Don’t fight the current

Taye Shim ([email protected]) Head of Research / Strategist Mirae Asset Sekuritas Research

Emma Fauni ([email protected]) Research Associate Mirae Asset Sekuritas Indonesia Research

June 26, 2018 Don’t fight the current

. Turbulence driven by external factors: It has been a rollercoaster ride for the Composite Index (JCI) in 1H18. The JCI started off with a good start reaching a year-high of 6,693pt on February 20. However, the upward trend was reversed following the release of Fed minutes hinting gradual monetary policy normalization (rate hikes). JCI continued its downward spiral driven by external issues including nuclear threats from North Korea, rising geopolitical risks in Middle East, US- China trade tensions, etc.

. How’s the domestic growth story? Macro wise, we think it’s not too hot, not too cold. External issues continue to challenge growth, however, domestic growth is strong enough to cushion the impact (stable consumption and exciting investment growth). Corporate earnings remain elusive amid stubbornly low inflationary backdrop. Indeed, our Universe revenue growth is projected to slip to 9% YoY from 13% YoY (2017). However, considering the gravity of the recent market pullback (-8% YTD), we judge market reaction to be overdone.

. The unwinding of index funds: Large caps were the darling during the strong inflows driven by global index funds. As market volatility escalates redemption of index funds have relentlessly net sold large caps regardless their fair value. As we expect prolonged strong dollar to prompt Long USD/ Short EM Asset strategy, we think the unwinding process is less likely to be short-lived.

. We reiterate our tactical underweight call and recommend investor to respond not react. Considering the stable domestic fundamentals, we believe market reaction is overdone. However, uncertainties pertaining to global developments and net sell position of index funds are likely to persist. We revise down our GDP growth forecasts from 5.3% (18F) / 5.5% (19F) to 5.2% (18F) / 5.3% (19F) and our 12MF JCI target from 6,795pt to 6,479pt. Summary: Don’t fight the current

• Concerns are building and valuations are being squeezed • Recent challenges are externally originated with too many moving parts to the equation • Reiterate tactical underweight and don’t fight the current

Markets in 1H18 Growing concerns in 2H18 How to position?

Low inflation Game of Monopoly Concerns: Corporate earnings, Recommend companies, industries government intervention, macro growth that have monopoly characteristics

Contagion of external Strong dollar Betting on Indonesia challenges to the Concerns: Pressure of rupiah, Normalization of monetary policy domestic market monetary tightening, fund outflows should keep rupiah steady

Investment flows Stock picker’s market Concerns: Index fund unwind, Large Switching gears from top-down to cap squeeze, ugly returns bottom-up (Mid-to-small caps)

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 2 | Economy review: Not too hot, not too cold Heat map of Indonesia’s economy (expenditure breakdown)

Domestic growth is fine; the problem lies with external issues

(YoY, %) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18

Real GDP growth 4.9 5.2 5.0 4.9 5.0 5.0 5.1 5.2 5.1

Private consumption 5.0 5.1 5.0 5.0 4.9 5.0 4.9 5.0 5.0 (55.0% of 1Q18 GDP) Government spending 3.4 6.2 -3.0 -4.1 2.7 -1.9 3.5 3.8 2.7 5.8% of 1Q18 GDP) Investments 4.7 4.2 4.2 4.8 4.8 5.4 7.1 7.3 8.0 (32.8% of 1Q18 GDP) Exports -3.3 -2.2 -5.7 4.2 8.0 3.4 17.3 8.5 6.2 (22.2% of 1Q18 GDP) Imports -5.1 -3.2 -3.7 2.8 5.0 0.6 15.1 11.8 12.8 (21.0% of 1Q18 GDP)

Source: BPS, Mirae Asset Sekuritas Indonesia Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 4 | Quick check on external conditions

Domestic growth is fine; the problem lies with external issues

Indonesia recorded the worst trade balance since 2014 Indonesia’s import growth

(USDmn) Trade balance (L) Export growth (R) (YoY, %) (%) 80 Consumption goods Import growth (R) Raw materials/ Auxiliary 2,000 60 60 Capital goods 40 1,500 50 20 0 1,000 40 -20 -40 500 30 -60 1/13 7/13 1/14 7/14 1/15 7/15 1/16 7/16 1/17 7/17 1/18 0 20 Indonesia’s export growth -500 10 (%) Total exports -1,000 0 60 Oil and gas 40 -1,500 -10 Non oil and gas 20 -1,629.3 -2,000 -20 0 -1,962.5 -20 -2,500 -2,329.1 -30 -40

-3,000 -40 -60 1/13 7/13 1/14 7/14 1/15 7/15 1/16 7/16 1/17 7/17 1/18 1/13 7/13 1/14 7/14 1/15 7/15 1/16 7/16 1/17 7/17 1/18 Source: BPS, Mirae Asset Sekuritas Indonesia Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 5 | Dealing with structural issues – Current account deficit

• Trade balance is the structural supporting component of the nation’s current account • Eroding trade balance to add heavy pressure on Indonesia’s current account balance and the rupiah

Trade balance has been driving CAD improvement Rupiah is weakening despite softening dollar

(USDmn) ( %) (USD/IDR) (USD) Trade balance USD/IDR (L) Dollar index (R) 15,000 Services balance 3 15,000 105 Income balance 103 Balance of transfer 2 10,000 14,500 C.A. balance % of GDP (R) 101

1 99 5,000 14,000 97 0 0 13,500 95 -1 93 -5,000 13,000 -2 91

89 -10,000 12,500 -3 87

-15,000 -4 12,000 85 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1/15 7/15 1/16 7/16 1/17 7/17 1/18

Source: BI, Mirae Asset Sekuritas Research Source: Bloomberg, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 6 | Spending intention = unexciting vs. Spending potential = exciting

• Spending intention remains weak… • …however, supported by higher commodity prices, we see great potential for purchasing power

Spending intention remains unexciting… …however, spending potential remains highly exciting

(pt) (%) (USD) GDP per capital (L) Commodity index (R) (USD) Retail sales survey index (L) 4,000 170 Change (YoY, R) 3,876.8 250 30 3,751.4 3,666.8 3,605.1 3,531.9 25 3,525.2 150 200 3,500 3,372.9 20 130 2,977.0 150 15 3,000 10 110 2,349.8 100 2,500 5 2,300.4 90 0 50 2,000 -5 70

0 -10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 1,500 50 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: BI, Mirae Asset Sekuritas Research Source: BPS, Bloomberg, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 7 | We feel comfortable with our muted growth view on gov. spending

We see challenges to government spending due to widening budget deficit

We can clearly understand the government’s intention …but there are also limitations to gov. spending… (IDRtr) (IDRtr) 2,500 2,133 600 Oil and non-oil subsidies 2,000 Budget balance Capital expenditure and goods/services expenses 1,500 1,736 Revenue 491 1,000 500 Spending 449 500 429 0 -4 -89 -47 -84 392 -500 -153 -212 -227 400 -298 -308 -397 -1,000 324 2008 2010 2012 2014 2016 300 …due to short fall in state revenue (IDRtr) Income tax 200 186 174 FY17 784 475 96 441 160 Production taxes (VAT)

FY16 666 412 65 442 International trade tax 100 Natural resources and environment FY14 546 409 241 551 0 Others 2010 2011 2012 2013 2014 2015 2016 2017 0 500 1,000 1,500 2,000

Source: Government, Mirae Asset Sekuritas Research Source: Government, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 8 | Encouraging investment growth • Favorable policy settings have led to rating upgrades • We see limited concerns related to the upcoming presidential election

Business-friendly policy settings Rating agencies are upgrading Indonesia Jokowi coalition secures 51.8% of votes

In July 2017 the People's Representative Council Rating confirmed that only parties coalitions with at least 20% Prime Aaa AAA of seats in the legislature, or 25% of votes in the Now is time to attract previous election, would be eligible to field a Aa1 AA+ presidential candidate. investments: Jokowi High grade Aa2 AA Parties Leader Seats % Aa3 AA- Jakarta Post , August 29, 2017 PDI-P Megawati Soekarnoputri 109 19.5% A1 A+ 91 16.3% Upper medium A2 A grade Gerindra 73 13.0% A3 A- Ease of doing business (2017) PD Susilo Bambang Y 61 10.9% Baa1 BBB+ MY CN Asia IN PH PAN 49 8.8% Lower medium Baa2 BBB grade PKB 47 8.4% Rank 23 78 - 91 99 Baa3 BBB- PKS Sohibul Iman 40 7.1% Score 78.1 64.3 62.0 61.5 60.4 Ba1 BB+ Non-investable PPP Muhammad R 39 7.0% Ba2 BB Ease of doing business (2018) grade Nasdem 35 6.3% speculative Ba3 BB- MY IN CN Asia PH Hanura 16 2.9% Highly B1 B+ Rank 24 72 78 - 113 PBB 0 0.0% speculative B2 B PKPI 0 0.0% Score 78.4 66.5 65.3 62.7 58.7 grade B3 B- Total 560 100%

