PT Summarecon Agung Tbk (SMRA IJ) A Better Future 11 October 2017 INDONESIA | PROPERTY | INITIATION HOLD Company Background MARKET PRICE IDR 1,075 PT Summarecon Agung Tbk (SMRA) and its subsidiaries develop and invest in real estate. The Company develops and operates residential houses, apartments, shopping centers, TARGET PRICE IDR 1,180 (+9.77%) recreational centers and office buildings. COMPANY DATA Investment Merits O/S SHARES (BN) : 14.43 . Low interest rate environment and spatial LTV may spur demand MARKET CAP (IDR TN) : 16.374 MARKET CAP (USDBN) : 1.211 We believe the latest rate cut will be another crucial variable that will affect the 52 - WK HI/LO (IDR) : 970/1,785 performance of the property sector in the medium term. Recent newsflashes have 3M AVG. VOLUME (MN SHARES): 24.47 indicated that several banks are planning to increase their exposure in housing loans by PAR VALUE (IDR) : 100 lowering mortgage rates. On a related note, BI is also planning to issue a macro- MAJOR SHAREHOLDERS, % prudential regulation to boost credit in property and automotive. The policy is the spatial PT SEMAROP AGUNG: 25.43% LTV scale in each different region. We believe any relaxation in mortgage disbursement PT SINARMEGAH JAYASENTOSA: 6.60% scheme is likely to lift pre-sales. APG STICHING STRAT REAL EST POOL: 5.61% . Bandung and Makassar projects are the ones with high potential VANGUARD: 2.78% We are positive on SMRA's plan to launch more low-rise instead of high-rise in FY17E. FIL LIMITED: 1.99% Additionally, upside risks to our rating and price target also include better-than-expected PRICE VS. JCI ASP growth and take up rate from Bandung’s subsequent launches. We are also 130 expecting bright prospect from the Makassar project as ASP may see growth around 7.5% 120 110 over the next 2 years if spatial LTV relaxation is to be implemented in this region and 100 infrastructure projects experience no further delay. 90 80 . Vast land bank and strong project pipeline justify attractive valuation 70 SMRA has a very strong project lineup in its pipeline, which includes a total estimated 60 50 project value of IDR 3.3 tn in Kelapa Gading, over IDR 13.87 tn in Serpong and over IDR 40
48.04 tn in Bekasi. With this in mind, we expect SMRA's pre-sales to witness a 13.2%
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16 17
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CAGR 2017/20E, with majority of contribution coming from Bekasi and Serpong. Jan
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Nov Mar Furthermore, valuations are inexpensive, with the stock currently trading at a 60.4% May JCI Rebased SMRA discount to RNAV and below the one year historical mean. Source: PSI Research, Bloomberg Key Risks . Debt burden continues to mount KEY FINANCIALS
Net gearing was hovering around 41% to 66% in 2014-16 and we forecast it will stay IDR bn FY17F FY18F FY19F FY20F around 57% as the company will likely start to deleverage after 2020 when the revenue backlog has cleared out in 2019. We are, to some extent, cautious by this level of net Revenue 3,101 3,942 4,802 5,442 gearing as it is above the ideal level and SMRA has continued its lengthy cash installment EBITDA 1,872 1,977 2,086 2,464 period which has affected its net leverage. In our view, this is an approach that SMRA has Net Profit 594 591 631 871 to take in order to stay competitive. In addition, its bottom line will be helped by higher EPS, IDR 41.19 40.97 43.74 60.40 margin from portfolio mix change as SMRA will focus more on residential property PER, x 28.65 28.80 26.98 19.54 development rather than apartments. P/BV, x 1.93 1.79 1.66 1.52 . Macro condition and political risk ROE, % 6.8% 6.2% 6.2% 7.8% Another downside risk to our thesis is that the SMRA’s pre-sales could fall below our Net Gearing, % 69 62 48 57 forecast either due to weak macro conditions or adverse political tension. Property pre- sales historically have been weaker pre-major elections and the pick-up on pre-sales Source: PSI Research typically started to occur around three quarters post-major elections. There is also a possibility of property price outlook may negatively affected if infrastructure execution
decelerates.
Initiate with HOLD We believe SMRA is currently trading at a discount (62.2% discount to RNAV above its 3 years historical mean of 58.7%), thus we commence our coverage on SMRA with HOLD Valuation Method: Sum of the parts (SOTP) rating and 12 month forward target price of IDR 1,180 per share using SOTP valuation Yehuda Anthony Harahap (+62 57900800) method which implies 1.93x PBV ratios FY17E, P/E ratio FY17E of 28.65x and ROE FY17E of [email protected] 6.8%. The valuation method is based under assumption of risk free rate of 6.82% and terminal growth rate of 4.5%. Page | 1 | PHILLIP SEKURITAS INDONESIA
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Investment thesis We have positive view on SMRA’s strong project lineup in its pipeline, which includes a total estimated project value of over IDR 3.3 tn in Kelapa Gading, over IDR 13.87 tn in Serpong and over IDR 48.04 tn in Bekasi for the longer term. Coupled with our expectations for an improving macro environment and renewed confidence in 2018, we expect SMRA's pre- sales to witness a CAGR of 13.2% over 2017/20E with majority of contribution coming from Bekasi and Serpong. Another key differentiator is that, in FY19F, we estimate Makassar and Bandung projects will contribute as much as 19.63% of total marketing sales, rising from 15.12% in FY17F. Our assumption is based on surging ASP growth and demand expansion in Bandung and Makassar given their exposure to several high-profile infrastructure projects which should be completed by early 2019.
In addition to strong project pipeline, SMRA is known for its success in developing retail spaces. The company’s Kelapa Gading Mall, Summarecon Bekasi Mall and Summarecon Serpong Mall, have been successful in attracting patrons and enjoyed an average occupancy rate higher than 94%. It is also noteworthy that 48.67% of their major tenants have lease expiry in more than 3 years which should help prevent occupancy rate deterioration.
While its ability to generate recurring income is notable, around 59.4% of revenues remain contributed by property development. Thus far, the company had achieved 9M17 marketing sales of IDR 1.99 tn, this target completed 56.8% of the revised FY17 pre-sales target at IDR 3.5 tn. In order to achieve another IDR 1.6 tn of pre-sales shortage, for the next three months, SMRA plans to hold five more project launching, with the first being the Burgundy Residence at Orchard 2 Residential, Bekasi. It offers 391 units (66 sqm-104 sqm) cluster house, costing from IDR 1.1 bn-1.9 bn. With this in mind, we are fairly cautious on its property sales due to SMRA’s considerable exposure toward mid to mid-high end products as property buyers’ liquidity as well as buying power have not recovered to the ideal level since 2014. Nevertheless, we are upbeat on SMRA’s recent shift in strategy from high-rise focus to low-rise centric. This move will offer SMRA with a much needed higher margin and smoother revenue recognition.
Hence, we initiate our coverage on SMRA with HOLD rating and 12 month forward price target of IDR 1,180 per share using SOTP (see RNAV summary) valuation method which implies 58.5% discount to RNAV. Our RNAV calculation uses DCF method to value investment properties, which applies terminal growth of 4.5%, risk free rate of 6.82% and WACC of 15.4%.
Spatial LTV relaxation to spur demand Since 2016, regulations have been aimed to push property sector back to its best but their impacts on the market remained limited. Loan-to-value (LTV) relaxation, lower final tax to property sellers (PPh tariff cut from 5% to 2.5%) and relaxation of foreign property ownership have not been enough to boost property sales (Figure 1).
Figure 1: Mortgage Growth vs. Pre-sales 400 25%
300 5% 200
-15% 100
0 -35%
2012 2013 2014 2015 2016 8M17
Mortgage (LHS) BI Rate* (RHS) Mortgage Growth (RHS) SMRA's Pre-sales YoY (RHS)
Source: Bank Indonesia, Ministry of Finance, PSI Research
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BI is planning to issue a macro-prudential regulation to boost credit channeling in property and automotive sector. BI governor, Agus Martowardojo, mentioned that LTV spatial policy easing plan will be based on the conditions of the development of property and automotive industries in each region. He also ensured that the LTV spatial policy will be issued no later than 2017 in order to reduce the lag between policy implementation and market’s reaction. However, mortgage LTV regulation has been revised 3 times since 2013 and the two relaxations in 2015 and 2016 were not sufficient to lift pre-sales.
