Global Equity Research ab Indonesia

UBS Investment Research Real Estate

Indonesian Property Sector Sector Comment

Superblock season 6 February 2008

www.ubs.com/investmentresearch „ Positive background for the property sector We expect the regulatory environment to become more favourable because of Felicia Tandiyono anticipated real estate investment trust (REIT) incentives and possible deregulation Associate Analyst of foreign ownership on property assets. We expect slow progress on [email protected] infrastructure, at least for the next two years, resulting in a preference for city +62-21-2554 7037 living.

„ Supportive demand and supply dynamics We believe demand dynamics are supported by attractive property yields (>10% except for office), lower mortgage rates, and favourable demographics. Supply dynamics suggest limited financing options are restricting developers’ expansion capability, in our view, although there was some improvement late last year.

„ We favour superblock developments around the central business district We favour strata-titled apartments built within a superblock compound around the central business district (CBD) area. Apartment demand is shifting towards end- user purchase. We believe this segment will also be the first to benefit from any relaxation of the law on foreign ownership of property. Superblocks also provide exposure to lease properties, which we expect to benefit from REIT incentives.

„ We prefer Lippo Karawaci and Ciputra Development We initiate coverage of Lippo Karawaci (LPKR) with a Buy rating and Rp860 price target, and Bakrieland (ELTY) with a Sell rating and Rp540 price target. We upgrade Ciputra Development (CTRA) from Sell to Buy, and raise our price target to Rp1,000 on strong 2007 sales. We upgrade Summarecon Agung (SMRA) from Neutral to Buy, however, we lower our price target to Rp1,300, mainly due to below-expectation 2007 performance. We upgrade Kawasan Industri Jababeka (KIJA) from Sell to Neutral, but lower our price target to Rp200.

Summary of UBS Indonesian property company ratings and changes

Last Rating PT Prem/Disc EPS 2007E EPS 2008E EPS 2009E PE (x)

Company Price Old New Old New RNAV 08E Old New Old New Old New 08E 09E

SMRA Summarecon 1,030 Neutral Buy 1,435 1,300 -32% 62 51 79 61 99 76 21.5 17.0

KIJA Jababeka 185 Sell Neutral 212 200 -8% 7 6 8 8 9 11 22.5 17.1 CTRA Ciputra Development 710 Sell Buy 862 1,000 -31% 12 15 16 22 28 24 33.4 30.1

ELTY Bakrieland Development 630 NA Sell NA 540 17% NA 9 NA 9 NA 11 68.7 54.4

LPKR Lippo Karawaci 630 NA Buy NA 860 -27% NA 19 NA 24 NA 31 26.8 20.4

Source: UBS estimates

This report has been prepared by PT UBS Securities Indonesia ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 75. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Indonesian Property Sector 6 February 2008

Contents page Felicia Tandiyono Associate Analyst Summary and investment case 3 [email protected] +62-21-2554 7037 Industry analysis 6

Industry risks 14 Valuation and comparables 15 Company pages 20 — Bakrieland Development ...... 21 — Investment case ...... 22 — Company risks...... 24 — Financials...... 25 — Price target derivation ...... 30 — Company background ...... 33 — PT Lippo Karawaci...... 40 — Investment case ...... 41 — Company risks...... 43 — Financials...... 44 — Price target derivation ...... 49 — Company background ...... 52 — Ciputra Development ...... 60 — Investment case ...... 61 — Financials...... 63 — Kawasan Industri Jababeka Tbk PT ...... 66 — Investment case ...... 67 — Summarecon Agung ...... 70 — Investment case ...... 71

UBS 2

Indonesian Property Sector 6 February 2008

Summary and investment case We favour superblock developments We favour superblocks: all-in-one We believe all-in-one complexes offer a solution to the preference for city living vertical township developments as well as the potential of sales to REITs (lease assets), and that they will benefit from the deregulation of foreign ownership of property assets (strata-titled apartments). Furthermore, we view strata-titled apartments within a superblock compound to have advantages over traditional apartment blocks given current conditions. In the longer term, we favour landed residential in the southwestern quadrant of Greater Jakarta for property developers to fall back on.

Regulation revamp—two changes already passed Positive potential regulation changes: Investors are awaiting packages on tax incentives from REIT issuance and two new packages have been delivered; foreign property holding deregulation. We expect clarity on the former this year more are expected and expect intensified lobbying efforts by developers’ associations on the latter. Two regulatory changes have already been passed. These are a legal framework for REITs, issued by Bapepam (Indonesia’s capital market supervisory body) on 19 December 2007, and a new property sales tax (final versus progressive). We believe both regulations are intended to benefit developers and are advantageous to superblock development.

Foreign property holding scheme becomes clearer The government has made efforts to update the National Agrarian Law. We expect foreign individuals to be allowed to hold longer freehold leases. The current permitted lease is 25 years, easily extendible for a further 20 years. Our checks in the industry suggest the term of an initial lease will potentially be increased to 75 years, renewable thereafter. We expect strata-titled apartment buyers to benefit first, given the 11% investment yield potential as well as possible end-usage.

Recent rise in end-use demand for apartments Demand shift towards city living There has been a noticeable recent rise in end-use demand for apartments. This because of slow infrastructure demand is difficult to quantify given weak data. Anecdotal evidence from real development estate consultants suggests 40% of purchases are by end-users, up from 10-15% in early 2000. The difference is in civil engineering activity. There was a sharp pick-up in civil engineering work in 2001. At that time, a preference emerged for suburban living, mostly in areas which became satellite cities in mid-2000. However, there has been no major increase in infrastructure-related construction since then. Toll-road construction takes two-to-three years, and most of those planned are still at the land acquisition stage.

Another segment would benefit from infrastructure development… A shift towards suburban residential is possible in the longer term. In our view, the area to benefit most would be the southwest quadrant of Greater Jakarta. The catalyst for the area will be the tollroad JORR section W1 (due for completion in 2010) and JORR 2 (due for completion in 2012).

UBS 3

Indonesian Property Sector 6 February 2008

…but we expect slow progress on infrastructure Our view is that infrastructure development will continue to be slow, at least for several more years, so the preference will be for city living. This is best incorporated in the superblock concept, a single site that includes mixed-use development (strata- titled) and investment (lease) properties owned by one developer.

Three superblocks under construction Construction of three superblocks within a 5km radius of the heart of CBD is in Three superblocks to watch: Ciputra progress, with a healthy pre-sales rate. They are Ciputra World Jakarta, Kemang World, Kemang Village and Rasuna Village, and Rasuna Epicentrum. All are owned by listed property companies: Epicentrum Ciputra Property (88% ownership); Lippo Karawaci (94% ownership); and Bakrie Development (95% ownership), respectively. Ciputra Property is 51% owned by Ciputra Development. Our preferred stocks are LPKR and CTRA Both LPKR (initiate with a Buy rating and a price target of Rp860.00) and LPKR: set to expand—initiating CTRA (upgrade to a Buy rating and raising our price target to Rp1,000.00) have coverage with a Buy rating exposure in segments we favour, ie superblock projects, strata-titled apartments within a superblock development and Greater Jakarta landed residential. We believe both companies will have sizeable investment property portfolios ready CTRA: exploring land bank potential— to be placed into a REIT in time. Indeed, Lippo Maple Tree REIT has indicated upgrade rating from Sell to Buy it will purchase retail lease assets from LPKR while we believe CTRA could be a pioneer in the local REIT scene when clear incentives are provided.

ELTY (initiate with a Sell rating and a price target of Rp540.00) has superblock ELTY: ability to develop more than exposure, however we are cautious about its diversification into the priced-in—initiating coverage with a infrastructure sector. We believe the high upfront capex nature of toll-road Sell rating projects and the company’s simultaneous development expansion could potentially put strain on cash-flow. However, we believe its wider pool of current financing options is advantageous.

Another company with infrastructure exposure is KIJA. We are upgrading our KIJA: upgrade from Sell to Neutral rating on this company from Sell to Neutral, but we are lowering our price target rating—aiming to provide integrated 5.7% to Rp200.00, mainly because of a recent share price correction. industrial estates Furthermore, we upgrade SMRA to a Buy rating with a target price of RP1300.00. We upgrade the stock because we believe it is oversold after a SMRA: upgrade to Buy from Neutral— recent share price correction. We lower our price target price as a result of oversold after recent correction, in our adjustments to a disappointing north Jakarta apartment sales rate since 2005 and view no significant development of the Bekasi land bank in 2007. SMRA’s strength continues to be in developing landed residential and retail leasing, in our view. Our NAV-derived price target is calculated using different methods for the two separate asset categories. We use the discounted development profit method for development properties. This is essentially a DCF valuation (10-year), however, the growth rate applied is 2.5x book value of raw land bank to terminal value. The growth-rate differentiates developers’ capabilities in replenishing their land banks. The terminal growth rate considers the Indonesia property sector average P/BV 2.5x. We further cross check our implied Rp/raw land bank sqm with the actual cost of purchasing raw land. Our investment property valuation employs a single capital rate method, whereby the capital rate is determined by the weighted average cost of capital minus the company-specific growth rate.

UBS 4

Indonesian Property Sector 6 February 2008

Table 1: Near-CBD superblock project exposure

Development properties Investment properties % RNAV 08E % RNAV 09E CTRA apartment apartment, retail 9% 28% ELTY apartment, office office, retail 54% 68% KIJA NA NA NA NA LPKR apartment retail 13% 50% SMRA NA NA NA NA

Source: Company, UBS estimates

Table 2: Property segment outlook

Property segment outlook 2008E UBS view Demand Supply Price outlook Apartment ++ Strong Large + 10-15% Industrial - Mild Large + 0-5% Office + Mild to strong Large + 10% Landed residential + Mild to strong Large + 10-15% Retail 0 Mild Large + 0-5%

Property segment outlook 2007 UBS view Demand Supply Price outlook Apartment + Mild to Strong Large + 5-10% Industrial 0 Mild Large + 5-10% Office 0 Mild Large + 5% Landed residential ++ Mild to strong Large + 10% Retail 0 Mild to weak Large 0%

*Note: UBS view ranges from --- to +++, with 0 being neutral Source: UBS estimates

UBS 5

Indonesian Property Sector 6 February 2008 Industry analysis UBS versus consensus CTRA: The consensus EPS estimate for CTRA is lower than ours. We believe We believe variance is due to different this is mainly due to a marketing sales booking issue. We apply a 6-18 months perceived outlook for EPS and booking lag for CTRA. Our restated net asset value (RNAV) calculation is more accounting booking assumptions time sensitive to marketing sales booked for the year than the consensus estimate.

ELTY: Our view on this stock is different to the consensus view. Our valuation is lower than consensus because it is based on cash flow from projects known to date, and we also factor in our assumptions on the potential toll-road acquisition. We believe this more than justifies the current market price.

KIJA: We recently upgraded our rating on KIJA to Neutral. Our 2008 EPS estimates do not differ much from consensus, however, our estimates on 2009 EPS does. This is because we factored in a power- plant earnings contribution from late August 2008.

LPKR: Our EPS estimates for LPKR do not differ significantly from consensus. While our target price is the highest among our peers, our estimated EPS figures take into account a time-lag in revenue reporting. This is a standard accounting practice among Indonesian property companies.

SMRA Our EPS estimates for SMRA show large variance from consensus because of a six-18 month revenue-booking-lag assumption applied to marketing sales. Margin pressure from apartment sales is also kicking-in.

Table 3: UBS versus consensus estimates

Sales per share EPS (Rp) Price Target RNAV (Rp bn) 31-Dec-08 31-Dec-09 31-Dec-08 31-Dec-09 UBS Rating (Rp) Bakrieland Development UBS 10,556 15.06 40.14 9.03 11.41 Sell 540 Consensus 74.22 96.26 10.47 12.53 757 Variance -59.17 -56.12 -14% -9% -29%

Ciputra Development UBS 6,519 138.19 219.30 21.57 23.92 Buy 1000 Consensus 223.07 313.25 23.48 32.47 1061 Variance -84.88 -93.95 -8% -26% -6%

Jababeka UBS 2,772 17.09 15.73 8.08 10.61 Neutral 200 Consensus 46.28 59.03 7.58 8.60 284 Variance -29.18 -43.30 7% 23% -30%

Lippo Karawaci UBS 14,889 52.57 77.64 23.51 30.90 Buy 860 Consensus 153.04 177.46 23.63 32.94 754 Variance -100.47 -99.82 0% -6% 14%

Summarecon UBS 4,902 216.06 230.34 51.70 65.14 Neutral 1300 Consensus 385.98 470.90 73.10 96.13 1454 Variance -169.92 -240.57 -29% -32% -11%

Source: Bloomberg (28 Jan 08), UBS estimates

UBS 6

Indonesian Property Sector 6 February 2008

Chart 1: Analysts rating on CTRA (9) Chart 2: Analysts rating on ELTY (9) Chart 3:Analysts rating on KIJA (7)

% Buy % Buy % Buy

% Hold % Hold % Hold

% Sell % Sell % Sell

0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%

Source: Bloomberg (28 Jan 08) Source: Bloomberg (28 Jan 08) Source: Bloomberg (28 Jan 08)

Chart 4: Analysts rating on LPKR (5) Chart 5: Analysts rating on SMRA (9)

% Buy % Buy

% Hold % Hold

% Sell % Sell

0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%

Source: Bloomberg (28 Jan 08) Source: Bloomberg (28 Jan 08)

Two discussion themes on Indonesian property A legal framework governing REITs, issued on 19 December 2007, equates to Regulation changes to improve sector that of mutual funds. But it is not clear when the law on foreign-held freehold leases may be changed. We believe it is important to monitor the latter. In our view, the government intends to boost the property sector through this change.

Rapid infrastructure construction leads to de-urbanisation. In 2000, construction Infrastructure and lifestyle trade-offs was notably more active, particularly in the Central Java area. At the time, a de- urbanisation trend emerged, with Jakarta’s population falling 13% to 8.3 million people (see circles in following tables).

On the other hand, slow infrastructure construction leads to urbanization. From 2001 to 2003 construction activity growth slowed significantly, ranging from - 12% to +12%. The influx into the metropolitan city of Jakarta resumed at a rate of approximately 107,000 people per annum.

UBS 7

Indonesian Property Sector 6 February 2008

Chart 6: Gross construction (civil-engineering work) growth rate

250%

200%

150%

100%

50%

0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 -50%

-100% DKI Jakarta West Java Central Java Yogyakarta East Java

Source: CEIC

Chart 7: Population growth in most the populated island, Java

15%

10%

5%

0%

-5%

-10%

-15% 1998 1999 2000 2001 2002 2003 2004 2005 2006 DKI Jakarta West Java Central Java DI Yogyakarta East Java

Source: CEIC

Strata-titled apartment prices are set to perform well, in our view, for the following reasons:

■ Supportive demand-supply dynamics: There are limited unit completions Three reasons to favour strata-titled scheduled for the next two years. We tracked demand using the pre-sales rate apartments for the latest batch, which averaged 50% in the first year. Demand came from investment-oriented buyers as well as end-users, with an attractive mortgage rate also providing an incentive. Anecdotal evidence from property consultants suggested an increasing shift towards end-user versus investment-oriented purchases. All these factors drive prices upwards, and we believe will potentially lower the January 2008 yield to 11%.

■ Likely to benefit first from potential regulation changes: Strata-titled apartment should be the first property segment to benefit from any regulation changes regarding foreign holding, in our view. Unit ownership differs from land ownership. The sensitive issue lays in land ownership by foreign individuals, the most difficult to challenge and update given the nationalistic nature of the current Agrarian Law.

UBS 8

Indonesian Property Sector 6 February 2008

■ Leaning towards a metropolitan lifestyle: Commuting to and from the CBD can be extremely difficult. Slow progress in roadworks and a lack of effective public transport are frequently blamed. Consequently people find it more convenient to live close to their workplace and shops. Superblocks are intended by developers to be the answer. Recent pre-sales of the Ritz Tower apartments in the Kemang Village superblock compound (one of LPKR’s projects) reached 80% within two months of the August 2007 launch.

■ Lease apartment occupancy expected to reach 75% by end-2008: The vacancy rate in the lease apartment segment has continued to rise following the 1997-98 Asian financial crisis. Two reasons are behind this trend: there has been no significant new unit supply in the past decade; and lease demand returned during early 2000 from professionals, locals and foreigners. We expect lease-apartment occupancy of 75% by the end of 2008.

■ Developers began building lease apartments again during 2005: We expect new supply mostly to be completed in 2007-08—a total of almost 300 units, approximately 15% of existing supply. However, we believe the 2007- 08 supply should be comfortably absorbed by the end of 2008, therefore we expect the balance of units available to remain similar to previous periods.

Chart 8: Average high-rise residential—Rp price Chart 9: Average high-rise residential—US$ price

14 1.6 3000 250 12 1.4 2500 200 1.2 10 2000 1.0 8 150 0.8 1500 6 0.6 100 1000 4 0.4 500 50 2 0.2 0 - 0 - '92 '95 '98 '01 '04 3Q07 '92 '95 '98 '01 '04 3Q07 Purchase (Rp/sqm) LHS Rent (Rp/sqm pa) RHS Purchase ($/sqm) LHS Rent ($/sqm pa) RHS

Source: JLL REIS Source: JLL REIS

Chart 10: Apartment yield—slight downward adjustment forecast

17.0%

15.0%

13.0%

11.0%

9.0%

7.0%

1994 1998 2002 2005 2006 2007 2008E YIELD

Source: JLL REIS, UBS estimates

UBS 9

Indonesian Property Sector 6 February 2008

Chart 11: Strata-titled apartment—demand, supply and sales Chart 12: Lease apartment—demand, supply and occupancy rate trend rate trend

100% 70000 76% 40000 95% 60000 74% 35000 50000 72% 30000 90% 40000 70% 25000 85% 30000 68% 20000 80% 66% 15000 20000 64% 10000 75% 10000 62% 5000 70% 0 60% 0 '02 '03 '04 '05 '06

6m06 9m06 3m07 9m07 '02 '03 '04 '05 '06 9m07 '07-08E '07-08E Cumulative supply (unit) Cumulative Demand (unit) Cumulative supply (unit) Cumulative Demand (unit) Sales Rate Occupancy rate

Source: Procon, UBS estimates Source: Procon, UBS estimates

Table 4: Apartment price growth in 2007

Selling price by locations 2006 (US$/m2) 2007 (US$/m2) Growth pa CBD average 1,229 1,499 22% Other premium areas 1,056 1,193 13%

Source: ICN

We expect strata-titled and lease office rentals to post only modest increases, Office demand is yet to prove resilient merely adjusting for inflation, for the following reasons:

■ Increase in office space in 2007-09: We believe the supply of office space can easily reach 500,000 sqm in three years. Gloomy forecasts by real-estate consultants for 2007 proved to be incorrect by the second half of the year. Net take up for office space rose 27.5% QoQ as of September 2007, according to Procon. Most office expansion came from financial, telecommunication and commodity-related companies, and was sufficient to cover the increase in available space on offer. We expect this trend to continue for another two years. Therefore, we are forecasting a steady yield at 8%.

■ Office lease is a likely asset to be included in a REIT: The legal framework for REITs has been formulated, but incentives, such as tax and accounting treatment, have yet to be finalised. Developers with office lease portfolios could monetise their capital sooner through REIT issuance. But currently, office yields are the lowest of all property segments. This is due to zero supply after the financial crisis and, to an extent, local demand resilience. Hence the strength of the domestic economy is another valid determinant in this segment.

■ Superblock office space may be more attractive than that in regular office buildings: Given the integration of facilities in a superblock compound, we believe office lease owners will be able to charge higher rents because of the commuting convenience, among other factors.

UBS 10

Indonesian Property Sector 6 February 2008

Superblocks are a new phenomenon. We are still monitoring SCBD’s Next to watch, superblock offices progress regarding superblocks to determine whether the integration of different types of property segments will take off significantly in Jakarta.

Chart 13: Supply influx sets back occupancy rate Chart 14: Office yield – steady at 8%

90% 6.5 13% 88% 6.0 12% 86% 5.5 11% 84% 5.0 10% 82% 4.5 9% 80% 4.0 8% 78% 3.5 7% 76% 3.0 6% '02 '03 '04 '05 '06

6m06 9m06 3m07 9m07 5% '07-08E Cumulative supply (sqm) Cumulative Demand (sqm) 1989 1993 1997 2001 2005 2006 2007 2008E Occupancy rate YIELD

Source: Procon, UBS estimates Source: JLL REIS, UBS estimates

The lease retail supply situation is similar to that of office supply. Since 2006, Competitive lease retail space scene occupancy rates have been dropping. The prominent themes relating to this sector are as follows:

■ Tenant dominance to continue: At least 1m sqm of retail space is scheduled to be completed in two years, 2007-08. This is equivalent to almost 20% of existing supply. In 2006, retail lease occupancy rates fell below 80%, to 76%, according to Procon. Occupancy rates began to rise again in the third quarter of 2007 to near the 80% mark (pre-2006, the rate was above 80%).

■ Most attractive asset to place in a REIT: The retail lease segment provides the highest yield among property segments—at 15% in January 2008. It has been the highest for the past decade and has proven its resilience even during times of economic crisis. Going to malls on weekends is now a culture in Indonesia. We calculated the current density to be 1 sqm of retail floor to three people. New supply could potentially lower rental rates.

■ Demand exists for retail in superblock compounds: Prominent malls in CBD are now built with one or more apartment blocks integrated. An example is Plaza Senayan, which has a mall, lease apartments and most recently, added office space.

■ Three new superblock developments under construction: Superblock developments Ciputra World mall, Kemang Village mall and Lifestyle Center in Rasuna Epicentrum are expected to add a total of 115k sqm of retail floor in 2009-10. This is approximately 3% of the total retail floor supply in Q307. We think the value of integrating of office, retail and apartment appears to lie in higher human traffic.

UBS 11

Indonesian Property Sector 6 February 2008

Chart 15: Retail supply supports current tenant-dominated Chart 16: Retail yield—ample premium to risk-free rate market

95% 5 18% 90% 16% 4 Millions 85% 14%

80% 3 12% 75% 2 10% 70% 8% 65% 1 6% '02 '03 '04 '05 '06 6m06 9m06 3m07 9m07

'07-08E 1991 1994 1997 2000 2003 2005 2006 2006 2007 2008E Cumulative supply (sqm) Cumulative Demand (sqm) Occupancy rate YIELD

Source: Procon, UBS estimates Source: JLL REIS, UBS estimates

Assessment of industry attractiveness Chart 17: Porter’s competitive analysis

Threat of new entrants: “Medium/High” Entry barriers are moderate to high given the high capital requirements. Post financial crisis, capital requirements are lower, as developers finance their projects with customers’ advance payments prior to the transfer of property. However, a developer’s reputation still matters.

