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September 2010

OFFICE OF CHIEF ECONOMIST

IInnddoonneessiiaa UUppddaatteeBI rate unchanged at 6.5%, Reserves requirement increased

Bank Indonesia decided to leave the benchmark rate unchanged at the boardmeeting in September at 6.5%, inline with our and consensus estimate, althoughrising inflationary pressure is still pointed out as central banks main consideration.The central bank prefers to remove persistent excess liquidity by introducing higherreserves 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 quitesignificantly. From Sept 6 to 24, on average bond prices rose by 2.5%, providing atotal return investing in rupiah government bonds of 21.3%ytd. In term of USD thereturn is higher, namely 26%, as rupiah strengthened against USD.

Reviewing the Efforts towards Sugar Self-Sufficiency 2014Indonesia 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 onlyhas a share of less than 2%, compared to Brazil which has a share of 22%, followed byIndia with a share of 11%. Indonesia is recorded to have per capita consumption ofsugar of 19 kgs/year, relatively lower than the consumption in Brazil, Europe, USAand Thailand.

Multistrada Arah Sarana: Indonesians Tire ManufacturerWe forecast the companys revenue to grow at 33.9% CAGR over the next 2 years toIDR3.7tn in FY2012 in accordance with capacity expansion. The growth will besupported by increasing sales volume in radial tires and motorcycle tires, which weforecast 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 AttritionADROs 1H10 revenue of IDR12 tn was only 43.8% of our FY10 target, due to loweraverage selling price and the US dollars depreciation. However coal production in1H10 increased 20% yoy to 21.6Mt and sales volume rose 22% to 21.8Mt.

CCoonntteennttss

BI rate unchanged at 6.5%,Reserves requirement increased

p.02

Long rally after long holiday p.03

Reviewing the Efforts towards

Sugar Self-Sufficiency 2014

p.08

Multistrada Arah Sarana: Indonesia

Manufacturer

p.16

Perusahaan Gas Negara: 65.7% gro

margin post tariff hike

p.34

Adaro Energy: Rupiah Attrition p.37

Mandiri Current Forecast p.42

Indonesia Current Data (Table) p.43

CChhiieeffEEccoonnoommiissttMirza Adityaswara

[email protected]

AAnnaallyyssttMoch. 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

PPuubblliiccaattiioonn AAddddrreessss::Bank Mandiri Head Office

Office of Chief Economist

21st

Floor, Plaza Mandiri

Jalan Jend. Gatot Subroto Kav.36-38

Jakarta 12190, Indonesia

Phone: (62-21) 5245516 / 5272

Fax: (62-21) 5210430

EEmmaaiill::[email protected]

[email protected]

[email protected]@bankmandiri.co.id

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]

SSeeee iimmppoorrttaannttddiissccllaaiimmeerraatttthhee eennddooff

tthhiiss mmaatteerriiaall

Sugar Production by Countries

China

9%

Thailand

5%

Others

24%

India

11%

Brazil

24%

Indonesia

2%

USA

5%

Australia

3%

Mexico

3%

Russia

2%Pakistan

2%

W. Europe

10%

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Office of Chief Economist Page 2 of 26

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.

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).

BI rate unchanged at 6.5%, Reserves requirement increasedDestry Damayanti ([email protected]),

Aldian Taloputra ([email protected]),

BI rate stay unchanged

at 6.5%

Domestic demand

remained as growth

backbone

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

% Dec-09 Mar-10 Jun-10 Aug-10 Sep-10

Actual 6.5 6.5 6.5 6.5 6.5

Mandiri's Forecast 6.5 6.5 6.5 6.5 6.5

Consensus 6.5 6.5 6.5 6.5 6.5

CPI Inflation (% yoy) 2.78 3.43 5.05 6.44

Figure 2. New Reserves Requirement.(Source: CEIC)

Current New Effective Date Note

Primary 5% 8% 1-Nov-10 2.5% interest will be given to

additional 3% RR

No Interest will be given for bank

with below 8% primary RR

Secondary 2.50% 2.50% Still effective No interest

LDR linked - 0.1-0.2 of third party fund

should actual LDR missed

the targetted LDR (78%-

100%)

1 -M ar-11 No interest

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 below14% CAR

No charges for banks that exceed

targetted LDR that have CAR equal

to or above 14%

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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 rupiahgovernment 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.

Long rally after long holidayHandy Yunianto ([email protected])

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

Inflation

YoY %

24-Sep-10 3-Sep-10 24-Sep-10 3-Sep-10 24-Sep-10

Thailand 3.19 2.96 23 -99 30.71 31.17 -1.48 -7.97 3.4

Philippine 6.24 6.67 -43 -187 43.99 44.68 -1.54 -4.7 3.9

Vietnam 11.16 11.20 -4 -29 19,015 19,495 -2.46 2.90 8.2

Indonesia 7.75 8.16 -41 -231 8,958 9,004 -0.51 -4.74 6.2

Currency Weekly

currency

changes

(%)

YTD

currency

changes

(%)

Country

10 year bond yields Weekly

yield

changes

(bps)

YTD yield

changes

(bps)

Figure 4. Flattening Yield Curve Make Long Duration Portfolio to Outperform(Source: MandiriSekuritas Estimate)

50

100

150

200

250

300

Nov-03

Apr-04

Sep-04

Feb-05

Jul-05

Dec-05

May-

Oct-06

Mar-07

Aug-07

Jan-08

Jun-08

Nov-08

Apr-09

Sep-09

Feb-10

Jul-10

TotalReturn(BaseyearDec-03=100)

All tenors (more than

1yrs)7-year Tenor

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Two factor behind the rally

We think, there were two positive news to support bonds rallyin 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 scenariofurther to 1Q2011. August inflation was also reported below

market consensus 6.4% vs. 6.7%.

Figure 5. Bullish Flattened Yield Curve Made The Long Duration Portfolio Duration Outperform.(Source: Mandiri Sekuritas Estimate)

MoM YoY YTD

Sep-10 MSGBI 7.8 3.5 24.3 21.3

Tenor morethan 7yr 8.3 4.5 30.8 27.5

Average YTM

(%)

Total Return (incl. coupon rate %)

Figure 6. Yield Curve Flattened After BI Increased Reserve Requirement and Pessimism OverThe US Economy Has Eased.(Source: Bloomberg and Mandiri Sekuritas Estimate)

1

2

2

3

3

4

Jan-10

Feb-10

Mar-10

May-10

Jun-10

Jul-10

Sep-10

Spread 1/10yr

yield (ppt)

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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)

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, yielding9.15%. 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.