In our view, another relaxation in mortgage disbursement scheme is likely to lift pre-sales especially in several regions with growing buying power such as Makassar and Medan but mortgage disbursement introduced may take time before developers’ balance sheet and working capital can normalize. We have composed a scenario (Figure 2) with possible adjustments made to the current LTV caps. Each region will have different ratio depending on its purchasing power and economic growth. These adjustments are applicable to those regions with growing macro and higher purchasing power such as Makassar, Semarang and Medan. We believe it is counterproductive to implement higher LTV on regions with slower macro and lower purchasing as higher LTV will lead to higher mortgage payment in which impairs affordability in the longer term.
Figure 2: LTV caps with possible adjustments on regions with higher purchasing power Category 1st Credit Facility 2nd Credit Facility 3rd Credit Facility Type Current Possible Current Possible Current Possible Adjustment* Adjustment* Adjustment* Landed Houses 85% 90% 80% 85% 75% 80% Type > 70 m2 Landed Houses - - 85% 90% 80% 85% Type 22-70 m2 Apartments 85% 90% 80% 85% - - Type > 70 m2 Apartments 90% 90% 85% 85% 80% 80% Type 22-70 m2 Apartments - - 85% 90% 80% 85% Type < 22 m2 Shop Houses - - 85% 90% 80% 85%
Source: Bank Indonesia, Ministry of Finance, PSI Research
The dark horse - Bandung SMRA has three existing townships in three different regions of Greater Jakarta and one township in Bandung, West Java that launched in 2015. Going forward, marketing sales will be mostly supported by Serpong and Bekasi townships given that the Kelapa Gading township is matured. However, SMRA also plans to launch two more townships in the near future timeframe: 1) Bogor (South Jakarta suburbs) – following the acquisition of a 40.8% stake in the company that owns a 250-ha land bank in 2014, and 2) Makassar (South Sulawesi) – a 51-49 JV project with local developer Mutiara Property group to develop a 188 ha township (with a similar concept to the recently launched Bandung township).
Figure 3: Residential Property Price Growth by Region (YoY%) City 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17* Jabodebek- Banten 2.24 1.35 1.23 1.04 2.00 3.25 5.14 Bandung 5.42 6.43 6.48 6.79 5.41 3.80 3.26 Makassar 9.37 4.67 2.47 1.69 0.33 0.56 0.65 Composite of 16 Major Cities 4.15 3.39 2.75 2.38 2.62 3.17 3.99
Source: Bank Indonesia
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Figure 4: Regional GDP
7.45% Maluku and Papua 6.62% 4.32% 7.42% Sulawesi 8.18% 6.88% 2.01% Kalimantan 1.31% 3.19% 5.89% Bali and Nusa Tenggara 10.29% 5.86% 5.59% Java 5.45% 5.59% 4.29% Sumatera 3.54% 4.66%
2016 2015 2014
Source: Badan Pusat Statistik
Figure 3 suggests that residential house price growth in Makassar and Bandung underperformed Jabodebek – Banten region and the composite house price index of 16 major cities. In our view, despite slower price growth than other regions, Makassar and Bandung have the potential to be positive catalysts for SMRA in the near future. We forecast that out of all SMRA’s future townships, the Summarecon Bandung project is arguably one with the highest potential value. West Java’s economic growth, which mainly supported by Bandung as the province’s largest metropolitan city, saw a 5.59% YoY increase in 2016 and is expected to grow even further in 2017 on the back of infrastructure development. This is higher than the national economic growth of 5.01%. We expect that Bandung’s economic growth in the upcoming years will accelerate in Gedebage and its surrounding areas due to several reasons: 1) Bandung city government office relocation (SKPD) to Gedebage. 2) SMRA’s strategic location is nearby future infrastructure (Appendix- Exhibit 9) developments which increases competitive advantage and adds additional value to the project itself.
Figure 5: Cluster Amanda Figure 6: BIUTR Exit Gedebage
Source: PSI Research, Skyscrapercity
In our view, SMRA will be able to capture this opportunity due to its competitive position in Bandung’s property market. SMRA’s notable competitors in Bandung include PT Ciputra development Tbk (CTRA, Rated BUY), Istana Group and Lyman Group. Based on our assumption, We believe that CTRA will not impose a considerable threat to SMRA’s market share in Bandung because its presence is limited as a joint venture project (with PT Dam Utama Skati Prima) and CitraGreen Dago Bandung has only 70 ha of land bank which is considerably less than SMRA’s sizable land bank of 330 ha.
We expect SMRA to hold three new launches in 3Q17 with total pre-sales value of IDR 835 bn. The first launch, Cynthia Phase II, will consist of big-house type units, where the smallest unit will be no smaller than 100 sqm. This is mainly due to the project launches trend observed in Bandung during 2016 was leaning towards big-house sales. However, we believe what will present a significant upside risk is the upcoming projects which hold value around IDR 53.98 tn (House 8 clusters and mixed used developments with 65 apartment Page | 4 | PHILLIP SEKURITAS INDONESIA
SUMMARECON AGUNG INITIATION towers). Once Bandung Intra Urban Toll (BIUTR) exit 149 km (estimated completion in 2018) and high speed railway Jakarta – Bandung (estimated completion in 2019) have been completed, we forecast ASP to see CAGR growth of 14.06% by 2021. Additionally, there is a high probability that take-up rates for those projects launches will reach 100% considering how oversubscribed the previous launches were despite incomplete infrastructure developments.
Makassar and Bogor are the new frontiers Our valuation model includes estimated values of SMRA’s two new projects, Makassar and Bogor, which the company plans to launch in the near future. SMRA has acquired 340 ha of land bank in Makassar, South Sulawesi. Majority of the land bank are from acquisition of 51% stake in PT Sinergi Mutiara Cemerlang (SMC) from Elite Field Investment limited, which has a 188 ha land bank in Makassar.
Makassar has seen tremendous economic growth for the past 5 years and has the potential to grow even further as it is a commercial and port hub due to its strategic geographical position. In 4Q16, the South Sulawesi province enjoys a high economic growth of 7.42% driven by Makassar as its business center. Furthermore, there are several high profile infrastructure projects to be built in Makassar which include 40km of Trans Mamminasata Toll road, 145.23km of Makassar-Parepare rail road as well as several capacity upgrades for containers in Makassar New Port Project.
Figure 7: RPPI at 1H17 (Base year Figure 8: Household Consumption 2002) Expenditure Growth 340
290 8.00%
240 6.00% 190
140 4.00% 90 2.00%
2011 2012 2013 2014 2015 2016 Makassar Bandung
Medan DKI Jakarta
Source: Badan Pusat Statistik, Bank Indonesia, PSI Research
We suspect these aspects have ignited the boom in Makassar’s property market, which experienced a surge in demand. According figure 2, residential property prices in Makassar during 1Q16 experienced the highest hike in the average price of houses, which increases by 9.36% YoY compared to industry average (composite of 16 cities including Jabodetabek and Banten) of 4.15% yoy. Based on this trend, we are expecting ASP to see growth around 7.5% over the next 2 years if spatial LTV relaxation is to be implemented in this region and infrastructure projects experience no further delay. ASP growth will contribute indirectly to SMRA's bottom line as the company will receive higher margin on its products due to lower replacement and acquisition cost.
Nevertheless, there are several identifiable competitors that are planning to take part in Makassar’s property market. Namely, Lippo Karawaci (LPKR, UNRATED), through its subsidiary Gowa Makassar Tourism Development (GMTD) is developing its 2.7ha mixed-use development project, St. Moritz Makassar in Panakukang region. The project will consist of residential apartments, retail center, a Siloam Hospital, Pelita Harapan School and a hotel. Similarly, Agung Podomoro Land (APLN, UNRATED) plans to develop a waterfront city in Tanjung Bunga with 300 ha of land bank. Lastly, Ciputra Surya, subsidary of Ciputra Development (CTRA, Rated BUY) won the bid to develop Central Point of Indonesia (CPI) back in 2015; it is a reclamation project in partnership with Galesong Group. CPI is also part of the 1,000 ha Integrated Global Business District master plan and the CPI itself covers 157 ha. Majority of the land bank will be allocated to CitraLand Makassar Losari while the Page | 5 | PHILLIP SEKURITAS INDONESIA
SUMMARECON AGUNG INITIATION remaining will be allocated for the Makassar Regional Government. Dense competition may present downside risk for SMRA, nevertheless, we believe that aggregate property demand in Makassar (Figure 7) is strong enough to support a surge in aggregate supply. SMRA is also competitively positioned with solid marketing strategy and efficient product positioning. Thus, we believe that the Summarecon Makassar project will be able generate high volume of pre-sales by taking advantage of Makassar’s surging demand for property.
