Sector Strategy Outlook2019

FOCUS | XXX
FOCUS | Equity Strategy

Company Update | XX XXXXX 2013
Sector Update | 8 January 2019
Mandiri Sekuritas Analyst

Outlook 2019: A Better Risk-Reward
Adrian Joezer 2019 focus is shifting from the global re-pricing of rising yield into slowing growth.
+6221 5296 9415 We think Indonesia stands out given the relative attraction of its growth, valuation
adrian.joezer@mandirisek.co.id
and risk-free-rate differentials to the key DM and EM countries. We raised our
Mandiri Sekuritas Research Team country rating to OVERWEIGHT with a new end-2019 JCI target of 7,000. We prefer
a combination of Growth Defensive and Value stocks.
What will drive 2019? We expect 13% The government’s next reform agenda of
Sector: Strategy index return, driven by an improvement in reviving private investments (i.e. new tax
EPS growth to 11% this year from 8% last holiday and negative investment lists,
year, and a 3% re-rating in forward fiscal spending focus on human capital,
OVERWEIGHT multiple. Five key parameters point to a tourism industry development) should be
high probability of JCI’s valuation re- growth-supportive, while the conservative
rating, despite of a slowing global growth 1.8% fiscal deficit target gives the
Stocks Recommendation and our expectation of two more rate government more flexibility to accelerate
hikes; these are: 1) improvement in JCI’s the fiscal stimulus.
Ticker Recom Price (Rp) TP (Rp) EPS growth differential against key DM
BBRI Buy 3,660 4,100 and EM peers, which typically leads to How should we monetize the risk-
BBTN Buy 2,640 3,250 valuation re-rating; 2) high spread in reward? Considering the negatives (i.e.
CTRA Buy 1,085 1,430 Indonesia’s real 10Y yield versus key DM slowing global growth, weak commodity
GGRM Buy 82,750 94,050 and EM peers with declining inflation risks prices, tight domestic liquidity) and
HEAL Buy 2,670 4,200 and government’s pro-stability stance in positives (i.e. less monetary tightening,
MAPI Buy 815 1,100
both monetary and fiscal policies; 3) equity relatively better growth/valuation), we
asset de-risking had occurred with JCI’s prefer Defensive Growth and Value stocks.
PTPP Buy 2,100 3,085
forward PE de-rating from 17x in end-2017 Valuation gap of Defensive to Cyclical is
TOWR Buy 675 750
to 14x in end-2018; 4) foreign equity still too wide regardless of the easing risk
TLKM Buy 3,770 4,200
ownership has fallen to the lowest level premium pressures, while selective
WIKA Buy 1,825 2,455
since we tracked the data; and 5) the Fed’s defensive names do offer high EPS growth.
Source: Mandiri Sekuritas estimates recent dovish statement may favor IDR Valuation discount of the Value stocks
through portfolio flows, partly offsetting could also narrow as risk premium
the risks from the Current Account side stabilizes, particularly the rate-sensitive
amidst slowing global growth. sectors (i.e. Property and Construction)
and some of the small banks. Our Top 10
Will slowing global growth de-rail our picks are BBRI, BBTN, CTRA, GGRM, HEAL,
view? Slowing global growth, particularly MAPI, PTPP, TOWR, TLKM and WIKA. Refer
China, will have a repercussion to to Page 28 for SMID-caps picks.
Indonesia’s economy, directly affecting
commodity exports; hence affecting the Key risks: global growth slowdown,
Balance of Payment, Fiscal Revenues and commodity prices weakness, tight
domestic purchasing power. In relative domestic liquidity, and tightening in other
term, however, Indonesia is less affected DM (i.e. ECB and BoJ).
from the US-China trade war as its
economy is also more domestically-driven.
Please see important disclosure at the back of this report Page 1 of 66

Table of Contents
Outlook 2019 ........................................................................................................................ 3
2018 Review ..............................................................................................................................................3
2019 Growth Outlook ............................................................................................................................5
What to Watch Out for in 2019 .......................................................................................... 10
General Election in April 2019 .......................................................................................................... 10
Balancing the External Risks and the Growth ............................................................................. 11
Index Target and Valuations ............................................................................................. 23
End-2019 JCI Target of 7,000 ............................................................................................................ 23
Indonesia’s Growth and Valuation Stand Out in Relative Term ........................................... 23
Sector and Stocks Recommendations .............................................................................. 27
Stock Picks .............................................................................................................................................. 29
Sector Views ........................................................................................................................................... 40
APPENDIX I: Sector Valuation Band .................................................................................. 62
APPENDIX II: MANSEK Valuation Guide ........................................................................... 64
FIGURE 1. MANSEK TOP 10 PICKS (IN ALPHABETICAL ORDER)

Last Target PE (x) PBV (x) EV/EBITDA (x) EPS gr (%) Rel. perform. to JCI
Mkt cap
Stocks Rating Price Price
(Rp Bn) 19F 20F 19F 20F 19F 20F 19F 20F 1M 3M 6M
(Rp) (Rp)
BBRI Buy 3,660 4,100 451,273 11.3 10.5 2.2 2.0 N.A. N.A. 21.7 8.0 -1.5 13.1 18.5
BBTN Buy 2,640 3,250 27,958 6.8 5.7 1.0 0.9 N.A. N.A. 23.9 19.4 -6.3 -0.1 12.4
CTRA Buy 1,085 1,430 20,138 19.8 17.7 1.3 1.3 11.4 10.6 8.2 11.6 -2.6 31.2 5.0
GGRM Buy 82,750 94,050 159,218 16.6 15.1 2.9 2.5 11.0 9.9 18.5 9.5 -3.9 5.6 10.5
HEAL Buy 2,670 4,200 7,938 45.7 33.6 4.2 3.9 12.7 10.2 11.4 35.9 -15.7 -27.3 -34.1
MAPI Buy 815 1,100 13,529 16.6 16.6 2.6 2.4 6.9 6.8 13.4 0.0 -4.4 -5.2 -11.0
PTPP Buy 2,100 3,085 13,020 7.5 6.1 0.9 0.8 4.3 3.8 17.5 22.7 5.9 26.2 -7.5
TOWR Buy 675 750 34,435 14.3 14.0 3.9 3.6 8.4 8.0 7.0 1.5 8.9 33.3 2.1
TLKM Buy 3,770 4,200 373,465 15.8 14.4 3.5 3.3 5.8 5.3 10.4 9.9 0.1 -2.9 -12.7
WIKA Buy 1,825 2,455 16,352 8.7 8.2 1.1 1.0 5.8 5.8 19.6 6.7 12.2 29.6 30.5
Simple average 16.3 14.2 2.4 2.2 8.3 7.6 15.2 12.5
Weighted average 13.9 12.7 2.7 2.5 4.3 3.9 16.6 9.3
MANSEK universe 16.1 15.0 2.5 2.3 13.2 12.6 10.9 7.8
Source: Bloomberg, Company, Mandiri Sekuritas estimates

Outlook 2019
2018 Review
 Valuation re-pricing towards higher yield, higher CAD and lower EPS growth
JCI delivered 2.5% negative return in 2018 (-0.3% inclusive of gross dividend), aligned with
the bond market (BINDO Index) that delivered 2.2% negative return, but relatively an
outperformer in the region. The negative return was predominantly contributed by
forward multiple de-rating from 17.0x PE in the beginning of 2018 to 14.5x in the end,
aligned with the re-pricing of higher risk-free-rates (the rise of Indonesia’s 10Y Yield and
CDS), widening current account deficit, and the unexpectedly sharp EPS growth slowdown
from high-teens to single-digit rates.
The multiple de-rating offset the 7% EPS growth and 2% dividend yield, yet this makes
valuation much more compelling entering 2019. Indonesia’s twin-deficit status
directionally changed the stance of the government and central bank from being growth
into stability-bias; this, in turn, was rewarded positively in recent months with its
outperformance among the EM indexes.
FIGURE 2. BREAKDOWN OF JCI INDEX’S TOTAL RETURNS FIGURE 3. KEY DRIVERS OF JCI INDEX RETURNS IN 2017-18
6,600
25%
2% 25
20% 2% 6,400
2%
15% 2%
2% 16% 4% 6,200
1% (186)
10% 18% 2% 6,000
5% 11% 2% 11%
2% 5% 7% 1,006
0% 1% 3% 5,800
-2%
2012 2013 2014 2015 2016 2017 2018 6,356
-5% -9% 5,600 6,195
-15%
-10%
5,400 53
-15%
5,200
-20% 5,297
EPS growth Chg in P/E Dividend yield 5,000
End 2016 EPS chg PE chg End 2017 EPS chg PE chg End 2018
Source: Bloomberg, Mandiri Sekuritas calculations Source: Bloomberg, Mandiri Sekuritas calculations
FIGURE 4. JCI’S FORWARD PE DE-RATED EXCESSIVELY IN 2018, DUE TO FIGURE 5. ….AND THE UNEXPECTED SLOWDOWN IN EARNINGS GROWTH
RISING COST OF EQUITY… FROM HIGH-TEENS TO SINGLE-DIGIT RATES
PE (x) % 25%
18 5.0
5.5 20%
17
6.0 15%
16
6.5
15 10%
7.0
14 7.5 5%
13 8.0 0%
8.5
12 -5%
9.0
11 9.5 -10%
10 10.0 -15%
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
PE 10Y Yield (RHS) Market Net Profit, YoY Market Net Profit (12M Trailing), YoY
Source: Bloomberg Source: Bloomberg, Company, Mandiri Sekuritas calculations

 Sector performance in 2018
After peaking at 23% YoY in 4Q17, our universe’s EPS growth massively slowed to low-to-
mid-single digit level in 1Q18-2Q18. Weak private consumption, normalizing banks’ EPS
growth and price wars in the telecommunication and cement sectors pulled down the
overall market EPS growth. The trend reversed in 3Q18 as EPS growth improved to 13%, as
government measures to revive private consumption started bearing fruits while some
sectors delivered margin turnaround (i.e. cement and telcos).
FIGURE 6. MANSEK UNIVERSE’S EBIT AND EPS GROWTH TREND FIGURE 7. MANSEK UNIVERSE’S EBIT MARGIN TREND
25% 19%
20%
13% 18%
15% 18%
10%
11%
5% 17%
17%
0%
-5% 16%
-10%
-15% 15%
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
EBIT, YoY Net Profit, YoY Aggregate EBIT margin Aggregate EBIT margin 12M trailing
Source: Company, Mandiri Sekuritas estimates Source: Company, Mandiri Sekuritas estimates
Financials (mostly the big banks) continued to be the key JCI contributor as it delivered a
market-cap-weighted return of 1.4% in 2018, followed by Materials (0.9%) and Industrials
(0.3%). Telecommunications (-1.7%), Staples (-1.2%) and Healthcare (-0.3%) were the
bottom three last years. Performance diverged, even across the rate-sensitive sectors (i.e.
automotive vs. property and construction), but they were universally driven by the quality
of earnings and balance sheet.
FIGURE 8. 2018 JCI PERFORMANCE BY SUB-SECTORS (MARKET-CAP-WEIGHTED)
Financials 1.4%
Materials 0.9%
Industrials 0.3%
Discretionary 0.3%
IT 0.2%
Utilities 0.0%
Energy 0.0%
Real Estate -0.1%
Healthcare -0.3%
Staples -1.2%
Telco -1.7%
-2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0%
Note: Market-cap-weighted average YTD performances of all JCI members

Source: Bloomberg, Mandiri Sekuritas calculations
While valuation de-rating affected most sectors, it was the level of the EPS growth and
nature of the sectors (i.e. interest-sensitive sectors like Construction and Property
underperformed) that further explain the performance deviations across sectors. The next

table shows the return breakdown of our universe; most sectors delivered negative return
(except Financials, Chemical and Oil & Gas) and most were driven by the valuation de-
rating, realigning with the spike in the bond yield and the slowdown in the respective
sectors’ EPS growths (even turned negative for some sectors like Healthcare, Property &
Industrial Estate, and Telecommunication). Valuation re-ratings occurred mostly within
Construction & Materials (due to the re-rating of cement manufacturers following the
substantial 3Q18 earnings turnaround and industry consolidation following Semen
Indonesia’s takeover of Holcim Indonesia) and Chemical.
FIGURE 9. BREAKDOWN OF SECTOR RETURN IN 2018 RELATIVE TO 2017

Mandiri Sekuritas Sector Return (%) EPS growth (%) Forward PE (x)* Forward PBV (x)*
Universe 2017 2018 2017 2018 2017 2018 Chg 2017 2018 Chg
Financials 50.4 5.3 27.9 13.1 16.1 16.0 (0.1) 2.6 2.6 (0.0)
Construction & materials 5.8 (9.4) (8.4) 9.9 19.4 23.9 4.5 2.1 2.0 (0.2)
Consumer Staples 25.4 (12.7) 5.9 3.1 36.8 32.6 (4.2) 26.8 22.1 (4.8)
Healthcare (18.7) (17.1) 3.1 (5.3) 60.8 47.4 (13.4) 5.2 4.3 (0.9)
Consumer Discretionary (5.0) (2.7) 16.4 16.0 16.1 14.4 (1.7) 3.3 2.7 (0.6)
Commodities 14.8 (7.0) 61.5 25.6 20.5 12.6 (7.9) 1.9 1.6 (0.3)
Property & Industrial Estate (1.3) (17.3) 54.2 (23.6) 14.1 13.8 (0.3) 1.7 1.3 (0.4)
Telecommunication 10.5 (20.4) 18.2 (7.6) 18.0 16.2 (1.8) 4.1 3.2 (0.9)
Chemical 158.5 31.0 (6.6) (5.3) 13.9 23.4 9.4 1.2 1.6 0.3
Airline n.a. (30.2) (10.8) (28.6) n.a. 7.1 n.a. n.a. 1.2 n.a.
Oil and Gas (35.2) 19.4 (65.8) 65.6 13.3 14.3 1.0 1.0 1.1 0.1
Note: *Figures are based on year-end position of the forward valuation multiples
Source: Bloomberg, Mandiri Sekuritas estimates
2019 Growth Outlook

Of the four key factors (discussed earlier) dragging the EPS growth slowdown in between
2H17 and 1H18, three reversed in 3Q18: 1) private consumption started improving thanks
to the disbursement of government’s social spending, netting off the pressures from
weaker palm oil prices; 2) price wars in telecommunication appears to be more moderate
and; and 3) industry consolidation in cement sector that should lead to positive industry
pricing trend ahead. The favorable trend in both IDR currency and crude oil prices should
also support the overall near-term margin.
This year, we forecast 7%/6%/7% growth in revenue/EBIT/net profit; versus 9%/6%/11% in

2018. It is not an absolute strong improvement, but improving growth differentials to key
DM and EM peers make Indonesia stand out in relative terms. Historically, this leads to
index outperformance, which is discussed in the later section.
FIGURE 10. 2018F NET PROFIT GROWTH CONTRIBUTORS FIGURE 11. 2019F NET PROFIT GROWTH CONTRIBUTORS
(%) 2018 (%) 2019
12.0 14.0
0.4 0.4
0.5 12.0 0.6 0.2 0.1 0.02
10.0 1.7 (0.02) (0.1) 0.8 11.0
(0.9) 1.2 (0.1)
7.7 10.0 (0.5)
8.0 2.8 2.1
(1.8) 8.0
6.0 6.5
4.7 6.0
4.0
4.0
2.0 2.0
0.0 0.0
Cons. discret
Cons. discret
Construction
Construction
Commodities
Commodities
Property
Property
Healthcare
Healthcare
2018F EPS
2019F EPS
Telco
Telco
Cons. staples
Cons. staples
Others
Others
Oil & Gas
Oil & Gas

Financials
Financials
growth
growth
Source: Mandiri Sekuritas estimates Source: Mandiri Sekuritas estimates

We see the following sectors as the key EPS growth drivers for 2019:
 Banks
We expect EPS growth improvement to 17.4% in 2019F from 13.1% in 2018F. Tight
LDR would limit industry loan growth to 10-12%, but we expect a 12% growth
across our universe driven by the big banks. While NIM pressures would remain
amidst the tight liquidity and continuous pass-through of rate hikes, the sector
would still deliver a relatively strong EPS growth acceleration this year thanks to
lower provisioning charges and further controlled operating expenses.
 Consumer Discretionary
Automotive: We forecast 5% EPS growth in 2019F as we expect margin
improvement from automotive unit, driven by a more favorable competitive
environment. Including contribution from the newly acquired Martabe gold mine
to UNTR (up to 13% of UNTR’s FY19F NP), we estimate EPS growth will increase to
8% this year. Our forecast is based on 2019F 4W industry growth of 3% and 50%
ASII’s market share.
Retailers: We expect EPS growth to moderate at 11% in 2019F from 21% in 2018F
on the back of normalizing SSSG for some counters and minimum cost efficiency
effort for most retailers. We expect a lower SSSG for ACES after its stellar 2018
performance while we don’t see any significant changes within the mid-to-upper
segments’ consumption trend as well as the management’s strategy; the same
goes to MAPI. However, we are expecting an improvement on SSSG for RALS,
PZZA and LPPF driven by mass market consumption booster during the political
year. Additionally, the cost saving is only limited from a lower minimum wage
adjustment of 8% in 2019, slightly lower than 8.7% in 2018.
 Consumer Staples
We expect the aggregate EPS of staples and tobacco names to grow by 13% YoY
in 2019 (vs. only 3% in 2018), with tobacco reversing significantly to 17.5% YoY
from 4% in 2018. Tobacco specifically benefits from the zero excise hike in 2019,
whereby up-trading to higher-priced cigarettes helps profitability, and excise-
related margin seasonality in 1H19 also nudged EPS. A combination of purchasing
power push by the Government also helps purchasing power for FMCG, yet tight
competitions unmet with companies’ sufficient innovations might taper growth
acceleration; hence, we expect 9% YoY revenue growth in 2019 (vs. 7% in 2018).
Nevertheless, normalizing input costs could help raise EPS growth to 8% YoY in
2019 (from 2% in 2018).
 Telecommunication
We forecast EPS growth of 11.8% in 2019F, from the -7.6% decline in 2018F, driven
largely by Telekomunikasi Indonesia. While the market leader admittedly would
still battle the declining legacy revenue base, we expect revenue growth to return
positively to low-to-mid single digit range given the follow-through benefits from
the prepaid SIM card registration done earlier in 2018.
 Property
We expect 17% EPS growth in 2019F, a reversal from the 27% decline expected in
2018F. We note however that our 2019F top line and operating profit expectations
are significantly slower, at 4% and 5% respectively and our strong EPS growth
forecast is largely due to lower forex losses for Alam Sutera Realty, Bumi Serpong
Damai and Pakuwon Jati, as we expect lower rupiah weakness in 2019F. At the
core level, however, we expect just 3% growth in 2019F across our coverage, with
strong contribution from Ciputra Development and Alam Sutera Realty, at 10%
and 9% respectively, supported by delayed recognition from past presales for
Ciputra, and from bulk land sales for Alam Sutera.

 Healthcare
We expect aggregate EPS growth of 6% YoY in 2019 (vs. -5% in 2018), as JKN-
driven volumes continue to drive EBITDA growth given hospitals’ high operating
leverage. We see higher EPS growth from hospitals who can maintain a healthy
hospital expansion and BOR. While we are still conservative in our numbers, we
see a high chance of JKN rate adjustment post-Presidential election. Should this
take place, not only that the pool of patients and healthcare facilities within JKN
enlarge, it would also add 10-15% to industry EPS for every Rp4,500 rate hike,
inclusive of rising drug prices.
Meanwhile, sectors that we expect to negatively contribute in 2019 are:
 Commodities
Coal Mining: We expect EPS to decline by 13% on average in 2019F mainly on
lower coal price assumption of USD85/ton (vs USD95/ton in 2018) with more
downside risk if the widening discount of lower quality coal to higher quality coal
continues into 2019. Production growth will be moderate at up to 4% and we also
see possible lower production cost as a result of lower fuel price (20-30% of costs).
Our 2019F EPS is 15% below consensus forecast.
Plantation: We expect plantation companies’ EPS growth to accelerate to 32% in

2019F from 20% contraction in 2018F. This is mostly driven by CPO price recovery
on the back of improvement in supply and demand balance in 2019. We expect to
start seeing gradual supply reduction in 2019 onwards from replanting activities
while demand should accelerate as India start lowering its import tax for edible
oils on the back of insufficient domestic supply and success implementation in
Indonesia biodiesel mandate. All of these should translate into a more
manageable inventory level, a reduction from 2018.
 Construction & Materials

Construction: We forecast 5% EPS decline in 2019F (2018F: +19% yoy), dragged
down by Waskita Karya as we expect WSKT’s EPS growth to decline by 25% in
2019F mainly due to its high leverage position. Excluding WSKT, we foresee a 19%
earnings improvement in 2019F. Meanwhile on the top-line, we expect revenues
to grow by 11% in 2019F, driven by abundant order book of Rp106tn, worth of
2.5years construction works.
Cement: We forecast EPS growth of +22%yoy for INTP and -34%yoy for SMGR in
2019F—the decline in SMGR’s net income is due to the interest burden arising
from the acquisition of Lafarge Holcim’s Indonesia operations estimated at
~Rp2.3tn. Excluding the acquisition and interest expense, we expect SMGR to
deliver net income of Rp3.0tn, +13%yoy. Higher EPS growth in 2019F to be driven
by higher ASP, due to recent price hikes conducted by cement players especially in
2H18, along with lower coal prices expected in 2019F. We are quite conservative
with our numbers as we expect cement prices to remain stable over the first six
months and to only start adjusting prices in 2H19. Should cement players start to
increase prices aggressively again, EPS can expand by 12-14% for every 1%
increase in ASP.

