Sinamars Land - RHB Invest 2016-03-15: Deeply Undervalued

Sinamars Land - RHB Invest 2016-03-15: Deeply Undervalued SINARMAS LAND LIMITED A26.SI 

Sinamars Land - Deeply Undervalued 

  • Sinarmas Land is our Top Pick to ride on the cyclical recovery in Indonesia’s real estate market. 
  • We expect its FY16 recurring net profit to rebound by 29% YoY, on the back of higher marketing sales in its township projects in Greater Jakarta, as well as higher rental income. 
  • The stock, which has under-performed in the last year due to poor investor sentiment towards emerging markets, is deeply undervalued at current levels – its stake in BSD alone is equivalent to its current market capitalisation. Everything else comes free. 
  • Maintain BUY, with a SGD0.95 TP (121% upside). 

Recovery year for Indonesia’s property sector. 

  • After two years of sluggish residential pre-sales growth, we expect to see a cyclical recovery in 2016 due to improving macro conditions, aided by interest rate cuts and accelerating GDP growth. 
  • In 2015, Sinarmas Land’s 51.5%-owned subsidiary, Bumi Serpong Damai (BSD) (BSDE IJ, BUY, TP: IDR2,540), chalked up marketing sales of IDR6.8trn (+3.8%), thanks to resilient demand for its landed houses and shophouses. 
  • BSD’s recent launch of two new clusters, Sevilla Park in BSD City phase 1 and Anarta House, a dormitory housing project, saw good take-up rates of 77% and 100% respectively, with a cumulative sale value of IDR330bn. 
  • BSD’s vast, low-cost landbank remains its greatest strength, allowing it to juggle with the type of product it sells and the pricing to meet end-demand. 

Economic stimulus measures to benefit industrial real estates. 

  • Notwithstanding a backdrop of challenging market conditions, Kota Deltamas (DMAS IJ, NR), SML’s industrial real estate unit, recorded marketing sales of IDR1.7trn in 2015. DMAS has built up a cluster of automotive customers such as General Motors and Mitsubishi in its township due to its good traffic connectivity to major highways. 
  • We expect the group to benefit from the host of economic stimulus packages and infrastructure spending plans rolled out by the government since Sep 2015 to attract foreign direct investments. 

Gearing up for international expansion. 

  • Sinarmas Land has also put its strong balance sheet to work, acquiring two London office properties for GBP320m to bolster its recurring income to a targeted 20%. 
  • Separately, the group has unveiled the master plan for Nuvasa Bay, a 228ha luxury integrated residential and mixed-used development in Batam, to be developed over the next 15 years with the initial launch slated for 3Q16-4Q16. 

At the current price, the stock is a steal...

  • ... with its stake in BSD already worth SGD1.85bn (SGD0.43/share), or its current market capitalisation. 
  • Sinarmas Land’s stock price has underperformed in the past year due to a weakening IDR and the capital flight seen in emerging markets. We value the stock using SOP and peg a 10% holding company discount to derive a TP of SGD0.95. 
  • Beyond the quantitative factors, the developer may continue to enjoy rising margins for its township projects against a backdrop of rising replacement costs. 

Goh Han Peng RHB Invest | 2016-03-15
RHB Invest SGX Stock Analyst Report BUY MAINTAIN BUY 0.95 Down 1.01