Economic Update EQUITY RESEARCH. Better but not as good as expected. Economic Update 6 November 2017 CIPTADANA SEKURITAS ASIA.

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1 Economic Update Better but not as good as expected GDP breakdown by expenditure, % YoY 2Q Q 2017 Est. Cons. Real GDP Consumption Govt spending Investment Inflation & policy rate Source : BPS and Ciptadana Estimates GDP Breakdown Jump in export and investment drive the growth Statistics Office (BPS) data showed 3Q17 GDP growth had a mild increase at 5.06% YoY with quarterly growth came in at 3.18% QoQ (2Q17: 4.00% QoQ), which is below our estimation and Bloomberg consensus (see table on left). Although much affected by low base effect of last year Lebaran festive day in 3Q17, we still see jump in export and investment are positive. Investment increased 7.11% YoY (5.25% QoQ) in 3Q17. We see that government infrastructure projects still become one the main drivers of investment as the building segment improve 6.28% YoY and also machine and equipment segment increased by 15.18%. This is in line with the jump of imports in July which increased more than 50% YoY even though seasonal effect also played its part. We believe that investment can grow further in upcoming quarters as much government s infrastructure projects will be finished within Export s also experienced a big jump at 17.27% YoY due to better global demand and low base effect. We see that exports growth may face downturn as Indonesia s main export destination, China, is expected to have softer growth in Weak consumption prevent firms to add more inventories On the other hand, consumption still faced some challenges as it only grew 4.93% YoY (1H17: 4.94% YoY) which is actually in line with our expectation. Low consumption growth indication had been seen from weak retail sales which had negative growth in July and only posted weak growth of 2.2% in August. The causes were still the same with previous quarter, which are electricity price hike for middle low segment and high uncertainty of tax and political condition for middle upper segment. According to Bank Indonesia s data, average propensity to consume (APC) remained low in 3Q17 at 64.7%, lower than 3Q16 at 70.1%. Low domestic demand made companies hold their production in 3Q17 which reflected in % YoY decrease of inventory change. Moreover, we believe that companies still have abundant inventories as sales in previous Lebaran festive season disappointed. Going forward, we see that consumption will have gradual recovery next year as government start to boost middle lower purchasing power by adding social spending. 3Q17 GDP by sectors: manufacture at its highest in Jokowi s term Industry wise, GDP growth in 3Q17 was led by information and communication sector which grew 9.35% YoY in 3Q17. Transportation and storage sector also posted a strong growth at 8.25% YoY. Furthermore, manufacture sector which proportion is around 20% of GDP posted the highest growth since Jokowi became the president with 4.84% YoY. This may signal further improvement on manufacture and overall economic as long as the domestic demand can recover. On the other side, agriculture sector growth weakened to 2.92% YoY which may become one of the reasons behind declining inventory change we ve discussed before. Source : BPS Imanuel Reinaldo ext. 820 reinaldoimanuel@ciptadana.com Unemployment continues its downward trend BPS also released biannual job market data for February 2017 reading. Indonesia s February 2017 unemployment rate slightly eased to 5.50% from a year before at 5.61%. Unemployment rate in village decrease to 4.01% (Aug-2016: 4.51%) but in cities increase to 6.79% (Feb-2016: 6.60%). GDP growth at 5.1% in 2017 and 5.3% in 2018 We maintain our view of 5.1% GDP growth for full year 2017 as we predict 4Q17 growth will be around 5.2% to 5.3% on the back of investment. For 2018, we see that 5.3% is a realistic one, lower than government s target at 5.4% as we see consumption will have gradual recovery. Although consumption is still low, we do not see a chance for central bank to cut its policy rate again as the Rupiah started to fluctuate since last September. Please see analyst certification and other important disclosures at the back of this report 2

2 We maintain our view of 5.1% GDP growth in 2017 Exhibit 1: Key macroeconomic indicators Year-end 31-Dec 14A 15A 16A 17E 18F Nominal GDP (Rp tn) 10,543 11,541 12,407 13,626 14,878 Nominal GDP (USD bn) ,010 1,102 GDP/capita (USD) - Nominal 3,530 3,377 3,605 3,911 4,158 Real GDP (%YoY) Private Consumption (%YoY) Government consumption (%YoY) Gross Fixed Capital Formation (%YoY Exports (%YoY) Imports (%YoY) Inflation rate (%YoY) - year end Core inflation rate (%YoY) - year end BI Rate BI 7 Days Reverse Repo Rate - year end Rupiah / US Dollar - average 11,878 13,398 13,473 13,350 13,500 Rupiah / US Dollar - year end 12,440 13,788 13,346 13,450 13,600 Current account as % of GDP Fiscal balance as % of GDP We expect manufacture sector will have better growth as consumption will have gradual recovery Exhibit 2: Real GDP growth, by industry, % YoY (new base) M F Real GDP Agriculture, Livestock, Forestry & Fisheries Mining and Quarrying Manufacturing Industries Electricity & Gas Water Supply, Waste Treatment & Recycle Construction Major Trade & Retail Transportation and Logistics Accommodations and F & B Information and Communication Insurance and Financial Service Real Estate Company Services Govt Adm, Defense, Social Security Educational Services Health and Social Services Other Services Please see analyst certification and other important disclosures at the back of this report 3