Source: World Bank, Mirae Asset Sekuritas Research Source: BI, Mirae Asset Sekuritas Research Source: DPR, Mirae Asset Sekuritas Research Note: Parties marked yellow represents PDI-P coalition (51.8%) supporting current president

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 9 | Monetary policy: Better late than never Fed is ready to “gradually” tighten

• Dual mandate has reached Fed’s target… • …however, Fed is willing to let inflation overshoot, for now

US inflation (PCE) has reached Fed’s objective… …and unemployment is already below target (4.0%) (%) (%) 12 5.0 10/09 Core PCE 10.0 PCE 4.0 10

3.0 8 04/18 2.0 2.0 1.8 6

1.0 4 5/07 0.0 05/18 4.4 3.8 2 -1.0 0 -2.0 12/01 12/04 12/07 12/10 12/13 12/16 Source: Bloomberg, Mirae Asset Sekuritas Research Source: Bloomberg, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 11 | Fed’s rate hike less likely to shock Indonesia

• Monetary policy gap between US and peers likely to drive the value of USD higher… • …however, given monetary policy normalization we see limited impact on Indonesia

BI is behind the curve, however, better late than never Credit rating agencies have endorsed Indo’s strength

(10yr gov. bond yield gap, %p)

16 Indonesia - US Agency Before After Date Indonesia - EU 14 Indonesia - Japan Moody’s Baa3 Baa2 4/13/18 12

10 S&P BB+ BBB- 5/19/17 8

6 Fitch BBB- BBB 12/20/17

4 Source: BI, Mirae Asset Sekuritas Research

2 1/05 1/07 1/09 1/11 1/13 1/15 1/17 Source: Bloomberg, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 12 | Dramatic exit or a dramatic entry?

• The transition turned out to be a dramatic exit AND a dramatic entry • BI’s message (monetary tightening) was crystal clear, but the pace remains unclear

Two rate hikes in a month The dual mandate for Bank Indonesia (YoY, %) (USD/IDR) 10.0 15,000 CPI (YoY, L) USDIDR (R) 8.0 14,000

6.0

13,000

4.0

12,000 2.0

0.0 11,000 1/14 1/15 1/16 1/17 1/18

Source: Internet, Mirae Asset Sekuritas Research Source: Bloomberg, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 13 | Now we know that inflation is NOT a key indicator for its rate decision

• Among the dual mandate (low inflation and FX rate), low inflation is achieved • Hence, BI’s rate decision will hinge on the FX rate (which means Fed rate hike is the key)

BI increases rate amid low inflation BI’s rate hike should decelerate economic growth (YoY, %) (%) (YoY, %) (%) 10 8 5.5 8 Policy rate (R) Policy rate (R) CPI (YoY, L) GDP growth (YoY, L) 8 5.3 7 7

6 5.1 5.1 6 6 4 4.9

5 5 2 4.7

0 4 4.5 4 1/14 7/14 1/15 7/15 1/16 7/16 1/17 7/17 1/18 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 Source: BI, Mirae Asset Sekuritas Research Source: BPS, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 14 | Let’s admit that rupiah is – by nature – volatile

• Over the past 10yrs, chances of rupiah moving >5% is 50% • No need to panic… IDR14,000/USD mark is just another psychological level

Over the past decade, rupiah movement >5% was… All psychological barriers have been broken

JCI FX rates FY2 Price (pt) Change(%) Price (IDR) Change (%) 2008 1,355.4 -50.6% 11,120 18.4% 2009 2,534.4 87.0% 9,404 -15.4% 2010 3,703.5 46.1% 8,996 -4.3% 2011 3,822.0 3.2% 9,069 0.8% 2012 4,316.7 12.9% 9,793 8.0% 2013 4,274.2 -1.0% 12,171 24.3% 2014 5,227.0 22.3% 12,388 1.8% 2015 4,593.0 -12.1% 13,788 11.3% 2016 5,296.7 15.3% 13,473 -2.3% 2017 6,355.7 20.0% 13,555 0.6% 6/22/2018 5,821.8 -8.4% 14,086 3.9%

Source: Mirae Asset Sekuritas Research Source: Press reports, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 15 | Our outlook for policy rates and FX rates

• We raise our policy rate outlook from 4.75% to 5.50% (2018) and 5.00% to 6.00% (2019) • FX rate from IDR13,550 to IDR13,700 (2018) and IDR13,400 to IDR13,600 (2019)

Dot plot says 4 rate hikes this year (1.50% -> 2.50%) Our vs. Consensus estimates

Item 2017A 2018F 2019F

Indonesia policy rate 125bp 50bp - Mirae Asset 4.25% 5.50% 6.00%

3.000 - Consensus 4.25% 4.75% 4.95%

2.375 Indonesia FX rate (avg. for the period) - Mirae Asset IDR13,382 IDR13,700 IDR13,600 - Consensus IDR13,382 IDR13,900 IDR13,800 US policy rate - Mirae Asset 1.50% N/A N/A - Consensus 1.50% 2.40% 3.00% 90bp 60bp

Note: As of June 24, Fed Funds Rate stands at 2.00% (2 rate hikes since the Note: As of June 24, 1) YTD avg. USD/IDR stands at IDR13,742, 2) beginning of the year) Indonesia’s policy rate stands at 4.75% Source: Federal Reserve, Bloomberg, Mirae Asset Sekuritas Research Source: Press reports, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 16 | Trade tensions between US and China How big is US’ trade deficit?

Largest negative trade balances: 1. China (-USD365bn), 2. Germany (-USD74bn), and 3. Japan (-USD68bn)

Source: HowMuch.net, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 18 | Chronology of US and China trade friction

• Trump is adopting aggressive protectionist policies ahead of mid-term election (Nov. 2018) • China turns aggressive after the 13th National People’s Congress of China (3/5~ 3/20) / Retaliation on 4/2

Election Trump Mid-term campaign Administration Election End of 2016 Feb, 2017 April 6~ 7 Aug 14 Jan, 2018 March August November

Warn China of trade Trade war averted Trump orders Impose steep Trump signs tariff USTR to release US – China Trade sanctions for as US-China probe of China’s tariffs on imported order on Steel and investigation Tension Events currency release 100 Day intellectual solar panels and Aluminum & results (statutory manipulation Action Plan property practices washing machines USD50bn tariff hike deadline)

Escalating concerns Easing of trade US – China Trade tension Trade tension over extreme conflict tension between round 2 round 3 Relationship between US - China G2

The 13th National People's Congress of the People's Republic of China - Xi Jinping abolishes term limit

China probes into US sorghum imports Xi elected for second term China’s Response/ US and China agree to modest (and beyond); Announces steps on trade cooperation China could sell US Treasuries retaliation (128 US items) Retaliation & CNY appreciates China's top economic aide Liu He heading to US to negotiate

Source: News developments, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 19 | Pinch or a full-blown uppercut?

Given low export contribution to GDP, we expect Indonesia to feel the pinch

Trade tensions are escalating Low export contribution to economic growth (2016)…

187.4 President Donald Trump announced on 200 172.2 Thursday his plans for tariffs on up to 150 US$60 billion annually in Chinese 93.6 imports, designed as retaliation for an 100 68.9 42.2 administration report that will outline 50 28 19.6 19.1 17.6 12.6 Beijing’s violation of U.S. intellectual

property rights – March 23, 2018 0 (Exports to GDP, %) GDP, to (Exports

“This is the first of many” – March 23, 2018 Source: World Bank, Mirae Asset Sekuritas Research China Hits Back On Trade Dispute, …however, exports and growth are correlated Slapping Tariffs On 128 U.S. goods (USDbn) Exports (L) GDP growth (R) (%) – April 2, 2018 190 200 6.0 183 176 China hit back on Wednesday at the 180 169 5.5 Trump administration's plan to slap tariffs 160 150 on US$60 billion in Chinese goods, 145 140 retaliating with a list of similar duties on 5.0 key U.S. imports including soybeans, 120 planes, cars, whiskey and chemicals – April 4, 2018 100 4.5 2012 2013 2014 2015 2016 2017 Source: Internet, Mirae Asset Sekuritas Research Source: BPS, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 20 | The real deal with exports

Escalating trade tensions between US and China may prove to be a blessing

China is Indonesia’s largest trading destination… Indonesia’s top 5 export items to USA

Source: Embassy of Indonesia, Mirae Asset Sekuritas Research

…but, US is more important from a surplus perspective Nike’s outsourced factories are located in Asia

“Nike owns no factories (Production volume, %) for manufacturing its footwear and apparel, 4 Vietnam which make up ~88% of 25 its revenues. Instead 43 China manufacturing is Indonesia outsourced to third Others parties because of the 28 cost advantages of doing so.”

