$BKSL $MDLN $ASRI by Count Dracula for http://bit.ly/Lkk9ab

MDLN share price almost doubled in the past six months as the company worked on the 150-180ha land sale to ASRI. MDLN and BKSL have one specific thing in common. Both companies sit on valuable but seemingly unproductive land, which is being valued at steep discount to its fair market value by stock market investors.

MDLN is selling its Serpong land to ASRI on the cheap (compared to the fair market value assumed by most analysts), at an average price of Rp2mn/sqm. The analyst community reacted by upgrading their ASRI NAV by around 25%. MDLN is not a widely covered stock, but it should be logical to expect a cut to its NAV post deal.

But the positive share price reaction is also logical in my view. As the unproductive land turns into cash, its NAV discount becomes zero, more than offsetting the NAV decline.

In August 2012, at the start of market speculation regarding MDLN land sale, the stock traded on a steep 65% discount to one analyst’s NAV estimate. By now, the discount may have narrowed to 48%, before accounting for the potential NAV cut.

The positive investment experience could be repeated with BKSL, over time. The stock currently trades on an even steeper NAV discount of between 77% and 95%, depending on how one does the NAV. In terms of “unproductive but valuable land”, BKSL has lots of it. The company sits on 9,100ha land in one location between Jakarta and Bogor, placing it as the biggest land lord in Indonesia.

Let’s picture this blue sky bullish scenario for BKSL. The Jungle Land theme park and the Pertamina hospital open in March. BCA training center opens in December. The area gains recognition as tourist and off-site business destination. Three to four new hotels opening up, one of them is Mauritus Mandarin. Big boys developer like Agung Sedayu, Ciputra, Agung Podomoro, and perhaps foreign developers like Keppel or Hongkong Land structure JVs with BKSL to each develop residential project within the 9,100ha “unproductive land”. And voila, a new city equal to Serpong is born.

Marketing sales in FY12 reached Rp730bn, 50% higher than one year ago. They target Rp1trillion in FY13. But perhaps the best is yet to come, as the snow ball is just starting to roll.

BKSL is most suitable for investors who can afford to lock the shares up in the drawer (in custody would be better, but most human beings may not have that option) for 2-5 years. With centuries of investment experience, I think I can spot a ten bagger when I see one, and BKSL is one of them. Three years is short wait for something than go up ten-fold, especially for immortals like myself.

Risk is short term market jitters as our beloved Rupiah comes under attack. But taking a contrarian view on the matter, a volatile Rupiah could in fact serve as a catalyst for the rich Indonesians to buy property more aggressively in 2013. Property was the best performing asset class after the big Rupiah devaluation in 1997, as any rich Indonesians can see.