Astra International (ASII IJ; Buy) On the right track

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1 Premier Insight 2 November 2017 Equity Indonesia Research Daily JCI Index 6,050 6,000 5,950 5,900 5,850 5,800 Net buy (sell) in Rp bn 1,500 1, (500) (1,000) (1,500) JCI Index 4-Oct 5-Oct 6-Oct 9-Oct 10-Oct 11-Oct 12-Oct 13-Oct 16-Oct 17-Oct 18-Oct 19-Oct 20-Oct 23-Oct 24-Oct 25-Oct 26-Oct 27-Oct 30-Oct 31-Oct 1-Nov Foreign net buy (sell) Key Indexes 18-Oct 19-Oct 20-Oct 23-Oct 24-Oct 25-Oct 26-Oct 27-Oct 30-Oct 31-Oct 1-Nov 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000-20% 15% 10% 5% 0% -5% -10% -15% -20% Index Closing 1 day 1 year YTD JCI 6, % 11.7% 14.0% LQ45 1, % 8.2% 13.1% DJI 23, % 30.5% 18.6% SET 1, % 14.4% 11.1% HSI 28, % 25.4% 30.0% NKY 22, % 30.8% 17.3% FTSE 7, % 9.4% 4.8% FSSTI 3, % 20.2% 17.7% EIDO % 3.8% 11.2% Commodity price Commodities Last price Ret 1 day Ret 1 year (in USD) Oil/barrel (WTI) % 16.3% CPO/tonne % 3.8% Soy/bushel % -2.1% Rubber/kg % -13.0% Nickel/tonne 12, % 23.1% Tins/tonne 19, % -7.0% Copper/tonne 6, % 40.6% Gold/try.oz (Spot) 1, % -1.7% Coal/tonne % -12.9% Corn/bushel % -4.0% Wheat/bushel (usd) % 0.2% Source : Bloomberg % net buy/market turnover Rp bn Astra International (ASII IJ; Buy) On the right track Good recovery from 4W and 2W distribution Sound contribution from financial service One-off loss from infrastructure Maintain Buy, as result was inline Result was inline. Astra booked net profit of Rp14.2tn (+25.8% yoy) and grew +13.8% qoq, pushed by sound recovery from all division except infrastructure due to loss from newly acquire Cipali-Palimanan toll road and disposal loss from PAM Lyonnaise. Key contribution 4W and 2W grew +10.4% qoq and 46.3% qoq in 3Q17 driven by growth in overall industry plus some market share gains in 2W. The healthy growth in auto division also filtered to financial service with additional recovery from Bank Permata. The commodity related division of coal and CPO mostly gained from a combination of higher ASP and volume recovery. Auto division healthy recovery. 4W sales volume of Astra grew 5% yoy to 444k units, resulting a market share improvement by 1ppt to 55%. Astra gained market share from its successful launching of 7-seater LCGC. Despite a challenging 2W market, Astra s sales volume grew 2% yoy to 3.2mn units, increasing market share by 2ppt to 75%. We do not expect further increase in market share within a saturated 2W industry. The auto parts, Astra Otoparts (AUTO IJ, Rp2,340, Hold) re-gained momentum growth of 13.2% yoy mainly supported by income recovery from affiliates and subsidiaries. It is clear that AUTO s earnings will depend on 4W and 2W manufacturing rather than replacement market. We expect that Astra will be able to maintain growth momentum in the auto division. Healthy growth from financial service division. The recovery in sales volume in 4W, 2W and heavy equipment was beneficial to the financing arm. Net income of Federal International Finance, 2W financing, grew 14% yoy to Rp1.5tn, while Astra Sedaya s net income grew 9% yoy to Rp711bn. Additionally, heavy equipment financing, Surya Artha Nusantara, was still hurt by loan loss provisions (net income down 40% yoy). Toyota Astra Financial Service net income also dropped 33% yoy from higher loan provisions. Bank Permata is slowly recovering as net income was nearly flat qoq, but booked net income of Rp708bn in 9M17. We expect a healthier balance sheet for the financing division in FY18 as loan provision is expected to decline. Maintain Buy. We maintain our Buy call on Astra, as we remain positive that the company is on the rights track of recovery. We expect further earnings recovery in auto parts, Bank Permata and financing company. Meanwhile, the auto division should sustain its recovery and commodity related growth is expected to decelerate. Year To 31 Dec 2015A 2016A 2017F 2018F 2019F Revenue (RpBn) 184, , , , ,012 EBITDA (RpBn) 22,579 21,036 25,422 28,085 31,615 EBITDA Growth (%) (7.1) (6.8) Net Profit (RpBn) 14,464 15,156 20,159 23,037 26,435 EPS (Rp) EPS Growth (%) (24.6) Net Gearing (%) PER (x) PBV (x) Dividend Yield (%) EV/EBITDA (x) Source: ASII, IndoPremier Share Price Closing as of : 1-November-2017

