Bank Rakyat Indonesia - DBS Bank

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Indonesia Company Guide

Bank Rakyat Indonesia Refer to important disclosures at the end of this report

Version 10 | Bloomberg: BBRI IJ | Reuters: BBRI.JK

DBS Group Research . Equity

22 Jun 2017

BUY

It may not be as bad as expected

Last Traded Price ( 21 Jun 2017): Rp15,300 (JCI : 5,818.60) Price Target 12-mth: Rp17,000 (11% upside) (Prev Rp15,000) Analyst Sue Lin LIM +65 8332 6843 [email protected] Benedictus Agung SWANDONO +6221 3003 4935 [email protected]

What’s New    

Monthly results tracking well with stronger-thanexpected loan growth Kitchen sinking in 2Q17, if any, should be subdued compared to peer SOE bank experiences when a new CEO was appointed Potential upside from management guide possible Maintain BUY with higher TP of Rp17,000 as we roll forward our valuation base to 2018 and lower risk-free rate assumption

Price Relative

Forecasts and Valuation FY Dec (Rpbn) Pre-prov. Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Diluted EPS (Rp) PE Pre Ex. (X) Net DPS (Rp) Div Yield (%) ROAE Pre Ex. (%) ROAE (%) ROA (%) BV Per Share (Rp) P/Book Value (x)

2016A 47,755 26,196 26,196 3.1 1,072 1,072 3 1,072 14.3 321 2.1 20.2 20.2 2.8 5,989 2.6

Earnings Rev (%): Consensus EPS (Rp): Other Broker Recs:

2017F 49,449 29,123 29,123 11.2 1,191 1,191 11 1,191 12.8 357 2.3 18.4 18.4 2.7 6,946 2.2

2018F 54,855 32,368 32,368 11.1 1,324 1,324 11 1,324 11.6 397 2.6 17.8 17.8 2.7 7,913 1.9

2019F 61,122 36,479 36,479 12.7 1,492 1,492 13 1,492 10.3 0.0 0.0 17.6 17.6 2.7 9,008 1.7

0 1,139 B: 23

0 1,288 S: 4

0 1,469 H: 8

Source of all data on this page: Company, DBS Bank, DBSVI, Bloomberg Finance L.P.

ASIAN INSIGHTS ed: TH / sa: MA, PY

Concerns on kitchen sinking could be overdone, maintain BUY. Bank Rakyat Indonesia (BBRI) is the only big SOE bank that has consistently booked positive earnings growth for the past decade, thanks to its solid micro banking franchise. BBRI saw a new CEO at the bank in March 2017 – internally appointed. Since his appointment as CEO, there have been concerns that BBRI may go through a kitchen sinking exercise, similar to what Bank Mandiri (BMRI) and BBNI experienced when new CEOs were appointed. We believe this could be overdone. BBRI has the best asset quality metrics among the SOE banks. While it may have faced some weakness in its small commercial and corporate non-SOE portfolio, these have largely been restructured. We believe BBRI’s NIM compression is priced in. Our BUY rating on BBRI is maintained with a higher TP of Rp17,000 as we roll over our valuation base to 2018 and lower our risk free-rate assumption to 7.5% (from 8%) in the wake of the positive sovereign rating upgrade and the banking system’s improving prospects. Where we differ. We believe the market is anchored with the conservative management guidance of single-digit profit growth set earlier this year. Our forecasts are at the upper end of management’s loan growth guidance of 12-14% and below asset quality metrics guidance of 2.2-2.4% for credit cost and NPL. We expect only marginal operating cost increase required to support the growth in the micro business as most of the recruitment and training for this labour-intensive business was done in 2010-2015. We also like BBRI’s traction in the branchless banking initiatives with the doubling of transaction value/agents. Potential catalyst. We believe the market is waiting for its 2Q17 results with bated breath following the change of CEO earlier this year. Kitchen sink or not, we believe BBRI's overall asset quality issue is lighter than its two SOE peers. Better-thanexpected credit cost and NPL should provide upside to current stock price. Valuation: Maintain BUY; TP at Rp17,000. Our TP (based on Gordon Growth Model – 18% ROE, 10% growth rate, and 14% cost of equity) implies 2.1x FY18F BV Key Risks to Our View: Kitchen sinking after the new CEO. Fears of a possibility of kitchen sinking after the new CEO took charge. However, we expect it to be a clearing event for the stock rather than an investment risk. At A Glance Issued Capital (m shrs) Mkt. Cap (Rpbn/US$m) Major Shareholders (%) Govt of Indonesia (%) Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Financials / Banks

