Indonesia Banks

Asia Pacific Equity Research
30 January 2013
Indonesia Banks
Financials Forum Feedback & Upgrade BMRI to OW
Discussions at our 11th annual Indonesia & Malaysia Financials forum last week highlighted the contrast between cautious investors and optimistic managements. Overall the message was that banks sounded positive on the outlook going into 2013. In some cases we discerned improvements in earnings drivers compared to a quarter ago. We see the sector as wellpositioned to maintain its recent outperformance, with 4Q results as a near-term catalyst. We were reassured that BBRI continues on its recovery trajectory. Smaller companies that participated, BFIN and BJTM, both trade at near 1x FY12E consensus P/BV. BMRI attracted the most investor interest; we have upgraded it to OW with a Rp10,600 Dec-13 PT. Banks optimistic about 2013. Feedback from banks is that they are anticipating slightly slower system credit growth in FY13. Deposit rates are ticking up, but mix shifts to lower-cost funds are cushioning large banks. Asset quality remains benign but costs are a concern. November BI data point to a 4Q results surprise. BI data show that banking sector net profit grew by 23% y/y in 11M FY12. We did not sense any one-offs other than normal year-end adjustments, in our conversations. This suggests upside risks to FY12E consensus EPS growth of 11%. BBRI kicks off the results season on the 31st.. Consensus estimates imply an 18% y/y drop in 4Q PAT. Banks have beaten the JCI by 6% over the past quarter, and any positive surprise could spur gains. BMRI. BMRIs management expects higher margins in FY13, and an improved contribution from subsidiaries. Investor feedback is overwhelmingly that BMRIs growth potential is being underrecognized by markets. We concur, and have upgraded BMRI to OW with a Rp10,600 Dec-13PT. BBRI. Our key takeaway was the effort BBRI has put into beefing up its deposit network. In FY12, BBRI doubled its ATM network to 14,000 (the largest nationwide). All micro outlets are ATM-enabled, and management expects to see benefits to the deposit profile and transaction fees. Maintain OW, with Rp8,700 Dec-13 PT. BJTM (Not Covered). Most investors were meeting East Java Development Bank for the first time. Areas of discussion included structures and systems reported risk management issues. The stock trades at a 5.5x FY12E consensus P/E with a 7.7% FY12E consensus dividend yield. BFIN (Not Covered). Multi-finance company BFIN presented a positive medium-term picture of its business. BFIN trades at 6x FY12E consensus P/E. Investors were curious about the potential for dividends (the company has not paid a dividend since 2010).
Banks Aditya Srinath, CFA

AC
(62-21) 5291-8573 aditya.s.srinath@jpmorgan.com PT J.P. Morgan Securities Indonesia
Josh Klaczek
(852) 2800-8534 josh.klaczek@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Indra Cahya
(62-21) 5291-8575 indra.cahya@jpmorgan.com PT J.P. Morgan Securities Indonesia
Table 1: Valuation summary

Price BMRI BBRI BJTM BFIN 8,650 7,800 390 2,200 P/E (x) 13E 11.9 10.2 5.6 5.1 P/BV (x) 13E 2.3 2.5 0.9 0.9 ROE (%) 13E 21.3 26.8 18.4 19.0
Source: Bloomberg, priced as of 29-Jan-13
Figure 1: MSCI Indo Fin - 12m Fwd PBV

4 3 2 1 J-06 O-07 J-09 A-10 J-11 O-12
Source: Bloomberg.
See page 24 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com
Aditya Srinath, CFA (62-21) 5291-8573 aditya.s.srinath@jpmorgan.com
Asia Pacific Equity Research 30 January 2013
Figure 2: P/BV (y-axis) vs ROE (x-axis) scatter

x, %
Source: Bloomberg consensus 12M forward
Figure 3: MSCI Indonesia Fin - 12M Fwd P/BV

x MSCI Indo Fin is currently trading near its long-term PBV average, having broken its derating trend since mid-year
4.0 3.5 3.0 2.5 2.0 1.5 1.0 J-06

Source: Bloomberg.
+ 1 SD
Avg - 1 SD MXID0FN - BEst 12M Fwd PBV A-07 J-08 O-08 J-09 A-10 J-11 O-11 J-12
Figure 4: MSCI Indo Fin P/BV premium to MSCI Asia ex-Japan Fin
% MSCI Indo Financials P/BV premium to MSCI Asia exJ Fin premium has come off substantially since 3Q FY11 Premiums are at the low end of their recent range
160% 140% 120% 100% 80% 60% 40% 20% 0% J-06

Source: Bloomberg
MXID0FN - PB Premium (%) to MSCI AC AS xJ/FINANCE
A-07
J-08
O-08
J-09
A-10
J-11
O-11
J-12
Companies
3

30 January 2013
Overweight
PT Bank Mandiri Tbk.

Waiting in Vain: Upgrade to OW
Previous: Neutral BMRI.JK, BMRI IJ Price: Rp8,650
Price Target: Rp10,600

Previous: Rp7,250
We upgrade BMRI to OW with an Rp10,600 PT. Strong execution renders our erstwhile Neutral stance unjustifiably cautious we believe. Robust earnings drivers elevate the risk of upside as we head into results season for the Banks, and we no longer recommend waiting for a pullback. Upgrade to OW: After about six months of waiting in vain for a meaningful pullback, we upgrade BMRI, believing that strong delivery adds to the risk of compounding our previous error of caution as we go into results season. After consolidating in H2FY12, we find the 2.3x 12M fwd PBV, reasonable compared to history and expect BMRI to outperform, given a rising RoE trajectory. Whats left to be priced in? Our new FY13 estimates are 6% higher than consensus. We believe that there could be upside from: a) higher 3M SPN yields in 1Q, a better asset mix and the possibility that BMRI could offload another tranche of low-yield bonds adding up to margin upside, b) better performance from non-insurance subsidiaries, which we believe could add 3-5% to earnings, c) asset quality risks remain reined in. What did we get wrong? We think we went wrong on two counts. First we worried about BMRI being a consensus OW, underestimating the impact of better-than-expected execution. Our bigger error, however, was in just focusing on BMRIs PBV relative to peers in conjunction with RoEs. This approach assumes identical long-term growth rates. We now recognize BMRIs management is showing the ability to innovate and open up new segments (branchless banking, post office partnerships etc.), which we think may broaden their addressable markets relative to peers. This, over time, should translate to higher absolute capitalization. What are the risks: A key risk is that we are late on the call. Foreign holdings in BMRI declined by 1.3% in December but remain elevated. Finally, we see the stock exposed to any deterioration in asset quality.
PT Bank Mandiri Tbk. (Reuters: BMRI.JK, Bloomberg: BMRI IJ) FY09A FY10A FY11A Operating Profit (Rp bn) 12,392 17,222 20,286 Net Profit (Rp bn) 7,155 9,218 12,246 Cash EPS (Rp) 337.41 431.98 528.57 DPS (Rp) 94.06 122.50 145.79 EPS growth (%) 33.8% 28.0% 22.4% ROE 21.8% 24.1% 23.7% P/E (x) 25.6 20.0 16.4 BVPS (Rp) 1,646.28 1,945.53 2,648.28 P/BV (x) 5.3 4.4 3.3 Dividend Yield 1.1% 1.4% 1.7% Fully Diluted EPS (Rp) 337.41 431.98 528.57
Source: Company data, Bloomberg, J.P. Morgan estimates.
Indonesia Banks Aditya Srinath, CFA

AC
Josh Klaczek
Indra Cahya
Price Performance
10,000 9,000 Rp 8,000 7,000 6,000
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13
BMRI.JK share price (Rp) JCI (rebased)
Abs Rel
YTD -10.8% -6.5%
1m 6.8% 4.0%
3m 5.5% 3.0%
12m 30.1% 16.7%
FY12E 23,112 14,812 634.82 189.19 20.1% 21.9% 13.6 3,138.65 2.8 2.2% 634.82
FY13E 28,691 18,074 774.59 229.17 22.0% 22.7% 11.2 3,684.07 2.3 2.6% 774.59
Company Data 52-week Range (Rp) Market Cap (Rp bn) Market Cap ($ bn) Shares O/S (mn) Fiscal Year End Price (Rp) Date Of Price 3M - Avg daily value (Rp mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) JCI Exchange Rate
8,900-6,000 184,702.70 18.79 21,353 Dec 8,650 29 Jan 13 181,568.60 18.5 21.94 4439.03 9,831.87
Company Description BMRI is 67% owned by the Indonesian government. The Bank was formed via a merger of several state-owned banks in the aftermath of the Asian crisis. After an NPL-related crisis in 2005, a new management team steered the bank back to health. BMRI's strength is its corporate lending franchise and the bank is working to develop its higheryielding business, including car loans both organically and inorganically.
P&L sensitivity metrics (FY12E)

