Jun 13, 2017 18:18:49

Our recent conversation with management of Indofood Sukses Makmur ($INDF) revealed more details on the recent Pluit land transaction:

  • Indofood revealed that Mr. Salim had previously received an offer from an independent third party to acquire the land for commercial development, priced at premium price. Hence, the company believes that the land price on the transaction (IDR51m per sqm) should be fair and reasonable. The transaction price is in line with independent valuator assessment.
  • Mr. Salim have opted to sell the land to AIM (Indofood subsidiary) as, in doing so, Salim Ivomas would be able to continue running its cooking oil production facility there. Then, Salim Ivomas will pay land rental fee to AIM which fee determined on arm-length basis. AIM will finance the acquisition via equity injection and debts.
  • AIM is owned by Indofood Sukses Makmur, Indofood CBP ($ICBP), London Sumatra ($LSIP) and Indofood Sukses Makmur ($INDF). The company is consolidated on Indofood Sukses Makmur’s balance sheet. INDF just increased its ownership on AIM, partly to finance the land acquisition.
  • Indofood does not have plan to convert the Pluit land into commercial areas, so far. According to the management, based on Jakarta’s local government permit, the Pluit land can still be used for manufacturing activities until around 2020. According to Jakarta’s zoning and spatial maps, which are issued by the local government, the purchased lands are in the K1 zone – where space is designated for office, commercial and service buildings. Mixed-use buildings can also be built on K1- zone land, with land spanning 20,000 sqm at minimum.
  • Since the announcement of this inter-companies transaction, INDF share price down 5%, which we believe mainly pressured on investor’s concern on how fair the price of the land may be.

  • We maintain BUY on Indofood Sukses Makmur, with a DCF-based IDR10,300 TP (22% upside) that also implies 19x/17x FY17F-18F P/Es respectively. (Andrey Wijaya)