CLSA on the Road, Building the new Batavia

A lower cost of capital, rising FDI inflows and an investment
renaissance, the Land Bill, and the return of confidence are
major drivers of the construction boom in Indonesia. We think
this trend will continue. Our observations highlighted that
Jakarta’s CBD has been bustling. Rising demand, higher rental
rates (up to 20%) and record high occupancy rates have been
evident. We expect at least nine new office towers to come
operational adding 377k sqm in 2012 and 189k sqm next year.


Mapping the construction sites
 We went around the Jakarta CBD area and mapped out the ongoing
construction including infrastructure projects (flyover bridges)
and other property developments.
 Using data from Jones Lang La Salle, we expect at least nine new
office towers to come on stream this year adding ~377,000sqm to
the market this year and another ~189,000sqm next year.
 The growing trend, however, is building office towers in southern
part of Jakarta as there are more options and relatively cheaper
prices than in CBD area.
 Going forward we expect the robust demand for property to
continue, mainly supported by low mortgage rates, an expanding
economy and urbanization.

Who are relocating their offices?
 Among many companies to relocate, Wilmar group has sealed a
deal to rent ~8,000 sqm at Multivision tower. Bank International
Indonesia has agreed to rent nearly 30k sqm in Sentral Senayan.
 Data from La Salle showed that the office occupancy level in CBD
area nearly reached 90% in 4Q11, the highest since 2007. Rent
also increased by 19.3% in 2011.
 Expansion plans, relocation and consolidation provide good support
for office demand, thanks to heavy investment growth, a robust
economy and benign inflation.

More construction means more cement, cable and steel
 We expect the implementing regulation for the Land Acquisition Law
will be ready in 2Q or earlier and may speed up infrastructure
spending, after years of underdevelopment (from a low base).
 However, soaring crude oil prices pose a threat as they may force
the government to gradually increase electricity tariffs and cut fuel
subsidies. This could lift the inflation rate, boost costs and squeeze
margins for most companies.
 Our top cement picks are Indocement (INTP IJ - Rp17,450- BUY),
and Holcim Indo (SMCB IJ - Rp2,300 - BUY) because they have
bigger capacity to tap growing domestic market. Please read
Sarina’s Indonesian Cement (Cementing the future) for more
detail on the sector.
 The other beneficiaries from the construction boom include
Krakatau Steel (KRAS IJ), cable producers Sucaco (SCCO IJ) and
construction companies Wijaya Karya (WIKA IJ) and
Pembangunan PP (PTPP IJ).

Download file : INDO Komodo, Rebuilding Batavia