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Jan 5, 2016 - Ministry of Finance Decree. No. 90/PMK.03/2015. 30/05/2015. 5% tax applies for: - Landed residential (valu

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Idea Transcript


Indonesia Industry Focus

Indonesia Property & Industrial Estate Refer to important disclosures at the end of this report

DBS Group Research . Equity

On the mend after a major setback 

Expect demand recovery from subdued 2015 but aggregate marketing sales seem to have plateaued



Volatility from regulations to continue



Prefer exposure to landed residential and retail malls; avoid office and industrial estate segments

 Maintain Neutral stance with BSDE as top pick Expect recovery from tough year. Regulation whirlwind and sustained overall macro weakness affected property purchases negatively in 2015. We expect aggregate marketing sales to grow 7.5% y-o-y ( driven largely by price appreciation rather than volume) from subdued numbers in 2015 and somewhat plateauing for the next two years at 2012/2013 level. As this challenging condition is set to continue in 2016 (weak affordability to dampen any potential surge in property purchases), it’s crucial for developers to keep their SG&A expenses in check. In addition, the need to gear up has continued mostly due to new disbursement scheme (introduced since Sep 2013) and this has a lasting effect on their bottom-line earnings. Developers have to balance their capex expansion and tight cashflow conditions. Volatility spices from regulations... again. Regulation flip-flopping (particularly on property taxes) hoodwinked both property developers and buyers in 2015. As the property tax issue is now on the back-burner and the government looks committed to rejuvenate the property sector by revisiting several measures such as easing individual foreign ownership, tax incentives for REIT structure in Indonesia, corporate tax cut, “one map” policy for spatial and zoning, business and working permit simplifications, etc. This looks promising but with a downside risk that too many new regulation revisions may take some time to implement and hence further push back the recovery. Maintain Neutral stance on sector with BSDE as top pick. As potential catalysts merely hinge on regulation revisions and government measures to rejuvenate the property sector rather than strong demand fundamentals (as affordability remains weak), we maintain our cautious outlook on the property sector. We prefer exposure to landed residential and retail malls and on the flip side, recommend investors to avoid office and industrial estate segments. We like BSDE for its strong balance sheet to ride out this challenging market, its flexibility on township development and decent earnings growth.

ed-TH / sa- MA

5 Jan 2016 JCI : 4,525.92 Analyst Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected] STOCKS

Agung Podomoro Alam Sutera Realty Bumi Serpong Damai Ciputra Development Lippo Karawaci Pakuwon Jati Summarecon Agung Bekasi Fajar Industrial Lippo Cikarang Surya Semesta

Performance (%)

Price

Mkt Cap

Target

Rp

US$m

Price Rp

3 mth

12 mth

Rating

334 331 1,790 1,425 1,015 496 1,575 289 7,025 695

494 469 2,486 1,576 1,690 1,723 1,639 201 353 236

285 325 2,100 1,350 980 490 1,650 230 7,900 765

13.2 7.9 25.9 77.0 (8.0) 46.3 50.7 3.5 1.8 (4.0)

(0.3) (38.8) (0.3) 18.1 1.5 (3.7) 8.6 (59.7) (30.3) (33.2)

FV HOLD BUY HOLD FV HOLD HOLD FV BUY HOLD

Source: DBS Vickers

Aggregate marketing sales – plateauing at 2013 level 45,000

Rpbn

plateauing

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 2009 2010 2011 2012 2013 2014 2015F2016F2017F

Source: Companies, DBS Vickers. Note: Aggregate marketing sales above only include ASRI, APLN, BSDE, CTRA, LPKR, PWON and SMRA

Rough 2015 ride especially for industrial estate stocks 20% 10%

13% 5%

1%

0% -10% -20%

-2%

-4% -9%

-13%

-30% -31%

-40%

-37%

-41%

-50% -60% -60% -70% CTRA SMRA LPKR APLN BSDE PWON JCI

Source: DBS Vickers, Bloomberg Finance L.P.

LPCK SSIA

ASRI BEST

Industry Focus Indonesia Property & Industrial Estate

Table of Contents

Page 2

Recovery expected from tough 2015

3

Property segment outlook 2016

7

Neutral stance on sector

9

Appendix

12

Company Guides

20

Agung Podomoro Land

21

Alam Sutera Realty

28

Bumi Serpong Damai

35

Ciputra Development

42

Lippo Karawaci

49

Pakuwon Jati

56

Summarecon Agung

63

Bekasi Fajar

70

Lippo Cikarang

74

Surya Semesta

84

Industry Focus Indonesia Property & Industrial Estate

Recovery expected from tough 2015 Plateauing aggregate marketing sales. Sustained overall macro weakness and regulation whirlwind slammed a hard brake on property purchases in 2015. This has blindsided property developers throughout 2015, whom expected some demand pick-up (although not a surge) after encouraging signs at the end of 2014 (after presidential election’s conclusion on Sep2014). Midway through 1H15, developers started to revise down their full-year targets (ranging from 9% to as deep as 46%). We believe the subdued aggregrate marketing sales achievement in 2015 (despite being supported by carry-overs from end-of-2014 launchings) shows that aggregate marketing sales has somewhat plateaued at the 2012-2013 level. Consistent with our view on the likelihood of banking system loan growth to stagnate until end of 1H16 at the very least (see our Indonesian Banks & Multifinance report titled A year of two halves, dated 4 Dec 2015), the tight consumer financing situation would result in weak marketing sales in 1H16 too. We expect aggregate marketing sales for property developers under our coverage to grow 7.5% y-o-y in 2016 (after a 12.5% y-o-y decline in 2015), driven largely by price appreciation rather than volume (in sqm) with a larger portion of marketing sales to be gathered in the 2nd half. Aggregate marketing sales – plateauing at 2013 level 45,000

Rpbn

plateauing

Price-to-income ratio almost doubled in just five years 20 18 16 14 12 10 8 6 4 2 0

x

2009

2010

2011

2012

2013

2014

2015

Source: Numbeo (data for Greater Jakarta area)

This weaker affordability has forced developers to re-think and re-jig their targeted markets in order to suit the so-called sweet spot that reflects the buying power of Indonesia’s growing middle class. Therefore, we have witnessed the focus shifting to more high-rise apartment developments in non-prime areas (i.e. populated suburban townships) with average price and size of Rp700m and 35 sqm respectively. The need to gear up impacted bottom line. Property developers in our coverage have raised their debt levels quite significantly since Bank Indonesia (BI) introduced Loan-to-Value (LTV) restriction on Sep 2012 as part of tightening measures and followed it up with stricter LTV caps (with the new loan disbursement scheme) on Sep 2013.

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 2009 2010 2011 2012 2013 2014 2015F2016F2017F

Source: Companies, DBS Vickers. Note: Aggregate marketing sales above only include ASRI, APLN, BSDE, CTRA, LPKR, PWON and SMRA

In addition, weaker affordability ratio will dampen any potential surge in property purchases. The current property price-to-income ratio (affordability indicator) is at all-time high given the surge in land prices (especially certain pockets in Greater Jakarta) from 2010 to 2013.

The impact of new disbursement scheme (which essentially will not allow loan facilities to be disbursed to the developer before the property as collateral is built to a certain stage/milestone) is felt dearly by property developers, especially those with more high-rise projects in their portfolio. High-rise projects normally have lower margins as compared to landed residential ones and require significant capex upfront (i.e. hence require working capital loan during construction period – between 2.5 to 4 years). This measure eventually shrinked property developers' operating cashflows over time and promptly resulted in developers taking these two actions: 1) Raising more external financing (i.e. loan facilities, bonds, etc) and, 2) Selling ready assets (particularly land banks) to generate cashflow quicker.

Page 3

Industry Focus Indonesia Property & Industrial Estate

More significant increase in debt seen for high-rise developers in the past two years 250%

FY14

Financing expenses as % of revenue 25.0%

9M15

200%

19.9%

20.0% 16.7%

150%

15.0%

13.0%

100%

10.5% 10.0%

50%

5.0%

0%

0.0%

-50% PWON SMRA CTRA

ASRI

LPKR APLN BSDE

SSIA

LPCK

BEST

9M12

9M13

9M14

9M15

Source: Companies’ financial statement, DBS Vickers. Note: an increase as compared to debt position in the previous year

Source: Companies’ financial statement, DBS Vickers.

Developers’ gross gearing trends up....

Keeping SG&A expenses in check is crucial. Property developers have still been able to keep their operating expenses in check, despite notable increases in its few key operating expense items; such as “Salaries & employee benefits” and “Licenses & professional fees”, by scaling back other expenses such as “Advertisement, promotion & commission”, etc.

140%

FY12

FY13

FY14

9M15

120% 100% 80% 60% 40% 20% 0% ASRI APLN SMRA LPKR

BEST PWON SSIA

CTRA BSDE

LPCK

Source: Companies’ financial statement, DBS Vickers

“Advertisement, promotion & commission” expense growth has generally eased-off to just c.7% CAGR in the past 2 years. We believe that this A&P expenses (which is approximately 4% of revenue in average) will pick up in 2016 to gather more demand for their developments during this still expected challenging market.

...and so does net gearing 140%

FY12

FY13

FY14

Selling, General & Administration (SG&A) expenses have increased at a c.24% CAGR for the past three years (similar growth rate with revenue and hence, SG&A expenses as % of revenue is maintained), while “Salaries & employee benefits” and “Licenses & professional fees” increased at c.30% and c.40% CAGR in the same time frame.

9M15

120% 100% 80% 60% 40%

Regulation stimuli – a double edged knife. Property stocks had a wild roller coaster ride in 2015 due to very strong reaction to regulatory news. The regulation flip-flopping (particularly on property taxes) has bamboozled property developers and buyers.

20% 0% -20% -40% -60% ASRI SMRA LPKR APLN

BEST PWON CTRA

SSIA

BSDE

LPCK

Source: Companies’ financial statement, DBS Vickers

The increase in gearing has resulted in a staggering 41.3% CAGR (within three years) in financing expenses (for developers under our coverage). Financing (interest) expenses now represent an average c.20% of developers’ consolidated operating profit.

Page 4

The property taxes issue is now on the back-burner after Ministry of Finance issued two decrees that defined new criterias for taxable luxury and super luxury goods. These revisions have a very limited impact given that there are only a small fraction of property units subjected to additional tax under those new regulations and hence, much ado for nothing.

Industry Focus Indonesia Property & Industrial Estate

Changes in luxury tax criteria – effective since 2nd week of Dec 2015



Super Luxury Tax - 5% of transaction value Taxed items

Current regulation (PMK no. 206/PMK.010/2015)

Previous regulation (PMK no. 106/PMK.010/2015)

1

Strata - Apartment & townhouse

Transaction value > Rp10bn

Building area > 150 sqm

2

Non-strata - Landed residential & townhouse

Transaction value > Rp20bn

Building area > 350 sqm

No



Source: Ministry of Finance, DBS Vickers

Changes in super luxury tax criteria – effective since 30 May 2015 Luxury Tax (PPnBM) - 20% of transaction value No

Taxed items

Current regulation (PMK no. 90/PMK.03/2015)

Previous regulation (PMK no. 253/PMK.03/2008)

1

Landed residential

1). Transaction value > Rp5bn OR 2). Building area > 400 sqm

1). Transaction value > Rp10bn AND 2). Building area > 500 sqm

2

Apartment, condominium, etc

1). Transaction value > Rp5bn OR 2). Building area > 150 sqm

1). Transaction value > Rp10bn AND/OR 2). Building area > 400 sqm

APPENDIX section for more details). 

Source: Ministry of Finance, DBS Vickers

Latest revision on LTV caps – on 18 Jun 2015 Maximum LTV (new regulation) Category

House > 70 sqm House 22 - 70 sqm Apartment > 70 sqm Apartment 22 - 70 sqm Apartment < 21 sqm Shophouse

1st mortgage 2nd mortgage

80% 80% 90% -

70% 80% 70% 80% 80% 80%

Maximum LTV (old regulation)

3 rd mortgage st 3 rd mortgage 1 mortgage 2nd mortgage onwards onwards

60% 70% 60% 70% 70% 70%

70% 70% 80% -

60% 70% 60% 70% 70% 70%

50% 60% 50% 60% 60% 60%

Source: Bank Indonesia. Note: New regulation (BI ruling no. 17/10/PBI/2015) supersedes old regulation (BI circular no. 15/30/DKMP concerning maximum LTV for property categories.





As the government tries to introduce a few measures to rejuvenate the property sector after “blunders” in 2015, we can expect more regulations to be issued (as part of the ongoing series of economic stimulus packages – now standing at no. VIII). The government has started to act to address slowing loan growth and property demand by introducing measures such as LTV cap relaxation midway through 2015 (see table above on LTV caps latest revision), although the impact can be said to be not that significant yet. Few government stimulus measures that could positively affect the property (and industrial estate) sector in general are:

Easing individual foreign ownership of property. The government (as quoted by a few officials in the media) is committed to revise government regulation no. 41/1996 which restricts foreign ownership in Indonesia. At face value, this should have immediate implications on the broader buyer base for luxury high-rise apartment units, which would benefit/support developers with “premium” apartment projects in their portfolios. Further tax incentives on REIT structure formation and better yield spread than regional peers. The current taxes levied on REIT formation and the associated capital gain tax are still unattractive for developers. Earlier, the government eliminated tax on dividends and final sales tax for REIT as per Ministry of Finance no.200/PMK.03/2015 issued on 10 Nov 2015. This is also part of current efforts to promote REIT structure in Indonesia as it is still in infancy stage. Also, the yield spread (with 10-year bonds) has to be more attractive than regional peers (see the case study in the





Corporate tax cut. A discussion is still ongoing on whether the government will reduce the corporate tax rate from 25% to 18% (and even to 13% for listed companies with more than 40% public free float) in 2016. This incentive will only benefit operational investment properties such as hotels and resorts, as both property sales and lease taxes are final (derived directly from sales). The much talked about tax amnesty in 2016. The implementation of automatic exchange of information standard between countries by 2017 may encourage people to report their assets overseas and potentially repatriate their money from overseas. Given the successful attempt to implement this, it would provide some potential for pick-up in property demand as investment. Defined formula for annual provincial minimum wage increase. The government has determined the formula using “inflation” plus “economic growth” in most provinces, except those that have minimum wages below the minimum cost of living. This ruling should provide some sense of certainty for businesses/manufacturing facilities to operate in Indonesia. Previously, the annual minimum wage talks had always led to strong protests from labour unions. Indirect beneficiaries will be industrial estate players. Simplifications in bureucratic procedure logjams to obtain business and working permits should provide a path for better FDI inflow into Indonesia. The “one map” policy for spatial and zoning reference to offer more certainty on land status, licences and zoning, which has been elusive so far.

Page 5

Industry Focus Indonesia Property & Industrial Estate

In addition, should BI lower interest rate (hence, lower mortgage rate), it should help to support property demand, especially the landed residential segment which has more significant mortgage portion than other segments. Mortgage grew slowly (just 7% yo-y) and is probably no longer considered the main driver for total banking system loan growth (the portion has declined steadily).

On the one hand, there is further upside risk potential if the government keeps showing its intention and implement changes to aid the property sector. However, on the flip side, too many regulation revisions and introductions may confuse property developers and buyers. Hence, it may take some time for them to learn and adapt to new regulations and may dampen property demand recovery further to 2017.

Slumping mortgage portion due to stricter loan disbursement (introduced since Sep2013) Mortgage

Cash

In-house financing

100% 90% 35%

80%

42%

48%

57%

70% 60%

61%

12% 14%

50%

11%

40%

10%

30%

9%

53%

20%

44%

41%

Our house view for now is that BI will remain cautious and keep its key benchmark steady at 7.5% despite persistence calls from Vice President Jusuf Kalla to lower rates to help boost growth. BI has made clear its position that there is a need to balance between downside risks to growth and potential volatility in financial markets due to US Fed rate lift-off.

33%

30%

2014

YTD-2015

10%

High foreign shareholding in property developer stocks – volatility spices Foreign ownership in well-known Indonesian property developers stocks under our coverage remains high (more than 55% of free float) despite the heavy capital outflow in 2015.

0% 2011

2012

2013

Source: Ciputra Development (CTRA), DBS Vickers

Declining mortgage portion on total system loan 400

%

Rptr

Any signs of weak Indonesia macro conditions from foreign investors' point of view will cause Indonesian property stock prices to drop, given the high-beta nature and generally small- to mid-market cap size.

10.0%

Foreign ownership (as % of free float) trend

350 9.5%

80%

300

70%

68.0% 67.1% 60.1% 59.1% 57.6% 55.4%

9.0%

250

60% 200

May…

8.5%

50% 43.0%

40% 8.0%

Sep-15

Jan-15

May…

Source: Ciputra Development (CTRA), DBS Vickers

Sep-14

Jan-14

May…

Sep-13

Jan-13

May…

Jan-12

May…

Sep-11

Jan-11

May…

Sep-10

Jan-10

100

Sep-12

Mortgage (LHS) Mortgage as % of total loan (RHS)

150

30%

27.3% 22.0%

20% Jan-14 Apr-14 Jul-14 BSDE

LPKR

PWON

Oct-14 Jan-15 Apr-15 Jul-15 SMRA

CTRA

ASRI

APLN

Oct-15 BEST

LPCK

Source: Indonesia Central Securities Depository (KSEI), Bloomberg Finance L.P., DBS Vickers

Page 6

SSIA

Industry Focus Indonesia Property & Industrial Estate

Property segment outlook 2016 Burning predictions for property segment in 2016 Sector

Outlook

Landed residential

Key points Structural long-term demand remains from large backlog and urbanisation trend Developers to manage supply to maintain steady price appreciation Less cashflow constraints to developers given considerably higher margins and faster completion Higher portion on mortgage purchase, hence a prime beneficiary of lower tax

Retail

Limited supply condition in Jakarta still remains (due to mall moratorium) Surge in new supply in suburbs to tap on growing population and spending power Base rental rate to grow steadily around 8% annually

High-rise residential

Flurry of apartment launches in non-prime areas - developers targetting middle class price sweet spot Higher capex upfront and stricter loan disbursement scheme shrinked developers cashflow Potential difficulties in securing extended plot ratio to maximise land value Expect higher units pre-sold mostly small-sized apartments but lower marketing sales growth

Office

Abundant office space supply in both CBD and other areas Downswing in office space demand to continue Expect base rental rate growth to slow and revert to pre-2009 level

Industrial estate

Tight supply for industrial estate land in good location and access to support modest price increase Demand growth slowdown due to softer domestic economy Urgent improvement needed in infrastructure to increase competitiveness

Source: DBS Vickers

Landed residential and retail segment remains compelling. We like the landed residential segment for its structural long-term demand (from urbanisation), considerably higher margin and better cashflow for developers. Retail space lease segment remains attractive given its limited supply in Jakarta and huge potential from other areas, with growing population and spending power. Retail space rate – Jakarta inner city vs suburbs

100%

m sqm

95%

3.0

90%

2.5

85%

2.0

80% 75%

1.5

70%

1.0

65% 60%

0.5

55% 50%

500,000

Demand

Supply

9M15

2014

2013

2012

2011

Bodetabek

2010

Jakarta

2009

-

2008

Rp psm

3.5

2007

600,000

Jakarta retail mall space occupancy rate

Occupancy

Source: Colliers, DBS Vickers

400,000

Land price trend in Greater Jakarta projects

300,000

16

14.0 13.3 13.2 12.6

Gading Serpong Summarecon Bekasi BSD City Alam Sutera Pasar Kemis CitraRaya Tangerang CitraIndah Jonggol CitraGarden City

12

100,000 8

-

16.0

Rp m psm

200,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 9M15

Source: Colliers, DBS Vickers Note: Bodetabek is an abbreviation for Jakarta suburbs (Bogor, Depok, Tangerang, and Bekasi)

3.7 3.5

4

1.2 0 2009

2010

2011

2012

2013

2014

2015

Source: Companies, DBS Vickers

Page 7

Industry Focus Indonesia Property & Industrial Estate

Avoid office and industrial estate sectors. On the flipside, we hold a negative view on office space due to weak demand as the main driver multinational companies are still not pouring investments into Indonesia and the oversupply situation for the next three years. Industrial estate developers will continue to experience weak demand given slow demand from auto-sector and recovering-but-still-low FDI.

Industrial land demand (peaked in 2011, with no signs of recovery for now) 1,400

ha

1,200 1,000 800 600 400

Cumulative office space demand, supply & occ.rate 900

100%

ha

800

200 -

95%

700 600 500 400 300

2010

2011

2012

2013

85%

4W manufacturers' utilisation rate trend

75%

100

2009

Source: Colliers, DBS Vickers

80%

200

2008

90%

2,500,000

units

2014

9M15

95%

94%

90%

89% 2,000,000

85%

83%

Demand (LHS)

Supply (LHS)

2015

2014

2013

2012

2011

2010

2009

70%

2008

-

80%

79%

1,500,000

77%

70%

1,000,000

Take-up rate (RHS)

75% 67%

65%

64%

Source: Colliers, DBS Vickers

500,000

60%

0

55% 52% 50% 2013 2014 2015F Utilization rate (RHS)

Pre-committed office space absorption in Jakarta CBD

2008 2009 Capacity (LHS)

2010 2011 2012 Production (LHS)

Source: Indonesia 4W Association (Gaikindo), various sources.

2018F

Real GDP vs investment growth

2017F Pre-leased

Absorbed

6%

GFCF growth (LHS)

7.0%

Real GDP growth (LHS)

4% 2016F

6.5%

2%

6.0%

0% 5.5%

2015F

8% sqm

5.0%

6% -

100,000

200,000

300,000

400,000

Source: Colliers, DBS Vickers

Pre-committed office space absorption outside Jakarta CBD

4%

4.5%

2%

4.0%

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

Active industries trend to industrial land pre-sales

2018F

Automotive

F&B and consumer goods

Logistics / Warehousing

Others

100% 90%

2017F Supply

Pre-committed

80%

37%

36%

5%

70% 60%

2016F

26%

2% 3%

5% 4%

14%

20%

28%

50%

2015F sqm

29% 58%

55%

55%

20% 10%

-

50,000

100,000

Source: Colliers, DBS Vickers

Page 8

150,000

200,000

250,000

300,000

7%

40%

40% 30%

27%

23%

25%

2014

9M15

0% 2011

2012

Source: Colliers, DBS Vickers

2013

Industry Focus Indonesia Property & Industrial Estate

Maintain neutral stance: BSDE as top pick Indonesian property stocks have been on a wild roller coaster ride Property (incl. Industrial estate) sector discount to RNAV as investors reacted to bits and pieces of news relating to the 80% sector (see chart in APPENDIX) and closed the year on apositive 70% upward momentum. 60% 50%

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

Average 42% However, we still maintain our cautious view on property (and 40% negative for industrial estates) as explained in the previous 30% sections. We see that the potential catalysts are mostly hinged on 20% revisions on current regulations and without a strong 10% fundamental support base. On the supply side, developers are 0% generally facing tight cashflows (due to the stricter disbursement -10% scheme) and accordingly have to grow at a modest pace, while on the demand side, housing affordability remains weak as price- -20% to-income ratio is at an all-time high. Source: DBS Vickers, Bloomberg Finance L.P

Key adjustments on assumptions across developers: 





Property sector trading at +1SD of mean forward PE 16.0

To reflect the project pipelines in the next two years (including delayed projects in 2015), our cautious stance on post-launch demand absorption, pessimistic view on industrial estate demand, Indonesia’s expected GDP growth recovery (but from a slow year in 2015) and modest inflation, we adjusted our FY16/17F marketing sales assumptions by an average -4%/1% for property developers and 16%/-33% for industrial estate developers.

(x)

+2 stdev

14.0 +1 stdev 12.0 Average 10.0 -1 stdev 8.0 -2 stdev

We keep our Risk-Free Rate (RFR) assumptions at 9%, in line with our expected 10-year government bond. We adjusted our risk premium to 5.5% (vs 7.3% before) as the gap between equity return to RFR narrowed in the past few years. Assumptions for USD/IDR exchange for those with forex debt as per latest DBS Group Research.

The above changes led to revisions to RNAVs, FY16/17F revenues and net earnings for each developer (refer to changes

in APPENDIX). The property sector is currently trading at a 33% discount to RNAV, narrower than its 8-year average of 42% and 12.8x FY16F PE (around +1SD of mean forward PE). Given the modest expected growth on earnings, the valuation is fair and it should trade within this range.

6.0 Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Source: DBS Vickers, Bloomberg Finance L.P

Given this challenging period, we prefer developers with strong balance sheets, flexibility on township developments (particularly those with large land banks) and sustainable earnings. We have only two BUY recommendations in this space: 

Conviction BUY. Our top pick BSDE for its strong balance sheet (a mere 5% net gearing as compared to peers despite decent expansion), large land bank (good for 30 years development), flexibility on township development to generate cashflow, growing commercial & investment properties in township for unlocking better value and decent earnings growth at 12% CAGR.

Page 9

Industry Focus Indonesia Property & Industrial Estate



Attractive valuation BUY. LPCK for its niche apartment demand in industrial areas and cheap valuation (at just 5x FY16F PE).

One of our top picks in 2015 (SMRA & PWON) closed on positive note for the year 20%

13%

10%

We also like PWON’s portfolio mix with the largest share of revenue from retail mall operation among peers, and for its resilient earnings (from recurring income). However, we have to downgrade PWON to HOLD purely because of limited upside from current level to our TP.

5%

1%

0% -2%

-10%

-4% -9%

-13%

-20% -30%

-31%

-40%

-37%

-41%

-50%

Other changes (RNAV, key assumptions, recommendations and TPs) are summarised in the next two tables:

-60% -60% -70% CTRA SMRA LPKR APLN BSDE PWON JCI

Summary of changes to RNAV and key assumptions Key assumption Risk WACC premium 5.5% 13.7%

We conducted an earnings sensitivity test for each developer to gauge the impact if demand does not recover as per our expectations and if IDR keeps weakening against USD (beyond our house view).

Previous RNAV

RFR

APLN

524

519

9.0%

ASRI

795

862

9.0%

5.5%

13.0%

1.4

BSDE

3,626

3,183

9.0%

5.5%

13.4%

1.2

CTRA

1,730

1,550

9.0%

5.5%

13.2%

1.2

LPKR

1,411

1,734

9.0%

5.5%

12.3%

1.1

0%

Beta 1.3

Earnings sensitivity to 10% miss in FY16F marketing sales

PWON

570

551

9.0%

5.5%

12.3%

1.1

-1%

SMRA

2,457

2,854

9.0%

5.5%

12.8%

1.3

-2%

BEST

440

548

9.0%

5.5%

13.8%

1.5

-3%

LPCK

19,724

19,766

9.0%

5.5%

16.7%

1.4

-4%

SSIA

1,529

1,532

9.0%

5.5%

13.7%

1.2

Source: DBS Vickers

ASRI BEST

Source: DBS Vickers, Bloomberg Finance L.P

New RNAV

Company

LPCK SSIA

-0.7%

-1.0%

-1.0%

-1.7% -2.1% -3.0%

-3.2% -3.6%

-5%

-4.8%

-6%

-3.5%

-4.1% -4.5%

-5.9%

-7%

Summary of changes to TP and recommendation

-2.2% -2.6% -3.0% -3.1% -3.6%

-7.0%

FY16F

-6.8%

FY17F

-8%

Company

New TP

Previous TP

Changes

New Rec

Previous Rec

APLN

285

280

2%

Fully Valued

ASRI

325

355

-8%

Hold

Hold

BSDE

2,100

1,595

32%

Buy

Hold

CTRA

1,350

980

38%

Hold

Hold

0.0%

LPKR

980

1,160

-16%

Fully Valued

Hold

-1.0%

PWON

490

470

4%

Hold

Buy

-2.0%

SMRA

1,650

1,855

-11%

Hold

Buy

-3.0%

BEST

230

285

-19%

Fully Valued

Hold

-4.0%

LPCK

7,900

7,900

0%

Buy

Buy

-5.0%

SSIA

765

765

0%

Hold

Hold

-6.0%

Source: DBS Vickers

Fully Valued

APLN

ASRI

SMRA

BSDE

CTRA

BEST

PWON

LPKR

SSIA

LPCK

Source: DBS Vickers

Earnings sensitivity to 10% drop in IDR against USD BEST

-7.0% -8.0%

SSIA

ASRI

LPKR

BSDE

PWON

-0.5% -0.8% -0.4% -0.7%

-1.1% -1.8% -2.1% -2.1% -2.1% -1.7%

-7.1% -7.4%

FY16F

FY17F

Source: DBS Vickers. Note: Only for developers with forex debt as this only assesses a direct impact from higher interest expense paid due to forex debt (from translation to IDR). Other indirect impact not in the calculation will be from possible higher refinancing or hedging cost.

Page 10

Industry Focus Indonesia Property & Industrial Estate

All of our base-case assumptions above for property (incl. Industrial estate) developers are driven by recovery in Indonesia's consumption, modest inflation and clearer regulations.

 

If there are shock external uncertainties that could trigger further de-rating of property and industrial estate sectors, we can consider the asset liquidation value as our worst-case RNAV scenario (see next chart for easy reference).



Developers trading below our estimated worst-case RNAV: ASRI, LPCK and SSIA Developer trading near our estimated worst-case RNAV: BSDE (our top pick) Other developers’ current price levels are seeing 1842% downside to worst-case RNAV.

