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Equity Research Thursday, September 10, 2015 MORNING HIGHLIGHT FROM EQUITY RESEARCH Key Index Chg Ytd Vol Close ADHI: LRT projects groundbreaking: a good start! (%) (%) (US$ m) (ADHI IJ. Rp 2,270. BUY. TP Rp 3,700) Asean - 5 The long-awaited groundbreaking of the Light Rail Transit (LRT) project Indonesia 4,347 0.7 (16.8) 301 finally took place yesterday thanks to the issuance of presidential decree Thailand 1,396 1.2 (6.8) 1,269 no.98 year 2015. This clearly demonstrates the government’s commitment Philippines 6,942 0.7 (4.0) 156 to getting the project off the ground. As stated in this decree, the Malaysia 1,603 1.0 (9.0) 390 government has appointed ADHI as the main contractor to build the Singapore 2,928 1.5 (13.0) 887 project’s infrastructure which shall encompass six routes within Jakarta, Regional Bogor, Depok and Bekasi. On top of this, the government has stepped up to China 3,243 2.3 0.3 40,820 be the project owner. This is a positive for ADHI, we believe, since the Hong Kong 22,131 4.1 (6.2) 14,978 company will be able to undertake the construction works without its Japan 18,196 (3.1) 4.3 1,142 balance sheet being burdened. All in all, we believe this is a good start for Korea 1,925 (0.5) 0.5 4,425 the greater plan of integrating mass public transportation in the Greater Taiwan 8,287 3.6 (11.0) 3,613 Jakarta area. However, the project is not without risks. These mainly relate India 25,720 1.6 (6.5) 445 to the price settlement and payment method between the contractors and NASDAQ 4,757 (1.2) 0.4 79,389 government in the future. Dow Jones 16,254 (1.4) (8.8) 9,550 Previous Reports: Currency and Interest Rate w-w m-m ytd Rate . BMRI: Improvements will take time-Snapshot20150908 (%) (%) (%) . SMRA: Asset transfer to subsidiary-Snapshot20150904 Rupiah Rp/1US$ 14,262 (0.9) (5.2) (15.1) . 7M15-Snapshot20150903 SBI rate % 6.75 0.1 0.1 (0.5) . PGAS: No signs of recovery yet, 7M15-Snapshot20150902 10y Gov Indo bond 9.14 0.3 0.7 1.3 . ADRO: Maintain quarterly net profit, TINS: Gain on revaluation Hard Commodities recovered earnings in 2Q15-Snapshot20150901 d-d m-m ytd Unit Price . SIDO: Enticing valuation on this producer of herbal products- (%) (%) (%) Snapshot20150831 Coal US$/ton 58 (0.5) (3.7) (7.2) Gold US$/toz 1,107 (0.1) 0.2 (6.6) MARKET NEWS Nickel US$/mt.ton 10,073 1.0 (6.4) (33.2) *Analysts’ comment inside Tin US$/mt.ton . Jokowi aims to get real sector moving amid weak economy (TJP) 15,220 0.6 (0.7) (21.7) . BI survey: August retail sales grow 4.8% (TJP) Soft Commodities d-d m-m ytd . Govt kick off construction of Jakarta LRT (TJP/ID) Unit Price . House of Rep Asking BBRI to Lower its Lending Rates (BI) (%) (%) (%) . ITMG set to participate in power plant tender (ID) Cocoa US$/mt.ton 3,263 0.7 2.9 9.8 . Pertamina pairs with WIKA to produce hybrid asphalt (TJP/ID) Corn US$/mt.ton 133 0.4 (3.3) (6.9) . PPRO to issue IDR 300bn MTN (TJP) Crude Oil US$/barrel 47 (0.3) (5.9) (17.2) . TLKM terminates share-swap deal with TBIG (TJP) Palm oil MYR/mt.ton 1,944 1.1 (2.6) (15.4) Rubber USd/kg . WSKT Seeks Rp10tn Funding (BI/TJP) 126 (0.3) (8.2) (17.5) Pulp US$/tonne 840 N/A (1.1) (9.9) IDX ANNOUNCEMENT Coffee US$/60kgbag 86 1.2 3.6 23.8 Buyback schedule Sugar US$/MT 346 0.4 0.2 (11.6) Max buyback Max price/share Wheat US$/ton Code Buyback period 129 0.4 (10.4) (22.9) (Rp bn) (Rp) MPMX 24-Aug 23-Nov 50 1,000 RALS 25-Aug 24-Nov 400 --.-- ARNA 25-Aug 25-Nov 18 --.-- CLPI 26-Aug 26-Nov 4.5 --.-- Source: KSEI Source: Bloomberg Danareksa Sekuritas – Equity Research Equity Research Thursday, September 10, 2015 PT Danareksa Sekuritas Jl. Medan Merdeka Selatan No. 14 Jakarta 10110 Indonesia Tel (62 21) 29 555 888 Fax (62 21) 350 1709 Equity Research Team Anindya Saraswati Armando Marulitua Eka Savitri [email protected] [email protected] [email protected] (62-21) 2955 5820 (62-21) 2955 5817 (62-21) 2955 5825 Property, Retail Pharmaceutical Banking Jennifer Frederika Yapply Stefanus Darmagiri Puti Adani [email protected] [email protected] [email protected] (62-21) 2955 5821 (62-21) 2955 5825 (62-21) 29555 888 ext.3511 Consumer Coal, Heavy Equipment, Metal Mining Research Associate Antonia Febe Hartono [email protected] (62-21) 29555 888 ext.3504 Research Associate Sales team Ermawati A. Erman Novrita E. Putrianti Ehrliech Suhartono [email protected] [email protected] [email protected] (62 21) 29555 888 ext. 3151 (62 21) 