FIGURE 12. 2019 SECTOR VIEW: BASE CASE, UPSIDE CASE AND DOWNSIDE CASE
Key Sectors Base View Upside Risks Downside Risks
Margin improvement on low Mass-market purchasing power

Consumption improvement in 1H19 commodity prices (in 1H19) and slowdown if weak commodity prices
ahead of April election; sequentially potential USD weakness on Fed’s continue (due to slowing global
Consumer (Staples, Tobacco, and
weaker top-line growth in 2H19 on tightening pause (2H19). Lower growth), with larger impact within
Retailers)
expectations of subsidized fuel price magnitude of fuel price adjustment ex-Java regions. Continuous
adjustment. at the current oil price may reduce competition from the rising
consumption growth downside risk digitization trend.
Demand for cement, especially bag

cement, will be weak in 1H19
leading up to the presidential Margin improvement on pricing Price corrections to take place if
elections. Expect demand recovery recovery during 1H19 given the purchasing power weakens and
to follow in 2H19, mainly supported biggest player starts to implement demand growth is negative during
Building Materials
by improvement from the property price discipline in 1H19, weakening 1H19. Downside risk if demand for
sector. Bulk cement growth is USD, and lower than expected coal property does not pick up in 2H19
expected to decelerate in 2019F due prices. and remains quite weak.
to completion of projects and slower
order book.
JKN rate adjustment post-

Margin improvement from even
presidential election could raise
stronger IDR and lower oil price, Revisions on JKN regulation and the
industry EBITDA by 10-15%, making
benefiting pharmaceutical players. program’s coverage, curtailing
Indonesia more comparable to
Healthcare More leeway on JKN coverage could volume growth for JKN hospitals.
regional valuations. Biggest
jack-up volume growth for JKN Cost inflation could also squeeze
beneficiary is JKN-driven businesses,
models. Higher purchasing power Pharma margins.
while avoiders need to catch up on
benefits non-JKN hospitals.
growth from other venues.
Follow through benefits from

prepaid SIM card registration
program in 2018 could support
Slower legacy revenue decline and More intense mobile pricing
mobile revenue growth recovery,
stable data prices in 2019F could competition as operators
Telecommunication especially in 1H19. Meanwhile,
help accelerate revenue growth and aggressively attempt to fill up newly-
profitability improvement in 2019
improve profitability. built data network capacity.
still depends on capacity to arrest
legacy revenue decline and
monetize data services better.
We expect mild competition in the

4W market, as we do not see new We see downside risk on commercial
We see ASII's market share may
product launches (only facelift) from vehicle, particularly sales to the
increase to 51-52% due to mild
major brands in the mass market, mining sector and 2W due to softer
competition in the passenger car
such as the LMPV and LCGC commodity prices. Note that strong
Automotive and softer commercial vehicle sales
segments. ASII is well positioned to 4W sales in 11M18 of +8% yoy was
on softer commodity prices. Note
benefit from mild competition due driven by 18% yoy growth from
that Mitsubishi is the market leader
to its extensive dealership, strong commercial vehicle (23% of total
in the commercial vehicle market.
support from financing units, and sales).
strong after sales service.
We see risk of earnings downgrade Short-term catalyst for coal with Slow recovery of lower CV coal
in 2019/2020F consensus forecast lower quality may come from the (<5,500 kcal) produced by the
Coal Mining due to 1) lower coal price and renewal of China’s import quota for majority of coal producers in
2) widening discount of low quality 2019, which has declined by 21% ytd Indonesia due to higher coal
coal to higher quality. (Newcastle 5,500 kcal). production in China.
Near term challenge on mounting

inventory level due to weak demand
in importing countries (India & China’s demand to pick up, as
The prolonged weak demand from
China); structural supply limitation initially we only expected flat
India; the Government’s replanting
Plantation given limited estate expansion while demand from China; higher
and biodiesel programs’ realizations
at the same time the Government is realization in the Government's
are lower than initially expected.
pushing for aggressive replanting replanting and biodiesel programs.
activities; demand pick up from
India’s and Indonesia’s biodiesel.
We see possible nickel price recovery

next year once trade tension eases. Higher nickel price as trade tension Slow recovery in nickel price due to
Metal Mining At USD 11k/ton nickel price, the eases and nickel demand grows for slower GDP growth in China and
price is too low even for efficient electric vehicles. prolonged trade tensions.
producers.

Key Sectors Base View Upside Risks Downside Risks
Stabilizing domestic currency,

declining world energy prices, and Below-than-expected inflation and
digital broadcast migration delay further decline in world energy
Weakening domestic currency and
should allow media companies to prices could help boost brands'
Media capex/costs overrun by the media
deliver positive low-to-mid single willingness to spend on TV Ads,
companies.
digit revenue growth in 2019-20F, hence driving faster revenue growth
hence maintain stable FCF trends among media companies.
during the same period.
Normalizing trend to continue, but Sector could be pressured by

presales should be challenging in weaker-than-expected presales,
2019 with elections and festive especially if 2H19 continues to be
season taking up 1H19. Expecting Deleveraging, brought about by weak. Unforeseen macro events,
6% yoy declines in aggregate quicker mortgage funds such as aggressive rate hikes and
presales across developers. disbursement as well as lower-than- weaker-than-expected IDR, are also
Property & Industrial Estate
expected capex, and stronger-than- downside risks.
For industrial estates, 2H19 could expected presales could be potential
also prove lucrative due to amicable upsides. Weaker-than-expected macro
policies in place and benefits from environment could also pressure FDI
infrastructure coming into realization, dampening industrial
operation. land sales.
Higher NIM is expected if: policy rate

Stronger economic growth in 2H19 Weaker than expected FDI, higher
adjustment is lower than projected,
translates into higher loan demand. inflation rate, and low fund inflows
Banks commodity prices improve
Another 50 bps rate adjustment will result in further tightening
substantially, and capital inflows
anticipated in 2019. liquidity.
grow rapidly.
Cost of fund to rise by 150 bps, while Slower-than-expected new contracts

Successful toll road divestment from
expecting a moderate +10% new achievement due to uncertainty in
Construction WSKT, positive operating cash flow,
contracts growth and improving election and higher-than-expected
and less turnkey projects ahead.
OCF. lending rate from banks.
Source: Mandiri Sekuritas estimates

What to Watch Out for in 2019

The de-rating of forward multiples took place in most EM in 2018, while we expect
investors to reassess the growth in 2019, particularly on how would things stack up after
the last twelve months of monetary and fiscal tightening and the next twelve months of
potential slowdown in global GDP growth. We expect private consumption to be the
backbone of the 1H19 growth, while investments may probably surprise on the upside as
election is over. Cost of capital pressures towards equity valuation, however, should be
more benign this year given the expected moderation in the Fed’s tightening – should this
happen; the potential weakness of USD could benefit Indonesia.
Key domestic events to watch out for:

 April 17 presidential and parliamentary elections in Indonesia
 New cabinet announcement for 2019-2024 terms on October 26
 Fiscal budget direction post-election
 Progress of the FDI and DDI flows utilizing the new tax holiday and the revised
negative foreign investment lists
Key risks include the following:

 Slowdown in global growth (especially China), which may weigh down on
Indonesia through the exports side; indirectly affecting the ex-Java consumption
through lower commodity exports
 System liquidity that may limit the credit and capex cycle, particularly given the
lock-up expiration of the repatriated tax amnesty money starting 3Q19 onwards
 Monetary policy direction of ECB and BoJ
FIGURE 13. 2019 KEY ECONOMIC AND GEOPOLITICAL CALENDAR

Key dates Events
January 22 World Economic Forum in Davos
February 24 Thailand General Elections
March 1 Decision on 25% US tariffs on USD200bn of China imported goods
March 5 13th National People's Congress of China (2nd meeting)
March 29 Brexit Deadline
April-May India Parliamentary Election
April 17 Indonesia Presidential and Parliamentary Elections
May China One Belt One Road International Forum
May 13 Philippine Mid-Term Elections
May 23-26 European Parliament Elections
June Mark Carney steps down as Governor of Bank of England
October 1 China 70th anniversary of People's Republic of China
October 26 Indonesia to announce new cabinet for 2019-2024 term
October 31 President ECB Mario Draghi steps down
Source: Jefferies, Mandiri Sekuritas
General Election in April 2019

We expect private consumption to be the backbone of the 1H19 growth, while
investments may probably surprise on the upside as election is over. That said, we expect
the mass-consumption-related stocks to deliver a good set of growth improvement in
1H19, particularly as FMCG growth bottomed in 1Q18; thus, providing an easy base to start
with. Statistically, JCI Index tend to outperform ahead of the General Election; however,
further analysis suggests that the outperformance was indeed driven by the underlying
EPS growth direction while EPS growth turned positively ahead of the last few elections.

Stock implications: Consumer Staples, mid-to-low-end Retailers and Telcos could benefit
ahead of the April Election. The recent pullback of USD strength and the crude oil prices
shall also lead to manageable input costs; hence positive for margins in the 1H19. Post-
election fiscal budget direction, however, must be closely watched.
FIGURE 14. JCI’S PRE-ELECTION RALLY DEPENDS ON THE EPS GROWTH, FIGURE 15. PRIVATE CONSUMPTION GDP GROWTH, HOWEVER, TENDS
AS SUGGESTED IN THE PAST THREE ELECTIONS TO IMPROVE AHEAD OF THE ELECTIONS
6.5%
2004 2009 2014 Election Day
JCI Index performance 6.0%
3M before 11.1% 18.8% -0.9%
5.5%
3M after 23.2% 6.6% 2.5%
6M before 3.7% 50.6% 2.9% 5.0%
6M after 27.4% 15.5% 7.1% 4.5%

12M before 28.8% 75.4% 10.9%
4.0%
12M after 27.9% 43.0% -9.0%
JCI Index EPS growth 3.5%
Y-1 -15% -2% 1% 3.0%

Y0 30% 20% 5% -12M -6M -3M +3M +6M +12M
Y+1 -7% 28% -15% 2004 2009 2014
Source: Bloomberg, Mandiri Sekuritas calculations Source: CEIC
Balancing the External Risks and the Growth

High LDR in Indonesia, which is also faced in some other ASEAN peers, has become a
growing debate as it may limit funding capacity to support growth. Domestic loan growth
continued improving notwithstanding the rising interest rate, at 13% YoY per end-Sep’18,
widening the gap to the third party funds’ growth that remained weak at 7%. System LDR
subsequently climbed to the 93-94% from 89% in early 2018, while LFR picked up to 91-
92% from 87%. We believe that funding from banks have helped the transition from the
35% decline in capital market funding last year, from Rp243trn in 2017 to Rp158 in 2018, as
higher yields and rising volatility make it more costly to do bond and equity financing.
We project 12% loan growth in 2019 (for our universe), with large banks incrementally
taking higher contribution given the better funding (i.e. lower LDR) than the mid-sized
banks plus enough CAR level to be more flexible in stretching the muscle. We still view it
quite challenging as upholding the current LDR level while achieving a 10% loan growth
requires some Rp500trn of new third party funds, while the spread of the TD rates to the
government bond yield remains quite large.
FIGURE 16. SYSTEM LDR NEARS 95%... FIGURE 17. …WITH MID-SIZED BANKS’ LDR REACHING >100%
95% 40% 105
90% 35% 100
85% 30% 95
80% 25% 90
75% 20% 85
70% 15% 80
65% 10% 75
60% 5% 70
65
55% 0%
Dec-14
Mar-15
Dec-15
Mar-16
Dec-16
Mar-17
Dec-17
Mar-18
Sep-15
Sep-16
Sep-17
Sep-18
Jun-15
Jun-16
Jun-17
Jun-18
3Q05
2Q06
1Q07
4Q07
3Q08
2Q09
1Q10
4Q10
3Q11
2Q12
1Q13
4Q13
3Q14
2Q15
1Q16
4Q16
3Q17
2Q18
LDR Loan, YoY (RHS) Deposit, YoY (RHS) BUKU 1 BUKU 2 BUKU 3 BUKU 4 Total
Source: Bank Indonesia Source: Bank Indonesia

FIGURE 18. TOTAL FUNDING IN 2018 GREW ALONG WITH HIGHER CAPEX, BUT THE CHANNEL SHIFTED TO BANKS AS GLOBAL
TIGTHENING AFFECTED THE CAPITAL MARKET FUNDING THROUGH HIGHER RISK-FREE RATE AND RISK PREMIUM
Capital Market (Rp trn) Bank loan (Rp trn) Capital Market + Bank
IPO Rights Issue Bonds Sub-Total YoY Net chg YoY Total YoY
2015 11 45 63 119 384 622
2016 12 64 114 190 60% 319 -17% 699 12%
2017 10 75 158 243 28% 350 10% 837 20%
2018* 15 38 104 158 -35% 569 63% 885 6%
*Note: 2018 data is up to November 30 for the bond issuance, up to mid-December for equity and rights issues. For Banks, we assumed a full-year 12%
loan growth (per October: 13% YoY)
Source: IDX, KSEI, Mandiri Sekuritas estimates
Balancing the Balance of Payment
Foreign outflows in Indonesian bonds and equities, along with Current Account
deterioration amidst widening trade deficits, added further pressures to Indonesia’s
Balance of Payment in 2018. These added further pressures to the domestic liquidity, as can
be seen by the spike in LDR along with the increase in loan growth and the BoP turning
negative starting early this year. Having a twin-deficit status is a challenge when external
risks and volatility are higher; we applaud the stance of the government and the central
bank in maintaining stability since the global capital outflows from EM countries
happening in 2018.
Efforts have been made to reduce the fiscal and current account deficit; these include
measures to increase tax ratios, reduce imports of consumption goods and infrastructures
raw material. The central bank has been ahead of the curve, which was responded
positively by the bond and currency market, both with its decisive rate hikes decision and
some other measures, such as the incentives to bring export proceeds to Indonesia, the
creation of domestic NDF markets, and the incentives to support the property market
through a more relaxed regulations.
FIGURE 19. INDONESIA’S BOP TURNED NEGATIVE IN 2018 DUE TO FIGURE 20. …PARTLY CONTRIBUTING TO THE RISING LDR AS DOMESTIC
WIDENING TRADE DEFICIT AND FOREIGN OUTFLOWS… LIQUIDITY DECLINES
15.0 15.0 12.5 95%
12.5
10.0
10.0 10.0 90%
7.5
7.5
5.0 5.0 5.0 85%
2.5
2.5
- -
- 80%
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
(2.5)
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
(5.0) (5.0) (2.5)

75%
(7.5)
(5.0)
(10.0) (10.0)
(7.5) 70%
Current acct (USD bn) Capital acct (USD bn)
Financial acct (USD bn) BoP (USD bn) (RHS) BoP (USD bn) LDR (RHS)
Source: CEIC Source: CEIC, Bank Indonesia

FIGURE 21. EQUITY AND BOND MARKET FLOWS FIGURE 22. BANK INDONESIA’S FX RESERVES
40 140 14%
Change
30 120 into 12%
7DRRR
100 10%
20
80 8%
10
60 6%
0 Feb-18
40 4%
Sep-17
Sep-18
Oct-17
Oct-18
Aug-17
Aug-18
Mar-17
Dec-17
Mar-18
Apr-17
Apr-18
May-17
Jul-17
May-18
Jul-18
Jan-18
Nov-17
Nov-18
Jun-17
Jun-18
-10 20 2%
- 0%
-20
Mar-06
Mar-08
Mar-10
Mar-12
Mar-14
Mar-16
Mar-18
Jul-07
Jul-09
Jul-11
Jul-13
Jul-15
Jul-17
Nov-06
Nov-08
Nov-10
Nov-12
Nov-14
Nov-16
Nov-18
-30
Net foreign flows to equity ex-crossing (Rp trn)
FX Reserves (US$ bn) Bank Indonesia's Policy Rate (RHS)
Net foreign flows to bonds (Rp trn)
Source: Bloomberg, DMO, Mandiri Sekuritas calculations Source: CEIC
Given the importance of portfolio investment into our Balance of Payment, we believe that
restoring capital market confidence is crucial to support the domestic liquidity as risks to
the current account balance remain this year. While measures to reduce imports had been
implemented (i.e. increasing reference rates, increasing import tax PPH22, and postponing
some infrastructures projects), the bigger issue is the slowdown in the global GDP growth
that may pressure Indonesia’s exports, which is less controllable unlike imports.
IMF forecasts slower GDP growth in Developed Market to 2.1%/1.7% in 2019/2020 from
2.4% in 2018, and China to 6.2%/6.2% from 6.6% in 2018; the change in growth forecasts
suggest much sharper growth slowdown in 2019, which is not surprising given the slowing
manufacturing activities as shown by the recent PMI trend in China (December PMI marked
the first contraction in 19 months) as well as the global PMI and Baltic Dry Index trend.
FIGURE 23. IMF FORECAST SLOWING GDP GROWTH IN DEVELOPED FIGURE 24. …PUTTING SOME RISKS TO INDONESIA’S TRADE BALANCE
ECONOMIES AND CHINA IN 2019 OUTLOOK
6.9% 6.6%
7.0% 2.0 30%
6.2% 6.2%
1.5
6.0% 5.3% 20%
5.3% 5.2% 5.2% 1.0
5.0% 0.5
10%
3.7% 3.7% -
3.7% 3.7%
4.0%
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
May-13
May-14
May-15
May-16
May-17
May-18
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
(0.5) 0%
3.0% (1.0)
2.3% 2.4%
2.1% -10%
(1.5)
1.7%
2.0% (2.0)
-20%
(2.5)
1.0%
2017 2018F 2019F 2020F (3.0) -30%
World DM ASEAN-5 China Trade Balance (USD bn) Exports, YoY (RHS) Imports, YoY (RHS)
Source: IMF Source: CEIC

FIGURE 25. PMI TREND IN GLOBAL AND CHINA, AND BALTIC DRY INDEX TREND SUGGEST A
SLOWDOWN IN GLOBAL GROWTH
56 250%
54 200%
150%
52
100%
50
50%
48
0%
46 -50%
44 -100%
Dec-12
Dec-17
Nov-10
Nov-15
Jan-10
Feb-12
Jan-15
Feb-17
Sep-11
Sep-16
Aug-14
Jul-12
May-13
Jul-17
May-18
Mar-14
Oct-13
Oct-18
Jun-10
Jun-15
Apr-11
Apr-16
China PMI Global PMI Baltic Dry Index, YoY (RHS)
Source: Bloomberg
This gives a cautious signal to the commodity exports outlook, which has direct implication
to Indonesia’s trade balance and indirectly towards mass-market consumption, particularly
in ex-Java. The top five commodity exports of Indonesia (i.e. coal, palm oil, oil, and natural
rubber) have strong correlations with Indonesia’s total exports value, while prices of these
commodities depend on the demand and are dominated by China as Indonesia’s main
export destination (15% of Indonesia’s exports). While China may possibly add fiscal
stimulus, we think the Indonesian government may continue to maintain its stance of
supporting stability to support the overall balance.
FIGURE 26. THE SLOWDOWN IN CHINA’S GDP GROWTH MAY AFFECT THE FIGURE 27. COMMODITY PRICES HAVE HUGE IMPACT TOWARDS
COMMODITY PRICES INDONESIA’S EXPORTS GROWTH
16% 60%
14% 50%
y = 0.5759x + 0.0048
y = 0.0468x + 0.0865 40% R² = 0.652
12%
R² = 0.3312
Indonesia's Exports Growth
30%
China's GDP growth
10%
20%
8%
10%
6%
0%
4% -60% -40% -20% 0% 20% 40% 60% 80%
-10%
2% -20%
0% -30%
-60% -40% -20% 0% 20% 40% 60% 80%
-40%
Commodity Price Index Growth Commodity Price Index Growth
Note: Commodity Price Index consists of Indonesia’s Top 5 commodity Note: Commodity Price Index consists of Indonesia’s Top 5 commodity
exports: CPO, Coal, Copper, Natural Rubber, Oil exports: CPO, Coal, Copper, Natural Rubber, Oil
Source: Bloomberg, Mandiri Sekuritas Source: Bloomberg, Mandiri Sekuritas

FIGURE 28. COMMODITIES ARE INDONESIA’S KEY EXPORTS FIGURE 29. CHINA IS INDONESIA’S LARGEST EXPORT MARKET
Organic
Iron & steel, chemical, 3.4% China, 15.0%
Coal Related,
3.4%
13.3%
Electrical
machineries,
3.5% Japan, 10.9%
Others, 28.4%
Road vehicles, Taiwan, 2.7%
4.0%
Petroleum Philippines,
Vegetable 3.8% United States,
related, 4.2% 10.3%
oils/fats, 10.5%
Metal related, Thailand, 3.8%
India, 7.6%
4.9% Malaysia, 5.2%
Clothing, 5.0% Gas, 5.6% South Singapore,
Korea, 5.3% 7.0%
Source: BPS Source: BPS
FIGURE 30. CORRELATIONS BETWEEN QUARTERLY REVENUE AND FIGURE 31. CORRELATIONS BETWEEN QUARTERLY EBIT AND
COMMODITY EXPORTS GROWTH (YOY) COMMODITY EXPORTS GROWTH (YOY)
Consumer discretionary 84% Consumer discretionary 63%

Total ex-commodities 79% Total 59%
Total 76% Consumer staples 56%
Plantation 66% Plantation 55%
Consumer staples 50% Total ex-commodities 54%
Infrastructures 48% Building Materials 40%
Property 42% Property 21%
Building Materials 41% Mining 13%
Mining 35% Infrastructures 13%
Telco
-8% -19% Telco
-30% Hospital -27% Hospital
-40% -20% 0% 20% 40% 60% 80% 100% -40% -20% 0% 20% 40% 60% 80%
Source: Bloomberg, Company Source: Bloomberg, Company
Fiscal and monetary policy direction
 Fiscal policy: not expansionary yet lower deficit level gives it enough room to add
fiscal stimulus if needed
The government’s fiscal policy aims for a 1.8% fiscal deficit of GDP in 2019; unchanged from
the 2018 realization; this would help supporting the stability towards external risks, though
there is implication to growth as we observed in the past. Overall 2019 fiscal spending
target of Rp2,461trn implies around 12% growth relative to the 2018 realization. The
growth rate is slightly higher than 2018’s 10% realized growth; in addition, our economist
believes that the low deficit level gives government higher flexibility if fiscal stimulus is
needed to boost growth and domestic liquidity. Increasing the fiscal deficit by 0.1ppt could
add 0.7ppt to fiscal spending growth.
Social spending is one of the key prioritizations in 2019, which was highlighted by our
economists before (read Fiscal Watch: 2018 Budget Realization and What to Watch in 2019, 4-
Jan-19), while infrastructures spending budget increases by 1.1% (read Construction:
Winners & Losers in 2019 RAPBN Infra Budget). The government also adds more emphasis on
building human capital going forward as part of its plan to attract FDI.

