February 15, 2019

ASEAN Economics

Election Cycles & Spending Booms

2019 a Year of Elections Analysts Politics and elections may drive ASEAN markets in 2019. Incumbent Chua Hak Bin governments typically boost pre-election spending to secure popular (65) 6231 5830 support, driving consumer spending and GDP growth. Pre-election [email protected] spending will help support ASEAN domestic demand, cushioning the impact from the US-China trade war and a slowing China. Three elections Lee Ju Ye th th

are scheduled for the first half: (24 March), Indonesia (17 (65) 6231 5844 th April) and the Philippines (13 May). In Singapore, the PAP may call for [email protected] early elections although the next GE only needs to be held by Jan 2021. Linda Liu Pre-Election Spend Historically a Boost in Indo & Phil (65) 6231 5847 [email protected] We find that both government and consumer spending tend to grow ECONOMICS strongly in both Indonesia and the Philippines in the run-up to elections. That strength appears to persist even in the months after the elections. For Thailand, years of political uncertainty may have dented the relationship, making it hard to ascertain pre-election spending trends.

For Singapore, government spending tends to be strong in the lead up to elections, with consumer spending improving after generous budgets.

Thailand: Long Overdue, Consumer Spending Rising th

Regional General Elections are scheduled for 24 March, the first national poll since 2014 when the military seized power. No major shift in political control is expected given constitutional changes, but there may be more checks and balances if no party wins a majority. The military government unveiled a Bt87bn (US$2.7bn) stimulus, including cash handouts for low- income earners and a 6-month VAT refund for welfare recipients. Recent consumer spending data are showing some positive signs, with an uptick in retail sales and consumer confidence.

Indonesia: Election Euphoria Boosts Spending Both presidential and legislative elections are scheduled for 17th April. President Jokowi and PDI-P maintains a big lead across various polls. In past elections, consumption tends to pick up in the lead-up, supported by government spending. In this cycle, the govt. set aside Rp538tn (US$38.1bn) for social spending and energy subsidies, including doubling the aid (to $2.4bn) for 10m lower-income households and increasing fuel subsidies (+66%). Retail sales and consumer confidence have been rising.

Philippines: Duterte Remains Popular The Philippines is slated to hold mid-term elections on 13th May. We expect Duterte-aligned candidates to win most of the Senate seats, retaining Duterte’s majority control of the Legislature. Congress has just approved a P3.8tn (US$71bn) budget, ending months of impasse, prioritizing infrastructure, education and social welfare. Election-related spending is expected to boost consumption, as in past cycles. Net sales index is already picking up although consumer confidence has been soft.

Singapore: Budget 2019 May Support Consumers Singapore may surprise with early elections in late 2019/early 2020, even though the next GE only needs to be held by 15th Jan 2021. The government has ample fiscal room to spend and will likely unveil a generous 2019 Budget, with healthcare subsidies for 500K Merdeka Generation citizens. Consumer spending has been softening of late and may see a boost after the Budget.

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 20 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Economics Research

ASEAN: Election Cycles & Spending Booms

ASEAN will see several key elections (Thai, Indo, Phil) in 2019, all of which are scheduled for the first half (see Table 1). Thailand will hold general elections on 24th March, the first national poll since 2014 when the military coup seized power from the civilian government of . Indonesia will hold both the presidential and legislative elections on 17th April, unlike past election cycles where the presidential and legislative elections were usually three months apart. The Philippines will be holding its mid-term elections on 13th May. Held every three years, the 2019 mid-term elections will elect 12 of the 24 seats in the Senate, all 297 seats in the House of Representatives, as well as around 18,000 local and congressional posts.

We are not expecting any major surprises in these elections, judging from the recent polls, not of the same tsunami that led to the change in government in Malaysia. Indonesia’s President Jokowi and the Philippines’ President Duterte remain heavy favorites and lead by a wide margin at the polls. In Thailand, Thaksin’s still leads the polls, but is unlikely to secure a majority given that the new constitution disadvantages large parties from winning seats in the lower house. General Prayut leads as the first choice Prime Minister in the January polls.

Singapore may surprise with early elections, even though the next general election only needs to be held by 15th Jan 2021. Prospects of an early election towards the end of 2019 or early 2020 has been speculated following recent changes of key appointments within PAP’s Central Executive Committee (CEC) in Nov 2018. The current government may also choose to ride on the “feel good” impact from what is expected to be a generous Budget on 18th Feb, centered on a large “Merdeka” generation healthcare package which we expect will cost S$8bn (see Singapore Economics - Budget Preview: A Pre-Election “Merdeka” Boost, 31 Jan 2019).

Table 1: ASEAN Elections in 2019 Key Political Event Date

Thailand General Elections 24th March 2019 Indonesia Presidential & Legislative Elections 17th April 2019 Philippines Mid-Term Elections 13th May 2019 Possible early elections end Singapore General Elections 2019/early 2020

Source: Compiled by Maybank Kim Eng

Do Elections Boost Consumption?

Politics and elections historically have some impact on markets and growth in some ASEAN countries. Pre-election promises and spending lift consumer confidence and spending, boosted by government handouts and subsidies directed at the middle and lower income households.

We take stock of past election and spending cycles. Our analysis suggests that government consumption tends to pick up strongly in the run-up to elections, particularly for Indonesia, Philippines and Singapore. Government spending grew at a strong +8.8%1, +11.9% and +12.0% respectively for Indo, Phil and Spore over the two quarters preceding the election, in the last five elections (see Fig 1).

1 Indonesia’s figure refers to the average government consumption growth over past four elections. As 1998 was widely seen as a crisis year for Indonesia due to the Asian financial crisis with GDP and consumption patterns suffering from double-digit slowdown, data from 1998 was excluded from the calculations. February 15, 2019 2

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Retail sales generally picks up both in the lead-up and post-elections in Indonesia and Philippines, but that relationship is weaker in Singapore and Thailand. Retail sales for Singapore and Thailand also tend to soften after the elections, where there appears to be some persistence in Indonesia and the Philippines (see Fig 2).

