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Asiamoney’s

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Spotlight

10 August 2015

Disclosure: Bahana Securities does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single factor

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Please see the important disclaimer information on the back of this report

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Telekomunikasi Indonesia Sector: Telecommunication (Overweight)

BUY (Unchanged)

Rating momentum*:

Leonardo Henry Gavaza, CFA E-mail: [email protected] Phone: +6221 250 5081 Ext. 3608

Price:IDR2,965–TP:IDR3,675 (From IDR3,350)

TP/consensus: 114%; TP momentum*: JCI: 4,749

Going on the offensive

Beneficiary of greater proportion of 3G smartphone users

TLKM will continue to experience increased proportion of 3G smartphone

subscribers (exhibit 7), as several leading brands are entering into the cheap

3G-smartphone segment. Additionally, TLKM has partnered with several handset

manufacturers to supply affordable Android-based 3G smartphones to

subscribers through its Android United program (exhibit 6). This development

has positively affected TLKM’s data usage (2Q15: +131% y-y) and ARPU (2Q15:

+5% y-y). Thus, we expect the data segment to continue to boost TLKM’s

revenue growth, particularly as the proportion of 3G smartphone subscribers is

still at 33%, much lower than the regional average of 40%, while data pricing is

still relatively low at USD0.0026/MB, compared to Thailand’s USD0.024/MB.

Going forward, TLKM’s focus on monetizing strong data demand will likely be the

key in optimizing its EBITDA margin.

Continuation of cellular market dominance

Helped by EXCL’s value-driven strategy and market consolidation, we expect

TLKM, as the market leader with a strong network, to maintain its dominance in

terms of market share and pricing. In 2Q15, TLKM continued to gain market

share by improving its subscriber base by 2.6mn to 144mn, +5% y-y and +2%

q-q, with stable ARPU of IDR39/month. TLKM is using its 206 pricing clusters

across Indonesia to optimize pricing strategies based on different competitive

landscapes. Thus, with around 50% of its subscribers in the outer Java area, we

expect TLKM to continue to improve voice usage and pricing in light of upcoming

regional elections and religious festivities in 2H15.

3mn IndiHome subscribers by 2017F

We expect TLKM’s new triple-play home broadband product, Indihome, to provide

an additional source of revenue growth in the next few years. Leveraging on

6.5mn homes passes (1H15) with optical-fiber networks originally built for

Telkomsel and TLKM’s corporate clients, IndiHome’s 1H15 subscribers have

reached 427k (1Q15: 245k subscribers). Furthermore, TLKM currently has 9.8mn

fixed-line customers and 3.5mn broadband (Speedy, copper-cable base) users, all

of whom are to be offered the new Indihome package. We expect IndiHome

subscribers to surpass 1mn in 2015 and reach 3mn in 2017, representing

additional revenue potential of IDR9.7tn (10% of 2015F revenue).

Maintain BUY and increase TP to IDR3,675 on solid fundamentals

At this stage, we expect rising data usage and the rational pricing environment

to support solid revenue growth, although we cut 2015 EBITDA and net profit

estimates on one-off costs in 1H15. Hence, we raise our revenue growth

assumptions on higher data growth. On valuation, we roll over using 2016 base

for our SOTP method to arrive at our new 12M TP of IDR3,675 (from IDR3,350),

reflecting 2016F EV/EBITDA (excluding Singtel’s proportion) of 9.6x, a 5%

premium to its regional peers. We believe Indonesia’s low ARPU and broadband

penetration rate as well as market consolidation will pave the way for TLKM to

book sustained solid revenue growth, allowing its ytd market outperformance to

persist ahead (exhibit 4). BUY on 24% upside potential. Risks: tougher-than-

expected competition and higher-than-expected network expenses.

Exhibit 1. Company information

Market cap (IDRtn/USDbn) : 298.9/22.1

3M avg.daily t.o.(IDRbn/USDmn) : 187.1/13.8

Bloomberg code : TLKM IJ Source: Bloomberg, Bahana

Exhibit 2. Shareholders information

Government (%) : 51.2

Est. free float (%)

: 48.8 Source: Bloomberg, Bahana

Exhibit 3. Key forecasts and valuations

Per 31 Dec 2014 2015F 2016F 2017F

Revenue (IDRb) 89,696 98,258 108,610 119,793

EBITDA (IDRb) 45,844 48,396 54,796 60,938

EBIT (IDRb) 28,713 31,143 35,838 40,275

Net profit (IDRb) 14,638 16,382 19,105 21,615

EPS (IDR) 145 163 190 214

EPS growth (%) 2.4 11.9 16.6 13.1

EV/EBITDA (x) 9.3 8.9 7.8 6.9

P/E (x) 20.4 18.2 15.6 13.8

FCFPS (IDR) 65 77 124 156

FCF yield (%) 2.2 2.6 4.2 5.3

BVPS (IDR) 673 748 832 923

P/BV (x) 4.4 4.0 3.6 3.2

DPS (IDR) 87 106 123 139

Div. yield (%) 2.9 3.6 4.2 4.7

ROAA (%) 10.8 11.1 12.1 12.7

ROAE (%) 22.9 22.9 24.0 24.4

EBIT margin (%) 32.0 31.7 33.0 33.6

Net gearing (%) 8.5 8.5 3.5 nc Source: Company, Bloomberg, Bahana estimates

Note: Pricing as of close on 10 August 2015; n.m. = not meaningful

Exhibit 4. Relative share price performance

Source: Bloomberg, Bahana

13.2

5.4

12.0

15.5 14.7

17.7

0

2

4

6

8

10

12

14

16

18

20

0

2

4

6

8

10

12

14

16

18

20

ytd 1M 3M 6M 9M 12M

(%) (%)

tlkm IJ relative to JCI

10 August 2015

PT Bahana Securities – Equity Research – TLKM IJ 2

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Beneficiary of greater proportion of 3G smartphone users

TLKM is experiencing increased proportion of 3G-smartphone subscribers as several leading

brands such as Samsung and Nokia continue to penetrate the cheap 3G-smartphone segment.

We believe this is the only way to improve the 3G penetration rate as most Indonesians

(around 65%) buy handsets costing below IDR1mn/USD75, with fewer than 20% of buyers

purchasing handsets at above IDR2mn/USD150 (exhibit 5). Currently, the cheap handset

market is dominated by Samsung, Nokia, Evercoss/Cross, Advan, Mito, Lenovo and other

Chinese-based handsets.

