Citigroup Indonesian Market - This Time is Different, targeting End-2010 JCI of 3400

 Targeting End-2010 JCI of 3400 — We are raising our year-end JCI Target to 3400, based on target PER of 14.5x for 2011 earnings. This is in line with historic average of Earnings and Bond Yield differential of 2.6% (based on 10-year bond yield of 9.5%) and supported by Citi coverage universe’s ETR of 15. Our top buys are ITMG, TLKM, ISAT, UNTR, BMRI, AALI, INTP.

 Portfolio flow: “This time is different” — Indonesia has weathered the initial jitters of Greek crisis well, regaining most of the currency and some of stock market
losses. Whilst Indonesia does not have direct linkages to Europe it has benefited immensely from carry trades, resulting in favorable currency and inflation behaviors. Key factor to Indonesia ’s vulnerability will be the “mobility” of these
portfolio flows. Our economist believes that while foreign holdings in SBIs can be
volatile, there is anecdotal evidence that most of the inflows into IDR government
bonds are from real money accounts.

 Strong Earnings Momentum — Consensus is forecasting EPS growth of 20% and 18.5% for 2010E and 2011E respectively. The Q1 results announced so far are generally in-line with consensus and our estimates. Banking earnings were driven by lower credit costs and re-pricing of time deposits. Coal stocks earnings will see an upward momentum from Q2 CY10 as the impact of higher coal prices kick in. Consensus has seen largest revision of coal stocks as production growth in 1Q10 has been encouraging. Plantation stocks benefited from higher CPO prices and margin expansions in the remainder of the year as volume picks up.

 Robust Domestic Consumption Momentum — Domestic consumption momentum remains strong with 20% growth for autos (2W/4W) and domestic cement sales. These are supported by consumer loans from banks and low inflation. The Central Bank policy priority remains 20% loan growth and does not expect inflation to be significantly over 5%.