Innovation by danny damar 2017

Marketing &
Branding Innovation
Idea for 2017
by : Danny Damar S.

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The origins of Innovation timeline

© 2007 frog design. Confidential & Proprietary. 11 1
old conventional innovation

THE BIG SPACE / JC PENNEY
RFID-based digital retail concept
Innovation today

14

Innovation today
© 2017 DANNY. confidential & proprietary. March 2017 42

16

18

Global factors adding to uncertainty level...
Mr. Trump is entering US presidential office with a promise to expand
fiscal stimulus that may prompt the Fed to raise rates more often than
previously expected, and we continue to expect volatility in Europe next
year given elections in Germany and France. Higher expectation for US
growth and a stronger Dollar are usually negative for emerging markets
overall. Foreign investors have recorded USD851mn of net sell in Indo-
nesian equity in Nov with risk of another USD500mn—1bn if Fed indeed
indicates plans to be more aggressive.
...but domestic economy is actually better than six months ago
We track seven micro indicators and found recent economic momentum
more encouraging, raising our stance from neutral to slight positive. Our
proprietary survey (see p.63) also suggests that Indonesians plan to
spend more on property, autos and travelling although less on gadgets
and luxury items. A signal that economy is still recovering on a U-curve
trajectory.
JCI: downside to 5053 near-term, upside to 5964 by end-2017
With 4% downside and 14% upside from index level of 5246 (last clos-
ing before report publication) and a 27% expected earnings growth next
year should be able to cushion the downside, we remain cautious near-
term but more constructive medium-term, especially from end 1Q on-
ward.
Portfolio: tilting towards defensives and commodities for now
We populate our model portfolio with more defensives (MIKA, GGRM,
ROTI) and commodities (DOID, PTBA, PGAS). We also add WSKT (a low
beta construction company that has de-rated) and MAPI (attractive
bottom-up catalyst of Vietnam expansion).
2017 Indonesia Market Outlook
Plenty of earnings growth ahead
2017 market outlook
JCI Index Target:
JCI Index (as of 28 Nov16) 5,115
End-2016 5,053
1Q-2017 5,229
2Q-2017 5,598
End-2017 5,964
Trimegah research team
Note: Given the time required to pre-
pare the report, all share prices in this
report are as at end of 28 Nov 2016.

Risk of IDR weakening against USD
Our interest rate analysis is based on spreads returning to historical averages, but as we could see in the charts,
there were significant deviations from averages. Interest rates could overshoot while finding a new equilibrium,
and so does exchange rate. Historically, US 10 yr treasury yield has a positive correlation with USDIDR spot.
USDIDR already depreciated throughout 2014-16 though, which may reduce the impact of a rapidly rising treas-
ury yield (from 1.5% to currently 2.4% in the last several months).
More charts below show that Indo’s 10yr nominal spread over US treasury and US 10-2yr treasury spread
(measure of steepness of interest rate curve in the US) also show positive correlation. These all suggest that
short-term financial capital flows still have significant effect on the Rupiah standing against USD. We think long-
term fundamentals (which really have not changed much) of Indonesia’s economy and the fact that Rupiah has
depreciated significantly in the past two years should alleviate the impact, but nonetheless we can not ignore the
risk of another 5% depreciation in Rupiah to ~14200 level.
Figure 6. US 10 yr treasury yield Vs. USDIDR
Source: Bloomberg, Trimegah Research
8000
9000
10000
11000
12000
13000
14000
15000
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
US 10 yr treasury yield (LHS) USDIDR spot (RHS)
Foreign Exchange Rate