Base-Case (Revised) & Worst-Case RNAV vs Current Stock Price 100 90 80 70 60 50 40 30 20 10 0 APLN

ASRI

BSDE

CTRA

Base Case (Revised) RNAV

LPKR Worst case RNAV

PWON

SMRA

BEST

LPCK

SSIA

Stock price (as of 30Dec2015 close)

Source: DBS Vickers, Bloomberg Finance L.P. Note: 1) Y-axis 100 Index: Base-Case (Revised) RNAV as 100 2) ASRI, BSDE, LPCK and SSIA are currently trading below their respective RNAVs

Page 11

Industry Focus Indonesia Property & Industrial Estate

APPENDIX Summary of earnings revision (by developer) APLN

ASRI

BSDE

CTRA

LPKR

FY15F

FY16F

FY17F

FY15F

FY16F

FY17F

FY15F

FY16F

FY17F

FY15F

FY16F

FY17F

FY15F

FY16F

FY17F

Mktg. Sales

Now

3,284

2,933

2,015

3,277

4,314

5,232

6,790

7,305

7,871

9,119

9,403

10,019

3,722

4,050

4,349

in Rpbn

Prev

5,035

2,670

1,506

4,723

4,509

5,662

6,995

8,087

9,126

9,283

8,898

9,887

5,622

4,186

3,556

Chg (%)

-35%

10%

34%

-31%

-4%

-8%

-3%

-10%

-14%

-2%

6%

1%

-34%

-3%

22%

Revenue

Now

5,208

5,882

7,002

3,791

4,027

4,246

6,584

7,288

8,158

7,666

8,876

8,993

9,310

10,167

11,576

in Rpbn

Prev

6,027

7,260

7,712

4,081

4,220

5,234

6,974

7,448

8,767

7,750

9,220

9,367

9,882

11,705

13,830

Chg (%)

-14%

-19%

-9%

-7%

-5%

-19%

-6%

-2%

-7%

-1%

-4%

-4%

-6%

-13%

-16%

Net profit

Now

545

629

997

1,209

1,138

1,144

2,381

2,561

3,117

1,259

1,367

1,368

1,481

1,392

1,506

in Rpbn

Prev

719

872

1,068

1,254

1,388

1,798

2,548

2,721

3,302

1,291

1,481

1,551

1,519

1,529

1,561

-24%

-28%

-7%

-4%

-18%

-36%

-7%

-6%

-6%

-2%

-8%

-12%

-2%

-9%

-3%

Chg (%) RNAV

Now

524

795

3,626

1,730

1,411

in Rp/sh

Prev

519

862

3,183

1,550

1,734

Chg (%)

1%

-8%

14%

12%

-19%

TP

Now

285

325

2,100

1,350

980

in Rp/sh

Prev

280

355

1,595

980

1,160

Chg (%)

2%

-8%

32%

38%

-16%

Now

Fully Valued

Hold

Buy

Hold

Fully Valued

Prev

Fully Valued

Hold

Hold

Hold

Hold

Rec

PWON

SMRA

BEST

LPCK

SSIA

FY15F

FY16F

FY17F

FY15F

FY16F

FY17F

FY15F

FY16F

FY17F

FY15F

FY16F

FY17F

FY15F

FY16F

FY17F

Mktg. Sales

Now

3,180

3,481

3,875

4,324

4,729

4,799

277

395

534

2,680

2,360

1,809

304

482

520

in Rpbn

Prev

3,674

4,133

4,902

5,186

5,315

5,086

423

673

900

2,464

1,860

1,809

608

711

1,273

Chg (%)

-13%

-16%

-21%

-17%

-11%

-6%

-35%

-41%

-41%

9%

27%

0%

-50%

-32%

-59%

Revenue

Now

4,942

5,461

6,415

5,980

6,444

6,552

657

610

581

1,894

2,186

2,443

4,803

4,589

4,932

in Rpbn

Prev

5,184

5,848

7,300

5,542

6,184

6,494

777

758

882

1,736

2,395

2,604

4,647

5,024

5,632

-5%

-7%

-12%

8%

4%

1%

-15%

-19%

-34%

9%

-9%

-6%

3%

-9%

-12%

Chg (%) Net profit

Now

1,805

1,915

2,199

1,064

1,057

1,057

268

198

194

939

954

1,064

491

477

421

in Rpbn

Prev

1,955

2,496

3,046

1,199

1,463

1,623

339

282

429

842

971

1,108

467

442

509

-8%

-23%

-28%

-11%

-28%

-35%

-21%

-30%

-55%

11%

-2%

-4%

5%

8%

-17%

Chg (%) RNAV

Now

570

2,457

440

19,724

1,529

in Rp/sh

Prev

551

2,854

548

19,766

1,532

Chg (%)

3%

-14%

-20%

0%

0%

TP

Now

490

1,650

230

7,900

765

in Rp/sh

Prev

470

1,855

285

7,900

765

Chg (%)

4%

-11%

-19%

0%

0%

Now

Hold

Hold

Fully Valued

Buy

Hold

Prev

Buy

Buy

Hold

Buy

Hold

Rec

Source: DBS Vickers

Page 12

Industry Focus Indonesia Property & Industrial Estate

Indonesia REIT studies. Current government efforts to promote REIT structure in Indonesia are still meeting notable challenges. o First, taxes are still aplenty for asset transfers into REITs and for operations in general. Through the Ministry of Finance no.200/PMK.03/2015 issued on 10 Nov 2015, the government has eliminated tax on dividend and final sales tax for REIT. However, the introduction of capital gain tax (25% on the gains) has further dampened the attractiveness on the structure.

SG 10-Year bond vs REITs' yield 7.0%

SG-10YR Gov't bond

REITS yield

6.0% 5.0% 4.0% 3.0% 2.0% 1.0%

Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15

0.0%

REIT taxation No

Current

Previous

1

Asset transfer fee

Taxes

5%

5%

For buyer

Remarks

2

Sales tax

0%

5%

3

Value added tax

10%

10%

For seller Refundable for REIT

4

Final income tax

10%

10%

For rental lease

5

Dividend

0%

10-20%

6

Capital gain tax

25%

0%

For seller's gain

Source: DBS Vickers, Bloomberg Finance L.P. Note: REITs' yield is a weighted average of Starhill REIT (SGREIT SP), Frasers Centrepoint Trust (FCT SP), SPH REIT (SPHREIT SP), CapitaMall Land Trust (CT SP), Mapletree Commercial Trust (MCT SP), Suntec Real Estate Investment Trust (SUN SP), OUE Hospitality Trust (OUEHT SP) and CapitaLand Commercial Trust (CCT SP).

Source: DBS Vickers, Ministry of Finance

o

o

Second, the need to offer higher yield might put off developers. Just for comparison, we can take a look at the spread between REITs' yield and Singapore 10-year bonds on well established system in Singapore. Based on historical data, there is on average a 3% spread between them. Theoretically, given that Indonesia's 10year bond yield is around 8.5-9%, Indonesia’s REIT has to offer at least 11.5% to be competitive.

Third, availability of alternatives to raise funds. An 11.5% yield roughly translates into less than 10x PE on investment properties. In a good market (where you can get good valuation), property developers might choose IPO (can get better multiple valuation) or raise bonds (corporate bond with +id single A rating has coupon rate of 11.25% at this time – a cheaper option).

Summary of regulations affecting property sector No

Regulation

Reference

Dated

1

Super luxury tax

Income Tax article 22 Ministry of Finance Decree No. 90/PMK.03/2015

2

Luxury tax

Ministry of Finance decree no. 206/PMK.010/2015

20/11/2015

3

Restriction on fund disbursement by banks to property developers

BI Circular No. 15/40/DKMP

24/09/2013

4

Individual foreign ownership for property

5

Dividend tax elimination on REIT structure

6

Corporate tax cut

7

Implementation of balance ratio in housing development

8

Relaxation of LTV regulation

9

Gov't regulation no. 41/1996 Ministry of Finance decree no. 200/PMK.010/2015

30/05/2015

10/11/2015

Remarks 5% tax applies for: - Landed residential (value > Rp5bn OR building area >400sqm) - High-rise residential units (value > Rp5bn OR building >150sqm) 20% tax applies for: - Strata - Apartment & townhouse (value > Rp10bn) - Non-strata: Landed residential and townhouse (value > Rp20bn) Property developers plan to negotiate on revisions to these regulations Potential revision to boost market demand (mostly on "premium" high-rise projects) Part of gov't efforts to promote REITS structure in Indonesia

-

-

Permenpera no.7/2013 & no.10/2012

30/10/2013 & 30/05/2012

On-going discussion to reduce corporate tax from current 25% to 18% (and even 13% for listed companies with more than 40% public free float) - 1(luxury):2(middle):3(low cost) ratio for landed residential development - High-rise developer to build public housing (min. 20% of total area of each high-rise project)

BI Circular No. 17/10/PBI/2015

18/06/2015

No significant impact observed

Enforcement of Right to Use (HGB) land ownership limit

Ministry of Agrarian and Spatial decree no. 5/2015

28/04/2015

10

Multi-storey building regulation in Jakarta province

Perda Jakarta no.4/1975

06/20/1975

Land limit: 1). Residential: 1 province: 400ha; nationwide: 4,000ha. 2). Industrial: 1 province: 400ha; nationwide: 4,000ha. 3) R 1 i 200h i id 4 000h Regarding landplot ratio in Jakarta (on-going changes expected)

11

Negative investment list (DNI)

Presidential decree no. 39/2014

23/04/2014

The list of restricted sector for foreign investment

Source: DBS Vickers

Page 13

Industry Focus Indonesia Property & Industrial Estate

RNAV breakdown by developer 100%

1% 8% 2% 2%

6% 90% 20%

1% 3% 11%

5% 2% 3%

3%

12%

1% 7% 14%

7%

4% 70%

19%

15% 29%

80% 3%

2%

3%

2%

62%

18%

60%

48% 41%

50%

88% 40%

82% 74%

59%

98%

5% 1% 4% 76%

7%

11%

30% 20%

23%

9%

3%

21%

24%

34%

10% 6%

0%

16% 6%

APLN

ASRI

BSDE

Landed residential

CTRA Apartment

LPKR Retail Mall

PWON Office

Hotel

SMRA Hospital

BEST

LPCK

Industrial

SSIA

Others

Source: DBS Vickers

JAKPROP Index – strong reaction to regulatory news but close the year on upward momentum

115

News on bank promotional rate

Developers indicating good YTD marketing sales

More uncertainties on the property luxury tax REIT double taxation elimination No criteria changes as part of economy for property stimulus package V luxury tax &

Below par 1Q15 Potential China overall earnings A-shares inclusion in concerned market MSCI Emerging Index

110

Loan‐to‐Value  (LTV) regulation by BI

105

Potential corporate tax rate cut and more news on foreign ownership easing

100 95 News on potential

News on suspension of North Jakarta reclamation project (affecting few developers)

additional tax

90 85 80 75 Jan-15

Another news on additional tax

BI rate cut (25bps)

Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 JCI Index (LHS) JAKPROP Index (LHS)

8

7.75

7.5

Super luxury tax regulation revision News on strict (limited impact to implementation of land limit for developers) each developer External uncertainties News of potential asing of from China policies individual foreign ownership

Oct-15

Source: DBS Vickers, Bloomberg Finance L.P. Note: JAKPROP Index is a weighted index for stocks involved in property, real estate and construction sectors

Page 14

%

Finally, a decision on property luxury tax (no significant impact to developers)

Nov-15 Dec-15 BI Rate (RHS)

7.25

Source: DBS Vickers, Bloomberg Finance L.P.

Dec-15

Jun-15

Dec-14

Jul-12

Jan-16

Oct-15

Jul-15

Apr-15

Jan-15

Oct-14

Jul-14

Apr-14

Jan-14

Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

75%

65%

Average 64%

55%

50%

45% 0%

40% -20%

35%

30% -40%

100%

80%

Average 66%

50%

40%

30%

20%

10%

Average 52% -20%

100% 80%

90% 70%

80% 60%

70% 50%

50% 30%

40%

20%

30%

10%

20%

0%

-10%

-20%

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

80%

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

Jan-12 Apr-12

APLN: Discount to RNAV trend

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

60%

Jun-14

Dec-13

Jun-13

Dec-12

Jun-12

Dec-11

Jun-11

Dec-10

Jun-10

Dec-09

Jul-11 Oct-11

60%

Jun-09

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

60%

Dec-08

Jun-08

Industry Focus

Indonesia Property & Industrial Estate

CTRA: Discount to RNAV trend 100%

70% 80%

60%

40% Average 28%

20%

-60%

-80%

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

ASRI: Discount to RNAV trend LPKR: Discount to RNAV trend

90% 80%

70% 60% Average 43%

40%

20%

0%

-40%

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

BSDE: Discount to RNAV trend PWON: Discount to RNAV trend

40%

Average 26%

Source: DBS Vickers, Bloomberg Finance L.P.

Page 15

-20%

Page 16 -40%

Source: DBS Vickers, Bloomberg Finance L.P. 100%

90%

80%

70%

60%

50%

Average 46%

20%

0%

10%

0%

-20%

60%

Average 21%

40%

0%

-20%

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

SMRA: Discount to RNAV trend

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

Dec-15

Aug-15

Apr-15

Dec-14

Aug-14

Apr-14

Dec-13

Aug-13

Apr-13

20%

Dec-12

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

40%

Aug-12

Apr-12

Industry Focus

Indonesia Property & Industrial Estate

LPCK: Discount to RNAV trend 100% 80%

60%

40%

Average 65%

30%

20%

-40%

-60%

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

BEST: Discount to RNAV trend SSIA: Discount to RNAV trend

100%

40%

80%

60%

Average 48%

20%

0%

-40%

Source: DBS Vickers, Bloomberg Finance L.P.

Industry Focus Indonesia Property & Industrial Estate

APLN: PE Band

CTRA: PE Band

(x)

2 3 .3

1 7 .9

(x)

2 1 .3

1 5 .9

+ 2 s d : 1 5 .3 x

1 3 .9

1 9 .3

+ 2 s d : 1 8 .5 x

1 7 .3

+ 1 s d : 1 2 .6 x

1 1 .9

+ 1 s d : 1 6 x

1 5 .3

9 .9

A v g : 9 .8 x

7 .9

‐1 s d : 7 .1 x

5 .9

1 3 .3

A v g : 1 3 .5 x

1 1 .3

‐1 s d : 1 1 x

9 .3

3 .9 Ja n -1 2

‐2 s d : 4 .3 x J a n -1 3

J a n -1 4

J a n -1 5

‐2 s d : 8 .5 x

7 .3 J a n -1 2

J a n -1 3

Ja n -1 4

J a n -1 5

Source: DBS Vickers, Bloomberg Finance L.P.

Source: DBS Vickers, Bloomberg Finance L.P.

ASRI: PE Band

LPKR: PE Band

(x)

(x) 2 5 .1

2 2 .6

+ 2 s d : 2 3 .1 x

2 3 .1 2 1 .1

+ 2 s d : 1 8 x

1 7 .6

+ 1 s d : 1 4 .2 x 1 2 .6

+ 1 s d : 1 9 .5 x

1 9 .1 1 7 .1

A v g : 1 5 .9 x

1 5 .1

A v g : 1 0 .5 x 7 .6

‐1 s d : 6 .7 x

1 3 .1

‐1 s d : 1 2 .3 x

1 1 .1 9 .1

2 .6 Ja n -1 2

‐2 s d : 2 .9 x J a n -1 3

J a n -1 4

J a n -1 5

‐2 s d : 8 .7 x

7 .1 J a n -1 2

J a n -1 3

Ja n -1 4

J a n -1 5

Source: DBS Vickers, Bloomberg Finance L.P.

Source: DBS Vickers, Bloomberg Finance L.P.

BSDE: PE Band

PWON: PE Band

(x)

(x)

1 8 .9

1 7 .7

1 6 .9

+ 2 s d : 1 6 .7 x 1 5 .7

1 4 .9

+ 2 s d : 1 5 .1 x

+ 1 s d : 1 3 .9 x 1 2 .9

A v g : 1 1 .1 x

1 0 .9 8 .9

‐1 s d : 8 .3 x

6 .9 4 .9 Ja n -1 2

‐2 s d : 5 .5 x J a n -1 3

J a n -1 4

J a n -1 5

Source: DBS Vickers, Bloomberg Finance L.P.

1 3 .7

+ 1 s d : 1 3 .4 x

1 1 .7

A v g : 1 1 .8 x ‐1 s d : 1 0 .2 x

9 .7

‐2 s d : 8 .6 x 7 .7 J a n -1 2

J a n -1 3

Ja n -1 4

J a n -1 5

Source: DBS Vickers, Bloomberg Finance L.P.

Page 17

Industry Focus Indonesia Property & Industrial Estate

SMRA: PE Band

LPCK: PE Band

(x)

(x) 1 1 .4

1 3 .8

1 0 .4

+ 2 s d : 1 2 .4 x

1 1 .8

+ 1 s d : 1 0 .5 x

9 .8

9 .4

+ 2 s d : 8 .8 x

8 .4 7 .4

A v g : 8 .5 x 7 .8

+ 1 s d : 7 .3 x

6 .4

A v g : 5 .8 x

5 .4

‐1 s d : 6 .6 x 5 .8

‐2 s d : 4 .7 x 3 .8 D e c-1 1

D e c-1 2

D e c -1 3

D e c -1 4

D e c-1 5

4 .4

‐1 s d : 4 .2 x

3 .4 2 .4 J a n -1 2

‐2 s d : 2 .7 x J a n -1 3

Ja n -1 4

J a n -1 5

Source: DBS Vickers, Bloomberg Finance L.P.

Source: DBS Vickers, Bloomberg Finance L.P.

BEST: PE Band

SSIA: PE Band

(x)

(x) 1 4 .2

2 7 .6

+ 2 s d : 2 5 .1 x 2 2 .6

+ 1 s d : 1 9 .8 x 1 7 .6

A v g : 1 4 .4 x 1 2 .6

‐1 s d : 9 x

7 .6 2 .6 A p r-1 2

‐2 s d : 3 .7 x A p r -1 3

A p r -1 4

A p r-1 5

Source: DBS Vickers, Bloomberg Finance L.P.

Page 18

1 2 .2

+ 2 s d : 1 2 .4 x

1 0 .2

+ 1 s d : 1 0 .5 x A v g : 8 .6 x

8 .2

‐1 s d : 6 .7 x

6 .2

4 .2 J a n -1 2

‐2 s d : 4 .8 x J a n -1 3

Ja n -1 4

J a n -1 5

Source: DBS Vickers, Bloomberg Finance L.P.

Industry Focus Indonesia Property & Industrial Estate

Indonesia Property and Industrial Estate Developers: Valuation Summary Company

Ticker Market cap (US$m) Share price RNAV Disc to RNAV Rec TP Upside PE (x)

PB (x)

Revenue (Rpbn)

Net profit (Rpbn)

Net profit growth (%) EBIT margin (%)

Net gearing (%)

ROE (%)

Interest coverage (x)

EBITDA margin (%)

2013 2014 FY15F FY16F FY17F 2013 2014 FY15F FY16F FY17F 2013 2014 FY15F FY16F FY17F 2013 2014 FY15F FY16F FY17F 2014 FY15F FY16F FY17F 2013 2014 FY15F FY16F FY17F 2013 2014 FY15F FY16F FY17F 2013 2014 FY15F FY16F FY17F 2013 2014 FY15F FY16F FY17F 2013 2014 FY15F FY16F FY17F

Agung Podomoro Land

Alam Sutera Realty

Bumi Serpong Damai

Ciputra Development

Lippo Karawaci

Pakuwon Jati

Summarecon Agung

Bekasi Fajar Industrial Estate

Surya Semesta Internusa

Lippo Cikarang

APLN IJ 492 334 524 36%

ASRI IJ 467 331 795 58%

BSDE IJ 2,473 1,790 3,626 51%

CTRA IJ 1,568 1,425 1,730 18%

LPKR IJ 1,682 1,015 1,411 28%

PWON IJ 1,715 496 570 13%

SMRA IJ 1,631 1,575 2,457 36%

BEST IJ 200 289 440 34%

SSIA IJ 235 695 1,529 55%

LPCK IJ 351 7,025 19,724 64%

FULLY VALUED 285 -15%

HOLD 325 -2%

BUY 2,100 17%

HOLD 1,350 -5%

FULLY VALUED 980 -3%

BUY 490 -1%

HOLD 1,650 5%

FULLY VALUED 230 -20%

HOLD 765 10%

BUY 7,900 12%

8.0 8.0 12.6 10.9 6.9 1.2 1.1 1.0 0.9 0.8 4,901.2 5,296.6 5,208.4 5,882.3 7,002.3 851.4 855.9 545.1 629.0 996.9 1% -36% 15% 58% 26% 27% 22% 27% 30% 24% 20% 40% 35% 28% 16% 14% 8% 9% 13% 3.6 3.2 3.2 4.0 6.0 35% 37% 34% 38% 40%

7.4 5.4 5.4 5.7 5.7 1.4 1.2 1.0 0.9 0.8 3,684.2 3,630.9 3,790.6 4,026.5 4,245.6 876.8 1,196.4 1,209.3 1,138.2 1,144.2 36% 1% -6% 1% 42% 55% 47% 44% 42% 38% 46% 40% 44% 45% 21% 24% 20% 17% 15% 13.3 10.6 11.4 8.5 8.6 43% 57% 49% 47% 45%

11.6 8.6 14.5 13.5 11.1 3.1 2.1 2.0 1.8 1.6 5,741.3 5,571.9 6,583.7 7,288.0 8,157.8 2,691.4 3,820.6 2,381.1 2,560.9 3,116.7 42% -38% 8% 22% 51% 47% 45% 45% 45% 0% 4% 9% 6% 1% 30% 30% 15% 14% 15% 16.6 11.4 7.2 6.0 9.0 57% 79% 51% 52% 52%

22.1 16.3 17.2 15.8 15.7 3.3 2.8 2.6 2.3 2.1 5,077.1 6,344.2 7,667.7 8,898.3 9,035.7 976.7 1,324.9 1,259.6 1,370.2 1,375.3 36% -5% 9% 0% 31% 35% 31% 29% 29% 0% 9% 6% 5% 8% 16% 19% 16% 16% 14% 14.5 7.2 5.7 6.1 6.5 33% 38% 34% 32% 32%

19.1 9.2 15.8 16.8 15.6 2.7 2.0 1.8 1.7 1.6 6,666.5 11,655.0 9,309.8 10,167.2 11,575.6 1,228.5 2,547.3 1,480.6 1,392.3 1,505.9 107% -42% -6% 8% 23% 28% 23% 21% 21% 30% 27% 31% 36% 33% 16% 25% 12% 11% 11% 15.3 19.7 12.9 12.0 12.9 28% 32% 29% 28% 28%

21.1 9.5 13.2 13.7 11.9 6.2 3.9 3.2 2.9 2.4 3,029.8 3,872.3 4,941.5 5,461.1 6,415.0 1,132.8 2,515.5 1,804.8 1,914.7 2,199.4 122% -28% 6% 15% 50% 49% 48% 48% 48% 7% 18% 23% 23% 20% 33% 50% 27% 24% 22% 9.0 8.1 9.6 9.3 9.9 56% 64% 70% 73% 73%

20.9 16.4 21.4 21.5 21.5 5.2 4.2 3.7 3.3 3.0 4,548.5 5,757.3 5,979.7 6,444.1 6,552.5 1,089.8 1,385.1 1,064.1 1,056.8 1,057.0 27% -23% -1% 0% 36% 36% 31% 31% 32% 0% 29% 29% 35% 36% 27% 28% 18% 16% 15% 10.5 7.3 4.8 4.0 3.9 39% 39% 34% 35% 36%

3.7 7.1 10.4 14.1 14.4 1.1 1.0 0.9 0.9 0.8 1,323.9 839.6 657.4 609.9 580.8 743.6 391.0 267.7 198.1 193.5 -47% -32% -26% -2% 67% 56% 56% 58% 57% 0% 5% 27% 33% 37% 35% 15% 9% 6% 6% 26.0 13.0 4.7 2.6 2.4 67% 57% 57% 59% 59%

4.7 7.9 6.7 7.5 8.5 1.4 1.2 0.9 0.9 0.8 4,582.7 4,464.4 4,803.2 4,588.9 4,932.1 691.1 415.2 490.6 476.6 421.2 -40% 18% -3% -12% 19% 12% 12% 14% 12% 0% 3% 4% 26% 25% 35% 17% 16% 13% 10% 7.5 6.1 6.2 5.4 4.5 22% 18% 15% 18% 17%

8.3 5.8 5.2 5.1 4.6 2.7 1.8 1.4 1.1 0.9 1,327.9 1,792.4 1,894.4 2,185.9 2,442.6 590.6 844.1 939.1 953.8 1,064.0 43% 11% 2% 12% 48% 51% 46% 42% 44% 0% 0% 0% 0% 0% 39% 38% 30% 23% 21% 968.3 1,622.4 1,485.9 1,602.1 1,850.5 48% 52% 47% 44% 45%

Source: DBS Vickers

Page 19

Industry Focus Indonesia Property & Industrial Estate

Company Guides

Page 20

Indonesia Company Guide

Agung Podomoro Land Edition 2 Version 1 | Bloomberg: APLN IJ | Reuters: APLN.JK

Refer to important disclosures at the end of this report

DBS Group Research . Equity

5 Jan 2016

FULLY VALUED

Hold Your Dredger

Last Traded Price: Rp334 (JCI : 4,525.92) Price Target : Rp285 (15% downside) (Prev Rp280) Potential Catalyst: Clearer status for North Jakarta reclamation projects Where we differ: The only negative call for the counter

Status of major projects remains uncertain. Uncertainties over two of its major projects (160ha Pluit City reclamation project and 9ha superblock development in Klender, East Jakarta) could force Agung Podomoro Land (APLN) to seek other projects.

Analyst Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected]

Weak marketing sales in 2015. 9M15 marketing sales of Rp1.7tr stands at just 50% of its revised down full year guidance of c. Rp3tr (down 42% from FY14’s level). We have adjusted our marketing sales assumptions accordingly to Rp3.2tr/2.9tr/2tr in 2015/16/17F to reflect the current achievement (marketing sales assumptions do not include North Jakarta reclamation projects). Our marketing sales estimates have always been conservative considering our cautious view on property sector.

Price Relative Rp

Relative Index

536.3

209

486.3

189 169

436.3

149

386.3

129

336.3

109

286.3

89

236.3 186.3 Dec-11

69 Dec-12

Dec-13

Agung Podomoro Land (LHS)

Forecasts and Valuation FY Dec (Rpbn) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Net Pft Gth (Pre-ex) (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Dec-14

49 Dec-15

Relative JCI INDEX (RHS)

2014A 5,297 1,944 1,230 856 856 41.8 41.8 1 1 41.8 6.00 313 8.0 8.0 nm 5.7 1.8 1.1 0.3 14.1

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

2015F 5,208 1,752 1,037 545 545 26.6 26.6 (36) (36) 26.6 6.26 333 12.6 12.6 26.1 8.7 1.9 1.0 0.7 8.2

2016F 5,882 2,224 1,385 629 629 30.7 30.7 15 15 30.7 3.99 360 10.9 10.9 10.1 6.7 1.2 0.9 0.5 8.9

2017F 7,002 2,804 1,991 997 997 48.6 48.6 58 58 48.6 4.60 404 6.9 6.9 6.5 5.3 1.4 0.8 0.4 12.7

(24) 41.5 B: 4

(28) 48.2 S: 3

(7) 46.4 H: 0

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P

ASIAN INSIGHTS ed: JS / sa: MA

Maintain FULLY VALUED call. We tweaked our RNAV slightly to Rp524/sh (from Rp519/sh previously) to reflect the latest marketing sales achieved and the revised risk premium (to 5.5%) for WACC calculation. The slight change in TP to Rp285 still presents 15% downside.

Valuation: Our target price of Rp285 is pegged at a 45% discount to our base case RNAV (based on its adjusted 8-years average discount to RNAV). APLN is currently trading at 36% discount to RNAV (much narrower than its 8-year average of 64%) and 11x FY16F PE (at +0.5SD of its mean forward PE). Key Risks to Our View: Clearer status of North Jakarta reclamation project. Despite securing execution permit from local government (through gubernational decree no 2238 since 23Dec2014) which technically allows APLN to proceed with reclamation, APLN is currently waiting for urban planning approval from the Jakarta government. The Pluit City – Island “G” project would significantly boost its RNAV and marketing sales. At A Glance Issued Capital (m shrs) 20,501 Mkt. Cap (Rpbn/US$m) 6,847 / 494 Major Shareholders Indofica (%) 47.3 Jaya Lestari Persada (%) 14.7 Simfoni Gema Lestari (%) 5.1 Free Float (%) 29.9 3m Avg. Daily Val (US$m) 0.28 ICB Industry : Real Estate / Real Estate Investment & Services

VICKERS SECURITIES

Company Guide Agung Podomoro Land Marketing sales

CRITICAL DATA POINTS TO WATCH

6,353

6,400

Earnings Drivers: Marketing sales achieved Property developers recognise non-recurring revenue from marketing sales in prior years. We expect revenue to grow by c.10% CAGR over 2014-17F given expected slower revenue recognition from a few projects. Marketing sales grew by 15% CAGR over 2011-14 and expected to grow by mere 2% between FY14-17F. Fast turnover business model has some risks.APLN’s business continuity depends heavily on the successful acquisition of new projects. APLN has 12 ongoing projects in its portfolio. The strategy to focus on smaller scale and short-life projects (normally about 3-5 years) allows for more flexibility and faster asset monetisation, provided execution goes ahead as expected. This poses as a threat for future growth as land acquisition is getting more difficult and availability of good projects for acquisition are getting scarcer. Recurring revenue from investment properties APLN generates c. 30% of consolidated revenue from its investment properties such as retail malls, hotel and office leases. Without major additions and even the current possibility of streamlining its investment property portfolio for generating cash flow, the share of recurring revenue will shrink gradually. Product mix affects profitability APLN’s apartment projects have generally generated higher gross profit margins than landed residential & shophouses projects, while recurring revenues from investment properties are generally stable. Therefore, the revenue mix will dictate APLN’s profitability going forward. Needs to monitor costs SG&A expenses (as % of revenue) have trended up with sharp increase in key items (such as commission, wages & allowance and tax & licenses) given the challenges to attract more demand and new projects in its portfolio. Good control of SG&A expenses is crucial if the developer wants to grow earnings during this challenging period.

6,089

5,600 4,800 4,000 3,284 2,400

2,015

1,600 800 0 2013A

2014A

2015F

2016F

2017F

Sales Trend Rp bn

7,000

30.0%

6,000

25.0%

5,000

20.0%

4,000

15.0%

3,000 10.0%

2,000

5.0%

1,000 0

0.0% 2013A

2014A

2015F

Total Revenue

2016F

2017F

Revenue Growth (%) (YoY)

Profitability Trend Rp bn 1,945 1,745 1,545 1,345 1,145 945 745 545 2013A

2014A

2015F

Operating EBIT

2016F

Pre tax Profit

2017F Net Profit

Margins Trend 29.0% 24.0% 19.0% 14.0% 9.0% 2013A

Current roadblocks in its major projects The central government has halted North Jakarta reclamation projects for further review. APLN is also involved in an ongoing legal battle to determine the legal status of the land in Klender (East Jakarta).

