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Friday, December 23, 2011

Surya Semesta Internusa Tbk. - Growth is Abound

by OSK Sec

Additional 300ha land bank boosts target price to IDR1,000/share.

We recently held a meeting with the CEO who revealed that Surya Semesa (SSIA) will acquire an additional land bank of 300ha, which is adjacent to its current industrial estate. The acquisition cost will be around USD10/sqm with another USD20/sqm for development cost, which could be easily funded as the company sits on a IDR600bn cash pile as at end-Sept 2011 and still has a loan facility of IDR500bn from a local bank. Assuming the acquisition process will take one year, this additional land bank will bump up the company’s land available for sale to 583ha by end-2012 and increase SSIA’s NAV by IDR350/share – which compelled us to increase our 12-month Target Price for SSIA to IDR1,000/share. We also revised up our earnings forecast for FY12 and FY13 to IDR542bn and IDR668bn respectively – mainly on the back of a higher margin assumption and higher land sales assumption of 110ha for FY12 and 130ha for FY13 with average selling prices (ASPs) at USD90/sqm (+100% y-o-y) and USD120/sqm (+33% y-o-y) respectively. SSIA’s industrial estate segment will roughly contribute up to 70% of its total net profit for FY12-13, while the remaining is forecast to come from hospitality and construction segments.

Another 1,000 ha land purchase seen.

In view of the tight industrial land supply for the next 2-3 years, the company is now in discussions with Inhutani (a state-owned forestry company) to acquire the latter’s 1,000ha land, which is also located close to SSIA’s estate. Inhutani has requested to swap this land with 2,000ha forestry/plantation area in the West Java province. We believe the acquisition cost for this land is much cheaper than the above mentioned 300ha land acquisition, as the acquisition cost of plantation (including trees) area in Indonesia is currently at USD9,000-12,000/ha or USD1-1.3/sqm. We have yet to include this potential acquisition into our NAV calculations.

Interesting site visit.

Last week, we also drove 53km to the Surya SSIA industrial estate from Jakarta. We found out that the driving time between SSIA to its peer estates in Jababeka and Cikarang (30-38km from Jakarta) is only 10-15 minutes. Furthermore, SSIA enjoys better direct access as the distance to the toll gate is only 1.3km. Along the way, we noticed several current big plants belonging to TVC (India’s motor bike brand), GS Astra (battery plant), Santos Jaya Abadi and (one of Indonesia’s largest coffee maker). We also saw the 121ha site for Astra Daihatsu Motor’s (ADM) plant whose construction is now at the land-flattening stage. SSIA’s strategy to attract ADM to become its biggest tenant is now proven to be wise, as its participation is followed by other Japanese automotive part suppliers.

Maintain our Buy rating.

Despite more than two-fold price jump since our initiation coverage in Mar-2011, we believe there is further room for SSIA’s share price to rise even higher, owing to attractive valuations and stronger earnings growth. SSIA is now trading at only 5.9x its 2012 earnings, which is underpinned by an earnings growth of 144%. This is relatively more attractive than LPCK and KIJA’s PER of 3.4x and 13.9x, which are only backed by earnings growth of 65% and 63% respectively, according to Bloomberg consensus. We maintain our BUY call on SSIA with a new TP of IDR1,000, which implies a PE multiple of only 8.7x its 2012 earnings. At the current share price, our TP gives a potential price upside of 59%.

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