Exhibit 5. Handset sales proportion, 2015

Source: GFK

Apart from these plans, TLKM also has its own program, Android United (exhibit 6), to increase

the 3G smartphone proportion among its subscribers by collaborating with several handset

manufacturers to supply affordable Android-based 3G smartphones. It is also important for

TLKM to increase its Android-based subscribers, as TLKM has signed an agreement with

Android that allows subscribers to purchase Android-based applications using TLKM’s top-up

accounts (vouchers). This agreement should help TLKM to monetize rising Indonesian e-

commerce transactions of late by its large base of Android subscribers, as users nowadays

spend increased time on their gadgets and spend greater money online. This is due to the

recent rise in popularity of Internet business in Indonesia via online retail shops (olx.com,

elevenia.com, lazada.com), ticketing (GIAA, traveloka.com, agoda.com, booking.com) and

services (Uber, Go-Jek, GrabTaxi).

Exhibit 6. Android United program

Source: Company

About 65% of

Indonesians ...

... purchase handsets

priced lower than

IDR1mn per unit

TLKM aims to increase

smartphone users ...

... through its Android

United Program

>IDR2mn

IDR1-2mn

IDR0-1mn

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Thus, in 2Q15, TLKM’s 3G smartphone subscribers increased to 48mn (exhibit 7), +54% y-y

and +10% q-q, representing a 3G-smartphone subscriber proportion of 33% (1Q15: 31%;

2Q14: 25%). This has positively affected TLKM’s data usage (2Q15: +131% y-y; exhibit 8)

and ARPU (2Q15: +5% y-y). Thus, we expect the data segment to continue to boost TLKM’s

revenue growth, particularly as the proportion of 3G smartphone subscribers is still at 33%,

much lower than the regional average of 50%, while data pricing is still relatively low at

USD0.0026/MB, compared to Thailand’s USD0.024/MB. Going forward, TLKM’s focus on

monetizing strong data demand will likely be the key in optimizing its EBITDA margin.

Exhibit 7. TLKM 3G smartphone users, 2Q13 – 2Q15

Source: Company

Exhibit 8. TLKM data (excluding SMS) revenue, 2Q13 – 2Q15

20.325.5 33.3

42.750.9

62.3

79.0 89.6

117.6

0

20

40

60

80

100

120

140

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

(petabyte)(USDmn)

Data revenue Payload

Source: Company

Continuation of cellular market dominance

EXCL’s value-driven strategy and overall market consolidation have benefitted the cellular

market in terms of pricing, as there have been no price wars or aggressive pricing strategies of

late in the sector. We expect TLKM, as the market leader with a strong network, to maintain

its dominance in terms of market share and pricing. In 2Q15, TLKM continued to gain market

share by improving its subscriber base by 2.6mn to 144mn (exhibit 9), +5% y-y and +2% q-

q, with a stable ARPU of IDR39k/month, +5% y-y and flat q-q.

TLKM’s 2Q15

smartphone users

reached 48mn, +54% y-

y and +10% q-q,

reflecting ...

... a smartphone

proportion of 33%

(1Q15: 31%; 2Q14:

25%), allowing for …

… 2Q15 data usage to

reach 118 petabyte,

+131% y-y

EXCL’s value-driven

strategy and market

consolidation have

benefitted TLKM given ...

20.325.5 33.3

42.750.9

62.3

79.0 89.6

117.6

0

20

40

60

80

100

120

140

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

(petabyte)(IDRbn)

Data revenue Payload (RHS)

16%16%

18%

21%

23%

25%

29%31%

33%

0%

5%

10%

15%

20%

25%

30%

35%

40%

4,500

4,550

4,600

4,650

4,700

4,750

4,800

4,850

4,900

4,950

5,000

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

(%)'000 subs

Users Penetration (RHS)

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Exhibit 9. Incumbent subscribers, 1Q13-1Q15

Source: Companies

Exhibit 10. Incumbent ARPU, 1Q13-1Q15

Source: Company

In an effort to maintain its growth strategy, TLKM divides Indonesia into 4 main geographical

areas and 206 clusters, implementing a different pricing and marketing scheme for each

cluster. Thus, TLKM can increase pricing in certain clusters with lower competitive landscapes,

where the network and presence of TLKM’s competitors is not significant. For instance, pricing

in eastern Indonesia is typically much higher than that in western Indonesia, as competitors’

networks in eastern Indonesia are not as solid as TLKM’s. TLKM can also increase pricing on

certain local occasions, such as religious holidays and political events, for example increasing

pricing in Bali during Hindu-related festivities such as Kuningan or Galungan. Furthermore,

pricing is also influenced by the company’s cost structure and infrastructure investment.

... its continued

improvement in

subscriber base with ...

... well-maintained ARPU

of IDR39k per month

TLKM implements

different pricing and

marketing strategies for

each cluster

35

36

37

38

39

40

22

23

24

25

26

27

28

29

30

31

32

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

EXCL ISAT TLKM (RHS)

(IDRk/mth) (IDRk/mth)

120

125

130

135

140

145

40

45

50

55

60

65

70

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

EXCL ISAT TLKM (RHS)

(mn subs) (mn subs)

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Exhibit 11. TLKM’s quarterly net profit growth y-y, 1Q04-1Q15

Source: Company

The ratio of TLKM subscribers in Java to outer Java is around 50:50 (exhibit 12), while

subscribers of other telco operators are mostly in Java rather than outer Java. Thus, TLKM is

more dominant in outer Java, where the company can implement a more aggressive pricing

strategy to optimize its margin. Going into 2H15, Indonesia will experience simultaneous

regional elections and several religious festivities, which we expect will benefit TLKM in terms

of pricing strategy.

Exhibit 12. TLKM subscribers by area, 2015

Source: Company; Note: Outer Java includes Sumatera, Papua, Maluku, Sulawesi and Kalimantan.

