Indonesia Industry Focus

Indonesia Cement Sector

Refer to important disclosures at the end of this report

DBS Group Research . Equity 29 Sep 2015

JCI : 4,120.50
Incumbents under siege
 Supply-demand balance will remain skewed
Analyst
 Stiff competition ahead – margins under pressure Edward Ariadi Tanuwijaya +6221 3003 4932
edward.tanuwijaya@id.dbsvickers.com
 Slashed earnings to reflect current situation
Tjen San Chong +603 2604 3972
 Maintain FULLY VALUED calls for INTP and SMGR tjensan@alliancedbs.com
with lower TPs
Skewed supply-demand balance. We forecast cement
sales volume will drop by 3.5% this year (vs 2.6% growth
previously) to 57.7m tonnes, despite encouraging demand
recovery in August (8M15 domestic cement sales was
37.4m tonnes, down 1.3% y-o-y). The correlation between STOCKS
domestic direct investment (DDI) in the tertiary sector and
cement sales support our argument for weak cement sales Price Mkt Cap Target Performance (%)
3 mth 12 mth
in 4Q as well. And, given 19.3m tonnes expected additional Rp US$m Price Rp Rating

design capacity coming online by 2017, utilisation is

expected to slump further to 66% (back to 2004 level).
Stiff competition, continued shift to bulk segment
will pressure margins. The entry of new players is turning
up the heat on the “Big 3” cement producers, by attacking
the more vulnerable bulk segment where there is minimal
product differentiation, and pricing point is cheaper (c.5%)
than bag cement. The increasing share of bulk segment
sales and the challenging demand & supply situation,
especially in the incumbents’ stronghold regions, will force
the incumbents to sacrifice margins to either defend or
expand market share in the long run. Also, the pricing
behavior of foreign players has been fluid with Anhui
Conch (in Kalimantan) being the most disruptive thus far.
Indocement 16,625 4,164 14,600 (19.0) (26.5) FULLY VALUED
Semen Indonesia 9,150 3,693 7,800 (21.5) (40.7) FULLY VALUED
Source: DBS Vickers
Indocement Tunggal P. : Indocement was established in 1975. The
expanded heavily in the 90’s, prior to Heidelberg Cement Group
becoming the majority shareholder in 2001. The company trades
cement product under “Tiga Roda” brand.
Semen Indonesia : Semen Gresik was established in 1957 as state-
owned cement producer before changing its brand name to Semen
Indonesia recently. In 1995 the company completed an acquisition of
Semen Padang and Semen Tonasa. It is currently the largest player in
the market with more than 40% market share.
Domestic cement demand trend
70
m tonnes 3% CAGR

Slashed earnings, maintain FULLY VALUED calls (with 60

11% CAGR
lower TPs) for INTP and SMGR. We slashed FY15-17F 50
earnings for INTP and SMGR by 15.9%-23.8% after
40 5% CAGR
reflecting YTD domestic cement demand, a slower overall
economy, and more intense competition and lower 30

margins going forward. We now have one of the lowest 20

estimates in the street. We also slashed target prices,
10
pegging them to -1SD of mean forward PE, similar to 2004
levels when industry utilisation was low. Current valuation 0
2015F

2016F

2017F
2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

is near the sector’s lows as cement producers’ stocks have

dipped 28-54% YTD, however de-rating may continue due
to shifts in competitive landscape and threat from new Source: Indonesia Cement Association (ASI), DBS Vickers
entrants.

www.dbsvickers.com
ed-SGC / sa- MA
Industry Focus
Indonesia Cement Sector

Supply-demand balance will remain skewed Channel checks suggests 19.3m tonnes of new capacity will
August domestic cement sales jumped 56.3% m-o-m to 5.3m come online between now and 2017. As a result, we expect
tonnes, taking 8M15 domestic cement sales to 37.4m tonnes, industry utilisation rate to drop from 86% in 2014 to 66% in
down 1.3% y-o-y. Although this is mostly driven by the low 2017, similar to 2004 levels. Between 2004 and 2010, domestic
base effect in July (Lebaran period), the surge in cement sales in cement demand expanded at 5.2% CAGR, matching
August has breathed some positive sentiment into the sector. Indonesia’s average real GDP growth for the period. The
presence of new foreign players has also added to the
Despite the encouraging August data, we are still not convinced challenges faced by incumbents.
there will be a sharp recovery in domestic demand the rest of
the year. The expected weak GDP growth and flat property Refer to APPENDIX for Indonesia cement demand, supply and
presales this year have contributed to the declining cement utilisation rate trends.
demand thus far. The long-term multiplier effect from the much
heralded infrastructure development cycle remains a key positive Our recent study revealed that growth in domestic direct
catalyst. But, volumes will not surge in the near term. investment (DDI) in the tertiary sector is a relatively good
indicator of the direction of cement demand for the next one or
For this year, we forecast domestic demand for cement will two quarters. The chart implies that 4Q15 cement demand
decline by 3.5% y-o-y to 57.7m tonnes. This is premised on the growth will remain slow, suggesting full year sales would meet
accelerating rollout of infrastructure projects, aas well as more our FY15 domestic volume forecast.
high-rise projects by developers, from next year onwards. We
forecast 12%/14% growth in bulk cement sales for FY16/17F, Correlation between DDI tertiary sector and cement
but are sticking to only 4%/5% growth for bag segment (slower sales
than GDP growth assumption, which is line with the post-2013 3 period moving average DDI Tertiary sector growth (LHS)
trend). 3 period moving average cement sales growth (RHS)
80% 10%
Based on the above growth assumptions, domestic cement 60%
8%

demand would reach 61m tonnes (+5.7% y-o-y) in FY16 and 40%
6%
4%
65.3m tonnes (+7.2% y-o-y) in FY17. These imply domestic
20% 2%
cement demand will continue to grow but at a slower rate (3% 0%
0%
CAGR) for the next three years after experiencing 10.1% -2%
growth between 2010 and 2014. -20%
-4%
-40% -6%
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
Domestic cement demand (historical and forecast) 2Q15

 70 m tonnes 3% CAGR Source: CEIC, Indonesia Cement Association (ASI), DBS Vickers
60
11% CAGR
50

40 5% CAGR

30

20

10

0
2015F

2016F

2017F
2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: Indonesia Cement Association (ASI), DBS Vickers

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 Industry Focus
Indonesia Cement Sector

Can the incumbents hold the fort?
For over a decade, the “Big 3” cement producers have
commanded more than 88% market share of the domestic
cement market. The emergence of new players such as
Thailand’s Siam Cement (SCG), China’s Anhui Conch and
Semen Merah Putih (part of Wilmar group) is a substantial
threat to the incumbents.
There has not been material impact in the bag cement segment,
The Java and Kalimantan markets are facing the biggest supply
risk with the emergence of prominent new players such as
Anhui Conch, Siam Cement and Semen Merah Putih. These
markets also registered steeper declines (y-o-y) than other
regions (i.e. Sumatra, Sulawesi and other East Indonesia area).
Therefore, we expect the situation to hurt both INTP and SMGR.
Market share of incumbents in Java
45%

which currently accounts for 77% of total domestic cement 38.6%

40%
sales. However, the incumbents are feeling the heat, and
gradually losing market share, in the bulk cement segment; the 35% 37.2%
new players are attacking this segment because there are less
30%
stringent entry barriers (i.e. little differentiation between SMGR INTP SMCB

products). 25%

20%
Market share of incumbents in bag segment 17.7%
50% 15%
SMGR INTP SMCB Others
1M06
7M06
1M07
7M07
1M08
7M08
1M09
7M09
1M10
7M10
1M11
7M11
1M12
7M12
1M13
7M13
1M14
7M14
1M15
7M15
45% 42.8%
40%
Source: Indonesia Cement Association (ASI), DBS Vickers
35%
30% 28.0%
Market share of incumbents in Kalimantan
25%
70%
20% SMGR INTP SMCB
14.3% 60%
15%
52.0%
14.9%
10% 50%
5%
40%
0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 3M15 6M15 8M15 30% 27.8%

Source: Indonesia Cement Association (ASI), DBS Vickers

20%
9.8%
10%
Steeper declines in market share in the bulk segment
60% 0%
SMGR INTP SMCB Others
1M06
7M06
1M07
7M07
1M08
7M08
1M09
7M09
1M10
7M10
1M11
7M11
1M12
7M12
1M13
7M13
1M14
7M14
1M15
7M15
50%
42.7% Source: Indonesia Cement Association (ASI), DBS Vickers
40%

