BNP Paribas - Jababeka (KIJA IJ) - Major overhang removed; new power plant to boost earnings in 2010 onward

Jababeka (Not Rated) held an analyst meeting earlier today to clarify issues surrounding the financing and licensing issues on its new power plant project. The share price was pummelled in the past year due to the uncertainties over the company's USD financing for a construction of its new 130 MW gas-fired power plant.

The key takeaways from the meeting:
1. The major overhang, namely the securing of operational area license, has been removed after the Ministry of Energy and Mineral issued an approval letter in mid March 2009. The prolonged process (seven months) to obtain the license was caused by the issuance of new ministry regulation in August 2008 which required new power plants to obtain such license. Hence, Jababeka has finally met all conditions for the disbursement of its USD135m syndicated loans. The first drawdown was made in April 2009.

2. Jababeka expects its revenue to surge 150% y-y and EBIT to triple y-y in 2010 to IDR370b (assuming 80% utilization rate of the power plant) post the commercial operation of the full 130MW project in 1Q10. The first gas turbine (40MW) is slated to be operational in September 2009, followed by the second turbine of the same capacity in December 2009.

3. The company has secured 5-year contracts with Perusahaan Gas Negara and Petrogas for the supply of its gas. The average purchase price is USD0.057/mmbtu. Jababeka expects to sell its electricity at USD0.08 to USD0.085/kwh vs. USD0.09/kwh price charged by Cikarang Listrindo (an IPP) and USD0.11/kwh price of PLN (state-owned electricity company). EBITDA margin for the new power plant is expected at 35-40%.

4. The operational area license requires coordination with the existing power providers in the vicinity. Jababeka needs to co-ordinate with Cikarang Listrindo (CL) and PLN to set its distribution area so as not to overlap with the two providers'. As CL already operating at 100% utilization and PLN facing deficit, Jababeka expects no difficulty in getting the agreement from these two providers.

Jababeka is a major laggard amongst property stocks in Indonesia, rising 'only' 72% YTD compared to more than 150% for other stocks as
the market is still fixated by the huge losses that Jababeka incurred in 1Q09. However, if we dig deeper, the IDR60b net losses were caused largely by the interest expense (IDR35b) and forex translation loss (IDR44b) arising from the bridging loan. Starting in 2Q09, these two expense items will be capitalized as per accounting rules, the loans will be transferred to the subsidiary level post the drawdown of the syndicated loans.

Assuming conservatively that the stock could re-rate to 1.0x 2010 P/B (for comparison, 2008 peak P/B was 1.7x), the share price could rise to IDR140 (63% upside potential).