Figure 1: ASEAN Government Consumption Growth - Boom for Figure 2: ASEAN Retail Sales Growth – Growth for Indo & Phil; Indo, Phil & Singapore; But Weak in Thailand Mixed Picture for Singapore & Thai

Note: Timeline refers to six months (i.e. two quarters) before and after the Note: Timeline refers to six months before and after the elections, averaged over elections, averaged over past five elections for each country (except Indonesia past five elections for each country (except Indonesia where it is averaged over where it is averaged over past four elections, excluding data for 1999 elections). past four elections, excluding data for 1999 elections). T-x denotes number of T-x denotes number of months before the elections, and T+x denotes the months months before the elections, and T+x denotes the months after the elections. after the elections. * Datapoints for Philippines refer to reported net sales index. Source: CEIC Source: CEIC

Stock market performance in past election cycles differs across the region, with Indonesia and the Philippines markets typically rallying in the lead up. Our analysis of the performance of the ASEAN stock indices in the 100-days prior to the elections show that both the Philippines Stock Exchange index (PSEi) and Jakarta Composite Index (JCI) tend to rally, with PSEi typically up by +10% on average while the JCI up by +15 to +20%. On the other hand, the Singapore Straits Times Index (STI) tends to fall in the lead-up to the elections, and rebounds after the elections. The Stock Exchange of Thailand (SET) index was relatively flat throughout the election period (see Fig 3).

Figure 3: ASEAN Indices Performance – PSEi and JCI Tends to Figure 4: ASEAN FX Reacts Differently To Election Risks – IDR Rally, But the STI & SET is Less Sensitive to Election Cycle Tends To Strengthen Into Elections, THB & PHP Soften

Note: Negative numbers denotes number of days before the elections, positive Note: Negative numbers denotes the number of days before the elections, numbers denotes the days after the elections positive numbers denotes the days after the elections Source: Bloomberg Source: Bloomberg, Maybank FX Research (Muted ASEAN FX On Lunar New Year

Celebrations, 1 Feb 2019)

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In terms of currency, our FX team finds different performances of IDR, THB and PHP in the preceding 100-days for the last two elections. While the IDR tends to strengthen both in the lead-up and post-elections, the THB tends to depreciate pre-elections and appreciate post-elections. Finally, the PHP tends to soften ahead of the elections and post-elections (see Muted ASEAN FX On Lunar New Year Celebrations, 1 Feb 2019) (see Fig 4).

Thailand: Long Overdue, Consumer Spending Rising

Thailand will be holding General Elections on 24th March, the first national poll since 2014 when the military forces seized power from the civilian government of Yingluck Shinawatra. As of 12th Feb, the Election Committee has approved 69 PM candidates of 45 parties, among them General Prayut Chan-o-cha, who is representing the Palang Pracharath Party (see Table 2). Thai Raksa Chart Party’s nomination of Princess Ubolratana as its PM candidate was the only one rejected by the Election Commission on 11 Feb, and the party will likely be dissolved if it is found to have violated the Political Parties Act. The party has already ceased all campaign activities2.

Table 2: March 2019 Elections - List of Prime Ministerial Candidates Election Political Party Candidate name Party list Total unit Bhumjaithai Party Anuthin Charnweerakul 350 150 500

Chart Pattana Party Wannarat Channukul 250 56 306 Tewan Liptapanlop

Chartthaipattana Party Kanchana Silpa-archa 324 80 404 Democrat Party 350 150 500 Thanathorn Future Forward Party 350 150 500 Juangroongruangkit Phalang Pracharat Party Prayut Chan-o-cha 350 150 500 Sudarat Keyuraphan Pheu Thai Party Chatchart Sitthiphan 250 100 350 Chaikasem Nitisiri Wan Muhamad Noor Matha Prachachart Party Tawee Sodsong 218 68 286 Nahathai Thewphaingarm Thai Liberal Party Seripisut Temiyavet 350 150 500

Source: Compiled by Maybank Kim Eng

We do not expect a major shift in political control as the new constitution has changed the way the 500 members of the House are elected. The change adversely affects large parties like Pheu Thai, as all small parties above a minimum threshold can be represented in the House regardless of whether or not they win any constituencies. The Senate’s 250 members will be selected by the incumbent National Council for Peace and Order (NCPO), which will likely mean that the military will maintain a substantial influence. The new Thailand might see more checks and balances as we expect no party to win a majority.

2 The Constitutional Court has scheduled a meeting for 27 Feb to consider the case. February 15, 2019 4

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Figure 5: Pheu Thai Party the Top Choice to Form the Core of Table 3: General Prayut First Choice for Prime Minister in Next Government in the Polls Latest January Poll Name Party Share Name the party you want to form the core of the next gov't Palang Pracharath Party’s Pheu Thai 32.7% 1 Gen Prayut Chan-o-cha 26.2% PM candidate Palang Pracharath 24.2% Pheu Thai (Chief, election 2 Khunying Sudarat 22.4% Democrat 14.9% strategy committee) Future Forward 11.0% 3 Abhisit Vejjajiva Democrat (Leader) 11.6% Thanathorn Seri Ruam Thai 5.8% 4 Future Forward (Leader) 9.6% Juangroongruangkit Bhumjaithai 1.90% 5 Gen Sereepisuth Temiyavej Seri Ruam Thai (Leader) 7.3% Chartthaipattana 1.6% 6 Chadchart Sittipunt Pheu Thai 7.3% Thai Raksa Chart 0.9% Action Coalition for Thailand 0.6% 7 Chuan Leekpai Democrat (Former PM) 3.3% Prachachart 0.5% 8 Pol Lt Gen Viroj Pao-in Pheu Thai (Leader) 2.3% Palang Chart Thai 0.5% 9 Anuthin Chanvirakul Bhumjaithai Party leader 1.2% Deputy Prime Minister 10 - 0.7% 0% 5% 10% 15% 20% 25% 30% 35% Wissanu Krea-ngam

Source: National Institute for Development Administration (NIDA) poll (2-15 Jan), Source: National Institute for Development Administration (NIDA) poll (2-15 Jan), Bangkok Post Bangkok Post

Thailand’s political landscape has been relatively unstable in the past decade compared to other countries in the region (see Table 4). Military coups occurred in Sep 2006 (ousting Thaksin) and subsequently in May 2014 (ousting Yingluck), with protests by the Red Shirts (pro-Thaksin) and Yellow Shirts (anti- Thaksin) resulting in political crisis in 2010 and 2013. The frequent changes in government and military coups have probably reduced the influence of pre- election spending cycles.

