From: Wuddy Warsono, CLSA To: Wuddy Warsono, CLSA Sent: Thursday, February 15, 2007 9:03 AM Subject: CL INDO: Indo rubber plays, property and BUMI roadshow feedback Good morning. I have just came back from a 3-day roadshow in Singapore where our property analyst Daniel Oen presented his bullish view on Indo property sector. Daniel had also recently written a big report on Indo most liquid property stock Ciputra Development (CTRA IJ), wgich is one of his top picks in the sector. Iwan Winarta from property consulting company Procon Indah joined us in the roadshow. For today and tomorrow, Daniel and Iwan are doing the Hong Kong leg of the roadshow. Response is generally positive. Indo property sector is definitely under-owned and under-researched. This may change as Indo physical property prices are now one of Asian biggest laggards. Many clients were surprised to learn how cheap Indo properties are. Indo's CBD land prices (at ~US$1,700psm) is 60% cheaper than pre-crisis level (in US$ term) and 50% cheaper than Manila and Bangkok prices. Super luxury condo in Jakarta looks cheap at US$2,000 psm, a fraction of Singapore prices and half the prices in Bangkok. By the way, Indonesians still form the largest pool of foreign buyers of Singapore properties. Purchasing power is arguably there, especially for the higher end segment. What is lack is confident. Improving macro outlook and potential short term catalyst (like allowing foreigners to buy Indo properties) may boost the confident. And Indo macro outlook is positive: rates are falling, urbanization trend continues, and Indo banks are ready to liquefy the economy. Already, office occupancy level in Jakarta has been quietly moving up: 78.8% in 03, 79.4% in 04, 82.8% in 05, and 84.9% in 06. Rental apartment also saw increasing average occupancy rate: 69.4% in 04, 67.7% in 05, and 74.5% in 06. Of special interest from clients is BBCA's recent move to launch a 5 year fixed rate mortgage @ 10% (pilot project, but I see no reason why this can't be successful). This is both ground breaking and unprecedented, likely to stimulate demand for property. Competition is heating up. Already, BNII is offering a fixed rate program within a 5 year loan term @ 12.5%. Attached in the email: With rubber price bouncing back up, Wilianto highlighted rubber plays in Indonesia. There are basically 2 them: · Bakrie Sumatera (UNSP IJ): 50% rubber, 50% palm oil (planted area). As a % of the revenues, rubber contributes 65% and CPO 35% at UNSP. · London Sumatra (LSIP IJ): 22% rubber, 70% palm oil, 8% other crops. Despite rubber plantation is currently producing ~25% more profits/ha than CPO plantations, both UNSP and LSIP are trading at big discount to pure CPO play AALI. We also believe that CPO price will stay high in near term: supply situation for CPO, as in rubber, will remain tight in next five years. Per capita consumption of edible oils in China and India remain low at 19.7kg and 11.9kg compared to 43.7kg in Hongkong and 50.7kg in USA, which represent a large future potential. James Gruber highlighted that nickel prices continue to soar to new highs with depleted inventories unlikely to be replenished soon, providing good support to prices. Strong prices are not captured in equity valuations. BUY both INCO (INCO IJ) and Antam (ANTM IJ). At our forecast price for nickel (US$11.50/lb), INCO and ANTM are trading at 6.6x 07 PE and 5.7x 07 PE respectively. However, using current nickel spot price of US$17.40/lb, INCO is at 3.6x 07 PE and ANTM will be at 3.3x 07 PE!! Others: CLSA hosted a lunch meeting with a prominent Indo business figure Mr Sofyan Wanandi. Mr Wanandi is also the President of APINDO (Indonesian Association of the Businesspeople) and an advisor to President SBY. Key takeaways: Tax Law: Expect an announcement by May which will include a 500 bps reduction in tax rates. This could be a staggered cut or all in one. It will also be accompanied by a tax amnesty. Lower tax rates add to profit growth outlook and should be excellent news for the stock market and for future investment decisions. Investment Law: Now waiting to be signed. Labor Law: Under discussion still but increasingly identified as the key area of reform. On this topic, there is now agreement from unions on the need for change. Onerous termination provisions will be slashed and replaced by unemployment insurance. Regional wage boards will be replaced by a national minimum wage and there will be provisions for enterprise bargaining. Pak Sofyan also identified this reform as key if investment spending is to increase. It is also key to President SBY's hopes of reelection in 2009. He needs the country to be adding jobs by then. BUMI roadshow feedback, by Michael Chambers: Mikehas been a way for the past ten days, on the road with Bumi Resources (BUMI IJ). They met clients in the UK, US and Middle East. This is a