FIGURE 32. KEY FISCAL BUDGET FOR 2019 FIGURE 33. MEDIUM-TERM FRAMEWORK FOR FISCAL POLICY
Growth for key figures (YoY) 2017 2018 2019F % of GDP 2020F 2021F 2022F
Tax revenue 5% 13% 17% Total revenue 12.7-13.9 13.5-14.0 13.6-14.4
Non-tax revenue 19% 31% -7% Tax ratio 11.4-12.5 11.6-13.0 11.8-13.6
Total revenue & grant 7% 17% 12% Total spending 14.3-15.6 15.0-15.7 15.1-16.0
Total spending 8% 10% 12% Capex 1.8-2.3 2.2-2.7 2.3-3.0
Primary balance (Rp trn) -124.5 -1.8 -20.1 Primary balance 0.05-0.01 0.10-0.01 0.1-0.05
Fiscal deficit (% of GDP) -2.53% -1.75% -1.84% Budget deficit (1.6)-(1.7) (1.5)-(1.7) (1.5)-(1.6)
Debt ratio 28.5-28.61 27.8-28.3 26.2-27.9
Source: Ministry of Finance Source: Ministry of Finance
 Monetary policy: expect further rate hikes, yet equity valuation impact shall be
minimal as most of the re-pricing had been done in 2018
Monetary policy has been accommodative to support the financial market stability; we
expect this to continue given Indonesia’s relatively high reliance over portfolio flows to
finance its deficit. Our economist expects 50bps increase in the reference rate this year,
bringing the total increases to 225bps since last year. We expect further tightening impact
to be moderate towards equity asset valuation as most of the cost of capital re-pricing had
been done in 1Q-3Q18. ECB and BoJ’s tightening are a risk, yet we expect the magnitude of
the impact to be much of a smaller scale than the Fed’s given the lower yield correlation to
Indonesian Bond and the likely lower holding proportion of European investors relative to
American (we have no exact data on this, but the lower correlations may be a good
indication plus the much higher mix of USD currency bonds of the total outstanding
Indonesian Government Bond.
Our fixed income strategist sees Indo 10Y Yield at around 7.7% by end-2019F versus 8.1%
in end-2018; given the following factors: 1) lesser magnitude of BI rate increases given the
Fed’s outlook and the relatively moderate inflation increase as crude oil prices have been
trending down of late; 2) prudent fiscal policy with a 1.8% deficit target, suggesting a
manageable net bond issuance that may open up the possibility of a rating upgrade in
2020 if the fiscal revenue growth continues to be healthy; 3) the recent foreign bond
inflows had been dominated by longer-term investors as seen by the rising mix of longer-
tenor bonds; and 4) continuous domestic buyers support, while there are also intentions to
reduce the withholding tax.
FIGURE 34. CURRENCY MIX OF OUTSTANDING INDONESIAN FIGURE 35. INDO 10Y GOVT BOND’S REAL YIELD IS AMONG THE MOST
GOVERNMENT BONDS ATTRACTIVE NOW RELATIVE TO ASIAN EM AND US
JPY, 2% EUR, 3% 10%
8%
6%
4%
USD, 23%
2%
0%
IDR, 72%
May-11
May-12
May-13
May-14
May-15
May-16
May-17
May-18
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Nov-18
-2%
-4%
Indonesia US Brazil
Thailand Philippines Malaysia
Source: Ministry of Finance Source: Bloomberg

FIGURE 36. INDO 10Y BOND HAS HIGHER CORRELATIONS WITH UST FIGURE 37. …THAN EU 10Y
10Y…
0.4
0.5
0.3
y = 0.0977x - 0.0065
MoM changes in EU 10Y

0.2
MoM changes in UST10Y
0.3
R² = 0.0823
0.1 y = 0.0292x - 0.0196
0.1 R² = 0.0125
-
(1.5) (0.5) 0.5 1.5 2.5
(2.0) (1.0) (0.1) - 1.0 2.0 3.0 4.0 (0.1)
(0.2)
(0.3)
(0.3)
(0.5) (0.4)
MoM changes in Indo 10Y MoM changes in Indo 10Y
Source: Bloomberg, Mandiri Sekuritas Source: Bloomberg, Mandiri Sekuritas
Stock implications:
 The government’s stance of maintaining stability amidst the external risks and the
potential slowdown of Fed’s tightening given the slowing global growth suggest
that risk free rate and risk premium expectations may be more benign than in
2018 when investors were busy with yield/valuation re-pricing.
 Relative EPS growth differential of Indonesia will look more attractive in 2019
among the Developed Market and some of the Emerging Market, thanks to its
more domestic-driven economy. This, in relative context, could attract some
foreign flows after the massive sell-offs since mid-2017.
 Value stocks, particularly those with quality earnings growth and balance sheet,
may then outperform Growth stocks in 2019 given the wide valuation gap as a
result of the 2018 yield re-pricing.
Reviving private investments
The government laid out its ambition to revive the industrialization (in addition to tourism
industry) in Indonesia, which should bring further structural improvement for Indonesia’s
overall economy. The timing coincides with the brewing US-China trade war, making it an
advantage to bring FDI to Indonesia. Indonesia’s GDP growth has been largely contributed
by the acceleration in the infrastructures spending in the past few years, as fiscal spending
channeled to infrastructures-related spending jumped from Rp155trn in 2014 to Rp343trn
on average per year in 2015-18, while the subsidy spending declined substantially, leading
to consumption weakness.
Better infrastructures and connectivity (i.e. roads, trains, electricity, seaports, airports, and
fiber optics) should lead to better productivity, lower inflation and more job opportunities
through new investments, not just within Java but also the outer islands to spread the
economic benefits taking benefits of the more developed infrastructures. The last four
years of infrastructures development has led to the improved connectivity, which includes
the completion of the Trans Java toll road (~1,200km in length), ten new airports, 19 new
seaports, and new power plants that brought up electrification ratio to 97% as of August
2018 from 84% in 2014.
That said, we see potential upside surprises in private investment growth going forward as
the government has been in sync to attract more direct investments, via the major revision
of the tax holiday and the new negative investment lists. The tax holiday incentives are
centralized over the upstream industry to reduce the dependency on raw material imports
and improve the value-add along the supply chain that should be beneficial to the
country’s overall exports, which are mostly contributed by low value added products.

FIGURE 38. NOMINAL GDP MIX: MANUFACTURING VS. COMMODITY- FIGURE 39. FISCAL SPENDING BY KEY CATEGORIES (RP TRILLION)
RELATED (4-QUARTER MOVING AVERAGES)
30% 500
25% 400
20% 300
15% 200
10% 100
5% -
4Q00
3Q01
2Q02
1Q03
4Q03
3Q04
2Q05
1Q06
4Q06
3Q07
2Q08
1Q09
4Q09
3Q10
2Q11
1Q12
4Q12
3Q13
2Q14
1Q15
4Q15
3Q16
2Q17
1Q18
2011 2012 2013 2014 2015 2016 2017 2018F 2019F
Education Infrastructure Energy subsidy Health

Agri, Forestry & Fishing Mining & Quarrying Manufacturing
Source: BPS, Mandiri Sekuritas Source: Ministry of Finance, Mandiri Sekuritas
FIGURE 40. CONTRIBUTIONS OF MANUFACTURING INDUSTRY AND GDP BY ISLANDS
Java 58.6%
71.0%
Sumatra 21.5%
18.8%
Kalimantan 8.1%
6.4%
Sulawesi 6.3%
2.3%
Maluku & Papua 2.5%

0.9%
Bali & NTT 3.0%

0.6%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

GDP Share Manufacturing Share
Source: Ministry of Finance
Given the relatively tight domestic liquidity, we think prioritization of infrastructures

investments will take place, in addition to the utilization of more non-conventional
financing scheme. The government will increase its focus in human capital investment as
part of its next agenda, complementing the plan to boost the manufacturing sector in
Indonesia. Boosting the manufacturing industry is crucial to improve the country’s income
per capita, while the level of labor productivity also tends to be higher as well as the
sustainability of the growth. Recall that Indonesia’s manufacturing GDP share has been
declining in the last 10 years, with the lack of FDI relative to the ASEAN EM peers.

FIGURE 41. SHARES OF INDONESIA’S LABOR FORCE ARE DOMINATED BY FIGURE 42. …WHICH HAVE LOWER AVERAGE MONTHLY SALARIES THAN
AGRICULTURE… MANUFACTURING INDUSTRY
33% 33%
35% 32% 32% 32% 35% 4.4 5.0
30% 30%
29% 4.5
30% 30% 29%
29% 29% 30% 30% 4.0
25% 27%
28%
27% 27% 25% 3.5
19% 19% 20% 18% 19% 19% 19% 19%
20% 20% 2.6
15% 15% 20% 3.0
14% 14% 14% 13% 14% 14%
15% 15% 2.5
14% 1.8
15% 2.0
10% 6% 7% 6% 7% 6% 7% 7%
6%
10% 8% 1.5
5% 1% 1% 1% 1% 1% 1% 1% 1%
1.0
0% 5%
1% 0.5
Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18
0% -
Agri, Forestry, Fishing Mining Agri, Forestry & Fishing Mining & Quarrying Manufacturing
Manufacturing Construction
GDP shares Labor force shares Avg monthly wage (Rp m)
Wholesale/Retail Trade Others
Source: BPS Source: BPS, CEIC
 High domestic capacity utilization rates
We first highlighted this in mid-2017 that capex cycle may reverse, despite the weak
growth, as the overall capacity utilization has exceeded the long-term average after years
of balance sheet de-leveraging since 2013 taper tantrum. The pick-up in loan growth this
year and the recent PMI data improvement shows that capex momentum continues. The
recent data shows that some of the labor intensive sectors (i.e. manufacturing related) are
still running above their 10-year average capacity utilization rates.
FIGURE 43. OVERALL CAPACITY UTILIZATION RATES ARE RUNNING ABOVE THE 10Y AVERAGE,
NOTABLY WITHIN THE MANUFACTURING-RELATED SECTORS
90%
85%
80%
75%
70%
65%
60%
55%
50%
10Y Mean Sep'18
45%
Paper
Iron & Basic Steel

Mining
Forestry
Agri
Non-Food Crops
Others
Electricty, Gas, Water
Overall
Fishery
Food Crops
Textile & Apparels
Cement & Mineral

Livestock
Transport & Machineries

F&B & Tobacco
Manufacturing
Wood products
Chemical products
Note: The lines represent the highest and lowest capacity utilization rates over the last 10 years
Source: Company, Mandiri Sekuritas estimates
Capex acceleration was initially driven by the coal miners given the rising coal prices; the
latest 12-month trailing data up to 3Q18, however, shows that most sectors had a positive
capex growth, with the exception of Oil & Gas, Construction & Materials, and Chemical. As
the non-mining capex started improving, the full-time labor started picking up as well,
albeit slowly, probably as they are more labor intensive relative to the coal miners. The risk,
in our view, is that the percentage of cash has been depleting since the capex pick-up
while the tight LDR may limit the capex growth.

FIGURE 44. LISTED COMPANIES’ CAPEX CYCLE IMPROVED STARTING FIGURE 45. BREAKDOWN OF SECTORAL CAPEX GROWTH AS OF 3Q18
MID-2017, WITH LABOR GRADUALLY PICKING UP (DATA IS BASED ON A 12-MONTH TRAILING)
40%
Healthcare
Airline
30% Transportation
Commodities
Financials
20%
Property
Consumer discretionary
10% Total
Telco
0% Consumer staples
Chemical
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
Construction & materials
-10% Oil & Gas
-50% 0% 50% 100% 150% 200% 250%
-20%
Capex growth in 3Q18, 12M Trailing
12M Trailing CAPEX, YoY Full-time labor, YoY
Source: Bloomberg, Mandiri Sekuritas calculations Source: Bloomberg, Mandiri Sekuritas calculations
FIGURE 46. THE CAPEX CYCLE PICK-UP HAS BEEN FINANCED BY A COMBINATION OF INTERNAL
CASH AND DEBT
11.0% 56%
10.5% 54%
10.0% 52%
9.5% 50%
9.0% 48%
8.5% 46%
8.0% 44%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
Cash as % of asset Debt/Equity (RHS)
 A new and more market-oriented tax holiday
Indonesia’s FDI has been relatively stagnant, despite the ongoing revisions in the tax
holidays in 2011, 2015 and 2016. Vietnam, which implemented its tax reform since 2011 to
create a more market-oriented tax system encouraging investments and competitiveness,
saw a boom in its FDI flows. Indonesian government, in April 2018, issued a new tax holiday
regulation in a bid to improve Indonesia’s manufacturing industry. Major changes in the
regulation include nine additional sectors (recently revised to eleven) eligible for
application, 100% tax discount (from previously a range of 10-100%), lower capital
investment threshold starting from Rp500bn (previously Rp100trn), and faster permit
issuance. We think the latest tax holiday revision is much more attractive, while the timing
also coincides with completion of the infrastructures network (i.e. electricity, transportation
and logistics, communication) and the US-China trade war.

FIGURE 47. INDONESIA’S FDI FLOWS FIGURE 48. VIETNAM’S FDI FLOWS
in USD mn in USD mn
35,000 35.0% 40,000 40.0%
35,000 35.0%
30,000 30.0%
30,000 30.0%
25,000 25.0%
25,000 25.0%
20,000 20.0%
20,000 20.0%
15,000 15.0% 15,000 15.0%
10,000 10.0% 10,000 10.0%
5,000 5.0% 5,000 5.0%
- 0.0%
- 0.0%
(5,000) -5.0%
(5,000) -5.0% 2012 2013 2014 2015 2016 2017
2012 2013 2014 2015 2016 2017
FDI, Left % YoY, Right
FDI, Left % YoY, Right
FIGURE 49. THE NEW TAX HOLIDAY IS MORE ALIGNED WITH MARKET PRACTICES
Previous Tax Holiday New Tax Holiday
PMK no. 159 (2015) PMK No. 35 (2018)
Applicant requirement Must be Indonesian legal entity
Industry pioneer
New capital investment
DER ratio in compliance with MoF's regulation
New Taxpayers New Investments
Deposit 10% of total investment to banks in Indonesia for n/a
the investment period
Capital investment threshold Rp1tn; or Rp500bn for companies introducing high-tech Rp500bn
in telco sector
Application period (years) 3 years after the regulation 5 years after regulation
Tax reduction 10 - 100% 100% (single rate)
Tax holiday (years) 5 to 15; can be extended to 20 years based on MoF's Rp0.5-1.0trn: 5 years
discretion Rp1-5trn: 7 years
Rp5-15trn: 10 years
Rp15-30trn: 15 years
>Rp30trn: 20 years
Tax Holiday period Since the revenue generating period or internally used for next production stage
Transition period post tax holiday Not regulated 50% tax reduction for 2 years post-tax holiday period
Work flow 1. BKPM 1. BKPM
2. Verification committee/ MoF 2. MoF
3. MoF
Coverage of industries 8 pioneer industries 17 pioneer industries (extended to 19 recently)
Metal Base; Oil & Gas Refinery; Petrochemical; Base
Inorganic Chemical; Base Organic Chemical;
Pharmaceutical Raw Material; Semi-conductors;
Communication Equipment; Medical Equipment;
Machineries; Engine Main Components; Robotic
Components; Vessel Main Components; Aircraft Main
Components; Train Main Components; Power Plant
Machine Industry; Economic Infrastructure
Source: Ministry of Finance, Mandiri Sekuritas

We understand further improvements are needed to boost Indonesia’s competitiveness,

such as the human capital and the labor laws. The government has introduced some
roadmaps, i.e. Ministry of Finance via fiscal policy and Ministry of Industry via Industry 4.0
roadmap focusing on the key sectors that have higher impact and are more relevant for
Indonesia (i.e. F&B, textile & apparels, automotive, electronics and chemical). By far, the
government reportedly mentioned that about USD12bn worth of investments are already
attracted to this tax holiday scheme, which is quite sizeable relative to Indonesia’s 9M18
FDI flows of USD22bn and considering that this is a pre-election year. Notably, some
companies have started announcing its plan of investments in Indonesia, such as the
USD3.5bn petrochemical plant of Lotte Chemical and the USD1bn factory investment by
Pegatron.
Stock implications:
 The revival of the private investments, especially FDIs, would be a long-term
positive but would also bring positive near-term market sentiment. Direct
beneficiaries are the Banks, as new money inflows mean liquidity improvement,
and Industrial Estate.
 Improved connectivity would lead to the creations of new businesses, hence new
job opportunities. Land prices may also benefit. We presented a case study on this
(read Outlook 2018: Election, Connectivity and Digitization) when the Jakarta-
Bandung toll-road was connected, which led to the acceleration of West Java GDP
growth. Along with the Tourism angle, we think the direct beneficiary include the
Building Materials and transportation company (i.e. Blue Bird).

Index Target and Valuations
End-2019 JCI Target of 7,000

Our base target of 7,000 is derived on a 7%/11%/10% EPS growth for 2018/2019/2020, with
forward multiple re-rating to 15.5x from 15.0x at the end of 2018, using our EPS growth
estimates, which are more conservative than the street. Using the consensus’ index EPS
forecast, our 7,000 index target implies a forward PE of 14.5x, which is at the historical long-
term mean. We see a case of valuation re-rating this year given the narrowing EPS growth
divergence of JCI Index versus the key Developed and Emerging Market peers, with a view
that the rising yield re-pricing had mostly been done in 2018.
FIGURE 50. JCI INDEX TARGET OF 6,900 FIGURE 51. KEY SCENARIO ASSUMPTIONS
7,500
7,375
Variables BASE OPTIMISTIC PESSIMISTIC
End-2019 JCI target 7,000 7,375 5,775
7,000 7,000 12M Fwd PE (x) 15.5 16.0 13.5
2018F EPS growth 7% 8% 7%
6,500
2019F EPS growth 11% 11% 9%
6,000
5,775
2020F EPS growth 10% 11% 6%
5,500
5,000
Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19
Source: Bloomberg, Mandiri Sekuritas estimates Source: Mandiri Sekuritas estimates
Indonesia’s Growth and Valuation Stand Out in Relative Term

 Yield re-pricing has mostly been done in 2018
2018 marked the year of valuation re-pricing towards rising cost of capital and slowing EPS
growth. We believe that the valuation re-pricing has mostly been done as the JCI’s forward
P/E has de-rated by 15% from 17.0x at the end of 2017 to 14.5x at the end of 2018, with real
10Y government bond yield spread against 10Y UST almost doubling from 2.4% to 4.4%.
With the relatively low risk of excessive increase in fiscal deficit and inflation, as well as the
potential slowdown in Fed’s tightening, we think that the current yield spread is already
wide enough to warrant a support to equity valuation. Our fixed income strategist, Handy
Yunianto, expects the 10Y yield to end 2019 at ~7.7% (vs. 8.03% in end-2018).
FIGURE 52. JCI’S FORWARD PE HAS RETURNED TO ITS MEAN FIGURE 53. JCI’S FORWARD PE VERSUS COST OF CAPITAL
PE (x) %
18 PE (x) JCI 18 5.0
17 17 6.0
+2 StDev
16 16 7.0
+1 StDev 15 8.0
15
Mean 14 9.0
14
13 10.0
-1 StDev
13
12 11.0
12 -2 StDev
11 12.0
11 10 13.0
Feb-17
Sep-17
Oct-14
Aug-13
Mar-14
Dec-15
Apr-11
Apr-18
May-15
Jul-16
Jan-13
Nov-11
Nov-18
Jun-12
10
Oct-14
Oct-17
Aug-13
Aug-16
Mar-14
Mar-17
Dec-18
Apr-11
May-15
May-18
Jan-13
Jan-16
Nov-11
Jun-12
PE CoE (10Y + CDS) (RHS)
Source: Bloomberg Source: Bloomberg

FIGURE 54. REAL 10Y GOVT BOND YIELD DIFFERENTIALS OF FIGURE 55. SPREAD OF REAL INDONESIAN 10Y YIELD VERSUS UST 10Y
INDONESIAN BOND TO US AND EM PEERS ARE HIGH YIELD IS HIGH RELATIVE TO HISTORY
10% 6.0%
5.0%
8%
4.0%
6%
3.0%
4% 2.0%
2% 1.0%
0.0%
0%
Oct-13
Mar-13
Dec-14
Apr-17
May-14
Feb-16
Sep-16
Nov-10
Nov-17
Jun-11
Jun-18
Aug-12
Jul-15
Jan-12
Jan-19
Oct-13
Mar-13
Dec-14
Apr-17
May-14
Feb-16
Sep-16
Nov-10
Nov-17
Jun-11
Jun-18
Aug-12
Jul-15
Jan-12
Jan-19
-1.0%
-2%
-2.0%
-4% -3.0%
Indonesia US Brazil
Thailand Philippines Malaysia Spread Real INDO yield Real US yield
 Indonesia’s EPS growth stands out in relative term
Our 11% EPS growth for 2019 is slightly better relative to 8% in 2018. Downside risks are
apparent via the indirect impact of the global growth slowdown, though arguably our
economy is now less exports-driven. In relative terms (among some of the key Developed
and Emerging Market peers), however, Indonesia stacks up well in terms of EPS and GDP
growth expectations for 2019 as compared to 2018. Historically, improvement in JCI’s EPS
growth difference relative to peers (we tested this against the US, HK and ASEAN average)
typically led to JCI Index return improvement and P/E multiple re-rating. In 2019, we expect
Indonesia’s EPS growth difference to increase relative to the US and HK, but not ASEAN.
However, as focus should shift from rising yield to slowing global growth, we think
Indonesia shall stand out in a relative context.
FIGURE 56. INDONESIA OFFERS EPS GROWTH TURNAROUND RELATIVE FIGURE 57. GDP GROWTH FORECASTS TREND: INDONESIA OFFERS A
TO THE DEVELOPED AND EMERGING MARKET PEERS BETTER INCREMENTAL GROWTH IN RELATIVE TERM
45%
2017 2018F 2019F 7.0
35% 6.0
25% 5.0
4.0
15%
3.0
5%
2.0
-5% 1.0
-15% -
US (S&P500)
Malaysia
Philippines
Indonesia
China
Japan
HK-SAR
Singapore
Malaysia (KLCI)
Philippine (PCOMP)
US
South Korea
China (SHCOMP)
HK (HSI)
Thailand
Korea (KOSPI)
Singapore (STI)
Thailand (SET)
Indonesia
Japan (Nikkei)
2017 2018F 2019F 2020F
Source: Bloomberg, Mandiri Sekuritas estimates Source: Company, Mandiri Sekuritas estimates