Bargaining power of suppliers: Bargaining power of customers: “Medium/Low” “Low/Medium” Competitive rivalry in the industry: “Medium” Land owners generally have stronger The bargaining power of customers Indonesia’s property sector is highly fragmented with around 1,800 developers. bargaining power over developers. tends to be weak, as property firms Most participants operate in only one province and are SME businesses (limited Land acquisition is complex and can raise prices in line with the landbank). There are only 20-30 large developers with landbank of more than speculation could drive up land general inflation rate. However, in 500ha. acquisition costs significantly, terms of rising/high interest rates, derailing developers’ growth developers may have to offer price opportunities. discounts to generate sales.

Threat of substitutes: “Low/Medium” Housing is considered a primary need. People aspire to better housing to have an ideal family life. However, consumers have choices over the numerous products offered by property developers.

Source: UBS estimates

UBS 12

Indonesian Property Sector 6 February 2008

Developers’ margins are normally higher when they sell landed residential. The Higher margin from selling residential margin on high-rise projects in Indonesia is typically 10% narrower. The gross land margins of companies under our coverage range from 20%-60%, depending on the type of property.

Net income margin will be affected by a proposed sales tax that will be issued Proposed ‘final sales tax’, effective 1 some time this year, which will be backdated to 1 January 2008. The sales tax is January 2008, to benefit developers applied on revenue, instead of calculated progressively on net profit up to 30%. with a prior NIM above 16.7% Potentially, a tax of up to 5% can be applied to revenue, or 1% if a company is developing subsidised low-cost financing because of the lower margin in developing this segment.

We concluded that developers with a prior net income margin above 16.7% will benefit, and those with a lower prior net income margin will be worse off. Such a tax application may cause a shift towards subsidised low-cost housing, given the net income margin of only 3.3% prior to the change.

UBS 13

Indonesian Property Sector 6 February 2008 Industry risks Social, political and economic stability: growth risk These three are intertwined. The political scene can be peaceful if social issues are properly addressed. Investors are hoping for an uncontested 2009 election to help sustain economic stability. A flourishing economy can provide the means to improve the social situation and an increasing standard of living is an essential factor for property development growth nationwide. Any instability could put property sector growth at risk.

Earthquakes: project execution risk Indonesia is prone to strong earthquakes that can cause structural damage to buildings, particularly high-rises. Property built in Jakarta must meet certain requirements set by the regional government. Contractors are bound to follow the standards, and developers must abide by the regulations.

Contractor and building management: reputation risk The workmanship of contractors chosen for project construction is important to consumers, as is subsequent building management. Developers risk their reputation if they fail in either.

Licence issues: project time-delivery risk Delays in obtaining a project license can push back completion schedules, leading to the later booking of earnings. It can also mean customers are disappointed. Indonesian consumers are sensitive to late property delivery, which was a particular problem after the 1997-98 financial crisis. This can affect a developer’s reputation, causing pre-sales marketing to stagnate.

Intense competition: price risk There are an estimated 1,800 developers in the country and intensifying competition can lead to two types of price risk: high land acquisition bids, which potentially shave developers’ margins; and property selling prices falling below developers’ projections.

Related-party transaction: transfer pricing risk According to current Indonesian property regulations, a business entity can only own one plot of land. To get around this restriction, it is common in Indonesia for a property company to be the holding company of extended list of subsidiaries, which each own a separate land plot. Consequently, property companies can engage in related party transactions through this cascading structure. Low corporate governance may further induce transfer pricing risk.

UBS 14

Indonesian Property Sector 6 February 2008 Valuation and comparables Price target derivation We believe our valuation method for property companies differs from that of We believe our valuation method differs others, which commonly use a method where valuation is a proxy to the market from consensus value of a land bank. Our method attempts to value property-developing activities, instead of just land trading. We separate property assets into two categories, assuming a different nature and schedule of cash-stream for each. (1) Development properties

Table 5: Key assumptions

All CTRA ELTY KIJA LPKR SMRA Year forecast 10 Risk free 9.3% Beta 1.1 MRP 5.0% Cost of Equity 14.8% Cost of Debt 14.0% 12.5% 12.5% 13.0% 13.0% Cost of debt after tax 9.8% 8.8% 8.8% 9.1% 9.1% Weight of Equity 0.7 0.7 0.7 0.7 0.7 0.7 Weight of Debt 0.3 0.3 0.3 0.3 0.3 0.3

WACC 2.9% 2.6% 2.6% 2.7% 2.7% Terminal growth rate 3% 1% 3% 3% 1%

Capitalisation rate 10% 13% 13% 10% 13% Growth rate 3% 0% 0% 3% 0%

Source: UBS

The valuation method we use is a discounted development profit method. We use the discounted development This is essentially a 10-year DCF. However the terminal growth rate we profit method for development (strata- apply is limited to raw land bank value. This is done to differentiate titled) property assets developers’ capability in replenishing land banks, given the 10-year forecast cash-flows already earned from developing the land banks they hold. The terminal value, influenced by the assumed terminal growth rate, is then cross-checked. We apply 2.5x Indonesia property sector average P/BV. We acknowledge the present market value of the asset by assigning terminal value at 2.5x raw land bank book value. We further check our raw land bank price per sqm with the cost of acquiring new land. The terminal growth rate is either 1% or 3%, depending on the book value limitation mentioned. We assume 1% growth for ELTY (<400 ha land bank) and SMRA (>600 ha land bank), due to their lower ability to replenish their land banks (Note, this has no relation to their capability to acquire land). We assume 3% growth for developers with larger land banks (CTRA, KIJA and LPKR with >1000 ha) since they are likely to be able to replace land sold faster, given the current availability of land owned.

UBS 15

Indonesian Property Sector 6 February 2008

Our WACC derivation assumes 9.3% risk free rate, 5% risk premium, 1.1 beta assumptions and 30:70 debt to equity weighting. We acknowledge slight variations in weightings for specific companies. We believe, however, that in general, property companies are not highly leveraged (<30%) due to current bank and debt-market sentiment on lending to the sector. Sentiment has not changed significantly since the 1997-98 crisis. Nonetheless, we have witnessed improving sentiment for lending to the sector, specifically to developers. The variation in the cost of debt varies 150bp for the five companies we cover. More recent debt costs less than older borrowing. CTRA pays highest cost of debt. This is because it hasn’t introduced any sizeable new debt to its balance sheet for several years. In the middle are LPKR and SMRA. Companies that sought sizeable debt financing in 2007 fared better, paying an estimated weighted average 12.5%, ie KIJA and ELTY (in progress).

We assumed a beta of 1.1. Property companies naturally trade at higher than market beta given cyclicality. Historically, beta for the five companies covered stretched from 0.60 to 1.47. There is a liquidity factor in play here. Companies with higher liquidity posted higher beta.

(2) Investment properties

Table 6: Cap-rate determinants

% investment 2008E investment exposure UBS property RNAV 2008E RNAV 2008E segment* segment view growth WACC cap-rate CTRA 1,000 8 Apartment, hotel, retail ++ 3% 0.0% 0% ELTY 539 3 Office, retail + 0% 0.0% 0% KIJA 201 10 Utilities NA 0% 0.0% 0% LPKR 860 14 Hotel, Hospital ++ 3% 0.0% 0% SMRA 1,390 25 Retail 0 0% 0.0% 0%

*Hotel is treated similarly to lease apartment Source: UBS estimates

The valuation method we use is the application of single-stage cap rate on We use the single-cap rate method for recurring income, 2008E net operating income to be specific. WACC and investment properties growth rates are used to determine the cap rate.

We assumed growth rates of 0% or 3%, based on the companies’ We assigned growth rates based on investment portfolios. ELTY, KIJA and SMRA were assigned 0% growth, type of investment property portfolios because their holdings are in less-favourable segments, in our view, ie owned by each company office and retail. We assumed a 3% growth rate for companies holding lease apartments or hotels: CTRA and LPKR—we treat hotels in the same way as lease apartments. CTRA and LPKR both have hotel exposure while CTRA also owns lease retail and service apartment assets through its 51% stake in Ciputra Property.

Of the five companies we cover, SMRA has the highest investment Contribution to RNAV ranges from 3% property contribution as a proportion of property portfolio, according to our to 29% estimates—29% to RNAV 2008. ELTY has the lowest at 3% of RNAV 2008E.

UBS 16

Indonesian Property Sector 6 February 2008

Indonesian property companies in general have been generating income more from selling development properties than rentals. This trend may change, in our view, given the upcoming implementation of REIT incentives. CTRA has publicly expressed its intention to participate in the local REIT sector if it believes the legal environment is favourable.

RNAV breakdown for the Indonesian property companies we cover is still Indonesia companies still heavy on mainly skewed towards strata-titled developments. In some cases, development strata-title developments project related cash-flow is low, despite encouraging revenue, because of higher expenditure on development and construction within particular year.

Table 7: RNAV comparison

RNAV LPKR ELTY CTRA KIJA SMRA (value, Rp bn) 2008E 2008E 2008E 2008E 2008E Development properties 12,383 5,918 5,561 2,019 3,082 Net CF Low-riseresidential&commercial 49% 46% 91% 41% 100% Industrial 1% 0% 0% 59% 0% Strataapartment 7% 46% 9% 0% 0% Strataretail 32% 0% 0% 0% 0% Strataoffice 6% 8% 0% 0% 0% Miscellaneous 6% 0% 0% 0% 0% Investment properties 2,388 344 679 281 1,412 EBITDA Hotel 34% 0% 26% 0% 0% Leaseapartment 0% 0% 0% 0% 0% Leaseoffice 0% 48% 0% 0% 0% Leaseretail 4% 78% 71% 0% 100% Miscellaneous 63% 0% 0% 100% 0% Other asset 282 3,675 - 1,252 - (Net debt) /net cash (164) 619 249 (780) (252) RNAV 14,889 10,556 6,519 2,772 4,902 No. of shares (m) 17,310 19,600 6,512 13,781 3,770 RNAVpsadj. 860 539 1,001 201 1,300

Source: UBS estimates

Table 8: RNAV growth 07-08E, RNAV 08E breakdown

(growth YoY, %) LPKR ELTY CTRA KIJA SMRA Development properties 9% 12% 11% 9% 7% Investment properties 17% 11% 3% 17% 22% Other assets 10% 22% NA 17% NA RNAV 10% 8% 2% -6% 23%

(common size) Development properties 83 56 85 73 63 Investment properties 16 3 10 10 29 Other assets 2 35 - 45 - RNAV 100 100 100 100 100

Source: UBS

UBS 17

Indonesian Property Sector 6 February 2008 3y 4% 5% -5% 1.21 0.00 4.23 0.00 65% 21% 96% 82% 86% 24% 19% -12% -40% -22% 10.9x 18.8x 12.4x 18.6x 41.7x 12.13 2009E 2009E 2009E 2009E Net Cash Net Cash 1y 4% 1.21 0.00 4.23 0.00 72% 36% 92% 73% 82% 11% 16% 13% -40% -32% -48% 12.5x 25.7x 16.0x 29.8x 60.6x 12.13 117% 2008E 2008E 2008E 2008E Net Cash Net Cash DPS DPS 3m 6% 7% 8% Income Income EV/EBIT 0.90 0.00 3.44 0.00 76% 67% 80% 64% 73% 16% 13% 2007 2007 2007 2007 -21% -18% -19% 13.9x 21.8x 30.3x 28.8x 80.1x 10.24 Net Debt % EV Net Cash Net Cash Rel. Perf rel to JSX JSX to rel Perf Rel. 1m 0% 4% -9% -2% 7.9x 1.00 0.00 3.42 0.00 78% 95% 83% 76% 86% 13% 16% 2006 2006 2006 2006 Development Income % Gross -14% -17% -11% 10.8x 33.2x 15.0x 12.4x 10.06 Net Cash 3y 2% 3% 23% 54% 4.7% 4.7% 2.6% 3.4% 2.0% 16.8x 14.2x 10.2x 18.4x 18.4x 76.43 10.61 23.92 30.90 11.41 126% 100% 144% 207% 2009E 2009E 2009E 2009E Net Cash Net Cash 1y 8% 3% 4% -9% 8.08 9.03 18% 72% 4.4% 3.9% 2.2% 2.9% 1.7% -21% 17.9x 20.9x 16.0x 20.0x 42.3x 60.66 21.57 23.51 232% 2008E 2008E 2008E 2008E Net Cash Net Cash EPS 3m 4% 6% 8% 9% 5.99 9.12 Abs. Perf ROE (net) 12% EV/OpFcF 2007 2007 2007 2007 4.3% 3.3% 7.7% 2.6% 1.6% -21% -18% -18% 10.8x 14.5x 18.6x 63.9x 51.19 72.97 19.09 Net Gearing 153.7x Net Cash Net Cash 1m 7% 0% 8% 0% -5% 0.8x 2.69 9.96 2006 2006 2006 2006 4.6% 1.9% 3.0% 1.4% -11% -16% -18% -13% 17.0x 69.71 89.82 18.81 10.9% Neg CF Neg CF Neg CF Net Cash 9% 38% 17% 74% 51% 85% 60% 18% 42% 54% 26% 22% 27% 23% -24% 17.0x 17.1x 30.1x 20.4x 54.4x 2009E 2009E 2009E 2009E 2009E 251.57 994.53 947.02 600.86 1481.38 55% 19% 54% 28% 46% 45% 19% 48% 61% 34% 53% 60% 10% 28% -16% 21.5x 22.5x 33.4x 26.8x 68.7x 2008E 2008E 2008E 2008E 2008E 201.18 860.16 538.58 1300.30 1001.08 P/E Asset 7% 2% 6% 81% 38% 32% 19% 24% 33% 28% 57% 63% 40% 17% 2007 2007 2007 2007 2007 25.4x 30.4x 10.0x 33.0x 68.0x 208% 213.06 998.24 780.62 496.75 1059.01 Growth in fixed asset Current NAV per share 7% -7% -3% 9.6x 46% 31% 20% 20% 28% 30% 60% 64% 64% 29% 2006 2006 2006 2006 2006 -18% 18.9x 46.7x 19.7x 13.7x 106% Return on Property Development 147.00 905.53 671.63 722.04 Development Asset % Total Fixed 1238.52 NA NA NA NA NA 1% 8% 352 176 433 635 283 -6% 16% 14% 10% 17% 85% 1.4% 0.9% 0.0% 0.9% 0.0% -49% 130% 2009E 2009E 2009E 2009E 2009E NA NA NA NA NA 1% 8% 6% 4% 317 117 309 395 187 24% 28% 25% 1.1% 0.7% 0.0% 0.7% 0.0% -68% -22% -42% 2008E 2008E 2008E 2008E 2008E Asset) NA NA NA NA NA 9% 290 121 156 418 146 -8% -1% 10% 17% 81% 2007 2007 2007 2007 2007 0.9% 0.5% 0.0% 0.5% 0.0% 380% 244% EBIT Growth Growth EBIT -578% 1105% Dividend Yield Yield Dividend Core EBIT (bn) (bn) EBIT Core 52 79 NA NA NA NA NA NA 8% 3% 3% 0% 247 306 443 22% 82% 2006 2006 2006 2006 2006 1.2% 0.8% 0.0% 1.1% 0.0% -91% Rental Yield(Rental Income/Inv. 117% Net Acquisition and Capex % EV -123% 5% 246 146 182 535 224 3.6x 1.8x 1.8x 3.8x 2.6x 13% 26% 31% 29% 31% 26% -41% -26% -40% -34% 147% 155% 250% 440% 2009E 2009E 2009E 2009E 2009E 195 111 141 407 177 -8% 3.6x 1.6x 1.8x 3.9x 2.4x 17% 19% 35% 23% 51% 17% -70% -32% -31% -27% 611% 346% 230% 376% 2008E 2008E 2008E 2008E 2008E EBIT 83 2% 164 468 330 118 -2% 3.3x 1.7x 1.9x 3.9x 1.5x 99% 18% 2007 2007 2007 2007 2007 -74% -37% -40% -74% -59% -86% 259% 397% 129% -123% 1088% Net Income (bn) (bn) Income Net Earnings Growth Growth Earnings Current NAV/ Book NAV 37 68 168 572 325 3.5x 1.2x 2.0x 1.3x 3.1x 62% 79% 44% 11% 17% 2006 2006 2006 2006 2006 -72% -10% -27% -53% -24% -88% -90% Premium/(Disc.) to current NAV 248% 118% 622% Net Acquisition and Capex as %

Sell Sell 200 860 540 Buy Buy (IDR) Price 0.67 2.27 2.57 1.21 3,309 2,549 4,522 1,300 1,000 10.56 Rating Rating IDR bn 10,900 12,348 Neutral Rp 185 Rp 710 Rp 630 Rp 630 Mkt Cap Cap Mkt 5-Feb-08 Rp 1030 Av. Daily Suspended Suspended Target Price T/O (USD m) T/O (USD eka Tbk PT eka Tbk PT eka Tbk PT eka Tbk PT eka Tbk PT ndustri Jabab ndustri Jabab ndustri Jabab ndustri Jabab ndustri Jabab ndustri Absolute (Local Currency bn) Agung Summarecon Kawasan I Ciputra Development Karawaci Lippo PT Bakrieland Development Profitability Agung Summarecon Kawasan I Ciputra Development Karawaci Lippo PT Bakrieland Development Intensity Capital Productivity/ Agung Summarecon Kawasan I Ciputra Development Karawaci Lippo PT Bakrieland Development Performance Momentum/ Agung Summarecon Kawasan I Ciputra Development Karawaci Lippo PT Bakrieland Development Value Agung Summarecon Kawasan I Ciputra Development Karawaci Lippo PT Bakrieland Development Table 9: Indonesia Property Comparison Matrix Comparison Property Indonesia Table 9: estimates UBS Source:

UBS 18

Indonesian Property Sector 6 February 2008

Property companies we cover in Indonesia are trading at an average 16% Average 16% discount to RNAV for discount to RNAV. Companies with Buy ratings are trading at higher discount property companies we cover to RNAV 2008E. Worth noting is ELTY’s premium to RNAV 2008E market price, which pushes up our 2008 average discount to RNAV. Excluding ELTY, the average discount is 24%.

The dividend yield of our companies is less attractive than the overall Not a dividend story yet for the Indonesian equity market average of around 4%. SMRA has the highest property sector dividend yield of the Indonesian property companies we cover. CTRA and ELTY have not paid dividends in recent years because of volatile earnings in the past few years as a result of their higher dependence on development properties—81% for CTRA and 84% for ELTY.

We expect the Indonesian property companies we cover to post gross margins in Average gross margin 45% the 38% to 53% range for 2008. We expect SMRA’s margin to be the highest because of its recurring revenue from investment properties. We expect KIJA to have the highest development margin because of its industrial exposure. Industrial estates normally can generate higher margin than landed residential.

Table 10: Company margins 2008E

LPKR ELTY CTRA KIJA SMRA Gross margin 47% 38% 39% 48% 53% Recurring margin 42% 60% 64% 45% 60% Non-recurring margin 51% 34% 33% 53% 48% EBITDA margin 20% 24% 19% 28% 32% EBIT margin 15% 19% 16% 23% 27% Net Income margin 16% 18% 7% 22% 17%

Source: UBS estimates

UBS 19

Indonesian Property Sector 6 February 2008

Company pages

UBS 20

Indonesian Property Sector 6 February 2008

Global Equity Research UBS Investment Research Indonesia Bakrieland Development Real Estate 12-month rating Sell Prior: Not Rated 12m price target Rp540/US$0.06 Ability to develop more than priced-in - Price Rp630/US$0.07 „ Rp6.3trn worth only of properties We estimate 95% of Bakrieland Development’s (ELTY) property valuation in RIC: ELTY.JK BBG: ELTY IJ 2008 lies in the development of Epicentrum and in residential properties outside Jakarta, while 5% is in investment properties located in Kuningan CBD. Colliers International valued ELTY’s land and buildings at Rp3.06trn in June 2006, while Trading data (local/US$) on 16 January 2008, appraiser PT Penilai valued them at Rp6.97trn. 52-wk range Rp670-173/US$0.07-0.02 Market cap. Rp12,348bn/US$1.34bn „ Accumulated cash not yet adding significant value Shares o/s 19,600m (ORD) We think accumulated cash should be used in value-added projects soon. Potential Free float 55% cash sources are a 30% stake sale of Epicentrum to Limitless Holding and a Avg. daily volume ('000) 165,738 Rp500-750bn rupiah bond to be issued in Q108. This is in addition to the Rp1.3trn Avg. daily value (Rpm) 99,498.8 cash in hand. We expect Rp700bn expenditure on property expansion in 2008. Balance sheet data 12/07E „ Make or break on toll road by end-Q108 Shareholders' equity Rp4,181bn We think investors are already pricing in the toll road potential in the share price; the toll road accounts for 35% of our valuation at Rp3.7trn. Management has Prem (discount) to NAV/Share +26.8% expressed its confidence in the injection of a toll road project, which is held by Net Cash (debt) Rp1,119bn Bakrie group. We expect finalisation of the project shortly. Forecast returns „ Valuation: initiate coverage with a Sell rating and a Rp540 price target Forecast price appreciation -14.3% Our 2008 RNAV estimate is Rp10.6trn after adjusting for net debt. This is Forecast dividend yield 0.0% equivalent to Rp540/share fully diluted, 13% below the current share price. We use Forecast stock return -14.3% the discounted development profit and the single cap-rate method, and Jasa Market return assumption 11.5% Marga’s market valuation as a proxy for toll road potential to value ELTY. Forecast excess return -25.8%

EPS (UBS, Rp) 12/07E 12/06 From To Cons. Actual Q1 - 2 - 1 Q2 - 5 - 2 Highlights (Rpm) 12/05 12/06 12/07E 12/08E 12/09E Q3 - 6 - 2 Net rental income 15,471 20,772 84,108 85,024 101,458 Q4E - 3 - 5 EBITDA 143,489 91,607 190,714 239,998 370,688 12/07E - 9 15 EPS (UBS, Rp) 14 10 9 9 11 12/08E - 9 31 fd NAV/share (UBS, Rp) 667 722 756 539 601 DPS (UBS, Rp) 0.000 0.000 0.000 0.000 0.000 Performance (Rp)

Stock Price (Rp) Rel. Jakarta Comp Profitability & Valuation 5-yr hist av. 12/06 12/07E 12/08E 12/09E 700 140 600 120 DPS yield (UBS) % - 0.0 0.0 0.0 0.0 500 100

Prem/disc to NAV % - -81.1 26.8 17.0 4.8 400 80

CEPS yield (UBS) % - >100 >100 >100 >100 300 60 EV/EBITDA x - 10.7 62.4 48.1 32.4 200 40 PE (UBS) x - 13.7 69.1 69.8 55.2 100 20 Source: Company accounts, Thomson Financial, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. 0 0

Valuations: based on an average share price that year, (E): based on a share price of Rp630 on 05 Feb 2008 23:37 HKT 01/05 04/05 07/05 10/05 01/06 04/06 07/06 10/06 01/07 04/07 07/07 10/07 01/08 Stock Price (Rp) (LHS) Rel. Jakarta Comp (RHS) Source: UBS Felicia Tandiyono www.ubs.com/investmentresearch Associate Analyst [email protected] +62-21-2554 7037

UBS 21

Indonesian Property Sector 6 February 2008 Investment case Rp6.3trn worth of properties We value Bakrieland Development’s (ELTY) development properties at Rp5.9trn, Average performance in our favoured investment properties at Rp0.3trn, and toll road potential at Rp3.7trn. All appear to segment—apartments be reflected in ELTY’s share price. Although ELTY has exposure to the segment we favour—strata-titled apartments in a superblock compound—we note:

■ Apartment pre-sales rate below that of competitors Pre-sales in two towers of The Grove condominium are still below 50% after 20 months. The change in the target segment, from the mid-low to mid-high range, might be one reason for slow sales. Other factors could be the lack of a road access from and to the compound and only one entrance/exit for more than 20 building towers.

