Indonesia Consumer Survey 2017...27 March 2017 Indonesia Consumer Survey 2017 2 Introduction We are...

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27 March 2017 Asia Pacific/Indonesia

Equity Research Consumer Staples & Consumer Durables

Indonesia Consumer Survey 2017 Research Analysts

Ella Nusantoro

62 21 2553 7917

[email protected]

Calvin Tjahjono

THEME

Rising optimism

Contents

Key themes from Indonesia..............................………………………………6

Key stock preferences ………………………………………………………….7

The seventh Credit Suisse Indonesia Consumer Survey……………….…10

Companies………………………………………………………………………85

27 March 2017

Indonesia Consumer Survey 2017 2

Introduction We are delighted to present the seventh edition of the Credit Suisse Research Institute's

Emerging Consumer Survey. This publication traditionally explores the growth

opportunities presented by the new consumer cultures developing across the emerging

world, which continue to show vastly different; often more dynamic, demographic profiles

compared with those of developed economies. The report reflects an ongoing

collaboration between the Credit Suisse Research Institute and our research partner, the

leading market research firm, Nielsen, which has delivered data from 14,000 face-to-face

interviews with consumers across the emerging economies of Brazil, China, India,

Indonesia, Mexico, Russia, South Africa and Turkey as a basis for our research.

In this year’s edition, our findings suggest that a consumer culture within emerging

markets may be developing more rapidly than anticipated: a further 10% of surveyed

households have succeeded in entering middle-income territory in the past three years,

creating a consumer base of 1.25 bn people across the eight countries covered by our

survey alone.

We find the immediate measures of consumer confidence improving from a year ago, with

consumers in the major Asian economies of India, China and Indonesia reflecting the most

optimistic outlook and topping our emerging consumer scorecard as we look into 2017.

More than 40% of Asian consumers expect to see their financial circumstances improve in

the six months ahead. We provide a special focus on several key themes within these

countries, such as the consequences of the reform to the one-child policy in China or

demonetisation and tax reform in India. Generally, there is a noticeable lifestyle "upgrade"

under way in Asia.

We further observe that pressure has eased for consumers in commodity-sensitive

countries, such as Russia, South Africa and Brazil. Although considerable economic

fragility and inequality among consumers remains here, a firmer growth outlook supporting

commodities and reduced currency risk offers better consumer prospects for the year

ahead.

Interestingly, we observe the ongoing changing pattern in the spending of the emerging

middle class. Spending on travel and entertainment in China is booming and reached over

10% of household income. A new theme we find at work is that of a more "conscious"

consumer, focused on a more active, healthy lifestyle and one engaged with the sharing

economy. Local, rather than global, companies and brands are emerging to capitalise on

this trend. Also importantly, digital technology is and will continue to be the facilitator of

changing consumer behaviour with more than a billion consumers yet to come online in

our surveyed countries. We estimate that online retail spending can rise from a current

US$1 tn to US$2.5 tn by 2025.

Finally, these themes are elements of the broader rebalancing in growth that we are

witnessing in the emerging world from its undue reliance on fixed investment and external

trade to more domestic consumption. This provides a powerful internal dynamic to growth

in the countries concerned—a feature of considerable significance should the global

economic landscape become more multipolar and less globalised in nature, as is currently

the debate.

We hope that our analysis helps our readers better understand the nature of these

dynamic economies and that you enjoy reading the 2017 Emerging Consumer Survey.

Urs Rohner, Chairman Credit Suisse Research

Institute

27 March 2017


Table of contents

Focus charts and table 5

Key themes from Indonesia 6

Key stock preferences 7

The seventh Credit Suisse Indonesia Consumer Survey 10

2016 was a year full of hope... ............................................................................... 11

...and improving economic growth.......................................................................... 13

Rising optimism ...................................................................................................... 20

Time to spend! ........................................................................................................ 22

Indonesians are not migrating ................................................................................ 26

Automotive sector 27

Key stock ................................................................................................................ 27

Four-wheelers......................................................................................................... 27

Two-wheelers ......................................................................................................... 29

Food and beverages 33

Key stocks .............................................................................................................. 33

Unrivalled noodles consumption ............................................................................ 33

Instant noodles ....................................................................................................... 36

Carbonated drinks .................................................................................................. 39

Bottled water ........................................................................................................... 40

Dairy products ........................................................................................................ 42

Cigarettes ............................................................................................................... 43

Personal care products 51

Key stocks .............................................................................................................. 51

Shift in spending ..................................................................................................... 51

Branded goods 53

Key stocks .............................................................................................................. 53

Fashion items are favoured .................................................................................... 53

Internet and e-commerce 62

Mobile phones 68

Key stocks .............................................................................................................. 68

The world at your fingertips .................................................................................... 68

Healthcare 72

Key stocks .............................................................................................................. 72

Improved access to state healthcare ..................................................................... 72

27 March 2017


Property 76

Key stocks .............................................................................................................. 76

Potential demand continues to be high .................................................................. 76

Banks 82

Key stocks .............................................................................................................. 82

Auto interest on lower interest ................................................................................ 82

Astra International (ASII.JK / ASII IJ) 85

Indofood CBP (ICBP.JK / ICBP IJ) 87

Hanjaya Mandala Sampoerna (HMSP.JK / HMSP IJ) 89

Gudang Garam (GGRM.JK / GGRM IJ) 91

Matahari Department Store (LPPF.JK / LPPF IJ) 93

Mitra Adiperkasa (MAPI.JK / MAPI IJ) 95

PT Telkom (Telekomunikasi Indo.) (TLKM.JK / TLKM IJ) 97

XL Axiata Tbk (EXCL.JK / EXCL IJ) 99

Siloam International Hospitals (SILO.JK / SILO IJ) 101

PT Mitra Keluarga Karyasehat Tbk (MIKA.JK / MIKA IJ) 103

Kalbe Farma (KLBF.JK / KLBF IJ) 105

PT Summarecon Agung Tbk (SMRA.JK / SMRA IJ) 107

PT Bank Pembangunan Daerah Jawa Timur Tbk (BJTM.JK / BJTM IJ) 109

PT Bank Negara Indonesia (Persero) Tbk (BBNI.JK / BBNI IJ) 111

Appendix 1: Respondents' summary 113

Demographics ...................................................................................................... 113

Automotive ............................................................................................................ 117

Food and beverages ............................................................................................ 118

Personal care ....................................................................................................... 119

Luxury goods ........................................................................................................ 119

Technology and internet ....................................................................................... 120

Telecommunications ............................................................................................ 120

Travel .................................................................................................................... 122

Education .............................................................................................................. 123

Healthcare ............................................................................................................ 124

Appendix 2: Indonesia macro 125

27 March 2017


Focus charts and table

Figure 1: Indonesia’s rank improved to second, from fourth the previous year, as optimism improves

Inflation expectation Personal finances Household income

expectation

Household income

history

Time for major

purchases

Rank based on five

sectors

2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016

India 3 4 1 2 3 1 3 2 5 1 1 3 2 2 1 1 1 1

Indonesia 6 7 6 3 2 2 2 1 1 2 2 1 4 4 3 3 4 2

China 4 3 5 4 1 4 5 4 3 4 4 2 3 3 2 5 2 3

Brazil 2 8 3 1 6 3 1 3 2 5 9 8 4 9 8 2 7 4

South Africa 8 9 8 7 8 5 8 6 4 9 6 4 8 6 5 9 7 5

Mexico 7 6 7 6 5 6 4 8 6 8 8 7 9 5 4 7 6 6

Turkey 1 1 2 9 6 8 9 7 8 7 5 5 7 8 7 6 5 6

Russia 9 5 4 8 9 7 7 9 7 6 7 6 6 7 6 8 9 6

Note: Ranks go from 1 (highest) to 9 (lowest). Source: Credit Suisse Indonesia Consumer Survey 2017

Figure 2: Indonesia—State of personal finances

over next six months (2016)

Figure 3: Indonesia—State of personal finances

over next six months (2017)

Source: Credit Suisse Emerging Consumer Survey 2016 Source: Credit Suisse Emerging Consumer Survey 2017

Figure 4: Indonesia's spending momentum 2016 vs

2015 (a year ago)

Figure 5: Indonesia's spending momentum 2016 vs

2010 (seven years ago)

Source: Credit Suisse Indonesia Consumer Survey 2017 Source: Credit Suisse Indonesia Consumer Survey 2017

0%

10%

20%

30%

40%

50%

60%

< 1000 1250 1750 2500 4000 6250 8750 > 10000

Income (IDR) This survey average

Last survey average

0%

10%

20%

30%

40%

50%

60%

< 1000 1250 1750 2500 4000 6250 8750 > 10000

Income (IDR) This survey averageLast survey average

Carbonated drinks

Dairy

Cosmetics

TV

Mobile phones

Smartphone

Internet access

Holidays

Property

Extra education

2-wheelers

4-wheelers

Instant noodle

Cigarettes

-10

-8

-6

-4

-2

0

2

4

6

8

10

0 20 40 60 80 100

Rec

ord

ed s

pen

din

g i

n 2

016

vs. 2

015

2016 respondents that own or have bought each item (%)

Carbonated drinks

DairyCosmetics

Mobile phones

Smartphone

Internet access

HolidaysProperty

TV

2-wheelers

4-wheelersInstant noodle

Cigarettes

-20

-10

0

10

20

30

40

50

60

0 20 40 60 80 100

Rec

orde

d sp

endi

ng i

n 20

16 v

s. 2

010


27 March 2017


Key themes from Indonesia 2016 was a year full of hope...

Overall, Indonesia is ranked second (behind India) within the eight emerging countries that

we surveyed in 2016. This is an improvement from the fourth place in the previous year,

with Indonesia overtaking China which fell to third position this time, from second in the

previous year. Despite the many challenges, we see this improvement stemming from

Indonesia being more defensive compared to the other emerging countries.

...and improving economic growth

Indonesia's GDP reached 5.02% in FY16, improving from 4.8% in FY15. Private

consumption continued to be the largest contributor of GDP, accounting for 55%, and

growing at around 5% each year. Within the sector, the largest contributor to the economy

is manufacturing (21%), followed by retail (13%), agriculture (11%), construction (10%),

mining (8%), among others. However, the highest growth is in the IT and financial sectors,

each growing at 9% in 2016.

Indonesia reached its lowest inflation in 2016 of 3.7%, from 6.4% over the past three

decades. This lower inflation was driven down on the back of lower transportation costs

(lower fuel costs) and food costs (lower soft commodities prices).

Rising optimism

Compared to the other emerging countries that we surveyed, Indonesians maintained their

second ranking in terms of personal finances. In fact, on average, Indonesian personal

finances were better off than in the previous year, even though, on average, they are still

lower compared to two years ago. We believe that this is due to still-low commodity prices,

that only started to pick up in early 4Q16.

Interestingly, for Indonesians, the highest earners saw their personal finances not as great

as in the previous year. The lower-middle income earners, however, continued to have a

similar outlook in the survey. We think that the significant shift for the highest earners

could be attributed to penalty payments during the tax amnesty programme, which mostly

impacted them. The first phase of the tax amnesty programme ended on 30 September

2016. Meanwhile, middle-upper income earners saw their personal finances better off.

In terms of income, Indonesians are less optimistic in this survey, even though they are

still the most optimistic compared to the other emerging countries that we surveyed

(Indonesia maintained its number one rank). This lower optimism compared with a year

ago might be due to the government introducing a fixed formula (GDP growth plus

inflation) for the increase in the minimum wage level starting from 2016. Thus, with

inflation reaching its lowest level of 3.7%, expectations on household incomes declined.

Time to spend!

As optimism and confidence grows, Indonesians are ready for major purchases. Indonesia

moved up to third position, from number four in the past two consecutive years.

With Indonesians becoming wealthier, seeking improved lifestyles, and with growing

optimism and confidence, they are spending more on discretionary items. Indonesia's

GDP per capita reached US$3,643 last year, from US$2,357 in 2009. Similar to previous

years, Indonesians continue to spend the most on smartphones (+9%) followed by internet

access (+7%), holidays (+6%), property (+6%), two-wheelers (+5%), and instant noodles

(+3%). Indonesians are not spending on TV (-8%), dairy (-6%), carbonated drinks (-5%),

mobile phones (-3%), extra education (-3%), cosmetics (-3%), cigarettes (-2%), and four-

wheelers (-2%). It has always been interesting that despite instant noodles and two-

wheelers being highly penetrated segments, consumers still continue to spend on them.

Indonesia moves to second rank from

fourth in the previous survey

The highest earners hit the most, but stable for

those with low and middle incomes

Those on higher incomes experienced

lower wealth

Minimum wage is now regulated

Time to spend!

Smartphone and internet access please

27 March 2017


Key stock preferences Astra International

■ Astra’s auto business benefits from lower financing rates. Thus, in the 4W segment, it

has launched new affordable models (Low Cost Green Car, or “LCGC”), while 2W

market share gain has been due to new model launches and improved after-sales

services.

■ Rising commodity prices should also benefit Astra, whereby those living in commodity

resource-based areas have better purchasing power.

HM Sampoerna

■ The largest cigarette producer in Indonesia, according to Philip Morris International

estimates, is facing the challenge of lower consumption given higher prices and

lifestyle changes. Its brands continue to appeal more to younger generations, those in

urban areas in Java, and within the middle and higher income segments.

Unilever Indonesia

■ The brand, Blue Band, continues to be the leader in margarine. The F&R (Food and

Refreshment) division is a smaller portion for the company compared to Home and

Personal Care (HPC), but it offers more potential upside with consumers’ growing

wealth.

■ While our survey indicates a slowdown in skin care spending, the company’s abundant

portfolio might continue to provide growth.

Indofood CBP

■ Indomie, Sarimi, Supermie and PopMie are the main brands favoured by consumers

and continue to help support the company’s free cash flow, as noodles continue to be

defensive staples for Indonesians. Indomilk is gaining popularity in the dairy segment,

as is Club in bottled water, while Pepsi maintained its favoured status in carbonated

drinks.

Gudang Garam

■ The second-largest cigarette producer, according to Philip Morris International

estimates, in Indonesia is facing the challenge of lower consumption given higher

prices and lifestyle changes. Its brands appeal to those in rural areas, outside Java, the

middle generation and those on higher incomes. Gudang Garam Surya emerged as

the most favoured brand in our survey.

Matahari Department Store

■ This company is the prime beneficiary of Indonesia's rising middle-income segment. Its

higher exposure to outside Java (40% of gross sales) is a catalyst for growth as the

area tends to do well when commodity prices rise.

■ Nevertheless, contrary to our survey findings, Matahari's private label booked 10%

higher gross sales YoY in 4Q16, boosted by better performance in its number one

brand, Nevada. However, intensifying competition saw margins decline slightly during

the period.

Mitra Adiperkasa

■ The company continuously shows improvement following the involvement of CVC

Capital Partners in the active division and General Atlantic in the F&B division.

Improvements in inventory days and margins are both ahead of schedule.

27 March 2017


■ The company is also closing down department stores and cutting brands that are not

performing to allocate more space for better performing specialty stores. We also

expect the company to turn free cash flow positive by the end of the year.

Siloam International Hospital

■ We continue to like the company as room for downside surprises from current levels

are low after past disappointments and expansion plans would fuel additional growth.

There could be upside post CVC's involvement and execution progress in light of

higher-than-expected FY17 guidance. An initial look into the private equity, CVC

Capital Partners’ experience underscores encouraging turnaround outcomes.

Mitra Hospital

■ We continue to view the company as an attractive long-term holding due to its mid-teen

growth profile, margin expansion opportunity and balance sheet optionality (Rp2.4 tn in

cash). After recent weakness, the stock looks interesting at 33x 2017 EBITDA, below

its historical average. Its premium valuation is supported by best-in-class margins and

ROIC profile.

PT Telekomunikasi Indonesia (Telkom)

■ Rising smartphone and fixed broadband data usage drove consolidated EBITDA and

net profit growth of 15.7% YoY and 24.9% YoY in FY16 respectively. While TLKM is a

'consensus buy', it is slightly expensive versus regional peers. The company has

outperformed the regional telecommunication sector over the past 12 months.

■ It remains the only liquid (large cap) way to invest in the successful monetisation of

Indonesia's data boom.

XL Axiata

■ Over the past 18 months, the company has made significant progress in strengthening

its balance sheet (through both a rights issue and a tower sale) and reducing its heavy

USD-denominated debt exposure. Furthermore, a return to top-line growth means that

XL is now finally emerging from its investment phase.

Bumi Serpong Damai

■ Last year, the company had the best pre-sales target achievement record, thanks to its

focus on landed residential property. We expect that to continue this year. It also has

the lowest net debt-to-equity among peers. As pre-sales were primarily landed

products, earnings recognition should not be a drag on profits this year.

Bank Negara Indonesia

■ Loan growth has been strong across the board generally, but it is the state-owned

enterprise (SOE) corporate (one third of incremental loans) and medium commercial

loans (one fifth of incremental loans), in particular, that have underpinned robust loan

growth at BNI. With similar ROAs and ROEs, BNI is trading at a 27% discount to

Mandiri on P/E (and a 30% discount on P/B), far ahead of its historical average of 14%.

Bank Jatim

■ Bank Jatim is the regional development bank for East Java and the smallest bank by

assets among the nine banks in our coverage. It is focused on the consumer (67% of

loan, 87% of which is payroll loan) and commercial/SME (33%) segments. Jatim's ROA

was the third highest last year at 2.4%, behind that of BCA and BRI. Superior

profitability can be attributed to the higher proportion of cheaper current/saving

deposits (81%), fee income and cost efficiency.

27 March 2017


Figure 6: Indonesia’s stock picks

Ticker Ratg Price Upside Market cap Last EPS growth (%) PE EV/EBITDA ROE (%) 6M ADTO

Current* Target (%) (US$ mn) FYE (T) T+1 T+2 T+3 T+1 T+2 T+3 T+1 T+1 T+1

Automobiles & Components

Astra International ASII.JK O 8,450 9,800 16 25,674 Dec-16 42 9 n.a. 15.9 14.5 n.a. 12.6 18.7 17.6

Banks 6 93,740 Dec-15 0 16 19 15.4 13.3 11.2 n.a. 15.4

Bank Central Asia BBCA.JK O 16,600 18,100 9 30,717 Dec-16 8 13 15 18.4 16.3 14.2 n.a. 18.3 19.3

Bank Danamon BDMN.JK N 4,740 4,950 4 3,376 Dec-16 48 12 12 11.5 10.3 9.2 n.a. 10.5 0.6

Bank Jabar Banten BJBR.JK U 2,200 1,650 (25) 1,585 Dec-16 43 12 10 13.0 11.6 10.6 n.a. 16.2 4.1

Bank Jatim BJTM.JK O 635 690 9 705 Dec-16 11 14 2 8.3 7.2 7.1 n.a. 16.5 2.1

Bank Mandiri BMRI.JK N 11,900 11,600 (3) 20,631 Dec-16 47 27 18 13.7 10.8 9.1 n.a. 12.9 16.6

Bank Negara Indonesia BBNI.JK O 6,900 7,800 13 9,561 Dec-16 16 19 17 9.7 8.2 7.0 n.a. 14.3 9.6

Bank Rakyat BBRI.JK O 13,150 14,500 10 24,128 Dec-16 3 20 19 11.9 9.9 8.3 n.a. 17.4 19.0

Bank Tabungan Negara BBTN.JK N 2,320 2,350 1 1,844 Dec-16 11 20 19 8.5 7.1 5.9 n.a. 14.4 2.5

BTPN BTPN.JK N 2,750 2,650 (4) 1,193 Dec-16 9 11 16 8.4 7.6 6.6 n.a. 11.4 0.0

Consumer Staples 7 81,638 Dec-15 12 7 9 32.7 30.5 28.0 20.6 27.0

Gudang Garam GGRM.JK N 65,450 74,100 13 9,451 Dec-15 9 10 14 18.2 16.5 14.4 11.7 17.8 3.9

HM Sampoerna HMSP.JK N 3,960 4,340 10 34,571 Dec-15 18 4 6 37.4 36.0 34.1 28.9 38.5 4.8

Indofood CBP ICBP.JK N 8,775 9,500 8 7,680 Dec-15 21 4 9 28.1 27.1 24.9 16.3 22.0 3.0

Indofood Sukses INDF.JK O 8,075 8,700 8 5,321 Dec-14 (3) (3) 6 18.9 19.4 18.3 8.9 14.1 5.2

Kino KINO.JK U 2,580 2,360 (9) 277 Dec-15 (36) 9 9 21.9 20.0 18.4 13.5 9.2 0.2

Unilever Indonesia UNVR.JK N 42,500 42,700 0 24,338 Dec-15 11 13 10 49.7 44.1 40.0 35.1 126.3 5.7

Healthcare 2 9,769 Dec-15 18 18 14 37.5 31.8 27.8 22.2 19.8

Kalbe Farma KLBF.JK U 1,490 1,350 (9) 5,242 Dec-14 8 16 16 31.4 27.0 23.2 20.8 22.1 2.9

Mitra Keluarga MIKA.JK O 2,580 3,110 21 2,818 Dec-15 22 15 13 54.0 46.8 41.6 38.7 20.7 1.1

Prodia PRDA.JK O 4,800 7,460 55 338 Dec-15 41 62 16 53.0 32.8 28.2 15.6 11.0 0.1

Siloam Hospitals SILO.JK O 14,050 12,840 (9) 1,371 Dec-15 33 39 13 n.m. n.m. n.m. 26.6 5.3 0.3

Media 26 4,871 Dec-15 16 11 18 20.6 18.5 15.7 13.8 23.1

MNCN MNCN.JK O 1,760 2,300 31 1,886 Dec-15 34 3 19 15.9 15.5 13.0 10.2 15.4 1.8

SCMA SCMA.JK O 2,720 3,350 23 2,985 Dec-15 3 20 17 25.3 21.1 18.0 18.0 46.8 2.7

Real Estate 33 10,849 Dec-15 4 15 21 17.5 15.2 12.5 11.7 10.7

Alam Sutera ASRI.JK N 366 450 23 540 Dec-15 49 (16) 4 8.1 9.6 9.2 12.8 12.7 1.1

Bekasi Fajar BEST.JK O 306 330 8 222 Dec-15 23 17 36 11.2 9.6 7.0 9.8 8.7 1.1

BSD BSDE.JK O 1,845 2,620 42 2,665 Dec-15 (8) 16 21 17.8 15.4 12.7 12.8 10.0 3.2

Ciputra Development CTRA.JK O 1,270 1,860 46 1,769 Dec-15 (10) 17 23 16.9 14.4 11.7 11.4 13.0 2.2

Jababeka KIJA.JK O 322 350 9 499 Dec-15 4 17 26 19.0 16.2 12.9 8.5 7.3 0.4

Lippo Karawaci LPKR.JK N 745 1,080 45 1,290 Dec-15 43 18 18 22.2 18.8 16.0 11.7 5.5 5.1

Pakuwon PWON.JK O 600 730 22 2,169 Dec-15 48 19 19 15.4 12.9 10.8 11.5 23.3 4.1

Summarecon SMRA.JK O 1,370 1,600 17 1,483 Dec-15 (67) 72 61 70.3 40.9 25.4 17.8 4.6 1.9

Surya Semesta SSIA.JK O 600 960 60 212 Dec-14 16 2 6 6.3 6.2 5.8 3.2 16.1 0.5

Retailing 14 5,496 Dec-15 19 15 14 22.5 19.6 17.1 12.6 23.1

Ace ACES.JK O 810 1,050 30 1,043 Dec-15 3 18 13 23.0 19.5 17.3 16.0 20.9 0.3

MAPI MAPI.JK O 5,800 6,400 10 723 Dec-15 443 73 59 47.5 27.5 17.3 9.3 7.7 0.4

Matahari Dept Store LPPF.JK O 14,250 16,100 13 3,121 Dec-16 11 9 8 18.5 17.0 15.7 13.2 38.4 8.8

Ramayana RALS.JK U 1,145 1,100 (4) 610 Dec-15 26 3 8 19.1 18.6 17.3 8.0 12.1 0.8

Telecommunication Services 17 42,635 Dec-15 38 26 13 21.2 16.8 14.9 7.0 21.0

Indosat ISAT.JK O 6,975 8,800 26 2,845 Dec-16 104 20 15 16.8 14.0 12.2 4.1 16.2 0.2

Protelindo TOWR.JK O 5,325 8,300 56 1,216 Dec-15 30 38 24 19.5 14.1 11.4 8.9 20.7 0.9

Telkom TLKM.JK O 4,000 4,500 13 3,063 Dec-16 1 16 13 13.2 11.4 10.1 9.6 26.2 0.1

Tower Bersama TBIG.JK O 4,090 4,750 16 30,942 Dec-16 22 10 6 17.0 15.5 14.6 6.3 26.2 24.6

XL Axiata EXCL.JK N 5,700 5,650 (1) 1,939 Dec-15 17 53 15 16.0 10.4 9.1 14.0 84.3 1.2

* Share price as of 23 March 2017, denominated in IDR. Note: O = Outperform, N = Neutral, U = Underperform, Source: Company data, Thomson Reuters, Credit Suisse estimates

27 March 2017


The seventh Credit Suisse Indonesia Consumer Survey We have arrived at our seventh Credit Suisse Indonesia Consumer Survey, which is part

of the Credit Suisse Research Institute’s (CSRI) Emerging Consumer Survey and

conducted in eight emerging countries (Brazil, China, India, Indonesia, Russia, South

Africa, Turkey and Mexico). CSRI engaged The Nielsen Company, a leader in data

measurement and information across a wide range of industries and regions, to conduct

face-to-face interviews with nearly 14,000 participants. This survey is a comprehensive

and exclusive study of the consumption patterns in each country as well as individuals'

outlook about the future. The survey was conducted between mid-November and early

December 2016.

For Indonesia, we asked 1,534 participants from ten exclusive areas, similar to the

previous surveys. The areas include six in Java (Jakarta, Bogor/Tangerang/Bekasi,

Surabaya, Gresik/Lamongan/Sidoarjo, Bandung, and Kabupaten Bandung) and four

outside Java (Medan, Deli Serdang, Makassar, and Gowa). These areas, in our view, sit

well with Indonesia's population and economy, with around 57% and 59% of the country's

GDP derived from Java, respectively, while the remaining 43% and 41% are from outside

Java, in 2016, according to Indonesia's BPS (Bureau of Statistics).

Our survey respondents, similar to the previous surveys, feature 66% living in urban areas

and 34% in rural areas. Some 51% were female and 49% male. In addition, 76% of

respondents were aged below 45, in line with Indonesia's young demographic profile.

We asked each respondent a total of 86 questions divided into 12 categories: (1) general;

(2) auto; (3) food and beverage; (4) personal care; (5) branded goods; (6) healthcare; (7)

computers and TV; (8) mobile phones; (9) internet access; (10) property; (11) travel; and

(12) education.

Figure 7: Indonesia's key economic indicators and survey profile

Source: Ministry of Finance, Central Bureau of Statistics ("BPS"), Bank Indonesia ("BI"), CEIC, World Bank, Credit Suisse estimates, Emerging Market Quarterly Q1 2017, Credit Suisse Indonesia Consumer Survey 2017

Our seventh Credit Suisse Indonesia

Consumer Survey

Ten areas: six in Java, four outside Java

66% in urban areas, 51% female, and 72%

aged below 45

27 March 2017


2016 was a year full of hope...

Overall, Indonesia ranks second (behind India) within the eight emerging countries that we

surveyed in 2016. This is an improvement from being fourth in the previous year, with

Indonesia overtaking China which fell into third place this time from second in the previous

year. Despite the many challenges, we see this improvement stemming from Indonesia

being more defensive compared to the other emerging countries. China’s ranking declined

mainly due to a fall in personal finances while expectations for inflation are rising, along

with a slowdown in its economy.

Figure 8: Indonesia’s ranking improved to second from fourth in the previous year as optimism improves

Inflation expectation Personal finances Household income

expectations

Household income

history

Time for major

purchases

Rank based on five

sectors

2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016

India 3 4 1 2 3 1 3 2 5 1 1 3 2 2 1 1 1 1

Indonesia 6 7 6 3 2 2 2 1 1 2 2 1 4 4 3 3 4 2

China 4 3 5 4 1 4 5 4 3 4 4 2 3 3 2 5 2 3

Brazil 2 8 3 1 6 3 1 3 2 5 9 8 4 9 8 2 7 4

South Africa 8 9 8 7 8 5 8 6 4 9 6 4 8 6 5 9 7 5

Mexico 7 6 7 6 5 6 4 8 6 8 8 7 9 5 4 7 6 6

Turkey 1 1 2 9 6 8 9 7 8 7 5 5 7 8 7 6 5 6

Russia 9 5 4 8 9 7 7 9 7 6 7 6 6 7 6 8 9 6

Note: Ranks go from 1 (highest) to 9 (lowest). Source: Credit Suisse Indonesia Consumer Survey 2017

The greatest worry for Indonesians, according to our survey, is inflation, which has been

the greatest concern since we first conducted the survey in 2011. However, compared to a

year ago, Indonesians were slightly less worried as they realised that inflation was lower in

the past 12 months, as seen in our survey. Indonesia's inflation in 2016 reached 3.7%, its

lowest ever in the past three decades, compared to 6.4% in 2015.

However, compared to the other emerging countries we surveyed, Indonesia still ranks

sixth. We believe that the worry is whether this low inflation is sustainable, given that in

2017, the government plans to remove subsidies for electricity tariffs for the mid-low end

household incomes, increase the liquified petroleum gas (LPG) price for the low end, and

increase tariffs for auto registration licences. Our economist estimates inflation will reach

4.5% in 2017.

Indonesia moves up to second ranking from

fourth in the previous survey

Indonesians worry most about inflation...

27 March 2017


Figure 9: Indonesians worry over whether inflation will move higher

Source: Credit Suisse Indonesia Consumer Survey 2017

Figure 10: What level of inflation have you seen over the past 12 months on basic food and drink?

% of respondents Total Area Region Age Income

Urban Rural Java Ex. Java 18 - 29 30 - 45 46 - 55 56 - 65 Low Mid High

2016

Below 1% 7% 7% 7% 7% 7% 7% 7% 6% 8% 5% 7% 18%

1%-3% 25% 27% 21% 24% 27% 25% 26% 25% 21% 20% 28% 22%

3.1%-5% 15% 17% 12% 15% 15% 18% 14% 14% 13% 10% 17% 26%

5.1%-7% 6% 6% 6% 7% 3% 6% 6% 6% 6% 6% 6% 4%

7.1%-10% 3% 4% 3% 4% 3% 2% 4% 5% 3% 3% 4% 0%

Above 10% 4% 2% 6% 2% 8% 4% 4% 5% 2% 4% 4% 4%

Did not notice any inflation 12% 12% 13% 13% 11% 13% 12% 12% 7% 14% 12% 10%

I don't know 27% 25% 32% 28% 26% 24% 27% 29% 40% 36% 22% 16%

2015

Below 1% 5% 6% 4% 5% 6% 6% 4% 7% 3% 6% 5% 1%

1%-3% 28% 30% 26% 30% 25% 28% 29% 25% 28% 30% 29% 18%

3.1%-5% 24% 26% 20% 27% 18% 23% 27% 25% 16% 21% 24% 34%

5.1%-7% 8% 9% 7% 8% 10% 7% 9% 7% 12% 8% 9% 8%

7.1%-10% 7% 7% 5% 7% 5% 8% 7% 5% 3% 3% 8% 13%

Above 10% 3% 3% 3% 4% 2% 4% 3% 3% 3% 2% 4% 6%


I don't know 12% 9% 18% 10% 18% 11% 10% 13% 27% 14% 11% 15%

2010

Below 1% 7% 8% 4% 3% 16% 5% 7% 8% 8% 5% 7% 13%

1%-3% 23% 24% 22% 16% 42% 23% 25% 20% 21% 24% 23% 5%

3.1%-5% 23% 21% 25% 26% 11% 24% 21% 22% 23% 27% 21% 35%

5.1%-7% 13% 13% 15% 16% 6% 11% 15% 15% 12% 13% 14% 17%

7.1%-10% 8% 8% 10% 11% 2% 6% 9% 9% 16% 5% 10% 13%

Above 10% 7% 8% 5% 8% 3% 7% 7% 7% 5% 4% 8% 17%


I don't know 13% 12% 17% 15% 10% 16% 12% 13% 9% 18% 11% 0%

* Income is on monthly basis: Low <Rp1.5 mn; Mid Rp1.5-7.5 mn: High >Rp7.5 mn Source: Credit Suisse Indonesia Consumer Survey 2017

In terms of personal finances, Indonesians remain optimistic with the country’s second

ranking maintained (after India, which rose from third in the previous year). Indonesians

83%

14%

3%

76%

20%

4%

65%

31%

4%

72%

24%

3%

64%

31%

4%

64%

32%

4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

It will be higher than the last 12 months It will be the same as the last 12 months It will be lower than the last 12 months

2011 2012 2013 2014 2015 2016

...but otherwise remain optimistic

27 March 2017


also remain the most optimistic in regard to household income expectations. This said,

Indonesians think that now is the time to make major purchases (third, and up from fourth

in the previous year).

...and improving economic growth

Indonesia's GDP reached 5.02% in FY16, improving from 4.8% in FY15. Private

consumption continues to be the largest contributor of GDP, accounting for 55% and

growing at around 5% each year. The second-largest contributor to the economy is

investment at around 34% which grew at 4.5% in 2016, down from 6.4% in 2015. The third

largest is government spending at 8% with flat growth in 2016, though this improved from -

5.3% in 2015. The lowest contributor is net exports contributing 2% to the economy with

5.1% growth in 2016 from 138.1% growth in 2015.

Within the sector, the largest contributor to the economy is manufacturing (21%), followed

by retail (13%), agriculture (11%), construction (10%) and mining (8%), among others.

However, the highest growth is from the IT and financial sectors, each expanding 9% in

2016.

Figure 11: Indonesia’s GDP quarterly and annual growth

Source: Bank Indonesia (BI)

Figure 12: GDP breakdown by segment Figure 13: GDP breakdown by sector

Source: Bank Indonesia (BI) Source: Bank Indonesia (BI)

6.1

6.8

6.2

6.5 6.5

6.3

6.05.9

6.1

6.2

5.95.9

5.55.6

5.55.6

5.1

4.9 4.9

5.0

4.84.7 4.8

5.2

4.9

5.2

5.04.9

6.4

6.2

6.0

5.6

5.0

4.9

5.0

4.5

5.0

5.5

6.0

6.5

7.0

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

FY10

FY11

FY12

FY13

FY14

FY15

FY16

GDP

grow

th (%

)

54% 54% 55% 54% 55% 54% 55%

12% 12% 12% 12% 12% 12% 8%

31% 32% 33% 32% 33% 33% 34%

2% 1% 0% 2% 0% 1% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016

Private consumption Government consumption Investments Net exports

23% 23% 22% 22% 22% 22% 21%

4% 4% 4% 4% 4% 4% 4%

14% 14% 14% 14% 14% 14% 13%

9% 10% 10% 10% 10% 10% 10%

14% 14% 14% 14% 14% 14%11%

4% 4% 4% 4% 4% 4%4%

11% 10% 10% 10% 10% 9%8%

4% 4% 4% 4% 5% 5%5%

18% 18% 18% 18% 18% 19% 22%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016Manufacturing Financial & insurance Wholesale & retail trade

Construction Agriculture, forestry & fishing Transportation & storage

Mining & quarrying Information & communication Others

27 March 2017


Figure 14: GDP growth, by segment


Figure 15: Net export growth—2010-16

Source: Bank Indonesia

Figure 16: GDP growth, by sector


6.4%

4.1% 4.0%

6.7%

6.2%

5.1%

5.5%

8.9%

6.0%

5.5%

4.5%

9.1%

5.6% 5.5%

6.7%

5.0%5.0%5.3%

1.2%

4.4%

4.9% 4.8%

5.3%5.0%5.0% 5.0%

-0.1%

4.5%

-1%

1%

3%

5%

7%

9%

GDP Private consumption Government expenditure Investments

2010 2011 2012 2013 2014 2015 2016

2%12%

-76%

131%

-24%

138%

5%

-100%

-50%

0%

50%

100%

150%

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2010 2011 2012 2013 2014 2015 2016

Net exports (bn) Net exports growth

-6%

-4%

-2%

1%

3%

5%

7%

9%

11%

13%

Agr

icul

ture

, for

estr

y &

fishi

ng

Min

ing

& q

uarr

ying

Man

ufac

turin

g

Con

stru

ctio

n

Who

lesa

le &

ret

ail t

rade

Tra

nspo

rtat

ion

& s

tora

ge

Info

rmat

ion

&co

mm

unic

atio

n

Pub

lic a

dmin

istr

atio

n &

defe

nce

Fin

anci

al &

insu

ranc

e

Ele

ctric

ity &

gas

Wat

er s

uppl

y, s

ewer

age,

was

te m

anag

emen

t &re

med

iatio

n ac

tiviti

es

Acc

omm

odat

ion

& fo

odse

rvic

e ac

tiviti

es

Rea

l est

ate

activ

ities

Bus

ines

s S

ervi

ces

Edu

catio

n

Hum

an H

ealth

and

Soc

ial

Wor

k A

ctiv

ities

Oth

er S

ervi

ces

Act

iviti

es

2011 2012 2013 2014 2015 2016

27 March 2017


With Indonesia being an archipelago, each region has a different background and growth

rate. Growth in Kalimantan is starting to improve along with the increase in the coal prices,

as well as in Sumatra where CPO prices are starting to rise. Higher construction activity in

Sulawesi area has helped growth there as well. Java is a manufacturing-based region and

has seen its growth slowing down.

Figure 17: Indonesia’s GDP growth by region in 2016—Kalimantan’s is starting to improve

Source: Bank Indonesia, Indonesia Bureau of Statistics

Figure 18: Indonesia’s GDP growth by region in 2015—weak growth in Kalimantan

Source: Bank Indonesia, Indonesia Bureau of Statistics

27 March 2017


Figure 19: Palm oil (RM/tonne) Figure 20: Coal (US$/tonne)

Source: Bloomberg Source: Bloomberg

Figure 21: Brent crude oil price (US$/barrel) Figure 22: Indonesia's retail fuel price (Rp/l)


Inflation has reached an all-time low

Indonesia’s inflation in 2016 fell to its lowest of 3.7%, from 6.4%, over the past three years.

This lower inflation was driven down on the back of lower transportation costs (lower fuel

costs) and food costs (lower soft commodities’ prices).

1,800

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

MY

R /

ton

average 2014: 2,421.9

average 2015: 2,165.9

average 2016: 2,655.2

average YTD17: 3,247.4

45

55

65

75

85

95

105

115


US

D / M

etr

ic t

on

average 2014: 70

average 2015: 59

average 2016: 66

average YTD17: 83

35

45

55

65

75

85

95

105

115

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

US

D / b

arr

el

average 2014: 97.5

average 2015: 54.4

average 2016: 45.9

average YTD17: 55.7

27 March 2017


Figure 23: Inflation in Indonesia reached an all-time low last year at 3.7%


Figure 24: Inflation component breakdown*—significant drop in transportation and food

* 2010 constant; Source: Indonesia Bureau of Statistics

Figure 25: Wheat (US$/50kg) Figure 26: Skimmed milk (US$/tonne)


3.6

4.4

6.2 6.3

6.8

5.9

4.6

4.1

3.7

4.4

4.0 3.9

4.5

5.1

8.0 8.07.8

7.1

4.4

6.5 6.5

7.1 7.1

4.8

4.3

3.5

3.03.3

5.15.4

4.0

6.4 6.4 6.4

3.7

0

1

2

3

4

5

6

7

8

9

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

Infla

tion

(%)

7.5

11.4

15.4

6.2

3.7 3.9

0.5

5.4 5.7

(0.7)

1.9

3.9

2.7 3.1

-1

1

3

5

7

9

11

13

15

17

Processed food,beverages, and tobacco

Food Transport and finance Housing and utilities Health Education, recreation,and sports

Clothing

Inlfa

tion

(%)

2013 2016

3.5

4.5

5.5

6.5

7.5

8.5

9.5


US

D / 5

0 k

g

average 2014: 5.9

average 2015: 5.1

average 2016: 4.3

average YTD17: 4.2

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

US

D / M

etr

ic t

onne

average 2014: 3,752.9

average 2015: 2,164.9

average 2016: 1,978.5

average YTD17: 2,418.8

27 March 2017


Figure 27: Sugar (US$/50kg) Figure 28: Corn (US$/bushel)


The highest inflation is still seen outside Java. Java itself recorded its inflation at 2.59% in

2016, down from 3.12% in 2015. Sumatra saw its inflation higher at 4.53%, from 3.05%.

Figure 29: Indonesia—2016 inflation by region

Source: Bank Indonesia

Rising middle class and affluent consumers (MAC)

According to Boston Consulting Group, Indonesia's population is becoming more affluent.

The middle class and affluent consumers (“MAC”) population in Indonesia is expected to

reach half of the entire population by 2020 from the current 37%. We believe that

Indonesia offers the potential to be developed into a larger base economy given its high

population base with most being of productive age. Unemployment is benign, at 5.6%, and

declining. Meanwhile, Indonesia’s GDP per capita has risen to US$3,643 in 2016, from

US$3,268 in 2010.

