Industry Focus

Indonesian Banks and Multifinance Companies Refer to important disclosures at the end of this report

DBS Group Research . Equity 9 Jan 2015

Size does matter JCI : 5,207.12

Big banks to perform better in a tough environment Analyst  LIM Sue Lin +65 6682 3711 Another challenging year  [email protected] Growth to remain muted  Christopher Daniel Wijaya +62 21 3003 4935 BMRI is our new top pick [email protected]  OJK is likely to Indonesian banks coverage Big banks to stay in the limelight. Performance (%) target slow loan growth in 2015, leading us to expect Price Mkt Cap Target deposit growth to outpace loan growth, which would Rp US$m Price Rp 3 mth 12 mth Rating ease liquidity conditions. Bigger banks with a stronger Bank Central Asia 13,125 25,520 12,500 5.0 40.4 HOLD deposit franchise will have a competitive edge and be Bank Mandiri 10,850 19,966 12,200 14.2 41.8 BUY able to defend NIM. OJK and BI’s stance to promote Bank Tabungan Negara 1,205 1,004 940 11.1 42.6 FV branchless banking will support transaction banking for Bank Rakyat Indonesia 11,775 22,908 12,600 16.6 67.6 HOLD larger banks. Smaller banks may continue to face Bank Negara Indonesia 6,075 8,935 6,400 15.2 65.1 HOLD funding cost pressure and sporadic asset quality issues. Bank Tabungan Pensiunan 3,990 1,838 4,600 (10.3 (9.3) HOLD Panin Bank 1,070 2,033 1,230 10.9 74.0 HOLD Growth to remain muted. We forecast 15.5% loan growth in 2015 (2014: 15.1%) and loan-to-deposit ratio Indonesian multifinance coverage will ease to 86% level for banks within our coverage BFI Finance Ind 2,400 293 3,100 14.3 (1.6) BUY (industry: 88%). Asset quality may experience a Clipan Finance 430 135 490 (2.1) 6.2 HOLD temporary deterioration, particularly SME loans in the trade industry. Banks will likely continue to book high Source: DBS Bank, DBS Vickers provisions. We are expecting NIM to stay flat in 2015. We trimmed FY15F sector earnings by 3.5%. All in, we Indonesian Banks: Earnings growth trends forecast 15% earnings growth for 2015 (2014:9.5%). Multifinance companies are expected to register c.10% 120% 42.6% 45% 100% 40% earnings growth in 2015 (2014: 13%). 33.3% 80% 35% The fuel subsidy cut is a 27.5% 30% Another challenging year. 60% positive sign of sustainable long-term growth, albeit it 20.9% 25% 40% 18.9% will hurt the economy in the near-term. In response, the 17.8% 20% 20% 15.0% 15% central bank raised the BI rate by 25bps to 7.75% in 9.5% Nov 14, which may pressure banks’ funding costs and 0% 10% ‐20% consequently, earnings growth. A Fed rate hike could 5% ‐40% 0% also push up the BI rate, over and above inflationary 2009 2010 2011 2012 2013 2014F 2015F 2016F pressure. Bigger banks would be in a better position to BBCA BMRI BBRI BBNI BBTN withstand these headwinds. The Indonesian Banks BTPN PNBN BDMN Average masterplan which might be released soon will discuss Source: DBS Bank; DBS Vickers matters such as consolidation and reciprocal agreements with neighbouring countries. Indonesian Banks: loan growth trends It would be wiser to stick to Top pick for 2015: BMRI. 60% 30% the resilient big banks as investment options for 2015 50% 25% 23.8% because they should perform better in an anticipated 22.6% 23.5% 21.2% 40% 20% tough operating environment. We switch our top pick to 17.8% BMRI (from BBRI) for 2015. BMRI had lagged its large 30% 15.1% 15.5% 15% cap peers in 2014. The key catalysts would be 20% 10% recovering NPLs at its Syariah unit and accelerated 10% 5% mortgage growth. BBRI is downgraded to a HOLD due 0% 0% to the risk of deteriorating quality in its special 2010 2011 2012 2013 2014F 2015F 2016F BBCA BMRI BBRI mentioned loans. Smaller banks such as BBTN and PNBN BBNI BBTN BTPN may still be hot for M&A news. PNBN BDMN Industry loan growth Average loan growth Source: DBS Bank; DBS Vickers

www.dbsvickers.com ed-SGC / sa- MA

Industry Focus

Indonesian Banks and Multifinance Companies

Indonesian banks: Going into another challenging year Recent developments on fuel subsidy. As of 1 January 2015,

Fuel subsidy cut and BI rate hike. The Indonesian government the Indonesian government has cut fuel prices to Rp7,600/liter raised the price of subsidised fuel by Rp2,000/liter effective 18 from the previous Rp8,500/liter in November. The most Nov 2014. The increment was within our and consensus’ important news announced is the decision on the fuel subsidy expectations. However, the recent drop in the oil price to policy for 2015. The government will continue to subsidise below USD85 per barrel has prompted the government to re- diesel and kerosene but gasoline will no longer be subsidized. think the magnitude of the cut, which was at the low end of Instead, the government will only cover the distribution cost consensus estimates of Rp2,000-Rp3,000. In our previous for gasoline outside of Java and Bali, which means that prices report “Indonesian Banks: A matter of time” dated 20 can fluctuate depending on oil prices, currency movements October 2014, we highlighted that the impact of an increase and local tax. The government also plans to further reduce the in the price of subsidised fuel of this magnitude on CPI fuel price at the end of this month due to global oil prices inflation is likely to be manageable. However, Bank Indonesia falling below $48. This brings an end to the fuel subsidy (BI) took a cautious stance by raising reference rates by 25bps overhang and the politics which goes along with it. Indonesia to 7.75%, mainly to safeguard against the ripple effects of is just one step away from completely removing fuel subsidies inflationary pressures. There is little indication of further rates altogether. hikes and DBSV economist forecasts the BI rate will be stable until 3Q15. The willingness to cut fuel subsidies is a positive BI rate, lending facility rate and FASBI rate signal for sustainable long term growth, albeit it will hurt the 14% economy in the near term. Generally, banks’ earnings growth 12% tend to decline when fuel subsidies are cut (or fuel price rises), 10% because there is a strong correlation between fuel price hikes 8% and a rise in BI rates, and a slowdown in the overall economy. 6% Subsidised fuel price, inflation and BI rate 4% 2% 9,000 20.0% 8,000 18.0% 0% 08 09 10 11 12 13 08 08 09 09 10 10 11 11 12 12 13 13 14 16.0% 14 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 7,000 ‐ Jul Jul Jul Jul Jul Jul 14.0% Jul Nov Nov Nov Nov Nov 6,000 Nov Mar Mar Mar Mar Mar Mar 12.0% Mar 5,000 10.0% BI Rate Lending facility rate FASBI rate 4,000 8.0% 3,000 6.0% Source: DBS Bank , DBS Vickers, Bank Indonesia 2,000 4.0%

1,000 2.0% ‐ 0.0% Fuel subsidy elimination will rein in banking sector growth. 03 03 05 05 07 07 09 09 11 11 13 13 04 06 08 10 12 14 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jan Jan Jan Jan Jan Jan Loan and deposit growth are historically affected by the fuel Sep Sep Sep Sep Sep Sep May May May May May May subsidy cut, due to a slowdown in overall consumption and Susidized fuel price Inflation y‐o‐y BI Rate economy. However, the recent drop in oil prices may soften Source: DBS Bank; DBS Vickers, BI the impact of fuel price increases in the economy. The subsequent 25bps increment in the BI rate would also slow GDP growth. However, BI remains optimistic and believes the BI also raised lending facility rate, but FASBI is stable. The slowdown would be temporary. BI is confident of achieving central bank also raised its lending facility rate by 50bps to 5.4-5.8% GDP growth in 2015. Meanwhile, DBSV economist 8%, while the deposit facility rate is kept at 5.75%. By doing maintains GDP growth forecast at 5.0% for 2014 and 5.5% this, BI is not pushing to absorb more liquidity from the for 2015, the lower end of BI’s estimates. Loan growth is financial system, while at the same time, it safeguards against generally more sensitive to hikes in the fuel price and BI rate the risk of excessive money supply growth. than deposits because of strong growth in the past. Going forward, as liquidity tightens compared to previous years, loan and deposit growth will be more in line.

Page 2

Industry Focus Indonesian Banks and Multifinance Companies

Subsidised fuel price vs loan and deposit growth Impact of Fed rate hike elevated with high levels of foreign

7,000 45.0% holdings. The Fed rate hike contributes to the BI rate increase

6,000 40.0% since investors will find it more attractive to invest in the US if 35.0% its interest rates are higher. Thus there will be an outflow of 5,000 30.0% investments from Indonesia back into the US. Indonesia is very 4,000 25.0% prone to this capital outflow because 38% of Indonesia’s 3,000 20.0% 15.0% government debt and 49% of Indonesian equities are owned 2,000 10.0% by foreign investors. These are “hot money” that can easily 1,000 5.0% flow in and out of the Indonesian economy. ‐ 0.0% 03 05 07 09 11 03 13 04 05 06 07 08 09 10 11 12 13 14 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jan Jan Jan Jan Jan Jan Sep Sep Sep Sep Sep Sep May May May May May May Foreign debt holdings in Rptr

Susidized fuel price Loan growth Deposit growth 1400 Source: DBS Bank; DBS Vickers, Bank Indonesia 1200 1000 Strong possibility Fed will hike rate. A hike could trigger an 752 800 728 712 increase in the BI rate over and above inflationary pressures. 671 600 581 606 649 The Fed has ended its quantitative easing program, and is 400 likely to raise rates this year on the back of a strengthening US 200 404 447 economy. Former Indonesia’s Finance Minister Chatib Basri 281 283 294 324 361 0 predicts that the Fed rate will increase to 1.375% this year. 13 13 13 14 13 14 13 13 13 13 14 14 14 14 13 13 14 14 13 14 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jul Jul

Our economist forecast Fed rates to increase by 25bps to Jan Jun Jun Oct Apr Apr Feb Sep Feb Sep Dec Aug Aug Nov Mar Mar May May 0.5% in 4Q15. Historically, the Fed rate hike had strong Foreign ownership Domestic ownership correlation (80%, R-squared of 64%) with an increase in the Source: DBS Bank; DBS Vickers, Bank Indonesia BI rate.

Fed rate, BI rate and GDP growth Stick to the more resilient big banks. Big banks are expected to perform better in the uncertain business and macroeconomic 14% 8% environment. We see the same trend in 2014, the big banks 12% 7% 6% defended NIMs and NPLs while smaller banks with weaker 10% 5% deposit franchise struggled with rising cost of funds and they 8% 4% missed earnings estimates. Our top picks for 2015 is BMRI. 6% 3% Operations and asset quality in Syariah unit are expected to 4% 2% improve and mortgages will continue to pickup. We believe 2% 1% that BMRI is the strongest to withstand pressure from possible 0% 0% further BI rate hikes and other macroeconomic headwinds with ‐ 06 ‐ 07 ‐ 08 ‐ 09 ‐ 10 ‐ 11 ‐ 12 ‐ 13 ‐ 14 ‐ 05 ‐ 06 ‐ 07 ‐ 08 ‐ 09 ‐ 10 ‐ 11 ‐ 12 ‐ 13 ‐ 14 its variable loan book, focus on retail loans and strong deposit Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul Jan Jan Jan Jan Jan Jan Jan Jan Jan franchise. We downgraded BBRI due to the risk of BI Rate Fed rate GDP Growth deterioration in its special mentioned loans. Source: DBS Bank; DBS Vickers, Bloomberg Finance L.P.

Page 3

Industry Focus

Indonesian Banks and Multifinance Companies

Indonesian Banks: Big banks to perform better under growth to improve slightly to 15.4% in 2015 on the back of tough environment easing liquidity and the allocation of funds to the agriculture, fisheries, healthcare and infrastructure sectors. The Big 4 banks recently disbursed a 10-year loan amounting to OJK and BI still guiding slow loan growth. This year’s Rp3.04tr to PT Kereta Api Indonesia (Indonesian government slowdown in the banking industry is expected to continue until train agency) to fund their expansion, i.e. build railroads and 2015. OJK guides a 16%-18% loan growth in 2015 (2014 loan acquire more trains. We should see more of these types of growth guidance: 15%-17%) assuming that GDP growth will infrastructure funding in 2015 once the fuel subsidy funds improve to 5.8% in 2015. BI is even more bearish and is have been reallocated to the infrastructure sector, in line with expecting growth slower than OJK’s guidance of 16%-18%. the current government’s plan. BI expects FY15 GDP growth OJK believes that the liquidity position will improve and to come in at 5.4-5.8%, while DBS expects more conservative deposits will grow by 18%-19% in 2015 driven by the deposit growth of 5%. rate cap and stabilizing political conditions. BI guides slower customer deposits of 14%-16% and one of the factors that will be positive for liquidity and deposit growth is the Indonesia banks: Industry loan growth by type reallocation of subsidized fuel budget which will boost capital inflow and improve current account deficit as well. Most of the 45.0% big banks are still preparing their business plan for 2015. BBRI 40.0% states that OJK’s loan growth target is in-line with their plan so 35.0% 30.0% far. BBCA remains more pessimistic and targets loan growth of 25.0% 13%-15% this year on the back of slower deposit growth of 20.0% 12%-13% due to the tightness of liquidity in the system. We 15.0% are forecasting a FY15 loan growth target of 15.5%, a slight 10.0% pick-up from this year’s growth. 5.0% 0.0% Indonesia banks: Loan growth trend 2008 2009 2010 2011 2012 2013 Sep‐14 Investment Working Capital Consumption 60% 30% 50% 25% 23.8% Source: DBS Bank; DBS Vickers, Companies 22.6% 23.5% 21.2% 40% 20% 17.8% 30% 15.1% 15.5% 15% Minimum requirement for micro & SME loans. Starting 2015, 20% 10% BI will implement the regulation to force banks to set micro 10% 5% and SME loans at a minimum of 5% of total loans. (Refer to 0% 0% appendix for more details). This will not affect banks within our 2010 2011 2012 2013 2014F 2015F 2016F coverage currently. However, OJK plans to increase that to BBCA BMRI BBRI 20% by 2020, and this will be a challenge for BBCA which is BBNI BBTN BTPN PNBN BDMN Industry loan growth not aggressively competing for micro and SME loans. This Average loan growth regulation is currently being reviewed by the government as Source: DBS Bank; DBS Vickers, Companies corporate-focused banks such as BBCA is of the view that the regulation is not feasible for them. In addition, BI plans to offer

incentives to increase micro and SME loans in order to ramp up Loan growth to inch up in 2015. Indonesia’s economy has loans in these sectors, under its financial inclusion efforts. continued to slow down with 3Q14 GDP growth coming in at Banks meeting the minimum requirement may be offered +5.01% y-o-y. This is the slowest quarterly growth since incentives. However the details have not been released. 2009. BI estimates 2014 GDP growth at 5.1%-5.2%. Loan growth had also remained weak (9M14: +8.1% YTD) across all loan types. Consumption loans only grew +8.2% YTD with banks indicating mortgage growth will be flat for the year due to soft demand. Commercial loans (+8.7% YTD) and investment loans (+76% YTD) are also muted due to sluggish business activity and banks being reluctant to disburse more loans in the tight liquidity environment. We expect loan

Page 4

Industry Focus Indonesian Banks and Multifinance Companies

Slower loan growth amid tight liquidity. Most of the banks Indonesian Banks: CASA growth vs GDP growth view that the operating environment in Indonesia now is different to what it was in the past. About five years ago, loan- 25% 7.0% to-deposit ratio was still comfortable at 75%-80% and loans 6.0% grew by 23%-30%, while deposit growth was slower at 15%- 20% 20%. Currently, the liquidity conditions have eased although 5.0% loan-to-deposit ratio is still high (9M14 LDR: 88.9%). Banks will 15% 4.0% have to balance loan and deposit growth to preserve liquidity 10% 3.0% going forward. We believe big banks are more capable of 2.0% 5% balancing liquidity and delivering sustainable growth in the 1.0% new banking environment. BBTN and BTPN will continue to 0% 0.0% rely on alternative sources of funding to maintain liquidity. We 2009 2010 2011 2012 2013 2014F 2015F forecast deposit growth will be in line with loan growth. Average CASA growth Industry CASA growth GDP growth Source: DBS Bank; DBS Vickers, Companies

Indonesian Banks: Deposit growth trend Indonesian Banks: CASA composition 45% 25% 40% 90% 20% 35% 17.2% 16.8% 17.0% 76% 16.0% 80% 30% 15.3% 14.8% 13.9% 15% 70% 63% 25% 61% 62% 61% 20% 60% 53% 54% 10% 15% 50% 46% 10% 5% 40% 5% 30% 0% 0% 2010 2011 2012 2013 2014F 2015F 2016F 20% 14% BBCA BMRI BBRI 10% BBNI BBTN BTPN 0% PNBN Average deposit growth Industry deposit growth BBCA BMRI BBRI BBNI BBTN BTPN PNBN Average Industry CASA CASA Source: DBS Bank; DBS Vickers, Companies ratio ratio Source: DBS Bank; DBS Vickers, Companies