29.2% 8M15 cement sales: y-o-y decline by region

30%

20% 16.6% Kalimantan -8.6%

10% Java -1.2%

11.5%

0% Sumatra -0.6%
2006 2007 2008 2009 2010 2011 2012 2013 2014 3M15 6M15 8M15
Source: Indonesia Cement Association (ASI), DBS Vickers Sulawesi 0.3%

Others 1.3%

-10% -8% -6% -4% -2% 0% 2%

Source: Indonesia Cement Association (ASI), DBS Vickers

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Industry Focus
Indonesia Cement Sector

Demand distribution by region 8M15 bulk segment sales grew 6% y-o-y to 8.4m tonnes, which
Java Sumatra Kalimantan Sulawesi Others helped to offset the slack in bag segment sales (which fell 3.3%
100%
y-o-y in the period). The share of bulk cement sales has risen to
90%
5.2% 5.8% 6.4% 6.4% 6.4% 7.0% 7.6% 7.6% 7.2%
a record high of 23% in 8M15, from a low of 15.6% in 2008.
80% 7.4% 8.0% 7.0%

70%
60% Growth in the bulk segment was more than double that for bag
50% cement between 2010 and 2014. Hence, we estimate bulk
40% cement will account for 27% of total domestic sales by 2017.
30% 60.3% 57.7% 55.7% 55.1% 53.8% 55.3% 55.3% 56.4% 56.3% 55.6% 56.7% 56.4%

20% Share of Bulk and Bag cement sales in Indonesia

10%
100%
0% 16% 17% 16% 16% 16%
2006 2007 2008 2009 2010 2011 2012 2013 2014 3M15 6M15 8M15 90% 19% 20% 21% 22% 23% 24% 25% 27%
80%
Source: Indonesia Cement Association (ASI), DBS Vickers
70%
60%
Continued shift to bulk cement adding pressure on 50%
84% 84% 84% 84%
margins 40% 83% 81% 80% 79% 78% 77% 76% 75% 73%

The slowdown in property presales this year and accelerating 30%

20%
infrastructure development has led to the increasing share of
10%
bulk segment in the domestic cement market. 0%

2015F

2016F

2017F
2006

2007

2008

2009

2010

2011

2012

2013

2014

8M15
Infrastructure spending as % of GDP Bag Bulk
700 5.5%
Rp tr Infrastructure Investment (LHS) % of GDP (RHS) Source: Indonesia Cement Association (ASI), DBS Vickers
600
5.0%
As mentioned earlier, the incumbent cement producers are
500
facing more pressure in the bulk segment because there is little
4.5%
400 product differentiation, making it a more competitive market.
300
This has also partly resulted in bulk cement being c.5% cheaper
4.0%
than bag cement. And, coupled with the declining utilisation
200 rate, these will lead to further margin erosion going forward.
3.5%
100
EBITDA margins vs utilisation rate
0 3.0%
00% 45%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F
Source: JICA presentation (based on state budget data), DBS Vickers 95%
40%
90%

Property presales slowing down 85% 35%

45,000 Rpbn flattish 80%

75% 30%
40,000
Capacity utilisation rate (LHS)
35,000 70%
INTP's EBITDA margin (RHS) 25%
30,000 +35% CAGR 65% SMGR's EBITDA margin (RHS)
25,000 60% 20%
2015F

2016F

2017F
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

20,000
15,000
10,000
Source: Bloomberg Finance L.P., DBS Vickers
5,000
-
2009 2010 2011 2012 2013 2014 2015F

Source: Companies, DBS Vickers

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 Industry Focus
Indonesia Cement Sector

The pricing behaviour of foreign players has been fluid with

Anhui Conch (new plant in East Kalimantan) being the most
disruptive thus far. The price points for Anhui Conch’s products
are generally 10-15% lower than INTP and SMGR’s products
sold in the same regions. We need to bear in mind that Anhui
Conch has not entered Java market (which represents 56% of
total domestic cement demand).

There is further risk of margin compression as the benefits of

lower coal and oil prices are offset by a weaker IDR (c.60% of
cost is transacted in USD) and electricity tariff hike.

Cash cost breakdwon

Coal/fuel Electricity Distribution, transportation and handling Direct labor Others
100%
90%
80% 38.2% 42.3%
70%
60% 7.2%
7.3%
50%
40% 23.0% 17.5%
30%
14.9% 14.2%
20%
10% 16.6% 18.7%
0%
SMGR INTP
Source: Companies, DBS Vickers

Energy prices & USD/IDR trend

ICP (LHS) Electricity tariff - I4 (LHS) Coal (LHS) USD/IDR (RHS)
180 115
160
140 110
120
105
100
80
100
60
40 95
20
0 90
Feb-14

Sep-14

Feb-15

Aug-15
Jan-14

Aug-14

Jan-15
Nov-14
Apr-14

Dec-14

Apr-15

Jun-15
May-14
Jun-14

Oct-14

May-15
Mar-14

Mar-15
Jul-14

Jul-15

Source: State-owned electricity company (PLN), Ministry of Energy and

Mineral Resources (ESDM), Bloomberg Finance L.P., DBS Vickers.
Note: The indexing used Jan 2014 price as 100.

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Industry Focus
Indonesia Cement Sector

Slash forecast earnings; maintain cautious view on sector Cement Producers: Stock performance YTD
We revised down FY15/16/17F domestic sales volume for both 0%
INTP and SMGR by 8.4-11.2% after adjusting for the current
domestic cement demand dynamics, a slower Indonesian -10%

economy ahead, and intense competition in the major regions. -20%

These led us to cut forecast revenues by 11.4-17.8% for those
years. And, we adjusted for weaker margin expectations -30% -27.6%
premised on cement producers wanting to maintain or gain -33.5%
-40%
market share as they fear utilisation rates would drop, and the
-43.5%
benefits of low coal and oil prices are offset by an electricity -50%
tariff hike and weaker IDR. All in, we slashed FY15/16/17F End 1Q15 End 2Q15 YTD
-54.7%
earnings for INTP and SMGR by 15.9-23.8%, resulting is our -60%
INTP SMGR SMCB SMBR
earnings estimates being among the lowest in the street.
Source: Bloomberg Finance L.P, DBS Vickers.
Note: YTD price is as of 23Sep2015
We also cut target prices by 27% for INTP (to Rp14.600) and
35% for SMGR (to Rp7,800), pegged to -1SD of mean PE
Cement Sector: Smaller weighting in the JCI
forward. Our target prices imply 12-14% downside risk for both
3.0 %
counters. Therefore, we maintain our FULLY VALUED calls. INTP SMGR SMCB

2.5

Refer to APPENDIX for summary of changes to our assumptions

2.0
and earnings projections.
1.5
Further downside, but valuations are near record lows
1.0
Indonesia’s cement stocks have tumbled 28-55% YTD, and their
weighting in the JCI has fallen back to pre-2009 levels. 0.5

-
More external pressure on the fragile sentiment in Asia markets

YTD
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
(we have turned risk-off on Asian markets after the CNY
revaluation) and still-high foreign shareholdings, should lead to Source: Bloomberg Finance L.P, DBS Vickers
a further de-rating of Indonesia’s cement stocks.
Cement Stocks: Foreign ownership (as % of free float)
At current valuation multiple, there is not significant gaps 84%
INTP SMGR SMCB
between SMGR and INTP. However, we prefer expsoure to 82%

SMGR for its more diversified demand spread throughout 80%

Indonesia islands (i.e. not just the Java island, which is the most 78% 77.7%
lucrative market but with the stiffest competition going 76% 76.5%

forward). In addition, the three brands under SMGR command 74%

75.1%

38%, 43% and 64% market share in Java, Sumatra and 72%
Sulawesi, respectively.
70%
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15

INTP is currently trading at 13.3x FY16F PE (just below its mean

forward PE) and 8.6x FY16F EV/EBITDA. These are close to Source: Indonesia Central Securities Depository (KSEI), Bloomberg
trough valuations. The stock would be attractive enough to Finance L.P, DBS Vickers
warrant accumulating if the stock price drops by another c.12%
to trade at 11.7x FY16F PE (-1SD of mean forward PE).

SMGR is currently trading at 12 x FY16F PE (at mean forward PE)

and 7.5x FY16F EV/EBITDA. The stock had bottomed out
recently at Rp7,200 (on 24 Aug) before recovering sharply to
current levels.

