Surya Semesta Internusa is a diversified firm engaging in property & industrial estate development, construction, and hotel.
Subang – The Strategic Asset
SSIA holds a license for 2,000ha in Subang industrial estate, West Java, which is located 38km apart from the upcoming Patimban Seaport, in which the first phase is projected to be completed in 2019. Meanwhile, it is 88km apart from Jakarta. Note that Subang is the closest industrial estate to Patimban, with no directly competing industrial estate in the area.
With the cash available from the Cipali toll road divestment (total of Rp2.56T), SSIA is in the process of purchasing land in the Subang regency. As of December 2017, SSIA has acquired 860ha of land in Subang with an average cost of around Rp125k/m2. Phase 1 of the development of Subang is planned to start in 2H2018.
Their eventual selling price should be much higher than their cost, which I realistically believe could reach Rp1.5mn/m2, given the strategic location close to the port. The location is strategic because it would be perfect for a company exporting through Patimban port to have a factory in Subang. For comparison, industrial land price in Bekasi is around Rp2.6mn/m2, while in Karawang is around Rp1.9mn/m2. Bekasi & Karawang is located around 47km apart from Tanjung Priok port.
In addition, Tanjung Priok port has a capacity of 6.7mn TEUs, and is going to be upgraded to 18mn TEUs. Meanwhile, Patimban port is going to have a capacity of 1.5mn TEUs in 2019, with capacity planned to expand to 7.5mn TEUs by 2027.
With the industrial land business being rather saturated in the Bekasi region, I believe Subang is the future multi-bagger NAV play.
Construction Business – Nusa Raya Cipta (NRCA)
NRCA provides construction services for commercial, industrial, and toll road. At Rp426/sh, NRCA is trading at 0.9x B/V, and a TTM P/E Ratio of 7.19x. The share price has had a poor performance, with 1 year return of -6.2%, and a 3-year return of -69.0%. I believe this is attributable to its decreasing profit trend. The market used to expect that they will benefit from the rise in construction projects due to Jokowi’s initiatives. However, it turns out that NRCA did not get much share of this, as most contracts are given to SOEs such as WIKA, WSKT, ADHI, and PTPP. Meanwhile, the weak property sector also means that NRCA gets less contracts in the meantime.
However, NRCA is a very healthy company in a net cash position. I believe it is reasonable to value it at least1.0x B/V, as I believe they can recover along with the property sector.
Hotel Business – Gran Melia, Banyan Resort
A stable growth business with recurring income, with annual revenues of around Rp721bn, and gross profit of around Rp465bn.
SSIA looks to report very minimal profit in 2018. Factors contributing to this include:
- Weak contracts by construction subsidiary – NRCA
- No revenue yet from Subang, but they will incur significant costs to build the infrastructure there
- Weak industrial estate sales
- Hotel business (Gran Melia, Banyan Resort) impacted by Gunung Agung eruption
SSIA has sanctioned a share buyback with allocation of Rp440bn, for a maximum of 10% of total shares outstanding.
Currently, Subang’s land acquisition cost represent 12% of SSIA’s total assets. In 3 years, it would represent more than 25% of SSIA’s total assets.
However, NAV-wise (as land value far exceeds acquisition cost), we can expect it to contribute more than 50% of SSIA’s NAV. With the low acquisition cost, and the high probability of a much higher selling price (with the fact that it is the only industrial estate in the area), I believe SSIA will get a very high margin on its future sales of industrial land in Subang.
Hence, as we can conservatively value its other businesses at 1.0x book value, I believe SSIA deserve to trade at at least 1.0x book value. However, with the outlook of weak earnings in 2018 (hence not much growth in book value), I decide to assign a 2018 target price based on just 1.0x 2017 book value, at Rp870/sh.
However, SSIA will not be part of the model portfolio for now, as I look for a better price at around Rp500-550/sh.