects are mostly on the turn key scheme and at the same time the new contract growth was also very high. According to the management, WSKT will receive payment from turn key projects of Rp30tn in 1H2018. Nevertheless, WSKT s net operating cash flow will remain negative, as the sales target is set at Rp55tn and capex at Rp26tn. Net profit rocketed by +138%yoy to Rp2,591bn in 9M17, exceeding our expectation as it represents 90% of our FY17 forecast. This was supported by revenue growth by +104%yoy to Rp28,534bn, while cost of sales and operating expense grew slower by +97.6%yoy and +94.5%yoy, respectively. Revenue wise, construction service, which contributes 92% of total revenue, went up by +98%yoy to Rp26,359bn. In line with revenue, the orderbook also increased from Rp104,023 bn in the end of 2016 to Rp119,120 bn in 9M17. On the operating cost side, opex to sales level was maintained efficient at 2.4% and operating margin has improved and hit 17.8%. The Company has set revenue target at Rp55tn and net income target at Rp5.3tn in Favorable credit metrics. The Company s has been able to keep its interest to debt ratio maintained at 3.9x, far above the 1.5x minimum level of the Company s bond covenant. Although the number of debt jumped +44% compared to Dec16 s level, total debt (interest bearing) to equity ratio (DER) only went up slightly from 1.6x in Dec16 to 1.8x in Sept17, still below from its maximum covenant level of 3x. EXHIBIT 166. FINANCIAL SUMMARY YE Dec (Rp bn) F 2018F 2019F Revenue 14,153 23,788 39,160 48,797 58,054 Total Assets 30,309 61, , , ,676 Total Debt 8,822 27,203 48,439 69,996 82,435 EBITDA to Interest (x) Current Ratio (x) Debt to Equity (x) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 78 of 160

79 Credit Research Infrastructure EXHIBIT 167. TOTAL ASSET AND EQUITY GROWTH Rp bn %, ,690 90, ,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 12,542 Source: Company 2,759 30,309 9,704 61,433 16,773 21, M17 Asset Equity Asset YoY Equity YoY.0 (.0) (200.0) (300.0) EXHIBIT 168. COMPANY S REVENUE MIX Rp bn Construction service Toll road concessions (RHS) Concrete product Realty and Hotel product (RHS) 30,000 Other (RHS) 1,770 25,000 1,148 20,000 15,000 2,069 26,359 10, ,373 5,000 9,484 12, M17 Source: Company EXHIBIT 169. WSKT S NEW CONTRACT GROWTH Sep17 EXHIBIT 170. FINANCIAL PERFORMANCE Rp bn % 3,000 Net Income Operating Margin ,591 2, , , , , , New Contract Source: Company, Mandiri Sekuritas estimate Carry Over M17 Source: Company, Mandiri Sekuritas estimate EXHIBIT 171. SOUND DEBT PROTECTION EXHIBIT 172. INTEREST COVERAGE STILL FAVORABLE Rp bn Total debt DER Covenant 45,000 40,000 39,245 35,000 30,000 27, , ,000 15,000 10,000 8,822 5,000 3, M17 Source: Company, Mandiri Sekuritas estimate (x) (1.0) (2.0) EBITDA Covenant level EBITDA interest coverage 6,000 5, , ,000 3, , ,000 1, , M17 Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 79 of 160

80 Credit Research Infrastructure Company Profile WSKT is a constructionsoe with the largest construction revenue among five listed SOE construction companies. The Company divides its business lines into five, which are construction, precast, realty, energy, and toll roads. In 2016, 94.1% of the Company's revenue mix remained dominated by the construction business, while other business segments, i.e. precast, toll road, property, hotel, energy, and building rental contributed around 5.9% of WSKT s total revenue. WSKT is majority owned by the Government of the Republic of Indonesia by 66% of ownership. EXHIBIT 173. ASDF S OUTSTANDING BONDS Bond ID Size Maturity Coupon Last trade Last price Yield Risk premium Rp bn % % bps WSKT01ACN Oct Jan WSKT01BCN2 1,150 16Oct Jan n.a. WSKT02ACN Feb Jan WSKT02BCN Feb Jan WSKT02CN1 2,000 10Jun Jan WSKT02CN Sep Jan WSKT03ACN1 1,369 6Oct Jan WSKT03BCN1 1,631 6Oct Jan Source: IDX, Mandiri Sekuritas estimate EXHIBIT 174. YIELD AND RISK PREMIUM WSKT01BCN2 Bps Risk Premium (LHS) Yield (RHS) % Source: IDX, Mandiri Sekuritas estimate EXHIBIT 175. YIELD AND RISK PREMIUM WSKT02CN1 Bps Risk Premium (LHS) Yield (RHS) % (50) Aug16 Aug16 Aug16 Sep16 Sep16 Oct16 Oct16 Nov16 Dec16 Mar17 May17 May17 Aug17 Aug17 Sep17 Oct17 Oct17 Nov17 Nov17 Dec17 Dec17 Jan18 Jan18 Source: IDX, Mandiri Sekuritas estimate EXHIBIT 176. YIELD AND RISK PREMIUM WSKT02ACN3 Bps Risk Premium (LHS) Yield (RHS) % EXHIBIT 177. YIELD AND RISK PREMIUM WSKT02BCN3 Bps Risk Premium (LHS) Yield (RHS) % Source: IDX, Mandiri Sekuritas estimate Source: IDX, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 80 of 160

81 Credit Research Infrastructure EXHIBIT 178. YIELD AND RISK PREMIUM WSKT02CN2 Bps Risk Premium (LHS) Yield (RHS) % EXHIBIT 179. YIELD AND RISK PREMIUM WSKT03ACN1 Bps Risk Premium (LHS) Yield (RHS) % Source: IDX, Mandiri Sekuritas estimate Source: IDX, Mandiri Sekuritas estimate EXHIBIT 180. YIELD AND RISK PREMIUM WSKT03BCN1 Bps Risk Premium (LHS) Yield (RHS) % Source: IDX, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 81 of 160

82 Credit Research Infrastructure WASKITA KARYA Balance sheet YE Dec (Rp bn) 2015A 2016A 2017F 2018F Cash and equivalents 5,511 10,656 17,356 17,989 Short term investment Trade receivables 2,384 5,063 3,219 4,011 Inventories 826 2,557 3,032 3,380 Fixed assets 1,923 3,275 5,208 5,910 Other assets 19,653 39,873 72, ,215 Total assets 30,309 61, , ,525 Interest bearing liabilities 8,822 27,203 48,439 69,996 Trade payables 5,472 7,362 10,778 13,375 Other liabilities 6,311 10,095 12,161 13,988 Total liabilities 20,605 44,660 71,378 97,360 Minority interest 10,974 13,734 Shareholders' equity 9,704 16,773 18,856 22,432 Profit and loss YE Dec (Rp bn) 2015A 2016A 2017F 2018F Revenue 14,153 23,788 39,160 48,797 Gross profit 1,921 3,968 6,377 8,114 EBITDA 1,880 3,423 5,870 7,652 Depreciation & amortization EBIT 1,415 3,172 5,298 6,820 Net interest inc/(exp) (267) (795) (1,267) (896) Finance charges (340) (983) (1,589) (1,303) Finance income Forex gain/losses 13 (1) (3) Other income/(expense) (148) Pretax profit 1,398 2,480 4,159 5,775 Taxes (350) (667) (979) (1,220) Minority Interest 0 () (311) (344) Extraordinary gain/(losses) Net profit 1,048 1,713 2,869 4,212 Ratios YE Dec (Rp bn) 2015A 2016F 2017F 2018F Profitability Gross profit margin (%) Operating margin (%) EBITDA margin (%) Net margin (%) Opex to sales (%) ROAA(%) ROAE (%) Coverage Operating profit to interest (X) EBITDA interest coverage (X) Debt to EBITDA (X) Liquidity Current ratio (X) Cash ratio (X) Days receivable Days payable Capitalization Debt to equity (X) Net debt to equity (X) Debt to assets (X) Total liabilities to equity (X) Total liabilities to total assets (X) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 82 of 160

83 Compendium Credit Research Infrastructure Infrastructure PT Hutama Karya (Persero) Key credit considerations: Company rating Pefindo Instrument rating Pefindo Shareholders ida/stable idaaa(gg)/stable Government of Republic of Indonesia % Outstanding bonds Bond ID Size Maturity Coupon Rp bn % PTHK01B Jun PTHK01C Jun PTHK01ACN3 1,165 26Sep PTHK01BCN3 2,367 26Sep PTHK01CN1 1,000 21Dec PTHK01CN2 1,968 6Jun Trading summary Bond ID Last Last Yield trade price % PTHK01B 6Dec PTHK01C 25Jan PTHK01ACN3 19Jan PTHK01BCN3 18Jan PTHK01CN2 26Jan PTHK01CN1 n.a n.a n.a. Transforming into a toll road enterprise. Hutama Karya (PTHK/the Company) has solid experience, particularly in infrastructure development. After 55 years of operation, the Company conducted a transformation process toward being a multi business construction company based on infrastructure, particularly toll road development and operation. This business transformation is related to the government mandate concerning Trans Sumatra Toll Road development for PT Hutama Karya (Persero) to be sole contractor and operator with a 40 year concession period. GOI expects that the construction of 8 sections of Trans Sumatra toll road (with total length of 645 km and total investment cost of around Rp 83tn) should be completed by Eyes on high revenue jump from Trans Sumatera tol road project. In the last four years PTHK has been able to book strong growth in new contracts of CAGR of 19%. As a result, the Company s revenues grew by CAGR of 21% from Rp5.0tn in 2012 to Rp8.8tn in We estimate the Company s revenue will jump significantly as a result of revenue recognition of the Trans Sumatra toll road projects. In 1H2017 the Company booked revenue of Rp5.2tn and we projected that its revenue in 2017, 2018, and 2019 will be around Rp14tn, Rp22.3tn, and Rp29.3tn, respectively. Strong government support. To mitigate the high business risk in Trans Sumatra Toll Road development, the Government of Indonesia (GOI) has provided various financial facilities or support, such as Project Development Facility, Viability Gap Funding Scheme, Guarantee Fund, Availability Payment, and Land Acquisition support. Hutama Karya has received support from GOI through a Rp5.6tn capital injection (PMN) in as well as GOI s guarantee for the company s revolving bonds issued in For land acquisition support for 8 sections of the Trans Sumatra toll road projects, GOI has paid Rp7.04tn (35.34%) of the total funding requirement of Rp20tn for the land area of 14,335.91ha. Aggressive financial policy. Hutama Karya s financial leverage will be aggressive, as it must conduct further fund raising to cover the shortage of capital requirement of at least of Rp30tn for 8 sections of TransSumatra toll road development and other construction business opportunities. Currently the Company s leverage is at a moderate level. The DER increased from 0.43x in 2015 to 0.73x in 2016 due to bond issuance as well as increasing borrowing from Bank and NBFI. Going forward the ratio is projected to increase to 1.7x in 2017, 2.23x in 2018, and 1.95 in 2019, as the Company needs to raise funding further. EXHIBIT 181. FINANCIAL SUMMARY YE Dec (Rp bn) 2014A 2015A 2016A 2017F 2018F Revenues 5,717 6,316 8,816 14,242 22,280 Total Assets 5,993 12,337 24,012 34,623 48,550 Total debt 1,234 2,270 5,532 13,968 20,468 EBITDA interest coverage (X) Current ratio (X) Debt to equity (X) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 83 of 160

84 Credit Research Infrastructure EXHIBIT 182. TOTAL ASSETS AND TOTAL EQUITY GROWTH (RP BN) EXHIBIT 183. REVENUE MIX AS PER JUNE 2017 (RP BN) 60,000 50,000 40,000 30,000 20,000 10,000 48,550 34,623 24,012 12,337 5,993 5,256 7,546 8,233 9, F 2018F Total Assets Total Equity Constructio n Revenue, 4,609.73, 89% Toll Revenue, , 7% Property Revenue, 74.80, 1% Other Operating revenue, , 3% Source: Company Source: Company EXHIBIT 184. CONTRACT GROWTH (RP BN) 30,000 25,000 20,000 12,629 15,000 10,000 9,097 13,069 7,484 8,961 13,065 5,000 7,656 3,576 3,776 4, Carry Over Contract New Contract Source: Company EXHIBIT 185. NET INCOME AND PROFIT MARGIN 1, % 1, % 1, % % 7.0% 6.0% % 4.0% % 2.0% 0.0% F 2018F Net Income Operating Margin Source: Company EXHIBIT 186. DER AND INTEREST COVERAGE A 2015A 2016A 2017F 2018F DER (x) EBITDA interest coverage (X) Source: Company EXHIBIT 187. DAYS RECEIVABLES F 2018F Source: Company Please see important disclosure at the back of this report Page 84 of 160