Table 4: Thailand Past Elections & Political Events, 2001 – 2014 Year Political Event Election Results Jan elections: Thaksin wins and becomes first PM to serve a full term in 2001 Thai Rak Thai (248 seats, 41%) beats Democrat (123 seats, 27%) office Thai Rak Thai (375 seats, 56%) beats Democrat (96 seats, 16%) 2005 Feb elections: Thaksin wins second term as PM in landslide victory Apr/May: Snap election called by Thaksin, which is boycotted by the

2006 opposition and subsequently annulled Sep: Military coup and Thaksin is ousted 2007 Dec elections: Samak (Thaksin's ally) of the People’s Power Party wins People's Power Party (233 seats) beats Democrat (165 seats) Yellow shirt (the People's Alliance for Democracy) protests and airport 2008 seizures; Constitutional Court fires PM Samak and opposition leader Abhisit forms a coalition to become new PM Red shirts (Thaksin's supporters) protest against Abhisit's administration, 2010 death toll at 91 Pheu Thai Party (265 seats, 48%) beats Democrat (159 seats, 2011 Jul elections: Yingluck (Thaksin's sister) wins 35%) 2013 Nov: Rallies to protest against Yingluck's administration Jan: Yingluck declares state of emergency Feb: Early elections were held after Yingluck requested the king to dissolve parliament more than a year early 2014 Mar: The constitutional court ruled the election results invalid May: Military coup led by General Prayuth, and Yingluck was removed from power.

Source: Compiled by Maybank Kim Eng

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Figure 6: Consumption Spending Did Not Appear to Receive Figure 7: Weakness in Both Retail Sales & Consumer Much Boost During Elections Confidence, But Recovering Since 2016

Source: CEIC Note: Consumer confidence index above 100 indicates an improving outlook and below 100 indicates a deteriorating outlook. Source: CEIC

Retail sales show some signs of picking up prior to elections, with recent data showing surging retail sales (see Fig 7). Prior to the Feb 2005, Dec 2007 and Jul 2011 elections, retail sales saw some uptick for the period of 6 months prior to the elections (see Fig 8). The much anticipated March 2019 election may also be boosting consumer confidence. Retail sales surged by +14% in 3Q18 and +17% in Oct/Nov-18, the fastest quarterly pace in 6 years.

Figure 8: Thailand – Retail Sales Showing Some Uptick in Previous Elections (Except 2014 Due to Political Crisis)

Note: Thailand saw a political crisis around the Feb 2014 election period, with anti-government protests taking place between Nov 2013 and May 2014. Source: CEIC

In the current election cycle, the NCPO has unveiled a Bt87bn (US$2.7bn) stimulus. These measures include cash handouts for low-income earners and elderlies, a six-month VAT payback scheme for welfare recipients, and a one-off travel expense worth (Bt1,000) for people aged 54 and above who are in need of medical treatment (see Table 5). The University of the Thai Chamber of Commerce estimates that around Bt30-50bn to be circulated during the campaign combined with the government’s shopping tax incentives (1 to 15 Feb) may boost GDP growth by +0.3% to +0.4% point in 1Q193.

3 Bangkok Post, “TRA predicts flat spending in first half”, 12 Feb 2019. February 15, 2019 6

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Table 5: Thailand’s Pre-Election Welfare and Consumption Stimulus Perks Timeline Policies/Measures THB bn Since 1 Oct 2018 Welfare cards for the poor 42.0 1 Nov 2018 to 30 VAT return for government welfare smartcard holders 3.0 Apr 2019 Welfare measures for the poor and elderly, including: - One time 'New Year gift' payout of Bt500 to welfare smartcard holders Dec 2018 to Sep - One-off Bt100 in travel expenses for people aged 65 38.6 2019 and older in need of medical treatment - Bt400 per month from Dec 2018 to Sep 2019 for those aged 60 and above for home rental payments Scheme to support rice harvest and quality development 51.0

One-time payment Scheme to support rubber farmers 18.0 One-time pension for civil servant retirees aged 70 and 20.0 above Scheme to raise civil servant retirees' monthly annuity to Continuous 0.6 Bt10,000 1 to 15 Feb 2019 VAT refund for 2019 Chinese New Year shopping 6 to 7

Source: Bangkok Post4

Our Thailand strategist, Maria Lapiz, expects the impact from election induced consumption to be limited given the strict stance on the set spending limit of Bt1.5mn per candidate per constituency by the Election Commission. Nonetheless, for any election spending, retailers such as Siam Makro PCL (MAKRO), Berli Jucker PCL (BJC), CP All PCL (CPALL) & Thai Beverage PCL (THBEV) may stand to benefit (see Weak CAPU, No Case for Income Growth, 31 Jan 2019).

4 Bangkok Post, “Whiff of populism in latest schemes”, 10 Dec 2018. February 15, 2019 7

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Indonesia: Election Euphoria Boosts Spending

Indonesia will be holding its Presidential and Legislative Elections on 17th April 2019, with President Jokowi leading the polls by a wide margin. Unlike previous election cycles where the presidential and legislative elections were staged three months apart from each other, both elections will be held concurrently on the same day for this election. This follows from a constitutional change in January 2014 where lawmakers had hoped that a single voting day will help improve efficiency and reduce horse-trading among political parties5. This election will essentially be a rematch between President Jokowi and his old competitor from the 2014 presidential election, Gerindra party Chairman Prabowo Subianto (see Table 6).

