Indonesia Economic Prospects and Investment Opportunities · November, 2016 Indonesia Economic...
Transcript of Indonesia Economic Prospects and Investment Opportunities · November, 2016 Indonesia Economic...
November, 2016
Indonesia Economic Prospects and Investment Opportunities
Anton H Gunawan Chief Economist of Bank Mandiri
Presentation Material
0
Will Indonesian economy keep growing?
• The consumption gradual rebound, but still subdued economic growth • Low inflation and relatively small CA Deficit reflect the weak economy
• BI has started to ease her monetary policy stance – room to further ease is small • Main risks: tax shortfall, thus widening deficit, but still within fiscal rule
1
Indonesia
Brazil
Turkey
South Africa
India
average GDP growth
in 5 years
5.3%
2.9%
6.7%
4.4%
1.0%
2.1%
5.5%
Country
source: IMF world economic outlook, IIF, Bloomberg
Indonesian macroeconomic indicators are mostly better among the EMs
Malaysia
Thailand
average GDP growth in 10 years
4.9%
3.3%
7.5%
3.8%
2.8%
2.6%
5.8%
Current Account Balance
3.4%
9.5%
-1.3%
-4.0%
-1.1%
-3.9%
-2.4%
Fiscal Balance
-3.3%
-0.4%
-7.0%
-1.9%
-8.7%
-3.7%
-1.9%
1.5%
-0.9%
4.3%
7.2%
9.0%
4.6%
3.3%
123.0
93.5
128.6
271.4
270.3
232.0
153.7
Inflation (YoY)
CDS
180
33
501
840
954
686
551
Gov. Bond spread to UST (bps)
2
Country / Elasticity
1.72 1.45 2.15
1.10 0.81 0.90
0.88 0.77 0.85
0.60 0.49 0.27
0.05 0.06 0.11
The global economic growth is still fragile...
... Drives for further monetary easing in major central banks, except for the US.
Commodity price will stay flat to 2017
Global economy is still at risk vs uncertainty, Indonesian economy slow recovery
Indonesia’s economic growth will only slightly better next year…
World
US
EU
Japan
China
2016F 2017F 2016F 2017F
3.1 3.4 2.4 2.8
2.2 2.5 1.9 2.2
1.6 1.4 1.6 1.6
0.3 0.1 0.5 0.5
6.6 6.2 6.7 6.5
US - Fed Funds Rate
EU - ECB Rate
UK - BOE Rate
Japan - BoJ Rate
India - RBI Rate
2016F 2017F
0.65 1.20
0.00 0.00
0.10 0.15
-0.1 -0.2
6.35 6.25
Bank Indonesia
Min. of Finance
IMF
World Bank
Bank Mandiri
4.9 - 5.3 5.1 - 5.5
5.1 5.1
4.8 5.3
5.1 5.3
5.0 5.1
(%) (%, YoY)
(%, YoY) 2016F 2017F
(USD/bbl)
2017F : 51.3
2016F : 48.8
(USD/KG)
2017F : 1.23
2016F : 1.05
(USD/MT)
2017F : 52.3
2016F : 53.4
(RM/MT)
2017F :
2,54
2016F :
2,59
Source: OJK, IMF, World Bank, Bloomberg
Indonesia is more affected by China than the US
3
Indonesia
Brazil
Turkey
South Africa
India
average GDP growth
in 5 years
5.3%
2.9%
6.7%
4.4%
1.0%
2.1%
5.5%
Country
source: IMF world economic outlook, IIF, Bloomberg
Indonesian macroeconomic indicators are mostly better among the EMs
Malaysia
Thailand
average GDP growth in 10 years
4.9%
3.3%
7.5%
3.8%
2.8%
2.6%
5.8%
Current Account Balance
3.4%
9.5%
-1.3%
-4.0%
-1.1%
-3.9%
-2.4%
Fiscal Balance
-3.3%
-0.4%
-7.0%
-1.9%
-8.7%
-3.7%
-1.9%
1.5%
-0.9%
4.3%
7.2%
9.0%
4.6%
3.3%
123.0
93.5
128.6
271.4
270.3
232.0
153.7
Inflation (YoY)
CDS
180
33
501
840
954
686
551
Gov. Bond spread to UST (bps)
4
Three domestic concerns
Four changes in Paradigm
• Economic Slowdown along with low and declining productivity Lacking ease of doing business and industry strategy
• Food Inflation: reducing purchasing power, although headline inflation still benign confusing database and a combination of El Nino (2015)/La Nina (2016) problems
• Financial Sector Stability: volatile markets & weakening banks’ asset quality
• Archipelagic Concept: inter-connectivity and regional development are key parts of the country’s development
• Reducing Dependency on Raw Commodities: including looking for (i) areas of exports & domestic demand expansions, and (ii) new sources of fiscal revenues
• Reallocation of Scarce Resources: transforming general price subsidy program into directly targeted subsidy program (fuel, fertilizer, electricity)
• Promoting Maritime Economy: fishery and tourism services?
Four policy responses
• Fiscal Policy: Expansionary (intention), but relatively Neutral (in reality, thus far). Potential moderate fiscal risks ahead. Need a less restrictive fiscal rule?
• Monetary Policy: Start Easing (lowering rates, injecting liquidity, macro-prudential policies not having a significant impact yet). Transmission channel not fully working yet.
• De-regulation/-bureaucratization and Structural Reform Policies: Can support growth by cutting costs of doing business, and speed up investments.
• Promoting Agglomeration to Develop Special Economic Zones: may need manufacturing based transmigration policy?
Cabinet Reshuffle gives more support for economic reform push
5
Key words are archipelagic concept and inter-connectivity, and SEZ
SEZ : special economic zone
SEZ Tanjung Api-api, South Sumatera
SEZ Sei Mangkai, North
Sumatera
SEZ Tanjung Lesung, Banten
SEZ Mandalika, North Nusa Tenggara
SEZ Palu, Central
Sulawesi
SEZ Bitung, North
Sulawesi SEZ Morotai,
North Maluku
Source : Coordinating Ministry of Economy
Bitung Port Kuala Tanjung
Sea toll route
1
2
3
4
5
1 Belawan
2 Tanjung Priok
3 Tanjung Perak
4 Makassar
5 Sorong
New seaport facilities will improve trade China will build “silk road” through the sea, connecting China - Europe
6
Commodity producing regions got the hardest hit by commodity price bust, which came with a time lag
Economic Growth By Province, 2Q16 (% yoy)
Aceh 3.54
Sumut 5.67
Riau 2.40
Kepri 5.40
Sumbar 5.78 Jambi
3.57
Bengkulu 5.41
Sumsel 5.13
Babel 3.67
Lampung 5.21 DKI
5.86
Banten 5.13
Jabar 5.88
Jateng 5.75
DIY 5.57
Jatim 5.62
Bali 6.53
NTB 9.92
NTT 5.29
Kalbar 4.21
Kalteng 5..72
Kaltim -1.30
Kalsel 3.98
Sulut 6.14 Gorontalo
5.40
Sulteng 15.52
Sulbar 4.57
Sulsel 8.02
Sultra 6.82
Malut 6.64
Maluku 6.48
Pabar 3.38
Papua -5.91
Kaltara 2.26
> 7
5.5 - 7
4 - 5.49 <4
Source: BPS
21 7
Jakarta
% to national GDP
Average GDP growth
West Java Central Java East Java
1983 - 1993
1994 - 2003
2004- 2010
2011- 2015
8.7 3.7
5.1 3.7
2.3 4.1
5.0 2.9
1983 - 1993
1994 - 2003
2004- 2010
2011- 2015
5.1 7.0
2.5 -1.2
0.9 -1.4
1.2 2.1
1983 - 1993
1994 - 2003
2004- 2010
2011- 2015
11.8 8.3
15.3 3.1
9.2 6.1
16.0 6.2
1983 - 1993
1994 - 2003
2004- 2010
2011- 2015
15.7 8.0
15.3 1.9
7.5 5.4
13.3 5.9
1983 - 1993
1994 - 2003
2004- 2010
2011- 2015
10.7 7.0
10.1 3.1
4.4 5.6
8.9 5.3
1983 - 1993
1994 - 2003
2004- 2010
2011- 2015
15.1 6.6
14.5 2.8
8.0 6.2
14.7 6.1
1983 - 1993
1994 - 2003
