Indonesia Strategy December 1, 2023

2024 Investment Strategy: Possible volatility in the first half, yet

expecting rapid recovery in the second half
Mirae Asset Sekuritas Indonesia
Robertus Hardy robertus.hardy@miraeasset.co.id Rut Yesika Simak rut.simak@miraeasset.co.id

Anticipating Possible volatility in the first half, yet expecting rapid recovery in the second half
increased volatility  Moving forward, from late 2023 to the first half of 2024, we anticipate the possibility of continued volatility,
in the short term… driven by: 1) geopolitical tensions, 2) the persistence of high-interest rates, and 3) domestic political uncertainty
during the election period.
 Our bullish prediction for end of 2023 JCI is 7,200, which is slightly lower than the previous target of 7,400 due
to increased volatility.
 Examining stock index movements during previous election years, there is a tendency for stock indices to
remain stagnant or decline during election periods. However, they typically show improvement after the
election results become clear. Although, in 2019, a sharp decline in stock indices coincided with the onset of
the US-China Trade War.
 Nevertheless, we believe that the potential increase in volatility in the first half of 2024 will not severely impact
the decline in stock indices. This is because they will likely be supported by the Retail, Consumer Goods, and
Renewable Energy sectors.
 Therefore, for the first half of 2024, we recommend a more conservative asset allocation strategy: 1) 60% for
money market instruments, and 2) 40% for corporate bond instruments.

…yet expecting a Potential easing in central bank monetary policies in the second half of 2024
rapid recovery in  Looking further towards the second half of 2024, we see the potential of easing in central bank monetary
the longer term policies, which could have a more positive impact on the stock market and government bonds, in our view.
 We anticipate the possibility of BI implementing pro-growth monetary policies in 2H24. This outlook is
reinforced by BI's adjustment of the forecasted economic growth range for 2024 compared to the current
year.
 BI envisions Indonesia's economic growth ranging between 4.7% - 5.5% in 2024 and 4.8% - 5.6% in 2025,
surpassing the forecasted growth range of 4.5% - 5.3% for 2023. Concurrently, the inflation target has been
revised to a range of 2.5±1% for both 2024 and 2025, down from the current range of 3±1%.
 If combined with possible certainty of election results, we suggest a more aggressive asset allocation strategy
for the second half of 2024: 1) 60% for blue-chip and second-line stocks or stock index funds, and 2) 40% for
government bond instruments.
 We anticipate that the Banking, Telecommunications, Automotive, and Consumer-related sectors will lead the
strengthening of the JCI in the second half of 2024.

Greater optimism Valuing JCI at 8,100 for 2024

on JCI in the  Therefore, we value JCI at 8,100 for 2024, expecting support from: 1) the potential easing of monetary policies,
second half of 2024 which could reduce the discount factor (risk free rate) for equity instruments, and 2) clarity on election results.

 We believe the JCI deserves a higher valuation than India, for instance, due to similar profitability. We also
observe that countries with lower discount factors (risk free rate) generally have higher valuations.
 Our JCI target implies a 14-15x P/E ratio with an expected 5% - 6% YoY growth in EPS from the current T12M
EPS.

Table 1. Mirae Asset’s top picks

Mkt cap EPS growth (%) EV/EBITDA (x) P/E (x) P/B (x) ROE (%)
Ticker Company name (IDRbn) 2023F 2024F 2023F 2024F 2023F 2024F 2023F 2024F 2023F 2024F
ACES Ace Hardware Indonesia Tbk PT 12,948 7.6 14.0 11.5 10.1 18.1 15.9 2.1 2.0 11.8 12.6
AMRT Sumber Alfaria Trijaya Tbk PT 119,175 19.8 24.0 18.3 16.2 34.8 28.1 8.7 7.5 27.4 29.4
ASII Astra International Tbk PT 218,611 13.4 -1.6 5.3 5.6 6.7 6.8 1.1 1.0 16.4 15.1
BBCA Bank Central Asia Tbk PT 1,106,394 20.1 8.9 N/A N/A 22.6 20.8 4.5 4.1 20.9 20.6
BBRI Bank Rakyat Indonesia Persero Tbk PT 799,474 15.7 12.6 N/A N/A 13.5 12.0 2.5 2.3 19.1 20.2
HOKI Buyung Poetra Sembada PT 1,848 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
ISAT Indosat Tbk PT 76,797 -24.5 44.1 5.4 4.9 21.5 14.9 2.4 2.2 11.5 14.2
MAPI Mitra Adiperkasa Tbk PT 28,967 2.3 14.5 7.3 6.4 13.3 11.6 2.9 2.3 23.4 21.1
TLKM Telkom Indonesia Persero Tbk PT 372,474 25.2 8.2 5.4 5.1 14.3 13.2 2.7 2.5 18.8 19.2
Note: Forward projections are based on consensus
Source: Company data, IDX, Bloomberg, Mirae Asset Sekuritas Indonesia Research

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
December 1, 2023 Indonesia Strategy