Source: Bloomberg, Mirae Asset Sekuritas Research Source: Market Realist, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 21 | Case Study: Trade war is a losing game for all

• Smoot-Hawley Tariff Act triggered a trade war; Global trade volume was cut by 31% (trade value down >60%) • Pervasive protectionist policies across the world led to the derailment of the real economy • Post WWII, GATT (now WTO) was established in order to restore global free trade order

The trigger: Smoot-Hawley Tariff Act Unemployment change during the Great Depression

The Smoot-Hawley Tariff Act, sponsored by Senator Reed Smoot and Rep. (%) Willis Hawley, was passed by the Congress and signed by the President on 1921~ 1929 1930~ 1938 June 17, 1930 . Under the new tariff law tariffs were raised to c. 60% on 30 20,000 import items. 26.1 24.3 (1929.6=100) 25 Volume of global trade 21.8 21.9 107.1 20 18.7 16.8 15.4 15 14 14.2 12.0 10.2 9.2 10 7.7 8.3

3.8 5 2.4

0

69.0

‘29 ’30 ’31 ’32 ’33

Source: Eichengreen et al. (2009), Mirae Asset Sekuritas Research Source: Yang (2000), Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 22 | Impact of higher trade tariffs on global trade

Higher trade tariffs are likely to significantly reduce the flow of global trade (HRI) - Assuming 1%p increase in global tariff, global trade is expected to be reduced by 0.48%  Impact on trade flows by markets: Developed -0.58%, Emerging -0.30%, Total -0.48% - Assuming global average tariff increase from current 4.8% to 10%, trade flows could drop 2.5%  In the event global avg. tariff jumps to 20%, global trade flows could decline 7.3%

Impact of 1%p avg. tariff hike on global trade flows Tariff rate increase and its impact on global trade flows

0.0 0.0 -0.1

-0.2 -2.0

-0.3 -2.5 (%) -0.30 -4.0

-0.4 (%) -0.5 -0.48 -4.9 -0.6 -6.0 -0.58 -0.7 Total Emerging Developed -8.0 -7.3 economies economies Avg. tariff 10% Avg. tariff 15% Avg. tariff 20%

Source: HRI, Mirae Asset Sekuritas Research Source: HRI, Mirae Asset Sekuritas Research Note: The analysis was prepared by Hyundai Research Institute (The Note: The analysis was prepared by Hyundai Research Institute (The think tank of Hyundai Group) and does not factor in heated currency think tank of Hyundai Group) and does not factor in heated currency devaluation, import restrictions, and other factors that might deteriorate devaluation, import restrictions, and other factors that might deteriorate the tension the tension

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 23 | Indonesia’s case: Shaky but no derailment expected

• Indonesia can offset export pressures by reducing imports • However, we market seems to expect Indonesia to be largely insulated

Analyses of ‘98 and ’08 crises tell us that… …but we see no signs of derailment to growth, yet

(Crisis year = D+0) 270

150 138.7 Indonesia 5yr CDS Spread 220 130 Exports

117.0

110 170

99.6 (bps) 90 120 85.0 1998 70 2008 70 50 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 4/18 D-1 D+0 D+1 D+2 D+3 D+4 (%) 10yr gov. bond yield (%) Foreign ownership of gov. paper (Crisis year = D+0) 9.0 42 150 148.4 Imports 8.5 41 130 114.5 8.0 40 110 7.5 39 90 87.8 1998 7.0 38 74.9 70 2008 37 6.5 50 36 D-1 D+0 D+1 D+2 D+3 D+4 6.0 1/16 7/16 1/17 7/17 1/18 1/16 7/16 1/17 7/17 1/18 Source: BI, Mirae Asset Sekuritas Research Source: Bloomberg, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 24 | 5/16 6/16 7/16 8/16 9/16 10/16 11/16 12/16 1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17 1/18 2/18 3/18 4/18 5/18 Trade surplus 382.0 1,110.9 632.3 368.7 1,282.3 1,236.5 834.2 1,049.9 1,433.3 1,259.5 1,395.6 1,319.1 561.3 1,664.1 -274.4 1,719.9 1,779.0 1,001.3 215.3 -220.1 -756.0 -52.9 1,123.3 -1,625.1 -1,523.6 Exports 11,517.4 13,206.1 9,649.5 12,753.9 12,579.8 12,743.7 13,503.6 13,832.4 13,401.7 12,613.5 14,678.8 13,269.7 14,333.9 11,655.9 13,611.2 15,229.4 14,559.8 15,242.2 15,320.2 14,873.3 14,553.4 14,132.6 15,586.9 14,537.2 16,121.2 Imports 11,135.4 12,095.2 9,017.2 12,385.2 11,297.5 11,507.2 12,669.4 12,782.5 11,968.4 11,354.0 13,283.2 11,950.6 13,772.6 9,991.8 13,885.6 13,509.5 12,780.8 14,240.9 15,104.9 15,093.4 15,309.4 14,185.5 14,463.6 16,162.3 17,644.8

Exports (USDmn) 5/16 6/16 7/16 8/16 9/16 10/16 11/16 12/16 1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17 1/18 2/18 3/18 4/18 5/18 Total exports 11,517.4 13,206.1 9,649.5 12,753.9 12,579.8 12,743.7 13,503.6 13,832.4 13,401.7 12,613.5 14,678.8 13,269.7 14,333.9 11,655.9 13,611.2 15,229.4 14,559.8 15,242.2 15,320.2 14,873.3 14,553.4 14,132.6 15,586.9 14,537.2 16,121.2 Oil and gas 957.9 1,187.4 998.6 1,138.6 1,061.5 1,055.9 1,103.0 1,250.2 1,271.6 1,198.1 1,511.2 1,036.2 1,294.4 1,273.8 1,165.0 1,276.9 1,439.2 1,480.8 1,280.0 1,509.9 1,323.6 1,390.9 1,338.0 1,220.7 1,572.3 Crude oil 432.0 551.8 407.4 488.4 428.0 309.5 401.1 443.9 380.3 407.6 613.1 302.0 401.0 452.0 293.7 409.9 521.2 499.4 447.4 507.9 317.3 446.0 461.3 287.1 522.2 Oil products 61.2 65.9 51.6 80.6 79.0 76.5 69.9 109.9 163.8 93.9 181.0 147.1 157.3 92.9 131.6 86.9 196.7 148.6 119.4 121.2 127.2 107.2 120.0 143.9 137.9 Gas 462.1 568.3 538.9 567.1 554.2 659.6 617.2 687.2 718.1 685.4 711.0 581.3 733.1 725.9 737.2 777.7 710.4 819.1 708.0 877.9 877.6 834.8 740.3 770.5 896.2 Non oil and gas 10,559.5 12,018.7 8,650.9 11,615.3 11,518.3 11,687.8 12,400.6 12,582.2 12,130.1 11,415.4 13,167.6 12,233.5 13,039.5 10,382.1 12,446.2 13,952.5 13,120.6 13,761.4 14,040.2 13,363.4 13,229.8 12,741.7 14,248.9 13,316.5 14,548.9 56,796.2 70,002.3 79,651.8 92,405.7 104,985.5 117,729.2 131,232.8 145,065.2 158,466.9 171,080.4 185,759.2 199,028.9 213,362.8 225,018.7 238,629.9 253,859.3 268,419.1 283,661.3 298,981.5 313,854.8 328,408.2 342,540.8 358,127.7 372,664.9 388,786.1 Change (YoY, %) Total exports -9.2 -2.2 -15.4 0.2 -0.1 5.1 21.5 16.1 27.9 11.6 24.3 13.5 24.5 -11.7 41.1 19.4 15.7 19.6 13.5 7.5 8.6 12.0 6.2 9.6 12.5 Oil and gas -30.1 -17.5 -29.8 -25.6 -27.0 -23.5 -26.3 -3.8 14.8 7.6 21.9 15.4 35.1 7.3 16.7 12.1 35.6 40.2 16.0 20.8 4.1 16.1 -11.5 17.8 21.5 Crude oil -16.1 -3.8 -4.8 -21.3 -27.5 -22.7 -29.4 2.1 6.4 -14.5 7.8 -9.0 -7.2 -18.1 -27.9 -16.1 21.8 61.4 11.5 14.4 -16.6 9.4 -24.8 -4.9 30.2 Oil products -58.6 -58.3 -59.0 -43.2 -26.6 -20.1 -18.5 38.9 91.6 69.5 188.7 99.1 157.0 41.0 155.0 7.8 149.0 94.2 70.8 10.3 -22.3 14.2 -33.7 -2.2 -12.3 Gas -34.7 -19.8 -37.9 -26.2 -26.7 -25.3 -26.8 -12.5 8.0 17.9 17.4 19.6 58.6 27.7 36.8 37.1 28.2 24.2 14.7 27.8 22.2 21.8 4.1 32.5 22.2 Non oil and gas -6.7 -0.4 -13.4 3.7 3.4 8.8 29.0 18.5 29.4 12.1 24.6 13.3 23.5 -13.6 43.9 20.1 13.9 17.7 13.2 6.2 9.1 11.6 8.2 8.9 11.6

