These 2 Singapore Stocks Have Heavy Exposure To Indonesia’s Growing Economy

Indonesia is Singapore’s second closest geographical neighbour. It is also a country with a bright economic future, according to some market researchers and consulting firms.

For instance, according to market research outfit Euromonitor, Indonesia had the world’s fourth-largest number of middle class households in 2014 at 17.3 million, behind the USA at 25.3 million, India at 74 million, and China at 112 million.

Euromonitor also projects that Indonesia will have around 20 million middle class households by 2030. Meanwhile, the country’s median household disposable income is forecast to nearly double from US$6,300 in 2014 to US$11,300 in 2030.

There are many stocks in Singapore’s market that have significant exposure to the Indonesian economy. These companies are also in different types of businesses.

One stock that is plugged into Indonesia’s retail scene is Lippo Malls Indonesia Retail Trust (SGX: D5IU). The real estate investment trust’s current portfolio consists of 19 retail malls and seven retail spaces located within other malls. These properties are all located in Indonesia and give Lippo Malls Indonesia Retail Trust a total net lettable area of 765,273 square metres (as of end-2015).

At its current unit price of $0.37, the REIT is trading at a slight discount to its latest book value of S$0.379 per unit and has a trailing distribution yield of 8.8%. Investors may also want to know that the REIT does not have a good track record of growing its distributions. For instance, its distribution of 5.04 Singapore cents per unit in 2009 has shrunk to 3.26 cents per unit over the last 12 months.

Another stock that sources revenue primarily from Indonesia is First Real Estate Investment Trust (SGX: AW9U). While First REIT is obviously another REIT, it is exposed to a different section of Indonesia’s economy when compared to Lippo Malls Indonesia Retail Trust.

First REIT is focused on owning healthcare-related assets. It has stakes in 17 properties in total, of which 13 are located in Indonesia. The Indonesian properties mainly consist of hospitals that are under the Siloam brand. At the end of 2015, 96.3% of the REIT’s total portfolio value of S$1.27 billion came from its Indonesian properties.

The REIT’s distributions have displayed consistent growth over the past few years, climbing in each year since 2010. All told, First REIT’s distribution has grown from 6.63 Singapore cents per unit in 2010 to 8.30 cents per unit in 2015. Its distribution per unit for the first-half of 2016 is 4.22 Singapore cents.

First REIT currently has a unit price of S$1.32. This gives the REIT a price-to-book ratio of 1.3 and a trailing distribution yield of 6.4%.

A Foolish conclusion

As we’ve seen, there are estimates that point to solid economic growth for Indonesia over the long-term future. But, there are no guarantees that the country will meet those targets.

Moreover, even if Indonesia’s economy were to grow strongly in the years ahead, it does not mean that every business operating in the country would be able to tag along for the ride. There will be winners as well as losers.

Investors looking at stocks in Singapore’s market with big exposure to Indonesia will have to keep the two points in mind.

For more investing insights and to keep up to date on the latest financial and stock market news, you can sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat owns units in Lippo Malls Indonesia Retail Trust.