Figure 7. Foreigners Still Bullish on Rupiah Bond Market (IDR bn).(Source: DMO)

Net Buy/Sell

Portfolio

Outstanding Weekly

1 Month-

to-date

2 Month-

to-date

3 Month-

to-date

Year-to-

date

TTM 0-2yr 22,499 560 -790 870 5,751 12,564

TTM 2-5yr 32,601 -134 98 864 3,969 11,240

TTM 5-10yr 26,139 553 76 9 66 2,681

TTM >10yr 98,834 2,173 2,698 6,110 8,232 45,591

TOTAL 180,073 3,152 2,082 7,852 18,018 72,076

as of 24-Sept, foreign holding stood at IDR180tn, accounting for 28% of total outstanding value

Figure 8. Foreigners Portfolio in Government Bonds Portion by Tenor (%).(Source: DMO)

Tenor (yrs) Dec-08 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 24-Sep-10

0-2 7.05 9.20 9.83 9.38 9.39 8.79 8.43 10.33 12.56 13.08 12.49

2-5 23.26 19.78 18.08 18.08 16.35 15.52 14.54 17.67 18.43 18.26 18.10

5-10 16.89 21.72 23.37 23.77 22.79 21.34 20.70 16.09 15.17 14.64 14.52

>10 52.80 49.30 48.73 48.77 51.46 54.35 56.33 55.91 53.84 54.01 54.89

TOTAL 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

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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.

Figure 9. Government bonds scheduled: seven bond auctions left until year-end. (Source:

DMO)

Auction Date

ON 6, 11, 21 year

SPN 1 year5-Oct-10 IFR 5, 7, 10, 15, 20 year

ON 11, 20 year

SPN 1 year

ON 15, 20 year

SPN 1 year

ON 5, 11 year

SPN 1 year

ON 20, 30 year

SPN 1 year

14-Dec-10 ON 15, 30 year

(Revised) SPN 1 year

9-Nov-10

23-Nov-10

Bond Series

28-Sep-10

12-Oct-10

26-Oct-10

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Outlook: Inflation and bond auctions the main factors to bewatched 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% y-

o-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.

Figure 10. Government has issued IDR142.4tn or more than 87% of the target this year.(Source: DMO and Mandiri Sekuritas Estimate)

2008 2009 2010F 2010F* 2010 YTD Remaining*

Budget deficit (% of GDP) (2.10) (2.40) (2.10) 1.50

Net Issuances 86.0 99.3 107.5 92.5 93.9 (1.4)

Domestic Bonds 46.6 97.3 140.1 125.1 123.8 1.2

Global bonds 39.3 46.7 38.0 38.0 18.6 19.5Redemption+buybacks (40.3) (44.7) (70.6) (70.6) (48.5) (22.1)

Gross Issuances 126.3 144.6 178.1 163.1 142.4 20.7

Domestic Bonds 87.0 97.3 140.1 125.1 123.8 1.2

Convebtional FR/VR 46.5 54.5 59.4

T-bills/ZC bonds 19.6 25.2 32.8

Retail bonds (ORI & Sukuk) 16.2 8.5 16.0

Domestic sukuk 4.7 5.8 4.8

Private placement - 3.2 10.8

Global bonds 39.3 46.7 38.0 38.0 18.6 19.5

Yankee bonds 39.3 36.1 18.6

Global sukuk - 7.0 -

Samurai bonds - 3.6 -

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Indonesia is currently playing a very insignificant role in theglobal 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.

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).

Reviewing the Efforts towards Sugar Self-Sufficiency 2014M. Ajie Maulendra ([email protected]),

Figure 11. Outlook of the global supply-demand of sugar. The Global Consumption of Sugarincreases on average by 2.1% during the last four years, which is not balanced by the growth ofsugar production of only 1.1% on average during the same period. (Source : Virtual MetalsGroup Research).

166.1 167.1

153

159.9

167.1

164.3

160.7

156.9

2006/2007 2007/2008 2008/2009 2009/2010

Consumption Production

Million tonMillion ton

Global Sugar Production &

Consumption (mn ton) Sugar Production by Countries

China

9%

Thailand

5%

Others

24%

India

11%

Brazil

24%

Indonesia

2%

USA

5%

Australia

3%

Mexico

3%

Russia

2%Pakistan

2%

W. Europe

10%

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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.

Figure 12. Per Capita Consumption of Sugar. Indonesia is very likely to become a large sugarconsuming country despite the fact that the current per capita consumption of sugar is stillrelatively low. Such condition is caused by strong domestic market and the growth of food andbeverage industry. (Source: LMC International, Depperin)

11.2

20.6

23

35.6

49.6

44.3

30.5

36.4

62.5

18.9

China

India

Pakistan

Thailand

Australia

Mexico

US

EU

Brazil

Indonesia

Food &BeverageIndustry

23%

OtherIndustrie

s7%

Households

70%

Sugar Consumption per Capita

(kg/year)Sugar Consumption by

Sector

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Sugar needed by industries, especially food and beverageindustry, 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.

Figure 13. Domestic demands for sugar. The consumption of sugar by industries during theperiod of 2000-2009 has increased by 11.6%, higher than the increase in the growth ofhousehold sugar consumption by 2% during the same period. (Source: Ministry of State-ownedenterprises in agroindustry sector)

Indonesia Sugar Consumption

(mn ton)

2.

46

2.

51

2.

55

2.

60

2.

65

2.

70

2.

75

2.

96

0.

8

0.

97

1.

04

1.

11

1.

27

1.

37

1.

45

1.

51

2.

04

2.

15

2.

26

2.

74

2.

29

2.

33

2.

37

2.

42

3.093.3 3.41

3.533.73 3.88

4 4.11

4.69 4.855.01 5.7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2014F

Household Consumption Industry Consumption

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 thattheir production is no longer optimal. (Source: Ministry of Trade and Industry, Ministry of State-owned enterprises)

1617

2031.3

2217.72307

2448.1

27042624.1

2400

2003 2004 2005 2006 2007 2008 2009 2010F

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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 revisedthe 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 isstill 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.

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Domestic needs of sugar (household and industries) arecurrently 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 atsome 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

Figure 15. Refined sugar. Domestic sale of refined sugar is only to industries and it does notaffect the market of white crystal sugar as confirmed by the Minister of Trades in Decree ofIndustry and Trade No.527/MPP/Kep/9/2004. This is further confirmed in the letter of theMinister of Trade to refined sugar producers Number 111/M-DAG/2/2009 dated 6 February2009. (Source: Indocommercial, Ministry of Trade)

330.5380.5

722

1138.2

1445.2

1256.4

2031.8

2257

2003 2004 2005 2006 2007 2008 2009 2010F

Refined Sugar Production

(thousands ton)

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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.

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 sugarindustry, 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

Figure 16. Sugar concentrate. In 1940s sugar concentrate could reach more than 10% One ofthe factors was efficiency whenever sugar mills could not obtain supply of raw materials duringmilling season. (Source: Bahari, Anonymous, DGI, Ditjenbun )

Sugar Concentrate (%)

0

2

4

6

8

10

12

14

1930 1940 1955 1965 1975 1985 1995 1997 1999 2001 2003 2009

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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 hasprepared 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.