Table 6: Past Presidential General Election Results – A Rematch between Jokowi & Prabowo in 2019 Presidential Election Results Election Candidates (Party) Popular Vote Won Joko Widodo (PDI-P) 53.2% Jul 2014 Prabowo Subianto (Gerinda) 46.8% Susilo Bambang Yudhoyono (Demokrat) 60.8% Jul 2009 Megawati Sukarnoputri (PDI-P) 26.8% Jusuf Kalla (Golkar) 12.4% Susilo Bambang Yudhoyono (Demokrat) 60.6% Sep 20046 Megawati Sukarnoputri (PDI-P) 39.4%

Source: Compiled by Maybank Kim Eng

Our base case is for a Jokowi victory given his substantial lead across various electability surveys vis-à-vis Prabowo. Poll results have been consistent with Jokowi leading comfortably by around 20% points compared to Prabowo (see Fig 9). Opinion polls by Charta Politik in late December also found PDI-P leading in the legislative elections race, garnering 25% of the support, followed by Gerindra (15%) and Golkar (9%) (see Table 7). While undecided voters still accounted for 16% of the survey respondents, it seems unlikely to shift the election results.

Figure 9: Jokowi-Amin Pair Leads by Margin in All Electability Table 7: Charta Politik Survey (22 Dec 2018 to 2 Jan 2019): Surveys PDI-P & Golkar Ahead of Gerindra & Demokrat Party % PDI-P 25 Gerindra 15 Golkar 9 PKB 8 Demokrat 5 NasDem 5 PPP 4 PKS 4 PAN 3 PSI 2 Don’t know 16

Source: Compiled by Maybank Kim Eng Note: Parties in red font represent nominating parties for Jokowi-Amin, parties in

blue for Prabowo-Uno. Source: Charta Politik, Reformasi

5 The Jakarta Post, “Court rules one voting day in 2019”, 24 Jan 2014 6 The 2004 presidential elections is the first direct presidential election in Indonesia, and were held over two rounds in July and September 2004. Under the new 2002 amendment to the Constitution of Indonesia, a candidate pair is only officially elected into office after receiving more than 50% of the popular vote. In the first round in Jul 2004, Susilo Bambang Yudhoyono received a plurality of the valid ballots submitted with 33.6% of popular vote, followed by Megawati Sukarnoputri (26.6%). Table above reflects the election results from the second round of presidential election held in Sep 2004. February 15, 2019 8

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Table 8: Percentage Breakdown of Reasons for Supporting Parties - “Habit” Was Most Cited Reasons for Backing PDI-P, Golkar, PKB, PPP & PAN in Latest Poll Linked Defends Legislative Backs Backs Other/No Party chair Ideology Programme Habit figures certain group candidates Widodo Prabowo Answer PDI-P (25%) 9 9 8 2 5 15 22 0 18 12 Gerinda (15%) 25 14 5 4 4 7 0 23 5 13 Golkar (9%) 6 9 13 1 8 7 4 0 28 25 PKB (8%) 6 13 4 4 4 6 5 0 14 44 Demokrat (5%) 23 5 6 3 8 8 3 10 7 28 NasDem (5%) 14 6 9 3 9 12 10 0 7 30 PPP (4%) 4 7 14 4 6 6 4 0 24 33 PKS (4%) 4 11 7 6 12 7 0 5 8 40 PAN (3%) 8 8 12 2 21 4 0 12 19 15 PSI (2%) 10 13 0 13 3 13 10 0 0 37

Note: Parties in red font represent nominating parties for Jokowi-Amin, parties in blue for Prabowo-Uno. Source: Charta Politik, Reformasi

Ahead of this upcoming election cycle, the Jokowi administration announced that Rp537.5tn (US$38bn) will be allocated to social spending and energy- related subsidies, one-fifth of the total Rp2,440tn (US$173bn) budget for 2019. In particular, budget allocated for the Family Hope Programme (PKH Fund), which is a conditional aid aimed at 10 million lower-income households, almost doubled from Rp19 trillion (US$1.35bn) in 2018 to Rp34 trillion (US$2.4bn) in 20197, while fuel subsidies were increased by 65.6% (see Table 9).

Table 9: Policies Announced under Draft 2019 Budget Ahead of Elections Welfare/Budget Measures Earmarked a total of Rp156.5tn (US$11bn), a 65.6% increase as compared to 2018 1 budget, for energy-related subsidies. Increase social spending by 32.8% to Rp381tn (US$27bn) to cover various social assistance programmes, such as the Family Hope Programme (Program Keluarga 2 Harapan, PKH Fund), the National Health Insurance Program (Jaminan Kesehatan Nasional, or JKN), and the Small Business Credit Programme (Kredit Usaha Rakyat, or KUR)8. 3 Increase in civil servants' and retirees' basic salaries and pensions by 5% on average.

Source: Compiled by Maybank Kim Eng

President Jokowi has also ordered the timeline for several infrastructure projects in the main islands of Java and Sumatra to be brought forward before the voting day, and the first two tranches of the PKH (Family Hope) funds to be disbursed in January and April 2019, a month earlier than the 2018 timeline9. These measures, together with the budget package, are expected to boost government and consumer spending prior to the coming elections.

We find that in past election cycles, domestic consumption tends to pick up in the lead-up to elections, supported by pre-election government spending, retail sales and uplift in consumer sentiments. Data from 1996 showed that government spending tends to peak about one to two quarters before the election and slows post-election, driving consumer spending.

Government consumption has been strong in past election cycles (see Fig 10). Between 1996 and 2018, government consumption in the two quarters prior to the elections was up +4.6% as compared to a historical average growth of +5.1%, but this was largely driven by one anomaly in the 1999 elections during the Asian Financial Crisis period. Excluding the 1999 elections, we find that government

7 En Tempo.co, “Jokowi Increases Family Hope Program Budget in 2019”, 13 Dec 2018 8 ISEAS – Yusof Ishak Institute, “Positioning for Elections Amidst Uncertainties: Indonesia’s 2019 Budget”, 26 Oct 2018 9 Bloomberg, “Jokowi to Give Poor Indonesians More Money in Election Year”, 12 Dec 2018 February 15, 2019 9

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consumption pre-elections in fact grew by an average of +8.8% during the past four election cycles (4Q96-1Q97; 4Q03-1Q04; 4Q08-1Q09; 4Q13-1Q14).

