Market Outlook

The Path of Recuperation

May 2020

Helmy Kristanto
Head of Equity Research

Danareksa Equity Research; T: (62-21)5091 4100; F: (62-21)2520 990; Jl. Jend. Sudirman Kav.44-46; Jakarta 10210-Indonesia
The 5 phases of Equity Market

Market Performance YTD 08 May 2020

1,500

6,300
Phase IV: Blended Crash
Indonesia confirmed Phase V: Economic stimulus stage
thousands of corona cases, Indonesian govt has released IDR405tn of 1,000
coupled with oil disputes in fiscal stimulus, coupled with more than
OPEC driving oil price down to IDR500tn of monetary quantitative easing
5,800
5-year low. to mitigate the covid impact 500

5,300 0
Phase I:
Phase III: World
The
Emergency on
start of -500
Corona
4,800 novel WHO declared
Covid-
world emergency
19 Phase II: Corona -1,000
and governments
Corona outbreak around the world
4,300 virus Coronavirus started to
found in widespread -1,500
quarantine
Wuhan, outside China: suspected people.
China From Japan to US
3,800 -2,000

02-Apr-20

09-Apr-20

16-Apr-20

23-Apr-20

30-Apr-20

07-May-20
02-Jan-20

09-Jan-20

16-Jan-20

23-Jan-20

30-Jan-20

06-Feb-20

13-Feb-20

20-Feb-20

27-Feb-20

05-Mar-20

12-Mar-20

19-Mar-20

26-Mar-20

Net Flow (IDRbn) JCI Index

- 2-
The 5 phases: Regional market impact

Regional Market Return

Source: Bloomberg

JCI has been moving in negative territory in 2020, from the phase 1 all the way to phase 4. Domestic specter such as Jiwasraya case has made
market liquidity to dried up, adding up more volatility in already weak market.. The worst performance was recorded in phase IV, whereby a
combination of domestic Corona virus case announcement and oil price meltdown, drove major sell-down. All big cap names across sector were
experienced heavy pressure. YTD, JCI down 37.5% to 3,938, the lowest since2013.

- 3-
The 5 phases: Sectoral impact

Sectoral Performance

Source: Bloomberg

Finance sector which was the best performing sector last year, also took a big hit YTD, although still better off compared to others. Commodity
sector such as Agri and Mining were the worst performing sectors, during the Phase 1 and II, while Consumer, Basic Industry and Miscelaneous were
down the most in phase III and IV.

- 4-
Fiscal and Monetary Response: Tactical and Targeted Measure

- 5-
 Huge Stimulus Support Globally

Top 20 Coronavirus Spending Packages Coronavirus Handout

Source: Gaikindo, AISI Source: United Tractors

Cement sales

In Total 193 countries has released stimulus packages,

amounting USD8tn, which translate to 10% of World GDP.

Indonesia total stimulus: IDR436tn (USD28b) – 2.5% of GDP.

- 6-
Monetary Response: Stepping up the Game

The government announced a social and economic stimulus amounting to IDR405.1tn in an effort to further curb the
detrimental impact of the Covid 19 outbreak. This stimulus is being directed toward 4 main areas, namely: healthcare,
social protection, tax incentives and a stimulus on micro loans, as well as to support the National Economy Recovery
program. These latest stimulus measures combine tactical and targeted measures, and will utilize expansion of the
budget deficit to widen fiscal room to deploy countercyclical measures.

Mitigating the economic impact. With the Covid-19 pandemic having a severe impact on the economy, the government
has deployed more stimulus and fiscal measures, significantly greater than in the previous stimulus.
• In total, the government will raise additional spending and financing of IDR405tn in the 2020 budget, raising its deficit
to 5%.
• The stimulus addresses 4 main areas: healthcare (IDR75tn), the social safety net (IDR110tn), tax incentives & SME
stimulus (IDR70tn), and supporting economic recuperation programs (IDR150tn), including loan restructuring,
guarantees and SMEs financing.

Increasing healthcare funding and protection at the grassroots level. The key short-term measure is to curb the rising
number of new Covid-19 cases, as this will ultimately dictate how quickly economic activity will normalise.
• The stimulus provides a greater allocation for medical worker protection, medical equipment, the upgrade of 132
hospitals, as well as doctor & nurse incentives and benefits.
• Considerable disruption to economic activity, the nation’s grassroots will ultimately bear the largest burden, especially
considering potential layoffs in certain sectors. As such, stimulus to address weaker purchasing power and ensuring
that people can meet their basic needs is crucuial by providing more cash assistance as well as reducing living costs.
• The government will provide monthly payments under the Family Hope Program to 10m families starting in April,
higher grocery card payment of IDR200k/month (up 33%) to 20m recipients, double the size of the Pre-employment
Card program to IDR20tn for 5.6m informal workers and micro and small businesses. In addition, the poorest will also
receive a waiver and discounts on electricity bills.

- 7-
Economic stimulus distribution mechanism
General mechanism on social assistance distribution
 The social assistance stimulus for beneficiaries who have been included in the programs from government such as Family
Hope Program, Pre-employment card, and daily groceries cards, are distributed using banks as the main distributor.
 Meanwhile, social assistance is distributed by regional governments for informal sectors. In this case, banks role as an
intermediary between central government and regional governments to accelerate social assistance distribution.
 Effective social assistance distribution heavily relies on the validity of beneficiaries data in the Ministry of Social Affairs and
the related regional governments. According to the Ministry of Finance, the recent data on social assistance beneficiaries
only capture 20% the lowest income population, while actually the social assistance program is dedicated for 40% lowest
income population.
 Direct cash transfer and daily groceries assistance have potential to trigger social crowd and not inline with the wide-scale
social distancing program urged by the government.
 Cashless social assistance distribution, either from bank accounts or e-money will guarantee a better-targeted distribution
and avoid manipulations from irresponsible parties.
 Stimulus distribution for informal sector can be delivered by individual basis. However, this will need a longer time to
distribute.

Role and position of banking sector

 Banks as the strategic sector will assess which segments are appropriate to get the stimulus, according to their respective
capacity and business focus.
 A massive intervention on banking sectors will undermine investor’s confidence and leads to diminish investment climate.
Investor’s confidence needs to be maintained in order to offer rebound potential in investment after covid-19.
 Banks help the governments to distribute social assistance, by assuming a good validity of the beneficiaries data.
Distribution of non-cash subsidies for remote areas will use branch offices of the banks according to the predetermined
schedule to prevent transmission of covid-19.
 Banks help to reduce moral hazard and fraud risk in distributing social assistance.