24,669 377,438 / 28,357 59.0 41.0 21.0

VICKERS SECURITIES

Company Guide Bank Rakyat Indonesia

WHAT’S NEW Concerns on kitchen sinking To kitchen sink or not? Kitchen sinking of BBNI (Bank Negara Indonesia) in 2015 and BMRI (Bank Mandiri) in 2016 in the second quarter following the CEO change has sparked speculation of whether BBRI would experience the same symptoms in 2Q17. The uncertainty might be the drag on BBRI’s stock price despite its clear asset quality advantage relative to the two. Unlike its two sisters in the past years, we believe that the magnitude of kitchen sinking for BBRI, if any, should be more subtle for the following reasons: 1. Loan-at-risk (NPL + SML + Restructured performing loans) is the lowest among the SOE banks while net loan at risk (uncovered by provision reserves) is on a downtrend at 5.8% of total loans and 26% of equity in 1Q17 2. Micro loans (33% of loans) are automatically written off after 270 days past due and should not be a major source of downgrades during the kitchen sinking. 3. Small commercial loans (20% of total loans) were more granular (compared to BMRI) with ticket size below Rp5bn. Should we be worried about high credit cost to date? Credit cost stood at 3% at 1Q17 and an even higher 3.4% in 4M17. We view this as management’s effort to front-load the provision expenses to improve coverage ratio. BBRI’s loan loss coverage ratio was at 188% in 1Q17, already near its normal historical level of 200%, thanks to aggressive provisioning and improving NPL ratio. Once BBRI reaches its comfort level for its coverage ratio, we believe credit cost can revert to the normal c.1.5% level from 3% in 1Q17 and therefore could pave the way for stronger earnings growth going forward. Does the management underplay its targets? Management set a conservative target at the beginning of the year before the new CEO came on board. The performance to date appears better than the target set earlier: 1. Loan growth was 17% y-o-y in 4M17, much higher than the target of 12-14% set earlier this year. Suparjanto, BBRI’s CEO, was quoted in the newspapers as saying that he is considering to increase loan growth target to 1416%. BBRI does have corporate loans and intends to also participate in infra projects but at a smaller scale compared to its SOE bank peers. 2. Cost-to-income ratio is at 39% in 1Q17, the lowest in six years. This excellent cost management was partly due to aggressive personnel recruitment back in 2010-2015 when the number of accounts per micro loan officers fell to 300 from 650. The loan officers have been trained and have gained experience since then. Going forward, we believe BBRI can grow its micro business with marginal increase to its operating costs.

ASIAN INSIGHTS Page 2

In-line 4M17 performance. 4M17 net profit grew 7% y-o-y, representing 27% of our/consensus full-year estimates. Loan grew strongly at 17% y-o-y. Earnings were however associated with lower NIM and higher credit cost, but these were expected. Monthly write-off rate was normal at 1.3%. Encouraging traction of the branchless banking initiatives. Branchless banking initiatives are gaining traction. The number of BRILink agents reached 97,538 in 1Q17, with the transaction value per agent more than doubling. This could lay a strong foundation for fee income, deposits, and lending for the future. Going forward, management is targeting 30,000-40,000 new agents this year. BBRI also launched Teras Digital earlier this year, a marketplace e-commerce platform which allows people to reach the traditional market seller through digital platforms. KUR scheme change still poses a threat to profitability. For 2017, KUR rate is still at 9% and the credit insurance premium is raised to 1.75% from 1.5%. Interest subsidy was cut by 45bps (to 9.55% from 10%). All in, one should expect a 70-bp decrease in KUR loan yield. Although it only contributed 13% to FY16 total loans, the contribution will continue to increase due to aggressive disbursement target. Further regulatory pressure on the KUR scheme might create a greater impact on BBRI’s profitability. Valuation and recommendation Catching up with the rally. BBRI’s stock performance has been one of the best in our Indonesian Banks universe. We believe there is still upside for the stock following the investment grade rating upgrade on Indonesian sovereign bonds. BBRI’s stock liquidity, depth and size have made it one of the best proxies of the Indonesian economy. Currently the stock still trades at –0.5SD of its forward P/BV band. Maintain BUY, with higher TP at Rp17,000. We maintain a BUY rating with higher TP of 17,000 after rolling over our valuation base to 2018 and imputing a lower risk-free rate assumption 7.5% (vs previously 8%). Our TP (based on Gordon Growth Model – 18% ROE, 10% growth rate, and 14% cost of equity) implies 2.1x FY18F BV. We made no changes to our earnings forecasts. Key risks to our view. These include: 1. Bigger-than-expected credit costs and prolonged asset quality issues. 2. Unfavourable KUR scheme changes 3. Asset yield dips deeper than expected which translates into lower-than-expected NIM.