Figure 9: Mamminasata Bypass Figure 10: Makassar-Parepare rail road
Source: PSI Research, Skyscrapercity
Meanwhile, SMRA has acquired 410ha land bank in Bogor with plans to develop a township through a 51%-owned Joint Venture. SMRA’s land bank is presumably located in Gunung Geulis near Tanah Baru and within close proximity to the Ciawi-Gadog toll road. It is likely that the plan will include mixed-used development concept with, potentially, Bogor's biggest mall as the major selling point. Management discussed that the first phase will be to develop residential property along with shopping center. We also expect this township to capture the growing property demand in Bogor as a satellite city to Jakarta. Bogor has yet to experience the so called 'property bubble' and with that in mind it is probable to see ASP growth of 12% in 2019-21 period. This assumption will be backed with Summarecon Bogor project being reasonably close to the Barangsiang station. The station will be built during LRT project phase II, connecting Cibubur to Bogor.
Figure 11: Jakarta – Bogor LRT Map
Source: PSI Research, Transportation Ministry
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Vast land bank will sustain expansion and present better product mix Currently, Summarecon Serpong is still the main driver for marketing sales with more than 40.34% contribution going forward. However, Its staggering amount of raw land bank (approximately 2,210 ha, Figure 12) can offer flexibility for SMRA. The company can assess the demand of each property market segment (although property market is still in recovery mode) and then select the appropriate segment to develop projects accordingly (Figure 13).
Revenue composition of SMRA has been somewhat diversified evenly between marketing sales of residential houses (27%), apartments (28%) and recurring income (29%) from investment properties. SMRA has been focusing on developing apartments for the past couple of years but the company tries to shift its focus to residential development going forward. This will provide SMRA with higher margin and less revenue backlog. Currently, SMRA has revenue backlog around IDR 5.2 tn and half of those came from apartments sales. Revenue recognition for residential houses allows SMRA to recognize sales every 2 years which provides smoother top line growth compared to recognition for apartment sales that forces SMRA to recognize revenue over the span of 4 years based on project completion rate. Figure 12: Developers' Land bank Figure 13: SMRA's Land bank composition Kelapa Karawang Gading 4000 Bali
3000 Makassar Serpong 2000
1000 Bogor Bekasi 0 Bandung BSDE PWON CTRA SMRA ASRI
Source: Company, PSI Research
Our model assumes SMRA’s land bank life of approximately 18 years for its landed residential projects and up to 15 years for its mixed-use projects, assuming 14.87 ha (based on average track record) per annum sales and perpetual capex of IDR 180 bn (included in annual total capex) for land replenishment. We also take into consideration that SMRA’s land bank is highly valuable given its strategic location and exposure to several high-profile infrastructure developments. Consequently, SMRA's land bank justifiably translates into higher NAV. We also believe the SMRA’s top-line growth would still be supported by its growing recurring income stream even in a lethargic pre-selling market condition.
Key Risks Net gearing has increased significantly since 2014 Sustained overall macro economic slowdown and regulation whirlwind slammed a big blow on property purchases in 2016. Halfway through 1Q16, developers started to revise down their full-year targets (ranging from 8% to as deep as 16%). SMRA's marketing sales performance was down 31% YoY in 2016 and has yet to recover to the peak level in 2014.
Weak presales have been forcing SMRA to allow property buyers to have installment plans to a maximum of five years. As a result, the company has had to rely on additional debt to fund construction of its projects and has raised its net debt levels considerably since 2014. By 2016, the net debt level has reached IDR 5.35 tn (net gearing at 65.5%) and we forecast net gearing will stay around 52.3% until 2019. We are, to some extent, cautious by this level of net gearing as it is currently above the sector mean at 50.5%. Additionally, this measure lowers operating cash flows over time and eventually will force the company to take one of these three actions: 1) Raising more external financing (i.e. loan facilities, bonds, etc), 2) Selling ready assets (particularly land banks) or 3) Reducing the installment period. Based on our meeting with SMRA, the company expects to deleverage as soon as revenue backlog reduces in 2019 and interest coverage is projected to go up from 2.01x to 2.47x. Page | 7 | PHILLIP SEKURITAS INDONESIA
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Figure 14: Net Gearing Trend Figure 15: Net Gearing 10000 80% Comparison 80% 8000 60% 60% 6000 40% 4000 20% 40% 2000 0% 20%
0 -20% 0%
-20%
Total Debt (LHS) Equity (LHS) PWON BSDE Cash (LHS) Net Gearing (RHS) CTRA SMRA
Source: PSI Research
A prolonged “wait & see” mode will delay projects launches We believe another downside risk for SMRA is if property market fails to recover due to the continual of low buyers’ liquidity and weak buying power. Those factors are usually attributed to weak macro improvement. Figure 17 suggests monetary liquidity indicator, M2 supply growth (broad money), was stagnant since 4Q16 due to the implementation of tax amnesty scheme until 1Q17. The impact of Tax Amnesty Scheme was noticeably downbeat for the property sector as we believe during that time cash and cash equivalents were used to pay tax penalties.
Slow mortgage lending growth which stayed in single-digits for more than one year, at 7.98%, has also contributed to weak pre-sales. The rising NPL since late 2016 may have discouraged banks’ appetite and prompted banks to be highly selective on mortgage approvals. Moreover, OJK's recent decision to disband the rule first introduced in 2015 that allowed for looser provisioning terms will not help mortgage lending to grow any faster. The state of mortgage lending was clearly portrayed when Bank Indonesia cut its 2017 loan- growth target to a range of 8 to 10 percent after previously forecasting 10 to 12 percent earlier this year.
Currently, property pre-sales are highly dependent on developers’ in-house financing. In- house financing is limited by each developer’s balance sheet and working capital. If installments to developers remain the dominant payment method then it curbs the strength of a pre-sales growth recovery. This requires an interception by a better appetite to lend mortgages from banks in order for pre-sales to rebound meaningfully. There are worrying signs as developers' leverage has risen by 3x on average since 2014 and their cash conversion cycle has been deteriorating ever since.
Figure 16: CPI vs. Pre-sales Figure 17: Money Supply vs. Pre-
10.00% sales
8.00% 5.00% 1200 6.00% 1000 0.00% 4.00% 700 500 2.00%
0.00% 200 -5.00% 0
bn
1Q16 3Q13 1Q14 3Q14 1Q15 3Q15 3Q16 1Q17
1Q17 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 2Q17
CPI YoY (LHS) SMRA Pre-sales (RHS) M2 MoM (LHS) SMRA Pre-sales (RHS)
Source: Bloomberg, PSI Research
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Additionally, a weak buying power which signified by declining CPI, has been negatively affecting developers’ pre-sales performance including SMRA. Its main target market is the middle class in which majority of them preferred mortgage as their payment option. Based on our meeting, management did discuss the possibility of delaying project launch in several regions namely Bogor and Makassar in order to adapt with weak demand. This strategy will focus on clearing inventories and selling under-construction products in order to mitigate disappointing pre-sales result. We did take into account the possibility of prolonged languid property appetite into our model: nevertheless, given Indonesia has recently entered interest down cycle, the probability is somewhat low. Thus, we are not overly concerned with liquidity issue as it should be less problematic in 4Q17. We expect market liquidity and property appetite to recover as government bonds start to offer lower yields and long term deposits growth has flattened over the past months.