C O N T E N T S

Investment Thesis 3
Possible volatility in the first half, yet expecting rapid recovery in the second half 3
Potential easing in central bank monetary policies in the second half of 2024 3
Anticipating the acceleration of fixed-mobile convergence by TLKM and ISAT 4
Cautiously optimistic about the potential continuation of growth in ASII’s automo
tive product sales 4
HOKI, AMRT, ACES, and MAPI are positioned to capture the opportunity of
potential robust consumer spending 5
Valuing JCI at 8,100 for 2024 5

Possible volatility in the first half, yet expecting rapid recovery in the second half 6

Potential easing in central bank monetary policies in the second half of 2024 8

BBRI and BBCA are positioned strategically to capture the growth potential of
financial services product penetration 11

Anticipating the acceleration of fixed-mobile convergence by TLKM and ISAT 13

Cautiously optimistic about the potential continuation of growth in ASII’s

automotive product sales 14

HOKI, AMRT, ACES, and MAPI are positioned to capture the opportunity of
potential robust consumer spending 16

Valuing JCI at 8,100 for 2024 18

Past performances of our portfolio 19

Mirae Asset Sekuritas Indonesia Research 2

December 1, 2023 Indonesia Strategy

Investment Thesis

Possible volatility in the first half, yet expecting rapid recovery in the
second half

Moving forward, from late 2023 to the first half of 2024, we anticipate the possibility of
continued volatility, driven by:

1) geopolitical tensions,

2) the persistence of high-interest rates, and

3) domestic political uncertainty during the election period.

Our bullish prediction for end of 2023 JCI is 7,200, which is slightly lower than the previous
target of 7,400 due to increased volatility.

Examining stock index movements during previous election years, there is a tendency for
stock indices to remain stagnant or decline during election periods. However, they typically
show improvement after the election results become clear. Although, in 2019, a sharp decline
in stock indices coincided with the onset of the US-China Trade War.

Nevertheless, we believe that the potential increase in volatility in the first half of 2024 will not
severely impact the decline in stock indices. This is because they will likely be supported by
the Retail, Consumer Goods, and Renewable Energy sectors.

Therefore, for the first half of 2024, we recommend a more conservative asset allocation
strategy:

1) 60% for money market instruments, and

2) 40% for corporate bond instruments.

Potential easing in central bank monetary policies in the second half of

2024
Looking further towards the second half of 2024, we see the potential of easing in central
bank monetary policies, which could have a more positive impact on the stock market and
government bonds, in our view.

If combined with possible certainty of election results, we suggest a more aggressive

asset allocation strategy for the second half of 2024:

1) 60% for blue-chip and second-line stocks or stock index funds, and

2) 40% for government bond instruments.

We anticipate that the Banking, Telecommunications, Automotive, and Consumer-related

sectors will lead the strengthening of the JCI in the second half of 2024.

Mirae Asset Sekuritas Indonesia Research 3

December 1, 2023 Indonesia Strategy

BBRI and BBCA are positioned strategically to capture the growth

potential of financial services product penetration

The penetration rate of financial service products in Indonesia significantly lags behind other
Asian countries, with the broad money supply-to-Gross Domestic Product (M2/GDP) ratio only
reaching 40%, compared to China's 220%, and even more than 120% to 180% for Thailand,
Singapore, Vietnam, and South Korea. Therefore, we see significant exponential growth
potential in this industry. However, it is acknowledged that India also presents an equally
substantial growth opportunity, with its M2/GDP ratio currently at 21%.

BRI plays a crucial role in elevating micro and ultra-micro debtors to Small and Medium
Enterprises (SMEs). BRI has around 14 million micro debtors contributing almost IDR 480
trillion. However, despite having more micro debtors, PNM and Pegadaian contribute less to
the total loan value provided. Therefore, if the credit ratings of these PNM and Pegadaian
debtors can be increased, the impact would be highly exponential, in our view.

BBCA has a lower Loan-to-Deposit Ratio (LDR) liquidity than the industry average, promising
significant growth opportunities due to its maintained asset quality with a stable Non-
Performing Loan (NPL) at around 2%. Nearly 80% of the company's Third Party Funds are in
the form of low-cost Current Account Savings Account (CASA).

Anticipating the acceleration of fixed-mobile convergence by TLKM and

ISAT

Although the mobile internet market is becoming increasingly saturated with over 124 mobile
users for every 100 people in the population, we believe that this market, with a population
of over 277mn, is ripe for monetization. One way to monetize this potential is through
convergence strategies with Fixed Broadband (FBB) services. Up until 3Q23, we have seen an
acceleration in the number of IndiHome and XL Home customers. Meanwhile, Indosat Hifi,
has the potential to add revenue organically after acquiring MNC Play.

Cautiously optimistic about the potential continuation of growth in ASII’s

automotive product sales

For the Automotive sector, we remain optimistic albeit cautiously. Aggressive interest rate
hikes and inflationary pressures on essential goods could dampen growth expectations for
automotive product sales. However, due to the potential increase in public mobility during
the election period, we are more optimistic about the potential continuation of motorcycle
sales growth rather than car. Except for 2009, motorcycle sales tend to increase during
election years, such as in 2004, 2014, and 2019. Next year, we expect the impact of the election
could be more massive as there will be 548 new regional heads elected simultaneously.