Import (USDmn) 5/16 6/16 7/16 8/16 9/16 10/16 11/16 12/16 1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17 1/18 2/18 3/18 4/18 5/18 Total imports 11,135.4 12,095.2 9,017.2 12,385.2 11,297.5 11,507.2 12,669.4 12,782.5 11,968.4 11,354.0 13,283.2 11,950.6 13,772.6 9,991.8 13,885.6 13,509.5 12,780.8 14,240.9 15,104.9 15,093.4 15,309.4 14,185.5 14,463.6 16,162.3 17,644.8 Consumption goods 998.5 1,141.6 729.3 1,174.8 995.7 966.4 1,025.5 1,307.1 1,006.4 889.4 1,329.1 1,095.4 1,288.6 1,127.6 1,093.5 1,194.8 1,121.3 1,258.8 1,341.2 1,372.5 1,362.9 1,378.8 1,201.2 1,503.1 1,726.8 Raw materials/ Auxiliary 8,492.9 8,957.1 6,825.2 9,145.0 8,481.1 8,565.0 9,568.7 9,241.0 9,045.7 8,761.4 9,935.8 8,993.6 10,526.1 7,411.5 10,429.3 10,102.8 9,605.0 10,791.0 11,115.7 11,028.5 11,466.5 10,554.9 10,803.1 12,026.0 13,110.3 Capital goods 1,644.0 1,996.5 1,462.7 2,065.3 1,820.7 1,975.8 2,075.2 2,234.4 1,916.3 1,703.2 2,018.3 1,861.6 1,957.9 1,452.7 2,362.8 2,211.9 2,054.5 2,191.1 2,648.0 2,692.4 2,480.0 2,251.8 2,459.3 2,633.2 2,807.7

Change (YoY, %) 5/16 6/16 7/16 8/16 9/16 10/16 11/16 12/16 1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17 1/18 2/18 3/18 4/18 5/18 Total imports -4.1 -6.8 -10.5 0.9 -2.3 3.6 10.0 5.8 14.3 11.7 17.5 10.9 23.7 -17.4 54.0 9.1 13.1 23.8 19.2 18.1 27.9 24.9 8.9 35.2 28.1 Consumption goods 5.7 11.1 3.3 8.8 21.0 24.9 6.1 18.3 -13.3 -11.3 34.7 26.7 29.1 -1.2 49.9 1.7 12.6 30.3 30.8 5.0 35.4 55.0 -9.6 37.2 34.0 Raw materials/ Auxiliary -2.5 -8.4 -11.1 0.0 -2.4 3.7 12.3 5.9 20.7 19.1 15.3 10.3 23.9 -17.3 52.8 10.5 13.3 26.0 16.2 19.3 26.8 20.5 8.7 33.7 24.6 Capital goods -15.8 -8.3 -13.4 1.1 -10.9 -4.7 2.3 -0.6 5.9 -5.4 18.7 5.7 19.1 -27.2 61.5 7.1 12.8 10.9 27.6 20.5 29.4 32.2 21.9 41.4 43.4

Non oil and gas exports by desitnation (FOB Value) 5/16 6/16 7/16 8/16 9/16 10/16 11/16 12/16 1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17 1/18 2/18 3/18 4/18 5/18 ASEAN 2,302.2 2,557.9 1,927.4 2,611.9 2,559.5 2,583.0 2,599.2 2,726.3 2,401.9 2,483.4 2,781.9 2,604.4 2,947.2 2,183.3 2,772.0 3,061.6 2,949.8 3,027.0 3,169.7 2,786.5 2,829.1 2,843.4 2,928.7 2,995.2 3,108.3 Singapore 709.5 790.2 586.9 751.3 712.2 742.7 685.2 725.4 576.5 741.8 836.5 768.9 798.6 580.5 656.5 882.1 871.6 829.6 829.2 717.0 786.1 875.6 780.8 782.1 743.7 453.7 518.1 368.8 527.1 544.1 530.9 554.8 637.7 591.7 549.9 567.7 540.1 645.4 452.5 595.2 626.6 600.2 624.0 680.3 587.9 612.9 599.9 648.6 690.5 666.1 Thailand 383.9 421.6 309.0 413.0 401.1 424.6 413.8 393.1 413.8 404.8 448.4 410.9 518.6 392.5 512.8 490.4 454.3 474.8 491.1 423.7 524.0 437.9 500.6 482.5 567.2 Other ASEAN countries 755.1 828.0 662.7 920.5 902.1 884.8 945.4 970.1 819.9 786.9 929.3 884.7 984.6 757.8 1,007.7 1,062.5 1,023.7 1,098.6 1,169.1 1,057.9 906.1 930.0 998.7 1,040.1 1,131.3 Europe 1,197.2 1,238.0 954.7 1,223.4 1,218.5 1,216.4 1,337.1 1,430.6 1,367.2 1,285.4 1,448.4 1,358.9 1,388.6 1,190.2 1,389.3 1,414.0 1,311.6 1,429.1 1,380.1 1,330.6 1,356.5 1,406.6 1,524.1 1,384.6 1,740.1 Germany 217.2 239.7 167.6 221.7 238.0 235.3 222.7 244.5 231.2 189.6 219.8 228.7 214.3 205.0 226.5 247.0 225.6 228.7 236.5 215.9 238.6 196.9 223.7 216.2 270.4 Netherland 263.0 258.3 249.8 263.0 258.3 277.9 339.2 380.2 343.6 314.6 370.2 311.5 325.9 311.2 329.2 326.7 321.5 345.4 340.3 343.5 318.3 315.0 341.7 322.8 403.6 Italy 118.7 119.7 122.1 146.9 116.1 123.2 142.6 131.7 173.4 128.4 174.0 183.6 178.2 125.3 154.9 167.6 148.5 171.8 157.0 174.9 133.6 165.7 195.3 165.1 188.3 Other Eurpean countries 598.3 620.3 415.2 591.8 606.1 580.0 632.6 674.2 619.0 652.8 684.4 635.1 670.2 548.7 678.7 672.7 616.0 683.2 646.3 596.3 666.0 729.0 763.4 680.5 877.8 Other main countries 4,913.1 5,735.5 4,207.8 5,699.7 5,786.8 5,920.3 6,387.0 6,431.6 6,296.4 5,456.8 6,635.5 6,124.1 6,524.6 5,333.6 6,233.8 7,069.6 6,738.1 7,281.7 7,305.1 7,226.8 6,868.9 6,426.5 7,591.3 6,746.1 7,372.8 China 982.9 1,212.5 915.8 1,355.2 1,345.4 1,712.0 1,812.2 1,879.3 1,549.9 1,357.5 1,789.7 1,568.4 1,508.0 1,353.7 1,602.5 1,948.6 1,893.6 2,337.2 2,219.8 2,192.9 1,919.7 2,063.5 2,354.5 1,814.4 2,093.3 Japan 1,002.9 1,236.9 821.6 1,172.5 1,105.2 1,144.2 1,295.4 1,243.3 1,159.5 944.3 1,264.8 1,059.2 1,236.6 1,012.4 1,343.3 1,267.7 1,312.1 1,293.8 1,328.1 1,472.9 1,385.6 1,266.3 1,429.1 1,391.8 1,399.1 USA 1,280.4 1,624.8 993.9 1,359.8 1,361.0 1,297.6 1,338.2 1,457.0 1,426.0 1,355.9 1,505.6 1,363.0 1,526.5 1,191.9 1,389.0 1,610.3 1,456.4 1,388.6 1,506.1 1,423.0 1,542.7 1,287.8 1,590.8 1,430.6 1,574.0 India 726.7 773.8 652.9 893.8 988.6 981.8 1,068.2 923.2 1,319.2 1,019.3 1,067.6 1,190.9 1,281.5 973.4 1,041.0 1,183.5 1,149.5 1,246.5 1,283.7 1,193.6 1,101.4 932.2 1,170.9 1,015.4 1,106.4 Australia 280.2 197.9 285.7 222.9 298.7 179.2 223.0 150.5 147.9 144.4 171.0 142.1 172.0 143.8 167.5 208.3 164.3 168.6 168.3 145.4 183.7 152.7 197.3 200.8 191.7 Korea 427.6 482.9 363.9 499.6 461.7 417.8 427.9 541.6 484.8 456.9 622.8 542.7 522.4 470.2 468.5 602.9 519.2 609.8 494.9 538.1 516.8 506.4 610.6 638.8 615.4 Taiwan 212.4 206.7 174.0 195.9 226.2 187.7 222.1 236.7 209.1 178.5 214.0 257.8 277.6 188.2 222.0 248.6 243.0 237.2 304.2 260.9 219.0 217.6 238.2 254.3 392.9 Source: BPS, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 25 | Corporate earnings: All eyes on the P (price) Corporate earnings: Macro sensitive industries gaining steam

