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How You Can Ride On Indonesia’s Growth Story

Economist Jim O’Neill is famous for coining the term “BRIC” to describe the fast-growing economies of Brazil, Russia, India, and China. But, that might be passé now that he has set his sights on a few new countries that could be “emerging economic giants”, according to BBC’s article titled The Mint countries: Next economic giants?

Meet the “MINT” – Mexico, Indonesia, Nigeria, and Turkey. These countries’ future growth would largely be driven by what BBC calls “really good “inner” demographics”, i.e. the rise in the proportion of working-age people as compared to those who are not working.

As Indonesia is Singapore’s southern neighbour, we Singaporean investors might want to pay a little more attention there as compared to the other MINTs. And, it’s a country that’s worth at least a glance if Goldman Sachs’ estimates of Indonesia’s economic growth are anything close to how it would pan out eventually.

The BBC article referenced Goldman Sachs and the World Bank’s research to show how Indonesia’s gross domestic product (GDP) could rise from US$0.88 trillion in 2012 to some US$6.04 trillion by 2050. Just to give some scale to the numbers, that’s a gain in GDP of almost 600% in 38 years, or roughly 5.2% a year.

For investors in Singapore who believe in Indonesia’s growth story, here are some ways they could ride on that.

Share

Price

Price to Earnings

Price to Book

Jardine Cycle & Carriage (SGX: C07)

S$39.01

13.4

Golden Agri-Resources (SGX: E5H)

S$0.52

22.0

First REIT (SGX: AW9U)

S$1.045

1.15

Lippo Malls Indonesia Retail Trust (SGX: D5IU)

S$0.415

0.92

Source: S&P Capital IQ

1. Jardine Cycle & Carriage

More than 90% of Jardine Cycle & Carriage’s revenue and operating profits for the whole of 2012 came from its 50% ownership in Indonesian conglomerate Astra.

Listed in the Indonesian stock market, Astra is exposed to a huge slice of the country’s economy through its business interests that includes the distribution, manufacture, and assembly of automobiles and other motor vehicles; financial services that consist of consumer finance, insurance, and banking; heavy equipment and mining; oil palm plantations; infrastructure and logistics; and information technology.

Jardine Cycle & Carriage’s historical corporate performance has been stellar, with profits growing by almost 600% from US$119m in 2002 to US$828m over the last 12 months.

2. Golden Agri-Resources

The palm oil producer is the world’s second largest palm oil plantation company. Golden Agri-Resources does have business interests in China, but Indonesia is by far its most important geographic base as the latter-country accounted for more than 100% of its pre-tax operating profits in 2012.

Golden Agri’s share price, over the long-term, can be rather tethered to the movement of crude palm oil prices. That’s no real surprise given that palm oil commodity is the lifeblood of the company but that’s still something to note for investors.

With more than 467,000 hectares of planted area in Indonesia as of 30 Sep 2013, the company’s also putting in strong efforts to ensure that its business practices are environmentally sustainable.

3. First REIT

First REIT’s a real estate investment trust with a portfolio of 14 healthcare and hospitality properties located in Indonesia, Singapore, and South Korea. The bulk of the REIT’s portfolio is in Indonesia though, with some 94.8% of the value of its properties – pegged at S$1.02b as of June 2013 – coming from Singapore’s southern neighbour.

According to First REIT’s investor presentation released in August last year, the REITs’ properties have a 100% committed occupancy and long lease terms lasting 10 to 15 years. In addition, the REIT’s lease terms also have a step up escalation component built into them, which would see rentals rise by up to 2% per year.

Annual distributions for the REIT have remained rather steady from 6.73 Singapore cents per unit in 2007 to 6.99 Singapore cents over the last 12 months.

4. Lippo Malls Indonesia Retail Trust

The real estate investment trust was listed on Singapore’s Mainboard exchange since November 2007 and owns a portfolio of 16 retail malls and 7 retail spaces in Indonesia. Based on the REIT’s third quarter earnings presentation for the three months ended 30 Sep 2013, its portfolio is valued at S$1.75b and has a 95% occupancy rate.

Lippo Malls’ portfolio has a well spread-out lease expiry profile, with a weighted average lease expiry of 5.1 years as of 30 Sep 2013. The REIT has also been experiencing high positive rental reversions – the renewal of rental rates to reflect market conditions – ranging from 8.9% to 27.1% over its past seven financial quarters.

Unlike First REIT however, distributions per unit for Lippo Malls have been decreasing, from 4.96 Singapore cents in 2008 to 2.95 cents in 2012.

Foolish Bottom Line

The four shares above all have significant exposure to Indonesia (though they are by no means the only shares that can benefit from there) and if the country’s eventual growth pans out as some have estimated, then these shares could be in a great position to capture some of that growth in economic value.

But as it is, investors should also be mindful of the risks involved, such as the possibility of a falling Indonesian rupiah, which can dampen these shares’ results when translated into Singapore dollars.

In addition, the presence or absence of any strong competitive advantages in the various businesses that these shares are involved with would also be important in determining their long-term returns for shareholders. That’s something investors should spend some time thinking about.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.