Left Brain Right B - the DBS Vickers Securities Equities Research

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Regional Equity Strategy 4Q 2009 Country Assessment Sector recommendation and stocks for Indonesia SECTOR REMARKS STOCK SELECTION Basic Materials Neutral Energy Overweight Telecommunications Overweight Metal prices such as nickel and tin have rebounded strongly followed by sharp increases in metal producer share price (+114% ytd). However, for nickel producers, the share price has already increased, implying much higher commodity prices compared to current level, thus valuation is rich. Yet, for one company, Timah (TINS), we believe the upside remains attractive. TINS is the one of the top tin producers in the world, and is thus well positioned to directly benefit from rising tin price. We remain positive on energy sector, especially coal, as rising domestic demand will play a more prominent role going forward. Development of the 10,000MW coal-fired power plants continues to progress with estimated completion in 2010. The power plants will demand c.35-40mn tons of coal p.a. on top of current domestic consumption of about 50mn tons p.a. This will provide plenty of growth opportunities for coal producers in our view. Having said that, we pick Bukit Asam (PTBA) as our top pick in the sector underpinned by its strong exposure in domestic market and the several projects underway (incl. transportation infrastructure enhancement, power plant projects and acquisition) to ramp up its production going forward. TLKM reported higher than expected 2Q09 earnings on the back of strong margins, which we believe is due to the rising effective tariff environment in the Indonesian telco industry. While this benefited telcos in general (including Excelcomindo), ISAT departed from the norm by reporting disappointing 2Q09 results. Following a change in management (after Qtel has taken control of ISAT), the company raised its effective tariff aggressively with the aim of shifting its focus to high ARPU subscribers. In a price sensitive market, ISAT suffered 13% q-o-q fall in subscriber base while 1H09 ARPU drop 17% y-o-y. Looking ahead, we think its competitors would take advantage of ISAT’s weakness to gain market share while ISAT continues to churn out customers. We remain optimistic on TLKM given its strong track record in the cellular business as well as its strong balance sheet (FY10F: 0.3x net gearing). We reiterate our BUY call on TLKM with a DCF-based price target of Rp10,500. TINS PTBA TLKM Page 137
Regional Equity Strategy 4Q 2009 Bank Rakyat Indo Bloomberg: BBRI IJ | Reuters: BBRI.JK BUY Rp7,450 JCI : 2,420.11 Price Target : 12-Month Rp 10,400 Potential Catalyst: Lower cost of fund Analyst Agus Pramono CFA +6221 3983 2668 agus.pramono@id.dbsvickers.com Price Relative 9,093 8,093 7,093 6,093 5,093 4,093 3,093 2,093 Rp Relative Index 2005 2006 2007 2008 2009 Bank Rakyat Indo (LHS) Relative JCI INDEX (RHS) Forecasts and Valuation FY Dec (Rp bn) 2008A 2009F 2010F 2011F Pre-prov. Profit 11,190 13,636 16,006 18,796 Net Profit 5,958 7,022 9,010 11,087 Net Pft (Pre Ex.) 5,958 7,022 9,010 11,087 EPS (Rp) 484 570 731 900 EPS Pre Ex. (Rp) 484 570 731 900 EPS Gth Pre Ex (%) 23 18 28 23 Diluted EPS (Rp) 484 570 731 900 PE Pre Ex. (X) 15.4 13.1 10.2 8.3 Net DPS (Rp) 242 285 366 450 Div Yield (%) 3.2 3.8 4.9 6.0 ROAE Pre Ex. (%) 28.5 28.8 30.9 31.5 ROAE (%) 28.5 28.8 30.9 31.5 ROA (%) 2.6 2.6 2.9 3.0 BV Per Share (Rp) 1,814 2,142 2,588 3,123 P/Book Value (x) 4.1 3.5 2.9 2.4 211 191 171 151 131 111 91 71 Faster than the others • Loan growth should accelerate • Loan quality will recover in 4Q09 • NIM should stop declining • Undemanding valuation, maintain BUY rating and Rp10,400 TP. The worst is over. BBRI posted 14.6% YTD loan growth, the highest in the sector. Going forward, with recovering domestic consumption, extensive marketing efforts and outlet expansion, BBRI should be able to register stronger loan growth. Meanwhile, although BBRI’s gross NPL ratio increased in 2Q09 to 3.7%, loan quality should improve in 4Q09. The management expects NPL to inch up in 3Q09 before falling in 4Q09; the rise in NPL in 3Q09 will be due to higher loan growth, conservative provisioning policy, as well as full provision for loans to high risk segments. NIM should stabilise. BBRI should be a beneficiary of lower deposit and lending rates. It has some fixed rate loans or fixed income loans which should not be affected by falling lending rates. The bank should also benefit from the agreement between banks to lower deposit rates. We think that its cost of funds could fall by 110bps in 2H09, slightly more than asset yield. Undemanding valuation. We raised our target price to Rp10,400 based on 4x FY10 PBV. If we use the DDM method with 25% sustainable ROE, 12.5% sustainable growth and 14.5% required rate of return, we arrive at 6.2x PBV. The stock is currently trading at 2.9x FY10 PBV, but deserves a higher valuation for its high ROE and strong growth. Earnings Rev (%): - - - Consensus EPS (Rp): 549 676 817 ICB Industry : Financials ICB Sector: Banks Principal Business: Banking Source of all data: Company, DBS Vickers, Bloomberg At A Glance Issued Capital (m shrs) 12,334 Mkt. Cap (Rpbn/US$m) 91,885 / 9,286 Major Shareholders Govt of Indonesia (%) 59.0 Free Float (%) 41.0 Avg. Daily Vol.(‘000) 17,332 Page 138 www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: TW
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Left Brain Right B - the DBS Vickers Securities Equities Research

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