Indonesia Report Afr3gtrg2o20180102

Global Markets Research
ANCHOR REPORT
Indonesia strategy: Outlook 2018 – Time for a breather
End-2018F JCI target of 6,500 8 December 2017
Research analysts
Despite the strong longer-term structural story and relatively low market
positioning among foreign investors due to outflows YTD, we retain our Indonesia Strategy
Neutral view on Indonesia, as valuations are now close to peak, at 2SD Elvira Tjandrawinata - PTNSI
above the post-GFC average. This leaves no room for any elvira.tjandrawinata@nomura.com
disappointments in earnings growth or any risks from politics. +62 21 2991 3341
We expect earnings growth next year to decelerate to 13%, from c. 15% And the Indonesia research team
this year, hence we set our JCI target at 6,500 for end-2018F, based on Asia Economics
16x 12-month forward earnings, similar to current levels. Laggards in Euben Paracuelles - NSL
consumers, infrastructure and property offer value, while investors should euben.paracuelles@nomura.com
be more selective in banks and telcos, which we now rate as neutral. +65 6433 6956
Key themes and analysis in this Anchor Report include:

 Detailed updates on the progress of the government’s priority projects
and financing schemes for this year and the expectations for next year.
 As e-commerce gained more attention this year as the potential cause
for weak consumption, we provide a detailed analysis of market sizes,
funding trends, and the potential impact to sectors.
 Top picks: BBCA, BMRI, INDF, MAPI, ACES, PTPP, SMRA and SILO
— all rated Buy.
Production Complete: 2017-12-07 20:31 UTC
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Indonesia strategy
EQUITY STRATEGY
Outlook 2018: time for a breather Global Markets Research

8 December 2017
End-2018F JCI target of 6,500
Anchor themes
Reiterate our Neutral stance as peak valuations don’t allow for earnings or Macroeconomics and the longer-
political disappointments term story remain intact, but
Despite a scenario of accelerating economic growth driven by higher investments potential for significant near-term
and low positioning by foreign investors (given YTD outflows), we retain our upside appears challenging, as
Neutral view on Indonesia, as the market is trading at 16x 12-month forward valuations are close to peaks,
earnings, close to its peak (2SD above the post-GFC average). The extended leaving limited room for
valuations leave no room for any disappointments in earnings growth (which we disappointments.
forecast at 13% in 2018, slightly below this year’s 15%), or any risks from politics.
We set our JCI target at 6,500 by end-2018, assuming a 12-month forward PE of Research analysts
16x (similar to current levels). From here, we could turn positive again if: 1) the
market corrected to bring valuations to more attractive levels, and 2) further Indonesia Research Team
upgrades by rating agencies lead to sustained reductions in the costs of capital. Elvira Tjandrawinata - PTNSI
Stock selection is the name of the game elvira.tjandrawinata@nomura.com
+62 21 2991 3341
Investors would have outperformed the index this year if they were overweight
banks and commodities, as these two sectors have delivered strong earnings June Ng - NSM
june.ng@nomura.com
growth, driven by asset quality improvements and higher commodity prices. For
+60 3 2027 6894
2018, we believe investors will need to be more selective in terms of stocks, with a
focus of selecting those that have solid fundamentals and are reasonably valued. Deidy Wijaya, CFA - PTNSI
deidy.wijaya@nomura.com
Laggards in consumers, infrastructure and property offer value… +62 21 2991 3345
We are expecting a revival in consumers on improvements in the disposable Anthony Yunus - PTNSI
incomes of low-income households, given increased government social anthony.yunus@nomura.com
spending ahead of the general elections in 2019, the regional elections, and +62 21 2991 3348
the Asian Games. In the infrastructure space, clearer financing strategies Archit Kshetrapal - NSFSPL
should address one of the major concerns among investors, while lower archit.kshetrapal@nomura.com
supply in apartments and stabilization of prices in the secondary market +91 22 305 33193
should strengthen the outlook in property. Illona Freddy - PTNSI
illona.freddy@nomura.com
… but we have turned Neutral on banks and telcos +62 21 2991 3343
We are now more cautious on the other two big sectors in Indonesia: banks and
telcos. Significant outperformance this year for the banking sector has led our Gopa Kumar - NSL
gopa.kumar@nomura.com
analyst Marcus Chua to lower his Bullish stance on the sector to Neutral, as he +65 6433 6961
believes share prices now reflect the positives from improving asset quality and
Marcus Chua - NSL
stabilising NIM. But he reckons the sector has to show higher loans growth, which marcus.chua@nomura.com
may be hampered by the “wait-and-see” attitude among businesses closer to the +65 6433 6960
2019 elections, to justify valuations. Meanwhile, our telco analyst Gopa Kumar Guo Hao Yong - NSL
warns that competition in the space will remain elevated for at least the 1H2018. guohao.yong@nomura.com
+65 6433 6967
Fig. 1: Stocks for action (all rated Buy*)
Price Target Price
Company Bloomberg (IDR) (IDR) Upside YTD Price 3M ADTV Forward P/E Forward P/BV
Asia Economics
Name Ticker 4-Dec-17 4-Dec-17 (%) Perf. (%) (USD mn) 2017 2018 2017 2018
Euben Paracuelles - NSL
Bank Central Asia BBCA IJ 20,800 24,440 18% 34.2 21.5 21.6 19.4 4.0 3.6 euben.paracuelles@nomura.com
Bank Mandiri Persero BMRI IJ 7,450 8,450 13% 28.7 20.1 16.1 12.1 2.1 2.0 +65 6433 6956
Indofood INDF IJ 7,300 10,450 43% -7.9 4.2 14.1 12.7 2.0 1.8
Brian Tan - NSL
Mitra Adiperkasa MAPI IJ 6,625 8,525 29% 22.7 1.0 29.3 20.5 3.1 2.7
brian.tan@nomura.com
Ace Hardware ACES IJ 1,160 1,410 22% 38.9 1.1 24.5 21.4 5.5 4.7
+65 6433 6930
Pembangunan Perumahan PTPP IJ 2,580 4,000 ↓ 55% -32.3 3.4 11.5 8.9 1.5 1.3
Summarecon Agung SMRA IJ 885 1,400 58% -33.2 2.5 38.8 26.4 2.1 2.0
Siloam International Hospitals SILO IJ 10,600 12,225 15% -2.2 0.2 135.7 97.6 2.3 2.7
Source: Bloomberg, Nomura estimates. Note: * Ace Hardware upgraded from Neutral to Buy; ↓ downgrading.
Nomura | Indonesia strategy 8 December 2017
Contents
Outlook summary ................................................................................... 4

Economic Outlook: Investment spending shifts to a higher gear ............. 7
Investment-led recovery .................................................................................. 7
More supportive fiscal stance .......................................................................... 7
Watch ratings upgrades ................................................................................... 9
Inflation and monetary policy – no room to ease ........................................... 10
More manageable risks ................................................................................. 11
Reforms: on track, but more is needed ................................................. 14
Infrastructure: good progress, but challenges remain ........................... 16
What has been achieved in 2017 .................................................................. 16
What can we expect in 2018?........................................................................ 18
What can surprise in 2018? .................................................................. 20
E-commerce................................................................................................... 20
Earnings outlook................................................................................... 23
How has 2017 fared? ..................................................................................... 23
What do we expect for 2018? ........................................................................ 23
Valuation and index target .................................................................... 25
Top picks .............................................................................................. 27
Sector outlooks..................................................................................... 29
Banks: Downgrade to Neutral – fundamental improvements largely priced in
....................................................................................................................... 29
Autos: a tentative recovery ............................................................................ 32
Consumers: Low-income households to drive recovery ................................ 34
Media: Looking forward to 2018 – growth drivers intact, drags likely to abate
....................................................................................................................... 36
Healthcare: ongoing impact from universal healthcare coverage ................. 38
Telecoms: Mobile competition and regulation to remain topical .................... 40
Infrastructure: all eyes on funding capability ................................................. 43
Property: signals of recovery ......................................................................... 46
Plantations: Potential upside to CPO price with development of La Niña ..... 48
Gas: Still lack of clarity in future direction ...................................................... 50
Company profiles ................................................................................. 52
Bank Central Asia .......................................................................................... 52
Bank Mandiri .................................................................................................. 54
Indofood Sukses Makmur .............................................................................. 56
2
Mitra Adiperkasa ............................................................................................ 59

Ace Hardware Indonesia ............................................................................... 63
PT Pembangunan Perumahan ...................................................................... 66
Summarecon Agung ...................................................................................... 69
Siloam International Hospitals ....................................................................... 72
Appendix A-1 ........................................................................................ 77
3
Outlook summary
A higher global growth outlook and a goldilocks scenario (whereby the Fed rate hikes still
allow for an overall weak USD, counterbalanced by risks coming from protectionist US
policies and a sharp China slowdown) provide a more favorable external environment for
2018. This is encouraging for Indonesia, given foreign ownership in both equities and
bonds is still quite significant. Indonesia has seen an outflow of USD2.8bn YTD, in line
with investors’ preference to position in developed vs emerging markets.
Fig. 2: DM vs EM fund flows (USDmn) Fig. 3: Bond foreign ownership
500,000 DM funds EM funds % of outstanding

42
400,000
40
300,000
38
200,000
36
100,000
34
0 32
-100,000 30
-200,000 28
Feb-12
Jul-12
Feb-17
Jul-17
Jan-15
Nov-10
Sep-11
Dec-12
Aug-14
Jun-15
Nov-15
Sep-16
Apr-11
Oct-13
Mar-14
Apr-16
May-13
Jan-15
Jan-07
Jan-09
Jan-11
Jan-13
Jan-17
Sep-07
Sep-09
Sep-11
Sep-13
Sep-15
Sep-17
May-08
May-10
May-12
May-14
May-16
Source: Datastream, Nomura research Source: Datastream, Nomura research
Fig. 4: Equity foreign ownership Fig. 5: Consensus positioning in Indonesia

Relative to benchmark for AEJ mutual funds
33.5% AEJ funds' consensus positioning in
2.5% Indonesia, relative to benchmark MSCI Asia
33.0% ex-Japan index
2.0%
32.5%
1.5%
32.0%
31.5% 1.0%
31.0% 0.5%
30.5%
0.0%
30.0%
29.5% -0.5%
29.0% -1.0%
Jan-10
Jun-10
Jan-15
Jun-15
Feb-12
Feb-17
Sep-11
Aug-14
Sep-16
Mar-14
Jul-12
Jul-17
Sep-11
Jul-12
Jul-17
Nov-10
Dec-12
Aug-14
Apr-16
Sep-16
Jun-10
Apr-11
Oct-13
Nov-15
Mar-14
Jan-10
May-13
Nov-10
Dec-12
Jan-15
Jun-15
Apr-11
Oct-13
Nov-15
Apr-16
Feb-12
May-13
Feb-17
Source: Datastream, Nomura research Source: Datastream, Nomura research
Domestically, demand is also likely to pick up, according to our economist, Euben
Paracuelles, driven by investments, as the government remains committed to developing
infrastructure, while private investment, which had been slow to recover, should finally do
so, benefitting from the more favorable global environment, stable commodity prices and
lower real lending rates. As a result GDP growth next year is expected to accelerate to
5.6%, from this year’s 5.2%.
Meanwhile, private consumption is also expected to remain resilient next year, with our
economist expecting it to grow by 5.1%. This year, even though private consumption
growth remained stable at 5%, the continued depressed retail sales index (RSI) as
reported by Bank Indonesia, and results reported by the consumer companies under our
coverage, raise the question why there is the discrepancy.
4
Our economist argues that the RSI is narrower in its definition than the overall household
spending as it uses information from only 700 retailers in the bigger cities, and hence
only accounts for around 40% of the PCE and therefore may not capture spending in
traditional markets. As a result, RSI does not always provide an accurate picture of PCE
and in certain periods may even show a divergence from it.
Fig. 6: Drivers of private consumption spending Fig. 7: Private consumption spending versus retail sales
%y-o-y Non-durables Durable %y-o-y Retail Sales Index %y-o-y

8 Semi-durable Services 60 6.5
Private consumption expenditures (RHS)
7 50 6.0
40 5.5
6
30 5.0
5
20 4.5
4
10 4.0
3
0 3.5
2
-10 3.0
1 -20 2.5
0 -30 2.0
Mar-11 Feb-12 Jan-13 Dec-13 Nov-14 Oct-15 Sep-16 Mar-02 Oct-04 May-07 Dec-09 Jul-12 Feb-15
Note: Non-durables include food and beverage consumption; semi-durable includes Source: CEIC; Nomura Global Economics
apparel, footwear and maintenance; durables include spending on equipment, and
services include spending on health, education and transportation & communication,
restaurants and hotels. Source: CEIC, Nomura Global Economics.
In our recent consumer report titled “Indonesia Consumer: Selectively more bullish into
2018,” we argued that the primary reason why consumption was weak was due to the
diminished purchasing power of the low-end segment, as the minimum wage hike was
the lowest in the past five years, while the government also removed the electricity
subsidy for some 19mn households. Meanwhile the impact of the tax amnesty (which
ended in March 2018) to the middle / upper classes lingered, as the tax administration
continued to be aggressive in pursuing taxes, keeping consumer confidence low.
Indeed, since President Jokowi’s government come into power in 2014, the
government’s focus has been on developing infrastructure, as it is believed this to be an
engine for economic growth, despite being fully aware the impact will not be immediate
but more in the medium to long terms. This is also part of the reason why consumption
had been relatively weak, as the government diverted funding for the unproductive and
untargeted subsidies in fuel and electricity, towards infrastructure.
While the government had been trying to soften the blow to consumption by raising the
other social spending, such as in education through the Indonesia Smart Card (KIP),
healthcare through the Indonesia Health Card (KIS) and the Hope Family Program
(KJP), the low-end households still generally suffer as the increase in these targeted
subsidies paled in comparison. In 2015, the total loss of subsidies in fuel and electricity
was to the tune of IDR200tn, while the government only increased the social programs
by around IDR10tn.
5
Fig. 8: Fiscal spending mix – capex vs subsidies Fig. 9: Government to increase social spending in 2018
Social spending
Capital spending (IDRtn) Conditional Cash Transfer (PKH)
% of GDP
6.0 Total subsidies 80 Rice for the poor (Rastra)
Social spending for Health (KIS)
5.0 Social spending for Education (KIP)
60
4.0
3.0 40
2.0
20
1.0
0.0 0
2009
2016
2010
2011
2012
2013
2014
2015
2017
2018*
*
Source: Ministry of Finance, CEIC, and Nomura Global Economics Note: * Implied figure. Source: Nomura research
For next year, the higher social spending through the conditional cash transfer program
(PKH) forms the basis for our assumption of a recovery in consumption, in addition to the
regional elections in June and Asian Games in August. As this program is complimentary
to the other social programs, such the Indonesian Smart Card (KIP) for education, the
Indonesian Health Card (KIS) for health and Rastra among others, overall, in 2018 the
government’s budget for social spending is still expected to increase by 10% after an
increase of only 2% this year.
Despite our more bullish view on consumption, we remain skeptical that this could also
spill over to other sectors, especially to the banking sector, which is still struggling from
anaemic loans growth due to perhaps the continued cautiousness among the private
sector leading into the 2019 national elections. The worry is that the continued
sluggishness in loans growth will eventually erode NIMs if banks are forced to invest in
lower-yielding assets, especially if deposits continue to grow. Hence, even though next
year banks are still expected to be the earnings growth driver of the market’s earnings
growth of 13%, if loans growth fails to reach our expected 11-12%, there is risk for
earnings disappointment.
The other big contributor, the telco sector, has seen competition pick up, and hence also
is unlikely to see similarly strong earnings growth for next year. Along the same lines, the
commodities sector, which had supported earnings growth this year, is facing a high
base of comparison.
With current valuation of the Indonesian market now at close to peak, at 2SD above the
average post GFC, as a result of the re-rating we saw post the S&P upgrade in May, this
leaves no room for earnings disappointment. The national elections in 2019 could also
start affecting investors’ behaviours, setting in cautiousness as they prefer to take a wait-
and-see approach, although at this point Jokowi is still the front-runner to become re-
elected. The rising political noise could also become a distraction from reforms, while a
shift to more populist policies could pose some risk to the investment climate and
preclude sovereign rating upgrades.
For these reasons, despite a more favorable backdrop in the external environment, we
retain our Neutral position in the market after downgrading it from a Bullish stance in May
2017. From here, we may turn positive again if: 1) the market corrected to bring market
valuations to more attractive levels, and 2) there were further rating agency upgrades,
leading to sustained reductions in the costs of capital.
Overall, assuming 13% and 10% earnings growth for 2018 and 2019, and valuations
maintained at 16x, we project the JCI to reach 6,500 by the end of 2018.
6
Economic Outlook: Investment spending

shifts to a higher gear
Indonesia belongs to a small group of countries – alongside India and the Philippines – Asia Economics
that we see as Asia’s new rising stars and collectively name the “striving tiger cubs”. Euben Paracuelles - NSL
Indonesia’s membership of this club is well justified in our view, with reforms already euben.paracuelles@nomura.com
+65 6433 6956
gaining more traction and helping unleash its large growth potential. Investment
spending is rising, in both public and private sectors, and this should support long-term Brian Tan - NSL
brian.tan@nomura.com
improvements in productivity growth. Validating this, Indonesia has earned a sovereign +65 6433 6930
credit rating upgrade by S&P to a full-fledged investment grade, and we expect
Indonesia’s ratings to remain on an upward trend, as should its rankings in terms of ease
of doing business and global competitiveness – all of which should have important
positive implications for the investment outlook, including FDIs.
Investment-led recovery
We forecast 2018 GDP growth to rise to an above-consensus 5.6%, accelerating from
5.2% in 2017 (Consensus: 5.1% in 2017 and 5.3% in 2018). For 2019, we expect growth
to rise further to 5.8%. Essentially, we envisage a gradual growth trajectory, but
importantly, one that is more sustainable than in the past, driven by higher investment
spending which is already gaining momentum (see Asia Special Report - Indonesia: The
great revival, 19 May 2016).
Specifically, we think private investment, as indicated by our monthly Nomura Private
Investment Index (PII), should continue to recover (Fig. 10). Our previous empirical work
suggests that private investment is pro-cyclical and should improve further as the overall
growth outlook becomes more upbeat. Business climate reforms are also on-going and
are increasingly reflected in Indonesia’s improving ease of doing business rankings (see
Asia Chart Alert - India and Indonesia: Big movers in the ease of doing business
rankings, 1 November 2017).
Moreover, our PII is sensitive to changes in commodity prices, real lending rates, IDR
and the government’s pace of capex disbursements. We expect these drivers to become
more uniformly positive given our higher oil price assumption, rate cuts by BI and the
government’s fiscal stance. Using our model, we expect GFCF growth to double from
6.4% in 2017 to 13.4% in 2018 and 14.2% in 2019.
From the external accounts, FDI inflows surged by 48.3% y-o-y in the first three quarters
of 2017. FDI realisation data from the Investment Coordinating Board (BKPM) show a
72.2% increase in FDI from China over the same period, consistent with our view that
the FDI sources for these striving tiger cubs is shifting to large Asian countries like China
and Japan (see Anchor Report: India and ASEAN: Asia’s next FDI magnets, 31 July
2017). We continue to see great potential for Indonesia to benefit as the government
maintains its reform agenda to steadily improve the investment climate.
More supportive fiscal stance

Over the past few years fiscal policy has had, at best, a mixed track record as far as its
impact on GDP growth is concerned. However, we think this is slowly changing and, if
anything, fiscal policy will likely play a bigger role in boosting economic activity in the
coming years. We forecast an increase in the fiscal deficit to 2.6% of GDP in 2018, which
is wider than the budgeted 2.2% and our 2.5% estimate for 2017, before widening further
to 2.8% in 2019, still within the 3% legal limit.
However, beyond the positive fiscal impulse from running a larger fiscal deficit, growth
should also be boosted by the improvement in the quality of public sector spending.
Greater priority is being placed on capital expenditure than subsidies. We think this fiscal
prioritisation is unlikely to change, despite the regional elections in June 2018 and the
presidential elections in 2019. As a result, we expect public sector capex to rise by 18%
in 2018 to 1.5% of GDP after rising an estimated 13.4% in 2017. By contrast, we think
the government will stick to allocations for subsidies, which were lowered by 5.4% in the
2018 budget to 1.1% of GDP, an historic low (Fig. 12).
7
Fig. 10: Indonesia: Nomura monthly Private Investment Index Fig. 11: Indonesia: Fiscal spending mix – capex vs subsidies
(PII)
% y-o-y Capital spending

% of GDP
40 6.0 Total subsidies
30 5.0
20 4.0
10
3.0
0
2.0
-10
1.0
-20
0.0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Private Investment Index 3mma Forecasts
Note: The PII is compiled using monthly indicators including commercial car sales, Source: Ministry of Finance, CEIC, and Nomura Global Economics
real private sector investment credit growth, capital goods imports, cement sales. All
series are seasonally adjusted and deflated using headline CPI. Source: CEIC,
Nomura Global Economics.
On the revenue side, we remain optimistic that the tax administration reforms will
continue after the successful tax amnesty program and begin to yield more meaningful
results. For instance, despite relatively stable growth in household consumption
spending, VAT collections are up 13.6% y-o-y over the first three quarters of 2017,
thanks to the implementation of input credits e-invoicing, in our view. The passing of Law
#9 on Accessing Financial Information for Tax Purposes last July and the Automatic
Exchange of Information with the OECD and other signatory countries which comes into
effect in 2018 should support improvements in tax administration.
That said, we think the government’s projection for total revenues to rise by 18.7% in
2018 to 12.7% of GDP, is ambitious. We expect a lower 11.1% of GDP even after taking
1
into account extra revenues as a result of our higher oil price assumption and our
nominal GDP growth forecast.
There are lingering fears that more aggressive tax collection may be curtailing private
sector spending (and therefore growth), with household consumption growth hovering
around 5% over the past few quarters from an average of 5.3% in 2011-14. However, we
view this as household consumption staying resilient, considering the end of the
commodity price boom, the fiscal subsidy reductions over the past few years, and other
reform programs such as the tax amnesty.
We also think these tax reform efforts, as illustrated by the recent experience in the
Philippines, will eventually pay off, having a relatively sizeable impact on revenues which
will likely be used to boost productive spending and hence growth. With the Indonesian
government’s similar focus on implementing infrastructure projects, a strengthening of
this link between higher revenues and infrastructure implementation should help allay
those fears.
1
We use the government’s estimates of the sensitivities of the different budget items. For instance, every
USD1/bbl increase in the Indonesian Crude Oil Price (ICP) will raise revenues by about IDR3-3.33trn and will
improve the fiscal deficit overall by IDR0.7-1.0trn.
8
Fig. 12: 2017 and 2018 fiscal accounts
2016 2017E 2018F

Government Nomura Nomura
Actual Budget
Outlook Forecasts Forecasts
IDR trn % y-o-y IDR trn % y-o-y IDR trn % y-o-y IDR trn % y-o-y IDR trn % y-o-y
STATE REVENUE AND GRANTS 1,555.9 3.2 1,736.1 11.6 1,595.7 2.6 1,894.7 18.7 1,652.7 3.6
excluding: Tax Amnesty Receipts 1,448.9 -3.9 1,708.1 17.9 1,567.7 8.2 1,894.7 20.9 1,652.7 5.4
Tax Revenue 1,285.0 3.6 1,472.7 14.6 1,256.6 -2.2 1,338.3 6.5
Non-Tax State Revenue (PNBP) 262.0 2.5 260.2 -0.7 336.6 28.5 311.4 -7.5
Grant Revenue 9.0 -24.9 3.1 -65.4 2.5 -72.2 1.2 -52.4 3.0 20.0
STATE EXPENDITURE 1,864.3 3.2 2,098.9 12.6 1,933.6 3.7 2,220.6 14.8 2,040.9 5.5
Central Govt Expenditure 1,154.0 -2.5 1,343.1 16.4 1,264.4 9.6 1,454.4 15.0 1,317.0 4.2
Capital 169.5 -21.3 192.2 13.4 226.8 18.0
Debt Service 182.8 17.1 218.6 19.6 220.4 20.6 220.4 0.0
Subsidies 174.2 -6.3 168.9 -3.1 182.2 4.6 172.4 -5.4 172.4 -5.4
Other Expenditure 627.6 0.3 669.6 6.7 697.4 4.1
Transfers to Regions and Village Funds 710.3 14.0 755.9 6.4 669.2 -5.8 766.1 14.5 723.9 8.2
Primary Balance -125.6 -144.3 -117.6 -167.8
FISCAL BALANCE -308.3 -362.9 -338.0 -325.9 -388.2
% of GDP -2.49 -2.67 -2.49 -2.19 -2.60
ASSUMPTIONS
Economic Growth (%) 5.0 5.2 5.4 5.6
Inflation (%) 3.5 3.8 3.5 4.2
USDIDR 13,309 13,377 13,400 13,525
3-month T-bill Rate (SPN; %) 5.7 5.0 5.2 5.2
Indonesian Crude Oil Price (USD/bbl) 40 54 48 65
Note: Our USDIDR forecasts are annual averages based on end-quarter forecasts by our FX strategists. Our 2017 3-month T-bill rate forecast is the year-to-date average.
Our forecasts for the Indonesian crude oil price refer to Brent crude oil – year-to-date for 2017 and our forecast for 2018.
2018 subsidy budget based on 2018 RAPBN.
Source: Ministry of Finance, Bloomberg, CEIC, Nomura Global Economics estimates.
Watch ratings upgrades

The progress in tax administration also supports our view that, after S&P’s upgrade
earlier this year, Indonesia’s sovereign credit rating remains on an uptrend. Fitch and
Moody’s both have had ‘positive’ outlooks for Indonesia since December 2016 and
February 2017 respectively. As we argue above, Indonesia’s fundamentals have
remained sound and so we see an increasing likelihood of an upgrade to Indonesia’s
sovereign rating in the next six months, particularly by Fitch. This would not only put
Fitch’s rating at least one notch above that of the other two rating agencies but also
place Indonesia above the Philippines (Fig. 13).
Fitch has three main factors that could lead to an upgrade: (1) strengthening of external
balances, (2) improvement in the business environment, tax compliance and governance
standards, and (3) strong and sustained GDP growth. In our view, all these factors have
moved in the right direction as we argue in other sections of this report, and hence
support an upgrade in the near term. For instance, FX reserves now stand at
USD126.5bn, a near-record high, and the central bank is more prudent in conducting
monetary policy, placing a high priority on macroeconomic stability. Fiscal policy is
playing an increasing role in sustaining the growth outlook, and Indonesia is starting to
draw on the lessons of its ASEAN neighbours in implementing relevant reforms (Box 1).
We believe another rating upgrade would further increase capital inflows and reduce the
cost of capital, boosting the outlook for domestic investment spending as well as
attracting FDI.
9
Box 1: Three valuable fiscal lessons Indonesia is learning from its neighbours
Given the importance of fiscal policy, policymakers in Indonesia can draw on the
experience of other countries to be more effective in boosting growth. And they don’t
have to look very far: ASEAN neighbours provide many fiscal lessons on how to
generate fiscal space without necessarily running wider deficits.
1. Tax administration reforms are appropriate and can yield significant revenue
increases. The experience of the Philippines suggests that Indonesia’s drive to
improve tax administration and compliance is appropriate, and could have a
relatively sizeable and more permanent impact on revenues. Under President
Aquino, the Philippines raised tax revenue by 1.7pp to 13.8% of GDP with no major
changes in tax policies. It did this via clamping down on tax evasion, improving
fiscal transparency, raising incentives for collection officers and establishing a clear
link between public services provisions and tax payments. These also tie in well
with the anti-corruption agenda, which we believe is a priority in Indonesia, and do
not necessarily affect growth negatively. In the Philippines potential growth has
increased to 6.2% throughout this period of fiscal reforms and anti-corruption drive.
2. Subsidy rationalisation does not necessarily lead to social backlash.
Indonesia and Malaysia removed fuel subsidies at around the same time (i.e. in
2015). However, since the initial fuel price hikes Indonesia been unable to adjust
retail prices consistently, which has resulted in a gap with market prices. In
contrast, Malaysia has stuck to its subsidy rationalisation plans, but this move to
more flexible pricing has not led to social unrest, in part because the public has
grown accustomed to the mechanism given its consistent application. Some of the
fiscal savings were also directed to targeted social assistance programs. Indonesia
is already implementing more of these targeted programs, e.g. the increase in
allocations of conditional cash transfer. But to help fund these, the government
should be more consistent in applying such market-based pricing. As in Malaysia,
we think if done properly this will likely have limited social backlash, especially
because progress is also already made in infrastructure spending in Indonesia.
3. Providing fiscal support to growth is not all about raising budgets. There is a
great deal of focus across ASEAN to build infrastructure. However, there is plenty
of scope for public financial management reforms to increase spending without
adding pressure to the budget. This can be brought about by tightening the link
between planning and budgeting, and improving the efficiency of public investment.
The IMF estimates that, on average, the ‘efficiency gap’ for emerging economies is
2
about 27% (substantially larger in ASEAN countries). Furthermore, we estimate
capex disbursement rates in the past three years have averaged 78% in Indonesia.
We believe increasing the disbursement rate to Malaysia’s levels of around 90%
would give a meaningful boost to growth without leading to wider deficits.
Encouragingly, the fiscal authorities are more focused on improving this,
particularly this year.
Inflation and monetary policy – no room to ease