10

15

20

25

30

35


US

D / 5

0 k

g

average 2014: 21.1

average 2015: 16.8

average 2016: 24.8

average YTD17: 27.2

2.5

3.5

4.5

5.5

6.5

7.5

8.5


US

D / b

ushel

average 2014: 4average 2015: 3.6average 2016: 3.4average YTD17: 3.5

27 March 2017


Figure 30: Indonesia's population is growing and

becoming more affluent

Figure 31: Middle class and affluent consumers are

prominent in Java and Sumatra

Source: Boston Consulting Group (BCG) Source: BCG

Figure 32: Indonesia's GDP per capita Figure 33: Average exchange rate IDR/USD


Figure 34: Consumer Confidence index Figure 35: Retail Sales index


6546

28

65

57

48

44

47

51

42

55

68

23 36 49

712

1735

7

0

50

100

150

200

250

300

2012 2016 2020

Popu

latio

n (m

illion

s)

Poor Aspirant Emerging middle

Middle Upper middle Affluent

5 8 1047

95

81017

26

34

24

36

47

18

24

30

0

20

40

60

80

100

120

140

2012 2016 2020

Pop

ulat

ion

(mill

ions

)

Rest of Indonesia Sulawesi Kalimantan

Sumatra Rest of Java Greater Jakarta

29.7

33.0

35.6

38.9

42.5

45.7

48.6

3268

37563780

3682

3574

3398

3643

3000

3100

3200

3300

3400

3500

3600

3700

3800

3900

4000

25

30

35

40

45

50

2010 2011 2012 2013 2014 2015 2016

IDR (million) USD (RHS)

11,000

11,500

12,000

12,500

13,000

13,500

14,000

14,500

15,000

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

US

D /

ID

Raverage 2014: 11,869average 2015: 13,377average 2016: 13,314average YTD17: 13,337

95

100

105

110

115

120

125

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17

CCI February 2017: 117.1

140

150

160

170

180

190

200

210

220

Jan-14 Jan-15 Jan-16 Jan-17

213

27 March 2017


Figure 36: Bank Indonesia rate Figure 37: Unemployment rate in Indonesia

Source: Bank Indonesia (BI) * Employment rates are as at August of every full year Source: Indonesia Bureau of Statistics

Rising optimism

Compared to the other emerging countries that we surveyed, Indonesians were still

second in terms of personal finances. In fact, on average, Indonesian personal finances

are better off than in the previous year, even though, on average, they are still lower than

two years ago. We believe that this is due to the still-low commodity prices, that only

started to pick up in early 4Q16.

Interestingly, for Indonesians, the highest earners are seeing weaker personal finances

versus the previous year. Lower-middle income earners, however, retained a somewhat

similar trend in the survey. We think that the significant shift for the highest earners could

be attributed to penalty payments during the tax amnesty programme, which are mostly

impacting them. The first phase of the tax amnesty programme ended on 30 September

2016. Middle-upper income earners saw their personal finances better off.

Figure 38: Indonesia—state of personal finances

over next six months, 2016

Figure 39: Indonesia—state of personal finances

over next six months, 2017

Source: Credit Suisse Emerging Consumer Survey 2016 Source: Credit Suisse Emerging Consumer Survey 2017

Indonesians are less optimistic about their income than last year, according to our survey,

even though they are still the most optimistic compared to the other emerging countries

that we surveyed (Indonesia maintains its No.1 rank). The reduced optimism compared to

5.5

6.0

6.5

7.0

7.5

8.0

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

Mar

-14

Sep-

14

Mar

-15

Sep-

15

Mar

-16

Sep-

16

6.0%6.1%

8.1%

9.1%

9.5%

9.9%

11.2%

10.3%

9.1%

8.4%

7.9%

7.1%

7.5%

6.1%6.2%

5.9%6.2%

5.6%

5%

6%

7%

8%

9%

10%

11%

12%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

0%

10%

20%

30%

40%

50%

60%

< 1000 1250 1750 2500 4000 6250 8750 > 10000

Income (IDR) This survey average

Last survey average

0%

10%

20%

30%

40%

50%

60%

< 1000 1250 1750 2500 4000 6250 8750 > 10000

Income (IDR) This survey averageLast survey average

The highest earners hit the most, stable for the low and middle income

27 March 2017


a year ago, in our view, could be attributed to Government of Indonesia's introduction of a

fixed formula (GDP growth plus inflation) to determine the percentage increase in

minimum wage starting from 2016; thus with inflation reaching its lowest level at 3.7% in

2016, expectations on household income declined.

Figure 40: Indonesians are less optimistic about their household income in the last 12 months*

% of respondents

Total Area Region Age Income

Urban Rural Java Ex-Java 18-29 30-45 46-55 56-65 Low Mid High

2016

Down to flat 59% 57% 64% 55% 68% 59% 57% 64% 62% 75% 54% 47%

Flat to +10% 31% 34% 26% 35% 21% 31% 33% 29% 30% 20% 35% 31%

More than +10% 10% 10% 10% 10% 11% 11% 11% 7% 8% 6% 11% 23%

2015

Down to flat 57% 54% 63% 58% 56% 57% 54% 63% 62% 72% 52% 33%

Flat to +10% 30% 31% 27% 28% 33% 31% 31% 27% 21% 23% 33% 33%

More than +10% 13% 15% 10% 14% 11% 12% 14% 10% 17% 5% 15% 35%

2010

Down to flat 64% 62% 68% 65% 62% 60% 66% 63% 76% 70% 59% 46%

Flat to +10% 26% 27% 23% 26% 27% 28% 25% 27% 19% 24% 29% 35%

More than +10% 10% 10% 8% 9% 12% 11% 9% 9% 5% 6% 13% 19%

* Question: To what extent has your household income changed in the last 12 months? Note: Income is on monthly basis: Low <Rp1.5 mn; Mid Rp1.5-7.5 mn, High >Rp7.5 mn Source: Credit Suisse Indonesia Consumer Survey 2017

Figure 41: Indonesians are also expecting lower future household income than a year ago *

% of respondents

Total Area Region Age Income*


2016

Down to flat 43% 43% 41% 42% 44% 41% 42% 47% 46% 54% 39% 33%

Flat to +10% 37% 36% 38% 37% 37% 37% 37% 35% 41% 32% 38% 33%

More than +10% 20% 20% 20% 21% 19% 22% 21% 18% 13% 13% 23% 34%

2015

Down to flat 39% 35% 46% 38% 41% 37% 38% 41% 50% 54% 34% 19%

Flat to +10% 34% 35% 33% 32% 40% 36% 34% 35% 25% 31% 36% 37%

More than +10% 27% 30% 21% 30% 19% 27% 28% 24% 25% 15% 30% 43%

2010

Down to flat 37% 36% 39% 36% 39% 37% 37% 33% 49% 44% 28% 36%

Flat to +10% 38% 38% 39% 40% 33% 37% 37% 42% 37% 37% 41% 21%

More than +10% 25% 27% 21% 23% 28% 26% 26% 25% 14% 19% 30% 43%

* Question: In what way do you expect your household income to change in the next 12 months? *Income is on monthly basis: Low <Rp1.5 mn; Mid Rp1.5-7.5 mn, High >Rp7.5 mn Source: Credit Suisse Indonesia Consumer Survey 2017

27 March 2017


Figure 42: Minimum wage increase over the years in Indonesia

Source: Ministry of Labour

Time to spend!

As optimism and confidence grow, it appears Indonesians are ready to make major

purchases. Indonesia's rank among the countries surveyed has moved up to No. 3, from

No. 4, in the past two consecutive years—this is true, particularly in the rural area and in

Java, and for the middle- and higher-income earners. However, the optimism is yet to

reach the 2010 level.

Figure 43: In your opinion, is now a good time to make a major purchase? – Area

% of respondents

2016 2015 2010

Total Urban Rural Java Ex Java Total Urban Rural Java Ex Java Total Urban Rural Java Ex Java

Excellent time 2% 2% 1% 2% 2% 5% 6% 4% 5% 6% 6% 7% 5% 6% 7%

Good time 34% 33% 34% 35% 30% 30% 31% 28% 29% 31% 50% 48% 54% 55% 39%

Not such a good time 60% 60% 61% 59% 63% 59% 57% 61% 59% 58% 40% 40% 39% 36% 48%

A bad time 5% 5% 5% 4% 5% 7% 6% 7% 7% 5% 4% 5% 3% 4% 6%


Figure 44: In your opinion, is now a good time to make a major purchase? – Age

% of respondents

2016 2015 2010

Total 18-29 30-45 46-55 56-65 Total 18-29 30-45 46-55 56-65 Total 18-29 30-45 46-55 56-65

Excellent time 2% 1% 2% 2% 2% 5% 5% 5% 6% 4% 6% 6% 6% 6% 6%

Good time 34% 37% 31% 35% 30% 30% 28% 33% 27% 25% 50% 53% 49% 50% 45%


A bad time 5% 5% 5% 3% 6% 7% 7% 6% 6% 8% 4% 3% 5% 4% 4%


603,327672,428

745,709

841,530908,825

988,829

1,088,903

1,296,908

1,506,238

1,703,617

1,933,633

2,075,529

5%

10%

15%

20%

0

500,000

1,000,000

1,500,000

2,000,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E

National minum wage (IDR) YoY growth

27 March 2017


Figure 45: In your opinion, is now a good time to make a major purchase? – Income*

% of respondents

2016 2015 2010

Total Low Mid High Total Low Mid High Total Low Mid High

Excellent time 2% 1% 1% 6% 5% 3% 6% 6% 6% 5% 7% 4%

Good time 34% 29% 35% 47% 30% 32% 29% 27% 50% 46% 53% 68%

Not such a good time 60% 64% 59% 44% 59% 57% 59% 65% 40% 44% 36% 21%

A bad time 5% 6% 4% 3% 7% 8% 6% 2% 4% 5% 3% 7%

* Income is on monthly basis: Low <Rp1.5 mn; Mid Rp1.5-7.5 mn,: High >Rp7.5 mn Source: Credit Suisse Indonesia Consumer Survey 2017

With Indonesians getting wealthier and seeking to lead a better lifestyle, on top of their

growing optimism and confidence, they are spending more on discretionary items.

Indonesia's per capita GDP reached US$3,643 last year, from US$2,357 in 2009. Similar

to the previous years, Indonesians continue to spend the most on smartphones (+9%)

followed by internet access (+7%), holidays (+6%), property (+6%), two-wheelers (+5%),

and instant noodles (+3%). Indonesians are not spending on TV (-8%), dairy (-6%),

carbonated drinks (-5%), mobile phones (-3%), extra education (-3%), cosmetics (-3%),

cigarettes (-2%), and four-wheelers (-1%). Interestingly, despite the high penetration of

instant noodles and two-wheelers, consumers continue to spend on these items.

Based on our survey, 2016 saw the highest spending momentum growth over the last

seven years. Our survey captured Indonesians' increasing interest in buying smartphones

(+55%), internet access (+37%) and mobile phones (+17%), in line with their growing

wealth, changing lifestyle, and technological advancement. This is followed by the

spending increase on two-wheelers (+16%) and property (+13%) as financing for both has

become more affordable. On the other hand, the areas on which consumers have been

spending less and less over the last seven years are cigarettes (-13%), followed by

cosmetics (-10%) and dairy (-8%).

Figure 46: Indonesia's spending momentum in 2016

vs 2015 (a year ago)

Figure 47: Indonesia's spending momentum in 2016

vs 2010 (seven years ago)


Interestingly, while spending on smartphones and internet access continues to rise, the

use of internet in Indonesia is mostly to access social media (39%) and instant messaging

(25%), rather than to shop online (4%). While this is also true for most of the other

emerging countries that we surveyed, Indonesia ranks the highest on this parameter. This

might be one of the reasons as to why e-commerce in Indonesia is yet to pan out as fast

as other countries have. Another possible reason for the country's still-low internet

penetration (less than 50%) is higher cost. Despite coming from a lower base comparison,

the rise of internet penetration definitely offers significant potential.

Carbonated drinks

Dairy

Cosmetics

TV

Mobile phones

Smartphone

Internet access

Holidays

Property

Extra education

2-wheelers

4-wheelers

Instant noodle

Cigarettes

-10

-8

-6

-4

-2

0

2

4

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8

10

0 20 40 60 80 100

Rec

ord

ed s

pen

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g i

n 2

016

vs.

2015


Carbonated drinks

DairyCosmetics

Mobile phones

Smartphone

Internet access

HolidaysProperty

TV

2-wheelers

4-wheelersInstant noodle

Cigarettes

-20

-10

0

10

20

30

40

50

60

0 20 40 60 80 100

Rec

ord

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vs. 2

010


Smartphones and internet access

continue to be the most important items that

Indonesians are spending on

Over the last seven years, consumers are

switching to discretionary items

Maximum use of internet is for

accessing social media

27 March 2017


Figure 48: Social media is the main purpose for needing internet access


Figure 49: Internet penetration in Indonesia is the

lowest among other countries… Figure 50: ...but it has outgrown in the last six years

Size of the bubble represents each country's size of population relative to one another : Represents country's population relative to one another. Source: Credit Suisse Indonesia Consumer Survey 2017


While the other emerging countries that we surveyed prefer to spend more on fashion

apparel (65%), holidays (60%), perfumes (49%), and shoes (45%) among others,

Indonesians, on the other hand, would like to spend more on holidays (70%), instant

noodles (64%), bottled water (62%), and dairy (50%), among others. Only 48% of the

Indonesians we surveyed would prefer to spend on fashion apparel and only 42% on

perfumes. We believe that this is because Indonesians are still planning to spend more on

basic items (staples) than discretionary items, when it comes to allocating their spending,

with the exception of holiday.

39

15

25

13

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4

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Social network Music & videos Instant messaging Gaming Banking Shopping Travel Other

% o

f res

pond

ents

Indonesia Mexico Russia Brazil Turkey India China

Brazil

China

India

Indonesia

Russia

South Africa

Turkey

Mexico

-5%

0%

5%

10%

15%

20%

45% 55% 65% 75% 85% 95%

Inte

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Internet penetration

14%15%

9%

29%

40%

51%

54%

0%

10%

20%

30%

40%

50%

60%

2010 2011 2012 2013 2014 2015 2016

Inte

rnet

penetr

ation

Indonesia differs from others

27 March 2017


Figure 51: Indonesians would want to spend more on holidays and staples

* Instant noodle – emerging market average consists of only two countries: Indonesia (64%) and India (51%) ** Motorcycle – emerging market average consists of only Indonesia (26%). Source: Credit Suisse Indonesia Consumer Survey 2017

This is in line with food being the largest component in Indonesians' monthly spending

basket, much higher than the average eight emerging countries that we surveyed.

According to our survey, spending on food accounted for 35% of the total spending in

Indonesia in 2016, up from 32% in the previous year; followed by spending on housing

and public utilities at 8%, down from 11% in the previous year. Savings dropped to only

8% of the total, from 12% in the previous year.

Figure 52: 32% of monthly spending by Indonesians

was on food in 2015… Figure 53: …and it increased to 35% in 2016


With the decline in savings, Indonesia's rank remains the lowest among the emerging

countries we surveyed. Savings only accounts for 10.3% of total income—versus China's

(which remains the highest) 40.7%—followed by Russia's 24.1% and Turkey's 21%.

70% 64% 62% 50% 48% 42% 37% 35% 26% 21% 19% 17% 16% 11% 11% 5% 3% 2% 2% 1%

60%57%

38%

49%

65%

49%

36%

19%

26%

19%

45%

33%

16%15% 15%

6% 5%

14%

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10%

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40%

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Indonesia 2016 Indonesia 2010 2016 emerging market average

11%

32%

3%

1%

4%

3%

5%

12%

1%

4%

24%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Hou

sing

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Util

ities

Foo

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Tra

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Indonesian monthly spending Overall survey average

8%

35%

3%

1%

4%2%

5%

8%

1%

3%

31%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Hou

sing

&P

ublic

Util

ities

Foo

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Indonesian monthly spending Overall survey average

Spending on food increased

Savings declined

27 March 2017


Figure 54: China has the highest savings

percentage in total income

Figure 55: Indonesia's savings percentage in total

income declined in 2016

Source: Credit Suisse Indonesia Consumer Survey 2017 Source: Company data, Credit Suisse estimates

Indonesians are not migrating

In Indonesia, fewer people are interested in migrating, compared to those in China and

India. In fact, the number of people not migrating has increased. Some 15% Indonesians

migrated in 2016 as compared to 19% in China and 36% in India.

However as a percentage to total population, Indonesians were the highest to move in

order to earn a better income (92%), compared to those in China (69%) and India (86%).

Figure 56: Fewer Indonesians are migrating


40.7%

24.1%

21.0%

13.9%12.2% 11.3% 10.5% 10.3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Chin

a

Russia

Turk

ey

Mexic

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India

Bra

zil

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uth

Afr

ica

Indonesia

Sav

ings

as

% o

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ome 10.8%

12.2%

10.4%

11.6%12.3%

14.8%

10.3%

0%

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4%

6%

8%

10%

12%

14%

16%

2010 2011 2012 2013 2014 2015 2016

Sav

ings

as

% o

f inc

ome

24%19%

26%

36%

19% 15%

76%

81%

74%

64%

81%85%

66%69%

79%

86%

93% 92%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2016 2015 2016 2015 2016

China India Indonesia

Migrated Did not migrate Moved to earn better income

27 March 2017


Automotive sector

Key stock

Astra International

■ Astra’s auto business benefits from lower financing rates; thus in the four-wheeler (4W)

market, the company is likely to gain by launching new affordable models (the likes of

low cost green car, or “LCGC”), while its two-wheeler (2W) market share gain is

dependent on new model launches and improvement in after-sales services.

■ Rising commodity prices should also benefit Astra, as people living in commodity

resource-rich areas have better purchasing power.

Four-wheelers

According to Indonesia Auto Association (Gaikindo), Indonesia's 4W sales reached 1.06

mn in 2016, up 5% YoY—the first year of positive growth after declining for three years

from the peak of 1.2 mn units in 2013-14. The improvement, we believe, could be

attributed to a few factors: (1) lower financing rates, (2) launching of new affordable

models, (3) increase in commodity prices, and (4) a better macroeconomic environment

than 2015.

Last year, about 20% of the auto sector’s sales were contributed by low-cost green cars

(LCGC), which were priced below Rp150 mn/unit (US$12k). Astra launched two seven-

seater LCGCs (Toyota Calya and Daihatsu Sigra) in 2H16, which have been well accepted

in the market. Overall, we remain positive on Indonesia's structural story as 4W

penetration has only reached 5% as compared to its ASEAN peers' 10-15%.

Figure 57: Indonesia has lower 4W penetration than

peers…

Figure 58: …but, historically, sales pick up with

higher coal prices

Source: CEIC Source: Bloomberg, Gaikindo (Indonesia 4W Association)

Our survey indicates that while Indonesia's 4W penetration remained low at 6% (a slight

decline from 7% in the previous survey), interestingly, there is a shift in the ownership

profile. The 4W ownership in rural areas declined from 6% in 2015 to 4% in 2016;

however, in urban areas, it increased to 8% from 7% in the previous year. The increase in

urban ownership in 2016 was driven by buyers who live outside Java—they might have

benefited from higher commodity prices (palm oil and coal).

1%2%

5%

10%

27%

30%

35%

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40%

PH IN ID TH TW KR MY

-40%

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100%

120%

Dec-0

9

Ap

r-10

Au

g-1

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g-1

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Au

g-1

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5

Ap

r-16

Au

g-1

6

Dec-1

6

Coal Price YoY 3mma 4W sales YoY

27 March 2017


Compared to our previous surveys, we observed higher confidence among the

respondents on a probable purchase of 4W within the next twelve months (11%) than the

previous year (8%), or seven years ago when we started out (7%). We believe the

increased optimism to purchase 4W is due to: (1) cheaper financing driven by lower rates

and extension of loan tenor; (2) more affordable LCGC models (the likes of Toyota Calya

and Daihatsu Sigra, which were launched last year); and (3) a modest recovery in the

economy. And according to our survey, the increase is mostly on the back of the low-

income segment at 8% of our respondents—up from 6% in 2015, and 3% in 2010.

Figure 59: Increased confidence in the low-income segment to buy a 4W

% of respondents


Urban Rural Java Ex Java 18 - 29 30 - 45 46 - 55 56 - 65 Low Mid High

2016

Ownership 6% 8% 4% 6% 7% 4% 6% 11% 8% 1% 7% 30%

Probability of purchase in 12M

Potentially yes 11% 11% 10% 13% 8% 10% 12% 11% 8% 8% 12% 18%

Unsure 38% 39% 36% 52% 49% 39% 35% 37% 43% 37% 38% 28%

Potentially no 51% 50% 54% 35% 44% 50% 53% 52% 49% 54% 50% 53%

2015

Ownership 7% 7% 6% 7% 6% 6% 7% 5% 9% 3% 7% 25%


Potentially yes 8% 9% 7% 9% 8% 9% 8% 11% 4% 6% 9% 16%

Unsure 28% 29% 27% 61% 68% 27% 29% 29% 30% 30% 27% 31%

Potentially no 63% 62% 66% 30% 24% 65% 63% 60% 66% 64% 64% 53%

2010

Ownership 6% 6% 5% 6% 6% 3% 7% 6% 10% 1% 8% 50%


Potentially yes 7% 8% 6% 6% 8% 4% 8% 10% 6% 3% 10% 38%

Unsure 26% 27% 23% 66% 69% 30% 23% 25% 24% 23% 27% 42%

Potentially no 67% 65% 71% 27% 22% 66% 69% 65% 71% 74% 63% 21%

* Income is on monthly basis: Low <Rp1.5 mn; Mid Rp1.5-7.5 mn, High >Rp7.5 mn Source: Credit Suisse Indonesia Consumer Survey 2017

Toyota widened the gap again following the launch of its LCGC Calya

Based on our 2015 survey, the respondents willing to purchase a Toyota car fell by a huge

swing as Honda was catching up with new hit models such as Honda Mobilio, BR-V and

HR-V. However, in 2016, Toyota managed to widen the gap again with new models,

namely new Toyota Innova (completely new) and Toyota Calya (7-seater LCGC with a

pricing of around US$11k). These two models have proven to be the missing catalyst that

Toyota needs to widen its gap from Honda.

The market right now is turning into a duopoly between Toyota and Honda. Other players

such as Mitsubishi and Suzuki have not really launched new models while Honda and

Toyota are playing catch-up. We expect things to change this year as Mitsubishi is

expected to launch its new MPV in 2H17, and a new entrant from China (Wuling) is

expected to tighten the competitive landscape.

27 March 2017


Figure 60: Astra gained market share in 2016 on the back of LCGCs

Source: Company data,

Figure 61: Toyota maintained its market leader in 4W, gaining back some of its lost market share

% of respondents


Urban Rural Java Ex-Java 18 - 29 30-45 46-55 56-65 Low Mid High

2016

Toyota 41% 40% 42% 37% 56% 46% 37% 39% 40% 31% 43% 50%

Honda 28% 25% 33% 31% 15% 23% 29% 32% 40% 26% 29% 29%

Daihatsu 10% 12% 4% 10% 9% 11% 10% 10% 0% 21% 6% 7%

Nissan 4% 2% 6% 4% 3% 0% 7% 3% 0% 0% 5% 0%

BMW 2% 2% 1% 2% 3% 3% 1% 3% 0% 3% 2% 0%

Mazda 2% 2% 3% 3% 0% 5% 1% 0% 0% 3% 2% 7%

Others 14% 16% 10% 14% 15% 12% 14% 13% 20% 18% 12% 7%

2015

Toyota 23% 17% 37% 19% 36% 12% 36% 20% 17% 14% 26% 21%

Honda 22% 24% 18% 22% 24% 24% 18% 24% 33% 21% 21% 36%

Daihatsu 10% 12% 5% 11% 6% 8% 12% 8% 17% 3% 13% 7%

Nissan 5% 7% 3% 6% 3% 4% 2% 12% 17% 3% 7% 0%

BMW 8% 11% 3% 9% 6% 10% 8% 8% 0% 14% 8% 0%

Mazda 3% 4% 0% 4% 0% 6% 0% 0% 17% 7% 1% 7%

Others 28% 25% 34% 29% 24% 35% 24% 28% 0% 38% 24% 29%

2010

Toyota 52% 49% 58% 45% 63% 43% 50% 63% 63% 52% 51% 60%

Honda 15% 14% 19% 15% 17% 17% 15% 15% 13% 23% 13% 10%

Daihatsu 10% 13% 3% 15% 2% 11% 13% 4% 0% 3% 13% 0%

Nissan 3% 3% 3% 4% 2% 3% 5% 0% 0% 3% 2% 10%

BMW 2% 1% 3% 1% 2% 0% 2% 0% 13% 3% 1% 0%

Mazda 1% 0% 3% 0% 2% 3% 0% 0% 0% 3% 0% 0%

Others 18% 20% 11% 21% 13% 23% 15% 19% 13% 13% 19% 20%


Two-wheelers

According to AISI (Indonesia Motorcycle Association), 2W sales reached 5.9 mn units in

2016, or 8% lower YoY. This came after a 25% drop in 2015, as 2W sales were at their

peak of 7.9 mn units in 2014. We view this as underpinned by the already high penetration

0%

10%

20%

30%

40%

50%

60%

70%

May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16

Astra 4W Honda

27 March 2017


of 2W. In our view, 2017’s sales are better as the increase in commodity prices has

historically been positive for 2W sales.

Figure 62: 2W sales tend to improve with

commodity prices, including coal price… Figure 63: …as well as CPO prices

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

2W penetration at 89% was at its highest level since we started this survey in 2010.

Interestingly, those who own more than one motorcycle dropped from 37% in 2015 to 29%

in 2016. Moreover, penetration outside the Java region increased to 88% , from 81% in the

previous year; according to AISI (Indonesia Motorcycle Association) 2W sales declined

10% YoY in 2016. This phenomenon, we believe, indicates that the secondary market is

becoming more active as well as competitive in terms of pricing. Our conclusion is also

supported by the increase in average motorcycle ownership to four years, from 3.7 years

in the previous year’s survey.

Contrary to the survey result for 4W, the respondents were not as keen to purchase a 2W

in the next 12 months: the respondents declined slightly from 28% to 26%. We believe this

could mean two things: (1) the economy in the lower stratum of the society has not really

picked up, while inflation surprises on the upside further impede purchasing power, or (2)

2W penetration is already too high.

-40%

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CPO Price YoY 3mma 2W sales YoY

27 March 2017


Figure 64: Two-wheeler ownership demographics

% of respondents



2016

Ownership % respondents 89% 89% 87% 89% 88% 89% 91% 83% 85% 81% 92% 93%

Number of 2W(s) per household

1 Motorbike % owners 71% 69% 76% 73% 67% 70% 74% 71% 65% 83% 67% 49%

> Motorbike % owners 29% 31% 24% 27% 33% 4% 5% 4% 4% 17% 33% 51%

Period purchased Years ago 4.1 4.1 3.9 4.0 4.2 3.6 4.3 4.6 4.3 4.1 3.9 3.9

Ownership turnover Years 5.3 5.5 5.0 5.1 5.3 4.8 5.6 6.1 5.1 4.5 5.7 5.4


Potentially yes % respondents 26% 26% 24% 27% 22% 24% 28% 26% 21% 27% 26% 27%

Unsure % respondents 41% 42% 39% 39% 46% 43% 39% 34% 47% 39% 41% 20%

Potentially no % respondents 34% 32% 36% 34% 32% 33% 32% 40% 32% 34% 33% 53%

2015











2010











* Income is on monthly basis: Low <Rp1.5 mn; Mid Rp1.5-7.5 mn, High >Rp7.5 mn. Source: Credit Suisse Indonesia Consumer Survey 2017

Honda stays on top

Honda and Yamaha remain the two favourite brands in 2W in Indonesia, accounting for

95% of the total market according to our survey. Among the spectrum of earners, Honda is

popular among the low- and the middle-income segments, while Yamaha is popular with

the high-income segment.

Honda is also gaining traction among the younger generation compared to the previous

year, which we believe is attributable to its new model launches, which cater to the taste of

the younger generation.

27 March 2017


Figure 65: Honda maintains market leadership, gaining more market share than last year

% of respondents


Urban Rural Java Ex-Java 18 - 29 30-45 46-55 56-65 Low Mid High

2016

Honda 59% 56% 64% 64% 46% 56% 60% 62% 60% 60% 60% 38%

Yamaha 36% 39% 29% 32% 45% 37% 35% 34% 32% 32% 36% 56%

Suzuki 5% 4% 5% 3% 8% 6% 4% 4% 5% 6% 4% 3%

Kawasaki 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Others 1% 1% 2% 1% 1% 1% 1% 1% 3% 2% 0% 3%

2015

Honda 57% 53% 64% 62% 43% 51% 59% 61% 62% 58% 55% 65%

Yamaha 36% 39% 28% 31% 47% 40% 34% 30% 32% 34% 37% 33%

Suzuki 6% 6% 6% 5% 8% 7% 6% 6% 4% 5% 7% 0%

Kawasaki 1% 1% 1% 1% 1% 1% 1% 1% 0% 1% 1% 0%

Others 1% 1% 1% 1% 0% 1% 0% 2% 1% 2% 1% 2%

2010

Honda 50% 48% 54% 54% 42% 46% 54% 48% 53% 50% 50% 45%

Yamaha 33% 36% 28% 31% 37% 35% 30% 39% 24% 32% 34% 18%

Suzuki 13% 12% 14% 11% 17% 15% 12% 7% 18% 15% 11% 27%

Kawasaki 2% 2% 2% 2% 1% 2% 1% 2% 4% 1% 2% 9%

Others 2% 2% 3% 2% 3% 2% 2% 4% 2% 3% 2% 0%

* Income is on monthly basis: Low <Rp1.5mn; Mid Rp1.5-7.5mn, High >Rp7.5mn Source: Credit Suisse Indonesia Consumer Survey 2017

27 March 2017


Food and beverages

Key stocks

Indofood CBP

■ Indomie, Sarimi, Supermie and PopMie are the main brands that are favoured by

consumers, and continue to help support the company’s free cash flow—as noodles

continue to be defensive staples for Indonesians. Indomilk is gaining popularity in the

dairy segment, as does Club in bottled water, while Pepsi maintains its favoured status

in carbonated drinks.

Unilever Indonesia

■ The brand Blue Band continues to be the leader in margarine. The F&R (Food and

Refreshment) division is a smaller portion for the company than the HPC (Home and

Personal Care) one, but it offers more upside potential given the growing wealth of

consumers.

HM Sampoerna

■ The largest cigarette producer in Indonesia is facing the challenge of lower

consumption, given higher prices and changes in lifestyle. Its brands continue to

appeal more to the younger generation, and those in urban areas (in Java) and within

middle- and higher-income segments.

Gudang Garam

■ The second-largest cigarette producer in Indonesia is facing the challenge of lower

consumption, given higher prices and changes in lifestyle. Its brands appeal to people

living in rural areas, outside Java, the middle-aged generation, and the higher-income

segment. Gudang Garam Surya came out to be most favoured brand in our survey.

Unrivalled noodles consumption

Consumption of instant noodles continues to remain high at 94%, with the urge to

consume more also remaining high at 64% of total respondents. This is the highest among

the other staples that we surveyed (carbonated drinks, bottled water, dairy products, and

cigarettes), and higher than a year ago of 58% of total respondents that wanted more

noodles.

The popularity of noodles remains across the board, even though in urban areas it is

getting more popular than in rural. We believe this might be due to the launch of premium

noodle brands (Real Meat by Indofood and Bakmi Mewah by Mayora Group), which are

targeting a niche market. Noodles are popular across all generations, even though the

younger generation tends to consume more than the older. While it is consumed broadly

across all income segments, there is a shift towards lower consumption by the middle- and

higher-income segments, although their level of consumption remains high.

We still believe that for Indonesians noodles are basic staples, such as rice, as they are

filling and the most affordable source of carbohydrates; the lower-income segment is seen

to be more defensive with the consumption trend.

Consumption of carbonated drinks declined to 61% of total respondents, from 66% in the

previous year. This is at a similar level to seven years ago, when we started our consumer

survey. Those that would likely want to consume more is somewhat maintained, at 58%.

The popularity of carbonated drinks remains in urban areas and in Java, mostly by the

younger generation, and among the middle and higher-income segment.

Instant noodles

Carbonated drinks

Bottled water

27 March 2017


Bottled water, seen both as convenient and healthier (than carbonated drinks), continues

be popular with 88% of the respondents, rising from 82% when we first did the survey

seven years ago. Popularity remains in urban areas, across all generations, but mostly

towards the younger generation and across all income segments, even though we saw

higher consumption for the higher-income segment.

To our surprise, consumption of dairy products (includes sweet condensed milk, liquid

milk, margarine, and cheese) fell to 70% of respondents, from 76% a year ago, and 78%

in 2010. Consumers seem to prefer bottled water to dairy products. Interestingly, the

decline in the consumption of dairy products is mostly in urban areas and in Java, while

outside Java, consumption of dairy products increased to 71% of total respondents, from

63% in the previous year. The highest consumption of dairy products remains with the

younger generation and the middle-income segment, while we observe the most decline in


According to our survey, cigarette consumption in Indonesia declined to 51% of total

respondents, from 57% in the previous year, and 64% in 2010. This is in line with the

industry volume as reported by Philip Morris International—that volume was down 1% to

316 bn sticks in FY16.

The decline in cigarette consumption, according to our survey, was mostly in Java (from

58% of respondents in 2015, to 50% in 2016), while the outside Java region was stable.

Those in rural areas saw the most decline (-7%) as compared to those in urban (-5%),

which leads us to believe that the decline in consumption is due to: (1) affordability—as

cigarette prices continue to rise and are getting more expensive, which is why the low

income segment saw a 4% decline, (2) shift towards healthier lifestyle—we saw a 6%

decline for the middle- and higher-income segment, and a decline in the younger

generation as well.

Figure 66: Consumption of food and beverages—by area

% of respondents

2016 2015 2010

Total Urban Rural Java Ex-Java Total Urban Rural Java Ex-Java Total Urban Rural Java Ex-Java

Instant noodles

-in the past 3 months 94% 95% 92% 95% 91% 95% 94% 97% 97% 91% 96% 97% 95% 98% 93%

-more in the next 12 months 64% 62% 69% 68% 55% 58% 58% 57% 64% 43% 63% 65% 59% 62% 63%

Carbonated drinks



Bottled water



Dairy products



Cigarettes




Dairy products

Cigarettes

27 March 2017


Figure 67: Consumption of food and beverages—by age and income

2016 2015 2010

% of respondents

Age Income Age Income Age Income

18-29 30-45 46-55 56-65 Low Mid High 18-29 30-45 46-55 56-65 Low Mid High 18-29 30-45 46-55 56-65 Low Mid High

Instant Noodles

-in the past 3 months 96% 95% 90% 85% 93% 94% 84% 96% 97% 91% 89% 93% 96% 99% 96% 97% 95% 92% 95% 97% 100%

-more in the next 12 months 65% 66% 60% 58% 66% 64% 60% 58% 58% 57% 57% 57% 56% 76% 62% 63% 61% 62% 62% 64% 60%

Carbonated drinks



Bottled water



Dairy products



Cigarettes




Brand preference

In terms of preference for brands in staples, the survey shows respondents remain

relatively indifferent since we started our survey seven years ago. Preference towards

domestic brands in the staples sector in Indonesia continues to remain high, if not rising,

except for carbonated drinks where the sector is dominated by multinational companies.

Nevertheless, multinational companies do own domestic brands through acquisitions, such

as cigarettes Dji Sam Soe and A-Mild by HM Sampoerna (owned by Philip Morris

International), and bottled water Aqua by Danone.

Figure 68: Indonesians prefer domestic brands, except for carbonated drinks…

Question: Which brands of goods have you purchased in the last three months? Source: Credit Suisse Indonesia Consumer Survey 2017

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Instant noodles Cigarettes Dairy product Bottled water Carbonated drinks

2010 2011 2012 2013 2014 2015 2016

27 March 2017


Figure 69: …this is more or less true for all income segments

Question: Which brands of goods have you purchased in the last three months? * Income is on monthly basis: Low <Rp1.5 mn; Mid Rp1.5-7.5 mn, High >Rp7.5 mn Source: Credit Suisse Indonesia Consumer Survey 2017

At the same time, Indonesians prefer brands that are well recognised. The highest

preference for non-major brands is among carbonated drinks, whose popularity is the

lowest compared to other staples (instant noodles, dairy products, and bottled water).

Non-major cigarette brands are also popular, given that the major brands are pricier.

We classify non-major brands as those outside of the big four cigarette producers (HM

Sampoerna, Gudang Garam, Djarum, and BAT Indonesia). Meanwhile, in bottled water,

fewer respondents prefer non-major brands, but we believe that this might be skewed,

given that the brand "Aqua" (by Danone) is identical to bottled water.

Figure 70: Indonesians' preference for non-major brands


Instant noodles

Consumption of instant noodles continues to remain high at 94%, with the urge to consume

more also remaining high at 64% of total respondents. This is the highest among the other

staples that we surveyed (carbonated drinks, bottle water, dairy products, and cigarettes),

and higher than a year ago of 58% of total respondents who wanted more noodles.

99% 99% 100%97% 97% 97%

88%

92%

75%

79%

64%

57%

8%11%

0%

97%99% 99%

97% 98%100%

86%

89%

93%

83%

76%73%

3% 4%

8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Low Mid High Low Mid High Low Mid High Low Mid High Low Mid High

Instant noodles Bottled water Cigarettes Dairy product Carbonated drinks

2010 2011 2012 2013 2014 2015 2016

0%

5%

10%

15%

20%

25%

30%

Bottled water Carbonated drinks Cigarettes Dairy products Instant noodles

2010 2011 2012 2013 2014 2015 2016

27 March 2017


Popularity of noodles remains across the board, even though in urban areas they are

getting more popular than in the rural. We believe this might be due to the launch of

premium noodle brands (Real Meat by Indofood and Bakmi Mewah by Mayora Group),

which target a niche market. Noodles are popular across all generations, even though the

younger generation tends to consume more than the older. While it is broadly consumed

across all income segments, there is a shift to lower consumption from the middle and

higher-income segments, although their level of consumption remains high.

For Indonesian,s we continue to believe that noodles are basic staples, such as rice, as

they are filling and the most affordable source of carbohydrates—the lower income

segment is seen to be more defensive with the consumption trend.

Figure 71: Consumption of instant noodles—by area

% of respondents

2016 2015 2010





Figure 72: Consumption of instant noodles—by age and income

% of respondents

2016 2015 2010






Popularity of the No. 1 instant noodle brand, “Indomie”—manufactured by Indofood CBP,

while the brand is owned by parent company, Indofood Sukses—continued to rise, to 40%

of total respondents, from 37% in the previous year. Its popularity remains across the

board. In the urban area Indomie's popularity is growing, as well as outside the Java

region. Its popularity has risen the most among the older generation and lower- and

middle-income segments. We think that the variety of products that the company

continuously launched has helped make consumers sticky with the brands. In addition to

Indomie, Indofood Sukses also owns brands like Supermie, Sarimi, and Pop Mie, which

were liked by a combined 64% of our total respondents, up from 62% in the previous year.

Indomie is the most popular instant noodle

brand

27 March 2017


Figure 73: Indofood's recently launched noodle products

Date Product

17-Oct-16 Supermi Chicken Opor

16-May-16 Indomie Bite Mie -three flavours: pizza barbeque, seaweed, tempura

16-May-16 Indomie Real Meat -two flavours: chicken mushroom, beef rendang

1-Feb-16 Indomie soupy flavor with no soup -two flavours: ayam bawang (garlic chicken broth),

soto

15-Oct-15 Indomie My Noodlez -first instant noodles made for children

-three flavours: salmon teriyaki, seaweed, pizza

cheese

18-Jun-15 Pop Mie Curry -two flavours: milk curry, cheese curry

18-Feb-15 Supermi Rasa Sop Buntut (oxtail soup flavor)

Sarimi Mie Goreng Rasa Pecel (with crunchy peanut sauce)

Sarimi Mie Goreng Rasa Sate Ayam (chiken satay)

17-Sep-14 Indomie Kuliner Indonesia series -Indomie Goreng Dendeng Balado

-Indomie Soto Lamongan

6-Feb-14 Sarimi Isi 2 Rasa Ayam Bawang (garlic chicken broth)

Sarimi Isi 2 Rasa Baso Sapi (beef meatballs)

16-Jan-14 Indomie Iga Penyet

14-Nov-13 Indomie Taste of Asia series - Indomie Tom Yum (Thailand style)

-Indomie Bulgogi (Korean style)

-Indomie Laksa (Singapore style)

13-Oct-13 Supermi Rasa Semur Ayam

8-Jun-13 New Pop Mie - relaunch

7-Jun-13 Sarimi Isi 2 Goreng Rasa Ayam Kremes

Sarimi Rasa Soto Koya Jeruk Nipis

6-Jun-13 Indomie Goreng Cabe Ijo

1-Jun-13 Indomie Goreng Rendang

Source: Indofood CBP website

The brand “Mie Sedap”, owned by the unlisted Wings Group, maintained its second

position, with 28% of total respondents, up from 26% in the previous year. The brand is

liked mostly in rural areas and outside Java, across all age groups—particularly it is more

popular with the younger generation, but mostly among lower- and middle-income

segments. This is the difference between Mie Sedap and Indomie. Indomie is mostly liked

in urban areas and in Java, across all age groups, but it is mostly popular among the older

generation, and across all income levels, but mostly among the middle- and higher-income

segments.

