Indonesia Strategy Strategy Update | 23 October 2019

JCI performance A new hope for 3M 6M 12M Absolute -2.3% -3.2% 7.9%  In contrary to what people expect, the new cabinet composition announced today was pretty similar with the previous term.

 We view that in general, the cabinet is better in terms of promoting law 8% 6% and legal certainty which is important for the business climate. 4% 2%  We are more optimistic post cabinet announcement and believe certain 0% reforms will be made going forward. We maintain our JCI target of 6,900. -2% -4% Positive surprise on cabinet composition -6% -8% In contrary to what people expect the cabinet composition which was Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 announced today was pretty similar with 2014-2019 terms. The number of JCI Index ministers remains unchanged at 34 and the ministers coming from political

parties is now at 15 (44%), relatively unchanged vs. 2014-2019 cabinet

(compared to initial appointment – along the way 2 ministers from political parties were replaced by professionals). Note that this was a positive surprise given the higher coalition support (coalition control 60% of the parliament seat

in 2019 vs. 37% in 2014), this shows Jokowi’s aptitude to manage its supporting party’s demand and expectation (i.e. PDIP and PKB was openly asking for more than 4 and 3 ministers previously).

Law and legal certainty clearly is a priority

We like certain appointment in the cabinet that promotes law and legal certainty, namely in coordinating Minister of Politics, Law and Security (Mahfud MD which is a law professor and former chief justice of the

constitutional court from Wiranto – affiliated to Hanura), Minister of Internal Affairs (Tito Karnavian which is the former Chief of Police from Tjahjo Kumolo – affiliated to PDIP), Minister of Religious Affairs (Fachrul Razi which is a

retired general from Lukman Hakim - affiliated to PPP) and Attorney General (ST Burhanuddin from Muhammad Prasetyo – affiliated to Nasdem). Don’t fix things that aren’t broken, new ministers also spark a new hope Certain old ministers also back at their old posts (i.e. Luhut Binsar Panjaitan –

Coordinating Minister for Maritime Affairs and Investment, Sri Mulyani – Finance Minister, Budi Karya – Transportation Minister, Basuki Hadimuljono – Minister of Public Works and Public Housing) while new ministers such as

Nadiem Makarim (Minister of Education, former founder) and Erick Thohir (Minister of SOE, former businessman) may spark hopes on reform in education (which has always been Jokowi’s focus for the 2nd term) and SOE’s Jovent Muliadi performance and governance. Market also hopeful the new cabinet will be PT Indo Premier Sekuritas successful with the fiscal, labour and ease of doing business reform. [email protected] +62 21 5088 7168 ext. 710 Market sentiment should be positive, maintain JCI target of 6,900 Market is still awaiting the appointment of certain Vice Ministers as reportedly Timothy Handerson the number of Vice Ministers will increase from 3 to at least 11. However, PT Indo Premier Sekuritas current cabinet shall spark a new hope of reforms for Jokowi’s second term. [email protected] JCI’s performance has been lacklustre this year (+1% YTD), now trading at +62 21 5088 7168 ext. 714 13.9x P/E (vs. 10Y mean of 15.2x). We maintain our FY20 JCI’s target of 6,900 (based on 2.1x P/BV vs. 10Y mean of 2.3x). Catalyst will be better than Anthony expected 3Q19 results while risk is more towards global uncertainty. PT Indo Premier Sekuritas [email protected] +62 21 5088 7168 ext. 715

Refer to Important disclosures in the last page of this report 23 October 2019 Strategy Update