Headline CPI inflation has fallen in recent months, primarily driven by government efforts
to improve food supply via imports and stricter price monitoring of key commodities.
These policy efforts are commendable, as they have reduced food price pressures with
limited fiscal costs. However, beyond the initial effects, we do not believe they will
continue to lower inflation, even if political motives sustain these efforts until 2019 (food
prices are a top voter concern). We therefore maintain our 2018 CPI inflation forecast of
4.2%, up from 3.6% in Q4 2017 but within BI’s 2.5-4.5% inflation target.
2
See http://www.imf.org/external/np/pp/eng/2015/061115.pdf
10
Fig. 13: Indonesia and the Philippines - sovereign credit Fig. 14: Indonesia: Headline inflation vs target
ratings
% y-o-y Nomura forecasts
(Sta) (Sta) 14
Baa2/BBB
(Sta) (Pos) (Pos) (Pos) 12
Baa3/BBB-
Ba1 / BB+ 10
Ba2 / BB 8
Ba3 / BB-
6
B1 / B+
B2 / B 4
B3 / B- 2
S&P Moodys Fitch Nov-07 Nov-09 Nov-11 Nov-13 Nov-15 Nov-17
Philippines Indonesia BI Inflation Target Range CPI Inflation
Source: Bloomberg, Nomura Global Economics. Source: CEIC, Nomura Global Economics
The fact that large-scale imports are required to improve food supply shows that
improvements have not been driven by productivity gains in the agricultural sector.
Weather-related disruptions of domestic agricultural production also remain a risk,
particularly in the case of rice. ‘Excess margins’ – the difference between actual retail
food prices and reference prices at the consumer level – have narrowed significantly on
a government crackdown on pricing malpractice, but this may have already reached a
floor (see Asia Insights - Indonesia: Weighing the CPI food basket, 11 October 2017).
Finally, we still expect administered fuel prices to be increased by 10-15% in Q2 2018,
when a favourable base effect kicks in (from earlier electricity rate adjustments) given
our higher oil price assumption and a limited fuel subsidy allocation in the budget.
Officials from Pertamina, the national oil company, have already called on the
government to raise prices for premium gasoline from the current IDR6550, which has
3
been fixed since April 2016 when crude oil was just USD37/bbl. Even without these
price hikes, we estimate 2018 inflation to average 4.0%, still up substantially from Q4
2017’s 3.4%.
The inflation outlook underpins our view that BI is done with policy rate cuts and will
remain on hold throughout 2018. If BI wants to continue supporting growth, we believe a
more targeted approach using macroprudential easing would be appropriate. Indeed, BI
has increasingly talked about ‘spatial’ relaxation of loan-to-value ratios across regions or
a possible adjustment to primary reserve requirements. In addition, we believe it would
be more effective for BI to focus on financial sector reforms to improve bank
intermediation and address problems in policy transmission, which resulted in an
incomplete pass-through (i.e. around 80% by our estimates) of policy rate cuts in 2016 to
bank lending rates (see Asia Insights - Indonesia: A double fault, 3 October 2017).
More manageable risks

External factors
The key downside risks to our fairly positive outlook are external, including protectionist
US policies and a sharp China slowdown. A further rise in oil prices without spillover
effects on coal and palm oil prices could worsen the economy’s twin deficits and raise
inflation. We estimate that, for every USD10/bbl increase in oil prices, the trade balance
will deteriorate by a relatively small 0.1% of GDP, so we still expect the 2018 current
account deficit to be a relatively manageable 2.0% of GDP (and fully covered by net FDI
inflows as is already the case in 2017; Fig. 15) before widening to 2.6% by 2019, driven
by stronger domestic demand.
3
“Pertamina says fuel prices need to be increased,” The Jakarta Post, 17 November 2017.
11
Another creeping risk may emanate from BI resuming its easing cycle and cutting its
policy rate too much, which would increase Indonesia’s vulnerability to large capital
outflows, given the still-large share of foreign investor bond holdings. There is also some
uncertainty around the re-appointments of Governor Agus Martowardojo and one deputy
governor, whose terms expire in April 2018. That said, we note that Indonesia’s
resilience has also increased, with larger FX reserve buffers and a rising share of stickier
FDI inflows as mentioned above. BI has also signalled a more cautious tone on the risk
of large capital outflows from more Fed rate hikes and emphasised the need to prioritise
stability in that environment, implying BI is not looking to cut its policy rates again.
Fig. 15: Basic balance Fig. 16: Popularity ratings of President Jokowi
USD bn % Level of satisfaction with President

8 Jokowi's performance
75 67 69
6 70 67 68
65 62
4 67 68
60 66
2 55
50 53
0 45 52
40 47
-2 35 41
30
-4
Indikator Politik
SMRC
SMRC
SMRC
Indikator
SMRC
SMRC
Poltracking
Indobarometer
CSIS
CSIS
LSI-Indikator
-6
-8
-10
-12
Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17
Jan- Mar- Jun- Oct- Dec- Jan- Jun- Aug- Mar- May- Aug- Sep-
Net FDI Current Account Basic Balance 15 15 15 15 15 16 16 16 17 17 17 17
Source: CEIC, Nomura Global Economics. Source: Reformasi Weekly, LSI-Indikator, Politracking, SMRC, CSIS, Indikator,
Indobarometer, Nomura Global Economics.
Elections
Domestically, increasing political noise that becomes a distraction from reforms is likely
going to be foremost in investors’ minds in 2018. The next round of simultaneous
regional elections will be held in mid-2018, but on a bigger scale than in 2017. A total of
171 local government units (17 provinces, 115 districts and 39 cities) will hold elections,
up from 101 this year. Moreover, these include key provinces such as West Java,
Central Java, and East Java – home to about 40% of the country’s population.
Given the shock outcome in the Jakarta elections, there are concerns that similar tactics
could be deployed by the opposition to try to replicate the result, which may lead to
increased political risks and reduce the likelihood of President Joko Widodo winning a
second term in 2019. A shift to more populist policies ahead of the general election in
2019 could also pose some risk to the investment climate, and the private sector could
hold back business expansion plans until these elections are over.
However, we do not fully share these concerns for several reasons.
First, 2019 is not the same as 2014 when a new president was to be elected for sure and
there was a lot of uncertainty around the regime change. This time President Jokowi can
run for another term and his popularity remains high even after the Jakarta election (Fig.
16).
Second, his coalition is intact while the opposition party, Gerindra, appears to be in some
disarray at the local level. For example, there appears to be some confusion over
Gerindra’s choice of candidates in the West Java contest, where it has so far refused to
support Deddy Mizwar and his running mate Ahmad Syaikhu – the ticket agreed upon by
4
its coalition partners, the Islamic Justice Party (PKS) and National Democrat Party .
4
“PKS Berharap Gerindra Bergabung dengan Koalisinya di Pilgub Jabar 2018”, Kompas, 27 November 2017.
12
Third, policies such as keeping food prices low and raising budget allocations for
conditional cash transfers to cover a much larger number of low-income families (from
6mn to 10mn) address key voter concerns. While critics argue that this is a shift to
populism, we do not think important reforms to the business climate and the rollout of
infrastructure projects are now less of a priority. If anything, these look likely to receive
increased focus as occurred after the Jakarta elections, likely in a bid by President
Jokowi to win more voter support ahead of 2019.
Fig. 17: Indonesia: Details of the forecast
% y-o-y growth unless otherwise stated 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 2016 2017 2018 2019
Real GDP (sa, % q-o-q, annualized) 3.8 5.5 4.8 8.0 3.7 6.0 4.9 8.5
Real GDP 5.0 5.0 5.1 5.5 5.5 5.6 5.6 5.8 5.0 5.2 5.6 5.8
Private consumption 5.0 5.0 5.0 5.0 5.1 5.1 5.2 5.2 5.0 5.0 5.1 5.3
Government consumption 2.7 -1.9 3.5 4.0 3.5 5.7 5.2 5.2 -0.1 2.2 5.0 6.1
Gross fixed capital formation 4.8 5.3 7.1 8.0 10.7 13.8 13.8 14.9 4.5 6.4 13.4 14.2
Exports (goods & services) 8.7 3.6 17.3 8.0 5.9 9.0 2.4 5.5 -1.7 9.3 5.6 1.6
Imports (goods & services) 5.1 0.2 15.1 8.5 9.3 19.6 11.6 17.6 -2.3 7.2 14.6 14.4
Contributions to GDP (% points)
Domestic final sales 4.5 4.3 5.2 5.9 6.5 7.6 7.7 8.6 4.2 5.0 7.6 8.4
Inventories 0.3 0.0 -1.3 -0.4 -0.5 0.0 0.6 -0.3 0.3 -0.4 0.0 0.0
Net trade (goods & services) 0.9 0.7 0.7 0.0 -0.5 -1.8 -1.7 -2.5 0.1 0.6 -1.6 -2.7
Unemployment rate (% nsa) 5.3 5.3 5.3 5.1 5.1 5.0 5.0 4.9 5.5 5.3 5.0 4.8
Consumer prices 3.6 4.3 3.8 3.6 3.7 4.2 4.4 4.6 3.5 3.8 4.2 4.0
Exports (BOP basis) 23.4 8.0 24.4 12.9 10.8 15.9 10.3 13.4 -3.1 16.8 12.5 10.3
Imports (BOP basis) 15.5 5.5 23.0 13.6 14.4 22.7 14.7 20.7 -4.5 14.3 18.1 16.7
Trade balance (US$bn, BOP basis) 5.6 4.8 5.3 5.5 5.0 3.2 4.2 3.3 15.4 21.3 15.7 6.1
Current account balance (US$bn) -2.3 -4.8 -4.3 -3.2 -3.6 -6.8 -5.3 -6.2 -16.8 -14.7 -21.7 -31.8
Current account balance (% of GDP) -1.0 -1.9 -1.7 -1.3 -1.4 -2.5 -1.8 -2.2 -1.8 -1.5 -2.0 -2.6
Fiscal Balance (% of GDP) -2.5 -2.5 -2.6 -2.8
Policy rate, 7 day reverse repo rate (%) 4.75 4.75 4.25 4.25 4.25 4.25 4.25 4.25 4.75 4.25 4.25 4.25
Exchange rate (USD/IDR) 13,321 13,319 13,492 13,500 13,400 13,450 13,650 13,600 13,436 13,500 13,600 13,200
Notes: Numbers in bold are actual values; others forecast. “Inventories” component contribution to GDP also includes statistical discrepancy. Interest rate and currency forecasts
are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 7 December
2017. Source: CEIC, Nomura Global Economics.
13
Reforms: on track, but more is needed

Reform has been the key word associated with the Jokowi government and so far we
believe reforms are on the right track, even though more is still needed.
Since 2015, the government has issued 16 economic packages, conducted a successful
tax amnesty as part of broader tax reforms, reallocated a major part of subsidies for
infrastructure spending, moving to a more targeted approach, and undergone
bureaucratic reforms.
While initially met with scepticism, the economic packages are starting to bear some
fruits, in particular the loosening of foreign ownership restrictions in 49 sectors – the
country’s largest opening to international investment in the past ten years, and measures
to improve the investment climate such as the implementation of the three-hour
investment licensing service to complement the One Stop Service (OSS). However, as
can be expected, not all of the new policies were a hit. There were certainly some
misses as well, since out of the 15 economic policies issued that required deregulations
of 233 regulations, the government has decided to revoke the deregulation of 11
regulations upon further assessments.
However, as of July 2017, the majority of these are completed, with seven regulations
still under discussion including the proposed policy on Development of Business and
competitiveness of the national logistics service providers. This seems to suggest that
the government is trying to quickly solve the issue and is willing to make mistakes along
the way and is in line with Jokowi’s credo which is “work, work, work”.
Fig. 18: The Economic Policy Packages
Phase Date Description

I 9-Sep-15 Improving national industry competitiveness
II 29-Sep-15 Easing permits requirement and simplifying export proceeds requirements
III 7-Oct-15 Boosting investment, spurring exports, and maintaining people‘s purchasing power
IV 15-Oct-15 Simplifying wage formula and expanding loans for small businesses
V 22-Oct-15 Improving industry and investment climate through tax incentives and deregulation on sharia banking
VI 5-Nov-15 Stimulating economic activities in border areas and facilitating strategic commodities’ availability
Stimulating business activities in labor-intensive industries nationwide through incentives in the form of accelerating
VII 7-Dec-15
the land certification process for individuals
Resolving land acquisition disputes, intensifying domestic oil production, stimulating domestic parts and aviation
VIII 21-Dec-15
industries
IX 27-Jan-16 Accelerating electricity generation, stabilizing meat prices and improving the rural-urban logistics sector
X 11-Feb-16 Revising the Negative Investment List and improving protection for SMEs
XI 29-Mar-16 Stimulating the national economy through facilitation to SMEs and industries
XII 28-Apr-16 Improving Indonesia’s rank on Ease of Doing Business (EODB)
XIII 24-Aug-16 Low Cost Housing for Low-Income Communities
XIV 10-Nov-16 Roadmap for E-commerce
XV 15-Jun-17 Development of Business and Competitiveness of National Logistics Service Providers
XVI 31-Aug-17 Acceleration of the Implementation of Business
Source: Government of Indonesia, Nomura research
14
Fig. 19: Progress of the Economic Policy Packages
Initially, there were 233 regulations which needed to be

Total Initial Regulations 233 I-XV
deregulated
Based on the further assessment, 11 regulations have been
Revoked Regulations 11 I-XV
revoked from the deregulation process
Total Regulations 222 I-XV Total regulations subject to be deregulated
Set 215 97%
As of July 3rd, 2017, deregulation of 215 regulations were finished
52 Total (Presidential level) 50 Finished 96% (97%), comprising 50 regulations at Presidential level and 165
regulations at Ministerial / Institutional level
170 Total (Ministerial / Institutional level) 165 Finished 97%
Ongoing Discussion 7 3%
Source: Government of Indonesia, Nomura research
While in the beginning Jokowi’s government struggled to pursue both economic and
bureaucratic reforms, as he was only able to form a minority coalition, and a cabinet with
many political appointments, he subsequently was able to consolidate his power base to
get things done. His bold move to reallocate the funds for fuel subsidies for infrastructure
has resulted in plenty of evidence that new projects are being built. A case in point is the
start of construction and the financial closure of the poster-child PPP Batang power plant
project in mid-2016. Since then progress on the trans-Sumatra and trans-Kalimantan toll
roads are enjoying rapid progress, while even the trans-Java toll road is progressing
despite the initial problems with land clearing.
Admittedly there is still a lot to be done in infrastructure development and what has been
achieved so far takes time for the benefits to filter through to the economy. This is quite
similar to the tax amnesty, which is deemed successful, but still failed to substantially
increase tax revenue, as growth has not yet picked up. It may take a while for the benefits
to be fully realised, as currently the impact to consumption still lingers, as the middle /
upper classes remained hesitant to spend, especially on big-ticket items, for fear of
attracting the attention of the tax authorities. Still, we see this as only a temporary
phenomenon. As mentioned above, with the strong focus of the government to implement
infrastructure projects, strengthening of the link between the drive to raise fiscal revenues
and infrastructure implementation should bode well for private sector spending.
Jokowi’s detractors are using the lack of progress in consumption recovery to question
his leadership, especially closer to the national elections in 2019. However, we believe
he is playing a long game to ensure that Indonesia is achieving its full potential. It is
therefore imperative that he gets re-elected to continue his reforms, we think.
Encouragingly, the efforts of the government has yielded the desired results, with World
nd st
Bank Ease of Doing Business rankings in 2018 improving significantly to 72 from 91
as a result of improvement in reducing the cost of starting a business, access to
electricity and credit, ease of tax payments and importation, investor protection and
property registration (see India and Indonesia: Big movers in the ease of doing business
rankings). While 72 is still relatively low and there is room for improvement, climbing
nearly 25 notches in these rankings over a short period of time (i.e. since 2015) is a
remarkable achievement not to be underestimated, given that the survey is a zero-sum
game where all countries are also likely trying to push their way up.
In the area of subsidy and social spending, a more targeted approach is an area of focus
for the government in 2018. For example, the government plans to change the
distribution of the subsidized 3 kg LPG from an open system where anybody can buy, to
a closed system whereby only those which are deemed deserving (poor) will be able to
buy by providing proof of the Prosperous Family Card (KKS) next year. The government
is also re-directing part of the food subsidy in the form of the “Rastra” program, or “rice
for the poor” in which the poor households can buy 15 kg of rice per month at a
subsidised price, into a so called non-cash food subsidy whereby the recipient will be
given a ‘nominal cash’ amounting to IDR110,000 per month which could be used to buy
rice of the desired quality and quantity, as well as other essential food items.
Looking ahead, an area where Jokowi’s government is seen as lagging behind is on
governance reforms, intuitional reforms in the legal system and the labor market, which
remains very restrictive.
15
Infrastructure: good progress, but

challenges remain
In the past three years, President Jokowi has been aggressive in delivering his ambitious
infrastructure target, with total infra spending reaching ~IDR1,000tn, surpassing the 10-
year infra spending in the previous President SBY’s term – albeit it is still far from the
targeted ~IDR4,000tn (FY15-19), but we deem this achievement as very positive
progress. Construction progress / physical delivery has also been very encouraging;
however, investors’ main questions remained on the funding issue to support the
aggressive infra spending target and how the SOE companies will find their solutions –
i.e. contractors’ pre-financing program (CPF) whereby Jasa Marga (JSMR IJ, Buy) can
borrow a contractor’s balance sheet during the toll road construction phase, which puts
the capex under the contractor, including working capital financing; once the project is
complete, JSMR will convert the contractor’s working capital into an investment loan.
What has been achieved in 2017

We have tracked the progress of the 245 national strategic projects: 53% of the national
strategic projects are now in construction phase, and are possibly boosting demand,
40% are still in preparation, and 7% are either completed and / or are during transaction
period. Furthermore, we also traced the updated top 37 priority projects (as of Sept
2017) – there are 7 new projects that are included in the priority projects this year,
versus 30 priority projects based on our previous list last year (see Indonesia strategy
outlook 2017 - page 16). We also noted that 6 projects out of our previous total of 30
projects have already started construction, from being in only preparation / transaction
periods last year. While some challenges have yet to be resolved, we think that
President Jokowi is really committed in infra development, given the construction
progress improvement and continued increase in infra spending despite the upcoming
presidential campaign year.
16
Fig. 20: List of priority projects
Project
No List of projects Location
status
1 Trans Sumatera toll road (15 sections) Sumatra Construction
2 MRT Jakarta South-North section DKI Jakarta Construction
3 Makassar-Pare Pare train South Sulawesi Construction
4 Light Rail Transit in South Sumatera South Sumatra Construction
5 National Capital Integrated Coastal Development (NCICD) fase A DKI Jakarta Construction
6 Batang power plant Central Java Construction
7 Palapa Ring Broadband Indonesia Construction
8 LRT in Jakarta, Bogor, Depok, and Bekasi Greater Jakarta Construction
9 Panimbang, Serang toll road Banten Construction
10 500KV transmission in Sumatera South Sumatra Construction
11 500KV transmission line in Central-West Java Central Java Construction
12 Balikpapan-Samarinda toll road East Kalimantan Construction
13 Manado-Bitung toll road North Sulawesi Construction
14 Jambaran - Tiung Biru Gas Field Utilization East Java Construction
15 Indonesia Deepwater Development East Kalimantan Construction
16 LNG Train 3 Development West Papua Construction
17 LRT DKI Jakarta DKI Jakarta Construction
18 Inland Waterway/Cikarang-Bekasi-Laut (CBL) Greater Jakarta Preparation
19 East Kalimantan train East Kalimantan Preparation
20 Soekarno-Hatta Airport Train Express DKI Jakarta Preparation
21 Kuala Tanjung seaport development South Sumatra Preparation
22 Bitung International Port Hub North Sulawesi Preparation
23 Jakarta sewage system DKI Jakarta Preparation
24 Drinking water treatment in West Semarang Central Java Preparation
25 Patimban Port West Java Preparation
26 Lapangan Abadi WK Masela Maluku Preparation
27 Drinking water supply system Jatiluhur West Java Preparation
28 Probolinggo - Banyuwangi Toll Road East Java Transaction
29 Yogyakarta - Bawean Toll Road East Java Transaction
30 Bontang refinery East Kalimantan Transaction
31 Revitalisation of existing refinery (Balikpapan, Cilacap, Balongan, Dumai, Plaju) East Kalimantan Transaction
32 Tuban refinery East Java Transaction
33 Indramayu gas-fired power plant West Java Transaction
34 Mulut Tambang Power plant (5 Provinces) Sumatra and Kalimantan Transaction
35 Gas Based Power plant (18 provinces) Java, Sumatra, Kalimantan, Sulawesi, Papua Transaction
36 Drinking water supply system Lampung Bandar Lampung Transaction
37 Waste to energy program (8 cities) Java and Sulawesi Transaction
Source: State Ministry for Development Planning /National Development Planning Agency, Nomura research
We believe the main challenges will remain around company capacity, noting state
contractors’ leverage ability and equity size has doubled in the past two years. However,
we see clearer financing strategies through better government execution on PINA and
clearer strategy on PPP, which lead to faster infra project execution as well as funding
support. More details are discussed below:
17
More private participation through PINA

Under the newly introduced PINA scheme (non-state budget financing – started in Feb
2017), the government offers three alternatives for stakeholders to get involved in infra
projects: 1) Greenfield system – the entrepreneur can act as the funder and project
manager; 2) Brownfield – allows the project manager to invite new investors to be the
project manager; and 3) Operation system – allows the project manager to divest the
project and to search for a new project. So far, there are four success stories of the PINA
scheme: 1) Nusantara Infrastructure investment partnership with strategic investor
(IDR1.8tn); 2) International West Java Airport (IDR932bn); 3) Waskita Toll Road equity
participation (IDR3.5tn); and 4) shareholder loan for Central Package of PALAPA Ring
fiber optic project (IDR174bn).
Fig. 21: PINA scheme success stories
What can we expect in 2018?

Infrastructure continues as one of the key government priorities, in our view. Preliminary
FY18 draft budget (RAPBN 2018) of the Ministry of Public Works & Housing (PUPR) has
been set at IDR106.9tn (+4% y-y), in line with total spending. Pertaining to components,
we see the land acquisition budget (+10% y-y) and equity injection for Greater Jakarta
LRT as a positive. It is worth noting that Finance Minister Sri Mulyani’s 2017 estimate on
LMAN (land clearing reimbursement under the State Asset Management Agency)
spending is IDR32.1tn.
While the increase in PUPR budget in RAPBN 2018 is immaterial given the small direct
contribution from government projects (pure government projects only contribute less
than 25% to total SOE contractors’ portfolios), we believe the meaningful growth will be
generated from the land-clearing reimbursement under LMAN – this means that the
government is likely to put more effort to accelerate both land-clearing processes for toll
road and high-profile projects (i.e. LRT, MRT) as well as faster reimbursement to
investors too.
18
Fig. 22: RAPBN 2018
RAPBNP Outlook RAPBN

2017 2017 2018
(IDR tn) (IDR tn) (IDR tn)
A. State revenue and grants 1,714.1 1,736.1 1,878.4
1) Tax revenue 1,450.9 1,472.7 1,609.4
2) Non-tax Revenue 260.1 260.2 267.9
3) Grants 3.1 3.1 1.2
B. State expenditure 2,111.4 2,098.9 2,204.4
1) Central gov. expenditure 1,351.6 1,343.1 1,443.3
Infrastructure 401.1 388.3 409.0
-Ministry of Public Works and Housing 101.5 100.0 104.2
-Ministry of Agrarian and Spatial Planning 0.2 0.2 2.8
2) Transfer to region 759.8 755.9 761.1
C. Primary balance (178.0) (144.3) (78.4)
Fiscal balance (397.2) (362.9) 325.9
% deficit to GDP -2.92 -2.67 -2.19
Source: Ministry of Finance, Nomura estimates
Furthermore, we also see clearer financing strategies particularly through PINA

schemes, with the potential 13 projects with a total value of ~USD10bn that are entitled
to PINA (includes Kulon Progo Airport, North Sumatera toll road, power plants, etc). Not
to mention, Public Private Partnership (PPP) scheme has also seen an improved
execution, albeit at a slower pace as shown in Fig. 24.
Fig. 23: PINA: Next project pipeline Fig. 24: Progress on PPP projects
Source: State Ministry for Development Planning /National Development Planning Source: State Ministry for Development Planning /National Development Planning
Agency, Nomura research Agency, Nomura research
19
What can surprise in 2018?

E-commerce
The continued weak consumption environment in 9M17, despite a relatively stable macro
environment, often raises the question of whether online shopping has started eating into
the market share of the brick-and-mortar channels, driven by the convenience, deep
discounts and easy accessibility, changing customers’ shopping habits. With the
closures of several outlets of department-store operators such as Matahari Department
Store, Lotus and Debenhams, the debate has become more intense.
Unfortunately, at this point, given the absence of comparable reliable data on how the
online/e-commerce is doing in 9M17, it is difficult to conclusively confirm or deny this
claim, especially in the non-grocery sector, as within the grocery sector, online
penetration remains the slowest among the retail industry. Nielsen estimated online
grocery sales in 2016 at only around IDR1.5tn. This is a mere 0.3% of the total national
grocery industry, so it cannot explain the relatively low growth of the 55 FMCG
categories that Nielsen tracks, which only posted growth of 2.7% in 9M17, vs the usual
double-digit growth in the last five years.
Despite the difficulty in tracking and estimating the market size for online/e-commerce,
stemming from a number of reasons, including the relative immaturity of the sector, the
limited data availability including the fact that transactional data often flows through C2C
platforms and social media, there is no denying that e-commerce had been growing at
breakneck speed and is expected to continue doing so, given Indonesia’s relatively high
proportion of young people, a growing number and wealthier middle class, supported by
rising internet and smart phone penetration. In the meantime, offline retail remains
underpenetrated in Indonesia, which provides good grounds for the growth of e-
commerce.
Fig. 25: GMV per capita vs. household expenditure Fig. 26: Retail space in ASEAN is lacking
GMV per capita, USD) (GFA per capita/sq m)

4.0 3.7
2,000 UK 3.5
3.0
US
1,500 2.5
2.0
Germany R² = 0.7241
1.5
1,000 France Canada HK 0.9
China Korea Japan 1.0
Singapore Australia 0.5 0.28 0.38 0.41
Saudi Arabia 0.02 0.03 0.08 0.09 0.12
500 Thailand Spain
Italy
0.0
Indonesia Russia
Singapore
Indonesia
GSEA
Thailand
Taiwan
Vietnam
China
US
Malaysia
Philippines
Argentina (Household expenditure/capita, USD)

India
Vietnam Malaysia
0
Philippines
0 10,000 20,000 30,000 40,000
Source: Euromonitor, Akamai, Wearesocial, Nomura estimates Source: Frost and Sullivan
Euromonitor estimates that Indonesia’s B2C online transactions totalled USD2.65bn in

2016, or about 1.8% of total retail transactions (this figure only includes sales generated
through e-commerce websites and sites operated by store-based retailers, and excludes
C2C listings, classifieds and food delivery). Our analyst, Andrew Orchard, estimates that
B2C currently comprises around 37% of total e-commerce GMV, hence he estimates
that the total e-commerce industry (B2C and C2C) at around USD7.2bn, or around 4.6%
of Indonesia’s total retail market, and expects it to grow by around 25% per annum to
2026 to account for 20% of Indonesia’s total retail market (see Asean internet: Infiltrating
the USD350bn battlefield).
20
Fig. 27: A USD7.2bn market growing at 25% pa Fig. 28: Media and consumer electronics most popular online
Indonesia's e-commerce market (B2C & C2C) Internet retailing by categories (2012-2019F)
(USDmn) B2C ecommerce C2C ecommerce (USDmn Fixed 2016 ex rates)
70,000 5,000
Apparel and Footwear
60,000 Consumer Electronics
4,000 Media Products
50,000
Food and Drink
40,000 Home Care
3,000
Beauty and Personal Care
30,000 Others
2,000
20,000
10,000
1,000
0
2012
2013
2014
2015
2016E
2017F
2018F
2019F
2020F
2021F
2022F
2023F
2024F
2025F
0
2012 2013 2014 2015 2016F 2017F 2018F 2019F
Source: Euromonitor, World Bank, IMF, Nomura estimates Source: Euromonitor, Nomura research
The challenges facing e-commerce such as low penetration of credit cards and other
online payments, relatively low internet penetration and smartphone penetration (40%),
patchy and relatively poor quality of internet access and poor infrastructure and last-mile
delivery options, are well known. As such, these are also what the government is trying
th
to address in issuing the 14 policy package focusing on the e-commerce road map to
facilitate e-commerce businesses and provide strategic directions.
Fig. 29: Estimated size of the e-commerce market (both B2C Fig. 30: Estimated size of the e-commerce market (both B2C
and C2C) in 2016 and C2C) in 2026
GSEA 31.0 GSEA 207.4
Taiwan 12.6 Taiwan 12.6
Vietnam 2.3 Vietnam 36.6
Thailand 4.3 Thailand 29.6
Singapore 2.0 Singapore 6.7
Philippines 1.3 Philippines 20.8
Malaysia 1.4 Malaysia 13.6
Indonesia 7.2 (USDbn) Indonesia 74.0 (USDbn)

