Citigroup Indonesia Equity Strategy- Bond Yields at Their Lows

Multi-Strategy — Indonesian Bond Yields are at all-time lows despite inflationary
pressures. Bond earnings yield suggests value in equities

2Q10 Earnings In-Line — With plenty of indications that the consumer sector was
strong during 1Q10 and stable commodity prices throughout 1H10, the market’s
estimates of 1H10 corporate performance was fairly good. While we note potential
weakness in consumer confidence, 3Q10 domestic consumption is likely to
benefit from the Ramadhan festive season, potentially offsetting emerging
seasonal weakness in CPO and coal prices.

Plantation — We remain positive and expect CPO prices to edge up in 4Q10. Our
preferred pick in Indonesia is Astra Agro (AALI.JK; Buy; TP:Rp27,720; Low Risk).
Key reasons: 1) a pure CPO play, hence the most sensitive to CPO prices among
Indo planters, 2) the biggest market cap planter in Indonesia, 3) high ROE, 4)
favourable dividend yield, and 5) has underperformed the JCI by over 30% YTD.

Cement — We are turning more sanguine on the sector on a recent ruling that
there is insufficient evidence of cartel pricing in the cement industry. Expect
producers to be more willing to raise prices in 2H10 (1H10 price increase was
only 2%), we forecast a 6% increases for the year. We prefer Indocement
(INTP.JK: Buy; TP: Rp 18,400, Low Risk).

Coal — Despite weaker coal prices over the past five weeks, we retain our positive
view on the sector and believe that coal prices are bottoming. As rains in India
abate coinciding with the end of the monsoon season in September and North
Asia as well Europe enters winter in 4Q10, we expect continued support for coal
prices in the coming weeks. We like Adaro Energy (ADRO.JK: Buy; TP Rp 2,750,
Medium Risk)