Private consumption however paints a similar picture, growing slightly above average in past pre-election periods (excluding 1998 episode). While household consumption experienced much fluctuation in the early 1990s, it generally posted stable quarterly growth of between +3% and +5% since 2001. Excluding 1998 (Asian Financial Crisis), we find that household consumption growth averaged at +5.8% over the two quarters pre-elections (above overall average of +4.5%) since 1996.

Figure 10: Indonesia - Government Spending Tends to Rise Before Elections

Source: CEIC

Both Indonesia retail sales and consumer confidence also tend to show strong growth during past election cycles. Retail sales rose by an average of +16.1% and +19.8% in the lead-up to the 2004 and 2014 elections respectively, against the historical average of +9.6% since 2002. While retail sales fell for most of 2009 presidential and legislative elections period, this was most likely due to the GFC slowdown. Retail sales eventually recovered to +5.9% by Mar-09 (one month before the 2009 legislative elections vs. -8.2% for Feb-09). Consumer confidence has also been generally resilient during past election cycles (see Figures 11 & 12).

Figure 11: Retail Sales & Consumer Confidence Strengthened Figure 12: Retail Sales Index Maintained Double-Digit Growth during Election Years in the Lead-up to 2004 and 2014 Elections

Note: Data only available from 2002. Consumer confidence index above 100 Note: Timeline refers to six months before and after the elections. T-x denotes indicates an improving outlook and below 100 indicates a deteriorating outlook. number of months before the elections, and T+x denotes months after the Source: CEIC elections.

Source: CEIC

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With Indonesia’s April 2019 polling day inching closer, we expect government spending and retail sales to pick up again in 1Q2019, similar to previous election cycles. There are already some early signs, with government consumption for 2H18 coming in at +5.3% (vs. +4.1% in 1H18). Consumer spending also appears to be picking up, with retail sales index for 4Q 2018 rising +4.7% (vs. +4.6% in 3Q and +2.8% in 1H18) supported by strong growth in clothing (other goods), fuels, cultural & recreation items (see Fig 13). Consumer confidence index is also picking up in recent months after the dip in 3Q18 across all the major regions (see Fig 14).

Figure 13: Indonesia Retail Sales Rising on the Back of Robust Figure 14: Indonesia Consumer Confidence Index Rebounding Growth for Clothing, Fuels, Cultural & Recreation Goods Since Oct-18

Note: Other goods refer to the sale of clothing, footwear and leather goods, sale Source: CEIC of pharmaceutical and medical goods, cosmetic and toilet articles, and sale of other new and second-hand goods in specialised stores Source: CEIC

Our Indonesia consumer analyst, Janni Asman, thinks that the Consumer sector could deliver a stronger performance in 1H19E due to lower inflation pre-election, festive season effect and welfare support (see Indonesia Consumer: Marketing feedback, 28 Nov 2018). Companies that may potentially benefit from election spending are RALS (mass market retail), GGRM (tobacco), HMSP (tobacco), MYOR and ICBP (food). INDF may also benefit indirectly from exposure to ICBP.

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Philippines: Duterte Remains Popular

The Philippines is slated to hold mid-term elections on 13th May 2019. The election will select 12 of the 24 seats in the Senate10, all 297 seats in the House of Representatives, as well as around 18,000 local and congressional posts. The winning senatorial candidates from this mid-term election will join with the other 12 elected during the 2016 mid-term elections to form the 18th Congress of the Philippines.

As of 8th Feb, the Philippine Congress has approved a Php3.76tn (US$72bn) budget which President Duterte put forth for 2019 11 , ending months of impasse and just in time before Congress closes for a 14-week break to give way to the mid-term elections. Education, infrastructure development (e.g. “Build Build Build” Programme), interior & local government, and social welfare remain key priorities in this budget. This is also Duterte’s last budget before the upcoming mid-term elections, which is seen as a midway assessment of the current government’s performance.

Campaign period officially started on 12th February. Our base case is that Duterte will continue to retain majority control of the Legislature. He has been consistently enjoying high approval ratings since he assumed office in June 2016. In the latest Pulse Asia Research survey (14 – 21 Dec 2018), President Duterte’s approval ratings recovered from the previous ratings slump in 3Q18 and climbed back to 81% in Dec-18 (vs. 75% in Sep-18). This set of results is also consistent with the Dec-18 results from the Social Weather Station (SWS) survey, which shows Duterte enjoying a net satisfaction rating of +60, up from +54 in Sep-18 (see Fig 15). This is likely positive for the prospects of the administration-backed candidates. The latest Pulse Asia polls on the Senatorial candidates conducted in Dec 2018 also showed that most of the potential top 12 candidates are aligned with President Duterte (see Table 10).

Figure 15: President Duterte’s Approval Ratings Remained High Throughout His Term of Office

% President Duterte's Approval Ratings Point 90 Pulse Asia Research Social Weather Survey (RHS) 70

65 85

60 80

55

75 50

70 45

65 40 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18

Source: Pulse Asia poll (14-21 Dec 18), Social Weather Station poll (16-19 Dec 18)

10 Philippine midterm elections are conducted via a plurality-at-large voting system whereby each voter can vote up to twelve people (one vote per candidate), with the twelve candidates with the highest number of votes deemed elected for a six-year term. For each mid-term election, half of the 24 seats are up for re-elections. 11 CNN Philippines, “Congress passes 2019 budget after 2-month delay”, 8 Feb 2019. February 15, 2019 12

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Table 10: Pulse Asia Dec Poll – Most of the Top Senatorial Candidates are Aligned with the Duterte Administration (in red) Name Party Rank % of Votes