Net Interest Margin (5.5%) Impact of each 1% Loans growth (13.2%) Impact of each 1% NPL Coverage (230%) Impact of each 5% Operating Expenses Growth (15%) Impact of each 1%
Source: J.P. Morgan estimates.
PPOP impact (%) 24.6% 1.1% 0% -0.8%
EPS impact (%) 29.0% 1.1% 1.9% -0.9%
Price target and valuation analysis
Breakdown of Loans (FY11)
Our Dec 2013 price target is based on a DDM methodology, assuming that BMRI reverts to a 35% profit payout long term. We estimate longterm sustainable ROE at 21.1%, and peg long-term growth at 9%. We use a 6.5% risk-free rate for Indonesian equities and value BMRI with a 1.1 Beta.
Micro 3% Consu mer 25% Comml + SME 35%

Source: Company Data.
Corpor ate 37%
Risk-free rate: Market risk premium: Beta: Cost of Equity Terminal g: Sustainable ROE
6.5 8.0 1.1 15.1 9.0 22.9
EPS: J.P. Morgan vs. consensus

J. P. Morgan FY12E FY13E FY14E 635 775 921 Consensus 621 725 853
At our target price, BMRI would trade at 2.6x 12M forward PBV by end Dec 2013. Key risks include faltering in growth and if the Bank regresses from its path of change within the organization over the medium term. Banks also face elevated policy risk, and lags in passing through higher deposit rates to borrowers could also be a risk to estimates and hence our PT. On the downside, we use a 4% yield on BMRI's floating-rate bonds, which could be exposed to downside risks.
Source: J.P. Morgan estimates, Bloomberg BEST.
BMRI: Valuation & Investor Positioning

BMRIs stock price has broadly moved sideways over the last six months. During this period, we see fundamentals having evolved favorably, and hence believe that this could be an opportunity. Over the last two quarters, RoE estimates for the bank have risen, while PBV multiples have moved sideways. We believe this could be rectified as we head into 2013, underpinning our OW thesis.
Figure 5: BMRI - Fwd PBV and ROE
x,%
3.5 3.0 2.5 2.0 1.5 1.0 0.5 A-06 J-07 O-07 J-08 A-09 J-10 O-10 J-11 A-12 J-13
Source: Bloomberg.
24 + 1 SD Avg 22 20 18 16 - 1 SD BMRI IJ - BEst 12M Fwd PB Ratio BMRI IJ - BEst ROE (RHS) 14 12 10
Our earlier concern about concentrated foreign investor positioning remains, and is a downside risk to our view. However, we do note that foreign holdings declined (by 1.2%) in December.
Figure 6: BMRI - foreign ownership
85.0% 80.0% 10,000 8,000 6,000 4,000 2,000
BMRI Max and min frgn hldg Price (RHS)
Foreign holding (%of float)
75.0% 70.0% 65.0% 60.0% 55.0% 50.0% J-08 M-08 S-08 J-09 M-09 S-09 J-10 M-10 S-10 J-11 M-11 S-11 J-12 M-12 S-12
Source: KSEI, Bloomberg.
BMRI: Key Data in Charts

Figure 7: ROA (%)
4.0 3.5 3.0 2.5 2.0 1.5 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Source: Company data, J.P. Morgan calculation.
Figure 8: ROE(%)
40.0 35.0 30.0 25.0 20.0 15.0 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Figure 9: NPL (Rp bn)

11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Figure 10: NPL Ratio (%)

7.0 6.0 5.0 4.0 3.0 2.0 1.0 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Over the last four quarters, absolute NPLs have remained stable and coverage ratios improved. We do see some risk as BMRI pushes into micro lending, which may be reflected in broad NPL trends
Figure 12: Broad NPL Coverage (x)
0.65 0.60 0.55 0.50 0.45 0.40 0.35 0.30 0.25 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Figure 11: NPL coverage (x)

2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Source: Company data, J.P. Morgan calculation
PT Bank Mandiri Tbk.: Summary of Financials

Income Statement Rp in billions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income Per Share Data Rp EPS DPS Payout Book value Fully Diluted Shares Key Balance sheet Rp in billions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA FY10 5.9% 20,723 8,918 0 29,641 FY11 5.6% 22,535 14,350 0 36,885 FY12E 6.4% 28,332 13,869 0 42,201 FY13E 7.1% 34,742 15,976 0 50,718 Growth Rates FY14E 7.1% Loans - Deposits - Assets Equity 40,323 RWA 18,453 Net Interest Income - Non-Interest Income 0 of which Fee Grth Revenues 58,775 Costs Pre-Provision Profits (25,245) Loan Loss Provisions 33,530 Pre-Tax (6,595) Attributable Income 259 EPS - DPS 0 Balance Sheet Gearing 27,194 Loan/deposit (5,711) Investment/assets 12 Loan/Assets 21,495 Customer deposits/liab. LT debt/liabilities FY14E Asset Quality/Capital 921.23 Loan loss reserves/loans 232.38 NPLs/loans 25.2% Loan loss reserves/NPLs 4,341.84 Growth in NPLs 23,333 Tier 1 Ratio Total CAR FY14E Du-Pont Analysis 471,590 NIM (as % of avg. assets) (21,098) Earning assets/assets 492,687 Margins (as % of Avg. Assets) 8,791 Non-Int. Rev./ Revenues - Non IR/Avg. Assets 115,204 Revenue/Assets - Cost/Income 0 Cost/Assets 822,487 Pre-Provision ROA LLP/Loans 631,650 Loan/Assets 51,427 Other Prov, Income/ Assets - Operating ROA - Pre-Tax ROA - Tax rate 101,310 Minorities & Outside Distbn. 599,667 ROA 558,506 RORWA Equity/Assets ROE FY10 25.9% 15.8% 13.9% 18.3% 51.3% 26.4% 34.6% 28.7% 16.8% 39.0% 78.0% 29.1% 28.8% 28.0% 30.2% FY10 65.4% 88.9% 5.6% FY10 (4.6%) 2.3% 232.0% (8.7%) 12.0% 13.4% FY10 5.9% 30.1% 2.1% 7.0% 41.9% 2.9% 4.1% 4.1% 4.1% 32.9% 0.1% 2.2% 3.7% 24.1% FY11 23.3% 16.6% 22.7% 48.7% 33.0% 8.7% 60.9% 24.4% 33.7% 17.8% 13.0% 18.2% 32.8% 22.4% 19.0% FY11 69.6% 86.3% 6.0% FY11 (4.0%) 2.0% 215.0% 23.1% 14.1% 15.0% FY11 5.6% 38.9% 2.9% 7.4% 45.0% 3.3% 4.1% 4.1% 4.1% 23.1% 0.1% 2.4% 3.5% 23.7% FY12E 13.2% 11.4% 9.3% 18.5% 13.6% 25.7% (3.4%) 14.4% 15.0% 13.9% 0.9% 17.7% 21.0% 20.1% 29.8% FY12E 70.5% 89.0% 8.3% FY12E (4.2%) 1.9% 215.3% 5.0% 15.0% FY12E 6.4% 32.9% 2.4% 7.3% 45.2% 3.3% 4.0% 4.0% 4.0% 21.1% 0.2% 2.6% 3.5% 21.9% FY13E 17.7% 18.6% 15.6% 17.4% 15.6% 22.6% 15.2% 20.2% 15.4% 24.1% 36.9% 20.9% 22.0% 22.0% 21.1% FY13E 70.0% 91.5% 8.8% FY13E (4.1%) 1.8% 230.0% 14.5% 15.4% FY13E 7.1% 31.5% 2.5% 7.8% 43.4% 3.4% 4.4% 4.4% 4.4% 21.0% 0.2% 2.8% 3.7% 22.7% FY14E 20.9% 13.2% 18.0% 17.9% 15.9% 16.1% 15.5% 15.9% 14.6% 16.9% 21.2% 15.8% 18.9% 18.9% 1.4% FY14E 74.7% 87.7% 7.6% FY14E (4.3%) 1.8% 235.5% 20.9% 15.9% FY14E 7.1% 31.4% 2.4% 7.7% 43.0% 3.3% 4.4% 4.4% 4.4% 21.0% 0.1% 2.8% 3.8% 23.0%
(12,419) (16,600) (19,090) (22,027) 17,222 20,286 23,112 28,691 (3,485) (3,939) (3,974) (5,441) 236 166 294 236 0 0 0 0 13,972 16,512 19,431 23,486 (4,603) (3,816) (4,099) (4,932) (151) (450) (520) (480) 9,218 12,246 14,812 18,074 FY10 FY11 FY12E FY13E 431.98 528.57 634.82 774.59 122.50 145.79 189.19 229.17 28.4% 27.6% 29.8% 29.6% 1,945.53 2,648.28 3,138.65 3,684.07 21,339 23,168 23,333 23,333 FY10 236,709 (11,482) 248,191 4,919 22,346 0 449,549 FY11 293,994 (12,105) 306,099 6,053 44,141 0 551,655 FY12E 331,766 (14,613) 346,379 6,353 70,570 0 602,900 FY13E 390,874 (16,727) 407,601 7,273 83,715 0 696,764
362,212 422,250 470,468 558,101 19,632 34,382 50,192 49,886 41,543 61,793 73,235 85,962 296,337 394,217 447,697 517,344 246,101 345,277 420,957 482,520
Source: Company reports and J.P. Morgan estimates.

