trim company focus - Trimegah

TRIM COMPANY FOCUS Jul 10, 2012

Bekasi Fajar Industrial Estate Largest Land Bank Holder

The operator of high quality industrial estate Bekasi Fajar was established in August 24th, 1989 as a subsidiary of Agro Manunggal business group (also control Alam Sutera) to develop and maintain industrial town with self-sufficient infrastructure. The Company formed a joint venture with Marubeni Corporation from Japan, granting a strong advantage in knowledge of high industrial estate standards. Now the Company run MM2100, with more than 300 national and international tenants.

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BUY - Rp620 Initiate Coverage Share Price Sector Target Price Prev. TP

Rp500 Property Rp620 -

Stock Data Reuters Code Bloomberg Code Issued Shares (m) Mkt Cap (Rpbn) Average Daily T/O 52-Wk range

BEST.JK BEST.IJ 8,765 4,382 19.9m Rp530 / Rp170

Major Shareholders: PT Argo Manunggal Land Dev. Public

79.8% 20.2%

Consensus EPS Consensus (Rp) TRIM VS Cons (%)

12E 44.7 0.0

13F 83.8 6.2

Stock Price Volume

Price

600

300,000,000

500

250,000,000

400

200,000,000

300

150,000,000

200

100,000,000

100

50,000,000

09/06/2012

-

09/04/2012

-

Strategically located in high-demand area, closest to main activity point MM2100 is strategically located in terms of relative distance to Jakarta, and its location in the most desirable places for industrial estate (Bekasi, Karawang, and Purwakarta), MM2100 is also the closest estate from 3 main business points (CBD, Tanjung Priok seaport, and Soekarno-Hatta international airport). Such desirable traits grant strong price appreciation of 44% pa. in the last 2 year, from USD63/sqm in 2010, to USD97/sqm and USD130/sqm in 2011 and 1Q12, respectively. MM2100 is also placed on higher ground with flat, natural contour that provide benefits of less flood risk and less development cost. The Company and its subsidiary currently hold the longest land bank life of 5-6yr; and with the planned acquisition, it will be extended to 8-9yr. Top and bottom line surprise expected in the FY12 and FY13 We are expecting pre-sales to grow 43% CAGR 4yr and the biggest leaps on the 2011 (163% YoY) and 2012 (41% YoY) pre-sales. As the marketing sales would lag by about 8-12 months, we expect revenue earnings boost will happen in FY12 and FY13. The Company should book 225% net income growth YoY to Rp391bn from Rp120bn in 2011, contributed from 106ha sales backlog (ASP around USD100/sqm) and 16ha sales from Kawasaki (USD130/sqm). We also believe the Company GPM for land sales will expand to 51% and 67% in 2012 and 2013 on the back of the ASP growth. NAV of Rp827/s with target price Rp620/s We put a BUY call on BEST as the Company has the strongest exposure to the industrial land business and the longest land-bank life that we see will support the Company’s strong earnings growth for at least 2-3 years ahead. Although the Company share price has significantly grown by 170% since its IPO in last April, our NAV calculation still show 24% upside with target price of Rp620/s (with the current assumption) in FY12. Please note that our price assumption is based on the last negotiated price while the other peers has reach USD160-190/sqm range. The Company is currently traded at 2012PE of 11.1x and 2012PBV of 3.7x.

