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RHB Indonesia - Real Estate - Upbeat Outlook For Ciputra And Bekasi Fajar (Real Estate, Astra International, Inflation) Unknown Kamis, 02 November 2017




Good morning,

Real Estate – Upbeat Outlook For Ciputra And Bekasi Fajar

Following our 1 Nov report, 9M17 Results Summary, we summarise the results for Ciputra and Bekasi Fajar in this note. Both companies booked solid numbers throughout 9M17 and beat our estimates. Maintain OVERWEIGHT on the sector, as we expect marketing sales to improve going forward, with limited downside risks. The sector is trading at a 67% discount to NAV. Key risks include an economic slowdown, lacklustre marketing sales, changes in regulations impacting their performance and lower-than-expected marketing sales.


¨ Ciputra’s 3Q17 performance beat our estimates. Ciputra Development (Ciputra) booked 9M17 earnings of IDR566bn (-8% YoY, +84% QoQ). This accounted for 78% of our estimate, and beat its 4-year historical average of 65%. Note that its earnings only made up 53% of the consensus estimate.
In 3Q17, its net margin eroded by 978bps YoY to 15%. This was because its topline was flat, while overall costs rose 4% YoY. This, in turn, was mostly incurred by its office, but reflected the company’s sales growth (Figure 2). Its opex increased 33% YoY, mainly due to a hike in salary expenses.
Its balance sheet remains healthy, with total interest-bearing debt standing at IDR8.23trn post its SGD150m medium-term notes issuance in September. We also estimate its net gearing at 30% (FY16: 25%). Maintain NEUTRAL, with a TP of IDR1,250.
¨ Bekasi Fajar’s solid performance beat expectations. In 9M17, Bekasi Fajar raked in IDR283bn in net income (-4% YoY, +25% QoQ). This represented 69%/72% of our/consensus estimates respectively, and was above its historical average of 65%.
During 3Q17, revenue declined 11% QoQ from 2Q17 due to lower accounting recognition from land sales – although this was 27% higher YoY. Its EBIT margin narrowed 866bps YoY to 52%, due to higher overall costs stemming from the higher cost of land and higher opex (from an increase in marketing expenses and wages). Nonetheless, the company’s 3Q17 net margin improved by 905bps YoY to 52%, as a result of an increase in other income stemming from gains arising from the divestment of its warehouse JV.
Its balance sheet also remain healthy, with total interest-bearing debt at IDR1.5trn and a net gearing level of 33% (FY16: 37%).
The company did not book land marketing sales in 3Q17. Thus, its 9M17 marketing sales remained at 22.3ha, representing 66% of our full-year estimate. Management has mentioned that the company managed to sell 7.3ha in October. This brings its YTD marketing sales to 29.6ha, or 87% of our target and 74-99% of the company’s target of 30-40ha. Maintain BUY, with a TP of IDR490. (Yualdo Tirtakencana)

Link to daily report: Indonesia Morning Cuppa 021117

Sector Update:

Real Estate – 9M17 Results Summary
During 9M17, most developers booked good performances – Bumi Serpong, Summarecon, and Alam Sutera’s results exceeded our expectations, while Intiland and Surya Semesta’s results were below our expectations. Maintain OVERWEIGHT on the sector, as we expect better marketing sales going forward with limited downside risks. The sector is trading at a 67% discount to NAV. Key risks include economic slowdown, lacklustre marketing sales, changes in regulations, and lower-than-expected marketing sales. Our sector Top Pick is Bumi Serpong.

