FOCUS Barito Pacific Initiating Coverage 07 March 2018

Transcription

1 FOCUS XXX Company Update XX XXXXX 2013 FOCUS Barito Pacific Mandiri Sekuritas Analyst Ariyanto Kurniawan Tjandra Lienandjaja Edbert Surya Sector : Petrochemical NEUTRAL Current Price Rp2,510 Target Price Rp2,640 (+5.2%) 52-wk range Rp2,720 - Rp1,120 Stock Data Bloomberg Code BRPT IJ Mkt.Cap (Rp bn/us$ mn) 35,039 / 2,543 Issued Shares (mn) 13,960 Avg. Daily T/O (Rp bn/us$ mn) 69.1/5.0 Major shareholder Magna Resources Corporation 52.1% DBS Bank 7.9% Barito Pacific Lumber 5.1% EPS consensus (USD Cents) Mansek Cons Diff 2018F (26.0) 2019F (15.7) 2019F (15.7) Share price performance 3m 6m 12m Absolute (%) Relative to JCI (%) (2.2) Perfect Match Barito Pacific (BRPT) has been the key beneficiary of rising olefin spread through its 46.3% stake in Chandra Asri Petrochemical (TPIA). The plan to expand into power business through the acquisition of 66.67% stake of Star Energy Group Holding (SEGHL) will complement against petrochemical cycle given the stable nature of earnings and cash flow. Initiate coverage with Neutral call with SOTP-based target price of Rp2,640/share. We see more upside on valuation from geothermal assets if the company can secure higher tariffs for Salak and Darajat power plants. Note that in 2016, Wayang Windu received tariff increase of 49.2%. Prior to the acquisition of SEGHL, we expect BRPT s earnings will be affected by volatility in olefin spread movement driven by the volatility in oil price (Naphtha price). BRPT is also a cheaper proxy to TPIA with 20% holding discount. We have not included SEGHL into our forecast and valuation, as the transaction is not yet completed. Capacity expansions to capture growing domestic demand. TPIA has increased its production capacity to 3,301 KTPA ( CAGR 7.4%) and plans to spend USD1.4bn to further increase capacity to 4,201 KTPA by This includes the plan to build the new polyethylene plant and prepare the initial stage for its 2nd petrochemical complex adjacent to the FINANCIAL SUMMARY existing one. Higher production capacity will enable to take advantage of strong demand from domestic market, as Indonesia still relies heavily on imported products (45% of polyethylene and 53% of polypropylene in 2016). Geothermal assets will complement against petrochemical cycle. BRPT aims to become the largest geothermal power plant operator through the acquisition of 66.67% stake in SEGHL at USD755mn, an affiliated company, with combined capacity of 875 MW geothermal projects in Java. To finance the acquisition, BRPT plans to conduct rights issue and target targets up to USD 1bn of the rights issue proceeds. Assuming annual EBITDA of USD 400mn from SEGHL, we estimate BRPT s EBITDA in 2018 could reach USD 873mn in 2018, as we forecast USD 473mn EBITDA from existing assets. Key risks are: lower petrochemical spread driven by oil price and slower than expected expansions plan. YE Dec (US$ Mn) 2016A 2017A 2018F 2019F 2020F EBITDA Net Profit Fully-diluted EPS Fully-diluted EPS growth (%) n/m (9.5) (13.0) 25.4 (3.4) P/E Ratio (x) EV/EBITDA (x) P/B Ratio (x) Dividend Yield (%) ROAE (%) Source: Company ( ), Mandiri Sekuritas ( ) Please see important disclosure at the back of this report Page 1 of 39

2 BRPT - At a Glance FIGURE 1. SALES BREAKDOWN 100.0% 99.0% 98.0% 97.0% 96.0% 95.0% 94.0% 93.0% 92.0% 91.0% 90.0% E 2019E 2020E Petrochemical Plantation Woodworking industry Tanks and Jetty rent Property Source: Company, Mandiri Sekuritas estimates FIGURE 2. COGS BREAKDOWN 100% 99% 98% 97% 96% 95% 94% 93% 92% 91% 90% E 2019E 2020E Petrochemical Woodworking Industry Plantation Service Property Source: Company, Mandiri Sekuritas estimates FIGURE 3. EBITDA AND EBITDA MARGIN FIGURE 4. PROFITABILITY 700 USDbn 30.0% 10% 8% E 2019E EBITDA EBITDA margin 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 5% 0% -5% -10% -15% E 2019E Return on Equity ROA Net margin 6% 4% 2% 0% -2% -4% -6% Source: Company, Mandiri Sekuritas estimates Source: Company, Mandiri Sekuritas estimates FIGURE 5. EPS GROWTH TREND FIGURE 6. LEVERAGE TREND USDbn (%) F 2019F 30% 25% 20% 15% 10% 5% 0% 5% 10% 15% 50% 40% 30% 20% 10% 0% 10% 20% (%) (x) F 2019F EPS EPS growth NDE Interest Cover Source: Company, Mandiri Sekuritas estimates Source: Company, Mandiri Sekuritas estimates Please see important disclosure at the back of this report Page 2 of 39

3 Investment Summary We initiate coverage on Barito Pacific (BRPT) with a Neutral recommendation with SOTPbased target price of Rp2,640 TP. BRPT has been the key beneficiary of rising olefin spread since mid-2016 due to its 46.3% ownership in TPIA, the largest and most integrated petrochemical plant in Indonesia. The plan to acquire majority stake in Star Energy Group Holdings Ltd (SEGHL), Indonesia s largest geothermal power plant operator, will complement against the petrochemical cycle from TPIA given the stable nature earnings and cash flow. Based on the rights issue prospectus, BRPT will pay USD 755mn for 66.67% stake in SEGHL. To finance the acquisition, BRPT plans to conduct rights issue by issuing up to 5.6bn of new shares (26.72% of potential dilution and 1.4bn of warrants (6.68% of potential diluation), ) targeting up to USD 1bn of rights issue proceeds. Of the rights issue proceeds, 52% will be used to finance the acquisition of 66.67% stake in SEGHL, 25% for debt repayment, and the remaining balance for working capital and future expansions. Prime beneficiary of rising olefin spread. Higher olefin spread and higher production capacity has led to: 1. Strong EBITDA growth of USD 538mn in FY17 from only USD 142mn in FY15. We estimate EBITDA margin to increase to 18.5% in FY18 (vs. 10.1% in FY15) as a result of higher olefin spread due to low feedstock price (naphtha) and higher product ASP. Despite our forecast of lower olefin spread due to higher oil price, we forecast EBITDA to remain elevated of USD 580mn in FY19F, mainly driven by capacity expansions. We forecast EBITDA margin to decline from 22% in FY17 to 21% in FY19F as a result of higher Brent oil price estimate of USD 65bbl. Our revenue growth of 5% CAGR in FY17-19E is mainly supported by capacity expansion. 2. Favorable leverage position with net gearing declining to 4% in FY18F from 41% in FY15. With annual EBITDA of USD 473mn-580mn, we expect BRPT will be able to fund capacity expansions by using internal cash flow as well as with external loan if necessary. 3. Higher ROE. We expect 5% ROE in FY18F after recording a negative ROE from We expect BRPT s ROE would be lower than in 2017 and would be maintained at % level for FY18E-20E. FIGURE 7. REVENUE AND GROSS MARGIN FIGURE 8. EBITDA AND EBITDA MARGIN 3,000 2,500 2,000 1,500 1,000 2,295 2,519 2,477 1,406 1,961 2,453 2,559 2,697 30% 25% 20% 15% 10% USDbn 30.0% 25.0% 20.0% 15.0% 10.0% 500 5% % E 2019E Revenue GPM (RHS) 0% E 2019E EBITDA EBITDA margin 0.0% Source: Company, Mandiri Sekuritas estimates Source: Company, Mandiri Sekuritas estimates Please see important disclosure at the back of this report Page 3 of 39

