Sinarmas Land Limited: Sluggish Development Sales August 17, 2016

PSR Recommendation: BUYStatus: MaintainedTarget Price: 0.72
  • 1H16 revenue/profit after taxes and minority interest met 52.6%/40.8% of our estimates
  • Slower hand overs and sluggish sales in development projects are likely to trim revenue over the next few years
  • We have adjusted our forecast to take into account the potentially slower development sales

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  • 1H16 sales of development properties only met 37% of full year sales target; unlikely to meet full year sales target set by BSDE, in our view

Sales of development properties in 1H16 via 51.4% owned subsidiary, Bumi Serpong Damai (BSDE), came in at Rp2.5 trillion, which has met 37% of BSDE’s full year target of Rp6.9 trillion. There will be another three development projects namely Aerium, Tanjung Barat and the newly announced Buenos Park, that are slated to be launched for sale in 2H16. Management expects the three development projects to contribute another Rp2.7 trillion to BSDE’s sales of development properties, bringing full year contribution to Rp5.2 trillion or 75% of BSDE’s FY17 sales target.

  • Industrial land sales lifted by 38.3 hectare land sale to PT Astra Honda Motor and will most likely allow DMAS to exceed its 2016 sales target

In 2Q16, industrial land sales via 59% owned subsidiary, Puradelta Lestari (DMAS), registered ~8 hectares of land sales, bringing total industrial sales year-to-date to 11 hectares. In August 2016, DMAS has signed a sales agreement with PT Astra Honda Motor for the sale of 38.3 hectares of land. We expect the transaction to be completed in the next few quarters starting from 4Q16. Including the land sale to PT Astra Honda, DMAS will most likely exceed its 2016 industrial land marketing sales target of 50 hectares of industrial land. However, this represents a 44% decline compared to 90 hectares of land sales registered in FY15, a substantial decline in SML’s overall revenue.

  • First development phase in newly signed Nuvasa Bay project to be launched in end-2016 but unlikely to be a major contributor to topline

Sinarmas Land (SML) signed a Memorandum of Understanding with KOP Properties to develop certain parts of Nuvasa Bay, a 228-hectare high-end integrated mixed-used development, in Nongsa, Batam. During the first development phase, SML intends to launch 200 residential houses and 550 condominium units in the Nuvasa Bay project by the end of 2016. We estimate the combined GDV for these units to be Rp450 billion (S$47 million) which represent 5% of total revenue in FY15. Revenue will begin to be booked in progressively for the sale of condominium units upon the start of construction. Construction is expected to begin in 1Q17.

Investment Actions

We maintain our BUY rating with an unchanged TP of $0.72 based on our SOTP RNAV estimates. We remain positive on the fundamentals of SML, and the recent approval of the nine-month tax amnesty policy could benefit real estate investments in the near term.

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