85 Credit Research Infrastructure Company Profile PT Hutama Karya (persero) (The Company/PTHK) is a fully owned SOE construction company established on March 29, 1961, under the name PN Hutama karya after the nationalization of a Dutch Company named Hollandsche Beton Maatschapij. In 2015, The Government of the Republic of Indonesia appointed PT Hutama karya (Persero) to develop, operate, and maintain 24 Trans Sumatra Toll Road projects. The appointment of the Company as the contractor was ratified through the issuance of the Presidential Regulation (Perpres) No. 117/2015, dated October 22, 2015, as a revision of the Presidential Regulation No. /2014. With this assignment, the Company plans to transform into a toll road enterprise developer which has other business sectors. In 2016, the Company issued revolving bonds with maximum value of Rp6.5tn. For the first phase of these bonds, Rp1.0tn was issued on December 9, These bonds have an interest rate of 8.55% per annum and a term of 10 years.. EXHIBIT 188. PTHK S OUTSTANDING BONDS Bond ID Size Maturity Coupon Last trade Last price Yield Risk premium Rp bn % % bps PTHK01B Jun Dec N.A PTHK01C Jun Jan PTHK01ACN3 1,165 26Sep Jan PTHK01BCN3 2,367 26Sep Jan PTHK01CN2 1,968 26Jan Jan PTHK01CN1 1,968 6Jun N.A N.A N.A N.A Source: IDX, Mandiri Sekuritas estimate EXHIBIT 189. YIELD AND RISK PREMIUM PTHK01B EXHIBIT 190. YIELD AND RISK PREMIUM PTHK01C % 4Jul13 1Nov13 4Jul14 Risk Premium (RHS) 7Jul14 11Jul14 12Aug14 7Apr15 26May15 Yield (LHS) 1Dec15 11Dec15 1Feb17 2Feb17 27Mar17 bps % Mar14 11Mar14 1Apr14 Risk Premium (RHS) 11Sep14 4Mar15 1Dec15 8Mar16 10Mar16 11Mar16 Yield (LHS) 13Jun16 19Sep16 17May17 5Sep17 bps Jan18 Source: IDX, Mandiri Sekuritas estimate Source: IDX, Mandiri Sekuritas estimate EXHIBIT 191. YIELD AND RISK PREMIUM PTHK01ACN3 EXHIBIT 192. YIELD AND RISK PREMIUM PTHK01BCN3 % Risk Premium (RHS) Yield (LHS) bps % Risk Premium (RHS) Yield (LHS) bps Sep17 23Oct17 14Dec17 15Dec17 18Dec17 Source: IDX, Mandiri Sekuritas estimate 19Dec17 4Jan18 5Jan18 24Jan18 26Sep17 17Oct17 27Oct17 9Nov17 20Nov17 30Nov17 Source: IDX, Mandiri Sekuritas estimate 7Dec17 18Dec17 28Dec17 3Jan18 24Jan18 Please see important disclosure at the back of this report Page 85 of 160

86 Credit Research Infrastructure EXHIBIT 193. YIELD AND RISK PREMIUM PTHK01CN2 % Source: IDX, Mandiri Sekuritas estimate Risk Premium (RHS) Yield (LHS) 6Jun17 10Aug17 30Aug17 7Sep17 12Sep17 15Sep17 25Sep17 29Sep17 5Oct17 11Oct17 17Oct17 16Nov17 30Nov17 5Dec17 7Dec17 12Dec17 20Dec17 22Dec17 18Jan18 24Jan18 bps Please see important disclosure at the back of this report Page 86 of 160

87 Credit Research Infrastructure PT HUTAMA KARYA (PERSERO) Profit and Loss YE Dec (Rp Bn) 2014A 2015A 2016A 2017F 2018F Revenue 5, , , , , Cost of goods sold (5,249.16) (5,731.88) (7,644.18) (12,791.62) (20,039.23) Gross profit , , , Selling expenses (17.48) (12.46) (15.32) (22.79) (32.31) General and administrative expen (377.30) (364.77) (371.67) (450.04) (645.00) Operating profit , Depreciation and Amortization EBITDA , , Net Interest (136.89) (33.99) (0.66) (429.89) (704.32) Interest expense (143.18) (156.47) (161.85) (615.26) (917.49) Interest income Forex losses/gains (4.57) Net Other (404.41) Pretax profit , Income tax (6.04) (6.20) (73.91) (99.69) (155.96) Net Profit , Key Ratios YE Dec 2014A 2015A 2016A 2017F 2018F Growth (% YoY) Sales 3.9% 10.5% 39.6% 61.5% 56.4% Operating Profit 75.8% 182.7% 280.0% 24.5% 59.9% EBITDA 75.8% 182.7% 280.0% 31.9% 59.5% Net Profit 10.6% 74.5% 20.1% 137.8% 41.6% Profitability (%) Gross Profit Margin 8.2% 9.2% 13.3% 10.2% 10.1% Operating Margin 1.3% 3.3% 8.9% 6.9% 7.0% EBITDA Margin 1.3% 3.3% 8.9% 7.3% 7.4% Net Margin 2.5% 4.0% 3.4% 5.0% 4.6% ROAA 2.4% 2.7% 1.7% 2.4% 2.4% ROAE 15.8% 8.1% 4.7% 9.1% 11.7% Balance Sheet YE Dec (Rp Bn) 2014A 2015A 2016A 2017F 2018F Cash and ST Investment (incl. cash , , , , Trade Receivables , , , Inventory , , , , Total Other Curr Assets 3, , , , , Non Trade Receivables 2, , , , , Current Land for development Other Current Assets , , , , Current Assets 5, , , , , Investments , , , Fixed Assets , , Total Other Asset , , , Gross Fixed Assets , , , Other Assets Total Assets 5, , , , , ShortTerm Borrowing , , , , ST debts and notes payable , , Current maturity , , , , Trade payable 2, , , , , Other current liabilities 1, , , , , Current liabilities 3, , , , , LT debt (Net Current Maturities) , , , Total Other LT Liab , Other liabilities , Total liabilities 5, , , , , Common stock ,.00 4,.00 6,.00 6,.00 Additional paidin capital 2, Retained earnings , , , Other Equity Adjustment (15.96) Shareholders' equity (Excl Min , , , , Minority Interests Shareholders' equity (Incl Min , , , , Total Liabilities + SHE 5, , , , , Leverage Net Debt/Equity (x) 0.62 (0.39) Int Cover (EBITDA/Gross In Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 87 of 160

88 Compendium Credit Research Infrastructure Infrastructure PT Wijaya Karya (Persero) Tbk Key credit considerations: Company rating Moody s Fitch Ratings Shareholders Ba2 BB Government of Republic of Indonesia 65.1% Public 34.9% (As of September 30, 2017) Outstanding bonds Bond ID Size Maturity Coupon Rp bn % N.A N.A N.A N.A Trading summary Bond ID Last Last Yield trade price % N.A N.A N.A N.A High new contract growth underpinned by solid market position. PT Wijaya Karya (Persero) Tbk (the Company/WIKA) is the third largest listed state owned construction company (based on assets) with 50 years of track record in construction service in Indonesia. WIKA has a very diversified construction project portfolio. Thanks to the infrastructure boom, WIKA was able to book new contract growth of 117% to Rp54.8tn in 2016, from Rp25.2tn in In FY2017 WIKA recorded new contracts of Rp42.4tn (vs. target of Rp43.25tn in FY2017), while total order book reached 106.6tn. In 2018, the Company set the target for new contracts at Rp57.2tn, while the total carry over contract of 2017 was set at Rp73.68tn. Strong revenue growth. WIKA recorded revenue of Rp15.9tn in 3Q2017, increasing by 70% compared to last year's figure. The increase was the result of the infrastructure and building segment revenue which increased by 110% in 3Q2017. In 2018, the Company projected that revenue and net income will be around Rp39.4tn and Rp1.96tn, respectively. WIKA s favorable profitability was also reflected from its ratios, such as EBITDA margin that stood at 15.1% in FY2016 and 11.4% in 3Q2017, and ROAA that was at 3.5% in FY2016 and 2.5% in Q2017. Sound leverage position. As per end of Sept 2017, WIKA's total borrowings was at Rp8.6tn with undrawn facilities of Rp6.8tn from state owned banks, loan syndication, and a foreign bank. As per end of Sept 2017, DER and interest coverage were at favorable levels of 0.66x and 3.82x, respectively. We view WIKA will continue to optimize its financial flexibility to cater more funding through additional bank loans, bond issuances, or capital market to finance its existing and future projects and its Capex target of Rp12.05tn in In January 2018 the Company also issued Komodo Bonds amounting to Rp5.4tn in the London stock exchange with coupon rate of 7.7% and tenor of 3 years. These komodo bonds would be used for refinancing (Rp1.7tn), equity injection for HSR (Rp900bn), capital expenditure (1.2tn), and working capital (Rp1.6tn). This issuance will increase DER to around 1.3x, however, the leverage position is still comfortable for future expansion. Update on Inner Jakarta LRT and MRT projects. WIKA gained the mandate from PT Jakarta Propertindo as the contractor for the Inner Jakarta LRT Project phase 1 that spans from Kelapa Gading to Velodrome. The total investment of this project was Rp5.3tn and it should be completed in 1H2018. The progress of the inner Jakarta LRT as of December 2017 was at 52%. WIKA also entered a contract to develop the Jakarta MRT in 2013 with a total investment value of Rp3.7tn. As of December 2018, the progress of infrastructure development has reached 88.5%, the construction of elevated facilities has reached 82.59%, while the underground line has reached 94.59%. The MRT project should be completed in 4Q2018 and be fully operational by February EXHIBIT 194. FINANCIAL SUMMARY YE Dec (Rp bn) 2014A 2015A 2016A 2017F 2018F Revenues 12,463 13,620 15,669 22,339 27,780 Total Assets 15,909 19,602 31,097 41,265 52,558 Total debt 3,032 3,510 6,748 9,821 19,778 EBITDA interest coverage (X) Debt to equity (X) Current Ratio (x) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 88 of 160

89 Credit Research Infrastructure EXHIBIT 195. TOTAL ASSETS AND TOTAL EQUITY GROWTH (RP BN) 50,000 40,053 40,000 31,097 30,000 20,000 15,909 19,602 12,499 13,175 10,000 4,877 5, Sep17 Total Assets Total Equity Source: Company EXHIBIT 196. REVENUE MIX AS PER SEPT 2017 (RP BN) Energy and Industrial Plant, 2,133, 14% Precast, 2,180, 14% Source: Company Realty and Property, 502, 3% Material Industry, 218, 1% Infrastructu re and Building, 10,843, 68% EXHIBIT 197. CONTRACT GROWTH (RP BN) Sept 2017 New Contract Carry Over Contract Source: Company EXHIBIT 198. NET REVENUE, INCOME, AND EBITDA MARGIN 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Source: Company 12.7% 12.8% 12,463 13, % 15,669 15, % , Sept 2017 Net revenue Net Income EBITDA Margin 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% EXHIBIT 199. DEBT TO EQUITY RATIO 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 3,032 3,510 6,748 8, Sept EXHIBIT 200. INTEREST COVERAGE STILL FAVORABLE 2,500 2,000 1,500 1, , ,748 1,809 1, Sept Source: Company Total Debt Covenant Debt to Equity ratio Source: Company EBITDA EBITDA interest coverage Covenant Please see important disclosure at the back of this report Page 89 of 160

