Implications of Job Creation Omnibus Bill by Sector (CLSA/KZ)

• Banks : Banking will benefit from the change in labour wage (especially severance pay) given they employ quite a number of people for their branch network. Licensing simplification will help banks though; license process (for setting up a branch presence) is not as complicated as some other sectors. Indirectly benefit from potential higher FDI as economy will accelerate and that benefits banking sector (both on loan and deposit).

*• Residential property :* Relaxation on foreign ownership on property to benefit high-rise developers in Jakarta (ie, PWON, DILD). Lower final tax on recurring business (mall) to benefit mall operator. Developers with bigger exposure to malls (PWON, SMRA, MTLA).

*• Industrial Property :* Labour reform to benefit industrial developers across the board (eg, DMAS, SSIA, BEST).

*• Staples (excl. cigarettes) :* In general, short-term demand shock assuming remuneration reduction for labour, albeit with stronger demand upside in medium-term on job creation through FDI. As for FMCG sector, their business structure has allowed competition from multinational players, so less impact even assuming the government opens up more on FDI.

*• Cigarettes :* General impact might be similar to FMCG sector. However, tobacco as the labour-intensive sector (particularly on the hand-rolled or SKT segment) could also enjoy the benefit from a cost perspective given potential remuneration reductions of labour. From an FDI standpoint, if cigarettes are being taken out from negative investment list, then there might be a negative impact from stiffer competition potential.

*• Poultry :* Slightly positive impact if raw material import is loosening (corn import could be opened). Meanwhile, opening FDI will welcome more competition, but the business structure is an oligopoly; hence, need to lobby the government to be a significant threat to existing players.

*• Retailers :* Retailers could enjoy a cost-saving benefit given more outsourced employees allowed as well as potential remunerations reduction of labours. Retailers can also benefit in terms of ease to do store expansion given more authority to the central government (as some local governments may not support investment). Opening up more FDI could increase competition.

*• Automotive :* Auto benefits from cost saving if there is a change to severance package calculation - as auto employs quite a number of people (mainly on the manufacturing side). Separately, potential increase in competition from rising FDI, we think the impact is more positive than negative since: 1) the main players are already in Indonesia; and 2) demand for commercial cars will increase if investment picks up, while passenger cars demand can also rise given job creation from more investment.

*• Pharmaceutical :* More labour relaxation including the potential foreign workers involvement in more crucial roles could probably help to boost R&D in pharmaceutical segment. Opening up more FDI on upstream could also benefit pharmaceutical players from a supply chain perspective.

*• Hospitals :* Opening up more FDI in hospital segment could mean stiffer competition, although the bottleneck is still due to doctor availability. It will be a different story should the government, together with the Ministry of Health and the Doctors Association, agree on opening up to foreign doctors. It could enlarge the healthcare spending pie significantly, although it also means more competition.

*• Telco operators :* Operators may be able to share spectrum with approval from central government and also obliged to share passive infrastructures. This will benefit the smaller operators, as they requires less capex for expansion. However, it will face strong push back by Telkom and they have very strong lobbying power. Central government may also sets upper and lower limit pricing, which may prevent price wars.

*• Tower companies :* If foreign ownership is removed from the negative investment list, tower companies can become an attractive acquisition target. Valuation for Indonesia’s towers companies relatively lower compared to US peers.

*• Cement :* Impact will be indirect. Increased FDI will translate to higher demand for construction activities. Cement industry already not in negative list hence opening up for FDI will not have any impact.

*• Construction :* Benefited more towards simplification of licenses, which will accelerate the construction progress and hence, sales recognition. Aside from license, there is also new land clearing regulation under the Omnibus Law.

*• Toll road :* Benefited more towards simplification of licenses, which will accelerate the construction progress and hence, sales recognition. Aside from license, there is also new land clearing regulation under the Omnibus Law. Labour law reform will reduce the cost for the employee reduction program due to automation.

*• Plantation :* Positive impact on labour reform side. While on opening up for FDI will not give any impact.

*• Oil & Gas :* Special task force for upstream oil and gas may be changed into special SOE (BUMN Khusus) to oversee the upstream activities. All the rights and obligations from KKS will be oversight by this BUMNK. This is expected to reduce the bureaucracy involved.

*• Coal mining :* More authority to central government will improve the legal certainty of licenses including mining license.

*• Metal mining :* Miners that invests in downstream can operate concessions until the reserves run dry, previously it was capped at 40 years max. This would put advantage to the big miners as small miners may not have the resources to do so.

*• Media :* A clause in the law requires broadcasting company to pay broadcasting fee as percentage of revenue. This possibly relates to the previous Gov’t notion to increase service fee (BHP), as Indonesia’s rate is still low at 0.3% (Australia: 4.5%, Singapore 2.5%). Analog TV needs to switch into digital TV within two years to increase efficiency, but this would need capex.

*(05/10/2020)*

Overview
PT  CLSA Sekuritas Indonesia (KZ)
Established in Jakarta in 1990, CLSA is one of the largest institutional equity brokers in the country.

CLSA has over 20 years of grassroots experience in Indonesia and since 1995 the Company has been one of the largest institutional equity brokers in the country.