Potential impact from the upcoming presidential election in 2019 We are optimistic on the property price outlook in 2018 given progressing infrastructure execution. However, downside risk on the property price outlook may occur if infrastructure execution decelerates due to political factors. Delays in infrastructure execution of high profile projects, i.e. LRT, high speed train and flyovers which improve connectivity into and out of Jakarta, could occur due political instability that usually precedes the presidential election. Figure 18: Cumulative Pre-sales Growth
80% Basuki Tjahaja inaugurated as 60% Governor of DKI Jakarta DKI Jakarta gubernatorial election, 40% 2017
20%
0% Joko Widodo was elected -20% as Governor of DKI Joko Widodo -40% Jakarta appointed as
4Q12 4Q16 1Q12 2Q12 3Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 1Q17 2Q17
Cummulative Pre-sales Growth (YoY)
Moreover, property pre-sales historically have been weaker pre-major elections and it is a worrying sign as the upcoming presidential election moves closer. The slow down on pre- sales typically occurred as far as three quarters before major elections meaning pre-sales could be disrupted as early as 4Q18. The last major election was the Jakarta governor election on 19th April 2017 and pre-sales have been negatively affected since 3Q16. As pre- sales have just started to recover more meaningfully in late 2017, the upcoming presidential election may present disruption to the recovery momentum and prolong the sector downturn.
Financial Highlights Cash-flow regeneration burdened by interest expense Figure 19 displays that SMRA has been struggling to keep OCF at net position since 2013. SMRA also demonstrates stagnant OCF trend due to its arduous interest expense. This is due to SMRA’s total debt has increased more than 6x in value since 2012 from IDR 1.1 tn to IDR 7,4tn in FY16, representing 91% gross gearing ratio with 10.39% blended cost of fund. Moving to 1H17, its total debt increased 5% to IDR 7,8tn which represented 95% gross gearing. In addition, most of company’s bonds are maturing during 2018-2020 period with total amount up to IDR 2.5tn. This will be a challenge for management to execute its plan in maintaining gross gearing level at 90%.
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If compared to SMRA, most of its peers also have struggled to keep OCF at net position and display sporadic patterns. PWON (Rated Hold) was the only exception as it managed to demonstrate the most stable trend due to its unwavering recurring income stream. Such irregular stream, in our view, was mainly due to aggressive land purchases at higher cost, poor inventory management and extension of in house installment to sweeten pre-sales deals which SMRA has been susceptible to for the past 4 years.
Figure 19: Developers' OCF Companies 2010 2011 2012 2013 2014 2015 2016
PWON 563 225 1,318 2,133 1,943 1,688 3,309
BSDE 711 1,015 1,871 (247) 2,765 168 862
CTRA 595 (228) 930 1341 (410) 1251 (637)
SMRA 654 749 1310 (1) 131 (21) 71
APLN (1015) (226) 1331 1611 894 (111) 597
Source: Company, PSI Research. Non-rated stocks: APLN
Figure 20: Developers' FCF Companies 2010 2011 2012 2013 2014 2015 2016
PWON (52) 101 653 1661 (3363) 317 1874
BSDE 182 618 1749 (2209) 2248 (792) (145)
CTRA 122 (4734) 1959 (375) (1458) (138) (842)
SMRA 39 366 398 1,138 1,621 1,660 1,301
APLN 213 498 640 575 (522) (132) 506 Source: Company, PSI Research. Non-rated stocks: APLN
SMRA free cash flow (FCF) took a dive in 2014 due to weak pre-sales and continued land bank acquisitions. We think SMRA needs to display an improved subtlety and carefulness as a cash-flow manager because most of its projects are capital-intensive in which usually incur heavy capex. Despite the fact that SMRA's FCF has displayed sporadic pattern for the past 4 years, we believe FCF should see an improvement in FY19 from benign capex and healthier property pre-sales. Additionally, based on SMRA non-land capital investment breakdown, there are 3 hotels projects and 1 commercial development that will begin construction in 2018. These projects will have positive contribution to its recurring income once they are completed in late 2019.
Slight margin improvement from changes in portfolio mix On the margins side, we expect a modest margin expansion as SMRA's portfolio will contain fewer apartments and more landed residential houses. We believe this is positive as apartments have a much lower margin than low-rise products despite offering higher sales volume.
Figure 21: Gross margins to Figure 22: Operating Income
55.00% expand Contribution
95.00%
50.00% 45.00%
45.00% -5.00%
Gross Margins Property development Investment property Others
Source: Company, PSI Research
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Having said that, we forecast SMRA's gross profit to see a modest 6.73% CAGR over 2017- 20. In addition, gross margin is going to see further expansion from 50.6% in FY17F to 51.95% in FY19F as contribution from Makassar and Bogor projects start to kick in. We see that this uptrend on margin is going to be maintainable in the medium term, given management's initiative to reduce revenue backlog and focus more on low-rise products in the medium term.
Opex to witness 9% CAGR over the next 4 years We expect salaries expense proportion to stay flat at approximately 10% of sales. The second biggest contributor is promotion and ads, which was 16.8% of total opex in FY16. We expect this to go up a bit once several new projects like Makassar and Bogor have been launched. With both of these factors taken into account, this leads to operating expense to witness a 9% CAGR over the 2017-20E period.
SMRA records other income and expense mostly from interest gains and costs. In FY16, the company reported a net interest expense of 11.74% of revenue. This due to the abovementioned factor that total debt has been increasing at a staggering rate since 2013. We forecast SMRA will maintain this level of gearing in the short term and record net interest expenses of 11.81% out of net revenue in FY17. Taking the other components into account, we forecast net profit will witness 10.04% CAGR during 2017-20E.
Figure 23: Interest Expense Figure 24: Operating Expense Growth Contribution 1,000 80% 100%
800 60%
600 50% 40% 400 20% 200 0% -bn 0%
Promotion and ads Selling commission Salaries Interest Expense (LHS) Growth YoY (RHS) Depreciation Utilities Others
Source: Company, PSI Research
2Q17 Update: Mixed results In 2Q17, SMRA delivered a mixed performance, relatively in line with last year’s pattern. Revenue came in at IDR 1.4 tn and net loss at IDR 23.1 bn. SMRA’s 2Q17 revenue represented an increase by 14.5% YoY. However, its gross and operating profit declined 0.3% and 9.5% YoY, respectively. Meanwhile, its net loss expanded by almost 5x YoY in 2Q17 (see Table 1). Higher 1H17 revenue supported by increase in high-rise residential sales, (+22.8% YoY), from several projects in Serpong and Bekasi. Quarterly wise, overall property sales increased by 24.8% QoQ from higher apartment and commercial sales, while landed house and land lots sales declined by 27.4% and 44.2% QoQ, respectively.
Soft pre-sales performance SMRA posted weak marketing sales performance as it only came in at IDR 986 bn (24.9% YoY vs. 2Q16 at IDR 1.312 tn, see Figure 2). In 1H17, its marketing sales came in at IDR 1.5 tn (-16.1% YoY vs. 1H16 at IDR 1.7 tn), which only represented 42.8% of its full-year marketing sales target of IDR3.5 tn (see Figure 1). It is worth noting that on July 18, the management revised down its marketing sales target from IDR 4.5 tnr to IDR 3.5 tn, which was in line with our view on the company’s target early this year.