90 Credit Research Infrastructure Company Profile PT Wijaya Karya (Persero) Tbk (WIKA or the Company) was established under the name Perusahaan Negara Bangunan Widjaja Karja in WIKA s line of business at the time was electrical and water pipe installation works. In 1972 the Company changed name to PT Wijaya Karya and expanded into a construction contractor by handling various important projects. Since 2014 WIKA has structured its business around four segments: Infrastructure and Building, Energy and Industrial Plant, Realty and Property, and Industry (the business segments that provide products to support construction business: (i) precast concrete, (ii) steel fabrication, aluminum casting, and plastic injection, and (iii) bitumen (e.g. granular asphalt). To capture the value chain business opportunity, the Company has also expanded its business in various areas by establishing a number of subsidiaries, such as PT Wijaya Karya Bangunan Gedung Tbk, PT Wijaya Karya Rekayasa Konstruksi, PT Wijaya Karya Realty and its subsidiaries, PT Wijaya Karya Beton Tbk, PT Wijaya Karya Industri Konstruksi, and PT Wijaya Karya Bitumen. EXHIBIT 201. TABLE1. WIKA'S KOMODO BOND INDICATIVE TERMS BOND ISSUANCE Issuer Instrument Issuance Format Issue Size Tenor Coupon Issuer Ratings Issue Date Maturity Date Use of Proceeds Indicative Summary Terms & Conditions PT Wijaya Karya (Persero) Tbk Senior Unsecured Notes Global IDR, to be settled in USD 144A / Reg S IDR 5,400 Billion 3 years 7.7% p.a Ba2 (Moody's); and BB (Fitch) 22Jan18 31Jan21 (i) Approximately Rp1,750,000 million, to repay short term loans; (ii) the remaining amount, or approximately Rp3,585,00 million, to finance capital expenditure, acquisition activities, working capital requirements, and other general corporate purposes. Change of Control Government of the Republic of Indonesia ceasing to control, directly or indirectly, of at least 51% of the Company's issued and paidup shares and the Class A Dwiwarna Share or such other special share(s) through which such direct or indirect control is exercised from time to time. Listing Governing Law Joint Lead Managers and Joint Book runners Source: Company, Mandiri Securities LSE (ISM) & SGX New York Law BNP Paribas, HSBC, Mandiri Securities, and MUFG Please see important disclosure at the back of this report Page 90 of 160

91 Credit Research Infrastructure PT Wijaya Karya (Persero) Tbk Profit and Loss YE Dec (Rp Bn) 2014A 2015A 2016A 2017F 2018F Revenue 12,463 13,620 15,669 22,339 27,780 Cost of goods sold (11,039) (11,965) (13,442) (19,821) (24,656) Profit (loss) JO project Gross profit 1,794 1,943 2,606 3,041 3,954 Selling expenses (7) (8) (9) (13) (16) General and administrative expenses (387) (421) (518) (651) (769) Operating profit 1,401 1,514 2,079 2,377 3,170 Depreciation and Amortization EBITDA 1,589 1,748 2,362 2,696 3,531 Net Interest (124) (372) (384) (212) (440) Interest expense (198) (431) (435) (554) (742) Interest income Forex losses/gains (2) 28 (5) (5) 2 Net Other Other expenses/income (136.05) (72.45) (93.71) (109.30) (143.07) Pretax profit 1, , , , , Income tax (395.09) (395.08) (448.36) (670.16) (833.41) Minority interests (135.61) (77.96) (135.32) (200.77) (299.78) Net Profit , , , Key Ratios YE Dec 2014A 2015A 2016A 2017F 2018F Growth (% YoY) Sales 4.9% 9.3% 15.0% 42.6% 24.4% Operating Profit 15.2% 8.1% 37.3% 14.3% 33.4% EBITDA 18.9% 10.0% 35.2% 14.1% 31.0% Net Profit 6.6% 2.8% 61.9% 16.5% 23.4% Balance Sheet YE Dec (Rp Bn) 2014A 2015A 2016A 2017F 2018F Cash and ST Investment (incl. cash eq 2,301 2,560 9,270 7,826 7,283 Trade Receivables 1,963 2,782 2,730 4,284 5,328 Inventory 817 1,031 1,248 1,901 2,364 Total Other Curr Assets 4,400 6,187 8,305 16,155 21,195 Non Trade Receivables 3,046 4,299 5,212 10,065 14,574 Current Land for development Other Current Assets 1,354 1,888 3,093 6,090 6,621 Current Assets 9,481 12,560 21,552 30,166 36,171 Investments 2,277 2,290 3,016 4,056 7,072 Fixed Assets 2,676 3,184 3,466 4,329 6,000 Total Other Asset 1,475 1,568 3,062 2,713 3,315 Gross Fixed Assets Land for development Cost in excess of fair value Forward/swap receivable Other Assets 1,333 1,313 2,803 2,254 2,656 Total Assets 15,909 19,602 31,097 41,265 52,558 ShortTerm Borrowing 1,708 1,818 5,407 7,840 11,915 ST debts and notes payable 929 1,222 4,712 7,212 10,712 Current maturity ,203 Trade payable 3,974 4,420 4,916 7,136 8,877 Other current liabilities 2,794 4,360 4,283 6,726 8,323 Current liabilities 8,476 10,598 14,606 21,702 29,115 LT debt (Net Current Maturities) 1,324 1,692 1,341 1,981 7,864 Total Other LT Liab 1,233 1,874 2,651 3,336 3,712 Total liabilities 11,032 14,164 18,598 27,019 36,991 Common stock Additional paidin capital ,542 6,542 6,542 Retained earnings 1,523 2,013 2,628 3,527 4,746 Other Equity Adjustment 1,034 1,031 1,285 1,246 1,246 Profitability (%) Gross Profit Margin 14.4% 14.3% 16.6% 13.6% 14.2% Operating Margin 11.2% 11.1% 13.3% 10.6% 11.4% EBITDA Margin 12.7% 12.8% 15.1% 12.1% 12.7% Net Margin 4.9% 4.6% 6.5% 5.3% 5.2% ROAA 4.3% 3.5% 4.0% 3.3% 3.1% ROAE 18.0% 15.1% 12.9% 10.0% 11.3% Leverage Debt/Equity (x) Int Cover (EBITDA/Gross Int Expense) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 91 of 160

92 Compendium Credit Research Infrastructure Infrastructure PT Jasa Marga (Persero) Tbk Key credit considerations: Company rating Pefindo Komodo Bond Rating Moody s S&P idaa/stable Baa3 BB+ Shareholders (%) Government of Indonesia 70% Public 30% Outstanding bonds Bond ID Size Maturity Coupon Rp bn % JSMR01CCN1S 1,000 27Sep JSMR01CN2T 1,000 19Sep Trading summary Bond ID Last Last Yield trade price % JSMR01CCN1S 17Nov JSMR01CN2T 26Jan Largest toll road developer and operator in Indonesia. PT Jasa Marga (Persero) Tbk (or JSMR) is the largest state owned toll road company in Indonesia. JSMR also received strong support from the Government of Indonesia as reflected from capital injection of IDR 1.25tn in 2016 to finance the construction of the Trans Jawa toll network, in addition to a more favorable regulation, particularly regarding tariff adjustment and land acquisition. As of October 2017 JSMR has held concession rights to 31 toll roads and a joint venture with total length of 1,260.5 km under longterm concession agreements which expire between 2044 and To date JSMR is operating 21 toll roads with a total length of 665 km or 62.2% of the total toll road length in Indonesia. In 2016, JSMR also recorded a very high traffic volume of 1,361.4 million transactions, which are projected to grow as the new toll road development is completed and car population in Indonesia continues to increase. Prospective future toll road project. Under its total concession rights, JSMR has 596 km of new projects under land acquisition and construction phases. These projects mostly are in Greater Jakarta and Java regions, the centre of economic activities and growth in Indonesia. We expect JSMR to spend Rp57.5tn in capex to develop these new toll roads. During this expansion period JSMR would require to deploy all possible resources, including asset securitization, divestment of subsidiaries, rights issue, bond issuance, and debt refinancing. We believe the addition of Rp4.0tn from Komodo Bonds' issuance would support the toll road development and the attempt to lower the Company's funding cost. Solid Profitability. JSMR has a solid profitability, as reflected from its toll revenue that grew at CAGR of 11%, while adjusted EBITDA also grew at CAGR of 15% during due to toll tariff adjustment, traffic increase, and higher other operating revenue. At the bottom line, JSMR s net income has grown at CAGR of 23% in the last four years. As of 3Q2017 JSMR has booked net profit of Rp1,902.1bn as an impact of Trans Marga Jateng (TMJ) divesting its 15% stake of the Semarang Solo toll road to Astra Infrastructure. JSMR s ROAA was at a favorable level of 4.2% in 2016 and 4.6% in 3Q2017. We view JSMR will be able to maintain its solid profitability in the future, supported by the operation of new sections that will boost traffic growth. Sound debt and interest protection. As of 3Q2017 JSMR s total debt was at Rp27tn and is projected to increase to Rp42.5tn in 2018 for future capex financing. As of 3Q2017 JSMR still has a sound debt protection, as reflected from DER of 1.56 x, while interest protection was at 4.46x. EXHIBIT 202. FINANCIAL SUMMARY 31Dec (Rp bn) 2013A 2014A 2015A 2016A Sept 2017A Revenue 6,357 7,253 7,646 8,879 6,871 Total Assets 28,064 31,860 36,725 53,500 68,722 Total Debt 12,130 13,298 15,932 25,077 27,652 Adjusted EBITDA 3, , , , ,993.1 ROAA (%) Adj EBITDA to Interest (X) Source: Company and Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 92 of 160

93 Credit Research Infrastructure EXHIBIT 203. JSMR S TRAFFIC GROWTH EXHIBIT 204. CAPITAL EXPENDITURE TREND Million Cars 1,450 1,400 1,350 1,300 1,250 1,201 1,200 1,150 1,249 1,314 1,374 1,361 1,402 Rp Billions 25,000 20,000 15,000 10,000 5,000 4,182 3,366 8,781 15,258 22,268 20,016 1, Source: Company F Source: Company F 2018F 2019F EXHIBIT 205. EBITDA AND NET INCOME TREND EXHIBIT 206. STRONG PROFITABILITY INDICATORS Rp Billions 6,000 5,000 4,000 3,399 4,006 4,319 5,229 3,993 60% 58% 56% 3.9% 4.7% 55% 4.3% 56% 59% 4.2% 4.6% 58% 5.0% 4.0% 3.0% 3,000 2,000 1,000 1,027 1,422 1,466 1,890 2,536 54% 52% 53% 2.0% 1.0% Sep17 Adjusted EBITDA Profit attributable to owners of the parent company 50% Sep17 EBITDA Margin (LHS) ROAA (RHS) 0.0% Source: Company Source: Company EXHIBIT 207. FIGURE 5 SOUND DEBT TO EQUITY RATIO (X) X Sep17 Source: Company EXHIBIT 208. SOUND INTEREST PROTECTION (ADJ. EBITDA TO INTEREST [X]) X Source: Company Sep17 Please see important disclosure at the back of this report Page 93 of 160

94 Credit Research Infrastructure Company Profile PT Jasa Marga (Persero) Tbk (or JSMR) is the leading toll road operator in Indonesia for almost 40 years with a toll road network comprising approximately km of operational toll roads, under 19 longterm concessions and one joint venture as of September 30, JSMR went public in 2007 and has been listed on the Indonesian Stock Exchange with market capitalization of Rp40.1tn (USD 3.0bn). As of Sept 30, 2017, JSMR s toll road network, including those operated by joint venture, TMJ, represented approximately 61.9% of the total length of all Indonesian toll roads in operation, and approximately 55.4% of Indonesia s total toll road concession length. EXHIBIT 209. JSMR S OUTSTANDING BONDS Bond ID Size Maturity Coupon Last trade Last price Yield Risk premium Rp bn % % bps JSMR01CCN1S 1,000 27Sep Nov n.a JSMR01CN2T 1,000 19Sep Jan Source: IDX, Mandiri Sekuritas estimate EXHIBIT 210. YIELD AND RISK PREMIUM JSMR01CN2T Bps Risk premium (LHS) Yield (RHS) % Source: IDX, Mandiri Sekuritas estimate Jun15 Jun15 Jun15 Jul15 Jul15 Aug15 Sep15 Sep15 Sep15 Sep15 Feb16 Mar16 Sep16 Feb17 Jul17 Oct17 Nov17 Dec17 Jan TABLE2. JSMR S KOMODO BOND INDICATIVE TERMS BOND ISSUANCE Issuer Instrument Issuance Format Issue Size Tenor Coupon Issuer Ratings Issue Date Maturity Date Use of Proceeds Change of Control Listing Governing Law Joint Global Coordinators Joint Lead Managers and Joint Book runners Source: Company, Mandiri Securities PT Jasa Marga (Persero) Tbk Senior Unsecured Notes Global IDR, to be settled in USD 144A / Reg S IDR 4,000 Billion 3 years 7.5% p.a Indicative Summary Terms & Conditions Baa3 (positive) by Moody's; BB+ (stable) by S&P 11Dec17 11Dec20 To finance capital expenditure, acquisition activities, working capital requirements, and other general corporate purposes Government of the Republic of Indonesia ceasing to control, directly or indirectly, of at least 51% of the Company's issued and paidup shares and the Class A Dwiwarna Share or such other special share(s) through which such direct or indirect control is exercised from time to time. LSE (ISM) & SGX New York Law HSBC & Mandiri Securities Deutsche Bank, HSBC, Mandiri Securities, Standard Chartered Bank Please see important disclosure at the back of this report Page 94 of 160