In 2Q15, TLKM’s voice revenue growth (exhibit 13) accelerated 10% y-y and 8% q-q

(1Q15:+6% y-y and -8% q-q) on solid chargeable minutes of usage (MoU) of 45bn, +11% y-y

and +7% q-q. TLKM improved voice usage and voice pricing in 2Q15. We expect TLKM to

continue booking strong voice growth despite strong growth in data usage, as TLKM has more

subscribers in outer Java who typically are not data users. Separately, TLKM has relatively

greater premium subscribers with higher ARPUs, who are usually less-price sensitive and still

use a great deal of voice. Furthermore, TLKM also has increased its salesforce, with the goal of

penetrating the market and maintaining its dominant market share. Moreover, TLKM has plans

to develop new areas in order to sustain revenue growth and price leadership ahead.

Historically, elections

have had a positive

impact on TLKM’s

quarterly net profit

growth

Compared to its

competitors, TLKM

benefits from having

more subscribers from

the outer Java areas,

where ...

... 50% of the

company’s subscribers

are located

In 2Q15, TLKM

experienced accelerated

revenue growth ...

-10

-5

0

5

10

15

20

25

30

35

1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14

(%)General Elections 2004 General Elections 2009 General Elections 2014

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Exhibit 13. TLKM voice revenue, 2Q13 – 2Q15

Source: Company

On SMS (exhibit 14), we expect weakness to persist, especially as several applications, such

as Whatsapp, Line and BBM, can directly replace SMS functions. Nowadays, subscribers with

smartphones rarely use SMS to communicate, as there are many new applications with more

communication features where people can also send pictures, video, voice recordings and even

voice calls. The most popular messenger application currently is Whatsapp, followed by BBM.

Even popular social media sites like Facebook and Path have messenger services.

Exhibit 14. TLKM SMS revenue, 2Q13 – 2Q15

Source: Company

In order to limit the decline in SMS usage, TLKM has implemented digital advertising (exhibit

15) that utilizes SMS to promote its product. TLKM allows advertisers to market directly

through SMS to targeted customers based on several criteria such as demographics, behavior,

interests, location and handset type. Apart from that, TLKM allows advertisers to promote

based on location in order to stimulate sales directly. However, we expect these moves to only

limit the decline in SMS usage, not to increase SMS usage, as we expect data usage to

increase significantly in the next few years.

... with improving

minutes of usage, +11%

y-y and +7% q-q

Several applications are

replacing SMS functions,

...

... bringing down 2Q15

SMS usage to 57bn

units, -12% y-y and -

2% q-q

To limit the decline in

SMS usage ...

49 47.7

48.7

47

49

49.5

51

50.1

53.7

42

44

46

48

50

52

54

56

7,000

7,500

8,000

8,500

9,000

9,500

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

(bn minutes)(IDRbn)

Cellular voice revenue MOU (RHS)

65.763.3 69

68 65 62.1

61.3

5857.1

50

55

60

65

70

75

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

(bn units)(IDRbn)

SMS revenue SMS usage (RHS)

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Exhibit 15. TLKM digital advertising

Source: Company

3mn IndiHome subscribers in 2017F

The Indonesian Government has issued a 5-year national broadband plan (2014-19) with a

budget of IDR278tn. The government intends to improve the broadband penetration rate to

71% of households and 30% of the population and improve mobile penetration to 100% of the

population. In villages, the target is 49% of households and 6% of the population for

broadband penetration as well as 52% of the population for mobile penetration. This is much

higher than the 5% broadband penetration rate currently.

Exhibit 16. Broadband users, 2011-2018F

Source: Company

In line with the government’s national broadband program, TLKM, earlier this year, launched

IndiHome, a triple-play bundling program including high-speed Internet, cable TV and fixed-line

access for the home. Indihome leverages on 6.5mn homes passes (1H15) in 160 cities with

optical-fiber networks originally built for Telkomsel’s and TLKM’s corporate clients. Total homes

passed including copper and msan (a combination of fiber and copper) network is around

13.2mn. In 1H15, TLKM spent roughly 20% of its capex (IDR2tn) on its fixed-line business,

providing further support for IndiHome market penetration. TLKM currently has 9.8mn fixed-line

customers and 3.5mn broadband users (Speedy), all of whom are to be offered the new

Indihome package.

... TLKM is promoting

digital advertising

programs

The government intends

to improve urban

broadband penetration

to 71% households and

30% of population

Home broadband is

expected to continue its

substantial

improvement

In 1H15, TLKM spent

20% of its capex on

fixed-line business,

prividing further support

for IndiHome network

1789

3013

5437

193

340

860

0

1000

2000

3000

4000

5000

6000

7000

2011 2013 2018F

('000 subs)

ADSL Cable

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Only 6 months following its launch, IndiHome’s 1H15 subscribers (exhibit 17) reached 427k

(1Q15: 245k subscribers), with a significant backlog of 30k subscribers as TLKM is having

difficulty keeping up with strong customer demand. This is also the reason for the significant

increase in TLKM’s 1H15 operation and maintenance (O&M) costs (+23% y-y), as the company

has incurred expenses on equipment such as set-top boxes and antennae for new IndiHome

subscribers. After installation, the subscribers make monthly rental payments to TLKM for the

equipment. Although the costs are one-off in nature and will be paid by customers later, we

expect O&M expenses to remain escalated as TLKM continues to acquire a significant number of

IndiHome subscribers. It is worth noting that TLKM’s IndiHome fast broadband subscribers has

surpassed LINK’s total broadband subscriber base, only 6 months following its launching.

Exhibit 17. Home broadband subscribers, 1H15

Source: Companies

In 2H15, we expect TLKM to accelerate its “IndiHome” installations, helping the company to

surpass total subscribers of 1mn by 2015, before reaching the 3mn level by 2017, suggesting

additional revenue potential of IDR9.7tn (10% of 2015F revenue). Going forward, we expect

IndiHome to provide a sustained additional source of revenue growth.

Mitratel deal with TBIG to be terminated; Mitratel IPO a possibility

Another interesting development at TLKM is its move to terminate a conditional share

exchange agreement (CSEA) with Tower Bersama Infrastructure (TBIG) for Mitratel, TLKM’s

tower provider subsidiary, at TLKM’s Board of Commissioners’ (BoC) request. TLKM will issue a

joint statement with TBIG on the termination of their agreement. Following this development,

we believe TLKM has 3 options. The first is to renegotiate the agreement with TBIG on

Mitratel’s and TBIG’s valuation. The second would be to invite a new tender for a tower

provider partner that could cooperate with Mitratel. The last option would be to develop

Mitratel internally and issue an IPO of Mitratel to raise funds to support future expansion.

