indonesia economic prospects and investment opportunities · november, 2016 indonesia economic...

November, 2016

Indonesia Economic Prospects and Investment Opportunities

Anton H Gunawan Chief Economist of Bank Mandiri

Presentation Material

0

Will Indonesian economy keep growing?

• The consumption gradual rebound, but still subdued economic growth • Low inflation and relatively small CA Deficit reflect the weak economy

• BI has started to ease her monetary policy stance – room to further ease is small • Main risks: tax shortfall, thus widening deficit, but still within fiscal rule

1

Indonesia

Brazil

Turkey

South Africa

India

average GDP growth

in 5 years

5.3%

2.9%

6.7%

4.4%

1.0%

2.1%

5.5%

Country

source: IMF world economic outlook, IIF, Bloomberg

Indonesian macroeconomic indicators are mostly better among the EMs

Malaysia

Thailand

average GDP growth in 10 years

4.9%

3.3%

7.5%

3.8%

2.8%

2.6%

5.8%

Current Account Balance

3.4%

9.5%

-1.3%

-4.0%

-1.1%

-3.9%

-2.4%

Fiscal Balance

-3.3%

-0.4%

-7.0%

-1.9%

-8.7%

-3.7%

-1.9%

1.5%

-0.9%

4.3%

7.2%

9.0%

4.6%

3.3%

123.0

93.5

128.6

271.4

270.3

232.0

153.7

Inflation (YoY)

CDS

180

33

501

840

954

686

551

Gov. Bond spread to UST (bps)

2

Country / Elasticity

1.72 1.45 2.15

1.10 0.81 0.90

0.88 0.77 0.85

0.60 0.49 0.27

0.05 0.06 0.11

The global economic growth is still fragile...

... Drives for further monetary easing in major central banks, except for the US.

Commodity price will stay flat to 2017

Global economy is still at risk vs uncertainty, Indonesian economy slow recovery

Indonesia’s economic growth will only slightly better next year…

World

US

EU

Japan

China

2016F 2017F 2016F 2017F

3.1 3.4 2.4 2.8

2.2 2.5 1.9 2.2

1.6 1.4 1.6 1.6

0.3 0.1 0.5 0.5

6.6 6.2 6.7 6.5

US - Fed Funds Rate

EU - ECB Rate

UK - BOE Rate

Japan - BoJ Rate

India - RBI Rate

2016F 2017F

0.65 1.20

0.00 0.00

0.10 0.15

-0.1 -0.2

6.35 6.25

Bank Indonesia

Min. of Finance

IMF

World Bank

Bank Mandiri

4.9 - 5.3 5.1 - 5.5

5.1 5.1

4.8 5.3

5.1 5.3

5.0 5.1

(%) (%, YoY)

(%, YoY) 2016F 2017F

(USD/bbl)

2017F : 51.3

2016F : 48.8

(USD/KG)

2017F : 1.23

2016F : 1.05

(USD/MT)

2017F : 52.3

2016F : 53.4

(RM/MT)

2017F :

2,54

2016F :

2,59

Source: OJK, IMF, World Bank, Bloomberg

Indonesia is more affected by China than the US

3

Indonesia

Brazil

Turkey

South Africa

India

average GDP growth

in 5 years

5.3%

2.9%

6.7%

4.4%

1.0%

2.1%

5.5%

Country

source: IMF world economic outlook, IIF, Bloomberg

Indonesian macroeconomic indicators are mostly better among the EMs

Malaysia

Thailand

average GDP growth in 10 years

4.9%

3.3%

7.5%

3.8%

2.8%

2.6%

5.8%

Current Account Balance

3.4%

9.5%

-1.3%

-4.0%

-1.1%

-3.9%

-2.4%

Fiscal Balance

-3.3%

-0.4%

-7.0%

-1.9%

-8.7%

-3.7%

-1.9%

1.5%

-0.9%

4.3%

7.2%

9.0%

4.6%

3.3%

123.0

93.5

128.6

271.4

270.3

232.0

153.7

Inflation (YoY)

CDS

180

33

501

840

954

686

551

Gov. Bond spread to UST (bps)

4

Three domestic concerns

Four changes in Paradigm

• Economic Slowdown along with low and declining productivity Lacking ease of doing business and industry strategy

• Food Inflation: reducing purchasing power, although headline inflation still benign confusing database and a combination of El Nino (2015)/La Nina (2016) problems

• Financial Sector Stability: volatile markets & weakening banks’ asset quality

• Archipelagic Concept: inter-connectivity and regional development are key parts of the country’s development

• Reducing Dependency on Raw Commodities: including looking for (i) areas of exports & domestic demand expansions, and (ii) new sources of fiscal revenues

• Reallocation of Scarce Resources: transforming general price subsidy program into directly targeted subsidy program (fuel, fertilizer, electricity)

• Promoting Maritime Economy: fishery and tourism services?

Four policy responses

• Fiscal Policy: Expansionary (intention), but relatively Neutral (in reality, thus far). Potential moderate fiscal risks ahead. Need a less restrictive fiscal rule?

• Monetary Policy: Start Easing (lowering rates, injecting liquidity, macro-prudential policies not having a significant impact yet). Transmission channel not fully working yet.

• De-regulation/-bureaucratization and Structural Reform Policies: Can support growth by cutting costs of doing business, and speed up investments.

• Promoting Agglomeration to Develop Special Economic Zones: may need manufacturing based transmigration policy?

Cabinet Reshuffle gives more support for economic reform push

5

Key words are archipelagic concept and inter-connectivity, and SEZ

SEZ : special economic zone

SEZ Tanjung Api-api, South Sumatera

SEZ Sei Mangkai, North

Sumatera

SEZ Tanjung Lesung, Banten

SEZ Mandalika, North Nusa Tenggara

SEZ Palu, Central

Sulawesi

SEZ Bitung, North

Sulawesi SEZ Morotai,

North Maluku

Source : Coordinating Ministry of Economy

Bitung Port Kuala Tanjung

Sea toll route

1

2

3

4

5

1 Belawan

2 Tanjung Priok

3 Tanjung Perak

4 Makassar

5 Sorong

New seaport facilities will improve trade China will build “silk road” through the sea, connecting China - Europe

6

Commodity producing regions got the hardest hit by commodity price bust, which came with a time lag

Economic Growth By Province, 2Q16 (% yoy)

Aceh 3.54

Sumut 5.67

Riau 2.40

Kepri 5.40

Sumbar 5.78 Jambi

3.57

Bengkulu 5.41

Sumsel 5.13

Babel 3.67

Lampung 5.21 DKI

5.86

Banten 5.13

Jabar 5.88

Jateng 5.75

DIY 5.57

Jatim 5.62

Bali 6.53

NTB 9.92

NTT 5.29

Kalbar 4.21

Kalteng 5..72

Kaltim -1.30

Kalsel 3.98

Sulut 6.14 Gorontalo

5.40

Sulteng 15.52

Sulbar 4.57

Sulsel 8.02

Sultra 6.82

Malut 6.64

Maluku 6.48

Pabar 3.38

Papua -5.91

Kaltara 2.26

> 7

5.5 - 7

4 - 5.49 <4

Source: BPS

21 7

Jakarta

% to national GDP

Average GDP growth

West Java Central Java East Java

1983 - 1993

1994 - 2003

2004- 2010

2011- 2015

8.7 3.7

5.1 3.7

2.3 4.1

5.0 2.9

1983 - 1993

1994 - 2003

2004- 2010

2011- 2015

5.1 7.0

2.5 -1.2

0.9 -1.4

1.2 2.1

1983 - 1993

1994 - 2003

2004- 2010

2011- 2015

11.8 8.3

15.3 3.1

9.2 6.1

16.0 6.2

1983 - 1993

1994 - 2003

2004- 2010

2011- 2015

15.7 8.0

15.3 1.9

7.5 5.4

13.3 5.9

1983 - 1993

1994 - 2003

2004- 2010

2011- 2015

10.7 7.0

10.1 3.1

4.4 5.6

8.9 5.3

1983 - 1993

1994 - 2003

2004- 2010

2011- 2015

15.1 6.6

14.5 2.8

8.0 6.2

14.7 6.1

1983 - 1993

1994 - 2003

2004- 2010

2011- 2015

5.5 5.1

5.2 4.9

2.7 3.2

5.5 3.2

1983 - 1993

1994 - 2003

2004- 2010

2011- 2015

5.1 8.3

5.8 4.2

2.7 6.1

4.8 5.9

Aceh

North Sumatera Riau East Kalimantan

Government’s development program will have to cut the disparity between Western and Eastern part of Indonesia