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Figure 25: SMRA’s 2Q17 earnings review IDR bn 2Q16 1Q17 2Q17 YoY QoQ 2016 2017E YoY % FY17E
Revenue 1,271 1,230 1,455 14.5% 18.3% 5,398 5,585 3% 48%
Prop. dev. 837.8 780 973.1 16.2% 24.8% 3,561 3,317 -7% 53%
Inv. property 433.0 450 482.0 11.3% 7.1% 1,837 2,268 23% 41%
Gross Profit 583.9 573 581.9 -0.3% 1.5% 2,598 2,824 9% 41%
Prop. dev. 408.0 376 388.8 -4.7% 3.4% 1,764 1,746 -1% 44%
Inv. property 175.9 197 193.1 9.8% -2.2% 835 1,079 29% 36%
EBIT 266.5 300 241.1 -9.5% -19.6% 1,410 1,510 7% 36%
Pretax profit 120.8 171 89.0 -26.3% -47.8% 878 859 -2% 30%
Net profit 48.2 106 18.9 -139.1% -82.3% 605 494 -18% 25%
Net profit* -3.8 71.9 -23.1 510.6% -132.1% 312 382 23% 13%
Earnings Run-rate IDR bn 6M17 PSI FY17E Run Rate % Consensus Run Rate %
Revenue 2,685 5,585 48% 5,541 48.5% Gross Profit 1,155 2,824 41% 2,622 44.1% Operating Profit 541 1,625 33% 1,392 38.9% Source: Company, PSI Research
Property industry Recuperation seems to be on the horizon, but how far? The Indonesia property sector has underperformed the JCI index by a staggering 13.5% YTD. We set our view on the Indonesia property sector to “neutral” as current sector valuations mostly reflect a lackluster pre-sales performance in 1H17 and lower buying power in early 2017. Moreover, we project cumulative pre-sales growth to be no more than 10% (YoY) for FY17E as majority of buyers (especially those in mid-upper segment) are still in ‘wait see mode’. Based on our observation, there are three reasons why some potential buyers have decided to postpone property purchases: 1) Mortgage rate decline is still an insignificant factor in stimulating property buyers, especially those in mid-upper segment, 2) Slower Average selling price growth is expected to persist in several regions, in line with the overall industry sluggishness, 3) Tighter liquidity and lower appetite to spend from tax scrutiny. From the developers’ side, many are still wary about launching new projects, as they think that overall demand has yet to recover in the near term. Hence, several new project launches scheduled for 2017 may well be postponed. However, we are optimistic on better 2H17-FY18E result as we believe recovery is not far but coming at a slower pace. Several key aspects such as low-interest rate environment, steady political situation and supportive government regulation will help developers in synthesizing strategies to perform better in current market condition.
Figure 26: JAKPROP vs JCI 140
120
100
80
60
Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17
JAKPROP Rebased JCI Rebased
Source: Bloomberg, PSI Research Page | 12 | PHILLIP SEKURITAS INDONESIA
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Positive catalyst – Urbanization is at an early stage A high urbanization rate will be a positive catalyst to Indonesia property market as developers primarily focus on big cities. Indonesia’s total population has seen growth from 238.5 mn people in 2010 to 255.4 mn in 2016. More importantly, its urban population percentage registered an increase of 350 bps from 49.8% in 2010 to 53.7% in 2015. According to Euromonitor, the country is in a relatively early stage of its urbanization process compared to other Southeast Asian countries. It is also vital to note an important determinant of income inequality in Indonesia, which is the condition of urban/rural household. This has led to a growing trend of urbanization in the country, as the rural population moves into cities in an attempt to increase their earnings and narrow the income gap. Income inequality in Indonesia continued to increase over 2010-2016, as the top income brackets was the main beneficiary of the country’s economic growth during this period. Coupled with expectations of continued urbanization over the period of 2017-2030, Indonesia’s total urban population proportion is projected to increase by 3% in 2020 and by 2030 approximately 63% of the population will be living in urban setting.
Figure 27: Urbanization Growth Index
680
480
280
80
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
Urban Total Rural
Source: Euromonitor, PSI Research
Growing disposable income is a factor to be reckoned with Backed by the partial rebound in global commodity prices, growth of Indonesia’s per capita disposable income and spending recovered in 2016. This, combined with rising government social spending, continued to drive a decline in income inequality and the expansion of the middle class. According to Euromonitor, average annual disposable income per household in rural areas stood at IDR 95.64 mn while urban household stood at IDR 130.99 mn. Both rural and urban households have experienced a considerably growth rate since 2011. We believe the increase in disposable income levels has made more Indonesian consumers look beyond price in the purchases of goods and services. This would then shift the proportion of households from low income bracket (households with disposable income below IDR 100 mn) towards higher-income brackets over the years. Euromonitor also observed that consumer expenditure posted a CAGR of 11.4% over 2009-13, and is projected to witness a CAGR of 12.3% over 2013-17F. Taking those factors into account, higher level of income generates higher expenditure which potentially has an effect on property’s demand in Indonesia.
Figure 28: Indonesia Disposable Income Demographics
300
250 7% Lower Income 200 25% 26%
150 63% 32% Lower Middle Income 42% 100 31% Upper Middle Income 50 24% 25% 10% 0 3% 12% Higher Income
2006 2011 2016
Source: Euromonitor, PSI Research Page | 13 | PHILLIP SEKURITAS INDONESIA
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Company Background SMRA is, per its track record, one of the best property developers in the country with a proven success in Summarecon Kelapa Gading and Serpong. The company is now moving east via the commencement of Summarecon Bekasi project in 2010, and is also expanding fast to Bandung, Bogor and Karawang.
The success of Sumarecon (SMRA) started via the development of the Kelapa Gading Township, now known as Summercon Gading. Founded by Mr. Soetjipto Nagaria and his associates in 1975, SMRA turned a remote area in northern part of Jakarta into a prestigious township in the city. The company started with a ten-hectare marsh land and currently Summarecon Kelapa Gading is a 550 ha township, comprising over 30,000 residential houses, 2,100 shoplots and 1,350 apartment units.
After the success of its Kelapa Gading project, in 1993, SMRA then expanded to the west part of Jakarta, located around 20 km from Jakarta CBD, to develop a new township, known as Gading Serpong at that time. The initial development was a joint effort between SMRA and Keris Group (not listed) with a total area of 1,500 ha. In 2004, SMRA and Keris Group decided to individually pursue the development of Gading Serpong with SMRA renaming Its area as Summarecon Serpong.
Figure 29: Company structure snapshot
Source: Company
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Figure 30: SWOT Analysis
Strengths: Weaknesses :
• Vast collective landbank in key • Highly dependent on Serpong areas township
• Expertise in developing • High gearing ratio and sporadic independent township with cash flow management complete supporting infrastructure
Threats: Opportunities: • Onerous processing time to obtain • LTV Spatial and low-interest rate permits for projects and land environment acquisitions.
• Early urbanization stage • When buyers are in‘wait and see’ mode during unstable macroeconomic • Expanding in areas of high growth climate and new government regulations rate and expanding property market • Weak secondary market
Source: PSI Research
Figure 31: Board of Commissioners
Name Title Background
Ir. Soetjipto Nagaria has been the President Commissioner of Summarecon Agung Tbk PT since November 9, 2001. Ir. IR. SOETJIPTO NAGARIA Founder Nagaria has been a Commissioner at Summarecon Agung (76) Tbk PT since 1999. He obtained a Degree in Chemical Engineering from Bandung Institute of Technology in 1964.
Mr. Harto Djojo Nagaria has been a Commissioner of Summarecon Agung Tbk PT since October 7, 1980. Mr. HARTO DJOJO NAGARIA Commissioner Nagaria obtained a Degree in Economics and Marketing (69) from University of Oregon in 1972.
Ms. Esther Melyani Homan served as Section Head of Finance and Accounting at Summarecon Agung tbk PT from 2001 to 2006. Ms. Homan joined Summarecon Agung tbk PT in 1984 and also served in various positions on finance and accounting since joining it. Prior to Summarecon, she ESTHER MELYANI Independent Commissioner worked in administration in another company. Ms. Homan HOMAN (57) has been an Independent Commissioner at Summarecon Agung tbk PT since June 23, 2006. Ms. Homan graduated with Degree in Economics from Tarumanegara University in 1984.
Dr. H. Edi Darnadi has been an Independent Commissioner of Summarecon Agung tbk PT since June 5, 2009. Drs. EDI DARNADI Independent Commissioner Darnadi Graduated from the Police Academy of Indonesia in 1974.
Source: Company, PSI Research, Bloomberg Page | 15 | PHILLIP SEKURITAS INDONESIA
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Figure 32: Board of Directors Name Title Background
Appointed Director in June 2002. Was a Commissioner from 1992 LILIAWATI RAHARDJO (68) Managing Director to 1997, and then the President Commissioner from1997 to 2001.
Appointed President Director in June 2015. Was a Director from 2013 to 2015. Joined in the Company as Executive Director ADRIANTO PITOYO ADHI (58) President Director (operations director) in 2005. Joined PT Metropolitan Land in 1997 as General Manager., then promoted to Director from 2002.
Appointed Director in June 2006. Since joining the Company in Director – Investment SOEGIANTO NAGARIA (44) 1997, he has served in various managerial positions in business Property development, club management and retail leasing
Appointed Director in June 2006. Previously served as Assistant Director – Property HERMAN NAGARIA (41) Director in Business Development from 2003, and has worked in Development various managerial positions since joining the Company in 1999.