2004- 2010
2011- 2015
5.5 5.1
5.2 4.9
2.7 3.2
5.5 3.2
1983 - 1993
1994 - 2003
2004- 2010
2011- 2015
5.1 8.3
5.8 4.2
2.7 6.1
4.8 5.9
Aceh
North Sumatera Riau East Kalimantan
Government’s development program will have to cut the disparity between Western and Eastern part of Indonesia
Source : CEIC
1983 - 1993
1994 - 2003
2004- 2010
2011- 2015
NA NA
NA NA
1.34 5.9
1.29 3.55
Papua
8
Aceh 2,05 jt; 8,13%
Sumut 6,17jt; 6,49%
Riau 2,84jt; 5,94%
Kepri 0,83jt; 9,03%
Sumbar 2,43jt; 5,41%
Jambi 1,62jt, 4,66%
Bengkulu 0,96jt; 3,84%
Sumsel 3,89jt; 3,94%
Babel 0,65jt; 6,17%
Lampung 3,85jt; 4,54%
DKI
5jt; 5,77%
Banten
5,23jt; 7,95% Jabar 20,28jt; 8,57%
Jateng 17,16jt; 4,2%
DIY 2,04jt; 2,81%
Jatim 19,65jt; 4,14%
Bali 2,33jt; 2,12%
NTB 2,3jt; 3,66% NTT
2,36jt; 3,59%
Kalbar 2,31jt; 4,58%
Kalteng
1,24jt; 3,67%
Kaltim 1,5jt; 8,86%
Kalsel 1,98jt; 3,63%
Sulut 1,09jt; 7,82% Gorontalo
0,54jt; 3,88%
Sulteng
1,44jt; 3,46%
Sulbar
0,62jt; 2,72%
Sulsel 3,58jt; 5,11%
Sultra
1,17jt; 3,78%
Malut 0,51jt; 3,43%
Maluku 0,68jt; 6,98%
Pabar 0,41jt; 5,73%
Papua 1,69jt; 2,97%
Peta Kontribusi Industri Manufaktur, JumlahTenaga Kerja dan Tingkat Pengangguran Terbuka (2015)
Formulating industrial policy (1) Map of manufacturing and employment
Sumber: BPS,
Keterangan:
(i) Share industri manufaktur per provinsi
> 20% (9 provinsi)
>10% – ≤ 20% (13 provinsi)
≤10 (12 provinsi)
(ii) Angka di tiap provinsi menunjukkan jumlah
tenaga kerja (juta) dan tingkat pengangguran
terbuka (%),
9
33.4 29.9
3.51
Tenaga ListrikYang
Dibangkitkan
Listrik yangDidistribusikan
Defisit/ Surplus
Sumatera
173.37 145.54
27.84
Tenaga ListrikYang
Dibangkitkan
Listrik yangDidistribusikan
Defisit/ Surplus
Jawa
4.89 6.24
-1.35 Tenaga Listrik
YangDibangkitkan
Listrik yangDidistribusikan
Defisit/ Surplus
Balnusra
2.26 2.04
0.22
Tenaga ListrikYang
Dibangkitkan
Listrik yangDidistribusikan
Defisit/ Surplus
Maluku Papua
7.67 7.83
-0,15
Tenaga ListrikYang
Dibangkitkan
Listrik yangDidistribusikan
Defisit/ Surplus
Sulawesi 10.22
8.35
1,88 Tenaga Listrik
YangDibangkitkan
Listrik yangDidistribusikan
Defisit/ Surplus
Kalimantan
Peta Nilai Proyek Infrastruktur per Provinsi Sampai Dengan Tahun 2016 (Rp. Trilyun) dan Produksi Listrik per Pulau (Ribu MWH)
Sumber: BCI 2016, BPS dan PLN.
>20 triliun (1 provinsi)
10 − ≤20 triliun (4 provinsi)
1 − 10 triliun (15 provinsi)
≤ 1 triliun (14 provinsi)
Keterangan:
Nilai Proyek Infrastruktur 2016
Formulating industrial policy (2) Map of infrastructures, incl. electricity
10
14,603
13,173
13,500 13,100
GDP growth is expected to reach 5.0% in 2016 and 5.1% in 2017
Inflation will stay at 4.2% next year and BI will keep 7-days RR at low level
USDIDR will be stable at 13,100 until next year
forecast
forecast
Lower inflation and interest rate prior to 2017 will benefit domestic economy in the midst of global volatility
Source : Bloomberg, CEIC, Bank Mandiri forecast
(%)
3.30
9.60
6.50
4.75
2
3
4
5
6
7
8
9
10
1Q1
5
2Q1
5
3Q1
5
4Q1
5
1Q1
6
2Q1
6
3Q1
6
4Q1
6F
Inflasi Yield 10 Yr GB
7 Days RR
4.96
5.04
4.66
5.04
4.92
5.18
5.02 5.00
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
F
forecast
11
GDP growth and value added tax growth
Economic growth slowed in 3Q16 Some questions on the sources
VAT growth back to negative as economic growth slowed
Government spending realization (IDR tn)
9M accumulation of government spending
9M accumulation of material and capital expenditure
Source : CEIC, Ministry of Finance
774
968 1,093
1,235 1,249 1,305
2011 2012 2013 2014 2015 2016
104.5
135.3 155.5 158.1
185.0
241.6
2011 2012 2013 2014 2015 2016
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jun
-12
Sep
-12
De
c-1
2
Mar
-13
Jun
-13
Sep
-13
De
c-1
3
Mar
-14
Jun
-14
Sep
-14
De
s-1
4
Mar
-15
Jun
-15
Sep
-15
De
c-1
5
Mar
-16
Jun
-16
Sep
-16
VAT growth y-y (LHS) GDP growth y-y (RHS)
12
Cement sales growth (% YoY) Vehicle and motorcycle sales
growth (% YoY) Retail sales index
Mixed performances in some benchmark indicators : seasonal pick up in retail sales
-15
-10
-5
0
5
10
15
Jan-1
5F
eb
-15
Ma
r-1
5A
pr-
15
Ma
y-1
5Jun-1
5Jul-1
5A
ug-1
5S
ep-1
5O
ct-
15
No
v-1
5D
ec-1
5Jan-1
6F
eb
-16
Ma
r-1
6A
pr-
16
Ma
y-1
6Jun-1
6Jul-1
6A
ug-1
6S
ep-1
6
National JakartaJava ex. Jakarta Ex. Java
-505
10152025303540
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
National Jakarta
-50
0
50
100
150
Jan-1
5F
eb
-15
Ma
r-1
5A
pr-
15
Ma
y-1
5Jun-1
5Jul-1
5A
ug-1
5S
ep-1
5O
ct-
15
No
v-1
5D
ec-1
5Jan-1
6F
eb
-16
Ma
r-1
6A
pr-
16
Ma
y-1
6Jun-1
6Jul-1
6A
ug-1
6S
ep-1
6
National Greater JakartaRest of Java Ex. Java
Ramayana SSSG (% MoM) Aces Hardware SSSG (% MoM) Matahari Dept. Store SSSG (% YoY)
Greater Jakarta : -2.7
National : +5.4
Jakarta : -3.3
National: -4.9
National: +40 (2Q16)
19.5 6.8 3.1
1.9
9.0
-2.7
Sep
-14
De
c-1
4
Mar
-15
Jun
-15
Sep
-15
De
c-1
5
Mar
-16
Jun
-16
Sep
-16
11.6 0.1
-8.9 -1.7
-27.7
-7.8
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
Vehicle sales Motorcycle sales
177.50 190.10
218.70 206.7
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
13
-30%-25%-20%-15%-10%
-5%0%5%
10%15%20%
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
Oct
-15
No
v-1
5
De
c-1
5
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
IDR1-2 mn IDR2-3 mn IDR3-4 mn
IDR4-5 mn >IDR5 mn
80
90
100
110
120
130
140
150
Jan
-13
Ma
r-13
Ma
y-1
3
Jul-
13
Se
p-1
3
No
v-1
3
Jan
-14
Ma
r-14
Ma
y-1
4
Jul-
14
Se
p-1
4
No
v-1
4
Jan
-15
Ma
r-15
Ma
y-1
5
Jul-
15
Se
p-1
5
No
v-1
5
Jan
-16
Ma
r-16
Ma
y-1
6
Jul-
16
Se
p-1
6
Expectation : Income Expectation : Business Condition
Expectation : Employment
80
90
100
110
120
130
Jan
-13
Ma
r-13
Ma
y-1
3
Jul-
13
Se
p-1
3
No
v-1
3
Jan
-14
Ma
r-14
Ma
y-1
4
Jul-
14
Se
p-1
4
No
v-1
4
Jan
-15
Ma
r-15
Ma
y-1
5
Jul-
15
Se
p-1
5
No
v-1
5
Jan
-16
Ma
r-16
Ma
y-1
6
Jul-
16
Se
p-1
6
CCI CCI : Present Situation CCI : Expectation
Consumer Expectation Index Growth by groups of monthly expenditures (%)
Consumer Confidence Index Growth by Groups of monthly expenditures (%)
Consumer Confidence Index (CCI) Consumer Expectation Index
Source: Bank Indonesia, CEIC
Oct
-1
6
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
Oct
-15
No
v-1
5
De
c-1
5
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
IDR1-2 mn IDR2-3 mn IDR3-4 mn
IDR4-5 mn >IDR5 mn
Oct
-1
6
Consumer confidence had improved in October...