2 Economic Update Year s second trough Lowest monthly inflation of 0.01% (3.6% yoy) since 2013 in Oct17 Core inflation picking up to 3.07% yoy on processed food and clothing 2H inflation bottomed in Oct17, to rise in the remaining DRRR to be maintained in upcoming meeting Low inflation. Monthly inflation in Oct17 was low, at 0.01% mom (3.58% yoy) and lower than expectation but remains generally positive. Core inflation picked up again to record 3.07% yoy after bottoming out in Aug17 as prices saw decline in all but categories such as processed food, clothing, and education and recreation which should all belong under the basket of core consumption. Inflation in calendar year has now reached 2.6% and in line with target inflation by the central bank (4%±1%) and our expectation at 3.8% by year end. Rising core inflation. We believe the increasing core inflation (+3.07% yoy) should bring positive signal of the economy as this component had continuously been on its lows within the past months and became the source of concern for many. The higher core inflation (vs Sep17) was due to prices of processed food & tobacco (+4.3% yoy), clothing (+3.2% yoy), and education & recreation (+3.2% yoy). Worth looking were the inflation in non-alcoholic beverages and alcoholic drinks & cigarettes (+0.83% and 0.55% yoy, respectively), male apparel (+0.33% mom) which belongs to the clothing section as our tracing down of this subsection exhibited a continuous increase almost throughout the 2H, whereas the rising inflation in education was partly representative of the college fees payment in Aug-Oct17. While these shifts could be coincidental, we remain watchful of the pattern going forward as this might explain an ongoing trend in consumption. Fig. 1: Oct17 s inflation by group of goods and services Oct17 inflation (%, mom) Oct17 inflation (%, yoy) Contribution to Oct17 inflation (%) Headline Food Processed food Housing and utilities Clothing Health Education and sports Transportation, communication, financial services Source: Statistics Indonesia, Indo Premier Inflation to rise. Oct17 s inflation would be the bottom of inflation in the 2H as we believe it should rise again in November and December, partly on cyclical pattern of Christmas and end-of-year holiday and partly on other factors. Spending wise, this month would be the start (if not earlier) of when people start their shopping for food, food materials, apparels, and recreation, which would be interconnected to the currently appreciating USD against IDR (now trading at ~Rp13,600): as imports of consumption good/ service increase, the IDR would further be depreciated (our high ban of expectation at ~Rp13,800), which should expose consumers for higher prices in the coming months. Note that this should happen amid higher dependence on imported consumption goods (2017: 11% of non-oil and gas imports; 2013:8%). 7DRRR to be maintained. Given circumstances, Bank Indonesia should like to have the 7DRRR stayed on the 4.25% course in next Nov 16 th meeting. Notwithstanding that inflation was low; Oct17 alone had seen net outflow in bond market of Rp18.9tn (14% of total recorded net inflow), IDR relative depreciation of ~2% since Aug17, in addition to expected upcoming increase of the Federal Funds Rate in Dec17, normalisation of the Federal Reserve s balance sheet, and European Central Bank s October meeting result to halve the amount of QE starting next year. We continue to believe the 4.25% will be the conclusion rate this year with seemingly pressure for the 7DRRR s upward trajectory early next year. 2