Larger banks with a strong deposit franchise have a competitive edge. Larger banks generally have a stronger Liquidity will remain challenging for smaller banks. Liquidity deposit franchise, and are better positioned to defend NIM. In will be tight, especially for smaller banks, following the fuel 9M14, the big 4 banks recorded an average CASA ratio of price and BI rate hikes. Banks have indicated that there is 57%, while the ratio for non-big 4 banks was lower at 45%. usually tight competition not only against other banks, but also FY14F CASA growth for the Big 4 banks is expected to be against the government for funding in the first half of the year relatively strong at +16% y-o-y, while the non-big 4 banks will when the government usually front loads fundraising and bond record slower CASA growth of +9%. CASA growth is expected issuances. The government needs Rp450tr worth of funding to remain muted in 2015 due to tight competition for funding and 80% of this will come from local sources. OJK recently from the government for its proposed infrastructure and imposed a maximum cap on deposit rate, of BI rate + 225bps maritime projects. The government usually conducts for BUKU III banks, and BI rate + 200bps for BUKU IV banks for fundraising activities in the first half of the year. Despite deposits over Rp2bn, and a maximum deposit rate equivalent expecting GDP growth recovering to 5.5% in 2015, we to the LPS rate of 7.75% for deposits below Rp2bn (LPS rate – forecast CASA growth will remain sluggish at +14% y-o-y, and customer deposits with rates less than or equal to the LPS rate pickup in 2016 to +17% y-o-y. will be insured by the LPS). This deposit rate cap could prompt the switching of deposits from BUKU III banks to safer BUKU IV banks since the interest rate differential has been narrowed to 25bps. We forecast FY15 LDR for the non-Big 4 banks will remain high at 95%, while the Big 4 banks will maintain a lower level of LDR at 84%. We forecast overall LDR will reach 86% for the banks under our coverage. BI is optimistic loan and deposit growth will will balanced and the LDR will be

Page 5

Industry Focus

Indonesian Banks and Multifinance Companies

stable at c.90% in 2015. The deposit rate war may be over, Larger banks should be able to defend NIM. The BI rate hike and banks have been shoring up liquidity and growing may pressure cost of funds, but OJK is hoping that bank’s conservatively in FY14, which would ease LDR in FY15 deposit rates will not follow. Several banks indicated that they especially for the big banks. Smaller banks might have to rely will wait to see the impact of higher subsidised fuel price on on issuing securities for additional funding. inflation and how deposit customers react. The banks plan to monitor customer deposits closely, with any material reduction

possibly prompting a deposit rate hike. Banks reiterated that, New loan-to-deposit (LDR) calculation will benefit small-mid theoretically, the deposit rate cap should reduce cost of funds, size banks. Along with the BI rate hike, BI plans to provide but the initiative remains difficult to enforce and they are means to promote funding and financial deepening in the waiting to see the impact of the rate cap on competitors market. BI is preparing to adjust the LDR calculation to include before reducing their own rates. With the current BI rate hike, securities issued by banks in order to provide banks with easing cost of funds arising from the deposit rate cap is sources of funding other than customer deposits. Basically, BI is virtually cancelled out. Lending rates have also been re-priced now looking at the loan to funding ratio (LFR) instead of the to match deposit rates in FY14. Banks have not given guidance conventional LDR. The new LDR calculation will boost the on further re-pricing of loans following the subsidised fuel capacity of banks to ramp-up loan growth while maintaining price increase and BI rate hike, and most banks are waiting to liquidity. Several banks such as BBTN and BTPN have see how the market reacts. Big banks should be able to defend implemented this LDR calculation. NIM despite possible cost of fund pressures following the BI rate increase. On the other hand, interest rate-sensitive smaller Indonesian Banks: Loan-to-deposit ratio trends banks such as BTPN and BBTN might struggle. 140% 100% 90% 120% Indonesian Banks: NIM trend 80% 100% 70% 16% 7% 80% 60% 14% 6% 50% 12% 6% 60% 40% 6% 40% 30% 10% 20% 6% 20% 8% 10% 6% 6% 0% 0% 5% 2009 2010 2011 2012 2013 2014F 2015F 2016F 4% 5% BBCA BMRI BBRI 2% 5% BBNI BBTN BTPN 0% 5% PNBN BDMN Industry 2009 2010 2011 2012 2013 2014F 2015F 2016F Average (non Big 4) Average (Big 4) BBCA BMRI BBRI BBNI BBTN Source: DBS Bank; DBS Vickers, Companies BTPN PNBN BDMN Average Industry Source: DBS Bank; DBS Vickers, Companies

LCR regulation will be tested. BI will test the liquidity coverage ratio (LCR) starting this year with a minimum requirement of Big banks with extensive transaction banking infrastructure will 60%. The test for BUKU IV and foreign banks will start January record stronger growth of fee-based income. Indonesian banks 2015 and BUKU III in July. Formal implementation will start in continue to register strong growth in fee-based income. Most January 2016 for BUKU IV banks and branches. BUKU III and of the big banks have set up transaction banking infrastructure foreign banks will follow in July 2017. The minimum LCR ratio such as online banking, and are increasing EDCs and retail would start at 70% and progressively increase to 100% by transaction banking, increasing ATM outlets as opposed to December 2018 for BUKU III, BUKU IV and foreign banks, and branches, and several other initiatives. Insurance tie-ups will December 2019 for all the other banks. (Refer to appendix for also boost fee-based income, with PNBN and BBTN starting to details). Currently, the average LCR in Indonesia’s banking sell bancassurance products soon, following the footsteps of industry is at a comfortable 90% and liquidity position is BBNI and BMRI. BBCA have signed several agreements with sufficient. Banks categorised as BUKU III, BUKU IV or foreign American Express as well as Public Bank to boost fee-based banks currently have high LCRs. For example, BBRI’s LCR is over income growth to 18%-20% (from 15% previously). Big banks 250% and BBCA’s is 263%. such as BMRI also mentioned that with their extensive network and customer base, they will focus on cross-selling products such as insurance, as well as tapping into the value chain of

Page 6

Industry Focus Indonesian Banks and Multifinance Companies

existing customers to generate more transaction banking. indicated that this is one-off and fully justified. The higher ATM Going forward, banks will focus on growing fee-based income fees had also contributed to November’s inflation of 6.2%. until they can cover operating expenses. Banks indicated that the increase has minimal impact on transaction volume and was not a large burden for consumers.

Indonesian Banks: Fee based income growth The higher ATM fees will benefit bigger banks with a strong transaction banking franchise and wider network, such as 140% 60% BBCA and BMRI. 120% 48.6% 50% 100% 80% 60% 40% Indonesian Banks: ATM tariffs 40% 28.6% 30% Type of Transaction Old Tariff New Tariff 20% Balance check 2,000 4,000 0% 19.0% 18.2% 15.0% 20% Transfer and 5,000 7,500 ‐20% 10.7% 8.8% withdrawal ‐40% 10% Failed transaction 2,000 3,000 ‐60% ‐80% 0% Source: DBS Bank; DBS Vickers 2010 2011 2012 2013 2014F 2015F 2016F

BBCA BMRI BBRI BBNI BBTN BTPN PNBN Average OJK and BI promoting branchless banking. OJK recently Source: DBS Bank; DBS Vickers, Companies released regulations for branchless banking. Previously, only BUKU IV banks were allowed to conduct branchless banking, BI hedging regulation. BI released a regulation which will but OJK now allows all banks operating in East Java with the require companies to hedge 20% of their external debt due necessary infrastructure to provide branchless banking services. within 3-6 months in 2015. This hedging requirement will rise Branchless banking will allow banks to enter remote markets to 25% in 2016. Additionally the central bank is requiring a they could not previously access, and offer micro loans and minimum liquidity ratio of 50% in 2015 and 70% in 2016 CASA, as well as other products such as micro insurance. Many three months prior to maturity. Finally, beginning 2016, banks, including BBRI and BMRI, have started to recruit agents companies undertaking foreign loans will be required to have a and launch branchless banking initiatives. Bigger banks with a credit rating of at least BB- (S&P) or Ba1 (Moody’s). The big 4 stronger regional presence, franchise and better infrastructure, banks indicated that they have the necessary infrastructure and will benefit more from branchless banking. Other smaller banks are ready to undertake forex hedging transactions. State- such as BTPN have also expressed interest in branchless owned banks such as BBRI and BBNI have been in talks with banking. However, the impact of branchless banking state-owned companies such as PLN, Garuda and PGAS for operations will not be felt in the near-term because it would possible hedging transactions. This could potentially further take time to recruit, train and deploy agents. boost fee based income in the future.

Indonesian Banks: Fee based as a % of revenues Capital remains healthy. Capital is not an issue for Indonesian banks, with all the banks recording an average CAR of above 40% 25% 22.3% 21.5% 21.6% 21.7% 22.0% 15%. All the capital are also Tier-1 capital which comprises 35% 20.0% 19.9% 20% 30% 16.8% almost 90% of total capital and is mostly in the form of core capital (no hybrid instruments). Basel III buffer requirements 25% 15% 20% such as the capital conservation buffer will be implemented in 15% 10% phases starting 2016. The counter-cyclical buffer will also be 10% implemented starting 2016. The only Basel III requirement 5% 5% which will be effective in 2015 is the minimum total capital 0% 0% ratio of 8%, tier 1 capital ratio of 6%, and core capital of 2009 2010 2011 2012 2013 2014F 2015F 2016F 4.5%. There might also be extra capital surcharges of 1%- BBCA BMRI BBRI BBNI BBTN BTPN PNBN BDMN Average 2.5% for systemically important financial institutions (refer to Source: DBS Bank; DBS Vickers, Companies appendix for more details). All the Indonesian banks under our coverage are comfortably above the minimum level, especially Increase in ATM fees. Starting 1 November, banks in the ATM if 100% of retained earnings will be included in the risk Bersama and ATM Prima networks (which includes all the weighted asset calculation under Basel III. Currently, only 50% banks under our coverage) increased ATM fees by c.30%. This is included. has been long overdue and is needed to fund opex. BI has

Page 7

Industry Focus

Indonesian Banks and Multifinance Companies

ministry is in talks with OJK to strengthen banking capital Indonesian Banks: CAR ahead of the full implementation of the AEC. The authorities 30% 19% want to complete the consolidation before 2020. Our channel 19% 25% checks reveal that the state-owned banks are not aware of any 18% 20% 18% updates regarding the consolidation, and there have been no 17% further announcements by the OJK. 15% 17% 10% 16% 16% 5% Banks conglomeration regulation. OJK recently published a 15% new rule for banking conglomerates with integrated financial 0% 15% 2009 2010 2011 2012 2013 2014F 2015F 2016F services. OJK will start to enforce the rule in July 2015. The BBCA BMRI BBRI BBNI BBTN parent financial services company will be responsible for the BTPN PNBN BDMN Average Industry subsidiaries’ good corporate governance and risk management. Source: DBS Bank; DBS Vickers, Companies This includes appointing a special director to oversee the individual subsidiaries. BBRI is ready to comply with this

Indonesian Banks: Basel III capital requirements timeline regulation and BBNI already has a director to oversee the operations and capital of its subsidiaries. OJK will also impose 14.0% minimum capital regulations for bank’s subsidiaries by this 12.0% 2.5% year. 1.875% 10.0% 1.25% 2.5% 0.625% 1.25% 1.875% 8.0% 0.625% 2.0% 2.0% 2.0% 2.0% 2.0% Indonesia banking masterplan. OJK will release the financial 6.0% services masterplan which will be the roadmap for Indonesia’s 1.5% 1.5% 1.5% 1.5% 1.5% 4.0% financial services industry. OJK hopes that Indonesian financial

2.0% 4.5% 4.5% 4.5% 4.5% 4.5% services will remain competitive going towards the AEC which starts at the end of 2015 for non-bank financial services and 0.0% 2015 2016 2017 2018 From 2019 2020 for banks. The agenda will discuss the integration of onwards financial services companies and reciprocal arrangements with Core capital Additional Tier 1 capital other nations. OJK targets to reduce the number of banks by Tier 2 capital Capital conservation buffer 50% within the next 10 years. The masterplan will also discuss Countercyclical capital buffer foreign ownership policies, which had also been discussed Source: DBS Bank; DBS Vickers, BI previously. The consolidation of Bank Pemerintah Daerah (BPD) and the role of BPDs will also be discussed. Other topics on the Consolidation of SOE banks. The OJK has reportedly proposed agenda include the dividend policy for state-owned banks and to the MSOE to consolidate state-owned banks. There are no synchronisation of regulations for banks and other financial details yet, but the main concept would be to consolidate institutions such as insurance and multifinance. BMRI, BBNI, BBRI and BBTN into two banks: one to focus on corporate exposure, and the other on micro and retail loans. The Deputy Minister of SOE, Gatot Trihargo, had confirmed the

Page 8

Industry Focus Indonesian Banks and Multifinance Companies

Banks will still book high provisions. Most banks will continue Indonesian Banks: A challenging year ahead to book high provisions in the difficult business environment this year. Through our channel checks, most banks preferred to Asset quality may experience temporary deterioration after fuel be conservative and book high provisions, and recover them subsidy cut. BI’s deputy governor, Halim Alamsyah, says that a later. Banks which are exposed to the mass market, such as fuel subsidy cut of Rp1,000 would increase NPL ratio by 10- BTPN, PNBN and BBRI, have guided for higher provisions for 20bps, which means 20-40bps with the Rp2,000 cut. However, this year on expectations of higher NPLs in their micro and SME due to recent developments of lower fuel prices and a possible loan books following the fuel price and BI rate hikes. Other further decrease due to the weak global oil prices, the impact banks such as BBNI and BBCA expect provision levels to be the may not be too significant. Historically, absolute NPL amounts same as 2014. We forecast cost of credit will stay flat at 3.2% increased following a fuel price and BI rate hike, as these while loan loss coverage will rise to 177% (2014:165%) on the would slow down the whole economy. The banks have stated back of an uncertain macroeconomic environment and that NPL formations would likely be in consumer and SME probable NPL increases due to fuel price and BI rate increases. loans. The impact is only expected to be temporary, and we believe the average NPL ratio of the banks within our coverage Indonesian Banks: Cost of credit will taper down to 1.9% from 2.0% in 2014. The fund reallocation from the fuel subsidy will be positive for the 8% 5.2% 6% 7% economy in the long run. 4.3% 5% 6% 3.8% 4% 5% 3.2% 3.3% 3.3% 3.1% 2.9% Indonesian Banks: NPL trend 4% 3% 3% 2% 6% 4% 2% 1% 1% 5% 3% 0% 0% 3% 4% 2009 2010 2011 2012 2013 2014F 2015F 2016F 2% BBCA BMRI BBRI BBNI 3% BBTN BTPN PNBN Average 2% Source: DBS Bank; DBS Vickers, Companies 2% 1%

1% 1% Indonesian Banks: Loan loss coverage ratio

0% 0% 600% 182% 185% 2009 2010 2011 2012 2013 2014F 2015F 2016F 177% 180% 500% 172% BBCA BMRI BBRI BBNI BBTN 175% 400% 170% BTPN PNBN BDMN Average Industry 165% 165% 165% 161% 165% 300% Source: DBS Bank; DBS Vickers, Companies 157% 160% 200% 155% 150% 100% Absolute NPL and fuel price 145% 0% 140% 7,000 90,000 2009 2010 2011 2012 2013 2014F 2015F 2016F 6,000 80,000 BBCA BMRI BBRI BBNI 70,000 5,000 60,000 BBTN BTPN PNBN Average 4,000 50,000 Source: DBS Bank; DBS Vickers, Companies 3,000 40,000 30,000 2,000 20,000 Increase in minimum wage will not hurt opex. Minimum wage 1,000 10,000 will be increased again this year by an average of 13%. The ‐ 0 DKI Jakarta province will increase minimum wage by 10%. The 03 05 07 09 11 13 03 05 07 09 11 13 04 06 08 10 12 14 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ banks have indicated that this would not hurt opex as most of Jun Jun Jun Jun Jun Jun Oct Oct Oct Oct Oct Oct Feb Feb Feb Feb Feb Feb their employees are paid above the minimum wage. Banks Susidized fuel price NPL Absolute have guided that any opex increases will be seasonal and in Source: DBS Bank; DBS Vickers, Companies line with an expanding branch network and staff force. Any reduction in opex arising from branchless banking or e-banking initiatives will only be felt several years down the road.