Expectation of almost all groups of consumers picked up
14
Sector Current Market
Demand Assessment b)
Indicator Growth (%, yoy)
Notes Jan-Juni 2015 2015 Jan-Juni 2016
Retail Positive Ramayana sales -4.0 b) -2.0 6.9 a)
Consumer confidence is flat Ace Hardware sales 3.4 b) 4.7 5.2 a)
Automotive Neutral
Total car sales -18.2 -16.1 1.2
Consumer confidence is flat Commercial vehicle -15.4 -16.6 -30.0
Passenger vehicle -19.1 -16.0 12.5
Total motorcycle sales -24.1a) -17.6a) -9.1a)
Property Negative Total Marketing Sales of eight companies
24.4 -4.3 -39.8 Consumer confidence is flat and interest rates are still high
Cement Positive Total sales -3.6 b) 0.9 4.0 a) Sales growth is supported by
government infrastructure projects
Heavy Equipment
Negative
Total sales -37.7 -39.5 -24.7 Demand from commodity sector has not yet fully recovered even
though commodity prices increased
Forestry segment -7.6 -9.3 -48.3
Agro segment -60.4 -63.2 -46.8
Mining segment -44.4 -49.9 -45.1
Construction segment -26.8 -22.3 19.9
Sea Transport Negative Loading and unloading activities in the 5 main ports
-7.6 -8.2 -9.8 Volume of trade has not yet
increased, especially in commodities sector
Oil Negative CAPEX (Investments) n.a. -2.6 -14.9 c) Oil price is still low
CPO Negative Volume of exports 24.1 a) 15.6 -17.2 CPO price has consistently increased but still needs time to impact the export performance Value of exports 5.3 a) -11.9 -22.0
Coal Negative Volume of exports -5.4 -7.8 -8.2 Coal price remains low
Value of exports -17.3 -21.2 -26.2 Notes : a) January-July b) the status is not OCE Industry Rating; c) 2016 plan (full year); n.a. data not available
Industrial sales performance in 1H16: many still in the red territory
15
Production capacity utilization trend Indonesia’s PMI trend
Source : CEIC
...but (Private) Investments have not materially picked up, despite a public capex boost
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
50%
55%
60%
65%
70%
75%
80%
Production capacity utilization Chg, YoY (RHS)
45.0 46.0 47.0 48.0 49.0 50.0 51.0 52.0 53.0 54.0 55.0
Jan
-12
May
-12
Sep
-12
Jan
-13
May
-13
Sep
-13
Jan
-14
May
-14
Sep
-14
Jan
-15
May
-15
Sep
-15
Jan
-16
May
-16
Sep
-16
PMI
Expansion
Contraction
Real gross fixed capital formation growth
4%
5%
6%
7%
8%
9%
10%
2012 2013 2014 2015 9M16
Gross fixed capital formation - YoY
16
Earnings Asset Dec-14 Dec-15 Jun-16
Current 4,309 4,720 4,945
Special mention 143 184 210
Sub standard 13 18 23
Doubtful 14 13 21
Loss 52 68 79
Deteriorating banking sector’s asset quality: NPL still stays above 3.0%. Rising special mention loans due to restructuring and weak economy
Source : Indonesian banking statistics, June 2016
NPL (%) Credit quality (IDR tn) NPL by types and earnings asset
by categories(IDR tn)
Types of Credit Dec-14 Dec-15 Jun-16
Working Capital 43.8 57.3 73.4
Investment 21.2 27.0 34.5
Consumption 14.3 16.6 19.2
2.37%
2.49%
3.11% 3.05%
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
Oct
-15
No
v-1
5
De
c-1
5
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
100
150
200
250
300
350
400
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
Oct
-15
No
v-1
5
De
c-1
5
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
Special mention Sub-standard
Doubtful Loss
17
-10.1 -9.6
-6.0 -5.1 -4.8 -4.7
-12
-10
-8
-6
-4
-2
0
2
4
6
8
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
Secondary Income
Primary Income
Services
Goods
CAD
CAD improved... ...due to better trade surplus
-2.02 -2.2
-4.3
% to GDP
-4.3
Source : Bank Indonesia, BPS, Bloomberg
Current Account Deficit showed an improvement in 2Q16 compared to 1Q16 Stable CAD and trade balance surplus have reduced the currency risk
1.1
0.5
1.4
-0.4
-0.2
0.0
1.1
0.9
0.4
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
-0.8
-0.3
0.2
0.7
1.2
1.7
Sep
-14
Oct
-14
No
v-1
4D
ec-
14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5M
ay-1
5Ju
n-1
5Ju
l-1
5A
ug-
15
Sep
-15
Oct
-15
No
v-1
5D
ec-
15
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6M
ay-1
6Ju
n-1
6Ju
l-1
6A
ug-
16
Sep
-16
Tho
usa
nd
s
Trade balance (USD bn)-LHS
Export growth-RHS
Import growth-RHS 14645
13,080
12500
13000
13500
14000
14500
15000
Oct
-15
De
c-1
5
Feb
-16
Ap
r-1
6
Jun
-16
Au
g-1
6
Oct
-16
USDIDR volatility decreases
(USD bn)
18
Tax Amnesty Revenues – The Result thus far
19
Asset Declaration (Rp tn)
Onshore Declaration
Offshore Declaration
(Repatriated)
Offshore Declaration
(Non-Repatriated)
Total Declaration
Proportion of total (%)
Cash and cash equivalents 999.0 96.7 280.7 1376.5 38.5
Short term investments and notes 573.1 18.4 424.6 1016.0 28.4
Land, building, and other fixed asset 380.8 2.1 185.4 568.3 15.9
Payables and inventory 397.9 19.7 54.8 472.4 13.2
Precious metals & other non fixed asset 137.3 0.0 4.7 142.0 4.0
Total 2488.1 137.0 950.1 3575.2 100.0
The objectives: 1. Tax Revenues FY 2016 OK
2. Tax Base Enlargement Somewhat OK
3. Repatriated Money for Economic Growth Not Really
Source; Ministry of Finance
Tax Amnesty – The Result thus far Not so many new tax payers
20
Onshore
declaration;
2488.13; 70%
Offshore
declaration
(Repatriated);
136.99; 4%
Offshore
declaration
(Non-
repatriated);
950.07; 26%
Asset Declaration on Tax Amnesty Program (Rp tn)
Individual
264,507
72%
Corporate /
Institution
76,211
21%
New taxpayers
26,746
7%
Total tax amnesty participants as of Sept16
Proportion to total (%)
Penalty Amount No. of Taxpayers Total Penalty Paid (in
IDR tn) Total Assets (in IDR
tn)
< 1 bn 96.82 24.9 34.2
1bn - < 100 bn 3.17 56.4 50.1
≥ 100 bn 0.01 18.7 15.8
Total 100 100 100
Source; Ministry of Finance
(200)
(100)
-
100