Source : CEIC

1983 - 1993

1994 - 2003

2004- 2010

2011- 2015

NA NA

NA NA

1.34 5.9

1.29 3.55

Papua

8

Aceh 2,05 jt; 8,13%

Sumut 6,17jt; 6,49%

Riau 2,84jt; 5,94%

Kepri 0,83jt; 9,03%

Sumbar 2,43jt; 5,41%

Jambi 1,62jt, 4,66%

Bengkulu 0,96jt; 3,84%

Sumsel 3,89jt; 3,94%

Babel 0,65jt; 6,17%

Lampung 3,85jt; 4,54%

DKI

5jt; 5,77%

Banten

5,23jt; 7,95% Jabar 20,28jt; 8,57%

Jateng 17,16jt; 4,2%

DIY 2,04jt; 2,81%

Jatim 19,65jt; 4,14%

Bali 2,33jt; 2,12%

NTB 2,3jt; 3,66% NTT

2,36jt; 3,59%

Kalbar 2,31jt; 4,58%

Kalteng

1,24jt; 3,67%

Kaltim 1,5jt; 8,86%

Kalsel 1,98jt; 3,63%

Sulut 1,09jt; 7,82% Gorontalo

0,54jt; 3,88%

Sulteng

1,44jt; 3,46%

Sulbar

0,62jt; 2,72%

Sulsel 3,58jt; 5,11%

Sultra

1,17jt; 3,78%

Malut 0,51jt; 3,43%

Maluku 0,68jt; 6,98%

Pabar 0,41jt; 5,73%

Papua 1,69jt; 2,97%

Peta Kontribusi Industri Manufaktur, JumlahTenaga Kerja dan Tingkat Pengangguran Terbuka (2015)

Formulating industrial policy (1) Map of manufacturing and employment

Sumber: BPS,

Keterangan:

(i) Share industri manufaktur per provinsi

> 20% (9 provinsi)

>10% – ≤ 20% (13 provinsi)

≤10 (12 provinsi)

(ii) Angka di tiap provinsi menunjukkan jumlah

tenaga kerja (juta) dan tingkat pengangguran

terbuka (%),

9

33.4 29.9

3.51

Tenaga ListrikYang

Dibangkitkan

Listrik yangDidistribusikan

Defisit/ Surplus

Sumatera

173.37 145.54

27.84

Tenaga ListrikYang

Dibangkitkan


Defisit/ Surplus

Jawa

4.89 6.24

-1.35 Tenaga Listrik

YangDibangkitkan


Defisit/ Surplus

Balnusra

2.26 2.04

0.22

Tenaga ListrikYang

Dibangkitkan


Defisit/ Surplus

Maluku Papua

7.67 7.83

-0,15

Tenaga ListrikYang

Dibangkitkan


Defisit/ Surplus

Sulawesi 10.22

8.35

1,88 Tenaga Listrik

YangDibangkitkan


Defisit/ Surplus

Kalimantan

Peta Nilai Proyek Infrastruktur per Provinsi Sampai Dengan Tahun 2016 (Rp. Trilyun) dan Produksi Listrik per Pulau (Ribu MWH)

Sumber: BCI 2016, BPS dan PLN.

>20 triliun (1 provinsi)

10 − ≤20 triliun (4 provinsi)

1 − 10 triliun (15 provinsi)

≤ 1 triliun (14 provinsi)

Keterangan:

Nilai Proyek Infrastruktur 2016

Formulating industrial policy (2) Map of infrastructures, incl. electricity

10

14,603

13,173

13,500 13,100

GDP growth is expected to reach 5.0% in 2016 and 5.1% in 2017

Inflation will stay at 4.2% next year and BI will keep 7-days RR at low level

USDIDR will be stable at 13,100 until next year

forecast

forecast

Lower inflation and interest rate prior to 2017 will benefit domestic economy in the midst of global volatility

Source : Bloomberg, CEIC, Bank Mandiri forecast

(%)

3.30

9.60

6.50

4.75

2

3

4

5

6

7

8

9

10

1Q1

5

2Q1

5

3Q1

5

4Q1

5

1Q1

6

2Q1

6

3Q1

6

4Q1

6F

Inflasi Yield 10 Yr GB

7 Days RR

4.96

5.04

4.66

5.04

4.92

5.18

5.02 5.00

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

F

forecast

11

GDP growth and value added tax growth

Economic growth slowed in 3Q16 Some questions on the sources

VAT growth back to negative as economic growth slowed

Government spending realization (IDR tn)

9M accumulation of government spending

9M accumulation of material and capital expenditure

Source : CEIC, Ministry of Finance

774

968 1,093

1,235 1,249 1,305

2011 2012 2013 2014 2015 2016

104.5

135.3 155.5 158.1

185.0

241.6

2011 2012 2013 2014 2015 2016

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Jun

-12

Sep

-12

De

c-1

2

Mar

-13

Jun

-13

Sep

-13

De

c-1

3

Mar

-14

Jun

-14

Sep

-14

De

s-1

4

Mar

-15

Jun

-15

Sep

-15

De

c-1

5

Mar

-16

Jun

-16

Sep

-16

VAT growth y-y (LHS) GDP growth y-y (RHS)

12

Cement sales growth (% YoY) Vehicle and motorcycle sales

growth (% YoY) Retail sales index

Mixed performances in some benchmark indicators : seasonal pick up in retail sales

-15

-10

-5

0

5

10

15

Jan-1

5F

eb

-15

Ma

r-1

5A

pr-

15

Ma

y-1

5Jun-1

5Jul-1

5A

ug-1

5S

ep-1

5O

ct-

15

No

v-1

5D

ec-1

5Jan-1

6F

eb

-16

Ma

r-1

6A

pr-

16

Ma

y-1

6Jun-1

6Jul-1

6A

ug-1

6S

ep-1

6

National JakartaJava ex. Jakarta Ex. Java

-505

10152025303540

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

National Jakarta

-50

0

50

100

150

Jan-1

5F

eb

-15

Ma

r-1

5A

pr-

15

Ma

y-1

5Jun-1

5Jul-1

5A

ug-1

5S

ep-1

5O

ct-

15

No

v-1

5D

ec-1

5Jan-1

6F

eb

-16

Ma

r-1

6A

pr-

16

Ma

y-1

6Jun-1

6Jul-1

6A

ug-1

6S

ep-1

6

National Greater JakartaRest of Java Ex. Java

Ramayana SSSG (% MoM) Aces Hardware SSSG (% MoM) Matahari Dept. Store SSSG (% YoY)

Greater Jakarta : -2.7

National : +5.4

Jakarta : -3.3

National: -4.9

National: +40 (2Q16)

19.5 6.8 3.1

1.9

9.0

-2.7

Sep

-14

De

c-1

4

Mar

-15

Jun

-15

Sep

-15

De

c-1

5

Mar

-16

Jun

-16

Sep

-16

11.6 0.1

-8.9 -1.7

-27.7

-7.8

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

Vehicle sales Motorcycle sales

177.50 190.10

218.70 206.7

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

13

-30%-25%-20%-15%-10%

-5%0%5%

10%15%20%

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

De

c-1

5

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

IDR1-2 mn IDR2-3 mn IDR3-4 mn

IDR4-5 mn >IDR5 mn

80

90

100

110

120

130

140

150

Jan

-13

Ma

r-13

Ma

y-1

3

Jul-

13

Se

p-1

3

No

v-1

3

Jan

-14

Ma

r-14

Ma

y-1

4

Jul-

14

Se

p-1

4

No

v-1

4

Jan

-15

Ma

r-15

Ma

y-1

5

Jul-

15

Se

p-1

5

No

v-1

5

Jan

-16

Ma

r-16

Ma

y-1

6

Jul-

16

Se

p-1

6

Expectation : Income Expectation : Business Condition

Expectation : Employment

80

90

100

110

120

130

Jan

-13

Ma

r-13

Ma

y-1

3

Jul-

13

Se

p-1

3

No

v-1

3

Jan

-14

Ma

r-14

Ma

y-1

4

Jul-

14

Se

p-1

4

No

v-1

4

Jan

-15

Ma

r-15

Ma

y-1

5

Jul-

15

Se

p-1

5

No

v-1

5

Jan

-16

Ma

r-16

Ma

y-1

6

Jul-

16

Se

p-1

6

CCI CCI : Present Situation CCI : Expectation

Consumer Expectation Index Growth by groups of monthly expenditures (%)

Consumer Confidence Index Growth by Groups of monthly expenditures (%)

Consumer Confidence Index (CCI) Consumer Expectation Index

Source: Bank Indonesia, CEIC

Oct

-1

6

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

De

c-1

5

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

IDR1-2 mn IDR2-3 mn IDR3-4 mn

IDR4-5 mn >IDR5 mn

Oct

-1

6

Consumer confidence had improved in October...