Page 6
 Industry Focus
Indonesia Cement Sector

INTP PE Band INTP EV/EBITDA Band

39.0 18.0
34.0 16.0
29.0 14.0 +2SD, 14.3
+2SD, 27.6
24.0 12.0 +1SD, 12.1
+1SD, 22.3
19.0 10.0 Ave, 10.0
Ave, 17.0
14.0 8.0 -1SD, 7.9
-1SD, 11.7
9.0 6.0 -2SD, 5.7
-2SD, 6.4
4.0 4.0

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15
Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15

Source: Bloomberg Finance L.P, DBS Vickers Source: Bloomberg Finance L.P, DBS Vickers

SMGR PE Band SMGR EV/EBITDA Band

25.0 16.0
14.0 +2SD, 13.7
20.0 +2SD, 20.0
12.0
+1SD, 16.7 +1SD, 11.1
15.0 10.0
Ave, 13.4 8.0 Ave, 8.5
10.0 -1SD, 10.2 6.0 -1SD, 5.9
-2SD, 6.9 4.0
5.0 -2SD, 3.3
2.0
- -
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15

Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Source: Bloomberg Finance L.P, DBS Vickers Source: Bloomberg Finance L.P, DBS Vickers

JCI Index PE Band

Source: Bloomberg Finance L.P, DBS Vickers

Page 7
Industry Focus
Indonesia Cement Sector

APPENDIX
Summary of assumptions changes
INTP SMGR
FY15F FY16F FY17F FY15F FY16F FY17F
Domestic volume Now 16,742 17,614 18,732 25,042 26,464 28,330
('000 tonnes) Prev 18,495 19,843 21,080 27,350 29,100 31,000
Chg (%) -9.5% -11.2% -11.1% -8.4% -9.1% -8.6%
Revenue Now 18,573 20,286 22,375 25,698 27,877 30,603
in Rpbn Prev 21,340 24,134 27,224 28,990 32,134 35,811
Chg (%) -13.0% -15.9% -17.8% -11.4% -13.2% -14.5%
GP margin Now 44.6% 44.2% 43.7% 39.4% 38.8% 38.2%
Prev 45.2% 44.1% 42.9% 41.7% 40.6% 39.4%
EBITDA margin Now 32.0% 31.1% 30.1% 25.8% 25.4% 24.8%
Prev 33.7% 32.1% 30.3% 29.1% 28.3% 27.0%
Operational profit Now 5,030 5,310 5,636 5,486 5,806 6,232
in Rpbn Prev 6,143 6,556 6,911 7,139 7,583 8,007
Chg (%) -18.1% -19.0% -18.5% -23.2% -23.4% -22.2%
Net profit Now 4,481 4,590 4,796 4,294 4,530 4,880
in Rpbn Prev 5,330 5,611 5,913 5,565 5,941 6,332
Chg (%) -15.9% -18.2% -18.9% -22.8% -23.8% -22.9%
TP Now 14,600 7,800
in Rp/sh Prev 20,000 12,000
Chg (%) -27% -35%
Recommendation Now FULLY VALUED FULLY VALUED
Prev FULLY VALUED FULLY VALUED
Source: DBS Vickers

Indonesia cement producers: demand, supply and utilisation rate dynamic

100%
'000 tonnes
100,000
Demand (000 tons) - LHS 96%
90%
Capacity (000 tons) - LHS
Utilization rate - RHS
80%
80,000

66% 70%
67%
60%
60,000
No additional capacity until 2009
Demand growth in-line with GDP growth 50%

40%
40,000

30%

20,000 20%

10%

- 0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F

Source: Cement producers, Indonesia Cement Association (ASI), DBS Vickers. Note: Utilisation rate is based on effective (operational) capacities.

Page 8
 Industry Focus
Indonesia Cement Sector

Indonesia cement producers: historical and estimated additional design capacities

Company Location 2012 2013 2014 2015F 2016F 2017F

East Java 11,600 14,000 14,400 14,400 14,400 14,400

Central Java - - - - 3,000 3,000

Semen Indonesia
West Sumatra 6,330 6,400 7,300 7,300 10,300 10,300
(SMGR IJ)
South Sulawesi 4,620 7,300 7,800 8,300 8,300 8,300

22,550 27,700 29,500 30,000 36,000 36,000

West Java 16,000 16,000 17,900 22,300 22,300 22,300

South Kalimantan 2,600 2,600 2,600 2,600 2,600 2,600

Indocement (INTP IJ)
Central Java - - - - - -

18,600 18,600 20,500 24,900 24,900 24,900

West Java 5,600 5,600 5,600 5,600 5,600 5,600

Holcim Indonesia Central Java 3,500 3,500 3,500 3,500 3,500 3,500
(SMCB IJ) East Java - - 1,700 3,400 3,400 3,400

9,100 9,100 10,800 12,500 12,500 12,500

South Sulawesi 2,300 2,300 4,000 4,000 4,000 4,000

Riau 1,200 1,200 1,200 1,200 1,200 1,200

Bosowa East Java - - - - 1,100 1,100

Papua - - - - 750 750

3,500 3,500 5,200 5,200 7,050 7,050

Semen Baturaja (SMBR IJ) South Sumatra 1,250 2,000 2,000 2,000 2,000 3,850

Andalas (Lafarge) Aceh 1,600 1,600 1,600 1,600 1,600 1,600

Kupang NTT 550 550 550 550 550 550

South Kalimantan - - 1,500 1,500 1,500 1,500

West Java - - - - 2,000 2,000

Anhui Conch
Others - - - - - -

- - 1,500 1,500 3,500 3,500

Siam Cement West Java - - - - 1,800 1,800

Semen Merah Putih (Wilmar) Banten - - 750 1,750 4,250 5,750

Panasia Central Java - - - - 1,500 1,500

Puger East Java - - - 300 300 600

Jui Shin West Java - - - 1,500 1,500 1,500

Total 57,150 63,050 72,400 81,800 97,450 101,100

Source: Cement producers, Indonesia Cement Association (ASI), DBS Vickers

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Industry Focus
Indonesia Cement Sector

Cement regional peers valuation

EBITDA margin
Ticker Price Market Cap PE (x) EV/EBITDA (x) (%) ROE

Company Code (lcl currency) (USD m) FY15 FY16 FY15 FY16 FY15 FY16 FY15

Semen Indonesia SMGR IJ 9,150 3,698.6 12.6 12.0 8.1 7.5 25.8 25.5 20.0%
Indocement Tunggal INTP IJ 16,625 4,170.7 13.7 13.3 8.9 8.6 32.0 31.1 20.0%
Holcim Indonesia * SMCB IJ 990 517.0 23.5 14.3 9.0 nm 16.4 17.5 3.0%
Weighted average Indonesia 13.8 12.8 8.6 7.6 28.3 27.8 19.0%
Anhui Conch Cement 914 HK 24 15,044.8 10.9 9.7 6.6 5.9 30.5 30.8 10.0%
Asia Cement (China) Hldgs * 743 HK 2 458.9 6.7 4.9 5.9 nm 16.4 18.7 9.2%
China National Building Material 3323 HK 5 3,253.3 5.5 5.6 8.2 8.0 22.1 22.1 10.0%
China Shanshui Cement 691 HK 6 2,742.6 39.7 36.8 10.9 9.9 19.4 19.5 nm
West China Cement * 2233 HK 1 811.4 28.0 10.7 7.5 nm 28.0 33.7 4.4%
CR Cement * 1313 HK 4 3,051.5 7.8 7.7 6.0 nm 20.3 21.1 10.1%
Weighted average China 13.4 11.8 7.2 5.6 26.7 27.2 8.7%
Siam Cement SCC TB 456 15,059.9 12.1 11.2 7.5 7.0 21.9 22.6 20.0%
Weighted average Thailand 12.1 11.2 7.5 7.0 21.9 22.6 20.0%
Source: Bloomberg Finance L.P, DBS Vickers. Note: (*): not under our coverage, estimates are based on Bloomberg consensus numbers.