The rise in popularity of both Indomie and Mie Sedap comes at the expense of smaller

brands. Each Sarimi and Supermie are liked by 9% of our total respondents, down from

10% in the previous year, while other small brands combined only account for 8% of the

total respondents, down from 12% last year.

The exception is Pop Mie, a cup noodle brand saw an increase to 6% of total respondents,

from 5% in the previous year, and has doubled from 3% in 2010, when we first did the

survey. Pop Mie is liked by those living in urban areas, in Java, among the younger

generation (due to convenience), and the higher income segment (due to higher pricing as

compared to the packed noodle). This can be a good indication that consumers are getting

wealthier, and thus seeking convenience.

Mie Sedap remains the second preferred brand

Smaller brands have become less preferred

Popularity of cup noodle rising

27 March 2017


Figure 74: Indomie, followed by Mie Sedap, remains as the most popular brand in instant noodle

% of respondents



2016

Indomie 40% 43% 36% 42% 36% 40% 39% 41% 47% 38% 41% 42%

Mie Sedap 28% 25% 34% 26% 33% 28% 29% 28% 26% 29% 28% 18%

Sarimi 9% 8% 12% 9% 10% 8% 10% 8% 9% 11% 8% 12%

Supermi 9% 9% 9% 9% 9% 9% 9% 9% 9% 8% 9% 12%

Popmie 6% 7% 3% 7% 2% 7% 6% 4% 2% 4% 6% 12%

Others 8% 9% 6% 7% 9% 8% 7% 10% 7% 10% 7% 3%

2015

Indomie 37% 39% 33% 40% 30% 37% 37% 36% 38% 35% 38% 41%

Mie Sedap 26% 24% 31% 25% 30% 26% 27% 27% 26% 29% 26% 18%

Sarimi 10% 10% 11% 10% 11% 9% 11% 9% 11% 10% 9% 16%

Supermi 10% 10% 10% 10% 10% 9% 10% 10% 10% 12% 9% 8%

Popmie 5% 6% 3% 5% 3% 5% 5% 5% 2% 3% 6% 6%

Others 12% 12% 12% 10% 15% 12% 11% 13% 13% 12% 12% 11%

2010

Indomie 37% 40% 31% 41% 30% 38% 36% 39% 37% 36% 39% 39%

Mie Sedap 29% 26% 35% 28% 31% 30% 28% 29% 36% 32% 27% 24%

Sarimi 7% 5% 10% 8% 5% 6% 8% 7% 7% 8% 6% 4%

Supermi 12% 11% 13% 11% 13% 11% 12% 12% 11% 12% 12% 6%

Popmie 3% 4% 1% 4% 2% 4% 3% 2% 1% 2% 5% 6%

Others 12% 13% 9% 8% 19% 12% 12% 11% 8% 11% 12% 20%


Carbonated drinks

Consumption of carbonated drinks declined to 61% of total respondents, from 66% in the

previous year. This is at the similar level seven years ago, when we first did the survey.

Those that would likely want to consume more is somewhat maintained, at 58%. The

popularity of carbonated drinks remains in the urban area and in Java, mostly by the

younger generation, and among the middle- and higher-income segments.

Figure 75: Consumption of carbonated drinks—by area

% of respondents

2016 2015 2010





Figure 76: Consumption of carbonated drinks—by age and income

% of respondents

2016 2015 2010






The popularity of products from Coca-Cola Amatil remains, with a combined 76% of the

total respondents consuming Coca-Cola, Sprite, and Fanta, as compared to 70% in the

previous year. However, this is still below the 83% it had in 2010 when we first did the

survey. Coca-Cola has seen a slight increase in preference at 28%, well liked in both

urban and rural areas, mostly in Java, for most of the lower-income segment.

27 March 2017


Sprite and Fanta were liked by 24% of the total respondents, each—up from 22% and

21%, respectively, in the previous year. Sprite is liked in rural areas, outside Java, mostly

among the lower- and middle-income segment. Fanta, on the other hand, is liked mostly

by the higher-income segment, and is popular in urban areas and in Java.

Interestingly, Big Cola (manufactured by Spain-based AjeGroup) continues to see

popularity decline—to 12% from 16% in the previous year, from its peak of 20% in 2014.

While its popularity came from being cheaper than Coca-Cola in a larger volume, this

might not have sustained, when Coca-Cola started offering promotions as well.

Pepsi Cola, on the other hand, remains at 4% in popularity. It continues to be the fifth

ranked, and it is manufactured by PT Pepsi-Cola Indobeverages, a joint-venture between

Indofood CBP and Japan-based Asahi Group Holdings.

Figure 77: Coca-Cola continues to dominate in carbonated drinks

% of respondents



2016

Coca-Cola 28% 28% 28% 29% 26% 29% 24% 7% 2% 30% 28% 28%

Sprite 24% 22% 32% 23% 29% 23% 21% 6% 2% 25% 24% 21%

Fanta 24% 25% 21% 25% 22% 24% 21% 5% 2% 23% 25% 27%

Big Cola 12% 12% 13% 11% 14% 12% 10% 3% 1% 15% 11% 8%

Pepsi Cola 4% 5% 2% 4% 3% 5% 3% 1% 0% 2% 4% 3%

Others 8% 9% 5% 8% 6% 7% 22% 78% 93% 5% 8% 13%

2015

Coca-Cola 27% 28% 26% 28% 24% 28% 25% 8% 2% 27% 28% 23%

Sprite 22% 21% 26% 22% 23% 22% 21% 6% 3% 24% 22% 20%

Fanta 21% 21% 21% 20% 23% 21% 20% 6% 3% 17% 23% 23%

Big Cola 16% 15% 18% 14% 19% 15% 15% 5% 1% 22% 13% 14%

Pepsi Cola 4% 4% 2% 4% 4% 4% 4% 1% 0% 2% 4% 6%

Others 10% 11% 8% 11% 8% 9% 15% 75% 91% 9% 10% 15%

2010

Coca-Cola 30% 31% 27% 29% 34% 23% 23% 6% 2% 29% 31% 41%

Sprite 22% 21% 25% 22% 23% 16% 18% 4% 1% 23% 21% 21%

Fanta 31% 30% 34% 31% 30% 25% 23% 5% 2% 33% 28% 35%

Big Cola 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Pepsi Cola 4% 5% 2% 4% 3% 4% 2% 0% 0% 4% 5% 0%

Others 13% 13% 12% 15% 9% 32% 33% 85% 94% 12% 15% 3%


Bottled water

Bottled water, seen both as a convenience and healthier (than carbonated drinks),

continues to remain popular with 88% of the respondents, rising from 82% when we first

did the survey seven years ago. Popularity remains in urban areas, across all generations,

but mostly among the younger generation and across all income segments, although we

saw higher consumption for the higher-income segment.

Figure 78: Consumption of bottled water—by area

% of respondents

2016 2015 2010





27 March 2017


Figure 79: Consumption of bottled water—by age and income segment

% of respondents

2016 2015 2010






The brand “Aqua” is also identical with bottled water in general. As such, it is not a

surprise that the brand remains the most popular in our survey, with 53% of the

respondents, up from 50% in the previous year, even though it is still lower than 2010's

56%. We believe that over the past seven years, more brands have been introduced in the

market, such as Pure Life (by Nestlé), Le Minérale (by unlisted Mayora Group), and the

recently launched Mandalika Eco Water (a joint venture of PT Wijaya Karya), among

others. Aqua is known across the nation and consumed by all income segments; however,

it is the most preferred by the older generation, which we believe is due to the familiarity of

the name itself.

The second preferred brand, Club, is manufactured by a joint-venture between Indofood

CBP and Japan-based Asahi Group Holdings. The brand has consistently gained

popularity after it was acquired. In 2010, only 10% of our respondents favoured the brand,

and it improved to 13% in 2015 and to 15% in 2016. We think that the strong distribution

that it has (through sister company, Indomarco, under Indofood Sukses) has helped widen

the penetration of Club nationwide. Our survey indicated that Club is popular mostly

outside the Java region, and mostly among the younger generation, and for the lower- and

middle-income segments.

Interestingly, VIT (by unlisted PT Tirta Investama) is the No. 3 preferred brand for bottled

water. It is liked by 14% of the total respondents, up from 12% in the previous year. VIT is

preferred in urban areas and in Java, across all generations, among the higher-income

segment.

27 March 2017


Figure 80: Club increase in popularity in the bottled water, although Aqua remains the most popular

% of respondents



2016

Aqua 53% 50% 61% 50% 66% 54% 51% 54% 62% 53% 53% 52%

Club 15% 15% 14% 13% 21% 15% 15% 14% 12% 15% 15% 13%

Vit 14% 15% 11% 16% 6% 13% 14% 15% 14% 14% 14% 20%

2 Tang 4% 4% 4% 5% 2% 4% 4% 4% 3% 5% 3% 4%

Ron 88 3% 3% 3% 4% 0% 3% 4% 3% 2% 4% 3% 1%

Others 11% 12% 7% 12% 5% 10% 13% 10% 7% 9% 11% 10%

2015

Aqua 50% 51% 48% 46% 66% 50% 52% 46% 51% 47% 51% 62%

Club 13% 14% 12% 13% 14% 14% 12% 14% 14% 12% 14% 10%

Vit 12% 12% 12% 13% 10% 13% 11% 13% 13% 13% 12% 12%

2 Tang 5% 4% 5% 5% 2% 4% 5% 5% 5% 5% 4% 5%

Ron 88 4% 4% 3% 5% 0% 4% 4% 3% 3% 6% 3% 0%

Others 16% 14% 20% 18% 8% 15% 16% 18% 13% 17% 16% 12%

2010

Aqua 56% 56% 55% 52% 67% 56% 56% 57% 54% 58% 54% 58%

Club 10% 10% 11% 9% 14% 10% 10% 12% 13% 9% 10% 19%

Vit 10% 10% 10% 12% 5% 9% 11% 11% 11% 9% 11% 3%

2 Tang 7% 6% 9% 9% 3% 7% 8% 5% 7% 7% 7% 6%

Ron 88 4% 4% 3% 5% 0% 4% 3% 4% 5% 5% 3% 0%

Others 13% 13% 12% 14% 11% 14% 13% 11% 11% 11% 14% 13%


Dairy products

To our surprise, consumption of dairy products (includes sweet condensed milk, liquid

milk, margarine, and cheese) fell to 70% of respondents, from 76% a year ago, and 78%

in 2010. Consumers seem to prefer bottled water than dairy products. Interestingly, the

decline in dairy products is mostly in urban areas and in Java, while outside Java,

consumption of dairy products rose to 71% of total respondents, from 63% in the previous

year. The highest consumption of dairy products remains with the younger generation and

the middle-income segment, while we see the most decline for the high-income segment.

Figure 81: Consumption of dairy products—by area

% of respondents

2016 2015 2010





Figure 82: Consumption of dairy products—by age and income

% of respondents

2016 2015 2010

Age Income* Age Income* Age Income*





Frisian Flag, or better known locally as “Susu Bendera” (by unlisted PT Frisian Flag

Indonesia) and Indomilk (by PT Indolakto, a susbsidiary of Indofood CBP) continue to be

head-to-head as being the most favoured brands within the dairy product segment. Frisian

27 March 2017


Flag is favoured by 24% of the total respondents, up from 23% in 2016. We believe that

respondents are mostly referring to its sweet condensed milk product, which is preferred

by the low-income segment, across all ages. It remains popular in rural areas and outside

Java.

Indomilk is the second most favoured brand within the dairy product, with 22% of the total

respondents, up slightly from 21% in 2015. In addition to sweet condensed milk, Indolakto

also manufactures liquid milk and ice cream. The product is more popular in Java rather

than outside Java, in rural areas, across all ages and mostly among the lower-income

segment.

The third most favoured brand is Susu Ultra (by PT Ultrajaya), which is still liked by 15% of

the respondents. It is favoured in urban areas, in Java, across all ages, particularly among

the younger generation, and across all income segments, particularly the middle income.

Nestlé is ranked the fourth favoured brand with 9% respondents, up slightly from 8% in the

previous year. It is liked in the urban area, outside Java, among the younger generation,

and within the middle- and high-income segments.

As the survey also includes margarine, Blue Band is the most popular brand in the

category. It is owned by Unilever, and favoured by 7% of the total respondents, the

middle-income segment, across all ages, and in Java.

Figure 83: Susu Bendera remains the most favoured product in the dairy products category

% of respondents



2016

Frisian Flag 24% 22% 32% 21% 36% 24% 24% 28% 24% 33% 22% 19%

Indomilk 22% 21% 24% 23% 18% 22% 22% 20% 24% 25% 20% 20%

Milk Ultra 15% 16% 12% 17% 8% 16% 15% 15% 12% 13% 16% 14%

Nestlé 9% 10% 7% 9% 12% 10% 9% 8% 7% 8% 10% 13%

Blue Band 7% 7% 6% 7% 4% 6% 6% 9% 8% 4% 8% 6%

Others 23% 24% 19% 23% 22% 22% 23% 20% 26% 17% 24% 27%

2015

Frisian Flag 23% 21% 29% 20% 30% 22% 24% 24% 22% 22% 23% 27%

Indomilk 21% 19% 28% 25% 12% 22% 20% 23% 26% 23% 22% 15%

Milk Ultra 15% 16% 13% 17% 11% 17% 16% 13% 7% 15% 15% 14%

Nestlé 8% 8% 7% 7% 10% 9% 8% 7% 5% 7% 8% 9%

Blue Band 7% 8% 3% 7% 7% 7% 7% 8% 10% 6% 7% 8%

Others 25% 27% 20% 23% 30% 24% 26% 24% 30% 26% 25% 27%

2010**

Frisian Flag 34% 31% 44% 31% 42% 33% 34% 40% 38% 42% 30% 19%

Indomilk 19% 17% 24% 21% 13% 19% 18% 20% 21% 21% 17% 13%

Milk Ultra 12% 13% 9% 11% 12% 13% 12% 9% 8% 10% 12% 19%

Nestlé 10% 11% 7% 11% 9% 11% 10% 9% 9% 8% 12% 13%

Blue Band 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Others 25% 28% 17% 25% 24% 24% 26% 22% 25% 19% 29% 37%

* Income is on monthly basis: Low <Rp1.5mn; Mid Rp1.5-7.5mn, High >Rp7.5mn ** Margarine was not surveyed in 2010 Source: Credit Suisse Indonesia Consumer Survey 2017

Cigarettes

According to our survey, cigarette consumption in Indonesia declined to 51% of the total

respondents surveyed, from 57% in the previous year, and 64% in 2010. This is in line

with the industry volume as reported by Philip Morris International that volume was down

1% to 316 bn sticks in FY16.

27 March 2017


The decline in cigarette consumption, according to our survey, is mostly in Java (from 58%

of respondents in 2015, to 50% in 2016), while outside Java it is stable. Those in rural

areas saw the most decline (-7%) as compared to those in urban (-5%), which leads us to

believe that the decline in consumption is due to: (1) affordability, as cigarette prices

continue to rise and are getting more expensive, which is why the low-income segment

saw a 4% decline, (2) shift towards a healthier lifestyle—a 6% decline for the middle- and

higher-income segments, and a decline among the younger generation as well.

Figure 84: Consumption of cigarettes—by area

% of respondents

2016 2015 2010





Figure 85: Consumption of cigarettes—by age and income level

% of respondents

2016 2015 2010






For the first time, cigarette volumes in Indonesia declined in 2016, even though between

2010 and 2016, volumes still saw less than 4% CAGR. We believe that this is due to a

combination of: (1) weaker purchasing power, (2) cigarette prices getting more expensive

due to continuous hike in excise duty as well as GoI's guidance on the minimum retail

price (MRP), and (3) changes in consumer lifestyle towards a healthier life.

Figure 86: Indonesia's cigarette volumes

Source: Phillip Morris International Estimates, based on the market share data from Nielsen Retail Audit, internal sales data, other estimates, and publicly reported data by industry players

Indonesia’s cigarette market is unique as it is mostly kretek (clove) cigarettes. And clove is

mostly grown in Indonesia, and Indonesia is the biggest user of clove in the world. Kretek

cigarettes are made with a blend of tobacco, clove, and other flavours (sauces). An

estimated 94% of cigarettes sold in Indonesia are kretek, while the remaining 6% are white

cigarettes (or SPM=Sigaret Putih Mesin) that are mostly dominated by the multinational

companies such as Philip Morris International and British American Tobacco.

217

229

238

247251

255

280

302308

314320

316

-2%

0%

2%

4%

6%

8%

10%

12%

200

220

240

260

280

300

320

340

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Volume Yoy growth (RHS)

CAGR FY10 - FY16: 3.6%

27 March 2017


There are two types of kretek cigarettes, based on how they are made. One is hand-rolled

(SKT=Sigaret Kretek Tangan), and the other is machine-made (SKM=Sigaret Kretek

Mesin). The notable difference between the two is that SKM has filter, and SKT does not;

therefore, SKT is stronger in flavour and has higher tar and nicotine content. There are two

types of SKM: (1) SKM FF (full-flavoured), and (2) SKM LTLN (low-tar, low-nicotine); SKM

LTLN has a milder taste—thus a lower tar and nicotine content than SKM FF.

SKT accounts for around 18% of total cigarettes sold in Indonesia, whereas SKM FF

around 33%, and SKM LTLN accounts for around 43% in 2016, according to Philip Morris

International estimates.

As SKT is more labour-intensive, GoI ruled that the tax is cheaper at Rp345/stick for tier 1

(large producers, producing more than 2 bn sticks annually), compared to SKM which is

taxed at Rp530/stick for tier 1 (producing more than 3 bn sticks annually) or SPM at

Rp555/stick. In addition, the GoI also charges an additional 10% regional tax on excise

duty and 9.1% VAT (calculated based on banderole prices). GoI also regulates the

minimum retail prices (MRP) whereas for tier 1 in the SKT category, the minimum is at

Rp1,215/stick, Rp1,120/stick for SPM and Rp1,030 for SKT.

Most of the cigarettes sold in Indonesia fell into the tier 1 category; thus, this is in line with

our survey that the same brands continue to dominate the sector.

Figure 87: Indonesia excise tax regulation*

Type Tier Annual output (sticks) MRP (Rp/stick) Tax/stick (Rp)

Old New Price Old New Chg Old New Chg

SKM I > 2 bn >3 bn Above Rp1,120 1,000 1,120 12.0% 480 530 10.4%

(machine-made, kretek cigarettes) II < 2 bn <3 bn Above Rp820 740 820 10.8% 340 365 7.4%

Below Rp655, max at Rp820 590-740 655-820 10.8%-11.0% 300 335 11.7%

SPM I > 2 bn >3 bn Below at Rp1,030 930 1,030 10.8% 495 555 12.1%

(machine-made, white cigarettes) II < 2 bn <3 bn Above Rp900 800 900 12.5% 305 330 8.2%

Below Rp900, max at Rp585 505-800 585-900 12.5%-15.8% 255 290 13.7%

I > 2 bn >2 bn Above Rp1,215 1,115 1,215 9.0% 320 345 7.8%

Below Rp1,215, min at Rp860 775-1,115 860-1,215 9.0%-11.0% 245 265 8.2%

SKT II 350 mn - 2 bn 500 mn - 2 bn Above Rp730 605 730 20.7% 155 165 6.5%

(hand-rolled, kretek cigarettes) Rp470-Rp730 430-605 470-730 9.3%-20.7% 140 155 10.7%

IIIA 50 mn - 350 mn 10 mn - 500 mn Min price at Rp465 400 465 16.3% 90 100 11.1%

IIIB < 50 mn <10 mn Min price at Rp400 370 400 8.1% 80 80 0.0%

* Based on Ministry of Finance Decree No. 147/PMK.010/2016, signed on 30 September 2016 and effective starting 1 January 2017 Source: Ministry of Finance

27 March 2017


Figure 88: Most cigarettes fall under the tier 1 category

Source: Nielsen Retail Audit Results. Philip Morris International estimates

The excise tariff regulation is commonly revised once a year, even though it does not

mean that the GoI cannot revise it during the course of the year. Excise tax revenue

accounts for around 10% of the total tax revenue, whereas GoI is targeting Rp157 tn in

2017, or a 7% increase YoY. The majority of the excise tax revenue (98%) is derived from

selling cigarettes, while alcoholic drinks account for the remaining 2% of the total.

Figure 89: Indonesia excise tax revenue

Figure 90: Excise tax contributes around 10% to total

tax revenue

* Number is adjusted for one-off items Source: Ministry of Finance

* Number is adjusted for one-off items Source: Ministry of Finance

Favouring machine-made full-flavoured (SKM FF)

According to our survey, SKM FF continues to be the most popular type of cigarette, which

is being favoured by 42% of the respondents, up from 35% in the previous year. SKM

LTLN and SKT, on the other hand, are slightly lower at 30% and 17%, respectively.

Surprisingly, SKM FF gained much in rural areas, where it is favoured by 48% of our

respondents, up from 35% in the previous year, while SKM LTLN and SKT are each

favoured by 19% of the respondents, down from 24% and 21%, in the previous year

survey, respectively.

149

7 15 13

1 2

11

2 4 1

27

150

7

16 12

1 2

10

2 3 1

24

-

20

40

60

80

100

120

140

160

Tier I Tier II Unranked Tier I Tier II Unranked Tier I Tier II Tier IIIA Tier IIIB Unranked

SKM SPM SKT

billi

on s

ticks

9M15 9M16

-5%

0%

5%

10%

15%

20%

25%

30%

35%

0

20

40

60

80

100

120

140

160

180

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

E

2015

*

Excise Tax (Rptn) YoY Chg (RHS)

9.4%

11.0%

10.9%

10.4%

9.6%

9.2%9.1%

7.8%

9.1%9.1%

8.8%

9.7%

10.1%

10.3%

11.7%

9.3%

10.5%

10.2%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

E

2015

*

SKM FF favoured most in the rural areas…

27 March 2017


Interestingly, in the previous year, SKM FF was favoured by the older generation (56-65

years old); however, in 2016, this shifted to those in the age group of 30-55 years. It is still

mostly popular in Java with 45% of the respondents liking it, up from 38% in the previous

year, even though preference outside Java has also increased to 35%, from 28% in the

previous year.

If we compared to 2010, when we first did the survey, the largest gainer is SKM LTLN—it

was favoured by only 22% of the respondents then and increased to 30% in 2016,

followed by SKM FF, from 39% to 42%. The preference remains—SKM LTLN is preferred

by those living in urban areas, outside Java, as well as among the younger generation and


SKT, on the other hand, it the least favoured kretek cigarette; it was initially favoured by

28% of the respondents in 2010, and that plummeted to 17% in 2016. The shift in

preference, we believe is due to the taste preference, as SKT has the highest tar and

nicotine among kretek cigarettes. As such, it is no surprise that SKT is still preferred by the

older generation, in rural areas and outside Java, mostly among the lower- and middle-

income segments.

Figure 91: Cigarette consumption—by cigarette type

% of respondents



2016

SKM FF 42% 38% 48% 45% 35% 36% 47% 45% 34% 45% 40% 41%

SKM LTLN 30% 35% 19% 28% 34% 43% 26% 17% 9% 22% 32% 41%

SKT 17% 16% 19% 21% 10% 9% 14% 31% 47% 18% 18% 10%

White 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Others 11% 10% 14% 7% 21% 11% 13% 8% 10% 14% 11% 7%

2015

SKM FF 35% 35% 35% 38% 28% 33% 36% 34% 42% 35% 36% 28%

SKM LTLN 31% 35% 24% 27% 42% 42% 29% 18% 5% 27% 33% 24%

SKT 18% 17% 21% 23% 7% 10% 19% 33% 34% 20% 17% 26%

White 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Others 16% 13% 20% 12% 24% 15% 16% 16% 19% 18% 14% 22%

2010

SKM FF 39% 38% 41% 40% 33% 37% 40% 41% 29% 40% 37% 25%

SKM LTLN 22% 26% 14% 17% 36% 34% 17% 7% 10% 20% 25% 33%

SKT 28% 27% 29% 33% 15% 20% 31% 34% 44% 27% 29% 17%

White 4% 5% 2% 4% 3% 4% 4% 5% 0% 3% 5% 17%

Others 7% 4% 14% 5% 13% 5% 7% 13% 17% 10% 4% 8%


Leading brands continue to dominate

Gudang Garam Surya (SKM FF) was the most favoured brand, according to our survey, in

2016. It is favoured by 21% of our respondents, up from 15% in the previous year, and it

was up from being the second ranked in 2015. Sampoerna A-Mild (SKM LTLN) is now the

second ranked, with 20% of the respondents, even though it was also up from 18% in the

previous survey. Djarum Super (SKM FF) was up slightly to 11%, from 10% in the

previous survey, while Sampoerna’s Dji Sam Soe (SKT) remains at 10% of the

respondents.

Compared to 2010, when we first did the survey, while the brands remain similar, the

preference has changed. In 2010, Dji Sam Soe was the most favoured (17% of the

respondents), followed by Djarum Super (15%), Sampoerna A-Mild (14%), and Gudang

Garam Surya and Gudang Garam FIM (12% each).

…among the middle aged population

Largest gainer since 2010 is SKM LTLN

The loser is SKT

The list of leading brands remains similar

But the ranking has changed

27 March 2017


Compared to the previous year’s survey, those in urban areas continue to prefer

Sampoerna A-Mild the most with 24% of the respondents liking it, up from 19%. This is

followed by Gudang Garam Surya (18%), Dji Sam Soe (12%), Djarum Super (11%), and

Gudang Garam FIM (9%). In 2010, however, those in urban areas preferred Dji Sam Soe

(20%), Sampoerna A-Mild (16%), Djarum Super (14%), Gudang Garam FIM (12%) and

Gudang Garam Surya (10%).

Meanwhile, those in rural areas prefer Gudang Garam Surya the most, with 27% of the

respondents, up from 13% in the previous year. This is followed by Sampoerna A-Mild (13%

of respondents), Djarum Super (11%), Gudang Garam FIM (10%). The preference in rural

areas differs from the previous year, whereby Sampoerna A-Mild was preferred then,

followed by Djarum Super and Gudang Garam Surya with 13% respondents each, and

Gudang Garam Filter and Dji Sam Soe with 9% respondents each. Compared to 2010,

those in rural areas prefer either Gudang Garam Surya or Djarum Super, with 15%

respondents each, followed by Dji Sam Soe (11%), Gudang Garam FIM (10%), Sampoerna

A-Hijau (8%), while Sampoerna A-Mild is only favoured by 7% of the respondents.

The preference among brands in Java is more balanced than that outside Java. The gap

between the two top brands and the rest is wide. Outside Java, Gudang Garam Surya is

the most favoured brand, with 32% of the respondents, up from 25% in the previous

survey, followed by Sampoerna A-Mild, with 24% of the respondents. The next favoured

brands are Dji Sam Soe and Clas Mild, each favoured by 8% of the respondents.

Meanwhile in Java, Sampoerna A-Mild is the most favoured brand, with 19% of the

respondents, followed by Gudang Garam Surya and Djarum Super, with 16% each.

Gudang Garam Filter is the fourth favoured brand with 12% of the respondents, and Dji

Sam Soe is next with 11%.

Compared to 2010, Gudang Garam Surya was the leading brand outside Java, with 24% of

the respondents, followed by Sampoerna A-Mild (18%), Dji Sam Soe (14%), Clas Mild (12%),

and Gudang Garam FIM (8%). While in Java, Djarum Super was the most favoured brand,

with 20% of the respondents, followed by Dji Sam Soe (18%), Gudang Garam FIM (13%),

Sampoerna A-Mild (12%), Gudang Garam Surya (7%), and Sampoerna A-Hijau (6%).

The younger generation (between 18 and 29 years) continues to favour Sampoerna A-Mild

(29% of the respondents). Next is Gudang Garam Surya with 18% of the respondents and

Gudang Garam FIM with 11% of the respondents. This is followed by Djarum Super with

8% of the respondents, while Dji Sam Soe, Sampoerna U-Mild, and Clas Mild are favoured

by 6% of the respondents each.

The middle generation (between 30 and 55 years) prefers Gudang Garam Surya, followed

by Sampoerna A-Mild, Djarum Super, Dji Sam Soe, and Gudang Garam FIM. However,

compared to 2010, this generation's preference has shifted, whereas in 2010, Dji Sam Soe

was the most favoured, followed by Gudang Garam Filter, Gudang Garam Surya and

Djarum Super.

Meanwhile, the older generation (56 to 65 years) prefers Gudang Garam Surya and Dji Sam

Soe, with 21% of the respondents each. This is followed by Djarum Coklat with 17% of the

respondents, and Sampoerna A-Hijau (9%), and Gudang Garam FIM (7%). Compared to

2010, where the preference for Dji Sam Soe among the older generation was much larger, at

25% of the respondents, followed by Djarum Super (13%) and Djarum Coklat (10%).

According to our survey, Sampoerna A-Mild (31% respondents) and Gudang Garam Surya

(28%), and Dji Sam Soe (10%) appeal to the high-income segment, as these brands are

pricier than the others. This is similar to the previous year’s survey and 2010's. The

middle-income segment also favours Sampoerna A-Mild (23%) and Gudang Garam Surya

(21%), even though in 2010, Dji Sam Soe was the most favoured for this segment. The

low-income segment favoured Gudang Garam Surya (22% respondents), followed by

Sampoerna A-Mild and Djarum Super, with 14% of the respondents each, while in 2010,

Djarum Super was the most favoured for this segment.

Sampoerna A-Mild is preferred in urban

areas

Gudang Garam Surya is preferred in rural

areas

Two brands dominate in outside Java:

Gudang Garam Surya and Sampoerna A-Mild

Sampoerna A-Mild appeals to the younger

generation

The middle generation preference shifted to

Gudang Garam Surya

The older generation favoured Gudang

Garam Surya and Dji Sam Soe

Middle and high income segments

favoured Sampoerna A-Mild, while the low-

income segment favoured Gudang

Garam Surya

27 March 2017


Figure 92: Gudang Garam Surya (SKM FF) is favoured, followed by Sampoerna A-Mild (SKM LTLN)

% of respondents



2016

Gudang Garam Surya 21% 18% 27% 16% 32% 18% 23% 25% 21% 22% 21% 28%

Sampoerna A Mild 20% 24% 13% 19% 24% 29% 19% 11% 3% 14% 23% 31%

Djarum Super 11% 11% 11% 16% 1% 8% 16% 11% 7% 14% 10% 7%

Dji Sam Soe 10% 12% 6% 11% 8% 6% 8% 19% 21% 8% 10% 10%

Gudang Garam Filter 9% 9% 10% 12% 2% 11% 8% 10% 7% 9% 9% 7%

Sampoerna Hijau 4% 3% 7% 5% 2% 2% 5% 7% 9% 5% 4% 0%

U Mild 4% 4% 3% 5% 1% 6% 4% 3% 0% 1% 5% 3%

Clas Mild 3% 4% 1% 1% 8% 6% 2% 1% 3% 4% 3% 3%

Djarum Coklat 3% 2% 6% 5% 0% 1% 2% 4% 17% 5% 3% 0%

Others 13% 12% 16% 9% 22% 14% 14% 10% 12% 17% 12% 10%

2015


Sampoerna A Mild 18% 19% 16% 15% 24% 26% 16% 8% 3% 15% 20% 14%

Djarum Super 10% 9% 13% 14% 1% 12% 11% 8% 3% 13% 9% 6%

Dji Sam Soe 10% 11% 9% 13% 5% 6% 10% 18% 20% 10% 10% 12%


Sampoerna Hijau 4% 3% 5% 5% 1% 2% 4% 8% 2% 4% 3% 10%

U Mild 4% 4% 2% 5% 1% 3% 5% 4% 0% 1% 5% 2%

Clas Mild 6% 6% 4% 2% 14% 7% 5% 4% 0% 6% 5% 6%

Djarum Coklat 4% 3% 6% 5% 0% 2% 4% 7% 10% 6% 3% 4%

Others 20% 19% 24% 18% 27% 21% 21% 18% 22% 23% 19% 24%

2010


Sampoerna A Mild 14% 16% 7% 12% 18% 22% 10% 2% 6% 11% 16% 25%

Djarum Super 15% 14% 15% 20% 0% 17% 14% 10% 13% 16% 13% 0%

Dji Sam Soe 17% 20% 11% 18% 14% 12% 20% 22% 25% 14% 21% 17%


Sampoerna Hijau 5% 3% 8% 6% 1% 4% 6% 3% 4% 5% 4% 0%

U Mild 1% 1% 0% 1% 2% 1% 0% 1% 0% 1% 1% 0%

Clas Mild 4% 5% 3% 1% 12% 6% 3% 3% 4% 4% 4% 8%

Djarum Coklat 5% 4% 9% 7% 0% 4% 5% 8% 10% 7% 4% 0%

Others 16% 14% 21% 14% 22% 15% 15% 21% 21% 19% 13% 25%


Gudang Garam is the largest gainer

The top three largest cigarette producers combined are favoured by 85% of the total

respondents, according to our survey. HM Sampoerna remains the largest cigarette maker

in Indonesia, with a 39% share, followed by Gudang Garam at 30%, and Djarum at 16%,

while BAT Indonesia stood at 1%, according to our survey.

The gainer on this survey is Gudang Garam, which saw a 6% increase in respondents

compared to the previous year. And compared to 2010, it was a 7% increase. We believe

that as the company is consistently spending more on A&P (advertising and promotions),

its brands are getting more popular.

To conclude, HM Sampoerna's brands appeal more to the younger generation (43% of

respondents), those living in urban areas (43%), in Java (40%), and to the middle (42%)

and high (45%) income segments. Gudang Garam, on the other hand, appeals to those in

rural areas (37%), outside Java (34%), the middle age generation, and the high-income

segment (34%). Djarum appeals to those who live in Java (22%), in rural areas (19%), and

to the older generation (26%), and the low-income segment (21%).

27 March 2017


Figure 93: The top three largest cigarette producers combined favoured by 85% of the total respondents

% of respondents



2016

HM Sampoerna 39% 43% 29% 40% 35% 43% 35% 40% 33% 29% 42% 45%

Gudang Garam 30% 27% 37% 29% 34% 29% 31% 34% 28% 31% 30% 34%

Djarum 16% 14% 19% 22% 2% 10% 19% 16% 26% 21% 14% 7%

Bentoel 1% 1% 1% 1% 0% 1% 1% 1% 0% 1% 0% 3%

Others 15% 15% 14% 8% 29% 17% 14% 9% 14% 18% 14% 10%

2015

HM Sampoerna 36% 37% 33% 37% 31% 38% 35% 37% 25% 30% 38% 38%

Gudang Garam 24% 25% 21% 23% 27% 21% 24% 26% 39% 22% 25% 22%

Djarum 17% 15% 21% 23% 2% 17% 18% 15% 17% 21% 16% 12%

Bentoel 2% 3% 1% 2% 1% 3% 2% 2% 0% 3% 2% 0%

Others 21% 20% 24% 14% 38% 22% 21% 20% 19% 24% 19% 28%

2010

HM Sampoerna 40% 45% 29% 42% 37% 43% 41% 33% 35% 34% 47% 58%

Gudang Garam 23% 23% 25% 20% 32% 19% 26% 31% 17% 24% 23% 25%

Djarum 22% 20% 26% 29% 2% 23% 21% 19% 27% 24% 19% 0%

Bentoel 3% 3% 2% 2% 5% 4% 2% 2% 0% 4% 2% 0%

Others 11% 9% 18% 6% 24% 10% 10% 15% 21% 14% 8% 17%


27 March 2017


Personal care products

Key stocks

Unilever Indonesia

■ While our survey indicates a slowdown in skin care spending, the company’s abundant

portfolio might continue to provide growth.

Kino Indonesia

■ Our survey indicates reduced spending on skin care, one of the company’s product

portfolios. We see the decline is in Java, which is its focus market.

Shift in spending

For Indonesians, spending on personal care is relatively stable at around 5% of monthly

spending, according to our survey. However, we see a shift in spending from cosmetics

and skin care, to feminine hygiene and tissue. Spending on cosmetics and skin care is

declining, from 62% of respondents in 2010, to 55% in 2015 and 52% in 2016. The decline

is seen mostly among the younger and oldest generations, in the low-income segment,

while that in the middle generation and the high-income segment is maintained.

Nevertheless, the younger generation is the biggest spender in this category.

On the other hand, spending for feminine hygiene and tissue is rising. For feminine

hygiene, it was from 81% in 2010, to 82% in 2015 and 84% in 2016, and for tissue, it was

from 50% in 2010 to 57% in 2015, and 56% in 2016. Tissue is also mostly consumed by

the younger generation, and the high-income segment.

For cosmetics and skin care, our survey indicates that the decline is seen in Java, while

outside Java, it is improving. For feminine hygiene, Java is stable, while improvement is

seen outside Java and in urban areas. And for tissue, Java is seen declining, and

improving outside Java.

Figure 94: Shift in spending on cosmetics and skin care towards feminine hygiene and tissue

% of respondents

2016 2015 2010


Cosmetics and skin care

In the past 3 months 52% 54% 47% 50% 55% 55% 57% 50% 58% 47% 62% 65% 57% 63% 60%

More in the next 12 months 35% 36% 34% 36% 35% 34% 35% 31% 38% 23% 37% 40% 32% 28% 34%

Feminine hygiene



Tissue




27 March 2017


Figure 95: Younger generation is the largest spender

% of respondents

2016 2015 2010



Cosmetics and skin care

In the past 3 months 58% 54% 44% 27% 45% 54% 52% 62% 55% 45% 38% 52% 57% 52% 70% 62% 50% 44% 60% 65% 63%

More in the next 12 months 35% 40% 36% 31% 33% 36% 36% 34% 38% 36% 23% 29% 35% 43% 37% 45% 34% 31% 37% 37% 38%

Feminine hygiene



Tissue




27 March 2017


Branded goods

Key stocks

Matahari Department Store

■ The company is a prime beneficiary of Indonesia's rising middle income segment. Its

higher exposure to the region outside Java (40% of gross sales) is a catalyst for growth

as the area tends to do well with the rise in commodity prices

■ Nevertheless, contrary to our survey findings, Matahari's private label booked 10%

higher gross sales YoY in 4Q16, boosted by better performance of its No. 1 brand,

Nevada. However, intensifying competition saw margins decline slightly during the

period.

Mitra Adiperkasa

■ The company has continuously shown improvement following the involvement of the

private equity, CVC Capital Partners, in the active division and General Atlantic in the

F&B division. Improvement in inventory days and margins are both ahead of schedule.

■ The company is also closing down department stores and cutting brands that are not

performing to allocate more space for better performing specialty stores. We also

expect the company to turn free cash flow positive by the end of the year.

Ramayana Lestari Sentosa

■ The company is likely to face headwinds this year on the back of higher inflation and

subsidy cuts by the government. Earnings growth is expected to be relatively soft with

its inability to increase product pricing

Fashion items are favoured

Our survey indicates that there is a significant decline in purchases and expectations to

purchase branded goods, in line with the decline in Indonesia’s aggregate income and

savings. We believe the decline is mostly in rural areas, with the exception of fashion

items.

Of the five segments of branded goods (fashion, leather, sport shoes, jewellery, perfumes,

watches) that we surveyed, fashion remains the type that people want to purchase the

most with 48% of the respondents planning to purchase fashion items in the next three

months. Note, however, this is lowered from 56% in 2015 and 77% in 2010.

Interestingly, the respondents of our survey outside Java show positive momentum, which

we believe is on the back of rising commodity prices. A high 52% of the respondents

outside Java do have plans to purchase a fashion item, with 43% of the respondents

outside Java having purchased a fashion item in the last three months. This is higher than

last year, at 45% and 38% of the respondents, respectively.

Of the other branded items, perfume is the other category that Indonesians purchased.

39% of the respondents had purchased perfume in the past 12 months, but it was down

from 47% in the previous year’s survey, particularly in rural areas and in Java.

Sport shoes also saw lower purchases, with 15% of the respondents, as compared to 23%

in the previous year’s survey, and 31% in 2010. Plans on future purchases are also

declining. This is mostly in rural areas, which saw a significant drop.

Leather purchases saw a decline, with 13% of the respondents, from 17% in the previous

year’s survey. The decline was mostly in rural areas and in Java.

27 March 2017


Jewellery also saw a decline, with 10% of the respondents having made purchases in the

last twelve months. We believe that the investment factor associated with jewellery

purchases might be one of the key reasons. There is a significant decline in rural areas

and in Java.

Watches also saw a significant decline to 9% of the respondents, from 19% in 2015 and

12% in 2010. Rural areas saw the most decline.

Figure 96: Perfume and fashion items are most favoured among the branded goods

% of respondents

2016 2015 2010


Fashion

Purchased in the last 3 months 38% 42% 31% 36% 43% 43% 49% 32% 45% 38% 63% 63% 62% 66% 55%

Planning to purchase in next 12 months 48% 48% 48% 47% 52% 56% 61% 46% 60% 45% 77% 76% 79% 80% 72%

Leather

Purchased in the last 3 months 13% 16% 7% 12% 15% 17% 20% 12% 19% 12% n.i n.i n.i n.i n.i

Planning to purchase in next 12 months 17% 18% 15% 14% 25% 22% 24% 19% 26% 13% n.i n.i n.i n.i n.i

Sport shoes



Jewellery



Perfumes



Watches




Branded item spending continued to disappoint

Indonesia continues to underperform while India continues to outpace the emerging

market average. Furthermore, the spending outlook for 2017 also does not look exciting

with only jewellery and perfumes coming close to the emerging market average.

