DMAS) Industrial Estate

Company

Update Puradelta Lestari Tbk (DMAS) Industrial Estate

Hitting the jackpot Nov 28, 2019

Trickle down demand to follow after securing big-ticket investment South Korean automaker Hyundai Motor Company (HMC) has signed Memorandum of Understanding (MoU) to build manufacturing plant on 77.6ha land in Deltamas industrial estate on 26Nov2019, as part of HMC’s plan to invest US$1.55bn in stages in Indonesia. After securing this big ticket investment, DMAS should be poised to get industrial land demand from companies supplying HMC in the next few years. 12M rating BUY (Maintain) 12M TP IDR 378 Upside +20% Imminent cash inflows resulted in high dividend yield Considering the imminent large cash inflows, coupled with healthy balance sheet Stock Data (zero-debt) and minimum capex going forward, we believe that dividend payout JCI (Nov 27) 6,023 should remain high at least 75% at least for the next 3 years. Stock price (Nov 27, IDR) 316 Market cap (IDR Bn) 15,231 Recent interim dividend announcement of IDR21/share (or equivalent to Shares outstanding (Mn) 48,198 IDR1.01tr); with cum date for regular and cash market on 3Dec2019 and 52-week high/low (IDR) 356 / 142 5Dec2019, respectively; implies 6.6% dividend yield (based on yesterday closing 6M avg. daily turnover (IDR Bn) 12.8 price). This offers an attractive buffer return for shareholders in this current Free float (%) 17.7% environment. Major shareholders (%) Sumber Arusmulia PT 57.3% Sojitz Corp 25.0% Maintain BUY on DMAS with higher TP (+20% upside) We tweaked our assumptions to adjust for the massive pre-sales from HMC and Performance to roll forward our assumption. This resulted in 7% increase in our DMAS NAV 1M 6M 12M estimate to IDR 565/share. Subsequently, by applying 33% discount to our NAV Absolute (%) 4.6 31.7 115.0 estimate (at +1.5 std dev above its 4-year mean), we arrived at TP of 378/share Relative to JCI (%p) 7.1 31.0 113.4 (which offers 20% upside from current price). DMAS share price DMAS remains as our top pick industrial estate given its sustainable earnings, cashflows and balance sheet capacity which allows for high dividend payout. 375 Further catalysts for the stock include more-aggressive-than-expected ASP 325 growth and better demand in commercial and residential. 275

225

175 2017A 2018A 2019F 2020F 2021F 125 Sales (IDR bn) 1,336 1,036 1,422 2,029 1,920 Jul-19 Apr-19 Oct-19 Jan-19 Jun-19 Feb-19 Mar-19 Nov-18 Dec-18 Aug-19 Sep-19 GP (IDR bn) 815 581 952 1,201 1,201 May-19

OP (IDR bn) 661 442 770 1,033 1,012 Source: Bloomberg NP (IDR bn) 657 496 838 1,103 1,121 EBITDA (IDR bn) 704 531 903 1,185 1,184 Net debt (IDR bn) NC NC NC NC NC OP margin (%) 49.5% 42.6% 54.1% 50.9% 52.7% ROE (%) 9.1% 7.0% 12.2% 16.2% 15.6% Dividend yield (%) 6.8% 2.1% 13.3% 3.3% 6.5%

EPS (IDR) 13.6 10.3 17.4 22.9 23.3 chg. (%, YoY) -13% -24% 69% 32% 2% BPS (IDR) 145 149 135 147 150 DPS (IDR) 21.5 6.5 42 10.5 20.6 PE (x) 23.2 30.7 18.2 13.8 13.6 Edward Tanuwijaya PB (x) 2.2 2.1 2.3 2.1 2.1 EV/EBITDA (x) 20.5 27.3 16.7 12.1 11.9 [email protected]

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS AT THE END OF THIS REPORT. Puradelta Lestari Tbk Company update

Indonesia and South Korea announced completion of comprehensive economic partnership agreement (CEPA) on Monday (25Nov2019) during special summit event between South Korea and ASEAN held in southern port of Busan. After seven years since first round of negotiations back in 2012, Indonesia became the first ASEAN member to conclude such agreement with South Korea. Both sides are then scheduled to sign the deal early next year after further review for CEPA to be effectively implemented.

When CEPA goes into effect, Indonesia will remove tariffs on steel, automotive (and parts), textiles and heavy machine parts produced by South Korea; while in exchange South Korea will lift tariffs on heavy fuel oil, sugar and beer from Indonesia.

South Korea has consistently being top 8 ranked largest contributor for Indonesia’s FDI, with ~5% contribution in average for the past 5 years. CEPA between Indonesia and South Korea should provide the structure and framework for more FDI from South Korea in the future.