- 8-
 Healthcare and social safety net

Source: President Jokowi’s Press Conference

- 9-
 Tax incentives and budget reallocation

Source: President Jokowi’s Press Conference

- 10 -
 Financial system measures

Source: President Jokowi’s Press Conference

- 11 -
 Fresh Catalyst: Reduction in Corporate tax impact

Corporate income tax impact on earnings

Source: Company, Danareksa Sekuritas

Faster corporate tax reduction in 2020. The stimulus does not only support low class incomes, but also corporates in an effort to avoid
pernicious tail risk in the form of rising unemployment. The stimulus mainly covers tax incentives, including faster implementation of the
corporate tax rate cut to 22% from 25% this year. While stimulus 1 and 2 only target selective sectors, the corporate tax rate cut will be
enjoyed by a greater number of sectors aside from property and construction due to their final tax regime. Based on our calculation, for
every 5% decline in the tax rate, earnings will increase by 6.3%. Our base case of a negative 5% earnings decline this year does not take
into account the tax cut measures.

- 12 -
 Budget 2020: Realigning and Resetting Priorities

To widen fiscal room by enlarging the deficit has enabled the government to deploy omnipotent measures to
safeguard the economy. While the revenues target is adjusted downwards by 21%, the spending budget remains
elevated through realigning priority objectives, with more measures taken to cater to the imminent needs of
healthcare spending at this stage. With lower revenues target, budget financing will mainly be sourced from debt
instruments, partly through the issuance of IDR450tn of Pandemic Bonds.

Larger deficit to safeguard the economy. In an effort to further curb the detrimental impact of the Covid 19 outbreak, the government
announced a large IDR405tn stimulus focusing on 4 main areas, namely: healthcare, social protection, tax incentives and micro loan
stimulus, as well as to support the National Economy Recovery program.
• These latest stimulus measures mainly utilize expansion of the budget deficit to widen fiscal room through a combination of additional
spending as well as the continued practice of prudent fiscal management by realigning priority spending.
• In the revised 2020 budget, the government revenues target drops 21% from the previous figure to IDRIDR1,760.9tn, while keeping
spending elevated, up 2.9% to IDR2,613.8tn.
• As a result, the budget deficit is up 177% to IDR852tn, with the deficit to GDP ratio widening to 5.07% from 1.76% previously.

Toning down the revenues target. With a dim economic outlook this year, tax revenues, the main source of govt revenue, will be
significantly affected.
• Overall tax revenues now set at IDR1,462tn, or down 21.6% from the previous target. The tax to revenues ratio is slightly lower at 83%
vs 84% previously.
• Income tax saw the biggest adjustment, down 24% vs the previous target, followed by VAT (-22.8%), while excise tax saw a minimal
alteration of only 4%. Corporate tax (Pph 25), which is the largest contributor to income tax, is reduced by 28%, partly to accommodate
the planned corporate tax rate reduction to 22% this year.
• Meanwhile, the individual income tax (Pph21) target is -15%. (More details in exhibit 2).
• On the other hand, within non-tax revenue we note that dividend revenue target is raised by 33% to IDR65tn.

- 13 -
 2020 Budget Revision
2020 Budget Revision Revision on Tax Revenue

Revision in Non-Tax Revenue

Source: President Regulation No. 54/2020

- 14 -
Budget rationalization in Ministries and Institutions
Budget rationalization
Ministries/Institutions
Budget 2020 Revised Budget
%change
Realigning and strengthening new priority spending.

Ministry of Research and Technology

(IDRtn)

42.2
2020 (IDRtn)

2.5 -94.1
• Key points in the various changes in government
Ministry of National Development 1.8 1.4 -23.8 spending:
Ministry of Cooperatives and small-medium entreprises 1.0 0.7 -23.6
Ministry of Home Affairs 3.4 2.7 -23.0 1. More centralised spending structure with the
Ministry of Energy and Mineral Resource
Ministry of Trade
9.7
3.6
7.5
2.8
-22.7
-21.6
central government budget raised by 10% while
Ministry of Manpower
Ministry of Public Works and Housing
6.9
120.2
5.5
95.7
-20.5
-20.4
the Regional Transfer & Village Funds budget is
Ministry of Industry 3.0 2.4 -19.5 cut by 11%;
Ministry of State Apparatus and Bureaucratic Reform 0.3 0.2 -19.0
Ministry of Marine and Fishery 6.4 5.3 -17.8 2. Within the Central Govt spending budget, there
Ministry of Agriculture
Ministry of Environment and Forestry
21.1
9.3
17.4
7.7
-17.2
-17.0 are only two Ministries with larger budget
Ministry of Youths and Sports
Attorney General
1.7
7.1
1.5
6.0
-15.5
-14.7
allocations, namely Health and Education; by
Ministry of Villages and Underdeveloped Regions 3.5 3.0 -14.7 contrast, the Research & Technology Ministry
Ministry of Transportation 43.1 37.0 -14.2
Ministry of State Secretary 2.0 1.8 -10.5 budget is reduced by 94%;
Ministry of Foreign Affairs 8.7 7.8 -10.0
Ministry of Women Empowerment and Childs Protection 0.3 0.2 -10.0 3. The proxy to infra spending, Public Works &
Ministry of Spatial
Ministry of State-owned Entreprises
10.1
0.3
9.2
0.3
-9.0
-8.8
Housing Ministry, saw its budget reduced by
Ministry of Information and Technology 5.6 5.1 -8.5 20%, while the Transportation Ministry budget
Police of Republic of Indonesia 104.7 96.1 -8.2
Ministry of Defense 131.2 122.4 -6.7 is down 14%, and
Ministry of Finance 43.5 40.9 -5.9
Coordinating Ministry in Politics, Law, and Security 0.3 0.3 -4.9 4. New spending on other Investment of
Ministry of Tourism and Creative Economy
People's Consultative Assembly (MPR)
4.5
0.6
4.3
0.6
-4.6
-4.6
IDR168tn, mainly comprising of a IDR150tn
People's Representative Council (DPR)
Supreme Court (MA)
5.1
10.6
4.9
10.1
-4.3
-4.3
allocation for the National Economy Recovery
Ministry of Religion 65.1 62.4 -4.1 program.
Coordinating Ministry of Human Development and Culture 0.2 0.2 -4.0
Coordinating Ministry in Economics 0.4 0.4 -3.9
Regional Representative Board (DPD) 0.9 0.9 -3.5
Ministry of Social 62.8 60.7 -3.3
Ministry of Law and Human Rights 13.8 13.4 -3.2
Audit Board of Republic of Indonesia (BPK) 3.5 3.5 -2.3
Ministry of Health 57.4 76.5 33.4
Ministry of Education and Culture 36.3 70.7 94.8

- 15 -
 Budget rationalization in Ministries and Institutions

Budget financing scheme revision

Funding a larger deficit.
With a lower revenues target, budget financing will mainly be
sourced from debt instruments:
1. IDR160tn higher sovereign bonds (net) target of IDR549tn
(up 41%), and
2. 2. Pandemic Bonds of IDR450tn.

The issuance of Government Regulation in Lieu of Acts (Perppu)

No 1/2020 will also enable Bank Indonesia to purchase
government bonds in the primary market, a major change in
system adoption, which we believe is opportune and crucial in
this period.