Expectation of almost all groups of consumers picked up

14

Sector Current Market

Demand Assessment b)

Indicator Growth (%, yoy)

Notes Jan-Juni 2015 2015 Jan-Juni 2016

Retail Positive Ramayana sales -4.0 b) -2.0 6.9 a)

Consumer confidence is flat Ace Hardware sales 3.4 b) 4.7 5.2 a)

Automotive Neutral

Total car sales -18.2 -16.1 1.2

Consumer confidence is flat Commercial vehicle -15.4 -16.6 -30.0

Passenger vehicle -19.1 -16.0 12.5

Total motorcycle sales -24.1a) -17.6a) -9.1a)

Property Negative Total Marketing Sales of eight companies

24.4 -4.3 -39.8 Consumer confidence is flat and interest rates are still high

Cement Positive Total sales -3.6 b) 0.9 4.0 a) Sales growth is supported by

government infrastructure projects

Heavy Equipment

Negative

Total sales -37.7 -39.5 -24.7 Demand from commodity sector has not yet fully recovered even

though commodity prices increased

Forestry segment -7.6 -9.3 -48.3

Agro segment -60.4 -63.2 -46.8

Mining segment -44.4 -49.9 -45.1

Construction segment -26.8 -22.3 19.9

Sea Transport Negative Loading and unloading activities in the 5 main ports

-7.6 -8.2 -9.8 Volume of trade has not yet

increased, especially in commodities sector

Oil Negative CAPEX (Investments) n.a. -2.6 -14.9 c) Oil price is still low

CPO Negative Volume of exports 24.1 a) 15.6 -17.2 CPO price has consistently increased but still needs time to impact the export performance Value of exports 5.3 a) -11.9 -22.0

Coal Negative Volume of exports -5.4 -7.8 -8.2 Coal price remains low

Value of exports -17.3 -21.2 -26.2 Notes : a) January-July b) the status is not OCE Industry Rating; c) 2016 plan (full year); n.a. data not available

Industrial sales performance in 1H16: many still in the red territory

15

Production capacity utilization trend Indonesia’s PMI trend

Source : CEIC

...but (Private) Investments have not materially picked up, despite a public capex boost

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

50%

55%

60%

65%

70%

75%

80%

Production capacity utilization Chg, YoY (RHS)

45.0 46.0 47.0 48.0 49.0 50.0 51.0 52.0 53.0 54.0 55.0

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Sep

-16

PMI

Expansion

Contraction

Real gross fixed capital formation growth

4%

5%

6%

7%

8%

9%

10%

2012 2013 2014 2015 9M16

Gross fixed capital formation - YoY

16

Earnings Asset Dec-14 Dec-15 Jun-16

Current 4,309 4,720 4,945

Special mention 143 184 210

Sub standard 13 18 23

Doubtful 14 13 21

Loss 52 68 79

Deteriorating banking sector’s asset quality: NPL still stays above 3.0%. Rising special mention loans due to restructuring and weak economy

Source : Indonesian banking statistics, June 2016

NPL (%) Credit quality (IDR tn) NPL by types and earnings asset

by categories(IDR tn)

Types of Credit Dec-14 Dec-15 Jun-16

Working Capital 43.8 57.3 73.4

Investment 21.2 27.0 34.5

Consumption 14.3 16.6 19.2

2.37%

2.49%

3.11% 3.05%

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

De

c-1

5

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

100

150

200

250

300

350

400

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

De

c-1

5

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Special mention Sub-standard

Doubtful Loss

17

-10.1 -9.6

-6.0 -5.1 -4.8 -4.7

-12

-10

-8

-6

-4

-2

0

2

4

6

8

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

Secondary Income

Primary Income

Services

Goods

CAD

CAD improved... ...due to better trade surplus

-2.02 -2.2

-4.3

% to GDP

-4.3

Source : Bank Indonesia, BPS, Bloomberg

Current Account Deficit showed an improvement in 2Q16 compared to 1Q16 Stable CAD and trade balance surplus have reduced the currency risk

1.1

0.5

1.4

-0.4

-0.2

0.0

1.1

0.9

0.4

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

-0.8

-0.3

0.2

0.7

1.2

1.7

Sep

-14

Oct

-14

No

v-1

4D

ec-

14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5M

ay-1

5Ju

n-1

5Ju

l-1

5A

ug-

15

Sep

-15

Oct

-15

No

v-1

5D

ec-

15

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6M

ay-1

6Ju

n-1

6Ju

l-1

6A

ug-

16

Sep

-16

Tho

usa

nd

s

Trade balance (USD bn)-LHS

Export growth-RHS

Import growth-RHS 14645

13,080

12500

13000

13500

14000

14500

15000

Oct

-15

De

c-1

5

Feb

-16

Ap

r-1

6

Jun

-16

Au

g-1

6

Oct

-16

USDIDR volatility decreases

(USD bn)

18

Tax Amnesty Revenues – The Result thus far

19

Asset Declaration (Rp tn)

Onshore Declaration

Offshore Declaration

(Repatriated)

Offshore Declaration

(Non-Repatriated)

Total Declaration

Proportion of total (%)

Cash and cash equivalents 999.0 96.7 280.7 1376.5 38.5

Short term investments and notes 573.1 18.4 424.6 1016.0 28.4

Land, building, and other fixed asset 380.8 2.1 185.4 568.3 15.9

Payables and inventory 397.9 19.7 54.8 472.4 13.2

Precious metals & other non fixed asset 137.3 0.0 4.7 142.0 4.0

Total 2488.1 137.0 950.1 3575.2 100.0

The objectives: 1. Tax Revenues FY 2016 OK

2. Tax Base Enlargement Somewhat OK

3. Repatriated Money for Economic Growth Not Really

Source; Ministry of Finance

Tax Amnesty – The Result thus far Not so many new tax payers

20

Onshore

declaration;

2488.13; 70%

Offshore

declaration

(Repatriated);

136.99; 4%

Offshore

declaration

(Non-

repatriated);

950.07; 26%

Asset Declaration on Tax Amnesty Program (Rp tn)

Individual

264,507

72%

Corporate /

Institution

76,211

21%

New taxpayers

26,746

7%

Total tax amnesty participants as of Sept16

Proportion to total (%)

Penalty Amount No. of Taxpayers Total Penalty Paid (in

IDR tn) Total Assets (in IDR

tn)

< 1 bn 96.82 24.9 34.2

1bn - < 100 bn 3.17 56.4 50.1

≥ 100 bn 0.01 18.7 15.8

Total 100 100 100

Source; Ministry of Finance

(200)

(100)

-

100

200

300

400

500

4-J

an

-16

13-

Jan

-16

22-

Jan

-16

2-F

eb

-16

12

-Fe

b-1

6

23

-Fe

b-1

6

3-M

ar-

16

15

-Ma

r-1

6

24

-Ma

r-1

6

5-A

pr-

16

14

-Ap

r-1

6

25

-Ap

r-1

6

4-M

ay

-16

17

-Ma

y-1

6

26

-Ma

y-1

6

6-J

un

-16

15-

Jun

-16

24-

Jun

-16

11

-Ju

l-1

6

20

-Ju

l-1

6

29

-Ju

l-1

6

9-A

ug

-16

19

-Au

g-1

6

30

-Au

g-1

6

8-S

ep

-16

20

-Se

p-1

6

29

-Se

p-1

6

10

-Oct

-16

Deposit Facility LF/REPO/STTLEMENT SDBI Swap BI

Reverse Repo SBN SBI 9M+SDBI Term Deposit

Outstanding Banking Liquidity

21

Term structure OMO Open market operation Instruments Outstanding (IDR tn)