To recap, last year TBIG announced its plan to acquire Mitratel in a two-step process, whereby

TBIG would issue 763mn new shares to TLKM (13.7% of the enlarged capital), assume

Mitratel’s debt of IDR2.7tn and pay IDR1.7tn in deferred cash. At that time (10 Oct 2014),

Mitratel had 3,928 towers and 4,363 tenants, reflecting 1.13x tenancy ratio and a rental rate

of IDR15mn/BTS. Apart from providing tower leasing on its own, Mitratel takes on the role as

an agent of TSEL’s towers that total almost twice as many Mitratel’s towers. The deal

represented an EV/tower of USD224k (excluding the agency business), much lower than

TBIG’s (USD416k) and TOWR’s (USD358k) valuations at that time.

Only 6 months following

its launch, IndiHome has

reached 427k broadband

subscribers ...

... surpassing LINK’s

total broadband

subscriber base

2015F IndiHome subs to

reach 1mn and 3mn in

2017F

TLKM to terminate its

Mitratel deal with TBIG

In Oct’14, the deal

represented EV/tower

of USD224k (excl.

agency business), much

lower than TBIG’s

(USD416k) and TOWR’s

(USD358k)

1.5

6.5

0

1

2

3

4

5

6

7

418

420

422

424

426

428

LINK INDIHOME

(mn homes)'000 subs

Subscribers Homes passed

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As Mitratel has increased the total number of its towers and tenants, the deal is currently

valued at USD120k/tower, partly due to Mitratel’s tenancy ratio which is below its peers.

Compared to the valuations of other tower providers, such as TBIG with EV/tower of USD348k

as well as TOWR with EV/tower of USD303k, Mitratel’s sale to TBIG was considered cheap,

particularly given that Mitratel has a relatively high rental rate and the potential to unlock

TSEL’s significant tower base. On the tenancy ratio, we believe it is due to TLKM management’s

intention to protect TSEL’s business, not due to Miratel’s unattractive tower locations or

quality, as Mitratel benefits from a first mover advantage. Having said that, we believe that low

tenancy ratio is something that can be addressed by the management through increased

marketing initiatives. In conclusion, we consider the termination of Mitratel’s sales to TBIG as

positive for TLKM shareholders.

Exhibit 18. Tower provider regional peers, 2016F

Source: Companies, Bloomberg, Bahana estimates; data as of 10 August 2015

As of 1H15, Mitratel had improved its assets significantly to 6,260 towers and 7,119 tenants,

reflecting a 1.13x tenancy ratio, while TSEL has around 17k towers. In the future, we believe

that TLKM may prefer the IPO route for Mitratel to unlock the value of Mitratel as the

EV/EBITDA of tower providers is greater than that of telco operators. Furthermore, an IPO is a

transparent process that involves scrutiny from global investors, limiting further disagreement

from TLKM’s BoC and government officials. Finally, by pursuing the IPO route, TLKM could reap

the upside potential from Mitratel. Although Mitratel only has 6k towers, much lower than TBIG

(11k towers) and TOWR (12k towers), the company has access to TSEL’s 17k towers, making

Mitratel the country’s largest tower provider, with access to 23k towers and the widest covered

area. Mitratel’s reach, pricing power, and expected solid growth should serve as solid catalysts

for a potential IPO, in our view.

Exhibit 19. Tower provider comparison, 1H15

Source: Bahana estimates, Companies

We consider the

termination of Mitratel’s

sales to TBIG as positive

for TLKM shareholders

Tower providers

regional peers trade at a

2016F EV/EBITDA of

17.2x, with EPS growth

of 37% y-y

We believe the Mitratel

IPO would unlock the

value of the tower

subsidiary while

capitalizing on upside

potential

Mitratel and TSEL

towers combined

represent 23k towers,

more than double that of

nearest competitor

TOWR

11,67511,154

7,0006,260

17,000

8,600

6,500

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

TOWR TBIG SUPR Mitratel TSEL ISAT EXCL

M a rk e t C a p 2 0 16 F 2 0 16 F 2 0 16 F 2 0 16 F 2 0 16 F 2 0 16 F

C o m pa ny ( U S D bn)

Indo ne s ia 6 .2 2 2 .3 3 0 .1 13 .2 5 .3 0 .9 2 5 .2

So lus i Tunas P ratam a 0.6 12.2 59.1 7.9 1.4 - 12.2

To wer B ersam a Infras truc ture 2.6 18.5 35.6 13.0 4.5 0.5 25.4

Sarana M enara N usantara 3.0 27.5 19.7 14.5 6.7 1.4 27.4

U S A 6 9 .7 4 7 .2 3 0 .7 17 .9 5 .4 1.9 11.8

A m erican To wer 42.2 40.3 16.8 17.7 6.1 2.4 15.1

C ro wn C astle 27.5 57.9 52.1 18.1 4.3 1.1 6.6

Ind ia 13 .2 3 4 .6 7 1.4 14 .4 4 .9 0 .5 14 .5

B hart i Infratel 13.2 34.6 71.4 14.4 4.9 0.5 14.5

G lo ba l we igh t e d a v e ra ge 8 9 .1 10 4 .1 13 2 .2 4 5 .5 15 .5 3 .3 5 1.4

P E R ( x) E P S gwt . ( %) E V / E B IT D A ( x) P B V ( x) P E G ( x) R O E ( x)

10 August 2015


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Minimal impact from the new interconnection policy

Mr. Rudiantara, the Indonesian Communication and Information Minister, plans to optimize the

current interconnection policy. Presently, off-net interconnections (calls to other operators) are

6 times more expensive than on-net interconnections (calls to the same operator). Earlier this

year, the minister wants to cut the off-net tariff from around 6x more expensive to around 3

times, in order to boost traffic. Should this materialize, ISAT and EXCL will benefit as they are

net interconnection payers (exhibit 20 & 21).

However, we understand that the new regulation on the interconnection rates, which will be

issued at the end of this year, could use the asymmetric method, an interconnection rate that

considers operational expenses and capital expenditures related to run the network. With this

method, interconnection rates will be different in each region, depend on the cost structure in

each region. We expect the interconnection rates in Java should be lower than those in outer

Java areas.

