Indonesia Capital Market Outlook Phillip Securities Indonesia Research Division. Sector Coverage. 30 Nov :00 10:30 am.

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1 Indonesia Capital Market Outlook Nov :00 10:30 am. Phillip Securities Indonesia Research Division Gunawan Sutanto, Hd of Research Aditya Perdana Putra, Economist & Equity Analyst Martha Christina, Equity Analyst Destya Faishal, Junior Analyst Sector Coverage Gunawan Sutanto: Miscellaneous Industry, Agriculture, Mining Aditya Perdana Putra: Banking, Property, Construction Martha Christina: Consumer Goods, Basic Industry, Trade & Services Phillip Securities Indonesia ANZ Tower, Level 23B Jl. Jend. Sudirman Kav. 33A Jakarta 10220, Indonesia Phone:

2 Disclaimer This presentation is prepared by Phillip Securities Indonesia, PT. ( PSI ). By going through this presentation, you agree to be bound by the terms and limitations set out below. This presentation shall not be reproduced in whole or in part, distributed or published by you for any purpose. Phillip Securities Indonesia shall not be liable for any direct or consequential loss arising from any use of material contained in this presentation. The information contained in this presentation has been obtained from public sources which Phillip Securities Indonesia has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the Research ) contained in this presentation are based on such information and are expressions of belief only. Phillip Securities Indonesia has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in this presentation is subject to change, and Phillip Securities Indonesia shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will Phillip Securities Indonesia be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this material are as of the date indicated and are subject to change at any time without prior notice. Phillip Phillip Securities Securities Indonesia accepts accepts no liability no whatsoever liability whatsoever with respect with respect to the use to the of this use document of this document or its contents. or its contents. 2

3 Agenda JCI Performance & Estimate 2013 JCI Outlook Key Drivers: 1. Commodity Prices Agri & Mining (+) General Election (+) 3. Macroeconomic conditions: Current Account & GDP (+) 4. Bank Indonesia Key Interested Rate (-) 5. Earnings power (+) 6. US: Fed stimulus tapering (-); Debt ceiling issue (-) 3

4 JCI Performance & Estimate 2013 JCI has been in bearish mode in 2013 Last: 4,256.44; YTD: -2.07% Macroeconomic factor: Jakarta Composite Index (JCI) Slow fiscal reform resulted in lack of confidence in Indonesia s economy. Fed stimulus tapering became a major concern that triggered capital outflow Microeconomic factor: Earnings power until 3Q13 remained strong, compared to Some foreign funds would return to emerging markets for yields Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Source: IDX, PSI EPS before XO Price/Earnings before XO FY06 FY08 FY10 FY12 Source: Bloomberg 4

5 JCI Performance & Estimate 2013 JCI estimate for end of 2013: Downside: 4,100 If the Fed tapers in December More capital outflow BI hikes its interest rate to 7.75% Soft windows dressing 4,550 4,100 Upside: 4,550 Foreign investors confidence begins to heal (capital inflow) BI keep its key rate at 7.50% Vigorous windows dressing Commodity prices (especially CPO) continue to rebound Source: IDX, PSI estimate IDR/US$ Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Source: Bloomberg 5

6 JCI Outlook 2014 Market Drivers: 1. Rebound on commodity prices, i.e.: CPO and Coal. Demand from Europe and China to slowly recover Favorable weather in 2014 for plantation industry Bio-fuel regulation implementation to set a positive demand backdrop for CPO. Coal Price (US$/ton) Jan 18-Mar 18-May 18-Jul 18-Sep 18-Nov Source: MarketWatch, PSI Source: mpoc.org.my 6

7 JCI Outlook 2014 Market Drivers: 2. General Election Jakarta Composite Index ( ) JCI historical performance during general election year: Up 70% in Up 45% in Up 87% in Jul-97 1-Jul-98 1-Jul-99 1-Jul-00 1-Jul-01 1-Jul-02 1-Jul-03 1-Jul-04 1-Jul-05 1-Jul-06 1-Jul-07 1-Jul-08 1-Jul-09 1-Jul-10 1-Jul-11 1-Jul-12 1-Jul-13 Source: Bloomberg, PSI JCI performance in 2014 will be affected by which party and presidential candidate to dominate votes, and their tendency to side with the market. 7

8 JCI Outlook 2014 Market Drivers: 3. Macroeconomic conditions: Current account deficit is expected to gradually narrow The government sets current account to GDP target at -1.7% (last:-2.7%) The improvement should help Indonesia keep its investment grade. Source: Trading Economics But faster infrastructure development is needed for sustainable economic growth Source: Trading Economics 8

9 JCI Outlook 2014 Market Drivers: 4. BI Rate: We expect BI rate to increase to at least 8.50% in 2014, as pre-emptive measure against US Fed QE tapering. High borrowing costs to affect listed-companies earnings, as it becomes more expensive for firms to borrow. Source: Trading Economics 9

10 JCI Outlook 2014 Market Drivers: 5. Earnings Power: EPS before XO Price/Earnings before XO Companies whose US$ debts mature in 2014 will be negatively impacted by weak Rupiah and strong US$. But FX hedging would play an important role in saving companies from severe earnings drops. Cash kept in US$ will be positive drivers for some companies. We expect EPS to grow 11.4% in 2014 to IDR 254, slightly above the average EPS growth in the last 10 years, with P/E assumption for 2014 at 20.86x FY06 FY07 FY08 FY09 FY10 FY11 FY12 Current FY14 (F) Source: Bloomberg, PSI estimate

11 JCI Outlook 2014 Market Drivers: 6. US Monetary & Fiscal: US Fed stimulus tapering, if decided in December 2013, would only cause temporary setback for emerging markets. We expect the US Federal Reserve to delay tapering until at least the first quarter of 2014, as the central bank would need to further consider US economic recovery. Janet Yellen, the new Fed chairwoman, is expected to keep easy monetary policy. US debt ceiling issue will affect markets in January Tough negotiations in Washington will still occur, causing short-term jitters in the markets at the beginning of

12 JCI Outlook 2014 JCI Forecast 2014: 11.4% EPS growth to IDR 254; P/E assumption at 20.86x; JCI 2014(F): 5,300 5,300 EPS (F): 254 P/E (F): 20.86x 4,550 4,100 12

13 Phillip Morning Market Call Dec 2013: Registration URL: Webinar ID: Jan 2014: Registration URL: Webinar ID: Source: Phillip Securities Indonesia - Research 13

14 Talk to us. Talk to Phillip. Phillip Securities Indonesia ANZ Tower, Level 23B Jl. Jend. Sudirman Kav. 33A Jakarta Indonesia Gunawan Sutanto - Head of Research (62 21) gunawan.sutanto@phillip.co.id Aditya Perdana Putra - Economist & Equity Analyst (62 21) aditya@phillip.co.id Martha Christina - Equity Analyst (62 21) martha@phillip.co.id Destya Faishal - Junior Analyst (62 21) deta@phillip.co.id Phillip Phillip Securities Securities Indonesia accepts accepts no liability no whatsoever liability whatsoever with respect with respect to the use to the of this use document of this document or its contents. or its contents. 14