Mandiri Sekuritas SMRA: Defensive and Progressive

SMRA booked strong 77.7% yoy increase in FY09 net income, thanks to a significant improvement in gross margin, that slid into the bottom line. We see greater prospects in 2010, as low mortgage rate trend will provide support for demand, especially for its Serpong and Bekasi projects that cover major contribution on marketing sales target this year. We maintain Buy on the stock, currently trading at 46.3% discount to our revised NAV10F

78%yoy earnings growth in 2009. SMRA reported a strong FY09 result, up by 77.7% yoy to Rp167bn. The highest net income to date was supported by strong gross margin, with COGS decreasing 21.6%, although revenue slipped by 5.5% yoy. The improved margin came as a shift in sales portfolio favored higher-margin lot sales.

Healthy marketing pick up seen in 2Q10. Marketing sales is targeted at sustainable growth this year to reach Rp1.6 tn (32.2% yoy), backed by the inclusion of the ready to launch Bekasi project (end of April10) that set to contribute up to 20% of total sales. Serpong and Kelapa Gading will provide the balance, with Serpong remains as the top contributor with 44%. As per Mar10, the company’s marketing sales indicated a 36%yoy jump to Rp321bn or about 20% of FY10F. Although running slightly below FY10F target, the chunk of demand is destined for 2Q10, which shall include the Bekasi numbers (launched end of Apr10)

Buy with TP upgraded. Bolstered by a sound mix of recurring and property income, we continue to be positive on SMRA. Our revised NAV10F shows a value of Rp1,130/share. Thus, the stock currently trades at a 46.3% discount to NAV10F. We are still with buy recommendation on the stock. Main risks are (a) unexpected rise in interest rates and (b) project delivery delays.