MARKET OUTLOOK 2011

IDX Target (12-mth): Rp 4.700 (Overweight)

The road to IDX 4.700

www.hdx.co.id
Yuganur Wijanarko
yuganur@hdx.co.id
(+62) 21 250 6337 ext. 2027
(+62) 21 250 6516 (Direct)
New territory
Despite the market showing stellar performance as the best emerging market
performer in 2010 (42% up YTD) at 13x, 12-mth forward PER, new territory is yet to
be seen. We are still optimistic that robust earnings growth of 25%, domestic
consumption and FDI-led investment GDP growth of 6.4%, bank lending growth of
18% next year and resumption of infrastructure projects can drive the index to our
YE 2011 target of 4.700, implying 16x 2011 PER.

The return to investment grade driven theme

29 December 2010
Indonesia Equity Research
A few years ago some were skeptical of Indonesia to beat the odds of becoming an
Asian soccer power player (but long and behold it surprised us by reaching the AFF
2010 finals), and returning to pre-crisis 97 investment grade sovereign rating. The
latter could result in a re-rating of valuations to pre-crisis levels. We view the
market may be rallying in 2011 to price in such an event happening.

JCI 3659
The power of three:
2011F 4700
Mkt Cap Rp tn 3,123 A recap of the IDX market weighting per sector reveals that three sectors represent
in US$ 346 close to 70% of the whole market. The three sectors are: Banks (28%), Coal (19%)
and Consumer (21%), with Banks as the largest sector weight in the IDX universe.
HD Economic Indicators In these sectors, three largest heavyweight counters are Bank BRI: 5.0% (Banks),
2011F Adaro Energy: 2.6% (Coal), and Astra International: 7.0% (Consumer). Most of
GDP growth (%) 6.4 the market movement for 2010 has been related to two stocks: Astra (ASII) and
3mth Deposit (%) 6.3
Loan Growth 18%
Bank BRI (BBRI).
Inflation MoM (%) 6.1 Market Capitalization Sector Breakdown
Inflation YoY (%) 6.3
Rp/US$ YE 9050
Rp/US$ average 9035 Property
3% Telcos and
Bond Rating BBB- Media
10%
(BBRI: 5.0%)
Banking
28%
CPO, Energy and
Metal Mining
12%
Infrastructure
7%
PT HD CAPITAL TBK (ADRO: 2.6%) Coal
Sona Topas Tower Fl. 11 (ASII: 7.0%)
Consumers Durable
19%
Jl. Jend. Sudirman Kav. 26 and Non-Durable
Jakarta 12920 21%

T. (+62) 21 250 6337

F. (+62) 21 250 6351/52 Source: HD Capital Estimates

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The road to becoming a first rate grade Asian soccer power play
Recently the Indonesian soccer team's victories in the 2010 AFF have swept the
country by storm. Public passion from all-social classes for the sport has not been
seen since the early 90's. This turnaround in events may bring Indonesia on the
road to becoming a first rate Asian soccer power play, and possibly to perform in
the 2014 world cup.

2010 Indonesian Soccer Team Players

The road to investment grade

A support for our 12-month index target at 4.700 may come from the market's re-
rating which has not been fully priced in yet. If an investment grade rating (BBB-)
(last seen pre 1997), then further funds flow could support such a scenario.

There is no free lunch: One pre-requisite to an investment grade rating from

current BB to BBB- was the partial lifting of fuel subsidies (delayed to March 2011),
which also has an inherent inflationary risk. The market reacted negatively in
December when a delay of the subsidy lifting occurred which lead also to the delay
in investment grade status. According to our economic consensus the lifting of
subsidies to private vehicles would only raise inflation by 0.3-0.5%, far below the
1% level.

To raise or not to raise: A derailing of the bullish scenario would be a higher

inflationary environment of 8-10% caused by a major fuel subsidy lifting such as
2005 & 2008 followed by a spike in interest rates (which in turn produced
undesirable effect of weakening currency). Historically BI has used interest rate
hikes as a “last measure” to contain currency weakness, and with an investment
grade rating following subsidy lifting translating into fund flows and stronger
currency such a rate hike policy may be overkill.