Main risk for Central Bank QE measures would be larger money

in circulation. This would lead to two detrimental outlook:
1. Weaker currency – which would lead to a more volatile
Rupiah
2. Inflationary pressure on larger liquidity. However this risk
would be minimal in our view, as demand is reasonably
weak at this stage. Any pressure on inflation would come
from cost-push rather than demand-pull mechanism.
Source: President Regulation No. 54/2020

- 16 -
Bank Indonesia: Purchase of govt bond via primary market

Source: Bank Indonesia

Regulation of Ministry of Finance: PMK. No.38 about Public Finance Policy
and PMK. No. 39 about Mechanism of Budget Revision 2020

Budget deficit policy Budget financing Budget reallocation

Allow to exceed 3% of Remaining balance of Goods expenditures:

GDP until 2022 budget (SAL) business trips, meeting
State budget 2023 will Endowment fund of expenses, and non-
follow the traditional education operational expenses
threshold of 3% of GDP State-controlled funds Capital spending: non-
In order to revise state Funds from reduction of priority projects and for
budget 2020 in relation state ownership in the those that can be
to mitigate covid-19, the State-owned enterprises postponed in the next
government does not (SOEs) years (multi-years
need to get approval projects).
from the Parliaments
(DPR) for the following
decisions: additional
proceeds in the foreign
loan, and budget
reallocation

- 18 -
PMK. No.38: Mechanism of budget financing

Government bond
 The government will issue conventional and sharia bonds
 The bonds can be purchased by: Central Bank, state-owned enterprises, corporations, and
retails
 The govt bonds issued can be bought via: competitive and non-competitive offers and
private placement

State ownership reduction in State-Owned Enterprises (SOEs)

 The state capital (PMN) has not been used as of 1 March 2020
 There will be no halt in productions or delayed in the projects due to reduction in the govt’s
stake.
 Other criteria to be coordinated with the Ministry of SOEs.

Foreign loan
 Multilateral credit
 Bilateral credit
 Foreign companies loan

- 19 -
Regulation of Ministry of Finance: PMK. No.40 about Revision in Village
Fund Management Regulation

New mechanism of village

New mechanism of village
fund distribution
Stage I: the earliest in
January, 40% of the total
fund
Stage II: the earliest in
March, 40% of the fund
Stage III: the earliest in
June (previously in July),
20% of the fund
fund distribution – Desa
Mandiri
Stage I: the earliest in
January, 60% of the total
fund
Stage II: the earliest in
March (previously in July),
40% of the fund

- 20 -
PMK. No.40: Important points of village fund distribution

Requirements and amount

 Financially incapable families who live in the relevant villages.
 Not included in the social assistance programs such as Family Hope Program (PKH), daily
groceries cards, and pre-employment cards.
 Each family will get IDR600,000/month for 3 months.
Fund allocation
 The fund for BLT is allocated maximum of 35% of the village fund from the government.
 In case the fund is not sufficient, the village government may use more than the
threshold by approvals from regional government (Head of Regency - “Bupati”, and City
Mayor)

Sanctions
 In case that the village government does not execute the village fund distribution, the
central government will halt distributing stage III village fund for current year.
 And for “Desa Mandiri”, there will be 50% reduction in the stage II village fund
distribution in the next year

- 21 -
Coronavirus impacts: Pressure in multiple fronts

- 22 -
Rising Jobless Claim in US

Source: Bureau of Labor Statistics

Unprecedented fall of PMI in all region

PMI Markit Manufacturing – US, Eurozone, China & Japan

PMI Markit Service – US, Eurozone, China & Japan

- 24 -
1Q20 GDP: The Onset of Trend

GDP – quarter y-y (%) GDP breakdown by expenditure – 1Q20

5.5 5.21 5.19 5.27

5.17 5.18 Inventory Net Export
5.15
5.06 5.06 5.07 5.05 5.02 5.02 Statistical
4.94
5.03
4.94 5.01 5.01 changes 0.1%
5.0
4.83
4.74 4.78 dispcrepancy
2.2%
0.1%
4.5
Gross fixed
4.0 capital
formation
3.5 31.8%
Consumption
3.0 58.0%
2.97
Government
2.5 expenditure Consumption
6.5% of NPISHs
2.0
1.3%

Source: Central Agency on Statistics of Indonesia (BPS) Source: Central Agency on Statistics of Indonesia (BPS)

Sub 3% growth, weak consumption and GFCF. The ugly consequence of economic inactivity during the pandemic started to emerge,
affecting the economy in 1Q20, before further crimping growth in 2Q20.
• GDP in 1Q20 grew a mere 2.97% y-y - below expectation, while it contracted 2.41% q-q.
• The two main contributors, consumption and Gross Fixed Capital Formation (CFCF), were significantly weaker especially the latter,
which shrank 7.89% q-q and booked mundane growth of only 1.7% y-y.
• While initially dubbed as the growth driver this year, due to larger infra spending, the higher capex cycle, and higher FDI, the situation
is now reversed as those 3 supporting factors will need a more stable environment as a prerequisite to develop.
• Consumption also saw sub 3% growth y-y in 1Q20, partly affected by front-loaded spending on social assistance in 1H19, which set the
base higher last year.

- 25 -
More moderation in 2Q20 on wider scale of social distancing measure

Growth contributor by Expenditure – 1Q20 Consumption and Investment growth (YoY%)

6
8
5 5.07 4.97 7
4 1.65 1.41
6
3 2.97 5
0.56
2 2.76 2.71 4
1.56
1 3
0.66 0.85 0.85
0 2
1Q19 4Q19 1Q20 1

Jun-15

Dec-15

Jun-16

Dec-16

Jun-17

Dec-17

Jun-18

Dec-18

Jun-19

Dec-19
Mar-15

Sep-15

Mar-16

Sep-16

Mar-17

Sep-17

Mar-18

Sep-18

Mar-19

Sep-19

Mar-20
Others Household Consumption
Gross capital formation GDP growth YoY
Gross capital formation (LHS) Household consumption (RHS)

Source: Central Agency on Statistics of Indonesia (BPS) Source: Central Agency on Statistics of Indonesia (BPS)

• With more extensive social distancing measures in 2Q20 affecting the operations of multiple sectors, consumption will remain
subdued this quarter.
• Support for consumption and a well-executed stimulus and social assistance spending are timely, which undoubtedly face
considerable challenges on the execution front, although they are still achievable.
• The recent change in budget allocation saw a more centralised spending structure with the central government budget raised by
10% while the Regional Transfer & Village Funds budget was cut by 11%.

