Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 1, Bank Rakyat Indonesia (Persero)(BBRI.JK; Rp9,200;2H)

 Takeaways from Jakarta — Bank Rakyat Indonesia presented at Citi's
Indonesia Investor Conference on Aug.4-5.Below are key takeaways.

 Loan growth — Loan growth of 20++%remains the long-term target.Demand
is strong,and management is working on constraints of CAR,physical
infrastructure and deposits.

 NIM — NIMs expansion in 1H was temporary,due to deposit re pricing.
Trend is declining and will be compensated by Fee Income growth of 20pc.

 NPLs — NPLs have peaked in this quarter.These were concentrated in the
Middle Market and relate to exporters impacted by the global environment.
The other source of NPLs tends to be small borrowers who expand
businesses too quickly and cannot manage them.

 Capital adequacy — Capital adequacy is comfortable and to maintain it:1)
more lending will be directed towards SOEs with 0-50pc risk weighting,2)
further cut in dividend payout ratio from existing 30pc,and 3)rely on Tier II.

 Micro loans — There is a need to increase outlets to push micro loans.
Historic 25%growth is due to physical bottleneck and not lack of demand.

 LDR ratio — The high LDR is not a concern due to ample liquidity in the
system.To raise CASA share up to 60%(from 57%),new initiatives have
been taken that include new products,expansion of both e-channels and
outlets/branches and marketing initiatives.

 Competition — BDMN is a competition and has an edge in application
processing time.Bank Jabar is the only regional bank that is a competition.
Others are too small.

Valuation
Our target price of Rp9,700 is based on a 2011E P/E of 12.1x,+0.5sd (0.95x)
above its average of 11.2x since 2006.We have not used +1sd,as applied to
peers,due to BBRI's high LDR.We believe P/E is the best valuation measure
for banking stocks in Indonesia due to their growth potential.

Risks
We assign a High Risk rating due to both operational risks and in line with our
quantitative risk-rating system,which tracks 260-day historical share price
volatility.BBRI has historically been a higher beta stock trading at a discount
to more stable BBCA.Downside risks to our target price include:1)lower-than-
projected growth;and 2)reversal of US carry trade.Banks are more vulnerable
to adverse impacts on growth,NIMs and asset quality.Competition and bond
issuance can also squeeze NIMs.BBRI is a state-owned bank.With a new
government in place,there can be a change in management and therefore
strategy.Upside risks to our target price include sustained liquidity inflow,
strong loan demand due to benign inflation (consumer/microfinance)and
sharp export recovery (corporate).

Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 1, Bank CIMB Niaga (BNGA.JK;Rp1,130;Analyzed Not Rated)

 Takeaways from Jakarta — Bank CIMB Niaga presented at Citi's Indonesia
Investor Conference on Aug.4-5.Below are key takeaways.

 Strategy — Operating environment is favorable and with merger pains
behind,focus is now on growth.Target loan growth is 20%pa with a focus
on increasing margins and diversifying revenue stream.This includes higher
loan growth in Auto (4W),Micro (high-end and pawn shop)and Syariah
(retail).

 Diversifying revenue stream — Transactional banking will be the focus to
diversify revenue stream (L/C)and other trade-related services.

 Pressures on yields — Competition in mortgages is strong and bringing down
yields.Rates for BNGA are down to 9.25%(lowest is 8.8%)with the risk of
further decline (first two year rates only).Increase in BI rates impacts with a
2-3 year lag on mortgage and auto loans.Auto loans NPLs are 50bps lower
than mortgages.

 CASA — Raising CASA from 48%to 60%in the next two years is a
challenge.Already has 3mn deposit accounts and charges Rp5,000 to
Rp9,000 per month as administration fees.

Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 1, Bank Central Asia (BBCA.JK;Rp5,750;3M)

 Takeaways from Jakarta — Bank Central Asia presented at Citi's Indonesia
Investor Conference on Aug.4-5.Below are key takeaways.