VICKERS SECURITIES

Company Guide Bank Rakyat Indonesia

Chart 1: BBRI’s loan growth

Chart 2: BBRI’s loans-at-risk (% of total loans) 12.0%

20.0% 18.7%

16.0% 14.0% 10.0% 8.0%

17.3% 16.7%

16.4% 13.8%

9.8%

9.4%

8.0% 6.0%

11.8%

4.0%

9.7%

9.3%

10.6%

10.0%

13.9%

12.0%

10.8%

10.6%

10.0%

18.0%

6.0%

2.0%

4.0% 0.0%

2.0%

4Q15

0.0% 1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q16

2Q16

NPL

1Q17

SML

3Q16

4Q16

Restructured Current

1Q17

LAR

Loan Growth

Chart 4: Loans at risk comparisons (% of total loans)

Chart 3: BBRI’s micro loans officers vs customers (Ths Persons)

(Persons)

18.0%

700

16.0%

600

14.0%

500

12.0%

400

10.0%

650

30,000 25,000

475

20,000

324

15,000

297

320

300

282

300

10,000

200

5,000

100

-

2010

2011

2012

2013

Micro Borrowers

2014

2015

200% Upycle phase

100% 50%

Credit Cost - RHS

3Q16

2Q16

1Q16

4Q15

3Q15

2Q15

1Q15

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

0%

1Q17

Normal coverage level of 200%

10% 9% 8% 188% 7% 6% 5% 4% 3% 2% 1% 0%

4Q16

Downtrun cycle and reparing phase

Coverage Ratio

BBRI

PNBN

BMRI

11.9%

12.2%

6.0% 4.0%

4.1%

4.1%

BTPN

BBCA

BBNI

BDMN

0.0%

Chart 5: BBRI’s credit cost & coverage ratio (quarterly)

150%

10.7%

8.0%

Micro Customers/Officers - RHS

250%

9.8%

10.2%

2.0%

2016

Micro Loan Officers

300%

15.8%

BBTN

Chart 6: BRI Link scale comparison Leading mobile banking platform vs BRI Link 1,200 997

1,000 800

786

786

600 400 200

308

276 95

139

98

Value (Rp tr) BBCA

Volume (mn) BMRI

BBNI

BRILink

Source: Company, DBS Bank, DBSVI

ASIAN INSIGHTS

VICKERS SECURITIES Page 3

Company Guide Bank Rakyat Indonesia Margin Trends

CRITICAL DATA POINTS TO WATCH Critical Factors Micro driven loan growth. Micro loans continue to be resilient while cautious on the small commercial and medium segment loans. We forecast FY17F loan growth at 14%, driven mainly by micro loans, especially KUR loans and corporate loans Normalising NIM. BBRI should see lower NIM from the unusually high NIM in 2016 as the benefits of a lower interest rate environment in 2016 should fade. Interest rates, especially from the corporate loans, should adjust lower while cost of funds should hit rock bottom. A possible higher policy rate in 2017 can also drag NIM further, as cost of funds usually adjust faster than loan yields. KUR scheme change still poses a threat to profitability. For 2017, KUR rate is still at 9% and the credit insurance premium is raised to 1.75% from 1.5%. Interest subsidy was cut by 45bps (to 9.55% from 10%). All in, one should expect a 70-bp decrease in KUR loan yield. Although it only contributed 13% of FY16 total loans, the contribution will continue to increase due to aggressive disbursement target. Further regulatory pressure on the KUR scheme might create a greater impact to BBRI’s profitability.

Gross Loan& Growth

Customer Deposit & Growth

Positive asset-quality trends to continue. Its blended NPL ratio was flattish in 2016, with the NPL ratio in the micro segment diving below 1%. Note that this is the lowest NPL ratio in micro segment in five years. The risk of NPL and provision expenses should come from the small commercial and corporate segments. Operating efficiency should improve. Cost-to-income ratio was at 39% in 1Q17, the lowest in six years. This excellent cost management was partly due to aggressive personnel recruitment back in 2010-2015 when the number of accounts per micro loan officer fell to 300 from 650. The loan officers have been trained and have gained experience since then. Going forward, we believe BBRI can grow its micro business with marginal increase to its operating costs.