However, in the longer term, we remain optimistic about the potential continuation of car
sales growth due to its minimum penetration rate. Annual sales of new car only reach 0.4
units per 100 people in the population, compared to Thailand and Malaysia, which have
reached 1 unit and 1.8 units, respectively. The potential growth in car sales will also be
supported by integrated vertical industries, including the Financing Industry. BCA Finance, a
subsidiary of BBCA, offers very attractive interest rates for new car purchases, as low as 3%
to 4.25%. It is even lower than the Bank Indonesia benchmark interest rate.

Mirae Asset Sekuritas Indonesia Research 4

December 1, 2023 Indonesia Strategy

HOKI, AMRT, ACES, and MAPI are positioned to capture the opportunity of
potential robust consumer spending

The plan for an 8% YoY increase in Civil Servant (ASN) salaries and around a 3-4% YoY increase
in the Minimum Wage in Jakarta and West Java could potentially reduce the inflation impact
on the lower to middle-income groups.

Therefore, we like AMRT for its extensive reach, exceeding 18,000 outlets, excluding Alfamidi
and Lawson, its subsidiaries.

We also like HOKI for its decision to diversify its products into healthier foods, such as corn
rice and cassava rice, claiming to have a lower glycemic index than regular rice. The company
has also launched premium pre-seasoned rice products like fried rice, uduk rice, and kebuli
rice, whose selling prices are not bound by government regulations on the Highest Retail
Price (HET). The company has recently collaborated with a General Trade distributor with over
600,000 outlets, far more than the number of outlets owned by Alfamart and Indomaret.

President Jokowi recently lifted the pandemic status in June 2023. Since then, we have become
more optimistic about the potential continuation of consumption growth in the upper-middle
to upper-income groups. ACES and MAPI are clear choices to capture opportunities in this
segment, in our view.

ACES SSSG has recovered to pre-pandemic levels but is still below its full potential. Moving
forward, with a series of sustained promotions such as End of Year Sale, Midnight Sale,
Weekend Deals, etc., we believe revenue growth will remain robust.

We see MAPI's decision to: 1) accelerate its expansion in the Active Lifestyle business segment
in major cities, and 2) the Food & Beverage business segment in smaller cities; has the
potential to ensure sustainable growth, as both segments have higher growth prospects.

Valuing JCI at 8,100 for 2024

Therefore, we value JCI at 8,100 for 2024, expecting support from:

1) the potential easing of monetary policies, which could reduce the discount factor
(risk free rate) for equity instruments, and

2) clarity on election results.

We believe the JCI deserves a higher valuation than India, for instance, due to similar
profitability. We also observe that countries with lower discount factors (risk free rate)
generally have higher valuations. Our JCI target implies a 14-15x P/E ratio with an expected
5% - 6% YoY growth in EPS from the current T12M EPS.

Mirae Asset Sekuritas Indonesia Research 5

December 1, 2023 Indonesia Strategy

Possible volatility in the first half, yet expecting

rapid recovery in the second half

Moving forward, from late 2023 to the first half of 2024, we anticipate the possibility of
continued volatility, driven by:

1) geopolitical tensions,

2) the persistence of high-interest rates, and

3) domestic political uncertainty during the election period.

Bloomberg reports that Saudi Arabia has put forth a proposition for collaboration and
investment in Iran. The condition attached to this offer is contingent upon Iran preventing its
regional proxies from escalating the Israel-Hamas conflict into a broader and more extensive
confrontation. Nevertheless, the persistence of elevated uncertainties looms on the horizon
as we navigate the current geopolitical landscape, marked by armed conflicts and the
annexation of several regions by opposing entities.

The latest data from the Commerce Department's Bureau of Economic Analysis (BEA) reveals
that the U.S. Gross Domestic Product (GDP) demonstrated a robust increase of 5.2% YoY. This
figure, revised from the previously reported 4.9% pace, signifies the most rapid pace of
expansion since the fourth quarter of 2021. The upward revision reflects accelerated
economic growth, driven by increased construction of warehouses and accumulation of
machinery and equipment by businesses. Consequently, these developments heighten
expectations of a prolonged period of higher interest rates.

President Jokowi is currently under the spotlight as one of his sons has successfully emerged
as a candidate for vice president in the 2024 elections, following ethical violations committed
by the Chairman of the Constitutional Court while amending regulations related to such
nominations. Notably, the Chief of the Constitutional Court at that time was the president's
brother-in-law. Looking ahead, there is growing concern that the government might engage
in an abuse of power to sway public opinion in favor of a specific presidential and vice-
presidential candidate pairing.

Our bullish prediction for end of 2023 JCI is 7,200, which is slightly lower than the
previous target of 7,400 due to increased volatility.

Examining stock index movements during previous election years, there is a tendency for
stock indices to remain stagnant or decline during election periods. However, they typically
show improvement after the election results become clear. Although, in 2019, a sharp decline
in stock indices coincided with the onset of the US-China Trade War.

Nevertheless, we believe that the potential increase in volatility in the first half of 2024 will not
severely impact the decline in stock indices. This is because they will likely be supported by
the Retail, Consumer Goods, and Renewable Energy sectors.