95 Credit Research Infrastructure JSMR Balance sheet 31Dec (Rp bn) 2014A 2015A 2016A 9M17 Cash & cash equivalent 3,514 3,291 3,323 4,125 ST Investment Other receivables ,279 Inventory Other Current Assets Current Asset 3,788 3,546 3,729 12,966 Intangible Asset Toll Road Concession Rights 21,960 23,941 24,865 34,703 Fixed Assets net Other Non Current 1,725 3,671 7,217 4,946 Total Assets 28,064 31,860 36,725 53,500 ShortTerm Debt 2,784 2,170 5,081 11,920 Account Payable Contractor Payable 1, ,662 1,280 Other current liabilities ,293 Current liabilities 4,871 4,301 7,744 18,627 Long Term Debt 11,078 14,033 13,520 15,473 Other LT Liabilities 1,926 2,505 3,093 3,062 Total Liabilities 17,875 20,839 24,357 37,161 Total Equity 10,189 11,021 12,369 16,339 Total Liabilities + SHE 28,064 31,860 36,725 53,500 Key Ratios 31Dec (Rp bn) 2014A 2015A 2016A 9M17 Profitability Operating Profit Margin Adj. EBITDA margin (%) ROAA (%) ROAE (%) Coverage Operating Profit to Adj. EBITDA Interest Debt to Adj. EBITDA (X) Liquidity Current Ratio (X) Cash ratio (X) Capitalization Debt to Equity (X) Profit and Loss 31Dec (Rp bn) 2014A 2015A 2016A 9M17 Toll revenue 6,646 7,121 7,927 6,064 Construction revenue Non toll revenue Sales 7,253 7,646 8,879 6,871 Source: Company, Mandiri Sekuritas estimates Operating expenses 4,448 4,411 4,972 3,865 Operating profit 2,805 3,235 3,907 3,006 Adjusted EBITDA 4,006 4,319 5,229 3,993 Interest income Interest expense 1,215 1,405 1, Net interest inc/ (exp) 950 1,231 1, Other income (exp) Pretax profit 1,822 2,068 2,650 2,661 Taxation Minority interest Net income 1,403 1,466 1,890 1,902 Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 95 of 160

96 Credit Research Airport & Railways Credit research Transportation Infra Industry Update February 2018 Mandiri Sekuritas Analyst Ali Hasanudin SECTOR: Transportation Infra Industry Update: Massive Project Development The transportation sector is still solid, maintaining double digit growth of +13.9% yoy to Rp615.5tn in For the past five years, the sector has grown by CAGR of +18.8% with the contribution to GDP (current price) increasing continuously from 3% in 2012 to 4.5% in The GDP from railways and air transportation has led the sector by recording strong growths of +25.3% yoy and +24.2% yoy, respectively, followed by road transportation at +9.1% yoy, inland water at +6.3% yoy, and sea transportation at +5.2% yoy. Potential growth from massive project development. The transportationinfrastructure sector is in the phase of revitalizations and development projects. Indonesia s airport companies, PT Angkasa Pura 1 (Persero) or APAI and PT Angkasa Pura 2 (Persero) or APIA, are in the phase of airport development projects on their existing airports, of which the results are scheduled to start operations by periods. The one and only Railways Company in Indonesia, PT Kereta Api Indonesia (Persero) or KAI, is developing several mega projects, of which the results are scheduled to start operations by periods, such as the SoekarnoHatta airport train, Palembang LRT, and Jabodebek LRT. Thus, we believe the companies growth in this sector will remain strong going forward. Strong support from the Government. The transportationinfrastructures, such as railways and airports, hold a critical role in the Government s strategic program to support the acceleration of an effective and efficient infrastructure to help strategic sectors of the economy. In relation to that matter, the Government of the Republic of Indonesia has shown a lot of support and commitment, such as through capital injection to the SOE. KAI as an SOE in the railways sector has received capital injection from the Government as much as Rp2tn in 2015 and Rp2tn in 2017 and will receive Rp3.6tn in 2018 for the development of the 82km Jabodebek Light Rail Transit (LRT). APIA has received a capital injection amounting to Rp2tn in order to do land relinquishment for the construction of runway 3 at Soekarno Hatta International Airport; in addition APIA has also received government contribution totaling around Rp2.5tn. APAI received capital injection of Rp1.4tn in 2011 and Rp2.9tn in 2014 from the government contribution totaling around Rp4.5tn which has been received prior to The risk: In line with business expansions, revitalizations, and project developments, the Companies require significant amounts of external funding to finance their Capex. This will bring their total debt to grow significantly. Please see important disclosure at the back of this report Page 96 of 160

97 Credit Research Airport & Railways The Transportation Sector is Still Solid The GDP from the transportation sector (excluding Storage & Support for Trans; Postal & Courier) recorded double digit growth of +13.9% yoy to Rp615.5tn in For the past five years the sector has grown by CAGR of +18.8% with the contribution to GDP (current price) increasing continuously from 3% in 2012 to 4.5% in The GDP from railways and air transportation has led the sector by recording strong growths of +25.3% yoy and +24.2% yoy, respectively, followed by road transportation at +9.1% yoy, inland water at +6.3% yoy, and sea transportation at +5.2% yoy. EXHIBIT 211. CONTRIBUTION OF TRANSPORTATION SECTOR TO GDP (CURRENT PRICE) INCREASING CONTINUOUSLY FROM 3% IN 2012 TO 4.5% IN 2017 EXHIBIT 212. GDP FROM RAILWAYS AND AIR TRANSPORTATION LED THE SECTOR BY RECORDING STRONG GROWTH S OF +25.3% YOY & +24.2% YOY, RESPECTIVELY Rp tn The GDP of transportation sector Percent to GDP % YoY (%) Air Railways Road Sea Inland water Source: BPS Source: BPS Domestic passengers for modes of transportation of air, sea, and railways still recorded double digit growth of +11.8% yoy (CAGR : +12.1%) to 500mn passengers in Railways are still a preference for domestic travels, as this mode contributed 393mn passengers or 79% of total domestic passengers in Railways can accommodate the need for fast and affordable transportation and if compared to air and sea transport, in terms of domestic travel, the number of passengers transported by trains is much higher; and this mode is also preferred during peak seasons due to its ability to address the problem of capacity limitation experienced by other modes. Railway transport is capable of transporting passengers with the same destination in large capacity and at the same time. For the past five years Railways have led the passenger growth by recording a CAGR of +14.3% from 202mn in 2012 to 393mn in EXHIBIT 213. THE DOMESTIC PASSENGERS' NUMBERS RECORDED DOUBLE DIGIT GROWTH OF +11.8% YOY IN 2017 EXHIBIT 214. RAILWAYS CONTRIBUTE 79% OF TOTAL DOMESTIC PASSENGERS IN 2017 Mn people Total domestic passengers YoY % Source: BPS Air transportation (domestic) Sea transportion Rail transportation % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: BPS Please see important disclosure at the back of this report Page 97 of 160

98 Credit Research Airport & Railways EXHIBIT 215. RAILWAYS LED THE PASSENGER GROWTH BY RECORDING CAGR OF +14.3% FROM 202MN IN 2012 TO 393MN IN 2017 Mn people CAGR: +14.3% EXHIBIT 216. THE NUMBER OF TRAVELERS USING AIRLINE HAS INCREASED BY CAGR OF +10.4% FROM 55MN TO 89MN IN 2017 Mn people CAGR: +10.4% Source: BPS Source: BPS Following the railways transportation mode, there is air transportation mode that also shows solid growth in passenger number. The number of travelers using airline has increased by CAGR of +10.4% from 55mn to 89mn in It seems to indicate that Indonesian travelers preference toward airline is increasing. Meanwhile, the sea transportation dropped by CAGR of 7.8% from 26mn in 2012 to 17mn in Potential growth from massive project development The transportationinfrastructure companies are in the phase of revitalizations and development projects. APAI is in the phase of airport development projects on five existing airports, of which the results are scheduled to start operations by periods. The Company has done ground breaking on Syamsudin Noor airport (Banjarmasin) as of May15 to accommodate 10 million passengers/year from 1.3 million passengers/year. Meanwhile, the development in Terminal 3 Juanda (Surabaya) will start operations by 2021 and is expected to increase the airport s capacity to 26 million passengers/year; Kulon Progo airport (Yogyakarta) to 14 million by 2020; Ahmad Yani (Semarang) to 5 million by 2018; and Sultan Hasanudin (Makassar) to 15.6 million by Please see important disclosure at the back of this report Page 98 of 160

99 Credit Research Airport & Railways EXHIBIT 217. PT ANGKASA PURA 1 (PERSERO) AIRPORT DEVELOPMENT PROJECTS Terminal 3 Juanda, Surabaya Year of development: Operating Target: 2021 Existing Passenger Capacity : 13 million (T1 & T2) New Passenger Capacity : 26 million Syamsuddin Noor, Banjarmasin Year of development : Operating Target : 2019 Existing Passenger Capacity : 1,3 million New Passenger Capacity : 10 million Sultan Hassanudin, Makassar Year of development : Operating Target: 2020 Existing Passenger Capacity : 8,6 million New Passenger Capacity: 15,6 million Ahmad Yani, Semarang Year of development : Operating Target : 2018 Existing Passenger Capacity : 0,9 million New Passenger Capacity : 5 million Kulon Progo, Yogyakarta (New airport) Year of development : Operating Target : 2020 Existing Passenger Capacity : 10 million New Passenger Capacity : 14 million Source: Company According to APAI s management, the land and taxiway construction for Ahmad Yani Airport s development is % completed and currently building the terminal area, which will start to operate in Syamsudin Noor Airport s first package is currently in the auction process, while the second construction package is 9% completed and is expected to start operations in June The land preparation of the newly developed Kulon Progo Airport in Yogyakarta is 96% completed and the airport is expected to operate in April APIA is also in the phase of airport development projects for five existing airports, of which the results are scheduled to start operations by the periods. Husein Sastranegara airport (Bandung) as of Apr16 had an increase of passenger capacity of 3.6mn; Depati Amir (Pangkal Pinang) as of May16 had an increase of 1.5mn; Silangit (Siborongborong) by Sept16 will have an increased of,000; the development in Supadio (Pontianak) will start operations by Dec16 and is expected to increase the airport's capacity to 3.8mn by 2017; and SoekarnoHatta is expected to have an increase of total capacity of 62mn by The development of SoekarnoHatta Airport requires Rp4.7 trillion for the Terminal 3 Ultimate construction and around Rp2 trillion for Terminal 1 and 2 revitalization. This revitalization is targeted to be completed in Please see important disclosure at the back of this report Page 99 of 160