1 Grace Poe Independent (Current Senator) 1 75.6%

2 Cynthia Villar Nacionalista (Current Senator) 2 66.6% Juan Edgardo M. Laban ng Demokratikong Pilipino, LDP 3 3 - 4 58.5% Angara (Current Senator) 4 Pia Cayetano Nacionalista (Taguig City Representative) 3 - 4 55.4% Nationalist People's Coalition, NPC 5 Lito Lapid 5 - 7 49.8% (Former Senator) United Nationalist Alliance, UNA (Current 6 Nancy Binay 5 - 7 46.7% Senator) Aquilino "Koko" 7 PDP-Laban (Current Senator) 5 - 7 45.5% Pimentel III 8 Serge Osmeña Independent (Former Senator) 8 - 13 38.8% Ramon “Bong” 9 Lakas-CMD (Former Senator) 8 - 14 37.6% Revilla Jr. 10 Imee R. Marcos Nacionalista (Ilocos Norte Governor) 8 - 15 36.7% Jose “Jinggoy” Pwersa ng Masang Pilipino, PMP (Former 11 8 - 15 36.3% Estrada Senator) 12 Ronald M. Dela Rosa PDP-Laban 8 - 15 35.7% Liberal (Former Interior Secretary & 13 Mar Roxas 8 - 15 35.0% Senator) Jose Victor G. Nationalist People's Coalition, NPC 14 9 - 16 33.6% Ejercito (Current Senator) Benigno "Bam" A. 15 Liberal (Current Senator) 10 - 16 32.6% Aquino IV

Note: Names in red font represent candidates who are aligned with current Duterte’s administration Source: Pulse Asia poll (14 – 21 Dec 2018), BusinessWorld

Table 11: Philippines Past Election Results, 2004 – 2016 Year Elections Held Election Results  Presidential Elections: Rodrigo Duterte (PDP-Laban; 16,601,997 votes, 39.0%) beats Mar Roxas Presidential & Mid-term (Liberal Party; 9,978,175 votes, 23.5%) & Grace Poe (Independent; 9,100,991 votes, 21.4%) 2016 Elections  Mid-term Elections: “Koalisyon ng Daang Matuwid” coalition led by Liberal Party won 7 of the 12 seats, with the rest going to NPC (2 seats), UNA (1 seat) and Independents (2 seats)  Mid-term Elections: Benigno Aquino-led “Team Pnoy” coalitation won against “United Nationalist 2013 Mid-term Elections Alliance” (coalitation formed between PDP-Laban & PMP) with 9 seats vs. 3 seats  Presidential Elections: Benigno Aquino III (Liberal Party; 15,208,678 votes, 42.1%) beats Joseph Estrada Presidential & Mid-term (PMP; 9,487,837 votes, 26.3%) & Manny Villar (Nacionalista Party; 5,573,835 votes, 15.4%) 2010 Elections  Mid-term Elections: No party won a majority of seats - Liberal Party (3 seats); Nacionalista Party (2 seats); Lakas-CMD (2 seats); PMP (2 seats); PRP/NPC/Independents (3 seats)  Mid-term Elections: Arroyo-led “TEAM Unity” coalition won 2 of the 12 Senate seats, with the rest going 2007 Mid-term Elections to the “Genuine Opposition” coalition and Independents  Presidential Elections: Gloria Macapagal-Arroyo (Lakas-CMD; 12,905,808 votes, 40%) beats Fernando Presidential & Mid-term Poe Jr. (KNP; 11,782,232 votes, 36.5%) & Panfilo Lacson (LDP; 3,510,080 votes, 10.9%) 2004 Elections  Mid-term Elections: Arroyo-led “K4” coalition won 7 of the 12 of Senate seats, giving her control of the Senate for the first time. Opposition “KNP” coalition garnered 5 seats

Source: Compiled by Maybank Kim Eng

In the Philippines, domestic consumption tends to get a small boost from pre- election government spending, with retail sales and consumer sentiments improving. Historical data since 2003 showed that government consumption in the two quarters prior to the elections grew by an average of +11.9% in past election cycles (4Q03-1Q04; 4Q06-1Q07; 4Q09-1Q10; 4Q12-1Q13; 4Q15-1Q16) against the historical average of +6.6% (see Fig 16). Meanwhile, the “election year” effect was less clear for private consumption, which tends to grow by an average of +5.3% in the two quarters lead-up to elections, just slightly higher to the historical average of +5.1%.

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Consumer spending and sentiments have generally remained buoyant during the pre-elections period. Over the past five elections, net sales in Philippines saw an increase by an average of +6.0% in the 6 months prior to the elections and a further growth of +8.5% after the elections. Consumer expectations survey results also showed that consumer confidence usually improve in the lead-up to elections (see Fig 17).

Figure 16: Philippines – Govt Consumption Posted Double Digit Figure 17: Net Sales & Consumer Confidence Tends to Growths in the Lead-Up to Most Elections Improve Before Elections

Source: CEIC Note: Consumer confidence index above 0 indicates a positive outlook and below 0

indicates a negative outlook. Source: CEIC

Figure 18: Net Sales Enjoyed Robust Growth in Most Past Figure 19: Sharp Dip in Consumer Confidence Index in 4Q18 Elections; But Showed Weakness in May’07 Elections

Source: CEIC Note: Consumer confidence index above 0 indicates a positive outlook and below 0

indicates a negative outlook. Source: CEIC

We expect election-related spending in the coming months to boost consumption and lend some support for growth in the short term. A 2010 study conducted by the National Economic and Development Authority (NEDA) showed that election spending can contribute up to an average of 0.34ppts to GDP growth12.

