UOB BSDE 1H10: Higher ASP; solid bottom line growth, TP idr 1100

Results
• Robust 1H10 bottom line growth. Bumi Serpong Damai’s (BSDE)1H10 net profit came in at Rp183b (+46% yoy and 23% qoq), driven by:a) higher average selling price (ASP) on the back of increasing landprices in Serpong area, b) lower financial expenses and c) lower forexloss.

• Improving margins backed by higher ASP. BSDE’s 1H10 grossmargin improved to 56% (+8.2% yoy and +4.1% qoq), which wasmainly supported by higher ASP during the period. BSDE sold Phase Iproject with an ASP of about Rp1.8m/sqm and now Phase II project isselling for about Rp2.3m/sqm. For new projects launching soon, theASP would be increased to Rp2.7m-3m per sqm. Meanwhile, operatingprofit declined slightly qoq by about 4% due to higher marketingexpenses to promote new clusters, e.g. the Ultimo cluster. All in all,bottom line margin would still be doing very well on the back of: a)higher ASP going forward and b) lower interest expenses on the backof a stronger balance sheet position.

• Stronger balance sheet. BSDE recently made an early repayment ofRp250b in working capital loans to Bank Mandiri (the debt was initiallyscheduled to mature in Dec 10). Given that the loan carried 12% annualinterest, this early repayment would reduce interest expenses andenhance bottom line profit. As such, the company has more financialflexibility to acquire more landbank in the future

• Marketing sales hit Rp870b in 1H10. The company said total marketingsales in 1H10 reached Rp870b on the back of strong housing demand inSerpong. Of note, the Tangerang area (where Serpong is located) has sofar accounted for 38% of the total housing supply of 238,715 units inGreater Jakarta.Stock Impact

• 1H10 accounting sales are below expectation but… The reported 1H10accounting sales of Rp183b accounted for about 40% of our 2010 forecastof Rp474b. We expect higher sales contributions from commercial and landplots in 2010. The company, however, prefers to sell more residentialhouses than commercial properties to benefit from greater price incrementson commercial estates in the future.

• …marketing sales are still within our 2010 target. In 1H10, marketingsales were about Rp870b. To date, the company has registered almostRp1.1t of marketing sales – basically still in line with our 2010 target ofRp2t. We believe this target is achievable given that sales in 2H aretypically higher than in 1H, especially in 4Q.

• Four clusters to be launched in 2H. BSDE has so far launched six out ofthe 10 sub-clusters (or 2,000 houses) targeted to be launched this year.The company plans to launch four more clusters in 2H, namely: a) twoclusters under the Icon project (12ha) and b) two brand new clusters(69ha). ASP would range from Rp5m to Rp7m per sqm. Housing demandremains strong as every new launch is selling fast (e.g. the Ultimo clusterlaunched on 30 June was 50% sold in three weeks).Earnings Revision/Risk

• 2010 net profit forecast revised to Rp406b. Incorporating our over-expectation of commercial property sales as mentioned above, we revisedown our 2010 sales forecast to Rp1.6t (from Rp1.7b) and net profitestimation to Rp406b (from 474b). Earnings outlook remains solid as weexpect stronger earnings growth in 2011 given the company will booksales with higher ASP in 2010.