100 Credit Research Airport & Railways EXHIBIT 218. PT ANGKASA PURA 2 (PERSERO) AIRPORT DEVELOPMENT PROJECTS ALREADY OPERATED Kualanamu (Medan) Operated in July 2013 Year of development: Capacity 9 mn pax (2015) Depati Amir (Pangkal Pinang) Operated in Jan 2016 Year of development: Existing capacity 0.5 mn pax (2015) New capacity 1.5mn pax (2016) Soft Opening: Jan 2016 Grand launching March 2017 Sultan Mahmud Badaruddin II (Palembang) Operated in April 2015 Year of development: Capacity 3.2 mn pax (2015) Husein ST (Bandung) Operated in January 2017 Year of development: Existing capacity 0.5 mn pax (2015) Newcapacity 3.6mn pax (2016)) Soft opening: 6 January 2017 Grand launching March 2017 Sultan Syarif Kasim II (Pekanbaru) Operated in July 2012 Year of development: Capacity 3.2 mn pax (2015) Sultan Thaha (Jambi) Operated in Dec 2015 Year of development: Existing capacity 0.5 mn pax (2015) New capacity 1.5mn pax (2016) Soft opening: Dec 2015 Grand launching August 2016 R.HAJIFISABILILLAH (TJ.PINANG) Operated in Nov 2013 Year of development: Capacity 1.2 mn pax (2015) Source: Company EXHIBIT 219. PT ANGKASA PURA 2 (PERSERO) AIRPORT DEVELOPMENT PROJECTS ON PROGRESS Silangit (Siborong borong) Operated in September 2017 Year of development: Capacity thousand pax Grand launching Sept 17 Supadio (Pontianak) New terminal fully operate in 2017 Year of development: (3 phase) Existing capacity 1.5mn pax (2015) New capacity 3.8mn pax (2017) Soft opening1 : June 2015 Soft Opening II: July 2017 Terminal 3 Soekarno Hatta(Banten) Year of development: Existing capacity: 22mn pax (2015) New capacity: 62mn pax (2017) Soft opening : August 2016 Grand launching: 2017 Source: Company Please see important disclosure at the back of this report Page of 160

101 Credit Research Airport & Railways EXHIBIT 220. GRAND DESIGN OF SOEKARNOHATTA Terminal 2 Runway 2 Express Rail Cargo Village Terminal 3 Int d Building Commuter Rail Terminal 1 Runway 1 Automated People Mover System Automated People Mover System (APMS) Source: Company In line with the growing population, the needs for a rapid mass transportation system have also continuously grown. In order to meet this demand, KAI has planned several projects for passenger transportation, freight transportation, and airport train. EXHIBIT 221. PT KAI UPCOMING PROJECTS On Going Project Committed project Pipeline project Development of Long and Medium Passenger Transportation KA Trans Sumatera Bandung Station Commuter Train Jabodetabek LRT Sumatera Selatan Adisumarmo Airport Train Tanjung Priok Port Train (JICT dan Dermaga 208) LRT Jabodebek KA Trans Sulawesi Development of Railway Freight LRT Palembang KA Trans Kalimantan Soekarno Hatta Airport train Minangkabau Airport train KA Ekspres Basoetta Source: Company High Speed Train Jakarta Bandung Kulon Progo Airport Train Tram Kota Surabaya (UtaraSelatan) Station Tugu Development Please see important disclosure at the back of this report Page 101 of 160

102 Credit Research Airport & Railways SoekarnoHatta Airport Train. KAI has been entrusted by the Government to conduct a passenger transportation program for Soekarno Hatta Airport according to Presidential Regulation No.83/2011. Operational activities are planned to start in early This project requires the construction of a 12.3km long railway (Batu Ceper Soekarno Hatta airport Station). The Company has also built the City Air Terminal (CAT) facility at Sudirman Station and procured 10 (ten) trainsets, each of which consists of 6 units by Railink. The investment value is estimated at Rp3.58tn. EXHIBIT 222. SOEKARNOHATTA AIRPORT TRAIN Source: Company Light Rail Transit Palembang (PP /PP ). KAI has been entrusted by the Government for the procurement of facilities under Presidential Regulation No. 116/2015 and No. 55/2016. The assignment of infrastructure development has been entrusted to PT Waskita Karya (Persero) Tbk. The South Sumatra LRT will connect Sultan Mahmud Badaruddin II Airport (SMB II) and Ogan Permata Indah (OPI) Mall. A total of 13 stations has been proposed with a total route length of ± 23.5 km from northwest to southeast of Palembang. There will be 8 train sets and each set will consist of 3 train formations. The capacity of each train set (crush capacity) is 8 passenger/m2, therefore the total capacities by formation are: 736 passengers (3train formation), 478 passengers (2train formation), and 239 passengers (1train formation). Their investment value is Rp710bn. EXHIBIT 223. SOEKARNOHATTA AIRPORT TRAIN Source: Company Please see important disclosure at the back of this report Page 102 of 160

103 Credit Research Airport & Railways Jabodebek Light Rail Transit (PP / PP / PP ) Through Presidential Regulation (Perpres) No. 49/2017 concerning Accelerated Implementation of the Integrated Light Rail Transit in Jakarta, Bogor, Depok, and Bekasi, in 2017 the Government has assigned KAI to operate, maintain, and manage (including the funding of the construction) the integrated Light Rail Transit infrastructure, which is constructed by the contractor, PT Adhi Karya (Persero) Tbk. Regarding this project, KAI has received capital injection from the Government as much as Rp2tn in 2015 and Rp2tn in 2017 and will receive Rp3.6tn in EXHIBIT 224. JABODEBEK LRT Source: Company Strong support from the Government The transportationinfrastructures, such as railways and airports, hold a critical role in the Government s strategic program to support the acceleration of an effective and efficient infrastructure to help strategic sectors of the economy. In relation to that matter, the Government of the Republic of Indonesia has shown a lot of support and commitment, such as through capital injection to the SOE. KAI as an SOE in the railways sector has received capital injection from the Government as much as Rp2tn in 2015 and Rp2tn in 2017 and will receive Rp3.6tn in 2018 for the development of the 82km Jabodebek Light Rail Transit (LRT). APIA has received capital injection amounting to Rp2tn in order to do land relinquishment for the construction of runway 3 at SoekarnoHatta International Airport; in addition APIA has also received government contribution totaling around Rp2.5tn. APAI received capital injection of Rp1.4tn in 2011 and Rp2.9tn in 2014 from the government contribution totaling around Rp4.5tn which has been received prior to The risks: aggressive funding In line with business expansions, revitalizations, and project developments, the Companies require significant amounts of external funding to finance the Capex. This will bring their total debt to grow significantly. Please see important disclosure at the back of this report Page 103 of 160

104 Credit Research Airport & Railways Bond Valuation: SIAPAI01B and APAI01C gave attractive valuation We cover three companies in the Airport and Railways sectors, which are: PT Angkasa Pura 1 (Persero) or APAI, PT Angkasa Pura 2 (Persero) or APIA, and PT Kereta Api Indonesia (Persero) or KAI; with total listed bonds outstanding of 11 series totaling Rp7tn as of Jan18. Of the total series, 9 have been traded in the secondary market during October 2017 Jan Among AAA rated bonds, we have two overweight recommendations and four underweight. SIAPAI01B (YTM: 7.91%, mature on 22 Nov 2023) and APAI01C (YTM: 8.23%, mature on 22 Nov 2026) are our recommendations for these sectors, as they offered the widest risk premium of 176 bps and 175bps, respectively, based on their last transaction compared with that of AAA rated bonds of 147bps in the secondary market. APAI01C traded at higher yield vs. APIA01C (YTM: 8.18%, mature on 30 Jun 2026), which almost has the same duration. EXHIBIT 225. BOND VALUATION Bond ID Maturity Rating Coupon (%) Last Trade Last price Yield (%) Risk premium (bps) Average risk premium based on rating Recommend ation APIA01A 30Jun21 id AAA Jan Underweight 3.0 SIAPAI01A 22Nov21 id AAA Nov Underweight 3.2 APAI01A 22Nov21 id AAA Oct Underweight 3.2 KAII01A 21Nov22 id AAA Jan Underweight 4.0 APIA01B 30Jun23 id AAA Oct Neutral 4.3 SIAPAI01B 22Nov23 id AAA Dec Overweight 4.5 KAII01B 21Nov24 id AAA Jan Neutral 5.1 Duration APIA01C 30Jun26 id AAA Dec Neutral 5.9 APAI01C 22Nov26 id AAA Dec Overweight 6.1 * risk premium: spread between company s bond yield in the secondary market and theoretical yield curve of government bonds with the same tenor (based on last transaction) ** Average risk premium based on rating: average spread between company s bond yield in the secondary market on each rating category and theoretical yield curve of government bonds with the same tenor Please see important disclosure at the back of this report Page 104 of 160

105 Credit Compendium Research Airport & Railways Airport PT Angkasa Pura I (Persero) Company rating Pefindo Shareholders idaaa/stable Government of The Republic of Indonesia Outstanding bonds Bond ID Size Rpbn Maturity Coupon % APAI01A Nov SIAPAI01A Nov APAI01B Nov SIAPAI01B 55 22Nov APAI01C 1,489 22Nov SIAPAI01C Nov Trading summary Bond ID Last Trade Last Price Yield (%) APAI01A 12Oct SIAPAI01A 8Nov APAI01B 23Aug SIAPAI01B 21Dec APAI01C 28Dec SIAPAI01C 8Feb Ali Hasanudin Ali.hasanudin@mandirisek.co.id Bond Valuation The 8.9yrs APAI01C gave attractive valuation The most attractive of APAI s bonds was the 8.9yrs APAI01C, as it was traded at and yielded 8.23% on its last transaction on 28 Dec17, which implied 175bps of risk premium over riskfree rate, very attractive compared to its historical risk premium at an average of 110bps and with the AAA bond category, which gave a risk premium of 147bps above risk free rate. Key credit considerations: Operating in high growth region with international recognition. For the past five years APAI s passenger traffic has grown by CAGR of +9.8% from 46.4mn pax in 2011 to 84.8mn pax in Up to Sept17 the passenger traffic has reached 67mn pax or grown strongly by +20.2% yoy with all airports showing positive growth, especially Adisumarmo airport in Solo, which increased by +53%yoy to 2mn pax, due to now serving Umrah trip with direct flight to Jeddah for Jama ah residing in Central Java. The largest traffic still comes from Ngurah RaiDenpasar airport with 16.4mn pax (+25%yoy) and JuandaSurabaya airport with 14.8mn pax (+14%yoy). According to the Airports Council International (ACI), I Gusti Ngurah Rai is the 3 rd world best airport in the 1525 million passenger capacities, and Juanda is the most punctual airport in the world for airports with annual passengers of 1020mn (OAG Punctuality League 2016). We view the passenger growth will remain strong, as Indonesia is projected to be in the top 10 world aviation market in 2020 by the International Air Transport Association. Potential growth from airport development. APAI is in the phase of airport development projects on five existing airports, of which the results are scheduled to start operations in periods. We expect the Company will have larger capacity, higher quality of services to offer, better tariff adjustment, other airport related services that generate nonaeronautical revenues that would follow all the increase, and also (due to more space for rent) more business concessions and more airport visitors. Sound credit metrics. As of Sept17, the Debt to Equity Ratio was at 0.5x, far below the covenant maximum level of 3x. At this level, the Company still has ample room for additional debt of about Rp33tn. For , in line with the airport development projects, we estimate total capex would be around Rp24tn, with additional debts of around Rp15tn to fund this capex, which is still far below the Company s maximum loan capacity. Credit Outlook Stable We have a stable credit view on APAI, as the Company operates airports in high growth regions with potential growth from airport development projects. Key risk: Aggressive funding regarding the large funding needed to finance the Company s projects. FINANCIAL SUMMARY YE Dec (Rp bn) F 2018F EBITDA 1,869 2,031 2,428 3,020 3,852 Total debt 2,177 3,065 8,045 14,000 17,000 EBITDA to interest (x) Current ratio (x) DER (x) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 105 of 160