224.7tn

Outstanding banking liquidity = Open market operation instrument – Swap BI

Banking Sector Liquidity decreased significantly

Placement at BI’s instrument had decreased by IDR110.3 tn from Aug - Sep

298.7 tn

205.5

-110.3 tn

6.25%6.30%

6.40%

6.85%

6.95%

7.10% 7.15%

5.95%

6%6.10%

6.50% 6.55%

6.65% 6.70%

5.25%

5.45%

5.70%

6.10%

6.30%6.40%

6.50%

5.00%

5.20%

5.45%

5.85%

6.05%6.15%

6.25%

1W RR 2W RR 1M RR 3M SDBI 6M SDBI 9M SBI 12M SBI

TS Dec 2015 TS Jan 2016

TS Aug TS Oct 12 2016

33tn

67tn Term repo injection 34tn

Source: Bank Indonesia

4.5

5.0

5.5

6.0

6.5

7.0

16

-Ap

r

7-M

ay

28

-May

18

-Ju

n

9-J

ul

30

-Ju

l

20

-Au

g

10

-Sep

1-O

ct

Interbank O/N Interbank 1W

Interbank 1M

4.5

5.0

5.5

6.0

6.5

7.0

15

-Ap

r

30

-Ap

r

15

-May

30

-May

14

-Ju

n

29

-Ju

n

14

-Ju

l

29

-Ju

l

13

-Au

g

28

-Au

g

12

-Se

p

27

-Se

p

12

-Oct

JIBOR ON JIBOR 1W JIBOR 1M

22

18.86

17.12

8.24

4

6

8

10

12

14

16

18

20

15

-Ju

n

23

-Ju

n

1-J

ul

15

-Ju

l

25

-Ju

l

2-A

ug

10

-Au

g

19

-Au

g

29

-Au

g

6-S

ep

15

-Se

p

23

-Se

p

3-O

ct

11

-Oct

Interbank money market (IDR tn) JIBOR (%)

There were significant fluctuation in JIBOR O/N & 1W because of tightening liquidity

Interbank money market rate (%)

Tax amnesty period I

Tax amnesty period I

More productive expenditure

• Focusing on infrastructure and social spending • Efficiency in spending for goods • Maintaining the budget for health (5%) and education (20%) • Flexibility in responding economic condition • Mitigation in natural disaster and fiscal risk • Acceleration of budget absorption

Energy

• Continuing the subsidy for Diesel fuel • Closed/targeted distribution of 3kg LPG • Electricity subsidy for Targeted Households (RTS) using an integrated database

(PBDT 2015) Non energy

• Improving the accuracy of subsidy target

• Reformulating the calculation for the General Allocation Fund (DAU) • Improving the allocation, distribution and usage of Revenue Sharing Fund (DBH). • Improving the allocation of Special Transfer Fund (DTK) to accelerate basic

infrastructure development.

• Gradual increase of the Village Fund to fulfill Law No. 6 of 2014, while still considering the fiscal capacity of the state

Subsidies are better targeted

Strengthening fiscal decentralization

Prudent Fiscal Policies: The government has taken several reform initiatives

23

6.25% 6.30%

6.40%

6.85% 6.95%

7.10% 7.15%

4.75%

4.95% 5.20%

5.60%

5.80% 5.90% 6.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

1W RR 2W RR 1M RR 3MSDBI

6MSDBI

9M SBI 12MSBI

TS Dec 2015 TS 21 Oct 2016

LF : 5.5%

DF : 4% (3)

(2)

(1)

-

1

2

3

4

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

Real interest rates : 1.45

The real interest rate is still relatively lucrative for investors

BI has cut policy rate by 150 bps this year

Source: Bloomberg, CEIC

On monetary side: There is still room for loosening monetary policy going forward to support growth

Spread 7D RR and inflation (%)

24

The Rupiah has performed better than peers, and there is still room for strengthening, amid global volatility constraint

Source: Bloomberg, BIS

-21.3%

-13.2%

-5.7%

-3.5%

-3.2%

-2.8%

-2.0%

0.1%

1.0%

3.1%

4.2%

-1.2%

-24% -20% -16% -12% -8% -4% 0% 4%

BRL

JPY

IDR

KRW

MYR

THB

SGD

USD

INR

PHP

CNY

ASEAN avg Local currency/US$

(as of 26 Oct16, YtD)

121

92

112

78

103

85

60

70

80

90

100

110

120

130

140

Mar-11 Feb-12 Jan-13 Dec-13 Nov-14 Oct-15 Sep-16

Broad REER, 2010 = 100

China Indonesia

Korea Russia

ASEAN-5 ex Indonesia Fragile-5 ex Indonesia

Appreciate

Depreciate

Banking Sector Updates

26

5%7%9%

11%13%15%17%19%21%23%25%

Jan-1

3M

ar-1

3M

ay-1

3Jul-1

3

Sep-1

3N

ov-1

3Jan-1

4M

ar-1

4M

ay-1

4Jul-1

4

Sep-1

4N

ov-1

4Jan-1

5M

ar-1

5M

ay-1

5Jul-1

5

Sep-1

5N

ov-1

5Jan-1

6M

ar-1

6M

ay-1

6Jul-1

6

Growth Credit YoY Growth DPK YoY

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Jan-1

3

Apr-1

3

Jul-1

3

Oct-1

3

Jan-1

4

Apr-1

4

Jul-1

4

Oct-1

4

Jan-1

5

Apr-1

5

Jul-1

5

Oct-1

5

Jan-1

6

Apr-1

6

Jul-1

6

Saldo CKPN Kredit (% yoy) - lhs NPL(%) - rhs

Agu

-16

Sumber: Statistik Perbankan Indonesia Agustus 2016

NPL & Impairment on loan (% yoy)

5,6

6,8

16,0

23,1

Agu

-16

3,22

30,9

Sumber: Statistik Perbankan Indonesia Agustus 2016

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Jan-1

3

Apr-1

3

Jul-1

3

Oct-1

3

Jan-1

4

Apr-1

4

Jul-1

4

Oct-1

4

Jan-1

5

Apr-1

5

Jul-1

5

Oct-1

5

Jan-1

6

Apr-1

6

Jul-1

6

9,1

Agu

-16

Banking loan & third party deposit growth (% yoy)

Growth of net profit (% yoy)

NPL and impairment on loans (%yoy)

The economic slow down had caused the loan and funding growth to slowed significantly

Higher NPL also force banks to put higher provision on loan losses

27

Loan to Deposit Ratio (%) Growth of interest income and interest expense (% yoy)

Tight liquidity becomes a big issue when bank plans to accelerate lending higher LDR

Single digit policy still become an issue that may reduce the interest income

82.00

84.00

86.00

88.00

90.00

92.00

94.00

Jan-1

3

Ap

r-13

Jul-1

3

Oct-1

3

Jan-1

4

Ap

r-14

Jul-1

4

Oct-1

4

Jan-1

5

Ap

r-15

Jul-1

5

Oct-1

5

Jan-1

6

Ap

r-16

Jul-1

6

90,0

Tightening liquidity may cause the interest expenses to increase..

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Jan-1

3

Apr-1

3

Jul-1

3

Oct-1

3

Jan-1

4

Apr-1

4

Jul-1

4

Oct-1

4

Jan-1

5

Apr-1

5

Jul-1

5

Oct-1

5

Jan-1

6

Apr-1

6

Jul-1

6

Oct-1

6

Jan-1

7

Apr-1

7

Jul-1

7

Oct-1

7

Interest Expenses growth Interest Income growth

1,1

Potential Trajectory (Illustration)

6,2

NII compression

Impact of tightening liquidity

Impact of single digit

policy in loans

Source: OJK, Indonesian banking statistics

.. and single digit policy still become an issue that may reduce the interest income

28

15.6%

14.31%

5.93% 5%

7%

9%

11%

13%

15%

17%

Sep

-13

De

c-1

3

Mar

-14

Jun

-14

Sep

-14

De

c-1

4

Mar

-15

Jun

-15

Sep

-15

De

c-1

5

Mar

-16

Jun

-16

Deposit growth (YoY) Placement on BI’s instruments

The economic slow down also have an impact to the deposit growth Liquidity had also tightened because of the cash needed for payment in Tax Amnesty Program

(200)

(100)