4 FIGURE 9. TOTAL EQUITY AND DEBT TO EQUITY RATIO FIGURE 10. NET MARGIN, ROA, AND ROE USDbn 2,500 55% 2,000 1,500 1, % 52% 51% 37% 43% 32% 25% 60% 50% 40% 30% 20% 10% 10% 5% 0% -5% -10% E 2019E 8% 6% 4% 2% 0% -2% -4% E 2019E 0% -15% -6% Equity Debt to equity ratio ROE ROA Net margin Source: Company, Mandiri Sekuritas estimates Source: Company, Mandiri Sekuritas estimates Capacity expansions to capture growing domestic demand. TPIA has increased its production capacity to 3,301 KTPA ( CAGR 7.4%) and plans to spend USD 1.4bn to further increase capacity to 4,201 KTPA by This includes the plan to build the new polyethylene plant and prepare the initial stage for its 2nd petrochemical complex adjacent to the existing one. Higher production capacity will enable to take advantage of strong demand from the domestic market, as Indonesia still relies heavily on imported products. TPIA is the only company that has the plant facility to process naphtha into olefin, polyolefin, and their byproducts. Lacking an oil refinery to produce naphtha, TPIA imports most of its naphtha raw material requirement, as Indonesia also does not produce sufficient naphtha for the petrochemical industry. According to industry consultant, Nexant, in 2016 TPIA supplied 52% of olefin (ethylene and propylene), 24% of polyethylene, and 29% of polypropylene in Indonesia s market, and it was the only player in the styrene monomer market (100% market share). This is because Indonesia is structurally deficient in many petrochemicals and polymer products and relies heavily on imported products (45% of polyethylene and 53% of polypropylene in 2016), primarily from Malaysia, Thailand, and Singapore. This provides opportunities for domestic petrochemical players to expand capacity and increase product offerings, as the trend is expected to continue in the coming years. TPIA can charge 3-8% premium price to the benchmark price for its main products, polyethylene and polypropylene, due to proximity to customers. FIGURE 11. CAPACITY EXPANSIONS Source: Company Please see important disclosure at the back of this report Page 4 of 39

5 Geothermal assets will complement against petrochemical cycle. BRPT aims to become the largest geothermal power plant operator through the acquisition of 66.67% in SEGHL, an affiliated company, for USD755mn. SEGHL has a combined capacity of 875 MW of geothermal projects in Java. BRPT plans to add up to 120MW of new capacity by Based on the prospectus released in Feb 18, the combined revenue of SEGHL in FY17 stood at USD 423mn with USD 90.6mn of net profit. However, we believe the figure will be higher in 2018 with the expected full contribution from Salak and Darajat power plants. Assuming annual EBITDA of USD 400mn from SEGHL, we estimate BRPT s EBITDA could reach USD 873mn in 2018, as we forecast USD 473mn EBITDA from existing assets. We see more upside on its geothermal assets if the company can secure higher tariffs for Darajat and Salak power plants. Note that in 2016, Wayang Windu geothermal received tariff increase of 49%. Our discussion with the company indicates that every USD0.1/kwh increase in tariffs of Darajat and Salak would expand EBITDA by USD50mn/year. GEOTHERMAL PEERS VALUATION (x) Source: Bloomberg Holding discount to TPIA has narrowed to 20% from 67% at the beginning of This should indicate that the current share price may have partially been priced-in for the plan to enter the geothermal power business, as it has been announced in late Dec 16. FIGURE 12. BRPT S SHARE PRICE OUTPERFORMED IDX BY 195% AND TPIA S BY 174% IN FIGURE 13. HOLDING DISCOUNT HAS NARROWED TO 20% FROM 67% AT THE BEGINNING OF % 10% 20% 30% 40% 50% 60% 70% TPIA BRPT JCI Index Source: Bloomberg Source: Bloomberg Please see important disclosure at the back of this report Page 5 of 39

6 FIGURE 14. EARNING SENSITIVITY NP sensitivity Volatility in oil price is the key earnings risk. Naphtha is the major raw material for TPIA and its price is heavily dependent on oil price (99% correlation coefficient). While Bloomberg consensus expects oil price to stay low at USD 65/bbl for the next 2 years, lower than the 5-year avg ( ) of USD 73/bbl, higher than expected oil price will have a significant impact on earnings, as naphtha accounts for >70% of production cost. Higher oil price will lead to lower spread of product price over naphtha, which has been favorable to the producer in the past two years. Oil Price (base) FY18E NP % change 15% 11% 8% 4% 0% -4% -8% -11% -15% EBITDA sensitivity Oil Price (base) FY18E EBITDA % change 10% 7% 5% 2% 0% -2% -5% -7% -10% Source: Bloomberg FIGURE 15. BRENT OIL AND NAPHTHA PRICES US$ US$ 1, , Mar 10 Jul 10 Nov 10 Mar 11 Jul 11 Nov 11 Mar 12 Jul 12 Nov 12 Mar 13 Jul 13 Nov 13 Mar 14 Jul 14 Nov 14 Mar 15 Jul 15 Nov 15 Mar 16 Jul 16 Nov 16 Mar 17 Jul 17 Nov 17 Naphtha Brent oil Source: Bloomberg FIGURE 16. PRICE SPREAD OVER NAPHTHA (US$/t) 3,500 3,000 2,500 2,000 1,500 1, Mar/10 Jun/10 Sep/10 Dec/10 Mar/11 Jun/11 Sep/11 Dec/11 Mar/12 Jun/12 Sep/12 Dec/12 Mar/13 Jun/13 Sep/13 Dec/13 Mar/14 Jun/14 Sep/14 Dec/14 Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Ethylene (USD/MT) Propylene (USD/MT) Polypropylene (USD/MT) Butadiene (USD/MT) Polyethylene (USD/MT) Styrene (USD/MT) Source: Bloomberg Please see important disclosure at the back of this report Page 6 of 39

7 Valuation We initiate coverage on BRPT with a Neutral recommendation with Rp2,640 TP based on SOTP valuation. We see more upside on valuation from geothermal assets if the company can secure higher tariffs for Salak and Darajat power plants. Note that in 2016, Wayang Windu received tariff increase of 49%. BRPT is also a cheaper proxy to TPIA with 20% holding discount. We have not included Star Energy Group Holding Ltd (SEGHL) into our forecast and valuation, as the transaction is not yet completed. FIGURE 17. SOTP VALUATION FIGURE 18. PEER VALUATION FOR PETROCHEMICAL COMPANIES TICKER TPIA IJ COMPANY NAME Chandra Asri Petrochemical PRICE (Lcy) Valuation (in USDmn) Petrochemical (TPIA) 2, x FY19F EV/EBITDA Other assets x PBV Net debt (75) Equity value 2,697 Equity value (Rpbn) 36,873 Outstanding shares (bn shares) 14 Target price 2,640 Implied FY19F PE (x) 20.9 Source: Mandiri Sekuritas Peer comparison. The following figure shows the valuation of major petrochemical counters in the region as well as the global market. M.CAP (USDMN) PER (x) EV/EBITDA (x) P/BV (x) Div. Yield (%) ROE (%) P/CF (x) 2018F 2019F 2018F 2019F 2018F 2019F 2018F 2019F 2018F 2019F 2018F 2019F 6,200 8, PTTGC TB PTT Global Chemical , n.a n.a PCHEM MK Petronas Chemicals Group , KS Lotte Chemical 466,500 14, n.a n.a TT Formosa Petrochemical , n.a n.a WLK US Westlake Chemical , SABIC AB Saudi Basic Industries , SIPCHEM AB CH Saudi International Petrochemical Sinopec Shanghai Petrochemical , n.a n.a n.a n.a , JP Tosoh Corp 2, , YANSAB AB Yanbu National Petrochemical , JP Mitsui Chemicals 3, , Simple Average Weighted Average *Prices as of 26 Feb 2018 Source: Bloomberg, Mandiri Sekuritas estimates Please see important disclosure at the back of this report Page 7 of 39

8 Investment Thesis BRPT is the controlling shareholder' of the largest integrated petrochemical company in Indonesia through its 46.3% stake in TPIA. TPIA is the market leader in most of its petrochemical product with its key competitor coming from imports due to the lack of domestic petrochemical plant capacity despite growing demand from the domestic market. TPIA is also the only company that has the plant facility to process naphtha into olefin, polyolefin, and their byproducts with a total plant capacity of 3,301KTPA (35% of the petrochemical industry capacity of 9,449 KTPA). The plan to acquire majority stake in Star Energy Group Holdings Ltd (SEGHL), Indonesia s largest geothermal power plant operator, will complement against petrochemical cycle given the stable nature of earnings and cash flow. FIGURE 19. CAPACITIES OF PETROCHEMICAL PRODUCERS IN INDONESIA (ANNUAL) MARCH 2017 Products (KTA) Lotte Chandra Asahimas Sulfindo Chemical Pertamina Polytama Asri Chemical Adiusaha Titan TPPI Others Total Ethylene Propylene ,078 LLDPE HDPE Polypropylene Ethylene Dichloride ,014 Vinyl Chloride Monomer Polyvinyl Chloride Ethylene Oxide Ethylene Glycol Acrylic Acid Butanol Ethylexanol Py-gas Crude C Butadiene Benzene Para-Xylene Styrene Total Capacity 3, , , ,449 Source: Nexant Indonesia still relies on imports for petrochemical products. According to industry consultant, Nexant, TPIA supplied 52% of olefin (ethylene and propylene), 24% of polyethylene, and 29% of polypropylene in Indonesia s market, and it was the only player in the styrene monomer market (100% market share) in 2016, with the rest mainly from the import market. This is because Indonesia is structurally deficient in many petrochemicals and polymer products and relies heavily on imported products (45% of polyethylene and 53% of polypropylene in 2016), primarily from Malaysia, Thailand, and Singapore. This provides opportunities for domestic petrochemical players to expand capacity and increase product offerings, as the trend is expected to continue in the coming years. TPIA can charge 3-8% premium price to the benchmark price for its main products, polyethylene and polypropylene, due to proximity to customers. Nexant also believes Indonesia will outpace both global and regional (SEA) demand growth for polyolefin, butadiene, and styrene in F. For polyolefin, Nexant estimates Indonesia s polyethylene and polypropylene demands will grow by 4.4% and 4.7% CAGR F, respectively, outpacing the global (CAGR F polyethylene: 3.4%; polypropylene: 3.6%) and regional (CAGR F polyethylene: 3.9%; polypropylene: 4.2%) demands. Meanwhile, Indonesia s butadiene and styrene monomer Please see important disclosure at the back of this report Page 8 of 39