FIGURE 58. RISING JCI’S EPS GROWTH PREMIUM VERSUS US/HK/ASEAN FIGURE 59. RISING JCI’S EPS GROWTH PREMIUM VERSUS US/HK/ASEAN
LEAD TO INDEX RETURN IMPROVEMENT LEAD TO VALUATION RE-RATING
100 40 40 40
JCI Index Return (%) JCI Index Fwd PE (x)
EPS growth difference to US S&P500 (%) (RHS) EPS growth difference to US S&P500 (%) (RHS)
80 EPS growth difference to HSI (%) (RHS) 30 30 EPS growth difference to HSI (%) (RHS) 30
EPS growth difference to ASEAN (%)(RHS) EPS growth difference to ASEAN (%)(RHS)
60 20 20 20
40 10 10 10
20 - - -
2018F
2019F
2009
2010
2011
2012
2013
2014
2015
2016
2017
- 2018F (10) (10) (10)
2019F
2009
2010
2011
2012
2013
2014
2015
2016
2017
(20) (20) (20) (20)
Source: Bloomberg, Mandiri Sekuritas estimates Source: Bloomberg, Mandiri Sekuritas estimates
 Foreign investors positioning are U/W
Foreign outflows substantially contributed to the valuation de-rating in the last one and a
half year, though the market held up pretty well on domestic support. While the currently
high LDR may crowd out the liquidity, the foreign ownership of JCI has fallen to <45%
given the record outflows (excluding irregular crossings) of Rp92trn since June 2017.
FIGURE 60. QUARTERLY FOREIGN FLOWS INTO INDONESIAN EQUITY: FIGURE 61. …WITH CUMULATIVE FLOWS (SINCE JAN’13) REACHING
CONTINUOUS OUTFLOWS SINCE 3Q17 RP86TRN, SENDING FOREIGN STAKES TO ITS LOW
25 65% 20 70%
15 0 65%
60%
Oct-17
Mar-17
Dec-18
Apr-14
May-18
Sep-13
Nov-14
Jun-15
Aug-16
Jan-13
Jan-16
5
-20 60%
(5) 55%
-40 55%
(15)
50% -60 50%
(25)
(35) 45% -80 45%

1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
-100 40%
Cumulative foreign flows since Jan-13 (Rp trn)
Equity (Rp trn) Foreign equity ownership (RHS) Foreign ownership in JCI (RHS)
Source: Bloomberg, KSEI, Mandiri Sekuritas calculations Source: Bloomberg, KSEI, Mandiri Sekuritas calculations
FIGURE 62. FOREIGN FLOWS AS % OF JCI’S MKT CAP

1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
2013 2014 2015 2016 2017 2018
Foreign Flows % of JCI's Mkt Cap Data in cumulative basis since Jan 2013
Note: Calculations are done on a daily basis, using the market cap from the previous trading day

FIGURE 63. QUARTERLY NET FOREIGN FLOWS BY SECTORS

Net foreign flows (Rp bn) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18
ANIMAL FEED & FISHERY -477 131 648 723 73 -243 640 9
AUTOMOTIVE 1,851 -247 -7,892 -1,028 -4,334 -1,413 378 2,141
BANK 11,478 4,529 -5,667 -246 -10,665 -12,675 1,821 -656
BUILD. MATERIAL 462 691 -338 291 364 -523 -1,393 -744
CHEMICALS -12 -1,434 -902 -461 -51 -71 -334 1,591
COAL -27 539 726 -317 1,688 -1,156 776 94
CONSTRUCTION 527 1,088 -512 -6,777 -6 -1,137 -173 -1,069
ENERGY -461 295 -205 -279 -1,267 -333 -294 -312
FINANCIAL -1,323 -536 -2,272 -6,233 121 -100 -391 -682
HEALTH CARE -140 226 91 86 134 -224 -38 -62
HOTEL & TOURISM -2,376 3,439 246 2,849 396 140 -223 105
INVESTMENT -426 1,019 -1,129 -485 169 96 195 334
MEDIA 88 596 -105 -277 476 -105 -1,002 88
METAL & ALLIED PROD. 7 -5 14 11 18 -81 -28 -2
METAL MINING -18 -46 -47 -1,165 -636 121 -16 -620
OIL & GAS -1 -455 -120 424 2,142 2 -90 -153
OTH. - MISC. INDUSTRY 133 1,327 -407 -969 -74 -78 25 -1,620
PHARMACEUTICALS -356 299 91 155 76 -132 157 -348
PLANTATION -23 -153 -903 -147 96 -178 -253 -132
PLASTICS & PACKAGING -346 -6 -21 -112 -9 -4 -4 -14
PROPERTY 1,012 -8,100 -1,690 -5,958 -197 -857 -389 -710
PULP & PAPER -40 61 -1,437 11 -75 1,674 -492 1,908
RETAIL TRADE 559 896 -143 31 168 -754 -281 -506
STAPLES -1,599 536 -648 -1,073 -2,630 -2,103 11 1,356
TELECOMUNICATION -1,118 3,690 -2,841 -8,088 -3,993 -1,807 488 127
TEXTILE -118 54 122 273 -21 -55 10 279
TOBACCO -79 399 -1,216 -285 -2,762 -2,483 321 1,044
TOLL ROAD -298 239 -1,836 -497 -628 -227 -127 107
TRANSPORTATION -195 52 26 552 -100 42 369 66
WHOLESALE 1,668 -262 362 48 -1,974 -1,176 -1,942 -1,192
Grand Total 8,355 8,862 -28,004 -28,940 -23,503 -25,841 -2,280 425
Source: Mandiri Sekuritas Proprietary Research

Sector and Stocks Recommendations

Considering the negatives (i.e. slowing global growth, weak commodity prices, tight
domestic liquidity) and positives (i.e. less monetary tightening, relatively better
growth/valuation), we prefer a combination of Defensive Growth stocks and some of the
Value stocks with a relatively better quality of earnings growth and balance sheet. We think
the valuation gap of Defensive to Cyclical is still too wide regardless of the easing pressures
from the valuation/yield re-pricing, while selective defensive names within Consumer
Staples (O/W), Telecommunications (O/W) and Healthcare (Neutral) do offer high EPS
growth at discounted prices. We think Value stocks are already too discounted, particularly
the rate-sensitive names (i.e. Property and Construction) after the massive de-rating in
2018. Assuming that the Fed slows the tightening pace, we see alpha within the Value
stocks but preferring those with relatively better quality of earnings growth and balance
sheet. We also retain our Banks picks given its relatively superior EPS growth.
FIGURE 64. DEFENSIVES LATELY OUTPERFORMING CYCLICALS DESPITE FIGURE 65. DEFENSIVES VERSUS CYCLICALS VALUATION HOVER
MODERATING YIELD GIVEN THE WIDE VALUATION GAP AROUND THE LONG-TERM MEAN
2.4 11.0 2.4
2.2 2.2
10.0
2.0 2.0
9.0
1.8
1.8
1.6 8.0
1.6
1.4
7.0
1.4
1.2
6.0 1.2
1.0
0.8 5.0 1.0
Jan-10 Feb-11 Mar-12 May-13 Jun-14 Aug-15 Sep-16 Nov-17 Dec-18
0.8
Defensives ex-HMSP/Cyclicals (x) Jan-10 Feb-11 Mar-12 May-13 Jun-14 Aug-15 Sep-16 Nov-17 Dec-18
Defensives ex-HMSP/Cyclicals ex-Cmdty/Banks (x)
10Y Yield (RHS) Defensives/Cyclicals PE (x) Mean (x)
FIGURE 66. 2019F PE VERSUS EPS GROWTH FIGURE 67. 2019F PBV VERSUS ROE
20.0% 30.0%
Financials
Property
15.0% Consumer staples 25.0%
Telco Consumer staples
Mandiri Universe Consumer

10.0% 20.0% discretionary Telco
EPS Gr
Consumer Healthcare
Financials
ROE
discretionary 15.0%
5.0% Mandiri Universe
Commodities
0.0% 10.0% Construction &

Commodities Property materials
5.0% Healthcare
-5.0%
Construction &
materials
-10.0% 0.0%
0.0 10.0 20.0 30.0 40.0 50.0 0.0 2.0 4.0 6.0 8.0
PER PBV

FIGURE 68. MANDIRI UNIVERSE SECTOR VALUATION RELATIVE TO 5Y HISTORY

Sectors Valuation Methods Current 5Y Mean 5Y High 5Y Low
Financials PBV 2.6 2.3 2.8 1.9
Construction PE 24.2 17.6 27.0 14.6
Cons. Staples PE 32.6 32.2 38.3 26.8
Healthcare EV/EBITDA 17.6 26.7 42.1 12.2
Cons. Discret. PE 14.4 16.5 20.1 12.9
Commodities PE 1.6 1.8 2.4 1.4
Property PE 13.8 13.6 18.9 9.0
Telecom PE 16.2 19.0 23.9 13.1
Chemical PE 23.4 16.2 23.4 12.5
Airline PE 23.4 9.1 13.7 6.5
Oil & Gas PE 7.1 12.1 19.6 7.6
Transport PE 15.3 12.9 21.1 8.0
Among our Top 10 most preferred lists, we retain Bank Rakyat Indonesia (BBRI), Bank
Tabungan Negara (BBTN), Gudang Garam (GGRM) and Telekomunikasi Indonesia (TLKM).
The new additions, which are mostly the discounted Growth and Value stocks, are Mitra
Adiperkasa (MAPI), Pembangunan Perumahan (PTPP), Wijaya Karya (WIKA), Ciputra
Development (CTRA) and Medikaloka Hermina (HEAL). The newly added picks replace the
stocks that already outperformed or those that do not fit with our theme (i.e.
Commodities): Astra International (ASII), XL Axiata (EXCL), Indofood CBP (ICBP), Indo
Tambang (ITMG), Semen Indonesia (SMGR) and Vale Indonesia (INCO).
Within the SMID-caps, we see the following stocks that are already attractive in terms of
valuation relative to its growth potential, and backed with a quality balance sheet: CIMB
Niaga (BNGA), Sarimelati Kencana (PZZA), BTPN Syariah (BTPS), Blue Bird (BIRD) and Surya
Citra Media (SCMA). Refer to Appendix (Page 68) for detailed Valuation Guide.
FIGURE 69. MANSEK TOP 10 PICKS (IN ALPHABETICAL ORDER)

Last Target PE (x) PBV (x) EV/EBITDA (x) EPS gr (%) Rel. perform. to JCI
Mkt cap
Stocks Rating Price Price
(Rp Bn) 19F 20F 19F 20F 19F 20F 19F 20F 1M 3M 6M
(Rp) (Rp)
BBRI Buy 3,660 4,100 451,273 11.3 10.5 2.2 2.0 N.A. N.A. 21.7 8.0 -1.5 13.1 18.5
BBTN Buy 2,640 3,250 27,958 6.8 5.7 1.0 0.9 N.A. N.A. 23.9 19.4 -6.3 -0.1 12.4
CTRA Buy 1,085 1,430 20,138 19.8 17.7 1.3 1.3 11.4 10.6 8.2 11.6 -2.6 31.2 5.0
GGRM Buy 82,750 94,050 159,218 16.6 15.1 2.9 2.5 11.0 9.9 18.5 9.5 -3.9 5.6 10.5
HEAL Buy 2,670 4,200 7,938 45.7 33.6 4.2 3.9 12.7 10.2 11.4 35.9 -15.7 -27.3 -34.1
MAPI Buy 815 1,100 13,529 16.6 16.6 2.6 2.4 6.9 6.8 13.4 0.0 -4.4 -5.2 -11.0
PTPP Buy 2,100 3,085 13,020 7.5 6.1 0.9 0.8 4.3 3.8 17.5 22.7 5.9 26.2 -7.5
TOWR Buy 675 750 34,435 14.3 14.0 3.9 3.6 8.4 8.0 7.0 1.5 8.9 33.3 2.1
TLKM Buy 3,770 4,200 373,465 15.8 14.4 3.5 3.3 5.8 5.3 10.4 9.9 0.1 -2.9 -12.7
WIKA Buy 1,825 2,455 16,352 8.7 8.2 1.1 1.0 5.8 5.8 19.6 6.7 12.2 29.6 30.5
Simple average 16.3 14.2 2.4 2.2 8.3 7.6 15.2 12.5
Weighted average 13.9 12.7 2.7 2.5 4.3 3.9 16.6 9.3
MANSEK universe 16.1 15.0 2.5 2.3 13.2 12.6 10.9 7.8
Source: Bloomberg, Company, Mandiri Sekuritas estimates

Stock Picks
Bank Rakyat Indonesia (BBRI; Buy; PT: Rp4,100)
Analysts: Tjandra Lienandjaja / Priscilla Thany / Silvony Gathrie
FIGURE 70. KEY FINANCIALS FOR BBRI

YE Dec (Rp Bn) 2016A 2017A 2018F 2019F 2020F
Pre-Provision Profit 47,663 53,807 58,999 64,316 70,523
Net Profit 26,196 28,997 32,841 39,953 43,163
EPS (Rp) 212.4 235.2 266.4 324.0 350.1
EPS Growth (%) 3.1 10.7 13.3 21.7 8.0
P/E Ratio (x) 17.2 15.6 13.7 11.3 10.5
BVPS (Rp) 1,187.1 1,352.4 1,481.8 1,686.0 1,809.1
P/B Ratio (x) 3.1 2.7 2.5 2.2 2.0
Dividend Yield (%) 1.7 2.3 2.9 3.3 4.0
ROAE (%) 20.2 18.5 18.8 20.5 20.0
CAR (%) 22.7 22.8 21.4 22.6 22.9
 BRI’s move to increase its micro lending portion to 40% from 34% should enable them
to keep NIM at ca. 7.4% in 2019-20. On the other hand, corporate lending exposure will
be reduced to 20% from 24%. The government-program KUR now accounts for 10.6%
of total loans, and this is expected to continue rising as the government is rising the
KUR target to Rp140tr for 2019 from Rp124tr target for 2018, around 70% of which is
distributed by BRI. This also helps keep high margin for the bank. We expect 14% loan
growth for 2018 (15% y-y in Nov-18) and 12% for 2019.
 Ability to maintain high portion of CASA ratio of 55% should give less pressure to
increase lending rates under the rising interest rate environment.
 The acquisition of 65% of Danareksa Sekuritas and 35% of Danareksa Investment
Management is neutral and we do not see any significant contribution from the
acquisition in the medium term.
 The recent management change does not change our view on the counter. The Vice
President Director position is back but the shareholder dismissed the Director for
Corporate Banking, the replacement of which has yet to be announced.
 Our TP of Rp4,100 is based on 2.4x P/BV 2019F. It is trading at 2.2x 12-M forward P/BV.
FIGURE 71. 12M FORWARD P/E BAND FIGURE 72. 12M FORWARD P/BV BAND
PE BBRI P/BV BBRI
15 4.0
14
3.5
13 +2 StDev
+2 StDev
12 +1 StDev 3.0
+1 StDev
11
Mean 2.5
10 Mean
-1 StDev
9 2.0 -1 StDev
8 -2 StDev
1.5 -2 StDev
7
6 1.0
Dec-12
Dec-15
Dec-18
Dec-12
Dec-15
Dec-18
Jan-10
Jan-10
Aug-10
Aug-13
Aug-16
Aug-10
Aug-13
May-12
May-15
May-18
May-12
May-15
Jul-16
May-18
Mar-11
Mar-14
Mar-17
Mar-11
Mar-14
Mar-17
Oct-11
Oct-14
Oct-17
Oct-11
Oct-14
Oct-17
Source: Mandiri Sekuritas estimates, Bloomberg Source: Mandiri Sekuritas estimates, Bloomberg

Bank Tabungan Negara (BBTN; Buy; PT: Rp3,250)

Analysts: Tjandra Lienandjaja / Priscilla Thany / Silvony Gathrie
FIGURE 73. KEY FINANCIALS FOR BBTN

YE Dec (Rp Bn) 2016A 2017A 2018F 2019F 2020F
Pre-Provision Profit 4,060 4,776 5,225 6,816 8,474
Net Profit 2,619 3,027 3,300 4,088 4,882
EPS (Rp) 247.3 285.9 311.6 386.0 461.0
EPS Growth (%) 41.4 15.6 9.0 23.9 19.4
P/E Ratio (x) 10.7 9.2 8.5 6.8 5.7
BVPS (Rp) 1,806.5 2,045.7 2,290.4 2,614.1 2,827.9
P/B Ratio (x) 1.5 1.3 1.2 1.0 0.9
Dividend Yield (%) 1.3 1.9 2.2 2.4 2.4
ROAE (%) 15.9 14.8 14.4 15.7 16.9
CAR (%) 20.3 18.9 17.6 17.3 16.4
 BTN has been recording higher than industry average loan growth in the past seven
years thanks to the government’s program on subsidized housing loans and ability to
get funding from government-related parties post improvement in the bank’s GCG
rating. Controlling more than 90% of the subsidized housing loans BTN’s loans
increased 18% y-y as of Nov-18 vs. the industry’s 12% and we expect 17% loan growth
for 2019.
 The challenge is get cheaper funding as BTN’s subsidized housing loans is increasing
while banking liquidity remains tight. BTN needs to secure more CASA from the
government, state companies and retail depositors.
 BTN is one of the most affected banks on the implementation of IFRS 9 on 1 January
2020. Expect 2-3% reduction in total CAR in 2020, for which the company plans to issue
either sub-debt or additional Tier 1 capital to make up for this CAR reduction.
 The Rp3,250 TP is based on 1.25x P/BV 2019F.
FIGURE 74. 12M FORWARD P/E BAND FIGURE 75. 12M FORWARD P/BV BAND
PE BBTN P/BV BBTN
20 3.0
18
2.5
16
14 +2 StDev +2 StDev
2.0
12 +1 StDev +1 StDev
10 1.5
Mean Mean
8
-1 StDev 1.0
6
-1 StDev
4 -2 StDev 0.5
2 -2 StDev
0 0.0
Dec-15
Dec-18
Dec-15
Dec-18
Jan-10
Jan-13
Jan-10
Jan-13
Sep-16
Sep-16
Jul-11
Jul-14
Jul-11
Jul-14
Mar-18
Mar-18
Oct-10
Oct-13
Oct-10
Oct-13
Jun-17
Jun-17
Apr-12
Apr-15
Apr-12
Apr-15

Ciputra Development (CTRA; Buy; PT: Rp1,430)

Analysts: Robin Sutanto
FIGURE 76. KEY FINANCIALS FOR CTRA

YE Dec (Rp Bn) 2016A 2017A 2018F 2019F 2020F
EBITDA 2,052 1,824 2,175 2,362 2,507
Net Profit 1,021 894 940 1,017 1,135
Fully-Diluted EPS (Rp) 66.2 48.2 50.6 54.8 61.2
Fully-Diluted EPS Gr. (%) (20.8) (27.2) 5.1 8.2 11.6
P/E Ratio (x) 16.4 22.5 21.4 19.8 17.7
EV/EBITDA (x) 12.2 14.6 12.3 11.4 10.6
P/B Ratio (x) 1.8 1.5 1.4 1.3 1.3
Dividend Yield (%) 0.7 0.4 0.9 0.7 0.8
ROAE (%) 11.6 7.9 6.8 7.0 7.3
CTRA is a well-diversified property developer with strong fundamentals at attractive

valuation. The company has considerable exposure to the middle and middle-low price
segment, with around 60% of annual presales from IDR2bn projects, with 40% being under
IDR1bn. Given prevalent demand dynamics, we think this price segment should be most
resilient. The company’s expansion strategy through joint operations has allowed it to
amass a wide range of geographic spread, which has helped its leverage – CTRA remains
one of the most prudent in the sector with the highest expected attributable presales-to-
debt ratio of 74% in 2018F, and as of 9M18 its net gearing stood at 40%, sufficiently low in
our view. While CTRA’s recurring income contribution is relatively modest, its recurring
EBITDA sufficiently covers interest obligations with average annual coverage of some 1.5x.
The company is trading at 79% discount to our NAV estimates, compared to its 5-year
mean of 62%. We have a Buy on CTRA with PT of IDR1,430.
FIGURE 77. 12M FORWARD P/E BAND FIGURE 78. 12M FORWARD EV/EBITDA BAND
PE CTRA EV/EBITDA CTRA
30 16
25 +2 StDev 14
+2 StDev
20 +1 StDev 12 +1 StDev
Mean
15 10 Mean
-1 StDev
10 8 -1 StDev
-2 StDev
5 6 -2 StDev
0 4
Dec-12
Dec-15
Dec-18
Dec-12
Dec-15
Dec-18
Jan-10
Jan-10
Aug-10
Aug-13
Aug-16
Aug-10
Aug-13
Aug-16
May-12
May-15
May-18
May-12
May-15
May-18
Mar-11
Mar-14
Mar-17
Mar-11
Mar-14
Mar-17
Oct-11
Oct-14
Oct-17
Oct-11
Oct-14
Oct-17

Gudang Garam (GGRM; Buy; PT: Rp94,050)

Analysts: Adrian Joezer / Lakshmi Rowter / Riyanto Hartanto
FIGURE 79. KEY FINANCIALS FOR GGRM

YE Dec (Rp Bn) 2016A 2017A 2018F 2019F 2020F
EBITDA 12,035 12,989 13,732 15,811 17,153
Net Profit 6,677 7,754 8,110 9,609 10,519
Fully-Diluted EPS (Rp) 3,470.3 4,029.8 4,214.9 4,994.0 5,466.8
Fully-Diluted EPS Gr. (%) 3.8 16.1 4.6 18.5 9.5
P/E Ratio (x) 23.8 20.5 19.6 16.6 15.1
EV/EBITDA (x) 14.7 13.7 12.9 11.0 9.9
P/B Ratio (x) 4.0 3.8 3.4 2.9 2.5
Dividend Yield (%) 3.1 3.1 1.8 1.5 1.5
ROAE (%) 17.3 19.0 18.1 18.8 17.9
Cigarette stocks should outperform the market in 2019 as flat excise tariffs will help EPS
growth and valuation re-rating. For GGRM, we expect EPS growth to be 19%, far higher
than 5% in 2018. Price-wise, no excise tariffs increase means that every 1% ex-factory price
hike would result to ca.7.6% additional EPS growth. Volume-wise, we believe that GGRM
will deliver 3% volume growth in 2019 on the back of improvement from fewer down-
trading and some up-trading trends next year. We think that valuation re-rating is possible
as we expect 2019 EPS growth to be a 3-year high and among the highest within consumer
space. Looking back, GGRM’s forward PE could reach 18-20x whenever it delivered double-
digit EPS growth.
PE GGRM EV/EBITDA GGRM
24 16
15
22
14
+2 StDev +2 StDev
20 13
+1 StDev 12 +1 StDev
18
Mean 11 Mean
16 10
-1 StDev -1 StDev
14 9
-2 StDev -2 StDev
8
12
7
10 6
Dec-12
Dec-15
Dec-18
Dec-12
Dec-15
Dec-18
Jan-10
Jan-10
Aug-10
Aug-13
Aug-16
Aug-10
Aug-13
May-12
May-15
May-18
May-12
May-15
Jul-16
May-18
Mar-11
Mar-14
Mar-17
Mar-11
Mar-14
Mar-17
Oct-11
Oct-14
Oct-17
Oct-11
Oct-14
Oct-17

Medikaloka Hermina (HEAL; Buy; PT: Rp4,200)

Analysts: Lakshmi Rowter / Adrian Joezer
FIGURE 82. KEY FINANCIALS FOR HEAL

YE Dec (Rp Bn) 2016A 2017A 2018F 2019F 2020F
EBITDA 441 542 652 760 969
Net Profit 62 98 156 174 236
P/E Ratio (x) 128.0 81.4 50.9 45.7 33.6
EV/EBITDA (x) 19.1 17.7 14.3 12.7 10.2
P/B Ratio (x) 6.7 17.5 4.5 4.2 3.9
Dividend Yield (%) 1.8 1.3 0.6 1.0 1.1
ROAE (%) 5.2 11.8 14.0 9.5 12.0
A uniquely-positioned private hospital in the JKN market, HEAL is a proxy to the improving
certainty of, and value expansion from, JKN’s rates adjustment which we expect to take
place post-Presidential election in 2019. The cross-subsidy between JKN and private
patients is a key strength which is exclusive to HEAL that has allowed a prudent hospital
expansion and BOR; improving operational efficiency post-IPO also serves upside for more
margin stability. With recent JKN development, we understand the high degree of
uncertainty for the sector, yet we argue that either way the development goes, HEAL
would still be preferable:
 Scenario 1 – the unlikely 0% rate adjustment

In the event that our bet of JKN rate adjustment does not play out, HEAL’s
volume-driven EBITDA can still grow by 17%/27% YoY in 2019/2020, which far
outpaces both local and regional peers. A unique case for Indonesia, HEAL is not
in a dire need for rate adjustment given the close similarity of its JKN and private
rates; although should this scenario happen, HEAL’s biggest downside comes
from the pent-up cost-induced drug price hikes. With this growth, HEAL trades at
16x/13x 2019/20 EV/EBITDA (including minority adjustment).
 Scenario 2 – a 5% rate adjustment across the value chain

We previously highlighted that the Government only needs to increase JKN
premium by Rp4,500 to solve the value chain’s deficits (read our analysis - Catch
Me (and My Growth Opportunity) If You Can). Assuming an optimal transmission
to drug and hospital rates, we see 10% EBITDA upside for HEAL, reaching
27%/37% YoY EBITDA growth in 2019/2020, which not only beats local/regional
hospital peers but also JCI. With this EBITDA upside, HEAL would trade at
15x/12x 2019/20 EV/EBITDA (including minority adjustment).
In our view, current valuations for HEAL (and also the hospital industry) portray the
market’s low confidence in the regulatory improvement and sustainable EBITDA growth.
We differ with the market in both aspects, considering:
 JKN has now become a Presidential agenda, and multiple efforts have been
made to make sure BPJS Kesehatan runs smoothly (read our summary - Pulse
Check: Pharma Dilemma). Hence, we are more confident of Scenario 2 taking
place, which not only helps growth but also solves the bottleneck that has
depressed healthcare valuations for years. We believe downside risks are very
limited at this point.
 JKN member acquisition has admittedly plateaued at 80%, yet program usage
remains below 50%, according to various sources. We believe HEAL would be
the perfect local hospital to capture potential patient influx from JKN’s
improving operations, through its prudent hospital expansion.

