Chandra Asri Petrochemical

Transcription

1 Initiation Report Chandra Asri Petrochemical Bloomberg: TPIA.IJ Reuters: TPIA.JK Samuel Research 3 July 2017 Target Price Rp 29,000 Last Price Rp 26,100 Potential Upside 11.1% JCI Index 5,792 Share Issued (mn) 3,287 Market Cap. (Rp bn) 85, Weeks High/Low 4,420/ Arandi Ariantara arandi.ariantara@samuel.co.id Todd Showalter todd.showalter@samuel.co.id 28,975 Avg Daily Vol (mn) 2.9 Free Float 4% Nominal Value 100 EPS 2017 Rp 1,223 Relative to JCI Chart 1000% 800% 600% 400% 200% BUY (Initiate) TPIA IJ Equity JCI Index 0% Jan % Jan-15 Jan-16 Jan-17 Company Background PT Chandra Asri Petrochemical Tbk is a result of merger betw een PT Try Polyta Indonesia Tbk and PT Chandra Asri. The merger making the company as the largest integrated petrochemical in Indonesia w ith production capacity about 35% of national capacity Shareholder Structure Barito Pacific Tbk 45.0% SGC Chemicals 30.6% Prajogo Pangestu 15.3% Marigold 5.2% Public 3.9% Alpha stock on weak oil prices With napfta contributing >67% of cost of goods sold, 2017E net income could potentially rise/fall by 25% per decrease/increase of oil price by US$5/bbl. TPIA s expansion amidst the stability of polyolefin selling price with oil prices expected to remain relatively low will be the driving force of strong performance. We initiate coverage with BUY recommendation at TP Rp 29,000 (+11% upside). The weakening of oil prices boosts margin (napfta 67% of production cost). The weakening of oil prices over the last 2 years has enlarged profitability margins. Nafta, an oil derivative derivative product, is the largest contributor of raw material purchases with a portion of about 67% (2016) of production costs. Our 2017E net income growth is + 2%. Decrease/increase in oil price US$5/bbl affects net profit 17E ± 25%. Assuming average oil price at US$55/bbl while utilization increases to 92%, we project the net profit of 2017E to grow 2% yoy. Based on our sensitivity analysis assuming a 92% utilization rate, TPIA s 2017E net profit could potentially rise/fall by 25% from any decrease/increase of Brent oil price by US$5/bbl (figure 16). Debottlenecking will be the 2018E production growth catalyst (+6% yoy), EBITDA 2018E growth 9% yoy. TPIA's expansion plan, including debottlenecking, is targeted to be completed in 1Q18 and increase the production capacity of polypropylene to 560 KT. Our debottlenecking estimates results in a 9% yoy increase in EBITDA 2018E. Rights issue secures capital structure amid expansion. TPIA is in process of conducting a rights issue to comply with the minimum free float requirement in IDX which we see positively impacting TPIA's capital structure amidst various expansion plans. Initiation with BUY and TP recommendations of Rp 29,000. We initiate TPIA shares with BUY recommendation and target price Rp 29,000 (upside potential 11%). The key investment risks are oil prices rising more than expected and expansion plans failing to materialize. Forecast and Valuation (at closing price Rp26,100 per share) Y/E Dec (US$ 'mn) 15A 16A 17E 18E Revenue 1,378 1,930 2,228 2,409 EBIT EBITDA Net Profit EPS (IDR/share) 107 1,214 1,223 1,331 Book value per share 3,614 4,621 7,148 7,907 DPS (Rp/share) EV/EBITDA (x) P/E Ratio (x) P/BV Ratio (x) Net Gearing (%) nc nc Samuel Sekuritas Indonesia Page 1 of 25