9 demands are expected to grow at 17.7% and 10.5% CAGR F, respectively, far outpacing the global (CAGR F butadiene: 2.4%; styrene monomer: 1.6%) and regional (CAGR F butadiene: 5.5%; styrene monomer: 2.3%) demands. FIGURE 20. OLEFIN MARKET SHARE IN 2016 FIGURE 21. POLYETHYLENE MARKET SHARE IN 2016 FIGURE 22. POLYPROPYLENE MARKET SHARE IN 2016 Pertamina 24% Lotte Chemical Titan 31% CAP 24% Polytama 15% Pertamina 3% CAP 29% Import 24% CAP 52% Import 45% Import 53% Source: Company, Nexant Total Supply: 2.6M tons Total Supply: 1.4M tons Total Supply: 1.6M tons FIGURE 23. NEXANT S PRODUCT GROWTH FORECAST ( F CAGR F 20% 18% 18% 16% 14% 12% 11% 10% 8% 7% 6% 6% 4% 5% 4% 4% 4% 3% 3% 3% 4% 4% 2% 2% 1% 2% 2% 1% 0% Ethylene Propylene Polyethylene Polypropylene Butadiene Styrene Monomer Indonesia SEA Global Source: Nexant FIGURE 24. PRODUCT SPREAD OVER NAPHTHA (USD/MT) 3,000 2,500 2,000 1,500 1, Jan/15 Feb/15 Mar/15 Apr/15 May/15 Jun/15 Jul/15 Aug/15 Sep/15 Oct/15 Nov/15 Dec/15 Jan/16 Feb/16 Mar/16 Apr/16 May/16 Jun/16 Jul/16 Aug/16 Sep/16 Oct/16 Nov/16 Dec/16 Jan/17 Feb/17 Mar/17 Ethylene Propylene Polypropylene Butadiene Polyethylene Styrene Source: Bloomberg TPIA expands plant capacity further to capture growing domestic demand. TPIA has increased its production capacity to 3,301 KTPA ( CAGR 7.4%) and plans to spend USD 1.4bn to further increase capacity to 4,201 KTPA by This includes the plan to build the new polyethylene plant and prepare the initial stage for its 2nd petrochemical complex adjacent to the existing one. Of the identified USD 1.4bn plan, the largest portion will be for the feasibility study and land acquisition of the new petrochemical complex (USD 450m), followed by the 400 KTPA polyethylene plant (USD 356m) and a new 130 KTPA methyl tert-butyl ether (MTBE gasoline additive to increase octane number) and 43 KTA Butene-1 plant (USD114m). The biggest expansion would be the plan to spend USD 4-5bn to build the 2 nd integrated petrochemical facility to grab untapped demand from domestic market currently filled by imported products. Other players will also expand capacity, including Pertamina, which has formed a joint venture with PTT Global Chemical of Thailand to build a large scale petrochemical complex, but no further detail is available yet. TPIA also has a 45% stake in a joint venture with Michelin on a synthetic rubber plant project, which costs USD 570mn, to be operational by 3Q18. In terms of timing, TPIA plans to spend USD 222mn for the expansion in 2017, USD 567mn in 2018, USD 536mn in 2019, and USD 114mn in Please see important disclosure at the back of this report Page 9 of 39

10 FIGURE 25. CAPEX PLAN Plans Est. Cost (US$mn) Source of Fund Proposed Start-up Note Butadiene Plant % internal cash 2Q18 Increase BD capacity by 100KTA to 137KTA PP Debottlenecking % internal cash 3Q19 Increase PP plant by 80KTA to 560KTA Furnace Revamp % internal cash 1Q20 Increase ethylene capacity by 40KTA to 900KTA New Polyethylene Plant 356 Debt & Equity 4Q19 Additional 400KT/A capacity to produce LLDPE,HDPE, and Metallocene LLDPE MTBE and Butene-1 Plant % internal cash 3Q20 Production of 130KTA and 43KTA of MTBE and Butene-1 respectively Second Petrochemical Complex Shareholding structure yet to be finalized, CAP is in discussion with various parties To be announced Expected to conduct feasibility study of the second integrated petrochemical compelx Synthetic Rubber Project (SRI JV) 570 fully funded 3Q18 Partnership with Michelin, production capacity to reach 120 KTA Source: Company, Mandiri Sekuritas FIGURE 26. CAPEX Source: Company Geothermal the next growth driver. BRPT has announced the plan to enter the renewable energy through the acquisition of 66.67% stake in SEGHL, an affiliated company, with combined capacity of 875 MW of geothermal projects in Java. SEGHL engages in the geothermal plant business through Wayang Windu, Salak, and Darajat plants with a combined capacity of 875 MW located in Java. Salak (377 MW) and Darajat (271MW) were recently acquired from Chevron with SEGHPL holding majority ownership of around 51.9%. FIGURE 27. GEOTHERMAL POWER PLANT Power plant Size Completion Sales Wayang Windu Unit MW 2000 Power purchase agreement with PLN Unit MW 2009 Power purchase agreement with PLN Salak Unit MW 1994 Steam purchase agreement with PLN Unit MW 2005 Power purchase agreement with PLN Darajat Unit 1 55 MW 1994 Steam purchase agreement with PLN Unit MW 2009 Power purchase agreement with PLN Total 875 MW Source: Company Please see important disclosure at the back of this report Page 10 of 39

11 The M&A transaction. On 20 Dec 16, BRPT signed a Memorandum of Understanding (MoU) with Star Energy Investment Ltd (SEIL) and SE Holdings Ltd (SEHL) to acquire majority stake in SEGHL, subject to the fulfillment of certain conditions to be included in the Conditional Sale and Purchase Agreement (CSPA). Based on the MoU and CSPA, BRPT will acquire 66.67% stake in SEGHPL from Mr. Prajogo Pangestu at USD 755mn. To finance the acquisition, BRPT plans to conduct rights issue by issuing up to 5.6bn of new shares (26.72% of potential dilution) and 1.4bn of warrants (6.68% of potential diluation), targeting targets up to USD 1bn of the rights issue proceeds. Of the rights issue proceeds, 52% will be used to finance the acquisition of 66.67% stake in SEGHPL, 25% for debt repayment, and the remaining balance for working capital and future expansions. This transaction is an affiliated transaction wherein both buyer and seller are controlled by the same party, namely Mr. Prajogo Pangestu. BRPT has paid USD mn as down payment to Mr. Prajogo Pangestu for the acquisitions. FIGURE 28. SEGHL CORPORATE STRUCTURE POST ACQUISITION Source: BRPT press release on 13 Dec 2017 New venture into renewable energy will complement against petrochemical cyclicality. Assuming annual EBITDA of USD 400mn from SEGHL, we estimate BRPT s EBITDA could reach USD 873mn in 2018, as we forecast USD 473mn EBITDA from existing assets. Stable EBITDA from SEGHL will help to cushion against the petrochemical cycle given the stable nature of the business, which currently represents 100% of total EBITDA. Note that BRPT s EBITDA increased from USD 86mn in 2013 to USD 538mn in 2017, driven by higher production capacity and favorable crude oil price. In April 2016, Wayang Windu geothermal project has been granted an increase in the power purchase rate by around 49.2% from the existing rate, which has significantly increased earnings. More potential earnings upside if Darajat and Salak projects also Please see important disclosure at the back of this report Page 11 of 39