0 5 10 15 20 25 30 35 0 50 100 150 200 250
Source: Euromonitor, World Bank, IMF Forecasts, Nomura estimates Source: Euromonitor, World Bank, IMF Forecasts, Nomura estimates
Seeing an opportunity in solving the problem with logistics and payment systems, the
private sector, both domestic and foreign investors, have been developing solutions.
Companies such as Go-jek offer logistics solutions with their fleet of motorbikes, while it
is also developing its e-wallet/payment system through Go-Pay having received a USD1
bn investment from Tencent. The likes of Bank Mandiri are developing Mandiri E-Cash
and Telkomsel Tcash, hot on Go-jek’s heels. Earlier, Alibaba also acquired Lazada, with
the aim of obtaining Lazada’s e-logistics, one of the largest e-commerce logistics arms in
ASEAN. Similarities between China and ASEAN in terms of the roadblocks faced have
led the Chinese companies to expand their business into the region.
It therefore not a surprise that ASEAN has been gaining prominence as a technology
hub and is fast emerging as a potential destination for tech investors. Investment in the
tech sector YTD is already seen a two-fold increase from FY2016 to USD6.5bn has.
However, much of this has been poured into non-ecommerce sectors. This year, 57% of
the USD6.5bn funds raised have been allocated to one of Grab, Go-Jek and Traveloka.
21
While there is still funding being channeled into the e-commerce industry, Andrew thinks
that most of the new capital provided has been concentrated within the major e-
commerce portals. Smaller e-commerce startups are struggling to raise new equity
unless they have an especially differentiated value proposition.
Even though the funding environment for e-commerce may not be as bullish as it was
before, it is obvious that the development of e-commerce in Indonesia could not only
disrupt or change the competitive landscape of several industries such as the brick-and-
mortar retailers, but also to a certain extent the telcos and the banks, which seem to be
competing with one another in the e-wallet space at this point.
In the grocery sector, as argued above, the presence of e-commerce remains limited
while the minimarket operators such as Alfamart and Indomaret have introduced their
online businesses, as has hypermarket operator Matahari Putra Prima.
The non-grocery area is probably more at risk, with department stores which had high
content of apparel and footwear to bear the brunt of the rapid growth of e-commerce. In
fact – this was the question already being asked by investors given the poor
performance YTD. While on the one hand low penetration of department stores in
Indonesia, accounting for only 2% of the total retail sales in Indonesia, seems to provide
some buffer, on the other hand, e-commerce are looking at this as an opportunity.
Perhaps amongst the Indonesian retailers, Mitra Adi Perkasa may be least at risk from e-
commerce, as the company is the brand owner of 150 brands, many of which are on an
exclusive basis, for both online and offline, hence even if it is also threatened by e-
commerce players, the company has more flexibility to formulate its e-commerce
strategy. The company operates its own online business, but it also has the option to go
with the leading general merchandiser e-commerce players such as Lazada or
Tokopedia to save on marketing / customer acquisition costs. In a recent management
conference call, Matahari Dept Store’s management also did not rule out this option.
In the telco space, the big three players all have position in the space by directly
investing and forming strategic partnerships leveraging off their networks. But this year,
both XL and Indosat had decided to exit their e-commerce businesses. Indosat plans to
halt all its digital business such as Cipika and Dompetku and just focus on data
telecommunications. Meanwhile, XL Axiata and SK Planet recently sold their stake in
Elevenia (Indonesian site for 11 Street) to the Salim Group. We foresee Elevenia being
gradually merged with iLotte, the JV between Lotte Group and Salim Group, which could
mark the beginning of consolidation after Rakuten’s exit in ASEAN. This leaves
Telkomsel still trying to develop the e-wallet space under T-cash.
In the banking space, with cash remaining the dominant method of transaction, this
creates an opportunity to develop digital wallets which has attracted entrants into the
industry from financial companies, e-commerce portals and ride-sharing firms, all vying
for the leadership in this space, as this industry is currently still in its nascent stage. Bank
Mandiri decided to enter this space with its Mandiri E-Cash, allowing customers to
establish e-money through smartphones without having to open an account.
However, as fin-tech companies move into the traditional banking services, regulators
have to reconsider the guidelines for digital players. For example, e-wallet operators who
plan for more than 300,000 active users must have minimum paid-up capital of IDR3bn.
Meanwhile, e-wallet balances must be capped at IDR10mn (about USD750), although
there are no transaction size limits. Bank of Indonesia (BI) had restricted issuance of
new open-loop licenses for 18 months after January 2015, but since July 2016 five new
e-money licenses have been granted.
BI has recently suspended top-ups of wallets owned by companies that have not
received full licenses, such as Tokopedia, Bukalapak and Sea. Nonetheless, it would
give momentum to incumbents with licenses, such as Go-Jek. Go-Pay is one of five
independent non-bank/non-telco companies in Indonesia that hold a central bank
electronic money operator license, which allows payments and money transfers. Go-Jek
now allows credit to be sent at no cost to any phone number linked to its app, and users
can eventually withdraw cash from their digital wallets via their own bank accounts.
22
Earnings outlook
How has 2017 fared?
We started 2017 with high hopes that earnings will finally recover, after a very
disappointing year in 2016, in which earnings grew only by 3%, expecting earnings to
grow by c.16%, driven by the low base in auto (Astra’s performance was dragged down
by high NPLs at Bank Permata), banks (deteriorating asset quality) and to a certain
extent also property (revenue recognition issues). During the early part of the year, this
seemed to be achievable, especially since 1Q17 showed promising trends, delivering
earnings growth of c.17%. As such we saw consensus bumping up earnings estimates
post the 1Q17 results expecting stronger 2Q17 results, as this included the hari raya
period which for some industries such as the auto and consumers will be bumper
periods.
However, the 2Q17 results revealed that this was not to be the case. Even though
earnings still grew by c.15% in 1H17, the expected acceleration in consumption did not
materialise, while the media, cement and utilities sectors’ earnings continued to be under
pressure, offset by the earnings upgrades in the energy sector.
This resulted in consensus cutting back earnings growth expectations to c.16%, similar
to where we started. In 9M17, earnings growth remained unchanged at c.15%, so
overall, we are expecting FY2017 to deliver earnings growth of 15%.
Despite this, it is encouraging to see that earnings revision breadth for MSCI Indonesia
(the spread between the number of companies seeing earnings upgrades to the number
of seeing downgrades) appears to be picking up again.
Fig. 31: MSCI Indonesia earnings growth forecasts: Fig. 32: MSCI Indonesia: earnings revision breath
12-mo forward, 2016, 2017, 2018, 2019
Forward 2016 2017 2018 MSCI Indonesia: earnings revision breadth
20
1.5
18 12 per. Mov. Avg. (MSCI Indonesia: earnings revision
breadth)
16 1.0
14
12 0.5
10 0.0
8
6 -0.5
4
-1.0
2
0 -1.5
Jul-16
Jul-17
May-16
May-17
Jun-16
Dec-16
Jan-17
Jun-17
Nov-17
Apr-16
Aug-16
Sep-16
Oct-16
Nov-16
Apr-17
Aug-17
Sep-17
Oct-17
Mar-16
Feb-17
Mar-17
Jan-15
Jan-10
Jun-10
Jun-15
Feb-12
Feb-17
Jul-12
Jul-17
Nov-10
Sep-11
Dec-12
Aug-14
Sep-16
Dec-17
Apr-11
Oct-13
Nov-15
Mar-14
Apr-16
May-13
Source: MSCI, Nomura research Source: MSCI, Nomura research
What do we expect for 2018?

We expect 2018 to deliver earnings growth of c. 13%, similar to consensus expectations.
However, with the low base impact no longer there to support earnings, the risk is to the
downside, especially if banks’ earnings, which we expect to grow by a healthy 19.7%, fail
to materialise. In case the stronger loans growth of 11-12% is not achieved, potentially
due to the private sector remaining cautious, holding back investments leading to the
election, this potentially could erode NIM as banks would need to invest in lower-yielding
assets.
The telco sector, which has outperformed in 2017, driven by the outperformance of
Telkom Indonesia, is also not expected to reproduce the strong earnings growth this
year, as our analyst Gopa Kumar believes that the moderation in growth in the mobile
business to low-mid-single digits is likely to be prolonged as price competition has picked
23
up. Gopa has since turned Neutral on the company and expects the telco sector to grow
by only 11% next year, vs. 20% this year.
On the flip-side, we expect an improvement in consumers (staples and discretionary),
boosted by rising social spending by the government and the regional elections in the all-
important Java areas. This should help lift the earnings growth of these sectors to double
digits once again, after suffering from negative economies of scale this year as top-line
growth was extremely challenged.
The cement companies are also expected to perform better next year, after having
suffered severe margin contraction due to more intense competition. However, with
demand starting to improve and the pace of ASP decline decelerating, our analyst
Anthony Yunus expects improving margins to deliver c.13% growth. The property sector
should also see strong earnings growth due to backlog sales recognition on residential
properties and better availability and more attractive mortgages, after delivering decent
earnings growth of close to 40% in the 9M17.
Fig. 33: 12M forward earnings forecasts by sector Fig. 34: 12M forward earnings forecasts by sector
Energy, Materials, Industrial, Discretionary, Utilities Staples, Health Care, Financials, Telcos
160 120
140 115
120 110
100 105
80 100
60 95
Benchmark Energy Benchmark Staples
40 Materials Industrials 90 Health Care Financials
20 Discretionary Utilities 85 Telcos
0 80
Feb-17
Jul-17
Jan-17
Jan-17
Jun-17
Jun-17
Aug-17
Aug-17
Sep-17
Oct-17
Nov-17
Mar-17
Mar-17
Apr-17
Oct-17
May-17
Jul-17
Jun-17
Jan-17
Jan-17
Jun-17
Mar-17
Apr-17
Aug-17
Aug-17
Oct-17
Nov-17
Sep-17
Oct-17
Feb-17
Mar-17
May-17
Meanwhile, the construction sector has underperformed the market massively this year,
even though earnings more than doubled in the 9M17, as investors are currently worried
about the financing capabilities of these companies, as cash flow remains rather poor.
Next year, as these companies plan to either monetize their assets or list some of their
subsidiaries, our analyst Anthony Yunus is hoping that these efforts will help alleviate
investors’ concerns, and he sticks to his Bullish call on the sector.
In the CPO sector we remain Neutral, as we expect FFB production growth to taper off in
2018 following strong production growth this year due to the end of the El Nino.
However, our analyst June Ng warns that there could be potential upside to CPO prices
in case of La Nina developing in early 2018.
Finally in the gas sector, June highlights the lack of clarity in the future direction, while
she also warns of declining gas usage due to competition from the likes of coal and
hydro/renewable sources.
24
Valuation and index target

Unlike last year, where Indonesia outperformed its peers, this year Indonesia is one of
the worst performers in USD terms, despite the JCI still being up by 14.4% YTD, with the
performance drivers split between earnings growth and valuation expansion. Up to
September, the performance was better, as the IDR had also been gaining against the
USD, but the central bank’s decision to cut interest rates twice in a row in the face of
rising external risks had resulted in the IDR giving up its gains. Together with Philippines
and Malaysia, Indonesia is a laggard in 2017.
Fig. 35: Indonesia underperforms in Asia

Breakdown of YTF country performance in USD terms
Change in Fwd PER Change in Fwd EPS Change in FX Total
60%
50%
40%
30%
20%
10%
0%
-10%
India
Thailand
Japan
China
Korea
Taiwan
HK
Singapore
Malaysia
Philippines
Indonesia
Source: MSCI Indonesia, Nomura research
Indonesia’s market valuation showed some resilience despite disappointments in

earnings especially in the 2Q and 3Q causing some outflows from foreigners. Indeed
foreign outflows amounted to USD2.8bn YTD, and even though foreign participation in
the market remains high, the index held up, supported by local institutional buying from
the state-owned pension fund.
The long-awaited upgrade to investment grade from S&P, which materialised in May
2017, helped justify the multiple expansion by reducing the risk premium attached to
Indonesia, but Indonesia is not alone in enjoying an expansion in its PE, as this seems to
be the case for all countries in Asia, with Korea and Malaysia experiencing the least.
For 2018, our economist remains bullish on the economy, driven by acceleration in GDP
growth driven by both public and private spending, while the reforms are gaining traction,
helping unleash its large growth potential.
While we agree with this assessment, we believe most of the positives are already well
priced in by the market, considering that it is currently trading at close to peak at 2SD
above the average post GFC. This we believe leaves no room for earnings
disappointments or rising risks from politics ahead of the national elections in 2019.
While President Jokowi remains on track to be re-elected, the rising political noise could
also become a distraction from reforms, while a shift to more populist policies could pose
some risk to the investment climate and preclude sovereign rating upgrades
25
Fig. 36: MSCI Indonesia Forward P/E Fig. 37: MSCI Indonesia 12m Forward PER relative to MXASJ
Forward P/E Average Relative forward P/E to MSCI AeJ

Average
+1SD -1SD
+1SD
18 +2SD -2SD 1.6 -1SD
17 +2SD
16 1.4 -2SD
15
14 1.2
13
12 1.0
11
10 0.8
Feb-12
Feb-17
Jan-10
Jun-10
Feb-12
Jan-15
Jun-15
Feb-17
Jul-12
Jul-17
Jul-12
Jul-17
Aug-14
Jan-10
Jun-10
Jan-15
Jun-15
Aug-14
Nov-10
Sep-11
Dec-12
Apr-11
Oct-13
Nov-15
Sep-16
Dec-17
Mar-14
Apr-16
Nov-10
Sep-11
Dec-12
May-13
Apr-11
Oct-13
Nov-15
Sep-16
Dec-17
Mar-14
Apr-16
May-13
Fig. 38: MSCI Indonesia 12m Forward P/E by sector Fig. 39: MSCI Indonesia 12m Forward P/E by sector
Healthcare, Staples, Discretionary, Telcos, Benchmark Energy, Industrials, Financials, Materials, Utilities
Benchmark Energy Materials
40 Discretionary 25 Industrials Financials
Staples Utilities
35 Health Care
Telcos 20
30
25 15
20
15 10
10
5
5
0 0
Jul-12
Jul-17
Jan-10
Jun-10
Nov-10
Sep-11
Dec-12
Oct-13
Aug-14
Jan-15
Jun-15
Nov-15
Sep-16
Dec-17
Apr-11
Mar-14
Apr-16
Feb-12
May-13
Feb-17
Jul-12
Jul-17
Jan-15
Jun-15
Jan-10
Jun-10
Nov-10
Dec-12
Dec-17
Apr-11
Sep-11
Oct-13
Nov-15
Mar-14
Aug-14
Apr-16
Sep-16
Feb-12
May-13
Feb-17
For these reasons, despite a more favorable backdrop in the external environment, we
retain our Neutral position in the market after downgrading it from a Bullish stance in May
2017. From here, we may turn positive again if: 1) the market corrected to bring market
valuations to more attractive levels, and 2) there were further rating agency upgrades,
leading to sustained reductions in the costs of capital.
Overall, assuming 13% and 10% earnings growth for 2018 and 2019, and valuations
maintained at 16x, we project the JCI to reach 6,500 by the end of 2018. Given the
extended valuations, we believe investors should be more discerning in their stock picks
for 2018. We suggest a positioning in stocks that offer solid fundamentals and
reasonable valuation. Our favoured exposure by sector and top picks are discussed in
the next pages.
26
Top picks
Despite a more favourable outlook in 2018, with acceleration in GDP expected, driven by
both public and private spending, while the reforms are gaining traction, helping unleash
Indonesia’s large growth potential, we warned that the market valuation is now close to
its peak, basically allowing for no disappointments in either earnings or politics. We
therefore suggest a selective positioning in stocks that offer solid fundamentals and
reasonable valuation.
Bank Central Asia (BBCA IJ, BUY, TP IDR24,440): We continue to expect BBCA to
lead the Indonesian banking sector in terms of ROE with its solid asset quality and its
focus towards the consumer segment, while maintaining its strong corporate profile.
Valuation is not cheap, but its structurally lower ROE is mainly due to a strong capital
position rather than lower profitability.
Bank Mandiri (BMRI IJ, BUY, TP IDR8,450): The bank boasts the strongest earnings
growth in 2018, as it is still benefitting from asset quality improvements. It has also been
successful in expanding its presence in the consumer loan segment, particularly in
mortgages.
Indofood Sukses Makmur (INDF IJ, BUY, TP IDR10,450): We like INDF as a cheaper
alternative to Indofood CBP (ICBP IJ, Neutral)), as the recent concern on the exit of
Asahi Group Holdings interestingly affected INDF more than ICBP, leading to a widening
of the discount to its NAV to 33% from 23% in September. We also expect INDF to
register better earnings growth in 2018 as its other businesses pick up. We think
Bogasari and the agribusiness should post healthy earning growth as Bogasari pass on
the cost increases from higher wheat prices while CPO prices should remain relatively
stable supporting volume growth which we expect to be around 10%.
Mitra Adi Perkasa (MAPI IJ, BUY, TP IDR8,525): Within the retail sector, we like
companies that are less susceptible to the onslaught of e-commerce. Our top pick in this
space is Mitra Adi Perkasa (MAPI IJ, Buy). MAPI is the brand owner of 150 brands
(many with strong brand equity), most of which are on an exclusive basis, for both online
and offline, hence even if it is also affected by e-commerce players, it has more flexibility
to formulate its e-commerce strategy. We are also now more comfortable with MAPI, as
it has sustainably improved its cash flow and is now focused on expanding its profitable
growth engines.
Ace Hardware (ACES IJ, BUY, TP IDR1,410): We also like Ace Hardware Indonesia
(ACES IJ, Buy) within the retail space, for its increasing dominance in the home
improvement and lifestyle segment. We expect ACES to gradually gain market share
from the traditional channel, given tighter import regulations and consumers’ increasing
preference for convenience.
PT Pembangunan Perumahan (PTPP IJ, BUY, TP IDR4,000): The construction sector
has massively underperformed this year on funding concerns, despite very strong
earnings growth. However, we believe this issue is well priced in by the market, while we
expect clearer financing strategies such as asset divestment, securitization etc, to bear
fruits. We like PTPP in this sector as it has the most solid balance sheet and cashflow
generation compared to peers, potentially better new orders growth, and attractive
valuations.
Summarecon (SMRA IJ, BUY, TP IDR1,400): SMRA’s share price is down by 33%
YTD, and we believe downside is pretty much limited at this point given that presales
and earnings are bottoming, and recovery should start next year amidst the potential
robust backlog recognition and debt refinancing lowering interest costs. Valuations are
attractive too – the stock trades at a 70% disc to RNAV, or at its trough valuation.
Siloam (SILO IJ, BUY, TP IDR12,225): We expect a turnaround in its profitability, as we
are seeing some positive signs post the entrance of CVC in September 2016. Salary
expenses have been successfully reduced by reducing redundancies in overhead
staffing while SILO is also optimising its drug procurement process.
27
Fig. 40: Indonesia valuations
Company Bloomberg Rating Market Cap (USD bn) Price (IDR) Target Price (IDR) Upside Price Performance (%) 3M ADTV Forward P/E Forward P/BV
Name Ticker 4-Dec-17 4-Dec-17 (%) YTD (USD mn) 2017 2018 2017 2018
AUTO
Astra International ASII IJ Reduce 24.3 8,100 7,650 -6% -2.1 17.7 17.3 16.0 2.7 2.5
Indomobil IMAS IJ Reduce 0.2 940 930 -1% -28.2 0.0 (4.5) (7.0) 0.5 0.6
Total 24.5 17.9 16.4 2.6 2.5
CONSUMER STAPLES
Indofood INDF IJ Buy 4.7 7,300 10,450 43% -7.9 4.2 14.1 12.7 2.0 1.8
Indofood CBP ICBP IJ Neutral 7.6 8,750 9,160 5% 2.0 2.7 26.5 24.8 5.1 4.6
Unilever UNVR IJ Neutral 27.8 49,300 50,325 2% 27.1 6.8 51.9 47.0 56.0 50.4
Kalbe Farma KLBF IJ Neutral 5.6 1,610 1,720 7% 6.3 3.1 31.2 28.1 5.9 5.4
Tiga Pilar Sejahtera Food AISA IJ Reduce 0.1 540 600 11% -72.2 0.6 7.7 9.0 0.4 0.4
Gudang Garam GGRM IJ Buy 11.3 79,150 81,400 3% 23.9 7.0 19.7 17.5 3.6 3.3
Hanjaya Mandala Sampoerna HMSP IJ Buy 37.2 4,320 4,430 3% 12.8 5.0 37.1 33.1 14.3 13.7
Mayora Indah MYOR IJ Neutral 3.5 2,100 2,090 0% 27.7 0.3 32.7 27.1 6.6 5.6
Nippon Indosari Corpindo ROTI IJ Neutral 0.6 1,245 1,360 9% -22.2 0.3 40.9 23.0 5.3 5.1
Total 98.3 32.3 28.9 8.2 7.5
PLANTATIONS
PP London Sumatra LSIP IJ Buy 0.7 1,375 1,710 24% -21.0 1.4 12.5 10.7 1.1 1.1
Astra Agro Lestari AALI IJ Buy 2.0 13,875 20,100 45% -17.3 0.8 13.5 12.2 1.8 1.6
Total 2.7 13.2 11.8 1.6 1.4
CONSUMER DISCRETIONARY
Mitra Adiperkasa MAPI IJ Buy 0.8 6,625 8,525 29% 22.7 1.0 29.3 20.5 3.1 2.7
Matahari Department Store LPPF IJ Neutral 2.3 10,500 11,100 6% -30.6 4.1 15.9 14.2 12.9 9.6
Ramayana Lestari Sentosa RALS IJ Neutral 0.5 970 1,000 3% -18.8 0.7 16.8 15.4 2.0 1.9
Ace Hardware ACES IJ Buy 1.5 1,160 1,410 22% 38.9 1.1 24.5 21.4 5.5 4.7
Sumber Alfaria Trijaya AMRT IJ Buy 2.0 660 800 21% 5.6 0.1 42.2 34.6 4.9 4.4
Total 7.2 24.3 20.2 4.7 4.2
PROPERTY
Summarecon Agung SMRA IJ Buy 0.9 885 1,400 58% -33.2 2.5 38.8 26.4 2.1 2.0
Puradelta Lestari Tbk Pt DMAS IJ Buy 0.6 169 270 60% -26.5 0.3 13.4 10.6 1.1 1.0
Lippo Karawaci LPKR IJ Neutral 0.9 540 830 54% -25.0 4.2 11.4 9.8 0.6 0.6
Bumi Serpong Damai BSDE IJ Buy 2.3 1,630 2,500 53% -7.1 1.9 11.9 10.7 1.4 1.2
Ciputra Development CTRA IJ Buy 1.6 1,200 1,580 32% -10.1 1.7 19.3 16.5 1.9 1.8
Total 6.4 14.9 12.8 1.3 1.2
CEMENT
Semen Indonesia Persero SMGR IJ Buy 4.2 9,600 12,000 25% 4.6 3.6 26.7 22.8 2.0 1.9
Indocement Tunggal Prakarsa INTP IJ Neutral 5.1 18,800 19,000 1% 22.1 2.2 31.9 29.4 2.7 2.6
Total 9.3 29.4 26.0 2.3 2.2
INFRASTRUCTURE
Jasa Marga (Persero) JSMR IJ Buy 3.5 6,425 7,800 21% 48.7 3.4 17.5 19.4 3.0 2.7
Wijaya Karya Persero WIKA IJ Buy 1.1 1,730 3,500 102% -26.7 2.5 9.5 8.6 1.2 1.1
Waskita Karya Persero WSKT IJ Buy 2.1 2,080 2,550 23% -18.4 3.7 8.7 8.2 2.0 1.6
Pembangunan Perumahan PTPP IJ Buy 1.2 2,580 4,000 55% -32.3 3.4 11.5 8.9 1.5 1.3
Total 7.9 11.9 11.3 2.0 1.7
TELECOM
Telekomunikasi Indonesia TLKM IJ Neutral 31.3 4,200 4,400 5% 6.0 33.3 18.4 17.3 3.7 3.4
Indosat ISAT IJ Buy 2.2 5,350 7,500 40% -17.1 0.3 16.3 11.2 2.0 1.8
Xl Axiata EXCL IJ Buy 2.3 2,960 4,000 35% 28.1 1.7 126.0 44.1 1.5 1.4
Total 35.8 19.4 17.4 3.2 3.0
BANKS
Bank Rakyat Indonesia BBRI IJ Buy 30.1 3,300 3,600 9% 41.3 22.4 14.5 12.4 2.5 2.2
Bank Mandiri Persero BMRI IJ Buy 25.7 7,450 8,450 13% 28.7 20.1 16.1 12.1 2.1 2.0
Bank Danamon Indonesia BDMN IJ Neutral 3.7 5,150 5,900 15% 38.8 1.0 11.7 10.0 1.3 1.2
Bank Negara Indonesia BBNI IJ Neutral 11.4 8,225 7,800 -5% 48.9 8.8 11.5 9.5 1.6 1.4
Bank Central Asia BBCA IJ Buy 37.9 20,800 24,440 18% 34.2 21.5 21.6 19.4 4.0 3.6
Bank Pan Indonesia PNBN IJ Buy 2.1 1,190 1,180 -1% 58.7 0.3 10.1 8.9 0.8 0.8
Total 110.9 16.0 13.4 2.4 2.2
UTLITIES
Perusahaan Gas Negara Perser PGAS IJ Buy 3.0 1,650 3,350 103% -38.9 8.2 5.8 5.6 0.9 0.8
Total 3.0 5.8 5.6 0.9 0.8
TOWERS
Solusi Tunas Pratama SUPR IJ Neutral 0.6 6,500 7,300 12% - - 19.3 15.8 1.3 1.2
Total 0.6 19.3 15.8 1.3 1.2
AIRLINE SERVICES
Garuda Indonesia Pasero GIAA IJ Reduce 0.6 310 295 -5% -8.3 0.2 (9.9) (6.6) 0.8 0.8
Total 0.6 (9.9) (6.6) 0.8 0.8
HEALTHCARE
Siloam International Hospitals SILO IJ Buy 1.3 10,600 12,225 15% -2.2 0.2 135.7 97.6 2.3 2.7
Mitra Keluarga Karyasehat MIKA IJ Neutral 1.9 1,810 2,070 14% -29.6 1.3 36.9 35.5 7.0 6.7
Total 3.2 54.2 48.9 4.5 4.8
PETROCHEMICALS
Barito Pacific BRPT IJ Neutral 2.3 2,270 1,860 -18% 209.9 5.2 16.3 15.5 2.1 1.5
Chandra Asri Petrochemical TPIA IJ Neutral 7.3 5,500 4,640 -16% 35.7 4.2 19.1 20.4 4.4 3.9
Total 9.6 18.3 19.0 3.5 2.9
SANITARY WARE
Surya Toto Indonesia TOTO IJ Buy 0.3 416 550 32% -16.5 0.0 16.0 14.1 2.5 2.3
Total 0.3 16.0 14.1 2.5 2.3
MEDIA
Surya Citra Media SCMA IJ Neutral 2.4 2,200 2,300 5% -21.4 2.7 22.2 21.0 8.4 7.5
Media Nusantara Citra MNCN IJ Neutral 1.4 1,300 1,650 27% -25.9 2.3 13.3 12.6 2.0 1.9
Total 3.8 17.8 16.9 3.9 3.6
GRAND TOTAL 19.8 17.3 3.1 2.8
Source: Bloomberg, Nomura estimates
28
Sector outlooks
Banks: Downgrade to Neutral – fundamental improvements
largely priced in
Downgrade banking sector to Neutral after rally; continue to prefer BBCA and
upgrade Mandiri to 2nd in pecking order
In May-17 we resumed coverage of the Indonesian banking sector with a Bullish view as
we saw that asset quality improvements have yet to be fully priced in. Nonetheless, our
covered banks on average are up ~20% since May-17. Our current valuations take into
account average EPS growth of ~20%, and for valuations to expand further from now
(most banks are at about our target price already) would require the banks’ EPS to grow
at an even faster pace than our estimates. We think that is unlikely as the major delta in
earnings improvement should be achieved in 2017F due to significant decline in credit
cost, and improvements will be gradual going forward. In our view, current valuations
have already accounted for the ~20% growth in average EPS. Therefore, we bring our
stance on the banking sector down to Neutral from Bullish.
Rally in 2017 supported by idiosyncratic banking sector improvements
YTD Indonesia financials’ performance is at 33%, beating Indonesia’s index by ~20pp.
The run-up in valuations is largely due to the significant improvements in asset quality as
the banking sector enters into an asset quality recovery cycle. The resilient NIM also
helped support valuation uplift for most of the large banks. Nonetheless, system loans
growth remained weak throughout the year. Business loans were the main drag, while
consumer loans growth remained relatively robust. Although consumer loans growth
remained robust at 7.2% year-to-September, it is largely supported by subsidized
mortgages and micro-loans, which are both supported by the government.
Fig. 41: Stability in system NPL ratio since end-16 Fig. 42: NIM remained resilient throughout the year
System NPL ratio Business NPL ratio

5.0% 5.7 NIM remained
Flattening of resilient and
4.5% 5.6 stabilized around
System NPL ratio
4.0% 5.3-5.4%
5.5
3.5%
5.4
3.0%
5.3
2.5%
5.2
2.0%
1.5% 5.1
1.0% 5.0
Sep-16
Sep-15
Sep-17
Jul-16
Jul-17
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Nov-15
Jan-16
Mar-16
Nov-16
Jan-17
Aug-12
Apr-13
Aug-13
Apr-14
Aug-14
Apr-15
Aug-15
Apr-16
Aug-16
Apr-17
Aug-17
May-16
Mar-17
May-17
Source: OJK, BI, Nomura research Source: OJK, BI, Nomura research
29
Fig. 43: System loans growth – By economic sector & loan type
2014 2015 2016 Jul-17 Aug-17 Sep-17 Annualized

YTD 2017 (%)
yoy growth (%) mom growth (%) 2017 (%)
System loans 11.6 10.4 7.9 1.9 0.4 1.2 3.8 5.7
Total Business Loans 11.7 11.0 7.5 1.7 0.3 1.4 2.8 4.2
Good Producing Industry (GPI) Loans 15.4 14.4 8.4 2.0 0.2 1.4 2.8 4.2
Procesing Industry 14.3 15.1 2.9 1.9 -0.1 2.2 1.3 1.9
Agriculture, Mining & Quarrying 16.5 10.2 5.1 0.8 -0.7 -0.1 1.0 1.5
Other GPI 16.9 19.1 27.9 3.7 1.6 1.4 8.0 12.1
Service Industry (SI) Loans 8.5 7.9 6.7 1.3 0.4 1.5 2.8 4.3
Wholesale and Retail Trade 11.3 10.6 6.2 -0.5 0.8 1.4 1.7 2.6
RBFI -3.7 5.4 15.6 4.1 0.2 1.7 5.0 7.6
Other SI 16.4 4.8 -0.3 2.5 -0.3 1.2 2.9 4.4
Household Loans 21.0 10.0 7.0 3.2 0.8 0.6 7.2 10.8
Mortgage 11.9 7.0 7.7 2.7 0.8 1.1 6.4 9.6
Vehicle-Ownership Loans 17.9 -2.1 -2.0 7.9 0.0 0.9 3.1 4.6
Other Household Loans 32.3 17.0 8.9 2.5 1.0 0.1 8.9 13.4
Other Non-Industrials Loans -18.5 4.8 17.3 -0.5 0.8 1.3 3.0 4.5
2014 2015 2016 Jul-17 Aug-17 Sep-17 Annualized