2 NAFTA - A PRIMARY COMPONENT OF OPERATING PERFORMANCE Nafta (processed oil product) is a major component of the company's production flow (figure 1) and TPIA's financial performance is strongly affected by the world s oil price movement. The Company through its naphtha cracker facility breaks down naphtha and produces 4 types of olefins. The resulting olefins are ethylene, propylene, py-gas and crude C4 which are then reprocessed into polyethylene, styrene monomer, polypropylene and butadiene. Figure 1. Production flow Ethylene Polyethylene Styrene Monomer Naphtha Cracker Propylene Poly-propylene Py-gas Crude C4 Butadiene Source: SSI Research In the Company s production process, the purchase cost of naphta accounts for about 67% of the production expense (figure 2). Therefore flunctuations in the price of oil, which is the basic product of naphtha, is highly correlated to the Company s financial performance. With our projected oil prices in the range of US$55-58/bbl in 2017E and 2018E, we estimate naphtha prices to be in the range of US$ /mt (figure 3). Figure 2. Share of production expenses, Direct labor 3% Benzene cost 14% Factory overhead 23% Naphtha cost 60% Direct labor 3% Benzene cost 10% Factory overhead 21% Naphtha cost 67% Source: SSI Research Samuel Sekuritas Indonesia Page 2 of 25

3 Figure 3. Oil price movement vs. actual purchase price of naphtha, E (US$/b) (US$/mt) , E 2018E Brent prices Naphtha realized cost price Source: SSI Research TPIA had a significant jump in naphtha consumption in 2016 to over 2.1 million tons, an increase of 118% yoy. This was due to the 5-year periodic maintenance of their naptha plant in 2015 which caused utilization to plunge to 42% with recovery to 87% in Going forward, we assume the Company will increase the utilization rate of napthta cracker to rise to over 90% to meet growing consumer needs (figure 4). Figure 4. Use of naphtha and the utilization rate of napthta cracker, E (KT) (%) 2,500 2,254 2, % 92% 2,121 90% 2,000 87% 92% 95% 1,559 80% 1,500 70% 1, % E 2018E 60% 50% 40% Naphtha usage Naphtha utilization rate Source: SSI Research The Company has long-standing relationships with naphtha suppliers such as Vitol and Marubeni and has advantageous synergies with its second largest shareholder and major supplier, SCG Chemicals Co. Ltd. (figure 5). This provides supply assurance from suppliers for production sustainability. The Company's current naphtha storage capacity is sufficient to support 27 days of operational activity. In addition to naphtha, the company also purchases benzene as feedstock for the production of styrene monomer (figure 6). Samuel Sekuritas Indonesia Page 3 of 25

4 Figure 5. Company naphtha suppliers, 2016 Vitol Asia Pte Ltd 34.8% Marubeni Petroleum Co Ltd 27.2% SCG Chemicals Co Ltd 9.4% Chevron USA 9.0% Source: Perseroan Figure 6. Use of raw materials, 2016 (%) Naphtha Benzene 100% 100% Propylene 40% 60% Ethylene C4 100% 100% Source: Perseroan Externally sourced Internally sourced The deficit condition in the olefins industry is the catalyst for the increase in the selling price of olefins (figure 7). In addition, the ability to maintain production for long-term consumer needs and strategic location close to their main consumers enables the Company to have the opportunity to sell its derivative products at a higher price than regional market prices. Samuel Sekuritas Indonesia Page 4 of 25

5 Figure 7. Surplus/deficit industry olefin, 2015 (KT) Etylene Butadiene 96 (159) (73) (52) (163) (78) (367) (440) (652) (861) Propylene 127 (273) (172) (266) (450) Source: Perseroan, SSI Research The average selling price of polyolefins products in the 2015 period only fell by 17% yoy for polyethylene and 25% yoy for polypropylene while market prices dropped 20% (polyethylene) and 26% (polypropylene) (figure 8). In the future, we conservatively estimate that the selling price of polyolefins to grow in the range of 3% - 7% annually. Figure 8. The average selling price of polyolefins vs. market prices, E (US$/mt) 1, , , , , , , , , , E 2018E ASP Polyethylene Market price 1, , , , , , , , , E 2018E ASP Polypropylene Market price Sumber: Perseroan, SSI Research Figure 9. Largest consumers, 2016 Consumer Product % from income Since Duration (year) Location 1 2 Polyethylene, polypropylene Ethlyene, propylene & styrene monomer 7% Indonesia 5% Jepang Samuel Sekuritas Indonesia Page 5 of 25