- 26 -
 Snippets from the Sectoral Trend

Growth contributor by sector – 1Q20 Growth Y-Y by Sector – 1Q20

Forestry and
fishery
12.8%

Others Manufacturing
43.3% 20.0%

Trade
Construction 13.2%
10.7%

Source: Central Agency on Statistics of Indonesia (BPS) Source: Central Agency on Statistics of Indonesia (BPS)

• Among the 3 biggest contributors to GDP, the agriculture sector was

visibly strong on a sequential basis, up 9.5% q-q especially as it
bounced back post a weak production period affected by the
prolonged dry season. However, on a yearly basis, growth was
mostly flat, with manufacturing and wholesale posting growth of
2.06% and 1.6%. Manufacturing and wholesale will take a drastic
turn in 2Q20, we believe.
• The 3 strongest sectors were the financial sector (+10.7% y-y),
telecommunications (+9.8%) and Health Services (10.4%), of which
the latter two will remain robust. Source: Central Agency on Statistics of Indonesia (BPS)

- 27 -
 Domestic sector

Auto Sales Heavy Equipment sales (Komatsu)

700,000 Car Sales (RHS) Motorcycle Sales (LHS) 120,000 600

600,000 100,000 500
500,000 400
80,000
400,000
60,000 300
300,000
40,000 200
200,000
20,000 100
100,000
0
- -

May-18

Nov-18

May-19

Nov-19
Jan-18

Mar-18

Jul-18

Sep-18

Jan-19

Mar-19

Jul-19

Sep-19

Jan-20

Mar-20
Jul-19
Apr-19

Jun-19

Aug-19

Oct-19

Dec-19
May-19

Nov-19
Jan-19
Feb-19
Mar-19

Sep-19

Jan-20
Feb-20
Mar-20
Source: Gaikindo, AISI Source: United Tractors

Retail sales (ACES) Cement sales

900 8
850
7
800
750 6
700 5
650
4
600
550 3
Jun-19

Jun-19
Jul-19

Jul-19
Apr-19

Aug-19

Oct-19

Dec-19

Apr-19

Aug-19

Oct-19

Dec-19
May-19

Nov-19

May-19

Nov-19
Jan-19

Feb-19

Mar-19

Sep-19

Jan-20

Feb-20

Mar-20

Jan-19

Feb-19

Mar-19

Sep-19

Jan-20

Feb-20

Mar-20
Source: Ace Hardware Source: Semen Indonesia (SMGR)

- 28 -
Progress on social assistance and social distancing
Social assistance distributed so far:
• IDR16tn of Family Hope Program (PKH), including an additional 800k families impacted by covid-19.
• Daily groceries assistance of IDR14tn will be distributed until May 2020.
• Education assistance has also been distributed via the Smart Indonesian Card reaching IDR12.3bn for 16,300 secondary school
students and IDR61bn under the Bidikmisi program for college students.
• For primary and secondary Islamic schools, the government has distributed IDR182.3bn via Smart Indonesian Cards covering 530,591
students.
• For pre-employment cards, 4.3mn people registered in the program.
Next social assistance agenda:
• The government will also distribute daily groceries assistance for 1.3mn families in the Jabodetabek area
• The assistance will be distributed in three months: April, May, and June, consisting of 10 items such as instant noodles, cornet, canned
fish, milk, cooking oil, 10-kg of rice, soap, chillies, and soy sauce, with the equivalent amount of IDR600k/family.
Progress on social distancing program: As of 11 May 2020 more regions approved to conduct wide-scale social distancing program
(PSBB), and most of them start to extend the PSBB to end of May 2020:
• Jakarta (10-23 April 2020, and extended to 22 May 2020)
• West Sumatera (22 April-5 May 2020, extended to 29 May 2020)
• Bogor, Depok, Bekasi (15-28 April 2020, some are extended to end of May 2020)
• Tangerang (18 April-3 May 2020, extenede to 17 May 2020)
• Pekanbaru City (17-30 April 2020, extended to 14 May 2020)
• Makassar City (24 April-7 May 2020, extended to 21 May 2020)
• Tegal (23 April-23 May 2020, but started to relax PSBB in mid-May 2020)
• Gorontalo (6-19 May 2020)
• Banjarmasin (8-21 May 2020)
• Tarakan (26 April-30 May 2020)
• Surabaya area (28 April-25 May 2020)

- 29 -
Study on Covid-19 trend: The Peak and The End of Pandemic

- 30 -
 Covid-19 Update: Slower confirmed case growth amid delayed growth of test

Total case covid-19 in Indonesia Total covid-19 test conducted by the government

16,000 600 120,000 8,000

14,000 7,000
500
100,000
12,000
6,000
400
10,000 80,000
5,000
8,000 300

6,000 60,000 4,000

200
4,000 3,000
40,000
100
2,000
2,000
- - 20,000
1,000
2-Mar-20

9-Mar-20

13-Apr-20

20-Apr-20

27-Apr-20
6-Apr-20
16-Mar-20

23-Mar-20

30-Mar-20

4-May-20

- -
14-Feb-20 14-Mar-20 14-Apr-20
Daily case (RHS) Total case (LHS)
Daily tests Total tests

Source: Ministry of Health Source: Ministry of Health

As daily numbers of positive covid-19 cases keep increasing, the government has started to distribute social assistance and intensify mass
testing across the nation. On 10 May, the confirmed number of positive covid-19 cases reached 14,032 with 387 daily cases. The
government has conducted 113,452 tests as of 10 May, or 420 tests per 1,000,000 population. We see that the higher proportion of
confirmed positive covid-19 cases are mostly found in regions with higher population density and non-permanent population mobility.

- 31 -
 Covid-19 Update: Lower fatality rate, higher recovery rate

Fatality rate vs Recovery rate Death rate trend in Indonesia

25% 1200 10.0%

9.0%
20% 1000
8.0%
7.0%
800
15%
6.0%

600 5.0%
10%
4.0%
400
3.0%
5%
2.0%
200
0% 1.0%
0 0.0%

Recovery rate Fatality rate

Death Daily death Fatality rate (RHS)

Source: Ministry of Health Source: Ministry of Health

Flattish fatality rate and slower daily case growth. On 10 May, Indonesia confirmed 14,032 positive cases of covid-19, with a 19.2% recovery rate and
6.9% fatality rate. On a weekly basis, the average growth of daily cases in the first week of May is 3.36%, and has been stable from the last week of
April at 3.38%. This stable growth is in-line with the slower daily growth of people being tested from 6% in the last week of April to only 5% in the first
week of May. As of 10 May, the maximum daily tests carried out by the government reached 7,111 tests on 12 April, and unfortunately this figure
means that the government has not met the 10,000 daily tests target instructed by the President last week. Meanwhile, as the growth in the number of
confirmed cases is slower, we also note the increasing trend in the recovery rate from ~15% in the last week of April to ~19% at the first week of May,
Source: Bloomberg
and lower growth in the fatality rate from 8% to 7% in the period.