YTD 2017 (%)
yoy growth (%) mom growth (%) 2017 (%)
System loans 11.6 10.4 7.9 1.9 0.4 1.2 3.8 5.7
Working capital 10.8 9.0 6.9 2.6 -0.1 2.2 4.0 6.0
Investments 13.2 14.7 8.6 -0.1 1.1 0.0 0.7 1.0
Consumption 11.5 9.1 8.8 2.5 0.8 0.7 6.4 9.6
Source: OJK, BI, Nomura research
2018F system loans growth to come mainly from consumer sentiment

improvements
We have identified the consumer segment as the key sustainable and quality growth
aspect of the Indonesian banking system. With expectation of further improvement at the
middle- and upper-income consumers, we estimate FY18F system loans growth of
11-12%. This should come from mainly private-residential mortgages and auto-sales
segments. We expect system business loans to grow at 9-11% (increased from the
current 6.7% first nine-months annualized) and consumer loans to grow at 14-16% (from
10.8% first nine-months annualized), with a blended 11-12% system loans growth.
Overall, as the banking sector is in its phase of asset quality recovery, we can continue
to see earnings improvements in a gradual manner. The only pull-back is that it is hard to
find an entry point, as valuations, in our view, are fair but at a historical high (from a
forward PE perspective). As we expect ROE reversion to occur for our covered banks,
we think that fundamentals would have to catch up with valuations before we could look
to possibly turn more bullish on the sector again.
Key risks of the Indonesian banking system

• Weak loans growth for another year: If Indonesia banks were to face another year of
weak loans growth, NIM can be compressed at a much faster pace. Post the tax-
amnesty programme at the end of 2016, deposits growth picked up and we expect it to
normalize around 11-12% (similar to our system loans growth estimate). If system
loans were to remain weak (below deposits growth), the NIM compression can be
derived from (1) lower LDR – meaning slower growth in interest-earning assets but
higher interest-bearing liabilities, and (2) banks might allocate excess liquidity to
government bonds, which yield much less than loans. Furthermore, with excess
liquidity, banks might compete even more aggressively, which will further put pressure
on loan yields.
• No improvement in restructured loans portfolio: As IFRS 9 looms in 2020,
Indonesian banks will have to start to resolve their large restructured loans portfolios by
(1) actively writing off non-performing assets, (2) resolving and upgrading the
restructured book, or (3) providing for losses before IFRS 9 is fully operational. If the
Indonesian banks do not actively manage their restructured loans books, they might
have to write off the bad debts and reduce their capital on the other side of the balance
sheet or incur significant credit costs. We expect to get more colour on IFRS 9 for
Indonesia banks in 2018.
30
Fig. 44: DuPont Analysis – Indonesia Banks
3-Yr
FY15 FY16 FY17F FY18F FY19F Change Our view
(bps)
Net Interest Income Yield
NII yield to decline faster than rest of ASEAN due to: 1) government’s initiative to bring interest rate down; 2) margin
6.02% 6.18% 5.95% 5.80% 5.66% -0.52%
squeeze from rising competition; 3) weaker loans demand.
+
Non-Interest Income Yield
Non-NII for Indonesian banks relates to loan growth. With the trend in credit growth likely to be on a downward trend,
1.77% 1.80% 1.75% 1.77% 1.79% -0.01%
there could be pressure on non-NII. Other fees and other non-NII should also remain relatively flat.
=
Total Income Yield
7.79% 7.98% 7.70% 7.56% 7.45% -0.53% ID banks could see some pressure on revenue from both NII and non-NII..
-
Opex / Avg. Assets
Being the largest in ASEAN by population size and an archipelagic island country, cost has been a structural issue for
Indonesian banks. But the shift towards a digital economy, with banking transaction volume via mobile and/or internet
3.63% 3.64% 3.51% 3.42% 3.34% -0.30%
ballooning in the last few years, has improved cost efficiency. We expect Indonesia banks to be most aggressive amongst
ASEAN peers in terms of cost-saving from banking digitalization.
=
PPOP / Avg. Assets
ID banks banks could see some pressure on PPOP growth until cost efficiency improves in a more meaningful way given
4.16% 4.35% 4.20% 4.15% 4.11% -0.24%
the need to invest heavily in IT and digital platforms amid relatively a weak revenue growth phase.
Credit Cost / Avg. Assets

Indonesia is already in an asset recovery cycle, NPL ratios for our rated banks continue to decline. NPL formation rates
0.95% 1.40% 1.08% 0.76% 0.61% -0.78% have also slowed significantly. As the big banks focus more on the consumer segment, credit cost should decline at a
much faster rate than the ASEAN peers.
Normalized ROAA
The key improvement in the Indonesian banking sector’s earnings profile is mainly derived from the significant decline in
2.49% 2.27% 2.41% 2.62% 2.71% 0.44% credit cost. Nonetheless, we need further catalysts, especially for the loans growth segment to improve in order for
profitability face.
x
Leverage
We expect our rated Indonesian banks to increase their dividend payout ratio as capital levels are amongst the highest
7.7x 7.4x 6.6x 6.5x 6.5x -0.9x globally, while credit growth remains weak. Nonetheless, unless the state-owned banks initiate to reduce their capital
ratios, we reckon that leverage will remain around the 6.5x range.
=
Normalized ROAE
The accelerated ROE reversion for Indonesian banks amongst ASEAN peers will largely be from the reduction in credit
18.5% 15.1% 15.8% 17.1% 17.7% 2.67%
cost, focusing towards the consumer segment and stability in leverage profile (from a declining one).
Source: Nomura research estimates
31
Autos: a tentative recovery

In 2018, we expect overall four-wheeler industry volumes to grow by 7%, compared to
our estimate of 2% growth this year. However, earnings are likely to remain under
pressure as a result of intense competition, which may also lead to higher discounting
levels in the segment. Oversupply still persists in the market, hindering the overall
industry growth potential until fully digested. On the two-wheeler side, higher social
spending by the government and a sustained recovery in commodity prices are expected
to provide a much-needed boost to the lower-middle class, spurring growth to 5% y-y by
our estimates.
Key sector themes for 2018
Four wheelers: Intense competition exacerbated by oversupply

• Total volume sales growth, at 2.7% year-to-October y-y, has been disappointing thus
far. The slow pace of the pick-up is largely attributable to the high level of caution
amongst middle/upper class buyers in light of the tax authority’s aggressive scrutiny
and collection policies, which also led to generally weak demand during the Hari Raya
period. A higher base of comparison since August 2017, which arose on account of the
highly successful launches of the low-cost green car (LCGC) models Toyota Calya and
Daihatsu Sigra last year, also contributed to the muted recovery. Therefore, we had to
revise our initial estimate of 7% growth for the industry to 2% y-y, with total volume
sales for 2017 estimated at 1.08 million units.
• In 2017, the popularity of the successful 2016 LCGC launches drove the growth of the
overall market in the first half of the year. However, their popularity has started to
diminish, leading to slower pace of overall growth. Astra’s management has also
warned that a higher proportion of LCGCs in their financing portfolio could translate into
higher loss provisioning. We are already seeing this at one of Astra’s four-wheeler
financing companies, Toyota Astra Finance.
Fig. 45: Recovery to pick up in 2018 Fig. 46: LCGC popularity diminishing
Annual 4W volumes vs growth LCGC monthly volumes as a % of total 4W monthly volumes
Annual 4W volume sales (RHS) 27% LCGC cumulative volumes as a % of
(000s) total 4W cumulative volumes
Growth y-o-y (LHS) 25%
1,400 1,275 30%
25%
1,230 1,209 1,159 25% 23%
1,200 1,062 1,083
17% 1,116 1,013 20% 21%
1,000 894 15% 19%
765 10%
800 5% 17%
10% 10% 5%
600 7% 15%
0%
2% 13%
400 -2% -5%
-10% 11%
200 9%
-16% -15%
0 -20% 7%
Jul-14
Jul-15
Jul-16
Jul-17
Jan-14
Jan-15
Jan-16
Jan-17
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
FY13
FY10
FY11
FY12
FY14
FY15
FY16
FY17F
FY18F
FY19F
Source: Gaikindo, Nomura estimates Source: Gaikindo, Nomura research
• Overcapacity persists in the industry, with total annual installed capacity now estimated
at 2.0 to 2.2mn units by Astra’s management, following new capacity additions by
Mitsubishi Motors and Wuling over the last two years. Thus, competition continues to
remain very intense. So far this has been reflected in Astra’s slim dealership operating
margins, which for the first time turned negative in 2Q17, leading to consolidated
automotive operating profit (2W & 4W dealership plus auto-parts) falling 68% y-y in
9M17. This was offset by 51% y-y growth in 9M17 net profits at Astra Daihatsu Motor
(ADM), as a result of the company’s continued high capacity utilization. Overall,
however, Astra’s four-wheeler net profit was flat y-y in 9M17.
32
• Going forward, while we expect sequential GDP growth in 2018 as a result of private
investment kicking in and higher consumption propelled by tailwinds from a regional
election, we are not comfortable assuming double-digit growth in four-wheeler volume
sales and hence only expect a 7% increase. Competition in the space is likely to tighten
further due to new product launches, such as that of the Mitsubishi Xpander (which has
already attracted over 40K new orders so far). However, it still remains to be seen
whether any new launches will sustain their popularity. We continue to expect Astra
International brands such as Toyota and Daihatsu to maintain control of the majority of
the market share, but expect their share to decline from 55% this year to 54% in 2018.
Two wheelers: Normalising, but unlikely to growth at double-digit levels
• Although year-to-October total volume sales growth in the two-wheeler space is flat (-
0.1%), it is a notable improvement over the segment’s underperformance over the last
three years. Growth started picking-up after Hari Raya, which Astra’s management
attributed to higher commodity prices finally translating into higher demand. However, it
remains to be seen whether this improvement is sustainable. While we are cautious, we
are comfortable expecting flat growth for this year, compared to -5% y-y previously.
• For 2018, we expect two-wheeler volume sales to improve by 5% y-y after three years
of decline from 7.87 million units in 2014 to an estimated 5.93 million units in 2017, a
fall of 25%. Higher social spending by the government should boost incomes for the
lower-middle class buyers, ultimately driving sales. A sustained recovery in commodity
prices would help demand growth further to the mid-single digit level. However, we
believe that acceleration beyond that level is unlikely given our belief that the two-
wheeler market is facing saturation, especially in the large urban centers.
Fig. 47: 2W to return to growth in 2018F after a flat 2017 Fig. 48: Honda to remain the dominant player in 2W
Annual 2W volumes vs growth 2W market share trends
(000s) Annual 2W volume sales (RHS) Astra (Honda) Yamaha Suzuki Kawasaki Others
Growth y-o-y (LHS) 100%
9,000 15%
8,013 90%
7,744 7,867
8,000 7,373 10%
7,064 80%
9.6%
7,000 6,480 6,539
6,228 70%
8.7% 5,931 5,931 5%
6,000 1.6% 5.0%5.0% 60%
5,000 0.0% 0%
50%
4,000 -5% 40%
3,000 -8.5% 30%
-10%
2,000 -11.8% 20%
1,000 -15% 10%
-17.6%
0 -20% 0%
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jan-17
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17F
FY19F
FY18F
Source: Gaikindo, Nomura estimates Source: Gaikindo Company data, Nomura research
• Despite the 2W market facing slower volume growth compared to 4W, the 2W business
remains a significant contributor to Astra’s net profit, representing around 20% of its
total net profit in 9M17. The 2W manufacturing operation, Astra Honda Motor (AHM),
saw a revival in margins due to lower low material costs. This led to Astra’s share in
AHM’s net income growing by 29% y-y in 9M17. We also believe that Honda will
continue to dominate the 2W market in Indonesia, with a market share of 75%.
33
Fig. 49: 2W ownership rate by region Fig. 50: Jakarta: 2W ownership rate vs GDP per capita
For the period 2010 to 2015
160% Jakarta Java Non-Java National (IDRmn) Jakarta GDP/capita (LHS)
250 Jakarta Penetration Rate (RHS) 150%
140%
140%
120% 200
130%
100%
150 120%
80%
110%
60% 100 100%
40% 90%
50
20% 80%
0% 0 70%
2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015
Source: National statistics, Nomura research Source: National statistics, IMF, Nomura research
Bearish view maintained

• While we expect volume recovery in both 2W and 4W, we think each segment has its
own drawback for Astra Int’l (ASII IJ). In the 4W segment, we believe that intense
competition will continue to pressure dealerships in 2018, while upsides from further
margin improvements at ADM are limited. Similarly in the 2W segment, we believe that
given record-high margins in 2017, any upside from further margin improvement would
be limited, while volume growth will also be lower than that for the 4W segment. In
addition, we believe higher provisioning for NPLs will continue to drag down earnings
from the financial services division. Currently trading at 2018 PE of 16.2x, we still
believe that it is overvalued, and hence maintain our Reduce rating on the stock.
• Meanwhile, Indomobil (IMAS IJ) is not showing any improvement, either in its
operations or in its financials (we have not seen any de-leveraging). Thus, we maintain
our Reduce rating on this stock as well.
Consumers: Low-income households to drive recovery

After a period of underperformance YTD, predominantly due to stubbornly weak
consumption, we are turning selectively more bullish on Indonesia’s consumer sector.
We now believe the worst is over, driven by a revival in disposable incomes of low-
income households. We expect the government will expand social spending through the
conditional cash transfer (CCT) from 6mn households this year to 10mn households in
2018 — this should lift disposable incomes at low-income households by some 7%,
boosting spending on staples by 3.7%. Expected acceleration in GDP growth on
increased infrastructure spending and private spending also help set the scene for
recovery. We thus expect our consumer universe to produce top- and bottom-line growth
of 10.2% and 12.4% in 2018F, up from 7.8% and 7.4% this year, respectively.
Key sector themes in 2018:

• Higher social spending to support revival of low-end segment: The low-end
segment had suffered this year due to 1) minimum wage increase (~8.2%) that is the
lowest in the last 7 years, 2) removal of the electricity subsidy for ~19mn households
(resulting in +120% electricity tariff hikes). These have thwarted the spending power of
the low-end this year. We are more optimistic for next year however given the
government’s plan to focus more on social spending, through expansion of the Family
Hope Program (PKH) to 10mn households (from 6mn this year). PKH is Indonesia’s
CCT (conditional cash transfer) program, which is targeted at poor families as part of
the poverty alleviation program. We estimate that this program could boost low-income
households’ disposable income by 7% (assuming average disbursement of IDR1.9mn
per annum and a household income of IDR26mn, equal to the nation’s annual minimum
34
wage), translating into 3.7% additional spending on staples (Nielsen assumes the
Indonesian grocery market to be worth IDR450tn).
As the government has now moved to a formula-based method in determining yearly
increases in minimum wage, we are unlikely to see a sharp hike in minimum wage; for
2018 the minimum wage increase has been set at ~8.7%. However, the government
has stated that it will keep electricity prices unchanged for next year, so we don’t expect
further cost pressure in the form of utility bill increases for the low-end.
Fig. 51: Increased social spending in 2018 to jump start consumption

Conditional Cash Transfer
(IDRTn) CCT Spending (LHS) CCT Coverage (RHS) (mn households)
20 12
18
10
16
14
8
12
10 6
8
4
6
4
2
2
0 0
2008
2007
2009
2010
2011
2012
2013
2014
2015
2016
2017F
2018F
Source: Nomura research
Consumer behavioral changes: While the above could explain the weakness among
the low-end, many are struggling to explain what has been the source of weakness
among the middle and upper segments. Various surveys and data points indicate that
there has been a clear change in consumers’ behaviour, with the younger generation
now spending more on travel, F&B and cell-phone vouchers. Also, consumers are
shifting from physical stores to online channels, which could partially explain some of the
weaknesses seen in some of the retailers. We think 2018 could be a determining year for
companies such as Matahari Department Store (LPPF IJ, Neutral), especially if the
overall consumption does pick up. This year, due to the overall weakness in
consumption, one could not conclude if the weakness in LPPF’s SSSG was primarily due
to the shift to online channel, or merely due to consumers’ weak purchasing power.
How to position for 2018?
To play the low-end recovery theme, we prefer the FMCG names. Our top pick in this
space is Indofood Sukses Makmur (INDF IJ, Buy). We still like INDF as a cheaper
alternative to Indofood CBP (ICBP IJ, Neutral)), as the recent concern on the exit of
Asahi Group Holdings interestingly affected INDF more than ICBP, leading to a widening
of the discount to its NAV to 33% from 23% in Sept. and also we expect INDF to register
better earnings growth in 2018 as its other businesses pick up. We think Bogasari and
the agribusiness have potential to surprise on the upside as Bogasari pass on the costs
increases from higher wheat prices while CPO prices are expected to remain relatively
stable and volume should grow by ~10%. We also like the cigarette names as a proxy to
recovery among the low-end. However, we believe that current valuations are not as
compelling compared to 1-2 months ago, and so we would prefer to further accumulate
the cigarette names on any weakness.
Within the retail sector, we like companies that are less susceptible to the onslaught of e-
commerce. Our top pick in this space is Mitra Adi Perkasa (MAPI IJ, Buy). MAPI is the
brand owner of 150 brands (many with strong brand equity), most of which are on an
exclusive basis, for both online and offline, hence even if it is also affected by e-
commerce players, it has more flexibility to formulate its e-commerce strategy. We are
also now more comfortable with MAPI, as it has sustainably improved its cash flow and
is now focused on expanding its profitable growth engines. We also like Ace Hardware
Indonesia (ACES IJ, Buy) within the retail space for its increasing dominance in the
35
home improvement and lifestyle segment. We expect ACES to gradually gain market
share from the traditional channel, given tighter import regulations and consumers’
increasing preference for convenience.
Media: Looking forward to 2018 – growth drivers intact, drags

likely to abate
• Adspend likely to pick up – Following the weak adspend environment in both 2016
and 2017, we expect some improvement to 2017’s advertising market. Indonesia’s
structural fundamentals are still fairly strong; with Free-to-Air TV (FTA) still deeply
entrenched onto the platform. With the ongoing theme of higher internet penetration,
greater connectivity and even greater demand for content, we think that structural
drivers for the advertising market remain intact going into 2018. On the contrary, key
drags in 2017, which include but are not limited to government spending and cigarettes
are likely to abate going into 2018. We expect government and political organizations to
spend more in view of upcoming elections in both 2018 and 2019, while drags from
cigarettes, if any, are likely to be minimal given its already low contribution to the overall
adex pie. We estimate cigarettes’ contribution to be c.2-3% currently.
• FTA still very relevant and is likely to remain the key beneficiary –Talks of lower
TV adex contribution have been a concern in 2017 due to emerging online platforms.
While it is likely that TV’s contribution to the adex market is to decrease at some point,
we think that it is currently too early for a complete paradigm shift. In our view, TV is still
the most effective medium for advertising and the likely decrease in TV contribution is
expected to be slower than what the street expects. We offer two reasons for this – 1)
Given the average GDP/Capita of c.USD4000, we believe that most of the products
advertised are still predominantly products that target the mass market crowd. This
implies that we hardly see any insurance, mutual funds or luxury goods products
advertisements on air, reaffirming TV’s position as the best medium to reach the mass
market; 2) media players in Indonesia has been introducing in-program ads on top of
the traditional commercial break ads to boost revenue while negating a decline in
eyeballs. Examples of in-program ads come in the form of product placement, running
text, super imposes, digital embeds etc. While still in its infancy stage, we see high take
up rates with beverages and telco players the key subscribers. As such, in program-ads
are likely to provide some support to the potential threat from the online platforms.
• Audience Share; can SCMA turn things around via Sinemart? – While many
expected 2017 to be a good year for SCMA post the acquisition of Sinemart,
performance failed to live up to expectations due to a sequential event of external
factors. Instead, 2017 has been a fairly good year for VIVA IJ (Not Rated) due to ANTV,
while performance has been fairly stable for MNCN in 2017 y-y, albeit with a weak
slant. This resulted in a 3-way scramble for audience share. Going into 2018, we think
that competition is still likely to remain keen, with fears that VIVA may overtake SCMA
as the 2nd largest player. However, it is also noteworthy that Sinetrons’ audience share
has always made up around 48-54% of the audience share (53% currently) and no
single channel has managed to record consistent audience share growth over a period
of 12 months since MNCN last reached its peak in 3Q16 (momentum started in 4Q15).
In this regard, we think that with similar programming abilities and keener competition,
there could be potentially more downside risk to RCTI and ANTV’s audience share
given the high base, as the onus is on these channels to maintain their strong
outperformance. While it’s always difficult to ascertain the direction of audience share
trends, we think that SCMA could be better placed from a risk-reward perspective.
• Stock calls – we currently remain Neutral on the Indonesia media sector, with Neutral
ratings on both MNCN and SCMA. While we are still positive on the sector in the
medium term, we would like to see some signs of recovery in adspend before turning
more bullish but we do continue to expect 2018 to outperform 2017.
36
Fig. 52: Key outperformers and underperformers in 9M17 Fig. 53: Key outperformers and underperformers in 9M17
TOP 10 CATEGORY TV & PRINT 9M17 vs 9M16 TOP 10 PRODUCT TV & PRINT 9M17 vs 9M16
GOVERNMENT, POLITIC ORGANIZATION -9% MEIKARTA CIKARANG 0%
HAIR CARE PRODUCTS 16% TRAVELOKA.COM 82%
COMMUNICATION EQUIPMENT & SERVICES 33% INDOMIE 17%
FACIAL CARE PRODUCTS 21% VIVO GSM MULTICARDS HANDPHONE 6735%
ONLINE SERVICES 49% SAMSUNG GSM MULTICARDS HANDPHONE 121%
CLOVE CIGARETTES -24% SGM EKSPLOR 1 PLUS - GROWING UP MILK 22%
COFFEE, TEA -7% CLEAR ANTI KETOMBE - SHAMPOO 24%
SNACKS, BISCUITS, COOKIES, CAKES 22% KEMENTERIAN KESEHATAN RI -13%
INSTANT FOOD, INSTANT NOODLES 3% MARJAN BOUDOIN 18%
CORPORATE ADS, SOCIAL SERVICES -8% PANTENE ANTI KETOMBE - SHAMPOO 114%
Source: Nielsen, Nomura research Source: Nielsen, Nomura research
Fig. 54: Product split of in-program ads vs commercial break (Based on the month of May – October 2017)
Source: Nielsen, Nomura research
Fig. 55: Commercial break ads – top-10 categories Fig. 56: In-program ads – top-10 categories
TOP 10 CATEGORY TV & PRINT # of spots # of HH:MM TOP 10 CATEGORY TV & PRINT # of spots # of HH:MM
HAIR CARE 135,760 713:20:00 COFFEE, TEA 74,727 156:33:00
ONLINE SERVICES 122,983 777:45:00 HEATLH DRINK 53,020 117:01:00
FACIAL CARE 103,695 521:19:00 ONLINE SERVICES 33,757 103:48:00
COMMUNICATION EQPTMENT & SERVICES 97,257 517:33:00 COMMUNICATION EQPTMENT & SERVICES 31,316 86:16:00
COFFEE, TEA 83,316 405:43:00 VITAMIN, ESSENCES, SUPPLEMENTS 25,118 89:38:00
SNACKS, BISCUITS, COOKIES, CAKES 80,265 353:57:00 COSMETICS, MAKE UP 24,478 32:22:00
CLOVE CIGARETTES 79,769 406:24:00 CORPORATE ADS, SOCIAL SERVICES 19,889 121:43:00
VITAMIN, ESSENCES, SUPPLEMENTS 64,456 313:39:00 CEREALS, BREAKFAST FOOD 18,772 49:29:00
INSTANT FOOD, INSTANT NOODLES 62,781 300:36:00 INSTANT FOOD, INSTANT NOODLES 18,097 40:02:00
TOILET SOAP, LIQUID SOAP 57,681 333:15:00 TRADITIONAL MEDICINE 18,014 38:25:00
Source: Nielsen, Nomura research Source: Nielsen, Nomura research
37
Fig. 57: Indonesia prime-time audience share
Source: Nielsen, Company data, Nomura estimates
Fig. 58: Indonesia all-time audience share
Source: Nielsen, Company data, Nomura estimates
Healthcare: ongoing impact from universal healthcare

coverage
We expect the government to remain as the biggest growth driver for healthcare till 2019
as the coverage for Universal Healthcare Coverage (UHC) gradually increases towards
100% (from ~73% currently). As such, we are likely to see market share losses from
private hospitals that do not participate in BPJS (the administrator for UHC). For Kalbe
Farma (KLBF IJ, Neutral), its Pharmaceutical business will likely see continued decline in
gross margin, as the sales of unbranded generic drugs continue to outpace the branded
drugs. Despite the lacklustre outlook for the sector, we rate SILO as one of our top picks
in Indonesia, mainly due to expected turnaround in its profitability, as we are seeing
some positive signs post the entrance of CVC in September 2016.
38
How to position for 2018?

Among the three stocks under our coverage (KLBF IJ, MIKA IJ and SILO IJ), our top pick
for 2018 is SILO. We think SILO’s poor profitability is poised for a turnaround, as so far
we have seen visible improvement it its SG&A management with salary expenses only
growing by 4.0% y-y in 9M17 despite the addition of 8 new hospitals. This was achieved
by SILO reducing overlap in overhead staffing which saw a decline as a percentage of
total employees to 32.4% in 9M17 (from 34.5% in FY16). SILO is also optimising its drug
procurement process, by centralising drug and medical supplies procurement and
reducing SKUs to ~1,000 (from ~3,000 currently). These should result in gross/EBITDA
margin improvements to 28.7%/13.4% in FY18F and 29.0%/14.4% in FY19F (from
28.4%/12.1% in FY17F), on our estimates. Overall, we expect strong EBITDA growth of
30.8%/26.0% in FY18/19F.
Fig. 59: SILO’s employee breakdown by function Fig. 60: SILO’s opex breakdown
% of overhead staff has declined in 9M17 Salary expenses growth has slowed down in 9M17
Office and administration Others
(IDRbn) Water and electricity
Other medical staff
12,000 40% Depreciation
Nurses 1,400 Rental 40%
Doctors Other office expenses
Non-medical staff/total employee (RHS) 1,200 Salaries and employee benefits 39%
10,000
Salaries as % of opex (RHS)
35%
1,000 38%
8,000
800 37%
6,000 30%
600 36%
4,000
25% 400 35%
2,000 200 34%
0 20% 0 33%
2011A 2012A 2013A 2014A 2015A 2016A 9M17 2011A 2012A 2013A 2014A 2015A 2016A 9M17
Source: Company data, Nomura research Source: Company data, Nomura research
Fig. 61: SILO’s revenue vs. opex Fig. 62: SILO’s margins trends
(IDRbn) Revenue (LHS) Gross margin Operating margin

12,000 40% 35% EBITDA margin Net margin
Opex (LHS)
29.5% 28.4% 28.7% 29.0% 28.8%
Revenue y-o-y growth (RHS) 30% 28.5% 28.4% 28.7%
10,000
Opex y-o-y growth (RHS)
30% 25%
8,000
20%
6,000 20% 15.0% 14.4% 14.7% 15.0%
15% 13.2% 12.6% 13.4%
12.1%
4,000
10%
10% 6.5% 6.8% 7.4%
5.4% 5.1% 5.6% 4.9% 5.7%
2,000 5%
2.1% 2.8% 3.0% 3.3%
2.2% 1.7% 1.7% 1.5%
0 0% 0%
2014A2015A2016A2017F2018F2019F2020F2021F 2014A 2015A 2016A 2017F 2018F 2019F 2020F 2021F
Source: Company data, Nomura estimates Source: Company data, Nomura estimates
We like MIKA for its excellent track record in managing hospitals, but in the near term,
we think its minimum exposure to BPJS (<3% as of 9M17) and high profitability (~35%
EBITDA margin as of 9M17) will work against it. MIKA’s conservative approach will likely
result in further market share losses to BPJS hospitals. On the other hand, aggressively
tapping into the BPJS segment could quickly erode its healthy margins.
39
Fig. 63: MIKA’s hospital performance (Greater Jakarta) Fig. 64: MIKA’s hospital performance (Surabaya and Tegal)
Occupancy rate fell since the launch of UHC Waru suffered from low occupancy rate this year
Inpatient admission (LHS) Inpatient days (LHS) Inpatient admission (LHS) Inpatient days (LHS)
Outpatient visits (LHS) Occupancy rate (RHS) Outpatient visits (LHS) Occupancy rate (RHS)
1,500,000 72.2% 80% 500,000 80%
68.5% 73.2%
66.4%
60.1% 58.8% 400,000 57.5%
60% 52.8% 51.7% 60%
50.2%
1,000,000
300,000
1,293,586 1,338,476 40% 40%
1,256,886 1,262,237
200,000 396,521
1,003,786
500,000 349,363 294,681
304,484 326,116 314,858 326,861
301,103 280,659 20% 87,924 85,927 98,564 20%
215,407 100,000 81,025
66,050
82,991 79,226 91,495 64,063 23,782 23,290 25,482 28,775 20,630
81,822
0 0% 0 0%
2013A 2014A 2015A 2016A 9M17 2013A 2014A 2015A 2016A 9M17
We rate KLBF as one of the best companies to own over the longer term, but we are
unexcited by its near-term outlook. Of all of its business lines, only Nutritional has shown
consistent growth in the past few quarters, while other business segments are facing
headwinds. The Pharma business is still digesting the impact of universal healthcare, as
shown by the shift towards more unbranded generics, while Energy Drinks under
Consumer Health has already matured. Distribution is still looking for more principals,
while Medical Devices, which supposedly boasts higher margins than the regular
distribution business, is still relatively small. As such, for next year we continue to expect
sub-double-digit growth at the top line, while the bottom line we expect to return to
double-digit growth, supported mainly by rising efficiencies at the operating line.
Fig. 65: KLBF’s revenue breakdown by segment Fig. 66: KLBF’s revenue growth by segment
(IDRbn) Distribution and Logistics sales (y-o-y) Pharmaceutical