Page 10
 Industry Focus
Indonesia Cement Sector

Stock Profiles

Page 11
 Indonesia Company Guide
Indocement Tunggal P.
Edition 1 Version 1 | Bloomberg: INTP IJ | Reuters: INTP.JK Refer to important disclosures at the end of this report

DBS Group Research . Equity 29 Sep 2015

FULLY VALUED THE RUNNER-UP

Last Traded Price: Rp16,625 (JCI : 4,120.50) Maintain FULLY VALUED call with lower TP. We cut
Price Target : Rp14,600 (-12% downside) (Prev Rp20,000) FY15/16/17F domestic sales volumes by 9.5%/11.2%/11.1%
Potential Catalyst: Rebound in property presales, better execution from after adjusting for YTD sales. We also forecast declining
nationwide infrastructure development and lower energy price margin going forward given intensifying competition for
Where we differ: Having one of the lowest estimates in the street market share and higher COGS (from US$-linked material and
energy price in weakening IDR environment). All in, we slashed
Analyst FY15/16/17F earnings by 15.9%/18.2%/18.9%, resulting in
Edward Ariadi Tanuwijaya +6221 3003 4932
edward.tanuwijaya@id.dbsvickers.com this being one of the lowest estimates in the street.
YTD sales volume drops more than industry. INTP’s 8M15
Tjen San Chong +603 2604 3972 cement sales fell 7.5% y-o-y to 10.4m tonnes (industry volume
tjensan@alliancedbs.com
fell 1.2%). INTP’s main markets - Java and Kalimantan –
posted relatively larger declines than other regions. These
Price Relative regions account for 74% and 6.8% of INTP’s domestic cement
Rp Relative Index sales volume, respectively.
28,620.0
26,620.0
208 Intense competition in Western Java will erode margins. We
24,620.0
22,620.0
188
estimate 76% of the planned incoming capacity in 2015-2017
168
20,620.0
148
will be located in West Java. We expect new players to sacrifice
18,620.0
16,620.0 128 margins to gain market share as they ramp-up utilisation rates.
14,620.0
12,620.0
108 Therefore, our EBITDA margins are trending down for the next
10,620.0
three years. INTP still commands the highest EBITDA margins in
88
Sep-11 Sep-12 Sep-13 Sep-14 Sep-15

Indocement Tunggal P. (LHS) Relative JCI INDEX (RHS) the sector.

Forecasts and Valuation Valuation:

FY Dec (Rp bn) 2014A 2015F 2016F 2017F
Our target price of Rp14,600 is pegged to 11.7x FY16F EPS, at
Revenue 19,996 18,573 20,286 22,375
EBITDA 6,732 5,940 6,304 6,732 (-)1SD of 10-year mean forward PE (similar to 2004 levels
Pre-tax Profit 6,790 5,819 5,960 6,228 when utilisation rates were depressed).
Net Profit 5,271 4,481 4,590 4,796
Net Pft (Pre Ex.) 5,271 4,481 4,590 4,796 Key Risks to Our View:
Net Pft (ex. BA gains) N/A N/A N/A N/A
Significant delays in new players’ greenfield cement plants.
EPS (Rp) 1,432 1,217 1,247 1,303
EPS Pre Ex. (Rp) 1,432 1,217 1,247 1,303 This would reduce competition in SMGR’s strongholds, reduce
EPS Gth (%) 5 (15) 2 4 the severity of competition from new players (better pricing
EPS Gth Pre Ex (%) 5 (15) 2 4 power for incumbents), and lift utilisation rates.
Diluted EPS (Rp) 1,432 1,217 1,247 1,303
Net DPS (Rp) 1,350 852 873 912 Recovery in property presales. We expect property presales to
BV Per Share (Rp) 6,733 6,600 6,995 7,425 remain flat going forward after a 3-4 year boom (2010-2013).
PE (X) 11.6 13.7 13.3 12.8 But a sharp recovery in property presales would be upside risk
PE Pre Ex. (X) 11.6 13.7 13.3 12.8
to our cement volume sales assumptions. The property sector
P/Cash Flow (X) 11.5 10.9 11.3 10.7
EV/EBITDA (X) 7.4 8.9 8.6 8.3 remains the major cement consumer in Indonesia.
Net Div Yield (%) 8.1 5.1 5.2 5.5 At A Glance
P/Book Value (X) 2.5 2.5 2.4 2.2 Issued Capital (m shrs) 3,681
Net Debt/Equity (X) CASH CASH CASH CASH Mkt. Cap (Rpbn/US$m) 61,200 / 4,164
ROAE (%) 22.1 18.3 18.3 18.1 Major Shareholders
HC Indocement Gmbr (%) 64.1
Earnings Rev (%): (16) (18) (19)
Consensus EPS (Rp): 1,338 1,431 1,543 Mekar Perkasa (%) 13.0
Other Broker Recs: B: 19 S: 8 H: 8 Free Float (%) 22.9
3m Avg. Daily Val (US$m) 2.4
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P. ICB Industry : Industrials / Construction & Materials

ASIAN INSIGHTS VICKERS SECURITIES

www.dbsvickers.com
ed: SGC / sa: MA
 Company Guide
Indocement Tunggal P.

Domestic Sales Vol ('000 tones)

CRITICAL DATA POINTS TO WATCH 17,642 18,189 17,614
18,732
16,742
Earnings Drivers: 16,800

Domestic cement volume driving top line growth. We 14,400

forecast industry demand will grow modestly (in line with 12,000

Indonesia’s real GDP growth) for the next three years as the 9,600

country is entering normal growth state. As the 2nd largest 7,200

cement producer in the country, INTP should experience 4,800

similar growth. In addition, we expect INTP to lose market 2,400

0
share to new foreign players. We forecast INTP’s sale volume 2013A 2014A 2015F 2016F 2017F
will grow by 1% CAGR over 2014–2017F, a bearish stance Domestic ASP/tonne (in Rp)
considering that consensus is expecting mid-single-digit %
1,006,477 1,036,671
growth for the period. 958,265
997,104 977,162

846,000

Limited price upside because of competition. We do not

634,500
expect cement prices to rise significantly going forward as
incumbent players (including INTP) would be forced to defend 423,000

their market share from new players, which are willing to

211,500
sacrifice margins to grab market share. The skewed supply-
demand imbalance will also see utilisation rate of incumbent 0
2013A 2014A 2015F 2016F 2017F
players remain depressed. We forecast only 1.3% CAGR in
ASP/tonne between 2014 and 2017F; this is minimal EBITDA margin (%)
compared to consensus expectations of mid-single-digit % 37.0 36.3
33.7
32
growth for the period. 31.1 30.1
29.6

Shift to bulk segment will pressure margins. Accelerating 22.2

rollout of infrastructure projects from next year onwards and

14.8
a stagnant property market should see cement players
(including INTP) experience stronger growth in the bulk 7.4

segment than the more profitable bag cement segment. 0.0

2013A 2014A 2015F 2016F 2017F

Weakening IDR leads to higher cash and financing cost. The Revenue Trend
benefits of lower coal and oil prices are largely offset by a Rp bn
20.0%
weaker IDR against the USD, which inflates other cash cost 20,000 18.0%
components. Approximately 45% of INTP’s cash cost is for 16.0%
14.0%
energy, while c.70% of its COGS is transacted in USD. We 15,000
12.0%
expect SMGR’s cash cost per tonne to increase by 5.2% 10.0%
10,000
CAGR, which would reduce EBITDA margins (see chart). 8.0%
6.0%
5,000 4.0%
Low capacity utilisation rate will cap SG&A expenses (as % of 2.0%
0 0.0%
revenue). In anticipation of 7m tonnes of effective capacity 2013A 2014A 2015F 2016F 2017F
coming online in 2015 and 2016, we expect INTP’s utilisation Total Revenue Revenue Growth (%) (YoY)
rate to drop from 93% in 2014 to 76% in 2017F. In that
Market share trend in domestic market
period, SG&A expenses are expected to stay at 17.5-18.5%
33%
of revenue (vs 16% average in the past decade).
32%

32%

31%

31%

30%

30%

29%

29%

28%
2006 2007 2008 2009 2010 2011 2012 2013 2014 FY15F FY16F FY17F

Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 13
Company Guide
Indocement Tunggal P.

