Better profit in 1Q10 due to performance improvement

KIJA posted significant improvement in sales and service revenue by 103.4% yoy to Rp158.5 billion in 1Q10. The increase was mainly because of two factors. The first, is from electricity power revenue of Rp45.8 billion in 1Q10 compared to nothing in 1Q09. This is due to operation of gas power station at the end of 2009A. The second is KIJA recorded land sale of Rp25.9 billion in 1Q10 compared to nothing in 1Q09. But the cost of goods sold and service revenue jumped dramatically by 172.3% yoy to Rp100.5 billion. The cost for gas power station exceeded its revenue, mainly due to the depreciation cost. The revenue from the power station was not in full operation. The operating expenses increased by 59.1% yoy to Rp31.2 billion in 1Q10, thus the operating profit increased significantly by 26.9% yoy to Rp22.25 billion in 1Q10. Out of operating performance KIJA was benefited mostly by three factors. The first is, KIJA recorded forex gain of Rp18.1 billion in 1Q10 compared to forex loss of Rp44 billion in 1Q09. The other is, KIJA recorded gain of fixed asset disposals of Rp6.8 billion in 1Q10 compared to nothing in 1Q09. And the third one is, the interest expense declined by 36% yoy to Rp22.6 billion in 1Q10. Thus, KIJA was able to post net profit of Rp24.6 billion in 1Q10 compared to net loss of Rp59.7 billion in 1Q09.

KIJA is developing gas power station with total capacity of 130 MW. The objective is to give electricity supply sustainable without any interruption to its commercial clients. The station will be equipped by two gas turbines with one combined cycle. KIJA expects that the power station will be completed in 3Q10. The gas supply will be provided by PT Perusahaan Gas Negara (Persero) Tbk. and PT Bayu Buana Gemilang, a subsidiary of a state owned company, Pertamina (Persero). KIJA already commissioned the operation at the end of 2009 although not in full capacity.The power station existence will be good for the company's future performance. Revenue contribution will be very significant since it is a strong demand in the market. In 1Q10 the contribution was 28% of total revenue. The figure will be higher along with the fully operation of the gas power station. On the other hand, the power station will be an attractive point for the industrial customers. They really need continuing electricity supply to support their production plans.

KIJA also support its industrial customers by providing dry port, namely Cikarang Dry Port. It offers one stop service for cargo handling and a logistics solution for international export and import, as well as domestic distribution. The dry port provides integrated port and logistics services with dozens of logistics and supply chain players, such as exporters, importers, carriers, terminal operators, container freight station, bonded warehouse, transportation, third party logistics (3PL), empty container depot, as well as banks and other supporting facilities. The company provides area of approximately 70 ha for the dry port.It is very good to attract any potential industrial customers by providing the dry port. The shipment process time can be reduced significantly. Thus, the export-import activities will be improved in the near term. The direct impact is any industrial customer will be able to meet their demand faster compared to the previous time.

After being successful in selling the 1st and 2nd industrial area, KIJA is in selling the 3rd industrial area located in Cikarang. The area will be equipped by many kind of supporting facilities such as standard factory building (SFB), theein one building (TOB) and supporting industrial building (SOB). Up to now the company already sold the area of approximately 44 ha.

We have positive outlook of KIJA's performance in the long future. The company provides gas power station for its industrial customers for securing the electricity supply. It has strong revenue portfolio, does not depend heavily on selling residential and industrial areas. Service and maintenance and also income from electricity power as recurring income contribute significantly to total revenue. Thus, it will be able to maintain the company's performance in the future. On the other hand, by providing gas power station and good service and maintenance will be very attractive for any potential customer. The location of KIJA which is in Cikarang area is also benefited industrial customers. Another attractive point of KIJA is the dry port which can accelerate the shipment of goods which are produced by industrial customers. We forecast that the company will record revenue of Rp763 billion and net profit of Rp72 billion in 2010F. The price target of KIJA is Rp310 by using NAV method. The recommendation is BUY.