LG Zi 50329054

OFFICE OF CHIEF ECONOMIST
September 2010
Contents BI rate unchanged at 6.5%, Reserves requirement increased Long rally after long holiday p.02 p.03
Reviewing the Efforts towards p.08 Sugar Self-Sufficiency 2014 Multistrada Arah Sarana: Indonesians Tire p.16 Manufacturer Perusahaan Gas Negara: 65.7% grossp.34 margin post tariff hike Adaro Energy: Rupiah Attrition p.37 Mandiri Current Forecast Indonesia Current Data (Table) p.42 p.43
Indonesia Update
BI rate unchanged at 6.5%, Reserves requirement increased Bank Indonesia decided to leave the benchmark rate unchanged at the board meeting in September at 6.5%, inline with our and consensus estimate, although rising inflationary pressure is still pointed out as central banks main consideration. The central bank prefers to remove persistent excess liquidity by introducing higher reserves requirement, which we believe, would also have tightening effect. Long rally after long holiday After long holiday due to Ied celebration, the governments rupiah bonds rose quite significantly. From Sept 6 to 24, on average bond prices rose by 2.5%, providing a total return investing in rupiah government bonds of 21.3%ytd. In term of USD the return is higher, namely 26%, as rupiah strengthened against USD. Reviewing the Efforts towards Sugar Self-Sufficiency 2014 Indonesia is currently playing a very insignificant role in the global sugar production. Out of the total volume of global sugar production of 153 million tons, Indonesia only has a share of less than 2%, compared to Brazil which has a share of 22%, followed by India with a share of 11%. Indonesia is recorded to have per capita consumption of sugar of 19 kgs/year, relatively lower than the consumption in Brazil, Europe, USA and Thailand. Multistrada Arah Sarana: Indonesians Tire Manufacturer We forecast the companys revenue to grow at 33.9% CAGR over the next 2 years to IDR3.7tn in FY2012 in accordance with capacity expansion. The growth will be supported by increasing sales volume in radial tires and motorcycle tires, which we forecast to grow by CAGR of 23.1% and 26.5%, respectively in the year 2010F-12F. Perusahaan Gas Negara: 65.7% gross margin post tariff hike PGAS recorded a gross margin of 65.7% in 2Q10, up from 60.8% in 1Q10, and 59.3% in 1H09. An increase in average gas price of 8.6% in Q2 to USD6.84/MMBTU helped beefed up the margin Adaro Energy: Rupiah Attrition ADROs 1H10 revenue of IDR12 tn was only 43.8% of our FY10 target, due to lower average selling price and the US dollars depreciation. However coal production in 1H10 increased 20% yoy to 21.6Mt and sales volume rose 22% to 21.8Mt.
Sugar Production by Countries
Chief Economist Mirza Adityaswara Mirza.Adityaswara@bankmandiri.co.id Analyst Moch. Doddy Ariefianto Faisal Rino Bernando Nina Anggraeni Rini Setyowati M. Ajie Maulendra Nadia Kusuma Dewi Nurul Yuniataqwa Karunia Sindi Paramita Reny Eka Putri Ahmad Subhan Irani Publication Address: Bank Mandiri Head Office Office of Chief Economist st 21 Floor, Plaza Mandiri Jalan Jend. Gatot Subroto Kav.36-38 Jakarta 12190, Indonesia Phone: (62-21) 5245516 / 5272 Fax: (62-21) 5210430 Email: Moch.Ariefianto@bankmandiri.co.id Rino.Bernando@bankmandiri.co.id Nina.Anggraeni@bankmandiri.co.id Rini.Setyowati@bankmandiri.co.id Ajie.Maulendra@bankmandiri.co.id Nadia.Dewi@bankmandiri.co.id Nurul.Karunia@bankmandiri.co.id Sindi.Paramita@bankmandiri.co.id Reny.Putri@bankmandiri.co.id Ahmad.Subhan@bankmandiri.co.id See important disclaimer at the end of this material
Others 24%
Brazil 24%
Indonesia 2%
Russia 2% Pakistan Australia 2% 3% Mexico USA 3% 5% Thailand 5%
India 11%
W. Europe 10% China 9%
BI rate unchanged at 6.5%, Reserves requirement increased

Destry Damayanti (destry.damayanti@mandirisek.co.id), Aldian Taloputra (aldian.taloputra@mandirisek.co.id),
BI rate stay unchanged at 6.5%
Bank Indonesia decided to leave the benchmark rate unchanged at the board meeting in September at 6.5%, inline with our and consensus estimate, although rising inflationary pressure is still pointed out as central banks main consideration.
Dec-09 6.5 6.5 6.5 2.78 Mar-10 6.5 6.5 6.5 3.43 Jun-10 6.5 6.5 6.5 5.05 Aug-10 6.5 6.5 6.5 6.44 Sep-10 6.5 6.5 6.5
% Actual Mandiri's Forecast Consensus CPI Inflation (% yoy)
Figure 1. BI Rate Summary. (Source: CEIC, Bloomberg, Mandiri Sekuritas)
Domestic demand remained as growth backbone
However, the central bank choose introducing new reserves requirement (RR) arrangement in order to absorb persistent excess liquidity that potentially could drive inflationary pressure and to push bank lending. The arrangement includes increasing primary RR to 8% from previously 5% of the third party fund (additional 3% will be remunerated around 2.5%) and additional RR related to the loan-to-deposit ratio. The banks that fail to meet the LDR target (78% to 100%) would be penalized with higher RR (see figure 2).
Current 5% New 8% Effective Date 1-Nov-10 Note 2.5% interest will be given to additional 3% RR No Interest will be given for bank with below 8% primary RR No interest No interest
Primary
Secondary LDR linked
2.50% -
2.50% 0.1-0.2 of third party fund should actual LDR missed the targetted LDR (78%100%)
Still effective 1-Mar-11
0.1 of third party fund will be charged for evey 1ppt below targetted LDR 0.2 of third party fund will be charged for every 1ppt above targetted LDR for banks with below 14% CAR No charges for banks that exceed targetted LDR that have CAR equal to or above 14%
Figure 2. New Reserves Requirement. (Source: CEIC) Office of Chief Economist Page 2 of 26
Long rally after long holiday

Handy Yunianto (handy.yunianto@mandirisek.co.id)
10 year bond yields Country Thailand Philippine Vietnam Indonesia 24-Sep-10 3.19 6.24 11.16 7.75 3-Sep-10 2.96 6.67 11.20 8.16
Weekly Currency Weekly YTD Inflation yield YTD yield currency currency YoY % changes changes changes changes 24-Sep-10 (bps) (bps) 24-Sep-10 3-Sep-10 (%) (%) 23 -99 30.71 31.17 -1.48 -7.97 3.4 -43 -187 43.99 44.68 -1.54 -4.7 3.9 -4 -29 19,015 19,495 -2.46 2.90 8.2 -41 -231 8,958 9,004 -0.51 -4.74 6.2
Figure 3. Asian Bond Market Yield Movements. (Source: Bloomberg)
Review: Bond market rallied after long holiday. After long holiday due to Ied celebration, the governments rupiah bonds rose quite significantly. From Sept 6 to 24, on average bond prices rose by 2.5%, providing a total return investing in rupiah government bonds of 21.3%ytd. In term of USD the return is higher, namely 26%, as rupiah strengthened against the USD. Yield curve bullish flattened. The 10-year rupiah sovereign bond yield has dropped significantly to 7.75%- the lowest ever as of 24-Sept after rising to 8.26% on 31-Aug. Meanwhile, the short tenor 1-year yield was relative stable at 6%. This make yield curve flattened the most since July-10. Bullish flattened yield curve made the long duration portfolio (more than 7 years) to outperform by 6.2ppt ytd, compared to our Mandiri Sekuritas Government Bond Index (MSGBI) for all tenors.
300 Al l tenors (more tha n 1yrs ) 7-yea r Tenor Total Return (Base year Dec-03=100) 250
200
150
100
50 Nov-03 Oct-06 Mar-07 Nov-08 Apr-04 Aug-07 Dec-05 Sep-04 Feb-05 Apr-09 MayJan-08 Sep-09 Feb-10 Jun-08 Jul-05 Jul-10
Figure 4. Flattening Yield Curve Make Long Duration Portfolio to Outperform (Source: Mandiri Sekuritas Estimate) Office of Chief Economist Page 3 of 26
Sep-10 MSGBI Tenor more than 7yr
Average YTM (%) 7.8 8.3
Total Return (incl. coupon rate %) MoM YoY YTD 3.5 24.3 21.3 4.5 30.8 27.5
Figure 5. Bullish Flattened Yield Curve Made The Long Duration Portfolio Duration Outperform. (Source: Mandiri Sekuritas Estimate)
Spread 1/10yr yield (ppt) 4
1 Feb-10 May-10 Mar-10 Sep-10 Jun-10 Jan-10 Jul-10
Figure 6. Yield Curve Flattened After BI Increased Reserve Requirement and Pessimism Over The US Economy Has Eased. (Source: Bloomberg and Mandiri Sekuritas Estimate)
Two factor behind the rally We think, there were two positive news to support bonds rally in September. (1) In the global side: global risk appetite increased as pessimism over the US economy has eased. The US stock market has risen significantly by 3% after National Bureau of Economic Research (NBER) said that US recession was over. Although US passed the recession but the economic growth is still expected to be lower as unemployment is still high. Consensus forecasts 3Q GDP growth to be lower to 1.9%, with unemployment still high at 9.7%. This condition will make the Fed to continue injecting liquidity in the market. (2) On the domestic side: BIs decision to increase reserve requirement by 3ppt starting Nov-2010 will reduce inflation expectation and it may push back any rate hike scenario further to 1Q2011. August inflation was also reported below market consensus 6.4% vs. 6.7%.
Office of Chief Economist
Page 4 of 26
Foreign fund inflows still the main key driver for bond rally. After slightly reducing their portfolio in the last two weeks by almost IDR1tn, foreign investors became net buyers during the week by mostly increasing their holdings of the long-end tenors. Their holdings for the notes over 10-years increased by IDR3.1tn during the weeks to IDR96.7tn. Thus foreigners total portfolio of bonds over 10-years rose slightly to 54.9% from 54% in the week (picture 8)
Portfolio Outstanding 22,499 32,601 26,139 98,834 180,073 1 Month- 2 Month- 3 Monthto-date to-date to-date -790 870 5,751 98 864 3,969 76 9 66 2,698 6,110 8,232 2,082 7,852 18,018 Year-todate 12,564 11,240 2,681 45,591 72,076
Net Buy/Sell TTM 0-2yr TTM 2-5yr TTM 5-10yr TTM >10yr TOTAL
Weekly 560 -134 553 2,173 3,152
as of 24-Sept, foreign holding stood at IDR180tn, accounting for 28% of total outstanding value
Figure 7. Foreigners Still Bullish on Rupiah Bond Market (IDR bn). (Source: DMO)
Tenor (yrs) 0-2 2-5 5-10 >10 TOTAL
Dec-08 Dec-09 7.05 23.26 16.89 52.80 100.00 9.20 19.78 21.72 49.30 100.00
Jan-10 9.83 18.08 23.37 48.73 100.00
Feb-10 Mar-10 9.38 18.08 23.77 48.77 100.00 9.39 16.35 22.79 51.46 100.00
Apr-10 May-10 8.79 15.52 21.34 54.35 100.00 8.43 14.54 20.70 56.33 100.00
Jun-10 10.33 17.67 16.09 55.91 100.00
Jul-10 Aug-10 24-Sep-10 12.56 18.43 15.17 53.84 100.00 13.08 18.26 14.64 54.01 100.00 12.49 18.10 14.52 54.89 100.00
Figure 8. Foreigners Portfolio in Government Bonds Portion by Tenor (%). (Source: DMO)
Primary and secondary market still has good demand Total value of the transaction in the secondary bond market was IDR5.6tn (vs. IDR4.8tn on the previous week) on average per day. The most actively traded security was the long-end series such as the 15-year FR40 and the 20-year FR52; both comprising about 38% of the total trading volume during the week. The FR40 was traded at 120, up by 1.1 percentage points yielding 8.60% from a week earlier. Meanwhile, the FR52 was also up by 0.2 percentage points to 112.29, yielding 9.15%. Our fair prices for those bonds are 118.50 and 112.39, thus we think FR40 is traded above its fair value, meanwhile we have no recommendation for the FR52 as its already traded at its fair value.
Office of Chief Economist Page 5 of 26
Government bond auction: still has good demand. Total bid on the bond auction on Tuesday was still high reaching IDR15.1tn slightly lower than in the previous auction of IDR16.1tn. Demand for the long-term paper was strong with the bid for the FR54 and newly issued FR56 reaching IDR9.0tn, in contrast with demand for the short-term paper SPN20110922 that reached only IDR2.8tn. The average yields awarded were slightly below our fair yield estimate. Government rejects the SPN issuances. The average yield awarded for newly issued FR55, FR56 and FR54 were 7.58% (vs. our estimates: 7.66% ranging 7.62-7.69%), 8.53% (8.53% ranging 8.49%-8.57%) and 8.86% (8.87% ranging 8.82%8.92%), with the highest yields awarded being 7.59%, 8.56%, and 8.875% respectively. Thus the government has issued IDR142.4tn (incl. global bonds issuances i.e. USD2bn) or more than 87% of the new total target to finance budget deficit, which is projected to be 1.5% of GDP this year. With seven bonds auction schedules for the rest of the year, and assuming the government will issue IDR3tn samurai bonds, thus on average the government will only needs to issue IDR2.5tn in each auction.
Auction Date
28-Sep-10 5-Oct-10 12-Oct-10 26-Oct-10 9-Nov-10 23-Nov-10 14-Dec-10 (Revised) ON SPN IFR ON SPN ON SPN ON SPN ON SPN ON SPN
Bond Series
6, 11, 21 year 1 year 5, 7, 10, 15, 20 year 11, 20 year 1 year 15, 20 year 1 year 5, 11 year 1 year 20, 30 year 1 year 15, 30 year 1 year
Figure 9. Government bonds scheduled: seven bond auctions left until year-end. (Source: DMO)
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2008
Budget deficit (% of GDP) Net Issuances Domestic Bonds Global bonds Redemption+buybacks Gross Issuances Domestic Bonds Convebtional FR/VR T-bills/ZC bonds Retail bonds (ORI & Sukuk) Domestic sukuk Private placement Global bonds Yankee bonds Global sukuk Samurai bonds (2.10) 86.0 46.6 39.3 (40.3) 126.3 87.0 46.5 19.6 16.2 4.7 39.3 39.3 -
2009
(2.40) 99.3 97.3 46.7 (44.7) 144.6 97.3 54.5 25.2 8.5 5.8 3.2 46.7 36.1 7.0 3.6
2010F
(2.10) 107.5 140.1 38.0 (70.6) 178.1 140.1
2010F*
1.50 92.5 125.1 38.0 (70.6) 163.1 125.1
2010 YTD
93.9 123.8 18.6 (48.5) 142.4 123.8 59.4 32.8 16.0 4.8 10.8 18.6 18.6 -
Remaining*
(1.4) 1.2 19.5 (22.1) 20.7 1.2
38.0
38.0
19.5
Figure 10. Government has issued IDR142.4tn or more than 87% of the target this year. (Source: DMO and Mandiri Sekuritas Estimate)
Outlook: Inflation and bond auctions the main factors to be watched carefully . Septembers inflation figure will be released on 1-October. In the last five years, average September inflation reached 0.64% m-o-m. Our economist expects 0.5-0.7% m-o-m and 5.86%6.07% y-o-y inflation. Meanwhile, market consensus expected inflation at upper range in September i.e. 0.7% m-o-m (5.9% yo-y). Bank Indonesia sees easing inflationary pressure as demand for food has normalized after Moslem festivities. If inflation is again below market consensus it will give further positive sentiment to the bonds.
Page 7 of 26
Reviewing the Efforts towards Sugar Self-Sufficiency 2014

