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EQUITY RESEARCHCIPTADANA SEKURITAS ASIA

Please see analyst certification and other important disclosures at the back of this report 2

SPTO - Initiating Coverage - 27 June 2018

BUY Surya PertiwiTP: Rp1,520 (+31.0%) Cleanliness is next to godliness; and strong growth

The largest distributor of sanitary wares and bathroom fittings in IndonesiaPT Surya Pertiwi Tbk (SPTO) is the largest distributor of sanitary wares and bathroomfittings in Indonesia and the sole distributor of TOTO sanitary wares and bathroom fittings.TOTO has successfully established a high level of brand awareness, as it has a longhistory in the Indonesian sanitary wares market, an impressive product portfolio, and awide-spread distribution network. Based on manufacturer value sales, Euromonitorestimated that TOTO had a 55.1% market share in sanitary wares and a 49.8% marketshare in bathroom fittings in Indonesia in 2016.

Positive demand outlookWe are positive regarding the potential for demand growth for sanitary wares andbathroom fittings in Indonesia, based on: (i) rising disposable per capita income; (ii) anexpanding middle class; (iii) still relatively low health sanitary access; (iv) increasingconstruction sector activity and; (v) a shift from squatting to sitting toilets. According toEuromonitor, Indonesia’s market for sanitary wares grew at a CAGR of 11.7% to USD198.2mn in 2012-16, while the market value of bathroom fittings registered a CAGR of 11.4% toreach USD184.5 mn in the same period. The sanitary wares and bathroom fittings marketsare projected to grow to USD259.3 mn and USD255.8 mn, respectively, representing aCAGR of 9.4% and 11.5% in the period 2016-19.

Strong profitability and potential margins improvement aheadBased on a combination of (i) higher revenue on all segments with CAGR of between 9.2%to 13.7% in 2017-19F and (ii) expectation of improving consolidated margins across theboard on the back of contribution from manufacturing segment. We see SPTO’s net profitgrowing by 11.3% YoY to 250.9 bn in 2018F and by 19.5% to Rp299.9 bn in 2019F, implying10.7% and 11.7% net margin, respectively. Therefore, this will help SPTO’s profitability toremain resilient and enable the company to achieve ROE of 20.3% and 21.4% in 2018F and2019F, respectively.

Initiate BUY rating with TP of Rp1,520We initiate coverage on SPTO with a BUY rating and target price of Rp1,520 (+31.0% upsidepotential). We employed discounted cash flow (DCF) method to derive our target price byapplying assumptions of 11.3% WACC and 3.5% sustainable growth rate. We believe SPTOcurrent valuation at 10.4x 2019F P/E is attractive; given more than half discount relative topeers average 2019F P/E of 24.2x. In addition, we view company’s plan to expand thecapacity of its manufacturing unit (SPN) will serve as a catalyst to boost earnings goingforward. We also see upside risk from expected revival of property sector which is poisedto witness further increase in demand.

Risk factorsKey risks to our valuation estimate may include: (i) Competition risk, (ii) Rupiah exchange-rate volatility, (iii) Adverse government policies, (iv) Royalty risk, and (v) Key managementrisk.

Sector Trade

Bloomberg Ticker SPTO IJ

Share Price Performance

Last price (Rp) 1,160

Avg. daily T/O (Rpbn/USDmn) 9.2/0.7

3m 6m 12m

Absolute (%) 0.0 0.0 0.0

Relative to JCI (%) 0.0 0.0 0.0

52w High/Low price (Rp) 1,300/1,145

Outstanding shrs (mn) 0

Mkt. Cap (Rpbn/USDmn) 0/0

Estimated free float (%) 25.9

Major shareholders

PT. Multifortuna Asindo 30.0%

PT. Suryaparamitra Abadi 30.0%

Public 40.0%

EPS Consensus

Ciptadana Cons. % Diff

2018F 93.0 n/a n/a

2019F 110.6 n/a n/a

2020F 129.3 n/a n/a

Fahressi Fahalmesta+62 21 2557 4800 ext. 735

[email protected]

Arief Budiman+62 21 2557 4800 ext. 819

[email protected]

http://www.ciptadana.com

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

1,130

1,140

1,150

1,160

1,170

1,180

1,190

1,200

SPTO 1yr Rel. to JCI (RHS)

Exhibit 1 : Financial Highlights

Year to 31 Dec 2016A 2017A 2018F 2019F 2020F

Revenue (Rpbn) 2,072 2,142 2,345 2,564 2,814

Operating profit (Rpbn) 287 287 327 365 419

Net profit (Rpbn) 222 225 251 300 351

EPS (Rp) 111.1 112.7 92.9 111.1 129.8

EPS growth (%) 6.5 1.5 -17.6 19.5 16.9

EV/EBITDA (x) 7.9 9.0 7.4 6.8 5.9

PER (x) 10.4 10.3 12.5 10.4 8.9

PBV (x) 8.3 8.0 2.5 2.2 2.0

Dividend yield (%) 7.1 16.8 3.6 4.0 4.8

ROE (%) 79.8 77.4 20.3 21.4 22.0

Source : SPTO, Ciptadana Estimates




Industry reviewCompany backgroundEstablished in 1978, PT Surya Pertiwi (SPTO) and its subsidiaries are primarily focused onthe distribution of TOTO brand sanitary wares and bathroom fittings in Indonesia. Through its51%-owned subsidiary, PT Surya Pertiwi Nusantara (SPN), SPTO has also started to produceTOTO brand sanitary wares with an initial focus on entry-level products for low- to middle-income consumers. The company also runs a building management operation through a50%-owned subsidiary, PT Surya Graha Pertiwi (SGP).

Exhibit 2: Company’s organization structure

Source : Company

SPTO is the largest distributor of sanitary wares and bathroom fittings in Indonesia and thesole distributor of TOTO sanitary wares and bathroom fittings. The company has threeproduct lines comprising sanitary wares, bathroom fittings and “others” (these includekitchen-related products). The wide variety of products provided by SPTO stands out as oneof its major strengths in meeting growing demand in Indonesia. In 2017, SPTO’s revenue waspredominantly shared between sanitary wares (49.5%) and bathroom fittings (47%). Inaddition to the TOTO brand, the company also imports other international products fordistribution, including Geberit (Switzerland), Stiebel Eltron (Germany), Franke (Switzerland),Villeroy & Bogh (Germany) and Kaldewei (Germany).

Exhibit 3: Surya Pertiwi extensive product line-up

Source : Company

PT Suryaparamitra AbadiPT Multifortuna Asindo

PT Surya Pertiwi Nusantara PT Surya Graha Pertiwi

Surya Toto Indonesia

Sole agencyAgreement

30%

50%51%

Public30% 40%

Sanitary Fittings Others

Water Closet Faucets Bathtubs

Lavatories Washlet and eco-washers Water heaters

Urinals Shower spray Kitchen related products

Bathroom accessories




Exhibit 4: TOTO various types products

Source : Company

Manufacturing operation at a glanceSPN has started initial production from the first kiln at its Gresik plant, with current installedannual capacity of 500,000 pcs. The plant area has capacity for an additional 9 kilns. SPNexpects to operate at full capacity in the first production line by end of 3Q18. In the domesticmarket, SPN will sell all products through SPTO.

