Lippo Cikarang, Target Rp2,400

Hidden jewel

We are reinitiating coverage on Lippo Cikarang with a BUY recommendation and a target price Rp2,400, which offers 105% upside potential. A well‐known industrial estate developer in eastern Jakarta, the company is the main beneficiary of the rising inflow of foreign direct investment in Indonesia. Low valuation multiples, a deep discount to NAV, and strong land sales in a mid‐cycle industrial estate
boom have strengthened our conviction about the stock.

􀂃 A seller’s market in industrial estates. Strong foreign direct investment inflow, primarily in the automotive and consumer goods sectors, has boosted demand for industrial estates, particularly in the Bekasi‐Karawang area. Sales of land for industrial estates in 1H11 topped 566ha, outstripping the record high of 534ha achieved in FY10. We expect marketing sales of over Rp1t in FY11, double the Rp0.56t in FY10, with Rp700b already secured in 1H11.

􀂃 Improved accessibility will increase property value. Currently, the company is building a new direct access from its township to Jakarta‐Cikampek toll road, which will cut travel time to less than three minutes from the current 30 minutes. The project is expected to be completed by November 2012. Based on the experience of
Alam Sutera, another property developer, we believe that the proposed shortcut would not only enhance the value of the land, but also speed up estate development.
􀂃 A bargain to NAV. Our target price of Rp2,400 translates into a 60% discount to NAV of Rp5,940 per share. In comparison, an Indonesian property stock typically trades at a 30‐50% discount to NAV. Meanwhile, an appraisal done by Knight Frank in 2009 implied valuation of Rp4,890 per share for LPCK. Our target price pegs the
stock at 7.3x FY11F PER and 4.3x FY12F PER.

source: KIM ENG dated 8 August 2011