Figure 97: Indonesia's historical spending on

branded goods has underperformed EM average Figure 98: Indonesians preferred less branded items


37%

36%37% 37%

39%

37%

31%

28%

31%

24%

27%

21%

15%

20%

25%

30%

35%

40%

45%

50%

2010 2011 2012 2014 2015 2016

Emerging markets average India Indonesia

48%

17%19%

16%

42%

11%

66%

34%

44%

17%

47%

15%

0%

10%

20%

30%

40%

50%

60%

70%

Fashion Leather Sport shoes Jewelry Perfumes Watches

Indonesia Emerging market average

27 March 2017


Figure 99: Appetite for branded goods consumption declined in 2016


High-income segment recovering

The high-income segment is the only segment that showed improvement during our

survey. This is in line with our thesis that the lower-income segment will face purchasing

power erosion as the government cuts subsidies and inflation accelerates. The higher-

income segment, however, has mostly participated in the tax amnesty and now whitened

their money and should be ready to spend. The higher-income bracket should also be the

first beneficiary of a commodity price rally as miners and planters tend to wait for a stable

commodity price environment before hiring more workers to increase production.

Figure 100: The high-income segment is the only segment recovering in

branded goods consumption


Preference tilting towards foreign products with the passage of time…

There is a clear shift in preference from domestic items to foreign items in the high income

bracket. Take the example of fashion, 29% of the respondents preferred local products in

2010 but only 25% preferred local products in 2016 as there are many new foreign brands

77%

37%

31%

18%

11%

56%

50%

29%

22%19%

21%

48%

42%

19%17% 16%

11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Fashion Perfumes Sport shoes Leather Jewellery Watches

2010 2015 2016

34%

38%

26%29%

26%

31%

36%38%

53%

46%

29%

35%

24%

27%

23%

29%30%

35%

26%28%

20%

24%23%

29%

17%

24%22%

27%

35%37%

0%

10%

20%

30%

40%

50%

60%

Bought Will buy Bought Will buy Bought Will buy Bought Will buy Bought Will buy

Java Ex Java Low Mid High

2010 2015 2016

Cities Income

27 March 2017


(take the example of Uniqlo, HnM) at reasonably affordable prices. Sport shoes also tell

the same story. There were only 4% of the respondents who preferred local branded sport

shoes in 2016, down from 8% in 2010, with many new foreign brands entering the market

(such as sport shoes brand: New Balance).

Figure 101: Indonesians' preference for foreign brands

2010 2015 2016

% plan to purchase Low Mid High Low Mid High Low Mid High

Fashion

domestic brand 11% 20% 29% 28% 28% 31% 25% 32% 25%

foreign brand 89% 80% 71% 72% 72% 69% 75% 68% 75%

Leather

domestic brand n.i n.i n.i 30% 25% 38% 31% 40% 53%

foreign brand n.i n.i n.i 70% 75% 63% 69% 60% 47%

Sport shoes

domestic brand 9% 8% 8% 8% 7% 11% 6% 18% 4%

foreign brand 91% 92% 92% 92% 93% 89% 94% 82% 96%

Jewellery

domestic brand 0% 0% 0% 2% 3% 8% 11% 14% 18%

foreign brand 100% 100% 100% 98% 97% 92% 89% 86% 82%


Figure 102: Percentage of people preferring unbranded goods


Lower income people's foreign brand awareness increases over time

We have seen from our survey that people in the lower income bracket developed better

foreign brand awareness over time, except for jewellery where people in general are

inclined to buy domestic products over time. The arrival of foreign fashion brands, such as

Uniqlo and HnM, has increased the brand awareness of our respondents, especially in the

lower-income segment, where 75% of them answered they would prefer to purchase a

foreign fashion brand. This number was up from 72% in 2015 and was at a high of 89% in

2010.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Fashion apparels Leather goods Sportshoes Jewelry Watches

2010 2011 2012 2013 2014 2015 2016

27 March 2017


Figure 103: We observe increased awareness in foreign brands

2010 2015 2016

% plans to purchase Low Mid High Low Mid High Low Mid High

Fashion

-domestic brand 11% 20% 29% 28% 28% 31% 25% 32% 25%

-foreign brand 89% 80% 71% 72% 72% 69% 75% 68% 75%

Leather

-domestic brand n.i n.i n.i 30% 25% 38% 31% 40% 53%

-foreign brand n.i n.i n.i 70% 75% 63% 69% 60% 47%

Sport shoes

-domestic brand 9% 8% 8% 8% 7% 11% 6% 18% 4%

-foreign brand 91% 92% 92% 92% 93% 89% 94% 82% 96%

Jewelry

-domestic brand 0% 0% 0% 2% 3% 8% 11% 14% 18%

-foreign brand 100% 100% 100% 98% 97% 92% 89% 86% 82%

* Income is on monthly basis: Low <Rp1.5 mn; Mid Rp1.5-7.5 mn, High >Rp7.5 mn. Source: Credit Suisse Indonesia Consumer Survey 2017

Fashion

Our survey result in 2016 showed that Levi's (an upper-end jeans brand that is distributed

under Matahari's consignment merchandise and through its own specialty stores), was the

preferred brand for 2016. This came as a surprise as Levi's never came up in our previous

surveys. On the other hand, the popularity of Matahari's private label, Nevada, declined

from 27% last year to 7% this year. This came as a surprise to us, as the portion of

"others" also increased significantly from 39% last year to 55% this year.

Zara, one of MAPI's most famous brands launched first in 2005, is the third most

appealing fashion brand for respondents' next purchase. Over the past five years, its

brand loyalty has increased from 1% to 5% respondents wanting to purchase Zara

products over the next 12 months period. We believe this is also in line with Indonesia's

rising middle-upper consumer class over the years.

27 March 2017


Figure 104: Which brand of fashion goods will you most likely purchase in the next 12 months?

% of respondents



2016

Levi's 11% 10% 14% 9% 15% 14% 10% 5% 6% 13% 9% 15%

Nevada 7% 8% 4% 6% 8% 7% 7% 5% 2% 4% 7% 18%

Zara 5% 7% 2% 6% 5% 5% 6% 3% 9% 6% 5% 8%

Gucci 5% 6% 4% 5% 6% 5% 6% 4% 9% 5% 6% 3%

Calvin Klein 5% 5% 3% 4% 6% 5% 4% 5% 9% 4% 5% 8%

Unbranded 12% 10% 16% 15% 5% 10% 13% 12% 17% 14% 11% 3%

Others 55% 55% 57% 55% 56% 54% 55% 65% 49% 54% 57% 44%

2015

Levi's 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Nevada 27% 26% 28% 28% 22% 25% 28% 27% 29% 27% 27% 26%

Zara 5% 6% 5% 6% 4% 6% 5% 6% 2% 5% 6% 6%

Gucci 4% 5% 4% 4% 6% 5% 5% 2% 4% 4% 4% 8%

Calvin Klein 4% 5% 2% 4% 5% 4% 5% 3% 1% 5% 4% 0%

Unbranded 20% 17% 31% 21% 17% 17% 21% 26% 29% 21% 20% 18%

Others 39% 42% 30% 37% 45% 43% 36% 37% 34% 39% 39% 43%

2010

Levi's 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Nevada 10% 12% 7% 8% 15% 13% 9% 7% 3% 7% 13% 9%

Zara 1% 1% 0% 1% 1% 1% 1% 1% 0% 0% 1% 3%

Gucci 4% 4% 2% 4% 3% 4% 3% 3% 8% 3% 4% 9%

Calvin Klein 2% 3% 1% 2% 3% 3% 2% 2% 3% 2% 3% 0%

Unbranded 47% 40% 63% 53% 35% 40% 51% 52% 65% 56% 39% 23%

Others 35% 40% 27% 32% 43% 38% 35% 35% 22% 30% 40% 57%


27 March 2017


Figure 105: In your opinion, are any of the following fashion goods brands worth paying more for?

% of respondents



2016

Levi's 9% 8% 12% 8% 13% 10% 7% 10% 12% 11% 9% 9%

Nevada 4% 5% 3% 4% 5% 4% 5% 5% 3% 4% 4% 9%

Zara 5% 6% 2% 5% 3% 6% 4% 3% 7% 5% 5% 3%

Gucci 8% 9% 7% 8% 8% 7% 9% 12% 3% 8% 8% 9%

Calvin Klein 7% 8% 6% 7% 10% 8% 7% 6% 9% 5% 8% 13%

Unbranded 3% 2% 5% 4% 1% 3% 3% 5% 2% 6% 2% 3%

Others 63% 62% 64% 64% 60% 62% 65% 59% 64% 61% 64% 56%

2015

Levi's 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Nevada 21% 21% 22% 22% 17% 20% 21% 24% 23% 19% 22% 17%

Zara 4% 4% 5% 5% 3% 6% 3% 3% 3% 5% 5% 2%

Gucci 6% 6% 7% 7% 5% 6% 7% 6% 4% 6% 6% 9%

Calvin Klein 6% 6% 5% 6% 6% 7% 5% 4% 4% 6% 6% 4%

Unbranded 5% 3% 12% 5% 6% 4% 5% 9% 7% 6% 4% 5%

Others 57% 60% 48% 56% 63% 56% 59% 54% 57% 58% 56% 62%

2010

Levi's 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Nevada 9% 9% 8% 8% 12% 10% 9% 8% 4% 8% 10% 7%

Zara 1% 1% 0% 1% 1% 1% 1% 1% 0% 0% 1% 2%

Gucci 6% 6% 6% 5% 7% 6% 6% 6% 2% 5% 6% 12%

Calvin Klein 5% 6% 3% 4% 6% 6% 4% 2% 4% 4% 6% 5%

Unbranded 9% 7% 14% 13% 3% 8% 10% 10% 11% 15% 5% 0%

Others 70% 71% 68% 69% 72% 69% 70% 73% 79% 67% 73% 73%


Sports shoes and wear

Indonesian consumers continue to favour buying western brands in the sport shoes and

wear categories. Adidas, Nike and Reebok are among the consistently leading brands

over the past six years, although in 2015 they lost market share to Bata and some other

brands which we suspect were of cheaper price points. Nevertheless, both Adidas and

Nike made a comeback in 2016, attaining a record high combined "preference share" of

48%. MAPI distributes Adidas, Nike, Reebok and up to 40 other foreign sport brands

through its sports concept stores (i.e. Sports Station, Planet Sports, Golf House and The

Athlete's Foot) as well as in department stores (including Sogo, and also consignment in

Matahari, and Ramayana).

27 March 2017


Figure 106: Which brand of sport shoes will you most likely purchase in the next 12 months?

% of respondents



2016

Adidas 30% 27% 38% 31% 27% 31% 27% 32% 60% 35% 28% 31%

Nike 18% 20% 14% 20% 15% 22% 16% 13% 0% 15% 19% 19%

Converse 8% 9% 4% 9% 6% 10% 6% 8% 0% 15% 6% 8%

Bata 7% 8% 6% 9% 5% 8% 7% 6% 20% 7% 7% 12%

Reebok 4% 4% 3% 3% 5% 4% 4% 2% 0% 4% 3% 8%

Unbranded 2% 1% 4% 2% 1% 0% 4% 0% 0% 3% 2% 0%

Others 31% 31% 31% 26% 42% 25% 36% 40% 20% 21% 35% 23%

2015

Adidas 24% 24% 25% 24% 24% 26% 24% 19% 22% 24% 24% 30%

Nike 17% 18% 14% 18% 13% 19% 16% 15% 11% 17% 18% 7%

Converse 3% 4% 0% 3% 2% 4% 2% 0% 0% 1% 3% 4%

Bata 11% 11% 13% 11% 12% 8% 12% 16% 26% 13% 11% 4%

Reebok 6% 6% 7% 7% 5% 7% 6% 6% 7% 4% 7% 11%

Unbranded 9% 6% 17% 8% 11% 7% 11% 10% 4% 10% 9% 7%

Others 29% 31% 24% 28% 34% 29% 29% 34% 30% 31% 28% 37%

2010

Adidas 17% 18% 14% 15% 21% 16% 17% 18% 14% 19% 14% 50%

Nike 9% 10% 6% 10% 7% 12% 6% 9% 7% 6% 11% 8%

Converse 3% 3% 2% 2% 4% 6% 0% 0% 0% 4% 2% 8%

Bata 10% 12% 6% 9% 16% 7% 12% 15% 21% 12% 10% 0%

Reebok 4% 4% 2% 3% 4% 5% 2% 5% 0% 2% 5% 0%

Unbranded 30% 25% 43% 32% 20% 27% 35% 21% 36% 31% 28% 8%

Others 28% 28% 26% 28% 27% 27% 27% 32% 21% 27% 30% 25%


27 March 2017


Figure 107: In your opinion, are any of the following sport shoes brands worth paying more for?

% of respondents



2016

Adidas 30% 28% 37% 29% 33% 30% 29% 37% 38% 37% 28% 34%

Nike 20% 21% 17% 21% 18% 22% 20% 16% 13% 20% 19% 28%

Reebok 7% 7% 7% 8% 6% 6% 10% 5% 0% 4% 9% 3%

Converse 7% 8% 3% 8% 5% 8% 5% 10% 0% 6% 7% 7%

Bata 4% 3% 4% 4% 4% 4% 3% 2% 25% 5% 3% 7%

Unbranded 1% 1% 1% 1% 0% 0% 2% 0% 0% 1% 1% 0%

Others 31% 31% 30% 30% 34% 30% 32% 32% 25% 26% 34% 21%

2015

Adidas 20% 20% 22% 20% 20% 19% 23% 18% 18% 15% 23% 24%

Nike 17% 18% 14% 18% 15% 17% 18% 14% 21% 12% 20% 20%

Reebok 9% 9% 8% 9% 7% 7% 9% 11% 15% 8% 9% 12%

Converse 4% 5% 1% 4% 1% 6% 3% 1% 0% 3% 4% 6%

Bata 7% 6% 10% 7% 7% 6% 6% 8% 15% 8% 6% 6%

Unbranded 3% 1% 8% 2% 6% 1% 4% 6% 0% 3% 3% 2%

Others 41% 41% 38% 40% 45% 44% 38% 41% 30% 52% 36% 31%

2010

Adidas 17% 19% 13% 17% 17% 18% 18% 16% 0% 15% 19% 26%

Nike 8% 8% 8% 7% 10% 10% 7% 5% 0% 5% 10% 9%

Reebok 7% 7% 5% 6% 10% 8% 6% 6% 0% 4% 9% 4%

Converse 4% 4% 4% 3% 6% 6% 2% 5% 0% 4% 4% 9%

Bata 5% 5% 6% 4% 6% 4% 5% 8% 8% 5% 5% 0%

Unbranded 7% 5% 12% 9% 1% 6% 6% 14% 17% 11% 4% 4%

Others 52% 52% 52% 54% 49% 48% 57% 46% 75% 57% 49% 48%

*Income is on monthly basis: Low <Rp1.5mn; Mid Rp1.5-7.5mn, High >Rp7.5mn Source: Credit Suisse Indonesia Consumer Survey 2017

27 March 2017


Internet and e-commerce According to our survey, Indonesia's internet penetration has improved to 52% of the

respondents compared to merely 48% in 2015 and 14% in 2010. The significant

improvement of internet penetration is mainly attributable to smartphone devices, which

currently 91% of the respondents are dependent on when it comes to internet access.

Smartphones offer a cheaper device option than personal computers, which have

significantly declined to 6% as a means to access the internet.

Despite having the highest internet penetration growth among our respondents last year

(which also may be attributable to the lower base), Indonesia is still behind the curve when

it comes to access to internet among the emerging markets. We have plotted population,

internet penetration and internet penetration growth to see the correlation between

population and internet access. Countries with smaller population tend to lead in terms of

internet access among its respondents. However, we can see that Indonesia is still behind

India and China; both countries have around 1.3 bn population each, which translates into

around five times Indonesia's population. We believe there is still plenty of room for

improvement in Indonesia's internet access.

Figure 108: Indonesia's internet access has been

rising

Figure 109: However, it is still the lowest among the

emerging markets

Source: Credit Suisse Indonesia Consumer Survey 2017 Size of the bubble represents each country's size of population relative to one another Size : Represents countries with population over 250 million as of 2016 Source: Credit Suisse Indonesia Consumer Survey 2017

14%15%

9%

29%

40%

51%

54%

0%

10%

20%

30%

40%

50%

60%

2010 2011 2012 2013 2014 2015 2016

Inte

rnet

penetr

ation

Brazil

China

India

Indonesia

Russia

South Africa

Turkey

Mexico

-5%

0%

5%

10%

15%

20%

45% 55% 65% 75% 85% 95%

Inte

rnet

penetr

ation g

row

th

Internet penetration

27 March 2017


Figure 110: Internet accessibility in 2016 Figure 111: Internet accessibility in 2013


Asked about what internet services they used in the last six months, the majority

responded social network (39%, the highest), followed by instant messaging (25%). A

newly introduced and prominent service introduced in our survey this year is music and

videos, which accounts for 15% of the internet usage, according to our survey. Instant

messaging slightly improved in the past year, as it is being accessed more through the

mobile phone internet. It is worth mentioning that the popularity of internet phones (calling

phones using social media, or communication platforms such as WhatsApp and Line) has

also driven the use of instant messaging.

Online shopping among our respondents has remained relatively low at 4%, more than

50% decline from 2015's 11%. This also translates into one of the lowest shopping usage

among the emerging markets.

Computer6%

Mobilephone or

Smartphone91%

Tablet3%

Computer27%

Mobilephone or

Smartphone69%

Tablet4%

27 March 2017


Figure 112: What services have you used in the last six months?

% of respondents



2016

Social network 39% 38% 45% 39% 41% 38% 42% 36% 44% 38% 40% 27%

Instant messaging 25% 25% 25% 28% 19% 24% 27% 27% 34% 24% 26% 19%

Music & videos 15% 15% 15% 14% 16% 16% 13% 14% 9% 16% 14% 22%

Gaming 13% 13% 11% 12% 14% 14% 11% 11% 3% 16% 12% 15%

Shopping 4% 5% 2% 4% 6% 4% 3% 5% 3% 4% 4% 8%

Banking 2% 2% 1% 2% 2% 1% 3% 4% 6% 1% 2% 3%

Travel 2% 2% 1% 1% 3% 1% 2% 2% 0% 1% 1% 6%

Other 0% 0% 0% 0% 0% 0% 0% 2% 0% 0% 0% 0%

2015

Social network 39% 37% 45% 39% 39% 40% 38% 40% 28% 35% 44% 39%


Music & videos 0% 0% 0% 0% 0% 0% 0% 0% 0% 18% 12% 0%

Gaming 17% 17% 15% 16% 18% 18% 15% 12% 11% 14% 8% 17%

Shopping 11% 12% 8% 11% 12% 11% 12% 7% 17% 6% 4% 11%

Banking 4% 4% 4% 5% 3% 3% 5% 9% 17% 4% 1% 4%

Travel 4% 4% 4% 3% 5% 3% 5% 3% 6% 3% 2% 4%

Other 1% 1% 1% 1% 1% 0% 1% 1% 0% 1% 0% 1%

2010

Social network 47% 46% 48% 48% 43% 49% 40% 44% 100% 44% 49% 59%


Music & videos 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Gaming 19% 19% 21% 17% 24% 21% 17% 0% 0% 17% 17% 14%

Shopping 4% 4% 2% 4% 3% 4% 3% 0% 0% 8% 5% 2%

Banking 3% 3% 0% 3% 2% 2% 5% 11% 0% 5% 4% 3%

Travel 3% 3% 0% 3% 2% 2% 3% 22% 0% 6% 2% 2%

Other 0% 0% 0% 0% 0% 0% 0% 0% 0% 1% 1% 2%


According to data provided by Investment Relation Unit of the Republic of Indonesia (IRU),

Indonesia has only 27% of its population as active online shoppers, the lowest in the

ASEAN region according to IRU, with the market leader being Singapore. On the other

hand, online retail spending accounted for only 2% of the total retail spending in 2016.

Indonesia, however, has remained a market leader when it comes to social media and

instant messaging usage among the emerging markets. In retrospect, it is one of the

lowest when it comes to online services such as banking, travelling, and shopping.

27 March 2017


Figure 113: Total active online shoppers over total

population

Figure 114: Online retail spending over total retail

spending

Source: Investor Relations Unit - Republic of Indonesia Source: Investor Relations Unit - Republic of Indonesia

Figure 115: Indonesia leads among the emerging markets in terms of social media usage but lags in

banking, travel, and shopping


In general, 68% of our respondents believe that their internet purchase will remain the

same. While the proportion of respondents who think that they will be spending more on

the internet increased to 20% from 12% in 2010, it is still a decline from 2015's 23%.

Nevertheless, we believe that the increase in expected internet spending is on the back of

the emergence of more e-commerce players that have been doing aggressive advertising

and promotions in recent years. However, we believe that overall coverage of internet will

improve as we also see an upward trend for internet purchase from regions outside Java

(32% from 28% in 2016) and the younger population (25% from 14% in 2010).

27%29%

38%

44%

50%

58%

0%

10%

20%

30%

40%

50%

60%

70%

Indonesia Philippines Vietnam Thailand Malaysia Singapore

2% 3%

8%

9%

12%

20%

0%

5%

10%

15%

20%

25%

Indonesia Philippines Vietnam Thailand Malaysia Singapore

39

15

25

13

2

4

2 -

33

24

19

8

6

3 3 1

27

21

10 11 11

10

7

0

26

19 18

12

11

8

4

1

25

19 18

14

7

9

6

2

22

21

10

17

9

14

6

1

17

21

11

15

11

18

5

0

-

5

10

15

20

25

30

35

40

45

Social network Music & videos Instant messaging Gaming Banking Shopping Travel Other

Indonesia Mexico Russia Brazil Turkey India China

27 March 2017


Figure 116: How do you think your internet purchase is going to be in the next six months?

% of respondents



2016

More 20% 21% 17% 16% 32% 25% 15% 16% 5% 18% 20% 28%

Same 68% 66% 74% 70% 62% 63% 71% 75% 89% 73% 67% 63%

Less 12% 13% 9% 14% 6% 12% 13% 9% 5% 9% 13% 9%

2015

More 23% 24% 21% 22% 28% 22% 25% 24% 33% 25% 23% 26%

Same 68% 67% 71% 69% 65% 69% 67% 71% 33% 66% 68% 72%

Less 9% 9% 8% 9% 7% 9% 8% 6% 33% 9% 9% 2%

2010

More 12% 13% 4% 8% 19% 14% 6% 0% 0% 11% 5% 17%

Same 79% 80% 73% 83% 69% 79% 78% 83% 100% 81% 86% 83%

Less 10% 8% 23% 8% 13% 7% 16% 17% 0% 9% 9% 0%


Lazada, OLX, and Tokopedia remain the most widely used websites, collectively

representing 57% of the total website usage. Lazada stands at the top for website use,

overtaking OLX which was tied last year at 23%. Lippo Group's MatahariMall remains

stagnant at 1% of the share, which is the same as last year.

Lazada has a strong presence in the rural areas with 44% of the respondents saying that

they have used the website in the last 12 months. This is a significant gap from the close

second being OLX at 11% usage in the rural area.

In terms of income, people of low and high income are about the same when it comes to

Lazada and OLX. However, people in the middle income bracket prefer Lazada more at

31% compared to OLX at 15%.

Figure 117: Have you used any of the following e-commerce websites in the last 12 months?

% of respondents



Lazada 28% 27% 44% 29% 27% 30% 25% 29% 33% 25% 31% 21%

OLX 17% 17% 11% 15% 20% 18% 18% 14% 0% 22% 15% 21%

Tokopedia 12% 13% 0% 13% 11% 12% 12% 14% 0% 6% 14% 13%

Bukalapak 11% 11% 11% 12% 11% 9% 14% 14% 33% 13% 11% 13%

Traveloka 8% 9% 0% 6% 13% 8% 10% 7% 0% 3% 6% 21%

Elevenia 8% 7% 11% 10% 4% 7% 10% 7% 0% 13% 6% 8%

Zalora 7% 7% 11% 8% 5% 8% 6% 0% 33% 6% 9% 0%

Others 9% 9% 11% 9% 9% 10% 6% 14% 0% 13% 9% 4%

BliBli 3% 3% 0% 4% 2% 1% 6% 7% 0% 6% 3% 0%

BerryBenka 1% 1% 0% 2% 0% 2% 0% 0% 0% 0% 1% 4%

MatahariMall 1% 1% 0% 0% 2% 1% 0% 0% 0% 0% 1% 0%

Tiket.com 1% 1% 0% 1% 0% 1% 0% 0% 0% 0% 1% 0%


According to our survey, customers still largely emphasise on website trustworthiness

while conducting their online purchase. This is especially true for people living in rural

areas, as well as for people in the high-income bracket.

Low cost has also been an increasing concern, with 28% of our respondents saying that

they look at low costs when it comes to online shopping, from last year's 14%. It is also

worth mentioning that our survey suggests that senior citizens are absolutely concerned

about low cost when it comes to online purchases.

27 March 2017


Figure 118: What are the reasons you chose the mentioned websites?

% of respondents



Trustworthiness 32% 30% 50% 35% 27% 32% 33% 33% 0% 31% 29% 40%

Low cost 28% 29% 17% 26% 31% 27% 24% 33% 100% 31% 29% 20%

Comprehensive products listings 19% 20% 17% 22% 15% 18% 24% 17% 0% 31% 19% 10%

Well-known brand 11% 12% 0% 7% 19% 11% 14% 0% 0% 0% 13% 20%

Friends referral 7% 6% 17% 9% 4% 7% 5% 17% 0% 0% 8% 10%

Others 3% 3% 0% 2% 4% 5% 0% 0% 0% 8% 2% 0%


Figure 119: According to our respondents, low cost and comprehensive

product listing remains their top concern when it comes to online shopping


32%

49% 51%

32%23%

32%27%

37%12%

18%

28%40%

41%

28%

3%12%

12%

11% 5%

7%

13%

7% 5%

4%

7%7%

1%

5%

17% 21%14%

19% 23%17%

19%

4% 1% 2% 3% 2% 2%8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Brazil China India Indonesia Russia Turkey Mexico

Low cost Comprehensive products listings Well known brand Friends referral Trustworthiness Others

27 March 2017


Mobile phones

Key stocks

PT Telekomunikasi Indonesia (Telkom)

■ Rising smartphone and fixed broadband data use drove consolidated EBITDA and net

profit growth of 15.7% YoY and 24.9% YoY across FY16 respectively. While Telkom is

a 'consensus buy', it is slightly expensive versus regional peers. The company has

outperformed the regional telecommunication sector over the last 12 months.

■ It remains the only liquid (large cap) way to invest in the successful monetisation of

Indonesia's data boom.

XL Axiata

■ Over the last 18 months, the company has made significant progress on strengthening

its balance sheet (through both a rights issue and a tower sale) and reducing its heavy

USD-denominated debt exposure. Furthermore, a return to top-line growth means that

XL is now finally emerging from investment phase.

The world at your fingertips

According to our survey, while the owners of mobile phones in Indonesia slightly declines

from 86% to 84% from 2015 to 2016, the number of smartphone owners increased to 64%

from 55% last year. This indicates that more than half of the mobile phone owners in our

survey are using smartphones, or 53.7% (compared to 47.3% in 2015) of the total

respondents are on smartphones instead of their outdated mobile phones.

We stand by our belief that the rising smartphone penetration is due to the increasing

affordability of smartphones due to the influx of cheap smartphones from China and

Taiwan. Regardless of Indonesia's economic cycle, the appetite for smartphones has

constantly remained strong for Indonesian consumers. There are still 30% of our

respondents who are looking to upgrade into a smartphone despite the already high

smartphone penetration.

27 March 2017


Figure 120: Indonesians’ ownership of smartphones continues to rise

% of respondents



2016

Mobile phone ownership 84% 91% 70% 82% 86% 93% 86% 70% 61% 74% 87% 95%

Smartphone ownership 64% 70% 50% 70% 51% 76% 63% 46% 35% 53% 67% 75%

Bought mobile phone in last 12 months? 37% 39% 33% 38% 37% 43% 38% 25% 30% 38% 36% 45%

Will upgrade to smartphone? 30% 30% 30% 30% 30% 42% 35% 19% 14% 30% 30% 53%

Access to internet using mobile phone 48% 57% 30% 52% 38% 68% 46% 23% 14% 35% 51% 60%

2015






2010







A common theme that we see from our survey, along with the increased internet

penetration, is the increase in internet access through smartphones. The relationship tells

us that people are starting to prefer convenience and mobility when it comes to

telecommunications and thus moving away from stationary devices, such as personal

computers, to more practical devices such as tablets and smartphones. Our survey

suggests that people have started preferring more mobile electronics such as mobile

phones, tablets, and notebook personal computers for quite some time now.

Figure 121: Increasing internet access through smartphones


Interestingly, another strong trend that is picking up is the strong demand for smartphones.

Smartphone purchases rose from 6% in 2010 to 41% in 2016. Despite the high ownership

of smartphones, 46% of the respondents we surveyed said that they would likely purchase

smartphones in the next 12 months.

13%

17%

22%24%

40%

55%

64%

0%

10%

20%

30%

40%

50%

60%

70%

2010 2011 2012 2013 2014 2015 2016

Internet access with Smartphone Internet penetration Smartphone ownership

27 March 2017


Samsung continues to dominate the market

Samsung remains the preferred brand when it comes to mobile phones. Our survey shows

that 80% of the respondents preferred Samsung. This is a significant increase for

Samsung compared to merely 2% in 2010. In our view, due to Samsung's array of product

offerings from the low to high end, it continues to be favoured across Indonesia by

different age and income groups. To top it up, Samsung is the preferred brand across

emerging markets, with the exception of China where only 12% of the respondents

preferred the brand. On the other hand, Nokia which started with 70% in 2010, is now only

left with 7% in 2016. This displays how dynamic the electronics market is, especially for

handsets.

Figure 122: Samsung still dominates

% of respondents



2016

Samsung 80% 85% 74% 81% 78% 87% 80% 71% 67% 78% 81% 78%

Nokia 7% 4% 11% 7% 7% 0% 6% 13% 33% 7% 7% 11%

Xiaomi 2% 3% 1% 2% 1% 1% 3% 0% 0% 1% 2% 0%

Apple 1% 2% 1% 1% 1% 1% 1% 3% 0% 0% 2% 0%

Cross 1% 1% 2% 2% 0% 1% 1% 3% 0% 1% 2% 0%

Asus 1% 1% 1% 1% 0% 3% 0% 0% 0% 1% 1% 0%

Lenovo 1% 0% 2% 1% 1% 3% 0% 0% 0% 1% 1% 0%

Others 6% 5% 8% 4% 11% 3% 8% 10% 0% 10% 4% 11%

2015

Samsung 50% 51% 46% 49% 50% 52% 50% 46% 33% 49% 49% 64%

Nokia 13% 11% 18% 10% 21% 4% 17% 24% 42% 19% 11% 9%

Xiaomi 2% 2% 2% 2% 0% 2% 1% 3% 0% 1% 2% 0%

Apple 7% 8% 3% 6% 9% 10% 5% 1% 3% 3% 8% 15%

Cross 3% 2% 5% 4% 0% 3% 4% 2% 6% 2% 4% 0%

Asus 5% 5% 5% 6% 2% 8% 3% 4% 0% 5% 5% 3%

Lenovo 4% 4% 4% 5% 1% 5% 3% 1% 0% 5% 3% 3%

Others 17% 17% 16% 18% 16% 16% 18% 19% 15% 17% 18% 6%

2010

Samsung 2% 3% 1% 2% 2% 2% 2% 4% 0% 2% 3% 0%

Nokia 70% 69% 71% 66% 79% 65% 71% 79% 79% 72% 66% 83%

Xiaomi 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Apple 1% 1% 0% 1% 1% 1% 1% 0% 0% 0% 1% 0%

Cross 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Asus 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Lenovo 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Others 28% 28% 27% 31% 19% 32% 26% 17% 21% 26% 31% 17%


Figure 123: Samsung is preferred in all emerging countries except in China


2016 Samsung Huawei Samsung Samsung Samsung Samsung Samsung

2015 Samsung Apple Samsung Samsung Samsung Samsung Samsung

2014 Samsung Apple Samsung Samsung Samsung Samsung Samsung


27 March 2017


Figure 124: Share of Samsung continues to rise


Figure 125: Which of the following products have

you purchased in the last 12 months? (2016)

Figure 126: Which of the following products are you

likely to purchase in the next 12 months? (2016)


Figure 127: Which of the following products have

you purchased in the last 12 months? (2010)

Figure 128: Which of the following products are you

likely to purchase in the next 12 months? 2010


41%

31%

44%

46%

27%

44%

28%3

5%

17%

41%

50%

26%

46%

30%

46%

12%

61%

80%

44% 48%

36%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%


2014 2015 2016

Desktop computer2% DVD Player

9%Gaming facility

1%

Mobile Phone15%

Internet Service1%

Smartphone41%

Digital Camera2%

TV18%

Tablet5%

Notebook PC6%

Desktop computer3%

DVD Player4%

Gaming facility1%

Mobile Phone5%

Internet Service1%

Smartphone46%

Digital Camera4%

TV18%

Tablet6%

Notebook PC12%

Desktop computer3%

DVD Player21%

Gaming facility2%

Mobile Phone40%

Internet Service1%

Smartphone6%

Digital Camera1%

TV22%

Notebook PC4%

Desktop computer7%

DVD Player10%

Gaming facility2%

Mobile Phone27%

Internet Service1%

Smartphone10%

Digital Camera3%

TV29%

Notebook PC11%

27 March 2017


Healthcare

Key stocks

Siloam International Hospital

■ We continue to like SILO as room for downside surprise from current levels is low after

past disappointments, and expansion plans could fuel additional growth.

■ There could be upside post the private equity, CVC Capital Partners involvement and

execution progress in light of higher-than-expected FY17 guidance. The initial look into

CVC Capital's experience underscores encouraging turnaround outcomes.

Mitra Hospital

■ We continue to view the company as an attractive long-term holding due to mid-teens

growth profile, margin expansion opportunity, and balance sheet optionality (Rp2.4 tn

in cash).

■ After the recent weakness the stock looks interesting at 33x 2017E EBITDA, below the

historical average. Its premium valuation is supported by best-in-class margins and

ROIC profile.

Prodia Widyahusada

■ Market leader with the largest labs network, Prodia Widyahusada is led by an

experienced management team with comprehensive test offerings through its “hub and

spoke” model. Its improving top line is driven by volume growth and pricing power with

double-digit EBITDA growth on the back of margin expansion and operating leverage.

■ Frost and Sullivan estimates Indonesia’s clinical laboratory testing market will record a

CAGR of 12.9% to reach US$1.8 bn by 2017, while the segment in which Prodia

operates should see a 16.3% CAGR.

Kalbe Farma

■ Challenges continue for the company with the availability of the government’s universal

healthcare programme as consumers are shifting towards generic drugs from branded

ones. Sales contribution from prescription drugs declined to 23% of the total in 2016,

from 25% in 2010, with gross margin declining to 58%, from 67%.

Improved access to state healthcare

Access to state healthcare in Indonesia is still below the average of the other emerging

countries we surveyed. Indonesia remains the second lowest for access to state

healthcare (52% of respondents), with India being the lowest (36% of respondents).

Indonesia is still lagging Mexico (64% respondents), South Africa (68% respondents), and

China (70% respondents).

However, Indonesia has seen a significant improvement where 52% of the respondents do

have access now, as compared to only 34% in 2010, when we first did the survey, or

improving from the previous year at 41%. In fact, Indonesia is the most improved! Thanks

to the continuous rise in enrollments to the government’s universal healthcare programme

(Jamkesnas=Jaminan Kesehatan Nasional).

As of 1 March 2017, there were 174.7 mn people enrolled in the programme, according to

BPJS-Kesehatan. This is an addition of 10.6 mn people enrolled in a year, or 6% higher

YoY. GoI is targetting that by 1 January 2019, all Indonesians will participate in the

programme and have access to healthcare.

27 March 2017


Figure 129: Access to state healthcare in Indonesia is still way below the EM countries, but it is improving

significantly


While improvement in healthcare access is taking place across the board, interestingly,

those in urban and in Java have seen more improvement than those in rural and outside

Java. In urban areas, 55% of the respondents now have access to state healthcare

compared to 43% in 2015 or 35% in 2010. Similarly, of those in Java, 52% now have

access as compared to 37% in 2015 or 27% in 2010.

As such, with the improvement in access to state healthcare, the trend is declining on

spending for healthcare. Out of the total monthly spending, around 3.5% was spent on

healthcare in 2016, and a similar amount in 2015, but had declined since 2010, where

spending on healthcare was at 5% of the total.

Figure 130: Access to state healthcare has improved


20%

30%

40%

50%

60%

70%

80%

90%

100%

Russia Turkey Brazil China South Africa Mexico Indonesia India

2010 2011 2012 2013 2014 2015 2016

34% 35%33%

27%

40%41%43%

38% 37%

42%

52%55%

48%52%

54%

0%

10%

20%

30%

40%

50%

60%

Total Urban Rural Java Ex Java

2010 2015 2016

27 March 2017


Figure 131: Declining trend in self-reliance in affording healthcare


According to BPJS-Kesehatan, the number of providers that participate in the programme

also increased 7% YoY in total, reaching 26,314 providers, which consist of 1,957

hospitals (+12% YoY), 9,818 Puskesmas or facility health centres (flat), 5,383 clinics

(+13% YoY), 4,544 doctors (+2%), 1,150 dentists (flat), 975 optics (+7%), 2,150

drugstores (+15%), and 337 laboratories.

The increase in the number of providers is in line with the access to services given by the

government. Access to hospitals using the Jamkesnas increased to 45% of the

respondents, from 39% in 2010. A similar thing is observed with emergency room that

rose from 13% in 2010 to 18% in 2016. Contrary to what happened with drug companies,

access to prescription drugs declined to 19%, from 30% in 2010 or 24% in 2015. We

believe that this might be due to the administrative issue that could occur should the

tender get delayed. Vaccinations and diagnostic tests remained at 9% and 8% of the

respondents, respectively.

Figure 132: The increase in number of providers in line with the improvement in service offered

Total Urban Rural Java Ex Java Low Mid High

% of respondents 2010 2015 2016 2010 2015 2016 2010 2015 2016 2010 2015 2016 2010 2015 2016 2010 2015 2016 2010 2015 2016 2010 2015 2016

Hospital 39% 46% 45% 38% 44% 44% 39% 52% 47% 37% 49% 48% 41% 45% 39% 38% 50% 43% 39% 45% 45% 33% 35% 48%

Emergency Room 13% 17% 18% 13% 18% 19% 12% 15% 16% 12% 16% 19% 12% 20% 16% 11% 18% 20% 14% 16% 18% 17% 24% 10%

Prescriptions 30% 24% 19% 29% 24% 21% 32% 23% 15% 35% 22% 21% 33% 18% 16% 32% 21% 16% 28% 25% 20% 22% 29% 18%

Vaccinations 10% 6% 9% 11% 6% 7% 9% 5% 14% 8% 6% 6% 6% 8% 17% 11% 4% 12% 10% 7% 8% 17% 1% 11%

Diagnostic tests 8% 7% 8% 9% 8% 8% 8% 5% 7% 8% 7% 6% 7% 9% 12% 8% 7% 9% 9% 7% 8% 11% 11% 13%


8% 8% 7% 6% 7%15% 18%

7%

17% 20%14% 17%

9%13%

17%

28%

31%

16%

24%

37%

28%

35%

14%

29%28%

92% 92% 93% 94% 93%

57%50%

76%

59%

44%

57%49%

78%

58% 55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


2010 2015 2016

Insurance Company Selfpay

27 March 2017


Figure 133: Number of participants and providers of Jamkesnas continue to

increase

1-Mar-16 1-Mar-17 % YoY chg

Number of participants of Jamkesnas (mn people) 164.1 174.7 6%

Number of providers:

Hospitals 1,749 1,957 12%

Puskesmas (facility health centers) 9,811 9,818 0%

Clinics 4,760 5,383 13%

Doctors 4,441 4,544 2%

Dentists 1,150 1,150 0%

Optics 907 975 7%

Drugstores 1,876 2,150 15%

Laboratories 337

Total 24,694 26,314 7%

Source: BPJS Kesehatan

There is no doubt that, with the availability of Jamkesnas, the willingness to pay for

premium medicine brands will continue to decline. Of our respondents, 77% are not willing

to, up from 72% in 2015.

Figure 134: Willingness to pay a premium, international vs local medicine brand

% of respondents

Total Area Region Income

Urban Rural Java Ex Java Low Mid High

2016

No 77% 73% 83% 75% 79% 80% 77% 57%

1% - 10% 20% 23% 14% 21% 17% 17% 20% 33%

11% - 20% 2% 2% 2% 2% 3% 1% 3% 7%

21% - 30% 1% 0% 1% 0% 1% 1% 0% 2%

> 30% 1% 1% 1% 1% 1% 1% 0% 2%

2015

No 72% 67% 81% 73% 73% 76% 69% 72%

1-10% extra 23% 26% 16% 23% 23% 20% 25% 20%

11-20% extra 5% 6% 3% 4% 3% 3% 5% 6%

21-30% extra 1% 1% 0% 0% 1% 1% 0% 2%

30% extra 0% 0% 0% 0% 0% 0% 0% 0%

* Income is on monthly basis: Low <Rp1.5mn; Mid Rp1.5-7.5mn: High >Rp7.5mn Source: Credit Suisse Indonesia Consumer Survey 2017

27 March 2017


Property

Key stocks Bumi Serpong Damai

■ Last year, the company had the best pre-sales target achievement record, thanks to its

focus on landed residential property. We expect that to continue this year. The

company has the lowest net debt-to-equity among peers. As pre-sales had been

primarily landed products, earnings recognition should not be a drag for profits this

year.

