RHB Indonesia - Modernland Realty - Site visit notes (Modernland Realty, Wijaya Karya Beton, Astra International) Unknown Rabu, 21 Juni 2017


Good morning,

Modernland Realty – Site visit notes

We recently visited Jakarta Garden City (JGC), a 370 ha residential & commercial mega cluster of Modernland located in East Jakarta, to get a better understanding about the products.

¨ JGC is the main focus of the company’s marketing sales with ~140 ha of remaining land bank in the area per 31 March 2017. JGC is located in East Jakarta and 15 minutes from Kelapa Gading and also accessible via the newly opened Tanjung Priok – Cawang toll road segment that connects to Jakarta inner ring toll road. Other points of entry includes the Bekasi raya road. The residential development targets middle income segments with average price range of IDR1.5bn – 2.5bn per unit and land price of IDR12.5m/sqm. Management mentioned that the marketing strategy is to continue selling the products of the existing clusters with no launch events except for a new cluster opening. During our visit, we view the JV area with Astra is still under construction with some undeveloped paddy fields, while Mississippi clusters is still under construction with a few houses already built and Thames clusters has been handed over to buyers in April 2017. Clusters with the most residents are the Garden City cluster and the Palm Spring cluster (both were early clusters developed by Keppel Land). AEON Mall soft opening is scheduled in September 2017 with Grand opening in December 2017, while the 3.7ha land area for IKEA is being prepped for ground breaking with operation slated in 2Q18. Other facilities in JGC includes, Global Mandiri school, Food Garden, Modern market, Mayapada hospital (coming soon), and Club House. The company will also launch new commercial products in JGC on July and October targeting IDR1.5trn in marketing sales.


¨ Modernland also has 2 industrial land area at Cikande, West Java and Bekasi, East Java. Modern Cikande Industrial park is an on-going development with 355 ha of land bank and 3,175 ha of licensed area. This industrial area is about 55 km from Jakarta accessible through Jakarta-Merak Toll road and 55 km from Bojonegara seaport. This year’s industrial land sales is targeted to reach 65 ha with 16.7 ha achieved in 1Q17. Current industrial land inquiries for Cikande has reached 98.4 ha and management is trying to close 40 ha among those inquiries from an Austrian fiber company the latest by 3Q17. Other large inquiry include 33 ha from a Chinese copper smelting company. Industrial land ASP in Cikand, Serang is set at IDR 2m/sqm and still low compared to the industrial area in Karawang and Bekasi. Modernland has not started to develop its 980 ha of industrial land bank in Bekasi and management currently targets Modern Bekasi to launch in 2018.

¨ This year Modernland targets IDR4.3trn of marketing sales with the following distribution: IDR3trn from residentials and IDR1.3trn from industrials. As of 1Q17, marketing sales was booked at IDR661.5bn where JGC contributed 48% and 43% from industrials with land sales achieved 16.7 ha. Marketing sales backlog as of December 2016 stood at IDR2trn. The latest product launch in 2Q17 was the 102-136sqm Savoy mixed-use homes, which was fully sold and generated IDR300bn making ~IDR960bn of marketing sales in 5M17. Average buyers payment profiles as of 5M17 consist of 75% mortgage users, 21% installment, and 4% cash payers. 2017 Capex is also allocated at IDR1trn, depending on the company’s cash flow, which will be used for land acquisition in Cikande and JGC. We believe AEON mall will become the main selling point of JGC, followed by IKEA in 2018, and Mayapada hospital. Currently MDLN’s DER stood at 67% with net gearing at 64%, the counter is also trading at an attractive 4.9x FY17F consensus P/E and implying 76% discount to NAV based on JLL’s December 2016 estimate (taken from the latest bond prospectus). (Yualdo Tirtakencana)

Link to daily report: Indonesia Morning Cuppa 210617

Company Update:

Wijaya Karya Beton (WTON IJ, BUY, TP: IDR850), Building On Growth
We see Wika Beton as a direct beneficiary of the Government’s infrastructure development projects such as railway tracks, toll roads and bridges. It is one of the biggest precast producers in the country, and offers a wide range of products. Thus, it stands to gain from HSR projects as it could receive a IDR1.5trn construction materials order from its parent company, Wijaya Karya (Wika). Wika, in turn, owns the largest stake of Indonesia’s HSR project. We maintain our BUY call, while our TP of IDR850 is based on 22x FY17F P/E, -1SD from its historical mean.

