Danareksa ASRI A great start to the year

New TP of Rp275, BUY
We raise our TP to Rp275 from Rp206 previously to reflect hikes in selling prices and the launch of 2 of the 6 planned apartment towers. ASRI remains our top pick in the property sector for the following reasons: 1) strong potential demand in the Serpong area, 2) ASRI’s ability to raise selling prices. Our TP is a 30% discount to the new NAV of Rp 396/share, implying 21-13x PER10-11F and 2.3-2.0x PBV 10-11F.

Strong profits growth
The NPAT surged 60% YoY to Rp94bn in FY09 thanks to 35% higher selling prices and the 20ha of land sold during the year. This is in line with our expectation. Helped by higher economies of scale, EBIT margins rose to 27.4% (note that a high proportion of ASRI’s operating costs - around 60% - are fixed). Looking ahead, the impressively low land acquisition costs of only Rp300,000/sqm shall keep margins buoyant we believe. As for sales, they remain strong so far this year. In January-February 2010, marketing sales surged an incredible 1,094% YoY to Rp306bn.

A great start to the year
The marketing sales in January-February 2010 of Rp306bn are already 25% of our full year target of Rp1.2trn. This mostly owes to higher selling prices rather than higher volume. The emphasis has been on sales of residential property rather than commercial shop houses. This may change, however, as ASRI would actually be better off selling commercial shop houses given their higher gross margins (as high as 80%). The higher selling prices in the first two months of the year – up by 10% YoY on average – suggest stronger pricing power amidst rising demand. And there should be more to come as selling price hikes are indicated for the middle of the year. Serpong remains a key focus of the company since demand there is strong and the company still has 352ha of land left in Serpong.

The NAV of the two apartments is estimated at Rp198bn
Our calculated NAV of the two apartments is based on an average Rp8mn/sqm selling price (assuming a take-up rate of 98% for each tower). This year, ASRI will launch 2 of the 6 planned apartment towers. They are located adjacent to Binus University inside Superblock I area. Each tower will have 459 units and the offered price is in the range Rp7.8-8.2mn/sqm – cheap if compared to its nearby Urbana apartment in Lippo Karawaci where prices are set at Rp10mn/sqm.

Indication for new appraised value of Rp 7.9Trn
The company indicated a newly appraised value of its property assets by Colliers (an independent appraiser) of Rp7.9trn. This is around Rp442/share and up from Rp6.2trn in September 2009. Serpong has seen the biggest increase in value – up from Rp4.8trn to Rp6.4trn, although other areas haven’t seen a significant change. We believe the NAV increase mainly owes to a 35% higher selling prices assumption to Rp 1.8mn/sqm from Rp 1.3mn/sqm previously, after taking account of the positive impact of the new access toll road to Serpong.