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Indo infrastructureSpecial report
FindCLSA research on Bloomberg, Thomson Reuters, CapIQ and themarkets.com - and profit from our evalu@torproprietary database at clsa.com
Sarina Lesmina, CFAHead of Indonesia [email protected]+62 21 2554 8820
Jessica Tosin+62 21 2554 8831
21 February 2014
IndonesiaInfrastructure
BUYs
Indocement
Jasa Marga
Wijaya Karya
Outperforms
Perusahaan Gas
PTPP
Semen Indonesia
www.clsa.com
Block by blockTechnocrats get things rolling
Interviews with
technocrats inside
Watch Sarina on CLSA TV
http://www.clsa.com/http://www.clsa.com/https://www.clsa.com/member/video/542685547https://www.clsa.com/member/video/542685547https://www.clsa.com/member/conviction/market/buyshttp://www.clsa.com/http://www.clsa.com/ -
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Indo infrastructure
2 [email protected] 21 February 2014
Contents
Executive summary .......................................................................... 3
Indonesias infrastructure buildout ................................................... 4
Investment thesis ............................................................................. 6
Much to be done ..............................................................................13
Green shoots of progress .................................................................18
Financing needs coordination ..........................................................43
How to play the theme .....................................................................55
Company profiles
Indocement .............................. 65
Jasa Marga ............................... 71
Perusahaan Gas ........................ 75
PTPP ........................................ 79
Semen Indonesia ....................... 83
Wijaya Karya ............................ 87
Appendices
1: Interviews ..................................................................................... 912: Land-reform bill .............................................................................. 97
3: Politics .......................................................................................... 99
4: Other hidden gems ....................................................................... 102
5: Recommendation history ............................................................... 103
All prices quoted herein are as at close of business 19 February 2014, unless otherwise stated
Indonesia in focus
https://www.clsa.com/member/reports/537664285.pdfhttps://www.clsa.com/member/reports/537660864.pdfhttps://www.clsa.com/member/reports/537666146.pdfhttps://www.clsa.com/member/reports/542678029.pdf -
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Executive summary Indo infrastructure
21 February 2014 [email protected] 3
Block by blockInfrastructure is a hopeless topic in Indonesia - jam karet (literally rubber
time, meaning extended waiting) has become synonymous with Jakartatraffic. Despite plenty of initiatives over the years, implementation has been
poor; and there is much to be done. However, some technocrats are finally
putting the building blocks together. Financing is possible, but requires
government support. Regardless of the challenges, we expect the next
administration to push for more infrastructure investment, the multiplier
effect of which will drive robust economic growth.
Indonesia lags its Asian peers by a wide margin in terms of infrastructure
adequacy. Logistics costs/GDP was a high 27% in 2013, which is not surprising
given that the country has the smallest road network per land area, and it
costs more to ship between its islands than overseas. That said, the lucrative
domestic market has continued to bring in investment. The Japanese
government, in particular, has a long investment history in Indonesia (eg, auto
industry); the Japan Bank for International Cooperation is financing MRT, and
Japanese banks are among the largest foreign operations in Indonesia.
Coming from a low base, there has been some impressive progress: railway
services have been revamped; the main ports throughput has doubled in three
years with more expansion to come; and MRT construction has begun. But
acceleration is essential and while some technocrats have been leading the
charge, government support is crucial.
The National Development Planning Agency estimates Indonesia needs to
invest US$550-600bn (12% of GDP; China spent 9% over 1992-2011) in
infrastructure over the next five years. Financing the gap is possible but
requires unprecedented coordination between the government, state-owned
enterprises, onshore commercial banks and international aid agencies. This
will be challenging, thus the central government needs to play a major role.
While progress is encouraging, a solid framework needs to be put in place so
infrastructure reform can continue long after these technocrats are gone. For
instance, enforcement of the new land bill (effective end-2014 for ongoing
projects) is key to accelerate land clearing - a major bottleneck. Given that
rollout takes time, incumbents should continue to benefit in the medium term.
This year marks a turning point as a new government comes in and we hope
the green shoots of progress can pick up speed. Our key picks are Indocement,
Semen Indonesia, Wijaya Karya, PTPP, Jasa Marga and Perusahaan Gas.
Government infrastructure spending
Source: Government of Indonesia
55 64 73 76 80
118
145171
230
1.6 1.6
1.5
1.4
1.3
1.6
1.8
1.9
2.3
0.81.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
050
100
150
200
250
300
350
400
450
500
2006 2007 2008 2009 2010 2011 2012 13F 14F
(Rptn) Government capital spending
% of GDP (RHS)
(%)
Green shoots of progress
Financing needscoordination
How to play the theme
Much to be done
Execution on
infrastructureinvestment to improve
Governmentinfrastructure spending is
picking up, but needsacceleration and more
private participation
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Indo infrastructure
4 [email protected] 21 February 2014
Indonesias infrastructure buildout
Source: Google Maps, CLSA
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Investment thesis Indo infrastructure
6 [email protected] 21 February 2014
Infrastructure needs to pick up paceThere is a Chinese saying that for a country to prosper, build roads first.
Chinas massive infrastructure investment in the mid-1990s paid off as GDPgrowth soared. In 2008-09 it reached an inflection point, where the boost
from more investment became marginal. With its infrastructure adequacy
lagging many regional peers by a wide margin, Indonesia is years away from
that inflection point.
Much to be doneIndonesia has a high logistics costs/GDP ratio of 27%. We doubt it can
sustain GDP growth at the 10-year average of 5.5-6% if the country does not
invest in infrastructure development.
Chinas GDP growth and road coverage Indos GDP growth and road coverage
Source: IMF, CIA Factbook
Logistics costs as a portion of GDP
Source: World Bank (2012 data)
Railway length per capita Road density (network per land area)
Note: We show only the closest proxies for
Indonesia in Asia. Source: World Bank, KAI
Note: We show only the closest proxies for
Indonesia in Asia. Source: CIA Factbook
0.0
0.1
0.2
0.3
0.4
0.5
0
2
4
6
8
10
12
14
1996
1998
2000
2002
2003
2004
2005
2006
2007
2008
2009
2011
13CL
Real GDP growth
Road coverage (RHS)
(%) (km/m)
0.00
0.05
0.10
0.15
0.20
0.25
0.30
(15)
(10)
(5)
0
5
10
1996
1998
2000
2002
2003
2004
2005
2006
2007
2008
2009
2011
2013
Real GDP growth
Road coverage (RHS)
(%) (km/m)
0
5
10
15
20
25
30
Indonesia Vietnam Thailand South
Korea
Malaysia Japan USA Singapore
(%)
157
53 49
21
0
20
40
60
80
100
120
140
160
180
Japan India China Indonesia
(km/m people)
0.270.35
0.43 0.44
0.71
1.08
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Indonesia Thailand China Malaysia Philippines Korea
(km/km)
Indonesia has a
high logistics costs/GDP of 27%
With a 4% Cagr in
road density over1996-2013, Indonesia
has underinvested
Multiplier effect ofinfrastructureinvestment
Insufficient railwaysand roads for publicand goods transport
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Investment thesis Indo infrastructure
21 February 2014 [email protected] 7
Railway length in Indonesia Dwelling time at key seaports
Source: Source: Ministry of Transportation,
Directorate General of Railways
Source: World Bank
Cost to ship a 20ft container from Jakarta
Source: IPC
Daily capacity of public transport: Greater Jakarta versus Singapore
Greater Jakarta (current) Greater Jakarta (2020 plan) Singapore (current)Buses 763,000 1,843,000 3,481,000MRT 0 400,000 2,649,000Taxis 75,000 270,000 967,000
Railway 700,000 1,500,000Total 1,538,000 4,013,000 7,097,000Coverage per person (%) 6.4 16.7 129
Source: CLSA, companies
The lucrative domestic market has continued to attract investment, but it is a
critical time for infrastructure growth. The Japanese government in particular,
has a long investment history in Indonesia (eg, autos industry) and its banks
are among the largest foreign operations in the country, yet its focus is not oninfrastructure funding. For the first time since 1992, the Japan Bank for
International Cooperations (JBIC) survey of Japanese companies ranked
Indonesia No.1 destination again for foreign direct investment (FDI) over the
medium term, last year (up from the third place in 2012).
JBIC ranking: Japanese companies choice of FDI destination
2013 2012Indonesia 1 3India 2 2Thailand 3 4China 4 1Vietnam 5 5Brazil 6 6
Mexico 7 7Myanmar 8 10
Russia 9 8USA 10 9
Source: JBIC
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1867
1870
1880
1890
1900
1939
1950
1955
1990
1995
1996
1997
1998
1999
2000
2001
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
(km)
0
1
2
3
4
56
7
8
Jakarta
Thailand
Malaysia
LosAngeles
Australia
France
HongKong
Singapore
(days)
0
2,000
4,000
6,000
8,000
10,000
12,000
0
500
1,000
1,500
2,000
2,500
3,000
Singapore
HongKong
Bangkok
Shanghai
Tokyo
Hamburg
Padang
Medan
Banjarmasin
Makassar
Ambon
(US$) (km)Shipping cost per 20ft container
Distance (RHS)
Indonesia is Japanesefirms No.1 destination
for foreign
direct investment
It costs on average 12xmore to ship from
Jakarta to domesticseaports than to
ship to Singapore
Railway networkhas not expanded
in past 20 years . . .