 These conditions allow for significantly higher EBITDA growth versus peers; at
20% EBITDA CAGR 2018F-20F, HEAL is the fastest growing hospital in SEA, yet
trading below regional average and at its lowest valuations since IPO.
FIGURE 83. KEY EARNING TRENDS FIGURE 84. REGIONAL HOSPITAL VALUATIONS
80% 25% APHS IN
60% 20%
SILO IJ
HEAL IJ
2019 EBITDA Growth

40% IHH MK
15%
20% NARH IN
BDMS TB
CHG TB
10% RFMD SP
0% 1515 HK BH TB
2016A 2017A 2018F 2019F 2020F MIKA IJ
-20% 5%
3689 HK
-40%
0%
-60% - 5 10 15 20 25
2019 EV/EBITDA
Net revenue EBITDA NPAT
Source: Company, Mandiri Sekuritas estimates Source: Mandiri Sekuritas estimates, Bloomberg
60
PE HEAL 16
EV/EBITDA HEAL
+2 StDev +2 StDev
55 15
+1 StDev +1 StDev
50 14
Mean
Mean
45 -1 StDev 13
-1 StDev
40 -2 StDev 12
-2 StDev
35 11
30 10
Dec-18
Dec-18
Dec-18
Dec-18
Dec-18
Nov-18
Nov-18
Nov-18
Nov-18
Nov-18
Jan-19
Jan-19
Jan-19
Sep-18
Sep-18
Aug-18
Jul-18
Oct-18

Mitra Adiperkasa (MAPI; Buy; PT: Rp1,100)

Analysts: Laura Taslim / Adrian Joezer
FIGURE 87. KEY FINANCIALS FOR MAPI

YE Dec (Rp Bn) 2016A 2017A 2018F 2019F 2020F
EBITDA 1,516 1,807 2,267 2,321 2,327
Net Profit 208 335 718 815 815
Fully-Diluted EPS Gr. (%) (44.2) 60.5 114.7 13.4 (0.0)
P/E Ratio (x) 64.9 40.4 18.8 16.6 16.6
EV/EBITDA (x) 10.9 8.9 7.2 6.9 6.8
P/B Ratio (x) 4.2 3.4 3.0 2.6 2.4
Dividend Yield (%) 0.0 0.3 0.4 0.8 0.9
ROAE (%) 6.7 9.2 16.7 16.7 15.0
The stock is attractive valued with 12-month forward valuation multiples hovering at
relatively the similar level as in 2014-15, despite today’s much lower inventory days at 113
days (vs. 180 days back then). We think such low inventory days level provide a natural
downside protection to margin; hence the slight dip in 3Q18 margin should not be treated
as a warning sign while the IDR currency has been strengthening of late. We think the
management is also on track in rationalizing the business, providing further margin
downside. The significant department store margin improvement, from 1.2% in 2017 to
7.5%, is a clear example. We also expect the weak specialty stores margin in 3Q18 to
gradually diminish, as that was driven by inventory clearance and FX pressures, which shall
not continue.
PE MAPI EV/EBITDA MAPI
35 14
30 +2 StDev 12
+2 StDev
25 +1 StDev 10 +1 StDev
20 Mean 8 Mean
15 -1 StDev 6 -1 StDev
10 -2 StDev 4 -2 StDev
5 2
0 0
Dec-12
Dec-15
Dec-18
Dec-12
Dec-15
Dec-18
Jan-10
Jan-10
Aug-10
Aug-13
Aug-10
Aug-13
May-12
May-15
Jul-16
May-18
May-12
May-15
Jul-16
May-18
Mar-11
Mar-14
Mar-17
Mar-11
Mar-14
Mar-17
Oct-11
Oct-14
Oct-17
Oct-11
Oct-14
Oct-17

PT PP (PTPP; Buy; PT: Rp3,085)

Analysts: Edbert Surya
FIGURE 90. KEY FINANCIALS FOR PTPP

YE Dec (Rp Bn) 2016A 2017A 2018F 2019F 2020F
EBITDA 2,494 3,191 3,778 4,499 5,208
Net Profit 1,023 1,453 1,475 1,733 2,126
P/E Ratio (x) 10.0 9.0 8.8 7.5 6.1
EV/EBITDA (x) 4.5 4.6 4.6 4.3 3.8
P/B Ratio (x) 1.3 1.1 1.0 0.9 0.8
Dividend Yield (%) 1.1 2.4 2.2 3.4 4.0
ROAE (%) 14.4 13.7 12.2 12.9 14.2
We expect PTPP to deliver better growth in this year, after a relatively low-base revenue
growth of +14.7% yoy (average 2013-17: +23% yoy) to Rp24.7tn in 2018F. The main
pushback behind the slower-than-expected revenue growth was the land acquisition for
Manado–Bitung toll road and longer-than-expected EPC contract assignment, but these
issues are now settled. The Manado–Bitung land acquisition has reached 92% by the end of
2018 and PTPP’s consortium, led by Hyundai, has recently been awarded the largest oil
refinery EPC project in Balikpapan with a total investment of Rp60tn, Rp8tn-10tn of which is
the chunk for construction service. We think the worst is behind, while the company has a
strong balance sheet with zero turnkey exposure.
30
PE PTPP 12
EV/EBITDA PTPP
+2 StDev
+2 StDev
25 10
+1 StDev
20 +1 StDev 8
Mean
15 Mean 6
-1 StDev
10 -1 StDev 4
-2 StDev
5 2
-2 StDev
0 0
Dec-15
Dec-15
Nov-14
Nov-17
Nov-14
Nov-17
Feb-14
Feb-17
Jan-19
Feb-14
Feb-17
Jan-19
Sep-13
Sep-16
Sep-13
Sep-16
Aug-15
Aug-18
Aug-15
Aug-18
May-13
May-16
May-13
May-16
Mar-15
Mar-15
Jun-14
Jun-17
Jun-14
Jun-17
Apr-18
Apr-18

Sarana Menara Nusantara (TOWR; Buy; PT: Rp750)

Analysts: Kresna Hutabarat / Henry Tedja
FIGURE 93. KEY FINANCIALS FOR TOWR

YE Dec (Rp Bn) 2016A 2017A 2018F 2019F 2020F
EBITDA 4,408 4,604 4,829 4,998 5,159
Net Profit 2,134 2,100 2,258 2,415 2,453
Fully-Diluted EPS Gr. (%) (27.9) (80.3) 7.5 7.0 1.5
P/E Ratio (x) 3.2 16.4 15.3 14.3 14.0
EV/EBITDA (x) 3.2 8.9 8.8 8.4 8.0
P/B Ratio (x) 1.2 4.8 4.4 3.9 3.6
Dividend Yield (%) 0.0 2.9 4.4 4.4 4.6
ROAE (%) 43.6 32.2 30.2 29.0 26.6
Backed with a strong balance sheet, SMN could sustain high single-digit or low double-
digit revenue growth in 2019-20F on the back of both organic and inorganic plans. SMN is
well-positioned to benefit from Indosat’s increased capex commitment and other
operators’ continued network investment intensity. SMN is also well-equipped to
participate in any M&A event in the national tower industry in the future, which we think
could further bolster SMN’s dominance as the leading independent towerco player in
Indonesia. Market concerns on the sustainability of revenues from Hutchison are fair, but
we believe the ongoing revenue diversification efforts should gradually reduce the
concerns for good, in our view. Furthermore, SMN, through its fiber subsidiary ‘iForte’, has
solidified its position among the most critical telecom infrastructure player in the country
today and in the coming 5G era.
40
PE TOWR 16
EV/EBITDA TOWR
+2 StDev +2 StDev
35
14
30 +1 StDev
+1 StDev
12
25
Mean Mean
20 10
15 -1 StDev
-1 StDev 8
10
-2 StDev
-2 StDev 6
5
0 4
Dec-15
Dec-15
Nov-14
Nov-17
Nov-14
Nov-17
Feb-14
Feb-17
Jan-19
Feb-14
Feb-17
Jan-19
Sep-13
Sep-16
Sep-13
Sep-16
Aug-15
Aug-18
Aug-15
Aug-18
May-13
May-16
May-13
May-16
Mar-15
Mar-15
Jun-14
Jun-17
Jun-14
Jun-17
Apr-18
Apr-18

Telekomunikasi Indonesia (TLKM; Buy; PT: Rp4,200)

Analysts: Kresna Hutabarat / Henry Tedja
FIGURE 96. KEY FINANCIALS FOR TLKM

YE Dec (Rp Bn) 2016A 2017A 2018F 2019F 2020F
EBITDA 60,126 64,609 66,276 70,833 76,252
Net Profit 19,352 22,145 21,414 23,643 25,984
Fully-Diluted EPS Gr. (%) 24.4 13.9 (3.3) 10.4 9.9
P/E Ratio (x) 19.2 16.9 17.4 15.8 14.4
EV/EBITDA (x) 6.6 6.3 6.2 5.8 5.3
P/B Ratio (x) 4.4 4.0 3.8 3.5 3.3
Dividend Yield (%) 3.6 4.2 4.0 4.4 4.9
ROAE (%) 24.3 25.0 22.3 23.0 23.6
Telkom Indonesia is in good position to regain revenue and earnings growth in 2019 after a
challenging year in 2018. Indeed, Telkom’s mobile subsidiary, Telkomsel, is undergoing
structural challenges coming from the shifting revenue mix, from legacy revenues to digital
revenues, and this multi-year process may cap Telkomsel’s operating profit contribution to
Telkom. However, Telkom should continue to benefit from the fast-growing fixed
broadband and ICT businesses, resulting from the national fiber network completion over
the past few years, and could see earnings growth support from the segment in 2019-20F.
Telkom’s consistent dividend payout rates also keep the stock’s risk-reward profile
attractive, in our view.
PE TLKM EV/EBITDA TLKM
23 8
21 8
+2 StDev
+2 StDev 7
19
+1 StDev 7 +1 StDev
17
6
15 Mean 6 Mean
13 -1 StDev 5
11 -1 StDev
-2 StDev 5
9 4
-2 StDev
7 4
5 3
Dec-12
Dec-15
Dec-18
Dec-12
Dec-15
Dec-18
Jan-10
Jan-10
Aug-10
Aug-13
Aug-10
Aug-13
May-12
May-15
Jul-16
May-18
May-12
May-15
Jul-16
May-18
Mar-11
Mar-14
Mar-17
Mar-11
Mar-14
Mar-17
Oct-11
Oct-14
Oct-17
Oct-11
Oct-14
Oct-17

Wijaya Karya (WIKA; Buy; PT: Rp2,455)

Analysts: Edbert Surya
FIGURE 99. KEY FINANCIALS FOR WIKA

YE Dec (Rp Bn) 2016A 2017A 2018F 2019F 2020F
EBITDA 1,984 2,746 3,677 4,078 4,559
Net Profit 1,012 1,202 1,566 1,873 1,999
Fully-Diluted EPS Gr. (%) 57.3 (9.5) 30.3 19.6 6.7
P/E Ratio (x) 12.3 13.6 10.4 8.7 8.2
EV/EBITDA (x) 7.6 5.9 5.2 5.8 5.8
P/B Ratio (x) 1.4 1.3 1.2 1.1 1.0
Dividend Yield (%) 0.8 1.5 1.9 2.3 2.4
ROAE (%) 12.9 10.0 11.8 12.8 12.3
We see less overhang risks from the Jakarta-Bandung high-speed train project as
construction is progressing well backed with the already secured financing and 85% land-
acquisition progress completion. Going forward, the company eyes for mass transportation
projects in Greater Jakarta area, such as MRT phase II and Jakarta railways loop line, while
focusing on higher margin and recurring-income businesses, such as property and
investment. Note that WIKA targets recurring-income to contribute 20% of its total income
by 2023. WIKA’s management has set 5-year targets with 2018-23F CAGRs of: 1) revenues:
19.9%; 2) EBITDA: 24.5%; and 3) comprehensive earnings: 38.5%. Lastly, the company plans
to IPO two of its subsidiaries, namely Wika Realty and Wika Industri & Konstruksi, in 2019.
30
PE WIKA 16
EV/EBITDA WIKA
+2 StDev
14 +2 StDev
25
+1 StDev 12
20 +1 StDev
10
Mean Mean
15 8
-1 StDev 6 -1 StDev
10
4
-2 StDev -2 StDev
5
2
0 0
Dec-15
Dec-15
Nov-14
Nov-17
Nov-14
Nov-17
Feb-14
Feb-17
Jan-19
Feb-14
Feb-17
Jan-19
Sep-13
Sep-16
Sep-13
Sep-16
Aug-15
Aug-18
Aug-15
Aug-18
May-13
May-16
May-13
May-16
Mar-15
Mar-15
Jun-14
Jun-17
Jun-14
Jun-17
Apr-18
Apr-18

Sector Views
AUTOMOTIVE
Sector rating: OVERWEIGHT
Analyst(s): Ariyanto Kurniawan
Outlook in 2019. While 2018 4W wholesale growth (+6.9% yoy in 11M18) was driven by
commercial vehicle (+18.5% yoy in 11M18 vs. passenger vehicle of +3.7% yoy), we see risk
of softer demand from commercial vehicle segment in 2019 due to softer commodity
prices (coal and CPO). However, unlike in 2018, we do not expect tight competition in the
passenger car market, as we do not see potential new product launches by major brands in
the LMPV and LCGC segments (44% combined market share), wherein ASII has dominant
position in both. We expect 3% growth in the 4W market in 2019 to 1.1mn units.
Mild competition in 4W market. After Mitsubishi Xpander (launched in Aug’17), we do

not expect to see new product launches by major brands in the mass market, such as LMPV
and LCGC segments. Thus far, ASII plans to introduce Avanza/Xenia facelift in Jan’19, while
Mitsubishi to introduce facelift model in 2019. For the LSUV market, Toyota Rush and
Daihatsu Terios will continue to dominate given the lack of competition after Honda BRV’s
sales continue to decline. We believe ASII is well positioned to benefit from mild
competition in the passenger car, given its extensive dealership, strong support from
financing unit, and track record of after sales service.
Astra Honda remains undisputed in the 2W market. Despite strong improvement in

2018 (+8.4% in 11M18), we expect low single digit growth in 2019 due to softer commodity
price outlook. Ytd, strong growth occurred outside Java, such as in Kalimantan (+50% yoy),
Sumatera (+26% yoy), and Sulawesi and Papua (>10% yoy) as a result of high commodity
prices, while Java and Jakarta, which represent 65% of total sales, grew by only 6% yoy. We
expect 2W sales will grow by 2% yoy to around 6.1mn units in 2019, while Astra Honda
Motor expects to maintain 75% market share.
FIGURE 102. 4W WHOLESALES VOLUME AND ASII’S MARKET FIGURE 103. 2W WHOLESALES VOLUME AND ASII’S MARKET
SHARE SHARE
000 Units 000 Units
120 80% 700 100%
60% 600 80%
100
40% 500 60%
80 40%
20% 400
60 20%
0% 300
0%
40
-20% 200 -20%
20 -40% 100 -40%
- -60% 0 -60%
Sep-15
Sep-16
Sep-17
Sep-18
Jul-15
Jul-16
Jul-17
Jul-18
Mar-15
Mar-16
Mar-17
Mar-18
Jan-15
Nov-15
Jan-16
Nov-16
Jan-17
Nov-17
Jan-18
Nov-18
May-15
May-16
May-17
May-18
Sep-15
Sep-16
Sep-17
Sep-18
Jul-15
Jul-16
Jul-17
Jul-18
Mar-15
Mar-16
Mar-17
Mar-18
Jan-15
Nov-15
Jan-16
Nov-16
Jan-17
Nov-17
Jan-18
Nov-18
May-15
May-16
May-17
May-18
4W wholesales (000 units) ASII's Market share YoY growth 2W Wholesales (000 units) ASII's Market share YoY growth
Source: GAIKINDO Source: AISI

BANKING
Sector Rating: NEUTRAL
Analyst(s): Tjandra Lienandjaja / Priscilla Thany/ Silvony Gathrie
Liquidity remains an issue in 2019. Starting 2Q18, the industry’s LDR has reached 90%
and this has continued to the current level of 93%, while the regulation states that banks
with >92% LFR (which is 1-2% lower than LDR) and <14% CAR will have to put up with
more reserve requirement. The latest data from OJK indicates that the total industry loan
growth is +12.05% y-y in Nov-18, while deposit growth is at +7.19% y-y, of which this trend
of lower deposit growth is anticipated to continue in 2019. Hence, liquidity in the system
will remain tight. We expect 12% loan growth with 11% deposit growth for next year on
the 13 banks in our basket. This level is a bit higher than the industry loan growth
expectation of 10-12% given the dominance of the top-4 banks, which account for 50% of
the total industry assets.
FIGURE 104. INDUSTRY LOAN AND DEPOSIT GROWTH FIGURE 105. INDUSTRY LDR
(% y-y) (%)
45 110
40 105
100
35 95
30 90
25 85
80
20
75
15 70
10 65
60
5
May-15
May-18
Mar-15
Mar-17
Mar-18
Jun-15
Jun-17
Jun-18
Jul-15
Jul-18
Apr-15
Apr-18
Nov-15
Feb-15
Aug-15
Feb-18
Aug-18
Sep-15
Sep-17
Sep-18
Jan-15
Jan-18
Dec-14
Dec-15
Dec-16
Dec-17
Oct-15
Oct-18
0
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Feb-18
Aug-18
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Dec-16
BUKU I BUKU II BUKU III

Loan growth Deposit growth BUKU IV Industry
Source: Bank Indonesia, OJK, Mandiri Sekuritas Source: Bank Indonesia, OJK, Mandiri Sekuritas
BUKU IV banks dominating the industry. There are five banks which are officially
categorized under BUKU IV, the largest based on total capital of >Rp30tr. Potentially BDMN
and PNBN can be considered as BUKU IV banks in addition to BMRI, BBRI, BBCA, BBNI, and
BNGA. These five account for 54% of the industry’s total assets and loans as well as a higher
56% of the industry’s total deposits. While the larger banks are forecast to record similar to
industry loan growths of 12-13%, the smaller ones are expected to show higher growth
with BBTN and BTPS projecting the highest loan growths of 17% and 20% y-y, respectively.
In terms of sector, the bigger banks will likely continue increasing their exposure in the
infrastructure-related projects (under utilities and construction), in addition to
manufacturing and consumer lending. BBRI will still continue to disburse most of the
subsidized KUR loans, while BBTN on the low-cost housing loans under the FLPP and
interest rate subsidy program.
Interest rate adjustments continue in 2019. As the central bank has raised the
benchmark 7-DRRR rate by 175 bps in 2018, banks have been adjusting their rates. Of the
deposit side, all banks have been raising their time deposit rates up to the same level of the
BI rate hike, and this will continue in 2019, triggered by smaller banks, in particular BUKU III
banks, whose average LDR has already passed 102% level. Lending rate adjustment,
however, is not as high as time deposit rate adjustment. The rising cost of funds depend on
each bank’s deposit structure, as rates on CASA (current account and savings account) have

yet to be adjusted. Industry average CASA portion to total deposits is 55%, and thus banks
need to only increase lending rates at half of the cost of funds’ increase to keep their
margin. This is why most banks have only increased 25-75 bps on their lending rates. As we
expect a 50 bps rate increase, we anticipate more lending rate adjustments of up to 100
bps next year.
Margins in most banks are forecast to decline further. Coming from the high base in
2016, banks have seen their net interest margin declining since 2017. Margins in our bank
universe went down to 6.13% in 9M18 and this is expected to decline slightly in 2019 with
certain banks like BBCA and BBRI forecast to see margin improvement. The rest of the
banks are likely see their margins deteriorate given the rising cost of funds. The net interest
margin of Indonesian banks is one of the highest among the region, ranging 1-4%, hence it
is still expected to decline over the medium to long term view.
FIGURE 106. AVERAGE INTEREST RATES FIGURE 107. REFERENCE INTEREST RATES
(%) (%)
20 14
18
12
16
14 10
12
10 8
8 6
6
4 4
2 2
0
0
Feb-18
Aug-18
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Dec-16
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
May-06
May-13
Mar-05
Mar-12
Jun-10
Jun-17
Jul-07
Jul-14
Apr-09
Apr-16
Nov-09
Nov-16
Aug-04
Feb-08
Aug-11
Feb-15
Aug-18
Sep-08
Sep-15
Jan-04
Jan-11
Jan-18
Dec-06
Dec-13
Oct-05
W/c loans Investment loans Oct-12

