Date
10 July 2012
Indo
Industrial Estate
Riding
on growing FDI and rising middle
income class
Strong macro condition and
stable political outlook drive investment
We are initiating on the
Indonesian industrial property segment with a positive outlook and a preference
for the east side of Jakarta
industrial estate and those with sizeable landbank or with the ability to
procure additional landbank. Our preferred sectoral picks are Surya Semesta
(SSIA JK, target price: Rp1,320) and Bekasi Fajar (BEST JK, target
price:Rp555). Our positive view is predicated on strong and stable
macroeconomic and political outlook, which in our view will continue to drive
domestic consumption and hence investment.
Still in the early stage of
investment cycle
Despite the strong investment
growth in Indonesia (27-28%
CAGR in 2006-2011), the country is still in the early stage of the investment
cycle compared with other fast-growing countries in the region (especially
those with large domestic markets such as China
and India).
Therefore, in line with our thesis on the doubling of GDP per capita by 2016
(exceeding USD6,000/capita), we also expect to see a significant increase in
domestic consumption, which would therefore boost investment. This is evidenced
by the automotive and consumer sectors’ expansion plans, which will support
industrial land demand.
Lack of readily available
industrial estate support pricing
Given the sudden surge in
industrial land demand in 2H11 and underinvestment in the past, we are seeing
lack of availability of developed saleable industrial landbank. This resulted
in the continuous price increase (in 1Q12, when average industrial land price
rose 15-20% QoQ). We think the robust pricing environment remains driven by
strong demand. We forecast a 35-40%
YoY price increase in the east
side of Jakarta
estate in 2012 and 15% in 2013.
Indonesia’s big
domestic market is a main competitive advantage
Indonesia’s
population is 238m (fourth largest in the world) and the middle class accounts
for 57%, up from 38% in 2003. We believe there is incentive for international
manufacturers to expand into Indonesia,
especially given the low consumption penetration across product segments.
Furthermore, the cheap cost of labour could be an incentive for multinational
companies to make Indonesia
a regional production hub.
Valuation is attractive
We believe the Indonesian
industrial estate players remain attractively valued, trading at 9.0x and 7.3x
2012-13E PER with a 23% discount to NAV compared with the Indonesian property
sector that is trading at 22x and 18x 2012–13E PER with a 35% discount to NAV.
Our preferred picks within the industrial property segment are SSIA and BEST.
Key risks: 1) economic downturn, 2)
political
instability (especially ahead of the 2014 election), 3) delay in infrastructure
development, 4) pricing competition, and 5) inability to acquire additional
landbank. source: Deutsche Bank