■ Bakrie Tower office pre-sales weigh down performance Pre-sales have been slow for Bakrie Tower’s strata space, approximately Unexciting pre-sales of 48-storeyed 12% in 10 months and those taken up are mostly by Bakrie-related Bakrie Tower companies. We expect unrelated parties to take up space closer to the completion date in 2009. We value ELTY’s investment properties at Rp389bn. We do not expect any significant change in the RNAV of leased assets’ contribution until 2010. We forecast a lease asset EBITDA CAGR for 2006-10 of 37%. We expect recurring income from these assets in Q2-Q309. Accumulated cash not yet adding significant value We think financing from current cash and pre-sales is adequate for phase 1 of Still waiting for details on net cash use Epicentrum’s expansion. ELTY has Rp1.3trn cash on its balance sheet and there one year after rights issue, could also be two activities that should further support financing of new developments.

■ More than Rp1trn from the sale of 30% BSU would be positive We value the 30% stake in Bakrie Swasakti Utama (BSU), a subsidiary which holds the Epicentrum assets at Rp0.9trn. We do not factor in the maximum 30% stake sale transaction as the final settlement amount has not yet been disclosed. ELTY has signed an MOU with Limitless Holding from Dubai, dated October 2007, which is in the final due diligence stage. We expect this transaction to close by end-Q108.

■ Adding-on leverage for capex We estimate the capex requirement for Epicentrum expansion in 2008 would be approximately Rp700bn. Equity funding for the toll road concession might require Rp2.7trn, based on UBS’s toll road assumption of 30% equity for Indonesian toll roads. Consequently, funding, in addition to internal cash will be required for both projects. ELTY tapped the debt market in Q108. According to the company’s two- tranche bond issuance prospectus on 16 January 2008, the company expects to raise Rp500bn. On 24 January 2008, local newspapers reported that the company was also seeking a bank loan facility of Rp300bn. The company proposes to use the bond proceeds and the loan for property expansion.

UBS 22

Indonesian Property Sector 6 February 2008

Make or break on toll road in Q108

■ The 200km toll road contributes 35% to our 2008 RNAV estimate

We base our assumption on management guidance on potential capex of Toll road factor driving the share price Rp5-10tn for the toll road and we opt for the mid-range capex of Rp7.5trn At the assumed US$4m/km capex, similar to the trans-Java toll road project, we arrive at an estimated 200km.

■ Finalising toll road project in Q108 is vital to our valuation

ELTY can exercise the option to acquire the toll road concession. As stated in an Indonesia Stock Exchange filing in 2008, the option will lapse end- Q108. Hence, the importance of finalising the deal in Q108 is apparent, especially when the share price already reflects this project.

Toll road projects are often halted by issues of land acquisition. ELTY management has suggested it has the skill to acquire land, given the nature of its business operations. We are unaware of ELTY holding any landbank surrounding the area of the planned toll road.

Moreover, if ELTY acquires the toll road, it would no longer be a pure property player.

■ Water utility project could be catalyst, but this is second priority

We think the water utility acquisition is a lower priority for management than the toll road project, as the company has already incurred high capex for constructing the toll road. ELTY management has stated its intention to acquire the water utility, but has not yet disclosed any information. Initiate with Sell rating; Rp540 price target

■ 2008E RNAV of Rp10.4trn

We base our price target on RNAV, derived from a discounted development ELTY is trading at a premium to our profit and single cap-rate method. We use DCF and 2.5x the sector average valuation P/BV to validate our assumed growth rate of 1.0% for ELTY’s development properties. We apply a single cap-rate of 13.0% for its investment properties.

In addition we add the potential toll road project, using Jasa Marga’s 2007 year-end market value as a proxy for each kilometre concession held in operation. We assign Rp27.8m/km discounted by three years for ELTY’s potential toll road.

Table 11: RNAV 2008E

(value, IDRbn) 2005 2006 2007E 2008E 2009E Development properties 4,260 4,785 5,302 5,918 6,449 Investment properties 181 237 310 344 660 Other Asset - - 3,006 3,675 4,493 (Net debt) /Net cash 1,119 619 174 RNAV 9,736 10,556 11,777 no. of shares (in millions) 19,600 19,600 19,600 RNAV ps adj. 497 539 601

Source: Company data, UBS estimates

UBS 23

Indonesian Property Sector 6 February 2008 Company risks Risk to valuation A different outcome on the toll road acquisition, that is, acquisition failure, or a different kilometre concession awarded than our assumption, will trigger a review of our RNAV estimate. Moreover, if the transaction with Limitless Holding closes significantly higher than Rp0.9tn, we would have to review our valuation. Company-specific risks Uncalculated increase in construction costs due to unexpected lower sales

ELTY normally finances its construction costs partly from pre-sales and partly from the contractor’s credit facility. A sharp rise in construction costs could result in construction cost renegotiation. This could threaten the pre-sales margin. The company may have to pass on the higher price to buyers or suffer a narrower margin.

Project realisation risk

ELTY has many project plans for real estate and infrastructure. Investors appear to have priced in most of the vital plans, in our opinion. Any hesitation or delay could result in negative sentiment towards the stock. Furthermore, future projects might to need to be viewed with greater caution, if management is unable to execute.

Toll road project risk

Land acquisition could potentially lead to delays in the construction schedule, and hence delays in operating cash inflow. It may also face challenges in raising tariffs. Changes in tariff, based on amended regulations, may only be justified by a formula which takes into account inflation.

UBS 24

Indonesian Property Sector 6 February 2008 Financials Profit and loss Table 12: Income statement summary

2005 2006 2007E 2008E 2009E

(value, IDRbn) Revenue 320 393 594 989 1,519 Recurring 55 61 150 158 277 Non-recurring 265 333 444 830 1,242 Gross Profit 136 167 274 378 553 Recurring 32 35 86 95 108 Non-recurring 104 132 188 284 445 EBITDA 54 85 191 240 371 EBIT 47 72 146 188 284 Other income/expense 79 7 34 36 36 Pretax income 126 79 180 224 320 Net Income 93 68 118 177 224

(growth yoy, %) Revenue 84 23 51 67 54 Recurring 9 11 147 6 75 Non-recurring 114 25 33 87 50 Gross Profit 52 23 64 38 46 Recurring 8 9 146 11 14 Non-recurring 74 27 42 51 57 EBITDA 99 57 125 26 54 EBIT 105 55 102 28 51 Other income/expense 4,804 (91) 369 7 0 Pretax income 417 (37) 126 25 43 Net Income 153 (27) 74 51 26

(common size) Revenue 100 100 100 100 100 Recurring 17 15 25 16 18 Non-recurring 83 85 75 84 82 Gross Profit 43 43 46 38 36 Recurring 10 9 14 10 7 Non-recurring 33 34 32 29 29 EBITDA 17 22 32 24 24 EBIT 15 18 25 19 19 Other income/expense 25 2 6 4 2 Pretax income 39 20 30 23 21 Net Income 29 17 20 18 15

Source: Company data, UBS estimates

UBS 25

Indonesian Property Sector 6 February 2008

Development properties marketing sales

For high-rise developments, we assume marketing sales are booked after 20% Six-month lag assumption on booking completion and 20% cash received. For low-rise developments, we assume development revenue marketing sales are booked at a six-month lag. The company’s policy for low- rise is revenue recognition once the customer pays a 20% down-payment. In the case where there is mortgage, ELTY can book revenue earlier since payment risk is shifted to the loan provider; that is, the bank.

Our selling price assumption is 15% YoY growth for our favoured segment and 10% for others. We assume landed residential sales volume grows 10% YoY. We assume strata apartment unit sales to double the units sold in 2007; hence we assume 80% of The Grove condominium’s two towers and 40% of The Grove suites are pre-sold in 2008. We expect Bakrie Tower’s strata offices to be 45% pre-sold by end-2008.

Chart 18: ELTY’s marketing sales

1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 2004 2005 2006 2007E 2008E Mktg. Sales Acc.g Sales

Source: Company data, UBS estimates

Investment revenue

We expect investment revenue to rise sharply from 2007 and 2009 bookings. Adding to the investment portfolio by Improved occupancy in Wisma Bakrie II, from 62% in 2006 to an estimated 2009 90% in 2007, is responsible for the 60% office investment revenue growth. Completion of Lifestyle Centre retail and commercial, the Bakrie Tower office and Legian Nirwana resort provide a further boost to investment property revenue in 2009.

Table 13: Investment revenue growth

2006 2007E 2008E 2009E

Hotel -3% -56% 9% 4%

Mall 19% 38% 4% 213%

Apartments 6% 8%

Office 60% 2% 93%

Total (high-rise) 9% -14% 5% 88%

Source: Company data, UBS estimates

UBS 26

Indonesian Property Sector 6 February 2008

Chart 19: Development and investment accounting revenue

2009E

2008E

2007E

2006

2005

0% 20% 40% 60% 80% 100% Total Development Total Inv estment

Source: Company data, UBS estimates

Costs and margins

The cost of development properties is reported in proportion to reported Margin pressure from high-rise sales accounting revenue, not marketing revenue. Cost of investment properties is reported on the regular accrual concept.

We expect the development, or non-recurring cost margin, to increase, leading to a decline in the gross margin. This is a function of the type of property sales made at the time. Developers generally book high-rise strata sales at a 10% lower gross margin than their low-rise residential sales.

Chart 20: Estimated gross margin: recurring vs non-recurring Chart 21: Margin trends

90% 50% 80% 70% 40% 60% 30% 50% 40% 20% 30% 20% 10% 10% 0% 0% Dec-04 Dec-05 Dec-06 Dec-07E Dec-08E Dec-09E 2005 2006 2007E 2008E 2009E

Recurring Nonrecurring Gross margin EBITDA margin EBIT margin Net Income Margin

Source: Company data, UBS estimates Source: Company data, UBS estimates

UBS 27

Indonesian Property Sector 6 February 2008

Balance sheet Table 14: Balance sheet summary

2005 2006 2007E 2008E 2009E (value, IDRbn) Cash & equiv. 239 33 1,324 1,324 879 Investment properties 652 638 748 1,239 1,916 Development properties 4 4 1,438 1,598 1,598

Total Assets 2,543 2,396 5,427 6,120 6,371 Debt 150 153 204 704 704 Advance from customers 62 85 195 199 207 Total Liabilities 1,258 1,036 1,198 1,702 1,710

Equities & Minorities 1,285 1,359 4,230 4,418 4,660 Net Debt to Equity (0) 0 (0) (0) (0)

(growth yoy, %) Cash & equiv. 1,741 (86) 3,881 (0) (34) Investment properties 47 (2) 17 66 55 Development properties 855 - 34,228 11 - Total Assets 108 (6) 127 13 4 Debt (24) 2 34 245 - Advance from customers 317 36 130 2 4 Total Liabilities 94 (18) 16 42 0 Equities & Minorities 124 6 211 4 5

(common size) Cash & equiv. 9 1 24 22 14 Investment properties 26 27 14 20 30 Development properties 0 0 26 26 25 Total Assets 100 100 100 100 100 Debt 6 6 4 12 11 Advance from customers 2 4 4 3 3 Total Liabilities 49 43 22 28 27 Equities & Minorities 51 57 78 72 73

Source: Company data, UBS estimates

Cash

We expect cash to continue rising from the exercise of warrants, fund-raising Net cash and more from the debt market, and advances from consumers. We do not include ELTY’s 30% proceeds from the sale of the Epicentrum superblock.

Assets: Development properties are equivalent to undeveloped landbank. Investment properties are equivalent to a revenue-generating fixed asset. Inventories are developed land, houses, apartments, or sqm unsold.

Debts: We assume a Rp500bn bond issuance in 2008, based on the prospectus. Until affirmation, we do not assume the Rp300bn loan reported in the media.

Equities: There are 1.96bn outstanding warrants, exercisable at Rp250/warrant and expiring on 30 April 2010. This warrant last traded at Rp380/share.

UBS 28

Indonesian Property Sector 6 February 2008

Cash flow Table 15: Cash flow summary

2005 2006 2007E 2008E 2009E (value, IDRbn) EBITDA 54 85 191 240 371 Working capital movement (286) (300) (87) (38) 472 Cash flow from operating (143) (208) 103 202 843 Capital expenditure (169) (93) (1,589) (703) (1,247) Free cash flow (312) (301) (1,485) (501) (404) Debt received, payments (0) 0 0 1 - Dividend payments - - - - - Equity issuance, buyback - - 2,745 - - Change in net cash 0 (0) 1 (0) (0) - - - - - (growth yoy, %) EBITDA 99 57 125 26 54 Working capital movement (1,297) 5 (71) (57) (1,356) Cash flow from operating (311) 45 (150) 96 316 Capital expenditure 4,030 (45) 1,610 (56) 77 Free cash flow (589) (3) 394 (66) (19) Debt received, payments 2,165 (109) 1,111 871 (100) Dividend payments NA NA NA NA NA Equity issuance, buyback NA NA NA (100) NA Change in net cash 3,809 (191) (726) (100) (100)

Source: Company data, UBS estimates

Working capital

We expect positive working capital by 2009. Bakrie Tower’s slower pre-sales Strain on cash flow rate than the construction completion rate is a drag on cash. The situation, in our view, began in end-2007 and might only be resolved in 2009, when we expect sales to improve. Property sales generally pick up during the weeks of launch and when construction is completed.

Free cash flow: We expect negative free cash flow over the near term, based on the company’s capex. We expect this to reverse in 2011. Return on capital Table 16: Dupont analysis

2005 2006 2007E 2008E 2009E Net Income Margin 28.9% 17.2% 19.8% 17.9% 14.7% ROA 17.0% 15.9% 15.2% 17.1% 24.3% Asset Multiplier 2.0 x 1.9 x 1.4 x 1.3 x 1.4 x ROE 10.0% 5.1% 4.2% 4.1% 4.9%

Source: Company data, UBS estimates

Our Dupont analysis suggests a declining ROE trend and a marked margin Falling profit margin decline after 2006. We attribute this to the issue of rights and warrants in 2006, and hence increasing equity, and a decline in the net income margin. This is due to the larger proportion of high-rise sales, which normally have a lower margin than low-rise residential.

UBS 29

Indonesian Property Sector 6 February 2008 Price target derivation Table 17: RNAV breakdown

(value, IDRbn) 2005 2006 2007E 2008E 2009E

Development properties 4,260 4,785 5,302 5,918 6,449

Net CF Low-rise residential & commercial 8% 24% 57% 46% 32%

Industrial 0% 0% 0% 0% 0%

Strata Apartment 147% 92% 130% 46% 11%

Strata Retail 0% 0% 0% 0% 0%

Strata Office -55% -16% -87% 8% 57%

Miscellaneous 0% 0% 0% 0% 0%

Investment properties 181 237 310 344 660

EBITDA Hotel 0% 0% 0% 0% 0%

Lease apartment 0% 0% 0% 0% 0%

Lease office 69% 61% 54% 48% 43%

Lease retail 100% 100% 89% 78% 69%

Miscellaneous 0% 0% 0% 0% 0%

Other Asset 3,675

(Net debt) /Net cash 619

RNAV 10,556

no. of shares (in millions) 19,600

RNAV ps adj. 539

(growth yoy, %)

Development properties 15% 12% 11% 12% 9%

Investment properties 225% 31% 31% 11% 92%

Other Asset 0% 0% 0% 22% 22%

RNAV 26% 8% 99% 8% 12%

(common size)

Development properties 94 98 54 56 55

Investment properties 4 5 3 3 6

Other Asset - - 31 35 38

RNAV 100 100 100 100 100

Source: Company data, UBS estimates

We value development properties on the discounted development profit Rp5.9trn development properties method. This is essentially a 10-year discounted net cash flow from development properties after tax. Our terminal growth rate assumption is based on the terminal value of 2.5x the raw landbank value. Indonesian property companies are trading at an average 2.5x P/BV.

Our DCF valuation uses a WACC discount rate, assuming 1.1 beta, a 5.0% market risk premium, and a 1% terminal growth rate.

UBS 30

Indonesian Property Sector 6 February 2008

We value the investment properties on a single-stage cap rate methodology; Rp338bn investment properties our cap rate assumption is 13.0%, assuming 13.0% WACC and a 0% growth rate, given ELTY’s lack of exposure to our favoured leased asset segment.

Table 18: Valuation assumptions

ELTY

Yr forecast 10

Risk free 9.3%

Beta 1.1

MRP 5.0%

Cost of Equity 14.8%

Cost of Debt 12.5%

Cost of Debt AT 8.8%

Weight of Equity 0.7

Weight of Debt 0.3

WACC 13.0%

terminal growth rate 1%

cap rate 13%

growth rate 0%

Source: UBS estimates Sensitivity analysis Our price target is sensitive to our property selling price assumptions.

Table 19: Sensitivity analysis to the selling the price Our RNAV-derived PT is most sensitive

to changes in the selling price TP chg. -19% -11% UBS 14% 33%

Prime 5% 10% 15% 20% 25%

Non-prime 0% 5% 10% 15% 20%

TP 438 481 539 615 719

Source: UBS estimates

We also analysed the sensitivity of development properties to our key valuation assumptions: beta and the terminal growth rate. A 0.1 reduction in beta increases our price target 2.7%, all else being equal. A 1% increase in the terminal growth rate increases our price target 3.6%, all else being equal.

UBS 31

Indonesian Property Sector 6 February 2008

Table 20: RNAV sensitivity to varying beta and terminal growth rates

Beta

0.9 1 1.1 1.2 1.3

-1.0% 534 521 508 495 484

0.0% 551 536 522 509 496 Terminal 1.0% 570 554 539 524 511 g. 2.0% 593 575 558 542 527

3.0% 621 601 582 564 547

Source: UBS estimates

Regarding our investment property valuation, our price target is less sensitive to varying WACC and growth rate assumptions. A 1% reduction in our WACC assumption increases our price target 0.38%, all else being equal. A 1% increase in our investment property growth assumption increases our price target 0.3%. This is because of ELTY’s low exposure to investment properties, 3% RNAV in 2008E.

Table 21: RNAV sensitivity to varying WACC and growth rates

WACC

11.0% 12.0% 13.0% 14.0% 15.0%

0.0% 542 540 539 537 536

1.0% 544 542 540 539 537 Growth 2.0% 546 544 542 540 539 rate 3.0% 550 546 544 542 540

4.0% 554 550 546 544 542

Source: UBS estimates

UBS 32

Indonesian Property Sector 6 February 2008 Company background Strategy We expect ETLY’s aggressive landbank acquisition to continue. The potential Embracing non-organic growth acquisition of the toll road and water utility project is evidence of its non- organic strategy, in our view.

We think the proportion of organic growth is relatively small in comparison with the non-organic growth. Management, however, justifies infrastructure acquisitions as future recurring income providers.

Management has been able to raise a total of Rp3.43trn from two rights issues: Raising finance for expansion Rp630bn in November 2005 and Rp2.80trn in April 2007. The funds will be used for the 6ha landbank for Epicentrum and the 7ha acquisition outside Jakarta in August 2007.

Current projects ELTY’s flagship project, Rasuna Epicentrum is located in the Kuningan CBD Epicentrum is about the location at the where many leading companies have their offices. The construction of office appropriate price buildings along Kuningan’s major road might create demand for residential apartments. However, we think there is significant competition in the office property segment.

Figure 1: Rasuna Epicentrum superblock location

Source: Company

UBS 33

Indonesian Property Sector 6 February 2008

We think consumers might need some time to adjust to the change in the Change in market segment has affected company’s target market to the high end and luxury segments. Therefore, the pre-sales rate management revamped the company’s image and the access area to its estate in 2007. The pre-sales rate at The Grove, which targets the mid-range to high-end segments, has been unexciting, although still healthy.

Lease demand in existing ELTY mid to low-end segment apartments is high, given attractive pricing in comparison with other apartments located in the CBD. There are also notable end-users in Taman Rasuna Residences (the eighteenth apartment tower should be ready for occupancy soon).

Chart 22: Pre-sales at The Grove

100%

80% 60%

40%

20% 0% Jun-07 Jun-08 Sep-06 Dec-06 Mar-07 Sep-07 Dec-07 Mar-08 Sep-08 Dec-08 Grov e Condo Grov e Suite

Source: Company data, UBS estimates

Most of the buildings in Kuningan CBD are dedicated to office space. Buildings Bakrie Tower competes with other three competing with Bakrie Tower are The East, Menara Satrio, and Permata office towers in area Kuningan. According to Procon, Menara Satrio and Permata Kuningan have an 85% pre-commitment rate to date. The pre-commitment lease rate in Bakrie Tower is also high because of take-up by Bakrie-related companies, according to ELTY.

Chart 23: Pre-sales at Bakrie Tower

100% 80% 60% 40% 20% 0% Jul-05 Jul-06 Jul-07 Jul-08 Mar-05 Mar-06 Mar-07 Mar-08 Nov-05 Nov-06 Nov-07 Nov-08

Bakrie Tow er

Source: Company data, UBS estimates

UBS 34

Indonesian Property Sector 6 February 2008

ELTY’s Bogor landbank is more than 40km south of the Jakarta’s CBD. Given 80% of total low-rise residential sales its location, it is in our favoured segment. Therefore, we assume a 15% increase from Bogor in its selling price in 2008.

The proposed Bogor Outer Ring Road should provide a new access to the 360ha Bogor development area, which ELTY owns. However, we expect this particular toll road to be completed only after 2012.

Figure 2: Bogor residential landbank location

Source: Company

Table 22: Development accounting-revenue growth

2006 2007E 2008E 2009E

Office -26% 910% 464% 100%

High-rise Residential 277% -19% 41% 34%

Low-rise Residential 83% 68% 46% 16%

Total 185% 15% 87% 50%

Source: Company data, UBS estimates

UBS 35

Indonesian Property Sector 6 February 2008

Table 23: Investment accounting revenue growth

2006 2007E 2008E 2009E

Hotel -3% -56% 9% 4%

Mall 19% 38% 4% 213%

Apartments 6% 8%

Office 60% 2% 93%

Total 32% -14% 5% 88%

Source: Company data, UBS estimates

Chart 24: Development revenue breakdown Chart 25: Investment revenue breakdown

2008E 2008E

Office High-rise Residentials Low-rise residentials & commercials Hotel Mall Apartments Office

Source: UBS estimates Source: UBS estimates

UBS 36

Indonesian Property Sector 6 February 2008

Company history Initially established as Putri Lestari Indah in 1990 by Haji Achmad Bakrie, Bakrieland Development (ELTY) has evolved into a major developer of city properties, landed residential, and hotels and resorts. It was listed on the Jakarta Stock Exchange via a back-door listing in 1998.