Therefore, for the first half of 2024, we recommend a more conservative asset allocation
strategy:

1) 60% for money market instruments, and

2) 40% for corporate bond instruments.

Mirae Asset Sekuritas Indonesia Research 6

December 1, 2023 Indonesia Strategy

Figure 1. The electoral dispute of the 2019 elections coincided Figure 2. The stock market rally in 2014 was driven by
with the US-China trade war optimism to Jokowi as a new figure
6,600 JCI Simultaneous Elections 5,400 JCI Increase in subsidized
(Apr-2019) Presidential Election fuel price
6,500 (Jul-2014) (Nov-2014)
5,200
Inauguration of Announcement of Jokowi
Jokowi-Maruf as a candidate
6,400
(Oct-2019) 5,000 (Mar-2014)
Election Inauguration of Jokowi-JK
6,300 Campaign US-China (Oct-2014)
4,800
Trade War
6,200 (May-2019) General Election
Announcement of (Apr-2014)
4,600
6,100
Election Winners
Dispute of (Jun-2019)
Election Result 4,400
6,000
(May-Jun 2019)
5,900 4,200

5,800 4,000
Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15

Source: Market data, Mirae Asset Sekuritas Indonesia Research Source: Market data, Mirae Asset Sekuritas Indonesia Research

Figure 3. The stock market rally in 2009 coincided with the Figure 4. The sideways movement of the stock market during
recovery post the global financial crisis 2004 election period is partially due to its multiple rounds
3,000 JCI 1,300 JCI

2,800
1,200
Presidential Election
2,600 Global Financial Crisis (Jul-2008)
2,400 1,100

Inauguration of Inauguration of SBY-JK

2,200
SBY-Boediono 1,000 (Oct-2004)
2,000 General Election (Oct-2009)
(Apr-2009) 900
1,800 General Election 1st Round of
(Apr-2004) Presidential
1,600 800 Election (Jul-2004)
Lehman Brothers
1,400 bankruptcy
2nd Round of
(Sep-2008) 700
1,200 Presidential Election
(Sep-2004)
1,000 600
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Jan-04 Mar-04 May-04 Jul-04 Sep-04 Nov-04 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06

Source: Market data, Mirae Asset Sekuritas Indonesia Research Source: Market data, Mirae Asset Sekuritas Indonesia Research

Figure 5. The rapid increase in the benchmark interest rates of the US and Figure 6. Geopolitical tensions could impede the prospects of
Indonesia has tempered expectations for a stock market rally in 1H24 a stock market rally in 1H24

Source: Mirae Asset Sekuritas Indonesia Research, Market data, Tradingview Source: Bloomberg, The Guardian, Mirae Asset Sekuritas Indonesia Research

Mirae Asset Sekuritas Indonesia Research 7

December 1, 2023 Indonesia Strategy

Potential easing in central bank monetary policies

in the second half of 2024

Looking further towards the second half of 2024, we see the potential of easing in
central bank monetary policies, which could have a more positive impact on the stock
market and government bonds, in our view.

The US economic outlook has dimmed in recent weeks, marked by a deceleration in growth,
as consumers exercise greater caution in spending amid a relaxation in the labor market and
a moderation in the pace of inflation, as indicated by the latest 'Beige Book' released by The
Fed on November 30, 2023.

Economic activity has exhibited a slowdown since the preceding report, notably with a decline
in retail sales on average, reflecting heightened price sensitivity among consumers, according
to the Fed's Beige Book economic report. The report, compiled from anecdotal information
collected by the Fed’s 12 reserve banks through Nov. 17, underscores that "the economic
outlook for the next six to twelve months diminished over the reporting period."

This more subdued economic outlook coincides with a continued easing in the demand for
labor, accompanied by modest to moderate wage growth in most Districts, the report notes.
Nevertheless, challenges persist in attracting and retaining high performers and workers with
specialized skills.

The pace of inflation has "largely moderated" across districts, despite prices remaining
elevated, with a notable uptick in utilities and insurance costs across most districts. The report
indicates that, overall, most districts anticipate a continuation of moderate price increases
into the next year. Hence, we anticipate the possibility of US monetary policy easing in the
second half of 2024.

During the latest annual meeting, Bank Indonesia (BI) pledged to ensure stability through the
implementation of four key monetary policy instruments:

1) Forward-looking and pre-emptive interest rate policies aim to achieve the

government's inflation target of 2.5±1%.

2) Stabilizing the Rupiah's exchange rate to align with inflation targets and support
external stability.

3) Pro-market monetary operations are intended to enhance the effectiveness of BI's

monetary policies.

4) Managing foreign exchange flows according to international standards to support

external stability and maintain sufficient forex reserves.

We anticipate the possibility of BI implementing pro-growth monetary policies in 2H24. This

outlook is reinforced by BI's adjustment of the forecasted economic growth range for 2024
compared to the current year.

BI envisions Indonesia's economic growth ranging between 4.7% - 5.5% in 2024 and 4.8% -
5.6% in 2025, surpassing the forecasted growth range of 4.5% - 5.3% for 2023. Concurrently,
the inflation target has been revised to a range of 2.5±1% for both 2024 and 2025, down from
the current range of 3±1%.