30 January 2013
Bank Rakyat Indonesia

Management doing the hard yards; low expectations on 4Q results a positive
Overweight
BBRI.JK, BBRI IJ Price: Rp7,800 Price Target: Rp8,700
Discussions at our financials forum highlight BBRIs efforts to rebuild the micro lending growth platform and boosting deposit/fee capabilities. We expect these moves to translate into higher growth. Consensus estimates imply an 18% y/y drop in 4Q FY12E PAT, and we see low expectations as a positive ahead of results on the 31st. We stay OW, with Rp8,700 PT. Financials forum feedback Boosting deposit competitiveness. The highlight of our discussions with BBRI was its execution of the ATM rollout. BBRI nearly doubled its footprint in FY12 to 14,000 ATMs. All micro outlets are now ATM-equipped. BBRI has increased ATM functionality from 67 features three years ago to 122 currently, catching up with peers. We see this as boosting transaction capabilities across the network, and it should boost deposit competitiveness. Consensus implying 4Q FY12 PAT decline of 14% q/q/18% y/y. We expect BBRI to report 4Q PAT of Rp4.4T, flat y/y & q/q. We estimate 4Q loans grew by 15%, and NPLs dipped to 2%. Provisioning typically declines in 4Q, and write-offs rise. Consensus FY12E PAT (Rp17.0T) implies 4Q PAT of Rp3.83T down 14% q/q and 18% y/y. Low expectations are a potential positive ahead of results. 2013 the year of pacing stock and recovery trajectory. We see FY13 as a year in which BRIs operating metrics should trend in the right direction. We expect micro growth to accelerate, and outpace overall credit growth by 4Q this year. We think the earnings impact may only follow in FY14. Consequently we see the potential for measured upside to the stock through this year, as gains from investors building comfort that the recovery is on track calibrated by the trajectory of BRIs operating metrics in coming quarters. Key risks. We see costs as a key risk to our estimates and PT. If investors do not perceive evidence of growth accelerating, the stock may not re-rate higher, putting our PT at risk.
Bank Rakyat Indonesia (Reuters: BBRI.JK, Bloomberg: BBRI IJ) FY10A FY11A FY12E Operating Profit (Rp bn) 22,339 23,509 23,314 Net Profit (Rp bn) 11,472 15,083 17,571 Cash EPS (Rp) 465.40 611.87 712.79 Fully Diluted EPS (Rp) 465.40 611.87 712.79 DPS (Rp) 0.09 0.07 0.12 EPS growth (%) 57.0% 31.5% 16.5% ROE 35.9% 34.9% 30.8% P/E (x) 16.8 12.7 10.9 BVPS (Rp) 1,487.72 2,019.20 2,603.68 P/BV (x) 5.2 3.9 3.0 Dividend Yield 0.0% 0.0% 0.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Indonesia Banks Aditya Srinath, CFA

AC
Josh Klaczek
Indra Cahya
Price Performance
8,000 Rp 7,000 6,000 5,000
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13
BBRI.JK share price (Rp) JCI (rebased)
Abs Rel
YTD -3.7% 0.6%
1m 12.2% 9.4%
3m 4.0% 1.5%
12m 13.0% -0.4%
FY13E 26,961 19,795 803.03 803.03 0.14 12.7% 27.4% 9.7 3,264.15 2.4 0.0%
FY14E 31,318 20,799 843.75 843.75 0.20 5.1% 23.7% 9.2 3,848.86 2.0 0.0%
Company Data 52-week Range (Rp) Market Cap (Rp bn) Market Cap ($ bn) Shares O/S (mn) Fiscal Year End Price (Rp) Date Of Price 3M - Avg daily value (Rp mn) 3m Avg. Daily Value ($ mn) 3mth Avg daily volume (mn) JCI Exchange Rate
8,000-5,150 192,274.70 19.56 24,651 Dec 7,800 29 Jan 13 227,017.80 23.1 31.11 4439.03 9,831.87
Company Description BRI is 57% owned by the Indonesian government. The Bank's focus is on microlending, via 4,420 micro outlets out of over 5,400 units across Indonesia. BRI has a rural focus, with 38% of credit extended outside of Java. The bank has expanded its corporate presence over the past few years, and 19% of lending is now corporate, although its micro business still accounts for the majority of its income. Over the past three years BRI has spearheaded the governments public business credit (KUR) loan scheme.
P&L sensitivity metrics (FY12E)

Net Interest Margin (7.7%) Impact of each 1% Loans growth (15.4%) Impact of each 1% NPL Coverage (210%) Impact of each 5% Operating Expenses Growth (16.4%) Impact of each 1%
Source: J.P. Morgan estimates
PPOP impact (%) 15.5% 1.5% 0% 0.80%
EPS impact (%) 22.0% 2.0% -5.0% -1.2%
Price target and valuation analysis
Breakdown of Loans (1Q FY12)
Our Dec-13 PT of Rp8,700 is based on DDM. We estimate that over the long term, sustainable ROE could trend lower to 24.6%, and we peg long-term growth at 9%. We use a 6.5% risk-free rate, and value BRI with a 1.1 Beta. At our price target BRI would trade at 2.5x 12M forward P/BV.
Risk free rate: Market risk premium: Beta: Cost of Equity Sustainable ROE Terminal g:
Source: J.P. Morgan estimates Source: Company Data
6.50 8.00 1.10 15.30 24.6 9.00
EPS: J.P. Morgan vs consensus

Rp FY12E FY13E FY14E
Source: Bloomberg, J.P. Morgan.
J. P. Morgan 713 803 844
Consensus 691 762 880
Risks to our view include if BRIs wholesale NPL credit issues return, or if capital constrains growth. BRI could also enter a phase of management transition in coming periods. If this results in a change in strategy, it could open up downside risk to our view and PT. BRIs corporate lending book is also at 20% of loans. If it moves higher, investors could question strategic focus, resulting in multiple derating.
10
BBRI: Valuations & Positioning