Although we expect lower TLKM’s interconnection revenues from Java areas, the net impact

should be slightly positive as TLKM will experience improved interconnection revenues from

outer Java areas. However, we expect this impact to be minimal as interconnection revenues

only represent around 6% of TLKM’s total revenues with EBITDA margin from interconnection

business only at around 15%, much lower than TLKM’s overall EBITDA margin of around 50%.

Exhibit 20. Incumbent interconnection income, 2008-2014

Source: Company

Exhibit 21. Current mobile interconnection rates

Source: Company

There could be some

adjustments to the

interconnection rates

using ...

... asymmetric method,

where interconnection

rates in Java should be

lower than those in

outer Java areas, ...

... with limited impact to

TLKM’s profitability

TSEL benefits the most

from the current

interconnection rates

compared to others

Interconnection rates

continued to be cut in

the last few years

Local to fixed/FWA 361 261 251

to mobile 449 261 251

to satellite 574 261 251

Long distance to fixed/FWA 471 380 357

to mobile 622 493 461

to satellite 851 501 463

International 510 498 453

IDR per minute Before 2008 2008-2010 2011

(IDRbn) 2009A 2010A 2011A 2012A 2013A 2014A

TSEL

Interconnect revenues 2,528 3,173 3,148 3,651 4,104 3,981

Interconnect expenses (2,366) (2,797) (2,701) (3,244) (3,213) (3,157)

Net revenues 162 376 447 407 891 824

EXCL



Net revenues (477) (577) (702) (456) (693) (349)

ISAT



Net revenues 43 (483) (524) (383) (516) (532)

10 August 2015


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Solid revenue growth expected ahead with well-supported EBITDA margin

At this stage, we expect rising data usage and a rational pricing environment to support solid

revenue growth. We expect continued strong data growth and stable voice revenue growth to

allow TSEL to book double-digit revenue growth. We revise up TLKM’s 2015-16F revenue by 1-

3%, as we expect TLKM’s revenue to grow 10% y-y through 2017. We expect the EBITDA

margin to recover from 49% in 2015 to around the 50-51% level in 2016-17. In 2015, we

forecast TLKM’s revenue to reach IDR98tn, +10% y-y, and grow 11% y-y to IDR109tn in 2016

and IDR120tn, +10% y-y in 2017.

On one-off personnel costs and escalated network costs in 1H15, we cut our 2015F EBITDA by

4% and net profit by 2%. We note that accelerated depreciation for Telkom Flexi should be

quite minimal going forward. TLKM booked one-off personnel expenses of around IDR844bn on

692 early retirement programs (ERP) in 2Q15, while TLKM did not have an ERP in 2014. By

2019, TLKM targets its total employee to decrease to around 8.5k from 16k currently. We do

not expect an ERP to materialize in 2H15, although we expect TLKM to book additional lower

ERP expenses of around IDR500bn (2Q15: IDR844bn) in following years as TLKM expects a

significant number of natural retirements.

For 2016-17, we expect the EBITDA margin to recover from 49% in 2015 to around the 50-

51% level. We expect TLKM’s 2015 EBITDA to only grow to IDR48.4tn, +6% y-y, prior to

recovering to IDR54.8tn, +13% y-y in 2016 and IDR60.9tn, +11% y-y in 2017. On the bottom

line, we expect TLKM to book 2015 net profit of IDR16.4tn, +12% y-y, before continuing to

grow 17% y-y to IDR19.1tn in 2016 and IDR21.6tn, +13% y-y in 2017.

Exhibit 22. Earnings revisions

Old New Change (%)

2015F 2016F 2017F 2015F 2016F 2017F 2015 2016F 2017F

Revenue (USDmn) 97,141 105,287 - 98,258 108,610 119,793 1.1 3.2 -

EBITDA (USDmn) 50,590 55,235 - 48,396 54,796 60,938 (4.3) (0.8) -

EBITDA margin (%) 52.1 52.5 - 49.3 50.5 50.9

Opt profit (USDmn) 31,685 34,753 - 31,143 35,838 40,275 (1.7) 3.1 -

Opt margin (%) 32.6 33.0 - 31.7 33.0 33.6

Net profit (USDmn) 16,744 18,612 - 16,382 19,105 21,615 (2.2) 2.6 -

Net margin (%) 17.2 17.7 - 16.7 17.6 18.0

EPS 166 185 - 163 190 214 (2.2) 2.6 -

Source: Bahana estimates

Maintain BUY with higher TP of IDR3,675

As we are well into 2H15, we now roll over our valuation using 2016 as our base. We use an

SOTP valuation using DCF value of Telkomsel and other TLKM businesses, from 2016 (base

investment year) to 2025, with a terminal growth rate of 2%, 10.7% WACC and 0.86x Beta

(using TLKM’s 10-year data). Our valuation methodology results in our higher new 12-month

TP from IDR3,350 to IDR3,675, translating to 2016F EV/EBITDA of 9.6x (excluding Singtel’s

proportion), a 5% premium to its regional peers.

TSEL is expected to book

double-digit revenue

growth supporting

TLKM’s future

performance

expectation

No ERP in 2H15F; expect

lower ERP levels

EBITDA margin to

recover from 49% in

2015F to 50-51% in

2016-17F

Trimming 2015F

numbers; raising 2016F

expectations

Rolling over to next

year’s valuation using

SOTP methodology, we

arrive at ...

10 August 2015


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Exhibit 23. TLKM SOTP, 2016F

Source: Bahana estimates

Despite TLKM currently trading higher than its 5-year historical EV/EBITDA of 7.41x (st. dev:

1.17x), we believe that the EV/EBITDA level (exhibit 23) has continued to increase in the past

few years on improved prospects ahead. In our target price, TLKM still trades within 2

standard deviation of its 5-year historical EV/EBITDA level. We argue that TLKM deserves a

premium over historical levels as well as regional peer EV/EBITDAs due to its expected solid

and sustainable growth ahead. We also note that investments in telcos are defensive in nature

while at the same time telcos currently operates under a rational pricing environment due to a

market consolidation phase. At the current low 3G-smartphone proportions as well as ARPU

levels compared to neighboring countries, we expect Indonesian telco companies to experience

sustained growth in the next few years.