2,933

3,200

2014A

2015F

Operating Margin %

2016F

2017F

Net Income Margin %

Disc to RNAV trend 80% 75% 70% 65% Average 64%

60% 55% 50% 45% 40% 35%

Jan-16

Jul-15

Oct-15

Jan-15

Apr-15

Jul-14

Oct-14

Jan-14

Apr-14

Jul-13

Oct-13

Jan-13

Apr-13

Jul-12

Oct-12

Jan-12

Apr-12

Jul-11

Oct-11

30%

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 22

VICKERS SECURITIES

Company Guide Agung Podomoro Land

Balance Sheet: Relatively high net gearing may limit growth opportunities APLN’s net gearing has been rising, and has reached pre-IPO level following aggressive capex for expansion over the past four years, and more stringent requirements for loan disbursements to developers. We expect this to continue given the high portion apartments projects in APLN’s portfolio. As of Sep-15, net gearing has reached 49%.

Leverage & Asset Turnover (x) 0.4 0.80

0.4

0.70

0.4

0.60

0.3

0.50

0.3 0.3

0.40

0.3

0.30

0.3

0.20

0.2

0.10

0.2 0.2

0.00

Capex to taper off after FY15 We expect capex requirement to taper off after the initial huge capex allocated for the currently pending north Jakarta reclamation. Share Price Drivers: Inorganic growth going forward Given the nature of APLN’s fast turnover business model, new project acquisitions or pipeline (depending on the acquisition value) may create positive sentiment as it diversifies its revenue sources going forward. Marketing sales and pipeline Marketing sales achieved is a good indicator for all Indonesia property developers (including APLN) as it gives leading indication for the revenue generation for the next 2-3 years (depending on the revenue recognition). Key Risks: Increasingly difficult to find strategic acquisition targets. Business continuity depends on successful project acquisitions, especially in Greater Jakarta where residential landbank is diminishing. Hence, earnings may not be sustainable going forward.

2013A

2014A

Potential interest rate hikes. Property demand is sensitive to and is negatively correlated to interest rate movements. Strict implementation on potential revision to housing development balance ratio (of low, middle and luxury houses). If implemented strictly and retroactively, this could potentially mean additional costs for property developers and more complicated property development planning Capital intensive projects require large funding. High-rise and investment properties developments require large upfront capital. External financing costs have to be kept in check.

2016F

Gross Debt to Equity (LHS)

Asset Turnover (RHS)

Capital Expenditure 4,500.0 4,000.0 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0 2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%) 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2014A

2015F

2016F

2017F

Forward PE Band (x) (x) 17.9 15.9

+2sd: 15.3x

13.9

+1sd: 12.6x

11.9 9.9

Avg: 9.8x

7.9

‐1sd: 7.1x 5.9 3.9 Jan-12

‐2sd: 4.3x Jan-13

Jan-14

Jan-15

PB Band (x) 2.3

(x)

2.1 1.9

+2sd: 1.88x

1.7

+1sd: 1.57x

1.5

Company Background APLN has been focusing on high-rise developments and prides itself as a major superblocks developer. Most of its projects are in strategic inner city locations.

2017F

Rp 5,000.0

2013A

Stricter regulations for high-rise developments. Plot ratio approval and balanced ratio rules, when strictly implemented, could potentially slow property demand. Liquidity tightening could slow demand further.

2015F

1.3

Avg: 1.27x

1.1

‐1sd: 0.96x

0.9 0.7 0.5 Jan-12

‐2sd: 0.65x Jan-13

Jan-14

Jan-15

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 23

Company Guide Agung Podomoro Land

APLN: RNAV summary APLN portfolio

Investment Properties Central Park Mall Pocy Extension Senayan City Mall SCTV Tower - Senayan City Panin Tower - Senayan City Kuningan City Mall AXA Tower - Kuningan City Green Bay Pluit Mall SoHo@MT Haryono Festival City Link Bandung Emporium Pluit Mall Lindeteves Trade Center Mal Plaza Balikpapan Pullman Hotel, Central Park Harris Hotel - Festival Citylink Sofitel, Nusa Dua, Bali Amaris Hotel - Thamrin City POP Hotel - Festival City Link Senayan City Apartments BnB Hotel, Kelapa Gading Mercure, Kelapa Gading Pullman Bandung IBIS Bandung Indigo Hotel Bali Pullman Vimala Hills Investment Properties Total Surplus/(Deficit) - 1 Property Developments Green Bay Coast View Green Bay Sea View Green Bay Bay View Green Bay Kiosk Green Lake Sunter - Apartments Green Permata Grand Taruma - Karawang Central Park - Office Metro Park Residence Vimala Hills. Gadog SOHO@Pocy Madison Park SOHO@MT Haryono Garden Shopping Arcade 2 Simprug (Pakubuwono Residence) Balikpapan Plaza Kenari Mas Makassar Batam Deli Medan Harco Glodok Klender Total PV of future development profits - 2 FY16F Net Cash (Debt) - Rpbn - 3 RNAV (1+2+3) Fully Diluted Share base (bn) RNAV per share (Rp)

Stake owned

Valuation (Rpbn)

RNAV

100% 100% 26% 26% 26% 60% 60% 100% 100% 59% 53% 35% 65% 100% 59% 75% 100% 59% 26% 51% 100% 85% 85% 51% 100%

2,235 558 2,161 289 208 893 550 652 52 496 1,502 87 1,457 558 155 1,059 108 137 14 148 221 274 263 705 539

2,235 558 551 74 53 536 330 650 52 292 792 30 947 558 91 795 108 81 4 76 221 233 223 359 539 10,388

100% 100% 100% 100% 100% 70% 90% 100% 80% 100% 100% 100% 100% 100% 60% 65% 50% 51% 80% 58% 69% 85%

0 117 0 0 0 3 291 0 70 719 806 165 398 0 789 338 536 267 359 1,481 999 359

0 116 0 0 0 2 262 0 56 718 806 165 398 0 473 220 268 136 287 859 690 305 5,762 -5,413 10,737 21 524

Source: DBS Vickers

ASIAN INSIGHTS Page 24

VICKERS SECURITIES

Company Guide Agung Podomoro Land

Key Assumptions FY Dec

2013A

2014A

2015F

2016F

2017F

Marketing sales

6,353

6,089

3,284

2,933

2,015

Segmental Breakdown FY Dec

2013A

2014A

2015F

2016F

2017F

Revenues (Rpbn) Apartments Offices House & shophouses Rental - Hotel, office, &

2,632 155 1,111 1,004

2,323 132 1,466 1,376

1,913 0.0 1,942 1,354

1,975 0.0 2,223 1,684

2,471 0.0 2,578 1,953

4,901

5,297

5,208

5,882

7,002

1,250 78.4 386 641

1,071 73.1 723 788

866 0.0 761 820

1,170 0.0 886 995

1,696 0.0 985 1,186

2,355

2,655

2,447

3,051

3,867

47.5 50.6 34.7 63.9

46.1 55.5 49.3 57.3

45.3 N/A 39.2 60.6

59.2 N/A 39.9 59.1

68.6 N/A 38.2 60.7

48.0

50.1

47.0

51.9

55.2

2013A

2014A

2015F

2016F

2017F

4,901 (2,546) 2,355 (1,079) 1,276 136 94.7 (329) 0.0 1,177 (247) (78.8) 0.0 851 851 1,728

5,297 (2,642) 2,655 (1,225) 1,430 103 90.6 (393) 0.0 1,230 (246) (129) (1.0) 856 856 1,944

5,208 (2,761) 2,447 (1,302) 1,145 156 95.1 (359) 0.0 1,037 (260) (231) 0.0 545 545 1,752

5,882 (2,831) 3,051 (1,471) 1,581 176 99.8 (472) 0.0 1,385 (294) (462) 0.0 629 629 2,224

7,002 (3,135) 3,867 (1,751) 2,116 210 105 (441) 0.0 1,991 (350) (644) 0.0 997 997 2,804

4.5 4.2 1.2 4.9

8.1 12.5 12.1 0.5

(1.7) (9.9) (19.9) (36.3)

12.9 27.0 38.1 15.4

19.0 26.1 33.9 58.5

48.0 26.0 17.4 15.8 4.9 8.5 15.2 3.9

50.1 27.0 16.2 14.1 3.9 8.2 14.4 3.6

47.0 22.0 10.5 8.2 2.5 5.5 15.0 3.2

51.9 26.9 10.7 8.9 3.1 7.8 15.0 3.4

55.2 30.2 14.2 12.7 4.8 10.6 15.0 4.8

Total Gross Profit (Rpbn) Apartments Offices House & shophouses Rental - Hotel, office, & Total Gross Profit Margins (%) Apartments Offices House & shophouses Rental - Hotel, office, & Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

More apartments portion in revenue to boost margins

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 25

Company Guide Agung Podomoro Land

Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

1Q2015

2Q2015

3Q2015

1,215 (549) 666 (382) 284 84.7 24.5 (135) 0.0 259 (64.1) (44.9) 150 150 393

1,787 (887) 899 (339) 561 (14.3) 27.8 (85.4) 0.0 489 (60.3) (80.3) 348 348 574

995 (456) 539 (342) 198 29.9 41.7 (65.3) 0.0 204 (52.9) (49.5) 101 101 269

1,781 (878) 903 (346) 557 20.7 23.8 (147) 0.0 454 (90.1) (114) 250 250 602

1,144 (604) 540 (374) 166 57.6 16.9 (131) 0.0 110 (55.8) (37.0) 17.0 17.0 240

7.6 72.0 54.3 144.8

47.0 46.1 97.4 133.0

(44.3) (53.2) (64.8) (70.9)

78.9 123.6 182.0 146.4

(35.8) (60.1) (70.2) (93.2)

54.8 23.4 12.3

50.3 31.4 19.5

54.2 19.8 10.2

50.7 31.3 14.0

47.2 14.5 1.5

Balance Sheet (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

2,756 350 5,761 3,177 5,045 1,406 1,185 19,680

3,169 206 6,018 4,336 7,480 1,240 1,237 23,686

3,157 206 5,974 512 7,730 1,494 1,381 20,454

3,039 206 5,875 270 7,880 1,688 1,393 20,351

2,918 206 5,773 583 7,980 2,009 1,460 20,928

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

824 1,141 5,699 4,635 168 5,756 1,457 19,680

442 1,242 7,318 6,042 212 6,411 2,018 23,686

426 1,181 3,396 6,158 212 6,831 2,250 20,454

400 1,210 3,156 5,283 212 7,378 2,712 20,351

1,095 1,357 2,546 4,083 212 8,281 3,355 20,928

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

796 (2,282) 114.2 149.4 609.7 0.3 1.4 0.6 0.3 0.4 1.3 1.2

1,398 (2,148) 91.2 195.3 1,176.3 0.2 1.6 0.6 0.3 0.3 (15.6) 1.1

6,028 (6,072) 95.8 179.2 1,173.0 0.2 2.2 0.4 0.7 0.9 65.2 1.4

6,596 (5,413) 98.7 179.2 1,167.5 0.3 2.4 0.4 0.5 0.7 7.0 1.8

7,547 (4,595) 96.3 179.2 1,054.4 0.3 2.4 0.5 0.4 0.6 15.3 1.9

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Lowest quarterly earnings ever

Increasing net gearing given aggresive capex for major projects

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 26

VICKERS SECURITIES

Company Guide Agung Podomoro Land

Cash Flow Statement (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp)

1,177 222 (247) 0.0 (1,203) (78.8) (130) (73.0) 142 0.0 0.0 0.0 69.2 (123) 964 1.70 134 976 0.0 915 52.4

1,230 321 (246) 0.0 (2,558) (129) (1,383) 1,010 144 0.0 0.0 0.0 1,155 (123) 1,025 (73.9) 561 1,390 0.0 1,162 57.3

1,037 356 (260) 0.0 (639) (231) 262 (4,292) 0.0 0.0 0.0 0.0 (4,292) (128) 99.4 0.0 231 203 0.0 (3,827) 43.9

1,385 367 (294) 0.0 (321) (462) 675 (396) 0.0 0.0 0.0 0.0 (396) (81.8) (901) 0.0 462 (521) 0.0 (241) 48.6

1,991 373 (350) 0.0 (308) (644) 1,061 (793) 0.0 0.0 0.0 0.0 (793) (94.4) (505) 0.0 644 44.0 0.0 312 66.8

Aggressive capex for major projects (i.e. Pluit City reclamation project)

Source: Company, DBS Vickers Target Price & Ratings History

487

Rp S.No.

Dat e

2 437

3 387

4

1 5

6

337

Closing Pric e

T arget Price

Rat ing

1:

26 J an 15

413

345

HOLD

2:

30 Mar 15

440

345

HOLD

3:

27 Apr 15

435

380

F ULLY V ALUED

4:

04 May 15

411

380

F ULLY V ALUED

5:

13 J ul 15

372

330

F ULLY V ALUED

6:

10 Aug 15

338

330

F ULLY V ALUED

7:

03 Sep 15

325

280

F ULLY V ALUED

8:

30 Oct 15

276

280

F ULLY V ALUED

7 8

287

237 Jan-15

May-15

Sep-15

Jan-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 27

Indonesia Company Guide

Alam Sutera Realty Refer to important disclosures at the end of this report

Edition 2 Version 1 | Bloomberg: ASRI IJ | Reuters: ASRI.JK

DBS Group Research . Equity

5 Jan 2016

HOLD

Keeping Heads Above Water

Last Traded Price: Rp331 (JCI : 4,525.92) Price Target : Rp325 (2% downside) (Prev Rp355) Potential Catalyst: Better demand for Pasar Kemis township Where we differ: We are one of few brokers with a neutral call on the stock Analyst Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected]

Price Relative Rp

Relative Index

1,184.4

214

1,084.4

194

984.4

174

884.4

154

784.4

134

684.4

114

584.4 484.4

94

384.4

74

284.4 Dec-11

Dec-12

Dec-13

Alam Sutera Realty (LHS)

Forecasts and Valuation FY Dec (Rpbn) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Net Pft Gth (Pre-ex) (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Dec-14

54 Dec-15

Relative JCI INDEX (RHS)

2014A 3,631 2,077 1,485 1,196 1,196 60.9 60.9 36 36 60.9 7.00 281 5.4 5.4 nm 6.1 2.1 1.2 0.8 23.7

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

2015F 3,791 1,845 1,551 1,209 1,209 61.5 61.5 1 1 61.5 12.2 324 5.4 5.4 4.7 6.7 3.7 1.0 0.7 20.3

2016F 4,027 1,874 1,489 1,138 1,138 57.9 57.9 (6) (6) 57.9 12.3 376 5.7 5.7 81.3 7.5 3.7 0.9 0.8 16.5

2017F 4,246 1,907 1,509 1,144 1,144 58.2 58.2 1 1 58.2 11.6 423 5.7 5.7 nm 8.1 3.5 0.8 0.8 14.6

(4) 62.1 B: 12

(18) 67.3 S: 2

(36) 76.1 H: 8

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P.

ASIAN INSIGHTS ed: xxx / sa: MA

Maintain HOLD call with lower TP. We lowered our RNAV assumptions by 8% to Rp795/sh (from Rp862/sh previously) to reflect the latest marketing sales achievement, sustained high net debt and the revised risk premium (to 5.5%) for WACC calculation. Subsequently, our TP is cut to Rp325, implying no upside to current level. Dependency in commercial land pre-sales to continue. Our marketing sales forecast is quite conservative with just 5% CAGR between 2014-2017F. ASRI still has around 167ha of commercial land bank to support its marketing sales. In addition, we expect better marketing sales for The Tower office space in CBD area as deals with a few multinational companies are getting closer to conclusion. The two MoUs with separate investors to co-develop 20ha of land in Serpong and 300ha in Pasar Kemis will be a bonus if they materialise. ASRI plans to take minority stakes (25-30%) in those JVs. The sale of the land will reap about Rp10.6tn in marketing sales. Balance sheet to remain strectched. Despite completing the buyback of US$150m high-yield bonds, the large capex required for its existing high-rise projects means that ASRI has to draw down more loan facilities. As of 9M15, ASRI’s net gearing was 111% and it is expected to remain high. Valuation: Our target price of Rp325 is at a 59% discount to our basecase RNAV (based on its adjusted 8-year average discount to RNAV). ASRI is currently trading at a 58% discount to RNAV (narrower than its 8-year average of 66%) and only 5.7x FY16F PE (at -1.5SD of mean forward PE). Key Risks to Our View: Better news and execution from Pasar Kemis development. The MoU with Glory Fund Management Group to form a JV (with ASRI holding a minority stake) and co-develop 300ha in Pasar Kemis is positive news for ASRI’s Pasar Kemis project (stalled by weak demand since launch in Sep 2013). If the deal is successful, ASRI’s marketing sales from Pasar Kemis will surge in the near term and could exceed our expectations, and over the long term, land value could appreciate faster than we currently expect. At A Glance Issued Capital (m shrs) 19,649 Mkt. Cap (Rpbn/US$m) 6,504 / 469 Major Shareholders Tangerang Fajar (%) 16.7 Manunggal Prime Develop. (%) 11.9 Selaras Citamanunggal (%) 11.4 Free Float (%) 50.1 3m Avg. Daily Val (US$m) 2.5 ICB Industry : Real Estate / Real Estate Investment & Services

VICKERS SECURITIES

Company Guide Alam Sutera Realty Marketing sales 5,232

CRITICAL DATA POINTS TO WATCH Earnings Drivers: Marketing sales achievement Property developers recognise non-recurring revenue from marketing sales in the prevailing years. We expect revenue to grow slowly at 5% over 2014-17F, although marketing sales expanded at a 15% CAGR over 2011-14 and are expected to grow by a 7% CAGR over 2014-17F. New township Pasar Kemis (about thrice the size of its maturing Serpong township in West Jakarta, located 17km from Serpong) will be the key growth driver going forward, after stumbling since launch on 15 Sep 2013. Limited growth of recurring revenues from investment properties ASRI generated c.10% of consolidated revenue from investment properties such as retail malls, office leases and cultural park. Despite expected strong growth of cultural park revenue from Garuda Wisnu Kencana (GWK) in Bali, we see limited upside to recurring revenues from current levels.

4,900

4,821 4,314

4,256

4,200

3,277

3,500 2,800 2,100 1,400 700 0 2013A

2014A

2015F

2016F

2017F

Sales Trend Rp bn

60.0% 4,000 3,500

50.0%

3,000

40.0%

2,500 2,000

30.0%

1,500

20.0%

1,000

10.0%

500 0

0.0% 2013A

2014A

Total Revenue

2015F

2016F

2017F

Revenue Growth (%) (YoY)

Profitability Trend Rp bn

Reliant on land sales to generate cashflow ASRI’s marketing sales have been mainly driven by the sale of commercial block land in the Serpong township. This trend should continue as ASRI has to generate more cashflow to serve its current debt. Its new frontier township, the Pasar Kemis development, is not doing as well as expected. Therefore, the current high gross profit margins will not be sustainable going forward.

1,876

1,676

1,476

1,276

1,076

876

Need to monitor costs SG&A expenses (as % of revenue) have trended up with sharp increase in key components (such as commission and salaries, and wages & allowance). Good control of SG&A expenses is crucial if the developer wants to grow earnings during this challenging period. Potential value from Bali cultural park development ASRI acquired Garuda Wisnu Kencana (GWK) in 2012. ASRI is still working on the master plan for GWK because it has to first complete the huge statue inside the cultural park. There is potential upside from ~30-ha area surrounding the cultural park. Currently, we are assigning minimum value to this development in our RNAV calculation. Non-cash accounting forex loss to wipe out net earnings on paper Although the US$ global bonds are hedged to maturity, ASRI faces a staggering non-cash outflow accounting forex loss which practically flushed most of it operating income. FY15 net loss (without excluding the forex effect) is inevitable if IDR continues to weaken against US$.

2013A

2014A

Operating EBIT

2015F

2016F

Pre tax Profit

2017F Net Profit

Margins Trend 57.0% 52.0% 47.0% 42.0% 37.0% 32.0% 27.0% 22.0% 2013A

2014A

Operating Margin %

2015F

2016F

2017F

Net Income Margin %

Disc to RNAV trend 100% 90% 80% 70% 60%

Average 66%

50% 40% 30% 20%

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

10%

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 29

Company Guide Alam Sutera Realty

Leverage & Asset Turnover (x) 0.3

Balance Sheet: Net gearing to remain at high level ASRI has been gearing up since 2012, when it decided to raise USD bonds at high coupon rate for aggressive acquisitions (i.e. Pasar Kemis township and cultural park Garuda Wisnu Kencana in Bali). Despite completing the buyback of US$150m high-yield bonds, large capex required for its existing high-rise projects means that ASRI has to draw down more loan facilities. Therefore, net gearing will still hover close to 100% for the next few years. As of 9M15, ASRI’s net gearing was 111%. Share Price Drivers: Marketing sales achievement and pipeline Marketing sales achievement is a good indicator for all Indonesian property developers (including ASRI) as it gives leading indication for the revenue generation for the next 2-3 years (depending on the revenue recognition).

1.00 0.3 0.80 0.60

0.2

0.40 0.2 0.20 0.00

0.1 2013A

2014A

2015F

Gross Debt to Equity (LHS)

2016F

2017F

Asset Turnover (RHS)

Capital Expenditure Rp 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0 2013A

Possible increase in hedging cost from US$ debt ASRI is exposed to IDR weakness due to its global US$ bonds. Despite recent efforts to trim its expensive debt and existing hedging instruments, ASRI still has US$460m worth of bonds on its balance sheet; it has hedged the principal through call spreads. Hedging cost could rise to beyond reasonable levels if the USD/IDR exchange rate breaches the call spread.

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%) 20.0%

15.0%

10.0%

Key Risks: Stricter regulations for high-rise developments. Plot ratio approval and balanced ratio rules, when strictly implemented, could potentially slow property demand. Liquidity tightening could dampen demand further. Potential interest rate hike. Property demand is sensitive to and is negatively correlated to interest rate movements.

5.0%

0.0% 2013A

2014A

2015F

2016F

Forward PE Band (x) (x) 22.6

+2sd: 18x

17.6

Exposure to US$, both financially (i.e. debt in balance sheet) and operationally (i.e. higher material cost especially for high-rise projects with higher US$-linked items) is a risk amid the weak IDR environment. Strict implementation on potential revision to housing development balance ratio (of low, middle and luxury houses). If implemented strictly and retroactively, this could potentially mean additional costs for property developers and more complicated property development planning. Company Background Upscale township developer in Serpong and Pasar Kemis (west Jakarta suburb). ASRI is diversifying its revenue base with more commercial properties such as retail malls and office towers.

2017F

+1sd: 14.2x 12.6

Avg: 10.5x 7.6

‐1sd: 6.7x

2.6 Jan-12

‐2sd: 2.9x Jan-13

Jan-14

Jan-15

PB Band (x) (x) 5.5

4.5

+2sd: 4.52x

3.5

+1sd: 3.54x

2.5

Avg: 2.57x

1.5

‐1sd: 1.59x

0.5 Jan-12

‐2sd: 0.61x Jan-13

Jan-14

Jan-15

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 30

VICKERS SECURITIES

Company Guide Alam Sutera Realty

ASRI: RNAV summary Portfolio

Investment Property

Value (Rpbn)

% of total

842

4%

Mall @ Alam Sutera

487

2%

Office for lease (CBD)

354

2%

Garuda Wisnu Kencana (Bali)

0

0%

Development properties & Landbank

Landbank (ha)

20,002

96%

Serpong + North Serpong

10,502

47%

624

Pasar Kemis

8,908

40%

1,621

Strata office (CBD)

1,332

6%

Kota Ayodhya

420

2%

2

Cianjur

96

0%

79

Tanjung Pinang (Riau)

28

0%

75

Puncak (South Jakarta suburb)

45

0%

9

22,236 Net Debt

6,548

RNAV

15,624

Fully Diluted Share base (bn)

19.649

Fully Diluted RNAV per share

795

 

Source: DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 31

Company Guide Alam Sutera Realty

Key Assumptions FY Dec

2013A

2014A

2015F

2016F

2017F

Marketing sales

4,821

4,256

3,277

4,314

5,232

2013A

2014A

2015F

2016F

2017F

1,579 1,452 422 54.7 176 3,684

1,616 1,694 2.68 52.4 266 3,631

2,357 1,012 38.3 55.0 329 3,791

1,974 1,387 258 57.7 350 4,027

2,286 1,019 520 60.6 360 4,246

740 817 222 40.5 19.0 1,837

1,259 968 1.49 40.1 137 2,406

1,650 556 21.0 41.2 49.4 2,318

1,283 763 142 43.3 53.0 2,284

1,371 561 286 45.5 53.9 2,317

46.8 56.2 52.5 74.0 10.8 49.9

77.9 57.1 55.6 76.5 51.6 66.3

70.0 55.0 55.0 75.0 15.0 61.1

65.0 55.0 55.0 75.0 15.1 56.7

60.0 55.0 55.0 75.0 14.9 54.6

2013A

2014A

2015F

2016F

2017F

3,684 (1,847) 1,837 (304) 1,533 (363) 0.0 (88.4) 0.0 1,082 (192) (12.8) 0.0 877 877 1,593

3,631 (1,225) 2,406 (399) 2,007 (375) 0.0 (147) 0.0 1,485 (209) (79.5) 0.0 1,196 1,196 2,077

3,791 (1,473) 2,318 (550) 1,768 (87.4) 0.0 (129) 0.0 1,551 (218) (124) 0.0 1,209 1,209 1,845

4,027 (1,743) 2,284 (503) 1,781 (96.2) 0.0 (196) 0.0 1,489 (232) (119) 0.0 1,138 1,138 1,874

4,246 (1,928) 2,317 (531) 1,787 (96.2) 0.0 (181) 0.0 1,509 (244) (121) 0.0 1,144 1,144 1,907

50.6 25.8 22.3 (26.5)

(1.4) 30.4 30.9 36.4

4.4 (11.1) (11.9) 1.1

6.2 1.6 0.7 (5.9)

5.4 1.8 0.3 0.5

49.9 41.6 23.8 20.5 6.9 14.9 24.1 17.3

66.3 55.3 32.9 23.7 7.6 15.0 15.7 13.7

61.1 46.6 31.9 20.3 6.5 10.9 20.0 13.7

56.7 44.2 28.3 16.5 5.3 9.5 20.0 9.1

54.6 42.1 26.9 14.6 4.9 8.5 20.0 9.9

Segmental Breakdown FY Dec Revenues (Rpbn) Land plots Houses Office Tower Commercial Others Total Gross Profit (Rpbn) Land plots Houses Office Tower Commercial Others Total Gross Profit Margins (%) Land plots Houses Office Tower Commercial Others Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

Large portion of revenue will continue to come from township development

Interest expense to stay high despite having shaved-off US$150m of high-coupon global bonds in April 2015 as ASRI is expected to drawdown more loan facilities for high rise development

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 32

VICKERS SECURITIES

Company Guide Alam Sutera Realty

Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

1Q2015

2Q2015

3Q2015

879 (251) 628 (111) 517 (160) 0.0 (32.8) (17.8) 307 (48.2) (6.4) 252 270 517

807 (107) 700 (107) 593 80.0 0.0 (31.1) (141) 500 (63.2) (8.3) 429 570 593

991 (225) 766 (111) 655 (248) 0.0 (40.5) (20.1) 347 (26.7) (39.5) 280 301 655

742 (136) 606 (128) 478 (136) 0.0 (23.3) (21.9) 296 (80.6) (41.8) 174 196 478

437 (139) 299 (95.6) 203 (473) 0.0 (30.8) (23.7) (325) (55.1) (12.0) (392) (368) 203

(18.2) (8.0) (8.0) 12.8

(8.1) 14.6 14.6 111.3

22.7 10.5 10.5 (47.3)

(25.1) (27.1) (27.1) (34.9)

(41.1) (57.5) (57.5) (288.0)

71.5 58.9 28.7

86.7 73.4 53.1

77.3 66.1 28.3

81.7 64.4 23.4

68.3 46.4 (89.6)

Balance Sheet (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

1,888 0.0 7,439 1,337 3,237 82.2 444 14,428

2,036 0.0 8,879 1,261 3,751 130 867 16,924

2,345 0.0 9,172 2,489 5,186 13.1 867 20,072

3,001 0.0 10,181 1,842 6,636 13.9 867 22,543

3,531 0.0 10,367 750 8,358 14.7 867 23,888

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

0.0 165 4,285 4,587 60.1 5,158 174 14,428

0.0 161 3,679 6,606 107 6,118 253 16,924

0.0 53.2 5,212 7,360 107 6,963 377 20,072

0.0 63.0 5,502 8,390 107 7,984 496 22,543

0.0 69.7 5,768 8,426 107 8,901 617 23,888

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

(686) (3,249) 4.5 20.5 627.8 0.3 1.1 0.3 0.6 0.6 66.1 1.4

908 (5,346) 10.7 50.7 1,185.2 0.2 1.6 0.4 0.8 0.9 26.3 1.4

801 (4,871) 6.9 13.9 1,356.2 0.2 1.6 0.5 0.7 0.7 9.2 1.4

1,953 (6,548) 1.2 13.9 1,468.8 0.2 1.7 0.3 0.8 0.8 21.0 1.4

3,402 (7,675) 1.2 14.1 1,687.4 0.2 1.7 0.1 0.8 0.9 9.9 1.5

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Net gearing to remain high at current levels despite the reduction in global bonds

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 33

Company Guide Alam Sutera Realty

Cash Flow Statement (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp)

1,082 59.3 (192) 0.0 (166) (12.8) 770 (3,034) 0.0 10.0 0.0 (541) (3,564) (287) 2,406 0.0 0.0 2,119 0.0 (675) 47.6

1,485 69.9 (209) 0.0 (1,595) (79.5) (329) (1,739) 0.0 (19.5) 0.0 128 (1,630) (138) 2,020 0.0 0.0 1,882 0.0 (76.7) 64.4

1,551 77.1 (218) 0.0 107 (124) 1,394 (679) 0.0 124 0.0 0.0 (554) (239) 754 0.0 (125) 390 0.0 1,229 65.5

1,489 93.4 (232) 0.0 (1,152) (119) 80.0 (1,759) 0.0 119 0.0 0.0 (1,640) (242) 1,030 0.0 125 913 0.0 (647) 62.7

1,509 121 (244) 0.0 (1,450) (121) (185) (836) 0.0 121 0.0 0.0 (715) (228) 35.4 0.0 0.0 (192) 0.0 (1,092) 64.4

Source: Company, DBS Vickers Target Price & Ratings History

700

Rp

4

650

2

600 550

5 6

1 3

500

7 450 400

S.No.