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 BANK RAKYAT INDONESIA (BBRI IJ)
TP (12-mth): Rp 14,750 - BUY

Size does matter

Yuganur Wijanarko
yuganur@hdx.co.id
(+62) 21 250 6337 ext. 2027
(+62) 21 250 6516 (Direct)
Still bullish
We remain optimistic on BBRI with our TP or Rp.14,750/share (18.7x 2011F: 4.3x
2011 PBV, and 23% 2011F ROE). The recent 10-12% correction from historical
highs may be used as an opportunity to build positions for upside potential in 2011.
Despite the recent correction on slower 3Q10 where its' loans growth slowed due
to the scheduled repayment of Rp.1.4T from loans to the agribusiness sector, we
are still optimistic that a decline of 30Bp to 15% y/y to be partially compensated by
lower loss provisions and that the market has over-reacted to the impact on 2010F-
2011F earnings, which may only be slightly tapered to Rp.9.4T and 11,5T,
respectively.

The largest in its' class

Indonesia Equity Research
Financial (Banking) In addition to possessing the largest market cap in the IDX, BBRI is also the major
Reuters BBRI.JK micro lending player with Teras BRI units doubling to 447 units in 9M10 from 217
Bloomberg BBRI IJ units the previous year. This presence adds a competitive advance in its segment
th
Priced by 28 December 2010 which is rivaled by Bank Danamon (BDMN).
JCI @3,659.99

12M hi/lo Rp12,800/6,950 The bank has plenty liquidity, around Rp55tn in short term liquid assets, and
additional buffer of 2-3trn of sub debt issuance next year.
12M potential target Rp14,750
±% potential +39%
Target set on 29 Dec 10 Worth the price
Shares issued 12,340bn
We are optimistic that ROE can be buoyant by 30% 3-year projected CAGR
Free float (est.) 43.23% (Compound Annual Growth Rate) loan growth, which may be a realistic approach.
Market cap Rp131,4bn
Throughout time the bank has been able to grow loans above 25% over the past 5
years, and may have exceeded this record if funding constraints did not cage its'
3M average daily volume full loan disbursement potential. In the short run the bank can shift to high yielding
14,614,200
short-term micro lending like competitor BDMN has done, with the effect of
Major shareholders reinvesting income from loans being repaid.
Negara Rep. Indonesia 56.77%
Lenny Sugihat 0.00%
2008 2009 2010F 2011F 2012F
ROE (%) 26.65 26.81 25.16 22.88 20.75
ROA (%) 2.42 2.31 2.13 2.00 1.80
LDR (%) 75.97 76.88 83.27 84.65 84.94
PER (x) 30.5 24.9 22.2 18.7 16.3
PBV (x) 8.1 6.7 5.6 4.3 3.4
Source: HD Capital Estimates

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 ADARO ENERGY (ADRO IJ)
TP (12-mth): Rp3,200 - BUY

Yuganur Wijanarko
yuganur@hdx.co.id
(+62) 21 250 6337 ext. 2027
(+62) 21 250 6516 (Direct)
Coming on Strong
A crowd pleaser
We like ADRO with a 12-month TP of Rp.3,200, assuming a 2011F PER of 18x,
PBV of 4.4x. Our reasons are (1) Expectation of adjustment in higher selling prices
due to short-run coal constraints, (2) infrastructure development of coal production
and carrying to reduce costs, which may be a competitive advantage (3) Good
corporate governance and absence from media & tax scandals of the 2nd largest
market cap competitor (BUMI).

