RHB Indonesia - Real Estate - Has The Dust Settled?- (Regional Property, BI 7 Days RR rate, Nippon Indosari, Bumi Serpong Damai) Unknown Senin, 23 Januari 2017




Good morning,

Real Estate - Has The Dust Settled?

While sentiment in the property markets in China and Singapore have largely stabilised, we believe the markets in Indonesia, Thailand and Malaysia would still need some time given the existing macro headwinds. We expect upcoming elections in the region to potentially bring volatility to the sector. However, given sound fundamentals and continued infrastructure investments, we are OVERWEIGHT the property sector in Indonesia, Thailand and China and NEUTRAL on Singapore and Malaysia.
¨ 2016 performance review. The Indonesia and Thailand property markets performed relatively better compared to other countries in the region. Both property indices appreciated by more than 5% in 2016. Meanwhile, as expected, the Malaysia property sector was the worst performer as the KL Property Index declined by 5% last year.
¨ Upcoming elections in the region a risk. In 2017, apart from the weakness in economic growth, we think sentiment would likely stay cautious given several upcoming elections in the region. These include the general election in Malaysia (due in May 2018), Jakarta governor’s election in Indonesia, as well as general election in Thailand. Therefore, market concerns on political landscape may, to some extent, hinder the demand for big ticket items.
¨ Expect a slower 1H17versus2H17. Given the challenging outlook on political and economic front, together with volatile commodity prices and currencies, we expect the property market in the region to likely be slow in 1H17. However, we believe sentiment may turn more positive in 2H17as some of the concerns on the macro economy and politics subside.

¨ Sales growth to be stronger in Indonesia and Thailand. We continue to expect Indonesia and Thailand to achieve stronger presales growth in 2017.After a low single-digit growth in 2016, we expect presales growth to likely hit 12% for Indonesia and 7-10% for Thailand in 2017. The optimism is supported by the execution of infrastructure projects, while Indonesia should continue to see the positive spill over from its tax amnesty programme. The additional stimulus in Indonesia should also include cheaper mortgage rate and higher loan-to-value mortgage financing. We are OVERWEIGHT the property sector in both Indonesia and Thailand.
¨ Expect mild recovery in Singapore and China property markets. The Singapore and China property markets should likely see a 5-10% growth in presales/contracted sales this year. While property prices in Singapore may take a breather, we expect sales volume to increase given more aggressive discounts and choices offered in the market, as developers continue to unwind their inventory. For China, we expect property prices in Tier-1&2 cities to stay solid this year, on the back of declining inventories in these cities. As capex and landbanking by developers have been conservative and limited, the average inventory digestion cycle for these cities has dropped to 6-7 months, close to the low in recent years. We have an OVERWEIGHT rating for China and NEUTRAL rating for Singapore property sector.
¨ Expect Malaysia to continue to underperform. We think the Malaysia property market would remain lacklustre in 2017, with flat sales growth, after a 11% decline in 2016. Key macro headwinds such as weak economic growth, high household debt and hence restrictive access to credit financing are still the key challenges for the market. The further weakening in MYR has not helped to stabilise market sentiment. While developers would likely to be selective on launches, buyers may continue to delay their purchase of properties. We maintain our NEUTRAL rating for the Malaysia property sector.
¨ Stock picks. Our stock picks for the region are Bumi Serpong Damai, Land and Houses, CR Land, City Development. (Loong Kok Wen, CFA)
Link to Daily report: Indonesia Morning Cuppa - 230117
​Link to report: Real Estate: Has The Dust Settled?
​

Economic Updates:

Bank Indonesia Starts 2017 By Maintaining The Key Rate At 4.75%
Bank Indonesia (BI) board of governors’ meeting maintained the BI 7-day (Reverse) Repo rate, the benchmark policy rate, at 4.75% on 19 Jan 2017. Moving forward, we expect the BI to slash its key policy rate by another 25bps in 2017 to support economic growth under stable IDR circumstances on:
1. Moderate inflation;
2. Manageable current account deficit;
However, IDR volatility could delay key policy rate cut.
¨ Similarly, deposit facility and lending rates were maintained at 4% and 5.5% respectively. BI believes that the move is consistent with efforts to optimise domestic economic recovery while maintaining macroeconomic stability. This is against a back drop of global oil price hike and uncertain global financial markets, especially relating to US and China policies, as well as domestic risks relating to administered prices inflation. BI considers the previous monetary and macro prudential policy easing would continue to boost domestic growth momentum.
¨ BI believes the domestic economy remained within expectation in 4Q16, which will bring growth to around 5% in 2016. Nevertheless, the economy is projected to expand in 2017, in the 5-5.4% range, driven by exports and investment as financing increases from bank loans and non bank financing. On the other hand, stable household consumption is also predicted. Overall, we are of the view that moderate inflation, recent government deregulation, the successful implementation of the tax amnesty bill, and BI’s aggressive monetary easing would likely boost consumption and private investment moving forward. In addition, prices of Indonesia’s major commodities are rising, such as crude palm oil (CPO), coal, and metal that would support rural household spending.
¨ On the global economic outlook, the BI predicts the global economy to improve, supported by gains in the US and China, albeit several risks that demand vigilance. The US economy has been buoyed by increased consumption and non-residential investment while growth in China has also accelerated, reflected by increased retail sales and private investment. Looking forward, several global risks continue to demand vigilance, including the impact of US fiscal and international trade policy, Fed rate hikes, economic and financial rebalancing in China, as well as geopolitical risks.
¨ Indonesian financial system remains stable. This was underpinned by a resilient banking system and relatively sound financial markets. In November, the capital adequacy ratio (CAR) of banks remained high at 22.8%, which is above the minimum threshold of 8%. At the same time, non-performing loans (NPL) remained relatively stable at 3.2% (gross) or 1.4% (net) of total loans. Meanwhile, deposit and loan growth increased to 8.4% and 8.5% YoY in November, upfrom +6.5% and +7.5% in October.
¨ Going forward, we believe inflation would likely remain managebale in 2017 due to relatively low fuel prices and stable domestic demand. In addition, the current account deficit in the balance of payments would likely be moderate although IDR may continue to face external headwinds, as expectation on the US raising interest rates further thisyear has increased. This would likely provide room, albeit limited, for the BI to maintain its loose monetary and macro prudential policy. For this year, we expect the BI to slash its key policy rate by another 25bps in 2017 to support economic growth understable IDR circumstances. (Rizki Fajar)


Link to report: To be sent out later
Company Updates:

Nippon Indosari (ROTI IJ, BUY, TP: IDR1,870), Notes
Nippon Indosari aims to increase its market shares in local bread market by launching more product variants in 2017. By having more product variants, it is looking to ensure that it has the first mover status on new bread types and flavours.

Nippon did not increase its selling price for 30 months while other domestic consumer food products such as biscuits, snacks, and instant noodles have seen selling price increase by 5-6% pa. Hence, price gap between bread and other consumer products has widened and we believe that Nippon has now room to increase its prices.

Nippon just signed a new 6-month (for Jan-Jun 2017) purchase contract for flour at lower price. On the new contract, price of flour - which accounted around 25% of COGS - declined by 4% from price on previous 6-month (Jul-Dec 2016) purchase contract. Higher average selling price and lower input costs should help Nippon to boost its EBIT margin.

At Dec-16, Nippon acquired a Philipine bread maker which has been more 30 years experience in the Philipine bread industry. Its brand Walter Bread is famous for its healthy quality with low sugar and high fiber. We see this acquisition is Nippon strategic movement to develop its Philippine market. Furthermore, this should not cannibalise Nippon bread (SariMonde) since it is targeting different market segments. Walter Bread targets niche market: consumer who prefer healthy products). While, SariMonde is targeting mass market: consumer who prefer tasty breads.

We maintain BUY with DCF-derived TP of IDR1,870, implies 25x FY17F P/E. (Andrey Wijaya)

Bumi Serpong Damai (BSDE IJ, BUY, TP: IDR2,650), Notes
Bumi Serpong Damai is a township developer with 5,950 ha area. The company is the largest property company in term of market capitalisation, IDR36trn/USD2.6bn. Accroding to Bumi Serpong, its mortgaged buyers increased to 70% of total customers in 2016 (versus 55% in 2012) thanks to lower mortgaged rate. Although increased significantly, mortgaged loan to GDP is still very small, is around 6% of total GDP. By end this week, Bumi Serpong likely to announce figure of FY16F presales number. Notably, Bumi Serpong's 11M16 presales achieved at around 90% of its target, achieved IDR6.2trn (versus IDR6.9trn target in FY16.

Bumi Serpong is the best achiever compared to its peers in meeting its full-year target. Around IDR1trn should come from its strategic tie-up with Mitsubishi Corp (Mitsubishi) to develop residential properties on 19ha of land in Serpong. We are positive on Bumi Serpong's recent tie-up with Mitsubishi as it should bring value added to Serpong assets.At the moment, Bumi Serpong said that apetite to buy large land area is hugs. It is not only come from local business, but also from foreigners, such as companies from Korean and Japan.

In 2017, Bumi Serpong may target a flat marketing sales (notably, Bumi Serpong commonly guided conservative marketing sales target). YTD, the company said that demand on their property is strong. Bumi Serpong is ready to launch projects postpones to FY17 include two condominiums in Jakarta - Southgate Residence (South Jakarta) and Aerium (West Jakarta) - and a condominium project in Surabaya, ie. Klaska Residence.

Bumi Serpong is trading at hefty 66% discount to its NAV. (IDR5,310 NAV estimate). We maintain BUY with IDR2,650 TP. (Research Team)
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Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia


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