. . . and dwellingtime at seaport is long
Local market attractsinvestment but needsto ease infrastructure
bottleneck
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Investment thesis Indo infrastructure
8 [email protected] 21 February 2014
Green shoots of progressComing from a low base, there has been impressive progress in Indonesias
infrastructure buildup. Some technocrats have been leading the charge, butgovernment support is crucial for acceleration.
Tanjung Priok capacity IPC profit
IPC ROI IPC assets
Source: IPC
Railway operation turned around Cargo transport was revamped
Source: KAI
Number of train accidents A blast from the past
Source: KAI Source: CLSA
3.8 4.6
5.7 6.2 6.2
10.7
18.7
0
2
4
6
8
10
12
14
16
18
20
2009 2010 2011 2012 2013 2017 2023
(m TEUs)
0
500
1,000
1,500
2,000
2,500
3,000
2007 2008 2009 2010 2011 2012 2013 14F
(Rpbn)
22.0
23.0
24.0
25.0
26.0
27.0
28.0
2007 2008 2009 2010 2011 2012
(%)
0
5,000
10,000
15,000
20,000
25,000
2009 2010 2011 2012 2013 14F
(Rpbn)
(200)
0
200
400
600
800
1,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2006
2007
2008
2009
2010
2011
2012
2013
14F
(Rpbn)(Rpbn) Revenue
NI (RHS)
19.2 19.0 18.9 19.3
22.0
27.0
10
12
14
16
18
20
22
24
26
28
2008 2009 2010 2011 2012 2013
(m tonnes)
0
20
40
60
80
100
120
140
160
2005 2006 2007 2008 2009 2010 2011 2012 2013
Major seaportscapacity doubled
since 2009, and 72%expansion underway
IPC that runs 12seaports in Indonesia
booked a 20%profit Cagr since 2009
Coming from lowbase, ROI rose sharply,while assets more than
doubled in five years
From loss-making in2008, state-owned
railway operator sawa 33% profit Cagr
Cargo transportwas revamped
Trains arebecoming safer . . .
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Investment thesis Indo infrastructure
21 February 2014 [email protected] 9
E-ticketing launched in 1H13 Paper tickets were phased out
Source: KAI
Medan-Kuala Namu airport train Inside the airport train
Source: www.railink.co.id Source: www.merdeka.com
MRT Jakarta starting construction New tollroad to seaport
Source: CLSA
Passenger growth in past five years Top 10 busiest airport in the world
Source: Airports Source: Airports Council International (2012)
15.8
11.4
10.0
8.3
4.0
1.7
1.5
1.1
0.7
0.4
0 2 4 6 8 10 12 14 16 18
Soekarno-Hatta
Dubai
Beijing
Singapore Changi
Hong Kong
Los Angeles
Atlanta
London Heathrow
Dallas-Fort Worth
Tokyo (%)
95
82
70
68
67
64
62
59
58
58
0 10 20 30 40 50 60 70 80 90 100
Atlanta
Beijing
London Heathrow
Tokyo
Chicago O'hare
Los Angeles
Paris Charles de Gaulle
Dallas-Fort Worth
Soekarno-Hatta
Dubai (m)
. . . and more modern
First airport trainto city was launchedin Medan (39km)
MRT has begunconstruction (after
being a perpetualconcept since 1986)
New tollroad toTanjung Priok
nearly done
Soekarno-Hatta isin the process of
doubling its capacity
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Investment thesis Indo infrastructure
10 [email protected] 21 February 2014
Newly arrived TransJakarta bus fleet E-payment launched in January 2013
Source: TransJakarta Source: CLSA
We interviewed some of the technocrats leading the change. They are
capable, and reform-minded leaders. Nonetheless, while they have worked
wonders, governments support is crucial to leapfrog to the next level.
Financing needs coordinationThe National Development Planning Agency estimates the country needs
US$550-600bn in the next five years for its infrastructure needs. Hence,
infrastructure spending as a portion of GDP needs to triple to 12%.
There is a US$75bn annual financing shortfall from what the government and
the private sector are spending. We estimate over a five-year period,
US$450-500bn could be raised by various sources (government, SOEs,
onshore banks, etc) to support infrastructure spending, bridging the gap with
private investment.
While capacity is available, realisation requires an unprecedented level of
coordination between parliament, the Ministry of Finance (MOF), state-ownedenterprises (SOEs), onshore commercial banks and international aid agencies.
This will be challenging and thus needs full support from the central
government.
Public funding sources
Source Amount (US$bn) Assumption
Government debt capacity 200 50% public debt:GDP
Subsidy savings from the budget 150 5 years subsidies at the current level
State owned enterprises 41 200% debt to equity (70:30 debt:equity)
Onshore banks and capital markets 37 5-year growth in onshore funds (10% per annum), 25%dedicated to infrastructure lending
Development agencies,government to government
30 Annual peak commitments of JICA, ADB and World Bank x5
Total 458
Source: CLSA
What US$30bn can provide for infrastructure 3,600km of tollroads, which will more than quadruple the current network. Or 27,000km railway, which will increase current network (5,040km) by
five times.
Or 94m twenty-foot equivalent units (TEUs) port capacity, which willincrease Tanjung Priok Ports capacity by 15x.
Or 10x more on current MRT capacity (with additional 350km). Or 30GW of coal-fired power generation, which will almost double current
national capacity of 36GW (out of which 26GW is in Java).
TransJakarta buswayfleet rose by 50% to
about 2,000 units
E-payment systemlaunched last January;five banks participate
Needs US$550-600bnin the next five years
Annual US$75bnfinancing shortfall
If US$30bn annualsubsidy is removed
Public funding canbridge the gap, but
requires unprecedentedcoordination
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Investment thesis Indo infrastructure
21 February 2014 [email protected] 11
How to play the themeWhile current progress is encouraging, a solid framework needs to be in place
so infrastructure reform can continue long after these leaders are gone.
A key catalyst will be the enforcement of the land-reform bill which will
become effective the end of this year for projects that are in the land-clearing
phase. This is hoped to accelerate the land-clearing process which is currently
a major bottleneck.
Given that rollout takes time, existing incumbents should continue to benefit in
the medium term. This year marks a turning point as a new government comes
in and we hope the green shoots of progress will sprout more quickly. Key direct
beneficiaries are cement, construction, tollroad and oil & gas sectors.
Our stock picks in these industries are Indocement, Semen Indonesia, Wijaya
Karya, PTPP, Jasa Marga and Perusahaan Gas. Compared to regional peers,
Indonesian infrastructure plays are trading at higher average 15CL PE (13.3x
versus 12.1x), but they offer greater return potential.
Indocement (INTP IJ - BUY). We expect Java to remain the key focusof infrastructure development; 56% of Indonesias cement demand comes
from the region. Indocement is a key beneficiary given its Java focus. The
company has strong pricing power (superior margin and ROIC),
dominance in Java and a strong balance sheet to finance growth.
Valuation has also become less demanding versus its peers. We raise our
target price from Rp24,500 to Rp27,500 on increasing optimism over a
renewed investment cycle. Our fair value is based on 17x 15CL PE, or one
standard deviation above its historical mean.
Cement consumption if GDP growth rises to 7% Cement penetration (consumption/capita)
Source: CLSA, ASI Source: 2012 World Bank, Indonesian Cement Association (ASI)
Jasa Marga (JSMR IJ - BUY).Being the largest and most experiencedtollroad operator in Indonesia, Jasa Marga stands to benefit from the
potential acceleration in infrastructure development, with implementation
of the land-reform bill to kick in by the end of 2014. The company is
expanding its network by 32% by 2017, with the imminent completion of
the crucial Jakarta Outer Ring Road (JORR) 1 this year. Moreover, its
margin is likely to improve with operational leverage and more
automation. Its valuation has become less demanding with superior ROEversus its peers. Our Rp7,200 target price is at a 25% discount to our
estimated NAV.