• Good: Trade, Property and Mining • Bad: Consumers, Miscellaneous Industry and Basic Industry • Puzzled: Financials, Infrastructure and Agriculture

Revenue trend of LQ45 Net profit trend of LQ45

Unit: IDRtr 1Q17 2Q17 3Q17 4Q17 1Q18 QoQ YoY Unit: IDRtr 1Q17 2Q17 3Q17 4Q17 1Q18 QoQ YoY

Consumers 85.6 86.7 88.4 88.9 88.4 -0.6% 3.3% Consumers 10.0 8.4 9.7 9.7 9.8 0.4% -2.4%

Financials 90.9 95.7 97.2 99.9 97.6 -2.2% 7.4% Financials 20.0 22.0 23.7 25.1 23.6 -6.3% 17.9%

Infrastructure 54.3 58.8 62.3 65.9 69.8 5.8% 28.5% Infrastructure 8.9 5.7 7.7 8.8 8.2 -6.5% -7.3%

Trade 25.0 31.0 28.3 31.0 32.1 3.8% 28.7% Trade 2.8 4.5 3.6 2.9 4.4 50.7% 58.2%

Property 22.1 28.6 30.6 50.5 31.3 -38.1% 41.4% Property 1.8 3.8 2.9 5.7 3.0 -46.6% 71.0%

Miscellaneous 51.2 52.2 54.5 58.4 59.5 1.9% 16.2% Miscellaneous 5.4 4.5 5.0 5.0 5.5 11.3% 3.1%

Basic industry 11.0 10.9 14.1 13.3 12.4 -6.9% 12.4% Basic industry 1.4 1.0 1.3 1.2 1.2 0.3% -17.1%

Mining 17.9 18.8 22.2 25.5 28.4 11.4% 58.1% Mining 3.3 2.8 4.4 5.4 4.0 -24.9% 23.2%

Agriculture 0.0 0.0 0.0 0.0 0.0 N/A N/A Agriculture 0.0 0.0 0.0 0.0 0.0 N/A N/A

Total 358.0 382.7 397.6 433.3 419.4 -3.2% 17.2% Total 53.5 52.7 58.3 63.8 59.7 -6.3% 11.7%

Source: Mirae Asset Sekuritas Research Source: Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 27 | Earnings outlook bleak amid low inflationary environment

Indonesia’s economic growth driven by Q (volume) is over; It’s time for growth to come from rising P (prices) – Challenging backdrop to increase ASPs when inflation is stubbornly low

GGRM cigarette sales vs. revenue Gaikindo car sales vs. ASII revenue

(IDRtr) (bn sticks) (IDR tr) ('000 units) 90 90 Revenue 250 ASII Revenue Domestic car sales 1,300 80 Total cigarette sales volume 85 1,200 200 70 1,100 80 60 150 1,000 75 900 50 100 70 800 40 700 30 65 50 600 20 60 0 500 2011 2012 2013 2014 2015 2016 2017

Source: GGRM, Bloomberg, Mirae Asset Sekuritas Research Source: ASII, Gaikindo, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 28 | Mirae Asset Sekuritas universe earnings outlook • Earnings growth seems to have peaked in 2017 (Both Revenue and Net profit)... • …however, expected to improve in 2019F (vs. consensus sees further contraction)

Revenue Net Profit Company name Ticker Sector Sub-sector Mirae Estimates Consensus Mirae Estimates Consensus 2015 2016 2017 2018F 2019F 2018F 2019F 2015 2016 2017 2018F 2019F 2018F 2019F Bank Central Asia BBCA IJ EQUITY Financials Banks 47,844 53,770 56,787 62,237 69,034 62,953 70,086 18,019 20,606 23,310 26,208 29,560 25,920 29,154 Bank Mandiri BMRI IJ EQUITY Financials Banks 66,899 74,526 78,127 81,924 92,729 83,933 93,378 20,335 13,807 20,640 23,495 27,593 24,807 29,271 Bank Rakyat Indonesia BBRI IJ EQUITY Financials Banks 70,689 77,925 87,445 100,764 111,600 99,656 110,251 25,398 26,196 28,997 31,799 36,031 32,948 37,268 Bank Negara Indonesia BBNI IJ Equiuty Financials Banks 35,258 39,921 43,480 49,331 55,156 50,557 56,143 9,067 11,339 13,617 15,505 17,513 15,697 17,844 Garuda Indonesia GIAA IJ EQUITY Infrastructure Transportation 51,117 51,392 55,892 62,443 66,447 62,205 67,074 1,025 107 (2,898) 81 698 (34) 267 Jasa Marga JSMR IJ EQUITY Infrastructure Toll road 7,646 8,879 9,080 10,348 11,919 12,544 13,985 1,466 1,889 2,200 1,152 1,271 2,016 2,064 Telekomunikasi Indonesia TLKM IJ EQUITY Infrastructure Telecommunication 102,470 116,333 128,256 138,521 150,119 136,340 146,551 15,489 19,352 22,145 24,334 27,138 23,479 25,332 XL Axiata EXCL IJ EQUITY Infrastructure Telecommunication 22,876 21,341 22,876 23,781 25,327 23,966 25,841 (25) 376 375 461 985 621 1,092 Indosat ISAT IJ EQUITY Infrastructure Telecommunication 26,769 29,185 29,926 30,143 31,417 29,071 30,341 (1,310) 1,105 1,136 894 1,252 704 1,081 Surya Citra Media SCMA IJ EQUITY Trade Media 4,238 4,524 4,454 4,974 5,325 5,100 5,472 1,524 1,501 1,331 1,490 1,609 1,725 1,908 Media Nusantara Citra MNCN IJ EQUITY Trade Media 6,445 6,730 7,053 7,367 7,708 7,513 7,822 1,186 1,369 1,453 1,583 1,678 1,680 1,831 Matahari Department Store LPPF IJ EQUITY Trade Retail 9,007 9,897 10,024 10,753 11,550 11,270 12,177 1,781 2,020 1,907 1,953 2,038 2,072 2,220 Ramayana Lestari Sentosa RALS IJ EQUITY Trade Retail 5,533 5,857 5,623 5,984 6,130 6,267 6,768 336 408 407 508 541 468 518 Matahari Putra Prima MPPA IJ EQUITY Trade Retail 13,802 13,527 12,563 13,020 14,003 14,221 15,518 222 38 (1,243) (121) 99 11 122 Ace Hardware Indonesia ACES IJ EQUITY Trade Retail 4,743 4,936 5,939 6,862 7,418 6,678 7,487 588 711 778 903 977 907 1,027 Gudang Garam GGRM IJ EQUITY Consumers Tobacco 70,366 76,274 83,306 91,463 100,428 92,004 101,522 6,436 6,677 7,754 8,483 9,270 8,393 9,332 HM Sampoerna HMSP IJ EQUITY Consumers Tobacco 89,069 95,467 99,091 106,653 114,916 105,957 114,599 10,363 12,762 12,671 13,171 13,906 13,406 14,400 Kalbe Farma KLBF IJ EQUITY Consumers Pharmaceuticals 17,887 19,374 20,182 21,651 23,992 21,932 23,713 2,004 2,300 2,404 2,460 2,770 2,570 2,781 Indofood CBP Sukses Makmur ICBP IJ EQUITY Consumers Consumer staples 31,741 34,375 35,607 39,459 44,161 38,551 41,534 3,001 3,600 3,797 4,400 4,962 4,183 4,542 Unilever Indonesia UNVR IJ EQUITY Consumers Consumer staples 36,484 40,054 41,205 45,236 49,897 44,476 48,405 5,852 6,391 7,005 7,519 8,093 7,718 8,163 Indocement Tunggal Prakarsa INTP IJ EQUITY Basic Ind. Cement 17,798 15,362 14,431 15,119 16,569 15,534 16,923 4,357 3,870 1,860 1,160 1,671 1,980 2,382 Semen Indonesia SMGR IJ EQUITY Basic Ind. Cement 26,948 26,134 27,814 30,171 32,819 29,121 31,568 4,521 4,522 2,014 1,946 2,603 2,240 2,680 Japfa Comfeed Indonesia JPFA IJ EQUITY Basic Ind. Poultry 25,023 27,063 29,603 33,032 34,682 32,857 35,579 468 2,065 997 1,773 2,016 1,560 1,803 Malindo Feedmill MAIN IJ EQUITY Basic Ind. Poultry 4,775 5,238 5,441 6,106 6,451 6,099 6,526 (63) 212 49 67 76 85 109 Astra Agro Lestari AALI IJ EQUITY Agriculture Plantation 13,059 14,121 17,306 14,692 16,270 16,107 16,944 619 2,007 2,010 1,202 1,241 1,818 2,028 PP London Sumatra Indonesia LSIP IJ EQUITY Agriculture Plantation 4,190 3,848 4,738 5,240 6,077 4,763 5,011 623 594 763 619 865 841 873 Sampoerna Agro SGRO IJ EQUITY Agriculture Plantation 2,999 2,915 3,616 4,330 5,068 3,805 1,481 248 442 288 387 453 322 379 Sawit Sumbermas Sarana SSMS IJ EQUITY Agriculture Plantation 2,372 2,723 3,241 4,157 4,875 3,768 4,452 542 592 787 1,002 1,286 926 1,216 Adaro Energy ADRO IJ EQUITY Mining Coal mining 35,969 33,574 43,596 45,168 49,433 50,085 52,646 2,043 4,451 6,466 7,453 9,498 7,186 7,249 Tambang Batubara Bukit Asam PTBA IJ EQUITY Mining Coal mining 13,734 14,059 19,471 20,971 23,470 21,367 22,652 2,036 2,006 4,476 5,042 5,554 4,533 4,813 Indo Tambangraya Megah ITMG IJ EQUITY Mining Coal mining 21,296 18,188 22,606 25,338 28,645 24,867 25,636 846 1,738 3,380 4,603 5,268 3,899 3,846 Aneka Tambang ANTM IJ EQUITY Mining Metal & Mineral 10,532 9,106 12,654 24,195 23,287 15,536 18,429 (1,441) 65 137 864 1,061 444 935 Buyung Poetra Sembada HOKI IJ EQUITY Consumers Foods & Baverages 658 1,147 1,209 1,500 1,857 1,519 1,828 53 44 48 89 125 83 106 Barito Pacific BRPT IJ EQUITY Basic industry Chemicals 18,841 26,086 32,819 37,509 43,206 35,822 38,707 (72) 1,752 1,580 1,797 2,126 1,784 1,990 Summarecon Agung SMRA IJ EQUITY Property Developers 5,624 5,398 5,641 6,015 6,663 5,918 6,176 855 312 362 581 674 415 477 Lippo Karawaci LPKR IJ EQUITY Property Developers 8,704 10,749 10,903 13,835 16,955 12,803 14,674 535 882 614 1,620 1,942 863 960 Bumi Serpong Damai BSDE IJ EQUITY Property Developers 6,210 6,603 10,347 8,650 9,202 8,077 8,323 2,139 1,796 4,920 3,237 3,337 3,095 3,230 Pakuwon Jati PWON IJ EQUITY Property Developers 4,625 4,841 5,718 6,675 8,057 6,332 6,880 1,262 1,671 1,873 2,155 2,629 2,206 2,431 Waskita Karya WSKT IJ EQUITY Property Construction 14,153 23,788 45,213 45,733 58,340 51,976 59,566 1,048 1,713 3,882 3,923 4,549 4,322 4,653 Wijaya Karya WIKA IJ EQUITY Property Construction 13,620 15,669 26,176 32,495 42,114 32,373 39,398 625 1,059 1,202 1,416 1,847 1,452 1,695 Pembangunan Perumahan PTPP IJ EQUITY Property Construction 14,217 16,459 21,502 26,925 34,230 27,189 32,873 740 1,020 1,453 1,707 2,011 1,723 2,105 Adhi Karya ADHI IJ EQUITY Property Construction 9,390 11,064 15,156 22,395 25,728 19,193 21,505 464 313 515 765 876 822 1,044 Total Bangun Persada TOTL IJ EQUITY Property Construction 2,266 2,379 2,936 3,512 4,171 3,073 3,243 191 223 245 299 342 259 266 Astra International ASII IJ Equity Miscellaneous Automotive 184,196 181,084 206,057 206,353 210,329 219,681 237,098 14,464 15,156 18,881 20,032 20,349 20,965 23,238 Total 1,182,080 1,261,887 1,425,108 1,553,030 1,707,773 1,563,059 1,706,785 159,859 181,057 206,586 230,014 260,380 233,113 260,724 Growth YoY 6.8% 12.9% 9.0% 10.0% 9.7% 9.2% 13.3% 14.1% 11.3% 13.2% 12.8% 11.8% Source: Bloomberg, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 29 | Don’t fight the current How far will USD strengthen?