Consumer sentiments have however been negative for second half of 2018, but easing inflationary pressures supported by a relatively more stable currency and falling fuel prices, as well as pre-election giveaways by the candidates, could drive a reversal of the weak consumer outlook in 1Q19. Our Chief Economist, Suhaimi Ilias, expects Philippines’ GDP growth forecast for 2019 to come in at +6.5% (vs. +6.2% for 2018), on the back of easing inflation (2019E:

12 Ballester, R.E., Bartolazo, M., et al, “A Study on the Impact of Election Spending on the Philippine Economy”, 5 Oct 2010

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+3.0% vs. 2018: +5.0%), as well as the continued infrastructure spending and expected increase in pre-election Government spending (see Philippines Economics: 4Q 2018 GDP - Steady paced growth, 25 Jan 2019 and Inflation slowing towards BSP’s target, 7 Feb 2019).

The consumer, media and retail sectors should benefit from higher spending during election campaigns. Our Philippines strategist, Minda Olonan, notes that share prices of media, consumer and retail stocks tend to rise prior to elections, with ABS-CBN’s share price being the most sensitive (see Figures 20 & 21). Nonetheless, for this election cycle, the election spending impact on 1H19 sales growth for quick service restaurants (QSRs) and retail names such as Jollibee Foods Corp (JFC), Puregold (PGOLD) and Robinsons Retail Holdings (RRHI) might be somewhat muted due to the higher base effects stemming from price increases due to TRAIN 1 (see Philippine Strategy – Getting back on track, 7 Jan 2019).

Figure 20: Consumer Stock Prices Tend to Rise Prior to Elections

Source: Bloomberg, Maybank Kim Eng (Philippine Strategy – Getting back on track, 7 Jan 2019)

Figure 21: Stronger Sales Growth During Election Years

Note: URC is based on domestic branded consumer food (BCF) sales and JFC is based on domestic system-wide sales. Source: Bloomberg, Maybank Kim Eng (Philippine Strategy – Getting back on track, 7 Jan 2019)

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Singapore: Pre-Election Budget May Support Consumers

Singapore’s next general election needs to be held by 15th Jan 2021. While there are still 2 more years to go for this term of government, there has been speculation that elections may be called earlier in end 2019 or early 2020 following recent changes of key appointments within PAP’s Central Executive Committee (CEC) in November 2018. Finance Minister Heng Swee Keat was elected as first assistant secretary-general, making him the likely candidate to be the next Prime Minister.

Earlier pre-election budgets featured generous measures, including cash payments and personal income tax rebates. Cash payments of up to S$800 per citizen were provided in Budget 2006 (Progress Package) and Budget 2011 (Grow and Share Package) (see Table 12). Prior to the last general elections in September 2015, the government unveiled a generous S$9bn “Pioneer Generation Package” in the Feb 2014 Budget13. That package covered a large proportion of healthcare costs for those born on or before 1949, which “Pioneers” will enjoy for life. More than 400,000 Singaporeans benefited from the package. The PAP rode on the feel good factor and won with a strong mandate in the Sep 2015 general elections, with the popular vote surging to 69.9% (up from 60.1% in 2011 GE) (see Table 13).

Table 12: Budget Measures Prior to General Elections Year Budget Measures  A one-off tax rebate of 10% on individual income tax was granted.  The government increased the Singapore Allowance (additional payment over and above the pensions that the government pays to pensioners) by $10 to $150 2001 per month, and raise the gross pension ceiling from $950 to $1,050 per month.  In Oct, just weeks before the 1 Nov election date, a round of off-budget measures worth S$11.3bn was announced, when the economy slipped into recession. 2006  Singaporeans received between $200 and $800 in cash as part of the S$2.6bn Progress Package, which was disbursed on 1 May (before the election on 6 May).  Singaporeans received between $100 and $800 in Growth Dividends as part of 2011 the S$3.2bn Grow and Share Package.  20% personal income tax rebate, capped at S$2,000. 2014  A S$9bn Pioneer Generation Package was introduced for all Singaporeans born in 1949 or before to help meet healthcare costs. 2019  Details of the Merdeka Generation Package to be unveiled to support healthcare costs for Singaporeans born between 1950 and 1959.

Source: Compiled by Maybank Kim Eng

Table 13: Past General Election Results – Share of Popular Vote Won by PAP General Election Popular Vote Won by PAP % change from previous election Sep-15 69.9% +9.7% May-11 60.1% -6.5% May-06 66.6% -8.7% Nov-01 75.3% +10.3% Jan-97 65.0% +4.0% Aug-91 61.0% -2.2%

Source: Compiled by Maybank Kim Eng

A similar fiscal formula might yet again echo in this electoral cycle. Budget 2019 (to be unveiled on 18th Feb) will likely be a generous and expansionary one, setting the stage for a possible general election. It will center on a large S$8bn, by our estimates, “Merdeka” generation healthcare package (see Budget Preview: A Pre-Election “Merdeka” Boost, 31 Jan 2019).

13 Budget 2014 set aside $8bn for the fund, with the remaining $1bn is to be funded with accumulated interest over time. February 15, 2019 16

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Government spending tends to be strong in the lead up to elections, posting double digit growth throughout the election cycles. Over the past 5 elections since 1996, government consumption in the two quarters prior to the elections grew by an average of +12.3 % yoy during the past election cycles (3Q96-4Q96; 2Q01-3Q01; 4Q05-1Q06; 4Q10-1Q11; 1Q15-2Q15) against an average of +6.4% (see Fig 22).

We note that for Singapore, retail sales see some modest improvement following the disbursement of generous pre-election budget measures. For instance, retail sales showed an uptick following the cash payments of up to $800 per citizen in May 2006 (+7.9% in 2Q06 vs. +6.6% in 1Q06) and May 2011 (+9.8% in 2Q11 vs. -2% in 1Q11). Following the introduction of the Pioneer Generation Package in 2014, retail sales started recovering in the third quarter of the year, around the time that eligible recipients received letters informing them of their benefits and Medisave top-ups were credited to their accounts (see Fig 23).