The Gresik factory location has advantages, given lower transportation costs to reachcustomers of TOTO products in Eastern Indonesia. Moreover, the relatively lower minimumwage coupled with younger employees in Gresik compared with STI’s operation in GreaterJakarta provide additional cost savings for SPTO.

In the initial operation stage, the Gresik factory will manufacture low-end high volumesanitary wares products. In terms of quality, this should be similar to other TOTO and STIproducts, given the specific requirements for quality standard certificates from TOTO Japan.We view that SPN operates its plant very efficiently, using sophisticated technology thatleads to lower production costs and lower risks of human error.

Exhibit 5: SPN production activity

Source : Company




Exhibit 6: SPN warehouses

Source : Company




Business model1. Its strong distribution channels are key to sustainabilityAs an exclusive and sole distribution agent, SPTO’s close relationship with key suppliers isone of its major strengths. Most of SP’s TOTO products come from Surya Toto Indonesia (STI),at ex-factory prices including discounts determined by the manufacturer. Based oninformation provided by the company, in 2017 STI’s manufactured products accounted for91.1% of all products sold by SP, followed by TOTO overseas group (4.1%) and other importsuppliers (4.8%).

Exhibit 7: Surya Pertiwi product flow

Source : Company

SPTO resells its products to a widely developed and long-standing distribution network. Thecompany distributes products through 11 sole TOTO distributors (these distributions can onlysell TOTO products). Outside Jakarta and Surabaya, SPTO’s sole distributors are present inAceh, Balikpapan, Bandung, Banjarmasin, Bali, Pontianak, Semarang, Makassar, Yogyakarta,Medan, Manado, Padang, Palembang and Pekanbaru. SPTO can also directly sell products tomajor project customers, since such orders are often in bulk sizes.

SPTO’s sole distributors also channel products to dealers. In Jakarta and Surabaya, SPTOhas a distribution network of more than 100 dealers to reach end-users, in addition totraditional shops and modern retail outlets. Dealers distribute products to theirrepresentatives to increase the products’ market presence.

Exhibit 8: SPTO distribution network

Source : Company




In 2017, sole distributors contributed Rp943.1 bn (44%) to total revenue, followed by incomefrom the dealers (traditional retail and modern stores) at Rp654 bn (30.5%), major projectcustomers at Rp525.9 bn (24.78%), and direct retail at Rp18.9 bn (0.9%). Please take intoaccount, SPTO actually does not sell its products to direct retail, but the direct retailrevenues were obtained from special cases; specifically when customers who want toreplace spare parts but not available in dealers or distributors (referral from dealers anddistributors), they are able to go to SPTO head office and buy it directly.

Exhibit 9: Revenue by distribution channel

Source : Company

2. Solid sales and marketing services are the key to accelerate growthAs an exclusive sole distributor, sales and marketing are key to driving revenue andexpanding market share. SPTO provides visual merchandising and frequently managesdisplays, as well as conducting sales events to attract buyers.

In our view, SPTO and STI are mutually supportive and work closely together in meetingcustomer needs. STI manages branding and advertising, while SPTO manages marketdevelopment. Feedback from customers is shared by SPTO and STI to develop sales andmarketing strategies, with cost-sharing helping to reduce operating expenses.

SPTO provides attractive credit terms of up to 60 days credit offered to dealers, making iteasier for low-capacity dealers to order products. In order to deal with any customercomplaints, SPN and STI will take care the local manufactured products while SPTO onlyoffers after sales services for non-TOTO imported product, which is seen as being relativelylow risk. SPTO continuously strives to strengthen the quality of its sales team, as it believeshuman resources play a pivotal role. SPTO provides ongoing training to its sales team, whilenew employees complete initial induction training on joining.

Exhibit 10: SP marketing activities

Source : Company

Revenue (Rp bn) 2015 2016 2017

Sole distributor 881.7 930.8 943.1

Dealer 648.8 638.5 654

Traditional retail 550.6 535.5 547.3

Modern store 98.2 103 106.7

Project customer 616.1 472.1 525.9

Direct retail 24.8 30.3 18.9

Total 2,171.4 2,071.7 2,141.9






Source : Company





Source : Company

Revenue (Rp bn) 2015 2016 2017


Dealer 648.8 638.5 654





Total 2,171.4 2,071.7 2,141.9






Source : Company





Source : Company

Revenue (Rp bn) 2015 2016 2017


Dealer 648.8 638.5 654





Total 2,171.4 2,071.7 2,141.9




INDUSTRY REVIEW AND OUTLOOK1. Positive demand outlookWe are positive regarding the potential for demand growth for sanitary wares and bathroomfittings in Indonesia, based on: (i) rising disposable per capita income; (ii) an expandingmiddle class; (iii) still relatively low health sanitary access; (iv) increasing construction sectoractivity and; (v) a shift from squatting to sitting toilets. According to Euromonitor, Indonesia’smarket for sanitary wares grew at a CAGR of 11.7% to USD198.2 mn in 2012-16, while themarket value of bathroom fittings registered a CAGR of 11.4% to reach USD184.5 mn in thesame period. The sanitary wares and bathroom fittings markets are projected to grow toUSD259.3 mn and USD255.8 mn, respectively, representing a CAGR of 9.4% and 11.5% in theperiod 2016-19.

(i) Rising disposable income per capitaAs a result of economic development, annual disposable per capita income in Indonesiaincreased significantly, from USD1,537 in 2012 to USD2,153 in 2016, representing a CAGR of8.8% for the period, a rate that is comparable to that in China (9.2%), Malaysia (7.1%) andVietnam (9.5%). We expect rising disposable per capita income to boost sales of sanitarywares and bathroom fittings due to rapid consumption expenditure. Historical data show thatin 2012-16, Indonesia’s per capita consumer expenditure on home improvements grew at aCAGR of 11.2% to reach Rp138 thousand in 2016. This growth rate is in line with the increasein disposable per capita income of 11.5% for urban disposable income, suggesting that theoverall increase in disposable income is one of the key drivers of home improvementsspending.

Exhibit 11: Macroeconomic indicators Indonesia

Source : Badan Pusat Statistik , the World Bank and Euromonitor

(ii) An expanding middle class and rising urbanizationIn addition to its large population of 259 mn in 2016, Indonesia also has a young demographicprofile, with 60% aged under 35. In 2016, people aged 30-34 had the highest average grossincomes in Indonesia, at Rp39.4 mn per year (USD2,920), compared with the national averagegross income of Rp33 mn per year (USD2,444).

