At long last, Presidential Decree (PD) No. 71/2012 on the implementation regulation on Law No. 2/2012 on Land Acquisition Law for Public Facilities was signed by President Susilo Bambang Yudhoyono late last week.
According to an industrial expert, this PD will act like a government ruling to regulate the implementation of the Land Acquisition Law, although additional regulations will be required from the of Finance Ministry/Coordinating Economic Ministry (for budgets, disbursements, etc.) and the National Land Agency (for technical and administrative executions).
To ensure that the Land Acquisition Law takes effect by the end of 2012, the PD has also set a maximum 3 months’ period for the government and related institutions to complete and finalize supportive regulations. Additionally, this new PD has set a maximum of 583 days for the land acquisition process, providing greater certainties and realizations towards public infrastructure projects going forward.
On a negative note, the Land Acquisition Law does not apply retroactively, meaning only new projects that have not yet started their land acquisition processes, will benefit. Thus, the government provides existing projects the opportunity to continue their respective land acquisition process via previous regulations until the end of 2013. In 2014, existing projects can utilize this new PD if required.
Most toll road projects within two companies, Jasa Marga (JSMR) and Citra Marga Nusaphala (CMNP) are already in the acquisition process. Thus, current stalled projects can only utilize this new PD in 2014. However, this PD will expedite new toll road projects, such as the connection of the Trans-Java toll road and new toll road developments in Sumatra and Kalimantan.
Overall, this PD is expected to result in improved realization regarding the government’s plan of spending Rp 200 trillion (US$21 billion) in its 2013 infrastructure budget (exhibit 1), which is an increase of nearly 19 percent from 2011.
At the stock level, both JSMR and CMNP will benefit, although the leverage will be with the latter due to its smaller base (impact from new projects will magnify CMNP’s growth prospects). Therefore, this PD, coupled with the rolling over of our valuations into 2013, we raise CMNP’s TP to Rp 3,000 and JSMR’s to Rp 7,000.
For state-owned construction companies such as Wijaya Karya, Adhi Karya and Pembangunan Perumahan, this PD will mean increased potential in their infrastructure projectsand will assist with acceleration of project completions, which will in turn speed up revenue recognition going forward.
The largest beneficiary will likely be toll road projects, while other projects such as power plants and ports may benefit less, since those projects usually utilize land owned by the government.
That said, our top picks are Wijaya Karya and Adhi Karya, which have the largest exposure in relation to toll road projects.
Finally, for the sector, we expect continued positive sentiment and spillover effect in the form of increased private construction projects upon the establishment of various infrastructure projects, which tend to provide greater transportation access.
The writers are analysts at PT Bahana Securities