Underperformance of Indonesian market is largely driven by foreign net selling

BI’s aggressive tightening should keep rupiah stable Value of rupiah is 5%/ 12% lower vs. 10yr avg./ 2010

(Real value, 2010=100) (USD/IDR) USD/IDR (L) Dollar index (R) (USD) 105 2010=100 15,000 105 100 95 103 90 10yr avg. @ 92.7 88.2 14,500 85 101 80 99 75 14,000 70 97 1/08 1/09 1/10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 1/18 Source: BIS, Mirae Asset Sekuritas Research 13,500 95 Policy rate gap (Indo – US) has started to widen

93 (IDR) USD/IDR (L) Policy rate gap (%) 13,000 14,000 5.5 91 13,800 5.0 13,600 4.5 89 12,500 13,400 4.0 13,200 3.5 87 13,000 3.0 12,000 85 12,800 2.5 1/15 7/15 1/16 7/16 1/17 7/17 1/18 12,600 2.0 5/16 9/16 1/17 5/17 9/17 1/18 5/18 Source: Bloomberg, Mirae Asset Sekuritas Research Source: Federal Reserve, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 31 | Investment sentiment is extremely fragile

• Underperformance of Indonesian market is largely driven by foreign net selling • Who have questioned the growth prospects amid low inflationary environment

Indonesia is not so good, but not the worst performer Foreigners continue to sell Indonesian equities

(YTD, %) (YoY, %) (IDRtr) 5 5.0 Cumulative foreign net purchase (R) 40 2.4 1.6 1.3 Inflation (L) 0.6 20 0 -0.8 -0.5 4.5 0 -2.3 -2.3- 1.9 -5 -3.2 -20 -4.2 -4.4 -5.3 -5.0 -7.1 -6.6 4.0 -40 -7.5 -7.5 -7.8 -10 -60

-15 -13.5 3.5 -80 -100 -18.4

-20 3.0 -120

HK

Italy

Brazil

Korea

Japan

France Mexico

Taiwan -140

Vietnam

S&P500

Thailand

Australia

Malaysia

Germany

FTSE100 Shanghai

MSCI EM MSCI

Indonesia

Singapore Philippines MSCI World MSCI 2.5 -160 10/16 1/17 4/17 7/17 10/17 1/18 4/18

Note: Local currency basis as of June 25, 2018 close Source: BI, Mirae Asset Sekuritas Research Source: Bloomberg, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 32 | Foreigners are selling…

• The sensible temperature is colder than what the headline suggests

Foreigners have been actively selling large caps YTD Performance of top 10 large cap names

Top 20 market cap / Total market cap (L) (IDRtr) Ticker Description Mkt. Cap (IDRtr) YTD Cumulative foreign net purchase (R) JCI COMPOSITE 5,803.2 -7.8% 52% 70 BBCA BANKS 547.3 +1.4% HMSP CONSUMER 415.3 -24.5% 50% 20 TLKM UTILITIES 368.9 -17.6%

49% -30 BBRI BANKS 356.5 -20.6% UNVR CONSUMER 343.4 -19.5% 47% -80 BMRI BANKS 312.7 -16.3% ASII AUTOMOBILE 267.2 -20.5% 46% -130 GGRM CONSUMER 138.1 -14.4% BBNI BANKS 136.1 -26.3% 44% -180 1/17 4/17 7/17 10/17 1/18 4/18 UNTR MINING 122.4 -7.3% Source: IDX, Mirae Asset Sekuritas Research Source: Mirae Asset Sekuritas Research Note: Price as of June 25, 2018

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 33 | Passive funds have taken center stage • Redemption of index funds equates to large-cap basket selling… • …and passive funds have little interest in the fundamental value of individual companies

EM flows (active vs. passive) Asia ex. Japan flows (active vs. passive)

(USD bn, cumulative) (USD bn, cumulative) 150 30 Net Active Passive Net Active Passive 20 100 10 0 -10 50 -20 -30 0 -40 -50 -50 -60 -70 -100 -80 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018

Source: EPFR, Alpha Strategy Team, Mirae Asset Sekuritas Research Source: EPFR, Alpha Strategy Team, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 34 | How deep is your pocket? • Foreigners have aggressively sold Indonesian equities • However, from a broad perspective, investors still like EM equities

