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Good morning,
Summarecon
Agung: Lower Gearing Is The Key
We
remain cautious on Summarecon’s high gearing level, as weak GPMs from a
change in sales mix may continue from lower-than-expected GPMs from new
townships. And, following its presales target cut to IDR3.5trn and bad 3Q16
results, we lower our FY17F-18F earnings by 82%.Yet, coupled with the share
price plunging~50% from its highest level, we believe the market has priced
in the bearish views. Thus, we upgrade the counter to NEUTRAL (from Sell)
with a slightly lower new IDR1,420 TP (from IDR1,480, 9% upside). Possible
commercial land plot sales are likely to serve as the catalyst.
¨ Earnings to start
improving in FY18.We
remain cautious on Summarecon Agung (Summarecon). This is as its capital
structure with total interest bearing debt is IDR7trn, ie a doubling of its
gearing level to 1.18x in just three years, while its financial performance
is expected to remain soft due to:
i. Weak property demand in FY16, which has forced
Summarecon to tweak its presales target to IDR3.5trn – as such we expect flat
revenue over the next two years;
ii. GPMs have also contracted to 46% (FY15: 52%) and are
likely to remain flat with its new townships in Bandung and Karawang only
yielding GPMs of 30-35% and 25% respectively;
iii. High interest costs and higher earnings attributable to
non-controlling interests.
However,
we expect improving earnings from FY18 onwards, thanks to lower final sales
tax, a lower presales mix from apartment sales and more visible recovery on
property demand in FY17. This would be led by tax amnesty initiatives and
allowance for “off-plan” properties for second mortgages.
¨ Forecast change. We slash our
FY17F-18F earnings by 82%, taking into account the reasons above.
Nonetheless, we expect earnings to start growing conservatively by >10% in
FY18 onwards. This is backed by a lower sales tax rate and decreased presales
contributions from apartment sales. Our forecast has yet take into account
possible sales from commercial land lots, which Summarecon advised may
generate presale values of IDR175-350bn. If included, these potential sales
should grow gross profit and net profit further by around 6%
and41%respectively, assuming 60% GPMs and 35% net margins.
¨ Upgrade to NEUTRAL. We still believe
lowering the gearing ratio ought to give Summarecon greater financial
stability. With its cash flow mainly reliant on the presales performance of
its development properties, selling more landed residential and commercial
land lots may be a good strategy for now, bearing the risk of its ability to
replenish its landbank. Nonetheless, the share price has plunged ~50% from
its highest IDR1,940 level. This may reflect the market having priced in the
bearish view. As such, we upgrade our stance to NEUTRAL (from Sell), with a
new IDR1,420 TP (from IDR1,480) that is derived from a 52% discount to the
estimated RNAV. (Lydia Suwandi)
Link
to report: Summarecon Agung : Lower Gearing Is The Key
Link
to Daily report: Indonesia Morning Cuppa - 151116
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Media
Highlights:
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Corporates
OJK expects credit growth to be at 9-11% in
2017
Indonesia Financial Services Authority
(OJK) estimated that the banks credit growth will be at 9-11% YoY in 2017,
higher than this year’s prediction of 6-7% YoY. OJK stated that there are
several factors supporting the growth, including: i) realization of 14
stimulus package, ii) tax amnesty realization that will increase liquidity,
and iii) increasing export demand due to China’s economic recovery and
increasing commodity prices. (Kontan)
Comment: For banks within
our coverage, we expect loans would grow at 15.2% in 2017 (2016: 14.3%) on
the back of government infrastructure projects and higher GDP growth
assumption of 5.3% according to RHB economist. (Eka Savitri)
Intiland sells 40% stake in its subsidiary
worth IDR1.03trn
Bumi to change management after
shareholders meeting in 2017
Consumer health will support Merck’s sales
going forward
Delta Dunia Makmur renew IDR39trn contract
with Berau Coal
Jasa Marga prepares IDR16.36trn for
Jakarta-Cikampek elevated
PP Properti and Kawasan Industri Jababeka
to invest IDR4trn
Tunas Baru Lampung targets 20% growth in
2017
Government to cut national electricity
project to 19,763MW in 2019
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Our
Recent Publication:
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Economic Highlights: Current Account
Deficit Improves In 3Q, And Surplus In Balance of Payments Continues
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Strategy: Currency
Woes Dampen Sentiment
Link
to report: Currency
Woes Dampen Sentiment
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Sector Update:
Regional Plantation: Disappointing Output Supports Bullish CPO Price Signal
Link
to report: Disappointing
Output Supports Bullish CPO Price Signal
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Company Update:
Nippon Indosari Corpindo : New SKU Launches, More Sales Force
Link
to report: Nippon
Indosari Corpindo : New SKU Launches, More Sales Force
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Company Update:
Pembangunan Perumahan Persero: Paving The Way For Stronger Growth
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Economic Highlights:
Growth Moderated in 3Q 2016, But Will Likely Bounce Back
Link to report: Growth
Moderated in 3Q 2016, But Will Likely Bounce Back
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Company Update: Wijaya Karya Persero:
Taking The Weight Off Its Shoulders
Link to report: Wijaya
Karya Persero : Taking The Weight Off Its Shoulders
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Corporate News Flash: United Tractors: FY17
Management Guidance Confirms Our Bullish View
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Company Update: Telekomunikasi Indonesia:
Leading The Pack
Link to report: Telekomunikasi
Indonesia : Leading The Pack
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Economic HIghlights: Inflation Continues to
Pick Up In October
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Best regards,
Helmy Kristanto
Director
Head of Indonesia
Research
PT. RHB Securities
Indonesia