ELTY is known as a pioneer and a large player in superblock developments in Jakarta’s CBD area. It currently focuses on mid- to upper range developments in prime locations, and increases the development pace by forming strategic alliances and by mostly through strata-titled sales.

The company’s signature property developments include Aston Rasuna Hotel & Residence, Taman Rasuna Residence apartment towers, Rasuna Office Park, Wisma Bakrie 1 and 2, and Pasar Festival. All these located in Kuningan CBD.

Chart 26: Company structure

PT BAKRIELAND DEVELOPMENT TBK

CITY PROPERTY LANDED RESIDENTIAL HOTEL & RESORTS

PT. Bakrie Swasakti Utama PT. Graha Andrasentra P. PT Samudra Asia Nasional (95.85%) (99.78%) (99.77%) Project Project Assets Bogor Nirwana Residences Wisma Bakrie 1 (office) Legian Nirwana Suites & Wisma Bakrie 2 (office) Residences Pasar Festival (retail space) PT. Sanggraha Pelita Sentosa Klub Rasuna (sport center) PT Berkah Puhu Lestari (99.99%) (99.3%) Aston Rasuna Hotel Project Project Projects Ubud Nirwana Villas Rasuna Epicentrum Graha Taman Sukabumi - Bakrie Tower (office) PT Krakatau Lampung T.D. (90%) - Condominiums PT Dutaperkasa Unggulestari Project - Entertainment Center (64.86%) -Office towers Krakatoa Nirwana Resort - Concert hall Project Ijen Nirwana Residences PT Libratindo Gemilang (99.99%) Project PT Mutiara Permata Biru (99.78%) Balikpapan Nirwana Residences Project Batam Nirwana Residences PT Bali Nirwana Resort (27%) Project Bali Nirwana Resort

Source: Company

UBS 37

Indonesian Property Sector 6 February 2008

Table 24: Management

Board of commissioners President Commissioner Bambang Irwan Hendradi Bambang Irwan Hendradi has held the position of President Commissioner since 2002. He is also the President Director of Bakrie Capital Indonesia and Djarot, the Financial Director of Pillar Abhimantra, and commissioner of Bumi Resources and Bakrie Finance Corporation. He holds a civil engineering degree from Trisakti University and graduated from Technishe Hoge Scholl,

Netherlands.

Independent Commissioner Lukman Purnomosidi Holding a civil technique engineering degree from Bandung Institute of Technology and a Master of Business Administration from LPPM Jakarta, Lukman Purnomosidi was previously the Manager of the Realty and Property Division of Wijaya Karya. He is also the President Director of Jaringan Selera Asia and Bintang Mitra Semesta Raya and a commissioner of Laksayudha

Abadi.

Commissioner Supartono Mr Supartono is also Treasury Advisor of Energi Mega Persada, Director of Puri Dewi Canggu and President Commissioner of MRE Utama. He received education from Goethe Institute Aroslen West Deutschland and VW Wolsburg West Deutschland, Germany and Management Extension Program from University of Indonesia.

Commissioner Edgardo Bautista Edgardo Bautista has a Bachelor of Science in Mechanical Engineering from De La Salle College, Manila and has participated in advanced management program conducted by Harvard Business School. Before joining the company, he was the President and CEO of Hopewell Energy Philippines Corporation and Mirant Philippines Corporation, and Executive Director -

Head of Infrastructure for Avenue Asia Investment Management LLC.

Board of Directors President Director Hiramsyah S Thaib

Hiramsyah S Thaib held various positions in several companies before joining the Bakrie Group. He started as an assistant site manager of Atelier 6 and continued as an assistant site planner of Bumi Serpong Damai. In 1991, he moved to the banking sector from Controller Credit Inspector Staff, rising to Senior Banking Examiner at Bank Niaga, and after which he became Technical Assistance Team Member for Bank Bumiputera and Bank Uppindo as well as a Bank Indonesia Team Member for Bank Asta Rescue Plan. Joining the Bakrie group in 1997, he has held positions as Vice President Director of Bakrieland Development, President Director & CEO

of Bakrie Nirwana Resort, President Commissioner and President Director of Bank Tabungan Pensiunan Nasional, Commissioner of Bakrieland Development, and CEO of Bakrie Capital Indonesia. He received his degree from Bandung Institute of Technology and has an MM & MBA from Monash University.

Director Marudi Surachman Marudi Surachman is a Technical Architect graduate from Bandung Institute of Technology and a Master of Architecture from Southern California Institute of Architecture, USA. He was the Development Director of Graha Anrasentra Propertindo and the President Director of Bakrieland Development. Currently he is the Development Director of Graha Intan Bali, Sanggraha Pelita

Sentosa, Elangperkasa Pratama, and Puri Diamond Pratama.

Director Hamid Mundzir Hamid Mundzir is an economics graduate from Padjajaran University. He was the President Director of Sanggraha Pelita Sentosa-Property Business Company, Sanggraha Pelita Development Services, and the President Director of Graha Andrasentra Propertindo.

Director Sri Hascaryo Beginning his career as an account and credit policy officer for Bank Niaga, Sri Hascaryo has been CFO and Director of Graha Andrasentra Propertindo, and Director of Graha Intan Bali, Sanggraha Pelita Sentosa, Citrasaudara Abadi, Dinamika Nusantara Bestari, and President Commissioner of Dinamika Nusantara. He is the President Commissioner of Bank Tabungan

Pensiunan National and the President Director of Bakrie Swasakti Utama.

Source: Company

UBS 38

Indonesian Property Sector 6 February 2008

Bakrieland Development Per share (Rp) 12/05 12/06 12/07E 12/08E 12/09E Bakrieland Development is a real-estate developer, widely known in EPS (stated) 14 10 9 9 11 Indonesia for developing Taman Rasuna Residences in Rasuna EPS (pre-exceptional) 14109911Epicentrum, Kuningan CBD. Before 2004, its target market had been CEPS (pre-exceptional) 15 12 13 12 16 mainly the mid- to low-income segments. The company had almost 400 Revalued NAV per share 667 722 497 539 601 ha of landbank as of 2007 with the majority located at Bogor and 17 ha Profit & Loss (Rpm) located in Kuningan CBD. Property segment exposure includes Net rental income 15,471 20,772 84,108 85,024 101,458 apartments, offices and landed residential. Almost 90% of revenue is non Investment income 1,545 11,025 46,467 66,156 66,152 recurring income from the sale of residential units. Trading income 197,981 262,470 362,069 701,746 1,066,646 Associates & other income 91,326 11,841 - - - Total income 306,323 306,108 492,644 852,925 1,234,257 Interest payable (11,784) (10,675) (12,935) (29,641) (29,641) Administration and other (161,289) (203,476) (255,463) (546,772) (797,416) Revenue surplus 133,250 91,956 224,246 276,513 407,200 Interest capitalised - - - - -RelativeRelative rating rating - -(discount) (discount) to to NAV NAV (%) (%) Depreciation & amortisation (7,430) (12,610) (44,648) (52,859) (87,199) 80040 Pre-exceptional provisions - - - - - 20 Pre-exceptional pre-tax profits 125,820 79,346 179,598 223,653 320,001 600 0 Exceptionals - - - - - Stated pre-tax profits 125,820 79,346 179,598 223,653 320,001 400-20 Tax (24,678) (8,978) (53,879) (35,716) (77,338) -40 Minorities & preference & extraordinaries (8,587) (2,760) (8,188) (10,990) (19,091) 200-60 Attributable net profits 92,555 67,609 117,530 176,947 223,572 -80 -800 Cost of dividend ------100 Retained profits/earnings 92,555 67,609 117,530 176,947 223,572 -100 -120 Pre-exceptional cash flow 99,985 80,218 162,178 229,807 310,771 -120-200 2003 2004 2005 2006 2007 EBITDA 143,489 91,607 190,714 239,998 370,688 EBIT 136,059 78,997 146,066 187,139 283,489 AdjustedBakrieland price (local) DiscSector to NAV Cash flow (Rpm) EBIT 136,059 78,997 146,066 187,139 283,489 Depreciation & amortisation 7,430 12,610 44,648 52,859 87,199 Company vs sector 12m PXCEPS growth(%) Working capital movement (286,404) (299,513) (87,217) (37,577) 472,056 60 Other (operating) - - - - - 40 Operational cash flow (142,915) (207,906) 103,496 202,421 842,744 Net interest paid (10,239) 349 33,532 36,515 36,511 20 Dividends paid - - - - - 0 Tax paid (5,804) (6,805) (53,879) (35,716) (77,338) Net (acquisitions)/capital expenditure (95,752) (74,181) (1,588,752) (703,286) (1,246,810) -20 Equity issued - - 2,744,613 - - -40 Other items 528,440 78,173 - - - Movement in (net debt)/net cash 273,730 (210,369) 1,239,009 (500,067) (444,893) -60 2006 2007 2008 2009 2010 Balance sheet (Rpm) Book value investment properties 655,958 642,011 2,186,116 2,837,033 3,513,505 Bakrieland Sector Other fixed assets 108,427 99,225 99,225 98,734 98,269 Total book value of fixed assets 764,385 741,236 2,285,340 2,935,767 3,611,773 Book value trading properties 1,201,092 1,323,985 1,521,186 1,525,410 1,255,738 GeographicSectoral breakdown breakdown Cash & deposits 238,755 32,637 1,323,116 1,323,049 878,156 Other current assets 338,738 297,820 297,820 335,823 624,943 Total book value of assets 2,542,970 2,395,677 5,427,462 6,120,049 6,370,610 Debt (150,225) (152,855) (204,325) (704,325) (704,325) Other liabilities (1,146,365) (923,992) (1,042,164) (1,057,803) (1,084,792) Book ordinary shareholders' funds/NTA 1,246,381 1,318,830 4,180,973 4,357,921 4,581,493 Home offices - cap city Surpluses over book value 6,843,168 7,841,166 7,205,612 7,817,522 8,789,843 Offices Revalued shareholders' funds/NTA 8,089,549 9,159,997 11,386,585 12,175,443 13,371,335 Fully diluted shareholders' funds/NTA 4,529,223 4,902,307 9,736,299 10,556,125 11,776,836 Profitability Recurring income cover of expenses 0.1x 0.1x 0.5x 0.3x 0.2x Interest cover 11.8x 8.6x 14.9x 8.6x 11.8x Total value (Rpm): 642,011.0 Headline stated net dividend cover NA NA NA NA NA Total value (Rpm): 642,011.0 Pre-exceptional cash dividend cover - - - - - Productivity Pre-exceptional tax rate 19.6% 11.3% 30.0% 16.0% 24.2% SectoralGeographic Breakdown breakdown Net debt/revalued net assets (2.0%) 2.5% (11.5%) (5.9%) (1.5%) Net debt/(revalued gross assets-cash) (1.6%) 2.0% (11.6%) (5.6%) (1.4%) Net debt/EV (17.9%) 12.3% (18.3%) (5.4%) (1.4%) Momentum Growth in pre-ex. pre-tax cash flow 364.0% (31.0%) 143.9% 23.3% 47.3% Growth in pre-ex. net cash flow per share 49.8% (19.8%) 6.6% (6.9%) 35.2% Home offices - cap city Growth in revalued NAV per share (67.6%) 8.2% (31.2%) 8.4% 11.6% Offices Value Core EBITDA/EV 29.0% 9.3% 3.1% 2.1% 3.1% Pre-ex. cash earnings yield 7.0% 8.7% 3.4% 1.9% 2.5% Average yield on appraised values 15.4% 11.4% 25.3% 23.9% 29.6% (Discount) to revalued NAV (68.5%) (81.1%) (25.0%) 17.0% 4.8% Total value (Rpm): 642,011.0 Total value (Rpm): 642,011.0 Gross dividend yield - - - - - Source: UBS estimates, * Historical valuations are based on an `average for the year' share price. Current & future valuations are based on a share price of Rp630 on 05/02/2008

UBS 39

Indonesian Property Sector 6 February 2008

Global Equity Research UBS Investment Research Indonesia PT Lippo Karawaci Real Estate 12-month rating Buy Prior: Not Rated 12m price target Rp860/US$0.09 Ready, set, expand - Price Rp630/US$0.07 „ Best proxy to Indonesian growth RIC: LPKR.JK BBG: LPKR IJ We initiate coverage of Lippo Karawaci (LPKR) with a Buy rating and Rp860 price target. LPKR is the most diversified listed property company in Indonesia.

We find comfort in the balance of its recurring and non-recurring income, which Trading data (local/US$) should reach 50:50 in the coming years. We attribute the success of the launch of phase 1 of Kemang Village to management, which was appointed after the 2004 52-wk range Rp740-339/US$0.08-0.04 merger. Market cap. Rp10,900bn/US$1.18bn Shares o/s 17,302m (ORD) „ We forecast an 11% RNAV CAGR for 2007-10 Free float 50% We estimate the company has approximately Rp2trn cash on its balance sheet from Avg. daily volume ('000) 17,613 Kemang Village pre-sales and landed residential sales. Stages of pre-sales cash will Avg. daily value (Rpm) 11,112.4 contribute to fund a Rp5trn development pipeline spanning over five to six years. We forecast profit to grow 23% and 31% in 2008 and 2009, respectively. Balance sheet data 12/07E Shareholders' equity Rp3,497bn „ Bourgeoning healthcare business exposure Prem (discount) to NAV/Share -19.3% The Indonesian healthcare sector is lucrative, given the high number of persons to Net Cash (debt) (Rp504bn) hospital ratio, especially in the provinces. For comparison, in Jakarta the ratio is 85k to 1, while in Banten province to which LPKR has exposure, the ratio is 5.8x Forecast returns higher. Management has indicated the possibility of a REIT plan for new six Forecast price appreciation +36.5% hospitals by 2012. Forecast dividend yield 0.5% „ Valuation: initiate coverage with a Buy rating and a Rp860 price target Forecast stock return +37.0% Our price target reflects our estimated RNAV for 2008 at Rp14.9trn, equivalent to Market return assumption 11.5% Rp860/share fully diluted. Our price target is 36% above the current share price. Forecast excess return +25.5% We base our price target on discounted development profit and single cap rate, and the market value for its REIT holdings. EPS (UBS, Rp) 12/07E 12/06 From To Cons. Actual Q1E - 6 - 2 Q2E - 6 - 3 Highlights (Rpm) 12/05 12/06 12/07E 12/08E 12/09E Q3E - (2) - 3 Net rental income 145,225 174,953 317,661 247,667 281,813 Q4E - (9) - 6 EBITDA 667,946 548,673 539,741 524,649 786,374 12/07E - 19 - EPS (UBS, Rp) 11 16 19 24 31 12/08E - 24 - fd NAV/share (UBS, Rp) 606 672 781 860 947 DPS (UBS, Rp) 1.710 3.417 3.436 4.232 5.563 Performance (Rp) Stock Price (Rp) Rel. Jakarta Comp 700 120 Profitability & Valuation 5-yr hist av. 12/06 12/07E 12/08E 12/09E 600 100 DPS yield (UBS) % - 1.1 0.5 0.7 0.9 500 80 Prem/disc to NAV % - -52.8 -19.3 -26.8 -33.5 400 60 CEPS yield (UBS) % - 7.9 4.1 4.2 6.3 300 40 EV/EBITDA x - 12.1 22.3 22.4 15.0 200 20 PE (UBS) x - 19.7 33.0 26.8 20.4 100 0 0 Source: Company accounts, Thomson Financial, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of Rp630 on 05 Feb 2008 23:37 HKT 01/05 04/05 07/05 10/05 01/06 04/06 07/06 10/06 01/07 04/07 07/07 10/07 01/08 Stock Price (Rp) (LHS) Rel. Jakarta Comp (RHS) Source: UBS Felicia Tandiyono www.ubs.com/investmentresearch Associate Analyst [email protected] +62-21-2554 7037

UBS 40

Indonesian Property Sector 6 February 2008 Investment case Best proxy to Indonesian property sector growth We think high-rise superblock (mixed-use development) completion will further Most diversified in property segments add to LPKR’s segment diversification. As a result, LPKR will become the only listed company with exposure to all property segments; that is, landed and high- rise residential, retail, office, industrial and commercial projects. In 2007, LPKR also successfully launched the unique ‘San Diego Hills’, a high-margin high- income earner final resting place plots located 65km from Jakarta.

We expect an almost 50:50 split between recurring and non-recurring income in Balanced portion of recurring revenue the next few years. Hotel and hospital operations are targeted to provide 60% revenue. We believe LPKR’s management is aware of the need for a stable cash flow source to ride out development revenue cyclicality. Excluding new hospitals and hotels, we forecast recurring income grow 15% pa on average.

Management’s opportunity-adaptive strategy was recently proven by the Solid opportunity-adaptive strategy Kemang Village project. Initially, the project was meant to cover 2.6ha. With the acquisition of the connecting 8.6ha land, management swiftly revised the Kemang Village plan, turning it into its flagship superblock development in Jakarta. It is crucial for developers to spot and exploit land opportunities in prime areas. Innovation in projects is also essential in selling ‘in-demand’ products, which can lead to successful pre-sales.

We forecast an 11% RNAV CAGR for 2007-10 We assume the initial financing for phase 1 of the super-block project in 2008 Rp2trn cash on balance-sheet by end- will be well covered, since we expect the good pre-sales rate to continue. New 2008 main sources of cash in late 2007 were Kemang Village pre-sales, cash receipts which we estimate at over Rp600bn, and warrant conversion of Rp263bn.

We expect the phases of superblock pipeline to contribute to the over 10% YoY Over 10% pa RNAV growth to 2012E RNAV growth until 2012—80% of LPKR’s development pipeline is in Kemang Village and Paragon City for the next four to five years. We expect contribution of over Rp2trn investments.

The Kemang Village superblock

The Ritz (one of three strata-titled apartment towers) in Kemang Village Ritz is 84% sold by second month of superblock was 76% sold in the first month of launch and 84% in the second. launch Overall, Kemang Village phase 1 apartment pre-sales reached 70% by December 2007 from the August 2007 launch. We think this highlights management’s comprehension of property buyers’ needs. We expect most of the marketing revenue to be booked in 2008. We forecast pre-sales to contribute 15% of total revenue in 2008. Paragon City pre-sales, scheduled for 2009, should provide further upside potential and rising profit.

The Kemang Village project will be LPKR’s next flagship project, after the Further strengthening its reputable Lippo Karawaci Township in the Greater Jakarta area. We expect Kemang brand Village and Paragon City to further strengthen LPKR’s brand as a reputable developer.

UBS 41

Indonesian Property Sector 6 February 2008

A burgeoning health care business There is a need for more hospitals, especially outside Jakarta. Ministry of Health Potentially lucrative growth in and Central Bureau Statistics data point to an 84,577 persons to 1 hospital ratio healthcare sector in Jakarta. The ratio in Banten province, where LPKR’s Siloam Karawaci is situated, is 485,474 to 1l. Access to healthcare in Papua is probably the worst in Indonesia as the region does not have a registered hospital.

The Mochtar Riady Comprehensive Cancer Centre (MRCCC) will be 31-storey Starting with MRCCC in mid-2009… building in the Jakarta CBD and should be constructed by mid-2009. LPKR is recruiting 75 full-time permanent doctors and 340 nurses for MRCCC. We estimate the US$50m investment in MRCCC, a specialist hospital, could potentially be paid-back in six years, assuming revenue contribution begins by Q409 and 14% EBITDA growth pa.

We expect plans for five more Siloam hospitals plans in due course. In addition …then exposure outside Jakarta to the known location in Kemang Village (Jakarta), we believe LPKR will be looking to branch out to other major cities—Surabaya, Bandung, Semarang, Bali and Medan. No particular site has been yet been specified for these cities.

Following the appointment of the 2004 post-merger board of directors, LPKR First REIT and likely more has continued to implement an asset-light strategy, evident in First REIT (2006). We believe it is only a matter of time before six new hospitals are monetised through a REIT structure.

Initiating coverage with a Buy rating and a Rp860 PT We derive our price target from discounted development profit for development properties and a cap-rate implied value for investment properties. In addition, we add the market value of LPKR’s stakes in two Lippo Group REITs listed in Singapore.

Table 25: Our RNAV estimate for LPKR

2005 2006 2007E 2008E 2009E

Development properties 9,581 10,423 11,370 12,383 13,410

Investment properties 1,411 1,587 2,034 2,388 2,883

Other Asset 256 282 294

(Net debt) /Net cash (148) (164) (194)

RNAV 13,513 14,889 16,393

no. of shares (in millions) 17,310 17,310 17,310

RNAV ps adj. 781 860 947

Source: Company data, UBS estimates

UBS 42

Indonesian Property Sector 6 February 2008 Company risks Risk to valuation A lower-than-expected pre-sales rate creates downside risk to our valuation and vice versa. A selling price significantly beyond our expectation would also alter the validity of our valuation. We have not incorporated investment property sales in our valuation to date. Doing so could prompt a valuation review. Specific-company risk Group-related shareholder structure

LPKR has group-related holdings by other Lippo Group entities. This presents limited representation of the shareholder structure. Management is making an effort to widen the company’s shareholder base.

Contractor appointment

No main contractor had been appointed for the Kemang Village project. Although basic construction can be carried out, there could potentially be a threat to timely delivery to apartment buyers.

Technological change: hospital cost risk

Rapid change in technology could pose a cost risk to LPKR’s hospital operations in particular. Investment in medical equipment could easily reach US$1million, depending on the technology. Today’s latest medical equipment could be outdated in three years. Hospitals with less modern technology typically lose out to competitors both domestic and/or in neighbouring countries.