Foreign net purchase trend (Annual) Top 5 creations (All ETFs) Net flow (USDmn) YTD 2yr 5yr 10yr ETF (Top creations / 12/17~ 06/18) (USDbn) Net purchase -3,353 -5,623 -2,067 +4,560 IEFA iShares Core MSCI EAFE 18.2 (USDmn) IEMG iShares Core MSCI Emerging Markets 8.1 5,000 iShares Short Treasury Bond 6.8 Vanguard S&P 500 5.9 4,000 3,598 3,765 iShares Core S&P 500 ETF 5.5 3,000 Source: ETF.com, Mirae Asset Sekuritas Research 2,000 1,000 Top 5 redemptions (All ETFs) Net flow 0 ETF (Top redemptions / / 12/17~ 06/18) (USDbn) -1,000 SPDR S&P 500 ETF Trust -13.5 -2,000 -1,735 -1,798 IEFA iShares Core MSCI EAFE -7.5 -3,000 -2,270 iShares iBoxx USD Investment Grade Corp Bond -4.9 -4,000 -3,353 iShares Russell 1000 Value -4.1 2003 2005 2007 2009 2011 2013 2015 2017 IEMG iShares Core MSCI Emerging Markets -3.7 Source: Bloomberg, Mirae Asset Sekuritas Research Note: December 22, 2017~ June 22, 2018 Source: ETF.com, Mirae Asset Sekuritas Research

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 35 | Don’t fight the current: Our new 12MF JCI target is 6,479pt (2.5x P/B) • It’s quite difficult to build arguments based on price attractiveness as valuations are stuck in the middle (2.3x) against the 10yr avg. (2.6x) and the trough cycle (2.0x) • However, we believe external headwinds are less likely to derail Indonesian economy – We see market trending to the upside vs. downside

(Trailing P/B, x) 4.0

3.5 LT target 3.5x

Post GFC to taper tantrum 3.0 avg. 2.9x

10yr avg.: 2.6x 2.5

Trough cycle 2.0x 2.0

1.5

1.0 1/05 1/07 1/09 1/11 1/13 1/15 1/17 1/19

Source: Bloomberg, Mirae Asset Sekuritas Indonesia Research Note: Price close as of June 22, 2018

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 36 | Investment strategy

• Concerns are building and valuations are being squeezed • Recent challenges are externally originated with too many moving parts to the equation • Reiterate tactical underweight; Don’t fight the current

Markets in 1H18 Growing concerns in 2H18 How to position?

Low inflation Game of Monopoly Concerns: Corporate earnings, Recommend companies, industries government intervention, macro growth that have monopoly characteristics

Contagion of external Strong dollar Betting on Indonesia challenges to the Concerns: Pressure of rupiah, Normalization of monetary policy domestic market monetary tightening, fund outflows should keep rupiah steady

Investment flows Stock picker’s market Concerns: Large cap squeeze, ugly Switching gears from top-down to returns, index funds unwind bottom-up (Mid-to-small caps)

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 37 | Stock recommendations Aneka Tambang (ANTM / Buy / TP IDR1,400)

In the sweet spot June 24, 2018

Company description ANTM is a key member of Inalum Nickel LME Stocks • An integrated and diversified mining and metal company which its business segment is classified into nickel, gold, refinery and other operating segments. • Market cap: IDR21.4tr / Last: IDR910 / TP: IDR1,400 • Analyst: Andy Gunawan

Investment thesis • ANTM obtained an approval from ESDM minister to export nickel and bauxite ore for one year. ANTM could export Foreign net purchase trend 2.7mn wmt low-grade nickel ore and 840,000 wmt bauxite ore, starting from April this year. This approval from ESDM minister is in line with our expectation as Indonesian government wants to see ANTM’s earnings improve for the sake of Inalum’s (ANTM’s parent company) balance sheet. We think this is part of the government’s plan for Inalum to acquire approximately 40% of stake in PT Freeport Indonesia (PTFI). Summary of financials and valuations • Nickel prices have been supported by falling inventories (IDRbn) 2014 2015 2016 2017 2018F 2019F and rising Chinese demand right from the onset of 2018. Revenue 9,421 10,532 9,106 12,654 25,582 24,607 Nickel ore imports by China have more than doubled to 6.6 Operating Profit -137 -701 8 601 1,583 2,150 million tonnes in the first quarter of 2018 compared to same Net profit -744 -1,441 65 136 1,105 1,484 period in 2017. LME Nickel stocks are currently standing at OP Margin (%) -1.5 -6.7 0.1 1.1 6.2 8.7 four-year low below 3mn tonnes. P/E (x) NM NM 285.5 135.6 19.8 14.7 P/B (x) 1.5 1.0 1.0 1.0 1.1 1.1 Risks RoE (%) -6.2 -7.9 0.4 0.7 5.7 7.3 • Unexpected downturn of the global manufacturing activity RoA (%) -3.4 -4.7 0.2 0.5 3.4 4.4 • Sharp rise in the value of the US dollar Source: Company data, Mirae Asset Sekuritas Indonesia Research | 39 | Barito Pacific (BRPT / Buy / IDR2,850) Transforming into a petrochem giant June 24, 2018

Company description Ample growth opportunities Clear inorganic growth blueprint • Barito Pacific is a fully diversified resource-based enterprise Others Import Chandra Asri primarily engaged in the petrochemical industry It’s the 100% 80% holding company of Chandra Asri (TPIA/ ownership 45%) 60% 24 53 100 • Market cap: IDR35.9tr / Last: IDR2,160 / TP: IDR2,850 40% 45 20% 52 • Analyst: Taye Shim 24 29 0%

Investment thesis Olefin Styrene

• We like BRPT for its 1) superior management team, 2) Monomer Polyethylene strong capability to capture the growing demand for Polypropylene petro-chem products, and 3) clear blueprint in diversifying Foreign net purchase trend its business portfolio (petrochem + geothermal + power plant) and 4) recent inclusion into the LQ45 index. • BRPT’s acquisition of majority stake (66%) in Start Energy Group (Completion 2Q18) is expected to reduce the cyclicality of its earnings stemming from its petrochemical business. We view this development to be a premium factor. • Petrochem organic expansion plans: In 2Q18, butadiene capacity will increase by around 37KT to 137KT. In addition, Summary of financials and valuations new synthetic rubber capacity is set to come online in 3Q18. (USDmn) 2014 2015 2016 2017 2018F 2019F • BRPT is expected to establish a JV with Indonesia Power to Revenue 2,477 1,406 1,961 2,453 2,735 3,150 venture into the power generation business (Indo Raya Operating Profit 32 65 408 540 619 716 Tenaga 2 x 1,000MW capacity; Financial closure expected Net profit -9 -5 132 118 131 155 in 2018). OP Margin (%) 1.3 4.6 20.8 22.0 22.6 22.7 P/E (x) N/A N/A 17.9 19.2 17.4 15.2 Risks P/B (x) 2.2 2.0 1.6 1.1 1.1 1.1 • Sharp increase in oil prices and other cost input materials RoE (%) N/A N/A 9.1 5.9 6.5 7.3 • Unexpected macro slowdown RoA (%) N/A N/A 5.1 3.2 3.7 4.2 Source: Bloomberg, Mirae Asset Sekuritas Indonesia Research | 40 | Ramayana Lestari Sentosa (RALS/ Trading Buy / TP IDR1,615)

A lifestyle shopping center June 24, 2018

Company description Revenue breakdown Buy 3 for IDR100,000: Cash based • PT Ramayana Lestari Sentosa operates department stores Consignment Non-fashion Fashion 100% in Indonesia which sell items such as clothes, accessories, 11% 13% bags, shoes, cosmetics, and daily needs. Its department 80% stores are known as Ramayana, Robinson, and Cahaya. 60% 45% 37% • Market cap: IDR10.1tr / Last: IDR1,425 / TP: IDR1,615 40% 45% 50% • Analyst: Christine Natasya 20%

0% Investment thesis • Ramayana’s business restructuring of closing down unprofitable supermarket stores is likely to gain steam as Foreign net purchase trend shareholders agreed to appoint Jane Melinda Tumewu as the vice president director. Previously, Ms. Tumewu held the position of the company’s marketing and merchandising general manager. • During 1Q18, RALS exhibited strong revenue growth (+10% YoY) from its fashion department, stemming from its consignment sales (+14% YoY). • Earnings improvement is largely driven by enhanced Summary of financials and valuations purchasing power in the absence of administered price (IDRbn) 2014 2015 2016 2017 2018F 2019F hikes (more broadly speaking, low inflationary Revenue 7,941.7 7,786.2 8,234.6 8,145.9 8,670.7 8,991.2 environment). Operating Profit 294.3 233.5 357.4 356.4 485.3 493.0 • For 2018, the company is targeting blended SSSG of 1.5%- Net profit 355.7 336.1 408.5 406.6 507.6 541.1 3%, with fashion SSSG expected to come in between 5%- OP Margin (%) 3.7 3.0 4.3 4.4 5.6 5.5 8% and supermarket SSSG to remain negative (around - P/E (x) 26.9 28.5 23.5 23.6 18.9 17.7 10% to -15%). P/B (x) 2.9 2.9 2.9 2.7 2.5 2.3 RoE (%) 10.9 10.1 12.2 11.9 13.9 13.7 Risks RoA (%) 7.9 7.4 8.9 8.5 10.0 10.0 • Unexpected downturn of the domestic economy Source: Company data, Mirae Asset Sekuritas Indonesia Research • Sharp rise in oil price and inflation | 41 | Buyung Poetra Sembada (HOKI / Trading Buy / 1,040)

