Indonesian Companies in Focus: Logistics Firm Mega Manunggal Property

According to RHB OSK Securities, net profit of Mega Manunggal Property will grow by an average of 37 percent compound annual growth rate (CAGR) between the years 2015 and 2018, while its EBITDA margin is expected to be in the range of 80 - 85 percent. Given that Indonesia's economic growth is expected to accelerate from 4.79 percent (y/y) in 2015 to above 5 percent (y/y) in 2016 and beyond, there should occur more demand for logistics property from both domestic players and foreign investors or multinationals. Therefore, RHB OSK Securities estimates that net income of Mega Manunggal Property will rise from IDR 117 billion (approx. USD $8.8 million) to IDR 172 billion (approx. USD $12.9 million), followed by significantly higher growth rates in the next couple of years (see table below).

Mega Manunggal Property, which was established in mid-2010, owns four logistics property assets - with a total leasable area of 163,757 square meters - consisting of Unilever Mega DC, Li & Fung, Intirub Business Park, and Selayar. Most of this area - approximately 68 percent - consists of built-to-suit logistics property. The company wants to have raised this figure to 73 percent by the end of this year. Increasing the importance of built-to-suit warehouses toward Mega Manunggal Property's earnings is regarded a safe business model because this type of warehouses have a high (and long-term) utilization rate.

The business structure of Mega Manunggal Property is strong as most of its contracts with clients are long-term based and include an annual increase in rental rates. RHB OSK Securities states that the company's high profit margin comes on the back of low operational costs and high rental rates.

Toward the future earnings of Mega Manunggal Property are estimated to continue growing as the company is eager to increase the net sealable area of its warehouses to 500,000 square meters in the next three or four years (from 163,757 m² currently).

RHB OSK Securities put the target price for shares of Mega Manunggal Property at IDR 950 per piece, implying it advises investor to buy the company's shares. The share price of Mega Manunggal Property did not change on Thursday (19/05). So far this year, the company's shares have fallen 11.88 percent to IDR 705 a piece.

Stock Quote Mega Manunggal Property - MMLP:

Another development that should support earnings of Mega Manunggal Property is further development of Indonesia's e-commerce industry (these online platforms need warehouses for their products). Recently, the number of Indonesian Internet users reached 100 million and this should boost the nation's e-commerce industry. Last year, The Indonesian E-Commerce Association (idEA) estimated that the number of Indonesian online shoppers will touch the figure of 10 million in 2016, implying earnings in Indonesia's e-commerce industry should more than double to IDR 20 million this year. By 2020, the idEA expects the online retail industry to account for five percent of Indonesia's economy (from 0.7 percent in 2015).

Mega Manunggal Property's Financial Highlights:

	2014	2015	2016F	2017F	2018F
Net Sales	142	163	172	285	454
Net Income	287	117	171	257	293
P/E Ratio (x)	9.8	29.2	23.6	15.7	13.7
P/BV Ratio (x)	1.95	1.58	1.48	1.35	1.23

^{in billion IDR rupiah unless otherwise stated
Source: RHB OSK Securities (19/05/2016)}

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