200
300
400
500
4-J
an
-16
13-
Jan
-16
22-
Jan
-16
2-F
eb
-16
12
-Fe
b-1
6
23
-Fe
b-1
6
3-M
ar-
16
15
-Ma
r-1
6
24
-Ma
r-1
6
5-A
pr-
16
14
-Ap
r-1
6
25
-Ap
r-1
6
4-M
ay
-16
17
-Ma
y-1
6
26
-Ma
y-1
6
6-J
un
-16
15-
Jun
-16
24-
Jun
-16
11
-Ju
l-1
6
20
-Ju
l-1
6
29
-Ju
l-1
6
9-A
ug
-16
19
-Au
g-1
6
30
-Au
g-1
6
8-S
ep
-16
20
-Se
p-1
6
29
-Se
p-1
6
10
-Oct
-16
Deposit Facility LF/REPO/STTLEMENT SDBI Swap BI
Reverse Repo SBN SBI 9M+SDBI Term Deposit
Outstanding Banking Liquidity
21
Term structure OMO Open market operation Instruments Outstanding (IDR tn)
224.7tn
Outstanding banking liquidity = Open market operation instrument – Swap BI
Banking Sector Liquidity decreased significantly
Placement at BI’s instrument had decreased by IDR110.3 tn from Aug - Sep
298.7 tn
205.5
-110.3 tn
6.25%6.30%
6.40%
6.85%
6.95%
7.10% 7.15%
5.95%
6%6.10%
6.50% 6.55%
6.65% 6.70%
5.25%
5.45%
5.70%
6.10%
6.30%6.40%
6.50%
5.00%
5.20%
5.45%
5.85%
6.05%6.15%
6.25%
1W RR 2W RR 1M RR 3M SDBI 6M SDBI 9M SBI 12M SBI
TS Dec 2015 TS Jan 2016
TS Aug TS Oct 12 2016
33tn
67tn Term repo injection 34tn
Source: Bank Indonesia
4.5
5.0
5.5
6.0
6.5
7.0
16
-Ap
r
7-M
ay
28
-May
18
-Ju
n
9-J
ul
30
-Ju
l
20
-Au
g
10
-Sep
1-O
ct
Interbank O/N Interbank 1W
Interbank 1M
4.5
5.0
5.5
6.0
6.5
7.0
15
-Ap
r
30
-Ap
r
15
-May
30
-May
14
-Ju
n
29
-Ju
n
14
-Ju
l
29
-Ju
l
13
-Au
g
28
-Au
g
12
-Se
p
27
-Se
p
12
-Oct
JIBOR ON JIBOR 1W JIBOR 1M
22
18.86
17.12
8.24
4
6
8
10
12
14
16
18
20
15
-Ju
n
23
-Ju
n
1-J
ul
15
-Ju
l
25
-Ju
l
2-A
ug
10
-Au
g
19
-Au
g
29
-Au
g
6-S
ep
15
-Se
p
23
-Se
p
3-O
ct
11
-Oct
Interbank money market (IDR tn) JIBOR (%)
There were significant fluctuation in JIBOR O/N & 1W because of tightening liquidity
Interbank money market rate (%)
Tax amnesty period I
Tax amnesty period I
More productive expenditure
• Focusing on infrastructure and social spending • Efficiency in spending for goods • Maintaining the budget for health (5%) and education (20%) • Flexibility in responding economic condition • Mitigation in natural disaster and fiscal risk • Acceleration of budget absorption
Energy
• Continuing the subsidy for Diesel fuel • Closed/targeted distribution of 3kg LPG • Electricity subsidy for Targeted Households (RTS) using an integrated database
(PBDT 2015) Non energy
• Improving the accuracy of subsidy target
• Reformulating the calculation for the General Allocation Fund (DAU) • Improving the allocation, distribution and usage of Revenue Sharing Fund (DBH). • Improving the allocation of Special Transfer Fund (DTK) to accelerate basic
infrastructure development.
• Gradual increase of the Village Fund to fulfill Law No. 6 of 2014, while still considering the fiscal capacity of the state
Subsidies are better targeted
Strengthening fiscal decentralization
Prudent Fiscal Policies: The government has taken several reform initiatives
23
6.25% 6.30%
6.40%
6.85% 6.95%
7.10% 7.15%
4.75%
4.95% 5.20%
5.60%
5.80% 5.90% 6.00%
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
1W RR 2W RR 1M RR 3MSDBI
6MSDBI
9M SBI 12MSBI
TS Dec 2015 TS 21 Oct 2016
LF : 5.5%
DF : 4% (3)
(2)
(1)
-
1
2
3
4
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
Real interest rates : 1.45
The real interest rate is still relatively lucrative for investors
BI has cut policy rate by 150 bps this year
Source: Bloomberg, CEIC
On monetary side: There is still room for loosening monetary policy going forward to support growth
Spread 7D RR and inflation (%)
24
The Rupiah has performed better than peers, and there is still room for strengthening, amid global volatility constraint
Source: Bloomberg, BIS
-21.3%
-13.2%
-5.7%
-3.5%
-3.2%
-2.8%
-2.0%
0.1%
1.0%
3.1%
4.2%
-1.2%
-24% -20% -16% -12% -8% -4% 0% 4%
BRL
JPY
IDR
KRW
MYR
THB
SGD
USD
INR
PHP
CNY
ASEAN avg Local currency/US$
(as of 26 Oct16, YtD)
121
92
112
78
103
85
60
70
80
90
100
110
120
130
140
Mar-11 Feb-12 Jan-13 Dec-13 Nov-14 Oct-15 Sep-16
Broad REER, 2010 = 100
China Indonesia
Korea Russia
ASEAN-5 ex Indonesia Fragile-5 ex Indonesia
Appreciate
Depreciate
Banking Sector Updates
26
5%7%9%
11%13%15%17%19%21%23%25%
Jan-1
3M
ar-1
3M
ay-1
3Jul-1
3
Sep-1
3N
ov-1
3Jan-1
4M
ar-1
4M
ay-1
4Jul-1
4
Sep-1
4N
ov-1
4Jan-1
5M
ar-1
5M
ay-1
5Jul-1
5
Sep-1
5N
ov-1
5Jan-1
6M
ar-1
6M
ay-1
6Jul-1
6
Growth Credit YoY Growth DPK YoY
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Jan-1
3
Apr-1
3
Jul-1
3
Oct-1
3
Jan-1
4
Apr-1
4
Jul-1
4
Oct-1
4
Jan-1
5
Apr-1
5
Jul-1
5
Oct-1
5
Jan-1
6
Apr-1
6
Jul-1
6
Saldo CKPN Kredit (% yoy) - lhs NPL(%) - rhs
Agu
-16
Sumber: Statistik Perbankan Indonesia Agustus 2016
NPL & Impairment on loan (% yoy)
5,6
6,8
16,0
23,1
Agu
-16
3,22
30,9
Sumber: Statistik Perbankan Indonesia Agustus 2016
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Jan-1
3
Apr-1
3
Jul-1
3
Oct-1
3
Jan-1
4
Apr-1
4
Jul-1
4
Oct-1
4
Jan-1
5
Apr-1
5
Jul-1
5
Oct-1
5
Jan-1
6
Apr-1
6
Jul-1
6
9,1
Agu
-16
Banking loan & third party deposit growth (% yoy)
Growth of net profit (% yoy)
NPL and impairment on loans (%yoy)
The economic slow down had caused the loan and funding growth to slowed significantly
Higher NPL also force banks to put higher provision on loan losses
27
Loan to Deposit Ratio (%) Growth of interest income and interest expense (% yoy)
Tight liquidity becomes a big issue when bank plans to accelerate lending higher LDR
Single digit policy still become an issue that may reduce the interest income
82.00
84.00
86.00
88.00
90.00
92.00
94.00
Jan-1
3
Ap
r-13
Jul-1
3
Oct-1
3
Jan-1
4
Ap
r-14
Jul-1
4
Oct-1
4
Jan-1
5
Ap
r-15
Jul-1
5
Oct-1
5
Jan-1
6
Ap
r-16
Jul-1
6
90,0
Tightening liquidity may cause the interest expenses to increase..
