Bekasi Fajar Industrial Estate (Target price Rp780)

Downside Narrows; Collect Cautiously

Worst-case view; Still a BUY. We have factored in a worst-case scenario for Bekasi Fajar Industrial Estate (BEST) and lowered our TP to IDR780 from IDR1,200 based on a 35% discount to our NAV estimates. This is due to the following key points: 1) reduced sales volume forecast from the previous 100ha to 75-80ha in FY13F-15F, 2) lowered ASP estimates of USD175-180/sqm in FY13F-15F, and 3)
higher discounts on new land banks which are not fully monetized. We believe the stock has overshot given BEST is trading at a 10% discount to replacement cost (see figure 10), reiterate BUY.

Earnings estimates cut. We lower our forecast of marketing sales to IDR1.5t, IDR1.6t, and IDR1.8t in FY13F,14F and 15F as we are more conservative on the back of the uncertain macro conditions and Yen
depreciation. As a result, we have reduced our earnings forecasts by 4%/11%/23% in FY13F,14F and 15F to IDR779b, IDR864b, and IDR915b, roughly in line with the Street.

Upside from the upcoming projects. As part of the company’s longterm plan to increase its recurring income business from the current 2-3% of revenue, it plans to build a logistics business and warehouse rental which is scheduled to be launched by the end of the year. However, we have yet to factor the company’s potential for this business into our valuations. In addition, BEST will benefit from the government’s plan to build 34km Cibitung-Cilincing toll road, providing direct access from MM2100 to Jakarta main’s port.

Undemanding valuation: Downside looks priced in. The stock trades at 5.1x FY14F PER, about 30% below the sector average of 7.2x FY14F. Yen fears in the market place look misplaced given 80% of its industrial land is slated for domestic production. Fresh money with a value bias may find BEST interesting at these levels. The key downside risks are: 1) uncertainty in macro condition, 2) execution risks, and 3) political instability.


source: KIMENG dated 03 September 2013