Property Sector

Sector Update

Buy the stocks, then get a new house

Fresh from the oven: The demand has not dead yet. In our ground check to several listed property companies in our coverage, we found that most of them have accomplished their first half marketing sales target which is around 56% from full year 2013 (Developers marketing sales are set to grow by 3035% on average in 2013). At the other hand, we believe that the increment of 50 bps of BI Rate to 7% is not a game changer based on our observation that roughly only about 50% of property buyers are taking mortgage loans. The demand barometer also comes from fact that the land price rising has been spreading to outer Jakarta and outside Java like a virus. We think this one of an indication that the demand still there and no wonder the companies could achieved their target smoothly.

Feed by a healthy nutrition. We see that the big players have learned well from 1997/1998 crisis to bring their company healthier and ready to face the unpredictable domestic economic problems. They have stronger balance sheets and being wider in managing their debts after got slapped wildly during 1997/1998 financial crisis. Meanwhile, the massive depreciation of Rupiah should give no impact to the share prices. In our coverage, Alam Sutera Realty (ASRI) has the highest net gearing as well as exposure to US$-debt. But, ASRI has hedged its US$-debts to manage its currency risks. The others, like BSDE and SMRA, they are in net cash.

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You are shopping in a great sale. During the crash periods (May-Aug 13) we saw the average share prices have slumped more than 45% and it caused the sector RNAV has been discounted around 60%. Take a note that during the substantial bear market, the discount to RNAV tends to inflate from 25-30% to 50-60% and were we to use to a 50% discount to RNAV, we still see large price upside potential for ASRI (59%), BSDE (25%), and SMRA (48%). From the other perspective, when you compare the current price (4 Sep 13) to the highest price in May 13 it will theoretically give you relatively wide margin of safety to invest.

Keep smile during macro fundamental turbulent. Bank Indonesia (Central Bank) took a brave decision by increased the BI rate to 7% and tighten the reserve requirements by lowering the upper limit for the loandeposit ratio (LDR) from 100% to 92%. The central bank furthermore plans to increase the secondary reserve requirement from 2.5% to 4% of total deposits within the next three months. We think that the impact will be very minimum based on the condition: a) just around 50% of property investors are taking mortgage loans, and b) big cap listed developers typically appoint larger banks (such as BMRI and BBCA) to provide their clients loan. Therefore, we foresee that the new banking regulations should have only minimum impact on the larger banks, which have lower LDRs and higher reserves than smaller banks (see table below for comparison).

Expect a minor impact to the new LTV rules. Then new loan-to-value (LTV) regulations in Sep 13 put the down payment for first home (with land size more than 70sqm) would be at 30%, second home at 40% and
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third home for 50%. We think the undesirable impact to this new regulation would be minimal as: a) total mortgage loans for buyers with multiple homes only accounted for 12.3% of that of the whole country of Rp263t (as of May 13), b) Only around 50% of home buyers (Listed company) use mortgage loans. We expect there will be only 7% impact on the property demand.

Choose the right brand. We give a BUY recommendations to Alam Sutra Realty (ASRI IJ) with T/P at Rp1,300, Bumi Serpong Damai (BSDE IJ) with target price at Rp2,200 and Summarecon Agung (SMRA IJ) Rp1,100. ASRI IJ : The company has plenty land bank in well located areas in Serpong and Pasar Kemis. Meanwhile, this company is planning to expand in Bali and enter the office tower business in Jakartas CBD area. This stock has been discounted around 61% from its RNAV BSDE IJ: a) The join- venture project with Hongkong Land and AEON should give lot of benefits, b) The new Greenwich cluster is the new attractive toy to boost the marketing sales target, c) A new plan of office projects in CBD area, and e) Get into toll road business. This stock has been discounted at 59% from its RNAV SMRA IJ: a) Several projects are ready to launch in 2H13 such as 252 unit Spring residential cluster in serpong around Rp10m psm, Two Apartment towers with 500 resedential units size, Keningston Apartment at Kelapa Gading for 300 units size; b) Escalating into hotel projects in Bali, and; c) Getting more aggressive in land acquisitions. This stock has been discounted at 50% from its RNAV

Property Sector
Property Index

Source: NISP Sekuritas

Need more confirmation. Through the chart above, we can see that the whole property sector tends to show a tendency to form its bottoming formation around the end of Aug 13. Since the index has reached the harmonic support area, which is coinciding with the time support on 30 Aug 13, we believe that the index should be able to rebound until the next harmonic support area on the mid Oct 13.

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PT NISP Sekuritas
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Rating Definitions
OVERWEIGHT : We expect this sector to give total return of above 15% over the next 12 months. HOLD : We expect this sector to give total return of between -15% and 15% over the next 12 months. UNDERWEIGHT : We expect this sector to give total return of -15% or lower over the next 12 months.

DISCLAIMER:
This report was produced by PT NISP Sekuritas, a member of the Indonesia Stock Exchange (IDX). The Information contained in this report has been obtained from public sources believed to be reliable and the options, analysis, forecasts, projections and expectations contained in this report are based on such information and are expressions of belief only. No representation or warranty, express or implied, is made that such information or opinion is accurate, complete or verified and it should not be replied upon as such. This report is provided solely for the information of clients of PT NISP Sekuritas who has to make their own investment decisions without reliance on this report. Neither PT NISP Sekuritas nor any officer or employee of PT NISP Sekuritas accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. PT NISP Sekuritas may be involved in transactions contrary to any opinions herein to make markets, or have positions in the securities recommended herein. PT NISP Sekuritas may seek or will seek investment banking or other business relationships with the companies within this report. This report is a copyright of PT NISP Sekuritas. For further information please contact our number 62-21-29352788 or fax 62-21-57944095.