- 32 -
Study on Covid-19 Trend

β ϒ
Suspectible Infected Recovered
(S) (I) (R)

• In order to estimate the end of covid-19 outbreak in Indonesia, we develop our

independent projection using SIR Model, an epidemic model that has been widely used
by the epidemiologists recently.
• This model attempts to capture infected people from the infection rate (denoted as
beta, β), and also recovered people from the recovery rate (denoted as gamma,ϒ).
• Beta is derived from the product of transmission rate and contact rate. Transmission
rate is the speed of the disease to move from one person to other(s), while the contact
rate is the expected people have a close physical interaction with one person in a day.
• Recovery rate, or gamma, is derived from an inverse days of incubation period.

- 33 -
Assumptions of SIR Model
Early suspectible (So)
• We assume 280,000 people will be
suspected (not infected yet) from the
covid-19. This number is derived
from the maximum bed capacity of
all hospitals in Indonesia recently.
• Higher than 280,000 people means
that the hospitals cannot
accomodate the patients and it
needs to be explained by other
model.
• So far other researches use the total
population as the estimate which,
we believe that by using this
amount, the maximum infected
people will exceed 280,000 people.
Initial infected person (Io) and
Recovery rate (gamma)
infection rate
• We use 2 person as the initial • We assumed that by using 14 days of
infected person (Io), as the first incubation period, then the recovery
positive cases announced by Jokowi rate will be 1/14 = 0.07
in 2 March 2020 were 2 people. • The incubation days is based on
• We use transmission rate of 1.68% as WHO estimate of 2-14 days of
our base case scenario until 2% as incubation days. Considering the mid
the worse. This is derived from the to low healthcare facilities in
recent researches that use around Indonesia, we use the maximum
1.5-3%. incubation days of 14 days.
• We assumed the contact rate to be
14 in our base case to 20 as the
worst. This means that in a day, one
person can have a physical contact
with 14-20 people.
• As mentioned earlier, the infection
rate is the product of transmission
rate and contact rate, hence come up
with 0.24 as the base scenario.
- 34 -
 Base case of covid-19 projection

300,000
Theoretical Ending:
Mid-Sept 2020

250,000
Assumption:
• Govt still maintains a social distancing program until
August 2020
200,000
• There are no violations in the social distancing (such
as homecoming for Lebaran, etc)
Peak cumulative cases in • Continuation in rapid and swab tests by the
150,000 mid-May 2020, at 100,000 government
confirmed positive cases

100,000

Start to reach almost 0

50,000
case in 10 Sept 2020

-
13-Apr-20

20-Apr-20

27-Apr-20

15-Jun-20

22-Jun-20

29-Jun-20
6-Apr-20

11-May-20

18-May-20

25-May-20

1-Jun-20

8-Jun-20
4-May-20
2-Mar-20

9-Mar-20

10-Aug-20

17-Aug-20

24-Aug-20

31-Aug-20

7-Sep-20
13-Jul-20

20-Jul-20

27-Jul-20

3-Aug-20
16-Mar-20

23-Mar-20

30-Mar-20

6-Jul-20

14-Sep-20
Susceptible Infected Recovered

Source: Danareksa Sekuritas estimates

- 35 -
 Pessimistic case of covid-19 projection

300,000
Theoretical Ending:
Late Oct 2020
Assumption:
250,000 • There are many violations in the social distancing
(such as homecoming for Lebaran, etc)
• Rapid and swab tests are not effective
Peak cumulative case in
200,000
Mid-April 2020, at more
than 180,000 confirmed
positive cases
150,000

100,000

50,000
Start to reach almost 0
case in Mid-Sept 2020
-
2-Mar-20

9-Mar-20

13-Apr-20

20-Apr-20

27-Apr-20

15-Jun-20

22-Jun-20

29-Jun-20

10-Aug-20

17-Aug-20

24-Aug-20

31-Aug-20

7-Sep-20
6-Apr-20

11-May-20

18-May-20

25-May-20

1-Jun-20

8-Jun-20

3-Aug-20
16-Mar-20

23-Mar-20

30-Mar-20

4-May-20

14-Sep-20
13-Jul-20

20-Jul-20

27-Jul-20
6-Jul-20
Susceptible Infected Recovered

Source: Danareksa Sekuritas estimates

- 36 -
 Optimistic case of covid-19 projection
Theoretical Ending:
300,000
Assumption: Early Sept 2020
• Social distancing program is effective, no people go
outside the city
250,000
• Rapid and swab tests are conducted massive across
Indonesia
• Better healthcare facilities (vaccines and treatment
200,000 have already available in the market)

150,000

100,000

Peak cumulative case in

50,000
early June 2020, around
40,000 confirmed positive Start to reach almost 0
cases case in Mid-August 2020
-
2-Mar-20

9-Mar-20

13-Apr-20

20-Apr-20

27-Apr-20

15-Jun-20

22-Jun-20

29-Jun-20

10-Aug-20

17-Aug-20

24-Aug-20

31-Aug-20

7-Sep-20
6-Apr-20

11-May-20

18-May-20

25-May-20

1-Jun-20

8-Jun-20

3-Aug-20
16-Mar-20

23-Mar-20

30-Mar-20

4-May-20

14-Sep-20
13-Jul-20

20-Jul-20

27-Jul-20
6-Jul-20
Susceptible Infected Recovered

Source: Danareksa Sekuritas estimates

- 37 -
Other projections of covid-19

Source: Various Media and respective research

Average peak cumulative cases: 268,072 cases

Average peak daily case: 15,745 daily cases
Range of peak daily case date: 19-Apr to 03-May-2020
Range of end case date: 21-Jun to 31-July-2020

- 38 -
Path of Normalization: A crucial stage

- 39 -
Race for the panacea

Future vaccines:
• Johnson & Johnson: aims to produce 600-900 millions doses of vaccines by the end of the first quarter of 2021
• Moderna & Pfizer: start to test vaccines on patients this summer.
Future treatment:
• Gilead science: recently experimented with remdesivir as a potential drug for covid-19.
• There are 125 people enrolled for the trial in a severe condition, and there were rapid recoveries in fever and respiratory symptoms.
• This promising result has fuelled demand for the drug and the company promised to provide the treatment for more than 500,000
patients in October and another 500,000 patients in the end of 2020.
• Other companies such as Regeneron from the UK and Sanofi from France are also working together on the arthiris drug.