Appointed Director in June 2006. Previously served as Technical Director – Technical & LILIES YAMIN (63) Assistant Director from 2003. Joined the Company in 1981. She Planning has worked as an architect in numerous companies since 1976
Appointed Director in June 1993. Previously served as Assistant Director - Corporate LEXY ARIE TUMIWA (68) Director in corporate and operational functions. Joined Company Services in 1987
Appointed Director in June 2013. Joined the Company as SHARIF BENYAMIN (57) Director – Serpong Executive Director (operations director) for Serpong in 2005. In 2009 assigned to manage new development projects
Appointed Director in May 2010. Joined in 1994 as Company Secretary till 1998, and returned to Company in 2006. Worked in YONG KING CHING, MICHAEL Director - Finance, PwC 1979 – 1988, Ernst & Whinney London 1988 – 1990, Bank (58) Corporate Secretary Dharmala 1990 – 1994, and Hexagon Malaysia in 2000 as FC, then as FD in 2001
Source: Company, PSI Research
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Sum of the parts valuation In valuing SMRA, we based our assumption on the most recent land prices in 2017 as we obtained the price of each area developed by SMRA from various reliable sources such as the company’s estimation and several reputable property brokers in Indonesia. Once we have deduced the average price of each location in SMRA’s land bank, we then compute the NAV (Net Asset Value) and came up with SMRA’s RNAV/share of IDR 2,832. After that, We calculate the RNAV of SMRA’s peers (residential property developers) such as PWON, APLN, CTRA and BSDE over their current market price and arrived at median value of 59.52%. Subsequently, we used same method to recalculate RNAV of property industry but using the boom period (namely 2012-2013 period) as the core variable. The median value for this period is 42.4%. Considering the fact that current property market situation may not be as exciting as its booming period, we believe the discount to RNAV should be more conservative and higher than 42.4%. On the other hand, we also expect property industry will show its luster again in the near future, since the middle income population in Indonesia is still growing and eventually property demand will become robust again. Hence, we believe the discount should be lower than the current industry median of 59.52% as we set the discount rate at 58.5% while the stock currently trades at a 62.2% discount to RNAV. Last but not least, we value investment property with DCF where we apply 15.4% WACC on net cash flow assuming 48:52 debt to equity component ratio, 6.82% risk-free-rate, 1.77x beta and 10.39% blended cap-rate which is calculated using the weighted-average of lease office, retail space and hotel. Hence, based on the valuation we arrive at the conclusion of SMRA's target price at IDR 1,180 per share which implies 28.65x PE and 1.93x PBV of FY17E.
FY17E FY18F FY19F FY20F FY21F FY22F NPAT 594 591 631 871 1,065 1,228 Equity 8,802 9,526 10,231 11,166 12,280 13,549 ROE 7% 6% 6% 8% 9% 9% Risk free rate (Rf) 6.82% RNAV/share 2,832 Beta (1 year) 1.77 Fair Value 1,180 Equity risk premium 7.51%
P/E Ratio 28.65x Cost of Equity 19.9% Source: Bloomberg, PSI Research
Figure 33: SMRA FW 12M P/E Figure 34: SMRA FW 12M PBV
250.00 4.00
200.00 3.00 150.00
100.00 2.00 50.00
- 1.00
Oct Oct Oct
Jul Jul
Jan Jan
Apr Apr
15 16 16 17 17
16 17
- -
- - - - -
- -
- -
16 17
- - -
- -
16 17
15 16 17
16 17
Jun Jun
Oct Oct Oct
Feb Feb
12M FW PE 12M Avg PE 12M FW PBV 12M Avg PBV
PE +1 std PE -1 std PE +1 std PE -1 std
Source: PSI Research
Page | 17 | PHILLIP SEKURITAS INDONESIA
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SMRA RNAV summary
Net - landbank (Ha) Ownership (%) RNAV 2017 (IDR bn) Kelapa Gading 8 100% 1,602
Serpong 484 14,378.6 SSP – Own Land 304 100% SSP – JO with PT JBC 138 70% SSP – JO for the Springs 42 55%
Bekasi 393 7806.5 SSP – Own Land 100% SSP – JV 51%
Bandung 334 100% 8612 .2
Bali 20 100% 1,260
Bogor 404 51 % 1,557.7
Makassar 340 3,974.8 SSP – Own Land 151 100% SSP – JV 188 51%
Karawang 33 100% 219.5
Total 2015 39,411.1
IDR bn IDR/share Raw Land bank 39,411 2,732 Kelapa Gading 1,602 111
Serpong 14,379 997
Bekasi 7,806 541 Bandung 8,612 597 Bogor 1,558 108 Bali 1,260 87
Makassar 3,975 276
Investment properties 7,160 496 Sentral Kelapa Gading 3,805 264 Sentral Gading Serpong 1,811 125 Summarecon Mal Bekasi 1,056 73
Movenpick Resort & Spa 489 34
Cash flow from recurring income 2,360 164 Tax and working capital 1,308 91 FY17E Net Cash 1,921 133 FY17E Total debt (8,007) (555)
FY17E Advances received from sales (3,301) (229) RNAV 40,852 2,832
Source: PSI Research, Company
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Financial Breakdown INCOME STATEMENT 2016A 2017F 2018F 2019F 2020F 2021F
Marketing sales IDR bn 2,955 3,101 3,942 4,802 5,442 6,147
Revenue IDR bn 5,398 5,585 5,890 6,069 6,953 7,813
COGS IDR bn 2,800 2,761 2,878 2,916 3,289 3,649
Gross profit IDR bn 2,598 2,824 3,012 3,153 3,664 4,164
Operating expenses IDR bn 1,188 1,199 1,336 1,428 1,646 1,854
Operating profit IDR bn 1,410 1,625 1,677 1,725 2,018 2,310
EBITDA IDR bn 1,679 1,872 1,977 2,086 2,464 2,868
Interest income IDR bn 101 101 100 114 155 140
Interest expense IDR bn 634 752 807 829 821 814 Other non-operating income IDR bn ------
Profit before tax IDR bn 878 975 970 1,010 1,352 1,636
Tax expenses IDR bn 272 254 253 248 305 359
Profit after tax IDR bn 605 721 717 762 1,047 1,277
Net profit IDR bn 312 594 591 631 871 1,065
REVENUE SUMMARY 2016A 2017F 2018F 2019F 2020F 2021F
Revenue - Development property IDR bn 3,561 3,317 3,305 3,242 3,984 4,694 Houses IDR bn 1,559 1,445 1,770 1,737 2,134 2,515 Land lot IDR bn 318 296 295 290 356 419 IDR bn Shop Houses 89 83 83 81 100 117 IDR bn Office ------IDR bn Apartments 1,595 1,493 1,157 1,135 1,394 1,643 Revenue - Investment property IDR bn 1,348 1,642 1,911 2,043 2,146 2,254 Mall and retail IDR bn 1,280 1,571 1,835 1,962 2,060 2,163 Commercial and others IDR bn 32 34 36 37 39 41 Residential IDR bn 9 10 10 11 11 12 Office IDR bn 26 28 31 33 35 38 Revenue - Others IDR bn 489 626 674 784 823 865
YoY growth 2016A 2017F 2018F 2019F 2020F 2021F
Marketing sales % -32% 5% 27% 22% 13% 13%
Revenue % -4% 3% 5% 3% 15% 12%
Gross profit % -11% 9% 7% 5% 16% 14%
Operating profit % -21% 15% 3% 3% 17% 14%
Profit before tax % -37% 11% 0% 4% 34% 21%
Net profit % -64% 91% -1% 7% 38% 22%
Key Ratios 2016A 2017F 2018F 2019F 2020F 2021F
EPS x 21.60 41.19 40.97 43.74 60.40 73.80
P/E x 54.62 28.65 28.80 26.98 19.54 15.99
DER x 0.91 0.91 0.90 0.83 0.75 0.68
PBV x 2.08 1.93 1.79 1.66 1.52 1.39
Source: PSI Research Page | 19 | PHILLIP SEKURITAS INDONESIA
