New Report- New Index Target JCI 4,150pts from 4,400! - Credit Suisse

INDONESIA STRATEGY Report: Lower JCI Target to 4,150pts, Stock Selection is key!

Teddy Oetomo, Phd is now CS Indonesia Strategist, Bank & Plantation Analyst. Teddy lower Indonesia Index Target to JCI 4,150pts at end-2011F (vs 4,400pts previously). For now, we do not anticipate permanent impact from Japan Tsunami to Indonesian Economy and stock market, however we see short-term impact to supply chain or export demand to a few stocks, among others the largest stock ASII and it subsidiary UNTR. Teddy’s stock screening, Top-Buy stocks are BMRI, INDF, SMGR and BBNI, while Top-Sell stocks are KLBF and UNVR due to valuation mainly!

· Teddy Oetomo (Report attached): Need more than just “buy the market” strategy. After achieving 27% CAGR in 2003-2010, a 16% premium over the risk-free rate, we expect the Indonesian market’s 12M return to normalise to 15%, 6–7% ahead of its current risk-free rate. Thus, the strategy of “buying the market” which has worked well in the past may be less effective in the future, with stock selection being key to generate future outperformance. Our new index target of 4150 is based on 16x 2011E P/E, in line with the average P/E during the pre-1998 Asian financial crisis period.

· Why do we expect a normalised return? (1) While it has corrected from a peak 41% premium, Indonesia is still trading at a 20% premium to APAC ex- Japan—the most expensive market in the region. (2) Consensus earnings momentum is subsiding with March 2011 seeing the largest MoM downgrade in the region.

· Why not just sell the market? (1) Indonesia is not over-owned, with net foreign inflow as percent of market cap being 0.3%, the second lowest in the region and below its historical average of 1.5%. (2) We believe that the central bank is not as “behind the curve” as the market perceives, running the second-highest real interest rate and highest YTD currency appreciation in the region and (3) we believe that Indonesia will be able to sustain its current ROE in the next 18 months.

· Stocks selection is key. Our Top Longs (BMRI, INDF, SMGR, BBNI) are geared towards stocks that are: (1) trading at a discount to both Indonesia and APAC ex-Japan; (2) are laggards in the Indonesian market and (3) have robust consensus earnings momentum. Our Top Shorts (KLBF and UNVR) are stocks that are: (1) trading at premium to Indonesia and APAC ex-Japan (2) with subsiding consensus earnings momentum and (3) exposed to risk of profit taking due to their recent outperformance.