Industrial Estates. The slow road to recovery

Transcription

1 Jul-16 Aug-16 Sep-16 Oct-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 Jun-17 Jul-17 Equity Research Report Type Tuesday,03 October 2017 NEUTRAL JAKPROP relative to JCI Index IDR/s Source : Bloomberg Historical discount to NAV 60% 65% 70% Source : Bloomberg Jakprop (LHS) Antonia Febe Hartono, CFA (62-21) ext.3504 antonia.hartono@danareksa.com Natalia Sutanto (62-21) ext.3508 natalia.sutanto@danareksa.com Relative to JCI (RHS) % SD -1SD M +1SD +2SD 75% Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Industrial Estates The slow road to recovery We initiate coverage on the industrial estate sector with a NEUTRAL call with DMAS as our top pick. We believe there are a lack of catalysts that can boost industrial land sales next year following the stellar growth in The weak expected demand in 2018 will consequently translate into limited price appreciation. Among the companies under our coverage, however, we still expect DMAS to outperform its peers in terms of land sales given: (i) its readyfor-sale land bank is the largest and also less scattered, (ii) it has the highest level of inquiries, (iii) it offers competitive prices. The strong demand in 2017 may not be sustainable in In 1H17, the companies under our coverage recorded industrial land sales of 60ha, almost triple the land sales recorded in 1H16 of 18ha. This may not be sustainable in 2018, however, given a lack of catalysts which could boost industrial land sales next year either in relation to company expansion or factory relocation. We argue that industrial land sales can be proxied by the Business Sentiment Index (BSI). Since the BSI has tended to be volatile one year before the elections, we expect lower industrial land sales to be recognized next year (102ha in 2018 vs 115ha in 2017). Limited price appreciation. We only expect limited price appreciation in In the industrial estates business, the pricing mechanism is a function of supply and demand. Thus, given limited inquiries, industrial estate players will have limited bargaining power to raise prices. For the companies under our coverage, we expect DMAS to adjust prices to reflect inflation. BEST and SSIA, by comparison, are expected to keep prices relatively unchanged. Competitors do not pose a threat yet. From five industrial estate submarkets in the greater Jakarta area, the main threat to the industrial players under our coverage emanates from the Karawang submarket. In Karawang, Colliers expects an additional 2,400ha of industrial estates. Although DMAS has the closest proximity to the area, we do not expect the Karawang industrial estates to pose a major threat in the near term, given: (i) the tendency of customers to prefer ready-to-use land plots (from potential new supplies of 2,400ha, only 400ha have been developed), (ii) the narrowing price gap between industrial estates in Karawang and industrial estates in Bekasi. DMAS to gain the most. Our top pick in the sector is DMAS (BUY TP IDR240). Although we expect lower industrial land sales to be recognized in 2018 overall, we still believe that DMAS will record more land sales (60ha) than either BEST (30ha) or SSIA (10ha), supported by: (i) the highest level of inquiries, (ii) less scattered land and the largest ready-for-sale land bank, (iii) the competitive prices offered. We believe that the expected land sales in 2018 will create positive sentiment on the stock as, historically, movements on the discount to NAV are more driven by land sales volume. Target Price Market Cap. P/E (x) P/BV (x) ROE (%) Company Ticker Rec (IDR) (IDR Bn) Puradelta Lestari DMAS IJ BUY 240 9, Bekasi Fajar BEST IJ BUY 340 2, Surya Semesta SSIA IJ HOLD 640 2, n/m

2 Industrial estates at a glance Exhibit 1. Companies comparison Factors Units DMAS BEST SSIA Land bank in 1H17 Total land bank (Gross) ha 1,610 1, Industrial land bank (Gross) ha Ready for sale land bank ha Marketing sales Current inquiries ha Expected sales in 2H17 ha Expected sales in 2018 ha ASP 2017 IDR/sqm 1,736,724 2,677,621 1,602,000 ASP 2018 IDR/sqm 1,767,117 2,677,621 1,602,000 Backlog Backlog sales in to be recognized in 2017 ha Backlog sales in to be recognized in 2018 ha Growth in financial performance Revenue CAGR % 2.6% 6.7% 7.4% Net profit CAGR % 4.9% 4.1% -88.1% Solvency ratio Gearing ratio 1H17 % 0.0% 45.2% 52.0% Net gearing ratio 1H17 % Net cash 38.3% 21.0% Source: Companies, Danareksa Sekuritas Exhibit 2. Location of industrial estates Source: Various sources, Danareksa Sekuritas 2

3 Investment thesis Strong demand in 2017 In 1H17, Colliers noted that industrial land sales improved to 116.9ha, double the figure in 1H16 of 48.4ha. Exhibiting a similar trend, companies under our coverage also recorded better industrial land marketing sales (up 228.5%yoy). The 1H17 marketing sales figure is 54.6% of the companies full year target and 52.2% of our estimate. With a high level of outstanding inquiries, we remain optimistic that the companies we cover can achieve our full year marketing sales target of 115ha (+21.5%yoy). but may not be sustainable in 2018 Going into 2018, we expect the companies under our coverage to recognize lower industrial land sales (down from 115ha in 2017 to 102ha in 2018). We believe there are a lack of catalysts that can boost industrial land sales next year either in relation to company expansion or factory relocation. We argue that industrial land sales can be proxied by the Business Sentiment Index (BSI). In the past, the BSI has tended to be volatile starting one year before the elections, marked by lower capital expenditures and lower industrial land sales as well. Limited price appreciation We only expect limited price appreciation in In the industrial estates business, the pricing mechanism is a function of supply and demand. Thus, given limited inquiries, industrial estate players will have limited bargaining power to raise prices. For the companies under our coverage, we expect DMAS to adjust prices to reflect inflation. BEST and SSIA, by comparison, are expected to keep prices relatively unchanged. Competitors do not pose a threat yet From five industrial estate submarkets in the greater Jakarta area, the main threat to the industrial players under our coverage emanates from the Karawang submarket. In Karawang, Colliers expects an additional 2,400ha of industrial estates. Although DMAS has the closest proximity to the area, we do not expect the Karawang industrial estates to pose a major threat in the near term, given: (i) the tendency of customers to prefer ready-to-use land plots (from potential new supplies of 2,400ha, only 400ha have been developed), (ii) the narrowing price gap between industrial estates in Karawang and industrial estates in Bekasi. DMAS to gain the most Although we expect lower industrial land sales to be recognized in 2018 overall, we still believe that DMAS will record more land sales (60ha) than either BEST (30ha) or SSIA (10ha), supported by: (i) the highest level of inquiries, (ii) less scattered land and the largest ready-for-sale land bank, (iii) the competitive prices offered. If we compare the amount of current inquiries after deducting the potential land sales in 2H17, we note that DMAS has the highest level of remaining inquiries. We believe these remaining inquiries will sustain DMAS marketing sales in Looking at the available for-sale land bank, DMAS land is less scattered than its peers. Mitigating weak demand While we expect industrial land demand to be weak in 2018, we believe that the financial performance of industrial land players with: (i) large industrial land sales backlog, (ii) more diversified revenue drivers, and (iii) less leveraged businesses will be more resilient. Supported by 26ha of sales backlog from 2017 s sales and a manageable gearing ratio of 45.2% in 1H17, we expect the financial performance of BEST to outperform its peers with 12.1%yoy revenues growth and 11.7%yoy net profits growth in

4 DMAS as our top pick Although we expect BEST to record better financial performance than its peers in 2018, our top pick among the industrial estates is DMAS. Based on our historical analysis, we note that industrial land sales volume will drive movements on the discount to NAV. With higher land sales, DMAS discount to NAV will decline. Hence, given the expectation of solid industrial land sales, we believe that DMAS share price will outperform BEST. Exhibit 3. Industrial estates historical discount to NAV 60% 65% 70% Source : Bloomberg, Danareksa Sekuritas -2SD -1SD Mean 75% Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 +1SD +2SD Exhibit 4. Industrial estates forward P/E band (x ) sd 12 1sd 10 8 mean sd 4-2sd 2 0 Feb 12 Feb 13 Feb 14 Feb 15 Feb 16 Feb 17 Source : Bloomberg, Danareksa Sekuritas 4

5 Valuation DMAS: Value emerges (BUY TP of IDR240) Our top pick in the sector is DMAS. With the largest ready available land bank (280ha) which is also less scattered vs. the land bank of its peers (BEST - 158ha and SSIA - 145ha), its high level of inquiries (100ha) vs. that of its peers (BEST 61ha and SSIA 15ha), we believe that DMAS will record the highest industrial land sales next year. Supported by its debt free business, we believe that DMAS will be less negatively impacted by weak industrial land sales. We initiate coverage on DMAS with a BUY call and a target price of IDR240. We use NAV based valuation for DMAS and a 65% discount to NAV. Our discount applied to the NAV target is based on the median of the historical mean and -1SD. Exhibit 5. DMAS historical discount to NAV Exhibit 6. DMAS forward P/E band 55% 60% 65% 70% 75% -2SD -1SD Mean +1SD +2SD (x ) SD 1sd Mean -1sd -2sd 80% Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Source : Bloomberg, Danareksa Sekuritas 6 May 15 Sep 15 Jan 16 May 16 Sep 16 Jan 17 May 17 Source : Bloomberg, Danareksa Sekuritas BEST: Showing the best financial performance (BUY TP of IDR340) We have a BUY rating on BEST. We expect BEST to record flat industrial land sales in 2018 of 35ha supported by a high level of inquiries for 61ha remaining. With its inquiries being less concentrated (the inquiries for 61ha are from 11 potential investors), BEST will be less exposed to the risk of delays in closing land sales from certain investors. We initiate coverage on BEST with a BUY call and target price of IDR340. We use NAV based valuation for BEST and a 72% discount to NAV. Our discount to the NAV target is based on the median of the historical mean and -1SD. Exhibit 7. BEST historical discount to NAV 60% 65% 70% 75% 80% 85% Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Source : Bloomberg, Danareksa Sekuritas -2SD -1SD Mean +1SD +2SD Exhibit 8. BEST forward P/E band (x ) sd 20 1sd 15 mean sd 0-2sd Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17-5 Source : Bloomberg, Danareksa Sekuritas 5