Forecast & Rating Year end 31 Dec

2010

2011

2012E

2013F

2014F

Net Profit (Rpbn)

862

109

120

391

776

EPS (Rp)

-

-

45

89

99

EPS Growth (%)

-

-

-

99

11

DPS (Rp)

-

-

14

27

30

BVPS (Rp)

-

-

134

197

266

P/E (x)

-

-

11.1

5.6

5.0

Div Yield (%)

-

-

-

2.7

5.4

Muhamad Makky Dandytra Richardo Putra Waluyo [email protected] [email protected]

TRIM Company Focus - Jul 10, 2012

The operator of high quality industrial estate Bekasi Fajar was established in August 24th, 1989 as one of the Agro Manunggal business group (also control Alam Sutera) subsidiaries. The Company’s main activity is developing and managing industrial town with self-sufficient infrastructure. The Company formed a joint venture with Marubeni Corporation from Japan, under one company named PT Megalopolis Manunggal Industrial Development (MMID). Together, the Company pioneered the industrial estate in the west of Cikarang and developed around 2500ha master plan of industrial townships. Alas, when Asian Financial Crisis striked Indonesia in 1998, Marubeni decided to cease any further expansion. Bekasi Fajar then sold its stake in MMID to PT Jatiwangi Utama in 2011, afterwards it expanded organically to MM2100 industrial town, which still has strong demand. Company shareholder The Ning King & Family 100% Hungkang Sutedja 0.08%

AMLD*

79.78%

Public

20.14%

BEST

0.02%

99.98%

BMIE

Source: TRIM Research, Company

Director and management background

The Company is known for having more than 20 years of experience in developing and managing big-scale industrial estates. The management now led by: Hungkang Sutedja: also a son of the Nin King family. As a CEO he earned his Finance BoS degree from University of Missouri and has been in the industrial estate business since 1996. He was also appointed as the CEO of PT Daya Sakti, PT Manunggal Prime Development, PT Daya Manunggal, PT Delta Mega Persada, PT Putra Manunggal Energy, and BMIE up until current date. Hendra Kurniawan: was appointed as Director in charge of marketing, estate, and development in 2011, and also serves as the Corporate Secretary of Alam Sutera He earned his Accounting Bachelor degree from University of Indonesia. Past positions held were the associate director of RSM AAJ Batavia and a member of theAudit Comitee of PT Krakatau Steel. Wilson Effendy: was appointed as Director in charge of finance, operations, and supports in 2011. He earned his Accounting Bachelor degree in University of Tarumanegara and Master of Business Administration from California State University. His past experiencea were Finance Director in Uresources Group, Head of Banking in Asia Pulp Paper, Deputy GM in Asia Pulp Paper, and Senior Business Financial Analyst of Barclays Global Investors.

2


Complete infrastructure to efficiently support its tenant productivity

JV with Marubeni in developing MMID unwittingly granted the Company a strong advantage because the Company can adopted Japanese high quality and standards of industrial estate. Marubeni Corporation, a well-known Japanese company established since 1858 with expertise in industrial estate, infrastructure, and construction has designed MMID (and the rest MM2100) under 2500ha master plan. The Company prioritized on upfront investment initially to build main infrastructures, facilities, and management of their industrial town, before starting to market commercially. Highway access Highway access

MM2100 entrance . MM2100 Entrance

Source: Company

From the infrastructure perspective, MM2100 has decent facilities that supports its tenant. Highway access has provided the Company for easier entry to MM2100. Electricity is directly supplied by PLN and private electricity company, Cikarang Listrindo. MM2100 is also passed by PGN gas line that makes it easier for the tenants to receive gas supply in a efficient way. Standardized water is easily acquired from Citarum and Cikarang River, which are located arround the area. While for the waste management, MM2011 benefits from Sadang and Cikedon River that are directly flowing to the waste water treatment area. The other examples of the Japanese high standards are shown from the easy access from toll-road, first-class main road (with width around 41-50m), and 7 man—made lakes spread in the estate to control flood and waste. All of this advantages have enabled the Company to operate the estate efficiently, with around 80% gross margin in maintenance fee. Electricity

Water waste treatment

Source: Company

3


MM2100 master plan map This 30-40ha area is preserved for commercial area. The location is near the entrance and currently occupied by a Japanese restaurant, golf and driving range, and retail shops. The Company is planning to develop several budget hotels, a serviced apartment, and other supporting facilities.

