Macquarie Indonesian property Strong demand continues

Event
 A property exhibition was held last month, where 95 developers showcased
149 property projects. We distributed our property survey to the visitors of the
exhibition and the highlighted results are: 50% are looking for their first
homes, 75% of the respondents will use mortgages as their payment method,
and 58% claims that current mortgage rates offered are low.

Impact
 First homes are still the main reason. 50% of our respondents are looking
for their first homes. These are young couples that fall in the age group of 35
years old and below. All prefer landed residential because they want more
space for their family. Most will use mortgages to finance the home purchase.
This supported our thesis that young families are the main market of the
housing developers right now as mortgage rates starting to decrease.
 Mortgages are the preferred financing method. 75% of the respondents
prefer to use mortgages rather than paying cash upfront. We believe this is
due to the affordability factor as 75% of our respondents are office workers.
58% of the total respondents claim that the current mortgage rates are
already attractive. We think this is because the current offered rates are
already below 10% as they are subsidized by the developers for the first year.
The lowest rate in the exhibition was a fixed 6% for the first year offered by
Bank Mandiri.
 Strong Jan10 sales across the board. Optimism in the property exhibition
is shown in Jan10 pre-sales numbers, continuing its strong 2H09
performances. Summarecon’s and Ciputra’s Jan10 sales have increased
18% yoy and 236% yoy, respectively. Meanwhile, Bumi Serpong’s sales
increased by 25% yoy. These sales numbers are in line with our expectation.
We believe this is because of better product mix as well as strong demand.

Outlook
 We maintain our Overweight recommendation on the sector. We believe
the sector valuation is attractive. It is currently trading at a 55% discount to
NAV, which is at the lower end of the historical trading range of 18% to 64%
discount to NAV. The sector is currently trading at 20.8x PE 10E and 16.3x
PE 11E, close to the lowest trading range of 20.5x PE. Our top pick is Bumi
Serpong due to its landed residential projects and cheap valuation at 17.0x
PE 10E and 12.7x PE 11E, the second cheapest in the property sector.

Target price and recommendation
Rating Price TP Upside (%)
BSDE OP 620 1,100 77%
SMRA OP 750 1,050 40%
CTRA OP 710 875 23%
LPKR OP 530 780 47%
ELTY OP 255 425 67%
Note prices are as of the close 10 March 2010.