Leverage & Asset Turnover (x)

Balance Sheet: 0.8
0.14
Strong balance sheet for future expansion. INTP’s balance 0.8

sheet has been impeccable with near-zero interest bearing 0.12 0.8
0.7
debt since 2008. Strong operational cash flow generation 0.10
0.7
and abundant cash position will allow INTP to self-finance its 0.08
0.7

future capex. 0.06 0.7

0.7
0.04
0.6
0.02
Share Price Drivers: 0.6

Positive progress in nationwide infrastructure development. 0.00

2013A 2014A 2015F 2016F 2017F
0.6

Good progress and faster infrastructure budget absorption Gross Debt to Equity (LHS) Asset Turnover (RHS)

should lift cement demand, and improve INTP’s utilisation Capital Expenditure
rate, and hence, profitability. Rp
4,000.0
3,500.0

Cement sales. Monthly cement sales data released by the 3,000.0

Indonesia Cement Association (ASI) is a leading indicator of 2,500.0

2,000.0
INTP’s stock price direction.
1,500.0
1,000.0
High dividend yield. We expect INTP to continue pay high 500.0

dividends, possibly offering c.5% yield annually. 0.0

2013A 2014A 2015F 2016F 2017F

Capital Expenditure (-)

Key Risks: ROE (%)
Further price control by government. The new government
has surprised the market in early 2015 by instructing state- 20.0%
owned cement producers to cut cement price by 4-5% per
bag. Given the competitive market, other producers have to 15.0%

follow suit or risked losing their market share. Further price

10.0%
regulation by government will negatively affected cement
producers’ profitability. 5.0%

Slower than expected much heralded infrastructure projects 0.0%

2013A 2014A 2015F 2016F 2017F
roll-out. Despite the gallant effort from the government to
speed up the process, infrastructure development realization Forward PE Band (x)
(x)
has been slower than what the streets’ lofty expectations. 22.7

Slower execution will directly affect cement demand growth 20.7 +2sd: 20.5x
and subsequently negatively affecting INTP’s utilisation and 18.7
+1sd: 18.3x
profitability. 16.7
Avg: 16x
14.7
Competition intensifies in Java. INTP’s dominance in Java 12.7
‐1sd: 13.7x

(particularly West Java) could be under threat once the new ‐2sd: 11.5x
10.7
players start production. Its lead in Java has been snatched
8.7
by Semen Indonesia (SMGR IJ) since 2014. Sep-11 Sep-12 Sep-13 Sep-14

PB Band (x)
COMPANY BACKGROUND (x)
Indocement (INTP) is the most profitable cement producer 5.2

(highest margins) in the sector. It sells cement under the 4.7

+2sd: 4.53x
“Tiga Roda” brand, arguably the most popular brand in 4.2
+1sd: 4.11x
Indonesia. Its sales volume is concentrated in Java (over 3.7 Avg: 3.69x
72%). It registers higher margins because of its centralised
3.2 ‐1sd: 3.28x
production facilities and premium pricing, and a profitable
‐2sd: 2.86x
Ready Mix Cement (RMC) business. 2.7

2.2
Sep-11 Sep-12 Sep-13 Sep-14

Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 14
 Company Guide
Indocement Tunggal P.

Key Assumptions
FY Dec 2013A 2014A 2015F 2016F 2017F
Domestic Sales Volume (m tonnes) 17.6 18.2 16.7 17.6 18.7
Domestic ASP/tonne (Rp) 958,265 997,104 977,162 1,006,477 1,036,671
EBITDA margin (%) 36.3 33.7 32.0 31.1 30.1

Segmental Breakdown
FY Dec 2013A 2014A 2015F 2016F 2017F
Revenues (Rp bn)
Cement 17,046 18,293 16,541 17,918 19,618
Ready Mix Concrete 2,739 2,819 3,256 3,760 4,343
Aggregates 116 135 156 179 206 Growing RMC business
Other Businesses (1,209) (1,251) (1,379) (1,572) (1,791)

Total 18,691 19,996 18,573 20,286 22,375

Operating profit (Rp bn)
Cement 6,139 5,930 4,942 5,096 5,388
Ready Mix Concrete (86) 43 65 188 217
Aggregates 11 2 23 27 31
Other Businesses 0 0 0 0 0

Total 6,064 5,975 5,030 5,310 5,636

Operating profit Margins
Cement 36.0 32.4 29.9 28.4 27.5
Ready Mix Concrete (3.1) 1.5 2.0 5.0 5.0
Aggregates 9.2 1.6 15.0 15.0 15.0
Other Businesses 0.0 0.0 0.0 0.0 0.0

Total 32.4 29.9 27.1 26.2 25.2

Income Statement (Rp bn)

FY Dec 2013A 2014A 2015F 2016F 2017F
Revenue 18,691 19,996 18,573 20,286 22,375
Cost of Goods Sold (10,037) (10,910) (10,284) (11,316) (12,595)
Gross Profit 8,655 9,087 8,290 8,969 9,780
Other Opng (Exp)/Inc (2,680) (3,233) (3,260) (3,659) (4,144)
Operating Profit 5,975 5,854 5,030 5,310 5,636
Other Non Opg (Exp)/Inc 89 121 100 130 162
Associates & JV Inc 18 24 25 26 28
Net Interest (Exp)/Inc 513 790 664 494 403
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 6,595 6,790 5,819 5,960 6,228
Tax (1,583) (1,516) (1,338) (1,371) (1,433)
Minority Interest (2) (3) 0 0 0
Preference Dividend 0 0 0 0 0
Net Profit 5,010 5,271 4,481 4,590 4,796
Net Profit before Except. 5,010 5,271 4,481 4,590 4,796
EBITDA 6,785 6,732 5,940 6,304 6,732
Growth
Revenue Gth (%) 8.1 7.0 (7.1) 9.2 10.3
EBITDA Gth (%) 2.5 (0.8) (11.8) 6.1 6.8
Opg Profit Gth (%) 2.2 (2.0) (14.1) 5.6 6.1
Expect margins to
Net Profit Gth (%) 5.2 5.2 (15.0) 2.4 4.5
decline as competition
Margins & Ratio intensify
Gross Margins (%) 46.3 45.4 44.6 44.2 43.7
Opg Profit Margin (%) 32.0 29.3 27.1 26.2 25.2
Net Profit Margin (%) 26.8 26.4 24.1 22.6 21.4
ROAE (%) 23.7 22.1 18.3 18.3 18.1
ROA (%) 20.3 19.0 15.7 15.7 15.5
ROCE (%) 20.5 18.4 15.3 15.8 15.8
Div Payout Ratio (%) 66.1 94.3 70.0 70.0 70.0
Net Interest Cover (x) NM NM NM NM NM
Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 15
Company Guide
Indocement Tunggal P.

Quarterly / Interim Income Statement (Rpbn)

FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015

Revenue 4,999 4,668 5,829 4,328 4,547

Cost of Goods Sold (2,764) (2,524) (3,090) (2,400) (2,481)
Gross Profit 2,235 2,144 2,739 1,928 2,066
Other Oper. (Exp)/Inc (774) (786) (944) (695) (782)
Operating Profit 1,461 1,358 1,795 1,233 1,285
Other Non Opg (Exp)/Inc 91 9 45 43 (14)
Associates & JV Inc 6 7 7 8 6
Net Interest (Exp)/Inc 215 180 177 183 170
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 1,773 1,554 2,025 1,466 1,447
Tax (390) (348) (470) (320) (337)
Minority Interest (2) 0 0 0 0
Net Profit 1,380 1,206 1,555 1,146 1,110
1Q is the seasonally weakest
Net profit bef Except. 1,380 1,206 1,555 1,146 1,110
quarter
EBITDA 1,684 1,571 2,026 1,465 1,285

Growth
Revenue Gth (%) 11.1 (6.6) 24.9 (25.8) 5.1
EBITDA Gth (%) 16.1 (6.7) 29.0 (27.7) (12.3)
Opg Profit Gth (%) 17.9 (7.0) 32.2 (31.3) 4.2
Net Profit Gth (%) 22.2 (12.6) 28.9 (26.3) (3.2)
Margins
Gross Margins (%) 44.7 45.9 47.0 44.5 45.4
Opg Margins (%) 29.2 29.1 30.8 28.5 28.3
Net Profit Margins (%) 27.6 25.8 26.7 26.5 24.4

Balance Sheet (Rp bn)

FY Dec 2013A 2014A 2015F 2016F 2017F

Net Fixed Assets 9,305 12,144 14,734 17,540 20,243

Invts in Associates & JVs 0 0 0 0 0
Other LT Assets 456 655 655 655 655
Cash & ST Invts 12,595 11,256 8,378 6,871 5,562
Inventory 1,474 1,666 1,570 1,728 1,923
Debtors 2,519 2,671 2,481 2,710 2,989
Other Current Assets 259 494 473 523 585
Total Assets 26,607 28,885 28,290 30,025 31,956
Near-zero debt since 2008
ST Debt 0 0 0 0 0
Creditor 1,375 1,695 1,632 1,808 2,023
Other Current Liab 1,365 1,565 1,521 1,628 1,759
LT Debt 93 76 76 76 76
Other LT Liabilities 797 764 764 764 764
Shareholder’s Equity 22,947 24,785 24,298 25,751 27,334
Minority Interests 30 0 0 0 0
Total Cap. & Liab. 26,607 28,885 28,290 30,025 31,956

Non-Cash Wkg. Capital 1,511 1,570 1,371 1,525 1,714

Strong net cash
Net Cash/(Debt) 12,502 11,180 8,302 6,795 5,486
position
Debtors Turn (avg days) 48.6 47.4 50.6 46.7 46.5
Creditors Turn (avg days) 53.5 55.9 64.8 60.8 60.8
Inventory Turn (avg days) 58.2 57.1 63.0 58.3 57.9
Asset Turnover (x) 0.8 0.7 0.6 0.7 0.7
Current Ratio (x) 6.1 4.9 4.1 3.4 2.9
Quick Ratio (x) 5.5 4.3 3.4 2.8 2.3
Net Debt/Equity (X) CASH CASH CASH CASH CASH
Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH
Capex to Debt (%) 2,161.0 4,476.9 4,602.1 4,996.5 4,996.5
Z-Score (X) 15.5 15.8 15.3 14.4 13.4
Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

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 Company Guide
Indocement Tunggal P.