0
100
200
300
400
500
600
0
20
40
60
80
100
120
140
2013 2020
(m tonnes) (kg)
Consumption (LHS)
Consumption/capita
1,637
1,119
591 563503
233 199 165
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Chin
a
Singapor
e
Malaysia
Vietnam
Thailan
d
Indonesia
Philippine
s
India
(kg)
Full support fromgovernment is needed
Largest tollroadoperator, Jasa Marga
to benefit
Enforcement of newland bill is key catalyst
https://www.clsa.com/member/company/index.asp?clsa_id=1726https://www.clsa.com/member/company/index.asp?clsa_id=1726 -
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Investment thesis Indo infrastructure
12 [email protected] 21 February 2014
Wijaya Karya (WIKA IJ - BUY).Wijaya Karya is our top pick in theconstruction sector due to its diversified earnings and ability to win
frontier projects such as the MRT. In addition, it continuously branches outearnings leveraged to infrastructure via a new business line from pre-cast
concrete manufacturing to asphalt manufacturing. The stock is trading at
11.4x 15CL PE. Our Rp2,350 target price is based on 13.5x.
Pembangunan Perumahan (PTPP IJ - O-PF). Contribution fromKalibaru Phase 1 boosted the construction companysgrowth in 2013. Its
participation in the Rp8tn project also raises its chance to win Phase 2.
The firm gets business from both SOEs and the private sector, which gives
it a buffer against any slowdown in government infrastructure spending.
Pembangunan Perumahan is the second-cheapest contractor in our
coverage universe. Our 12-month target price is Rp1,510.
Perusahaan Gas (PGAS IJ - O-PF). PGas is the dominant gas supplierin Indonesia. To overcome stagnant distribution volumes, the company isbuilding a second LNG-receiving terminal and has purchased interests in
upstream fields in Indonesia. Disputes over pipeline access leading to
margin compression or a value-destructive merger with Pertamina are
overblown, depressing the stock price and providing a buying opportunity.
We continue to rate PGas an Outperform and raise our target price from
Rp5,000 to Rp5,500, removing the probability ascribed to a Pertamina
takeover (previously 30%).
Semen Indonesia (SMGR IJ - O-PF).As the largest cement player inIndonesia with a presence in all key regions, Semen Indonesia stands to
benefit from the potential acceleration in infrastructure development.
Capacity expansion enabled it to gain back lost market share in 2013, and
it will add another 10.8m tonnes by 2017. We raise our target price from
Rp14,500 to Rp16,500 on increasing optimism over a renewed investment
cycle. Our fair value is based on 17x 15CL PE, or one standard deviation
above its historical mean and we maintain our Outperform call.
Asean infrastructure valuations
Company Code Mkt cap(US$m)
Rec Price(Rp)
Target(Rp)
Upside(%)
Div yld(%)
TSR(%)
PE (x) ROAE(%)
NetD/E
(%)14CL 15CL
IJM Corp IJM MK 2,449 O-PF 5.8 6.6 15 2.8 18 12.8 13.8 11 40
Gamuda GAM MK 3,054 O-PF 4.6 5.3 15 3.0 18 16.0 15.5 13 7
Megawide MWIDE PM 449 BUY 12.8 15.7 23 0.6 23 15.3 12.0 15 59
EEI EEI PM 231 O-PF 10.7 12.2 14 1.9 16 12.7 12.1 15 (5)
Stecon STEC TB 660 BUY 16.3 26 60 3.2 63 15.5 13.2 19 (79)
Siam Cement SCC TB 15,146 BUY 412.0 510 24 4.1 28 12.1 11.1 23 75
Lafarge Republic LRI PM 1,166 BUY 9.1 16.4 80 5.3 85 12.3 10.7 22 (13)
Average regional plays 13.8 12.6 17 12
Indocement INTP IJ 7,054 BUY 22,650 27,500 21 1.7 23 15.4 13.9 22 (53)
Semen Indonesia SMGR IJ 7,527 O-PF 15,000 16,500 10 2.9 13 17.1 15.5 24 (4)
Holcim Indo SMCB IJ 1,381 SELL 2,225 2,160 (3) 2.4 (1) 16.5 14.2 11 23
PTPP PTPP IJ 569 O-PF 1,390 1,510 9 1.5 11 13.6 10.5 24 86
Waskita Karya WSKT IJ 491 O-PF 660 550 2 1.7 3 15.5 12.7 15 (4)
Wijaya Karya WIKA IJ 1,036 BUY 1,995 2,350 18 1.4 19 15.2 11.4 23 34
Jasa Marga JSMR IJ 3,135 BUY 5,450 7,200 32 1.5 34 20.8 19.2 18 70
Perusahaan Gas PGAS IJ 10,357 O-PF 5,050 5,500 9 4.4 13 11.5 12.0 32 (4)
Average Indonesian plays 15.6 13.4 21 26
Source: CLSA
Semen Indonesiais our second
pick in the space
PTPP sees upside fromseaport expansion
https://www.clsa.com/member/conviction/market/buys -
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Section 1: Much to be done Indo infrastructure
21 February 2014 [email protected] 13
Much to be doneIndonesia lags its regional peers by a wide margin in terms of infrastructure
adequacy. Logistics costs as a portion of GDP was a high 27% in 2013. Not asurprise given that the country has the smallest road network per land area,
and it costs more to ship between its islands than overseas. While the
lucrative domestic market continues to draw in investment, it is critical time
for its infrastructure to expand before the bottleneck starts hindering its
economic growth.
Logistics costs as a share of GDP rose from 24% in 2012 to 27% in 2013.
Transport makes up the bulk of logistics costs, followed by inventory (10%)
and administration (5%). It is questionable that Indonesia could maintain its
GDP growth at the 5.5-6% average of the past decade if the country does not
invest in infrastructure development.
Figure 1
Logistics costs as a portion of GDP (2013)
Source: World Bank
Figure 2
Key infrastructure metrics
Unit Indonesia Regional avg
Road density km/km 0.27 0.60
Port dwelling time days 7 3
Rail capacity km/m people 21 79Electrification ratio % 65 90
Source: World Bank, CIA Factbook, Government of Indonesia
Acceleration is neededFor instance, taking into account the medium-term capacity expansion of public
transport facilities in Greater Jakarta, the coverage (per population) will only
double to 13.6% in 2020. Unless the government boosts capacity additions,
traffic congestion will continue with ever-rising car demand, if not worsen.
Public transport capacity in Greater Jakarta will have to grow by 50% per
annum to enable 100% coverage, like in Singapore. There is no necessity for
cars in Singapore given that its public transport capacity of 7m people/day is
more than enough to cover its 5.5m population. Our previous Indonesia
country head, Nick Cashmore, who lives in Singapore these days, also pointed
out this interesting statistic on MRT penetration for some cities in the world.
0
5
10
15
20
25
30
Indonesia Vietnam Thailand SouthKorea
Malaysia Japan USA Singapore
(%)
To be as efficient asSingapore, capacity has to
rise by 50% per annum
Public transportpenetration in GreaterJakarta will double by
2020, but only to 13.6%
Indonesias logisticscost as a portion of
GDP is high and rising
Indonesia lags in
infrastructure adequacyby a wide margin
There is much to bedone in infrastructure
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Section 1: Much to be done Indo infrastructure
14 [email protected] 21 February 2014
Figure 3
Greater Jakarta public transport daily capacity
(No. of people) Current 2020 Note
Greater Jakarta railway 700,000 1,500,000
TransJakarta busway 360,000 1,440,000 Assume quadrupling capacity by 2020
Jakarta MRT - 400,000
Other public buses 403,000 403,000 Assume stagnant. To be replaced by TransJakarta buses
Taxis 75,000 270,000 Assume 20% pa growth
Public transport 1,463,000 3,743,000
Greater Jakarta population (people) 24,000,000 27,600,000 Assume 2% growth
Coverage (%) 6.1 13.6
No. of private vehicles 7,800,000 13,280,000
(No. of people) Current 2020 Note
Source: Companies
Figure 4
Singapore's public transport daily capacity (2012)
(No. of people)
MRT 2,525,000
LRT 124,000
Bus 3,481,000
Taxi 967,000
Total 7,097,000
Source: SMRT, LTA, SBST
Figure 5
MRT ridership per population
Note: Future capacity for Jakarta. Source: Government websites
On seaport, there was notable progress in debottlenecking (refer to the
following section), but much effort is needed to make it as efficient as
Singapore, where dwelling time for cargo is only a day.
Domestic shipment cost is high compared to international rates. It is more
expensive to ship goods from Jakarta to Padang (North Sumatra), which is
about 1,000km away, than to ship from Jakarta to Hamburg (11,000km). If
this issue is not addressed, Indonesia will lose out (especially with the setup
of the Asean Economic Community in 2015) as foreign companies are likely torelocate their manufacturing hubs outside Indonesia, where it is easier to ship
goods from neighbouring countries into the country.