Ciputra Development

■ We like companies with good project diversification. The company should benefit from

falling overall mortgage rates.

Summarecon Agung

■ Product mix was the main drag in SMRA's pre-sales last year. Company only achieved

67% of total target that was largely led by a big miss in apartment sales. For this year,

Summarecon allocates merely 15% for apartments while having more landed property.

We think the product mix looks more promising for the year. However, we still see risk

on company's earnings.

Potential demand continues to be high

While we are positive on the Indonesia property sector we think growth in 1H17 could be

hard to come by, given tax regulatory overhangs and political uncertainties as a result of

the current ongoing regional election. Nevertheless, our positive view on property is based

on three main factors. First, we have seen lower mortgage rates, e.g., BCA was among

the banks that lowered mortgage rates last year and, more recently, this year. Second,

higher loan-to-value for property financing should help improve affordability. Third, removal

of the second mortgage for pre-built houses and lastly property income tax was lowered to

2.5% from 5.0% previously. Despite the overhangs and short-term risks, we think the

macro and regulatory environments are in favour of a recovery in the sector. In addressing

the short-term risks, we prefer companies that are less leveraged, have more landed

residential property for pre-sales this year, and those that have access to large low-cost

land banks.

27 March 2017


Figure 135: Indonesia real estate developers—quarterly pre-sales progression

Source: Company data, Credit Suisse estimates

The number of respondents planning to purchase a property in the next two years

improved. Our 2016 survey found that about 86% of the respondents either have houses

or their family members own houses—higher than the 73% back in 2010. Separately, 22%

of the respondents are planning to buy houses in the next two years; this shows an

improvement from 20% in the previous year. We think this can be attributed to an overall

lower interest rate environment and flat property price growth in the past couple of years,

which consequently led to better affordability. However, this level is still lower than the

2014 peak at 31% of the respondents.

Figure 136: Property ownership and potential purchases

% of respondents



2016

Property ownership 86% 82% 95% 88% 83% 83% 85% 89% 97% 88% 86% 80%

Planning to buy in next 2 years 22% 24% 16% 20% 26% 25% 23% 17% 12% 16% 24% 44%

2015



2014



2013



2012



2011



2010



* Income is on monthly basis: Low <Rp1.5mn; Mid Rp1.5-7.5mn,: High >Rp7.5mn Source: Credit Suisse Indonesia Consumer Survey 2017

27 March 2017


Figure 137: Indonesia remained third place in 2016 in terms of respondents

planning to buy a property in the next two years


Historically, lower interest rates as a result of an easing monetary policy come with a lag of

3-9 months. We have seen banks starting to cut mortgage rates aggressively in the past

couple of months. The figure below shows that mortgage growth starts picking up as a

result.

Figure 138: Mortgage and total loan growth


Despite improving mortgage growth, we have not yet seen that translating into developer's

pre-sales improvement. We think 1H17 is a challenging period given the overhangs.

Price expectations

When asked about local property price expectations over the next 12 months, 30% of the

respondents said they expected property prices to increase. Those who are bullish on

property prices generally are rural residents. Against last year's outcome, only 36% of the

respondents expect declining prices for property (34% flat)—this is lower than the 43% in

the previous year's survey (28% expected prices to be flat in 2015).

0%

5%

10%

15%

20%

25%

30%

35%

Brazil China Indonesia Mexico India South Africa Russia Turkey

% o

f re

spondents

2011 2012 2013 2014 2015 2016 Average 2016

5

10

15

20

25

30

35

Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16

% Y

oY

Mortgage Loan

27 March 2017


Figure 139: Respondents have turned a bit more optimistic on property prices


In the longer term, we believe that Indonesia property prices are more resilient than certain

other countries in the region. Historically, Indonesian property developers are more

inclined to absorb lower sales volumes than lowering prices given Indonesia's relatively

low mortgage loans penetration, implying that even during bad times, most owners are not

necessarily exposed to forced selling, limiting downward pressure on prices.

Figure 140: Indonesia has the second lowest

mortgage-to-GDP penetration ratio…

Figure 141: …and third lowest mortgage-to-loan

penetration ratio

Source: Central banks Source: Central Banks

Respondents with plan of buying a property within the next two years has increased vs 2015 survey

On a breakdown by age, the percentage of respondents between the ages of 18 and 45

who plan to buy property in the next two years increased as compared to the 2015 survey.

For instance, in the age group of 18-29, about 25% said they planned to buy property in

the next two years, up from 24% in the previous year's survey, while in age group of 30-

45, the amount of respondents with similar answer is 23%, up from 21%.

30% 27%

37% 35%

18%

29%25%

36%

25%

38%

34%32%

38%

31%

39%

28%27%

30%

29%

27%

36%41%

25%34%

43% 43%47%

34%

46%

36%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total Urban Rural Java Ex Java Total Urban Rural Java Ex Java

2016 2015

Increase Flat Decrease

0%

10%

20%

30%

40%

50%

60%

70%

80%

PH ID IN TH CN JP KR MY TW HK SG AU

Mortgage loans as % of GDP

0%

10%

20%

30%

40%

50%

60%

70%

80%

PH IN ID CN TH HK SG JP MY KR TW AU

Mortgage loans as % of total loans

27 March 2017


Figure 142: Percentage of respondents planning to

buy property in the next two years by age Figure 143: Indonesia’s median age (2020E)

Source: Credit Suisse Indonesia Consumer Survey 2017 Source: Company data, Credit Suisse estimates

We are positive on the Indonesian property sector’s long-term potential on the back of the

country's large and relatively young population as well as low mortgage penetration ratio.

We also expect a sustainable increase in wages and a decreasing number of members

per household, hence resulting in higher demand on housing going forward. More than

60% of Indonesia's residents are currently aged 20 to 65—the principal working years.

Another 27% of its population is below the age of 15, giving the country a large incoming

workforce and a low dependency ratio. One of the key factors to have robust growth in the

property sector is a young, growing population with the capability of purchasing big-ticket

items such as property. According to the UN population division, Indonesia has a relatively

young demographic profile, with an estimated median age of 31 by 2020.

On breakdown by income, respondents with lower income showed a small increase with

just 19% of total having a plan to purchase property in the next two years. The middle

income group surprisingly declined to 29% from 32% while there was a big jump for the

high-income population from 37% to 42% in 2015-16. We think this could be largely

attributed to: (1) falling deposit rates as high-income earners view deposits as an

alternative investment against property investment and (2) the recent tax amnesty having

unlocked previously hidden wealth in Indonesia.

23%

27%

30% 30% 30%

24%25%

27% 27%

33%

34% 35%

21%

23%22%

20%

29%

26%27%

18%

17%

11% 11%

15%

20%

18%

7%

12%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2010 2011 2012 2013 2014 2015 2016

18-29 30-45 46-55 56-65

48

4543 43 43

38 38 38

3129

28

25

0

10

20

30

40

50

60

JP HK KR TW SG TH AU CN ID MY IN PH

27 March 2017


Figure 144: Percentage of respondents planning to

buy property in the next two years—income Figure 145: Labour force CAGR over 2010-20E

Source: Credit Suisse Indonesia Consumer Survey 2017 Source: United Nations population division

Indonesia's labour force growth is expected to see a 0.9% CAGR over 2010-20E, ahead of

Thailand and China. We believe this should enhance an average Indonesian's ability to

own property ahead as well.

16%

14%

28% 28%

24%

18% 19%

24% 23%

31% 31%

34%32%

29%

44%

23%

43% 44% 43%

37%

42%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2010 2011 2012 2013 2014 2015 2016

Low Mid High1.6%

1.5%

1.3% 1.3%

1.0% 1.0%

0.9%

0.4%

0.3% 0.3%

0.4%

-0.1%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

PH MY AU IN HK SG ID TH CN KR TW JP

27 March 2017


Banks

Key stocks

Bank Negara Indonesia

■ Loan growth has been strong across the board generally, but it is the SOE-corporate

(one-third of incremental loans) and medium commercial loans (one-fifth of incremental

loans) in particular that have underpinned robust loan growth at BNI. For similar ROAs

and ROEs, BNI is trading at a 27% discount to Mandiri on P/E (and 30% discount on

P/B), far ahead of its historical average of 14%.

Bank Jatim

■ Bank Jatim is the regional development bank for East Java and the smallest bank by

assets among the nine banks in our coverage. It is focused on the consumer (67% of

loan, 87% of which is payroll loan) and commercial/SME (33%) segments. Jatim's ROA


profitability can be attributed to the higher proportion of cheaper current/saving

deposits (81%), fee income and cost efficiency.

Auto interest on lower interest

In this year's survey, we witnessed a decrease, from 73% (2015) to 67% (2016), in the

percentage of respondents who plan to use financing facilities to finance motorbike

purchases, this after an increase from 58% in 2014 going into 2015. This decline applies

across categories, mainly ex-Java at just 52% from 70% in the 2015 survey.

Figure 146: Indonesian planning to purchase their motorbike with a form of

credit


Of the respondents who live in rural areas, 59% plan to use financing facilities for

motorbike purchases. This is lower than the previous year's survey of 66%. Similarly, 73%

of Java residents thought they would use financing facilities, which is lower than 75% from

last year's survey. The percentage of urban residents who thought they would use

financing facilities also declined to 71% from 77% the previous year.

67%

73%

52%

71%

59%

73% 75%70%

77%

66%

58% 58% 57% 58%55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Total Java Ex Java Urban Rural Total Java Ex Java Urban Rural Total Java Ex Java Urban Rural

2016 2015 2010

27 March 2017


Figure 147: Indonesia loan growth by segments

Source: Company data, Credit Suisse research

Savings trend

In contrast to the declining appetite to borrow, the percentage of respondents saving

through bank accounts has continuously increased from 33% in 2010 to 38% in 2015 and

45% in 2016 despite the lower deposit rates last year, i.e., in the past three years,

system's average deposit rates were down from 5.0% peak in Feb 2015 to 3.7% by end of

2016. The number of respondents that opted for cash dropped from 31% in 2010 to

30/25% for 2015/16. This indicates increasing savings awareness for the population in

general. Most other methods of savings showed no major changes with property sector

slightly up to 5% of total respondents from 4% in 2015 and 2010. The amount with no

extra money for saving had shown a decline from 29% in 2010 to 22% in 2016. While this

could be driven by factors such as inflation and wage growth, it can also be attributed to

lower consumption.

Figure 148: Methods of savings—geographical location

% of respondents

2016 2015 2010


Bank account 45% 50% 35% 44% 46% 38% 43% 26% 40% 34% 33% 40% 20% 32% 36%

Life insurance 4% 5% 1% 3% 5% 4% 5% 3% 5% 3% 2% 2% 1% 1% 4%

Cash 25% 22% 30% 21% 32% 30% 29% 32% 31% 26% 31% 30% 35% 37% 19%

Property 5% 4% 5% 4% 6% 4% 5% 2% 2% 7% 4% 3% 6% 3% 7%

No extra money for saving 22% 18% 29% 28% 9% 24% 18% 37% 21% 29% 29% 25% 38% 27% 33%


As a reminder, the banking sector regulator (OJK) introduced a cap on time deposit rates

back in 2014 where banks could only offer deposit rates of 200-225 bp above the policy

rate. Just recently, OJK imposed a lower cap of 75-100 bp above the policy rate for

deposit rates offered by large banks. There is concern in the markets that the OJK may

eventually regulate lending rates as well. For now, no such caps will be introduced for

lending rates, but the OJK has hinted that the deposit rate cap is meant to encourage

banks to trim their lending rates as well. In its communications with banks, the OJK

suggested it aims to see lending rates eventually in the single-digit territory, down from the

current 12-13% levels.

-10

0

10

20

30

40

50

60

Dec-02 Jun-04 Dec-05 Jun-07 Dec-08 Jun-10 Dec-11 Jun-13 Dec-14 Jun-16

% Y

oY

Working capital Investment Consumer

27 March 2017


Figure 149: Deposit rates by type of deposits Figure 150: Lending yields by type of loan

Source: Bank Indonesia Source: Bank Indonesia

As opposed to the above, the breakdown by income level tells us a different story.

Respondents with higher income lowered their interest toward bank savings as opposed to

the lower income group. This tells us two things, first, deposit rates sensitivity is higher for

the high-income society as opposed to the mid-low income groups and second, the

increase of low-income respondents to saving account is in-line with the government's

attempt to improve banking sector penetration in Indonesia.

Figure 151: Methods of saving—income

2016 2015 2010

Low Mid High Low Mid High Low Mid High

Bank account 26% 52% 40% 24% 43% 45% 19% 45% 52%

Life insurance 1% 4% 14% 1% 5% 11% 1% 2% 14%

Cash 29% 24% 19% 26% 33% 17% 32% 32% 9%

Property 5% 4% 7% 1% 4% 6% 3% 5% 11%

Others 0% 0% 7% 0% 0% 1% 0% 0% 7%

No extra money for saving 40% 16% 12% 48% 15% 20% 44% 16% 7%

* Income is on monthly basis: Low <Rp1.5mn; Mid Rp1.5-7.5mn, High >Rp7.5mn Source: Credit Suisse Indonesia Consumer Survey 2017>Rp7.5mn

Figure 152: Savings as a percentage of income Figure 153: Indonesia—income vs savings

Source: Credit Suisse Indonesia Consumer Survey 2017 * Income is on monthly basis: Low <Rp1.5mn; Mid Rp1.5-7.5mn,: High >Rp7.5mn Source: Credit Suisse Indonesia Consumer Survey 2017

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Invt loans WC loans

Cons loans Average IDR lending yield

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90% 90% 89% 90% 89% 89% 89% 90% 91%84%

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2010 2015 2016

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27 March 2017


Asia Pacific/Indonesia Automobile Manufacturers

Astra International (ASII.JK / ASII IJ) Rating OUTPERFORM Price (24-Mar-17, Rp) 8,525 Target price (Rp) 9,800 Upside/downside (%) 15.0 Mkt cap (Rp/US$ bn) 345,122 / 25.89 Enterprise value (Rp bn) 385,658 Number of shares (mn) 40,484 Free float (%) 45.2 52-wk price range (Rp) 8,775-6,200 ADTO-6M (US$ mn) 17.6 Target price is for 12 months.

Research Analysts

Jahanzeb Naseer

62 21 2553 7977

[email protected]

COMPANY UPDATE FOCUS LIST STOCK

Improving urban profile

■ As the biggest automobile and motorcycle manufacturer and

distributor, Astra provides a unique exposure to the Indonesian consumer

segment and is exposed to the rising middle class. It has over 60% share of

the four-wheeler market and over 70% share of the two-wheeler market. On

4Ws, it is the sole manufacturer and distributor of Toyota and Daihatsu, and

for 2Ws, it is the sole manufacturer and distributor for Honda.

■ Our Consumer survey shows that the “intention to buy” for cars has risen

from 8% to 11% in 2016 vs 2015. Toyota’s brand preference has risen from

23% to 41% over the same period as it launched a number of new models in

2016. The highest change is seen in the urban and high income segment. This

bodes well for Toyota’s ability to successfully defend its market share.

■ For two-wheelers the intention to buy has deteriorated from 28% to

26%. The biggest decline is seen in ex-Java which could be a result of lower

commodity prices. We could see a recovery in rural demand if the commodity

price rebound persists.

■ Risks include a plunge in commodity prices coupled with weaker-than-

expected economic recovery and losing market share to Honda. There is also

an increasing risk of margin compression from the financing arm as

regulators are striving to bring down lending rates to single digit.

Share price performance

The price relative chart measures performance against the

JSX COMPOSITE INDEX which closed at 5,567.13 on

24/03/17. On 24/03/17 the spot exchange rate was

Rp13,328/US$1

Performance 1M 3M 12M Absolute (%) 6.9 16.4 15.6 Relative (%) 3.0 5.7 0.3

Financial and valuation metrics

Year 12/16A 12/17E 12/18E Revenue (Rp bn) 181,084.0 202,297.1 225,855.9 EBITDA (Rp bn) 25,076.0 30,117.2 32,949.9 EBIT (Rp bn) 17,534.0 22,089.3 23,801.3 Net profit (Rp bn) 15,156.0 21,530.3 23,529.8 EPS (CS adj.) (Rp) 374.37 531.83 581.22 Change from previous EPS (%) n.a. 0.0 0.0 Consensus EPS (Rp) n.a. 495.71 556.22 EPS growth (%) 4.8 42.1 9.3 P/E (x) 22.8 16.0 14.7 Dividend yield (%) 2.4 2.6 3.6 EV/EBITDA (x) 15.4 12.7 11.4 P/B (x) 3.08 2.92 2.68 ROE (%) 14.2 18.7 19.1 Net debt/equity (%) 29.7 25.0 18.7

Source: Company data, Thomson Reuters, Credit Suisse estimates

27 March 2017


Astra International (ASII.JK / ASII IJ)

Price (24 Mar 2017): Rp8,525; Rating: OUTPERFORM; Target Price: Rp9,800; Analyst: Jahanzeb Naseer

Income Statement (Rp bn) 12/16A 12/17E 12/18E

Sales revenue 181,084 202,297 225,856 Cost of goods sold 144,652 160,291 180,150 EBITDA 25,076 30,117 32,950 EBIT 17,534 22,089 23,801 Net interest expense/(inc.) 46 283 270 Recurring PBT 22,253 29,329 32,031 Profit after tax 18,302 24,301 26,532 Reported net profit 15,156 21,530 23,530 Net profit (Credit Suisse) 15,156 21,530 23,530

Balance Sheet (Rp bn) 12/16A 12/17E 12/18E

Cash & cash equivalents 29,357 28,310 27,027 Current receivables 22,910 21,510 8,294 Inventories 17,771 15,125 7,363 Other current assets 40,365 43,812 48,275 Current assets 110,403 108,757 90,958 Property, plant & equip. 49,912 52,444 52,233 Investments 33,987 40,368 48,072 Intangibles 1 1 2 Other non-current assets 67,553 55,409 61,306 Total assets 261,856 256,980 252,570 Current liabilities 89,079 68,023 60,418 Total liabilities 121,949 108,874 91,108 Shareholders' equity 111,951 118,282 128,635 Minority interests 27,955 29,822 32,824 Total liabilities & equity 261,855 256,979 252,567

Cash Flow (Rp bn) 12/16A 12/17E 12/18E

EBIT 17,534 22,089 23,801 Net interest 0 0 0 Tax paid 0 0 0 Working capital 589 (7,708) 2,671 Other cash & non-cash items 1,284 7,128 3,716 Operating cash flow 19,407 21,509 30,188 Capex (11,630) (12,957) (10,966) Free cash flow to the firm 7,777 8,551 19,223 Investing cash flow (10,798) (1,554) (19,040) Equity raised 0 0 0 Dividends paid (8,140) (9,094) (12,311) Financing cash flow (3,592) (19,383) (16,576) Total cash flow 5,017 572 (5,427) Adjustments (437) 0 0 Net change in cash 4,580 572 (5,427)

Per share 12/16A 12/17E 12/18E

Shares (wtd avg.) (mn) 40,484 40,484 40,484 EPS (Credit Suisse) (Rp) 374 532 581 DPS (Rp) 201 225 304 Operating CFPS (Rp) 479 531 746

Earnings 12/16A 12/17E 12/18E

Growth (%) Sales revenue (1.7) 11.7 11.6 EBIT 1.9 26.0 7.8 EPS 4.8 42.1 9.3 Margins (%) EBITDA 13.8 14.9 14.6 EBIT 9.7 10.9 10.5

Valuation (x) 12/16A 12/17E 12/18E

P/E 22.8 16.0 14.7 P/B 3.08 2.92 2.68 Dividend yield (%) 2.4 2.6 3.6 EV/sales 2.1 1.9 1.7 EV/EBITDA 15.4 12.7 11.4 EV/EBIT 22.1 17.3 15.8

ROE analysis (%) 12/16A 12/17E 12/18E

ROE 14.2 18.7 19.1 ROIC 8.2 10.0 10.5

Credit ratios 12/16A 12/17E 12/18E

Net debt/equity (%) 29.7 25.0 18.7 Net debt/EBITDA (x) 1.66 1.23 0.92

Company Background

ASII is involved in 4 main businesses: automotive, financial services, UT and AALI. It also has various businesses that make up 4% of revenues and 3% of net income (including some infrastructure, water distribution, IT, etc.).

Blue/Grey Sky Scenario

Our Blue Sky Scenario (Rp) 10,400

Our blue sky scenario TP of 10,400/share implies 12% volume growth for 4W, which resulted in the auto division P/E rerating to 23x.

Our Grey Sky Scenario (Rp) 8,700

Our grey sky scenario TP of 7,600/share implies 12% volume growth for 4W, but with a worse market share for Astra International which resulted in the auto division P/E derating to 12x.


The price relative chart measures performance against the JSX COMPOSITE

INDEX which closed at 5,567.13 on 24-Mar-2017

On 24-Mar-2017 the spot exchange rate was Rp13,328/US$1


27 March 2017


Asia Pacific/Indonesia Packaged Foods

Indofood CBP (ICBP.JK / ICBP IJ) Rating NEUTRAL Price (24-Mar-17, Rp) 8,600 Target price (Rp) 9,500 Upside/downside (%) 10.5 Mkt cap (Rp/US$ bn) 100,292 / 7.52 Enterprise value (Rp bn) 93,526 Number of shares (mn) 11,662 Free float (%) 19.4 52-wk price range (Rp) 10,000-7,250 ADTO-6M (US$ mn) 3.0 Target price is for 12 months.

Research Analysts

Ella Nusantoro

62 21 2553 7917

[email protected]

COMPANY UPDATE

Noodle pricing power

■ Good results in 9M16. PT Indofood CBP Sukses Makmur (ICBP), a subsidiary

of PT Indofood Sukses Makmur (INDF) delivered another good round of

earnings—9M16 net profit slightly higher than our initial estimates. Revenue

rose 10% YoY to Rp26.5 tn, with net profit soaring 16% YoY to Rp2.8 tn.

■ Noodles accounted for 64% of ICBP's revenue and 75% of operating

profit in 9M16. We are estimating a 2% higher volume and a 5% ASP

increase this year for noodles. However, with the surprise price increase on

noodles despite the still low wheat prices, margins for the segment may get

pressured. Nevertheless, this might be underpinned from the rise in other

input cost such as palm oil (at its highest since July 2012) and chilli prices. An

approximate 4% price increase took place in early January. The last price

increase by around the same amount was in January of last year.

■ Dairy business accounts for 20% of revenue and 25% of operating profit

with its operating margin at its highest of 18.5%. With the rise in sugar

prices and skim milk powder, we are concerned that the high margin might

not be sustainable.

■ Expanding the ice-cream business. ICBP is looking to expand its ice-

cream business this year. It recently relaunched its brand Espessia and

launched the Nusantara flavours. It will start to invest in freezers as well as

expanding the distribution network. Based on Euromonitor data, the ice-

cream industry in Indonesia is reported to have 2016E sales of Rp5.7 tn

(US$435 mn), witnessing an 18% CAGR for 2011-16E. The industry is also

projected to rise at a 16% CAGR in 2016E-21E, reaching Rp11.8 tn (US$905

mn).





Rp13,328/US$1

Performance 1M 3M 12M Absolute (%) 4.2 13.9 13.0 Relative (%) 0.4 3.2 -2.4


Year 12/15A 12/16E 12/17E 12/18E Revenue (Rp bn) 31,741.1 34,912.1 38,669.2 42,649.7 EBITDA (Rp bn) 4,690.9 5,878.0 6,231.9 6,842.1 EBIT (Rp bn) 3,992.1 4,985.3 5,129.2 5,531.9 Net profit (Rp bn) 3,000.7 3,642.0 3,776.3 4,103.0 EPS (CS adj.) (Rp) 257.31 312.30 323.82 351.83 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rp) n.a. 315.17 343.76 379.96 EPS growth (%) 13.5 21.4 3.7 8.7 P/E (x) 33.4 27.5 26.6 24.4 Dividend yield (%) 1.2 1.5 1.8 1.9 EV/EBITDA (x) 20.3 16.0 14.9 13.3 P/B (x) 6.49 5.70 5.13 4.61 ROE (%) 20.6 22.0 20.3 19.9 Net debt/equity (%) Net cash Net cash Net cash Net cash


27 March 2017


Indofood CBP (ICBP.JK / ICBP IJ)

Price (24 Mar 2017): Rp8,600; Rating: NEUTRAL; Target Price: Rp9,500; Analyst: Ella Nusantoro

Income Statement (Rp bn) 12/15A 12/16E 12/17E 12/18E

Sales revenue 31,741 34,912 38,669 42,650 Cost of goods sold 22,122 23,953 26,926 29,612 EBITDA 4,691 5,878 6,232 6,842 EBIT 3,992 4,985 5,129 5,532 Net interest expense/(inc.) (112) (170) (202) (219) Recurring PBT 4,010 5,066 5,268 5,727 Profit after tax 2,923 3,799 3,951 4,295 Reported net profit 3,001 3,642 3,776 4,103 Net profit (Credit Suisse) 3,001 3,642 3,776 4,103

Balance Sheet (Rp bn) 12/15A 12/16E 12/17E 12/18E

Cash & cash equivalents 7,658 9,310 10,429 11,914 Current receivables 3,364 3,352 3,683 4,125 Inventories 2,547 2,710 3,076 3,404 Other current assets 393 429 457 492 Current assets 13,962 15,800 17,645 19,935 Property, plant & equip. 6,556 7,555 8,452 9,142 Investments 1,119 1,119 1,119 1,119 Intangibles 4,052 3,919 3,786 3,653 Other non-current assets 872 998 1,059 1,157 Total assets 26,561 29,391 32,061 35,006 Current liabilities 6,002 6,608 7,186 7,796 Total liabilities 10,174 11,020 11,909 12,831 Shareholders' equity 15,455 17,597 19,552 21,767 Minority interests 932 775 600 408 Total liabilities & equity 26,561 29,391 32,061 35,006

Cash Flow (Rp bn) 12/15A 12/16E 12/17E 12/18E

EBIT 3,992 4,985 5,129 5,532 Net interest 112 170 202 219 Tax paid (1,086) (1,266) (1,317) (1,432) Working capital 188 380 (131) (206) Other cash & non-cash items 268 266 996 1,300 Operating cash flow 3,473 4,535 4,879 5,413 Capex (1,219) (1,892) (2,000) (2,000) Free cash flow to the firm 2,255 2,643 2,879 3,413 Investing cash flow (1,477) (1,504) (2,059) (2,170) Equity raised 0 0 0 0 Dividends paid (1,203) (1,500) (1,821) (1,888) Financing cash flow (1,643) (1,500) (1,821) (1,757) Total cash flow 354 1,530 999 1,485 Adjustments 0 0 0 0 Net change in cash 354 1,530 999 1,485

Per share 12/15A 12/16E 12/17E 12/18E

Shares (wtd avg.) (mn) 11,662 11,662 11,662 11,662 EPS (Credit Suisse) (Rp) 257 312 324 352 DPS (Rp) 103 129 156 162 Operating CFPS (Rp) 298 389 418 464

Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales revenue 5.7 10.0 10.8 10.3 EBIT 25.3 24.9 2.9 7.9 EPS 13.5 21.4 3.7 8.7 Margins (%) EBITDA 14.8 16.8 16.1 16.0 EBIT 12.6 14.3 13.3 13.0

Valuation (x) 12/15A 12/16E 12/17E 12/18E

P/E 33.4 27.5 26.6 24.4 P/B 6.49 5.70 5.13 4.61 Dividend yield (%) 1.2 1.5 1.8 1.9 EV/sales 3.0 2.7 2.4 2.1 EV/EBITDA 20.3 16.0 14.9 13.3 EV/EBIT 23.9 18.8 18.1 16.5

ROE analysis (%) 12/15A 12/16E 12/17E 12/18E

ROE 20.6 22.0 20.3 19.9 ROIC 26.4 32.0 31.6 32.4

Credit ratios 12/15A 12/16E 12/17E 12/18E

Net debt/equity (%) (29.8) (35.4) (37.9) (41.1) Net debt/EBITDA (x) (1.04) (1.11) (1.22) (1.33)

Company Background

Indofood CBP, a subsidiary of Indofood Sukses Makmur (INDF.JK), is an established market-leading producer of packaged food products. It has a diverse range of products providing everyday food solutions. Its five business units include noodles, dairy, snack and foods, food seasoning and beverages,



Our Blue sky scenario TP of Rp11,500 implies P/E of 35.5x on the back of softer commodity prices and stronger volume growth


Our Grey sky scenario TP of Rp8,500 implies P/E of 26.3x on the back of higher commodity prices and weaker volume growth






27 March 2017


Asia Pacific/Indonesia Tobacco

Hanjaya Mandala Sampoerna

(HMSP.JK / HMSP IJ) Rating NEUTRAL Price (24-Mar-17, Rp) 4,000 Target price (Rp) 4,340 Upside/downside (%) 8.5 Mkt cap (Rp/US$ bn) 465,272 / 34.91 Enterprise value (Rp bn) 464,407 Number of shares (mn) 116,318 Free float (%) 7.5 52-wk price range (Rp) 4,240-3,630 ADTO-6M (US$ mn) 4.8 Target price is for 12 months.

Research Analysts

Ella Nusantoro

62 21 2553 7917

[email protected]

COMPANY UPDATE

Indonesia’s largest cigarette maker

■ PT Hanjaya Mandala Sampoerna Tbk (“HMSP”) is the largest tobacco

company in Indonesia, with volume of 105.6 bn sticks in FY16. HMSP

reported a better-than-expected FY16 with net profit soaring 23% YoY to

Rp12.8 tn, on 7% higher sales YoY at Rp95.5 tn. FY16 sales account for

97% of our estimates, while the net profit was 7% higher than our estimates.

■ Higher net profit was mainly due to a better-than-expected interest income

of Rp854 bn, driven by its cash of Rp5 tn and other short-term financial assets of

Rp1.6 tn. The company is in a net cash position. Lower opex (+2% YoY) also

helped profitability. On average, the company increased its selling price by

about 12% YoY, slightly higher than our estimates.

■ HMSP’s market share stood at 28.9% for Sigaret Kretek Mesin (SKM),

37.3% for Sigaret Kretek Tangan (SKT) and 79.5% Sigaret Putih Mesin

(SPM), as compared to 29.7%, 37.7%, and 80.3% in FY15, respectively, a

general decline across three segments for FY16.

■ HMSP remains most preferred by our respondents in the survey, with

39% market share, with a notable preference from people in the urban area.

■ The GoI is targeting Rp157.16 tn of excise tax in 2017. It has raised excise

duty by an average of 9%, which became effective on 1 January 2017

(weighted average at 10.2%). We can then assume that flat volume growth is

expected this year. Our volume growth forecast for HMSP is 2% for 2017.





Rp13,328/US$1

Performance 1M 3M 12M Absolute (%) 3.9 9.9 0.2 Relative (%) 0.0 -0.8 -15.1


Year 12/15A 12/16E 12/17E 12/18E Revenue (Rp bn) 89,069.3 95,899.8 101,835.0 108,447.5 EBITDA (Rp bn) 14,467.4 15,928.8 16,810.2 18,018.2 EBIT (Rp bn) 14,048.1 15,449.5 16,270.9 17,418.9 Net profit (Rp bn) 10,425.1 12,323.3 12,794.0 13,526.7 EPS (CS adj.) (Rp) 89.63 105.94 109.99 116.29 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rp) n.a. 110.00 114.27 125.76 EPS growth (%) (4.6) 18.2 3.8 5.7 P/E (x) 44.6 37.8 36.4 34.4 Dividend yield (%) 2.6 2.7 2.7 2.9 EV/EBITDA (x) 32.1 29.1 27.6 25.8 P/B (x) 14.53 14.53 14.53 14.53 ROE (%) 45.8 38.5 40.0 42.2 Net debt/equity (%) Net cash Net cash Net cash Net cash


27 March 2017


Hanjaya Mandala Sampoerna (HMSP.JK / HMSP IJ)



Sales revenue 89,069 95,900 101,835 108,448 Cost of goods sold 67,305 72,510 77,187 81,987 EBITDA 14,467 15,929 16,810 18,018 EBIT 14,048 15,450 16,271 17,419 Net interest expense/(inc.) 69 (748) (586) (457) Recurring PBT 13,994 16,197 16,857 17,876 Profit after tax 10,425 12,323 12,794 13,527 Reported net profit 10,425 12,323 12,794 13,527 Net profit (Credit Suisse) 10,425 12,323 12,794 13,527


Cash & cash equivalents 1,719 1,463 1,117 1,110 Current receivables 4,727 3,828 3,651 1,793 Inventories 19,072 19,682 21,347 23,055 Other current assets 4,290 4,281 3,069 3,244 Current assets 29,807 29,254 29,183 29,201 Property, plant & equip. 6,281 7,002 7,663 8,263 Investments 781 780 779 778 Intangibles 60 60 60 60 Other non-current assets 1,081 1,198 1,299 1,399 Total assets 38,011 38,294 38,984 39,701 Current liabilities 4,538 4,629 5,095 5,554 Total liabilities 5,994 6,278 6,968 7,685 Shareholders' equity 32,016 32,016 32,016 32,016 Minority interests 0 0 0 0 Total liabilities & equity 38,010 38,294 38,984 39,701


EBIT 14,048 15,450 16,271 17,419 Net interest (69) 748 586 457 Tax paid (3,569) (3,874) (4,063) (4,350) Working capital (13,602) 388 191 434 Other cash & non-cash items 373 545 539 599 Operating cash flow (2,820) 13,256 13,525 14,560 Capex (781) (1,200) (1,200) (1,200) Free cash flow to the firm (3,601) 12,056 12,325 13,360 Investing cash flow (1,020) (1,316) (1,300) (1,299) Equity raised 20,413 0 0 0 Dividends paid (12,259) (12,389) (12,794) (13,527) Financing cash flow 5,493 (12,196) (12,571) (13,268) Total cash flow 1,654 (256) (346) (7) Adjustments 0 0 0 0 Net change in cash 1,654 (256) (346) (7)

Per share 12/15A 12/16E 12/17E 12/18E

Shares (wtd avg.) (mn) 116,318 116,318 116,318 116,318 EPS (Credit Suisse) (Rp) 90 106 110 116 DPS (Rp) 105 107 110 116 Operating CFPS (Rp) -24 114 116 125

Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales revenue 10.4 7.7 6.2 6.5 EBIT 1.8 10.0 5.3 7.1 EPS (4.6) 18.2 3.8 5.7 Margins (%) EBITDA 16.2 16.6 16.5 16.6 EBIT 15.8 16.1 16.0 16.1

Valuation (x) 12/15A 12/16E 12/17E 12/18E



ROE 45.8 38.5 40.0 42.2 ROIC 38.5 38.0 39.5 41.9



Company Background

PT HM Sampoerna Tbk is the largest tobacco company in Indonesia, with 109.7 bn cigarettes sold and overall market share of 34.9% in 2014. In 2005, it was acquired by Phillip Morris International (PMI).



Our Blue sky scenario TP Rp6,000 implies P/E of 54.5x on the back of higher volume of cigarette sticks sold


Our Grey sky scenario TP Rp3,000 implies P/E of 27.3x on the back of weaker volume of cigarette sticks sold






27 March 2017


Asia Pacific/Indonesia Tobacco

Gudang Garam (GGRM.JK / GGRM IJ) Rating NEUTRAL Price (24-Mar-17, Rp) 64,925 Target price (Rp) 74,100 Upside/downside (%) 14.1 Mkt cap (Rp/US$ bn) 124,921 / 9.37 Enterprise value (Rp bn) 142,180 Number of shares (mn) 1,924 Free float (%) 23.6 52-wk price range (Rp) 77,500-59,300 ADTO-6M (US$ mn) 3.9 Target price is for 12 months.

Research Analysts

Ella Nusantoro

62 21 2553 7917

[email protected]

COMPANY UPDATE

Getting more popular, according to our survey

■ PT Gudang Garam Tbk (GGRM) is Indonesia’s second largest tobacco

producer. GGRM produces kretek cigarettes with brands such as GG Surya,

GG FIM, GG Merah, GG Pro Mild, and GG Mild.

■ According to our consumer survey, GGRM has increased overall

popularity among our respondents, from 25% last year to 30% this year.

GGRM’s product has been especially strong in rural areas and amongst the

lower segment of the income bracket.

■ Year to date March 2017, we have seen another price increase from GGRM

in the middle of February. The increase is expected given the higher excise

duty (around 9% increase YoY) and higher VAT costs (9.1% of banderole

prices vs 8.7% last year). The new excise duty and VAT tariffs became

effective on 1 January 2017.

■ There is no price increase for GG Surya 16 and GG Mild 16, which we

believe is due to weaker volumes. The price increase for GG Merah is around

2% and that for GG FIM is 1.4%, while the price for GG Pro Mild increased by

2.5%. At the same time, the company is also adjusting its banderole prices.

■ As for FY16, GG reported around 3% lower volume, whereas the

industry’s estimated decline was by 0.8%.

■ We have a NEUTRAL rating on the stock, as we believe that in light of the

government's need to collect more tax revenue, the cigarette sector may not

see much benefit. Also, with the weak volumes, GG might continue to be

sensitive on increasing its products.





Rp13,328/US$1



Year 12/15A 12/16E 12/17E 12/18E Revenue (Rp bn) 70,365.6 76,363.2 84,248.5 91,612.0 EBITDA (Rp bn) 11,712.7 12,323.9 13,289.0 14,626.6 EBIT (Rp bn) 9,997.6 10,475.5 11,307.2 12,511.5 Net profit (Rp bn) 6,368.4 6,937.0 7,650.3 8,719.5 EPS (CS adj.) (Rp) 3,310 3,605 3,976 4,532 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rp) n.a. 3,489 3,899 4,404 EPS growth (%) 17.8 8.9 10.3 14.0 P/E (x) 19.6 18.0 16.3 14.3 Dividend yield (%) 1.2 4.0 2.2 2.3 EV/EBITDA (x) 12.2 11.6 10.5 9.3 P/B (x) 3.30 3.14 2.79 2.47 ROE (%) 18.0 17.8 18.1 18.3 Net debt/equity (%) 46.9 45.1 32.8 20.7


27 March 2017


Gudang Garam (GGRM.JK / GGRM IJ)



Sales revenue 70,366 76,363 84,248 91,612 Cost of goods sold 54,880 59,941 66,384 71,860 EBITDA 11,713 12,324 13,289 14,627 EBIT 9,998 10,475 11,307 12,512 Net interest expense/(inc.) 1,430 1,202 1,080 855 Recurring PBT 8,568 9,274 10,227 11,657 Profit after tax 6,386 6,955 7,670 8,742 Reported net profit 6,368 6,937 7,650 8,719 Net profit (Credit Suisse) 6,368 6,937 7,650 8,719


Cash & cash equivalents 2,726 1,502 1,753 1,508 Current receivables 1,568 1,989 2,251 2,346 Inventories 37,256 38,644 40,791 42,518 Other current assets 1,019 618 682 742 Current assets 42,568 42,753 45,477 47,114 Property, plant & equip. 20,106 20,258 20,276 20,161 Investments 0 0 0 0 Intangibles 0 0 0 0 Other non-current assets 830 897 989 1,088 Total assets 63,505 63,908 66,743 68,363 Current liabilities 24,045 22,381 19,979 15,642 Total liabilities 25,498 23,966 21,724 17,576 Shareholders' equity 37,900 39,834 44,791 50,624 Minority interests 108 108 108 108 Total liabilities & equity 63,505 63,908 66,623 68,308


EBIT 9,998 10,475 11,307 12,512 Net interest (1,430) (1,202) (1,080) (855) Tax paid (2,182) (2,318) (2,557) (2,914) Working capital (5,050) (2,011) (1,875) (1,720) Other cash & non-cash items 268 628 882 1,237 Operating cash flow 1,604 5,572 6,677 8,260 Capex (2,848) (2,000) (2,000) (2,000) Free cash flow to the firm (1,244) 3,572 4,677 6,260 Investing cash flow (2,950) (2,066) (2,093) (2,098) Equity raised 0 0 0 0 Dividends paid (1,534) (5,003) (2,694) (2,886) Financing cash flow 990 (5,931) (5,534) (7,196) Total cash flow (357) (2,425) (949) (1,034) Adjustments 0 0 0 0 Net change in cash (357) (2,425) (949) (1,034)

Per share 12/15A 12/16E 12/17E 12/18E

Shares (wtd avg.) (mn) 1,924 1,924 1,924 1,924 EPS (Credit Suisse) (Rp) 3,310 3,605 3,976 4,532 DPS (Rp) 800 2,600 1,400 1,500 Operating CFPS (Rp) 834 2,896 3,470 4,293

Earnings 12/15A 12/16E 12/17E 12/18E


Valuation (x) 12/15A 12/16E 12/17E 12/18E



ROE 18.0 17.8 18.1 18.3 ROIC 14.1 13.8 14.4 15.5


Net debt/equity (%) 46.9 45.1 32.8 20.7 Net debt/EBITDA (x) 1.52 1.46 1.11 0.72

Company Background

Gudang Garam is Indonesia’s second largest tobacco producer, with an estimated market share of 21.5% in FY15. It produces kretek cigarettes with brands such as GG Surya, GG FIM, GG Merah, GG Pro Mild, and GG Mild.