6 SSIA: A long way to go (HOLD TP of IDR640) We have a HOLD rating on SSIA. Although we expect construction of the Patimban port and the Subang-Patimban toll road to benefit SSIA and its subsidiary, NRCA, we only expect SSIA to be able to monetize these infrastructure projects in 2019, once its Subang industrial estate has been partially developed and ready for sale. Meanwhile, for 2018, we are not optimistic on Suryacipta s land sales considering the limited land bank remaining and irregular shaped plots. We initiate coverage on SSIA with a HOLD call and a target price of IDR640. We use the SOTP based valuation for SSIA and a 68% discount to NAV. Our discount to NAV target is based on the historical +1SD. Exhibit 9. SSIA historical discount to NAV 50% 55% 60% 65% 70% -2SD -1SD Mean +1SD Exhibit 10. SSIA forward P/E band (x ) sd 10 1sd 5 mean % 80% Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Source : Bloomberg, Danareksa Sekuritas +2SD 0-1sd Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr sd Source : Bloomberg, Danareksa Sekuritas 6

7 Demand 2017: Stellar growth Colliers noted that industrial land sales improved in 1H17 to 116.9ha, or around double the figure in 1H16 of 48.4ha. The increase in industrial land sales was underpinned by higher sales to the food and beverages and automotive sectors. By location, we note that most of the sales were recorded in the Bekasi area (77.7%). We believe this is because of the area s more developed infrastructure access and sizable land stock which offers more flexibility to buyers, meaning the industrial estate players in the area enjoy a competitive advantage. Exhibiting a similar trend, the companies under our coverage have indicated better industrial land marketing sales. DMAS with Greenland International Industrial Center (GIIC) recorded marketing sales of 36ha in 1H17 (+244.5%yoy), outperforming its peers that only managed to sell 22ha (BEST) and 2ha (SSIA). DMAS higher marketing sales were thanks to two sizable land sales to consumer goods and automotive companies. Going into 2H17, we are convinced that the companies under our coverage will achieve our targeted marketing sales of 115ha, beating the managements target of 110ha. While we expect DMAS to beat the company s target given encouraging progress made with two potential buyers, we believe that SSIA will fall short of its marketing sales target of 20ha. In 1H17, SSIA only booked marketing sales of 1.8ha. Although inquiries for 15ha remain, we believe that the company is unlikely to close the deals this year. BEST, by comparison, is expected to record 35ha of land sales, or inline with the company s target of 30-40ha. Exhibit 11. Land sales in 1H17 in Ha DMAS BEST SSIA 7 1H16 1H17 Inquiries remains Company's target Our target Source: Companies, Danareksa Sekuritas 7

8 Demand: Sustainable in 2018? We don t think so. Going into 2018, we expect the companies under our coverage to recognize lower industrial land sales (down from 115ha in 2017 to 102ha in 2018). We believe land sales in 2018 will be supported by existing inquiries as there are a lack of catalysts which can boost industrial land sales arising from the expansion of existing companies and factory relocation. While we remain upbeat on the outlook for direct investment next year, we argue that industrial land sales can be proxied by the Business Sentiment Index (BSI). In the past, the BSI has tended to be volatile starting one year before the elections, marked by lower capital expenditures and lower industrial land sales as well. Exhibit 12. Marketing sales (in ha) of the companies under our coverage in Ha Source: Companies, Danareksa Sekuritas Demand drivers There are three main drivers of demand for industrial land: (i) the existing expansion of companies, (ii) direct investment and (iii) factory relocation. Existing companies expansion We remain cautious on the industrial land demand arising from the expansion of existing companies. In the past eight years, demand for industrial land has come from the automotive sector (38.6%), the food and beverages sector (10.5%), and the logistics sector (7.9%). With the current low utilization in the automotive sector (60.9%) and the food and beverages sector (76.8%), we only expect demand for industrial land to be supported from the logistics sector. Historical demand for industrial land sales In the past eight years, demand for industrial land has mainly been driven by the automotive sector (38.6%), the food and beverages sector (10.5%), and the logistics sector (7.9%). However, given the minimal expansion plans of companies in the first two of these sectors, we believe that industrial land sales will remain weak going forward DMAS BEST SSIA 8

9 Exhibit 13. Historical proportion of demand for industrial land sales 1.1% 32.8% 38.6% 10.5% 2.6% 1.2% 1.5% 1.9% 1.9% 7.9% Energy Automotive Metal Chemicals Logistics Building Materials Manufacturing Consumer Goods Food and beverage Others Source: Danareksa Research Institute, Colliers Automotive sector: plenty of idle capacity After significant industrial land sales to automotive companies in 2011 and 2012, the production capacity of automotive producers was lifted from 900,000 units/annum in 2011 to 2,200,000 units/annum in Nonetheless, automotive demand only grew by 3.7% CAGR 2011 to As a result, the effective utilization only stood at 60.9% this year. Given this low level of utilization, we do not expect major expansion from the automotive producers in the near to medium term. Exhibit 14. Utilization rate of the automotive sector Units 2,500,000 2,000,000 1,500,000 1,000, , % 100.0% 80.0% 60.0% 40.0% 20.0% - 0.0% Production capacity Sales domestic Sales export Utilization (%) - RHS Source: Gaikindo, various sources Going forward, we believe that industrial land demand will be driven by automotive component suppliers that require smaller industrial land sites compared to automotive makers. As a comparison, automotive manufacturers typically require more than 50ha of land, whereas the first-tier suppliers typically require 10-20ha of land. The second-tier suppliers require 5-10ha of industrial land. According to data provided by the Indonesian Automotive Parts and Components Industries Association (GIAMM), there are currently only 240 first, second, and third tier automotive component manufacturers in Indonesia. Meanwhile, GIAMM estimates that the potential number of automotive component producers in Indonesia might reach 1,550 companies. 9

10 Nonetheless, we don t expect these first, second, and third tier automotive component manufacturers to aggressively expand given the currently modest demand growth for autos of only around 5% pa. Food and beverages: low industrial land sales We note that the sizable industrial land acquisition from food and beverage companies occurred when the average utilization rate in the food and beverages sector reached 79% (see Exhibit 15). Hence, given that the utilization rate for the food and beverages industry now stands at 76.8%, we do not expect major industrial land sales to this sector over the near term. Exhibit 15. Utilization rate in the food and beverages sector and industrial land sales to the food and beverages sector Ha Source: Colliers, Bank Indonesia Logistics: The only engine for growth Most of the demand from logistics companies for industrial estates is driven by warehousing needs from the manufacturing sector. As such, we believe that industrial land demand for the logistics sector is a function of the utilization rate of the manufacturing sector. With higher utilization rate in the manufacturing sector, we believe that logistics companies will expand their warehousing capacity. Our belief is supported by the correlation between land sales to logistics companies and the manufacturing utilization rate. Exhibit 16. Utilization rate in the manufacturing sector and industrial land sales to logistics companies Ha Q17 Source: Colliers, Bank Indonesia Land sales to food and beverage Capacity utilization (RHS) Q17 Land sales to logistic Capacity utilization (RHS) 80.0% 78.0% 76.0% 74.0% 72.0% 70.0% 68.0% 78.0% 76.0% 74.0% 72.0% 70.0% 68.0% 10

11 Historically, strong demand from logistics companies was evident when the overall manufacturing utilization rate was above 75%. Based on the latest publication of Bank Indonesia, the manufacturing utilization rate in 2Q17 reached 76.7%, up by 2.6% from its level in 1Q17. With a higher utilization rate, we expect higher demand for industrial estates from logistics companies going forward. E-commerce: seeking certain locations We believe the rapidly growing e-commerce market will drive demand for warehouses and thus boost demand for industrial land sales. Exhibit 17. Indonesia s e-commerce market value in USDmn 4,000 3,500 3,000 2,500 2,000 1,500 1, ,100 Source: Mega Manunggal Properti 1,350 1,850 2,400 2,950 3, Nonetheless, we don t think the impact from sales of industrial land to e- commerce companies will be significant given: (i) The Indonesian e-commerce market is still dominated by C2C We expect the demand for warehouses to come from the Business to Customers (B2C) and Business to Business (B2B) e-commerce. Based on the data from Spire, B2C and B2B only accounted for 40% of Indonesia s total e-commerce. Exhibit 18. Proportion of Indonesia s e-commerce (based on value in 2014) 9.9% B2C Business to Customers 29.9% C2C Customers to Customers 60.2% B2B Business to Business B2C C2C B2B Source: acommerce, Google (ii) E-commerce companies prefer warehouses located near their main markets We believe that the e-commerce companies will prefer to have warehouses located close to their main markets. In the case of Lazada, the company prefers to have warehouses in Depok (in the southern part of Jakarta). 11