BBRIs valuations have stabilized at 2.4x 12M Fwd P/BV in the past couple of quarters. We see valuations as attractive, but believe that a reversal in the direction of consensus RoE estimates is probably necessary to precipitate a sustained rerating.
Figure 13: BBRI 12m fwd P/BV
4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 A-06
Source: Bloomberg
31 + 1 SD 30 29 Avg - 1 SD BBRI IJ - BEst 12M Fwd PB Ratio BBRI IJ - Best ROE (RHS) 26 J-07 O-07 J-08 A-09 J-10 O-10 J-11 A-12 J-13 27 28
Foreign ownership in BBRI has been on a steadily declining trend since 3Q FY10. We believe that this is also reflected in the limited confidence in the stock, and to us indicates potential upside as investors gain confidence that management is executing on plans to accelerate organic profit growth.
Figure 14: BBRI Foreign ownership
90.0% 88.0% 86.0% 84.0% 82.0% 80.0% 78.0% 76.0% 74.0% 72.0% J-08 M-08 S-08 J-09 M-09 S-09 J-10 M-10 S-10 J-11 M-11 S-11 J-12 M-12 S-12
Source: KSEI, Bloomberg.
BBRI Max and min frgn hldg Price (RHS)
8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
Foreign holding (%of float)
11
BBRI: Key Data in Charts

Figure 15: ROA (%)
5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Source: Company, J.P. Morgan calculations
Figure 16: ROE (%)

60.0 55.0 50.0 45.0 40.0 35.0 30.0 25.0 20.0 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Figure 17: NIM (%)

15.50 14.50 13.50 12.50 11.50 10.50 9.50 8.50 7.50 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Figure 18: NPL ratio (%)

5.0 4.5 4.0 3.5 3.0 2.5 2.0 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Figure 19: NPLs (Rp B)

12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Figure 20: NPL coverage (x)

2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
BBRI tends to bunch up non-retail loan write-offs in 4Q of every year. This is one reason why we expect provisioning to decline q/q in 4Q FY12, and it may be an area where the Street is too conservative on earnings
12
Bank Rakyat Indonesia: Summary of Financials

Income Statement Rp in billions, year end Dec NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Dealing Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income Per Share Data Rp EPS DPS Payout Book value Fully Diluted Shares Key Balance sheet Rp in billions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA FY10 11.4% 32,888 5,563 38,450 FY11 10.3% 34,418 6,143 40,561 FY12E 9.5% 35,977 7,178 43,155 FY13E 9.2% 40,314 9,169 49,483 Growth Rates FY14E 9.1% Loans - Deposits - Assets Equity 46,600 RWA 10,618 Net Interest Income - Non-Interest Income of which Fee Grth Revenues 57,218 Costs Pre-Provision Profits (25,900) Loan Loss Provisions 31,318 Pre-Tax (6,549) Attributable Income 1,559 EPS - DPS - Balance Sheet Gearing 26,328 Loan/deposit (5,529) Investment/assets 0 Loan/Assets 20,799 Customer deposits/liab. LT debt/liabilities FY14E Asset Quality/Capital 843.75 Loan loss reserves/loans 0.20 NPLs/loans 0.0% Loan loss reserves/NPLs 3,848.86 Growth in NPLs 24,651 Tier 1 Ratio Total CAR FY14E Du-Pont Analysis 477,798 NIM (as % of avg. assets) (16,494) Earning assets/assets 494,293 Margins (as % of Avg. Assets) 8,247 Non-Int. Rev./ Revenues - Non IR/Avg. Assets 28,450 Revenue/Assets - Cost/Income - Cost/Assets 711,247 Pre-Provision ROA LLP/Loans 555,385 Loan/Assets - Other Prov, Income/ Assets - Operating ROA - Pre-Tax ROA - Tax rate 94,877 Minorities & Outside Distbn. 470,045 ROA 449,101 RORWA Equity/Assets ROE FY10 FY11 FY12E FY13E FY14E 26.1% 14.3% 15.4% 19.6% 19.3% 30.4% 15.2% 6.9% 17.8% 14.8% 27.6% 16.2% 8.3% 16.8% 19.6% 34.5% 35.7% 28.9% 25.4% 17.9% 36.9% 22.7% 27.1% 16.8% 9.8% 50.0% 4.7% 4.5% 12.1% 15.6% 26.6% 10.4% 16.9% 27.7% 15.8% 46.1% 5.5% 6.4% 14.7% 15.6% 34.6% 5.8% 16.4% 13.5% 15.0% 55.7% 5.2% (0.8%) 15.6% 16.2% 37.2% (25.8%) (59.8%) 40.4% 97.2% 50.7% 25.8% 17.5% 13.7% 5.1% 57.0% 31.5% 16.5% 12.7% 5.1% 57.0% 31.5% 16.5% 12.7% 5.1% (53.7%) (21.2%) 74.4% 16.6% 40.8% FY10 FY11 FY12E FY13E FY14E 74.5% 74.0% 80.8% 82.8% 86.0% 90.8% 91.5% 92.4% 94.1% 90.1% FY10 FY11 FY12E FY13E FY14E (5.3%) (5.3%) (4.1%) (3.3%) (3.3%) 3.0% 2.4% 2.1% 1.8% 1.7% 179.9% 223.7% 226.9% 205.0% 200.0% (5.1%) (5.0%) 4.6% 1.4% 19.3% 13.9% 15.9% 16.4% 17.9% 19.3% 17.8% 20.3% 19.6% 20.1% 20.9% FY10 FY11 FY12E FY13E FY14E 11.4% 10.3% 9.5% 9.2% 9.1% 14.5% 15.1% 16.6% 18.5% 18.6% 1.5% 1.4% 1.5% 1.7% 1.6% 10.7% 9.3% 8.8% 9.0% 8.8% 41.9% 42.0% 46.0% 45.5% 45.3% 4.5% 3.9% 4.1% 4.1% 4.0% 6.2% 5.4% 4.8% 4.9% 4.8% 6.2% 5.4% 4.8% 4.9% 4.8% 6.2% 5.4% 4.8% 4.9% 4.8% 23.0% 19.6% 20.3% 21.0% 21.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.2% 3.5% 3.6% 3.6% 3.2% 35.9% 34.9% 30.8% 27.4% 23.7%
(16,112) (17,052) (19,841) (22,522) 22,339 23,509 23,314 26,961 (7,935) (5,886) (2,366) (3,321) 505 1,134 1,091 1,417 14,908 18,756 22,038 25,057 (3,436) (3,668) (4,463) (5,262) 0 (5) (5) 0 11,472 15,083 17,571 19,795 FY10 FY11 FY12E FY13E 465.40 611.87 712.79 803.03 0.09 0.07 0.12 0.14 0.0% 0.0% 0.0% 0.0% 1,487.72 2,019.20 2,603.68 3,264.15 24,651 24,651 24,651 24,651 FY10 248,511 (13,991) 262,503 6,866 123 404,277 FY11 284,207 (15,952) 300,159 6,522 18,494 469,898 FY12E 332,138 (14,322) 346,460 6,820 23,589 509,087 FY13E 400,491 (13,826) 414,316 6,913 23,589 594,664
333,652 384,264 410,880 483,866 36,673 49,775 64,182 80,463 235,082 288,484 366,542 428,158 203,402 261,783 327,513 397,350
Source: Company reports and J.P. Morgan estimates.
13