Our blue sky scenario target price of Rp77,670 equates to 21.7x 2016E P/E.


Our grey sky scenario target price of Rp70,445 equates to 19.7x 2016E P/E.






27 March 2017


Asia Pacific/Indonesia Department Stores

Matahari Department Store (LPPF.JK / LPPF IJ) Rating OUTPERFORM Price (24-Mar-17, Rp) 13,900 Target price (Rp) 16,100 Upside/downside (%) 15.8 Mkt cap (Rp/US$ bn) 40,559 / 3.04 Enterprise value (Rp bn) 38,830 Number of shares (mn) 2,918 Free float (%) 65.3 52-wk price range (Rp) 21,500-11,725 ADTO-6M (US$ mn) 8.8 Target price is for 12 months.

Research Analysts

Ella Nusantoro

62 21 2553 7917

[email protected]

Benny Kurniawan

COMPANY UPDATE

Riding the improving consumer trend

■ Largest department store operator in town. Matahari Department store is

one of the largest department stores in Indonesia with 43% market share (as

of 2015), according to Euromonitor. Matahari operates 151 stores pan-

Indonesia, with a high exposure to ex-Java (61 stores). The company

recently recorded 5.5% same-store sales growth in 2016, down from 6.8% in

2015 on the back of slower economic growth and tighter competition.

■ Sweet spot of the market. Matahari caters to the best segment in Indonesia,

the rising middle class segment. This is the sweet spot in the Indonesian

consumer space. The people in this segment tend to be young individuals

who are brand sensitive and would want to upgrade themselves.

■ Strong private label brand. Private labels made up 38% of Matahari

Department stores’ gross sales, and it continued to perform well on the back

of strong brand recognition (especially Nevada) and continuous innovation.

Matahari recently launched its private label initiative, ‘gap brands’. Gap

brands aim to cater to the widening price gap between consignment and

private label merchandise. Our consumer survey this year showed that the

consumer’s preference towards Nevada remained high, at 7%.

■ OUTPERFORM. Although competition is expected to remain tough,

especially from specialty stores, we believe the improvement in commodity

prices will eventually trickle down and aid consumption. With 38% of its gross

sales originating from the ex-Java region, we believe Matahari started to book

improvements in 2H16. Its current valuation at 18x 2017E P/E also looks

reasonably attractive given that the company is debt-free and is the best

department store operator in town.





Rp13,328/US$1

Performance 1M 3M 12M Absolute (%) -5.8 -2.6 -22.8 Relative (%) -9.7 -13.4 -38.1




27 March 2017


Matahari Department Store (LPPF.JK / LPPF IJ)

Price (24 Mar 2017): Rp13,900; Rating: OUTPERFORM; Target Price: Rp16,100; Analyst: Ella Nusantoro


Sales revenue 9,897 11,252 12,568 13,868 Cost of goods sold 3,685 4,357 4,933 5,444 EBITDA 2,784 3,026 3,285 3,514 EBIT 2,528 2,755 2,996 3,205 Net interest expense/(inc.) 1 (48) (64) (102) Recurring PBT 2,533 2,803 3,060 3,308 Profit after tax 2,020 2,243 2,448 2,646 Reported net profit 2,020 2,243 2,448 2,646 Net profit (Credit Suisse) 2,020 2,243 2,448 2,646


Cash & cash equivalents 1,713 1,782 2,607 3,528 Current receivables 95 98 112 122 Inventories 995 1,197 1,319 1,414 Other current assets 171 213 238 264 Current assets 2,974 3,291 4,277 5,328 Property, plant & equip. 1,060 1,168 1,311 1,492 Investments 0 0 0 0 Intangibles 0 0 0 1 Other non-current assets 825 1,524 1,612 1,699 Total assets 4,859 5,983 7,200 8,520 Current liabilities 2,588 2,842 3,136 3,472 Total liabilities 3,004 3,299 3,639 4,025 Shareholders' equity 5,427 6,256 7,133 8,067 Minority interests 0 0 0 0 Total liabilities & equity 4,859 5,983 7,200 8,519


EBIT 2,528 2,755 2,996 3,205 Net interest (93) (1) 48 64 Tax paid 0 0 0 0 Working capital 214 7 133 205 Other cash & non-cash items (118) (239) (308) (315) Operating cash flow 2,531 2,521 2,869 3,160 Capex (360) (380) (431) (490) Free cash flow to the firm 2,172 2,141 2,438 2,670 Investing cash flow (507) (1,079) (519) (577) Equity raised 0 0 0 0 Dividends paid (1,247) (1,414) (1,570) (1,714) Financing cash flow (1,259) (1,373) (1,524) (1,664) Total cash flow 766 69 825 920 Adjustments 0 0 0 0 Net change in cash 766 69 825 920

Per share 12/16A 12/17E 12/18E 12/19E

Shares (wtd avg.) (mn) 2,918 2,918 2,918 2,918 EPS (Credit Suisse) (Rp) 692 769 839 907 DPS (Rp) 427 485 538 587 Operating CFPS (Rp) 868 864 983 1,083

Earnings 12/16A 12/17E 12/18E 12/19E


Valuation (x) 12/16A 12/17E 12/18E 12/19E



ROE 40.0 38.4 36.6 34.8 ROIC 1335.5 422.1 258.3 266.8



Company Background

Matahari Department Store operates department stores across Indonesia. It offers various fashion items for men, women and kids, including clothing, bags, shoes and accessories.



Our blue sky target price of Rp19,000 implies 8% SSSG on the back of better-than-expected macroeconomic conditions.


Our grey sky scenario target price of Rp12,500 implies the valuation derates as a result of weaker-than-expected SSSG on the back of political overhang.






27 March 2017


Asia Pacific/Indonesia Retailing Conglomerates

Mitra Adiperkasa (MAPI.JK / MAPI IJ) Rating OUTPERFORM Price (24-Mar-17, Rp) 5,925 Target price (Rp) 6,400 Upside/downside (%) 8.0 Mkt cap (Rp/US$ bn) 9,836 / 0.74 Enterprise value (Rp bn) 12,408 Number of shares (mn) 1,660 Free float (%) 44.0 52-wk price range (Rp) 6,075-3,780 ADTO-6M (US$ mn) 0.4 Target price is for 12 months.

Research Analysts

Ella Nusantoro

62 21 2553 7917

[email protected]

Benny Kurniawan

COMPANY UPDATE

Diverse brand portfolio but well-liked by consumers

■ Mitra Adiperkasa (“MAPI”) operates three lines of businesses, (1)

specialty stores, (2) department stores and (3) food and beverage. MAPI’s

target market is geared towards the higher-end of the population and more

than 60% of its space is in Jakarta. Our consumer survey this year indicates

that the high income bracket is the only segment seeing a recovery this year

and this should be positive for MAPI.

■ MAPI’s specialty stores cater to all age groups and segments, boasting

over 150 brands with top contributions from inditex group brands namely Zara,

Stradivarius, Pull & Bear and Bershka. MAPI also has its “active wear” division,

which includes brands such as Adidas, Nike, New Balance and many more. Our

consumer survey this year indicates that the respondents’ preference for Zara

amongst other branded fashion goods remains high at 5.4%, while Adidas and

Nike are the top preference for sports shoes for our respondents.

■ MAPI also operates the Starbucks chain in Indonesia, which has seen its

store count growing rapidly over the past ten years. Starbucks is seen as the

pioneer of the coffee culture in Indonesia and with the latest restructuring with

General Atlantic, we expect its store count growth to expand even faster.

■ We expect MAPI to be more prudent in brand acquisition going forward,

given that it closed a few non-performing brands last year. Nevertheless, the

growth trajectory for the company should remain high given the rising need of

Indonesian consumers for branded fashion and sports goods. Risk on the

company includes significant depreciation of the IDR as the company imports

most of its content.





Rp13,328/US$1



Year 12/15A 12/16E 12/17E 12/18E Revenue (Rp bn) 12,832.8 14,133.2 16,325.6 18,844.2 EBITDA (Rp bn) 1,133.1 1,324.8 1,596.3 1,805.5 EBIT (Rp bn) 536.1 706.7 958.0 1,147.0 Net profit (Rp bn) 37.3 202.7 350.4 555.6 EPS (CS adj.) (Rp) 22.49 122.08 211.11 334.72 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rp) n.a. 118.08 207.74 281.97 EPS growth (%) (49.1) 442.8 72.9 58.6 P/E (x) 263.4 48.5 28.1 17.7 Dividend yield (%) 0.0 0.0 0.3 0.5 EV/EBITDA (x) 11.5 9.4 7.6 6.4 P/B (x) 3.90 3.62 3.24 2.78 ROE (%) 1.5 7.7 12.2 16.9 Net debt/equity (%) 106.0 82.6 64.1 43.7


27 March 2017


Mitra Adiperkasa (MAPI.JK / MAPI IJ)

Price (24 Mar 2017): Rp5,925; Rating: OUTPERFORM; Target Price: Rp6,400; Analyst: Ella Nusantoro


Sales revenue 12,833 14,133 16,326 18,844 Cost of goods sold 7,050 7,671 8,833 10,164 EBITDA 1,133 1,325 1,596 1,806 EBIT 536 707 958 1,147 Net interest expense/(inc.) 388 369 374 292 Recurring PBT 148 338 584 855 Profit after tax 30 203 350 556 Reported net profit 37 203 350 556 Net profit (Credit Suisse) 37 203 350 556


Cash & cash equivalents 504 1,990 1,787 1,699 Current receivables 568 670 765 873 Inventories 3,356 3,531 3,993 4,455 Other current assets 1,268 1,158 1,270 1,337 Current assets 5,696 7,348 7,814 8,364 Property, plant & equip. 2,685 2,466 2,208 1,928 Investments 497 497 497 497 Intangibles 38 38 38 38 Other non-current assets 567 619 705 804 Total assets 9,483 10,970 11,264 11,631 Current liabilities 3,291 3,628 4,071 4,355 Total liabilities 6,508 7,748 7,721 7,586 Shareholders' equity 2,521 2,719 3,039 3,543 Minority interests 0 0 0 0 Total liabilities & equity 9,483 10,970 11,264 11,631


EBIT 536 707 958 1,147 Net interest (388) (369) (374) (292) Tax paid 0 0 0 0 Working capital (464) 58 (126) (204) Other cash & non-cash items 571 483 510 517 Operating cash flow 255 878 968 1,168 Capex (590) (420) (404) (404) Free cash flow to the firm (335) 458 564 764 Investing cash flow (651) (453) (466) (477) Equity raised (51) 48 0 0 Dividends paid 0 (4) (30) (53) Financing cash flow 539 1,061 (705) (779) Total cash flow 143 1,486 (204) (88) Adjustments 0 0 0 0 Net change in cash 143 1,486 (204) (88)

Per share 12/15A 12/16E 12/17E 12/18E


Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales revenue 8.5 10.1 15.5 15.4 EBIT (2.0) 31.8 35.6 19.7 EPS (49.1) 442.8 72.9 58.6 Margins (%) EBITDA 8.8 9.4 9.8 9.6 EBIT 4.2 5.0 5.9 6.1

Valuation (x) 12/15A 12/16E 12/17E 12/18E



ROE 1.5 7.7 12.2 16.9 ROIC 1.9 7.1 9.8 12.8



Company Background

MAPI operates department stores (SEIBU, SOGO, Galleries Lafayette), Specialy stores (mainly fashion, which includes: ZARA, Lacoste, etc) and F&B division (Starbucks, Genki Sushi, Godiva).



Our blue sky scenario’s TP of Rp8,600/share implies improvement in gross margins level to 48% in 2017-21E.


Our grey sky scenario’s target price of Rp4,600/share implies weaker gross margins as a result of discounting.






27 March 2017


Asia Pacific/Indonesia Integrated Telecommunication Services

PT Telkom (Telekomunikasi Indo.) (TLKM.JK

/ TLKM IJ) Rating OUTPERFORM Price (24-Mar-17, Rp) 4,080 Target price (Rp) 4,750 Upside/downside (%) 16.4 Mkt cap (Rp/US$ bn) 411,264 / 30.86 Enterprise value (Rp bn) 410,929 Number of shares (mn) 100,800 Free float (%) 48.8 52-wk price range (Rp) 4,550-3,285 ADTO-6M (US$ mn) 24.6 Target price is for 12 months.

Research Analysts

Colin McCallum, CA

852 2101 6514

[email protected]

COMPANY UPDATE

Re-accelerating growth in TLKM and improving

profitability in fixed line

■ Telkomsel's revenue grew by 13.0% YoY into 4Q16, in a re-acceleration

from the 11.4% YoY growth delivered in 3Q16, as Telkomsel successfully

pushed through further tariff increases. The result also shows that

Telkomsel's 4G 'combo' packages—launched in mid-2016 in a competitive

response to Indosat and XL's packages—were skillfully constructed to

prevent revenue erosion and create an ARPU uplift.

■ Across FY16 as a whole Telkomsel's revenue grew by 14.0%, in line with

our forecast. Telkomsel was able to increase voice revenue by 10.1% YoY, in

spite of cannibalisation from OTT services such as Whatsapp, while declines

in SMS revenue were limited to 3.3% YoY. Of course, this small decline was

more than offset by 36.6% YoY growth in data revenues and 38.8% YoY

growth in digital revenues. Importantly, there is still some room for this to

continue; Telkomsel's 3G/4G smartphone subscriber base increased 33.9%

YoY to 82.6 mn, representing just 47.4% of the total subscriber base.

■ The visibility of quarterly results of the fixed line business is not as

good, particularly on a quarterly basis. But the fixed line YoY revenue figure

looked fairly strong, with revenue growing by 11.8% YoY into 4Q16. We

believe that the primary driver is the growth of the fibre broadband IndiHome

business. The total subscriber base (both fibre and xDSL) reached 1.624 mn

as at 31 December, up 52.1% YoY, while ARPU was stated as Rp341,000,

up 8.9% QoQ from Rp313,000 in 3Q16.

■ With another very strong Telkomsel contribution, and with Telkom fixed

line contributing less of a drag on profitability, consolidated EBITDA and

consolidated net profit grew by 15.7% YoY and 24.9% YoY across FY16,

respectively. PT Telkom remains the only liquid (large cap) way to invest in

the successful monetisation of Indonesia's data boom.





Rp13,328/US$1

Performance 1M 3M 12M Absolute (%) 5.2 10.6 23.3 Relative (%) 1.3 -0.2 7.9


Year 12/16A 12/17E 12/18E 12/19E Revenue (Rp bn) 116,333.0 129,438.4 139,193.8 145,222.1 EBITDA (Rp bn) 59,498.0 65,367.2 70,179.8 73,086.6 EBIT (Rp bn) 40,966.0 45,142.2 48,661.0 50,794.6 Net profit (Rp bn) 19,352.0 23,317.7 25,599.3 27,225.8 EPS (CS adj.) (Rp) 196.19 240.14 263.63 280.39 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rp) n.a. 227.95 257.07 290.27 EPS growth (%) 25.9 22.4 9.8 6.4 P/E (x) 20.8 17.0 15.5 14.6 Dividend yield (%) 3.1 3.5 3.9 5.5 EV/EBITDA (x) 6.9 6.2 5.7 5.4 P/B (x) 4.69 4.23 3.81 3.62 ROE (%) 24.3 26.2 25.9 25.5 Net debt/equity (%) 0.5 Net cash Net cash Net cash


27 March 2017


PT Telkom (Telekomunikasi Indo.) (TLKM.JK / TLKM IJ)

Price (24 Mar 2017): Rp4,080; Rating: OUTPERFORM; Target Price: Rp4,750; Analyst: Colin McCallum


Sales revenue 116,333 129,438 139,194 145,222 Cost of goods sold 56,835 64,071 69,014 72,136 EBITDA 59,498 65,367 70,180 73,087 EBIT 40,966 45,142 48,661 50,795 Net interest expense/(inc.) 1,094 884 552 139 Recurring PBT 38,189 45,002 48,938 51,560 Profit after tax 29,172 33,952 36,904 38,870 Reported net profit 19,352 23,318 25,599 27,226 Net profit (Credit Suisse) 19,352 23,318 25,599 27,226


Cash & cash equivalents 31,238 35,178 44,518 51,705 Current receivables 0 0 0 0 Inventories 0 0 0 0 Other current assets 16,463 18,339 19,776 20,663 Current assets 47,701 53,517 64,294 72,368 Property, plant & equip. 114,498 122,665 125,880 125,846 Investments 1,847 2,297 2,808 3,370 Intangibles 3,089 3,089 3,089 3,089 Other non-current assets 12,476 12,476 12,476 12,476 Total assets 179,611 194,045 208,546 217,150 Current liabilities 39,762 42,612 45,177 46,589 Total liabilities 74,067 77,579 80,144 81,556 Shareholders' equity 84,384 93,711 103,951 109,396 Minority interests 21,160 22,755 24,451 26,197 Total liabilities & equity 179,611 194,045 208,546 217,150


EBIT 40,966 45,142 48,661 50,795 Net interest (1,094) (884) (552) (139) Tax paid (9,017) (11,051) (12,035) (12,690) Working capital (5,654) 1,736 1,228 625 Other cash & non-cash items 12,924 20,225 21,519 22,292 Operating cash flow 38,125 55,169 58,822 60,883 Capex (27,885) (28,392) (24,733) (22,259) Free cash flow to the firm 21,502 25,041 32,861 37,999 Investing cash flow (28,756) (28,392) (24,733) (22,259) Equity raised 3,442 0 0 0 Dividends paid (18,248) (22,836) (24,750) (31,437) Financing cash flow (9,066) (22,836) (24,750) (31,437) Total cash flow 303 3,940 9,339 7,187 Adjustments 0 0 0 (0) Net change in cash 303 3,940 9,339 7,187

Per share 12/16A 12/17E 12/18E 12/19E


Earnings 12/16A 12/17E 12/18E 12/19E


Valuation (x) 12/16A 12/17E 12/18E 12/19E



ROE 24.3 26.2 25.9 25.5 ROIC 30.8 31.1 32.1 33.1


Net debt/equity (%) 0.5 (2.9) (9.9) (14.7) Net debt/EBITDA (x) 0.01 (0.05) (0.18) (0.27)

Company Background

PT Telekomunikasi Indonesia, Tbk. (TELKOM) is an integrated telecommunication and network services provider in Indonesia.



Better-than-expected data monetisation and cost control drive a blue sky valuation of 8.1x EV/EBITDA.


Worse-than-expected data monetisation and cost control drive a grey sky valuation of 6.1x EV/EBITDA.






27 March 2017


Asia Pacific/Indonesia Wireless Telecommunication Services

XL Axiata Tbk (EXCL.JK / EXCL IJ) Rating OUTPERFORM [V] Price (24-Mar-17, Rp) 3,270 Target price (Rp) 3,950 Upside/downside (%) 20.8 Mkt cap (Rp/US$ bn) 34,950 / 2.62 Enterprise value (Rp bn) 50,204 Number of shares (mn) 10,688 Free float (%) 20.1 52-wk price range (Rp) 3,946-2,040 ADTO-6M (US$ mn) 2.0 Target price is for 12 months.

[V] = Stock Considered Volatile (see Disclosure Appendix)

Research Analysts

Colin McCallum, CA

852 2101 6514

[email protected]

COMPANY UPDATE

Signs of revenue recovery

■ Despite net cellular revenue declining by 5.5% across FY16, XL's revenue

trajectory has now bottomed and is improving. XL's net cellular revenue grew by

0.6% QoQ into 4Q16. The key revenue growth driver is the 'XL Xtra' 4G

packages, initially launched in June 2016. Together with the launch of U900, the

XL Xtra packages also contributed to 2.7% QoQ growth in the average size of

the subscriber base, as XL enjoyed some success in rebuilding scale.

■ XL's shift in strategy in 2015, together with the relatively cost-efficient

nature of the 4G rollout (especially when compared with 3G), seems to have

successfully improved the company's cost structure. However, we noted in

2Q16 that a side-effect of XL's strategy of reducing SIM starter pack sales

was the loss of support from traditional resellers, and this prompted XL to

increase commissions in 3Q16. Costs continued to be an issue in 4Q16, with

EBITDA declining 8.0% QoQ and 21.5% YoY thanks to a sharp rise in A&P

expenses. Across FY16 as a whole, EBITDA therefore declined by 4.0%.

■ Over the last 18 months XL has made significant progress on strengthening

its balance sheet (through rights issue and a tower sale) and reducing its heavy

USD-denominated debt exposure. In FY16 as a whole, XL achieved net profit of

just Rp376 bn, despite recording Rp1.3 tn in tower gains in FY16.

■ For XL's shares to recover, revenue will need to continue to rise to cover

the heavy fixed cost base. Our view is that there is enough data volume

growth in Indonesia such that, if unlimited data plans continue to be avoided,

all of the 'big 3' operators should be able to grow revenue. On valuation, XL

does not yet look overly attractive on P/E, given the aforementioned heavy

fixed cost base. However, the expected cash flow yield in FY17 is supportive.

Indeed, XL's free cash flow yield is set to improve further in FY18. It is this

expectation, based on revenue rising and the capex-to-sales ratio easing to

23.0% as the 4G rollout is completed, that drives our target price of Rp3,950.





Rp13,328/US$1

Performance 1M 3M 12M Absolute (%) 4.5 45.3 -16.0 Relative (%) 0.6 34.6 -31.3


Year 12/16A 12/17E 12/18E 12/19E Revenue (Rp bn) 20,574.7 22,524.4 23,976.2 25,257.2 EBITDA (Rp bn) 8,055.8 8,863.5 9,433.6 10,042.5 EBIT (Rp bn) 12.0 1,283.5 1,723.7 1,792.8 Net profit (Rp bn) 375.3 588.9 984.2 1,114.3 EPS (CS adj.) (Rp) 38.35 55.15 92.18 104.36 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rp) n.a. 48.14 112.91 170.30 EPS growth (%) n.m. 43.8 67.1 13.2 P/E (x) 85.3 59.3 35.5 31.3 Dividend yield (%) 0.0 0.5 2.3 2.9 EV/EBITDA (x) 6.3 5.5 4.9 4.3 P/B (x) 1.51 1.61 1.60 1.59 ROE (%) 2.1 2.7 4.5 5.1 Net debt/equity (%) 73.7 64.5 53.7 39.4


27 March 2017


XL Axiata Tbk (EXCL.JK / EXCL IJ)

Price (24 Mar 2017): Rp3,270; Rating: OUTPERFORM [V]; Target Price: Rp3,950; Analyst: Colin McCallum


Sales revenue 20,575 22,524 23,976 25,257 Cost of goods sold 12,519 13,661 14,543 15,215 EBITDA 8,056 8,864 9,434 10,043 EBIT 12 1,284 It is

this expectation,

based on revenue

rising and the capex-to-

sales ratio easing to

23.0% as the 4G rollout is completed, that drives our target

price of Rp4,080.103

1,724 1,793 Net interest expense/(inc.) 1,533 998 911 807 Recurring PBT 185 785 1,312 1,486 Profit after tax 375 589 984 1,114 Reported net profit 375 589 984 1,114 Net profit (Credit Suisse) 375 589 984 1,114


Cash & cash equivalents 1,400 2,084 3,316 5,393 Current receivables 0 0 0 0 Inventories 0 0 0 0 Other current assets 5,407 5,919 6,301 6,637 Current assets 6,807 8,004 9,617 12,030 Property, plant & equip. 33,183 33,187 32,297 30,753 Investments 0 0 0 0 Intangibles 6,108 5,282 4,455 3,306 Other non-current assets 8,798 8,798 8,798 8,798 Total assets 54,896 55,270 55,168 54,888 Current liabilities 14,477 12,846 13,036 13,183 Total liabilities 33,687 33,649 33,349 32,958 Shareholders' equity 21,209 21,621 21,818 21,930 Minority interests 0 0 0 0 Total liabilities & equity 54,896 55,270 55,168 54,888


EBIT 12 1,283 1,724 1,793 Net interest (1,135) (998) (911) (807) Tax paid (172) (196) (328) (371) Working capital 3,981 950 819 772 Other cash & non-cash items 8,044 7,580 7,710 8,250 Operating cash flow 10,730 8,618 9,013 9,636 Capex (5,584) (6,757) (5,994) (5,557) Free cash flow to the firm 1,129 912 2,200 3,307 Investing cash flow (3,849) (6,757) (5,994) (5,557) Equity raised 2,207 0 0 0 Dividends paid 0 (177) (787) (1,003) Financing cash flow (8,793) (1,177) (1,787) (2,003) Total cash flow (1,912) 684 1,232 2,077 Adjustments 0 0 0 0 Net change in cash (1,912) 684 1,232 2,077

Per share 12/16A 12/17E 12/18E 12/19E

Shares (wtd avg.) (mn) 9,787 10,678 10,678 10,678 EPS (Credit Suisse) (Rp) 38 55 92 104 DPS (Rp) 0 17 74 94 Operating CFPS (Rp) 1,096 807 844 902

Earnings 12/16A 12/17E 12/18E 12/19E

Growth (%) Sales revenue (7.4) 9.5 6.4 5.3 EBIT (99.0) 10595.6 34.3 4.0 EPS 1342.7 43.8 67.1 13.2 Margins (%) EBITDA 39.2 39.4 39.3 39.8 EBIT 0.1 5.7 7.2 7.1

Valuation (x) 12/16A 12/17E 12/18E 12/19E



ROE 2.1 2.7 4.5 5.1 ROIC 0.1 2.7 3.7 4.2



Company Background

XL Axiata is involved in the provision of telephony services in Indonesia.









27 March 2017


Asia Pacific/Indonesia Healthcare Facilities

Siloam International Hospitals (SILO.JK / SILO

IJ) Rating OUTPERFORM Price (24-Mar-17, Rp) 14,200 Target price (Rp) 12,840 Upside/downside (%) -9.6 Mkt cap (Rp/US$ bn) 18,469 / 1.39 Enterprise value (Rp bn) 19,294 Number of shares (mn) 1,301 Free float (%) 39.5 52-wk price range (Rp) 14,225-7,135 ADTO-6M (US$ mn) 0.3 Target price is for 12 months.

Research Analysts

Ari Jahja

62 21 2553 7976

[email protected]

COMPANY UPDATE

Turnaround growth story

■ We continue to like SILO as room for downside surprise from the current

levels is low after past disappointments, and expansion plans would fuel

additional growth. Moreover, there could be upside post CVC's involvement

and execution progress in light of higher-than-expected FY17 guidance.

■ Switching to FY17, SILO has targeted YoY gross operating revenue (GOR)

growth of 20-25%, while EBITDA as percentage of GOR could reach 15-16%

(FY16 was 13%). Using FY16 actual GOR and EBITDA as a base,

respectively, FY17 EBITDA would have come in above Rp930 bn (which

implies mid-30% growth instead of 20%) under this scenario. Also, it is

important to note that the financial impact from acquisitions and new hospital

openings is not baked in.

■ CVC's multi-year value creation plan could provide upside through 2020: (1)

increased equipment utilisation, (2) SG&A optimisation, (3) drug procurement

efficiencies, and (4) strategic price increases. The second phase of this

strategy may include service cost reduction.

■ Also importantly, an initial look into CVC's experience underscores

encouraging turnaround outcomes. Australia-based Affinity Health delivered

~320 bp of EBITDA margin expansion in less than two years after CVC's

acquisition, prior to being sold to Ramsay Healthcare in April 2005.





Rp13,328/US$1



Year 12/15A 12/16E 12/17E 12/18E Revenue (Rp bn) 4,144.1 5,247.0 6,514.0 7,865.0 EBITDA (Rp bn) 568.4 717.4 894.4 1,093.3 EBIT (Rp bn) 211.2 252.6 345.4 381.6 Net profit (Rp bn) 70.4 93.9 130.5 147.2 EPS (CS adj.) (Rp) 59.92 79.93 111.09 125.31 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rp) n.a. 72.51 117.66 155.85 EPS growth (%) (2.0) 33.4 39.0 12.8 P/E (x) 237.0 177.7 127.8 113.3 Dividend yield (%) 0.0 0.0 0.0 0.1 EV/EBITDA (x) 32.9 26.8 21.8 17.8 P/B (x) 9.56 9.11 8.53 7.98 ROE (%) 4.1 5.3 6.9 7.3 Net debt/equity (%) 13.1 42.1 50.7 46.2


27 March 2017


Siloam International Hospitals (SILO.JK / SILO IJ)

Price (24 Mar 2017): Rp14,200; Rating: OUTPERFORM; Target Price: Rp12,840; Analyst: Ariyanto Jahja


Sales revenue 4,144 5,247 6,514 7,865 Cost of goods sold 2,968 3,772 4,669 5,633 EBITDA 568 717 894 1,093 EBIT 211 253 345 382 Net interest expense/(inc.) 52 75 113 126 Recurring PBT 106 125 167 177 Profit after tax 62 84 117 133 Reported net profit 70 94 131 147 Net profit (Credit Suisse) 70 94 131 147


Cash & cash equivalents 160 230 196 210 Current receivables 575 617 766 925 Inventories 140 157 195 235 Other current assets 81 85 106 128 Current assets 956 1,089 1,263 1,498 Property, plant & equip. 1,553 2,291 2,647 2,769 Investments 0 0 0 0 Intangibles 299 299 299 299 Other non-current assets 178 207 257 310 Total assets 2,986 3,886 4,465 4,875 Current liabilities 630 656 809 974 Total liabilities 1,246 2,048 2,490 2,750 Shareholders' equity 1,744 1,832 1,955 2,091 Minority interests (4) 6 20 34 Total liabilities & equity 2,986 3,886 4,465 4,875


EBIT 211 253 345 382 Net interest 0 0 0 0 Tax paid (44) (41) (50) (44) Working capital (82) (30) (53) (56) Other cash & non-cash items 170 322 352 483 Operating cash flow 255 503 594 764 Capex (279) (1,198) (889) (810) Free cash flow to the firm (24) (696) (294) (46) Investing cash flow (352) (1,053) (828) (748) Equity raised 0 0 0 0 Dividends paid (6) (6) (8) (11) Financing cash flow (23) 620 200 (2) Total cash flow (120) 70 (34) 14 Adjustments 0 0 0 0 Net change in cash (120) 70 (34) 14

Per share 12/15A 12/16E 12/17E 12/18E


Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales revenue 24.0 26.6 24.1 20.7 EBIT 17.0 19.6 36.7 10.5 EPS (2.0) 33.4 39.0 12.8 Margins (%) EBITDA 13.7 13.7 13.7 13.9 EBIT 5.1 4.8 5.3 4.9

Valuation (x) 12/15A 12/16E 12/17E 12/18E



ROE 4.1 5.3 6.9 7.3 ROIC 6.5 7.4 8.7 9.4



Company Background

Siloam International Hospitals is an Indonesia-based healthcare company that owns and operates hospitals. Its hospitals offer a comprehensive range of specialists, and is located throughout Indonesia.


Our Blue Sky Scenario (Rp) (from 15,465) 18,525

Our blue sky scenario assumes 2017 revenue growth of 26.1% and EBITDA margin of 21.5%.

Our Grey Sky Scenario (Rp) (from 10,333) 12,270

Our grey sky scenario assumes 2017 revenue growth of 22.9% and EBITDA margin of 17.9%.






27 March 2017


Asia Pacific/Indonesia Healthcare Facilities

PT Mitra Keluarga Karyasehat Tbk (MIKA.JK

/ MIKA IJ) Rating OUTPERFORM Price (24-Mar-17, Rp) 2,600 Target price (Rp) 3,110 Upside/downside (%) 19.6 Mkt cap (Rp/US$ bn) 37,832 / 2.84 Enterprise value (Rp bn) 35,174 Number of shares (mn) 14,551 Free float (%) 22.9 52-wk price range (Rp) 2,950-2,350 ADTO-6M (US$ mn) 1.1 Target price is for 12 months.

Research Analysts

Ari Jahja

62 21 2553 7976

[email protected]

COMPANY UPDATE

Attractive long-term holding

■ We continue to view PT Mitra Keluarga Karyasehat Tbk (“MIKA”) as an

attractive long-term holding due to mid-teens growth profile, margin

expansion opportunity, and balance sheet optionality (Rp2.4 tn in cash). After

the recent weakness, the stock looks interesting at 33x 2017 EBITDA, below

the historical average. Its premium valuation is supported by best-in-class

margins and ROIC profile.

■ Pertaining to 2017, management has reiterated its mid-teens revenue and

high-teens EBITDA growth, despite the expected ramp-up in pre-op costs

prior to the new Tangerang hospital launch in December.

■ At least ~15% top-line growth for FY17 would be driven by patient

volume (7-8%), followed by price increases (3-4%) and revenue intensity

(2-3%). Importantly, EBITDA growth could be faster than revenue, fuelled by

1-2% gross margin expansion.

■ Pertaining to capital deployment, management is still in the process of

assessing several possible targets. While investor sentiment appears mixed

due to potential margin impact, we think it could be a positive growth catalyst.





Rp13,328/US$1



Year 12/15A 12/16E 12/17E 12/18E Revenue (Rp bn) 2,140.7 2,479.2 2,918.0 3,413.6 EBITDA (Rp bn) 743.6 901.8 1,069.1 1,249.4 EBIT (Rp bn) 600.0 742.3 877.3 1,021.3 Net profit (Rp bn) 566.8 695.2 802.0 903.0 EPS (CS adj.) (Rp) 39.28 47.78 55.12 62.06 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rp) n.a. 47.47 53.88 61.62 EPS growth (%) 4.7 21.6 15.4 12.6 P/E (x) 66.2 54.4 47.2 41.9 Dividend yield (%) 0.8 1.0 1.2 1.4 EV/EBITDA (x) 47.7 39.0 32.9 28.0 P/B (x) 11.84 10.73 9.74 8.86 ROE (%) 23.1 20.7 21.6 22.1 Net debt/equity (%) Net cash Net cash Net cash Net cash


27 March 2017


PT Mitra Keluarga Karyasehat Tbk (MIKA.JK / MIKA IJ)

Price (24 Mar 2017): Rp2,600; Rating: OUTPERFORM; Target Price: Rp3,110; Analyst: Ariyanto Jahja


Sales revenue 2,141 2,479 2,918 3,414 Cost of goods sold 1,168 1,312 1,529 1,781 EBITDA 744 902 1,069 1,249 EBIT 600 742 877 1,021 Net interest expense/(inc.) (135) (155) (171) (161) Recurring PBT 740 902 1,054 1,187 Profit after tax 588 722 833 938 Reported net profit 567 695 802 903 Net profit (Credit Suisse) 567 695 802 903


Cash & cash equivalents 2,387 2,652 2,681 2,855 Current receivables 162 175 206 242 Inventories 38 69 80 93 Other current assets 33 38 45 53 Current assets 2,621 2,934 3,012 3,242 Property, plant & equip. 884 1,084 1,365 1,528 Investments 0 0 0 0 Intangibles 2 2 2 2 Other non-current assets 213 235 277 324 Total assets 3,720 4,255 4,656 5,096 Current liabilities 206 436 512 598 Total liabilities 441 671 747 833 Shareholders' equity 3,196 3,527 3,883 4,271 Minority interests 83 57 26 (8) Total liabilities & equity 3,720 4,255 4,656 5,096


EBIT 600 742 877 1,021 Net interest 161 133 146 131 Tax paid (151) (180) (221) (249) Working capital (14) 182 26 30 Other cash & non-cash items 91 99 117 137 Operating cash flow 688 976 945 1,070 Capex (205) (299) (398) (299) Free cash flow to the firm 483 677 547 771 Investing cash flow (171) (321) (439) (346) Equity raised 1,208 0 0 0 Dividends paid (291) (364) (446) (515) Financing cash flow 1,063 (390) (477) (549) Total cash flow 1,579 265 29 174 Adjustments 3 0 0 0 Net change in cash 1,582 265 29 174

Per share 12/15A 12/16E 12/17E 12/18E


Earnings 12/15A 12/16E 12/17E 12/18E


Valuation (x) 12/15A 12/16E 12/17E 12/18E



ROE 23.1 20.7 21.6 22.1 ROIC 56.5 65.1 64.2 61.2



Company Background

Mitra Keluarga Karyasehat is an Indonesia-based healthcare company that engages in hospital management and business services. Its hospitals offer a range of specialist medical services, and are located in the Greater Jakarta Area, Surabaya, and Tegal.



Our blue sky scenario assumes 2017 revenue growth of 22.5% and EBITDA margin of 36.5%.


Our grey sky scenario assumes 2017 revenue growth of 17.3% and EBITDA margin of 33.6%.






27 March 2017


Asia Pacific/Indonesia Major Pharmaceuticals

Kalbe Farma (KLBF.JK / KLBF IJ) Rating UNDERPERFORM Price (24-Mar-17, Rp) 1,505 Target price (Rp) 1,350 Upside/downside (%) -10.3 Mkt cap (Rp/US$ bn) 70,547 / 5.29 Enterprise value (Rp bn) 66,685 Number of shares (mn) 46,875 Free float (%) 43.4 52-wk price range (Rp) 1,815-1,280 ADTO-6M (US$ mn) 2.9 Target price is for 12 months.

Research Analysts

Ella Nusantoro

62 21 2553 7917

[email protected]

COMPANY UPDATE

Challenging pharma division

■ PT Kalbe Farma Tbk (KLBF) is an Indonesia-based pharmaceutical

company. The company is engaged in the development, production and

distribution of pharmaceutical products for humans and animals. KLBF

reported 14% higher net profit YoY to Rp1.7 tn, on 10% higher revenue YoY

to Rp14.4 tn, slightly below our estimates, accounting for 66% and 70% of

FY16E, respectively.

■ Gross profit increased 10% YoY to Rp7 tn, on the back of a stable

IDR/USD exchange rate, and gross margin improved 10 bp to 48.9%. Opex

was only increased 7% YoY, and hence operating profit rose 15% YoY to

Rp2.3 tn and operating margin improved 70 bp to 15.8%.

■ Within the four divisions that Kalbe has, nutritionals and consumer health

divisions each reported 11% revenue growth YoY in 9M16 to Rp4.1 tn and

Rp2.6 tn. They accounted for 28% and 18% of the total revenue. Distribution

& logistics reported 10% higher revenue YoY to Rp4.3 tn, accounting for 30%

of the total. Prescription pharma that accounts for 24% of the total, reported

only 6% revenue growth to Rp3.4 tn, as consumers shift to utilise the BPJS

Kesehatan (National Health Care Insurance). Nutritionals is the highest

contributor to gross profit, making up 33% of total, and grew 16% YoY to

Rp2.3 tn.

■ The prescription drugs division will continue to have major challenges with

the continuous increase of participants of the national healthcare insurance

scheme. The scheme resulted in a shift from branded generic, which the

company focused on, to the unbranded generic.