12 received higher power purchase rate as the power purchase tariff based on the ministry of ESDM regulation No.12/2017 will be based on the negotiation between IPP and PLN. However, the geothermal business is not without risk, as its Wayang Windu geothermal project ceased operation between May to September 2015 due to the landslide caused by continuous rain resulting in soil liquefaction, worsened with the invasion and deforestation by the locals in the neighboring area which damaged the steam pipes. Based on the prospectus released in Dec 17, the combined revenue of SEGHL in FY17 stood at USD 422.9mn with USD 95.1mn of net profit (see appendix for details). However, we believe the figure will be higher in 2018 with the expected full contribution from Salak and Darajat power plants. Assuming annual EBITDA of USD 400mn from SEGHL, we estimate BRPT s EBITDA could reach USD 873mn in 2018, as we forecast USD 473mn EBITDA from existing assets. FIGURE 29. EBITDA AND EBITDA MARGIN US$mn FIGURE 30. NET PROFIT AND NET MARGIN US$mn % 78% 76% 74% 72% 70% 68% 66% 64% 62% 60% 58% % 40% 35% 30% 25% 20% 15% 10% 5% 0% Wayang Windu Salak Darajat EBITDA margin Wayang Windu Salak Darajat Net margin Source: BCPG Public Company Source: BCPG Public Company Expanding into coal-fired power plant. Barito plans to expand into coal-fired power plant through partnership with Indonesia Power (PLN s subsidirary) to build 2x1,000MW in Suralaya, Banten province, closed to the existing Suralaya coal-fired power plants no 1-8, with estimated USD3bn of investment. The power plants will adopt ultra-supercritical technology which is environmental friendly and allows higher energy conversion efficiency compared to the previous conventional technology. The Energy Ministry expects PLTU Jawa 9 and 10 to begin operations by A 25-year power purchase agreement has been signed by the developer and PLN. Please see important disclosure at the back of this report Page 12 of 39

13 FIGURE 31. TPIA ASSUMPTIONS F 2018F 2019F 2020F 2021F 2022F Plant Capacity ('000 pa) Ethylene Propylene Py-Gas Mixed C Polyethylene Polypropylene Styrene Monomer Butadiene Plant Utilization Rate (%) F 2018F 2019F 2020F 2021F 2022F Ethylene 89% 99% 94% 57% 90% 98% 95% 95% 85% 95% 95% Py-Gas 75% 76% 65% 30% 58% 71% 68% 68% 61% 71% 71% Propylene 91% 102% 93% 39% 88% 97% 93% 93% 83% 97% 97% Polyethylene 100% 94% 93% 80% 95% 100% 97% 97% 51% 84% 86% Polypropylene 96% 95% 99% 92% 94% 98% 84% 96% 92% 96% 96% Styrene Monomer 89% 95% 74% 69% 85% 89% 95% 95% 90% 95% 95% Butadiene 76% 76% 79% 47% 87% 105% 80% 95% 95% 95% 95% Sales Volume (in '000 t) F 2018F 2019F 2020F 2021F 2022F Ethylene Propylene Py-Gas Mixed C Polyethylene Polypropylene Styrene Monomer Butadiene Raffinate-1 - by product of C Total Sales Volume 1,621 1,671 1,682 1,233 2,025 2,244 2,209 2,304 2,169 2,550 2,558 Please see important disclosure at the back of this report Page 13 of 39

14 Price (USD/ton) F 2018F 2019F 2020F 2021F 2022F Ethylene 1,292 1,368 1,378 1, ,058 1,099 1,105 1,110 1,115 1,127 Propylene 1,274 1,362 1, Py-Gas 998 1, Mixed C4 1,403 1, Polyethylene 1,471 1,584 1,642 1,359 1,228 1,416 1,523 1,530 1,537 1,543 1,555 Polypropylene 1,553 1,621 1,670 1,249 1,167 1,092 1,168 1,177 1,187 1,197 1,208 Styrene Monomer 1,449 1,730 1,629 1,094 1,032 1,265 1,352 1,363 1,374 1,385 1,397 Butadiene 1,509 1, ,540 1,754 1,781 1,809 1,837 1,865 Raffinate-1 1,048 1, Sales (USD mio) F 2018F 2019F 2020F 2021F 2022F Olefin: Ethylene Propylene Py-Gas Mixed C Polyolefin: Polyethylene Polypropylene Styrene Monomer Butadiene Raffinate Tanks and jetty rental Total 2,274 2,495 2,472 1,412 1,930 2,377 2,517 2,654 2,579 3,163 3,214 Sales by business segments (US$m): F 2018F 2019F 2020F 2021F 2022F Olefin (ethylene, propylene, py-gas, mixed C4) Polyolefin (polyethylene, polypropylene) 1,194 1,272 1, ,045 1,133 1,186 1,593 1,628 Styrene Monomer Butadiene n Raffinate Tanks and jetty rental Total 2,274 2,495 2,472 1,412 1,930 2,377 2,517 2,654 2,579 3,163 3,214 Source: Company, Mandiri Sekuritas Estimates Please see important disclosure at the back of this report Page 14 of 39

15 Indonesia s Geothermal Potential Indonesia has set an ambitious target to reduce fossil-fuel energy consumption and to increase exposure to the new renewable energy (NRE). In 2015, NRE only accounts for 5% of Indonesia s energy consumption and the Government targets 23% in 2025 and 31% in At the moment, Indonesia has 1.6 GW of geothermal capacity and this is expected to increase to 7.2 GW by 2025, as many geothermal projects are in the construction pipeline. We believe the energy master plan can be achieved, as Indonesia has tremendous potential geothermal resource and reserve at 11 GW and 17.5 GW, respectively. FIGURE 32. INDONESIA S ENERGY CONSUMPTION Gas, 23% NRE, 5% 166 MTOE Oil, 46% NRE, 23% 412 MTOE Oil, 25% NRE, 31% Oil, 20% 1,030 MTOE Coal, 26% Gas, 22% Coal, 30% Gas, 24% Coal, 25% Source: Indonesian Geothermal Association In 2016 Indonesia had 1.6 GW of geothermal, growing at 6% CAGR FY06-16 (vs. 2.2% CAGR global average). There are currently 54 geothermal projects under development for an additional capacity of 5.3 GW. Indonesia plans to increase geothermal capacity to 7.2 GW by 2025 (18% CAGR FY16-25), thus it will have one of the largest geothermal plant capacities in the world. This will be supported by a huge potential of geothermal reserves and resources of 11 GW and 17.5 GW, respectively. Sumatera, Java, and Sulawesi contribute 86% of the total reserve and resources. FIGURE 33. GEOTHERMAL POTENTIAL IN INDONESIA Location Location Number Resource Potential Energy (Mwe) Reserve Speculative Hypotetic Probable Possible Proven Sumatera 97 2,893 1,935 5, Java 73 1,410 1,689 3,949 1,373 1,865 Bali Nusa Tenggara Kalimantan Sulawesi 78 1, , Maluku Papua Total 331 Source: Indonesian Geothermal Association 6,596 4,477 12,046 2,493 2,967 11,073 17,506 Please see important disclosure at the back of this report Page 15 of 39

16 FIGURE 34. PLN S MAP OF GEOTHERMAL DEVELOPMENT Source: PT. Perusahaan Listrik Negara (PLN), Mandiri Sekuritas FIGURE 35. INDONESIA S GEOTHERMAL CAPACITY FIGURE 36. PLN POWER PLANT COGS THROUGHOUT INDONESIA Capacity (GMW) cusd/kwh avg 2016: cusd7,39/kwh Source: Ministry of Energy and Resources of Republic of Indonesia Source: Indonesian Geothermal Association Geothermal regulation by the Indonesian Government 1. Geothermal is not considered as mining activities. It is different with the previous law that regulates geothermal as mining activities. We believe having a non-mining status will give benefit for Indonesia s geothermal industry. Previously with mining activities status, the exploration areas are limited, as they are commonly located at conservations or restricted forests. Thus, the new status will lead to more space for geothermal players for exploration activities. 2. Geothermal exploitation permits. The new law classifies 2 geothermal activity permits, which are direct and non-direct developments. Direct activity is aimed for non-electricity needs, while non-direct is focused to supply electricity power. The Central Government has full authority to give borrowing permits (not permanentuse permits) for non-direct activities to operate in restricted forest areas, and to supervise all the geothermal activities in Indonesia. The geothermal permits have a maximum contract period of 37 years and may be extended by a maximum of 20 years at each renewal. Please see important disclosure at the back of this report Page 16 of 39