30 January 2013
Company Visit Note

BJTM: East Java Deposit Franchise
We hosted the management of BJTM at our recent Financials Forum. BJTM is a regional development bank owned by East Java Provincial Government. They have strong deposit franchise, and have been a leading provider of consumer loan to civil servants in East Java. The stock trades at 0.94x consensus FY13E PBV, and has depreciated 10.5% since its IPO in July 2012. Strong deposit Franchise: The Development Bank of East Javas (BJTM) affiliation with East Java provincial government provides it with a source of deposits. The Bank has maintained a Current and Savings account (CASA) ratio at over 70% since FY07. BJTMs CASA ratio as of Dec-12 was 80%, on a par with BBCA. Market leader in providing multipurpose loans to civil servants in East Java. BJTM has exclusive agreement with East Java Provincial Government to provide multipurpose loans to civil servants. As of Dec-12, multipurpose loans accounted for 57% of total loans and 90% of consumer loans. BJTM reports a 52% market share in this segment. The multipurpose loans are payroll loans where payment is directly deducted from monthly salary and yield 16-18%. NPL's were 0.19% ( Dec-12) . Strong loan growth driven by KUR and commercial loans. BJTMs total loans grew 23.6%p.a. during FY09-FY12. During the period, multipurpose loans grew 11.8% while KUR (low end micro credit) grew 22.2%. BJTM also began providing commercial and corporate loans in FY10, which have grown 50% annually. As of Dec-12, KUR and commercial loans were 9.8% and 18.3% of total loans, respectively. Valuation. Since listing, the stock has depreciated 10.5% and is currently trading at 12m fwd consensus PBV of 0.94x. Consensus estimates RoE of 18% over FY12-14E. Based on consensus estimates dividend yield stands at 9% (FY13E) and 7.7% (FY12E).
NOTE: THIS DOCUMENT IS INTENDED AS INFORMATION ONLY AND NOT AS A RECOMMENDATION FOR ANY STOCK. IT CONTAINS FACTUAL INFORMATION, OBTAINED BY THE ANALYST DURING MEETINGS WITH MANAGEMENT. J.P. MORGAN DOES NOT COVER THIS COMPANY AND HAS NO RATING ON THE STOCK. PT Bank Pembangunan Daerah Jawa Timur, Tbk (Bloomberg: BJTM IJ, Reuters: BJTM.JK)
year-end Dec Operating Income (Rp bn) Net profit (Rp bn) EPS (Rp) DPS (Rp) Op.Inc. growth (Y/Y %) EPS growth (Y/Y %) ROCE (%) ROE (%) P/Sales (x) P/E (x) P/B (x) Dividend yield (%) FY09 746 517 NA NA NA NA NA NA NA NA NA NA FY10 1,147 850 NA NA 53.7 NA 4.5 35.3 NA NA NA NA FY11 1,171 860 NA 2.0 NA 3.8 28.6 NA NA NA NA FY12E 1,143 836 72 30 (2.4) NA 3.1 17.9 2.5 5.5 0.9 7.7 FY13E 1,319 1,034 70 35 15.4 (2.8) 3.0 18.4 2.3 5.6 0.9 9.0 FY14E 1,596 1,199 81 43 21.0 15.8 3.2 18.3 1.9 4.8 0.8 11.0 Stock data Shares O/S (mn) Market Cap (Rp bn) Market Cap ($ mn) Price (Rp) Date of Price Free float(%) Avg Daily Volume (mn) Avg Daily Value (Rp bn) Avg Daily Value ($ mn) JCI Exchange Rate Fiscal Year End 14,918 5,818 598 390 28-Jan-13 18.00 16.71 6.33 0.65 4,390 9,790 Dec

AC
Josh Klaczek
Indra Cahya
Figure 21: 6mth Price Chart

120
BJTM I rebased JCI Index Rebased
100
80 A-12
Source: Bloomberg.
O-12
D-12
Table 2: Price performance

Abs Rel. (vs JCI)
Source: Bloomberg.
1M 2.6 0.9
3M 4.0 2.8
6M (8.2) (15.7)
Source: Company data, Bloomberg consensus e.
Fueled by CASA, growing SMEs and commercial loan

Table 3: Selected Banks CASA Ratio
% BBCA BBNI BJTM* BMRI BTPN BJBR Dec-11 77.0 63.7 76.1 58.8 16.9 46.3 9M12 79.5 64.2 80.3 59.0 16.5 43.6
Strong CASA account. BJTM has historically been able to maintain a strong CASA ratio above 70% since FY07. BJTMs saving products: Simpeda, Siklus, TabunganKu and Tabungan Haji, are marketed to customers in the East Java region. As of FY12, their saving deposits accounted for 36% of their total third party funds. In addition, their position as the payment bank of East Java Provincial Government, enable them to capture regional government cash accounts, and maintain demand deposits at 44% of total deposits.
Figure 22: BJTM CASA Ratio
%
Source: Company data, Bloomberg *) as of Dec-11 and Dec-12
82 80 78 76 74 72 70 2007
Source: Company data.
CASA Ratio (%) 79 76.3 76.3 76.1
80.3
71.3
2008
2009
2010
2011
2012
Figure 23: Loan Breakdown (2012)

SME 19%
Strong in consumer, growth with KUR and commercial loan. Traditionally, BJTMs core lending product has been its multipurpose loan; accounting for 90% of consumer loans and 57% of total loans as of Dec-12. This product loan is exclusively offered to the civil servants of East Java Provincial Govt. It is a high-yielding loan (interest 16-18% p.a.) with a low risk as the payment is directly deducted from civil servant's monthly salary. As of Dec-12, NPL for this type of loan is 0.19%. Currently BJTM serves 52% of 471,814 civil servants in East Java. BJTM expects growth from an increase in the number of civil servants (14%/8% p.a. in FY11/FY12), increase in market share and in the average size of loan (FY12 avg at Rp41.1mn 12% annual increase of FY09 avg at Rp29.2mn). Going forward, BJTM aims to target retirees and employees of private companies. Total Loan CAGR in FY09-FY12 was 23.6%. However, multipurpose loans grew 11.8% annually, while KUR (small business microcredit) grew 22.2%pa over the last 3 years. BJTM also started providing medium and corporate loans in 2010, growing 49.7% in FY10-FY12. The company has stated they will focus on growing SMEs and commercial loans as well.
15
Com merci al Loan 18%

Consu mer Loan 63%
Table 4: Loan Growth

Rp trillion, % Total Loan Multipurpose Loan KUR Medium&Corp
Source: Company data. *) CAGR 2010-2012
FY08 7.4
FY09 10 7.18 1.99
FY10 12.9 8.28 2.32 0.77
FY11 16.1 8.87 3.17 1.71
FY12 18.9 10.02 3.64 1.72
CAGR FY09-FY12 23.6% 11.8% 22.2% 49.7%*)
Table 5: Shareholder composition

Shareholder East Java Provincial Govt Country Municipal Government of East Java Public
Source: Company data, per Jan-13
Business Profile
Established in 1961, BJTM is a regional development bank owned by the provincial government of East Java. In 1990, BJTM obtained a license to operate as a foreign exchange bank. As of December 2012, BJTM operates 41 branches, 89 sub-branches and 211 cash/service offices, almost all of them are concentrated in East Java.
Table 6: BJTM Financial Summary
Rp in billion Ratio ROA ROE Gross NPL Eff. Ratio LDR NIM CAR Cost of Fund Balance Sheet Customer Deposits Demand Saving Time Lending Impairment loss Income Statement Net Interest Income Operational Profit Net Profit
Source: Company Presentation, January 2013.
% own 51.46% 28.54% 20.00%
2010 5.58 35.32 0.65 59.58 79.8% NA 19.19 4.3 16,218 6,996 5,823 3,399 12,945 NA
2011 4.97 28.6 0.97 60.02 79.9% NA 16.53 4.1 20,143 8,204 7,133 4,806 16,100 (100) 1,924 1,181 860
2012 3.41 17.45 2.95 68.2 85.1% 6.55% NA 3.3 22,209 9,662 8,174 4,373 18,900 (255) 1,962 1,008 768
Y/y
10% 18% 15% -9% 17% 153% 2% -15% -11%
16
Valuation
BJTMs PBV has been de-rated to 0.9x PBV from its initial 1.1x at IPO.
Figure 24: BJTM IJ - 12m Fwd PBV

1.2 BJTM IJ - BEst 12M Fwd PB Ratio 1.1 1.0 Avg 0.9 - 1 SD 0.8 13-Jul-12
Source: Bloomberg.
+ 1 SD
13-Aug-12
13-Sep-12
13-Oct-12
13-Nov-12
13-Dec-12
13-Jan-13
Figure 25: ROE (x-axis) vs PBV (y-axis)

%, x BJTMs consensus 12M fwd ROE of 18% is in line with sector median level, but PB valuation is at discount to the sector at less than 1x.
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 10 12 14 16 18 20 22 PNBN BDMN BBNI BBTN BBKP Average Median BNGA
B JTM
BBCA BTPN BMRI BBRI BJBR
24
26
28
Source: Bloomberg, as of 29 Jan 2013
Table 7: Peers Comparison