remarkable comeback story. In 2003 the stock was a super performer as it gained control of the key KPC coal asset followed by a sharp rise in coal prices. After some missteps in 2006 with an attempted divestment of its coal assets and a failed merger with Energi Mega (ENRG IJ), the focus is currently once again on coal. Bumi has substantial debts and is looking to sell a 30% stake in the coal assets to clear these. The bidders include Indian, Japanese and maybe European utilities looking to hedge coal exposure. As in 2003, coal markets are working in Bumi's favor. Rising coal price expectations are supporting the share price and increasing the need for a hedge against coal prices for large coal users. Key points from the road show: a.. Interest level for Bumi was pretty good with US investors more bullish on prospects. They view India and China as key factors driving coal prices in the next few years with little chance that infrastructure bottlenecks in Australia and South Africa can be overcome. b.. Bumi confirmed media reports that Tata Power, Reliance Energy, Marubeni, Mitsubishi and Kepco are five of seven companies on the short list to buy a 30% stake in its two coal mining units. The deadline for final bids is February 28, with a winner to be announced soon thereafter. Despite market reports, the likely price will be around $1bn for the 30% stake. A higher price is possible if a bidding war erupts but the $1.6bn mentioned in Indian papers yesterday (Tata) sounds fanciful. If true, BUMI will move towards Rp2,000/share. c.. Bumi is looking to boost output towards 90m tpa by 2010 (from 60m tpa in 2007) with up to 15m tons of low grade coal for state electricity company, PLN, and a further 15-20m tons in a new pit of medium-low grade coal for an Indian power producer (one of the ultra mega power projects). Negotiations are underway with a number of UMPPs for this contract which would be a 20 year take or pay contract. d.. Bumi is looking to package up its existing copper gold assets into a listing by year end, possible on AIM in London.These assets were acquired very cheaply but could be very valuable. A listing will allow explicit valuation to occur. e.. Bumi has abandoned its desire to merge with Energi Mega and repeatedly stated that a deal was off for good. f.. Bumi is building a war chest for acquisition, probably of a divestment asset in Indonesia. With a debt free coal company, a bankable take or pay contract on the Indian UMPP project and a 10% treasury share stake, BUMI could potentially raise $1-1.5bn of equity for an acquisition. With a strong coal story and increasingly powerful balance sheet, the outlook for BUMI is very strong. The 30% asset sale should allow explicit valuation of the coal assets in the share price and suggests upside to at least Rp1,400. News Headlines: The new cigarette retail price will be effective by March, while specific cigarette prices will be effectively by July. More bad news for GGRM Jakarta floods recently cost Astra Int'l loss valued at Rp40bn (US$4.4m) The Foreign Bank Association of Indonesia (FBAI) has formed a special working committee on sustainable development that aims to formulate a standard for best lending practice to be adopted by FBAI members Bank BII (BNII IJ) is offering a fixed rate program within a five year loan term for mortgage loan and multi purpose loan. Indofood (INDF IJ)'s Singapore listed subsidiary, Indo Agri Resources (IFAR SP), rose 28% on listing yesterday, but Indofood shares did not move. Looks that story has been largely priced in already. Ramayana (RALS IJ): more disappointment. RALS reported a very weak January sales number as higher food prices reduced money available for clothes. Although well run, Ramayana continues to struggle as most Indonesians remain very poor and largely underemployed. Any recovery of investment spending would be good news for Ramayana. Pak Sofyan (above) thought we would see more investment in 2H07. Key Indicators JCI: 1,750.986 +23.626 (+1.37%) T/O USD 319 mil ADR: TLKM US$42.76 = IDR9,710 ISAT US$32.25 = IDR5,859 Sentiment looks strong. Telkom (TLKM IJ) ADRs were up 4.1% again last night on good volume. Parity is now 9675 or a 4.6% premium over locals. They are going to open strong and set the tone for the rest of the market. RESOURCES: metal prices rose again firmly overnight, especially nickel +4.7%. The sector will continue its outperformance for a while longer it seems. We are slight net buyer as of this morning. Best regards, Wuddy Warsono, CFA CLSA Indonesia | Institutional Sales Phone: (62-21) 573 9460 HP: (62) 816 78 6352 Fax: (62-21) 574 6923 [EMAIL PROTECTED] ------------------------------------------------------------- The content of this communication is subject to CLSA Legal and Regulatory Notices, which can be viewed at https://www.clsa.com/disclaimer.html or sent to you upon request.