If combined with possible certainty of election results, we suggest a more aggressive

asset allocation strategy for the second half of 2024:

1) 60% for blue-chip and second-line stocks or stock index funds, and

2) 40% for government bond instruments.

We anticipate that the Banking, Telecommunications, Automotive, and Consumer-related

sectors will lead the strengthening of the JCI in the second half of 2024.

Mirae Asset Sekuritas Indonesia Research 8

December 1, 2023 Indonesia Strategy

Exhibits

The US labor market exhibited slower growth. Meanwhile, the Fed is forecasting lower figures
for the US Federal Funds Rate (FFR), Core Personal Consumption Expenditures (PCE), and GDP
growth for the upcoming year and beyond.

Figure 7. US unemployment rate Figure 8. US monthly nonfarm payrolls

Nonfarm payroll (actual)

(%) Unemployment rate (L) (%, YoY)
(000' people) Nonfarm payroll (consensus)
6.0 9
Average hourly earnings growth (R) Nonfarm payroll (4M moving average)
5.5 8 800

5.0 7 700
5.7 5.95.8
5.4 5.4 5.4 6 600
4.5 4.8 482
4.3 4.4 4.1 5 500
4.0
4 400
3.5 315 311 285
3 300
300 205
3.0 2 200 150
205 180
2.5 1 100
2.0 0 0
10/21 1/22 4/22 7/22 10/22 1/23 4/23 7/23 10/23 2/22 4/22 6/22 8/22 10/22 12/22 2/23 4/23 6/23 8/23 10/23

Source: US Bureau of Labor Statistics, Mirae Asset Sekuritas Indonesia Research Source: US Bureau of Labor Statistics, Mirae Asset Sekuritas Indonesia Research

Figure 9. FFR forecast Figure 10. Core PCE forecast Figure 11. GDP growth forecast

2023 2024 2023 2024 2023 2024

(%) (%) (%)
2025 2025 2025
6.0 4.5 2.5
5.6 5.6
2.1
5.5 3.9
5.1 4.0 3.7 2.0 1.8 1.8
5.0
4.6 3.5 1.5
4.5 1.5
3.0 1.1
4.0 2.6 2.6
3.9 1.0 1.0
2.5 2.2 2.2
3.5
3.4
0.5
3.0 2.0

2.5 1.5 0.0

Source: Federal Researve, Mirae Asset Sekuritas Source: Federal Researve, Mirae Asset Sekuritas Source: Federal Researve, Mirae Asset Sekuritas
Indonesia Research Indonesia Research Indonesia Research

Mirae Asset Sekuritas Indonesia Research 9

December 1, 2023 Indonesia Strategy

Inflation in Indonesia has eased, and there is reduced pressure on the Rupiah.

Figure 12. Inflation and policy rate Figure 13. Monthly inflation by components

Headline Inflation (%, YoY) Core Administered Volatile

(%, YoY)
10 Core inflation
16
Upper bound inflation target
Lower bound inflation target 14
8
BI7DRR 12
10
6
8
6
4
4

2 2
0
0 -2
2/17 10/17 6/18 2/19 10/19 6/20 2/21 10/21 6/22 2/23 10/23 4/22 6/22 8/22 10/22 12/22 2/23 4/23 6/23 8/23 10/23

Source: Statistics Indonesia, BI, Mirae Asset Sekuritas Indonesia Research Source: Statistics Indonesia, BI, Mirae Asset Sekuritas Indonesia Research

Figure 15. Year-to-date change in global currencies against

Figure 14. USD/IDR and USD index (DXY)
USD
(IDR) USD/IDR (L) USD index (R) (pts) (%, YTD)
CHF 4.5
16,100 120
GBP 3.3
EUR 2.0
115 IDR 0.8
15,700 PHP 0.4
110 SGD -0.2
INR -0.7
15,300 105 THB -1.4
KRW -2.1
100 AUD -3.8
CNY -4.1
14,900
MYR -6.0
95
JPY -13.7
TRY -53.6
14,500 90
-70 -50 -30 -10 10

Source: Mirae Asset Sekuritas Indonesia Research Source: Mirae Asset Sekuritas Indonesia Research

Mirae Asset Sekuritas Indonesia Research 10

December 1, 2023 Indonesia Strategy

BBRI and BBCA are positioned strategically to

capture the growth potential of financial services
product penetration

The penetration rate of financial service products in Indonesia significantly lags behind other
Asian countries, with the broad money supply-to-Gross Domestic Product (M2/GDP) ratio only
reaching 40%, compared to China's 220%, and even more than 120% to 180% for Thailand,
Singapore, Vietnam, and South Korea. Therefore, we see significant exponential growth
potential in this industry. However, it is acknowledged that India also presents an equally
substantial growth opportunity, with its M2/GDP ratio currently at 21%.

