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Indonesia industrial-estate shares surge on hopes for reform
September 4, 2014 / 9:02 PM / 3 years ago

Indonesia industrial-estate shares surge on hopes for reform

JAKARTA, Sept 5 (Reuters) - It’s been a rough year for Indonesian companies that own industrial estates. First-half land sales were weak, economic growth is slowing and an HSBC survey concluded that manufacturing shrank in August.

Yet shares of such companies have far outperformed the Indonesia benchmark. And foreign funds have been buying the mid-caps. In July, ones managed by BlackRock Funds Advisors and Vanguard Group made purchases, according to Thomson Reuters data.

The dominant driver behind their outperformance is optimism that President-elect Joko Widodo can foster reforms that boost the economy and demand for industrial property. Some investors are hopeful that Indonesia, over time, will manufacture a lot more products.

Kunardy Lie, chief country officer in Indonesia for Deutsche Bank, said there’s “good reason” for interest in industrial-estate stocks as the new government will focus on infrastructure and industrialisation.

“Big firms want to invest here, and they will need the space,” he said.

Edhi Widjojo, president director of AXA Asset Management Indonesia, says that if Indonesia has a more transparent and business-friendly government, foreign direct investment will rise, which will “benefit industrial estate companies, as demand for their land will increase.”

That’s a sizable “if”, given that Widodo’s coalition has only 37 percent of the seats in parliament, and he’s got a raft of problems to deal with.

Still, optimism that the new leader’s plans to cut red tape and boost infrastructure will lift factory investment propelled industrial estate talks to notably outperform the Jakarta benchmark, which is up 22 percent this year and 3.6 percent since the July 9 election.

Shares in PT Kawasan Industri Jababeka, one of the largest operators, are up 50 percent this year and 22 percent since election day. PT Bekasi Fajar Industrial Estate has risen 40.5 percent for the year and 31 percent since the vote, while gains for PT Lippo Cikarang are 75 percent and 14 percent, respectively.

It wasn’t recent performance that drew investors. Bekasi Fajar said first-half profit fell 52 percent to 124.62 billion rupiah ($10.6 million). Jababeka’s profit was up 27 percent, but a year earlier the increase was 60 percent.

FRESH CATALYSTS?

According to a report by Trimegah Securities, Bekasi Fajar sold only about 11 hectares of its 40-hectare target by mid-year, while Jababeka sold 10 out of its 25 hectare target.

Widjojo of AXA Asset, which manages 2.6 trillion rupiah in assets, says his firm is currently neutral on industrial estates but will increase its holdings if it sees fresh catalysts such as a good cabinet line-up from the new leader and signs of steps to build a healthy business environment.

Indonesia hopes it will get new investment from big names Samsung Electronics Co Ltd and Foxconn Technology Group.

Samsung said last month it plans to set up a factory to produce mobile phones mainly for Indonesia.

A Jababeka director has been quoted by a local media saying it was talking to Samsung about selling industrial land. Samsung already has a plant in a Jababeka estate east of Jakarta.

Foxconn of Taiwan, a major supplier to Apple, is mulling a $1 billion investment. The company has said it will decide after the new government takes office in October.

Reports about possible investments by Foxconn and Samsung “helps the positive sentiment” about the prospects for manufacturing in Indonesia, said Isbono Putro, a director at BNI Asset Management, which manages about 8 trillion rupiah in assets.

1 US dollar = 11,76`0 rupiah Editing by Nachum Kaplan and Richard Borsuk

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