Sep 18, 2017 08:26:51

Local media, Kontan, reported yesterday on Bekasi Fajar ($BEST)’s plan to divest its stake in the warehouse JV with Daiwa. We have confirmed this news with management, but significant details have not been disclosed at the moment. We view this divestment as positive for the company as the divestment proceeds can be used for its core business. Currently the stock is trading at an attractive 5.1x FY17F P/E and 84% discount to NAV. Maintain BUY with a TP of IDR490 (86% upside) reflecting a 65% discount to NAV.

  • Warehouse JV. Bekasi Fajar currently owns 51% of the JV company, PT Daiwa Manunggal Logistik Properti (DML), while Daiwa House Industry (Daiwa) (1925 JP, NR) owns 49%. During our discussion with management, we learnt that Daiwa intends to increase its stake in the warehouse JV company while maintaining its partnership with a local partner, which is Bekasi Fajar. Therefore, we believe the former may not divest all of its shares in DML.
  • Divestment value. Unfortunately, management has not disclosed significant details regarding the divestment plan. In its 1H17 financial statement, we see that Bekasi Fajar’s acquisition cost for its 51% stake was IDR278.15bn. Based on this information, we estimate that Bekasi Fajar has the potential to receive IDR545bn worth of proceeds should it decide to fully divest its shares, assuming that Daiwa would pay a fair value.
  • Implication for Bekasi Fajar. We view this as a positive to the company’s contribution from the JV company, which has been providing insignificant earnings to Bekasi Fajar’s bottomline (2% in FY15, -1% in FY16, and 1% in 1H17). The divestment would allow the company to use the proceeds to acquire new land for future sales. As at 1H17, the company has acquired new land of about 26 ha, which is in line with its target new acquisition of 50-60 ha for FY17, and with the blended acquisition cost at around IDR1.5m/sqm. Nonetheless, the high average acquisition cost was due to a one-off transaction from a related party. Excluding this transaction, the average acquisition cost would be around IDR600-800,000/sqm (in line with our assumptions).
  • Industrial land inquiries. Inquiries for land YTD have reached 61 ha. These inquiries came from a total of 11 companies, of which 45% were locals, 39% were from Japan, and the rest, mixed. Management mentioned that around half of the inquiries came from consumer companies. Currently, the company is also trying to close a 20-ha deal from a single buyer, possibly from the consumer industry. Backed by these inquiries, management is confident that the company would be able to achieve this year’s land presales target of 30-40 ha.
  • We reiterate our BUY call with a TP of IDR490 based on a 17% CAGR for earnings in FY16-19F, on the expectations of an improved economic outlook that could lead to higher industrial land demand, the company’s competitive advantage of being in close proximity to Jakarta, Tanjung Priok seaport, and the Soekarno-Hatta International Airport. We make no change to our assumptions. We believe the company would be able to maintain its performance in 2H17F. (Yualdo Tirtakencana Yudoprawiro)