The Decision – 3 SGX-listed stocks that could be affected by Jokowi’s move to Borneo

Just like Lebron James revealing his “Decision” to take his talents to South Beach to play with the Miami Heat, Jokowi’s administration announced yesterday that they will be moving the country’s capital from Jarkarta to Borneo island’s East Kalimantan province.

Image result for lebron the decision
Lebron James makes his “Decision” live on ESPN in 2010.

What will happen to Jakarta?

Every administrative and government-related duty will be transferred to the new capital. Jakarta will only have branches of the major public services, mimicking other major cities in Indonesia such as Bandung, Surabaya & Medan.

Meanwhile, financial sector institutions, such as Bank Indonesia, the Financial Services Authority (OJK) and the Investment Coordinating Board (BKPM), would remain in Jakarta.

That being said, I’m guessing that the following will happen;

  • 1.5m civil servants and ministerial officers will be re-assigned to the new capital, reducing Jakarta’s population.
  • More land for redevelopment as previously government occupied buildings strategically located in the central regions of Jakarta, will be up for grabs in the private sector.
  • Jakarta will be re-establish itself as the financial hub of Indonesia.

How would Borneo benefit?

Taken from Nikkei Asian Review

It will be a new era for Borneo, an island divided between Malaysia, Indonesia and Brunei. In the press conference, Jokowi stated that moving the capital will cost around 466 trillion rupiah (S$45bil).

With that much investment on a clean slate, careful city planning from the start would enable a effective use of public infrastructure and transportation. This city will also no undoubtedly attract more foreign investments and foreign skills. From what I see, moving the government offices there and retaining Jakarta as a economic hub is like the relationship between Washington D.C and New York City, where both cities will attract a diverse pool of talent.

Its neighboring countries will also stand to benefit, I expect Brunei, Sarawak and Sabah to see positive impact from the move, ranging from construction to tourism.

SGX’s Indonesia-Based Stocks

Currently, more than 20 stocks listed on the Singapore Exchange (SGX) are either headquartered in Indonesia or have core operations based in that country.

Among these listings, I feel that 3 stocks will have a direct impact from this relocation.

1 – Lippo Malls Indonesia Retail Trust (SGX:D5IU)

As the move to Borneo progresses, I expect to see outflow of people from Jakarta. Not just the 1.5million civil servants and their families, but workers from all sorts of industries like infrastructure, retail, F&B etc will be required at the new capital (Not really possible to source all the manpower from Borneo’s residents alone)

As Lippo Malls Indonesia Retail Trust (LMIRT) is a REIT that owns 30 retail malls and spaces in Indonesia, with 21 malls in Java Island alone. This would have a negative impact on the retail landscape in Jakarta as consumption decreases. However, this would slowly take place over the decade as the relocation is not expected to commence before 2024.

2 – First Reit (SGX:AW9U)

Image result for first reit

Similar to LMIRT, the exodus of people could have a negative impact on First Reit, a healthcare reit with a portfolio of healthcare assets of which majority are in Indonesia.

On the bright side, healthcare is a more resilient industry ( Regardless of economy, you still need to see a doctor if you’re sick). Furthermore, healthcare sector prospects seem bright with the rollout of the nationwide healthcare insurance scheme and low bed-to-patient ratio in the country All this could negate all the negative outcomes of this relocation.

Hence, I feel that First Reit would be less impacted compared to LMIRT.

3 – Moya Holdings Asia (SGX:5WE)

Image result for moya holding

According to Bambang Brodjonegoro, Indonesia’s Minister of National Development Planning, the new city promises to address some of Jakarta’s present day problems. This includes drinkable tap water which is not available at present in Indonesia.

As one of the largest water treatment companies in Indonesia, Moya Holdings Asia will stand to benefit as they vy for projects in the new capital. This presents a huge growth potential for this company as the concept of a “forest city” will require state-of-the-art-water supply and sanitation and given their track record, Moya could well be the forerunners to be selected to deliver this project.

Mining and Palm Oil

As Borneo’s infrastructure begin to take shape, there might also be a spillover effect which would benefit mining and palm oil companies that have assets in the region. There could be more investments in the region and overall efficiency might improve if infrastructure such as transportation is vastly improved. Companies that might stand to benefit are Golden Agri-Resources, Golden Energy Resources, Geo Energy, Bumitama Agri and First Resources.

Of course, one risk would be the actions of these mining, palm oil and even logging companies might come under scrutiny as the capital is nearby and industrial scale forest clearing might be controlled and subjected to more stringent laws.

Disaster or Success?

Indonesian President Joko Widodo said moving Indonesia's capital from Jakarta would cost 466 trillion rupiah (S$45.49 billion).

With the right strategy implemented, relocating to Borneo could represent the nation’s identity and enhance its efficiency of the central government. However, this direction that Jokowi is taking is fraught with uncertainties and it might not solve existing problems and even create new ones.

As for us, this could be an investment opportunity and we could do well pay attention as we seek new growth and study in detail how this could impact the different sectors.

Cheers

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