12 Considering that the industrial estate players under our coverage only have land in Bekasi and Karawang (to the east of Jakarta), we believe that these locations may not be favored by e-commerce companies. Direct Investment: lower growth ahead Although industrial land sales and total direct investment (both domestic and foreign) are weakly correlated, we note that industrial land sales are moderately correlated with the total direct investment in the secondary sectors (that consist of chemicals, foods, motor vehicles, metal machinery, and other industrial related sectors). Thus, higher growth of direct investment in the secondary sectors will translate into higher industrial land sales. Exhibit 19. Industrial land sales and growth of direct investment in secondary sectors 200% 150% 100% 50% 0% -50% -100% Source: Colliers, CEIC In its strategic plans, the Investment Coordinating Board (BKPM) is targeting total direct investment of IDR933tn in 2019 and direct investment in the secondary sector of IDR518tn, exhibiting CAGR of 17.2% and 19.4% respectively. This compares to CAGR in the previous 2 years of 15.0% and 29.4%, respectively. With lower direct investment growth expected in the secondary sector, we only expect modest demand for industrial land. Exhibit 20. Total direct investment and direct investment in the secondary sector in IDRtn 1, Industrial land sales (RHS) Direct investment in secondary sector (%) F 2018F 2019F Total investment Secondary sector Source: BKPM 12

13 Factory relocation: waiting for the revised regulation In response to the issuance of Law no. 26/2007 concerning spatial planning that gives authority to regional governments to regulate regional spatial planning, Jakarta issued regional regulation No. 1/2014 on 17 February 2014 pertaining to spatial planning and zoning. Under the regulation, only certain regions in 17 districts in North, West, South, and East Jakarta are allotted for industrial zoning. Should any individual or company have their operations in an inappropriate zoning area, then they will need to reallocate their operations. As stipulated in Law no. 26/2007, they will be given three years to do this. According to the Industrial Estate Association, this zoning regulation will result in additional demand for 700ha of industrial land. Several companies, including Asahimas Flat Glass and Kalbe Farma, plan to reallocate their factories to Cikampek and Cikarang. Asahimas acquired 60ha of land in Cikampek in 2011 while Kalbe Farma recently acquired 20ha of land bank in Cikarang. Nevertheless, upon the construction of multiple national strategic projects (the LRT, MRT, HSR), the regional government plans to revise the zoning regulation to accommodate these projects. While waiting for the revised regulation to be issued, the Head of the One-Stop Integrated Service Agency (PTSP) announced on 27 December 2016 that licenses issued by PTSP up to 18 February 2017 would remain effective until the revised zoning regulation was issued. With uncertain timing surrounding the issuance of the revised regulation, we believe that there is no urgency for industries in Jakarta to relocate their factories any time soon. As such, we do not expect significant industrial land sales arising from factory reallocation in the near term. Industrial land sales can be proxied by business sentiment We believe that industrial land sales can be proxied by business sentiment as measured by the Business Sentiment Index (BSI). Sentiment toward business conditions can provide an indication of the eagerness of companies to undertake capital expenditure. This capital expenditure will be the driver of industrial land sales. Our argument is supported by the historical correlation between industrial land sales, the Business Sentiment Index (BSI), and the current capital expenditure index. Exhibit 21. Growth in industrial land sales and the Business Sentiment Index 750% 30% 550% 350% 150% 20% 10% 0% -50% % % -20% -450% Industrial land sales (LHS) BSI (RHS) -30% Source: Danareksa Research Institute, Colliers 13

14 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Exhibit 22. Industrial land sales and current capital expenditure index Index in Ha Industrial land sales (RHS) Source: Danareksa Research Institute, Colliers Capex current (LHS) Historically, in the one-year period prior to presidential elections, business sentiment has been volatile given heightened political uncertainty. As a result, capital expenditure is depressed. Our view is that such a scenario will be replayed ahead of the 2019 elections. With the presidential election slated to take place in April 2019, the impact will already be felt in As such, we are not upbeat with industrial land sales in Exhibit 23. BSI tend to be volatile during the election period Election period Election period BSI Capex current Source: Danareksa Research Institute 14

15 Infrastructure development to favor Greater Jakarta To improve transportation access in Jakarta, there are currently 7 infrastructure projects under development in West Java and Greater Jakarta. In our view, the majority of these projects will benefit BEST and SSIA, considering the closeproximity of these projects to their industrial estates. Nonetheless, as these infrastructure projects are only expected to be completed by 2019, we only expect the impact on BEST and SSIA to be felt in Exhibit 24. Various infrastructure projects and their main beneficiaries Infrastructure Completion target Main beneficiary from the projects BEST DMAS SSIA Jakarta-Cikampek elevated toll road 2019 V V V West Java International Airport 2018 V Patimban Port 2019 V Cibitung-Cilincing toll road 2019 V Cimanggis-Cibitung toll road 2019 V Light Rail Transit 2019 V V High Speed Railway 2020 V V Source: Various sources, Danareksa Sekuritas The Jakarta-Cikampek elevated toll road To reduce the excessive traffic on the Jakarta-Cikampek toll road that has currently reached 590,000 vehicles per day, the Jasa Marga consortium proposed the construction of the Jakarta-Cikampek II elevated toll road that will connect the Cikunir Interchange to West Karawang. In late 2016, the Jasa Marga consortium was announced as the winner of the project s tender. Involving an investment of around IDR16.3tn, the Jakarta-Cikampek elevated toll road is expected to be completed by The appointed contractors Waskita Karya and Acset Indonusa have started the construction of the elevated toll road. Although the consortium has not disclosed details concerning the toll gates, we believe the toll road will positively impact all the industrial players under our coverage. We expect commencement of this toll road to reduce traffic on the Jakarta-Cikampek toll road, which, in turn, should speed up transportation times and lower transportation costs. The West Java International Airport Located in Kertajati, West Java, the West Java International Airport (BIJB) will be built on 1,800ha of land bank. The construction of BIJB will be done in three stages and be fully completed by The first phase of development has been started with construction progress of 55% and expected completion at the end of As such, operations are expected to commence in 1Q2018. We believe that SSIA will be the main beneficiary of this project considering the airport s close proximity to its industrial estates. Exhibit 25. Distance to the West Java International Airport Industrial Estate Distance SSIA - Subang 65km SSIA Suryacipta 90km DMAS 107km BEST 118km Source: Various sources, Danareksa Sekuritas 15

16 Patimban Port Located in Subang, West Java, Patimban Port is expected to reduce the traffic in the Tanjung Priok port. Upon completion of the construction in 2027, Patimban Port is expected to have capacity of 7.5mn TEU, or slightly higher than the current capacity of the Tanjung Priok port of 7mn TEU. The government aims to complete the first phase of the port s development in 2019 with targeted capacity of 1.5mn TEU. The construction value of Patimban port is expected to reach IDR43.5tn, of which 71% will come from loans from the Japanese International Cooperation Agency (JICA), 19% from the State Budget (for land acquisition), and the remaining 10% from private companies (for equipment and operational expenses). After the completion of several administrative requirements for the Patimban port, for instance location determination (Penlok) and the National spatial plan (RTRW), the regional government has started to acquire land for the road and backup area of the port. Regarding the loan from JICA, government expects the loan disbursement will be in in October Thus, the tenders for the contractor and consultant will be conducted in December 2017 or January 2018, with construction expected to start in early Upon commencement of the port s operations, we believe that SSIA will be the main beneficiary. SSIA is currently preparing a new industrial estate in Subang located only 38km away from the port. By June 2017, SSIA had acquired 669ha of land bank in the area. It also expects to acquire an additional 331ha of land bank in 2H17. The company plans to monetize Subang industrial estate starting in Exhibit 26. Distance to Patimban Port Industrial Estate SSIA - Subang SSIA Suryacipta DMAS BEST Source: Various sources, Danareksa Sekuritas Distance 38km 82km 98km 110km SSIA to benefit the most: To provide direct access to Patimban port, SSIA has partnered with Jasa Marga (JSMR) and proposed the construction of the Patimban toll road that will connect Subang industrial estate to Patimban port. As the initiator of the project, the SSIA consortium has the right to match the winning tender. SSIA s management indicated that it only seeks a minority stake in the consortium and the ownership will be held through its subsidiary, Nusa Raya Cipta (NRCA). #1 Equity injection is needed, but can still be managed with NRCA s internal cash In the consortium that was recently established by SSIA regarding this toll road, SSIA, through NRCA, will have 25% ownership. With estimated investment value of IDR5tn and 70% of the investment value to be financed by debt, the equity injection from NRCA is estimated to reach IDR375bn. SSIA stated that some of the equity injection would be in the form of land sales. For the remaining balance, we expect NRCA to finance the equity injection from internal cash. As of 1H17, NRCA had IDR500bn of cash outstanding. In addition, we can also expect IDR185bn of cash inflow in January 2018 from the sale of its stake in Cipali. #2 Additional marketing sales from land sales The West Java government stated that the construction of the toll road would require 300ha of land bank. As SSIA estimates that around 50% of the land needed for the toll road is located in the Subang Industrial Estate, we expect construction of this toll road to result in additional marketing sales of IDR bn from the sale of land bank to the JV (assuming a land price of IDR ,000/sqm). 16