Rp13,328/US$1

Performance 1M 3M 12M Absolute (%) 0.7 4.5 16.2 Relative (%) -3.2 -6.2 0.9




27 March 2017


Kalbe Farma (KLBF.JK / KLBF IJ)

Price (24 Mar 2017): Rp1,505; Rating: UNDERPERFORM; Target Price: Rp1,350; Analyst: Ella Nusantoro

Earnings Drivers 12/14A 12/15E 12/16E 12/17E

GDP growth 0.05 0.05 0.05 0.05 GDP per capita 0.05 0.05 0.05 0.05 Population growth 0.01 0.00 0.00 0.00 - - - - - - - -


Sales revenue 17,369 18,335 20,487 22,970 Cost of goods sold 8,893 9,238 10,132 11,345 SG & A 5,572 6,021 6,811 7,539 Other operating exp./(inc.) (102) (159) (202) (214) EBITDA 3,007 3,235 3,746 4,301 Depreciation & amortisation 246 312 372 406 EBIT 2,761 2,923 3,374 3,895 Net interest expense/(inc.) (11) (54) (86) (127) Non-operating inc./(exp.) (6) 0 0 0 Associates/JV 0 0 0 0 Recurring PBT 2,766 2,977 3,460 4,023 Exceptionals/extraordinaries 0 0 0 0 Taxes 643 692 804 935 Profit after tax 2,124 2,285 2,655 3,087 Other after tax income 0 0 0 0 Minority interests 56 61 71 82 Preferred dividends 0 0 0 0 Reported net profit 2,067 2,224 2,585 3,005 Analyst adjustments 0 0 0 0 Net profit (Credit Suisse) 2,067 2,224 2,585 3,005


Cash & cash equivalents 1,895 2,863 3,789 5,216 Current receivables 2,347 2,291 2,578 2,910 Inventories 3,091 3,104 3,334 3,714 Other current assets 789 643 714 797 Current assets 8,121 8,901 10,415 12,637 Property, plant & equip. 3,404 4,092 4,620 4,715 Investments 0 0 0 0 Intangibles 422 396 370 345 Other non-current assets 478 505 565 634 Total assets 12,425 13,894 15,970 18,330 Accounts payable 1,133 1,163 1,323 1,470 Short-term debt 252 252 252 252 Current provisions 0 0 0 0 Other current liabilities 1,001 1,013 1,143 1,275 Current liabilities 2,386 2,428 2,718 2,997 Long-term debt 44 0 0 0 Non-current provisions 0 0 0 0 Other non-current liabilities 177 195 215 238 Total liabilities 2,608 2,623 2,933 3,235 Shareholders' equity 9,382 10,749 12,410 14,342 Minority interests 435 523 627 752 Total liabilities & equity 12,425 13,894 15,970 18,330


EBIT 2,761 2,923 3,374 3,895 Net interest 11 54 86 127 Tax paid (643) (692) (804) (935) Working capital (66) 31 (298) (515) Other cash & non-cash items 208 225 242 254 Operating cash flow 2,271 2,540 2,599 2,826 Capex (724) (1,000) (900) (500) Free cash flow to the firm 1,547 1,540 1,699 2,326 Disposals of fixed assets 0 0 0 0 Acquisitions 0 0 0 0 Divestments 0 0 0 0 Associate investments 0 0 0 0 Other investment/(outflows) (36) 26 26 26 Investing cash flow (761) (974) (874) (474) Equity raised 44 87 105 125 Dividends paid (797) (857) (923) (1,073) Net borrowings (285) (44) 0 0 Other financing cash flow 6 17 20 23 Financing cash flow (1,032) (797) (798) (925) Total cash flow 478 769 926 1,427 Adjustments 0 0 0 0 Net change in cash 478 769 926 1,427

Per share 12/14A 12/15E 12/16E 12/17E

Shares (wtd avg.) (mn) 46,875 46,875 46,875 46,875 EPS (Credit Suisse) (Rp) 44.10 47.44 55.14 64.11 DPS (Rp) 17.00 19.00 19.70 22.89 BVPS (Rp) 200.15 229.30 264.74 305.96 Operating CFPS (Rp) 48.45 54.20 55.45 60.29

Valuation (x) 12/14A 12/15E 12/16E 12/17E

P/E 34.1 31.7 27.3 23.5 P/B 7.52 6.56 5.68 4.92 Dividend yield (%) 1.1 1.3 1.3 1.5 P/CF 31.1 27.8 27.1 25.0 EV/sales 4.0 3.7 3.3 2.9 EV/EBITDA 22.9 21.0 17.9 15.2 EV/EBIT 25.0 23.2 19.9 16.8

Earnings 12/14A 12/15E 12/16E 12/17E

Growth (%) Sales revenue 8.5 5.6 11.7 12.1 EBIT 8.3 5.9 15.4 15.5 Net profit 7.7 7.6 16.2 16.3 EPS 7.7 7.6 16.2 16.3 Margins (%) EBITDA 17.3 17.6 18.3 18.7 EBIT 15.9 15.9 16.5 17.0 Pre-tax profit 15.9 16.2 16.9 17.5 Net profit 11.9 12.1 12.6 13.1


ROE 23.6 22.1 22.3 22.5 ROIC 26.7 26.6 28.5 30.5 Asset turnover (x) 1.4 1.3 1.3 1.3 Interest burden (x) 1.0 1.0 1.0 1.0 Tax burden (x) 0.8 0.8 0.8 0.8 Financial leverage (x) 1.3 1.2 1.2 1.2


Net debt/equity (%) (16.3) (23.2) (27.1) (32.9) Net debt/EBITDA (x) (0.53) (0.81) (0.94) (1.15) Interest cover (x) n.a. n.a. n.a. n.a.

12MF P/E multiple

12MF P/B multiple

Source: Credit Suisse, Thomson Reuters


27 March 2017


Asia Pacific/Indonesia Real Estate Management & Development

PT Summarecon Agung Tbk (SMRA.JK / SMRA IJ) Rating OUTPERFORM Price (24-Mar-17, Rp) 1,340 Target price (Rp) 1,600 Upside/downside (%) 19.4 Mkt cap (Rp/US$ bn) 19,332 / 1.45 Enterprise value (Rp bn) 24,053 Number of shares (mn) 14,427 Free float (%) 67.7 52-wk price range (Rp) 1,940-1,235 ADTO-6M (US$ mn) 1.9 Target price is for 12 months.

Research Analysts

Laurensius Teiseran

62 21 255 37931

[email protected]

COMPANY UPDATE

Getting back to the ground floor.

■ Setting 23% pre-sales CAGR for 2016-18E. Pre-sales growth has been in

the negative zone for the past couple of years. While the macro and

regulatory environment had a lot to do with this, product mix is equally

important. For instance, in the last year, the company managed to fully meet

its landed houses and shophouses sales target, but merely 30% of its

apartments' target. For 2017, it is guiding Rp4.5 tn, but this time, landed

products accounted for more with 76% of the total (vs 41%/38% in 2016/15),

a more promising product mix, in our view.

■ We expect 66% 2016-18E EPS CAGR vs 40% Bloomberg consensus. We

know that sales recognition comes with a lag of 1-2 years for landed and 2-4

years for high-rise depending on the progress of construction—a reason to

avoid P/E multiple for seeking fair value. During 2014-16, SMRA had sold

>8,200 units of apartments worth Rp5.8 tn, roughly half of which had been

recognised as revenue in 2015/16E, i.e., apartments account for about 40%

of total revenue vs 7% historical average. It was a disadvantage for earnings

as revenue got stretched, leverage went up and margin contracted. The

reverse should play out as we account for lower revenue from apartments.

■ Risks and catalysts. We find evidence of demand picking up in the month of

October post the first amnesty window, but that was dented by the November

Ahok rallies. In this regard, we expect pre-sales to kick in only in 2Q due to

the Jakarta election and related uncertainties. On a more positive note,

catalysts include stronger mortgage growth and better apartment sales.

■ Valuation. The stock is now trading at a 60% discount to NAV, just 9% above

2015-low and >2 s.d. below its 2015-high. Adjusting for political risks and

possible higher interest rates, our DCF-based target price is Rp1,600,

implying 18% upside, 50% discount to 2017E NAV and 21% potential upside.





Rp13,328/US$1

Performance 1M 3M 12M Absolute (%) -6.0 6.8 -22.5 Relative (%) -9.9 -4.0 -37.9


Year 12/15A 12/16E 12/17E 12/18E Revenue (Rp bn) 5,623.6 4,815.6 5,444.8 6,749.2 EBITDA (Rp bn) 2,032.4 1,378.2 1,718.9 2,184.6 EBIT (Rp bn) 1,791.4 1,154.0 1,475.4 1,914.4 Net attributable profit (Rp bn) 855.2 281.3 482.7 778.4 EPS (CS adj.) (Rp) 59.28 19.50 33.46 53.96 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rp) n.a. 15.67 30.00 45.96 EPS growth (%) (38.3) (67.1) 71.6 61.3 P/E (x) 22.6 68.7 40.0 24.8 Dividend yield (%) 1.5 0.9 0.3 0.5 EV/EBITDA (x) 11.8 17.5 13.9 10.8 ROE (%) 14.9 4.6 7.6 11.3 Net debt/equity (%) 62.3 61.1 55.1 46.7 NAV per share (Rp) - - - - Disc./(prem.) to NAV (%) - - - -


27 March 2017


PT Summarecon Agung Tbk (SMRA.JK / SMRA IJ)

Price (24 Mar 2017): Rp1,340; Rating: OUTPERFORM; Target Price: Rp1,600; Analyst: Laurensius Teiseran


Real GDP growth (%) 4.61 5.23 5.23 5.23 Inflation rate (%) 6.47 4.69 4.69 4.69 Interest rate (%) 7.50 6.75 6.75 6.75 Marketing sales (Rp bn) 4,351 3,005 3,734 4,555


Sales revenue 5,624 4,816 5,445 6,749 Cost of goods sold 2,717 2,615 2,827 3,425 EBITDA 2,032 1,378 1,719 2,185 EBIT 1,791 1,154 1,475 1,914 Net interest expense/(inc.) 409 531 535 539 Recurring PBT 1,382 623 941 1,375 Profit after tax 1,064 393 690 1,054 Revaluations 0 0 0 0 Reported net profit 855 281 483 778 Net profit (Credit Suisse) 855 281 483 778


Cash & cash equivalents 1,504 2,177 2,838 3,182 Current receivables 152 349 212 315 Inventories 4,925 5,229 5,422 6,099 Other current assets 709 620 639 764 Current Assets 7,290 8,375 9,111 10,360 Property, plant & equip. 420 421 481 563 Investment Properties 4,312 4,516 4,744 5,028 Investment in Associates/JV 0 0 0 0 Intangibles 8 9 9 9 Other non-current assets 6,728 6,787 7,417 7,734 Total assets 18,758 20,108 21,763 23,694 Current liabilities 4,410 4,072 4,376 5,144 Total liabilities 11,229 12,319 13,402 14,507 Shareholders' equity 6,011 6,113 6,536 7,213 Minority interests 1,517 1,664 1,811 1,960 Total liabilities & equity 18,758 20,108 21,763 23,694


EBIT 1,791 1,154 1,475 1,914 Net interest 0 0 0 0 Tax paid 0 0 0 0 Working capital 0 0 0 0 Other cash and non-cash items (2,107) (628) (573) (686) Operating cash flow (316) 526 902 1,228 Capex (586) (429) (532) (636) Free cashflow to the firm (902) 97 370 592 Investing cash flow (2,001) (565) (840) (963) Equity raised 0 0 0 0 Dividends paid 0 0 0 0 Financing cash flow 2,050 713 599 78 Total cash flow (267) 673 661 344 Adjustments 0 0 0 (0) Net change in cash (267) 673 661 344

Per share 12/15A 12/16E 12/17E 12/18E

Shares (wtd avg.) (mn) 14,427 14,427 14,427 14,427 EPS (Credit Suisse) (Rp) 59 20 33 54 DPS (Rp) 20 12 4 7 BVPS (Rp) 417 424 453 500 NAV per share (Rp) n.a. n.a. n.a. n.a.

Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales reveue (2.3) (14.4) 13.1 24.0 EBIT (14.5) (35.6) 27.8 29.8 EPS (38.3) (67.1) 71.6 61.3 Margins (%) EBITDA 36.1 28.6 31.6 32.4 EBIT 31.9 24.0 27.1 28.4

Valuation (x) 12/15A 12/16E 12/17E 12/18E

P/E 22.6 68.7 40.0 24.8 P/B 3.22 3.16 2.96 2.68 Dividend yield (%) 1.5 0.9 0.3 0.5 EV/Sales 4.3 5.0 4.4 3.5 EV/EBITDA 11.8 17.5 13.9 10.8 EV/EBIT 13.4 20.9 16.2 12.3


ROE 14.9 4.6 7.6 11.3 ROIC 13.0 5.9 8.5 11.1


Net debt/equity (%) 62.3 61.1 55.1 46.7 Net Debt/EBITDA (x) 2.31 3.45 2.68 1.96

Company Background

SMRA Was founded in 1961. It has three main locations which are Summarecon Kelapa Gading which has a land area of 500 hectares, Summarecon Serpong which has an area of 1500 hectares and Summarecon Bekasi which has an area of 240 hectares.



Our blue sky scenario is based on 33% discount to the company's 2017E NAV. This is largely driven by stronger mortgage growth, better apartment sales, higher plot ratio in Kelapa Gading, better-than-expected infrastructure realisation and positive changes in tax structure.


Our grey sky scenario is based on 65% discount to the company's 2017E NAV. We highlight political uncertainty in Indonesia as risk for pre-sales growth. Additionally, the possibility of a higher interest rates environment in Indonesia may affect housing affordability and the cost of borrowings for the company.






27 March 2017


Asia Pacific/Indonesia Regional Banks

PT Bank Pembangunan Daerah Jawa

Timur Tbk (BJTM.JK / BJTM IJ) Rating OUTPERFORM Price (24-Mar-17, Rp) 640.00 Target price (Rp) 690.00 Upside/downside (%) 7.8 Mkt cap (Rp/US$ bn) 9,470/ 0.71 Number of shares (mn) 14,797 Free float (%) 23.2 52-wk price range 695.00-438.00 ADTO-6M (US$ mn) 2.1 Target price is for 12 months.

Research Analysts

Laurensius Teiseran

62 21 255 37931

[email protected]

Sanjay Jain

65 6306 0668

[email protected]

COMPANY UPDATE

Indonesia Consumer Survey 2017

■ Third-highest profitability among Indo banks. Bank Jatim is the regional

development bank for East Java and the smallest bank by assets among the

nine banks in our coverage. It is focused on the consumer (67% of loan, 87%

of which is payroll loan) and commercial/SME (33%) segments. Jatim's ROA


profitability can be attributed to the higher proportion of cheaper current/

saving deposits (81%), fee income and cost efficiency.

■ Falling credit cost likely to persist; we expect 12.9% 2017-18E profit

CAGR. Since 2012, Jatim's earnings have been hit severely on elevated loan

losses as commercial/SME loan quality deteriorated, with gross NPL ratio

reaching 4.92% in 3Q16 (4.77% in 4Q16). Under a new CEO, Jatim shrank

the commercial/SME loans last year by 3.4% (after having doubled them in

the previous five years) and has also reported a far larger portion of problem

loans as NPLs (78% of total loans-at-risk being reported as NPLs vs 29%

aggregate for our sample). Therefore, we expect credit costs to fall from 175

bp of loans in 2016 (219 bp in 2015) to 111 bp/66 bp in 2017/18—more than

offsetting the margin compression and cautious loan growth.

■ Catalysts and key risks. Jatim is guiding its NPL ratio to be 3.10% for

2017—upside to our 4.5% NPL forecast. Second, execution on loan growth

guidance of 8.2% for the year could be a catalyst vs our 6.6% forecast. Key

risks would be higher-than-expected loan losses and margin compression.

■ Cheap on fundamentals; maintain OUTPERFORM. On valuation, Jatim is

trading at a 7.5x 12M forward P/E, 38% discount to average Indo banks, 24% to

the small banks, while its P/B is 1.1x. This is attractive given the superior

profitability. Assuming a 15.9% ROE (average 2017-18E), 13.5% cost of equity

and 7.2% growth in Gordon growth model gives us a target price of Rp690/sh

implying 8% upside potential for the stock.





Rp13,328/US$1



Year 12/16A 12/17E 12/18E 12/19E Pre-provision op profit (Rp bn) 1,972.2 1,970.1 2,077.7 2,224.9 Pre-tax profit (Rp bn) 1,452.1 1,619.1 1,849.8 1,894.3 Net attributable profit (Rp bn) 1,028.2 1,146.4 1,309.8 1,341.3 EPS (CS adj.) (Rp) 68.93 76.85 87.80 89.91 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rp) n.a. 73.96 81.70 89.91 EPS growth (%) 16.2 11.5 14.2 2.4 P/E (x) 9.3 8.3 7.3 7.1 Dividend yield (%) 6.9 7.1 7.3 7.5 BVPS (CS adj.) (Rp) 448.78 480.13 520.96 562.77 P/B (x) 1.43 1.33 1.23 1.14 ROE (%) 16.5 16.5 17.5 16.6 ROA (%) 2.4 2.6 2.7 2.6 Tier 1 Ratio (%) 22.9 24.1 24.6 24.7


27 March 2017


PT Bank Pembangunan Daerah Jawa Timur Tbk (BJTM.JK / BJTM IJ)

Price (24 Mar 2017): Rp640.00; Rating: OUTPERFORM; Target Price: Rp690.00; Analyst: Laurensius Teiseran


Loan growth (% YoY) 4.45 6.63 7.38 8.09 Credit cost (as bps of loans) 175.5 111.0 66.00 90.00 Gross NPL ratio (%) 4.77 4.53 4.38 4.33 Net interest margins (%) 6.94 6.81 6.78 6.80 - - - -


Interest income 4,823 4,970 5,301 5,736 Interest expense 1,360 1,378 1,467 1,581 Net interest income 3,463 3,593 3,834 4,155 Fee and commission income 352 364 417 450 Trading income 0 0 0 0 Total non-interest income 352 364 417 450 Total income 3,815 3,956 4,251 4,605 Personal expense 941 1,050 1,173 1,311 Other expenses 992 1,065 1,140 1,219 Total expenses 1,932 2,116 2,313 2,530 Pre-provision profit 1,972 1,970 2,078 2,225 Loan loss provisions 510 340 217 318 Operating profit 1,463 1,630 1,861 1,907 Other non-operating inc./(exp.) (10) (11) (11) (12) Pre-tax profit 1,452 1,619 1,850 1,894 Taxes 424 473 540 553 Net profit before minorities 1,028 1,146 1,310 1,341 Reported net profit 1,028 1,146 1,310 1,341 Net profit (Credit Suisse) 1,028 1,146 1,310 1,341


Gross customer loans 29,675 31,642 33,979 36,728 Risk provisions 0 0 0 0 Net customer loans 28,353 30,310 32,603 35,268 Interbank loans 7,536 8,338 9,246 10,276 Investment & securities 3,528 3,705 3,890 4,085 Cash & cash equivalents 1,710 1,870 2,155 2,569 Fixed assets 837 837 837 837 Other assets 1,068 1,107 1,147 1,188 Total assets 43,033 46,167 49,878 54,222 Total deposits 31,305 33,296 35,571 38,284 Other liabilities 4,519 5,194 6,021 7,029 Total liabilities 35,823 38,489 41,591 45,312 Shareholders' equity 6,695 7,162 7,772 8,395 Total liabilities & equity 43,033 46,167 49,878 54,222

Asset quality & Capital 12/16A 12/17E 12/18E 12/19E

Asset Quality (%) NPL/ gross loans 4.8 4.5 4.4 4.3 B/S loan loss coverage - - - - Loan/ deposit ratio 90.6 91.0 91.7 92.1 Capital ratios (%) Capital adequacy ratio 23.9 25.1 25.7 25.8 Tier 1 ratio 22.9 24.1 24.6 24.7 Equity Tier 1 ratio 22.9 24.1 24.6 24.7

Per share 12/16A 12/17E 12/18E 12/19E

Shares (wtd avg.) (mn) 14,918 14,918 14,918 14,918 EPS (Credit Suisse) (Rp) 69 77 88 90 BVPS (Rp) 449 480 521 563 Tangible BVPS (Rp) 449 480 521 563 DPS (Rp) 44 45 47 48

Earnings 12/16A 12/17E 12/18E 12/19E

Growth (%) Revenue 9.9 4.6 7.5 8.3 Operating expense 10.7 9.5 9.3 9.4 Pre-provision profit 9.2 (0.1) 5.5 7.1 Net profit 16.2 11.5 14.2 2.4 Deposit (4.9) 6.4 6.8 7.6

Valuation 12/16A 12/17E 12/18E 12/19E

EPS growth (%) 16.2 11.5 14.2 2.4 P/E (x) 9.3 8.3 7.3 7.1 P/B (x) 1.43 1.33 1.23 1.14 P/TB (x) 1.4 1.3 1.2 1.1 Dividend yield (%) 6.9 7.1 7.3 7.5

Profitability & margins (%) 12/16A 12/17E 12/18E 12/19E

ROE stated 16.5 16.5 17.5 16.6 ROE - CS adj. 16.5 16.5 17.5 16.6 ROA - CS adj. 2.4 2.6 2.7 2.6 Gearing (x) 6.9 6.4 6.4 6.4

Company Background

Bank Jatim is a regional development bank for East Java province. Bank Jatim was established in 1961 and has been managing civil servant payrolls for the regional government of East Java.


Our Blue Sky Scenario (Rp) 840.00

Our Grey Sky Scenario (Rp) 500.00






27 March 2017


Asia Pacific/Indonesia Regional Banks

PT Bank Negara Indonesia (Persero)

Tbk (BBNI.JK / BBNI IJ) Rating OUTPERFORM Price (24-Mar-17, Rp) 6,800 Target price (Rp) 7,800 Upside/downside (%) 14.7 Mkt cap (Rp/US$ bn) 125,543/ 9.42 Number of shares (mn) 18,462 Free float (%) 40.0 52-wk price range 6,900-4,310 ADTO-6M (US$ mn) 9.6 Target price is for 12 months.

Research Analysts

Sanjay Jain

65 6306 0668

[email protected]

Laurensius Teiseran

62 21 255 37931

[email protected]

Rikin Shah

65 6212 3098

[email protected]

COMPANY UPDATE

Fast growth a cause for worry?

■ Corporate-focused state-owned bank. BNI is the fourth-largest bank in

Indonesia with a decent corporate and consumer (mainly mortgage)

business. Loan book is divided among SOE-corporate (20% of loans),

private-corporate (30%), SMEs (28.5%) and consumer (17%) with the

remaining from subsidiaries. BNI also has a good deposit franchise with 68%

low-cost current/saving (CASA) deposits and enjoys the second-lowest cost

of funding after BCA (Mandiri is marginally higher). With a network spanning

over 1,781 branches and 14,157 ATMs, BNI has ~9% of both loan/deposit

market share.

■ With a new CEO, BNI set aside a large provisioning in 2015 and started

growing loans aggressively from 2016. This has caused concern in the

market but BNI contends most of its loan growth is derived from government

infrastructure projects, and is hence safer. We have taken a view that (1) the

Indonesian government has a record of saving SOEs, and (2) new loans are

unlikely to turn bad unless the economy suffers a major downturn. We prefer

BNI to Mandiri for some time on valuation discount that gapped up.

■ Earnings drivers. For 2017, BNI is guiding for loan growth of 15-17% (20.6%

in 2016), funding growth of 19-21% (17.6% deposit growth in 2016), net

interest margin of 5.8-6.0%, operating expenses growth of 14-16%, gross

NPL ratio of 2.8-3.0%, and coverage ratio of 147-149%.

■ We project EPS growth of 15.6% in 2017 and 19.4% in 2018 along with

ROEs of 14.3% in 2017 and 15.3% in 2018. However, for target price

calculation, we use the projected ROA of 2.12% (average of 2017-19E) and

apply a normalised gearing of 7.5x (vs projected 7.2x and 2016 6.8x), which

gives us a normalised ROE of 15.6%. With a 13.3% cost of equity and "g" of

9%, the Gordon growth model leads us to a target price of Rp7,800, which

implies a 2017 P/B of 1.3x, P/E of 11.0 (9.2x 2018E) with 15% potential upside.





Rp13,328/US$1



Year 12/16A 12/17E 12/18E 12/19E Pre-provision op profit (Rp bn) 20,392.4 22,280.2 25,487.1 29,589.6 Pre-tax profit (Rp bn) 14,302.9 16,529.5 19,743.3 23,001.2 Net attributable profit (Rp bn) 11,338.7 13,103.9 15,651.7 18,234.4 EPS (CS adj.) (Rp) 608.84 708.37 846.10 985.72 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rp) n.a. 701.45 815.54 889.94 EPS growth (%) 25.1 16.3 19.4 16.5 P/E (x) 11.2 9.6 8.0 6.9 Dividend yield (%) 2.6 3.1 0.0 0.0 BVPS (CS adj.) (Rp) 4,680 5,178 5,847 6,621 P/B (x) 1.45 1.31 1.16 1.03 ROE (%) 13.9 14.3 15.3 15.8 ROA (%) 2.0 2.0 2.1 2.2 Tier 1 ratio (%) 18.2 17.4 17.2 17.0


27 March 2017


PT Bank Negara Indonesia (Persero) Tbk (BBNI.JK / BBNI IJ)

Price (24 Mar 2017): Rp6,800; Rating: OUTPERFORM; Target Price: Rp7,800; Analyst: Sanjay Jain


Loans Growth 21.05 17.70 14.76 14.77 Net Interest Margin 5.87 5.69 5.70 5.75 Fee Growth 39.17 6.22 9.51 11.75 Cost to Income Ratio 48.76 49.91 49.56 48.85 P&L Provision (as % of loans) 1.85 1.50 1.30 1.30


Interest income 43,768 49,957 57,550 66,073 Interest expense 13,773 15,888 18,422 20,968 Net interest income 29,995 34,070 39,128 45,104 Fee and commission income 6,473 7,446 8,563 9,795 Trading income 1,162 1,162 1,046 942 Total non-interest income 9,114 9,685 10,629 11,902 Total income 39,109 43,754 49,757 57,007 Personal expense 8,834 10,601 12,191 14,019 Other expenses 10,570 11,599 12,851 14,235 Total expenses 19,404 22,200 25,042 28,254 Pre-provision profit 20,392 22,280 25,487 29,590 Loan loss provisions 6,288 6,091 6,135 7,039 Operating profit 14,104 16,189 19,352 22,550 Other non-operating inc./(exp.) 199 341 391 451 Pre-tax profit 14,303 16,530 19,743 23,001 Taxes 2,893 3,343 3,993 4,652 Net profit before minorities 11,410 13,186 15,750 18,349 Reported net profit 11,339 13,104 15,652 18,234 Net profit (Credit Suisse) 11,339 13,104 15,652 18,234


Gross customer loans 407,528 479,670 550,452 631,733 Risk provisions 16,242 19,897 23,048 26,630 Net customer loans 391,285 459,773 527,404 605,103 Interbank loans 12,538 14,419 15,860 17,446 Investment & securities 149,311 157,534 169,457 182,612 Cash & cash equivalents 11,168 16,945 18,463 21,120 Fixed assets 21,972 23,426 24,953 26,556 Other assets 16,758 19,666 23,119 26,533 Total assets 603,032 691,763 779,256 879,370 Total deposits 435,545 511,327 583,268 665,430 Other liabilities 78,233 82,352 85,229 88,516 Total liabilities 513,778 593,678 668,497 753,946 Shareholders' equity 87,157 95,781 108,157 122,478 Total liabilities & equity 603,032 691,763 779,256 879,370

Asset quality & Capital 12/16A 12/17E 12/18E 12/19E

Asset Quality (%) NPL/ gross loans 2.7 2.8 2.4 2.4 B/S loan loss coverage 147.1 147.5 171.2 179.1 Loan/ deposit ratio 89.8 89.9 90.4 90.9 Capital ratios (%) Capital adequacy ratio 19.3 18.5 18.4 18.2 Tier 1 ratio 18.2 17.4 17.2 17.0 Equity Tier 1 ratio 18.2 17.4 17.2 17.0

Per share 12/16A 12/17E 12/18E 12/19E

Shares (wtd avg.) (mn) 18,624 18,499 18,499 18,499 EPS (Credit Suisse) (Rp) 609 708 846 986 BVPS (Rp) 4,680 5,178 5,847 6,621 Tangible BVPS (Rp) 4,680 5,178 5,847 6,621 DPS (Rp) 177 212 0 0

Earnings 12/16A 12/17E 12/18E 12/19E

Growth (%) Revenue 22.1 11.8 13.6 14.5 Operating expense 23.7 14.4 12.8 12.8 Pre-provision profit 20.6 9.3 14.4 16.1 Net profit 25.1 15.6 19.4 16.5 Deposit 17.6 17.4 14.1 14.1

Valuation 12/16A 12/17E 12/18E 12/19E

EPS growth (%) 25.1 16.3 19.4 16.5 P/E (x) 11.2 9.6 8.0 6.9 P/B (x) 1.45 1.31 1.16 1.03 P/TB (x) 1.5 1.3 1.2 1.0 Dividend yield (%) 2.6 3.1 0.0 0.0

Profitability & margins (%) 12/16A 12/17E 12/18E 12/19E

ROE stated 13.9 14.3 15.3 15.8 ROE - CS adj. 13.9 14.3 15.3 15.8 ROA - CS adj. 2.0 2.0 2.1 2.2 Gearing (x) 6.8 7.1 7.2 7.2

Company Background

PT Bank Negara Indonesia (Persero) Tbk is an Indonesia-based financial institution. Its products & services are categorised into: individual, consisting of credit, savings, treasury & services; corporate, & financing products based on sharia principles.









27 March 2017


Appendix 1: Respondents' summary

Demographics

Figure 154: Could you please tell us your age?

Figure 155: What is your total monthly income after

tax?


Figure 156: Urban to rural split Figure 157: Male to female split


Figure 158: How many people live in your household?

% of respondents

< 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k

> 15,000k Prefer not

to answer

Don’t know

1 2 5 3 8 5 1 - - - - -

2 8 14 24 27 20 5 - 1 - 1 -

3 9 24 71 120 81 15 5 3 3 8 5

4 7 34 77 170 125 36 8 4 3 17 12

5 or more 14 41 69 173 158 58 20 7 8 15 10

Mean 3.58 3.78 3.76 3.95 4.06 4.26 4.45 4.13 4.36 4.12 4.19


37%38%

16%

9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

18 - 29 30 - 45 46 - 55 56 - 65

% o

f res

pond

ents

Respondents' age

0%

5%

10%

15%

20%

25%

30%

35%

< 1

,00

0k

1,00

0k

- 1,

500

k

1,50

0k

- 2,

000

k

2,00

0k

- 3,

000

k

3,00

0k

- 5,

000

k

5,00

0k

- 7,

500

k

7,50

0k

- 10

,00

0k

10,0

00k

- 1

5,0

00k

> 1

5,0

00k

% o

f re

spo

nd

ent

sIDR

Urban66%

Rural34%

Male49%

Female51%

27 March 2017


Figure 159: What is the total after-tax monthly income of your household?

% of respondents

Total Area Region Age

Urban Rural Java Ex Java 18-29 30-45 46-55 56-65

2016

< 1,000k 3% 2% 4% 3% 3% 3% 2% 2% 3%

1,000k - 1,500k 8% 5% 14% 9% 7% 7% 7% 9% 13%

1,500k - 2,000k 17% 14% 21% 16% 17% 19% 15% 15% 19%

2,000k - 3,000k 34% 31% 39% 35% 32% 36% 34% 31% 31%

3,000k - 5,000k 27% 31% 17% 26% 28% 23% 29% 31% 21%

5,000k - 7,500k 8% 11% 3% 8% 8% 8% 8% 8% 8%

7,500k - 10,000k 2% 3% 1% 2% 3% 2% 3% 2% 2%

10,000k - 15,000k 1% 1% 1% 1% 1% 1% 2% 1% 0%

> 15,000k 1% 1% 0% 1% 2% 1% 1% 1% 3%

2015

< 1,000k 4% 3% 7% 4% 6% 5% 4% 3% 5%

1,000k - 1,500k 7% 5% 10% 6% 9% 6% 5% 7% 13%

1,500k - 2,000k 19% 16% 24% 18% 21% 19% 18% 22% 17%

2,000k - 3,000k 30% 31% 30% 30% 32% 29% 33% 28% 26%

3,000k - 5,000k 25% 27% 20% 26% 23% 26% 24% 23% 22%

5,000k - 7,500k 9% 12% 5% 11% 5% 9% 9% 11% 7%

7,500k - 10,000k 3% 4% 2% 3% 2% 2% 3% 4% 6%

10,000k - 15,000k 1% 1% 1% 1% 1% 1% 1% 1% 2%

> 15,000k 2% 2% 2% 2% 1% 2% 2% 0% 3%

2010

< 1,000k 8% 5% 15% 8% 9% 7% 8% 8% 14%

1,000k - 1,500k 16% 11% 26% 17% 13% 17% 14% 18% 15%

1,500k - 2,000k 26% 24% 29% 26% 25% 26% 27% 21% 23%

2,000k - 3,000k 26% 29% 20% 27% 25% 28% 27% 24% 23%

3,000k - 5,000k 19% 25% 8% 19% 19% 17% 20% 23% 19%

5,000k - 7,500k 3% 4% 1% 3% 4% 3% 3% 4% 3%

7,500k - 10,000k 1% 1% 0% 0% 2% 1% 0% 1% 1%

10,000k - 15,000k 1% 1% 0% 0% 1% 0% 1% 0% 2%

> 15,000k 1% 1% 0% 0% 1% 1% 0% 0% 1%


Figure 160: Do you think the state of your own finances over the next six months will be better, worse or

about the same?


35%31% 28%

32%40%

52% 55%

33%

21%

58%61%

63%

64%57%

46%45%

67%

71%

8% 8% 9%4% 3% 2% 0% 0%

7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1,000k 1,000k - 1,500k 1,500k - 2,000k 2,000k - 3,000k 3,000k - 5,000k 5,000k - 7,500k 7,500k - 10,000k 10,000k - 15,000k > 15,000k

% o

f res

pond

ents

Better About the same Worse

27 March 2017


Figure 161: Net percentage of people who are positive regarding their finances over the next six months


Figure 162: In your opinion, is now a good time to make a major purchase? - Area

% of respondents

2016 2015 2010


Excellent time 2% 2% 1% 2% 2% 5% 6% 4% 5% 6% 6% 7% 5% 6% 7%

Good time 34% 33% 34% 35% 30% 30% 31% 28% 29% 31% 50% 48% 54% 55% 39%


A bad time 5% 5% 5% 4% 5% 7% 6% 7% 7% 5% 4% 5% 3% 4% 6%


Figure 163: In your opinion, is now a good time to make a major purchase? - Age

% of respondents

2016 2015 2010

Total 18-29 30-45 46-55 56-65 Total 18-29 30-45 46-55 56-65 Total 18-29 30-45 46-55 56-65

Excellent time 2% 1% 2% 2% 2% 5% 5% 5% 6% 4% 6% 6% 6% 6% 6%

Good time 34% 37% 31% 35% 30% 30% 28% 33% 27% 25% 50% 53% 49% 50% 45%


A bad time 5% 5% 5% 3% 6% 7% 7% 6% 6% 8% 4% 3% 5% 4% 4%


Figure 164: In your opinion, is now a good time to make a major purchase? - Income

% of respondents

2016 2015 2010

Total Low Mid High Total Low Mid High Total Low Mid High

Excellent time 2% 1% 1% 6% 5% 3% 6% 6% 6% 5% 7% 4%

Good time 34% 29% 35% 47% 30% 32% 29% 27% 50% 46% 53% 68%

Not such a good time 60% 64% 59% 44% 59% 57% 59% 65% 40% 44% 36% 21%

A bad time 5% 6% 4% 3% 7% 8% 6% 2% 4% 5% 3% 7%


28%

22%

18%

28%

37%

50%

55%

33%

14%

0%

10%

20%

30%

40%

50%

60%


% o

f res

pond

ents

27 March 2017


Figure 165: What savings or investment channels, if any, does your household use to save money?

% of respondents

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k

> 15,000k

Bank account 45% 21% 17% 30% 48% 54% 58% 51% 36% 25%

Cash 25% 26% 30% 29% 27% 22% 17% 19% 18% 19%

No extra money for saving 22% 52% 52% 33% 19% 14% 8% 4% 27% 16%

Property 5% 0% 1% 7% 4% 5% 7% 6% 9% 9%

Life insurance 4% 0% 0% 1% 2% 5% 9% 15% 9% 16%

Stock market 0% 0% 0% 0% 0% 0% 1% 4% 0% 6%

Mutual Fund 0% 0% 0% 0% 0% 0% 0% 2% 0% 6%

State Treasury bill-bond 0% 0% 0% 0% 0% 0% 0% 0% 0% 3%

Collectables 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Gold and Jewellery 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%


Figure 166: To what extent has your household income changed in the last 12 months?

% of respondents

< 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k

> 15,000k

Decline more than 20% 0% 0% 0% 1% 2% 0% 0% 13% 0%

-10% to -20% 0% 3% 2% 2% 1% 3% 0% 0% 0%

-10% to flat 5% 17% 12% 7% 8% 4% 6% 7% 0%

Unchanged 63% 53% 55% 48% 36% 31% 27% 60% 43%

Flat to +10% 18% 20% 18% 30% 36% 42% 36% 13% 36%

10-20% 8% 3% 5% 7% 11% 15% 24% 0% 21%

20-30% 0% 0% 1% 1% 2% 0% 6% 0% 0%

30%+ 3% 0% 0% 0% 0% 1% 0% 7% 0%

No income 12 months ago 5% 4% 7% 5% 5% 3% 0% 0% 0%


Figure 167: In what way do you expect your household income to change in the next 12 months?

% of respondents

< 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k

> 15,000k

Decline more than 20% 0% 0% 0% 0% 1% 1% 0% 0% 0%

-10% to -20% 0% 1% 4% 1% 2% 2% 3% 0% 0%

-10% to flat 8% 6% 6% 4% 3% 3% 0% 7% 0%

Unchanged 40% 53% 39% 36% 26% 30% 36% 20% 21%

Flat to +10% 35% 25% 33% 37% 36% 35% 18% 40% 57%

10-20% 13% 10% 11% 13% 20% 18% 33% 7% 21%

20-30% 0% 2% 1% 2% 5% 3% 6% 7% 0%

30%+ 3% 0% 1% 1% 3% 4% 3% 13% 0%

No income 12 months ago 3% 3% 5% 5% 4% 3% 0% 7% 0%


27 March 2017


Figure 168: Have you migrated from your hometown to where you are currently living? And did you migrate

to earn better income?


Automotive

Figure 169: Do you own a car or motorbike for personal use?

% of respondents

< 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k

> 15,000k

Car 5% 1% 0% 4% 9% 17% 31% 21% 36%

Motorbike 68% 74% 86% 91% 93% 96% 88% 100% 100%


Figure 170: Will you or your family purchase or replace your car in the next 12 months?


24%19%

26%

36%

19% 15%

76%

81%

74%

64%

81%85%

66%69%

79%

86%93% 92%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2016 2015 2016 2015 2016

China India Indonesia

Migrated Did not migrate Moved to earn better income

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Total < 1,000k 1,000k - 1,500k 1,500k - 2,000k 2,000k - 3,000k 3,000k - 5,000k 5,000k - 7,500k 7,500k - 10,000k10,000k - 15,000k > 15,000k

% o

f res

pond

ents

Definitely will Probably will Not sure Probably won’t Definitely won’t

27 March 2017


Figure 171: Will you or your family purchase or replace your motorbike in the next 12 months?


Figure 172: How do you plan to finance this motorbike purchase?

% of respondents

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k

> 15,000k

All Cash 29% 21% 34% 36% 26% 30% 13% 55% 0% 100%

Cash + Credit 33% 57% 31% 47% 29% 26% 30% 36% 50% 0%

All Credit 34% 21% 34% 15% 44% 36% 47% 9% 50% 0%

Don’t know 4% 0% 0% 2% 1% 9% 10% 0% 0% 0%


Food and beverages

Figure 173: Have you purchased or will you be purchasing any of the following products?

% of respondents

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k


to answer

Don’t

know

Purchased in the last 3 months

Bottled water 88% 84% 73% 82% 88% 90% 96% 92% 100% 100% 89% 91%

Carbonated drinks 61% 58% 47% 59% 61% 65% 72% 62% 85% 45% 52% 55%

Cigarettes 51% 45% 49% 55% 51% 53% 44% 54% 54% 45% 41% 41%

Dairy products 70% 58% 53% 67% 70% 76% 84% 77% 46% 73% 81% 86%

Instant noodles 94% 92% 94% 93% 94% 93% 97% 81% 92% 82% 100% 100%

Will purchase in the next 12 months

Bottled water 62% 61% 56% 63% 61% 64% 64% 73% 85% 82% 70% 32%

Carbonated drinks 37% 26% 28% 37% 37% 38% 40% 50% 62% 45% 44% 18%

Cigarettes 35% 39% 31% 38% 35% 36% 28% 38% 54% 18% 30% 18%

Dairy products 50% 45% 41% 51% 46% 57% 49% 58% 31% 55% 70% 50%

Instant noodles 64% 63% 66% 67% 64% 64% 62% 54% 77% 55% 81% 50%


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Total < 1,000k 1,000k - 1,500k 1,500k - 2,000k 2,000k - 3,000k 3,000k - 5,000k 5,000k - 7,500k 7,500k - 10,000k10,000k - 15,000k > 15,000k

% o

f res

pond

ents

Definitely will Probably will Not sure Probably won’t Definitely won’t

27 March 2017


Personal care


% of respondents

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k


to answer

Don’t

know

Purchased in the last 3 months

Cosmetics & skin care 52% 48% 41% 47% 52% 55% 64% 44% 53% 71% 49% 58%

Feminine hygiene 84% 82% 72% 81% 82% 88% 92% 81% 100% 86% 86% 80%

Tissue 56% 35% 39% 47% 54% 62% 74% 78% 67% 93% 66% 65%

Will purchase in the next 12 months

Cosmetics & skin care 35% 40% 26% 35% 34% 37% 44% 31% 47% 36% 46% 15%

Feminine hygiene 56% 59% 52% 55% 56% 56% 69% 50% 67% 43% 82% 27%

Tissue 39% 33% 28% 37% 36% 43% 51% 50% 67% 50% 66% 15%


Luxury goods


% of respondent

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k


to answer

Don’t

know

Fashion

Purchased in the last 3 months 38% 43% 30% 36% 38% 40% 51% 56% 38% 55% 18% 17%

Planning to purchase in 12 months 48% 58% 41% 52% 49% 47% 57% 56% 62% 45% 9% 35%

Leather



Sport shoes



Jewelry



Perfumes



Watches




27 March 2017


Technology and internet

Figure 176: Have you purchased any of the following products in the last 12 months?

% of respondent

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k


to answer

Don’t know

Smartphone 21% 20% 8% 15% 20% 24% 33% 38% 11% 23% 46% 32%

TV 9% 9% 8% 8% 10% 10% 11% 8% 7% 9% 3% 4%

Mobile phone 8% 20% 14% 9% 8% 6% 4% 8% 11% 5% 8% 0%

DVD Player 5% 7% 2% 5% 5% 6% 2% 3% 7% 0% 0% 0%

Notebook PC 3% 0% 1% 1% 3% 4% 5% 5% 7% 9% 0% 0%

Tablet 2% 0% 2% 1% 2% 4% 2% 3% 4% 14% 3% 0%

Digital Camera 1% 4% 1% 2% 1% 1% 1% 0% 4% 5% 0% 0%

Desktop computer 1% 0% 0% 1% 1% 1% 0% 5% 4% 0% 0% 0%

Internet Service 0% 0% 0% 0% 0% 0% 1% 0% 4% 0% 0% 4%

Gaming facility 0% 0% 0% 1% 1% 0% 0% 0% 0% 5% 0% 0%


Figure 177: Will you be purchasing any of the following products in the next 12 months?