0
10
20
30
40
50
60
70
80
Hong Kong Singapore London Manila Bangkok Jakarta Mumbai
(%)
Capacity of 7m people/day more than enough tocover its 5.5m population
Indonesias MRT coveragehas a long way to go
Domestic logisticcost needs to be
reduced substantially
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Section 1: Much to be done Indo infrastructure
21 February 2014 [email protected] 15
Figure 6
Dwelling time at key seaports
Source: World Bank
Figure 7
Cost to ship 1x20 container from Jakarta to various cities
Source: IPC
In the railway space, capacity per person is low. Operator Kereta Api
Indonesia (KAI) plans to more than double railway track length to 12,000km
by 2030. This will match its capacity (km/m people) to Chinas level.Figure 8 Figure 9
Railway network Railway length per capita
Source: World Bank, KAI
0
1
2
3
4
5
6
7
8
Jakarta Thailand Malaysia Los Angeles Australia France Hong Kong Singapore
(days)
0
2,000
4,000
6,000
8,000
10,000
12,000
0
500
1,000
1,500
2,000
2,500
3,000
Singapore
HongKong
Bangkok
Shanghai
Tokyo
Hamburg
Padang
Medan
Banjarmasin
Makassar
Ambon
(US$) (km)Shipping cost per 20ft container
Distance (RHS)
20,035
66,23964,460
5,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Japan China India Indonesia
(km)
157
49 53
21
0
20
40
60
80
100
120
140
160
180
Japan China India Indonesia
(km/m people)
Much effort is needed toimprove efficiency of
Tanjung Priok seaport
It costs on average12x more to ship from
Jakarta to most seaportsof Indonesia than
to ship to Singapore
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16 [email protected] 21 February 2014
Figure 10
Current railway capacity
Source: World Bank, KAI
Road development needs to accelerate as well, with Indonesia having the
smallest road network per land area in the region.
Figure 11
Road network per land area
Source: CIA Factbook
Lastly, the expansion of Soekarno-Hatta airport will allow it to take twice
more passengers in the next few years, but currently it is running at close to
3x its capacity.
Domestic market continues to appealWith its rapidly expanding middle class, Indonesia remains an attractive FDI
destination, especially to Japanese companies, many of which already have a
strong foothold in the country.
The JBICs 2013 survey of Japanese FDI outlook ranked Indonesia the most
promising country to do business in over the medium term (third place in
2012), while China fell from No.1 to No.4. Last year marks the first timeIndonesia took first place since 1992.
5,000
6,667
32,381
21
49
157
(50)
0
50
100
150
200
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Current km China Japan
(km) Indonesia To catch up Density (RHS) (km/m people)
0.27
0.35
0.43 0.44
0.71
1.08
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Indonesia Thailand China Malaysia Philippines Korea
(km/km)
Indonesia needs tomore than double its
rail capacity to matchChinas railway density
Road networkneeds expansion
Many Japanese firmsalready have a strong
foothold in the country
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Section 1: Much to be done Indo infrastructure
21 February 2014 [email protected] 17
Figure 12
JBIC ranking: Japanese companies choice of FDI destination
2013 2012
Indonesia 1 3
India 2 2
Thailand 3 4
China 4 1
Vietnam 5 5
Brazil 6 6
Mexico 7 7
Myanmar 8 10
Russia 9 8
USA 10 9
Source: JBIC
JBIC is funding the MRT Jakarta project, and Toyota is collaborating with the
city government to find solutions for the traffic congestion. All these are dueto the large potential of the domestic market which will boost the presence of
Japanese companies/products in Indonesia.
Nonetheless, the countrys infrastructure bottleneck will eventually take a toll
on consumption if it does not get fixed. In such case, will a 10% GDP/capita
Cagr still be realistic? Can annual disposable income growth keep up with
inflation due to high logistics costs? When growth stalls, FDI will disappear.
Figure 13
Ranking of infrastructure quality
Source: World Economic Forum, The Global Competitiveness Report, 2012
107
101
98
92
88
87
82
69
65
58
36
34
25
24
23
22
18
16
15
10
9
8
7
6
5
4
3
2
1
0 20 40 60 80 100 120
Brazil
Rusia
Philippines
Indonesia
Egypt
India
Italy
China
Mexico
South Africa
Australia
Turkey
United States
United Kingdom
Saudi Arabia
South Korea
Spain
Japan
Canada
Netherlands
Germany
Austria
Iceland
United Arab Emirates
France
Hong Kong
Finland
Singapore
Switzerland
Indonesia ranks poorly ininfrastructure quality
Indonesias rankingmoved to No.1 from
No.3in JBICs FDIoutlook survey 2013
When growth stalls,FDI will disappear
JBIC is funding the
MRT Jakarta project
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Section 2: Green shoots of progress Indo infrastructure
21 February 2014 [email protected] 19
Figure 14 Figure 15
Rainy season always brings floods . . . . . . in Jakarta
Source: CLSA
We interviewed Ahok in his dwelling in
North Jakarta. Not a surprise that he
considered traffic and floods to be the
most problematic issues and his and
Governor Jokowis first priorities since
they took office.
The pair had shown progress by
revitalising some dams in Jakarta,
notably the Pluit Dam in the north - an
area which was usually worst impacted
by flood. While the flood in Pluit was
much less severe this year since thedam is completed, many areas in
Jakarta were still flooded quite badly.
Unfortunately, Ahok mentioned there are more than 200 dams in Jakarta and
many are not functioning well. Hence, it will take time to make Jakarta flood-
free. (Refer to Appendix 1 for our full interview with Ahok).
For instance, even when it took a relatively short period (about a year) to
reconstruct Pluit Dam, the Jakarta government had to relocate about 1,000
squatters who occupied the bank of the dam to low-cost apartments. The
same approach was done for Ria Rio Dam in East Jakarta. Pluit Dam was also
made into a nice public park as part of the citys goal to increase green space.
Figure 17 Figure 18
Pluit Dam (before) Pluit Dam (now)
Source: www.panoramio.com Source: CLSA
Flood has becomea chronic issue
Pluit Dam in the northhas been revitalised
Figure 16
Basuki Ahok Purnama
Source: CLSA
Jakarta deputy governor
Quite an effort to clearsquatters to makeway for Pluit Dam
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20 [email protected] 21 February 2014
On traffic congestion, Ahok reckoned that building roads will not be enough to
solve the problem. The solution is more mass rapid system. Hence, the
government of Jakarta had been pushing ahead with a grand plan to integratethe busway (TransJakarta) system, commuter trains and the future MRT
using busway as the backbone. The aim is to provide better and more public
transport to reduce the number of cars on the street.
Ahok believes the budget this year should be enough to fund the Jakarta
governments infrastructure initiatives. Since our interview with Ahok, after
many delays, the Jakarta Provincial Assembly (DPRD) finally passed the 2014
budget of Rp72tn, a 44% increase from last year, and higher than what Ahok
had estimated (about Rp69tn).
Expanding TransJakarta busway systemTransJakarta is a bus rapid transit system initiated back in 2004. However,
due to a lack of buses and routes, traffic congestion still prevails. Moreover,the previous local government mandated that all TransJakarta buses have to
run on Bahan Bakar Gas (gas fuel) but the lack of supply of pump stations
reduce bus operational time to only four hours per day. Ahok mentioned that
this mandate has now been scrapped.
Figure 19
Usual scene at TransJakarta busway station
Source: www.ahok.org
The current 12 corridors (routes) of busway should be supported by 1,700
buses, but unfortunately there are only 580 units. Hence, Pemda Jakarta
(local government of Jakarta) had allocated Rp6tn (US$500m) to procure
1,000 buses for the TransJakarta fleet and 3,000 medium-sized buses for
regular public transport. Some will be used to replace ageing buses (ie, the
shabby regular public buses). This is hoped to reduce headway time for
TransJakarta (the space between one bus and another) from 15-20 minutes
to 5-7 minutes, and to almost double the number of daily passengers from
360,000 (2013) to 700,000 in 2014.
TransJakarta received 310 new buses by the end of 2013 from China, 90 of
which have started operation in January 2014. Also, to increase transparency,
future procurement will be done through an online system (e-catalog).
Long wait forthe bus to come
Grand plan to integrate
the busway system,commuter trains
and future MRT
Due to a lack of
buses and routes, thebusway system fails toease traffic congestion
Aim to double number ofdaily passengers from
360,000 in 2013 to700,000 in 2014
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21 February 2014 [email protected] 21
Figure 20
Additional buses rolling in
Source: www.beritajakarta.com
Pemda Jakarta added one corridor last February, serving Pluit in North
Jakarta to Tanjung Priok port. With this addition, the 12 corridors of
TransJakarta cover 207km with 228 stations. Three more are under
construction and targeted to finish in 2015.
Five banks expanded the usage of their electronic cards to the busway
system. Since the launch of the system on 22 January 2013, 20% of
transactions were made via electronic tickets.Figure 21 Figure 22
Banks electronic cards for TransJakarta Newly arrived fleet
Note: BRIZZI is from BRI, Flazz is from BCA,
jakcard is from Bank DKI, and e-money is fromBank Mandiri. Source: CLSA
Source: www.tempo.co
Free double-decker buses in main corridorsOn 16 January 2014, the first free double-decker bus route was launched.
