CLSA SMRA upgrade

Sarina upgrades profit forecasts and RNAV for Summarecon (SMRA IJ) on the back of strong growth opportunity from combining expertise in both residential and investment properties development, supported by its strong brand equity. Maintain BUY with TP Rp1,150/sh, a 39% discount to RNAV of Rp1,508/share.

It is very interesting to find out that SMRA did its first launch of its new Bekasi township project last weekend, 3 months ahead of initial plan. 98% units taken up; total value estimated at Rp392bn. This first launch passes its initial target of Rp300bn for Bekasi this year! Excellent result for first launch.

Bekasi is very important for SMRA because this is one their future growth drivers (along SMRA Serpong). This event shows versatility of the company and once again has proven that their marketing machine is working fine.

Anecdotal evidence suggests that land price is moving up fast in almost all of greater Jakarta area. I guess a bit of sensitivity is warranted here. If we use 25% land price increase for their residential townships, we arrive at Rp1,866/sh NAV (vs. Rp1,508/sh currently). For FY10/11: PER 27.7x and 18.6x (vs. current estimate at 28.5 and 22.5).

Key points from the report:

· Strong marketing sales to continue. After a great 2009 where SMRA’s marketing sales increased by 32% YoY to Rp1.2tn, now it aims to sell Rp1.6tn in 2010, another 32% increase.
· First launch in Bekasi: great success. SMRA did its first launch of its new Bekasi township project last weekend, 3 months ahead of initial plan. 98% units taken up
· Sales from its Serpong and Kelapa Gading townships are also expected to remain robust. The company’s strong brand equity is clearly a major advantage, supported by good macro environment (low mortgage rate environment, booming Greater Jakarta, and growing consumption)
· Ramping up malls. SMRA targets June 2011 for the opening of its phase 2 Serpong mall (SMS), an additional of 45,000sqm NLA to the existing 34,000sqm. This year, average rental rate is increased by 9% for its SMS mall, and 12% for its Kelapa Gading mall.
· Ramping up investment property and office tower. On May 12, Harris Hotel in Kelapa Gading will open, a 300 room 3–star hotel. SMRA also plans to start construction of an office tower in Kelapa Gading of 20,000sqm GFA in 3Q10.
· SMRA’s investment property assets are a cash machine: 35% of total revenue but 48% of total EBIT.
· Still attractive at 39% discount to RNAV. We raised our profit forecasts by 9-10% for FY10-12 on the back of higher sales assumptions.
· Our RNAV forecast is also increased to Rp1,508/sh from Rp1,335 previously. Main changes come from more land bank in Serpong acquired last year, and our change in land price increase assumption for Serpong to 12%, from 10%. We believe this is achievable given prices rose by 15% cagr in past 5 years.