29555 888 ext. 3128 (62 21) 29555 888 ext. 3132 Yunita L. Nababan Bram Taarea Martin Joshua [email protected] [email protected] [email protected] (62 21) 29555 888 ext. 3126 (62 21) 29555 888 ext. 3145 (62 21) 29555 888 ext. 3127 Laksmita Armandani Muhammad Hardiansyah Tuty Sutopo [email protected] [email protected] [email protected] (62 21) 29555 888 ext. 3125 (62 21) 29555 888 ext. 3109 (62 21) 29555 888 ext. 3121 Upik Yuzarni Kevin Giarto [email protected] [email protected] (62 21) 29555 888 ext. 3137 (62 21) 29555 888 ext. 3139 Danareksa Sekuritas – Equity Research Thursday, 10 September 2015 CONSTRUCTION/ALERT BUY Adhi Karya Target Price, Rp 3,700 LRT projects groundbreaking: a good start! Upside 63.0% The long-awaited groundbreaking of the Light Rail Transit (LRT) project finally took ADHI IJ/ADHI.JK place yesterday thanks to the issuance of presidential decree no.98 year 2015. This Last Price, Rp 2,270 clearly demonstrates the government’s commitment to getting the project off the No. of shares (bn) 1.8 ground. As stated in this decree, the government has appointed ADHI as the main Market Cap, Rp bn 4,089 contractor to build the project’s infrastructure which shall encompass six routes (US$ mn) 285 within Jakarta, Bogor, Depok and Bekasi. On top of this, the government has stepped 3M T/O, US$mn 3.88 up to be the project owner. This is a positive for ADHI, we believe, since the company will be able to undertake the construction works without its balance sheet being burdened. All in all, we believe this is a good start for the greater plan of integrating Last Recommendation mass public transportation in the Greater Jakarta area. However, the project is not 14-Jul-15 BUY Rp3,700 without risks. These mainly relate to the price settlement and payment method 17-Jul-15 BUY Rp3,700 between the contractors and government in the future. 8-May-15 BUY Rp3,700 LRT groundbreaking has finally taken place thanks to the presidential decree… Following the issuance of presidential decree no.98 year 2015 last week, JSMR relative to JCI Index groundbreaking of the much-anticipated Light Rail Transit (LRT) project has started. This clearly demonstrates the government’s commitment to getting the project off the ground. The groundbreaking of the project paves the way for development of an integrated LRT project whose routes will span around 86km. The first project is phase 1A involving the construction of the route serving Cibubur – Cawang – Dukuh Atas with a total length of 24.2km. Soon after phase 1A has started, phase 1B serving the Bekasi Timur – Cawang – Dukuh Atas route (with a total length of 17.9km) will start to be constructed. In the development of this project it is important to note that land clearance will not be an issue in the first phase since ADHI will utilize the sides of Jasa Marga’s toll roads for construction of the LRT pillars with the full support of the central Market Recommendation government. The government expects phase 1 of the project to be completed by 2018. …providing a legal basis to ensure the project’s continuity Furthermore, the government has also issued another presidential decree (no.99 year 2015), instructing the Jakarta provincial administration to accelerate the Jakarta provincial government LRT project (a separate project from ADHI’s integrated LRT project). This is intended to ensure that the LRT projects can be fully integrated to meet the needs of the people in Jakarta and also to avoid future disputes. In our view, these Danareksa vs. Consensus two decrees shall provide a strong legal basis for the construction of two different LRT projects in the greater Jakarta area. Both the ADHI LRT and the Jakarta provincial Our Cons % Diff Target Price, IDR 3,700 3,203 15.5 government LRT will also be integrated with the KRL Commuter Line, Transjakarta, and EPS 2015F, IDR 244 196 24.3 the Jakarta MRT. PE 2015F, x 9.3 11.6 (19.5) Positive impact on ADHI The government through Presidential decree no.98 year 2015 has directly appointed ADHI to be the main contractor to develop the LRT infrastructure such as rail track, stations, and operating facilities. For this project, the government will act as the project owner through the Ministry of Transportation, meaning that there is only a small chance of project cancelation. The estimated total project value of the phase 1 project is Rp12.5tn comprising Rp7tn for phase 1A and Rp5.6tn for phase 1B.