Cash Flow Statement (Rp bn)

FY Dec 2013A 2014A 2015F 2016F 2017F

Pre-Tax Profit 6,595 6,790 5,819 5,960 6,228

Dep. & Amort. 810 878 910 994 1,096
Tax Paid 0 0 0 0 0
Assoc. & JV Inc/(loss) 0 0 0 0 0
Chg in Wkg.Cap. 160 (41) 199 (154) (189)
Other Operating CF (563) (767) 0 0 0
Net Operating CF 5,419 5,345 5,590 5,430 5,704
Capital Exp.(net) (2,005) (3,405) (3,500) (3,800) (3,800)
Other Invts.(net) 0 0 0 0 0
Invts in Assoc. & JV 0 0 0 0 0
Div from Assoc & JV 0 0 0 0 0
Other Investing CF 0 9 0 0 0
Net Investing CF (2,005) (3,396) (3,500) (3,800) (3,800)
Div Paid (1,658) (3,313) (4,968) (3,137) (3,213)
Chg in Gross Debt (49) (53) 0 0 0
Capital Issues 0 0 0 0 0
Other Financing CF 0 0 0 0 0
Net Financing CF (1,707) (3,366) (4,968) (3,137) (3,213)
Currency Adjustments 414 77 0 0 0
Chg in Cash 2,121 (1,340) (2,878) (1,507) (1,309)
Opg CFPS (Rp) 1,429 1,463 1,464 1,517 1,601
Free CFPS (Rp) 927 527 568 443 517 Strong operational cash
flow to cover future
Source: Company, DBS Vickers capex

Target Price & Ratings History

Rp
25746 Closing Target
S.No. Date Rating
Price Price
1 1: 18 Feb 15 23700 20200 FULLY VALUED
23746 2: 14 Apr 15 22650 20200 FULLY VALUED
2 3: 04 May 15 22800 20000 FULLY VALUED
4
4: 27 May 15 22100 20000 FULLY VALUED
21746 3
5: 08 Jun 15 21425 20000 FULLY VALUED
5 6: 10 Aug 15 19800 20000 FULLY VALUED
6
19746

17746

15746
Sep-14 Jan-15 May-15 Sep-15
Note : Share price and Target price are adjusted for corporate actions.

Source: DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 17
 Indonesia Company Guide
Semen Indonesia
Edition 1 Version 1 | Bloomberg: SMGR IJ | Reuters: SMGR.JK Refer to important disclosures at the end of this report

DBS Group Research . Equity 29 Sep 2015

FULLY VALUED THE VETERAN LEADER

Last Traded Price: Rp9,150 (JCI : 4,120.50) Maintain FULLY VALUED call with lower TP. We cut
Price Target : Rp7,800 (-15% downside) FY15/16/17F domestic sales volume assumptions by
8.4%/9.1%/8.6% after adjusting for YTD data. We also
Potential Catalyst: Rebound in property presales, better execution from forecast weaker margins ahead because of intensifying
nationwide infrastructure development and lower energy price competition for market share and higher COGS (weaker IDR;
Where we differ: Having one of the lowest estimates in the street energy and material costs in USD). All in, we slashed
FY15/16/17F earnings by 22.8%/23.8%/22.9%, resulting in
Analyst
this being one of the lowest estimates in the street.
Edward Ariadi Tanuwijaya +6221 3003 4932
edward.tanuwijaya@id.dbsvickers.com Buffer from Sumatra and Sulawesi. SMGR’s 8M15 cement
sales fell 4.4% y-o-y to 15.8m tonnes, with noticeable
Tjen San Chong +603 2604 3972 weakness in Java (-7% y-o-y) and Kalimantan (-6.3% y-o-y).
tjensan@alliancedbs.com
However, Sumatra and Sulawesi cement sales held up (flat
growth) and helped to support group earnings. Sumatra and
Price Relative Sulawesi accounted for 21% and 11% of SMGR’s domestic
Rp Relative Index
cement sales by volume, respectively.
20,480.0

18,480.0
205 Plans to expand to neighbouring countries. SMGR leads in the
domestic cement market with 43% market share, given its
185
16,480.0
165
14,480.0
145 long and strong presence in three key regions - Java, Sumatra
12,480.0
and Sulawesi – which account for c.85% of domestic cement
125
10,480.0 105
8,480.0 85 sales. The three brands under SMGR command 38%, 43%
6,480.0 65
Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 and 64% market share in Java, Sumatra and Sulawesi,
Semen Indonesia (LHS) Relative JCI INDEX (RHS) respectively. The planned entry into neighbouring countries
will not happen so soon given better domestic margins.
Forecasts and Valuation
FY Dec (Rp bn) 2014A 2015F 2016F 2017F Valuation:
Revenue 26,987 25,698 27,877 30,603 Our target price of Rp7,800 is pegged to 10.2x FY16F EPS, at
EBITDA 8,195 6,643 7,116 7,640
Pre-tax Profit 7,091 5,583 5,883 6,332 (-)1SD of 10-year mean forward PE (similar valuation it traded
Net Profit 5,566 4,294 4,530 4,880 at in 2004 when utilisation level were depressed).
Net Pft (Pre Ex.) 5,566 4,294 4,530 4,880
Net Pft (ex. BA gains) N/A N/A N/A N/A Key Risks to Our View:
EPS (Rp) 938 724 764 823 Significant delays in new players’ greenfield cement plants.
EPS Pre Ex. (Rp) 938 724 764 823 This would reduce competition in SMGR’s strongholds, reduce
EPS Gth (%) 4 (23) 5 8
EPS Gth Pre Ex (%) 4 (23) 5 8 the severity of competition from new players (better pricing
Diluted EPS (Rp) 938 724 764 823 power for incumbents), and lift utilisation rates.
Net DPS (Rp) 375 290 305 329 Recovery in property presales. We expect property presales to
BV Per Share (Rp) 4,070 4,418 4,892 5,410
PE (X) 9.8 12.6 12.0 11.1
remain flat going forward after a 3-4 year boom (2010-2013).
PE Pre Ex. (X) 9.8 12.6 12.0 11.1 But a sharp recovery in property presales would be upside risk
P/Cash Flow (X) 8.1 9.7 9.6 8.9 to our cement volume sales assumptions. The property sector
EV/EBITDA (X) 6.5 8.1 7.5 6.9 remains the major cement consumer in Indonesia.
Net Div Yield (%) 4.1 3.2 3.3 3.6
P/Book Value (X) 2.2 2.1 1.9 1.7
Net Debt/Equity (X) CASH CASH CASH CASH At A Glance
Issued Capital (m shrs) 5,932
ROAE (%) 24.7 17.1 16.4 16.0
Mkt. Cap (Rpbn/US$m) 54,273 / 3,693
Earnings Rev (%): (23) (24) (23) Major Shareholders
Consensus EPS (Rp): 851 939 1,075 Govt. of Indonesia (%) 60.0
Other Broker Recs: B: 18 S: 5 H: 12 Free Float (%) 40.0
3m Avg. Daily Val (US$m) 4.0
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P.
ICB Industry : Industrials / Construction & Materials

ASIAN INSIGHTS VICKERS SECURITIES

www.dbsvickers.com
ed: SGC / sa: MA
 Company Guide
Semen Indonesia

Domestic Sales Volume

CRITICAL DATA POINTS TO WATCH 28,330
26,354 26,464
25,450
Earnings Drivers: 25,200
25,042

