Indonesia Strategy Strategy Update | 23 October 2019 JCI performance A new hope for Indonesia 3M 6M 12M Absolute -2.3% -3.2% 7.9% In contrary to what people expect, the new cabinet composition announced today was pretty similar with the previous term. We view that in general, the cabinet is better in terms of promoting law 8% 6% and legal certainty which is important for the business climate. 4% 2% We are more optimistic post cabinet announcement and believe certain 0% reforms will be made going forward. We maintain our JCI target of 6,900. -2% -4% Positive surprise on cabinet composition -6% -8% In contrary to what people expect the cabinet composition which was Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 announced today was pretty similar with 2014-2019 terms. The number of JCI Index ministers remains unchanged at 34 and the ministers coming from political parties is now at 15 (44%), relatively unchanged vs. 2014-2019 cabinet (compared to initial appointment – along the way 2 ministers from political parties were replaced by professionals). Note that this was a positive surprise given the higher coalition support (coalition control 60% of the parliament seat in 2019 vs. 37% in 2014), this shows Jokowi’s aptitude to manage its supporting party’s demand and expectation (i.e. PDIP and PKB was openly asking for more than 4 and 3 ministers previously). Law and legal certainty clearly is a priority We like certain appointment in the cabinet that promotes law and legal certainty, namely in coordinating Minister of Politics, Law and Security (Mahfud MD which is a law professor and former chief justice of the constitutional court from Wiranto – affiliated to Hanura), Minister of Internal Affairs (Tito Karnavian which is the former Chief of Police from Tjahjo Kumolo – affiliated to PDIP), Minister of Religious Affairs (Fachrul Razi which is a retired general from Lukman Hakim - affiliated to PPP) and Attorney General (ST Burhanuddin from Muhammad Prasetyo – affiliated to Nasdem). Don’t fix things that aren’t broken, new ministers also spark a new hope Certain old ministers also back at their old posts (i.e. Luhut Binsar Panjaitan – Coordinating Minister for Maritime Affairs and Investment, Sri Mulyani – Finance Minister, Budi Karya – Transportation Minister, Basuki Hadimuljono – Minister of Public Works and Public Housing) while new ministers such as Nadiem Makarim (Minister of Education, former GoJek founder) and Erick Thohir (Minister of SOE, former businessman) may spark hopes on reform in education (which has always been Jokowi’s focus for the 2nd term) and SOE’s Jovent Muliadi performance and governance. Market also hopeful the new cabinet will be PT Indo Premier Sekuritas successful with the fiscal, labour and ease of doing business reform. [email protected] +62 21 5088 7168 ext. 710 Market sentiment should be positive, maintain JCI target of 6,900 Market is still awaiting the appointment of certain Vice Ministers as reportedly Timothy Handerson the number of Vice Ministers will increase from 3 to at least 11. However, PT Indo Premier Sekuritas current cabinet shall spark a new hope of reforms for Jokowi’s second term. [email protected] JCI’s performance has been lacklustre this year (+1% YTD), now trading at +62 21 5088 7168 ext. 714 13.9x P/E (vs. 10Y mean of 15.2x). We maintain our FY20 JCI’s target of 6,900 (based on 2.1x P/BV vs. 10Y mean of 2.3x). Catalyst will be better than Anthony expected 3Q19 results while risk is more towards global uncertainty. PT Indo Premier Sekuritas [email protected] +62 21 5088 7168 ext. 715 Refer to Important disclosures in the last page of this report 23 October 2019 Strategy Update Fig. 1: Summary of changes in 2019-2024 cabinet Kabinet Indonesia Maju Previous Minister Affiliation New Minister Affiliation Coordinating Minister of Politics, Law, and Security Affairs Wiranto Hanura Mohommad Mahfud MD Profesional Coordinating Minister of Economic Affairs Darmin Nasution Professional Airlangga Hartarto Golkar Coordinating Minister of Maritime Affairs and Investments *) Luhut Binsar Panjaitan Professional Luhut Binsar Panjaitan Profesional Coordinating Minister of Human Development and Culture Puan Maharani PDIP Muhajir Effendy Profesional Secretary of State Pratikno Professional Pratikno Profesional Minister of Home Affairs Tjahjo Kumolo PDIP Tito Karnavian Profesional Minister of Foreign Affairs Retno Lestari Priansari Marsudi Professional Retno Lestari Marsudi Profesional Minister of Defense Ryamizard Ryacudu Professional Prabowo Subianto Djojohadikusumo Gerindra Minister of Law and Human Rights Yasonna Laoly PDIP Yasonna Laoly PDIP Minister of Finance Sri Mulyani Indrawati Professional Sri Mulyani Indrawati Profesional Minister of Energy and Mineral