M. Ajie Maulendra (ajie.maulendra@bankmandiri.co.id),
Indonesia is currently playing a very insignificant role in the global sugar production. Out of the total volume of global sugar production of 153 million tons, Indonesia only has a share of less than 2%, compared to Brazil which has a share of 22%, followed by India with a share of 11%. Indonesia is recorded to have per capita consumption of sugar of 19 kgs/year, relatively lower than the consumption in Brazil, Europe, USA and Thailand. However, Indonesia has the potentials to increase per capita consumption of sugar considering its large population and strong basis of domestic market, such as the food and beverage production.
Global Sugar Production & Consumption (mn ton)
Million Millionton ton
Sugar Production by Countries
166.1
167.1 164.3 160.7
167.1
Others 24%
Brazil 24%
159.9
Indonesia 2%
156.9 153
Russia 2% Pakistan Australia 2% 3% Mexico USA 3% 5% Thailand 5%
India 11%
W. Europe 10% China 9%
2006/2007
2007/2008
2008/2009
2009/2010
Consum ption
Production
Figure 11. Outlook of the global supply-demand of sugar. The Global Consumption of Sugar increases on average by 2.1% during the last four years, which is not balanced by the growth of sugar production of only 1.1% on average during the same period. (Source : Virtual Metals Group Research).
Increasing Domestic Demands Indonesia has relatively high demands for sugar. This is because of the large size of its population as well as the relatively high level of growth of the food and beverages industry. The development of various sugar-based food and beverage products provides a large market for sugar industry. Out of approximately 4.6 million tons of sugar produced domestically, 70% is consumed by households in the form of white sugar, 23% is absorbed by food and beverage industry and the rest is used by other industries (pharmacy and alcohol-bioetanol).
Page 8 of 26
Sugar Consumption per Capita (kg/year)
Sugar Consumption by Sector

Other Industrie s 7%
Indonesia Brazil EU US Mexico Australia Thailand Pakistan India China
18.9 62.5 36.4 30.5 44.3 49.6 35.6 23 20.6 11.2
Food & Beverage Industry 23%
Househol ds 70%
Figure 12. Per Capita Consumption of Sugar. Indonesia is very likely to become a large sugar consuming country despite the fact that the current per capita consumption of sugar is still relatively low. Such condition is caused by strong domestic market and the growth of food and beverage industry. (Source: LMC International, Depperin)
Indonesian sugar industry has slightly different characteristics than sugar industry in other countries. In everyday life, there are two types of sugar, namely white crystal sugar and refined sugar. Such classification is conducted based on its use, where white crystal sugar is consumed by households while refined sugar is used by industries. For example, food and beverage industries use refined sugar as raw or additional materials in processing their products. Industries prefer refined sugar because its quality meets their requirements in producing food and beverage products. The quality of sugar can be seen clearer from the level of ICUMSA in each of the types of sugar produced. ICUMSA also measures the purity of sugar from other foreign particles during the manufacturing process. The lower the level of ICUMSA of sugar, the higher its quality. For example, food and beverage industries need sugar with ICUMSA level of 45 in manufacturing their products. Sugar with ICUMSA level of 45 is classified as refined sugar. As for sugar directly consumed by households or better known as white crystal sugar has a level of ICUMSA of 200-300.
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Indonesia Sugar Consumption (mn ton)

4.69 3.3
0.97
4.85
5.01
5.7
1.37
2.29
0.8
2.33
2.37
1.04
2.42
1.11
2.46
1.27
2.51
2.55
1.45
2.60
1.51
2.65
2.04
2.70
2.15
2.75
2.26
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010F 2014F
Household Consumption
Industry Consumption
Figure 13. Domestic demands for sugar. The consumption of sugar by industries during the period of 2000-2009 has increased by 11.6%, higher than the increase in the growth of household sugar consumption by 2% during the same period. (Source: Ministry of State-owned enterprises in agroindustry sector)
Sugar needed by industries, especially food and beverage industry, is expected to have a high increase in several years to come. The performance of food and beverage industry is strongly supported by extensive domestic market, as most of Indonesian population is within the range of young-productive ages who tend to consume more instant food and beverage products for practical reason. Therefore, the needs for sugar up to 2014 is estimated to reach 5.7 million tons. Suboptimal production Out of the total current volume of 4.6 million tons of sugar produced nationally, 56% is the production of white crystal sugar, while 44% is the production of refined sugar. If we take a closer look, during the period of 2003 2009, the production of white crystal sugar has increase on average by 9% each year, while refined sugar production has increased on average by 40% each year.
2704 2448.1 2217.7 2031.3 1617 2307 2624.1 2400
2003
2004
2005
2006
2007
2008
2009
2010F
Figure 14. Production of white crystal sugar. Most white crystal sugar mills are located in Java (47 units) and the rest are outside Java (14 units). Technically, sugar mills in Java are old, so that their production is no longer optimal. (Source: Ministry of Trade and Industry, Ministry of Stateowned enterprises)
2.96
2.74
3.09
3.41
3.53
3.73
3.88
4.11
Currently, there are 61 white crystal sugar mills operating in Indonesia. The total production capacity of those mills is 237 thousand tons per day. Those sugar mills are spread across Java, Kalimantan and Sulawesi. The largest sugar producer is a state-owned plantation, namely PTPN XI with a production capacity of 46.4 thousand tons per day, followed by PTPN X with a production capacity of 39 thousand tons per day. In general, large-scale white crystal sugar mills have already been integrated with sugar cane plantations as the provider of their raw materials. White crystal sugar production process is performed from the collection of sugar canes up to the phase white crystal sugar. The production of white crystal sugar in 2010 is estimated to grow by -8.5% (yoy), or indicating a decrease to 2.4 million tons from 2.6 million tons in 2009. The Government revised the target of sugar production this year to be lower than the initial target of 2.7 million tons. According to the Government, this was because of the recent extreme climate change which has lead to reduced sugar concentrate and decreased sugar production. In addition to white crystal sugar mills, there are several refined sugar mills operating in Indonesia, which process raw sugar as their raw material into refined sugar that is ready to be consumed by industries. Raw sugar used as raw material for refined sugar industry is mostly imported from various countries, such as Thailand, Brazil and Australia. Raw sugar is still not manufactured domestically because of several factors. The first one is that sugar mills prefer to produce white crystal sugar for economic reasons. The second one is that not all domestic sugar mills are able to produce raw sugar meeting the standards required by refined sugar industry. Currently, there are eight players in refined sugar industry in Indonesia with a total production capacity of 3.2 million tons per year. The largest production capacity is currently held by PT. Sentra Usahatama with a production capacity of 540 thousand tons per year. Furthermore, another player having large capacity is PT. Jawamanis Rafinasi with a production capacity of 533 thousand tons per year. Refined sugar is required for fulfilling the needs of food and beverage industry which needs sugar with certain standards, namely sugar with ICUMSA level of 45. The existence of refined sugar industry is expected to reduce imports of refined sugar.
Refined Sugar Production (thousands ton)

2257 2031.8
1445.2 1256.4 1138.2
722 380.5
330.5
2003
2004
2005
2006
2007
2008
2009
2010F
Figure 15. Refined sugar. Domestic sale of refined sugar is only to industries and it does not affect the market of white crystal sugar as confirmed by the Minister of Trades in Decree of Industry and Trade No.527/MPP/Kep/9/2004. This is further confirmed in the letter of the Minister of Trade to refined sugar producers Number 111/M-DAG/2/2009 dated 6 February 2009. (Source: Indocommercial, Ministry of Trade)
Domestic needs of sugar (household and industries) are currently estimated to reach 4.85 million tons, while the total sugar productions only reach 4.66 million tons. Such inadequate supply of sugar has forced the Government to import sugar in order to fulfill domestic needs. According to the national balance of sugar, in 2009 Indonesia has actually been able to fulfill the needs for white crystal sugar as indicated by the fact that Indonesia did not need to import white crystal sugar. However, in 2010 due to the decrease in the production of white crystal sugar, it can be assured that the Government would need to import white crystal sugar to fulfill domestic needs. Similarly, imports are also conducted to fulfill the domestic needs for refined sugar, in fact the volume of imports of refined sugar each year is larger than the volume of white crystal sugar. With such data, we can conclude that thus far the fulfillment of the needs for sugar for industrial purposes are still far below the fulfillment of sugar for domestic consumption. Whereas if we take a closer look at the data of national sugar consumption, refined sugar indicates higher growth than the growth of white crystal sugar. There are several factors causing the suboptimal production of sugar are as follows: Low level of land productivity and sugar concentrate at some of sugar mills owned by PTPN compared to the same of private sugar mills. One of the causes is the fact that sugar mills owned by PTPN (mostly located in Java) have old production machines, as they were constructed during
Sugar Concentrate (%)

