On the cusp of structural change
• One of the most resilient countries in the current crisis – a strong
domestic economy has led to positive earnings growth.
• Low interest rates and infrastructure development to support the
creation of a strong consumption story.
• We raise our index target to 2,200 based on a reversion to the mean
of 13x.
Economically and politically sound
GDP in 1Q09 grew by 4.4%, which was a very strong performance in
this crisis. It could also signify the bottom of the growth cycle. Interest
rates have declined by 200bp since the beginning of the year, and
businesses and individuals are the most confident they have been in
four years. Politically, the country is one of the more stable in the region.
Following the legislative elections in April, the democratic process has
become entrenched, which has resulted in stronger currency and a
re-rating in both the bond and equity markets.
Proven earnings resilience, upgrades on going
First-quarter results indicate that companies are strong. They have
been helped by strong domestic consumption (1Q09 growth: 5.8%).
Margins made a strong recovery in 1Q09, having collapsed in 4Q08,
with most cost increases being successfully passed on to endconsumers.
Following the better-than-expected results, analysts have
been upgrading their forecasts. We now forecast overall EPS growth for
2009 and 2010 of around 4.2% and 18.6% compared with -3% and
16.5% at the beginning of the year.
We now OVERWEIGHT Indonesia
Due to a historically low interest rate, a strong government and
improving earnings outlook, our 12-month index target is 2,200, based
on the long-term P/E mean of 13x. We believe this is justified, given that
Indonesia is one of the few countries that has not experienced negative
growth in this downturn. Additionally, liquidity flows are likely to prevent a
sharp market correction. Our regional strategist, Clive McDonnell has an
OVERWEIGHT on Indonesia, having been underweight since March
2008.
Go for cyclicals with strong fundamental
To profit from this cycle, inventors should position themselves more
aggressively than at any time in the last year. We therefore recommend
high beta stocks, in order to take advantage of the low interest rate
environment. In the banking sector, Danamon and BNI are our top picks.
In the property sector, we like CTRP due to its established track record
and under valued assets. Other interest-rate sensitive stocks we like
include ASII and Indofood. In the commodity space we like two names:
AALI and ITMG. Kalbe Farma’s margins will expand due to currency
strength. The only defensive stock we have is PGAS, but its growth story
remains intact.

Contents
On the cusp of structural change................................................................................... 3
One of the most resilient economies in this crisis 3
Politically one of the most stable in Southeast Asia 6
Indonesia is at the cusp of structural changes 7
Raising Indonesia to OVERWEIGHT........................................................................... 11
A re-rating in progress: 12-month index target of 2,200 11
Top picks: Go for cyclicals with strong fundamentals 15
Company updates........................................................................................................ 17
Astra Agro Lestari 18
Astra International 21
Bank Danamon 24
Bank Negara Indonesia 27
Ciputra Property 30
Indofood 33
Indo Tambangraya 36
Kalbe Farma 39
Perusahaan Gas Negara 42
Appendices .................................................................................................................. 45
1. 1Q09 results summary 45
2. Indonesia stock guide 49