Macquarie Alam Sutera Realty (Outperform) - Unlocking value

Event
We raised our target by 24% to Rp310, as we upgraded our NAV by 25% to Rp486/share on the back of the revaluation of Pasar Kemis land bank using a 25–30% discount to market value and the inclusion of the condo project in our NAV. We maintain our Outperform recommendation.

Impact
Upgrading Pasar Kemis valuation by 76% to Rp612bn, lower than appraised value of Rp1.2T. As the project's future is more definite, we upgraded our NAV for the 589Ha of Pasar Kemis land by using a 25–30% discount to market price vs our previous book value method. Our valuation is more conservative than the independent appraisal's valuation (Rp1.2T) because we assume that the land will still be in the development stages.

Pasar Kemis has the potential to be the next Serpong, in our view. The Pasar Kemis land is located in Tangerang, 12 km west of Serpong, and the estate is just 1 km from the toll road. The company plans to build a direct toll road access to the estate, similar to its Serpong estate. This future toll road plan and cheaper land price than Serpong increased interest in the area.
This is evident by the 15–20% CAGR growth of ASP of peers in the last
three years.

The inclusion of condo project increases our presales and NAV. Alam Sutera launched one tower in March, and 62% of the units had been sold as of April. The company plans to launch another tower in May. We expect the total NAV for the two towers to be Rp241bn. The inclusion of the condo project in our forecast increases our presales forecast by 17% this year to Rp1.6T and 12% next year to Rp2T. We believe that tour presales number is reasonable, as the company plans to increase residential land prices by 20% to Rp4mn/sqm in June and launch a new residential cluster in May. Management indicated that presales has reached Rp617bn by April, 38% of our full-year forecast.

Earnings and target price revision
No change in our earnings estimate this year; however, we increase 2011E earnings by 10%, as the condo presales start to be recognized (construction will start in December 2010). We have not included Pasar Kemis earnings in our forecasts. We raised our target price by 24%, as we upgrade our NAV due to the revaluation of Pasar Kemis and the condo project inclusion.

Price catalyst
12-month price target: Rp 310 based on a RNAV methodology.
Catalyst: Higher pricing, higher volume, faster infrastructure developments.

Action and recommendation
We maintain our Outperform rating. We raised our target price to Rp310. Liquidity has reached US$5m/day. The stock is one of the cheapest in the sector, trading at 16x PEE and 56% discount to NAV. It remains our No. 2 pick in the sector, after PT Bumi Serpong Damai Tbk ( BSDE IJ , Rp 840 , Outperform , TP: Rp 1,100 )