Strong presence in three regions to drive top line. SMGR 21,600

leads in the domestic cement market with 43% market share, 18,000

given its long and strong presence in three key regions - Java, 14,400

Sumatra and Sulawesi – which account for c.85% of 10,800

domestic cement sales. We expect SMGR’s sales volume to 7,200

expand at 2.4% CAGR over 2014 – 2017F, a bearish stance 3,600

0
considering that consensus is expecting mid-single-digit % 2013A 2014F 2015F 2016F 2017F
growth for the period. This is in-line with our industry Domestic ASP/tonne
demand forecast, which expects modest growth (in line with
955,980 984,659
947,077
Indonesia’s real GDP growth) for the next three years as the 904,542 928,136

country is entering normal growth state. 803,600

Limited price upside because of competition. We do not 602,700

expect cement prices to rise significantly going forward as

401,800
incumbent players (including SMGR) would be forced to
defend their market share from new players, which are 200,900

willing to sacrifice margins to grab market share. The skewed

0
supply-demand imbalance will also see utilisation rate of 2013A 2014F 2015F 2016F 2017F

incumbent players remain depressed. We forecast only 1.3% EBITDA margin

CAGR in ASP/tonne between 2014 and 2017F; this is minimal 33.1
33.7
compared to consensus expectations of mid-single-digit % 30.4

growth for the period. 27.0 25.8 25.5 25

Shift to bulk segment will pressure margins. Accelerating 20.2

rollout of infrastructure projects from next year onwards and

13.5
a stagnant property market should see cement players
(including SMGR) experience stronger growth in the bulk 6.7

segment than the more profitable bag cement segment. 0.0

2013A 2014F 2015F 2016F 2017F
Weakening IDR leads to higher cash and financing cost. The
Revenue Trend
benefits of lower coal and oil prices are largely offset by a
weaker IDR against the USD, which inflates other cash cost
components. Approximately 40% of INTP’s cash cost is for
energy, while c.65% of its COGS is transacted in USD. We
expect SMGR’s cash cost per tonne to increase by 3.9%
CAGR, which would reduce EBITDA margins (see chart).

In addition, exposure to foreign debt taken for expansion in

Vietnam would also directly raise interest expense and reduce
earnings by 0.5% if the IDR depreciated by another 10%
against the USD.
Market share trend in domestic market
Low capacity utilisation rate will cap SG&A expenses (as % of 47%
revenue). In anticipation of 7m tonnes of effective capacity
46%
coming online in 2015 and 2016, we expect SMGR’s
utilisation rate to drop from 90% in 2014 to 78% in 2017F. 45%

In that period, SG&A expenses are expected to stay at 18%

44%
of revenue (vs 16.5% average in the past decade).
43%

42%

41%

40%
2006 2007 2008 2009 2010 2011 2012 2013 2014 FY15F FY16F FY17F

Source: Company, DBS Vickers

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Company Guide
Semen Indonesia

Leverage & Asset Turnover (x)

Balance Sheet: 0.25 0.9

Exposure to USD debt. SMGR has exposure to foreign debt 0.9

which it took on to expand into Vietnam in 2013. As of Jun 0.20 0.9

0.8
2015, foreign debt made up about one-third of SMGR’s total 0.15 0.8
long term debt. Further weakness in the IDR will inflate 0.8

SMGR’s debt position. 0.10 0.8

0.8
0.05 0.7
Net cash position provides buffer for future expansion. 0.7

SMGR has been in net cash position in the past decade 0.00
2013A 2014F 2015F 2016F 2017F
0.7

(except in 2012 when it took on new loans for the TLCC Gross Debt to Equity (LHS) Asset Turnover (RHS)

acqusition), thanks to strong operational cash flow and good Capital Expenditure
management of expansion capex. Rp
4,000.0
3,500.0

Share Price Drivers: 3,000.0

Positive progress in nationwide infrastructure development. 2,500.0

2,000.0
Good progress and faster infrastructure budget absorption
1,500.0
should lift cement demand, and improve SMGR’s utilisation 1,000.0
rate, and hence, profitability. 500.0
0.0
2013A 2014F 2015F 2016F 2017F
Cement sales. Monthly cement sales data released by the
Capital Expenditure (-)
Indonesia Cement Association (ASI) is a leading indicator of ROE (%)
SMGR’s stock price direction.
25.0%

Expect lower dividend payout. SMGR has distributed 45-55% 20.0%

of net profits over 2006-2013. Following recent talks of
cutting dividends from state-owned enterprises (SOE) to spur 15.0%

infrastructure development, we expect lower dividend 10.0%

payouts and yields going forward.

5.0%

Key Risks:
0.0%
Further price control by government. The new government 2013A 2014F 2015F 2016F 2017F

had surprised the market early this year by instructing state- Forward PE Band (x)
owned cement producers to cut cement prices by 4-5% per 24.6
(x)
bag. Further price regulations could hurt profitability. 22.6 +2sd: 22.4x
20.6
More delays in infrastructure projects. Despite gallant efforts 18.6
+1sd: 19.5x

by the government to speed up the process, project rollouts 16.6 Avg: 16.6x

have been slower than the streets’ lofty expectations. 14.6
‐1sd: 13.6x
Slower execution will directly affect cement demand growth, 12.6

and consequently, hurt SMGR’s utilisation and profitability. 10.6 ‐2sd: 10.7x

8.6
Sep-11 Sep-12 Sep-13 Sep-14
Additional risks from overseas expansion. SMGR’s vision to
PB Band (x)
expand overseas presents potential country and political
(x)
risks. SMGR has expanded into Vietnam (after acquiring 6.5

stake in Thang Long Cement Company in 2013) and is +2sd: 5.94x

5.5
eyeing neighbouring countries such Myanmar and +1sd: 5.09x
Bangladesh. 4.5
Avg: 4.24x

COMPANY BACKGROUND 3.5

‐1sd: 3.39x
Semen Indonesia (SMGR) is the largest cement producer in
2.5 ‐2sd: 2.54x
Indonesia with over 40% market share. It has production
facilities on three key islands (Java, Sumatra and Sulawesi) 1.5
Sep-11 Sep-12 Sep-13 Sep-14
and solid distribution channels, which enables it to
Source: Company, DBS Vickers
command high market shares throughout Indonesia. SMGR
sells cement under three brands, “Semen Gresik”, “Semen
Padang” and “Semen Tonasa”, which have strong brand
equities in Java, Sumatra and Sulawesi, respectively.

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 Company Guide
Semen Indonesia

Key Assumptions
FY Dec 2013A 2014A 2015F 2016F 2017F
Domestic Sales Volume (m tonnes) 25.5 26.3 25.0 26.5 28.3
Domestic ASP/tonne (Rp) 904,542 947,077 928,136 955,980 984,659
EBITDA margin (%) 33.1 30.4 25.8 25.5 25.0

Segmental Breakdown
FY Dec 2013A 2014A 2015F 2016F 2017F
Cement contributes 98%
Revenues (Rp bn) of SMGR’s revenue
Cement 24,152 26,335 25,047 27,194 29,885
Others 370 652 651 683 717

Total 24,522 26,987 25,698 27,877 30,603

Operating profit (Rp bn)
Cement 6,998 7,078 5,389 5,704 6,124
Others (26) (124) 98 102 108

Total 6,972 6,954 5,486 5,806 6,232

Operating profit Margins
Cement 29.0 26.9 21.5 21.0 20.5
Others (7.0) (19.0) 15.0 15.0 15.0

Total 28.4 25.8 21.3 20.8 20.4

Income Statement (Rp bn)