6 Consumer Product % from income Since Duration (year) Location 3 Styrene monomer & butadiene 5% Indonesia 4 Polyolefin 5% Indonesia 5 Ethylene 4% Indonesia 6 Ethylene 4% Indonesia 7 Butadiene, styrene monomer, C4 4% Singapura 8 Pygas 4% Thailand 9 Propylene 3% Indonesia 10 Ethylene 3% Indonesia Total 10 consumers represent 44% from 2016 revenue Source: Perseroan, SSI Research Figure 10. Integrated petrochemical plant location, E Source: Perseroan, SSI Research The Company's 2016 sales volume recovered after 5-year periodic maintenance conducted in 2015 with ramp up in production volume. Olefin production increased 123% yoy while polyolefin 13% yoy. The factory utilization rate rose to 88% (2015: 58%). In 2017E E, we estimate sales volume of olefins to grow 17% and 2%, polyolefin to increase 8% and 10%, while styrene monomer grows 11% annually (figure 11). Samuel Sekuritas Indonesia Page 6 of 25

7 Figure 11. Production volume and utilization rate, E (KT) (%) 2,000 1,827 1, % 1,800 1, % 92% 100% 1,600 95% 1,400 1,223 90% 88% 1,200 80% 1, % 70% % % % E 2018E Olefins Polyolefins Styrene Monomer Butadiene Utilization rate Source: Perseroan, SSI Research Figure 12. Sales volume, E (KT) E 2018E Olefins Polyolefins Styrene monomer Butadiene Source: Perseroan, SSI Research Due to the impact of periodic maintenance in 2015, the Company recorded a plunge in revenue of 44% yoy to US$1.4 billion with revenue rebounding 40% yoy in 2016 to US$1.9 billion. In 2017E-2018E, we estimate the Company's revenue to grow by 15% yoy and 8% yoy with the utilization rate rising to 92% level. Polyolefin is still the main contributor to the Company's revenue with a 45% share followed by olefin at 34% share. Samuel Sekuritas Indonesia Page 7 of 25

8 Figure 13. Revenue, E (US$ mn) % % 4% 17% 15% % 16% 15% 6% 53% 45% 46% 19% 46% 21% 63% 12% 32% 35% 34% E 2018E Olefins Polyolefins Styrene monomer Butadiene Others Source: Perseroan, SSI Research Stable average selling prices amidst weakening in the price of naphtha have dramatically improved the profit margins of the Company. Gross margin expanded from 4.8% in 2014 to 25.6% in 2016, while operating profit (EBIT) rose from 2.0% in 2014 to 19.4% in Net profit margin rocketed from 0.7% in 2014 to 15.5% in With expectation for oil prices to sell in the range of US$50-60/bb for the foreseeable future, we believe the Company will continue to enjoy strong margins. Conservatively, we assume the margin in 2017 to decline marginally with the estimate of oil prices rising 22% yoy to US$55/bbl. But with the completion of polypropylene expansion in 1Q18, we believe the Company's margins can return to the levels seen in Figure 14. Profit margins, E (%) Sumber: Perseroan, SSI Research E 2018E Gross profit margin EBIT margin Net income margin The Company's net profit jumped 44% yoy in 2015 and then skyrocketed by 1,039% yoy in 2016, causing net gearing to decline from 50.8% in 2015 to just 11.1% in Interest coverage grew significantly from 1.6x in 2014 to 13.3x in Going forward, our 2017E net profit is estimated to grow 2% yoy in 2017E and 12% yoy in 2018E. Samuel Sekuritas Indonesia Page 8 of 25

9 Utiliz't rate (%) Chandra Asri Petrochemical Figure 15. Net profit, E (US$ mn) E 2018E Source: Perseroan, SSI Research With nafta being the largest contributor of production costs, the Company's financial performance is highly correlated to oil price movements. Based on our sensitivity analysis, assuming that the price of oil strengthened/weakened US$5/bbl and utilization rate in 92%, our 2017E net profit projection will fall/rise by 25%. Figure 16. Net income sensitivity analysis 2017E NI Oil prices (US$/barrel) (US$mn) % % % % % Source: SSI Research Samuel Sekuritas Indonesia Page 9 of 25