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Jan-1
3
Apr-1
3
Jul-1
3
Oct-1
3
Jan-1
4
Apr-1
4
Jul-1
4
Oct-1
4
Jan-1
5
Apr-1
5
Jul-1
5
Oct-1
5
Jan-1
6
Apr-1
6
Jul-1
6
Oct-1
6
Jan-1
7
Apr-1
7
Jul-1
7
Oct-1
7
Interest Expenses growth Interest Income growth
1,1
Potential Trajectory (Illustration)
6,2
NII compression
Impact of tightening liquidity
Impact of single digit
policy in loans
Source: OJK, Indonesian banking statistics
.. and single digit policy still become an issue that may reduce the interest income
28
15.6%
14.31%
5.93% 5%
7%
9%
11%
13%
15%
17%
Sep
-13
De
c-1
3
Mar
-14
Jun
-14
Sep
-14
De
c-1
4
Mar
-15
Jun
-15
Sep
-15
De
c-1
5
Mar
-16
Jun
-16
Deposit growth (YoY) Placement on BI’s instruments
The economic slow down also have an impact to the deposit growth Liquidity had also tightened because of the cash needed for payment in Tax Amnesty Program
(200)
(100)
-
100
200
300
400
500
4-J
an
-16
13
-Ja
n-1
6
22
-Ja
n-1
6
2-F
eb
-16
12
-Fe
b-1
6
23
-Fe
b-1
6
3-M
ar-
16
15
-Ma
r-1
6
24
-Ma
r-1
6
5-A
pr-
16
14
-Ap
r-1
6
25
-Ap
r-1
6
4-M
ay
-16
17
-Ma
y-1
6
26
-Ma
y-1
6
6-J
un
-16
15
-Ju
n-1
6
24
-Ju
n-1
6
11
-Ju
l-1
6
20
-Ju
l-1
6
29
-Ju
l-1
6
9-A
ug
-16
19
-Au
g-1
6
30
-Au
g-1
6
8-S
ep
-16
20
-Se
p-1
6
29
-Se
p-1
6
10
-Oct
-16
Deposit Facility LF/REPO
Swap BI Reverse Repo SBN
SBI 9M+SDBI Term Deposit
Outstanding Banking Liquidity
224.7tn
Outstanding banking liquidity = Open market operation instrument – Swap BI
298.7 tn
205.5
-110.3 tn since tax amnesty
33tn Term repo injection 34tn
29
Indonesian financial services industry is fragmented and there is a limited domestic funding capability transformation is needed
Sources: Bloomberg, Press, United Nation, PwC Strategy& analysis
Fragmented Indonesian Financial
Services Sector
Uneven Distribution of Potential Funding
Sources
Challenges in Indonesian Financial Services Industry
• Compared to ASEAN countries, Indonesia has more Financial Institutions (Banks) with smaller asset size – around 50% banks have asset below USD 1 Bn …
• … which are also relatively inefficient (avg. BOPO of SOE Financial Institutions is at 68.1% in 2015)
• There is uneven distribution of economic activities, and thus level of wealth and utilisation of banking products
• Jakarta and Java are key and contributes to 73% of Indonesian savings – domestic source of funds is mainly obtained from these regions
Funding Requirement for Infrastructure
Projects
• Realization of Govt. strategic infrastructure plan requires IDR 5,452 Tn investment until 2019 …
• … with contribution from BUMNs is expected to be IDR 1,000 Tn – and there is currently an estimated of 70% shortage
Limited FIs Distribution Network / Coverage
• Around 52% of Indonesian population domiciles in suburban areas
• Provinces other than Jakarta & Java contribute only 27% of total savings
• Limited FIs distribution network / coverage could be the main reason
1
2
3
4
30
Investment Opportunity in Indonesia: Direct Investment
31
© PT Bank Mandiri (Persero) Tbk.
56.2 32.1 56.1 32.1 56.3
32.1 54.9 39
Spur investment
Maintain household
cons.
GFCF/investment Household cons.
• Maintain economic stability to promote strong business and investment climate
• Simplify licensing and investment procedures
• Expand the role of non-bank financial institutions in the development of infrastructure financing alternatives
• Harmonize investment regulations between central and local governments
• Consistently improve the involvements of SOE in infrastructure developments
• Increase the role of banking institutions in lending rate development, especially for working capital and investment credit.
2013 2014 2015
Indonesian future economic growth will still be driven by investments
2019 target
Share of growth geared toward investments
Source : MOF
To tackle long term challenges and to create better competitiveness
Government’s strategy to maintain investment and consumption
Strategy to support investment in infrastructure
• Acceleration of infrastructure development
• Business incentive, certainty, supportive environment
• Maintain purchasing power
56.3 32.1
© PT Bank Mandiri (Persero) Tbk.
EODB 2017 rank
EODB 2016 rank
Change in rank
Overall 91 106 15
Starting a business 151 167 3
Dealing with construction permit 116 113 12
Getting electricity 49 61 5
Registering property 118 123 5
Getting credit 62 70 8
Protecting minority investors 70 69 1
Paying taxes 104 115 11
Trading across borders 108 113 5
Enforcing contracts 166 171 5
Resolving insolvency 76 74 2
167 174
164
93
111
151 151
175 171
78
121
155
2016 2017
EODB ranks comparison in Emerging Economies
Indonesia’s rank on ease of doing business (EODB)
Indonesia has shown strong improvement in ease of doing business rank in 2017 Improvements across most indicators, but there are works to be done
Source : World Bank
© PT Bank Mandiri (Persero) Tbk.
In Indonesia, the New Government will focus on 6 strategic area
© PT Bank Mandiri (Persero) Tbk.
Infrastructure in Indonesia needs a total financing of IDR 5.519,4 Tn between 2015-2019 or IDR. 1.100 Tn/year Main sources of fund from State Budget and Private
Infrastructure Needs
IDR. 5.519,4 T
Regional Budget
IDR.545,3T
(9,9%) State Budget
IDR.2.216T
(40,1%)
SOE
IDR.1.066T
(19,3%)
Private
IDR.1.692T
(30,7%)
Share of Total
Value (IDR Tn)
Road 16,0% 883,1
Railway 5,6% 309,1
Oil and Gas 10,1% 557,5
Electricity 19,5% 1076,3
Telematics 5,5% 303,6
Water Utility 8,0% 441,6
Housing 10,5% 579,5
Sea Trans. 17,9% 988,0
Air Trans. 3,3% 182,1
Land Trans. 1,2% 66,2
City Trans. 2,3% 126,9
*National Medium Term Development Plan, Sources: Various
1 Sep 9, 2015
• Deregulation • Strategic project acceleration • Boost low income
housing
2 Sep 29, 2015
• 3-hour permit issuance program
• Elimination of VAT for transport industries
• Integrated logistics facilities
3 Oct 7, 2015
• Lower fuel and electricity prices
• Land permit simplification for investment activities
• Broadening of small business credit recipients
4 Oct 15, 2015 5 Oct 23, 2015
• Fair, simplified and projectable wage system
• Ease and affordability of small business credit
• Lower asset revaluation tax
• Eliminating double taxation for REITs
6 Nov 5, 2015
• Development of SEZs • Ease of water supply • Simplified licensing
for pharmaceutical
7 Dec 4, 2015
• Acceleration of land certification process
• Tax incentive for labor intensive industry
8 Dec 21, 2015
• One map policy • Refinery construction • Incentive for aviation
industry
9 Jan 27, 2016 10 Feb 11, 2016
• Accelerate construction of electricity infrastructure
• Stabilization of meat prices
• Deregulation on logistic sector
• Easing of investment restriction
Structural adjustment policy through the policy packages To boost investment and maintain purchasing power
11 Mar 29, 2016
• Export oriented business credit REITs incentive
• Indonesia single risk management (ISRM)
• Development of pharmaceutical industry
12 Apr 28, 2016
• Simplification of licensing, procedures, duration and cost of starting business in Indonesia
13 Aug 24, 2016
• Acceleration of the development of affordable houses, by reducing, integrating, and accelerating licensing process
Source : MOF 36
Permit &
Licensing
Simplfications
Special
Economic
Zones
Free Visa
Policies
Licensing Incentives
Tax Incentives for
REITS
Tax Incentives and
Relaxed
Regulations on
Property
Income Tax Relief for
Labor
Intensive Industries
Tax Incentives
Debt To
Equity Ratio
Integrated
Logistics
Zones
Simplification of Import
Licensing for Drugs and
Raw Food
Water Management
and Regulation
Support for
Export-Oriented
Industries
Dwelling Time
Optimization Downstream
Industries
Accelerating
Infrastructure
Development
Incentives for Footwear
and Apparel Industries
Oil Refinery
Development
CPO Fund
Aviation Sector
Incentives
Business and Infrastructure Incentives Other
Incentives
Expansion of
Coverage and
Interest Subsidy
for MSME
One
Map
Policy
Improve Ease of
Doing Business Rank
Revise Negative
Investment List and
facilitate FDI
Relaxed Cattle
Imports Accelerate Electricity
Infrastructure
Some Investment Friendly Policy Packages to support the Economy in Summary
Source: Ministry of Finance
37
49% 100%
49% 100% 51%
100% 100% 85%
Cold storage Sport center;
Film processing lab; crumb rubber Restaurant; Bars Pharmaceutical Raw Materials
Manufacturing
51% 33% 95% 100%
67%
Toll road operator; Telecommunication Testing
Distribution; Warehousing
Private Museum; Catering; Apparel Manufacturing; Exhibition &
conventions
67%
67% 67% 67%
Professional training; Golf Course Management; Air Transport Support
Services; Travel Bureau
51%
Consultancy for Construction
Telecommunication Provider with Integrated Services
55% 65%
Key reforms in Negative Foreign Investment List
Increase in Allowed Foreign Stake (Before and After Relaxation)
• Revision of “Partnership” category to refer to partnership with micro, small, and medium enterprises (MSMEs)
• Grandfather law : if a particular sector is tighten in the future, existing foreign investor does not need to comply with tighter stake
• Strengthen implementation of negative investment law through active roles from Ministries, Agencies and Regional Governments
Relaxation on Foreign Investment Relaxation of Negative Foreign Investment List will promote healthy competition and growth from investments
Source : MOF 38
QI 2015 QII 2015 QIII 2015 JAN-SEP 2015 QI 2016 QII 2016 QIII 2016 JAN-SEP 2016 Target 2016*) Achievement**)
TOTAL 124.6 135.1 140.3 400 146.5 151.6 155.3 453.4 594.8 76.2%
DDI 42.5 42.9 47.8 133.2 50.4 52.2 55.6 158.2 208.4 75.9%
FDI 82.1 92.2 92.5 266.8 96.1 99.4 99.7 295.2 386.4 76.4%
0
50
100
150
200
250
300
350
400
450
500
550
600
Rp
Tri
llio
n
Foreign Direct Investment posting a higher cummulative amount
Investment Realization in 3Q16
*) 2016 Investment Realization Target, BKPM's Strategic Planning 2015-2019 **) Achievements against 2016 targets
Quarter III 2016
y-o-y q-o-q
DDI 16.3% 6.5%
FDI 7.8% 0.3%
TOTAL 10.7% 2.5%
Jan - Sep 2016 y-o-y
DDI 18.8%
FDI 10.6%
TOTAL 13.4%
DDI: Domestic Direct Investment; FDI: Foreign Direct Investment
The value of investment in Quarter III 2016 is the investment realization during three months period of report (July-September 2016) based on investment realization report from DDI and FDI companies.