3 News & Analysis Corporates ADHI: Transportation ministry expects financial closing on syndicative bank loan on 9 th Nov 2017 to fund Light Rail Transit (LRT) Jabodetabek. The banks are Bank Mandiri (BMRI IJ; Rp7,100; Buy), Bank Rakyat Indonesia (BBRI IJ; Rp15,700; Hold), Bank Central Asia (BBCA IJ; Rp21,325; Hold), Bank CIMB Niaga (BNGA IJ; Rp 1,280; Not Rated), and Sarana Multi Infrastruktur (SMI). Adhi Karya (ADHI IJ; Rp2,200; Buy) expects all loan and payment of bailout funds to be completed in December (Bisnis Indonesia). Comment: This is positive for ADHI if it managed to obtain its first LRT payment from KAI. Maintain BUY at TP of Rp2,700. CTRA: Ciputra Development (CTRA IJ; Rp1,215; Buy) booked earnings of Rp566bn (+18% yoy) with net margin improved to 13% in 9M17 from 10.8% in 9M16 helped by lower non-operational expense (-21% yoy) from interest expense that decreased 5% yoy. 9M17 revenue was at Rp4.3tn (-2% yoy) while operating profit dropped 10% yoy, causing depressed operating margin of 22.2% from 24.4% in 9M16. (Company). Comment: The weak 9M17 earnings was in-line with ours and consensus expectations. We expect CTRA s revenue and earnings to jump 23/31% in 2018F due to massive unit handover from pre-sales The ratification of spatial LTV may also benefit the company given its diversified portfolio across Indonesia. CTRA is trading at 67% discount to our estimated RNAV, maintain Buy at TP of Rp1,370/share. EXCL: XL Axiata (EXCL IJ; Rp3,500; Buy) released its 9M17 financial result, which was better than our expectation but inline with consensus. The result was ahead of our numbers due to lower-than-expected depreciation. In the operating level,our numbers were inline. The highlights are as follows: Total revenue grew +5.1% yoy in 9M17 and +5.3% qoq in 3Q17. Data revenue already represents 71% of total revenue, higher than its peers of around 51%. Total subscriber was 52.5mn as of Sep17 with net add of 2.0mn in 3Q17. ARPU was Rp34k in 9M17, flat compared to 1H17 but lower vs Rp36k in 9M16. EBITDA was nearly flat yoy in 9M17, but indicate improvement of +10.0% qoq in 3Q17. XL was able to maintain stable cost with growing revenues. Depreciation expenses declined -12% yoy due to lower depreciation expenses plus accelerated depreciation charges in 9M16. As a result operating profit surged +95.6% yoy and +48.9% qoq in 3Q17. As a result net income grew +49.1% yoy in 9M17 and declined -1.7% qoq in 3Q17. QoQ numbers of XL remained encouraging, reflecting strong momentum growth from data. Therefore, we maintain our Buy call on the counter. 9M17 9M16 % 2Q17 2Q17 % FY17F % Turnover 16,903 16, ,970 5, , EBITDA 6,202 6, ,280 2, , Operating Profit 1, Net Int. & Invest. Inc. -1,009-1, , Forex gain (losses) nm Except. & Others nm Group Pretax Taxation na Minorities 0 0 nm Net Profit EBITDA Margin 36.7% 38.8% 38.2% 36.6% 36.2% Source: Company SSIA: We maintain our buy call on Surya Semesta internusa (SSIA IJ; Rp575; Buy) with downgrade earnings by 3%/36% and unchanged TP Rp825 as we rolled over our based RNAV valuation to

4 SSIA posted earnings of Rp1.23tn in 9M17 (vs. 9M16: Rp118bn), forming 97%/135% of our and consensus forecast, solely due to capital gain from Cipali divestment of Rp1.3tn. Bottom line was negative Rp5bn due to increase from interest expense of Rp38bn in 3Q (+50% yoy), However, as SSIA will pay its matured bond of Rp550 in November 2017, we expect SSIA s interest expense to decrease by 34%, resulting in positive earnings in 4Q17. Subang project would boost SSIA s NAV by 21% as Patimban seaport development become more certain. Government has allocated Rp500bn to complete the land acquisition of 576ha by January While, Japanese International Cooperation Agency (JICA) has committed to complete Patimban seaport phase I development by March 2019 with total investment of Rp13tn. (Company). Markets & Sector Toll road sector: The Government will evaluate the toll road tariff for 18 sections of which 11 toll roads are owned by Jasa Marga (JSMR IJ; Rp6,425; Buy). The toll road tariff increase is formulated based on cumulative two-years regional inflation. Due to low inflation in the past two years, toll road tariff increase is expected to be about 6-7%. This might create some complexity to round up to the nearest Rp500. The new toll road tariff is expected to be implemented in Nov-Dec17. (Bisnis Indonesia). Economics Ease of Doing Business: Indonesia jumped to 72 nd in terms of 2018 Ease of Doing Business ranking, from 91 st previously, out of 190 countries assessed. Along with Indonesia, top performers in the region also include Thailand (26 th from 46 th ), Brunei Darussalam (56 th from 72 nd ), and Vietnam (68 th from 82 nd ). (Jakarta Globe and World Bank). 4

5 Head Office PT INDO PREMIER SEKURITAS Wisma GKBI 7/F Suite 718 Jl. Jend. Sudirman No.28 Jakarta Indonesia p f INVESTMENT RATINGS BUY : Expected total return of 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% or worse within a 12-month period ANALYSTS CERTIFICATION. The views expressed in this research report accurately reflect the analyst;s personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. DISCLAIMERS This reserch is based on information obtained from sources believed to be reliable, but we do not make any representation or warraty nor accept any responsibility or liability as to its accruracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, finacial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this report.