According to Central Bureau of Statistics (BPS) data, the number of middle-income residentsin Indonesia rose to 57%, or 138 mn people, in 2015, from 49.9% in 2010. Middle-classresidents are defined as families with disposable annual income ranging from USD3,000 toUSD25,000. The World Bank forecasts that the middle-class population will represent 80% ofIndonesia’s total population by 2030, providing a strong foundation for future consumptiongrowth, particularly for discretionary products such as sanitary wares and bathroom fittings.

By 2025—in less than a decade—Indonesia can expect to see 68% of its population living incities, according to UNFPA’s projections on growth of Indonesia’s urban and ruralpopulations. We believe the growing urban population will have a major positive impact onthe sanitary wares and bathroom fittings market going forward. Accelerated growth of themiddle class, together with rapid urbanization and the large population size, should providesubstantial opportunities in the sector.

GDP (nominal) Rp tn 8,616 9,546 10,570 11,532 12,407 9.5%

GDP Growth % 10.0% 10.8% 10.7% 9.1% 7.6%

GDP per capita Rp mn per capita 35 38 42 45 48 8.1%

Population mn 245 249 252 255 259 1.3%

Expenditure on home improvement Rp per capita 90,237.6 102,426.7 111,587.2 126,106.0 138,055.9 11.2%

Disposable Income per Capita USD per capita 1,537.4 1,695.9 1,866.3 2,012.2 2,153.2 8.8%

Median Disposable Income Rp mn /household 56.3 62.2 70.2 77.9 84.6 10.7%

Urban Disposable Income Rp tn 2,958.8 3,375.1 3,834.0 4,219.0 4,572.5 11.5%

Rural Disposable Income Rp tn 1,588.7 1,715.7 1,852.7 2,116.2 2,339.1 10.2%

Unit 2012 2013 2014 2015 2016CAGR

2012-16




Exhibit 12: Indonesia age structure in 2016

Source : CEIC

Exhibit 13: Indonesia urbanization rate

Source: UNFPA

(iii) Still relatively low health sanitary accessBased on data from Indonesia’s Ministry of Health, 67.8% of Indonesia population had accessto healthy sanitary in 2017, which means around one-third of the country’s population doesnot currently have access to healthy sanitation facilities. With increasing healthy awarenessand higher incomes, we believe more Indonesians will be willing to spend money on sanitarywares. Entry-level products are also likely to experience high demand in the future, owing tothe low level of penetration of sanitation facilities in Indonesia.

24.023.6

22.622.2

21.620.9

20.519.9

18.616.7

14.211.5

8.45.7

4.04.5

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10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-74

>75

(mn people)

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49.8 50.7 51.5 52.3 53.0 53.755.2

56.658.0

59.460.9

62.363.7

65.166.6

68.0

40

45

50

55

60

65

70

2010 2012 2014 2016 2018 2020 2022 2024

(%)




Exhibit 14: Health sanitary access in Indonesia by province in 2017

Source: Indonesia Ministry of Health

(iv) Increasing construction activitiesThe Government of Indonesia is actively stimulating construction activity, as the constructionsector is the fourth-largest contributor to economic activity, accounting for about 10% of GDPin 2017. The sector grew at a CAGR of 12.2% (at market prices) in the period 2010-17 toreach Rp141 trillion in 2017. Infrastructure development, including housing, has been one ofthe key priorities of the Joko Widodo administration. Construction activity has beenimportant, not just for its direct contribution to GDP, but also because it drives demand for arange of manufactured products, from cement to sanitary wares. In 2016, sales to propertydevelopers and contractors accounted for 32% of the total value sales of sanitary wares andbathroom fittings in the Indonesian market, according to Euromonitor.

The government will continue its program to develop 1 million houses annually, taking intoaccount a significant backlog of 13.5 million units in the program. In 2015, for instance, only699,770 homes were constructed. One year later, in 2016, the number of newly built homesincreased to 805,169 units, but this still fell short of the target. Meanwhile, housingdevelopment for Indonesia’s middle- and upper-class segment in 2016 reached 235,787units, consisting of 12,332 homes developed by private developers, 10,000 middle- andupper-class residential units, 80,235 units of non-subsidized commercial homes, 3,972 unitsof non-subsidized Shariah-compliant homes, and 129,248 home construction loans.

Exhibit 15: Construction chart

Source: CEIC

(v) A shift from squatting to sitting toiletAs globalization continues to spread, squatting toilets are being replaced with sitting toilets.For example, Thailand's Ministry of Health announced in 2013 that it would replace squattingtoilets with sitting toilets in all public facilities. This move was aimed at reducingdegenerative joint disease, which the ministry stated can be caused by routinely using

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1,200

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2010 2011 2012 2013 2014 2015 2016 2017

Construction value (LHS) as percentage to GDP (RHS)

(Rp tn)(%)




squatting toilets. The masterplan, which was considered a national agenda item, called forall households to use sitting toilets by 2016 to reduce the risk of degenerative joint disease,or osteoarthritis. The ministry stated that about 6 million Thais suffered from osteoarthritis,most of whom are over 60 years old. However, there is a rising trend of people aged 45-60suffering from the disease. The ministry also plans to achieve a 90% sitting-toilet rate inpublic toilets, including those located at hospitals, public health offices and petrol stationswithin three years.

A high economic growth rate raises the standard of living, while also increasing awarenessof health concerns among the Indonesia population. This will drive demand forimprovements in sanitary wares and bathroom fittings. We see huge potential for sales valueincreases in the sanitary wares sector if all squatting toilets are converted to sitting toilets,as the cheapest sitting toilet is priced above Rp 700,000, which is sevenfold the price of asquatting toilet. About half of the Indonesian population currently uses squatting toilets,according to Euromonitor.

2. The competitive landscape: TOTO is the most popular brandThe sanitary wares market is comparatively well consolidated in Indonesia and is dominatedby a few well-known brands. The top players in sanitary wares account for a majority ofsanitary wares sales in Indonesia, while the remaining market is very fragmented betweenmany brands. In contrast, the competitive landscape for bathroom fittings is far morefragmented, because consumers are less brand-conscious when choosing bathroom fittings.Even the leading players have a relatively small value share of the bathroom fittings market,at less than 10% each. The remaining smaller players accounted for more than 80% of totalbathroom fittings sales in 2016.

TOTO has successfully established a high level of brand awareness, as it has a long history inthe Indonesian sanitary wares market, an impressive product portfolio, and a wide-spreaddistribution network. Based on manufacturer value sales, Euromonitor estimated that TOTOhad a 55.1% market share in sanitary wares and a 49.8% market share in bathroom fittingsin Indonesia in 2016. The other brands are American Standard, Ina, Kohler, Wasser,Hansgrohe, Grohe, Duravit and San-Ei.