17 #3 Additional new contracts from Subang-Patimban toll road construction From estimated investment value of IDR5tn for the Subang-Patimban toll road, we expect the construction value for this toll road to reach IDR3.5tn. Should SSIA s consortium win the tender, we believe NRCA will obtain additional new contracts from construction of the toll road of IDR1tn. #4 Other income for NRCA: Additional management fees Besides new contracts, we also expect NRCA, as the main contractor, to obtain additional management fees of 1-2% from the construction value accrued during the construction period. We expect this to result in additional other income of IDR35bn to be accrued in , or accounting for an estimated 22.5% of NRCA s net profits in Exhibit 27. Indonesia s automotive demand proportion (2016) 15.5% Exhibit 28. National domestic automotive proportion (2014) 3.7% 5.6% 0.5% 21.3% 17.6% 4.4% 7.4% 19.3% Source : Gaikindo Domestic Export 84.5% Source : Gaikindo 13.5% Automotive plant relocation to Subang? In our view, unlikely While the Ministry of Transportation previously stated that the Patimban port is expected to be an export gate for the national automotive industry, we do not expect automotive producers to relocate their manufacturing plants to surrounding industrial estates. We take this view since 80% of the national automotive demand still comes from the domestic market with more than 20% of the domestic automotive demand coming from Jakarta only. Nonetheless, we might expect that several national automotive players which seek higher export sales will set up warehouses in the surrounding area to facilitate the logistics process. Cibitung-Cilincing toll road The 34km Cibitung-Cilincing toll road is part of the Jakarta Outer Ring Road 2 segment that will connect Cibitung to Cilincing. Although the project was tendered in 2007, there had been limited progress considering difficulties in the land acquisition process. Since Waskita Karya acquired a 55% stake in the project in April 2017, land acquisition progress has been encouraging (up from 27% in April 2017 to 43% in August 2017). As such, Waskita aims to start construction this year and complete it by We learnt from BEST that the company has asked the Waskita consortium to open a toll gate near its industrial estate. Should the Waskita consortium agree to open the toll gate near its industrial estate, this would naturally improve accessibility to the estate. 6.8% Jakarta West Java Banten East Java Central Java Bali and Nusa Tenggara Sumatera Sulawesi Kalimantan Maluku and Papua 17

18 Exhibit 29. Potential new toll gate in BEST s industrial estate Potential new toll gate on the Cibitung Cilincing toll road Potential new toll gate on the Cimanggis Cibitung toll road Source: BEST The Cimanggis-Cibitung toll road The 26.3km Cimanggis-Cibitung toll road is also part of the Jakarta Outer Ring Road 2 that will connect Cimanggis to Cibitung. After slow land acquisition progress in the past eight years, the land acquisition progress for this toll road has improved to 8% from 4% in December Waskita Toll Road, as the major project owner, has started the construction and expects construction to be completed in We learnt from BEST that the company has asked the Waskita consortium to open a toll gate near its industrial estate. Should the Waskita consortium agree to open the toll gate near its industrial estate, this would naturally improve accessibility to BEST s industrial estate. Greater Jakarta Light Rail Transit project To improve connectivity from central Jakarta to its suburbs, the government appointed Adhi Karya to work on the Greater Jakarta Light Rail Transit project in early Although progress has been slow since the groundbreaking in October 2015 (with construction progress of only 15% up to February 2017), Adhi Karya has accelerated the construction progress since the signing of the project contract in February Progress for the first phase of the LRT (that comprises the Cawang-Cibubur, Cawang-East Bekasi, and Cawang-Dukuh Atas routes) has reached 17%. By the end of the year, Adhi Karya expects construction progress to reach 45%. Upon commencement of the LRT project in 2019, we believe that industrial players with close proximity to LRT stations will benefit the most - in this case BEST. In addition, we also expect DMAS to benefit. Earlier this year, the West Java Regional Development Planning Agency proposed to the Central Government to expand the LRT route to Cikarang, particularly to Deltamas. Should the Central Government approve this proposal, DMAS will also benefit from the commencement of the LRT. 18

19 Exhibit 30. Distance to the East Bekasi station Industrial Estate SSIA - Subang SSIA Suryacipta DMAS BEST *shortest distance sourced from Google maps Distance 100km 44km 24km 10km *estimates are based on Adhi Karya s Transit Oriented Development project location Source: Various sources, Danareksa Sekuritas High Speed Railway This 142.3km railway project connecting Jakarta to Bandung will involve an investment cost of USD5.9bn. Although the groundbreaking was conducted in January 2016, the construction had to be postponed due to issues related to paperwork, as well as slow land acquisition progress. Nonetheless, the Director of Traffic and Rail Transport from the Ministry of Transportation recently stated that the West Java Governor had issued a location determination (Penlok) document in early September This document will provide the legal basis for the land acquisition. In addition, the official further stated that the Ministry of Transportation had just completed a proposed revised draft of concession agreement whilst committing itself to completing the required paperwork as soon as possible. With more encouraging administrative progress, we can expect construction of the HSR to commence soon. In its development plans, there will be four stations including Halim (East Java), Karawang (West Java), Walini (West Java), and Tegalluar (West Java). For the companies under our coverage, we expect industrial players that have close proximity to the stations to benefit the most. In this regard, we note that BEST is closest to Halim station while Suryacipta is closest to Karawang station. Exhibit 31. Distance to the nearest station Industrial Estate Halim station Karawang station** SSIA - Subang 120km 65km SSIA Suryacipta 59km 15km DMAS 40km 27km BEST 27km 39km *shortest distance sourced from google maps **estimation is based on the location of Karawang regency Source: Various sources, Google maps, Danareksa Sekuritas 19

20 Threat from competitors not in the near term From five industrial estate submarkets From five industrial estate submarkets in the greater Jakarta area, we see that the only major threat posed to the industrial estate players under our coverage comes from industrial estates in Karawang. There is only significant land bank remaining in the Bekasi, Karawang, Tangerang, and Serang submarkets. Although Tangerang has plenty of undeveloped land, there is a shortage of ready-to-build industrial land in this area. Meanwhile, in the Serang submarket, the size of the land parcels offered by most industrial players is limited. This has restrained sales in the area. Exhibit 32. Industrial land supply in Ha Source: Colliers the only major threat is posed by Karawang In Karawang alone, we can expect additional new supply of more than 2,400ha of industrial estates. In this regard, SSIA and DMAS might be affected given the close proximity of the Karawang industrial estates to the estates owned by SSIA and DMAS. Nonetheless, we do not expect a substantial threat to be posed to the companies under our coverage in the near term, considering: (i) the tendency of customers to prefer ready-to-use land plots (from potential new supply of 2,400ha, only 400ha have been developed with a period of 6 months to 1 year required to prepare industrial land before it is available for sale), (ii) the narrowing price gap between industrial estates in Karawang and those in Bekasi (seeexhibit 33). Currently, industrial land in Bekasi is being offered at a 123% premium on average to industrial land in Karawang, or below the average 10 years premium of 135%. Exhibit 33. Price premium of Industrial land in Bekasi to Karawang 180% 160% 140% 120% 100% 80% 4,000 3,500 3,000 2,500 2,000 1,500 1, Source: Colliers Bogor Tangerang Karawang Bekasi Serang Exsiting stock Remaining unsold land Potential land to be developed 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 Premium of land price in Bekasi to Karawang 10 years average 5 years average 20

21 Details of new supply in Karawang 1. The Karawang International Industrial Estate In its latest report, Colliers noted that KIIC (Karawang International Industrial Estate), the sister company of DMAS, was preparing to expand its industrial estate with expected additional land bank of 160ha. Based on our discussions with DMAS, KIIC currently has limited land bank available for sale with an offering price ranging from USD /sqm. With prices similar to those offered by DMAS (the average price in 1H17 stood at USD136/sqm), we do not expect additional land supply from KIIC to negatively impact the companies under our coverage. 2. Trans Hexa Karawang The Trans Hexa Karawang consortium (which includes Gajah Tunggal, Salim, and Artha Graha) currently has total land bank of 2,300ha. The main road connects several industrial estates in the area. From this consortium, Colliers noted that only industrial land owned by Gajah Tunggal (named GT Techpark with total land bank of 400ha) has been developed and is available for sale. Meanwhile, the other players have not started construction yet. Currently, these companies are waiting for the big investor who will be the anchor buyer before fully developing the industrial land. In addition, as industrial estate buyers typically prefer ready-to-use land plots, we believe that Trans Hexa Karawang may not pose a substantial threat to the companies under our coverage. 3. Karawang New Industrial Park Earlier this year, China Fortune Development Land (CFLD) acquired 218ha of land at the Podomoro Industrial Park (around 46km from East Jakarta) in a IDR1.4tn deal. CFLD still has the option to acquire the remaining 285ha of industrial land from Podomoro Industrial Park in the next three years. CFLD plans to develop the area into Karawang New Industrial Park. Adopting the mixed-use development concept, CFLD will not only develop industrial estates, but also residential and commercial areas. Focusing on construction material, logistic, and automotive companies, we believe that this new industrial estate may pose a threat to the industrial estate players under our coverage over the medium term considering that land preparation requires 6 months to 1 year. With acquisition costs to reach IDR636,000/sqm, a 70% plot ratio and an estimated infrastructure cost of IDR400,000/sqm, we estimate that industrial land costs per sqm will reach IDR1.3mn/sqm. Should the company aggressively offer the industrial land at a price near to its cost, we believe that it may pose a threat, particularly to DMAS, which is located the closest to the Karawang New Industrial Park. Exhibit 34. Industrial estate location* Industrial Estate KIIC Trans Hexa Karawang Karawang New Industrial Park SSIA Suryacipta 15km 24km 15km DMAS 15km 18km 27km BEST 26km 30km 39km *shortest distance sourced from Google maps Source: Google maps, Danareksa Sekuritas 21

