Asia Pacific Equity Research 09 July 2020
Indonesia Property Looking beyond COVID-19; PWON is our top pick
We assume coverage of the sector with an optimistic view, as we look beyond Indonesia COVID-19: (1) We believe the current 60% sector discount to NAV and 0.7x Property 2021E PBV price in most of the pandemic-related impact (presales delay, deferral Henry Wibowo AC of rental income), especially as the economy gradually reopens. (2) The sector (622-1) 5291 8526 would benefit from potentially higher FDI inflow due to policy reforms during [email protected] President Jokowi’s second term and relocation of the capital. (3) Benefits from a Bloomberg JPMA HWIBOWO
Equity Ratings and Price Targets Mkt Cap Price Rating Price Target Company Ticker ($ mn) CCY Price Cur Prev Cur End Prev End Date Date Pakuwon PWON IJ 1.40 IDR 420 OW N 630 Dec-21 720 Jun-20 Bumi Serpong Damai BSDE IJ 1.03 IDR 775 N n/c 830 Dec-21 1,500 Jun-20 Ciputra Development CTRA IJ 0.82 IDR 640 OW n/c 1,000 Dec-21 1,500 Jun-20 Summarecon SMRA IJ 0.61 IDR 615 OW n/c 1,000 Dec-21 1,600 Jun-20 Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 08 Jul 20.
See page 79 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Table of Contents Investment summary...... 3 Capital relocation: The road to Borneo ...... 12 Correlation of Property index...... 14 Impact of COVID-19...... 16 Operating metrics...... 20 Stock preference ...... 21 Valuations and comparison with peers...... 23 Downside risks ...... 27 Companies ...... 29 Pakuwon...... 30 Bumi Serpong Damai ...... 40 Ciputra Development ...... 52 Summarecon...... 67
2 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Investment summary
Value emerges Positive on Indonesia Property We assume coverage of four Indonesia Property sector stocks, Pakuwon Jati (PWON with Pakuwon Jati and Ciputra IJ), Bumi Serpong Damai (BSDE IJ), Ciputra Development (CTRA IJ), and Development our most preferred Summarecon Agung (SMRA IJ).We have an optimistic view on the sector as we stocks in the sector look beyond COVID-19:
We believe most of the bad news from the COVID-19 lockdown (presales delay, deferral of rental income) has been priced in at the current 60% blended discount to NAV and 0.4-0.9x 2021E PBV as Indonesia is gradually reopening its economy. The sector would be a beneficiary of potentially higher FDI inflow owing to policy reforms during President Jokowi’s second term (especially in industrial cities like Bekasi) and also gain from potential relocation of the capital. It would get a boost from a declining interest rate (which is positive in terms of both mortgages and the cost of funds) and stabilizing rupiah. We believe most of the bad news PWON is our preferred OW pick. We like its asset-light model, ~50% recurring- from the COVID-19 pandemic is income revenue contribution (a proxy to malls reopening) and strong balance sheet largely in the price at the current (we forecast the company will turn net-cash in 2020). We also like CTRA for its sector PBV of 0.7x Pan-Indonesia diversification and increasing mass-market segment contribution; and SMRA for its strong presence in the fast-growing Bekasi City and potential for value-unlocking of its malls portfolio. We rate BSDE as Neutral owing to its higher concentration in Serpong, where we think the capacity of buyers to absorb further ASP increases may be limited after an extended period of appreciation.
Table 1: Indonesia Property valuation comps ADTV JPM Current JPM Upside/ Mkt cap 6M EV/EBITDA P/E PBV Yield Disc to NAV Company name Ticker rating price PT downside US$m US$m 20F 20F 21F 21F 21F 21F Pakuwon Jati PWON IJ OW 420 630 50% 1,401 2,906 8.0 9.8 8.9 0.9 1.3% -53% Ciputra Development CTRA IJ OW 640 1000 56% 823 1,697 9.8 12.1 11.2 0.6 2.5% -65% Summarecon Agung SMRA IJ OW 615 1000 63% 615 1,372 11.9 24.6 19.2 0.8 0.7% -63% Bumi Serpong Damai BSDE IJ N 775 830 7% 1,137 1,910 8.2 8.4 6.9 0.4 0.0% -58% Total/Average 3,976 7,885 9.0x 12.2x 10.4x 0.7x 1.1% -60% Source: Bloomberg, J.P. Morgan estimates. Priced at close of business 8 July 2020. Prices and price targets are in rupiah.
COVID-19 bad news largely priced in, time to look beyond it Our checks with Indonesia We expect 2020 presales to decline up to 25% YoY. COVID-19 has led to property developers suggest postponement of project launches and construction, and also weaker demand April and May were the bottom sentiment. Furthermore, rental yield, especially for malls, was also under pressure of the COVID-19 impact during the lockdown period, with during the lockdown period with some payment deferrals. Nonetheless, we believe recovery since June most of the bad news is in the price at the current blended 60% discount to NAV level (-1.5SD below 15yrs mean) and 0.4-0.9x 2021E PBV. We find the risk-reward profile attractive for Indonesia’s Property sector, which has been among the biggest cyclical laggards in the current phase of reopening of the economy.
3 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Indonesia Property sector is now Figure 1: Indonesia Property sector discount to NAV (15 years) trading at a 60% discount to 10% Sector (disc)/prem to NAV forward NAV, more than 1.0 SD below its 15yr mean 0% -10%
-20%
-30% Mean
-40%
-50%
-60%
-70%
-80%
-90% Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19
Source: Bloomberg, J.P. Morgan. As of 7 July 2020.
Riding on FDI wave; capital shifting a bonus catalyst President Jokowi’s Omnibus The Jokowi administration continues to have big goals to develop infrastructure Law initiative to jump-start (US$450bn), which would require FDI to finance it. The Omnibus Law initiative to policy reform could boost FDI in kick-start policy reform might have been delayed by COVID-19 but we are Indonesia. Industrial cities like Bekasi, where SMRA and PWON optimistic it will be executed during 2H20-1H21. Then, FDI as a percentage of GDP are present, would be the big would surge in the medium term to long term from the current ~2% to the 6-7% level beneficiaries where Vietnam is currently, as we believe Indonesia can gradually become Asia’s next manufacturing hub. As a result, industrial cities like Bekasi, where SMRA has a dominant presence and where PWON plans to launch its next ‘superblock’ project (a superblock is a mixed-use development consisting of malls, apartments, offices and hotels), would be among the key beneficiaries.
Indonesia’s FDI as a percentage Figure 2: FDI as % of GDP - Indonesia vs. Asian peers of GDP was 2.2% in 2019, an 160 35.0% improvement from the 1.8% in 2018, but still notably below 140 30.3% 30.0% Vietnam's 6-7% 120 25.0%
100 20.0% 80 15.0% 15.0% 60
10.0% 40 6.5% 20 5.0% 2.2% 2.5% 2.1% 1.0% 1.7% 1.2% 1.1% 0 0.5% 0.0% China Singapore HK India Indonesia Vietnam Malaysia Korea Philippines Taiwan Thailand
FDI Inflows (US$ bn) % GDP
Source: Bloomberg, National sources, J.P. Morgan. References to China, HK and Taiwan are to Mainland China; Hong Kong SAR, China; and Taiwan, China.
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Relocation of the capital from Furthermore, relocation of the capital to Kalimantan, which is planned to happen by Jakarta to Kalimantan would be 2024 (from Jakarta), might be an additional NAV catalyst for the property developers positive for the leading property as it could create a new project pipeline. President Jokowi estimates that the developers as it could lead to new projects and boost NAV relocation project will cost US$33 billion, whereby 20% will be spent using the national budget, with the remaining 80% to come from the private sector. We calculate that if the four leading property developers under our coverage were to enjoy a combined 20% out of the 80% private portion as revenues, this would lead to a blended 56% boost from the 2021E NAV level (on a gross basis, before adjusting for the cost of funds), all else being equal. Assuming each of the 4 leading developers secures 5% of the 80% private-sector contribution, we calculate the boost to existing NAVs thus: SMRA +80%, CTRA +56%, BSDE +55%, and PWON +44%. Note, that this is a simple additional NAV estimate calculation, without factoring in the cost impact of any additional debt funding.
Table 2: New project potential from new capital city - Impact on NAV 2021F New capital city NAV Total project National budget Private sector Allocation % of NAV Rpbn US$m US$m US$m US$m % US$m % Pakuwon Jati (PWON IJ) 43,039 2,968 33,000 6,600 26,400 5% 1,320 44% Bumi Serpong Damai (BSDE IJ) 34,984 2,413 33,000 6,600 26,400 5% 1,320 55% Ciputra Development (CTRA IJ) 33,906 2,338 33,000 6,600 26,400 5% 1,320 56% Summarecon Agung (SMRA IJ) 24,013 1,656 33,000 6,600 26,400 5% 1,320 80% Total 135,943 9,375 33,000 6,600 26,400 20% 5,280 56% Source: J.P. Morgan estimates.
Beneficiary of lower interest rate environment Indonesia’s Property sector will Bank Indonesia has cut the benchmark rate by 175bps in the past 12 months from benefit from a falling interest 6.0% in mid-2019 to 4.25%. J.P. Morgan’s Economics team expects a further 75bps rate environment owing to a cut to 3.5% by YE20 (link). Lower interest rates is positive for the Property sector lower cost of funds (one of the most highly levered sectors) and owing to: 1) a direct reduction in the cost of borrowings, given that the sector is a lower mortgage rate (a positive among the most leveraged ones; and 2) an indirect boost to demand as the mortgage property demand driver) rate becomes cheaper. Based on our sensitivity analysis, with every 100bps rate cut in the 2019 base blended effective cost of debt of 8.1% (for the four property companies under our coverage), net profit will increase by 5% and every 100bps rise in the rate will reduce profit by 5%. Assuming that the effective interest rate on debt fully mirrors the estimated 250bps cut in the benchmark rate from 6.0% to 3.5% (from 1H19 to YE20E), net profit should increase by 12.5%. We calculate that the most sensitive company to rate movements (see the table below) is SMRA with +/- 17% net profit movement for every +/- 100bps of change in the rate, followed by CTRA at +/- 8%, BSDE at +/- 5% and PWON at +/- 2%. SMRA has the most sensitivity, given that its interest expense as a percentage of profit is the highest at 149%, followed by CTRA at 79%, BSDE at 39% and PWON at 8%.
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Table 3: Sensitivity analysis - Interest rate and net profit Rpbn 2019 Base Interest expense as % of profit Total Debt Interest Expense Effective Interest Rate Net Profit PWON 4,797 220 4.6% 2,700 8% CTRA 9,176 910 9.9% 1,157 79% SMRA 8,969 766 8.5% 515 149% BSDE 13,407 1,043 7.8% 2,660 39% Blended 36,349 2,939 8.1% 7,032 42% Rpbn 2019 -100bps Sensitivity to Profit Total Debt Interest Expense Effective Interest Rate Net Profit Changes PWON 4,797 172 3.6% 2,748 2% CTRA 9,176 818 8.9% 1,249 8% SMRA 8,969 676 7.5% 605 17% BSDE 13,407 909 6.8% 2,794 5% Blended 36,349 2,576 7.1% 7,396 5% Rpbn 2019 +100bps Sensitivity to Profit Total Debt Interest Expense Effective Interest Rate Net Profit Changes PWON 4,797 268 5.6% 2,652 -2% CTRA 9,176 1,002 10.9% 1,065 -8% SMRA 8,969 856 9.5% 426 -17% BSDE 13,407 1,177 8.8% 2,526 -5% Blended 36,349 3,302 9.1% 6,669 -5% -100bps Base +100bps Effective Interest Rate 7.1% 8.1% 9.1% Net Profit (Rpbn) 7,390 7032 6,663 Sensitivity 5% 0 -5% Source: Company data, J.P. Morgan estimates.
Figure 3: Correlation between JAKPROP and interest rate (% bond yield, inverted scale)
700 4
600 5 The Indonesia property index 500 6 (JAKPROP) has a negative correlation with the 10-year 400 7 government bond yield. This implies that Indonesia Property 300 8 stocks generally perform better in a falling interest rate 200 9 environment 100 10
0 11 0 0 0 1 1 1 2 2 2 3 3 3 4 4 4 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 ------y y y y y y y y y y y n p n p n p n p n p n p n p n p n p n p n a a a a a a a a a a a a e a e a e a e a e a e a e a e a e a e a J J J J J J J J J J J S S S S S S S S S S M M M M M M M M M M M
JAKPROP Index GIDN10YR Index
Source: Bloomberg, J.P. Morgan. As of 30 June 2020. Past performance is not indicative of future results. Index rebased to 100.
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Bank Indonesia started cutting Figure 4: Indonesia benchmark interest rate (BI 7DRR) rates in mid-2019 and has cut 175bps in the past one year to 4.25% now. Our Economics team expects the BI7DRR rate to decline another 75bps by YE20 to 3.5%
Source: Bank Indonesia, J.P. Morgan estimates.
Data from BCA, Indonesia's Figure 5: Interest rate direction for BCA – the largest non-SOE mortgage bank largest non-subsidized mortgage bank, suggests that the interest rate is trending lower, following BI’s rate cuts over the past 12 months
Source: Bank Central Asia, J.P. Morgan. As of May 2020.
Based on data from the central Figure 6: Mortgage interest rate trend bank, the average mortgage interest rate trended down for 2 years to around 8.9%, as of March 2020
Source: Bank Indonesia, Residential Property Price Survey for Primary House (1Q20)
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Beneficiary of stabilizing rupiah Indonesia property companies The rupiah has strengthened ~15% since its March bottom (on 23 March, intraday, it will benefit from strengthening had reached Rp16,575/US$1) to now around Rp14,400/US$1. This is positive for of rupiah from interest expense construction development costs as well as interest expenses and FX exposure, given and FX loss coming from FX debt exposure, and lower bulk of the debt in the sector is denominated in foreign currency. As of end-2019, construction cost for property PWON has the lowest net gearing of 0.03x, followed by BSDE 0.2x, CTRA 0.3x, development SMRA 0.8x. If we look at FX total debt vs. equity, BSDE has the highest ratio of 24%, followed by PWON at 19%, CTRA at 11%, and SMRA at 2%. Indonesia property companies like to issue USD bonds because: (1) a local regulation prohibiting buying of land (without a building existing on top of the land) using bank loans that encourages property developers to issue bonds instead; (2) a more relaxed collateral regulation for FX debt issuance overseas as compared to local bond regulations, which require land/building as collateral; and (3) a cheaper cost of debt of around mid-single digit percentage for FX bond issuance as compared to local bond/bank debt, which can reach a low teens cost of funding.
USDIDR weakened 20%+ from Figure 7: USDIDR trend vs. FX reserves (US$bn) 13,500 pre-COVID-19 outbreak to 17,000 in March – its weakest point - but recovered to around 14,250 as of end June
Source: Bloomberg (as of 24 June 2020). FX reserves data from BI as of May 2020
BSDE has the biggest FX debt Figure 8: FX total debt (in Rpbn) vs. equity comparison – Indo Property (as of end-2019) exposure of 24% of equity, 9,000 24% 25% followed by PWON and CTRA, 8,000 19% while SMRA's debt is mainly 7,000 20% denominated in the rupiah 6,000 11% 15% 5,000 4,000 7,924 10% 3,000 2% 2,000 3,437 5% 1,000 1,910 149 0 0% BSDE PWON CTRA SMRA FC debt Debt as % of equity
Source: Company data, J.P. Morgan.
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Stock picks and NAV breakdown Our top pick within the Indonesia Property sector is Pakuwon Jati (PWON IJ), given its steady 50% recurring income contribution, backed by a strong balance sheet (net cash in 2020E), and new project development in Bekasi (a fast-growing industrial city, with improved transportation infrastructure via light rail train, or LRT). We also like Ciputra Development (CTRA IJ), on the back of its Pan- Indonesia presence and increasing mass-market segment contribution (first-home buyers), and Summarecon Agung (SMRA IJ), given its prominent presence in Bekasi and potential value-unlocking from its malls portfolio via stake divestment. We rate Bumi Serpong Damai (BSDE IJ) as Neutral for its higher concentration in the Serpong region (the fastest-growing township in the past decade), where the ASP is becoming stagnant, and the highest USD debt composition on an absolute basis. Our pecking order is PWON > CTRA > SMRA > BSDE. PWON is our top pick because of a stronger recurring income profile and a stronger balance sheet. Below we give a breakdown of our NAV calculations and price targets.
Table 4: NAV breakdown and valuation – J.P. Morgan Indonesia Property universe PWON SMRA CTRA BSDE Rp bn FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E Development Properties 21,088 22,111 23,303 17,631 19,651 20,531 26,973 29,357 30,066 40,922 39,349 38,894 Investment Properties 16,307 17,016 18,317 8,397 8,909 9,963 8,047 8,605 8,914 6,880 7,020 7,316 Others (1,679) (1,768) (1,766) Gross Asset Value 37,395 39,127 41,620 26,028 28,560 30,494 35,020 37,962 38,980 46,122 44,601 44,443 Net Cash (debt) + minority (483) 498 1,419 (7,301) (6,986) (6,481) (4,938) (5,149) (5,075) (10,945) (9,906) (9,129) NAV 36,912 39,626 43,039 18,726 21,574 24,013 30,082 32,814 33,906 35,177 34,695 35,314 No of Share (bn) 48.2 48.2 48.2 14.4 14.4 14.4 18.6 18.6 18.6 19.2 19.2 19.2 NAV per share (Rp) 766 823 894 1,298 1,495 1,664 1,621 1,768 1,827 1,828 1,803 1,835 Growth YoY 7% 9% 15% 11% 9% 3% -1% 2%
Gross NAV by segment Development Properties 56% 57% 56% 68% 69% 67% 77% 77% 77% 89% 88% 87% Low Rise 22% 25% 36% 58% 58% 56% 70% 70% 70% 76% 75% 75% High Rise 35% 32% 20% 10% 11% 11% 7% 7% 7% 13% 13% 12% Investment Properties 44% 43% 44% 32% 31% 33% 23% 23% 23% 15% 16% 17% Office 7% 6% 7% 1% 1% 1% 3% 3% 3% 6% 6% 6% Retail 25% 26% 26% 25% 24% 25% 15% 15% 16% 7% 7% 8% Hotels 8% 8% 8% 7% 7% 7% 5% 4% 4% 3% 3% 3%
PT Discount to NAV -30% -40% -45% -55% Price target 630 1,000 1,000 830 Current Price 420 615 640 775 Upside / Downside 50% 63% 56% 7% Rating OW OW OW N Current Disc to NAV -53% -63% -65% -58% Source: Company data, Bloomberg, J.P. Morgan estimates. Priced as of close of business 8 July 2020.
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Property industry trends for 1Q20 Bank Indonesia’s Residential Property Price Survey for Primary House is conducted on a quarterly basis with a sample of major developers in 19 cities, namely Greater Jakarta Area, Banten, Bandung, Surabaya, Semarang, Yogyakarta, Manado, Makassar, Denpasar, Pontianak, Banjarmasin, Lampung, Palembang, Padang, Medan, Batam, Balikpapan, Pekanbaru, and Samarinda. According to the data, residential property sales in 1Q20 declined 43% YoY, which is a notable deterioration as compared to the 1% YoY growth booked in 4Q19. A similar trend is seen in QoQ data as 1Q20 sales declined 31% vs. -16% in 4Q19. The decline was primarily driven by the state of emergency imposed due to the COVID-19 pandemic starting March.
Figure 9: Property sales growth (YoY %)
Source: Bank Indonesia, Residential Property Price Survey for Primary House (1Q20)
Figure 10: Property sales growth (QoQ %)
Source: Bank Indonesia, Residential Property Price Survey for Primary House (1Q20)
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Risks to our thesis Longer-than-expected economic recovery from COVID-19. Political instability. Weakening of the rupiah. Rising interest rates. Weaker-than-expected FDI. Stagnant land prices. Investors continue to shift away to other asset classes from property Regulatory risks including changes to property taxes, down payment rules, LTV requirements and land clearance.
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Capital relocation: The road to Borneo
Relocation to spur investment outside Java President Jokowi has initiated a The capital relocation plan is being overseen by the Indonesian Ministry of National masterplan to relocate the Development Planning (BAPPENAS). The relocation plan is part of gov't efforts to capital of Indonesia from Jakarta narrow the disparity between Java and the eastern part of the country. The capital to Kalimantan by 2024 relocation is aimed at spurring investment outside Java, in the hope of accelerating national growth, which will help lower poverty and inequality.
Diversification of growth BAPPENAS estimates that in the short term, this project will increase real investment into East Kalimantan, Kalimantan, and Indonesia by 47.7%, 34.5% and 4.7%, respectively. As a result of such investments, real GDP of East Kalimantan, Kalimantan and Indonesia is expected to grow by 7.3%, 4.7% and 0.6%, respectively. This will also increase the employment opportunities in Kalimantan and nationwide by 10.5% and 1%, respectively. In the medium term, this project is expected to induce economic growth of 6.8-7.6% for East Kalimantan, 4.3-4.9% for Kalimantan and 0.02-0.1% for Indonesia.
A US$33 billion project The relocation project is The government has projected a US$33bn funding need to relocate the capital, estimated to cost USD33bn, whereby only 20% will be financed through the national budget. The gov't is whereby the state budget would expecting partnerships and the private sector to become the main sources of funding. fund 20% and the remaining 80% would come from private sector The private sector is expected to build residences, universities, healthcare facilities, science-technoparks and shopping malls; all of which we believe will provide opportunities to property companies.
Timeline 2017-19: Capital city relocation studies including the following aspects: social civilization, economy, design, and alternative sites in Indonesia (for new capital city). 2020: Preparing regulation, institutions, land and spatial planning. 2021: Setting the Master Plan for the chosen city, which includes a site plan and building schematics, basic infrastructure schematics, Main Government Area planning (2k ha) and New Capital City Area planning (40k ha). 2022-2024: Focus on land acquisition, Detail Engineering Design (DED) plan for Main Government Area, groundbreaking, construction of basic infrastructure and central government facilities and expansion plan of the new capital city. Potential windfall for property developers’ NAV
We expect leading property The Capital City relocation plan to Kalimantan, when realized, might be an developers like PWON, CTRA, additional positive NAV catalyst for the property developers as it could create a new SMRA and BSDE to participate project pipeline. President Jokowi estimates that the relocation project will cost in relocation projects (when the US$33billion, whereby 20% will be spent using the national budget, with the time comes) which can boost sector NAV by 56% remaining 80% to come from the private sector. We calculate that if the four leading property developers under our coverage were to enjoy a combined 20% out of the
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80% private portion as revenues, this would lead to a blended 56% boost from the 2021E NAV level.
Table 5: New project potential from capital city – Potential impact on NAV 2021F New Capital City NAV Total Project National Budget Private Sector Allocation % of NAV Rpbn US$m US$m US$m US$m % US$m % Pakuwon Jati (PWON IJ) 43,039 2,968 33,000 6,600 26,400 5% 1,320 44% Bumi Serpong Damai (BSDE IJ) 34,984 2,413 33,000 6,600 26,400 5% 1,320 55% Ciputra Development (CTRA IJ) 33,906 2,338 33,000 6,600 26,400 5% 1,320 56% Summarecon Agung (SMRA IJ) 24,013 1,656 33,000 6,600 26,400 5% 1,320 80% Total 135,943 9,375 33,000 6,600 26,400 20% 5,280 56% Source: J.P. Morgan estimates
Latest developments Amid the pandemic, the government has been very focused on various measures related to COVID-19. This includes focusing on the 2020 budget to mitigate the effect of COVID-19 from a healthcare perspective as well as providing economic stimulus to safeguard the economy. Thus, we believe there might be some delay in implementation, although big masterplan remains intact. At the moment, there has not been any tangible activity to implement the plan. Capital relocation is still being analyzed, discussed, planned and coordinated by relevant ministries and institutions.