3. Breakdown of Indonesia’s sanitary wares and fittings market by product typeAccording to Euromonitor, sitting toilets are the largest product segment in the sanitarywares market in Indonesia, accounting for 51.7% of market value in 2016, with sales ofUSD77.9 mn. Sales of sitting toilets are projected to grow at a CAGR of 10.8% in 2016-19 toreach USD106 mn, representing 54.2% of Indonesia’s sanitary market in 2019. This isfollowed by the toilet sinks and basins product segment, which accounted for 15.0% of thesanitary wares market value in 2016, with sales of USD22.6 mn. Sales of the toilet sinks andbasins product segment is projected to grow at a CAGR of 8.2% in 2016-19, reachingUSD28.6 mn in 2019, representing 14.6% of Indonesia’s sanitary wares market. In thebathroom fittings market, showers and shower heads held the largest market share withsales of USD55.9 mn in 2016, accounting for 39.3% of Indonesia’s bathroom fittings market.Showers and shower heads sales grew at a CAGR of 11% in 2012-16 and are expected togrow by a CAGR of 10.9% to 2019, with total sales of USD76.2 mn.




The chart below sets forth the historical sales volume and value for sanitary wares productsin Indonesia for the years indicated.

Exhibit 16: Manufacturer value sales of sanitary wares and bathroom fittings

Source: Euromonitor

4. Strong entry barriers in sanitary wares industryWe believe the key barriers to entry in the Indonesian sanitary wares industry are: brandequity, distribution network, large capital investment and discounted pricing.

(i) Brand equity: We believe brand creation requires a prolonged gestation period. Anynew company will need at least 5-10 years to establish itself as a reputed brand.The Indonesian market is dominated by a few well-known international brands,such as TOTO and American Standard, with TOTO the top brand in Indonesia thanksto its high quality standards. TOTO has built up strong customer loyalty that isdifficult for new entrants to overcome.

(ii) Distribution network: The creation of a strong and widespread distribution networktakes many years, posing a strong entry barrier. As an incumbent, PT Surya Pertiwicontrols the channels of distribution through long-standing relationships (withsome across three generations) and generous credit terms of up to 60 days.Newcomers usually cannot afford to give such flexible payment terms on workingcapital constraints.

(iii) Large capital investment: Well-established domestic sanitary manufacturers setup facilities at least four decades ago when the costs involved were far lower. Withsubstantial escalation in current costs, new entrants are unlikely to earn highreturns, in itself is a huge entry barrier. For example, it requires around Rp350 bnfor machinery to produce up to 500,000 units of sanitary wares annually.

(iv) Discounted pricing: In order to persuade distribution channels to accept a newproduct, new entrants often need to provide incentives in the form of pricediscounts (normally 20-30% lower than an incumbent’s selling prices) andadditional promotions. Such expenditures act as a barrier to new entrants byreducing their profitability, sometimes leading their selling prices to equate to onlybreakeven or even selling at a loss.

CAGR CAGR

2012-16 2016-19

Sanitaryware 96.9 150.7 195.3 11.7% 9.0%

Sitting Toilets 46.5 77.9 106.0 13.7% 10.8%

Squatting Toilets 10.8 17.5 23.6 12.8% 10.5%

Toilet Sinks and Basins 15 22.6 28.6 10.7% 8.2%

Bathtubs 13.4 18.2 21.2 8.1% 5.1%

Urinals 7.6 9.8 10.9 6.8% 3.5%

Other sanitaryware 3.6 4.6 5.0 6.3% 2.9%

Bathroom Fittings 93.3 142.1 195.5 11.1% 11.2%

Faucets 32.2 50.1 71.0 11.7% 12.3%

Shower and Shower Heads 36.8 55.9 76.2 11.0% 10.9%

Other Bathroom Fittings 24.3 36.1 48.3 10.4% 10.2%

USD mn 2012 2016 2019




FINANCIAL ANALYSIS AND FORECAST

Exhibit 17: Historical revenue breakdown and forecast

Source: Company and Ciptadana Sekuritas

1. Sanitary wares segment growth is poised to take offHistorically, SPTO net revenue grew by a CAGR of 12.2% over 2008-2017. Yet, in the lastcouple years, the company witnessed a muted revenue growth. Starting from sanitarysegment, in FY17 the revenue was recorded at Rp1.06 tn, a modest decline of 1% YoY. Thiswas caused by a 7.3% decline in sanitary wares sales to 1.80 mn units, driven by decliningwater-closet sales, notwithstanding an increase in ASP of 6.9% YoY. The Indonesian economyhas still not fully recovered from the recent slowdown and the multiplier effect of massiveinfrastructure development on the property sector has yet to work its way through intoincreased demand for sanitary wares. However, we expect sanitary wares sales volume toexperience growth of 5% to 1.89 mn units in 2018F and 1.99 mn units in 2019F, combinedwith ASP growth of 4% in 2018F and 2019F, respectively. Hence, sanitary wares revenue isprojected to grow by a CAGR of 9.2% over 2017-19F.

2015 2016 2017 2018F 2019F 2020F

Revenue (in Rpbn)

Sanitary wares 1,072.3 1,070.0 1,059.6 1,157.08 1,263.53 1,392.92

Fittings 1,022.0 941.1 1,007.4 1,102.20 1,203.60 1,314.33

Others (bathroom and kictchen related products) 77.1 60.7 74.8 86.02 96.77 106.45

Total Revenue 2,171.4 2,071.8 2,141.8 2,345.3 2,563.9 2,813.7

Revenue growth per segment

Sanitary wares -0.2% -1.0% 9.2% 9.2% 10.2%

Fittings -7.9% 7.0% 9.4% 9.2% 9.2%

Others (bathroom and kictchen related products) -21.3% 23.3% 15.0% 12.5% 10.0%

Total Revenue growth -4.6% 3.4% 9.5% 9.3% 9.7%

Revenue portion per segment

Sanitary wares 49.4% 51.6% 49.5% 49.3% 49.3% 49.5%

Fittings 47.1% 45.4% 47.0% 47.0% 46.9% 46.7%

Others (bathroom and kictchen related products) 3.6% 2.9% 3.5% 3.7% 3.8% 3.8%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Volume per segment ('000) (consol)

Sanitary wares 2,013.0 1,947.0 1,804.0 1,894.2 1,988.9 2,108.24

growth -3.3% -7.3% 5.0% 5.0% 6.0%

Fittings 3,764.0 3,363.0 3,460.0 3,633.0 3,814.7 4,005.38

growth -10.7% 2.9% 5.0% 5.0% 5.0%

ASP per segment ('000)

Sanitary wares 532.7 549.6 587.4 610.9 635.3 660.70

growth 3.2% 6.9% 4.0% 4.0% 4.0%

Fittings 271.5 279.8 291.2 303.4 315.5 328.14

growth 3.1% 4.0% 4.2% 4.0% 4.0%

Others revenue 77.1 60.7 74.8 86.0 96.8 106.45

growth -21.3% 23.3% 15.0% 12.5% 10.0%




Exhibit 18: Revenue assumption for sanitary wares segment


2. Fittings segment to continue growingThe bathroom fittings segment has bounced back after a tough period during whichbathroom fittings sales volume dropped significantly by 10.7% YoY to 3.36 mn units in 2016,resulting in a drop in revenue of 7.9% YoY to Rp941 bn. However, in 2017 bathroom fittingsbounced back, with revenue growing by 7% YoY to Rp1.01 tn, supported by supplementaryfittings driving sales volume by 2.09%, as well as a more favorable product mix boosting ASPby 4% YoY. We expect the fittings segment to continue expanding and project a CAGR of 9.3%in 2017-19F, reaching Rp1.10 tn and Rp1.20 tn in 2018F and 2019F, respectively. We assumebathroom fittings sales volume will grow by 5% annually in the next two years, with ASPposting 4.2% and 4% growth in 2018F and 2019F, respectively.