-

100

200

300

400

500

4-J

an

-16

13

-Ja

n-1

6

22

-Ja

n-1

6

2-F

eb

-16

12

-Fe

b-1

6

23

-Fe

b-1

6

3-M

ar-

16

15

-Ma

r-1

6

24

-Ma

r-1

6

5-A

pr-

16

14

-Ap

r-1

6

25

-Ap

r-1

6

4-M

ay

-16

17

-Ma

y-1

6

26

-Ma

y-1

6

6-J

un

-16

15

-Ju

n-1

6

24

-Ju

n-1

6

11

-Ju

l-1

6

20

-Ju

l-1

6

29

-Ju

l-1

6

9-A

ug

-16

19

-Au

g-1

6

30

-Au

g-1

6

8-S

ep

-16

20

-Se

p-1

6

29

-Se

p-1

6

10

-Oct

-16

Deposit Facility LF/REPO

Swap BI Reverse Repo SBN

SBI 9M+SDBI Term Deposit

Outstanding Banking Liquidity

224.7tn

Outstanding banking liquidity = Open market operation instrument – Swap BI

298.7 tn

205.5

-110.3 tn since tax amnesty

33tn Term repo injection 34tn

29

Indonesian financial services industry is fragmented and there is a limited domestic funding capability transformation is needed

Sources: Bloomberg, Press, United Nation, PwC Strategy& analysis

Fragmented Indonesian Financial

Services Sector

Uneven Distribution of Potential Funding

Sources

Challenges in Indonesian Financial Services Industry

• Compared to ASEAN countries, Indonesia has more Financial Institutions (Banks) with smaller asset size – around 50% banks have asset below USD 1 Bn …

• … which are also relatively inefficient (avg. BOPO of SOE Financial Institutions is at 68.1% in 2015)

• There is uneven distribution of economic activities, and thus level of wealth and utilisation of banking products

• Jakarta and Java are key and contributes to 73% of Indonesian savings – domestic source of funds is mainly obtained from these regions

Funding Requirement for Infrastructure

Projects

• Realization of Govt. strategic infrastructure plan requires IDR 5,452 Tn investment until 2019 …

• … with contribution from BUMNs is expected to be IDR 1,000 Tn – and there is currently an estimated of 70% shortage

Limited FIs Distribution Network / Coverage

• Around 52% of Indonesian population domiciles in suburban areas

• Provinces other than Jakarta & Java contribute only 27% of total savings

• Limited FIs distribution network / coverage could be the main reason

1

2

3

4

30

Investment Opportunity in Indonesia: Direct Investment

31

© PT Bank Mandiri (Persero) Tbk.

56.2 32.1 56.1 32.1 56.3

32.1 54.9 39

Spur investment

Maintain household

cons.

GFCF/investment Household cons.

• Maintain economic stability to promote strong business and investment climate

• Simplify licensing and investment procedures

• Expand the role of non-bank financial institutions in the development of infrastructure financing alternatives

• Harmonize investment regulations between central and local governments

• Consistently improve the involvements of SOE in infrastructure developments

• Increase the role of banking institutions in lending rate development, especially for working capital and investment credit.

2013 2014 2015

Indonesian future economic growth will still be driven by investments

2019 target

Share of growth geared toward investments

Source : MOF

To tackle long term challenges and to create better competitiveness

Government’s strategy to maintain investment and consumption

Strategy to support investment in infrastructure

• Acceleration of infrastructure development

• Business incentive, certainty, supportive environment

• Maintain purchasing power

56.3 32.1


EODB 2017 rank

EODB 2016 rank

Change in rank

Overall 91 106 15

Starting a business 151 167 3

Dealing with construction permit 116 113 12

Getting electricity 49 61 5

Registering property 118 123 5

Getting credit 62 70 8

Protecting minority investors 70 69 1

Paying taxes 104 115 11

Trading across borders 108 113 5

Enforcing contracts 166 171 5

Resolving insolvency 76 74 2

167 174

164

93

111

151 151

175 171

78

121

155

2016 2017

EODB ranks comparison in Emerging Economies

Indonesia’s rank on ease of doing business (EODB)

Indonesia has shown strong improvement in ease of doing business rank in 2017 Improvements across most indicators, but there are works to be done

Source : World Bank


In Indonesia, the New Government will focus on 6 strategic area


Infrastructure in Indonesia needs a total financing of IDR 5.519,4 Tn between 2015-2019 or IDR. 1.100 Tn/year Main sources of fund from State Budget and Private

Infrastructure Needs

IDR. 5.519,4 T

Regional Budget

IDR.545,3T

(9,9%) State Budget

IDR.2.216T

(40,1%)

SOE

IDR.1.066T

(19,3%)

Private

IDR.1.692T

(30,7%)

Share of Total

Value (IDR Tn)

Road 16,0% 883,1

Railway 5,6% 309,1

Oil and Gas 10,1% 557,5

Electricity 19,5% 1076,3

Telematics 5,5% 303,6

Water Utility 8,0% 441,6

Housing 10,5% 579,5

Sea Trans. 17,9% 988,0

Air Trans. 3,3% 182,1

Land Trans. 1,2% 66,2

City Trans. 2,3% 126,9

*National Medium Term Development Plan, Sources: Various

1 Sep 9, 2015

• Deregulation • Strategic project acceleration • Boost low income

housing

2 Sep 29, 2015

• 3-hour permit issuance program

• Elimination of VAT for transport industries

• Integrated logistics facilities

3 Oct 7, 2015

• Lower fuel and electricity prices

• Land permit simplification for investment activities

• Broadening of small business credit recipients

4 Oct 15, 2015 5 Oct 23, 2015

• Fair, simplified and projectable wage system

• Ease and affordability of small business credit

• Lower asset revaluation tax

• Eliminating double taxation for REITs

6 Nov 5, 2015

• Development of SEZs • Ease of water supply • Simplified licensing

for pharmaceutical

7 Dec 4, 2015

• Acceleration of land certification process

• Tax incentive for labor intensive industry

8 Dec 21, 2015

• One map policy • Refinery construction • Incentive for aviation

industry

9 Jan 27, 2016 10 Feb 11, 2016

• Accelerate construction of electricity infrastructure

• Stabilization of meat prices

• Deregulation on logistic sector

• Easing of investment restriction

Structural adjustment policy through the policy packages To boost investment and maintain purchasing power

11 Mar 29, 2016

• Export oriented business credit REITs incentive

• Indonesia single risk management (ISRM)

• Development of pharmaceutical industry

12 Apr 28, 2016

• Simplification of licensing, procedures, duration and cost of starting business in Indonesia

13 Aug 24, 2016

• Acceleration of the development of affordable houses, by reducing, integrating, and accelerating licensing process

Source : MOF 36

Permit &

Licensing

Simplfications

Special

Economic

Zones

Free Visa

Policies

Licensing Incentives

Tax Incentives for

REITS

Tax Incentives and

Relaxed

Regulations on

Property

Income Tax Relief for

Labor

Intensive Industries

Tax Incentives

Debt To

Equity Ratio

Integrated

Logistics

Zones

Simplification of Import

Licensing for Drugs and

Raw Food

Water Management

and Regulation

Support for

Export-Oriented

Industries

Dwelling Time

Optimization Downstream

Industries

Accelerating

Infrastructure

Development

Incentives for Footwear

and Apparel Industries

Oil Refinery

Development

CPO Fund

Aviation Sector

Incentives

Business and Infrastructure Incentives Other

Incentives

Expansion of

Coverage and

Interest Subsidy

for MSME

One

Map

Policy

Improve Ease of

Doing Business Rank

Revise Negative

Investment List and

facilitate FDI

Relaxed Cattle

Imports Accelerate Electricity

Infrastructure

Some Investment Friendly Policy Packages to support the Economy in Summary

Source: Ministry of Finance

37

http://www.freepik.com/free-photos-vectors/cargo

49% 100%

49% 100% 51%

100% 100% 85%

Cold storage Sport center;

Film processing lab; crumb rubber Restaurant; Bars Pharmaceutical Raw Materials

Manufacturing

51% 33% 95% 100%

67%

Toll road operator; Telecommunication Testing

Distribution; Warehousing

Private Museum; Catering; Apparel Manufacturing; Exhibition &

conventions

67%

67% 67% 67%

Professional training; Golf Course Management; Air Transport Support

Services; Travel Bureau

51%

Consultancy for Construction

Telecommunication Provider with Integrated Services

55% 65%

Key reforms in Negative Foreign Investment List

Increase in Allowed Foreign Stake (Before and After Relaxation)

• Revision of “Partnership” category to refer to partnership with micro, small, and medium enterprises (MSMEs)

• Grandfather law : if a particular sector is tighten in the future, existing foreign investor does not need to comply with tighter stake

• Strengthen implementation of negative investment law through active roles from Ministries, Agencies and Regional Governments

Relaxation on Foreign Investment Relaxation of Negative Foreign Investment List will promote healthy competition and growth from investments