14 12 10 8 6 4 2 0
the Dutch colonial era, so that they are no longer efficient in producing. Raw sugar for the refined sugar industry is still imported entirely. The development of raw sugar industry for supplying raw material for domestic refined sugar industry has not been realized. Sugar cane and sugar production are still concentrated in Java and Sumatra. In general, the production machinery of white sugar companies are old, whereas the sugar company revitalization program has not been implemented as expected. Extreme climate change is affecting the productivity of sugar cane crops.
1930 1940 1955 1965 1975 1985 1995 1997 1999 2001 2003 2009
Figure 16. Sugar concentrate. In 1940s sugar concentrate could reach more than 10% One of the factors was efficiency whenever sugar mills could not obtain supply of raw materials during milling season. (Source: Bahari, Anonymous, DGI, Ditjenbun )
Towards sugar self-sufficiency Domestic or industrial demands for sugar will surely be increasing every year. It is estimated that in 2014 the total national sugar consumption will reach 5.7 million tons. In relation to that matter, the Government has launched a sugar self-sufficiency program in 2014 with regard to three types of sugar, namely white crystal sugar, refined sugar and raw sugar. Considering the currently existing capacity of the sugar industry, both white crystal sugar and refined sugar, it seems difficult to reach a production level of 5.7 million tons in 2014. Therefore, to reach such production target of 5.7 million tons, it is necessary to make new investments in sugar mills which
are integrated with sugar cane plantation, in addition to the revitalization of sugar mills in order to increase their efficiency in production activities. In a presentation in an international seminar on sugar in Bali in July 2010, Agus Pakpahan in his paper mentioned that 15 20 new sugar mills are required, which are integrated to sugar cane plantations and building synergy with the refinement industry. Such synergy with refined sugar industry means that in addition to producing white crystal sugar, the new sugar mills will be able to produce raw sugar as raw materials required by the refined sugar industry. Therefore, the refined sugar industry would not need to import raw sugar. The process to reach sugar self-sufficiency is currently underway as several investors have conveyed their interest to build new sugar mills. Previously, the government has prepared a number of locations throughout the country to be used for investment in sugar mills and sugar cane plantations. The locations for investment in sugar are concentrated outside Java, where the largest location prepared is in Merauke Papua, sizing 300,000 hectares. The plan for building new sugar mills will provide sugar mills with production capacity from 8000 12000 tons cane per day.
Capacity Potential Reserve (TCD=Ton Cane Area (ha) per Day)
10000 50000 19000 12000 21000 10000 5000 20000 20000 4500 15000 18000 7500 1000 18000 36000 7000 5000 18000 8000 12000 6000-10000 8000 6000-8000 8000 4500 8000 5000-10000 4500 12000 6000-8000 4000 5000-10000 10000 5000 5000 2000 8000
Company
PT. Wilmar PT Bakrie Sumatera PT Rosan Kencana Perkasa PT Bina Muda Perkasa PT Gemilang Unggul Luhur Abadi PT Gula Manis Tinanggea PT Permata Hijau Resources PT Bina Muda Perkasa PT Sumber Mutiara Indah Perdana PT Duta Plantation Nusantara PT. Sukses Mantap Sejahtera PT. Semesta Berjaya PT. Tripanca Group PT. ECO X Energy Jaya PT. Cipta Agung Manis PT. Sumber Mutiara Indah Perdana PT. Santos Jaya Abadi PT. Nurindo Trade PT. Sabda Agung Yamato Persada
Province
Merauke (Papua) Merauke (Papua) Mojokerto (East Java) Konsel (South East Sulawesi) Tuban (East Java) Konsel (South East Sulawesi) Sambas (West Kalimantan) Rembang (Central Java) P.Rupat-Riau Islands Malang-Blitar (East Java) Dompu (West Nusa Tenggara) Damasraya (West Sumatera) Lamput (Lampung) Rembang (Central Java) Konsel (South East Sulawesi) Maros (South Sulawesi) Konsel (North Sulawesi) Kampar (Riau) Rembang (Central Java)
Development Plan
2011 2013 2011 2013 2010 2011 2010 2012 2011 2013 2011 2013 2010 2012 2010 2012 2009 2010 2011 - 2013 2010 2012 2010 2011 2009 2011 Preliminary Study Preliminary Study Preliminary Study Preliminary Study Preliminary Study Preliminary Study
Figure 17. New investment plan in Sugar Mills. Investment required for building one sugar mill with a capacity of 15,000 TCD is in the amount of IDR 1.5 trillion, while sugar mill with a capacity of 10,000 TCD requires IDR 1 trillion and sugar mill with a capacity of 6,000 TCD needs IDR 600 billion.(source : Indonesian Sugar Association)
Investment in new sugar mills are mostly focused on locations outside Java considering the limited availability of land for the opening of sugar cane plantations. The availability of lands outside Java is deemed to be high because there still many locations remaining unused. However, the classic problem occurring is the obstacles faced by investors when they are arranging for land acquisition. The main problem is related to overlapping of authorities in relation to forests (Ministry of Forestry) especially with regard to spatial layout plan throughout Indonesia, such as the conversion of forest areas and clarity as to the status of land. Investors are often confused whether the lands available can be converted for the purpose of building sugar mills or they are categorized as conservation forests. In addition to the problem related to land status, another important problem is the availability of adequate infrastructure, such as roads and electricity. Inadequate infrastructure, such as damaged roads and unstable supply of electricity, will cause high costs for investors and such conditions certainly constitute obstacles for investors in realizing their investments. In view of the aforementioned obstacles, the concrete participation of the central and local governments must absolutely be implemented, especially with regard to the quick settlement of problems related to land permits and the provision of adequate infrastructure. This must be immediately conducted because 2014 will soon come. The program for sugar self-sufficiency in 2014 will actually be very useful for Indonesian people. One of the effects which will surely occur is that this program will be able to reduce the instability of domestic sugar prices. As we all have already known, sugar is currently still imported, especially raw sugar as raw materials for refined sugar produced for food and beverage industry. Imports of raw sugar will indirectly make food and beverage products vulnerable to exchange rate fluctuation. In the end, in the event of depreciation of rupiah, it will contribute to domestic inflation (imported inflation). In short, sugar self-sufficiency can eliminate inflation to domestic sugar prices so that there will be no need to import sugar.
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However, the stability of sugar prices cannot be enforced by only relying on sugar self-sufficiency. The Government must observe and monitor properly the sugar distribution chain to consumers. Usually, increase of the price of a commodity may occur when there is an illegal action at the distribution level. Therefore, the government and other relevant parties must ensure the smooth flow of domestic sugar distribution so that sugar prices will remain reasonable.
Internationa Sugar Price (USD/lb)
12,000
35 30
Domestic White Crystal Sugar price (IDR/kg)

25.94
10,000 8,000 6,000 4,000 2,000 0 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10
25 20 15 10 5 0 Jan-07 Apr-07 Jul-07 O ct-07 Jan-08 Apr-08 Jul-08 O ct-08 Jan-09 Apr-09 Jul-09 O ct-09 Jan-10 Apr-10 Jul-10 19.59
Raw Sugar
White Sugar
Figure 18. Movements of sugar prices. In 2010, it is projected that there would be a deficit in the global production of sugar which would increase international sugar prices. Domestic price of white crystal sugar in the first 6 months of 2010 has already increased by 43% (yoy). (Source: USDA, CEIC )
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Multistrada Arah Sarana: Indonesians Tire Manufacturer

Maria Renata (maria.renata@mandirisek.co.id)
Company in brief PT Multistrada Arah Sarana Tbk (MASA) was initially established as PT Oroban Perkasa in 1988. In 2001, the company started producing and distributing PCR (passenger car radial) under brand names of Corsa and Strada. The company conducted an initial public offering (IPO) in 2005 by issuing 1 billion of new shares at IDR170/share and launched a new brand of PCR Achilles. In 2007, the company conducted rights issue, with 2.6 billion new shares issued, at IDR200/share. The proceeds were used to expand the production capacity. In the same year, Multistrada also commenced producing motorcycle tires with brand name Corsa. Multistrada started production of 22-inches tires, it was the first Indonesian company to produce that size, and commenced research on producing winter tires in 2008. Currently, Multistrada produces PCR tire size 13-inches until 24-inches and motorcycle tires.
PVP XVIII Pte.Ltd., Singapore 27.7% Prudent Capital Ltd., Malaysia 14.9% The Bank of New York Melon, US 7.3% Public 50.1%
PT Multistrada Arah Sarana Tbk
Figure 19. shareholder structure per June 2010. (Source: company).
Growing tire market We expect that robust domestic automotive sales will lead to strong demand in tire replacement, around 70% of total Multistradas tires sales come from replacement market. By end 2010, outstanding cars in Indonesia may reach 19 million and around 60 million of motorcycles. Gaikindo estimates car sales will grew by 15.8% CAGR over the next five years. Capacity expansion. Multistrada plans to expand its PCR tire (passenger car radial) and motorcycle tire, with total investment valued USD182mn. PCR tire production capacity is targeted to become 28,500 tire/day in 2012 from 14,200 tire/day by end 2009.
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Meanwhile, motorcycle tire capacity is targeted to rise to 16,000 /day in 2012 from 4,900 in 2009. Financial outlook. We forecast its revenue will grow by 33.9% CAGR in the next two years to IDR3.7tn in 2012, generating IDR381bn in net profit in 2012 compared with IDR230bn in 2009. The company booked 1H10 revenue of IDR1.0tn (+23.8%yoy) and net profit at IDR89bn due to 18.9% yoy increase in PCR tire sales volume. Risks. Increasing rubber price volatility, competition from domestic and foreign players, foreign exchange rate volatility (as Multistradas revenue and cost mainly based in US dollar).
FINANCIAL SUMMARY YE Dec (IDR bn) EBITDA Net Profit EPS (IDR) EPS growth (%) P/E Ratio (x) EV/EBITDA (x) P/B ratio (x) Dividend Yield (%) ROAE (%) 2008A 265 3 0 (91.50) 720.1 10.9 1.7 0.4 0.2 2009A 310 175 29 5,779.6 12.2 8.9 1.5 0.0 12.7 2010F 369 183 30 4.5 11.7 7.7 1.3 2.4 12.0 2011F 605 213 35 16.4 10.1 6.5 1.2 2.3 12.7 2012F 680 286 47 34.5 7.5 5.5 1.1 3.0 15.4
Figure 20. Financial Summary. (Source: Company, Mandiri Sekuritas)
Valuations To arrive at our DFC value of IDR520/share, we have assumed WACC of 12.7% and terminal growth of 3%. The WACC consist of cost of equity of 13.6% and cost of debt of 10.5%. Currently, the company trading at a PER11F of 10.1x lower compared with its global peers average of 10.6x. Multistrada booked the highest operating growth profit of CAGR 167.0% between 2005-2011F, compared with its peers 21.3% CAGR. Meanwhile, we estimate MASA to post strong operating profit growth, offering CAGR of 37.3% over the next two years.
Company name Continental Michelin Bridgestone Pirelli Goodyear Gajah Tuggal Multistrada Arah Sarana Simple average Bloomberg ticker CTTAY US ML FP BRDCY US PC IM GT US GJTL IJ MASA IJ P/E FY10F FY11F 18.8 14.2 11.0 9.2 12.7 11.7 29.4 13.7 25.1 7.4 9.5 7.7 11.1 10.1 16.8 10.6 EV/EBITDA FY10F FY11F na na 5.4 4.8 0.0 0.0 7.1 6.3 4.8 3.5 6.1 5.3 7.7 6.5 5.2 4.4 Op profit CAGR 05-11F 5.9% 1.7% -53.2% 2.0% 2.1% 23.6% 167.0% 21.3%
Figure 21. Peer Comparison. (Source: Bloomberg, Mandiri Sekuritas estimates).