Dat e

Closing Pric e

T arget Price

Rat ing

1:

20 J an 15

580

490

F ULLY V ALUED

2:

26 J an 15

595

490

F ULLY V ALUED

3:

30 Mar 15

555

490

F ULLY V ALUED

4:

27 Apr 15

640

560

F ULLY V ALUED

5:

04 May 15

650

560

F ULLY V ALUED

6:

13 J ul 15

560

570

HOLD

7:

10 Aug 15

505

570

HOLD

8:

03 Sep 15

344

355

HOLD

9:

02 Nov 15

376

355

HOLD

8

350

9

300 Jan-15

May-15

Sep-15

Jan-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Vickers

ASIAN INSIGHTS Page 34

VICKERS SECURITIES

Indonesia Company Guide

Bumi Serpong Damai Edition 2 Version 1 | Bloomberg: BSDE IJ | Reuters: BSDE.JK

Refer to important disclosures at the end of this report

DBS Group Research . Equity

5 Jan 2016

BUY (Upgrade from HOLD)

Large Yet Flexible Upgrade to BUY as our top pick with sizeable upside. We raised our RNAV assumptions by 14% to Rp3,626/sh (from Rp3,183/sh previously) to reflect the latest marketing sales achievement, expected gearing and the revised risk premium (to 5.5%) for WACC calculation. Subsequently, our TP is boosted to Rp2,100, offering a sizeable upside from current level. BSDE is our top pick in the sector.

Last Traded Price: Rp1,790 (JCI : 4,525.92) Price Target : Rp2,100 (17% upside) (Prev Rp1,595) Potential Catalyst: Venturing outside Greater Jakarta Where we differ: Our top pick in property sector Analyst Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected]

Huge land bank offers flexibility. BSDE’s main project BSD City is still the main driver for marketing sales with more than 60% contribution going forward. Its huge land bank (at c.3,000ha) offers flexibility as BSDE can assess property market segment (given the still expected challenging property market), select the appropriate segment and develop townships accordingly.

Price Relative Rp

Relative Index 222

2,255.0

202

2,055.0

182

1,855.0

162

1,655.0 142

1,455.0

122

1,255.0

102

1,055.0 855.0 Dec-11

Dec-12

Dec-13

Bumi Serpong Damai (LHS)

Forecasts and Valuation FY Dec (Rpbn) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Net Pft Gth (Pre-ex) (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Dec-14

82 Dec-15

Relative JCI INDEX (RHS)

2014A 5,572 4,397 4,306 3,821 3,681 208 200 35 35 208 15.0 835 8.6 8.9 10.9 8.3 0.8 2.1 0.0 29.9

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

2015F 6,584 3,359 2,964 2,381 2,381 124 124 (41) (38) 124 15.0 906 14.5 14.5 12.3 11.8 0.8 2.0 0.1 14.5

2016F 7,288 3,755 3,200 2,561 2,561 133 133 8 8 133 24.7 1,015 13.5 13.5 10.0 10.5 1.4 1.8 0.1 13.9

2017F 8,158 4,204 3,855 3,117 3,117 162 162 22 22 162 26.6 1,150 11.1 11.1 7.9 9.1 1.5 1.6 0.0 15.0

(7) 139 B: 24

(6) 150 S: 1

(6) 167 H: 5

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P.

ASIAN INSIGHTS ed: TH / sa: MA

Decent marketing sales growth and reasonably strong balance sheet for future expansion. Our marketing sales forecast is still decent and conservative with 6.5%/7.6%/7.7% growth in FY15/16/17F. This should translate into decent sustainable earnings growth beyond 2017 too. BSDE also possesses a reasonably strong balance sheet (with just 4% net gearing as of 9M15 aided by rich cash position) despite being aggressive in fund raising (both debt and equity) for the past two years. This is mainly due to BSDE’s intention to make several project or stake acquisitions when the opportunities arise. Valuation: Our target price of Rp2,100 is at a 44% discount to our base-case RNAV (based on its adjusted 8-year average discount to RNAV). BSDE is currently trading at a 51% discount to RNAV (close to 8year average of 52%) and 13.5x FY16F PE (at around +1SD of its mean forward PE). Key Risks to Our View: Slower take-up at BSDE’s launches. Weaker property affordability, potential increase in interest rate and stricter implementations of high-rise developments could prompt delays in launching pipeline and cause marketing sales to miss our expectations.. At A Glance Issued Capital (m shrs) 19,247 Mkt. Cap (Rpbn/US$m) 34,452 / 2,486 Major Shareholders Paraga Artamida (%) 25.3 Ekacentra Usahamaju (%) 25.2 Warner Invest. Bhd (%) 10.2 Free Float (%) 26.1 3m Avg. Daily Val (US$m) 2.1 ICB Industry : Real Estate / Real Estate Investment & Services

VICKERS SECURITIES

Company Guide Bumi Serpong Damai Marketing sales 7,871

CRITICAL DATA POINTS TO WATCH

7,305

7,101 7,000

Earnings Drivers: Marketing sales achievement Property developers recognise non-recurring revenue from marketing sales in the prevailing years. We expect revenue to grow by a 14% CAGR over 2014-17F given that marketing sales grew by a 23% CAGR over 2011-14, and are expected to grow by a 7.2% CAGR over 2014-17F.. BSD City still has 3,000ha of land bank (good for another 25-30 years of development), and that will remain the major driver of marketing sales going forward. We expect BSD City to continue to contribute more than 60% of total marketing sales, albeit slipping going forward with the emergence of other projects. BSDE has also started to expand outside Greater Jakarta with ventures in East of Indonesia cities such as Benowo (East Java), Balikpapan and Samarinda (East Kalimantan).

6,790

6,377

6,000 5,000 4,000 3,000 2,000 1,000 0 2013A

2014A

2015F

2017F

Sales Trend Rp bn

8,000

60.0%

7,000

50.0%

6,000

40.0%

5,000 4,000

30.0%

3,000

20.0%

2,000 10.0%

1,000 0

0.0% 2013A

2014A

2015F

Total Revenue

Growing recurring revenue from investment properties BSDE generated c.15% of its consolidated revenue from its investment properties such as retail malls, hotel and office leases. The recent addition of several investment properties suggests BSDE intention to beef up the portion to c.20% over the long term to ensure earnings sustainability.

2016F

2016F

2017F

Revenue Growth (%) (YoY)

Profitability Trend Rp bn 4,181 3,981 3,781 3,581 3,381 3,181

Better product mix leads to better margins BSDE’s revenues are still heavily reliant on the sale of landed residential houses which had commanded high gross profit margins (>70%) in the past two years. But, with more highrise projects in its portfolio, we have to monitor revenue mix and profitability going forward.

2,981 2,781 2,581 2,381 2013A

2014A

2015F

Operating EBIT

2016F

Pre tax Profit

2017F Net Profit

Margins Trend

Good control of operating costs BSDE has been able to keep SG&A expenses (as % of revenue) under control, despite the more-than-average increase in its two key items in SG&A expenses; “advertising & promotion” for the purpose of attracting more property demand during this challenging period and “salaries” for both existing and new employees to run projects in its portfolios.

68.0% 63.0% 58.0% 53.0% 48.0% 43.0% 38.0% 33.0% 2013A

2014A

2015F

Operating Margin %

2016F

2017F

Net Income Margin %

Disc to RNAV trend 100% 90% 80% 70% 60%

Average 52%

50% 40% 30%

Dec-15

Jun-15

Jun-14

Dec-14

Jun-13

Dec-13

Dec-12

Jun-12

Jun-11

Dec-11

Jun-10

Dec-10

Dec-09

Jun-09

Jun-08

Dec-08

20%

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 36

VICKERS SECURITIES

Company Guide Bumi Serpong Damai

Balance Sheet: Healthy balance sheet despite gearing up BSDE had been in a net cash position from 2008 to 2013 as strong cash generation outpaced annual capex requirements. The aggressive fund-raising (for the opportunistic purpose of either project or stake acquisitions) has pushed its balance sheet to a small net debt position (4% net gearing as of 9M15).

Leverage & Asset Turnover (x) 0.45

0.3

0.40 0.3

0.35 0.30

0.3

0.25 0.20

0.2

0.15 0.10

0.2

0.05 0.2

0.00

Exposure to US$ debt balanced by US$ holding BSDE’s balance sheet is exposed to USD/IDR volatility after the issuance of 5-year US$225m bonds (at 6.75% annual coupon rate), which represents 50% of its interest-bearing debt. However, BSDE’s large cash position enables it to have sufficient US$ in cash balance to lessen accounting non-cash forex accounting difference.

2013A

2014A

2015F

2016F

Gross Debt to Equity (LHS)

2017F

Asset Turnover (RHS)

Capital Expenditure Rp 4,500.0 4,000.0 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0

Share Price Drivers: Marketing sales achievement and pipeline Marketing sales achievement is a good indicator for all Indonesia property developers (including BSDE) as it gives leading indication for the revenue generation for the next 2-3 years (depending on the revenue recognition).

1,000.0 500.0 0.0 2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%) 30.0% 25.0%

Key Risks: Stricter regulations for high-rise developments. Plot ratio approval and balanced ratio rules, when strictly implemented, could potentially slow property demand. Liquidity tightening could dampen demand further.

20.0% 15.0% 10.0% 5.0%

Potential interest rate hike. Property demand is sensitive to and is negatively correlated to interest rate movements.

0.0% 2013A

2014A

2015F

2016F

2017F

Forward PE Band (x)

Exposure to US$, both financially (i.e. debt in balance sheet) and operationally (i.e. higher material cost especially for high-rise projects with higher US$-linked items) is a risk amid the weak IDR environment.

(x) 18.9 16.9

+2sd: 16.7x

14.9

+1sd: 13.9x 12.9

Strict implementation on potential revision to housing development balance ratio (of low, middle and luxury houses). If implemented strictly and retroactively, this could potentially mean additional costs for property developers and more complicated property development planning.

Avg: 11.1x

10.9 8.9

‐1sd: 8.3x

6.9 4.9 Jan-12

‐2sd: 5.5x Jan-13

Jan-14

Jan-15

PB Band (x)

Company Background BSDE is Indonesia's largest landed residential property developer. Its core project is the development of an integrated satellite city 15km west of Jakarta. BSDE enlarged its investment property portfolio after consolidating DUTI, SMT, & SMW.

4.8

(x)

4.3 3.8

+2sd: 3.53x 3.3

+1sd: 3.03x 2.8

Avg: 2.53x 2.3

‐1sd: 2.04x 1.8

‐2sd: 1.54x 1.3 Jan-12

Jan-13

Jan-14

Jan-15

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 37

Company Guide Bumi Serpong Damai

BSDE: RNAV summary BSDE portfolio

Stake owned

Land bank area (ha)

RNAV

Investment properties Wisma BII Jakarta, Surabaya, Medan

60%

604

Plaza BII Tower II & III Jakarta

63%

1,430

Le Grandeur Mangga Dua

85%

514

Le Grandeur Balikpapan

85%

168

DP Semarang Mall

100%

268

Rasuna Epicentrum Walk

100%

297

Stakes in Plaza Indonesia

34%

5,133

Commercial (ITCs)

89%

2,186

Investment & Commercial Properties Total Surplus/(Deficit) (Rpbn) - 1

10,600

Planned development BSD City

100%

1,750

26,321

Grand Wisata, Bekasi

46%

580

499

Legenda Wisata, Cibubur

85%

15

14

Kota Bunga, Cipanas

85%

16

5

Banjar Wijaya, Tangerang

89%

40

259

Taman Permana Buana, West Jakarta

68%

10

83

Kota Wisata

85%

147

552

Grand City, Balikpapan

100%

217

982

100%

3

2,407

28,267

High-rise developments Kuningan Apartment Raw land bank BSD City - Phase 3

100%

1,674

Benowo, Surabaya

68%

287

604

Duri Pulo, Central Jakarta

85%

15

668

Lenteng Agung, South Jakarta

85%

5

24

MT Haryono, South Jakarta

36%

1

29

Land bank surplus value (Rpbn) - 2

50,554

FY16F Net cash (debt) - in Rpbn - 3

(1,525)

RNAV (1+2+3) (Rpbn)

69,789

Fully diluted share base (bn)

19.247

RNAV per share (Rp)

3,626

Source: DBS Vickers

ASIAN INSIGHTS Page 38

VICKERS SECURITIES

Company Guide Bumi Serpong Damai

Key Assumptions FY Dec

2013A

2014A

2015F

2016F

2017F

Marketing sales

7,101

6,377

6,790

7,305

7,871

2013A

2014A

2015F

2016F

2017F

4,903 1.30 461 121 91.8 5,741

4,265 356 581 102 102 5,572

5,967 0.0 217 119 108 6,584

6,471 0.0 375 147 113 7,288

7,290 0.0 404 154 119 8,158

3,413 1.06 419 78.2 91.8 4,166

3,145 146 510 63.6 102 4,132

4,177 0.0 190 65.6 108 4,713

4,530 0.0 329 80.7 113 5,235

5,103 0.0 355 84.8 119 5,852

69.6 81.7 90.9 64.5 100.0 72.6

73.7 40.9 87.7 62.1 100.0 74.1

70.0 N/A 87.7 55.0 100.0 71.6

70.0 N/A 87.7 55.0 100.0 71.8

70.0 N/A 87.7 55.0 100.0 71.7

2013A

2014A

2015F

2016F

2017F

5,741 (1,575) 4,166 (1,256) 2,910 219 47.1 7.44 96.1 3,279 (373) (214) 0.0 2,691 2,595 3,301

5,572 (1,440) 4,132 (1,500) 2,632 (32.6) 1,667 (99.2) 140 4,306 (310) (176) 0.0 3,821 3,681 4,397

6,584 (1,870) 4,713 (1,744) 2,969 165 47.1 (216) 0.0 2,964 (362) (221) 0.0 2,381 2,381 3,359

7,288 (2,053) 5,235 (1,931) 3,304 182 47.1 (333) 0.0 3,200 (401) (238) 0.0 2,561 2,561 3,755

8,158 (2,306) 5,852 (2,162) 3,690 204 47.1 (86.6) 0.0 3,855 (449) (290) 0.0 3,117 3,117 4,204

54.0 96.6 103.3 101.8

(3.0) 33.2 (9.6) 41.8

18.2 (23.6) 12.8 (35.3)

10.7 11.8 11.3 7.6

11.9 11.9 11.7 21.7

72.6 50.7 46.9 29.7 13.7 17.2 20.4 NM

74.1 47.2 68.6 29.9 15.0 11.9 10.2 26.5

71.6 45.1 36.2 14.5 7.6 10.0 7.6 13.7

71.8 45.3 35.1 13.9 7.3 9.9 20.0 9.9

71.7 45.2 38.2 15.0 8.3 10.5 20.0 42.6

Segmental Breakdown FY Dec Revenues (Rpbn) Land, house, shophouses, Land and strata title Rental Hotel Others Total Gross Profit (Rpbn) Land, house, shophouses, Land and strata title Rental Hotel Others Total Gross Profit Margins (%) Land, house, shophouses, Land and strata title Rental Hotel Others Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

Land, houses, shophouses remain the revenue driver with more than 90% contribution

Generating high margins consistently

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 39

Company Guide Bumi Serpong Damai

Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

1Q2015

2Q2015

3Q2015

1,483 (317) 1,165 (424) 742 9.79 28.8 (23.2) 0.0 758 (83.6) (31.6) 642 642 781

1,666 (492) 1,174 (430) 744 (152) 1,614 (34.1) (1,418) 755 (84.9) (55.2) 613 2,031 2,207

1,624 (343) 1,281 (358) 923 58.8 3.86 (61.6) 10.6 936 (91.1) (48.8) 795 785 987

1,743 (513) 1,230 (450) 780 11.6 (3.4) (24.2) 10.9 776 (97.5) (57.4) 620 609 789

1,266 (318) 948 (483) 465 64.7 37.1 (111) (10.6) 446 (73.8) (57.6) 314 324 567

27.7 21.7 40.8 27.8

12.3 182.4 0.3 216.5

(2.5) (55.3) 24.1 (61.4)

7.3 (20.1) (15.6) (22.4)

(27.3) (28.1) (40.4) (46.8)

78.6 50.0 43.3

70.5 44.7 36.8

78.9 56.9 49.0

70.6 44.7 35.5

74.9 36.7 24.8

Balance Sheet (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

2,941 523 7,258 5,461 3,797 106 2,486 22,572

3,323 5,332 8,384 3,521 5,016 109 2,523 28,207

4,236 5,332 11,216 5,621 5,217 122 2,523 34,268

5,014 5,332 13,024 4,546 5,067 135 2,523 35,642

5,752 5,332 14,796 5,934 4,708 151 2,523 39,197

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

1,330 95.7 4,574 2,763 394 10,224 3,191 22,572

1,506 156 4,842 2,752 511 15,349 3,091 28,207

1,650 112 5,338 5,903 511 17,441 3,313 34,268

0.0 121 5,862 6,071 511 19,526 3,550 35,642

0.0 135 6,512 6,069 511 22,130 3,840 39,197

1,720 1,368 5.7 34.4 902.8 0.3 2.0 0.9 CASH CASH 65.9 3.3

2,649 (737) 7.0 43.6 1,399.0 0.2 1.7 0.6 0.0 0.0 30.6 3.3

2,412 (1,931) 6.4 24.1 1,125.6 0.2 1.9 0.8 0.1 0.1 51.9 2.9

1,742 (1,525) 6.4 24.1 1,010.0 0.2 2.1 0.8 0.1 0.1 46.3 2.9

735 (134) 6.4 24.1 840.9 0.2 2.0 0.9 0.0 0.0 45.7 2.9

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

Significant increase in long-term debt from USD bond issuance....

But net gearing level is still low

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 40

VICKERS SECURITIES

Company Guide Bumi Serpong Damai

Cash Flow Statement (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp)

3,279 126 (373) (47.1) (2,047) (214) 770 (2,698) 0.0 146 576 (22.7) (1,999) (262) 3,012 (126) 4.49 2,628 0.0 1,399 161

4,306 132 (310) (1,667) (930) (176) 3,022 (1,304) 0.0 (4,809) (99.8) (218) (6,431) (276) 164 1,729 (116) 1,501 0.0 (1,908) 215

2,964 178 (362) (47.1) 237 (221) 2,797 (3,924) 0.0 0.0 221 0.0 (3,702) (289) 3,295 0.0 0.0 3,006 0.0 2,101 133

3,200 222 (401) (47.1) 670 (238) 3,453 (2,809) 0.0 0.0 238 0.0 (2,571) (476) (1,482) 0.0 0.0 (1,958) 0.0 (1,076) 145

3,855 262 (449) (47.1) 1,007 (290) 4,385 (2,772) 0.0 0.0 290 0.0 (2,482) (512) (2.3) 0.0 0.0 (514) 0.0 1,388 176

Strong operating cash flow enables capex expansion going forward

Source: Company, DBS Vickers Target Price & Ratings History

2249

Rp S.No.

2 2049

1

3

1849

4

6

5 7

1649

8 9

Dat e

Closing Pric e

T arget Rat ing Pric e

1:

26 J an 15

2065

1980

BUY

2:

18 Mar 15

2050

1950

BUY

3:

27 Apr 15

2035

2150

HOLD

4:

03 J un 15

1885

2150

HOLD

5:

05 J un 15

1920

2150

HOLD

6:

13 J ul 15

1865

1850

HOLD

7:

10 Aug 15

1745

1850

HOLD

8:

03 Sep 15

1585

1595

HOLD

9:

30 Oct 15

1620

1595

HOLD

1449

1249 Jan-15

May-15

Sep-15

Jan-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 41

Indonesia Company Guide

Ciputra Development Edition 2 Version 1 | Bloomberg: CTRA IJ | Reuters: CTRA.JK

DBS Group Research . Equity

5 Jan 2016

HOLD

Strong Presence in Indonesian Cities

Last Traded Price: Rp1,425 (JCI : 4,525.92) Price Target : Rp1,350 (5% downside) (Prev Rp980) Potential Catalyst: JO projects Where we differ: Earnings are much lower than consensus estimates and guidance

Price Relative Rp

Subsidiary CTRS remains as better play than parent, but is illiquid. Ciputra Surya (CTRS), with its large landbank for development in Surabaya will remain as a significant contributor to marketing sales given the potential jump in land prices from CitraLand North Surabaya township (as the flyover project which will pass close to its development) and its track record for outperformance. On the other hand, contribution from its other subsidiary Ciputra Property (CTRP) , which specialises in mixedused projects, will remain small unless demand in the luxury apartment segment takes off.

Relative Index 249

1,680.8

229

1,480.8

209 1,280.8

189

1,080.8

169 149

880.8

129 680.8

109 Dec-12

Dec-13

Ciputra Development (LHS)

Forecasts and Valuation FY Dec (Rpbn) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Net Pft Gth (Pre-ex) (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Dec-14

89 Dec-15

Relative JCI INDEX (RHS)

2014A 6,344 2,403 2,147 1,325 1,325 87.4 87.4 36 36 87.4 18.8 504 16.3 16.3 nm 11.1 1.3 2.8 0.1 18.7

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

2015F 7,668 2,618 2,162 1,260 1,260 83.1 83.1 (5) (5) 83.1 26.2 543 17.2 17.2 7.0 10.3 1.8 2.6 0.1 15.9

2016F 8,898 2,859 2,388 1,370 1,370 90.4 90.4 9 9 90.4 24.9 608 15.8 15.8 6.8 9.6 1.7 2.3 0.1 15.7

2017F 9,036 2,921 2,404 1,375 1,375 90.7 90.7 0 0 90.7 27.1 672 15.7 15.7 12.0 9.8 1.9 2.1 0.1 14.2

(2) 88.5 B: 11

(8) 98.9 S: 1

(11) 111 H: 9

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P

ASIAN INSIGHTS ed: JS / sa: MA

Maintain HOLD call with higher TP of Rp1,350. We raised our RNAV assumptions by 11% to Rp1,730/sh (from Rp1,550/sh previously) to reflect expected FY16F gearing and the revised risk premium (to 5.5%) for WACC calculation. Subsequently, our TP is boosted to Rp1,350. However, with limited upside from the current level, we maintain our HOLD recommendation. Joint Operation (JO) projects remain a catalyst. Marketing sales contribution from JO projects is expected to keep growing to a record high of 57% next year, with 8-15 new projects in the pipeline next year. Ciputra Development (CTRA) has been able to consistently secure new projects in new cities by leveraging on its established reputation and brand. As the preferred JO partner for land owners in new cities, CTRA has an advantage over other developers in securing projects.

Analyst Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected]

480.8 Dec-11

Refer to important disclosures at the end of this report

Valuation: Our target price of Rp1,350 represents a 23% discount to our base-case RNAV (based on its adjusted 8-year average discount to RNAV). CTRA is currently trading at a 18% discount to RNAV (narrower than its 8-year average of 32%) and 15.8x FY16F PE (at +1SD of its mean forward PE). Key Risks to Our View: Slower take-up at existing and new projects. Weaker property affordability, potential increase in interest rates and stricter implementation of requirements for high-rise developments could prompt delays in launching its project pipeline, resulting in lower than expected marketing sales. Weak commodity prices will also affect new JO projects in rural areas. At A Glance Issued Capital (m shrs) 15,331 Mkt. Cap (Rpbn/US$m) 21,846 / 1,576 Major Shareholders Sang Pelopor (%) 30.6 Credit Suisse Singapore (%) 8.1 Free Float (%) 61.3 3m Avg. Daily Val (US$m) 1.2 ICB Industry : Real Estate / Real Estate Investment & Services

VICKERS SECURITIES

Company Guide Ciputra Development Marketing sales 10,076

CRITICAL DATA POINTS TO WATCH 9,100

Earnings Drivers: Marketing sales achieved Property developers recognise non-recurring revenue from marketing sales in prior years. We expect revenue to expand at 12% CAGR over 2014-17F given that marketing sales had grown by 43% CAGR over 2011-14, but is expected to register an anaemic 5% CAGR over the next three years given the challenging environment. Huge presence in over 30 cities in Indonesia CTRA currently has a presence in 35 cities with 76 projects in its portfolio to tap demand in different regions. In addition, its wide range of products caters to several customer segments. With a track record of over 30 years, CTRA is the preferred JO partner for land owners in new cities. Therefore, it has an advantage over other developers in securing a continuous stream of projects. CTRA targets to have between 8-15 new projects every year.

8,941

8,631

2013A

2014A

9,455

2015F

2016F

7,800 6,500 5,200 3,900 2,600 1,300 0 2017F

Sales Trend Rp bn

60.0%

9,000 8,000

50.0%

7,000

40.0%

6,000 5,000

30.0%

4,000

20.0%

3,000 2,000

10.0%

1,000 0

0.0% 2013A

2014A

Total Revenue

Stable and stagnant recurring revenue from investment properties CTRA has been generating 15% of consolidated revenues from investment properties such as retail malls, hotel and office leases. The retail malls and hotels are considered mature, which means there is limited growth in contribution from these assets.

9,174

2015F

2016F

2017F

Revenue Growth (%) (YoY)

Profitability Trend Rp bn 2,576 2,376 2,176 1,976 1,776 1,576

Better product mix leads to better margins CTRA’s revenues are still heavily reliant on its townships, and this segment has booked high gross profit margins (c.60%) in the past two years. Given more high-rise projects in its portfolio, we will monitor revenue mix to track CTRA’s profitability going forward. Good control of operating costs CTRA has been able to keep SG&A expenses (as % of revenue) under control, despite the higher-than-average increase in its key items in SG&A expenses such as sales commissions, salaries and employee benefits, and taxes & licenses for the purpose of attracting more property demand during this challenging period and for its ever expanding number of JO projects.

1,376 1,176 976 2013A

2014A

Operating EBIT

2015F

2016F

Pre tax Profit

2017F Net Profit

Margins Trend 34.0% 29.0% 24.0% 19.0% 14.0% 2013A

2014A

Operating Margin %

2015F

2016F

2017F

Net Income Margin %

Disc to RNAV 100% 80% 60% Average 28%

40% 20%

-40%

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

0% -20%

-60% -80%

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 43

Company Guide Ciputra Development

Balance Sheet: Healthy balance sheet with reasonably low net gearing CTRA had been in net cash position from 2008 to 2013 as strong cash generation outpaced annual capex requirements. But, the accelerated progress of its superblock developments required more capex, and therefore, net gearing shot up to 15% at end 2014. However, good cash generation and stalled high-rise development onwards will help to reduce CTRA’s net gearing to below 10% from 2015 onwards.

Leverage & Asset Turnover (x) 0.4 0.50

0.4 0.4

0.40

0.3 0.3

0.30

0.3 0.3

0.20

0.3 0.2

0.10

0.2 0.2

0.00 2013A

2014A

2015F

2016F

Gross Debt to Equity (LHS)

Share Price Drivers: Marketing sales achieved and pipeline Marketing sales is a good indicator for all Indonesia property developers (including CTRA) as it gives leading indication for the revenue generation for the next 2-3 years (depending on the revenue recognition).

2017F

Asset Turnover (RHS)

Capital Expenditure Rp 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0

Key Risks: Stricter regulations for high-rise developments. Plot ratio approval and balanced ratio rules, when strictly implemented, could potentially slow property demand. Liquidity tightening could dampen demand further. Potential interest rate hikes. Property demand is sensitive to and is negatively correlated to interest rate movements.

1,000.0 500.0 0.0 2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%) 18.0% 16.0% 14.0% 12.0%

Strict implementation on potential revision to housing development balance ratio (of low, middle and luxury houses). If implemented strictly and retroactively, this could potentially mean additional costs for property developers and more complicated property development planning process.

10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2013A

2014A

2015F

2016F

2017F

Forward PE Band (x)

Company Background CTRA is a large scale residential and commercial developer, with a presence in 20 major cities throughout Indonesia, and has the most diversified product and customer range. Established since 1981, it also has two listed subsidiaries Ciputra Surya (CTRS) and Ciputra Property (CTRP).

