Astra International BUY Sector: Automotive (Neutral) (From REDUCE) Rating Momentum*

Asiamoney’s 2013 Spotlight Best Domestic Equity House 5 August 2016

Astra International BUY Sector: Automotive (Neutral) (From REDUCE) Rating momentum*:

Leonardo Henry Gavaza, CFA PX:IDR7,925–TP:IDR9,100 (From IDR5,650) E-mail: [email protected] TP/consensus: 118%; TP momentum*: Phone: +6221 250 5081 ext. 3608 JCI: 5,420

Twin-engine growth Exhibit 1. Company information Market cap (IDRb/USDm) : 321,844/24,514 . Supportive macro factors on accelerating GDP growth next year: As 3M avg.daily t.o.(IDRb/USDm) : 267.3/20.45 the largest-cap consumer discretionary play in the JCI, we believe ASII Bloomberg code : ASII IJ Source: Bloomberg should benefit from an upcycle in GDP growth next year to 5.4% (exhibit 5) Exhibit 2. Shareholders information on: (1) improved purchasing power due to lower interest rates, contained Jardine Cycle & Carriage (%) : : 50.1 inflation and a stronger IDR; and (2) increased infrastructure projects, Free float (%) : 49.9 helped by tax receipts from the government’s tax amnesty program. The FSA Source: Bloomberg also plans to stimulate auto-sector demand by cutting vehicle downpayments Exhibit 3. Key forecasts and valuations from 20-25% to 0%, although this has been frowned upon by BI. Year to 31 Dec 2015 2016F 2017F 2018F Revenue (IDRtn) 184.2 183.0 201.6 220.6 . Improving market share to 58% on strong product line-up: Supported EBIT (IDRtn) 17.2 16.2 18.3 20.2 by strong demand for its new models and solid 1H16 sales volume, we Net profit (IDRtn) 14.5 16.5 19.7 21.8 Bahana/cns. (%) - 100 103 97 increase our 2016-18 4W sales assumptions to 565-685k units (from 547- EPS (IDR) 357 407 488 540 631k units), +7-13% y-y. On a solid order book, we believe that Toyota EPS growth (%) (24.6 14.0 19.7 10.6 Sienta products will contribute 2-3k units/month. We also believe that ASII’s EV/EBITDA (x) 13.0 15.3 13.8 12.4 7-seater LCGCs (e.g., Datsun 7-seater selling at 2k units/month), driven by PER (x) 22.2 19.5 16.2 14.7 FCFPS (IDR) customer preference, will be successful. That said, we expect ASII to 382 229 212 310 FCF yield (%) 4.8 2.9 2.7 3.9 improve its market share from 50% in 2015 to 58% in 2017. BVPS (IDR) 2,521 2,751 3,055 3,376 PBV (x) . Higher auto contribution on solid margin and higher utilization rate: 3.1 2.9 2.6 2.3 DPS (IDR) 177 183 219 243 Due to the dealership rearrangement, at the moment dealer inventories Yield (%) 2.2 2.3 2.8 3.1 remain at low levels, resulting in higher dealership margins. This, coupled ROAA (%) 6.0 6.6 7.4 7.7 with lower discounts, should aid ASII’s continued auto operating margin ROAE (%) 14.6 15.5 16.8 16.8 recovery, which we expect to reach 3% (from 2.5%) in 2017-18. In our EBIT margin (%) 9.3 8.8 9.1 9.2 Net gearing (%) 42.7 36.8 31.7 26.2 view, a stronger IDR, coupled with higher production volume due to stronger Source: Bloomberg, Bahana estimates demand, would also improve ASII’s auto equity contribution, which we Note: Pricing as of close on 5 August 2016 expect to reach IDR5.9tn, +15% y-y, in 2017, before reaching IDR6.5tn, Exhibit 4. Relative share price performance (%) (%) 16 16 +10% y-y, in 2018. Thus, on expected solid auto sales, we raise ASII’s 14.1 14 14 2017-18F net profit by 8-13% (exhibit 20). We forecast 2017 net profit of 12 12 IDR19.7tn, +20% y-y, reaching only its 2012-14 high of around IDR19tn. 10 10 8 6.8 6.2 6.5 8 6 6 3.5 . Financial services bottoming with 32% y-y growth in 2017F: While we 4 4 expect ASII’s financial services division to book weak 2016 net profit of 2 2 0 0 IDR3tn, -15.5% y-y, on a weak Bank Permata contribution due to higher (2) (2) (4) (1.9) (4) provisioning, we believe 2017 will see a recovery in net profit to IDR4tn, ytd 1M 3M 6M 9M 12M ASII IJ relative to JCI +32% y-y. However, we expect FIF (2W financing) and TAFS (4W financing) Source: Bahana, Bloomberg based on 5 August 2016 closing price

to book solid performance on strong sales of Toyota 4W and Honda 2W. Outlook & rating: Upgrade to BUY with higher TP of IDR9,100 A strong macro outlook, coupled with expected market share improvement on several new products, has us changing our view on ASII from negative to positive. Thus, we raise our 12M SOTP-based TP to IDR9,100 from IDR5,650, reflecting a 2017F PER of 18.7x, at the high end of its 5-year range, which is usually the case during periods of strong volume growth. Additionally, as we expect continued foreign fund inflows into the market on Indonesia’s stronger fundamentals, we expect ASII’s blue chip status and high liquidity to result in sustained market outperformance (exhibit 4). Thus, we upgrade our rating on ASII to BUY from Reduce on 15% upside potential to our new TP. Risks: Policy risks stemming from ERP and a higher vehicle ownership tax.

