Surya Semesta, Winning combination, CLSA

As an industrial estate developer, Surya Semesta (SSIA IJ) is in the right
spot to capture the boom in industrial land demand. The company is
targeting to sell 135ha in FY12, in which 120ha sales has been secured.
Surging prices in industrial land will see profit margins widen on SSIA’s
property segment. Construction remains as SSIA’s backbone providing
stable income, while hospitality business acts further potential growth
driver.

Industrial estate boost
Surge in industrial land demand is owed to FDI flowing into Indonesia since
year 2010. We believe this trend will continue given recent upgrade of
Indonesia’s investment grade and potential relocation of manufacturing base
of foreign companies. SSIA recorded 208ha sales in FY11, up more than fivefolds
from FY10’s 36ha. This year SSIA is targeting 135ha sales (120ha is
secured). Industrial estate generated 33% and 68% of SSIA’s revenue and
net profit. Soaring price can widen net profit margin. Plausible plan to
replenish land banks remains its strong points to ride industrial land wave.
Revenue boost from potential Cikampek – Palimanan project
While the headlines are shining towards industrial land and hospitality
business, construction remains as company’s backbone. This “steady-but-lowmargin”
segment is expected to still grow at 15% annually for mid-term and
provides approximately 50% and 18% of revenue and net profit, respectively
to SSIA. A venture to infrastructure project, headlined by potential
appointment as Cikampek – Palimanan toll road contractor through 55-45 JV
with Malaysia company (UEM), can potentially add Rp270bn, 20% upside to
current SSIA’s construction revenue.
Ramping up hospitality business
Blossoming demand for 3-star hotels as a result of increasing business
activities has SSIA retooling its hospitality segment. Occupancy rate for 3-star
hotel started to outdo that of 4 & 5-star hotel since mid-2009. SSIA plans to
open as many as 5 hotels annually starting in 2013. This new direction is
seen as potential growth in hospitality business portfolio, which currently
made up 16% & 15% of total revenue & net profit, respectively.
Attractive potential NAV growth
SSIA trades at Rp870/share, implying 30% discount to current portfolio
(331ha industrial land bank, construction & hospitality) NAV of Rp1,126/sh
and 8.6xPE12. It is cheaper in terms of PER valuation to Jababeka (KIJA IJ)
but a premium to Lippo Cikarang (LPCK IJ). By accounting for potential huge
land bank acquisitions (1,000ha in Karawang & 2,000ha in Bekasi), SSIA’s
NAV can potentially reach Rp2,733/share, implying 69% discount to NAV.

Download file : Indoneisa SSIA 150212 Final