Premier Insight. Equity Indonesia Research Daily. Economic Update. An upturn in intersection. 17 April JCI Index

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1 Premier Insight 17 April 2018 Equity Indonesia Research Daily Net buy (sell) in Rp bn JCI Index 6,400 6,350 6,300 6,250 6,200 6,150 6,100 6,050 6, JCI Index 15-Mar 16-Mar 19-Mar 20-Mar 21-Mar 22-Mar 23-Mar 26-Mar 27-Mar 28-Mar 29-Mar 2-Apr 3-Apr 4-Apr 5-Apr 6-Apr 9-Apr 10-Apr 11-Apr 12-Apr 13-Apr Foreign net buy (sell) 11-Jan 10-Jan -12% -14% -16% Key Indexes 16-Apr 12,000 10,000 8,000 6,000 4,000 2,000-2% 0% -2% -4% -6% -8% -10% Index Closing 1 day 1 year YTD JCI 6, % 12.7% -1.1% LQ45 1, % 12.0% -4.8% DJI 24, % 19.1% -0.6% SET 1, % 11.2% 0.8% HSI 30, % 25.0% 1.3% NKY 21, % 19.0% -3.9% FTSE 7, % -1.8% -6.4% FSSTI 3, % 11.4% 2.8% EIDO % 5.9% -3.3% Commodity price Commodities Last price Ret 1 day Ret 1 year (in USD) Oil/barrel (WTI) % 24.5% CPO/tonne % -7.2% Soy/bushel % 8.6% Rubber/kg % -35.6% Nickel/tonne 14, % 47.6% Tins/tonne 21, % 7.6% Copper/tonne 6, % 21.5% Gold/try.oz (Spot) 1, % 4.8% Coal/tonne % 10.5% Corn/bushel % 2.0% Wheat/bushel (USd) % 10.2% Source : Bloomberg % net buy/market turnover Rp bn Economic Update An upturn in intersection Mar18 s and 1Q18 s trades were positive with US$1.1bn and US$0.28bn surplus;..and oil and gas trade deficit worsened in both nominal & real terms. Trade improvement came as mining and manufacturing exports rose...and import growth shrank to 20.2% yoy. Positive trade. The latest trade update would be a positive takeout for Indonesian market on account of: (1) Trade surplus of US$1.1bn, which was registered in Mar18 as import grew by a modest 2% mom (9.1% yoy) and was offset by rising exports notably in non-oil and gas commodities of 12.1% mom (8.2% yoy), and (2) A reversal of trade outlook for the 1Q, where trade balance for the whole quarter looked at US$0.28bn surplus after it had earlier been expected to record a deficit (Jan-Feb18 s deficit was US$0.87bn) and affect the current account negatively in the 1Q. BI had been one-step quicker, projecting trade balance to be positive for the 1Q and current account deficit to float at c. 2% of GDP by year end. Worsening oil and gas trade. Despite the positive sentiment that should derive from the overall trade condition, oil and gas trade deficit deteriorated with price increase phenomenon throughout the quarter. Value wise, oil and gas trade balance declined by a scanty 4.1% yoy. Yet in real terms, there appeared to be 30.2% reduction in volume which came as oil and gas terms of trade weakened by 6.2% (To note, 1Q18 s ICP rose by 23.5% yoy.). With increasing tension behind oil price development, we remain vigilant on the trend in oil and gas trade. Rising exports. What helped the improvement was rising exports values (10.5% mom), strongly driven by non-oil and gas commodities, notably those of mining products (1Q18: 41.6% yoy) and manufacturing (4.8% yoy). Among largest contributors in the non-oil and gas exports quarterly wise; mineral fuel, animal and vegetable oil/ fats, and ores, slags, ashes made at least 31.7% contribution supporting increase in exports at a time where 1Q18 s price of non-oil and gas goods declined by an average 1.8% yoy. We believe better global economy in the 1Q was a backdrop of this enhancement, as was evident in performing export growth to China (35.1% yoy), Japan (21.1% yoy), and Thailand (15.4% yoy)...and slower import growth. We also look at diminishing import growth in Mar18, which reversed the trade deficit trend, as supporting factor behind the better trade. The first two months in 2018 saw some 26.5% yoy import growth, in contrast with 1Q18 s 20.2% yoy and even more apparent for non-oil and gas goods whose 1Q18 s import growth was a mere 24% yoy (vs 31.4% yoy for Jan- Feb18) suggesting an either intended or natural slowdown post growth peak. Given the figures, the quarter s import trend does not necessarily warrant a negative outlook, as we have continuously believed (read: Transient heat of the moment), considering the contents of which were mostly raw materials (74.7%) and capital goods (16.3%), which should support domestic production eventually.

