Company Update:
Alam Sutera (ASRI IJ, BUY, TP: IDR540),
Limited Downside Risk
Alam Sutera (ASRI IJ, BUY, TP: IDR540),
Limited Downside Risk
We believe concerns over Alam’s cash flow
should further reduce post its strategic tied-up with CFL and its intention to
refinance its bonds – this is to lengthen its debt maturity and lower overall
funding costs. We fine-tune our numbers with a conservative forecast. A further
catalyst would be potential block sales of The Tower, which has IDR2.2trn in
potential sales value. The stock’s valuation looks undemanding. The current
downside risk should be limited to lower-than-expected presales. We maintain our
BUY call and IDR540 TP (23% upside).
¨
Making
improvements.
Post its cooperation with China Fortune Land Development Co Ltd (CFL) back in
June, Alam Sutera Realty (Alam) has successfully issued USD245m in bonds. This
is due in 2022 with a coupon rate 6.625%. The net proceeds are to redeem in
full its outstanding FY19 bonds with a coupon rate of 9%. We are positive on
this exercise, as it:
i. Lengthen Alam’s debt
maturity profile (suggesting more time to restore its cash flow), aligned with
expectations of a better future outlook for the property sector;
ii. Lowers funding cost
from a lower coupon rate – our calculations suggest about 14% savings in
interest costs (Figure 1).
¨
Change
in forecast. We
carry forward the revenue booking to FY17, but keep our conservative forecasts.
This suggests core earnings growth of 6.3%/10.2% for FY17F-18F respectively.
¨
Alam’s
gearing level is to increase slightly from additional IDR20m in USD notes, but
is expected to decline to 0.85x in FY18 (3Q16: 1.02x), in our view. This is
aligned with improvements in Alam’s cash flow going forward.
¨
Catalysts
in the pipeline. Alam’s
YTD presales reached IDR1.3trn, 27% of the FY16 target of IDR4.9trn. Regardless
of this, the company is optimistic in meeting this presales target, what with
the potential sale of the whole The Tower office block. This project is
estimated to generate sales value of IDR2.2trn, ie 57% higher than Alam’s
initial target of IDR1.4trn. In addition, the company has potential booked land
sales to CFL amounting to IDR700bn-800bn.
¨
Valuation
looks undemanding. Alam
is currently trading at a 60% discount to RNAV, implying P/Es of 9.9x/9.2x for
FY17F-18F respectively. By comparison, the industry is at a 50% discount to
RNAV, with P/Esof FY17F-18F of 15.9x/13x respectively.
¨ Note that our forecast is conservative and has yet to take into account the potential block sale of Alam’s office tower. With concerns over the company’s cash flow having been taken care off, the downside risk to our call should be limited to Alam failing to achieve its FY16 presales target. Maintain BUY and IDR540 TP.
¨ Note that our forecast is conservative and has yet to take into account the potential block sale of Alam’s office tower. With concerns over the company’s cash flow having been taken care off, the downside risk to our call should be limited to Alam failing to achieve its FY16 presales target. Maintain BUY and IDR540 TP.
Kindly click the following link for the full report: Alam Sutera : Limited Downside Risk
Best regards,
Lydia Suwandi
Vice President
Research Analyst - Property
PT. RHB Securities
Indonesia