Consumer loans 3-M T/D 7DRR
FIGURE 108. INDUSTRY NET INTEREST MARGIN FIGURE 109. EXPECTED NET INTEREST MARGIN
(%) Bank (%) 2015 2016 2017 2018F 2019F
7 BMRI 5.71 6.01 5.50 n/a n/a
BBRI 7.77 8.11 7.74 7.40 7.45
6
BBCA 6.98 7.04 6.45 6.21 6.27
5
BBNI 6.38 6.12 5.48 5.31 5.23
4 BDMN 7.82 8.60 8.98 8.89 8.65
3 PNBN 4.60 4.98 4.68 4.52 4.47
BBTN 4.71 4.67 4.46 3.99 4.05
2
BTPN 10.94 11.70 11.43 10.71 10.23
1
BJBR 6.10 6.88 6.38 6.12 5.84
0 BJTM 7.50 8.17 7.68 7.29 6.89
May-15
May-18
Mar-15
Mar-17
Mar-18
Jun-15
Jun-17
Jun-18
Jul-15
Jul-18
Apr-15
Apr-18
Nov-15
Feb-15
Aug-15
Feb-18
Aug-18
Sep-15
Sep-17
Sep-18
Jan-15
Jan-18
Dec-14
Dec-15
Dec-16
Dec-17
Oct-15
Oct-18
BNLI 3.97 3.95 3.95 3.88 3.86

BNGA 5.34 5.56 5.35 4.84 4.74
Industry BUKU I BUKU II BTPS 27.59 32.75 34.25 34.10 30.89
BUKU III BUKU IV Average 6.46 6.77 6.43 6.13 6.11

Asset quality is under control. The recent industry peak NPL was 3.22% in Apr-16 and this
has gone down to 2.67% as of Nov-18. Certain banks and sectors still see rising problem
loans which may continue in 2019. Among the banks, BBRI, PNBN, BNLI, BNGA, and BTPN
saw rising NPL levels in Sep-18 from the previous quarter, while the rest recorded declining
problem loan levels. Special mention loan (SML) in the industry has declined to an average
of 5.01% in Oct-18 from the recent peak of 6.04% in Feb-18, while in our bank universe, this
level declined to an average 4.68% in Sep-18 from 5.05% in Jun-18. Only BJTM posted rising
SML in the last quarter, but the level is still below 2%, well below the industry average.
On average banks still maintain sufficient coverage for the problem loans with average
coverage ratio of 139% as of Sep-18, down from 141% as of Jun-18. Aside from an
anticipation of rising NPL, banks have also been preparing for the higher need of
provisioning in the wake of the IFRS 9 implementation in early 2020.
Moderate earnings growth for 2019. Our bank universe posted +13% y-y net profit
growth in 9M18, accounting for 76% of the market’s full year expectation. This was
supported by +13.6% y-y/+7.9% ytd loan growth and +9.2% y-y/+3.5% ytd deposit growth
with 6.1% NIM. We expect earnings growth to remain at a moderate level of +13% in 2018,
rising to +17% in 2019, supported by lower provisioning charges, and further controlled
operating expenses.
Maintain Neutral on the Sector. We maintain our Neutral call on the sector, which has
outperformed the JCI by +5% ytd. Our top pick in the sector are BBRI (TP Rp4,100), BBTN (TP
Rp3,250), and BTPS (TP Rp2,250). Main upside risks to our call are improving economic
growth, lower inflation rates, and declining interest rates. Meanwhile, downside risks
include higher inflation, weak FDI, and fund outflows post the tax amnesty lock-up period
in Sep-19.
CEMENT
Analyst(s): Priscilla Thany / Tjandra Lienandjaja
Volume growth to decelerate in 2019F. We expect volume growth of only 3.0-4.0% in

2019F, slower than 2018’s growth of approximately ~5.0-6.0%, as bulk sales growth is
expected to decelerate due to completion of government infrastructure projects,
particularly in Java and Sumatera. With slower order book from construction companies
and government infrastructure budget growth of only +2.5% yoy in 2019F, we expect bulk
sales to grow by +4.5% yoy in 2019F vs +11.7% yoy in 11M18. We note that bulk sales have
shown signs of deceleration starting Nov-18, reporting growth of only +2.7% yoy vs.
double digit growth during prior months.
On the other hand, demand for bag sales is also expected to remain subdued at +4.0% yoy
in 2019F, as demand for bag cement is only expected to pick up in 2H19 following the
recovery of the property sector. This is a slight improvement from +2.5% yoy in 11M18, as
the multiplier effect from infrastructure spending should start to kick in. However, 1H19
will be a challenging period for the cement sector due to the rainy season during the first
couple of months of the year, followed by the presidential elections, the fasting period, and
Eid al-Fitr holidays—all these events will likely deter demand growth. Hence, we are
banking on a stronger 2H19 for demand recovery.

FIGURE 110. CEMENT INDUSTRY SUPPLY AND DEMAND TABLE

Supply and Demand Forecast
Indonesian Capacity (mn tons) 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F
Semen Gresik Group 22,500 27,700 29,500 29,500 29,500 35,500 35,500 35,500 35,500
Indocement 18,600 18,600 20,500 20,500 24,900 24,900 24,900 24,900 24,900
Semen Andalas 1,600 1,600 1,600 1,600 1,600 Merger with Holcim
Semen Baturaja 1,300 1,300 1,300 1,300 2,000 2,500 3,850 3,850 3,850
Lafarge Holcim Indonesia 8,500 10,400 12,100 12,100 12,100 14,500 15,500 15,500 15,500
Semen Bosowa Maros 4,800 6,000 6,000 6,000 6,000 7,400 7,400 7,400 7,400
Semen Kupang 300 300 300 300 300 400 400 400 400
Semen Merah Putih 4,000 7,690 7,690 7,690 7,690
Semen Jui Shin 1,800 1,800 1,800 1,800 1,800 1,800
Semen Panasia 1,800 1,800 1,800 1,800 1,800
Siam Cement 1,800 1,800 1,800 1,800 1,800
Anhui Conch 1,700 1,700 6,700 9,400 11,200 13,200
Semen Grobogan 2,500
Hongshi 2,500
Total Capacity 57,600 65,900 71,300 74,800 87,500 104,990 110,040 111,840 118,840
growth 14.4% 8.2% 4.9% 17.0% 20.0% 4.8% 1.6% 6.3%
Demand Incl Exports (mn tons) 55,160 58,526 60,130 63,002 63,589 69,410 74,224 77,282 82,653
growth 6.1% 2.7% 4.8% 0.9% 9.2% 6.9% 4.1% 6.9%
Utilization Rate Including Exports 95.8% 88.8% 84.3% 84.2% 72.7% 66.1% 67.5% 69.1% 69.5%
Utilization Rate Excluding Exports 95.4% 88.0% 84.0% 82.9% 70.9% 63.3% 63.4% 65.0% 65.3%
Excess Capacity (mn tons) 2,440 7,374 11,170 11,798 23,911 35,580 35,816 34,558 36,187
Demand Forecast
Indonesian Capacity (000 tons) 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F
Semen Gresik Group 22,477 25,450 26,156 25,969 25,682 27,092 27,498 28,598 30,314
Indocement 17,612 17,642 18,189 16,784 16,115 16,784 17,959 18,767 20,081
Lafarge Holcim Indonesia 8,553 8,431 8,756 8,635 9,427 9,686 10,412 10,829 11,479
Others 6,327 6,500 6,810 10,607 10,783 12,902 13,934 14,492 15,723
Total Domestic Demand 54,969 58,023 59,910 61,995 62,008 66,464 69,804 72,686 77,597
growth 5.6% 3.3% 3.5% 0.0% 7.2% 5.0% 4.1% 6.8%
Exports 190 503 220 1,008 1,582 2,947 4,420 4,597 5,056
growth 164.0% -56.2% 357.4% 57.0% 86.3% 50.0% 4.0% 10.0%
Total Demand 55,160 58,526 60,130 63,002 63,589 69,410 74,224 77,282 82,653
growth 6.1% 2.7% 4.8% 0.9% 9.2% 6.9% 4.1% 6.9%
Bag 44,110 45,612 46,834 47,500 46,695 49,647 50,888 52,923 56,363
Bulk 10,767 12,393 13,072 14,495 15,257 16,847 18,916 19,762 21,233
Growth
Bag 3.4% 2.7% 1.4% -1.7% 6.3% 2.5% 4.0% 6.5%
Bulk 15.1% 5.5% 10.9% 5.3% 10.4% 12.3% 4.5% 7.4%
Composition
Bag 80.4% 78.6% 78.2% 76.6% 75.4% 74.7% 74.0% 74.0% 75.0%
Bulk 19.6% 21.4% 21.8% 23.4% 24.6% 25.3% 26.0% 26.0% 25.0%
Source: ASI, Company, Mandiri Sekuritas estimates

Pricing recovery likely to take place in 2H19. Given decelerating demand, the biggest
question will be ‘how much can players increase prices or how long can players sustain
current prices without losing market share?’. We view it will be difficult to conduct another
round of price hikes or even sustain current prices in 1H19, particularly if demand growth
turns out to be negative. A price correction can potentially take place if the market shares
of the big two players decline due to the widening price gap between first tier and second
tier players. However, since INTP and SMGR control 85% of the market (post SMGR’s
acquisition of Holcim), the likelihood of a price war taking place is very minimal. Hence, we
view pricing recovery will only take place in 2H19 once demand begins to recover—in line
with the expected property recovery.
Utilization rates to gradually recover. Including exports, we forecast utilization rates to

improve to 69.1% in 2019F from 67.5% in 2018F, as we expect minimal capacity coming on
in 2019F of only +1.6% yoy. If we exclude exports, industry utilization rate is expected to
improve to 65.0% in 2019F from 63.4% in 2018F. Based on our conversations with cement
players, there has been a delay on the additional supply coming into the industry, as a
number of players have faced difficulties securing permits or have faced some challenges
in setting up new plants.
Full benefits of consolidation to become evident in late 2H19 and 2020F. The full
benefits of SMGR’s consolidation will likely be realized in 2020F, after Holcim’s brand has
been fully replaced with SMGR’s. SMGR indicates it will start to change Holcim’s brand in
2H19. We view it will be easier for SMGR implement further price discipline once industry
demand has picked up and the transition between Holcim to SMGR has been fully
accepted by the market. As SMGR is the market leader, we believe INTP and smaller players
will likely follow in SMGR’s price discipline, allowing the entire industry to enjoy better
margins in 2020F.
Prefer SMGR over INTP. We prefer SMGR over INTP, as we believe the acquisition provides
SMGR with pricing power to implement industry price discipline. Furthermore, SMGR will
be able to realize further cost savings from synergies with Holcim Lafarge’s operations.

COAL MINING
Earnings are close to peak, considering: 1) coal price has softened from the peak of USD
120/ton to USD 103/ton; 2) modest production growth; and 3) 25% annual production is
priced at USD 70/ton DMO price. We expect earnings to soften next year caused by: 1)
lower coal price assumption of USD 85/ton (vs. USD 95/ton in 2018); and 2) widening
discount of low CV coal to high CV. Our earnings forecast in FY19F is 20% below consensus
on lower coal price assumption.
The discount of lower CV to high CV coal has diverged. The discount of Newcastle 5,500
kcal to Newcastle 6,000 kcal has increased significantly from the avg. of 20% in 1Q18 to
35% in Nov’18, indicating the strong coal price outlook is exclusive to the high CV coal,
while coal with CV of <5,500 kcal - produced by the majority of Indonesia’s coal producers -
is not enjoying the high price. We believe the premium enjoyed by high CV producers was
due to tight supply of high CV coal caused by depleting reserves, while supply of lower CV
coal was abundant.
China’s import determines coal price direction. China’s decision to stop coal import until
at least next year has created uncertainty in the seaborne market, which has led to the
decline in coal prices, particularly for coal with CV of <5,500 kcal, which represents the
majority of coal imports. China regularly tweaks the coal import limit, as its Government
uses coal import policy to minimize domestic coal price volatility. When domestic prices are
high, import restrictions are likely to be relaxed in order to help cool domestic thermal coal
markets, while low domestic prices call for tighter import restrictions.
PE multiple has contracted after the Government announced DMO in Feb’18. ITMG is our
only Buy call in the sector due to higher quality coal produced relative to peers and
attractive dividend yield of 6%. We maintain our Neutral call on ADRO, PTBA, and HRUM.
FIGURE 111. COAL PRICE INDEX FIGURE 112. DISCOUNT OF LOW CV TO HIGH CV HAS WIDENED
(USD/ton)
140.0 0%
-5%
120.0
-10%
-15%
100.0
-20%
80.0 -25%
-30%
60.0
-35%
-40%
40.0
-45%
20.0 -50%
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Newcastle 6,000 Kcal Newcastle 5,500 Kcal Price discount

FIGURE 113. CHINA’S COAL IMPORT VS QHD COAL PRICE FIGURE 114. CHINA COAL PRICE VS COAL INVENTORY AT KEY
POWER PLANTS
RMB/ton Days
mn tons Rmb/ton
800 45
35 800
750 40
30 700
700
25 600 35
500 650
20 30
400 600
15 25
300 550 China's government ideal coal price range
10 200 20
500
5 100 15
450
0 0 10
400
Apr-15
Apr-16
Apr-17
Apr-18
Jul-15
Jul-16
Jul-17
Jul-18
Oct-15
Oct-16
Oct-17
Jan-15
Jan-16
Jan-17
Jan-18
350 5
300 0
China Coal Imports - LHS Qinhuangdao Coal Price - RHS
Qinhuangdao 5,500kcal China's Avg. Coal Inventory days at Key Power Plants
CONSUMER
Sector Rating: OVERWEIGHT
Analyst(s): Adrian Joezer / Lakshmi Rowter / Riyanto
We are macro-wise upbeat going into 2019, as government initiatives in the 2019 draft
budget (RAPBN) are more targeted toward the purchasing power of the grass-root (see
Consumer Sector: Supportive State Budget Direction), although front-loading support should
be expected given the Presidential election in Apr’18. Meanwhile, we are more cautious
about the middle-income given the modest minimum wage adjustment in 2019 by 8%,
which might not fully accommodate the real inflation rate on the ground. Notable supports
for 2019 mass-market income generation are:
 Zero tobacco excise hikes in 2019, whereby cigarettes occupy meaningful wallet
share in the grass-root (see Cigarettes Sector: A Forgotten Bull Story).
 Conditional cash aid (PKH) to 10mn households with 2x bigger budget pool.
 The Government has also revised the disbursement system in PKH from flat to
non-flat.
 In 2019, a family can get a maximum of Rp3.6-4mn/year, which consists of the
fixed amount of Rp550k plus additional supports depending on each family’s
issues.
 For efficiency purpose, the Government will also distribute PKH in January,
one month earlier from this year’s.
 Food assistance in the form of rice aid and non-cash food aid for 15.6mn
households.
 Aids for productive economic groups for 101,800 households.
 Rehabilitation and social protection for up to 90,000 children.
The supply side should also be more supportive given the recent currency reversal and
benign trend of soft commodity prices, though the manageable profitability of consumer
companies might be used as a window for growth and volume-oriented strategies, hence
tighter competition. With the ongoing modernization of distribution (e.g. e-commerce)
and marketing (e.g. digital advertising), household names face the challenge of staying
relevant and innovative to defend their dominance, and we prefer companies which are
responding to this fast-paced development.

Cigarette: Fundamental support from the absence of excise hike. No excise hike will
benefit the overall industry, translating to c.20% yoy EPS growth in 2019; this makes
cigarette names among the fastest growing large caps in 2019, while consensus is currently
still too conservative. Further EPS upside will also come from the sales mix improvement
after years of down-trading activities, benefitting HMSP more than GGRM given the
former’s more premium pricing. We expect significant valuation re-ratings in 1H19
following the margin seasonality. Overall, we see EPS growth accelerating to 17%/19% for
HMSP/GGRM in 2019F from 3.5%/5% in 2018. We have Buy calls on both HMSP and GGRM.
Staples: Innovation is the key. Though grass-root demand is likely spurred by

government support, middle income is relatively more challenged. Tapping the right
growing segment, or being able to tap all, is crucial.
 On this front, we prefer Indofood group, with INDF serving the biggest valuation
upside (at 16x 2019 P/E). ICBP’s noodles are good proxy to the better outlook of
mass-market consumption, with relatively easier competition and pricing power.
 We are also buyers of SIDO, as we bet on more volume initiatives from the new
management to counteract the rising herbal competition from household groups
(e.g. Orangtua). We expect sequentially better valuations as revenue recovers.
 Though coming with complete portfolio, UNVR is currently facing the toughest
competition among all, especially within the ice cream and personal care
segments, while recent product innovations have not appeared to be fruitful; 2019
P/E of 44x is fair given the situation, in our view.
 We are Neutral on MYOR, partly on valuations (31x 2019 P/E) and strong IDR,
which cause normalizing profitability from its exports and non-core incomes.
Meanwhile, we see rising concerns on export volumes in the Philippines (read A
Latte Room for Coffee) amidst the introduction of import duty in times of neck-to-
neck coffee competition.
 KLBF has been mostly associated with healthcare nuances of late, but we are
cautious of its dominant niche consumer products. We think upside is limited at
28x 2019 P/E and 7% EBIT growth, as it could only trade higher in the past when
volume growth outpaced industry and key raw material prices were benign (e.g.
milk powder).
FIGURE 115. CONSUMER PEERS COMPARISON

Price Mkt Cap PE EV EBITDA EPS growth EBITDA growth
Rating Target (USD mn) 2019 2020 2019 2020 2019 2020 2019 2020
ICBP Buy 10,550 8,559 26.7 26.2 17.1 16.9 5.9% 2.2% 4.2% 0.6%
INDF Buy 9,950 4,623 16.3 16.5 7.9 7.8 4.2% -1.2% 3.6% 1.6%
MYOR Neutral 2,550 4,297 32.2 29.4 16.6 15.0 13.9% 9.5% 22.8% 9.1%
UNVR Neutral 40,000 26,295 47.7 44.0 32.9 30.3 9.6% 8.4% 9.5% 8.3%
GGRM Buy 94,050 11,290 16.6 15.1 11.0 9.9 18.5% 9.5% 15.1% 8.5%
HMSP Buy 4,000 32,251 29.7 26.5 21.9 19.6 16.9% 12.0% 16.7% 11.2%
KLBF Neutral 1,450 5,302 28.4 26.2 17.9 16.4 7.5% 8.6% 7.3% 8.4%
SIDO Buy 950 909 16.9 14.3 12.0 10.2 20.1% 17.9% 21.0% 18.2%

CONSTRUCTION
Analyst(s): Edbert Surya
Infrastructure state budget 2019. Following the trend of previous election years, we see
the Government has continued to put focus in infrastructure development by allocating
Rp415.0tn (+1.1% y-y) in 2019 APBN. This accounts for 16.9% of total government spending
in 2019 APBN (2018 APBN: 18.5%). As the full form of state budget 2019 has not been
released, we can only rely on the Ministry of Finance’s press conference material. The key
highlight is transfer to region’s and village fund’s budgets have increased quite
significantly, as village infrastructure fund has escalated to Rp28tn (+16.7% yoy) and special
allocation fund to Rp39.1tn (+15.3% yoy). Nonetheless, we expect the SOE contractors were
minimally impacted by rising transfer to region budget due to smaller project size. Note
that the SOE contractors can only take a project with minimum contract size of Rp100bn.
Infrastructure and housing SOE holding creation. The Indonesian Government plans to
create two other holding companies, which are infrastructure & construction holding and
housing holding by the end of 2018. Interestingly, WIKA and PTPP are not included in
infrastructure holding, but part of housing holding together with Virama Karya, Amarta
Karya, Indah Karya, and Bina Karya under Perum Perumnas at the helm. Meanwhile, WSKT
and ADHI are joining the infrastructure holding, along with Jasa Marga, Yodya Karya, and
Indra Karya under Hutama Karya as the parent company. Note that Hutama Karya has its
own agenda to build Trans Sumatera toll roads with estimated investment of Rp137tn. Our
discussion with SOE contractors’ management and Hutama Karya indicated there might be
some mergers in sub-subsidiary levels within the same business categories starting in 2021.
They also expect to get more affordable cost of funding from banks, however, getting a
lower interest cost from the banks next year is improbable, as BI rate has increased by 175
bps ytd. In addition, the holding companies plan to create efficiency through bulk material
purchase, such as for cement and steel, as they believe this would reduce costs. In the
meantime, we may not see a meaningful impact of holding creation until 2021 onward.
Construction sector in election year. We disagree with consensus’ viewpoint that new
contracts will slow down during the election year. Based on historical evidence in
presidential election 2009 and 2014, four SOE contractors were able to record positive new
contracts growths by 11% and 13% yoy, respectively, with the exception of ADHI in 2014,
as the company faced a regulatory compliance issue at the end of 2013. We expect the new
contracts for four SOE contractors will continue to grow by 10% yoy in 2019, which
translate to total order book of Rp422.7tn or 2.5 years’ worth of construction works.
Top picks. Our top picks for the construction sector are WIKA and PTPP with the reasons of
solid balance sheet, positive operating cash flow, and growing order book. We also like
ADHI due to potential earnings upgrade, but delay in one of the LRT projects will become
the key risk (36% of revenues). Meanwhile for WSKT, we are waiting for more clarity on toll
road divestment, which is planned to be done in 2019. WIKA is currently trading at 8.1x,
PTPP at 6.0x, WSKT at 5.3x, and ADHI at 5.5x based on consensus estimate FY19F.

