Credit Suisse Indonesia Property Sector - Lower rates support outlook

Preferred play: ELTY, TP raised to Rp 419/sh from Rp 257/sh previously

Indonesia’s property sales are showing signs of bottoming out and we believe the positive trend will continue, with 2H09E looking better than 1H09E, on our outlook for lower deposit and mortgage rates.

A lower deposit rate outlook reduces the opportunity cost of investing in property markets, supporting investment demand for property in 2H09E, in our view. Our channel checks also indicate that major Indonesian banks have started to lower mortgage rates and reduce down payment requirements (from 30% to 20%), potentially spurring mortgage-financed demand for property.

Indonesian property counter valuations remain undemanding, at a 38% discount to 2010E RNAV, versus the regional average of a 20% discount. Our preference for Indonesia property sector is in the following order: ELTY, CTRA and LPKR.

We prefer ELTY as: 1) it is trading at the widest discount to 2010E RNAV (50%) among the three Indonesian property stocks under our coverage and at the lower end of historical trading range, and 2) has a number of potential positive catalysts in the medium term.