3 Exhibit 3: Consumption YoY Growth Component in 3Q16 and 3Q17 Increase in leisure activities growth still cannot offset the decrease on F&B and clothes Exhibit 4: Investment YoY Growth Component in 3Q16 and 3Q17 Government s infrastructure projects drove investment growth as building and machine growth are better. Please see analyst certification and other important disclosures at the back of this report 4

4 RESEARCH REPORT Economic Update 06 November 2017 HEAD OF RESEARCH ANALYST ANALYST Arief Budiman Erni Marsella Siahaan, CFA Yasmin Soulisa Strategy, Automotive, Heavy Equipment, Banking Property, Plantations Construction, Shipping T ext 919 T ext 799 T ext 819 E siahaanerni@ciptadana.com E soulisayasmin@ciptadana.com E budimanarief@ciptadana.com ANALYST ANALYST ANALYST Kurniawan Sudjatmiko Nichelle Ongko Niko Margaronis Coal, Metal Mining, Oil & Gas and Services Media, Retail, Others Telecommunication, Tower, Healthcare T ext 739 T ext 740 T ext 734 E sudjatmikokurniawan@ciptadana.com E ongkonichelle@ciptadana.com E margaronisniko@ciptadana.com JUNIOR ECONOMIST ANALYST TECHNICAL ANALYST Imanuel Reinaldo Fahressi Fahalmesta Trevor Gasman T ext 820 Cement, Toal Road, Poultry T ext 934 E reinaldoimanuel@ciptadana.com T ext 735 E gasmantrevor@ciptadana.com E fahalmestafahressi@ciptadana.com RESEARCH ASSISTANT Sumarni T ext 920 E sumarni@ciptadana.com EQUITY SALES Co HEAD OF INSTITUTIONAL SALES Dadang Mulyana Plaza ASIA Office Park unit 2 Plaza ASIA Office Park unit 2 Jl. Jend. Sudirman Kav. 59 Jl. Jend. Sudirman Kav. 59 Jakarta Jakarta T ext 838 T ext 807 Co HEAD OF INSTITUTIONAL SALES The Fei Ming F F E mulyanadadang@ciptadana.com E thefeiming@ciptadana.com BRANCH OFFICES JAKARTA - MANGGA DUA JAKARTA - PURI KENCANA SURABAYA Komplek Harco Mangga Dua Perkantoran Puri Niaga III Intiland Tower Surabaya Rukan Blok C No.10 Jl. Puri Kencana Blok M8 No.2E Ground Floor Suite 5 & 6 Jl. Mangga Dua Raya Kembangan Jl. Panglima Sudirman Jakarta Jakarta Surabaya T T T F F F SEMARANG Gedung Menara Suara Merdeka 6th Floor Unit 02 Jl. Pandanaran No.30 Semarang Please see analyst certification and other important disclosures at the back of this report 5

5 Analyst Certification Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her personal views about the companies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are not and will not be influenced by any part or all of his or her compensation. Disclaimer This report does not constitute an offer to buy or sell any security/instrument, invitation to offer or recommendation to enter into any transaction. Nor are we acting in any other capacity as a fiduciary to you. When making and investment decision, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such transaction. In this regard, by accepting this report, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any transaction and our disclaimer as to these matters. The information contained in this report is based on material we believe to be reliable; however, we do not represent that it is accurate, current, complete, or error free. Assumptions, estimates and opinions contained in this report constitute our judgment as of the date of the document and are subject to change without notice. Any projections are based on a number of assumptions as to market conditions and there can be no guarantee that any projected results will be achieved. Past performance is not a guarantee of future results. PT CIPTADANA SECURITIES AND ITS AFFILIATES SPECIFICALLY DISCLAIMS ALL LIABILITY FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL OR OTHER LOSSES OR DAMAGES INCLUDING LOSS OF PROFITS INCURRED BY YOU OR ANY THIRD PARTY THAT MAY ARISE FROM ANY RELIANCE ON THIS REPORT OR FOR THE RELIABILITY, ACCURACY, COMPLETENESS OR TIMELINESS THEREOF. Disclaimer: This document is not intended to be an offer, or a solicitation of an offer, to buy or sell relevant securities (i.e. securities mentioned herein or of the same issuer and options, warrants or rights to or interest in any such securities). The information and opinions contained in this document have been compiled from or arrived at in good faith from sources believed to be reliable. No representation or warranty, expressed or implied, is made by PT CIPTADANA SECURITIES or any other member of the Ciptadana Capital, including any other member of the Ciptadana Group of Companies from whom this document may be received, as to the accuracy or completeness of the information contained herein. All opinions and estimates in this report constitute our judgment as of this date and there can be no assurance that future results or events will be consistent with any such opinions, forecasts or estimates. The information in this document is subject to change without notice; its accuracy is not guaranteed; and it may be incomplete or condensed. Please see analyst certification and other important disclosures at the back of this report 6