Danareksa SMRA Good value

Decent 2008 marketing sales

SMRA’s marketing sales rose 5% yoy to Rp 920bn in 2008 despite the economic slowdown. For 2009, the company is taking a cautious stance and is targeting marketing sales of Rp818bn. Its focus shall be on its existing estates at Kelapa Gading (the Grand Orchard project) and at Serpong (Scientia Garden).

Rosy outlook for the property sector
Benign inflation has given room to the government to cut interest rates to their current level of 7.50 percent. And looking ahead, further rate cuts remain on the cards as well. In time, the lower interest rates should be accompanied by lower lending rates. This will encourage consumers to take on mortgages to purchase property. The improving optimism on the property sector is reflected in the 8% increase in the Jakprop index since April 3rd,2009 (the last time interest rates were cut). In the same period, SMRA’s share price has risen 22%.

A lower effective tax rate
We apply the new 5% final sales tax to the company’s non-recurring revenues starting 2009 onwards. The impact is positive since the company will experience a lower effective tax on its high margin assets. Our calculations show that the effective tax rate will decline to 25%-31% in FY09-11 from an effective tax rate of 44% in 2008. This will help give a boost to profitability. We forecast net margins of 7%-23% in FY09-15F.

BUY recommendation maintained
We derive our TP of Rp295 by applying a 45% discount to our SOTP NAV/share of Rp533. This compares to our property universe’s discount to NAV of 58.5%. Our TP of Rp295 offers 28% upside to the current share price, meaning that the stock is relatively more attractive than CTRA which offers 20% upside. BUY recommendation maintained.