UBS 43

Indonesian Property Sector 6 February 2008 Financials Profit and loss Table 26: Income statement summary

2005 2006 2007E 2008E 2009E (value, IDRbn) Revenue 2,005 1,905 1,944 2,552 3,569 Recurring 823 953 1,040 1,170 1,379 Non-recurring 1,182 952 905 1,382 2,190 Gross Profit 999 973 969 1,198 1,556 Recurring 319 378 440 492 550 Non-recurring 680 595 529 707 1,006 EBITDA 634 553 544 515 804 EBIT 536 447 422 385 652 Other income/expense (5) 6 79 95 107 Pretax income 535 464 507 486 766 Net Income 359 325 330 407 535

(growth yoy, %) Revenue 20 (5) 2 31 40 Recurring 14 16 9 13 18 Non-recurring 24 (19) (5) 53 59 Gross Profit 29 (3) (0) 24 30 Recurring 24 19 16 12 12 Non-recurring 32 (13) (11) 34 42 EBITDA 41 (13) (2) (5) 56 EBIT 46 (17) (6) (9) 69 Other income/expense (86) (221) 1,239 21 13 Pretax income 59 (13) 9 (4) 58 Net Income 23 (10) 2 23 31

(common size) Revenue 100 100 100 100 100 Recurring 41 50 53 46 39 Non-recurring 59 50 47 54 61 Gross Profit 50 51 50 47 44 Recurring 16 20 23 19 15 Non-recurring 34 31 27 28 28 EBITDA 32 29 28 20 23 EBIT 27 23 22 15 18 Other income/expense (0) 0 4 4 3 Pretax income 27 24 26 19 21 Net Income 18 17 17 16 15

Source: Company data, UBS estimates

UBS 44

Indonesian Property Sector 6 February 2008

Development properties marketing sales

For high-rise developments, we assume marketing sales are booked on 20% completion and 20% cash received. For landed residential developments, we assume marketing sales are booked at a one- to six-month lag. This is due to frequent cash upfront payment for upper segment purchases. The company policy for landed residential is revenue recognition once the customer has paid the 20% down-payment. Where there is house mortgage, LPKR books revenue faster since the payment risk is shifted to the loan provider; that is, the bank.

Our selling price estimate comprises 15% for our favoured segment and 10% for Favoured segments hence 15% selling others. We assume sales volume grows 10% YoY for landed residential, except assumption for Kemang Village and for the Karawaci Township, taking into account management’s strategy for this superblock apartments particular development area. We assume strata-titled apartment unit sales will be 80% pre-sold in the second year of launch.

Chart 27: Marketing vs. Accounting development revenue

3,000

2,500

2,000

1,500

1,000

500

0 Dec-05 Dec-06 Dec-07 Dec-08E Dec-09E

Development marketing sales (Rp bn) Development accounting sales (Rp bn)

Source: Company data, UBS estimates

Table 27: Breakdown of development accounting revenue

2005 2006 2007E 2008E 2009E

Mall 67% 66% 35% 14% 15%

High-rise Residential 0% 0% 9% 43% 50%

Office 0% 0% 0% 0% 2%

Low-rise Residential 26% 27% 47% 36% 28%

Industrial 7% 6% 4% 3% 2%

Others 0% 0% 5% 4% 3%

Source: Company data, UBS estimates

Investment properties revenue

We expect investment revenue to rise significantly in 2010, due mainly to Leased retail and hotel underway in earnings from the new hospital and leased retail in Kemang Village. Kemang Village

Our hotel occupancy rate assumption ranges from 40-65%, while for hospitals, it ranges from 50-75%. We assign each hotel and hospital its historical average occupancy rate.

UBS 45

Indonesian Property Sector 6 February 2008

Table 28: Investment revenue growth

2005 2006 2007E 2008E 2009E

Hotel 8% 0% 4% 29% 2%

Hospitals 12% 17% 11% 11% 25%

Mall 0% 0% 0% 20% 55%

Total 11% 13% 12% 14% 22%

Source: Company data, UBS estimates

Chart 28: Development and investment accounting revenue portion

2009E

2008E

2007E

2006

2005

0% 20% 40% 60% 80% 100%

Total Development Total Investment

Source: Company data, UBS estimates

Key earning drivers in 2008: We expect recurring and non-recurring revenue Nearly balanced revenue portion to be split 40:60 in 2008. The biggest contributor of non-recurring revenue is the 22% from apartment sales in the high-profile Kemang Village project and 25% residential land sales. Lippo Karawaci Township sales contribute 78% residential land sales. Paragon City superblock apartment pre-sales could provide further upside potential if reported progress is above our assumption. We assume 30% pre-sales and the ground-breaking phase to be completed by end-2008.

Gross margin: For the past five years, LPKR’s gross margin has been above Healthy margins 40%. The 2004 appointed board of directors has managed to improve gross margin one notch up, to the 45%+ level. However, we expect slight margin contraction given the nature of the superblock development. Superblock’s gross margin averages around 30% in Indonesia, slightly lower than landed residential, which typically has an approximately 40% gross margin. Hence, we expect a 5- 10% narrower margin for superblock development.

EBITDA margin: We expect less contraction in the EBITDA margin due to the type of property being sold, or held for revenue generation. The strategy of off- loading to a REIT would, however, carry a lower depreciation burden on capital- intensive investment properties.

UBS 46

Indonesian Property Sector 6 February 2008

Balance sheet Table 29: Balance sheet summary

2005 2006 2007E 2008E 2009E (value, IDRbn) Cash & equiv. 416 1,705 2,401 2,332 2,284 Investment properties 1,183 973 1,083 1,295 1,962 Development properties 876 909 928 938 948

Total Assets 6,232 8,486 9,691 9,964 10,633 Debt 1,005 2,446 2,549 2,496 2,478 Advance from customers 466 614 1,207 1,223 1,491 Total Liabilities 3,249 5,208 5,855 5,770 5,974

Equities & Minorities 2,984 3,278 3,836 4,194 4,659

(growth yoy, %) Cash & equiv. (7) 310 41 (3) (2) Investment properties 1 (18) 11 20 52 Development properties (37) 4 2 1 1 Total Assets 12 36 14 3 7 Debt 104 143 4 (2) (1) Advance from customers 18 32 97 1 22 Total Liabilities (16) 60 12 (1) 4 Equities & Minorities 75 10 17 9 11

(common size) Cash & equiv. 7 20 25 23 21 Investment properties 19 11 11 13 18 Development properties 14 11 10 9 9 Total Assets 100 100 100 100 100 Debt 16 29 26 25 23 Advance from customers 7 7 12 12 14 Total Liabilities 52 61 60 58 56 Equities & Minorities 48 39 40 42 44

Source: Company data, UBS estimates

Cash: We expect a sharp increase in cash starting 2008 from pre-sales receipts Cashflow in-checked amid expansions from Kemang Village, other ongoing development sales, and the warrant conversion due in November 2007. We do not expect the cash portion to remain at Rp3trn given the capex for two superblocks, and new hotels and hospitals in the next five years.

Assets: Development properties are equivalent to undeveloped landbank. Investment properties are equivalent to revenue-generating fixed assets. Inventories are developed land, house, apartments, or sqm unsold.

Debt: We assume no new bond issuance and timely payment of maturing debt. A US$250m loan matures in 2012, paying 8.875% coupon.

Equity: Warrant-conversion raised over Rp200bn. LPKR also issued pre- emptive rights for the additional 5% outstanding. In addition, a nominal stock split occurred on 26 December 2007.

UBS 47

Indonesian Property Sector 6 February 2008

Cash flow Table 30: Cash flow summary

2005 2006 2007E 2008E 2009E

(value, IDRbn)

EBITDA 634 553 544 515 804

Working capital movement (1,513) (1,263) 506 391 1,005

Cash flow from operating (845) (714) 1,046 916 1,792

Capital expenditure (102) (193) (541) (906) (1,589)

Free cash flow (947) (908) 505 9 203

Debt received, payments 513 1,638 106 (37) (29)

Dividend payments (29) (47) (59) (73) (96)

Equity issuance, buyback 918 5 263 - -

Change in net cash 19 1,062 696 (69) (48)

(growth yoy, %)

EBITDA 41 (13) (2) (5) 56

Working capital movement 1,907 (17) (140) (23) 157

Cash flow from operating (328) (15) (246) (12) 96

Capital expenditure 11 90 180 68 75

Free cash flow (440) (4) (156) (98) 2,040

Debt received, payments (281) 219 (94) (135) (21)

Dividend payments - 61 26 23 31

Equity issuance, buyback - (99) 5,557 (100) -

Change in net cash (72) 5,602 (34) (110) (31)

Source: Company data, UBS estimates

Working capital: We expect negative working capital in 2007 to reverse in 2009. Kemang Village pre-sales are booked as advances from customers until construction completion of project catches up.

Free cash flow: We expect lower free cash flow in 2008, given capex for Kemang Village projects. Return on capital Table 31: Dupont analysis

2005 2006 2007E 2008E 2009E Net Income Margin 17.9% 17.0% 17.0% 16.0% 15.0% ROA 34.0% 25.9% 21.4% 26.0% 34.7% Asset Multiplier 2.5 x 2.4 x 2.6 x 2.4 x 2.3 x ROE 15.3% 10.4% 9.3% 10.1% 12.1%

Source: Company data, UBS estimates

Our Dupont analysis suggests LPKR will experience an ROE up-trend after 2007. Return on asset should improve significantly because of the asset-light strategy. The net income margin could decline because of pressure from the higher weighting on selling high-rise developments.

UBS 48

Indonesian Property Sector 6 February 2008 Price target derivation Table 32: RNAV breakdown

(value, IDRbn) 2005 2006 2007E 2008E 2009E Development properties 9,581 10,423 11,370 12,383 13,410 Net CF Low-rise residential & commercial 17% 17% 31% 49% 31% Industrial 2% 2% 1% 1% 1% Strata Apartment 0% 5% 55% 7% 47% Strata Retail 81% 76% 7% 32% 15% Strata Office 0% 0% 7% 6% 3% Miscellaneous 0% 0% 0% 6% 4% Investment properties 1,411 1,587 2,034 2,388 2,883 EBITDA Hotel 54% 50% 31% 34% 29% Lease apartment 0% 0% 0% 0% 0% Lease office 0% 0% 0% 0% 0% Lease retail 0% 0% 3% 4% 6% Miscellaneous 46% 50% 66% 63% 65% Other Asset 282 (Net debt) /Net cash (164) RNAV 14,889 no. of shares (in millions) 17,310 RNAV ps adj. 860

(growth yoy, %) Development properties 10% 9% 9% 9% 8% Investment properties 36% 12% 28% 17% 21% Other Asset 0% 418% 0% RNAV 7% 11% 17% 18% 9%

(common size) Development properties 92 90 84 76 75 Investment properties 14 14 15 16 18 Other Asset - 2 2 9 8 RNAV 100 100 100 100 100

Source: Company data, UBS estimates

Our development property value estimate is based on the discounted Rp11.5bn development properties development profit method. This is essentially 10-year discounted net cash flow from development properties after tax. Our terminal growth rate assumption is limited to justify the terminal value at 2.5x the raw landbank value. Indonesian property companies are trading at an average 2.5x price to book.

Our DCF analysis uses rolling WACC as the discount-rate, assuming 1.1 beta, a 5.0% market risk premium, and a 3% growth rate.

Our investment properties valuation uses the single-stage cap rate method. We Rp2.4bn investment properties apply a cap-rate of 10% assuming 13.1% WACC and 3% growth, given our preference for the apartment segment (we apply the same valuation to hotels given the similarity in the nature income).

UBS 49

Indonesian Property Sector 6 February 2008

Table 33: Our valuation assumptions

LPKR

Yr forecast 10

Risk free 9.3%

Beta 1.1

MRP 5.0%

Cost of Equity 14.8%

Cost of Debt 13.0%

Cost of Debt AT 9.1%

Weight of Equity 0.7

Weight of Debt 0.3

WACC 13.1%

terminal growth rate 3%

cap rate 10%

growth rate 3%

Source: UBS estimate Sensitivity analysis Our sensitivity analysis suggests our price target is most sensitive to our selling RNAV-derived price target is sensitive price assumption. to the selling price

Table 34: Selling price sensitivity

TP chg. -27% -15% UBS 18% 39%

Prime 5% 10% 15% 20% 25%

Non-prime 0% 5% 10% 15% 20%

TP 632 735 860 1011 1196

Source: UBS estimates

We also analysed the sensitivity of development properties to our valuation key assumptions: beta and the terminal growth rate. A 0.1 reduction in beta increases our price target 23.9%, all else being equal. A 1% increase in the terminal growth rate increases our price target 4.6%, all else being equal.

UBS 50

Indonesian Property Sector 6 February 2008

Table 35: RNAV sensitivity to varying beta and terminal growth rate

Cap-rate

0.9 1.0 1.1 1.2 1.3

1.0% 855 822 792 764 737

2.0% 892 856 823 792 763 Terminal 3.0% 937 897 860 826 794 g. 4.0% 993 947 905 866 831

5.0% 1,063 1,009 961 916 876

Source: UBS estimates

With regard to our investment property valuation, our price target is less Price target is sensitive to WACC sensitive to varying WACC and growth rate assumptions. A 1% reduction in our changes WACC assumption increases our price target 5.8%, all else being equal. A 1% increase in our investment property growth assumption increases our price target 1.7%. This is due to 46% revenue contribution from LPKR’s investment properties (hotels and hospitals).

Table 36: RNAV sensitivity to varying WACC and growth rate

WACC

11% 12% 13% 14% 15%

0.0% 937 877 829 788 755

2.0% 965 900 848 805 769 Growth 3.0% 983 915 860 815 778 rate 4.0% 1,008 934 875 828 788

5.0% 1,040 958 894 843 800

Source: UBS estimates

UBS 51

Indonesian Property Sector 6 February 2008 Company background Strategy Management targets a ratio of non-recurring revenue to recurring revenue of A growth + stable cash flow strategy 40:60. We estimate that this target can be achieved by 2013. In our opinion, this strategy provides adequate cash turnover without sacrificing growth. The strategy also helps to provide a buffer to the sector’s cyclicality.

Management’s opportunity-adaptive strategy was recently proven by the Quick response to development Kemang Village project. Initially, the project was meant to cover 2.6ha. With opportunities the acquisition of the connecting 8.6ha land, management swiftly revised the Kemang Village plan, turning it into its flagship superblock in Jakarta. It is crucial for developers to spot and exploit land opportunities in prime areas. Innovation in projects is also essential in selling ‘in-demand’ products, which can lead to successful pre-sales.

Current projects Figure 3: Kemang Village – 11.2ha bird’s eye view

Source: Company

Management seems focused on the execution of the superblock development Rp5trn developments pipeline projects pipeline in the next five to six years.

(1) Rp2trn investment on Kemang Village (successful pre-sales proven)

■ Units from Ritz Tower are 84% sold in two months

The two-month take-up rates, in sqm, for each of the three apartment tower are 82% at The Ritz, 51% at The Cosmopolitan, and 42%at The Empire. This end of September sqm sales take-up rate highlighted the appetite for such developments.

UBS 52

Indonesian Property Sector 6 February 2008

Chart 29: Kemang Village- Phase 1 apartments are 70% pre-sold by Sept 07

Apartments Take-up rate (unit)

57% 53% 47% 52% 43% 66% 20% 52% 56% 63% 41% 31%

84% 86% 67% 76% 83% 82%

2 weeks 1st mo nth 2nd month 3rd month 4th month 5th month The Ritz The Cosmoplitan The Empire

Source: Company

The selling point of the Kemang Village apartment towers is the relatively large Better than expected pre-sales rate in unit sizes, 73-512/sqm, in comparison to current supply in Jakarta. A 50-odd Kemang Village sqm apartment unit is common for one or even two bedrooms, at Rp7-12m/sqm depending on the segment. A 100-odd sqm apartment unit with two or even three bedrooms with similar asking price per sqm is also common.

Table 37: Kemang Village—relatively larger apartment unit size

The Ritz The Cosmopolitan The Empire

Rp 12 - 14 mn / sqm Rp 11 - 13 mn / sqm Rp 10 - 12 mn / sqm

2 bedrooms (unit sqm) 142 - 150 100 - 125 73 -98

3 bedrooms (unit sqm) 166 - 264 143 - 196 132 - 174

4 bedrooms (unit sqm) 205 - 334 218 - 274 214 - 232

5 bedrooms (unit sqm) 512 na na

Source: Company

■ Optimistic outlook given acceptance of pre-sales selling price

ASP of high-end units in The Ritz helped offset ASP of units in mid-range units in The Empire. Initial ASP progress and unit-sales trend are factors supporting our confidence of a successful project.

Table 38: Kemang Village—ASP on-track to reach target

1st month 2nd month 3rd month 4th month 5th month Target % target price

The Ritz 12.7 12.8 12.6 12.6 12.6 12.2 105%

The Cosmopolitan 11.0 11.3 11.3 11.3 11.4 11.4 99%

The Empire 9.7 9.8 9.8 9.9 10.0 10.8 91%

Overall 11.2 11.3 11.3 11.3 11.3 11.5 99%

Source: Company

UBS 53

Indonesian Property Sector 6 February 2008

■ Well located, between two commercial hubs

Another factor supporting marketing sales is Kemang Village’s strategic Strategic location of Kemang Village location between two important commercial hubs within a 5km radius. The superblock is only 3.5km away from TB Simatupang, known for providing the commercial space for oil and gas companies. Furthermore, the development is 4km away from the heart of the CBD where financial and “real” companies have their offices. This is in addition to not one but three access points to Kemang Village.

Figure 4: Kemang Village – Strategically located between 2 important commercial hubs

Source: Company

Next growth continuation, Paragon City (2) Rp2trn investment on Paragon City as LPKR’s continuation superblock superblock The development of Paragon City will be divided into three phases, similar to that of Kemang Village. Pre-sales of Phase 1 will commence in 2008. There is a slight difference in the targeted market segment. Paragon City apartment units selling price would average Rp10m/sqm, 9% lower than at Kemang Village.

UBS 54

Indonesian Property Sector 6 February 2008

Table 39: Paragon City: Similar stages to Kemang Village

NFA Completion UBS est. rev (sqm) target Rp trn Phase 1 Apartments 99,612 2010 0.91 Leased Mall 100,000 2010-11 0.15

Phase 2 Apartments 112,500 2012 1.07 Hotel (200 room) 16,250 2012-13 na Education facilities 9,000 2012-13 na

Phase 3 Office strata na na na Office lease na na na

Source: Company data, UBS Retaining Karawaci landbank to (3) The rest of developments are traditional low-rise residential maximise value LPKR does not intend to sell 1,458ha landbank in Lippo Karawaci Township aggressively. Management expects price land appreciation of land. Sales of the Lippo Karawaci Township would be limited to less than 5ha pa to maintain the selling price in the secondary market and help maintain the targeted cash position.

Management also has plans for investment properties expansion. Three new Rp2trn investment properties pipeline hotels are planned, one in each LPKR superblock—CITO Surabaya, Kemang Village South Jakarta, and Paragon City West Jakarta. Hotels located in three superblocks could contribute revenue as early as 2009.

The last completed hotel was Aryaduta Regency Hotel in Medan. We expect this Hospitals expansion is good for LPKR hotel generate revenue in 2008. Expansion of hospitals is, in our opinion, the portfolio second most exciting exposure LPKR provides.

(4) Rp500bn cancer hospital in CBD, MRCCC

We expect investment in the cancer hospital to break-even in 2013, assuming 75% long-term bed occupancy, as well as same price and demand trend as other LPKR hospitals.

The cancer hospital is a promising business in Indonesia given relatively low domestic competition. Currently, there is only one prominent cancer hospital in Jakarta, Dharmais, located in West Jakarta.

LPKR’s cancer specialist hospital is located in the heart of CBD, standing 31- floors high. The hospital is to be completed by March 2009.

(5) Five new Siloam Hospitals expansion – 1 in Jakarta, 4 outside Jakarta

We have not included five new hospitals in our RNAV calculation due to unclear feasibility as we do not have details on their location and project data. The information we do have is that six new hospitals (including the specialist cancer hospital) will be in operation by 2012 at an estimated maximum US$50m investment per hospital. Targeted cities for hospital expansion are Bandung, Semarang, Surabaya, Bali and Medan. Listed candidate cities are those with more than 100,000 persons per hospital within the province.

UBS 55

Indonesian Property Sector 6 February 2008

Company history Lippo Karawaci is a significant subsidiary of Lippo Group, which was founded by Dr Mochtar Riady (aka Lie Mo Tie), the late Dr Hasjim Ning, and the late Toto Bachrie. Lippo Karawaci has become a leading broad-based property company in Indonesia. Initially a township developer, Lippo Karawaci is the culmination of a merger between several companies resulting in a diversified corporation operating in housing & land development, healthcare, and hospitality industries.

Property development is one of Lippo Karawaci core business areas. Lippo Karawaci owns 51% of Lippo Cikarang, a subsidiary also listed on Indonesia Stock Exchange. Lippo Cikarang mainly develops industrial estates. There are several light industrial companies located in the industrial estate such as Sanyo, Toshiba, Proton, Mitsubishi, Danone, and Kymco.

Figure 5: LPKR structure

Lippo Karawaci

Housing and Healthcare Infrastructure Land Development and Hospitality

Residential Retail/Commercial Siloam Hospital Aryaduta Hotel Jakarta – West Jakarta Imperial Aryaduta Lippo Siloam Hospital Karawaci Lippo Karawaci City WTC Matahari – Serpong – Lippo Karawaci Aryaduta Hotel Lippo Cikarang City Mall GTC Makassar Siloam Hospital Pekanbaru Tanjung Bunga City Metropolis Town Square – Lippo Cikarang Imperial Aryaduta Hotel Royal Serpong Village Malang Town Square Siloam Hospital Makassar Depok Town Square – Surabaya Puncak Resor Grand Palladium Medan Semanggi Specialist Shima Japanese City of Tomorrow Surabaya Clinic Restaurant Grand Bowling Imperial Golf Club Benton Junction Taman Sari Permata Sports Club Balai Serpong – Mall WTC Matahari Town Management Services, Sport, Leisure & Restaurant Sentra Office Realty Potable & Waste Water Management Dinamika Intertrans

Source: Company

UBS 56

Indonesian Property Sector 6 February 2008

Table 40: LPKR management

Board of Commissioners President Commissioner Ning Gaoning Mr. Ning Gaoning is the President Commissioner who has a Bachelor of economy from Shandong University China, and an MBA from the University of Pittsburgh USA. He is also the President Commissioner of China National Cereals, Oils and Foodstuffs Corporation.

Vice President Surjadi Soedirdja Mr. Surjadi Soedirdja is the Vice President Commissioner. He was the Governor of Commissioner DKI Jakarta in 1992 and is the Local Minister (Menteri Dalam Negeri). He was also a general in the Indonesian army and currently is the senior consultant for PT Krakatau Steel.

Commissioner Charlie Song Mr. Charlie Song is a member of the board that holds a position as the President of China Resources Holdings Company Limited. He is also Chairman of several companies such as China Resources Enterprise Limited, China Resources Vanguard

Company Limited, China Resources Power Holdings Company Limited and China Resources Logic Limited. He has a Bachelor’s degree in Mechanics from Tong Ji University, Shanghai.

Independent Commissioner Mr. Theo L Sambuaga Mr. Theo L Sambuaga is a member of DPR since 1982 and he was also once the Minister of social housing (perumahan rakyat) in 1999 and the Minister of Labour in 1998. He is currently an active member of MPR and has a Bachelor in Social Science and Politics from Universitas Indonesia and is a graduate of School of International Studies, John Hopkins University, USA.