10 Debottlenecking GROWTH CATALYST IN 2018E, EBITDA GROWTH 9% yoy As the largest petrochemical producer in Indonesia with an installed capacity of 3,301 KT or 35% of the national capacity (figure 17), the Company continues to develop its petrochemical business to meet the domestic demand that is still highly dependent on raw material imports (figure 18-19) with expected strong demand growth for petrochemical products (figure 20). The significantly weaker oil prices expected going forward is supportive of the Company's expansion plan of US$1 billion. Figure 17. Production capacity of Indonesian petrochemical producers, E Products (KT) Lotte Chandra Chemical Pertamina Polytama Asahimas Asri Chemical Titan Sulfindo TPPI Others Total Ethylene LLDPE HDPE Polypropylene Styrene monomer Ethylene Dichloride ,014 Vinyl Chloride Monomer Polyvinyl Chloride Ethylene Oxide Ethylene Glycol Propylene ,078 Acrylic Acid Butanol Ethylhexanol Py-gas Crude C Benzene ParaXylene Butadiene Total capacity 3, , , ,449 Source: SSI Research, Perseroan Figure 18. An overview of Indonesia's petrochemical industry, 2016 (KT) CAGR ( CAGR ( ) 2023)F Styrene Polypropylene , Polyethylene , Butadiene Propylene Ethylene , Source: SSI Research, Perseroan Samuel Sekuritas Indonesia Page 10 of 25

11 Figure 19. The market share of petrochemicals, 2016 Pertamina 24% Import 24% Olefin TPIA 52% Import 45% Polyethylene TPIA 24% Lotte Chemical 31% Supply 2.6 Mtons Supply 1.4 Mtons Polypropylene Styrene Monomer TPIA 29% Import 53% TPIA Polytama 100% Pertamina 15% 3% Supply 1.6 Mtons Supply 0.3 Mtons Source: SSI Research, Perseroan Figure 20. Projection of petrochemical demand and supply, Source: Perseroan The Company has budgeted US$1 billion of capital expenditure over the next 5 years to expand and achieve the objective of having the largest integrated petrochemical complex in Southeast Asia. We see two expansion projects that will have a significant impact on the Company's operational and financial performance, the debottlenecking of their polypropylene factories and the construction of a new polyethylene plant with a capacity of 400,000 tons/year. Samuel Sekuritas Indonesia Page 11 of 25

12 Figure 21. Expansion plan, 2016 Plan Estimated cost Source of Target Notes (US$ juta) funds operation Polyethylene plant :30 (D/E) 1Q20 Capacity 400 Kt/year, adding capacity to 736 Kt / year Expansion of % equity 3Q18 Added butadiene capacity to 137 Kt/year butadiene factory Debottlenecking 15 Internal cash 1Q18 Added polypropylene capacity to 560 Kt/year polypropylene plant Furnace revamp Internal cash 4Q19 Increase the ethylene capacity to 900 Kt/year MTBE and Butene 100 Internal cash 3Q20 Capacity 130 Kt/year MTBE and 43 Kt/year Butene. (We have not priced in this project since it is still the feasibility study stage) The second petrochemical complex Source: Perseroan Based on the expansion plan, we assume that the Company's production capacity in 2020 will grow 17% to 3.9 million tons per year compared to 3.3 million tons per year in We conservatively estimate the Company's production will become optimal in 2021 considering the Company will schedule 5-year periodic maintenance in 2020 (figure 22). Our 2021 production is estimated to increase 28% to 3.7 million tonnes compared to 2016 production. Figure 22. Assumption of production capacity and utilization rate, E (KT) (%) 2,500 2,000 1,500 1, ,045 2,045 88% Source: Perseroan, SSI Research TBA TBA Ethylene cracker capacity of 1,000 Kt/year (we have not yet priced in this project) 2,045 2,045 92% 95% 96% 2,085 2,085 97% 1,296 1, % E 2018E 2019E 2020E 2021E Olefins Polyolefins Styrene monomer Butadiene Utilitzation rate 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% In the short term, we believe the polypropylene debottlenecking strategy will produce positive results for the Company, which we expect the project to impact on a 9% rise in EBITDA and 12% in 2018E net income. With completion of the new polyethylene plant, assuming long-term oil price of US$60/bbl, we estimate the Company's EBITDA to grow by 56% by 2021E compared to 2020E. Samuel Sekuritas Indonesia Page 12 of 25

