Surya Semesta Internusa (TP IDR650)

Brighter years ahead

Demand for industrial estates stays high. From our recent meeting with SSIA, its management revealed that the company has secured a strong 50ha purchase commitment for industrial land out of the 80ha negotiated, driven by robust investments in Indonesia. We expect SSIA to sell around 100ha next year. Although lower than the exceptional 200ha sold in 2011, the sale was still nearly 6-fold higher than the average yearly sales of 14.5ha from 2006-2010. In addition, the average selling price of land in 2012 may reach USD80/sqm compared with USD45/sqm in 2011 (excluding sales to Astra at USD52/sqm). The highest price for the 5ha sold to Japanese heavy equipment manufacturer Kobelco was USD90/sqm in 3Q11. Thus, we expect the industrial land segment to remain SSIA’s largest profit contributor from 2012-2013 (see Exhibit 3). The company recently completed the acquisition of 310ha of new land bank (at around USD9/sqm + USD20/sqm in development cost), which boosted its net sellable area to 433ha in Dec 2011. Assuming 100 ha to be sold in 2012, the company would still have 323ha land at the end of 2012, which is still the largest net sellable area compared to other industrial players’ 50-100ha.

Construction to grow 15%-20%. Based on the current orderbook of IDR2.5trn (USD277m) and potential new contracts, SSIA’s construction unit Nusa Raya Cipta (NRC) is expected to book 15%-20% revenue growth in 2012 with stable margins. This excludes potential revenue from the construction of the Cikampek-Palimanan toll road, which is expected to start in 1Q12, with the ground breaking slated for this month. Among the major projects NRC secured in 2011 are Office Tower Alam Sutera and Biznet Technovillage Bogor. NRC also clinched contracts from Nestle and Astra, which recently bought land in SSIA’s industrial estate, for the construction of a plant and carry out land clearing, respectively.

Hospitality segment to contribute higher recurring income. SSIA anticipates its hospitality segment to be become a key profit driver, taking over from the industrial land segment from 2014 onwards when the latter’s land bank diminishes in the medium term should strong demand sustain. SSIA is now building 5 budget hotels (of 3-star rating) in several major cities in Indonesia and plans to build one in the compound of its industrial estate, which is increasingly becoming populated. The company expects major renovation in its 5-star Grand Melia Hotel Jakarta (GMJ) to be completed in May 2012, which should enhance the segment’s profit subsequently. Note that GMJ managed to book a 5% y-o-y revenue growth despite a lower occupancy rate of 60%, while revenue in the entire segment rose 13% y-o-y to IDR338bn in 9M11.

Major upward earnings revision; TP lifted to IDR650. In view of the brighter outlook ahead, we revise our FY12-13 earnings forecasts by 54%-63% to IDR282-349bn, mainly on account of the higher profit forecasts from SSIA’s industrial estate segment. Our FY12 earnings appear conservative as the company’s internal target may exceed IDR300bn. Due mainly to a higher land price assumption, we lift our SOTP-based TP from IDR570 to IDR650, which only implies a 10.8x multiple on 2012 earnings. SSIA is now trading at an attractive FY12f PER of 7.2x. BUY.

Source: OSK dated 7 December 2011