Expanding capacity Capacity expansion. The company plans to increase its production capacity to 28,500 radial tires/day and 16,000 motor cycle tires/day by end 2012, bringing out CAGR growth of 20.0% year 07-12F for radial tire capacity and CAGR growth by 67.9% for motorcycle tire year 07-12F. By end Jun10, capacity production reached 16,500 radial tires/day and 7,900 motorcycle tires/day. The expansion is done in stages with total investment amounting to USD182mn financed by bank loans.
ti re/da y 30,000 25,000 80% 20,000 60% 15,000 10,000 5,000 0 2007 2008 2009 2010F 2011F 2012F 40% 20% 0% 100%
Ins tal l ed capa ci ty - da i l y
Uti li zati on ra te
Figure 22. Car Tires Production Capacity and Utilization Rate. (Source: Company, Mandiri Sekuritas Estimates).
tire/day 12,000 10,000 8,000 6,000 4,000 2,000 0 2007 2008 2009 2010F 2011F 2012F 60% 40% 20% 0% 100% 80%
Installed capacity - daily
Utilization rate
Figure 23. Motor Tires Production Capacity and Utilization Rate. (Source: Company, Mandiri Sekuritas Estimates).
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Robust production volume. The companys radial tire production has grown by 29% CAGR in the past four years, from 1.8mn units in FY05 to 5.0mn units in FY09. Meanwhile, the company started to produce motorcycle tires in 2007. Since then, motorcycle tires production has grown by 312% CAGR, from 100k units in FY07 to 1.7mn units in FY09. The utilization rate by end 2009 for car tires has reached 92% and 85% of motorcycle tires. Strong demand to support sales volume We forecast the companys revenue to grow at 33.9% CAGR over the next 2 years to IDR3.7tn in FY12 in accordance with capacity expansion. The growth will be supported by increasing sales volume in radial tires and motorcycle tires, which we forecast to grow by CAGR of 23.1% and 26.5%, respectively in year 10F-12F. Strong domestic car sales The Association of Indonesia Automotive Industries (Gaikindo) estimates domestic car sales volume in FY10 to exceed 600,000 units, surpassing the record high in FY08 of 608.000 units. Strong domestic car sales are expected due to stronger consumer purchasing power and low interest rates. Gaikindo estimates car production will grew by 15.8% CAGR for the next 5 years. In 1H10 domestic car sales reached 370.208 units, increasing 76.1%yoy.
000 unit 1,400 1,200 1,250 1,000 800 600 400 200 0 2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F 2014F 2015F 534 433 319 604 483 600 780 680 890 1,050
Figure 24. Indonesia Automotive Market and Forecast. (Source: Gaikindo).
Indonesia motorcycle sales. Motorcycles are the common means of daily transportation of the Indonesian people to avoid traffic jams in big cities and
due to lack of public transportations. In 1H10 motorcycle sales reached 3.6mn units, up 17.8%yoy. Gaikindo estimates that FY10 motorcycle sales will exceed 7mn, breaking the highest record in 2008 of 6.2mn motorcycle.
000 2,000 1,629 1,600 1,200 800 400 0 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 1,427 1,949 1,749 1,593 1,412 1218 1,329 1,712 1,650
Figure 25. Quarterly Domestic Motorcycyle Sales. (Source: GAIKINDO).
Indonesia tire industry Based on the Association of Indonesian Tire Company (APBI) data, currently there are 8 tire producers in Indonesia, with total capacity amounting to 50mn tires per year. In 2009, Indonesia produced around 37.7mn tires and around 77% of them were for export. In FY10, APBI expected tire production to reach 41mn.
mn units 50 41.9 40 30 20 10 0 2005 2006 2007 Production 2008 2009 Export 2010F 36.0 28.0 38.0 32.0 26.5 29.9
43.9 37.7 29.0
41.0 32.0
Figure 26. Indonesias Tire Production and Export Volume. (Source: APBI).
Tire production in Indonesia amounted to USD1.0bn in FY09 and is estimated to reach USD1.1bn in FY10, growing by 11.1% CAGR since 2005.
USD bn 1,500 1,193 1,200 949 900 669 600 300 0 2005 2006 2007 Production 2008 2009 Export 2010F 520 676 570 600 813 1,041 800 1,133 885
Figure 27. Indonesias Tire Production and Export in Value. (Source: APBI).
Based on APBI data per April-10, OEM segments only penetrated around 7.7% of total car tire production, and around 70% are for export.
000 Unit Production Sales Replacement OEM Export Car tire 16,154 16,241 3,407 1,258 11,577 yoy (%) 51.7% 50.9% 41.8% 67.2% 52.1% 100.0% 21.0% 7.7% 71.3% Sales Segments Motorcycle tire 12,221 12,022 6,864 4,735 423 yoy (%) 42.0% 37.0% 35.0% 42.0% 37.0% 100.0% 57.1% 39.4% 3.5% Sales Segments
Figure 28. Indonesia PCR Production and Sales Segments by April-10. (Source: APBI).
Demand over supply Based on the basic survey, separate from road quality and mileage used, on average car needs tire replacement for every two years, meanwhile for motorcycle is one year. According to the Indonesia Statistics Agency (BPS), there were 17.6mn vehicles in Indonesia as of the end of 2008, consisting of passenger cars, buses and trucks and 47.7mn of motorcycles. Meanwhile, Gaikindo recorded car sales and motorcycle sales in FY09 reached 0.5mn and 5.9mn, respectively, bringing the total number to 18.1mn for automobiles and 53.6mn for motorcycle as of end 2009. Our illustration below shows that in FY10F tire supply only meets around 50% of domestic demand tire; even though we use conservative assumptions on our illustration (two tires of replacements for every two years and one tire for motorcycle every one year), that Indonesian people replace tires more to economic consideration than safety reason.
Year 2005 2006 2007 2008 2009F 2010F
Vehicles 4W (mn) 9.6 11.7 15.8 17.6 18.1 18.8
2W (mn) 28.6 33.4 42.0 47.7 53.6 60.6
Tire Prod. (mn) 36.0 38.0 41.9 43.9 37.7 41.0
4W (n-2)*2 (mn) 13.5 15.4 19.2 23.3 31.6 35.2
Estimation Supply Over Demand Scenario 1 Scenario 2 2W Total Prod/ 4W 2W Total (n-1)*1 demand Demand (n-3)*2 (n-2)*1 demand (mn) (mn) (mn) (mn) (mn) 23.1 36.5 98.6% 12.0 20.0 31.9 28.6 44.0 86.4% 13.5 23.1 36.5 33.4 52.6 79.6% 15.4 28.6 44.0 42.0 65.3 67.2% 19.2 33.4 52.6 47.7 79.3 47.5% 23.3 42.0 65.3 53.6 88.8 46.2% 31.6 47.7 79.3
Prod/ demand 112.7% 104.1% 95.3% 83.4% 57.7% 51.7%
Figure 29. Supply Under Demand. (Source: BPS, Mandiri Sekuritas Estimates).
Maintain local and overseas customers Multistradas sales segment Around 70% of radial and motorcycle sales volume are for replacement market and 30% are for off-take market; meanwhile OEM (original equipment manufacturer) only contributes less than 1% of the total sales. Off-take manufacturing means that Multistrada produces tire for tire distributors under their brands. Currently, Multistrada has 10 brand off-takes, and 3 house brands, namely: Strada, Corsa, and Achilles. OEM tires are delivered to the vehicles manufacturers assembly plants, and sometimes they are built to the vehicle manufactures specifications. The off-take brand contributes around 35% to the companys revenue. Multistrada booked PCR sales in 4.9mn tire in FY09, growing by 30.3% CAGR since 2005, in line with PCR production hike of 29.1% CAGR totaling 5.0mn tire by FY09. Around 60% of production is commodity passenger radial (rim size between 13-inches to 15-inches) and the remaining 40% are UHPT (Ultra-High Performance Tire, with sizes ranging between 17 and 24 inches).
mn unit 6.0 5.0 5.0 4.0 3.0 3.0 2.0 1.0 0.0 2005 2006 PCR production 2007 2008 PCR sales 2009 1.8 1.7 2.8 3.9 3.8 4.5 4.2 4.9
Figure 30. Multistradas PCR Production and Sales. (Source: Company).

Revenue from overseas. In 2009, around 78% of Multistradas revenue was generated from export sales, as around 80% of its car tires are for exports. On product base, car tire sales contributed 92% of total revenue and the remaining of 8% from sales of motor cycle tires. The main export destination is Asia Pacific, which contributes around 25% of total sales.
FY2009 Afri ca 6% Ameri ca 4% 1Q10 Africa 5% Domes ti c (incl. MC) 26%
Ameri ca 10%
Domes tic (incl. MC) 22% As i a Pa ci fi c 33%
As i a Pa ci fic 25%
Mi ddl e Ea st 18% Domesti c (i ncl . MC) Mi ddl e Ea st Europe Europe 19% Asi a Pa ci fic Ameri ca Afri ca Europe 17%
Mi ddl e Ea st 15%
Figure 31. MULTISTRADA Sales Distribution. (Source: Company).
Deleted: Indonesia
Rank no. 4 in domestic car tire industry Among PCR producers In Indonesia, Multistardas sales volume has no. 4 position with market shares of around 17% after Bridgestone, Dunlop and Gajah Tunggal. In domestic market, replacement tires contribute 80% to total sales volume and the remaining around 20% comes from original equipment sales.
Industri Karet Deli 15% Goodyear 3% Elang Perdana 7% Multistrada 14%
Bridgestone 26%
Sumi Rubber/Dunlop 20% Gajah Tunggal 15%
Multistradas motorcycle tires.

Figure 32. INDONESIA'S tire Marketshare. (Source: APBI).
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Even though motorcycle tires are new segment, but since 2007 motorcycle production and sales have been showing significant improvement. Motorcycle production and sales growth exceeded 300% CAGR in the past 2 years. All Multistradas motorcycle tires are for the domestic market.
mn unit 1.8 1.5 1.2 0.9 0.6 0.3 0.0 2007 2008 Motorcycle tire production 2009 Motorcycle tire sales 0.1 0.1 0.8 0.8 1.7 1.4
Figure 33. MULTISTRADAS MOTOR Cycle Tire Production and Sales. (Source: Company).
Financial Net profit to expand by 25% CAGR over the next two years. We expect net profit to increase by 25.0% CAGR over the next two years and will reach IDR286bn by 2012F. Several factors that will drive the growth, in our view, are strong top-line growth and margin expansion.
IDR bn 350 300 250 200 150 100 50 0 2007 2008 2009 2010F 2011F 2012F 29 3 175 183 213 286
Figure 34. Net Profit. (Source: Company, Mandiri Sekuritas Estimates).
Double digit revenue growth. Over the next two years, we expect Multistrada to book CAGR revenue growth of 33.9% for period 2010F-2012F. This will be
triggered by strong sales volume growth in line with production capacity expansion. Strong demand. Strong demand will come from local and overseas markets. Robust domestic automotive sales will boost demand for tires for replacement as around 70% of the companys sales come from replacement market. Capacity expansion. To meet strong demand, Multistrada increases its capacity by expanding its factory area in Cikarang and add production machinery to support production process. Now the company occupies a spacious 51ha-factory ward in the Cikarang Industrial Park, West Java. New equipments are purchased from Germany and other advanced countries for better and quality tires at lower overall costs. New product development. Multistrada continues to widen its product variations with the launch of 22-inches PCR tire in 2008 and in 2009 the company started to produce 24inches PCR and winter tires, supported by sophisticated equipments. We believe, by producing various sizes, the company has a strong image as a PCR producer on end automotive users and various product sales will boost the companys total revenue .
IDR bn 4,000 475 3,000 2,000 49 1,000 0 2007 2008 2009 2010F 2011F 2012F PCR (IDR bn) Motorcycle tire (IDR bn) 7 887 1,178 1,669 1,832 110 252 2,679 3,264 433
Figure 35. Revenue. (Source: Company, Mandiri Sekuritas Estimates)
Various products lead to improving margin. We forecast operating margin to widen to 14.6% in FY12F from 13.6% in FY09, supported by strong gross profit margin and efficiency in operating cost. By selling various types of tires, Multistrada will be able to improve gross margin. In tire
industry, the bigger the tire rim the higher the selling prices are and the greater the margin. This is because around 70% of cost of goods sold is derived from raw material cost, which is calculated by weighing the raw materials for each tire produce. Meanwhile bigger rim needs less raw materials.
Weight per tire (kg) Car tyres 13" 14" 15" 16" 17" 18" 19" 20" 22" 24" Motor tyres 14" 17" 18" 6.90 7.90 9.00 9.80 10.10 11.29 11.66 12.79 19.68 20.16 2.10 2.25 3.50 ASP FY09 (USD/tire) 20.7 27.7 32.9 40.7 40.3 45.1 51.5 55.5 75.6 106.3 7.8 7.3 9.9 Rubber Cost per tire* (USD/tire) 15.5 17.8 20.3 22.1 22.7 25.4 26.2 28.8 44.3 45.3 4.7 5.1 7.9 Rubber gross profit margin (%) 25.0 35.9 38.4 45.8 43.6 43.7 49.1 48.1 41.4 57.3 39.4 30.6 20.3
*) Assume rubber price @USD2.25/kg
Figure 36. Rubber Required per Tire. (Source: Company, Mandiri Sekuritas Estimates)
000 unit 10,000 9,061 8,000 6,000 4,000 2,000 0 2007 13" 2008 14" 2009 15" 2010F 16" 2011F 17" 2012F >18" 3,808 4,368 4,899 CAGR 18.9% 5,980 8,155
Figure 37. PCR Sales volume. (Source: Company, Mandiri Sekuritas Estimates)
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100% 80% 60% 40% 20%
5% 8% 8% 26%
8% 9% 11% 21%
10% 10% 13% 20%
10% 10% 13% 20%
10% 10% 13% 20%
10% 10% 13% 20%
28%
26%
25% 18% 2009 15"
25% 18% 2010F 16"
25% 18% 2011F 17"
25% 18% 2012F >18"
24% 0% 2007 13"
22% 2008 14"
Figure 38. PCR Sales Breakdown by Type. (Source: Company, Mandiri Sekuritas Estimates)
Meanwhile, in motorcycle tire, the company produces three various tire sizes, namely: 14, 17, and 18 inches. We expect motorcycle tire sales to grow by 26.5% CAGR for year 2010F2012F. Around 80% of total motorcycle sales are contributed by the 17-inches tire.
000 unit 6,000 5,000 4,000 3,000 2,000 1,000 0 128 2007 2008 14" 2009 17" 2010F 18" 2011F 2012F 808 1,372 3,465
5,544
5,544
Figure 39. Motorcycyle Sales Breakdown by Type. (Source: Company, Mandiri Sekuritas Estimates)
1H10 net profit up by 37.1% yoy The company booked 1H10 revenue of IDR1.0tn (+23.8%yoy) due to higher sales volume and selling prices. PCR sales volume in 1H10 increased by 18.9%yoy totaling to 2.8mn tires. Higher UHPT sales portion totaling to 38.5% of total PCR sales in 1H10 compared with 34.6% in FY09 has widen the gross margin to 21.2% from 19.2% in 1H09. The company booked lower G&A expenses, resulting in operating profit of
IDR122.8bn (+59.7%yoy). Hence, net profit was IDR89.4bn, up 37.1%yoy.