17 Regulation of Ministry of Energy and Mineral Resources (MEMR) no.12/2017 concerning the electricity tariff for renewable energy. This regulation sets out guidance for PLN regarding the purchase of electricity from IPPs that utilize renewable energy, such as solar, wind, and geothermal. In general, the tariff for renewable energy is determined through negotiations between each IPP and PLN by benchmarking to the regional BPP where the project is installed. For example, if the regional BPP is higher than the national BPP, the purchase price of electricity from the IPP will be based on negotiations with PLN with maximum price at 100% of regional IPP. The Government applies more flexibility for geothermal projects developed in Java and other regions where the local electricity generation cost (BPP) is lower than the national BPP; a negotiation between PLN and IPP will be used to determine the tariff. FIGURE 37. BPP - REGIONAL AND NATIONAL BPP (USDc/kWh) National BPP USDc 7.4/kWh FIGURE 38. POWER PURCHASE TARIFF BASED ON BPP Renewable energy Local grid BPP > National BPP Tariff Local grid BPP<=National BPP Solar Max 85% of local grid BPP 100% of local grid BPP Wind Max 85% of local grid BPP 100% of local grid BPP Geothermal Max 100% of local grid BPP Negotiation between PLN and IPP Source: ESDM regulation no 1404 K/20/MEM/2017 Source: ESDM regulation No.12/2017 Regulation of the Ministry of Finance (MOF) no. 3/2012 regarding the risk mitigation for geothermal projects in Indonesia. The Indonesian Government wants to minimize the risk on geothermal projects in Indonesia by creating a pool of funds called the Geothermal Fund Facility (GFF). As of 2017, about Rp3tn is in the risk mitigation pooled fund. GFF helps investor by giving them 2 supports, which are data collecting and loan facility. Data collecting helps companies on pre-exploration stage, while loan facility helps them finance their exploration activities. The tender winning companies need to pay back the cost of data collecting with 5% margin. Furthermore, the GFF loans have a maximum of 48 months for the borrowing company to repay the debt. Please see important disclosure at the back of this report Page 17 of 39

18 Company Profile BRPT is the controlling shareholder of the largest petrochemical company in Indonesia through its 46.3% stake in TPIA. BRPT was established in 1979 under the name of Bumi Raya Pura Mas Kalimantan as an integrated timber-based company. The company discontinued its timber business due to the Asian financial crisis in the late-90s and started to enter the petrochemical business through the acquisition of Chandra Asri (2007) and Tri Polyta Indonesia (2008). Other than petrochemical, BRPT also has exposure to the property, forestry, and plantation sector (2% of total revenue). BRPT plans to expand into the power sector through the acquisition of majority stake in Star Energy, Indonesia s largest geothermal power plant operator, which is expected to be completed in 1H18. FIGURE 39. COMPANY STRUCTURE Source: Company, Mandiri Sekuritas Please see important disclosure at the back of this report Page 18 of 39

19 FIGURE 40. COMPANY MILESTONE Years Key highlights 1979 Established under the name of PT Bumi Raya Pura Mas Kalimantan as an integrated wood-based company. Barito Pacific was highly regarded in forestry and timber industry in the 1980s Listed its shares in Indonesia Stock Exchange as PT Barito Pacific Timber Late 1990s Company discontinued the production plywood following the Asian financial crisis and downsizing its timber based operation while diversifying its business to other resource-based industries 2007 Acquired Chandra Asri in 2007 to become the major shareholders with 70% company's shares. Changed its name from PT Barito Pacific Timber to Barito Pacific 2008 Acquired Tri Polyta Indonesia,a major downstream producer of polypropylene 2010 Acquired PT Royal Indo Mandiri, set a footstepin palm-oil industry 2011 Merged between PT Chandra Asri and PT Tri Polyta Indonesia Tbk to become PT Chandra Asri Petrochemical Tbk. Released 7.13% of PT Chandra Asri Petrochemical share ownership to SCG Chemicals Co.Ltd 2013 Completed butadiene plant with 100 KTPA owned by PT Petrokimia Butadiene Indonesia Announced partnership to set up a joint venture to build a synthetic rubber plant between PT Chandra Asri Petrochemical and Compagnie Financiere Michelin Butadiene plant started its commercial operation 2015 Naptha cracker expansion (43% increased production capacity) by PT Chandra Asri Petrochemical was completed. Griya Idola started to develop an integrated industrial park of 50ha in West Jakarta 2016 Paid advance payment to acquire Star Energy Group Holdings Pte.ltd with loan facility from Bangkok Bank Public Company Limited. Signed a partnership with Univation technologies to build 400-KTPA polyethylene plant Source: Company TPIA is the largest integrated petrochemical company in Indonesia and is a result of a merger between PT Tri Polyta Indonesia (TPI) and PT Chandra Asri (CA) on 1 January TPI was the largest polypropylene producer and was established in 1988, while CA was the producer of olefins and polyethylene products, established in Currently, TPIA is owned by two major shareholders, Barito Pacific Group (46.26%) and SCG Chemicals, Ltd (SCG), a subsidiary of SCG Group, Thailand (30.57%), which entered in The public owns the remaining 8.35% shares. In total, TPIA s total capacity is 3,301 KTPA for various products and its productions are located in two plants (total area of 134ha), both easily accessible through the Jakarta- Cilegon toll road. The main plant is located in Ciwandan, Cilegon, Banten (western tip of Java Island) with an 860 KTPA naphtha cracker and production facilities for: 1,330 KTPA of olefins (860 KTPA of ethylene and 470 KTPA of propylene), 400 KTPA of pyrolysis-gasoline (py-gas), and 315 KTPA of Mixed-C4 816 KTPA of polyolefins (200 KTPA of linear low-density polyethylene/lldpe, 336 KTPA of High Density Polyethylene/HDPE, and 480 KTPA of polypropylene) 100 KTPA of butadiene, under PT Petrokimia Butadiene Indonesia (PBI). The second facility is under the wholly owned PT Styrindo Mono Indonesia (SMI), located 40km NE of the main plant in Serang, which can produce: 340 KTPA of styrene monomer The petrochemical complex is supported by facilities for: Storage: 17 tanks for 279,000 kilo liter capacity for naphtha, 69,000-ton capacity for ethylene, propylene, and py-gas, and a 70,000 ton warehouse for polyethylene and polypropylene. Water treatment plant: 2 trains to treat 5,760 tons of water a day. Pipelines: 45-km pipeline to deliver ethylene and propylene to customers, tank farms, and jetties. Jetties: 3 jetties with total capacity of 96,000-DWT vessels (Jetty A: 80,000 DWT for naphtha, LP propylene, and py-gas; Jetty B: 6,000 DWT for propylene, LPG, and naphtha; and Jetty C: 10,000 DWT for ethylene, py-gas, raffinate-1, butadiene, naphtha, and PFO). Please see important disclosure at the back of this report Page 19 of 39

20 Power utilities: MW Gas-Turbine Generator (GTG) and MW Steam- Turbine Generator (STG) to supply 50% of the power for the naphtha cracker, polyethylene, and butadiene plants in addition to PLN's power supply. In addition to the existing facilities, through PT Styrindo Mono Indonesia, TPIA has a 45:55 JV with Compagnie Financiere du Grupe Michelin (Michelin) in PT Synthetic Rubber Indonesia to produce the raw material for environmental friendly tires, using butadiene and styrene monomer products as the feedstock for synthetic rubber. Construction of the 120 KTPA (USD 570m) facility is already 78% accomplished as of March 2017 with the completion slated for 1Q18. FIGURE 41. TPIA S FACILITIES ARE STRATEGICALLY LOCATED IN THE WESTERN PART OF JAVA ISLAND Source: Company Please see important disclosure at the back of this report Page 20 of 39

21 Product Portfolio TPIA's products are the basic materials to produce a wide variety of consumer and industrial products, such as plastic packaging, containers, automotive parts, and construction materials. They are thus related to the consumer product industries all across the country. TPIA imports the raw material of naphtha, which through the process in the naphtha cracker plant facility is turned into ethylene and propylene, known as monomers (molecule that may bind chemically or supramolecularly to other molecules to form a supramolecular polymer through polymerization), plus by-products of py-gas and mixed C4. Ethylene is used as raw material for polyethylene and a number of other chemical intermediaries, such as styrene monomer, ethylene oxide, acetic acid, ethyl benzene, and vinyl chloride monomer. Polyethylene resin is sold under the trademark brand Asrene, which covers High Density Polyethylene (HDPE) and Linear Low-Density Polyethylene (LLDPE) products. TPIA also produces resin used for environmental friendly shopping bags under the trademark Grene. Other end product applications include agriculture films, flexible packaging, fishnets, tarpaulins, clean water pipes, jerrycans, cosmetics, and food grade bottles. Styrene monomer is the raw material for Polystyrene (PS), Expanded Polystyrene (EPS), Styrene Acrylonitrile (SAN), Acrylonitrile Butadiene Styrene (ABS), Styrene Butadiene Rubber (SBR), Styrene Butadiene Latex (SBL), and Unsaturated Polyester Resin (UPR). Some end product applications of styrene monomer are shoe soles, drinking cups, food containers, automotive and electronic parts, building block toys, and helmets. Propylene is used as raw material for polypropylene, which is sold under the trademark brand Trilene. Some end product applications include flexible packaging (IPP, BOPP, CPP), household appliances, yarn, non-woven bags, furniture, and automotive and electronic parts. Py-gas is further processed to produce higher value-added products such as benzene, toluene, and xylene. Mixed C4 is used to make butadiene, a raw material for the production of ABS, SBL, SBR, and PBR, the raw material to make tires. Some end product applications are rubber boots, rubber gloves, shoe soles, adhesive, and sealants. The following figure shows how the company s products are used to make goods which are easily found around us. Everything that is plastic-based counts as a petrochemical product. Please see important disclosure at the back of this report Page 21 of 39