Figure 11: Location of new capital in Kalimantan vs. the current one
Source: Mapchart, Medium Term National Development Plan 2020-2024
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Correlation of Property index
Indonesia’s Property Index Figure 12: Correlation between JAKPROP and 10yr gov’t bond yield (%, inverted scale) generally has a negative 700 4 correlation with the 10yr gov’t bond yield. When the yield goes 600 5 down, property stocks tend to rise, and vice versa. This implies 500 6 that the Indonesia Property sector could move up in a falling 400 7 interest rate environment 300 8
200 9
100 10
0 11 0 0 0 1 1 1 2 2 2 3 3 3 4 4 4 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 ------y y y y y y y y y y y n p n p n p n p n p n p n p n p n p n p n a a a a a a a a a a a a e a e a e a e a e a e a e a e a e a e a J J J J J J J J J J J S S S S S S S S S S M M M M M M M M M M M
JAKPROP Index GIDN10YR Index
Source: Bloomberg, J.P. Morgan. As of 30 June 2020. Past performance is not indicative of future results. Index rebased to 100.
The index started showing a Figure 13: Correlation between JAKPROP and USDIDR annotated for political events correlation trend from 2015 onwards. When the rupiah weakens (USDIDR goes up), Property stocks tend to decline, and vice versa. The period from 4Q16 to 4Q18 is special case, as former Jakarta Governor Ahok was jailed due to a blasphemy case and this led to a significant drop in the property buying appetite within the Chinese- Indonesian community, which is one of the largest buyers of property, especially in the Greater Jakarta area
Source: Bloomberg, J.P. Morgan. As of 30 June 2020. Past performance is not indicative of future results. Index rebased to 100.
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During the period of volatile Figure 14: Correlation between JAKPROP and CPI (% YoY) inflation (and generally, uptrend) 700 9.0 of 2010-2015, Property stocks 8.0 and property prices tended to go 600 7.0 up as investors bought property 500 as an inflation hedge.... 6.0 Nonetheless, the correlation has 400 5.0 been broken since 2016 when 300 4.0 inflation became more stable at 3.0 the <4% level 200 2.0 100 1.0
- - 0 0 0 1 1 1 2 2 2 3 3 3 4 4 4 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 ------y y y y y y y y y y y n p n p n p n p n p n p n p n p n p n p n a a a a a a a a a a a a e a e a e a e a e a e a e a e a e a e a J J J J J J J J J J J S S S S S S S S S S M M M M M M M M M M M
JAKPROP Index IDCPIY Index
Source: Bloomberg, J.P. Morgan. As of 30 June 2020. Past performance is not indicative of future results. JAKPROP rebased to 100.
We note there is a lagged Figure 15: Correlation between JAKPROP and the coal price (Newcastle, US$/T) correlation between the two 700 super cycles of coal and the 140 property boom. After a period of 600 commodity boom from 2008 to 500 120 2011, people generally became 400 richer and this led to a property 100 upcycle from 2010 onwards that 300 peaked in 2015 80 200
60 100
0 40 0 0 0 1 1 1 2 2 2 3 3 3 4 4 4 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 ------y y y y y y y y y y y n p n p n p n p n p n p n p n p n p n p n a a a a a a a a a a a a e a e a e a e a e a e a e a e a e a e a J J J J J J J J J J J S S S S S S S S S S M M M M M M M M M M M
JAKPROP Index XW1 Comdty
Source: Bloomberg, J.P. Morgan. As of 30 June 2020. Past performance is not indicative of future results. Index rebased to 100.
The property index has typically Figure 16: Correlation between JAKPROP and JCI (country index) moved in line with the JCI 700 7,000 (Indonesia Country Index), except for the period from 4Q16 600 6,000 to 1Q18 when the Property sector significantly 500 5,000 underperformed due to lower demand for property owing to 400 4,000 the Ahok blasphemy case 300 3,000
200 2,000
100 1,000
- - 0 0 0 1 1 1 2 2 2 3 3 3 4 4 4 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 ------y y y y y y y y y y y n p n p n p n p n p n p n p n p n p n p n a a a a a a a a a a a a e a e a e a e a e a e a e a e a e a e a J J J J J J J J J J J S S S S S S S S S S M M M M M M M M M M M
JAKPROP Index JCI Index
Source: Bloomberg, J.P. Morgan. As of 30 June 2020. Past performance is not indicative of future results. JAKPROP rebased to 100.
15 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Impact of COVID-19
Hit to the sector in 2Q20 While 2M20 presales were good The Indonesia property sector had a good start in the first two months of 2020, with for the Indonesia Property blended 2M20 presales growing at a promising double-digit rate (something we had sector… not seen for a while). Pakuwon even decided to launch its first superblock project in a completely new territory (Bekasi), and did well on the presales launch. The capital markets community had expected that 2020 would be the turnaround year for property, largely on the back of no further political overhang after the October 2019 presidential election, especially with incumbent President Joko Widodo winning the election with a landslide and opposition leader Prabowo Subianto Djojohadikusumo deciding to join the cabinet; he is now Minister of Defense of the Republic of Indonesia.
…COVID-19 outbreak since Nonetheless, the COVID-19 outbreak has turned things upside down since March March has negatively impacted 2020. Due to the partial lockdown situation initiated by the government to curb the the property business outlook in virus’s spread, we expect a major delay in property presales launches (the main a big way: Presales, rental yield and FX debt exposure revenue generator for Indonesia’s property developers), with 2Q20 presales likely falling more than 50% (on financial constraints as well as physical constraints for buyers to transact due to large-scale social distancing). Property construction could also see delays. Furthermore, the recurring income revenue portion will also be under pressure as mall tenants will likely ask for discounts or payment deferrals during the lockdown situation, although the impact may not be as much as that on the presales component. On the bright side, the government announced COVID-19 lockdown relaxation starting 5 June in the Greater Jakarta Area, whereby shopping malls can start operating with limited capacity from 15 June onwards. Our checks with property developers further suggest that June saw a notable pickup and it is safe to conclude for now that May was the bottom and the worst month for COVID-19- related disruption.
#1 Delay in presales and project launches We believe blended pre-sales in Blended presales of the four companies under coverage reached Rp17.2tr in 2019, 2020 will decline 25% YoY due to flattish as compared to Rp17.6tr in 2018. Pre-COVID-19, property developers were COVID-19 expecting 2020 to be the recovery year (post-Oct-2019 election) with double-digit growth expectations, as Jan-Feb performed well. Nonetheless, post-COVID-19, we believe growth will likely turn negative as developers could postpone launches and buyers are also hit by weaker purchasing power. We are now expecting a 25% blended presales decline in 2020 for the property companies in our coverage. Developers with bigger presales revenue contribution could be hit more vs. those with a bigger recurring income portion (i.e., PWON).
2Q20 is likely to be the worst Based on our conversations with the Indonesian property developers, the weakness quarter in 2020 as many started to be seen in March and 2Q20 will be significantly worse as the Large Scale marketing sales projects have Social Distancing (PSBB) that has been implemented has created a big obstruction to been postponed due to large- scale social distancing the launch of new property projects and marketing sales projects. The developers are measures of the government; hopeful that 3Q20 will bring businesses back to normal. Within our coverage 3Q20 looks brighter as lockdown universe, the largest presales contribution to revenue is at BSDE at 76%, followed by relaxation started in June CTRA at 75%, SMRA at 61%, and PWON at 46%, as of end-2019.
16 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Before the COVID-19 outbreak, Figure 17: Property presales trend; 2020 targets before COVID-19 in February (in Rpbn) we had expected blended 25,000 presales to grow in high teens in 2020... (given no more overhang 19,453 20,072 from election and political 20,000 17,645 1,700 17,160 2,505 17,021 uncertainty) 2,277 2,203 1,500 4,500 15,000 3,560 3,005 3,397 4,133 6,672 10,000 7,640 7,187 6,362 6,131 5,000 7,200 4,691 5,748 5,683 5,257 0 2016 2017 2018 2019 2020E BSDE CTRA SMRA PWON
Source: Company data, J.P. Morgan estimates.
After the COVID-19 outbreak, we Figure 18: Property presales trend; 2020 target post-COVID-19 outbreak in March (in Rpbn) now expect blended presales to 25,000 decline 25% YoY in 2020 19,453 20,000 17,160 17,645 17,221 15,429 15,000
10,000
5,000
0 2016 2017 2018 2019 2020E Source: Company data, J.P. Morgan estimates.
#2 Pressure on rental yield COVID-19 will put pressure on On the back of the COVID-19 pandemic, we expect rental yield from malls to be rental yields (tenants asking for under pressure in 2Q20 as tenants are forced to shut down from partial lockdown and waiver / discounts / social distancing measures, leading to higher discount/subsidy pressure from postponement), especially of malls, while office rental yields landlords. Based on our conversations with mall owners, they are giving relaxations will likely be more defensive to tenants in terms of postponement of rental payment (until the end of the COVID- 19 pandemic) or by way of some rental discounts during the period when shopping malls have been forced to shut during the state emergency status and Large Scale Social Distancing. Meanwhile, we expect the office rental yield to be more defensive as building owners are less likely to give discounts as most of the offices in Indonesia are still partially open with work-split arrangements in place. While overall rental yield and the recurring income portion of the property companies are also getting hit by COVID-19, we expect the impact will not be as severe as that on the presales component of revenue. We believe property developers with higher recurring income revenue portion are more defensive during the current pandemic situation and have better visibility of earnings as compared to those with majority of their revenue coming from presales. Within our coverage universe, PWON has the biggest recurring income revenue portion at 51%, followed by SMRA at 39%, CTRA at 25% and BSDE at 24%, as of end-2019.
17 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Figure 19: Revenue breakdown between presales and recurring income (2019) 100% 24% 25% 80% 39% 51% 60%
40% 76% 75% 61% 49% 20%
0% BSDE CTRA SMRA PWON Development revenue Recurring income
Source: Company data, J.P. Morgan
#3 FX debt exposure and volatile currency movements Property is one of the most The pandemic has negatively impacted the EM currencies, especially of countries highly geared sectors in with a twin-deficit profile, such as Indonesia. USDIDR has spiked by 15% in 1Q20. Indonesia, with relatively Property is one of the most highly geared sectors in the country, especially with FX sizeable FX debt exposure via bond issuance. Weakening of debt exposure. This is because Property companies cannot finance land acquisition the rupiah is negative for EPS using bank loans (bank loan financing can only be used to acquire properties with buildings attached), while FX bond issuance requires minimal collateral. Total foreign debt exposure vs. equity as of end-2019: BSDE has the largest exposure at 24%, followed by PWON at 19%, CTRA at 11% and SMRA at 2%. Meanwhile, if we look at the net gearing (net debt to equity) profiles, PWON has the lowest net gearing of 0.03x, followed by BSDE at 0.2x, CTRA at 0.3x and SMRA 0.8x.
On the bright side, after weakening around 15% in 1Q20 (from Rp13,500/US$ to the Rp16,500/US$ level), the rupiah has appreciated around 15%+ in 2Q20 (back to now ~Rp14,400/US$). We attribute this to the government’s proactive measures to combat COVID-19 with a US$50bn fiscal stimulus package, quantitative easing, and other social assistance to the mass market. The stabilization of the rupiah is positive for the Indonesia Property sector in our view.
BSDE has the biggest FX debt Figure 20: FX total debt (in Rpbn) vs. equity comparison – Indonesia Property (2019) exposure at 24% of equity, 9,000 24% 25% followed by PWON and CTRA, 8,000 19% while SMRA's debt is mainly in 7,000 20% the rupiah 6,000 11% 15% 5,000 4,000 7,924 10% 3,000 2% 2,000 3,437 5% 1,000 1,910 149 0 0% BSDE PWON CTRA SMRA FC debt Debt as % of equity
Source: Company data, J.P. Morgan.
18 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Figure 21: Net debt to equity (x) comparison – Indonesia Property 0.90 0.78 0.79 0.80 0.80 0.78 0.77 0.80 0.76 0.76 0.76 0.69 0.69 0.71 0.70 0.60 0.50 0.40 0.34 0.33 0.31 0.32 0.33 0.28 0.28 0.30 0.28 0.25 0.24 0.26 0.30 0.22 0.21 0.23 0.20 0.17 0.19 0.19 0.19 0.20 0.18 0.20 0.20 0.15 0.16 0.12 0.12 0.12 0.12 0.09 0.10 0.07 0.10 0.04 0.02 0.03 0.03 0.00 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 BSDE PWON CTRA SMRA Source: Company data, J.P. Morgan.
Figure 22: USDIDR – the rupiah weakened 15%+ against the USD in 1Q20, but has recovered 15%+ in 2Q20
17,000
16,500
16,000
15,500
15,000
14,500
14,000
13,500
13,000
12,500 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9 9 9 9 9 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 ------l l l l l r r r r r v y v y v y v y v y p n p n p n p n p n u u u u u a a a a a o a o a o a o a o a e a e a e a e a e a J J J J J J J J J J M M M M M S N S N S N S N S N M M M M M
Source: Bloomberg. As of 6 July 2020.
19 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Operating metrics
Table 6: Indonesia Property operating matrices Operating Matrix PWON SMRA CTRA BSDE Name PT Pakuwon Jati Tbk PT Summarecon Agung Tbk PT Ciputra Development Tbk PT Bumi Serpong Damai Tbk Ticker PWON IJ SMRA IJ CTRA IJ BSDE IJ Line of Businesses Property developer Property developer Property developer Property developer Residential (Landed) Project specialty Mixed use / superblock development development Township development Township Development Year listed on Indonesia Stock Exchange 1989 1990 1994 2008 JPM Rating OW OW OW N Semarop Agung (31.58%) Paraga Artamida (26.57%) Largest Shareholder Pakuwon Arthaniaga (68.58%) Sinarmegah Jayasentosa PT Sang Pelopor (46.96%) Ekacentra Usahamaju (6.6%) (25.01%) CEO Alexander Stefanus Ridwan Suhendra Adrianto Pitoyo Adhi Candra Ciputra FX Ridwan Darmali 2020E Revenue (US$m) 395 380 451 477 2020E EBITDA (US$m) 206 107 135 210 2020E Net Profit (US$m) 138 20 60 111 2020E presales (Rp bn) 1,700 4,500 6,672 7,200 Mkt Cap / Pre-sales (x) 11.8 2.0 1.8 2.3 EV/ Pre-sales (x) 14.0 4.1 2.9 3.4 Financials – FY19 (Rpbn) Revenue 7,202 5,942 7,608 7,085 Gross Profit 4,058 2,850 3,792 5,066 EBITDA 3,562 1,867 2,479 2,889 Net Profit 2,720 515 1,158 2,791 Gross Margin 56% 48% 50% 72% EBITDA Margin 49% 31% 33% 41% Net Margin 38% 9% 15% 39% Total Assets 26,095 24,442 36,196 54,445 Total Liabilities 8,000 14,990 18,434 20,897 Total Equity 18,096 9,451 17,762 33,548 Total Debt 4,797 8,969 9,176 13,407 Total Cash 4,313 1,664 4,238 6,860 Net Cash (Net Debt) 483 7,305 4,938 6,547 Net Gearing (%) 3% 77% 28% 20% Receivable Days 31 19 57 12 Payable Days 37 8 63 108 Inventory Days 413 968 978 1,738 Valuation - 2020E PER (x) 10.2 29.2 13.4 9.6 PBV (x) 1.2 1.2 0.7 0.5 EV/EBITDA (x) 8.0 11.3 9.7 8.8 ROE (%) 11.2 4.0 5.6 5.1 ROA (%) 7.8 2.1 2.3 3.1 Dividend Payout (%) 17.0 28.0 21.5 10.1 Dividend Yield (%) 1.7 1.0 1.6 1.1 Source: Bloomberg consensus, Company data, J.P. Morgan. Priced as of 8 July 2020.
20 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Stock preference
Pakuwon is our top pick, given its 50% recurring-income contribution and strong balance sheet. We also like Ciputra for its Pan-Indonesia presence and increasing mass-market segment contribution, and Summarecon given its prominent presence in fast-growing Bekasi and potential value unlocking from its malls portfolio. We rate Bumi Serpong Damai as Neutral on the back of the risk from its high concentration in Serpong, where the ASP is starting to stagnate after several years of appreciation.
Table 7: Indonesia Property valuation comps JPM Current JPM Upside/ Mkt cap ADTV 6M EV/EBITDA P/E P/B Yield Disc to NAV Company name Ticker rating price PT downside US$m US$m 20F 20F 21F 21F 21F 21F Pakuwon Jati PWON IJ OW 420 630 50% 1,401 2,906 8.0 9.8 8.9 0.9 1.3% -53% Ciputra Development CTRA IJ OW 640 1000 56% 823 1,697 9.8 12.1 11.2 0.6 2.5% -65% Summarecon Agung SMRA IJ OW 615 1000 63% 615 1,372 11.9 24.6 19.2 0.8 0.7% -63% Bumi Serpong Damai BSDE IJ N 775 830 7% 1,137 1,910 8.2 8.4 6.9 0.4 0.0% -58% Total/Average 3,976 7,885 9.0x 12.2x 10.4x 0.7x 1.1% -60% Source: Bloomberg, J.P. Morgan estimates. As of 8 July 2020. Prices and price targets are in rupiah.
Pakuwon Jati (PWON IJ) PWON is the largest of the four We are assuming coverage on Pakuwon Jati (PWON IJ) with an Overweight (OW) Property companies by market rating at a price target of Rp630. Our positive view on the stock is premised on: (1) A cap. Top OW pick with Rp630 PT strong recurring income revenue profile (from malls and offices) with a 50% contribution to total revenue; we expect recurring income to recover faster after the COVID-19 peak as compared to the property development presales segment. (2) The strongest balance sheet profile among peers with <5% net gearing as of end-2019 and the company turning net cash in 2020E. (3) Expansion to Bekasi city with a new superblock project, tapping into a fast-growing region with close proximity to industrial estates (which should benefit from potentially rising FDI flow) and infrastructure upgrade from LRT (Light Rail Train) development. Pakuwon is currently Indonesia’s largest property company by market cap, majority controlled by Alexander Tedja and his family.
Ciputra Development (CTRA IJ) We like CTRA’s diversified We are assuming coverage on Ciputra Development (CTRA IJ) with an Overweight portfolio of Pan-Indonesia (OW) rating and a price target of Rp1,000. We believe the stock offers an attractive presence with a strong risk-reward profile at the current level as most of the bad news from the COVID-19 execution track record pandemic is largely priced in, especially as the economy reopens with gradual lockdown relaxation. Our positive view on the company is premised on three points, namely: (1) Pan-Indonesia presence with diversified property development in Greater Jakarta Area, Greater Surabaya, Sulawesi, Sumatera, and beyond (33 cities), allowing minimal concentration risk and the ability to capture higher growth in regions outside the Tier-1 cities. (2) Growing contribution from the mass- market/middle class segment (Rp2bn ticket size and below) which mainly consist of first-home buyers, who generally tend to have more resilient demand vs. investors. (3) Strong corporate governance and management track record under the Ciputra family with prudent capital management (0.3x net debt to equity in 1Q20) and minimal US dollar debt exposure (~85% of debt is denominated in the rupiah).
21 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Summarecon Agung (SMRA IJ) We like SMRA’s new strategy to We are assuming coverage on Summarecon Agung (SMRA IJ) with an Overweight start diversifying into new cities (OW) rating and a price target of Rp1,000. Our optimistic view on the company is such as Bekasi, Bandung, and premised on: (1) A strong presence in Bekasi (28% of presales in 1Q20), a fast- Makassar… Stake sale of Shopping Mall Portfolio growing city that could benefit from improving transportation infrastructure, Company could be an additional especially after completion of the LRT, and a potential surge in FDI arising from the catalyst to unlock value and government’s policy reforms, as majority of the industrial estate areas are located in support SMRA's expansion plan and around Bekasi. (2) Diversification of the property development business to new areas with bigger growth potential than the areas of Kelapa Gading and Serpong, such as Bekasi, Bandung, Makassar, Karawang, and Bogor, where SMRA has a presence. (3) Potential value-unlocking from divestment of stakes in mall assets to further expand the recurring income portfolio (~34% of revenue as of end-2019).
Bumi Serpong Damai (BSDE IJ) We are assuming coverage on Bumi Serpong Damai (BSDE IJ) with a Neutral (N) BSDE has the biggest landbank rating and a price target of Rp830, implying <10% upside from the current level. We of 4,000+ ha within our property believe most of the bad news on the back of COVID-19 is largely priced in for the coverage universe. It is majority Indonesia Property sector, including BSDE. Nonetheless, we see a bigger structural owned by Sinar Mas Land and is risk for BSDE going forward, given the high concentration risk of its property part of the Sinar Mas Group development portfolio, whereby the majority exposure is to BSD City, Serpong, where land ASP growth is getting stagnant after the big increase in the past decade. Furthermore, BSDE also has the biggest debt within our coverage, standing at Rp19.3tr (USD1.3bn) as of 1Q20, with ~60% of that denominated in the USD. Volatility of the rupiah would translate into volatile EPS as forex gains/losses will fluctuate, especially with majority of the foreign debt unhedged.
Table 8: NAV breakdown and valuations – J.P. Morgan Indonesia Property universe PWON SMRA CTRA BSDE Rp bn FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E Development Properties 21,088 22,111 23,303 17,631 19,651 20,531 26,973 29,357 30,066 40,922 39,349 38,894 Investment Properties 16,307 17,016 18,317 8,397 8,909 9,963 8,047 8,605 8,914 6,880 7,020 7,316 Others (1,679) (1,768) (1,766) Gross Asset Value 37,395 39,127 41,620 26,028 28,560 30,494 35,020 37,962 38,980 46,122 44,601 44,443 Net Cash (debt) + minority (483) 498 1,419 (7,301) (6,986) (6,481) (4,938) (5,149) (5,075) (10,945) (9,906) (9,129) NAV 36,912 39,626 43,039 18,726 21,574 24,013 30,082 32,814 33,906 35,177 34,695 35,314 No of Share (bn) 48.2 48.2 48.2 14.4 14.4 14.4 18.6 18.6 18.6 19.2 19.2 19.2 NAV per share (Rp) 766 823 894 1,298 1,495 1,664 1,621 1,768 1,827 1,828 1,803 1,835 Growth YoY 7% 9% 15% 11% 9% 3% -1% 2%
Gross NAV by segment Development Properties 56% 57% 56% 68% 69% 67% 77% 77% 77% 89% 88% 87% Low Rise 22% 25% 36% 58% 58% 56% 70% 70% 70% 76% 75% 75% High Rise 35% 32% 20% 10% 11% 11% 7% 7% 7% 13% 13% 12% Investment Properties 44% 43% 44% 32% 31% 33% 23% 23% 23% 15% 16% 17% Office 7% 6% 7% 1% 1% 1% 3% 3% 3% 6% 6% 6% Retail 25% 26% 26% 25% 24% 25% 15% 15% 16% 7% 7% 8% Hotels 8% 8% 8% 7% 7% 7% 5% 4% 4% 3% 3% 3%
PT Discount to NAV -30% -40% -45% -55% Price Target 630 1,000 1,000 830 Current Price 420 615 640 775 Upside / Downside 50% 63% 56% 7% Rating OW OW OW N Current Disc to NAV -53% -63% -65% -58% Source: Company data, Bloomberg, J.P. Morgan estimates. Priced as of 8 July 2020.
