GENP is venturing into property development in Jakarta, Indonesia, via the the acquisition of 375-acre land in Bogor, a major satellite city of Greater Jakarta, for IDR2,052b (RM593m). This could also signal GENP’s second Premium Outlets in Greater Jakarta. We trim our FY25F earnings forecast by 3% to account for higher finance cost but maintain our TP of RM6.00 and MARKET PERFORM call.

GENP is venturing into property development in Jakarta, Indonesia, via the the acquisition of 152 ha or 355 acres of land with Hak Guna Bangunan (with an initial tenure of up to 2028-2053 with extensions of 20 years + 30 years) in Sentul City, Bogor—a major satellite city of Greater Jakarta—for IDR2,052b (RM593m) (see Exhibit 1). Sentul City is not new to GENP. Three years ago, GENP paid RM127m or RM5.7m/acre for a 9-ha commercially zoned land in Sentul City.

Bogor is surrounded by elevated highland resorts and towns, including an area known as “Puncak” and it is also historic, being a very old settlement with its Dutch colonial past. Located 60 km south of central Jakarta, Bogor is just 60-70 minutes drive away on one of the busiest toll roads (>0.5m vehicles per day) in Indonesia.

At an average price of IDR5.47b or RM1.58m per acre, we believe GENP is paying a fair price. A quick check on Indonesia-based property portals revealed that asking prices for larger land tracts (8 to 18 acres) in Sentul, Bogor range from IDR4.1b to IDR10.1b or RM1.18m to RM2.92 per acre. GENP will also be paying RM246m out of the RM593m consideration on a staggered basis over five years.

The acquisition will increase GENP’s estimated end-FY25 net debt of RM1.23b (22% net gearing) to RM1.58b (29% net gearing) which is still quite contained and manageable.

We believe GENP is probably also laying the groundwork for another possible Premium Outlets in Greater Jakarta and the potential property demand uplift following such an opening. Recall, the first “Jakarta Premium Outlets” is nearing completion. Announced in mid-2023, Jakarta Premium Outlets is in the affluent upper middle-class suburb of Alam Sutera, 50-minute drive west of central Jakarta.

We believe Greater Jakarta can support 2-3 Premium Outlets type malls. Comprising central Jakarta and five other cities, Bogor, Depok, Tangerang and Bekasi, Greater Jakarta is also known as “Jabodetabek” (the first 2 or 3 letters of the six cities). It is spread over 6,800 km2 (or 9x Singapore), home to 33m (vs 34m in Malaysia) people and generates USD400b to USD450b in annual GDP or between Malaysia and Singapore respective GDPs of USD400b and USD500b a year.

Forecasts. We trim our FY25F earnings forecast by 3% to account for higher finance cost, while property sales from Sentul City are unlikely to come in within our forecast period.

Valuations. However, we maintain our TP of RM6.00 based on 1.0x PBV which is in line with the plantation sector 1-2x PBV range. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 2). Maintain MARKET PERFORM.

Risks to our call include: (i) Western hostility towards palm oil on sustainability and bio-diversity issues, (ii) impact of weather and labour shortages on production, (iii) weak CPO and PK prices, and (iv) cost inflation particularly fertilisers.

Source: Kenanga Research - 22 Jul 2024