Source : MOF 38

QI 2015 QII 2015 QIII 2015 JAN-SEP 2015 QI 2016 QII 2016 QIII 2016 JAN-SEP 2016 Target 2016*) Achievement**)

TOTAL 124.6 135.1 140.3 400 146.5 151.6 155.3 453.4 594.8 76.2%

DDI 42.5 42.9 47.8 133.2 50.4 52.2 55.6 158.2 208.4 75.9%

FDI 82.1 92.2 92.5 266.8 96.1 99.4 99.7 295.2 386.4 76.4%

0

50

100

150

200

250

300

350

400

450

500

550

600

Rp

Tri

llio

n

Foreign Direct Investment posting a higher cummulative amount

Investment Realization in 3Q16

*) 2016 Investment Realization Target, BKPM's Strategic Planning 2015-2019 **) Achievements against 2016 targets

Quarter III 2016

y-o-y q-o-q

DDI 16.3% 6.5%

FDI 7.8% 0.3%

TOTAL 10.7% 2.5%

Jan - Sep 2016 y-o-y

DDI 18.8%

FDI 10.6%

TOTAL 13.4%

DDI: Domestic Direct Investment; FDI: Foreign Direct Investment

The value of investment in Quarter III 2016 is the investment realization during three months period of report (July-September 2016) based on investment realization report from DDI and FDI companies.

Oil and Gas, Banking, Non-Bank Financial Institution, Insurance, Leasing and Home Industry are excluded.

The investment value is in Rp Trillion (T) and the currency rate of US$ 1 = Rp13,900 based on National Budget 2016 for Quarter I and Quarter II 2016, the currency rate of US$ 1 = Rp13,500 based on Revised National Budget 2016 for Quarter III 2016.

Investment realization in Quarter III 2016: Rp155.3 T, increases around 2.5% from Quarter II 2016 (Rp151.6 T) or increases around 10.7% from Quarter III 2015 (Rp140.3 T).

Investment realization in January – September 2016: Rp453.4 T, increase around 13.4% from that in January – September 2015 (Rp400.0 T). 39


Riau IDR 2.7 tn (5.2% of total)

Special Territory of Jakarta IDR 5.2 tn (10% of total)

Metal, Machinery and Electronic Industry USD 0.9 bn (12.5% of total)

Non Metalic Mineral Industry

IDR 8.1 tn (15,5% of total)

Food Industry IDR 7.7 tn

(14.8% of total)

Transportation, Warehouse and Telco

IDR 8.4 tn (16.1% of total)

Domestic Investment by industry Foreign Investment by industry

Domestic Investment by region Foreign Investment by region

Total : 52.1 tn

Total : USD 7.2 tn

Total : 52.2 tn

Construction IDR 6.3 tn

12.1% of total)

Food Croops and Plantation


Others IDR 18.1 tn

(34.7% of total)

Others USD 3.9 bn

(54.2% of total)

Mining USD 0.7 bn (9.7% of total)

Real Estate, Industrial and Office Building

USD 0.6 bn (8.3% of total)

Chemical and Pharmaceutical Industry USD 0.6 bn (8.3% of total)

Food Industry USD 0.5 bn (7.2% of total)

East Java IDR 11.8 tn

(22.8% of total)

Others IDR 17.8 tn

(34.4% of total)

South Kalimantan IDR 5.5 tn

(10.6% of total)

West Java IDR 8.8 tn (17% of total)

Others USD 3.4 bn

(43.6% of total)

Special Territory of Jakarta

USD 1.4 bn (17.2% of total)

Banten USD 0.9 bn (11.7% of total)

East Java USD 0.9 bn (11.5% of total)

West Java USD 0.7 bn (8.3% of total)

Riau USD 0.6 bn (7.7% of total)

Total : 7.2 tn

Source: Indonesia Investment Coordinating Board Source : BKPM

Investment is still concentrated in Java Foreign investor participation in infrastructure development is still low

AGRICULTURE

INFRASTRUCTURE

MANUFACTURE

CONSUMER NEEDS

TOURISM

• Domestic investment target for agriculture in 2019: IDR12.06 Tn • Foreign investment target for agriculture in 2019: USD1.7 Bn • GDP growth for crop plantation is projected at 5.07% in 2019 (the highest in agriculture sector) • Products: crude palm oil, cacao, coconut, rubber, coffee and fishery, and their derivative products

• Funding needs for infrastructure projects (2015-2019 ): IDR 5,452 Tn • Various regulations to accelerate infrastructure project: - Land acquisition: Perpres No. 30/2015 - Infrastructure strategic projects: Perpres No.3/2016 • Products: highway, port and electricity/power-plant • Increasing contribution to GDP (from % in 2015 to 25% in 2019) • Various regulations to attract investment through Economic Policy Package, example relaxing

the negative list of Investment (DNI), reducing industry gas price, etc. • Industries: *) Consumer goods: pharmaceuticals, cosmetics and medical devices, *) Labor intensive industry: textile, leather and footwear, *) Mineral processing : nickel, bauxite, cooper and aluminum *) Transportation vehicles : car and motorcycle *) Electronics and ICT : television, mobile phone, refrigerator and others

• Total retail sales in 2015 USD324 Bn • Increasing e-retail sales contribution • Huge population and middle income class growth • Indonesia is ranked 5th in 2016 Global Retail Development Index • Products: food and beverages • Property: landed houses and apartment

• Number of Tourist Arrivals (from 10,4 million arrivals in 2015 to 20 million in 2019)

• Increasing contribution to GDP (from 10% in 2015 to 15% in 2019) • Rank in Travel & Tourism Index(from 50th in 2015 to 30th in 2019) • Increasing contribution to International reserve (from IDR 144 trillion in 2015 to IDR 275

trillion in 2019) • Products: hotel and shopping center.

Investment opportunities: Industrial prospects in Indonesia

41

Some Evidences on Investment in Indonesia 2016 (1/2): Investment in electricity : Almost half of Electricity Project already have a Power Purchase Agreement (PPA) with PLN

Based on Development Phase – June 2016

Source: PLN, June 2016

Commercial Operation

(170 MW, 1%)

Construction (8,150 MW, 22%)

Power Purchase Agreement

(9,580 MW, 26%)

Procurement (10,705 MW, 29%)

Planning (8,080 MW, 22%)

Contracted/ Already have PPA

17.900 MW, 49% of total

PPA on Progress 18.785MW 51% of total

• Amount of investment needed to finish 35,000 MW Project : USD 31.9 Bio + USD 78.2 Bio = USD 110.1 Bio

• Average amount of investment needed per MW : USD 3.15 mn/MW

42

© PT Bank Mandiri (Persero) Tbk. Source : Company, Colliers International, Mandiri Sekuritas

Some Evidences on Investment in Indonesia 2016 (2/2): Inquiries on industrial land are picking up

Segment Company 9M16 marketing sales (Rp bn)

%YoY Comment

Industrial land Bekasi Fajar 186 -10% BEST has around 60ha of land inquiries coming from consumers, logistics, and plastic industries and is confident to close an additional 13ha of land sales in 4Q16. This should then

bring marketing sales achievement to 20.7ha or 83% of FY16 target (25ha). As of 9M16, the company has only sold 6.7ha of land.

Deltamas 884 -47% DMAS recorded 9M16 industrial marketing sales of 52ha (Rp884bn) above FY16 marketing sales target of 50ha. Additionally, the company has over 100ha of land inquiries coming from

financial-related, sanitary, as well as oil and chemical related companies.

Modernland Realty 232 -83% The company has recorded about 14.3ha of industrial land sales or about Rp232bn as of

9M16. The company has recently formed a JV with Astra Land Indonesia to develop 67ha of land in Jakarta Garden City with a total deal value of Rp3.4tn.

Kawasan Industri Jababeka 236 -20%

As of 9M16, KIJA has booked 32.5ha of marketing sales with about 21.4ha coming from Kendal industrial estate and the remaining 11.1ha sales recorded in Cikarang.

Surya Semesta 2 -66% As of 9M16, SSIA has only sold 1.1ha of industrial land. Limited land bank in Karawang estate might provide risk as SSIA is unable to cater a large chunk of land sales. Worth to note,

launching of Subang industrial land estate is delayed to FY19.