Mcap US$mm 23.67 20.97 19.53 7.33 3.04 5.97 0.54 2.95 1.53 1.70 1.17 0.59 Asset Rp trn 427 588 483 310 56 150 61 191 141 99 68 33 Deposit Rp trn 358 431 385 239 43 87 50 146 100 69 51 26 Loan Rp trn 242 370 326 187 37 113 42 139 95 77 35 19 LDR % 67.8% 85.7% 84.6% 78.4% 87.1% 130.3% 83.6% 95.3% 94.1% 110.6% 69.6% 70.7% NIM % 5.53 5.35 8.37 5.91 12.98 9.84 4.85 5.99 4.64 5.52 6.73 6.55 NPL % 0.42 2.02 1.83 1.75 0.65 2.23 3.27 2.35 1.50 3.05 1.58 2.72 CAR % 14.81 16.08 15.95 17.05 21.59 18.75 16.25 15.46 17.25 15.22 23.22 25.4 Eff.Ratio % 42.9 38.3 46.7 53.5 52.2 51.8 60.5 48.1 42.8 56.3 51.9 44.9 PBV FY13E 3.83 2.39 2.46 1.41 3.01 1.84 0.91 1.10 0.75 1.47 1.71 0.93 Div.Yield FY13E 1.55 1.96 2.01 2.45 0.87 2.35 4.67 5.23 2.21 6.18 9.09 ROA(%) FY13E 2.8 2.6 3.4 2.2 3.7 2.7 1.3 2.1 1.6 1.4 2.0 3.0 ROE(%) FY13E 24.6 21.3 26.8 16.5 26.5 15.1 16.6 18.0 13.7 16.2 22.5 18.4
BBCA BMRI BBRI BBNI BTPN BDMN BBKP BNGA PNBN BBTN BJBR BJTM
Source: Bloomberg, Priced as of 28-Jan-13, fundamental data as of Q3-12
17
BANK PEMBANGUNAN DAERAH JAWA Profit and loss statement Rp billion, Year-end Dec. Net Rev enues % change Y/Y Net Rev enue After Prov isions Operating Income % change Y/Y Op.Inc. margin (%) Pretax Income % change Y/Y Net income % change Y/Y Shares outstanding (bn) EPS % change Y/Y NA NA 516.8 50.5% 738.2 14 746.3 FY09 1,477 FY10 2,114 43.1% 20 1,147.3 53.7% 54.3% 1,160.5 57.2% 850.4 64.5% NA NA FY11 2,125 0.5% 21 1,170.8 2.0% 55.1% 1,187.6 2.3% 860.2 1.2% NA NA Total Deposit Demand Deposit Sav ing Deposit Time Deposit Credit Quality Prov Loan Loasses/ Total Loan Loan Loss Cov erage Non Perf Asset / Tot. Assets Non Perf Loan / Tot. Loans Profitability Ratio Return on Assets (%) Return on Common Equity (%) Net Interest Margin (%) Net Interest Spread (%) Efficiency Ratio (%) Effectiv e Tax Rate (%) Capital Ratio Tier 1 (%) Total Capital (%)
Source: Company reports, Bloomberg
Balance sheet Rp billion, Year-end Dec. Cash and cash equiv alents Marketable Sec. Accounts receiv able Gross Loan Loan Loss Reserv e Long Term Inv estment Net fix ed assets Other Assets Customer Acceptance Liab. Total assets FY09 2,479 2,711 NA 10,124 (188) 1,891 101 311 NA 17,429 14,531 6,973 4,121 3,437 NA 118 407 113 201 2,059 17,429 NA FY10 3,000 3,058 NA 13,088 (181) 521 155 345 NA 19,986 16,219 6,996 5,823 3,399 NA 250 540 112 110 2,756 19,986 NA FY11 3,618 3,632 NA 16,135 (101) 749 176 637 NA 24,847 20,142 8,204 7,133 4,806 NA 330 781 231 102 3,260 24,847 NA
FY09 NA NA 0.61 1.05 FY09 NA NA NA NA 46.27 29.98
FY10 0.92 NA 0.42 0.65 FY10 4.55 35.32 NA NA 40.70 26.72
FY11 NA 0.63 0.97 FY11 3.84 28.60 NA NA 44.91 27.57
Other Deposit ST Borrow ing & Repos Other ST Liabilities LT Borrow ing Other LT liabilities Shareholders' equity Total Liabilities & Equity BVPS (Rp) Growth Ratio Loan Grow th (%) Deposit Grow th (%) Assets Grow th (%) Operational Statistics
NA NA NA
29.27 11.61 14.67
23.28 24.19 24.32
NA 21.32
NA 19.19
NA 16.53
Number of employ ees Number of outlet & branches
2,136 NA
2,065 NA
2,346 NA
18

30 January 2013
Company Visit Note

BFI Finance Indonesia: Multi-finance industry pioneer
We hosted the management of BFIN at our recent financial forum. BFIN focuses on financing secondhand motor vehicles, and the leasing of heavy equipment and used two-wheelers. It has consistently generated an RoE of around 20% for the past five years. Net profit has compounded at 21% over the past five years. BFIN trades at less than 1x P/BV. Multi-finance industry pioneer. BFIN has been operating in the Indonesian financial services industry since 1982. The company is now 45% owned by Trinugraha Capital, a TPG affiliate. BFINs focus is the financing of used motor vehicles and heavy equipment leasing. The company has a network of over 185 branches across Indonesia and 65% of its business is sourced from outside of Java. Profitability. Over the past five years BFIN has grown net profits every year, and profits have compounded at over 20% pa since 2007. The company operates at a 1.3% NPL ratio and a 1.6x debt/equity ratio. RoE has been 18-21% over the past five years. Management has guided for Rp7T in new bookings in 2012, with a further 10-15% growth in 2013. Valuations. Although down over the last 12 months, BFINs stock price has appreciated by 16% over the last quarter. Consensus estimates that EPS grew by 19% in FY12 and will grow at a 24-30% pa over this year and next. Based on consensus estimates the stock trades at 6.3x FY12E P/E and 1.1x FY12E P/BV. BFIN has not paid a dividend in the past two years. The stock is relatively illiquid, with average trading over the last quarter of approximately $80,000 per day.
NOTE: THIS DOCUMENT IS INTENDED AS INFORMATION ONLY AND NOT AS A RECOMMENDATION FOR ANY STOCK. IT CONTAINS FACTUAL INFORMATION, OBTAINED BY THE ANALYST DURING MEETINGS WITH MANAGEMENT. J.P. MORGAN DOES NOT COVER THIS COMPANY AND HAS NO RATING ON THE STOCK. PT BFI Finance Indonesia, Tbk (Bloomberg: BFIN IJ, Reuters: BFIN.JK)
year-end Dec Sales (Rp bn) Net profit (Rp bn) EPS (Rp) DPS (Rp) Op.Inc. growth (Y/Y %) EPS growth (Y/Y %) ROCE (%) ROE (%) P/Sales (x) P/E (x) P/B (x) Dividend yield (%)
Source: Bloomberg.

AC
Josh Klaczek
Indra Cahya
BFIN.JK, Not Covered

Rp2,200, January 29, 2013
Figure 26: One-year price performance

105
55 F-12
Source: Bloomberg.
BFIN IJ rebased JCI Index Rebased
M-12
A-12
N-12
Table 8: Price performance

Abs. Rel. 1M 8.6 5.8 3M 15.8 13.3 6M (3.3) (12.0) 12M (15.4) (26.7)
Source: Bloomberg.
FY07 579 207 132 51 39.1 25.6 10.5 18.4 1.7 4.8 0.8 7.9
FY08 893 232 153 54 15.7 14.1 7.7 18.1 0.8 3.2 0.6 10.8
FY09 910 301 198 18.7 29.8 10.2 20.8 1.3 3.9 0.8 -
FY10 922 362 238 29 18.1 20.2 11.6 20.8 3.1 7.8 1.5 1.5
FY11 1,248 425 280 29 14.4 17.4 9.3 19.8 3.5 10.2 1.8 1.0
FY12E 1,636 505 332 NA NA 18.8 NA 19.3 2.0 6.3 1.1 NA
FY13E NA NA 433 NA NA 30.3 NA 20.6 NA 4.9 0.9 NA
FY14E NA NA 540 NA NA 24.9 NA 20.9 NA 3.9 0.7 NA
Stock data Shares O/S (mn) Market Cap (Rp bn) Market Cap ($ mn) Price (Rp) Date of Price Free float(%) Avg Daily Volume (mn) Avg Daily Value (Rp bn) Avg Daily Value ($ mn) JCI Exchange Rate Fiscal Year End
1,521 3,345 341 2,200 29-Jan-13 48.00 0.39 0.75 0.08 4,439 9,684 Dec
Company Visit Key Takeaway