22 FIGURE 42. TPIA'S PRODUCTS AND END PRODUCT APPLICATIONS Applications Total Demand Growth (2017E 2023E CAGR) Polyethylene Plastic Films Containers Bottles Plastic Bags PE 3.4% 3.9% 4.4% Polypropylene Packaging Films and sheets Fibers and filaments Toys Automotive parts PP 3.6% 4.2% 4.7% Styrene Monomer Drinking cups Food containers Car interiors Helmet padding SM 1.3% 2.3% 10.5% Butadiene Vehicle tires Synthetic rubber Gloves and footwear BD 2.4% 5.5% 17.7% Global SEA Indonesia Source: Nexant, Company FIGURE 43. INTEGRATED BUSINESS OPERATION Naphtha as the main raw material. The naphtha cracker plant is the center of the whole facility, where the oil refinery byproduct (naphtha, LPG, or condensate) is processed to produce upstream petrochemical products (ethylene, propylene, and by-products of pygas and mixed C4). TPIA imports the main raw material naphtha from various sources in Singapore, Malaysia, Thailand (from SCG), and the Middle East. The production flow for olefin (upstream), polyolefin (PE and PP), and the by-products can be seen in the following figure. Source: Company Raw Material Supply. TPIA has long standing stable relationships with its suppliers, resulting in no material disruption in raw material supply historically. The bulk of the raw material is naphtha, for which TPIA spent USD 873m in All of naphtha and benzene requirements are externally sourced, while ethylene and C4 are internally sourced through the naphtha process. For propylene, in 2016 TPIA produced 60% of it and sourced the remaining 40% externally. Of naphtha requirement, 76% of the purchase was done through contract purchase in 2016, up from 70% in With SCG synergy, TPIA has been able to benefit for the procurement of raw materials at cheaper prices. Of the naphtha suppliers, Vitol Asia was the largest in 2016, accounting for 34.8% share, followed by Marubeni Petroleum with 27.2% and SCG Chemicals with 9.4%. Please see important disclosure at the back of this report Page 22 of 39

23 FIGURE 44. SOURCE OF MAIN RAW MATERIALS IN 2016 FIGURE 45. NAPHTHA SUPPLIERS IN % 60% 100% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 100% 40% 100% 0% Benzene Propylene Ethylene Naphta/LPG C4 Externally Sourced Internally Sourced Source: Company Supplier US$ M % Vitol Asia Pte Ltd Marubeni Petroleum C Ltd SCG Chemicals Co. Ltd Chevron U.S.A. Inc Shell Int l Eastern Trading Kuwait Petroleum Corporation Shell MDS (Malaysia) Sendirian Titis Sampurna Consortium Surya Mandala Sakti Sadikun Chemical Indonesia Others Total % Source: Company Please see important disclosure at the back of this report Page 23 of 39

24 Industry Outlook FIGURE 46. PRINCIPAL PETROCHEMICAL VALUE CHAIN Derived from petroleum and hydrocarbon sources, petrochemical products play an integral role as building blocks for a wide variety of materials and applications, ranging from consumer products to automotive manufacturing. Despite being a global scale industry, most of the product demand is from the Asian region, where the industrial and manufacturing sectors are thriving rapidly. Hence, we believe this provides lucrative growth opportunities for Indonesian petrochemical companies. Source: Nexant Naphtha the primary feedstock What is naphtha? A highly inflammable mixture of hydrocarbons produced by distillation of crude oil, tar, peat, and natural gas condensates. To be used as feedstock for petrochemical plants, naphtha undergoes steam cracking to produce light petrochemical products (ethylene & propylene) and reforming to produce aromatic petrochemical products (benzene, toluene, and xylene). Other uses of Naphtha include gasoline blending to improve octane number and power generation in power plants, steel industry, fertilizer plants, and overall heat generation. What drives the demand and supply? TechSci Research estimated that the aforementioned uses of naphtha would lead to a surge in demand across the globe. Global naphtha consumption is projected to reach 960mn MT by 2026, mainly driven by Asia Pacific s growing gasoline and petrochemical consumptions. Meanwhile, the supply is heavily linked with the production of crude oil, which serves as the main feedstock for naphtha. We also found that naphtha price is strongly correlated with both Brent and WTI crude oil price (see Figure 48). Please see important disclosure at the back of this report Page 24 of 39

25 FIGURE 47. NAPHTHA CRUDE OIL MOVEMENTS US$ 1,200 1, US$ FIGURE 48. NAPHTHA PRICE TREND US$ % 11% 10% 10% 8% 9% 7% 8% 6% 4% 3% 4% 2% 1% 0% 3% 6% 8% 7% 8% 9% % 10% 5% 0% 5% 10% 15% 19% 20% 25% Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Naphtha Brent Oil WTI Naphtha growth Source: Bloomberg Source: Bloomberg Olefin market The very base of petrochemical. Base olefins (ethylene and propylene) hold an important role in the petrochemical industry as the primary building blocks for numerous chemical intermediates, polymers, and rubbers which are used in a wide variety of manufacturing activities. In 2016 Nexant estimated that global olefins consumption has reached 244m tons, of which 64% was consumed directly to make polyolefin (polyethylene & polypropylene), while the rest used as intermediaries, turned to oxide, and used in other purposes. FIGURE 49. GLOBAL OLEFINS CONSUMPTION BY END USE (2016) 5% FIGURE 50. GLOBAL OLEFIN CAPACITY BY REGION (2017) 6% 7% 12% 37% Polyethylene Polypropylene Intermediate Oxides Others 19% 23% 35% SEA China MEA Europe Americas Asia Pacific - exc. SEA & China 14% 27% 15% Source: Nexant Source: Nexant A period of robust expansion. In an effort to capture lucrative business prospects, petrochemical companies have heavily invested in adding olefin capacities over the years. Nexant estimates an additional 72mn MTPA of olefins capacity to come into play by 2023 with significant additions in: China (25mn MTPA). The construction of new refineries in China has driven investments in new naphtha cracking complexes. Nexant estimates China would add 5mn MTPA of ethylene and 10mn MTPA of propylene capacities by The Americas (17mn MTPA). With increasing feedstock supply, especially ethane and other natural gas liquids from processed shale gas, petrochemical producers in the region have enjoyed increasing production cost competitiveness, which drove new investments in the region. Please see important disclosure at the back of this report Page 25 of 39