Going forward, BBRI will play a crucial role in elevating micro and ultra-micro debtors to Small
and Medium Enterprises (SMEs). BRI has around 14mn micro debtors contributing almost
IDR480tr. However, despite having more micro debtors, PNM and Pegadaian contribute less
to the total loan value provided. Therefore, if the credit ratings of these PNM and Pegadaian
debtors can be increased, the impact would be highly exponential, in our view.

BBRI posted a net profit of IDR14.6tr in 3Q23 (+4.7% QoQ; +1.4% YoY), resulting in cumulative
9M23 net profit of IDR44.0tr (+12.4% YoY). The result is in line with our and consensus’ FY23F
estimates with run-rates of 70.6% and 74.5%, respectively, vs. 5-year average of 71.8%. As
expected, PNM and Pegadaian supported the weak BBRI’s bank-only earnings that only grew
by 4.9% YoY.

Non interest income grew quite robustly by 12.7% YoY in 9M23, mainly driven by fees and
commissions (+12.2% YoY) and recoveries (+25.5% YoY). At the same time, opex grew
modestly (+6.0% YoY) amidst better efficiencies following the ultra-micro consolidation. Bank-
only/consolidated CIR improved to 37.63%/41.28% (9M22: 38.99%/42.55%), implying
improved productivity. PPOP growth accelerated to 8.1% YoY (1H23: +5.4% YoY). The synergy
of the ultra-micro holding proved crucial in creating a new source of growth in assets,
revenues, and eventually profitability.

BBCA has a lower Loan-to-Deposit Ratio (LDR) liquidity than the industry average, promising
significant growth opportunities due to its maintained asset quality with a stable Non-
Performing Loan (NPL) at around 2%. Nearly 80% of the company's Third Party Funds are in
the form of low-cost Current Account Savings Account (CASA).

BBCA posted a net profit of IDR12.2tr in 3Q23 (-3.4% QoQ; +12.1% YoY), resulting in cumulative
9M23 net profit of IDR36.4tr (+25.8% YoY). The result is in line with our and consensus’ FY23F
estimates with run-rates of 74.0% and 74.7%, respectively, vs. 5-year average of 72.7%.

Interest income grew strongly by 24.3% to IDR64.9tr, driven by 1) asset yield repricing; 2)
strong loan growth (+12.3% YoY); and 3) shifting of placement at BI (lower yield) to
government bonds (higher yield). Meanwhile, interest expense grew by 46.8% to IDR9.0tr
along with the rising benchmark rate. Notably, the rise in BBCA’s interest expense remains
the lowest among the big 4 banks, with our 9M23 projections ranging between 50-70%. As a
result, NII also grew strongly by 21.3% YoY to IDR55.9tr. NIM was stable YTD at 5.5% in 9M23
but well above the 5.1% in 9M22.

Table 2. M2 to GDP ratio (%)

Indonesia 40
China 220
Vietnam 146
Thailand 122
Singapore 123
South Korea 173
India 21
Source: Macro-economic data, Mirae Asset Sekuritas Indonesia Research

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December 1, 2023 Indonesia Strategy

Figure 16. Number of BBRI group’s micro borrowers Figure 17. Total value of BBRI group’s micro borrowers

Source: Company data, Mirae Asset Sekuritas Indonesia Research Source: Company data, Mirae Asset Sekuritas Indonesia Research

Table 3. Loan to Deposit Ratio (%)

BBCA 67
Industry 86
Source: Company data, Mirae Asset Sekuritas Indonesia Research

Figure 18. BBCA managed to maintain its NPL ratio of around Figure 19. BBCA’s CASA ratio is ~80% to its total third party
2% fund

Source: Company data, Mirae Asset Sekuritas Indonesia Research Source: Company data, Mirae Asset Sekuritas Indonesia Research

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December 1, 2023 Indonesia Strategy

Anticipating the acceleration of fixed-mobile

convergence by TLKM and ISAT

Although the mobile internet market is becoming increasingly saturated with over 124 mobile
users for every 100 people in the population, we believe that this market, with a population
of over 277mn, is ripe for monetization. One way to monetize this potential is through
convergence strategies with Fixed Broadband (FBB) services. Up until 3Q23, we have seen an
acceleration in the number of IndiHome and XL Home customers. Meanwhile, Indosat Hifi,
has the potential to add revenue organically after acquiring MNC Play.

Table 4. Number of cellular users vs. Population (mn)

Mobile Network Operators Sep-22 Sep-23
Telkomsel (a subsidiary of TLKM) 159.8 158.3
Indosat Ooredoo Hutchison Tbk (ISAT) 98.7 99.4
XL Axiata Tbk (EXCL) 57.4 57.5
Smartfren Tbk (FREN) 35.5 36.0
TOTAL 351.4 351.2
Country population 275.4 277.8
Cellular users per 100 people 127.6 126.4
Sources: Company data, Mirae Asset Sekuritas Indonesia Research

Figure 20. IndiHome managed to add 763k new subscribers following the rollout of TLKM’s
fixed-mobile convergence (FMC) strategy

Number of IndiHome subscribers ('000)

10,000

9,800
+763k new subscribers
9,600

9,400

9,200

9,000

8,800

8,600
9M22 9M23

Source: Company data, Mirae Asset Sekuritas Indonesia

Figure 21. Indosat HiFi recently acquired 300,000 subscribers of MNC Play

Source: Company data, Mirae Asset Sekuritas Indonesia

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December 1, 2023 Indonesia Strategy