Disclosure: Bahana Securities does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single factor in making their investment decision. Please see the important disclaimer information on the back of this report *Based on consensus’ recent changes ↑ (up), ↓ (down), ↔ (unchanged) 5 August 2016

Astra International Year to 31 December 2014 2015 2016F 2017F 2018F PROFIT & LOSS (IDRbn) Sales 201,701 184,196 182,963 201,617 220,588 Gross profit 38,809 36,710 35,463 38,862 42,717 EBITDA 27,588 28,107 23,706 26,145 28,844 Depreciation 7,425 10,895 7,518 7,823 8,603 EBIT 20,163 17,212 16,187 18,321 20,241 Net interest inc./(expense) 151 145 124 305 461 Forex gain/(losses) (126) (291) (85) - - Other income/(expense) 7,164 2,564 7,284 9,187 10,113 Pre-tax profit 27,352 19,630 23,511 27,813 30,815

Taxes (5,227) (4,017) (4,286) (5,048) (5,630) Minority interest (2,944) (1,149) (2,731) (3,020) (3,341) Extraordinary gain/(losses) - - - - - We expect higher net profit on Net profit 19,181 14,464 16,493 19,745 21,844 accelerating GDP growth

BALANCE SHEET (IDRbn) Cash and equivalents 20,902 27,102 27,550 29,194 31,886 S-T investments 277 484 523 565 610 Trade receivables 24,462 21,277 21,555 23,752 25,987 Inventories 16,986 18,337 17,781 19,620 21,442 Fixed assets 61,336 58,545 60,324 63,607 64,349 Likely higher fixed asset levels Other assets 112,066 119,690 128,698 139,127 150,505 due to … Total assets 236,029 245,435 256,431 275,864 294,778 Interest bearing liabilities 70,072 70,649 68,493 68,403 67,643 Trade payables 18,839 20,557 20,206 22,295 24,366 Other liabilities 26,794 27,696 29,422 31,840 34,409 Total liabilities 115,705 118,902 118,121 122,538 126,418 Minority interest 24,713 24,490 26,939 29,633 31,707 Shareholders' equity 95,611 102,043 111,371 123,693 136,653

CASH FLOW (IDRbn) EBIT 20,163 17,212 16,187 18,321 20,241 Depreciation 7,425 10,895 7,518 7,823 8,603 Working capital (2,620) 3,552 (73) (1,947) (1,986) Other operating items (2,928) (4,467) (1,170) (245) (278) Operating cash flow 22,040 27,192 22,463 23,952 26,580 … continued elevated capex Net capital expenditure (15,806) (11,715) (13,182) (15,377) (14,043) Free cash flow 6,234 15,477 9,281 8,575 12,537 averaging around IDR14tn per Equity raised/(bought) - - - - - annum in 2016-18F Net borrowings 5,549 577 (2,156) (91) (759) Other financing (9,438) (9,854) (6,677) (6,840) (9,086) Net cash flow 2,345 6,200 448 1,644 2,692 Cash flow at beginning 18,557 20,902 27,102 27,550 29,194 Ending cash flow 20,902 27,102 27,550 29,194 31,886

RATIOS ROAE (%) 21.4 14.6 15.5 16.8 16.8 ROAE should continue to ROAA (%) 8.5 6.0 6.6 7.4 7.7 increase in 2016-18 due to EBITDA margin (%) 13.7 15.3 13.0 13.0 13.1 improved market conditions EBIT margin (%) 10.0 9.3 8.8 9.1 9.2 Net margin (%) 9.5 7.9 9.0 9.8 9.9 Payout ratio (%) 45.6 49.5 45.0 45.0 45.0 Current ratio (x) 1.3 1.4 1.4 1.5 1.5 Interest coverage (x) na na na na na Net gearing (%) 51.4 42.7 36.8 31.7 26.2 Debts to assets (%) 29.7 28.8 26.7 24.8 22.9 Debtor turnover (days) 44 42 43 43 43 Creditor turnover (days) 42 51 50 50 50 Inventory turnover (days) 38 45 44 44 44

MAJOR ASSUMPTIONS We conservatively expect 4W sales volume (units) 614,169 510,224 565,000 640,000 684,800 2W sales volume (‘000 units) 5,051 4,454 4,471 4,716 4,970 higher 4W and 2W sales Source: Company, Bahana estimates

Leonardo Henry Gavaza, CFA ([email protected]) +6221 2505081 ext. 3608

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Supportive macro factors on accelerating GDP growth next year Looking at our output gap calculation on Indonesia’s GDP, our economist has concluded GDP growth below its that Indonesia’s GDP is below its potential (exhibit 5), constrained by low commodity potential on... prices. This condition has already happened during the past five quarters. In 2016, the main growth drivers should still come from investment and government spending. However, as commodity prices have started to increase significantly from bottom levels in 1Q16, we expect commodity price improvement to support the recovery of GDP growth.

Exhibit 5. Indonesia’s output gap, 1Q05-4Q17F

(%) (%) ...low commodity prices 7.0 0.8

0.6 6.5 6.38 0.4 6.0 0.2

5.5 5.40 0.0

-0.2 5.0 4.84 4.78 -0.4 4.5 -0.6

4.0 -0.8

Output gap (RHS) GDP growth (LHS)

Source: Company, Bahana

Furthermore, on an annualized basis, 1Q16 GDP growth ended its downward trend since Accelerating annualized 2011, achieving 4.84% y-y annualized growth (4Q15: 4.79% y-y). On the monetary side, GDP growth of ... the slower-than-expected investment growth should trigger the central bank to be more aggressive on monetary easing and introduce a looser macroprudential policy. In 2Q16, we expect the annualized GDP growth to continue its recovery, reaching 4.93% y-y, supported by interest rate cuts as well as improving net export value.

Exhibit 6. Annualized GDP growth 1Q13-2Q16

(%, y-y) ...4.97% y-y in 2Q16

6.1 5.89 5.9 5.73 5.7 5.63 5.56 5.5 5.46 5.30 5.3 5.16 5.1 5.02 4.97 4.93 4.9 4.85 4.84 4.79 4.79 4.7

4.5 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Source: Company, Bahana

We expect there will be three additional benchmark rate cuts in 2H16 and look for the 7- Lower interest rate and... day repo rate to be 4.50% at year-end (current 5.25%). Nevertheless, on continued seasonality and the absence of a surprise in government spending and investment, we continue to expect 5.1% y-y GDP growth in 2016. In 2017, on heavy government deregulation coupled with strong money inflow, we expect solid investment to support the GDP to expand 5.4% y-y.

