Sector Update:
Property (Overweight),
Wait No More
Property (Overweight),
Wait No More
We upgrade our sector call to OVERWEIGHT
(from Neutral), as we expect its outlook to improve from:
1. Passing of the Tax Amnesty Bill;
2. Declining benchmark interest rate;
and
3. Relaxation of the LTV policy.
The
recovery in property demand should accelerate in 2017; as such, our FY17
presales target of IDR33.5trn (+10% YoY) is on the conservative side.
¨
The
parliament approved the Tax Amnesty Bill on 28 Jun 2016 and we strongly believe that
the tax reform would be important in paving the way for a stronger government
budget. A tax amnesty approval was also required for Standard & Poor’s
(S&P) potential upgrade of Indonesia’s sovereign credit rating to
investment grade. The tax amnesty programme is targeted to start on 1 Jul 2016.
¨ The property sector
is a winner
for at least these two reasons:
i. The tax amnesty would revitalise buyers’
interest, especially those who have held back on property-buying due to the
risk of tax audits. We strongly believe that with the passing of the tax
amnesty bill, people would take this opportunity to revalue their assets.
ii. Money repatriated to Indonesia as part of the
tax amnesty would be allowed to be invested in properties, in the second year
after the passing of the bill.
¨ A better 2H16 and a
more visible recovery in FY17. We expect improved presales in 2H16, and
the recovery in property demand to accelerate in 2017. Thus, our FY17F presales
of IDR33.5trn (10% YoY) might be on the conservative side, driven by a volume
increase rather than a price increase. The middle-income segment continues to
be the main target as this is the most resilient segment that mainly prefers
landed properties.
¨
Still
focusing on balance sheet and cash flow. We are wary of companies with solvency
issues, given that the average gearing of our property universe has reached its
peak of 0.67x as of Dec 2015 (from 0.26x as at Dec 2011). Weak housing demand
and stretched paymentshave also resulted in a decline in interest coverage
ratio. Hence, we are more bullish on companies with low gearing ratios, healthy
operating cash flows and a large number of landbanks and projects in the
pipeline, as they would benefit from the tax amnesty programme. Our Top Picks
for the sector are Bumi Serpong Damai (BSDE IJ, BUY, TP: IDR2,540) and Ciputra
Development (CTRA IJ, BUY, TP: IDR1,540).
¨
Valuation.The sector is
currently trading at a 57% discount to RNAV, around
-0.6SD from its past 3-year mean of 49%,
with FY16-17F P/Es of 18.7-17.5x.
¨ Risks include:
i. An economic slowdown leading to declining
purchasing power of properties;
ii. Slower revenue delivery;
iii. A potential delay in the tax amnesty plan;
iv. Changes in government regulations or cooling
measures for the property sector.
Best
regards,
Lydia Suwandi
Vice President
Research Analyst - Property
PT. RHB Securities
Indonesia