Page 9

Industry Focus

Indonesian Banks and Multifinance Companies

Indonesian Banks: Opex growth trend Indonesian Banks: Micro lending rates

80% 30% Banks Lending rate 26% 70% PT Bank Mandiri Tbk 19.50% 25% 60% PT Bank Rakyat Indonesia Tbk 19.25% 20% 50% 20% PT Bank PAN Indonesia Tbk 20.56% 16% 16% 40% 15% PT Bank Tabungan Pensiunan 21.14% 13% 12% 15% 30% Nasional Tbk 20% 10% PT Bank Danamon Tbk 20.94% 10% PT Bank Pundi Indonesia Tbk 22.56% 5% 0% PT Bank Sinar Harapan Bali 22.34% ‐10% 0% PT Bank Mutiara Tbk 20.50% 2010 2011 2012 2013 2014F 2015F 2016F PT Bank Ganesha 20.16% BBCA BMRI BBRI BBNI BBTN PT Bank CIMB Niaga Tbk 20.00% BTPN PNBN BDMN Average PT Bank Maspion Indonesia 19.50% Source: DBS Bank; DBS Vickers, Companies PT BPD Kalteng 19.09% Slower than expected growth. A downside risk for the banking PT BPD DKI 19.00% industry this year is slower-than-expected growth due to the Source: DBS Bank; DBS Vickers, Bank Indonesia, Companies fuel price and BI rate hikes. The Fed rate hike is another risk, and could pressure BI to raise rates. Higher cost of funds OJK urging banks to reduce lending rates. In addition to the would hurt our earnings estimates. This year, loan growth will micro lending rate cap, OJK is also urging banks to reduce likely miss OJK’s target of 15-17% (9M14: +8% YTD) as banks lending rates for normal loans by requiring them to include the had remained conservative in underwriting new loans in order program in the banking business plan to be submitted. OJK to maintain their liquidity positions. The same situation could indicated there is still a 100bps differential between deposit and occur this year, especially if BI raises the rate again. lending rates, suggesting room to reduce lending rates by about 25bps. The banks responded they would wait for a clearer OJK may cap micro lending rate. OJK is currently discussing market direction before reducing lending rates. Meanwhile, with KPPU (translated as Fair Business Competition BBCA had started to reduce mortgage rates earlier. BBCA and Commission) to cap micro lending rates following a cap on BMRI do not see much room to reduce lending rates, suggesting deposit rates. Previously, OJK had also implemented minimum any further reductions would be minimal. and maximum rates for insurance premiums. OJK is worried that if the micro lending rates for big banks are high, they Indonesian Multifinance: Slower demand would be even higher for smaller banks. OJK is also worried about NPL formation arising from excessive micro lending Growth has been subdued. Financing growth has been weak this rates. But OJK also realises it would be difficult to cap lending year because of soft demand for consumer financing. Heavy rates since they are decided by the market. As a result, OJK will equipment financing growth has been flat as expected, as monitor margins to ensure banks reap a “fair margin”. KPPU is commodity prices have not recovered. Cost of fund pressures still conducting an investigation. Banks have not received any were also an issue in the multifinance sector although updates on the micro lending rate cap. BBRI is confident they multifinance companies have passed on incremental financing will not be affected because their rate for micro loans at cost to consumers. The multifinance association (APPI) forecasts 19.25% is one of the lowest in the market. BBRI indicated that that growth will pick up slightly in 2015 but remain slow at 10%. the cap would only be a deterrent to competitors who want to This scenario takes into account the fuel price and Fed rate hikes. enter or expand into micro loans, as they may no longer find Multifinance companies have been intentionally reducing their the micro segment attractive. heavy equipment leasing portfolios due to weak commodities prices and rising NPL to these sectors. Heavy equipment leasing loans fell -2.2% YTD in 9M14. Consumer financing also experienced weak demand as 2W sales only grew 3.4% y-o-y in 10M14 and 4W sales 2.7% in 9M14. Total consumer financing only grew 7.7% y-o-y in 9M14. Factoring segment continued to grow (10M14: +35% y-o-y) but the market is very small. CFIN’s factoring receivables fell 17% y-o-y in 9M14.

Page 10

Industry Focus Indonesian Banks and Multifinance Companies

Multifinance Companies: Financing trends macroeconomic headwinds this year. 4W sales is expected to grow faster (+7.7% y-o-y) in 2015 driven by the LCGCs. We

forecast that LCGC growth will be strong (+25% y-o-y) in 2015. 400,000 31% 32% 0.35 BFIN and CFIN have both indicated that they would focus on 350,000 27% 0.3 consumer financing this year. 23% 300,000 0.25 250,000 0.2 200,000 15% Multifinance Companies: Financing growth trends 0.15 150,000 10% 80% 0.1 100,000 70% 4% 50,000 0.05 60% ‐ 0 50% 2007 2008 2009 2010 2011 2012 2013 Sep‐14 40% Consumer financing Leasing Factoring Total Growth 30% 20% Source: DBS Bank; DBS Vickers, Companies 10% 0% Very slow growth in leasing. Commodity prices are still weak ‐10% 2008 2009 2010 2011 2012 2013 Sep‐14 and China has imposed import taxes of between 3% and 6% ‐20% on several commodities, which will soften demand further. Consumer financing Leasing Factoring Total Growth Although Indonesia is not affected by this tax due to the Source: DBS Bank; DBS Vickers, Companies China-ASEAN free trade agreement, coal prices will be indirectly affected with demand for coal mining in Australia falling. Komatsu unit sales is expected to be slow (-5% y-o-y) Multifinance Companies: 2W sales forecast 10,000 30% in 2015. Komatsu’s product mix will also switch away from big 8,965 8,538 9,000 8,131 25% tractors for mining to either smaller mining tractors or 8,013 7,744 8,000 7,373 7,064 20% machinery for non-mining functions such as agriculture, 7,000 5,852 15% 6,000 construction and forestry. As a result, Komatsu revenue is 10% 5,000 expected to decline (-15% y-o-y) in 2015. Heavy equipment 5% 4,000 0% leasing will continue to slow down in 2015. 3,000 2,000 ‐5% 1,000 ‐10% Komatsu unit sales trends ‐ ‐15% 2009 2010 2011 2012 2013 2014F 2015F 2016F 9,000 8,467 80% 2W sales (000 units) % growth 8,000 60% Source: DBS Bank; DBS Vickers, Companies 7,000 6,202 6,000 5,404 40%

5,000 4,200 Multifinance Companies: 4W sales forecast 3,800 3,780 20% 4,000 3,600 3,111 2,000 70% 3,000 0% 1,800 281 60% 2,000 1,600 ‐20% 225 1,000 1,400 180 50% 1,200 50 ‐ ‐40% ‐ 40% 2009 2010 2011 2012 2013 2014F 2015F 2016F 1,000 ‐ 30% 800 1,538 Komatsu sales (units) % growth ‐ 1,422 1,230 1,320 600 1,116 20% ‐ 894 Source: DBS Bank; DBS Vickers, Companies 400 765 10% 200 486 ‐ 0% Consumer financing continues to drive financing. Consumer 2009 2010 2011 2012 2013 2014F 2015F 2016F financing will remain the main loans driver due to slow growth in 4W sales (000 units) LCGC sales (000 units) % growth leasing and limited factoring business. We expect mild growth Source: DBS Bank; DBS Vickers, Companies (+5% y-o-y) in 2W sales in 2015. 2W is a basic necessity in

Indonesia and 2W demand/sales usually reflects GDP growth. We are keeping a conservative forecast in view of the foreseeable

Page 11

Industry Focus

Indonesian Banks and Multifinance Companies

New auto regulations. There is news that the provincial BFIN and CFIN have comfortable capital levels, low levels of government of DKI Jakarta will cap the age of private vehicles NPL, and stable operating expenses. Minimum down payment at 10 years in order to reduce traffic and fuel emissions. The will also be regulated at 20% for 2W and commercial 4W provincial government will also increase vehicle tax in the DKI vehicles, and 25% for non-commercial 4W vehicles. Jakarta province by 33%-150% by early this year in order to increase tax revenues as well as reduce traffic. We believe the 10-year age cap on private vehicles will be difficult to Larger business scope. OJK has expanded the business scope of implement, while the increase in vehicle tax had not multifinance companies, allowing them to finance working significantly affected 4W and 2W demand previously. But capital and multipurpose loans. OJK indicated that multifinance coupled with the BI rate hike and economic slowdown this companies need at least Rp1tr capital in order to be allowed to time around, the increase may have some impact. finance infrastructure or maritime projects. Several multifinance companies, including Mandiri Tunas Finance, have expressed interest to finance ships in line with the new government’s Indonesian Multifinance: New auto tax maritime focus. BFIN also expressed interest in financing Current law Revised law % Change infrastructure projects but will start by financing (smaller) 1st vehicle tax rate 1.5% from selling price 2% from selling price 33% supporting projects because of limited capacity. Multifinance 2nd vehicle tax 2% from selling price 4% from selling price 100% rate companies will also be able to increase fee-based income by 3rd vehicle tax 2.5% from selling price 6% from selling price 140% selling other financial products such as mutual funds and rate 4th vehicle tax 10% from selling insurance. 4% from selling price 150% rate price Source: DBS Bank; DBS Vickers

Cheaper forex funding an option. Forex funding is on the rise for multifinance companies with domestic liquidity tight and cost of funds high in Indonesia. The multifinance industry foreign borrowings rose 14% y-o-y to Rp115.5tr as of 9M14, while domestic borrowings fell 3.1% to Rp137.1tr. BFIN indicated that they prefer foreign funding to maintain margins. The share of foreign funding has increased to 68% of total borrowings and most of these loans are hedged. On the other hand, CFIN does not have exposure to USD borrowings yet and their strategy is to shop for the lowest local rates available.

Indonesian Multifinance: Multifinance bank borrowings Company IDR IDR interest rate USD USD borrowings borrowings interest rate BFI Finance Rp1.29tr 8.5%-12.0% Rp2.17tr 2.45%-2.88% Clipan Finance Rp1.68tr 9.83%-11.19% n/a n/a Astra Sedaya Finance Rp2.09tr 8.40%-10.50% Rp14.80tr 1.73%-2.51% Federal International Rp2.20tr 7.60%-10.86% Rp11.24tr 1.55%-2.15% Finance Tifa Finance Rp628.8bn 10.0%-14.0% Rp101.26b 6.50%-8.00% n BII Finance Center Rp328.94bn 9.94%-9.78% Rp23.22bn 4.00%

Source: DBS Bank; DBS Vickers, Companies

OJK to further regulate multifinance companies. OJK will revise the multifinance regulation before the end of this year in order to maintain similar standards as banks. OJK has proposed that multifinance companies report and comply with capital adequacy ratio (minimum 10%), ROA, operating expense to operating income ratio, gearing ratio (maximum 10x) and non- performing financing (NPF) ratios (maximum of 5%). OJK will also regulate provision requirements. The impact on multifinance companies under our coverage is minimal as both

Page 12

Industry Focus Indonesian Banks and Multifinance Companies

Valuation and recommendation NIM to remain flat at 6.1% in 2015. We nudged down FY15- FY16F earnings after taking into account the BI rate hike and possible further rate hikes in the uncertain macroeconomic Normalised earnings in 2015. Earnings growth is expected to environment. Cost of funds and provisions are expected to recover and grow by 15% in 2015, following a dip (+9.8% y- remain high. All in, we forecast 15% earnings growth for 2015 o-y) in 2014. 2014 was the transition period to a new banking (2014: 9.5%). Multifinance companies should see earnings environment with higher cost of funds, tighter liquidity, and grow slower in the 10% range in 2015. slower loan growth (to match deposit growth). By 2015, banking operations should have adjusted to these changes and earnings should normalise. ROE is expected to dip to 19%. Indonesian Banks: NIM trends 16% 7% Indonesian Banks: Earnings growth trend 14% 6% 6% 120% 42.6% 45% 12% 6% 40% 10% 100% 33.3% 6% 35% 8% 27.5% 6% 80% 30% 6% 5% 20.9% 25% 60% 18.9% 4% 5% 17.8% 20% 15.0% 2% 5% 40% 15% 9.5% 0% 5% 10% 20% 2009 2010 2011 2012 2013 2014F 2015F 2016F 5% BBCA BMRI BBRI BBNI BBTN 0% 0% 2009 2010 2011 2012 2013 2014F 2015F 2016F BTPN PNBN BDMN Average Industry BBCA BMRI BBRI BBNI BBTN Source: DBS Bank; DBS Vickers, Companies BTPN PNBN BDMN Average Source: DBS Bank; DBS Vickers, Companies Stick to big banks: top pick BMRI, downgrade BBRI to HOLD. We learnt from 2014 that smaller banks found it difficult to Indonesian Banks: ROE trend cope under tough macroeconomic conditions, rising cost of funds and tight liquidity. We believe the banking industry will 35% 21.2% 22% 21.0% 21.0% 20.9% face more headwinds, including competition for funding and 30% 21% possibly a Fed rate hike which could push up the BI rate 21% 25% further. Our top pick is BMRI. The Syariah unit and consumer 20% 20% loans will turnaround this year driven by resolution to the NPL 19.3% 19.2% 20% 15% 19.0% issues and operational improvements, and arecovery in 18.8% 19% mortgage loans. 78% of BMRI’s loan book is also on variable 10% 19% rate, suggesting they can easily reprice up loans and defend 5% 18% NIM. The shift to higher yielding retail loans and a strong 0% 18% deposit franchise (9M14 CASA ratio: 61%) would also give the 2009 2010 2011 2012 2013 2014F 2015F 2016F banks the capability to increase NIM. We also downgraded BBCA BMRI BBRI BBNI BBTN BBRI to HOLD due to the risk of deterioration of special BTPN PNBN BDMN Average mentioned loans to NPLs. BBRI has improved its liquidity Source: DBS Bank; DBS Vickers, Companies position by aggressively growing time deposits. (9M14 LDR:

85%). It has also managed to keep NPL ratio at below 2.0%, Growth to remain muted. We forecast 15.4% loan growth in although the high levels of special mention loans (9M14: 2015 (2014: 14.7%) and loan to deposit ratio will ease and 6.5%) is a concern. We believe that NPL formations may be an stabilise at 83-84% for banks within our coverage. Asset issue in a tough economic environment. Smaller banks such as quality may experience a temporary deterioration, particularly BBTN and PNBN may still be hot for M&A news. SME loans in the trade industry. Banks will still likely book high levels of provisions. Expense growth may stay elevated due to the minimum wage regulation. While OJK has imposed a deposit rate cap on banks since 4Q14, the increase in the BI rate has largely offset savings from lower cost of funds. This may pose downside risk to our NIM assumptions. We expect

Page 13

Industry Focus

Indonesian Banks and Multifinance Companies

Indonesian Banks: Rolling forward P/BV band consumers. Multifinance companies claim the fuel price hike would only temporarily affect 4W demand, and that 2W demand x 3.5 remains resilient. In terms of cost of funds, they do not believe

3.0 that the fuel price hike would contribute to a substantial BI rate increase. But a Fed rate hike remains the wildcard that could be a 2.5 + 2SD, 2.49 concern for multifinance companies. Both BFIN and CFIN have + 1SD, 2.14 2.0 started to rein in their heavy equipment leasing businesses and Mean, 1.78 1.5 - 1SD, 1.42 will continue to do that this year. We cut FY15-16F earnings for 1.0 - 2SD, 1.06 multifinance companies by 5-10% after adjusting for slower bookings and higher cost of funds. For exposure to the 0.5 multifinance sector, we prefer BFIN over CFIN due to its unique - business model. CFIN struggled with its unique factoring business 03 04 05 06 07 08 09 10 11 12 13 14 due to limited market demand. BFIN is also managing cost of funds better by utilising lower-cost hedged USD loans. The Source: DBS Bank; DBS Vickers, Companies prospect of a recovery in the commodities market should trigger a re-rating for both multifinance companies, but this is unlikely to Cautious on multifinance companies: still prefer BFIN. happen in 2015. Multifinance companies had been pressured with higher funding cost on their bank borrowings and bond issuances in 2014, but had successfully repriced loans and pass on the higher costs to

Indonesian Banks: Peer valuation table

Market Target Net div Banking Group cap Price Price Rating PE (x) CAGR PBV (x) ROE (%) (%) (US$bn) (Rp/s) (Rp/s) FY13A FY14F FY15F ^ (%) FY13A FY14F FY15F FY14F FY14F

Bank Central Asia 19,137 13,125 12,500 Hold 16.2x 14.2x 12.2x 15.2 3.6x 3.1x 2.6x 23.0% 2.1% Bank Danamon* 2,948 4,610 NA NR 10.7x 14.1x 11.8x -4.7 1.4x 1.3x 1.2x 10.3% 2.4% Bank Mandiri 14,731 10,850 12,200 Buy 9.8x 9.3x 7.8x 11.9 2.0x 1.8x 1.6x 21.6% 3.8% Bank Negara Indonesia 5,674 6,075 6,400 Hold 7.6x 6.7x 5.8x 14.0 1.4x 1.2x 1.1x 19.8% 4.5% Bank Rakyat Indonesia 14,451 11,775 12,600 Buy 8.2x 7.2x 6.5x 11.7 2.2x 1.7x 1.4x 24.0% 3.1% Fully Bank Tabungan Negara 748 1,205 940 5.7x 8.5x 7.3x -11.7 0.8x 0.7x 0.7x 9.7% 3.5% Valued Bank Tabungan Pensiunan 2,128 3,990 4,600 Hold 11.7x 11.9x 11.1x 2.8 2.5x 2.1x 1.7x 17.1% 0.0% Nasional Panin Bank 1,227 1,070 1,230 Hold 6.6x 5.9x 4.9x 15.8 0.8x 0.7x 0.6x 13.5% 0.0%