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

As we expect government’s tax amnesty program to be successful, we expect higher tax ...tax amnesty program base to improve the government’s tax revenue, supporting government spending. Thus, we expected to support GDP expect improving purchasing power to support auto sales. As the largest-cap consumer to accelerate by 5.4% y-y discretionary play in the JCI, ASII, in our view, should benefit from an upcycle in GDP in 2017 growth next year to 5.4% on (1) improved purchasing power due to lower interest rates contained inflation and a stronger IDR; and (2) increased infrastructure projects, helped by tax receipts from the government’s tax amnesty program. The FSA also plans to stimulate demand in the auto sector by cutting vehicle downpayments from 20-25% to 0%, although this has been frowned upon by BI.

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Improving market share to 58% on strong product line-up Despite flattish 2016 4W domestic demand growth of 4% y-y to 1.04mn units, we expect We expect 2017 domestic 2017 domestic sales to improve to 1.1mn units, +6% y-y, supported by improving sales to improve to 1.1mn economic conditions, due to improved government spending in the next few years. This, units, +6% y-y coupled with a lower lending rate expectation, will likely result in stronger purchasing power.

Exhibit 7. Domestic 4W sales, Jan 2014 - June 2016 ('000 units) June 2016 domestic 4W 120 112 113 111 sales reached 91k units, 106 104 103 105 99 97 97 94 94 up 11% y-y 100 91 91 91 93 91 89 88 89 88 85 85 87 82 82 79 79 80 73

56 60

- Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2014 2015 2016

Source: Gaikindo

In 1H16, ASII benefited from its new Innova and new Fortuner models, which have had a In 1H16, ASII benefited solid customer reception. The Toyota Avanza also performed well, supporting ASII’s sales from its new Innova and due to its huge volume. In 2H16, ASII’s new model the Toyota Sienta should start new Fortuner models ... contributing to ASII’s volume growth. With a solid order book, we believe that Toyota Sienta products will contribute 2-3k units/month. Supported by strong demand for its new models as well as solid 1H16 sales volume for its current product line-up, we raise our 2016F 4W sales to 565k units (from 510k units), +11% y-y, reflecting an improved market share of 54.3% from 50.4%.

Exhibit 8. 4W domestic market share, 1H15 vs. 1H16 1H15 1H16 ... supporting its 1H16

Others Others market share of 51% (Non-Astra) (Non-Astra) Nissan Daihatsu Daihatsu 8% Nissan 10% (1H15: 50%) 3% 17% 17% 2%

Suzuki Isuzu Suzuki Isuzu 12% 2% 9% 2% Nissan Nissan Diesel Diesel 0% 0% Mitsubishi 7%

Mitsubishi 11%

Toyota Toyota 31% 33% Honda Honda 21% 15% Peugeut Peugeut 0% 0% Source: Gaikindo

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Exhibit 9. ASII’s new 7-seater LCGC models, 2016 Toyota Calya and Daihatsu Sigra have just launched on 2 August 2016

Source: Company

On a solid order book, we also believe that ASII’s 7-seater LCGC will be successful, as We expect Toyota Sienta customers prefer 7-seater products such as Datsun’s 7-seater (2k units/month). Having and ASII’s 7-seater LCGC said that, we acknowledge that several competitors’ new products could also fight with ASII to support... for market share. In line with that, we believe that ASII’s main brand Toyota will try to regain market share with the launch of its new MPV product, the Toyota Sienta, and the re- launch of several products, such as the Toyota Innova (MPV) and Toyota Fortuner (SUV) with major changes. Thus, we expect ASII to book 2016 sales volume of 565k units (+11% y-y), representing a 2016 market share of 54.3% (2015: 50.4%). In 2017, ASII’s sales volumes should reach 640k units, +13% y-y.

Exhibit 10. ASII’s 4W sales volume and market share, 2014-2018F

('000 units) (%) ...ASII’s 2017 4W volume Sales Market Share (RHS) 800 60.0 to reach 640k units, +13%

640 685 y-y, representing 58% 700 58.0 614 58.1 58.1 market share from 50% in 600 565 56.0 2015 510 500 54.3 54.0 400 52.0 50.8 300 50.4 50.0 200

100 48.0

- 46.0 2014 2015 2016F 2017F 2018F

Source: Company, Bahana

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Flat 2W sales on weak commodity prices Despite the stronger 2016 economic outlook, we expect low commodity prices to harm Low commodity prices farmer incomes, resulting in lower purchasing power in the outer Java area, especially in should limit 2W sales Sumatera and Kalimantan Islands. Thus, we expect 2016 domestic 2W sales volume to volume decline to 6.2mn units, -5% y-y. However, in 2017, on improving economic conditions, we expect ASII’s 2W sales to reach 4.7mn units, +5% y-y.

Exhibit 11. Domestic 2W sales, Jan 2014 - June 2016 ('000 units) June 2016 2W sales came 800 751 726 728 740 707 in at 519k units, down 679 676 700 10% y-y, while ... 609 622 603 603 579 575 582 600 556 563 556 546 525 534 536 503 525 519 520 478 470 500 461 422 416 400

300

200

100

- Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2014 2015 2016

Source: AISI

Exhibit 12. 2W domestic market share, 1H15 vs. 1H16

1H15 1H16 ... in 1H16, ASII’s 2W market share rose to 73% Others Others 4% 3% from 67% in 1H15

Yamaha 24% Yamaha 29%

ASII 67% ASII 73%

Source: AISI

Despite market weakness, we expect ASII’s 2W brand, Honda, to maintain 2016 sales Despite market weakness, volume at 4.5mn units, flat y-y, as the market is moving into the scooter segment, which we expect improving Honda dominates. This represents continued improving market share from 69% in 2015 to market share from ASII’s 73% in 2016F. In 2017, we expect 2W Honda sales volume to reach 4.7mn units, +6% y-y, 2W brand, Honda, to 75% representing improved market share to 75%. in 2017 (2015:69%)

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Exhibit 13. ASII’s 2W sales volume and market share, 2014-2018F

('000 units) (%) ASII’s 2W sales volume Sales Market Share (RHS) 5,250 80.0 should reach 4.7mn units, 5,051 76.8 +5.5 y-y, over the same 74.7 5,000 4,970 75.0 period 72.6

4,750 68.7 4,716 70.0

64.2 4,471 4,500 4,454 65.0

4,250 60.0

4,000 55.0 2014 2015 2016F 2017F 2018F

Source: Company, Bahana

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Higher auto contribution on solid margin and higher utilization rate Despite hurting auto revenue and other income from vehicle registrations, ASII’s dealership ASII’s dealership rearrangement successfully maintained its inventory level to be below 1 month as well as rearrangement has limiting discount wars among its dealers, which happened in the past. That is why ASII’s lowered dealer inventory July 2016 average discount only reached 6.7%, compared to 7.2% in the previous month and discount levels and 7.3% in July 2015.