We hosted the management of BFI Finance as part of our 11th Annual Indonesia and Malaysia Financial Forum in Singapore and Hong Kong recently. Investor feedback was largely favorable with investors interested in learning about the business model and curious about BFIs dividend policy (the company has not paid a dividend in the past two years).
Meeting highlights
BFIN had 185 branches as of Dec-2012, and plans to add 50 in FY13. 20% of these new branches will be in Eastern Indonesia. 65% of BFINs bookings are from outside of Java. BFIs largest asset class is financing used four-wheelers, while heavy equipment and used two-wheelers follow. Loan to value is usually 50-75%, and the average is 70%. The company is not significantly affected by regulations limiting LTVs. Average loan duration is 12 months for motorcycles, two years for four-wheelers, and three years for heavy equipment. Cost of funds is just over 11%, and gearing is 1.6x debt to equity. Of debt, 20% of borrowing is through bonds, 16% is through the revolver with BTPN, and the rest is via banks. Cost-to-income ratio is 30-31%. BFINs net profits compounded at a 21% annual rate over FY07-FY11. RoA has been in the range of 7.7%-11.6% over the past five years, with RoE at 1821%. Blended NPL is 1.3%, gross writeoff is 0.76%, and net writeoff (after collateral sale) is 0.4%. In November, management guided to new financing in FY12 to reach Rp7T and a further 10-15% growth in FY13.
Business Profile
Figure 27: Distribution of branches
Maluk u& Papu a 3% Sulaw esi 14% Kalim antan 12%
Suma tera 20%
Java & Bali 51%
PT BFI Finance Indonesia Tbk was established in 1982. Initially operated as a leasing company, BFI was granted a multifinance license in 1990, enabling the company to provide consumer financing and factoring business, on top of leasing. BFIs business focuses on secondary car and motorcycle financing, and heavy equipment leasing and financing. As of 30 September 2012, the company operated 176 branches and had 3209 employees. The TPG group acquired a 45% stake in BFIN in 2011.
20
Figure 28: Portfolio breakdown based on product type
Total Loan: Rp6,923bn (Sep-12)

Leasing 26%
2W used 7%
4W new 20%
4W used 47%
Figure 29: Loan breakdown based on geography
Total Loan: Rp6,923bn (Sep-12)

Sulawesi & East Indo 20%
Jakarta and gr. Jakarta 9% Java & Bali 15%
Kalimantan 41%
Sumatera 15%
Valuation
Figure 30: BFIN - 12M Fwd PBV
BFIN is trading below 1x its forward book value
2.0 + 1 SD 1.5 Avg 1.0 - 1 SD 0.5 A-11 S-11 O-11 N-11 D-11 J-12 F-12 M-12 A-12 M-12 J-12 J-12 A-12 S-12 O-12 N-12 D-12
Source: Bloomberg.
BFIN IJ - BEst 12M Fwd PE Ratio
21
Table 9: Peer valuation comparison

Company WAHANA OTTOMITRA ADIRA FINANCE CLIPAN FIN INDON MANDALA MULTIFIN VERENA MULTI BFI FINANCE INDO Ticker WOMF IJ ADMF IJ CFIN IJ MFIN IJ VRNA IJ BFIN IJ Price Rp 165 9,850 440 610 120 2,200 Mkt Cap (US$ MM) 34 1,004 169 84 12 341 Assets Rp B 3,516 22,948 5,091 3,922 1,756 6,447 Receivables Rp B 2,962 20,041 4,772 3,627 1,578 5,817 NIM % 13.1 NA 11.6 24.6 5.8 16.2 DER x 6.3 3.4 0.3 3.5 4.1 1.3 NPL % NA NA 0.5 0.3 1.0 ROA 9M12 (1.1) 8.2 7.2 5.3 2.0 8.3 ROE 9M12 (10.3) 33.1 16.3 27.0 14.7 19.2 P/E (x) 2013E NA NA 4.2 NA NA 4.9 P/BV(x) 2013E NA NA 0.6 NA NA 0.9
Source: Bloomberg, fundamental data as of 9M12
22
BFI FINANCE INDONESIA TBK PT Profit and loss statement Rp billion, Year-end Dec. Net Rev enues % change Y/Y Net Rev enue After Prov isions Operating Income % change Y/Y Op.Inc. margin (%) Pretax Income % change Y/Y Net income % change Y/Y Shares outstanding (bn) EPS % change Y/Y Balance sheet Rp billion, Year-end Dec. Cash and cash equivalents Short Term Inv estment Accounts & Notes receiv able Gross Receivable (LT) Net fix ed assets Other Assets Total assets ST & LT Debt Other ST Liabilities Other LT liabilities Shareholders' equity Total Liabilities & Equity BVPS (Rp)
Source: Company reports, Bloomberg
Cash Flow statement FY07 493 39.5% 473 285.5 39.1% 57.9% 285.5 39.1% 207.1 25.9% 1.5 131.5 21.8% FY08 715 45.1% 629 330.2 15.7% 46.2% 330.2 15.7% 231.8 11.9% 1.5 152.5 16.0% FY09 783 9.4% 708 392.1 18.7% 50.1% 392.1 18.7% 301.4 30.0% 1.5 198.0 29.8% FY10 FY11 796 796 462.9 1,002 973 529.5 Rp billion, Year-end Dec. Net Income Depreciation & Amortization Other non-cash adj. Changes in non-cash capital Cash from Operating Act. Cash from Investing Act Cash from Financing Act Net Changes in Cash Begin Cash End Cash FY07 200 29 (856) (627) (62) 714 25 84 109 FY08 232 97 (562) (232) (86) 525 206 109 315 FY09 301 87 631 1,019 103 (1,272) (149) 315 166 FY10 362 15 (1,124) (747) (103) 1,019 169 166 334 (2,748) (141) 982 (1,907) 334 167 FY11 425 51 (3,225)
1.7% 25.8%
#N/A N/A#N/A N/A#N/A N/A
18.1% 14.4% 58.1% 52.9% 462.9 362.1 1.5 238.0 529.5 425.4 1.5 279.5 18.1% 14.4% 20.1% 17.5%
20.2% 17.4% Ratio
FY07 109 2,238 40 137 2,524 1,187 133 0 1,203 2,524 791
FY08 315 2,753 55 407 3,531 2,000 173 0 1,357 3,531 893
FY09 166 2,083 55 89 2,393 657 159 44 1,534 2,393 1,009
FY10 334 3,318 145 72 3,870 1,752 167 11 1,941 3,870 1,276
FY11 167 4,751 204 183 5,305 2,798 129 12 2,366 5,305 1,556 Growth Ratio Loan Grow th (%) Assets Grow th (%) Leverage Total Debt / Equity (x ) Total Debt / Assets (x ) EBITDA to Interest Exp (x ) Profitability Return on Assets (%) Return on Common Equity (%) Net Interest Margin (%) Efficiency Ratio (%)
FY07
FY08
FY09
FY10
FY11
10.5 18.4 21.5 35.2
7.7 18.1 20.4 38.0
10.2 20.8 21.9 35.9
11.6 20.8 21.7 40.4
9.3 19.8 18.6 42.2
1.0 0.5 4.7
1.5 0.6 3.4
0.4 0.3 4.8
0.9 0.5 4.8
1.2 0.5 3.4
76.8 76.9
25.5 39.9
(20.7) (32.2)
47.7 61.7
41.9 37.1
23
Companies Recommended in This Report (all prices in this report as of market close on 29 January 2013) BFI Finance Indonesia (BFIN.JK/Rp2200/Not Covered), Bank Pembangunan Daerah Jawa Timur Tbk PT (BJTM.JK/Rp390/Not Covered), Bank Rakyat Indonesia (BBRI.JK/Rp7800/Overweight), PT Bank Mandiri Tbk. (BMRI.JK/Rp8650/Overweight)
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.
Important Disclosures
Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Bank Rakyat Indonesia, PT Bank Mandiri Tbk. within the past 12 months. Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Bank Rakyat Indonesia, PT Bank Mandiri Tbk.. Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Bank Rakyat Indonesia, PT Bank Mandiri Tbk.. Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Bank Rakyat Indonesia, PT Bank Mandiri Tbk.. Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking Bank Rakyat Indonesia, PT Bank Mandiri Tbk.. Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Bank Rakyat Indonesia, PT Bank Mandiri Tbk.. Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Bank Rakyat Indonesia, PT Bank Mandiri Tbk.. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail research.disclosure.inquiries@jpmorgan.com.
Bank Rakyat Indonesia (BBRI.JK, BBRI IJ) Price Chart
Date
13,086 OW Rp3,850 UW Rp3,500 OW Rp8,200
Rating Share Price (Rp) OW OW OW OW UW UW UW UW OW OW OW OW OW OW 2950 2800 2113 2088 3000 4275 3550 3950 4950 5100 5850 6800 7150 6550 6350 7650
Price Target (Rp) 4000 3375 2850 2550 3850 3500 3325 3500 4250 6000 7300 7500 8000 7700 8200 8700
15-Apr-08 25-Sep-08 11-Feb-09 17-Mar-09
10,905
OW Rp2,550UW Rp3,325
OW Rp7,300
OW Rp7,700
8,724 OW Rp4,000 OW Rp3,375 OW Rp2,850UW Rp3,500 Price(Rp)
UW Rp4,250 OW Rp6,000 OW Rp7,500 OW Rp8,000 OW Rp8,700
05-May-09 OW 08-Oct-09 31-Oct-09 18-Jan-10 01-Aug-10 22-Mar-11 01-Apr-11 28-Oct-11 06-Feb-12
6,543
4,362 2,181
0 Jan 08 Oct 08 Jul 09 Apr 10 Jan 11 Oct 11 Jul 12
04-May-12 OW 27-Jul-12 01-Nov-12
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Apr 15, 2008.
24
Date
PT Bank Mandiri Tbk. (BMRI.JK, BMRI IJ) Price Chart
16,056
Rating Share Price (Rp) N N OW OW OW OW N N N N OW OW OW OW OW OW OW N OW 2975 3300 3875 3275 3125 2825 2625 1860 2775 4700 4575 4800 5000 6100 6950 5950 6650 7150 6550 8650
Price Target (Rp) 2900 3175 3725 4000 3950 3350 3300 2000 2750 4350 4650 5425 5700 6700 7500 7650 7800 7900 7250 10600
18-Apr-07
OW Rp5,425 OW Rp7,650
17-May-07 N
OW Rp3,950
29-Oct-07 29-Jan-08
N Rp7,250
13,380
N Rp3,175OW Rp4,000 OW Rp3,300 N Rp2,750 N Rp4,650
OW Rp7,500
25-Mar-08 12-Aug-08
OW Rp10,600 25-Sep-08
10,704 Price(Rp)
N Rp2,900 N Rp3,725 OW Rp3,350 N Rp2,000 N Rp4,350 OW Rp5,700 OW Rp6,700 OW Rp7,800 OW Rp7,900
17-Mar-09
8,028
30-Apr-09 26-Oct-09 30-Oct-09 18-Jan-10 23-Mar-10 24-Jul-10 29-Oct-10

Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 Oct 12
5,352
2,676
27-Jan-11 06-Apr-11 01-Nov-11 06-Feb-12 30-Jan-13
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Apr 18, 2007.
BFI Finance Indonesia (BFIN.JK, BFIN IJ) Price Chart
5,766
4,805
3,844 Price(Rp) 2,883
1,922
961
0 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear
25
in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.jpmorganmarkets.com. Coverage Universe: Srinath, Aditya: Astra International (ASII.JK), Bank Central Asia (BCA) (BBCA.JK), Bank Danamon (BDMN.JK), Bank Niaga (BNGA.JK), Bank Rakyat Indonesia (BBRI.JK), Jardine Cycle & Carriage Ltd (JCYC.SI), Jardine Matheson Holdings Ltd (JARD.SI), Jardine Strategic Holdings Ltd (JSH.SI), MNC Sky Vision tbk (MSKY.JK), PT Bakrie & Brothers, Tbk (BNBR.JK), PT Bank Mandiri Tbk. (BMRI.JK), PT Bank Tabungan Pensiunan Nasional Tbk (BTPN.JK), PT Express Transindo Utama Tbk (TAXI.JK), United Tractors (UNTR.JK) J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2013
J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients* Overweight (buy) 44% 53% 42% 71% Neutral (hold) 44% 46% 49% 62% Underweight (sell) 12% 34% 9% 51%
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com. Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.
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Asia Pacific Equity Research

Banks Aditya Srinath, CFA

(62-21) 5291-8573 aditya.s.srinath@jpmorgan.com PT J.P. Morgan Securities Indonesia

Table 1: Valuation summary

Source: Bloomberg, priced as of 29-Jan-13

Figure 1: MSCI Indo Fin - 12m Fwd PBV

Aditya Srinath, CFA (62-21) 5291-8573 aditya.s.srinath@jpmorgan.com

Asia Pacific Equity Research 30 January 2013

Figure 2: P/BV (y-axis) vs ROE (x-axis) scatter

Source: Bloomberg consensus 12M forward

Figure 3: MSCI Indonesia Fin - 12M Fwd P/BV

4.0 3.5 3.0 2.5 2.0 1.5 1.0 J-06

160% 140% 120% 100% 80% 60% 40% 20% 0% J-06

MXID0FN - PB Premium (%) to MSCI AC AS xJ/FINANCE

Aditya Srinath, CFA (62-21) 5291-8573 aditya.s.srinath@jpmorgan.com

Asia Pacific Equity Research 30 January 2013

Asia Pacific Equity Research

PT Bank Mandiri Tbk.

Previous: Neutral BMRI.JK, BMRI IJ Price: Rp8,650

Price Target: Rp10,600

Indonesia Banks Aditya Srinath, CFA

(62-21) 5291-8573 aditya.s.srinath@jpmorgan.com PT J.P. Morgan Securities Indonesia

BMRI.JK share price (Rp) JCI (rebased)

YTD -10.8% -6.5%

12m 30.1% 16.7%

Aditya Srinath, CFA (62-21) 5291-8573 aditya.s.srinath@jpmorgan.com

Asia Pacific Equity Research 30 January 2013

P&L sensitivity metrics (FY12E)

PPOP impact (%) 24.6% 1.1% 0% -0.8%

EPS impact (%) 29.0% 1.1% 1.9% -0.9%

Price target and valuation analysis

Breakdown of Loans (FY11)

Micro 3% Consu mer 25% Comml + SME 35%

Corpor ate 37%

6.5 8.0 1.1 15.1 9.0 22.9

EPS: J.P. Morgan vs. consensus

Source: J.P. Morgan estimates, Bloomberg BEST.

Aditya Srinath, CFA (62-21) 5291-8573 aditya.s.srinath@jpmorgan.com

Asia Pacific Equity Research 30 January 2013

BMRI: Valuation & Investor Positioning

Foreign holding (%of float)

Source: KSEI, Bloomberg.

Aditya Srinath, CFA (62-21) 5291-8573 aditya.s.srinath@jpmorgan.com

Asia Pacific Equity Research 30 January 2013

BMRI: Key Data in Charts

Figure 9: NPL (Rp bn)

Figure 10: NPL Ratio (%)

Figure 11: NPL coverage (x)

Aditya Srinath, CFA (62-21) 5291-8573 aditya.s.srinath@jpmorgan.com

Asia Pacific Equity Research 30 January 2013

PT Bank Mandiri Tbk.: Summary of Financials

Source: Company reports and J.P. Morgan estimates.

Asia Pacific Equity Research

Bank Rakyat Indonesia

Indonesia Banks Aditya Srinath, CFA

(62-21) 5291-8573 aditya.s.srinath@jpmorgan.com PT J.P. Morgan Securities Indonesia

BBRI.JK share price (Rp) JCI (rebased)

YTD -3.7% 0.6%

12m 13.0% -0.4%

Aditya Srinath, CFA (62-21) 5291-8573 aditya.s.srinath@jpmorgan.com

Asia Pacific Equity Research 30 January 2013

P&L sensitivity metrics (FY12E)

PPOP impact (%) 15.5% 1.5% 0% 0.80%

EPS impact (%) 22.0% 2.0% -5.0% -1.2%