Figure 17. New investment plan in Sugar Mills. Investment required for building one sugar millwith a capacity of 15,000 TCD is in the amount of IDR 1.5 trillion, while sugar mill with a capacityof 10,000 TCD requires IDR 1 trillion and sugar mill with a capacity of 6,000 TCD needs IDR 600billion.(source : Indonesian Sugar Association)

CompanyPotential Reserve

Area (ha)

Capacity

(TCD=Ton Cane

per Day)

Province Development Plan

PT. Wilmar 10000 8000 Merauke (Papua) 2011 2013

PT Bakrie Sumatera 50000 12000 Merauke (Papua) 2011 2013

PT Rosan Kencana Perkasa 19000 6000-10000 Mojokerto (East Java) 2010 2011

PT Bina Muda Perkasa 12000 8000 Konsel (South East Sulawesi) 2010 2012

PT Gemilang Unggul Luhur Abadi 21000 6000-8000 Tuban (East Java) 2011 2013

PT Gula Manis Tinanggea 10000 8000 Konsel (South East Sulawesi) 2011 2013

PT Permata Hijau Resources 5000 4500 Sambas (West Kalimantan) 2010 2012

PT Bina Muda Perkasa 20000 8000 Rembang (Central Java) 2010 2012

PT Sumber Mutiara Indah Perdana 20000 5000-10000 P.Rupat-Riau Islands 2009 2010

PT Duta Plantation Nusantara 4500 4500 Malang-Blitar (East Java) 2011 - 2013

PT. Sukses Mantap Sejahtera 15000 12000 Dompu (West Nusa Tenggara) 2010 2012

PT. Semesta Berjaya 18000 6000-8000 Damasraya (West Sumatera) 2010 2011

PT. Tripanca Group 7500 4000 Lamput (Lampung) 2009 2011

PT. ECO X Energy Jaya 1000 5000-10000 Rembang (Central Java) Preliminary Study

PT. Cipta Agung Manis 18000 10000 Konsel (South East Sulawesi) Preliminary Study

PT. Sumber Mutiara Indah Perdana 36000 5000 Maros (South Sulawesi) Preliminary Study

PT. Santos Jaya Abadi 7000 5000 Konsel (North Sulawesi) Preliminary Study

PT. Nurindo Trade 5000 2000 Kampar (Riau) Preliminary Study

PT. Sabda Agung Yamato Persada 18000 8000 Rembang (Central Java) Preliminary Study

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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, anotherimportant 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.

Figure 18. Movements of sugar prices. In 2010, it is projected that there would be a deficit inthe global production of sugar which would increase international sugar prices. Domestic priceof white crystal sugar in the first 6 months of 2010 has already increased by 43% (yoy). (Source:USDA, CEIC )

Internationa Sugar Price

(USD/lb)

Domestic White Crystal

Sugar price (IDR/kg)

19.59

25.94

0

5

10

15

20

25

30

35

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Raw Sugar White Sugar

0

2,000

4,000

6,000

8,000

10,000

12,000

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

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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.

Growing tire marketWe expect that robust domestic automotive sales will lead tostrong demand in tire replacement, around 70% of totalMultistradas tires sales come from replacement market. Byend 2010, outstanding cars in Indonesia may reach 19 millionand around 60 million of motorcycles. Gaikindo estimates carsales 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 28,500tire/day in 2012 from 14,200 tire/day by end 2009.

Multistrada Arah Sarana: Indonesians Tire ManufacturerMaria Renata ([email protected])

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

27.7% 14.9% 7.3% 50.1%

Public

PT Multistrada Arah Sarana Tbk

PVP XVIII Pte.Ltd.,

Singapore

Prudent Capital Ltd.,

Malaysia

The Bank of New

York Melon, US

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Meanwhile, motorcycle tire capacity is targeted to rise to16,000 /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 fromdomestic and foreign players, foreign exchange rate volatility(as Multistradas revenue and cost mainly based in US dollar).

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.

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

Op profit

FY10F FY11F FY10F FY11F CAGR 05-11F

Continental CTTAY US 18.8 14.2 na na 5.9%

Michelin ML FP 11.0 9.2 5.4 4.8 1.7%

Bridgestone BRDCY US 12.7 11.7 0.0 0.0 -53.2%

Pirelli PC IM 29.4 13.7 7.1 6.3 2.0%Goodyear GT US 25.1 7.4 4.8 3.5 2.1%

Gajah Tuggal GJTL IJ 9.5 7.7 6.1 5.3 23.6%

Multistrada Arah Sarana MASA IJ 11.1 10.1 7.7 6.5 167.0%

Simple average 16.8 10.6 5.2 4.4 21.3%

Company nameBloomberg

ticker

P/E EV/EBITDA

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

FINANCIAL SUMMARY

YE Dec (IDR bn) 2008A 2009A 2010F 2011F 2012F

EBITDA 265 310 369 605 680

Net Profit 3 175 183 213 286

EPS (IDR) 0 29 30 35 47

EPS growth (%) (91.50) 5,779.6 4.5 16.4 34.5

P/E Ratio (x) 720.1 12.2 11.7 10.1 7.5

EV/EBITDA (x) 10.9 8.9 7.7 6.5 5.5

P/B ratio (x) 1.7 1.5 1.3 1.2 1.1

Dividend Yield (%) 0.4 0.0 2.4 2.3 3.0

ROAE (%) 0.2 12.7 12.0 12.7 15.4

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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.

Figure 22. Car Tires Production Capacity and Utilization Rate. (Source: Company, Mandiri SekuritaEstimates).

0

5,000

10,000

15,000

20,000

25,000

30,000

2007 2008 2009 2010F 2011F 2012F

0%

20%

40%

60%

80%

100%

Ins ta ll ed ca pa ci ty - da il y Uti li za ti on ra te

tire/day

Figure 23. Motor Tires Production Capacity and Utilization Rate. (Source: Company, MandiriSekuritas Estimates).

0

2,000

4,000

6,000

8,000

10,000

12,000

2007 2008 2009 2010F 2011F 2012F

0%

20%

40%

60%

80%

100%

Ins tal led ca pa ci ty - dai ly Uti li za ti on ra te

tire/day

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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.

Indonesia motorcycle sales.

Motorcycles are the common means of daily transportation of

the Indonesian people to avoid traffic jams in big cities and

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

534

319

433

604

483

600680

780

890

1,050

1,250

0

200

400

600

800

1,000

1,200

1,400

2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F 2014F 2015F

000 unit

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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.

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.

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.

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

1,427

1,6291,749

1,412

12181,329

1,5931,712

1,650

1,949

0

400

800

1,200

1,600

2,000

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10

000

Figure 26.Indonesias Tire Production and Export Volume. (Source: APBI).

36.038.0

41.943.9

37.741.0

28.032.0

26.529.9 29.0

32.0

0

10

20

30

40

50

2005 2006 2007 2008 2009 2010F

Production Export

mn units

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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.

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.

Figure 27. Indonesias Tire Production and Export in Value. (Source: APBI).

