Kawasan Industri Jababeka - Growth potential from integrated model - UBS

􀂄 Initiate coverage with a Buy rating and a Rp250 price target Kawasan Industri Jababeka (Jababeka) is the largest listed industrial estate developer in Indonesia. The company’s main focus is on the development of the Cikarang Industrial Estate, near Jakarta. It is the country’s most integrated industrial estate, which includes a 130MW power plant and Indonesia’s only dry port, as well as residential and industrial developments.

􀂄 Strong demand for industrial land plots Jababeka’s land sales increased eightfold in 2010 YoY to 116ha. We expect this trend to continue, supported by: 1) investment growth—foreign direct investment inflows rose 173% YoY in 2010; 2) a manufacturing sector recovery, with 15% growth in 2011E; and 3) loan growth of 24% in 2011E.

􀂄 Strong recurring income growth We forecast 218% YoY recurring revenue growth for Jababeka in 2011-12 and estimate the company’s power plant will contribute 36%/37% of total recurring sales income in 2012/2013. Jababeka has an off-take agreement with the state electricity company, PLN. Construction of additional power plant capacity is scheduled to be completed in Q411/Q112.

􀂄 Valuation: sum-of-the-parts-based price target Our price target is double the current share price. It implies a 50% discount to 2012E RNAV and 1.8x/1.7x/1.5x 2011/2012/2013E P/BV. The stock is trading at 1.0x/0.9x/0.8x 2011/2012/2013E P/BV. We base our price target on a sum of the parts. We use DCF to value the power plant and dry port projects, the discounted development method for development property, and single cap rate methodology for investment property.