IDR bn Total revenue Gross profit (Loss) Operating profit (Loss) Pre-tax profit (Loss) Net profit (Loss) Gross margin (%) Operating margin (%) Pre-tax margin (%) Net margin (%) 1H10 1,007 213 123 115 89 21.2 12.2 11.4 8.9 1H09 814 156 77 87 65 19.2 9.5 10.7 8.0 2Q10 486 94 53 46 34 19.3 10.8 9.4 7.1 1Q10 521 120 70 69 55 23.0 13.5 13.3 10.6 YoY(%) 23.8 36.7 59.7 32.6 37.1 QoQ (%) (6.6) (21.6) (24.7) (33.6) (37.4) FY10F 2,084 463 254 244 183 22.2 12.2 11.7 8.8 % to FY10F 48.3 46.1 48.3 47.2 48.9
Figure 40. 1H10 Results. (Source: Company, Mandiri Sekuritas Estimates)
Healthy balance sheet Fund needed and sources The company needs USD182mn for expansion program and USD30mn for working capital. In July 2010, Multistrada has signed loan facility from local banks and one overseas financing company, amounting to USD185mn. The bank loans have gradual principal repayment schedule over the next five years starting in 2011 with portion repayment of 10%, 15%, 20%, 25% and 30%, respectively. The interest rate based on Libor + 425bps for local bank syndication, meanwhile USD40mn debt from UniCredit, German has interest rate of 1.8%.
Expansion: USD182mn Cash internal: USD27 mn Bank loans: USD155mn CIMB Niaga
HSBC
Working Cap. : USD30mn
Bank loans: USD30mn
BII UniCredit, German
Figure 41. Fund Needed and Resources. (Source: Company, Mandiri Sekuritas Estimates)
Gearing ratio will up next year As the results of such syndicated facilities, the gearing ratio will reach it peak in 2011 and decline afterwards in line with
the agreed repayment schedule. We estimates Multistradas net gearing ratio for 2011F will increase to 1.02x from 0.45x in FY10F.
IDR bn 2,500 1,970 2,000 1,500 1,000 500 0 2008 2009 Net Debt (LHS) 2010F Equity (LHS) 2011F Net gea ring (RHS) 2012F 1,460 1,285 0.6 742 635 714 0.4 0.2 0.0 1,590 1,795 1,748 1,628 0.8 x 1.2 1.0
Figure 42. Net Gearings. (Source: Company, Mandiri Sekuritas Estimates)
IDR bn 600 331 300 (5) 0 (300) (600) (900) (1,200) (1,500) 2008 2009 2010F 2011F Net cas h from i nves ting 2012F (1,192) (407) (117) (100) (230) 224 203 166
Net ca s h from opera ti on
Figure 43. Net Cash From Operation vs Net Cash From Investing. (Source: Company, Mandiri Sekuritas Estimates)
What are the risks? We view that there are several key risks for Multistrada. Rubber price volatility. The volatility of rubber price will affect the cost of revenue and will impact Multistradas margin. Even though the company can increase the selling prices, but there will be around 1-month time lag from increasing rubber price to increasing tire selling prices.
Competition from domestic and foreign players. Both domestic and foreign tire manufacturers can take over Multistradass market share. Hence, Multistrada needs actively to explore new products and apply fresh marketing strategy. Foreign exchange fluctuation. Most of Multistradas revenue and cost are denominated in the US dollar. Around 80% of PCR for export market based on US dollar denomination. Meanwhile, for raw rubber material, the company buys from local suppliers but the transaction is in the US dollar.
Width/thick/rim 165/65/R13 175/70/R13 185/70/R13 195/70/R14 175/65/R14 185/70/R14 185/55/R15 195/55/R15 205/65/R15 205/55/R16 215/55/R16 225/55/R16 205/50/R17 215/45/R17 245/45/R17 GT Radial Champiro BXT 165/65 R13 IDR507,000 Champiro GTR 175/70 R13 IDR484,000 Classiro 185/70 R13 IDR543,000 Champiro GTR 378 195/70 R14 IDR694,000 Champiro BXT 175/65 R14 IDR534,000 Champiro GTR 175/70 R13 IDR484,000 Champiro 185/55 R15 IDR658,000 Champiro 195/55 R15 IDR664,000 Champiro GTX 205/65 R15 IDR798,000 Champiro 205/55 R16 IDR782,000 Champiro 215/55 R16 IDR804,000 Champiro 225/55 R16 IDR883,000 Champiro HPX 205/50 ZR17 IDR984,000 Champiro HPX 215/45 ZR17 IDR1,088,000 Champiro HPX 245/45 ZR17 IDR1,305,000 Michelin XM1 165/65 R13 77H IDR523,000 XM1 175/70 R13 82H IDR512,000 XM1 185/70 R13 86H IDR546,000 Energy XM1 195/70 R14 91H IDR637,000 Energy XM1 175/65 R14 82H IDR627,000 Energy XM1 185/70 R14 88H IDR608,000 Pilot Preceda PP2 185/55/R15 82V IDR907,000 Pilot Preceda PP2 195/55/R15 85V IDR882,000 Primacy LC 205/65/R15 94V IDR943,000 Pilot Preceda PP2 205/55/ZR16 91W IDR1,129,000 Pilot Preceda PP2 215/55/R16 93W IDR1,475,000 Pilot Preceda PP2 225/55/ZR16 95V IDR1,341,000 Pilot Sport3 205/50 ZR17 89W IDR1,194,000 Pilot Sport3 215/45 R17 91W IDR1,250,000 Pilot Sport3 245/45 ZR17 99Y IDR1,648,000 Multistrada Platinum 165/65 R 13H IDR445,000 Platinum 175/70 R13H IDR445,000 Platinum 185/70 R 13H IDR490,000 Platinum 195/70 R 14H IDR600,000 Platinum 175/65 R 14 H IDR492,000 Platinum 185/70 R 14H IDR539,000 Corsa 185/55 R 15 H IDR681,000 Corsa 195/55 R 15 H IDR710,000 Strada 205/65 R 15 H IDR711,000 Corsa 205/55 R 16W IDR785,000 Corsa 215/55 R 16W IDR878,000 Corsa 225/55 R 16W IDR910,000 Corsa 2233 205/50 R 17W IDR934,000 ATR Sport 215/45 R 17W IDR910,000 ATR Sport 245/45 R 17W IDR1,040,000 Bridgestone Techno 175/70/SR13 S-350T IDR853,000 Techno 195/70/SR 14 S-236T IDR921,000 B-series 175/65/TR 14 B-391T IDR803,000 B-series 185/70/SR 14 B-250T IDR787,000 Potenza 185/55/VR15 E-030T IDR1,306,000 Turanza 195/55/VR 15 ER-30T IDR1,136,000 Regno 205/65/HR 15 S-325T IDR1,188,000 Turanza 205/55/VR 16 ER-30T IDR1,735,000 Potenza 215/45VR 17 RE-050 IDR2,758,000 Potenza 245/45VR 17 RE-050 IDR3,953,00
Figure 44. Tire Price Comparasion (Source: Mobilmotor No. 16/ 4-17 August 2010)
Page 31 of 26
Profit and loss YE Dec (IDR bn) Revenue Gross profit Operating profit EBITDA Net Interest Interest expense Interest income Forex losses/gains Net other Pre-tax profit Income tax Others Minority interests Net Profit 2008A 1,334 291 176 265 (47) (47) 0 (119) (4) 6 (4) 0 0 3 2009A 1,691 371 231 310 (57) (57) 0 86 (30) 230 (55) 0 0 175 2010F 2,084 463 254 369 (30) (30) 0 30 (10) 244 (61) 0 0 183 2011F 3,112 708 396 605 (90) (90) 0 (4) (19) 283 (71) 0 0 213 2012F 3,738 853 479 680 (75) (75) 0 (4) (19) 381 (95) 0 0 286
Figure 45. Company Profit and Loss. (Source: Company)
Balance Sheet YE Dec (IDR bn) Cash and ST Investment (incl. cash equiv) Acc receivable Inventory Others Current assets Investment Fixed assets Others Total assets Current liabilities Acc. payable ST borrowings Others Long-term liabilities Long-term payable Others Total liabilities Shareholder's equity 2008A 79 98 356 83 616 0 1,622 141 2,379 689 177 448 64 405 374 32 1,094 1,285 2009A 14 120 433 168 735 0 1,693 108 2,536 856 246 468 142 221 180 40 1,076 1,460 2010F 71 147 532 196 946 0 1,628 288 2,862 1,060 302 613 145 212 172 40 1,272 1,590 2011F 478 220 789 267 1,754 0 2,855 45 4,654 1,173 447 580 145 1,733 1,693 40 2,906 1,748 2012F 547 265 947 311 2,069 0 2,754 45 4,868 1,376 537 694 145 1,522 1,482 40 2,898 1,970
Figure 46. Company Balance Sheet. (Source: Company)
Page 32 of 26
Cash Flow Statement YE Dec (IDR bn) Operating profit Other recurring income/ (Expenses) Depr & Amort Other Gain/Loss Tax Change in working capital Operating Cash Flow Capital expenditure Free Cash Flow Other investing cash flow Cash Flow From Investing Net change in debts Equity funds raised Other financing cash flow Cash Flow From Financing Non-recurring income (Expenses) Net change in cash Cash at beginning Cash at End 2008A 176 (51) 88 0 (4) (96) 114 (407) (293) 3 (404) 479 0 (9) 470 (119) 61 17 79 2009A 231 (87) 80 0 (55) (30) 138 (117) 21 1 (116) (172) 0 (1) (173) 86 (65) 79 14 2010F 254 (41) 115 0 (61) (94) 173 (230) (57) 0 (230) 136 0 (52) 83 30 57 14 71 2011F 396 (108) 209 0 (71) (256) 170 1,192 (1,022) 0 396 1,489 0 (55) 1,434 (4) 407 71 478 2012F 479 (94) 201 0 (95) (156) 335 (100) 235 0 479 (98) 0 (64) (161) (4) 69 478 547
Figure 47. Company Cash Flow. (Source: Company)
Key ratios YE Dec Growth ( yoy) Sales EBIT EBITDA Net Profit Profitability (%) Gross Profit Margin Oper. Margin EBITDA Margin Net Margin ROAA ROAE Leverage Net debt/equity (%) EBITDA/Gross Interest (x) Per share data (IDR) EPS CFPS BVPS DPS 2008A 48.5 94.5 61.8 (89.8) 21.8 13.2 19.9 0.2 0.1 0.2 57.8 5.6 0 15 210 143 2009A 26.8 30.8 17.2 5,779.6 21.9 13.6 18.3 10.3 7.1 12.7 43.5 5.4 29 42 239 15 2010F 23.2 10.1 18.9 4.5 22.2 12.2 17.7 8.8 6.8 12.0 44.9 12.1 30 49 260 857 2011F 49.3 55.9 64.0 16.4 22.7 12.7 19.4 6.8 5.7 12.7 102.7 6.7 35 69 286 896 2012F 20.1 21.0 12.5 34.5 22.8 12.8 18.2 7.6 6.0 15.4 82.7 9.0 47 80 322 1,042
Valuation YE Dec PER (x) EV/EBITDA (x) P/BV (x) P/CF (x) Dividend Yield (%) 2008A 720.1 10.9 1.7 23.4 0.4 2009A 12.2 8.9 1.5 8.4 0.0 2010F 11.7 7.7 1.3 7.2 2.4 2011F 10.1 6.5 1.2 5.1 2.6 2012F 7.5 5.5 1.1 4.4 3.0
Figure 48. Company Key Ratios and Valuation. (Source: Company) Office of Chief Economist Page 33 of 26
Perusahaan Gas Negara: 65.7% gross margin post tariff hike

