Lippo-Mapletree Indonesia Retail (OCBC)

Maintain BUY
Previous Rating: BUY
Current Price: S$0.57
Fair Value: S$0.61

Favorable retail outlook ahead; reiterate BUY

Retail supply. According to Colliers International, no new retail supply entered the market in 4Q10. Retail supply growth throughout 2010 in Jakarta and the greater Jakarta area was the lowest since 2009. With only 0.3% growth, YoY growth was 0.2pp below last year. Limited supply will continue throughout this year. In Jakarta, there will be an additional 89,000 sqm of retail space by the end of 2011 contributed mainly by Kuningan City Lifestyle and Entertainment. Colliers expects another 439,3556 sqm of retail space within the next three years and all of these projected developments are a component within mixed-use developments. Retail supply around Greater Jakarta is projected to be far less than in Jakarta. The limited supply puts LMIR in a good stead to capitalize on growth opportunities arising from the robust economy recovery (Indonesia's economic growth forecast is 6.9-7.0% for 2011)

Occupancy rates & tenants. Up to the end of 1Q11, the occupancy rate of shopping malls in Jakarta was 85.04%, up 1.77% QoQ. We noted that occupancy rates have been steadily increasing for all regions of Jakarta since 2010. The average occupancy performance around the greater Jakarta area was also relatively stable, with occupancy standing at 82.9%. LMIR's overall occupancy of 98% as at 31 Mar, compared favorably against these benchmarks. The emerging concept in Indonesia of combining department stores with F&B outlets further boosted shopper traffic and uplifted tenants' performance. Some of the familiar tenants taking up new leases in Jakarta this year include Mad for Garlic, Marche, Muji, Yamaha Music School, Best Denki etc. In terms of the entry of new tenants, Payless Shoes, a shoe retailer from Kansas of the United States, also opened its first outlet in Indonesia. A giant retailer from Germany, Metro Group, also announced that it plans to invest as much as €300m in the next three years to establish 20 wholesale retail outlets in Indonesia.

Rental rates in Jakarta. There was no increase in rental rate in 1Q11. Strengthening occupancy performance has become more important for shopping malls at present. Retaining existing tenants by providing rents according to the lease agreement and offering reasonable rates for new tenants are common. In 1Q11, the average rental rate was recorded at Rp349,507 psm/mth. Despite showing no increase QoQ, the average rental rate was 1.16% higher YoY. With a population of more than 200 million, a fast-growing economy and strong domestic consumption, Indonesia offers abundant potential for retail business. Likewise for retail landlords, who are expecting rentals to pick up in 2012-2013. We believe LMIR is poised to benefit from the rising mall culture in Indonesia. Reiterate BUY with an increased fair value of S$0.61 (prev:S$0.59).on grounds of favorable outlook ahead.