26 Middle East-Africa (11mn MTPA). Middle Eastern and African producers have been enjoying abundant feedstock within the region; however, the increasing number of lower cost feedstock, such as ethane, has slightly hindered new capacity developments in the region. Global outlook - upward trend at a slower pace. With 67% usage as feedstock for polyolefin products, we believe olefin s outlook and trend would mimic the price of the derivative products and of crude oil. Looking back, we noticed olefin demand has slowly regained its momentum with 236mn MT (+4.0% y-y) and 246m MT (+4.2% y-y) of olefin consumptions in 2015 and 2016, respectively. However, Nexant expects olefins longterm growth to tone down to 3.3% ( F), mainly attributed to China s maturing market, which accounts for around one-third of the regional demand and serves as the largest market for ethylene in Asia. FIGURE 51. GLOBAL OLEFINS PRODUCTION & CAPACITY Mn MTPA % 4.7% 4.8% 5% 300 5% 4.5% % 4.2% 4% % 3.6% 3.6% 4% % 3% 3.0% 100 3% % 2% - 2% F 2018F 2019F Consumption Capacity Growth - Consumption (y-y) Growth - Capacity (y-y) Source: Nexant, Bloomberg FIGURE 52. GLOBAL OLEFINS CAPACITY AND UTILIZATION RATE 000 MTPA % % 88.5% % 88.0% % 87.9% 87.4% 87.5% % 87.0% % % F 2018F 2019F Capacity Additional Capacity Operating Rate Source: Nexant, Bloomberg Ethylene. Derived from thermal cracking of ethane and naphtha, ethylene is used to make polyester and chemical intermediates. Since it is mostly used for captive consumption, ethylene is considered as a pure commodity with no product differentiation between different supply sources. Therefore, producers cost efficiency largely dictates the price. Generally, the largest cost component for naphtha cracker is the cost of raw material, with around three tons of naphtha required to produce one ton of ethylene. Hence, the ethylene-naphtha spread is presentable as a proxy of a cracker s profitability. The overall spread over naphtha increased in 1Q17 as a result of tighter ethylene supply in the market. Going forward, Nexant estimates ethylene profitability level to remain good over F and normalize from In terms of volume, Nexant expects global ethylene to grow 3.2% CAGR F. FIGURE 53. GLOBAL ETHYLENE PRODUCTION Mn MTPA 200, % 88.6% 180, % 160, , % 87.8% 120, % 100, % 80,000 60,000 40,000 20, F 2018F 2019F Capacity Consumption Operating Rate Source: Nexant, Bloomberg 89.0% 88.5% 88.0% 87.5% 87.0% 86.5% 86.0% 85.5% FIGURE 54. ETHYLENE-NAPHTHA SPREAD MOVEMENTS 1,600 1,400 1,200 1, Naphtha (USD/MT) Ethylene (USD/MT) spread Source: Bloomberg Please see important disclosure at the back of this report Page 26 of 39

27 Propylene. An organic chemical base, colorless, flammable hydrocarbon obtained from thermal cracking of either gas liquids (ethane, propane, and butane) or petroleum liquids (naphtha and gas oils). Propylene is not presentable as a proxy of a cracker s profitability, since the majority is produced as co-products. Looking back, Asia-Pacific's propylene market contracted in 1Q17 due to lower seasonal demand from the main derivative product, polypropylene. Going forward, Nexant expects polypropylene to recover with 3.4% CAGR F with principal demand drivers from packaging, automotive, construction, and electrical/electronic markets. FIGURE 55. GLOBAL PROPYLENE PRODUCTION Mn MTPA 140, % 88.2% 120, % 87.7% 100,000 80, % 86.4% 60, % 40,000 20, F 2018F 2019F Capacity Consumption Operating Rate Source: Nexant, Bloomberg 88.5% 88.0% 87.5% 87.0% 86.5% 86.0% 85.5% 85.0% 84.5% FIGURE 56. PROPYLENE-NAPHTHA SPREAD MOVEMENTS 1,200 1, Naphtha (USD/MT) Propylene (USD/MT) spread Source: Bloomberg Olefin summary. All in all, Nexant expects ethylene consumption to increase by 3.2% and propylene by 3.4% CAGR F. While in terms of growth by region, Nexant expects China to lead the pack with 4.5%, followed by SEA, excluding Indonesia and the Americas with 3.7% CAGR F each. It is worth noting that Indonesia s growth would remain below the global average, at 2.6% (global: 3.3%). FIGURE 57. NEXANT OLEFIN GROWTH ESTIMATES ( F) Mn MTPA +3.2% % F 2018F 2019F F 2018F 2019F Ethylene Propylene Source: Bloomberg, Nexant FIGURE 58. NEXANT OLEFIN GROWTH BY REGION ( F) Americas 3.7% Europe 2.6% Middle East & Africa 3.5% China 4.5% SEA - exc. Indonesia 3.7% Indonesia 2.6% Asia Pacific - exc. SEA & China 1.2% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Source: Company, Mandiri Sekuritas Please see important disclosure at the back of this report Page 27 of 39

28 Polyolefin Market Multi-purpose derived products. Consisting of long-chains of monomer ethylene or propylene, polyolefin is regarded as commodity thermoplastic polymer with various range of applications, including for consumer goods, automotive parts, construction material, packaging, and agriculture. Polyethylene, a result of chemical combination of ethylene, is the world s most widelyconsumed thermoplastic. It consists of three main types, namely: Low Density Polyethylene (LDPE) Linear Low-Density Polyethylene (LLDPE) High Density Polyethylene (HDPE) LLDPE and LDPE are predominantly used in film applications for packaging materials, while HDPE is a more versatile polymer which can be used in film and also in non-film applications, such as for containers, bottle caps, and crates. However, individually, polypropylene had the largest market share of 41% in terms of global polyolefin consumption, followed by HDPE (26%), LLDPE (19%), and LDPE (14%). Global outlook - growing along household consumption. With 41% usage as feedstock for polypropylene, we expect polyolefin s outlook and trend to follow its derivative products, mainly consumer goods and product packaging. Hence, we conclude polyolefin would grow along domestic household consumption of consumer products. Nexant estimates China s polyolefin consumption has reached 46mn MT, accounting for 30% of the global demand. Going forward, Nexant believes the global polyolefin market would become increasingly dependent on Chinese demand growth. Linear Low-Density Polyethylene (LLDPE). Mainly used in film and packaging applications, LLDPE competes directly with LDPE. However, LLDPE has lately been preferable due to its higher tensile strength and superior puncture & tear resistance compared to its LDPE counterpart. However, in 1Q17, LLDPE demand was relatively muted due to a combination of seasonal slowdown and high inventory level. Going forward, Nexant expects producer margins to improve over , as there s possibility of limited additional capacity in the near term. FIGURE 59. GLOBAL LLDPE PRODUCTION & CAPACITY Mn MTPA % 90.1% % % % 83.1% % F 2018F 2019F Capacity Consumption Operating Rate Source: Bloomberg, Nexant 92.0% 90.0% 88.0% 86.0% 84.0% 82.0% 80.0% 78.0% 76.0% FIGURE 60. LLDPE CAPACITY & CONSUMPTION GROWTH Mn MTPA % 10.3% 10.0% 6.4% 5.0% 5.6% 5.1% 5.0% 4.9% 4.8% 5.6% 3.6% 3.2% 3.3% 0.0% -5.0% -10.0% -11.2% -15.0% F 2018F 2019F Consumption Capacity Growth - Consumption (y-y) Growth - Capacity (y-y) Source: Bloomberg, Nexant High Density Polyethylene (HDPE). HDPE is mainly used for blow and injection mounding applications. It competes directly with polypropylene. The demand for HDPE was also weak in 1Q17, also caused by a combination of seasonal slowdown and high inventory level. This was exacerbated by additional HDPE capacity from India, which commenced operation in 1Q17. Going forward, Nexant expects polyethylene demand to recover with 3.4% CAGR F, along with improving profitability in overall polyethylene products. Please see important disclosure at the back of this report Page 28 of 39

29 FIGURE 61. GLOBAL HDPE PRODUCTION & CAPACITY Mn MTPA % % % 85.4% % 84.2% 83.9% F 2018F 2019F Capacity Consumption Operating Rate Source: Bloomberg, Nexant 88.0% 87.0% 86.0% 85.0% 84.0% 83.0% 82.0% FIGURE 62. POLYETHYLENE NAPHTHA SPREAD MOVEMENT 2,000 1,800 1,600 1,400 1,200 1, Naphtha (USD/MT) Polyethylene spread Source: Bloomberg, Nexant Polypropylene. Derived from polymerization of propylene, polypropylene is used in a wide variety of manufacturing industries, such as for packaging materials, toys, house wares, mechanical parts, and synthetic fibers. Approximately one-third of propylene in Asia Pacific is used for injection mounding application. Hence, it directly competes with HDPE and polystyrene. Going forward, Nexant estimates polypropylene demand to grow by 3.6% on the back of strong regional demand from Asia Pacific. FIGURE 63. GLOBAL HDPE PRODUCTION & CAPACITY Mn MTPA % % % 85.0% 85.2% % % F 2018F 2019F Capacity Consumption Operating Rate Source: Bloomberg, Nexant 87.0% 86.0% 85.0% 84.0% 83.0% 82.0% 81.0% FIGURE 64. POLYPROPYLENE-NAPHTHA SPREAD MOVEMENT 1,600 1,400 1,200 1, Naphtha (USD/MT) Polypropylene spread Source: Bloomberg Polyolefin summary. All in all, Nexant expects polyethylene consumption to increase by 3.4% and polypropylene by 3.6% CAGR F. In terms of growth by region, Nexant expects Indonesia to lead the pack with 4.6% CAGR F, followed by China (4.4%) and Asia Pacific exc. SEA & China (4.1%). Indonesia s growth would be supported by the thriving consumer goods and automotive business, as well as the growing petrochemical market. Please see important disclosure at the back of this report Page 29 of 39