Exhibit 24. Telco operator regional peers, 2016F

Source: Companies, Bloomberg, Bahana estimates; data as of 10 August 2015

... a new 12M TP of

IDR3,675

Indonesian telcos

deserve a premium on

their defensive nature

and expected

sustainable solid

growth, in our view

Telco operator regional

peers trade at a 2016F

EV/EBITDA of 9.1x

IDRbn Method Equity TLKM's 2016F

Value Ownership Value

Telkomsel DCF 534,337 65% 347,319

Other TLKM businesses DCF 23,404 100% 23,404

370,723

100,800

Value/Share (IDR) 3,678

Shares Outstanding (mn)

Total Value

Business

M a rk e t C a p 2 0 16 F 2 0 16 F 2 0 16 F 2 0 16 F 2 0 16 F 2 0 16 F

C o m pa ny ( U S D bn)

Indo ne s ia 2 7 .4 16 .2 15 .9 7 .1 3 .2 2 .5 2 0 .7

Telko m Indo nes ia 22.6 15.6 16.6 7.8 3.6 1.1 24.0

XL A xiata 3.0 na (333.4) 4.5 1.5 na 4.7

Indo sat 1.9 23.1 566.4 3.4 1.6 24.6 7.0

M a la ys ia 2 0 .3 2 1.3 5 .5 10 .1 3 4 .6 4 .6 19 0 .9

D igi.co m 13.3 19.5 3.5 11.8 51.2 5.6 283.8

Teleko m M alays ia 7.0 24.8 9.3 7.0 3.0 2.7 13.6

P hill ipp ine s 19 .6 18 .0 2 .5 8 .6 4 .6 19 .4 2 6 .4

P hilippine Lo ng D is tance Tel 14.5 16.9 0.7 8.7 4.1 25.3 25.0

Glo be Teleco m 5.1 21.3 7.7 8.3 6.0 2.8 30.4

T ha ila nd 2 9 .0 18 .2 13 .1 8 .8 11.6 1.4 7 5 .6

A dvanced info Serv ice 22.1 18.4 13.7 9.8 13.7 1.3 89.0

To tal A ccess C o m m unicat io n 6.8 17.8 11.1 5.4 4.9 1.6 32.4

S inga po re 7 .8 17 .2 2 .1 9 .3 2 8 .0 14 .1 16 8 .3

Starhub 5.3 18.0 0.9 9.5 37.9 19.2 225.5

M o bileo ne 2.5 15.4 4.5 8.8 7.0 3.4 46.8

G lo ba l we igh t e d a v e ra ge 7 6 .7 18 .9 7 .2 9 .1 17 .6 8 .1 10 3 .0

P E G ( x)P E R ( x) E P S gwt . ( %) E V / E B IT D A ( x) P B V ( x) R O E ( x)

10 August 2015


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Finance Asia's

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Alpha

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2014 Best

Research Call

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Exhibit 25. TLKM historical EV/EBITDA band, 2010-2015

Source: Bloomberg, Bahana estimates

At this stage of the market cycle, we believe Indonesia’s low ARPU and broadband penetration

rate as well as market consolidation will pave the way for TLKM to book sustained solid

revenue growth, allowing its ytd market outperformance to persist ahead (exhibit 4). With that

said, we retain our BUY rating on TLKM on 24% upside potential. Risks to our call include

tougher-than-expected competition and higher-than-expected network expenses.

Average EV/EBITDA

continue to increase on

improved prospects

Risks: tough competition

and high network costs

4

5

6

7

8

9

10

Agust-11 Feb-12 Agust-12 Feb-13 Agust-13 Feb-14 Agust-14 Feb-15

Average 5 years -2 STD +2 STD EV/EBITDA

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Telekomunikasi Indonesia Year to 31 December 2013 2014 2015F 2016F 2017F PROFIT & LOSS (IDRb) Sales 82,967 89,696 98,258 108,610 119,793 Gross profit - - - - - EBITDA 41,776 45,844 48,396 54,796 60,938 Depreciation 15,780 17,131 17,253 18,958 20,663 EBIT 25,996 28,713 31,143 35,838 40,275 Net interest inc./(expense) (668) (576) (766) (515) (179) Forex gain/ (losses) (249) (14) (127) 64 25 Other income/ (expense) 2,070 661 661 661 661 Pre-tax profit 27,149 28,784 30,910 36,048 40,782 Taxes (6,859) (7,338) (7,728) (9,012) (10,196) Minority interest (6,085) (6,808) (6,800) (7,931) (8,972) Extraordinary gain/(losses) - - - - - Net profit 14,205 14,638 16,382 19,105 21,615

BALANCE SHEET (IDRb) Cash and equivalents 14,696 17,672 17,075 18,482 22,419 S-T investments 6,872 2,797 3,085 3,410 3,761 Trade receivables 6,623 6,997 8,188 9,051 9,983 Inventories 509 474 671 728 795 Fixed assets 86,761 94,809 102,556 108,598 114,122 Other assets 13,094 19,073 20,751 22,937 25,299 Total assets 128,555 141,822 152,326 163,206 176,380 Interest bearing liabilities 20,256 23,452 23,452 21,452 20,452 Trade payables 12,197 12,362 13,032 13,602 14,328 Other liabilities 19,286 19,873 21,444 23,486 25,904 Total liabilities 51,739 55,687 57,928 58,540 60,683 Minority interest 16,932 18,323 18,986 20,797 22,631 Shareholders' equity 59,884 67,812 75,412 83,869 93,065

CASH FLOW (IDRb) EBIT 25,996 28,713 31,143 35,838 40,275 Depreciation 15,780 17,131 17,253 18,958 20,663 Working capital 3,587 (174) (718) (349) (274) Other operating items (30,656) (14,441) (15,958) (17,995) (19,732) Operating cash flow 14,707 31,229 31,720 36,452 40,933 Net capital expenditure (24,898) (24,667) (24,000) (24,000) (25,188) Free cash flow (10,191) 6,562 7,720 12,452 15,745 Equity raised/(bought) 1,250 576 - - - Net borrowings 981 3,196 - (2,000) (1,000) Other financing 9,538 (7,358) (8,317) (9,045) (10,808)

Net cash flow 1,578 2,976 (597) 1,407 3,937 Cash flow at beginning 13,118 14,696 17,672 17,075 18,482 Cash flow at end 14,696 17,672 17,075 18,482 22,419