22 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Valuations and comparison with peers
Forward PER Figure 23: PWON – 5yr PE band Figure 24: CTRA - 5yr PE band 16.5 +2SD, 16.1 23.0 21.0 +2SD, 19.8 14.5 +1SD, 13.9 19.0 +1SD, 17.3 12.5 average, 11.8 17.0 average, 14.8 15.0 9.5 10.5 -1SD, 9.6 13.0 -1SD, 12.2 12.0 11.0 8.5 -2SD, 7.5 -2SD, 9.7 9.0 6.5 7.0 4.5 5.0 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9 9 9 9 9 0 0 0 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9 9 9 9 9 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 ------1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 l l l l l 1 1 1 1 2 r r r r r v y v y v y v y v y p n p n p n p n p n ------u u u u u a a a a a l l l l l r r r r r o a o a o a o a o a a a a a a e e e e e v y v y v y v y v y p p p p p J J J J J n n n n n u u u u u J J J J J a a a a a M M M M M S N S N S N S N S N o a o a o a o a o a M M M M M a a a a a e e e e e J J J J J J J J J J M M M M M S N S N S N S N S N M M M M M Source: Bloomberg, J.P. Morgan. As of 7 July 2020. Source: Bloomberg, J.P. Morgan. As of 7 July 2020.
Figure 25: SMRA – 5yr PE band Figure 26: BSDE – 5yr PE band
50.0 16.5 +2SD, 44.3 +2SD, 15.2
40.0 14.5 +1SD, 36.0 +1SD, 13.0 12.5 average, 27.7 30.0 average, 10.7 23.5 10.5 -1SD, 19.3 20.0 -1SD, 8.5 8.5 8.6 -2SD, 11.0 10.0 -2SD, 6.2 6.5
0.0 4.5 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9 9 9 9 9 0 0 0 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9 9 9 9 9 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 ------l l l l l r r r r r l l l l l v v v v v r r r r r p n y p n y p n y p n y p n y v y v y v y v y v y u u u u u p n p n p n p n p n a a a a a u u u u u o a o a o a o a o a a a a a a e a e a e a e a e a J J J J J o a o a o a o a o a e a e a e a e a e a J J J J J J J J J J M M M M M S N S N S N S N S N M M M M M J J J J J M M M M M S N S N S N S N S N M M M M M
Source: Bloomberg, J.P. Morgan. As of 7 July 2020. Source: Bloomberg, J.P. Morgan. As of 7 July 2020.
23 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Forward PBV Figure 27: PWON – 5yr PBV band Figure 28: CTRA – 5yr PBV band
3.4 +2SD, 3.2 3.0 +2SD, 2.5 2.9 +1SD, 2.7 2.5 +1SD, 2.0 2.4 average, 2.2 2.0 average, 1.5 1.9 -1SD, 1.7 1.5 -1SD, 1.0 1.4 1.1 1.0 0.7 0.9 -2SD, 1.2 0.5 -2SD, 0.6 0.4
5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0.0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 ------l l l l l t t t t t 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 r r r r r n n n n n u c u c u c u c u c p p p p p 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 a a a a a ------J J J J J l l l l l t t t t t O A O A O A O A O A r r r r r J J J J J n n n n n u c u c u c u c u c p p p p p a a a a a J J J J J O A O A O A O A O A J J J J J 1yr forward PB -2SD -1SD average +1SD +2SD 1yr forward PB -2SD -1SD average +1SD +2SD Source: Bloomberg, J.P. Morgan. As of 7 July 2020. Source: Bloomberg, J.P. Morgan. As of 7 July 2020.
Figure 29: SMRA - 5yr PBV band Figure 30: BSDE – 5yr PBV band 4.0 +2SD, 3.7 2.2 +2SD, 2.0 3.5 +1SD, 2.9 3.0 1.7 +1SD, 1.6 2.5 average, 2.2 average, 1.2 1.2 2.0 -1SD, 1.5 -1SD, 0.8 1.5 1.1 0.7 0.4 1.0 -2SD, 0.8
0.5 0.2 -2SD, 0.4 0.0 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 ------l l l l l t t t t t r r r r r -0.3 n n n n n u c u c u c u c u c p p p p p 5 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9 9 9 9 9 0 0 0 a a a a a J J J J J O A O A O A O A O A 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 J J J J J ------t t t t t r r r r r c c c c c n g b n g b n g b n g b n g b n c c c c c p p p p p e e e e e u u u u u u u e u e u e u e u e O A O A O A O A O A J J J J J J F F F F F 1yr forward PB -2SD -1SD average +1SD +2SD A D A D A D A D A D 1yr forward PB -2SD -1SD average +1SD +2SD Source: Bloomberg, J.P. Morgan. As of 7 July 2020. Source: Bloomberg, J.P. Morgan. As of 7 July 2020.
24 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Discount to NAV Figure 31: PWON – Discount to NAV (10 years) Figure 32: CTRA – Discount to NAV (10 years) 0% 20% CTRA -10% PWON 0% -20% -20% -30% -40% -40%
-50% -60%
-60% -80% -70% -100% 10 11 12 13 14 15 16 17 18 19 20 10 11 12 13 14 15 16 17 18 19 20 Source: Bloomberg, J.P. Morgan. As of 7 July 2020. Source: Bloomberg, J.P. Morgan. As of 7 July 2020.
Figure 33: SMRA – Discount to NAV (10 years) Figure 34: BSDE – Discount to NAV (10 years) 20% 20% BSDE
0% SMRA 0%
-20% -20%
-40% -40%
-60% -60%
-80% -80%
-100% -100% 10 11 12 13 14 15 16 17 18 19 20 10 11 12 13 14 15 16 17 18 19 20 Source: Bloomberg, J.P. Morgan. As of 7 July 2020. Source: Bloomberg, J.P. Morgan. As of 7 July 2020.
25 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Valuations comparison
Table 9: ASEAN Property valuation comps Company name Ticker Mkt cap ADTV EV/EBITDA P/E P/B Div. yield US$mn US$mn FY20 FY21 FY20 FY21 FY20 FY21 FY20 Indonesia Pakuwon Jati PWON IJ 1,403 2,906 8.0 7.5 9.8 8.9 1.0 0.9 1.3% Ciputra Development CTRA IJ 824 1,697 9.8 8.9 12.1 11.2 0.6 0.6 2.5% Summarecon Agung SMRA IJ 615 1,372 11.9 10.9 24.6 19.2 0.9 0.8 0.7% Bumi Serpong Damai BSDE IJ 1,138 1,910 8.2 7.9 8.4 6.9 0.4 0.4 0.0% Average 9.5x 8.8x 12.2x 10.4x 0.7x 0.7x 1.1% Singapore City Developments CIT SP 5,671 17,459 18.1 14.8 18.1 13.7 0.7 0.7 2.2% Frasers Property FPL SP 2,599 231 26.3 22.6 10.3 10.4 0.5 0.5 3.7% UOL Group UOL SP 4,236 8,905 17.6 15.5 19.3 14.8 0.6 0.6 2.6% Average 20.7x 17.7x 15.9x 13.0x 0.6x 0.6x 2.8% Malaysia SP Setia* SPSB MK 804 1,950 29.9 26.7 17.7 8.9 0.2 0.2 1.3% Sunway Bhd* SWB MK 1,594 1,823 28.1 21.3 13.2 10.9 0.7 0.7 4.7% UEM Sunrise Bhd* UEMS MK 467 655 23.5 20.6 21.0 17.6 0.3 0.3 0.9% Mah Sing Group* MSGB MK 312 1,190 5.2 4.5 14.5 10.0 0.4 0.4 4.5% Average 21.x7 18.3x 16.6x 11.9x 0.4x 0.4x 2.9% Philippines SM Prime SMPH PM 18,507 9,251 20.7 16.2 33.4 24.1 2.8 2.6 1.1% Ayala Land ALI PM 10,069 10,861 14.6 11.3 19.4 14.8 2.2 2.0 1.7% Robinsons Land RLC PM 1,776 942 7.7 6.5 10.9 8.9 0.8 0.8 2.8% Filinvest Land FLI PM 485 335 10.8 8.9 5.1 4.1 0.3 0.3 5.3% Megaworld Land MEG PM 1,999 1,894 7.7 6.2 7.5 5.8 0.5 0.5 2.5% Average 12.3x 9.8x 15.2x 11.5x 1.3x 1.2x 2.7% Thailand Pruksa Real Estate* PSH TB 820 1,132 10.7 9.6 7.5 6.8 0.6 0.6 7.8% Sansiri* SIRI TB 371 2,079 52.6 37.0 8.0 7.4 0.3 0.3 8.5% Land & Houses* LH TB 2,984 11,772 24.8 21.5 14.3 12.5 1.8 1.7 6.2% Supalai PCL* SPALI TB 1,054 3,527 9.3 8.0 8.2 7.1 0.9 0.8 4.6% Quality Houses* QH TB 762 2,923 26.6 22.9 10.6 9.3 0.9 0.8 5.8% Central Pattana CPN TB 7,336 17,631 20.2 15.3 33.3 20.8 3.1 2.8 1.3% Average 24.0x 19.0x 13.6x 10.7x 1.3x 1.2x 5.7% Regional average 17.6x 14.7x 14.7x 11.5x 0.9x 0.8x 3.0% Source: Bloomberg, J.P. Morgan. As of 8 July 2020. *Not covered. All estimates are Bloomberg consensus estimates.
26 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Downside risks
Longer-than-expected recovery from COVID-19 Our economists expect Indonesia’s GDP growth to recover to 5.0% by 2021 from 0.5% in 2020E. If the economic recovery from the COVID-19 pandemic takes longer than expected, recovery of the property market (especially property development sales) will likely be delayed as well and this might have a negative impact on the financial performance of the property companies under our coverage. Delayed market recovery would include further delays in presales property launches, or lower than expected take-up rates of presales due to weak demand from the buyer.
Political instability Political instability and demonstrations would result in a negative impact on the property market as buyers, especially the middle class and the upper segment who are also investors (non-first home buyers) could put on hold big-ticket asset purchase. This was evident, in our view, in the aftermath of the 2019 President Election and the 2017 Jakarta Governor Election. Indonesia has a presidential election every five years with the next one due in 2024. The next Jakarta Governor Election is in 2022. It is also worth highlighting that Indonesia-listed property developers mainly target the middle to mid-upper-class segment with majority of development in the Greater Jakarta area.
Weakening of the rupiah The weakening of the rupiah negatively affects the property sector companies via FX loss volatility as majority of borrowings are in foreign currency, especially USD. Furthermore, it also increases the interest expense towards foreign currency borrowings and also the construction costs in the property development business as prices of some of the materials (such as steel) are USD-linked. It is also worth pointing out that Property is one of the biggest sectors in Indonesia that issue USD bonds as a funding source. This is because of better collateral terms as compared to IDR bonds, a cheaper cost of funds and, most importantly, the ability to use the funding to acquire landbank vs. domestic bank loans that cannot be used to acquire land that has no existing building/establishment attached. Mandatory hedging norms do reduce some of the risk; nonetheless, a weaker currency is a negative.
Rising interest rates A rising interest rate environment would have a negative impact on the property sector as it would lead to an increase in (1) mortgage rates, which will likely slow property purchases, and (2) the cost of debt, given a relatively high gearing profile of the property developers.
Weaker-than-expected FDI This would affect the Indonesia Property sector because it will translate into slower growth in the regional suburbs, especially in the Greater Jakarta Area, such as Bekasi, which is located in the center of the major industrial estates in Indonesia.
Stagnant land prices A stagnant or declining trend in land prices would be a negative for Indonesia Property companies as selling prices would be affected. The stagnation or decline might be caused by a weak macro environment, a global economic crisis, natural disasters (flooding, forest fires) or political instability.
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Property tax Indonesia currently levies a 5.0% property tax on the buyer and 2.5% property tax on the seller. We believe that an increase in property taxes would affect the property demand in Indonesia as it will increase the net price from the buyer’s perspective.
Down payment regulation A big change in Bank Indonesia’s down payment regulation related to mortgage payment would have an impact on the property sector. The Loan to Value Ratio (LTV) requirement of Bank Indonesia currently ranges from 75% to 90%, depending on the type of property, its size and whether the buyer is a first-/non-first-home buyer. A tightening of LTV regulations might affect demand for property and vice versa.
Land clearance law Indonesia currently has land clearance regulations that stipulate that if a parcel of land is needed by the government for a national infrastructure project, which is usually a toll road related project, then the government will have the right to acquire the land at market price. A change in this regulation, which might result in a different outcome, especially the land/market price, might have an impact on property owners, as they might need to involuntarily sell land to adhere to the regulation.
Middle income trap and stagnant GDP per capita Indonesia’s GDP per capita has been quite stagnant in the range of USD3,500- USD4,000 in the past few years, largely driven by the end of a commodity super cycle and also a current account deficit problem which led to weakening of the rupiah. This is also one of the reasons automotive and property sales have been fairly flat in the past five years. If Indonesia cannot break out of this cycle in the next decade, we believe that there will be a risk of limited growth in the property sector, especially in the non-first home buyer segment, as it is perceived as a high-ticket discretionary purchase. We believe Jokowi's Omnibus Law reform initiative will provide a solution to break out this pattern going forward.
Shift from Property to alternative investments post tax amnesty Since the introduction of the Tax reform of Tax Amnesty Program in 2016-2017, we see a shift in the investment habit from property to other asset classes. This is because of more transparent tax declaration after the amnesty program that allows a broader investment opportunity to individuals. Previously, property was perceived as one of the most favorite investments of Indonesians, given limited requirement for tax ID disclosure and paperwork. Nonetheless, at the end the day, we believe land/property price appreciation (capital gain) remains one of the most important factors driving property investments. As long as the capital gains trend returns, investments should come back into the property space, especially in the new fast- growing townships/cities like Bekasi, Bandung and Makassar.
28 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected] s e i n a p m o C
29 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Pakuwon ▲ Overweight Previous: Neutral Assume coverage at OW; top pick: King of Superblock with PWON.JK,PWON IJ steady recurring income Price (08 Jul 20): Rp420 Overweight Pakuwon with PT of Rp630; top pick. We are assuming coverage on ▼ Price Target (Dec-21): Rp630 Pakuwon Jati (PWON IJ) with an Overweight (OW) rating and Price Target of Prior (Jun-20): Rp720 Rp630. Our positive view on the stock is premised on: Indonesia Head of Indonesia Research & Strong recurring income revenue profile with 50% contribution coming from Strategy Malls and Offices, which should see a faster recovery post the COVID-19 peak as AC Henry Wibowo compared to the property development presales segment. (622-1) 5291 8526 [email protected] Strongest balance sheet profile vs peers with <5% net gearing as per 2019 and Bloomberg JPMA HWIBOWO
30 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Price Performance Summary Investment Thesis and Valuation Investment thesis We are OW on PWON with a Price Target of Rp630. Our positive view on the stock is premised on: 1) Strong recurring income revenue profile with 50% contribution coming from Malls and Offices, which should see a faster recovery post the COVID-19 peak as compared to the property development presales segment. 2) Strongest Balance Sheet profile vs peers with <5% net gearing as per 2019 and going into a net cash position in 2020. 3) Expansion to Bekasi City YTD 1m 3m 12m with the new superblock project, tapping into a fast-growing Abs -26.3% -12.5% 10.5% -43.2% region with the most exposure to industrial estates (potential Rel -6.9% -12.6% 0.8% -23.1% beneficiaries of rising FDI flow) and infrastructure upgrade Company Data from LRT (Light Rail Train) development. Shares O/S (mn) 48,160 52-week range (Rp) 750-266 Valuation Market cap ($ bn) 1.40 Exchange rate 14,440.43 We use a SOTP valuation methodology to derive the price Free float(%) 31.3% target of Pakuwon. We use a NAV approach to value 3M - Avg daily vol (mn) 160.91 PWON's existing landbank for property development, based 3M - Avg daily val ($ mn) 4.5 Volatility (90 Day) 82 on its respective land prices in respective locations. We use a Index JCI cap rate of 8.5% with a long term growth rate of 4.0% to BBG BUY|HOLD|SELL 15|5|1 value its recurring income business. We then use an implied Key Metrics (FYE Dec) discount to total NAV of 30%, based on 0.5 SD above its 10- Rp in billions FY19A FY20E FY21E FY22E year historical mean, which we believe is justified, given the Financial Estimates current stage of re-opening of economy post COVID-19 and Revenue 7,202 5,689 6,373 7,320 also taking into account PWON’s strong recurring income Adj. EBITDA 3,968 3,005 3,269 3,660 business and balance sheet strength. Our PT implies 13.5x Adj. EBIT 3,467 2,590 2,820 3,187 Adj. net income 2,720 2,071 2,247 2,702 2021E Price to Earnings multiple and 1.4x Price to Book Adj. EPS 56.47 43.01 46.66 56.11 Value. BBG EPS 54.76 42.90 47.27 46.33 Cashflow from operations 1,770 2,714 2,703 3,587 FCFF 1,017 1,057 1,188 1,098 Performance Drivers Margins and Growth Revenue growth 1.7% (21.0%) 12.0% 14.9% EBITDA margin 55.1% 52.8% 51.3% 50.0% EBITDA growth 1.0% (24.3%) 8.8% 11.9% EBIT margin 48.1% 45.5% 44.2% 43.5% Net margin 37.8% 36.4% 35.3% 36.9% Adj. EPS growth 6.9% (23.8%) 8.5% 20.2% Ratios Adj. tax rate 12.0% 14.5% 14.5% 14.3% Interest cover NM 60.1 NM NM Net debt/Equity 0.0 NM NM NM Net debt/EBITDA 0.1 NM NM NM ROCE 16.1% 10.7% 10.8% 11.2% ROE 19.7% 13.1% 12.7% 13.6% Valuation FCFF yield 5.0% 5.2% 5.9% 5.4% Dividend yield 1.7% 1.7% 1.3% 1.4% EV/EBITDA 7.4 10.3 10.1 9.9 Adj. P/E 7.4 9.8 9.0 7.5
Source: J.P. Morgan Quantitative and Derivatives Strategy for Performance Drivers; company data, Bloomberg and J.P. Morgan estimates for all other tables.
31 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Pakuwon Jati (PWON IJ) We are assuming coverage on Pakuwon Jati (PWON IJ) with an Overweight (OW) rating and Price Target of Rp630. PWON is our top pick within our Indonesia Property coverage. Our positive view on the stock is premised on:
1. Strong recurring income revenue profile with 50% contribution coming from Malls and Offices, which should see a faster recovery post the COVID-19 peak as compared to the property development presales segment. 2. Strongest balance sheet profile vs peers with <5% net gearing as per 2019 and going into a net cash position in 2020. 3. Expansion to Bekasi City with the new superblock project, tapping into a fast-growing region with the most exposure to Industrial Estates (beneficiary of rising FDI flow) and infrastructure upgrade from LRT (Light Rail Train) development.
Figure 35: PWON is targeting Rp2.2tn as 2020 marketing sales (Rpbn) PWON targets R2.2tn for 2020 3,000 marketing sales, which will be 2,505 supported by its new Bekasi 2,500 2,277 2,203 2,200 Project. 2,000 1,503 1,500 1,000 500 0 2016 2017 2018 2019 2020 Jakarta Surabaya
Source: Company data. The 2020 number is the company target pre-COVID19; there is no update to guidance yet.
PWON has the strongest balance Figure 36: PWON: Net gearing (x) is the lowest among our coverage (2019) sheet within our Indonesia 0.25 Property coverage universe with <5% net gearing in 2019 and 0.20 going into net cash in 2020. 0.20
0.15
0.10
0.05 0.03
0.00 ND/Equity USD Debt/Equity Source: Company data.
Management guidance amid COVID-19 Presales impact PWON had strong 1Q20 presales – especially in the first two months – amounting to Rp360bn, +17% YoY (vs target of +10% YoY). 70% of its presales are coming from Surabaya and the rest from Jakarta. The Company started feeling the impact of the virus outbreak during the second week of March as more stringent restrictions on
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mobility kicked in. Entering 2Q20, the Company warns it will be weaker due to seasonality given the fasting month, further exacerbated by the pandemic.
Albeit construction work is still allowed and continues to be operational for existing projects, the Company is going to postpone the construction of its Bekasi project for six months. Furthermore, due to measures that limit mobility, we can expect delay in asset hand-over which will result in delay of revenue recognition.
Recurring income As the government ordered closures of non-essential business establishments, PWON had to close its malls in Jakarta for about a month until 24 April 2020; however, this may be prolonged. Due to the mall closures, PWON will defer rental payment for April - June and waive service charges; meanwhile, discounts on rental rates are being reviewed on a case-by-case basis. Malls in Surabaya are still operating as usual and have the local government support as they prioritize to minimize the economic slowdown that may lead to layoffs.
Debt exposure and hedging PWON has a US$250mn bond that is equivalent to Rp3.5tn that is due in 2024. The bond is hedge to a call spread of Rp13,500-16,500. The initial hedging cost is 1+% and coupon is 5%. The company is confident in their cash flow and cash position as of YE20 is still very strong. Cash is mainly used for construction and is within the budgeted capex.
Management priority is on efficiency PWON has not laid off any of their permanent employees; however, there are discussions over pay cuts across the board and likely to occur. Separately, management has not decided on a share buyback but may consider to do so depending on the timing.
PWON USD debt will come due Figure 37: USD debt will come due in 2024 (in Rpbn) in 2024. We believe PWON has 4,000 the ability to service its debt. 3,500 3,000 2,500 2,000 3,544 1,500 1,000 Repaid
500 915 398 476 176 50 0 3Q19 4Q19 2020 2021 2022 2023 2024 Source: Company data.
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Valuation rationale We use a SOTP valuation methodology to derive the price target of Pakuwon. We use a NAV approach to value PWON's existing landbank for property development, based on its respective land prices in respective locations. We use a cap rate of 8.5% with a long term growth rate of 4.0% to value its recurring income business. We then use an implied discount to total NAV of 30%, based on 0.5 SD above its 10-year historical mean, which we believe is justified, given the current stage of re-opening of the economy post COVID-19 and also taking into account PWON’s strong recurring income business and balance sheet strength. Our PT implies 13.5x 2021E P/E multiple and 1.4x PBV.