30,000 Nutritionals sales 25% Consumer Health
Nutritionals
Consumer Health sales
25,000 20% Distribution and Logistics
Pharmaceutical sales
15%
20,000
10%
15,000
5%
10,000
0%
5,000 -5%
0 -10%
FY13A FY14A FY15A FY16A FY17F FY18F FY19F FY14A FY15A FY16A FY17F FY18F FY19F
Telecoms: Mobile competition and regulation to remain

topical
• We expect competition to remain elevated in the Indonesian telco segment for the first
half of 2018. Data growth continues to be the key driver – and based on this, we expect
XL to continue to grow most, given its exposure to data at ~67% of revenues. We
expect Telkomsel’s growth metrics to remain muted for the near term. We expect telcos
to allocate more capex on data; however, we do not necessarily expect a capex spike
for the sector.
40
• Regulatory developments around SIM card registration should remain a key driver for
competition. We expect Telkomsel to remain aggressive on acquisition packs during
this window. However, we do expect the telco to continue to price its reloads at a
premium to peers.
• Revenue exposure to starter packs is at around 15% of telcos’ revenues, we think. The
growth here should slow down as registration progresses. The subsequent subscriber
clean-up would also remove dormant / inactive subscribers. Within the three telcos, we
expect ISAT to be the most exposed to these risks – given its strong net add
momentum in the recent quarters.
• Data should remain a key growth driver. This should be driven by higher adoption vs
any increase in data pricing. The revenue exposure here is 39% for TSel, 60% for ISAT
and 67% for XL.
• We expect further traffic shift in ex Java region from voice to data. With their selective
focus, we think XL is well-positioned to tap into this opportunity. While we may see
slightly higher capex, we do not expect a significant spike in overall capex.
• Fixed segment would be a focus and an opportunity for PT Telkom. Given the
underpenetrated market, there is a strong growth potential for the incumbent. TLKM
indicated interest in inorganic growth to improve its skillsets. At the same time, the telco
remains focussed on profitability in such acquisitions.
Fig. 67: Quarterly summary
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Revenue share
Telkomsel 64.3% 64.7% 65.4% 65.1% 65.9% 66.8% 67.5% 68.1% 67.7% 67.2% 67.3%
Indosat 18.4% 18.9% 18.6% 18.8% 18.5% 18.9% 18.9% 18.3% 18.4% 18.5% 17.6%
XL Axiata 17.3% 16.4% 16.0% 16.0% 15.6% 14.3% 13.6% 13.5% 14.0% 14.3% 15.1%
Revenue chg % q-q

Telkomsel -4.0% 6.5% 10.8% 1.0% -1.1% 3.5% 7.8% 2.4% -3.3% 6.2% -0.7%
Indosat -5.5% 8.5% 8.4% 2.4% -3.9% 4.2% 6.5% -1.5% -2.5% 7.9% -5.8%
XL Axiata -5.1% 0.3% 6.8% 2.0% -5.0% -6.5% 1.6% 1.0% 0.3% 9.3% 5.1%
Revenue chg % y-y

Telkomsel 12% 14% 18% 14% 18% 15% 11% 13% 10% 13% 4%
Indosat 5% 13% 17% 14% 16% 11% 9% 5% 7% 10% -2%
XL Axiata 7% -5% 1% 4% 4% -3% -8% -9% -4% 12% 16%
EBITDA chg% q-q

Telkomsel -11.7% 8.6% 19.6% -5.0% 2.6% 4.2% 9.2% -4.8% 4.3% 6.0% -2.3%
Indosat 6.7% 5.9% 16.2% -9.4% 1.9% 4.0% 11.2% -0.8% -8.8% 15.3% -9.6%
XL Axiata -18.3% 6.4% 9.9% 5.6% -5.6% -5.7% -4.2% -8.0% 1.5% 12.1% 10.1%
EBITDA chg%y-y
Telkomsel 9% 12% 27% 9% 27% 21% 11% 11% 13% 15% 3%
Indosat 0% 14% 25% 19% 14% 12% 7% 17% 5% 16% -6%
XL Axiata -15% -3% 7% 1% 17% 3% -10% -22% -16% 0% 15%
EBITDA margin
Telkomsel 54% 55% 59% 56% 58% 58% 59% 55% 59% 59% 58%
Indosat 43% 42% 46% 40% 43% 43% 45% 44% 43% 46% 43%
XL Axiata 41% 43% 45% 46% 46% 46% 44% 40% 40% 41% 43%
Total margin 51% 52% 56% 53% 55% 55% 56% 53% 55% 56% 55%
Blended ARPU (IDRk)

Telkomsel 39 40 45 47 43 44 47 45 43 45 42
Indosat 24 25 27 28 26 26 24 25 22 23 21
XL Axiata 28 30 33 35 39 35 36 35 33 34 34
Mobile net adds ('000)

Telkomsel 878 2,602 4,496 4,079 974 3,773 6,313 10,220 (360) 4,441 12,361
Indosat 3,300 2,000 500 800 0 10,700 1,100 4,000 10,000 800 600
XL Axiata (7,498) (6,097) (4,597) 606 401 1,552 1,021 1,422 1,507 2,542 2,049
Source: Company data, Nomura research
41
Fig. 68: Data summary
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Data revenue contribution
Telkomsel 25% 25% 27% 29% 31% 32% 32% 33% 34% 37% 39%
Indosat 31% 30% 32% 35% 39% 45% 42% 44% 52% 57% 60%
XL Axiata 31% 32% 31% 35% 37% 40% 47% 53% 58% 63% 67%
Data revenue change q-q

Telkomsel 4% 8% 20% 10% 4% 6% 8% 6% -1% 15% 4%
Indosat 1% 6% 13% 13% 7% 20% 0% 3% 13% 18% -1%
XL Axiata -1% 1% 5% 15% 1% 0% 19% 15% 9% 19% 11%
Data revenue change y-y

Telkomsel 38% 37% 49% 49% 48% 46% 31% 27% 21% 31% 27%
Indosat 65% 37% 45% 65% 47% 33% 40% 39% 37%
XL Axiata 29% 0% 9% 20% 23% 22% 38% 38% 49% 77% 66%
Data Realisation (IDR/GB)

Telkomsel 48,128 39,936 41,984 40,970 37,693 32,633 29,060 23,869 21,220 19,321 15,598
Indosat 36,864 35,930 33,430 36,937 35,511 29,143 18,747 14,999 15,230 15,321 12,811
XL Axiata 34,154 33,873 35,843 30,562 21,425 16,314 15,794 13,829 11,462 10,554 10,628
Data Realisation (change q-q)

Telkomsel -8% -17% 5% -2% -8% -13% -11% -18% -11% -9% -19%
Indosat -23% -3% -7% 10% -4% -18% -36% -20% 2% 1% -16%
XL Axiata -15% -1% 6% -15% -30% -24% -3% -12% -17% -8% 1%
Data Realisation (change y-y)

Telkomsel -34% -40% -31% -22% -22% -18% -31% -42% -44% -41% -46%
Indosat -39% -20% -33% -23% -4% -19% -44% -59% -57% -47% -32%
XL Axiata -33% -31% -17% -24% -37% -52% -56% -55% -47% -35% -33%
Data subs contribution

Telkomsel 45% 46% 46% 48% 49% 49% 49% 47% 49% 49% 47%
Indosat 44% 44% 47% 49% 45% 44% 48% 47% 43% 43% 47%
XL Axiata 54% 61% 48% 54% 54% 54% 65% 65% 68% 70% 72%
Source: Company data, Nomura estimates
42
Fig. 69: BTS summary
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
BTS
Telkomsel 90,552 96,915 100,382 103,289 110,512 118,673 124,097 129,033 136,093 146,571 152,191
Indosat 40,831 43,075 46,361 50,687 52,326 53,333 54,212 56,483 58,175 59,023 60,247
XL Axiata 52,942 54,550 56,300 58,879 59,040 66,353 78,725 84,484 87,648 93,507 98,005
Total BTS 184,325 194,540 203,043 212,855 221,878 238,359 257,034 270,000 281,916 299,101 310,443
BTS additions
Telkomsel 5,132 6,363 3,467 2,907 7,223 8,161 5,424 4,936 7,060 10,478 5,620
Indosat 602 2,244 3,286 4,326 1,639 1,007 879 2,271 1,692 848 1,224
XL Axiata 930 1,608 1,750 2,579 161 7,313 12,372 5,759 3,164 5,859 4,498
Total BTS additions 6,664 10,215 8,503 9,812 9,023 16,481 18,675 12,966 11,916 17,185 11,342
BTS share
Telkomsel 49% 50% 49% 49% 50% 50% 48% 48% 48% 49% 49%
Indosat 22% 22% 23% 24% 24% 22% 21% 21% 21% 20% 19%
XL Axiata 29% 28% 28% 28% 27% 28% 31% 31% 31% 31% 32%
Total BTS 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
3G BTS
Telkomsel 43,556 48,183 51,666 53,134 57,205 63,891 68,651 72,327 75,190 78,408 80,418
Indosat 18,544 20,067 22,671 23,730 25,068 25,816 26,273 27,724 28,510 29,255 29,912
XL Axiata 16,431 17,246 17,918 18,239 18,324 23,474 33,939 38,731 39,743 42,167 44,462
Total BTS 78,531 85,496 92,255 95,103 100,597 113,181 128,863 138,782 143,443 149,830 154,792
3G BTS additions
Telkomsel 5,117 4,627 3,483 1,468 4,071 6,686 4,760 3,676 2,863 3,218 2,010
Indosat 481 1,523 2,604 1,059 1,338 748 457 1,451 786 745 657
XL Axiata 425 815 672 321 85 5,150 10,465 4,792 1,012 2,424 2,295
Total BTS additions 6,023 6,965 6,759 2,848 5,494 12,584 15,682 9,919 4,661 6,387 4,962
4G BTS
Telkomsel 1,761 4,210 4,932 5,015 6,362 11,130 17,837 21,447
Indosat 75 106 165 3,361 3,544 3,724 4,080 4,717 5,446 5,533 6,110
XL Axiata 180 232 1,018 3,134 3,286 5,250 7,204 8,204 10,330 13,591 15,711
Total BTS 255 338 1,183 8,256 11,040 13,906 16,299 19,283 26,906 36,961 43,268
4G BTS additions
Telkomsel 2,449 722 83 1,347 4,768 6,707 3,610
Indosat 31 59 3,196 183 180 356 637 729 87 577
XL Axiata 52 786 2,116 152 1,964 1,954 1,000 2,126 3,261 2,120
Infrastructure: all eyes on funding capability

We continue our bullish view on Indonesian infrastructure, and our top stock picks are
PTPP and SMGR (both Buy). This is largely to reflect the potential solid government
execution on infra project development, concerns on funding/cash flows issues are
overblown with clearer financing strategies ahead, and continued robust earnings growth
in 2018. Furthermore, construction progress of the national strategic projects will
continue to drive demand for precast concrete and related cement components, in our
view.
Construction (Overweight): The construction sector has underperformed the JCI by
some 38% this year. The current prices have already wiped out the shares’ gains during
the Jokowi infrastructure exuberance, with valuations having de-rated back to the
preconstruction sector upcycle in 2013. Funding remains the biggest dilemma and is
likely to remain so for some time, with the asset securitization story yet to prove its worth.
That said, we see potential catalysts ahead which could trigger a turnaround in sector re-
rating: 1) asset divestment materializing; 2) the success of contractors’ subsidiary IPO
plans; and 3) improving progress on high-profile projects such as Light Rail Transit (LRT)
& High-Speed Train Jakarta-Bandung (HSR). Key stock pick: PT Pembangunan
Perumahan (PTPP IJ, Buy, TP: IDR4,700) – most solid B/S and cash flows generation
compared to peers, potentially better new orders growth, and attractive valuations.
43
Toll roads (Overweight): We still expect toll-road operators to be direct beneficiaries of

the expedited land acquisition process and higher infra spending in 2018. Inelastic
demand for toll roads, new toll road expansions, and inflation-hedge tariff hikes are
expected to boost the outlook. Key stock pick: Jasa Marga (JSMR IJ, Buy, TP: 7,800) –
clearer financing strategies, continued solid traffic volume growth, and structurally lower
salary costs given 100% e-toll card penetration are likely to sustain long-term growth.
Cement (Neutral): We believe ASP pressure will likely continue in 2018 given the
continued oversupply conditions and intense competition from new players; however, we
might already see the bottom in terms of margins as volumes have started to pick up of
late. We continue to expect cement volume to remain solid, given improving infra
projects construction progresses and executions, as well as potential recovery in the
property demand. Key stock pick: Semen Indonesia (SMGR IJ, Buy, TP: IDR12,000) –
diversified locations which partly shield it from the brutal competition in Java, more
resilient pricing power, potential industry consolidation and reasonable valuation, now
trading at an EV/EBITDA of 9x, which is one of the cheapest in the region.
Key sector themes/drivers/momentums in 2018:
• We view fiscal assumptions in the Preliminary FY18 draft budget (RAPBN) as
reasonable with the budget deficit set at 2.19% of GDP. Overall revenue and spending
are forecast to increase 8% and 5%, respectively. Speaking of infra components, the
land acquisition budget came in at IDR35.4tn (+10% y-y). Meanwhile, the state-owned
railway PT Kereta Api Indonesia (KAI) received an IDR3.6tn equity injection towards
the Greater Jakarta LRT. Within the connectivity segment, the government’s
development targets include: 1) 856km of new roads, 25km of toll roads; 2) railway
tracks (639km); and 3) new airports at 15 locations. Moreover, the government will try
to encourage public-private partnerships (PPPs) through the viability fund (VGF).
• Better infra progress/execution – we have tracked the progress of the top 37 priority
projects, along with the 245 national strategic projects: 53% of the national strategic
projects are now in construction phase, and are possibly boosting demand, 40% are
still in preparation, and 7% are either completed and/or are during transaction period.
• Clearer financing strategies such as asset divestment, subsidiaries’ IPO plan, and
potentially better cashflow generation given the expected turnkey project payments.
Fig. 70: PUPR budget realization & tax revenue realization
Infrastructure budget realization Tax realization

1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
2011 2012 2013 2014 2015 2016 2017F 2018F
Source: Ministry of Finance, The Directorate-General for Taxation, Nomura research
44
Fig. 71: List of priority projects
No List of projects Location Project status

1 Trans Sumatera toll road (15 sections) Sumatra Construction
2 MRT Jakarta South-North section DKI Jakarta Construction
3 Makassar-Pare Pare train South Sulawesi Construction
4 Light Rail Transit in South Sumatera South Sumatra Construction
5 National Capital Integrated Coastal Development (NCICD) fase A DKI Jakarta Construction
6 Batang power plant Central Java Construction
7 Palapa Ring Broadband Indonesia Construction
8 LRT in Jakarta, Bogor, Depok, and Bekasi Greater Jakarta Construction
9 Panimbang, Serang toll road Banten Construction
10 500KV transmission in Sumatera South Sumatra Construction
11 500KV transimission line in Central-West Java Central Java Construction
12 Balikpapan-Samarinda toll road East Kalimantan Construction
13 Manado-Bitung toll road North Sulawesi Construction
14 Jambaran - Tiung Biru Gas Field Utilization East Java Construction
15 Indonesia Deepwater Development East Kalimantan Construction
16 LNG Train 3 Development West Papua Construction
17 LRT DKI Jakarta DKI Jakarta Construction
18 Inland Waterway/Cikarang-Bekasi-Laut (CBL) Greater Jakarta Preparation
19 East Kalimantan train East Kalimantan Preparation
20 Soekarno-Hatta Airport Train Express DKI Jakarta Preparation
21 Kuala Tanjung seaport development South Sumatra Preparation
22 Bitung International Port Hub North Sulawesi Preparation
23 Jakarta sewage system DKI Jakarta Preparation
24 Drinking water treatment in West Semarang Central Java Preparation
25 Patimban Port West Java Preparation
26 Lapangan Abadi WK Masela Maluku Preparation
27 Drinking water supply system Jatiluhur West Java Preparation
28 Probolinggo - Banyuwangi Toll Road East Java Transaction
29 Yogyakarta - Bawean Toll Road East Java Transaction
30 Bontang refinery East Kalimantan Transaction
31 Revitalisation of existing refinery (Balikpapan, Cilacap, Balongan, Dumai, Plaju) East Kalimantan Transaction
32 Tuban refinery East Java Transaction
33 Indramayu gas-fired power plant West Java Transaction
34 Mulut Tambang Power plant (5 Provinces) Sumatra and Kalimantan Transaction
35 Gas Based Powerplant (18 provinces) Java, Sumatra, Kalimantan, Sulawesi, Papua Transaction
36 Drinking water supply system Lampung Bandar Lampung Transaction
37 Waste to energy program (8 cities) Java and Sulawesi Transaction
Fig. 72: Progress on priority project completion Fig. 73: Cement demand & supply
Semen Padang Semen Gresik

17 projects Semen Tonasa Holcim Indonesia
Indocement Tunggal Perkasa Semen Baturaja
are under Semen Andalas Indonesia Semen Kupang
construction Semen Bosowa Maros Siam Cement
Anhui Conch Semen Merah Putih
24% Ultra Tech Cement Limited Semen Karawang - Juishin
140 Utilization (%) (RHS) 85%
9 projects 120
are in 80%
preparation 100
46% 75%
80
60 70%
40
11 project 65%
20
are in
transaction 0 60%
30% 2015 2016 2017F 2018F 2019F 2020F
Source: State Ministry for Development Planning /National Development Planning Source: Company data, Nomura estimates
Agency, Nomura research
45
Fig. 74: Infra revenue & earnings & growth Fig. 75: JSMR financing strategy
Revenue (LHS) Net income (LHS) Financing strategies Launch year Potential proceeds (IDR tn)
250 35%
y-o-y% revenue y-o-y% net income 1) Asset securitization
30% -Jagorawi 3Q17 2
200 25% -Others FY18- 19 15-20
20% 2) Bonds
-JORR - W2N 4Q17 1.5-2.0
150 15%
-Others FY18- 19 10
10% 3) Trans Jawa Holding FY17- 19 N.A
100 5% 4) CPF (7 toll roads) FY18- 19 ~40
0%
50 -5%
Source: Company data, Nomura Research
-10%
0 -15%
2015 2016 2017F 2018F 2019F
Fig. 76: Infrastructure: Sector forward P/E
(x)
PE Average STD +1
24 STD +2 STD -1 STD -2
22
20
18
16
14
12
10
Feb-13
Feb-14
Feb-15
Feb-16
Feb-17
Dec-13
Dec-14
Dec-12
Jun-13
Aug-13
Jun-14
Aug-14
Jun-15
Apr-15
Aug-15
Aug-16
Jun-17
Aug-17
Apr-13
Oct-13
Apr-14
Oct-14
Oct-15
Dec-15
Jun-16
Apr-16
Oct-16
Dec-16
Apr-17
Oct-17
Property: signals of recovery

We see an early signal of recovery in the sector in the form of receding apartment supply
and stabilizing secondary market prices. Stable GDP growth and the supportive low
interest rate environment may translate to limited downside; however, we also have not
seen any clear catalysts in the near term given the uncertainty over political risks nearing
the presidential election in 2019.
We remain Bullish on the sector as we believe that despite the continued soft demand,
there are early signals of recovery as follows: 1) Greater Jakarta’s condo/apartment new
supply has been receding from its peak in FY15. Currently, the next year of condo supply
stands at around 15,278 units, already 46% below the FY15 peak of 28,593 units and
21% below the past three-year average of around 19,235 units; and 2) secondary market
asking prices have also been moving sideways for the last six months, after declining as
much as 15-20% last year, based on our on-the-ground checks. While the large price
gap between the primary and secondary markets remains an issue for most developers,
stabilizing secondary market prices are a reason to be more optimistic. In all, the
concerns continue to be on the lack of near-term catalysts, however, we are positive
about long-term property prospects.
Our top pick is Summarecon Agung (SMRA IJ, Buy) as we think its earnings and
presales are bottoming, and recovery should start next year with the potential debt
refinancing lowering interest cost and stronger backlog sales recognition too.
46
Key theme/drivers/momentum in 2018:

• The consolidated big four developers under our coverage’s presales may see flattish
growth in 2018, but earnings are likely to improve given the potential backlog
recognition, particularly from apartment projects, in our view. We forecast 13.2% y-y
growth on the combined presales and 15.7% y-y EPS growth, which is reasonable
considering the low base of sales this year and a more supportive bank focus on
enlarging the mortgage loans amidst the low interest rate environment.
• The sector is trading at a 65% discount to RNAV, or 2STD below the five-year historical
mean vs the trough valuation of a 70% discount to NAV. Trough valuation occurred in
September 2015 when there was noise on luxury property tax revisions and premium-
product demand declined – we believe these issues are no longer relevant because: 1)
property regulations are more positive (i.e. lower tax rate, improved foreign ownership
regulation, etc); and 2) developers’ shift in product/pricing strategy by offering more
affordable product and improving mortgage takers should be able to offset the
weakness in premium product demand.
Fig. 77: Consolidated presales & growth Fig. 78: Apartment/condo supply trend
Aggregate presales (LHS) Supply (units) (LHS)

25,000 20% 250,000 70%
Y-Y% (RHS) Pre-sales rate (RHS)
15% 68%
20,000 10% 200,000 66%
5% 64%
150,000 62%
15,000 0%
60%
-5%
100,000 58%
10,000 -10%
56%
-15%
50,000 54%
5,000 -20%
52%
-25% 0 50%
3Q17
2009
2010
2011
2012
2013
2014
2015
2016
0 -30%
2015 2016 2017F 2018F 2019F
Source: Company data, Nomura estimates Source: Cushman and Wakefield, Nomura research
Fig. 79: Home prices in primary market Fig. 80: Banks’ mortgage loans as a % of total loans
Per capita income in USD (LHS) 10.1%

Jabodetabek-Banten
4,000 210 9.9%
14 Cities
Ex Jabodetabek-Banten 9.7%
3,500
160 9.5%
3,000 9.3%
2,500 110 9.1%
8.9%
2,000
60 8.7%
1,500 8.5%
Jul-14
Dec-14
Mar-11
Jan-12
Jun-12
Nov-12
Jan-17
Jun-17
Aug-11
Apr-13
Sep-13
Oct-15
Aug-16
Feb-14
May-15
Mar-16
1,000 10
2006 2007 2008 2009 2010 2011 2012 2013
Source: Bank Indonesia, Nomura Research Source: Indonesia Banking Statistics, Nomura Research
47
Fig. 81: Mortgage takers Fig. 82: Consolidated earnings & growth
Aggregate net income (LHS)

Cash, 8,000 40%
15.0% Y-Y% (RHS)
7,000 30%
Mortgage,
31.5% 20%
6,000
10%
5,000
0%
4,000
-10%
3,000
-20%
2,000 -30%
1,000 -40%
In house
installment, 0 -50%
53.0% 2015 2016 2017F 2018F 2019F
Source: Company data, Nomura Research Source: Company data, Nomura Estimates
Fig. 83: Property discount to RNAV band
% Disc to RNAV Mean '+1 STD

'+2 STD '-1 STD '-2 STD
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Sep-13
Sep-14
Mar-15
Sep-15
Sep-16
Sep-17
Mar-13
Mar-14
Mar-16
Mar-17
Plantations: Potential upside to CPO price with development

of La Niña
We remain Neutral on the plantation sector in 2018 as we expect FFB production growth
to taper off in 2018 following the strong production growth of >15% in 2017 due to the
end of the El Nino period. However, there is potential upside to CPO price and planters’
earnings in 2018 if La Nina is developing in early 2018, as Australia’s Bureau of
Meteorology has recently increased the chance of a La Niña forming to70%. We have
yet to factor in the La Nina impact in our forecasts but expect La Niña event would drive
2018 average CPO prices higher by 7% due to weak production. We expect the
plantation sector to see seasonally higher interest in 1Q18 and 4Q18 due to positive
newsflow on CPO price as a result of lower supply due to increased rainfall. Our
preferred stocks are those that offer strong production growth from new maturities and
good cost control such as LSIP and AALI IJ.

• We expect CPO prices to be well supported by lower production over the next few
months due to increased rainfall as we enter the year-end monsoon season.
48
• CPO price is likely to peak in early 2018 and gradually taper off in 2Q18 due to still-high
inventory and continued production growth from new maturities. CPO is expected to
pick up again in 4Q18 with lower inventory after the festive season and seasonally low
production period.
• Recent observations by Australia’s Bureau of Meteorology indicate the chance of a
La Niña forming in late 2017 of 70%; around 3x the normal likelihood. La Niña events
typically bring above-average rainfall and affect CPO production. We estimate the
development of a La Niña event would drive 2018 average CPO prices higher by 7%
due to weak production.
• We note that CPO prices and CPO stock share prices tend to be higher in the Nov-Feb
period compared with the preceding Mar-Oct period, with a positive trend of 60% over
the past 15 years. We expect a similar trend in 2018 with positive catalyst coming from
stronger 3Q17 results, higher CPO prices due to an increase rainfall that affects
productions and oil price recovery (correlation of 0.7x).
• Higher CPO prices should benefit stock prices, with high CPO price correlation such as
LSIP IJ and AALI IJ (all rated Buy).
• In our view, sector winners will be those with strong production growth and efficient cost
control. We maintain our Neutral sector view with 2017-2018 CPO price forecast of
MYR2,850/MT.
Fig. 84: Share price correlation with CPO price Fig. 85: Palm oil companies’ ROE (CY1H17, annualised)
0.8 0.75 30% 1H17 ROE (annualized)

0.71
0.7 0.66 24.6%
25%
0.6
20%
0.5 16.2% 16.9%
0.4 0.34 0.35 15%

12.0%
0.3
10% 7.4% 6.8%
0.2 0.13
5%
0.1
0 0%
FR SP SIME MK IOI MK GENP AALI IJ LSIP IJ FR SP SIME MK IOI MK GENP AALI IJ LSIP IJ
MK MK
Source: Bloomberg, Nomura research Source: Company data, Nomura research
Fig. 86: Palm oil companies’ margins (FY18F) Fig. 87: FFB production growth in CY1H17 for key players
Operating EBITDA Net profit

FY18F Gross margin 40% FFB production growth y-y in CY1H17
margin margin margin
FR SP 54.8% 46.7% 54.3% 29.1% 34%
35%
SIME MK 8.6% 6.0% 10.1% 5.5% 28.8%
30% 27%
IOI MK 18.4% 12.7% 14.9% 9.3%
GENP MK 42.6% 21.6% 28.2% 19.9% 25%
19.7%
AALI IJ 29.0% 21.3% 29.4% 14.1% 20% 17.0% 17.1%
LSIP IJ 30.2% 20.8% 29.9% 16.8%
15%
Average 30.6% 21.5% 27.8% 15.8%
10%
Source: Nomura estimates
5%
0%
FR SP SIME MK IOI MK GENP AALI IJ LSIP IJ
MK
49
Fig. 88: CPO and crude oil price trend and correlation in last 15 years
1,400 Malaysia Palm Oil (USD/MT) Crude Oil (USD/MT)
In last Correlation
1,200
1 year 0.43
3 year 0.30
1,000
5 year 0.76
800 10 year 0.73
600
400
200
0
Mar-04
Mar-11
Jul-06
Jul-13
Aug-10
Jun-02
Jan-03
Aug-03
Oct-04
Dec-05
Sep-07
Nov-08
Jun-09
Jan-10
Apr-08
Oct-11
Dec-12
Sep-14
Nov-15
Jun-16
Jan-17
Aug-17
Apr-15
May-05
Feb-07
May-12
Feb-14
Source: Bloomberg, Nomura research
Gas: Still lack of clarity in future direction

Indonesia’s gas sector has historically been affected by lack of access to transmission
and distribution pipelines and Perusahaan Gas Negara (PGAS IJ) has been increasing
its capex to improve the gas infrastructure network. A key concern for the sector is on
declining gas usage due to competition from competitive fuels like coal and
hydro/renewable sources but we have seen improving gas distribution volume for PGAS
following the higher offtake from PLN and overall GDP improvement.