Ari Pitoyo, CFA (ari.pitoyo@mandirisek.co.id)
A thicker margin PGAS recorded a gross margin of 65.7% in 2Q10, up from 60.8% in 1Q10, and 59.3% in 1H09. An increase in average gas price of 8.6% in Q2 to USD6.84/MMBTU helped beefed up the margin. Transmission and fiber optics was up 8.5% QoQ to IDR424bn. No short-term catalysts seen PGAS is currently implementing a thorough FSRT (Floating Storage Re-gasification Terminal) tendering process. A valuation discount has to be applied for the 2012 target of completion to prevent over optimistic expectation. There were also scant progress in gas fields acquisitions and additional supplies from gas producers. PGAS CEO, Hendy P. Santoso quoted by Bloomberg, said that he saw limited additional supply in 2011 Higher target price We revised down our cost of gas on improved gas supply from Conoco Phillips (CoPhi). As CoPhi volume has improved, cost of gas have to be lowered since CoPhis gas is priced at USD1.85/MMBTU which is lower than average cost of gas of USD2.53/MMBTU. Our new target price of IDR5,260/share is 13.1% higher than our previous target.
FINANCIAL SUMMARY YE Dec (IDR bn) EBITDA Net Profit EPS (IDR) EPS Growth (%) P/E Ratio (x) EV/EBITDA (x) P/B Ratio (x) Dividend Yield (%) ROAE (%) 2008A 6,845 634 28 (59.7) 136.1 14.3 12.1 0.9 9.4 2009A 8,542 6,229 274 882.7 13.8 11.0 7.4 1.2 66.1 2010F 10,628 6,403 282 2.8 13.5 8.2 5.3 2.2 45.9 2011F 11,239 6,490 286 1.4 13.3 7.2 4.2 2.2 35.1 2012F 11,127 6,364 280 (1.9) 13.6 6.7 3.4 2.3 27.7
Page 34 of 26
USD mn Total revenue Gross Profit (Loss) Operating profit (Loss) Pretax profit (Loss) Net profit (Loss) Gross margin (%) Operating margin (%) Pretax margin (%) Net margin (%) Dist. Flow (mmscfd) Trans. Flow (mmscfd)
1H10 9,539 6,048 4,566 4,465 3,206 63.4 47.9 46.8 33.6 827 848
1H09 9,005 5,341 3,930 4,488 3,186 59.3 43.6 49.8 35.4 756 763
2Q10 5,053 3,323 2,456 2,009 1,435 65.7 48.6 39.8 28.4 813 937
1Q10 4,486 2,725 2,110 2,456 1,771 60.8 47.0 54.8 39.5 841 758
yoy (%) 5.9 13.2 16.2 (0.5) 0.6
qoq (%) 12.7 21.9 16.4 (18.2) (19.0)
FY10F 18,037 10,820 7,523 7,319 5,372 60.0 41.7 40.6 29.8
% of FY10F 52.9 55.9 60.7 61.0 59.7
9.4 11.1
(3.3) 23.6
810 927
102.1 91.5

FY10F New 4,001.7 1,739.2 1,075.3 333.8 43.5 26.9 8.3 FY11F New 4,976.1 2,368.8 1,560.4 446.4 47.6 31.4 9.0
Old IDR bn Total revenue Gross profit (Loss) Operating Profit (Loss) Net proffit (Loss) Gross margin (%) Operating margin (%) Net margin (%) Assumptions Volume distributed (MMSCFD) Volume transmitted (MMSCFD) Average selling price (USD/MMBtu) IDR/USD EOY 4,001.7 1,739.2 1,075.3 216.9 43.5 26.9 5.4
% Changes 53.9
Old 4,976.1 2,368.8 1,560.4 366.1 47.6 31.4 7.4
% Changes 21.9
65.6 68.8 33.4 8,927
65.6 68.8 33.4 8,927
80.5 69.8 31.5 8,927
80.5 69.8 31.5 8,927
Figure 51. Forecast Changes. (Source: Mandiri Sekuritas Estimates)
Profit and loss YE Dec (IDR bn) Revenue Gross profit Operating profit EBITDA Net Interest Interest expense Interest income Forex losses/gains Net other Pre-tax profit Income tax Others Minority interests Net Profit 2008A 12,794 7,566 4,657 6,845 (488) (547) 59 (3,014) 126 1,281 (476) 0 (171) 634 2009A 18,024 10,804 7,676 8,542 (398) (558) 160 1,245 (275) 8,247 (1,814) 0 (204) 6,229 2010F 18,766 12,151 8,898 10,628 (275) (315) 40 359 (289) 8,693 (2,171) 0 (119) 6,403 2011F 19,664 12,834 9,427 11,239 (317) (357) 40 0 (303) 8,806 (2,200) 0 (117) 6,490 2012F 20,567 12,794 9,258 11,127 (305) (345) 40 0 (319) 8,635 (2,157) 0 (114) 6,364
Figure 52. Company Profit and Loss (Source: Company, Mandiri Sekuritas Estimates) Office of Chief Economist Page 35 of 26
Balance Sheet YE Dec (IDR bn) Cash and ST Investment (incl. cash equiv) Acc receivable Inventory Others Current assets Investments Fixed assets Others Total assets Current liabilities Acc. payable ST borrowings Others Long-term liabilities Long-term payable Others Total liabilities Shareholder's equity 2008A 3,500 1,589 15 2,061 7,164 0 17,633 773 25,570 3,198 1,288 354 1,556 14,302 14,116 186 17,500 8,070 2009A 6,593 1,650 14 2,297 10,555 0 17,329 786 28,670 3,651 1,088 995 1,567 12,242 12,069 173 15,893 12,778 2010F 10,030 2,879 13 1,171 14,093 0 15,763 775 30,632 3,857 1,448 385 2,024 9,549 9,433 117 13,406 17,226 2011F 15,504 3,016 13 1,272 19,806 0 14,129 822 34,757 3,838 1,501 381 1,956 9,095 8,978 117 12,933 21,823 2012F 21,528 3,155 15 1,121 25,819 0 12,439 867 39,125 4,052 1,691 381 1,979 8,805 8,689 117 12,858 26,267
Figure 53. Company Balance Sheet. (Source: Company, Mandiri Sekuritas Estimates)
Cash Flow Statement YE Dec (IDR bn) Operating profit Other recurring income/ (Expenses) Depr & Amort Other Gain/Loss Tax Change in working capital Operating Cash Flow Capital expenditure Free Cash Flow Other investing cash flow Cash Flow From Investing Net change in debts Equity funds raised Other financing cash flow Cash Flow From Financing Non-recurring income (Expenses) Net change in cash Cash at beginning Cash at End 2008A 4,657 (362) 2,187 0 (476) (1,520) 4,315 (3,355) 960 0 (3,355) 4,678 (182) (175) 4,321 (3,014) 2,268 1,232 3,500 2009A 7,676 (673) 866 0 1,814 (466) 5,384 (581) 4,803 5 576 (1,434) 165 (1,672) (2,940) 1,245 3,112 3,500 6,612 2010F 8,898 (564) 1,730 0 2,171 716 8,490 (165) 8,325 0 (165) (3,247) (15) (1,983) (5,245) 359 3,439 6,593 10,032 2011F 9,427 (621) 1,813 0 2,200 (254) 8,048 (179) 7,869 0 9,427 (457) 28 (1,965) (2,394) 0 5,475 10,030 15,506 2012F 9,258 (623) 1,869 0 2,157 224 8,457 (179) 8,279 0 9,258 (290) 27 (1,990) (2,253) 0 6,026 15,504 21,530
Figure 54. Company Cash Flow Statement. (Source: Company, Mandiri Sekuritas Estimates) Office of Chief Economist Page 36 of 26
Key ratios YE Dec Growth ( % yoy) Sales EBIT EBITDA Net Profit Profitability (%) Gross Profit Margin Oper. Margin EBITDA Margin Net Margin ROAA ROAE Leverage Net debt/equity (%) EBITDA/Gross Interest (x) Per share data (IDR) EPS CFPS BVPS DPS 2008A 45.4 51.1 63.2 (59.7) 59.1 36.4 53.5 5.0 2.8 9.4 135.9 12.5 28 124 313 35 2009A 40.9 64.8 24.8 882.7 59.9 42.6 47.4 34.6 23.0 66.1 50.6 15.3 274 313 517 44 2010F 4.1 15.9 24.4 2.8 64.7 47.4 56.6 34.1 21.6 45.9 (1.2) 33.7 282 358 713 82 2011F 4.8 5.9 5.7 1.4 65.3 47.9 57.2 33.0 19.8 35.1 (28.2) 31.5 286 366 915 85 2012F 4.6 (1.8) (1.0) (1.9) 62.2 45.0 54.1 30.9 17.2 27.7 (47.4) 32.3 280 363 1,109 86
Figure 55. Company Key Ratios. (Source: Company, Mandiri Sekuritas Estimates)
Valuation YE Dec PER (x) EV/EBITDA (x) P/BV (x) P/CF (x) Dividend Yield (%) 2008A 136.1 14.3 12.1 30.6 0.9 2009A 13.8 11.0 7.4 12.2 1.2 2010F 13.5 8.2 5.3 10.6 2.2 2011F 13.3 7.2 4.2 10.4 2.2 2012F 13.6 6.7 3.4 10.5 2.3
Figure 56. Company Valuation. (Source: Company, Mandiri Sekuritas Estimates)
Page 37 of 26
Adaro Energy: Rupiah Attrition

