Sinarmas Land - RHB Invest 2016-09-15: Seeing Is Believing!

Sinarmas Land - RHB Invest 2016-09-15: Seeing Is Believing! SINARMAS LAND LIMITED A26.SI

Sinarmas Land - Seeing Is Believing!

  • Our recent site visits to Sinarmas Land’s township developments in Jakarta, BSD City and Kota Deltamas have reinforced our positive view on Indonesia’s real estate fundamentals. 
  • Macroeconomic and monetary policies are also supportive of sector growth, with cuts in property taxes, lower mortgage down-payments, benign inflation and a tax amnesty programme that are likely to drive capital inflows into real estate.
  • Sinarmas Land remains the best proxy for sector exposure, in our view.
  • Maintain BUY with a new SGD0.91 TP (from SGD0.95, 82% upside).

Bumi Serpong Damai City (BSD City) the crown jewel. 

  • The 6,000ha BSD thriving and self-sustaining sub-cities with City township is in its second development phase, with a remaining 3,500ha. Due to good execution, these townships are thriving and have become landbank lasting till 2035. 
  • With its strategic location and well-planned increasingly popular with more vibrant places for work and play these infrastructure, BSD City is benefitting from Jakarta’s urban sprawl, with steady two townships have developed into thriving sub-cities with their own eco- demand for its varied housing products. 
  • Most importantly, its huge and valuable systems and supporting amenities. 
  • Marketing sales picked up in 2H16 on landbank remains a key competitive advantage in land-scarce Jakarta, enabling the back of more favourable fiscal and monetary measures and we expect it to enjoy gross margins that consistently hover above 60%.

Joint ventures (JVs) with international partners are also coming into fruition. 

  • These include Indonesia’s first AEON mall in BSD City, Nava Park – a 68ha luxury residential development with Hongkong Land Holdings Ltd (HKL SP, NR) that achieved new pricing records (IDR16m psm on land), and good sell-through for landed houses and condominium (condo) units in initial phases.

Industrial real estate division benefitting from foreign direct investment (FDI) inflows. 

  • Kota Deltamas is Sinarmas Land’s industrial real estate township in East Jakarta. It has a remaining 1,648ha landbank held via PT Puradelta Lestari (Puradelta) (DMAS IJ, NR). The entity is a direct beneficiary of FDIdriven economic stimulus packages rolled out by President Joko Widodo (Jokowi) since Sep 2015. 
  • Having built up a cluster of automotive customers such as Suzuki Motor Corp (Suzuki), Mitsubishi Motors Corp (Mitsubishi) and General Motors, it recently surpassed its 50ha 2016 marketing sales target following the sale of a 38 ha land parcel to PT Astra Honda Motor.

Resilient earnings and higher asset turns. 

  • Beyond its townships, Sinarmas Land owns a broad array of property assets across different sub-sectors, making it the most diversified and resilient among its peers. 
  • Supported by a strong balance sheet (net gearing: 0.18x), it is targeting to grow its recurring income base via overseas acquisitions of prime office properties. 
  • We expect the group’s asset turns to improve as it actively monetises its vast landbank with new projects in Bali, Batam, Karawang and Downtown Jakarta.

Still a bargain! 

  • Sinarmas Land’s stock price performance YTD (+15%) has lagged behind its key subsidiaries, Bumi Serpong Damai (BSD) (BSDE IJ, BUY, TP: IDR2,650) and Puradelta, which have gained 20-30%. 
  • Maintain BUY, as we see scope for a re-rating as the group accelerates its asset turns and regains momentum in marketing sales. 
  • Our SGD0.91 TP is based on a 10% discount to its SOP valuation. 
  • Risks include political instability and IDR fluctuations.

Goh Han Peng RHB Invest | http://www.rhbinvest.com.sg/ 2016-09-15
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.91 Down 0.950