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BALANCE SHEET 2016A 2017F 2018F 2019F 2020F 2021F Cash and equivalents IDR bn 2,076 1,921 2,652 3,566 2,048 2,384 Inventories IDR bn 5,531 6,160 6,324 5,711 7,243 6,988 Trade receiveables IDR bn 539 558 588 606 694 780 Net fixed assets IDR bn 451 237 445 831 1,456 2,211 Net investment properties IDR bn 4,487 5,019 5,650 6,313 7,001 7,704 Other assets IDR bn 7,727 8,033 8,257 8,466 8,825 9,205 Total assets IDR bn 20,811 21,927 23,916 25,493 27,267 29,272
Bank loans IDR bn 1,041 1,121 1,201 1,281 1,361 1,441 Advances received IDR bn 2,199 1,317 1,675 2,040 2,312 2,611 Other current liabilities IDR bn 411 426 449 463 530 596 LT loans/bonds net of ST portion IDR bn 6,024 6,524 7,024 6,874 6,724 6,574 Other non-current liabilities IDR bn 2,970 3,737 4,041 4,604 5,174 5,770 Total liabilities IDR bn 12,645 13,125 14,390 15,262 16,101 16,992
Minority interests IDR bn 1,923 1,996 2,188 2,321 2,448 2,584 Shareholders’ Equity IDR bn 6,243 6,806 7,338 7,910 8,718 9,696 Total equities IDR bn 8,166 8,802 9,526 10,231 11,166 12,280 Total Liabilities + Equities IDR bn 20,811 21,927 23,916 25,493 27,267 29,272
CASHFLOW STATEMENT 2016A 2017F 2018F 2019F 2020F 2021F Net income IDR bn 312 594 591 631 871 1,065 Depreciation and Amortization IDR bn 269 246 300 361 447 558
Changes in working capital (WC) IDR bn (666) (962) 383 1,455 (925) 916
OPERATING CASH FLOW IDR bn (86) (121) 1,274 2,448 393 2,539
INVESTING CASH FLOW IDR bn (895) (656) (1,255) (1,528) (1,895) (2,171)
FINANCING CASH FLOW IDR bn 1,553 622 713 (6) (16) (32)
Net change in cash IDR bn 573 (156) 732 913 (1,517) 336
Cash Beginning IDR bn 1,504 2,076 1,921 2,652 3,566 2,048
Cash Ending IDR bn 2,076 1,921 2,652 3,566 2,048 2,384
MARGINS 2016A 2017F 2018F 2019F 2020F 2021F
Gross margins % 48.1% 50.6% 51.1% 52.0% 52.7% 53.3%
Operating margins % 26.1% 29.1% 28.5% 28.4% 29.0% 29.6%
EBITDA margins % 31.1% 33.5% 33.6% 34.4% 35.4% 36.7%
PBT margins % 16.3% 17.4% 16.5% 16.6% 19.4% 20.9%
Net margins % 5.8% 10.6% 10.0% 10.4% 12.5% 13.6%
ROE % 4% 7% 6% 6% 8% 9%
Net gearing % 66% 69% 62% 48% 57% 49%
Dividend yield % 0.4% 0.2% 0.4% 0.4% 0.4% 0.5%
Source: PSI Research
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Appendix
Exhibit 1: Non-land capital investments Period Total 2016 FY17 FY18 FY19 FY20 Post FY20 IDR bn IDR bn IDR bn IDR bn IDR bn IDR bn IDR bn Movenpick Resort, Bali 2013-17 650 525 125 Harris Hotel, Serpong 2019-21 280 50 100 130 Plaza Summarecon, 2017-19 140 20 60 60 Bandung
Harris Hotel, Bandung 2020-21 300 100 200 Summarecon Mal, 2018-20 900 340 340 220 Bandung Holiday Inn, Yogyakarta 2020-21 300 150 Total Capex 2570 525 145 400 450 570 480
Source: Company, PSI Research
Exhibit 2: SMRA Debt Maturity Profile Exhibit 3: Customers Method of Payment 2000
1800
1600 15% 20% 1400
1200
1000
800
600
400
200 65% bn 0
FY17 FY18 FY19 FY20 FY21 FY22 FY23
Total Debt Cash Installments Mortgage
Source: Company, PSI Research
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Exhibit 4: Portfolio Overview
Source: Company
Exhibit 5: Portfolio Overview Continued
Source: Company
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Exhibit 6: Project Locations
Source: Company Exhibit 7: Summarecon Bekasi Mall
Source: PSI Research
Exhibit 8: Summarecon Serpong Mall
Source: PSI Research
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Exhibit 9: Summarecon Bandung Accesibility
Source: Company
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Ratings History 2,500 PT Summarecon Agung Tbk. Market Price
2,000 Target Price
1,500
1,000
500
0
Feb Feb
Aug Aug
Dec Dec
Apr Apr
Jun Jun
Oct Oct Oct
- -
- - -
- -
- -
- -
- -
16 17
15 16 17
16 17
16 17
15 16 17 16
1
2
3
PSR Rating System Total Returns Recommendation Rating > 10% Buy 1 0% to +10% Hold 2 <-0% Sell 3 Remarks We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation.
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Important Information Rating for Sectors: Overweight : We expect the industry to perform better than the primary market index (JCI) over the next 12 months. Neutral : We expect the industry to perform in line with the primary market index (JCI) over the next 12 months. Underweight : We expect the industry to under-perform the primary market index (JCI) over the next 12 months.
Rating for Stocks: Buy : The stock is expected to give total return (price appreciation + dividend yield) of > +10% over the next. 12 months. Hold : The stock is expected to give total return of > 0% to ≤ +10% over the next 12 months. Sell : The stock is expected to give total return of < 0% over the next 12 months. Outperform : The stock is expected to do slightly better than the market return. Equal to “moderate buy” Underperform : The stock is expected to do slightly worse than the market return. Equal to “moderate sell”
Analyst Certification The research analyst(s) primarily responsible for the preparation of this research report hereby certify that all of the views expressed in this research report accurately reflect their personal views about any and all of the subject securities or issuers. The research analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report.
Disclaimers This document has been prepared for general circulation based on information obtained from sources believed to be reliable. But we do not make any representations as to its accuracy or completeness. Phillip Sekuritas Indonesia (PSI) accept no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. PSI and its directors, officials and/or employees may have positions in, and may affect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealing with respect to these companies. PSI may also seek investment banking 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.
Disclosure Phillip Sekuritas Indonesia, or persons associated with or connected to Phillip Sekuritas Indonesia, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Indonesia and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Sekuritas Indonesia, or persons associated with or connected to Phillip Sekuritas Indonesia, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Sekuritas Indonesia, or persons associated with or connected to Phillip Sekuritas Indonesia, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Investment Banking and Advisory activities: In the preceding 12 months, Phillip Sekuritas Indonesia and/or an affiliate is not involved in any investment banking activities with PT. Summarecon Agung Tbk. Market Maker and Liquidity Provider: Phillip Sekuritas Indonesia and/or an affiliate is not a market maker / liquidity provider in securities issued by PT. Summarecon Agung Tbk. Other Financial Interests: Phillip Sekuritas Indonesia owns 0 shares in PT. Summarecon Agung Tbk.
Analyst’s Disclosure: Share Ownership: The analyst who wrote and published this report owns 0 shares in PT. Summarecon Agung Tbk. Affiliation: The analyst who wrote and published this report is not affiliated with PT. Summarecon Agung and any of the affiliates of PT. Summarecon Agung Tbk.