Maria Renata (maria.renata@mandirisek.co.id)
1H10 results below expectation. ADROs 1H10 revenue of IDR12.0tn was only 43.8% of our FY10 target, due to lower average selling price and the US dollars depreciation. ASP in 1H10 was only USD55/ton (-10.6%yoy) compared with USD62/ton in 1H09, and the 17.0% drop in the US dollars value against the rupiah oppressed revenue when expressed in the local currency. However coal production in 1H10 increased 20% yoy to 21.6Mt and sales volume increased 22% to 21.8Mt. Higher stripping ratio. Higher stripping ratio and higher production volume are the main factors that increased cost by 7.9%yoy. Stripping ratio in 1H10 was 5.5x compared with 5.0 in 1H09, meanwhile overburden removal was up by 11.7%yoy to 106.7Mbcm, due to higher coal production. Adjusted our forecast. We maintain our FY10 coal production estimate at 46Mt. We adjusted our stripping ratio to 5.5x from 5.0x previously and lowered our ASP assumption to USD56/Mt, generating FY10 revenue of IDR25.0tn, based on FY10F average US dollar exchange rate of IDR9,100/USD.
FINANCIAL SUMMARY YE Dec (IDR bn) EBITDA Net Profit EPS (IDR) EPS Growth (%) P/E Ratio (x) EV/EBITDA (x) P/B Ratio (x) Dividend Yield (%) ROAE (%) 2008A 4,832 887 28 903.0 69.2 14.3 4.4 0 11.0 2009A 11,211 4,367 137 392.3 14.1 5.8 3.5 1 27.8 2010F 8,448 2,424 76 (44.5) 25.3 7.5 3.1 0.9 13.0 2011F 13,877 4,638 145 91.3 13.2 4.3 2.6 0.8 21.2 2012F 15,367 5,442 170 17.3 11.3 3.6 2.2 1.6 20.8
Page 38 of 26
IDR bn Total revenue Gross Profit (Loss) Operating profit (Loss) Pretax profit (Loss) Net profit (Loss) Gross margin (%) Operating margin (%) Pretax margin (%) Net margin (%) ADRO 1H10 Activities report Coal production (Mt) Coal sales (Mt) Overburden removal (Mbcm) Stripping ratio (Bcm/t)
1H10 11,985 3,947 3,570 2,537 1,153 32.9 29.8 21.2 9.6
1H09 12,897 5,444 4,931 4,359 2,249 42.2 38.2 33.8 17.4
2Q10 5,706 1,701 1,513 837 292 29.8 26.5 14.7 5.1
1Q10 6,279 2,246 2,057 1,700 861 35.8 32.8 27.1 13.7
yoy (%) (7.1) (27.5) (27.6) (41.8) (48.7)
qoq (%) (9.1) (24.3) (26.4) (50.8) (66.1)
FY10F 27,334 10,108 8,915 7,629 3,967 37.0 32.6 27.9 14.5
% to FY10F 52.9 55.9 60.7 61.0 59.7
% to Consensus 45.3 na 42.2 61.0 59.7
21.6 21.8 106.7 5.50
18.0 17.8 95.5 5.00
10.3 10.3 57.8
11.4 11.5 48.9
20.2 22.0 11.7
(37.0) (10.2) 18.3
46.0 46.0 230 5.00
47.0 47.3 46.4 110.0
ADARO's Coal ASP
1H10 Revenue from coal mining and trading (IDR bn) Coal Sales Volume (Mt) Average exchange rate (Rp/USD) Actual ASP (IDR/Mt) Actual ASP (UD/Mt) 11,063 21.8 9,189 507,454 55.2
1H09 12,173 17.8 11,067 683,877 61.8
yoy (%) (9.1) 22.5 (17.0) (25.8) (10.6)
FY09 25,291 41.4 10,398 610,896 58.8
Figure 59. Adaros Coal ASP. (Source: Company, Mandiri Sekuritas Estimates)
Forecast Changes FY10F New % Changes 24,977 (8.6) 7,942 (21.4) 7,012 (21.3) 5,387 (29.4) 2,424 (38.9) 31.8 28.1 21.6 9.7 FY11F New % Changes 33,723 1.4 13,285 0.4 12,230 2.8 10,307 (0.5) 4,638 (13.9) 39.4 36.3 30.6 13.8
IDR bn Revenue - net Gross profit (Loss) Operating Profit (Loss) Pre-tax Profit (Loss) Net proffit (Loss) Gross margin (%) Operating margin (%) Pre-tax margin (%) Net margin (%) Assumptions Coal production (Mt) Coal sales (Mt) ASP (USD/Mt) Overburden removal (Mbcm) Stripping ratio (Bcm/t)
Old 27,334 10,108 8,915 7,629 3,967 37.0 32.6 27.9 14.5
Old 33,254 13,232 11,903 10,355 5,385 39.8 35.8 31.1 16.2
46.0 46.0 60.8 33.4 8,927
46.0 46.0 56.3 33.4 8,927
52.0 52.0 66.0 260 5.0
52.0 52.0 67.5 299 5.8
Figure 60. Forecast Changes. (Source: Company, Mandiri Sekuritas Estimates) Office of Chief Economist Page 39 of 26
Profit and loss YE Dec (IDR bn) Revenue Gross profit Operating profit EBITDA Net Interest Interest expense Interest income Forex losses/gains Net other Pre-tax profit Income tax Others Minority interests Net Profit 2008A 18,093 4,943 4,212 4,832 (568) (616) 48 (455) (263) 2,925 (1,602) (499) 64 887 2009A 26,938 11,038 9,928 11,211 (848) (916) 68 100 (603) 8,578 (4,119) (43) (49) 4,367 2010F 24,977 7,942 7,012 8,448 (776) (810) 34 (161) (688) 5,387 (2,963) 0 0 2,424 2011F 33,723 13,285 12,230 13,877 (965) (999) 34 (270) (688) 10,307 (5,669) 0 0 6,490 2012F 20,567 12,794 9,258 11,127 (305) (345) 40 0 (688) 12,093 (6,651) 0 0 6,364
Figure 61. Company Profit and Loss (Source: Company, Mandiri Sekuritas Estimates)
Balance Sheet YE Dec (IDR bn) Cash and ST Investment (incl. cash equiv) Acc receivable Inventory Others Current assets Investments Fixed assets Others Total assets Current liabilities Acc. payable ST borrowings Others Long-term liabilities Long-term payable Others Total liabilities Shareholder's equity 2008A 2,416 2,332 305 2,804 7,857 0 5,924 19,939 33,720 6,722 2,602 1,734 2,386 12,971 8,326 4,645 19,693 14,028 2009A 11,275 2,882 250 1,429 15,837 0 7,416 19,213 42,465 7,996 2,168 2,044 3,784 16,957 13,047 3,911 24,953 17,512 2010F 7,967 2,775 268 1,333 12,344 0 8,294 19,218 39,857 8,063 2,323 2,112 3,628 11,885 8,015 3,870 19,948 19,909 2011F 13,060 3,372 322 1,773 18,527 0 9,047 18,152 45,727 10,675 2,787 3,951 3,938 11,019 7,148 3,870 21,694 24,033 2012F 15,083 3,840 373 2,008 21,304 0 9,654 17,002 47,959 11,302 3,229 3,944 4,129 8,166 4,296 3,870 19,468 28,491
Figure 62. Company Balance Sheet. (Source: Company, Mandiri Sekuritas Estimates)
Page 40 of 26
Cash Flow Statement YE Dec (IDR bn) Operating profit Other recurring income/ (Expenses) Depr & Amort Other Gain/Loss Tax Change in working capital Other operating cash flow Operating Cash Flow Capital expenditure Free Cash Flow Other investing cash flow Cash Flow From Investing Net change in debts Equity funds raised Other financing cash flow Cash Flow From Financing Extraordinaries income (Expenses) Net change in cash Cash at beginning Cash at End 2008A 4,212 (832) 620 204 (1602) (64) (765) 1,837 (2,193) (356) (8797) (10,990) 3,003 11,869 (3,180) 11,692 (499) 1,584 832 2,416 2009A 7,676 (673) 866 0 1,814 (466) 5,384 (581) 4,803 5 576 (1,434) 165 (1,672) (2,940) (43) 8,772 2,416 11,188 2010F 8,898 (564) 1,730 0 2,171 716 8,490 (165) 8,325 0 (165) (3,247) (15) (1,983) (5,245) 0 (3,307) 11,275 7,967 2011F 9,427 (621) 1,813 0 2,200 (254) 8,048 (179) 7,869 0 9,427 (457) 28 (1,965) (2,394) 0 5,092 7,967 13,060 2012F 9,258 (623) 1,869 0 2,157 224 8,457 (179) 8,279 0 9,258 (290) 27 (1,990) (2,253) 0 2,023 13,060 15,083
Figure 63. Company Cash Flow Statement. (Source: Company, Mandiri Sekuritas Estimates)
Key ratios YE Dec Growth ( % yoy) Sales EBIT EBITDA Net Profit Profitability (%) Gross Profit Margin Oper. Margin EBITDA Margin Net Margin ROAA ROAE Leverage Net debt/equity (%) EBITDA/Gross Interest (x) Per share data (IDR) EPS CFPS BVPS DPS 2008A 56.1 87.0 85.8 903.0 27.3 23.3 26.7 4.9 3.7 11.0 54.5 7.8 28 47 438 0 2009A 48.9 135.7 132.0 392.3 41.0 36.9 41.6 16.2 11.5 27.8 21.8 12.2 137 177 545 24 2010F (7.3) (29.4) (24.6) (44.5) 31.8 28.1 33.8 9.7 5.9 13.0 10.8 10.4 76 121 620 17 2011F 35.0 74.4 64.3 91.3 39.4 36.3 41.1 13.8 10.8 21.2 (8.2) 13.9 145 196 749 16 2012F 13.9 10.3 10.7 17.3 38.3 35.1 40.0 14.2 11.6 20.8 (24.0) 20.7 170 229 889 31
Valuation YE Dec PER (x) EV/EBITDA (x) P/BV (x) P/CF (x) Dividend Yield (%)
2008A 69.2 14.3 4.4 40.7 0
2009A 14.1 5.8 3.5 10.9 1
2010F 25.3 7.5 3.1 15.9 0.9
2011F 13.2 4.3 2.6 9.8 0.8
2012F 11.3 3.6 2.2 8.4 1.6
Figure 64. Company Key Ratios and Valuation. (Source: Company, Mandiri Sekuritas Estimates) Office of Chief Economist Page 41 of 26
MACRO ECONOMIC INDICATORS AND FORECAST

2007 National Output (Summary) Real GDP (% yoy) GDP (US$ bn) - nominal GDP per capita (US$) - nominal GDP (current price, Rp tn) GDP (constant price at 2000, Rp tn) National Output (By Expenditure), % yoy Domestic Demand Real Consumption: Private Real Gross Fixed Capital Formation Government Expenditure (%yoy) National Output (By Sector), % yoy Agriculture, Livestock's, Forestry and Fisheries Mining and Quarrying Manufacturing Industries Electricity, Gas and Watersupply Construction Trade, Hotel and Restaurant Transportation and Communication Financial, Ownership and Business Services Services 2008 2009 Q1 (A) Q2 (A) 6.3 432 1,938 3,949 1,964 6.1 511 2,270 4,954 2,082 4.5 541.0 2,590 5,613 2,177 5.7 6.2 2010(f) Q3 Q4 6.1 6.2 2011 (f) 2012 (f) Full Year 6.0 717 3,055 6,512 2,308 6.3 842 3,537 7,553 2,454 6.6 956 3,963 8,762 2,616
6.0 5.0 9.4 3.9
7.4 5.3 11.8 10.4
5.4 4.9 3.3 15.7
3.9 3.9 7.8 (8.8)
4.4 5.0 8.0 (9.0)
6.4 5.4 8.3 7.3
7.4 5.5 10.0 11.4
5.6 5.0 8.6 1.5
7.0 5.2 10.4 9.7
7.6 5.4 12.1 9.3
3.5 1.9 4.7 10.3 8.5 8.9 14.0 8.0 6.4 2007
4.8 0.7 3.7 10.9 7.5 6.9 16.6 8.2 6.2 2008
3.3 2.4 1.5 14.5 6.4 0.6 17.1 5.7 7.2 2009
3.0 3.1 3.7 8.2 7.1 9.4 11.9 5.3 4.6
3.1 3.8 4.3 4.8 7.2 9.6 12.9 6.1 5.3
3.0 3.8 4.3 4.3 7.2 9.6 12.0 6.1 5.3
3.0 3.8 4.3 4.1 7.0 9.6 12.0 6.2 5.3
3.0 3.6 4.2 5.3 7.1 9.6 12.2 5.9 5.1
3.3 3.2 4.7 6.5 7.4 8.0 15.0 6.2 5.5
3.4 3.2 5.0 6.9 8.0 8.3 14.5 6.9 5.6
Q1 (A) Q2 (A) External Sector Exports (%yoy,USD) - Merchandise Imports (%yoy,USD) - Merchandise Trade Balance (BOP, USD bn) Current Account (% of GDP) Total External Debt (% of GDP) International Reserves (USD bn) Import cover (months) IDR/USD (period average) IDR/USD (year end) Capital Market JCI Index Sovereign Yield 5 Y Sovereign Yield 10 Y Other BI rate (% period average) BI rate (% end period) Headline Inflation (% yoy, period average) Headline Inflation (% yoy, end period) Fiscal Balance (% of GDP) S&P's Rating - FCY S&P's Rating - LCY 14.0 15.4 32.8 2.4 32.7 56.0 7.4 9,138 9,419 18.3 36.9 22.9 0.0 30.3 51.6 4.8 9,691 10,950 (14.4) 44.7 (27.7) 53.7 35.1 8.4 2.0 1.2 32.0 25.2 66.1 71.8 8.2 7.2 10,375 9,251 9,400 9,115 34.4 45.8 9.0 1.0 76.3 7.3 9,135 9,083
2010(f) Q3 Q4 9,010 8,927 -
2011 (f) 2012 (f) Full Year 24.2 40.3 30.1 1.0 28.7 80.4 7.4 9,081 8,927 19.1 24.9 29.0 0.3 28.4 94.4 6.9 8,972 9,083 20.5 23.3 30.8 0.1 28.7 105.4 6.3 9,161 9,274
2746 9.2 10.0
1355 11.8 11.9
2925 9.6 10.2
9.7 10.3 9.7 10.3
9.8 10.4
9.9 10.5
3345 9.9 10.5
10.8 11.6
8.44 8.00 6.04 5.42 (1.30) BBBB+
8.75 9.25 9.75 11.06 (0.10) BBBB+
6.94 6.50 4.90 2.78 (2.10) BBBB+
6.50 3.43 5.05 6.50
6.50 5.85
7.00 6.30
6.63 7.00 5.10 6.30 (1.40) BB+ BBB-
7.48 7.50 6.63 6.60 (1.50) BBBBBB-
7.50 7.50 6.10 (1.50) BBB BBB
Page 42 of 26
INDONESIA CURRENT DATA