22 Limited potential for price appreciation We only expect limited price appreciation in With the expectation of weak demand for industrial land, we believe that most of the industrial land developers will not be able to increase their prices. For industrial estates, the pricing mechanism is determined by supply and demand. Given limited inquiries, industrial players will not have much bargaining power to increase their prices. As depicted in Exhibit 35, the average industrial land price soared in 2011, supported by strong demand. Nonetheless, with normalizing industrial land sales in the area from 2013 onwards, the average price has plateaued. Exhibit 35. ASP growth and land sales in Bekasi sub region in Ha Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 Land sales (LHS) YOY changes in average price (RHS) Source: Colliers 120% 100% 80% 60% 40% 20% 0% -20% -40% For the companies under our coverage, we still expect DMAS to increase its prices in-line with the inflation rate. This is because the ASP of DMAS are still far below the average industrial land prices in the area. For BEST and SSIA, however, we expect them to keep their prices flat. With the expectation of weak demand, we believe BEST will keep its ASP relatively flat next year in a bid to maintain sales, in-line with its ASP guidance of IDR2.5-3mn/sqm for At the same time, we also believe that SSIA will be reluctant to raise prices given the limited and irregular-shaped land bank owned. Exhibit 36. Average selling price of companies under our coverage in USD/sqm H17 DMAS BEST SSIA Average price of industrial estate in Bekasi Source: Colliers, Companies 22

23 Company wise, DMAS will be the big gainer Although we expect lower industrial land sales to be recognized in 2018 on an aggregate basis, we still believe that DMAS will record higher land sales than its peers (60ha vs. 30ha for BEST and 10ha for SSIA ), supported by: (i) the highest level of inquiries, (ii) less scattered ready-for-sale land bank, (iii) the competitive prices offered. Inquiries for 100ha are sufficient to support marketing sales next year DMAS currently has 100ha of industrial land inquiries, considerably higher than its peers (62ha for BEST and 15ha for SSIA). Should we reduce the inquiries by the potential land sales in 2H17 (as seen in Exhibit 37), DMAS still has the highest level of remaining inquiries. We expect the remaining inquiries to support DMAS marketing sales in Exhibit 37. Remaining inquiries and land sales target in 2018 DMAS BEST SSIA *Danareksa Estimates, derived from our industrial land sales target for 2017 deducted by land sales in 1H17 Source: Companies, Danareksa Sekuritas Less scattered ready-for-sale land bank Although DMAS only has 551ha of gross industrial land bank remaining as of June 2017 (BEST has 957ha), DMAS has more available-for-sale land. Indeed, DMAS claims to have 280ha of available-for-sale land or much more than BEST (158ha) and SSIA (145ha). We believe this gives DMAS a competitive advantage since industrial estate buyers typically prefer ready-to-use land plots. Exhibit 38. Gross land bank (1H17) in Ha 1,200 1, Source: Company DMAS BEST SSIA Industrial Commercial Residential 23

24 In addition, DMAS also claims that its available-for-sale land bank is less scattered. From 280ha of developed and unsold land bank, DMAS claims that it has around 5 land plots of 20ha, or more than BEST with only 2 land plots of 20ha and SSIA with 2 land plots of 20ha. As such, we believe that DMAS enjoys a competitive advantage since buyers will have greater flexibility to acquire land bank tailored to their needs. Competitive prices offered In terms of pricing, we note that the prices offered by DMAS are considerably lower than those of its peers. We believe this gives DMAS a competitive advantage that will help it boost industrial land sales considering price can be one of the consideration for investors to choose the industrial land. DMAS ASP in 1H17 only reached IDR1.8mn/sqm, or a 33.1% discount to the average prices of BEST (seeexhibit 39). Although we expect DMAS to slightly increase its prices next year based on the inflation rate, we still expect the price gap with BEST to be more than 30%. Exhibit 39. DMAS offers competitive prices in IDR/sqm 2,000,000 1,600,000 1,200, , , % 40.0% 20.0% 0.0% -20.0% -40.0% % H17 DMAS' ASP Premium/(discount) to BEST (RHS) Premium/(discount) to SSIA (RHS) Source: Company 24

25 Mitigating the weak demand While we expect industrial land demand to be weak in 2018, we believe that the financial performance of industrial estate players will be supported by: (i) large industrial land sales backlog, (ii) more diversified revenues drivers, and (iii) less leverage. Supported by 26ha of sales backlog from 2017 s sales and a manageable gearing ratio of 45.2% in 1H17, we expect the financial performance of BEST to outperform its peers with 12.1%yoy revenues growth and 11.7%yoy net profits growth in Despite weak industrial land sales With lower industrial land sales and limited price appreciation, we expect the aggregate marketing sales of industrial estate players to only reach IDR2.1tn in 2018, or down by 9.0%yoy. Exhibit 40. Aggregate marketing sales in IDRbn 3,000 2,754 2,464 2,515 2,317 2,434 2,500 2,109 1,922 2,000 1,500 1, F 2018F 2019F DMAS BEST SSIA Growth (RHS) 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% Source: Companies, Danareksa Sekuritas we still expect aggregate revenue to grow by 4.4%yoy in 2018 Despite the weak industrial land sales in 2018, we still expect the aggregate revenue in 2018 to grow by 4.4%yoy supported by (i) substantial land sales backlog to be recognized in 2018, (ii) increasing revenue contribution from the non-industrial sales. Exhibit 41. Aggregate revenues to grow by 4.4%yoy in 2018 in IDRbn 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000-5,880 7,742 6,842 Source: Companies, Danareksa Sekuritas 7,841 6,215 5,751 6,058 6, F 2018F 2019F DMAS BEST SSIA Growth (RHS) 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% #1. Industrial land sales backlog to support the industrial land sales revenue Nonetheless, we expect the decline in the industrial land revenue in 2018 to be less than the decline in marketing sales (-4.0%yoy vs. -9.0%yoy) given the 25

26 substantial marketing sales backlog from sales in 2H17 (on average, the recognition of revenues from marketing sales takes about six to twelve months). In the sector, BEST has the largest land sales backlog in 2017 of 22.8ha that will be recognized in In 2018, we expect BEST to record 11.3%yoy higher industrial land sales revenues. This is better than its peers that are expected to record 4.5%yoy lower aggregate industrial land revenues in Exhibit 42. Land sales backlog in Ha DMAS BEST SSIA Backlog 2016 Backlog 2017 Source : Company, Danareksa Estimates Exhibit 43.. to support industrial land revenues in IDRbn 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, ,328 4,024 1,986 Source : Companies, Danareksa Estimates 3,327 2,698 2,257 2,156 2, F 2018F 2019F DMAS BEST SSIA Growth (RHS) 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% #2. Increasing revenue contribution from the non-industrial sales With the volatile nature of the industrial estates business, we believe that industrial players with more diversified revenues will be cushioned to some extent from the weak demand for industrial land. From the companies under our coverage, SSIA has the most diversified revenues, generated by sales from construction, hospitality, and industrial estates. While we expect SSIA to book sluggish industrial land sales revenues in 2018 (-30.3%yoy) following lethargic land sales performance in 2017 and 2018, a better expected occupancy rate for its hospitality business and a higher construction order book will support its revenues. As such, we expect SSIA s revenues to grow by 5.1%yoy in For DMAS, we expect the revenues recognition from its residential and commercial products in 2018 to provide a cushion against weak industrial land revenues (-10.6%yoy). Thus, we expect DMAS to record only a 2.4%yoy decline in aggregate 2018 revenues. Exhibit 44. Revenues contribution in 2018 Exhibit 45. Revenues growth for % 80% 60% 40% 20% 0% 16.3% 2.5% 81.2% 0.0% 12.3% 87.7% 69.3% 17.0% 3.5% DMAS BEST SSIA Industrial land Recurring Others 100% 80% 60% 40% 20% 0% -20% DMAS BEST SSIA -40% Industrial land Recurring Others Aggregate revenue Source : Danareksa Estimates Source : Danareksa Estimates 26

27 Managing debt is key With the expectation of weak industrial land sales in 2018, ceteris paribus, we expect companies with lower gearing to outperform. Among the companies under our coverage, DMAS has zero debt. Although we expect SSIA s gearing ratio to trend down from 57.8% in 1H17 to 42.0% in 2018, thanks to cashflow generated by the sale of Cipali toll road, we still expect SSIA s financial performance in 2017 to be negatively impacted by sizable interest expenses. While its construction business should support SSIA s revenues, given construction s low margins, we believe that additional revenues from the construction business will not be sufficient to cover the substantial interest expenses. Exhibit 46. Gearing ratio comparison 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source : Companies H17 DMAS BEST SSIA Exhibit 47. Net gearing ratio comparison 50% 40% 30% 20% 10% 0% -10% H17-20% -30% -40% DMAS BEST SSIA Source : Companies BEST will outperform its peers in terms of financial performance With potentially weak industrial land sales in 2018, and hence lower industrial land sales revenues recognized, we expect the aggregate net profits in 2018 to decline by 48.6%yoy. Note, however, that the 2017 aggregate net profits were lifted by the one-off gains booked by SSIA from its Cipali toll road transaction. If this one-off gain is stripped out, we expect aggregate net profits to increase by 20.0%yoy. Supported by a substantial land sales backlog of 22.8ha and a manageable gearing ratio of 45.2% in 1H17, we expect the financial performance of BEST to outperform its peers with 12.1%yoy revenues growth and 12.3%yoy net profits growth in Exhibit 48. Aggregate net profits to fall by 48.6%yoy in IDRbn 2,500 2,378 2,284 2,000 1,772 1,882 1,538 1,500 1,156 1,162 1, (500) DMAS BEST SSIA Growth (RHS) 120% 100% 80% 60% 40% 20% 0% -20% -40% -60% Source: Companies, Danareksa Sekuritas 27

