ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Thematic (Sector/Industry)

I spent an interesting hour in Pacific Place, Jakarta with the Country Head of Jones Lang Lasalle (JLL) Indonesia, thrashing through the state of the Indonesian Property Market, top to bottom. The stellar growth at JLL reflects the strong growth in the commercial property market in Jakarta, with a total of around 700 employees today versus around 80 staff six years ago. This rapid expansion reflects the rapid growth, as well as the increase in outsourcing of property management in the commercial space, especially by foreigners in Indonesia. The office market continues to face an oversupply situation, with around two years of supply to be digested. This means rising vacancies and falling rents. Office vacancies sit around 16% but may hit 25-30% before bottoming out. Mixed-use projects are the winners in the office space and easy access is paramount, given Jakarta's love affair with traffic.The demand bright spots are coming from e-commerce and business services.The retail property market is in a much better state, given that the five-year-old moratorium on new malls in central Jakarta remains in place, choking off any major new supply. That said, it is a competitive market and the success of satellite malls in areas such as Serpong, suggests some dilution to the draw of central Jakarta offerings.Industrial property is stabilising after a period of consolidation following rapid price appreciation over the past five years. E-commerce, FMCG and Third party Logistics (3PL) customers are the drivers. Land prices rose by around 300% over the last five years. <a href="https://www.smartkarma.com/entities/7755" target="_blank" data-smartkarma-citation="entities:7755:1">Kawasan Industri Jababeka Tbk Pt (KIJA IJ)</a> is an interesting way to play the recovering industrial properties. 50% of the companies profits come from utilities such as power and water. It has also diversified to Central Java with a new estate in Kendal, near Semarang, a JV with <a href="https://www.smartkarma.com/entities/1087" target="_blank" data-smartkarma-citation="entities:1087:1">Sembcorp Industries Ltd (SCI SP)</a>. The residential property market remains lackluster, given that the rapid price rises between 2011 and 2014 are still having a lingering effect on affordability, with a recovery being delayed by a period of intensive tax scrutiny (coined by some as "tax-terrorism") in early 2016 followed by whole tax amnesty period and the tax payments that had to be made. 2017 should hold better prospects with the tax issues fading somewhat and banks focusing on growing their mortgage loan books, in a falling interest rate environment.The uncertainty around who may be looking over your shoulder, should you decide to buy a new property for investment has stymied the recovery in the residential market. As a result, the listed developers have undershot on their marketing sales targets in 2016. The major developers such as <a href="https://www.smartkarma.com/entities/5693" target="_blank" data-smartkarma-citation="entities:5693:1">Summarecon Agung Tbk Pt (SMRA IJ)</a>, <a href="https://www.smartkarma.com/entities/15498" target="_blank" data-smartkarma-citation="entities:15498:1">Bumi Serpong Damai Pt (BSDE IJ)</a> and <a href="https://www.smartkarma.com/entities/5513" target="_blank" data-smartkarma-citation="entities:5513:1">Ciputra Development Tbk Pt (CTRA IJ)</a> have also sought to increase the portion of recurrent property incomes to insulate against the volatilityin the residential property market.<a href="https://www.smartkarma.com/entities/8550" target="_blank" data-smartkarma-citation="entities:8550:1">Pakuwon Jati Tbk Pt (PWON IJ)</a> is probably the best positioned in this respect, with more than 50% of income coming from its investment properties, which are mixed use and of high quality, especially Ganderia and Cassablanca malls in jakarta. The developers are presenting a more positive picture for 2017, with more aggressive marketing sales targets. The aforementioned four stocks are all good proxies for a recovery and all trade on large discounts (&gt;50%) to NAV. SMRA and BSDE come out on top of the pile in terms of scale and profitability, with PWON good quality exposure to retail investment property.

I spent an interesting hour in Pacific Place, Jakarta with the Country Head of Jones Lang Lasalle (JLL) Indonesia, thrashing through the state of the Indonesian Property Market, top to bottom. The stellar growth at JLL reflects the strong growth in the commercial property market in Jakarta, with a total of around 700 employees today versus around 80 staff six years ago. This rapid expansion reflects the rapid growth, as well as the increase in outsourcing of property management in the commercial space, especially by foreigners in Indonesia. The office market continues to face an oversupply situation, with around two years of supply to be digested. This means rising vacancies and falling rents. Office vacancies sit around 16% but may hit 25-30% before bottoming out. Mixed-use projects are the winners in the office space and easy access is paramount, given Jakarta's love affair with traffic.The demand bright spots are coming from e-commerce and business services.The retail property market is in a much better state, given that the five-year-old moratorium on new malls in central Jakarta remains in place, choking off any major new supply. That said, it is a competitive market and the success of satellite malls in areas such as Serpong, suggests some dilution to the draw of central Jakarta offerings.Industrial property is stabilising after a period of consolidation following rapid price appreciation over the past five years. E-commerce, FMCG and Third party Logistics (3PL) customers are the drivers. Land prices rose by around 300% over the last five years. Kawasan Industri Jababeka Tbk Pt (KIJA IJ) is an interesting way to play the recovering industrial properties. 50% of the companies profits come from utilities such as power and water. It has also diversified to Central Java with a new estate in Kendal, near Semarang, a JV with Sembcorp Industries Ltd (SCI SP). The residential property market remains lackluster, given that the rapid price rises between 2011 and 2014 are still having a lingering effect on affordability, with a recovery being delayed by a period of intensive tax scrutiny (coined by some as "tax-terrorism") in early 2016 followed by whole tax amnesty period and the tax payments that had to be made. 2017 should hold better prospects with the tax issues fading somewhat and banks focusing on growing their mortgage loan books, in a falling interest rate environment.The uncertainty around who may be looking over your shoulder, should you decide to buy a new property for investment has stymied the recovery in the residential market. As a result, the listed developers have undershot on their marketing sales targets in 2016. The major developers such as Summarecon Agung Tbk Pt (SMRA IJ), Bumi Serpong Damai Pt (BSDE IJ) and Ciputra Development Tbk Pt (CTRA IJ) have also sought to increase the portion of recurrent property incomes to insulate against the volatilityin the residential property market.Pakuwon Jati Tbk Pt (PWON IJ) is probably the best positioned in this respect, with more than 50% of income coming from its investment properties, which are mixed use and of high quality, especially Ganderia and Cassablanca malls in jakarta. The developers are presenting a more positive picture for 2017, with more aggressive marketing sales targets. The aforementioned four stocks are all good proxies for a recovery and all trade on large discounts (&gt;50%) to NAV. SMRA and BSDE come out on top of the pile in terms of scale and profitability, with PWON good quality exposure to retail investment property. 

