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Alam Sutera Realty, Now and Future

On 2 July, Alam Sutera Realty (ASRI), a property developer in the area of ​​Alam Sutera, Tangerang, Banten, announced that the company has acquired a company of ​​tourism management for the Garuda Wisnu Kencana (GWK) Cultural Park, Bali, with a value of Rp738 billion (which later rose to Rp813 billion). For ASRI, the purpose of this corporate action is to diversify the company's business activities, where ASRI now has a tourism business. But the corporate action was responded negatively by investors, which ASRI’ stocks was dropped to position 455, although later gaining again to position 480.

The GWK cultural park is located in Tanjung Nusa Dua, Badung District, Bali Province. The main attraction of the park is a super-size statue of Lord Vishnu riding a Garuda. The high of the statue is 145 meters, and the wide is 64 meters. However, despite the construction of the statue was started since long time ago, ie year 1997, the statue has not been completed until now, but only parts of it, namely the head and chest of Lord Vishnu, the head of the Garuda, and the hand of Lord Vishnu. There is no clarity about when exactly the statue will be completed 100%, which is probably has made most investors thought that ASRI was made a mistake about this GWK, because GWK is actually not ready to operate as a tourist area.

In its disclosure, ASRI’ management hadn’t detailed the benefits of the acquisition, and also there was not detail about the company's plans after the acquisition. But in the company's prospectus when they’re issuing US$ 150 million notes in Singapore, the company said it would develop the GWK in two phases: First, the company will continue to complete the construction of the statue. Second, the company will develop the commercial area around the statue. For the costs, the company has obtained a Rp900 billion loan from the Bank Internasional Indonesia (BII), Rp600 billion of which is used for the acquisition of the GWK management rights, and Rp300 billion for the two phases constructions.

The point here is, probably the management is a little speculating on the GWK completion, in the meaning that if the statue was never completed, then the company will still earns profits from the cultural park, as it is already generating revenue in the form of visitors ticket amounting to Rp30,000 or US$ 3 per person (and Rp60,000 or US$ 6 for foreigners). Yep, although the statue is not fully completed yet, but parts of the statue, such as the 12 meters tall head of Lord Vishnu, are still attractive to the tourists.

On the other hand, if ASRI is able to complete the statue to be perfectly stands at 145 meters tall, let say seven or ten years from now, then the company's revenue from the GWK is obviously would increase several fold, because the statue would be a mega-monument that is in a same level with the other world-class tourism destinations, such as the Eiffel Tower, the Pyramids of Egypt, or the Statue of Liberty. Moreover, the Island of Bali itself is already well known as a popular tourist destination in the world. The GWK admission price can be increased to Rp300,000 or about US$ 30 for foreign tourists, and they would still not mind to pay.

So in this case, although it will be very hard for ASRI to continue the construction of the statue, but it is worth a try, because the prize is extraordinary. For ASRI, it is also nothing to lose, as even if the construction is too difficult to be done, then at least they could develop commercial areas surroundings the GWK complex, and it will still generate revenue for the company.

One thing to note here is, the GWK development is a long-term plan for the company, so maybe that's why ASRI did not detailed about their works at the GWK, and how the prospects of revenue and net profit after the development. Yup, for now ASRI was just 'put a deposit' in the project. Besides GWK, ASRI also bought several landbanks in Sanur (Bali), Cianjur (West Java), Cibitung (Bekasi, West Java), and Tanjung Pinang (Riau), which will not be developed in the near future.

But if the GWK is a long-term plan of the company, then what about short-term plan? Well, when the company issued US$ 150 million notes in Singapore (after deducted by some expenses, the net worth was approximately US$ 142.2 million), some of the proceeds (about 20%) will be used to continue the development of properties in the township (integrated town area) of Alam Sutera.

While most of the proceeds (about 80%) will be used to acquire landbank in Pasar Kemis, Tangerang (plus some areas of Serpong, but more to Pasar Kemis). Yep, ASRI has a big plan on area of Pasar Kemis, where the company will build its second township (after the township ofAlam Sutera) in the area. Pasar Kemis itself is located 15 kilometers west from Alam Sutera. As at December 31, 2011, ASRI had ​​926 hectares of landbank in the Pasar Kemis, which will likely increase after the company obtained the proceeds from the issuance of the notes. The company was chose Pasar Kemis area, because it’ss going to be a very strategic region in 2015, with the completion of the toll road of Jakarta Outer Ring Road II (JORR II), and Tangerang Outer Ring Road. The region will also have a direct access to the Soekarno-Hatta Airport, and Jakarta - Merak Toll Road.

And that is the main plan for the development of the company, while the GWK will be developed later. Yup, so far ASRI is still focus on the suburbs development of the capital of Jakarta (while GWK, once again, will be developed later). Currently the company is acquiring landbank in the area of Pasar Kemis (as the proceeds of the notes is already in hand). If we see the track record of the company, where they were quite successful in the area of ​​Alam Sutera, then we can expect that ASRI will also be successful in Pasar Kemis.

Well, here are the best possible scenarios for ASRI in the next 10 years:

1. After 3 years, the township Alam Sutera will be one of the largest and most complete township in Indonesia

2. After 5 - 7 years, the township of Pasar Kemis is also growing to be leading and elite township in the west of Jakarta, which is surrounded by a variety of highway accesses, including direct access to Soekarno-Hatta airport.

3. After 7 - 10 years, the Garuda Wisnu Kencana Cultural Park has become a world-class tourist destination, with the 145 meters high statue of Lord Vishnu riding Garuda, as its main attraction.

4. Gaining success with the above projects, ASRI then begin to look back to their 'saving' of landbanks in Sanur, Cianjur, Cibitung, and Tanjung Pinang. If there is a chance, then maybe the company will starts build their third township (probably in Cibitung).

And what about the worst-case scenario? Well, I don’t want to talk about it, because if the economy of Indonesia is in turbulence, then the above scenario will failed entirely, because the industry of property is highly susceptible to changes in the macro economy. When the monetary crisis occurred in 1998, ASRI was stopped its business activities, almost entirely. Post-crisis, the company had nine years to back to business, which in 2007, ASRI had built some houses and shophouses, as well as listing on the Stock Exchange.

But that is if we talk about the prospect of the companye in the far future. What is clear for now, ASRI’ performance in the last quarter of 2012 was still very good, and after its declining after the released of the story about GWK yesterday, ASRI stocks is now relatively inexpensive. Then, the outlook? It’s also bright, especially related to the development of the remaining land in the Alam Sutera township. Currently the company is completing the development of Mall @ Alam Sutera, the food and family entertainment center named 'Flavor Bliss', the Silkwood Residence Apartments, a 20-storey office tower, and a modern market complex and warehousing zone. Those properties will complement the existing facilities in the township, such as a sports center, club house, Omni Hospital, Nur Husna Asmaa Mosque, St. Lawrence Church, the School of St. Laurensia, Binus University, and also a futsal and paintball fields. What a lovely town!

While for Pasar Kemis, the company has begun to develop several housing clusters, including clusters 'Silk Sitara' and 'Suvarna Rice Golf Estate'. How would it go? We’ll see in the second quarter financial report.

PT Alam Sutera Realty Tbk.
Rating Performance in First Quarter 2012: AAA
Stocks at 480 rating: AA

Original article was written in July 13, 2012.

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