• PGAS is going through a merger plan to consolidate its gas pipelines with those under
Pertamina (national oil and gas company of Indonesia, unlisted).
• We believe the move upon finalization will result in a better allocation of gas resources
in Indonesia. This is also one of the major steps towards Third Party Access (TPA) for
gas pipelines in Indonesia. If successfully implemented, this will result in improving gas
volume and low gas prices. However, there is still lack of clarity in the merger plan at
this juncture.
• The parties are currently working out the integration of the transmission and distribution
pipelines to ensure efficiency. Under the merger plan, the government will transfer its
shares in PGAS to Pertamina and PGAS will become a subsidiary of Pertamina.
• To realize the plan the government needs to issue new regulations and the government
is currently studying the legal implications of the related issues.
50
Fig. 89: PGAS’s average natural gas selling price in 9M17 Fig. 90: Indonesia natural gas consumption
compared to other alternatives
In USD/MM BTU In cubic ft/day bn
25 4.3 4.2
20.0 20.1
20 18.1 18.6 18.8 4.2
17.1 4.07 4.08
4.1
15 12.4 3.95 3.95
4.0 3.91
10 8.6 3.9
7.1
3.8
5
3.7 3.64
0 3.6
LPG - 12kg
HSD
IDO/MDF/MDO
MFO 180
Gasoline 88
LPG - 50 kg
(subsidized)
Kerosene
Natural Gas
- ang PGN
LPG - 3kg
3.5
3.4
3.3
2010 2011 2012 2013 2014 2015 2016
Source: Company data, Nomura research Source: CEIC, Nomura research
Fig. 91: Key regulatory steps taken by the government in last two years
November 2016 July 2017

October 2015 May 2016 Gas prices for three ESDM Minister
Lowering energy Determination of gas specific industries: approved increased
price including price for seven Fertilizer, gas price of
gasoline, electricity industries (specific Petrochemical and ConocoPhillips to
and gas users) Steel PGN in Batam Area
February 2016 June 2016 July 2017

guidelines and Procdure of Guideline to
procedure to determining the price determine utilization
determine allocation, for specific users and price of gas for
utilization and price electricity sector
of gas
Fig. 92: PGAS’ distribution volumes Fig. 93: PGAS’ transmission volumes
880 Distribution volume (MMscfd) 900 Transmission volume (MMscfd)

865 877
860 854 852
840 850
824
820 807 802
802 803 789 795
793 800
800
780 767
750 736
760
740 700
720
700 650
2012 2013 2014 2015 2016 9M16 9M17 2012 2013 2014 2015 2016 9M16 9M17
51
Bank Central Asia BBCA.JK BBCA IJ
EQUITY: BANKS
The combination of quality and consumers Global Markets Research

8 December 2017
Quality banks growing the consumer portfolio will
continue showing earnings improvement Rating
Remains Buy
Action: Maintain Buy, elevated valuations due to improving outlook Target Price
IDR 24,440
Remains
We continue to expect BBCA to lead the Indonesia banking sector in terms of
ROE with its solid asset quality and its focus on the consumer segment, while Closing price
IDR 20,800
4 December 2017
maintaining its strong corporate profile. Sep-17 system loans growth of 7.9% y-y
remained weak on the back of disappointing GDP growth. Nonetheless, BBCA Potential upside +17.5%
still managed to grow 13.6% y-y. Although BBCA’s YTD price performance
relative to other ASEAN banks has been strong at 36%, it is ~3pp above the
Indonesia Financial Index. On its stronger-than-system-average growth, we Anchor themes
expect BBCA to continue rerating to 4.1x (current 3.7x) fPBV with a TP of As middle-class incomes
IDR24,440. Our TP, which implies 17.5% potential upside, is GGM derived, with continue growing, the consumer
key assumptions of cost of equity at 12.5% and sustainable ROE of 19.6%. sector will provide high-quality
and sustainable returns for the
Structurally lower ROE due to stronger capital position; we do not see banks. Nonetheless, this sector
this as a negative impact due to IFRS 9 uncertainty remains underpenetrated. Banks
Although BBCA’s NPL ratio is at 1.5% with NPL coverage ratio of 191%, the that can champion this sector will
classified loans (restructured loans + NPLs) ratio is at 2.0%. We expect the enjoy high growth and
adjusted classified loans coverage ratio to decline to 150% upon adoption of sustainable ROEs, despite
IFRS 9 accounting standards, based on current provisions. That said, we declining NIMs.
expect BBCA to start increasing its dividend payout ratio towards 50% by
Nomura vs consensus
FY18F. This should help lift ROE levels back towards 20%.
Our FY18F EPS is 2.2% above
BBCA: Indonesia’s housing loans leader at 31% market share consensus.
In the first three quarters of 2017, BBCA gained 5% market share in the
mortgage segment (excluding Bank Tabungan Negara [BBTN IJ, Not rated]; Research analysts
subtracting BBTN’s mortgage loans from total system mortgages because it is
a state-backed subsidised mortgage lender) to 31% by Sep-17, despite stiff Indonesia Banks
competition. Although there has been NIM compression in this segment, it is Marcus Chua - NSL
still net positive as expected loss rate is lower, thus credit cost should be marcus.chua@nomura.com
+65 6433 6960
lower. We expect risk-adjusted NIM to improve to 6.3% in FY18F (from 6.0%
in 9M17) due to a faster decline in credit cost than NIM compression.
Year-end 31 Dec FY16 FY17F FY18F FY19F

Currency (IDR) Actual Old New Old New Old New
PPOP (bn) 30,400 32,492 32,492 36,051 36,051 39,968 39,968

Reported net profit (bn) 20,606 23,741 23,741 26,377 26,377 29,490 29,490
Normalised net profit (bn) 20,606 23,741 23,741 26,377 26,377 29,490 29,490
FD normalised EPS 835.76 962.93 962.93 1,069.85 1,069.85 1,196.11 1,196.11
FD norm. EPS growth (%) 14.4 15.2 15.2 11.1 11.1 11.8 11.8
FD normalised P/E (x) 24.9 N/A 21.6 N/A 19.4 N/A 17.4
Price/adj. book (x) 4.6 N/A 4.0 N/A 3.6 N/A 3.3
Price/book (x) 4.6 N/A 4.0 N/A 3.6 N/A 3.3
Dividend yield (%) 1.0 N/A 1.4 N/A 2.6 N/A 2.9
ROE (%) 20.0 19.7 19.7 19.1 19.4 18.7 19.7
ROA (%) 3.3 3.4 3.4 3.5 3.5 3.6 3.6
Key company data: See next page for company data and detailed price/index chart.
Nomura | Bank Central Asia 8 December 2017
Key data on Bank Central Asia

Relative performance chart Balance sheet (IDRbn)
As at 31 Dec FY15 FY16 FY17F FY18F FY19F
Cash and equivalents 17,849 15,944 21,556 23,154 25,173
Inter-bank lending 64,698 47,830 49,510 54,653 60,323
Deposits with central bank 37,775 40,597 40,508 42,941 45,507
Total securities 53,299 116,220 120,024 122,897 125,429
Other int earning assets
Gross loans 398,490 428,029 470,832 517,916 569,707
Less provisions -9,357 -12,850 -14,076 -15,486 -17,037
Net loans 389,133 415,179 456,757 502,430 552,670
Long-term investments 153 164 164 164 164
Fixed assets 9,712 16,991 16,991 16,991 16,991
Goodwill
Other intangible assets
Source: Thomson Reuters, Nomura research Other non IEAs 21,754 23,815 22,323 25,863 29,428
Total assets 594,373 676,739 727,832 789,092 855,685
Notes: Customer deposits 476,820 533,965 567,268 609,313 662,450
Bank deposits, CDs, 4,156 4,901 4,817 4,797 3,452
Other int bearing liabilities 4,677 5,378 5,014 4,609 3,061
Total int bearing liabilities 485,653 544,244 577,099 618,718 668,964
Performance Non-int bearing liabilities 19,094 19,780 21,399 27,851 29,454
(%) 1M 3M 12M Total liabilities 504,748 564,024 598,498 646,569 698,417
Absolute (IDR) -1.1 10.2 41.7 M cap (USDmn) 37,537.6 Minority interest 256 282 282 282 282
Absolute (USD) -1.3 8.7 41.7 Free float (%) 52.9 Common stock 7,105 7,105 7,105 7,105 7,105
Rel to MSCI Indonesia 1.1 9.0 26.9 3-mth ADT (USDmn) 23.9 Preferred stock
Retained earnings 81,995 98,503 115,122 128,311 143,056
Profit and loss (IDRbn) Reserves for credit losses
Year-end 31 Dec FY15 FY16 FY17F FY18F FY19F Proposed dividends
Interest income 47,105 50,562 55,387 59,708 64,378 Other equity 269 6,824 6,824 6,824 6,824
Interest expense -11,213 -10,347 -12,025 -12,987 -13,987 Shareholders' equity 89,369 112,433 129,052 142,240 156,986
Net interest income 35,892 40,215 43,362 46,721 50,391 Total liabilities and equity 594,373 676,739 727,832 789,092 855,685
Net fees and commissions 8,356 9,401 10,270 11,082 12,070 Non-perf assets 2,802 5,452 7,307 7,529 7,724
Trading related profits 2,084 2,210 2,313 2,626 2,982
Other operating revenue 1,545 1,954 1,871 2,708 3,585 Balance sheet ratios (%)
Non-interest income 11,985 13,564 14,454 16,416 18,638 Loans to deposits 83.6 80.2 83.0 85.0 86.0
Operating income 47,876 53,779 57,816 63,137 69,029 Equity to assets 15.0 16.6 17.7 18.0 18.3
Depreciation Asset quality & capital
Amortisation NPAs/gross loans (%) 0.7 1.3 1.6 1.5 1.4
Operating expenses -21,714 -23,379 -25,323 -27,086 -29,061 Bad debt charge/gross 0.87 1.12 0.61 0.61 0.56
Employee share expense Loss reserves/assets (%) 1.57 1.90 1.93 1.96 1.99
Pre-provision op profit 26,162 30,400 32,492 36,051 39,968 Loss reserves/NPAs (%) 334.0 235.7 192.6 205.7 220.6
Provisions for bad debt -3,470 -4,807 -2,883 -3,147 -3,172 Tier 1 capital ratio (%) 18.1 21.3 22.9 23.5 24.1
Other provision charges -35 246 100 100 100 Total capital ratio (%) 19.0 22.2 23.8 24.4 25.0
Operating profit 22,657 25,839 29,710 33,005 36,896 Per share
Other non-op income 0 0 0 0 0 Reported EPS (IDR) 730.83 835.76 962.93 1,069.85 1,196.11
Associates & JCEs Norm EPS (IDR) 730.83 835.76 962.93 1,069.85 1,196.11
Pre-tax profit 22,657 25,839 29,710 33,005 36,896 FD norm EPS (IDR) 730.83 835.76 962.93 1,069.85 1,196.11
Income tax -4,621 -5,207 -5,942 -6,601 -7,379 DPS (IDR) 160.00 200.00 288.88 534.92 598.06
Net profit after tax 18,036 20,632 23,768 26,404 29,517 PPOP PS (IDR) 1,061.13 1,233.03 1,317.88 1,462.23 1,621.08
Minority interests -17 -27 -27 -27 -27 BVPS (IDR) 3,624.80 4,560.25 5,234.31 5,769.23 6,367.29
Other items ABVPS (IDR) 3,624.80 4,560.25 5,234.31 5,769.23 6,367.29
Preferred dividends NTAPS (IDR) 3,624.80 4,560.25 5,234.31 5,769.23 6,367.29
Normalised NPAT 18,019 20,606 23,741 26,377 29,490
Extraordinary items Valuations and ratios
Reported NPAT 18,019 20,606 23,741 26,377 29,490 Reported P/E (x) 28.5 24.9 21.6 19.4 17.4
Dividends -3,945 -4,931 -7,122 -13,189 -14,745 Normalised P/E (x) 28.5 24.9 21.6 19.4 17.4
Transfer to reserves 14,074 15,675 16,619 13,189 14,745 FD normalised P/E (x) 28.5 24.9 21.6 19.4 17.4
Dividend yield (%) 0.8 1.0 1.4 2.6 2.9
Growth (%) Price/book (x) 5.7 4.6 4.0 3.6 3.3
Net interest income 12.0 12.0 7.8 7.7 7.9 Price/adjusted book (x) 5.7 4.6 4.0 3.6 3.3
Non-interest income 14.7 13.2 6.6 13.6 13.5 Net interest margin (%) 6.82 6.94 6.74 6.72 6.69
Non-interest expenses 18.1 7.7 8.3 7.0 7.3 Yield on assets (%) 8.95 8.73 8.61 8.59 8.54
Pre-provision earnings 13.8 16.2 6.9 11.0 10.9 Cost of int bearing liab (%) 2.38 2.03 2.14 2.17 2.17
Net profit 9.2 14.4 15.2 11.1 11.8 Net interest spread (%) 6.57 6.70 6.46 6.42 6.37
Normalised EPS 9.3 14.4 15.2 11.1 11.8 Non-interest income (%) 25.0 25.2 25.0 26.0 27.0
Normalised FDEPS 9.3 14.4 15.2 11.1 11.8 Cost to income (%) 45.4 43.5 43.8 42.9 42.1
Loan growth 11.5 6.7 10.0 10.0 10.0 Effective tax rate (%) 20.4 20.2 20.0 20.0 20.0
Interest earning assets 8.1 13.7 7.6 8.4 8.4 Dividend payout (%) 21.9 23.9 30.0 50.0 50.0
Interest bearing liabilities 5.7 12.1 6.0 7.2 8.1 ROE (%) 21.9 20.0 19.7 19.4 19.7
Asset growth 7.5 13.9 7.5 8.4 8.4 ROA (%) 3.19 3.30 3.38 3.48 3.59
Deposit growth 5.9 12.0 6.2 7.4 8.7 Operating ROE (%) 27.5 25.1 24.6 24.3 24.7
Source: Company data, Nomura estimates Operating ROA (%) 4.02 4.14 4.23 4.35 4.49
53
Bank Mandiri BMRI.JK BMRI IJ
EQUITY: BANKS
Seeing strong results from 2020 initiatives Global Markets Research

8 December 2017
In a much better position to compete with other
ASEAN banks in Indonesia Rating
Remains Buy
Target Price
Action: Reaffirm Buy; Mandiri is our preferred state-owned bank Remains IDR 8,450
With Indonesia’s banking sector going through a bull cycle in 2017 thus far,
Closing price
2018 should be a year of consolidation and cautious picking. In our view, 6 December 2017 IDR 7,475
Indonesia’s banking sector strategy picks revolve around one privately owned
bank (BBCA) and one state-owned bank. Mandiri is our top state-owned bank Potential upside +13%
choice, as we upgrade it to second in our pecking order of Indonesia’s banks.
Despite YTD performance of 28%, Mandiri has still underperformed the Anchor themes
Indonesia Financial Index (33%), largely due to its weaker loans growth As middle-class incomes
performance compared against other large local banks. Nonetheless, the continue to grow, the consumer
recovery of Mandiri’s asset quality was commendable after 2016, where it sector is likely to provide high-
experienced a record-high net new NPL formation rate (NNFR) of 4.0% (vs the quality and sustainable returns
FY11-15 average of 1.3%). Net NNFR has since been reduced to 2.7% in for the banks. Nonetheless, this
9M17. We have an unchanged TP of IDR8,450 based on a GGM-derived sector remains underpenetrated.
fPBV of 2.2x and key assumptions being cost-of-equity at 13.4% and Banks that can champion this
sustainable ROE of 16.3%. Our TP implies 13% potential upside. sector should see high growth
and sustainable ROEs, despite
The laggard will catch up as Mandiri’s 2020 corporate plan unfolds declining NIMs.
Since May-17, we have reiterated the importance of capturing the
underpenetrated and relatively higher-profit consumer segment. Since Dec-16 Nomura vs consensus
Mandiri has gained 0.4% and 0.6% in market share of mortgages and total Our FY18F EPS is 7.0% above
system consumer loans (both excluding BBTN), respectively. With the consensus.
negative impact of its commercial portfolio subsiding (3Q17 commercial new
NPL slippage declined to IDR85tn from a record-high of IDR6,503tn in 4Q16), Research analysts
credit costs should fall at a faster pace. We expect FY18/19F credit cost to
decline to 2.0/1.5% from 4.0%/2.7% in FY16/FY17F (2.4% in 9M17). This Indonesia Banks
should increase pre-tax profits by an estimated IDR5,108tn for FY18F. FY18F Marcus Chua - NSL
ROE should revert sharply to 16.8% from 12.8% in 9M17, and drive valuations marcus.chua@nomura.com
+65 6433 6960
up towards our target of 2.2x fPBV.

PPOP (bn) 39,556 43,204 43,204 47,309 47,309 51,315 51,315

FD normalised EPS 295.85 461.80 461.80 613.42 613.42 740.78 740.78
FD norm. EPS growth (%) -32.1 56.1 56.1 32.8 32.8 20.8 20.8
Price/adj. book (x) 2.3 N/A 2.1 N/A 2.0 N/A 1.8
ROE (%) 10.2 13.8 13.8 16.8 16.8 18.4 18.4
ROA (%) 1.4 2.0 2.0 2.4 2.4 2.7 2.7
Nomura | Bank Mandiri 8 December 2017
Key data on Bank Mandiri

Relative performance chart Balance sheet (IDRbn)
As at 31 Dec FY15 FY16 FY17F FY18F FY19F
Cash and equivalents 25,109 22,907 25,855 27,999 30,552
Inter-bank lending 47,473 83,977 101,723 113,710 133,040
Deposits with central bank 56,314 52,485 54,774 61,229 71,637
Total securities 148,188 160,539 166,594 164,005 168,557
Other int earning assets 598 830 0 0 0
Gross loans 594,854 661,178 727,296 800,026 880,028
Less provisions -22,552 -32,940 -40,729 -45,601 -49,282
Net loans 572,301 628,238 686,567 754,424 830,747
Long-term investments 48 245 245 245 245
Fixed assets 9,762 35,663 35,663 35,663 35,663
Goodwill
Other intangible assets 1,915 1,955 1,955 1,955 1,955
Source: Thomson Reuters, Nomura research Other non IEAs 48,354 51,866 50,774 58,123 55,940
Total assets 910,063 1,038,706 1,124,152 1,217,355 1,328,337
Notes: Customer deposits 676,387 762,501 826,473 898,905 977,809
Bank deposits, CDs, 12,954 9,675 10,576 11,352 12,184
Other int bearing liabilities 44,764 48,477 51,635 55,422 59,486
Total int bearing liabilities 734,105 820,653 888,683 965,679 1,049,479
Performance Non-int bearing liabilities 56,466 64,683 70,246 70,708 78,877
(%) 1M 3M 12M Total liabilities 790,572 885,336 958,929 1,036,388 1,128,356
Absolute (IDR) 3.5 15.4 40.4 M cap (USDmn) 25,509.3 Minority interest 2,422 2,916 2,916 2,916 2,916
Absolute (USD) 3.3 13.7 38.7 Free float (%) 40.0 Common stock 28,983 28,983 28,983 28,983 28,983
Rel to MSCI Indonesia 6.0 14.2 26.0 3-mth ADT (USDmn) 21.6 Preferred stock
Retained earnings 89,225 96,931 108,784 124,528 143,541
Profit and loss (IDRbn) Reserves for credit losses
Year-end 31 Dec FY15 FY16 FY17F FY18F FY19F Proposed dividends
Interest income 71,570 76,710 83,182 90,698 98,447 Other equity -1,137 24,540 24,540 24,540 24,540
Interest expense -26,207 -24,885 -27,082 -29,968 -33,489 Shareholders' equity 117,070 150,454 162,307 178,051 197,065
Net interest income 45,363 51,825 56,100 60,730 64,958 Total liabilities and equity 910,063 1,038,706 1,124,152 1,217,355 1,328,337
Net fees and commissions 10,050 11,479 13,201 14,851 16,930 Non-perf assets 15,517 26,474 29,092 30,401 30,801
Trading related profits 2,495 3,027 3,165 3,497 3,754
Other operating revenue 5,798 4,493 4,701 5,270 5,849 Balance sheet ratios (%)
Non-interest income 18,343 18,998 21,066 23,617 26,532 Loans to deposits 87.9 86.7 88.0 89.0 90.0
Operating income 63,706 70,824 77,166 84,348 91,490 Equity to assets 12.9 14.5 14.4 14.6 14.8
Depreciation -1,187 -1,378 -1,604 -1,859 -2,127 Asset quality & capital
Amortisation -303 -380 -479 -587 -709 NPAs/gross loans (%) 2.6 4.0 4.0 3.8 3.5
Operating expenses -27,265 -29,511 -31,879 -34,593 -37,339 Bad debt charge/gross 1.40 3.18 2.08 1.25 0.71
Employee share expense Loss reserves/assets (%) 2.48 3.17 3.62 3.75 3.71
Pre-provision op profit 34,951 39,556 43,204 47,309 51,315 Loss reserves/NPAs (%) 145.3 124.4 140.0 150.0 160.0
Provisions for bad debt -8,320 -21,031 -15,123 -10,015 -6,282 Tier 1 capital ratio (%) 15.7 19.7 19.9 20.6 21.2
Other provision charges -293 88 -50 -50 -50 Total capital ratio (%) 18.0 20.8 20.9 21.6 22.2
Operating profit 26,339 18,613 28,031 37,244 44,983 Per share
Other non-op income 30 -40 30 30 30 Reported EPS (IDR) 435.75 295.85 461.80 613.42 740.78
Associates & JCEs 0 0 0 0 0 Norm EPS (IDR) 435.75 295.85 461.80 613.42 740.78
Pre-tax profit 26,369 18,573 28,061 37,274 45,013 FD norm EPS (IDR) 435.75 295.85 461.80 613.42 740.78
Income tax -5,217 -3,923 -5,612 -7,455 -9,003 DPS (IDR) 130.72 133.13 207.81 276.04 333.35
Net profit after tax 21,152 14,650 22,449 29,819 36,010 PPOP PS (IDR) 748.96 847.62 925.80 1,013.77 1,099.61
Minority interests -817 -844 -898 -1,193 -1,440 BVPS (IDR) 2,508.65 3,224.01 3,478.00 3,815.38 4,222.81
Other items ABVPS (IDR) 2,508.65 3,224.01 3,478.00 3,815.38 4,222.81
Preferred dividends NTAPS (IDR) 2,467.61 3,182.11 3,436.10 3,773.48 4,180.91
Normalised NPAT 20,335 13,807 21,551 28,626 34,570
Extraordinary items Valuations and ratios
Reported NPAT 20,335 13,807 21,551 28,626 34,570 Reported P/E (x) 17.2 25.3 16.2 12.2 10.1
Dividends -6,100 -6,213 -9,698 -12,882 -15,556 Normalised P/E (x) 17.2 25.3 16.2 12.2 10.1
Transfer to reserves 14,234 7,594 11,853 15,744 19,013 FD normalised P/E (x) 17.2 25.3 16.2 12.2 10.1
Dividend yield (%) 1.7 1.8 2.8 3.7 4.5
Growth (%) Price/book (x) 3.0 2.3 2.1 2.0 1.8
Net interest income 15.9 14.2 8.2 8.3 7.0 Price/adjusted book (x) 3.0 2.3 2.1 2.0 1.8
Non-interest income 21.1 3.6 10.9 12.1 12.3 Net interest margin (%) 5.63 6.01 5.80 5.78 5.66
Non-interest expenses 13.3 8.2 8.0 8.5 7.9 Yield on assets (%) 8.88 8.90 8.59 8.63 8.57
Pre-provision earnings 20.9 13.2 9.2 9.5 8.5 Cost of int bearing liab (%) 3.36 3.03 2.94 3.00 3.09
Net profit 2.4 -32.1 56.1 32.8 20.8 Net interest spread (%) 5.52 5.88 5.66 5.62 5.48
Normalised EPS 2.3 -32.1 56.1 32.8 20.8 Non-interest income (%) 28.8 26.8 27.3 28.0 29.0
Normalised FDEPS 2.3 -32.1 56.1 32.8 20.8 Cost to income (%) 44.7 43.6 43.4 43.2 43.1
Loan growth 11.9 9.8 9.3 9.9 10.1 Effective tax rate (%) 19.8 21.1 20.0 20.0 20.0
Interest earning assets 5.9 12.3 9.0 8.3 10.1 Dividend payout (%) 30.0 45.0 45.0 45.0 45.0
Interest bearing liabilities 6.4 11.8 8.3 8.7 8.7 ROE (%) 18.8 10.2 13.8 16.8 18.4
Asset growth 6.4 14.1 8.2 8.3 9.1 ROA (%) 2.28 1.44 1.99 2.45 2.72
Deposit growth 6.3 12.7 8.4 8.8 8.8 Operating ROE (%) 24.3 13.7 17.9 21.9 24.0
Source: Company data, Nomura estimates Operating ROA (%) 2.96 1.94 2.59 3.18 3.53
55
Indofood Sukses Makmur
INDF.JK INDF IJ
EQUITY: AGRI-RELATED
Leveraged play on ICBP Global Markets Research

8 December 2017
Now trades at a 33% discount to NAV
Rating
Remains Buy
Target Price
Good value post recent de-rating from Asahi’s exit from beverages Remains IDR 10,450
Asahi Group Holdings announced its intention to sell the ownership of its
Closing price
beverage business in Indonesia through JVs with ICBP. However, investors 4 December 2017 IDR 7,300
appear to be concerned, as they expect a significant one-time charge to
ICBP’s bottom line, as it is likely to buy Asahi’s stake at a steep discount to the Potential upside +43.2%
book value of the investment, especially as the JV’s beverage business has
been making losses since its inception due to intense competition. While at
this point there are no details or clarity on neither the timing nor the valuation, Anchor themes
it is interesting to observe that it is the parent company INDF, and not ICBP Persistent weak consumption
(ICBP IJ, Neutral), that has seen its share price correct, reversing the trend of may have bottomed in 1H17, and
INDF’s outperformance over ICBP. As a result, INDF currently trades at a 33% we expect a recovery in 2018, led
by the low-end segment.
discount to NAV vs. 23% in Sept.
Valuations excluding Unilever
Agribusiness and Bogasari to support earnings growth remain reasonable. We are more
We believe ICBP’s instant noodles business should benefit from a recovery of bullish on firms benefitting from
the low-end segment; however, we are concerned that the current record-high the recovery and those that have
EBIT margin of this business may decline next year, offsetting the benefits of successfully weathered the storm
higher volumes, as Bogasari raises prices to pass on the higher wheat prices through more innovative
which had put pressure on its EBIT margin this year. In addition, we expect products.
CPO prices to remain relatively stable supported by lower production; thus
INDF could record double-digit earnings growth vs our expectation of only Nomura vs consensus
single-digit growth for ICBP in 2018F. Our FY17F and FY18F earnings
are 2.1% and 5.5% above
Reaffirm Buy and SOTP-based TP of IDR10,450 Bloomberg consensus,
We employ the SOTP methodology to our 2018F estimates for INDF’s various respectively.
businesses; we assume a holding discount of 10% to the listed subsidiaries,
arriving at our TP of IDR10,450, implying 43.2% upside. While the holding Research analysts
company discount is lower than the historical average of 20%, prior to the
acquisition of China Minzhong in Sept-13, INDF was trading at a discount of Indonesia Consumer Related
only 3.6% to its NAV. Risks include a significant slowdown in the economy, Elvira Tjandrawinata - PTNSI
currency volatility and commodity price volatility elvira.tjandrawinata@nomura.com
+62 21 2991 3341
Archit Kshetrapal - NSFSPL
archit.kshetrapal@nomura.com
Revenue (bn) 66,750 72,855 72,855 77,982 77,982 83,287 83,287 +91 22 305 33193
EV/EBITDA (x) 8.5 N/A 7.6 N/A 7.0 N/A 6.5
ROE (%) 14.7 14.8 14.8 14.8 14.8 14.9 14.9
Net debt/equity (%) 22.5 15.3 15.3 15.1 15.1 13.1 13.1
Nomura | Indofood Sukses Makmur 8 December 2017
Key data on Indofood Sukses Makmur

Relative performance chart Cashflow statement (IDRbn)
Year-end 31 Dec FY15 FY16 FY17F FY18F FY19F
EBITDA 8,831 10,366 11,220 12,233 13,373
Change in working capital -595 7,818 211 -487 -495
Other operating cashflow 133 298 133 133 133
Cashflow from operations 8,370 18,483 11,565 11,879 13,010
Capital expenditure -5,115 -2,754 -7,000 -7,000 -7,000
Free cashflow 3,255 15,728 4,565 4,879 6,010
Reduction in investments
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments 1,177 -6,185 0 0 0
CF after investing acts 4,432 9,543 4,565 4,879 6,010
Source: Thomson Reuters, Nomura research Cash dividends -1,932 -1,475 -2,072 -2,280 -2,528
Equity issue
Notes: Debt issue
Convertible debt issue
Others -3,156 -8,338 413 -2,831 -3,009
CF from financial acts -5,088 -9,813 -1,659 -5,110 -5,537
Performance Net cashflow -656 -270 2,906 -232 474
(%) 1M 3M 12M Beginning cash 14,823 14,167 13,896 16,802 16,571
Absolute (IDR) -11.2 -12.8 -2.0 M cap (USDmn) 4,739.2 Ending cash 14,167 13,896 16,802 16,571 17,044
Absolute (USD) -11.4 -14.0 -2.0 Free float (%) 49.9 Ending net debt 9,407 6,521 4,983 5,351 5,026
Rel to MSCI Indonesia -9.1 -14.1 -16.8 3-mth ADT (USDmn) 4.6
Balance sheet (IDRbn)
Income statement (IDRbn) As at 31 Dec FY15 FY16 FY17F FY18F FY19F
Year-end 31 Dec FY15 FY16 FY17F FY18F FY19F Cash & equivalents 14,167 13,896 16,802 16,571 17,044
Revenue 64,062 66,750 72,855 77,982 83,287 Marketable securities
Cost of goods sold -46,804 -47,322 -51,887 -55,510 -59,151 Accounts receivable 5,117 5,205 5,633 6,029 6,439
Gross profit 17,258 19,428 20,968 22,472 24,135 Inventories 7,627 8,470 8,825 9,441 10,061
SG&A -10,381 -11,157 -12,152 -13,008 -13,892 Other current assets 15,906 1,415 1,485 1,560 1,638
Employee share expense 0 0 0 0 0 Total current assets 42,817 28,985 32,745 33,601 35,182
Operating profit 6,877 8,272 8,815 9,465 10,243 LT investments 9,088 9,394 9,581 9,773 9,969
EBITDA 8,831 10,366 11,220 12,233 13,373 Fixed assets 25,096 25,702 30,247 34,421 38,225
Depreciation -1,954 -2,095 -2,405 -2,768 -3,130 Goodwill 3,977 3,977 3,977 3,977 3,977
Amortisation 0 0 0 0 0 Other intangible assets 2,628 2,330 2,197 2,064 1,930
EBIT 6,877 8,272 8,815 9,465 10,243 Other LT assets 8,226 11,787 13,961 15,298 17,173
Net interest expense -935 -1,030 -829 -778 -775 Total assets 91,832 82,175 92,708 99,132 106,455
Associates & JCEs -334 -246 0 0 0 Short-term debt 10,669 10,524 6,357 6,493 6,642
Other income -646 389 -92 67 67 Accounts payable 5,174 4,760 5,629 6,022 6,417
Earnings before tax 4,962 7,385 7,895 8,753 9,535 Other current liabilities 9,264 3,935 4,132 4,339 4,556
Income tax -1,730 -2,533 -1,974 -2,188 -2,384 Total current liabilities 25,108 19,219 16,118 16,854 17,615
Net profit after tax 3,232 4,852 5,921 6,565 7,151 Long-term debt 12,905 9,894 15,429 15,429 15,429
Minority interests -742 -1,122 -1,362 -1,510 -1,645 Convertible debt 0 0 0 0 0
Other items 478 414 0 0 0 Other LT liabilities 10,698 9,120 12,770 14,898 17,655
Preferred dividends 0 0 0 0 0 Total liabilities 48,710 38,233 44,317 47,180 50,698
Normalised NPAT 2,968 4,145 4,559 5,055 5,506 Minority interest 15,852 14,967 15,715 16,501 17,326
Extraordinary items 0 0 0 0 0 Preferred stock 0 0 0 0 0
Reported NPAT 2,968 4,145 4,559 5,055 5,506 Common stock 1,400 1,162 2,376 2,376 2,376
Dividends -1,932 -1,475 -2,072 -2,280 -2,528 Retained earnings 16,827 19,506 21,994 24,769 27,748
Transfer to reserves 1,036 2,669 2,487 2,775 2,979 Proposed dividends
Valuations and ratios Other equity and reserves 9,042 8,306 8,306 8,306 8,306
Reported P/E (x) 21.6 15.5 14.1 12.7 11.6 Total shareholders' equity 27,269 28,974 32,676 35,451 38,430
Normalised P/E (x) 21.6 15.5 14.1 12.7 11.6 Total equity & liabilities 91,832 82,175 92,708 99,132 106,455
FD normalised P/E (x) 21.6 15.5 14.1 12.7 11.6
Dividend yield (%) 3.0 2.3 3.2 3.6 3.9 Liquidity (x)
Price/cashflow (x) 7.7 3.5 5.5 5.4 4.9 Current ratio 1.71 1.51 2.03 1.99 2.00
Price/book (x) 2.4 2.2 2.0 1.8 1.7 Interest cover 7.4 8.0 10.6 12.2 13.2
EV/EBITDA (x) 10.5 8.5 7.6 7.0 6.5 Leverage
EV/EBIT (x) 13.7 10.7 9.6 9.1 8.4 Net debt/EBITDA (x) 1.07 0.63 0.44 0.44 0.38
Gross margin (%) 26.9 29.1 28.8 28.8 29.0 Net debt/equity (%) 34.5 22.5 15.3 15.1 13.1
EBITDA margin (%) 13.8 15.5 15.4 15.7 16.1
EBIT margin (%) 10.7 12.4 12.1 12.1 12.3 Per share
Net margin (%) 4.6 6.2 6.3 6.5 6.6 Reported EPS (IDR) 338.02 472.03 519.27 575.72 627.13
Effective tax rate (%) 34.9 34.3 25.0 25.0 25.0 Norm EPS (IDR) 338.02 472.03 519.27 575.72 627.13
Dividend payout (%) 65.1 35.6 45.5 45.1 45.9 FD norm EPS (IDR) 338.02 472.03 519.27 575.72 627.13
ROE (%) 11.3 14.7 14.8 14.8 14.9 BVPS (IDR) 3,105.71 3,299.88 3,721.45 4,037.53 4,376.80
ROA (pretax %) 8.8 11.0 12.2 11.9 11.9 DPS (IDR) 220.00 168.00 236.01 259.63 287.86
Growth (%) Activity (days)
Revenue 0.7 4.2 9.1 7.0 6.8 Days receivable 27.1 28.3 27.1 27.3 27.3
EBITDA 3.4 17.4 8.2 9.0 9.3 Days inventory 62.8 62.2 60.8 60.1 60.2
Normalised EPS -38.2 39.6 10.0 10.9 8.9 Days payable 40.1 38.4 36.5 38.3 38.4
Normalised FDEPS -38.2 39.6 10.0 10.9 8.9 Cash cycle 49.8 52.1 51.4 49.0 49.1
57
Nomura | Indofood Sukses Makmur 8 December 2017
Fig. 94: Revenue breakdown by segment Fig. 95: Agribusiness EBIT contribution improving
EBIT breakdown by segment
(IDRbn) ICBP Bogasari Agribusiness Distribution (IDRbn) ICBP Bogasari Agribusiness Distribution
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
FY14 FY15 FY16 1H17 FY17F FY18F FY19F FY14 FY15 FY16 1H17 FY17F FY18F FY19F
Fig. 96: INDF has provided higher returns since 2016 Fig. 97: Sum-of-the-parts valuation
ICBP vs. INDF price returns
180% INDF ICBP % of
Value to %
Indofood contribution
ownership
170% (IDRbn) to total
160% 10% discount to ICBP's TP