Table 10: PWON – SOTP valuation Property Assets Area Area Utilization Price/sqm NAV NAV NAV (ha) (sqm) (%) (RpM/sqm) Rpbn per share Split % (1) NAV - Landbank South Jakarta Kota Kasablanka 6.5 65,000 90% 35 2,048 43 Gandaria City 1.9 19,000 90% 30 513 11 Simatupang Landbank 4.5 45,000 90% 25 1,013 21 West Jakarta Daan Mogot Landbank 11 110,000 90% 20 1,980 41 Greater Jakarta Bekasi Landbank 3.6 36,000 90% 15 486 10 Central Surabaya Tunjungan City 2.2 33,000 90% 15 446 9 East Surabaya Pakuwon City Township 247.4 2,474,000 70% 6.5 11,257 234 Outside Pakuwon City 21.5 215,000 70% 5 753 16 West Surabaya Grand Pakuwon Township 172.1 1,721,000 70% 6.5 7,831 163 Pakuwon Mall 6.2 62,000 90% 6 335 7 Royal Plaza 1.9 19,000 90% 5 86 2 Outside Grand Pakuwon 6.9 69,000 70% 5 242 5 Total Landbank 486 4,868,000 26,986 560 NAV after 5% Tax 25,637 532 59% Number of Shares (Bn) 48.16 (2) Recurring Income Rpbn Revenue Shopping Malls 2,823 Offices 281 Hotels & Services Apartments 591 Total Recurring Revenue 3,695 EBITDA Margin 50% EBITDA 1,847 EBITDA After Tax (0.75) 1,385 Cap Rate 8.50% LT Growth Rate 4.00% Future Value 16,952 352 39% EBITDA Multiple (X) 9.2 SOTP 42,589 884.32 Net Cash 498 10 1% NAV/Share 43,087 895 100% Implied Discount to NAV 30% Price Target (Dec-2021, Rp) 630 Current Price (8 July 2020, Rp) 420 Upside / Downside 50% Current Discount to NAV -53% Source: Company Data, J.P. Morgan estimates. Priced as of 8 July 2020.
34 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Company profile PT Pakuwon Jati was established in 1982 to develop Tunjungan Plaza I, the first modern shopping center in Surabaya. The company has become a diversified real estate developer which focuses in Jakarta and Surabaya area. Pakuwon is vertically integrated across the full real estate chain from land acquisition to property development, marketing and operational management. It is considered a pioneer of the superblock/mixed-use development concept in Indonesia. The Company’s most notable projects include mixed-use development such as Tunjungan City (Surabaya), Gandaria City (Jakarta) and Kota Kasablanka (Jakarta).
Table 11: Company milestones - PT Pakuwon Jati (PWON IJ) 1982 Pakuwon Jati was established to develop Tunjungan Plaza I, the first modern shopping center in Surabaya 1989 To be the first property company to be listed on the Jakarta Stock Exchange 1991-1994 In 1991, completed Tunjungan Plaza II Shopping Center and Mandiri Office Tower. In 1994, started the development of Pakuwon City Township (formerly Laguna Indah) 1996-2002 Completed Tunjungan Plaza III and IV, Surabaya Sheraton Hotel, and Regensi Condominium. Tunjungan City has become the first Superblock in Indonesia. 2007 Entered the Jakarta market by acquiring land for the construction of Gandaria City Superblock in South Jakarta 2008 Turned Pakuwon City's concept (rebranding) into a self-contained city, completed with areas of retail and commercial, school and hospital. 2010 Completed two condos, one office tower and one mall in Gandaria City, as well as one mall in Pakuwon City. 2011 Acquisition of Kota Kasablanka Superblock in CBD Jakarta. 2012 Completed four condos, two offices and opened Kota Kasablanka mall with occupancy rate of 94%. 2013 Acquired 33% ownership of Usada Insani Hospital and 45% of Simatupang land area of 4.2ha in South Jakarta. Also, started the development of Grand Pakuwon Township. 2014 Acquired 67.1% shares in Pakuwon Permai. Issuance of Senior Unsecured Notes which will mature in 2019, amounted to USD200mn with interest rate of 7.125%. Increased shares ownership in a JV Company for Simatupang project (4.2 ha land) from 45% to 70%. 2015 Opening of Ascott Waterplace Surabaya in May 2015. Tunjungan Plaza retail mall phase V Surabaya and Sheraton Grand Jakarta Gandaria City Hotel in October 2015. 2017 Opening of Pakuwon Mall Phase 2 & 3 in February 2017 and Tunjungan Plaza 6 in September 2017. Refinanced USD200mn of Senior Unsecured Notes with USD250mn of 5% due in 2024. 2018 Gradual hand over of phase 2 of Kota Kasablanka condominiums (Angelo and Bella), Anderson apartment at Pakuwon Mall Superblock and One Icon apartment at Tunjungan City Superblock, Surabaya. Source: Company data.
Table 12: Company shareholders Shareholders % PT Pakuwon Arthaniaga 68.68% Alexander Tedja 0.02% Richard Adisastra 0.00% Public 31.30% 100.00% Source: Company data. As of 31 Dec 2018.
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Business divisions Pakuwon Jati classifies its business into three revenue generating group: Commercial, Hospitality and Real Estate. Real estate remain the biggest revenue contributor, albeit revenue from its commercial business continue to catch up and contributes >40% to its revenue.
Table 13: PWON: Major business divisions Business division Portfolio Products Commercial Retail shopping centers Space rental Office leasing Service charge Serviced apartments Serviced apartments Others Hospitality Hotels Hotel rooms revenue Hotel F&B revenue Others Real estate High rise Pakuwon city and lots Landed residence development Grand Pakuwon land lots Condominium Apartment Housing Office Source: Company data.
Table 14: PWON: Total land bank of 451.7 ha Land under Additional land Total land bank Location Project development bank (ha) South Jakarta Kota Kasablanka 2.7 3.8 6.5 Gandaria City 1.9 1.9 Simpatupang land bank 4.5 4.5 West Jakarta Daan Mogot land bank 11 11 Greater Jakarta Bekasi land bank 3.6 3.6 Central Surabaya Tunjungan City 1.1 2.1 3.2 East Surabaya Pakuwon City Township 1 211.1 212.1 Outside Pakuwon City 21.5 21.5 West Surabaya Grand Pakuwon Township 172.4 172.4 Pakuwon Mall 3.3 2.9 6.2 Royal Plaza 1.8 1.8 Outside Grand Pakuwon 6.9 6.9 Total Land Bank (ha) 451.6 Source: Company data.
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Management team Table 15: Pakuwon Jati’s Board of Commissioners Name Age Title Background Alexander Tedja 73 President Commissioner Mr. Tedja has served as the President Commissioner of Pakuwon Jati since 1998. Prior to serving as the President Commissioner, Mr. Tedja served as the company's President Director from 1989-1998. Prior to Pakuwon Jati, Mr. Tedja had a career in film and movie division at PT Menara Mitra Cinema Corp, PT ISAE Film, and PT Pan Asiatic Film. Dr Dyah Pradnyaparamita Duarsa, MM, 60 Independent Commissioner Ms. Duarsa hold a Doctoral Degree in medical study from Udayana University. She Msi has served as an Independent Commissioner since 2009. Ms. Duarsa had previously served as Vice Lecturer at the Faculty of Medicine of Udayana University where she has been a lecturer since 1985. Ir Richard Adisastra 65 Commissioner Mr. Adisastra holds a Bachelor’s Degree in Civil Engineering from North Sumatra University, Medan. He joined the company in 1984 and served as the company's President Director from 2005-2016. Mr. Adisastra was appointed to be Commissioner in 2016. Prior to Pakuwon Jati, Mr. Adisastra served at PT Cremona Mulia from 1975-1977
Source: Company data.
Table 16: Pakuwon Jati's Board of Directors Name Age Title Background A. Stefanus Ridwan S. 68 President Director Mr. Ridwan was appointed as President Director in 2016. Prior to that, he served as the Company's Director from 2007-2016. He has also served as Director of PT Pakuwon Sentosa Abadi since 2000 and PT Permata Berlian Realty since 2003. Mr. Ridwan is also Head of Indonesian Association of Shopping Center Management. Drs. Minarto 52 Independent Director Mr. Minarto serves as Company's Director since 2005. Prior to that, he was the Finance and Administration Manager for Dwi Satya Utama Group from 1991-1995 and Finance Director of PT Keramik Diamond from 2000-2004. Mr. Minarto holds a Bachelor Degree in Economics from Merdeka University, Malang and MBA degree from University of Wales. Wong Boon Siew Ivy 51 Director Ms. Ivy has served as Company's Director since 2010. Prior to that, she was the Marketing Director of Jakarta Land Management. She holds a Bachelor of Arts degree from University of London. Eiffel Tedja 43 Director Mr. Tedja served as the Company’s Director since 2016. He had previously been an analyst for Platinum Securities Hong Kong and part of the Corporate Finance team in Mahanusa Capital Jakarta. He graduated from University of Pennsylvania with a Bachelor of Science Degree. Sutandi Purnomosidi 52 Director Mr. Purnomosidi has been the Company's Director since 2013. Prior to that, he was a Financial Consultant at PT South East Asia Bank from 1993-1995, Deputy Center Manager for Procon Indah from 1995-1996, Deputy Center Manager at PT Summarecon Agung Tbk from 1996-1998 and Center Manager for Kelapa Gading Mall from 1998-2001. He holds a Bachelor's Degree in Career Business College, Darlinghurst, Sydney, Australia. Dra. Lauw, Syane Wahyuni Loekito 51 Director Ms. Loekito was appointed as the Company's Director in 2016. She previously served as Commissioner of PT Pakuwon Darma from 2008-2013. She has also served as Director of PT Pakuwon Darma since 2013 and Director of PT Artisan Surya Kreasi since 2013. Moreover, she serves as Commissioner of PT Bumi Pranata Laksana since 2010 and PT Bina Persada Lestari since 2016. Ms. Loekito holds a Bachelor's Degree in Economics from University of Surabaya.
Source: Company data.
37 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Investment Thesis, Valuation and Risks Pakuwon (Overweight; Price Target: Rp630) Investment Thesis We have an Overweight rating on Pakuwon Jati and it’s our preferred pick within the Indonesia property space. Our positive view on the company is premised on: 1) Strong recurring income revenue profile with 50% contribution coming from Malls and Offices, which should see a faster recovery post the COVID-19 peak as compared to the property development presales segment. 2) Strongest balance sheet profile vs peers with <5% net gearing as per 2019 and going into a net cash position in 2020. 3) Expansion to Bekasi City with the new superblock project, tapping into a fast-growing region with the most exposure to industrial estates (potential beneficiaries of rising FDI flow) and infrastructure upgrade from LRT (Light Rail Train) development. Pakuwon is known as the pioneer of superblock property development (Malls, Offices, Hotels, Apartments), with well-known established projects such as Kota Kasablanka and Gandaria City in Jakarta and Tunjungan Plaza in Surabaya.
Valuation We use a SOTP (Sum of the Parts) valuation methodology to derive the price target of Rp630. We use a NAV approach to value PWON's existing landbank for property development, based on its respective land prices in respective locations. We use a cap rate of 8.5% with a long term growth rate of 4.0% to value its recurring income business. We then use an implied discount to total NAV of 30%, based on 0.5 SD above its 10-year historical mean, which we believe is justified, given the current stage of re-opening of the economy post COVID-19 and also taking into account PWON’s strong recurring income business and balance sheet strength. Our PT implies 13.5x 2021E P/E multiple and 1.4x PBV.
Risks to Rating and Price Target Downside risks to our rating and price target include: 1) Macro economic downturn, which will likely lead to slower demand for property purchase in Indonesia, 2) Weakening rupiah, which will increase dollar borrowing cost and create bottom line volatility from FX losses, and also increase the cost of property development construction, 3) Rising interest rate, which would increase borrowing costs and mortgage rates, 4) Political instability reducing demand to purchase high ticket items like property, especially for the non-first home buyers (investors), 5) Regulatory risks, which include mortgage LTV tightening and property taxes.
38 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Pakuwon: Summary of Financials Income Statement FY18A FY19A FY20E FY21E FY22E Cash Flow Statement FY18A FY19A FY20E FY21E FY22E Revenue 7,081 7,202 5,689 6,373 7,320 Cash flow from operating activities 2,365 1,770 2,714 2,703 3,587 COGS (2,580) (2,643) (1,877) (2,208) (2,713) o/w Depreciation & amortization 450 502 414 449 472 Net property income - - - - - o/w Changes in working capital (1,019) (1,742) 128 (199) 280 Adj. EBITDA 3,928 3,968 3,005 3,269 3,660 D&A (450) (502) (414) (449) (472) Cash flow from investing activities (788) (886) (1,380) (1,514) (2,460) Adj. EBIT 3,479 3,467 2,590 2,820 3,187 o/w Capital expenditure (714) (709) (1,700) (1,472) (2,384) Revaluation gains/(losses) - - - - - as % of sales 10.1% 9.8% 29.9% 23.1% 32.6% Net Interest (36) 53 (50) 50 122 Adj. PBT 3,434 3,505 2,540 2,870 3,309 Cash flow from financing activities (489) (1,046) (154) (863) (291) Tax (410) (421) (369) (417) (475) o/w Dividends paid (288) (337) (352) (268) (291) Minority Interest (284) (520) (100) (206) (133) o/w Shares issued/(repurchased) 0 0 0 0 0 Adj. Net Income 2,543 2,720 2,071 2,247 2,702 o/w Net debt issued/(repaid) (94) (652) 198 (595) 0 Distributable profit - - - - - Net change in cash 1,054 (147) 1,180 326 836 Funds from operations (FFO) - - - - - Adjusted funds from operations (AFFO) - - - - - Adj. Free cash flow to firm 1,684 1,017 1,057 1,188 1,098 y/y Growth 7.8% (39.6%) 3.9% 12.4% (7.6%) Reported EPS 52.80 56.47 43.01 46.66 56.11 Adj. EPS 52.80 56.47 43.01 46.66 56.11 Valuation FY18A FY19A FY20E FY21E FY22E P/FFO (x) - - - - - FFO per share - - - - - P/AFFO (x) - - - - - Payout ratio (x) - - - - - P/E (x) 8.0 7.4 9.8 9.0 7.5 AFFO per share - - - - - P/BV (x) 1.3 1.1 1.0 0.9 0.8 Payout ratio (x) - - - - - EV/EBITDA (x) 7.0 7.4 10.3 10.1 9.9 Dividend Yield 1.4% 1.7% 1.7% 1.3% 1.4% DPS 6.00 7.00 7.31 5.57 6.04 Shares outstanding 48,160 48,160 48,160 48,160 48,160 Balance Sheet FY18A FY19A FY20E FY21E FY22E Ratio Analysis FY18A FY19A FY20E FY21E FY22E Cash and cash equivalents 4,460 4,313 5,493 5,819 6,655 NOI margin - - - - - Accounts receivable 414 934 738 827 950 EBITDA margin 55.5% 55.1% 52.8% 51.3% 50.0% Other current assets 4,599 4,395 4,674 5,152 5,666 EBIT margin 49.1% 48.1% 45.5% 44.2% 43.5% Current assets 9,473 9,643 10,906 11,799 13,271 Net profit margin 35.9% 37.8% 36.4% 35.3% 36.9% PP&E 3,976 4,754 4,990 5,807 6,819 FFO margin - - - - - Investment properties - - - - - LT investments 380 513 513 513 513 ROE 22.2% 19.7% 13.1% 12.7% 13.6% Other non current assets 11,189 11,186 11,813 12,019 12,918 ROA 10.5% 10.6% 7.6% 7.7% 8.5% Total assets 25,018 26,095 28,221 30,138 33,521 ROCE 18.1% 16.1% 10.7% 10.8% 11.2% Net debt/Equity 0.1 0.0 NM NM NM Short term borrowings 647 912 0 0 0 Net debt/EBITDA 0.3 0.1 NM NM NM Payables 296 334 334 334 334 Other short term liabilities 3,154 2,127 2,182 2,345 2,765 Sales/Assets (x) 29.3% 28.2% 20.9% 21.8% 23.0% Current liabilities 4,096 3,373 2,516 2,679 3,099 Assets/Equity (x) 2.1 1.9 1.7 1.7 1.6 Long-term debt 4,934 3,885 4,995 4,400 4,400 Interest cover (x) 109.2 NM 60.1 NM NM Other long term liabilities 676 742 796 959 1,379 Operating leverage 99.9% (19.8%) 120.3% 73.7% 87.6% Total liabilities 9,706 8,000 8,307 8,038 8,878 Debt/Investment properties - - - - - Tax rate 11.9% 12.0% 14.5% 14.5% 14.3% Shareholders' equity 12,596 14,971 16,690 18,669 21,080 Minority interests 2,716 3,124 3,224 3,430 3,563 Revenue y/y Growth 23.8% 1.7% (21.0%) 12.0% 14.9% Total liabilities & equity 25,018 26,095 28,222 30,138 33,522 EBITDA y/y Growth 23.2% 1.0% (24.3%) 8.8% 11.9% EPS y/y Growth 35.8% 6.9% (23.8%) 8.5% 20.2% BVPS 317.94 375.74 413.51 458.88 511.70 y/y Growth 19.7% 18.2% 10.1% 11.0% 11.5% Net debt/(cash) 1,120 483 (498) (1,419) (2,255) Source: Company reports and J.P. Morgan estimates. Note: Rp in billions (except per-share data).Fiscal year ends Dec. o/w - out of which
39 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Bumi Serpong Damai Neutral Assume coverage at Neutral: Big in landbank but higher BSDE.JK,BSDE IJ concentration risk Price (08 Jul 20): Rp775 Neutral on Bumi Serpong Damai. We are assuming coverage on Bumi Serpong ▼ Price Target (Dec-21): Rp830 Damai (BSDE IJ) with a Neutral rating and price target of Rp830, implying Prior (Jun-20): Rp1,500 <10% upside from the current level. We believe most of the bad news on the Indonesia back of COVID-19 is largely priced in for the Indonesia property sector, Head of Indonesia Research & including BSDE. Nonetheless, we see bigger structural risk for BSDE going Strategy forward given the higher concentration risk of its property development portfolio, AC Henry Wibowo with the majority in BSD City, Serpong, where land ASP growth is stagnating (622-1) 5291 8526 post the big increase over the past decade. Furthermore, BSDE also has the [email protected] Bloomberg JPMA HWIBOWO
40 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Price Performance Summary Investment Thesis and Valuation Investment Thesis: We have a Neutral rating on BSDE with Price Target of Rp830. We believe most of the bad news on the back of COVID-19 is largely priced in for the Indonesia property sector, including BSDE. Nonetheless, we see bigger structural risk for BSDE going forward given the higher concentration risk on its property development portfolio, whereby majority is in BSD City, Serpong, whereby land ASP growth is getting saturated post the big increase in the past decade. Furthermore, BSDE also has the biggest debt YTD 1m 3m 12m within our coverage, standing at Rp19.3tr (USD1.3bn) as per Abs -38.2% -9.9% -3.1% -47.1% 1Q20, whereby c.60% of that is in USD. Rel -18.8% -10.0% -12.8% -27.0% Company Data Valuation: We derive our PT of Rp830 for BSDE using Shares O/S (mn) 19,247 SOTP approach to sum the NAV from property development 52-week range (Rp) 1,545-585 and recurring income businesses. We use WACC of 13% to Market cap ($ bn) 1.03 derive the NPV of future cash flow from the property Exchange rate 14,440.43 Free float(%) 45.3% development business, while using blended 9% cap rate with 3M - Avg daily vol (mn) 57.93 4% long term growth to value Recurring Income business. 3M - Avg daily val ($ mn) 2.9 We arrive to Dec-21 total NAV of Rp1835 per share. To Volatility (90 Day) 87 Index JCI derive our price target, we then apply a 55% discount to the BBG BUY|HOLD|SELL 21|4|0 NAV, i.e. around -1.0 SD of its 10-year mean level, which we believe is justified, given BSDE's lower recurring income Key Metrics (FYE Dec) business contribution, higher concentration risk of property Rp in billions FY19A FY20E FY21E FY22E development site, and bigger debt exposure. Our PT of Financial Estimates Revenue 7,085 6,415 7,353 8,021 Rp830 implies 7.4x 2021F PER and 0.4x PBV. Adj. EBITDA 3,152 3,172 3,479 3,792 Adj. EBIT 2,793 2,817 3,104 3,396 Performance Drivers Adj. net income 2,791 1,764 2,149 2,343 Adj. EPS 145.03 91.64 111.63 121.71 BBG EPS 128.66 82.97 95.50 91.55 Cashflow from operations 1,539 3,518 3,125 2,760 FCFF 479 2,321 1,812 1,491 Margins and Growth Revenue growth 6.9% (9.5%) 14.6% 9.1% EBITDA margin 44.5% 49.4% 47.3% 47.3% EBITDA growth 11.4% 0.6% 9.7% 9.0% EBIT margin 39.4% 43.9% 42.2% 42.3% Net margin 39.4% 27.5% 29.2% 29.2% Adj. EPS growth 115.7% (36.8%) 21.8% 9.0% Ratios Adj. tax rate 8.7% 11.0% 11.2% 11.1% Interest cover 5.4 4.4 5.0 5.5 Net debt/Equity 0.2 0.1 0.1 0.1 Net debt/EBITDA 2.1 1.6 1.2 1.0 ROCE 6.2% 5.8% 6.0% 6.2% ROE 10.1% 5.9% 6.7% 6.9% Valuation FCFF yield 3.2% 15.6% 12.1% 10.0% Dividend yield 0.0% 0.0% 0.0% 2.9% EV/EBITDA 14.6 14.1 12.8 12.0 Adj. P/E 5.3 8.5 6.9 6.4
Source: J.P. Morgan Quantitative and Derivatives Strategy for Performance Drivers; company data, Bloomberg and J.P. Morgan estimates for all other tables.
41 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Bumi Serpong Damai (BSDE IJ) We are assuming coverage on Bumi Serpong Damai (BSDE IJ) with a Neutral rating and price target of Rp830, implying <10% from the current level. We believe most of the bad news on the back of COVID-19 is largely priced in for the Indonesia property sector, including BSDE. Nonetheless, we see bigger structural risk for BSDE going forward given the higher concentration risk of its property development portfolio, with the majority in BSD City, Serpong, where land ASP growth is stagnating post the big increase over the past decade. Furthermore, BSDE also has the biggest debt within our coverage, standing at Rp19.3tr (USD1.3bn) as per 1Q20, with c.60% of that in USD. The volatility of the rupiah will translate to volatile EPS as forex gain/loss will fluctuate, especially with the majority of the foreign debt unhedged.
Figure 38: BSDE: 1Q20 marketing sales amounted to 25% of 2020 pre-COVID target (in Rpbn) 8,000 7,000 1,000 6,000 5,000 2,000 4,000 3,000 2,000 4,200 734 1,000 1,059 0 1Q20 2020 Target Residential Commercial JV land lot
Source: Company data.
Figure 39: BSDE targets Rp7.2tn for 2020 marketing sales (in Rpbn)
8,000 7,200 5,748 5,683 6,000 5,257 4,691 4,000
2,000
0 2016 2017 2018 2019 2020E Residential (landed houses) Commercial JV Land lot
Source: Company data.
42 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Figure 40: BSDE's net gearing level is relatively low vs. Indo Property peers 0.25 0.22 0.20 0.19 0.19 0.19 0.20 0.20 0.17 0.18 0.15 0.15 0.12 0.12
0.10 0.09
0.05
0.00 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Source: Company data.
Management guidance amid COVID-19 Presales impact BSDE reported a good 1Q20 presales number (excl. land plots), totaling Rp1.8tn, +41% YoY. However, the company is not able to launch anything in 2Q20 and still expects to ramp up presales in 3Q20. However, if the current situation prolongs into Jun/Jul or towards the end of the year, which would hinder the company from launching anything, it would have to revise its presales target. Any change in guidance would likely be announced in July as the company continues to assess the situation. Unlike its peers, BSDE has voluntarily stopped construction to prevent the spread of COVID-19. Construction delays will extend timelines for handover to customers and also delay revenue recognition.