Reading between the lines June 24, 2018

Company description Price: Wet vs. modern markets High demand for Topi Koki • PT. Buyung Poetra Sembada produces and distributes rice in Indonesia. The company was founded in 2003 and is headquartered in Jakarta Timur. The company has strong rice distribution reach in modern channels • Market cap: IDR2.1tr / Last: IDR905 / TP: 1,040 • Analyst: Andy Wibowo Gunawan

Investment thesis • Last August, in an attempt to curb inflation, Indonesian government released a regulation setting a price ceiling for Foreign net purchase trend rice sales (HET). Management claimed that the one-off costs related to the compliance of the new regulation would be around IDR30bn~ IDR40bn. Since the implementation of the new regulation, price differentiation was witnessed between the traditional market and the modern market -> Rice was sold higher at traditional markets vs. modern markets. Simply, consumers are now heading to modern channels to buy rice (where HOKI has strong footprints). Summary of financials and valuations • Company seems to be excited about 2018 performance (IDRbn) 2014 2015 2016 2017 2018F 2019F driven by higher demand boosting its revenue and as the Revenue 518.3 658.3 1,146.9 1,209.2 1,500 1,857 extraordinary expense in 2017 should be non-recurring. Operating Profit 28.2 41.5 77.3 81.5 133 182 • Fading issues related to the recent rumors on HET price Net profit 13.6 32.2 43.8 48.0 89 125 adjustments by the regulators OP Margin (%) 5.4 6.3 6.7 6.7 8.9 9.8 P/E (x) N/A N/A N/A 14.3 19.5 13.8 Risks P/B (x) N/A N/A N/A 1.7 3.2 2.8 • Unexpected changes to the HET (Price ceiling for rice RoE (%) N/A 54.2 22.2 13.8 17.5 21.6 sales) regulation RoA (%) N/A 18.8 12.5 10.1 13.5 15.9 Source: Company data, Bloomberg consensus | 42 | Telekomunikasi Indonesia (TLKM / Buy / TP IDR5,000) Retaining the throne June 25, 2018

Company description Highest EBITDA margin Justified premium

• TLKM (Gov. ownership 52%) is the leading telco service (%) 49.8 (IDR '000) as of 1Q18 ARPU by telco companies 50 50 as of 2017 provider and largest mobile operator in Indonesia, with 43 196.3mn mobile subscribers as of 2017. 40 36.1 40 • Market cap: IDR360.9tr / Last: IDR3,660 / TP: IDR5,000 34.1 34 • Analyst: Giovanni Dustin 30 30 20 20 20 Investment thesis 10 10 TLKM ISAT EXCL TLKM ISAT EXCL • TLKM’s superiority outside Java allows it to secure a leading market position, which puts the company in a Foreign net purchase trend distinctive position that allows TLKM to have strong pricing advantage over peers. • Strong financial footings: A strong balance sheet and stable cash flow will enable TLKM to retain its throne as the market leader (cash flow from operations: IDR49.4tr and EBITDA margin of 49.8% in 1Q18 – the highest among peers). Summary of financials and valuations • TLKM’s earnings generation ability remains intact on the back of its superior infrastructure, legacy services (IDRbn) 2014 2015 2016 2017 2018F 2019F Revenue monetization capability, and favorable fixed line and 89,696 102,470 116,333 138,256 138,521 150,119 Operating EBITDA broadband business outlook. 45,673 51,415 59,498 64,609 69,619 75,463 Net profit 14,471 15,489 19,352 22,145 24,334 27,138

EPS growth (%) 1.9 7.0 24.9 14.4 9.8 11.5 Risks P/E (x) 28.8 26.9 21.6 18.8 17.1 15.3 • Stronger-than-expected competition that could lead to a P/B (x) 4.8 4.5 4.0 3.7 3.3 3.0 disruptive price war RoE (%) 16.8 16.6 18.3 20.3 20.6 20.6 • Sudden and drastic changes to the regulations RoA (%) 10.2 9.3 10.8 11.7 11.8 11.9 Source: Bloomberg, Mirae Asset Sekuritas Indonesia Research Kalbe Farma (KLBF/ Buy / TP IDR1,730) Valuation call on heavy discount June 25, 2018

Company description Valuations trading at >-2STD KBLF: Heavy d/c compared to past (x) (IDR) USD/IDR (L) (IDR) • Kalbe Farma (KLBF) is an integrated healthcare company Avg. USD/IDR in Indonesia. Four business divisions: prescription, 45 15,000 KLBF (R) 2,000 +2 st.dev 14,500 Avg. KLBF consumer health, nutritionals, and distribution divisions. 40 1,800 +1 st.dev 14,000 • Market cap: IDR60.7tr / Last: IDR1,295 / TP: IDR1,730 13,500 35 Average 1,600 • Analyst: Mimi Halimin 13,000 -1 st.dev 30 12,500 1,400 -2 st.dev 12,000 Investment thesis 25 1,200 • We believe health awareness in Indonesia will keep 11,500 20 11,000 1,000 improving, along with the government’s health programs 6/13 6/14 6/15 6/16 6/17 6/18 1/15 1/16 1/17 1/18 and the country’s better economic conditions, which will Foreign net purchase trend trigger people to spend more on health products, such as nutritionals and supplements. • We believe KLBF’s well-diversified and integrated business will be able to cater to the rising demand for healthcare products and services, especially in rural areas. • Given recent sharp price decline, we believe KLBF deserves a second look – Valuations are trading below -2STD while we see no severe threat to earnings: Revenue Summary of financials and valuations IDR5.0tr (1Q18) vs. IDR4.9tr (1Q18), OP IDR840bn (1Q18) (IDRbn) 2014 2015 2016 2017 2018F 2019F vs. IDR822bn (1Q17). Revenue 17,369 17,887 19,374 20,528 22,135 23,992 • Assuming limited upside to USD, we believe current Operating Profit 2,763 2,647 3,057 3,127 3,474 3,656 valuations present attractive entry point. Net profit 2,066 2,004 2,300 2,387 2,659 2,770 EPS growth (%) 7.3 -2.3 14.0 4.1 11.8 13.4 Risks P/E (x) 37.8 38.9 33.9 32.7 29.4 25.5 • Higher-than-expected strength of the US dollar and P/B (x) 8.4 7.5 6.6 5.9 5.3 4.3 commodity prices, which can hamper KLBF’s profitability as RoE (%) 22.1 19.2 19.3 18.0 17.9 17.0 we believe the pharmaceutical industry will still depend on RoA (%) 16.6 14.6 15.1 14.2 14.3 1.8 imported raw materials in the short- to medium-term. Source: Company data, Mirae Asset Sekuritas Indonesia Research | 44 | Appendix: Economic projections Mirae Asset Sekuritas Indonesia Macro projection

Revised Before Consensus

Unit 2017 2018F 2019F 2018F 2019F 2018F 2019F Real GDP growth YoY, % 5.1 5.2 5.3 5.3 5.5 5.3 5.4 Private consumption YoY, % 5.0 5.1 5.2 5.2 5.3 Government spending YoY, % 2.1 4.7 5.1 4.7 5.0 Investments YoY, % 6.2 4.7 5.3 4.7 5.5 Exports YoY, % 9.1 7.9 9.1 10.7 11.3 Imports YoY, % 8.1 7.9 9.9 9.3 11.6 CPI %, avg. 3.8 3.6 4.0 4.5 4.5 3.5 3.9 Current account balance % of GDP -1.7 -2.0 -2.2 -1.2 -1.2 -2.1 -2.2 Budget balance % of GDP -2.7 -2.6 -2.6 -2.5 -2.2 -2.5 -2.5 Policy rate End, % 4.25 5.50 6.00 4.75 5.00 4.75 4.95 USD/IDR IDR, avg 13,400 13,700 13,600 13,550 13,500 13,900 13,800

Source: Mirae Asset Sekuritas Research Note: Consensus figures based on Bloomberg (June 24, 2018)

Mirae Asset Sekuritas Indonesia Research Don’t fight the current| 46 | Important Disclosures & Disclaimers

Disclosures As of the publication date, PT Mirae Asset Sekuritas Indonesia, and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Indonesian jurisdiction and are subject to Indonesian securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of , PT Mirae Asset Sekuritas Indonesia, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or , PT Mirae Asset Sekuritas Indonesia except as otherwise stated herein.

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