23.3

(x)

21.3 19.3

+2sd: 18.5x

17.3

+1sd: 16x

15.3 13.3

Avg: 13.5x

11.3

‐1sd: 11x

9.3

‐2sd: 8.5x

7.3 Jan-12

Jan-13

Jan-14

Jan-15

PB Band (x) (x) 4.2 3.7 3.2

+2sd: 3.2x

2.7

+1sd: 2.75x

2.2

Avg: 2.3x ‐1sd: 1.85x

1.7 1.2 Jan-12

‐2sd: 1.4x Jan-13

Jan-14

Jan-15

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 44

VICKERS SECURITIES

Company Guide Ciputra Development

CTRA: RNAV summary Portfolio Ciputra Property (CTRP IJ) Ciputra Sentra Jakarta Mall Ciputra Jakarta Hotel Ciputra Semarang Mall Ciputra Semarang Hotel Ciputra World Jakarta 1 Lotte Shopping Avenue My Home Apartment & Ascott Service Raffles Hotel & Raffles Residence DBS Tower Office building Ciputra World Jakarta 2 The Residence & Frasers Serviced Apartment Orchard Satrio W Hotel & The Suites Condo Office building Vacant lot Ciputra World Jakarta 3 Vacant lot Somerset Grand Citra Jakarta Ciputra International Phase 1 development Vacant lot Ciputra Beach Resort Net Debt RNAV Fully Diluted Share base (m) Fully Diluted RNAV per share Ciputra Surya (CTRS IJ) Development properties & Landbank Ciputra World Surabaya Citraland Surabaya Citraland North Surabaya CitraHarmoni Sidoarjo Citra Garden Lampung CitraGarden Sidoarjo Taman Dayu Pandaan - JO CitraLand Bagya City - JO CitraGrand Semarang - JO Citraland Greenlake Surabaya - JO Other JO projects Others (Golf, Club & Hotel and Waterpark) Net Debt RNAV Fully Diluted Share base (m) Fully Diluted RNAV per share Ciputra Development (CTRA IJ) Development properties & Landbank CitraRaya Tangerang CitraIndah Jonggol CitraGarden City Jakarta CitraLand Pekanbaru CitraGrand City Palembang - JO CitraLand City Samarinda - JO CitraGarden + Land Banjarmasin - JO CitraLand Celebes Makassar - JO CitraGreen Dago Bandung - JO Other JO projects Ciputra Property (CTRP IJ) Ciputra Surya (CTRS IJ) Net Debt RNAV Fully Diluted Share base (bn) Fully Diluted RNAV per share

City

Category

Jakarta Jakarta Jakarta Jakarta Jakarta

Retail mall Hotel Retail mall Hotel Mixed-use Retail mall Apartment Hotel & Office Office Mixed-use Apartment Apartment Hotel & Office

Jakarta

Jakarta

Mixed-use

Jakarta Jakarta

Serviced Mixed-use

Value (Rpbn)

Stakes

Full Value (Rpbn)

% of total

607 210 473 115

73% 73% 99% 99%

835 289 477 116

7.1% 2.5% 5.5% 1.3%

1,988 344 620 461 355

94% 94% 94% 94% 94%

2,105 364 657 488 376

23.3% 4.0% 7.3% 5.4% 4.2%

288 0 761 448 399

100% 100% 100% 100% 100%

288 0 762 449 400

3.4% 0.0% 8.9% 5.2% 4.7%

324 77

100% 34%

325 226

3.8% 0.9%

303 242 528 900 7,644 6.150 1,243

55% 55% 60%

551 440 880

3.5% 2.8% 6.2%

Bali

Resort

Surabaya Surabaya Surabaya Sidoarjo Lampung Sidoarjo Pandaan Medan Semarang Surabaya

Mixed-use Landed Landed Landed Landed Landed Landed Landed Landed Landed Landed Miscellaneous

501 6,792 2,070 318 0 0 453 137 101 150 383 295 -1,200 12,399 1.979 6,265

53% 100% 100% 99% 100% 60% JO JO JO JO JO 99%

945 6,792 2,070 323 0 0 453 137 101 150 383 298

4.5% 60.6% 18.5% 2.8% 0.0% 0.0% 4.0% 1.2% 0.9% 1.3% 3.4% 2.6%

Landed Landed Landed Landed Landed Landed Landed Landed Landed Landed

3,826 1,021 2,566 141 317 252 57 8 44 5279

100% 100% 100% 100% JO JO JO JO JO JO

3,830 1,021 2,569 141 317 252 57 8 44 5,279

14.2% 3.8% 9.5% 0.5% 1.2% 0.9% 0.2% 0.0% 0.2% 19.6%

4,959 8,521 786 26,206 15.166 1,730

58% 63%

8,544 13,599

18.4% 31.6%

Surabaya

Jakarta Jakarta Jakarta Pekanbaru Palembang Samarinda Banjarmasi Makassar Bandung

Landbank (ha)

1.6 1.3

5 80

239.4 199.0 31.3 1.9 3.3

696.2 251.5 111.7 20

Source: DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 45

Company Guide Ciputra Development

Key Assumptions FY Dec

2013A

2014A

2015F

2016F

2017F

Marketing sales

8,941

8,631

9,174

9,455

10,076

Segmental Breakdown FY Dec

2013A

2014A

2015F

2016F

2017F

Revenues (Rpbn) Land lots Office and Condo sales Residential+shophouse Recurring

275 932 3,033 837

164 1,181 3,875 1,124

1,457 1,507 3,562 1,141

1,150 1,784 4,656 1,309

995 1,474 5,159 1,408

5,077

6,344

7,668

8,898

9,036

64.7 429 1,584 468

122 572 1,974 666

1,020 603 1,603 566

805 713 2,095 647

697 590 2,321 693

2,546

3,334

3,792

4,260

4,301

23.5 46.1 52.2 55.9

73.9 48.4 51.0 59.2

70.0 40.0 45.0 49.6

70.0 40.0 45.0 49.4

70.0 40.0 45.0 49.2

50.2

52.5

49.5

47.9

47.6

2013A

2014A

2015F

2016F

2017F

5,077 (2,531) 2,546 (994) 1,553 98.7 5.22 52.7 0.0 1,709 (296) (437) 0.0 977 977 1,699

6,344 (3,011) 3,334 (1,130) 2,204 43.6 3.95 (104) 0.0 2,147 (353) (469) 0.0 1,325 1,325 2,403

7,668 (3,875) 3,792 (1,380) 2,412 (0.4) 4.82 (255) 0.0 2,162 (383) (519) 0.0 1,260 1,260 2,618

8,898 (4,638) 4,260 (1,646) 2,614 (0.5) 5.23 (230) 0.0 2,388 (445) (573) 0.0 1,370 1,370 2,859

9,036 (4,735) 4,301 (1,672) 2,629 (0.3) 5.26 (230) 0.0 2,404 (452) (577) 0.0 1,375 1,375 2,921

52.8 61.7 62.7 65.8

25.0 41.5 41.9 35.7

20.9 9.0 9.4 (4.9)

16.0 9.2 8.4 8.8

1.5 2.2 0.6 0.4

50.2 30.6 19.2 16.2 5.5 11.2 30.9 NM

52.5 34.7 20.9 18.7 6.1 12.8 29.2 21.2

49.5 31.5 16.4 15.9 5.0 11.7 30.0 9.5

47.9 29.4 15.4 15.7 4.8 11.2 30.0 11.4

47.6 29.1 15.2 14.2 4.5 10.5 30.0 11.4

Total Gross Profit (Rpbn) Land lots Office and Condo sales Residential+shophouse Recurring Total Gross Profit Margins (%) Land lots Office and Condo sales Residential+shophouse Recurring Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

Township development remains largest revenue contributor

Steady margins with a stable revenue mix as projects are spread across Indonesia

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 46

VICKERS SECURITIES

Company Guide Ciputra Development

Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

1Q2015

2Q2015

3Q2015

1,419 (691) 728 (239) 490 9.07 0.99 (32.3) 0.0 467 (78.2) (107) 282 282 490

2,117 (976) 1,141 (380) 762 22.4 0.77 (48.9) 0.0 736 (128) (165) 443 443 762

1,424 (678) 747 (288) 459 9.11 0.71 (54.8) 0.0 414 (77.0) (109) 228 228 459

1,666 (785) 881 (393) 488 14.5 0.49 (67.7) 0.0 435 (89.0) (95.0) 251 251 488

2,284 (1,198) 1,086 (318) 768 23.0 1.05 (79.4) 0.0 713 (112) (145) 456 456 768

(11.6) (14.6) (14.6) (24.5)

49.2 55.5 55.5 57.1

(32.7) (39.8) (39.8) (48.5)

17.0 6.4 6.4 10.2

37.1 57.4 57.4 81.7

51.3 34.5 19.9

53.9 36.0 20.9

52.4 32.2 16.0

52.9 29.3 15.1

47.6 33.6 20.0

Balance Sheet (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

5,356 0.0 5,216 3,476 4,879 541 776 20,245

6,555 0.0 5,810 2,889 6,429 765 1,091 23,539

7,781 0.0 6,996 4,330 5,566 786 1,636 27,095

9,273 0.0 8,599 4,380 4,434 912 2,454 30,052

10,270 0.0 9,821 3,636 3,213 926 3,681 31,547

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

629 663 6,765 2,099 213 6,488 3,388 20,245

804 773 6,848 3,217 245 7,645 4,007 23,539

800 515 8,433 4,342 245 8,234 4,526 27,095

800 617 9,698 4,366 245 9,226 5,099 30,052

800 630 9,840 4,166 245 10,190 5,676 31,547

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

(1,232) 748 37.4 51.5 626.7 0.3 1.2 0.5 CASH CASH 86.6 2.1

664 (1,132) 37.6 93.2 734.0 0.3 1.3 0.4 0.1 0.1 44.0 2.1

(961) (812) 36.9 51.3 553.6 0.3 1.3 0.5 0.1 0.1 47.2 2.0

(2,515) (787) 34.8 51.2 368.4 0.3 1.1 0.5 0.1 0.1 60.5 1.8

(2,650) (1,329) 37.1 51.7 263.9 0.3 1.0 0.4 0.1 0.1 45.9 1.8

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Healthy balance sheet with low net gearing

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 47

Company Guide Ciputra Development

Cash Flow Statement (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp)

1,709 146 (296) 0.0 626 (444) 1,741 (2,363) 0.0 497 0.0 (692) (2,557) (182) 1,257 0.0 116 1,191 0.0 375 73.5

2,147 199 (353) 0.0 (1,895) (472) (374) (1,769) 0.0 619 0.0 (190) (1,341) (285) 1,293 0.0 119 1,126 0.0 (588) 100

2,162 206 (383) 0.0 1,625 (519) 3,090 (2,426) 0.0 519 0.0 (192) (2,100) (397) 1,121 (86.5) (187) 450 0.0 1,441 96.6

2,388 245 (445) 0.0 1,554 (573) 3,169 (3,128) 0.0 573 0.0 (211) (2,766) (378) 24.5 0.0 0.0 (353) 0.0 49.6 106

2,404 292 (452) 0.0 135 (577) 1,802 (2,279) 0.0 577 0.0 (232) (1,934) (411) (200) 0.0 0.0 (612) 0.0 (743) 110

Higher capex because of high-rise projects

Source: Company, DBS Vickers Target Price & Ratings History

Rp 1533

2

1433 1333

4 1

3

1233

5

1133

6

8

1033

S.No.

Dat e

Closing Pric e

T arget Price

Rat ing

1:

26 J an 15

1415

1113

F ULLY V ALUED

2:

01 Apr 15

1479

1113

F ULLY V ALUED

3:

27 Apr 15

1420

1326

HOLD

4:

04 May 15

1345

1326

HOLD

5:

13 J ul 15

1246

1227

HOLD

6:

10 Aug 15

1078

1227

HOLD

7:

03 Sep 15

811

969

HOLD

8:

02 Nov 15

1070

980

HOLD

933 833

7

733 Jan-15

May-15

Sep-15

Jan-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Vickers

ASIAN INSIGHTS Page 48

VICKERS SECURITIES

Indonesia Company Guide

Lippo Karawaci Edition 2 Version 1 | Bloomberg: LPKR IJ | Reuters: LPKR.JK

Refer to important disclosures at the end of this report

DBS Group Research . Equity

5 Jan 2016

FULLY VALUED (Downgrade from HOLD)

Rebound from Cleansing Year?

Last Traded Price: Rp1,015 (JCI : 4,525.92) Price Target : Rp980 (3% downside) (Prev Rp1,160) Potential Catalyst: Faster monetisation of high-rise projects Where we differ: One of the negative calls amid BUY recommendations Analyst Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected]

Price Relative Rp

Relative Index

1,985.0

228

1,785.0

208

1,585.0

188

1,385.0

168

1,185.0

148

985.0

128

785.0

108

585.0 Dec-11

Dec-12

Lippo Karawaci (LHS)

Forecasts and Valuation FY Dec (Rpbn) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Net Pft Gth (Pre-ex) (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Dec-13

Dec-14

88 Dec-15

Relative JCI INDEX (RHS)

2014A 11,655 3,686 3,695 2,547 2,547 110 110 107 107 110 13.9 499 9.2 9.2 nm 9.8 1.4 2.0 0.4 25.2

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

2015F 9,310 2,694 2,495 1,481 1,481 64.2 64.2 (42) (42) 64.2 14.4 549 15.8 15.8 nm 14.4 1.4 1.8 0.5 12.2

2016F 10,167 2,883 2,437 1,392 1,392 60.3 60.3 (6) (6) 60.3 16.0 593 16.8 16.8 nm 14.7 1.6 1.7 0.6 10.6

2017F 11,576 3,242 2,673 1,506 1,506 65.3 65.3 8 8 65.3 15.1 644 15.6 15.6 8.9 13.1 1.5 1.6 0.5 10.6

(3) 72.0 B: 6

(9) 76.2 S: 5

(3) 84.5 H: 10

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P.

ASIAN INSIGHTS ed: TH / sa: MA

Downgrade to FULLY VALUED mainly due to slash in hospital valuation. We lowered our RNAV assumptions by 19% to Rp1,411/sh (from Rp1,734/sh previously) to reflect our recent slash in LPKR’s subsidiary Siloam International Hospitals (SILO)’s valuation and other assumptions changes (i.e. marketing sales, net debt level and risk premium for WACC calculation). Subsequently, our TP is cut to Rp980, implying 10% downside to current price. Slashed valuation in SILO due to expansion timeline concern. As per our report on 26 Nov 2015, SILO cited difficulties in finalising licences and administration as the main culprit behind its shortcoming in executing new hospital expansions. This has tempered expectation on SILO to deliver its intended expansion and therefore severely affected its future value. SILO’s value (after adjusting for 70% ownership) make up 18% of LPKR’s RNAV. Increasing dependency on subsidiary Lippo Cikarang (LPCK) for marketing sales. Despite having three urban developments, two large-scale mixed-used developments and a few smaller residential and commercial projects in its portfolio, LPKR’s marketing sales for the next two years will still much depend on LPCK’s Orange County Business District (OCBD) development given its niche apartment demand in industrial area. As of 9M15, LPCK's marketing sales contributed 70% of LPKR’s total marketing sales. Valuation: Our target price of Rp980 is at a 31% discount to our base-case RNAV (based on its adjusted 8-year average discount to RNAV). LPKR is currently trading at a 28% discount to RNAV (narrower than its 8-year average of 43%) and 16.8x FY16F PE (premium because of high valuation for the healthcare unit and at +0.5SD of its mean forward PE). Key Risks to Our View: Slower take-up for launches. Weaker property affordability, potential increase in interest rate and stricter implementations of high-rise developments could prompt delays in launching pipeline and cause marketing sales to miss our expectations. Slower-than-expected growth of investment properties. Despite more conservative forecasts than guidance, there may still be downside to our estimates as LPKR (under its asset-light strategy) is dependent on its two Singapore-listed REITs to expand its retail mall and hospital segments. At A Glance Issued Capital (m shrs) 23,078 Mkt. Cap (Rpbn/US$m) 23,424 / 1,690 Major Shareholders Pacific Asia Holdings (%) 17.9 Free Float (%) 82.1 3m Avg. Daily Val (US$m) 5.8 ICB Industry : Real Estate / Real Estate Investment & Services

VICKERS SECURITIES

Company Guide Lippo Karawaci Marketing sales

CRITICAL DATA POINTS TO WATCH Earnings Drivers: Marketing sales achievement Property developer recognises non-recurring revenue from marketing sales in the prevailing years. We expect revenue to expand at 12% CAGR over 2014-17F (excluding one-off asset sales) given the current project pipeline and that marketing sales grew at 19% CAGR over 2011-14. However, we foresee marketing sales for its existing developments to be slow for the next three years. Despite having three urban developments, two large-scale mixed-used developments and a few smaller residential and commercial projects in the pipeline, marketing sales in the next two years will still much depend on its subsidiary project Lippo Cikarang (given its good take-up and niche market).

5,185 4,900

4,718 4,349

4,049

4,200

3,722

3,500 2,800 2,100 1,400 700 0 2013A

2014A

2015F

2016F

2017F

Sales Trend Rp bn

80.0%

10,000

60.0%

8,000 6,000

40.0%

4,000

20.0%

2,000

0.0%

More dependent on healthcare revenue going forward Revenue from healthcare segment has surged to contribute 45% of LPKR’s consolidated revenues, following aggressive expansion (+38% CAGR) over 2011-14. We expect the segment to contribute more as other segments continue to moderate.

0

-20.0% 2013A

2014A

Total Revenue

2015F

2016F

2017F

Revenue Growth (%) (YoY)

Profitability Trend Rp bn

3,228

Lower profitability as a result of entry into healthcare segment Property development (both landed and high-rise) had been generating high gross margins (over 50%) in the past three years. But revenue contribution has slipped over the years due to aggressive expansion into the healthcare segment (which book lower GP margins). We expect healthcare to contribution more to LPKR’s consolidated revenue in the next few years, which means margins will continue to slide. Non-cash accounting forex loss to wipe out net earnings on paper Although the US$ global bonds are fully hedged, LPKR faces a staggering non-cash outflow accounting forex loss which may practically wipe out more than half of its EBIT on paper. FY15 net loss (without excluding the forex effect) is inevitable if IDR continues to weaken against US$. Company Background LPKR operates five businesses, namely township, healthcare, retail mall, hospitality and portfolio management. It has listed subsidiaries in Lippo Cikarang (LPCK) and Gowa Makassar Tourism Development (GMTD), and stakes in First REIT & LMIRT (both listed in Singapore).

2,728

2,228

1,728

1,228 2013A

2014A

Operating EBIT

2015F

2016F

Pre tax Profit

2017F Net Profit

Margins Trend 30.0% 28.0% 26.0% 24.0% 22.0% 20.0% 18.0% 16.0% 14.0% 12.0% 2013A

2014A

Operating Margin %

2015F

2016F

2017F

Net Income Margin %

Disc to RNAV trend 80% 60% Average 43% 40% 20% 0% -20%

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

LPKR is unique and ahead of other developers in tapping on healthcare needs in Indonesia, which is under-penetrated relative to the regional countries.

-40%

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 50

VICKERS SECURITIES

Company Guide Lippo Karawaci

Balance Sheet: Net gearing to increase from current level given expansion plan for investment properties. LPKR started its transformation into a high-rise developer a few years ago, and therefore, net gearing has been rising and will hover at more than 65% ahead.

Leverage & Asset Turnover (x) 0.4 0.70

0.4 0.4

0.60

0.3

0.50

0.3 0.40

0.3 0.3

0.30

0.3

0.20

Asset-light strategy for investment property segment. The investment properties include retail malls and hospitals. LPKR recycles capital by divesting assets to its Singapore-listed REITs (i.e. hospitals to First REIT and retail malls to Lippo Malls Indonesia Retail Trust).

0.2 0.10

0.2 0.2

0.00 2013A

2014A

2015F

2016F

Gross Debt to Equity (LHS)

2017F

Asset Turnover (RHS)

Capital Expenditure Rp 2,000.0

Share Price Drivers: Marketing sales achievement and pipeline Marketing sales achievement is a good indicator for all Indonesian property developers (including LPKR) as it gives leading indication for the revenue generation for the next 2-3 years (depending on the revenue recognition). Execution of aggressive healthcare The hospital segment, under subsidiary Siloam (SILO), has to catch up with its aggressive plan to open 10 new hospitals and clinics this year. Possible increase in hedging cost from US$ debt LPKR is exposed to IDR weakness due to its global US$ bonds. LPKR has US$803m bonds on its balance sheet and has fullyhedged the principal through call spreads. Hedging cost may increase beyond reasonable levels if the USD/IDR exchange rate breaches the existing call spreads. Key Risks: Stricter regulations for high-rise developments. Plot ratio approval and balanced ratio rules, when strictly implemented, could potentially slow property demand. Liquidity tightening could slow demand further. Potential interest rate hike. Property demand is sensitive to and is negatively correlated to interest rate movements. Exposure to US$, both financially (i.e. debt in balance sheet) and operationally (i.e. higher material cost especially for high-rise projects with higher US$-linked items) is a risk amid the weak IDR environment. Strict implementation on potential revision to housing development balance ratio (of low, middle and luxury houses). If implemented strictly and retroactively, this could potentially mean additional costs for property developers and more complicated property development planning. Capital-intensive projects require large funding. High-rise and hospital developments require large upfront capital. External financing costs have to be kept in check.

1,800.0 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 0.0 2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%) 25.0%

20.0%

15.0%

10.0%

5.0%

0.0% 2013A

2014A

2015F

2016F

2017F

Forward PE Band (x) (x) 25.1

+2sd: 23.1x

23.1 21.1

+1sd: 19.5x

19.1 17.1

Avg: 15.9x

15.1 13.1

‐1sd: 12.3x

11.1 9.1

‐2sd: 8.7x

7.1 Jan-12

Jan-13

Jan-14

Jan-15

PB Band (x) 6.2

(x)

5.2

+2sd: 4.4x

4.2

+1sd: 3.66x 3.2

Avg: 2.92x 2.2

1.2 Jan-12

‐1sd: 2.18x ‐2sd: 1.44x Jan-13

Jan-14

Jan-15

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 51

Company Guide Lippo Karawaci

LPKR: RNAV summary City

Category

Value (Rpbn)

Stakes

Full Value (Rpbn)

Lippo Village (incl. Millenium Village) Lippo Cikarang (incl. Orange County development) Tanjung Bunga Makassar

West Jakarta

Residential

11,793

100%

East Jakarta

Industrial

7,467

Makassar

San Diego Hills

East Jakarta

Residential Memorial Park

Portfolio

% of total

Landbank (ha)

11,793

26.5%

153

54%

13,828

16.8%

509

1,439

50%

2,878

3.2%

315

1,248

100%

1,248

2.8%

97

6.2

Urban Developments

21,948

Subtotal Large Scale Integrated Development

St. Moritz

South Jakarta West Jakarta

St. Moritz

Makassar

Mixed-use

281

100%

281

0.6%

City of Tomorrow

Surabaya

Mixed-use Residential & Office

616

85%

725

1.4%

552

100%

552

1.2%

800

100%

800

1.8%

Kemang Village

New projects (Apartment & Office) Others (land, retail space inv. & other dev) Subtotal

Jakarta

Mixed-use

1,643

90%

1,826

3.7%

Mixed-use

2,006

100%

2,006

4.5%

5,899

Hospitals Subtotal

8,079

70%

11,508

18.2%

700

100%

700

1.6%

Retail malls Retail space inventory Subtotal

700

Hotels Aryaduta Lippo Village Aryaduta Jakarta, Medan and Pekanbaru

681

FREIT

681

1.5%

1,674

100%

1,674

3.8%

FREIT & LMIRT

5,451

12.3%

Subtotal

2,355

REIT units

5,451

50,433 Net Debt

11,858

RNAV

32,578

Fully Diluted Share base (m)

23.077

Fully Diluted RNAV per share

1,411

Source: DBS Vickers

ASIAN INSIGHTS Page 52

VICKERS SECURITIES

Company Guide Lippo Karawaci

Key Assumptions FY Dec

2013A

2014A

2015F

2016F

2017F

Marketing sales

4,718

5,185

3,722

4,049

4,349

2013A

2014A

2015F

2016F

2017F

862 852 134 1,098 3,720 6,666

792 1,288 154 1,317 8,104 11,655

1,189 402 178 1,851 5,690 9,310

997 450 191 1,795 6,734 10,167

1,416 374 215 1,582 7,989 11,576

424 501 112 578 1,432 3,047

475 753 126 695 3,349 5,397

773 221 145 925 2,205 4,269

648 247 156 897 2,524 4,473

920 206 175 791 2,905 4,997

49.1 58.8 83.4 52.6 38.5 45.7

59.9 58.5 81.7 52.8 41.3 46.3

65.0 55.0 81.7 50.0 38.7 45.9

65.0 55.0 81.7 50.0 37.5 44.0

65.0 55.0 81.7 50.0 36.4 43.2

2013A

2014A

2015F

2016F

2017F

6,666 (3,620) 3,047 (1,534) 1,513 431 8.52 (26.7) 0.0 1,925 (332) (364) 0.0 1,229 1,229 1,837

11,655 (6,258) 5,397 (2,121) 3,277 532 8.24 (122) 0.0 3,695 (560) (588) 0.0 2,547 2,547 3,686

9,310 (5,040) 4,269 (2,095) 2,175 454 0.0 (134) 0.0 2,495 (465) (549) 0.0 1,481 1,481 2,694

10,167 (5,694) 4,473 (2,288) 2,185 448 0.0 (197) 0.0 2,437 (508) (536) 0.0 1,392 1,392 2,883

11,576 (6,578) 4,997 (2,605) 2,393 500 0.0 (220) 0.0 2,673 (579) (588) 0.0 1,506 1,506 3,242

8.2 10.4 2.4 15.9

74.8 100.7 116.6 107.3

(20.1) (26.9) (33.6) (41.9)

9.2 7.0 0.5 (6.0)

13.9 12.5 9.5 8.2

45.7 22.7 18.4 16.0 4.4 5.9 25.5 56.6

46.3 28.1 21.9 25.2 7.4 10.6 26.0 26.8

45.9 23.4 15.9 12.2 3.7 5.7 13.1 16.2

44.0 21.5 13.7 10.6 3.1 5.1 25.0 11.1

43.2 20.7 13.0 10.6 3.1 5.1 25.0 10.9

Segmental Breakdown FY Dec Revenues (Rpbn) Land lots Residential+shophouse Memorial Park Apartment Others Total Gross Profit (Rpbn) Land lots Residential+shophouse Memorial Park Apartment Others Total Gross Profit Margins (%) Land lots Residential+shophouse Memorial Park Apartment Others Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

More revenues from apartments and hospitals (recurring revenue) going forward

Revenue surged because of proceeds from one-off asset sale (Rp3.3tn) to REITs

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 53

Company Guide Lippo Karawaci

Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

1Q2015

2Q2015

3Q2015

2,012 (1,067) 946 (548) 398 219 2.02 (34.0) 0.0 585 (65.5) (139) 381 381 398

5,534 (3,004) 2,530 (685) 1,845 233 5.47 (41.4) 0.0 2,042 (324) (224) 1,494 1,494 1,845

2,447 (1,247) 1,200 (573) 627 63.5 1.86 (31.3) 0.0 661 (101) (143) 417 417 627

2,300 (1,243) 1,057 (480) 577 80.1 0.88 (23.9) 0.0 634 (137) (139) 358 358 577

2,012 (1,046) 967 (694) 273 (799) 5.78 (43.5) 0.0 (564) (48.6) (96.1) (708) (708) 273

(4.0) (23.7) (23.7) 14.0

175.0 363.9 363.9 292.5

(55.8) (66.0) (66.0) (72.1)

(6.0) (8.0) (8.0) (14.2)

(12.5) (52.7) (52.7) (297.9)

47.0 19.8 18.9

45.7 33.3 27.0

49.1 25.6 17.1

46.0 25.1 15.6

48.0 13.6 (35.2)

Balance Sheet (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

3,117 0.0 4,172 1,855 13,894 772 7,492 31,303

3,519 0.0 4,291 3,529 16,553 951 8,929 37,773

4,979 0.0 4,932 2,798 20,447 954 8,929 43,039

5,872 0.0 5,875 977 24,347 1,042 8,929 47,041

6,567 0.0 6,974 1,492 25,388 1,186 8,929 50,536

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

16.7 398 7,389 7,791 1,549 12,784 1,377 31,303

186 395 8,258 9,811 1,502 15,588 2,033 37,773

400 678 9,712 11,205 1,727 16,735 2,582 43,039

400 766 10,579 12,435 1,986 17,757 3,118 47,041

400 885 11,919 12,427 2,284 18,915 3,706 50,536

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

14,372 (5,952) 37.4 53.9 1,351.2 0.2 3.1 0.3 0.4 0.5 20.3 2.0

17,780 (6,468) 27.0 24.7 950.1 0.3 3.4 0.5 0.4 0.4 3.3 2.2

19,940 (8,807) 37.3 54.7 1,650.6 0.2 3.1 0.3 0.5 0.5 16.0 1.9

22,973 (11,858) 35.8 55.9 1,778.6 0.2 3.0 0.2 0.6 0.7 11.7 1.8

22,700 (11,335) 35.1 56.4 1,617.5 0.2 2.8 0.2 0.5 0.6 10.2 1.7

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Burned by non-cash-outflow accounting forex loss. This should continue in 4Q15

Rising net gearing as more capex is required for hospital expansion and its continuing transformation into more of a high-rise developer

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 54

VICKERS SECURITIES

Company Guide Lippo Karawaci

Cash Flow Statement (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp)

1,925 324 (332) 0.0 (4,499) (365) (2,946) (1,588) 0.0 563 0.0 (203) (1,229) (270) 1,793 0.0 1,150 2,673 0.0 (1,501) 67.3

3,695 409 (560) 0.0 (3,409) (588) (452) (333) 0.0 657 0.0 (644) (320) (320) 2,190 0.0 568 2,437 0.0 1,665 128

2,495 519 (465) 0.0 (2,159) (549) (160) (1,857) 0.0 549 0.0 (537) (1,846) (333) 1,607 0.0 0.0 1,274 0.0 (731) 86.6

2,437 698 (508) 0.0 (3,034) (536) (944) (1,506) 0.0 536 0.0 (768) (1,738) (370) 1,231 0.0 0.0 860 0.0 (1,821) 90.6

2,673 850 (579) 0.0 274 (588) 2,629 (1,310) 0.0 588 0.0 (1,037) (1,758) (348) (8.0) 0.0 0.0 (356) 0.0 515 102

Source: Company, DBS Vickers

Target Price & Ratings History 1526

Rp Dat e

Closing Pric e

1:

20 J an 15

1030

1200

2:

30 Mar 15

1305

1200

HOLD

3:

27 Apr 15

1305

1360

HOLD

4:

30 Apr 15

1185

1360

HOLD

5:

13 J ul 15

1190

1300

HOLD

6:

10 Aug 15

1110

1300

HOLD

7:

03 Sep 15

1055

1160

HOLD

8:

01 Dec 15

1360

1160

HOLD

S.No.

1426

8 2

1326

3 4

1226

5

1126 1026

6

T arget Rat ing Pric e HOLD

7

1 926 Jan-15

May-15

Sep-15

Jan-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 55

Indonesia Company Guide

Pakuwon Jati Edition 2 Version 1 | Bloomberg: PWON IJ | Reuters: PWON.JK

Refer to important disclosures at the end of this report

DBS Group Research . Equity

5 Jan 2016

HOLD (Downgrade from BUY)

Covering All Bases

Downgrade to HOLD after recent rally, still our preferred pick in the sector. We tweaked our RNAV assumptions slightly to Rp570/sh (from Rp551/sh) to reflect Pakuwon Jati (PWON)’s latest Potential Catalyst: Upside to RNAV from T.B. Simatupang project launch marketing sales achieved, expected gearing and the revised risk Where we differ: One of the neutral call amid BUY recommendations premium (to 5.5%) for WACC calculation. There is only a slight change in TP (to Rp490) given minimal adjustments to RNAV. Analyst However, despite being our preferred pick for its strong recurring Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected] earnings to ride-out any slowdown in property sales, we downgrade PWON to HOLD after the recent rally (+15% in a month) that has wiped out most of the upside. Last Traded Price: Rp496 (JCI : 4,525.92) Price Target : Rp490 (1% downside) (Prev Rp470)

Sizeable recurring income base and decent marketing sales growth. Our marketing sales forecast growth is conservative at 2.4%/9.5%/11.3% in FY15/16/17F. This, plus the sizeable recurring revenue base (currently 48% of consolidated revenue) should translate into decent sustainable earnings growth beyond 2017 too.