13 Figure 23. EBITDA, E (US$ mn) E 2018E 2019E 2020E 2021E Source: Perseroan, SSI Research RIGHTS ISSUE WILL IMPROVE CAPITAL STRUCTURE The floating share requirement of 7.5% triggered the company to issue a new rights issue (figure 24). Currently, the Company s floating shares stand at 4.2%. Post rights issue, the Company's free float structure is projected to be 9.1% and meet the minimum requirements of the OJK. The Company's shares have jumped 848% from Rp 3,000 on April 24, 2015 to its highest point at Rp 28,425 on May 8, 2017 (figure 25) and has provided a return of 477% over the last year (figure 26). This dramatic increase makes TPIA s market capitalization one of the 25 largest in the JCI with a 1.3% share of the total JCI market capitalization. Figure 24. The acquisition of shares before and after the rights issue Pre-rights issue Post - rights issue Public 3.9 Barito Pacific Tbk 45.0 SGC Chemicals 30.6 Prajogo Pangestu 14.1 Marigold 5.2 Prajogo Pangestu 15.3 SGC Chemicals 30.6 Barito Pacific Tbk 41.5 Public 9.1 Marigold 4.8 Source: SSI Research, Perseroan Samuel Sekuritas Indonesia Page 13 of 25

14 Figure 25. The Company's stock movement, (Rp) 30,000 25,000 20,000 15,000 10,000 5,000 0 Source: SSI Research, Perseroan Figure 26. Relative performances, E (%) 600% 500% 477% 400% 300% 200% 100% 0% 88% 7% 26% 3 months 6 months 9 months 12 months TPIA IJ Equity Source: SSI Research, Perseroan Samuel Sekuritas Indonesia Page 14 of 25

15 Based on our analysis, the issuance of new shares will result in dilution of 7.8% with the proceeds strengthening the Company's capital structure in the middle of expansion of production capacity. We expect the Company to be in a net cash position post rights issue (figure 28). Figure 27. Scheme of issuance of new shares of the company Before stock split Rp Rp Rp Market price per share a 25,325 25,325 25,325 Exercise price x 18,000 22,000 20,000 Number of share A 3,287,000,000 3,287,000,000 3,287,000,000 Number of share offered in rights issue R 279,741, ,741, ,741, Ex-rights price 24,750 25,064 24,907 Rights value 6,750 3,064 4,907 Dilution -7.8% -7.8% -7.8% Source: Bloomberg, SSI Research Figure 28. Net gearing, E (%) nc nc E 2018E Source: Perseroan, SSI Research Figure 29. Capital expenditure plan, 2017E E (US$ mn) E 2018E 2019E BD expansion PP expansion PE expansion Furnace revamp MTBE & Butene - 1 Others New cracker initial investment Source: Perseroan, SSI Research Samuel Sekuritas Indonesia Page 15 of 25

