Summarecon Agung (SMRA IJ, BUY, TP IDR1,720) Company Update: A Promising New Landbank - Daily Pack 26 September 2013

Good morning,

We like that ~28% of SMRA’s revenue is recurring and that topline is expected to grow by 16.0% FY12-15F CAGR, providing earnings stability amid an expected property sector slowdown. Its next landbank should serve as a catalyst, given the location and easy access. Maintain BUY, with our new IDR1,720 TP derived by applying a higher 40.0% NAV of IDR2,885 per share, implying 18.1-16.6x FY14-15F P/E

¨       Slowdown expected. Management was forced to postpone the launch of its new apartment project in Kelapa Gading, Jakarta, The Kensington, to next year, due to the temporary moratorium restriction on high-rise buildings imposed by the local Government. This leads us to revise downwards the FY13F pre-sales target to IDR4trn (from IDR4.5trn). Going forward we also expect an easing down in pre-sales growth to 10-15% per annum, given the: i) high base effect, ii) increase in mortgage rates as result of hike in key interest rates, and iii) Government’s regulations on curbing credit growth in the Indonesian property market. 

¨       Hidden values spotted. Based on information gathered from SMRA’s financial statements, we suspect that its undisclosed landbank in Southern Jakarta is located in Bogor, which is accessible through the Jagorawi Toll Road. It is also ringed with one hotel and two golf courses. So far, SMRA has secured around 99ha and a 51% stake in the firm that owns the land and licences in the area. This translates to an investment of ~IDR472bn, or IDR117,000 psm. We have yet to take into account the potential revenue from this new landbank, as the land acquisition is still ongoing. Nonetheless, note that the land’s current market value ranges between IDR300,000 and IDR1m psm. 

¨       Maintain BUY, new TP IDR1,720. We expect easing in FY14F-15F net earnings margins to 28-27%. This is due to a change in sales mix and higher interest expense from SMRA’s increased debt to finance its capex and land acquisitions, which will reach IDR2trn in FY13F. We do expect it to maintain its net cash position over the next 3-4 years, however, with total asset turnover (marketing sales/total assets) of 34-35% for FY14F-15F. SMRA currently trades at a 68% discount to its NAV, implying 9.7-8.9x FY14F-15F P/E and FY14F ROE of 27.6%. By comparison, its peers are trading at 12.5-10.1x FY14F-15F P/E and FY14F ROE of 18.6%. Maintain BUY.  (Lydia Suwandi)

FROM TRADING DESK: JCI today is expected to be traded at 4358.40 and 4442.26.

MEDIA HIGHLIGHTS: 
Mitsubishi eyes 160k car sales in FY13
Bank Indonesia to implement new LTV regulation
SOE firms to be allowed to hedge their forex exposure

Best regards,
RHB OSK Indonesia Research Institute

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