Oil and Gas, Banking, Non-Bank Financial Institution, Insurance, Leasing and Home Industry are excluded.
The investment value is in Rp Trillion (T) and the currency rate of US$ 1 = Rp13,900 based on National Budget 2016 for Quarter I and Quarter II 2016, the currency rate of US$ 1 = Rp13,500 based on Revised National Budget 2016 for Quarter III 2016.
Investment realization in Quarter III 2016: Rp155.3 T, increases around 2.5% from Quarter II 2016 (Rp151.6 T) or increases around 10.7% from Quarter III 2015 (Rp140.3 T).
Investment realization in January – September 2016: Rp453.4 T, increase around 13.4% from that in January – September 2015 (Rp400.0 T). 39
© PT Bank Mandiri (Persero) Tbk.
Riau IDR 2.7 tn (5.2% of total)
Special Territory of Jakarta IDR 5.2 tn (10% of total)
Metal, Machinery and Electronic Industry USD 0.9 bn (12.5% of total)
Non Metalic Mineral Industry
IDR 8.1 tn (15,5% of total)
Food Industry IDR 7.7 tn
(14.8% of total)
Transportation, Warehouse and Telco
IDR 8.4 tn (16.1% of total)
Domestic Investment by industry Foreign Investment by industry
Domestic Investment by region Foreign Investment by region
Total : 52.1 tn
Total : USD 7.2 tn
Total : 52.2 tn
Construction IDR 6.3 tn
12.1% of total)
Food Croops and Plantation
IDR 6.3 tn (12.1% of total)
Others IDR 18.1 tn
(34.7% of total)
Others USD 3.9 bn
(54.2% of total)
Mining USD 0.7 bn (9.7% of total)
Real Estate, Industrial and Office Building
USD 0.6 bn (8.3% of total)
Chemical and Pharmaceutical Industry USD 0.6 bn (8.3% of total)
Food Industry USD 0.5 bn (7.2% of total)
East Java IDR 11.8 tn
(22.8% of total)
Others IDR 17.8 tn
(34.4% of total)
South Kalimantan IDR 5.5 tn
(10.6% of total)
West Java IDR 8.8 tn (17% of total)
Others USD 3.4 bn
(43.6% of total)
Special Territory of Jakarta
USD 1.4 bn (17.2% of total)
Banten USD 0.9 bn (11.7% of total)
East Java USD 0.9 bn (11.5% of total)
West Java USD 0.7 bn (8.3% of total)
Riau USD 0.6 bn (7.7% of total)
Total : 7.2 tn
Source: Indonesia Investment Coordinating Board Source : BKPM
Investment is still concentrated in Java Foreign investor participation in infrastructure development is still low
AGRICULTURE
INFRASTRUCTURE
MANUFACTURE
CONSUMER NEEDS
TOURISM
• Domestic investment target for agriculture in 2019: IDR12.06 Tn • Foreign investment target for agriculture in 2019: USD1.7 Bn • GDP growth for crop plantation is projected at 5.07% in 2019 (the highest in agriculture sector) • Products: crude palm oil, cacao, coconut, rubber, coffee and fishery, and their derivative products
• Funding needs for infrastructure projects (2015-2019 ): IDR 5,452 Tn • Various regulations to accelerate infrastructure project: - Land acquisition: Perpres No. 30/2015 - Infrastructure strategic projects: Perpres No.3/2016 • Products: highway, port and electricity/power-plant • Increasing contribution to GDP (from % in 2015 to 25% in 2019) • Various regulations to attract investment through Economic Policy Package, example relaxing
the negative list of Investment (DNI), reducing industry gas price, etc. • Industries: *) Consumer goods: pharmaceuticals, cosmetics and medical devices, *) Labor intensive industry: textile, leather and footwear, *) Mineral processing : nickel, bauxite, cooper and aluminum *) Transportation vehicles : car and motorcycle *) Electronics and ICT : television, mobile phone, refrigerator and others
• Total retail sales in 2015 USD324 Bn • Increasing e-retail sales contribution • Huge population and middle income class growth • Indonesia is ranked 5th in 2016 Global Retail Development Index • Products: food and beverages • Property: landed houses and apartment
• Number of Tourist Arrivals (from 10,4 million arrivals in 2015 to 20 million in 2019)
• Increasing contribution to GDP (from 10% in 2015 to 15% in 2019) • Rank in Travel & Tourism Index(from 50th in 2015 to 30th in 2019) • Increasing contribution to International reserve (from IDR 144 trillion in 2015 to IDR 275
trillion in 2019) • Products: hotel and shopping center.
Investment opportunities: Industrial prospects in Indonesia
41
Some Evidences on Investment in Indonesia 2016 (1/2): Investment in electricity : Almost half of Electricity Project already have a Power Purchase Agreement (PPA) with PLN
Based on Development Phase – June 2016
Source: PLN, June 2016
Commercial Operation
(170 MW, 1%)
Construction (8,150 MW, 22%)
Power Purchase Agreement
(9,580 MW, 26%)
Procurement (10,705 MW, 29%)
Planning (8,080 MW, 22%)
Contracted/ Already have PPA
17.900 MW, 49% of total
PPA on Progress 18.785MW 51% of total
• Amount of investment needed to finish 35,000 MW Project : USD 31.9 Bio + USD 78.2 Bio = USD 110.1 Bio
• Average amount of investment needed per MW : USD 3.15 mn/MW
42
© PT Bank Mandiri (Persero) Tbk. Source : Company, Colliers International, Mandiri Sekuritas
Some Evidences on Investment in Indonesia 2016 (2/2): Inquiries on industrial land are picking up
Segment Company 9M16 marketing sales (Rp bn)
%YoY Comment
Industrial land Bekasi Fajar 186 -10% BEST has around 60ha of land inquiries coming from consumers, logistics, and plastic industries and is confident to close an additional 13ha of land sales in 4Q16. This should then
bring marketing sales achievement to 20.7ha or 83% of FY16 target (25ha). As of 9M16, the company has only sold 6.7ha of land.
Deltamas 884 -47% DMAS recorded 9M16 industrial marketing sales of 52ha (Rp884bn) above FY16 marketing sales target of 50ha. Additionally, the company has over 100ha of land inquiries coming from
financial-related, sanitary, as well as oil and chemical related companies.
Modernland Realty 232 -83% The company has recorded about 14.3ha of industrial land sales or about Rp232bn as of
9M16. The company has recently formed a JV with Astra Land Indonesia to develop 67ha of land in Jakarta Garden City with a total deal value of Rp3.4tn.
Kawasan Industri Jababeka 236 -20%
As of 9M16, KIJA has booked 32.5ha of marketing sales with about 21.4ha coming from Kendal industrial estate and the remaining 11.1ha sales recorded in Cikarang.
Surya Semesta 2 -66% As of 9M16, SSIA has only sold 1.1ha of industrial land. Limited land bank in Karawang estate might provide risk as SSIA is unable to cater a large chunk of land sales. Worth to note,
launching of Subang industrial land estate is delayed to FY19.