RATIOS ROAE (%) 25.5 22.9 22.9 24.0 24.4 ROAA (%) 11.8 10.8 11.1 12.1 12.7 EBITDA margin (%) 50.4 51.1 49.3 50.5 50.9 EBIT margin (%) 31.3 32.0 31.7 33.0 33.6 Net margin (%) 17.1 16.3 16.7 17.6 18.0 Payout ratio (%) 70.0 60.0 65.0 65.0 65.0 Interest coverage (x) 1.2 1.1 1.1 1.1 1.2 Net gearing (%) 38.9 49.8 40.6 69.6 225.1 Debts to assets (%) 9.3 8.5 8.5 3.5 nc Debtor turnover (days) 15.8 16.5 15.4 13.1 11.6 Creditor turnover (days) 27 29 30 31 31 Inventory turnover (days) 64 75 70 68 65

MAJOR ASSUMPTIONS Subscribers ('000) 131,512 140,585 144,803 147,699 150,653 Net adds ('000) 6,366 9,073 4,218 2,896 2,954 ARPU (IDR 000) 37 39 40 43 47

Source: Company, Bahana estimates

2015-17F revenue likely to

increase 10% y-y, higher than industry growth

Well-maintained debt levels expected ...

... despite capex remaining above IDR24tn in 2015-17F

Margin improvement in 2016-17F

on cost efficiencies and

normalization of expenses

We expect improvements in ARPU to continue

10 August 2015


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Alpha

Southeast Asia

2014 Best

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Exhibit 26. TLKM forecast, 2015F-2025F

Source: Bahana, Company

Exhibit 27. TLKM key performance data, 1Q13-2Q15

Source: Bahana, Company

Exhibit 28. Results summary q-q y-y 2Q15/ y-y 1H15/ 1H15/ (IDRb) 2Q14 1Q15 2Q15 (%) (%) 2Q15F 1H15 (%) 2015F Cons

Sales 22,292 23,616 25,224 6.8 13.2 103.9 48,840 12.2 50.3 46,1540 Operating expenses (15,219) (16,352) (17,741) 8.5 16.6 (34,093) 15.3 52.1

Operating profit 7,073 7,264 7,483 3.0 5.8 14,747 5.5 46.5

EBITDA 11,288 12,362 11,178 (9.6) (1.0) 88.4 23,540 0.0 46.5

Net int. income/(expense) (169) (129) (275) 113.2 62.7 (404) 78.0 64.5

Forex gain (expenses) (94) (12) 37 (8.9) (5.6) 25 (117.1) (19.6)

Other income/(expense) 169 195 157 (19.5) (7.1) (27) (81.1) 29.3

Pretax profit 6,979 7,318 7,402 1.1 6.1 14,720 6.4 46.6

Taxation (1,769) (1,810) (1,931) 6.7 9.2 (3,741) 7.0 47.4

Minority Interest (1,509) (1,694) (1,838) 8.5 21.8 (3,532) 15.8 50.8

Net profit 3,701 3,814 3,633 (4.7) (1.8) 86.8 7,447 2.2 44.5

BS & Ratio analysis 2Q14 1Q15 2Q15 1H14 1H15 2014A 2015F 2016F EBITDA margin (%) 55.3 52.3 44.3 50.8 48.2 51.1 52.1 52.5

Operating margin (%) 31.7 30.8 29.7 32.1 30.2 32.0 32.6 33.0

Net margin (%) 16.6 16.2 14.4 16.7 15.2 16.3 17.2 17.7

Inventory days 5 3 4 5 4 3 4 4

Receivable days 25 28 28 26 29 29 30 31

Payable Days 62 53 66 64 68 75 71 69

Total cash (IDRb) 16,828 20,282 24,286 16,828 24,286 17,672 19,235 20,863

Total debt (IDRb) 23,710 23,438 29,555 23,710 29,555 23,452 23,452 21,452

Net gearing (%) 11.4 3.5 6.4 11.4 6.4 8.5 5.6 0.7

Source: Bahana, Company, Bloomberg

IDRbn 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F

Revenues 98,258 108,610 119,793 131,651 144,709 158,990 174,487 191,164 208,947 227,723 247,340

TSEL 73,950 81,740 90,157 99,081 108,909 119,657 131,320 143,871 157,255 171,386 186,150

Other TLKM businesses 24,308 26,869 29,636 32,569 35,800 39,333 43,167 47,292 51,692 56,337 61,190

EBITDA 48,396 54,796 60,938 67,336 74,381 82,085 90,446 99,443 109,037 119,167 129,750

TSEL 40,761 45,729 50,816 56,122 61,966 68,356 75,291 82,753 90,711 99,113 107,891


Net Profit 16,382 19,105 21,615 24,290 27,329 30,742 34,520 38,684 43,222 48,080 53,234

TSEL 14,110 15,968 17,880 19,865 22,078 24,521 27,192 30,080 33,169 36,433 39,839


Capex 24,000 24,000 25,188 26,437 27,742 29,094 30,484 31,902 33,335 34,771 36,195

TSEL 15,600 15,600 16,372 17,184 18,032 18,911 19,814 20,736 21,668 22,601 23,527


Key Indicators Unit 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Subscribers mn 120.6 125.1 127.9 131.5 132.7 137.4 139.4 140.6 141.5 144.1

ARPU IDRk 36 39 37 39 37 37 38 39 39 39

MoU (Total) bn minutes 46 49 48 49 47 49 50 51 50 54

MoU ( Chargable) bn minutes 33 35 35 37 37 41 40 43 42 45

SMS (total) bn units 62 66 63 69 68 65 62 61 58 57

SMS (chargable) bn units 29 39 37 41 38 39 32 30 29 31

Data volume PB 18 20 25 33 43 51 62 79 90 118

BTS (total) units 57,664 62,225 65,653 69,864 74,326 79,560 83,346 85,420 90,552 96,915

BTS (3G) units 17,758 20,828 23,438 27,037 30,575 34,274 37,082 38,439 43,006 48,200

Smartphone users units 18,056 19,902 20,041 23,662 28,170 31,207 35,363 40,420 43,731 48,128

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[email protected] 3602

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[email protected] Associate

ext 3621

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ext 3600direct: +62 21 250 5735

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Disclaimer This publication is prepared by PT.Bahana Securities and reviewed by Daiwa Securities Group Inc. and/or its affiliates, and distributed outside Indonesia by Daiwa Securities Group Inc. and/or its affiliates, except to the extent expressly provided herein. Certain copies of this publication may be distributed inside and outside of Indonesia by PT. Bahana Securities in accordance with relevant laws and regulations. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Any review does not constitute a full verification of the publication and merely provides a minimum check. Neither Daiwa Securities Group Inc. nor any of its respect ive parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication constitutes the views of the analyst(s) named herein and does not necessarily reflect those of Daiwa Securities Group Inc. and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person.

