Indonesia Infrastructure Land acquisition law - which sectors would benefit? - JP Morgan

• New land acquisition bill – another step of reform: The land acquisition bill is currently in parliament. We think there’s sufficient support for the bill to be passed before the end of this year. The new law should enable the speeding up the land acquisition process, which has hindered the progress of infrastructure development. The most important reform in the bill, in our view, would be clarity on the procedures and steps in the government’s land acquisition, by allowing land-rights cancellation and limiting the timing of pricing discussion of land acquisition for public use.

• We identify the beneficiaries from the new land acquisition bill:
1) Toll road player Jasa Marga (JSMR), which has a 73% market share in toll roads, currently has 191km of projects in the pipeline that could add around 10% upside to its fair value. We have an OW on JSMR with a Dec-11 PT of Rp3,600.
2) Property players in Serpong (Bumi Serpong Damai, Alam Sutera, Summarecon), located near the Cengkareng-Kunciran and Kunciran-Serpong toll roads (which are JSMR’s concessions).
3) Cement sector. In the past five years, growth in bulk cement sales (which is partly used for infrastructure and other projects) was merely 2% CAGR. The demand for bulk cement merely comprises 16-18% of total cement demand. We view that growth in the infrastructure sector will help boost cement demand, possibly adding growth of 4-5 ppt to 10-11% y/y versus the previous 10-yr average of 6-8% y/y. Semen Gresik’s (SMGR) capacity will be able to absorb the additional demand after its capacity expansion in FY12. We have an OW rating on SMGR
with a Dec-11 price target of Rp9,600.
4) State-owned contractors and certain private contractors. This includes companies such as Wijaya Karya, Adhi Karya, and Duta Graha Indah,
which have more than 50% of their order books based on government or state-owned projects.
5) Heavy equipment industry would benefit to some extent, in particular through sales to the construction sector.

• Key Risk – a watered-down land acquisition law: A key risk would be a watered-down version of the bill with important clauses such as the land-rights cancellation taken out.