The buses circle the main corridors of the city (Bundaran HI/HI roundabout
to Medan Merdeka Barat, Harmoni, Juanda, Gedung Kesenian Jakarta,
Cathedral church, Istiqlal Mosque and Balai Kota). Five buses run on the
route and they come with CCTV, internet connection, TV, GPS system and
air-conditioning. The plan is to increase the number of buses to 50 by year-
end and to add routes to suburbs and tourist places. The first double-decker
bus was first launched in Solo in February 2011 when Joko Jokowi Widodowas the mayor.
Nov 2013
Jokowiallocated
~Rp1.16tn(US$96m) toprocure 1,000
buses forTransJakarta.
21 Dec 2013
Jakarta'sTransportation
Agency(Dishub)
announced that310 out of
1,000 buseshave arrived inTanjung Priok.
Ential.
15 Jan 2014
30 newarticulated
TransJakartabuses beganoperation in
Corridor II andIII.
22 Jan 2014
Additional 30new articulatedTransJakartabuses beganoperation in
Corridor V andVIII.
30 Jan 2014
30 morearticulated
TransJakartabuses beganoperation inCorridor IX.
To build 38 morecorridors by 2030
Free double-deckertourist bus route
Electronic paymentsystem was launched
Banks participating in
providing electronicpayment system
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22 [email protected] 21 February 2014
Figure 23 Figure 24
Free double-decker bus in Jakarta Double-decker tourist bus in Solo
Source: www.tempo.co Source: www.duoinsolo.blogspot.com
Integrating with trainsKAI and the Jakarta government have agreed to integrate KAI commuter lines
from suburbs with the TransJakarta buses by connecting the stations. The
first focus will be on three big stations (Pasar Senen, Jatinegara and Tanah
Abang). There are also some park and ride facilities for TransJakarta
commuters to park their vehicles near the stations (available in six locations).
Key challenge in Ahoks view is coordination with the central government. As
an example, TransJakarta terminals are owned by Pemda Jakarta, but
management is under the Ministry of Transportation.
Seaport - A barrage of changeWithout capacity expansion, container traffic at Tanjung Priok had almost
doubled in the past three years to 6.2m TEUs in 2012, above its designed fullcapacity of 4m TEUs per annum.
Under new management led by RJ Lino in 2009, the Tanjung Priok Port had
undergone massive revitalisation which is still ongoing. This includes
debottlenecking at the physical facilities and workflow processes.
Tanjung Priok is managed by Pelindo II, which operates 12 ports in 10 of
Indonesias provinces. In 2012, the company was relaunched under the new
Indonesia Port Corp (IPC) brand with a tagline Energizing trade, energizing
Indonesia. This 130-year-old port is the busiest in Indonesia. It is located
north of capital Jakarta and processes 65-70% of the countrys exports.
Figure 25
RJ Lino, Tanjung Priok Port
Robert Joost Lino was born in East Nusa
Tenggara in 1953, and obtained his civilengineering degree from ITB Bandung in1976 (ITB is one of the top 10 universities inIndonesia). He also studied hydraulicengineering in the Netherlands. RJ Lino hadworked at IPC during the oil boom in 1980sas a project manager. He left in 1990 andmade a successful foray into the privatesector; one of it was a stake in a commercialport in China. In May2009, RJ Lino wasappointed as the new managing director ofPelindo II, replacing Abdullah Syaifuddin,
whose tenure came to an end.
From left to right: Sarina, RJ Lino and DanielOen, CLSA Indonesia Head of Sales
Source: Tanjung Priok Port, CLSA
KAI commuter linesfrom suburbs with theTransJakarta buses by
connecting the stations
Above-100% utilisation
Tanjung Priok is130 years old
Jokowi launched freedouble-decker
bus in Jakarta
RJ Lino led thetransformation in IPC
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21 February 2014 [email protected] 23
Figure 26
Container traffic at Tanjung Priok
Source: IPC
After a period of stagnation, IPCs revenue tripled from 2009 to 2013 (33% Cagr)
to Rp7.7tn with profit before tax doubled to Rp2.6tn (18% Cagr). The company
targets Rp20tn in 2018 and expects profit margin to expand from 35% to 40-
45%. The ports expansion (Kalibaru project) will raise its capacity by 72% in
2017, and another 74% in 2023. Moreover, given debottlenecking, IPCs ROI
had increased to about 28% from 23% before while total assets doubled in the
past five years. IPC is running at an Ebit margin of about 27%.
Figure 27 Figure 28
IPC saw 33% revenue Cagr in five years Profit doubled in five years
Note: 2013 unaudited. Source: IPC
Figure 29 Figure 30
Capacity expansion Assets doubled in past five years
Figure 31 Figure 32
Return on investment (ROI) Leverage (debt/equity)
Source: IPC
2.4 2.5 2.6
2.9 3.1
3.3 3.4 3.6
3.9 3.8
4.6
5.7
6.2 6.2
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F
(m TEUs)
0
2,000
4,000
6,000
8,000
10,000
2007 2008 2009 2010 2011 2012 2013 14F
(Rpbn)
0
500
1,000
1,500
2,000
2,500
3,000
2007 2008 2009 2010 2011 2012 2013 14F
(Rpbn)
3.8 4.6
5.7 6.2 6.2
10.7
18.7
02468
10
1214161820
2009 2010 2011 2012 2013 2017 2023
(m TEUs)
0
5,000
10,000
15,000
20,000
25,000
2009 2010 2011 2012 2013 14F
(Rpbn)
22
23
24
25
26
27
28
2007 2008 2009 2010 2011 2012
(%)
26
27
28
29
30
31
32
33
2007 2008 2009 2010 2011
(%)
Debottlenecking enableddoubling of capacity
in past three years
Operator IPC is running atan Ebit margin of 27%
Strong recovery inIPCs financials
Capacity to rise by72% in 2017 and
another 74% in 2023
ROI recovered andleverage improved
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24 [email protected] 21 February 2014
Improving soft infrastructure (labour productivity)IPC invested in training programmes and has set up IPC Academy by
collaborating with Netherland Maritime University Rotterdam, with vocational
training programmes. In the past few years, it had also sent 166 staff for
further studies overseas.
Figure 33
Overseas training for IPCs employees
Master programme - Overseas
Region University People
Europe Erasmus, KLU, IHE-DELFT, NMU, WMU, ITMMA 83
UK Plymouth, Liverpool, Southampton, Newcastle 28
China Shanghai Maritime University, Renmin University 13
Australia Victoria, Wollongong, Melbourne 3
Total 127
Executive MBA - Overseas
Program
EMBA - Inhouse IPC - Kuhne Logistic University in Germany (program for 15 months) 34
EMBA - Asia Pacific National University of Singapore (entry 2013) 2
EMBA - Overseas National University of Singapore - UCLA (entry 2013) 1
EMBA - Overseas IMD Business School Switzerland (entry 2013) 2
Total 39
Grand total 166
Source: IPC
Salary was also adjusted to be competitive with market. RJ Lino said that
after two years, a fresh graduate can earn up to Rp14m/month (US$117)
total compensation. As a comparison, fresh graduates with one to two years
experience at a state-owned telco earn about Rp11m/month. Fresh graduatesworking at oil companies get about Rp7.5-8m/month, and those working for
commercial banks start at Rp4-5m/month. IPC employs about 2,400 people.
Figure 34
Employees compensation
Source: IPC
Standardising operations and debottleneckingTo increase capacity without expansion, IPC also focuses on standardising
core operations, launching round-the-clock terminal services, implementingnew IT system, deepening the channels and strengthening the walls of the
port. Ongoing effort is also put on changing management from regional base
(of 12 ports) to business base (by function).
0
100
200
300
400
500
600
700
2009 2010 2011 2012
(Rpm pa) Class 4 Class 6 Class 9 Class 11 Class 16
Training programmesin place
Employees becomemore motivated
as compensation ismade competitive
Internal restructuring and
capacity debottlenecking
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Section 2: Green shoots of progress Indo infrastructure
21 February 2014 [email protected] 25
Mega project: Kalibaru (new Priok) expansionKalibaru Port project concession was awarded in April 2012 to IPC, and it
should increase Tanjung Prioks annual capacity by 12.5m TEUs by 2023. The
project broke ground in March 2013. The concession is for 70 years, with
provision to extend it by 25 years.
The project consists of two phases:
First phase of three container terminals with total 4.5m TEUs and two fuelberths. Time frame is 2013-17. Total investment is about US$2.5bn. This
will cover 172ha container land area with 2,400m length of quay. RJ Lino
mentioned that Terminal 1 will be completed by end-2014; Terminal 2 after
1.5 years, then Terminal 3 after another 1.5 years. Each terminal will have a
draft of 16m, allowing a container ship with a capacity up to 8,000 TEUs to
dock. The draft will be deepened to up to 20m for larger ship (18,000 TEUs).
