PT Summarecon Agung Tbk (SMRA IJ): A Better Future October 11, 2017

Company Background

PT Summarecon Agung Tbk (SMRA) and its subsidiaries develop and invest in real estate. The Company develops and operates residential houses, apartments, shopping centers, recreational centers and office buildings.

Investment Merits

  • Low interest rate environment and spatial LTV may spur demand We believe the latest rate cut will be another crucial variable that will affect the performance of the property sector in the medium term. Recent newsflashes have indicated that several banks are planning to increase their exposure in housing loans by lowering mortgage rates. On a related note, BI is also planning to issue a macro-prudential regulation to boost credit in property and automotive. The policy is the spatial LTV scale in each different region. We believe any relaxation in mortgage disbursement scheme is likely to lift pre-sales.
  • Bandung and Makassar projects are the ones with high potential We are positive on SMRA’s plan to launch more low-rise instead of high-rise in FY17E. Additionally, upside risks to our rating and price target also include better-than-expected ASP growth and take up rate from Bandung’s subsequent launches. We are also expecting bright prospect from the Makassar project as ASP may see growth around 7.5% over the next 2 years if spatial LTV relaxation is to be implemented in this region and infrastructure projects experience no further delay.
  • Vast land bank and strong project pipeline justify attractive valuation SMRA has a very strong project lineup in its pipeline, which includes a total estimated project value of IDR 3.3 tn in Kelapa Gading, over IDR 13.87 tn in Serpong and over IDR 48.04 tn in Bekasi. With this in mind, we expect SMRA’s pre-sales to witness a 13.2% CAGR 2017/20E, with majority of contribution coming from Bekasi and Serpong. Furthermore, valuations are inexpensive, with the stock currently trading at a 60.4% discount to RNAV and below the one year historical mean.

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