Fig. 1: Summary of changes in 2019-2024 cabinet Kabinet Indonesia Maju Previous Minister Affiliation New Minister Affiliation Coordinating Minister of Politics, Law, and Security Affairs Wiranto Hanura Mohommad Mahfud MD Profesional Coordinating Minister of Economic Affairs Darmin Nasution Professional Airlangga Hartarto Golkar Coordinating Minister of Maritime Affairs and Investments *) Luhut Binsar Panjaitan Professional Luhut Binsar Panjaitan Profesional Coordinating Minister of Human Development and Culture Puan Maharani PDIP Muhajir Effendy Profesional Secretary of State Pratikno Professional Pratikno Profesional Minister of Home Affairs Tjahjo Kumolo PDIP Tito Karnavian Profesional Minister of Foreign Affairs Retno Lestari Priansari Marsudi Professional Retno Lestari Marsudi Profesional Minister of Defense Ryamizard Ryacudu Professional Prabowo Subianto Djojohadikusumo Gerindra Minister of Law and Human Rights Yasonna Laoly PDIP Yasonna Laoly PDIP Minister of Finance Sri Mulyani Indrawati Professional Sri Mulyani Indrawati Profesional Minister of Energy and Mineral Resources Ignasius Jonan Professional Arifin Tasrif Profesional Minister of Industry Airlangga Hartarto Golkar Agus Gumiwang Kartasasmita Golkar Minister of Trade Enggartiasto Lukita Nasdem Agus Suparmanto PKB Minister of Agriculture Amran Sulaiman Professional Syahrul Yasin Limpo Nasdem Ministry of Forestry and Environment Siti Nurbaya Bakar Nasdem Siti Nurbaya Bakar Nasdem Minister of Transportation Budi Karya Sumadi Professional Budi Karya Sumadi Profesional Minister of Fisheries and Maritime Affairs Susi Pudjiastuti Professional Edhy Prabowo Gerindra Minister of Manpower Hanif Dhakiri PKB Ida Fauziah PKB Minister of Village, Disadvantaged Regions, and Transmigration Eko Putro Sandjojo PKB Abdul Halim Iskandar PKB Minister of Public Works and Public Housing Basuki Hadimuljono Professional Basuki Hadimuljono Profesional Minister of Health Nila Djuwita Anfasa Moeloek Professional Terawan Agus Putranto Profesional Minister of Education and Culture Professional Nadiem Makarim Profesional Minister of Research and Technology and Head of Research Innovation **) Muhammad Nasir Professional Bambang Brodjonegoro Profesional Minister of Social Affairs Agus Gumiwang Kartasasmita Golkar Juliari Batubara PDIP Minster of Religious Affairs Lukman Hakim Saifuddin PPP Fachrul Razi Profesional Minister of Tourism and Creative Economy ***) Arief Yahya Professional Wishnutama Profesional Minister of Communication and Informatics Rudiantara Professional Johnny G. Plate Nasdem Minister of Cooperatives and Small & Medium Enterprises Anak Agung Gede Ngurah Puspayoga PDIP Teten Masduki Profesional Minister of Female Empowerment and Child Protection Yohana Yembise Professional Gusti Ayu Bintang Darmavati PDIP Minister of Administrative and Bureaucratic Reform Syafruddin Professional Tjahjo Kumolo PDIP Minister of National Development Planning Board Bambang Brodjonegoro Professional Suharso Monoarfa Profesional Minister of Land and Spatial Planning Sofyan Djalil Professional Sofyan Djalil Profesional Minister of State Owned Enterprises Rini Mariani Soemarno Soewandi Professional Erick Thohir Profesional Minister of Youth and Sports Imam Nahrawi PKB Zainudin Amali Golkar *) previously Coordinating Minister of Maritime Affairs **) previously Minister of Research and Technology and Higher Education ***) previously Minister of Tourism

Affiliation No of ministers Affiliation No of ministers Professional 21 Professional 19 PDIP 4 PDIP 4 Golkar 2 Golkar 3 Nasdem 2 Nasdem 3 Hanura 1 Hanura 0 PKB 3 PKB 3 PPP 1 PPP 0 Gerindra 0 Gerindra 2 Total 34 Total 34 From political parties 13 From political parties 15 Non-political parties 21 Non-political parties 19 Sources: Various sources, IndoPremier

Fig. 2: Number of ministers based on affiliation – number of Fig. 3: Minister from political parties account for 44% of the 2019-24 ministers from political parties are relatively unchanged cabinet 40 100% 35 90% 80% 30 44% 47% 70% 56% 15 64% 25 16 21 19 60% 20 50% 15 40% 30% 56% 10 19 53% 18 20% 44% 13 15 36% 5 10% 0 0% 2004-2009 cabinet 2009-2014 cabinet 2014-2019 cabinet 2019-2024 cabinet 2004-2009 cabinet 2009-2014 cabinet 2014-2019 cabinet 2019-2024 cabinet

Ministers from political parties Ministers not from political parties Ministers from Political parties Ministers from non-politicla parties

Sources: Various sources, IndoPremier Sources: Various sources, IndoPremier

Page 2 of 5 Refer to Important disclosures in the last page of this report 23 October 2019 Strategy Update