ICBP 81% 77,422 84.4
of IDR 9,160
150%
140% 10% discount to IFAR's
IFAR 63% 3,792 4.1
consensus TP of SGD 0.49
130%
120% P/E = 8x 2018 earnings
Bogasari 100% 9,150 10.0
110%
100% Distribution 100% 1,346 1.5 P/E = 8x 2018 earnings
90%
80% Total value 91,710
Jan-16
Jun-16
Jan-17
Jun-17
Jul-16
Nov-16
Dec-16
Jul-17
Nov-17
Dec-17
Feb-16
Mar-16
Apr-16
May-16
Aug-16
Sep-16
Oct-16
Feb-17
Mar-17
Apr-17
May-17
Aug-17
Sep-17
Oct-17
NAV/Share 10,445
Source: Bloomberg, Nomura research Source: Company data, Bloomberg consensus, Nomura estimates
Fig. 98: Still trading at a 33% discount to its NAV Fig. 99: Trading close below long-term mean
INDF - discount to NAV Forward P/E
Forward P/E Average +1SD
40% 19
-1SD +2SD -2SD
30%
20% 17
10%
15
0%
-10% 13
-20%
-30% 11
-40%
9
-50%
-60% 7
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Dec-12
Jun-13
Sep-13
Dec-13
Jun-14
Sep-14
Dec-14
Jun-15
Sep-15
Dec-15
Jun-16
Sep-16
Dec-16
Jun-17
Sep-17
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Source: Bloomberg consensus, Nomura research Source: Bloomberg consensus, Nomura research
58
Mitra Adiperkasa MAPI.JK MAPI IJ
EQUITY: RETAIL
Value for growth Global Markets Research

8 December 2017
Reasonable valuation buffers potential volatility
Rating
Remains Buy
Target Price
Earnings volatility will always be a feature, but well discounted Remains IDR 8,525
One of investors’ concerns about the company is that earnings tend to be
Closing price
volatile, and subject from time to time to one-off charges which could affect the 4 December 2017 IDR 6,625
bottom line significantly. The most recent was the closure of some MAPI’s
brands in department stores, as they had been losing money consistently, and Potential upside +28.7%
to a certain extent the impact of rapidly growing e-commerce in Indonesia,
resulting in a likely write-off affecting 2017 earnings. However, we believe this Anchor themes
is well discounted by the market, as the company now trades at 20x 2018F Persistent weak consumption
earnings. may have bottomed in 1H17, and
Less susceptible to e-commerce threat, as it is a brand owner we expect a recovery in 2018, led
MAPI is the owner of 150 brands, many of which are on an exclusive basis, for by the low-end segment.
Valuations excluding Unilever
both online and offline, hence even if it is also threatened by e-commerce
remain reasonable. We are more
players, the company has more flexibility to formulate its e-commerce bullish on firms benefitting from
strategy. MAPI operates its own online business but it also has the option to the recovery and those that have
go with leading general merchandiser e-commerce players such as Lazada or successfully weathered the storm
Tokopedia to save on marketing/customer acquisition costs. Furthermore, its through more innovative
growing F&B business, which now accounts for 13.1% and 17.1% of its top products.
line and operating profit, respectively, as of 9M17, is not threatened by e-
commerce. Nomura vs consensus
Our FY17F and FY18F EPS
Remains our top pick in the discretionary space
forecasts are 1.3% below and
Despite the setback to 2017 earnings, we remain positive on the turnaround 1.9% above consensus
achieved by the company. Focused expansion plans ensure positive free cash respectively.
flow, while the company still benefits from margin expansion due to a shift in
product mix, as well as Specialty Stores continuing to benefit from operating Research analysts
leverage. Our TP of IDR 8,525 assumes a 2018F PE target of 30x (a slight
premium over Starbucks) for F&B, and 22x (Indonesian retail sector average) Indonesia Consumer Related
for the rest of the business, implying 28.7% upside. Elvira Tjandrawinata - PTNSI
elvira.tjandrawinata@nomura.com
+62 21 2991 3341
Archit Kshetrapal - NSFSPL
archit.kshetrapal@nomura.com
Revenue (bn) 14,150 15,862 15,862 18,179 18,179 20,512 20,512 +91 22 305 33193
Reported net profit (bn) 208 373 373 533 533 687 687
Normalised net profit (bn) 208 373 373 533 533 687 687
Dividend yield (%) na N/A 0.4 N/A 0.7 N/A 1.0
ROE (%) 6.7 11.1 11.1 14.2 14.2 16.0 16.0
Net debt/equity (%) 86.1 77.5 77.5 70.6 70.6 60.4 60.4
Nomura | Mitra Adiperkasa 8 December 2017
Key data on Mitra Adiperkasa

EBITDA 920 1,376 1,659 1,954 2,240
Change in working capital -460 252 -318 -523 -538
Other operating cashflow -506 -604 -442 -564 -661
Cashflow from operations -46 1,024 899 868 1,041
Capital expenditure -618 -898 -800 -850 -850
Free cashflow -664 127 99 18 191
Reduction in investments -93 -6 0 0 0
Net acquisitions
Dec in other LT assets -266 -75 -167 -211 -250
Inc in other LT liabilities 30 189 48 57 56
Adjustments
CF after investing acts -992 235 -21 -136 -3
Source: Thomson Reuters, Nomura research Cash dividends 0 0 -42 -75 -107
Equity issue 0 0
Notes: Debt issue
Others 987 999 -462 186 -115
CF from financial acts 987 999 -503 111 -221
Performance Net cashflow -5 1,233 -524 -25 -224
(%) 1M 3M 12M Beginning cash 513 507 1,741 1,217 1,192
Absolute (IDR) -0.4 -2.2 28.0 M cap (USDmn) 813.1 Ending cash 507 1,741 1,217 1,192 967
Absolute (USD) -0.6 -3.5 28.0 Free float (%) 44.0 Ending net debt 3,148 2,759 2,741 2,819 2,763
Rel to MSCI Indonesia 1.8 -3.4 13.2 3-mth ADT (USDmn) 0.9
Year-end 31 Dec FY15 FY16 FY17F FY18F FY19F Cash & equivalents 507 1,741 1,217 1,192 967
Cost of goods sold -6,831 -7,277 -8,103 -9,263 -10,416 Accounts receivable 334 376 398 456 515
SG&A -5,480 -5,985 -6,635 -7,532 -8,460 Other current assets 1,498 1,493 1,642 1,806 1,987
Operating profit 523 888 1,124 1,384 1,635 LT investments 187 193 193 193 193
EBITDA 920 1,376 1,659 1,954 2,240 Fixed assets 2,438 2,637 2,513 2,373 2,166
Depreciation -398 -488 -535 -570 -605 Goodwill
Amortisation 0 0 0 0 0 Other intangible assets
EBIT 523 888 1,124 1,384 1,635 Other LT assets 1,162 1,237 1,404 1,615 1,866
Net interest expense -388 -411 -386 -386 -376 Total assets 9,483 10,683 10,697 11,442 11,974
Associates & JCEs -26 -31 -21 -13 0 Short-term debt 937 1,889 1,000 1,000 1,000
Other income 39 -44 -70 -35 -40 Accounts payable 1,156 1,054 1,230 1,407 1,582
Earnings before tax 148 401 647 950 1,219 Other current liabilities 1,198 1,238 1,238 1,238 1,238
Income tax -118 -193 -259 -380 -488 Total current liabilities 3,291 4,181 3,469 3,645 3,820
Net profit after tax 30 208 388 570 731 Long-term debt 2,719 2,611 2,958 3,011 2,731
Minority interests 7 0 -15 -37 -45 Convertible debt
Other items 0 0 0 0 0 Other LT liabilities 498 687 735 792 849
Normalised NPAT 37 208 373 533 687 Minority interest 0 0 0 0 0
Extraordinary items 0 0 0 0 0 Preferred stock
Reported NPAT 37 208 373 533 687 Common stock 823 823 823 823 823
Dividends 0 0 -42 -75 -107 Retained earnings 1,697 1,906 2,237 2,696 3,276
Transfer to reserves 37 208 332 459 580 Proposed dividends
Valuations and ratios Other equity and reserves 454 475 475 475 475
Dividend yield (%) na na 0.4 0.7 1.0 Liquidity (x)
Price/cashflow (x) na 10.7 12.2 12.6 10.5 Current ratio 1.73 1.58 1.90 1.99 2.03
EV/EBIT (x) 28.5 16.1 12.5 10.1 8.4 Net debt/EBITDA (x) 3.42 2.00 1.65 1.44 1.23
Gross margin (%) 46.8 48.6 48.9 49.0 49.2 Net debt/equity (%) 105.8 86.1 77.5 70.6 60.4
EBITDA margin (%) 7.2 9.7 10.5 10.8 10.9
ROE (%) 1.4 6.7 11.1 14.2 16.0 BVPS (IDR) 1,798.94 1,937.18 2,137.73 2,415.18 2,766.06
EBITDA -5.9 49.6 20.6 17.8 14.6 Days inventory 175.7 160.0 142.7 140.6 141.7
60
Fig. 100: Revenue breakdown Fig. 101: Operating profit breakdown
16,000 Retail Retail

1,000 Department Stores
Department Stores
14,000 Café & Restaurant 900 Café & Restaurant
800 Others
12,000 Others
700
10,000 600
8,000 500
400
6,000 300
4,000 200
100
2,000
0
0 -100
9M12
9M13
9M14
9M15
9M16
9M17
9M12
9M13
9M14
9M15
9M16
9M17
1Q12
1Q13
1Q14
1Q15
1Q16
1Q17
1Q12
1H12
FY12
1Q13
1H13
FY13
1Q14
1H14
FY14
1Q15
1H15
FY15
1Q16
1H16
FY16
1Q17
1H17
Fig. 102: Specialty Stores remains in good shape… Fig. 103: … benefitting from operating leverage
Specialty Stores quarterly revenues vs. quarterly SSSG Specialty Stores operating margins vs. quarterly SSSG
(IDRbn) Specialty stores revenues (LHS) 25% Specialty stores operating margins
3,500 25%
Specialty stores SSSG (RHS) Specialty stores SSSG
3,000 20%
20%
2,500
15%
2,000 15%
1,500 10%
10%
1,000
5% 5%
500
0 0% 0%
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
Fig. 104: Struggling department store segment… Fig. 105: … has led to restructuring
Department Store quarterly revenues vs. quarterly SSSG Department Store operating margins vs. quarterly SSSG
(IDRbn) Department stores revenues (LHS) Department stores operating margins
20%
800 Department stores SSSG (RHS) 20% Department stores SSSG
700 15%
15%
600 10%
10%
500
5%
400 5%
300 0%
0%
200
-5% -5%
100
0 -10% -10%
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
61
Fig. 106: F&B is likely to grow despite low SSSG… Fig. 107: … as new outlets are opened
F&B quarterly revenues vs. quarterly SSSG F&B operating margin vs. quarterly SSSG
(IDRbn) F&B revenues (LHS) F&B operating margins
30%
600 F&B SSSG (RHS) 25% F&B SSSG
25%
500 20% 20%
15% 15%
400
10% 10%
300 5%
5%
200 0%
0%
-5%
100 -5% -10%
0 -10% -15%
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
Fig. 108: Trading close to its long-term mean

MAPI forward P/E
Forward P/E Average +1SD -1SD +2SD -2SD
35
30
25
20
15
10
0
Dec-12
Jun-13
Sep-13
Dec-13
Jun-14
Sep-14
Dec-14
Jun-15
Sep-15
Dec-15
Jun-16
Sep-16
Dec-16
Jun-17
Sep-17
Dec-17
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Source: Bloomberg consensus, Nomura research
62
Ace Hardware Indonesia
ACES.JK ACES IJ
EQUITY: CONSUMER RELATED
Upgrade to Buy Global Markets Research

8 December 2017
Recent sell-off provides good entry point
Rating
Up from Neutral Buy
Target Price
Recent sell-off mainly due to profit-taking; fundamentals remain intact Remains IDR 1,410
ACES’s share price has retreated by ~20% in the past few weeks, as
Closing price
investors took profit after a strong run this year (~70% from the beginning of 4 December 2017 IDR 1,160
the year to the peak). While we don’t expect ACES to repeat its extremely
strong performance this year (10% SSSG based on our forecast), we think Potential upside +21.6%
ACES will still be able to book SSSG of 5.5% (which would be the highest
SSSG since FY12, excluding this year), with revenue and net profit growth of
Anchor themes
13.0% and 14.5%, respectively. We therefore believe that concerns about a
Persistent weak consumption
high base effect for ACES’s SSSG next year are overblown, as its strong
may have bottomed out in 1H17,
fundamentals remain intact. and we expect a recovery in
Remains one of the best retail companies in Indonesia 2018F, led by the low-end
Within the retail sector, we prefer companies that are less susceptible to the segment. Valuations excluding
onslaught of e-commerce, and we believe ACES is among the least exposed those for Unilever remain
reasonable. We are more bullish
to this. Online sales contribution for home improvement and lifestyle products
on firms benefitting from the
is quite minimal and will remain so for many years, we think. The barrier to potential recovery and those that
entry is also higher for individuals to form an online store via a social media have successfully weathered the
such as Instagram (which has been quite popular for apparel), given its higher storm through more innovative
need for capital and long inventory days. products.
Valuation is now attractive; upgrade to Buy
Nomura vs consensus
Post the correction, ACES is now trading at 21.4x FY18 P/E, at 0.5 s.d. below
Our FY17F/FY18F earnings are
its 5-year mean P/E. We believe its current valuation is attractive given its
5%/8% above consensus.
increasing dominance in the home improvement and lifestyle segments. We
expect ACES to continue to gain market share at the expense of the
Research analysts
traditional channel given tighter import regulations and consumers’ increasing
preference for convenience. We keep our TP at IDR1,410 based on 26.0x (1 Indonesia Consumer Related
s.d. above 5-year mean) P/E, but upgrade to Buy as the implied upside is now
Deidy Wijaya, CFA - PTNSI
21.6%. Key risks include: 1) Major relaxation in import regulations, 2) Sharp deidy.wijaya@nomura.com
rise in minimum wage, and 3) Sharp depreciation of IDR. +62 21 2991 3345
Illona Freddy - PTNSI
Currency (IDR) Actual Old New Old New Old New +62 21 2991 3343
Revenue (bn) 4,936 5,800 5,800 6,553 6,553 7,413 7,413
Reported net profit (bn) 711 810 810 928 928 1,043 1,043
Normalised net profit (bn) 711 810 810 928 928 1,043 1,043
ROE (%) 25.0 24.4 24.4 23.9 23.9 23.1 23.1
Net debt/equity (%) net cash net cash net cash net cash net cash net cash net cash
Nomura | Ace Hardware Indonesia 8 December 2017
Key data on Ace Hardware Indonesia

EBITDA 767 801 1,010 1,150 1,295
Change in working capital -77 -279 -223 -335 -275
Other operating cashflow -41 63 -62 -66 -78
Cashflow from operations 649 586 725 749 941
Capital expenditure -130 -277 -290 -274 -322
Free cashflow 519 309 435 475 620
Reduction in investments -2 0 0 0
Net acquisitions
Dec in other LT assets -30 24 21 18 16
Adjustments -27 55 -66 -73 -80
CF after investing acts 525 459 435 475 620
Source: Thomson Reuters, Nomura research Cash dividends -273 -263 -282 -324 -371
Equity issue
Notes: Debt issue
Others -22 -113 26 2 2
CF from financial acts -295 -377 -257 -323 -370
Performance Net cashflow 230 82 178 152 250
(%) 1M 3M 12M Beginning cash 391 622 704 882 1,034
Absolute (IDR) -3.7 10.0 31.8 M cap (USDmn) 1,470.9 Ending cash 622 704 882 1,034 1,284
Absolute (USD) -3.9 8.5 31.8 Free float (%) 40.0 Ending net debt -594 -699 -851 -1,002 -1,250
Rel to MSCI Indonesia -1.6 8.7 17.0 3-mth ADT (USDmn) 1.2
Year-end 31 Dec FY15 FY16 FY17F FY18F FY19F Cash & equivalents 622 704 882 1,034 1,284
Cost of goods sold -2,489 -2,584 -3,015 -3,410 -3,861 Accounts receivable 16 28 24 35 32
SG&A -1,576 -1,622 -1,859 -2,088 -2,361 Other current assets 307 500 580 645 717
Employee share expense Total current assets 2,467 2,822 3,283 3,747 4,337
Operating profit 677 730 926 1,055 1,191 LT investments 0 2 2 2 2
EBITDA 767 801 1,010 1,150 1,295 Fixed assets 457 589 804 993 1,220
Amortisation Other intangible assets
EBIT 677 730 926 1,055 1,191 Other LT assets 343 319 298 279 263
Associates & JCEs 0 -3 0 0 0 Short-term debt 23 5 30 32 33
Other income 92 151 83 99 105 Accounts payable 127 108 167 143 208
Earnings before tax 737 863 1,002 1,148 1,293 Other current liabilities 262 276 276 276 276
Income tax -152 -157 -194 -223 -251 Total current liabilities 412 389 473 451 517
Net profit after tax 585 706 808 926 1,042 Long-term debt 5 0 1 1 1
Minority interests 3 4 3 2 1 Convertible debt 0 0 0 0 0
Other items Other LT liabilities 221 294 339 394 457
Preferred dividends Total liabilities 639 682 812 845 975
Normalised NPAT 588 711 810 928 1,043 Minority interest 1 -5 -7 -9 -10
Extraordinary items Preferred stock
Reported NPAT 588 711 810 928 1,043 Common stock 486 486 486 486 486
Dividends -273 -263 -282 -324 -371 Retained earnings 2,142 2,568 3,096 3,699 4,371
EV/EBIT (x) 28.5 26.4 20.5 17.9 15.6 Net debt/EBITDA (x) net cash net cash net cash net cash net cash
Gross margin (%) 47.5 47.6 48.0 48.0 47.9 Net debt/equity (%) net cash net cash net cash net cash net cash
EBITDA margin (%) 16.2 16.2 17.4 17.5 17.5
ROE (%) 23.6 25.0 24.4 23.9 23.1 BVPS (IDR) 153.86 178.78 209.68 245.03 284.37
Normalised EPS 5.9 20.8 14.0 14.5 12.4 Days payable 17.2 16.6 16.6 16.6 16.6
Normalised FDEPS 5.9 20.8 14.0 14.5 12.4 Cash cycle 191.4 205.4 190.0 190.0 190.0
64
Nomura | Ace Hardware Indonesia 8 December 2017
Fig. 109: ACES: store count, total area and average store size Fig. 110: ACES: new store openings by region
Average store size has been declining as ACES shifts to smaller stores Fewer new stores opened in the last 3 years (especially outside Java)
500,000 3,100 25
450,000
3,000
400,000 20
2,900 9
350,000
5
2,800 15
300,000
1
250,000 2,700 2
5
174
200,000 158 10 9 8
143 2,600
129 1 7 10
150,000 110 117
95 2,500 3 1 4
100,000 76 5 9
53
50,000
2,400 4 5 5 3 4 3
0 1
0 2,300
2011A 2012A 2013A 2014A 2015F 2016A 2017F 2018F 2019F
2011 2012 2013 2014 2015 2016 YTD2017
Total area (in sqm) Average store size (in sqm) (RHS) Jakarta Java ex Jakarta Outside Java
Source: Company data, Nomura estimates Source: Company data, Nomura research
Fig. 111: Sales breakdown by type and GPM per segment Fig. 112: GPM vs. operating margin trend
Gross margin has been very strong this year We don't expect much operating margin expansion from here on
100.0% 3.4% 4.0% 51.0% 50.0% 16.5%
4.6% 4.5% 4.5% 4.6%
90.0% 49.5%
49.0%
16.0%
80.0%
38.8% 38.5% 36.9% 47.0%
49.0%
70.0% 40.0% 15.5%
48.5%
38.6% 38.7% 45.0%
60.0%
48.0%
15.0%
50.0% 43.0%
47.5%
40.0% 14.5%
41.0% 47.0%
30.0% 57.8% 57.5% 58.5% 56.9% 56.8% 55.4%
39.0% 46.5% 14.0%
20.0%
37.0% 46.0%
10.0% 13.5%
45.5%
0.0% 35.0%
2012A 2013A 2014A 2015 2016 9M17 45.0% 13.0%
2011A 2012A 2013A 2014A 2015A 2016A 2017F 2018F 2019F
Home improvement Lifestyle
Toys Home improvement's GPM (RHS)
Lifestyle's GPM (RHS) Toys' GPM (RHS)
GPM Operating margin (RHS)
Source: Company data, Nomura research Source: Company data, Nomura estimates
Fig. 113: ACES: employee count vs. space/employee Fig. 114: Opex breakdown vs. salaries as % of GP
Space/employee seems to have peaked in 2016 Salaries remain the largest opex driver
14,000 32 100% 34.0%
90%
33.0%
12,000 30
80%
32.0%
10,000 28 70%
31.0%
60%
8,000 26
50% 30.0%
6,000 24 40%
29.0%
30%
4,000 22 28.0%
20%
2,000 20 27.0%
10%
0% 26.0%
0 18 2012A 2013A 2014A 2015A 2016A 2017F 2018F 2019F
2011 2012 2013 2014 2015 2016 9M17
Salaries and bonuses Rental Maintenance
Total employees Space/employee (sqm) (RHS) Utilities Depreciation and amort Others
Salaries as % of GP (RHS)
65
PT Pembangunan Perumahan
PTPP.JK PTPP IJ
EQUITY: ENGINEERING & CONSTRUCTION
Three key strengths Global Markets Research

8 December 2017
Solid balance sheet & robust EPS growth
Rating
Remains Buy
Three key strengths/drivers that outpace peers Target Price
IDR 4,000
Reduced from 4,700
1) Lowest cash conversion cycle. We believe PTPP has the most solid
management effectiveness and the lowest cash conversion cycle (CCC) of its Closing price
4 December 2017 IDR 2,580
peers: this stood at less than 55 days in 9M17, and we expect it drop further to
47 days by FY18F (versus peers’ average of more than 60 days) on the back Potential upside +55%
of more manageable working capital and better cash collection.
2) Solid balance sheet, with lowest gearing. The company also stood at
66% gross gearing and 15% net gearing in 9M17, compared with peers’ Anchor themes
average of more than 60%. We expect a hike in gearing to 36% for FY18F, in Indonesia's infrastructure sector
line with the potential increase in debt, amid PTPP’s plan to take on more new is on a new growth trajectory,
projects, which is still below its covenant level of 100%. backed by the potential
3) Robust EPS growth of 29% y-y in FY18F. We have not factored in any acceleration of infrastructure
turnkey projects and conservatively estimate 16% y-y new order growth for spending, amid President
FY18F, likely to be driven by EPC projects. We also expect robust EPS Jokowi's reforms and
growth of 29% y-y (versus peers’ average 15% y-y) in FY18F, as we expect reinforcement of the land
continued solid top-line growth and margin improvement from the EPC and acquisition law.
Equipment divisions.
Nomura vs consensus
What could be the potential near-term catalyst? Our FY17F-18F earnings
We think the near-term catalyst is either timely/faster project payment, thus estimates are in line with
potentially better cash flows which have been investors’ main concern, or the consensus.
potential winning of tenders of any turnkey projects with clear financing
strategies (i.e. winning the Patimban Port project), which may also translate Research analysts
into continued solid earnings growth.
Indonesia engineering and
Reaffirm Buy with lower TP of IDR4,000, implying 55% potential upside construction
We lower our TP valuation multiple to 15x P/E FY18F, or equal to its five-year
Anthony Yunus - PTNSI
mean, to factor in continued weak sentiment in the sector amid investors’ anthony.yunus@nomura.com
concerns on project funding execution. Valuations look very attractive; the stock +62 21 2991 3348
trades at 9x FY18F P/E or -1.5std below its historical mean: maintain Buy. Illona Freddy - PTNSI
+62 21 2991 3343
Revenue (bn) 16,614 24,031 24,031 29,463 29,463 35,969 35,969

ROE (%) 14.4 13.5 13.5 15.5 15.5 18.5 18.5
Net debt/equity (%) net cash 28.5 28.5 35.7 35.7 40.3 40.3
Nomura | PT Pembangunan Perumahan 8 December 2017
Key data on PT Pembangunan Perumahan

EBITDA 1,745 2,649 3,634 4,731 6,072
Change in working capital -1,348 464 -2,770 -728 -1,696
Other operating cashflow 236 -1,435 -918 -417 -411
Cashflow from operations 633 1,678 -55 3,586 3,965
Free cashflow -1,838 -37 -3,205 436 815
Reduction in investments -185 -22 -148 -145 -142
Net acquisitions 0 0 0 0 0
Dec in other LT assets -237 -1,971 0 0 0
Inc in other LT liabilities 375 249 -144 -116 -92
Adjustments -333 -219 -63 -62 -63
CF after investing acts -2,217 -2,000 -3,560 114 518
Equity issue 1,448 4,509 0 0 0
Notes: Debt issue 1,479 2,919 3,007 1,347 1,687
Convertible debt issue 0 0 0 0 0
Others 0 893 -152 -970 -1,310
CF from financial acts 2,835 8,099 2,548 -41 -161
Performance Net cashflow 617 6,100 -1,012 73 356
Absolute (IDR) -10.4 -6.2 -34.0 M cap (USDmn) 1,182.7 Ending cash 3,025 9,125 8,114 8,186 8,542
Absolute (USD) -10.6 -7.5 -34.0 Free float (%) 43.1 Ending net debt 2,264 -916 3,103 4,377 5,708
Year-end 31 Dec FY15 FY16 FY17F FY18F FY19F Cash & equivalents 3,025 9,125 8,113 8,186 8,542
Revenue 14,284 16,614 24,031 29,463 35,969 Marketable securities 277 299 299 299 299
Cost of goods sold -12,210 -14,003 -20,442 -25,023 -30,330 Accounts receivable 2,927 4,776 5,253 5,639 6,887
SG&A -410 -487 -710 -871 -1,063 Other current assets 6,702 7,488 11,846 14,468 17,585
Operating profit 1,664 2,123 2,879 3,569 4,575 LT investments 113 113 261 406 548
EBITDA 1,745 2,649 3,634 4,731 6,072 Fixed assets 2,989 4,178 6,426 8,269 9,781
Depreciation -81 -526 -754 -1,162 -1,497 Goodwill 0 0 0 0 0
Amortisation 0 0 0 0 0 Other intangible assets 0 0 0 0 0
EBIT 1,664 2,123 2,879 3,569 4,575 Other LT assets 626 2,597 2,597 2,597 2,597
Associates & JCEs 0 0 0 0 0 Short-term debt 2,521 4,373 5,664 6,429 7,438
Other income -4 -11 -31 -60 -98 Accounts payable 7,372 10,237 12,411 15,192 18,414
Earnings before tax 1,288 1,704 2,325 2,921 3,797 Other current liabilities 878 1,268 1,864 2,115 2,435
Income tax -442 -552 -791 -970 -1,185 Total current liabilities 10,770 15,879 19,939 23,736 28,287
Net profit after tax 846 1,151 1,534 1,950 2,612 Long-term debt 2,768 3,836 5,552 6,134 6,813
Minority interests -105 -128 -141 -155 -170 Convertible debt 0 0 0 0 0
Other items 0 0 0 0 0 Other LT liabilities 473 722 578 462 370
Normalised NPAT 740 1,023 1,393 1,795 2,442 Minority interest 737 1,000 1,200 1,380 1,587
Extraordinary items 0 0 0 0 0 Preferred stock 0 0 0 0 0
Reported NPAT 740 1,023 1,393 1,795 2,442 Common stock 2,365 6,874 6,874 6,874 6,874
Dividends -93 -222 -307 -418 -539 Retained earnings 2,045 2,922 4,013 5,390 7,293
Transfer to reserves 647 801 1,086 1,377 1,903 Proposed dividends 0 0 0 0 0
Price/cashflow (x) 20.8 8.0 na 4.5 4.0 Current ratio 1.43 1.53 1.45 1.38 1.35
EV/EBIT (x) 11.4 7.6 7.1 6.1 5.1 Net debt/EBITDA (x) 1.30 net cash 0.85 0.93 0.94
Gross margin (%) 14.5 15.7 14.9 15.1 15.7 Net debt/equity (%) 51.3 net cash 28.5 35.7 40.3
EBITDA margin (%) 12.2 15.9 15.1 16.1 16.9
ROE (%) 22.0 14.4 13.5 15.5 18.5 BVPS (IDR) 863.74 1,579.37 1,755.28 1,977.37 2,284.20
Normalised EPS 31.6 35.9 14.0 28.9 36.0 Days payable 215.7 230.1 202.2 201.3 202.2
Normalised FDEPS 31.6 35.9 14.0 28.9 36.0 Cash cycle -73.8 -77.9 -72.3 -79.3 -83.9
67
Nomura | PT Pembangunan Perumahan 8 December 2017
Fig. 115: Cash conversion cycle comparison (days) Fig. 116: Net gearing trend (%)
140 60.0%
120 50.0%
100 40.0%
80 30.0%
60 20.0%
40 10.0%
20 0.0%
- -10.0%
2015 2016 2017F 2018F 2019F
-20.0%
PTPP WIKA WSKT 2015 2016 2017F 2018F 2019F
Fig. 117: New contracts (IDRtn) & growth (%) Fig. 118: EPS growth comparison (%)
60 30.0% 100%
50 25.0% 80%
40 20.0%
60%
30 15.0%
40%
20 10.0%
20%
10 5.0%
0%
- 0.0% 2015 2016 2017F 2018F 2019F
2015 2016 2017F 2018F 2019F
-20%
New contract (IDRtn) Y-Y%
PTPP WIKA WSKT
Fig. 119: PTPP – forward P/E band
PER Mean STD +1

