Monday, January 9, 2012

PT SURYA SEMESTA INTERNUSA - TP 1,030/sh - Jewel of Land

by Ciptadana : SSIA

We reinitiate our coverage on PT Surya Semesta Internusa Tbk (SSIA) with a Buy rating and 12-month SOTP based target price of Rp1,030. The surging industrial land demand, combined with skyrocketing industrial land price has put industrial estate player on a track to reap the fortune. We believe that SSIA has a brighter prospect than its industrial estate peers, given its most feasible land inventory replenishing plan. In addition, its sustainable construction business and stable cash fl ow stream from its hospitality business also add more to its NAV.

Sturdy Demand of Industrial Land. The latest upgrade of Indonesia’s investment rating by Fitch from BB+ to BBB-, putting the country into investment grade 14 years after the Asian financial crisis crippled the region. This has given a positive sentiment to business confi dence and lures more FDI into Indonesia. More FDI, especially in manufacturing sector, will give more boosts on demand of industrial land. Unfortunately, the strong uptake in industrial land sales could not be matched by the supply. As a result, the asking selling price of industrial land in Jakarta, Bogor, Bekasi and Karawang area has been growing rapidly from only US$81/sqm at the end of 2010 to US$ 129/sqm at 3Q of 2011.

More Land Bank on The Way. Although the Company still owns a vast available land bank for sale of 360ha, with current strong sales uptake, the land bank is only suffi cient for three years. Hence, the Company has prepared a plan to replenish its land bank inventory through acquisition 300ha of land bank adjacent to its current estate. In addition, the Company also reveals a plan to acquire a large land bank of 1,000ha on west side of its current estate.

Expanding Margin from Industrial Estate Segment. As the acquisition price of the new 300ha land is still low ~ US$9 /sqm and the expected selling price will surpass US$100/sqm level in
2012, these will boost SSIA’s profitability margin signifi cantly. From this sale of 90 ha land only, the Company estimates to record a net profi t of Rp400 billion in 2012F and boost its industrial estate segment gross profi t margin from 26% in 2011F to 60% in 2012F with ASP of US$83/sqm. Stable Growth on Construction Segment. This segment has been a major contributor to the group’s revenue with 60% - 70% of consolidated revenue in the past. Since its order book is dominated by non-infrastructure related projects, the Company plans to diversify its project portfolio to include infrastructure. Going forward, we conservatively forecast the Company to increase its new order book by 10% each year.

Hospitality Business to Provide Long Term Sustainability. As SSIA deems that hospitality business is still prospective, the Company intends to increase its ownership in SAI from 53.7%
to 80%. In our forecast, we expect occupancy rate on all of the Company’s hotels to be stable at current level and moderately increase the revenue per average room by 5% every year from
2012F onwards.

Valuation. We value SSIA using the combination of DCF and net asset value (NAV) of its subsidiaries or assets. We imply conglomerate discount of 20% to the fair value of equity to arrive at our target price of Rp 1,030/share. Our target price suggest a 26% upside potential from current price.

Risk. We identify several downside risks to our valuation, among others: regulation risk, decline in direct investment, delay in construction project and rising raw material prices.

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