28 Our top pick: DMAS Our top pick in the industrial estate sector is DMAS. In 2018, we expect DMAS to record higher industrial land sales than its peers (60ha vs. 30ha for BEST and 10ha for SSIA) given: (i) the highest level of inquiries, (ii) more available-for-sale land bank, (iii) less scattered land bank, (iv) the competitive prices offered. With its leverage free business, we believe that DMAS will be a big gainer. Land sales drive the historical discount to NAV Although BEST will outperform its peers in 2018 in terms of financial performance, our top pick in the industrial estates sector is DMAS. Based on our historical analysis, we note that industrial land sales volume will drive movements on the discount to NAV. With higher land sales, DMAS discount to NAV will decline. Hence, given the expectation of solid industrial land sales, we believe that DMAS share price will outperform BEST s share price. Exhibit 49. Sectoral discount to NAV and industrial land sales for companies under our coverage Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 60% 65% 70% 75% Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 in Ha Discount to NAV Industrial land sales (RHS) Source: Bloomberg, Companies, Danareksa Sekuritas 28

29 Key Risks Weaker-than-expected industrial land sales For 2018, we expect aggregate industrial land sales for companies under our coverage to reach 102ha, or lower than our estimated land sales for 2017 of 115ha. Weaker-than-expected industrial land sales would negatively impact the marketing sales and financial performance of the companies under our coverage. Exhibit 50. Sensitivity analysis of the 5% change in our industrial land sales target on 2018 s net profits DMAS -2.8% 2.8% BEST -2.6% 2.6% SSIA -2.1% 2.1% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% Source: Companies, Danareksa Sekuritas Regulatory risk Changes to regulations and government intervention may result in an unfavorable investment climate which would deter direct investment and industrial land sales. Slow execution of infrastructure projects We expect the construction of multiple infrastructure projects in Jakarta and West Java to positively impact industrial estate companies in Bekasi, particularly BEST and SSIA as the direct beneficiaries of these projects. Slow execution of these projects may affect the potential demand for these estates in the future. Competitors to monetize land bank faster than expected We note that three industrial estate players in Karawang have undertaken expansion with expected additional supply to reach 2,400ha. Nonetheless, we do not expect these players to pose a major threat to the companies under our coverage in the near-term given that much of the land has yet to be developed. Nonetheless, should these players develop their industrial estates faster than expected, the companies under our coverage would potentially face more competition. 29

30 Equity Research Initiation coverage Tuesday,03 October 2017 BUY Initiation Last price (IDR) 200 Target Price (IDR) 240 Upside/Downside +20.0% Previous Target Price (IDR) Stock Statistics Sector Bloomberg Ticker N/A Industrial Estate DMAS IJ No of Shrs (mn) 48,198 Mkt. Cap (IDR bn/usdmn) 9,640/714 Avg. daily T/O (IDR bn/usdmn) 6.2/0.5 Major shareholders Sumber Arusmulia 57.3% Sojitz Corporation 25.0% Estimated free float (%) 17.7 EPS Consensus(IDR) 2017F 2018F 2019F Danareksa Consensus Danareksa/Cons 1.5 (13.9) (16.5) DMAS relative to JCI Index Puradelta Lestari(DMAS IJ) Value emerges We initiate coverage on DMAS with a BUY call. While we expect the aggregate industrial land sales in 2018 to be lower than in 2017, we still expect DMAS to record higher land sales than its peers, given: (i) the large number of inquiries, (ii) its less scattered and largest ready-for-sale industrial land bank, (iii) the competitive prices offered. Supported by its leverage free business, we believe that DMAS will be less negatively impacted by the weak overall industrial land sales. The large number of inquiries remaining will sustain land sales in With a lack of catalysts to boost industrial land sales next year, we believe that sales in 2018 will be supported by existing inquires. DMAS currently has the largest amount of inquiries (100ha vs. 61ha for BEST and 15ha for SSIA). While we expect DMAS to record 37ha of land sales in 2H17, we believe the remaining inquiries will sustain DMAS land sales in We expect DMAS to record land sales of 60ha next year, outperforming BEST (35ha) and SSIA (7ha). More land bank and more attractive prices. DMAS has the largest ready available land bank which is also less scattered. As of June 2017, DMAS had 280ha of developed land bank, or significantly more than its peers (BEST with 158ha and SSIA with 145ha). From this developed land bank, DMAS claims that it has around 5 land plots of 20ha, or more than BEST with only 2 land plots of 20ha and SSIA with 2 land plots of 20ha. As such, we believe that DMAS enjoys a competitive advantage since buyers will have greater flexibility to acquire land bank tailored to their needs. In terms of pricing, we note that the prices offered by DMAS are considerably lower than those of its peers (around a 33.1% discount to BEST s average prices). This should also help to boost its industrial land sales. Source : Bloomberg Debt free balance sheet. DMAS does not have any outstanding debt and we expect DMAS to remain debt free over the next two years. Although we forecast capex of IDR900bn/pa, we expect the cash inflows from the current sales backlog of 41ha in 1H17 and the potential future sales to be sufficient to cover the capex financing. In addition, the company is also likely to reduce its currently generous dividend payout ratio of 95.5% in Initiate coverage with a BUY call. We initiate coverage on DMAS with a BUY call and target price of IDR240. Our TP offers 20.0% upside from the current share price (NAV based valuation with a 65% discount to NAV). The recent correction in the share price has resulted in an attractive entry point for investors to pick up the stock. DMAS currently trades at an undemanding discount to NAV of 70.4%, at its historical +1SD discount. Key Financials Antonia Febe Hartono, CFA Year to 31 Dec 2015A 2016A 2017F 2018F 2019F (62-21) ext.3504 Revenue, (IDRbn) 2,286 1,594 1,395 1,362 1,470 antonia.hartono@danareksa.com EBITDA, (IDRbn) 1, Natalia Sutanto EBITDA Growth, (%) 29.4 (38.6) (7.4) (0.8) 8.8 Net profit (IDRbn) 1, (62-21) ext.3508 EPS (IDR) natalia.sutanto@danareksa.com EPS growth (%) 27.7 (44.6) BVPS, (IDR) DPS, (IDR) (32.7) (11.0) (15.0) (6.2) (6.3) PER (x) PBV (x) Dividend yield (%) (16.5) (5.5) (7.5) (3.1) (3.1) EV/EBITDA (x) Source : DMAS, Danareksa Estimates 1

31 Exhibit 1. REVENUES AND GROWTH Exhibit 2. NET PROFITS AND GROWTH Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates Exhibit 3. MARGINS Exhibit 4. GEARING LEVEL Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates Exhibit 5. Historical discount to NAV Exhibit 6. Forward P/E 55% 60% 65% -2SD -1SD Mean (x ) SD 1sd Mean 70% 75% +1SD +2SD sd -2sd 80% Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Source: Company, Danareksa Sekuritas estimates 6 May 15 Sep 15 Jan 16 May 16 Sep 16 Jan 17 May 17 Sep 17 Source: Company, Danareksa Sekuritas estimates See important disclosur

32 Exhibit 7. NAV calculation Location Stakes Area (ha) Plot ratio Price per sqm (IDR mn/sqm) Method RNAV (Rp bn) Land bank Industrial Cikarang, West Java 100.0% % 1.2 NAV 4,524 Residential Cikarang, West Java 100.0% % 3.7 NAV 11,055 Commercial Cikarang, West Java 100.0% % 5.0 NAV 16,015 Total asset (IDR bn) 31,594 Net debts (IDR bn) (1,155) Advance from customer (IDR bn) 139 Net asset value (IDR bn) 32,609 Number of shares outstanding (bn shares) 48.2 Discount to NAV 65% Target price 240 Source: Company, Danareksa Sekuritas estimate See important disclosur

33 Exhibit 8. Income Statement Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Revenue 2,286 1,594 1,395 1,362 1,470 COGS (837) (698) (549) (520) (560) Gross profit 1, EBITDA 1, Oper. profit 1, Interest income Interest expense (1) Forex Gain/(Loss) 135 (27) (6) (2) 0 Income From Assoc. Co s Other Income (Expenses) Pre-tax profit 1, Income tax (127) (84) (37) (37) (39) Minority interest Net profit 1, Core Net Profit 1, Exhibit 9. Balance Sheet Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Cash & cash equivalent 1,175 1, ,155 1,476 Receivables Inventory 2,428 2,380 2,478 2,586 2,680 Other Curr. Asset Fixed assets - Net Other non-curr.asset 3,329 3,785 3,947 4,127 4,282 Total asset 8,007 7,804 7,794 8,271 8,850 ST Debt Payables Other Curr. Liabilities Long Term Debt Other LT. Liabilities Total Liabilities Shareholder'sFunds 7,158 7,385 7,433 7,913 8,460 Minority interests Total Equity & Liabilities 8,007 7,804 7,794 8,271 8,850 4

34 Exhibit 10.Cash Flow Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Net income 1, Depreciation and Amort Change in Working Capital (808) 392 (133) (114) (73) OtherOper. Cash Flow 470 (452) (163) (187) (166) Operating Cash Flow 1, Capex (63) (143) (27) (27) (27) Others Inv. Cash Flow Investing Cash Flow (43) (133) (14) (7) (3) Net change in debt New Capital Dividend payment (1,578) (530) (723) (299) (302) Other Fin. Cash Flow (595) Financing Cash Flow (1,198) (529) (723) (299) (302) Net Change in Cash (206) 44 (251) Cash - begin of the year 1,381 1,175 1, ,155 Cash - end of the year 1,175 1, ,155 1,476 Exhibit 11. Key Ratios Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Growth (%) Sales 48.6 (30.3) (12.5) (2.4) 7.9 EBITDA 29.4 (38.6) (7.4) (0.8) 8.8 Operating profit 29.4 (39.2) (7.8) (1.1) 8.6 Net profit 41.9 (44.6) Profitability (%) Gross margin EBITDA margin Operating margin Net margin ROAA ROAE Leverage Net Gearing (x) (0.2) (0.2) (0.1) (0.1) (0.2) Interest Coverage (x) Source : DMAS, Danareksa Estimates 5