30 FIGURE 65. NEXANT POLYOLEFIN GROWTH ESTIMATES ( F) Mn MTPA % % F 2018F 2019F F 2018F 2019F Polyethylene Polypropylene Source: Bloomberg, Nexant FIGURE 66. NEXANT POLYOLEFIN GROWTH BY REGION ( F) Americas 2.8% Europe 1.6% Middle East & Africa 4.0% China 4.4% SEA - exc. Indonesia 3.8% Indonesia 4.6% Asia Pacific - exc. SEA & China 4.1% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Source: Bloomberg, Nexant Butadiene Market Butadiene. This substance is mainly used as feedstock for the production of a wide variety of synthetic rubbers and polymer resins. To produce synthetic rubber, butadiene has to be homopolymerized (polybutadiene or butadiene rubber) or copolymerized with a number of monomers, such as styrene (synthetic butadiene rubber) and acrylonitrile (nitrile rubber). Butadiene can also be used to produce engineering resins and nylons through polymerization. Most butadiene usages are correlated with the automotive sector, as more than half of the global demand is used for synthetic rubber production. Global outlook - propelled by Asia s thriving automotive industry. The relocation of automotive industries to Asia has managed to invigorate the investment appetite among the region s petrochemical producers. Based on Nexant, Asia is the largest butadiene consumer in the world, representing more than half of global butadiene demand, which reached 11mn MT (+3.8% y-y) in In terms of usage, 59% of global butadiene consumption derived from synthetic butadiene rubber (SRB) and butadiene rubber (BR) productions, which are used to manufacture automotive tires. Going forward, Nexant estimates global butadiene demand to grow at a modest 2.4% CAGR F with significant growth in SEA and Indonesia. FIGURE 67. BUTADIENE-NAPHTHA SPREAD MOVEMENT FIGURE 68. NEXANT BUTADIENE GROWTH BY REGION (2017-3,500 3,000 23F) Americas 0.5% 2,500 Europe 2.1% 2,000 Middle East & Africa 7.9% 1,500 1, China SEA - exc. Indonesia Indonesia Asia Pacific - exc. SEA & China 1.1% 3.8% 3.6% 17.7% Source: Bloomberg, Nexant Naphtha (USD/MT) Butadiene spread Source: Company, Mandiri Sekuritas 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%12.0%14.0%16.0%18.0%20.0% Please see important disclosure at the back of this report Page 30 of 39

31 Styrene Monomer Market Styrene monomer. Often defined as a true commodity, styrene monomer is manufactured in large quantities by similar process technologies with identical specifications. This substance acts as an intermediate product used in the production of various plastics and rubbers. Nexant estimates that global styrene monomer demand in 2016 will reach 29mn MT, of which 11mn MT (38%) to be used to produce polystyrene, and 5mn MT (16%) to be processed into Acrylonitrile Butadiene Styrene (ABS), both of which are feedstock for plastic production. Global outlook also driven by household consumption. Because of the interpolymer competition, consumer behavior changes, and technology development, thus Nexant foresees the growth outlook for polystyrene would remain modest, below the global GDP. However, demand from Asia is expected to continue its upward trend above the global average. This would be primarily driven by addition of downstream capacity in China, India, and SEA to support the region s growing manufacturing industries and increasing wealth & urbanization. Going forward, Nexant estimates global styrene monomer demand to grow at 1.6% CAGR F with major growth in Indonesia. FIGURE 69. STYRENE MONOMER-NAPHTHA SPREAD MOVEMENT 1,600 FIGURE 70. NEXANT STYRENE MONOMER GROWTH BY REGION ( F) 1,400 Americas 0.7% 1,200 Europe 0.3% 1, Middle East & Africa 6.5% 600 China 2.7% 400 SEA - exc. Indonesia 0.7% 200 Indonesia Asia Pacific - exc. SEA & China 0.7% 10.5% Source: Bloomberg, Nexant Naphtha (USD/MT) Styrene Monomer spread Source: Company, Mandiri Sekuritas 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Please see important disclosure at the back of this report Page 31 of 39

32 Risk Factors Raw material supply. TPIA sources its naphtha requirement from third parties as well as one of the major shareholders, SCG. There are sufficient raw material supplies in the region for now, however, these suppliers also import their raw material (crude oil) from various parts of the world, thus any disruption in the supply will affect TPIA s supply continuity for naphtha, benzene, and (part of) propylene. 76% of the company's naphtha supply in 2016 was under contract with major oil trading companies, with which TPIA has long term relationships. Volatility in oil price exposes margin risk. TPIA s earnings will be affected by the volatility of oil price due to its significant portion to production cost. It is worth noting that naphtha is driven by oil price, yet the high oil price environment would potentially squeeze BRPT s margin as the correlation coefficient between naphtha and oil price is 99% (20167 Oil price US$54.75/barrel - EBITDA margin: 21.9%). Our sensitivity analysis indicates that every US$1 increase in oil price will impact net profit by 3-4%. Slower-than-expected expansion plant TPIA has strategic capacity expansion plan until 2020, such as additional 37KT of Butadiene and 120KT in SSBR in 2018, 400KT of PE and 110KT of PP in 2019, and 233KT consist of furnace revamp, MTBE and Butene plant. We have considered the additional capacity into our numbers, thus any delay in execution might lead to slower revenue generation by TPIA which would also impact to BRPT s income. New petrochemical supply in the market. Lotte Chemical Titan (TTNP MK) has set USD 3-4bn for a Greenfield naphtha cracker with 1mn ton of ethylene and 600k ton of propylene in Indonesia. The completion for this project is expected in The other new supply would come from Indo Thai Trading, a JV between Pertamina and PTT Global Chemical of Thailand, to build a petrochemical plant for polyolefin (1mn ton/year) and other derivative products (Butadiene, Pygas, MEG 1mn ton/year). Lastly on global supply, DowDuPont (NYSE: DWDP) has started up an ethylene production of 1.5mn ton capacity on the first phase. The company plans to invest another 2mn ton of ethylene for the next phase. Government regulations. Due to a lack of domestic supply, there is no major government regulation which prohibits the import or investment of petrochemical in Indonesia. However, once the Government thinks the industry needs to be protected, it will be no surprise to see a regulation introduced in the future aimed to benefit customers. Please see important disclosure at the back of this report Page 32 of 39

33 FIGURE 71. BOARD OF COMMISSIONERS Name Position Details President Commissioner (since 1993) A founder of Barito Pacific Group. Previously served as President Commissioner of PT Tri Polyta Indonesia Tbk from 1999 to 2010, Board of Commissioners of PT Astra International Tbk from 1993 to 1998, President Director of PT Chandra Asri from 1990 to 1999, Director of the Djajanti Timber Group from 1969 to 1976, and President Director of Barito Pacific from 1977 to 1993 Prajogo Pangestu Commissioner (since 1993) Began her career as a Commissioner of PT Barito Pacific Lumber in 1976 Harlina Tjandinegara Independent Commissioner (since 2014) He has also served as Commissioner of PT Asuransi Tripakarta Tbk. Prior to that, he worked at PT Bank Negara Indonesia (Persero) Tbk.. Alimin Handy Source: Company Please see important disclosure at the back of this report Page 33 of 39

34 FIGURE 72. BOARD OF DIRECTORS Name Position Details President Director (since 2013) Graduated from Boston College, United States of America, with a Bachelor s degree in Economics Science and Business Administration in Began his career in 1993 at Linkage Human Resources Management. He was then employed by Merrill Lynch, USA, as a Financial Analyst in Joined Barito Pacific in July 1997 and appointed as the Director of the Company in He was the Vice President Director from June 2002 to June Currently serves as a Commissioner of PT Chandra Asri Petrochemical Tbk. Agus Salim Pangestu Vice President Director (since 2017) A member of the government advisory team, mainly for privatization programs, loan syndication, mergers & acquisitions and types of financing programs with 23 years experience in the finance industry. He was appointed Director of Star Energy Group in 2004 and as President and Chief Executive Officer in And in June 2017, he was appointed Vice President Director of PT Barito Pacific Tbk. Rudy Suparman Independent Director (since 2003) Determines and coordinates the management of the Company with regard to the legal aspects with regard to corporate finance and human resources. He joined Barito Pacific as a General Manager of Finance. He began his career in 1977 at PT Dresser Magcobar Indonesia with the latest position as Chief Accountant Henky Susanto Director (Since 2003) Determines and coordinates the management of the Company with regard to legal aspects, and currently she also holds a position as the Company s Corporate Secretary. She joined Barito Pacific in 1988 with the latest position as a General Manager of the Legal Department. Salwati Agustina Source: Company Please see important disclosure at the back of this report Page 34 of 39