669 676

949

1,193

1,0411,133

520 570600

813 800 885

0

300

600

900

1,200

1,500

2005 2006 2007 2008 2009 2010F

Production Export

USD bn

Figure 28. Indonesia PCR Production and Sales Segments by April-10. (Source: APBI).

Car tire yoy (%) Sales Segments Motorcycle tire yoy (%) Sales Segments

Production 16,154 51.7% 12,221 42.0%

Sales 16,241 50.9% 100.0% 12,022 37.0% 100.0%

Replacement 3,407 41.8% 21.0% 6,864 35.0% 57.1%

OEM 1,258 67.2% 7.7% 4,735 42.0% 39.4%

Export 11,577 52.1% 71.3% 423 37.0% 3.5%

000 Unit

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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 tiredistributors 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).

Figure 29.Supply Under Demand. (Source: BPS, Mandiri Sekuritas Estimates).

Tire 4W 2W Total Prod/ 4W 2W Total Prod/

4W 2W Prod. (n-2)*2 (n-1)*1 demand Demand (n-3)*2 (n-2)*1 demand demand

Year (mn) (mn) (mn) (mn) (mn) (mn) (mn) (mn) (mn)

2005 9.6 28.6 36.0 13.5 23.1 36.5 98.6% 12.0 20.0 31.9 112.7%

2006 11.7 33.4 38.0 15.4 28.6 44.0 86.4% 13.5 23.1 36.5 104.1%

2007 15.8 42.0 41.9 19.2 33.4 52.6 79.6% 15.4 28.6 44.0 95.3%

2008 17.6 47.7 43.9 23.3 42.0 65.3 67.2% 19.2 33.4 52.6 83.4%

2009F 18.1 53.6 37.7 31.6 47.7 79.3 47.5% 23.3 42.0 65.3 57.7%

2010F 18.8 60.6 41.0 35.2 53.6 88.8 46.2% 31.6 47.7 79.3 51.7%

Vehicles

Scenario 1 Scenario 2

Estimation Supply Over Demand

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

3.0

3.9

4.5

5.0

1.7

2.8

3.84.2

4.9

1.8

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2005 2006 2007 2008 2009

PCR production PCR sales

mn unit

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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.

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 salesvolume and the remaining around 20% comes from original

equipment sales.

Multistradas motorcycle tires.Figure 32.INDONESIA'S tire Marketshare. (Source: APBI).

Bridgestone

26%

Multistrada

14%

Elang Perdana

7%

Goodyear 3%

SumiRubber/Dunlop

20%

Gajah Tunggal15%

Industri Karet Deli

15%

Figure 31. MULTISTRADA Sales Distribution. (Source: Company).

Domestic (incl.

MC)

26%

Middle East

15%

Europe

17%

America

4%

Asia Pacific

33%

Africa

5%

1Q10

Middle East

18%

Europe

19%

Asia Pacific25%

America

10%

Africa

6% Domestic (incl.MC)

22%

Domestic (i ncl. MC)

Middle East

Europe

Asia Pacific

America

Africa

FY2009

Deleted: Indonesia

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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.

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.

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

Figure 33. MULTISTRADAS MOTOR Cycle Tire Production and Sales. (Source: Company).

0.1

0.8

1.7

0.1

0.8

1.4

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2007 2008 2009

Motorcycle tire production Motorcycle tire sales

mn unit

Figure 34. Net Profit. (Source: Company, Mandiri Sekuritas Estimates).

293

175 183213

286

0

50

100

150

200

250

300

350

2007 2008 2009 2010F 2011F 2012F

IDR bn

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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 widenits product variations with the launch of 22-inches PCR tire

in 2008 and in 2009 the company started to produce 24-

inches 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 .

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

Figure 35. Revenue. (Source: Company, Mandiri Sekuritas Estimates)

887 1,1781,669 1,832

2,6793,264

749

110 252

433

475

0

1,000

2,000

3,000

4,000

2007 2008 2009 2010F 2011F 2012F

PCR (IDR bn) Motorcyc le ti re (I DR bn)

IDR bn

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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.

Figure 36. Rubber Required per Tire. (Source: Company, Mandiri Sekuritas Estimates)

Weight per

tire (kg)

ASP FY09

(USD/tire)

Rubber Cost per

tire* (USD/tire)

Rubber gross

profit margin (%)

Car tyres

13" 6.90 20.7 15.5 25.0

14" 7.90 27.7 17.8 35.9

15" 9.00 32.9 20.3 38.4

16" 9.80 40.7 22.1 45.8

17" 10.10 40.3 22.7 43.6

18" 11.29 45.1 25.4 43.7

19" 11.66 51.5 26.2 49.1

20" 12.79 55.5 28.8 48.1

22" 19.68 75.6 44.3 41.4

24" 20.16 106.3 45.3 57.3

Motor tyres

14" 2.10 7.8 4.7 39.4

17" 2.25 7.3 5.1 30.6

18" 3.50 9.9 7.9 20.3

*) Assume rubber price @USD2.25/kg

Figure 37. PCR Sales volume. (Source: Company, Mandiri Sekuritas Estimates)

0

2,000

4,000

6,000

8,000

10,000

2007 2008 2009 2010F 2011F 2012F

13" 14" 15" 16" 17" >18"

000 unit

CAGR 18.9%

3,8084,368

4,899

5,980

8,1559,061

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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 2010F-

2012F. Around 80% of total motorcycle sales are contributed

by the 17-inches tire.

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

Figure 38. PCR Sales Breakdown by Type. (Source: Company, Mandiri Sekuritas Estimates)

24% 22% 18% 18% 18% 18%

28%26%

25% 25% 25% 25%

26%21%

20% 20% 20% 20%

8%11%

13% 13% 13% 13%

8% 9% 10% 10% 10% 10%

5% 8% 10% 10% 10% 10%

0%

20%

40%

60%

80%

100%

2007 2008 2009 2010F 2011F 2012F

13" 14" 15" 16" 17" >18"

Figure 39. Motorcycyle Sales Breakdown by Type. (Source: Company, Mandiri Sekuritas

Estimates)

0

1,000

2,000

3,000

4,000

5,000

6,000

2007 2008 2009 2010F 2011F 2012F

14" 17" 18"

000 unit

128

808

1,372

3,465

5,544 5,544

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IDR122.8bn (+59.7%yoy). Hence, net profit was IDR89.4bn, up

37.1%yoy.

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%.

