Land acquisition law - which sectors would benefit?
New land acquisition bill -another step of reform:
The land acquisition bill is currently in parliament. We think there’s sufficient support for the bill to be passed before the end of this year. The new law should enable the speeding up the land acquisition process, which has hindered the progress of infrastructure development. The most important reform in the bill, in our view, would be clarity on the procedures and steps in the government’s land acquisition, by allowing land-rights cancellation and limiting the timing of pricing discussion of land acquisition for public use.
• We identify the beneficiaries from the new land acquisition bill:
1) Toll road player Jasa Marga (JSMR), which has a 73% market share in toll roads, currently has 191km of projects in the pipeline that could add around 10% upside to its fair value. We have an OW on JSMR with a Dec-11 PT of Rp3,600.
2) Property players in Serpong (Bumi Serpong Damai, Alam Sutera, Summarecon), located near the Cengkareng-Kunciran and Kunciran- Serpong toll roads (which are JSMR’s concessions).
3) Cement sector. In the past five years, growth in bulk cement sales (which is partly used for infrastructure and other projects) was merely 2% CAGR. The demand for bulk cement merely comprises 16-18% of total cement demand. We view that growth in the infrastructure sector
will help boost cement demand, possibly adding growth of 4-5 ppt to 10-11% y/y versus the previous 10-yr average of 6-8% y/y. Semen Gresik’s (SMGR) capacity will be able to absorb the additional demand after its capacity expansion in FY12. We have an OW rating on SMGR
with a Dec-11 price target of Rp9,600.
4) State-owned contractors and certain private contractors. This includes companies such as Wijaya Karya, Adhi Karya, and Duta Graha Indah, which have more than 50% of their order books based on government or state-owned projects.
5) Heavy equipment industry would benefit to some extent, in particular through sales to the construction sector.
• We identify the beneficiaries from the new land acquisition bill:
1) Toll road player Jasa Marga (JSMR), which has a 73% market share in toll roads, currently has 191km of projects in the pipeline that could add around 10% upside to its fair value. We have an OW on JSMR with a Dec-11 PT of Rp3,600.
2) Property players in Serpong (Bumi Serpong Damai, Alam Sutera, Summarecon), located near the Cengkareng-Kunciran and Kunciran- Serpong toll roads (which are JSMR’s concessions).
3) Cement sector. In the past five years, growth in bulk cement sales (which is partly used for infrastructure and other projects) was merely 2% CAGR. The demand for bulk cement merely comprises 16-18% of total cement demand. We view that growth in the infrastructure sector
will help boost cement demand, possibly adding growth of 4-5 ppt to 10-11% y/y versus the previous 10-yr average of 6-8% y/y. Semen Gresik’s (SMGR) capacity will be able to absorb the additional demand after its capacity expansion in FY12. We have an OW rating on SMGR
with a Dec-11 price target of Rp9,600.
4) State-owned contractors and certain private contractors. This includes companies such as Wijaya Karya, Adhi Karya, and Duta Graha Indah, which have more than 50% of their order books based on government or state-owned projects.
5) Heavy equipment industry would benefit to some extent, in particular through sales to the construction sector.
• Key Risk – a watered-down land acquisition law: A key risk would be a watered-down version of the bill with important clauses such as the land-rights cancellation taken out.
New land acquisition law could provide better clarity on procedures and timing
In the past six years, land acquisition for the Trans Java toll road, which spans 765km, has only reached 37%. The difficulty in acquiring land has hindered the progress of infrastructure development, and also has caused uncertainty in the project implementation scheduling, affecting the rate of return. Such uncertainty has discouraged and hindered the development of infrastructure, such as roads and electricity, in Indonesia.
Positive progress on the procedures of land acquisition bill is evident, as the Consultative Body has authorized the bill on land acquisition to undergo processing. Initial progress suggests that there is a strong likelihood that the land acquisition bill would be passed before the end of this year.
Positive progress on the procedures of land acquisition bill is evident, as the Consultative Body has authorized the bill on land acquisition to undergo processing. Initial progress suggests that there is a strong likelihood that the land acquisition bill would be passed before the end of this year.
Further reform is needed to encourage the private sector
Indonesia’s Mid-Term Development Plan for 2010-2014 budgeted around Rp1,429 trillion (US$158 billion) of infrastructure projects, of which around 65% will be funded by the private sector. We view that the target is quite ambitious, considering that the contribution from the private sector has been relatively small previously. There are a few groups and companies from the private sector, which have expressed interest to invest in the infrastructure sector. These include Astra International (ASII IJ), with its Astratel subsidiary, and Rajawali group (which recently purchased a
stake in Nusantara Infrastructure - META IJ). To entice the private sector, the government has established infrastructure funds and guarantee funds to guarantee funding. The government has also de-regulated some sectors of infrastructure, such as ports and power plants.
To further support private sector investment, we view that consistency on the policy and implementation of the policy would be needed. For example, under the Electricity Law No. 30/2009, the Perusahaan Listrik Negara (state-owned electricity company) will no longer have the monopoly rights in distributing electricity to end customers. However, it is subject to the “first right of priority” provided to the Perusahaan Listrik Negara.