16 Initiation with BUY and TP recommendations of Rp 29,000 The Company has benefitted greatly from the reduced costs of raw materials resulting from lower oil price while the products they are producing are products in industries that are in a deficit condition which allows for strong prices. Using a risk free assumption of 6.5%, premium 7.5%, beta 0.7x, terminal growth of 5%, total shares outstanding before rights issue and debt to equity 6%:94%, we calculate a Weighted Average Cost of Capital (WACC) of 11.3% for stock valuation. Using a discounted cash flow (DCF) projection with WACC of 11.3%, we get a valuation price of Rp 29,000, which represents upside potential of 11% and P/E 17E of 23.7x. The key investment risks are oil prices rising more than expected and expansion plans failing to materialize. Figure 30. DCF Valuation DCF Calculation 2017F 2018F 2019F 2020F 2021F 2021F Terminal Value EBIT 432, , , , , , ,275 Add (+) Depreciation 76,148 76,148 78,905 82,756 83,576 83,708 83,708 Less (-) Tax (108,115) (119,412) (129,111) (111,039) (184,143) (200,113) (209,319) Less (-) Capex (165,000) (353,000) (493,000) (105,000) (30,000) (30,000) (30,000) Changes in Working Capital (7,734) (16,525) (4,078) 9,716 (21,647) (4,914) (4,914) FCF 227,758 64,859 (30,840) 320, , , ,749 10,050,963 Discount factor Present Value 227,758 58,256 (24,881) 232, , ,499 5,876,038 Enterprise Value 7,129,333 Net Debt 298,338 Equity Value 7,427,671 #Shares 3,286,962,558 Value/share (US$) 2.3 Value/share (IDR) 29,000 Current price 26,100 Upside 11% Source: SSI Research Figure 31. Comparables multiple Name Mkt Cap (IDR bn) P/E ROE (%) Dvd 12M Yld EV/EBITDA FY1 CHANDRA ASRI PETROCHEMICAL 85, INDORAMA VENTURES PCL 71, PTT GLOBAL CHEMICAL PCL 120, KOREA PETRO CHEMICAL IND 19, RONGSHENG PETRO CHEMICAL-A 73, CHINA PETROLEUM ENGINEERING 72, LOTTE CHEMICAL CORP 140, HANWHA CHEMICAL CORP 58, ZHEJIANG JUHUA CO-A 50, TONGKUN GROUP CO LTD-A 33, KUMHO PETROCHEMICAL CO LTD 27, TOTAL 752, Source: SSI Research Samuel Sekuritas Indonesia Page 16 of 25

17 INVESTMENT RISK Fluctuations in oil prices can affect profitability With naphtha contributing about 67% of production costs, fluctuations in oil prices that are related to naphtha prices can affect the financial performance and profitability of the company. The price of oil itself is affected by demand and supply conditions, availability and cost of replacement materials, global inventory levels, government fiscal and monetary policies, oil cartel policy countries like OPEC, number of US production wells, macroeconomic conditions, and others. Unplanned capacity building plan Amid the weakening of oil prices, it is essential for the company to successfully expand. The expansion is aimed to increase the Company's product production such as olefin, polyolefin, styrene monomer and butadiene have a significant effect to the Company's financial and operational performance in the future. The failure to increase the production capacity of the Company will lead to a decline in future prospects. Changes in government regulations for tariffs on import of polyolefin products With a large portion of imports for polyolefin products, the reduction or elimination of import tariffs for polyolefin products could adversely affect the Company's profitability and reduced market share. Loss of competitiveness and market share due to increased business competition The loss of competitiveness and market share in Indonesia due to increased business competition both globally and domestically can have material impact and be detrimental to the Company's financial performance and prospects. Supply risks and supporting operational activities The availability of naphtha and supporting aspects of third parties is vital to the sustainability of the Company's operations. Failure of suppliers and supporting operational activities will adversely affect the Company's performance. Failure to fulfill obligations under the agreement The proximity of the factory location to the consumer and the guaranteed delivery of the product allows the Company to enjoy a higher selling price compared to its competitors. Failure to fulfill obligations may result in loss of customers and adversely affecting business activities, financial condition, results of operations and prospects. Damage to vital infrastructure With the location of the Company's plant located in 1 geographical area, operational disruptions caused by accidents or natural disasters in the factory area may have a material adverse impact on the Company's operational performance. Samuel Sekuritas Indonesia Page 17 of 25