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Contact Information (Indonesia Research Team) Management
Jasa Adhimulya +62 21 57 900 800
(Head, Research - Equities) [email protected]
Banking | Economist Property, Construction Research Assistant Jasa Adhimulya +62 21 57 900 800 Yehuda Anthony Harahap +62 21 57 900 800 Dwi Prisetyowati +62 21 57 900 800 [email protected] [email protected] [email protected]
Retail Trade | FMCG Mohamad Adityo Nugroho +62 21 57 900 800 [email protected]
SINGAPORE MALAYSIA HONG KONG Phillip Securities Pte Ltd Phillip Capital Management SdnBhd Phillip Securities (HK) Ltd Raffles City Tower B-3-6 Block B Level 3 Megan Avenue II, 11/F United Centre 95 Queensway 250, North Bridge Road #06-00 No. 12, Jalan Yap Kwan Seng, 50450 Hong Kong Singapore 179101 Kuala Lumpur Tel +852 2277 6600 Tel +65 6533 6001 Tel +603 2162 8841 Fax +852 2868 5307 Fax +65 6535 6631 Fax +603 2166 5099 Websites: www.phillip.com.hk Website: www.poems.com.sg Website: www.poems.com.my
JAPAN INDONESIA CHINA Phillip Securities Japan, Ltd. PT Phillip Sekuritas Indonesia Phillip Financial Advisory (Shanghai) Co Ltd 4-2 Nihonbashi Kabuto-cho Chuo-ku, ANZ Tower Level 23B, No 550 Yan An East Road, Tokyo 103-0026 Jl Jend Sudirman Kav. 33A Ocean Tower Unit 2318, Tel +81-3 3666 2101 Jakarta 10220 – Indonesia Postal code 200001 Fax +81-3 3666 6090 Tel +62-21 5790 0800 Tel +86-21 5169 9200 Website: www.phillip.co.jp Fax +62-21 5790 0809 Fax +86-21 6351 2940 Website:www.phillip.co.id Website: www.phillip.com.cn
THAILAND FRANCE UNITED KINGDOM Phillip Securities (Thailand) Public Co. Ltd King & Shaxson Capital Limited King & Shaxson Capital Limited 15th Floor, Vorawat Building, 3rd Floor, 35 Rue de la Bienfaisance 75008 6th Floor, Candlewick House, 849 Silom Road, Silom, Bangrak, Paris France 120 Cannon Street, Bangkok 10500 Thailand Tel +33-1 45633100 London, EC4N 6AS Tel +66-2 6351700 / 22680999 Fax +33-1 45636017 Tel +44-20 7426 5950 Fax +66-2 22680921 Website: www.kingandshaxson.com Fax +44-20 7626 1757 Websitewww.phillip.co.th Website: www.kingandshaxson.com
UNITED STATES AUSTRALIA SRI LANKA Phillip Futures Inc Phillip Capital Asha Phillip Securities Limited 141 W Jackson Blvd Ste 3050 Level 12, 15 William Street, No 10, Prince Alfred Tower, The Chicago Board of Trade Building Melbourne, Victoria 3000, Australia Alfred House Gardens, Chicago, IL 60604 USA Tel +61-03 9629 8288 Colombo 3, Sri Lanka Tel +1-312 356 9000 Fax +61-03 9629 8882 Tel: (94) 11 2429 100 Fax: (94) 11 2429 199 Fax +1-312 356 9005 Website: www.phillipcapital.com.au Website: www.ashaphillip.net/home.htm
INDIA Phillip Capital (India) Private Limited No. 1, C‐Block, 2nd Floor, Modern Center , Jacob Circle, K. K. Marg, Mahalaxmi Mumbai 400011 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 Website: www.phillipcapital.in
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ANZ Tower Level 23B, Jl. Jendral Sudirman Kav 33A, Jakarta, 10220 - Indonesia Telp. (62-21) 57 900 800, Fax. (62-21) 57 900 809, Email : [email protected] Website: www.phillip.co.id | www.poems.co.id | www.poems.web.id
Komp. Ruko Mega Grosir Cempaka Mas Mangga Dua Jl. Let. Jend. Soeprapto Blok D No. 7 Jakarta, 10640 Ruko Bahan Bangunan Mangga Dua Blok F1/8 Telp. (62) 811211970 / (62-21) 42885051 Jl. Mangga Dua Selatan Jakarta 10730 Email: [email protected] Telp. (62) 819705980 / (62-21) 62203589 Email: [email protected]
Rukan Sentra Latumenten Roxy Jl.Prof.Dr Latumenten no.50 Pusat Niaga Roxy Mas Blok B2/2 Blk AA 12 Jakarta, 11460 Jl. KH. Hasyim Ashari - Jakarta Barat Telp. (62) 8159138999 / (62-21) 56941781 Telp. (62) 816900562 / (62-21) 63868308 Email: [email protected] Email: [email protected]
Pantai Indah Kapuk Taman Palem Jl. Pantai Indah Barat Rukan Ekslusif BGM Blok B-6 Citypark Business District Blok B2 No.12 Cengkareng, Jakbar 11730 Telp. (62) 81298798168 / (62-21) 56945791 Telp. (62-21) 5694 5055 / 5077; Fax. (62-21) 5694 5013; Email: [email protected] Email: [email protected]/[email protected]
Tanah Abang Kelapa Gading Pusat Grosir Metro Tanah Abang (PGMTA) Lantai 7 Unit 12, Jl. Boulevard Raya Blok WB2/27 Kelapa Gading Jakarta Utara Jl.Fachrudin Tanah Abang - Jakarta Pusat 10250 Telp. (62) 8164845571 / (62-21) 70700050 Telp : (021) 3003 6745 / 3003 6746; Fax : (021) 3003 6748 Email: [email protected] Email: [email protected]
Citra Garden 2 Alam Sutera Komp. Citra Niaga Blok A No.18 Ruko Prominence Blok 38G. No. 18 Citra Garden 2 - Kalideres, JakBar Jl. Sutra Barat Boulevard, Alam Sutera, Tangerang 15143 Telp. (62) 811885685 / (62-21) 54360175 Telp. (62-21) 50314300 Email: [email protected] Email: [email protected]
Purwokerto Yogyakarta Jln. Perintis Kemerdekaan No. 38 Kantor Perwakilan (KP) BEI Yogyakarta Purwokerto - Jawa Tengah, 53110 Jl. Mangkubumi No. 111 Yogyakarta Telp. (62-281) 626 899; Fax. (62-281) 891 150 Telp. (0274) 557367 Email: [email protected] Email: [email protected]
Semarang Tegal Jl. Karang Wulan Timur No. 2 - 4 Semarang Kompleks Nirmala Square Blok C no.7 Telp. (62-24) 355 5959; Fax. (62-24) 351 3194 Jl. Yos Sudarso - Tegal 52121 Email: [email protected] Telp. (62-283) 340773; Fax. (62-283) 340774 Email: [email protected]
Jawa Barat Batam Komp.Paskal Hypersquare Blok D-40 Kompleks Mahkota Raya Blok A No. 10 Jl Pasirkaliki 25-27 Bandung Batam Centre, Kota Batam 29456, Kepri Telp. (62-22) 8606 0690; Fax. (62-22) 8606 0765 Telp. (62-778) 748 3337/3030/3131; Fax. (62-778) 748 3117; E- Email: [email protected] Email: [email protected]
Jawa Timur Kalimantan Barat Jln. Flores No. 11 Surabaya, 60281 Jl. Teuku Umar Komplek Pontianak Mal C 23-24 Pontianak, Telp. (62-31) 501 5777; Fax. (62-31) 501 0567 Kalimantan Barat Email: [email protected] Telp. (62-561) 777 887; Fax. (62-561) 745 103 Email: [email protected]
Jambi Denpasar Jln. GR. Djamin Datuk Bagindo No. 56A Jambi, 36142 Kantor Perwakilan (KP) BEI Denpasar, Jl. P.B. Sudirman 10 X Kav. 2 Telp. (0741) 707 8260, 7555 699 Telp: (0361) 255 900 Email: [email protected] Email: [email protected]
Lampung Palembang Jl. Ikan Tongkol No. 33 Blok 7-8 Teluk Betung Kantor Perwakilan (KP) BEI Palembang, Jl. Angkatan 45 No.13-14 Bandar Lampung, 35223 Telp: (62) 8117886464 / (62-711) 5649260 Telp. (62-721) 474 234; Fax. (62-721) 474 108 Email: [email protected] Email: [email protected]
Pontianak Manado Kantor Perwakilan (KP) BEI Pontianak, Komplek Perkantoran Central Kantor Perwakilan (KP) BEI Manado, Ruko Mega Style Blok 1C No.9 Perdana Blok A2-A3, Jalan Perdana Komplek Mega Mas, Jl. Piere Tendean Boulevard Telp: (62) 85750035553 / (62-561) 8102257 Telp: (62) 8997430892 / (62-431) 8820390 Email: [email protected] Email: [email protected]
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