Weighted average 11.2x 10.4x 9.0x 2.5x 2.1x 1.8x 21.4% 2.9% Simple average 9.5x 9.7x 8.4x 1.8x 1.6x 1.4x 17.4% 2.4% Weighted average (ex BBCA) 8.9x 8.6x 7.5x 1.9x 1.6x 1.4x 20.7% 3.2% Simple average (ex BBCA) 8.6x 9.1x 7.9x 1.6x 1.4x 1.2x 16.6% 2.5%

Buy (B), Hold (H), Fully Valued (FV), Not Rated (NR) ^ Refers to 2-year EPS CAGR for FY13-15F * Based on Bloomberg consensus Source: Bloomberg Finance L.P., DBS Bank, DBS Vickers

Page 14

Industry Focus Indonesian Banks and Multifinance Companies

Indonesian Banks and Multifinance: Catalysts and risks

TP and GGM Company Rec basis assumption % Key points Bank Mandiri BUY Rp 12,200 ROE 22.5 Investment thesis: A bank for everyone across all segments; growing retail business aimed to lift NIM 2.5x FY15 BV growth 10.5 Catalyst: Strong performance by subsidiaries; possible inorganic expansions; reduction in recap bonds 12.5x FY15 EPS COE 15.3 Risk: Recap bonds may swing NIM down; asset quality issue with special mention loans on an uptrend Bank Rakyat Indonesia HOLD Rp 12,600 ROE 23.7 Investment thesis: Micro lending to remain resilient; tapping into distant and rural areas 2.5x FY15 BV growth 10.4 Catalyst: Initiation of Teras Kapal (mobil ship branch) to reach rural areas; launching of satellite 12x FY15 EPS COE 15.7 Risk: Spike in special mention loans; slow down in micro lending; asset quality for small commercial loans Bank Central Asia HOLD Rp 12,200 ROE 23.7 Investment thesis: Strong franchise provides low cost of funds; strong corporate loans due to relationships 3.4x FY15 BV growth 10.5 Catalyst: Maintain good liquidity position amidst tight environment; CASA composition remains highest 16x FY15 EPS COE 14.4 Risk: Losing edge in its transaction banking franchise for low cost funding Bank Negara Indonesia HOLD Rp 6,400 ROE 19.0 Investment thesis: Expansion of non-interest income; tapping suppliers of SME clients for growth 1.9x FY15BV growth 10.4 Catalyst: Improvement in non-interest income arising from insurance tie-up and fee income strategy 10x FY15 EPS COE 15.5 Risk: Asset quality of micro loans; unsuccessful insurance partnership Bank Tabungan Pensiunan HOLD Rp 4,600 ROE 17.9 Investment thesis: Growing micro and productive poor Syariah financing; cost of funds has peaked for now Nasional 1.8x FY15 BV growth 10.0 Catalyst: Piloting expansion into informal SMEs; SMBC to provide alternative funding option 11.6x FY15 EPS COE 14.4 Risk: Change in business direction by SMBC Panin Bank HOLD Rp 1,100 ROE 14.0 Investment thesis: Strong SME lenders; resilient through the cycle 1.2x FY15 BV growth 9.0 Catalyst: Conservative focused strategy in SMEs; potential change in shareholder (ANZ) 10x FY15 EPS COE 13.1 Risk: High loan-to-deposit ratio may limit growth Bank Tabungan Negara FULLY Rp 940 ROE 13.0 Investment thesis: new subsidized mortgage schemes; new initiatives to tackle NPL; turnaround imminent VALUED 0.9x FY15 BV growth 7.7 Catalyst: Growth of non-subsidized mortgages; turnaround of NPLs; CASA initiatives 8x FY15 EPS COE 14.7 Risk: Further NPL formations due to the floating of non-subsidized mortgages this year BFI Finance BUY Rp 3,100 ROE 15.7 Investment thesis: Focus on consumer financing, ample domestic and foreign funding 0.9x FY15 BV growth 9.9 Catalyst: Working capital financing going forward, commercial 4W to drive growth, potential M&A 8x FY15 EPS COE 14.5 Risk: Demand and cost of fund risk from further increase in BI rates Clipan Finance HOLD Rp 490 ROE 14.5 Investment thesis: Unique factoring business, cutting down on heavy equipment leasing 0.5x FY15 BV growth 12.0 Catalyst: Revival of growth in the unique factoring business, potential to finance working capital loans 4x FY15 EPS COE 16.8 Risk: Further NPL formations due to the floating of non-subsidized mortgages this year Source: DBS Bank; DBS Vickers, Companies

Page 15

Industry Focus

Indonesian Banks and Multifinance Companies

Appendix

Indonesian banks and multifinance: Proposed regulations for 2015 Institution Subject Description Bank Indonesia Hedging forex debt 1) BI requires 20% of external debt (for all companies) due within 3-6 months to be hedged in 2015. This requirement will rise to 25% in 2016. 2) BI will require firms to have liquidity ratios of 50% in 2015 and 70% in 2016, three months prior to forex debt maturity. 3) Beginning 2016, firms that borrow foreign debt must have a credit rating of at least BB- or Ba1 Bank Indonesia E-money and Branchless banking agents will facilitate registration, disburse micro loans, micro insurance top- and OJK branchless banking up, payments or deposits and other services. Limit for micropayment is Rp5mn for registered e- money, transaction limit is Rp20mn per month. Licenses for branchless banking will be offered to banks with a risk profile of 1, 2 and 3, have a network in East Indonesia, and have supporting infrastructure for communication and branchless banking. Agents must be well-trained and licensed. Bank Indonesia Minimum micro and Minimum micro and SME loans at 5% of total loans for 2015. This will be increased SME loans progressively to 10% of total loans in 2016, 15% in 2017 and 20% in 2018 Bank Indonesia Change in LDR BI will extend the definition for deposits in the LDR calculation by including securities issued by calculation banks. Bank Indonesia LCR Implementation First phase: Starting 31 December 2015, minimum LCR of BUKU IV banks and foreign banks will be 70%. This will increase every year until it reaches 100% by 31 December 2018. Second phase: Starting 30 June 2016, minimum LCR of BUKU III banks will be 70%. This will increase every year until it reaches 100% by 31 December 2018. Third phase: Starting 30 June 2017, minimum LCR of other banks not included in the first and second phase will be 70%. This will increase every year until it reaches 100% by 31 December 2019. Bank Indonesia Basel III Capital Starting 1 January 2014: Banks should build towards 6% tier 1 and 4.5% core tier 1 capital, Requirements Timeline minimum CAR is 8% for banks with a risk profile rating of 1, 9-10% with a risk profile rating of 2, 10-11% for banks with a risk profile rating of 3, and 11-14% for banks with a risk profile rating of 4-5. Starting 1 January 2015: Minimum tier 1 capital at 6% and core tier-1 capital at 4.5%. Starting 1 January 2016: Banks will build up a capital conservation buffer progressively, starting with 0.625% of risk weighted assets on 1 January 2016, 1.25% from 1 January 2017, 1.875% from 1 January 2018, and 2.5% from 1 January 2019. Counter-cyclical buffer and capital surcharge may also be implemented depending on market conditions and systemic risks. OJK Financial OJK requires integrated corporate governance and risk management for all financial services conglomeration institutions and its subsidiaries. OJK also requires a director to oversee the operations of the subsidiaries. The parent’s board of directors is directly responsible for the subsidiaries’ operations and risk management Going forward, OJK will also regulate capital requirements for subsidiaries. OJK Multifinance Multifinance companies now can offer investments, working capital, multipurpose or other regulation loans. It can finance infrastructure projects but equity needs to be at least Rp1tr. Minimum down payment of 2W and productive 4W is 20%, and 25% for consumer 4W. Minimum CAR for multifinance companies is 10%. They will also be subject to non-performing-financing metrics and provisioning requirements like banks. Minimum financing to assets ratio must be 40%. Maximum gearing ratio is 10x or 50% of total capital. Foreign exchange debt must be fully hedged.

Source: DBS Bank; DBS Vickers, Bank Indonesia

Page 16

Industry Focus Indonesian Banks and Multifinance Companies

Indonesian banks: Classification and examples

Classification Definition Examples BUKU I Core capital below Rp1tr Bank Sulut, Bank Kalbar, Bank Saudara, BRI Agroniaga, Bank ICB Bumiputera BUKU II Core capital at between Rp1tr and Rp5tr Bank Mayapada, Bank DKI, Bank Jatim, Bank ICBC Indonesia, Bank ANZ Indonesia, Bank Mutiara BUKU III Core capital at between Rp5tr and Rp30tr Bank BTPN*, Bank Tabungan Negara*, PaninBank*, Bank Danamon, Bank Bukopin, Bank CIMB Niaga, Bank International Indonesia, Bank DBS Indonesia, Bank UOB Indonesia, Bank OCBC NISP, Bank Jabar Banten BUKU IV Core capital above Rp30tr Bank Central Asia*, Bank Rakyat Indonesia*, Bank Mandiri*, Bank Negara Indonesia* Foreign banks Foreign banks with a branch office in Indonesia HSBC, JP Morgan, Bank of Tokyo-Mitsubishi UFJ, Citibank, Deutsche Bank, Standard Chartered Bank *Banks within our coverage Source: DBS Bank; DBS Vickers, Bank Indonesia

Page 17

Industry Focus

Indonesian Banks and Multifinance Companies

Stock Profiles

Page 18

Industry Focus Bank Mandiri

Bloomberg: BMRI IJ | Reuters: BMRI.JK

BUY Rp10,850 JCI : 5,207.12 Focus still on retail segment Price Target : 12-Month Rp 12,200 Potential Catalyst: Stronger retail loans, recovery in mortgage and  Expect improvement in Syariah subsidiary; Syariah loans; improvement in Syariah operation mortgage loan growth to recover DBSV vs Consensus: In-line with consensus earnings  Revised loan mix will lift NIM; M&A still on the cards Analyst LIM Sue Lin +65 66823711  Maintain BUY; Rp12,200 TP [email protected]

Christopher Daniel Wijaya +62 21 3003 4935 Recovering Syariah and consumer loans to drive [email protected] loan growth in 2015. Loans are expected to grow by 15-18% this year. Corporate loans are estimated to grow 10-12% driven by infrastructure loans which are forecast Price Relative to grow by 20-25% under the new government. Bank

Rp R e la tive In d ex Syariah Mandiri (BSM) loans are expected to grow 10- 11,770.0 221 15% in 2015. BSM’s NPL will drop below 5% in 2H15 10,770.0 201 with improved risk management after the management 9,770.0 181 change last May. A recovery in mortgage loans will lift 8,770.0 161

7,770.0 141 consumer finance growth back to 10-15%. 6,770.0 121 Management indicated NIM 5,770.0 101 Expect NIM to improve. 4,770.0 81 will improve by 5-10bps following the shift to higher Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 yielding retail loans. Retail portion is expected to increase Bank M andiri (LHS) R elative JC I IN D EX (R H S) from 33% of total loans to 35%. LDR will rise to c.87% Forecasts and Valuation since deposits will grow slightly slower than loans due to tight liquidity. Disbursement of SME loans will be FY Dec (Rp bn) 2013A 2014F 2015F 2016F decentralised to branch level. Fee income will be boosted Pre-prov. Profit 28,408 30,319 36,411 43,031 by cross-selling products to customers. Net Profit 18,204 19,086 22,803 28,235 BMRI assured that Net Pft (Pre Ex.) 18,204 19,086 22,803 28,235 Open to acquisition-driven growth. EPS (Rp) 780 818 977 1,210 any M&A must be value-accretive to shareholders and EPS Pre Ex. (Rp) 780 818 977 1,210 reasonably priced. BMRI believes the recent share price EPS Gth (%) 17 5 19 24 movement was due to the M&A overhang issue and that EPS Gth Pre Ex (%) 17 5 19 24 Diluted EPS (Rp) 780 818 977 1,210 the focus should not be on M&A, but rather on their PE Pre Ex. (X) 13.9 13.3 11.1 9.0 corporate plans and strategies. There is no guidance on Net DPS (Rp) 233 273 286 342 the government’s timing for the consolidation of state Div Yield (%) 2.1 2.5 2.6 3.2 owned banks. ROAE Pre Ex. (%) 22.5 20.6 21.6 22.8 ROAE (%) 22.5 20.6 21.6 22.8 Maintain BUY; Rp12,200 TP. Our TP is derived from ROA (%) 2.8 2.5 2.6 2.8 the Gordon Growth Model and assumes 22.5% ROE, BV Per Share (Rp) 3,747 4,177 4,868 5,736 10.5% growth and 15.3% cost of equity. Risks of fuel P/Book Value (x) 2.9 2.6 2.2 1.9 subsidy and BI rate hike have been priced in. Thus, downside risks would come from weaker growth, liquidity and/or asset quality.

Earnings Rev (%): 0 0 0 Consensus EPS (Rp): 850 975 1,110 At A Glance Other Broker Recs: B: 24 S: 3 H: 8 Issued Capital (m shrs) 23,333

Mkt. Cap (Rpbn/US$m) 253,167 / 20,010 ICB Industry : Financials ICB Sector: Banks Major Shareholders Principal Business: Bank Mandiri (BMRI) is Indonesia's largest bank Govt. of Indonesia (%) 60.0 by assets. Currently 60% owned by the Government of Indonesia, Free Float (%) 40.0 BMRI has a strong corporate loan base and it is currently expanding Avg. Daily Vol.(‘000) 18,407 to the retail sector. Source of all data: Company, DBS Bank, DBS Vickers, Bloomberg Finance L.P

Page 19 www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: MA

Industry Focus

Bank Mandiri

Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Net Interest Income 35,403 37,362 43,834 51,773 Cash/Bank Balance 95,789 102,600 121,040 137,895 Non-Interest Income 14,467 17,155 20,349 23,704 Government Securities 85,965 91,339 89,989 88,639 Operating Income 49,870 54,517 64,183 75,477 Inter Bank Assets 26,318 31,626 37,951 45,541 Operating Expenses (21,462) (24,198) (27,772) (32,446) Total Net Loans & Advs. 450,635 530,020 623,406 735,095 Pre-provision Profit 28,408 30,319 36,411 43,031 Investment 26,807 32,066 37,176 43,302 Provisions (4,856) (6,211) (7,678) (7,547) Associates 0 0 0 0 Associates 0 0 0 0 Fixed Assets 7,646 7,437 7,437 7,437 Exceptionals 0 0 0 0 Goodwill 0 0 0 0 Pre-tax Profit 24,062 24,647 29,365 36,229 Other Assets 39,940 41,953 42,404 42,604 Taxation (5,232) (4,871) (5,804) (7,161) Total Assets 733,100 837,041 959,403 1,100,512 Minority Interests (626) (689) (758) (833) Customer Deposits 556,342 650,535 756,768 881,037 Preference Dividend 0 0 0 0 Inter Bank Deposits 12,672 13,496 13,084 13,290 Net Profit 18,204 19,086 22,803 28,235 Debts/Borrowings 22,242 25,173 22,460 19,194 Net Profit bef Except 18,204 19,086 22,803 28,235 Others 53,054 48,306 50,680 49,493 Minorities 1,371 2,060 2,818 3,651 Shareholders' Funds 87,419 97,470 113,593 133,847 Total Liab& S/H’s Funds 733,100 837,041 959,403 1,100,512

Profitability & Efficiency Ratios (%) Financial Stability Measures (%) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Mar gins, Costs & Efficiency Balance Sheet Structure Yld. On Earnings Assets 9.90 8.76 8.79 8.88 Loan-to-Deposit Ratio 84.0 84.7 86.0 87.1 Avg Cost Of Funds 3.94 3.42 3.37 3.35 Net Loans / Total Assets 61.5 63.3 65.0 66.8 Spread 5.96 5.34 5.42 5.52 Investment / Total Assets 3.7 3.8 3.9 3.9 Net Interest Margin 6.19 5.57 5.64 5.75 Cust . Dep./Int. Bear. Liab. 96.2 96.3 97.1 97.9 Cost-to-Income Ratio 43.0 44.4 43.3 43.0 Interbank Dep / Int. Bear. 2.2 2.0 1.7 1.5 Employees ( Year End) 0 0 0 0 Asset Quality Effective Tax Rate 21.7 19.8 19.8 19.8 NPL / Total Gross Loans 1.9 2.1 2.1 2.0 Business Mix NPL / Total Assets 1.2 1.4 1.4 1.4 Net Int. Inc / Opg Inc. 71.0 68.5 68.3 68.6 Loan Loss Reserve Coverage 185.2 187.6 202.7 216.5 Non-Int. Inc / Opg inc. 29.0 31.5 31.7 31.4 Provision Charge-Off Rate 1.0 1.1 1.2 1.0 Fee Inc / Opg Income 17.5 19.1 18.9 18.7 Capital Strength Oth Non-Int Inc/Opg Inc 11.6 12.4 12.8 12.7 Total CAR 14.6 14.9 14.8 14.6 Profitability Tier-1 CAR 13.0 13.1 13.1 13.0 ROAE Pre Ex. 22.5 20.6 21.6 22.8 Growth ROAE 22.5 20.6 21.6 22.8 Total Net Loans 20 18 18 18 ROA Pre Ex. 2.8 2.5 2.6 2.8 Customer Deposits 15 17 16 16 ROA 2.8 2.5 2.6 2.8

Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 Net Interest Income 9,359 8,980 9,123 9,375 Non-Interest Income 4,780 4,111 4,421 4,344 Operating Income 14,139 13,091 13,544 13,719 Operating Expenses (6,309) (5,411) (5,831) (6,391) Pre-Provision Profit 7,830 7,680 7,713 7,328 Provisions (851) (1,217) (1,624) (909) Associates 0 0 0 0 Exceptionals 0 0 0 0 Pretax Profit 7,312 6,459 6,098 6,434 Taxation (2,380) (1,336) (1,636) (1,566) Minority Interests 468 (198) 198 0 Net Profit 5,401 4,925 4,660 4,868

Source: Company, DBS Bank, DBS Vickers

Page 20

Industry Focus Bank Central Asia

Bloomberg: BBCA IJ | Reuters: BBCA.JK

HOLD Rp13,125 JCI : 5,207.12 Most stable bank Price Target : 12-Month Rp 12,500 (Prev Rp 11,100) Potential Catalyst: Best asset quality, pick-up in CASA growth, lower TD rates and cost of funds  Not affected by BI rate hike but growth remains DBSV vs Consensus: In line with consensus estimates muted  Good asset quality; sustained strong growth of Analyst non-interest income LIM Sue Lin +65 66823711 Nudged up FY15 earnings by 1% and slightly [email protected]  lowered FY16 earnings by -2% Christopher Daniel Wijaya +62 21 3003 4935  Maintain HOLD; raised TP to Rp12,500 [email protected] Still resilient. BBCA opines the higher fuel price will be absorbed by the market and estimates inflation at 5%- Price Relative 6% this year. BBCA said they are not affected by the BI Rp R e la tive In d ex rate hike and as long as there is strong demand for 222 13,860.0 202 deposits, they will not raise TD rates. BBCA expects 12,860.0 11,860.0 182 CASA to inch up this year, deposits to grow by c.12%, 10,860.0 162 9,860.0 and loans by 13-15%. Loans will continue to be driven 8,860.0 142 7,860.0 122 by corporate loans; mortgage (consumer) loans will 6,860.0 102 5,860.0 remain slow after the BI rate hike. 4,860.0 82 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Good asset quality; higher fee-based income. B an k C en tral A sia (LH S) R elative JC I IN D EX (R H S) Despite the fuel price hike, NPLs should be under

control due to limited exposure to mass market loans. Forecasts and Valuation Exposure to the mining sector is also limited and BBCA FY Dec (Rp bn) 2013A 2014F 2015F 2016F have not faced any issues. Fee-based income will be Pre-prov. Profit 19,094 20,025 23,195 27,063 driven by several initiatives: alliance to grow Amex card Net Profit 14,256 16,234 18,908 21,934 transactions through BBCA’s EDC, and referrals and Net Pft (Pre Ex.) 14,256 16,234 18,908 21,934 EPS (Rp) 578 658 767 889 remittances agreements with Public Bank (Malaysia). EPS Pre Ex. (Rp) 578 658 767 889 We cut FY15F loan and EPS Gth (%) 22 14 16 16 Nudged up FY15 earnings. EPS Gth Pre Ex (%) 22 14 16 16 deposit growth to 15% (from 18% each), but also Diluted EPS (Rp) 578 658 767 889 trimmed provision by 8% on stable asset quality. We PE Pre Ex. (X) 22.7 19.9 17.1 14.8 also nudged up lending rate and reduced TD rates, Net DPS (Rp) 116 173 197 230 which lifted NIM by 15bps. Div Yield (%) 0.9 1.3 1.5 1.8 ROAE Pre Ex. (%) 24.6 23.3 23.0 22.5 HOLD; raised TP to Rp12,500. Our Gordon Growth ROAE (%) 24.6 23.3 23.0 22.5 Model assumptions are: 23.7% ROE, 14.4% cost of ROA (%) 3.0 3.0 3.1 3.1 equity (previously 14.9%), and 10.5% growth. Our TP BV Per Share (Rp) 2,589 3,055 3,624 4,284 P/Book Value (x) 5.1 4.3 3.6 3.1 also implies 3.4x FY15F BV. BBCA will hold up better than peers in a volatile environment, but the stock is a HOLD because valuation is stretched. We would advocate buying on weakness.

Earnings Rev (%): 0 1 (2) Consensus EPS (Rp): 672 770 874 At A Glance Other Broker Recs: B: 12 S: 5 H: 19 Issued Capital (m shrs) 24,655

Mkt. Cap (Rpbn/US$m) 323,597 / 25,520 ICB Industry : Financials Major Shareholders ICB Sector: Banks Principal Business: Bank Central Asia (BBCA) is Indonesia's premium Farindo Invest Ltd (%) 51.2 transactional bank given its legacy with the Salim group pre-Asian Free Float (%) 48.8 crisis. BBCA has successfully leveraged on ithis strength to deliver Avg. Daily Vol.(‘000) 10,953 sustainable earnings growth. Source of all data: Company, DBS Vickers, DBS Bank, Bloomberg Finance L.P

Page 21 www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: MA

Industry Focus

Bank Central Asia

Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Net Interest Income 26,425 28,698 33,300 38,673 Cash/Bank Balance 63,484 86,251 101,673 120,324 Non-Interest Income 7,301 7,770 9,206 10,805 Government Securities 75,922 77,160 88,409 101,697 Operating Income 33,726 36,468 42,506 49,478 Inter Bank Assets 3,770 3,959 4,157 4,365 Operating Expenses (14,631) (16,443) (19,311) (22,415) Total Net Loans & Advs. 306,679 352,665 405,696 478,878 Pre-provision Profit 19,094 20,025 23,195 27,063 Investment 14,754 16,469 18,356 20,431 Provisions (2,016) (539) (495) (731) Associates 0 0 0 0 Associates 0 0 0 0 Fixed Assets 7,440 7,041 6,626 6,195 Exceptionals 0 0 0 0 Goodwill 0 0 0 0 Pre-tax Profit 17,816 20,287 23,629 27,411 Other Assets 24,254 25,489 29,426 33,033 Taxation (3,559) (4,053) (4,721) (5,476) Total Assets 496,305 569,035 654,342 764,922 Minority Interests 0 0 0 0 Customer Deposits 409,486 470,909 541,545 635,587 Preference Dividend 0 0 0 0 Inter Bank Deposits 3,301 2,932 3,117 3,024 Net Profit 14,256 16,234 18,908 21,934 Debts/Borrowings 3,634 3,972 4,343 4,750 Net Profit bef Except 14,256 16,234 18,908 21,934 Others 15,917 15,763 15,840 15,802 Minorities 101 101 101 101 Shareholders' Funds 63,866 75,358 89,396 105,658 Total Liab& S/H’s Funds 496,305 569,035 654,342 764,922

Profitability & Efficiency Ratios (%) Financial Stability Measures (%) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Mar gins, Costs & Efficiency Balance Sheet Structure Yld. On Earnings Assets 9.01 8.95 9.06 9.07 Loan-to-Deposit Ratio 76.3 76.2 76.2 76.6 Avg Cost Of Funds 2.00 2.33 2.26 2.24 Net Loans / Total Assets 61.8 62.0 62.0 62.6 Spread 7.01 6.62 6.80 6.82 Investment / Total Assets 3.0 2.9 2.8 2.7 Net Interest Margin 6.94 6.58 6.73 6.75 Cust . Dep./Int. Bear. Liab. 99.1 99.2 99.2 99.3 Cost-to-Income Ratio 43.4 45.1 45.4 45.3 Interbank Dep / Int. Bear. 0.8 0.6 0.6 0.5 Employees ( Year End) 0 0 0 0 Asset Quality Effective Tax Rate 20.0 20.0 20.0 20.0 NPL / Total Gross Loans 0.4 0.5 0.5 0.5 Business Mix NPL / Total Assets 0.3 0.3 0.3 0.3 Net Int. Inc / Opg Inc. 78.4 78.7 78.3 78.2 Loan Loss Reserve Coverage 408.8 356.3 346.6 336.7 Non-Int. Inc / Opg inc. 21.6 21.3 21.7 21.8 Provision Charge-Off Rate 0.6 0.2 0.1 0.2 Fee Inc / Opg Income 18.7 19.4 19.1 19.3 Capital Strength Oth Non-Int Inc/Opg Inc 2.9 1.9 2.5 2.6 Total CAR 16.4 16.9 17.0 17.0 Profitability Tier-1 CAR 15.2 15.6 15.8 15.7 ROAE Pre Ex. 24.6 23.3 23.0 22.5 Growth ROAE 24.6 23.3 23.0 22.5 Total Net Loans 21 15 15 18 ROA Pre Ex. 3.0 3.0 3.1 3.1 Customer Deposits 11 15 15 17 ROA 3.0 3.0 3.1 3.1

Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 Net Interest Income 7,334 7,629 7,798 8,153 Non-Interest Income 1,912 2,120 2,096 3,574 Operating Income 9,246 9,749 9,894 11,727 Operating Expenses (3,953) (4,693) (4,387) (5,482) Pre-Provision Profit 5,293 5,056 5,507 6,245 Provisions (561) (342) (444) (721) Associates 0 0 0 0 Exceptionals 0 0 0 0 Pretax Profit 4,871 4,629 5,289 5,473 Taxation (978) (958) (1,098) (1,122) Minority Interests 5 (7) (4) (7) Net Profit 3,898 3,664 4,187 4,343

Source: Company, DBS Vickers, DBS Bank

Page 22

Industry Focus Bank Rakyat Indonesia

Bloomberg: BBRI IJ | Reuters: BBRI.JK

HOLD Rp11,775 JCI : 5,207.12 Still growing micro loans Price Target : 12-Month Rp 12,600 (Prev Rp 11,600) Potential Catalyst: Continued growth of higher-yielding micro Micro lending to continue to drive loan growth; segment, branchless banking and satellite initiatives  NIM under pressure DBSV vs Consensus: Slightly above consensus Long-term initiatives to improve profitability; Analyst  fuel price hike will hurt micro/SME segment LIM Sue Lin +65 66823711 [email protected] Cut FY15-16F earnings by 2.7-6.0% on the back  slower growth Christopher Daniel Wijaya +62 21 3003 4935 [email protected]  Downgrade to HOLD; raised TP to Rp12,600

Micro segment to continue to drive growth. BRI will Price Relative introduce new initiatives such as Teras Kapal BRI (ship Rp Relative Index banking) to provide banking services on remote islands.

12,095.0 209 This is expected to kick-off in February 2015. Funding 11,095.0 189 will continue to be driven by time deposits as BBRI 10,095.0 169 9,095.0 wants to keep LDR below 90%. Hence, we expect cost 8,095.0 149 7,095.0 129 of funds to rise and NIM to be pressured. 6,095.0 109 5,095.0 4,095.0 89 The management said the Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Long-term initiatives.

Bank Rakyat Indonesia (LHS) R elative JC I IN D EX (R H S) higher fuel price will hurt the micro and SME segments in the trade industry. However, BBRI is involved in the Forecasts and Valuation branchless banking program and currently has 10,000 FY Dec (Rp bn) 2013A 2014F 2015F 2016F outsourced agents. This could boost fee income in the Pre-prov. Profit 30,074 32,768 35,949 41,438 future. Cost savings arising from the use of satellite Net Profit 21,344 24,081 26,653 31,720 communication will be felt from 2017 onwards. Net Pft (Pre Ex.) 21,344 24,081 26,653 31,720 EPS (Rp) 865 976 1,080 1,286 EPS Pre Ex. (Rp) 865 976 1,080 1,286 Cut FY15F/16F earnings by 27%/6%. We trimmed EPS Gth (%) 14 13 11 19 FY15F loan growth to 15% (from 18%) and deposit EPS Gth Pre Ex (%) 14 13 11 19 growth to 15% (from 19%). We raised NPL Diluted EPS (Rp) 865 976 1,080 1,286 PE Pre Ex. (X) 13.6 12.1 10.9 9.2 assumptions to 2.3% (from 1.6%). We did not revise Net DPS (Rp) 173 195 216 257 provisions as coverage ratio remains high at 241%. Div Yield (%) 1.5 1.7 1.8 2.2 ROAE Pre Ex. (%) 29.7 26.9 24.0 23.5 ROAE (%) 29.7 26.9 24.0 23.5 Downgrade to HOLD, raised TP to Rp12,600. Our TP ROA (%) 3.6 3.5 3.4 3.4 is based on the Gordon Growth Model and assumes BV Per Share (Rp) 3,209 4,061 4,946 6,016 25% ROE, 10% growth and 15.7% cost to equity (rom P/Book Value (x) 3.7 2.9 2.4 2.0 16.8%). Although liquidity position improved, high

levels of special mention loans may deteriorate to NPL in an uncertain macroeconomic environment.

Earnings Rev (%): 0 (3) (6) Consensus EPS (Rp): 971 1,093 1,252 At A Glance Other Broker Recs: B: 30 S: 1 H: 7 Issued Capital (m shrs) 24,669 Mkt. Cap (Rpbn/US$m) 290,479 / 22,908 ICB Industry : Financials Major Shareholders ICB Sector: Banks Govt of Indonesia (%) 59.0 Principal Business: Bank Rakyat Indonesia (BBRI), specialises in small scale and microfinance lending mainly to retail clients largely in the Free Float (%) 41.0 rural areas. It also has a comparatively small, but growing, corporate Avg. Daily Vol.(‘000) 22,668 business. It is currently 70% government owned operating Source of all data: Company, DBS Vickers, DBS Bank, Bloomberg Finance L.P

Page 23 www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: MA

Industry Focus

Bank Rakyat Indonesia

Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Net Interest Income 44,106 48,419 54,510 63,545 Cash/Bank Balance 93,036 131,834 149,218 177,780 Non-Interest Income 8,348 9,629 10,706 12,822 Government Securities 18,951 20,125 21,379 22,721 Operating Income 52,455 58,048 65,216 76,367 Inter Bank Assets 12,596 15,115 18,138 21,766 Operating Expenses (22,381) (25,280) (29,267) (34,928) Total Net Loans & Advs. 432,927 496,043 570,022 683,283 Pre-provision Profit 30,074 32,768 35,949 41,438 Investment 42,897 52,723 64,513 78,659 Provisions (3,946) (5,163) (5,393) (5,074) Associates 0 0 0 0 Associates 0 0 0 0 Fixed Assets 3,973 4,669 5,298 5,859 Exceptionals 0 0 0 0 Goodwill 0 0 0 0 Pre-tax Profit 27,910 30,117 33,335 39,673 Other Assets 21,803 19,778 20,970 20,659 Taxation (6,556) (6,023) (6,667) (7,935) Total Assets 626,183 740,287 849,538 1,010,725 Minority Interests (10) (12) (15) (18) Customer Deposits 504,281 601,150 689,956 826,353 Preference Dividend 0 0 0 0 Inter Bank Deposits 3,691 3,235 3,463 3,349 Net Profit 21,344 24,081 26,653 31,720 Debts/Borrowings 17,205 14,459 12,530 11,174 Net Profit bef Except 21,344 24,081 26,653 31,720 Others 21,678 21,091 21,385 21,238 Minorities 164 176 191 208 Shareholders' Funds 79,164 100,176 122,013 148,403 Total Liab& S/H’s Funds 626,183 740,287 849,538 1,010,725

Profitability & Efficiency Ratios (%) Financial Stability Measures (%) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Mar gins, Costs & Efficiency Balance Sheet Structure Yld. On Earnings Assets 11.89 11.36 11.22 11.11 Loan-to-Deposit Ratio 88.9 85.8 85.9 86.1 Avg Cost Of Funds 3.11 3.49 3.60 3.65 Net Loans / Total Assets 69.1 67.0 67.1 67.6 Spread 8.78 7.88 7.62 7.46 Investment / Total Assets 6.9 7.1 7.6 7.8 Net Interest Margin 8.82 8.06 7.82 7.71 Cust . Dep./Int. Bear. Liab. 96.7 97.7 98.2 98.7 Cost-to-Income Ratio 42.7 43.5 44.9 45.7 Interbank Dep / Int. Bear. 0.7 0.5 0.5 0.4 Employees ( Year End) 0 0 0 0 Asset Quality Effective Tax Rate 23.5 20.0 20.0 20.0 NPL / Total Gross Loans 1.5 1.7 1.6 1.6 Business Mix NPL / Total Assets 1.1 1.2 1.1 1.1 Net Int. Inc / Opg Inc. 84.1 83.4 83.6 83.2 Loan Loss Reserve Coverage 231.7 223.1 241.5 248.1 Non-Int. Inc / Opg inc. 15.9 16.6 16.4 16.8 Provision Charge-Off Rate 0.9 1.0 0.9 0.7 Fee Inc / Opg Income 9.3 8.3 8.5 8.7 Capital Strength Oth Non-Int Inc/Opg Inc 6.6 8.3 8.0 8.1 Total CAR 17.0 17.6 18.3 18.2 Profitability Tier-1 CAR 15.8 16.5 17.2 17.1 ROAE Pre Ex. 29.7 26.9 24.0 23.5 Growth ROAE 29.7 26.9 24.0 23.5 Total Net Loans 25 15 15 20 ROA Pre Ex. 3.6 3.5 3.4 3.4 Customer Deposits 12 19 15 20 ROA 3.6 3.5 3.4 3.4

Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 Net Interest Income 12,911 12,401 12,007 13,517 Non-Interest Income 2,837 1,825 2,020 2,870 Operating Income 15,748 14,226 14,027 16,387 Operating Expenses (5,876) (6,321) (5,146) (7,965) Pre-Provision Profit 9,871 7,905 8,881 8,422 Provisions (1,621) (1,100) (1,994) (1,846) Associates 0 0 0 0 Exceptionals 0 0 0 0 Pretax Profit 8,942 7,411 7,390 7,754 Taxation (3,042) (1,474) (1,602) (1,314) Minority Interests (10) 0 0 0 Net Profit 5,890 5,937 5,788 6,440

Source: Company, DBS Vickers, DBS Bank

Page 24

Industry Focus Bank Negara Indonesia

Bloomberg: BBNI IJ | Reuters: BBNI.JK

HOLD Rp6,075 JCI : 5,207.12 Change in leadership Price Target : 12-Month Rp 6,400 (Prev Rp 5,800) Potential Catalyst: Higher fee-based income, ample liquidity for  Improving NPL ratio, ample liquidity growth DBSV vs Consensus: Slightly above consensus earnings  New board of directors at the helm  Nudged down FY15F earnings by 0.6% Analyst Christopher Daniel Wijaya +62 21 3003 4935  Maintain HOLD; raised TP to Rp6,400 [email protected]

Asset quality has improved to LIM Sue Lin +65 66823711 Improving operations. [email protected] industry level (2.2%) and the strategy to grow micro and SME loans conservatively while focusing on asset quality is yielding results. LDR has been below 90% this year. NIM Price Relative has been stable, suggesting BBNI had been able to re- Rp R e la tive In d ex price loans to offset higher cost of funds. The 216 6,357.5 management indicated that loan growth will remain slow 196 5,857.5 176 at 10-15% and LDR will remain high at 80%. Deposits 5,357.5 156 4,857.5 will grow in line with loans, with improvements in CASA 136 4,357.5 3,857.5 116 growth. Recurring fee-based income will continue to 3,357.5 96 register strong growth of 15-20% in 2015 with the 2,857.5 76 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 completion of BNI Life- Sumitomo consolidation.