FIGURE 116. INFRASTRUCTURE BUDGET IN STATE BUDGET, 2014-2019

2014 2015 2016 2017 2018 2019
Realization Realization APBNP APBNP APBN RAPBN APBN
Economic Infrastructure 144.4 247.5 307.1 390.3 396.5 404.6
1. Ministerial Spending 118.6 170.3 151.2 157.1 161.3 153.4
Ministry of Public Works and Housing 69.3 107.4 94.7 101.5 104.7 108.2 108.2
Ministry of Public Housing
Ministry of Transportation 26.2 44.4 39.9 40.8 44.2 38.1 38.1
2. Non-ministerial Spending 2.5 4.1 5.9 6.0 3.0 4.5
Viability Gap Funding - - 1.1 0.5 1.2 2.1
Grants 0.8 3.0 4.6 5.4 1.4 1.9
Rising land price risks 1.6
3. Transfer to Region and Village Fund 14.4 39.1 88.0 180.9 181.4 201.7
Special Allocation Fund 11.9 27.7 66.3 32.3 33.9 33.5 39.1
Village Infrastructure Fund - 8.3 18.8 24.0 24.0 29.2 28.0
General Fund for Infrastructure - - - 121.2 122.1 129.2
Special autonomy infrastructure 2.5
4. Payment Funding 9.0 34.1 62.1 46.2 48.0 45.0
Government Infrastructure Investment 3.0 5.1 9.2 3.1 2.2 5.2
State Capital Injection 4.0 28.8 36.2 9.6 6.1 17.8 17.8
BLU LMAN - - 16.0 32.1 35.4 22.0 22.0
Government guarantee for power plant 0.9
LPDB-KUKM 1.0
Social Infrastructure 8.0 5.8 5.7 8.2 8.9 10.7
Ministry of Education and Culture 6.6 3.9 4.6 5.6 5.7 1.8
Ministry of Religious Affair 0.9 2.0 1.2 2.6 2.9 2.0
Ministry of Public Works and Housing 6.5
Infrastructure Support 2.1 2.9 4.2 2.6 5.0 5.2
Ministry of Agrarian and Spatial Planning - 0.9 0.3 0.2 2.8 3.0
Ministry of Industry 0.1 0.3 0.4 0.4 0.2 -
Total 154.6 256.3 317.1 401.1 410.4 420.5 415.0
Source: Ministry of Finance, Mandiri Sekuritas
FIGURE 117. SOE HOLDING STRUCTURE
Infrastructure Holding Housing and Area Holding
Source: Ministry of SOE

FIGURE 118. INFRASTRUCTURE HOLDING
FIGURE 119. HOUSING AND AREA HOLDING
FIGURE 120. SOE CONTRACTORS – P/E BAND 1 YEAR FORWARD FIGURE 121. SOE CONTRACTORS – TOTAL ORDER BOOK
(Rp tn) (%)
PE (x)
30.0 500 70%
59%
450
60%
25.0 +2 StDev
400
350 50%
20.0 +1 StDev
300
40%
15.0 Mean 250
33% 33%
30%
422
400
10.0 -1 StDev 200

379
20%
150 17%
286
20%
5.0 -2 StDev 100
180
6% 5%
10%
135
116
0.0 50
Dec-15
Nov-13
Nov-18
Jan-13
Feb-15
Jan-18
Sep-14
Aug-17
Jul-15
May-16
Mar-17
Oct-16
Jun-13
Jun-18
Apr-14
0 0%
2013 2014 2015 2016 2017 2018F 2019F
Total order books (LHS) Growth
Source: Bloomberg, Mandiri Sekuritas Source: Company, Mandiri Sekuritas estimates

HEALTHCARE
Analyst(s): Lakshmi Rowter / Adrian Joezer
We bet on JKN rate adjustment following the presidential election in Apr’18, which would
be the major catalyst for the depressed valuations of Healthcare stocks. We previously
argued that raising monthly JKN premium by Rp4,500 would not only cover the value
chain’s deficit but could also cover Pharma’s cost inflation (read Catch Me (and My Growth
Opportunity) If You Can). Assuming higher INA-CBG rate also allows private patient rate to
increase, our assessment shows that such adjustment adds 10-15% to 2019 industry
EBITDA, implying 2019 industry EV/EBITDA (ex-SILO) of 17x (from 19x). This level is
comparable to regional valuations, which serves as a good buying opportunity when
enacted.
The rising sentiment should justify some degree of valuation re-rating, although, we see
that not all listed companies are in the position to fundamentally benefit from the
improvement, except for HEAL. Hence, finding the perfect pocket of growth becomes
crucial. We believe the stocks that can perform are those which are exposed to the super-
growth of JKN with manageable margin risks, as opposed to those that maintain superior
margin region-wide yet losing the opportunity of growth.
 The cross-subsidy between JKN and private patients is the key strength exclusive
to HEAL due to the comparable patient rates among the two. Improving
operational efficiency post-IPO also serves buffer for more margin stability.
Currently, HEAL trades at 15x 2019 EV/EBITDA, including its minority adjustment,
its lowest point since IPO.
 We are less excited about MIKA due to its still premium valuations to regional
peers, whereas the more its volume grows through Kasih hospitals, the more
MIKA’s ROIC gets diluted. Hence, paying 23x 2019 EV/EBITDA seems stretched.
Following the argument of JKN rate adjustment, other JKN hospitals would
improve and steal more patients from Mitra hospitals, whose continuous volume
loss would be damaging for blended ROIC.
 We are not the biggest supporter of SILO’s too aggressive expansion plan, and we
believe the stock remains unattractive until a certain BOR is achieved, thus, leading
to a more sustainable earnings growth. Many execution issues, including the
revoked JKN licenses and slow patient uptakes, also do not convince us that
operational performance would pick up soon. Nevertheless, the price drop is
excessive and not entirely fundamental-driven, as we still see high value in SILO’s
operations.
FIGURE 122. HEALTHCARE FORWARD EV/EBITDA BAND FIGURE 123. HEALTHCARE EPS GROWTH TREND
60 80%
50 60%
40%
40
20%
30
0%
20 2016 2017 2018 2019 2020
-20%
10
-40%
-
-60%
Nov-15
Nov-16
Nov-17
Nov-18
Jan-16
Jan-17
Jan-18
Sep-15
Sep-16
Sep-17
Sep-18
Jul-15
May-16
Jul-16
May-17
Jul-17
May-18
Jul-18
Mar-16
Mar-17
Mar-18
-80%
MIKA SILO Mitra Keluarga Siloam Hospital Hermina

FIGURE 124. HEALTHCARE PEERS COMPARISON

Price Mkt Cap PE EV EBITDA EPS growth EBITDA growth
Rating Target (USD mn) 2019 2020 2019 2020 2019 2020 2019 2020
MIKA Neutral 1,500 1,682 36.0 34.1 25.3 23.5 2.7% 5.8% 5.2% 7.8%
SILO Buy 4,300 393 142.2 120.3 5.0 4.4 40.6% 18.2% 21.4% 13.4%
HEAL Buy 4,200 563 45.7 33.6 12.7 10.2 11.4% 35.9% 16.6% 27.6%
MEDIA
Analyst: Kresna Hutabarat
Benefitting from more favorable external factors and regulatory delay. We expect
media companies to sustain low-to-mid single digit revenue growth in 2019F given the
more favorable external macro trends and the delay in digital broadcast migration.
Domestic currency stabilization and declining world energy prices could potentially ease
the operating margin concerns of the FMCG companies (key FTA TV ads spenders) and
allow room for some increase in Advertising & Promotion budgets in 2019F. Furthermore,
the confirmed delay in the legislation of the new Broadcast Law implies postponement of
the FTA TV industry’s migration to digital broadcast, hence securing the opportunities for
the industry to maintain positive revenue growth in 2019-24F, in our view.
Expanding content dominance from FTA TV to non-FTA TV platforms. Market concerns

on the sustainability of SCMA’s and MNCN’s gross margin levels are fair given the content
competition coming from internet-backed user-generated platforms. However, we argue
that SCMA’s and MNCN’s content production internalization programs done in recent years
have allowed the companies to become omni-channel content producers capable of
monetizing viewership across various platforms. New services, such as virtual and in-
program advertising, should allow SCMA and MNCN to gain better content sales
productivity and hence defend from margin erosion pressures.
Brands still turn to FTA TV platforms for simplicity and national impact. A growing
number of national brands has raised the issues of complexity and non-measurability of
impact of the digital media platforms. Our channel checks suggest that select national
brands are returning ad spend budgets from 2018 onward to FTA TV, as they are revisiting
the effectiveness of digital media investments in recent years. We believe this trend
justifies the medium-to-longer term usefulness of FTA TV platforms in Indonesia and
supports our argument that FTA TV ad spending will be able to still grow positively amid
the fast-growing internet adoption.

METAL/NICKEL
Sector rating: OVERWEIGHT

Outlook in 2019. Nickel price has declined from the peak of USD 15,600/ton in July’18 to
USD 11,000/ton caused by trade tensions, production pauses among Asian refineries, and
concern of Tsingshan group entering into a battery-grade sulfate, - the third factor would
have major implications for nickel price expectations given the track record of disrupting
the stainless steel pricing. According to the International Nickel Study Group (INSG), nickel
has turned deficit since 2016 (44k tons/104k tons deficit in 2016/2017). INSG expects global
nickel demand to rise to 2.34 million tons in 2018 from 2.19 million in 2017, and nickel
demand to continue to outstrip supply by 117k tons driven by demand for nickel-
containing batteries on top of for stainless steel production. The Office of Chief Economist
Australia expects nickel price to reach USD 13,250/ton by 2020, as new production enters
the market while growing battery demand may start to impact the nickel supply.
Nickel Inventory declines at a faster pace ytd. While the nickel inventory of 224k tons (as
of 20 Dec’18) is still above historical high, it has declined from the peak of 500k tons in
mid’2015 with inventory drawdown happening at a faster pace since the beginning of the
year. According to Wood Mackenzie, the sharp decline in inventory was also driven by
declines in nickel briquettes and nickel cathode, which are suitable to produce battery. This
should indicate the battery supply chain may have started to stock up nickel, which will be
an important part to produce the new generation of battery for electric vehicles with
higher nickel and less cobalt contents.
Greater role in the battery production. The growing electric vehicle (EV) market will be a
game changer for nickel down the road, as the car industry is moving toward making
electric car batteries. The trend of battery is going toward NMC (Nickel Manganese Cobalt),
which will use more nickel content to increase energy density by 20% as well as to reduce
raw material cost from high cobalt price. The current NMC battery contains 60% nickel,
20% manganese, and 20% cobalt (ratio 6:2:2), but nickel composition will gradually
increase to 80% (ratio 6:2:2) by 2025.
FIGURE 125. NICKEL INVENTORY HAS DECLINED FROM THE PEAK FIGURE 126. NICKEL INVENTORY HAS DECLINED FROM THE PEAK
IN 2014 IN 2014
000 tons USD/ton 000 Tons
600 40,000
200
35,000
500
30,000 150
400
25,000 100
300 20,000
15,000 50
200
10,000 0
100
5,000
-50
- -
Nov-08
Nov-14
Jan-08
Feb-13
Jan-14
Sep-09
Sep-15
Jul-10
Jul-16
Jun-11
Jun-17
Apr-12
Apr-18
-100
-150
LME Inventory Shanghai Future Exchange Inventory Price (RHS)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F
Source: Bloomberg Source: INSG

PLANTATION

Analyst(s): Laura Taslim
Short term pain: ample inventory level. The industry needs to bear with the plenty
inventory level amid weak demand from major importing countries, India – weak rupee
and higher import tax for palm oil – and China – ample palm oil inventory and below
average soya oil price premium toward palm oil. However, Malaysia’s latest stock-to-use
ratio of 10.6% is slightly lower than the 8-year average.
Long term gain: structural supply limitation. Given the diminishing growth in planted
area of 6% in 2010-2017 from 11% in 1990-2010, we expect supply growth to slow down.
Additionally, this trend is aligned with the Indonesian listed planters’ capex spending in
2010-2017, as new planting activities twenty years ago appear to be more aggressive than
ten years ago. This also coincides with the potential heavy replanting cycle from Indonesia,
as the Government has targeted 185k ha of replanting in 2018 to boost production for
small planters, though the realization is still very small at this juncture.
More upbeat on 2019 demand on the back of improving demand from: 1) India, as the
inability of domestic supply in fulfilling demand will outweigh the high import tariff
concerns; 2) Indonesia, as biodiesel demand will start increasing under the B20 initiative.
The tight supply for other edible oils, as indicated by Oilworld as well as favorable CPO
price level (soya oil premium is now higher than historical average and CPO price is still at
discount toward Brent Oil price), will lead to demand uptick in the near term.
Top picks: AALI, LSIP
FIGURE 127. INDONESIA’S LISTED PLANTERS’ CAPEX AS % OF TOTAL FIGURE 128. MALAYSIA’S LISTED PLANTERS’ CAPEX AS % OF TOTAL
ASSET ASSET
25% 12%
10%
20%
8%
15%
6%
10%
4%
5%
2%
0% 0%
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Mandiri Sekuritas, IMF, Bloomberg Source: Mandiri Sekuritas, IMF, Bloomberg

FIGURE 129. SOYA OIL PREMIUM OVER CPO

(USD/ton)
500
450
400
350
300
250
200
150
100
50
-
(50)
May-08
May-15
Mar-07
Mar-14
Jun-12
Jul-09
Jul-16
Apr-11
Apr-18
Nov-11
Nov-18
Aug-06
Feb-10
Aug-13
Feb-17
Sep-10
Sep-17
Jan-06
Jan-13
Dec-08
Dec-15
Oct-07
Oct-14
Average Soya Oil Premium Soya Oil premium over CPO (USD/ton)
Source: Bloomberg
FIGURE 130. CPO PRICE VS. BRENT OIL PRICE

US$ / barrel US$ / barrel
160 60
140 50
40
120
30
100 20
80 10
60 -
(10)
40
(20)
20 (30)
- (40)
Feb-00
Feb-01
Feb-02
Feb-03
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Feb-15
Feb-16
Feb-17
Feb-18
CPO price disc/premium to Brent Price (RHS) Brent Oil Price CPO price
Source: Bloomberg

FIGURE 131. POTENTIAL INDONESIA CPO PRODUCTION TREND
MT
40
35
30
25
20
15
10
-
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
2024
2027
2030
Source: Indonesia Palm Oil Statistic, Mandiri Sekuritas Estimates
FIGURE 132. SUPPLY AND DEMAND FORECAST TABLE (IN MN TONS)

Supply 2010 2011 2012 2013 2014 2015 2016 2017 2018 F 2019 F
Indonesia 23.6 26.2 28.5 30.5 31.5 33.5 32.4 36.8 38.9 40.5
Malaysia 18.2 18.2 19.3 20.2 19.7 20.0 17.3 19.9 19.8 20.4
Others 7.3 8.0 8.7 8.8 8.8 9.5 9.5 11.2 11.5 11.8
Total 49.1 52.4 56.5 59.5 60.0 63.0 59.2 67.9 70.2 72.7
Demand 2010 2011 2012 2013 2014 2015 2016 2017 2018 F 2019 F
Indonesia 6.4 7.1 7.9 8.8 8.6 7.1 8.9 9.3 10.8 11.7
India 7.1 7.1 8.2 8.3 9.2 9.1 9.2 9.4 8.9 9.5
EU 5.1 5.5 6.6 6.8 6.7 7.2 7.1 7.4 7.6 7.9
China 5.8 5.8 6.4 5.7 5.8 5.9 5.3 5.1 5.3 5.5
Malaysia 2.2 2.2 2.5 2.9 2.8 2.9 2.7 2.9 3.2 3.4
Others 18.5 19.5 20.5 21.8 22.7 28.3 29.8 30.9 33.2 35.0
Total 45.1 47.2 51.9 54.3 55.7 61 63 65 69 73.0
Source: Oil World, Mandiri Sekuritas Estimates

PROPERTY & INDUSTRIAL ESTATE
Sector Rating: OVERWEIGHT (Property); NEUTRAL (Industrial Estate)
Analyst(s): Robin Sutanto
Structural normalization, but short-term challenges looming. We think presales should

continue its normalizing trend further ahead, as we expect post-boom structural declines
to have concluded. However, in 2019, the sector should see challenges from the upcoming
presidential and legislative elections. Channel checks with developers also yield that they
expect unexciting performance in 2019, guiding for a slow 1H19 with launches deferred
until 2H19, post the political events and the festive season in mid-2019. While we expect
pent-up demand to return in 2H19, in aggregate, we expect a slight 6% yoy decline from
our 2018F expectations for developers under our coverage. Nonetheless, we note the
decline is cyclical, and looking beyond 2019, we think the sector’s normalization trend, with
growth at lower, more sustainable levels, should continue.
Preferences on the sector continue to lie on companies with strong fundamentals, and with
the sector’s recent rally, valuation is also a key factor. Within our coverage universe, we like
CTRA among other developers due to a combination of the two factors above – its
exposure to various product price segments and geographical locations boosts its
diversification, and it has healthy leverage levels helped by its joint expansion strategy.
Despite the recent rally, CTRA is still one of the cheapest under our coverage in terms of
discount to NAV.
More conducive macro outlook and government policies. The macro backdrop has
turned more amicable for the sector, as outlook on interest rates and the rupiah have
turned more positive. Lower rates help with affordability among buyers, and refinancing
needs for developers while stronger IDR signals more confidence in demand for big-ticket
items.
Policies are also supportive toward the sector. After years of restrictive policies from 2013-
2015, the Government has turned accommodative by relaxing down payment
requirements, allowing quicker mortgage fund disbursements, and loosening luxury taxes
on property. Benefits from these policies should be more visible starting 2019 with greater
scope for implementation.
The improved macro and policy environment could present upside to the sector, although
our forecasts lean toward the conservative side. Additionally, the quicker mortgage
disbursement scheme opens up the possibility for a deleveraging scenario, which could be
further improved should capex decelerate. Likewise, this deleveraging potential has also
not been included in our forecasts.

FIGURE 133. STOCK PREFERENCE ORDER

CTRA PWON JRPT BSDE SMRA ASRI BEST DMAS
Preference order Highest Lowest
Stock Rating Buy Buy Buy Buy Buy Neutral Buy Neutral
Mkt. Cap (USDmn) 1,259 2,016 695 1,665 809 451 143 557
Current Price (IDR) 980 605 730 1,250 810 332 214 167
Target (IDR) 1,430 625 970 1,460 950 265 310 140
Upside (%) 45.9 3.2 32.9 16.8 17.3 (20.3) 44.9 (16.2)
Total NAVPS 4,911 1,073 4,366 4,961 3,262 1,513 630 483
Discount to NAV - current 80.0% 43.6% 83.3% 74.8% 75.2% 78.0% 66.0% 65.4%
Discount to NAV - at PT 70.9% 41.8% 77.8% 70.6% 70.9% 82.5% 50.8% 71.0%
PBV 2018F (x) 1.3 2.4 1.5 0.9 1.7 0.7 0.4 1.0
PBV 2019F (x) 1.2 2 1.4 0.8 1.7 0.6 0.3 0.9
PER 2018F (x) 19.3 12.9 9.2 11.3 38.1 5.4 3.0 9.7
PER 2019F (x) 17.9 12.0 8.9 9.6 35.9 3.9 3.0 9.3
Net gearing 2018F (%) 27.1 12.9 nc 25.6 70.9 70.7 27.5 nc
Net gearing 2019F (%) 25.5 13.3 nc 26.9 64.5 61.8 27.7 nc
Gross debt/EBITDA 2018F (x) 3.4 1.7 nm 3.6 4.7 3.6 2.3 nm
Gross debt/EBITDA 2019F (x) 3.0 1.4 nm 3.5 4.5 3.2 2.1 nm
EBITDA/Net interest 2018F (x) 5.0 17.6 nm 7.2 3.1 10.5 5.3 nm
EBITDA/Net interest 2019F (x) 5.2 16.4 nm 5.9 3.2 10.2 5.5 nm
Industrial estates likely showing promise after political events. We are more upbeat on
industrial land sales on expectations of an uptick in FDI following the elections. In our view,
2019’s elections differ from past cycles, as the policies in place are supportive of FDI,
including the revised tax holiday and allowance policies and the easing of foreign
investment into sectors on the negative investment list (Daftar Negatif Investasi).
Additionally, a bulk of infrastructure development is also slated to be operational in 2019,
potentially adding appeal. As of 11M18, committed FDI has reached IDR 161tn. Industrial
estate players have also indicated strong enquiries heading into 2019, at 100 ha at DMAS
and 86 ha at BEST. In the industrial estate scene, we prefer BEST over DMAS. Both
companies have sizeable land banks allowing for ample development ahead, however
BEST’s superior location allows greater capacity for ASP growth.
RETAILERS

Analyst(s): Laura Taslim
We stay positive on the sector, but we are selective on our preferences, as timing will be
very crucial. Approaching the political year, mass market discretionary spending will
outweigh the overall sector, especially during the 1H of the year. However, there is a
potential of inflation pressure post-election, which might hinder the mass market spending
for the rest of the year. However, the middle income segment will see a more moderate
pattern throughout the year, as we expect no significant event that will hit purchasing
power for this segment.
Blessing on the political year. The political year wills always benefit the low-end
population on the back of manageable inflation; hence we should expect ample spending
during the 1H19 periods in the mass-market level. This also bodes well with the higher
social assistance budget (this is more important for low-income earners), which is up by
29% yoy in 2019, while subsidy budget is seeing only 5% yoy with most of these to be
front-loaded in 1H19. However, post-election, things might be different if the Government

decided to increase the administered price, hence inflation might be at risk and hit the
mass market’s spending confidence.
Moderate spending for the middle upper segment is expected throughout the year, as
we don’t see any significant event to hinder purchasing power. Given this moderate
demand trend, we believe a company’s specific strategy is the game changer for earnings
growth amid the tight competition. We prefer a company with competitive products and
good inventory management to weather 2019.
FIGURE 134. GROWTH ESTIMATES – AGGREGATE RETAILERS

30%
25%
20%
15%
10%
5%
0%
2016 2017 2018 2019
Revenue EBIT Net Profit
Source: Mandiri Sekuritas Estimates
Top picks: RALS, MAPI
FIGURE 135. RETAILERS PE BAND

30
28 +2 StDev
26
+1 StDev
24
22
Mean
20
18
-1 StDev
16
14
-2 StDev
12
10
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Sep-15
Sep-16
Sep-17
Sep-18
Mar-15
Mar-16
Mar-17
Mar-18
Jun-15
Jun-16
Jun-17
Jun-18
Source: Bloomberg, Mandiri Sekuritas

TELECOM
Analyst: Kresna Hutabarat
Mobile network operators still on transition. The mobile network operators (MNOs)
booked negative revenue and profitability trends in 2018 as the industry has experienced a
number of setbacks, such as: i) intense competition, especially during the prepaid SIM card
registration program in 1H18; ii) acceleration in legacy revenue decline; iii) structural
change in industry’s customer acquisition model; iv) limited capacity to monetize mobile
data services; and lastly v) capex/cost pressures from the domestic currency’s weakening.
Going into 2019, the MNOs, especially the market leader, must still battle the declining
legacy revenue base, while smaller players will likely keep data prices very competitive to
fill up newly-built network capacity. However, follow-through benefits from the prepaid
SIM card registration program, such as improved product distribution efficiency and lower
customer churn rate, should help MNOs focus on existing customer base monetization and
hence return revenue growth to the positive low-to-mid single digit range in 2019F.
Rising borrowing rates and higher leverage should limit MNOs’ capacity to improve net
margins in 2019F. MNOs will also keep investing in mobile network coverage and capacity
in efforts to widen customer base, hence creating steady demands for cellular tower rentals
in 2019F. Hence, we think telecom tower companies are still in good position to maintain
higher revenue growth trajectories than the MNOs in 2019F too.
Lastly, we remain confident on the growth prospects of Indonesia’s fixed broadband and
ICT markets given the healthy pricing competition and low service penetration. Thus, we
continue to expect fixed broadband operators to still deliver double-digit revenue and
earnings growth trends in 2019F.