Figure 22: Singapore – Government Spending Tends to be Figure 23: Some Modest Pickup in Retail Sales Following Pre- Strong in the Lead Up to Elections Election Generous Budget Measures

Source: CEIC Source: CEIC

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Appendix

Table 14: Indonesia - Past Legislative Election Results (1997 – 2014) Legislative Election Results Legislative Total % of Popular Change from Previous Election Party Leader Seats Won Total Votes Votes Won Election, % PDI–P Megawati Sukarnoputri 109 23,681,471 19.0% +4.9% Golkar Aburizal Bakrie 91 18,432,312 14.8% +0.3% Gerindra Prabowo Subianto 73 14,760,371 11.8% +7.4% Apr 2014 Demokrat Susilo Bambang Yudhoyono 61 12,728,913 10.2% -10.7% PKB Muhaimin Iskandar 47 11,298,957 9.0% +4.1% PAN Hatta Rajasa 49 9,481,621 7.6% +1.6% Demokrat Susilo Bambang Yudhoyono 148 21,703,137 20.9% +13.4% Golkar Jusuf Kalla 106 15,037,757 14.5% -7.1% PDI–P Megawati Sukarnoputri 94 14,600,091 14.0% -4.5% Apr 2009 PKS Luthfi Hasan Ishaaq 57 8,204,946 7.9% +0.5% PAN Soetrisno Bachir 46 6,273,462 6.0% -0.4% PPP Suryadharma Ali 38 5,544,332 5.3% -2.8% Golkar Akbar Tanjung 128 24,480,757 21.6% -0.8% PDI–P Megawati Soekarnoputri 109 21,026,629 18.5% -15.2% PKB Alwi Shihab 52 11,989,564 10.6% -2.0% Apr 2004 PPP Hamzah Haz 58 9,248,764 8.2% -2.6% Demokrat Subur Budhisantoso 55 8,455,225 7.5% N/A PKS Hidayat Nur Wahid 45 8,325,020 7.3% +6.0% PDI–P Megawati Soekarnoputri 153 35,689,073 33.7% N/A Golkar Akbar Tanjung 120 23,741,749 22.4% -52.1% PKB Matori Abdul Djalil 51 13,336,982 12.6% N/A Jun 1999* PPP Hamzah Haz 58 11,329,905 10.7% -11.7% PAN Amien Rais 34 7,528,956 7.1% N/A PBB Yusril Ihza Mahendra 13 2,049,708 1.9% N/A Golkar Harmoko 325 84,187,907 74.5% +6.4% May 1997 PPP Ismail Hassan Metareum 89 25,340,028 22.4% +5.4% PDI Suryadi 11 3,463,225 3.1% -11.8%

Note: The list above provided the summary of the election results of the parties with the top 6 highest percentage of popular vote, and is not meant to be exhaustive. * The 1999 legislative elections is the first free election in Indonesia since 1955. Prior to 1999, only three parties - the United Development Party (Partai Persatuan Pembangunan, PPP), the Indonesian Democratic Party (Partai Demokrasi Indonesia, PDI) and Party of the Functional Groups (Partai Golongan Karya, Golkar) were allowed to participate in elections under the Indonesian Constitution. Source: General Election Commission, Compiled by Maybank Kim Eng

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Economics Research

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Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to he rein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.

Singapore: As of 15 February 2019, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.

Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time ha ve interests and/or underwriting commitments in the securities mentioned in this report.

Hong Kong: As of 15 February 2019, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.

India: As of 15 February 2019, and at the end of the month immediately preceding the date of publication of the research report, KESI, authoring analyst o r their associate / relative does not hold any financial interest or any actual or beneficial ownership in any shares or having any conflict of interest in the subject companies except as otherwise disclosed in the research report. In the past twelve months KESI and authoring analyst or their associate did not receive any compensation or other benefits fr om the subject companies or third party in connection with the research report on any account what so ever except as otherwise disclosed in the research report.

MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the re port. Reminder Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors wh o are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Definition of Ratings Maybank Kim Eng Research uses the following rating system BUY Return is expected to be above 10% in the next 12 months (excluding dividends) HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends) SELL Return is expected to be below -10% in the next 12 months (excluding dividends) Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

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Economics Research

 Malaysia  Singapore  London  New York Maybank Investment Bank Berhad Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Securities Maybank Kim Eng Securities USA (A Participating Organisation of Maybank Kim Eng Research Pte Ltd (London) Ltd Inc Bursa Malaysia Securities Berhad) 50 North Canal Road PNB House 400 Park Avenue, 11th Floor 33rd Floor, Menara Maybank, Singapore 059304 77 Queen Victoria Street New York, New York 10022, 100 Jalan Tun Perak, London EC4V 4AY, UK U.S.A. 50050 Kuala Lumpur Tel: (65) 6336 9090 Tel: (603) 2059 1888; Tel: (44) 20 7332 0221 Tel: (212) 688 8886 Fax: (603) 2078 4194 Fax: (44) 20 7332 0302 Fax: (212) 688 3500

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 Philippines  Thailand  Vietnam  Saudi Arabia Maybank ATR Kim Eng Securities Inc. Maybank Kim Eng Securities Maybank Kim Eng Securities Limited In association with 17/F, Tower One & Exchange Plaza (Thailand) Public Company Limited 4A-15+16 Floor Vincom Center Dong Anfaal Capital Ayala Triangle, Ayala Avenue 999/9 The Offices at Central World, Khoi, 72 Le Thanh Ton St. District 1 Villa 47, Tujjar Jeddah Makati City, Philippines 1200 20th - 21st Floor, Ho Chi Minh City, Vietnam Prince Mohammed bin Abdulaziz Rama 1 Road Pathumwan, Street P.O. Box 126575 Tel: (63) 2 849 8888 Bangkok 10330, Thailand Tel : (84) 844 555 888 Jeddah 21352 Fax: (63) 2 848 5738 Fax : (84) 8 38 271 030 Tel: (66) 2 658 6817 (sales) Tel: (966) 2 6068686 Tel: (66) 2 658 6801 (research) Fax: (966) 26068787

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Indonesia London Iwan Atmadjaja Greg Smith [email protected] [email protected] (62) 21 8066 8555 Tel: (44) 207-332-0221

New York India James Lynch Sanjay Makhija [email protected] [email protected] Tel: (212) 688 8886 Tel: (91)-22-6623-2629

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