2 News & Analysis Corporates APLN: Agung Podomoro Land (APLN IJ; Rp224; Unde Review) booked Rp600bn marketing sales (+100% yoy) which came from the residential and apartment sales. This year, APLN set Rp4.9tn marketing sales (+25% yoy) without the bulk sales and Rp7tn revenue (relatively same with FY17 target) with Rp1.7tn recurring income contribution. The company relies on the sales of Podomoro City Deli superblock in Medan, Orchard View apartment in Batam, and Taruna City project in Karawang. Meanwhile, APLN elaborated that the majority of customers are still waiting for the certainty of the delayed Jakarta reclamation project continuation and several of customers had chosen to exchange it with other APLN project with Grand Madison project at Tanjung Duren being the most preferred one. (Kontan). DILD: Intiland Development (DILD IJ; Rp322; Not Rated) recorded 1Q18 marketing sales of Rp966bn (+309% yoy) which achieve 29.3% of FY18 marketing sales target of Rp3.3tn. The biggest marketing sales contributor came from Fifty Seven Promenade condominium sales that reached Rp753bn or 78% of 1Q18 marketing sales. This condominium consists of two towers, the 24-storey City57 and 49-storey Sky57 with the total capacity of 498 units built on 1.3ha land which are priced Rp50mn per m2 (+10.5% since launching). IPark Avenue apartment sales contributed 10% of 1Q18 marketing sales at Rp98bn (+44% yoy) from its mixed used and high rise formats. Industrial segment gave 5% marketing sales contribution of Rp45bn (-10% yoy) from the sales of Ngoro Industrial Park, Mojokerto. Geographically, Jakarta and Surabaya area made up 87% and 13% of 1Q18 marketing sales, consecutively. (Kontan). HERO: Hero Supermarket (HERO IJ; Rp935; Not Rated) Will expand their IKEA business model. During 2017, HERO nonfood segments grow 10% yoy torp2.1tn driven by IKEA and Guardian despite negative growth by 7% yoy in food segment to Rp10.8tn, due to lower performance in Supermarket and Hypermarket. HERO will reorganized food business, by making an efficiency, beef up their digital business, and store revamp. (Kontan). INCO: Vale Indonesia (INCO IJ; Rp3,250; Buy) recorded 1Q18 nickel matte production of 17,141 tons, down 11% qoq but decreased slightly by 0.5% yoy in 1Q18. INCO s CEO Nico Kanter stated that lower qoq production in 1Q18 was caused by planned maintenance activities. However, it is aligned with 1Q17 when INCO had similar maintenance activities. Thus, the company is optimistic to reach its production target for this year. (Company). Comment: Nickel price reached above US$14,000 per ton with YTD18 average of US$13,360 per ton, above our forecast of US$13,000 for FY18F. We reiterate our Buy recommendation for INCO. LPKR: Lippo Karawaci (LPKR IJ; Rp480; Under Review) booked earnings of Rp614 (-30% yoy) in FY17, way below consensus, cumulating only 60% of consensus estimate. There were margin compression all across the board with gross, operating, and net margin stands at 42.7%, 14.4%, and 5.6% (FY16: 45.1%, 17.8%, and 8.0%). LPKR booked other expense of Rp127bn in FY17 after booked other income of Rp63bn in FY16. In quarterly basis, earnings stands at Rp71bn (- 66% yoy, 27% qoq) in 4Q17, cumulating 11.6% of FY17 earnings. (Rp bn) FY17 FY16 YoY 4Q17 3Q17 QoQ % to Cons Revenue 11, , % 3, , % 95% Gross profit 4, , % 1, , % 82% Operating profit 1, , % % 88% Net income % % 60% Margins Gross margin 42.7% 45.1% 45.5% 40.6% Operating margin 14.4% 17.8% 9.7% 18.8% Net margin 5.6% 8.0% 1.9% 2.2% 2