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

Figure 40. 1H10 Results. (Source: Company, Mandiri Sekuritas Estimates)

IDR bn 1H10 1H09 2Q10 1Q10 YoY(%) QoQ (%) FY10F % to FY10F

Total revenue 1,007 814 486 521 23.8 (6.6) 2,084 48.3

Gross profit (Loss) 213 156 94 120 36.7 (21.6) 463 46.1

Operating profit (Loss) 123 77 53 70 59.7 (24.7) 254 48.3

Pre-tax profit (Loss) 115 87 46 69 32.6 (33.6) 244 47.2

Net profit (Loss) 89 65 34 55 37.1 (37.4) 183 48.9

Gross margin (%) 21.2 19.2 19.3 23.0 22.2

Operating margin (%) 12.2 9.5 10.8 13.5 12.2

Pre-tax margin (%) 11.4 10.7 9.4 13.3 11.7

Net margin (%) 8.9 8.0 7.1 10.6 8.8

Figure 41. Fund Needed and Resources. (Source: Company, Mandiri Sekuritas Estimates)

CIMB Niaga

HSBC

BII

UniCredit,

German

Expansion:

USD182mn

Cash internal:

USD27 mn

Bank loans:

USD155mn

Working Cap. :

USD30mn

Bank loans:

USD30mn

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the agreed repayment schedule. We estimates Multistradas

net gearing ratio for 2011F will increase to 1.02x from 0.45x in

FY10F.

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.

Figure 42. Net Gearings. (Source: Company, Mandiri Sekuritas Estimates)

742635 714

1,7951,628

1,285

1,4601,590

1,748

1,970

0

500

1,000

1,500

2,000

2,500

2008 2009 2010F 2011F 2012F

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Net Debt (LHS) Equi ty (LHS) Net gea ring (RHS)

IDR bn x

Figure 43. Net Cash From Operation vs Net Cash From Investing. (Source: Company, MandiriSekuritas Estimates)

(5)

(100)

166203224

331

(407)

(117) (230)

(1,192)

(1,500)

(1,200)

(900)

(600)

(300)

0

300

600

2008 2009 2010F 2011F 2012F

Net cash from operation Net cash from investing

IDR bn

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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.

Figure 44. Tire Price Comparasion (Source: Mobilmotor No. 16/ 4-17 August 2010)

Width/thick/rim GT Radial Michelin Multistrada Bridgestone

165/65/R13 Champiro BXT 165/65 R13

IDR507,000

XM1 165/65 R13 77H

IDR523,000

Platinum 165/65 R 13H

IDR445,000

-

175/70/R13 Champiro GTR 175/70 R13

IDR484,000

XM1 175/70 R13 82H

IDR512,000

Platinum 175/70 R13H

IDR445,000

Techno 175/70/SR13 S-350T

IDR853,000

185/70/R13 Classiro 185/70 R13

IDR543,000

XM1 185/70 R13 86H

IDR546,000


IDR490,000

-

1 95/7 0/ R1 4 Champiro GTR 378 195/7 0 R14

IDR694,000

Energy XM1 195/70 R14 91H

IDR637,000


IDR600,000

Techno 195/70/SR 14 S-236T

IDR921,000

175/65/R14 Champiro BXT 175/65 R14

IDR534,000


IDR627,000

Platinum 175/65 R 14 H

IDR492,000

B-series 175/65/TR 14 B-391T

IDR803,000

185/70/R14 Champiro GTR 175/70 R13

IDR484,000


IDR608,000


IDR539,000

B-series 185/70/SR 14 B-250T

IDR787,000

185/55/R15 Champiro 185/55 R15

IDR658,000

Pilot Preceda PP2 185/55/R15 82V

IDR907,000

Corsa 185/55 R 15 H

IDR681,000

Potenza 185/55/VR15 E-030T

IDR1,306,000

195/55/R15 Champiro 195/55 R15

IDR664,000

Pilot Preceda PP2 195/55/R15 85V

IDR882,000

Corsa 195/55 R 15 H

IDR710,000

Turanza 195/55/VR 15 ER-30T

IDR1,136,000

205/65/R15 Champiro GTX 205/65 R15

IDR798,000

Primacy LC 205/65/R15 94V

IDR943,000

Strada 205/65 R 15 H

IDR711,000

Regno 205/65/HR 15 S-325T

IDR1,188,000

205/55/R16 Champiro 205/55 R16

IDR782,000

Pilot Preceda PP2 205/55/ZR16 91W

IDR1,129,000

Corsa 205/55 R 16W

IDR785,000

Turanza 205/55/VR 16 ER-30T

IDR1,735,000

215/55/R16 Champiro 215/55 R16

IDR804,000

Pilot Preceda PP2 215/55/R16 93W

IDR1,475,000

Corsa 215/55 R 16W

IDR878,000

-

225/55/R16 Champiro 225/55 R16

IDR883,000

Pilot Preceda PP2 225/55/ZR16 95V

IDR1,341,000

Corsa 225/55 R 16W

IDR910,000

-

2 05/ 50/ R1 7 Champiro HPX 205 /50 ZR17IDR984,000

Pilot Sport3 205/50 ZR17 89WIDR1,194,000

Corsa 2233 205/50 R 17WIDR934,000

-

2 15/ 45/ R1 7 Champiro HPX 215 /45 ZR17

IDR1,088,000

Pilot Sport3 215/45 R17 91W

IDR1,250,000

ATR Sport 215/45 R 17W

IDR910,000

Potenza 215/45VR 17 RE-050

IDR2,758,000

2 45/ 45/ R1 7 Champiro HPX 245 /45 ZR17

IDR1,305,000

Pilot Sport3 245/45 ZR17 99Y

IDR1,648,000

ATR Sport 245/45 R 17W

IDR1,040,000

Potenza 245/45VR 17 RE-050

IDR3,953,00

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Figure 45. Company Profit and Loss.(Source: Company)

Profit and loss


Revenue 1,334 1,691 2,084 3,112 3,738

Gross profit 291 371 463 708 853Operating profit 176 231 254 396 479

EBITDA 265 310 369 605 680

Net Interest (47) (57) (30) (90) (75)

Interest expense (47) (57) (30) (90) (75)

Interest income 0 0 0 0 0

Forex losses/gains (119) 86 30 (4) (4)

Net other (4) (30) (10) (19) (19)

Pre-tax profit 6 230 244 283 381

Income tax (4) (55) (61) (71) (95)

Others 0 0 0 0 0

Minority interests 0 0 0 0 0

Net Profit 3 175 183 213 286

Figure 46. Company Balance Sheet.(Source: Company)

Balance Sheet


Cash and ST Investment

(incl. cash equiv) 79 14 71 478 547

Acc receivable 98 120 147 220 265

Inventory 356 433 532 789 947

Others 83 168 196 267 311

Current assets 616 735 946 1,754 2,069

Investment 0 0 0 0 0

Fixed assets 1,622 1,693 1,628 2,855 2,754

Others 141 108 288 45 45

Total assets 2,379 2,536 2,862 4,654 4,868

Current liabilities 689 856 1,060 1,173 1,376

Acc. payable 177 246 302 447 537

ST borrowings 448 468 613 580 694

Others 64 142 145 145 145

Long-term liabilities 405 221 212 1,733 1,522

Long-term payable 374 180 172 1,693 1,482

Others 32 40 40 40 40

Total liabilities 1,094 1,076 1,272 2,906 2,898

Shareholder's equity 1,285 1,460 1,590 1,748 1,970

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Figure 47. Company Cash Flow.(Source: Company)