A coal story
Due to recent spike in coal above $105/ton which is here to stay, we can safely
project our FY11-12F average selling estimates (ASP) to US$76/ton (up from
recent average of $67/ton). This figure takes into account the one-year lag before
the ASP catches up with the spot price, the reason is that 2010 prices are lower that
Indonesia Equity Research
Mining (Coal) spot using 2009 fixed sale contracts.
Reuters ADRO.JK
Bloomberg ADRO IJ On the positive side, ASP may be further adjusted by 14% in 2011 (from $67 to
th
Priced by 28 December 2010 $76/ton), since the average selling prices is certainly higher than previous year. We
JCI @3,659.99 predict net profit to be impacted 220% to the upside in 2011.
12M hi/lo Rp2,650/1,700
Weather impact
12M potential target Rp3,200
±% potential +28% Coal production in 1H 2010 has suffered significantly from abnormal rainy
Target set on 29 Dec 10 conditions. Our view is that most coal producers have set their production targets
for 2010 too optimistically based on “normal weather patterns” and thus a deviation
Shares issued 31,985mn
Free float (est.) 44.45% of the usually rainfall projections has ruined most normal scenarios. Although Q4
2010-Q1 2011 is still regarded as the rainy season, we believe that the company's
Market cap Rp80,76bn
production target has already taken the normal weather effect pattern into account.
3M average daily volume
61,251,800
2008 2009 2010F 2011F 2012F
Major shareholders
Revenue (Rp) 18,093 26,938 25,322 32,918 41,148
PT Saranatoga Investa S 14.93%
PT Triputra Investindo Arya 13.34% EBITDA (Rp) 4,455 11,017 9,915 13,386 17,401
Net Profit (Rp) 887 4,531 2,583 5,682 8,352
EV/EBITDA (x) 18.3 7.1 8.9 5.5 3.4
Dividen Yield (%) - 1.0 0.7 1.5 2.1
PER (x) 115.4 22.6 39.6 18.0 12.3
PBV (x) 7.3 5.8 5.2 4.4 3.6

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 ASTRA INTERNATIONAL (ASII IJ)
TP (12-mth): Rp80,000 - BUY

Its' time to trade up

Picking up speed
We are optimistic on Astra International (ASII) outlook with a 12-month price target
of Rp.80.000 assuming 2011F PER 14.5x, PBV 3.9x, EPS growth of 11%, driven by
catalysts such as continued 2011 auto sales growth & improved contribution from
Yuganur Wijanarko
yuganur@hdx.co.id subsidiary units Astra Agro (AALI) & United Tractors (UNTR).
(+62) 21 250 6337 ext. 2027
(+62) 21 250 6516 (Direct)
A financing story
We view fear of decelerating auto sales growth from the government's plan to limit
subsidies to private car consumers & tax for additional new car ownership has
been exaggerated, since it may be offset by the reality that interest rates (which
affects availability of financing) are the most important factor in deciding the sales
trend. With the support of car financing from low interest rate environment, we
predict 2011F car sales to grow 13%. The theory is that as long as financing is
Indonesia Equity Research
Consumer (Automotive) available for a reasonable price, people still buy cars.
Reuters ASII.JK
Bloomberg ASII IJ Subsidiary contribution
th
Priced by 28 December 2010 Higher outlook for CPO and Coal prices may benefit subsidiaries AALI & UNTR,
JCI @3,659.99 with the Pama mine unit to receive future coal supplying contracts after its
12M hi/lo Rp60,750/32,750
becomes productive in 2011-2012. With coal prices expected to stay above
$100/ton next year, and CPO above US$900/ton, thus it may be safe to presume
12M potential target Rp80,000
±% potential +49% EBIT margins of 20% for UNTR and 35% for AALI.
Target set on 29 Dec 10
New kids on the block are not a threat
Shares issued 4,048mn
Free float (est.) 49.89% We believe that new comers from Nissan's “March” and Mercedes Benz's “Smart”
fuel efficiency vehicles are a non-existent threat to market share (56%), since the
Market cap Rp217,60bn
majority of Indonesian car buyers are into a whole different segment: family
3M average daily volume vehicles (MPV) such as Toyota “Avanza” and “Innova”. In addition the brand image
4,011,940
of Toyota is still firmly entrenched in the consumer.
Major shareholders
Jardine Cycle and Carriage Ltd 50.11% 2008 2009 2010F 2011F 2012F
Budi Setiadharma 0.02%
Sales (Rp) 97,064 98,526 128,084 144,735 163,550
EBITDA (Rp) 14,450 16,103 19,324 25,121 31,401
Net Profit (Rp) 9,191 10,040 12,550 13,805 16,152
EV/EBITDA (x) 15.1 13.4 11.2 8.6 6.9
Dividen Yield (%) 2.0 2.1 2.6 3.3 4.1
PER (x) 23.3 21.3 15.9 14.5 12.4
PBV (x) 6.5 5.4 4.3 3.9 3.5
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