FY Dec 2013A 2014A 2015F 2016F 2017F
Revenue 24,501 26,987 25,698 27,877 30,603
Cost of Goods Sold (13,557) (15,388) (15,572) (17,014) (18,824)
Gross Profit 10,944 11,599 10,126 10,863 11,778
Other Opng (Exp)/Inc (3,972) (4,645) (4,640) (5,057) (5,546)
Operating Profit 6,972 6,954 5,486 5,806 6,232
Other Non Opg (Exp)/Inc 91 202 80 80 80
Associates & JV Inc 35 32 30 34 38
Net Interest (Exp)/Inc (177) (97) (13) (37) (18)
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 6,920 7,091 5,583 5,883 6,332
Tax (1,566) (1,517) (1,284) (1,353) (1,456)
Minority Interest 16 (8) (5) 0 5
Preference Dividend 0 0 0 0 0
Net Profit 5,370 5,566 4,294 4,530 4,880
Net Profit before Except. 5,370 5,566 4,294 4,530 4,880
EBITDA 8,099 8,195 6,643 7,116 7,640
Expect margins to decline
Growth
as competition intensify
Revenue Gth (%) 25.0 10.1 (4.8) 8.5 9.8
EBITDA Gth (%) 17.9 1.2 (18.9) 7.1 7.4
Opg Profit Gth (%) 14.1 (0.3) (21.1) 5.8 7.3
Net Profit Gth (%) 10.8 3.6 (22.8) 5.5 7.7
Margins & Ratio
Gross Margins (%) 44.7 43.0 39.4 39.0 38.5
Opg Profit Margin (%) 28.5 25.8 21.3 20.8 20.4
Net Profit Margin (%) 21.9 20.6 16.7 16.2 15.9
ROAE (%) 28.1 24.7 17.1 16.4 16.0
ROA (%) 18.7 17.1 12.2 11.9 11.6
ROCE (%) 22.5 19.9 14.0 13.7 13.3
Div Payout Ratio (%) 45.0 40.0 40.0 40.0 40.0
Net Interest Cover (x) 39.4 71.8 430.4 156.6 349.2
Source: Company, DBS Vickers

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Company Guide
Semen Indonesia

Quarterly / Interim Income Statement (Rpbn)

FY Dec 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015

Revenue 6,708 6,463 7,638 6,340 6,300

Cost of Goods Sold (3,620) (3,776) (4,490) (3,781) (3,854)
Gross Profit 3,088 2,688 3,148 2,560 2,446
Other Oper. (Exp)/Inc (1,163) (1,141) (1,304) (1,078) (1,137)
Operating Profit 1,924 1,547 1,844 1,481 1,309
Other Non Opg (Exp)/Inc 26 58 103 8 (5)
Associates & JV Inc 8 7 10 7 7
Net Interest (Exp)/Inc (8) (27) (59) 5 (14)
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 1,951 1,584 1,897 1,501 1,297
Tax (420) (326) (417) (307) (297)
Minority Interest (7) 4 (3) (4) (5)
Net Profit 1,523 1,262 1,478 1,190 995
1Q is the seasonally weakest
Net profit bef Except. 1,523 1,262 1,478 1,190 995
quarter
EBITDA 2,245 1,892 2,204 1,850 1,677

Growth
Revenue Gth (%) 8.6 (3.6) 18.2 (17.0) (0.6)
EBITDA Gth (%) 15.0 (15.7) 16.5 (16.1) (9.3)
Opg Profit Gth (%) 17.4 (19.6) 19.2 (19.6) (11.7)
Net Profit Gth (%) 16.9 (17.1) 17.1 (19.5) (16.4)
Margins
Gross Margins (%) 46.0 41.6 41.2 40.4 38.8
Opg Margins (%) 28.7 23.9 24.1 23.4 20.8
Net Profit Margins (%) 22.7 19.5 19.3 18.8 15.8

Balance Sheet (Rp bn)

FY Dec 2013A 2014A 2015F 2016F 2017F

Net Fixed Assets 18,863 20,221 22,565 24,754 26,847

Invts in Associates & JVs 0 0 0 0 0
Other LT Assets 2,078 2,437 2,437 2,437 2,437
Cash & ST Invts 4,213 5,032 4,829 5,686 6,847
Inventory 2,646 2,812 2,845 3,109 3,440
Debtors 2,916 3,301 3,144 3,410 3,744
Other Current Assets 197 504 509 555 613
Total Assets 30,912 34,307 36,328 39,951 43,928
About one-third of LT debt is
ST Debt 321 82 82 82 82 in foreign currency
Creditor 2,822 3,250 3,286 3,590 3,970
Other Current Liab 2,163 1,954 1,964 2,070 2,201
LT Debt 3,242 3,315 3,217 3,619 4,022
Other LT Liabilities 508 606 606 606 606
Shareholder’s Equity 20,935 24,139 26,207 29,019 32,087
Minority Interests 921 960 965 965 960
Total Cap. & Liab. 30,912 34,307 36,328 39,951 43,928

Non-Cash Wkg. Capital 774 1,412 1,247 1,414 1,626

Strong net cash
Net Cash/(Debt) 650 1,635 1,530 1,984 2,744
position
Debtors Turn (avg days) 40.5 42.0 45.8 42.9 42.7
Creditors Turn (avg days) 80.9 78.3 82.8 79.9 79.2
Inventory Turn (avg days) 72.4 70.4 71.6 69.2 68.6
Asset Turnover (x) 0.9 0.8 0.7 0.7 0.7
Current Ratio (x) 1.9 2.2 2.1 2.2 2.3
Quick Ratio (x) 1.3 1.6 1.5 1.6 1.7
Net Debt/Equity (X) CASH CASH CASH CASH CASH
Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH
Capex to Debt (%) 71.4 75.3 106.1 94.6 85.3
Z-Score (X) 6.6 6.5 6.4 6.2 5.9
Source: Company, DBS Vickers

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 Company Guide
Semen Indonesia

Cash Flow Statement (Rp bn)

FY Dec 2013A 2014A 2015F 2016F 2017F

Pre-Tax Profit 6,920 7,091 5,583 5,883 6,332

Dep. & Amort. 1,127 1,241 1,156 1,310 1,408
Tax Paid 0 0 0 0 0
Assoc. & JV Inc/(loss) 0 0 0 0 0
Chg in Wkg.Cap. (577) (635) 166 (167) (212)
Other Operating CF 143 542 0 0 0
Net Operating CF 6,047 6,721 5,621 5,672 6,072
Capital Exp.(net) (2,544) (2,558) (3,500) (3,500) (3,500)
Other Invts.(net) 0 0 0 0 0
Invts in Assoc. & JV 0 0 0 0 0
Div from Assoc & JV 0 0 0 0 0
Other Investing CF (131) (323) 0 0 0
Net Investing CF (2,675) (2,881) (3,500) (3,500) (3,500)
Div Paid (2,211) (2,427) (2,226) (1,718) (1,812)
Chg in Gross Debt (69) (500) (98) 402 402
Capital Issues 0 0 0 0 0
Other Financing CF (43) (58) 0 0 0 Strong operational cash
Net Financing CF (2,324) (2,984) (2,324) (1,316) (1,410) flow to cover future
Currency Adjustments 0 0 0 0 0 capex
Chg in Cash 1,048 855 (203) 857 1,162
Opg CFPS (Rp) 1,117 1,240 920 985 1,059
Free CFPS (Rp) 591 702 358 366 434
Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

Page 23
 DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
* Share price appreciation + dividends

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by PT. DBS Vickers Securities Indonesia ("DBSVI"), a direct wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd
("DBSVH"). This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any
form or by any means or (ii) redistributed without the prior written consent of DBSVR.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVI
and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change
without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the
specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate independent legal or financial
advice. DBSVI accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any
use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as
an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its
affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVI, DBS
Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and
may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be
no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The
information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not
contain all material information concerning the company (or companies) referred to in this report.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which
the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results.
Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a
representation and/or warranty by DBSVI and/or DBSVH (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned
herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity
referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department,
nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and
their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is,
or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the
analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this
report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. PT. DBS Vickers Securities Indonesia ("DBSVI") has no proprietary position in the company recommended in this report as of 28
September 2015.
2. DBSVI, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-dealer,
may beneficially own a total of 1% or more of any class of common equity securities of as of 29 September 2015.
3. Compensation for investment banking services:
DBSVI, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA may have received compensation, within the past 12 months, and
within the next 3 months may receive or intends to seek compensation for investment banking services from the subject companies.
DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking
transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including
any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact
DBSVUSA exclusively.

Page 24
 Industry Focus
Indonesia Cement Sector

RESTRICTIONS ON DISTRIBUTION
General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or
located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be
contrary to law or regulation.
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both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act
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only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the
Hong Kong Securities and Futures Commission.
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR") (formerly known as HwangDBS Vickers
Research Sdn Bhd). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in
respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found
at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company
Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers,
employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in
the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory
and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation
for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No.
198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the
Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign
entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial
Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert
Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons
only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from,
or in connection with the report.
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Dubai This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch)
rd
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it.
United States Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in
compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSVUSA, which
accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities
referred to herein should contact DBSVUSA directly and not its affiliate.
Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified,
jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

PT. DBS Vickers Securities Indonesia

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Tel. 6221-3003 4900, Fax: 6221-3003 4943

Page 25