35 Equity Research Initiate coverage Tuesday,02 October 2017 BUY Initiation Last price (IDR) 274 Target Price (IDR) 340 Upside/Downside +24.1% Previous Target Price (IDR) Stock Statistics Sector Bloomberg Ticker N/A Industrial Estate BEST IJ No of Shrs (mn) 9,647 Mkt. Cap (IDR bn/usdmn) 2,624/194 Avg. daily T/O (IDR bn/usdmn) 6.5/0.5 Major shareholders Argo Manunggal Land Development 48.1% Daiwa House Industry Corporate 10.0% Estimated free float (%) 41.8 EPS Consensus(IDR) 2017F 2018F 2019F Danareksa Consensus Danareksa/Cons 6.4 (5.4) (20.3) BEST relative to JCI Index Bekasi Fajar Industrial Estate(BEST IJ) Showing the best financial performance We initiate coverage on BEST with a BUY call. With the current valuation standing at a 77.1% discount, at its historical +1SD discount of 77.8%, we believe that the shares look enticing given the expected improvement in performance going forward. We foresee: (i) flat industrial land sales in 2018 supported by a high level of inquiries (61ha), (ii) sound financial performance in 2018 supported by its substantial sales backlog (the backlog of 22.8ha will be recognized in 2018) and a higher contribution from recurring income (up from 11.3% in 1H17 to 12.3% in 2018). Flat industrial land sales in We expect BEST to record 35ha of industrial land sales in 2018, flat on a yoy basis. With a lack of catalysts to boost demand for industrial land, we believe that industrial land sales in 2018 will be supported by existing inquiries. BEST has received inquiries for 61ha from 11 potential investors. In 2H17, we expect BEST to record industrial land sales of 13ha. Hence, the remaining inquiries for 48ha will support land sales in 2018, we believe. Expect a higher contribution from recurring revenues. We expect the contribution from recurring revenues to increase from 11.3% in 1H17 to 12.3% in 2018 due to: (i) higher occupancy rates at Enso Hotel and the Standard Factory Building, (iii) the commencement of operations at the office tower in MM2100. With 192 rooms, the existing occupancy rate for Enso Hotel has only reached 10%. Upon the grand opening in September 2017, we expect the occupancy rate to gradually improve to 20%. Meanwhile, for the Standard Factory Building, we expect the occupancy rate to reach 50% supported by inquiries for 7,000sqm. Expect solid financial performance in We expect BEST to outperform its peers with 12.1%yoy revenues growth in 2018 supported by 22.8ha of sales backlog from 2017 s marketing sales and 17.8%yoy growth in its recurring revenues. With stable profitability margins, we expect the net profits to grow 12.3%yoy in Source : Bloomberg Antonia Febe Hartono, CFA (62-21) ext.3504 antonia.hartono@danareksa.com Natalia Sutanto (62-21) ext.3508 natalia.sutanto@danareksa.com Initiate coverage with a BUY call. We initiate coverage on BEST with a BUY call and a target price of IDR340 (NAV based valuation with a 72% discount to NAV). Our TP offers 24.1% upside from the current share price. With the current valuation standing at a 77.1% discount, near to its historical +1SD discount of 77.8%, we believe that the shares look enticing given the expected improvement in performance going forward. Key Financials Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Revenue, (IDRbn) ,068 1,086 EBITDA, (IDRbn) EBITDA Growth, (%) (15.1) (0.8) Net profit (IDRbn) EPS (IDR) EPS growth (%) (45.9) (3.5) BVPS, (IDR) DPS, (IDR) (2.3) (1.2) (2.0) (2.4) (2.7) PER (x) PBV (x) Dividend yield (%) (0.9) (0.5) (0.7) (0.9) (1.0) EV/EBITDA (x) Source : BEST, Danareksa Estimates 1

36 Exhibit 1. REVENUES AND GROWTH Exhibit 2. NET PROFITS AND GROWTH Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates Exhibit 3. MARGINS Exhibit 4. GEARING LEVEL Source: Company, Danareksa Sekuritas estimates Exhibit 5. Historical discount to NAV 60% 65% 70% 75% 80% Source: Company, Danareksa Sekuritas estimates -2SD -1SD Mean +1SD +2SD 85% Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Source: Company, Danareksa Sekuritas estimates Exhibit 6. Forward P/E (x ) sd 20 1sd 15 mean sd 0-2sd Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17-5 Source: Company, Danareksa Sekuritas estimates See important disclosure at the back of this repo 2

37 Exhibit 7. NAV calculation Location Stakes Area (ha) Plot ratio Price per sqm (Rp mn/sqm) Method RNAV (Rp bn) Land bank Industrial land West Java 100.0% % 1.8 NAV 11,911 Commercial land West Java 100.0% % 2.1 NAV 1,125 Total asset (Rp bn) 13,036 Net debts (Rp bn) 1,454 Advance from customer (Rp bn) 21 Net asset value (Rp bn) 11,561 Number of shares outstanding (bn shares) 9.6 Discount to NAV 72% Target price 340 Source: Company, Danareksa Sekuritas estimate To reduce its stake in the Modern Logistic Centre. BEST seeks to reduce its stake in the Modern Logistic Centre, a JV project with Daiwa House, to Daiwa. Nonetheless, BEST has not yet disclosed any details regarding this divestment. BEST expects to close the deal this year. Based on our discussions with BEST, we expect that BEST can book a one-off gain from this transaction. With the limited information disclosed, we have not included this transaction into our forecast. Currently holding a 51% stake in Modern Logistic Centre which has a 100% occupancy rate, BEST obtains income from associates amounting to IDR8.5bn/pa. This is only 2.1% of our targeted 2017 net profits. See important disclosure at the back of this repo 3

38 Exhibit 8. Income Statement Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Revenue ,068 1,086 COGS (201) (211) (284) (319) (327) Gross profit EBITDA Oper. profit Interest income Interest expense (90) (118) (120) (128) (134) Forex Gain/(Loss) Income From Assoc. Co s 5 (3) Other Income (Expenses) (65) (30) (1) (4) (7) Pre-tax profit Income tax (33) (33) (27) (30) (31) Minority interest Net profit Core Net Profit Exhibit 9. Balance Sheet Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Cash & cash equivalent Receivables Inventory Other Curr. Asset Fixed assets - Net Other non-curr.asset 3,013 3,184 3,541 3,878 4,214 Total asset 4,631 5,205 5,481 6,025 6,518 ST Debt ,272 Payables Other Curr. Liabilities Long Term Debt 1,187 1,235 1,518 1, Other LT. Liabilities Total Liabilities 1,589 1,815 1,696 1,800 1,872 Shareholder'sFunds 3,040 3,388 3,782 4,222 4,643 Minority interests Total Equity & Liabilities 4,631 5,205 5,481 6,025 6,518 4

39 Exhibit 10.Cash Flow Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Net income Depreciation and Amort Change in Working Capital (371) (363) (62) (153) (93) OtherOper. Cash Flow (525) 49 (218) (189) (183) Operating Cash Flow (675) Capex (58) (73) (81) (81) (81) Others Inv. Cash Flow (55) (57) (20) (20) (20) Investing Cash Flow (113) (130) (101) (101) (101) Net change in debt (125) New Capital Dividend payment (22) (12) (19) (23) (26) Other Fin. Cash Flow (90) (118) (120) (128) (134) Financing Cash Flow (263) (56) (91) Net Change in Cash (217) (17) 0 Cash - begin of the year Cash - end of the year Exhibit 11. Key Ratios Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Growth (%) Sales (18.2) EBITDA (15.1) (0.8) Operating profit (16.1) (1.1) Net profit (45.9) (3.5) Profitability (%) Gross margin EBITDA margin Operating margin Net margin ROAA ROAE Leverage Net Gearing (x) Interest Coverage (x) Source : BEST, Danareksa Estimates See important disclosure at the back of this repo 5