Loan-to-Deposit Ratio Trend

Maintaining strong fee income growth. Approximately 50% of BBRI’s fee-based income comes from loan and deposit fees. BBRI plans to grow its e-channel initiatives, mainly ATMs. It also needs to improve its credit card services but it is hard for micro customers to adopt credit cards. Rolling out branchless banking initiative. BBRI is riding on its experience and existing infrastructure in micro mass market loans to expand its branchless banking operations. BBRI is targeting an additional 30,00040,000 agents in 2017 (84,550 in 2015). Agents are able to offer a basic savings account product and transaction banking services, and refer customers to a BBRI unit for lending products. It will also add to CASA in the long term.

Cost & Income Structure

Source: Company, DBS Bank, DBSVI

ASIAN INSIGHTS Page 4

VICKERS SECURITIES

Company Guide Bank Rakyat Indonesia

Appendix 1: A look at Company's listed history – what drives its share price? NPL as critical factor

Remarks

(IDR)

Stock Price vs NPL

(%)

14000

6

12000

5

10000

4

8000

3

6000

2

4000

1

2000 0 Oct-09

NPL is strongly negatively correlated to BBRI’s stock price performance with negative correlation of 73% during the past ten years

0 Oct-10

Oct-11

Oct-12

Oct-13

Last Price

Oct-14

Oct-15

Oct-16

NPL

Government bond yield as critical factor (IDR)

(%)

Stock Price vs Government Bond Yield

10 9 8 7 6 5 4 3 2 1 0

14000 12000 10000 8000 6000 4000 2000 0 Oct-09

BBRI is still considered as a proxy for the Indonesian economy and therefore has strong negative correlation with 10-year government bond yield which is often cited as the risk-free rate assumption.

Oct-10

Oct-11

Oct-12

Oct-13

Last Price

Oct-14

Oct-15

Oct-16

Bond Yield

Source: Bloomberg Finance L.P, DBS Bank, DBSVI

Share price performance (10-year historical trend) 000

June 2014: Market rally following election result

000

000

Sep 2010: Stock price rally due to significant NPL improvement in the 3Q results

000

000

Nov 2010: Government bond yield rise due to unexpectedly high inflation from volatile food prices

Oct 2008: GFC

Jun2012: Market concern on Euro cirises

000 2009: Series of positive earnings surprises due to strong loan growth

000

0 May-07

May 2015: Higher NPL and stagnating loan growth

May-08

May-09

May-10

May-11

May-12

June 2013: Gov't bond yield rise. BI rate rose 175bps in 6 months to stabilise heavy exchange rate fluctuation due to expanding twin deficit

May-13

May-14

May-15

Aug 2016: BBRI was appointed as one of the banks to hold the tax amnesty funds

May-16

Source: Bloomberg Finance L.P, DBS Bank, DBSVI

ASIAN INSIGHTS

VICKERS SECURITIES Page 5

Company Guide Bank Rakyat Indonesia Asset Quality

Balance Sheet: Balancing its funding mix. BBRI wants to diversify its funding composition and match the maturity of its assets and liabilities. BBRI also wants to improve its CASA ratio to 60% by optimising CASA marketing agents and improving its services by adding branches and rolling out branchless banking agents. LDR is stretched at above the 90% level and BBRI is expecting the recent bond issuance to help ease its liquidity situation. Improvements in business process to improve asset quality. BBRI will improve its underwriting processes to improve asset quality. The bank has created a special task force to tackle NPL and special-mention loans which has been proven effective. It will also limit loans to small- and medium-sized players, focusing on certain quality debtors and industries. BBRI will also place experienced personnel from its head office to regional offices to improve its business processes. The majority of the problems in its NPL stem from the small commercial and medium segments. Strong capital position. BBRI’s CAR remains healthy at above 20%, thanks to the asset revaluation exercise done in June 2016. The high capital ratio provides some room to increase the dividend payout going forward.

Capitalisation (%)

ROE (%)

Share Price Drivers: Regulatory pressure. The KUR scheme is negotiated on an annual basis and therefore might cause jitters to the stock price. Government initiatives to form a superholding company might also cause uncertainties. Asset-quality issues. Asset quality in the medium and corporate segment may be under pressure and might continue to deteriorate if the economy turns weak. Forward PE Band (x)

Company Background BBRI is Indonesia's leading micro lender, mainly to retail clients largely in the rural areas. The bank also has a comparatively small but growing corporate business. It is currently a 59% government-owned operating company.