Commissioner Tanri Abeng Mr. Tanri Abeng is the former Minister of State Owned Entities (BUMN) and is a member of MPR. Currently he is also the President Commissioner of Telkom Indonesia, Head of Executive Center for Global Leadership, Vice President of Indonesia-Malaysia Business Council, and has an MBA from State University New York.

Commissioner Farid Harianto Mr. Farid Harianto is another member who is also a commissioner of Bhakti Investama and was the President Director of Pefindo. This former Vice President of BPPN (1998-2000) also has a PhD from the University of Pennsylvania, Wharton School, USA.

Commissioner Eddy Sindoro Mr. Eddy Sindoro is a member who is currently the President Director of several companies in the Lippo Group, including Bank Lippo and Siloam Healthcare. He has an MBA from Mississippi State University, USA.

Commissioner Jiang Wei Jiang Wei is currently the CFO of China Resources (Holdings) Company Limited and China Resources National Corporation since 1995. Mr. Jiang is also a Non-executive Director of China Resources Power Holding Company Limited, China Resources Land Limited, China Resources Cement Holdings Limited and China Assets (Holdings) Limited. This Director of China Vanke Company Limited has a Master in International Business & Finance from the University of International Business and Economics in Beijing, China.

Commissioner Agum Gumelar Agum Gumelar was formerly the Minister of Relations for Indonesia. As an army general he was also the governor of Lemhanas. In 2001, Mr. Gumelar was the

Coordinating Minister of Social Politics and Security. He has a Master of Science in Management from American World University.

Commissioner Jonathan L Parapak Jonathan L Parapak is the Head of the Profession and Association of Telematics. He is a Commissioner of Broadband Multimedia, Matahari Putra Prima, and Multipolar Corporation. He is a Master of Engineering Science from the University of Tasmania, Australia.

UBS 57

Indonesian Property Sector 6 February 2008

Table 40: LPKR management (cont'd)

Board of Commissioners Commissioner (new) Adrianus Mooy Adrianus Mooy has a PhD in Economics from the University of Wisconsin, USA. He was a lecturer at Universitas Indonesia's Economic Faculty teaching Econometry, Fiscal and Monetary studies. He also held the position as the Governor of Bank Indonesia, the representative for Indonesia at the European Union, and Chief Consultant for the restructuring of the SEACEN centre in Kuala Lumpur. Currently he is a partner at Strategic Asia and the Chair Professor of Economics at STIE Perbanas.

Commissioner (new) Viven Setiabudi Viven G. Setiabudi was the most recent President Director of Lippo Karawaci. She is a graduate from University of New South Wales, Australia in Computers and Statistics. In 1984 she was the President Director of PT Lippo Life Insurance until 1995. In 1996 she was chosen to be the CEO of Legal and General Australia’s Operations in Indonesia. She was also the Vice President Director of Allianz Life Indonesia.

Board of Directors President Director Eddy H. Handoko President Director Eddy Handoko is also the Vice President Director of Multipolar and a Director of Matahari Putra Prima. He holds a degree in Business Administration from the University of Southern California, Los Angeles. In the past, he has been a Director of Unibank, the Deputy President of Lippo Bank, and President Director of Lippo Securities and Mayatexdian Industry.

Director Tjokro Libianto Tjokro Libianto used to be the Manager of Administration and Finance from Dwi Satya Utama in Surabaya (1984-1988), Tifa Finance, and Tifa Securities (1988-1990). He has a Bachelor in Accounting degree from Brawijaya University, Malang.

Director Jopy Rusli Jopy Rusli is the Director of Marketing in the Property Division of Lippo Karawaci. He started his career as a Project Designer at Tritipo & Associates Carlsblad, California and used to be the director of Califa Pratama. Before becoming a director of Lippo, he was the Head of Architecture Division. He has a Masters in Real Estate from National University San Diego, USA.

Director Agus Sugandi Hendra Agus Sugandi was the Vice President of Asset Management Division for BPPN and has a Bachelor of Accounting degree from the Atmajaya University, Jakarta.

Director Ketut Wijaya Ketut Wijaya has held various executive positions in the Lippo Group, including Matahari Putra Prima, Multipolar Corporation and LippoBank. He is the current CFO of Lippo Karawaci.

Director (new) Yuke Elia Susiloputro Yuke Elia Susiloputro is a graduate from the Southern Institute of Architecture, Santa Monica, California, US. He has served as the Associate Director of Glenwood L. Garvey & Associates, Santa Monica, California, USA (1988-1992). He was the Vice President Director of Lippo Karawaci in 1997 and has been the President Director of Lippo Cikarang since 1999.

Source: Company

UBS 58

Indonesian Property Sector 6 February 2008

PT Lippo Karawaci Per share (Rp) 12/05 12/06 12/07E 12/08E 12/09E PT Lippo Karawaci, a prominent Indonesian property developer, is the EPS (stated) 11 19 19 24 31 surviving entity of a merger with Siloam Healthcare, Aryaduta Hotel and EPS (pre-exceptional) 11 16 19 24 31 Lippoland in 2004. Property segment exposure includes landed CEPS (pre-exceptional) 27 25 23 24 37 residential, apartments, hotels, retail, industrial and hospitals. Landbank Revalued NAV per share 606 672 781 860 947 stood at over 1,600 ha as of end-2007 with the major portion located in Profit & Loss (Rpm) Karawaci township. The proportion of recurring income versus non- Net rental income 145,225 174,953 317,661 247,667 281,813 recurring is approximately 40:60. Lippo Karawaci is also holds stakes in Investment income 13,696 31,996 67,470 102,273 98,801 First REIT and Lippo-Mapple Tree REIT, both listed in Singapore. Trading income 979,897 721,475 716,147 1,064,258 1,833,783 Associates & other income 48,615 24,047 25,941 37,782 11,334 Total income 1,187,433 952,471 1,127,220 1,451,981 2,225,731 Interest payable (52,358) (21,516) (33,413) (64,372) (20,361) Administration and other (501,877) (360,865) (514,074) (818,738) (1,333,762) Revenue surplus 633,198 570,090 579,733 568,872 871,608 Interest capitalised - - - - - RelativeRelative rating rating - -(discount) (discount) to to NAV NAV (%) (%) Depreciation & amortisation (98,159) (106,099) (121,693) (129,914) (151,215) 80040 Pre-exceptional provisions - - - - - 20 Pre-exceptional pre-tax profits 535,039 463,992 458,040 438,957 720,394 600 Exceptionals - - 49,141 47,503 45,919 0 Stated pre-tax profits 535,039 463,992 507,181 486,460 766,313 400-20 Tax (169,880) (121,170) (152,154) (130,897) (204,575) -40 Minorities & preference & extraordinaries (6,216) (17,985) (24,631) 51,447 (26,803) 200-40 Attributable net profits 358,943 324,836 330,396 407,011 534,934 -60 0 Cost of dividend (29,328) (58,657) (59,471) (73,262) (96,288) -80 Retained profits/earnings 329,614 266,179 270,924 333,749 438,646 -100 Pre-exceptional cash flow 457,102 430,935 402,948 414,197 640,230 -100-200 2003 2004 2005 2006 2007 EBITDA 667,946 548,673 539,741 524,649 786,374 Lippo Karawaci Sector EBIT 569,787 442,574 418,048 394,735 635,159 AdjustedLippo Karawaciprice (local) DiscSector to NAV Cash flow (Rpm) EBIT 569,787 442,574 418,048 394,735 635,159 Depreciation & amortisation 98,159 106,099 121,693 129,914 151,215 Company vs sector 12m PXCEPS growth(%) Working capital movement (1,512,716) (1,263,100) 506,062 391,316 1,005,425 60 Other (operating) - - - - - Operational cash flow (844,770) (714,427) 1,045,803 915,966 1,791,799 40 Net interest paid (38,662) 10,480 34,058 37,902 78,440 Dividends paid (29,328) (47,306) (59,471) (73,262) (96,288) 20 Tax paid (119,708) (171,496) (152,154) (130,897) (204,575) Net (acquisitions)/capital expenditure (98,030) (192,168) (540,945) (782,575) (1,588,686) 0 Equity issued 918,094 4,653 263,242 - - Other items 19,579 834,801 - - - Movement in (net debt)/net cash (192,825) (275,463) 590,532 (32,867) (19,310) -20 20062007200820092010 Balance sheet (Rpm) Book value investment properties 2,058,835 1,881,634 2,010,173 2,232,413 2,909,914 Lippo Karawaci Sector Other fixed assets 205,602 224,746 217,649 210,908 204,149 Total book value of fixed assets 2,264,437 2,106,380 2,227,822 2,443,321 3,114,062 Book value trading properties 2,895,978 3,673,732 3,773,434 3,765,622 3,616,864 GeographicSectoral breakdown breakdown Cash & deposits 287,628 1,349,407 2,045,468 1,976,011 1,927,951 Other current assets 784,191 1,356,335 1,644,459 1,779,435 1,974,559 Total book value of assets 6,232,234 8,485,854 9,691,182 9,964,388 10,633,437 Debt (1,005,317) (2,446,454) (2,549,316) (2,496,182) (2,477,869) Other liabilities (2,534,283) (3,076,911) (3,645,211) (3,637,802) (3,886,517) Book ordinary shareholders' funds/NTA 2,692,634 2,962,489 3,496,655 3,830,404 4,269,050 Home offices - cap city Surpluses over book value 10,989,905 12,007,530 13,402,068 14,769,549 16,289,841 Offices Revalued shareholders' funds/NTA 13,682,539 14,970,018 16,898,724 18,599,953 20,558,892 Fully diluted shareholders' funds/NTA 10,402,861 11,524,653 13,512,518 14,889,342 16,392,961 Profitability Recurring income cover of expenses 0.3x 0.5x 0.7x 0.4x 0.3x Interest cover 11.4x 23.2x 15.4x 8.2x 37.4x Total value (Rpm): 1,881,633.9 Headline stated net dividend cover 12.2x 5.5x 5.6x 5.6x 5.6x Total value (Rpm): 1,881,633.9 Pre-exceptional cash dividend cover 15.6x 7.4x 6.8x 5.7x 6.6x Productivity Pre-exceptional tax rate 31.8% 26.1% 33.2% 29.8% 28.4% SectoralGeographic Breakdown breakdown Net debt/revalued net assets 6.9% 9.5% 3.7% 3.5% 3.4% Net debt/(revalued gross assets-cash) 5.3% 7.0% 2.9% 2.7% 2.6% Net debt/EV 13.4% 16.5% 5.1% 4.4% 4.7% Momentum Growth in pre-ex. pre-tax cash flow 9.7% (10.0%) 1.7% (1.9%) 53.2% Growth in pre-ex. net cash flow per share (20.8%) (5.8%) (7.3%) 2.8% 54.6% Home offices - cap city Growth in revalued NAV per share 7.0% 10.7% 16.2% 10.2% 10.1% Offices Value Core EBITDA/EV 12.4% 8.3% 5.5% 4.5% 6.7% Pre-ex. cash earnings yield 9.9% 7.9% 4.6% 3.8% 5.9% Average yield on appraised values 25.6% 29.2% 26.4% 25.6% 23.5% (Discount) to revalued NAV (55.6%) (52.8%) (35.3%) (26.8%) (33.5%) Total value (Rpm): 1,881,633.9 Total value (Rpm): 1,881,633.9 Gross dividend yield 0.6% 1.1% 0.7% 0.7% 0.9% Source: UBS estimates, * Historical valuations are based on an `average for the year' share price. Current & future valuations are based on a share price of Rp630 on 05/02/2008

UBS 59

Indonesian Property Sector 6 February 2008

Global Equity Research UBS Investment Research Indonesia Ciputra Development Real Estate 12-month rating Buy Prior: Sell 12m price target Rp1,000/US$0.11 Exploring landbank potential Prior:Rp862/US$0.09 Price Rp710/US$0.08 „ Marketing sales recovery RIC: CTRA.JK BBG: CTRA IJ We upgrade our rating from Sell to Buy and raise our price target from Rp862 to Rp1,000. We expect development marketing sales to rise 81% YoY, to Rp2trn in

2008. We now include prospective sales from superblock Ciputra World Jakarta Trading data (local/US$) and Ciputra Surabaya and also improvement in sales of other residential estates. Previously we expected 16% growth as Jakarta superblock sales were not included 52-wk range Rp1,040-610/US$0.11-0.06 in our assumptions. Market cap. Rp4,522bn/US$0.49bn Shares o/s 6,370m (ORD) „ Adding Jakarta superblock exposure: Ciputra World Free float 42% We favour the strata-titled apartment segment, especially those built in superblock Avg. daily volume ('000) 30,380 compounds. CTRA’s indirect ownership of Ciputra World Jakarta and Surabaya Avg. daily value (Rpm) 23,250.9 are through its 51% ownership in Ciputra Property and 40% in Ciputra Surabaya. The holdings in these subsidiaries contribute 27% to our 2008E RNAV estimate. Balance sheet data 12/07E Shareholders' equity Rp3,384bn „ Tapping growth in resource-rich Kalimantan Prem (discount) to NAV/Share -28.9% The growing marketing sales trend in this region is encouraging, 7% YoY growth Net Cash (debt) Rp1,205bn in 2005, and we expect 18% in 2008. In 2007, marketing sales in two Kalimantan cities grew 13% YoY. CTRA plans to launch residential properties in Balikpapan Forecast returns in 2008, the third city in Kalimantan where it will do so. Forecast price appreciation +40.8% „ Valuation: Buy rating, Rp1,000 price target Forecast dividend yield 0.0% We base our valuation on RNAV. We raise our selling price YoY growth Forecast stock return +40.8% assumption for Citra Garden City from 10% to 15%. This is due to its exposure to Market return assumption 11.5% favoured segment—the southwestern quadrant of Jakarta. Our price target reflects Forecast excess return +29.3% our 2008 RNAV assumption of Rp6.55trn, equivalent to Rp1,005/share fully diluted, and 40% above the current share price. We think the share price correction EPS (UBS, Rp) in late 2007 was driven by sentiment, not on fundamentals. 12/07E 12/06 From To Cons. Actual Q1E 3 4 - 261 Q2E 3 4 - 21 Highlights (Rpm) 12/05 12/06 12/07E 12/08E 12/09E Q3E 4 7 - 4 Net rental income 88,580 99,269 105,573 44,624 56,370 Q4E 3 57 - 1 EBITDA 285,336 355,192 212,159 365,217 511,415 12/07E 12 73 17 EPS (UBS, Rp) 41 47 72 22 24 12/08E 16 22 22 fd NAV/share (UBS, Rp) 2,428 906 998 1,001 995 DPS (UBS, Rp) 0.000 0.000 0.000 0.000 0.000 Performance (Rp) Stock Price (Rp) Rel. Jakarta Comp 1000 140

Profitability & Valuation 5-yr hist av. 12/06 12/07E 12/08E 12/09E 120 800 DPS yield (UBS) % - 0.0 0.0 0.0 0.0 100 Prem/disc to NAV % - -50.3 -28.9 -29.1 -28.6 600 80 60 400 CEPS yield (UBS) % - 5.0 3.3 4.3 4.8 40 200 EV/EBITDA x - 6.8 22.0 13.4 10.4 20 PE (UBS) x - 9.6 9.9 32.9 29.7 0 0 Source: Company accounts, Thomson Financial, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. 01/05 04/05 07/05 10/05 01/06 04/06 07/06 10/06 01/07 04/07 07/07 10/07 01/08 Price Target (Rp) (LHS) Stock Price (Rp) (LHS) Valuations: based on an average share price that year, (E): based on a share price of Rp710 on 05 Feb 2008 23:37 HKT Rel. Jakarta Comp (RHS) Source: UBS Felicia Tandiyono www.ubs.com/investmentresearch Associate Analyst [email protected] +62-21-2554 7037

UBS 60

Indonesian Property Sector 6 February 2008 Investment case

Marketing sales recovery We raise our RNAV 2008 estimate 10%, given the recovery in marketing sales. 2008E RNAV up 10% from previous Ciputra World Jakarta, which we now incorporate in our assumptions, estimate contributes 30% to our marketing sales forecast. Growth in marketing sales should translate to higher cash deposits and instalments in 2008, resulting in our higher RNAV forecast for 2008.

Table 41: Marketing sales breakdown

2007 2008E 2009E

Citra Garden City, W. Jkt 13% 10% 11%

Citra Raya Tangerang 11% 7% 8%

Citra Indah Jonggol, Bogor 14% 9% 9%

Citra Balikpapan 0% 4% 5%

Taman Dayu, Pandaan, Srby 3% 2% 2%

Citra Garden Banjarmasin 2% 1% 2%

Citraland City Samarinda 9% 5% 6%

Bukit Palma, Srby 2% 1% 1%

Citra Garden Lampung 4% 4% 4%

Citra Harmoni, Sidoarjo 2% 2% 2%

Citra Raya Surabaya 23% 14% 15%

Citra Garden Sidoarjo 1% 1% 1%

CITRA BALIKPAPAN 0% 4% 5%

CW, lot 3-5 Jkt 0% 8% 5%

CW luxury, lot 3-5 Jkt 0% 9% 4%

CW, lot 6 Jkt 0% 11% 7%

CW, Surabaya, tower 1&2 14% 6% 5%

Total 100% 100% 100%

Total Rp bn 1,105 2,090 2,246

Total g. yoy 119% 89% 7%

Source: Company data, UBS estimates

Adding Jakarta superblock exposure: Ciputra World We are upbeat on the Ciputra World Jakarta (CWJ) launch, scheduled for H108. Upbeat on CWJ given segment Pre-sales for the superblock project in Surabaya for the wealthy in East Java, preference; previously not included in was launched in Q407, and is already 43% pre-sold. our forecast

Strata-titled apartments near the CBD superblock compound are within our favoured segment. CWJ phase 1 includes strata-titled apartments for high-end and luxury markets, which we estimate have the potential to generate over Rp1trn accumulated revenue by 2010. CTRA will consolidate revenue from CWJ sales, given its 51% holding in Ciputra Property.

UBS 61

Indonesian Property Sector 6 February 2008

Tapping growth in resource-rich Kalimantan CTRA plans to launch residential sales in Balikpapan in 2008. Sales in this city We had not included the new (exposure to its third city in Kalimantan) add 5% to our total sales forecast. We residential project in Balikpapan in our expect up to 15% sales from Kalimantan. Kalimantan City was not included in assumptions our previous assumptions, although it is a small proportion of total sales.

CTRA does not own the land in Balikpapan, similar to its earlier projects in Kalimantan. Instead it has established joint ventures with local partners, whereby CTRA bears 100% of the costs and takes 70% of the revenue. The upside to this is that it does not have any land acquisition costs because its partners provide the landbank.

UBS 62

Indonesian Property Sector 6 February 2008 Financials Table 42: Balance sheet summary

2005 2006 2007E 2008E 2009E

(value, IDRbn)

Cash & equiv. 550 800 1,429 548 749

Investment properties 1,039 1,121 562 1,574 2,102

Development properties 950 511 1,098 1,098 1,162

Total Assets 5,307 5,153 5,805 6,242 6,924

Debt 795 215 185 299 143

Advance from customers 1,035 810 919 1,024 1,036

Total Liabilities 4,489 1,303 1,382 1,601 1,457

Equities & Minorities 818 3,850 4,422 4,641 5,467

Net Debt to Equity (3) (0) (0) (0) (0)

Source: Company data, UBS estimates

Table 43: Income statement summary

2005 2006 2007E 2008E 2009E

(value, IDRbn)

Revenue 1,050 1,186 1,193 1,910 2,448

Recurring 275 316 341 361 454

Non-recurring 775 869 852 1,549 1,994

Gross Profit 486 559 411 747 977

Recurring 193 209 219 230 281

Non-recurring 294 350 192 517 695

EBITDA 276 336 173 365 511

EBIT 235 287 116 309 433

Other income/expense (8) 14 64 35 15

Pretax income 231 301 181 344 448

Net Income 79 572 468 141 182

Source: Company data, UBS estimates

UBS 63

Indonesian Property Sector 6 February 2008

Table 44: Cash flow summary

2005 2006 2007E 2008E 2009E

(value, IDRbn)

EBITDA 276 336 173 365 511

Working capital movement 283 (253) 490 (202) 123

Cash flow from operating 568 102 703 163 635

Capital expenditure (188) (47) (620) (1,068) (671)

Free cash flow 568 102 702 162 634

Debt received, payments (81) (65) (30) 114 (156)

Dividend payments - - - - -

Equity issuance, buyback - 1,220 71 - 541

Change in net cash 211 370 630 (882) 202

Source: Company data, UBS estimates

Table 45: RNAV breakdown

(value, IDRbn) 2005 2006 2007E 2008E 2009E

Development properties 4,303 4,522 5,019 5,561 6,067

Investment properties 588 637 662 679 710

Other Asset -

(Net debt) /Net cash 249

RNAV 6,519

no. of shares (in millions) 6,512

RNAV ps adj. 1,001

Source: Company data, UBS estimates

UBS 64

Indonesian Property Sector 6 February 2008

Ciputra Development Per share (Rp) 12/05 12/06 12/07E 12/08E 12/09E Ciputra Development was established in 1981 by Ir. Ciputra, and is one of EPS (stated) 41 90 73 22 24 Indonesia's leading property companies with over 1400 ha of landbank in EPS (pre-exceptional) 41 47 72 22 24 2007. Property segment exposure is landed residential, hotels, CEPS (pre-exceptional) 62 23 23 30 34 apartments and retail. Around 70% of revenue is non-recurring income Revalued NAV per share 2,428 906 998 1,001 995 from sales of residential units. Ciputra Development holds a 40% stake in Profit & Loss (Rpm) Ciputra Surya and a 51% stake in Ciputra Property. As a result of Ciputra Net rental income 88,580 99,269 105,573 44,624 56,370 Property's IPO, Ciputra Development's focus is mainly on developing Investment income 14,794 27,657 37,997 69,481 25,403 landed residential projects at present. Trading income 668,042 756,514 726,782 1,352,219 1,753,803