Indicators Unit 2006 2007 2008 2009 Jan Exchange Rate End of Period Average Monetary Sector Base money M0, eop Narrow money M1 Broad Money M2 Outstanding Loan Outstanding Deposit 1-month SBI rate Lending rate (working capital) 3-month deposit rate, eop Overnight rate, eop Prices Headline CPI (2007=100) Year on year inflation rate Month on month inflation rate Year to date inflation rate Wholesale Price Index (2000=100) Trade Export Oil Non oil Import Oil Non oil Trade Balance Output GDP (current price) GDP (constant price at 2000) Real Growth Capital Market JCI Index, eop Volume, avg Value, avg Consumer Confidence Index Feb Mar Apr 2010 May Jun Jul Aug
IDR/USD IDR/USD
8995 9082
9393 9354
10900 1167
9390 9462
9348 9284
9335 9344
9100 9167
9013 9029
9180 9180
9061 9147
8950 9043
9016 8973
IDRtn IDRtn IDRtn IDRtn IDRtn % p.a % p.a % p.a % p.a
297.08 361.07 1,382.07 787.14 1,230.97 9.92 15.07 9.71 6.06
379.58 450.06 1,649.66 995.11 1,459.44 8.00 13.00 7.42 4.50
344.69 456.79 1,883.85 1,313.87 1,673.82 10.95 15.22 11.97 9.40
402.12 515.82 2,141.38 1,446.81 1,914.11 6.46 13.69 6.85 6.24
384.18 496.53 2,073.86 1,414.26 1,861.46 6.45 13.75 7.33 6.24
380.14 490.08 2,066.48 1,436.34 1,854.12 6.42 13.68 7.14 6.15
374.41 494.46 2,111.35 1,463.15 1,905.73 6.37 13.54 7.09 6.15
385.43 494.72 2,115.13 1,492.28 1,903.16 6.20 13.42 6.86 6.17
391.85 514.01 2,142.34 1,534.83 1,927.05 6.20 13.26 6.85 6.31
401.43 545.41 2,230.24 1,589.66 2,006.83 6.26 13.17 6.79 6.25
408.97 539.74 2,216.10 1,605.81 1,987.02 N/A 13.21 6.79 6.25
426.87
N/A
6.46
Index % % % Index
145.89 6.60 1.21 N/A 178
155.5 6.59 1.1
113.86 11.06 -0.04 11.06
117.03 2.78 0.33 2.78 166
118.01 3.72 0.84 0.84 167
118.36 3.81 0.30 1.14 167
118.19 3.43 -0.14 0.99 168
118.37 3.91 0.15 1.15 169
118.71 4.16 0.29 1.44 170
119.86 5.05 0.97 2.42 173
121.74 6.22 1.57 4.02 174
122.67 6.44 0.76 4.82
217
238.0
USDbn USDbn USDbn USDbn USDbn USDbn USDbn
9.61 1.90 7.72 4.97 1.37 3.60 4.56
10.86 2.51 8.36 6.81 2.39 4.42 4.06
8.69 1.24 7.45 6.29 0.98 5.31 2.40
13.35 2.50 10.85 10.33 2.10 8.22 3.02
11.60 2.34 9.25 9.49 1.94 7.55 2.11
11.17 2.18 8.99 9.50 2.05 7.45 1.67
12.77 2.17 10.61 10.97 2.25 8.72 1.80
12.04 2.20 9.83 11.24 2.52 8.71 0.80
12.66 2.37 10.29 10.03 2.03 8.00 2.62
12.33 1.90 10.43 11.76 2.39 9.37 0.57
12.49 1.88 10.61 12.62 2.11 10.51 -0.13
IDRtn IDRtn % YoY
873.18 466.10 6.06
1034.86 493.37 5.88
1274.29 518.94 5.20
1450.82 547.54 5.43
1496.24 558.11 5.69
1572.40 573.71 6.17
Index shares mn IDRbn
1805.5 2394.5 1985.7 99.1
2745.83 3155.65 4340.55 99.10
1355.41 1743.25 1454.61 90.60
2534.36 3422.10 2332.42 108.70
2610.80 4462.40 3599.15 110.50
2549.03 3661.76 2711.71 105.30
2777.30 4350.70 3546.06 107.40
2971.25 5554.89 4167.97 110.70
2796.96 5639.90 4473.01 109.90
2913.68 4542.75 2847.71 111.40
3069.28 4104.74 2910.90 105.70
3081.88 4190.05 3308.05 104.00
Disclaimer: This material is for information only, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. The information herein has been obtained from sources believed to be reliable, but we do not warrant that it is accurate or complete, and it should not be relied upon as such. Opinion expressed is our current opinion as of the date appearing on this material only, and subject to change without notice. It is intended for the use by recipient only and may not be reproduced or copied/photocopied or duplicated or made available in any form, by any means, or redistributed to others without written permission of PT Bank Mandiri Tbk. Additional information is available upon request. For further information please contact: Office of Chief Economist, Ph. (021) 524 5516/5272 or Facs. (021) 521 0430.
Page 43 of 26
Head Office
Plaza Mandiri Jl. Gatot Subroto Kav. 36-38 Jakarta 12190, Indonesia Tel: (62-21) 526 5045 526 5095 Fax: (62-21) 526 8372 526 5008 Website: www.bankmandiri.co.id
Overseas Offices
Hongkong Branch 7th Floor, Far East Finance Centre 16 Harcourt Road, Hongkong Tel: 852-2527-6611 Fax: 852-2529-8131
Zulkifli Zaini President Director & CEO Tel: (62-21) 3002 3067, Fax: (62-21) 526 3617 Riswinandi Deputy President Director Tel: (62-21) 3002 3028, Fax: (62-21) 526 3617 Abdul Rachman Director Institutional Banking Tel: (62-21) 3002 3839, Fax: (62-21) 252 4651 Sentot A. Sentausa Director Risk Management Tel: (62-21) 3002 3454, Fax: (62-21) 526 8213 Thomas Arifin Director Treasury, FI & Special Asset Management Tel: (62-21) 3002 3763, Fax: (62-21) 526 3763 Budi Gunadi Sadikin Director Micro & Retail Banking Tel: (62-21) 3002 3079, Fax: (62-21) 252 1585 Ogi Prastomiyono Director Compliance & Human Capital Tel: (62-21) 3002 3666, Fax: (62-21) 252 4651 Pahala N. Mansury Director Finance & Strategy Tel: (62-21) 3002 3089, Fax: (62-21) 526 8213 Fransisca N. Mok Director Corporate Banking Tel: (62-21) 3002 3847, Fax: (62-21) 526 3617 Sunarso Director Commercial & Business Banking Tel: (62-21) 3002 3087, Fax: (62-21) 526 3617 Kresno Sediarsi Director Technology & Operation Tel: (62-21) 524 3092, Fax: (62-21) 252 1585 Haryanto Budiman EVP Coordinator Change Management Office Tel: (62-21) 3002 3076, Fax: (62-21) 526 8213 Mansyur S. Nasution EVP Coordinator Consumer Finance Tel: (62-21) 3002 3075, Fax: (62-21) 5296 4116 Riyani T. Bondan EVP Coordinator Internal Audit Tel: (62-21) 3002 3722, Fax: (62-21) 526 3623
Singapore Branch 3 Anson Road #12-01/02, Springleaf Tower Singapore 079909 Tel: 65-6213-5688 Fax: 65-6438-3363
Cayman Islands Branch rd Cardinal Plaza 3 Floor 30 Cardinal Avenue, PO Box 10198, Grand Cayman, KY1-1002, Cayman Islands Tel: 1-345-945-8891 Fax: 1-345-945-8892
Bank Mandiri (Europe) Limited, London nd Cardinal Court (2 Floor), 23 Thomas More Street London EIW IYY, United Kingdom Tel: 44-207-553-8688 Fax: 44-207-553-8699
Shanghai Representative Office 3401, Bank of China Tower 200 Yin Cheng (M) Road, Pudong New Area, Shanghai, 200120 Peoples Republic of China Tel: 86-21-5037-2509 Fax: 86-21-5037-2507
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OFFICE OF CHIEF ECONOMIST

Russia 2% Pakistan Australia 2% 3% Mexico USA 3% 5% Thailand 5%

W. Europe 10% China 9%

BI rate unchanged at 6.5%, Reserves requirement increased

BI rate stay unchanged at 6.5%

% Actual Mandiri's Forecast Consensus CPI Inflation (% yoy)

Figure 1. BI Rate Summary. (Source: CEIC, Bloomberg, Mandiri Sekuritas)

Domestic demand remained as growth backbone

Secondary LDR linked

Still effective 1-Mar-11

Long rally after long holiday

Figure 3. Asian Bond Market Yield Movements. (Source: Bloomberg)

Sep-10 MSGBI Tenor more than 7yr

Average YTM (%) 7.8 8.3

Spread 1/10yr yield (ppt) 4

1 Feb-10 May-10 Mar-10 Sep-10 Jun-10 Jan-10 Jul-10

Office of Chief Economist

Weekly 560 -134 553 2,173 3,152

Tenor (yrs) 0-2 2-5 5-10 >10 TOTAL

Jan-10 9.83 18.08 23.37 48.73 100.00

Jun-10 10.33 17.67 16.09 55.91 100.00

Office of Chief Economist

Office of Chief Economist

Reviewing the Efforts towards Sugar Self-Sufficiency 2014

Sugar Production by Countries

167.1 164.3 160.7

Russia 2% Pakistan Australia 2% 3% Mexico USA 3% 5% Thailand 5%

W. Europe 10% China 9%

Office of Chief Economist

Sugar Consumption per Capita (kg/year)

Sugar Consumption by Sector

Indonesia Brazil EU US Mexico Australia Thailand Pakistan India China

18.9 62.5 36.4 30.5 44.3 49.6 35.6 23 20.6 11.2

Food & Beverage Industry 23%

Office of Chief Economist

Indonesia Sugar Consumption (mn ton)

Refined Sugar Production (thousands ton)

1445.2 1256.4 1138.2

Sugar Concentrate (%)

Office of Chief Economist

Domestic White Crystal Sugar price (IDR/kg)

Office of Chief Economist

Multistrada Arah Sarana: Indonesians Tire Manufacturer

PT Multistrada Arah Sarana Tbk

Figure 19. shareholder structure per June 2010. (Source: company).

Office of Chief Economist

Figure 20. Financial Summary. (Source: Company, Mandiri Sekuritas)

Figure 21. Peer Comparison. (Source: Bloomberg, Mandiri Sekuritas estimates).

Ins tal l ed capa ci ty - da i l y

Installed capacity - daily

Office of Chief Economist

Figure 24. Indonesia Automotive Market and Forecast. (Source: Gaikindo).

Figure 25. Quarterly Domestic Motorcycyle Sales. (Source: GAIKINDO).

43.9 37.7 29.0

Year 2005 2006 2007 2008 2009F 2010F

Vehicles 4W (mn) 9.6 11.7 15.8 17.6 18.1 18.8

2W (mn) 28.6 33.4 42.0 47.7 53.6 60.6

Tire Prod. (mn) 36.0 38.0 41.9 43.9 37.7 41.0

4W (n-2)*2 (mn) 13.5 15.4 19.2 23.3 31.6 35.2

Prod/ demand 112.7% 104.1% 95.3% 83.4% 57.7% 51.7%

Figure 30. Multistradas PCR Production and Sales. (Source: Company).

Domes tic (incl. MC) 22% As i a Pa ci fi c 33%