Fig. 4: Composition of House of Representative (HoR) seats – a Fig. 5: Relatively unchanged minister composition despite a significant increase in seats won by coalition in 2019-24 significant increase in seats won by the coalition (60%) 600 100% 90% 500 80% 44% 40% 246 222 70% 59% 63% 400 322 352 60% 300 50% 40% 200 30% 60% 314 338 56% 20% 41% 100 228 208 37% 10% 0 0% 2004-2009 2009-2014 2014-2019 2019-2024 2004-2009 2009-2014 2014-2019 2019-2024

Coalition Opposition Coalition Opposition

Sources: Various sources, IndoPremier Sources: Various sources, IndoPremier

Fig. 6: Background of new cabinet (part 1) Post Name Background Coordinating Minister for Political, Legal, and Security Affairs Mohammad Mahfud MD Chief Justice of the Constitutional Court (2008-2013) Consultant to National Law Development Agency of Indonesia Coordinating Minister for Economic Affairs Airlangga Hartarto Minister of Industry (2016-2019) Central Board to Party of Functional Groups (2011-2014) Coordinating Minister for Human Development and Cultural Affairs Muhadjir Effendy Chairman of Indonesian Islamic Student in East Java (2012-2016) Vice Chairman of Indonesian Social Sciences Development Association (2013-2017) Central Chief of Muhammadiyah in Education, Research and Development (2015-2020) Coordinating Minister for Maritime Affairs and Investments Luhut Binsar Panjaitan Chief of Presidential Staff (2014-2015) Coordinating Minister for Political, Legal, and Security Affairs (2015-2016) Coordinating Minister for Maritime (2016-2019) Minister of Defense Prabowo Subianto Djojohadikusumo Founder of Great Indonesia Movement Party (2008-present) Chairman of Indonesian Farmers Association (2004-2015) Dean of Socio-politic in Gadjah Mada University (2008-2012) Secretary of State Pratikno Rector of Gadjah Mada University (2012-2017) Minster of State Secretariat (2014-2019) Minister of Home Affairs Tito Karnavian Chief of the National Police (2016-2019) Chief of Counterterrorism body (2016) Chief of Police (2015-2016) Minister of Foreign Affairs Retno Lestari Marsudi Minister of Foreign Affairs (2014-2019) Ambassador to the Netherlands (2012-2014) Directorate General for USA and Europe at Ministry of Foreign Affairs (2008-2012) Minister of Religious Affairs Fachrul Razi President Commissioner at PT Antam (2015-present) Vice General of the National Armed Forces (1999-2000) Secretary general for Defence Department (1999) Minister of Law and Human Rights Yasonna Laoly Minister of Law and Human Rights (2014-present) Floor Leader for PDIP at Indonesia Parliament (2012-2014) Member of House of Representative Commission II for PDIP (2009-2014) Minister of Finance Sri Mulyani Indrawati Minister of Finance (2016-present) Managing Director at World Bank (2010-2016) Acting Coordinating Minister of Economic Affairs (2008) Minister of Education and Culture Nadiem Makarim CEO at Gojek (2011-present) Chief of Innovation Officer at Kartuku (2013-2014) Co-founder & MD at Zalora (2011-12) Minister of Health Terawan Agus Putranto Member of Science Academy Yogyakarta (2016) Head of RSPAD Gatot Soebroto (2015-present) Member of the Presiden'ts Doctor Team (2009) Minister of Social Affairs Juliari Batubara Vice Treasurer at PDIP (2010-present) Vice Chairman of Permanent Committee on MSME Business Opportunities at Kadin (2009-2010) Advisor at MASPI (2008-2014) Minister of Manpower Ida Fauziah Member of Commission I (2014-2019) Chairman of Commission VIII House of Representatives (2012-2014) Chairman of PP Fatayat Nahdlatul Ulama (2010-present) Minister of Industry Agus Gumiwang Kartasasmita Secretary for Golkar at House of Representatives (2017-2019) Chairman of Central Board for Golkar (2016-2019 Vice Chairman for Consultation Committee on Social Organization at MKGR (2015-present) Minister of Trade Agus Suparmanto CEO at Galangan Manggar Biliton (GMB) Sources: Various sources, IndoPremier

Page 3 of 5 Refer to Important disclosures in the last page of this report 23 October 2019 Strategy Update