Price Relative Rp

Relative Index

605.7 555.7

223

505.7

203

455.7

183

405.7

163

355.7 143

305.7

123

255.7

103

205.7 155.7 Dec-11

Dec-12

Pakuwon Jati (LHS)

Forecasts and Valuation FY Dec (Rpbn) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Net Pft Gth (Pre-ex) (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Dec-13

83 Dec-15

Dec-14

Relative JCI INDEX (RHS)

2014A 3,872 2,471 2,859 2,516 1,395 52.2 29.0 122 23 52.2 4.50 128 9.5 17.1 6.7 11.2 0.9 3.9 0.2 50.1

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

2015F 4,941 3,464 2,238 1,805 1,805 37.5 37.5 (28) 29 37.5 5.80 153 13.2 13.2 8.8 8.4 1.2 3.2 0.3 26.7

2016F 5,461 4,013 2,389 1,915 1,915 36.1 36.1 (4) (4) 36.1 6.81 168 13.7 13.7 7.6 8.0 1.4 2.9 0.3 23.5

2017F 6,415 4,669 2,754 2,199 2,199 41.5 41.5 15 15 41.5 7.23 203 11.9 11.9 6.3 6.9 1.5 2.4 0.2 22.4

(8) 39.9 B: 11

(23) 50.6 S: 0

(28) 58.3 H: 4

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P

ASIAN INSIGHTS ed: JS / sa: MA

Strong bargaining power in retail mall space. Armed with 512k sqm of net leasable area (NLA) in retail malls with over 90% occupancy rate, PWON is the largest retail space owner and operator in both Jakarta and Surabaya. PWON benefits from limited retail space supply in good areas, and strong demand from both foreign and local retailers. Valuation: Our target price of Rp490 is pegged to a 13% discount to our base-case RNAV (based on its adjusted 8-year average discount to RNAV). PWON is currently trading at a 13% discount to RNAV (much narrower to its 8-year average of 26%) and 13.7x FY16F PE (at +1SD of its mean forward PE). Key Risks to Our View: Slower take-up at launches Weaker property affordability, potential increase in interest rates and stricter implementation of requirements for high-rise developments could prompt delays in launching its project pipeline, resulting in lower than expected marketing sales. Slower economy and rising competition This could indirectly reduce PWON’s ability to raise rents and maintain the profitability of its investment property portfolio. At A Glance Issued Capital (m shrs) 48,160 Mkt. Cap (Rpbn/US$m) 23,887 / 1,723 Major Shareholders Pakuwon family related (%) 52.0 Free Float (%) 48.0 3m Avg. Daily Val (US$m) 2.1 ICB Industry : Real Estate / Real Estate Investment & Services

VICKERS SECURITIES

Company Guide Pakuwon Jati Marketing sales 3,875

CRITICAL DATA POINTS TO WATCH

3,000

Earnings Drivers: Large portion of recurring revenue from investment properties PWON generated 48% of its consolidated revenue from investment properties, mostly retail malls. We expect this proportion to be stable for the next few years as PWON has a balanced property portfolio. The large component of recurring revenue should provide PWON with a buffer against slower marketing sales in this challenging property market. PWON’s long term target is a 50-50 mix of recurring and non-recurring revenues.

3,481

3,500

3,137

3,180

2014A

2015F

3,000

2,500 2,000 1,500 1,000 500 0 2013A

2016F

2017F

Sales Trend Rp bn

50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

6,000 5,000 4,000

Marketing sales achieved Property developer recognises non-recurring revenue from marketing sales achieved in the prior 2-3 years. We expect revenue to grow by 18% CAGR over 2014-17F given that marketing sales grew at 41% CAGR over 2011-14. We estimate marketing sales can still grow at moderate 8% CAGR over the next three years, supported by its existing residential townships and high-rise developments in Indonesia’s two largest cities - Jakarta and Surabaya.

3,000 2,000 1,000 0 2013A

2014A

Total Revenue

2015F

2016F

2017F

Revenue Growth (%) (YoY)

Profitability Trend Rp bn 2,932 2,732

Product mix About 70% of PWON’s non-recurring revenue comes from high-rise projects, and this segment has been generating stable gross profit margins (c.50%). Plus, given the large share of recurring revenue and stable sustainable margins, we expect overall gross profit margins to remain steady.

2,532 2,332 2,132 1,932 1,732 1,532 1,332 1,132

Good control of operating costs PWON has been able to keep SG&A expenses (as % of revenue) under control, despite the larger-than-average increase in two key items in SG&A expenses; “advertising, promotion and events” for the purpose of attracting more demand for its developments during this challenging period and “salaries and allowances” given new substantial projects in its portfolios. Strong bargaining power for retail mall operators Given the limited supply of retail space supply in good areas, PWON (as one of the largest retail space owner and operator in Jakarta and Surabaya) should benefit from strong demand for retail space from both foreign and local brands.

2013A

2014A

Operating EBIT

2015F

2016F

Pre tax Profit

2017F Net Profit

Margins Trend 67.0% 62.0% 57.0% 52.0% 47.0% 42.0% 37.0% 32.0% 2013A

2014A

2015F

Operating Margin %

2016F

2017F

Net Income Margin %

Disc to RNAV trend 80% 70%

Company Background Mixed-use property and residential township developer with assets in Jakarta and Surabaya. PWON has a balanced portfolio with a large share of recurring revenues from retail malls

60% 50% 40% 30%

Average 26%

20% 10%

-20%

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

0% -10%

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 57

Company Guide Pakuwon Jati

Balance Sheet: Net gearing level is reasonable As a superblock developer, PWON’s gearing has been higher than other developers. Net gearing has improved significantly since 2008. And, with the current strong cash generation from asset monetisation, PWON’s net gearing should stay at a reasonable level of c.37% in the next few years.

Leverage & Asset Turnover (x) 0.4 0.70

0.4 0.4

0.60

0.3

0.50

0.3 0.40

0.3 0.3

0.30

0.3

0.20

0.2 0.10

0.2 0.2

0.00

Mandatory Convertible Notes (MCN) will be paid off before maturity PWON will redeem the US$58m MCN issued to UOB Kay Hian which will mature on 31st July 2016, to prevent the dilution of its stake in the Gandaria City project. Capex to normalise We project capex will normalise going forward at around FY15’s level, after the spike in 2014 from major acquisitions (bought 67% stake in Pakuwon Permai project and 4.2ha landbank in T.B. Simatupang, South Jakarta).

2013A

2014A

2015F

2016F

Gross Debt to Equity (LHS)

2017F

Asset Turnover (RHS)

Capital Expenditure Rp 8,000.0 7,000.0 6,000.0 5,000.0 4,000.0 3,000.0 2,000.0 1,000.0 0.0 2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

Share Price Drivers: Marketing sales achieved and pipeline Marketing sales achieved is a good indicator for all Indonesia property developers (including PWON) as it gives a leading indication for revenue generation for the next 2-3 years (depending on the revenue recognition).

ROE (%) 50.0%

40.0%

30.0%

20.0%

Key Risks: Stricter regulations for high-rise developments. Plot ratio approval and balanced ratio rules, when strictly implemented, could potentially slow property demand. Liquidity tightening could dampen demand further.

10.0%

0.0% 2013A

2014A

2015F

2016F

2017F

Forward PE Band (x) (x)

Potential interest rate hike. Property demand is sensitive to and is negatively correlated to interest rate movements.

17.7

15.7

+2sd: 15.1x

Exposure to US$, both in terms of financials (debt in balance sheet) and operations (i.e. higher material cost especially for high-rise projects with higher US$-linked items) is a risk amid the weak IDR environment. Strict implementation on potential revision to housing development balance ratio (of low, middle and luxury houses). If implemented strictly and retroactively, this could potentially mean additional costs for property developers and more complicated property development planning.

13.7

+1sd: 13.4x Avg: 11.8x

11.7

‐1sd: 10.2x

9.7

‐2sd: 8.6x 7.7 Jan-12

Jan-13

Jan-14

Jan-15

PB Band (x) 7.0

(x)

6.0

+2sd: 5.41x

Capital-intensive projects require large funding. High-rise and retail mall developments require large upfront capital. Cost of external financing has to be kept in check.

5.0

+1sd: 4.66x 4.0

Avg: 3.9x

3.0

‐1sd: 3.15x ‐2sd: 2.4x

2.0 Jan-12

Jan-13

Jan-14

Jan-15

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 58

VICKERS SECURITIES

Company Guide Pakuwon Jati

PWON: RNAV summary Portfolio

City

Category

Investment Property

Value (Rpbn) adjusted

Stakes

20,752

Full Value (Rpbn)

% of total

24,093

62%

East Coast Center

Surabaya

Retail Mall

151

100%

151

0%

Tunjungan Plaza (I-IV) mall

Surabaya

Retail Mall

4,284

100%

4,284

13%

Tunjungan Plaza V mall

Surabaya

Retail Mall

703

100%

703

2%

Tunjungan Plaza VI mall

Surabaya

Retail Mall

807

100%

807

2%

Sheraton Hotel

Surabaya

Hotel

835

100%

835

2%

Tunjungan Plaza 4-star hotel

Surabaya

Hotel

397

100%

397

1%

Retail Mall

2,456

83%

2,960

7%

Gandaria City

Jakarta

Kota Kasablanka

Jakarta

Retail Mall

3,422

100%

3,422

10%

Gandaria 8 Office

Jakarta

Office

366

83%

441

1%

Kota Kasablanka Office 88 - Tower A (part leased)

Jakarta

Office

960

100%

960

3%

Kota Kasablanka Office 88 - Tower B (all leased)

Jakarta

Office

792

100%

792

2%

Gandaria 5-star hotel

Jakarta

Hotel

728

83%

877

2% 5%

Supermal Pakuwon Indah - Phase 1 & Trade Center

Surabaya

Retail Mall

1,724

67%

2,568

Supermal Pakuwon Indah - Phase 2 & 3

Surabaya

Retail Mall

1,182

67%

1,760

4%

Supermal Pakuwon Indah - Phase 4

Surabaya

Retail Mall

156

67%

232

0%

Royal Plaza Mall

Surabaya

Retail Mall

475

50%

943

1%

Somerset Berlian

Jakarta

Serviced Apartment

238

67%

355

1%

Jakarta

Blok M Plaza

Retail Mall

583

67%

869

2%

Ascott Residence

Surabaya

Serviced Apartment

185

67%

276

1%

Pullman 5 star hotel

Surabaya

Hotel

177

67%

264

1%

Ibis 3-star hotel

Surabaya

Hotel

134

67%

200

0%

13,456

38%

Educity Condominium (Twin tower 1)

Surabaya

Apartment

0

100%

0

0%

Educity Condominium (Twin tower 2)

Surabaya

Apartment

23

100%

23

0%

Tunjungan V - The Peak

Surabaya

Apartment

210

100%

210

1%

Tunjungan VI - Apartment

Surabaya

Apartment

404

100%

404

1%

Tunjungan V - Pakuwon Center

Surabaya

Office

184

100%

184

1%

Development properties & Landbank

12,729

Tunjungan VI - Office

Surabaya

Office

249

100%

249

1%

Pakuwon City - Palm Beach

Surabaya

Landed Residential

1,029

100%

1,029

3%

Pakuwon City - Community 1

Surabaya

Landed Residential

1,531

100%

1,531

5%

Pakuwon City - Community 2

Surabaya

Landed Residential

2,011

100%

2,011

6%

Pakuwon New Town 1

Surabaya

Landed Residential

985

100%

985

3%

Pakuwon New Town 2

Surabaya

Landed Residential

1,580

100%

1,580

5%

Kota Kasablanka tower 3

Jakarta

Apartment

256

100%

256

1%

Kota Kasablanka tower 4

Jakarta

Apartment

230

100%

230

1%

Kota Kasablanka tower 5

Jakarta

Apartment

735

100%

735

2%

Gandaria office - expansion

Jakarta

Office

980

83%

1,180

3%

Kota Kasablanka office - expansion

Jakarta

Office

1,186

100%

1,186

4%

Jakarta

Mixed-use

473

70%

675

1%

Surabaya

Apartment

661

67%

984

2%

4.2ha landbank in TB Simatupang Pakuwon Indah - 6 apartments

32,186 Net Debt

3,308

RNAV

30,172

Fully Diluted Share base (bn)

53.0

Fully Diluted RNAV per share

570

Source: DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 59

Company Guide Pakuwon Jati

Key Assumptions FY Dec

2013A

2014A

2015F

2016F

2017F

Marketing sales

3,000

3,137

3,180

3,481

3,875

Segmental Breakdown FY Dec

2013A

2014A

2015F

2016F

2017F

Revenues (Rpbn) Apartment & Office Kavling & Building Hotel Rental & Maintenance

1,217 373 154 1,286

1,588 493 163 1,629

1,729 859 250 2,104

1,329 1,289 422 2,421

1,274 1,535 730 2,876

Total Gross Profit (Rpbn) Apartment & Office Kavling & Building Hotel Rental & Maintenance

3,030

3,872

4,941

5,461

6,415

755 271 63.7 676

846 394 68.3 851

951 644 103 1,094

731 967 173 1,259

701 1,151 299 1,495

Total Gross Profit Margins (%) Apartment & Office Kavling & Building Hotel Rental & Maintenance

1,765

2,158

2,791

3,130

3,647

62.0 72.5 41.3 52.6

53.3 79.9 41.9 52.2

55.0 75.0 41.0 52.0

55.0 75.0 41.0 52.0

55.0 75.0 41.0 52.0

58.3

55.7

56.5

57.3

56.8

2013A

2014A

2015F

2016F

2017F

3,030 (1,265) 1,765 (253) 1,512 (97.3) (10.2) (73.2) 0.0 1,331 (195) (3.7) 0.0 1,133 1,133 1,700

3,872 (1,714) 2,158 (268) 1,890 (57.6) (5.9) (86.9) 1,120 2,859 (260) (83.6) 0.0 2,516 1,395 2,471

4,941 (2,150) 2,791 (395) 2,396 0.0 0.0 (158) 0.0 2,238 (321) (112) 0.0 1,805 1,805 3,464

5,461 (2,331) 3,130 (492) 2,638 0.0 0.0 (249) 0.0 2,389 (355) (119) 0.0 1,915 1,915 4,013

6,415 (2,768) 3,647 (577) 3,069 0.0 0.0 (315) 0.0 2,754 (417) (138) 0.0 2,199 2,199 4,669

39.9 49.0 42.3 51.5

27.8 45.3 25.0 23.2

27.6 40.2 26.8 29.3

10.5 15.9 10.1 6.1

17.5 16.3 16.3 14.9

58.3 49.9 37.4 33.4 13.4 20.7 22.6 20.7

55.7 48.8 65.0 50.1 19.3 17.2 19.1 21.8

56.5 48.5 36.5 26.7 9.9 14.0 11.1 15.1

57.3 48.3 35.1 23.5 9.5 13.6 20.0 10.6

56.8 47.8 34.3 22.4 10.0 14.7 20.0 9.7

Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

Recurring revenue portion will remain high

Stable margins going forward given stable revenue mix

Impressive revenue growth estimated at 24% CAGR (from 2012-2017F)

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 60

VICKERS SECURITIES

Company Guide Pakuwon Jati

Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

1Q2015

2Q2015

3Q2015

836 (371) 465 (53.0) 412 (3.0) (2.7) (35.0) 98.7 470 (55.6) (4.5) 410 311 412

1,156 (623) 533 (87.2) 445 (69.1) (3.0) (45.7) 1,021 1,349 (86.8) (62.2) 1,200 179 445

1,168 (481) 687 (71.0) 616 (126) 1.47 (51.5) 0.0 440 (82.0) (28.9) 329 329 616

1,258 (510) 748 (93.9) 654 (28.2) (0.9) (59.2) 0.0 565 (95.9) (42.9) 427 427 654

1,137 (479) 658 (89.0) 569 10.8 (0.8) (71.3) 0.0 508 (74.2) (21.1) 413 413 569

(20.7) (32.0) (32.0) (39.7)

38.2 8.1 8.1 (42.6)

1.0 38.2 38.2 84.1

7.8 6.2 6.2 29.8

(9.6) (12.9) (12.9) (3.3)

55.6 49.3 49.0

46.1 38.5 103.8

58.8 52.7 28.1

59.4 52.0 33.9

57.9 50.0 36.3

Balance Sheet (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

4,376 0.0 2,259 2,126 4.52 149 384 9,298

9,120 0.0 3,809 2,809 6.57 263 763 16,771

11,131 0.0 4,031 3,327 6.57 226 916 19,636

12,001 0.0 5,433 1,936 6.57 250 1,099 20,725

12,367 0.0 7,359 1,725 6.57 293 1,319 23,070

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

374 54.8 2,503 2,041 220 3,880 226 9,298

514 134 3,404 4,082 363 6,164 2,110 16,771

516 75.4 3,430 5,670 363 7,360 2,222 19,637

459 81.7 3,781 4,785 363 8,913 2,341 20,725

499 97.0 4,428 4,473 363 10,730 2,479 23,070

(2,021) (288) 16.7 15.0 1.7 0.4 0.9 0.8 0.1 0.1 24.2 3.8

(2,505) (1,787) 19.4 43.1 2.1 0.3 0.9 0.8 0.2 0.3 151.6 2.6

(2,357) (2,859) 18.1 25.4 2.2 0.3 1.1 0.9 0.3 0.4 53.3 2.8

(2,507) (3,308) 15.9 31.2 2.5 0.3 0.8 0.5 0.3 0.4 69.6 3.2

(2,907) (3,248) 15.4 30.3 2.1 0.3 0.7 0.4 0.2 0.3 78.3 3.2

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

Reasonable net gearing level, in line with future expansion plans

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 61

Company Guide Pakuwon Jati

Cash Flow Statement (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

1,331 188 (195) 0.0 638 (3.3) 1,960 (584) 0.0 3.76 0.0 (392) (972) (169) (11.0) 0.0 0.0 (180) 0.0 808 27.4

2,859 581 (260) 0.0 484 (83.6) 3,581 (6,967) 0.0 1,884 0.0 235 (4,849) (217) 2,182 0.0 (15.0) 1,950 0.0 683 64.3

2,238 1,067 (321) 0.0 (148) (112) 2,724 (3,300) 0.0 112 0.0 0.0 (3,188) (279) 1,590 0.0 (330) 981 0.0 518 59.6

2,389 1,375 (355) 0.0 150 (119) 3,440 (3,648) 0.0 119 0.0 0.0 (3,528) (361) (942) 0.0 0.0 (1,303) 0.0 (1,391) 62.1

2,754 1,600 (417) 0.0 399 (138) 4,199 (3,892) 0.0 138 0.0 0.0 (3,755) (383) (272) 0.0 0.0 (655) 0.0 (211) 71.7

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp)

Capex (including land acquisition) to normalise after flurry of project acquisitions in 2014

Source: Company, DBS Vickers Target Price & Ratings History

564

Rp

514

2 1

464

4 3

414

S.No.

Dat e

Closing Pric e

T arget Rat ing Pric e

1:

26 Mar 15

491

530

HOLD

2:

27 Apr 15

493

550

HOLD

3:

30 Apr 15

438

550

HOLD

4:

13 J ul 15

421

550

BUY

5:

10 Aug 15

404

550

BUY

6:

03 Sep 15

365

470

BUY

7:

30 Oct 15

426

470

BUY

7 5

6

364

314 Jan-15

May-15

Sep-15

Jan-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Vickers

ASIAN INSIGHTS Page 62

VICKERS SECURITIES

Indonesia Company Guide

Summarecon Agung Edition 2 Version 1 | Bloomberg: SMRA IJ | Reuters: SMRA.JK

Refer to important disclosures at the end of this report

DBS Group Research . Equity

5 Jan 2016

HOLD (Downgrade from BUY)

A Gear Too Fast?

Last Traded Price: Rp1,575 (JCI : 4,525.92) Price Target : Rp1,650 (5% upside) (Prev Rp1,855) Potential Catalyst: Better price from spinning-off investment properties Where we differ: Neutral call amid most BUY recommendations Analyst Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected]

Shifting focus to high-rise developments. SMRA's development focus has shifted to more high-rise buildings to target middleclass housing price range as housing affordability starts to weaken (due to lower spending power and massive surge in property prices in the past four years). Annual marketing sales from high-rise apartments has surged fourfolds from 2012 and now represents c.60% of SMRA’s consolidated marketing sales.

Price Relative Rp

Relative Index

2,113.0

239

1,913.0

219

1,713.0

199

1,513.0

179

1,313.0

159

1,113.0

139

913.0

119

713.0

99

513.0 Dec-11

Dec-12

Dec-13

Summarecon Agung (LHS)

Forecasts and Valuation FY Dec (Rpbn) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Net Pft Gth (Pre-ex) (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Dec-14

79 Dec-15

Relative JCI INDEX (RHS)

2014A 5,757 2,236 1,936 1,385 1,385 96.0 96.0 27 27 96.0 23.0 376 16.4 16.4 nm 11.8 1.5 4.2 0.4 28.2

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

2015F 5,980 2,012 1,550 1,064 1,064 73.8 73.8 (23) (23) 73.8 22.5 427 21.4 21.4 8.2 13.3 1.4 3.7 0.4 18.4

2016F 6,444 2,233 1,571 1,057 1,057 73.3 73.3 (1) (1) 73.3 22.3 478 21.5 21.5 26.3 12.7 1.4 3.3 0.5 16.2

2017F 6,552 2,382 1,578 1,057 1,057 73.3 73.3 0 0 73.3 22.3 529 21.5 21.5 48.4 12.3 1.4 3.0 0.6 14.6

(12) 87.3 B: 22

(28) 96.5 S: 1

(35) 113 H: 6

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P

ASIAN INSIGHTS ed: TH / sa: MA

Downgrade to HOLD on slow earnings growth. We lowered our RNAV assumptions by 14% to Rp2,457/sh (from Rp2,854/sh previously) to reflect the latest marketing sales achievement, expected high net debt and the revised risk premium (to 5.5%) for WACC calculation. Subsequently, our TP is cut to Rp1,650, presenting limited upside to current price.

Gearing up to pressure bottom line. Due to the shift to more high-rise developments, SMRA needs much higher capex. This has led SMRA to gear up significantly (net gearing of 60% as at 9M15 is the level last seen at the end of 2008). We forecast net profit to have flat growth from FY15-17F despite moderate forecasted revenue growth (5% CAGR from 2014-17F) during the same period. Valuation: Our target price of Rp1,650 is at a 34% discount to our basecase RNAV (based on its adjusted 8-year average discount to RNAV). SMRA is currently trading at a 36% discount to its RNAV (narrower than its 8-year average of 46%) and at a premium 21.5x FY16F PE (at +1SD of mean forward PE). Key Risks to Our View: Slower take-up at SMRA’s launches. Weaker property affordability, potential increase in interest rate and stricter implementations of high-rise developments could prompt delays in launching pipeline and cause marketing sales to miss our expectations. At A Glance Issued Capital (m shrs) Mkt. Cap (Rpbn/US$m) Major Shareholders Semarop Agung (%) Sinarmegah Jaya (%) Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate

14,427 22,722 / 1,639 26.2 8.6 65.2 3.0

VICKERS SECURITIES

Company Guide Summarecon Agung Marketing sales

CRITICAL DATA POINTS TO WATCH

4,601

4,800

Earnings Drivers: Marketing sales achievement Property developer recognises non-recurring revenue from marketing sales in the prevailing years. We expect revenue to grow by an anaemic 5% CAGR over 2014-17F given that marketing sales expanded by 17% CAGR over 2011-14, and is expected be flat over 2014-2017F.

4,200

SMRA also plans to launch two more townships in the future; 1) Bogor (South Jakarta suburb) - following the acquisition of a 40.8% stake in the company that owns a 250-ha land bank in 2014, and 2) Makassar (South Sulawesi) – a 51-49 JV project with local developer Mutiara Property group to develop a 170-ha township (similar concept with recently launched Bandung township) .

4,799

2016F

2017F

3,725

3,600 3,000 2,400 1,800 1,200 600 0 2013A

SMRA has three existing townships in three different regions of Greater Jakarta and one recent newly launched township in Bandung (West Java). All the projects have been successful considering the reception during launches. Going forward, marketing sales will be mostly supported by Serpong and Bekasi townships given that the Kelapa Gading township is matured.

4,729 4,324

2014A

2015F

Sales Trend Rp bn

30.0% 6,000 25.0% 5,000 20.0%

4,000

15.0%

3,000 2,000

10.0%

1,000

5.0%

0

0.0% 2013A

2014A

Total Revenue

2015F

2016F

2017F

Revenue Growth (%) (YoY)

Profitability Trend Rp bn 2,056

1,856

Focus shifts to more high-rise developments SMRA’s non-recurring revenue mix is balanced between housing, shophouses and apartment & offices. Landplots and shophouses churn better gross profit margins (more than 60%) than other segments. Given the launch of more highrise projects recently (as SMRA is targeting middle-class housing price range), we will monitor revenue mix and profitability going forward. Meanwhile, recurring revenue portion should remain stable at c.20% going forward and generate stable margins. Good control of operating costs SMRA has been able to keep SG&A expenses (as % of revenue) under control, despite the more-than-average increase in its two key items in SG&A expenses; “advertising & promotion” for the purpose of attracting more property demand during this challenging period and “salaries” for both existing and new employees to run projects in its portfolios. Significant increase in debt to affect bottom line Shift to more high-rise developments has led to higher capex needs. SMRA has since geared up significantly (by securing more loan facilities and issuing IDR bonds). As a consequence, higher interest expense is expected to affect SMRA’s bottom line. We forecast net profit to have flat growth from FY15-17F.

1,656

1,456

1,256

1,056 2013A

2014A

Operating EBIT

2015F

2016F

Pre tax Profit

2017F Net Profit

Margins Trend 35.0% 30.0% 25.0% 20.0% 15.0% 2013A

2014A

Operating Margin %

2015F

2016F

2017F

Net Income Margin %

Disc to RNAV trend 100% 90% 80% 70% 60% 50% 40%

Average 46%

30% 20% 10%

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

0%

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 64

VICKERS SECURITIES

Company Guide Summarecon Agung

Balance Sheet: Geared up for more high-rise projects and potential acquisitions – not in net cash position anymore SMRA had been in net cash position from 2010 to 2013 as strong cash generation outpaced annual capex requirements. However, the launch of more high-rise projects and projected land acquisitions have lifted gearing significantly. As of 9M15, net gearing reached 60%, a level not seen since end-2008.

Leverage & Asset Turnover (x) 0.4

0.90

0.4

0.80

0.4

0.70

0.3

0.60

0.3

0.50

0.3

0.40

0.3

0.30

0.3

0.20

0.2

0.10

0.2 0.2

0.00 2013A

Share Price Drivers: Marketing sales achievement and pipeline Marketing sales achievement is a good indicator for all Indonesia property developers (including SMRA) as it gives leading indication for the revenue generation for the next 2-3 years (depending on the revenue recognition).

2014A

2015F

2016F

Gross Debt to Equity (LHS)

2017F

Asset Turnover (RHS)

Capital Expenditure Rp 3,500.0 3,000.0 2,500.0 2,000.0

Investment property spin-offs SMRA shelved its investment property spin-off plan in late 2015 due to slow equity market and potential tax benefit on asset transfers (under discussion as part of gov’t plans to revise regulation on REITs structure in Indonesia). We value the investment property unit at c.Rp7tn (c.17% of SMRA’s total RNAV). A higher value from investment property spinoffs (if happens) could be a re-rating catalyst.

1,500.0 1,000.0 500.0 0.0 2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%) 25.0% 20.0%

Key Risks: Stricter regulations for high-rise developments. Plot ratio approval and balanced ratio rules, when strictly implemented, could potentially slow property demand. Liquidity tightening could dampen demand further.

15.0% 10.0% 5.0% 0.0% 2013A

Potential interest rate hike. Property demand is sensitive to and is negatively correlated to interest rate movements.

2014A

2015F

2016F

2017F

Forward PE Band (x) (x)

Strict implementation on potential revision to housing development balance ratio (of low, middle and luxury houses). If implemented strictly and retroactively, this could potentially mean additional costs for property developers and more complicated property development planning. Company Background SMRA is one of Indonesia's most established property developers. It has three existing township developments and several investment properties in its portfolio which generates sizeable recurring income, c.20% of revenues.