2017 Sectoral Outlook weighting and valuations
Source: Trimegah Research, Bloomberg
Sector Weighting 2017 PE
2017
earnings
growth
2017
PBV
Banks Neutral 10.0 31% 1.5
Automotive Overweight 15.3 24% 2.5
Commodities Overweight 9.5 68% 1.5
Property Neutral 18.3 -5% 1.6
Construction Neutral 16.1 45% 2.0
Telecom Neutral 19.5 16% 3.8
Media Neutral 14.2 10% 2.3
Consumer staples Overweight 26.1 14% 7.1
Retail Overweight 17.4 27% 4.1
Healthcare Overweight 31.2 18% 5.7
Cement Neutral 13.9 5% 1.8
JCI 14.8 27% 2.5
Neutral on construction
We have neutral on construction as macro outlook for 2017 seems to have mixed impact on infrastructure SOE. We foresee budget cut for
ministries that might adversely affect SOE contractors. However, looking at government priority projects, we expect higher portion of oil
refinery projects, which should benefit several companies as these projects give higher gross margin. However, with current valuation, we view
the stocks to be cheap for the time being, as they are currently trading below their 3-years average PE, largely due to massive foreign selloff
caused by uncertainty on emerging market post-US election.
Neutral on telecommunications and MEDIA
We have neutral on telecommunications, as we expect more competitive environment, resulting in prolonged price war, though not to the
extent of 2008-12 price war. Moreover, we also expect slower growth from cellular business’ EBITDA, mainly due to lower margin. Tower industry
outlook is also quite bleak, as we expect lower demand due to possibility of network sharing regulation change. Likewise, we also have neutral
on media as despite expected higher revenue growth from consumer companies’ expected higher spending, we still assume rather slow earnings
growth. Our top pick for the sector is MARI (Buy, TP IDR1,100).
Neutral on cement
We have neutral on cement, as we expect lingering oversupply condition, potential demand growth slowdown, prolonged decline in ASP, as well
as increase in cost from rising coal price (coal composes ~16-20% of SMGR and INTP’s COGS). However, the cement companies have put in
place cost-efficiency measures, which have enabled them to protect their market share as well as their margins. Furthermore, we expect
slower rate of decline of ASP in 2017, compared to 2016. Our top pick remains with SMGR (Buy, TP IDR11,300)
Source: BI. OJK. Trimegah Research
102
104
106
108
110
112
114
116
118
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
2017 Consumer Confidence Index (CCI)

PT Trimegah Securities Tbk - www.trimegah.com
2016 Consumer Market Sector Outlook
TICKER
Price
(IDR)
Mkt. Cap
TP
Ups.
Rec.
EPS Growth(%) EV/EBITDA (x) Div. yield (%)PE (x)
28-Nov (IDR bn) (%) 2016 2017 2016 2017 2016 2017 2016 2017
Staples
INDF 7,325 64,317 9,200 25.6 Buy 34.9 19.1 17.5 14.7 6.7 6.6 2.3 3.2
ICBP 8,350 97,377 9,200 10.2 Neutral 24.0 10.3 25.9 23.5 16.6 14.8 1.5 1.9
GGRM 62,775 120,785 82,000 30.6 Buy 3.4 19.0 18.2 15.3 11.6 10.0 4.1 3.9
HMSP 3,870 450,151 4,300 11.1 Buy 17.8 10.1 36.9 33.5 27.5 24.9 2.3 2.7
KLBF 1,400 65,625 1,800 28.6 Buy 14.2 18.8 28.4 23.9 18.7 15.7 1.5 1.8
ROTI 1,455 7,365 1,900 30.6 Buy 21.6 27.4 22.5 12.7 10.1 0.7 0.9
AISA 1,870 6,019 2,300 23.0 Buy 25.5 11.6 9.3 6.1 5.4 0.9 1.1
UNVR 40,100 305,963 44,000 9.7 Neutral
-1.6
62.6
11.7 15.3 46.8 40.6 32.5 28.3 2.1 2.5
Retail
RALS 1,145 8,125 1,900 65.9 Buy 35.8 21.7 18.6 15.3 12.3 10.0 2.6 3.4
MAPI 4,870 8,084 7,200 47.8 Buy 468.9 122.5 41.1 18.5 7.6 6.2 0.1 0.3
LPPF 14,250 41,580 20,000 40.4 Buy 17.1 15.5 20.0 17.3 13.9 11.9 3.0 3.5
ERAA 605 1,755 800 32.2 Buy 8.9 17.5 7.1 6.1 7.2 6.3 3.3 4.2
ACES 845 14,492 950 12.4 Buy 10.8 14.3 24.9 21.8 17.2 14.9 2.0 2.5
MPPA 1,700 9,143 1,500 (11.8) Sell -57.7 241.6 111.5 32.6 18.2 11.3 1.9 1.8
Healthcare
MIKA 2,580 37,227 3,000 16.3 Buy 23.9 10.7 53.5 48.3 41.3 36.4 1.0 1.2
SILO 10,400 13,531 10,800 3.8 Neutral 51.2 54.4 112.9 73.1 20.5 16.2 0.1 0.1
Source: Gaikindo. Trimegah Research
2016 Auto sales growth trend vs. vehicle loan YoY growth
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
4W sales YoY growth 2W sales YoY growth Vehicle loan growth (YoY, RHS))
Consumption Outlook