- 40 -
Regional market: Daily case vs index

China Hong Kong

16,000 3,200
70 29,000

14,000
3,100 60 28,000

12,000
27,000
50
3,000
10,000
26,000
40
8,000 2,900
25,000
30
6,000 24,000
2,800
20
4,000 23,000

2,700
2,000 10 22,000

0 2,600 0 21,000
31-Dec-19

9-Feb-20

19-Apr-20

29-Apr-20

2-Mar-20

9-Mar-20

13-Apr-20

20-Apr-20

27-Apr-20
9-Apr-20

6-Apr-20
10-Jan-20

20-Jan-20

30-Jan-20

19-Feb-20

29-Feb-20

10-Mar-20

20-Mar-20

30-Mar-20

17-Feb-20

24-Feb-20

16-Mar-20

23-Mar-20

30-Mar-20

4-May-20
Daily case (LHS) SHCOMP Index (RHS) Daily case (LHS) HSI Index (RHS)

Source: SUTD Innovation lab Source: SUTD Innovation lab

- 41 -
Regional market: Daily case vs index

South Korea Germany

800 30,000 7,000 15,000

700 29,000
6,000 14,000

28,000
600
5,000 13,000
27,000
500
4,000 12,000
26,000
400
25,000 3,000 11,000
300
24,000
2,000 10,000
200
23,000

1,000 9,000
100 22,000

- 21,000 - 8,000
31-Dec-19 31-Jan-20 29-Feb-20 31-Mar-20 30-Apr-20 2-Jan-20 2-Feb-20 2-Mar-20 2-Apr-20 2-May-20

Daily case (LHS) KOSPI Index (RHS) Daily case (LHS) DAX Index (RHS)

Source: SUTD Innovation lab Source: SUTD Innovation lab

- 42 -
Regional market: Daily case vs index

United Kingdom United States

7,000 7,900 40,000 3,600

35,000
6,000 3,400
7,400

30,000
5,000 3,200
6,900
25,000
4,000 3,000

6,400 20,000

3,000 2,800
15,000
5,900
2,000 2,600
10,000

5,400
1,000 2,400
5,000

0 4,900 0 2,200
31-Dec-19 31-Jan-20 29-Feb-20 31-Mar-20 30-Apr-20 31-Dec-19 31-Jan-20 29-Feb-20 31-Mar-20 30-Apr-20

Daily case (RHS) UKX Index (LHS) Daily case (RHS) SPX Index (LHS)

Source: SUTD Innovation lab Source: SUTD Innovation lab

- 43 -
Some countries plan to ease the lockdown

Source: Bank Indonesia

Stages of economic recovery
Phase I (1 June)
 Industry and service
for B2B will be running
with social distancing
and using body
protector.
 Shops, market, and
mall will not be
operational yet, except
the body protectors
sellers.
 Healthcare sector: full
operational.
 Outdoor activities:: still
prohibit crowds, and
not allowed to do
exercise outdoor.
Source: Coordinating Ministry of Economics
Phase II: (8 Phase III: (15 Phase IV: (6 Phase 5: (20 and
June) June) July) 27 July)
 Shops, market, and  Shops, market, and  Economic activities are  All economic activities
mall will be mall will be opened in stages are expected back to
operational by operational by including for bar, café, normal
maintaining social maintaining social restaurants.
distancing program. distancing program.  Continued evaluation
The barbers, salon, Barbers, salon, spa, etc  Outdoor activities are until vaccines are
spa, etc that need are partly operational allowed available in the
physical interactions (with strict social market.
 Travelling outside the
are not allowed yet to distancing mechanism) city is allowed with
be operational
 Culture: museum and some restrictions.
 Outdoor activities:: still shows are operational  Massive religious
prohibit crowds, and but with strict social
activities are allowed
not allowed to do distancing measures. but restricted.
exercise outdoor.
 Education: schools are  Still restrictive on
opened using class-
mass-scale activities
shift system.
Assessment on 3 main risks

- 46 -
Health Screening

The Covid-19 outbreak has resulted in a shock wave of volatility, both in the capital and forex markets. To precisely quantify the repercussions of
Covid-19 in the event of an inactive economy is challenging, and will largely depend on the speediness to end the outbreak. At this stage, we try to
assess the 3 main risks: the Covid-19 impact, the currency swing, and delinquency risk, to identify which sectors are better equipped to withstand
the adversity. Consumer, Telcos, Towers, Cigarettes, Poultry and Media will fare better than the others. Government efforts to combat the
outbreak coupled with bold coherent monetary and fiscal measures, will eventually dictate the speed of economic recuperation, once the outbreak
subsides.

Assessing the impact on 3 fronts. The proliferation of the Covid-19 outbreak continues to depress the growth outlook, both globally and domestically.
In this report, we exercise risk potential on 3 main fronts: the Covid-19 impact, currency swing and interest servicing capability;
1.Covid-19 impact: we assess potential disruption to the overall business process, from raw materials, manufacturing process, and distribution as well
as overall supply demand balance. Based on our study, while most companies can mitigate the first phase disruption in the supply chain, by sourcing
other raw materials outside China, the impact from Covid-19 on the global and domestic economy would be the biggest specter at this stage. Retail and
commodity sector will be the hardest hit on less consumer activity and weaker growth in the medium term.
2. Currency Swing: While Central Bank has been firm in efforts to pursue de-dollarization in the economy, Indonesia’s dependency toward raw
materials imports is still the main susceptible factor for a swing in the currency trend. As such, considerable IDR weakening could lead to escalation of
production costs and potential costs overrun in certain high capex projects such as infra projects. IDR weakening would also impact corporate earnings
through operation currency mismatch and /or forex debt translation. The sectors which have high import content costs are the consumer sector,
pharmaceuticals, poultry and high-end retailers. By contrast, exporters such as commodities and heavy equipment would tend to benefit, ceteris
paribus.
3.Delinquency Risk: Multiple pressures on supply chains, demand, and the currency would undoubtedly lead to slower economic growth, and hence,
lower corporate profitability. The risk in this aspect would emerge if corporate cash flow is not able to meet interest payments on the debt, and this
would lead to multiple risks across sectors. Based on our assessment, the risk of companies failing to make interest payments is still remote at this
juncture, especially with rising support on both the monetary and fiscal front.

Having assessed those 3 risks factors, we prefer sectors which have resilience in those parameters and they are: Consumer, Telecoms and Towers,
Cigarette, Poultry and Media. Our top down and bottom up assessment revealed to index target of 5,650, which provide 43% potential upside from
current level. Our 5 top picks are BBCA, TLKM, ICBP, UNVR and GGRM.

Speedy actions, targeted and supportive measures are imperative. To limit the Covid-19 outbreak the government has imported necessary drugs and
medical equipment, boosted the number of rapid tests for early detection and also set up a temporary hospital. Since the onset of outbreak, several
policy responses have been released, both monetary and fiscal, with the ultimate goal of reducing the prolonged impact on economic growth.

- 47 -
Risk 1: Covid-19 related impact

Regarding the Covid-19 impact, we assess potential disruption to the overall business process, from raw materials, the manufacturing process, and
distribution as well as the overall supply demand balance. Based on our study, while most companies can mitigate the first phase disruption in the supply
chain, by sourcing other raw materials outside China, the impact from Covid-19 on the global and domestic economy would be the biggest spectre at this
stage.

