Indonesia industrial estates to gain from Japan factory relocation: report

Workers in a cigarette factory in East Java.
Workers in a cigarette factory in East Java. The region is suitable for labour-intensive industries, as wages are significantly lower than in Greater Jakarta.
JULY 21, 2020 - 4:22 PM

INDUSTRIAL estates in Indonesia are set to gain from Japan's efforts to relocate factories out of China, said Maybank Kim Eng analyst Aurellia Setiabudi in a July 20 report.

Japan's government is subsidising companies to move their factories from China back home or to South-east Asia, in order to diversify its supply chain and reduce dependence on China.

While most of the funds are for bringing production back to Japan, 23.5 billion yen has been set aside for moving production to other countries.

"While the competition to capture demand from this relocation will be fierce among the industrial estates in South East Asia, we note that Indonesia’s industrial estates which already have Japanese companies as their strategic shareholder have a competitive advantage," said the report. These are Puradelta Lestari with Sojitz Corporation, and Bekasi Fajar with Daiwa House Industry.

The Indonesia government has been active in facilitating relocation from China. Seven corporates have agreed to relocate, with another 17 on the way, for an estimated total investments of US$39 billion and the creation of over 100,000 jobs.

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"We believe strong domestic demand and the government’s commitment to improve its EODB (ease of doing business) ranking will attract serious FDI (foreign direct investment) and benefit the industrial estate players," said the report.

Maybank Kim Eng's top pick for the sector is Puradelta, "for its large ready-for-sale industrial land bank located in the most prime industrial area". It also has a 'buy' rating on Lippo Cikarang, which has a focus on low-middle segment landed housing.

The report noted six main industrial estate developers in Greater Jakarta, most located at Bekasi and Karawang, adding: "Most developers have land in Bekasi but due to the scarcity of new land, future developments will be outside this area in Subang (West Java), Central Java and East Java. "

Other major industrial estates in Indonesia are in Central Java and East Java, which appeal to labour-intensive industries as the minimum wage is only 40 per cent of Jakarta's.