Survey : Our respondents’ spending pattern
-
20
40
60
80
100
Buy a
property/do
renovation
Purchase
new/used
vehicle
Purchase
life/health
insurance
Travelling
(overseas)
Purchase new
gadget
Purchase
luxury items
Past 12 months Next 12 months
Source: TRIM Research
Survey: Shopping priority
19%
18%
15%
13%
3%
13%
19%
Groceries
Fashion
Smartphones
Electronics
Cigs
Vitamins
Travelling
2016 Survey: Most favored apparel brands
4%
18%
9%
4%
3%
4%
4% 4%
16%
35%
Forever21
H&M
M&S
Mango
Massimo Dutti
Nike
Pull n Bear
The Executive
Consumption Pattern

YoY (13-16) Consumer Sector— Advertising & Promotion (A & P) Expense
Trimegah Consumer Sector: UNVR, ICBP, HMSP, GGRM, and KLBF
2015-2016 Quarterly Nielsen’s - Digital Advertising & Promotion (Rev Vs Audience)
2016 - Radio Advertising Expense
Source: Nielsen, TRIM Research
Media Buying Pattern

Source: Nielsen Advertising Information Services (AIS) 2012 – Q1 2017
Commercial product ad spending on TV & print based on gross rate card (doesn’t calculate discount, promo, bonus, etc.), in Rp Trillion
22.3 25.6 25.5 31.5 32.1
26.7
29.8 31.9
36.2
26.3
28.1 29.2
32.0
27.1
26.8
31.4
35.0
2013 2014 2015 2016 2017
Q4
Q3
Q2
Q1
7%
12%
-1%
8%
14%
7%
4%
17%
7%
-1%
13%
24%
11%
10%
14
%
Q1 ad spending is also extremely low
2%
38.7
29.8 20.6 16.3 13.4
Ied Fest
2012
Ied Fest
2013
Ied Fest
2014
Ied Fest
2015
Ied Fest
2016
2017
- 5%
Lebaran Performance
12.7
Ied Fest
2017
Updated Survey - June 2017

74.9 74.0 74.2 74.0 75.0 73.5
8.5 8.5 8.1 7.4 7.0 7.4
16.6 17.6 17.7 18.6 18.0 19.1
2013 2014 2015 2016 Q117 Q217
Traditional Stores
Super Hyper
Minimarket
Retail Audit Indonesia Total Grocery | 55 FMCG + Cigarettes | Q2 16 vs Q2 17
There is shifting of purchasing pattern from GT into MT
by middle low consumer class
Updated Survey - June 2017

2017: What to Expect
Macro outlook for 2017 seems to have a mixed impact on infrastructure SOE. We are seeing budget cut for min-istries that might
impact negatively on SOE contractors. Yet, oil refinery projects that should start to tender in 2017, should positively impact certain
SOEs due to their average higher margin.
1) Infrastructure budget to increase, but not necessarily from SOEs
2016 -2018 Infrastructure State Budget & Priority Project Types
Infrastructure Priority

“We operate in a mature industry with a mature product portfolio and our
margins are beginning to disappear.”
“Our new ideas are stuck in the mud of internal planning and review
cycles.”
“New competitors are moving into our space and we need to do
something to defend our market position.”
“We see opportunities in adjacent markets (new segments, geographies,
etc.) but we don’t know where and how to start.”
“We have so much IP but we cannot convert it into products that resonate
with consumers.”
“Our linear product development process doesn’t allow for nimbleness and
trial and error.”
“Our product ideas are driven by science and engineering but fail to
recognize latent or unarticulated customer needs.”
“We got lucky once or twice. How do we repeat our market success year
after year?”
Margin Erosion “We operate in a mature industry with a mature product portfolio and our
margins are beginning to disappear.”
International Churn “Our new ideas are stuck in the mud of internal planning and review
cycles.”
Competition “New competitors are moving into our space and we need to do
something to defend our market position.”
Adjacent Markets “We see opportunities in adjacent markets (new segments, geographies,
etc.) but we don’t know where and how to start.”
Mining IP “We have so much IP but we cannot convert it into products that resonate
with consumers.”
Time-to-Market “Our linear product development process doesn’t allow for nimbleness and
trial and error.”
Customer Insight “Our product ideas are driven by science and engineering but fail to
recognize latent or unarticulated customer needs.”
Sustainability “We got lucky once or twice. How do we repeat our market success year
after year?”
Why Innovation ? INNOVATION
TRIGGERS

