Saratoga Investama Sedaya (SRTG), Indonesia’s largest listed investment management company, is in the midst of unlocking its NAV potential through recent investment in AADI’s IPO which has significantly outperformed the market, up 27% since listing. That said, we expect narrowing of current 47% discount to NAV towards the 23% level, in-line with its peer comparables, reflecting TP of IDR 3,000, or 44% upside potential. Looking ahead, SRTG’s strategic approach of leveraging dividend incomes to fund investments in growth-oriented and sustainable projects highlights its attractive long-term growth potential. BUY. Downside risks: lower NAV driven by slower economic growth, lower dividend incomes from invested entities, and suboptimal investments.

 

AADI’s potential NAV boost, robust dividends and reduced net debt position. Alamtri Resources Indonesia (ADRO) recently spun off its subsidiary, Adaro Andalan Indonesia (AADI), through the divestment of 90.0% stake to existing shareholders. SRTG, holding 15.2% ownership in ADRO, received one-time special dividends of IDR 6.5tn (IDR 1,358/sh) which were converted to AADI shares. The attractiveness of this transaction is supported by AADI’s low P/E ratio of 2.1x, presenting significant profit potential while concurrently providing compelling opportunity for SRTG to achieve substantial NAV growth. Alongside 14.1% ownership in AADI (18% of total investment value), they hold 31.6% in TBIG (29%),  15.2% in ADRO (23%), 19.1% in MDKA (15%) and 56.7% in MPMX (5%). The success of SRTG’s strategic investments can be highlighted by its strong  9M24 dividend income of IDR1.7tn, with expectations for future dividends to remain stable at c. IDR 2.4tn in FY 2025-26. Regarding its NAV, SRTG recorded 9M24 NAV of IDR 56tn (+4% QoQ), driven by gains from ADRO. Looking ahead, we expect NAV to rise by 14% YoY helped by gains in shares of AADI, ADRO and MDKA. On the balance sheet front, we forecast the company’s net debt of IDR 371bn in 9M24 to reverse to net cash IDR 83bn in 2025F, and IDR 240bn in 2026F, demonstrating its capacity to capitalize on future investments through organic means.

 

Solid management and sustainable investments to support NAV growth. SRTG demonstrated solid management under the leadership of the Soeryadjayas, as proven by 4-year NAV CAGR of 21%. Capitalizing on the growing trend towards sustainable, green projects, SRTG is strategically investing in green energy and downstream sectors through ADRO, which plans to open hydro-powered aluminum smelter. MDKA, a key component of SRTG’s portfolio, is expanding into EV battery supply chain, copper processing, and nickel projects via CATL JV. Additionally, SRTG enhances its sustainability portfolio with private investments in Xurya (solar energy) and Forest Carbon (carbon offsets). These combinations of past and new green projects will result in improved sentiments on their stock investments, allowing for a tightening in their NAV band.

 

Initiate coverage with BUY and IDR 3,000 TP (44% upside) on 23% discount to NAV. Our positive outlook on SRTG is underpinned by resilient forecasted dividend payouts, high-quality investment assets, strong balance sheet, and NAV gain from ADRO’s PUPS of AADI. We initiate our coverage with BUY rating and TP of IDR 3,000/share (SOTP-based), implying 23% discount to NAV. Risk: lower NAV drag down by slower economic growth, reduced dividend incomes from invested entities, and suboptimal investments.