Aggregate industrial estate land sales
-
200
400
600
800
1,000
1,200
1,400
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 9M16
Aggregate industrial estate land sales (Rp bn)
© PT Bank Mandiri (Persero) Tbk. Source : Company, Various media sources, Mandiri Sekuritas
Some notable investments made this year
Notable investments/JVs in consumer-related sector Investment Remarks Mayora Rp1-1.4tn Bottled water plant expansion Kalbe Farma Rp45bn JV Kalbe Blackmores, supplements and vitamins SIDO Rp280bn Extension lines for Tolak Angin Kimia Farma Rp1tn Drugs, pharmaceuticals, pharmacies, and clinics Japfa Comfeed Indonesia USD81.2m KKR injected cash in the form of 10.4% stakes Takasago Indonesia USD19.5mn New factory for food seasonings Ajinomoto Indonesia USD23mn Factory expansion for food seasonings GarudaFood Rp550bn Factories, machines, distribution extension Siloam Hospital (Equity Injection) Rp2.2tn CVC injected cash in the form of 15% equity stakes Transmart (Equity Injection) USD387mn GIC injected cash in the form of 17% equity stakes Mitra Adiperkasa/Starbucks (Equity Injection) Rp1.05 tn General Atlantic injected cash in the form of CB, convertible into 30% equity stakes Go-Jek (Equity Injection) USD550mn Syndicated cash injection led by KKR MatahariMall.com (Equity Injection) US$100mn Mitsui injected cash in the form of 20% equity stakes Lazada USD1bn No disclosures on the amount of cash injected into the Indonesian entity Tokopedia USD147mn
Notable JVs in the property sector Total transaction Size (ha) Partners Partner Ownership (%)
Alam Sutera Rp700-1,000bn n/a China Fortune Land Development Straight land sale
Bumi Serpong Damai Rp1,500bn 19 Mitsubishi 60%
Modernland Realty Rp3,400bn 67 Astra Land Indonesia* 50%
*JV between ASII and Hongkong Land
Company Capacity (mn MT/year) Comment
Indocement 4.4 Officially became operational in Oct'16
Semen Indonesa
Padang 3.0 Completed in Oct'16. Will be commercially operational starting in Jan'17
Rembang 3.0 Almost complete. On hold due to license issue
Semen Jawa 4.4 Up and running starting in 1Q16 Total 14.8
Investment Opportunity in Indonesia: Portfolio Investment
45
46 © Oliver Wyman 46
Emerging Asia, including Indonesia, still has room to grow. With several jumpstarts, Indonesia’s financial sector will close to its peers by 2030
Indonesia 2014 Indonesia 2030 Malaysia India China Thailand
# of listed companies 540 1700 905 1708 2600 613
# of listed companies
(normalized to IDN size)1 540 355 2360 790 215 1400
# of bond issuers 140 550 387 706 3540 134
# of bond issuers
(normalized to IDN size)1 140 115 1008 327 293 307
# of retail investors 450K 6MN NA 25MN 50 MN NA
# of retail investors
(% of population) 0.2% 2% NA 2% 4% NA
Equity to GDP 49% 78% 141% 149% 58% 111%
Bonds to GDP 6% 17% 42% 12% 18% 18%
1. Scaled to Indonesia numbers for 2014 based on relative GDP ratio
Source : Oliver Wyman
-11.8%
13.5%
11.2%
6.7%
16.8%
2.3%
17.9%
-1.3%
6.6%
4.6%
4.3%
*2.0%
8.3%
5.5%
6.5%
10.1%
3.7%
9.8%
5.0%
5.7%
*2.6%
12.8%
5.8%
4.3%
17.1%
5.8%
7.3%
Indonesia
Malaysia
Philippines
Thailand
South Korea
Taiwan
India
China
Asia
average 2010 - 2015
5.2%
15.8%
11.7%
3.1%
1.1%
8.7%
3.8%
2.6%
11.9%
2016 Ytd average 2010 - 2015 2016 Ytd Country
Equity Bond
source: Bloomberg * Taiwan started from 2013
Indonesian capital market is performed better compared to other emerging market
47
17.9
15.5
18.8 18.5
16.8
13.5 12.6
15 14
17.2
15.6 15.5
12.9
11.6
2016 2017
PE ratio comparison (X) PER and PBV in Indonesia Stock Exchange (X)
Sectors
Average
PER PBV
Agricultre 12.2 7.8
Mining 23.0 1.7
Basic industry and chemicals 11.4 1.5
Miscellaneous industry 12.7 1.2
Consumer goods industry 22.4 2.7
Property, real estate and construction 23.6 2.1
Infrastructure, utilities and transportation 12.3 2.3
Finance 22.1 2.0
Trade, services and investment 10.1 2.4
Source : IDX, Mandiri Sekuritas
Prices of Indonesian stocks had already higher compared to other peers
But, it still has wider room to grow
JCI’s 12-month forward PE vs 10Y IDR Bond Yield JCI vs. EPS performance (indexed to 1-Jan-2012)
Source : Bloomberg
Main risk to equity is reversal in the risk-free rate as EPS growth has been muted
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
-
5.0
10.0
15.0
20.0
25.0
Jan
-06
Sep
-06
May
-07
Jan
-08
Sep
-08
May
-09
Jan
-10
Sep
-10
May
-11
Jan
-12
Sep
-12
May
-13
Jan
-14
Sep
-14
May
-15
Jan
-16
Sep
-16
JCI 12-mth forward PE (x) INDO 10Y Bond Yield (RHS)
42%
-10%
50
60
70
80
90
100
110
120
130
140
150
Jan
-12
May
-12
Sep
-12
Jan
-13
May
-13
Sep
-13
Jan
-14
May
-14
Sep
-14
Jan
-15
May
-15
Sep
-15
Jan
-16
May
-16
Sep
-16
JCI INDEX T12M EPS
49
Source : Mandiri Sekuritas
Equity: 2016-17 outlook across sectors
Industry Outlook Key points
Automotive Neutral • 4W industry sales improved slightly in 9M16 (+2%yoy) after 16%yoy drop in 2015. 9M16 2W sales remain weak (-10%yoy)
• Astra and Honda market share improved to 53.9% (from 50.0%) and 19.4% (from 15.4%) respectively at the expense of smaller player (Nissan, Suzuki, etc). Aggressive new product launches this year help support ASII’s sales (+10%yoy).
Banking/Finance Neutral • Industry NPL is near peak in 2016, impact of slow economic growth
• Industry loan growth expected at 7-8% in 2016 and 10-12% in 2017 • Stronger EPS growth in 2017 on lower provisioning charges
Cement Negative • Oversupply situation persists
• Declining margins, higher gearing ratios
Coal Neutral • We expect better earnings for Indonesian coal companies in FY17 on higher coal price due to China supply cut effort
• On the other hand, we think coal at current USD108/ton is too high and is likely to correct to max USD80/ton level on Chinese government attempts to stabilize coal price within the given range. • In addition, China coal demand is still sluggish on economic slowdown and effort to shift towards cleaner source of energy. According to Australia Resources and Energy, china coal import is expected to decline at FY15-FY17F CAGR of 5.3%.