Fig. 7: Background of new cabinet (part 2) Post Name Background Minister of Energy and Mineral Resources Arifin Tasrif Ambassador to Japan (2017-present) CEO at PT Pupuk Sriwidjaya (2010-2015) Minister of Public Works and Public Housing Basuki Hadimuljono Minister of Public Works and Public Housing (2014-2019) Directorate General of Spatial Management of Public Housing Ministry (2013-2014) Inspector General of Public Housing Ministry (2007-2013) Minister of Transportation Budi Karya Minister of Transportation (2016-present) CEO at Angkasa Pura II (2015-16) CEO at Jakarta Propertindo (2004-2013) Minister of Communication and Informatics Johnny G. Plate Secretary General of National Democratic party (2017-2018) Member of Indonesia House of Representatives (2014-2019) Head of Energy and Natural Resources Deparment Nasdem (2013-2017) Minister of Agriculture Syahrul Yasin Limpo Governor of South Sulawesi (2008-2018) Vice Governor of South Sulawesi (2003-2008) Regent of Gowa (1994-2002) Ministry of Forestry and Environment Siti Nurbaya Bakar Minister of Environment and Forestry (2014-2019) Chief of Head Central Committee at National Democratic party (2013-present) Secretary General of DPD (2006-2013) Minister of Fisheries and Maritime Affairs Edhy Prabowo Vice Chairman of Gerindra (2012-present) Member of Indonesia House of Representatives (2009-2019) Minister of Village, Disadvantaged Regions, and Transmigration Abdul Halim Iskandar Vice Chairman of DPRD Jatim (2009-2019) Chief of DPW PKB East Java (2011-12) Minister of Land and Spatial Planning Sofyan Jalil Minister of Agraria and Spatial Management (2016-19) Minister of National Planning and Development (2015-2016) Coordinating Minister of Economy (2014-2015) Minister of National Development Planning Board Suharso Monoarfa Member of President's Consultation Committee (2014-2019) Minister of Public Housing (2009-2011) Member of House of Representatives - Commission VII (2004-2009) Minister of Administrative and Bureaucratic Reform Tjahjo Kumolo Minister of Home Affairs (2014-2019) Head of Organizing Committee for Congress III at PDIP (2010) Secretary General of PDIP (2010) Minister of State Owned Enterprises Erick Thohir Committee Chairman for Asian games (2018) CEO at ANTV (2014-present) Founder and Commissioner of Mahaka Group (1992-present) Minister of Cooperatives and Small & Medium Enterprises Teten Masduki Chief of Presidential Staff (2015-2018) Chief of Indonesia Corruptioni Watch (1998-2008) Minister of Tourism and Creative Economy Wishnutama President Commissioner at Net TV (2019-present) CEO at PT Net Mediatama Televisi (2013-2018) CEO at Trans TV (2008-2012) Minister of Women Empowerment and Child Protection Gusti Ayu bintang Darmavati Assistant on Economy and Development Denpasar (2019) Minister of Research and Technology and Head of National Bambang Brodjonegoro Minister of National Planning and Development (2016-2019) Research Innovation Minister of Finance (2014-2016) Vice Minister of Finance (2013-2014) Minister of Youth and Sports Zainudin Amali Member of House of Representatives (2004-2019) Secretary General at Golkar (2014-2015) Chairman of DPD Golkar in East Java (2013) Sources: Various sources, IndoPremier

Fig. 8: JCI forward P/E - now trading at 13.9x P/E vs. 10 year Fig. 9: JCI forward P/BV - now trading at 2x P/BV vs. 10 year average of 15.2x P/E average of 2.3x P/BV 22.0 3.5 20.0 18.0 3.0 17.2 16.0 15.2 2.5 2.5 14.0 13.2 2.3 12.0 2.1 2.0 10.0 8.0 1.5 6.0

4.0 1.0

Oct-08 Apr-16 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19

Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19

JCI P/E AVG +1 STD -1 STD JCI P/BV AVG +1 STD -1 STD

Sources: Bloomberg, IndoPremier Sources: Bloomberg, IndoPremier

Page 4 of 5 Refer to Important disclosures in the last page of this report 23 October 2019 Strategy Update

SECTOR RATINGS OVERWEIGHT : An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation NEUTRAL : A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation UNDERWEIGHT : An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation

COMPANY RATINGS BUY : Expected total return of 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% or worse within a 12-month period

ANALYSTS CERTIFICATION The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

DISCLAIMERS This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document do not have any regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this report.