Sunday, January 15, 2012

Surya Semesta Internusa: Company update - Raising 2012 Targets on Robust Demand

by OSK Nusadana

2012 orderbook already exceeds our sales forecast.

With the recent additional purchase order from Isuzu for a 30ha industrial land, the company has bagged a total purchase order of 120ha at an ASP of USD83/sqm, thereby exceeding our sales forecast of 110ha. This has prompted us to raise our FY12 sales assumption to 150ha, which is achievable as SSIA would get additional orders for the remaining 11 months. Meanwhile, we maintain our ASP assumptions of USD90 and USD120 per sqm for 2012 and 2013 respectively. The company’s offer price for land is USD110/sqm in Jan 2012. We also raise our sales assumption for FY13 from 130ha to 160ha, as we expect the demand for industrial land to remain strong next year on robust investment (FDI and DDI) and manufacturing activities in the country. Manufacturing has been the backbone of Indonesia’s economy, comprising 24% of total GDP (see Exhibit 1).
New regulations to support long-term outlook.

Recently, the Finance Minister issued a new regulation on bonded-zone areas. This requires factories of less than 1ha in size that operate within the bonded areas to be relocated to industrial estates to improve the government’s supervision on the use of tax and duty facilities. The Ministry of Finance harbours great concern over the abuse of bonded zones, which consist of more than 1,500 areas across the country, for smuggling activities or simply evading import duties and taxes. The government is giving a two-year grace period for the relocation of factories for those which still want to be entitled to such tax benefits. We have yet to include potential demand for land arising from this factory relocation requirement for SSIA.

Acquisition funding is not an issue.

Some investors raised questions on how SSIA will finance its plan to acquire an additional 1,300ha of land (300ha via normal acquisition and 1,000ha via land swap) located close to its industrial estate. For the 300ha acquisition, the total cost will come to around USD90m (IDR810bn) – assuming a land price of USD10/sqm, with another USD20/sqm for development cost. This could be easily funded as the company sits on an IDR600bn cash pile as at end-Sept 2011, and still has a loan facility of IDR500bn from a local bank. It is now in discussions with Inhutani (a state-owned forestry company) to acquire the latter’s 1,000ha land. Inhutani has requested to swap this land with a 2,000ha forestry area in the West Java province. We believe the total acquisition (swap) cost for this plot of land is much cheaper at USD20m (IDR180bn), assuming an acquisition cost of around USD1/sqm based on the typical Indonesian plantation area cost range of USD9,000-12,000/ha.

TP raised to IDR1,290 on upward earnings revisions.

We raised our target price for SSIA from IDR1,000 to IDR1,290, as we have: (i) revised up our FY12-13 earnings forecasts by 12%-17% on the back of higher land sales assumption mentioned earlier, and (ii) changed our valuation methodology from NAV to PE multiple to emphasize SSIA’s strong earnings outlook for this year. We base our TP on 10x its 2012 earnings, which is attractive relative to its property peers which are now mostly trading at PERs of above 10x (KIJA: 12x, SMRA; 23x, ELTY: 34x and LPKR: 19x). Additionally, a PER of 10x implies a PEG of 0.06x or a 92% discount to broader market’s 0.8x. Maintain BUY.

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