Construction Positive • Full support from the government and rising spending from SOEs should support growth in new projects
• Realization in construction works should improve once major players complete their equity raising • Ability to raise funding would become crucial to sustain high level of growth
Consumer Neutral • Consumption recovery is still on hold as income growth is lacking
• With low inflation and stronger Rupiah, revenue growth is sustainable but margins are at peak
Healthcare Neutral • Pressure on margin from BPJS (on unbranded drugs) and on pricing transparency
• More positive on hospitals due to low penetration rate
Heavy equipment Negative • Strong rally in coal price to >US$100/ton will support equipment demand from mining sector • We have seen stronger demand from mining sector since September 2016 which will continue to 2017 if coal price remains stable at >US$70/ton
Industrial estate Positive • We should see improving investment on the back of better economic policies under the new MoF
• Our channel check suggests improving pipeline for industrial estate with rising confidence for capex spending
50
Source : Mandiri Sekuritas
Equity: 2016-17 outlook across sectors (cont’d)
Industry Outlook Key points
Metal Neutral • Current nickel price (US$10,000/ton) is close to the level in 2009 Global Financial Crisis
• Cautious on nickel outlook on sluggish demand and high inventory level
Media Positive • Improving Adex growth due to rising confidence on ad spending
• Expect rising ads spending on the back of more stabilized Rupiah, high consumer companies margin, and several new product launches from FMCG companies
Plantation Positive • CPO inventory to remain at low level throughout FY16 and will last until 1Q17
• CPO supplies are tight due to El Nino impact, but we expect production recovery in 2017
• Strong export demand especially from China on upcoming Chinese New Year festival
• Biodiesel in Indonesia has worked and absorbed 1.95m MT of CPO (+227% YoY)
Property Positive • Improving marketing sales due to tax amnesty program
• Better government regulations via loosening of second mortgage loan and reduction of final income tax rate
Retail Positive • Expect higher margin led by normalized inventory level and cost efficiency efforts
• Favourable currency and lower minimum wage adjustments should translate into better cost inflation for retailers, mostly the mid-to-high-end retailers (target market unaffected by minimum wages) • Demand recovery is still on hold as income growth is lacking
Telecommunications Positive • Double digit top line growth driven by data (mobile internet). ARPU is trending up due to higher data package and the introduction of 4G will further improve data usage
• Strong cash flows to support network expansions
51
Fixed Income Index Returns: Indonesia’s bonds market performed the best among its peers
YTD 2016 (as of 25-Oct)
52 Source: Bloomberg and Mandiri Sekuritas
-3.2%
-2.8%
3.8%
3.5%
3.2%
3.1%
-1.0%
6.3%
5.9%
5.2%
7.8%
3.4%
4.6%
5.7%
6.1%
12.9%
18.3%
-5.0% 0.0% 5.0% 10.0%15.0%20.0%25.0%30.0%
BBG ASIA Local Sov
BBG China Local Sov
BBG Philippine Local Sov
BBG Taiwan Local Sov
BBG S Korea Local Sov
BBG Malaysia Local Sov
BBG Thailand Local Sov
BBG India Local Sov
BBG Indonesia Local Sov
FX gained/(loss) againstUSD
Total return LCGB
LCY 10 Year Government Bonds
Latest Yield YTD
Change (BP)
MTD Change
(BP)
Japan (0.06) (33) 3
Hong Kong 0.99 (59) (7)
Korea 1.65 (44) 22
Singapore 1.81 (79) 3
Thailand 2.11 (39) 1
China 2.74 (12) 1
Malaysia 3.59 (60) 3
Philippines 3.80 (30) 16
Vietnam 6.19 (99) (27)
India 6.76 (100) (0)
Indonesia 7.08 (166) 2
Germany 0.01 (62) 12
United States 1.79 (48) 20
53 © Oliver Wyman 53
Key positive catalysts in 2016-2017 for Indonesian Market
2016 2017
Global
• More dovish Central bank + Neutral
• Soft landing China growth and orderly
depreciation of the Chinese currency + Neutral
• Stabilization of Commodity prices + Neutral
Domestic
• Accommodative fiscal and monetary
stance to sustain growth + Negative
• Bank Indonesia and domestic buyers
should be supportive for bond market + Neutral
• Supply/Demand government bond still
manageable + Neutral
54 © Oliver Wyman 54
IDR bond fund flows data: Foreigners were still posted as the highest nett buyers for Indonesian sovereign LCYbonds
SUN Sukuk Total SUN Sukuk Total SUN Sukuk Total
Banks 247.1 118.7 365.8 (17.3) 4.4 (12.9) (16.8) 33.7 16.9
Bank Indonesia 144.9 4.5 149.4 0.2 0.6 0.7 (2.9) 2.1 (0.7)
Mutual fund 68.6 11.0 79.6 0.8 0.4 1.1 12.0 6.0 18.0
Insurances 186.1 48.0 234.1 5.1 1.7 6.7 44.2 18.3 62.5
Foreign 661.0 11.9 672.9 (10.3) (1.8) (12.1) 110.6 3.8 114.4
Pension Fund 69.3 13.8 83.0 1.2 0.1 1.3 24.7 8.5 33.2
Retail 22.3 19.6 41.8 (4.2) (0.5) (4.7) (8.7) 8.0 (0.7)
Others 84.3 17.0 101.2 (1.4) (0.2) (1.7) 17.7 4.8 22.5
Total 1,483.5 244.4 1,727.9 (26.0) 4.6 (21.4) 180.9 85.2 266.1
Investor Type Mtd YTD
Outstanding (Rp tn) as of 25-
Oct
Net buy/(Sell) - Rp tn
Source: DMO and Mandiri Sekuritas
Foreign fund inflows remained encouraging
YTD Cumulative foreign fund inflows still behind 2014 Foreigners also lengthening their duration portfolio
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
USD Billion
2011 2012
2013 2014
2015 2016
5.90
6.00
6.10
6.20
6.30
6.40
6.50
6.60
6.70
6.80
6.90
-
50.00
100.00
150.00
200.00
250.00 FR0073FR0072FR0056FR0053weighted average duration (RHS)Weighted Average Duration - MSGBI-RHS
55
Foreign investors mostly invest in mid & long term Government Bond
Based on Maturity Date (IDR tn) – Oct 2016 Based on types of foreign investors (IDR tn) – Oct 2016
>15-20 Years IDR 100 tn
(14.9% of total)
Source: Ministry of Finance Republic of Indonesia
Total: IDR 673 tn
>10-15 Years IDR 147.9 tn
(22% of total)
>5-10 Years IDR 259.7 tn
(38.59% of total)
>2-5 years IDR 124.2 tn
(18.45% of total)
>1-2 Years IDR 16.7 tn
(2.49% of total)
0-1 Year IDR 12.7 tn
(1.88% of total)
>20 Years IDR 12 tn
(1.77% of total)
Total: IDR 676.4 tn
Foundation IDR 1.2 tn
(0.17% of total)
Security companies IDR 2.5 tn
(0.35% of total)
Mutual Fund IDR 261.5 tn
(37.6% of total)
Central Bank & Govt IDR 115.7tn
(17.6% of total)
Financial Institution IDR 121.5 tn
(24.7% of total)
Corporate IDR 27.2 tn
(3.26% of total)
Pension Fund IDR 51.5 tn
(6.54% of total)
Insurance IDR 9.4 tn
(1.38% of total) Other
IDR 85.6 tn (8.44% of total)
Individual IDR 0.2 tn
(0.03% of total)
Foreign investors mostly are mutual funds, financial institution and central banks
Why are foreigners still holding more IDR bond?
The 10y LCY Government Bond yield spread against UST remains attractive
In terms of real yields (10year Nominal yield minus
expected inflation) are also still attractive
Source: Bloomberg
57
Some opportunities from Indonesian Economy in the medium-long term
58
Source: RPJMN (2015-2019), Bappenas, BKPM
Indonesia’s young population will still be the main support prior to 2030: Opportunity for domestic-based business
59
Indonesia is #1 Exporter of:
CPO
Nickel Ore
Bauxite Ore
CPO USD 795/
Ton
The Downstream to add value
RAW
Nickel Ore USD 26/Ton
Bauxite Ore USD 22/Ton
Source: intracen.org; note: Price as of 2013 except CPO, 2014
Biodiesel USD 885/Ton
PROCESSED Value Added
Ferro-nickel USD 3.488/Ton
Alumina USD 348,5/Ton
1.1x
15.8x
134.1x
The down-streaming of the commodity related sectors should play a bigger role ahead
60
5.2
5.0
4.5 5.3
5.0
4.9 5.5 6.2
6.3
7.0 7.6
8.0 8.8 9.4 20
.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2019
F
(people mn )
Tourist arrivals in several countries (people mn)
No. Country 2014 2013 (% Change) 1. China 129.1 116.9 10.4 2. Thailand 24.8 26.5 -6.4 3. Malaysia 27.4 20.9 31.1 4. S. Korea 13.98 11.8 18.5 5. Singapore 15.1 14.2 6.3 6. Japan 13.4 10.4 28.8 7. Indonesia 9.4 8.8 6.8 8. Taiwan 7.3 8 -8.8 9. Vietnam 7.9 7.6 3.9
10. India 7.4 6.9 7.2
Indonesia’s tourism share to :
World: 0.8%
Asia Pacific: 3%
ASEAN: 9%
Source: Ministry of Tourism
Government targeted 20 million of tourist arrivals prior to 2019
Indonesian tourism is still lagged behind
Tourism is one of the Government’s focus to support domestic economy
61
Inhabitants : 30 mn Internet users : 20 mn Digital buyers : 16 mn
Inhabitants : 100 mn Internet users : 36 mn Digital buyers : 25 mn
Inhabitants : 67 mn Internet users : 19 mn Digital buyers : 14 mn
Inhabitants : 93 mn Internet users : 40 mn Digital buyers : 24 mn
Inhabitants : 5.5 mn Internet users : 4.2 mn Digital buyers : 3.2 mn
Inhabitants : 253 mn Internet users : 39 mn Digital buyers : 5 mn
The Retail E-commerce Market in ASEAN
1.1
1.1
1.2
1.5
1.9
2.2
Vietnam
Thailand
Philippines
Malaysia
Singapore
Indonesia
market size (USD bn, 2014)
Source: IMF, eMarketer, eCommerceMILO, DigitalFilipino, Frost & Sullivan, hybris, VECITA, A.T. Kearney analysis, CARI
E-commerce: Bigger opportunity due to better cooperation with the banking sector…
62
Thank You
63