Exhibit 19: Revenue assumption for fittings segment


3. Revenue share of “others” to remain steady at over 3% going forwardThe “others” segment, which consists of other bathroom- and kitchen-related products,recorded sales of Rp74.8 bn in 2017 (+23.3% YoY), contributing 3.5% to total revenue. We seerevenue from the “others” segment continuing to improve following the headwinds of 2016,when its share fell to only 2.9%. Driven by any overall improvement in the economy, weexpect demand for bathtubs and kitchen-related products to rise, or at least remain steady.As such, we project “others” revenue to grow at a CAGR of 13.7% in 2017-19F. In addition, the“others” segment has wider margins than those in sanitary wares and bathroom fittings.

Exhibit 20: Revenue assumption for bathroom and kitchen related products


Sanitary Wares 2015 2016 2017 2018F 2019F

Revenue (in Rpbn) 1,072.3 1,070.0 1,059.6 1,157.1 1,263.5

Revenue growth -0.2% -1.0% 9.2% 9.2%

Sales volume ('000) 2,013.0 1,947.0 1,804.0 1,894.2 1,988.9

Sales volume growth -3.3% -7.3% 5.0% 5.0%

ASP ('000) 532.7 549.6 587.4 610.9 635.3

ASP growth 3.2% 6.9% 4.0% 4.0%

Fittings 2015 2016 2017 2018F 2019F

Revenue (in Rpbn) 1,022.0 941.1 1,007.4 1,102.2 1,203.6

Revenue growth -7.9% 7.0% 9.4% 9.2%

Sales volume ('000) 3,764.0 3,363.0 3,460.0 3,633.0 3,814.7

Sales volume growth -10.7% 2.9% 5.0% 5.0%

ASP ('000) 271.5 279.8 291.2 303.4 315.5

ASP growth 3.1% 4.0% 4.2% 4.0%

2015 2016 2017 2018F 2019F

Revenue (in Rpbn) 77 61 75 86 97

Revenue growth -21.3% 23.3% 15.0% 12.5%




4. Operating cost breakdownBased on 2017 financial reports, 32.4% of SPTO’s total operating costs came from salariesand allowances, followed by freight expenses at 25.9%, rental costs at 13.1%, and “other”costs at 20.6%. In 2017, sales expenses grew by 19.3% to Rp 84.7 bn, driven by higherpromotional expenses, which grew by 69.2% YoY, as SPTO became more aggressive inpromoting its products to boost revenue amid weak economic conditions. We expectoperating expenses as a percentage of revenue (OER) to be steady at 3.9% in 2018F onwards;by taking into account the benefit of lower distribution cost for the Eastern Indonesiandistribution area which is expected to comprise of approximately 30% of the total orderthrough the arrival of Surabaya plant.

Exhibit 21: Operating cost structure

Source: Company

5. Strong profitability and potential margins improvement aheadIn the period 2015-17, SPTO delivered consistent margins. Compared with 2015, grossmargin expanded by 2.9% to 23.9%, largely attributable to the product mix, which led tohigher product ASP as well as lower sales to project customer. Despite flat revenue growthduring the period, COGS declined by 4.9% to Rp1.63 tn. Supported by higher gross margin,despite operating expenses as percentage of revenue in 2017 widened to 10.5% (vs. 8.5% in2015), operating margin strengthened slightly by 1.9%, to 13.4%.

Moreover, we believe consolidation of SPN to SPTO will bring benefits to the company’sfinancials. After SPN set up the 1st kiln in Surabaya, we expect starting this year there will besmall improvement on margins after SPN has started to sell its entry level sanitary productsto SPTO. Following the way to calculate the margins from intercompany transaction,whereas the parent will sell the products from its subsidiary to outside buyers, theconsolidated margins recorded in SPTO will be higher. In addition, we project the marginsare potentially bigger in the coming years after SPN ramp up its capacity.

Thus, based on a combination of (i) higher revenue on all segments with CAGR of between9.2% to 13.7% in 2017-19F and (ii) expectation on improving consolidated gross margin onthe back of contribution from its manufacturing segment, we see SPTO’s net profit growingby 11.3% YoY to 250.9 bn in 2018F and by 19.5% to Rp299.9 bn in 2019F.

SPTO’s net profit returned as a percentage of shareholders equity (ROE) in 2016-2017averaged 83.5%, although in 2017 ROE slipped to 79.1% (vs.87.8% in 2016) due to lowerasset turnover. We foresee proceeds from IPO will drive ROE lower following the increasedin shareholder equity compared with total asset (equity multiplier). In our view, SPTO’sprofitability will remain strong and the company will be able to achieve double-digit ROE in2018F and 2019F of an average 20.8%.




Exhibit 22: Margins breakdown


Exhibit 23: ROE (net income/shareholders equity) and ROA (net income/total assets)


6. Operating cash flow to remain positive despite a stretched cash cycleSPTO has a solid balance sheet to meet future demand. The company’s cash conversion cycle(days of receivables + days of inventory – days of payable) lengthened by 19 days to 49 daysin FY17, on higher receivable and inventory days, primarily due to seasonal fluctuations. Notethat credit terms to distributors can be extended up to 60 days and project customers usuallymake 20% down-payments on the agreed purchase price prior to completing post-deliverypayment. We believe the close relationship between SPTO and its main supplier is reflectedin steady days-payable and that despite lower efficiency, SPTO has been able to maintainpositive OCF. We project the cash conversion cycle in 2018F and 2019F to remain similar tocurrent level.