¨ Bumi Serpong Damai (BSD) (BSDE IJ) – 9M17 results exceeded expectations. BSD’s 9M17 earnings of IDR2,302bn (+99% YoY, -77% QoQ) were above our expectations and accounted for 91%/90% of our/consensus estimates (above its 5-yr historical average of 76%). The earnings growth was supported by +36% YoY growth in revenue, mostly driven by landed residential sales (+22% YoY, +27% QoQ ) and land plot sales (+101% YoY, -67% QoQ), where IDR858bn was booked as revenue in 3Q17 with the 19ha land sold to the JV with Mitsubishi Corporation. Gross margin declined 112bps YoY to 73% due to higher cost on houses, land, and shophouses. Net gearing remained stable at 14.5% in 9M17 post USD70m bond issuance in 2Q17. Maintain BUY.
¨ Alam Sutera (ASRI IJ) – Strong 9M17 from good revenue recognition. Alam Sutera booked 9M17 net income of IDR1,116bn (+69% YoY, -24% QoQ), which exceeded our expectations and represented 126%/128% of our/consensus estimates. Earnings growth was driven by higher revenue (+66% YoY, +51% QoQ) mostly contributed by revenue of houses & shophouses and apartments. Overall margins, as a result, improved with gross margin +210bps YoY to 58%, and net margin +59bps YoY to 35%. 9M17 net gearing stood at 80% (vs 94% in FY16). Maintain BUY.
¨ Summarecon Agung (Summarecon) (SMRA IJ) – Lower non-controlling interest lifted earnings. 9M17 earnings of IDR119bn (+107% YoY, -406% QoQ) were above our estimates and accounted for 75%/35% of our/consensus estimates. Earnings were mostly lifted by lower portion of profit to non-controlling interests after tax because of lower revenue recognition from joint operations in the M-Town project. As a result, net margin climbed 140bps YoY to 3%. Debt remained a concern with 9M17 total interest-bearing debt currently at IDR7.5trn and net gearing at 93%, up from 86% in FY16. Maintain NEUTRAL.
¨ Intiland Development (Intiland) (DILD IJ) – 9M17 results were below expectations. Weak 9M17 earnings of IDR168bn (-18% YoY, -112% QoQ) were below our expectations and accounted for only 62%/55% of our/consensus estimates (vs 4-yr historical average of 66%). Its topline booked flat growth of +4% YoY (-59% QoQ) due to lower revenue recognition from landed residential and high rise projects, meanwhile overall cost increased, further eroded by higher interest expenses from additional working capital loan. As a result, the company booked a net loss in 3Q17. Maintain NEUTRAL.
¨ Surya Semesta (SSIA IJ) – Weak performance. Surya Semesta booked 9M17 net profit of IDR2,047bn (+1,635% YoY) including IDR1.7trn of proceeds from its toll road divestment. We estimate its 9M17 core profit at IDR74bn (-76% YoY, -140% QoQ), accounting for only 57% of our estimates (below its historical average of 76%). The company only managed to book 2.1ha of land marketing sales in 9M17 or 0.3ha in 3Q17, which accounted for only 21% of our full year target. We will revisit our assumptions to better reflect the current conditions. (Yualdo Tirtakencana)

Link to report: 9M17 Results Summary
Results Review:

Astra International (ASII IJ, BUY, TP: IDR9,200), Boosted 3Q17 Earnings In All Major Units
Astra’s 9M17 earnings came in line with expectations, driven by improved 3Q17 earnings in all major units, such as auto, agribusiness, and heavy equipment. Its auto distribution unit’s margin turned positive, while its agribusiness segment benefitted from higher CPO prices. We expect the heavy equipment division to continue booking strong sales ahead. Maintain BUY and IDR9,200 SOP TP (15% upside), implying 17x FY18F P/E. The main risk to our call would be weakened consumer spending, which may lead to slower auto sales growth.