Second phase will commence in 2018, with another four containerterminals with total capacity of 8m TEUs. Total cost is about US$1.5bn;
targeted to be completed in 2023.
Mitsui & Co won the tender to operate new Prioks first container terminal
(CT1), eliminating Maersk Line and MEC. Development has reached about
45%, completion is expected by end-2014. Royal HaskoningDHV, a Dutch
project management and engineering consultancy service provider, won the
contract to supervise the construction of the main port extension.
Figure 35 Figure 36
Tanjung Priok (before) Tanjung Priok (now)
Source: IPC
Figure 37 Figure 38
Kalibaru expansion in progress Kalibaru expansion in progress
Source: CLSA Source: IPC
IPC expects to generate about US$250m annual Ebitda, but this will not be
enough to fund Kalibaru Phase 1, which requires US$500m a year. The
company holds about US$200m cash, so external funding is needed.
Interestingly, despite being a SOE, RJ Lino said IPC does not receive any
budget nor any sort of guarantee from the government.
Capacity to rise further:by 72% in 2017
and 74% in 2023
Need to raise capitalto fund Kalibaru
Tanjung Priokwas revitalised
New capacity expansion
is on the way
Mega project expansionstarted in March 2013
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26 [email protected] 21 February 2014
IPC expects much of the expenditure to be financed through commercial
loans. Mitsui as operator had agreed to put in capital of US$100m and will
lease CT1 for US$14m (paid every three months); yearly adjusted perinflation for 20 years.
Current debt/equity (D/E) is a low 32%, hence technically IPC can gear up.
But, to finance expansion with just loan, D/E will have to rise to about3x.
Hence, RJ Lino mentioned that IPC will set up a subsidiary called Pelabuhan
Tanjung Priok this year to handle all operations and expansion of the Tanjung
Priok port. It will be able to raise financing and plans to list in the stock
exchange in the next two years.
RJ Lino mentioned that the subsidiary will have 700ha land under right to
use title (HPL - Hak Penggunaan Lahan). The title can be converted into
leasehold HGB - Hak Guna Bangunan) and the estimated value is a whoppingUS$10bn.
New access road in progressA new access road to the port is under construction by the government. This
11.4km tollroad is likely to be fully operational by the end of 2015. As of now,
3.4km is completed.
Figure 39
New Tanjung Priok tollroad under construction
Source: CLSA
Another plan - Main Sea Corridor across IndonesiaIPC plans to build a main sea corridor connecting the east and west of
Indonesia called Nusantara Pendulum. This will connect Belawan port on the
northeast of Sumatra to the Sorong port in West Papua (a straight-line
distance of more than 3,600km), with six key ports along the way. The focus
is on expanding the capacity of the key ports: Belawan, Jakarta (TanjungPriok), Surabaya (East Java), Makassar (South Sulawesi) and Sorong.
A subsidiary may belisted for capitalraising
To be fully operationalby the end of 2015
Connecting the eastand west of Indonesia
Interestingly, land assetsare worth US$10bn
Mitsui had putin some capital
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21 February 2014 [email protected] 27
The aim is to reduce domestic logistics costs. IPCs data show it costs less to
ship goods from Jakarta to Hamburg (11,000km away) than to Padang
(Sumatra) - which is only 1,000km away. It is also 45% cheaper and three tofour times faster to ship goods from Singapore to Jakarta than from Dumai to
Jakarta (Note: Dumais location in Sumatra is close to Singapore).
Figure 40
Cost to ship a 20ft container from Jakarta to various cities
Figure 41
Nusantara Pendulum main and sub corridor
Source: IPC
Reform, by default, always brings resistanceThe transformation of Tanjung Priok was not without resistance; and as
expected, most came from within IPC. As mentioned by RJ Lino during our
interview, IPC is a highly politicised place with a high number of direct and
indirect stakeholders. (Refer to Appendix 1 for the full interview).
Some employees went on strike recently demanding RJ Lino to resign. The
strike was initiated by a labour union, established by the ex-director of human
resources, who recently resigned.
0
2,000
4,000
6,000
8,000
10,000
12,000
0
500
1,000
1,500
2,000
2,500
3,000
Singapore
HongKong
Bangkok
Shanghai
Tokyo
Hamburg
Padang
Medan
Banjarmasin
Makassar
Ambon
(US$) (km)Shipping cost per 20ft container
Distance (RHS)
It costs an average 12xmore to ship goods from
Jakarta to domestic portsversus to Singapore
Capacity expansion planfor main seaports
IPC is highly politicised
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28 [email protected] 21 February 2014
MRT - Finally happeningThe long-awaited MRT Jakarta project is finally happening. Studies on Jakarta
Mass Transit System started in 1986, but it only kicked off recently whenJokowi approved it after a long evaluation process.
New management of MRT Jakarta (MRTJ) was appointed in March 2013 with
Dono Boestami as the President Director. MRTJ is 99.5% owned by the
government of Jakarta and 0.5% by PD Pasar Jaya. It was incorporated in
June 2008.
Figure 42
Dono Boestami, MRT Jakarta
Dono Boestami was CFO of IndonesiaInfrastructure Finance (IIF) for a brief fewmonths before he started heading MRTJakarta in March 2013. He graduated from the
University of Wisconsin with a degree in civilengineering in 1985, followed by a mastersdegree in construction project managementfrom Golden Gate in 1989. His experience wasmostly financed-related, as director ofinvestment banking at Danareksa, director ofBarclays Capital Securities Indonesia,president director of Citigroup SecuritiesIndonesia, finance director of Atlas Resources(2011-12) and CFO of PTBA (2006-11).
Source: MRT Jakarta, CLSA
The first contract for Phase 1 underground package was signed on 11 June
2013, which was subsequently followed by ground-breaking in October. Various
consortiums of Japanese and Indonesian contractors will develop the project.
First stage: North-South corridor (23.8km):
Phase 1: Lebak Bulus - Bundaran HI (15.7km) will have 13 stations (sevenelevated stations of 9.8km and six underground stations of 5.9km). Target
completion is 2017. The distance between stations is 0.6-2.0km and the
estimated travel time for the whole distance is 30 minutes.
Phase 2: HI to Kampung Bandan (8.1km) is slated to be completed in 2018.The second stage, the East-West corridor (87km), is in the due-diligence
phase; target 2024-27. This corridor will run to the Greater Jakarta suburbs.
Interesting funding schemePhase 1 funding requirement of about 140bn (US$1.4bn) will be mostly
financed by soft loans from the Japan International Cooperation Agency
(JICA) (totalling 125bn) with the remaining 14.6bn from the regional
governments budget (APBD). The soft loans carry 0.1-0.2% annual interest
rates; about US$100m had been drawn down last year. In total, the MRT
project is estimated to cost 273bn (US$2.7bn).
This project is the first in Indonesia that uses a three-level subloan
agreement scheme between the lender (JICA) and the central government,
local government and regional SOE (MRTJ). The loan agreement is between
the two governments (Indonesia and Japan), hence leaving MRTJ to focus on
its core function, which is to develop-build-operate-and-maintain theinfrastructure and facilities, and to develop area around depot and stations
along the MRT corridors.
Studies on JakartaMass Transit System
started in 1986
Phase 1 15.7km ground-broke in October 2013
Phase 1 (15.7km)to finish in 2017
Dono Boestami - the newhead of MRT Jakarta
MRT Jakarta to focus onbuild and operation
JICA provides soft loanfor the US$2.7bn project
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The structure is designed to ensure practice of clean governance. For
instance, the contract of work is between MRTJ and contractor/consultant,
and MRTJ is in charge of managing the project. However payment tocontractor/consultant comes directly from the lender (JICA) based on invoice
issued by contractor/consultant to MRTJ.
Figure 43
Planned Jakarta MRT
Source: Jakartamrt.com
Figure 44
MRT funding scheme
Note: DJPK (Direktorat Jenderal Perimbangan Keuangan) - Directorate General of Financial Balance; DJPU (Direktorat Jenderal Pengelolaan Utang)- Directorate General of Debt Management; DJKA (Direktorat Jenderal Kereta Api) - Directorate General of Railways Management and Bappenas -
State Ministry of National Development Planning. Source: MRTJ
DJPK(MoF)
BAPPENASDJKA(MoT)
DJPU(MoF)
Central Government
Contractor/consultant
Lender
MRTJ
ProvincialGovernment of
DKI Jakarta
Loan agreement (LA)
4. Drawdown notice& document
3. Invoice () Grant (49%)/Loan (51%)
Capital (Equity)
Contract
2. Invoice ()
1. Invoice ()
5. Directpayment ()
MRT Jakarta projectstarted construction
at the end of 2013
Unique funding scheme to
ensure clean governance
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Figure 45
Jakarta MRT project under construction
Source: CLSA
To transport 400,000 passengers a dayMRTJ projects 936 maximum passenger capacity for each trip with each train
set consisting of six cars. Hence estimated daily capacity is 120,000 people.