106 Credit Research Airport & Railways EXHIBIT 226. GROWING PASSENGER TRAFFIC EXHIBIT 227. MARKET SHARE (2016 S FIGURE) Passenger traffic ( mn pax) 90 CAGR:+9.8% %yoy % 8% 42% UPT (Unit Pelaksana Teknis) PT. ANGKASA PURA I PT. ANGKASA PURA II M16 9M17 Source: Company Source: Ministry of Transportation EXHIBIT 228. REVENUE TREND EXHIBIT 229. IMPROVING OPERATING MARGIN Rp billion 7,000 6,000 5,000 4,000 3,000 2,666 CAGR: +18.1% 3,094 3,064 4,584 5,250 6,138 YoY: +18.3% 5,370 4,538 % Operating margin EBITDA margin Net margin 2, , Source: Company M16 9M M16 9M17 Source: Company EXHIBIT 230. EBITDA INTEREST COVERAGE MAINTAINED STRONG ABOVE THE MINIMUM COVENANT OF 1X Rp billion 3,000 2,500 2,000 1,500 1, EBITDA EBITDA interest coverage Minimum EBITDA interest covenant 1,170 Source: Company 1,869 2,031 2,428 2,101 2, M16 9M17 X EXHIBIT 231. LEVERAGE TREND, DER MAINTAINED STRONG BELOW THE MAXIMUM COVENANT OF 3X Rp billion 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Source: Company 2014 Total debt 2015 DER 2016 Sept17 X Please see important disclosure at the back of this report Page 106 of 160

107 Credit Research Airport & Railways Company Profile PT Angkasa Pura I (Persero) or APAI is a StateOwned enterprise that engages in the airport and airport related services in the in Middle and Eastern part of Indonesia with a good track record of over 53 years. The Company operates 13 airports, namely I Gusti Ngurah Rai (Denpasar), Djuanda (Surabaya), Sultan Hasanuddin (Makassar), Sultan Aji Muhammad Sulaiman Sepinggan (Balikpapan), Sam Ratulangi (Manado), Adisutjipto (Yogyakarta), Adi Soemarmo (Solo), Syamsudi Noor (Banjarmasin), Pattimura (Ambon), Ahmad Yani (Semarang), Lombok (Praya), El Tari (Kupang), and Frans Kaisiepo (Biak). All of these airports hold about 42% of total passenger traffic in Indonesia. The Company s major revenues come from aircraft passenger handling services (PJP2U) or known as Passenger Services Charges (PSC), of which the Company earns from the charge of passenger departures, with total contribution of 48% of the Company s total revenue in 9M17. The second largest comes from concession with a contribution of 18%. Concession is the granting of airport facility usage rights to third parties in relation to business activities conducted at the airport, such as food and beverage, retail, services and sea cargo aircraft (master), regulated agent (RA), ground handling, and inflight catering. In 9M17, the Company recorded strong revenue at Rp5,370bn (+18%yoy), in line with our expectation, as it represented 80% of our FY17 forecast. On the cost side, operating expense was recorded at Rp3.3tn, growing slower by +11%yoy and resulting in higher operating margin of 38.2% (vs. 33.8% in 9M16). We expect revenue growth will still be solid in the near future, as in addition to growing passenger traffic there will be an increase in the passenger service charge (PSC) for Ngurah Rai airport. The PSC for domestic flights will increase to Rpk from currently Rp75k, and for international flights it will increase to Rp225k from currently Rp200k. On the credit metrics profile, the ratio remains sound and compliant with the bond s covenant, EBITDA to interest was recorded at 10.3x (vs. minimum of 1x), DER recorded at 0.5x (vs. maximum of 3x), and current ratios recorded at 2.0x (vs. minimum of 1x) as of Sept17. APAI Bonds: The 8.9yrs APAI01C gave attractive valuation As of Jan18, the total outstanding APAI bonds and sukuk in the secondary market were at Rp3,000bn, consisting of three series of conventional bonds and three series of sukuks. The shortest tenor was for the 4.1yrs APAI01A (issued in Nov2016), which will be mature on 22Nov2021 with a size of Rp622 billion, while the longest tenor was for the 8.9yrs APAI01C (issued in Nov2016) with a size of Rp1,489bn. According to the latest trading data in IDX, on average APAI bonds offer a risk premium of 154bps above government bond yield with the same tenors. The most attractive series is the 8.9yrs APAI01C, as it was traded at and yielded 8.23% on its last transaction on 28 Dec17, which implied 175bps of risk premium over riskfree rate, very attractive compared to its historical risk premium at an average of 110bps and with the AAA bond category, which gave a risk premium of 147bps above risk free rate. Meanwhile, the other series looked unattractive, since they only gave low risk premium and were not actively traded in the secondary market. EXHIBIT 232. APAI S OUTSTANDING BONDS Bond s ID Bonds name Size (Rp bn) Coupon (%) Maturity Date Last trade Last price APAI01A Obligasi I Angkasa Pura I Tahun 2016 Seri A Nov21 12Oct SIAPAI01A Sukuk Ijarah I Angkasa Pura I tahun 2016 Seri A Nov21 8Nov APAI01B Obligasi I Angkasa Pura I Tahun 2016 Seri B Nov23 23Aug SIAPAI01B Sukuk Ijarah I Angkasa Pura I tahun 2016 Seri B Nov23 21Dec APAI01C Obligasi I Angkasa Pura I Tahun 2016 Seri C 1, Nov26 28Dec SIAPAI01C Sukuk Ijarah I Angkasa Pura I tahun 2016 Seri C Nov26 8Feb YTM (%) Risk premium (Bps) Average risk premium 154 Please see important disclosure at the back of this report Page 107 of 160

108 Credit Research Airport & Railways Source: IDX, Mandiri Sekuritas estimate EXHIBIT 233. YIELD AND RISK PREMIUM APAI01C Bps Risk Premium (LHS) Yield (RHS) % Dec16 Dec16 Dec16 Jan17 Jul17 Jul17 Jul17 Jul17 Jul17 Aug17 Aug17 Sep17 Sep17 Oct17 Dec17 Source: IDX, Mandiri Sekuritas estimate EXHIBIT 234. YIELD AND RISK PREMIUM APAI01A Bps Risk Premium (LHS) Yield (RHS) % Dec16 Dec16 Jun17 Jun17 Aug17 Oct17 Source: IDX, Mandiri Sekuritas estimate EXHIBIT 235. YIELD AND RISK PREMIUM SIAPAI01B Bps Risk Premium (LHS) Yield (RHS) % May17 Aug17 Dec17 Source: IDX, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 108 of 160

109 Credit Research Airport & Railways ANGKASA PURA 1 FINANCIAL PROJECTION Profit and loss YE Dec (Rp bn) F 2018F 2019F 2020F Revenues 3,064 4,584 5,250 6,138 6,730 7,695 8,856 10,667 Operating expenses (2,341) (3,319) (3,956) (4,489) (4,542) (4,802) (5,516) (6,378) Operating income 723 1,265 1,294 1,649 2,188 2,894 3,341 4,289 Depreciation & amortization ,092 1,714 EBITDA 1,170 1,869 2,031 2,428 3,020 3,852 4,433 6,004 Interest exp. (2) (66) (228) (232) (810) (1,250) (1,514) (1,674) Other income(expense) (6) (6) (6) (6) Pretax profit 849 1,267 1,083 1,509 1,372 1,638 1,821 2,609 Taxes (174) (272) (241) (349) (359) (429) (477) (683) Net income ,160 1,013 1,209 1,344 1,926 Balance sheet YE Dec (Rp bn) F 2018F 2019F 2020F Cash and equivalents 580 1,352 1,746 4,896 5,357 5,151 5,123 5,022 Trade receivables ,169 Other current assets ,131 Current assets 1,749 2,636 3,090 6,085 6,819 6,849 7,018 7,322 Investment properties Fixed asset 7,450 11,208 11,861 11,913 12,341 14,144 15,994 27,891 Assets under construction 3,245 1,622 1,443 5,242 13,768 16,156 19,269 9,570 Other assets Total assets 12,978 15,827 16,722 23,667 33,269 37,500 42,643 45,158 Accrued expenses Trade payables 1,053 1, , Unearned revenues Current portion of long term loans Others ,095 1,316 Current liabilities 2,081 2,715 2,705 3,872 2,414 2,588 2,925 3,252 Bank Loans 883 2,129 2,475 4,304 11,000 14,000 17,600 18,000 Bonds payable 2,991 3,000 3,000 3,000 3,000 Other liabilities Total liabilities 3,448 5,316 5,693 11,669 17,024 20,249 24,289 25,147 Total equity 9,529 10,511 11,029 11,997 12,667 13,674 14,777 16,434 Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 109 of 160

110 Credit Research Airport & Railways ANGKASA PURA 1 FINANCIAL PROJECTION Cash flow YE Dec F 2018F 2019F 2020F EBIT 723 1,265 1,294 1,649 2,188 2,894 3,341 4,289 Depreciation ,092 1,714 Working capital (205) 483 (613) 1, (62) 140 (78) Other operating items (1,006) (303) (512) (498) (1,130) (1,635) (1,895) (2,233) Operating cash flow (41) 2, ,092 1,942 2,155 2,678 3,693 Capital expenditure (2,005) (2,560) (1,073) (4,729) (9,283) (5,159) (6,066) (3,926) Free cash flow (2,046) (510) (168) (1,637) (7,342) (3,005) (3,388) (233) Net increased (decreased) equity (280) Net borrowings 872 1, ,977 8,000 3,000 3, Dividend (252) (258) (186) (168) (198) (203) (242) (269) Others (187) 25 (138) (22) Net cash flow (1,892) , (206) (28) (101) Cash at beginning 2, ,352 1,746 4,896 5,357 5,151 5,123 Cash at end 580 1,352 1,746 4,896 5,357 5,151 5,123 5,022 YE Dec F 2018F 2019F 2020F Key ratios YE Dec F 2018F 2019F 2020F Profitability Operating margin (%) EBITDA margin (%) Net margin (%) ROAA(%) ROAE (%) Coverage Operating profit to interest (X) EBITDA interest coverage (X) Debt to EBITDA (X) Net deb to EBITDA (X) Debt service ratio (X) Liquidity Current ratio (X) Cash ratio (X) Days receivable Capitalization Debt to equity (X) Net debt to equity (X) Total liabilities to equity (X) Debt to assets (%) Total liabilities to total assets (%) Equity to total assets (%) Profitability Operating margin (%) EBITDA margin (%) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 110 of 160

111 Credit Compendium Research Airport & Railways Airport PT Angkasa Pura II (Persero) Bond Valuation Company rating Pefindo PT Fitch Ratings Indonesia Shareholders idaaa/stable AAA(idn)/Stable Government of the Republic of Indonesia Outstanding bonds Bond ID Size Rpbn Maturity Coupon % APIA01A 1,000 30Jun APIA01B 30Jun APIA01C Jun Trading summary Bond ID Last Trade Last Price Yield (%) APIA01A APIA01B APIA01C Ali Hasanudin Ali.hasanudin@mandirisek.co.id We only have neutral as the highest recommendation for APIA bonds. The highest risk premium among APIA bonds was only at 169bps, which comes from 8.5yrs APIA01C on its last transaction on 28 Dec17; this didn t give significant risk premium compared to the average AAA bonds in the market with 147bps of risk premium. Key credit considerations: Strong position in the domestic and global markets. APIA operates 13 airports in Western Indonesia and one of which is the SoekarnoHatta airport. Soekarno Hatta is the largest airport in Indonesia with around 30% market share of total passenger traffic in Indonesia. SoekarnoHatta is a 3 star Skytrax Airport holding the 63 rd ranking in the world and in 2017 was the most improved airport. According to ACI (Airport Council International), Soekarno Hatta is the second busiest airport in the ASEAN after Changi (Singapore) and the 8 th busiest in Asia Pacific in We view the Company s position will remain strong, as Indonesia is projected to be in the top 10 world aviation market in 2020 by the International Air Transport Association. Potential growth from airport developments. Same with APAI, in preparing Indonesia to enter the top 10 world aviation market, APIA is in the phase of airport development projects on five existing airports, of which the results are scheduled to start operations in periods. We expect the Company will have higher capacity, higher quality of services to offer, better tariff adjustment, other airport related services that generate nonaeronautical revenues that would follow all the increase, and also (due to more space for rent) more business concessions and more airport visitors. Sound credit metrics. As of Sept17, the debt to equity ratio (DER) was at 0.3x, far below the covenant maximum level of 2x. At this level, the Company still has ample room for additional debt of about Rp38tn. For the periods, in line with the airport development projects, we estimate total capex would be around Rp24tn. According to our calculation, the Company will need additional debts of around Rp15tn to fund this capex, which is still far below the Company s maximum loan capacity based on the covenant of its maximum DER level. Credit Outlook Stable We have a stable credit view on APIA, as the Company has strong position in the domestic and global markets. The Company operates SoekarnoHatta, the largest airport in Indonesia and the second busiest airport in ASEAN. Key risk: Aggressive funding. In line with business expansion and airport development projects to support the Company s growth, thus the Company requires significant amounts of external funding to finance the Capex. FINANCIAL SUMMARY YE Dec (Rp bn) F 2018F EBITDA 1,774 2,599 2,707 3,880 4,484 Total debt 423 1,198 4,739 7,398 10,398 EBITDA to interest (x) 1,928 1, Current ratio (x) DER (x) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 111 of 160