Associates & other income 12,870 24,446 39,614 - -

Total income 784,287 907,885 909,965 1,466,323 1,835,577 Interest payable (32,575) (32,988) (13,548) (34,947) (9,906) Administration and other (480,904) (525,036) (659,809) (1,031,626) (1,298,759) Revenue surplus 270,808 349,860 236,608 399,751 526,912 Interest capitalised - - - - - RelativeRelative rating rating - -(discount) (discount) to to NAV NAV (%) (%) Depreciation & amortisation (40,232) (49,229) (56,073) (56,239) (78,703) 30000 Pre-exceptional provisions - - - - - 25000 Pre-exceptional pre-tax profits 230,576 300,631 180,535 343,512 448,209 Exceptionals - - - - - 20000 Stated pre-tax profits 230,576 300,631 180,535 343,512 448,209 15000 Tax (69,203) (91,423) (54,161) (124,958) (162,971) 10000 Minorities & preference & extraordinaries (82,143) 362,892 341,959 (78,050) (103,554) 10000 Attributable net profits 79,231 572,100 468,334 140,503 181,683 5000 Cost of dividend - - - - - 0 Retained profits/earnings 79,231 572,100 468,334 140,503 181,683 -5000 Pre-exceptional cash flow 119,463 143,616 149,557 196,742 260,386 -5000 2003 2004 2005 2006 2007 EBITDA 285,336 355,192 212,159 365,217 511,415 Ciputra Development Sector EBIT 245,103 305,962 156,086 308,978 432,712 AdjustedCiputra Developmentprice (local) Disc Sectorto NAV Cash flow (Rpm) EBIT 245,103 305,962 156,086 308,978 432,712 Depreciation & amortisation 40,232 49,229 56,073 56,239 78,703 Company vs sector 12m PXCEPS growth(%) Working capital movement 282,506 (252,845) 490,396 (202,153) 123,105 100 Other (operating) - - - - - Operational cash flow 567,841 102,347 702,555 163,063 634,520 50 Net interest paid (17,780) (5,332) 24,449 34,534 15,497 Dividends paid - - - - - 0 Tax paid (42,707) (57,969) (54,161) (124,958) (162,971) Net (acquisitions)/capital expenditure (185,125) (758,354) (84,382) (1,067,900) (671,100) -50 Equity issued - 1,219,694 71,338 - 541,127 Other items 21,089 (37,674) - - - Movement in (net debt)/net cash 343,318 462,711 659,799 (995,261) 357,073 -100 2006 2007 2008 2009 2010 Balance sheet (Rpm) Book value investment properties 1,989,204 1,631,989 1,660,298 2,671,959 3,264,356 Ciputra Development Sector Other fixed assets 30,338 30,120 30,120 30,120 30,120 Total book value of fixed assets 2,019,542 1,662,109 1,690,418 2,702,079 3,294,476 Book value trading properties 2,644,755 2,446,141 2,277,750 2,525,565 2,377,060 GeographicSectoral breakdown breakdown Cash & deposits 389,959 759,944 1,389,618 508,065 709,638 Other current assets 252,446 284,917 446,740 506,345 543,003 Total book value of assets 5,306,703 5,153,112 5,804,525 6,242,054 6,924,177 Debt (795,182) (215,221) (185,095) (298,804) (143,304) Other liabilities (4,607,949) (2,093,067) (2,234,934) (2,418,252) (2,533,064) Book ordinary shareholders' funds/NTA (96,428) 2,844,824 3,384,496 3,524,998 4,247,809 Home offices - cap city Surpluses over book value 2,950,997 3,551,416 4,038,177 3,598,324 3,682,527 Offices Revalued shareholders' funds/NTA 2,854,569 6,396,240 7,422,672 7,123,322 7,930,336 Fully diluted shareholders' funds/NTA 4,695,393 5,767,921 6,407,289 6,519,336 7,553,009 Profitability Recurring income cover of expenses 0.2x 0.2x 0.2x 0.1x 0.1x Interest cover 8.1x 10.1x 14.3x 10.8x 46.2x Total value (Rpm): 1,631,988.8 Headline stated net dividend cover NA NA NA NA NA Total value (Rpm): 1,631,988.8 Pre-exceptional cash dividend cover - - - - - Productivity Pre-exceptional tax rate 30.0% 30.4% 30.0% 36.4% 36.4% SectoralGeographic Breakdown breakdown Net debt/revalued net assets 8.6% (9.4%) (18.8%) (3.2%) (7.5%) Net debt/(revalued gross assets-cash) 4.2% (7.4%) (16.2%) (2.4%) (5.9%) Net debt/EV 18.7% (22.7%) (21.3%) (4.3%) (10.7%) Momentum Growth in pre-ex. pre-tax cash flow (409.4%) 29.2% (32.4%) 69.0% 31.8% Growth in pre-ex. net cash flow per share (159.8%) (63.5%) 3.3% 29.7% 13.5% Home offices - cap city Growth in revalued NAV per share 115,521.2% (62.7%) 10.2% 0.3% (0.7%) Offices Value Core EBITDA/EV 13.2% 14.8% 3.8% 7.5% 9.6% Pre-ex. cash earnings yield 16.4% 5.0% 2.7% 4.3% 4.8% Average yield on appraised values 38.3% 41.1% 41.9% 42.5% 44.3% (Discount) to revalued NAV (84.5%) (50.3%) (13.4%) (29.1%) (28.6%) Total value (Rpm): 1,631,988.8 Total value (Rpm): 1,631,988.8 Gross dividend yield - - - - - Source: UBS estimates, * Historical valuations are based on an `average for the year' share price. Current & future valuations are based on a share price of Rp710 on 05/02/2008

UBS 65

Indonesian Property Sector 6 February 2008

Global Equity Research UBS Investment Research Indonesia Kawasan Industri Jababeka Tbk PT Real Estate 12-month rating Neutral Prior: Sell 12m price target Rp200/US$0.02 Prior:Rp212/US$0.02 Aiming for integrated industrial estates Price Rp185/US$0.02 „ 130MW gas power plant contributes 45% to our NAV assumption RIC: KIJA.JK BBG: KIJA IJ We assume the power plant will generate 130MW, up from our previous assumption of 100MW. With this revision, we now expect the plant to contribute 45% (up from 14% previously) to Kawasan Industri Jababeka’s (KIJA) gross asset Trading data (local/US$) value in 2008. We expect recurring income from Q408, when 40MW comes on stream. 52-wk range Rp285-160/US$0.03-0.02 Market cap. Rp2,549bn/US$0.28bn „ Cikarang dry port facility and impact on industrial estate not factored in Shares o/s 13,781m (ORD) We think the dry port and the power plant will enhance the industrial estate’s Free float 30% value. However, we maintain our selling price assumption of 10% YoY growth for Avg. daily volume ('000) 101,242 KIJA’s industrial estates. KIJA is in the process of forming a joint venture in Avg. daily value (Rpm) 20,891.8 which it will hold a 40% stake. Balance sheet data 12/07E „ No exposure to our favoured segment and area Shareholders' equity Rp1,692bn Industrial estates are not our favoured segment while residential estates built to Prem (discount) to NAV/Share -13.2% support industrial are also not included in our preferred residential segment. Net Cash (debt) (Rp199bn) Moreover, to date, the company has not disclosed plans, if any, for the 2.2 ha landbank in the CBD in Jakarta. Forecast returns „ Valuation: Neutral rating, Rp200 price target Forecast price appreciation +8.1% We upgrade our rating from Sell to Neutral because of the considerable price Forecast dividend yield 0.6% correction recently and lower our price target from Rp212 to Rp200. We lower our Forecast stock return +8.7% 2008 RNAV estimate 3% because of lower-than-expected 2007 sales resulting in Market return assumption 11.5% less cash inflow, and after adjusting for the value of the power plant and debt. Our Forecast excess return -2.8% RNAV-derived price target is Rp200. EPS (UBS, Rp) 12/07E 12/06 From To Cons. Actual Q1E 2 2 - 1 Q2E 2 2 - 1 Highlights (Rpm) 12/05 12/06 12/07E 12/08E 12/09E Q3E 2 1 - 1 Net rental income 14,263 7,916 59,258 123,383 257,331 Q4E 1 1 - 0 EBITDA 180,915 72,041 141,691 141,442 256,134 12/07E 7 6 6 EPS (UBS, Rp) 103681112/08E 8 8 8 fd NAV/share (UBS, Rp) 136 147 213 201 252 DPS (UBS, Rp) 0.000 1.000 0.899 1.212 1.592 Performance (Rp) Stock Price (Rp) Rel. Jakarta Comp 300 120 Profitability & Valuation 5-yr hist av. 12/06 12/07E 12/08E 12/09E 250 100

DPS yield (UBS) % - 0.8 0.5 0.7 0.9 200 80

Prem/disc to NAV % - -14.6 -13.2 -8.0 -26.5 150 60

CEPS yield (UBS) % - 3.3 4.1 5.3 8.9 100 40 EV/EBITDA x - 24.1 18.8 21.5 13.1 50 20 PE (UBS) x - 46.7 30.9 22.9 17.4 0 0 Source: Company accounts, Thomson Financial, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. 01/05 04/05 07/05 10/05 01/06 04/06 07/06 10/06 01/07 04/07 07/07 10/07 01/08 Price Target (Rp) (LHS) Stock Price (Rp) (LHS) Valuations: based on an average share price that year, (E): based on a share price of Rp185 on 05 Feb 2008 23:37 HKT Rel. Jakarta Comp (RHS) Source: UBS Felicia Tandiyono www.ubs.com/investmentresearch Associate Analyst [email protected] +62-21-2554 7037

UBS 66

Indonesian Property Sector 6 February 2008 Investment case

130MW gas power plant contributes 45% to our NAV estimate Financing for KIJA’s 130MW power plant project is at the final stage and the Financing close to secured this quarter, financing agreement should be signed this quarter. KIJA had received a income kicks in late this year US$88m bridging loan to begin power plant construction in October 2007, of which 60% was provided by loan syndication.

We previously expected recurring income from 2009; however, the company We adjust our power plant estimates has indicated that 40MW will come on stream in August 2008. We had also assumed an 80-100MW power plant, but the company recently announced it was 130MW. We believe KIJA would be able to achieve 80% utilisation.

Cikarang dry port and impact on estate not factored in While we think the dry port could be a value-enhancing facility, which could Potential catalyst: dry port venture also generate recurring income, we choose not to factor this in our forecasts as the joint venture agreement has not yet been signed. We maintain our selling price and volume forecasts of 10% YoY growth for each.

No exposure to our favoured segment KIJA does not have projects that are in our preferred segment. It has not disclosed any concrete plan for the 2.2ha landbank in the CBD. KIJA plans to form a joint venture to develop this area. Until then, KIJA’s exposure remains mainly in industrial and residential.

KIJA marketing sales were below our expectations, Rp138bn sales versus our Disappointing marketing sales in 2007 forecast of Rp408bn, and there has been no significant improvement in industrial estates to date. We expect 19% YoY growth in marketing sales in 2008. The downward revisions have resulted in an 8% correction in our 2008 RNAV estimate. The major reason for our rating upgrade is because of the share price correction earlier this year.

Table 46: Balance sheet summary

2005 2006 2007E 2008E 2009E

(value, IDRbn)

Cash & equiv. 142 81 774 665 585

Investment properties 214 262 306 996 1,176

Development properties 789 818 964 962 962

Total Assets 1,977 1,907 2,879 3,446 3,535

Debt 120 104 973 1,445 1,396

Advance from customers 123 75 108 108 123

Total Liabilities 369 278 1,180 1,652 1,617

Equities & Minorities 1,608 1,629 1,699 1,794 1,918

Net Debt to Equity (0) 0 0 0 0

Source: Company data, UBS estimates

UBS 67

Indonesian Property Sector 6 February 2008

Table 47: Income statement summary

2005 2006 2007E 2008E 2009E

(value, IDRbn)

Revenue 567 430 397 503 733

Recurring 125 141 155 342 559

Non-recurring 442 289 242 161 175

Gross Profit 261 188 191 241 328

Recurring 59 59 83 155 234

Non-recurring 202 129 107 85 95

EBITDA 161 72 111 140 256

EBIT 143 52 90 116 176

Other income/expense 6 (9) 28 32 16

Pretax income 149 43 118 147 193

Net Income 134 37 83 111 146

Source: Company data, UBS estimates

Table 48: Cash flow summary

2005 2006 2007E 2008E 2009E

(value, IDRbn)

EBITDA 161 72 111 140 256

Working capital movement 58 38 46 13 24

Cash flow from operating 239 110 187 155 281

Capital expenditure (12) - (313) (715) (260)

Free cash flow 227 110 (126) (560) 21

Debt received, payments (157) (13) 869 473 (49)

Dividend payments - (14) (12) (17) (22)

Equity issuance, buyback - - - - -

Change in net cash (0) (60) 693 (109) (81)

Source: Company data, UBS estimates

Table 49: KIJA - RNAV breakdown

(value, IDRbn) 2005 2006 2007E 2008E 2009E

Development properties 1,640 1,787 1,856 2,019 2,183

Investment properties 214 262 241 281 916

Other Asset 1,252

(Net debt) /Net cash (780)

RNAV 2,772

no. of shares (in millions) 13,781

RNAV ps adj. 201

Source: UBS

UBS 68

Indonesian Property Sector 6 February 2008

Kawasan Industri Jababeka Tbk PT Per share (Rp) 12/05 12/06 12/07E 12/08E 12/09E Industrial estate developer, Kawasan Industri Jababeka Tbk PT, was EPS (stated) 1036811founded in 1989 and its segment exposure includes industrial, residential EPS (pre-exceptional) 1036811and apartments. The company also owns utility operations (water and CEPS (pre-exceptional) 11 4 8 10 16 electricity) at its industrial estates as well as providing estate- Revalued NAV per share 136 147 213 201 252 management services. Landbank owned is split between Cikarang and Profit & Loss (Rpm) Cilageon, and totals less than 2,000 ha. Non-recurring and recurring Net rental income 14,263 7,916 59,258 123,383 257,331 revenue portion is now 40%/60%, after the completion of a new power Investment income - - 4,069 38,705 33,261 plant. Trading income 385,415 222,777 186,636 92,023 78,613

Associates & other income 21,817 4,866 30,482 1,300 - Total income 421,496 235,559 280,445 255,411 369,205 Interest payable (13,929) (9,768) (6,816) (8,445) (16,996) Administration and other (240,580) (163,519) (134,686) (75,264) (79,810) Revenue surplus 166,986 62,273 138,944 171,702 272,399 Interest capitalised - - - - - RelativeRelative rating rating - -(discount) (discount) to to NAV NAV (%) (%) Depreciation & amortisation (18,349) (19,626) (20,955) (24,475) (79,682) 300100 Pre-exceptional provisions - - - - - 250 Pre-exceptional pre-tax profits 148,637 42,647 117,989 147,227 192,717 80 200 Exceptionals - - - - - 60 Stated pre-tax profits 148,637 42,647 117,989 147,227 192,717 150 Tax (13,979) (5,630) (35,397) (35,917) (46,434) 40 100 Minorities & preference & extraordinaries (667) - - - - 20 Attributable net profits 133,991 37,017 82,593 111,310 146,283 5020 Cost of dividend - (13,781) (12,389) (16,697) (21,942) 0 Retained profits/earnings 133,991 23,236 70,204 94,614 124,340 -20 Pre-exceptional cash flow 152,340 56,643 103,547 135,785 225,965 -20-50 2003 2004 2005 2006 2007 EBITDA 180,915 72,041 141,691 141,442 256,134 Jababeka Sector EBIT 162,566 52,414 120,736 116,967 176,452 AdjustedJababeka price (local) DiscSector to NAV Cash flow (Rpm) EBIT 162,566 52,414 120,736 116,967 176,452 Depreciation & amortisation 18,349 19,626 20,955 24,475 79,682 Company vs sector 12m PXCEPS growth(%) Working capital movement 58,384 37,964 45,613 13,244 24,496 100 Other (operating) - - - - - Operational cash flow 239,299 110,004 187,303 154,686 280,631 50 Net interest paid (13,929) (9,768) (2,746) 30,260 16,265 Dividends paid - (13,781) (12,389) (16,697) (21,942) 0 Tax paid (28,052) (24,502) (35,397) (35,917) (46,434) Net (acquisitions)/capital expenditure (44,838) (40,708) (313,176) (714,560) (259,840) -50 Equity issued - ---- Other items 4,856 (68,539) - - - Movement in (net debt)/net cash 157,336 (47,293) (176,405) (582,227) (31,321) -100 2006 2007 2008 2009 2010 Balance sheet (Rpm) Book value investment properties 1,003,111 1,079,992 1,270,342 1,958,426 2,138,084 Jababeka Sector Other fixed assets 21,637 21,523 21,523 21,523 21,523 Total book value of fixed assets 1,024,748 1,101,515 1,291,865 1,979,950 2,159,608 Book value trading properties 531,205 482,933 495,807 476,585 461,629 GeographicSectoral breakdown breakdown Cash & deposits 142,106 81,386 774,108 665,223 584,605 Other current assets 278,568 241,476 317,224 323,901 329,641 Total book value of assets 1,976,627 1,907,310 2,879,004 3,445,659 3,535,483 Debt (120,430) (104,073) (973,200) (1,445,242) (1,395,946) Other liabilities (258,194) (181,554) (213,917) (213,917) (228,697) Book ordinary shareholders' funds/NTA 1,598,003 1,621,683 1,691,886 1,786,500 1,910,840 Home offices - cap city Surpluses over book value 851,476 968,450 826,954 342,332 961,674 Offices Revalued shareholders' funds/NTA 2,449,479 2,590,132 2,518,840 2,128,832 2,872,514 Fully diluted shareholders' funds/NTA 1,876,264 2,025,754 2,936,129 2,772,367 3,466,798 Profitability Recurring income cover of expenses 0.1x 0.0x 0.4x 1.9x 3.0x Interest cover 11.8x 5.5x 18.3x 18.4x 12.3x Total value (Rpm): 1,079,991.9 Headline stated net dividend cover NA 2.7x 6.7x 6.7x 6.7x Total value (Rpm): 1,079,991.9 Pre-exceptional cash dividend cover - 4.1x 8.4x 8.1x 10.3x Productivity Pre-exceptional tax rate 9.4% 13.2% 30.0% 24.4% 24.1% SectoralGeographic Breakdown breakdown Net debt/revalued net assets (1.2%) 1.1% 6.8% 28.1% 23.4% Net debt/(revalued gross assets-cash) (1.0%) 1.0% 5.9% 20.7% 18.0% Net debt/EV (1.3%) 1.3% 6.5% 25.6% 24.2% Momentum Growth in pre-ex. pre-tax cash flow 1,064.5% (62.7%) 123.1% 23.6% 58.6% Growth in pre-ex. net cash flow per share 901.3% (62.8%) 82.5% 31.1% 66.4% Home offices - cap city Growth in revalued NAV per share 21.2% 8.0% 44.9% (5.6%) 25.0% Offices Value Core EBITDA/EV 11.1% 4.1% 4.6% 4.6% 7.6% Pre-ex. cash earnings yield 9.7% 3.3% 3.5% 5.3% 8.9% Average yield on appraised values 2.8% 2.0% 2.2% 2.0% 0.7% (Discount) to revalued NAV (16.3%) (14.6%) 0.5% (8.0%) (26.5%) Total value (Rpm): 1,079,991.9 Total value (Rpm): 1,079,991.9 Gross dividend yield - 0.8% 0.4% 0.7% 0.9% Source: UBS estimates, * Historical valuations are based on an `average for the year' share price. Current & future valuations are based on a share price of Rp185 on 05/02/2008

UBS 69

Indonesian Property Sector 6 February 2008

Global Equity Research UBS Investment Research Indonesia Summarecon Agung Real Estate 12-month rating Buy Prior: Neutral 12m price target Rp1,300/US$0.14 Prior:Rp1,492/US$0.16 Staying put in the comfort zone Price Rp1,030/US$0.11 „ Business as usual, development: investment at 65:35 RNAV RIC: SMRA.JK BBG: SMRA IJ Summarecon Agung’s (SMRA) business model is unchanged. We view the recent price correction as unwarranted. Launches of residential clusters in 2008 are proceeding as expected in three landbank areas. SMRA’s first attempt to diversify Trading data (local/US$) exposure to strata-titled apartments in North Jakarta resulted in a below-average pre-sales rate and incurred higher operating costs than expected. 52-wk range Rp1,700-970/US$0.19-0.10 Market cap. Rp3,309bn/US$0.36bn „ Only 1% margin pressure overall despite new lease retail asset Shares o/s 3,213m (ORD) The recently opened Mal Serpong could add pressure on the recurring margin Free float 67% because of initial lower rents offered to attract tenants. However, as we expect it to Avg. daily volume ('000) 5,178 contribute only 7% to the total retail lease EBITDA in 2008, the impact should not Avg. daily value (Rpm) 6,004.4 be material. Balance sheet data 12/07E „ Limited exposure to our favoured segment Shareholders' equity Rp1,209bn Serpong is in our favoured segment. We raise our selling price assumption to 15% Prem (discount) to NAV/Share -2.7% YoY in 2008 and lower our land sales growth forecast to 5% from 20% YoY. Net Cash (debt) (Rp525bn) SMRA’s growth in Serpong is limited to purchasing land from the joint venture established with the Batik Keris group. We expect SMRA to acquire land Forecast returns progressively in Serpong, so as to avoid straining cash flow. Forecast price appreciation +26.2% „ Valuation: upgrade to Buy from Neutral, lower PT to Rp1,300 Forecast dividend yield 1.3% We reduce RNAV 2008E valuation 20% due to change of assumption in land sales Forecast stock return +27.5% growth and adjustment to selling price. Based on 2008E RNAV, price target is set Market return assumption 11.5% at Rp1,300. Our rating upgrade is triggered by the considerable correction since the Forecast excess return +16.0% beginning of year. EPS (UBS, Rp) 12/07E 12/06 From To Cons. Actual Q1E 13 14 - 14 Q2E 16 15 - 6 Highlights (Rpm) 12/05 12/06 12/07E 12/08E 12/09E Q3E 19 (1) - 27 Net rental income 124,842 137,145 159,279 206,398 258,067 Q4E 14 22 - 16 EBITDA 282,188 299,979 347,300 374,671 412,339 12/07E 62 51 69 EPS (UBS, Rp) 36 44 44 52 65 12/08E 78 61 80 fd NAV/share (UBS, Rp) 869 1,239 1,059 1,300 1,481 DPS (UBS, Rp) 11.499 10.061 10.238 12.132 15.286 Performance (Rp) Stock Price (Rp) Rel. Jakarta Comp 1600 200 Profitability & Valuation 5-yr hist av. 12/06 12/07E 12/08E 12/09E 1400 DPS yield (UBS) % - 1.2 1.0 1.2 1.5 1200 150 1000 Prem/disc to NAV % - -32.8 -2.7 -20.8 -30.5 800 100 CEPS yield (UBS) % - 9.0 5.7 6.5 7.9 600 400 50 EV/EBITDA x - 8.9 10.9 9.9 8.7 200 PE (UBS) x - 18.9 23.6 19.9 15.8 0 0 Source: Company accounts, Thomson Financial, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. 01/05 04/05 07/05 10/05 01/06 04/06 07/06 10/06 01/07 04/07 07/07 10/07 01/08 Price Target (Rp) (LHS) Stock Price (Rp) (LHS) Valuations: based on an average share price that year, (E): based on a share price of Rp1,030 on 05 Feb 2008 23:37 HKT Rel. Jakarta Comp (RHS) Source: UBS Felicia Tandiyono www.ubs.com/investmentresearch Associate Analyst [email protected] +62-21-2554 7037

UBS 70

Indonesian Property Sector 6 February 2008 Investment case

Business as usual The company’s plan for 2008 includes the launch of clusters in Pegangsaan Dua, Cluster launches in two existing areas located at the periphery of SMRA’s flagship estate Kelapa Gading, starting with and possibly in one new area a 5ha cluster. There are also plans to launch two to three clusters each in the Serpong and Bekasi estates.

