Analysts Tim Alamsyah and Felicia Tandiyono initiate coverage on KIJA, Indonesia's largest and most integrated industrial estate with a 5,600ha developed area. Its developed area, with supporting infrastructure, combined with a scarcity for industrial land should enable the company to generate strong sales growth.
We believe the stock price can double in 2012 based on the following reasons:
1) A play on rising FDI inflow in Indonesia. Industrial land sales are entering a turnaround period, eg last year's sales eight-fold YoY.
2) We forecast strong recurring income growth of 218% YoY in 2012 supported by additional capacity at its power plant.
3) Fully integrated industrial estate model: the only industrial estate with ample infrastructure support of dry port and power plant. We do not believe any other industrial estate developer in Greater Jakarta area can replicate Jababeka's development.
Key catalysts:
1) On schedule completion of power plant upgrade in Q411/Q112 as it would demonstrate management's project execution ability.
2) Completion of access road across Cikarang Industrial estate.
3) Passing of land acquisition for public infrastructure bill.
Risks:
1) Refinancing and/or equity dilution. Jababeka must repay US$40 mn loan maturing in October this year and currently have US$9.3 mn in cash.
2) Limited landbank with only 200 ha of remaining industrial land.
3) Gas supply risk for power plant project.
Sales comment: We believe Jababeka's risk-reward profile is attractive, assuming various execution risk scenarios. Stock currently trades on 50% discount to NAV, 11x PE 2012, and 0.9x P/BV 2012. Report attached, pictures on page 36-37. Micro cap US$200 mn and average liquidity of US$0.5 mn - not a name for everyone.
source: UBS dated 4 July 2011
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