Future target is about 400,000/day (third year into operation).
Integrating with KAIs commuter line and busway systemThe MRTJ network will integrate with the railway systems commuter lines
that run from Jakartas suburbs into the city. Moreover, it will also integrate
with the TransJakarta busway system. Separately, Ahok mentioned to us thatthe busway system will serve as the backbone for the integrated public
transport network in Jakarta.
First time for everyoneWe asked Dono Boestami whether he sees any risk with the project. He
admitted that there will much trial and error given it is the first of its kind in
Indonesia; for the stakeholders, it is their first MRT experience. (Refer to
Appendix 1 for the full interview).
No doubt this project bears high execution risk, but if it is successful, it opens
up many opportunities to replicate in other big cities in Indonesia.
Railway system - Evolution of a dinosaurIndonesian railway service has been perceived as one of the worst in the
world for a long time. Images of chaotic stations and commuters riding on top
of trains during Lebaran season often come to mind when people talked about
KAI. The dinosaur was deemed hopeless: its assets and facilities were old,
and its 27,000 employees were of subpar quality.
To some extent, it wasnt entirely the dinosaurs fault. An aggressive
expansion in railroads started in the 18th Century until 1939. However it
ceased in 1970s when government aggressively pushed the development of
the autos industry. More than 2,000km of railroads were closed between 1939
and 1996 as mostly were unprofitable.
Since then, there was hardly any growth until 2011 when some 150km wereadded. The near-5,000km railway network today is only 8% longer since
2010, and 3,700km of it is in Java.
Construction has started
Estimated initialdaily capacity is
120,000 people and torise to 400,000 in year 3
Busway system toserve as the backbone
for the integrated publictransportation network
Was one of the worstrailway system
in the world
New project bearsexecution risk
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Figure 46
Railway length in Indonesia
Source: Ministry of Transportation, Directorate General of Railways
KAI started its transformation in 2009, led by Ignasius Jonan (Jonan). The
company started booking positive profits since 2009, and enjoyed a 33%
earnings Cagr since. Moreover, Ebit margin swung from negative to positive,
hitting 10% in 2012. ROE and ROA have also risen to 11% and 5%.
Jonan mentioned that he expects 2014 net profit to reach about Rp800bn (a
65% increase from an estimated Rp483bn in 2013), with revenue targeted to
grow 20% per annum until 2020.
Figure 47
KAI revenue and profit
Note: 2013 result is unaudited. Source: KAI
Figure 48 Figure 49
Ebit margin turned positive in 2009 ROE and ROA have recovered sharply
Source: KAI
0
1,000
2,000
3,000
4,000
5,000
6,000
7,0008,000
1867
1870
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1890
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1939
1950
1955
1990
1995
1996
1997
1998
1999
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2001
2004
2005
2006
2007
2008
2009
2010
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2012
2013
(km)
(200)
(100)
0
100
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300
400
500
600
700
800
900
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2006 2007 2008 2009 2010 2011 2012 2013 14F
(Rpbn)(Rpbn) Revenue NI (RHS)
(15)
(10)
(5)
0
5
10
15
2006 2007 2008 2009 2010 2011 2012
(%)
(4)
(2)
0
2
4
6
8
10
12
2008 2009 2010 2011 2012
ROE ROA(%)
A 33% profit Cagr over2009-13; KAI projects
65% YoY growth toRp800bn in 2014
Stagnant railway networkgrowth in past 20 years
Profitability improved
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32 [email protected] 21 February 2014
Figure 50
Ignasius Jonan, KAI
Jonan was appointed as head of KAI inFebruary 2009 by Sofjan Djalil, then SOEMinister. Despite a lack of experience inrailway, his task was to reform theinstitution. Jonan graduated as anaccountant from Airlangga University inSurabaya, East Java (one of the top 10universities in Indonesia), followed by aMaster of Arts degree in international affairsfrom Fletcher School, Tufts University. Priorto KAI, he was managing director and headof investment banking for CitigroupIndonesia from 2006 to 2008. His first SOEcareer was as the head of Bahana Indonesiaover 2001-06.
Source: KAI, CLSA
Started with low-hanging fruitsKAI started with overhauling the medium- and long-haul rail services which
are deemed more profitable, less complicated and less in the spotlight (as
compared to Jakarta which carries 65% of total national train passengers).
Stations were renovated, and services were improved.
This helped turned KAI around from loss-making into profitable, and also
generated enough funding to revitalise the Greater Jakarta network without
having to rely too much on the government budget. To some extent, it also
gave the new management enough experience and time to prepare for the
big overhaul of Greater Jakarta network in 2013.
Revitalising assetsIn 2009, KAI had 406 locomotives; only 330 were functioning but about 60%
were more than 20 years old. There were only 1,243 train sets and 45% were
more than 30 years old. The number of trains was not enough hence they
often ran up to 1,400km/day - way past the ideal 900km. Some rail condition
was also quite bad (Note: There is a total of 3,216km of railways in Java and
1,348km in Sumatra). All these resulted in many train accidents.
Figure 51
Number of train accidents
Source: KAI
0
20
40
60
80
100
120
140
160
2005 2006 2007 2008 2009 2010 2011 2012 2013
Overhauling startedin outer-Jakarta
Drastic improvement intrain safety as old trains
were replaced and rail
condition has improved
Ignasius Jonan ledtransformation in KAI
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Revitalisation took longer than expected given a lack of funding from the
government while companys P&L was also weak. Nonetheless, KAI managed
to order 150 locomotives in 2009 to be delivered in stages until 2013. Withthese, the number of trains in operation in Greater Jakarta increased to
566/day (per September 2013) from 384 units at the start of 2013. The
capacity of cargo transport also rose 40%. KAI also bought 2,400 carriages.
With assets revitalisation, coupled with workforce reform, the number of train
accidents dropped significantly to 57 in 2012 from 140 in 2005.
Internal cultural reformPrior to 2009, KAI was a big SOE but with very low labour productivity.
Employees were not motivated as remuneration was one of the lowest among
SOEs and compensation was not linked to performance. These, coupled with
poor monitoring also induced corruption within KAI. It is not a surprise that
according to Jonan, cultural reform is the hardest thing for this big dinosaur
that employs 28,000 full-time employees and 7,000 contract workers. (Referto Appendix 1 for the full interview with Jonan.)
The new management started the reform by implementing merit-based
performance review for its employees, and hiring some good professionals to
help implemented change. Remuneration and benefits were also increased to
be at par with other large SOEs. Various trainings were also launched,
including overseas trainings to learn about best practices in railway service;
and were given to various staff levels within the company.
During his recent visit to Madiun, our deputy head of research Jayden
Vantarakis pointed out that there is a 12,000 capacity employee training
facility (rail engineers) in the city ready for its first students in 2014. Locatedin the western part of East Java, Madiun is home to Inka, a company that
builds new trains and potentially monorail vehicles.
Figure 52
KAIs training facility in Madiun
Source: CLSA
Shifting to modern railway servicesIn 2012, train tickets could be purchased at post offices and convenience
stores, versus previously only sold at stations. Boarding system based on ID
checking and a one seat, one passenger policy was also implemented. This
greatly reduced congestion at ticket counters (especially during peak
seasons), and also eliminated the need for commuters to buy from illegal
sellers (calo). Eliminating the calo also helped cut internal corruption as
previously, most of the calocollaborated with internal staff.
Eliminated illegalticket sellers in 2012
Merit-basedcompensation
was in place
A 12,000 capacity trainingfacility opens for its first
students in 2014
Lack of funding from
government to make aswift revitalisation
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In 2013, KAI launched online ticketing system (www.kereta-api.co.id)where
seat booking can be done 90 days prior to departure. It went on to provide
ticketing application through Android and Blackberry. KAIs website recentlywon a few awards from the SOE Ministry, and got into top five spots for IT
Excellence Award 2012 Asia Pacific from IDC and Fairfax Business Media.
E-gates were launched in April 2013 and e-ticketing cards have replaced
paper tickets, starting with six stations of Jakarta-Tangerang line. As of
September 2013, 389 electronic gates were installed in 67 stations. Bank
Central Asia is the first that enabled its Flazz card to be used as a payment
form for train tickets.
On the Greater Jakarta lines, the first progressive tariff was implemented in
June 2013. This was very much welcome by commuters as payment is now
based on the distance they travel.
KAI is also in the process of implementing a full ERP solution in 2014 using
SAP. Human resources was the first module implemented at end of 2011.