27.7

+2sd: 25.6x 22.7

+1sd: 20x 17.7

Avg: 14.3x

12.7

‐1sd: 8.7x

7.7

2.7 Jan-12

‐2sd: 3.1x Jan-13

Jan-14

Jan-15

PB Band (x) (x) 5.4

+2sd: 4.91x

4.9 4.4

+1sd: 3.95x

3.9 3.4

Avg: 2.99x

2.9 2.4

‐1sd: 2.04x

1.9 1.4 0.9 Jan-12

‐2sd: 1.08x Jan-13

Jan-14

Jan-15

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 65

Company Guide Summarecon Agung

SMRA: RNAV summary SMRA portfolio

Stake owned

Gross floor/land area (ha)

RNAV

Investment Properties Mal Kelapa Gading

100%

3,174

La Piazza

100%

258

Gading Food City

100%

47

Summarecon Mal Serpong - Phase 1

100%

552

Plaza Summarecon

100%

12

Plaza Summarecon Serpong

100%

31

Menara Satu Office

100%

93

Summarecon Mal Serpong - Phase 2

100%

731

Summarecon Mall Bekasi

100%

1,052

Harris Hotel Kelapa Gading

100%

361

POP Hotel, Kelapa Gading

100%

163

Harris Hotel Bekasi

100%

493

Investment Properties Total Surplus/(Deficit) - 1

6,966

Township developments Kelapa Gading

100%

389

The Springs - Serpong

54%

247

Scientia Garden - Serpong

69%

920

Summarecon Bekasi

100%

5,131

Summarecon Bandung

100%

1,334 8,022

Total PV of future development profits - 2 High-rise developments Kensington Apartments

100%

1,280

Midtown Apartment - Serpong

69%

614

Springlake Apartment - Bekasi

100%

791

High-rise development surplus value (Rpbn) - 3

2,685

Remaining landbank (still untilized for planned future developments) Serpong

100%

270.0

10,044

Bekasi - JV with DSA

51%

230.0

3,660

Gedebage

100%

180.0

7,769

Bogor

51%

260.0

354

Makassar

51%

150.0

311

Remaining landbank surplus value - 4

22,138

FY16F Net Cash (Debt) - 5

(4,368)

Total asset surplus value - 1+2+3+4+5

35,442

Fully Diluted Share base (bn)

14.4

RNAV per share

2,457

Source: DBS Vickers

ASIAN INSIGHTS Page 66

VICKERS SECURITIES

Company Guide Summarecon Agung

Key Assumptions FY Dec

2013A

2014A

2015F

2016F

2017F

Marketing sales

3,725

4,601

4,324

4,729

4,799

2013A

2014A

2015F

2016F

2017F

918 929 961 528 1,212 4,549

1,987 1,478 625 116 1,552 5,757

2,067 532 26.0 1,702 1,652 5,980

1,371 390 138 2,817 1,727 6,444

1,198 477 226 2,833 1,817 6,552

336 576 814 239 476 2,441

1,029 999 390 59.3 580 3,057

1,137 373 19.5 851 643 3,023

754 273 104 1,409 671 3,210

659 334 170 1,473 706 3,342

36.6 62.0 84.7 45.3 39.3 53.7

51.8 67.6 62.5 51.1 37.4 53.1

55.0 70.0 75.0 50.0 38.9 50.6

55.0 70.0 75.0 50.0 38.8 49.8

55.0 70.0 75.0 52.0 38.8 51.0

2013A

2014A

2015F

2016F

2017F

4,549 (2,107) 2,441 (818) 1,624 6.15 (0.5) (14.6) 0.0 1,615 (247) (278) 0.0 1,090 1,090 1,780

5,757 (2,700) 3,057 (980) 2,077 18.8 (0.9) (159) 0.0 1,936 (319) (232) 0.0 1,385 1,385 2,236

5,980 (2,957) 3,023 (1,196) 1,827 10.0 0.0 (287) 0.0 1,550 (331) (155) 0.0 1,064 1,064 2,012

6,444 (3,234) 3,210 (1,224) 1,986 10.0 0.0 (425) 0.0 1,571 (357) (157) 0.0 1,057 1,057 2,233

6,552 (3,210) 3,342 (1,245) 2,097 10.0 0.0 (530) 0.0 1,578 (363) (158) 0.0 1,057 1,057 2,382

18.1 35.0 37.5 35.4

26.6 25.6 27.9 27.1

3.9 (10.0) (12.0) (23.2)

7.8 11.0 8.7 (0.7)

1.7 6.6 5.6 0.0

53.7 35.7 24.0 27.3 8.5 17.4 38.5 111.5

53.1 36.1 24.1 28.2 9.2 15.7 30.4 13.1

50.6 30.6 17.8 18.4 5.7 10.4 23.4 6.4

49.8 30.8 16.4 16.2 4.8 9.9 30.2 4.7

51.0 32.0 16.1 14.6 4.5 9.8 30.5 4.0

Segmental Breakdown FY Dec Revenues (Rpbn) Houses Shophouses Landplots Apartments & Offices Others Total Gross Profit (Rpbn) Houses Shophouses Landplots Apartments & Offices Others Total Gross Profit Margins (%) Houses Shophouses Landplots Apartments & Offices Others Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

Increasing portion of high-rise developments as SMRA’s shifted its development focus

Consolidated GP margin is lower than before due to higher proportion of high-rise developments (with lower margin)

Despite increase in revenue, net profit to stay around the same level due to increasing interest expense

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 67

Company Guide Summarecon Agung

Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

1Q2015

2Q2015

3Q2015

1,799 (892) 907 (366) 541 (3.2) 0.0 (43.0) 0.0 495 (103) (62.5) 329 329 538

1,865 (789) 1,076 (315) 762 20.1 0.0 (75.6) 0.0 706 (97.1) (96.6) 513 513 782

942 (363) 579 (192) 387 0.89 0.0 (91.6) 0.0 296 (53.6) 4.59 247 247 421

1,655 (840) 814 (372) 442 3.44 0.0 (73.9) 0.0 372 (89.2) (0.5) 282 282 446

1,900 (969) 930 (263) 667 2.98 0.0 (121) 0.0 549 (103) (168) 278 278 670

55.9 27.6 28.2 23.0

3.7 45.4 40.8 55.6

(49.5) (46.1) (49.2) (51.8)

75.6 5.8 14.3 14.1

14.8 50.5 51.0 (1.4)

50.4 30.1 18.3

57.7 40.8 27.5

61.5 41.1 26.2

49.2 26.7 17.0

49.0 35.1 14.6

Balance Sheet (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

3,486 284 3,482 2,819 3,264 182 738 14,255

4,387 0.0 5,630 1,771 3,341 77.2 666 15,872

6,143 0.0 6,639 2,939 4,399 240 1,100 21,460

7,056 0.0 7,619 1,567 5,257 258 1,100 22,857

6,931 0.0 8,578 616 6,214 263 1,100 23,702

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

244 69.6 4,790 2,257 1,896 4,390 606 14,253

506 71.0 3,117 3,876 1,886 5,422 993 15,871

217 98.9 6,287 5,661 1,886 6,162 1,148 21,459

159 107 6,726 5,777 1,886 6,897 1,305 22,856

307 104 6,829 5,480 1,886 7,632 1,463 23,701

(675) 318 11.7 24.5 557.2 0.4 1.4 0.6 CASH CASH 68.9 2.7

896 (2,612) 8.2 10.1 476.4 0.4 1.6 0.5 0.4 0.5 57.2 2.9

(646) (2,938) 9.7 13.0 577.2 0.3 1.3 0.5 0.4 0.5 50.0 2.3

(218) (4,368) 14.1 13.0 640.2 0.3 1.2 0.3 0.5 0.6 35.9 2.3

644 (5,171) 14.5 13.0 772.5 0.3 1.1 0.1 0.6 0.7 19.2 2.4

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

Best quarter by far

Gearing up due to higher working capital requirement for highrise projects

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 68

VICKERS SECURITIES

Company Guide Summarecon Agung

Cash Flow Statement (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp)

1,615 151 (247) 0.0 (943) (278) 297 (1,722) (284) 319 0.0 458 (1,230) (310) 1,379 0.0 0.0 1,069 0.0 136 86.0

1,936 141 (319) 0.0 (1,571) (232) (45.3) (2,506) 284 387 0.0 (696) (2,530) (332) 1,881 0.0 (0.5) 1,549 0.0 (1,027) 106

1,550 174 (331) 0.0 1,542 (155) 2,781 (2,939) 0.0 155 0.0 0.0 (2,783) (324) 1,495 0.0 0.0 1,171 0.0 1,169 85.9

1,571 237 (357) 0.0 (429) (157) 865 (2,130) 0.0 157 0.0 0.0 (1,973) (322) 57.9 0.0 0.0 (264) 0.0 (1,372) 89.7

1,578 274 (363) 0.0 (862) (158) 470 (1,108) 0.0 158 0.0 0.0 (951) (322) (148) 0.0 0.0 (470) 0.0 (951) 92.3

Source: Company, DBS Vickers Target Price & Ratings History

Rp 1983

S.No.

2

1783

4 3 5 8

6

1583

1 1383

1183

Dat e

Closing Pric e

T arget Rat ing Pric e

1:

26 J an 15

1595

1780

BUY

2:

01 Apr 15

1770

1780

BUY

3:

27 Apr 15

1895

2200

BUY

4:

04 May 15

1820

2200

BUY

5:

13 J ul 15

1800

2050

BUY

6:

03 Sep 15

1525

1855

BUY

7:

16 Sep 15

1245

1855

BUY

8:

30 Nov 15

1550

1855

BUY

7

983 Jan-15

May-15

Sep-15

Jan-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 69

Indonesia Company Guide

Bekasi Fajar Industrial Estate Refer to important disclosures at the end of this report

Edition 2 Version 1 | Bloomberg: BEST IJ | Reuters: BEST.JK

DBS Group Research . Equity

5 Jan 2016

FULLY VALUED (Downgrade from HOLD)

Hanging in There

Last Traded Price: Rp289 (JCI : 4,525.92) Price Target : Rp230 (20% downside) (Prev Rp285) Potential Catalyst: FDI to boost demand for industrial land Where we differ: Significantly lower estimates than consensus given our pessimistic outlook Analyst Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected]

No earnings buffer from recurring sources. As demand for industrial estates continues to be weak (without any potential block sales) and the generally slow lease commitment take-up in its phase 1 investment properties (i.e. Standard factory building – SFB and warehousing), BEST’s earnings are not sufficiently insulated from prolonged slowdown.

Price Relative Rp

Relative Index 540

1,053.0

Wait for industrial cycle to turn positive. BEST’s MM2100 Industrial Estate will cover c.600ha of land bank with direct access from the main toll road. And, coupled with being relatively close to Jakarta city and Tanjung Priok international seaport, are the key advantages that every industrial estate developer craves for. However, BEST needs to wait for the industrial cycle to turn up.

490

953.0

440

853.0

390

753.0 653.0

340

553.0

290

453.0

240

353.0

190 140

253.0 153.0 Apr-12

90 Apr-13

Apr-14

Bekasi Fajar Industrial Estate (LHS)

Forecasts and Valuation FY Dec (Rpbn) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Net Pft Gth (Pre-ex) (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Apr-15

Relative JCI INDEX (RHS)

2014A 840 476 433 391 391 40.5 40.5 (48) (48) 40.5 2.28 295 7.1 7.1 17.0 6.2 0.8 1.0 0.1 14.7

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

2015F 657 374 301 268 268 27.8 27.8 (32) (32) 27.8 8.11 315 10.4 10.4 17.8 10.4 2.8 0.9 0.4 9.1

2016F 610 362 229 198 198 20.5 20.5 (26) (26) 20.5 5.55 330 14.1 14.1 15.7 12.0 1.9 0.9 0.5 6.4

2017F 581 340 223 194 194 20.1 20.1 (2) (2) 20.1 4.11 346 14.4 14.4 15.7 14.0 1.4 0.8 0.6 5.9

(21) 31.7 B: 6

(30) 34.8 S: 4

(55) 42.7 H: 4

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P.

ASIAN INSIGHTS ed: TH / sa: MA

Downgrade to Fully Valued with declining net earnings going forward. We lowered our RNAV assumptions by 20% to Rp440/sh (from Rp548/sh previously) to reflect sustained weak marketing sales and the revised risk premium (to 5.5%) for WACC calculation. Subsequently, our TP is cut by 19% to Rp230, implying 20% downside to current price.

Valuation: Considering our pessimistic outlook for industrial land demand in Indonesia, our TP of Rp230 is based on a deep 48% discount (adjusted average before the industrial estate boom) to our RNAV estimate. BEST is currently trading at a 34% discount to RNAV (wider than its 3-year average of 20% since IPO) and 14x FY16F PE (at its mean forward PE). Key Risks to Our View: Recovery in FDI Any sign of a recovery in Indonesia’s slowing economy, coupled with more relaxed regulations, will lift investment sentiment and subsequently FDI commitments into Indonesia. This could lead to better-than-expected demand for industrial estate land. At A Glance Issued Capital (m shrs) 9,647 Mkt. Cap (Rpbn/US$m) 2,788 / 201 Major Shareholders Argo Manunggal Land Devt (%) 51.3 Daiwa House Industry Co Ltd 10.0 Free Float (%) 38.7 3m Avg. Daily Val (US$m) 0.90 ICB Industry : Financials / Real Estate Investment & Services

VICKERS SECURITIES

Company Guide Bekasi Fajar Industrial Estate Marketing sales 1,258

CRITICAL DATA POINTS TO WATCH

1,200 945

1,000

Earnings Drivers: Sliding industrial marketing sales BEST recognises marketing sales from the previous 1-2 years as revenue. We expect industrial land sales revenue keep sliding by close to 20% CAGR from FY14-17F given the weak marketing sales for industrial land over the past two years and are expected to decline further by a 17% CAGR over 2014-17F.

800 600

534 395

400

277

200 0 2013A

2014A

2015F

2016F

2017F

Sales Trend Rp bn

BEST is a pure industrial play as industrial land sales account for most of its consolidated earnings. Hence, compared to peers, BEST’s marketing sales is very highly correlated to upturns and downswings of the industrial cycle.

1,400

50.0%

1,200

40.0% 30.0%

1,000

20.0%

800

10.0% 0.0%

600

-10.0%

400

Growing recurring income to support but not able to prevent earnings decline BEST’s venture into standard factory buildings (SFB) and warehousing rental facilities should see its recurring revenue tripling between 2013 and 2017F. Coupled with a sustained slide in industrial land sales, the portion of recurring revenue is expected to rise to c.31% from less than 10% in 2014.

-20.0%

200

-30.0% -40.0%

0 2013A

2014A

2015F

Total Revenue

2016F

2017F

Revenue Growth (%) (YoY)

Profitability Trend Rp bn

793

High G&A expenses (as % of revenue) to continue given slow marketing sales Significant increase in G&A expenses (mainly fixed cost); and slow industrial land marketing sales cut into its operational profitability. Controlling SG&A expenses (back to historical levels) will be crucial for BEST to maintain or grow its earnings going forward.

693 593 493 393 293 193 2013A

2014A

2015F

Operating EBIT

Company Background BEST is the developer of MM2100 industrial estate in Bekasi area (east Jakarta suburb). The estate is the closest to Jakarta city among developments in the area, and its tenants are primarily Japanese manufacturers.

2016F

Pre tax Profit

2017F Net Profit

Margins Trend 70.0% 65.0% 60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 2013A

2014A

2015F

Operating Margin %

2016F

2017F

Net Income Margin %

Disc to RNAV trend 60%

40% Average 21%

20%

Dec-15

Aug-15

Apr-15

Dec-14

Aug-14

Apr-14

Dec-13

Aug-13

Apr-13

Dec-12

Aug-12

-20%

Apr-12

0%

-40%

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 71

Company Guide Bekasi Fajar Industrial Estate

Balance Sheet: Gearing up for more investment property projects BEST secured US$130m in syndicated loan facilities in early March 2015 for its expansion capex. Net gearing has risen significantly and will continue in the next few years given the slower cash generation from industrial land sales. Exposure to US$ debt The additional US$ syndicated loan facilities, BEST’s balance sheet is exposed to USD/IDR volatility amid weak IDR environment. BEST has not entered into any contract to hedge its US$ debt position. Capex ramping up given more investment properties As more investment properties such as SFBs, warehouses and hotels are under construction, we expect capex to remain high for the next few years.

Leverage & Asset Turnover (x) 0.5 0.70 0.5 0.60

0.4

0.50

0.4

0.40

0.3

0.30

0.3

0.20

0.2

0.10

0.2 0.1

0.00 2013A

2014A

2015F

2016F

Gross Debt to Equity (LHS)

2017F

Asset Turnover (RHS)

Capital Expenditure Rp 1,000.0 900.0 800.0 700.0 600.0 500.0 400.0 300.0 200.0

Share Price Drivers: Marketing sales achievement Marketing sales is a good indicator for all industrial estate developers as it gives revenue visibility for the next 1-2 years.

100.0 0.0 2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%) 35.0%

FDI into Indonesia Commitment from foreign companies to invest in businesses in Indonesia will be followed by demand for industrial land (starting with the large manufacturers, followed by other players along the relevant supply chains).

30.0% 25.0% 20.0% 15.0% 10.0%

Key Risks: Regulatory changes: reversal of business-friendly policies Constant changes to regulations could deter investments in Indonesia. Additionally, the new government has recently shown that it will not hesitate to intervene and regulate businesses when needed. The risk of being perceived as a populist government may discourage potential investors.

5.0%

Lingering risks of labour protests Despite the issuance of Government regulation (PP) no. 78/2015 (in Oct 2015), which formulated the new mechanism to determine minimum wages in order to provide greater certainty on the annual minimum wage increase, annual protests are still expected and may still disrupt manufacturing activities.

17.6

Competition from the ASEAN Economic Community (AEC) The AEC could see Indonesia losing some of its advantages and competitive edge over neighbouring countries.

0.0% 2013A

2014A

2015F

2016F

2017F

Forward PE Band (x) (x) 27.6

+2sd: 25.1x 22.6

+1sd: 19.8x Avg: 14.4x 12.6

‐1sd: 9x

7.6 2.6 Apr-12

‐2sd: 3.7x Apr-13

Apr-14

Apr-15

PB Band (x) 5.3

(x) +2sd: 4.53x

4.3

+1sd: 3.5x

3.3

2.3

Avg: 2.48x

1.3

‐1sd: 1.45x

0.3 Apr-12

‐2sd: 0.43x Apr-13

Apr-14

Apr-15

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 72

VICKERS SECURITIES

Company Guide Bekasi Fajar Industrial Estate

BEST: RNAV summary Portfolio

Adjusted Value (Rpbn)

Stakes

Full Value (Rpbn)

% of total

5,451

100%

5,451

94%

635

276

100%

276

5%

184

88

51%

172

2%

Landbank (ha)

Industrial estate MM2100 (Bekasi) Semarang (Central Java) Investment properties MM2100 (Bekasi) Net Debt (Cash)

1,567

RNAV

4,247

No. of outstanding shares (bn)

9.6

RNAV/share

440

Source: DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 73

Company Guide Bekasi Fajar Industrial Estate

Key Assumptions FY Dec

2013A

2014A

2015F

2016F

2017F

Marketing sales

1,258

945

277

395

534

2013A

2014A

2015F

2016F

2017F

1,278 0.0 23.5 22.4

766 0.0 35.0 38.4

569 0.0 42.0 46.1

458 46.3 50.4 55.3

402 51.6 60.5 66.4

Total Gross Profit (Rpbn) Land plots Standard factory building Maintenance fee Others

1,324

840

657

610

581

924 0.0 13.3 8.68

547 0.0 15.0 17.5

410 0.0 23.7 17.9

339 37.0 28.4 21.5

298 41.3 34.1 25.8

Total Gross Profit Margins (%) Land plots Standard factory building Maintenance fee Others

946

580

451

426

399

72.3 N/A 56.3 38.8

71.4 N/A 42.8 45.6

72.0 N/A 56.3 38.8

74.0 80.0 56.3 38.8

74.0 80.0 56.3 38.8

Total

71.4

69.1

68.7

69.8

68.7

2013A

2014A

2015F

2016F

2017F

1,324 (378) 946 (62.8) 883 (41.4) 0.0 (30.0) 0.0 812 (66.7) (1.2) 0.0 744 744 888

840 (260) 580 (108) 472 (5.2) (0.2) (33.7) 0.0 433 (41.5) (0.4) 0.0 391 391 476

657 (206) 451 (85.5) 366 11.0 0.0 (76.2) 0.0 301 (32.9) (0.2) 0.0 268 268 374

610 (184) 426 (73.2) 353 10.6 0.0 (134) 0.0 229 (30.5) (0.1) 0.0 198 198 362

581 (182) 399 (69.7) 329 9.87 23.4 (140) 0.0 223 (29.0) (0.1) 0.0 194 194 340

37.2 67.5 67.5 58.1

(36.6) (46.4) (46.5) (47.4)

(21.7) (21.4) (22.5) (31.5)

(7.2) (3.3) (3.7) (26.0)

(4.8) (6.0) (6.6) (2.3)

71.4 66.7 56.2 35.0 26.3 32.3 N/A 29.5

69.1 56.2 46.6 14.7 11.1 13.5 N/A 14.0

68.7 55.7 40.7 9.1 6.1 8.0 N/A 4.8

69.8 57.8 32.5 6.4 3.8 6.0 N/A 2.6

68.7 56.7 33.3 5.9 3.5 5.4 N/A 2.4

Segmental Breakdown FY Dec Revenues (Rpbn) Land plots Standard factory building Maintenance fee Others

Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

Landplot sales remain significant going forward

High and improving margins

Net profit to keep declining given no expected recovery in industrial land sales

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 74

VICKERS SECURITIES

Company Guide Bekasi Fajar Industrial Estate

Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

1Q2015

2Q2015

3Q2015

253 (52.4) 200 (20.7) 180 (4.4) 0.0 (6.6) 0.0 169 (15.0) (0.1) 154 154 180

343 (133) 211 (54.5) 156 (15.7) 0.0 (11.9) 0.0 128 (15.4) (0.1) 113 113 156

178 (48.1) 130 (20.4) 110 (17.6) 0.27 (8.8) 0.0 83.6 (8.2) 0.0 75.5 75.5 110

161 (35.4) 126 (19.7) 106 (17.5) 0.0 (21.2) 0.0 67.3 (7.2) 0.0 60.1 60.1 106

125 (41.3) 83.9 (23.2) 60.7 (103) 0.0 (23.3) 0.0 (65.2) (5.4) (0.1) (70.7) (70.7) 60.7

192.2 266.2 266.2 348.0

35.8 (13.2) (13.2) (26.5)

(48.1) (29.6) (29.6) (33.1)

(9.7) (3.5) (3.5) (20.4)

(22.2) (42.8) (42.8) (217.8)

79.3 71.1 60.8

61.4 45.5 32.9

73.0 61.6 42.3

78.0 65.8 37.3

67.0 48.4 (56.5)

Balance Sheet (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

76.6 0.0 5.60 548 2,400 80.2 250 3,360

162 0.0 122 318 2,493 35.8 522 3,653

855 0.0 4.41 746 2,938 22.1 544 5,109

1,035 0.0 4.41 470 3,342 20.5 568 5,440

1,075 0.0 4.41 70.7 3,834 19.5 593 5,596

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

149 71.0 255 393 16.4 2,475 1.34 3,360

233 47.3 272 234 17.7 2,848 1.73 3,653

148 20.7 189 1,695 17.7 3,037 1.88 5,109

165 18.5 183 1,872 17.7 3,182 1.99 5,440

167 18.3 179 1,876 17.7 3,336 2.11 5,596

2,405 6.13 12.3 37.1 1,926.9 0.5 6.9 1.3 CASH CASH 158.9 4.8

2,731 (148) 25.2 84.4 3,493.5 0.2 6.1 0.6 0.1 0.1 21.2 4.5

3,294 (1,097) 16.1 62.8 5,018.0 0.2 11.9 2.1 0.4 0.4 31.3 2.7

3,729 (1,567) 12.7 40.9 6,567.1 0.1 12.0 1.3 0.5 0.5 21.8 2.6

4,248 (1,972) 12.6 39.3 7,671.5 0.1 12.4 0.2 0.6 0.6 26.5 2.8

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

Burned by non-cash-outflow accounting forex loss. This should continue in 4Q15

Additional US$130m syndicated loan facilities stretched balance sheet

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 75

Company Guide Bekasi Fajar Industrial Estate

Cash Flow Statement (Rpbn) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp)

2013A

2014A

2015F

2016F

2017F

812 4.59 (66.7) 0.0 (196) 0.01 553 (860) 0.0 0.0 0.0 (3.8) (864) (91.6) 314 53.5 0.0 276 0.0 (35.0) 77.8

433 4.12 (41.5) 0.0 (233) 1.71 164 (98.9) 0.0 0.0 0.0 (201) (299) (22.0) (75.2) 3.28 0.0 (93.9) 0.0 (230) 41.2

301 8.40 (32.9) 0.0 (118) (1.3) 157 (577) 0.0 0.0 0.0 (450) (1,027) (78.2) 1,376 0.0 0.0 1,298 0.0 428 28.5

229 9.62 (30.5) 0.0 (30.6) (0.1) 177 (444) 0.0 0.0 0.0 (150) (594) (53.5) 194 0.0 0.0 141 0.0 (276) 21.5

223 11.2 (29.0) 0.0 (27.7) (0.1) 177 (542) 0.0 0.0 0.0 (0.5) (543) (39.6) 6.06 0.0 0.0 (33.6) 0.0 (399) 21.2

Source: Company, DBS Vickers Target Price & Ratings History

760

Rp

660

1 2

560

4 3

460

260 Jan-15

May-15

Dat e

Closing Pric e

T arget Price

Rat ing

1:

03 Mar 15

690

730

HOLD

2:

01 Apr 15

575

730

HOLD

3:

04 May 15

580

730

HOLD

4:

05 May 15

570

730

HOLD

5:

23 J ul 15

423

445

HOLD

6:

10 Aug 15

344

445

HOLD

7:

03 Sep 15

279

285

HOLD

8:

02 Nov 15

372

285

F ULLY V ALUED

8

5 6

360

S.No.

7 Sep-15

Jan-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Vickers

ASIAN INSIGHTS Page 76

VICKERS SECURITIES

Indonesia Company Guide

Lippo Cikarang Edition 2 Version 1 | Bloomberg: LPCK IJ | Reuters: LPCK.IJ

Refer to important disclosures at the end of this report

DBS Group Research . Equity

5 Jan 2016

BUY

Seeking the Vertical Limit

Still a BUY based on valuation and debt-free balance sheet. We tweaked our RNAV assumptions slightly to Rp19,724/sh (from Rp19,766/sh previously) to reflect the latest marketing sales Potential Catalyst: Better monetisation of land bank in OCBD achievement and the revised risk premium (to 5.5%) for WACC Where we differ: Our forecast earnings are largely lower than consensus calculation. No changes in TP (at Rp7,900) given very minimal estimates because of our more cautious view on industrial estate and alterations and thus still offers c.11% upside. Last Traded Price: Rp7,025 (JCI : 4,525.92) Price Target : Rp7,900 (12% upside)

Indonesia’s overall economy

Shouldering majority of parent's marketing sales. LPCK’s Orange County Business District (OCBD) development should remain as the main driver of parent LPKR’s marketing sales given its niche apartment demand in industrial areas. As of 9M15, LPCK's marketing sales made up 70% of LPKR’s total marketing sales and therefore, LPCK is a better exposure than its parent for investors.

Analyst Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected]

Price Relative Rp

Relative Index 540 490

11,611.0

440 9,611.0

390 340

7,611.0

290 5,611.0

240 190

3,611.0

140

1,611.0 Dec-11

Dec-12

Lippo Cikarang (LHS)

Forecasts and Valuation FY Dec (Rpbn) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Net Pft Gth (Pre-ex) (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Dec-13

90 Dec-15

Dec-14

Relative JCI INDEX (RHS)

2014A 1,792 925 942 844 844 1,213 1,213 43 43 1,213 0.0 3,826 5.8 5.8 17.5 5.0 0.0 1.8 CASH 37.7

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

2015F 1,894 888 1,043 939 939 1,349 1,349 11 11 1,349 0.0 5,176 5.2 5.2 3.9 5.0 0.0 1.4 CASH 30.0

2016F 2,186 957 1,074 954 954 1,370 1,370 2 2 1,370 0.0 6,546 5.1 5.1 14.7 4.9 0.0 1.1 CASH 23.4

2017F 2,443 1,105 1,198 1,064 1,064 1,529 1,529 12 12 1,529 0.0 8,075 4.6 4.6 2.4 2.9 0.0 0.9 CASH 20.9

12 1,390 B: 6

(2) 1,465 S: 0

(4) 1,669 H: 0

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P.

ASIAN INSIGHTS ed: TH / sa: MA

Transformation into high-rise developer has paid off so far. LPCK’s gradual shift towards residential and commercial developments has proven to be a masterstroke given declining industrial land sales since 2012. Also, the launch of the OCBD high-rise development would help to preserve its land bank for more efficient use, which would increase its value further. Valuation: Given our pessimistic demand outlook for industrial estates in Indonesia and a slower domestic economy overall, our TP of Rp7,900 is based on a deep 60% discount (adjusted average discount before the industrial estate boom in 2011) to our RNAV estimate. LPCK is now trading at a 64% discount to RNAV (at its 8-year average of 65%) and at an attractive 5.1x FY16F PE (just below its mean forward PE). Key Risks to Our View: Slower take-up for OCBD launches. Weaker property affordability, potential increase in interest rate and stricter implementations of high-rise developments could prompt delays in launching pipelines and cause marketing sales to miss our expectations. Slower-than-expected economic growth We are expecting better economic growth in 2016 (recovery from 2015). However, slower-than-expected growth will reduce foreign investments in Indonesia, and subsequently, demand for industrial land, which has been weak in the last two years. At A Glance Issued Capital (m shrs) 696 Mkt. Cap (Rpbn/US$m) 4,889 / 353 Major Shareholders Kemuning Satiatama PT (%) 42.2 Free Float (%) 57.8 3m Avg. Daily Val (US$m) 0.43 ICB Industry : Financials / Real Estate Investment & Services

VICKERS SECURITIES

Company Guide Lippo Cikarang Marketing sales 2,680

2,700

CRITICAL DATA POINTS TO WATCH

2,360

2,400 2,100

Earnings Drivers: Transformation into a high-rise developer to continue LPCK’s gradual shift towards residential and commercial developments since 2012 will see its future revenue driven more by sales of apartments and high-rise units.

1,858

1,500 1,200 900 600 300 0 2013A

We forecast revenue from apartments and residential segment to grow at a 24% CAGR from 2014-17F, while revenue from industrial land to decline at an 8% CAGR in the same timeframe. Revenue from apartments and residential projects has exceeded industrial land in 2015 and the divergence will continue for next few years.

1,809

1,698

1,800

2014A

2015F

2016F

2017F

Sales Trend Rp bn

2,500

40.0% 35.0%

2,000

30.0% 25.0%

1,500

20.0% 1,000

Lower margins expected from the shift in product mix Shifts in product mix to be more focused on high-rise developments will slowly decrease LPCK’s overall margins going forward, as industrial land segment generally churns more than 15ppts higher GP margins than high-rise developments. We forecast overall GP margins to decrease to 53% in 2017F from the peak of c. 59% in 2014. Good revenue recognition growth Real estate developers recognise non-recurring revenue from marketing sales from earlier years (i.e. 3-4 years for high-rise developments and 1-2 years for industrial estates). We expect property sales (non-recurring revenue) to grow at a 10% CAGR over 2014-17F supported by a 13% CAGR in marketing sales from 2011-2014.