112 Credit Research Airport & Railways EXHIBIT 236. GROWING PASSENGER TRAFFIC EXHIBIT 237. MARKET SHARE (2016 S FIGURE) in mn pax % 8% 42% UPT (Unit Pelaksana Teknis) PT. ANGKASA PURA I PT. ANGKASA PURA II M16 9M17 Source: Company Source: Ministry of Transportation EXHIBIT 238. REVENUE TREND EXHIBIT 239. IMPROVING OPERATING MARGIN Rp billion 7,000 6,000 5,000 4,000 3,000 2,000 3,997 4,154 4,861 5,644 6,646 4,670 5,928 % Operating margin EBITDA margin Net margin 1, Source: Company M16 9M17 0 Source: Company M17 6M17 EXHIBIT 240. VERY STRONG EBITDA INTEREST COVERAGE EXHIBIT 241. LEVERAGE TREND, DER MAINTAINED STRONG BELOW THE MAXIMUM COVENANT OF 3X Rp billion 3,500 3,000 2,500 2,000 1,500 1, EBITDA EBITDA to interest 2,880 2,599 2,707 2,530 1,774 1, M16 9M Rp billion 6,000 5,000 4,000 3,000 2,000 1,000 0 Total Debt DER 5,564 4,739 1, Sept17 X Source: Company Source: Company Please see important disclosure at the back of this report Page 112 of 160

113 Credit Research Airport & Railways Company Profile PT Angkasa Pura II (Persero) is a StateOwned enterprise that engages in the airport and airport related services in the Western part of Indonesia with good track records of more than 32 years. Now, the Company operates 13 airports, namely SoekarnoHatta (Jakarta), Halim Perdanakusuma (Jakarta), Kualanamu (Medan), Supadio (Pontianak), Minangkabau (Padang), Sultan Mahmud Badaruddin II (Palembang), Sultan Syarif Kasim II (Pekanbaru), Husein Sastranegara (Bandung), Sultan Iskandar Muda (Banda Aceh), Raja Haji Fisabilillah (Tanjungpinang), Sultan Thaha (Jambi), Depati Amir (Pangkalpinang), and Silangit (Tapanuli Utara). All of these airports hold about 50% of the total passenger traffic in Indonesia. The Company s major revenues come from Passenger Services Charges (PSC) with total contribution of around 45% of the total revenues. PSC is revenue that Company earns from airport tax (passenger charges) for the departures in the Company s airport. Meanwhile, the second largest comes from Concession with a contribution of around 17%; Concession is revenue that Company earns from tenants that operate businesses in the Company s airport premises. APIA Bonds: We only have neutral as the highest recommendation for APIA bonds As of Jan18, the total outstanding APIA bonds in the secondary market were at Rp2,000bn, consisting of three series of conventional bonds. The shortest tenor was for the 3.4yrs APIA01A (issued in Jul2016), which will be mature on 30Jun2021 with a size of Rp0 billion, while the longest tenor was for the 8.5yrs APIA01C (issued in Jul2016) with a size of Rp900bn. According to the latest trading data in IDX, on average APIA bonds offer a risk premium of 146bps above government bond yields with the same tenors. For our coverage in the AAA rated bonds, we only have neutral as the highest recommendation for APIA bonds, since the bonds didn t give significant risk premium compared to the average AAA bonds in the market. The highest risk premium among APIA bonds was only at 169bps, which comes from 8.5yrs APIA01C on its last transaction on 28 Dec17, followed by 5.7yrs APIA01B at 167bps on its last transaction on 13 Oct17. Meanwhile, the 3.4yrs APIA01A only gave a low risk premium of 102bps on its last transaction on 23 Jan18. EXHIBIT 242. APIA'S OUTSTANDING BONDS Bond s ID Bonds name Par Value ( Rp bn) Coupon (%) Maturity Date Last trade Last price YTM (%) Risk premium over risk free (Bps) APIA01A Obligasi I Angkasa Pura II Tahun 2016 Seri A 1, Jun21 23Jan APIA01B Obligasi I Angkasa Pura II Tahun 2016 Seri B Jun23 13Oct APIA01C Obligasi I Angkasa Pura II Tahun 2016 Seri C Jun26 28Dec Average risk premium 146 Source: IDX, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 113 of 160

114 Credit Research Airport & Railways EXHIBIT 243. YIELD AND RISK PREMIUM APIA01C Bps Risk Premium (LHS) Yield (RHS) % Jul16 Aug16 Aug16 Sep16 Oct16 Dec16 Jan17 Jan17 Jan17 Jan17 Mar17 Mar17 Mar17 May17 Jul17 Aug17 Oct17 Oct17 Oct17 Dec17 Source: IDX, Mandiri Sekuritas estimate EXHIBIT 244. YIELD AND RISK PREMIUM APIA01B Bps Risk Premium (LHS) Yield (RHS) % Jul17 Aug17 Oct17 Oct17 Oct17 Source: IDX, Mandiri Sekuritas estimate EXHIBIT 245. YIELD AND RISK PREMIUM APIA01A Bps Risk Premium (LHS) Yield (RHS) % Jul16 Jul16 Jul16 Aug16 Aug16 Aug16 Aug16 Sep16 Sep16 Nov16 Mar17 Jul17 Aug17 Oct17 Oct17 Nov17 Nov17 Nov17 Nov17 Dec17 Source: IDX, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 114 of 160

115 Credit Research Airport & Railways APIAFinancial Projection Profit and loss YE Dec (Rp bn) F 2018F 2019F 2020F Revenues 4,154 4,861 5,644 6,646 8,267 9,373 10,667 12,160 Operating expenses (3,021) (3,610) (3,578) (4,546) (5,056) (5,684) (6,362) (7,131) Operating income 1,132 1,251 2,067 2, 3,211 3,689 4,306 5,030 Depreciation & amortization ,055 EBITDA 1,518 1,774 2,599 2,707 3,880 4,484 5,225 6,084 Interest exp. 0 (1) (1) (15) (516) (761) (946) (1,146) Other income(expense) Pretax profit 1,385 1,501 2,335 2,220 2,952 3,199 3,651 4,194 Taxes (539) (374) (648) (280) (732) (793) (905) (1,040) Net income 846 1,127 1,687 1,940 2,220 2,406 2,746 3,154 Balance sheet YE Dec (Rp bn) F 2018F 2019F 2020F Cash and equivalents 1,510 1,031 2,930 6, ,084 1,314 Trade receivables ,068 Other current assets ,065 1,207 Current assets 2,393 1,870 4,024 8,081 2,356 2,737 3,128 3,589 Investments in associate Fixed asset 10,345 13,578 15,776 19,288 27,200 32,406 37,488 42,934 Other assets Total assets 13,342 15,933 20,271 27,991 30,023 35,621 41,097 47,021 Accrued expenses 460 1,443 1,530 2, Trade Payables Unearned revenues Others ,113 Current liabilities 1,056 2,192 2,288 3,156 1,646 1,838 2,063 2,321 Loans 423 1,198 2,745 5,398 8,398 10,898 13,398 Bonds payable 1,993 2,000 2,000 2,000 2,000 Other liabilities Total liabilities 1,698 3,173 4,035 8,064 9,574 12,764 15,493 18,261 Total equity 11,644 12,759 16,236 19,927 20,449 22,857 25,604 28,760 Source: Company, Mandiri Sekuritas estimates Please see important disclosure at the back of this report Page 115 of 160

116 Credit Research Airport & Railways Cash flow YE Dec F 2018F 2019F 2020F EBIT 1,132 1,251 2,067 2, 3,211 3,689 4,306 5,030 Depreciation ,055 Working capital 587 1,179 (159) 840 (36) 31 (68) 27 Other operating items (505) (247) (399) (567) (972) (1,284) (1,546) (1,869) Operating cash flow 1,599 2,706 2,041 3,228 2,873 3,232 3,611 4,243 Capital expenditure (3,313) (3,597) (2,705) (4,492) (6,012) (6,013) (6,014) (6,516) Free cash flow (1,714) (891) (664) (1,264) (3,139) (2,781) (2,403) (2,273) Net increased (decreased) equity 1, ,083 2,131 Net borrowings ,557 3,000 3,000 2,500 2,500 Dividend (447) (361) (220) (337) Others (307) 12 (75) (42) Net cash flow (716) (479) 1,900 4,045 (134) Cash at beginning 2,226 1,510 1,031 2, ,084 Cash at end 1,510 1,031 2,930 6, ,084 1,314 YE Dec F 2018F 2019F 2020F Key ratios YE Dec F 2018F 2019F 2020F Profitability Operating margin (%) EBITDA margin (%) Net margin (%) ROAA(%) ROAE (%) Coverage Operating profit to interest (X) n.a 1,360 1, EBITDA interest coverage (X) n.a 1,928 1, Debt to EBITDA (X) Net deb to EBITDA (X) (1.0) (0.3) (0.7) (0.8) Debt service ratio (X) n.a 1,928 1, Liquidity Current ratio (X) Cash ratio (X) Days receivable Capitalization Debt to equity (X) Net debt to equity (X) (0.1) (0.0) (0.1) (0.1) Total liabilities to equity (X) Debt to assets (%) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 116 of 160

117 Credit Compendium Research Airport & Railways Transportation PT Kereta Api Indonesia (Persero) Bond Valuation Company rating Pefindo Shareholders idaaa/stable Government of the Republic of Indonesia Outstanding bonds Bond ID Size Rpbn Maturity Coupon % KAII01A 1,000 21Nov KAII01B 1,000 21Nov Trading summary Bond ID Last Trade Last Price Yield (%) KAII01A 16Jan KAII01B 23Jan Ali Hasanudin Ali.hasanudin@mandirisek.co.id Not yet offering attractive valuations. According to the latest trading data in IDX, KAII01A offered a risk premium of 106bps above government bond yields with the same tenors, while the KAII01B gave a risk premium of 157bps. We think both of these bonds are unattractive compared to the AAA rated bonds with a risk premium of 147bps. Key credit considerations: Strong position in the strategic land transportation sector. The Company has a long standing experience in the national railways sector since 1864 and still holds the monopoly power with 5,367km of active railways infrastructure in Java and Sumatera, even though the Government has opened the sector for private players in As a single player, the presence of KAI has become important in the national transportation sectors, considering the railways sector is the largest passenger carrier for domestic travelers. Thus, we believe KAI s position in the market will remain strong going forward. Strong support from the Government. KAI holds a critical role in the Government s strategic program to support the acceleration of an effective and efficient infrastructure to help strategic sectors of the economy through the developments of the 82km Jabodebek Light Rail Transit (LRT), 23.5km of Palembang LRT, and the Soekarno Hatta airport train. In relation to the government projects, KAI has received capital injection from the Government as much as Rp2tn in 2015 and Rp2tn in 2017 and will receive Rp3.6tn in In addition of the capital injection, KAI will also receive compensation from the Government totaling Rp19.2tn for 12 years since the operation of the Jabodebek LRT. Potential growth from massive project development. KAI is in the phase of developing several mega projects, of which the results are scheduled to start operations in periods, such as the SoekarnoHatta airport train, Palembang LRT, and Jabodebek LRT. The SoekarnoHatta airport train will have a capacity of around 7.8mn passengers per year, while the Palembang LRT is expected to carry 1.3mn passengers per year and the Jabodebek LRT around 40 60mn during their first phase of operation. Thus, we believe the Company s growth will remain strong going forward. Credit Outlook Stable We have a stable credit view on KAI, as the Company still holds the monopoly power in the national railways sector, strong support from the Government, and potential growth from its massive project developments. Key risk: Aggressive funding. In line with business expansion and project developments to support the Company s growth, the Company requires significant amounts of external funding to finance its Capex that will bring the Company s total debt to grow significantly. FINANCIAL SUMMARY YE Dec (Rp bn) F 2018F EBITDA 2,223 3,141 2,664 3,643 4,343 Total debt 7,495 9,133 10,680 13,352 13,460 EBITDA to interest (x) Current ratio (x) DER (x) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 117 of 160