Cautiously optimistic about the potential

continuation of growth in ASII’s automotive
product sales

For the Automotive sector, we remain optimistic albeit cautiously. Aggressive interest rate
hikes and inflationary pressures on essential goods could dampen growth expectations for
automotive product sales. However, due to the potential increase in public mobility during
the election period, we are more optimistic about the potential continuation of motorcycle
sales growth rather than car. Except for 2009, motorcycle sales tend to increase during
election years, such as in 2004, 2014, and 2019. Next year, we expect the impact of the election
could be more massive as there will be 548 new regional heads elected simultaneously.

However, in the longer term, we remain optimistic about the potential continuation of car
sales growth due to its minimum penetration rate. Annual sales of new car only reach 0.4
units per 100 people in the population, compared to Thailand and Malaysia, which have
reached 1 unit and 1.8 units, respectively. The potential growth in car sales will also be
supported by integrated vertical industries, including the Financing Industry. BCA Finance, a
subsidiary of BBCA, offers very attractive interest rates for new car purchases, as low as 3%
to 4.25%. It is even lower than the Bank Indonesia benchmark interest rate.

Figure 22. Except for 2009, motorcycle sales tend to increase during election years, such as
in 2004, 2014, and 2019.

(Units) Total domestic sales volume of motorcycle (L) Interest rate (R) (%)

9,000,000 14
8,000,000 12
7,000,000
10
6,000,000
5,000,000 8
4,000,000 6
3,000,000
4
2,000,000
1,000,000 2
0 -
2023F
2008

2014

2020
2003
2004
2005
2006
2007

2009
2010
2011
2012
2013

2015
2016
2017
2018
2019

2021
2022

Source: AISI, Mirae Asset Sekuritas Indonesia Research

Table 5. Annual new car sales volume per 100 people population (Units)
South Korea 2.4
Japan 3.1
Malaysia 1.8
Thailand 1.0
Indonesia 0.4
Source: Mark Lines, Mirae Asset Sekuritas Indonesia Research

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December 1, 2023 Indonesia Strategy

Figure 23. New car sales volume vs. Population

Domestic car sales volume (2022, Units, L) Total population (2022, R)

4,000,000 300,000,000

3,500,000
250,000,000
3,000,000
200,000,000
2,500,000

2,000,000 150,000,000

1,500,000
100,000,000
1,000,000
50,000,000
500,000

0 0
South Korea Japan Malaysia Thailand Indonesia

Source: Mark Lines, Mirae Asset Sekuritas Indonesia Research

Figure 24. BCA Finance (a subsidiary of BBCA) is offering 3% to 4.25% interest rate for new
car loan facilities, for 1 year to 4 years period.

Source: Company data, Mirae Asset Sekuritas Indonesia Research

Figure 25. Automotive and Financial Services segments contributed 57.6% to ASII’s
consolidated Net Profit in 9M23

Others, 6.2

Automotive, 35.2
HEMCE, 36.2

Financial
Services, 22.5

Source: Company data, Mirae Asset Sekuritas Indonesia Research

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December 1, 2023 Indonesia Strategy

HOKI, AMRT, ACES, and MAPI are positioned to

capture the opportunity of potential robust
consumer spending

The plan for an 8% YoY increase in Civil Servant (ASN) salaries and around a 3-4% YoY increase
in the Minimum Wage in Jakarta and West Java could potentially reduce the inflation impact
on the lower to middle-income groups.

Therefore, we like AMRT for its extensive reach, exceeding 18,000 outlets, excluding Alfamidi
and Lawson, its subsidiaries.

We also like HOKI for its decision to diversify its products into healthier foods, such as corn
rice and cassava rice, claiming to have a lower glycemic index than regular rice. The company
has also launched premium pre-seasoned rice products like fried rice, uduk rice, and kebuli
rice, whose selling prices are not bound by government regulations on the Highest Retail
Price (HET). The company has recently collaborated with a General Trade distributor with over
600,000 outlets, far more than the number of outlets owned by Alfamart and Indomaret.

President Jokowi recently lifted the pandemic status in June 2023. Since then, we have become
more optimistic about the potential continuation of consumption growth in the upper-middle
to upper-income groups. ACES and MAPI are clear choices to capture opportunities in this
segment, in our view.

ACES SSSG has recovered to pre-pandemic levels but is still below its full potential. Moving
forward, with a series of sustained promotions such as End of Year Sale, Midnight Sale,
Weekend Deals, etc., we believe revenue growth will remain robust.

We see MAPI's decision to: 1) accelerate its expansion in the Active Lifestyle business segment
in major cities, and 2) the Food & Beverage business segment in smaller cities; has the
potential to ensure sustainable growth, as both segments have higher growth prospects.