15.0% 10.0%

500

5.0% 0

0.0% 2013A

2014A

Total Revenue

2015F

2016F

2017F

Revenue Growth (%) (YoY)

Profitability Trend Rp bn 1,190

1,090

990

890

790

690

590 2013A

Good control of operating costs LPCK has been able to keep SG&A expenses (as % of revenue) under control since 2011, despite the significant increase in its two key items in SG&A expenses; “advertising & promotion” given its many new launches and “salaries & employee benefits” given new projects (particularly OCBD development) in its portfolios. Company Background LPCK was established in 1987 as part of conglomerate Lippo Group, and started developing property in 1995. The company develops the 3,500-ha industrial township in Cikarang (east Jakarta suburb).

2014A

Operating EBIT

2015F

2016F

Pre tax Profit

2017F Net Profit

Margins Trend 54.0% 52.0% 50.0% 48.0% 46.0% 44.0% 42.0% 40.0% 2013A

2014A

Operating Margin %

2015F

2016F

2017F

Net Income Margin %

Disc to RNAV trend 100% 80% 60%

Average 65%

40% 20% 0% -20%

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

Growing recurring revenue for sustainability Rental revenue from the Japanese SMEs Center's development will be a growth driver for recurring revenue going forward. We expect FY17F recurring revenue to almost triple from FY13’s level and contribute c.15% of consolidated revenue from the current 11% level.

-40% -60%

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 78

VICKERS SECURITIES

Company Guide Lippo Cikarang

Leverage & Asset Turnover (x)

Balance Sheet: Healthy balance sheet. The company has been debt-free for the past three years, and its strong internal cash generation should allow LPCK to execute its expansion plan. Capex ramped up in 2015 from new project launches, given few apartment launches from its Orange County Business District (OCBD) last year. This high capex level may continue if LPCK plans to speed up its tower launches aggressively. Share Price Drivers: Marketing sales achievement Marketing sales is a good indicator for all industrial estate developers as it gives revenue visibility for the next 1-2 years. FDI into Indonesia Commitment from foreign companies to invest in businesses in Indonesia will be followed by demand for industrial land (starting with the large manufacturers, followed by other players along the relevant supply chains). Key Risks: Regulatory changes: reversal of business-friendly policies Constant changes to regulations could deter investments in Indonesia. Additionally, the new government has recently shown that it will not hesitate to intervene and regulate businesses when needed. The risk of being perceived as a populist government may discourage potential investors.

0.05

0.5

0.05

0.5

0.04

0.5

0.04

0.4

0.03

0.4

0.03

0.4

0.02

0.4

0.02

0.4

0.01

0.3

0.01

0.3 0.3

0.00 2013A

2014A

2015F

2016F

Gross Debt to Equity (LHS)

2017F

Asset Turnover (RHS)

Capital Expenditure Rp 1,200.0 1,000.0 800.0 600.0 400.0 200.0 0.0 2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE (%) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

Lingering risks of labour protests Despite the issuance of Government regulation (PP) no. 78/2015 (in Oct 2015), which formulated the new mechanism to determine minimum wages in order to provide greater certainty on the annual minimum wage increase, annual protests are still expected and may still disrupt manufacturing activities.

2013A

2014A

2015F

2016F

2017F

Forward PE Band (x) (x) 11.4 10.4 9.4

+2sd: 8.8x

8.4 7.4

+1sd: 7.3x

6.4

Competition from the ASEAN Economic Community (AEC) The AEC could see Indonesia losing some of its advantages and competitive edge over neighbouring countries. Stricter regulations for high-rise developments. Plot ratio approval and balanced ratio rules, when strictly implemented, could potentially slow property demand. Liquidity tightening could dampen demand further.

Avg: 5.8x

5.4 4.4

‐1sd: 4.2x

3.4 2.4 Jan-12

‐2sd: 2.7x Jan-13

Jan-14

Jan-15

PB Band (x) 5.5

(x)

5.0 4.5 4.0

Potential interest rate hike. Property demand is sensitive to and is negatively correlated to interest rate movements.

3.5

+2sd: 3.52x

3.0

+1sd: 2.93x

2.5

Avg: 2.34x

2.0

‐1sd: 1.75x

1.5 1.0 Jan-12

‐2sd: 1.15x Jan-13

Jan-14

Jan-15

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 79

Company Guide Lippo Cikarang

LPCK: RNAV summary Adjusted Value (Rpbn)

Stakes

Full Value (Rpbn)

% of total

Landbank (ha)

Residential

2,742

100%

2,742

20%

80

Commercial

557

100%

557

4%

27

Delta Silicon (1-6)

812

100%

812

6%

122

Delta Silicon 8 (JO)

648

45%

1,440

5%

461

100%

461

3%

8,400

100%

8,400

62%

Portfolio

Industrial

Orange County Planned development Landbank

280

13,161 Net Debt (Cash) RNAV

-208 13,828

No. of outstanding shares (bn) RNAV/share

0.7 19,724

Source: DBS Vickers

ASIAN INSIGHTS Page 80

VICKERS SECURITIES

Company Guide Lippo Cikarang

Key Assumptions FY Dec

2013A

2014A

2015F

2016F

2017F

Marketing sales

1,698

1,858

2,680

2,360

1,809

Segmental Breakdown FY Dec

2013A

2014A

2015F

2016F

2017F

Revenues (Rpbn) Industrial land and Apartment, residential Town management Others

808 359 141 19.3

815 781 170 25.5

657 951 260 26.5

441 1,427 290 27.8

627 1,490 296 29.2

1,328

1,792

1,894

2,186

2,443

484 168 72.9 17.7

534 417 86.7 19.1

452 460 117 7.94

303 691 131 8.34

432 721 133 8.76

Total Gross Profit (Rpbn) Industrial land and Apartment, residential Town management Others Total Gross Profit Margins (%) Industrial land and Apartment, residential Town management Others

743

1,057

1,037

1,133

1,295

59.9 46.7 51.7 91.4

65.5 53.4 50.9 75.2

68.7 48.4 45.0 30.0

68.8 48.4 45.0 30.0

68.8 48.4 45.0 30.0

Total

55.9

59.0

54.7

51.8

53.0

2013A

2014A

2015F

2016F

2017F

1,328 (585) 743 (109) 634 4.46 5.13 22.2 0.0 666 (75.1) 0.0 0.0 591 591 643

1,792 (735) 1,057 (143) 914 11.2 5.49 11.6 0.0 942 (98.2) 0.0 0.0 844 844 925

1,894 (858) 1,037 (171) 866 0.0 159 17.3 0.0 1,043 (104) 0.0 0.0 939 939 888

2,186 (1,053) 1,133 (208) 925 0.0 125 22.9 0.0 1,074 (120) 0.0 0.0 954 954 957

2,443 (1,148) 1,295 (232) 1,063 0.0 130 4.90 0.0 1,198 (134) 0.0 0.0 1,064 1,064 1,105

31.1 45.3 45.1 45.1

35.0 43.8 44.2 42.9

5.7 (4.0) (5.2) 11.3

15.4 7.8 6.8 1.6

11.7 15.5 14.9 11.6

55.9 47.7 44.5 38.8 17.7 36.9 N/A NM

59.0 51.0 47.1 37.7 20.7 36.5 N/A NM

54.7 45.7 49.6 30.0 19.0 24.8 N/A NM

51.8 42.3 43.6 23.4 16.5 20.1 N/A NM

53.0 43.5 43.6 20.9 15.3 18.5 N/A NM

Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

Highest portion of revenue will come from apartment and residential projects starting in 2015

Lower margins due to product shift to more apartments and residential projects

Significant increase due to JV for developing Delta Silicon 8

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 81

Company Guide Lippo Cikarang

Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

1Q2015

2Q2015

3Q2015

470 (153) 317 (32.4) 284 8.09 2.91 2.81 0.0 298 (21.3) 0.0 277 277 284

472 (240) 233 (50.7) 182 4.63 2.77 2.65 0.0 192 (28.0) 0.0 164 164 182

518 (217) 301 (38.1) 263 35.3 1.80 3.08 0.0 303 (28.1) 0.0 275 275 263

436 (181) 255 (51.7) 203 21.0 0.94 5.51 0.0 231 (24.7) (3.2) 203 203 203

517 (198) 319 (48.0) 271 5.20 1.58 4.87 0.0 283 (29.3) (0.8) 253 253 271

24.5 46.0 46.0 57.4

0.4 (36.0) (36.0) (40.8)

9.8 44.5 44.5 67.8

(15.8) (22.7) (22.7) (26.2)

18.4 33.3 33.3 24.4

67.4 60.5 58.9

49.3 38.5 34.7

58.1 50.7 53.1

58.4 46.6 46.5

61.7 52.4 48.9

Balance Sheet (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

589 27.8 78.9 308 2,510 60.5 280 3,854

538 13.5 96.9 246 2,882 65.5 468 4,310

719 27.8 107 495 3,672 81.4 493 5,596

802 27.8 117 208 4,167 93.9 519 5,935

878 27.8 127 1,746 4,548 105 548 7,980

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

0.0 0.0 1,978 0.0 57.2 1,819 0.0 3,854

0.0 40.4 1,553 0.0 45.0 2,663 8.25 4,310

0.0 40.4 1,900 0.0 45.0 3,602 8.25 5,596

0.0 40.4 1,285 0.0 45.0 4,556 8.25 5,935

0.0 40.4 2,266 0.0 45.0 5,620 8.25 7,980

872 308 15.7 0.0 1,409.3 0.4 1.6 0.2 CASH CASH N/A 3.2

1,822 246 12.8 10.2 1,358.0 0.4 2.3 0.2 CASH CASH N/A 4.2

2,306 495 14.2 17.7 1,430.2 0.4 2.4 0.3 CASH CASH N/A 4.0

3,454 208 14.6 14.5 1,400.8 0.4 3.8 0.2 CASH CASH N/A 4.0

2,894 1,746 14.9 13.4 1,439.1 0.4 3.0 0.8 CASH CASH N/A 4.0

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

Debt-free since 2012

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 82

VICKERS SECURITIES

Company Guide Lippo Cikarang

Cash Flow Statement (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

666 9.03 (75.1) 0.0 200 0.0 800 (786) (13.2) 0.0 0.0 (2.1) (802) 0.0 0.0 0.0 0.0 0.0 0.0 (2.2) 862

942 10.8 (98.2) 0.0 (578) 1.90 279 (334) 14.3 8.25 0.0 (29.9) (341) 0.0 0.0 0.0 0.0 0.0 0.0 (62.2) 1,231

1,043 21.3 (104) 0.0 306 (1.9) 1,265 (991) (14.3) 0.0 0.0 (10.0) (1,015) 0.0 0.0 0.0 0.0 0.0 0.0 249 1,377

1,074 31.8 (120) 0.0 (654) 0.0 332 (609) 0.0 0.0 0.0 (10.0) (619) 0.0 0.0 0.0 0.0 0.0 0.0 (287) 1,416

1,198 42.3 (134) 0.0 942 0.0 2,048 (500) 0.0 0.0 0.0 (10.0) (510) 0.0 0.0 0.0 0.0 0.0 0.0 1,538 1,590

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp)

High capex mostly from apartment projects in OCBD

Source: Company, DBS Vickers Target Price & Ratings History

Rp 11937

2 1

10937

3

9937

4 8937 7937

S.No.

Dat e

Closing Pric e

T arget Rat ing Pric e

1:

03 Mar 15

11800

13900

BUY

2:

30 Mar 15

11500

13900

BUY

3:

30 Apr 15

11975

13900

BUY

4:

23 J ul 15

8975

12500

BUY

5:

10 Aug 15

8325

12500

BUY

6:

03 Sep 15

6725

7900

BUY

7:

30 Oct 15

8000

7900

BUY

5 6

6937 5937 Jan-15

May-15

Sep-15

7

Jan-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 83

Indonesia Company Guide

Surya Semesta Internusa Refer to important disclosures at the end of this report

Edition 2 Version 1 | Bloomberg: SSIA IJ | Reuters: SSIA.JK

DBS Group Research . Equity

5 Jan 2016

HOLD

Gearing Up for More Growth

Last Traded Price: Rp695 (JCI : 4,525.92) Price Target : Rp765 (10% upside) Potential Catalyst: Better-than-expected industrial land demand, and valuation re-rating of private contractors Where we differ: One of the neutral calls in the market amid BUY recommendations Analyst Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected]

Acquisition opportunities for inorganic growth. SSIA has geared up for the past two years for its planned capex in investment properties (i.e. CBD office tower and Batiqa hotels). SSIA is looking for opportunity to acquire infrastructure company (which projects are in line with and will complement SSIA’s existing businesses).

Price Relative Rp

Relative Index 219

1,690.5

199

1,490.5

179

1,290.5

159 139

1,090.5

119 890.5

99

690.5 490.5 Dec-11

79 Dec-12

Dec-13

Surya Semesta Internusa (LHS)

Forecasts and Valuation FY Dec (Rpbn) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (Rp) EPS Pre Ex. (Rp) EPS Gth Pre Ex (%) Net Pft Gth (Pre-ex) (%) Diluted EPS (Rp) Net DPS (Rp) BV Per Share (Rp) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)

Dec-14

59 Dec-15

Relative JCI INDEX (RHS)

2014A 4,464 790 671 415 415 88.2 88.2 (40) (40) 88.2 29.8 563 7.9 7.9 10.9 4.8 4.3 1.2 0.0 16.7

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

2015F 4,803 741 749 491 491 104 104 18 18 104 18.0 767 6.7 6.7 2.5 5.3 2.6 0.9 0.0 15.7

2016F 4,589 810 750 477 477 92.1 92.1 (12) (12) 92.1 19.4 770 7.5 7.5 4.4 7.1 2.8 0.9 0.3 12.5

2017F 4,932 856 703 421 421 81.4 81.4 (12) (12) 81.4 18.8 833 8.5 8.5 4.6 6.9 2.7 0.8 0.3 10.2

5 104 B: 7

8 101 S: 0

(17) 120 H: 5

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P.

ASIAN INSIGHTS ed: TH / sa: MA

Maintain HOLD given slow earnings. We tweaked our RNAV assumptions slightly to Rp1,529/sh (from Rp1,532/sh previously) to reflect the latest marketing sales achievement and the revised risk premium (to 5.5%) for WACC calculation. We expect interest expense to increase to Rp151bn/Rp189bn in FY16/17F as we expect debt level to increase (i.e. net gearing rose to 13% as of 9M15, from net cash back in 2011-2013). Therefore, earnings are dampened in FY16-18F.

Weakness in industrial land sales to continue. Industrial estate segment is the major net profit driver for SSIA because of superior margins as compared to other business segments. However, construction and hospitality have been the major revenue contributors (with highest level at 87% of consolidated revenue in 2014). Share of revenue from construction and hospitality will hover at c.85% going forward given the sustained demand slowdown for industrial estates. Valuation: We maintain our cautious outlook for industrial estates and a slower Indonesian economy (which would affect the infrastructure and hospitality segments as well). SSIA is currently trading at a 55% discount to our RNAV (wider than its 8-year average of 48%) and 7.5x FY16F PE (at -0.5SD of its mean forward PE). Key Risks to Our View: Slower-than-expected economic growth We are expecting better economic growth in 2016 (recovery from 2015). However, slower-than-expected growth will reduce foreign investment commitments into Indonesia, and subsequently, demand for industrial land, which has been weak in the last two years. At A Glance Issued Capital (m shrs) Mkt. Cap (Rpbn/US$m) Major Shareholders Union Sampoerna PT (%) Arman Investment Utama PT (%) PT Persada Capital Investama Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Industrials / Construction & Materials

4,705 3,270 / 236 9.0 8.9 7.7 74.4 1.4

VICKERS SECURITIES

Company Guide Surya Semesta Internusa Marketing sales

CRITICAL DATA POINTS TO WATCH

671

664

587

Earnings Drivers: Steady construction segment Construction, a big segment under SSIA’s listed subsidiary Nusa Raya Cipta (NRCA), will remain an important revenue driver for SSIA despite much lower margins than the highly cyclical industrial estate segment. A staggering 38% CAGR growth over 2010 – 2015F from new construction contracts provides the backbone for revenue in the next two years. We estimate that construction segment will contribute c.70% of consolidated revenue in the next three years. Unexciting growth from industrial estate marketing sales Industrial estate developers recognise non-recurring revenue from marketing sales from the previous 1-2 years. We expect industrial land sales revenue to stay flat over 2015-7F given the weak demand for industrial land over the past two years.

520

482

503 419

382 304

335 251 168 84 0 2013A

2014A

2015F

2016F

2017F

Sales Trend Rp bn

40.0%

5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2013A

Higher revenue from industrial estate sales may flow in after 2018F if Subang development proceeds as expected and the demand cycle for industrial estate returns.

2014A

Total Revenue

2015F

2016F

2017F

Revenue Growth (%) (YoY)

Profitability Trend Rp bn

More toll road investments would be positive SSIA’s investment (effectively 24.8%) in the 116-km Cikampek –Palimanan (Cipali) toll road project since 4Q12 has had a positive impact given its potential value and additional boost from contracts to its construction arm. Further investments in good toll roads would be a plus.

865 815 765 715 665 615 565 515

Hospitality business undergoing expansion The hospitality segment currently generates c.13% of SSIA’s revenue (mostly from its 5-star hotels and resorts). The ongoing expansion of 3-star hotels (started since 2013) under the Batiqa hotel chain will support the hospitality segment in the long run.

465 415 2013A

2014A

Operating EBIT

2015F

2016F

Pre tax Profit

2017F Net Profit

Margins Trend 20.0% 18.0%

Good control of operating costs SSIA has been able to keep SG&A expenses (as % of revenue) under control. despite the more-than-average increase in “salaries & post-employment benefits” and “professional fees” given new and upcoming projects in its portfolio. Good control of SG&A expenses is crucial for SSIA to maintain its profitability during this challenging period Company Background Established in 1971 and listed on the IDX in 1997, SSIA has three main primary businesses: property (including industrial estate and rental property), construction and hospitality.

16.0% 14.0% 12.0% 10.0% 8.0% 2013A

2014A

Operating Margin %

2015F

2016F

2017F

Net Income Margin %

Disc to RNAV trend 100% 80% 60% 40%

Average 48%

20%

-20%

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15

0%

-40%

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 85

Company Guide Surya Semesta Internusa

Balance Sheet: Need to gear up for growth Last year, SSIA secured shareholders’ approvals for two corporate actions: 1) SGD bond issuance, and 2) 2-year option window for exercising 10% rights issue. SSIA was in a net cash position from 2011 to 2013 during the industrial cycle boom. However, the slowdown in industrial estate and aggressive capex for expansion resulted in net gearing ratio increasing to 13% as of 9M15 and we expect this to head higher in the next few years. Exposure to forex debt With planned SGD bond issuance, SSIA’s balance sheet has exposure to weak IDR environment. Capex to ramp up until 2016 and then subside Given the current expansion plan (i.e. more investment properties), we expect capex to hit a peak in 2016F and subside thereafter, unless there is an opportunity for large investments (i.e. toll road projects or stake acquisitions).

Leverage & Asset Turnover (x) 0.9 0.50

0.9 0.8

0.40

0.8 0.30

0.7 0.7

0.20

0.6 0.10 0.6 0.5

0.00 2013A

2014A

2015F

2016F

Gross Debt to Equity (LHS)

2017F

Asset Turnover (RHS)

Capital Expenditure Rp 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0 2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

Share Price Drivers: Marketing sales achievement The level of marketing sales is a good indicator for all industrial estate developers as it gives revenue visibility for the next 1-2 years. FDI into Indonesia Commitment from foreign companies to invest in businesses in Indonesia will be followed by demand for industrial land (starting with the large manufacturers, followed by other players along the relevant supply chains).

ROE (%) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2013A

2014A

2015F

2016F

2017F

Forward PE Band (x)

Key Risks: Regulatory changes: reversal of business-friendly policies Constant changes to regulations could deter investments in Indonesia. Additionally, the new government has recently shown that it will not hesitate to intervene and regulate businesses when needed. The risk of being perceived as a populist government may discourage potential investors.

(x) 14.2

12.2

+2sd: 12.4x

10.2

+1sd: 10.5x Avg: 8.6x

8.2

‐1sd: 6.7x

6.2

Lingering risks of labour protests Despite the issuance of Government regulation (PP) no. 78/2015 (in Oct 2015), which formulated the new mechanism to determine minimum wages in order to provide greater certainty on the annual minimum wage increase, annual protests are still expected and may still disrupt manufacturing activities.

4.2 Jan-12

‐2sd: 4.8x Jan-13

Jan-14

Jan-15

PB Band (x) 5.1

(x) +2sd: 4.6x

4.6 4.1 3.6

+1sd: 3.48x

3.1 2.6

Competition from the ASEAN Economic Community (AEC) The AEC could see Indonesia losing some of its advantages and competitive edge over neighbouring countries.

Avg: 2.36x

2.1 1.6

‐1sd: 1.24x

1.1 0.6 0.1 Jan-12

‐2sd: 0.12x Jan-13

Jan-14

Jan-15

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 86

VICKERS SECURITIES

Company Guide Surya Semesta Internusa

SSIA: RNAV summary Current portfolio

Adjusted Value (Rpbn)

Stakes

Full Value (Rpbn)

% of total

Landbank (ha)

Surya Cipta (Karawang)

1,147

100.0%

Subang (West Java)

3,591

100.0%

1,147

9%

128.1

3,591

29%

444

1,200

100.0%

444

4%

370

128

50%

256

1%

689

60.6%

1,137

5%

1,097

86.8%

1,263

9%

269

100.0%

269

2%

Investment in Cikampek - Palimanan toll road

872

24.8%

3,519

7%

Office in Kuningan (Jakarta CBD area)

532

100.0%

532

4%

Industrial estate

North Bekasi (West Java) Investment properties SuryaCipta Technopark Construction Hospitalities Luxury hotels & resorts Batiqa hotels

Net Debt (Cash)

1,573

RNAV

7,196

No. of outstanding shares (bn) RNAV/share

5.2 1,529

Source: DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 87

Company Guide Surya Semesta Internusa

Key Assumptions FY Dec Marketing sales Segmental Breakdown FY Dec Revenues (Rpbn) Industrial land Construction Hotel Rental & Maintenance Others Total Gross Profit (Rpbn) Industrial land Construction Hotel Rental & Maintenance Others Total Gross Profit Margins (%) Industrial land Construction Hotel Rental & Maintenance Others Total Income Statement (Rpbn) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

2013A

2014A

2015F

2016F

2017F

664

382

304

482

520

2013A

2014A

2015F

2016F

2017F

991 2,843 580 152 15.9 4,583

420 3,243 626 175 0.53 4,464

510 3,435 641 217 0.53 4,803

482 3,248 595 263 0.53 4,589

494 3,574 557 307 0.53 4,932

660 244 390 16.1 10.4 1,320

308 302 421 23.5 0.51 1,054

374 309 481 32.5 0.48 1,197

376 292 446 39.5 0.48 1,155

395 322 417 46.0 0.48 1,181

66.5 8.6 67.2 10.6 65.1 28.8

73.3 9.3 67.2 13.4 96.3 23.6

73.3 9.0 75.0 15.0 90.0 24.9

78.0 9.0 75.0 15.0 90.0 25.2

80.0 9.0 75.0 15.0 90.0 23.9

2013A

2014A

2015F

2016F

2017F

4,583 (3,263) 1,320 (448) 872 30.5 65.3 (60.9) 0.0 907 (160) (55.5) 0.0 691 691 988

4,464 (3,410) 1,054 (519) 535 (25.7) 226 (63.6) 0.0 671 (158) (98.5) 0.0 415 415 790

4,803 (3,607) 1,197 (600) 596 0.0 230 (77.3) 0.0 749 (168) (89.8) 0.0 491 491 741

4,589 (3,434) 1,155 (528) 627 0.0 245 (122) 0.0 750 (184) (90.0) 0.0 477 477 810

4,932 (3,751) 1,181 (567) 614 0.0 262 (173) 0.0 703 (197) (84.3) 0.0 421 421 856

28.6 (2.3) (5.0) (2.3)

(2.6) (20.1) (38.7) (39.9)

7.6 (6.1) 11.5 18.2

(4.5) 9.2 5.1 (2.8)

7.5 5.7 (2.1) (11.6)

28.8 19.0 15.1 35.3 13.0 20.9 N/A 14.3

23.6 12.0 9.3 16.7 7.0 10.0 N/A 8.4

24.9 12.4 10.2 15.7 7.3 9.7 N/A 7.7

25.2 13.7 10.4 12.5 5.9 8.0 N/A 5.1

23.9 12.4 8.5 10.2 4.6 6.5 N/A 3.6

Construction segment to remain as largest contributor to revenue with more than 70% contribution

Industrial land has and should generate significantly higher GP margins compared to other segments

Significant downcycle in the industrial estate segment caused steep drop in earnings

Source: Company, DBS Vickers

ASIAN INSIGHTS Page 88

VICKERS SECURITIES

Company Guide Surya Semesta Internusa

Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2014 4Q2014 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

1Q2015

2Q2015

3Q2015

1,074 (851) 223 (136) 86.4 (6.6) 35.0 (17.1) 0.0 97.7 (37.0) (21.8) 38.9 38.9 86.4

1,210 (921) 290 (149) 141 35.5 108 (23.2) 0.0 261 (48.8) (25.1) 187 187 141

1,317 (939) 378 (124) 254 20.8 21.3 (18.9) 0.0 277 (49.5) (23.6) 204 204 254

1,182 (952) 230 (152) 78.0 28.6 29.2 (22.3) 0.0 113 (35.9) (25.1) 52.5 52.5 78.0

1,356 (945) 411 (164) 247 69.3 (6.0) (27.9) 0.0 283 (49.0) (13.7) 220 220 247

(15.0) (59.2) (59.2) (78.0)

12.7 62.9 62.9 379.6

8.8 80.4 80.4 9.2

(10.3) (69.3) (69.3) (74.3)

14.7 217.0 217.0 319.2

20.7 8.0 3.6

23.9 11.6 15.4

28.7 19.3 15.5

19.5 6.6 4.4

30.3 18.2 16.2

Balance Sheet (Rpbn) FY Dec

2013A

2014A

2015F

2016F

2017F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

1,531 0.0 565 1,692 459 699 868 5,814

2,024 0.0 1,068 1,173 351 470 908 5,993

2,630 0.0 1,258 952 1,085 511 929 7,366

3,638 0.0 1,275 501 2,065 489 951 8,919

4,181 0.0 1,302 294 2,111 525 974 9,387

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

79.8 346 1,428 1,199 150 2,320 291 5,814

248 356 1,123 1,031 196 2,649 390 5,993

110 278 1,666 1,027 196 3,610 480 7,366

114 264 1,829 1,960 196 3,986 570 8,919

93.7 289 1,984 1,861 196 4,310 654 9,387

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

252 414 38.9 29.1 36.1 0.9 2.0 1.3 CASH CASH 48.0 2.7

249 (106) 47.8 40.6 46.8 0.8 1.7 1.0 0.0 0.0 29.2 2.4

583 (186) 37.3 33.4 75.7 0.7 1.7 0.7 0.0 0.1 154.0 1.9

1,412 (1,573) 39.8 30.4 176.8 0.6 1.8 0.4 0.3 0.4 104.6 1.9

1,338 (1,661) 37.5 28.8 217.2 0.5 1.7 0.3 0.3 0.4 42.5 1.9

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

Boost from accounting forex gain and other one-off income (i.e. sales of investment properties and JV investment dilution)

Net gearing to increase due to aggresive expansion into investment properties

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES Page 89

Company Guide Surya Semesta Internusa

Cash Flow Statement (Rpbn) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Rp)

2013A

2014A

2015F

2016F

2017F

907 116 (160) 0.0 (477) (55.5) 330 (613) (465) 221 0.0 336 (521) (141) (37.0) (26.1) 198 (6.7) 0.0 (198) 172

671 255 (158) 0.0 (105) (364) 299 (374) (500) 98.8 0.0 42.6 (733) (140) 0.59 0.0 53.2 (86.3) 0.0 (520) 85.9

749 145 (168) 0.0 401 176 1,302 (1,751) (190) 89.8 0.0 0.0 (1,852) (84.8) (142) 555 0.0 329 0.0 (221) 192

750 183 (184) 0.0 151 (90.0) 810 (2,170) (16.4) 90.0 0.0 0.0 (2,097) (100) 937 0.0 0.0 837 0.0 (450) 127

703 242 (197) 0.0 120 (84.3) 783 (831) (27.1) 84.3 0.0 0.0 (774) (97.4) (120) 0.0 0.0 (217) 0.0 (208) 128

Aggressive capex planned for 20152016F

Source: Company, DBS Vickers Target Price & Ratings History

Rp S.No.

Dat e

Closing Pric e

1:

03 Mar 15

1300

1600

BUY

2:

01 Apr 15

1130

1600

BUY

3:

20 May 15

1160

1400

BUY

1036

4:

03 J un 15

1135

1400

BUY

5:

23 J ul 15

920

1050

HOLD

936

6:

21 Aug 15

635

1050

HOLD

7:

03 Sep 15

745

765

HOLD

8:

01 Dec 15

605

765

HOLD

1336 1236

1 4

2 1136

3

5

836

T arget Rat ing Pric e

736

6 7

636 536 Jan-15

May-15

Sep-15

8

Jan-16

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Vickers

ASIAN INSIGHTS Page 90

VICKERS SECURITIES

Industry Focus Indonesia Property & Industrial Estate

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"). report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers 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 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”)) 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 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 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 the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) (b)

such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and 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, 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 this report. As of 5 January 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. PT. DBS Vickers Securities Indonesia ("DBSVI") has a proprietary position in Pakuwon Jati and Summarecon Agung recommended in this report as of 4 January 2016. 2.

Compensation for investment banking services: 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

Page 91

Industry Focus Indonesia Property & Industrial Estate 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. 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.

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 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"). 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 being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC rd Branch) having its office at PO Box 506538, 3 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 Vickers Securities Indonesia (“DBSVI”). 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. PT. DBS Vickers Securities Indonesia DBS Bank Tower, Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5, Jakarta 12940, Indonesia Tel. 6221-3003 4900, Fax: 6221-3003 4943

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