PB Band (x)

Source: Company, DBS Bank, DBSVI

ASIAN INSIGHTS Page 6

VICKERS SECURITIES

Company Guide Bank Rakyat Indonesia

Key Assumptions FY Dec

2015A

2016A

2017F

2018F

2019F

Gross Loans Growth Customer Deposits Growth Yld. On Earnings Assets Avg Cost Of Funds

13.8 7.5 11.6 4.0

13.8 12.8 11.5 3.6

14.0 13.2 11.1 3.6

14.0 14.0 11.0 3.6

14.0 14.0 11.0 3.6

Income Statement (Rpbn) FY Dec

2015A

2016A

2017F

2018F

2019F

Net Interest Income 58,280 Non-Interest Income 12,409 Operating Income 70,689 Operating Expenses (31,276) Pre-provision Profit 39,413 Provisions (8,900) Associates 0.0 Exceptionals 0.0 Pre-tax Profit 32,494 Taxation (7,083) Minority Interests (13.0) Preference Dividend 0.0 Net Profit 25,398 Net Profit bef Except 25,398 Growth (%) Net Interest Income Gth 13.3 Net Profit Gth 4.9 Margins, Costs & Efficiency (%) Spread 7.6 Net Interest Margin 7.9 Cost-to-Income Ratio 44.2 Business Mix (%) Net Int. Inc / Opg Inc. 82.4 Non-Int. Inc / Opg inc. 17.6 Fee Inc / Opg Income 10.4 Oth Non-Int Inc/Opg Inc 7.1 Profitability (%) ROAE Pre Ex. 24.1 ROAE 24.1 ROA Pre Ex. 3.0 ROA 3.0

67,576 17,278 84,854 (37,098) 47,755 (13,791) 0.0 0.0 33,974 (7,746) (32.2) 0.0 26,196 26,196

72,731 20,069 92,800 (43,351) 49,449 (13,760) 0.0 0.0 37,770 (8,611) (35.8) 0.0 29,123 29,123

80,896 22,878 103,774 (48,919) 54,855 (15,190) 0.0 0.0 41,978 (9,571) (39.8) 0.0 32,368 32,368

90,387 26,081 116,469 (55,347) 61,122 (16,418) 0.0 0.0 47,311 (10,787) (44.9) 0.0 36,479 36,479

16.0 3.1

7.6 11.2

11.2 11.1

11.7 12.7

7.9 8.2 43.7

7.4 7.7 46.7

7.4 7.6 47.1

7.3 7.6 47.5

79.6 20.4 10.9 9.5

78.4 21.6 11.0 10.6

78.0 22.0 11.3 10.8

77.6 22.4 11.4 11.0

20.2 20.2 2.8 2.8

18.4 18.4 2.7 2.7

17.8 17.8 2.7 2.7

17.6 17.6 2.7 2.7

Expect modest loan growth of 14%

NIM is expected to normalise after an unusually high level in 2016

Source: Company, DBS Bank, DBSVI

ASIAN INSIGHTS

VICKERS SECURITIES Page 7

Company Guide Bank Rakyat Indonesia

Quarterly / Interim Income Statement (Rpbn) FY Dec 1Q2016 2Q2016 Net Interest Income Non-Interest Income Operating Income Operating Expenses Pre-Provision Profit Provisions Associates Exceptionals Pretax Profit Taxation Minority Interests Net Profit

3Q2016

4Q2016

1Q2017

15,326 3,311 18,637 (8,025) 10,612 (3,589) 0.0 0.0 7,596 (1,344) 0.0 6,252

16,685 4,287 20,972 (9,721) 11,251 (3,750) 0.0 0.0 7,784 (1,989) 0.0 5,795

18,047 3,398 21,445 (8,929) 12,516 (4,137) 0.0 0.0 8,612 (1,009) 0.0 7,603

17,518 5,683 23,201 (8,455) 14,746 (2,315) 0.0 0.0 11,351 (2,802) 0.0 8,549

17,276 3,891 21,167 (8,255) 12,912 (5,151)

(8.2) (12.3)

8.9 (7.3)

8.2 31.2

(2.9) 12.4

(1.4) (22.1)

2015A

2016A

2017F

2018F

2019F

Cash/Bank Balance Government Securities Inter Bank Assets Total Net Loans & Advs. Investment Associates Fixed Assets Goodwill Other Assets Total Assets