Resources Ignasius Jonan Professional Arifin Tasrif Profesional Minister of Industry Airlangga Hartarto Golkar Agus Gumiwang Kartasasmita Golkar Minister of Trade Enggartiasto Lukita Nasdem Agus Suparmanto PKB Minister of Agriculture Amran Sulaiman Professional Syahrul Yasin Limpo Nasdem Ministry of Forestry and Environment Siti Nurbaya Bakar Nasdem Siti Nurbaya Bakar Nasdem Minister of Transportation Budi Karya Sumadi Professional Budi Karya Sumadi Profesional Minister of Fisheries and Maritime Affairs Susi Pudjiastuti Professional Edhy Prabowo Gerindra Minister of Manpower Hanif Dhakiri PKB Ida Fauziah PKB Minister of Village, Disadvantaged Regions, and Transmigration Eko Putro Sandjojo PKB Abdul Halim Iskandar PKB Minister of Public Works and Public Housing Basuki Hadimuljono Professional Basuki Hadimuljono Profesional Minister of Health Nila Djuwita Anfasa Moeloek Professional Terawan Agus Putranto Profesional Minister of Education and Culture Muhadjir Effendy Professional Nadiem Makarim Profesional Minister of Research and Technology and Head of Research Innovation **) Muhammad Nasir Professional Bambang Brodjonegoro Profesional Minister of Social Affairs Agus Gumiwang Kartasasmita Golkar Juliari Batubara PDIP Minster of Religious Affairs Lukman Hakim Saifuddin PPP Fachrul Razi Profesional Minister of Tourism and Creative Economy ***) Arief Yahya Professional Wishnutama Profesional Minister of Communication and Informatics Rudiantara Professional Johnny G. Plate Nasdem Minister of Cooperatives and Small & Medium Enterprises Anak Agung Gede Ngurah Puspayoga PDIP Teten Masduki Profesional Minister of Female Empowerment and Child Protection Yohana Yembise Professional Gusti Ayu Bintang Darmavati PDIP Minister of Administrative and Bureaucratic Reform Syafruddin Professional Tjahjo Kumolo PDIP Minister of National Development Planning Board Bambang Brodjonegoro Professional Suharso Monoarfa Profesional Minister of Land and Spatial Planning Sofyan Djalil Professional Sofyan Djalil Profesional Minister of State Owned Enterprises Rini Mariani Soemarno Soewandi Professional Erick Thohir Profesional Minister of Youth and Sports Imam Nahrawi PKB Zainudin Amali Golkar *) previously Coordinating Minister of Maritime Affairs **) previously Minister of Research and Technology and Higher Education ***) previously Minister of Tourism Affiliation No of ministers Affiliation No of ministers Professional 21 Professional 19 PDIP 4 PDIP 4 Golkar 2 Golkar 3 Nasdem 2 Nasdem 3 Hanura 1 Hanura 0 PKB 3 PKB 3 PPP 1 PPP 0 Gerindra 0 Gerindra 2 Total 34 Total 34 From political parties 13 From political parties 15 Non-political parties 21 Non-political parties 19 Sources: Various sources, IndoPremier Fig. 2: Number of ministers based on affiliation – number of Fig. 3: Minister from political parties account for 44% of the 2019-24 ministers from political parties are relatively unchanged cabinet 40 100% 35 90% 80% 30 44% 47% 70% 56% 15 64% 25 16 21 19 60% 20 50% 15 40% 30% 56% 10 19 53% 18 20% 44% 13 15 36% 5 10% 0 0% 2004-2009 cabinet 2009-2014 cabinet 2014-2019 cabinet 2019-2024 cabinet 2004-2009 cabinet 2009-2014 cabinet 2014-2019 cabinet 2019-2024 cabinet Ministers from political parties Ministers not from political parties Ministers from Political parties Ministers from non-politicla parties Sources: Various sources, IndoPremier Sources: Various sources, IndoPremier Page 2 of 5 Refer to Important disclosures in the last page of this report 23 October 2019 Strategy Update Fig. 4: Composition of House of Representative (HoR) seats – a Fig. 5: Relatively unchanged minister composition despite a significant increase in seats won by coalition in 2019-24 significant increase in seats won by the coalition (60%) 600 100% 90% 500 80% 44% 40% 246 222 70% 59% 63% 400 322 352 60% 300 50% 40% 200 30% 60% 314 338 56% 20% 41% 100 228 208 37% 10% 0 0% 2004-2009 2009-2014 2014-2019 2019-2024 2004-2009 2009-2014 2014-2019 2019-2024 Coalition Opposition Coalition Opposition Sources: Various sources, IndoPremier Sources: Various sources, IndoPremier Fig. 6: Background of new cabinet (part 1) Post Name Background Coordinating Minister for Political, Legal, and Security Affairs Mohammad Mahfud MD Chief Justice of the Constitutional Court (2008-2013) Consultant to National Law Development Agency of Indonesia Coordinating Minister for Economic Affairs Airlangga Hartarto Minister of Industry (2016-2019) Central Board to Party of Functional Groups (2011-2014) Coordinating Minister for Human Development and Cultural Affairs Muhadjir Effendy Chairman of Indonesian Islamic Student in East Java (2012-2016) Vice Chairman of Indonesian Social Sciences Development Association (2013-2017) Central Chief of Muhammadiyah in Education, Research and Development