¨ Better 9M17 earnings. Astra International’s (Astra) 9M17 earnings came in at IDR14.2trn (+26% YoY), thanks to strong earnings growth in all major units. The heavy equipment unit benefitted from higher coal heavy equipment sales volume and mining contracting units. For agribusiness, it benefitted from higher CPO prices. Meanwhile, Bank Permata’s earnings returned to the positive YoY.
¨ 3Q17 earnings increased to IDR4.8trn (+13% QoQ), driven by a return to a positive auto distribution EBIT margin, which increased to 0.9% (2Q17: -0.5%), thanks to its lower operational costs.
¨ Auto earnings likely to improve. Despite rising competition from competitors’ new model launches, segmental 3Q17 earnings still rose 24% QoQ to IDR2.4trn, thanks to lower operational costs. In August, Mitsubishi launched the Xpander and Wuling introduced its Confero. As such, Astra’s share in the 4-wheel (4W) vehicle market slipped to 54% in 3Q17 (from 55% in 2Q17). We note that the lifetimes of Toyota and Daihatsu models are around 7-8 years. The latest Toyota Avanza model was launched in 2011, hence it is already near to its end of lifecycle. We believe that Astra should gain back its market share once its new models launch.
For 2-wheel (2W) vehicles, Astra continued to record better-than-industry performance, with its market share rising to 75% in 3Q17 (2Q17: 72%). We expect Astra to maintain its dominant position in the domestic motorcycle market.
¨ Financial earnings likely to remain solid. Earnings from its financial division booked a solid performance. Bank Permata lowered its NPLs, with gross NPLs declining to 4.7% at end-September (vs 6.4% at end-March, and 8.8% as at end-Dec 2016). This indicates better quality of its loan portfolio, as the bank adopted more prudent lending policies.
¨ Maintain BUY and SOP-based IDR9,200 TP, implying 17x FY18F P/E. The key risk to our call would be the downtrend in agribusiness earnings, since we expect CPO prices to decline. However, higher earnings from the heavy equipment, auto, and financial divisions should be more than enough to offset this. Furthermore, the agribusiness segment accounts for only 8% of Astra’s consolidated earnings. (Andrey Wijaya)
Economics Update:

October Inflation Remains Moderate
Headline inflation moderated to 3.6% YoY in October (+3.7% in September). This was attributed mainly to slower increases in the price of raw food, administered prices as well as the costs of housing & utilities. Further out, we estimate headline inflation to inch lower to 3.8% in 2018, from +4% estimated for this year. This is on account of:
1. Government’s commitment to keep energy prices stable;
2. A manageable volatile food prices.
¨ Key policy rate to be maintained. As inflation is expected to ease and coupled with imminent of further US Federal Reserve rate hikes, we expect Bank Indonesia (BI) to keep its interest rates stable.
¨ The easing food prices together with lower utilities and transport, communication & financial services costs were the biggest contributors to an ease in inflation in October. This was due to the Government’s effort to control basic food prices and distribution, and keep energy prices stable in 2H.
¨ Clothing prices increased, however, offset part of the lower prices. This was due mainly to price inflation in men clothing.
¨ The core consumer price index (CPI), however, edged up a tad higher to 3.1% YoY in October, from +3% in the previous month, on weakening currency and stronger domestic demand. (Rizki Fajar)
Media Highlights:

Corporate

Bank Indonesia revises loan growth target
Customs revenue at 67.1% from target in 10M17
Jakarta provincial minimum wage to go up by 8.71% in 2018
Puradelta sustains the growth performance
Kobexindo Tractor’s revenue grows 41%.
Our Recent Publication:
Economics Update: September Loan And M2 Growth Pick Up
Results Review: Adaro Energy – Stronger Balance Sheet
Results Review: Nippon Indosari Corpindo – Below Expectations Despite 3Q17 Earnings Jump
Company Update: Summarecon Agung – Strong Demand For Symphonia
Results Review: Perusahaan Gas Negara – Some Improvements, But Outlook Still Uncertain
Results Review: Delta Dunia Makmur – Mining Contracting Volume Growth To Continue
Economics Update: 2018 State Budget: Encouraging Investment And Infrastructure For Growth And Equality
Economics Update: BI Pauses In October After Easing August-September
Company Update: Bekasi Fajar – Waiting On Guidance For 9M17
Company Update: Arwana Citramulia – Revenue Remains Robust Despite Elevated Costs


Best regards,

Andrey Wijaya
Senior Vice President
Research Analyst – Auto, Consumer, Cement
PT RHB Sekuritas Indonesia


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