STD +2 STD -1 STD -2
30
25
20
15
10
0
Dec-12
Jun-13
Jun-15
Jun-16
Jun-17
Feb-13
Apr-13
Aug-13
Oct-13
Dec-13
Jun-14
Feb-14
Apr-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Aug-17
Oct-17
Source: Bloomberg, Nomura estimates
68
Summarecon Agung SMRA.JK SMRA IJ
EQUITY: PROPERTY
Striking risk-reward profile Global Markets Research

8 December 2017
Potential debt refinancing & better margin in FY18F
Rating
Remains Buy
Reaffirm Buy and discounted RNAV-based TP of IDR1,400 Target Price
IDR 1,400
Remains
Summarecon Agung’s (SMRA IJ) share price has declined 33% YTD, due in
part to continued weak domestic property demand, higher gearing (and thus Closing price
IDR 885
4 December 2017
finance costs), and a cut in its internal FY17 presales target to IDR3.5tn, from
IDR4.5tn. That said, the downsides look to have already been priced into the Potential upside +58.2%
shares, with the risk-reward profile now looking very attractive on the back of
two potential catalysts/turnaround: 1) potential debt refinancing and thus lower
interest costs next year – SMRA has ~IDR2.8tn of debt (39% of total debt) Anchor themes
maturing within 2 years; and 2) we expect combined landed houses and shop- Indonesia's property sector
lots backlog sales worth ~IDR1.5-2.0tn (30-35% of FY18F revenues, vs less should benefit from sustained
than 35% in the past 2 years) are likely to be recognised as revenue in long-term demand growth, on the
2H18F, thus potentially improving margins. We reaffirm our Buy rating and TP back of low mortgage
of IDR1,400, based on a 50% discount to our FY18F RNAV of IDR2,798 and penetration, better infrastructure
implying 58% potential upside. progress, and supportive
affordability.
Presales to pick up in 4Q17F, with acceleration in 1H18F
SMRA’s project launch plan suggests projected gross development value
Nomura vs consensus
(GDV) of c.IDR3.2tn in 2H17. Assuming a conservative 65% average take-up
Our FY17F-18F earnings are on
rate for these projects, potential presales could be up to IDR2.1tn (+46% h-h)
average 5-12% lower than
in 2H17F, with the bulk of sales likely to materialise in 4QF. Bandung and
consensus.
Bekasi project launches could contribute ~50% of total 2H17F launches. We
advise investors to focus on potential meaningful sales and earnings recovery
Research analysts
next year; we estimate +9% and +47% y-y in presales and EPS in FY18F.
Valuation looks undemanding Indonesia Property
SMRA currently trades at a 70% discount to RNAV and 2.0x FY18F P/B, or at
Anthony Yunus - PTNSI
-2.5STD below its historical mean. Despite recent cuts to FY17/18 Bloomberg anthony.yunus@nomura.com
consensus earnings estimates, our EPS forecasts are still 5-12% below +62 21 2991 3348
consensus due to more conservative revenue booking. Downside risks
include: 1) economic growth slowdown; 2) higher interest rates; 3) higher
development costs (due to rising material prices); 4) project development
execution risks; 5) capital raising dilution risks; and 6) regulatory risks.
Revenue (bn) 5,398 5,442 5,442 5,725 5,725 6,126 6,126

Normalised EPS 21.60 22.80 22.80 33.51 33.51 38.12 38.12
Norm. EPS growth (%) -63.6 5.6 5.6 47.0 47.0 13.7 13.7
Norm. P/E (x) 41.0 N/A 38.8 N/A 26.4 N/A 23.2
ROE (%) 5.1 5.4 5.4 7.9 7.9 8.5 8.5
Net debt/equity (%) 87.6 105.5 105.5 107.1 107.1 119.9 119.9
Nomura | Summarecon Agung 8 December 2017
Key data on Summarecon Agung

EBITDA 1,856 1,505 1,523 1,644 1,820
Change in working capital -1,738 -838 -1,526 -915 -1,682
Other operating cashflow -912 -1,097 -1,086 -1,040 -1,137
Cashflow from operations -794 -431 -1,088 -310 -999
Free cashflow -3,935 -1,583 -2,878 -1,932 -2,593
Reduction in investments 0 0 0 0 0
Net acquisitions 0 0 0 0 0
Dec in other LT assets -661 -661 -661 -661 -661
Adjustments 2,480 2,453 1,738 2,206 2,236
CF after investing acts -2,052 272 -1,738 -324 -955
Equity issue 0 0 0 0 0
Notes: Debt issue 1,815 1,229 497 379 379
Others 524 -586 927 -16 -83
CF from financial acts 1,786 301 1,299 232 102
Performance Net cashflow -267 573 -439 -92 -853
Absolute (IDR) -12.8 -12.8 -37.9 M cap (USDmn) 944.0 Ending cash 1,504 2,077 1,637 1,545 692
Absolute (USD) -13.0 -14.0 -37.9 Free float (%) 67.8 Ending net debt 4,601 5,468 6,287 6,758 7,989
Year-end 31 Dec FY15 FY16 FY17F FY18F FY19F Cash & equivalents 1,504 2,076 1,637 1,545 693
Investment properties 1,008 147 752 961 969 Properties held for sale 10,662 11,689 13,352 14,848 16,316
Property development 2,986 3,198 2,246 1,987 1,772 Accounts receivable 152 588 593 458 490
Hotels/serviced apartments 1,179 1,280 1,517 1,665 1,827 Other current assets 1,083 818 877 723 671
Other Revenue 451 773 927 1,112 1,557 Total current assets 13,402 15,171 16,459 17,574 18,170
Revenue 5,624 5,398 5,442 5,725 6,126 Investment properties 4,312 4,487 4,668 4,667 4,735
Other fixed assets (net) 420 451 469 474 467
EBIT contributions Associates 0 0 0 0 0
Investment properties 704 87 451 576 591 Other LT assets 624 701 659 637 580
Property development 1,498 1,425 972 899 780 Total assets 18,758 20,810 22,255 23,352 23,952
Hotels/serviced apartments 544 645 764 839 932 Short-term debt 556 612 612 612 612
Other income 161 442 417 501 701 Accounts payable 345 373 378 388 416
Management expenses -1,139 -1,189 -1,190 -1,291 -1,317 Other current liabilities 2,806 3,136 3,334 3,616 3,354
EBITDA 1,856 1,505 1,523 1,644 1,820 Total current liabilities 3,707 4,121 4,323 4,615 4,381
Dep and amort -89 -96 -108 -121 -133 Long-term debt 3,072 4,451 4,830 5,209 5,588
EBIT 1,768 1,409 1,415 1,524 1,687 Convertible debt 2,476 2,482 2,482 2,482 2,482
Net interest expense -409 -532 -516 -441 -496 Other LT liabilities 1,973 1,591 2,549 2,411 2,277
Associates & JCEs 0 0 0 0 0 Total liabilities 11,228 12,645 14,183 14,717 14,728
Other income 24 1 1 1 1 Minority interest 1,517 1,923 2,115 2,326 2,559
Earnings before tax 1,382 878 899 1,084 1,192 Preferred stock
Income tax -318 -272 -275 -289 -309 Shareholders' Equity 1,466 1,466 1,466 1,466 1,466
Net profit after tax 1,064 605 625 795 883 Other equity and reserves 4,547 4,777 4,491 4,843 5,199
Total shareholders' equity 6,013 6,243 5,957 6,309 6,665
Minority interests -209 -293 -296 -311 -333 Total equity & liabilities 18,758 20,810 22,255 23,352 23,952
Other items Leverage
Preferred dividends Interest cover 4.32 2.65 2.74 3.46 3.40
Normalised NPAT 855 312 329 484 550 Gross debt/prop assets (%) 32.5 36.3 35.6 35.6 36.2
Extraordinary items Net debt/EBITDA (x) 2.5 3.6 4.1 4.1 4.4
Reported NPAT 855 312 329 484 550 Net debt/equity (%) 76.5 87.6 105.5 107.1 119.9
Dividends -554 -342 -125 -132 -193 Growth (%)
Transfer to reserves 301 -30 204 352 357 Revenue -2.3 -4.0 0.8 5.2 7.0
EBITDA -12.9 -18.9 1.2 8.0 10.7
Valuations and ratios EBIT -14.3 -20.3 0.4 7.7 10.7
Reported P/E (x) 14.9 41.0 38.8 26.4 23.2 Normalised EPS -37.4 -63.6 5.6 47.0 13.7
Normalised P/E (x) 14.9 41.0 38.8 26.4 23.2 Normalised FDEPS -37.4 -63.6 5.6 47.0 13.7
FD normalised P/E (x) 14.9 41.0 38.8 26.4 23.2 Dupont decomposition
Dividend yield (%) 4.3 2.7 1.0 1.0 1.5 Net margin (%) 15.2 5.8 6.0 8.4 9.0
Price/cashflow (x) na na na na na Asset utilisation (x) 0.3 0.3 0.3 0.3 0.3
Price/book (x) 2.1 2.0 2.1 2.0 1.9 ROA (%) 5.0 1.6 1.5 2.1 2.3
Leverage (Assets/Equity x) 3.0 3.2 3.5 3.7 3.6
EV/EBITDA (x) 10.2 13.4 13.9 13.3 12.8 ROE (%) 15.17 5.09 5.39 7.88 8.48
EV/EBIT (x) 10.7 14.3 15.0 14.3 13.8 Per share
EBIT margin (%) 31.4 26.1 26.0 26.6 27.5 Reported EPS (IDR) 59.28 21.60 22.80 33.51 38.12
ROA (pretax %) 11.3 7.8 7.2 7.2 7.5 BVPS (IDR) 416.78 432.73 412.90 437.29 462.00
Source: Company data, Nomura estimates DPS (IDR) 38.40 23.71 8.64 9.12 13.40
70
Nomura | Summarecon Agung 8 December 2017
Fig. 120: SMRA – 10M17 presales breakdown by product type Fig. 121: SMRA – quarterly presales trend (IDRbn)
Office Presales (LHS) y-o-y% (RHS)

4,000 350%
Space
4% 3,500 300%
Apartments 250%
17% 3,000
Houses 200%
37% 2,500
150%
2,000
100%
1,500
50%
Landplots
13% 1,000 0%
500 -50%
0 -100%
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
2017F
Shoplots
29%
Fig. 122: SMRA – Debt borrowings & profile
Total <12 months >12months Avg cost of debt

(IDRbn) (IDRbn) (IDRbn)
Bank borrowings (2013-2023) 4,927 1,397 3,530 9.99%
Continuous bond I (1st-3rd tranche) 2,000 0 2,000 11.20%
Continuous bond II (1st tranche) 500 0 500 11.25%
Debt Maturity
Year Total (IDRbn) Remarks
2017 1,402
2018 1,499 including continuous bond I 1st & 3rd tranche
2019 1,962 including continous bond I 2nd tranche
2020 1,683 including continuous bond II 1st tranche
2021 635
2022 174
2023 72
Total 7,427
Fig. 123: SMRA – Earnings (IDRbn) & growth (%) Fig. 124: SMRA – Discount to RNAV band (%)
(IDRbn) Net income (LHS) y-o-y% (RHS) 30%

900 60% 35%
800 40%
40%
45%
700
20% 50%
600
55%
500 0%
60%
400 -20% 65%
300 70%
-40% 75%
200
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
-60%
100
0 -80% % Disc to RNAV Mean +1 STD
2015 2016 2017F 2018F 2019F +2 STD -1 STD -2 STD
71
Siloam International Hospitals
SILO.JK SILO IJ
EQUITY: HEALTH CARE & PHARMACEUTICALS
Our top pick in the healthcare space Global Markets Research

8 December 2017
We expect strong EBITDA growth in FY18/19F
Rating
Remains Buy
Visible signs of improvement in cost control post CVC’s entry Target Price
IDR 12,225
Remains
We are positive on SILO as we see positive signs in its cost management post
the entry of CVC Capital Partners (unlisted) as a stakeholder. Salary Closing price
IDR 10,600
4 December 2017
expenses under opex only grew by 4% in 9M17 despite SILO adding eight
new hospitals during that period. This is due to more disciplined headcount Potential upside +15.3%
control in overhead staff, which comprised only 32.4% of SILO’s total
employees in 9M17 (vs. 34.5% in FY16). SILO is also optimising its drug
procurement process, by centralising drug and medical supplies procurement Anchor themes
and reducing SKUs to ~1,000 (from ~3,000 currently). These should result in The shift to BPJS is likely to
gross/EBITDA margin improvements to 28.7%/13.4% in FY18F and continue until FY19F, when
29.0%/14.4% in FY19F (from 28.4%/12.1% in FY17F), on our estimates. Universal Healthcare Coverage
reaches a 100% coverage ratio.
Aggressive expansion only to FY19F; we forecast positive FCF from Given MIKA's lower BPJS
FY20F exposure, it is likely to see a
We are also encouraged by SILO’s plan to slow down expansion after bigger impact, in the form of
reaching 50 hospitals in FY19. Based on our estimates, the proceeds from the lower occupancy rate or lower
recent rights issuance (~IDR3.1tn) should be sufficient to cover its aggressive EBITDA margin. We prefer
expansion plan (~17 new hospitals) over the next two years. By FY20, if SILO exposure to the sector through
SILO, which is showing signs of a
sticks to its plan of adding only 4-5 new hospitals/year, we forecast SILO to
positive turnaround.
generate positive FCF of IDR42bn in FY20, and that should accelerate over
the next few years as most of SILO’s hospitals would be mature by then. Nomura vs consensus
We forecast strong EBITDA growth in FY18-19F Our FY18F/19F EBITDA are
We expect strong recovery next year led by revenue growth of 18.5% (~16% 4%/9% above consensus.
patient volume growth). We forecast EBITDA to grow by 30.8%/26.0% in
FY18/19F as SILO’s profitability improves due to the reasons mentioned Research analysts
above. We maintain Buy on SILO TP of IDR12,225 (implying 15.3% upside),
Indonesia Consumer Related
based on 26.1x FY18F adjusted EV/EBITDA (~10% discount to our valuation
for MIKA IJ [Neutral]). SILO currently trades at 22.1 FY18F EV/adjusted Deidy Wijaya, CFA - PTNSI
deidy.wijaya@nomura.com
EBITDA. +62 21 2991 3345
Illona Freddy - PTNSI
Currency (IDR) Actual Old New Old New Old New +62 21 2991 3343
Revenue (bn) 5,168 5,838 5,838 6,919 6,919 8,108 8,108
Dividend yield (%) na N/A na N/A na N/A na
ROE (%) 3.5 1.9 1.9 2.3 2.3 3.4 3.4
Net debt/equity (%) net cash net cash net cash net cash net cash net cash net cash
Nomura | Siloam International Hospitals 8 December 2017
Key data on Siloam International Hospitals

EBITDA 548 651 708 926 1,166
Change in working capital -87 -273 129 -133 -145
Other operating cashflow -198 -138 -309 -204 -257
Cashflow from operations 263 240 528 589 765
Capital expenditure -279 -475 -1,353 -1,621 -1,656
Free cashflow -16 -235 -826 -1,032 -892
Reduction in investments 0 0 0 0
Net acquisitions
Dec in other LT assets -61 -138 -418 -195 45
Inc in other LT liabilities -19 112 -19 -11 -9
Adjustments -2 -66 160 11 9
CF after investing acts -97 -327 -1,103 -1,227 -847
Source: Thomson Reuters, Nomura research Cash dividends -6 0 0 0 0
Equity issue
Notes: Debt issue
Others -17 908 3,124 -114 -34
CF from financial acts -23 908 3,124 -114 -34
Performance Net cashflow -120 581 2,021 -1,341 -881
(%) 1M 3M 12M Beginning cash 280 160 740 2,761 1,420
Absolute (IDR) 8.7 -0.3 -0.8 M cap (USDmn) 1,274.2 Ending cash 160 740 2,761 1,420 540
Absolute (USD) 8.5 -1.7 -0.8 Free float (%) 29.2 Ending net debt 220 -729 -2,681 -1,420 -540
Rel to MSCI Indonesia 10.9 -1.6 -15.6 3-mth ADT (USDmn) 0.2
Year-end 31 Dec FY15 FY16 FY17F FY18F FY19F Cash & equivalents 160 740 2,761 1,420 540
Cost of goods sold -2,968 -3,646 -4,183 -4,936 -5,754 Accounts receivable 575 776 795 980 1,193
Gross profit 1,177 1,522 1,655 1,983 2,354 Inventories 140 178 188 218 252
SG&A -965 -1,231 -1,366 -1,589 -1,826 Other current assets 81 212 100 120 144
Employee share expense Total current assets 956 1,907 3,844 2,739 2,129
Operating profit 211 292 289 395 528 LT investments
EBITDA 548 651 708 926 1,166 Fixed assets 1,553 1,694 2,628 3,718 4,735
Amortisation Other intangible assets
EBIT 211 292 289 395 528 Other LT assets 477 615 1,033 1,229 1,184
Associates & JCEs Short-term debt 2 1 0 0 0
Other income -53 -70 -92 -119 -149 Accounts payable 255 314 302 353 410
Earnings before tax 106 172 179 258 352 Other current liabilities 373 411 468 519 589
Income tax -44 -74 -73 -90 -106 Total current liabilities 630 726 771 872 998
Net profit after tax 62 99 106 168 246 Long-term debt 378 10 80 0 0
Minority interests 9 -13 -16 -19 -23 Convertible debt 0 0 0 0 0
Other items Other LT liabilities 239 351 331 320 311
Preferred dividends Total liabilities 1,246 1,087 1,182 1,193 1,310
Normalised NPAT 70 86 90 149 223 Minority interest -4 7 23 42 65
Extraordinary items Preferred stock
Reported NPAT 70 86 90 149 223 Common stock 1,405 2,700 5,789 5,789 5,789
Dividends 0 0 0 0 0 Retained earnings 364 447 538 686 909
Valuations and ratios Other equity and reserves -26 -26 -26 -26 -26
Dividend yield (%) na na na na na Liquidity (x)
EV/EBIT (x) 82.6 56.6 50.4 40.2 31.8 Net debt/EBITDA (x) 0.40 net cash net cash net cash net cash
Gross margin (%) 28.4 29.5 28.4 28.7 29.0 Net debt/equity (%) 12.6 net cash net cash net cash net cash
EBITDA margin (%) 13.2 12.6 12.1 13.4 14.4
ROE (%) 4.1 3.5 1.9 2.3 3.4 BVPS (IDR) 1,508.58 2,700.39 4,601.42 3,967.25 4,104.53
73
Nomura | Siloam International Hospitals 8 December 2017
Fig. 125: SILO’s employee breakdown by function Fig. 126: SILO’s opex breakdown
12,000 38.0% in IDR bn

36.0% 1,400.0 40.0%
10,000
34.0% 1,200.0 39.0%
8,000 32.0%
1,000.0 38.0%
30.0%
6,000 800.0 37.0%
28.0%
600.0 36.0%
4,000 26.0%
24.0% 400.0 35.0%

2,000
22.0% 200.0 34.0%
0 20.0% - 33.0%
2011A 2012A 2013A 2014A 2015A 2016A 9M17 2011A 2012A 2013A 2014A 2015A 2016A 9M17
Salaries and employee benefits Other office expenses
Office and administration Other medical stafff Rental Depreciation
Nurses Doctors Water and electricity Others
Non-medical staff/total employee (RHS) Salaries as % of opex
Fig. 127: SILO’s revenue vs opex Fig. 128: SILO’s margins trend
35.0%
in IDR bn
29.5% 29.0% 28.8% 28.7%
12,000 40.0% 28.5% 28.4% 28.4% 28.7%
30.0%
35.0%
10,000 25.0%
30.0%
8,000 20.0%
25.0%
15.0% 14.4% 14.7% 15.0%
6,000 20.0% 15.0% 13.2% 12.6%
13.4%
12.1%
15.0%
4,000 10.0%
6.8% 7.4%
10.0% 6.5%
5.4% 5.1% 5.6% 4.9% 5.7%
2,000 5.0% 2.8% 3.0% 3.3%
5.0% 2.2% 1.7% 1.7% 1.5% 2.1%
- 0.0% 0.0%
2014A 2015A 2016A 2017F 2018F 2019F 2020F 2021F 2014A 2015A 2016A 2017F 2018F 2019F 2020F 2021F
Revenue Opex Revenue y-y growth Opex y-y growth Gross margin Operating margin EBITDA margin Net margin
Fig. 129: SILO’s FCF breakdown Fig. 130: Cash and debt position of SILO
We forecast positive FCF starting in FY20 SILO should have sufficient cash for expansion due to right issue
in IDR bn in IDR bn
Right issue of
1,500.0
3,000.0 ~IDR3.1tn
1,000.0
2,500.0
500.0
2,000.0
-
2014A 2015A 2016A 2017F 2018F 2019F 2020F 2021F 1,500.0 Right issue of
(500.0) ~IDR1.3tn
1,000.0
(1,000.0)
500.0
(1,500.0)
0.0
(2,000.0) 2014A 2015A 2016A 2017F 2018F 2019F 2020F 2021F
CFO Capex FCF Cash & cash equivalent Debt
74
75
76
Appendix A-1
Analyst Certification
I, Elvira Tjandrawinata, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views
about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or
will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of
my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc.,
Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures

The terms "Nomura" and "Nomura Group" used herein refers to Nomura Holdings, Inc. and its affiliates and subsidiaries, including Nomura
Securities International, Inc. ('NSI') and Instinet, LLC('ILLC'), U. S. registered broker dealers and members of SIPC.
Materially mentioned issuers
Issuer Ticker Price Price date Stock rating Previous rating Date of change Sector rating
Ace Hardware Indonesia ACES IJ IDR 1,125 07-Dec-2017 Buy Neutral 08-Dec-2017 N/A
Bank Central Asia BBCA IJ IDR 20,975 07-Dec-2017 Buy Neutral 26-May-2017 N/A
Bank Mandiri BMRI IJ IDR 7,350 07-Dec-2017 Buy Not Rated 04-Mar-2015 N/A
Indofood Sukses Makmur INDF IJ IDR 7,325 07-Dec-2017 Buy Not Rated 27-Oct-2014 N/A
Mitra Adiperkasa MAPI IJ IDR 6,775 07-Dec-2017 Buy Neutral 05-Sep-2017 N/A
PT Pembangunan Perumahan PTPP IJ IDR 2,450 07-Dec-2017 Buy Not Rated 03-Feb-2015 N/A
Siloam International Hospitals SILO IJ IDR 10,800 07-Dec-2017 Buy Reduce 22-Nov-2017 N/A
Summarecon Agung SMRA IJ IDR 850 07-Dec-2017 Buy Not Rated 07-Oct-2014 N/A
Rating and target price changes

Issuer Ticker Old stock rating New stock rating Old target price New target price
Ace Hardware Indonesia ACES IJ Neutral Buy IDR 1,410 IDR 1,410
PT Pembangunan Perumahan PTPP IJ Buy Buy IDR 4,700 IDR 4,000
Ace Hardware Indonesia: Valuation Methodology We peg ACES at 26.0x FY18 P/E(one standard deviation above the five-
year mean) to derive our TP of IDR1,410. The benchmark index for this stock is the MSCI Indonesia.
Ace Hardware Indonesia: Risks that may impede the achievement of the target price 1) sharp rise in minimum wages; 2)
foreign currency risk; 3) economic slowdown; and 4) persistently high inventory days.
PT Pembangunan Perumahan: Valuation Methodology We derive our target price of IDR4,000/share based on a 15x FY18F
P/E multiple or the five-year stock historical mean. The benchmark for the stock is the MSCI Indonesia.
PT Pembangunan Perumahan: Risks that may impede the achievement of the target price 1) any delay in infrastructure
projects, particularly Jokowi's maritime project, could have a negative impact on the company's orderbook, which would in turn
lower earnings; and 2) a turnaround in commodity prices.
Important Disclosures
Online availability of research and conflict-of-interest disclosures
Nomura Group research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne.
Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested
from Nomura Securities International, Inc., or Instinet, LLC on 1-877-865-5752. If you have any difficulties with the website, please email
grpsupport@nomura.com for help.
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a
portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are
not registered/qualified as research analysts under FINRA rules, may not be associated persons of NSI or ILLC, and may not be subject to
FINRA Rule 2241 restrictions on communications with covered companies, public appearances, and trading securities held by a research
analyst account.
77
Nomura Global Financial Products Inc. (“NGFP”) Nomura Derivative Products Inc. (“NDPI”) and Nomura International plc. (“NIplc”) are
registered with the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, and
NIplc are generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report.
Distribution of ratings (Nomura Group)

The distribution of all ratings published by Nomura Group Global Equity Research is as follows:
50% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 41% of companies with this
rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA)
with this rating were supplied material services** by the Nomura Group.
42% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 51% of companies with
this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the
EEA) with this rating were supplied material services by the Nomura Group
8% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 6% of companies with this
rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA)
with this rating were supplied material services by the Nomura Group.
As at 30 September 2017.
*The Nomura Group as defined in the Disclaimer section at the end of this report.
** As defined by the EU Market Abuse Regulation
Distribution of ratings (Instinet, LLC)

The distribution of all ratings published by Instinet, LLC Equity Research is as follows:
54% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.
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STOCKS
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Global Markets Research

Indonesia strategy: Outlook 2018 – Time for a breather

End-2018F JCI target of 6,500 8 December 2017

Key themes and analysis in this Anchor Report include:

Outlook 2018: time for a breather Global Markets Research

Outlook summary ................................................................................... 4

Mitra Adiperkasa ............................................................................................ 59

Fig. 2: DM vs EM fund flows (USDmn) Fig. 3: Bond foreign ownership

500,000 DM funds EM funds % of outstanding

Source: Datastream, Nomura research Source: Datastream, Nomura research

Fig. 4: Equity foreign ownership Fig. 5: Consensus positioning in Indonesia

Source: Datastream, Nomura research Source: Datastream, Nomura research

%y-o-y Non-durables Durable %y-o-y Retail Sales Index %y-o-y

Economic Outlook: Investment spending

More supportive fiscal stance

% y-o-y Capital spending

Fig. 12: 2017 and 2018 fiscal accounts

2016 2017E 2018F

Watch ratings upgrades

Inflation and monetary policy – no room to ease

Philippines Indonesia BI Inflation Target Range CPI Inflation

More manageable risks

USD bn % Level of satisfaction with President

Fig. 17: Indonesia: Details of the forecast

Reforms: on track, but more is needed

Fig. 18: The Economic Policy Packages

Phase Date Description

Fig. 19: Progress of the Economic Policy Packages

Initially, there were 233 regulations which needed to be

Infrastructure: good progress, but

What has been achieved in 2017

Fig. 20: List of priority projects

More private participation through PINA

Fig. 21: PINA scheme success stories

What can we expect in 2018?

Fig. 22: RAPBN 2018

RAPBNP Outlook RAPBN

Furthermore, we also see clearer financing strategies particularly through PINA

What can surprise in 2018?

GMV per capita, USD) (GFA per capita/sq m)

Argentina (Household expenditure/capita, USD)

Euromonitor estimates that Indonesia’s B2C online transactions totalled USD2.65bn in

GSEA 31.0 GSEA 207.4

Taiwan 12.6 Taiwan 12.6

Vietnam 2.3 Vietnam 36.6

Thailand 4.3 Thailand 29.6

Singapore 2.0 Singapore 6.7

Philippines 1.3 Philippines 20.8

Malaysia 1.4 Malaysia 13.6

Indonesia 7.2 (USDbn) Indonesia 74.0 (USDbn)

Source: MSCI, Nomura research Source: MSCI, Nomura research

What do we expect for 2018?

Source: MSCI, Nomura research Source: MSCI, Nomura research

Valuation and index target

Fig. 35: Indonesia underperforms in Asia

Source: MSCI Indonesia, Nomura research

Indonesia’s market valuation showed some resilience despite disappointments in

Forward P/E Average Relative forward P/E to MSCI AeJ

Fig. 40: Indonesia valuations

Source: Bloomberg, Nomura estimates

System NPL ratio Business NPL ratio

2014 2015 2016 Jul-17 Aug-17 Sep-17 Annualized

2014 2015 2016 Jul-17 Aug-17 Sep-17 Annualized

Source: OJK, BI, Nomura research