21.0%

23.7% 23.9% 24.3% 24.6%

12.5%13.9% 13.4% 13.9% 14.2%

9.6%10.7% 10.5% 10.7%

11.7%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2015 2016 2017 2018F 2019F

Gross Margin Operating Margin Net Margin

91.7

79.8 77.4

20.3 21.4

18.8

16.4

11.2

9.210.3

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

2015 2016 2017 2018F 2019F

ROE (LHS) ROA (RHS)

(%) (%)




Exhibit 24: Activity ratio


7. Leverage ratio to normalize after a high capex yearGoing forward, we expect the leverage ratio of SPTO to improve. In 2017, capex was Rp496bn, an increase of 396% YoY, largely due to the purchase of machinery by its subsidiaries fora new factory in Gresik, as well as the development of a new office building in West Jakarta.Consequently, total debt surged by 240% to Rp 447 bn and led DER (debt-to-equity ratio) towiden to 1.5x in 2017 (vs. 0.5x in 2016). In 2018 and in 2019, by utilizing the proceeds fromIPO, we forecast that the company will spend capex mainly on (i) additional machinery forSPN factory and (ii) furniture and equipment for new office in Jakarta.

Exhibit 25: Capex and DER


52.1

65.9

73.2 71.0 71.0

53.4

60.4

73.4 73.0 73.0

101.496.7 97.5 97.5 97.5

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2015 2016 2017 2018F 2019F

Receivable Days Inventory Days Payable Days

12999.7

496

193221

0.1

0.5

1.5

0.10.1 0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

0

100

200

300

400

500

600

2015 2016 2017 2018F 2019F

Capex (LHS) DER (RHS)

(Rp bn)(x)




VALUATIONWe initiate coverage on SPTO with a BUY recommendation and target price of Rp1,520/share,offering 31.0% upside potential from current share price. Our target price is derived by usingdiscounted cash flow (DCF) valuation method, applying 11.3% WACC and 3.5% terminalgrowth rate. We have opted to use comparable listed home-improvementsretailer/distributor and sanitary wares manufacturer companies in Indonesia and Asia, giventhat they are exposed to the same business and product characteristics. Currently the SPTOtrades at 10.4x forward 2019F P/E and we believe that the current multiple of SPTO isattractive given its peers average 2019F P/E of 24.2x. Moreover, our target price implies only13.6x 2019F P/E, still much lower than peers’ current valuation.

Exhibit 26: valuation comparison


RISK FACTORS1. Competition riskBy selling TOTO brand sanitary wares and bathroom fittings, the company faces intensecompetition from other brands such as American Standard, Ina and San-Ei, primarily on thebasis of product quality, innovation and price. TOTO’s competitive position could besignificantly affected by weak economic conditions, the erosion of consumer confidence, andcompetitors’ introduction of lower-priced or more innovative products. Such impacts couldresult in lower pricing, an inability to pass on cost pressures and lost market share.Nevertheless, in terms of capacity, TOTO Indonesia is very strong with its 8 kilns, while Inaand American Standard only have 1 each.

2. Rupiah exchange rate volatilityThe company imports around 8% of goods in its distribution business and 10% of rawmaterial in its manufacturing business. Therefore, any steep depreciation in Rupiah isexpected to put pressure on margins.

3.Adverse government policiesUnfavorable government regulations, such as a steep increase in minimum wages, wouldaffect the company’s costs, given that it operates in a labor-intensive industry.

4.Royalty riskIncreases in royalty payments for using the TOTO brand name to Toto Ltd, the holdingcompany in Japan, could also cause margins to suffer.

5.Key management riskWe believe that one of the company’s key strengths is its management’s solid industryexperience and track record. Failure to retain key senior personnel could adversely affectgrowth prospects

ROE (%)

18F 19F 18F 19F 18A 19F 2018F

Ace Hardware ACES IJ equity 1610.9 24.7 22.0 19.3 17.0 5.6 4.8 23.3

Home Product Center HMPRO TB equity 5439.1 31.3 27.3 17.5 15.8 8.8 8.1 29.2

Siam Global House GLOBAL TB equity 2000.7 34.1 28.8 22.4 19.2 4.4 4.0 13.3

Surya Toto Indonesia TOTO IJ equity 272.7 15.9 13.8 9.1 8.2 2.6 2.5 15.1

Toto Ltd 5332 JT equity 8530.0 24.0 23.1 12.0 11.2 2.8 2.5 11.3

Surya Pertiwi SPTO IJ equity 225.6 12.5 10.4 7.4 6.8 2.5 2.2 20.3

Cera Sanitaryware CRS IN equity 571.7 35.5 29.4 21.0 17.3 6.1 5.2 18.9

Sichuan M Sanitary Ware 002798 CH equity 1058.4 19.4 14.1 15.6 10.9 2.0 2.4 11.8

Weighted average 27.0 24.2 15.5 13.8 4.9 4.5 17.8

PBV (x)Comp Ticker Mkt Cap

PER (x) EV/EBITDA (x)




Board of commissioners and directors

Board of commissionersMardjoeki Atmadiredja, President CommissionerA 70-year-old Indonesian citizen and 1965 high-school graduate from Surabaya, MardjoekiAtmadiredja has served as President Commissioner since 2013. He started his career as thesole agent of TOTO products (1968-77) and continued as President Director at PT Surya TotoIndonesia. He is also a Commissioner at PT Surya Pertiwi (1982-now).

Usman Andy, CommissionerA 56-year old Indonesian citizen, Usman Andy received a Bachelor’s degree in marketingfrom California State University, Sacramento, in 1986. He has served as a Commissionersince 2016. He previously held the position of Director at PT Surya Pertiwi (1997-2016) andcurrently also serves as President Director at the Suryaparamita Abadi Group (1989-now).

Goh Poh Heng, Independent CommissionerA 55-year-old Singaporean citizen, Goh Poh Heng obtained an MBA in international financefrom Eastern Michigan University in 1988 and a Bachelor of Business Administration infinancial management and investment analysis from Eastern Michigan University in 1986. Hehas served as Commissioner since 2018. He previously held staff, managerial and directorspositions at various companies, such as junior auditor at Fashion & Bafina Co. (1988-89),investment analyst at Kokusai Securities – Singapore (1989-90), managing director and headof investment (1990-94), executive vice-president at the Sekar Group Surabaya (1994-95),managing director at PT Citramas Securities (1996-97), senior advisor at PT MakintaSecurities (1997-2014) and investment director at Crest Capital Asia Pte Ltd (2015-now)

Board of DirectorsTjahjono Alim, President DirectorA 69-year-old Indonesian citizen, Tjahjono Alim graduated from high school in Surabaya in1967. He has served as President Director since 1982 until now. Previously he started asmarketing staff (1979-81) at PT Surya Pertiwi, then director of PT Multifortuna Asindo (1990-2013) and now as Commissioner and President Director (2014-now).

Efendy Gojali, Vice President DirectorA 74-year-old Indonesian citizen, Efendy Gojali graduated from high school in Solo in 1964.He has served as Vice President Director since 1997. Previously, he started as a finance staffat CV Surya (1976-78), finance staff (1979-80) at PT Surya Pertiwi and then as Director(1981-96).