The pink area is showing MMID area with around 800ha that is already sold out. Although the Company is not managing this area anymore, certain benefits like: further expansions from tenants in this area are potential buyers for MM2100. The blue and white areas are managed by the Company (BFIE) and through its subsidiary (BMIE), with 1,100ha licensed area for development.


Japanese restaurant

Golf and driving range


Diversified tenant segment

MM2100 emphasized their focus on middle-upper level manufacturers and has been occupied by more than 300 national and international tenants such as Marubeni Chemicals Group, Yamaha Music Manufacturing, Astra Honda Motor, Denso, and Hitachi. With the current market, where industrial land business is a landlord market, the Company has the power to select its tenants. Tenants with reputable name and tenants that has the ability to drive demand on the estate are prioritized. MM2100 is mostly occupied by light industry thus not emitting high pollution, so that F&B industries may open new factories or expand in MM2100. We also notice that most tenants are coming from Japan (45%) and then followed by Indonesia (40%).

4


Tenant breakdown by segment Automotive, 27

Others, 25

Industrial Oil, 3 Heavy Equipment, 4

Logistics, 10

Printing, 5 F & B, 5

Steel, 6

Metal, 8

Electronic, 8


Tenant breakdown by country origin Other, 44 INA, 124

JPN, 138


Top ten anchor tenant by 30 September 2011 Tenants

Type

(ha)

Toyota Astra Motor

Auto

33.0

Denso Indonesia

Auto

20.0

Hitachi Construction Machinery Indonesia

H. Equipment

10.0

Nutrifood Indonesia

F&B

10.0

Astra International

Auto

7.9

Fumira

Steel

6.5

Lumbung National Flour Mill

F&B

5.9

JX Nippon Oil & Energy

Oil

5.0

Astra Daihatsu Motor

Auto

4.0

Kayaba Indonesia

Auto

4.0


5


Strategically located in high-demand area, closest to main activity point As in industrial business or other property industry, location is a major determinant of profitability. We like how MM2100 is strategically located, in terms of demand level and relative distance to Jakarta. Bekasi, Karawang, and Purwakarta are the most desirable places in Jakarta for industrial estate, contributing 85% of industrial land sales in 1Q12. Bekasi industrial land prices has surge 54% YoY on average in 1Q12, from around Rp927k to Rp1.4mn, giving the Company strong pricing power and higher margin for its sales. MM2100 is also the closest estate from 3 main business activity point, Central Business District (CBD), Tanjung Priok sea-port, and international airport Soekarno Hatta, as shown below: Location map of BEST and peers

H

G F

B

A D

C

E

Source: TRIM Research, Google Map

Distance to activity point Relative Distance to (in KM)* Company

SCBD

Sea-port

Airport

Bekasi Fajar (A)

36

44

62

Kawasan Jababeka (B)

46

52

73

Lippo Cikarang (C)

41

52

69

EJIP (D)

43

54

71

Surya Semesta Internusa (E)

66

72

93

* Simulation with using 4-wheel drive

Source: TRIM Research, Google Maps

Price has doubled and still continue

The location also grants the Company with strong price appreciation of 44% pa. in the last 2 year. The current ASP for MM2100 industrial land now stands at USD130/sqm (from USD65/sqm in 2010) and we believe it will rise further. Please note that the Company is currently in negotiation with some tenants at higher price at USD145/sqm. We notice that the last land sale at LPCK has reached USD150-160/sqm, and KIJA has sold their land at USD164-192/sqm range in the last 3 months. With the marked-up price, combined with limited supply in surrounding area, we believe the Company has higher bargaining power to increase their margins.