Table 6. Number of several minimarket outlets

Indomaret 22,080
Alfa Mart (AMRT) 18,735
Alfa Midi (AMRT’s subsidiary) 2,165
Company data, Mirae Asset Sekuritas Indonesia Research

Figure 26. Some of HOKI’s new premium products

Source: Company data, Mirae Asset Sekuritas Indonesia Research

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December 1, 2023 Indonesia Strategy

Figure 27. ACES’ SSSG has recovered to pre-pandemic level Figure 28. ACES has continued several of its promotional programs

(%) Jakarta Java Ex-Jakarta Ex-Java Total

20

15

10 11.1
6.8
5 5.8
4.5

-5

-10

-15

-20
10M18 10M19 10M20 10M21 10M22 10M23

Source: Company data, Mirae Asset Sekuritas Indonesia Research Source: Company data, Mirae Asset Sekuritas Indonesia Research

Figure 29. MAPI has been expanding aggressively Figure 30. MAPI has a presence in several neighboring countries

Source: Company data, Mirae Asset Sekuritas Indonesia Research Source: Company data, Mirae Asset Sekuritas Indonesia Research

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December 1, 2023 Indonesia Strategy

Valuing JCI at 8,100 for 2024

Therefore, we value JCI at 8,100 for 2024, expecting support from:

1) the potential easing of monetary policies, which could reduce the discount factor
(risk free rate) for equity instruments, and

2) clarity on election results.

We believe the JCI deserves a higher valuation than India, for instance, due to similar
profitability. We also observe that countries with lower discount factors (risk free rate)
generally have higher valuations. Our JCI target implies a 14-15x P/E ratio with an expected
5% - 6% YoY growth in EPS from the current T12M EPS.

Table 7. JCI peers valuation, profitability, and country discount factors

Stock Index P/E (x) ROE (%) Interest Rate (%) 10Y Treasury Yield (%)
JCI 12.6 11.1 6.0 6.7
BSE India 22.9 11.5 6.5 7.3
Kospi 10.9 5.0 3.5 3.8
Nikkei 225 20.4 6.7 -0.1 0.8
Source: Market data as of 30-Nov-2023, Mirae Asset Sekuritas Indonesia Research estimate

Figure 31. JCI’s bullish momentum above its MA100 and MA200

Source: Mirae Asset Sekuritas Indonesia Research, Market data, Tradingview

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December 1, 2023 Indonesia Strategy

Past performances of our portfolio

The performance of our recommended stock portfolio has been facing challenges recently.
Despite including some blue-chip stocks such as BBRI, BMRI, ASII, and TLKM, their
performance still lags behind the index. Over the past 3-4 months, we have observed that the
index's performance has been largely supported by newly IPO'd stocks, including BREN and
AMMN, contributing to index gains of over 236 and 140 points, respectively. Meanwhile, BMRI
and BBRI could only contribute 85 and 43 points, respectively, to the index's strength.

Moving forward, since we have not yet included both of these leaders in our portfolio, if they
continue to strengthen, it seems that the performance of our portfolio will still be below the
index. However, in the longer term until the second half of 2024, we still believe there will be
improvement, given the careful stock selection process and the inclusion of companies with
reasonable valuations.

Figure 32. Our portfolio index value compared to JCI

Portfolio Index value (L) JCI Index (R)
1,100 7,200

7,100
1,050

7,000
1,000
6,900
950
6,800

900
6,700

850 6,600
Inception May-Jun'23 Jun-Jul'23 Jul-Aug'23 Aug-Sep'23 Sep-Nov'23

Source: Mirae Asset Sekuritas Indonesia Research, Market data, Tradingview

Figure 33. Our portfolio index return compared to JCI

Portfolio Index return (L) JCI Index return (R)
6% 4%

4% 3%

2% 2%
1%
0%
0%
-2%
-1%
-4%
-2%
-6% -3%
-8% -4%
-10% -5%
May-Jun'23 Jun-Jul'23 Jul-Aug'23 Aug-Sep'23 Sep-Nov'23

Source: Mirae Asset Sekuritas Indonesia Research, Market data, Tradingview

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December 1, 2023 Indonesia Strategy

APPENDIX 1

Important Disclosures & Disclaimers

Analyst Certification
Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible
for this report. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in
the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be
directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of PT Mirae Asset Sekuritas Indonesia,
the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional
equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason
to know of any actual, material conflict of interest of the Analyst or PT Mirae Asset Sekuritas Indonesia except as otherwise stated herein.

Disclaimers
This report is published by PT Mirae Asset Sekuritas Indonesia (“Mirae Asset”), a broker-dealer registered in the Republic of Indonesia and a member of the
Indonesia Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such
information has not been independently verified and Mirae Asset makes no guarantee, representation or warranty, express or implied, as to the fairness,
accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Bahasa Indonesia. If this
report is an English translation of a report prepared in the Indonesian language, the original Indonesian language report may have been made available to
investors in advance of this report. Mirae Asset, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising
from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to
effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have
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report would violate any laws and regulations or subject Mirae Asset and its affiliates to registration or licensing requirements in any jurisdiction should
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subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The
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investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.

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case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements.
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All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Mirae Asset
or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Mirae Asset and
its affiliates to any registration or licensing requirement within such jurisdiction.

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December 1, 2023 Indonesia Strategy

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