Recurring income impact BSDE malls were largely closed during the COVID-19 lockdown period from April to May. Essential services were still allowed to open, such as supermarkets which make up c.20% of each mall tenancy. During the closures, service fees could be partially waived, but not entirely, given that building management was still on standby with security and parking lots remained operational, too. Recurring income contributes c.25% to overall revenue.
Debt exposure and hedging BSDE has USD bonds debt amounting to US$870mn, with a portion due in 2021; this bond has a call feature and the company plans to exercise the call to partially reduce the debt. BSDE’s blended cost of financing is 7.3%.
Figure 41: Currency risk: BSDE has Rp4.1tn of USD bonds debt due in 2021 (in Rpbn) 6,000 5,000 4,000 4,140 3,000 3,531 2,000 1,960 62 1,000 369 625 369 581 944 0 Up to 2020 2021 2022 2023 2024 IDR-Bank loans IDR -Bonds USD-Bonds Source: Company data.
43 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
1Q20 results BSDE booked in 1Q20 revenue of Rp1.5tr, down -8% YoY. Property development sales declined 5% while recurring income business fell 18% YoY. Operating profit stood at Rp566bn in 1Q20, down -19% YoY, while PATMI reached a mere Rp260bn, down -58% YoY
Table 17: BSDE: 1Q20 financial results (in Rpbn) 1Q19 2Q19 3Q19 4Q19 1Q20 QoQ YoY Revenues 1,630 1,972 1,629 1,854 1,496 -19% -8% Marketing Sales 1,200 1,591 1,235 1,333 1,143 -14% -5% Land and buildings 1,133 1,457 1,157 1,261 1,031 -18% -9% Land and strata title 67 134 78 72 112 55% 67% Recurring Income 430 380 394 521 353 -32% -18% Rental 299 246 252 246 227 -8% -24% Construction - - - 121 - Hotel 14 15 17 22 12 -47% -16% Recreation Area 15 19 15 19 7 -61% -51% Building Management 95 90 96 103 99 -3% 5% Others 8 11 14 11 7 -32% -4% Cost of Revenue 407 548 533 530 453 -15% 11% Gross Profit 1,223 1,424 1,096 1,324 1,043 -21% -15% SG&A 451 575 676 571 206 -64% -54% Final Tax 72 66 57 68 271 301% 274% Operating Profit 699 782 363 686 566 -17% -19% Interest Expense (240) (287) (243) (273) (314) 15% 31% FX gain / (loss) (30) (28) 1 (17) 52 Associate / JV 90 48 25 1 8 Others income/(expense) 201 1,023 124 241 1 -100% -100% Profit Before Income Tax 720 1,538 270 638 312 -51% -57% Income Tax (4) (1) (1) (29) (4) Extra ordinaries - - - - - Minority Interest (97) (63) (51) (128) (49) -62% -50% Attributable Profit 618 1,474 218 481 260 -46% -58% Source: Company data.
44 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Valuation rationale We derive our PT of Rp830 for BSDE using an SOTP approach to sum the NAV from property development and recurring income businesses. We use a WACC of 13% to derive the NPV of future cash flow from the property development business, while using a blended 9% cap rate with 4% long term growth to value recurring income businesses. We arrive at Dec-21 total NAV of Rp1,835 per share. To derive our price target, we then apply a 55% discount to the NAV, i.e. around -1.0 SD of its 10-year mean level, which we believe is justified given BSDE's lower recurring income business contribution, higher concentration risk for property development, and bigger debt exposure. Our PT of Rp830 implies 7.4x 2021F PER and 0.4x PBV.
Table 18: BSDE - NAV valuation BSDE Rp bn FY19 FY20E FY21E Development Properties 40,922 39,349 38,894 Investment Properties 6,880 7,020 7,316 Others (1,679) (1,768) (1,766) Gross Asset Value 46,122 44,601 44,443 Net Cash (debt) + minority (10,945) (9,906) (9,129) NAV 35,177 34,695 35,314 No of Share (bn) 19.2 19.2 19.2 NAV per share (Rp) 1,828 1,803 1,835 Growth YoY -1% 2%
Gross NAV by segment Development Properties 89% 88% 87% Low Rise 76% 75% 75% High Rise 13% 13% 12% Investment Properties 15% 16% 17% Office 6% 6% 6% Retail 7% 7% 8% Hotels 3% 3% 3%
PT Discount to NAV -55% Price Target (Rp) 830 Current Price (Rp, 8 July 2020) 775 Upside / Downside 7% Rating N Current Disc to NAV -58% Source: J.P. Morgan estimates. Priced as of 8 July 2020.
45 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Company profile Bumi Serpong Damai was founded in 1984 on a self-sufficient city concept, and has since established itself as a leading township developer. The company is part of the Sinar Mas Group, a flagship project under Sinar Mas Land. Its key projects include BSD City, Kota Wisata, Kita Bunga and ITC Superblok. As of 2018, PT Paraga Artamida was the company's biggest single shareholder.
Table 19: Company milestones - PT Bumi Serpong Damai (BSDE IJ) 1984-1989 Established on January 16, 1984 by the founding shareholders The self-sufficient city concept started operation 1992-1999 Damai Indah Golf started operation Toll Road Serpong-Pondok Aren started operation 2003-2005 Issuance of the BSDE I Bonds amounting to ISDR250bn Toll Road Jakarta-Serpong started operation ITC BSD started operation Launched a new concept of housing development for upper and middle-class segments 2006-2007 BSD Junction started operation Ocean Park started operation Issuance of the BSDE II Bonds amounting to Rp600bn 2008-2009 Initial Public Offering in Indonesia Stock Exchange New marketing office in BSD City, Phase II started operation 2010-2012 Jakarta Outer Ring Road (JORR) Section W-1 started operation Rights Issue I Issuance of the Shelf Registered BSDE Bond Phase I Year 2012 amounting to Rp1tn 2013 Issuance of the Shelf Registered BSDE Bond Phase I of the Year 2013 amounting to Rp1.75tn Plaza BII changed its name to Sinar Mas Land Plaza Jakarta Acquired 8.23% shares of PT Plaza Indonesia Realty TBK (PLIN) Acquired 5.1 ha land bank in Rasuna Epicentrum (CBD Area) Strategic alliances with Hongkong Land and AEON Mall 2014 Acquired retail space (strata title) Epicentrum Walk in the area of Rasuna Epicentrum (CBD area) Grand opening of The Breeze Increased share ownership representing 25.99% of PLIN Implementations of the capital increase without pre-emptive rights amounting to 5% 2015 Re-enactment of the capital increase without pre-emptive rights by 5% Issuance of the Senior Notes through Subsidiaries, Global Prime Capital amounting to USD225mn Grand opening Go!Wet Waterpark, Grand Wisata Bekasi Grand opening AEON Mall Grand opening of Indonesian Convention Exhibition (ICE) BSD City Grand opening of BSD Green Office Park 6 2016 Grand Opening of Courts BSD City Issuance of the Shelf-Registered Bonds II BSD Phase I in 2016 amounting to Rp650bn Tender Offer of Senior Bonds in 2020 amounting to USD146.6mn and the issuance of Senior Notes 2023 amounting to USD200mn Groundbreaking of 30km toll road Serpong-Balaraja construction project Grand opening of QBig BSD City 2017 Issuance of the Senior Notes 2023 amounting to USD70mn Increased share ownership in PLIN, thus the company's ownership in PLIN throughout 2017 amounted to 46.78% Acquired strata title units with total area of 36,874sqm, which are part of the property units in SinarMas MSIG Tower, located on several floors Acquired strata title units with total area of 35,989sqm, which are part of the property units in SinarMas MSIG Tower, located on several floors 2018 Issuance of the Senior Notes 2021 amounting to USD300mn Acquired 135h floor of Bakrie Tower, office area in the area of Rasuna Epicentrum (CBD area) Repayment of the Shelf Registered BSDE Bond Phase I of the Year 2013 amounting to Rp1.75tn Buyback 257,970,700 shares Source: Company data.
Table 20: Company shareholders as of 31 Dec 2018 - PT Bumi Serpong Damai Company shareholders % PT Paraga Artamida 26.57% PT Ekacentra Usahamaju 25.01% Treasury Stock 1.34% Public 47.08% 100.00% Source: Company data.
46 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Business divisions Bumi Serpong Damai classifies its business into two revenue generating categories: sales development and recurring income. Sales development is the company's biggest revenue contributor. BSDE’s biggest land bank is in Serpong area as of end-2019.
Table 21: BSDE's major business divisions Portfolio Products Sales Development Revenue City & Urban Development Landed residential Gated / Cluster Residential Revenue Shop-houses Vertical Residential Industrial estate Commercial lots Apartments International trade center Recurring Revenue Office Buildings Shopping mall Malls and Superblocks Office building Hotels & Leisure Estate management Hotel Convention & exhibition Source: Company data.
Table 22: BSDE land bank breakdown as of 31 Dec 2018 Location Land area (sqm) Value (in Rpbn) BSD City (Bogor, Surabaya, and Tangerang) 21,873,842 5,452 Surabaya, Benowo 4,295,621 1,326 Roxy II, Roxy, Central Jakarta 173,989 1,125 Jakarta, Central Jakarta 25,070 801 Kota Wisata, Cibubur 937,180 755 Grand Wisata, Bekasi 5,083,622 696 Others 6,892,603 1,760 Total 39,281,927 11,913 Source: Company data.
47 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Management team Table 23: Bumi Serpong Damai's Board of Commissioners profile Name Age Title Background Muktar Widjaja 64 President Mr Widjaja has been the Company's President Commissioner since 2007 and Member of the Nomination and Commissioner Remuneration Committee since 2015. He has hold various Directorships within the Sinar Mas Group including Commissioner of PT Sinar Mas Multiartha and PT Indah Kiat Pulp & Paper, Director of PT Pabrik Kertas Tjiwi Kimia and PT Duti Pertiwi and Vice President Director of PT Indah Kiat Pulp & Paper, PT Duti Pertiwi and PT Bumi Serpong Damai. He holds a Bachelor’s Degree in Business Administration from University of Concordia, Canada in 1976. Teky Mailoa 55 Vice President Mr Mailoa has served as the Company's Commissioner since 2013. He started his career in the USA from 1990- Commissioner 1993 before joining PT Duta Pertiwi as Treasury/Corporate Planning Deputy Director from 1993-1995. He has since served in various roles within the Sinar Mas Group including Director of PT Bumi Serpong Damai from 2003-2010 and President Director of PT Puradelta Lestari from 2013-2016. He is also currently serving as the President Director of PT Duta Pertiwi and Vice President Commissioner of PT Puradelta Lestari. Mr Mailoa holds a Bachelor's Degree in Civil Engineering from Trisakti University in 1987 and Master in Structure and Construction Management, University of Wisconsin, USA in 1990. Yoseph Franciscus Bonang 69 Commissioner Mr Bonang has served as the Company’s Commissioner since 2015. He previously served as Director of PT Hotel Istana Bukit Indah from 1995-2015, Director of PT Australia Indonesia Milk Factories (Indomilk) from 1989- 1990, and Director of PT Indomarco Prismatama from 1986-1989. He is also currently serving as Director in several companies including Salim Group, PT Adichandra Grahawisata and PT Indorealty Lestari. He holds a Bachelor's Degree in Psychology from University of Indonesia. Teddy Pawitra 83 Independent Mr Pawitra has served as Company’s Independent Commissioner since 2008 and he is also the Chairman of the Commissioner Nomination and Remuneration Committee. He started his career in accounting firm Drs. Utomo & Mulia. Mr Pawitra had previously served as President Director of various companies including PT Gading Mas Surabaya, PT German Motors Manufacturing and PT Lima Satrya Nirwana. He has also served as Chairman of the Audit Committee of PT Sinar Mas Agro Resources and Technology (SMART) from 2002-2010 and PT Duta Pertiwi from 2003-2011. Mr Prawiro holds a Bachelor's Degree in General and Business Economics from Airlangga University and an MBA from University of Minnesota, USA. He is also an Extraordinary Professor of Master Program in Management from the Faculty of Economics and Business at the University of Indonesia. Susiyati Bambang Hirawan 72 Independent Ms Hirawan has been the company's Independent Commissioner since 2007 and Chairwoman of Audit Commissioner Committee since 2013. She was the Head of Regional Financial Analysis Bureau for Department of Finance of the Republic of Indonesia from 1992-1998 and had later served in various role in public service including Deputy in Economic Sector to the Secretary of the Vice President of the Republic of Indonesia from 2000-2007 and Commissioner of PT Danareksa from 2004-2008. She obtained her Bachelor's Degree in Economics from University of Indonesia and later obtained her Master’s and Doctoral degrees from University of Birmingham. She has a Professorship from Faculty of Economics, University of Indonesia where she has been a lecturer since 1972. Source: Company data.
48 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Table 24: Bumi Serpong Damai's Board of Directors profile Name Age Title Background Fransiscus Xaverius RD. 65 President Mr Xaverius has been the company's President Director since 2013. He started his career in 1979 as the Civil Director Project Coordinator at PT Indulexco. He then became the Chief Engineering of PT Putra Satria Prima from 1986- 1991, General Manager of PT Paraga Artamida in 1992, Director of Engineering and Planning of PT Duta Pertiwi Tbk in 1994-2004, Director of PT Duta Pertiwi Tbk from 2004-2010, President Director of PT Duta Pertiwi Tbk from 2010-2013, Vice President Director of the company from 2010-2011, and company's Commissioner from 2011-2013. He obtained a Bachelor Degree in Civil Engineering from Universitas Parahyangan in 1981 and Bachelor's Degree in Civil Engineering, majoring in Highway Engineering from Bandung Institute of Technology in 1994 Petrus Kusuma 62 Director Mr Kusuma has been the company's Director since 2010. He was previously the company's Commissioner from 2004-2008 and then Director of PT Duta Pertiwi from 2004-2010. He graduated from Fach Hochschule Aachen, Germany in 1986. Syukur Lawigena 63 Director Mr Lawigena has been the company’s Director since 2010. He first joined the Sinar Mas Group in 1988 and became the Deputy Director of the company from 2003-2010. He obtained a Bachelor's Degree in Civil Engineering from Universitas Parahyangan in 1981. Lie Jani Harjanto 52 Director Ms Harjanto has been the company's Director since 2010 and is also the Vice President Director of PT Duta Pertiwi since 2016. She has been with the Sinar Mas Group since 1988 and has held various positions including Managing Director-Finance of Sinar Mar Forestry Division from 2001-2009, Managing Director-Finance of Sinar Mas Energy & Mining Division from 2009-2010 and President Director of PT Duta Pertiwi from 2013-2016. Liauw Herry Hendarta 51 Director Mr Hendarta has been the company's Director since 2011. He first joined the company in 1994 and became the Deputy Director of PT Duta Pertiwi from 2004-2009. He obtained a Bachelor's Degree in Civil Engineering from Universitas Parahyangan in 1991 and Master in Business Management from Asian Institute of Management, Philippines in 1994. Monik William 56 Independent Ms William has been the company's Independent Director since 2007. She was previously a Housing Project Director Manager in PT Duta Pertiwi from 1991-1992, Construction Manager of Mbassador Mall & Apartment from 1994- 1997, Project Manager of Hua Fung Garden at Zhu Hai China from 1998-1999, Project Manager at Harco Mas from 1999-2004 and Deputy Director at ITC Depok from 2004-2007. She holds a Bachelor's Degree in Civil Engineering from Bandung Institute of Technology in 1986. Source: Company data.
49 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Investment Thesis, Valuation and Risks
Bumi Serpong Damai (Neutral; Price Target: Rp830) Investment Thesis We have a Neutral rating on BSDE with a price target of Rp830. We believe most of the bad news on the back of COVID-19 is largely priced in for the Indonesia property sector, including BSDE. Nonetheless, we see bigger structural risk for BSDE going forward given the higher concentration risk on its property development portfolio, with the majority in BSD City, Serpong, where land ASP growth has stagnated post the big increase over the past decade. Furthermore, BSDE also has the biggest debt within our coverage, standing at Rp19.3tr (USD1.3bn) as per 1Q20, whereby c.60% of that is in USD. The volatility of the rupiah will translate to volatile EPS as forex gain/loss fluctuates, especially with the majority of the foreign debt unhedged.
Valuation We derive our PT of Rp830 for BSDE using an SOTP approach to sum the NAV from property development and recurring income businesses. We use a WACC of 13% to derive the NPV of future cash flow from the property development business, while using a blended 9% cap rate with 4% long term growth to value recurring income businesses. We arrive at Dec-21 total NAV of Rp1,835 per share. To derive our price target, we then apply a 55% discount to the NAV, i.e. around -1.0 SD of its 10-year mean level, which we believe is justified given BSDE's lower recurring income business contribution, higher concentration risk for property development, and bigger debt exposure. Our PT of Rp830 implies 7.4x 2021F PER and 0.4x PBV.
Risks to Rating and Price Target Upside risks: 1) Faster than expected recovery from COVID-19, 2) lower interest rate, 3) strengthening of rupiah, and 4) diversification into new cities to reduce the concentration risk of BSD City. Downside risks: 1) Slower than expected recovery from COVID-19, 2) higher interest rate, 3) weakening of rupiah, and 4) political instability.
50 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Bumi Serpong Damai: Summary of Financials Income Statement FY18A FY19A FY20E FY21E FY22E Cash Flow Statement FY18A FY19A FY20E FY21E FY22E Revenue 6,629 7,085 6,415 7,353 8,021 Cash flow from operating activities 1,091 1,539 3,518 3,125 2,760 COGS (1,483) (1,660) (1,214) (1,434) (1,634) o/w Depreciation & amortization 392 359 356 375 396 Net property income - - - - - o/w Changes in working capital 119 436 1,328 640 (12) Adj. EBITDA 2,829 3,152 3,172 3,479 3,792 D&A (392) (359) (356) (375) (396) Cash flow from investing activities (2,954) (2,402) (2,122) (2,135) (2,085) Adj. EBIT 2,438 2,793 2,817 3,104 3,396 o/w Capital expenditure (808) (1,591) (1,839) (1,932) (1,881) Revaluation gains/(losses) - - - - - as % of sales 12.2% 22.5% 28.7% 26.3% 23.5% Net Interest (526) (581) (721) (696) (689) Adj. PBT 2,033 3,429 2,383 2,658 2,971 Cash flow from financing activities 4,191 (369) 0 848 514 Tax (331) (298) (262) (297) (331) o/w Dividends paid 0 0 0 0 (430) Minority Interest (408) (339) (357) (213) (297) o/w Shares issued/(repurchased) (282) 1 0 0 0 Adj. Net Income 1,294 2,791 1,764 2,149 2,343 o/w Net debt issued/(repaid) 4,571 (256) 0 848 944 Distributable profit - - - - - Net change in cash 2,346 (1,279) 1,396 1,838 1,189 Funds from operations (FFO) - - - - - Adjusted funds from operations (AFFO) - - - - - Adj. Free cash flow to firm 725 479 2,321 1,812 1,491 y/y Growth (42.7%) (33.9%) 384.1% (21.9%) (17.7%) Reported EPS 67.22 145.03 91.64 111.63 121.71 Adj. EPS 67.22 145.03 91.64 111.63 121.71 Valuation FY18A FY19A FY20E FY21E FY22E P/FFO (x) - - - - - FFO per share - - - - - P/AFFO (x) - - - - - Payout ratio (x) - - - - - P/E (x) 11.5 5.3 8.5 6.9 6.4 AFFO per share - - - - - P/BV (x) 0.5 0.4 0.4 0.4 0.4 Payout ratio (x) - - - - - EV/EBITDA (x) 16.1 14.6 14.1 12.8 12.0 Dividend Yield 0.0% 0.0% 0.0% 0.0% 2.9% DPS 0.00 0.00 0.00 0.00 22.33 Shares outstanding 19,247 19,247 19,247 19,247 19,247 Balance Sheet FY18A FY19A FY20E FY21E FY22E Ratio Analysis FY18A FY19A FY20E FY21E FY22E Cash and cash equivalents 8,139 6,860 8,257 10,094 11,283 NOI margin - - - - - Accounts receivable 293 181 164 188 205 EBITDA margin 42.7% 44.5% 49.4% 47.3% 47.3% Other current assets 10,819 13,885 14,250 14,341 14,304 EBIT margin 36.8% 39.4% 43.9% 42.2% 42.3% Current assets 19,251 20,926 22,670 24,623 25,792 Net profit margin 19.5% 39.4% 27.5% 29.2% 29.2% PP&E 12,590 12,700 13,623 14,618 15,504 FFO margin - - - - - Investment properties - - - - - LT investments 12,167 12,557 12,624 12,853 13,330 ROE 5.0% 10.1% 5.9% 6.7% 6.9% Other non current assets 8,094 8,261 8,822 9,383 9,983 ROA 2.6% 5.2% 3.1% 3.6% 3.7% Total assets 52,101 54,445 57,739 61,477 64,608 ROCE 5.5% 6.2% 5.8% 6.0% 6.2% Net debt/Equity 0.2 0.2 0.1 0.1 0.1 Short term borrowings 820 641 641 681 726 Net debt/EBITDA 2.1 2.1 1.6 1.2 1.0 Payables 1,163 695 695 695 695 Other short term liabilities 4,248 4,823 5,326 5,553 5,543 Sales/Assets (x) 13.5% 13.3% 11.4% 12.3% 12.7% Current liabilities 6,231 6,159 6,662 6,929 6,965 Assets/Equity (x) 1.9 1.9 1.9 1.9 1.9 Long-term debt 13,131 12,766 12,766 13,574 14,472 Interest cover (x) 5.4 5.4 4.4 5.0 5.5 Other long term liabilities 2,452 1,971 2,642 2,944 2,931 Operating leverage 154.4% 211.7% (9.0%) 69.7% 103.9% Total liabilities 21,815 20,897 22,071 23,447 24,368 Debt/Investment properties - - - - - Tax rate 16.3% 8.7% 11.0% 11.2% 11.1% Shareholders' equity 26,110 29,149 30,913 33,062 34,975 Minority interests 4,177 4,398 4,755 4,968 5,265 Revenue y/y Growth (35.9%) 6.9% (9.5%) 14.6% 9.1% Total liabilities & equity 52,101 54,445 57,739 61,477 64,608 EBITDA y/y Growth (51.1%) 11.4% 0.6% 9.7% 9.0% EPS y/y Growth (73.7%) 115.7% (36.8%) 21.8% 9.0% BVPS 1,573.62 1,743.03 1,853.24 1,975.92 2,090.75 y/y Growth 3.7% 10.8% 6.3% 6.6% 5.8% Net debt/(cash) 5,812 6,547 5,150 4,160 3,915 Source: Company reports and J.P. Morgan estimates. Note: Rp in billions (except per-share data).Fiscal year ends Dec. o/w - out of which
51 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Ciputra Development Overweight Assume coverage at OW: Pan-Indonesia developer with CTRA.JK,CTRA IJ growing mass market segment Price (08 Jul 20): Rp640 Overweight Ciputra. We are assuming coverage on Ciputra Development ▼ Price Target (Dec-21): Rp1,000 (CTRA IJ) with an Overweight rating and price target of Rp1,000. We believe the Prior (Jun-20): Rp1,500 stock offers an attractive risk-reward profile at the current level as most of the Indonesia bad news from COVID-19 pandemic is largely priced in, especially ahead of the Head of Indonesia Research & re-opening of the economy as the lockdown is gradually relaxed. Our positive Strategy view on the company is premised on three primary reasons, namely: Henry Wibowo AC (622-1) 5291 8526 1) Pan-Indonesia presence with diversified property development from Greater [email protected] Jakarta Area, Greater Surabaya, Sulawesi, Sumatera, and beyond (33 cities), Bloomberg JPMA HWIBOWO
52 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Price Performance Summary Investment Thesis and Valuation Investment Thesis: We have an OW rating on Ciputra with price target of Rp1,000. We believe the stock offers an attractive risk-reward profile at the current level as most of the bad news from the COVID-19 pandemic is largely priced in, especially ahead of the re-opening of the economy from gradual relaxation of the lockdown. Our positive view on the company is premised on three primary factors, namely: 1) Pan-Indonesia presence with diversified property development. 2) Growing contribution from mass- YTD 1m 3m 12m market/middle class segment (Rp2bn ticket size and below), Abs -38.5% -16.9% 13.3% -42.1% which is majority first-home buyers. 3) Strong corporate Rel -19.1% -17.0% 3.6% -22.0% governance and management track record under the Ciputra Company Data family with prudent capital management (0.3x net debt to Shares O/S (mn) 18,560 equity in 1Q20) and minimal dollar debt exposure (c.85% of 52-week range (Rp) 1,335-394 debt in rupiah). Market cap ($ bn) 0.82 Exchange rate 14,440.43 Free float(%) 47.1% Valuation: We use an SOTP valuation approach to value 3M - Avg daily vol (mn) 49.60 CTRA. We use a WACC of 17% to derive the NPV of future 3M - Avg daily val ($ mn) 2.1 cash flows from the property development segment. We use a Volatility (90 Day) 85 Index JCI blended cap rate of 9.5% to derive its recurring income BBG BUY|HOLD|SELL 19|6|0 business with a long term growth rate of 4.0%. We then use a 45% discount to the sum of NAV, which is based on the Key Metrics (FYE Dec) mean level of the past 10 years. Rp in billions FY19A FY20E FY21E FY22E Financial Estimates Revenue 7,608 6,733 7,387 7,830 Performance Drivers Adj. EBITDA 2,479 2,167 2,332 2,383 Adj. EBIT 2,187 1,866 2,016 2,055 Adj. net income 1,158 976 1,052 1,079 Adj. EPS 62.39 52.59 56.68 58.12 BBG EPS 49.88 49.00 56.05 59.53 Cashflow from operations 980 1,595 1,202 1,761 FCFF 396 948 815 1,496 Margins and Growth Revenue growth (0.8%) (11.5%) 9.7% 6.0% EBITDA margin 32.6% 32.2% 31.6% 30.4% EBITDA growth 0.5% (12.6%) 7.6% 2.2% EBIT margin 28.7% 27.7% 27.3% 26.2% Net margin 15.2% 14.5% 14.2% 13.8% Adj. EPS growth (2.3%) (15.7%) 7.8% 2.5% Ratios Adj. tax rate 20.4% 20.0% 20.0% 20.0% Interest cover 4.4 4.2 4.2 4.2 Net debt/Equity 0.3 0.3 0.3 0.2 Net debt/EBITDA 2.0 2.4 2.2 1.8 ROCE 7.3% 6.1% 6.7% 6.8% ROE 7.8% 6.2% 6.4% 6.3% Valuation FCFF yield 3.3% 8.0% 6.9% 12.6% Dividend yield 2.0% 2.9% 2.5% 2.7% EV/EBITDA 14.1 17.5 16.7 17.2 Adj. P/E 10.3 12.2 11.3 11.0
Source: J.P. Morgan Quantitative and Derivatives Strategy for Performance Drivers; company data, Bloomberg and J.P. Morgan estimates for all other tables.