Figure 53 Figure 54
No more paper tickets in Jakarta lines E-ticketing cards/ticketing on Android
Source: KAI Source: CLSA
Figure 55
Electronic gates
Source: CLSA
Progressive tariffintroduced in June 2013
Electronic cards replacedpaper tickets last April
Online ticketing systemwas launched in 2013
Towards modernisation
E-ticketing with cards andthrough mobile phonesreplaced paper tickets
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After long negotiation with the government, non-AC (air-conditioning) services
were finally eliminated in July 2013. These government-subsidised lines were
hardly profitable given a tariff of just Rp2,000 for every route regardless ofdistance. Besides no AC, the old trains were also unsafe for commuters.
Starting December 2012, KAI embarked on a programme to clean up
stations from illegal kiosks and street vendors in six main lines in Greater
Jakarta. In total, about 5,300 kiosks and street vendors were cleared from
63 stations, despite numerous protests from those affected. Besides leaving
the stations clean and orderly, the cleanup resulted in safer and wider
parking area for vehicles.
Figure 56 Figure 57
Back then . . . . . . and now
Figure 58 Figure 59
Motorcycles parking lot at Bogor station Car parking lot at Depok Station
Figure 60 Figure 61
Manggarai station before Now sign says Selling stuff is prohibited
Source: CLSA
More public facilities at stationsMost stations now have minimarts inside or outside the stations. There are
Starbucks and KFC at Gambir. Banks have also opened up ATM branches.
Phased out non-ACtrains in July 2013
Cleaning up stationsin Greater Jakarta
Unsafe trainswere phased out
Safer and widerparking area
Illegal street vendorswere cleared
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Interesting note on 7-11 from our previous country head, Nick Cashmore:
7-11 has signed agreement with PT KAI last year and now has stores in three
stations (Gambir, Senen and Manggarai) and all are operating well. Averagecustomer/day is higher (1,200) compared to independent stores (800-900)
and average sales per day is Rp18-19m after three months of opening,
compared to independent stores that usually reach target of Rp20m after nine
to 12 months. Ticket price is lower but there lots of opportunities to improve
products and services especially on food for commuters. Definitely more
stores in train stations to come in 2014.
Figure 62 Figure 63 Figure 64
7-11 in front of entrance gates Indomaret minimart Alfamart in trains parking lot
Figure 65 Figure 66 Figure 67
Starbucks at Gambir station BNI and BRI ATMs BCA ATM
Source: CLSA
All-in-all, the series of improvement in Greater Jakarta network resulted in a
jump in passenger volume from about 450,000 to 550,000/day by the end of
2013. The phasing out of lower margin lines (non-AC) also helped improved
KAIs financials.
Figure 68
Rising commuters in Greater Jakarta
Source: KAI
0
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160
2009 2010 2011 2012 2013
(m) AC train Non AC train Total
Convenience chain 7-11
expanding locationsat train stations
Ridership increased asservice improved
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KAI targets ridership of 1.5m passengers/day in 2020 for Greater Jakarta
network. This is almost a double from todays 700,000, or at estimated
growth of 12% per annum. Jonan mentioned that it will be achieved throughincreasing length of tracks (target 12,000km by 2030), freight capacity, and
replacing old rolling stocks (train set).
Figure 69 Figure 70
Ladies-only wagon Inside the train
Source: CLSA
Much upside from cargo transportAfter some lobbying time to the government, since February 2012, cargo
transport by train has become more competitive versus trucks given cargo
trains are now allowed to run on subsidised fuel (just like for trucks cargo
transport) following government approval. As such, cargo transport jumped
22% to 27m tonnes in 2013, and is likely to reach 60m tonnes in 2020 (12%
Cagr) with double-track railway from Jakarta to Surabaya.
Currently revenue is dominated by passenger transport (53%), 40% from
cargo transport and remaining 7% from others such as stations
management, property income, etc.
Figure 71 Figure 72
KAI revenue breakdown Cargo transport
Source: KAI
Cargo transport is expected to increase substantially post the operation of the
double-track rail from Jakarta to Surabaya in 2014. As of end of 2013, the
progress on the double-track rail had reached 97% and the hope is this
727km can operate in 1H14. Some plots, unfortunately, are still under land
clearing process. Moreover, given the recent flooding in some areas, there is
risk that completion may be pushed back.
This railway will play a crucial role in distributing goods from east to west
Java as the Trans Java toll-road project is not seeing much progress apart
from the sections that are developed or under development by Jasa Marga.
Passengertransport
53%
Cargotransport
40%
Other income7%
19.2 19.0 18.9 19.3
22.0
27.0
10
1214
16
18
20
22
24
26
28
2008 2009 2010 2011 2012 2013
(m tonnes)
A 727km double-trackrailway from Jakarta-
Surabaya in 2014
Target 1.5mpassengers/day in 2020
Facilities have improved
Cargo volume jumped22% in 2013 to 27mtonnes and to grow
to 60m by 2020
Cargo transport nowmore competitive
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The first airport train - Medan to Kuala Namu airportFirst train to airport from city was launched on 25 July 2013 from Medan
(North Sumatra) to the new Kuala Namu International Airport; a 40-minute
ride for the 39km distance. In a day it can transport 3,000-4,000 passengers.
Raillink, the JV between KAI and Angkasa Pura II is the operator.
Figure 73 Figure 74
Medan-Kuala Namu airport train Inside the airport train
Source: www.railink.co.id Source:www.merdeka.com
Next airport train - Soekarno-Hatta airport to Halim airportThe Ministry of Public Works expects the tender for pre-qualification for
airport express train from Halim airport to city centre to Soekarno-Hatta
airport to start around April 2014. KAI mentioned that feasibility study was
completed in December 2013. The project will be under a public-private-
partnership (PPP) structure and the route will be a loop to Cawang, Pluit and
stops at terminals 2 and 3 of the airport. Next phase will be getting the
environmental licence (AMDAL) and then land clearing. The express train will
be a combination of underground and elevated routes. It is expected that the33.8km journey can be completed within 30 minutes on this airport train
versus one to three hours by car.
Key challenge will be on land clearing given this airport train will pass some of
the most populated area in the city.
Outside Jakarta, there was also a new diesel train connecting Jogja and
Madiun with regular commuter services as noted by Jayden.
Figure 75
New train connecting Jogja to Madiun
Source: CLSA
Transporting 3,000-4,000passengers a day
Soekarno-Hatta airporttrain to be tendered soon
First airport train to thecity started in 2013
Expect more newtrains rolling in
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Tollroads - 2014 a key turning point?From 1978 to 1998, Indonesias tollroad network expanded by a healthy 16%
Cagr. Pre-Asian Crisis, during late President Soehartos time, a lot ofinfrastructure was built. Post crisis, however, things slowed dramatically with
a 3% Cagr over the past 15 years.
The tollroad sector was deregulated in 2005 under the new president Susilo
Bambang Yudhoyonos (SBY) directive, and to ensure a viable IRR, a tariff
regulation was in place whereby tollroad tariff adjustment is based on
cumulative two-year CPI, adjusted every two years. The first infrastructure
summit in 2005 attracted many foreign investments, but execution was poor.
The rise of democracy was a good thing, but the lack of proper legal
framework made land acquisition for public infrastructure project a major
hurdle.
In early 2012, the much-anticipated land-acquisition bill was passed.
However, it came with a clause that prohibits the new bill to be implemented
on projects that are already in land clearing phase until the end of 2014. It
remains to be seen whether the new government can place this land bill in
effect this year as stipulated. Alas, for the past two years, only 20km of
tollroads was added; now totalling about 770km.
After much delay in land clearing, the first section of Jakarta Outer Ring Road
(JORRW2N) Kebon Jeruk-Ciledug route (5.7km), the missing link of JORR1
finally started operation on 27 December 2013. This is a strategic section that
should help alleviate congestion in JORR1.The 10km Bali Nusa Dua airport
tollroad also commenced operation last year. Jasa Marga operate these two.
Figure 76
Indonesian tollroad network
Source: BPJT
A whiff of good newsRecently, there is good news on the near-70km six elevated-tollroad project
of Jakarta Tollroad Development (JTD). In December 2013, Jokowi finally
gave a green light. The environmental license was signed (Amdal), and PPJT
(concession contract) is targeted to be signed in February/March2014.
0
100
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300
400
500
600
700
800
900
1978 1982 1986 1990 1994 1998 2001 2003 2005 2007 2009 11 12 13
(km)
Slow progress intollroad development
in past 10 years
Slow growth intolltoad network
New land-clearing bill tobe effective end of 2014
Land clearing is themajor bottleneck despitea good tariff adjustment
mechanism
Missing link of keyring road is up
Development of 70km ofelevated tollroads to start
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40 [email protected] 21 February 2014
Figure 77
Jakarta inner-tollroad plans
Stage Tollroad (km) (Rptn)
1 Semanan (Rawa Buaya) - Sunter 17.88 9.76
1 Sunter - Pulo Gebang (Bekasi Raya) 11.00 7.37
2 Duri Pulo - Kp Melayu 11.38 5.96
2 Kemayoran - Kp Melayu 9.65 6.95
3 Ulujami - Tanah Abang 8.27 4