The social distancing program as well as encouragement to Work From Home (WFH), will considerably reduce traffic, and will affect non-essential economic
activity. In this case, the retail sector will be the most negatively affected, with customer traffic down considerably. During early domestic infections
spreadout, our survey of 2 malls indicates a sub 20% - 50% drop in mall traffic even on Sunday, especially pronounced in Kota Kasablanka. If this continues
over the festive period, retailers will be hit hard as the quarter contributed 32.5% of the sales for the retailers under our coverage over the past 2 years.
Several mall in Jakarta has started to reduce operation time, as well as several tenant has decide to temporary closed theiroperation.

- 48 -
 Covid-19 impacts to sectors

Commodity: We foresee anemic coal prices this year, noting the gradual recovery in Chinese domestic production coupled with the rise of the Covid-19 pandemic,
which is impacting economic activities across the world. China has started to limit coal imports at certain public ports that have met quotas, while demand from India
is expected to remain weak given the muted economic growth, subdued industrial activities and the expectation of further declines in coal prices.
Industrial estates: With bleaker global economic growth this year, industrial estate developers might experience lower demand for industrial land plots.
Not all are created equal, however, and we believe there are several sectors which could better face the challenges and could even enjoy a surge in demand during
this tumultuous time. In our view, consumer staples, telecoms, cigarettes, poultry and media should fare relatively better:

• Consumer staples and cigarettes: will likely benefit from government stimulus to sustain purchasing power, including the accelerated disbursement of IDR72tn of
village funds for the cash-for-work program. Encouragement to stay home will also drive up personal consumption for those staple products.
• Telecos and Tower: An opportunity arises with uprising where telcos may enjoy inelastic demand, with room to discipline the price offerings. To that extent, Telcos
may make quick gains in March. Stopping international sport events, concerts may bring hiccups in usage (sports events, concerts, etc); however, a plethora of
Content and gaming may compensate we believe. While Tower companies operate in one of the most defensive sector, which key characteristic being its stable
cash flow generate based on long binding revenue contracts.
• Poultry: Softer growth this year will hit the growth in chicken consumption. However, as one of the cheapest main animal protein sources, we expect demand for
chicken to remain robust despite the emergence of COVID-19 in Indonesia. As integrators under our coverage have high biosecurity, we expect no supply
disruption for chickens.
• Media: More people are turning on their TVs and using their phones for updates or streaming content, as opposed to be fully in the office. Both the TV and digital
businesses of the two media groups will benefit. RCTI+ viewership is said to be surging and TV average watching time is higher recently. Because of the covid-19
outbreak, many off-air programs (below the line) campaigns have been cancelled and most of the budget allocated to TV.

- 49 -
 Risk 2: Currency swing

Net Foreign Flow (USDbn) IDR vs JCI

7,000 17,000
Bond (LHS) Equity (RHS) JCI Index (LHS) USDIDR (RHS)
4,000 20,000
6,500 16,500

2,000 15,000
6,000 16,000
10,000
0 5,500 15,500
5,000
-2,000 5,000 15,000
0
4,500 14,500
-4,000
-5,000
4,000 14,000
-6,000 -10,000
3,500 13,500
-8,000 -15,000

Jun-19
Feb-19

Aug-19

Sep-19

Nov-19
Dec-19

Feb-20
Jul-19
Jan-19

Apr-19

Oct-19

Jan-20
May-19
Mar-19

Mar-20
Jun-19

Nov-19
Jan-19

Jan-20
Feb-19

Aug-19

Sep-19

Dec-19

Feb-20
Jul-19
May-19
Apr-19

Oct-19
Mar-19

Source: Bloomberg, Danareksa Sekuritas Source: Bloomberg, Danareksa Sekuritas

While the IDR was relatively strong earlier this year, huge uncertainty on global economic growth has led to substantial IDR depreciation to IDR16k/USD, a level that
has not been reached since 1998. Major risk aversion led to sudden and massive reversal of flows back to safe havens, at the expense of most emerging market
currencies. YTD, equity outflow has reached USD600m; the continuation of 3 years of outflow. However, the bond market which has been stable and enjoyed steady
inflows has finally turned, with foreign ownership now at 35% from 38-39% previously, with YTD outflows of USD7bn.

The Central Bank has been firm in efforts to pursue de-dollarization in the economy by introducing policies to restrict foreign currencies for domestic transactions
during special situations. Nonetheless, Indonesia’s dependency toward raw materials imports is still the main susceptible factor for a swing in the currency trend, with
c. 70% of Indonesia’s total imports related to raw material goods. As such, considerable IDR weakening could lead to escalation of production costs and potential costs
overrun in certain high capex projects such as infra projects, which undoubtedly will lead to higher inflation and growth risk.

- 50 -
Sector impact from Currency Swing

IDR weakening would also impact corporate earnings through operation currency mismatch and /or forex debt translation. The sectors which have
high imported cost content would be the consumer sector, pharmaceuticals, poultry and high-end retailers. By contrast, the exporters such as
commodity and heavy equipment would tend to benefit, ceteris paribus. Companies with high USD debt could also face negative pressure, especially
as debt translation would have a more immediate impact on the bottom line.

We believe that as most companies usually have 3 months of inventory, if the current IDR volatility were to be short lived, the risk to earnings would
be less visible. In recent quarters, we believe Indonesia’s fundamentals were improving, as seen in rising forex reserves and a stable Current Account
Deficit.

- 51 -
Risk 3: Delinquency risk - Interest coverage impact

Multiple pressure on supply chains, demand, and the currency would undoubtedly lead to slower economic growth, and hence, lower corporate
profitability. The risk in this aspect would emerge if falling corporate cash flow is not able to meet interest payments on their debt, and this would lead
to multiple risks acrosssectors.

The companies under our coverage mostly have low to medium gearing, with only several sectors facing rising gearing, such as construction and toll
road companies. Based on our assessment, the risk of companies failing to make interest payments is still remote at this juncture, especially with rising
support on both the monetary and fiscalfront.

The average DER of construction companies stood at 1.6x, with WSKT has the highest leverage ratio at 2.4x (as of Dec19), resulting in a 1.1x interest
coverage ratio. The average interest coverage ratio for the 4-SOE contractors is 2.4x. Assuming the ratio drops to 1.0x, the revenues of the sector
would need to decline by 64.8%yoy in FY20, which, we believe, is highly unlikely at this juncture.

- 52 -
 Overall risk assessment summary

Having assessed those 3 risks factors, we prefer sectors which have resilience in those 3 parameters and they are: Consumer staples, telecoms and
towers, and cigarette. While domestic consumption will likely greatly affected in ST, these sector will fare better compare to sector in medium to
high risk quadrant.

- 53 -
Banking sector is under the spotlight

Inadequate liquidity within system despite 93.4% LDR as of January 2020.

The potential tighter liquidity condition as banks would aims to maintain ample liquidity
level. This should lead to price war in time deposits rate.

Higher default risk for smaller banks given their high LDR position, low NIMs, and higher
risk appetite.

Contraction in NIM due to delayed payment in interest income.