Aggregate industrial estate land sales

-

200

400

600

800

1,000

1,200

1,400

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 9M16

Aggregate industrial estate land sales (Rp bn)

© PT Bank Mandiri (Persero) Tbk. Source : Company, Various media sources, Mandiri Sekuritas

Some notable investments made this year

Notable investments/JVs in consumer-related sector Investment Remarks Mayora Rp1-1.4tn Bottled water plant expansion Kalbe Farma Rp45bn JV Kalbe Blackmores, supplements and vitamins SIDO Rp280bn Extension lines for Tolak Angin Kimia Farma Rp1tn Drugs, pharmaceuticals, pharmacies, and clinics Japfa Comfeed Indonesia USD81.2m KKR injected cash in the form of 10.4% stakes Takasago Indonesia USD19.5mn New factory for food seasonings Ajinomoto Indonesia USD23mn Factory expansion for food seasonings GarudaFood Rp550bn Factories, machines, distribution extension Siloam Hospital (Equity Injection) Rp2.2tn CVC injected cash in the form of 15% equity stakes Transmart (Equity Injection) USD387mn GIC injected cash in the form of 17% equity stakes Mitra Adiperkasa/Starbucks (Equity Injection) Rp1.05 tn General Atlantic injected cash in the form of CB, convertible into 30% equity stakes Go-Jek (Equity Injection) USD550mn Syndicated cash injection led by KKR MatahariMall.com (Equity Injection) US$100mn Mitsui injected cash in the form of 20% equity stakes Lazada USD1bn No disclosures on the amount of cash injected into the Indonesian entity Tokopedia USD147mn

Notable JVs in the property sector Total transaction Size (ha) Partners Partner Ownership (%)

Alam Sutera Rp700-1,000bn n/a China Fortune Land Development Straight land sale

Bumi Serpong Damai Rp1,500bn 19 Mitsubishi 60%

Modernland Realty Rp3,400bn 67 Astra Land Indonesia* 50%

*JV between ASII and Hongkong Land

Company Capacity (mn MT/year) Comment

Indocement 4.4 Officially became operational in Oct'16

Semen Indonesa

Padang 3.0 Completed in Oct'16. Will be commercially operational starting in Jan'17

Rembang 3.0 Almost complete. On hold due to license issue

Semen Jawa 4.4 Up and running starting in 1Q16 Total 14.8

Investment Opportunity in Indonesia: Portfolio Investment

45

46 © Oliver Wyman 46

Emerging Asia, including Indonesia, still has room to grow. With several jumpstarts, Indonesia’s financial sector will close to its peers by 2030

Indonesia 2014 Indonesia 2030 Malaysia India China Thailand

# of listed companies 540 1700 905 1708 2600 613

# of listed companies

(normalized to IDN size)1 540 355 2360 790 215 1400

# of bond issuers 140 550 387 706 3540 134

# of bond issuers

(normalized to IDN size)1 140 115 1008 327 293 307

# of retail investors 450K 6MN NA 25MN 50 MN NA

# of retail investors

(% of population) 0.2% 2% NA 2% 4% NA

Equity to GDP 49% 78% 141% 149% 58% 111%

Bonds to GDP 6% 17% 42% 12% 18% 18%

1. Scaled to Indonesia numbers for 2014 based on relative GDP ratio

Source : Oliver Wyman

-11.8%

13.5%

11.2%

6.7%

16.8%

2.3%

17.9%

-1.3%

6.6%

4.6%

4.3%

*2.0%

8.3%

5.5%

6.5%

10.1%

3.7%

9.8%

5.0%

5.7%

*2.6%

12.8%

5.8%

4.3%

17.1%

5.8%

7.3%

Indonesia

Malaysia

Philippines

Thailand

South Korea

Taiwan

India

China

Asia

average 2010 - 2015

5.2%

15.8%

11.7%

3.1%

1.1%

8.7%

3.8%

2.6%

11.9%

2016 Ytd average 2010 - 2015 2016 Ytd Country

Equity Bond

source: Bloomberg * Taiwan started from 2013

Indonesian capital market is performed better compared to other emerging market

47

17.9

15.5

18.8 18.5

16.8

13.5 12.6

15 14

17.2

15.6 15.5

12.9

11.6

2016 2017

PE ratio comparison (X) PER and PBV in Indonesia Stock Exchange (X)

Sectors

Average

PER PBV

Agricultre 12.2 7.8

Mining 23.0 1.7

Basic industry and chemicals 11.4 1.5

Miscellaneous industry 12.7 1.2

Consumer goods industry 22.4 2.7

Property, real estate and construction 23.6 2.1

Infrastructure, utilities and transportation 12.3 2.3

Finance 22.1 2.0

Trade, services and investment 10.1 2.4

Source : IDX, Mandiri Sekuritas

Prices of Indonesian stocks had already higher compared to other peers

But, it still has wider room to grow

JCI’s 12-month forward PE vs 10Y IDR Bond Yield JCI vs. EPS performance (indexed to 1-Jan-2012)

Source : Bloomberg

Main risk to equity is reversal in the risk-free rate as EPS growth has been muted

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

-

5.0

10.0

15.0

20.0

25.0

Jan

-06

Sep

-06

May

-07

Jan

-08

Sep

-08

May

-09

Jan

-10

Sep

-10

May

-11

Jan

-12

Sep

-12

May

-13

Jan

-14

Sep

-14

May

-15

Jan

-16

Sep

-16

JCI 12-mth forward PE (x) INDO 10Y Bond Yield (RHS)

42%

-10%

50

60

70

80

90

100

110

120

130

140

150

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Sep

-16

JCI INDEX T12M EPS

49

Source : Mandiri Sekuritas

Equity: 2016-17 outlook across sectors

Industry Outlook Key points

Automotive Neutral • 4W industry sales improved slightly in 9M16 (+2%yoy) after 16%yoy drop in 2015. 9M16 2W sales remain weak (-10%yoy)

• Astra and Honda market share improved to 53.9% (from 50.0%) and 19.4% (from 15.4%) respectively at the expense of smaller player (Nissan, Suzuki, etc). Aggressive new product launches this year help support ASII’s sales (+10%yoy).

Banking/Finance Neutral • Industry NPL is near peak in 2016, impact of slow economic growth

• Industry loan growth expected at 7-8% in 2016 and 10-12% in 2017 • Stronger EPS growth in 2017 on lower provisioning charges

Cement Negative • Oversupply situation persists

• Declining margins, higher gearing ratios

Coal Neutral • We expect better earnings for Indonesian coal companies in FY17 on higher coal price due to China supply cut effort

• On the other hand, we think coal at current USD108/ton is too high and is likely to correct to max USD80/ton level on Chinese government attempts to stabilize coal price within the given range. • In addition, China coal demand is still sluggish on economic slowdown and effort to shift towards cleaner source of energy. According to Australia Resources and Energy, china coal import is expected to decline at FY15-FY17F CAGR of 5.3%.

Construction Positive • Full support from the government and rising spending from SOEs should support growth in new projects

• Realization in construction works should improve once major players complete their equity raising • Ability to raise funding would become crucial to sustain high level of growth

Consumer Neutral • Consumption recovery is still on hold as income growth is lacking

• With low inflation and stronger Rupiah, revenue growth is sustainable but margins are at peak

Healthcare Neutral • Pressure on margin from BPJS (on unbranded drugs) and on pricing transparency

• More positive on hospitals due to low penetration rate

Heavy equipment Negative • Strong rally in coal price to >US$100/ton will support equipment demand from mining sector • We have seen stronger demand from mining sector since September 2016 which will continue to 2017 if coal price remains stable at >US$70/ton

Industrial estate Positive • We should see improving investment on the back of better economic policies under the new MoF

• Our channel check suggests improving pipeline for industrial estate with rising confidence for capex spending

50

Industry (2).docx

Source : Mandiri Sekuritas

Equity: 2016-17 outlook across sectors (cont’d)

Industry Outlook Key points

Metal Neutral • Current nickel price (US$10,000/ton) is close to the level in 2009 Global Financial Crisis

• Cautious on nickel outlook on sluggish demand and high inventory level

Media Positive • Improving Adex growth due to rising confidence on ad spending

• Expect rising ads spending on the back of more stabilized Rupiah, high consumer companies margin, and several new product launches from FMCG companies

Plantation Positive • CPO inventory to remain at low level throughout FY16 and will last until 1Q17

• CPO supplies are tight due to El Nino impact, but we expect production recovery in 2017

• Strong export demand especially from China on upcoming Chinese New Year festival

• Biodiesel in Indonesia has worked and absorbed 1.95m MT of CPO (+227% YoY)