118 Credit Research Airport & Railways EXHIBIT 246. GROWING PASSENGER CARRIED in million pax 400 CAGR 12.9% % yoy EXHIBIT 247. HIGHER PASSENGER YIELD DUE TO INCREASING TREND IN THE EXECUTIVE CLASS Passenger yield (Rp/km) H16 1H17 Source: Company M16 6M17 Source: Company, Mandiri Sekuritas calculation EXHIBIT 248. REVENUE TREND Rp bn 18,000 16,000 13,939 14, %yoy CAGR:18.9% 14,000 12,958 12,000 10,478 10,750 10,000 8,601 8,000 6,094 6,966 6,000 4,000 2, M16 9M17 Source: Company EXHIBIT 249. IMPROVING OPERATING MARGIN % Gross margin Operating margin EBITDA margin M17 Source: Company EXHIBIT 250. STRONG EBITDA INTEREST COVERAGE EXHIBIT 251. LEVERAGE TREND, DER MAINTAINED STRONG BELOW THE MAXIMUM COVENANT OF 5X Rp bn 3,500 3,000 2,500 2,000 1,500 1, EBITDA EBITDA to interest ,141 2,664 2,968 2,223 1, M17 X Rp bn 12,000 10,000 8,000 6,000 4,000 2,000 Total Debt DER ,680 10,584 9, , , , Sept17 X Source: Company Source: Company Please see important disclosure at the back of this report Page 118 of 160

119 Credit Research Airport & Railways Company Profile PT Kereta Api Indonesia (Persero) or KAI, is a StateOwned Enterprise which provides, organizes, and manages railway transport service in Indonesia. The Company s operational area is still on Java and Sumatera. The length of active railway used in Java is 4,050km or 75% of total active railways in Indonesia, while in Sumatera 1,317km (25%). Going forward, in line with the government program in accelerating infrastructure development, KAI plans to expand its operation not only in Java but also on Indonesia s other islands. Currently KAI is in the process of developing TransSulawesi to reach the market in Indonesia s middle part. As of Sept17, the Debt to Equity Ratio (DER) was at 1.0x, far below the bond s covenant maximum level of 5x. At this level, the Company still has ample room for additional debt of about Rp41tn to support the expansion. Meanwhile, in line with the Company s projects and expansions, we expect its EBITDA to grow by around 26% in the next five years and the EBITDA to interest to be maintained around 35x above the bond s covenant minimum level of 1x. KAI Bonds: not yet offering attractive valuations As of Jan2018 there are two series of KAI bonds that are outstanding in the secondary market totaling Rp2,000bn: the 4.85yrs KAII01A and 6.8yrs KAII01B, each with a size of Rp1,000bn. Both of the bonds were recently issued in Nov17. According to the latest trading data in IDX, KAII01A offered a risk premium of 106bps above government bond yields with the same tenors, while the KAII01B gave a risk premium of 157bps. We think both of these bonds are unattractive compared to the AAA rated bonds with a risk premium of 147bps. EXHIBIT 252. KAI'S OUTSTANDING BONDS Bond s ID Bonds name Par Value (Rp bn) Coupon (%) Maturity Date Last trade Last price YTM (%) Risk premium over risk free (Bps) KAII01A Obligasi I Kereta Api Indonesia Tahun 2017 Seri A 1, Nov22 16Jan KAII01B Obligasi I Kereta Api Indonesia Tahun 2017 Seri B 1, Nov24 23Jan Average risk premium 131 Source: IDX, Mandiri Sekuritas estimate EXHIBIT 253. YIELD AND RISK PREMIUM KAII01A Bps Risk premium (LHS) Yield (RHS) % Nov17 Dec17 Dec17 Jan18 Jan18 Jan18 Source: IDX, Mandiri Sekuritas estimate EXHIBIT 254. YIELD AND RISK PREMIUM KAII01B Bps Risk premium (LHS) Yield (RHS) % Nov17 Nov17 Nov17 Dec17 Dec17 Dec17 Dec17 Jan18 Jan18 Jan18 Jan18 Source: IDX, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 119 of 160

120 Credit Research Airport & Railways KAIFinancial Projection Profit and loss YE Dec (Rp bn) F 2018F 2019F 2020F 2021F Revenue 8,601 10,478 13,939 14,463 16,896 19,251 24,719 28,518 32,453 Cost of revenue (5,921) (7,505) (10,024) (10,617) (11,580) (13,103) (16,777) (19,215) (21,731) Gross Profit 2,680 2,974 3,915 3,847 5,316 6,148 7,943 9,303 10,722 G & A Expenses (1,620) (1,488) (1,425) (1,944) (2,485) (2,831) (3,635) (4,194) (4,772) Operating income 1,060 1,486 2,491 1,903 2,832 3,317 4,308 5,109 5,950 Other income (expenses) Depreciation ,005 1,863 2, 2,352 EBITDA 1,392 2,223 3,141 2,664 3,643 4,343 6,191 7,230 8,322 Net interest expenses (271) (591) (657) (575) (754) (855) (1,750) (2,929) (3,176) Pretax profit 789 1,135 1,917 1,352 2,098 2,483 2,578 2,201 2,794 Tax (229) (274) (520) (334) (532) (629) (653) (558) (708) Noncontrolling interest (0) (9) (9) (14) (15) Net income to parent entity ,398 1,029 1,568 1,845 1,915 1,629 2,072 Balance sheet YE Dec (Rp bn) F 2018F 2019F 2020F 2021F Cash 1,837 1,886 2,030 1,996 6,957 7,632 1,536 2,817 3,215 Restricted fund 10 2,082 2,225 Account receivables ,280 1,214 1,774 1,754 2,271 Inventories ,144 1,036 1,429 Accrued income Others ,107 1,250 Current Assets 4,138 3,787 6,204 6,449 9,960 10,732 5,886 7,248 8,774 Fixed assets 10,312 12,154 14,742 16,184 19,295 22,312 33,909 39,407 45,090 Infrastructure operating rights ,578 1,642 3,995 24,743 24,192 23,640 Others ,019 1,048 1,080 1,115 1,153 Total Assets 15,259 17,313 22,393 25,133 31,916 38,087 65,618 71,961 78,658 Trade payable 1, ,430 1,344 1,793 Accrued expenses Other current liabilities 892 1,065 1,230 1,169 1,271 1,455 1,706 1,892 2,187 ST loans 1,641 2,864 2,748 2,487 3,352 3,460 4,856 4,946 6,205 Current portion of: Ltloans Bonds payable 1,000 Current Liabilities 4,259 5,372 5,648 5,658 6,791 7,225 9,427 9,697 12,781 Ltloans 4,233 4,147 5,583 7,292 7, 7, 30, 34, 36, Bonds payable 2,000 2,000 2,000 2,000 1,000 Other liabilities 645 2,137 2,075 2,470 2,996 3,416 3,982 4,580 5,249 Total Liabilities 9,137 11,656 13,306 15,420 18,888 19,741 45,509 50,376 55,129 Total Equity 6,122 5,657 9,087 9,713 13,029 18,346 20,109 21,585 23,528 Please see important disclosure at the back of this report Page 120 of 160

121 Credit Research Airport & Railways Cash flow YE Dec F 2018F 2019F 2020F 2021F Net income ,398 1,029 1,568 1,845 1,915 1,629 2,072 Depr & Amort ,005 1,863 2, 2,352 WC 334 (715) (216) (4) (477) 138 (557) (29) (447) Other operating items (46) 1, Operating Cash Flow 1,180 2,223 1,865 2,175 2,306 3,498 3,900 4,425 4,790 Capex (5,193) (2,874) (3,270) (4,184) (3,966) (6,375) (34,208) (7,047) (7,484) Other investing cash flow (2,121) 830 2,203 (29) (32) (35) (39) Cash Flow from Investing (5,052) (2,466) (5,390) (3,354) (1,763) (6,404) (34,240) (7,082) (7,522) Loans 4,374 1,622 1,638 1, ,396 4,091 3,259 Bonds 2,000 Equity funds raised ,174 2,000 3,600 Others (0) (1,186) 96 (279) (161) Dividend (68) (140) (237) (237) (90) (137) (161) (168) (142) Noncontrolling interest 60 (5) (2) 114 (1) Cash Flow from Financing 4, ,670 1,145 4,419 3,580 24,244 3,937 3,131 Net change in cash (34) 4, (6,096) 1, Cash at beginning 1,096 1,837 1,886 2,030 1,996 6,957 7,632 1,536 2,817 Cash at End 1,837 1,886 2,030 1,996 6,957 7,632 1,536 2,817 3,215 Key ratios YE Dec F 2018F 2019F 2020F 2021F Profitability Gross margin (%) Operating margin (%) EBITDA margin (%) Net margin (%) ROAA(%) ROAE (%) Coverage EBITDA to interest (X) Debt to EBITDA (X) Net debt to EBITDA (X) Liquidity Current ratio Quick ratio Cash ratio Leverage Debt to equity (X) Net debt to equity (X) Total liabilities to equity (X) Total liabilities to total asset (%) Equity to total asset (%) Source: Company, Mandiri Sekuritas estimate Please see important disclosure at the back of this report Page 121 of 160

122 Multi Finance Sector January 2018 Credit research Multi Finance Industry Update February 2018 Mandiri Sekuritas Analyst Ali Hasanudin SECTOR: Multi Finance 2018 Outlook: Database utilization The automotive industry was still flat and recorded 1mn units (+1.7% yoy) of 4W sales and 5.9mn (0.8% yoy) of 2W sales in Amid this condition, the big players in the market has begun to utilize their customer database as a source to expanding their growth by offering used vehicle financing and multipurpose financing (MPF) rather than focusing on new vehicles. As the MPF and used vehicle segments have higher lending rate and the penetration uses direct line of distribution (nondealer business), which has lower cost, we expect the companies will have better NIM and CIR profile. However, the provision of bad debt will tend to increase, as the used vehicle and MPF segments are more risky in our view. Automotive sales still flat. The 4W sales still stood around 1 million units in 2017, while LCGC sales has begun to slow down by recording just 234,554 units (0.3% yoy). In the 2W market, domestic sales were also flat and only recorded 5.9mn units (0.8% yoy). Shifting to used vehicle and MPF financing. Along with the stagnancy in the automotive market, top players in the market has begun to utilize their customer database (though some companies have already started a few years ago) as a source to expand their growth by offering multipurpose financing and used vehicle financing rather than focusing on new vehicle financing. The contribution of MPF has increased significantly from 3% in 2015 to 13% of total new financing in 9M17 for finance companies under our coverage. With this market expansion, we expect the 6% growth of newfinancing in 2018 will be achievable for finance companies under our coverage. NIM and CIR expected to improve. The expansion to used vehicle and MPF financing that is conducted by utilizing the existing customer database is expected to improve companies' CIR, as there will be no additional cost for business acquisition (Dealer incentives, etc.) like in the new vehicle financing. On another front, used vehicle and MPF segments have higher lending rate than the new vehicle segment, thus we expect better NIM profile for the companies. However, we still view the used vehicle and MPF segments as more risky than the new vehicle segment, thus we expect the provision for bad debt will still be high. Multi finance bond issuances will still be flushing the market to support the new financing. In 2017, as we expected, the multi finance bond issuances were still flushing the market at Rp24.6tn (3.5% yoy). For the 2018, there is Rp21.7tn of multifinance bonds that will mature with the remaining shelf registered bonds to be issued of around Rp29tn. Therefore, the multi finance bond issuances will still be flushing the corporate bond market in The risk: Tighter competition due to flat growth in the automotive market and also companies expansion to the MPF segment will still put pressure on asset quality. Please see important disclosure at the back of this report Page 122 of 160