Exhibit 14. 4W discount levels, July 2016 Dealer Type Price Discount Price %Discount Toyota and Daihatsu Toyota Avanza 1.3 G MT 203,800,000 17,000,000 186,800,000 8.3% Innova bensin 2.0 G MT 288,900,000 10,000,000 278,900,000 3.5% decreased discounts in Agya TRD S 1,0 MT 126,630,000 7,000,000 119,630,000 5.5% Rush G MT 238,300,000 15,000,000 223,300,000 6.3% July ... Fortuner G AT 471,300,000 5,000,000 466,300,000 1.1% Daihatsu Xenia R 1300 CC MT 180,450,000 15,000,000 165,450,000 8.3% Luxio D MT 190,650,000 20,000,000 170,650,000 10.5% Ayla X 1.0 MT (Airbag) 115,500,000 9,000,000 106,500,000 7.8% Terios X Xtra MT 201,700,000 18,000,000 183,700,000 8.9% Nissan March 1.2 Mid AT 180,800,000 17,000,000 163,800,000 9.4% New X-Trail 2.5 CVT 450,400,000 34,000,000 416,400,000 7.5% Grand Livina XV MT 230,600,000 18,000,000 212,600,000 7.8% Suzuki Ertiga GL MT 199,500,000 16,000,000 183,500,000 8.0% Wagon R GL 1.0 MT 115,000,000 9,500,000 105,500,000 8.3% APV GX MT 192,000,000 15,000,000 177,000,000 7.8% Mitsubishi Mirage Exceed AT 189,000,000 12,000,000 177,000,000 6.3% Pajero Dakar 4x2 AT 496,000,000 - 496,000,000 0.0% Outlander PX AT 360,000,000 15,000,000 345,000,000 4.2% Delica 429,000,000 10,000,000 419,000,000 2.3% Honda HR-V E 1.5 CVT 301,400,000 - 301,400,000 0.0% Jazz RS MT 264,000,000 5,000,000 259,000,000 1.9% CRV 2.0 L i-VTEC MT 404,000,000 5,000,000 399,000,000 1.2% Brio Satya E 1,2 MT 134,600,000 - 134,600,000 0.0% Mobilio E 1.5 MT 203,000,000 15,000,000 188,000,000 7.4% Datsun Datsun Go+ T Option MT 112,850,000 - 112,850,000 0.0% Source: Company, Bahana

Exhibit 15. 4W discount levels, June 2016 Dealer Type Price Discount Price %Discount Toyota Avanza 1.3 G MT 202,300,000 20,000,000 182,300,000 9.9% … compared to June’s level Innova bensin 2.0 G MT 288,400,000 10,000,000 278,400,000 3.5% Agya TRD S 1,0 MT 126,130,000 10,000,000 116,130,000 7.9% Rush G MT 234,500,000 20,000,000 214,500,000 8.5% Fortuner G AT 465,800,000 8,000,000 457,800,000 1.7% Daihatsu Xenia R 1300 CC MT 179,450,000 15,000,000 164,450,000 8.4% Luxio D MT 172,000,000 20,000,000 152,000,000 11.6% Ayla X 1.0 MT (Airbag) 115,500,000 8,000,000 107,500,000 6.9% Terios X Xtra MT 201,200,000 18,000,000 183,200,000 8.9% Nissan March 1.2 Mid AT 180,800,000 15,000,000 165,800,000 8.3% New X-Trail 2.5 CVT 450,400,000 23,000,000 427,400,000 5.1% Grand Livina XV MT 219,300,000 12,000,000 207,300,000 5.5% Suzuki Ertiga GL MT 199,500,000 16,000,000 183,500,000 8.0% Wagon R GL 1.0 MT 115,000,000 9,500,000 105,500,000 8.3% APV GX MT 192,000,000 15,000,000 177,000,000 7.8% Mitsubishi Mirage Exceed AT 189,000,000 15,000,000 174,000,000 7.9% Pajero Dakar 4x2 AT 496,000,000 - 496,000,000 0.0% Outlander PX AT 360,000,000 20,000,000 340,000,000 5.6% Delica 429,000,000 18,000,000 411,000,000 4.2% Honda HR-V E 1.5 CVT 301,400,000 5,000,000 296,400,000 1.7% Jazz RS MT 254,000,000 15,000,000 239,000,000 5.9% CRV 2.0 L i-VTEC MT 404,000,000 10,000,000 394,000,000 2.5% Brio Satya E 1,2 MT 134,600,000 - 129,900,000 0.0% Mobilio E 1.5 MT 203,000,000 8,000,000 195,000,000 3.9% Datsun Datsun Go+ T Option MT 112,850,000 - 112,850,000 0.0% Source: Company, Bahana

We realized that ASII’s 4W revenue was lower because of the dealership retructuring; ASII’s 2017 auto operating however, supported by strong demand for its products and dealership restructuring, we profit expected to reach expect ASII’s auto segment to experience margin expansion from 1.3% in 2015 to 2.6% in IDR3.2tn, +31% y-y... 2016, before strengthening to 3.0% in 2017. Bear in mind that ASII’s auto margin used to be around 3.5-3.9% during the 2009-12 period. Thus, we expect a margin recovery, as competition should become more rational in the auto sector. We expect ASII’s auto segment to achieve 2016 operating profit of IDR2.4tn, +93% y-y, before growing to IDR3.2tn, +31% y-y, in 2017.