18 Polyolefin Olefin Chandra Asri Petrochemical OVERVIEW OF THE COMPANY PT Chandra Asri Petrochemical Tbk (TPIA) resulted from a merger of PT Tri Polyta Indonesia Tbk (TPI) and PT Chandra Asri on 1 January TPI was the largest polypropylene producer in Indonesia which was established in 1984, while Chandra Asri is an olefin and polyethylene producer which was established in After the merger, the Company became Indonesia's leading petrochemical company and the only producer of ethylene, styrene monomer and butadiene, and the largest propylene and polypropylene producer. The Company produces 4 main products, olefin, polyolefin, styrene monomer and butadiene Figure 32. Company product Product Type Use Ethylene Propylene Py-gas Mixed C4 Polyethylene raw material Resin, fiber, polypropylene raw material Gasoline mix Various industrial uses Polyethylene Plastic bags Containers Plastic bottles Polypropylene Packaging Toys Vehicle parts Styrene monomer Plastic drinking glasses Food storage Vehicle interior Butadiene Synthetic rubber Rubber gloves Source: SSI Research The Company's plant capacity is the 9th largest in Southeast Asia for olefins (figure 33), 7th in Asia for polyolefins (figure 34) and sixth for styrene monomer (figure 35). The Company's factory is also supported by adequate facilities to ensure the continuity of production activities, such as power plants, storage tanks, jetty owned companies, drinking water treatment, warehousing and fire prevention devices. Competitive advantage 1. Being in a precise and strategic position in the development of the petrochemical industry in Indonesia and Southeast Asia 2. Portfolio of diverse products 3. Operational integration to optimize production efficiency, flexibility and cost savings 4. A diverse and strategically located client base to supply key customers 5. Cash flow and strong balance sheet 6. Experienced management and strong track record to support operational management 7. Strong shareholder support. Samuel Sekuritas Indonesia Page 18 of 25

19 Figure 33. Production capacity of olefin producers in Southeast Asia, 2016 Source: SSI Research Figure 34. Production capacity of polyolefin producers in Southeast Asia, 2016 Source: SSI Research Samuel Sekuritas Indonesia Page 19 of 25

20 Figure 35. Production capacity of styrene monomer manufacturers in Southeast Asia, 2016 Source: SSI Research Organizational structure Source: SSI Research After the rights issue, the Company's free float structure is projected to be 9.1% (previously about 3.9%) and meet the minimum requirement of the stock exchange of 7.5%. Samuel Sekuritas Indonesia Page 20 of 25

21 Management Structure Board of Commissioners 1. Djoko Suyanto President Commissioner Since 2015, he has been the President Commissioner of PT Dwi Sura Prima, Commissioner of PT Lestari Asri Jaya and Independent Commissioner of PT Adaro Energy during Tan Ek Kia Vice President Commissioner He previously served as Vice President of Venture and Development at Shell Chemicals for the Asia Pacific and Middle East region (Singapore) from , Chairman of Shell companies in Northeast Asia (Beijing and China) from Ho Hon Cheong Independent Commissioner Previously served as President Director of PT Bank Danamon Indonesia Tbk until 2015, Director of Invetory Management at Temasek Holdings Pte Ltd, Singapore until 2010, President Director and CEO of PT Bank International Indonesia Tbk from Agus Salim Pangestu Commissioner With 9 years experience in Petrochemical industry, he has been a Commissioner of PT Chandra Asri since January 2006 until Merger, in addition to being a Commissioner of the Company, He is also President Director of PT Barito Pacific Tbk. Samuel Sekuritas Indonesia Page 21 of 25

22 Board of Commissioners 5. Loeki Sundjaja Putra Commissioner Has 15 years experience in petrochemical industry. He has been a Commissioner of the Company from February 2008 and has joined PT Barito Pacific Tbk since Cholanat Yanaranop Appointed as President of ACG Chemicals Co., Ltd. Since January Commissioner 7. Chaovalit Ekabut Commissioner Served as a commissioner since January He is president of SCG Paper for 8 years, and is currently a member of the Board of Directors in SCG's main business. Board of Directors 1. Erwin Ciputra Presiden Direktur Appointed as President Director of the Company since January Appointed as President Director of PT Chandra Asri from November Kulachet Dharachandra Vice President Director of Operations Appointed as Deputy Director since June Started his career at Thai Polyethylene Co. in 1994 and last served as Director of Business Development at SCG Chemicals. Samuel Sekuritas Indonesia Page 22 of 25

23 3. Baritono Prajogo Pangestu Director of Commercial Polymer Appointed as Director since January Has 12 years experience in petrochemical industry and has been working in the Company during that time. He has served as Commercial Director of Monomer until Terry Lim Chong Thian Director of Finance He has served as Finance Director of PT Chandra Asri since January He has 36 years experience in Oil and Gas Industry and has worked in the Company 11 years. 5. Piboon Sirinantanakul Director of Production Has 23 years experience in petrochemical industry. Previously worked at Map Ta Phut. Olefins Co., Ltd. As Production Division Manager in Fransiskus Ruly Aryawan Commercial Director of Monomer Has 13 years experience in petrochemical industry. Previously served as General Manager of Feedstock Monomer until 2015, Sales Department Manager Monomer until Suryandi Director of Human Resources and Corporate Administration He has 26 years experience in petrochemical industry, and has served as Finance Director of PT Tri Polyta Indonesia Tbk since Samuel Sekuritas Indonesia Page 23 of 25