APPENDIX I: Sector Valuation Band

Financial (%) Construction & Materials
2.9 PBV (x) 5.0 28.0 PE (x) (%) 5.0
5.5 26.0 5.5
2.7
6.0 24.0 6.0
2.5 6.5 22.0 6.5
2.3 7.0 20.0 7.0

7.5 18.0 7.5
2.1 8.0 16.0 8.0
1.9 8.5 14.0 8.5
9.0 12.0 9.0
1.7
PBV Mean 10yr Gov't yld (RHS) 9.5 10.0 9.5
PE Mean 10yr Gov't yld (RHS)
1.5 10.0 8.0 10.0
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Consumer Staples Healthcare
40.0 PE (x) (%) 5.0 45.0 EV/EBITDA(x) (%) 5.0
38.0 5.5 40.0 5.5
36.0 6.0 6.0
35.0
34.0 6.5 6.5
32.0 7.0 30.0 7.0
30.0 7.5 25.0 7.5
28.0 8.0 20.0 8.0
26.0 8.5 8.5
15.0
24.0 9.0 9.0
22.0 9.5 10.0 9.5
PE Mean 10yr Gov't yld (RHS) EV/EBITDA Mean 10yr Gov't yld (RHS)
20.0 10.0 5.0 10.0
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Consumer Discretionary Commodities
22.0 PE (x) 5.0 2.6 PBV (x) (%) 5.0
(%)
5.5 2.4 5.5
20.0
6.0 6.0
2.2
6.5 6.5
18.0
7.0 2.0 7.0
16.0 7.5 1.8 7.5
8.0 1.6 8.0
14.0
8.5 8.5
1.4
9.0 9.0
12.0
9.5 1.2 9.5
PE Mean 10yr Gov't yld PBV Mean 10yr Gov't yld (RHS)
10.0 10.0 1.0 10.0
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Property & Industrial Estate Telecommunication (%)

21.0 PE (x) (%) 5.0 26.0 PE (x) 5.0
19.0 5.5 24.0 5.5
6.0 6.0
17.0 22.0
6.5 6.5
15.0 7.0 20.0 7.0
13.0 7.5 18.0 7.5
11.0 8.0 16.0 8.0
8.5 8.5
9.0 14.0
9.0 9.0
7.0 9.5 12.0 9.5
PE Mean 10yr Gov't yld (RHS) PE Mean 10yr Gov't yld (RHS)
5.0 10.0 10.0 10.0
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19

Chemical (%) Airline (%)

26.0 PE (x) 5.0 15.0 PE (x) 5.0
24.0 5.5 14.0 PE 5.5
13.0 Mean
22.0 6.0 6.0
12.0 10yr Gov't yld (RHS)
20.0 6.5 11.0 6.5
18.0 7.0 10.0 7.0
16.0 7.5 9.0 7.5
8.0
14.0 8.0 8.0
7.0
12.0 8.5 6.0 8.5
PE Mean 10yr Gov't yld (RHS)
10.0 9.0 5.0 9.0
Apr-17
Apr-18
Feb-17
Sep-17
Feb-18
Sep-18
Jun-17
Jun-18
Jun-18
Jul-18
Mar-18
Mar-18
Dec-18
Oct-18
Oct-18
Aug-18
Aug-18
Nov-17
Jan-18
Jan-19
Nov-18
May-18
Oil and Gas Transportation
21.0 PE (x) (%) 5.0 23.0 PE (x) (%) 10.0
19.0 5.5 21.0 9.5
6.0 19.0 9.0
17.0
6.5 8.5
17.0
15.0 7.0 8.0
15.0
13.0 7.5 7.5
13.0
11.0 8.0 7.0
11.0
8.5 6.5
9.0 9.0
9.0 6.0
7.0 9.5 7.0 5.5
PE Mean 10yr Gov't yld (RHS) PE Mean 10yr Gov't yld (RHS)
5.0 10.0 5.0 5.0
Apr-15
Apr-18
Feb-17
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-17
Dec-18
Oct-16
Aug-15
Aug-18
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-16
Nov-17
May-16
Source: Bloomberg, Mandiri Sekuritas

APPENDIX II: MANSEK Valuation Guide

Price Price Mkt Cap Net Profit PER (x) P/BV (x) EV/EBITDA (x) EPS Gr (%) Div.Yield (%)
Code Rating
(Rp) Target (Rp Bn) 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020
MANSEK universe 4,577,870 283,079 305,274 16.1 15.0 2.5 2.3 13.2 12.6 10.9 7.8 2.5 2.8
Financials 1,516,298 111,927 123,514 13.5 12.3 2.1 1.9 N.A N.A 17.4 10.4 2.1 2.5
BBCA Neutral 26,225 24,500 646,578 28,938 33,056 22.3 19.6 3.8 3.3 N.A. N.A. 14.2 14.2 1.0 1.3
BBNI Neutral 8,875 8,000 165,507 17,418 19,587 9.5 8.4 1.4 1.3 N.A. N.A. 11.1 12.5 2.9 3.3
BBRI Buy 3,660 4,100 451,273 39,953 43,163 11.3 10.5 2.2 2.0 N.A. N.A. 21.7 8.0 3.3 4.0
BBTN Buy 2,640 3,250 27,958 4,088 4,882 6.8 5.7 1.0 0.9 N.A. N.A. 23.9 19.4 2.4 2.4
BDMN Neutral 8,125 8,300 77,875 5,804 4,758 13.4 16.4 1.7 1.6 N.A. N.A. 43.3 -18.0 1.6 1.6
BJBR Neutral 2,080 1,540 20,168 1,489 1,630 13.5 12.4 1.6 1.5 N.A. N.A. -9.2 9.5 4.5 4.1
BJTM Neutral 705 655 10,517 1,275 1,302 8.2 8.1 1.2 1.1 N.A. N.A. 3.5 2.1 6.4 6.7
BNGA Buy 1,115 1,220 28,022 3,873 4,379 7.2 6.4 0.7 0.6 N.A. N.A. 9.3 13.1 2.5 2.8
BNLI Neutral 625 465 17,527 1,081 1,409 16.2 12.4 0.8 0.7 N.A. N.A. 69.0 30.3 0.0 0.0
BTPN Neutral 3,530 4,000 20,616 2,426 2,787 8.5 7.4 1.0 1.0 N.A. N.A. 15.3 14.9 3.6 4.1
PNBN Buy 1,045 1,500 25,172 2,914 3,358 8.6 7.5 0.6 0.6 N.A. N.A. 8.8 15.3 0.0 0.0
BTPS Buy 1,955 2,250 15,061 1,224 1,547 12.3 9.7 2.9 2.3 N.A. N.A. 31.0 26.4 0.0 1.6
BFIN Buy 670 1,000 10,026 1,445 1,655 6.9 6.1 1.6 1.4 N.A. N.A. 7.3 14.5 7.4 7.9
Construction & materials 244,089 14,063 15,630 17.4 15.6 1.7 1.6 9.9 9.7 -8.1% 11.1 1.6 1.7
INTP Neutral 18,025 15,000 66,354 1,036 1,324 64.1 50.1 2.8 2.7 27.8 23.3 21.6 27.8 0.4 0.5
SMGR Buy 11,400 10,500 67,619 1,768 2,734 38.2 24.7 2.1 2.0 11.8 10.1 -33.6 54.6 1.2 1.6
ADHI Buy 1,715 2,035 6,107 800 741 7.6 8.2 0.9 0.8 4.9 4.5 19.6% -7.3% 2.2% 2.6%
PTPP Buy 2,100 3,085 13,020 1,733 2,126 7.5 6.1 0.9 0.8 4.3 3.8 17.5% 22.7% 3.4% 4.0%
WIKA Buy 1,825 2,455 16,352 1,873 1,999 8.7 8.2 1.1 1.0 5.8 5.8 19.6% 6.7% 2.3% 2.4%
WSKT Buy 1,940 2,280 25,959 3,504 3,051 7.4 8.5 1.3 1.1 9.5 10.3 -24.8% -12.9% 2.7% 2.4%
WTON Buy 400 580 3,486 499 564 7.0 6.2 1.0 0.9 4.4 3.8 15.8% 12.9% 3.7% 4.3%
WSBP Buy 390 480 10,281 1,268 1,409 8.1 7.3 1.2 1.1 4.9 4.3 15.1% 11.1% 5.4% 6.2%
JSMR Buy 4,810 5,600 34,910 1,583 1,683 22.1 20.7 2.0 1.8 12.9 14.4 -15.9% 6.3% 1.1% 0.9%
Consumer staples 1,318,916 46,512 50,506 28.4 26.1 7.1 6.4 18.1 16.7 13.0 8.6 2.2 2.4
ICBP Buy 10,350 10,550 120,701 4,512 4,613 26.7 26.2 5.0 4.5 17.1 16.9 5.9 2.2 1.8 1.9
INDF Buy 7,425 9,950 65,191 4,005 3,958 16.3 16.5 1.9 1.8 7.9 7.8 4.2 -1.2 2.9 3.1
MYOR Neutral 2,710 2,550 60,593 1,882 2,061 32.2 29.4 6.3 5.5 16.6 15.0 13.9 9.5 0.9 1.1
UNVR Neutral 48,600 40,000 370,818 7,775 8,425 47.7 44.0 65.4 58.7 32.9 30.3 9.6 8.4 1.9 2.1
GGRM Buy 82,750 94,050 159,218 9,609 10,519 16.6 15.1 2.9 2.5 11.0 9.9 18.5 9.5 1.5 1.5
HMSP Buy 3,910 4,000 454,804 15,337 17,177 29.7 26.5 12.2 11.5 21.9 19.6 16.9 12.0 2.8 3.3
KLBF Neutral 1,595 1,450 74,766 2,631 2,856 28.4 26.2 4.6 4.2 17.9 16.4 7.5 8.6 1.6 1.7
SIDO Buy 855 950 12,825 760 896 16.9 14.3 3.8 3.5 12.0 10.2 20.1 17.9 4.2 4.9
Healthcare 37,197 871 978 42.7 38.0 3.2 3.1 14.0 12.2 5.6 12.3 0.2 0.2
MIKA Neutral 1,630 1,500 23,718 658 696 36.0 34.1 7.2 6.5 25.3 23.5 2.7 5.8 0.0 0.0
SILO Buy 3,410 4,300 5,541 39 46 142.2 120.3 0.9 0.9 5.0 4.4 40.6 18.2 0.0 0.0
HEAL Buy 2,670 4,200 7,938 174 236 45.7 33.6 4.2 3.9 12.7 10.2 11.4 35.9 1.0 1.1
Consumer discretionary 441,323 31,075 32,029 14.2 13.8 2.4 2.2 10.3 9.8 6.6% 3.1 3.2 3.4
ACES Buy 1,650 1,700 28,298 1,113 1,232 25.4 23.0 5.8 5.0 19.5 17.5 14.8 10.6 1.4 1.6
LPPF Buy 5,775 7,600 16,851 2,118 2,302 8.0 7.3 4.6 3.7 4.7 4.1 7.3 8.7 8.2 8.8
MAPI Buy 815 1,100 13,529 815 815 16.6 16.6 2.6 2.4 6.9 6.8 13.4 0.0 0.8 0.9
MPPA Sell 162 250 871 -335 -462 -2.6 -1.9 0.5 0.6 14.9 38.5 -20.3 -37.9 -9.6 -11.5
RALS Buy 1,460 1,700 10,360 558 626 18.6 16.5 2.6 2.4 12.2 10.9 9.2 12.2 3.0 3.2
ASII Buy 8,150 8,800 329,941 23,181 23,697 14.2 13.9 2.2 2.0 11.2 10.7 5.4 2.2 3.0 3.2
SCMA Buy 1,880 2,100 27,488 1,604 1,716 17.1 16.0 6.1 5.7 12.0 11.4 6.9 7.0 4.7 5.0
MNCN Buy 750 1,250 9,617 1,576 1,586 6.1 6.1 0.9 0.8 4.1 3.9 12.8 0.7 6.6 6.6
MSIN Buy 314 600 1,633 246 277 6.6 5.9 1.2 1.1 3.6 3.0 26.3 12.9 7.5 8.5

Price Price Mkt Cap Net Profit PER (x) P/BV (x) EV/EBITDA (x) EPS Gr (%) Div.Yield (%)
Code Rating
(Rp) Target (Rp Bn) 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020
PZZA Buy 905 1,400 2,735 199 239 13.7 11.4 2.1 1.8 6.6 5.8 24.2 20.0 0.0 0.0
Commodities 328,025 32,520 32,166 10.0 10.1 1.3 1.2 4.5 4.2 -1.0 -1.3 4.0 4.0
AALI Buy 12,425 14,200 23,914 1,817 1,968 13.2 12.2 1.2 1.1 5.2 4.4 16.6 8.3 2.6 3.0
LSIP Buy 1,375 1,450 9,381 650 665 14.4 14.1 1.1 1.0 5.5 5.2 11.4 2.3 2.5 2.8
SSMS Neutral 1,220 1,300 11,621 1,158 1,263 10.0 9.2 2.1 1.8 6.1 5.3 27.0 9.1 2.4 3.0
BWPT Neutral 172 195 5,422 -67 -189 -80.4 -28.7 0.9 1.0 8.1 7.2 70.0 -180.3 0.0 0.0
UNTR Buy 27,975 43,750 104,351 11,665 11,299 8.9 9.2 1.7 1.5 4.3 4.1 -1.8 -3.1 3.4 3.2
ADRO* Neutral 1,390 2,100 44,460 406 384 7.5 7.9 0.8 0.7 2.7 2.5 -10.2 -5.2 5.2 4.9
HRUM* Neutral 1,720 2,000 4,417 32 26 9.5 11.7 0.9 0.9 1.0 0.9 -9.9 -19.0 5.8 4.7
ITMG* Buy 20,850 33,400 22,863 225 224 6.9 7.0 1.5 1.5 2.7 2.7 -13.7 -0.6 12.2 12.2
PTBA Neutral 4,400 5,000 50,699 4,342 3,659 10.7 12.7 3.0 2.7 7.1 8.6 -14.5 -15.7 4.3 3.6
ANTM Buy 770 1,300 18,504 1,473 1,777 12.6 10.4 0.9 0.9 6.6 5.6 44.1 20.6 2.8 3.4
INCO* Buy 3,260 5,000 32,392 124 169 18.0 13.2 1.1 1.1 6.0 4.8 76.9 36.5 1.7 2.3
Property & Industrial Estate 117,529 10,361 11,278 11.3 10.4 1.2 1.1 9.3 9.0 15.7% 8.9 1.4 1.3
ASRI Neutral 334 265 6,563 1,688 1,841 3.9 3.6 0.6 0.5 5.5 5.0 40.7 9.1 2.1 2.1
BSDE Buy 1,405 1,460 27,042 2,508 2,881 10.8 9.4 0.9 0.8 10.1 9.8 17.4 14.9 0.0 0.0
CTRA Buy 1,085 1,430 20,138 1,017 1,135 19.8 17.7 1.3 1.3 11.4 10.6 8.2 11.6 0.7 0.8
JRPT Buy 685 970 9,419 1,130 1,121 8.3 8.4 1.3 1.2 6.9 7.1 3.3 -0.8 4.6 3.7
PWON Buy 660 625 31,785 2,335 2,563 13.6 12.4 2.3 1.9 10.0 9.5 15.9 9.8 0.9 0.9
SMRA Buy 885 950 12,768 326 265 39.2 48.3 1.8 1.8 12.4 13.1 6.3 -18.8 0.6 0.6
DMAS Neutral 162 140 7,808 797 827 9.8 9.4 1.0 1.0 8.7 8.5 6.5 3.8 5.1 5.3
BEST Buy 208 310 2,007 560 645 3.6 3.1 0.4 0.4 4.3 4.0 9.3 15.3 5.6 6.4
Telco 469,887 30,035 33,150 15.6 14.2 2.9 2.7 5.5 5.1 11.8 10.4 4.2 4.7
EXCL Buy 2,140 3,800 22,872 1,346 1,747 17.0 13.1 1.0 0.9 3.8 3.4 68.8 29.8 1.0 2.4
TLKM Buy 3,770 4,200 373,465 23,643 25,984 15.8 14.4 3.5 3.3 5.8 5.3 10.4 9.9 4.4 4.9
ISAT Neutral 1,765 4,000 9,591 451 685 21.3 14.0 0.7 0.6 2.6 2.5 1.1 51.8 2.6 5.4
LINK Buy 4,590 6,800 13,577 1,296 1,413 10.5 9.6 2.4 2.1 5.1 4.6 13.3 9.1 4.8 5.2
TBIG Neutral 3,590 5,350 15,948 884 868 18.0 18.4 4.9 4.7 9.3 9.0 9.8 -1.8 4.7 4.7
TOWR Buy 675 750 34,435 2,415 2,453 14.3 14.0 3.9 3.6 8.4 8.0 7.0 1.5 4.4 4.6
Chemical 36,086 2,000 1,963 18.0 18.4 1.8 1.7 5.9 5.7 24.3 -1.8 0.0 0.0
AGII Buy 660 770 2,024 110 138 18.4 14.7 0.6 0.6 6.5 6.1 13.2 25.0 0.0 0.0
BRPT* Neutral 2,440 2,640 34,062 129 125 18.0 18.7 2.1 1.9 5.9 5.7 25.4 -3.4 0.0 0.0
Airlines 6,211 528 623 11.8 10.0 1.2 1.1 8.7 8.3 6.9 18.0 2.6 3.0
GMFI* Buy 220 320 6,211 36 43 11.8 10.0 1.2 1.1 8.7 8.3 7.2 18.0 2.6 3.0
Oil and Gas 55,028 2,627 2,807 20.9 19.6 1.1 1.1 6.5 6.1 13.4 6.8 1.7 1.9
PGAS* Buy 2,270 3,150 55,028 180 192 20.9 19.6 1.1 1.1 6.5 6.1 13.7 6.8 1.7 1.9
Transportation 7,281 560 630 13.0 11.6 1.3 1.2 5.5 5.2 17.0 12.6 2.3 2.6
BIRD Buy 2,910 3,700 7,281 560 630 13.0 11.6 1.3 1.2 5.5 5.2 17.0 12.6 2.3 2.6

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INVESTMENT RATINGS: Indicators of expected total return (price appreciation plus dividend yield) within the 12-month period from the date of the last
published report, are: Buy (15% or higher), Neutral (-15% to15%) and Sell (-15% or lower).
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Sector Strategy Outlook2019

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Sector Strategy Outlook2019

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Sector Strategy Outlook2019

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FOCUS | XXX

FOCUS | Equity Strategy

Sector Update | 8 January 2019

Mandiri Sekuritas Analyst

Please see important disclosure at the back of this report Page 1 of 66

FIGURE 1. MANSEK TOP 10 PICKS (IN ALPHABETICAL ORDER)

Please see important disclosure at the back of this report Page 2 of 66

Source: Bloomberg Source: Bloomberg, Company, Mandiri Sekuritas calculations

Please see important disclosure at the back of this report Page 3 of 66

 Sector performance in 2018

FIGURE 8. 2018 JCI PERFORMANCE BY SUB-SECTORS (MARKET-CAP-WEIGHTED)

Real Estate -0.1%

-2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0%

Note: Market-cap-weighted average YTD performances of all JCI members

Please see important disclosure at the back of this report Page 4 of 66

FIGURE 9. BREAKDOWN OF SECTOR RETURN IN 2018 RELATIVE TO 2017

2019 Growth Outlook

This year, we forecast 7%/6%/7% growth in revenue/EBIT/net profit; versus 9%/6%/11% in

Oil & Gas

Source: Mandiri Sekuritas estimates Source: Mandiri Sekuritas estimates

Please see important disclosure at the back of this report Page 5 of 66

Please see important disclosure at the back of this report Page 6 of 66

Meanwhile, sectors that we expect to negatively contribute in 2019 are:

Plantation: We expect plantation companies’ EPS growth to accelerate to 32% in

 Construction & Materials

Please see important disclosure at the back of this report Page 7 of 66

Margin improvement on low Mass-market purchasing power

Demand for cement, especially bag

JKN rate adjustment post-

Follow through benefits from

We expect mild competition in the

Near term challenge on mounting

We see possible nickel price recovery

Please see important disclosure at the back of this report Page 8 of 66

Key Sectors Base View Upside Risks Downside Risks

Stabilizing domestic currency,

Normalizing trend to continue, but Sector could be pressured by

Higher NIM is expected if: policy rate

Cost of fund to rise by 150 bps, while Slower-than-expected new contracts

Source: Mandiri Sekuritas estimates

Please see important disclosure at the back of this report Page 9 of 66

What to Watch Out for in 2019

Key domestic events to watch out for:

Key risks include the following:

FIGURE 13. 2019 KEY ECONOMIC AND GEOPOLITICAL CALENDAR

General Election in April 2019

Please see important disclosure at the back of this report Page 10 of 66

6M after 27.4% 15.5% 7.1% 4.5%

Y-1 -15% -2% 1% 3.0%

Y+1 -7% 28% -15% 2004 2009 2014

Source: Bloomberg, Mandiri Sekuritas calculations Source: CEIC

Balancing the External Risks and the Growth

Source: Bank Indonesia Source: Bank Indonesia

Please see important disclosure at the back of this report Page 11 of 66

Balancing the Balance of Payment

(5.0) (5.0) (2.5)

Source: CEIC Source: CEIC, Bank Indonesia

Please see important disclosure at the back of this report Page 12 of 66

Source: Bloomberg, DMO, Mandiri Sekuritas calculations Source: CEIC