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Exhibit 16. ASII’s auto operating margin and operating profit, 2014-2018F

(IDRbn) (%) Operating Profit Operating Margin (RHS) ...reflecting an operating 4,000 3.5 margin of 3.0%, still 3.0 3,510 below its 3.5-3.9% levels 3,500 3.0 3,204 3.0 in 2009-12 3,000 2.6 2.5 2,500 2,442 2,028 2.0 2,000 1.9 1.3 1.5 1,500 1,267 1.0 1,000

500 0.5

- 0.0 2014 2015 2016F 2017F 2018F Source: CEIC, Bahana

The impact of the dealership rearrangement should bring down ASII’s auto other income ASII’s 2017 auto segment from vehicle registrations. With reduced contributions from its previous subdealers, ASII’s other income will reach 2016 auto segment other income will likely only reach IDR2.5tn (-20% y-y), of which IDR2.8tn, +15% y-y, on around 60% is from vehicle registration. However, in 2017, we expect a recovery in ASII’s improving auto sales auto segment other income to IDR2.8tn, 15% y-y, on improving auto sales.

On a more positive note, we expect ASII’s auto equity income to grow strongly on higher Supported by higher factory utilization due to solid growth in 4W sales volume and a stronger IDR. ASII obtains factory utilization and a huge proportion of its auto segment earnings from its subsidiaries, such as Astra stronger IDR... Daihatsu Motor (ADM, 4W), Astra Honda Motor (AHM, 2W) and Toyota Astra Motor (TAM, 4W), through equity earnings. On AHM, Stripping out the AHM contribution, we expect ASII’s equity earnings/car sales will recover to IDR5.1mn in 2018, recovering to its 2010 level. We expect a higher level as the 4W ASP has increased significantly since 2010.

Exhibit 17. ASII’s auto equity & equity per car sales, 2014-2018F ...we expect ASII’s 2017 Automotive Equity Equity/Car sales (RHS) (IDRbn) (IDRmn) auto segment equity 6,461 6,500 6.0 income to reach IDR5.9tn, 5.1 6,200 4.9 +15% y-y... 4.6 5.0 5,900 5,873 3.9 5,600 4.0 3.4 5,300 5,107 3.0 5,000 4,822 4,700 2.0

4,400 1.0 4,100 3,990 ... and equity per car sales to reach IDR4.9mn 3,800 - 2014 2015 2016F 2017F 2018F

Source: Company, Bahana

Thus, we expect ASII’s 2016 auto segment equity income to reach IDR5.1tn, +28% y-y, ASII’s 2017 net profit before continuing to grow to IDR5.9tn, +15% y-y. On the net profit level, we expect ASII’s expected to reach 2016 auto segment net profit to be IDR8.7tn, +18% y-y, on improved 4W sales and IDR10.4tn, +19% y-y, margins. In 2017, we forecast ASII’s auto segment to reach net income of IDR10.4tn, surpassing its 2013 high of +19% y-y, supported by several new product launches. Bear in mind that ASII just IDR9.8tn surpassed its 2013 auto net profit of IDR9.8tn.

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Bottoming financial services performance On the financial services side, we expect ASII’s financing subsidiaries to book improving On improving auto sales, performance on improving auto sales and a declining interest rate trend. Furthermore, the declining interest rate and implementation of a zero downpayment scheme would also improve performance. zero downpayment Following weak 2016 performance in ASII’s financial services operating profit of IDR3.7tn, policy... flat y-y, we expect improving performance, reaching IDR3.9tn, +10% y-y in 2017.

We believe that Astra Sedaya (4W financing), Toyota Astra Financial Service (4W financing) ...ASII’s auto financing and Asuransi Astra Buana (4W insurance) would benefit from solid 4W sales, and that subsidiaries should book Federal International Finance (2W financing) would benefit from Honda’s continued rising solid performance market share in 2W market.

On higher loan provisioning due to rising NPLs, we expect bottoming Bank Permata As we expect Bank performance, in line with the industry. Thus, we expect ASII to only book 2016 financial Permata to book positive services net profit of IDR3tn, -15% y-y. However, we expect a recovery in 2017 with the performance... ASII financial services segment to reach net profit of IDR4.0tn, +33% y-y, as we expect Bank Permata to start booking positive performance in 2017.

Exhibit 18. ASII’s financial services net income, 2014-2018F (IDRbn) …we look for ASII’s 2017 5,000 4,748 financial services net 4,500 4,241 income to reach IDR4.0tn, 3,960 4,000 +33% y-y 3,555 3,500 3,003 3,000

2,500

2,000

1,500

1,000

500

- 2014 2015 2016F 2017F 2018F

Source: Company, Bahana

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Bottoming commodity prices On the coal-related side, we expect domestic coal production to reach a bottom in 2016 and We expect improved look for power plants targeted by the government to double local demand from 80mn tons in domestic coal demand to 2015 to 166mn tons in 2019. This should provide a cushion for ASII’s coal-related subsidiary, support ASII’s coal-related UNTR, as most of the company’s clients are big coal companies that stand to benefit from exposure higher domestic coal usage. We expect improving mining fees and higher margins from mining contracting segment to support steady recovery, in line with improved domestic coal demand.

Exhibit 19. PLN expected coal demand, 2015 – 2019F Indonesian coal demand to (mn mt) reach 166ton in 2019F 180 166.1 160 140

120 108.7 89.9

100 87.7 92.8 94.5 32.5 16.6 18.3 80 11.4

60 76.2 76.2 76.2 76.2 76.2

40 2015 2016F 2017F 2018F 2019F

Existing 35GW

Source: PLN

UNTR also has several new business ventures to diversify from coal-related businesses. UNTR is expanding into First, UNTR is moving into the power plant business with its 2 X 1,000MW in Tanjung Jati several business ventures with an equity injection of USD200mn (25% stake). We expect additional earnings from power plants, as UNTR plans to participate in other PLN tenders. Second, UNTR is entering the gold business with gold production capacity of 100-200k oz/annum. Third, UNTR is planning to expand into the construction business, helped by ASII’s capex of around IDR15tn/annum and expansion into the infrastructure business. On CPO, we are seeing On the palm oil side, we expect lower production due to the presence of La Nina, which will improved ASP and likely likely bring heavier rainfall and decrease production yields, since the heavy rainfall may increased sales on affect fertilization, hampering harvesting as well as causing floods, which may cause recovered global demand companies to lose on crop recovery. In addition, low production output during El Nino has reduced inventory levels. Although the inventory has started to recover from June, we are of the view that the low base of inventory level, together with expected lower production levels, will make the recovery occur at a slower pace than global CPO demand, which is expected to increase in the near future, mainly from India’s demand recovery. We are seeing improved ASPs and likely increased increased sales on recovered global demand. Thus, we expect AALI to book a net profit recovery.