We do not expect significant growth in landed residential marketing sales, and Lower sales volume growth expectation lower our year-on-year sales growth estimates from 20% to 5% for Serpong and Bekasi and 1% for Kelapa Gading. The smaller land sales growth in Kelapa Gading includes a potential cluster sale in Pegangsaan.

Small margin pressure overall despite new lease retail asset We think SMRA may experience slight margin pressure due to new retail space additions. Lease retail exposure is now 161k sqm contributed by the Mal Kelapa Gading extension and Mal Serpong, both already operating since 2007.

Limited exposure to favoured segment SMRA’s Serpong landbank is in our preferred segment. We expect this Serpong’s potential landbank to benefit after the JORR 2 toll road is completed, expected in 2012. The Serpong area is widely viewed as a new emerging satellite city.

We do not foresee owned leased retail floor being bundled into a REIT any time soon, as SMRA has not yet expressed an intention to do so.

Table 50: Balance sheet summary

2005 2006 2007E 2008E 2009E

(value, IDRbn)

Cash & equiv. 235 141 112 270 427

Investment properties 755 861 906 632 422

Development properties 221 340 388 434 353

Total Assets 1,865 2,192 2,553 2,762 2,980

Debt 263 542 613 522 387

Advance from customers 350 240 296 439 595

Total Liabilities 1,026 1,215 1,342 1,394 1,415

Equities & Minorities 839 977 1,211 1,368 1,565

Net Debt to Equity 0 0 0 0 (0)

Source: Company data, UBS estimates

UBS 71

Indonesian Property Sector 6 February 2008

Table 51: Income statement summary

2005 2006 2007E 2008E 2009E

(value, IDRbn)

Revenue 798 965 1,103 1,177 1,243

Recurring 314 333 377 480 566

Non-recurring 483 632 726 697 676

Gross Profit 410 420 551 621 661

Recurring 172 180 230 289 340

Non-recurring 238 240 321 332 321

EBITDA 278 295 331 374 412

EBIT 233 242 274 316 352

Other income/expense (40) (40) (36) (43) (18)

Pretax income 194 214 236 271 332

Net Income 151 168 164 195 246

Source: Company data, UBS estimates

Table 52: Cash flow summary

2005 2006 2007E 2008E 2009E

(value, IDRbn)

EBITDA 278 295 331 374 412

Working capital movement 41 (375) (106) 85 77

Cash flow from operating 323 (75) 241 460 490

Capital expenditure (104) (154) (286) (54) (44)

Free cash flow 219 (230) (45) 406 446

Debt received, payments (58) 242 70 (91) (135)

Dividend payments (34) (29) (33) (39) (49)

Equity issuance, buyback 73 - 102 - -

Change in net cash 99 (97) (29) 158 158

Source: Company data, UBS estimates

Table 53: RNAV breakdown

(value, IDRbn) 2005 2006 2007E 2008E 2009E

Development properties 2,469 2,621 2,877 3,082 3,408

Investment properties 956 1,046 1,157 1,412 1,747

Other Asset - - - - -

(Net debt) /Net cash (252)

RNAV 4,902

no. of shares (in millions) 3,770

RNAV ps adj. 1,300

Source: Company data, UBS estimates

UBS 72

Indonesian Property Sector 6 February 2008

Summarecon Agung Per share (Rp) 12/05 12/06 12/07E 12/08E 12/09E Land Securities is the largest UK quoted property company. It converted EPS (stated) 36 70 51 61 76 to REIT status in January 2007. It has predominantly a retail (56%) and EPS (pre-exceptional) 36 44 44 52 65 office (40%) portfolio valued at over £14 billion. The offices are mostly CEPS (pre-exceptional) 47 75 59 67 81 located in Central London, of which the West End represents c50%. The Revalued NAV per share 869 1,239 1,059 1,300 1,481 group has a significant development programme (c£3.8 billion-50% Profit & Loss (Rpm) committed). The group also derives significant income from property Net rental income 124,842 137,145 159,279 206,398 258,067 outsourcing and PFI contracts (Land Securities Trillium). Gearing has Investment income - - 5,837 4,385 12,281 been rising and is now close to sector averages. www.landsecurities.com Trading income 398,942 549,762 576,462 532,835 509,706 Associates & other income 8,949 19,851 15,126 (718) (1,695) Total income 532,733 706,758 756,705 742,899 778,358 Interest payable (44,087) (45,598) (58,415) (48,317) (30,514) Administration and other (249,528) (394,254) (405,048) (365,420) (355,433) Revenue surplus 239,118 266,906 293,242 329,162 392,411 Interest capitalised - - - - - RelativeRelativeRelative rating ratingrating - --(discount) (discount) to toto NAV NAV (%) (%)(%) Depreciation & amortisation (45,232) (52,597) (57,091) (58,072) (60,227) 1502000 Pre-exceptional provisions - - - - - Pre-exceptional pre-tax profits 193,886 214,309 236,151 271,090 332,184 1500 100 Exceptionals - - - - - Stated pre-tax profits 193,886 214,309 236,151 271,090 332,184 1000 Tax (41,765) (45,826) (70,845) (75,123) (85,464) 50 Minorities & preference & extraordinaries (912) (384) (826) (1,058) (1,140) 500 Attributable net profits 151,210 168,099 164,480 194,909 245,580 0 Cost of dividend (33,724) (29,508) (32,896) (38,982) (49,116) 0 Retained profits/earnings 117,486 138,591 131,584 155,927 196,464 -50 Pre-exceptional cash flow 196,442 220,697 221,571 252,981 305,807 -50-500 20032003 2004 2004 2005 2005 2006 2006 2007 EBITDA 282,188 299,979 347,300 374,671 412,339 Summarecon Sector EBIT 236,956 247,382 290,209 316,599 352,112 AdjustedSummarecon price (local) DiscSector to NAV Cash flow (Rpm) EBIT 236,956 247,382 290,209 316,599 352,112 Depreciation & amortisation 45,232 52,597 57,091 58,072 60,227 Company vs sector 12m PXCEPS growth(%) Working capital movement 40,790 (375,465) (106,272) 84,976 77,389 60 Other (operating) - - - - - Operational cash flow 322,978 (75,486) 241,028 459,646 489,728 40 Net interest paid (44,087) (45,598) (52,578) (43,932) (18,233) 20 Dividends paid (33,661) (29,432) (32,896) (38,982) (49,116) Tax paid (49,142) (64,758) (70,845) (75,123) (85,464) 0 Net (acquisitions)/capital expenditure (103,555) (151,330) (285,972) (53,500) (44,075) Equity issued 72,599 - 101,590 - - -20 Other items (6,988) 26,239 1,104 859 - Movement in (net debt)/net cash 158,145 (340,366) (98,569) 248,968 292,840 -40 20062007200820092010 Balance sheet (Rpm) Book value investment properties 975,778 1,200,515 1,293,172 1,065,375 774,523 Summarecon Sector Other fixed assets 49,177 125,390 125,390 125,390 125,390 Total book value of fixed assets 1,024,955 1,325,905 1,418,562 1,190,765 899,913 Book value trading properties 454,587 519,195 712,510 974,569 1,324,622 GeographicSectoral breakdown breakdown Cash & deposits 213,556 116,749 87,700 245,622 403,238 Other current assets 171,661 229,968 334,383 350,761 352,494 Total book value of assets 1,864,759 2,191,817 2,553,154 2,761,717 2,980,267 Debt (262,790) (542,270) (612,944) (521,973) (386,748) Other liabilities (764,819) (673,806) (731,295) (874,901) (1,032,213) Book ordinary shareholders' funds/NTA 837,150 975,742 1,208,916 1,364,843 1,561,307 Home offices - cap city Surpluses over book value 2,691,605 2,833,380 3,200,480 4,089,062 4,769,742 Offices Revalued shareholders' funds/NTA 3,528,755 3,809,122 4,409,395 5,453,905 6,331,049 Fully diluted shareholders' funds/NTA 3,639,428 3,632,410 3,992,442 4,902,121 5,584,790 Profitability Recurring income cover of expenses 0.4x 0.3x 0.4x 0.5x 0.7x Interest cover 5.4x 5.7x 5.1x 6.6x 11.9x Total value (Rpm): 1,200,515.4 Headline stated net dividend cover 4.5x 5.7x 5.0x 5.0x 5.0x Total value (Rpm): 1,200,515.4 Pre-exceptional cash dividend cover 4.1x 7.5x 5.7x 5.5x 5.3x Productivity Pre-exceptional tax rate 21.5% 21.4% 30.0% 27.7% 25.7% SectoralGeographic Breakdown breakdown Net debt/revalued net assets 1.4% 11.7% 13.2% 5.6% (0.3%) Net debt/(revalued gross assets-cash) 1.1% 9.0% 10.0% 4.6% (0.2%) Net debt/EV 2.8% 15.9% 11.8% 7.4% (0.5%) Momentum Growth in pre-ex. pre-tax cash flow 7.4% 11.6% 9.9% 12.2% 19.2% Growth in pre-ex. net cash flow per share (27.9%) 60.5% (21.9%) 14.2% 20.9% Home offices - cap city Growth in revalued NAV per share (26.4%) 42.6% (14.5%) 22.8% 13.9% Offices Value Core EBITDA/EV 16.2% 11.2% 7.8% 10.1% 11.6% Pre-ex. cash earnings yield 8.1% 9.0% 4.6% 6.5% 7.9% Average yield on appraised values 27.3% 25.9% 24.7% 25.8% 26.3% (Discount) to revalued NAV (33.5%) (32.8%) 21.0% (20.8%) (30.5%) Total value (Rpm): 1,200,515.4 Total value (Rpm): 1,200,515.4 Gross dividend yield 2.0% 1.2% 0.8% 1.2% 1.5% Source: UBS estimates, * Historical valuations are based on an `average for the year' share price. Current & future valuations are based on a share price of Rp1030 on 05/02/2008

UBS 73

Indonesian Property Sector 6 February 2008

UBS 74

Indonesian Property Sector 6 February 2008

■ Statement of Risk

Main risks to our estimates are macro-related, industry risks and higher/lower than expected supply-demand. The liquidity of listed property companies is generally lower than of blue chips. Company-specific risks revolve around land acquisition, land rights, permits and projects. Assumptions not materialising could portend inaccuracies in forecasts and valuations. Furthermore, specific to Bakrieland Development is potential disclosure on toll road, which may not match our current estimates. Future corporate actions plan could also introduce new risk to our call. Specific to Ciputra Development is company legacy issues. Ciputra Development is mainly controlled and run by Ciputra family members. Successor risk exists here, regarding appointment of those with appropriate qualification and experience. Specific to Jababeka is heavier stress on light to heavy manufacturing industries which form the demand pool for Jababeka’s estates. Power plant execution and operating risks are also in play. Specific to Lippo Karawaci is superblock phase continuation which in our opinion, depends on success in the initial phase. Lippo Karawaci is also the only company among the property companies we cover with exposure to the healthcare industry. This entails other risks such as healthcare industry competition and legal liabilities over malpractice. Specific to Summarecon Agung is its heavy reliance on the success of Mal Kelapa Gading, which is its main income generating asset. Competition is growing in Summarecon’s three landbank areas.

■ Analyst Certification

Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.

UBS 75

Indonesian Property Sector 6 February 2008

Required Disclosures

This report has been prepared by PT UBS Securities Indonesia, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS.

For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures.

UBS Investment Research: Global Equity Rating Allocations

UBS 12-Month Rating Rating Category Coverage1 IB Services2 Buy Buy 55% 39% Neutral Hold/Neutral 36% 36% Sell Sell 8% 20% UBS Short-Term Rating Rating Category Coverage3 IB Services4 Buy Buy less than 1% 25% Sell Sell less than 1% 50% 1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. 3:Percentage of companies under coverage globally within the Short-Term rating category. 4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months.

Source: UBS. Rating allocations are as of 31 December 2007. UBS Investment Research: Global Equity Rating Definitions

UBS 12-Month Rating Definition Buy FSR is > 6% above the MRA. Neutral FSR is between -6% and 6% of the MRA. Sell FSR is > 6% below the MRA. UBS Short-Term Rating Definition Buy: Stock price expected to rise within three months from the time the rating was assigned Buy because of a specific catalyst or event. Sell: Stock price expected to fall within three months from the time the rating was assigned Sell because of a specific catalyst or event.

UBS 76

Indonesian Property Sector 6 February 2008

KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case.

EXCEPTIONS AND SPECIAL CASES UK and European Investment Fund ratings and definitions are : Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE) : Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece.

Company Disclosures

Company Name Reuters 12-mo rating Short-term rating Price Price date Bakrieland Development ELTY.JK Not Rated N/A Rp630 05 Feb 2008 Ciputra Development CTRA.JK Suspended N/A Rp710 05 Feb 2008 Kawasan Industri Jababeka Tbk KIJA.JK Sell N/A Rp185 05 Feb 2008 PT PT Lippo Karawaci2, 4, 5 LPKR.JK Not Rated N/A Rp630 05 Feb 2008 Summarecon Agung SMRA.JK Suspended N/A Rp1,030 05 Feb 2008 Source: UBS. All prices as of local market close. Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date

2. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates within the past 12 months. 4. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity. 5. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months.

Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report.

UBS 77

Indonesian Property Sector 6 February 2008

Bakrieland Development (Rp) Price Target (Rp) Stock Price (Rp) 700 600 500 400 300 200 100 0 ar-05 ar-06 ar-07 ay-05 ay-06 ay-07 ep-05 ov-05 ep-06 ov-06 ep-07 ov-07 01-Jul -05 01-Jul -06 01-Jul -07 01-Jan-05 01-Jan-06 01-Jan-07 01-Jan-08 01-M 01-M 01-M 01-S 01-N 01-S 01-N 01-S 01-N 01-M 01-M 01-M No Rating

Source: UBS; as of 05 Feb 2008

Ciputra Development (Rp) Price Target (Rp) Stock Price (Rp) 1000

800

600

400

200

0 ar-05 ar-06 ar-07 ay-05 ay-06 ay-07 ep-05 ov-05 ep-06 ov-06 ep-07 ov-07 01-Jul -05 01-Jul -06 01-Jul -07 01-Jan-05 01-Jan-06 01-Jan-07 01-Jan-08 01-M 01-M 01-M 01-S 01-N 01-S 01-N 01-S 01-N 01-M 01-M 01-M Reduce 2 Sell No Rating

Source: UBS; as of 05 Feb 2008

Kawasan Industri Jababeka Tbk PT (Rp) Price Target (Rp) Stock Price (Rp) 300 250 200 150 100 50 0 ar-05 ar-06 ar-07 ay-05 ay-06 ay-07 ep-05 ov-05 ep-06 ov-06 ep-07 ov-07 01-Jul -05 01-Jul -06 01-Jul -07 01-Jan-05 01-Jan-06 01-Jan-07 01-Jan-08 01-M 01-M 01-M 01-S 01-N 01-S 01-N 01-S 01-N 01-M 01-M 01-M Reduce 2 Sell No Rating

Source: UBS; as of 05 Feb 2008

UBS 78

Indonesian Property Sector 6 February 2008

PT Lippo Karawaci (Rp) Price Target (Rp) Stock Price (Rp) 700 600 500 400 300 200 100 0 ar-05 ar-06 ar-07 ay-05 ay-06 ay-07 ep-05 ov-05 ep-06 ov-06 ep-07 ov-07 01-Jul -05 01-Jul -06 01-Jul -07 01-Jan-05 01-Jan-06 01-Jan-07 01-Jan-08 01-M 01-M 01-M 01-S 01-N 01-S 01-N 01-S 01-N 01-M 01-M 01-M No Rating

Source: UBS; as of 05 Feb 2008

Summarecon Agung (Rp) Price Target (Rp) Stock Price (Rp) 2000

1500

1000

500

0 ar-05 ar-06 ar-07 ay-05 ay-06 ay-07 ov-05 ov-06 ov-07 01-Jul-05 01-Jul-06 01-Jul-07 01-Jan-05 01-Jan-06 01-Jan-07 01-Jan-08 01-M 01-Sep-05 01-N 01-M 01-Sep-06 01-N 01-M 01-Sep-07 01-N 01-M 01-M 01-M Buy 2 Neutral 2 Neutral No Rating

Source: UBS; as of 05 Feb 2008

Note: On August 4, 2007 UBS revised its rating system. (See 'UBS Investment Research: Global Equity Rating Definitions' table for details). From September 9, 2006 through August 3, 2007 the UBS ratings and their definitions were: Buy 1 = FSR is > 6% above the MRA, higher degree of predictability; Buy 2 = FSR is > 6% above the MRA, lower degree of predictability; Neutral 1 = FSR is between -6% and 6% of the MRA, higher degree of predictability; Neutral 2 = FSR is between -6% and 6% of the MRA, lower degree of predictability; Reduce 1 = FSR is > 6% below the MRA, higher degree of predictability; Reduce 2 = FSR is > 6% below the MRA, lower degree of predictability. The predictability level indicates an analyst's conviction in the FSR. A predictability level of '1' means that the analyst's estimate of FSR is in the middle of a narrower, or smaller, range of possibilities. A predictability level of '2' means that the analyst's estimate of FSR is in the middle of a broader, or larger, range of possibilities. From October 13, 2003 through September 8, 2006 the percentage band criteria used in the rating system was 10%.

UBS 79

Indonesian Property Sector 6 February 2008

Global Disclaimer

This report has been prepared by PT UBS Securities Indonesia, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. In certain countries, UBS AG is referred to as UBS SA.

This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitute a personal recommendation. It is published solely for information purposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, except with respect to information concerning UBS AG, its subsidiaries and affiliates, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the report. UBS does not undertake that investors will obtain profits, nor will it share with investors any investment profits nor accept any liability for any investment losses. Investments involve risks and investors should exercise prudence in making their investment decisions. The report should not be regarded by recipients as a substitute for the exercise of their own judgement. Any opinions expressed in this report are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of UBS as a result of using different assumptions and criteria. Research will initiate, update and cease coverage solely at the discretion of UBS Investment Bank Research Management. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing and interpreting market information. UBS is under no obligation to update or keep current the information contained herein. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, groups or affiliates of UBS. The compensation of the analyst who prepared this report is determined exclusively by research management and senior management (not including investment banking). Analyst compensation is not based on investment banking revenues, however, compensation may relate to the revenues of UBS Investment Bank as a whole, of which investment banking, sales and trading are a part. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky. Mortgage and asset-backed securities may involve a high degree of risk and may be highly volatile in response to fluctuations in interest rates and other market conditions. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report. For investment advice, trade execution or other enquiries, clients should contact their local sales representative. Neither UBS nor any of its affiliates, nor any of UBS' or any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. Additional information will be made available upon request. For financial instruments admitted to trading on an EU regulated market: UBS AG, its affiliates or subsidiaries (excluding UBS Securities LLC and/or UBS Capital Markets LP) acts as a market maker or liquidity provider (in accordance with the interpretation of these terms in the UK) in the financial instruments of the issuer save that where the activity of liquidity provider is carried out in accordance with the definition given to it by the laws and regulations of any other EU jurisdictions, such information is separately disclosed in this research report. United Kingdom and the rest of Europe: Except as otherwise specified herein, this material is communicated by UBS Limited, a subsidiary of UBS AG, to persons who are eligible counterparties or professional clients and is only available to such persons. The information contained herein does not apply to, and should not be relied upon by, retail clients.. UBS Limited is authorised and regulated by the Financial Services Authority (FSA). UBS research complies with all the FSA requirements and laws concerning disclosures and these are indicated on the research where applicable. France: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities France SA. UBS Securities France S.A. is regulated by the Autorité des Marchés Financiers (AMF). Where an analyst of UBS Securities France S.A. has contributed to this report, the report is also deemed to have been prepared by UBS Securities France S.A. Germany: Prepared by UBS Limited and distributed by UBS Limited and UBS Deutschland AG. UBS Deutschland AG is regulated by the Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin). Spain: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities España SV, SA. UBS Securities España SV, SA is regulated by the Comisión Nacional del Mercado de Valores (CNMV). Turkey: Prepared by UBS Menkul Degerler AS on behalf of and distributed by UBS Limited. Russia: Prepared and distributed by ZAO UBS Securities. Switzerland: Distributed by UBS AG to persons who are institutional investors only. Italy: Prepared by UBS Limited and distributed by UBS Limited and UBS Italia Sim S.p.A.. UBS Italia Sim S.p.A. is regulated by the Bank of Italy and by the Commissione Nazionale per le Società e la Borsa (CONSOB). Where an analyst of UBS Italia Sim S.p.A. has contributed to this report, the report is also deemed to have been prepared by UBS Italia Sim S.p.A.. South Africa: UBS South Africa (Pty) Limited (Registration No. 1995/011140/07) is a member of the JSE Limited, the South African Futures Exchange and the Bond Exchange of South Africa. UBS South Africa (Pty) Limited is an authorised Financial Services Provider. Details of its postal and physical address and a list of its directors are available on request or may be accessed at http:www.ubs.co.za. United States: Distributed to US persons by either UBS Securities LLC or by UBS Financial Services Inc., subsidiaries of UBS AG; or by a group, subsidiary or affiliate of UBS AG that is not registered as a US broker-dealer (a ’non-US affiliate’), to major US institutional investors only. UBS Securities LLC or UBS Financial Services Inc. accepts responsibility for the content of a report prepared by another non-US affiliate when distributed to US persons by UBS Securities LLC or UBS Financial Services Inc. All transactions by a US person in the securities mentioned in this report must be effected through UBS Securities LLC or UBS Financial Services Inc., and not through a non-US affiliate. Canada: Distributed by UBS Securities Canada Inc., a subsidiary of UBS AG and a member of the principal Canadian stock exchanges & CIPF. A statement of its financial condition and a list of its directors and senior officers will be provided upon request. Hong Kong: Distributed by UBS Securities Asia Limited. Singapore: Distributed by UBS Securities Pte. Ltd or UBS AG, Singapore Branch. Japan: Distributed by UBS Securities Japan Ltd to institutional investors only. Australia: Distributed by UBS AG (Holder of Australian Financial Services Licence No. 231087) and UBS Securities Australia Ltd (Holder of Australian Financial Services Licence No. 231098) only to ‘Wholesale’ clients as defined by s761G of the Corporations Act 2001. New Zealand: Distributed by UBS New Zealand Ltd. China: Distributed by UBS Securities Co. Limited. The disclosures contained in research reports produced by UBS Limited shall be governed by and construed in accordance with English law.

UBS specifically prohibits the redistribution of this material in whole or in part without the written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. © UBS 2008. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

ab

UBS 80