% of respondent

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k


to answer

Don’t know

Smartphone 21% 33% 21% 17% 22% 22% 16% 34% 28% 33% 17% 22%

TV 8% 16% 9% 7% 8% 9% 8% 11% 6% 17% 3% 9%

Notebook PC 5% 4% 5% 4% 6% 5% 8% 9% 0% 8% 0% 4%

Tablet 3% 0% 0% 3% 3% 4% 3% 3% 6% 0% 0% 0%

Mobile phone 2% 2% 4% 3% 2% 2% 0% 0% 0% 0% 0% 0%

Digital Camera 2% 0% 1% 3% 2% 1% 3% 11% 0% 0% 0% 4%

DVD Player 2% 4% 2% 5% 1% 1% 1% 3% 0% 0% 0% 0%

Desktop computer 1% 0% 1% 2% 1% 0% 3% 3% 6% 0% 0% 0%

Gaming facility 0% 2% 0% 0% 1% 0% 0% 0% 0% 0% 0% 0%

Internet Service 0% 0% 1% 0% 0% 1% 0% 0% 6% 0% 0% 0%


Telecommunications

Figure 178: Do you currently own a mobile phone / handset for personal use?

% of respondent

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k


to answer

Don’t

know

Yes, I own and pay for my own

mobile phone/handset 77% 59% 57% 76% 76% 83% 83% 90% 93% 100% 90% 73%

Yes, I own my own mobile

phone/handset but is paid for by my

employer

1% 0% 2% 0% 1% 1% 1% 3% 0% 0% 0% 0%

Yes, I own my own mobile

phone/handset but is paid by

somebody else

6% 8% 4% 4% 6% 6% 10% 0% 0% 0% 0% 12%

No I do not own my own mobile

phone/handset 16% 33% 37% 20% 17% 11% 6% 6% 7% 0% 10% 15%


27 March 2017


Figure 179: Have you bought a mobile phone or handset in the last 12 months?


Figure 180: Are you planning to upgrade to a

smartphone in the next 12 months?

Figure 181: Which brand of smartphone are you

going to purchase?


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Total < 1,000k 1,000k -1,500k

1,500k -2,000k

2,000k -3,000k

3,000k -5,000k

5,000k -7,500k

7,500k -10,000k

10,000k -15,000k

> 15,000k Would prefernot to answer

Don’t know

% o

f res

pond

ents

2010 2015 2016

0%

10%

20%

30%

40%

50%

60%

Tur

key

Rus

sia

Mex

ico

Indi

a

Chi

na

Indo

nesi

a Bra

zil

Sou

thA

fric

a

% o

f res

pond

ents

2010 2016Apple3%

Android73%

Other3%

Don't know21%

27 March 2017


Travel

Figure 182: Have you been or are you planning to go on a holiday?


Figure 183: Where did you go or where are you planning to go for holiday?

% of respondent

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k

> 15,000k

Holiday in the

last 12 months

At home 71% 90% 77% 79% 73% 64% 60% 54% 46% 55%

Domestic 29% 10% 23% 21% 27% 36% 40% 46% 54% 45%

International 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Holiday in the

next 12 months

At home 55% 63% 64% 60% 55% 49% 49% 50% 25% 55%

Domestic 45% 37% 36% 40% 45% 51% 51% 50% 75% 45%

International 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%


Figure 184: What was the main form of transport that you used to reach your holiday destination?

% of respondent Total < 1,000k 1,000k - 1,500k 1,500k - 2,000k 2,000k - 3,000k 3,000k - 5,000k 5,000k - 7,500k 7,500k - 10,000k 10,000k - 15,000k > 15,000k

Car 32% 33% 29% 21% 30% 31% 50% 36% 86% 20%

Bus 29% 33% 29% 18% 33% 32% 13% 36% 0% 20%

Train 13% 0% 6% 9% 10% 18% 22% 9% 0% 0%

Ship 0% 0% 0% 0% 0% 1% 0% 0% 0% 0%

Airplane 4% 0% 0% 3% 2% 3% 9% 9% 14% 20%

Other 22% 33% 35% 50% 25% 15% 6% 9% 0% 40%


50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%


% o

f res

pond

ents

Took holiday in the last 12 months Planning to take holiday in the next 12 months

27 March 2017


Education

Figure 185: Do you intend to spend more on education or training course in the next 12 months?


Figure 186: Do you conduct any education online?

% of respondent

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k

> 15,000k

Yes 0.5% 0.0% 0.0% 0.4% 0.4% 0.3% 0.9% 3.0% 6.7% 0.0%

Number of respondents 1,518 39 118 244 497 383 112 33 15 11


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Total < 1,000k 1,000k - 1,500k 1,500k - 2,000k 2,000k - 3,000k 3,000k - 5,000k 5,000k - 7,500k 7,500k -10,000k

10,000k -15,000k

> 15,000k

Less About the same More

27 March 2017


Healthcare

Figure 187: Does your household have access to free or partially-free healthcare from the State?

% of respondent

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k


to answer

Don’t

know

Yes 52% 55% 42% 44% 52% 59% 61% 41% 67% 62% 46% 62%

Number of respondents 1,492 40 118 243 489 375 111 32 15 13 35 21


Figure 188: How do you pay for your healthcare?

% of respondent

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k


to answer

Don’t know

Insurance 14% 6% 6% 7% 12% 19% 22% 11% 22% 0% 0% 13%

Self-Pay (Cash) 57% 71% 84% 86% 59% 48% 42% 47% 33% 75% 75% 88%

Paid by company 28% 24% 9% 7% 29% 33% 37% 42% 44% 25% 25% 0%


Figure 189: What services, if any, could you get free from the state?

% of respondent

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k


to answer

Don’t know

Hospital 45% 43% 44% 43% 45% 45% 44% 45% 60% 44% 89% 50%

Emergency Room 18% 20% 16% 21% 16% 19% 22% 10% 7% 11% 6% 15%

Prescriptions 19% 24% 17% 14% 20% 21% 20% 17% 20% 17% 6% 31%

Vaccinations 9% 9% 12% 13% 11% 7% 6% 14% 7% 11% 0% 4%

Diagnostic tests 8% 4% 10% 9% 8% 8% 8% 14% 7% 17% 0% 0%

Outpatient service 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%


Figure 190: Do you trust local domestic brands as much as foreign brands?

% of respondent

Total < 1,000k 1,000k -

1,500k

1,500k -

2,000k

2,000k -

3,000k

3,000k -

5,000k

5,000k -

7,500k

7,500k -

10,000k

10,000k -

15,000k


to answer

Don’t

know

Yes, I trust local brands on

both efficacy and safety 78% 65% 78% 83% 78% 76% 74% 78% 67% 54% 89% 76%

I trust local brands on

efficacy but not on safety 10% 5% 7% 8% 11% 13% 13% 13% 13% 31% 0% 0%

I trust local brands on safety

but not on efficacy 4% 5% 3% 1% 3% 5% 7% 3% 7% 15% 0% 10%

No, I do not trust local

brands neither on efficacy or

on safety

2% 0% 3% 1% 2% 2% 1% 3% 0% 0% 0% 0%

Don't know 7% 25% 10% 7% 6% 4% 5% 3% 13% 0% 11% 14%


27 March 2017


Appendix 2: Indonesia macro

Figure 191: Indonesia macro

2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F

National accounts, population and unemployment

Real GDP growth (%) 4.7 7.7 6.2 6.0 5.6 5.0 4.8 5.1 5.2 5.2

Growth in real private consumption (%) 4.7 4.8 5.1 5.5 5.5 5.3 4.8 5.1 5.3 5.3

Growth in real fixed investment (%) 3.9 8.5 8.9 9.1 5.0 4.6 5.1 4.8 5.6 6.0

Fixed investment (% of GDP) 31.1 31.0 31.3 32.7 32.0 32.6 33.2 33.1 33.2 33.5

Nominal GDP (US$bn) 538.6 756.1 892.7 914.8 903.8 889.0 857.6 918.2 1,002.0 1,079.0

Population (mn) 228.5 231.4 237.6 242.0 245.4 248.8 252.2 255.5 258.8 262.1

GDP per capita (US$) 2,357.0 3,268.0 3,756.4 3,780.1 3,682.4 3,573.1 3,400.8 3,594.0 3,874.0 4,118.0

Prices, interest rates and exchange rates

CPI inflation (% year-on-year change, December over December) 2.8 7.0 3.8 3.7 8.1 8.4 3.4 3.0 4.5 4.7

CPI inflation (% change in average index for the year) 4.8 5.1 5.3 4.0 6.4 6.4 6.4 3.5 4.3 4.1

Exchange rate (IDR per USD, end-year) 9,400.0 8,991.0 9,068.0 9,670.0 12,189.0 12,440.0 13,795.0 13,500.0 13,900.0 13,900.0

Exchange rate (IDR per USD, average) 10,354.1 9,078.3 8,773.3 9,418.6 10,562.7 11,884.5 13,457.6 13,648.0 13,700.0 13,900.0

REER (% year-on-year change, December over December) (1) 15.6 6.0 (1.2) (5.4) (11.6) 10.0 (1.6) (0.5) (1.0) (1.0)

Nominal wage growth (% year-on-year change)(2) 5.3 12.2 3.4 20.4 16.1 4.0 6.5 5.0 6.0 6.5

Overnight rate (%, end-year) (3) 6.5 6.5 6.0 5.8 7.5 7.8 7.5 5.8 n.a n.a

Fiscal data (4)

General government fiscal balance (% of GDP) (1.6) (0.7) (1.1) (1.8) (2.2) (2.1) (2.5) (2.9) (2.7) (2.5)

General government primary fiscal balance (% of GDP) 0.1 0.6 0.1 (0.6) (1.1) (1.0) (1.4) (1.8) (1.6) (1.4)

General government expenditure (% of GDP) 16.7 15.2 16.5 17.3 17.3 16.8 15.6 15.3 15.2 15.2

General government revenue (% of GDP) 15.1 14.5 15.5 15.5 15.1 14.7 13.0 12.3 12.5 12.7

Gross general government debt (% of GDP, end-year) (5) 31.4 24.7 22.3 22.4 21.6 23.6 26.2 30.5 33.2 35.4

Money supply and credit

Broad money supply (M2, % of GDP) 35.6 36.0 36.7 38.4 39.1 39.5 39.4 38.5 38.8 39.8

Broad money supply (M2, % year-on-year change) 13.0 15.4 16.4 15.0 12.8 11.9 8.9 6.0 10.5 12.0

Domestic credit (% of GDP) 24.3 23.4 25.1 27.2 28.5 29.0 29.5 28.7 28.6 29.4

Domestic credit (% year on year change) 12.2 9.9 22.4 19.2 16.1 12.8 11.1 6.5 9.5 12.0

Domestic credit to the private sector (% of GDP) 23.4 24.5 27.0 30.0 32.5 33.0 33.1 32.5 32.8 33.6

Domestic credit to the private sector (% year-on-year change) 6.8 20.0 25.8 21.9 20.0 12.6 9.6 6.5 10.5 12.0

Balance of payments (6)

Exports (goods and non-factor services, % of GDP) 24.7 23.1 23.9 23.1 22.7 22.4 19.9 17.8 16.5 15.8

Imports (goods and non-factor services, % of GDP) 20.7 20.3 21.2 23.3 23.4 22.7 19.3 17.4 16.4 16.0

Exports (goods and non-factor services, % year-on-year change

in $ value)

(14.2) 25.5 27.8 (0.9) (2.8) (3.0) (14.4) (4.0) 1.5 3.0

Imports (goods and non-factor services, % year-on-year change in

$ value)

(23.0) 30.3 29.9 12.7 (0.8) (4.5) (18.0) (3.5) 3.0 5.0

Current account balance (US$bn) 10.6 5.1 1.7 (24.4) (29.1) (27.5) (17.8) (18.8) (21.1) (24.4)

Current account balance (% of GDP) 2.0 0.7 0.2 (2.7) (3.2) (3.1) (2.1) (2.0) (2.1) (2.3)

Net FDI inflows (US$bn) 2.6 11.1 11.5 13.7 13.7 15.9 15.9 14.0 17.0 19.0

Scheduled external debt amortisation (US$bn) 17.1 18.7 23.0 42.0 38.8 38.8 38.8 45.0 45.0 45.0

Foreign debt and reserves

Foreign debt (US$bn) 172.9 202.4 225.4 252.4 266.1 293.8 310.7 335.0 350.0 340.0

Public 99.3 118.6 118.6 126.1 123.5 129.7 143.0 158.0 170.0 160.0

Private 73.6 83.8 106.7 126.2 142.6 164.0 167.7 177.0 180.0 180.0

Foreign debt (% of GDP) 32.1 28.5 26.7 28.8 29.4 33.0 36.2 36.5 34.9 31.5

Foreign debt (% of exports of goods and services) 130.2 123.4 111.7 124.8 129.8 147.8 182.5 205.0 211.0 199.0

Central bank gross FX reserves (US$bn) 66.1 96.2 110.1 112.8 99.4 111.9 105.9 110.0 101.0 98.5

Central bank net non-gold FX reserves (US$bn) 63.6 92.9 106.5 108.8 96.4 108.8 103.3 107.0 98.0 95.5

(1) Real effective exchange rate, increase indicates appreciation. (2) Nominal wage: manufacturing. (3) BI changed its policy target from 1m SBI rate to overnight rate in 2008. (4) Refers to central government. (5) Excludes SOE and BI debt. (6) BoP number Source: Indonesia Bureau of Statistics, Ministry of Finance, Bank Indonesia, Credit Suisse, CEIC, World Bank

27 March 2017


Companies Mentioned (Price as of 24-Mar-2017) Ace Hardware Indonesia (ACES.JK, Rp810) Astra International (ASII.JK, Rp8,525, OUTPERFORM, TP Rp9,800) Gudang Garam (GGRM.JK, Rp64,925, NEUTRAL, TP Rp74,100) Hanjaya Mandala Sampoerna (HMSP.JK, Rp4,000, NEUTRAL, TP Rp4,340) Indofood CBP (ICBP.JK, Rp8,600, NEUTRAL, TP Rp9,500) Indofood Sukses Makmur (INDF.JK, Rp8,050) Kalbe Farma (KLBF.JK, Rp1,505, UNDERPERFORM, TP Rp1,350) Matahari Department Store (LPPF.JK, Rp13,900, OUTPERFORM, TP Rp16,100) Media Nusantara Citra (MNCN.JK, Rp1,790) Mitra Adiperkasa (MAPI.JK, Rp5,925, OUTPERFORM, TP Rp6,400) PT Alam Sutera Realty TBK (ASRI.JK, Rp362) PT Bank Central Asia Tbk (BBCA.JK, Rp16,550) PT Bank Danamon Indonesia Tbk (BDMN.JK, Rp4,700) PT Bank Mandiri (Persero) Tbk (BMRI.JK, Rp11,900) PT Bank Negara Indonesia (Persero) Tbk (BBNI.JK, Rp6,800, OUTPERFORM, TP Rp7,800) PT Bank Pembangunan Daerah Jawa Barat dan Banten T (BJBR.JK, Rp2,180) PT Bank Pembangunan Daerah Jawa Timur Tbk (BJTM.JK, Rp640, OUTPERFORM, TP Rp690) PT Bank Rakyat Indonesia (Persero) Tbk (BBRI.JK, Rp13,150) PT Bank Tabungan Negara Persero Tbk (BBTN.JK, Rp2,320) PT Bank Tabungan Pensiunan Nasional Tbk (BTPN.JK, Rp2,730) PT Bekasi Fajar Industrial Estate Tbk (BEST.JK, Rp306) PT Bumi Serpong Damai Tbk (BSDE.JK, Rp1,865) PT Ciputra Development TBK (CTRA.JK, Rp1,270) PT Indosat Tbk (ISAT.JK, Rp6,975) PT Kawasan Industri Jababeka Tbk (KIJA.JK, Rp324) PT Kino Indonesia (KINO.JK, Rp2,550) PT Lippo Karawaci Tbk (LPKR.JK, Rp735) PT Mitra Keluarga Karyasehat Tbk (MIKA.JK, Rp2,600, OUTPERFORM, TP Rp3,110) PT Pakuwon Jati Tbk (PWON.JK, Rp600) PT Sarana Menara Nusantara (TOWR.JK, Rp4,000) PT Summarecon Agung Tbk (SMRA.JK, Rp1,340, OUTPERFORM, TP Rp1,600) PT Surya Semesta Internusa Tbk (SSIA.JK, Rp600) PT Telkom (Telekomunikasi Indo.) (TLKM.JK, Rp4,080, OUTPERFORM, TP Rp4,750) Prodia Widyahusada (PRDA.JK, Rp4,800) Pt Link Net Tbk (LINK.JK, Rp5,300) Ramayana Lestari Sentosa (RALS.JK, Rp1,155) Siloam International Hospitals (SILO.JK, Rp14,200, OUTPERFORM, TP Rp12,840) Surya Citra Media (SCMA.JK, Rp2,670) Tower Bersama (TBIG.JK, Rp5,475) Unilever Indonesia (UNVR.JK, Rp43,150) XL Axiata Tbk (EXCL.JK, Rp3,270, OUTPERFORM[V], TP Rp3,950)

Disclosure Appendix

Analyst Certification I, Ella Nusantoro, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Astra International (ASII.JK)

ASII.JK Closing Price Target Price

Date (Rp) (Rp) Rating

28-Apr-14 7,600 8,370 O

16-Jun-14 7,250 9,000

30-Oct-14 6,900 8,000

01-Apr-15 8,175 9,800

15-Jul-15 6,825 8,400

21-Aug-15 6,050 7,500

30-Oct-15 5,900 7,600

27-Apr-16 6,825 6,500 N

23-Sep-16 8,600 8,600

28-Feb-17 8,200 9,800 O

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

N EU T RA L

27 March 2017


3-Year Price and Rating History for Gudang Garam (GGRM.JK)

GGRM.JK Closing Price Target Price


06-Apr-14 48,900 46,200 U

07-Apr-14 50,200 46,200 N

31-Oct-14 57,750 53,500

22-Apr-15 53,100 66,800 O

04-Aug-15 48,850 63,700

26-Nov-15 51,600 61,500

15-Mar-16 65,600 61,500 N

06-Jun-16 70,000 74,100


U N D ERPERFO RM

N EU T RA L

O U T PERFO RM

3-Year Price and Rating History for Hanjaya Mandala Sampoerna (HMSP.JK)

HMSP.JK Closing Price Target Price


04-Jan-16 3,669 4,340 O *

15-Mar-16 4,139 4,340 N


O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for Indofood CBP (ICBP.JK)

ICBP.JK Closing Price Target Price


26-Aug-14 5,138 5,900 O

15-May-15 6,800 7,550 N

01-Aug-15 6,150 7,550 O

17-Feb-16 7,762 9,150

21-Sep-16 9,600 10,200 N

20-Feb-17 8,375 9,500


O U T PERFO RM

N EU T RA L

27 March 2017


3-Year Price and Rating History for Kalbe Farma (KLBF.JK)

KLBF.JK Closing Price Target Price


14-Apr-14 1,520 1,280 N

19-May-14 1,630 1,290

11-Aug-14 1,640 1,350

01-Aug-15 1,745 1,350 U


N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for Matahari Department Store (LPPF.JK)

LPPF.JK Closing Price Target Price


08-Apr-14 14,800 16,800 O

04-Aug-14 14,750 17,700

18-Sep-14 16,700 19,900

29-Oct-14 15,150 19,400

30-Jul-15 17,000 19,200

27-Oct-15 18,025 19,700

23-Feb-16 16,250 19,400

26-Apr-16 17,900 19,900

18-May-16 18,800 R

19-May-16 18,800 19,900 O

27-Jun-16 20,000 *

23-Nov-16 14,575 17,600 O

01-Mar-17 11,725 16,100


O U T PERFO RM

REST RICT ED

3-Year Price and Rating History for Mitra Adiperkasa (MAPI.JK)

MAPI.JK Closing Price Target Price


30-Apr-14 6,375 4,900 U

19-May-14 5,350 4,500

04-Aug-14 5,125 4,100

03-Nov-14 5,175 3,400

01-Apr-15 5,900 6,500 O

18-May-15 5,350 7,050

31-Jul-15 4,650 6,550

03-Nov-15 3,505 4,500

19-Apr-16 4,200 5,400

23-Jun-16 4,180 *

24-Nov-16 4,850 6,400 O


U N D ERPERFO RM

O U T PERFO RM

27 March 2017


3-Year Price and Rating History for PT Bank Negara Indonesia (Persero) Tbk (BBNI.JK)

BBNI.JK Closing Price Target Price


15-Apr-14 4,995 5,000 N

14-Oct-14 5,275 5,550

17-Nov-14 5,825 6,000

09-Apr-15 7,175 7,550

24-Jul-15 5,000 5,850

24-Sep-15 4,280 5,100 O

14-Dec-15 4,800 5,550

29-Mar-16 5,050 5,650

31-May-16 4,800 5,500

19-Aug-16 5,850 5,900 N

02-Nov-16 5,525 5,650

09-Dec-16 5,475 6,300 O

21-Mar-17 6,575 7,800


N EU T RA L

O U T PERFO RM

3-Year Price and Rating History for PT Bank Pembangunan Daerah Jawa Timur Tbk (BJTM.JK)

BJTM.JK Closing Price Target Price


13-Mar-17 580 690 O *


O U T PERFO RM

3-Year Price and Rating History for PT Mitra Keluarga Karyasehat Tbk (MIKA.JK)

MIKA.JK Closing Price Target Price


03-Dec-15 2,295 2,500 N *

03-Aug-16 2,720 3,110 O


N EU T RA L

O U T PERFO RM

27 March 2017


3-Year Price and Rating History for PT Summarecon Agung Tbk (SMRA.JK)

SMRA.JK Closing Price Target Price


05-Feb-15 1,635 2,020 O *

20-Oct-15 1,395 1,960 *

19-May-16 1,530 *

17-Jun-16 1,685 1,950 O

09-Feb-17 1,320 1,600


O U T PERFO RM

3-Year Price and Rating History for PT Telkom (Telekomunikasi Indo.) (TLKM.JK)

TLKM.JK Closing Price Target Price


05-Jun-14 2,509 2,738 O

25-Aug-14 2,673 2,937

25-Nov-14 2,773 3,086

30-Sep-15 2,633 3,236

09-Dec-15 3,002 3,335

04-Mar-16 3,400 3,783

14-Apr-16 3,375 3,883

28-Apr-16 3,579 4,000

15-Jun-16 3,810 4,150

28-Jun-16 3,820 R

29-Jun-16 3,820 4,150 O

28-Jul-16 4,340 4,750


O U T PERFO RM

REST RICT ED

3-Year Price and Rating History for Siloam International Hospitals (SILO.JK)

SILO.JK Closing Price Target Price


21-Apr-14 10,530 10,333 N

29-Apr-14 10,727 12,794 O

10-Nov-14 14,024 12,794 N

05-Feb-15 13,138 R

17-Feb-15 12,031 12,794 N

08-Apr-15 12,892 13,384

05-Aug-15 16,090 14,024

03-Dec-15 9,546 12,794 O

20-Apr-16 8,636 12,794 *

03-Aug-16 10,186 12,840


N EU T RA L

O U T PERFO RM

REST RICT ED

27 March 2017


3-Year Price and Rating History for XL Axiata Tbk (EXCL.JK)

EXCL.JK Closing Price Target Price


29-May-14 5,450 4,784 U

16-Jun-14 4,932 4,932 N

25-Aug-14 5,598 5,524

29-Oct-14 5,400 5,425

15-Jan-15 4,424 5,524 O

16-Feb-15 5,105 5,672

17-Mar-15 4,340 5,376

11-Aug-15 2,510 5,150

01-Feb-16 3,689 R

26-May-16 3,410 4,700 O

15-Jun-16 3,600 4,850

23-Aug-16 3,370 4,250

28-Oct-16 2,290 4,080

01-Feb-17 2,850 3,950


U N D ERPERFO RM

N EU T RA L

O U T PERFO RM

REST RICT ED

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2 nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may b e assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

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Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 45% (64% banking clients) Neutral/Hold* 39% (61% banking clients) Underperform/Sell* 14% (53% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

27 March 2017


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Target Price and Rating Valuation Methodology and Risks: (12 months) for Astra International (ASII.JK)

Method: Our Rp9,800/share target price for Astra International is based on our sum-of-the-parts valuation analysis. Our TP implies 19x FY17E P/E (price-to-earnings). Our OUTPERFORM rating is on the back of improvement in commodity prices and good launches of 4W models

Risk: Potential downside risks to our Rp9,800/share target price and OUTPERFORM rating for Astra International include: competition risk, regulatory risk in the form of import duties, plus a significant deterioration in the macro economy, particularly at the consumer confidence level, which has a high correlation with car sales, and liquidity in auto financing, which has a high correlation with motorcycle sales volume.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Gudang Garam (GGRM.JK)

Method: Our target price of Rp74,100/share and NEUTRAL rating for Gudang Garam implies a 21x 2016E P/E at the target price, with an 13% estimated earnings growth over the next two years. We derive our target price using the five-year average market relative P/E of 1.25x with JCI's target P/E of 16.6x. Our NEUTRAL rating is derived from its undemanding valuation, as well as the clarity of the excise tax scheme this year and its ability to pass on the prices to consumers.

Risk: The following risks could impede the achievement of our Rp74,100/share target price for Gudang Garam and NEUTRAL rating. (1) Change in government regulation: There is no specific timeline as to when the Government of Indonesia will revise excise tax regulations. In the past two years, the tax has been revised yearly, and was favourable to SKM (machine-made cigarettes) and tier 1 companies (large-size producers, producing more than 2 bn sticks), narrowing the gap in tax to the SKT (hand rolled cigarettes) and mid and smaller size producers. (2) Strong demand for low tar, low nicotine: GG's brands in the low-tar, low-nicotine category include the Nusantara series and Surya Slim series, and last year it launched Surya Slim Premium and Surya Pro Mild. However, its presence in this category is relatively small. Low-tar, low-nicotine kretek cigarettes have been posting strong growth in the past decade, particularly for younger smokers in urban areas. (3) Consumers down-trading to less expensive cigarettes: If the GoI increases the excise tax, cigarettes will become more expensive, encouraging consumers to downtrade to cheaper products. (4) Weak consumer purchasing power: Although the consumer confidence index, surveyed by Bank Indonesia, showed that the confidence of Indonesian consumers is rising, concerns about the possibility of higher inflation (due to the recent increase in electricity tariffs) might disrupt consumer affordability. (5) Rising interest rates: GG's debt is usually Rupiah-denominated and in the form of short-term loans. This is used for raw materials (clove) purchasing, where typically the harvest season peaks at the end of 4Q and 1Q (depending on the weather). A rise in interest rates would increase its interest expense, hence affecting its profitability.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Hanjaya Mandala Sampoerna (HMSP.JK)

Method: Our target price of Rp4,340/share for HM Sampoerna implies 42x P/E 2016E (38x P/E 2017E) with 9% earnings growth over the next two years. Our target price is derived based on premium P/E multiple of Sampoerna over its parent company (PM.N) as we benchmark the premium valuation of Unilever Indonesia (UNVR.JK) and its parent company (ULVR.L) over the past one year. We believe the main risk to the stock is the possibility of another excise tax hike as the government is short in achieving its target last year. Hence, we maintain our rating at NEUTRAL.

Risk: The following risks could impede the achievement of our Rp4,340/share target price and NEUTRAL rating for HM Sampoerna: (1) regulatory risk, (2) litigation risk, (3) operational risks, (4) supply of raw materials, (5) competition risk, (6) labour-intensive industry, (7) unable to extend its arrangements with its third-party operators, (8) Indonesia macro risks. Our target price is derived based on premium P/E multiple of Sampoerna over its parent company (PM.N) as we benchmark the premium valuation of Unilever Indonesia (UNVR.JK) and its parent company (ULVR.L) over the past one year.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Indofood CBP (ICBP.JK)

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27 March 2017


Method: We derive our Rp9,500 target price on ICBP using a combination of two different methodologies: (1) SOTP (sum-of the parts), and (2) market relative performance. The usual SOTP where we are able to see each of the business division value – we are using our target

price multiples for each of the division at 17.3x in 2017E EV/EBITDA, to be in line with the weighted average of consumer companies within Credit Suisse coverage in NJA and we arrive at Rp9,100/share. On the market relative performance count, we would like to determine how much the market is valuing the company. By implying 1.7 on current market P/E of 17.7x, we arrive at Rp9,882/share. With a 50:50 combination of SOTP and market relative performance, we arrive at our target price of Rp9,500, which implies 29.3x P/E 2017E with 6% earnings growth over the next two years. With a limited upside potential, we have a NEUTRAL rating on the stock.

Risk: Risks that could impede achievement of our Rp9,500 target price and NEUTRAL rating for Indofood CBP include: (1) competition from both existing and new players, (2) fluctuation of commodity prices, (3) completion of new capacity, (4) Indonesia's macroeconomic situation, (5) fluctuation of exchange rates, and (6) regulatory risks.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Kalbe Farma (KLBF.JK)

Method: We derive our target price of Rp1,350/share for Kalbe Farma using a discounted cash flow (DCF) methodology and 11.1% WACC (weighted average cost of capital), underpinned from the 7.5% risk-free, 0.7 beta, 5% risk premium, and 5.2% terminal growth. Our target price equates to 28x 2015E P/E (price-to-earnings). Our UNDERPERFORM rating on the stock is on the back of the pressure that Kalbe has on its pharmaceuticals division; it is still finding new principals for its distribution division, and its demanding valuation.

Risk: Risks to our Rp1,350/share target price and UNDERPERFORM rating for Kalbe Farma include: (1) a weakening Rupiah, (2) acquisition, (3) selling treasury stocks, (4) retiring treasury stocks, and (5) Government of Indonesia regulations.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Matahari Department Store (LPPF.JK)

Method: Our target price of Rp16,100 for Matahari Department Store is based on a multiple valuation. The target price is based on 21x FY17E price to earnings ratio (P/E), which is 1.5 standard deviation below its historical mean as sales growth is slowing down We have an OUTPERFORM rating on the company on the back of better position from forex pressure, manageable working capital days, a healthy balance sheet, and resilient middle-income target market.

Risk: Key risks to our Rp16,100 target price and OUTPERFORM rating for Matahari Department Store include competition from both existing and incoming players, risk of meeting its expansion target, regulatory risks and macro risks of Indonesia.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Mitra Adiperkasa (MAPI.JK)

Method: Our target price of Rp6,400 for Mitra Adiperkasa is based on our two-stage DCF model. We are conservative enough to use 7.7% risk-free rate and a lower tax rate than what MAPI has now to reflect normalisation going forward. Our OUTPERFORM rating is on the back of improvement in operations

Risk: Key risks to our OUTPERFORM rating and Rp6,400 target price for Mitra Adiperkasa include principal risks, slower MAA business turnaround, competition from both existing and new players, regulatory risks, and macro risks.

Target Price and Rating Valuation Methodology and Risks: (12 months) for PT Bank Negara Indonesia (Persero) Tbk (BBNI.JK)

Method: Our target price of Rp7,800 for BBNI is derived based on Gordon's growth model, assuming normalised return of equity (ROE) of 16%, beta of 1.15x, risk-free rate of 8% and market risk premium of 5.0%, implying 1.6x 2017E price-to-book ratio (P/B) and 10.2x 2017E price-to-earnings ratio (P/E). BNI already swallowed the bitter pill of NPLs and credit cost in 2015. We thus have an OUTPERFORM rating on the stock.

Risk: Risks to our target price of Rp7,800 and OUTPERFORM rating for BBNI include: (1) BNI has been growing loans very aggressively, it could lead to some adverse selection and loan-losses in future; (2) BNI is leveraged into the interest rate cycle due to its current/saving deposit franchise. Its margins have suffered lately as BI cut rates through 2016; (3) BNI needs to invest in technology and branch network, there is a risk that cost growth could be higher than revenue growth; (4) risks relating to Indonesia, including macroeconomic, political and social risks; and (5) currency risks.

Target Price and Rating Valuation Methodology and Risks: (12 months) for PT Bank Pembangunan Daerah Jawa Timur Tbk (BJTM.JK)

Method: Our target price of Rp690/share for BJTM is derived based on Gordon's growth model, assuming: a normalised return on equity (ROE) of 15-16%, beta of 1.1x, risk-free rate of 8% and market risk premium of 5.0%, implying 8.7x 2017E price to earnings ratio (P/E) and 1.4x 2017E price to book ratio (P/B). With relatively higher profitability versus peers, we think valuation looks compelling at current level. Therefore, we rate the stock OUTPERFORM.

27 March 2017


Risk: Risks to our target price of Rp690/share and OUTPERFORM rating for BJTM include: (1) significant changes in global sentiment; (2) significant changes in the public's confidence in the bank; (3) risks relating to Indonesia, including macroeconomic, political and social risks; and (4) currency risks.

Target Price and Rating Valuation Methodology and Risks: (12 months) for PT Mitra Keluarga Karyasehat Tbk (MIKA.JK)

Method: Our target price of Rp 3,110 for MIKA is derived using DCF (discounted cash flow) methodology, with assumed WACC (weighted-average cost of capital) of 9.1% and implied terminal value EBITDA multiple of ~35x. Our OUTPERFORM rating is driven by: (1) continued double-digit growth profile, (2) best-in class margins, and (3) optionality from its net cash position.

Risk: The main risks to our target price of Rp3,110 and OUTPERFORM rating of MIKA include: (1) lower-than-expected growth, (2) delays in execution, (3) unfavourable regulatory changes, and (4) intensifying competition.

Target Price and Rating Valuation Methodology and Risks: (12 months) for PT Summarecon Agung Tbk (SMRA.JK)

Method: Our DCF-based target price of Rp1,600 for PT Summarecon Agung Tbk is implying 50% discount to the RNAV of the company (a standard deviation away to its long-term average). We have an OUTPERFORM rating on the stock on a bottoming out earning projection and improved outlook for pre-sales.

Risk: We recognise the strong track record of PT Summarecon Agung Tbk in property development and we are indeed positive on the long-term outlook of the company. Risks to our DCF-based target price of Rp1,600 (which implies 50% discount to the company's RNAV) for the company include macroeconomic risks such as changes in interest rates, inflation, regulatory risk coming from current government. Risks to our OUTPERFORM rating include weaker than expected pre-sales delivery.

Target Price and Rating Valuation Methodology and Risks: (12 months) for PT Telkom (Telekomunikasi Indo.) (TLKM.JK)

Method: Our target price of Rp4,750 for PT Telkom is based on discounted cash flow (DCF) analysis, based on an estimated 9.9% cost of capital and a 4.0% terminal growth rate. We value Telkom's fixed-line business at Rp1,280 and its 65% holding in its cellular subsidiary, Telkomsel, at Rp3,335 share. At Rp4,750, Telkom would trade at an enterprise value-to-earnings before interest, taxes, depreciation, and amortisation (EV/EBITDA) multiple of 7.1x for FY16E (using proportional consolidation), lower than the regional integrated average and Telkom still enjoys higher growth in a market with lower penetration. We rate the stock OUTPERFORM, due to strong smartphone data monetization and valuation.

Risk: Telkom's key asset, Telkomsel, is primarily a cellular operator within a seven-player market. The risks that may impede achievement of our target price of Rp4,750 and OUTPERFORM rating for PT Telkom on the cellular side are: (1) either faster-than-expected, or slower-than-expected growth in the cellular market, from the current level; (2) the prospect that competitors take a larger or smaller proportion of the market share of net additions; (3) that capex forecasts prove higher or lower than expected; and (4) that competition leads to higher or lower attrition of revenue per user than expected. Key risks to our target price on the fixed-line side are: (1) faster-or-slower cannibalisation of voice revenue per line by cellular competition; (2) faster-or-slower rollout of broadband lines than expected; (3) better success in reducing employment-related costs; and (4) better success in lowering capex requirements.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Siloam International Hospitals (SILO.JK)

Method: Our target price of Rp12,840 for SILO is derived using DCF (discounted cash flow) methodology, with assumed WACC (weighted-average cost of capital) of 9.4% and implied terminal value EBITDA multiple of ~15x. Our OUTPERFORM rating is driven by: (1) margin expansion from ramp-up of new hospitals, (2) improving momentum of new hospital launches, and (3) the stock trades at 25% discount to historical average.

Risk: The main risks to our target price of Rp12,840 and OUTPERFORM rating of SILO include: (1) lower-than-expected growth, (2) delays in execution, (3) unfavourable regulatory changes, and (4) intensifying competition.

Target Price and Rating Valuation Methodology and Risks: (12 months) for XL Axiata Tbk (EXCL.JK)

Method: Our discounted cash flow (DCF) analysis, based on an estimated 10.5% weighted average cost of capital and a 2.5% terminal growth rate, supports our Rp3,950 target price for XL Axiata. At Rp3,950, XL Axiata would trade at an FY17 enterprise value-to-earnings before interest, taxes, depreciation, and amortisation (EV/EBITDA) multiple of 6.3x. While ahead of the regional average, XL Axiata's potential for medium-term growth is higher given still-low penetration rates in Indonesia. We rate the stock OUTPERFORM, on valuation and as it was previously oversold due to a weak balance sheet.

Risk: XL Axiata is the third-largest competitor within the ten-player Indonesian market. The risks that may impede achievement of our Rp3,950 target price and OUTPERFORM rating are: (1) either faster-than-expected, or slower-than-expected growth in the cellular market, from the current penetration level; (2) the prospect that competitors take a larger or smaller proportion of the market share of net additions; (3) that capex forecasts prove higher- or lower-than-expected due to competitive pressures or pressures from the regulator; (4) that competition

27 March 2017


leads to higher or lower attrition of revenue per user than expected, for example through a price war; and (5) faster- or slower-than-expected speed of tower sharing.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names The subject company (ICBP.JK, SILO.JK, TLKM.JK, HMSP.JK, LPPF.JK, EXCL.JK, BBNI.JK, SMRA.JK, MAPI.JK, ASII.JK, BMRI.JK, BDMN.JK, CTRA.JK, KIJA.JK, ASRI.JK, SCMA.JK, BTPN.JK, LPKR.JK, BSDE.JK, BBTN.JK, BBCA.JK, TBIG.JK, LINK.JK, KINO.JK, ISAT.JK, INDF.JK, PRDA.JK, TOWR.JK, UNVR.JK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (ICBP.JK, SILO.JK, TLKM.JK, HMSP.JK, LPPF.JK, EXCL.JK, BBNI.JK, BMRI.JK, BDMN.JK, CTRA.JK, BTPN.JK, LPKR.JK, BSDE.JK, BBTN.JK, KINO.JK, INDF.JK, PRDA.JK, TOWR.JK, UNVR.JK) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (SILO.JK, TLKM.JK, HMSP.JK, LPPF.JK, BMRI.JK, BDMN.JK, LPKR.JK, PRDA.JK) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (ICBP.JK, SILO.JK, TLKM.JK, HMSP.JK, LPPF.JK, EXCL.JK, BBNI.JK, BMRI.JK, BDMN.JK, CTRA.JK, BTPN.JK, LPKR.JK, BSDE.JK, BBTN.JK, KINO.JK, INDF.JK, PRDA.JK, TOWR.JK, UNVR.JK) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ICBP.JK, SILO.JK, TLKM.JK, HMSP.JK, GGRM.JK, LPPF.JK, MIKA.JK, EXCL.JK, BBNI.JK, SMRA.JK, MAPI.JK, ASII.JK, KLBF.JK, BMRI.JK, BDMN.JK, RALS.JK, CTRA.JK, KIJA.JK, ASRI.JK, PWON.JK, MNCN.JK, SCMA.JK, BTPN.JK, LPKR.JK, BSDE.JK, BBTN.JK, BBRI.JK, BBCA.JK, TBIG.JK, LINK.JK, BEST.JK, ACES.JK, KINO.JK, ISAT.JK, INDF.JK, PRDA.JK, TOWR.JK, UNVR.JK) within the next 3 months. Credit Suisse may have interest in (ICBP.JK, SILO.JK, TLKM.JK, HMSP.JK, GGRM.JK, BJTM.JK, LPPF.JK, MIKA.JK, EXCL.JK, BBNI.JK, SMRA.JK, MAPI.JK, ASII.JK, KLBF.JK, BMRI.JK, BDMN.JK, RALS.JK, CTRA.JK, KIJA.JK, ASRI.JK, BJBR.JK, PWON.JK, MNCN.JK, SCMA.JK, BTPN.JK, LPKR.JK, BSDE.JK, BBTN.JK, BBRI.JK, BBCA.JK, TBIG.JK, SSIA.JK, LINK.JK, BEST.JK, ACES.JK, KINO.JK, ISAT.JK, INDF.JK, PRDA.JK, TOWR.JK, UNVR.JK)

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Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (SILO.JK, TLKM.JK, HMSP.JK, LPPF.JK, BMRI.JK, BDMN.JK, LPKR.JK, LINK.JK, KINO.JK, PRDA.JK) within the past 3 years. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. This research report is authored by: Credit Suisse (Hong Kong) Limited ........................................................................................................................................... Colin McCallum, CA Credit Suisse AG, Singapore Branch ................................................................................................................................. Sanjay Jain ; Rikin Shah PT Credit Suisse Securities Indonesia ........................... Ella Nusantoro ; Jahanzeb Naseer ; Benny Kurniawan ; Ari Jahja ; Laurensius Teiseran To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the FINRA 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. PT Credit Suisse Securities Indonesia .............................................................................................................................................. Ella Nusantoro

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27 March 2017


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