Indonesia Property - A Question of Supply and Affordability - On the Ground in J-Town

Equity Bottom-Up

Sumber Alfaria Trijaya Tbk Pt / Equity Bottom-Up

A recent company visit to leading Indonesian mini-market operator <a href="https://www.smartkarma.com/entities/15659" target="_blank" data-smartkarma-citation="entities:15659:1">Sumber Alfaria Trijaya Tbk P (AMRT IJ)</a> revealed a company still very much in expansion mode, with plans to open 1500 stores in 2017, versus 1300 new stores this year. SSSG remains healthy at 7% YTD and after slow post Lebaran recovery, momentum has returned. with management projecting +7%-8% SSSG for FY16.Margins continue to improve, with a focus on efficiencies of business processes and better terms from its suppliers. The company is also shifting its product mix slightly towards higher margin non-food items. It is also seeking to reduce the staff requirement per store by one from seven currently, which will further save costs.Alfamarts on-line strategy through alfacart.com is working well, with 7,000 stores designated as pick up points and one DC assigned to the on-line business. On-line sales currently account for only 2% of total sales but there is obvious potential. There are also 7m Alfamart members (50% are "active loyal customers") to which the company actively markets. It also extracts valuable data, with 4m transactions per day, and it works closely with manufacturers to ensure the most beneficial product mix.Alfamart remains a key proxy for the rising appetite for convenience, often coined as the pantry of the middle classes. The prospects for growth are appealing in medium to long term, with market saturation a long way off. It trades at a premium to the consumer sector (sector PER circa 18x FY17E) but this is justified, given its market positioning, quality of management and growth prospects. Alfamart remains a core holding, currently trading on a PER of 27x for FY17E, 22x for FY18E and 15x FY19E, with EPS growth of +31%, +23%, and +48% respectively, according to Bloomberg consensus.

A recent company visit to leading Indonesian mini-market operator Sumber Alfaria Trijaya Tbk P (AMRT IJ) revealed a company still very much in expansion mode, with plans to open 1500 stores in 2017, versus 1300 new stores this year. SSSG remains healthy at 7% YTD and after slow post Lebaran recovery, momentum has returned. with management projecting +7%-8% SSSG for FY16.Margins continue to improve, with a focus on efficiencies of business processes and better terms from its suppliers. The company is also shifting its product mix slightly towards higher margin non-food items. It is also seeking to reduce the staff requirement per store by one from seven currently, which will further save costs.Alfamarts on-line strategy through alfacart.com is working well, with 7,000 stores designated as pick up points and one DC assigned to the on-line business. On-line sales currently account for only 2% of total sales but there is obvious potential. There are also 7m Alfamart members (50% are "active loyal customers") to which the company actively markets. It also extracts valuable data, with 4m transactions per day, and it works closely with manufacturers to ensure the most beneficial product mix.Alfamart remains a key proxy for the rising appetite for convenience, often coined as the pantry of the middle classes. The prospects for growth are appealing in medium to long term, with market saturation a long way off. It trades at a premium to the consumer sector (sector PER circa 18x FY17E) but this is justified, given its market positioning, quality of management and growth prospects. Alfamart remains a core holding, currently trading on a PER of 27x for FY17E, 22x for FY18E and 15x FY19E, with EPS growth of +31%, +23%, and +48% respectively, according to Bloomberg consensus.

Alfamart - Mini-Market Marvel - On the Ground in J-Town

Indonesia

PT Indoritel Makmur Internasional Tbk operates as an investment holding company. The Company is primarily focused on the consumer and retail industries in Indonesia.

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Indoritel Makmur Internasional (DNET IJ)

Indonesia Property - A Question of Supply and Affordability - On the Ground in J-Town

I spent an interesting hour in Pacific Place, Jakarta with the Country Head of Jones Lang Lasalle (JLL) Indonesia, thrashing through the state of...

Angus Mackintosh

Alfamart - Mini-Market Marvel - On the Ground in J-Town

A recent company visit to leading Indonesian mini-market operator Sumber Alfaria Trijaya Tbk P (AMRT IJ) revealed a company still very much in...

Angus Mackintosh

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52-week Range

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