 Loan growth pickup — Loan growth has picked up strongly since Q2,,and
2010 growth is likely to be at least 20%.Corporate loans have been the
positive surprise,and demand is a balance between investment and working
capital loans.No risk of economy heating up in the near future.

 Credit costs — Lower credit cost is more a function of absence of new NPLs.
This is driven by the strong economic environment.The recovery trend has
been as in the past.

 Challenges — While management is striving to grow loans,achieving the
75%desired level (of Bank Indonesia)is unlikely.Total loans (Rp131trn)are
51%of deposits,but total loans plus facilities (Rp191trn)are 75%of
deposits.The impact on CAR is also unclear,as achieving the desired level
of LDR will bring it below 12pc (another BIs desired floor).Mortgage risk
charge is only 40pc,so is a desirable growth avenue,particularly with low
cost of funds.

 Deposit growth — Deposit growth momentum is healthy,and CASA growth is
meeting the loan growth.Saving deposit growth is slow,in line with the
industry.

Valuation
Our target price of Rp5,600 is based on a 2011E P/E of 15.3x,+1sd (1.8x)
above the stock's average (13.5x)since 2006 because we believe we are in an
upcycle.A P/E approach helps capture the growth potential of the bank.

Risks
We rate BBCA shares Medium Risk,while our quantitative risk-rating system,
which tracks 260-day historical share price volatility,rates Indonesian banks
High Risk.With the Indonesian economy stabilizing quickly,BCA warrants a
Medium Risk rating,in our view.Upside risks to our target price include
sustained liquidity inflow,strong loan demand due to benign inflation
(consumer/microfinance)and a sharp export recovery (corporate).Downside
risks to our target include:1)lower-than-projected growth;and 2)reversal of
the US carry trade.

Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 1, Astra Agro Lestari (AALI.JK;Rp19,200;1L)

 Takeaways from Jakarta — Astra Agro Lestari presented at Citi's Indonesia
Investor Conference on Aug.4-5.Below are key takeaways.

 FFB volume decline — Unfavorable weather during 1H10 and previous
fertilizer usage cuts caused FFB volume to decline primarily among plasma
palm oil producers.AALI had more than 40%plasma exposure in Sumatra.
Meanwhile,in their efforts to conserve cash,some of the plasma palm oil
producers had cut their fertilizer usage during the financial crisis in 2008.
This led to a 14%YoY yield decline in FFBs harvested from AALI ’s plasma (a
total of 404,000 tons)while the yield of nucleus palm oil producers were
only down 6.5%YoY (1.4m tons).

 Replanting — Palm oil trees in Sumatra are older in age ((past the optimum
yield age of 7-18 years).Thus,replanting efforts are more focused in this
area.

 Higher OER compensated for lower FFB yield — As of June 2010,oil
extraction rate (OER)increased from 22.68%to 23.40%.Hence,1H10 CPO
production was only down 5.7%YoY to 471,000 tons despite an 8.3%YoY
decline in FFB harvest to 1.8 million tons due to falling FFB yields from 10
tons/ha to 8.59 tons/ha.

 2H10 production outlook more favorable — Going into 2H10,,AALI expects
production to improve on the back of:a)improved weather conditions,b)
less negative effects of the previous fertilizer usage cuts,c)seasonality
factor (the second half of the year is typically a stronger production period
than the first half),and d)ongoing intensification initiatives,i.e.improved
farming techniques,better fertilizer application,mechanization and other
efforts to boost productivity.

 New planting slowdown;exploring PNG — As at 6M10,AALI only planted
1,337 ha and it is targeting 3k ha by year end.Going forward,AALI expects
its new plantings to slow down given more stringent criteria in its land
acquisition/purchase policy post the Norwegian moratorium.Land surveys
that previously only took AALI 3-4 days to complete can now take 3-4 weeks.
This was the primary reason for the increase in professional fees and
training and education costs from Rp17bn and Rp5.2bn to Rp32.3bn and
Rp8.3bn in 1H10 respectively.AALI is also exploring opportunities and
conducting feasibility studies in Papua New Guinea.