Fig 1 Indonesia’s FDI Fig 2 Top 8 contributors to Indonesia’s FDI

IDR tr FDI South Korea (% of total) - RHS Singapore Japan China EU Hong Kong Malaysia South Korea USA

350 7.0% 100% 90% 300 6.0% 80% 250 5.0% 70%

200 4.0% 60% 50% 150 3.0% 40% 100 2.0% 30%

50 1.0% 20% 10% 0 0.0% 2014 2015 2016 2017 2018 YTD-2019 0% 2014 2015 2016 2017 2018 YTD-2019

Source: BKPM, KISI Research Source: BKPM, KISI Research

The announcement above got the ball rolling. On 26Nov2019, South Korean automaker Hyundai Motor Company (HMC) signed Memorandum of Understanding (MoU) to build manufacturing plant on 77.6ha land in Deltamas industrial estate. This is part of HMC’s plan to invest US$1.55bn in stages until 2030 in Indonesia. The planned initial plant capacity is 150k units p.a. (It will be gradually increased to 250k units p.a.).

As DMAS secured this big-ticket investment, we believe that industrial land demand from companies supplying HMC in Deltamas will trickle down in the next few years. With healthy balance sheet (zero-debt) and minimum capex going forward, we believe that dividend payout should remain in the high 70% at least for the next 3 years.

Considering this imminent large cash inflows, DMAS recently announced interim dividend distribution of IDR21/share (or equivalent to IDR1.01tr). Cum and ex date are 3Dec2019 and 4Dec2019, respectively. The implied dividend yield (based on yesterday closing price) is 6.6%, an attractive buffer return for shareholders in this current environment.

DMAS share price has performed well (+33%) since our initiation back in 24May2019. We tweaked our assumptions to adjust for the massive HMC pre-sales and to roll forward our assumption resulted in 7% increase in our DMAS NAV estimate to IDR 565/share. Subsequently, by applying 33% discount to our NAV estimate (at +1.5 std dev above its 4-year mean), we arrived at TP of 378/share (which offers 20% upside from current price).

Puradelta Lestari Tbk Company update

Fig 3 DMAS marketing sales trend Fig 4 DMAS industrial estate land pre-sales & ASP

(IDR bn) ha IDR m psm

3,000 120 2.20

2,809 2,500 100 2.00

80 1.80 2,000 60 1.60 1,500 40 1.40 1,408 1,453 1,000 1,288 1,072 20 1.20 884 500 0 1.00 FY16A FY17A FY18A FY19F FY20F FY21F - Pre-sales (excl. Hyundai) Hyundai ASP - RHS

FY16A FY17A FY18A FY19F FY20F FY21F Source: Company, KISI Research Source: Company’s presentation, KISI Research Note: 9M19 achievement: ~IDR 1.6tr Note: 9M19 achievement: 42.5ha @ 1.9m psm

Fig 5 DMAS Revenue breakdown per segment Fig 6 DMAS Gross margin per segment (%)

(IDR bn) Industrial Residential Commercial 90% 2,500 85% 80% 2,000 75% 70% 65% 1,500 60% 55% 1,000 50% 45% 500 40% FY16A FY17A FY18A FY19F FY20F FY21F - FY16A FY17A FY18A FY19F FY20F FY21F Industrial Residential Commercial Source: Company’s financial statement, KISI Research Source: Company’s financial statement, KISI Research

Fig 7 DMAS Discount to NAV band Fig 8 DMAS PE band

23 80% 21 70% 19 60% 17 15 50% 13 40% 11 9 30% 7 20% 5 Feb-16 Feb-17 Feb-18 Feb-19 Aug-15 Nov-15 Aug-16 Nov-16 Aug-17 Nov-17 Aug-18 Nov-18 Aug-19 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 May-15 May-16 May-17 May-18 May-19 Mar-16 Mar-17 Mar-18 Mar-19 Sep-15 Dec-15 Sep-16 Dec-16 Sep-17 Dec-17 Sep-18 Dec-18 Sep-19

Disc to RNAV +2SD +1SD P/E Average +1 Std Dev Average -1SD -2SD -1 Std Dev +2 Std Dev -2 Std Dev Source: Bloomberg, KISI Research Source: Bloomberg, KISI Research

Puradelta Lestari Tbk Company update

Fig 9 DMAS NAV details Adjusted Value Full Value Estimated saleable (IDR bn) Stake (IDR bn) land (ha) Property development Industrial 4,531 99.9% 4,536 312 Commercial 16,126 99.9% 16,142 289 Residential 3,411 99.9% 3,414 282

Investment properties Rent and hotel 139 99.9% 139 Estate management 2,085 99.9% 2,087

Net debt (925) Total NAV 27,217 No. of shares outstanding (bn) 48.2 NAV/Share (IDR) 565

Source: KISI Research

Fig 10 Changes in assumptions New Old Assumptions Unit FY19F FY20F FY21F FY19F FY20F FY21F Marketing sales IDR bn 2,809.5 1,287.8 1,452.6 1,490.3 1,287.8 1,433.7 Change (%) 89% 0% 1% Revenue IDR bn 1,421.8 2,028.9 1,919.9 1,421.8 1,237.3 1,384.7 Change (%) 0% 64% 39% Net profit IDR bn 838.5 1,102.9 1,121.1 834.4 722.8 847.3 Change (%) 0% 53% 32% NAV IDR 565 530 Change (%) 7% Recommendation BUY BUY

Source: KISI Research

Puradelta Lestari Tbk Company update

Company Overview

Kota Deltamas is located in Central Cikarang, Bekasi Regency, West Java, and is one of the biggest integrated modern city in the region. Kota Deltamas occupies 3,181 hectares of land, precisely in the centre of industrial area between Jakarta and Bandung, and has direct access from Jakarta-Cikampek toll road KM 37.