Cash Flow Statement


Operating profit 176 231 254 396 479

Other recurring income/

(Expenses) (51) (87) (41) (108) (94)Depr & Amort 88 80 115 209 201

Other Gain/Loss 0 0 0 0 0

Tax (4) (55) (61) (71) (95)

Change in working capital (96) (30) (94) (256) (156)

Operating Cash Flow 114 138 173 170 335

Capital expenditure (407) (117) (230) 1,192 (100)

Free Cash Flow (293) 21 (57) (1,022) 235

Other investing cash flow 3 1 0 0 0

Cash Flow From

Investing (404) (116) (230) 396 479

Net change in debts 479 (172) 136 1,489 (98)

Equity funds raised 0 0 0 0 0

Other financing cash flow (9) (1) (52) (55) (64)

Cash Flow From

Financing 470 (173) 83 1,434 (161)

Non-recurring income

(Expenses) (119) 86 30 (4) (4)

Net change in cash 61 (65) 57 407 69

Cash at beginning 17 79 14 71 478

Cash at End 79 14 71 478 547

Figure 48. Company Key Ratios and Valuation.(Source: Company)

Key ratios

YE Dec 2008A 2009A 2010F 2011F 2012F

Growth ( yoy)

Sales 48.5 26.8 23.2 49.3 20.1

EBIT 94.5 30.8 10.1 55.9 21.0

EBITDA 61.8 17.2 18.9 64.0 12.5

Net Profit (89.8) 5,779.6 4.5 16.4 34.5

Profitability (%)

Gross Profit Margin 21.8 21.9 22.2 22.7 22.8Oper. Margin 13.2 13.6 12.2 12.7 12.8

EBITDA Margin 19.9 18.3 17.7 19.4 18.2

Net Margin 0.2 10.3 8.8 6.8 7.6

ROAA 0.1 7.1 6.8 5.7 6.0

ROAE 0.2 12.7 12.0 12.7 15.4

Leverage

Net debt/equity (%) 57.8 43.5 44.9 102.7 82.7

EBITDA/Gross Interest (x) 5.6 5.4 12.1 6.7 9.0

Per share data (IDR)

EPS 0 29 30 35 47

CFPS 15 42 49 69 80

BVPS 210 239 260 286 322

DPS 143 15 857 896 1,042

Valuation

YE Dec 2008A 2009A 2010F 2011F 2012FPER (x) 720.1 12.2 11.7 10.1 7.5

EV/EBITDA (x) 10.9 8.9 7.7 6.5 5.5

P/BV (x) 1.7 1.5 1.3 1.2 1.1

P/CF (x) 23.4 8.4 7.2 5.1 4.4

Dividend Yield (%) 0.4 0.0 2.4 2.6 3.0

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A thicker marginPGAS 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 andadditional 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.

Perusahaan Gas Negara: 65.7% gross margin post tariff hikeAri Pitoyo, CFA ([email protected])

Figure 49. Financial Summary.(Source: Company, Mandiri Sekuritas)

FINANCIAL SUMMARY


EBITDA 6,845 8,542 10,628 11,239 11,127

Net Profit 634 6,229 6,403 6,490 6,364

EPS (IDR) 28 274 282 286 280

EPS Growth (%) (59.7) 882.7 2.8 1.4 (1.9)

P/E Ratio (x) 136.1 13.8 13.5 13.3 13.6

EV/EBITDA (x) 14.3 11.0 8.2 7.2 6.7

P/B Ratio (x) 12.1 7.4 5.3 4.2 3.4

Dividend Yield (%) 0.9 1.2 2.2 2.2 2.3

ROAE (%) 9.4 66.1 45.9 35.1 27.7

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Figure 50. 1H10 Results.(Source: Company, Mandiri Sekuritas Estimates)

USD mn 1H10 1H09 2Q10 1Q10 yoy (%) qoq (%) FY10F % of FY10F

Total revenue 9,539 9,005 5,053 4,486 5.9 12.7 18,037 52.9

Gross Profit (Loss) 6,048 5,341 3,323 2,725 13.2 21.9 10,820 55.9

Operating profit (Loss) 4,566 3,930 2,456 2,110 16.2 16.4 7,523 60.7

Pretax profit (Loss) 4,465 4,488 2,009 2,456 (0.5) (18.2) 7,319 61.0

Net profit (Loss) 3,206 3,186 1,435 1,771 0.6 (19.0) 5,372 59.7

Gross margin (%) 63.4 59.3 65.7 60.8 60.0


Pretax margin (%) 46.8 49.8 39.8 54.8 40.6

Net margin (%) 33.6 35.4 28.4 39.5 29.8

Dist. Flow (mmscfd) 827 756 813 841 9.4 (3.3) 810 102.1

Trans. Flow (mmscfd) 848 763 937 758 11.1 23.6 927 91.5

Figure 51. Forecast Changes.(Source: Mandiri Sekuritas Estimates)

Old New % Changes Old New % ChangesIDR bn

Total revenue 4,001.7 4,001.7 - 4,976.1 4,976.1 -

Gross profit (Loss) 1,739.2 1,739.2 - 2,368.8 2,368.8 -

Operating Profit (Loss) 1,075.3 1,075.3 - 1,560.4 1,560.4 -

Net proffit (Loss) 216.9 333.8 53.9 366.1 446.4 21.9

Gross margin (%) 43.5 43.5 47.6 47.6

Operating margin (%) 26.9 26.9 31.4 31.4

Net margin (%) 5.4 8.3 7.4 9.0

Assumptions

Volume distributed (MMSCFD) 65.6 65.6 - 80.5 80.5 -

Volume transmitted (MMSCFD) 68.8 68.8 - 69.8 69.8 -

Average selling pri ce (USD/MMBtu) 33.4 33.4 - 31.5 31.5 -

IDR/USD EOY 8,927 8,927 - 8,927 8,927 -

FY10F FY11F

Figure 52. Company Profit and Loss(Source: Company, Mandiri Sekuritas Estimates)

Profit and loss


Revenue 12,794 18,024 18,766 19,664 20,567

Gross profit 7,566 10,804 12,151 12,834 12,794

Operating profit 4,657 7,676 8,898 9,427 9,258

EBITDA 6,845 8,542 10,628 11,239 11,127

Net Interest (488) (398) (275) (317) (305)



Forex losses/gains (3,014) 1,245 359 0 0

Net other 126 (275) (289) (303) (319)

Pre-tax profit 1,281 8,247 8,693 8,806 8,635Income tax (476) (1,814) (2,171) (2,200) (2,157)

Others 0 0 0 0 0

Minority interests (171) (204) (119) (117) (114)

Net Profit 634 6,229 6,403 6,490 6,364

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Office of Chief Economist Page 36 of 26Figure 54. Company Cash Flow Statement. (Source: Company, Mandiri Sekuritas Estimates)

Cash Flow Statement



Other recurring income/(Expenses) (362) (673) (564) (621) (623)