Potential higher risk on big banks (BUKU IV category) coming from govt’s plan to execute
anchor banks to provide liquidity to smaller bank

Merger and acquisition within banking system is more encouraged by regulators (BI and OJK) during
COVID-19 outbreak. Yet we believe this should be executed with proper due dilligence procedures and
pure business calculation approach rather than intervene by government.
Latest policies on banking sector
Regulation Title
11/POJK.03/2020 National Economic
Stimulus as Countercyclical
Policy from COVID-19
Outbreak
18/POJK.03/2020 Written mandate for
handling bank problems
Key highlights
Relaxation until March
2021 for borrowers that
impacted from COVID-19
OJK has formal authority to
urge banks to do merger &
acquisitions under certain
circumstances.
Potential impact
• NIM contraction and
tighten liquidity due to
delayed payment from
borrowers.
• Deterioration in asset
quality and possible
higher provisions
expenses beyond
March 2021.
BUKU IV banks at higher
risk due to their capacity
and ample capital to
acquire smaller banks.
Latest policies on banking sector

Regulation Title Key highlights Potential impact

PMK 33/PMK Procedures on LPS can obtain borrowings from • Negative sentiment to
10/2020 Borrowings from Government if LPS’ liquidity level reach banking system as LPS
Government to LPS below the minimum due to LPS’ position as is funded by the
one of the standby buyers of Government banking system.
Bonds. • Tight liquidity
condition in LPS can
lead to potential
higher fee to banks.
PP 23/2020 National Economic • Interest rate subsidy for eligible • Banks with sizeable
Recovery Program borrowers (own tax number exposure on MSME
(PEN) identity/NPWP) that impacted from segments are the main
COVID-19 beneficiaries.
• For loan size up to IDR500mn, interest • Yet, risk attached on
rate subsidy 6% for first three months how fast government
and 3% for the next three months. will provide the
• For loan size IDR500mn-IDR10bn, interest rate subsidy
interest rate subsidy 3% for first three for the banks.
months and 2% for the next three
months.
Latest policies on banking sector
Regulation Title Key highlights Potential
impact/risks
PP 23/2020 National Economic • Liquidity facility for eligible banks • BUKU IV banks would
Recovery Program through anchor banks (15 biggest banks) be the anchor banks
(PEN) • Government place funds in anchor despite undecided
banks’ TD instrument. allocation among
• Banks with tight liquidity can repo its them.
SUN to BI for additional liquidity. • Whether anchor banks
• If liquidity still insufficient, banks can will use internal or
obtain another liquidity use restructured independent reviewers
loans as the underlying assets to anchor on restructured loans
banks. from smaller banks.
• Anchor banks will be appointed based on • Priority will be MSME
respective core business. segment first, inline
• Anchor banks will use government’s fund with Government’s
to inject liquidity for the approved focus on grassroot
amount. level.
• Channeling scheme, hence risk in anchor
banks should manageable based on OJK.
Key highlights as of December 2019

Source: respective company

* As of March 2020
 2020 JCI Target Sensitivity – Top down approach

Earnings growth PE multiple JCI Remark

Beg of year 9% 16.4 6930 +1 std deviation above mean
Best case 0-2% 15.4 5930 - 6050 Mean valuation
Base case -5% 15.4 5,630 Mean Valuation
Worst case -15% 14.3 4,680 -1 std dev below mean

20 19 18 17 16 15 14 13 12 11 10
4.0% 8008 7608 7207 6807 6406 6006 5606 5205 4805 4404 4004
2.0% 7854 7461 7069 6676 6283 5891 5498 5105 4712 4320 3927
0.0% 7700 7315 6930 6545 6160 5775 5390 5005 4620 4235 3850
-2.0% 7546 7169 6791 6414 6037 5660 5282 4905 4528 4150 3773
-4.0% 7392 7022 6653 6283 5914 5544 5174 4805 4435 4066 3696
-6.0% 7238 6876 6514 6152 5790 5429 5067 4705 4343 3981 3619
-8.0% 7084 6730 6376 6021 5667 5313 4959 4605 4250 3896 3542
-10.0% 6930 6584 6237 5891 5544 5198 4851 4505 4158 3812 3465
-12.0% 6776 6437 6098 5760 5421 5082 4743 4404 4066 3727 3388
-14.0% 6622 6291 5960 5629 5298 4967 4635 4304 3973 3642 3311
-16.0% 6468 6145 5821 5498 5174 4851 4528 4204 3881 3557 3234
-18.0% 6314 5998 5683 5367 5051 4736 4420 4104 3788 3473 3157
-20.0% 6160 5852 5544 5236 4928 4620 4312 4004 3696 3388 3080
Source: Danareksa Sekuritas estimates

We expect earnings in 2020 to decline by 5% vs +9% previously, with valuations back to the mean level (vs +1 std deviation previously), and derive JCI target
of 5,630 by year end. Our base case scenario, assume various bold and targeted monetary and fiscal measure would ease negative earnings impact. Our
worst case scenario with earnings down 15% y-y in 2020, with valuation de-rating at -1 std dev, will point to index of 4.680 by year end. This scenario assume
minimal policies response has resulted in multiple sector experience negative earnings growth, mainlybanks.

- 59 -
The Next Stage

While macro data and corporate results will show further deterioration in trend both on
growth and profitability, market trend could decouple as it would reflect forward trend
in economy recovery.

This quarter will be crucial, especially action to curb the pandemic, as well as putting
measure to support economy, in the form of stimulus and relaxation.

Normalisation of business will be the next crucial step and may serve as catalyst to some
sectors. Maintaining strict health measure is a necessity at this stage to ensure no
second wave of spread-out.

Banks will remain under the spotlight, especially with various new measure and policy
release. More conservative approach such as front-loading provision to ensure earnings
quality will pave the way for more robust outlook .
Stay Safe and Healthy

- 61 -
Net Flows and PE Band

JCI vs Net Flow (IDRbn)

60,000 30%
40,000 22% 20% 20%
15%
20,000 10%
0 -1% 2% 0%
-3%
(20,000) -10%
-12%
(40,000) -20%
(60,000) -27% -30%
2013 2014 2015 2016 2017 2018 2019 2020

Net Foreign Flow (LHS) JCI Return (RHS)

Source: Bloomberg, 8 May 2020

JCI PE Band
IDR
8,500 JCI 11x 12x 13x 14x 15x 16x 17x 18x

7,500
18X
6,500 17X
16x
15x
5,500 14x
13x
4,500 12x
11x
3,500

2,500
2014 2015 2016 2017 2018 2019 2020
Economic Stimulus Package II – Fiscal Stimulus

Source: Coordinating Ministry of Economics

- 63 -
Economic Stimulus Package II – Non-fiscal Stimulus

Source:
Coordinating
Ministry of
Economics

- 64 -
Economic Stimulus Package II – Financial sector stimulus

Source: Coordinating Ministry of Economics

- 65 -
Economic Stimulus announced in 2015-2016

- 66 -