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Outlook: Entering a higher growth phase Due to our higher auto sales expectations, we raise our 2017-18F revenue by 1-3%. We We raise our 2017-18F also expect higher contributions from ASII’s other income and equity income on improved revenue and margin factory utilization and a stronger IDR. Thus, we raise ASII’s 2017-18F net profit by 8-13% assumptions, resulting in... (exhibit 20) and largely maintain our 2016 net profit forecast.

Exhibit 20. ASII’s earnings revisions, 2016F-18F IDRbn OLD NEW % changes 2016F 2017F 2018F 2016F 2017F 2018F 2016F 2017F 2018F Sales 183,766 199,348 214,605 182,963 201,617 220,588 (0.4) 1.1 2.8 Gross profit 36,463 39,247 42,088 35,463 38,862 42,717 (2.7) (1.0) 1.5

Gross margin (%) 19.8 19.7 19.6 19.4 19.3 19.4

Operating profit 17,789 19,435 20,614 16,187 18,321 20,241 (9.0) (5.7) (1.8) Oper. margin (%) 9.7 9.7 9.6 8.8 9.1 9.2 Net profit 16,454 18,225 19,425 16,493 19,745 21,844 0.2 8.3 12.5 Net margin (%) 9.0 9.1 9.1 9.0 9.8 9.9 EPS 406 450 480 407 488 540 0.2 8.3 12.5 ...8-13% higher earnings Source: CEIC, Bahana in 2017-18F

We are now expecting ASII’s 2016 net profit to reach IDR16.5tn, +14% y-y, before ASII’s 2017 net income to accelerating to IDR19.7tn, +20% y-y in 2017 (exhibit 21). This is only slightly above net reach... profit performance in 2012-14. Thus, we are expecting stronger performance in the next few quarters.

Exhibit 21. ASII’s net income, 2014-2018F (IDRbn) ...IDR19.7tn, +20% y-y,

25,000 slightly above its 2012-14 21,844 net profit levels 19,745 20,000 19,181 16,493 14,464 15,000

10,000

5,000

- 2014 2015 2016F 2017F 2018F

Source: Company, Bahana

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Valuation & Recommendation: Upgrade to BUY with higher TP of IDR9,100 We use a sum-of-the-parts (SOTP) valuation for ASII, looking at its 5 business segments We use an SOTP valuation (automotive, financial services, heavy equipment, plantation and others). We for ASII... conservatively move our valuation base into 2017 as we also introduce our 2018 forecasts.

We derive our value for ASII’s plantation and mining business from our target prices for AALI and UNTR. We value ASII’s auto financing companies at a 2017F PER of 12.5x, similar ... deriving segmental with Indonesian banks’ valuation (2017F PER of 11.7x) and the regional auto finance value differently... companies’ valuation (2017F PER of 13.1x). As for ASII’s other business, we value them at a 2017F PER of 15x, lower than Indonesian market valuation (2017F PER of 17.1x) and infrastructure sector valuation (2017F PER of 20.0x).

We value ASII’s automotive business at a 2017F PER of 21.9x, at the higher end of its 5- year PER band (exhibit 24), which is usually the case during periods of strong volume ... with the auto segment growth as the trend is currently changing and liquidity is improving. Several auto dealers reflecting a 2017F PER of with high market caps such as ASS (Japan) and Copart (US) also have high 2017F PER 21.9x, the higher end of its valuations of 18.1-21.7x, higher than the auto dealers (2017F PER of 17.8x) valuation. We 5-year historical PER do not have any parent company discount for ASII as we take into account ASII’s strong band... corporate governance in valuing the stock. Thus, we raise ASII’s SOTP-based 12-month TP from IDR5,650 to IDR9,100 (exhibit 22), reflecting a 2017F PER of 18.7x, still within its 5- year historical PER band (exhibit 25).

A strong macro outlook, coupled with expected market share improvement on several new products, has us changing our view on ASII from negative to positive. Additionally, as we ...on expected strong expect continued foreign fund inflows into the market on Indonesia’s stronger growth fundamentals, we expect ASII’s blue chip status and high liquidity to result in sustained market outperformance (exhibit 4). Thus, we upgrade our rating on ASII from Reduce to BUY on 15% upside potential to our new TP.

Exhibit 22. ASII’s sum-of-the-parts valuation 2016F Method Value Att. Value

Division Automotive 2017F PE of 22x 226,904 226,904 Agribusiness AALI TP 32,719 26,176 Heavy Equipment UNTR TP 82,062 49,237 Financial Services 2017F PE of 12.5x 50,329 50,329 Others 2017F PE of 15x 15,594 15,594 Total Value 368,240 Shares Outstanding 40,494 SOTP valuation results in a Value/Share 9,100 target price of IDR9,100 Source: Bahana estimates

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Exhibit 23. Auto peer valuations, 2016-17F

Country Market cap PER (x) PBV (x) EV/EBITDA (x) Div yield (%) ROE (%) EPS growth (%) (USDb) 2016F 2017F 2016F 2017F 2016F 2017F 2017F 2017F 2016F 2017F ASII is trading at a 2017F Auto dealers 15.6 17.8 16.4 4.0 3.7 10.9 10.3 2.0 21.1 12.6 7.4 USS Japan 5.1 18.1 18.1 2.7 2.6 11.7 11.6 2.8 14.7 10.1 (1.5) PER of 16.2x, similar to C opart USA 5.5 24.5 21.7 7.5 6.9 13.6 12.7 na 33.6 17.4 8.9 the regional valuation of Zhongsheng Group Hongkong 1.3 13.6 11.1 0.8 0.7 9.3 8.4 1.8 7.3 3.9 21.6 Gulliver International Japan 0.6 11.0 12.2 1.5 1.4 7.1 6.4 2.5 12.3 33.3 (10.2) 16.4x China Harmony New Ene Hongkong 0.9 7.9 6.8 0.8 0.7 4.1 3.5 3.7 11.9 15.9 17.6 China ZhengTong Hongkong 0.9 7.4 6.4 0.6 0.6 7.8 6.9 4.0 9.8 10.0 16.8 China Yongda AutomobilHongkong 0.7 6.9 5.7 1.0 0.8 5.9 5.1 5.3 15.4 11.1 19.2 Berjaya Auto Malaysia 0.7 13.4 12.0 4.6 4.1 8.9 7.9 5.1 36.8 (7.4) 12.4 Auto finance 15.4 17.2 13.1 2.4 2.0 7.9 0.0 2.3 13.9 26.2 14.7

