We maintain our Buy rating on Saratoga Investama Sedaya (SRTG), with a target price of IDR3,000. We like SRTG for its rising focus on non-listed investments and value-accretive corporate actions (ADRO divestment of the thermal coal business). SRTG’s non-listed investments grew from IDR1.9tn in 1Q21 to IDR6.2tn in 1H24. Contribution from non-listed investments also grew from 6.2% of NAV to 14% of NAV during the period, which is value-accretive for SRTG in our view. We estimate that Adaro Energy Indonesia’s (ADRO IJ, Buy) corporate action (SRTG has a 15% stake in ADRO) should improve SRTG’s NAV, by 8.3% (see Fig. 2) which should be done in November, according to management.

Non-listed investments: A key growth driver

SRTG’s non-listed investments grew significantly from IDR1.9bn in 1Q21 to IDR6.2bn in 1H24. SRTG’s investments are focused on the healthcare and tech sectors. For instance, it has invested in fast-growing companies such as Brawijaya Hospital (unlisted), Zap (Beauty and health clinic, unlisted), Xurya (unlisted), etc. We view the non-listed investments as a positive move by the company, which should lower the discount to NAV. This is because investors can buy SRTG shares to get access to the fast-growing private companies. We believe this should lower the discount to NAV.

ADRO's AAI Divestment: Value unlocking for SRTG

Currently, ADRO contributes USD1.2bn of SRTG's NAV. After the divestment of Adaro Andalan Indonesia (AAI) (unlisted) by ADRO, ADRO and AAI could jointly contribute USD1.5bn of SRTG’s NAV. We have valued ADRO post-divestment using a SOTP approach, assuming ADMR is worth USD0.5bn, at 8x 2025F P/E. We ascribe a discount of 30% to arrive at a value of USD0.3bn, considering SRTG’s ownership. For the renewable energy segment, we value it at USD1.8bn and after a 30% discount, contributes USD0.2bn of SRTG’s NAV, after considering SRTG ownership. On mining contracts (SIS), we estimate they contribute USD0.8bn (to the value of ADRO). With the discount, we arrive at USD0.1 bn (to SRTG's NAV). Valuing AAI at USD5.8bn, based on 7x P/E (local peers average at 7.6x 2025E P/E — Bloomberg consensus estimates, see Fig. 8), this represents ~USD0.9bn of SRTG's NAV after a 30% discount, assuming the same ownership as ADRO (15.18%). After the divestment, the portfolio of SRTG is likely better balanced, and value up from ADRO’s renewables and mining contracting with stable coal revenues from AAI.

Maintain Buy SRTG

Our SOTP-based TP reflects a 30% discount to our NAV methodology, using the market cap of Saratoga’s holdings. SRTG currently trades at a 34% discount to NAV. A key risk to our call is a de-rating of SRTG’s holding companies.

Fig. 1: SRTG’s non-listed investment growth — 3x in 3 years

Fig. 2: SRTG’s NAV (before and after AAI divestment)

Fig. 3: SRTG’s discount to NAV

Fig. 8: Coal company P/Es

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.

This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

RESTRICTIONS ON DISTRIBUTION

By accepting this report, the recipient hereof represents and warrants that you are entitled to receive such report in accordance with the restrictions and agrees to be bound by the limitations contained herein. Neither this report nor any copy hereof may be distributed except in compliance with applicable Indonesian capital market laws and regulations. 

Jupriadi Tan (jupriadi.tan@verdhana.id)

Gerald Hugo (gerald.hugo@verdhana.id)