¨ Beneficiary of the HSR and other infrastructure projects. Wijaya Karya Beton’s (Wika Beton) parent entity, Wika, has won a IDR16.7trn civil works order for HSR project from PT Keretapi Cepat Indonesia Cina (KCIC). We think Wika may order construction materials worth IDR1-1.5trn in 2017 from Wika Beton, to build its portion of the HSR. Wika Beton may also win a further IDR1.5trn in orders from the China counterpart for the HSR project.
The company also stands to benefit from Wika’s JV to build toll roads connecting Balikpapan and Samarinda, Manado and Bitung, and Pandaan and Malang. Construction of the roads has begun. As a major supplier of railway sleepers in Indonesia, Wika Beton may also benefit from the Government’s plan to build a 3,258km railway track within five years – it has received orders for railway projects in Sumatera and Sulawesi.
¨ Increasing capacity to support infrastructure projects. With its new IDR350bn factory in Subang, West Java – which commenced operations in March – its total capacity has risen by 350,000 tonnes pa, from 2.65m tonnes pa previously (including an additional production line in Pasuruan). Its Subang factory will supply materials for the Serang-Panimbang toll road project, and may supply precast materials for the HSR project.
¨ Strong orderbook. Wika Beton won ID6trn in new contracts last year, ie above our and its estimates. This boosted its FY16 orderbook to IDR7.5trn. Since most of the new contracts were signed in 4Q16, its contracts that were carried over to FY17 surged 164%YoY to IDR4trn.
In 1Q17, Wika Beton won IDR1.53trn (+53% YoY) in new contracts, which accounted for 27.8% and 24.2% of our and its full-year estimates respectively. New contracts came from the 1,000MW coal-fired power plant in Cilacap, the Lampung and Surabaya-Gempol toll roads, a sugar factory in South Sumatera and other infrastructure projects. As it has major contracts carried over to 2017, and it has enjoyed strong contract wins YTD, it is likely to record better revenue growth in the following quarters.
¨ Risks. Key downside risks to our call are a delay in infrastructure projects, and competition from other SOEs such as Waskita Beton Precast.
¨ BUY, with a TP of IDR850. We maintain our BUY recommendation. Our unchanged TP of IDR850 is premised on 22x FY17F PE. (Dony Gunawan)


Astra Indonesia (ASII IJ, BUY, TP: IDR9,850), Update on 2W and 4W wholesale
MoM, Astra’s robust 2W wholesale, while 4W was flat in May
¨ Astra International 2W wholesale jumped 44% MoM (to 395,000 units), while 4W wholesales was flat at 50,000 units.
¨ YTD-May, Astra 2W wholesales still declined 2% YoY (to 1,742,000 units), however it is still better than industry which declined 5% YoY (to 2,321,000 units). For 4W, Astra booked robust wholesale growth which increased by 17% YoY (to 262,000 units), driven by low-cost green car (LCGC).
¨ YTD-May, Astra booked higher market shares both in 2W and 4W. Astra 2W market shares increased to 75% in 5M17 (from 73% in 5M16), while 4W market shares rose to 56% (from 51%) in the same period.
¨ Our DCF-based TP on Astra is IDR9,850 (20x/17x FY17/18F P/Es) offers a 10% upside. (Andrey Wijaya)

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Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT RHB Sekuritas Indonesia
DID: (6221) 2970 7056
Fax: (6221) 2783 0777

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