53 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Ciputra Development (CTRA IJ) We have an Overweight rating on CTRA with a price target of Rp1,000. We believe the stock offers an attractive risk-reward profile at the current level as most of the bad news from the COVID-19 pandemic is largely priced in, especially ahead of the re-opening of the economy from gradual relaxation the lockdown. Our positive view on the company is premised on three primary reasons, namely: 1) Pan-Indonesia presence with diversified property development from Greater Jakarta Area, Greater Surabaya, Sulawesi, Sumatera, and beyond (33 cities), allowing minimal concentration risk and ability to capture higher growth region outside the Tier-1 cities. 2) Growing contribution from mass-market/middle class segment (Rp2bn ticket size and below), which is majority first-home buyers who generally tend to have more resilient demand vs. investors. 3) Strong corporate governance and management track record under the Ciputra family, with prudent capital management (0.3x net debt to equity in 1Q20) and minimal dollar debt exposure (c.85% of debt in rupiah).
Figure 42: CTRA is targeting Rp6.7tn for 2020 marketing sales (in Rpbn) 10,000 7,640 8,000 6,672 6,362 6,131 6,000
4,000
2,000
0 2017 2018 2019 2020E Greater Jakarta Greater Surabaya Other java Sumatera Sulawesi Others
Source: Company data. Note: The 2020 number is the company target pre-COVID19; there is no update to guidance yet.
Figure 43: Bulk of 2020 marketing sales target will be contributed by houses and land lots (in Rpbn) 10,000 7,641 8,000 6,672 6,363 6,131 6,000
4,000
2,000
0 2017 2018 2019 2020E Houses + land lots Shophouses Apartment Office
Source: Company data. The 2020 number is the company target pre-COVID19; there is no update to guidance yet.
54 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Figure 44: Recurring revenue contributed ~23% to Ciputra's total revenue in 2018 Development revenue Recurring revenue Recurring as % of total revenue IDRtn 10.0 35% 27% 30% 8.0 24% 30% 25% 1.4 1.8 6.0 1.1 1.6 1.7 23% 20% 18% 18% 4.0 1.4 15% 6.1 5.9 5.2 5.1 10% 2.0 4.7 3.3 5% 0.0 0% 2014 2015 2016 2017 2018 9M19 Source: Company data.
Figure 45: CTRA: Presales geographical split Figure 46: CTRA: Presales breakdown by unit price Sumatra Others 100% 6% 7% 6% 9% 1% 16% 10% Sulawesi Greater 80% 24% 21% 12% 30% 29% Jakarta 26% 38% 60% 30% 21% 39% 24% 24% 40% Other Java 43% 17% 20% 34% 40% 36% 34%
0% Greater 2015 2016 2017 2018 2019 Surabaya 23%
Figure 47: CTRA: Net gearing level increased to 0.33x in 3Q19 0.40 0.34 0.35 0.32 0.32 0.33 0.31 0.30 0.28 0.28 0.30 0.26 0.24 0.25 0.21 0.20 0.15 0.10 0.05 0.00 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 Source: Company data.
55 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Management guidance on COVID-19 Presales impact CTRA booked decent presales growth of 2% in 1Q20. This was mainly booked in Jan and Feb as momentum dropped dramatically in March (around -50% MoM). The company warned of further declines in April and May as measures taken to contain the virus outbreak made it difficult to transact. Moreover, CTRA said it plans to revise down its 2020 presales target by about 20%, assuming that things are back to normal in 3Q and 4Q20; hence, we might see deeper cuts in the 2020 presales target.
On the other hand, the company has the longest backlog multiple when it comes to property development revenue. This backlog amounts to Rp13tn, equivalent to 2.4 years of property development revenue; peers are at 0.5-1.0x of revenue. This is assuming construction progress is inhibited and it can conduct handover transactions in order to enable revenue recognition.
Recurring income impact Recurring income is c.25% of total revenue, and mall rentals contribute c.40% to recurring income. CTRA's malls in Jakarta are still on reduced operating hours, and management has yet to decide whether to close them. Tenants have asked for reduced rental rates but the company has not engaged in this conversation as it said it is still assessing the situation. Note that tenants would not be required to pay for rental and service fee if mall is closed.
Hotels, which contributes c.25% to recurring income, has been the worst-hit segment by the pandemic, now running at single-digit occupancy, which could force the company to resort to layoffs. Hotels need minimum occupancy of 50-70% to break even. Office is the most resilient given office tenants have the least bargaining power to ask for rental discounts. The company has noted that in the past 2 decades, it has not encountered a situation so severe that it needed to close its malls or hotels.
Debt exposure and hedging As of Dec-19, the company's debt amounts to Rp9.3tn, of which there is a SGD150mn bond that is maturing in Sept-21. The bond itself is fully hedged at an SGDIDR of Rp12,500, cost of hedging is 4% and coupon is 4.85%. Most of its borrowings are project financing, meaning if a particular project gets severely impacted, it can ask for restructuring on the principal payment and banks are likely to be cooperative, especially in this environment.
Focus on balance sheet and cash flow At this stage, investors have looked past marketing sales and P/L to focus their analysis on B/S and C/F. Under the company’s stress test, it will be able to manage until early 2021, assuming: 1) no collection from this year's presales, and 2) 40-60% YoY decline in presales. The company expects a U-shaped recovery in 2021 as its base case.
56 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
1Q20 results summary Table 25: CTRA: 1Q20 financial results (in Rpbn) 1Q19 2Q19 3Q19 4Q19 1Q20 QoQ YoY Revenue 1,647 1,499 1,510 2,953 1,510 -49% -8% Development Income 1,199 1,058 1,016 2,405 1,057 -56% -12% Landed & Shop houses 878 675 694 1,631 780 -52% -11% Apartments 145 220 165 347 15 -96% -89% Office Towers 113 104 118 266 220 -17% 95% Land lots 63 59 39 161 41 -74% -34% Recurring Income 448 440 493 548 453 -17% 1% Shopping Centers 190 193 196 166 190 15% 0% Hotels 109 101 135 146 97 -33% -11% Hospitals 77 71 78 111 87 -21% 13% Office Towers 45 48 52 40 56 41% 27% Others 26 28 33 85 22 -74% -16% COGS 793 864 741 1,419 802 -44% 1% Gross Profit 854 635 769 1,534 708 -54% -17% SG&A (347) (390) (415) (485) (373) -23% 8% Other inc/(exp) 20 (3) 6 9 51 471% 156% Finance Cost (219) (217) (213) (263) (208) -21% -5% Finance Inc 47 58 55 129 61 -53% 29% JV/Associate (1) (2) (0) (7) 0 -104% -123% Profit Before Tax 355 82 202 917 240 -74% -32% Final & Income Tax (57) (59) (60) (96) (56) -42% -3% Extraordinary inc - - - - - Minority Interest (14) (9) (29) (72) (7) -91% -55% Attributable Profit 283 13 113 749 178 -76% -37% Source: Company data.
57 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Valuation rationale We use an SOTP approach to value CTRA. We use a WACC of 17% to derive the NPV of future cash flows from the property development segment. We use a blended cap rate of 9.5% to derive its recurring income business with long term growth rate of 4.0%. We then use a 45% discount to the sum of NAV, which is based on the mean level of the past 10 years. We believe this is justified given the current stage of the economy re-opening post the COVID-19 lockdown, and also taking into account Ciputra’s diversified pan-Indonesia development presence and strong corporate governance track record.
Table 26: CTRA – NAV breakdown CTRA Rp bn FY19 FY20E FY21E Development Properties 26,973 29,357 30,066 Investment Properties 8,047 8,605 8,914 Others Gross Asset Value 35,020 37,962 38,980 Net Cash (debt) + minority (4,938) (5,149) (5,075) NAV 30,082 32,814 33,906 No of Share (bn) 18.6 18.6 18.6 NAV per share (Rp) 1,621 1,768 1,827 Growth (YoY) 0% 9% 3%
Gross NAV by segment Development Properties 77% 77% 77% Low Rise 70% 70% 70% High Rise 7% 7% 7% Investment Properties 23% 23% 23% Office 3% 3% 3% Retail 15% 15% 16% Hotels 5% 4% 4%
PT Discount to NAV 45% Price Target (Rp) 1,000 Current Price (Rp, 8 July 2020) 640 Upside / Downside 63% Rating OW Current Disc to NAV -65% Source: J.P. Morgan estimates. Priced as of 8 July 2020.
58 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Company profile Ciputra Development was established in 1981 and listed on the Jakarta Stock Exchange in 1994. The company has developed ~76 projects including housing, apartments, shopping malls, hotels and offices in more than 33 major cities in Indonesia. Its notable projects include Ciputra World Jakarta, Ciputra World Surabaya, CitraGarden City Jakarta and CitraRaya Tangerang. As of 3Q19, Ciputra has a total landbank of >7,000ha, making it the biggest land bank owner among the domestic property names.
Figure 48: CTRA: Pan-Indonesia project portfolio
Source: Company data
59 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Table 27: Company milestones – PT Ciputra Development Establishment 1981 PT Citra Habitat Indonesia was established Growth 1984 CitraGarden City Jakarta, first residential project 1993 CitraLand Surabaya, first township project in Surabaya Ciputra Mall and Hotel Jakarta, first commercial project 1994 CitraRaya Tangerang, largest township development, covering area of 2,700ha IPO and listed on the Jakarta Stock Exchange (JSE) 1995 Issuance of Guaranteed Floating Rate Notes (FRN) of USD100mn 1996 Rights Issue I, Listed on Surabaya Stock Exchange, and Issuance of Rp150bn bonds Restructuring 1997 Economic crisis in Indonesia, led to debt restructuring process 1999 PT Ciputra Surya (CTRS) listed on JSE 2004 CitraGarden Lampung and CitraLand Banjarmasin, market business expansion to outer Java Expansion 2006 Issuance of 2,207,276,912 shares without pre-emptive rights for debt settlement, Rights Issue II, IPO of PT Ciputra Property Tbk (CTRP) and listed on IDX 2007 Established Ciputra World Surabaya 2008 Established Ciputra World Jakarta 2009 CitraLand Celebes Makassar, first project in Sulawesi 2011 Ciputra Hospital Tangerang, first healthcare project 2015 CitraLand City Losari Makassar, first reclamation residential project 2017 CitraPlaza Nagoya Batam, first mixed-used project in Sumatra 2018 CitraLand Palembang, largest CBD project in Palembang Source: Company data.
Table 28: Company shareholders Shareholders % PT Sang Pelopor 46.96% Public 53.04% Shares Ownership by Board of Commissioners and Directors Directors Harun Hajadi 0.08% Sutoto Yakobus 0.00% Nanik J Santoso 0.00% Tanan Herwandi Antonius 0.01% Tulus Santoso 0.00% Source: Company data. As of 2018.
60 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Business divisions Ciputra Development classifies its property business into two major categories: residential and commercial. Revenue from residential is through sale of real assets and commercial property generates recurring rental incomes. Residential sales is the main revenue contributor for the company.
Table 29: Ciputra’s main business divisions are residential and commercial property Business Divisions Portfolio Residential Land plots Residential houses Shop houses Apartments Strata title offices Commercial Property Rental of commercial centers Hotels Apartments Offices Hospitals Golf courses Water parks Source: Company data.
Table 30: CTRA's biggest land bank is in the Greater Jakarta area Project name Ownership scheme Gross land bank (in ha) Citra Raya Tangerang 100% 770 Citra Indah Jonggol 100% 191 Citra Garden City Jakarta 100% 119 New Project in Puri 100% 18 Citra Land Cibubur JV - 60% 84 Total Greater Jakarta 1,182 Citra Land Surabaya 100% 866 Citra Harmoni Sidoarjo 100% 73 Citra Garden Sidoarjo JV - 60% 11 Total Greater Surabaya 950 Citra Land Lampung 100% 28 Citra Land Palembang JV - 60% 109 Ciputra Beach Resort JV - 60% 57 Citra Land Pekanbaru JV - 60% 7 Citra Land NGK Jambi JV - 51% 2 Total Others 203 Total Land Bank 2,335 Source: Company data.
61 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Table 31: CTRA has rights to an additional 4.9k ha of landbank under its joint-operations schemes Joint Operation Project Development Plan (in ha) Citra Sentul Raya 114 Citra Lake Sawangan Depok 12 Total Greater Jakarta 126 The Taman Dayu Pandaan 600 Citra Land The Green Lake Surabaya 40 Citra Indah Sidoarjo 2 Total Greater Surabaya 642 Citra Maja Raya 1,200 Citra Land BSB City Semarang 100 Citra Grand Semarang 55 Citra Sun Garden Semarang 17 Citra Garden City Malang 100 Citra Garden BMW Cilegon 47 Citra Land Cirebon 45 Citra Land Puri Serang 43 Citra Garden Pekalongan 10 Citra Grand Mutiara Yogyakarta 9 Citra Sun Garden Yogyakarta 6 Total Java Ex-Jakarta Ex-Surabaya 1,632 Citra Raya Jambi 611 Citra Land Gama City Medan 123 Citra Land Botanical City Pangkalpinang 57 Citra AeroLink Batam 21 Citra Land Megah Batam 19 Citra Garden Pekan Baru 20 Total Sumatra 851 Citra Grand Senyiur City Samarinda 397 Citra Garden City Samarinda 100 Citra Land City Samarinda 93 Citra Mitra City Banjarbaru 172 Citra Land Banjarmasin 40 Citra Garden Banjarmasin 10 Citra Garden Aneka Pontianak 27 Citra City Balikpapan 9 Total Kalimantan 848 Citra Grand Galeson City Gowa 500 Citra Land City Losari Makassar 157 Citra Land Talassa City Makassar 69 Citra Land Celebes Makassar 30 Citra Garden Makassar 15 Citra Land Palu 17 Citra Land Kendari 15 Total Sulawesi 803 Total 4,902 Source: Company data.
62 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Management team Table 32: Board of Commissioners profile - PT Ciputra Development Name Age Title Background Dian Sumeler 87 Commissioner Ms. Sumeler has served as Commissioner since 1994. She also serves as Commissioner in several companies under the Ciputra Group. She graduated from Surabaya School of Pharmacy. Ms. Sumeler is actively involved in philanthropy through Ciputra Educational Foundation and Citra Kasih Foundation. Rina Ciputra Sastrawinata 63 Commissioner Ms. Sastrawinata was appointed as Commissioner in 2016. Prior to that, she served as Director of the company. She is also a President Director of Century21 while still serving as Commissioner and Director at several companies under the Ciputra Group. Ms. Sastrawinata holds a Bachelor of Commerce from University of Auckland, New Zealand and an MBA degree from Claremont Graduate School, USA. Junita Ciputra 57 Commissioner Ms. Ciputra currently serves as the company's Commissioner. She was previously appointed as Director from 1990-1996 and Commissioner in 1996-2001. She graduated from University of San Francisco, USA, with a Bachelor of Finance degree and an MBA in finance and real estate from University of Southern California, USA. Sandra Hendharto 48 Commissioner Ms. Hendharto currently serves as the company's Commissioner. She had previously served in the same role in 1994-2001. She also serves as the Commissioner of PT Ciputra Residence, PT Ciputra Nusantara and PT Ciputra Adigraha. She holds a Bachelor's degree in Industrial Engineering from University of Southern Carolina. Kodradi 74 Independent Mr. Kodradi has served as the company's Commissioner since 2016. He was previously President Commissioner Commissioner at Bank Bumi Daya from 1998-1999, Executive Vice President of Bank Mandiri from 1999-2000, President Commissioner of Bank Tabungan Negara from 2000-2007 and President Commissioner of PT Gedung Bank Exim from 2009-2015. He holds a Bachelor of Economics degree from Diponegoro University. Henk Wangitan 69 Independent Mr. Wangitan has served as the company's Commissioner since 2017. He was previously an Independent Commissioner Commissioner of the company from 2001-2012, Independent Commissioner of PT Ciputra Property Tbk (CTRP) from 2012-2015 and Independent Commissioner of PT Ciputra Surya Tbk from 2015-2017. Mr. Wangitan holds a Bachelor Degree in Medicine from Trisakti University. Thomas Bambang 64 Independent Mr. Bambang has served as the company's Commissioner since 2017. Prior to that, he was an Independent Commissioner Commissioner of CTRP. He holds a Bachelor of Social Work from STPS Widuri, Jakarta and Master's in Social Work from Asian Social Institute, Manila. Source: Company data.
63 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Table 33: Board of Directors profile - PT Ciputra Development Name Age Title Background Candra Ciputra 54 President Mr. Ciputra has served as the President Director since 2002. He joined the company in 1988 as Business Director Development Manager and later became a Director of the Company. He also serves as the President Commissioner in PT Metrodata Electronics Tbk and PT Ciputra Residence. Mr. Ciputra holds a Bachelor's Degree in Finance from University of San Francisco, USA, and an MBA degree in finance from Golden Gate University, USA. Cakra Ciputra 54 Director Mr. Ciputra has served as a company Director since 2017. He joined the company in 1991. He also holds other positions within the Ciputra Group, namely President Director of PT Ciputra Semarang and PT Ciputra Raya Sejahtera and Director of PT Ciputra Residence and PT Ciputra Nusantara. He holds a Bachelor degree in Civil Engineering from San Francisco University, USA. Budiarsa Sastrawinata 63 Director Mr. Sastrawinata has served as a company Director since 2017. He also serves as President Director of PT Damai Indah Golf Tbk and PT Ciputra Residence. He graduated from Plymouth Polytechnic, UK, with a Bachelor degree in Civil Engineering and an MBA degree from Prasetiya Mulya Institute of Management, Jakarta. Harun Hajadi 57 Director Mr. Hajadi has been a company Director since 2017. He was previously a Business Development Manager of the company before becoming a Director. He was also the President Director of CTRS from 1990-2017. He holds a Bachelor Degree in Architecture from UC Berkeley, USA, and MBA in finance and real estate from University of Southern California, USA. Agussurja Widjaja 57 Director Mr. Widjaja currently serves as a company Director. He held similar position in 2000-2003 in the Company. He also currently serves as Director of PT Ciputra Residence, PT Citra Raya Medika and PT Citra Semesta Raya. He holds a Bachelor Degree in Civil Engineering from Bandung Institute of Technology, Master in Engineering from University of Michigan, USA, and Master in Management from California State Polytechnic University, USA. MI Meiko Handoyo L 53 Director Mr. Handoyo serves as a company Director since 2017. Prior to that, he was a Senior Architect of PT Candrasa Pranaguna in 1997-1999 and General Manager of PT Candrasa Pranaguna in 2002-2009. He is also the Director of PT Candrasa Pranaguna and PT Ciputra Residence. He holds a Bachelor's degree in Architectural Engineering from Parahyangan University, Indonesia, and Master's degree in Management from Institute Management of Prasetiya Mulya, Jakarta. Sutoto Yakobus 57 Director Mr. Yakobus has served as a company Director since 2017. He was previously Marketing Manager of Citra Garden City in 1989-1990, General Manager of Ciputra Semarang Project in 1990-1993, Senior Business Development Manager of CTRS in 1993-1994, and Director of CTRS in 1993-1994. He also serves as the Director of PT Ciputra Nusantara. He holds a Bachelor degree in Civil Engineering from Gadjah Mada University and a graduate degree from Institute of Management Education and Development (IPPM), Jakarta. Nanik J Santoso 53 Director Ms. Santoso serves as a company Director since 2017. She joined the group in 1990 as Assistant Manager and later became Business Development Manager of Ciputra Group. She then became the Corporate Secretary of Ciputra Group in 1994-2002 and Director of CTRS in 2001-2017. She concurrently serves as Director of PT Ciputra Nusantara. She holds a Bachelor's degree in Civil Engineering from Brawijaya University, Indonesia and MBA degree from IPPM, Jakarta. Artadinata Djangkar 59 Director Mr. Djangkar has served as a company Director since 2017. He was a Director of CTRP in 1997-2015. He is also currently serving as Director of several companies in the Ciputra Group, PT Ciputra Adigraha, PT Ciputra Semarang and PT Ciputra Sentra. He holds a Bachelor's degree in Civil Engineering from Parahyangan Catholic University and an MBA from Prasetiya Mulya Institute of Management, Jakarta. Tanan Herwandi Antonius 58 Director Mr. Antonius has served as a company Director since 2017. He also serves as President of University of Ciputra Entrepreneur Center (UCEC) and University of Ciputra (UC). He holds a Bachelor's degree in Civil Engineering from Parahyangan Catholic University, Bandung. He also holds several graduate degrees, namely an MBA from Prasetiya Mulya Institute of Management, Master of Science in Urban Development from University College, London, and Master of Arts in Educational Psychology from University of Connecticut, USA. Tulus Santoso 59 Independent Mr. Santoso has served as an Independent Director since 2015. He was previously the company's Finance Director Manager in 1985. He also serves as the company's Corporate Secretary. He holds a Bachelor's degree in Accounting from Satya Wacana Christian University, Salatiga, and Master of Accounting from University of Indonesia. Source: Company data.