137,260 4,661 11,800 563,580 125,143 0.0 8,039 0.0 27,943 878,426

164,663 4,876 5,350 638,544 131,485 0.0 24,515 0.0 34,212 1,003,644

189,401 5,949 5,618 724,925 141,018 0.0 37,605 0.0 31,647 1,136,161

213,660 6,894 5,899 824,970 151,504 0.0 49,112 0.0 33,213 1,285,252

249,510 8,015 6,194 940,447 163,038 0.0 59,038 0.0 32,877 1,459,119

Customer Deposits Inter Bank Deposits Debts/Borrowings Others Minorities Shareholders' Funds Total Liab& S/H’s Funds

668,995 11,165 46,058 39,081 294 112,833 878,426

754,526 2,230 60,818 39,259 391 146,421 1,003,644

853,986 6,697 66,069 39,170 427 169,813 1,136,161

973,544 4,463 74,121 39,214 467 193,443 1,285,252

1,109,840 5,580 83,783 39,192 512 220,212 1,459,119

Growth (%) Net Interest Income Gth Net Profit Gth Balance Sheet (Rpbn) FY Dec

0.0 0.0 7,903 (1,243) 0.0 6,660

Built up provisions in 1Q17 to increase coverage ratio

Expecting 14% loan growth

Source: Company, DBS Bank, DBSVI

ASIAN INSIGHTS Page 8

VICKERS SECURITIES

Company Guide Bank Rakyat Indonesia

Financial Stability Measures (%) FY Dec Balance Sheet Structure Loan-to-Deposit Ratio Net Loans / Total Assets Investment / Total Assets Cust . Dep./Int. Bear. Liab. Interbank Dep / Int. Bear. Asset Quality NPL / Total Gross Loans NPL / Total Assets Loan Loss Reserve Coverage Provision Charge-Off Rate Capital Strength Total CAR Tier-1 CAR

2015A

2016A

2017F

2018F

2019F

84.2 64.2 14.2 93.6 1.6

84.6 63.6 13.1 92.5 0.3

84.9 63.8 12.4 92.8 0.7

84.7 64.2 11.8 92.9 0.4

84.7 64.5 11.2

1.9 1.3 155.7 1.5

1.9 1.3 172.2 2.1

1.9 1.3 197.8 1.8

1.8 1.2 218.1 1.8

1.7 1.1 231.1 1.7

19.8 18.7

21.8 18.6

21.6 18.6

21.5 18.8

21.2 18.7

93.0 0.5

Expecting NPL trends to be stable. However, we continue to impute a conservative credit cost scenario

Source: Company, DBS Bank, DBSVI Target Price & Ratings History

Source: DBS Bank, DBSVI Analyst: Sue Lin LIM Benedictus Agung SWANDONO

ASIAN INSIGHTS

VICKERS SECURITIES Page 9

Company Guide Bank Rakyat Indonesia

DBS Bank, DBSVI 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 Completed Date: 22 Jun 2017 07:34:23 (WIB) Dissemination Date: 22 Jun 2017 07:59:15 (WIB) Sources for all charts and tables are DBS Bank, DBSVI unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated corporations and affiliates 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 DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research 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 judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group 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. The DBS Group, 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. The DBS Group, 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, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. 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 the DBS Group (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. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. 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.

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Company Guide Bank Rakyat Indonesia

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. ANALYST CERTIFICATION The research analyst(s) 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(s) 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 the report. The research analyst (s) 1

primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests

2

in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group. COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1.

DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 May 2017.

2.

Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

Compensation for investment banking services: 3.

DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Bank Rakyat Indonesia as of 31 May 2017.

4.

DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Bank Rakyat Indonesia in the past 12 months, as of 31 May 2017.

5.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction 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.

Disclosure of previous investment recommendation produced: 6.

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1

An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2

Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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Company Guide Bank Rakyat Indonesia

RESTRICTIONS ON DISTRIBUTION 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 General located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia

This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong

This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report has been prepared by an entity(ies) which is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected]

Indonesia

This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia

This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). 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.

Thailand

This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom

This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates 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 DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

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Company Guide Bank Rakyat Indonesia

Dubai

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States

This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. 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 jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 e-mail: [email protected] Company Regn. No. 196800306E

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Bank Rakyat Indonesia - DBS Bank

Indonesia Company Guide Bank Rakyat Indonesia Refer to important disclosures at the end of this report Version 10 | Bloomberg: BBRI IJ | Reuters: BB...

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