Depr & Amort 2,187 866 1,730 1,813 1,869


Tax (476) 1,814 2,171 2,200 2,157

Change in working capital (1,520) (466) 716 (254) 224

Operating Cash Flow 4,315 5,384 8,490 8,048 8,457

Capital expenditure (3,355) (581) (165) (179) (179)

Free Cash Flow 960 4,803 8,325 7,869 8,279

Other investing cash flow 0 5 0 0 0

Cash Flow From

Investing (3,355) 576 (165) 9,427 9,258

Net change in debts 4,678 (1,434) (3,247) (457) (290)

Equity funds raised (182) 165 (15) 28 27

Other financing cash flow (175) (1,672) (1,983) (1,965) (1,990)

Cash Flow From

Financing 4,321 (2,940) (5,245) (2,394) (2,253)Non-recurring income

(Expenses) (3,014) 1,245 359 0 0

Net change in cash 2,268 3,112 3,439 5,475 6,026

Cash at beginning 1,232 3,500 6,593 10,030 15,504

Cash at End 3,500 6,612 10,032 15,506 21,530

Figure 53. Company Balance Sheet. (Source: Company, Mandiri Sekuritas Estimates)

Balance Sheet



(incl. cash equiv) 3,500 6,593 10,030 15,504 21,528Acc receivable 1,589 1,650 2,879 3,016 3,155

Inventory 15 14 13 13 15

Others 2,061 2,297 1,171 1,272 1,121

Current assets 7,164 10,555 14,093 19,806 25,819

Investments 0 0 0 0 0

Fixed assets 17,633 17,329 15,763 14,129 12,439

Others 773 786 775 822 867

Total assets 25,570 28,670 30,632 34,757 39,125

Current liabilities 3,198 3,651 3,857 3,838 4,052

Acc. payable 1,288 1,088 1,448 1,501 1,691

ST borrowings 354 995 385 381 381

Others 1,556 1,567 2,024 1,956 1,979

Long-term liabilities 14,302 12,242 9,549 9,095 8,805Long-term payable 14,116 12,069 9,433 8,978 8,689

Others 186 173 117 117 117



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Figure 55. Company Key Ratios. (Source: Company, Mandiri Sekuritas Estimates)

Key ratios

YE Dec 2008A 2009A 2010F 2011F 2012F

Growth ( % yoy)

Sales 45.4 40.9 4.1 4.8 4.6

EBIT 51.1 64.8 15.9 5.9 (1.8)

EBITDA 63.2 24.8 24.4 5.7 (1.0)

Net Profit (59.7) 882.7 2.8 1.4 (1.9)

Profitability (%)

Gross Profit Margin 59.1 59.9 64.7 65.3 62.2

Oper. Margin 36.4 42.6 47.4 47.9 45.0

EBITDA Margin 53.5 47.4 56.6 57.2 54.1

Net Margin 5.0 34.6 34.1 33.0 30.9

ROAA 2.8 23.0 21.6 19.8 17.2

ROAE 9.4 66.1 45.9 35.1 27.7

Leverage

Net debt/equity (%) 135.9 50.6 (1.2) (28.2) (47.4)



EPS 28 274 282 286 280

CFPS 124 313 358 366 363

BVPS 313 517 713 915 1,109

DPS 35 44 82 85 86

Figure 56. Company Valuation. (Source: Company, Mandiri Sekuritas Estimates)

Valuation

YE Dec 2008A 2009A 2010F 2011F 2012F

PER (x) 136.1 13.8 13.5 13.3 13.6

EV/EBITDA 14.3 11.0 8.2 7.2 6.7P/BV (x) 12.1 7.4 5.3 4.2 3.4

P/CF (x) 30.6 12.2 10.6 10.4 10.5

Dividend Y 0.9 1.2 2.2 2.2 2.3

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1H10 results below expectation. ADROs 1H10 revenue ofIDR12.0tn 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.

Adaro Energy: Rupiah AttritionMaria Renata ([email protected])

Figure 57. Financial Summary.(Source: Company, Mandiri Sekuritas)

FINANCIAL SUMMARY


EBITDA 4,832 11,211 8,448 13,877 15,367

Net Profit 887 4,367 2,424 4,638 5,442

EPS (IDR) 28 137 76 145 170

EPS Growth (%) 903.0 392.3 (44.5) 91.3 17.3

P/E Ratio (x) 69.2 14.1 25.3 13.2 11.3

EV/EBITDA (x) 14.3 5.8 7.5 4.3 3.6

P/B Ratio (x) 4.4 3.5 3.1 2.6 2.2

Dividend Yield (%) 0 1 0.9 0.8 1.6

ROAE (%) 11.0 27.8 13.0 21.2 20.8

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Figure 58. 1H10 Results.(Source: Company, Mandiri Sekuritas Estimates)

IDR bn 1H10 1H09 2Q10 1Q10 yoy (%) qoq (%) FY10F

% to

FY10F

% to

Consensus

Total revenue 11,985 12,897 5,706 6,279 (7.1) (9.1) 27,334 52.9 45.3

Gross Profit (Loss) 3,947 5,444 1,701 2,246 (27.5) (24.3) 10,108 55.9 na

Operating profit (Loss) 3,570 4,931 1,513 2,057 (27.6) (26.4) 8,915 60.7 42.2

Pretax profit (Loss) 2,537 4,359 837 1,700 (41.8) (50.8) 7,629 61.0 61.0

Net profit (Loss) 1,153 2,249 292 861 (48.7) (66.1) 3,967 59.7 59.7

Gross margin (%) 32.9 42.2 29.8 35.8 37.0


Pretax margin (%) 21.2 33.8 14.7 27.1 27.9

Net margin (%) 9.6 17.4 5.1 13.7 14.5

ADRO 1H10 Activities report

Coal production (Mt) 21.6 18.0 10.3 11.4 20.2 (37.0) 46.0 47.0

Coal sales (Mt) 21.8 17.8 10.3 11.5 22.0 (10.2) 46.0 47.3

Overburden removal (Mbcm) 106.7 95.5 57.8 48.9 11.7 18.3 230 46.4

Stripping ratio (Bcm/t) 5.50 5.00 5.00 110.0

Figure 59. Adaros Coal ASP.(Source: Company, Mandiri Sekuritas Estimates)

ADARO's Coal ASP

1H10 1H09 yoy (%) FY09

Revenue from coal mining and trading (IDR bn) 11,063 12,173 (9.1) 25,291

Coal Sales Volume (Mt) 21.8 17.8 22.5 41.4

Average exchange rate (Rp/USD) 9,189 11,067 (17.0) 10,398

Actual ASP (IDR/Mt) 507,454 683,877 (25.8) 610,896

Actual ASP (UD/Mt) 55.2 61.8 (10.6) 58.8

Figure 60. Forecast Changes.(Source: Company, Mandiri Sekuritas Estimates)

