CITI Indonesian Conference - Takeaways from Citi Indonesia Conference: 4 - 5 November

 Positive Macros — The economy is moving in the right direction with GDP growth expected to rise to 5.5% in 2010, from 4.3% in 2009, based on our estimates. However, to accelerate this growth, and reach next level (6%+ growth), the government needs to: 1) Raise Investment to GDP ratio to 30%, 2) Improve energy and transportation infrastructure, and 3) Implement investor friendly policies, particularly by state governments.

 Measures/Incentives — Decision to keep Tax to GDP at 12% and reduce Corporate Tax rate (30% in CY08 to 25% CY10) is positive for Corporate Earnings. Government is implementing: 1) Longer working hours at port, 2) Offering financial reward/punishment to regional governments based on success in attracting investment.

 Risks — Inflation and currency are major risks with few instruments available to hedge. There is a risk of cost push inflation due to: 1) Narrowing input-output gap, and 2) Currency. A weak global economy has mixed impact with weak demand stifling exports but low interest rates strengthening currency and encouraging consumption. This makes currency vulnerable to a rise in global interest rates. There is additional risk of a narrowing input-output gap as consumption is growing rapidly while imports of raw material and machinery are lagging.

 Banking Sector — Neutral to Positive with NPLs leveling off and loan growth to pick up, although estimates vary, depending upon target market.

 Consumer — Positive sentiment with the Rupiah recovery, cautious on promotion spending.

 Mining — Cautious due to tepid demand post last year’s global credit crisis. Most capex plans have been delayed.

 Cement — Positive outlook with the implementation of Government of Indonesia infrastructure projects.

 Plantation — Sentiments more positive following CPO’s recovery post recent global financial crisis. Improved maturity profile should mitigate risk of El Nino.

 Property — Demand is still soft despite of the declining mortgage rates. Sales on landed residential outperforming condominiums.

 Infrastructure — Higher spending is positive for those with exposure to Transport, Power Generation and Construction.