64 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Investment Thesis, Valuation and Risks Ciputra Development (Overweight; Price Target: Rp1,000) Investment Thesis We have an Overweight rating on CTRA with a price target of Rp1,000. We believe the stock offers an attractive risk-reward profile at the current level as most of the bad news from the COVID-19 pandemic is largely priced in, especially ahead of the re-opening of the economy from gradual relaxation the lockdown. Our positive view on the company is premised on three primary reasons, namely: 1) Pan-Indonesia presence with diversified property development from Greater Jakarta Area, Greater Surabaya, Sulawesi, Sumatera, and beyond (33 cities), allowing minimal concentration risk and ability to capture higher growth region outside the Tier-1 cities. 2) Growing contribution from mass-market/middle class segment (Rp2bn ticket size and below), which is majority first-home buyers who generally tend to have more resilient demand vs. investors. 3) Strong corporate governance and management track record under the Ciputra family, with prudent capital management (0.3x net debt to equity in 1Q20) and minimal dollar debt exposure (c.85% of debt in rupiah).
Valuation We use an SOTP valuation approach to value CTRA. We use a WACC of 17% to derive the NPV of future cash flows from the property development segment. We use a blended cap rate of 9.5% to derive its recurring income business with a long term growth rate of 4.0%. We then use a 45% discount to the sum of NAV, which is based on the mean level of the past 10 years. We believe this is justified given the current stage of the economy re-opening post the COVID-19 lockdown, and also taking into account Ciputra’s diversified pan-Indonesia development presence and strong corporate governance track record.
Risks to Rating and Price Target Downside risks that could prevent the share price reaching our price target include: 1) Macroeconomic downturn, which would negatively impact demand to purchase property. 2) Weakening of the rupiah, which would reduce consumer confidence levels and also increase cost of funds and FX losses from dollar debt exposure; construction cost for property development would also tend to increase. 3) Rising interest rates, which would increase cost of borrowing and also increase mortgage rates, which might reduce demand to buy property. 4) Political instability, which could prevent consumers from buying property, especially for non-first-home buyers who typically purchase for investment.
65 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Ciputra Development: Summary of Financials Income Statement FY18A FY19A FY20E FY21E FY22E Cash Flow Statement FY18A FY19A FY20E FY21E FY22E Revenue 7,670 7,608 6,733 7,387 7,830 Cash flow from operating activities 1,044 980 1,595 1,202 1,761 COGS (3,726) (3,525) (3,070) (3,433) (3,725) o/w Depreciation & amortization 316 292 301 315 329 Net property income - - - - - o/w Changes in working capital (519) (540) 214 (278) 238 Adj. EBITDA 2,466 2,479 2,167 2,332 2,383 D&A (316) (292) (301) (315) (329) Cash flow from investing activities (1,694) (582) (1,458) (835) (714) Adj. EBIT 2,150 2,187 1,866 2,016 2,055 o/w Capital expenditure (1,219) (1,036) (1,059) (835) (714) Revaluation gains/(losses) - - - - - as % of sales 15.9% 13.6% 15.7% 11.3% 9.1% Net Interest (480) (563) (515) (560) (561) Adj. PBT 1,650 1,613 1,351 1,456 1,494 Cash flow from financing activities 653 604 (755) (2,175) (3) Tax (352) (330) (270) (291) (299) o/w Dividends paid (176) (185) (347) (293) (316) Minority Interest (117) (125) (105) (113) (116) o/w Shares issued/(repurchased) 0 0 0 0 0 Adj. Net Income 1,185 1,158 976 1,052 1,079 o/w Net debt issued/(repaid) 741 775 (407) (1,882) 313 Distributable profit - - - - - Net change in cash 4 995 (618) (1,808) 1,044 Funds from operations (FFO) - - - - - Adjusted funds from operations (AFFO) - - - - - Adj. Free cash flow to firm 204 396 948 815 1,496 y/y Growth (117.4%) 94.5% 139.4% (14.0%) 83.6% Reported EPS 63.87 62.39 52.59 56.68 58.12 Adj. EPS 63.87 62.39 52.59 56.68 58.12 Valuation FY18A FY19A FY20E FY21E FY22E P/FFO (x) - - - - - FFO per share - - - - - P/AFFO (x) - - - - - Payout ratio (x) - - - - - P/E (x) 10.0 10.3 12.2 11.3 11.0 AFFO per share - - - - - P/BV (x) 0.7 0.7 0.6 0.6 0.6 Payout ratio (x) - - - - - EV/EBITDA (x) 14.4 14.1 17.5 16.7 17.2 Dividend Yield 1.5% 2.0% 2.9% 2.5% 2.7% DPS 9.49 12.58 18.72 15.78 17.00 Shares outstanding 18,560 18,560 18,560 18,560 18,560 Balance Sheet FY18A FY19A FY20E FY21E FY22E Ratio Analysis FY18A FY19A FY20E FY21E FY22E Cash and cash equivalents 3,243 4,238 3,620 1,812 2,856 NOI margin - - - - - Accounts receivable 1,212 1,173 1,038 1,139 1,207 EBITDA margin 32.1% 32.6% 32.2% 31.6% 30.4% Other current assets 11,697 12,785 14,315 15,483 16,862 EBIT margin 28.0% 28.7% 27.7% 27.3% 26.2% Current assets 16,152 18,195 18,973 18,434 20,924 Net profit margin 15.5% 15.2% 14.5% 14.2% 13.8% PP&E 9,794 9,815 10,745 11,079 11,225 FFO margin - - - - - Investment properties - - - - - LT investments 3,380 2,812 2,812 2,812 2,812 ROE 8.5% 7.8% 6.2% 6.4% 6.3% Other non current assets 4,962 5,373 5,602 5,788 6,028 ROA 3.6% 3.3% 2.6% 2.8% 2.7% Total assets 34,289 36,196 38,132 38,113 40,989 ROCE 7.7% 7.3% 6.1% 6.7% 6.8% Net debt/Equity 0.3 0.3 0.3 0.3 0.2 Short term borrowings 1,641 1,434 1,370 1,076 1,125 Net debt/EBITDA 2.1 2.0 2.4 2.2 1.8 Payables 832 778 625 699 759 Other short term liabilities 5,522 6,157 7,566 8,299 9,599 Sales/Assets (x) 23.2% 21.6% 18.1% 19.4% 19.8% Current liabilities 7,995 8,368 9,561 10,074 11,483 Assets/Equity (x) 2.4 2.4 2.4 2.3 2.3 Long-term debt 6,814 7,742 7,398 5,810 6,074 Interest cover (x) 5.1 4.4 4.2 4.2 4.2 Other long term liabilities 2,836 2,324 2,677 2,860 3,185 Operating leverage 170.4% (216.7%) 127.6% 82.7% 32.1% Total liabilities 17,645 18,434 19,636 18,745 20,742 Debt/Investment properties - - - - - Tax rate 21.4% 20.4% 20.0% 20.0% 20.0% Shareholders' equity 14,374 15,352 15,981 16,740 17,504 Minority interests 2,270 2,409 2,514 2,627 2,743 Revenue y/y Growth 19.1% (0.8%) (11.5%) 9.7% 6.0% Total liabilities & equity 34,289 36,196 38,132 38,112 40,989 EBITDA y/y Growth 30.6% 0.5% (12.6%) 7.6% 2.2% EPS y/y Growth 32.6% (2.3%) (15.7%) 7.8% 2.5% BVPS 896.77 956.97 996.50 1,043.50 1,090.87 y/y Growth 7.0% 6.7% 4.1% 4.7% 4.5% Net debt/(cash) 5,212 4,938 5,149 5,075 4,344 Source: Company reports and J.P. Morgan estimates. Note: Rp in billions (except per-share data).Fiscal year ends Dec. o/w - out of which
66 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Summarecon Overweight Assume coverage at OW: Diversifying into new cities, malls SMRA.JK,SMRA IJ stake divestment as catalyst Price (08 Jul 20): Rp615 We are assuming coverage on Summarecon Agung (SMRA IJ) with Overweight ▼ Price Target (Dec-21): Rp1,000 (OW) rating and a price target of Rp1,000. We believe most of the bad news due to Prior (Jun-20): Rp1,600 COVID-19 is largely priced in, especially as we are entering the phase of the Indonesia economy reopening post the lockdown period. Our optimistic view on the company Head of Indonesia Research & is premised on: Strategy AC Henry Wibowo 1) Strong presence in Bekasi (28% of presales in 1Q20), a fast-growing city (622-1) 5291 8526 that could benefit from improving transportation infrastructure, especially [email protected] Bloomberg JPMA HWIBOWO
Quant Current Hist %Rank (1=Top) Factors %Rank 6M 1Y 3Y 5Y Company profile. Summarecon was established in 1975 by Soetjipto Nagaria Value 93 93 93 98 91 and got listed on the Indonesia Stock Exchange in 1990. It is now one of the Growth 86 58 86 91 38 largest property developers in Indonesia with over 2,000 ha of landbank, with key Momentum 86 18 1 86 6 township developments in Kelapa Gading, Serpong and Bekasi. Summarecon is Quality 83 73 83 96 46 44% owned by Founders & Associates, with the remaining 56% as public free Low Vol 91 88 78 66 91 float. Sources for: Style Exposure – J.P. Morgan Quantitative and Valuation rationale. We derive our price target using the Sum of The Parts Derivatives Strategy; all other tables are company data and J.P. Morgan estimates. (SOTP) approach. We use WACC of 14% for the property development business to derive the NPV of future cash flow, and a cap rate of 9% and a long-term growth rate of 4% for its recurring income business. We then apply a 40% discount to the sum of NAV, based on the mean level of the past 10 years. We believe this is justified, given the current stage of the economy reopening post COVID-19 lockdown, and also taking into account Summarecon’s unique positioning in fast-growing cities in Indonesia. Our PT of Rp1,000 translates into 2020E PER of 31x and PBV of 1.4x.
67 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Price Performance Summary Investment Thesis and Valuation Investment Thesis We have an OW rating on SMRA premised on: 1) Prominent presence in Bekasi, a fast-growing city with LRT infrastructure upgrade and the best exposure to a potential industrial city/FDI surge. 2) Strategy of diversification into fast-growing townships beyond Kelapa Gading and Serpong, including Bekasi, Bandung, Makassar and Bogor. 3) Potential unlocking of value from mall assets via stake divestment to further grow the recurring income business (which now YTD 1m 3m 12m contributes 34% of revenue). We believe most of the bad Abs -38.8% -10.9% 27.1% -47.4% news related to COVID-19 is largely priced in with an Rel -19.4% -11.0% 17.4% -27.3% attractive risk-reward profile at the current level. Company Data Shares O/S (mn) 14,427 Valuation 52-week range (Rp) 1,360-350 We have a Dec-2021 price target of Rp1,000. This is derived Market cap ($ bn) 0.61 Exchange rate 14,440.43 using SOTP approach: NPV of future cash flow of property Free float(%) 58.5% development business calculated using 14% WACC, and a 3M - Avg daily vol (mn) 45.01 cap rate of 9% and a LT growth rate of 4% for the recurring 3M - Avg daily val ($ mn) 1.7 Volatility (90 Day) 96 income business. We then apply a 40% discount to the sum of Index JCI NAV, based on the 10-year historical mean level. BBG BUY|HOLD|SELL 17|4|3 Key Metrics (FYE Dec) Performance Drivers Rp in billions FY19A FY20E FY21E FY22E Financial Estimates Revenue 5,941 5,596 6,017 6,432 Adj. EBITDA 1,867 1,678 1,842 1,932 Adj. EBIT 1,589 1,405 1,572 1,662 Adj. net income 515 367 464 523 Adj. EPS 35.70 25.42 32.15 36.28 BBG EPS 33.85 26.28 33.85 29.31 Cashflow from operations 505 898 1,399 1,962 FCFF 409 695 1,278 1,852 Margins and Growth Revenue growth 5.0% (5.8%) 7.5% 6.9% EBITDA margin 31.4% 30.0% 30.6% 30.0% EBITDA growth 0.4% (10.1%) 9.8% 4.9% EBIT margin 26.7% 25.1% 26.1% 25.8% Net margin 8.7% 6.6% 7.7% 8.1% Adj. EPS growth 14.7% (28.8%) 26.5% 12.8% Ratios Adj. tax rate 33.6% 35.0% 25.0% 25.0% Interest cover 2.8 2.8 2.9 3.1 Net debt/Equity 0.5 0.5 0.4 0.2 Net debt/EBITDA 2.6 2.8 2.2 1.4 ROCE 7.7% 6.5% 8.3% 8.5% ROE 7.2% 4.9% 5.9% 6.3% Valuation FCFF yield 4.6% 7.8% 14.4% 20.9% Dividend yield 0.8% 0.9% 0.7% 0.8% EV/EBITDA 13.9 17.0 16.6 16.4 Adj. P/E 17.2 24.2 19.1 17.0
Source: J.P. Morgan Quantitative and Derivatives Strategy for Performance Drivers; company data, Bloomberg and J.P. Morgan estimates for all other tables.
68 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Summarecon Agung (SMRA IJ) We are assuming coverage on Summarecon Agung (SMRA IJ) with Overweight (OW) rating and a price target of Rp1,000. We believe most of the bad news due to COVID-19 is largely priced in, especially as we are entering the phase of the economy reopening post the lockdown period. Our optimistic view on the company is premised on: 1) Strong presence in Bekasi (28% of presales in 1Q20), a fast- growing city that could benefit from improving transportation infrastructure, especially post completion of LRT (Light Rail Train), and a potential surge in FDI from the government's policy reforms as majority of the industrial estate areas are located in and around Bekasi. 2) Diversification of property development to new areas with bigger growth potential beyond the existing Kelapa Gading and Serpong, such as Bekasi, Bandung, Makassar, Karawang and Bogor. 3) Potential unlocking of value from stake divestment of mall assets to further expand the recurring income portfolio (~34% of revenue).
Figure 49: SMRA targets Rp4.5tn for 2020 marketing sales (in Rpbn)
5,000 4,500 4,133 4,000 3,560 3,397 3,005 3,000
2,000
1,000
0 2016 2017 2018 2019 2020 Kelapa Gading Bekasi Serpong Bandung Karawang Makassar Bogor
Source: Company data.
Figure 50: ~60% of 2020 marketing sales to be contributed by housing projects (in Rpbn) 5,000 4,500 4,133 4,000 3,560 3,397 3,005 3,000
2,000
1,000
0 2016 2017 2018 2019 2020 House Shoplot Landplot Apartment Office
Source: Company data, J.P. Morgan estimates.
69 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Figure 51: SMRA reached 19% of its 2020 presales target in 1Q20 (in Rpbn) 2,500 2045 2,000
1,500
1,000 745 550 375 430 500 351 205 236 150 83 96 20 69 0 0 Kelapa Gading Bekasi Serpong Bandung Karawang Makassar Bogor 1Q20 presales 2020 pre-sales target
Source: Company data.
Figure 52: SMRA has the highest net gearing (x) level among Indonesian peers
0.82 0.80 0.80 0.79 0.80 0.78 0.78 0.77 0.78 0.76 0.76 0.76 0.76 0.74 0.72 0.71 0.69 0.70 0.69 0.68 0.66 0.64 0.62 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Source: Company data.
Figure 53: SMRA: 1Q20 marketing sales amount to 19% of the 2020 pre-COVID-19 target (in Rpbn) 5,000 4,500 4,500 4,000 3,500 3,000 2,500 2,000 1,500 855 1,000 500 0 1Q20 2020 Target Houses Shoplots Landplots Apartments Office space
Source: Company data.
70 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Management guidance amid COVID-19 Presales impact SMRA presales in 1Q20 amounted to Rp855bn, -15% YoY; the seemingly negative growth was due to a high-base effect as the company had many launches in 1Q19. Amid the virus outbreak, company had to postpone the launch of its Bogor project despite the infrastructure being in place already. Thus far, company is weighing in on postponing the launch by two months. Nonetheless, company has still engaged in virtual marketing for interested buyers. Currently, the focus is on selling its inventory of ready-to-sell houses (mostly in the Serpong area), whose worth amounts to ~Rp3tn. SMRA has refrained from providing a timeline as management continues to monitor and review the situation.
Recurring income Recurring income was 27% of 2019 revenue vs. 28% in 2018. The bulk of recurring income (~95%) is rental income from flagship malls in Jakarta and Greater Jakarta. Amid the virus outbreak and social distancing measures, SMRA closed its malls during 24 Mar-7 Apr and extended this to 24 April. Due to the mall closures, SMRA has given 15-30% discounts to its tenants for the 24 Mar-7 Apr period while it offered deferral of rental payment for the mall closure period extension; however, tenants still had to pay service charges.
Debt exposure SMRA’s debts amount to Rp8.9tn, of which ~70% are bank loans and the remainder are bonds. Rp1.3tn of bonds are due by the end of 2020, so SMRA plans to refinance 60-70% and settle the remaining with cash. SMRA has little foreign debt exposure; only 5% of its bank loans are denominated in USD. Banks have been supportive as they have allowed a delay in principal payment for a year and cut the interest rate by 200bps. SMRA’s blended cost of funds stood at 9.5% as of 1Q20.
71 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Valuation rationale We derive our price target of Summarecon using Sum of The Parts (SOTP) approach to value the company. We use WACC of 14% for the property development business to derive the NPV of future cash flow, and a cap rate of 9% and a long-term growth rate of 4% for its recurring income business. We then apply a 40% discount to the sum of NAV, based on the mean level of the past 10 years. We believe this is justified, given the current stage of the economy reopening post COVID-19 lockdown, and also taking into account Summarecon’s unique positioning in fast- growing cities in Indonesia, especially Bekasi. Our PT of Rp1,000 translates into 2020E PER of 31x and PBV of 1.4x.
Table 34: NAV - Summarecon SMRA Rp bn FY18 FY19 FY20E FY21E Development Properties 17,736 17,631 19,651 20,531 Investment Properties 7,614 8,397 8,909 9,963 Others Gross Asset Value 25,350 26,028 28,560 30,494 Net Cash (debt) + minority (7,308) (7,301) (6,986) (6,481) NAV 18,041 18,726 21,574 24,013 No of Share (bn) 14.4 14.4 14.4 14.4 NAV per share (Rp) 1,251 1,298 1,495 1,664 Growth YoY 15% 11%
Gross NAV by segment Development Properties 70% 68% 69% 67% Low Rise 62% 58% 58% 56% High Rise 8% 10% 11% 11% Investment Properties 30% 32% 31% 33% Office 1% 1% 1% 1% Retail 24% 25% 24% 25% Hotels 5% 7% 7% 7%
PT Discount to NAV -40% Price Target (Rp) 1,000 Current Price (Rp, 8 July 2020) 615 Upside / Downside 63% Rating OW Current Disc to NAV -63% Source: Bloomberg, J.P. Morgan estimates. Priced as of 8 July 2020.
72 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Company profile Summarecon Agung was founded in 1975 by Soetjipto Nagaria. It started by developing 10ha of marsh land in Jakarta, an area which has been known as Kelapa Gading. Summarecon has built a reputation as one of the leading property players, especially in township development. Summarecon’s key notable projects includes Summarecon Kelapa Gading, Summarecon Serpong, Summarecon Bekasi and Summarecon Makassar. As of 2019, its largest landbank (~880ha) is situated in Jakarta and the Greater Jakarta area. Summarecon Agung shares are 33.5% controlled by the Nagaria family via PT Semarop Agung.
Table 35: Company milestones - PT Summarecon Agung 1975 Incorporation of PT Summarecon Agung 1976 Commenced the development of residential houses on 10ha land in Kelapa Gading Permai 1984 Opening of Kelapa Gading Permai Sports Club, now known as Klub Kelapa Gading 1990 Opening of Mal Kelapa Gading Phase 1 1991 Joint venture to develop 1,500ha Gading Serpong township 1995 Mal Kelapa Gading Phase 2 opened with additional 33,000m2 of retail space 2003 Mal Kelapa Gading Phase 3 opened adding 67,000m2 of retail space 2005 Summarecon 30th Anniversary 2006 Opening of Mal Kelapa Gading Phase 4 2007 Opening of Summarecon Mal Serpong Phase 1 2008 Opening of Plaza Summarecon Serpong 2010 Birth of Summarecon Bekasi and opening of Harris Hotel Kelapa Gading 2011 Summarecon Bandung opened an office to facilitate local operations, and opening of Summarecon Mal Serpong Phase 2 2013 Launch of The Kensington Commercial Summarecon Kelapa Gading, and opening of Summarecon Mal Bekasi 2014 Summarecon Bekasi launched The SpringLake Apartments and The Serpon M-Town Apartments, and opening of Harris Hotel Summarecon Bekasi, which was also the first hotel in Summarecon Bekasi. 2015 Birth of Summarecon Bandung. 2017 Opening of Movenpick Resort & Spa Jimbaran, Bali. Opening of Harris Convention Hall Summarecon Bekasi. 2018 Developed Srimaya Residence in South Bekasi where the company implemented a self-contained water system and Summarecon Mutiara Makassar with a city concept which will provide commercial and residential areas equipped with warehouses, clubhouses, etc. Source: Company data.
Table 36: Company shareholders Shareholders % PT Semarop Agung 33.50% PT Sinarmegah Jayasentosa 6.60% Mel BK NA S/A Stichting Apg Str Reall Est Pool-2039924167 5.61% Others (<5% each) 54.24% Management interest in shares Harto Djojo Nagaria (Commissioner) 0.15% Liliawati Rahardjo (Director) 0.84% Controlling shareholder, PT Semarop Agung, is owned by Soetjipto Nagaria and family Shareholders of PT Semarop Agung Soetjipto Nagaria 25.30% Liliawati Rahardjo 24.90% Soegianto Nagaria 24.90% Herman Nagaria 24.90% Source: Company data. As of 31 Dec 2018.
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Business divisions Summarecon Agung divides its business into three main categories, namely: Property development, Property Investment and Management, and Others which entails leisure, hotels and various facilities & services. Property development is the company’s biggest revenue contributor. The biggest landbank is in Summarecon Serpong as of 3Q19.