24 Key Financial Summary Profit and Loss Cash Flow (US$ mn) 15A 16A 17E 18E (US$ mn) 15A 16A 17E 18E Revenues 1,378 1,930 2,228 2,409 EBIT Cost of goods sold 1,232 1,436 1,718 1,849 Depreciation & amort Gross profit Others (23) (81) (128) (136) Operating Expenses Working capital (16) 58 (8) (17) Operating profit Operating cash flow Operating margin (%) Net - Capital expenditure (227) 9 (165) (353) EBITDA Free cash flow (123) EBITDA margin (%) Net -Borrowings 57 (123) (62) (78) Other income (expens (23) (23) (27) (22) Equity changes (0) (2) Pre-tax profit Other financing (46) (158) (91) (92) Income tax - net (30) (100) (101) (114) Financing cash flow 12 (283) 271 (170) Non-controlling interes 0 (0) (0) (0) Net - Cash flow (111) (121) Net profit Cash at beginning Net profit margin (%) Cash at ending Balance Sheet Key Ratios (US$ mn) 15A 16A 17E 18E (US$ mn) 15A 16A 17E 18E Cash & ST Investmen ROE (%) Receivables ROA (%) Inventories Revenue growth (%) (44.0) Others EBITDA growth (%) Total current assets ,250 1,179 EPS growth (%) , Net fixed assets 1,308 1,317 1,406 1,682 Interest coverage (x) Other assets ,370 1,301 Current asset (x) Total assets 1,862 2,129 2,776 2,983 Net gearing (%) nc nc Payables Major Assumptions Debt A 16A 17E 18E Other long term liabilit Naphtha price (US$/mt) Total liabilities Olefins sales vol. (KT) Minority interest Polyolefins sales vol. (KT) Total equity 880 1,135 1,773 2,024 Utilization rate (%) Samuel Sekuritas Indonesia Page 24 of 25

25 Research Team Andy Ferdinand, CFA Head of Equity Research, Strategy, Banking, Consumer Rangga Cipta Economist Muhamad Makky Dandytra, CFTe Technical Analyst Todd Showalter Investment Analyst Akhmad Nurcahyadi, CSA Arandi Ariantara Auto, Aviation, Cigarette, Construction Healthcare, Heavy Equipment, Property Cement, Telecommunication, Toll Road, Oil and Gas Marlene Tanumihardja Poultry, Retail, Small Caps Sharlita Lutfiah Malik Mining, Plantation Nadya Swastika Research Associate Private Wealth Management Evelyn Satyono Head of PWM / Institutional Sales evelyn.satyono@samuel.co.id Muhamad Alfatih CSA, CTA, CFTe Senior Technical Portfolio Advisor m.alfatih@samuel.co.id Ronny Ardianto Institutional Equity Sales ronny.ardianto@samuel.co.id Clarice Wijana Institutional Equity Sales clarice.wijana@samuel.co.id Fachruly Fiater Institutional Equity Sales fachruly.fiater@samuel.co.id Equity Sales Team Kelvin Long Head of Equities kelvin.long@samuel.co.id Yulianah Institutional Equity Sales yulianah@samuel.co.id Lucia Irawati Retail Equity Sales lucia.irawati@samuel.co.id DISCLAIMERS : Analyst Certification : The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst(s) principally responsible for the preparation of this research has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. This document is for information only and for the use of the recipient. It is not to be reproduced or copied or made available to others. Under no circumstances is it to be considered as an offer to sell or solicitation to buy any security. Any recommendation contained in this report may not be suitable for all investors. Moreover, although the information contained herein has been obtained from sources believed to be reliable, its accuracy, completeness and reliability cannot be guaranteed. All rights reserved by PT Samuel Sekuritas Indonesia Samuel Sekuritas Indonesia Page 25 of 25