Ally Financial USA 8.7 8.2 7.1 0.6 0.6 14.0 na 1.9 8.4 16.6 3.2 Srisawad Power 1979 Thailand 1.1 21.8 16.8 6.2 4.8 na na 1.5 33.0 36.5 30.4 Ratchthani Leasing Thailand 2.1 15.7 14.9 2.8 2.6 na na 4.1 19.0 15.6 14.8 Group Lease Thailand 1.9 63.0 39.6 8.0 6.2 na na 1.2 17.9 86.6 56.6 Krungthai Card Thailand 0.9 13.7 12.1 3.1 2.7 na na 3.3 23.6 12.8 13.7 Magma Fincorp India 0.4 12.8 9.5 1.1 1.1 na na 1.2 11.6 11.4 32.3 BFI Finance Indonesia Indonesia 0.3 6.0 5.1 0.9 0.8 na na 9.4 16.9 25.0 13.4 S&U UK 0.0 19.0 14.2 2.0 1.9 14.0 11.1 3.7 na na na Auto manufacturers 694.4 9.6 9.5 1.6 1.4 7.9 8.2 3.8 14.0 10.9 (4.4) Toyota Motor Japan 182.9 7.9 10.7 1.0 1.0 8.0 10.8 3.6 9.9 6.1 (28.7) Honda Motor Japan 50.9 9.6 7.9 0.7 1.0 6.2 6.5 4.5 13.3 (3.2) (0.3) Fuji Heavy Industries Japan 27.9 7.0 6.5 2.2 1.3 3.3 2.8 5.3 21.4 57.1 (1.2) Suzuki Motor Japan 14.8 12.6 10.8 1.3 0.8 4.3 6.7 3.1 7.1 16.6 (11.2) BMW Germany 54.4 7.9 5.3 1.1 0.9 6.5 2.4 5.1 18.6 4.3 (4.4) Ford Motor USA 48.2 6.4 7.2 1.5 0.8 2.8 2.5 4.9 10.9 5.1 (2.1) General Motors USA 47.2 5.3 7.7 1.1 1.2 2.4 9.5 6.6 16.8 16.1 5.7 Nissan Motor Co Ltd Japan 41.8 7.3 5.8 0.8 0.6 2.5 3.2 4.2 11.9 23.8 15.0 SAIC Motor China 38.2 8.1 5.2 1.3 0.5 11.3 7.4 3.6 9.2 8.7 2.1 Renault France 24.2 6.5 9.0 0.7 1.9 3.4 4.0 3.9 22.6 19.2 (23.9) Hyundai Motor Korea 26.2 5.3 11.0 0.5 1.9 7.7 4.2 0.3 18.0 0.5 31.1 Tata Motors India 23.1 14.7 5.3 2.3 0.6 5.1 3.6 3.4 11.2 (31.9) 4.2 Guangzhou Automobile Hongkong 18.4 9.1 24.0 1.3 4.8 35.5 15.4 0.8 20.4 56.4 30.2 Maruti Suzuki India India 22.0 30.5 8.0 5.5 1.2 18.0 30.7 3.8 15.4 34.1 13.1 Kia Motors Corp Korea 15.0 5.6 14.9 0.6 1.3 3.8 4.4 1.0 9.2 5.1 (20.9) Peugeot SA France 11.4 6.8 6.5 1.0 0.8 1.3 1.3 3.8 14.2 15.4 9.5 Mahindra & Mahindra Ltd India 13.5 25.9 20.3 3.2 2.9 14.8 12.0 1.0 14.2 (12.7) 27.2 Bajaj Auto Ltd 11.8 21.9 19.7 6.5 5.5 16.8 15.4 2.0 30.7 13.9 11.4 India Dongfeng Motor Group CHongkong 10.5 5.7 5.4 0.7 0.6 20.4 17.9 2.9 12.7 (0.8) 4.7 Eicher Motors Ltd India 8.7 47.2 35.4 16.5 13.1 25.2 21.7 0.6 40.6 43.4 29.2 Weighted average 725.5 9.9 9.7 1.6 1.4 7.9 8.0 3.7 14.2 11.2 (3.8) Astra International Indonesia 20.7 19.5 16.2 2.9 2.6 15.3 13.8 2.8 16.8 14.0 19.7 Indomobil Indonesia 0.4 16.2 11.0 0.8 0.7 26.6 26.0 na na na 47.3 Indonesia 21.0 19.4 16.2 2.8 2.6 15.5 14.0 2.7 16.5 13.8 20.2 Source: Company, Bahana estimates; pricing as of 5 August 2016

Exhibit 24. ASII’s (excluding AALI & UNTR) PER band, 2012-16F 25 ASII’s auto related

21.9 business (excluding UNTR

20 and AALI) should trade near its higher range of 17.4 16.4 21.9x, while ...

11.0

0 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 P/E +2 STD -2 STD Average 5 years Source: Bloomberg, Bahana

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Exhibit 25. Automotive (including AALI & UNTR) PER band, 2012-16F

25 ...ASII’s (including UNTR and AALI) valuation 20.9 should be at around 20.9x, 20 which was the case during 17.6

16.4 the high growth phase

11.8

0 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 P/E + 2 STD -2 STD Average 5 years Source: Bloomberg, Bahana

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Risks: Escalating competition and policy headwinds In the medium term, we see risks in 2017-18 as several brands are due to launch new A lot of new models could products on improving economic conditions. We have learned that Mitsubishi plans to escalate competition penetrate the low SUV and MPV segments on improved production capacity. With its new president director, Nissan also plans to expand its market share to 8% in 2018 through several new product launches, such as new Nissan Juke and the Datsun SUV. In the cheap car segment, GM Wuling, Geely and Tata will try to expand their presence in 2017-18. This could escalate competition and increase the discounting environment.