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Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time may have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures.

Japan

Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc.

Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc.

Investment Banking Relationship

Within the preceding 12 months, The subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Modern Land (China) Co. Ltd (1107 HK); China Everbright Bank Company Limited (6818 HK); econtext Asia Ltd (1390 HK); Lotte Shopping Co (023530 KS); Rexlot Holdings Ltd (555 HK); Neo Solar Power Corp (3576 TT); Accordia Golf Trust (AGT SP); Hua Hong Semiconductor Ltd (1347 HK).

*Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of:

• Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司)

• Daiwa Capital Markets Singapore Limited

• Daiwa Capital Markets Australia Limited

• Daiwa Capital Markets India Private Limited

• Daiwa-Cathay Capital Markets Co., Ltd.

• Daiwa Securities Capital Markets Korea Co., Ltd

Disclosure of Interest of Bahana Securities


Within the preceding 12 months, Bahana Securities has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: PT Telekomunikasi Indonesia (Persero) Tbk (TLKM IJ); Garuda Indonesia (Persero) (GIAA IJ); Wijaya Karya Beton Tbk PT (WTON IJ); J Resources Asia Pasific Tbk PT (PSAB IJ)

Hong Kong

This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research.

Ownership of Securities

For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.


For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Relevant Relationship (DHK)

DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.

DHK market making

DHK may from time to time make a market in the securities covered by this research.

Singapore

This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research.

Australia

This research is distributed in Australia by Daiwa Capital Markets Stockbroking Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research.


For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

India

This research is distributed by Daiwa Capital Markets India Private Limited (DAIWA) which is an intermediary registered with Securities & Exchange Board of India. This report is not to be considered as an offer or solicitation for any dealings in securities. While the information in this report has been compiled by DAIWA in good faith from sources believed to be reliable, no representation or warranty, express of implied, is made or given as to its accuracy, completeness or correctness. DAIWA its officers, employees, representatives and agents accept no liability whatsoever for any loss or damage whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of or reliance

https://daiwa3.bluematrix.com/sellside/Disclosures.action



on the contents of and/or omissions from this document. Consequently DAIWA expressly disclaims any and all liability for, or based on or relating to any such information contained in or errors in or omissions in this report. Accordingly, you are recommended to seek your own legal, tax or other advice and should rely solely on your own judgment, review and analysis, in evaluating the information in this document. The data contained in this document is subject to change without any prior notice DAIWA reserves its right to modify this report as maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to ,or use by any person, citizen or entity which is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analyst’s personal views about the securities and issuers that are subject of the Report, and that no part of the analyst’s compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report. This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non – US affiliates to effect trades in any securities and is not supplied with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited.

Taiwan

This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research.

Philippines

This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange

Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc.

in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors

independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a

proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets

mentioned in the publication or may have performed other services for the issuers of such securities.

For relevant securities and trading rules please visit SEC and PSE Link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and

http://www.pse.com.ph/ respectively.

United Kingdom

This research report is produced by Daiwa Capital Markets Europe Limited and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and/or its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and/or its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Germany

This document is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.

Bahrain

This research material is distributed by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113

This material is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document, Content herein is based on information available at the time the research material was prepared and may be amended or otherwise changed in the future without notice. All information is intended for the private use of the person to whom it is provided without any liability whatsoever on the part of Daiwa Capital Markets Europe Limited, Bahrain Branch, any associated company or the employees thereof. If you are in doubt about the suitability of the product or the research material itself, please consult your own financial adviser. Daiwa Capital Markets Europe Limited, Bahrain Branch retains all rights related to the content of this material, which may not be redistributed or otherwise transmitted without prior consent.

United States

This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon

as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect

PT.Bahana Securities’ or DCMA’s views at any time. Neither PT.Bahana Securities, DCMA nor the preparer has any obligation to update this report

or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report

says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses.

Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives,

financial situation and needs. This report does not recommend to U.S. recipients the use of any of PT.Bahana Securities’ or DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to

such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this

material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of

securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities

discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should

contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000).


For “Ownership of Securities” information please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action .

http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf%20and%20http:/www.pse.com.ph/

http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf%20and%20http:/www.pse.com.ph/

http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory



Investment Banking Relationships

For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action .

DCMA Market Making

For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action .

Research Analyst Conflicts

For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The

principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material

relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as

noted: no exceptions.

Research Analyst Certification

For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at

https://daiwa3.bluematrix.com/sellside/Disclosures.action . The views about any and all of the subject securities and issuers expressed in this

Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm

producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific

recommendations or views contained in this Research Report.

For stocks and sectors in Indonesia covered by Bahana Securities, the following rating system is in effect:

Stock ratings are based on absolute upside or downside, which is the difference between the target price and the current market price. Unless otherwise specified, these ratings are set with a 12-month horizon. It is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating. "Buy": the price of the security is expected to increase by 10% or more. "Hold": the price of the security is expected to range from an increase of less than 10% to a decline of less than 5%. "Reduce": the price of the security is expected to decline by 5% or more.

Sector ratings are based on fundamentals for the sector as a whole. Hence, a sector may be rated “Overweight” even though its constituent stocks are all rated “Reduce”; and a sector may be rated “Underweight” even though its constituent stocks are all rated “Buy”. “Overweight”: positive fundamentals for the sector. “Neutral”: neither positive nor negative fundamentals for the sector. “Underweight”: negative fundamentals for the sector.

Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action .

Investment Banking Relationships For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action . Relevant Relationships (Bahana Securities) Bahana Securities may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.

Bahana Securities market making Bahana Securities may from time to time make a market in securities covered by this research.

Additional information may be available upon request.

Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law

(This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)

If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items.

In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since

commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for

each transaction.

In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are

a non-resident of Japan. For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with

you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.

There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest

rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss

could exceed the amount of the collateral or margin requirements.

There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us.

Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts

as certified public accountants.

*The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.

Corporate Name: Daiwa Securities Co. Ltd.

Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108

Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan

Japan Securities Investment Advisers Association

Type II Financial Instruments Firms Association







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