Short -Term Advantage
Sustain product life with incremental
enhancements and consumer benefits.
Since product categories exist, sustaining
products are easily accepted by the market.
On the other hand profitability can diminish
quickly due to ease of imitation .
These products are low risk bets with a high
probability of short term returns.
Near-Term Advantage
Create new products within an existing
product category that leverage high value
benefits for consumers.
The greater benefits of the product and the
fact that it is within a know category drives
rapid short-term growth.
These product are higher risks bets with
higher yet diminishing returns.
Long-Term Advantage
Innovate new to the world products that
lead the creation of new markets or
industries. Market acceptance may be
slower to gain as multiple industry
standards compete for dominance.
These products are a long term investment
with high potential returns over the long
term. Other benefits include market
dominance & strong competitive position.
years
$
0 1 2 3
years
$
years
$
4 5
Industry Level Innovation
Competitive Advantage : 5-7 years
Category Level Innovations
Competitive Advantage: 3-5 years
Product Level Innovation
Competitive Advantage: 1-3 years
^
Sustaining (Evolve) Breakout (Expand) Disruptive (Envision)
Go/No-Go
(Director Level)
Go/No-Go
(VP/SVP Level)
Go/No-Go
(CEO/Board Level)
6 7 0 1 2 3 4 5 6 7^ ^0 1 2 3 4 5 6 7
INNOVATION CATEGORIES

Innovation means creating change
instead of just reacting to it.

Most products look alike
Innovation means doing
what no one has done before.
what no one else would dare doing.

A Bit of
Data banking &
Intuitive bets
“It’s such a fine line between stupid and clever.”
David St. Hubbins, lead singer of Spinal Tap
Innovation means behavioral change.
there must be a "Design Innovation ?"

• Technology
• People
• Processes
• Politics
• Money
• Actual Materials
Material
=
Design : Humanizes technology
Creates simple solutions to complex problems
Changes the meaning of things

CUSTOMER JOURNEY & USER EXPERIENCE (UX)

Cross-over Design Thinking (and doing)
Artists
Architects Industrial Designer
Software Developer
Digital Media Designer
Business Analyst
Strategist
Anthropologist
Ethnographer
Writer Mechanical Engineer
Technopreneur
Owner

“In the old days, brands
wanted everybody to pay
attention to them.
Now brands need to pay
attention to everybody else.”
Umair Haque

All products and services will be SOCIAL
Social publishing
Social impact
Social content
Social networks
Where?
What?
How?
Social gaming
What for?
Social search
Social shopping
Social currency

“Create more value than you capture.”
Tim O’Reilly

DRAMATIC
Making sense
Cohesion
Convergence
Morale
Consistency
Imagination
Entertainment
Cultural
relevance
Characters
Suspense
Comedy Tragedy
Identification
SOCIAL
Connecting
Community
Belonging
Identity
Like-minded
Affinity
New people
Status
Compassion
Fun
Love
Friendship
Hobbies
Fans
CONVERSATIONAL
Listening
Empathy
Adaptive
Changing messages
Two-way
Let go of control
Open
Respect
Flow
Topical
Point-of-view
SMALL
Micro
Customizabl
e Relevant
Actionable
Eye-to-eye
Direct
Instant
Accessible
Sharable
Atomized
PROVOCATIVE
Making you think
Disruption
Divergence
Deconstruction
Surprise
Shock
Unexpected
Unlikely
Challenging
status quo
Unique
Attention-grabbing
Different
In your face
RESPONSIBLE
Doing good
Political
Socially responsible
Eco-friendly
Ethical
Human rights
Values
Family
Nation
Common Good
Earth
Chief Meaning Officer
checklist

CONSUMER
EXPERIENCE
Media
Entertainment
Telco
Retail
eCommerceWellness
Auto
Banking
Energy
BRAND
EXPERIENCE
Mobile
Personal
Instant/
Real-time
AugmentedLocation-
based
Gaming
Social
Marketing, Branding, UX, Convergence?
Version 1.0

Marketing, Branding, UX, Convergence Version 2.0

Innovation by danny damar 2017

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