Table 37: SMRA’s major business divisions SMRA's Business Divisions Property Development Property development products includes the following: • Houses • Shop lots • Land plots • Apartments Property development by location: • Summarecon Kelapa Gading • Summarecon Serpong • Summarecon Bekasi • Summarecon Bandung • Summarecon Karawang • Summarecon Makassar Property Investment and SMRA's property investment includes the following: Management • Mall & retail properties • Office properties • Residential properties • Commercial properties & others Property investment by location: • Summarecon Kelapa Gading • Summarecon Serpong • Summarecon Bekasi Other Business SMRA's other businesses includes: • Leisure (community clubs) • Hotel • Various facilities & services Source: Company data.
Table 38: SMRA's biggest landbank is in Summarecon Serpong as of 30 September 2019 Planned Location Business % ownership Gross area (in ha) acquisitions structure 30-Sep-19 2019 2020 Summarecon Kelapa Gading Own 100% 8 Summarecon Serpong 481 15 12 Own land Own 100% 300 Land under PT JBC Joint operations 80% 139 Land under PT TGS Joint operations 45% 42 Summarecon Bekasi 393 15 12 Own land Own 100% 111 Land under PT DSA Joint venture 51% 282 Summarecon Bandung Own 100% 333 15 14 Summarecon Bali Own 100% 20 Summarecon Bogor Joint venture 51% 422 20 15 Summarecon Makassar 342 15 12 Own land Own 100% 146 Land under PT SMC Joint venture 51% 196 Summarecon Karawang Own 100% 14 Others (+ potential new locations) 208 0 0 Total hectarage 2,221 80 65 Source: Company data.
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Management team Table 39: Board of Commissioners Profile - PT Summarecon Agung Name Age Title Background Ir. Soetjipto Nagaria 80 President Commissioner Mr. Nagaria is the founder of Summarecon Group of companies. Prior to being appointed as President Commissioner in 2001, he served as the President Director of the company since its inception in 1975 until 1998. He also served as Commissioner from 1998 to 2001. Mr. Nagaria holds a degree in Chemical Engineering from Bandung Institute of Technology. Mr. Nagaria has an indirect interest in the company shares through PT Semarop Agung. Harto Djojo Nagaria 73 Commissioner Mr. Nagaria was appointed as the company's Commissioner in 1980. Prior to joining the company, he was a Commissioner in PT Nusa Kirana from 1980 to 1990. Mr. Nagaria graduated from the University of Oregon with a degree in Economics. He has direct interest in the company shares of 0.15% and indirect interest through PT Centrapacific Nusajaya. Drs. Edi Darnadi 69 Independent Commissioner Mr. Darnadi was appointed as Independent Commissioner in 2009. He graduated from the Police Academy of Indonesia and served in various positions in Indonesian National Police where he retired as Inspector General with the last position of Deputy Inspector of the Public Supervision Division in May 2009. Esther Melyani Homan 61 Independent Commissioner Ms. Homan was appointed as Independent Commissioner in 2006. She has been with the company since 1984 and served as Section Head in Finance and Accounting from 2001 to 2006, prior to becoming a Commissioner. Ms. Homan holds a Bachelor’s degree in Economics from Tarumanegara University.
Source: Company data. As of 31 December 2018.
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Table 40: Board of Directors Profile - PT Summarecon Agung Name Age Title Background Adrianto Pitoyo Adhi 62 President Director Mr. Adhi was appointed as President Director in 2015. He joined the company in 2005 as an Executive Director responsible for managing Summarecon Kelapa. His role was later expanded to include Summarecon Bekasi in 2009 and he was appointed as Director in 2013. Prior to joining Summarecon, Mr. Adhi was a General Manager in PT Metropolitan Land and later became Director from 2002 to 2005. He is also a member of the Real Estate Association of Indonesia and currently acts as the Head Representative in the Central Board. Mr. Adhi holds a Technical Degree in Architecture from Universitas Diponegoro. Liliawati Rahardjo 71 Director (Managing Director) Ms. Rahardjo was appointed as Director in 2002. Prior to that, she has held various positions within the company including as Commissioner from 1989 to 1997 and President Commissioner during 1997-2001. She graduated from National Taiwan University. Ms. Rahardjo has an indirect interest in the company’s shares through PT Semarop Agung. Nanik Widjaja 55 Director (Corporate Ms. Widjaja was appointed as the company's director in 2018. She joined the company in 1995 Services) and has worked in various finance and accounting roles prior to being promoted to Assistant Director-Accounting in 2008. Ms. Widjaja began her career as Staff at Surya Tax Consultant Office in 1986, and then was Staff at Alung Tax Consultant Office during 1988-1992 and Finance Staff at PT Forumindo Ciptarasa during 1992-1994. She graduated from Sekolah Tinggi Ilmu Ekonomi Indonesia. Soegianto Nagaria 48 Director (Investment Mr. Nagaria was appointed as Director in 2006. He joined the company in 1997 and has since Properties) served in various managerial positions in business development, club management and retail leasing. He holds a Bachelor’s degree in Architecture from National Cheng Kung University, Taiwan, and an MBA from Peter F Drucker Graduate School of Management, USA. Mr. Nagaria has an indirect interest in company shares through PT Semarop Agung. Herman Nagaria 44 Director (Business and Mr. Nagaria was appointed as Director in 2006. He joined the company in 1999 and previously Property Development) served as Assistant Director in Business Development among various other managerial positions. He holds a Bachelor’s Degree in Civil Engineering from National Cheng Kung University, Taiwan, and an MBA degree from The Chinese University of Hong Kong. He has an indirect interest in company shares through PT Semarop Agung. Lydia Tijo 58 Director (Finance) Ms. Tijo was appointed as Director in 2018. She has worked in various finance and accounting roles before becoming Assistant Director - Finance in 2007. Prior to joining the company, Ms. Tijo was a Financial Controller in Pakuwon Subentra Angraeini from 1994 to 1995 and Audit Staff to Audit Manager in Sidhharta & Siddharta (associate of Coopers & Lybrand Jakarta) from 1995 to 2007. She holds a Diploma in Accounting from Jayabaya University Academy and a Bachelor’s in Financial Management from University of Indonesia. Sharif Benyamin 60 Director (Business and Mr. Benyamin was appointed as Director in 2013. He joined the company in 2005 as Executive Property Development) Director responsible for managing Summarecon Serpong. His role was then expanded to include business development of new property development projects in 2013. Mr. Benyamin worked as project manager for a construction and housing contractor for five years and then became a self- employed real estate developer and registered contractor for PDAM and Telekomunikasi from 1989 to 2004. He holds a Technical Degree in Civil Engineering from Universitas Katolik Parahyangan. Jason Lim 54 Independent Director Mr. Lim was appointed as Director in 2018. He joined the company in 2004 as Project Manager and was later promoted to Associate Director - Technical and Project in 2013. He started his career as Structural Design Engineer at Purnomo & Partner Consultant in 1989 and then became Construction Engineer at Maxus Southeast Sumatra (1991-1992), Project Manager at PT Putra Surya Perkasa (1994-1998), Engineering Manager at PT Besland Pertiwi (Salim Group, 1998- 2000) and Project Manager at PT Cipta Cakra Murdaya (2002-2004). He holds a Bachelor’s Degree in Civil Engineering from University of Indonesia and two Master's degrees from Netherlands and Bangkok. Source: Company data. As of 31 December 2018.
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Investment Thesis, Valuation and Risks Summarecon (Overweight; Price Target: Rp1,000) Investment Thesis We have an Overweight (OW) rating on SMRA and price target of Rp1,000. We believe most of the bad news due to COVID-19 is largely priced in, especially as we enter the phase of reopening of the economy post the lockdown period. Our optimistic view on the company is premised on: (1) Strong presence in Bekasi (28% of presales in 1Q20), a fast-growing city that could benefit from improving transportation infrastructure, especially after completion of the LRT (Light Rail Train) project, and a potential surge in FDI arising from the government’s policy reforms as majority of the industrial estate areas are located in and around Bekasi. (2) Strategy of diversification of property development to new areas with bigger growth potential beyond the existing Kelapa Gading and Serpong areas, such as Bekasi, Bandung, Makassar, Karawang and Bogor. (3) Potential unlocking of value from divestment of stakes in mall assets to further expand the recurring income portfolio (~34% of revenue).
Valuation We derive our price target of SMRA using Sum of The Parts (SOTP) approach to value the company. We use WACC of 14% for the property development business to derive the NPV of future cash flow, and a cap rate of 9% and a long-term growth rate of 4% for its recurring income business. We then apply a 40% discount to the sum of NAV, based on the mean level of the past 10 years. We believe this is justified, given the current stage of the economy reopening post COVID-19 lockdown, and also taking into account Summarecon’s unique positioning in fast-growing cities in Indonesia. Our PT of Rp1,000 translates to into 2020E PER of 31x and PBV of 1.4x.
Risks to Rating and Price Target Downside risks to our OW thesis include: 1) Macroeconomic slowdown, which would impair property sales demand. 2) Weakening of the rupiah, which would reduce consumer confidence and increase the construction cost. 3) Rising interest rates, which would make mortgages more expensive for buyers and raise borrowing costs of the company. 4) Political instability. 5) Slower-than-expected progress execution of new township developments in Makassar, Bandung and Bogor.
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Summarecon: Summary of Financials Income Statement FY18A FY19A FY20E FY21E FY22E Cash Flow Statement FY18A FY19A FY20E FY21E FY22E Revenue 5,660 5,941 5,596 6,017 6,432 Cash flow from operating activities (129) 505 898 1,399 1,962 COGS (2,922) (3,092) (2,778) (2,890) (3,123) o/w Depreciation & amortization 302 278 273 270 270 Net property income - - - - - o/w Changes in working capital (966) (346) 96 433 906 Adj. EBITDA 1,860 1,867 1,678 1,842 1,932 D&A (302) (278) (273) (270) (270) Cash flow from investing activities (341) (581) (763) (603) (571) Adj. EBIT 1,558 1,589 1,405 1,572 1,662 o/w Capital expenditure (319) (542) (587) (603) (571) Revaluation gains/(losses) - - - - - as % of sales 5.6% 9.1% 10.5% 10.0% 8.9% Net Interest (608) (670) (590) (644) (616) Adj. PBT 951 923 815 928 1,047 Cash flow from financing activities 520 217 70 (538) 330 Tax (260) (310) (285) (232) (262) o/w Dividends paid (72) (72) (83) (59) (75) Minority Interest (242) (98) (163) (232) (262) o/w Shares issued/(repurchased) 0 0 0 0 0 Adj. Net Income 449 515 367 464 523 o/w Net debt issued/(repaid) 633 366 153 (479) 404 Distributable profit - - - - - Net change in cash 50 141 206 258 1,720 Funds from operations (FFO) - - - - - Adjusted funds from operations (AFFO) - - - - - Adj. Free cash flow to firm (4) 409 695 1,278 1,852 y/y Growth (99.3%) (11650.4%) 69.8% 83.8% 44.9% Reported EPS 31.12 35.70 25.42 32.15 36.28 Adj. EPS 31.12 35.70 25.42 32.15 36.28 Valuation FY18A FY19A FY20E FY21E FY22E P/FFO (x) - - - - - FFO per share - - - - - P/AFFO (x) - - - - - Payout ratio (x) - - - - - P/E (x) 19.8 17.2 24.2 19.1 17.0 AFFO per share - - - - - P/BV (x) 1.0 0.9 0.9 0.8 0.8 Payout ratio (x) - - - - - EV/EBITDA (x) 13.6 13.9 17.0 16.6 16.4 Dividend Yield 0.8% 0.8% 0.9% 0.7% 0.8% DPS 5.00 5.00 5.74 4.08 5.17 Shares outstanding 14,427 14,427 14,427 14,427 14,427 Balance Sheet FY18A FY19A FY20E FY21E FY22E Ratio Analysis FY18A FY19A FY20E FY21E FY22E Cash and cash equivalents 1,524 1,664 1,870 2,128 3,847 NOI margin - - - - - Accounts receivable 394 221 208 224 239 EBITDA margin 32.9% 31.4% 30.0% 30.6% 30.0% Other current assets 8,580 9,265 9,541 9,624 9,551 EBIT margin 27.5% 26.7% 25.1% 26.1% 25.8% Current assets 10,498 11,151 11,619 11,976 13,637 Net profit margin 7.9% 8.7% 6.6% 7.7% 8.1% PP&E 6,813 6,874 7,155 7,287 7,453 FFO margin - - - - - Investment properties - - - - - LT investments 1,603 2,060 2,060 2,060 2,060 ROE 6.7% 7.2% 4.9% 5.9% 6.3% Other non current assets 4,386 4,357 4,566 4,766 4,902 ROA 2.0% 2.2% 1.5% 1.8% 1.9% Total assets 23,299 24,442 25,400 26,089 28,052 ROCE 8.1% 7.7% 6.5% 8.3% 8.5% Net debt/Equity 0.6 0.5 0.5 0.4 0.2 Short term borrowings 1,782 2,139 2,165 2,111 2,098 Net debt/EBITDA 2.8 2.6 2.8 2.2 1.4 Payables 77 86 86 86 86 Other short term liabilities 5,370 6,792 7,007 7,326 7,835 Sales/Assets (x) 25.2% 24.9% 22.5% 23.4% 23.8% Current liabilities 7,229 9,017 9,258 9,523 10,019 Assets/Equity (x) 3.4 3.3 3.3 3.3 3.3 Long-term debt 4,893 4,317 4,444 4,019 4,436 Interest cover (x) 3.1 2.8 2.8 2.9 3.1 Other long term liabilities 2,116 1,656 1,800 2,012 2,351 Operating leverage 4867.0% 39.8% 199.4% 157.7% 83.7% Total liabilities 14,239 14,990 15,502 15,554 16,807 Debt/Investment properties - - - - - Tax rate 27.3% 33.6% 35.0% 25.0% 25.0% Shareholders' equity 6,904 7,368 7,652 8,057 8,505 Minority interests 2,157 2,084 2,247 2,479 2,740 Revenue y/y Growth 0.3% 5.0% (5.8%) 7.5% 6.9% Total liabilities & equity 23,299 24,442 25,400 26,089 28,052 EBITDA y/y Growth 20.9% 0.4% (10.1%) 9.8% 4.9% EPS y/y Growth 24.0% 14.7% (28.8%) 26.5% 12.8% BVPS 628.05 655.13 686.10 730.25 779.50 y/y Growth 8.5% 4.3% 4.7% 6.4% 6.7% Net debt/(cash) 5,151 4,792 4,739 4,002 2,687 Source: Company reports and J.P. Morgan estimates. Note: Rp in billions (except per-share data).Fiscal year ends Dec. o/w - out of which
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Market Maker/ Liquidity Provider: J.P. Morgan is a market maker and/or liquidity provider in the financial instruments of/related to Pakuwon, Bumi Serpong Damai, Ciputra Development, Summarecon. Debt Position: J.P. Morgan may hold a position in the debt securities of Pakuwon, Bumi Serpong Damai, Ciputra Development, Summarecon, if any. Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://www.jpmm.com/research/disclosures, calling 1-800-477- 0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477- 0406 or e-mail [email protected].
Pakuwon (PWON.JK, PWON IJ) Price Chart Date Rating Price (Rp) Price Target (Rp)
1,309 17-Jul-17 N 610 600 03-Sep-18 OW 515 640 1,122 29-Jan-19 N 700 760 22-Aug-19 N 670 720 935 N Rp600 OW Rp640 N Rp760 N Rp720 748 Price(Rp)
561
374
187
0 Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 17 17 18 18 18 18 19 19 19 19 20 20 20
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage May 07, 2014. All share prices are as of market close on the previous business day.
79 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Bumi Serpong Damai (BSDE.JK, BSDE IJ) Price Chart Date Rating Price (Rp) Price Target (Rp) 3,255 17-Jul-17 N 1830 1,780 03-Sep-18 N 1200 1,300 2,790 29-Jan-19 OW 1385 1,800 22-Aug-19 N 1325 1,500 2,325 N Rp1,780 N Rp1,300 OW Rp1,800 N Rp1,500 1,860 Price(Rp) 1,395
930
465
0 Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 17 17 18 18 18 18 19 19 19 19 20 20 20
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage May 07, 2014. All share prices are as of market close on the previous business day.
Ciputra Development (CTRA.JK, CTRA IJ) Price Chart Date Rating Price (Rp) Price Target (Rp) 2,345 17-Jul-17 OW 1230 1,540 03-Sep-18 N 845 950 2,010 29-Jan-19 N 925 1,100 22-Aug-19 OW 1260 1,500 1,675 OW Rp1,540 N Rp950 N Rp1,100 OW Rp1,500 1,340 Price(Rp) 1,005
670
335
0 Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 17 17 18 18 18 18 19 19 19 19 20 20 20
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage May 18, 2007. All share prices are as of market close on the previous business day.
80 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
Summarecon (SMRA.JK, SMRA IJ) Price Chart Date Rating Price (Rp) Price Target (Rp) 2,317 17-Jul-17 OW 1210 1,440 03-Sep-18 OW 660 1,000 1,986 29-Jan-19 OW 1010 1,300 OW Rp1,400 04-Apr-19 OW 1015 1,400 1,655 22-Aug-19 OW 1220 1,600 OW Rp1,440 OW Rp1,000 OW Rp1,300 OW Rp1,600 1,324 Price(Rp) 993
662
331
0 Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 17 17 18 18 18 18 19 19 19 19 20 20 20
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Feb 24, 2012. All share prices are as of market close on the previous business day.
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia and ex-India) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com. Coverage Universe: Wibowo, Henry: Bumi Serpong Damai (BSDE.JK), Ciputra Development (CTRA.JK), Indocement Tunggal Prakarsa (INTP.JK), Jasa Marga (JSMR.JK), Media Nusantara Citra (MNCN.JK), PT Pembangunan Perumahan (PTPP.JK), Pakuwon (PWON.JK), Semen Indonesia (SMGR.JK), Summarecon (SMRA.JK), Surya Citra Media (SCMA.JK), United Tractors (UNTR.JK), Waskita Karya (WSKT.JK), Wijaya Karya (WIKA.JK)
J.P. Morgan Equity Research Ratings Distribution, as of July 04, 2020 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Global Equity Research Coverage 46% 39% 15% IB clients* 53% 49% 38% JPMS Equity Research Coverage 43% 42% 15% IB clients* 75% 70% 58% *Percentage of subject companies within each of the "buy," "hold" and "sell" categories for which J.P. Morgan has provided investment banking services within the previous 12 months. Please note that the percentages might not add to 100% because of rounding. For purposes only of FINRA ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above. This information is current as of the end of the most recent calendar quarter.
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MB/INM000002970). Telephone: 91-22-6157 3000, Facsimile: 91-22-6157 3990 and Website: www.jpmipl.com. For non local research reports, this material is not distributed in India by J.P. Morgan India Private Limited. Thailand: This material is issued and distributed in Thailand by JPMorgan Securities (Thailand) Ltd., which is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission and its registered address is 3rd Floor, 20 North Sathorn Road, Silom, Bangrak, Bangkok 10500. Indonesia: PT J.P. Morgan Sekuritas Indonesia is a member of the Indonesia Stock Exchange and is regulated by the OJK a.k.a. BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities Clearing Corporation of the Philippines and the Securities Investor Protection Fund. It is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by or through J.P. Morgan Securities Singapore Private Limited (JPMSS) [MCI (P) 018/04/2020 and Co. Reg. No.: 199405335R], which is a member of the Singapore Exchange Securities Trading Limited and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) [MCI (P) 070/09/2019], both of which are regulated by the Monetary Authority of Singapore. This material is issued and distributed in Singapore only to accredited investors, expert investors and institutional investors, as defined in Section 4A of the Securities and Futures Act, Cap. 289 (SFA). This material is not intended to be issued or distributed to any retail investors or any other investors that do not fall into the classes of “accredited investors,” “expert investors” or “institutional investors,” as defined under Section 4A of the SFA. Recipients of this document are to contact JPMSS or JPMCB Singapore in respect of any matters arising from, or in connection with, the document. Japan: JPMorgan Securities Japan Co., Ltd. and JPMorgan Chase Bank, N.A., Tokyo Branch are regulated by the Financial Services Agency in Japan. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE. Russia: CB J.P. Morgan Bank International LLC is regulated by the Central Bank of Russia. Argentina: JPMorgan Chase Bank Sucursal Buenos Aires is regulated by Banco Central de la República Argentina (“BCRA”- Central Bank of Argentina) and Comisión Nacional de Valores (“CNV”- Argentinian Securities Commission”)
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The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the term "wholesale client" has the meaning given in section 761G of the Corporations Act 2001. J.P. Morgan’s research coverage universe spans listed securities across the ASX All Ordinaries index, securities listed on offshore markets, unlisted issuers and investment products which Research management deem to be relevant to the investor base from time to time. J.P. Morgan seeks to cover companies of relevance to the domestic and international investor base across all GIC sectors, as well as across a range of market capitalisation sizes. Germany: This material is distributed in Germany by J.P. Morgan Securities plc, Frankfurt Branch which is regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Limited, Seoul Branch. Singapore: As at the date of this report, JPMSS is a designated market maker for certain structured warrants listed on the Singapore Exchange where the underlying securities may be the securities discussed in this report. Arising from its role as designated market maker for such structured warrants, JPMSS may conduct hedging activities in respect of such underlying securities and hold or have an interest in such underlying securities as a result. The updated list of structured warrants for which JPMSS acts as designated market maker may be found on the website of the Singapore Exchange Limited: http://www.sgx.com. In addition, JPMSS and/or its affiliates may also have an interest or holding in any of the securities discussed in this report – please see the Important Disclosures section above. For securities where the holding is 1% or greater, the holding may be found in the Important Disclosures section above. For all other securities mentioned in this report, JPMSS and/or its affiliates may have a holding of less than 1% in such securities and may trade them in ways different from those discussed in this report. Employees of JPMSS and/or its affiliates not involved in the preparation of this report may have investments in the securities (or derivatives of such securities) mentioned in this report and may trade them in ways different from those discussed in this report. Taiwan: Research relating to equity securities is issued and distributed in Taiwan by J.P. Morgan Securities (Taiwan) Limited, subject to the license scope and the applicable laws and the regulations in Taiwan. According to Paragraph 2, Article 7-1 of Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers (as amended or supplemented) and/or other applicable laws or regulations, please note that the recipient of this material is not permitted to engage in any activities in connection with the material which may give rise to conflicts of interests, unless otherwise disclosed in the “Important Disclosures” in this material. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to "wholesale clients" (as defined in the Financial Advisers Act 2008). The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: This report is distributed in Canada by or on behalf of J.P.Morgan Securities Canada Inc. The information contained herein is not, and under no circumstances is to be construed as an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. Dubai: This report has been distributed to persons regarded as professional clients or market counterparties as defined under the DFSA rules. Brazil: Ombudsman J.P. Morgan: 0800-7700847 / [email protected].
General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to
83 Henry Wibowo Asia Pacific Equity Research (622-1) 5291 8526 09 July 2020 [email protected]
JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.
"Other Disclosures" last revised July 04, 2020. Copyright 2020 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P
84 Completed 09 Jul 2020 12:03 AM HKT Disseminated 09 Jul 2020 12:38 AM HKT