Willianto Alim, Vice President DirectorA 35-year-old Indonesian citizen, Willianto Alim obtained a Bachelor of Finance from OhioState University in 2003. He has been Vice President Director since 2016. His career beganas marketing officer (2004-07) at PT Surya Pertiwi. He has previously served as assistantmanager (2007-11), manager (2011-13) and director (2013-16).

Anton Budiman, DirectorA 59-year-old Indonesian citizen, Anton Budiman graduated from high school in Surabaya in1976. He has served as Director since 2016. His career began as a marketing officer (2004-07) at PT Surya Pertiwi. He started his career as Vice President Director at PT DoultonIndonesia. He later held the position of Commissioner at PT Surya Toto Indonesia (2012-13),President Director at Dian Surya Global (since 1998), Director at PT Miltifortuna Asindo since1990, and Vice President Director at PT Surya Siam Keramik since 1997.




Umarsono Andy, DirectorA 51-year-old Indonesian citizen, Umarsono Andy received a Bachelor of Finance fromCalifornia State University in 1988. He has served as Director since 2016. His career began atSurya Toto Indonesia in 1988 until 1992, with the latest position as Manager of Exports andImports. He previously served as Vice President Commissioner (2008-13) and Commissioner(2013-now) at PT Surya Toto Indonesia. He was Commissioner at PT Surya Pertiwi in 2008-16.

Irene Hamidjaja, DirectorA 54-year-old Indonesian citizen, Irene Hamidjaja obtained a BSc in accounting from theUniversity of New Orleans in 1987. She has served as Director since 2017. Her career startedat Gunawan, Prijohandojo, Utomo & Co. (Arthur Andersen & Co., SC.) in 1987 until 1992 withher last position as Supervisor – Tax Consultant. She previously held managerial anddirectors positions at Citibank, N.A., such as Assistant Vice President of the Finance Division(1987-98), Vice President of the Compliance and Quality Assurance division (1998-2001) andVice President of Compliance (2002-04). She then served as Director of Compliance atCommonwealth Bank (2004-08), Director of Compliance and HR at PT Bank Andara (2009-12), Director at PT FKS Multi-agro/ PT Redwood Indonesia (2012-14), and BusinessConsultant (2015-16).

Johan Gojali, DirectorA 37-year-old Indonesian citizen, Johan Gojali received a BSc in mathematics from theUniversity of Sydney in 2004. He has served as Director since 2013. His career in PT SuryaPertiwi began as Retail Sales Supervisor (2008-13).

Reinhart Muljadi, DirectorA 47-year-old Indonesian citizen, Reinhart Muljadi studied information management at BinaNusantara University in 1982-89. He has served as Director since 2016. He started his careerat PT Surya Pertiwi as sales staff (1990-96), continued as Assistant Sales Manager (1996-2010) and Sales Manager (2010-16).

Iwan Tjahjadi, DirectorA 46-year-old Indonesian citizen, Iwan Tjahjadi received a Bachelor of Business from RMITUniversity in Australia in 1996. He has served as Director since 2016. Previously, he heldstaff and managerial positions at various companies such as Export Staff (1994-95) andRepresentative Officer (1995-96) at PT Fajar Surya Tridasa, Manager at PT BCA (1996-97),Assistant Manager of Export – Import (1998-2006) and Manager of Export – Import (2006-16)at PT Surya Pertiwi.

Gunadi, Independent DirectorA 69-year-old Indonesian citizen, Gunadi graduated from the University of Gadjah Mada(1974) (S1), obtained a Master of Finance from the Institute of Public Finance (Netherlands) in1985 and a doctoral degree in International Tax from the University of Leiden in 1991. He hasserved as an Independent Director since early 2018. His career started at DirectorateGeneral of Taxes as Director of Audit, Collection and Investigation (2001-06). He was thenCommissioner at PT Timah (2003-06), Deputy Head of Indonesian Financial TransactionReports and Analysis Center (PPATK) (2006-11), Commissioner at PT Fastindo (2015-16), andSenior Advisor at J&L Consultant (2015-16). Currently, he also holds a position as DeputyHead of the Taxation Supervisory Committee in the Ministry of Finance and Senior Advisor inseveral consulting firms.