Exhibit 26. Possible new launches, 2017F New Nissan Juke and Datsun SUV are expected to be launched in 2017

Source: Gaikindo

Apart from competition risk, the auto sector will likely face regulatory risk in 2017 in the There are several policy form of ERP implementation and motorcycle limitation. Jakarta’s local government plans to risks... start implementing the ERP in 2017 following the plan to build the Semanggi additional interchange and the abolishment of the 3-in-1 rule. Motorcycle limitations should also be expanded in order to reduce traffic congestion.

Exhibit 27. Auto policy risks, 2016F No. Automotive Status Potential impact ... for the auto sector, 1 Increased luxury tax to 10% for LCGC Plan Negative for ASII and IMAS such as ERP and... 2 2W cartel allegation Plan Negative for ASII and IMAS 3 ERP policy (Jakarta) Plan Negative for ASII and IMAS 4 Vehicles credit down-payments cut to 0% Plan Positive for ASII and IMAS 5 Higher taxes on motor vehicles up to 15% Plan Negative for ASII and IMAS 6 Flexible pricing on regular gasoline Signed Positive for ASII and IMAS 7 Odd/even license plate Trial phase Negative for ASII and IMAS 8 Motorcycle ban in several main roads (Jakarta) Trial phase Negative for ASII and IMAS Source: Various resources, Bahana

Jakarta’s Governor Ahok also announced his intention to increase the vehicle registration ...increased vehicle tax to 15% (currently 2-10%, exhibit 5, depending on the number of vehicles owned). At registration tax this stage, we do not know whether 15% would be the highest tax rate or a flat rate applied to all vehicles. It is likely that Ahok intends to limit private vehicle ownership in Jakarta. Based on our calculation (exhibit 7), using the Toyota Avanza, the price would increase by 13% should the 15% tax rate be set for all vehicles, and by 5% if 15% is set as an upper limit tax rate (exhibit 6). This would provide additional risk for ASII as Jakarta represents 15-25% of total 2W and 4W sales.

Bahana Securities – Equity Research – ASII IJ Spotlight 5 August 2016

Exhibit 28. Local regulations on annual vehicle tax, 2015 Ownership Local regulation No.8 Year 2010 Local regulation No.2 Year 2015 1st vehicle 1.5% 2.0% Progressive vehicle tax 2nd vehicle 2.0% 2.5% from 2% to 10% 3rd vehicle 2.5% 3.0% 4th vehicle 4.0% 3.5% 5th vehicle 4.0% 4.0% 6th vehicle 4.0% 4.5% 7th vehicle 4.0% 5.0% 8th vehicle 4.0% 5.5% 9th vehicle 4.0% 6.0% 10th vehicle 4.0% 6.5% 11th vehicle 4.0% 7.0% 12th vehicle 4.0% 7.5% 13th vehicle 4.0% 8.0% 14th vehicle 4.0% 8.5% 15th vehicle 4.0% 9.0% 16th vehicle 4.0% 9.5% 17th vehicle 4.0% 10.0% Source: Jakarta post

Exhibit 29. Possible change in annual vehicle tax, 2017F Ownership Option A Option B 1st vehicle 15% 7.0% There are tax 2 options: 2nd vehicle 15% 7.5% all would be taxed at 3rd vehicle 15% 8.0% 15%, or 15% would be 4th vehicle 15% 8.5% 5th vehicle 15% 9.0% the higher rate 6th vehicle 15% 9.5% 7th vehicle 15% 10.0% 8th vehicle 15% 10.5% 9th vehicle 15% 11.0% 10th vehicle 15% 11.5% 11th vehicle 15% 12.0% 12th vehicle 15% 12.5% 13th vehicle 15% 13.0% 14th vehicle 15% 13.5% 15th vehicle 15% 14.0% 16th vehicle 15% 14.5% 17th vehicle 15% 15.0% Source: Bahana

Exhibit 30. Impact on vehicle price (Toyota Avanza), 2016F On the Local Off the road Condition Difference (IDR) Increased Increased tax would road (IDR) tax (IDR) likely increase vehicle Current 182.300.000 2% 178.725.490 price by 5-13% Future (Option B) 191.236.275 7% 178.725.490 8.936.275 5% Future (Option A) 205.534.314 15% 178.725.490 23.234.314 13%

Source: Gaikindo

Bahana Securities – Equity Research – ASII IJ Spotlight

Research: +62 21 250 5081

Harry Su Leonardo Henry Gavaza, CFA Arandi Ariantara [email protected] Handi Huta Jaya [email protected] [email protected] Senior Associate Director [email protected] Senior Research Manager Research Analyst Head of Strategy & Research Strategist and Product Head Auto, Telco, Infrastructure Coal, Metals, Oil & Gas ext 3600 ext 3610 ext 3608 ext 3619 direct: +62 21 250 5735

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Head Office Surabaya Branch Graha Niaga, 19th Floor Wisma BII, Ground Floor Jl. Jend. Sudirman Kav. 58 Jl. Pemuda 60-70 Jakarta 12190 Surabaya 60271 Indonesia Indonesia Tel. 62 21 250 5081 Tel. 62 31 535 2788 Fax. 62 21 522 6049 http://www.bahana.co.id Fax. 62 31 546 1157

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For stocks and sectors in Indonesia covered by Bahana Securities, the following rating system is in effect:

Stock ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. Unless otherwise specified, these ratings are set with a 12-month horizon. It is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating. "Buy": the price of the security is expected to increase by 10% or more. "Hold": the price of the security is expected to range from an increase of less than 10% to a decline of less than 5%. "Reduce": the price of the security is expected to decline by 5% or more. Sector ratings are based on fundamentals for the sector as a whole. Hence, a sector may be rated “Overweight” even though its constituent stocks are all rated “Reduce”; and a sector may be rated “Underweight” even though its constituent stocks are all rated “Buy”. “Overweight”: positive fundamentals for the sector. “Neutral”: neither positive nor negative fundamentals for the sector. “Underweight”: negative fundamentals for the sector. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action .

Relevant Relationships (Bahana Securities) Bahana Securities may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Bahana Securities market making Bahana Securities may from time to time make a market in securities covered by this research. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. • In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. • In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. • For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. • There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. • There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. • Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc. When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us. Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association