Property Positive • Improving marketing sales due to tax amnesty program

• Better government regulations via loosening of second mortgage loan and reduction of final income tax rate

Retail Positive • Expect higher margin led by normalized inventory level and cost efficiency efforts

• Favourable currency and lower minimum wage adjustments should translate into better cost inflation for retailers, mostly the mid-to-high-end retailers (target market unaffected by minimum wages) • Demand recovery is still on hold as income growth is lacking

Telecommunications Positive • Double digit top line growth driven by data (mobile internet). ARPU is trending up due to higher data package and the introduction of 4G will further improve data usage

• Strong cash flows to support network expansions

51

Fixed Income Index Returns: Indonesia’s bonds market performed the best among its peers

YTD 2016 (as of 25-Oct)

52 Source: Bloomberg and Mandiri Sekuritas

-3.2%

-2.8%

3.8%

3.5%

3.2%

3.1%

-1.0%

6.3%

5.9%

5.2%

7.8%

3.4%

4.6%

5.7%

6.1%

12.9%

18.3%

-5.0% 0.0% 5.0% 10.0%15.0%20.0%25.0%30.0%

BBG ASIA Local Sov

BBG China Local Sov

BBG Philippine Local Sov

BBG Taiwan Local Sov

BBG S Korea Local Sov

BBG Malaysia Local Sov

BBG Thailand Local Sov

BBG India Local Sov

BBG Indonesia Local Sov

FX gained/(loss) againstUSD

Total return LCGB

LCY 10 Year Government Bonds

Latest Yield YTD

Change (BP)

MTD Change

(BP)

Japan (0.06) (33) 3

Hong Kong 0.99 (59) (7)

Korea 1.65 (44) 22

Singapore 1.81 (79) 3

Thailand 2.11 (39) 1

China 2.74 (12) 1

Malaysia 3.59 (60) 3

Philippines 3.80 (30) 16

Vietnam 6.19 (99) (27)

India 6.76 (100) (0)

Indonesia 7.08 (166) 2

Germany 0.01 (62) 12

United States 1.79 (48) 20


Key positive catalysts in 2016-2017 for Indonesian Market

2016 2017

Global

• More dovish Central bank + Neutral

• Soft landing China growth and orderly

depreciation of the Chinese currency + Neutral

• Stabilization of Commodity prices + Neutral

Domestic

• Accommodative fiscal and monetary

stance to sustain growth + Negative

• Bank Indonesia and domestic buyers

should be supportive for bond market + Neutral

• Supply/Demand government bond still

manageable + Neutral


IDR bond fund flows data: Foreigners were still posted as the highest nett buyers for Indonesian sovereign LCYbonds

SUN Sukuk Total SUN Sukuk Total SUN Sukuk Total

Banks 247.1 118.7 365.8 (17.3) 4.4 (12.9) (16.8) 33.7 16.9

Bank Indonesia 144.9 4.5 149.4 0.2 0.6 0.7 (2.9) 2.1 (0.7)

Mutual fund 68.6 11.0 79.6 0.8 0.4 1.1 12.0 6.0 18.0

Insurances 186.1 48.0 234.1 5.1 1.7 6.7 44.2 18.3 62.5

Foreign 661.0 11.9 672.9 (10.3) (1.8) (12.1) 110.6 3.8 114.4

Pension Fund 69.3 13.8 83.0 1.2 0.1 1.3 24.7 8.5 33.2

Retail 22.3 19.6 41.8 (4.2) (0.5) (4.7) (8.7) 8.0 (0.7)

Others 84.3 17.0 101.2 (1.4) (0.2) (1.7) 17.7 4.8 22.5

Total 1,483.5 244.4 1,727.9 (26.0) 4.6 (21.4) 180.9 85.2 266.1

Investor Type Mtd YTD

Outstanding (Rp tn) as of 25-

Oct

Net buy/(Sell) - Rp tn

Source: DMO and Mandiri Sekuritas

Foreign fund inflows remained encouraging

YTD Cumulative foreign fund inflows still behind 2014 Foreigners also lengthening their duration portfolio

(2.0)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

USD Billion

2011 2012

2013 2014

2015 2016

5.90

6.00

6.10

6.20

6.30

6.40

6.50

6.60

6.70

6.80

6.90

-

50.00

100.00

150.00

200.00

250.00 FR0073FR0072FR0056FR0053weighted average duration (RHS)Weighted Average Duration - MSGBI-RHS

55

Foreign investors mostly invest in mid & long term Government Bond

Based on Maturity Date (IDR tn) – Oct 2016 Based on types of foreign investors (IDR tn) – Oct 2016

>15-20 Years IDR 100 tn

(14.9% of total)

Source: Ministry of Finance Republic of Indonesia

Total: IDR 673 tn

>10-15 Years IDR 147.9 tn

(22% of total)


(38.59% of total)

>2-5 years IDR 124.2 tn

(18.45% of total)


(2.49% of total)

0-1 Year IDR 12.7 tn

(1.88% of total)

>20 Years IDR 12 tn

(1.77% of total)

Total: IDR 676.4 tn

Foundation IDR 1.2 tn

(0.17% of total)

Security companies IDR 2.5 tn

(0.35% of total)

Mutual Fund IDR 261.5 tn

(37.6% of total)

Central Bank & Govt IDR 115.7tn

(17.6% of total)

Financial Institution IDR 121.5 tn

(24.7% of total)

Corporate IDR 27.2 tn

(3.26% of total)

Pension Fund IDR 51.5 tn

(6.54% of total)

Insurance IDR 9.4 tn

(1.38% of total) Other


Individual IDR 0.2 tn

(0.03% of total)

Foreign investors mostly are mutual funds, financial institution and central banks

Why are foreigners still holding more IDR bond?

The 10y LCY Government Bond yield spread against UST remains attractive

In terms of real yields (10year Nominal yield minus

expected inflation) are also still attractive

Source: Bloomberg

57

Some opportunities from Indonesian Economy in the medium-long term

58

Source: RPJMN (2015-2019), Bappenas, BKPM

Indonesia’s young population will still be the main support prior to 2030: Opportunity for domestic-based business

59

Indonesia is #1 Exporter of:

CPO

Nickel Ore

Bauxite Ore

CPO USD 795/

Ton

The Downstream to add value

RAW

Nickel Ore USD 26/Ton

Bauxite Ore USD 22/Ton

Source: intracen.org; note: Price as of 2013 except CPO, 2014

Biodiesel USD 885/Ton

PROCESSED Value Added

Ferro-nickel USD 3.488/Ton

Alumina USD 348,5/Ton

1.1x

15.8x

134.1x

The down-streaming of the commodity related sectors should play a bigger role ahead

60

5.2

5.0

4.5 5.3

5.0

4.9 5.5 6.2

6.3

7.0 7.6

8.0 8.8 9.4 20

.0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2019

F

(people mn )

Tourist arrivals in several countries (people mn)

No. Country 2014 2013 (% Change) 1. China 129.1 116.9 10.4 2. Thailand 24.8 26.5 -6.4 3. Malaysia 27.4 20.9 31.1 4. S. Korea 13.98 11.8 18.5 5. Singapore 15.1 14.2 6.3 6. Japan 13.4 10.4 28.8 7. Indonesia 9.4 8.8 6.8 8. Taiwan 7.3 8 -8.8 9. Vietnam 7.9 7.6 3.9

10. India 7.4 6.9 7.2

Indonesia’s tourism share to :

World: 0.8%

Asia Pacific: 3%

ASEAN: 9%

Source: Ministry of Tourism

Government targeted 20 million of tourist arrivals prior to 2019

Indonesian tourism is still lagged behind

Tourism is one of the Government’s focus to support domestic economy

61

Inhabitants : 30 mn Internet users : 20 mn Digital buyers : 16 mn




Inhabitants : 5.5 mn Internet users : 4.2 mn Digital buyers : 3.2 mn


The Retail E-commerce Market in ASEAN

1.1

1.1

1.2

1.5

1.9

2.2

Vietnam

Thailand

Philippines

Malaysia

Singapore

Indonesia

market size (USD bn, 2014)

Source: IMF, eMarketer, eCommerceMILO, DigitalFilipino, Frost & Sullivan, hybris, VECITA, A.T. Kearney analysis, CARI

E-commerce: Bigger opportunity due to better cooperation with the banking sector…

62

Thank You

63

indonesia economic prospects and investment opportunities · november, 2016 indonesia economic...

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