Kota Deltamas can be broken down into three major areas: industrial, commercial, and residential. Its residential estate makes up around 54% of total development in Kota Deltamas, while commercial occupies around 24%, and residential around 22%.

Aside from property development, the company provides supporting products and services including clean water supply, wastewater management, and environmental management (cleaning service, security, repair and maintenance, and miscellany) for its tenants.

Fig 17 Shareholding structure

Source: Company, KISI Research

Puradelta Lestari Tbk Company update

Balance sheet Income statement

FY-ending Dec. (IDR bn) 2017A 2018A 2019F 2020F 2021F FY-ending Dec. (IDR bn) 2017A 2018A 2019F 2020F 2021F Current assets Sales 1,336 1,036 1,422 2,029 1,920 Cash & cash equivalent 785 745 159 925 1,101 COGS (522) (455) (469) (828) (719) Accounts & other receivables 50 83 52 68 64 Inventories 2,602 2,679 2,666 2,217 1,910 Gross profit 815 581 952 1,201 1,201 Others 99 61 157 118 367 SG&A expense (154) (139) (183) (167) (189)

Non-current assets Operating profit 661 442 770 1,033 1,012 Fixed assets 320 313 323 335 347 Financial income Inventories 3,517 3,411 3,471 3,501 3,531 Investment properties 31 111 118 125 133 Interest income 24 19 23 27 50 Other non-current assets 67 97 97 97 97 Financial expense

Total assets 7,471 7,500 7,043 7,387 7,551 Interest expense - - - - - Current liabilities Other non-operating profit (1) 7 - - - Accounts & other payables 18 2 17 14 15 Gains (Losses) in associates, 23 72 110 127 146 ST debt & bond - - - - - subsidiaries and JV Current portion of LT debt - - - - - Earnings before tax 707 541 903 1,187 1,208 Others 419 277 479 226 255 Income taxes (50) (44) (64) (84) (86) Non-current liabilities LT debt & financial liabilities - - - - - Net profit 657 496 839 1,103 1,121 Deferred tax liabilities - - - - - Non-controlling interest - - - - - Other non-current liabilities 27 32 36 40 45 Other comprehensive profit - - - - - Total liabilities 465 312 532 280 315 Total comprehensive profit - - - - - Controlling interest Total comprehensive profit of - - - - - Capital stock 4,820 4,820 4,820 4,820 4,820 controlling interest Additional paid-in capital 380 380 380 380 380 EBITDA 704 531 903 1,185 1,184 Other Reserves - - - - -

Retained earnings 1,803 1,985 1,308 1,905 2,033 Minority interest 3,764 3,509 3,509 3,509 3,509 Key financial data Shareholders' equity 10,766 10,694 10,016 10,613 10,741 FY-ending Dec. 2017A 2018A 2019F 2020F 2021F

Cash flow per share data (IDR) EPS 13.6 10.3 17.4 22.9 23.3 FY-ending Dec. (IDR bn) 2017A 2018A 2019F 2020F 2021F BPS 145.3 149.1 135.0 147.4 150.1 C/F from operating DPS 21.5 6.5 31.5 10.5 20.6 Net profit 657 496 838 1,103 1,121 Growth (%)

Depreciation 20 21 23 25 27 Sales growth -16% -22% 37% 43% -5% OP growth -16% -33% 74% 34% -2% Net incr. in W/C 0 0 (0) (0) (0) NP growth -13% -24% 69% 32% 2% Others 78 (177) 86 159 14 EBITDA growth -19% -25% 70% 31% 0%

C/F from investing Profitability (%) OP margin 49.5% 42.6% 54.1% 50.9% 52.7% CAPEX (18) (46) (37) (40) (43) NP margin 49.1% 47.9% 59.0% 54.4% 58.4% Others (123) (32) 23 27 50 EBITDA margin 52.7% 51.3% 63.5% 58.4% 61.7% C/F from financing ROA 8.6% 6.6% 11.5% 15.3% 15.0% ROE 9.1% 7.0% 12.2% 16.2% 15.6% Incr. in equity - - - - - Dividend yield 6.8% 2.1% 13.3% 3.3% 6.5% Incr. in debts - - - - - Dividend payout ratio 136.8% 47.7% 407% 75.0% 90.0% Dividends (1,036) (313) (1,518) (506) (993) Stability Net debt (IDR bn) NC NC NC NC NC Others (12) 11 - - - Int.-bearing debt/equity (%) 0.0% 0.0% 0.0% 0.0% 0.0% C/F from others - - - - - Valuation (X) PE 23.2 30.7 18.2 13.8 13.6 (434) (40) (586) 767 176 Increase in cash PB 2.2 2.1 2.3 2.1 2.1 EV/EBITDA 20.5 27.3 16.7 12.1 11.9

Puradelta Lestari Tbk Company update

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