6


New tenants currently under negotiation with ASP of USD145/sqm Automotive

Electric

H. Equipment

F&B

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Logistic

Others

Electronic

Finance

2 5.5 8 9.6 10 12 28.5

78ha sales under negotiation Source: TRIM Research, Company

Taste the price surge of 44% pa. in the last 2 years 2010

2011

1H12

160

42%

140

(USD)

120

44%

66%

100 80 60 40 20 SSIA

BEST

KIJA


Natural contour benefits provide less risk and faster execution

The topography of the MM2100 industrial estate provides another benefit for the Company. The area is well placed on higher ground with average of 35 meter ASL (above sea level) range, while its peers (EJIP, LPCK) are placed on average at 22-25 meter ASL. We believe this would provide less flood risk. Industrial land preparation


7


Another benefit is coming from the flat contour of the MM2100 land. One of the issues faced by industrial land player is land processing, where land is flattened to be ready for the plant construction. With flat contour, the Company can finish land preparation faster (ranging for 8-12 months), with less cost (around USD13-15, vs peers reaching USD20/sqm) hence recognized revenue and receiving full cash payment faster. In contrast, other areas such as Karawang, has uneven contour that could extend land processing to 2 years.

New planned toll road placement shall benefit the estate even more

The planned Cibitung-Cilincing toll road project, which is expected to operate in 2015, would provide a direct connection from Cibitung area to Tanjung Priok seaport. Thus, with the efficient access to the seaport, MM2100 would be an attractive option for exporting companies that are seeking to expand. However, we are quite skeptical about the target finish date. The project has progressed slowly and uncertainty surrounding LCA law remains. PPJT has been signed since August 2011, but no land cleared to date. Although the project may be delayed for another 1-2 year, we believe the Company land banks in addition to the planned new acquisition could last for 8-9 years, which is sufficient to receive the new access benefit. Jakarta new planned toll road

Source: Company

Successful acquisition could extend land bank life to 9-10yr

From the total 1,100ha license area in West of Cikarang, the Company has compensated around 1,080ha for development. Around 280ha were sold and 120ha were used for infrastructure, left the company with 617ha of land available until the 1Q12. With the land bank life, the Company currently owned the largest land bank among the listed peers. Longest land banks life among peers Gross land bank (LHS)

Land bank life (RHS)

900

7

800

6

700 (ha)

500

4

400

3

300

(yr)

5

600

2

200

1

100 0

LPCK

KIJA

SSIA

BEST


8


To keep up with the strong demand for industrial lands, the Company is on the way to acquire 400ha license (gross) on the area south of MM2100. The acquisition price is expected to range around Rp220-250k and targeted to replenish the same amount of land bank that were sold, or around 100ha pa.

Escalating acquisition price and land bank monetization risk

The strategic location of the Company in the other hand could bring risk to the acquisition process. MM2100 (KM24) is located close to Grand Wisata (KM21) and Summarecon Bekasi development (KM15), where this proximity to those prominent residential developers might bring domino effect to the land price in the area of BEST’s acquisition target. Summarecon Bekasi and Grand Wisata priced their land at around Rp2.5-3.5mn. This might encourage landowners whose land around MM2100 to sell at higher price to the Company. Proximity to prominent developers might escalate the land price around

Summarecon Bekasi

Grand Wisata

MM 2100


We also notice MM2100 is facing the challenge to monetize their huge land bank, with a few amount of anchor tenants that could bring tens of hectares demand to the estate. But we believe the supply of industrial area is scarce and left the investor with little option. MM2100 strategic location and facilities, with its huge amount of space is surely encourage investment to the estate.

9


Expected top and bottom line surprises in the FY12 and FY13 We are expecting pre-sales to grow 43% 4yr CAGR 2010-14 and the biggest scale is in 2011 (163% YoY) and 2012 (41% YoY) pre-sales. As marketing sales would lag about 8-12 months, we expect revenue boost would happen in FY12 and FY13. We assumed slow growth on our price assumption in 2013 and 2014 to address uncertainty effect from the coming presidential election, and in turn, to the investment climate. Massive pre-sales growth on 2011 and 2012 inline with the growing pricing power Marketing sales