3 KIJA: Kawasan Industri Jababeka s (KIJA IJ; Rp264; Not Rated) performance in FY18 is potentially weaken as PT PLN has done a reserve shutdown of one of the gas and steam power plant (PLTGU) owned by KIJA s subsidiaries, PT Bekasi Power. The orginal contract for the purchase of power supply of this plant was for According the management, Bekasi Power only booked Rp31bn after the shutdown, down by 60-70% compare to the normal condition. However, the management claimed that PLN will give compensation with take or pay basis with the calculation on investment cost, operational cost and maintenance. (Kontan). UNTR: United Tractors (UNTR IJ; Rp34,950; Buy) reported Mar 18 operational performance as follow: Heavy equipment sales reached 415 units, up 18% mom and 33% yoy in Mar 18, allowing 3M18 sales to reach 1,171 units, up 38% yoy and formed 29% (above) of our estimate of 4,000 units for FY18F. Demand from the mining sector formed 60% of UNTR s machinery sales in 3M18. PAMA recorded OB removal of 72.8mn bcm (+7.5% mom, +21% yoy) in Mar 18, bringing 3M18 OB removal volumes to 207mn bcm (+22% yoy). Coal mining reached 9.3mn tons (+8.1% mom, +4.5% yoy) in Meb 18, bringing 3M18 coal mining to 26.5mn tons (+5.6% yoy). PAMA s performance came in slightly below our estimate with OB removal and coal mining in 3M18 formed 23% and 22% of our estimates for FY18F. These were likely caused by heavy rainfall in the period. Coal mining division posted coal sales volumes of 2.59mn tons, increased 36.5% yoy in 3M18. (Company). Comment: We maintain our positive outlook for UNTR due to strong machinery sales. We reiterate our Buy rating with TP of Rp40,000. Markets & Sector Automotive sector: Mitsubishi Indonesia is set to deliver their first Xpander export end of this month. Company gives no details on the export target although revealing that Cikarang factory production capacity can reach 10,000 where 25% of it will be for export. The target market that they aim is Thailand, Vietnam, and The Philippines. On the other hand, in 3M18, Toyota Astra Motor recorded 57% growth yoy in SUV segment to 17K unit where their All New Rush contribute 70% of the total SUV sales, increase 104% yoy to 12K unit from previously 5.8K unit. (Kontan, Bisnis Indonesia). Infrastructure sector: According Minister of Transportation, Patimban Seaport development could start on May Currently the project is in the tender process, which is expected to be completed within 1-2 weeks. There are two foreign company who enters the tender process, while three local SOE contractors such as Wijaya Karya (WIKA IJ; Rp1,695; Buy), PT Pembangunan Perumahan (PTPP IJ; Rp2,790; Buy), Adhi Karya (ADHI IJ; Rp2,080; Buy). The winner of the tender would have a joint operation with Japan to develop Patimban seaport. Plantation sector: Indonesia s Central Statistic Agency (BPS) reported Indonesia paml oil export in terms of value decreased 23% yoy to US$5.17bn in 1Q18. Head of BPS Suhariyanto stated that this is mainly caused by higher India s import duty for palm oil products. (Kontan). Comment: We maintain our view that impact of India s import duty to the country s palm oil import volumes will be temporary. We note that palm oil price is the major factor that caused Indonesia palm oil export value to decreased in 1Q18 as palm oil price average decreased 22% yoy to MYR2,467 in 1Q18. Increasing oil price will be positive for CPO price, thus, we maintain our positive view on the sector and reiterate our Buy rating for Astra Agro Lestari (AALI IJ; Rp13,800; Buy) and London Sumatra (LSIP IJ; Rp1,355; Buy). 3

4 Economics External debt: Indonesia s external debt was US$356.2bn by Feb18 which comprised 51% government and central bank debt and 49% private debt. Total debt grew by 9.5% yoy and slower than last month s 10.4%. Government and central bank debt grew by 11.9% yoy whereas private 7%, each was slower than the month before (13.7% and 7.2% yoy). By sector, private sector debt in financial sector was 5.1% and slower than a month before (6.7%), which was believed to drag private debt growth in general. (Bank Indonesia). 4

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