Forecast Changes

IDR bn Old New % Changes Old New % Changes

Revenue - net 27,334 24,977 (8.6) 33,254 33,723 1.4

Gross profit (Loss) 10,108 7,942 (21.4) 13,232 13,285 0.4

Operating Profit (Loss) 8,915 7,012 (21.3) 11,903 12,230 2.8

Pre-tax Profit (Loss) 7,629 5,387 (29.4) 10,355 10,307 (0.5)

Net proffit (Loss) 3,967 2,424 (38.9) 5,385 4,638 (13.9)

Gross margin (%) 37.0 31.8 39.8 39.4

Operating margin (%) 32.6 28.1 35.8 36.3

Pre-tax margin (%) 27.9 21.6 31.1 30.6

Net margin (%) 14.5 9.7 16.2 13.8

Assumptions

Coal production (Mt) 46.0 46.0 52.0 52.0

Coal sales (Mt) 46.0 46.0 52.0 52.0

ASP (USD/Mt) 60.8 56.3 66.0 67.5

Overburden removal (Mbcm) 33.4 33.4 260 299

Stripping ratio (Bcm/t) 8,927 8,927 5.0 5.8

FY10F FY11F

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Figure 61. Company Profit and Loss(Source: Company, Mandiri Sekuritas Estimates)

Profit and loss


Revenue 18,093 26,938 24,977 33,723 20,567

Gross profit 4,943 11,038 7,942 13,285 12,794Operating profit 4,212 9,928 7,012 12,230 9,258

EBITDA 4,832 11,211 8,448 13,877 11,127

Net Interest (568) (848) (776) (965) (305)



Forex losses/gains (455) 100 (161) (270) 0

Net other (263) (603) (688) (688) (688)

Pre-tax profit 2,925 8,578 5,387 10,307 12,093

Income tax (1,602) (4,119) (2,963) (5,669) (6,651)

Others (499) (43) 0 0 0

Minority interests 64 (49) 0 0 0

Net Profit 887 4,367 2,424 6,490 6,364

Figure 62. Company Balance Sheet. (Source: Company, Mandiri Sekuritas Estimates)

Balance Sheet



(incl. cash equiv) 2,416 11,275 7,967 13,060 15,083

Acc receivable 2,332 2,882 2,775 3,372 3,840

Inventory 305 250 268 322 373

Others 2,804 1,429 1,333 1,773 2,008

Current assets 7,857 15,837 12,344 18,527 21,304

Investments 0 0 0 0 0

Fixed assets 5,924 7,416 8,294 9,047 9,654

Others 19,939 19,213 19,218 18,152 17,002

Total assets 33,720 42,465 39,857 45,727 47,959

Current liabilities 6,722 7,996 8,063 10,675 11,302

Acc. payable 2,602 2,168 2,323 2,787 3,229

ST borrowings 1,734 2,044 2,112 3,951 3,944

Others 2,386 3,784 3,628 3,938 4,129

Long-term liabilities 12,971 16,957 11,885 11,019 8,166

Long-term payable 8,326 13,047 8,015 7,148 4,296

Others 4,645 3,911 3,870 3,870 3,870



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Figure 63. Company Cash Flow Statement. (Source: Company, Mandiri Sekuritas Estimates)

Cash Flow Statement



Other recurring income/

(Expenses) (832) (673) (564) (621) (623)

Depr & Amort 620 866 1,730 1,813 1,869


Tax (1602) 1,814 2,171 2,200 2,157

Change in working capital (64) (466) 716 (254) 224

Other operating cash flow (765)

Operating Cash Flow 1,837 5,384 8,490 8,048 8,457

Capital expenditure (2,193) (581) (165) (179) (179)

Free Cash Flow (356) 4,803 8,325 7,869 8,279

Other investing cash flow (8797) 5 0 0 0

Cash Flow From

Investing (10,990) 576 (165) 9,427 9,258

Net change in debts 3,003 (1,434) (3,247) (457) (290)

Equity funds raised 11,869 165 (15) 28 27

Other financing cash flow (3,180) (1,672) (1,983) (1,965) (1,990)

Cash Flow From

Financing 11,692 (2,940) (5,245) (2,394) (2,253)

Extraordinaries income

(Expenses) (499) (43) 0 0 0

Net change in cash 1,584 8,772 (3,307) 5,092 2,023

Cash at beginning 832 2,416 11,275 7,967 13,060

Cash at End 2,416 11,188 7,967 13,060 15,083

Figure 64. Company Key Ratios and Valuation. (Source: Company, Mandiri Sekuritas Estimates)

Key ratios

YE Dec 2008A 2009A 2010F 2011F 2012F

Growth ( % yoy)

Sales 56.1 48.9 (7.3) 35.0 13.9

EBIT 87.0 135.7 (29.4) 74.4 10.3

EBITDA 85.8 132.0 (24.6) 64.3 10.7

Net Profit 903.0 392.3 (44.5) 91.3 17.3

Profitability (%)

Gross Profit Margin 27.3 41.0 31.8 39.4 38.3

Oper. Margin 23.3 36.9 28.1 36.3 35.1

EBITDA Margin 26.7 41.6 33.8 41.1 40.0

Net Margin 4.9 16.2 9.7 13.8 14.2

ROAA 3.7 11.5 5.9 10.8 11.6

ROAE 11.0 27.8 13.0 21.2 20.8

Leverage

Net debt/equity (%) 54.5 21.8 10.8 (8.2) (24.0)



EPS 28 137 76 145 170

CFPS 47 177 121 196 229

BVPS 438 545 620 749 889

DPS 0 24 17 16 31

Valuation

YE Dec 2008A 2009A 2010F 2011F 2012FPER (x) 69.2 14.1 25.3 13.2 11.3

EV/EBITDA (x) 14.3 5.8 7.5 4.3 3.6

P/BV (x) 4.4 3.5 3.1 2.6 2.2

P/CF (x) 40.7 10.9 15.9 9.8 8.4

Dividend Yield (%) 0 1 0.9 0.8 1.6

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2007 2008 2009 2011 (f) 2012 (f)

Q1 (A) Q2 (A) Q3 Q4 Full Year

National Output (Summary)

Real GDP (% yoy) 6.3 6.1 4.5 5.7 6.2 6.1 6.2 6.0 6.3 6.6

GDP (US$ bn) - nominal 432 511 541.0 - - - - 717 842 956

GDP per capita (US$) - nominal 1,938 2,270 2,590 - - - - 3,055 3,537 3,963

GDP (current price, Rp tn) 3,949 4,954 5,613 - - - - 6,512 7,553 8,762

GDP (constant price at 2000, Rp tn) 1,964 2,082 2,177 - - - - 2,308 2,454 2,616

National Output (By Expenditure), % yoy

Domestic Demand 6.0 7.4 5.4 3.9 4.4 6.4 7.4 5.6 7.0 7.6

Real Consumption: Private 5.0 5.3 4.9 3.9 5.0 5.4 5.5 5.0 5.2 5.4

Real Gross Fixed Capital Formation 9.4 11.8 3.3 7.8 8.0 8.3 10.0 8.6 10.4 12.1

Government Expenditure (%yoy) 3.9 10.4 15

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