40 Equity Research Initiation coverage Tuesday,03 October 2017 HOLD Initiation Last price (IDR) 585 Target Price (IDR) 640 Upside/Downside +10.3% Previous Target Price (IDR) Stock Statistics Sector Bloomberg Ticker N/A Industrial Estate SSIA IJ No of Shrs (mn) 4,705 Mkt. Cap (IDR bn/usdmn) 2,753/204 Avg. daily T/O (IDR bn/usdmn) 8.2/0.6 Major shareholders Arman Investments Utama 9.8% Persada Capital Investama 7.9% Estimated free float (%) 73.5 EPS Consensus(IDR) 2017F 2018F 2019F Danareksa (10.7) 3.4 Consensus Danareksa/Cons 36.3 (120.9) (95.9) SSIA relative to JCI Index Surya Semesta Internusa(SSIA IJ) A long way to go We initiate coverage on SSIA with a HOLD call. For 2018, we expect SSIA to record net losses of IDR50.5bn as the construction and hospitality business earnings will not be sufficient to cover the interest and holding expenses. Although we expect the construction of the Patimban port and the Subang- Patimban toll road to benefit SSIA, we only expect SSIA to be able to monetize these projects in 2019, once its Subang industrial estate has been partially developed and is ready for sale. For 2018, we are not optimistic on Suryacipta s land sales considering the limited land bank remaining and irregular shaped plots. Although SSIA will benefit from multiple infrastructure projects, monetization will not be seen until While SSIA will be the main beneficiary from the development of the Kertajati and Patimban ports given the close proximity of these projects to SSIA s Subang industrial estate, the company may only be able to fully monetize its competitive advantage in Limited industrial land sales in While waiting for progress on its Subang industrial estate, SSIA needs to rely on its Suryacipta industrial estate. However, the industrial land bank remaining in Suryacipta only stands at 145ha and there are only two 20ha irregular shaped land plots. Given the limited land bank remaining, we are not optimistic that many industrial land sales can be recognized in In our estimate, SSIA will record industrial land sales of only around 7ha in 2018, supported by existing inquiries that have reached 15ha. Expecting net losses in With the limited industrial land sales in 2018, we expect SSIA to record net losses of IDR50.5bn. We don t think that the higher revenues from construction (+7.6%yoy) and hospitality (+2.9%yoy) will be sufficient to cover the interest expenses and holding expenses considering the low margin nature of the businesses (the EBITDA margin of the construction and hospitality business is 8-10% and 18-21%, respectively, or far lower than 50-60% for the property business). Source : Bloomberg Initiate coverage on SSIA with a HOLD call. We initiate coverage on SSIA with a HOLD call and target price of IDR640. Our TP offers 10.3% upside from the current share price. To arrive at our target price, we use the SOTP based valuation with WACC of 12.3%, terminal growth of 4.0%, and 68% discount to NAV. While we expect SSIA to record net losses next year, we believe all the negative news has been fully priced in. SSIA currently trades at a 71.1% discount to NAV, near to its historical +1SD discount of 67.6%. Key Financials Antonia Febe Hartono, CFA Year to 31 Dec 2015A 2016A 2017F 2018F 2019F (62-21) ext.3504 Revenue, (IDRbn) 4,868 3,797 3,400 3,573 3,918 antonia.hartono@danareksa.com EBITDA, (IDRbn) Natalia Sutanto EBITDA Growth, (%) 5.9 (16.0) (37.3) (0.8) 29.2 Net profit (IDRbn) ,134 (50) 16 (62-21) ext.3508 EPS (IDR) (10.7) 3.4 natalia.sutanto@danareksa.com EPS growth (%) (27.5) (79.3) 1,716.1 (104.5) (131.9) BVPS, (IDR) DPS, (IDR) PER (x) n/m PBV (x) Dividend yield (%) EV/EBITDA (x) Source : SSIA, Danareksa Estimates 1

41 Exhibit 1. REVENUES AND GROWTH Exhibit 2. NET PROFITS AND GROWTH Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates Exhibit 3. MARGINS Exhibit 4. GEARING LEVEL Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates Exhibit 5. Historical discount to NAV Exhibit 6. Forward P/E 50% 55% -1SD (x ) 20 60% 65% 70% Mean +1SD mean sd 1sd 75% 80% Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Source: Bloomberg, Danareksa Sekuritas estimates +2SD 0-1sd Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr sd Source: Bloomberg, Danareksa Sekuritas estimates 2

42 Exhibit 7. NAV calculation Location Source: Bloomberg, Danareksa Sekuritas estimates Stakes Area (ha) Plot ratio Price per sqm (Rp mn/sqm) Method RNAV (Rp bn) Land bank Karawang West Java 100.0% % 1.1 NAV 1,764 Kuningan South Jakarta 100.0% % 88.7 NAV 1,428 Subang South Jakarta 100.0% 1, Cost 1,127 PE added with net Construction service 62.1% 11.5 debt of NRCA 837 Hotel 100.0% DCF 4,910 Total asset (Rp bn) 10,066 Net debts (Rp bn) 350 Advance from customer (Rp bn) 288 Net asset value (Rp bn) 9,428 Number of shares outstanding (bn shares) 4.7 Discount to NAV (% ) 68% Target price 640 Expect lower gearing in 2018 We expect SSIA s gearing ratio to decline from 52.0% in 1H17 to 42.0% in With IDR1.5tn of cash remaining in 1H17 and additional cash inflow from the sale of its stake in Cipali in January 2018 for IDR2.2tn, we don t believe that SSIA needs to refinance its IDR550bn bonds that will mature in October Consequently, we expect SSIA s interest expenses to decline from IDR240bn in 2017 to IDR187bn in : expected to be a stellar year for NRCA We expect NRCA to record new contracts of IDR3.5tn, up by 15%yoy. While we expect demand for property to remain muted next year translating into limited additional new contracts for high rise buildings - we expect NRCA to obtain additional new contracts of IDR500bn from land development for the Subang industrial estate. Supported by these new contracts, we expect NRCA s revenues (before elimination) to grow by 18.7%yoy and its net profits to grow by 2.8%yoy. Note, however, that NRCA recorded one-off gains of IDR82bn (after deducting tax expenses) in 2017 from the sale of its stake in Cipali toll road. If this one-off gain is stripped out, we expect NRCA s net profits to increase by 90.1%yoy in Impact of the Subang-Patimban toll road To provide direct access to Patimban port, SSIA and its partner Jasa Marga (JSMR) proposed construction of the 38km Patimban toll road that will connect Subang industrial estate to Patimban port. As the project initiator, the SSIA consortium has the right to match any offer. SSIA s management has indicated that it only seeks a minority stake in the consortium. Ownership will be through its subsidiary, Nusa Raya Cipta (NRCA). Should this toll road proposal be approved by the Indonesian Toll Road Authority (BPJT), we expect SSIA to be positively impacted: 1. Additional marketing sales from land sales As SSIA estimates that around 50% of the land needed for the toll road is located in the Subang Industrial Estate, we expect construction of this toll road to result in additional marketing sales of IDR bn from the sale of land bank to the consortium. 2. Additional new contract from the Subang-Patimban toll road 3

43 From estimated investment value of IDR5tn for the Subang-Patimban toll road, we expect the construction value for this toll road to reach IDR3.5tn. Should the SSIA consortium win the tender, we believe NRCA will obtain additional new contracts from the construction of this toll road. Nonetheless, we only expect NRCA to obtain IDR1tn of additional new contracts from this toll road. 3. Other income for NRCA: Additional management fees Besides new contracts, we also expect NRCA, as the main contractor, to obtain additional management fees of 1-2% from the construction value accrued during the construction period. We expect this to result in additional other income of IDR35bn to be accrued in , or accounting for an estimated 22.5% of NRCA s net profits in In our forecast, we have not incorporated this scenario considering the uncertainty in the commencement of the project. Nonetheless, we have done sensitivity analysis on the impact of the construction of the Subang-Patimban toll road on our 2018 net profit target. Exhibit 8. Sensitivity analysis of the impact of the commencement of the Subang-Patimban toll road Without Subang- Patimban With Subang- Patimban Land sales to consortium Subang industrial land sales 2018 Area (Ha) ASP (USD/sqm) - 23 New contract Growth for % 25% Other income FY FY Net profit 2018 (in IDRbn) SSIA (50) 37 NRCA NAV 2018 (in IDR/share) 2,004 2,013 Source: Danareksa Sekuritas estimates 4

44 Exhibit 9. Income Statement Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Revenue 4,868 3,797 3,400 3,573 3,918 COGS (3,689) (2,728) (2,542) (2,706) (2,929) Gross profit 1,179 1, EBITDA Oper. profit Interest income Interest expense (140) (181) (240) (187) (173) Forex Gain/(Loss) Income From Assoc. Co s 41 (64) (39) Other Income (Expenses) , Pre-tax profit , Income tax (166) (96) (495) (95) (101) Minority interest (81) (38) (46) (28) (31) Net profit ,134 (50) 16 Core Net Profit ,134 (50) 16 Exhibit 10. Balance Sheet Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Cash & cash equivalent 924 1, , Receivables Inventory Other Curr. Asset 1,079 1,185 3,561 1,497 1,623 Fixed assets - Net 1,130 1,182 1,248 1,239 1,363 Other non-curr.asset 2,435 2,633 2,248 2,651 3,019 Total asset 6,464 7,195 8,415 7,595 7,424 ST Debt Payables Other Curr. Liabilities , Long Term Debt 1,047 1,705 1, ,081 Other LT. Liabilities Total Liabilities 3,126 3,843 3,977 3,435 3,248 Shareholder'sFunds 2,908 2,912 3,996 3,719 3,735 Minority interests Total Equity & Liabilities 6,464 7,195 8,415 7,595 7,424 5

45 Exhibit 11.Cash Flow Year to 31 Dec (IDRbn) 2015A 2016A 2017F 2018F 2019F Net income ,134 (50) 16 Depreciation and Amort Change in Working Capital (200) (267) (1,826) 1,678 (36) OtherOper. Cash Flow Operating Cash Flow (133) 1, Capex (203) (170) (150) (150) (300) Others Inv. Cash Flow (412) (200) 297 (425) (386) Investing Cash Flow (615) (369) 147 (575) (686) Net change in debt 98 1,079 (637) (71) (321) New Capital Dividend payment Other Fin. Cash Flow (196) (242) (342) (635) (166) Financing Cash Flow (14) 882 (929) (479) (487) Net Change in Cash (249) 596 (915) 793 (824) Cash - begin of the year 1, , ,398 Cash - end of the year 924 1, , Exhibit 12. Key Ratios Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Growth (%) Sales 9.0 (22.0) (10.5) EBITDA 5.9 (16.0) (37.3) (0.8) 29.2 Operating profit 3.8 (22.4) (53.3) (5.5) 49.6 Net profit (27.5) (79.3) 1,716.1 (104.5) (131.9) Profitability (%) Gross margin EBITDA margin Operating margin Net margin (1.4) 0.4 ROAA (0.6) 0.2 ROAE (1.3) 0.4 Leverage Net Gearing (x) Interest Coverage (x) Source : SSIA, Danareksa Estimates 6