EQUITY RESEARCHSPTO - Initiating Coverage - 25 June 2018

CIPTADANA SEKURITAS ASIA

Exhibit 27 - Income Statement

Year to 31 Dec (Rpbn) 2016A 2017A 2018F 2019F 2020F

Revenue 2,072 2,142 2,345 2,564 2,814

COGS -1,581 -1,631 -1,775 -1,932 -2,102

Gross profit 491 511 571 632 711

Oper. expenses -204 -224 -244 -267 -293

Oper. profit 287 287 327 365 419

EBITDA 293 289 344 383 442

Interest income 9 4 12 18 16

Interest expense -3 -9 -9 -4 -3

Other income (exp.) 1 20 2 2 2

Pre-tax profit 293 297 324 381 434

Income tax -75 -76 -81 -94 -108

Minority interest 4 4 7 12 24

Net profit 222 225 251 300 351

Exhibit 28 - Balance Sheet


Cash & cash equivalent 139 160 737 617 619

Acct, receivables 374 429 456 499 547

Inventory 261 328 355 386 420

Other curr, asset 52 93 103 113 124

Total current asset 827 1,011 1,651 1,615 1,711

Fixed assets - net 276 769 944 1,147 1,349

Other non-curr.asset 55 54 55 61 66

Total asset 1,356 2,020 2,733 2,913 3,224

ST debt + curr. maturity 129 351 155 77 84

Acct, payable 419 436 474 516 562

Advances received 164 186 186 203 223

Other curr. liab 47 65 71 78 85

Long term debt 2 96 0 0 0

Other non-curr, liab, 144 112 123 134 147

Total liabilities 905 1,247 1,009 1,008 1,102

Shareholder equity 278 291 1,235 1,403 1,597

Minority interest 173 482 489 502 526

Total liab + SHE 1,356 2,020 2,733 2,913 3,224

Exhibit 29 - Per Share Data

(Rp) 2016A 2017A 2018F 2019F 2020F

EPS 111.1 112.7 92.9 111.1 129.8

BVPS 139.2 145.7 457.5 519.5 591.3

DPS 82.8 195.0 41.7 46.5 55.5

FCF per share -88.5 -171.3 61.1 25.2 47.4





Exhibit 30 - Cash Flow


Net income 222 225 251 300 351

Depreciation 6 2 17 18 23

Chg in working cap. -137 -104 -19 -16 -19

Other -3 8 3 -2 10

CF-Oper activities 88 132 252 299 365

Capital expenditure -100 -496 -193 -220 -225

Others -166 22 105 -10 -12

CF-Investing activities -265 -474 -87 -231 -237

Net change in debt 111 222 -196 -78 7

Net change in equity 0 0 742 0 0

Dividend payment -166 -390 -113 -125 -150

Other financing 170 535 -26 1 2

CF-Financing activities 122 364 412 -188 -126

Net cash flow -55 21 577 -120 2

Cash - begin of the year 194 139 160 737 617

Cash - end of the year 139 160 737 617 619

Exhibit 31 - Key Ratios

Year to 31 Dec 2016A 2017A 2018F 2019F 2020F

Growth

Revenue (%) -4.6 3.4 9.5 9.3 9.7

Operating profit (%) 5.8 -0.1 13.8 11.8 14.6

Net profit (%) 6.5 1.5 11.3 19.5 16.9

Profitability Ratios

Gross margin (%) 23.7 23.9 24.3 24.6 25.3

Operating margin (%) 13.9 13.4 13.9 14.2 14.9

EBITDA margin (%) 14.1 13.5 14.7 14.9 15.7

Net margin (%) 10.7 10.5 10.7 11.7 12.5

ROA (%) 16.4 11.2 9.2 10.3 10.9

ROE (%) 79.8 77.4 20.3 21.4 22.0

Liquidity Ratios

Current ratio (x) 1.1 1.0 1.9 1.8 1.8

Quick ratio (x) 0.7 0.7 1.5 1.4 1.4

Cash conversion cycle (days) 41.8 69.1 71.1 70.5 70.9

Activity Ratio

Inventory turnover (days) 60.4 73.4 73.0 73.0 73.0

Receivable turnover (days) 60.3 68.5 68.9 68.0 67.8

Payable turnover (days) 78.9 72.8 70.8 70.5 69.9

Solvency Ratio

Interest cover (x) 111.2 31.9 36.5 105.6 175.2

Debt to equity ratio (x) 0.5 1.5 0.1 0.1 0.1

Net debt to equity (x) Net Cash 1.0 Net Cash Net Cash Net Cash





EQUITY RESEARCH

HEAD OF RESEARCH ANALYST ANALYSTArief Budiman Erni Marsella Siahaan, CFA Yasmin SoulisaStrategy, Automotive, Heavy Equipment, Banking Property, PlantationsConstruction, Oil & Gas T +62 21 2557 4800 ext 919 T +62 21 2557 4800 ext 799T +62 21 2557 4800 ext 819 E [email protected] E [email protected] [email protected]

ECONOMIST ANALYST ANALYSTImanuel Reinaldo Niko Margaronis Fahressi FahalmestaT +62 21 2557 4800 ext 820 Telecommunication, Tower, Healthcare Cement, Toll Road, PoultryE [email protected] T +62 21 2557 4800 ext 734 T +62 21 2557 4800 ext 735

E [email protected] E [email protected]

ANALYST ANALYST ANALYSTStella Amelinda Fransisca Maharani Putri Christian SaortuaConsumer Media, Retail Coal, Metal miningT +62 21 2557 4800 ext 740 T +62 21 2557 4800 ext 760 T +62 21 2557 4800 ext 739E [email protected] E [email protected] E [email protected]

TECHNICAL ANALYST RESEARCH ASSISTANTTrevor Gasman SumarniT +62 21 2557 4800 ext 934 T +62 21 2557 4800 ext 920E [email protected] E [email protected]

EQUITY SALES

Co HEAD OF INSTITUTIONAL SALES Co HEAD OF INSTITUTIONAL SALESDadang Mulyana The Fei MingPlaza ASIA Office Park unit 2 Plaza ASIA Office Park unit 2Jl. Jend. Sudirman Kav. 59 Jl. Jend. Sudirman Kav. 59Jakarta - 12190 Jakarta - 12190T +62 21 2557 4800 ext 838 T +62 21 2557 4800 ext 807F +62 21 2557 4900 F +62 21 2557 4900E [email protected] E [email protected]

SURABAYABRANCH OFFICES

SURABAYAJAKARTA - MANGGA DUA JAKARTA - PURI KENCANA SURABAYAKomplek Harco Mangga Dua Perkantoran Puri Niaga III Intiland Tower SurabayaRukan Blok C No.10 Jl. Puri Kencana Blok M8 No.2E Ground Floor Suite 5 & 6Jl. Mangga Dua Raya Kembangan Jl. Panglima Sudirman 101-103Jakarta - 10730 Jakarta - 11610 Surabaya - 60271T +62 21 600 2850 T +62 21 5830 3450 T +62 31 534 3938F +62 21 612 1049 F +62 21 5830 3449 F +62 31 534 3886

SEMARANGGedung Menara Suara Merdeka6th Floor Unit 02Jl. Pandanaran No.30Semarang - 50134




Analyst Certification

Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her personal views about thecompanies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are notand will not be influenced by any part or all of his or her compensation.

Disclaimer

This report does not constitute an offer to buy or sell any security/instrument, invitation to offer or recommendation to enter into anytransaction. Nor are we acting in any other capacity as a fiduciary to you. When making and investment decision, you should determine,without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume theserisks) as well as the legal, tax and accounting characterizations and consequences of any such transaction. In this regard, by accepting thisreport, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice,(b) there may be legal, tax or accounting risks associated with any transaction, (c) you should receive (and rely on) separate and qualifiedlegal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accountingadvice (and any risks associated with any transaction and our disclaimer as to these matters.

The information contained in this report is based on material we believe to be reliable; however, we do not represent that it is accurate,current, complete, or error free. Assumptions, estimates and opinions contained in this report constitute our judgment as of the date of thedocument and are subject to change without notice. Any projections are based on a number of assumptions as to market conditions andthere can be no guarantee that any projected results will be achieved. Past performance is not a guarantee of future results. PTCIPTADANA SECURITIES AND ITS AFFILIATES SPECIFICALLY DISCLAIMS ALL LIABILITY FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL OROTHER LOSSES OR DAMAGES INCLUDING LOSS OF PROFITS INCURRED BY YOU OR ANY THIRD PARTY THAT MAY ARISE FROM ANYRELIANCE ON THIS REPORT OR FOR THE RELIABILITY, ACCURACY, COMPLETENESS OR TIMELINESS THEREOF.

Analyst Certi ficationDisclaimer: This document is not intended to be an offer, or a solicitation of an offer, to buy or sell relevant securities (i.e. securitiesmentioned herein or of the same issuer and options, warrants or rights to or interest in any such securities). The information and opinionscontained in this document have been compiled from or arrived at in good faith from sources believed to be reliable. No representation orwarranty, expressed or implied, is made by PT CIPTADANA SECURITIES or any other member of the Ciptadana Capital, including any othermember of the Ciptadana Group of Companies from whom this document may be received, as to the accuracy or completeness of theinformation contained herein. All opinions and estimates in this report constitute our judgment as of this date and there can be noassurance that future results or events will be consistent with any such opinions, forecasts or estimates. The information in this documentis subject to change without notice; its accuracy is not guaranteed; and it may be incomplete or condensed.

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