 Capex spending — 6M10 capex spending rose 11.6%YoY to Rp643.8bn.Of
the Rp643.8bn,62.5%(Rp402.5bn)was spent on plantations,while the
remaining 28%and 9.4%were spent on non-plantations,and mills &ports
respectively.AALI expects FY10 capex to be at similar levels with FY09
capex of Rp1.3trn.

 Mechanization of fertilizer application — Through mechanization,fertilizer
application is expected to be more efficient and effective.Under manual
fertilizer,a worker can only cover an area of 15 ha/day.With the new
mechanized fertilizer application method,the coverage can be increased ten
folds.Fertilization of 50,000 ha (primarily over flatter areas),out of AALI ’s
total planted area of 265k ha,has already been mechanized.AALI is working
on mechanizing another 25,000 ha of sloping/rolling land area within the
next couple of months.

Valuation
Our target price for AALI of Rp27,720 is based on an average of 2010E and
2011E EPS (in 55:45 ratio)of Rp1,686 and PE multiple of 16.4x,the average
of 1)the stock's historical P/E mean of 13.5x and 2)1sd above the average,
which equates to 19.4x and factors in its improved growth prospects.As a
cross-check,we employ DCF based on cash flows out to 2019E and a terminal
value of 9.8x EV/EBITDA,a derivation of a constant growth multiple.We use a
discount rate of 12.5%,which imputes an Rf of 9%(to better reflect current
market conditions)and a market risk premium of 6%.Our DCF yields a net
present value of Rp27,030/share.

Risks
We rate AALI Low Risk as per our quantitative risk-rating system,which tracks
260-day historical share price volatility.Risks that could prevent the stock from
reaching our target price include:a)CPO price volatility;b)Fluctuating crude-
oil prices;c)Poor weather conditions that might hamper CPO production;and
d)Fluctuating USD-IDR rates.

Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 1, Indonesia Strategy:BKPM Talk

 BKPM talk — Gita Wirjawan,Chairman of the Indonesian Investment
Coordinating Board,spoke at a luncheon at Citi's Indonesia Investor
Conference on Aug.4-5.Below are key takeaways.Mr.Wirjawan,a 42-year
old former banker and a private equity principal,joined the cabinet in
October 2002.BKPM (www.bkpm.go.id)seeks to become the main
interlocutor between business and government in Indonesia.BKPM presents
investment opportunities and provide services to potential and existing and
investors.

 Investment required — The government estimates that Indonesia needs to
invest up to US$1trn during the current president ’s term of 2009-2014.By
then,the economy is expected to reach US$950bn if Indonesia grows by 6-
7%per annum.Of these total investments,approximately 15%will have to
be raised through new investments in infrastructure which are currently the
main focus of BKPM.

 Challenges faced by BKPM — These include::streamlining approval
processes and simplifying land ownership law.BKPM has streamlined
licensing processes and cut the time required to get a license to 5 hours and
at most a week.A draft land law is in the works and parliament deliberation
is expected to commence soon.A 2007 government attempt to put a price
cap on land acquisition prices for infrastructure projects through a
Presidential Decree did not bring the expected result.

 Roads and power — Indonesia is projected to require 20,000km of new
roads and 25GW of new power generation capacity over the next five years.
BKPM believes that if these and other infrastructure build-out targets are
accomplished,then industrialization will take place along with the build-out.

 Risks — What could derail the government ’s efforts in developing
infrastructure is not political,because Mr.Wirjawan believes that democracy
is well established over the past five years and the current political system is
stable.He is more concerned with potential ‘sectoral ego ’ ((turf battle)among
certain departments within the government.Mr.Wirjawan did not see much
room within the current budget to help push this infrastructure build-out,
hence private sector participation is key.He estimated that the current
budget only has no more than 3-4%‘space ’ to be spent on infrastructure.