Revenue

ASP USD/sqm

1,600 1,400

180

165

155

145

160 140

1,200 1,000

(Rpbn)

120

97

100

800

80

63

600

60

400

40

200

20

-

2010

2011

2012F

2013F

-

2014F


We expect the Company to book Rp391bn net income this year, 225% YoY growth compared to 2011 of Rp120bn. This earnings jump is contributed by 106ha sales backlog (ASP around USD100/ sqm) and 16ha sales from Kawasaki (USD130/sqm) to be booked this year. Earnings boost in FY12 and FY13 as huge amount of sales backlog recognized Gross Profit

EBITDA

Net Income

1,600 1,400

145

155

ASP USD/sqm 165

(Rpbn)

120

97

800

62

600

160 140

1,200 1,000

180

100 80

63

60

400

(in USD)

Revenue

40

200

20

-

2007

2008

2009

2010

2011

2012F

2013F

2014F


10


Profitability is expected to peak in 2013

We expect the Company to post significant increase in FY12 and FY13 ROAE and ROAA, as presales with higher price increase in FY11 and FY12 are booked. The profitability ratios decrease in FY2014 as we use slow price growth assumption in that year. ROAE and ROAA ROAE

ROAA

60.0 50.0

(%)

40.0 30.0 20.0 10.0 2007

2008

2009

2010

2011

2012

2013

2014


Major GPM expansion for land sales, while others segment stabilized

Lower gross profit margin (GPM) for land sales in 2010 and 2011 of 59% and 40.7% respectively, occured due to: 1) the Company sold around 20ha at book value cost to MMID, for their requirement in green area space. 2) giving discount price to some anchor tenants. But we believe the Company GPM for land sales will expand to 51% and 67% in 2012 and 2013 on the back of the ASP growth. No significant expansion in maintenance and service since this segment already has high margin and relatively stable recurring income. GPM breakdown by segment Gross Margins Net Margins

Blended profitability margins

EBITDA Margins

Sales of land

80 70 60 (%)

(%)

50 40 30 20 10 0 2010

2011

Maintanance

Service

2012

2013

2014

100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 2010

2011

2012

2013

2014


11


Further funding would not be an issue until 2014

We assume the Company will acquire 100ha of new land with acquisition price of Rp250k/sqm and increasing 15% pa, taking into account the escalating price for the Bekasi region. Cash needed for land processing is expected at Rp125k/sqm and increase inline with expected inflation rate. Opex is estimated to grow by 25% pa on average, driven by salary and commission growth. Capex totaling Rp50bn will be spent in 2012 and 2013 to build extra capacity for waste treatment to cope up with increasing number of tenants. Net operating cash flow is sufficient for funding expansion and development Land acquisition

Development Cost

OPEX

Capex

Free Cash

1,000 900

(Rpbn)

800 700 600 500 400 300 200 100 2012

2013

2014


Expected dividend yield of 3% with the FY12 earnings

The Company dividend policy is to distribute 20% of its earnings if net income only reach below Rp200bn, or 30% if earnings reach above Rp200bn. With expected earnings of Rp391bn in FY12, the Company would distribute dividend of Rp13/s for FY12, reflecting 2.7% yield from the current price. Dividend yield for FY12, FY13 and FY14 DVPD (LHS)

Yield (RHS) 7.0

250

6.0 5.0

200

4.0

150

3.0

100

(%)

(Rp)

Dividend in Rpbn (LHS) 300

2.0

50

1.0

-

2012

2013

2014


12


NAV of Rp827/s with target price Rp620/s We put a BUY call on BEST as the Company has the strongest exposure to the industrial land business and the longest land bank life that we see will support the Company’s strong earning growth for at least 2-3 years ahead. Despite its risk on monetizing a large industrial land bank, we believe the current investment climate will support the sales, noting FDI and business expansion in Indonesia has reached USD40bn and not even a half of it has been realized, combined with limited supply from big listed industrial land player (