Bank Neg ara Indonesia (LHS) R elative JC I IN D EX (R H S) Six of the directors will retire Forecasts and Valuation New board of directors. early this year and their terms will not be renewed. This FY Dec (Rp bn) 2013A 2014F 2015F 2016F includes current President Director Gatot M Suwondo, Pre-prov. Profit 11,789 14,371 16,265 18,845 Vice-President Director Felia Salim and Finance Director Net Profit 9,054 10,288 11,773 13,349 Yap Tjay Soen. Ex-ministry of State Owned Enterprises Net Pft (Pre Ex.) 9,054 10,288 11,773 13,349 EPS (Rp) 486 552 631 716 (MSOE) Dahlan Iskan indicated that the appointment of a EPS Pre Ex. (Rp) 486 552 631 716 new board is an appropriate move. EPS Gth (%) 29 14 14 13 EPS Gth Pre Ex (%) 29 14 14 13 Diluted EPS (Rp) 486 552 631 716 Nudged down FY15F earnings. We trimmed loan and PE Pre Ex. (X) 12.5 11.0 9.6 8.5 deposit growth to 13% (from 16% previously), but kept Net DPS (Rp) 113 146 165 189 LDR at 86% level. Div Yield (%) 1.9 2.4 2.7 3.1 ROAE Pre Ex. (%) 19.9 20.0 19.8 19.4 ROAE (%) 19.9 20.0 19.8 19.4 Maintain HOLD, raised TP to Rp6,400. Our TP is based ROA (%) 2.5 2.5 2.5 2.6 on the Gordon Growth Model and assumes 19% ROE, BV Per Share (Rp) 2,552 2,958 3,424 3,951 P/Book Value (x) 2.4 2.1 1.8 1.5 10% growth and 15% cost of equity (previously 15.5%). Improvements in fee-based income arising from the insurance tie-up could provide upside to earnings.

Earnings Rev (%): 0 (1) (1) At A Glance Consensus EPS (Rp): 538 610 692 Issued Capital (m shrs) 18,649 Other Broker Recs: B: 19 S: 2 H: 12 Mkt. Cap (Rpbn/US$m) 113,291 / 8,935

Major Shareholders ICB Industry : Financials ICB Sector: Banks Republic of Indonesia (%) 60.0 Principal Business: Bank Negara Indonesia (BBNI) is a state-owned Free Float (%) 40.0 bank that conducts commercial and consumer banking services. Avg. Daily Vol.(‘000) 19,848 BBNI ranks fourth in the Indonesian banking sector based on assets, lending and third party deposits. Source of all data: Company, DBS Vickers, DBS Bank, Bloomberg Finance L.P

Page 25 www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: MA

Industry Focus

Bank Negara Indonesia

Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Net Interest Income 19,058 20,967 23,492 26,694 Cash/Bank Balance 37,321 43,957 54,999 64,520 Non-Interest Income 7,303 9,144 10,569 12,406 Government Securities 43,329 43,655 44,064 44,562 Operating Income 26,361 30,111 34,061 39,099 Inter Bank Assets 23,473 24,646 25,878 27,172 Operating Expenses (14,573) (15,740) (17,796) (20,255) Total Net Loans & Advs. 243,758 282,187 319,356 371,156 Pre-provision Profit 11,789 14,371 16,265 18,845 Investment 12,005 13,114 14,358 15,726 Provisions (570) (1,571) (1,616) (2,234) Associates 0 0 0 0 Associates 0 0 0 0 Fixed Assets 5,514 5,584 5,625 5,637 Exceptionals 0 0 0 0 Goodwill 0 0 0 0 Pre-tax Profit 11,278 12,865 14,723 16,694 Other Assets 21,256 22,581 24,561 26,621 Taxation (2,220) (2,573) (2,945) (3,339) Total Assets 386,655 435,724 488,842 555,394 Minority Interests (4) (4) (5) (6) Customer Deposits 291,890 335,674 379,218 436,101 Preference Dividend 0 0 0 0 Inter Bank Deposits 3,185 3,215 3,200 3,208 Net Profit 9,054 10,288 11,773 13,349 Debts/Borrowings 24,987 24,727 24,756 25,028 Net Profit bef Except 9,054 10,288 11,773 13,349 Others 18,909 16,848 17,717 17,282 Minorities 83 88 93 99 Shareholders' Funds 47,600 55,172 63,858 73,675 Total Liab& S/H’s Funds 386,655 435,724 488,842 555,394

Profitability & Efficiency Ratios (%) Financial Stability Measures (%) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Mar gins, Costs & Efficiency Balance Sheet Structure Yld. On Earnings Assets 8.52 8.54 8.56 8.65 Loan-to-Deposit Ratio 85.9 86.6 86.6 87.4 Avg Cost Of Funds 2.51 2.77 2.75 2.74 Net Loans / Total Assets 63.0 64.8 65.3 66.8 Spread 6.00 5.78 5.81 5.91 Investment / Total Assets 3.1 3.0 2.9 2.8 Net Interest Margin 6.14 5.91 5.92 5.99 Cust . Dep./Int. Bear. Liab. 92.1 93.1 93.9 94.6 Cost-to-Income Ratio 55.3 52.3 52.2 51.8 Interbank Dep / Int. Bear. 1.0 0.9 0.8 0.7 Employees ( Year End) 17,000 17,000 17,000 17,000 Asset Quality Effective Tax Rate 19.7 20.0 20.0 20.0 NPL / Total Gross Loans 2.2 2.3 2.2 2.2 Business Mix NPL / Total Assets 1.4 1.5 1.5 1.5 Net Int. Inc / Opg Inc. 72.3 69.6 69.0 68.3 Loan Loss Reserve Coverage 126.9 127.9 127.0 118.6 Non-Int. Inc / Opg inc. 27.7 30.4 31.0 31.7 Provision Charge-Off Rate 0.2 0.5 0.5 0.6 Fee Inc / Opg Income 15.2 15.6 16.7 17.8 Capital Strength Oth Non-Int Inc/Opg Inc 12.5 14.8 14.3 13.9 Total CAR 16.7 16.3 16.3 16.1 Profitability Tier-1 CAR 15.5 15.1 15.2 14.9 ROAE Pre Ex. 19.9 20.0 19.8 19.4 Growth ROAE 19.9 20.0 19.8 19.4 Total Net Loans 26 16 13 16 ROA Pre Ex. 2.5 2.5 2.5 2.6 Customer Deposits 13 15 13 15 ROA 2.5 2.5 2.5 2.6

Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 Net Interest Income 5,237 5,290 5,464 5,640 Non-Interest Income 2,295 2,368 2,435 2,487 Operating Income 7,532 7,658 7,899 8,127 Operating Expenses (4,338) (3,447) (3,847) (3,903) Pre-Provision Profit 3,194 4,211 4,052 4,224 Provisions (261) (1,233) (971) (1,104) Associates 0 0 0 0 Exceptionals 0 0 0 0 Pretax Profit 3,165 3,012 3,196 3,384 Taxation (643) (618) (653) (710) Minority Interests 0 0 0 0 Net Profit 2,522 2,394 2,543 2,674

Source: Company, DBS Vickers, DBS Bank

Page 26

Industry Focus Panin Bank

Bloomberg: PNBN IJ | Reuters: PNBN.JK

HOLD Rp1,070 JCI : 5,207.12 Slow but steady Downgrade to HOLD

Price Target : 12-Month Rp 1,230 (Prev Rp 1,100) Potential Catalyst: Insurance to boost fee-based, M&A NPL to be pressured; insurance to boost fee DBSV vs Consensus: Slightly above consensus earnings  based income.

 No progress in M&A story Analyst Christopher Daniel Wijaya +62 21 3003 4935 [email protected]  Expect slow growth this year amid uncertainty  Downgrade to HOLD, raised TP to Rp1,230 LIM Sue Lin +65 66823711 [email protected] Expects NPL to be pressured temporarily. Macroeconomic headwinds may pressure NPL as the bulk of PNBN’s loan book consists of SME loans in the Price Relative

Rp R e la tive In d ex trade industry. PNBN expects NPL to rise by 25-50bps 219 following the fuel price hike and provisions to inch up. 1,386.0 199 1,286.0 179 Fee based income will be boosted by the Panin Life- 1,186.0 159 1,086.0 139 Dai-Ichi tie-up. 986.0 119 886.0 The management 786.0 99 No progress in M&A story. 686.0 79 indicated there has been no progress in claims ANZ was 586.0 59 486.0 39 selling their stake to Mizuho. Earlier this month, ANZ Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 said that they were in no rush to sell the 39% stake in Panin Bank (LHS) R elative JC I IN D EX (R H S) PNBN since it is still yielding attractive returns. Currently, Forecasts and Valuation new regulations require ANZ to subtract the entire value FY Dec (Rp bn) 2013A 2014F 2015F 2016F of overseas minority investments from Tier 1 capital calculation (up from 50% previously). Pre-prov. Profit 3,742 4,499 5,406 6,350 Net Profit 2,260 2,496 3,031 3,576 Expect slow growth due to external factors. PNBN Net Pft (Pre Ex.) 2,260 2,496 3,031 3,576 is still conservative this year as there are many external EPS (Rp) 94 104 126 149 EPS Pre Ex. (Rp) 94 104 126 149 macroeconomic factors - such as BI rates, competition EPS Gth (%) 7 10 21 18 in deposit rates, and maritime loan schemes - which are EPS Gth Pre Ex (%) 7 10 21 18 out of their control. PNBN expects this year’s loan Diluted EPS (Rp) 94 104 126 149 PE Pre Ex. (X) 11.4 10.3 8.5 7.2 growth to reach 12-15% and NIM to be flat. Net DPS (Rp) 0 0 0 0 Downgrade to HOLD; Rp1,230 TP. We downgrade Div Yield (%) 0.0 0.0 0.0 0.0 the stock on the back of strong share price performance ROAE Pre Ex. (%) 12.9 12.7 13.5 13.9 (last 3 months: +32%). Our TP is derived from the ROAE (%) 12.9 12.7 13.5 13.9 ROA (%) 1.6 1.6 1.7 1.8 Gordon Growth Model and assumes 14% ROE, 9% BV Per Share (Rp) 770 867 992 1,141 growth and 13.1% cost of equity (previously 13.1%), P/Book Value (x) 1.4 1.2 1.1 0.9 implying 1.1x FY15 BV. The thin liquidity remains an

overhang, but confirmation of an M&A story could re- rate the stock.

Earnings Rev (%): 0 0 0 Consensus EPS (Rp): 108 122 143 Other Broker Recs: B: 3 S: 0 H: 3 At A Glance Issued Capital (m shrs) 24,088 ICB Industry : Financials Mkt. Cap (Rpbn/US$m) 25,774 / 2,033 ICB Sector: Banks Major Shareholders Principal Business: Panin Bank (PNBN) stay true to their motto " Panin Financial Tbk (%) 46.0 Always for You" with focusing to stay close to their growing niche ANZ Banking Group LTD (%) 38.8 market in order to provide timely banking solution. PNBN mainly Free Float (%) 15.2 services SME loans in the trade industry. Source of all data: Company, DBS Vickers, DBS Bank, Bloomberg Avg. Daily Vol.(‘000) 3,045 Finance L.P

Page 27 www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: MA

Industry Focus

Panin Bank

Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Net Interest Income 5,878 6,775 7,708 8,657 Cash/Bank Balance 19,462 24,845 27,525 30,832 Non-Interest Income 1,337 1,562 1,960 2,569 Government Securities 13,189 11,279 11,873 12,500 Operating Income 7,215 8,337 9,668 11,226 Inter Bank Assets 7,912 9,098 10,463 12,032 Operating Expenses (3,472) (3,838) (4,261) (4,876) Total Net Loans & Advs. 103,072 115,006 131,854 151,215 Pre-provision Profit 3,742 4,499 5,406 6,350 Investment 6,137 6,358 6,590 6,834 Provisions (539) (939) (1,080) (1,242) Associates 0 0 0 0 Associates 0 0 0 0 Fixed Assets 2,441 2,529 2,613 2,691 Exceptionals 0 0 0 0 Goodwill 0 0 0 0 Pre-tax Profit 3,252 3,615 4,389 5,178 Other Assets 11,843 13,661 15,135 16,767 Taxation (798) (904) (1,097) (1,295) Total Assets 164,056 182,776 206,054 232,870 Minority Interests (195) (215) (261) (308) Customer Deposits 120,257 136,100 154,619 175,689 Preference Dividend 0 0 0 0 Inter Bank Deposits 4,876 5,120 5,376 5,644 Net Profit 2,260 2,496 3,031 3,576 Debts/Borrowings 12,618 13,027 13,887 15,305 Net Profit bef Except 2,260 2,496 3,031 3,576 Others 6,347 6,045 6,395 6,571 Minorities 1,408 1,623 1,884 2,192 Shareholders' Funds 18,550 20,862 23,893 27,469 Total Liab& S/H’s Funds 164,056 182,776 206,054 232,870

Profitability & Efficiency Ratios (%) Financial Stability Measures (%) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Mar gins, Costs & Efficiency Balance Sheet Structure Yld. On Earnings Assets 9.10 8.87 8.84 8.79 Loan-to-Deposit Ratio 87.2 86.3 87.3 88.4 Avg Cost Of Funds 5.11 5.20 5.21 5.23 Net Loans / Total Assets 62.8 62.9 64.0 64.9 Spread 3.98 3.68 3.63 3.56 Investment / Total Assets 3.7 3.5 3.2 2.9 Net Interest Margin 4.19 4.14 4.15 4.10 Cust . Dep./Int. Bear. Liab. 85.7 86.6 87.2 87.3 Cost-to-Income Ratio 48.1 46.0 44.1 43.4 Interbank Dep / Int. Bear. 3.5 3.3 3.0 2.8 Employees ( Year End) 7,547 8,297 9,047 9,797 Asset Quality Effective Tax Rate 24.5 25.0 25.0 25.0 NPL / Total Gross Loans 2.1 2.1 2.0 2.0 Business Mix NPL / Total Assets 1.3 1.3 1.3 1.3 Net Int. Inc / Opg Inc. 81.5 81.3 79.7 77.1 Loan Loss Reserve Coverage 80.0 97.5 117.3 130.7 Non-Int. Inc / Opg inc. 18.5 18.7 20.3 22.9 Provision Charge-Off Rate 0.5 0.8 0.8 0.8 Fee Inc / Opg Income 0.8 1.6 3.2 3.1 Capital Strength Oth Non-Int Inc/Opg Inc 17.7 17.1 17.1 19.8 Total CAR 16.3 16.0 15.0 14.3 Profitability Tier-1 CAR 13.3 13.1 12.5 12.0 ROAE Pre Ex. 12.9 12.7 13.5 13.9 Growth ROAE 12.9 12.7 13.5 13.9 Total Net Loans 12 12 15 15 ROA Pre Ex. 1.6 1.6 1.7 1.8 Customer Deposits 17 13 14 14 ROA 1.6 1.6 1.7 1.8

Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 Net Interest Income 1,577 1,475 1,481 1,524 Non-Interest Income 705 389 574 614 Operating Income 2,283 1,864 2,055 2,138 Operating Expenses (1,249) (842) (1,024) (1,021) Pre-Provision Profit 1,033 1,023 1,031 1,117 Provisions (348) (118) 2 (283) Associates 0 0 0 0 Exceptionals 0 0 0 0 Pretax Profit 702 951 1,072 880 Taxation (249) (227) (242) (214) Minority Interests 75 (48) 36 0 Net Profit 528 675 867 667

Source: Company, DBS Vickers, DBS Bank

Page 28

Industry Focus Bank Tabungan Negara

Bloomberg: BBTN IJ | Reuters: BBTN.JK

FULLY VALUED Rp1,205 JCI : 5,207.12 NPL issue still not resolved Price Target : 12-Month Rp 940 Potential Catalyst: Improvement in NPLs, M&A news DBSV vs Consensus: Slightly below consensus earnings  Continues to struggle with high NPLs

Analyst  Subsidised mortgage scheme extended Christopher Daniel Wijaya +62 21 3003 4935 [email protected] Cut FY15-16F earnings by 22-27% after raising  cost of funds and provision assumptions LIM Sue Lin +65 66823711 [email protected]  Maintain Fully Valued; Rp940 TP

High NPLs. NPL ratio as 4.85% at end-Sep14, but we Price Relative expect an improvement in FY14 results. The bank is Rp R e la tive In d ex targeting 3.3-3.5% by end-Dec15, premised on 222 1,756.0 202 improving collections and restructuring efforts by the 182 1,556.0 162 remedial and asset management divisions. IOBP loans 142 1,356.0 will continue to taper down by Rp50bn a month. 122 1,156.0 102 82 956.0 Last year, 62 Subsidised mortgage scheme extended. 756.0 42 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 the previous government had released a regulation to

Bank Tabung an Neg ara (LHS) R elative JC I IN D EX (R H S) abolish subsidised mortgage (FLPP) for landed houses by March 2015. But the current housing ministry has Forecasts and Valuation agreed to revise the regulation to extend the program, FY Dec (Rp bn) 2013A 2014F 2015F 2016F although it will regulate locations where low-cost Pre-prov. Profit 2,568 2,110 2,332 2,666 landed houses may be built. Meanwhile, BBTN has Net Profit 1,562 1,044 1,219 1,494 securitised Rp1.5tr of mortgages recently and plans to Net Pft (Pre Ex.) 1,562 1,044 1,219 1,494 EPS (Rp) 151 101 118 144 securitise Rp3tr this year to keep CAR at 15-16%. EPS Pre Ex. (Rp) 151 101 118 144 EPS Gth (%) 15 (33) 17 23 We nudged up cost of fund by c.10bps EPS Gth Pre Ex (%) 15 (33) 17 23 Cut earnings. Diluted EPS (Rp) 151 101 118 144 after the BI rate hike. We also raised NPL ratio to PE Pre Ex. (X) 8.0 11.9 10.2 8.3 3.5/3.4% in 2015/2016 (previously 3.2/3.1%), and Net DPS (Rp) 40 45 30 35 subsequently lifted provisions by 11/14%. Div Yield (%) 3.3 3.8 2.5 2.9 ROAE Pre Ex. (%) 14.3 8.8 9.7 11.0 ROAE (%) 14.3 8.8 9.7 11.0 Maintain FULLY VALUED, Rp940 TP. Our TP is based ROA (%) 1.3 0.7 0.8 0.8 on the Gordon Growth Model and assumes 13.0% ROE BV Per Share (Rp) 1,116 1,172 1,259 1,368 (previously 13.6%), 7.7% growth (previously 9.1%) and P/Book Value (x) 1.1 1.0 1.0 0.9 14.7% cost of equity (previously 15.2%), and implies 0.8x FY15 BV. There is limited near-term catalyst with the bank still struggling with high cost of funds and NPL issues. But an M&A story could re-rate the stock. Earnings Rev (%): 0 (22) (27) Consensus EPS (Rp): 113 145 180 Other Broker Recs: B: 9 S: 2 H: 11 At A Glance Issued Capital (m shrs) 10,568 ICB Industry : Financials ICB Sector: Financial Services Mkt. Cap (Rpbn/US$m) 12,734 / 1,004 Principal Business: Bank Tabungan Negara (BBTN) provides Major Shareholders commercial banking services. 88% of its loan book is related to Government of Indonesia (%) 60.1 property loans. BBTN specialises in subsidised mortgage loans and Free Float (%) 39.9 has the largest market share in this segment. Avg. Daily Vol.(‘000) 22,296 Source of all data: Company, DBS Vickers, DBS Bank, Bloomberg Finance L.P

Page 29 www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: MA

Industry Focus

Bank Tabungan Negara

Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Net Interest Income 5,653 5,690 6,467 7,377 Cash/Bank Balance 11,183 14,044 17,192 20,842 Non-Interest Income 764 827 976 1,152 Government Securities 8,385 9,223 10,146 11,160 Operating Income 6,417 6,516 7,442 8,529 Inter Bank Assets 4,839 5,662 5,945 6,242 Operating Expenses (3,849) (4,407) (5,110) (5,863) Total Net Loans & Advs. 99,330 111,903 130,752 152,954 Pre-provision Profit 2,568 2,110 2,332 2,666 Investment 4,202 5,454 4,897 4,641 Provisions (432) (684) (667) (625) Associates 0 0 0 0 Associates 0 0 0 0 Fixed Assets 1,523 1,374 1,210 1,031 Exceptionals 0 0 0 0 Goodwill 0 0 0 0 Pre-tax Profit 2,141 1,431 1,671 2,048 Other Assets 1,707 1,670 1,689 1,679 Taxation (579) (387) (452) (553) Total Assets 131,170 149,330 171,830 198,550 Minority Interests 0 0 0 0 Customer Deposits 96,208 113,281 133,445 157,267 Preference Dividend 0 0 0 0 Inter Bank Deposits 275 491 383 437 Net Profit 1,562 1,044 1,219 1,494 Debts/Borrowings 15,910 16,705 18,004 19,805 Net Profit bef Except 1,562 1,044 1,219 1,494 Others 7,220 6,720 6,959 6,874 Minorities 0 0 0 0 Shareholders' Funds 11,557 12,132 13,039 14,167 Total Liab& S/H’s Funds 131,170 149,330 171,830 198,550

Profitability & Efficiency Ratios (%) Financial Stability Measures (%) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Mar gins, Costs & Efficiency Balance Sheet Structure Yld. On Earnings Assets 9.81 9.59 9.49 9.42 Loan-to-Deposit Ratio 104.4 100.2 99.5 98.8 Avg Cost Of Funds 4.96 5.31 5.15 5.04 Net Loans / Total Assets 75.7 74.9 76.1 77.0 Spread 4.85 4.28 4.34 4.37 Investment / Total Assets 3.2 3.7 2.8 2.3 Net Interest Margin 5.14 4.50 4.48 4.44 Cust . Dep./Int. Bear. Liab. 85.8 87.1 88.1 88.8 Cost-to-Income Ratio 60.0 67.6 68.7 68.7 Interbank Dep / Int. Bear. 0.2 0.4 0.3 0.2 Employees ( Year End) 0 0 0 0 Asset Quality Effective Tax Rate 27.0 27.0 27.0 27.0 NPL / Total Gross Loans 4.0 3.9 3.5 3.4 Business Mix NPL / Total Assets 3.1 3.0 2.7 2.7 Net Int. Inc / Opg Inc. 88.1 87.3 86.9 86.5 Loan Loss Reserve Coverage 28.0 36.7 44.6 46.5 Non-Int. Inc / Opg inc. 11.9 12.7 13.1 13.5 Provision Charge-Off Rate 0.4 0.6 0.5 0.4 Fee Inc / Opg Income 6.1 7.8 8.1 8.3 Capital Strength Oth Non-Int Inc/Opg Inc 5.8 4.9 5.0 5.2 Total CAR 16.0 15.1 14.1 13.4 Profitability Tier-1 CAR 14.9 13.8 12.9 12.1 ROAE Pre Ex. 14.3 8.8 9.7 11.0 Growth ROAE 14.3 8.8 9.7 11.0 Total Net Loans 23 13 17 17 ROA Pre Ex. 1.3 0.7 0.8 0.8 Customer Deposits 19 18 18 18 ROA 1.3 0.7 0.8 0.8

Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 Net Interest Income 1,505 1,439 1,237 1,307 Non-Interest Income 332 216 174 202 Operating Income 1,837 1,655 1,411 1,509 Operating Expenses (1,011) (945) (1,048) (1,027) Pre-Provision Profit 826 710 363 482 Provisions (116) (244) (86) (175) Associates 0 0 0 0 Exceptionals 0 0 0 0 Pretax Profit 705 458 283 308 Taxation (200) (117) (85) (92) Minority Interests 0 0 0 0 Net Profit 505 341 198 216

Source: Company, DBS Vickers, DBS Bank

Page 30

Industry Focus Bank Tabungan Pensiunan Nasional

Bloomberg: BTPN IJ | Reuters: BTPN.JK

HOLD Rp3,990 JCI : 5,207.12 (Downgrade from BUY) Seeking alternative funding Price Target : 12-Month Rp 4,600 (Prev Rp 5,200) Potential Catalyst: Growth of productive poor and micro segments; Funding boosted by foreign borrowings and manage cost of funds through alternative funding DBSV vs Consensus: Below consensus earnings  SMBC facilities Micro and productive poor segments remain Analyst Christopher Daniel Wijaya +62 21 3003 4935  growth drivers; cost of funds under pressure [email protected]  Trimmed FY14-16F earnings by -1-4%

LIM Sue Lin +65 66823711  Downgrade to HOLD; Rp4,600 TP [email protected]

Alternative funding. LDR is high at 97% (9M14), but OJK is now looking at LFR (9M14: 87%) for BTPN Price Relative because most of their funding comes from liquid assets Rp R e la tive In d ex

6,435.0 such as structured funding from SMBC. BTPN is also in 212 5,935.0 192 talks with BI for a direct swap facility to get forex loans 5,435.0 4,935.0 172 from its parent and other banks. All in swap cost for 4,435.0 152 3,935.0 132 US$ loan is about 7.5%, much cheaper than deposits. 3,435.0 112 2,935.0 2,435.0 92 This includes the 1,935.0 72 Growth driven by micro segment. Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Bank Tabung an Pensiunan Nasional (LHS) productive poor and the sub-segment who will R elative JC I IN D EX (R H S) “graduate’ to micro segment. BTPN expects loans to Forecasts and Valuation grow by c.15% in 2015. Despite the deposit rate cap, BTPN believes the fuel price hike will pressure cost of FY Dec (Rp bn) 2013A 2014F 2015F 2016F funds in 2015. NIM should be similar to 2014 levels. Pre-prov. Profit 3,469 3,538 3,810 4,427 Net Profit 2,131 2,087 2,252 2,672 Net Pft (Pre Ex.) 2,131 2,087 2,252 2,672 Cut earnings on slower growth and higher cost of EPS (Rp) 376 369 398 472 We adjusted BPTN’s funding mix to include EPS Pre Ex. (Rp) 376 369 398 472 funds. EPS Gth (%) 8 (2) 8 19 alternative funding. We also trimmed FY15/16F loan EPS Gth Pre Ex (%) 8 (2) 8 19 growth to 15%/16% (previously 16/18%) and raised Diluted EPS (Rp) 376 369 398 472 cost of funds due to the BI rate hike. All in, we cut PE Pre Ex. (X) 10.6 10.8 10.0 8.5 FY14-16F earnings by 1-4%. Net DPS (Rp) 0 0 0 119 Div Yield (%) 0.0 0.0 0.0 3.0 ROAE Pre Ex. (%) 24.2 19.0 17.1 17.5 Downgrade to HOLD; TP lowered to Rp4,600. Our ROAE (%) 24.2 19.0 17.1 17.5 TP is based on the Gordon Growth Model and assumes ROA (%) 3.3 2.8 2.8 2.9 BV Per Share (Rp) 1,749 2,120 2,518 2,871 18% ROE, 10% growth, and 14.4% cost of equity P/Book Value (x) 2.3 1.9 1.6 1.4 (previously 14.2%), and implies 1.8x FY15 BV. We believe smaller, interest-rate sensitive banks such as

Earnings Rev (%): (1) (2) (4) BTPN will continue to struggle with cost of funds and Consensus EPS (Rp): 347 420 510 NPLs at the micro operation. Other Broker Recs: B: 9 S: 4 H: 5

ICB Industry : Financials ICB Sector: Banks At A Glance Principal Business: BTPN specializes in pension loans and currently Issued Capital (m shrs) 5,840 on a strong growth mode for micro loans and loans to the Mkt. Cap (Rpbn/US$m) 26,048 / 2,161 productive poor. Funding profile largely hinges on time deposits, Major Shareholders bonds (wholesale funding) and alternative funding. TPG Nusantara (%) 25.9 Source of all data: Company, DBS Vickers, DBS Bank, Bloomberg Sumitomo Mitsui Financial 40.0 Finance L.P Free Float (%) 34.1 Avg. Daily Vol.(‘000) 137

Page 31 www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: MA

Industry Focus

Bank Tabungan Pensiunan Nasional

Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Net Interest Income 7,048 7,579 8,397 9,597 Cash/Bank Balance 5,432 6,487 6,869 8,451 Non-Interest Income 400 460 505 611 Government Securities 7,434 7,434 7,434 7,434 Operating Income 7,449 8,039 8,902 10,208 Inter Bank Assets 4,999 5,499 6,049 6,654 Operating Expenses (3,980) (4,501) (5,092) (5,780) Total Net Loans & Advs. 46,223 52,369 60,000 69,702 Pre-provision Profit 3,469 3,538 3,810 4,427 Investment 2,913 3,188 3,491 3,824 Provisions (591) (745) (796) (852) Associates 0 0 0 0 Associates 0 0 0 0 Fixed Assets 755 520 274 15 Exceptionals 0 0 0 0 Goodwill 0 0 0 0 Pre-tax Profit 2,869 2,783 3,003 3,563 Other Assets 1,908 1,836 1,872 1,854 Taxation (738) (696) (751) (891) Total Assets 69,665 77,334 85,988 97,934 Minority Interests 0 0 0 0 Customer Deposits 52,406 57,510 63,162 71,872 Preference Dividend 0 0 0 0 Inter Bank Deposits 16 11 14 12 Net Profit 2,131 2,087 2,252 2,672 Debts/Borrowings 6,450 7,224 7,986 9,219 Net Profit bef Except 2,131 2,087 2,252 2,672 Others 885 580 566 573 Minorities 0 0 0 0 Shareholders' Funds 9,908 12,009 14,261 16,258 Total Liab& S/H’s Funds 69,665 77,334 85,988 97,934

Profitability & Efficiency Ratios (%) Financial Stability Measures (%) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Mar gins, Costs & Efficiency Balance Sheet Structure Yld. On Earnings Assets 19.14 19.20 19.19 19.18 Loan-to-Deposit Ratio 89.1 92.6 96.9 98.8 Avg Cost Of Funds 7.12 8.16 8.50 8.47 Net Loans / Total Assets 66.4 67.7 69.8 71.2 Spread 12.02 11.04 10.70 10.71 Investment / Total Assets 4.2 4.1 4.1 3.9 Net Interest Margin 12.33 11.53 11.37 11.48 Cust . Dep./Int. Bear. Liab. 89.0 88.8 88.8 88.6 Cost-to-Income Ratio 53.4 56.0 57.2 56.6 Interbank Dep / Int. Bear. 0.0 0.0 0.0 0.0 Employees ( Year End) 0 0 0 0 Asset Quality Effective Tax Rate 25.7 25.0 25.0 25.0 NPL / Total Gross Loans 0.7 0.8 0.8 0.8 Business Mix NPL / Total Assets 0.4 0.6 0.6 0.6 Net Int. Inc / Opg Inc. 94.6 94.3 94.3 94.0 Loan Loss Reserve Coverage 157.7 195.6 240.3 222.9 Non-Int. Inc / Opg inc. 5.4 5.7 5.7 6.0 Provision Charge-Off Rate 1.3 1.4 1.3 1.2 Fee Inc / Opg Income 5.4 5.7 5.7 6.0 Capital Strength Oth Non-Int Inc/Opg Inc 0.0 0.0 0.0 0.0 Total CAR 20.3 22.0 23.1 24.0 Profitability Tier-1 CAR 19.1 20.8 21.9 22.7 ROAE Pre Ex. 24.2 19.0 17.1 17.5 Growth ROAE 24.2 19.0 17.1 17.5 Total Net Loans 19 13 15 16 ROA Pre Ex. 3.3 2.8 2.8 2.9 Customer Deposits 16 10 10 14 ROA 3.3 2.8 2.8 2.9

Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 Net Interest Income 1,773 1,734 1,799 1,698 Non-Interest Income 125 143 185 233 Operating Income 1,897 1,876 1,984 1,930 Operating Expenses (1,087) (1,033) (1,098) (1,124) Pre-Provision Profit 810 843 887 806 Provisions (185) (172) (201) (226) Associates 0 0 0 0 Exceptionals 0 0 0 0 Pretax Profit 623 668 681 576 Taxation (279) (174) (177) (148) Minority Interests 0 0 0 0 Net Profit 344 494 503 429

Source: Company, DBS Vickers, DBS Bank

Page 32

Industry Focus BFI Finance Ind

Bloomberg: BFIN IJ | Reuters: BFIN.JK

BUY Rp2,400 JCI : 5,207.12 Driven by commercial 4W Price Target : 12-months Rp 3,100 Potential Catalyst: Growth of commercial 4W segment, ample funding from diversified sources, M&A  Commercial 4W segment to remain growth DBSV vs Consensus: N/A driver; leasing will continue to be flat

 Higher cost of funds will be passed on to Analyst Christopher Daniel Wijaya +62 21 3003 4935 customers, so NIM should be stable [email protected]  Trimmed FY15F earnings by 5% after adjusting

LIM Sue Lin +65 66823711 for slower growth [email protected]  Maintain BUY, Rp3,100 TP

Commercial 4W segment to drive growth. BFIN Price Relative expects new car sales to be soft following the fuel price Rp R e la tive In d ex hike but rebound soon. The commercial 4W financing 208 3,692.5 segment will remain the bank’s major growth driver. 188 3,192.5 168 Leasing will remain flat with no signs of commodity 2,692.5 148 prices recovering. Both total receivables and funding are 128 2,192.5 108 expected to grow by 12-15% in 2015. BFI plans to issue 1,692.5 88 additional Rp1tr bonds in 2Q15. 1,192.5 68 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 BFIN expects cost BFI Finance Ind (LHS) R elative JC I IN D EX (R H S) Expect pressure on cost of funds. of fund to rise by 100bps this year due to the fuel price Forecasts and Valuation hike and possible Fed rate hike. But they are confident FY Dec (Rp bn) 2013A 2014F 2015F 2016F of passing on incremental costs to customers to Pre-prov. Profit 775 818 885 1,000 maintain NIM. NPL will tick up but there will not be Net Profit 509 562 618 706 major (negative) surprises. BFIN plans to open 20 more Net Pft (Pre Ex.) 509 562 618 706 EPS (Rp) 334 370 406 464 branches this year. EPS Pre Ex. (Rp) 334 370 406 464 EPS Gth (%) 4 11 10 14 Cut FY15F earnings by 5%. We trimmed FY15F/16F EPS Gth Pre Ex (%) 4 11 10 14 total receivables growth to 13/18% (from 22%) and Diluted EPS (Rp) 334 370 406 464 funding growth accordingly, and raised cost of funds to PE Pre Ex. (X) 7.2 6.5 5.9 5.2 Net DPS (Rp) 0 141 154 176 11.3%/11% (from 10.9%). Div Yield (%) 0.0 5.9 6.4 7.4 ROAE Pre Ex. (%) 16.3 15.7 15.7 16.2 Maintain BUY, Rp3,100 TP. Our TP is based on the ROAE (%) 16.3 15.7 15.7 16.2 Gordon Growth Model and assumes 16% ROE, 10% ROA (%) 6.8 6.2 5.9 5.9 growth and 14.5% cost of equity (previously 14.9%), BV Per Share (Rp) 2,234 2,463 2,715 3,003 P/Book Value (x) 1.1 1.0 0.9 0.8 and implies 1.25x FY15 BV. BFIN will be resilient amid current macro headwinds. Over the longer term, its unique business model will remain an asset. News of M&As could boost valuation. Earnings Rev (%): 0 (5) 2 Consensus EPS (Rp): 382 442 491 Other Broker Recs: B: 3 S: 0 H: 0 At A Glance Issued Capital (m shrs) 1,550 ICB Industry : Financials ICB Sector: General Financial Mkt. Cap (Rpbn/US$m) 3,720 / 293 Principal Business: BFI Finance (BFIN) is a financing company Major Shareholders focusing on consumer financing business, both dealer generated Trinugraha Capital & Co (%) 44.0 and direct lending. The company is 44.0% owned by a consortium The NT TST Co S A Equinox (%) 8.0 comprising of TPG Capital, Northstar Equity Partners and Boy Credit Suisse (%) 14.0 Garibaldi Thohir. Free Float (%) 48.0 Source of all data: Company, DBS Vickers, DBS Bank, Bloomberg Avg. Daily Vol.(‘000) 252 Finance L.P

Page 33 www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: MA

Industry Focus

BFI Finance

Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Net Interest Income 1,102 1,291 1,480 1,734 Cash/Bank Balance 225 125 139 32 Non-Interest Income 365 350 396 462 Government Securities 0 0 0 0 Operating Income 1,467 1,641 1,876 2,196 Inter Bank Assets 0 0 0 0 Operating Expenses (693) (824) (991) (1,195) Total Net Loans & Advs. 7,239 8,863 10,008 11,901 Pre-provision Profit 775 818 885 1,000 Investment 0 0 0 0 Provisions (107) (115) (113) (118) Associates 0 0 0 0 Associates 0 0 0 0 Fixed Assets 414 441 445 448 Exceptionals 0 0 0 0 Goodwill 0 0 0 0 Pre-tax Profit 667 703 772 882 Other Assets 415 415 415 415 Taxation (159) (141) (154) (176) Total Assets 8,293 9,845 11,007 12,796 Minority Interests 0 0 0 0 Customer Deposits 0 0 0 0 Preference Dividend 0 0 0 0 Inter Bank Deposits 0 0 0 0 Net Profit 509 562 618 706 Debts/Borrowings 4,626 5,888 6,668 8,019 Net Profit bef Except 509 562 618 706 Others 270 210 210 210 Minorities 0 0 0 0 Shareholders' Funds 3,397 3,746 4,129 4,566 Total Liab& S/H’s Funds 8,293 9,844 11,007 12,796

Profitability & Efficiency Ratios (%) Financial Stability Measures (%) FY Dec 2013A 2014F 2015F 2016F FY Dec 2013A 2014F 2015F 2016F Mar gins, Costs & Efficiency Balance Sheet Structure Yld. On Earnings Assets 18.52 19.76 20.14 20.27 Loan-to-Deposit Ratio 158.8 152.7 152.2 150.1 Avg Cost Of Funds 10.38 11.40 11.29 11.00 Net Loans / Total Assets 87.3 90.0 90.9 93.0 Spread 8.15 8.36 8.85 9.27 Investment / Total Assets 0.0 0.0 0.0 0.0 Net Interest Margin 13.38 13.50 13.62 13.83 Cust . Dep./Int. Bear. Liab. 0.0 0.0 0.0 0.0 Cost-to-Income Ratio 47.2 50.2 52.8 54.4 Interbank Dep / Int. Bear. 0.0 0.0 0.0 0.0 Employees ( Year End) 5,916 6,332 6,592 6,852 Asset Quality Effective Tax Rate 23.8 20.0 20.0 20.0 NPL / Total Gross Loans 1.8 1.7 1.6 1.4 Business Mix NPL / Total Assets 1.6 1.5 1.5 1.3 Net Int. Inc / Opg Inc. 75.1 78.7 78.9 79.0 Loan Loss Reserve Coverage 79.1 87.0 84.9 82.5 Non-Int. Inc / Opg inc. 24.9 21.3 21.1 21.0 Provision Charge-Off Rate 1.5 1.3 1.1 1.0 Fee Inc / Opg Income 22.8 19.7 19.7 19.9 Capital Strength Oth Non-Int Inc/Opg Inc 2.1 1.6 1.4 1.1 Total CAR 0.0 0.0 0.0 0.0 Profitability Tier-1 CAR 0.0 0.0 0.0 0.0 ROAE Pre Ex. 16.3 15.7 15.7 16.2 Growth ROAE 16.3 15.7 15.7 16.2 Total Net Loans 22 22 13 19 ROA Pre Ex. 6.8 6.2 5.9 5.9 Customer Deposits N/A N/A N/A N/A ROA 6.8 6.2 5.9 5.9

Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 Net Interest Income 287 313 316 327 Non-Interest Income 101 105 131 121 Operating Income 388 418 447 448 Operating Expenses (177) (203) (218) (204) Pre-Provision Profit 211 216 230 245 Provisions (28) (42) (58) (47) Associates 0 0 0 0 Exceptionals 0 0 0 0 Pretax Profit 183 173 172 198 Taxation (62) (43) (43) (49) Minority Interests 0 0 0 0 Net Profit 121 130 129 149

Source: Company, DBS Vickers, DBS Bank

Page 34

Industry Focus Clipan Finance

Bloomberg: CFIN IJ | Reuters: CFIN.JK

HOLD Rp430 JCI : 5,207.12 Limited market for factoring Price Target : 12-months Rp 490 Potential Catalyst: Revival of factoring market, potential to finance working capital loans Consumer financing will continue to drive DBSV vs Consensus: N/A  growth; small market for factoring

Analyst  Funding cost to remain high; slow bookings Christopher Daniel Wijaya +62 21 3003 4935 [email protected] Trimmed FY15F/16F earnings by 10/8% after  reducing NIM and lifting provisions LIM Sue Lin +65 66823711 [email protected]  Maintain HOLD, Rp 490 TP

Consumer financing to drive growth. Factoring Price Relative receivables fell (9M14: -17% y-o-y) contrary to our Rp R e la tive In d ex expectation. Although there is little competition in the 888.0 206 factoring business, the management claims the market 788.0 186 166 is small with volatile growth. CFIN believes consumer 688.0 146 financing will continue to drive growth and are 588.0 126 488.0 106 expanding their dealer network. 86 388.0 66 288.0 46 Given the possible Fed rate Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Another slow year ahead.

Clipan Finance (LHS) R elative JC I IN D EX (R H S) hike and other macroeconomic headwinds, cost of funds will remain under pressure and bookings will be Forecasts and Valuation slow. The management guided that financing FY Dec (Rp bn) 2013F 2014F 2015F 2016F receivables would grow by 8%-15% in 2015. They Pre-prov. Profit 575 648 705 796 expect the heavy equipment leasing segment to be Net Profit 390 416 457 524 muted. Net Pft (Pre Ex.) 390 416 457 524 EPS (Rp) 103 110 121 139 EPS Pre Ex. (Rp) 103 110 121 139 Cut FY15F/16F earnings. We trimmed FY15-16F total EPS Gth (%) 13 7 10 15 receivables growth to 11%/13% (from 14%/14%). We EPS Gth Pre Ex (%) 13 7 10 15 Diluted EPS (Rp) 103 110 121 139 also cut NIM after raising cost of funds and reducing PE Pre Ex. (X) 4.2 3.9 3.6 3.1 lending rates. NPL was also adjusted up to 1.6% (from Net DPS (Rp) 18 22 24 28 1.4% previously), leading to 18% higher provision. Div Yield (%) 4.2 5.1 5.6 6.5 ROAE Pre Ex. (%) 15.0 14.2 13.9 14.3 ROAE (%) 15.0 14.2 13.9 14.3 Maintain HOLD, Rp490 TP. Our TP is based on the ROA (%) 7.1 6.5 6.4 6.6 Gordon Growth Model (14.5% ROE, 12% growth, BV Per Share (Rp) 732 821 917 1,029 16.8% cost of equity) and implies 0.5x FY15 BV. CFIN’s P/Book Value (x) 0.6 0.5 0.5 0.4 cost-to-income ratio and gearing are better than BFIN’s, but its unique factoring business is weak. BFIN also has smaller exposure to the mining sector than CFIN.

Earnings Rev (%): 0 (10) (8) Consensus EPS (Rp): 107 123 132 At A Glance Other Broker Recs: B: 1 S: 0 H: 1 Issued Capital (m shrs) 3,985

Mkt. Cap (Rpbn/US$m) 1,713 / 135 ICB Industry : Financials Major Shareholders ICB Sector: General Financial Principal Business: Clipan Finance (CFIN) provides consumer Bank Pan Indonesia TBK (%) 54.4 financing, leasing and factoring services. The multi-finance company Mackenzie Financial Corporation 13.8 was establisehd in 1982 and is a part of Panin Group. Currently, Free Float (%) 31.9 54.4% owned by Panin Bank. Avg. Daily Vol.(‘000) 352 Source of all data: Company, DBS Vickers, DBS Bank, Bloomberg Finance L.P

Page 35 www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: MA

Industry Focus

Clipan Finance

Income Statement (Rp bn) Balance Sheet (Rp bn) FY Dec 2013F 2014F 2015F 2016F FY Dec 2013F 2014F 2015F 2016F Net Interest Income 578 634 688 778 Cash/Bank Balance 96 121 190 230 Non-Interest Income 126 149 165 182 Government Securities 51 0 0 0 Operating Income 704 783 854 960 Inter Bank Assets 0 0 0 0 Operating Expenses (129) (135) (148) (164) Total Net Loans & Advs. 5,824 6,522 7,213 8,090 Pre-provision Profit 575 648 705 796 Investment 0 0 0 0 Provisions (61) (100) (104) (106) Associates 0 0 0 0 Associates 0 0 0 0 Fixed Assets 42 49 54 58 Exceptionals 0 0 0 0 Goodwill 0 0 0 0 Pre-tax Profit 514 548 601 690 Other Assets 61 61 61 61 Taxation (124) (131) (144) (166) Total Assets 6,074 6,754 7,519 8,439 Minority Interests 0 0 0 0 Customer Deposits 0 0 0 0 Preference Dividend 0 0 0 0 Inter Bank Deposits 0 0 0 0 Net Profit 390 416 457 524 Debts/Borrowings 3,146 3,517 3,917 4,417 Net Profit bef Except 390 416 457 524 Others 163 139 139 139 Minorities 0 0 0 0 Shareholders' Funds 2,765 3,098 3,463 3,882 Total Liab& S/H’s Funds 6,074 6,754 7,519 8,439

Profitability & Efficiency Ratios (%) Financial Stability Measures (%) FY Dec 2013F 2014F 2015F 2016F FY Dec 2013F 2014F 2015F 2016F Mar gins, Costs & Efficiency Balance Sheet Structure Yld. On Earnings Assets 15.73 16.37 16.09 16.08 Loan-to-Deposit Ratio 186.3 188.0 187.6 187.2 Avg Cost Of Funds 9.99 12.20 12.51 12.35 Net Loans / Total Assets 95.9 96.6 95.9 95.9 Spread 5.74 4.16 3.57 3.74 Investment / Total Assets 0.0 0.0 0.0 0.0 Net Interest Margin 10.70 9.97 9.60 9.68 Cust . Dep./Int. Bear. Liab. 0.0 0.0 0.0 0.0 Cost-to-Income Ratio 18.4 17.2 17.4 17.1 Interbank Dep / Int. Bear. 0.0 0.0 0.0 0.0 Employees ( Year End) 1,008 1,228 1,448 1,668 Asset Quality Effective Tax Rate 24.1 24.0 24.0 24.0 NPL / Total Gross Loans 1.1 1.3 1.4 1.3 Business Mix NPL / Total Assets 1.1 1.3 1.4 1.3 Net Int. Inc / Opg Inc. 82.1 81.0 80.6 81.1 Loan Loss Reserve Coverage 59.1 103.5 130.8 166.2 Non-Int. Inc / Opg inc. 17.9 19.0 19.4 18.9 Provision Charge-Off Rate 1.0 1.5 1.4 1.3 Fee Inc / Opg Income 10.6 12.4 13.3 13.6 Capital Strength Oth Non-Int Inc/Opg Inc 7.3 6.6 6.0 5.4 Total CAR 0.0 0.0 0.0 0.0 Profitability Tier-1 CAR 0.0 0.0 0.0 0.0 ROAE Pre Ex. 15.0 14.2 13.9 14.3 Growth ROAE 15.0 14.2 13.9 14.3 Total Net Loans 29 12 11 12 ROA Pre Ex. 7.1 6.5 6.4 6.6 Customer Deposits N/A N/A N/A N/A ROA 7.1 6.5 6.4 6.6

Quarterly / Interim Income Statement (Rpbn) FY Dec 4Q2013 1Q2014 2Q2014 3Q2014 Net Interest Income 158 159 145 152 Non-Interest Income 31 25 28 25 Operating Income 189 184 173 177 Operating Expenses (40) (34) (31) (35) Pre-Provision Profit 150 150 142 142 Provisions (31) (20) (4) (5) Associates 0 0 0 0 Exceptionals 0 0 0 0 Pretax Profit 119 130 138 137 Taxation (32) (32) (32) (33) Minority Interests 0 0 0 0 Net Profit 87 98 106 104

Source: Company, DBS Vickers, DBS Bank

Page 36

Industry Focus

Indonesian Banks and Multifinance Companies

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months.

ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates does not has a proprietary position the company recommended in this report as of 30 Sep 2014.

2. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% of any class of common equity securities of the company mentioned as of 30 Sep 2014.

3. Compensation for investment banking services: DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from the

Page 37

Industry Focus Indonesian Banks and Multifinance Companies

company mentioned.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR") (formerly known as HwangDBS Vickers Research Sdn Bhd). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of Kingdom the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

Page 38